WEBVTT - The Fed, Space, Abortion, Energy, and Marijuana (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.119 at Bloomberg dot com slash podcast. A couple of my 0:00:22.160 --> 0:00:24.759 favorite people just walking the studio. No, I mean it's 0:00:24.800 --> 0:00:27.280 this is this is killer. I mean for Bloomberg Markets. 0:00:27.360 --> 0:00:29.800 I think this panel tops all panels that we've had 0:00:29.840 --> 0:00:33.239 in terms of I'm excited. We have Neil Grossman in 0:00:33.280 --> 0:00:36.080 the studio, one of my best friends, I'll say, and 0:00:36.159 --> 0:00:38.000 also the co founder and former c IO of t 0:00:38.159 --> 0:00:42.080 k n G Capital Markets. Um, we've been talking about 0:00:42.520 --> 0:00:47.080 the FED and rates for I don't know twenty years now. Um. 0:00:47.159 --> 0:00:50.519 Daniel D. Martino Booth just uh walked in the studio 0:00:50.720 --> 0:00:54.000 from Quill Investment Strategy. He also used to uh sorry, 0:00:54.040 --> 0:00:58.360 Quill Intelligence. She also used to advise the Federal Bank 0:00:58.720 --> 0:01:01.680 Federal Reserve Bank of Dallas, and her book on the 0:01:01.680 --> 0:01:04.280 FED is one of my favorite titles, called fed Up. Yes. 0:01:04.440 --> 0:01:06.440 So when you say we love the FED. We love 0:01:06.520 --> 0:01:08.720 talking about the FED. We might not love the FED. 0:01:08.959 --> 0:01:12.280 We're not telling you how we feel personally emotionally about 0:01:12.280 --> 0:01:15.800 the Federal Reserve. And Priamisra. She was a long time 0:01:16.440 --> 0:01:20.160 UH guest, a regular guest on Bloomberg Rewind, which I'm 0:01:20.200 --> 0:01:22.760 gonna say is probably one of the top three shows 0:01:22.760 --> 0:01:26.120 that Bloomberg has ever produced television shows, and it's great 0:01:26.160 --> 0:01:28.199 to have her here. She's the managing director and global 0:01:28.240 --> 0:01:33.680 head of rate strategy for t D Securities. All right, guys, um, 0:01:33.720 --> 0:01:35.640 what do we expect Danie? I'll start with you, what 0:01:35.640 --> 0:01:40.360 do we expect from j Powell today? Obviously fifty basis points? 0:01:40.680 --> 0:01:43.920 But what is he gonna say about the path forward, 0:01:44.360 --> 0:01:47.560 um after after the rate decision. So I think what's 0:01:47.560 --> 0:01:52.160 critical to focus on is if Powell UH sites year 0:01:52.320 --> 0:01:57.200 over year inflation as opposed to the dissipation in monthly 0:01:57.320 --> 0:01:59.960 increases in inflation, one of them is going to get 0:02:00.120 --> 0:02:04.960 him license to say, we've got to get rates higher, 0:02:05.000 --> 0:02:07.880 and we've got to keep and maintain them until we 0:02:07.960 --> 0:02:11.080 see this year over year pace come down. If he emphasizes, 0:02:11.240 --> 0:02:13.359 you know the fact that he's seen in his core 0:02:13.800 --> 0:02:18.800 services X shelter absolutely favorite inflation metric that that itself 0:02:18.880 --> 0:02:21.280 is coming down and coming down quickly over the last 0:02:21.280 --> 0:02:24.320 three months. I think markets will love him. I love it. 0:02:25.360 --> 0:02:28.240 You know, when you think about this Federal Reserve this year, 0:02:28.840 --> 0:02:32.200 you know, just been very aggressively raising rates. As you 0:02:32.320 --> 0:02:35.960 look back on this year, what's your view of the Fed? 0:02:36.360 --> 0:02:38.720 Have they gone far enough fast enough? Have they are 0:02:38.720 --> 0:02:41.840 they still behind? What have they done? What have they done? 0:02:41.840 --> 0:02:43.600 And when you talk to institutional clients, what do they 0:02:43.639 --> 0:02:47.320 tell you. I mean, there's a lot of frustration on 0:02:47.440 --> 0:02:50.519 the FED. I think the reaction function changed multiple times 0:02:50.520 --> 0:02:52.800 this year. I mean I think that you know, was 0:02:52.840 --> 0:02:55.919 that a credibility issue with the Fed at the start 0:02:55.919 --> 0:02:58.360 of the year, the start of the hiking cycle, and 0:02:58.440 --> 0:03:01.120 I know front looading was their favorite word for six months. 