Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Good afternoon for our audience worldwide, Welcome to the program,
Speaker 2: a special edition of Bloomberg Surveillance on a Federal Reserve decision.
Speaker 2: The decision as follows, a fifty basis point cut with
Speaker 2: a sprinkle of descent. Your ecory market on the S
Speaker 2: and P five hundreds still just about firmer. But rolling
Speaker 2: over in that news conference, we're now firmer by just
Speaker 2: a quarter of one percent on a Russell, still elevated
Speaker 2: up by more than one full percentage point straight out
Speaker 2: of the gate in that news conference. Framing policy recalibration
Speaker 2: something he said multiple times, a process that evolves over time.
Speaker 2: Take a listen to what the Chairman had to say
Speaker 2: on the path forward.
Speaker 3: I do not think that anyone should look at this
Speaker 3: and say, oh, this is the new pace. You know,
Speaker 3: you have to have to think about it in terms
Speaker 3: of the base case. Of course, what happens will happen.
Speaker 3: In the base case. What you see is look at
Speaker 3: the SEP. You see cuts moving along. The sense of
Speaker 3: this is we're recalibrating policy down over time to a
Speaker 3: more neutral level, and we're moving at the pace that
Speaker 3: we think is.
Speaker 2: Appropriate recalibration on repeat, Lisa looking forward to meeting by mating,
Speaker 2: this is not the new pace. That's something he puts
Speaker 2: some weights on, some emphasis in that news conference.
Speaker 1: And if you were basically judging his news conference based
Speaker 1: on the stock reaction, there's a little wobble after that statement,
Speaker 1: and even more of a wabble after you really addressed
Speaker 1: the idea of a neutral race. He told it a
Speaker 1: sense of neutral, whatever that may be. And he said
Speaker 1: that my own sense is we're not going back to
Speaker 1: that nehru time or that negative rate, very low rate time.
Speaker 1: Neutral rate is probably much higher. You saw a reaction there,
Speaker 1: but then people shook it off and said, hey, he's
Speaker 1: got our back.
Speaker 4: I look, John, I strapped a fibonacci across this, and
Speaker 4: from where we were to the midpoint of the pandemic
Speaker 4: low is two and seven eighths. He is correct. It's
Speaker 4: just a nudge in the distance to travel just to
Speaker 4: get back to the midpoint.
Speaker 5: Call it normal.
Speaker 4: It's a lot longer than the job owning in the
Speaker 4: press conference that we just saw.
Speaker 2: We're lucky to have Mohammad alongside us. He won't say
Speaker 2: mission accomplished. He refused to say in this news conference,
Speaker 2: But we've got to ask, isn't it implied?
Speaker 6: Listen to this.
Speaker 2: The labor market conditions are pretty close to maximum employment.
Speaker 2: Retail sales GDPs show the economy is growing at a
Speaker 2: solid pace. We're not seeing rising layoffs or hearing it
Speaker 2: from companies. It's time to support the labor market when
Speaker 2: it's strong. That's what we're trying to do. Is that
Speaker 2: mission accomplished? Isn't it implied?
Speaker 7: Yeah?
Speaker 6: I mean Jason Furman put it as well as anybody
Speaker 6: can when he said if you look at the projection,
Speaker 6: and now if you listen to his statement, it is
Speaker 6: and I'm quoting him, just about the closest thing to
Speaker 6: mission accomplished banner that you can imagine them unfiling. So
Speaker 6: I think it is the hard thing for Power is
Speaker 6: that we're not just recalibrating policy. We're recalibrating what we
Speaker 6: mean by a fifty basis point cut. You don't start
Speaker 6: a fifty basis point cycle with a fifty basis point
Speaker 6: cut and say at the same time, the economy is
Speaker 6: in good place. And that's what he had to navigate
Speaker 6: all the time. If the economy is in a good place,
Speaker 6: why are starting with fifty basis points? And it was
Speaker 6: harder for him to reconcile it too, because he didn't
Speaker 6: want to acknowledge that keeping weights unchanged in July was
Speaker 6: a mistake. So that's the tension that played throughout the
Speaker 6: press conference.
