Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Here's the latest investors
Speaker 1: awaiting Kevin Walsh's first meeting as Federal Reserve chair. As
Speaker 1: warring inflation adds to uncertainty over the direction of rates,
Speaker 1: Torston's slock of Apollo writing with geopolitical risk easing and
Speaker 1: FED shair, Kevin Walsh focus on simplifying FED communication. The
Speaker 1: number of words in the FMC statement could move down
Speaker 1: to levels seen under Alan Greenspan. Torston joins us, Now, okay,
Speaker 1: so a statement comes out, don't need to read it
Speaker 1: first or just do a quick word count.
Speaker 2: We certainly need to read it first because the key
Speaker 2: issue here is, of course, what style of communication I
Speaker 2: we're going to get, and in particular, what is the
Speaker 2: forward guidance? Is that any forward guidance? Is he going
Speaker 2: to say that we do not like forward guidance. This
Speaker 2: is still a very very unclear area in terms of
Speaker 2: what is the communication style and what is Kevin w
Speaker 2: Wash going to do in terms of what is he
Speaker 2: going to say.
Speaker 1: At the press conference, former Fed Governor Betsy Duke was
Speaker 1: just on with us. She was talking about how there
Speaker 1: could be a complete rewrite of the statement, not just
Speaker 1: a little tweak of the easing bias is that what
Speaker 1: you're expecting as well.
Speaker 2: I think that is something that we should expect as
Speaker 2: one of the outcomes. We just don't know. So that's
Speaker 2: the reason why the market, of course, has been used
Speaker 2: to having very well anchored expectations around the dot plot.
Speaker 2: The dot plot has been around now for fifteen years.
Speaker 2: Almost the ACP meaning the forecast, been around for almost
Speaker 2: twenty years. So most people in financial markets have grown
Speaker 2: up with very anchored expectations about the economic outlook and
Speaker 2: very anchored expectations about what the fab will do. And
Speaker 2: this discussion about is there an anchor? Is there not
Speaker 2: an anchor? Of course, it's good to have an anchor
Speaker 2: in the sense that that's clear then where everyone knows
Speaker 2: where we're going. But at the same time, if the
Speaker 2: world changes, then it's not good to have an anchor.
Speaker 2: And this is the debate up on the scale, namely,
Speaker 2: do we want to have an anchor or do we
Speaker 2: not want to have an anchor that will give more
Speaker 2: flexibility to the affront seat in this very moment.
Speaker 3: If we remove some of that and we remove some
Speaker 3: of the forward guidance, does that not all things considered
Speaker 3: make us a little bit more hawkish because we don't
Speaker 3: have that residual easing by that had been there before.
Speaker 2: Yes, and next particularly important if we begin to think
Speaker 2: about the discussion around rates, because Kevin Wiss has also
Speaker 2: been focusing on shrinking the balance sheet, and a compromise
Speaker 2: could potentially be that, well, we're not going to change
Speaker 2: much communication on rates, but maybe saying that the balancy
Speaker 2: will be smaller is simplicitly also going to be a
Speaker 2: tightening opposed. So it all depends on where the committee
Speaker 2: stands and where they discuss today and what their outcomes
Speaker 2: is in terms of how should they communicate, how are
Speaker 2: they going to signal to your point, Danny that there
Speaker 2: is still some problems with inflation being too high. We
Speaker 2: still have a very strong label market, which all argues
Speaker 2: for that the Fed should be tightening financial positions.
Speaker 3: Do you think this is a chair war who will
Speaker 3: want to sort of galvanize a consensus as Powell had,
Speaker 3: And how challenging will that be? If so, if he
Speaker 3: does want to implement something in his words of a
Speaker 3: regime change for the Fed.
Speaker 2: Well, Kevin was knows what he is doing. But I
Speaker 2: think what is a very important challenge of course for
Speaker 2: him is that he wants any changes, Basically he needs
Speaker 2: to have the other eleven members on there from see
Speaker 2: the voting members on board with whatever he wants to change.
Speaker 2: So that's why it must be clear also for him
Speaker 2: he needs to get them on his side in terms
Speaker 2: of any decision made, because always decisions about not only rates,
Speaker 2: also about que qt whatever needs to be changed. In
Speaker 2: terms of policy, there are twelve voting members and they
Speaker 2: vote about what do they want to change, And therefore
Speaker 2: the number of descents also potentially becomes important. When we
Speaker 2: get the statement.
Speaker 1: Tomorrow, do you think we get less FED speak then?
Speaker 1: With Kevin worsh as the FED.
Speaker 2: Chair, Well, that's really challenging because telling the regional FED
Speaker 2: presidents that they're not allowed to talk more, even the
Speaker 2: governors that they're not to talk more, that's just not possible.