0:03:01.160 --> 0:03:03.720 I think it was a catch up trade um where 0:03:03.720 --> 0:03:06.080 they were, you know, really trying to catch up for 0:03:06.120 --> 0:03:09.000 the fact that they started late. I think the question 0:03:09.040 --> 0:03:11.880 now is the threshold. The threshold to slow down the 0:03:11.919 --> 0:03:15.400 pace of hikes is different from the threshold to stop hiking, 0:03:15.960 --> 0:03:18.400 and it's very different from the threshold to ease. And 0:03:18.440 --> 0:03:21.040 the market is trying to figure out what these thresholds 0:03:21.080 --> 0:03:23.240 are now to your question, have they gone too far? 0:03:23.320 --> 0:03:25.720 I think on rate hikes, our view is they may 0:03:25.760 --> 0:03:28.120 actually go more than what the markets pricing in at 0:03:28.120 --> 0:03:29.919 the end of the day, because I think inflation is 0:03:29.919 --> 0:03:32.560 going to be particularly cost services a little sticky on 0:03:32.600 --> 0:03:34.079 the way down. So I think they may have more 0:03:34.120 --> 0:03:36.120 to do. Where I think they've overdone it is on 0:03:36.320 --> 0:03:38.880 QT and they don't talk much about it, but it's 0:03:39.080 --> 0:03:41.440 you know, it's the reason why long and real rates 0:03:41.440 --> 0:03:44.200 have risen. I think that's slowing the economy down. We 0:03:44.240 --> 0:03:46.840 think a recession is almost a done deal at this 0:03:46.920 --> 0:03:50.240 point in twenty three, so they've done a lot um. 0:03:50.280 --> 0:03:51.960 I think they have a little bit more to do, 0:03:52.240 --> 0:03:54.040 and then it's going to be really tricky for them 0:03:54.080 --> 0:03:55.760 next year. So some of the frustration with the FAT 0:03:55.840 --> 0:03:58.200 I think remains next year because we're gonna look for 0:03:58.240 --> 0:03:59.960 the FAT two ease and I think they're going to 0:04:00.080 --> 0:04:03.160 struggling to ease with inflation still high. Next, speaking of 0:04:03.200 --> 0:04:05.800 frustration with the FED, let me bring a Neil Grossman here, 0:04:05.960 --> 0:04:09.360 and first let me say you've got to differentiate between 0:04:09.720 --> 0:04:11.760 how you feel about the FED, with the FED should 0:04:11.760 --> 0:04:14.600 be doing in your take, and what you expect the 0:04:14.680 --> 0:04:17.520 fed actually to do. Oh, you're right, I am very 0:04:17.560 --> 0:04:21.920 fed up. And then a couple of things. First of all, 0:04:22.279 --> 0:04:26.520 as you know, I don't think they've been hawkish. Um, 0:04:26.680 --> 0:04:29.159 they've barely done anything in the way they should have 0:04:29.760 --> 0:04:34.280 because I call it, as you know, infinitesimal incrementalism. They 0:04:34.279 --> 0:04:36.760 haven't even done one Vulcan yet, as far as I'm concerned. 0:04:36.839 --> 0:04:41.000 Paul Vulcan raised rates four inter meeting on a weekend. 0:04:41.200 --> 0:04:44.480 That would have been something. And I'm sorry for you, 0:04:44.560 --> 0:04:48.120 but they don't. Haven't done quantitative tightening either. Letting something 0:04:48.160 --> 0:04:52.240 slowly drip drip away after they bought a hundred and 0:04:52.279 --> 0:04:55.400 thirty billion a month for ten years is not tightening. 0:04:56.200 --> 0:04:58.920 So I mean, yes, there are effects, but to be 0:04:58.960 --> 0:05:01.400 honest with you, I would stop tightening now and announced 0:05:01.480 --> 0:05:04.800 this afternoon that I'm going to start selling bonds at 0:05:04.800 --> 0:05:06.640 a clip of fifty to a hundred billion a month. 