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Speaker 3: The warsh FED holds the benchmark rate to three and
Speaker 3: a half to three point seven five percent, significantly changes
Speaker 3: the statement and splits evenly over whether there will be
Speaker 3: a rate cut this year. They see a rate increase
Speaker 3: this year, they see one cut each. In twenty twenty
Speaker 3: seven and twenty twenty eight. Nine members see at least
Speaker 3: one increase this year, with six of them seeing two moves,
Speaker 3: but nine see no moves or a cut. The median
Speaker 3: dot this year does move to three point seventy five
Speaker 3: percent from three point three seven five percent. However, for
Speaker 3: twenty twenty six there are only eighteen dots, suggesting the
Speaker 3: Fed chairman did not enter one. He said he doesn't
Speaker 3: leave in the dot plot. Two members did not submit
Speaker 3: a dot. For twenty twenty eight, the statement was cut
Speaker 3: to four paragraphs, the first the vote unanimous, then the decision,
Speaker 3: along with the statement that the Committee reaffirmed its policy
Speaker 3: of maintaining ample reserves in the banking system. The second
Speaker 3: and third graphs are the economic assessment activity is expanding
Speaker 3: at a solid pace, despite elevated uncertainty that owes in
Speaker 3: part to conflict of the Middle East. Productivity growth and
Speaker 3: capital investment are strong. Job gains have kept pace with
Speaker 3: the workforce, and the unemployment rate has changed little. Inflation
Speaker 3: remains elevated relative to the committee's two percent goal, in
Speaker 3: part reflecting supply shocks that have driven price increases in
Speaker 3: certain sectors, including energy. There is no balance of risks anymore.
Speaker 3: The statement concludes, the Committee will deliver price stability. All
Speaker 3: nineteen members of the Committee did submit economic forecasts GDP
Speaker 3: this year two point two percent, down two tenths from March.
Speaker 3: Unemployment will be four point three percent, up a tenth.
Speaker 3: PCEE headline inflation will come in at three point six percent,
Speaker 3: significantly increased from two point seven percent in their March projection.
Speaker 3: Core similarly moves much higher to three point three percent
Speaker 3: from two point seven percent. Growth and unemployment for twenty
Speaker 3: twenty seven are unchanged from March, while PCEE inflation falls
Speaker 3: back to two point three percent and CORE two and
Speaker 3: a half. So some significant changes already under the warsh Fed.
Speaker 3: We'll see what the Chair has to say, coming up
Speaker 3: in about a half an hour.
Speaker 4: Michael McKay stay close, definitely putting his mark on this
Speaker 4: federal reserve. Just to underscore what Mike was just saying,
Speaker 4: it looks like potentially FED share. Kevin worsh did not
Speaker 4: put a dot. That is speculation. There were only eighteen dots.
Speaker 4: There are nineteen members and mean mile. You're looking at
Speaker 4: nine of eighteen FMC participants penciling in a twenty twenty
Speaker 4: six rate hike. When you take a look at what
Speaker 4: that is in markets, you can see a huge shift
Speaker 4: up in the two year yield, a market shift of
Speaker 4: about seven basis points to four point one three percent.
Speaker 4: You could see stocks rolling over as this continues, people
Speaker 4: bleeding in the idea of a.
Speaker 5: More hawkish central bank.
Speaker 4: Given that an increasing number of FED participants are looking
Speaker 4: at a.
Speaker 5: Rate hike this year.
Speaker 4: When you take a look at the Nasdaq that is
Speaker 4: continuing to decline, the S and P five hundred down
Speaker 4: about half of a percent, Bob, what's your initial reaction,
Speaker 4: And given the fact this does seem to be a
Speaker 4: hawkish tilt on the committee and a very different statement,
Speaker 4: it is.
Speaker 1: A hawkish tilt from the committee. Half of the Committee
Speaker 1: is expecting rate hikes this year, which is I think
Speaker 1: a real shot across the bow to the market. We
Speaker 1: were thinking two, maybe three to be decorative. We didn't
Speaker 1: think half the committee. So you know, it's something quite
Speaker 1: different when you look at the inflation projections. You know,
Speaker 1: we were thinking up a couple tenths. You're up six tenths,
Speaker 1: nine tenths for this year. So nobody at the FOMC
Speaker 1: is thinking that this inflation will be transitory enough and
Speaker 1: we'll see disinflation between now and the end of the year.