Speaker 2: He did mention that if they had that Job's report
Speaker 2: before that mating in July, that maybe they would have
Speaker 2: gone twenty five at that mate, take what did you
Speaker 2: make of that?
Speaker 1: I made of that this idea that what does he
Speaker 1: mean about the totality of data? And he didn't talk
Speaker 1: about data dependency in quite the same way when he started.
Speaker 1: When he was asked by our own Michael McKee about
Speaker 1: what he was looking for and how much he seems
Speaker 1: to be reconciling something, he didn't have a real clear
Speaker 1: view on that. What is the data we're looking at now?
Speaker 1: Is it basically revisions to the jobs numbers that we're getting,
Speaker 1: as well as potentially the Beige Book.
Speaker 2: You've said this a few times. Revisions seems to be
Speaker 2: more weight now in revisions, and I think over the
Speaker 2: last few news conferences now he's basically said, whatever payrolls is,
Speaker 2: he thinks he's overstating jobs growth in this country, which.
Speaker 1: Has been just the truth over the past couple of
Speaker 1: months and frankly more than a year. Typically, when you
Speaker 1: get a weakening labor market, the data that you get
Speaker 1: initially is stronger than what you get on the revisions downward.
Speaker 1: But just to build the idea of mission accomplished, he
Speaker 1: kept saying that the only reason he could really make
Speaker 1: a commitment to fifty basis points is we are committed
Speaker 1: to coming up with a good outcome. He came up
Speaker 1: with lots of He went to the thesaurus of outsoft landing,
Speaker 1: but that was really where he was heading.
Speaker 2: Joining us now to discuss the continue the conversation built
Speaker 2: down to be the former New York Fed president and
Speaker 2: Bloomberg Economics senior advisor, billing your piece before this decision
Speaker 2: on Bloomberg opinion, you said the Fed should go big.
Speaker 2: Now I think it will it did. What did you
Speaker 2: think of what you heard this afternoon?
Speaker 7: It's pretty much what I was expecting in the sense
Speaker 7: that one of the issues that Paul had is how
Speaker 7: do you two fifty without scaring people that you know
Speaker 7: something bad about the economy? And I think he did
Speaker 7: that very well. He basically said we're doing this because
Speaker 7: the news is good. We've made progress on inflation, as
Speaker 7: opposed we're doing this because the news is bad. So
Speaker 7: I thought it was a very uh, you know, providing
Speaker 7: reassurance to people that thinks that they've they've got it.
Speaker 7: You also, you know, when he's asked about, you know,
Speaker 7: the Sam rule and the risks that the unemployment rate
Speaker 7: could go up by quite a bit, more pretty reassuring
Speaker 7: on that. You know, thinks that the labyer market can
Speaker 7: stabilize close to where we are today, and that's really
Speaker 7: hugely important because you know, if the layer of market
Speaker 7: doesn't stabilize, then we will have them out recession and
Speaker 7: then the FED will have to ease a lot more So,
Speaker 7: I thought the general tone of the of the press
Speaker 7: conference and the statement was we've got that, We've got it.
Speaker 4: Bill. Congratulations your essay today. You think you were one
Speaker 4: of the Fed whispers everybody's talking about out there right now.
Speaker 4: Bill Dudley, I look at where we are and where
Speaker 4: we're heading, and it simply comes down to the strength
Speaker 4: of the American economy. Forgetting about the theater of recession.
Speaker 4: Where does GDP settle, whether real GDP or nominal GDP.
Speaker 4: How do you envision that in a year or even
Speaker 4: two years.