0:05:06.680 --> 0:05:09.000 That would be effective per se. Now, what what are 0:05:09.000 --> 0:05:10.880 they going to do or not? I'm not going to 0:05:11.040 --> 0:05:13.880 disagree too much other than I think the thing you 0:05:13.920 --> 0:05:18.719 need to watch or consider is the liquidity. I think 0:05:18.720 --> 0:05:24.000 if he focuses on acknowledging financial liquidity is easier now 0:05:24.040 --> 0:05:26.799 that I believe it was in March or very close 0:05:26.880 --> 0:05:30.279 to it. Leaving aside the housing market, but interest rates, 0:05:31.360 --> 0:05:36.000 the dollars weeken ten percent, stocks have risen. I mean, 0:05:36.839 --> 0:05:39.559 the risk here to me is we don't know where 0:05:40.200 --> 0:05:42.200 all this is going to come out of the back end. 0:05:42.279 --> 0:05:44.880 Daniel last time we were on, said clearly, and I 0:05:44.920 --> 0:05:47.800 agree with her, that inflation is coming down. I thought 0:05:47.839 --> 0:05:49.840 it was gonna come a little slower. She's been very right. 0:05:50.560 --> 0:05:52.680 But at some point in the middle of next year, 0:05:52.720 --> 0:05:56.240 the comparisons are going to start to become very easy, 0:05:56.360 --> 0:05:59.640 and we will then settle into where the ambient inflation 0:05:59.760 --> 0:06:03.039 ray is. And if it's three to five, we have 0:06:03.120 --> 0:06:07.400 a problem in and reflating now only raises the possibility 0:06:07.839 --> 0:06:10.240 or likelihood down the road. So I think that's what 0:06:10.320 --> 0:06:12.839 I'd be focused. I'm going to push back as hard 0:06:12.839 --> 0:06:16.839 as I possibly can about quantitative tightening not taking place. Now. 0:06:16.960 --> 0:06:19.719 There's something called the Employee Retention Credit. In the nine 0:06:19.760 --> 0:06:24.440 months through November, it injected a plus billion dollars into 0:06:24.440 --> 0:06:27.480 the economy. So there's still stimulus money running around out 0:06:27.520 --> 0:06:30.599 there that can't take away from the feds H eight 0:06:30.720 --> 0:06:34.159 that's released every Friday, afternoon after the close. It shows 0:06:34.160 --> 0:06:37.240 you one of the broadest measures of money supply in 0:06:37.240 --> 0:06:39.640 a real time week to week on a real time 0:06:39.680 --> 0:06:41.719 week to week basis, because we don't get money supply 0:06:41.760 --> 0:06:45.239 indicators very often and they're lagged. And we've seen six 0:06:45.360 --> 0:06:48.960 consecutive weeks of year over year declines in what we 0:06:49.000 --> 0:06:53.680 call other deposits liabilities. Never, never in the history of 0:06:53.720 --> 0:06:56.599 the United States have we seen six consecutive weeks of 0:06:56.680 --> 0:06:59.600 year over year declines. Try pricing a commercial mortgage back 0:06:59.640 --> 0:07:02.680 secure a spot plus six forty. A lot of things 0:07:02.680 --> 0:07:04.960 are screeching to a halt in terms of financing that 0:07:05.000 --> 0:07:08.360 are beyond residential real estate, but there are other sources 0:07:08.360 --> 0:07:10.440 of liquidity that, of course make it appear that it's 0:07:10.480 --> 0:07:13.520 as abundant as it is. Quantitative tightening is working. I'm 0:07:13.680 --> 0:07:16.200 crossing fingers the second time I've said it public Adday 0:07:16.240 --> 0:07:19.280 Mike McKee asked him if he is going to increase 0:07:20.000 --> 0:07:22.040 treasury roll off to make up for the fact that 0:07:22.080 --> 0:07:24.720 they're so far behind schedule with mortgage backed securities. I 0:07:24.760 --> 0:07:27.280 do look at the FED balance sheet on the Bloomberg 0:07:27.440 --> 0:07:29.360 and it really hasn't come down that much. I know 0:07:29.400 --> 0:07:32.600 you're talking about uh F E D SPACE b A 0:07:32.840 --> 0:07:35.280 l GO, FED boal GO. I know you're talking about 0:07:35.280 --> 0:07:38.480 broader measures, but in terms of the balance sheet, they've 0:07:38.520 --> 0:07:41.200 gone from eight and a half trillion to eight point 0:07:41.280 --> 0:07:43.760 two trillion. It's not a lot, but if you think 0:07:43.800 --> 0:07:48.600 about they're only fifteen billion dollars ten years ago, we're 0:07:48.640 --> 0:07:51.360 going to be at eight more than eight trillion dollars. 0:07:51.800 --> 0:07:53.400 You would have said, no way, we just did that 0:07:53.440 --> 0:07:55.880 for the Great Financial Crisis. We're not gonna do that again. Right. 