Speaker 1: So yeah, I think this is a FED that is
Speaker 1: sending a hawkish message. I think you have a FED
Speaker 1: chair telling us he can't be bothered with the dots.
Speaker 1: I think that's a slap across the face. We'll see
Speaker 1: how he deals with that and the FED going forward.
Speaker 4: Skarli, it seems like this is a real change, both
Speaker 4: in tone, both in substance, and frankly points to a
Speaker 4: hawkish committee and as Bob said, a FED chair that
Speaker 4: is doing away with the dots.
Speaker 6: So it'd be really interesting to see how Kevin worsh
Speaker 6: comes out and frames everything when he does begin speaking,
Speaker 6: because if he leans dubbish it'll certainly be a case
Speaker 6: where he doesn't appear.
Speaker 5: To be speaking on behalf of the committee.
Speaker 6: He's kind of speaking out there on his own own,
Speaker 6: expressing his own views. It's fascinating because again he has
Speaker 6: not said a whole lot about his take on the
Speaker 6: economy aside from his confirmation hearing before the Senate. So
Speaker 6: all this raises a lot of questions. As you mentioned,
Speaker 6: stocks have extended their losses, and now we now see
Speaker 6: the S and P and the NASAC losing two thirds
Speaker 6: of one percent. Yields again have continued to stay higher,
Speaker 6: the two year yield up nine basis points, the ten
Speaker 6: year yield about two basis points.
Speaker 4: Right now, joining us now to extend the conversation. Former
Speaker 4: of Advice chair Rich Clarita Rich. Are you surprised that
Speaker 4: it appears that one member of the Fed did not
Speaker 4: submit a dot?
Speaker 2: Well, Lisa, thanks for having me on. I'm actually not surprised.
Speaker 2: I actually was inclined to think that Walsh would not
Speaker 2: submit a DOT. But certainly the news that Mike McKee
Speaker 2: just shared with us that you had nine participants right
Speaker 2: down at ray Hike was certainly above what I've been
Speaker 2: thinking going into this meeting for sure.
Speaker 5: Why do you think that is?
Speaker 6: What is is that that the nine members see that
Speaker 6: has taken the market by surprise.
Speaker 2: Certainly, Well, there was a big markup in core inflation
Speaker 2: projected relative to the March SEP And I think the
Speaker 2: reality is that the pressure and core inflation that we've
Speaker 2: been seeing in recent data is not just to pass
Speaker 2: through from from energy prices, but it does appear to
Speaker 2: be more broadly based, and I think that's probably a
Speaker 2: factor in these in this reassessment.
Speaker 1: Rich The last line of the statement is the committee
Speaker 1: will deliver price stability, nothing about full employment. How do
Speaker 1: you interpret that?
Speaker 2: Well, it's not in front of me here because I'm
Speaker 2: doing your doing your show. But that is an important
Speaker 2: change to the statement. You know, by statute, the FED
Speaker 2: does have a dual mandate and that's also highlighted in
Speaker 2: the firm's policy framework, and I'm sure I hope Kevin
Speaker 2: will be asked to elaborate on that at the press conference.
Speaker 2: We're at a point where we're at full employment, or
Speaker 2: at least close to the FED assessment of maximum employment,
Speaker 2: so I wouldn't read into this that they're abandoning the
Speaker 2: employment on mandate, but clearly some important change in the language,
Speaker 2: for sure.
Speaker 5: Bob, what's your take on that.
Speaker 1: I think they are concerned by the level of inflation.
Speaker 1: They are concerned about what they see in the Kapac cycle.
Speaker 1: They are somewhat scarred for twenty twenty two, and they
Speaker 1: don't want to repeat that mistake again. And they're watching
Speaker 1: other central banks coming out and lifting rates and their
Speaker 1: bond markets responding well to that. So I think they're reconsidering,
Speaker 1: certainly where they were last meeting, and they're getting us
Speaker 1: ready for rate hikes.
Speaker 4: Rich is there anything at all dubvish in any way,
Speaker 4: shape or form of any part of this four paragraph statement,
Speaker 4: Not at.