Speaker 2: And given we have had a history now of a
Speaker 2: lot of communication, that means also the market has been
Speaker 2: putting more weight on the FED chair, and I think
Speaker 2: the market continues to put most weight on the FIT chair.
Speaker 1: And don't you think we've seen more of this robust
Speaker 1: debate and communication because of Steve Myron who was a
Speaker 1: Trump appointee. So it would be pretty odd if Kevin
Speaker 1: Moorsh came in and said, actually, stop talking as much.
Speaker 2: Yeah, because we've also had some of course, to your
Speaker 2: point here, we have some quite diverging views in terms
Speaker 2: of the dot plot. And this is of course also
Speaker 2: why the dot plot creates sometimes a bit more confusion. Yes,
Speaker 2: it may be anchoring expectations, but the stain of deviation
Speaker 2: of those expectations also get a lot of attention. In
Speaker 2: other words, how divergent are the views in terms of
Speaker 2: what's going to happen in the future, And we don't
Speaker 2: know which dot is the Fitchair dot. So that also
Speaker 2: makes it more complicated in terms of the dots coming
Speaker 2: out actually going to be helpful in the sense of
Speaker 2: anchoring expectations or do they raise more questions about the
Speaker 2: uncertainty of what is a disagreement on the committee.
Speaker 1: There's also a debate right now whether or not Kevin
Speaker 1: Moorsh puts a dot on the plot.
Speaker 2: Yeah, because he could also decide to This would be
Speaker 2: highly unusual, of course, that will of course decide he
Speaker 2: could decide to say I'm not going to put in
Speaker 2: a dot. He could also decide to say I'm not
Speaker 2: going to submit my CP forecast, meaning his forecast for
Speaker 2: he thinks the economy is going, that would be pretty dramatic.
Speaker 2: So if the goal here for him, Remember the most
Speaker 2: important job for the FET chair is really to create
Speaker 2: consensus about a decision. All books written by previous FAT
Speaker 2: chairs they all emphasize that a key part of the
Speaker 2: job is to basically call around to all the voting
Speaker 2: here from SEA members and also the non voting men,
Speaker 2: and say, what do you think should be the outcome
Speaker 2: of this meeting? What is your view? And try to
Speaker 2: come up with some solution and try to come up
Speaker 2: with some path where he can get a majority and
Speaker 2: ideally a big majority for the decision that they're going
Speaker 2: to take.
Speaker 3: It's complicated, but does this week's news on Iran a
Speaker 3: deal a memorandum of understanding being signed on Friday make
Speaker 3: things less complicated for FED shair wash?
Speaker 2: Absolutely, because one key issue was that inflation is still
Speaker 2: at roughly three percent in COPCE and COCPI. And the
Speaker 2: problem is when inflation is three and the Fed's target
Speaker 2: is two, then now we have at least one good
Speaker 2: news is, of course that we have enterprises coming down,
Speaker 2: but we still have a fairly strong economy, getting taiblemints
Speaker 2: from the AI boom, getting tablewints from the one big
Speaker 2: bit of a bill. And we also at the same
Speaker 2: time have up with pressure on inflation from tariffs still
Speaker 2: hanging over and putting up with pressure, as several fit
Speaker 2: posts have been suggesting. So the key answer to your
Speaker 2: question is he absolutely is absolutely a help. He's helped
Speaker 2: by the fact that enterprises are moving low. He is help.
Speaker 3: But again to your point, tourist, and there's inflation coming
Speaker 3: from other parts of this economy. So if he wants
Speaker 3: to lean moresh if he wants to kind of like
Speaker 3: fulfill the promise that he had been talking to you
Speaker 3: from Trump, what points to the parts of this economy
Speaker 3: can he point to you to say we can still
Speaker 3: get a cut this year.
Speaker 2: And the double sort is, of course that when energy
Speaker 2: prices go down, then we spend less money and energy
Speaker 2: and we spend more money on something else. And given
Speaker 2: that literally all high frequency indicators are still very strong,
Speaker 2: still very strong data from the TSA how many people
Speaker 2: travel on airplanes, still very strong data on the weekly
Speaker 2: data from Redbook on how many people are consuming stuff
Speaker 2: at Walmart and Target and Tjmax. And we also have
Speaker 2: still very strong data when it comes to Hotel Demain
Speaker 2: on a weekly basis. So that just is very little
Speaker 2: science that no signs essentially at this point of the
Speaker 2: economy slowing down so too high inflation, strong labor market,
Speaker 2: that argues, of course for the fit needs to move
Speaker 2: towards a more hawky stance.