1 00:00:05,120 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,480 --> 00:00:11,680 Speaker 1: with Jonathan Farrell and Lisa A. Brammo Words. Join us 3 00:00:11,760 --> 00:00:16,840 Speaker 1: each day for insight from the best and economics, geopolitics, financing, investment. 4 00:00:17,239 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,479 Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,480 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. That wraps 7 00:00:30,520 --> 00:00:32,680 Speaker 1: up the news conference with Sham and Powell. A balanced 8 00:00:32,760 --> 00:00:35,360 Speaker 1: FED chair Jake Powell, I can tell you the market 9 00:00:35,520 --> 00:00:38,680 Speaker 1: screaming one thing, and that's we've got a round view 10 00:00:38,680 --> 00:00:41,199 Speaker 1: on this. Equities look like this on the SMP five 11 00:00:41,280 --> 00:00:44,960 Speaker 1: hundred afternoon to you, this is the FED decides equity 12 00:00:45,080 --> 00:00:47,120 Speaker 1: is off to the races. That one percent on SMP 13 00:00:47,280 --> 00:00:49,240 Speaker 1: on the nastack up another two percent year today the 14 00:00:49,320 --> 00:00:53,120 Speaker 1: NAST that one hundred is up almost thirteen percentage points. 15 00:00:53,120 --> 00:00:56,240 Speaker 1: In the bond market, big moves yields lower on a 16 00:00:56,280 --> 00:00:58,360 Speaker 1: two year by eight basis points, four point one two 17 00:00:58,400 --> 00:01:00,440 Speaker 1: percent on a two year on a ten year down 18 00:01:00,480 --> 00:01:03,840 Speaker 1: ten basis points to three forty t K. The FED 19 00:01:03,920 --> 00:01:06,000 Speaker 1: chair says we need to stay restrictive for some time. 20 00:01:06,240 --> 00:01:07,959 Speaker 1: The job is not fully done. There's a lot of 21 00:01:07,959 --> 00:01:09,920 Speaker 1: work to do. It's premature to think we've got this, 22 00:01:10,200 --> 00:01:12,399 Speaker 1: he said. If the economy evolves in the way they anticipate, 23 00:01:12,600 --> 00:01:14,479 Speaker 1: they don't see a twenty three rate cut, and yet 24 00:01:14,520 --> 00:01:16,880 Speaker 1: this market is leaning hard the other way. You know, 25 00:01:16,920 --> 00:01:19,679 Speaker 1: we sort of guessed that it was a snooze statement, 26 00:01:19,840 --> 00:01:22,039 Speaker 1: up we go, no big deal, and we said, maybe 27 00:01:22,120 --> 00:01:24,280 Speaker 1: the pressor will be there, and a pressor for a 28 00:01:24,360 --> 00:01:28,640 Speaker 1: number of minutes was as expected. And then maybe, like 29 00:01:28,720 --> 00:01:31,479 Speaker 1: I've never seen, it's not that we're up, John, it's 30 00:01:31,560 --> 00:01:35,600 Speaker 1: the way we're up. Out there right now is a 31 00:01:35,640 --> 00:01:39,680 Speaker 1: massive shortcover into some form of dovish. Oh look, I 32 00:01:39,800 --> 00:01:41,760 Speaker 1: just got a message on the Bloomberg. I won't reveal 33 00:01:41,840 --> 00:01:43,840 Speaker 1: who it is until they give me permission to do so, 34 00:01:43,880 --> 00:01:45,760 Speaker 1: but I can share their words with you. This is 35 00:01:45,800 --> 00:01:49,120 Speaker 1: what happens when you don't validate the December dots. That's 36 00:01:49,160 --> 00:01:50,600 Speaker 1: the view out there on Wall Street at the moment. 37 00:01:50,640 --> 00:01:53,400 Speaker 1: I'd go one step further. In essensely so, he was 38 00:01:53,480 --> 00:01:56,880 Speaker 1: recognizing that the market was appropriately adjusting to incoming information. 39 00:01:57,520 --> 00:01:59,840 Speaker 1: And then at times, in fact, I would say repeatedly 40 00:02:00,080 --> 00:02:05,120 Speaker 1: convincingly and unsuccessfully trying to lean against easy financial conditions simultaneously. 