Speaker 7: I think if you look at the Fed's forecast and
Speaker 7: look at how that growth affects the unemploying rate, the
Speaker 7: FED thinks that, you know, growth in the medium term
Speaker 7: is going to be two percent two percent plus at
Speaker 7: annual which rates. So and that's sort of what we're
Speaker 7: doing right now. So you know, the FED got a
Speaker 7: sort of soft landing in place. If the commy continues
Speaker 7: to growth at the same pace as it's doing right now,
Speaker 7: the unemploying rate will stay relatively stable. You know, you
Speaker 7: saw in the Summary of Economic Projections, the FED shows
Speaker 7: a modest, very modest, further increase in the unemploying rate
Speaker 7: of from four point two today to four point four percent,
Speaker 7: but you know, nothing beyond that. So it's sort of
Speaker 7: a soft you know, if you look at their forecast,
Speaker 7: it's a soft landing kind of story, and you know,
Speaker 7: I hope they could pull it off.
Speaker 1: Right now, the stock market and the bod market are
Speaker 1: trying to understand what the reaction function of the Federal
Speaker 1: Reserve actually is and to which data they're going to
Speaker 1: look at. It seemed like there was a renewed focus
Speaker 1: on both jobs revisions as well as the Beige Book,
Speaker 1: which was the input to potentially some of the heavier
Speaker 1: weight on fifty basis points. Do you view that now
Speaker 1: so as sort of these data points is taking on
Speaker 1: outsized importance.
Speaker 7: I think they are more focused on the liver market
Speaker 7: because there has been deterioration in the labor market. I
Speaker 7: think there are much more confident than inflation is going
Speaker 7: to continue to come down because they've seen more slack
Speaker 7: in the economy and the labor market. They've seen inflation
Speaker 7: progress that we've already had, they've seen wage inflation moderating.
Speaker 7: So I think their concerns are very much on the
Speaker 7: labor market side.
Speaker 8: So when I'm looking at the economic data right now,
Speaker 8: I'm focused on the liver market data, and that will
Speaker 8: determine whether, you know, we just get continued at a
Speaker 8: relatively modest pace after this the twenty five basis point reductions,
Speaker 8: which is essentially what was implied in the summary of
Speaker 8: economic projections, or whether they'll become more concerned about downside
Speaker 8: risk and then we'll have to get thrown a few fifties.
Speaker 7: Bill.
Speaker 6: Congratulations both on what you said they should do. And
Speaker 6: what you said they would do. And part of your
Speaker 6: argument was on the unemployment rate. So I want to
Speaker 6: go back to that. There revision up to four point
Speaker 6: four percent by the end of this year, stays at
Speaker 6: four point four percent at the end of twenty twenty five.
Speaker 6: Are you comfortable that we can stabilize here without the
Speaker 6: tipping points that you were so worried about.
Speaker 7: That's well, we're going to find out over the next year.
Speaker 7: I mean, the somils are very simple, you know, tells
Speaker 7: us a very simple story. When the unemployment rises beyond
Speaker 7: a certain threshold, the next stop is a full long recession.
Speaker 7: The question is what's the right threshold. Historically, the Sambrell
Speaker 7: threshold has been a half a point rise in the
Speaker 7: unemploying rate on a three month moving average basis over
Speaker 7: the over twelve period. And we've already pierced that threshold.
Speaker 7: So you have to believe that, you know, there is
Speaker 7: some risk here. You know, Paul was asked about the
Speaker 7: risk and you know, downside risk to the labor market,
Speaker 7: and you sort of, you know, mostly dismissed that. But
Speaker 7: I do think that I actually do think the risks
Speaker 7: are you know, maybe at best they're balanced, But I
Speaker 7: would actually be more concerned about the downside risk to
Speaker 7: the labor market now than thee risk to inflation.
Speaker 2: Bill, You'll always find a politician that's unhappy. I found one,
Speaker 2: Senator Warren. This kind of interest rates has yet another
Speaker 2: acknowledgement that power waited too long to reduce interest rates.
Speaker 2: I do think the politics are relevant here. November seventh
Speaker 2: will be the next meeting. We might have a decision
Speaker 2: in hand by the American public as to who they'd
Speaker 2: like the next president of the United States to be.
Speaker 2: We might know the makeup of Congress as well. We
Speaker 2: might have a better idea of what policy looks like
Speaker 2: in twenty twenty five.
Speaker 5: Bill, you've lift this.
Speaker 2: You were on the FMC back in twenty sixteen, I believe,
Speaker 2: can you walk me through your experience back then and
Speaker 2: whether the same applies this time around.