Speaker 2: First glance or at first listen. Again, at least for
Speaker 2: this meeting, Cher Walsh will have the bully pulpit, and
Speaker 2: I very much will be looking forward to seeing how
Speaker 2: he frames this and provides his own perspective. But certainly
Speaker 2: I think we have an indication here, especially with that sentence,
Speaker 2: the committee will deliver price stability. That sounds like where
Speaker 2: he's going to land, for sure.
Speaker 6: So there's a comment here from Joseph Richter, he's one
Speaker 6: of our editors at Bloomberg Intelligence. On our live blog,
Speaker 6: and he says that those who look for a quiet
Speaker 6: first wash FMC meeting must be disappointed. Rich, what will
Speaker 6: you be listening for, in particular from Kevin Walsh when
Speaker 6: he speaks today. I know you said it'll be interesting
Speaker 6: to see how he frames his thinking.
Speaker 5: But what will be the one.
Speaker 6: Thing that you want to hear from him?
Speaker 2: Well, let me give you more than one. Certainly I
Speaker 2: would like to have him flesh out how the dual
Speaker 2: mandate fits into this at this at this point. Also importantly,
Speaker 2: you know he's spent the last fifteen years criticizing the
Speaker 2: Fed's big balance sheet. The Fed's growing or expanding its
Speaker 2: balance sheet now, and so perhaps moving beyond this meeting
Speaker 2: to the rest of the year and the next year,
Speaker 2: how he's going to try to change minds on the
Speaker 2: committee about the balance sheet size as well.
Speaker 3: Mike McKee jump in here, Well, I think Rich raises
Speaker 3: an important point. The only reference to the balance sheet
Speaker 3: is the FED reaffirming its commitment to the ample reserves policy,
Speaker 3: which is generic enough to encompass both Warsh's desire for
Speaker 3: a smaller balance sheet and others desire to maintain the
Speaker 3: quarter system that we have now. But the question is
Speaker 3: do they go to that later? Is it just too
Speaker 3: much of a bridge to cross right now? Other points
Speaker 3: that I think are worth making is that while the
Speaker 3: committee dropped the bias statement and doesn't give any quote
Speaker 3: unquote forward guidance in the statement itself, the dot plot
Speaker 3: is forward guidance because all you're talking a about right
Speaker 3: now is the nine people who think that we're going
Speaker 3: to get a rate increase, and that this tells you
Speaker 3: that the Fed is hawkish. So if Kevin worsh wants
Speaker 3: to walk that back, he's going to have to do
Speaker 3: that in the press conference. Otherwise the markets are going
Speaker 3: to be tilting in that direction. It's also interesting that
Speaker 3: they did say they're committed to price stability. What it
Speaker 3: seems like is that the people who were worried about inflation,
Speaker 3: that worry has spread, and as Rich noted, the core
Speaker 3: inflation has broadened out some. And so they are sending
Speaker 3: a message to the markets that we're not going to
Speaker 3: let this get out of control. We're not going to
Speaker 3: repeat what happened in twenty twenty one twenty two. We
Speaker 3: are going to focus on price stability right now. The
Speaker 3: unsaid thing is that we're basically at full employment, so
Speaker 3: we don't have to worry about that for the moment.
Speaker 1: Mike. The other thing that jumped out at me is
Speaker 1: you said that we went from eighteen dots to seventeen
Speaker 1: dots for twenty twenty eight. Is there an undercover supporter
Speaker 1: of Worsh policy in the FOMCS now?
Speaker 3: It does seem like there might be at least someone
Speaker 3: who supports the idea that the dot plot is not
Speaker 3: worth considering. It could also be that one member decided
Speaker 3: that there's just too much uncertainty for twenty twenty eight,
Speaker 3: and why bother to add to that by just guessing
Speaker 3: it where rates are going to be. We've had a
Speaker 3: lot of FED officials over the years tell us that
Speaker 3: they just kind of throw something in for the third
Speaker 3: year out because it's just too hard to project anything
Speaker 3: that far out. I wouldn't read too much into that,
Speaker 3: but the idea that Kevin Worsh did not submitted dot
Speaker 3: kind of tells you that he's going to maybe push
Speaker 3: to do some change to the dot plot going forward.
Speaker 5: If you are just joining us right now.