0:07:55.920 --> 0:07:58.240 We're looking at a stock versus flow thing here, and 0:07:58.280 --> 0:08:00.000 the fact is we're doing it at a much more 0:08:00.000 --> 0:08:03.240 aggressive pace then we've even attempted in two thousand eighteen. 0:08:03.280 --> 0:08:05.480 I'd love to hear thought on this pre you jump in, 0:08:07.280 --> 0:08:10.680 so you know, I think they are doing qt they 0:08:11.760 --> 0:08:14.160 you know, meaning that the balance sheet is slowing, it's 0:08:14.240 --> 0:08:17.720 declining slowly. I mean they've only ramped up in September 0:08:18.080 --> 0:08:21.640 to the full balance sheet gaps on treasuries. I agree 0:08:21.680 --> 0:08:24.320 mortgages are not running off as fast because they're not preeping, 0:08:24.360 --> 0:08:27.000 but look at the mortgage market, look at the housing market. 0:08:27.360 --> 0:08:29.520 I don't think they can sell mbs as a market 0:08:29.520 --> 0:08:32.719 functioning issue. I think there's a market functioning issue in treasuries, 0:08:33.120 --> 0:08:37.320 so extend increasing QT and treasuries will worsen the liquidity 0:08:37.320 --> 0:08:39.920 in the treasury market, which you know, we need this 0:08:40.000 --> 0:08:42.680 market to function if the fixed income market has to 0:08:43.840 --> 0:08:47.240 exist and and price and we have to find price discovery. 0:08:47.360 --> 0:08:49.680 So I think they're doing the max in terms of QT. 0:08:50.120 --> 0:08:53.240 I struggle a little bit in terms of how do 0:08:53.320 --> 0:08:55.599 they think of the two tools that they have to 0:08:55.679 --> 0:08:58.920 tighten policy between QT and rate hikes. We haven't heard 0:08:59.000 --> 0:09:01.320 much from the Fed on this front, like what is 0:09:01.440 --> 0:09:04.960 x billion in QT worth? And it's a nonlinear response, 0:09:05.040 --> 0:09:07.040 meaning the early part of QT I think is not 0:09:07.120 --> 0:09:10.480 a big deal because the liquidity was there was enough liquidity. 0:09:10.600 --> 0:09:13.520 Going down a live from very excess to excess is 0:09:13.520 --> 0:09:16.120 not a big deal. As you start getting to scarce 0:09:16.200 --> 0:09:18.959 level of reserves, which I think we're six months away from, 0:09:19.200 --> 0:09:22.960 but we're getting there, and as the supply starts to uh, 0:09:23.080 --> 0:09:26.400 you know, increase. There's no martial buyer of duration in 0:09:26.440 --> 0:09:29.040 the US, not with an inverted curve, not with the 0:09:29.080 --> 0:09:31.960 fact that may still have to keep raising rates. I 0:09:31.960 --> 0:09:35.360 think that's the issue on the supply front. And you know, 0:09:35.440 --> 0:09:38.120 we talked about the data is okay right now, but 0:09:38.200 --> 0:09:40.000 there are I mean, we've all talked about these long 0:09:40.080 --> 0:09:42.720 and variable lags. I just struggle, Like the middle of 0:09:42.800 --> 0:09:46.600 next year, the savings buffer goes down, and now QT 0:09:47.200 --> 0:09:49.520 is starting to have an impact. Level of rates is 0:09:49.559 --> 0:09:52.240 starting to have an impact when the economy slows down. 0:09:52.760 --> 0:09:55.400 How quickly can the FED turn? Do they stop QUT? 0:09:55.520 --> 0:09:57.520 I don't. I don't think they stop QUT until they 0:09:57.559 --> 0:10:00.520 start to cut rates and that inflation and if it 0:10:00.600 --> 0:10:02.880 starts to get to me, I'm a little nervous when 0:10:02.880 --> 0:10:05.439 I hear four or five percent. We were thinking three percent, 0:10:05.679 --> 0:10:08.800 even three is well north of you know that two 0:10:08.800 --> 0:10:12.520 percent target, and the FED respond and we've been used 0:10:12.559 --> 0:10:15.280 to Every market has been used to the FED responding 0:10:15.400 --> 0:10:18.800 to slow down, and I just think this time around 0:10:18.800 --> 0:10:21.280 the FED might have to be resolute in their words. 