Speaker 7: I would be very surprised that the election outcome affected
Speaker 7: what the FED does over the near term, because you know,
Speaker 7: an election outcome is one thing, but what that incoming
Speaker 7: president will be able to do with you know, as
Speaker 7: closely divided Congress, Congress remains very uncertain, and so I
Speaker 7: think the FED reacts to the world as it is
Speaker 7: as opposed to speculates about how the world could be.
Speaker 7: So I would be I would be very surprised if
Speaker 7: the Fed doesn't cut rates at the November meeting. I mean,
Speaker 7: if they don't cut rates of the November meeting, it's
Speaker 7: because the economy is bounced back and very strong, or
Speaker 7: the inflation news is really bad between now and then,
Speaker 7: and that's not something I expect at this point. I
Speaker 7: don't think that Powell expects it. I think, you know,
Speaker 7: the odds of a twenty five basic point rate cut
Speaker 7: in November are very very high, and if the economy shows,
Speaker 7: you know, more weakness than maybe even fifty basis points.
Speaker 2: I bill appreciate it as always built upley of Bloomberg
Speaker 2: opinion the Fed should go big now I think it will.
Speaker 2: It did it did about an hour and thirty minutes ago.
Speaker 2: Let's bring Gid Michael McKee. He was in the news conference.
Speaker 2: Mike McKee, I want your thoughts on that press conference
Speaker 2: where there was a little bit of tension for you.
Speaker 2: How did you walk out of this one?
Speaker 9: Well, I don't think there was a huge amount of tension,
Speaker 9: except for the fact that as you were just talking
Speaker 9: about with Bill Dudley the idea that there is probably
Speaker 9: more risk to the labor department, to the labor market
Speaker 9: than the FED is letting on. And that's the concern.
Speaker 9: And to get to my question at Lisa mentioned the
Speaker 9: FED was data dependent until they were confident that inflation.
Speaker 6: Was going to be down to target.
Speaker 9: But how can they be data dependent on the unemployment rate?
Speaker 9: We don't know what it's going to be, and as
Speaker 9: Bill suggested, it could go up rapidly. Do we get
Speaker 9: a rapid response then, especially since policy works with a lag,
Speaker 9: it's a little unclear what their reaction function is going
Speaker 9: to be going forward.
Speaker 2: Might looking forward to catching up with you tomorrow. Lots
Speaker 2: to talk about plenty more data just in the next
Speaker 2: week or so. Equities right now on the SMP Lisa
Speaker 2: firma by four tenths of one percent, the unperformance on
Speaker 2: the small camps that you might expect.
Speaker 1: Yeah, and the Fed basically gave this market what it
Speaker 1: was looking for, and then some a question now of
Speaker 1: just how much this market has moved ahead of what
Speaker 1: the Fed has said. Mohammed, I would love your thoughts
Speaker 1: on what the new data dependency actually is given the
Speaker 1: fact that people are looking for a litmus test to
Speaker 1: understand what the reaction function is of a FED. That
Speaker 1: kind of is playing with what they get, which is
Speaker 1: the same lack of clarity that we have.
Speaker 6: Yeah, I think the data dependence all comes down to
Speaker 6: the labor market, and he went through in detail a
Speaker 6: number of indicators he looks at and when he says
Speaker 6: the totality of the data, I think he really means
Speaker 6: it when it comes to the labor market. Lisa, I'm
Speaker 6: surprised you haven't picked up on the fixed income market
Speaker 6: and what has happened to treasuries that they're now higher
Speaker 6: on the day. There's been quite a move when this
Speaker 6: statement was announced. The tenure went down to three sixty
Speaker 6: four is currently trading at three seventy.
Speaker 2: It's up six spaces points space. What do you think
Speaker 2: that is?
Speaker 6: I think they some and the curve has steepened. Two
Speaker 6: stands are now nine basis points. I think there is
Speaker 6: some concern as what does it mean longer term for inflation.