Speaker 4: We did get a statement that's for paragraphs long, much
Speaker 4: shorter than usual, with no reference to the employment mandate,
Speaker 4: with nine of the eighteen members opting to support some
Speaker 4: sort of rate hike this year, leaving the others either
Speaker 4: in support of just keeping things where they are or
Speaker 4: potentially cutting rates being taken. It's incredibly hawkish. You could
Speaker 4: see the selloff in treasuries extending. You could see two
Speaker 4: year yields now up eight basis points.
Speaker 5: Across the curve, all rising.
Speaker 4: Although this is yield curves flattening this idea that potentially
Speaker 4: there will be some sort of tightening in policy.
Speaker 5: Former Vice Chair Rich Clarita, final for word from you.
Speaker 4: What's your question right now going to be for a
Speaker 4: FED chair Kevin Walsh.
Speaker 2: Kevin, you did not submit a DOT today. There's no
Speaker 2: forward guidance in the statement. The markets are taking the
Speaker 2: information today as hawkish. Would you be prepared to comment?
Speaker 4: Former FED Vice Chair Rich Clarita, who might make a
Speaker 4: sneak appearance because that was pretty good. Thank you so
Speaker 4: much joining us now. Diane Schwalk of KPMG. Diana, what's
Speaker 4: your first take in this?
Speaker 7: Well, I'm actually not all the surprise. We saw a
Speaker 7: major move in the minutes to the last meeting where
Speaker 7: a lot of people were moving towards the hawks Jan
Speaker 7: and saying we may need to consider rate hikes later
Speaker 7: this year and in the interim period. We have seen
Speaker 7: even FED governors, which usually hold their cards a little
Speaker 7: closer to the vest, some of them who have never
Speaker 7: seen actually take a firm stand, talk about how the
Speaker 7: price stability side of the mandate is more important now
Speaker 7: than the employment side of the mandate. And that's exactly
Speaker 7: what you saw with that last sentence in the statement.
Speaker 7: Was not that one was that we were not having
Speaker 7: a dual mandate. It's that the focus is on price
Speaker 7: stability given the stability we've seen in the unemployment rate.
Speaker 7: And I think that's very important what the FED is saying,
Speaker 7: we're not going to take the inflation as transitory. What
Speaker 7: concerned so many at the FED meeting in March when
Speaker 7: we saw sort of the initial forecast and there was
Speaker 7: a lot of uncertainty, but the minutes from that meeting
Speaker 7: really revealed how many people but we're already concerned about
Speaker 7: the data that was coming out that suggested that underlying
Speaker 7: core inflation was not only sticky, but maybe reaccelerating again.
Speaker 7: And I think that is where we're seeing this come from.
Speaker 7: It is beyond the energy shock. It is beyond terror
Speaker 7: of shocks. It's in that core super services component of
Speaker 7: inflation that we're seeing get sticky and hot and accelerate
Speaker 7: and not consistent with anything that resembles price stability.
Speaker 6: I want to go back to that idea, Diane, that
Speaker 6: the statement ends with the committee will deliver price stability
Speaker 6: From where you sit. What are the most reliable inflation
Speaker 6: indicators that the committee will then focus on. If it's,
Speaker 6: of course the reported numbers, But when it comes to
Speaker 6: inflation expectations, you've got Marcus based measures, You've got survey
Speaker 6: based measures, you know, and.
Speaker 7: None of these measures they have At times, none of
Speaker 7: the FED will never say inflation expectations are unanchored, and
Speaker 7: I think that's important, and a lot of these inflation
Speaker 7: measures on expectations do not look on anchored. Although consumer
Speaker 7: sentiment certainly is not high at the moment, and I
Speaker 7: think the decoupling we've seen between consumer attitudes and their
Speaker 7: actual spending reflects the burn of inflation, and they're seeing
Speaker 7: that out there. They're also seeing in surveys like the
Speaker 7: Ism survey and the Purchasing Managers surveys, things where manufacturers
Speaker 7: are front running future price hikes. That's the exact behavior
Speaker 7: the Federal Reserve is tasked to prevent because that kind
Speaker 7: of hoarding behavior reinforces its own inflation cycle. So I
Speaker 7: think those kinds of behavioral shifts they're seeing out there,
Speaker 7: they're worried about the muscle memory of inflation. We're five
Speaker 7: years in and inflation is still a problem, whether or
Speaker 7: not it's all the Fed's fault or not. It's only
Speaker 7: one institution's responsibility to derail inflation, and that is the
Speaker 7: Federal Reserve, and that's what you're seeing them sort of
Speaker 7: put their foot down now that the labor market situation,
Speaker 7: although not perfect, is not in the precarious situation it
Speaker 7: appeared to be last fall.