41 00:02:05,120 --> 00:02:07,000 Speaker 1: Then at the end there and we talked about this 42 00:02:07,120 --> 00:02:10,240 Speaker 1: before the decision, he basically said financial conditions hadn't he's 43 00:02:10,280 --> 00:02:12,160 Speaker 1: too much compared to where they were at the last meeting, 44 00:02:12,440 --> 00:02:14,640 Speaker 1: which is a shocking statement. And I want to just 45 00:02:14,680 --> 00:02:17,079 Speaker 1: point that out. Muhammadalarian putting out and saying, not sure 46 00:02:17,080 --> 00:02:19,440 Speaker 1: which index he is using, the most widely cited ones 47 00:02:19,480 --> 00:02:21,679 Speaker 1: show overall financial conditions is loose that they were a 48 00:02:21,760 --> 00:02:26,000 Speaker 1: year ago. Indeed, the Bloomberg Financial Conditions Index shows the 49 00:02:26,040 --> 00:02:30,440 Speaker 1: loosest financial conditions going back to February of two. So okay, 50 00:02:30,520 --> 00:02:32,360 Speaker 1: that's number one, but number two, I would say, right 51 00:02:32,360 --> 00:02:34,480 Speaker 1: out of the gate, the market's got the memo. The 52 00:02:34,520 --> 00:02:37,280 Speaker 1: first question, just as we said, J Powell, are you 53 00:02:37,320 --> 00:02:40,240 Speaker 1: concerned about how the market has rallied about how loose 54 00:02:40,280 --> 00:02:43,560 Speaker 1: financial conditions have become? Immediately he could have said yes, 55 00:02:43,639 --> 00:02:45,720 Speaker 1: this is a huge concern and said it was I'm 56 00:02:45,720 --> 00:02:48,000 Speaker 1: not sure that wasn't and then all of a sudden 57 00:02:48,080 --> 00:02:52,400 Speaker 1: marketing nicely. That was basically that's the short version of 58 00:02:52,440 --> 00:02:55,920 Speaker 1: the conference. He was asked about whether they discussed the 59 00:02:55,919 --> 00:02:57,399 Speaker 1: pause now if you want, can you do that sound 60 00:02:57,400 --> 00:02:59,160 Speaker 1: effect again, because that would be appropriate. And it was 61 00:02:59,240 --> 00:03:02,640 Speaker 1: kind of there in the mines, wait for the minutes, 62 00:03:02,680 --> 00:03:04,000 Speaker 1: t K t K. What did you make of that? 63 00:03:04,040 --> 00:03:07,120 Speaker 1: He's us directly about whether they discussed to pause at 64 00:03:07,160 --> 00:03:09,320 Speaker 1: this meeting in the last couple of days. And you've 65 00:03:09,320 --> 00:03:12,200 Speaker 1: got nothing back. You've got nothing back. The whole tenor 66 00:03:12,280 --> 00:03:15,000 Speaker 1: of it was one of disinflation. I'll let somebody count 67 00:03:15,000 --> 00:03:19,400 Speaker 1: how many times he said disinflation. John, I actually was thinking, 68 00:03:19,400 --> 00:03:22,720 Speaker 1: and folks, I can't convey enough the velocities of the 69 00:03:22,720 --> 00:03:27,400 Speaker 1: market here speaking, price up, yield down. John, the two 70 00:03:27,480 --> 00:03:31,800 Speaker 1: year yield to four digits at one brief second four 71 00:03:31,840 --> 00:03:34,600 Speaker 1: point zero nine eight one. I was thinking to myself, 72 00:03:34,840 --> 00:03:36,880 Speaker 1: is this guy going to drive the two year under 73 00:03:36,920 --> 00:03:40,080 Speaker 1: four by the end of the conference? If the kid 74 00:03:40,200 --> 00:03:42,840 Speaker 1: has three follow ups, we may have gotten earlier on 75 00:03:42,840 --> 00:03:44,360 Speaker 1: this week. We asked, what are you more interested in 76 00:03:44,360 --> 00:03:46,480 Speaker 1: the words of Chairman Pow or the economic data? Based 77 00:03:46,480 --> 00:03:48,800 Speaker 1: on that performance. I'd rather hear from the economic data, 78 00:03:49,320 --> 00:03:52,960 Speaker 1: wouldn't you, Lisa. I mean, basically, what it screams is 79 00:03:53,000 --> 00:03:57,440 Speaker 1: that he is looking at the disinflation and cautiously optimistic. 