Speaker 6: That's the only thing I can think of. But the
Speaker 6: action has been really interesting, and once again you end
Speaker 6: up in a different place after the press conference than
Speaker 6: you wear after the statement.
Speaker 4: Yes, no question about that I think of David Kelly
Speaker 4: is JP Morgan. You know John, He's been very good
Speaker 4: about a vector of nonfirm payrolls that gets you to
Speaker 4: a negative statistic three month moving average about one hundred
Speaker 4: and sixteen thousand. Nobody's modeling in here if this job
Speaker 4: economy USANA one talks about continues to deteriorate.
Speaker 2: So what are we saying here, Muhammed, We're willing to
Speaker 2: accept three the high twos, or we're worried about going
Speaker 2: back to three point five push in four? What's the
Speaker 2: story here?
Speaker 6: So we cannot answer that story without bringing in fiscal policy,
Speaker 6: without bringing in structural reforms. I mean, that's the trap
Speaker 6: we have all fallen into. That we still think of
Speaker 6: the FED is the only game in town. But does
Speaker 6: other things happening that that speak to? What is that weight?
Speaker 6: And that's why the wage is so wide?
Speaker 1: You brought this up actually when j Powell said this
Speaker 1: over time and we're going to get down to two
Speaker 1: percent over time, it raises this question, especially as he
Speaker 1: talks about not mission accomplished but sort of you know,
Speaker 1: wishing to wash plist.
Speaker 5: But this idea that we could I'm going to ask
Speaker 5: you to say that again.
Speaker 1: Please, but this idea that you know, he's so excited
Speaker 1: about the idea of a soft landing that it will okay,
Speaker 1: it's okay for it to take a number of years
Speaker 1: to get back to that two percent target.
Speaker 6: And that's in the projections. I'm going to have him
Speaker 6: in front of me, he said, co PC Right now,
Speaker 6: it's two point seven. They're projected at two point six
Speaker 6: at the end of this year, two point two at
Speaker 6: then of next year, and two by twenty twenty six.
Speaker 6: We basically pushed back the target.
Speaker 4: I like what you said about mission accomplish, and it's
Speaker 4: this terror of getting this wrong, whether you're a governor
Speaker 4: or president. Chairman. Jason Furman out teaching AC ten up
Speaker 4: at Harvard and he was lectured by his daughter John.
Speaker 4: We got a tweet out from Jason Furman where his
Speaker 4: daughter walked in and said to Professor Furman, you were wrong.
Speaker 4: There's a lot of that going on right now.
Speaker 2: A lot of people were wrong. I think we should
Speaker 2: pointing this out. The market was priced for something closer
Speaker 2: to fifty than twenty five. The overwhelming majority of economists
Speaker 2: in our survey, and we surveyed more than one hundred
Speaker 2: not even ten percent of them saw fifty. So shout
Speaker 2: out Mike Faroli over a JP Morgan, one of the
Speaker 2: very few together without a one guy belief over at
Speaker 2: Bloomberg Economics, who we're looking for that fifty today.
Speaker 6: Yeah.
Speaker 1: Deutsche Back actually did an informal survey also that they
Speaker 1: put out today, and something like sixty one percent roughly
Speaker 1: and plus remnus a half a percent came out saying
Speaker 1: that it was twenty five basis points. So this really
Speaker 1: was kind of on the back foot.
Speaker 4: I kept it quiet. Nobody cares what they think, but
Speaker 4: the fact is I was wrong.
Speaker 2: Jeff Rosenberger black Rock joins us now for more. He
Speaker 2: wasn't wrong if you were waiting impatiently to give us
Speaker 2: his views on this. Jeff, let's talk about the bond market,
Speaker 2: and you can throw in your thoughts on this Federal Reserve.
Speaker 2: To say, the projections in the news conference as well,
Speaker 2: the botmarket's sunning golf. The thirty years up seven basis points,
Speaker 2: the ten year is up six. What do you think
Speaker 2: that signal was?
Speaker 5: Jeff?