Speaker 6: You've noted, Diane, that one of the largest near term
Speaker 6: hurdles for the Central Bank is the persistence of service
Speaker 6: sector inflation. What has proven to be the most effective
Speaker 6: way to bring down inflation in the services.
Speaker 7: Sector well, sector that has been sort of impervious to
Speaker 7: some of the increases in interest rates we saw. We
Speaker 7: did see wages cool, but they've not cold enough to
Speaker 7: bring it down. And I think part of the problem
Speaker 7: we're finding in the service sector is one demographic and
Speaker 7: the aging demographics and upward pressure on some healthcare costs.
Speaker 7: But we also have other factors pushing up service sector inflation,
Speaker 7: and that is inequality and the ability of very high
Speaker 7: end consumers to spend up, to buy at the front
Speaker 7: of the airplane and buy first class tickets, to spend
Speaker 7: at high end hotels. All that is blowing inflation at
Speaker 7: a time when many who are on the lower end
Speaker 7: or even in the middle part of the income strata
Speaker 7: are seeing their wages eroded relative to inflation, where we
Speaker 7: know at the highest end of the income strata that
Speaker 7: wages are actually going up more rapidly than inflation. And
Speaker 7: so that's one of the challenges that FED faces is
Speaker 7: they've got a manage to the economic aggregates when the
Speaker 7: devil is in the details underneath those aggregates.
Speaker 4: Bob, you know what strikes me is that if you
Speaker 4: look at some of the economic projections here, a lot
Speaker 4: of people do seem clearly much more concerned about inflation.
Speaker 4: They revised up their core PCEE between three point two
Speaker 4: and three and a half percent for the entirety of
Speaker 4: this year from two and a half to two point
Speaker 4: eight in the previous one. Throughout all of these, even
Speaker 4: the FED Fund's rate central tendency was moved up between
Speaker 4: three point six and four point one. At this point,
Speaker 4: can we say we're at neutral? And can you say
Speaker 4: that right now? This is a FED committee purely trained
Speaker 4: on inflation. Just as Kevin worsh reflected in that statement.
Speaker 1: They're telling us that we're not at neutral, even though
Speaker 1: the median dot there's enough dispersion for higher inflation and
Speaker 1: higher rates. It's telling us that maybe the market was
Speaker 1: right before the meeting, the market was pricing in one
Speaker 1: rate hike over year end into next year. It looks
Speaker 1: like they looked at the market and say, hey, it's
Speaker 1: giving us a rate hike. Inflation's not going to be
Speaker 1: at our target for five years going on to six.
Speaker 1: Maybe this is the opportunity for us to step in
Speaker 1: like every other central bank and high rates. I thought
Speaker 1: we would get there. I didn't think we would get
Speaker 1: there at this meeting. The long end of the market
Speaker 1: likes it. Look at that the front ends up six seven,
Speaker 1: eight basis points, the long ends down a basis point.
Speaker 1: A FED that's vigilant again creates support for the long
Speaker 1: end of the market.
Speaker 4: Well, and actually, Diane do you think that in some ways,
Speaker 4: just to conclude this is actually a way to get
Speaker 4: the ultimate goal of recuts down the road by job
Speaker 4: vowning the market into seeing this as a hawkish fedule reserve.
Speaker 7: I think it is important, and I think it's also
Speaker 7: an acknowledgment, though, I mean the context is important here.
Speaker 7: Five years without hitting its inflation target and five years
Speaker 7: of compounding inflation is a problem for the US economy,
Speaker 7: and they now have more flexibility with the labor market
Speaker 7: showing some signs of finally generating jobs, stable unemployment rate
Speaker 7: for a while now, with the exception of the six
Speaker 7: week government shutdown and the weakness we saw at the
Speaker 7: end of twenty twenty five, And they're squarely focused on
Speaker 7: what they should be focused on. And I agree that
Speaker 7: the neutral rate is actually likely higher than what they
Speaker 7: thought it was. There were some that were moving there
Speaker 7: prior to this meeting as well, which means that in
Speaker 7: and of itself suggests they should have a higher short
Speaker 7: term rate. And on top of that we may need
Speaker 7: another hike as well. I still expect two hikes by
Speaker 7: year end.