0:10:22.080 --> 0:10:24.400 And then how does the market respond to that we 0:10:24.679 --> 0:10:26.840 need no monetary help, but no fie still help by 0:10:26.880 --> 0:10:28.680 the pre Let me step in a couple of things. 0:10:28.679 --> 0:10:33.640 Of having traded an enormous amount of treasuries over generations. Um, 0:10:33.760 --> 0:10:35.880 the only reason liquidity is so bad is you have 0:10:35.960 --> 0:10:38.080 a central bank that destroyed the system at the end 0:10:38.080 --> 0:10:41.760 of the day and the curve and its representation is 0:10:41.920 --> 0:10:44.240 in large part due to the fact that they own everything. 0:10:45.400 --> 0:10:47.680 If you really want liquidity and markets, tell them to 0:10:47.679 --> 0:10:50.080 sell the entire balance sheet. You'll get a quick adjustment 0:10:50.520 --> 0:10:52.880 and then there will be plenty of bonds around to 0:10:52.960 --> 0:10:55.400 play with and do what you need to do. But 0:10:55.480 --> 0:10:57.600 if you're going to ask somebody to, as you said, 0:10:57.720 --> 0:10:59.720 you know, nobody wants to buy the ration. Nobody wants 0:10:59.720 --> 0:11:01.640 to buy ration because a three and a half percent 0:11:01.720 --> 0:11:06.280 long bond and seven or eight or eight percent inflation 0:11:06.360 --> 0:11:10.160 rate is, to be honest with you, stupidity. Long long bonds. 0:11:10.160 --> 0:11:12.000 If they were where they should have been relative to 0:11:12.080 --> 0:11:16.400 FED funds, everyone would be buying them. Let's wait. You 0:11:16.440 --> 0:11:19.440 know what did Daniel Mark did? Did you work with Priya? 0:11:19.520 --> 0:11:22.839 Did you guys? Were you freshmen together? Yeah? I was 0:11:22.840 --> 0:11:24.800 saying this during the break, Pria that when we were 0:11:24.840 --> 0:11:26.520 when we were both starting out in the industry, when 0:11:26.559 --> 0:11:28.640 we were teenagers and you were a Bank of America 0:11:29.080 --> 0:11:30.680 and I was at the FED, that you were one 0:11:30.720 --> 0:11:33.920 of my my closest contacts. So it could be on 0:11:33.960 --> 0:11:37.280 with you. I've enjoyed lots of FED conversations with Danielle. 0:11:37.640 --> 0:11:39.920 So let me Priya ask you about something that Danielle 0:11:39.960 --> 0:11:43.400 mentioned during the break which I wasn't really thinking about. 0:11:43.440 --> 0:11:46.560 But all of the big hawks on this FED are 0:11:46.679 --> 0:11:51.280 rotating out and they're gonna be replaced with either doves 0:11:51.440 --> 0:11:55.000 or cash kry and like who knows which way he's 0:11:55.000 --> 0:11:58.400 gonna go depending on the politics. But um, what do 0:11:58.440 --> 0:12:01.880 you think that means for February one? Are we gonna 0:12:01.920 --> 0:12:05.319 see another fifty basis point hike after this or are 0:12:05.320 --> 0:12:09.640 they gonna step down? A? Yeah? And the market I 0:12:09.679 --> 0:12:12.840 think was like it was about fift priced for it. 0:12:12.920 --> 0:12:16.840 I think it's actually fair because we've had two CPI misses. 0:12:16.880 --> 0:12:19.280 So if we get another week cp another point two 0:12:19.360 --> 0:12:21.760 or point three, I think they can step down. I 0:12:21.800 --> 0:12:23.920 do think then they can keep going at twenty five 0:12:24.080 --> 0:12:26.760 for a few more meetings. But it's interesting. I think 0:12:26.800 --> 0:12:30.520 the divisions at the FED will sound they will sound 0:12:30.600 --> 0:12:33.720 less unified. Um. And whether it's because of the rotating 0:12:33.720 --> 0:12:36.200 members to your point, or the fact that I think 0:12:36.240 --> 0:12:39.280 inflation and growth will point in different directions next year 0:12:39.400 --> 0:12:41.280 much more than this year. This year it was one 0:12:41.320 --> 0:12:44.800 trade high inflation, so they were all very unified. But 0:12:45.040 --> 0:12:47.400 next year as inflation goes down but not all the 0:12:47.400 --> 0:12:49.800 way to two percent, and growth starts to slow down 0:12:49.840 --> 0:12:53.040 and the labor market