Speaker 10: Yeah, I think the important point here is that there's
Speaker 10: the action and the fifty basis points, and then there's
Speaker 10: the expectation and what was priced in. And so while
Speaker 10: the bond market was leaning towards the fifty basis points,
Speaker 10: it was really more about that segment Jonathan of the
Speaker 10: press conference that you highlighted.
Speaker 5: I had it written in my.
Speaker 10: Notes as well, the interchange where Powell said, you know,
Speaker 10: don't take that fifty basis points as the new you
Speaker 10: know pace, and he pushed back against you know, this
Speaker 10: is going to be followed by he got several questions
Speaker 10: on more fifties the problem, and I think to I
Speaker 10: answer a bit of Muhammad's question, your question to Muhammad
Speaker 10: and that interchange is that the bond market was pricing
Speaker 10: in more subsequent fifties and into twenty twenty five still
Speaker 10: is pricing in bigger increases than what you're getting in
Speaker 10: the sep and Powell and the press conference really pushed
Speaker 10: back against that.
Speaker 5: So I think you have two things going on.
Speaker 10: I'm very amenable to Mohammad and Lisa's comments that you know,
Speaker 10: maybe this is a little bit of a sign of
Speaker 10: inflation and some of those concerns what you're seeing in gold,
Speaker 10: but it's also I think in the immediacy this is
Speaker 10: a little bit disappointing relative to what's been built up
Speaker 10: in bond expectations, and that from a broader perspective is
Speaker 10: really an important point from an investment perspective that you
Speaker 10: can have.
Speaker 5: Here's the headline.
Speaker 10: Fed cuts interest rates by fifty basis points and the
Speaker 10: bond market returns are going to be negative today. So
Speaker 10: it's not just you know, the action I can anticipate,
Speaker 10: you know, the fence cutting rates.
Speaker 5: It's time to back up the truck in terms of duration.
Speaker 10: The problem is it's also a lot in the price,
Speaker 10: so they've got to over deliver, and they didn't do
Speaker 10: that relative to bond expectations. And that's why I think
Speaker 10: you're seeing a little bit of that disappointment out of
Speaker 10: fixed income markets and they're read on today's decision.
Speaker 1: Jeff Muhammad scolded me because frankly, I wasn't paying enough
Speaker 1: attention to the bond market. The bond market is speaking,
Speaker 1: and the ten year note is speaking, and what it
Speaker 1: is saying is it at least has a higher yield.
Speaker 1: But we are speaking to the bond market right now.
Speaker 1: Jeff Rosenberg, what is your reaction function? Does this make
Speaker 1: you less interested on the margins in buying ten year
Speaker 1: or twenty year or thirty year treasuries.
Speaker 10: Yeah, you know, I've said in lots of different context
Speaker 10: with you guys that you have to just be careful
Speaker 10: about where you want to own your fixed income, that
Speaker 10: the yield curve move can be more important, more determinant
Speaker 10: to your fixed income returns than just the direction of
Speaker 10: interest rates. A lot of times we just think about,
Speaker 10: you want to own bonds when rates are going down
Speaker 10: when the fed's cutting. You don't want to own bonds
Speaker 10: when they're hiking. But because the curve is so flat.
Speaker 5: We're off the peak of inversions.
Speaker 10: But it's still a historic lack of premium in that
Speaker 10: back end of the curve. That where you hold your
Speaker 10: duration is going to matter as much as how much
Speaker 10: duration you hold. So it's still that story for me.
Speaker 10: It's still the front end is a little bit better
Speaker 10: five years and in you want to be careful about
Speaker 10: that term premium. And the other thing that I'm highlighting
Speaker 10: here today is you just got to be careful about
Speaker 10: how much is.
Speaker 5: Already priced in.
Speaker 10: This is unique about the beginning of a FED cutting cycle.
Speaker 10: We're about twice the amount of expected cuts priced at
Speaker 10: the onset.
Speaker 5: This was John Otter's article.