80 00:03:57,520 --> 00:04:01,200 Speaker 1: The idea that he's still talking about a soft landing 81 00:04:01,520 --> 00:04:04,520 Speaker 1: really highlights just this saying that, yeah, maybe the balance 82 00:04:04,520 --> 00:04:07,560 Speaker 1: of risks ham ha, ham ha, you've got concerns about 83 00:04:07,560 --> 00:04:10,600 Speaker 1: perhaps not going far enough, but things look pretty good again. 84 00:04:10,640 --> 00:04:13,040 Speaker 1: This isn't the pushback that people are going to look 85 00:04:13,040 --> 00:04:14,720 Speaker 1: for the mark. I like that question on the balance 86 00:04:14,760 --> 00:04:17,200 Speaker 1: of risk. It came from Colby over at the Financial Times, 87 00:04:17,200 --> 00:04:20,400 Speaker 1: the whole Colby Smith Kelby remember, used to be the 88 00:04:20,400 --> 00:04:23,080 Speaker 1: class of surveillance so many years ago. She asked about 89 00:04:23,120 --> 00:04:25,360 Speaker 1: the balance of risk, and he kind of danced around it. 90 00:04:25,680 --> 00:04:27,640 Speaker 1: Maybe four months ago he would have said, the risk 91 00:04:27,640 --> 00:04:29,800 Speaker 1: of doing too little outweighs the risk of doing too much, 92 00:04:29,800 --> 00:04:32,159 Speaker 1: and then he sort of underno, very difficult to manage 93 00:04:32,160 --> 00:04:34,040 Speaker 1: the risk of doing too little, and obviously if we 94 00:04:34,120 --> 00:04:36,400 Speaker 1: do too much we can do something. But it lacked 95 00:04:36,440 --> 00:04:39,400 Speaker 1: any real conviction, didn't it? Okay, So here's the real question. 96 00:04:39,800 --> 00:04:42,520 Speaker 1: Does he mean what he says? Because if he does 97 00:04:42,600 --> 00:04:44,320 Speaker 1: mean what he says, why didn't you go fifty and 98 00:04:44,360 --> 00:04:46,480 Speaker 1: then just pause? Right? I mean, in other words, if 99 00:04:46,480 --> 00:04:49,279 Speaker 1: he really is concerned about financial conditions at any level, 100 00:04:49,400 --> 00:04:51,159 Speaker 1: then why didn't he do that? And really that is 101 00:04:51,160 --> 00:04:54,240 Speaker 1: the screaming conclusion after this press, I'm looking at two 102 00:04:54,279 --> 00:04:57,320 Speaker 1: point zero five percent nastic lift, you know, the down 103 00:04:57,440 --> 00:04:59,800 Speaker 1: not playing SPX I think is playing out the new 104 00:05:00,000 --> 00:05:03,280 Speaker 1: It's forty one eighteen and I'm thinking of corporation is 105 00:05:03,279 --> 00:05:05,200 Speaker 1: going okay, we need to buy back shares, and the 106 00:05:05,320 --> 00:05:07,760 Speaker 1: CEOs on the phone right now screaming why did we 107 00:05:07,800 --> 00:05:11,320 Speaker 1: do this last Wednesday? Again, it's it's the folks. You 108 00:05:11,360 --> 00:05:13,760 Speaker 1: don't see this. It's the red and green of the 109 00:05:13,800 --> 00:05:16,719 Speaker 1: Bloomberg screen. And John's is different than mine, Lisa's is 110 00:05:16,760 --> 00:05:21,200 Speaker 1: different than John's, etcetera. The pulsing here of the bet 111 00:05:21,360 --> 00:05:25,200 Speaker 1: John is tangible. There is clearly still a massive spread 112 00:05:25,320 --> 00:05:27,320 Speaker 1: between the projections and the top plot from the last 113 00:05:27,360 --> 00:05:29,919 Speaker 1: summery of economic projections and what this market is priceful, 114 00:05:30,240 --> 00:05:32,039 Speaker 1: And that's going to be resolved in the next couple 115 00:05:32,080 --> 00:05:35,080 Speaker 1: of months, potentially to some extent by the incoming information 116 00:05:35,080 --> 00:05:37,200 Speaker 1: of the data, not by the Fed speak. Let's wait 117 00:05:37,200 --> 00:05:39,240 Speaker 1: for the data the CPI prints in the labor market 118 00:05:39,279 --> 00:05:41,320 Speaker 1: day when it starts with pay ross tomorrow. So here's 119 00:05:41,360 --> 00:05:44,040 Speaker 1: my question. If you get an easing and financial conditions, 120 00:05:44,120 --> 00:05:47,279 Speaker 1: does that matter in terms of pushing the economy further 121 00:05:47,360 --> 00:05:49,520 Speaker 1: away from the goal, right, I mean, does it actually 122 00:05:49,560 --> 00:05:51,839 Speaker 1: matter in a tangible way? Do you see animal spirits 123 00:05:51,920 --> 00:05:55,520 Speaker 1: or is this appropriate? It's really important theoretical questions. You know, 124 00:05:55,839 --> 00:05:59,279 Speaker 1: there's a complex question with a complex answer, but the 125 00:05:59,320 --> 00:06:02,240 Speaker 1: answer and he alluded to this, we're in new territories 126 00:06:02,279 --> 00:06:04,320 Speaker 1: as we don't know well. And I will say, Subato, 127 00:06:04,400 --> 00:06:06,640 Speaker 1: drop of Cecia are all writing in saying that he 128 00:06:06,680 --> 00:06:09,719 Speaker 1: did not emphatically push back on financial conditions or market 129 00:06:09,760 --> 00:06:12,880 Speaker 1: pricing of cuts. And that is the big takeaway from this. 130 00:06:13,720 --> 00:06:15,520 Speaker 1: I didn't get the sense he cat about that spread. 131 00:06:15,839 --> 00:06:18,320 Speaker 1: That's so we didn't. Maybe it doesn't matter to them 132 00:06:18,440 --> 00:06:20,440 Speaker 1: in the way that people think it does. The chairman 133 00:06:20,440 --> 00:06:22,960 Speaker 1: of the Federal Reserve, how can interest rates twenty five 134 00:06:23,040 --> 00:06:26,680 Speaker 1: basis points? This is what Chapel had to say. We 135 00:06:26,680 --> 00:06:29,280 Speaker 1: think we've covered a lot of ground, and financial revisions 136 00:06:29,320 --> 00:06:34,440 Speaker 1: have certainly tightened. I would say, uh, we still think 137 00:06:34,440 --> 00:06:37,000 Speaker 1: there's work to do there. We haven't made a decision 138 00:06:37,040 --> 00:06:39,880 Speaker 1: on exactly where that will be. I think, you know, 139 00:06:39,880 --> 00:06:42,080 Speaker 1: we're going to be looking carefully at the incoming data 140 00:06:42,120 --> 00:06:44,120 Speaker 1: between now in the March meeting. The job is not 141 00:06:44,200 --> 00:06:47,800 Speaker 1: fully done, except some people think it is equity by 142 00:06:47,839 --> 00:06:50,320 Speaker 1: one somebody has and on the Mastack wrought by two 143 00:06:50,320 --> 00:06:52,680 Speaker 1: percentage points. We are we have to see how it 144 00:06:52,720 --> 00:06:55,520 Speaker 1: goes in the markets, still moving, still digesting a press 145 00:06:55,520 --> 00:06:59,159 Speaker 1: conference again, the Nastack went under two point two percent. 