Speaker 5: Wow, Diane Swank, thank you so much. Two rate hikes
Speaker 5: by year end. Can you imagine what that would do
Speaker 5: to market.
Speaker 6: So there are a couple of dots that point towards
Speaker 6: that direction, but the majority see one.
Speaker 5: Do you see that in any capacity to rate high
Speaker 5: this year?
Speaker 1: I think it's possible, you do, absolutely. There's a lot
Speaker 1: of underlying growth and cap X in the economy, and
Speaker 1: we don't know whether the Middle East will be worked out.
Speaker 1: It's certainly not impossible.
Speaker 5: Joining us now.
Speaker 4: As Mattlazetti of Deutsche Bank, who's had a few minutes
Speaker 4: to look through this statement, what's.
Speaker 5: Your first reaction?
Speaker 8: Matt, Yeah, I think this was towards the hawkish end
Speaker 8: of what we could have expected. The two things that
Speaker 8: I was focused on ahead of the meeting were one, how.
Speaker 9: Many dots we're going to show hikes this year?
Speaker 8: You have half of the dots, nine of them showing
Speaker 8: rate hikes, six of them is showing fifty basis points
Speaker 8: or more of rate hikes. That has to be towards
Speaker 8: the hawkish end of expectations. The second thing, and what
Speaker 8: drives the hawkishness in the dots, is the upper division
Speaker 8: in their core inflation forecast this year they went up
Speaker 8: to three point three percent. I think really critically next
Speaker 8: year they went up to two point five percent. You
Speaker 8: have a median expectation in the committee that more than
Speaker 8: six years into the inflation shock, inflation has still not
Speaker 8: gotten down to two and a half percent and within
Speaker 8: fifty basis points of their target. That is what's driving
Speaker 8: the necessity for potentially higher rates.
Speaker 6: So one of the comments from Ira Jersey, who's our
Speaker 6: interest rate statategist here at Bloomberg Intelligence, says that Warsh's
Speaker 6: stamp on the statement seems fairly evident, with language moving
Speaker 6: closer to the style used before the global financial crisis?
Speaker 5: Is this a move to make the FED less.
Speaker 6: Transparent, Matthew, with the statement really brought down, the word
Speaker 6: count brought down and the length of it reduced to
Speaker 6: the point where this is going to be a FED
Speaker 6: that perhaps well surprise markets going forward as opposed to
Speaker 6: really calming them into submission.
Speaker 2: Yeah.
Speaker 8: I don't think that we learned too much about that
Speaker 8: from the statement today. I think the reality is that
Speaker 8: there was a lot of superfluous content in the statement.
Speaker 8: There was a fourth paragraph that has been in there
Speaker 8: really since the COVID shock and was probably unnecessary from
Speaker 8: that perspective, But it is clear we're just going to
Speaker 8: get less information in the statement. It'll be interesting to
Speaker 8: see how much additional information Wash provides us in the
Speaker 8: press conference. He's been both critical of Ford guidance, so
Speaker 8: I don't think that we get much more of that,
Speaker 8: But he's also been critical of data dependency. So the
Speaker 8: ultimate question is what do we hear from him about
Speaker 8: at the press conference.
Speaker 9: That's still an unknown from the market's perspective, what's the one.
Speaker 6: Thing you want to hear from him?
Speaker 8: So I think I'm going to piggyback on Vice cher
Speaker 8: Clarada's question from earlier, and it's a clear signal from
Speaker 8: the committee that higher rates might be needed to tame inflation.
Speaker 8: The market also believes that higher rates might be needed
Speaker 8: to tame inflation. We know that he didn't submit a
Speaker 8: dot yet today, but does he agree with the skew
Speaker 8: and those expectations that higher rates might be needed, and
Speaker 8: if not, why does he not agree with it?
Speaker 1: Matt, don't you think that the dots give us a
Speaker 1: lot of information? Won't you be sorry to see them go?
Speaker 1: Look how we talked about the dots NonStop. We looked
Speaker 1: at the nine voters that were looking for rate hikes.
Speaker 1: I would miss them I don't know what being less
Speaker 1: transparent and more opaque actually does for the markets or
Speaker 1: for the FED.