more importantly starts to weaken, I 0:12:53.080 --> 0:12:56.040 think you'll see the FED sounding a lot more divided, 0:12:56.320 --> 0:12:58.719 and the voting members won't help either. So yeah, I 0:12:58.720 --> 0:13:00.840 think it's going to become a odd harder to call 0:13:00.880 --> 0:13:03.280 the FED next year. When do they stop? When do 0:13:03.360 --> 0:13:07.640 the ease? What happens to QT? And the Fed will 0:13:07.679 --> 0:13:11.839 sound I think more divided on this, Daniel, We've got 0:13:11.840 --> 0:13:14.160 a function on the Bloomberg terminal d O t s 0:13:14.440 --> 0:13:16.640 the whole dot plot thing, Madging. I don't know what 0:13:16.679 --> 0:13:18.959 the heck it means, but um, it looks like it's 0:13:18.960 --> 0:13:21.960 going down starting in twenty three. Is that? Does that 0:13:22.000 --> 0:13:24.079 make sense to you? And and again as you raise 0:13:24.160 --> 0:13:27.480 the issue of the makeup of the FED, does that 0:13:27.679 --> 0:13:31.320 make sense to you? Hang on the dots median rises 0:13:31.360 --> 0:13:33.640 in twenty three, There are a lot of settings on 0:13:33.679 --> 0:13:38.320 your Oh yeah, after three then it goes down to yeah. 0:13:38.360 --> 0:13:40.600 And I think what you can actually see today in 0:13:40.640 --> 0:13:43.160 the dot plot is that some some of those dots 0:13:43.240 --> 0:13:46.440 might move down in twenty three, So you might see 0:13:46.440 --> 0:13:48.679 a shift onto the devas spectrum. In fact, what I'll 0:13:48.720 --> 0:13:51.440 be looking for today is maybe the widest disparity that 0:13:51.480 --> 0:13:53.960 we've ever seen to pre as point, it's going to 0:13:53.960 --> 0:13:57.520 be much more more contentious. I think that Powell is 0:13:57.559 --> 0:14:00.640 going to be facing multiple descents. One of the things 0:14:00.720 --> 0:14:02.840 that has been on his side, which has been surprising 0:14:02.840 --> 0:14:05.719 to me, given John Williams came from the San Francisco 0:14:05.840 --> 0:14:08.960 FED and has traditionally been adove, is that John Williams 0:14:08.960 --> 0:14:12.520 has been so loyal to Powell throughout this and I 0:14:12.559 --> 0:14:15.959 think that's gonna be critical next year because between between 0:14:16.800 --> 0:14:22.000 bar Bar being one of them, uh Williams, Powell, and Waller, 0:14:22.040 --> 0:14:25.480 He's not going to have that many more voters in 0:14:25.600 --> 0:14:29.560 his camp. We forget that Powell suffered full blown mutiny 0:14:29.880 --> 0:14:31.880 in the very end with not a single person until 0:14:31.880 --> 0:14:34.560 Wayne Angel changed his vote back years and years ago. 0:14:34.600 --> 0:14:35.920 But I think it's going to be a much more 0:14:35.920 --> 0:14:38.520 contentious FED, and I think the dot plots are going 0:14:38.560 --> 0:14:43.440 to widen out a lot. I think I'm looking at 0:14:44.120 --> 0:14:46.600 four sixty two right now on the dot plot, so 0:14:46.680 --> 0:14:50.560 basically four seventy five is the upper range, and I'm 0:14:50.600 --> 0:14:52.280 gonna take the other side of that that Danielle I 0:14:52.320 --> 0:14:55.160 think they're going to for eight or five. Well, I 0:14:55.200 --> 0:14:57.560 think that's possible. But I think the other interesting question 0:14:57.600 --> 0:15:00.800 is going to become again it's the lower the ultimate 0:15:00.840 --> 0:15:03.160 peak rate, the longer I think they're gonna end up 0:15:03.200 --> 0:15:06.800 having to maintain that level, because I think again it's 0:15:06.800 --> 0:15:09.080 going to become a question of of of sort of 0:15:09.160 --> 0:15:11.880 tug of war between the stimulative effects of not doing 0:15:12.040 --> 0:15:15.960 enough and the potential impact on prices and their ability 0:15:16.040 --> 0:15:20.120 to ultimately push prices down low enough. You know, again, 0:15:20.480 --> 0:15:22.160 one of the things you might ask yourself, as we 0:15:22.240 --> 0:15:24.600 just went through two years, well, as of next month 0:15:24.680 --> 0:15:27.200 will have gone through two years over seven percent inflation. 