Speaker 10: In Bloomberg, he highlighted this, it's a great chart, about
Speaker 10: twice the amount of historic FED pricing about over two
Speaker 10: and a half over two one hundred basis points, whereas
Speaker 10: historically you come in and there's only about one hundred
Speaker 10: basis points, so a lot is expected. It raises the
Speaker 10: bar for subsequent fixed income performance. We've had a great run,
Speaker 10: but that tells you a lot of the performances in
Speaker 10: the rear view mirror, and so you got to be
Speaker 10: more thoughtful about where you own that duration around the
Speaker 10: curve when we look forward.
Speaker 1: Does it give you more confidence though to go into risk?
Speaker 10: Jeff, Well, you know, I think the FED did its best.
Speaker 10: And that was the interchange you just had with Dudley
Speaker 10: the press conference.
Speaker 5: Channel lenge was.
Speaker 10: Give fifty without spooking the market. I think they're successful
Speaker 10: today in there. That's the response in terms of small caps.
Speaker 10: You only buy small caps when the fence cutting rates,
Speaker 10: when you believe in the soft landing and the denominator effect,
Speaker 10: the discount rate is dominating, you know, any of your
Speaker 10: concerns in terms of growth.
Speaker 5: So I think they navigated that pretty well.
Speaker 10: I think when you go forward, you know it is
Speaker 10: a soft landing baseline. I think that's exactly what the
Speaker 10: SEP is saying. When you look at all of the
Speaker 10: other economic data outside of the labor market data, you know,
Speaker 10: it's all very good. It's all very supportive for risky
Speaker 10: assets and the fixed income side. That's a carry story.
Speaker 10: We're pretty comfortable with that. You got to be a
Speaker 10: little bit careful that it's a symmetric that a very
Speaker 10: tight spreads any sign of recession.
Speaker 5: And I don't think we're really seeing.
Speaker 10: The recessionary signs out of the labor markets, but you
Speaker 10: have to be cogniz of it that that is the
Speaker 10: one place where you're seeing some weakness.
Speaker 5: But I think this is still supportive to risky assets.
Speaker 2: It just quickly Jeff November seventh, how different is that
Speaker 2: committee meeting going to be compared to this one?
Speaker 10: Well, you know, as you pointed out, you know you're
Speaker 10: coming on the back side of the election. But you know,
Speaker 10: as Powell answered, they're going to try to avoid any
Speaker 10: kind of discussion on that. It's really going to be
Speaker 10: about the evolution of the data. You know, the interesting
Speaker 10: data point in terms of revisions. You know, we talk
Speaker 10: about data dependence The problem is that data we're dependent
Speaker 10: on is not very dependable.
Speaker 5: Try that out slowly.
Speaker 10: But that's the payroll data, right, and so the revisions
Speaker 10: are going to be important.
Speaker 5: We're going to have another one that's going.
Speaker 10: To dictate a lot of the discussion without a deceleration.
Speaker 10: I don't think you're going to be talking about fifties,
Speaker 10: but they've clearly laid the groundwork here for a twenty
Speaker 10: five in November, twenty five in December. That's what I
Speaker 10: think is will price back into the bond market. That's
Speaker 10: why you're seeing a little bit higher rates. If they
Speaker 10: deliver on that, then there won't be as much surprise
Speaker 10: or anticipation as we had in this meeting.
Speaker 6: So Jeff, let me ask the question that I suspect
Speaker 6: you hate being asked. And let's assume that you're being
Speaker 6: asked for a retail investor sixty forty simple portfolio. What
Speaker 6: should they do now given everything you've.
Speaker 10: Just said, Yeah, I mean, the part of this discussion
Speaker 10: around the forty, around the fixed income piece, Mohammed is
Speaker 10: is that it's not the old sixty forty. It's not
Speaker 10: this era where bond volatility is three percent. Bond volatility
Speaker 10: is six to eight percent in the post COVID environment.
Speaker 10: So the forty side is really where we've got to
Speaker 10: do some rethinking, and that's where we talk about.
Speaker 5: Diversifying your diversifiers.
Speaker 10: Thinking about different ways of finding ballast in your portfolio
Speaker 10: because of the uncertainty of how duration and risk free
Speaker 10: rates are going to perform in a more inflation uncertain environment.