Speaker 8: Yeah, I don't know that I'll miss the dots. To
Speaker 8: be honest, Bob, I think too much focus is put
Speaker 8: on them. I'm sure cher Wassh is going to mention
Speaker 8: that as well. I think ultimately, over time they will
Speaker 8: go away. I think WASH doesn't think that they serve
Speaker 8: a good purpose of actually providing meaningful forward guidance. I
Speaker 8: think they think that it's too precise, the market focus
Speaker 8: is too much on it and not the uncertainty bands
Speaker 8: around it. So eventually I think that they will go
Speaker 8: I think we'll be left with an SEP that shows
Speaker 8: the central tendency on FED funds rate expectations, shares the
Speaker 8: range on FED funds rate expectations, and that gives us
Speaker 8: the sense of overall where the trajectory of policy is
Speaker 8: going to be without kind of catalyzing us around one
Speaker 8: imprecise estimate from the median Matt.
Speaker 4: Even if Kevin O Worsh doesn't want to talk that much,
Speaker 4: the FED chair can't muzzle everybody else, and there is
Speaker 4: a risk that potentially everybody else will talk a lot
Speaker 4: and give their perspective and set the oxygen away from
Speaker 4: him who's not saying very much. I mean, at what
Speaker 4: point do we end up in that type of scenario
Speaker 4: if the press conference holds true to what we're seeing
Speaker 4: at least in the statement.
Speaker 9: Yeah, I think it could be over the next week.
Speaker 8: I mean, if we don't hear very much from Chair
Speaker 8: Washed today, I would expect that we do hear a
Speaker 8: lot from other committee members over the next week. It's
Speaker 8: a very strong signal from the dot plot and the
Speaker 8: SEP that higher rates might be needed, and so I
Speaker 8: would expect that we hear from a number of those
Speaker 8: committee members. But exactly because of that, I actually don't
Speaker 8: expect thatsh gives up his opportunity to do the press conference.
Speaker 8: There's some questions or speculation that he might not do
Speaker 8: a press conference after every meeting. I think he will
Speaker 8: because it at least gives him the first chance to
Speaker 8: frame the meeting today, gives him the first chance to
Speaker 8: frame that dot plot which kind of clearly skews hawkish
Speaker 8: and potentially pushed back on it if that's in fact.
Speaker 9: What he wants.
Speaker 4: Bob, who would you listen to on the FMC if
Speaker 4: FED Chair worsh takes a backseat to communication.
Speaker 1: Listened to Waller. I think Waller to us was somebody
Speaker 1: who is very reasonable, very rational, is very balanced, looks
Speaker 1: at the full picture. He would have made a very
Speaker 1: good FED chair. It didn't work out that way. Look,
Speaker 1: Kevin Walsh will be fine. He's a very credible, capabable
Speaker 1: FED governor. He didn't go in with the Dubvish bias
Speaker 1: that we all assumed he was sent in with. I'm
Speaker 1: dying to know how the President's going to react to
Speaker 1: this his first meeting. Everybody wants to now start hiking rates.
Speaker 1: That's certainly going against his thinking. But look, Warsh has
Speaker 1: proven that he's his own FED chair. He'll do what
Speaker 1: the data tells him. We're in good.
Speaker 6: Hands with him, as far as I know. We don't
Speaker 6: have any social media posting from the President yet. We'll
Speaker 6: wait to see when new FED Chair Kevin Warsh begins speaking.
Speaker 6: Going to the idea of Ford guidance, I wonder if
Speaker 6: the effectiveness of Ford guidance is asymmetrical, Bob, I asked
Speaker 6: because Rick Reader of Blackrock says that you want to
Speaker 6: over communicate when you are loose, when you're tightening policy,
Speaker 6: but you want a surprise when you loosen, because it's
Speaker 6: more effective.
Speaker 5: That way packs more of a punch. What do you think, I.
Speaker 1: Don't think so. It reminds me of the years when
Speaker 1: the European central banks used to ambush the market and
Speaker 1: come in and create a shot one way. It was
Speaker 1: very disruptive to the markets. I don't think it accomplished
Speaker 1: anything other than create losses in some areas, and it
Speaker 1: wasn't sustainable over time. I think we're in a world
Speaker 1: where there's a lot of information, there's a lot going on.