0:15:27.280 --> 0:15:30.200 So we've already started a you know, sort of a 0:15:30.240 --> 0:15:34.720 process of of of of of wave process of pushing 0:15:34.880 --> 0:15:38.320 the consequences out. And so if it's going to take you, 0:15:38.680 --> 0:15:40.600 for example, you're here're hearing people talking we'll get to 0:15:40.600 --> 0:15:42.440 two percent at the end of next year, I find 0:15:42.480 --> 0:15:44.760 that hard to believe. But if it takes five years 0:15:44.840 --> 0:15:46.480 or eight years to get you to two percent, it's 0:15:46.560 --> 0:15:48.320 very different than if you can get the two percent, 0:15:48.360 --> 0:15:50.160 say and two and a half years. And keep in mind, 0:15:50.760 --> 0:15:54.200 Mr Volker, even with rates it took it functionally took 0:15:54.200 --> 0:15:57.840 a generation to get to an ambient level has been done. 0:15:57.960 --> 0:16:01.560 I mean, I mean I put together a four and 0:16:01.640 --> 0:16:03.800 f one fifty and I'm looking at ninety dollars for 0:16:03.840 --> 0:16:07.240 an American pickup truck. That's just not that's the most 0:16:07.280 --> 0:16:10.040 repossessed vehicle in America. And it's the twenty one and 0:16:10.080 --> 0:16:13.280 twenty two models that they're repossessing the most quickly mats 0:16:13.440 --> 0:16:16.120 because everybody has big payments and they got a friend 0:16:16.120 --> 0:16:18.760 who goes to auction. If you're ever interested, yeah, I'm 0:16:18.840 --> 0:16:22.160 definitely interested, So I'll tag along. What do you think? 0:16:22.200 --> 0:16:26.000 I mean the terminal rate, I guess is important. And 0:16:26.040 --> 0:16:27.760 I think Neil brings up a great point. If they 0:16:27.760 --> 0:16:30.520 don't get higher quick enough, they're going to have to 0:16:30.280 --> 0:16:35.960 be stuck at their relatively lowly rate for longer, right. 0:16:36.120 --> 0:16:40.160 And I do think that next year, despite the market 0:16:40.360 --> 0:16:42.720 really begging for the fair two ease, I think they're 0:16:42.720 --> 0:16:45.880 going to sound very resolute and not ease or even 0:16:45.920 --> 0:16:48.240 pushback again some of the market pricing of cuts. And 0:16:48.480 --> 0:16:50.960 I wonder I hope Jepal was asked about that. If 0:16:50.960 --> 0:16:53.720 you can lobby in a question too to Mr McKee 0:16:54.240 --> 0:16:56.440 to ask about the rate cuts is the market in 0:16:56.520 --> 0:16:58.840 the last month has priced in a lot more rate 0:16:58.880 --> 0:17:02.520 cuts in late twenty three twenty four. And while I 0:17:02.560 --> 0:17:04.320 think they're going to have to cut in twenty four 0:17:04.320 --> 0:17:07.000 because the unemployment rate will rise a lot, I struggled 0:17:07.040 --> 0:17:09.359 with the cuts in twenty three. Now on the dots, 0:17:09.440 --> 0:17:11.439 I think the median is going to move up for 0:17:11.600 --> 0:17:14.679 twenty three. It's a fair point that, you know, I 0:17:14.720 --> 0:17:16.679 wish we had a mid twenty three dots because I 0:17:16.680 --> 0:17:20.800 would be a clear median or or clear estimate of terminal. 0:17:21.040 --> 0:17:22.880 But we don't have a mid twenty three. I don't 0:17:22.880 --> 0:17:25.399 think the FED wants to signal that they might get 0:17:25.440 --> 0:17:27.440 to terminal by the middle of the year and then 0:17:27.480 --> 0:17:29.520 cut rates. So I'm going to be looking at that 0:17:29.640 --> 0:17:34.080 end twenty three as their estimate of terminal, and importantly 0:17:34.119 --> 0:17:36.439 the distribution of those dots, because the medium might be 0:17:36.480 --> 0:17:38.360 at five, but if you have a bunch of FED 0:17:38.359 --> 0:17:40.440 officials at five and a quarter or five and a half, 0:17:40.720 --> 0:17:43.080 the market is not priced for that. And this risk 0:17:43.200 --> 0:17:46.919 rally that's pricing in the FED terminal around five or 0:17:46.960 --> 0:17:50.480 