Speaker 10: That's the points about the yield curve and what's already
Speaker 10: priced in. So I think in that sixty forty it's
Speaker 10: really about, you know, using different ways to find diversification
Speaker 10: and diversifying that forty bucket away from kind of just
Speaker 10: piling into traditional duration.
Speaker 6: Did I hear you say a more inflation uncertain environment?
Speaker 5: That is what I said.
Speaker 6: Yes, I don't think that's what Pole thinks.
Speaker 10: There's greater confidence that inflation is on a path to
Speaker 10: returning to two percent, but we're not at two percent
Speaker 10: and that path, as we saw in the interchange, the
Speaker 10: shelter inflation, the uncertainty around how far we're going, and
Speaker 10: the wage inflation picture. Right, there's a lot of confidence
Speaker 10: that we're moving towards there, but we're not quite there yet.
Speaker 10: That's the point about a more uncertain inflationary environment, and
Speaker 10: with respect to kind of negative stockbond correlation, which is
Speaker 10: really the.
Speaker 5: Driver of the sixty forty part.
Speaker 10: The challenge is that was really working well in your
Speaker 10: portfolio when inflation was missing from below. Inflation is still
Speaker 10: missing from above, and until you get back to the
Speaker 10: period where we have too little inflation, you're not really
Speaker 10: back to that halcyon days of fixed income in sixty forty.
Speaker 2: Jeff, this was perfect. Thank you, sir, Jeff Rosenberg. There
Speaker 2: of black rock on the Federal Reserve decision. If you
Speaker 2: are just joining us, welcome to the program. It's a
Speaker 2: fifty basis point CUD from the Federal Reserve with some descent,
Speaker 2: the first descent we've seen from a sitting governor on
Speaker 2: the FMC going all the way back to two thousand
Speaker 2: and five Governor Mickey Bowman. Not a surprise for many
Speaker 2: of you who's followed some of those speeches over the
Speaker 2: last month or so. If you're looking at the equity market,
Speaker 2: just about just about attempting to hold on to an
Speaker 2: eighth day of gains on a S and P five hundred,
Speaker 2: and it's a struggle. We turned slightly negative on the
Speaker 2: SMP on the NASNAK one hundred, we're negative by zero
Speaker 2: point zero five percent. Mohammed, just a final thought what
Speaker 2: I heard from you, then, if you have any confidence
Speaker 2: the inflation story is done, that we're on a one
Speaker 2: way trip now back to neutral, which might be around
Speaker 2: three percent, are you suggesting that confidence might be misplaced?
Speaker 6: I think it's too early to declare mission accomplished. We've
Speaker 6: come a long way, but their inherent contradiction that still
Speaker 6: have to be sorted. John, this was historic. I mean,
Speaker 6: we're going to look back on this day not only
Speaker 6: as the beginning of the cutting cycle, but as having
Speaker 6: we calibrated what we mean by fifty basis point start
Speaker 6: to a cutting cycle. And we're going to look back
Speaker 6: and either this will be the absolutely white bet, which
Speaker 6: is be preemptive on the labor market after you were
Speaker 6: reactive to inflation this is a fundamental change in their
Speaker 6: reaction function. Or alternatively, we will look at this as
Speaker 6: being too aggressive. I'm hoping that it will be the first,
Speaker 6: because we all want the labor market to do well.
Speaker 1: Of course, Michael B. Key asked for about being preemptive,
Speaker 1: and he said data dependency or the totality of data
Speaker 1: My big issue coming out of this is do we
Speaker 1: understand the fed's reaction function more or do we understand
Speaker 1: it less than we did before.
Speaker 2: I think we've got a lot of questions that still
Speaker 2: demand answers, and hopefully we'll get them over the next
Speaker 2: few weeks, but I doubt it once that data starts
Speaker 2: to come in. I'm looking forward to hearing from the
Speaker 2: rest of the committee, aren't you. Oh yeah, over the
Speaker 2: next few days.
Speaker 1: It's quiet a sense.
Speaker 2: Yeah, let's just see how close some of them were
Speaker 2: to actually gun twenty five, not the fifty Mohammed Thank you,