Speaker 1: The complexity of what the Fed has to deal with
Speaker 1: is real. They have a lot of tools at their
Speaker 1: disposal which didn't exist pre COVID or pre GFC. I
Speaker 1: want to know how they're thinking about them. I want
Speaker 1: to see detailed forecasts. I want to know what direction
Speaker 1: they're moving in. Yeah. I may agree, I may not.
Speaker 1: It's not a big deal one way or another other
Speaker 1: than it just gives us more information.
Speaker 4: Matt, do you think that there's plausible deniability? Potentially you
Speaker 4: have a fetcher that says you can't say it's hawkish.
Speaker 5: I just didn't say.
Speaker 8: I think maybe he takes that tack, but I think
Speaker 8: he's going to have to present an alternative case at
Speaker 8: this point because the case that is presented by the
Speaker 8: forecast and the doss at this point is clearly hawkish,
Speaker 8: and so if he's not in line with that view,
Speaker 8: I think he'll have to present an alternative case.
Speaker 9: At this point.
Speaker 8: There's not a kind of a plausible or realistic alternative
Speaker 8: case I think. I think you have an economy where
Speaker 8: the labor market is strengthening, it's at worst stabilizing, at
Speaker 8: best reaccelerating. You have inflation which is entrenched at elevated levels.
Speaker 8: It's broad based. It is not simply about tariff's any longer.
Speaker 8: Your financial conditions at very easy levels. You see growth
Speaker 8: is actually solid, as we saw with today's retail sales report,
Speaker 8: and we've argued in recent research reports that the FED
Speaker 8: very likely could be accommodative at this point in time.
Speaker 8: So I don't actually see the strong case to push
Speaker 8: back against it, but he would have to present that
Speaker 8: case if that's in fact how it feels.
Speaker 4: Matthew Lizzetti of Deutsche Bang, thank you so much and
Speaker 4: look forward to catching you in the weeks after the
Speaker 4: press conference, Bob. Just about two and a half minutes
Speaker 4: to go before we hear from FED share Kevin Warsh,
Speaker 4: What are you expecting as we see two year yields
Speaker 4: now nine basis points high? Are with people really surprised
Speaker 4: by the hawkish tilt?
Speaker 1: Yeah, and again. And I think Diane said it, you know,
Speaker 1: she kind of expected it. Maybe we should have expected it.
Speaker 1: We all thought it was coming in two or three
Speaker 1: meetings from now, not this one. So clearly the market's
Speaker 1: telling you it didn't expect it. For me, the question
Speaker 1: for Warsh is removing the dots. Isn't a regime change
Speaker 1: that's part of it. What is it that he finds
Speaker 1: most outdated about the Fed's framework and how would he
Speaker 1: go about changing it? The dots are just one component
Speaker 1: of what bothers him.
Speaker 4: Yes, also the balance sheet, also when it comes to
Speaker 4: just how liquid some of these instruments have actually been.
Speaker 4: Bob Michael, thank you so much for being with us.
Speaker 4: It is always a pleasure having you in studio.
Speaker 5: Scarlett.
Speaker 4: We are awaiting Fedchair Kevin Warsh to step to the
Speaker 4: podium for the first time as head of the US
Speaker 4: Central Bank, the central bank.
Speaker 5: To the world.
Speaker 4: This is the fifth central banker, the fifth FED Chair
Speaker 4: going back in the past forty years, and clearly he
Speaker 4: is putting a stamp on the institution.
Speaker 6: And a lot of people say he's going back to
Speaker 6: the Alan Greenspan era where you don't say a lot
Speaker 6: and you kind of keep the market guessing, rather than
Speaker 6: what Ben Bernanke ushered him, which is more transparency, and
Speaker 6: Jerome Pale kind of took that to new levels as well.
Speaker 6: It's worth noting here that not only our yields higher,
Speaker 6: stocks are lower. You've got the S and P five
Speaker 6: hun hundred down six tens of one percent, the NAZAC
Speaker 6: as well. The President, of course is in Europe right now,
Speaker 6: has not, as far as we know, given any kind
Speaker 6: of comment. He had just praised the stock market, saying
Speaker 6: it was the most brilliant thing and smarter than anyone else.
Speaker 6: So we'll wait to see how this all plays out
Speaker 6: over the next thirty forty minutes.