below and then the FED quickly cutting rates. I think 0:17:50.480 --> 0:17:53.600 that is at risk. If the distribution of dots in 0:17:53.640 --> 0:17:56.080 twenty three is high, and then twenty four. I think 0:17:56.119 --> 0:17:58.000 the market, the FED can keep saying that they're not 0:17:58.040 --> 0:17:59.879 going to cut too much, the market is going to 0:18:00.000 --> 0:18:01.960 all their bluff on it because the market is now 0:18:02.000 --> 0:18:05.280 increasingly pricing in a recession as the base case for 0:18:05.359 --> 0:18:08.320 the end of twenty three twenty four, and then if 0:18:08.359 --> 0:18:12.760 inflation comes down, the FED can justify some rate cuts. 0:18:12.760 --> 0:18:15.240 But we know if they got hundred, the next hundred 0:18:15.240 --> 0:18:17.760 it looks a lot easier, and if unemployment goes up, 0:18:17.800 --> 0:18:20.080 they're going to have to I mean, does any of 0:18:20.200 --> 0:18:23.800 us really feel that the FED is independent? Danielle, Who 0:18:23.800 --> 0:18:26.800 did you work with in Dallas? I worked with Richard 0:18:26.800 --> 0:18:30.920 Fisher and he was He was different than most works. Okay, 0:18:30.920 --> 0:18:35.359 but this fan was congenial and reluctant to descent. If 0:18:35.400 --> 0:18:37.359 we get five five and a half percent, if we 0:18:37.400 --> 0:18:39.840 get six percent unemployment, if we get people who can't 0:18:39.840 --> 0:18:42.680 put food on their families tables, I think this feed 0:18:42.880 --> 0:18:45.719 is really going to have resolved. And that's that's your question. 0:18:45.960 --> 0:18:50.560 We're seeing um small business closing. There's a website called 0:18:50.600 --> 0:18:53.800 daily job cuts dot com. At the fastest pace I 0:18:53.800 --> 0:18:56.119 spoke to the person who runs this website at the 0:18:56.119 --> 0:18:59.760 fastest pace since two thousand and nine. There's there's actual 0:18:59.800 --> 0:19:03.080 pain out there in the economy, and there's a reason 0:19:03.160 --> 0:19:06.040 that you're seeing such disparity between the establishment and the 0:19:06.040 --> 0:19:09.080 household surveys in the in the jobs data, and that's 0:19:09.119 --> 0:19:11.399 because one of them is not telling you the true 0:19:11.440 --> 0:19:14.439 state of unemployment in America. One's playing catch up to 0:19:14.480 --> 0:19:17.800 the other. The thing is, again going back, the FED 0:19:17.880 --> 0:19:22.080 has a dual mandate, which is price stability basically zero, 0:19:22.280 --> 0:19:25.200 and full employment. And it's a two factory zero, right, 0:19:25.359 --> 0:19:28.320 I mean, I guess they've decided it's two percent, and 0:19:28.359 --> 0:19:30.080 now some of them are thinking it could be three 0:19:30.119 --> 0:19:31.919 or four. But there's a reason for it. Well, now 0:19:32.000 --> 0:19:34.680 three for four a different issue, but the two percent, 0:19:35.000 --> 0:19:36.919 and I think it should they had it lower than 0:19:36.960 --> 0:19:39.080 that with low low unemployment. But the bottom line is 0:19:39.160 --> 0:19:42.919 it's a two factor optimization because as as as unemployment 0:19:43.000 --> 0:19:46.040 drops too low, price pressures rise. At five and a 0:19:46.080 --> 0:19:48.760 half to six percent, the optimization model will give them 0:19:48.800 --> 0:19:52.560 plenty of room if they really feel that they have 0:19:52.720 --> 0:19:54.760 to cut depending on inflation, but a three and a 0:19:54.760 --> 0:19:58.040 half percent inflation rate with six percent unemployments is going 0:19:58.080 --> 0:20:01.680 to give them room three and a six unemployment rate 0:20:01.920 --> 0:20:04.359 with six or seven percent on flip inflation, which is 0:20:04.400 --> 0:20:07.880 basically stagflation at that point. Now they have a problem. 0:20:07.960 --> 0:20:11.679 All right, guys, great stuff. Really appreciate it. Uh, this 0:20:11.760 --> 0:20:14.520 was a historic get together, some smart people kind of 0:20:14.520 --> 0:20:17.080