146 00:06:59,320 --> 00:07:01,720 Speaker 1: We need him and we got it from someone who's 147 00:07:01,720 --> 00:07:05,240 Speaker 1: helped us so much over this pandemic. Jeffrey Rosenberg joined 148 00:07:05,320 --> 00:07:08,320 Speaker 1: us the senior portfolio manager black Rock. Jeff I got 149 00:07:08,360 --> 00:07:11,360 Speaker 1: eight ways to go here. But the bet that we 150 00:07:11,440 --> 00:07:14,840 Speaker 1: saw just played by the markets in the press conference 151 00:07:14,840 --> 00:07:18,680 Speaker 1: and frankly after the press conference, is enormous. Is it 152 00:07:18,760 --> 00:07:23,640 Speaker 1: a reset by the markets? Well, you know, I'm listening 153 00:07:23,640 --> 00:07:26,440 Speaker 1: to the discussion and I think you're spot on here 154 00:07:26,520 --> 00:07:28,720 Speaker 1: at LESA. I think you're your your spot on and 155 00:07:28,760 --> 00:07:32,040 Speaker 1: the comments that you highlighted, I think everybody's picked up 156 00:07:32,080 --> 00:07:34,960 Speaker 1: on it. It is the reflection, it's the answer to 157 00:07:35,000 --> 00:07:38,840 Speaker 1: the question around financial conditions that the markets really sees on. 158 00:07:39,040 --> 00:07:41,840 Speaker 1: So there's a real disconnect between you know, what he said, 159 00:07:41,920 --> 00:07:45,679 Speaker 1: what the statement said, maybe what he wanted to say, 160 00:07:45,720 --> 00:07:48,280 Speaker 1: and what the markets heard. But what the markets heard 161 00:07:48,480 --> 00:07:53,000 Speaker 1: was this issue of the conflict between financial conditions easing 162 00:07:53,400 --> 00:07:57,720 Speaker 1: and whether or not that would impact the FEDS policy making. 163 00:07:57,920 --> 00:08:01,200 Speaker 1: He dismissed it. Lisa, your second quest should answer it 164 00:08:01,320 --> 00:08:05,280 Speaker 1: absolutely matters. It matters, because it was the second thing 165 00:08:05,320 --> 00:08:08,880 Speaker 1: that he said was it's important that financial conditions reflect 166 00:08:08,960 --> 00:08:12,480 Speaker 1: the tightening, and so if they don't and it goes 167 00:08:12,600 --> 00:08:16,280 Speaker 1: too far, it absolutely feeds back into This is how 168 00:08:16,360 --> 00:08:20,120 Speaker 1: modern monetary policy transmits into the real economy, and so 169 00:08:20,200 --> 00:08:23,000 Speaker 1: it will push against the attainment of their goals and 170 00:08:23,040 --> 00:08:26,640 Speaker 1: that will eventually show up. But for today, the market 171 00:08:26,680 --> 00:08:29,480 Speaker 1: reaction is really off of that that state, at least 172 00:08:29,480 --> 00:08:31,760 Speaker 1: of the Bloomberg television banner. I didn't write this one. 173 00:08:31,800 --> 00:08:34,720 Speaker 1: This is a brilliant banner and it really says all here. 174 00:08:34,880 --> 00:08:40,240 Speaker 1: Powell acknowledges disinflation. That's a terrific summary for non sophisticates 175 00:08:40,280 --> 00:08:43,320 Speaker 1: about what they're watching here with titanic market moves, which 176 00:08:43,360 --> 00:08:45,760 Speaker 1: is just a factual statement, right, because we are seeing 177 00:08:45,760 --> 00:08:48,280 Speaker 1: disinflation in the data. And yet the way that it 178 00:08:48,360 --> 00:08:51,199 Speaker 1: was emphasized, the lack of emphasis on the balance of 179 00:08:51,280 --> 00:08:53,440 Speaker 1: risks of not going far enough is what has the 180 00:08:53,480 --> 00:08:57,360 Speaker 1: markets going. Jeff. To your point, if markets aren't listening 181 00:08:57,400 --> 00:08:59,960 Speaker 1: to what j. Powell wants, which is tighter financial can 182 00:09:00,000 --> 00:09:02,560 Speaker 1: isstions in order to get down to that two percent 183 00:09:02,640 --> 00:09:05,960 Speaker 1: call sooner. Does this basically force the Fed's hand to 184 00:09:06,040 --> 00:09:10,680 Speaker 1: go further than might be feasible for this economy. Well, 185 00:09:10,720 --> 00:09:13,520 Speaker 1: you know, it goes back to that very difficult concept 186 00:09:13,600 --> 00:09:17,120 Speaker 1: of long and variable lags that right now they don't 187 00:09:17,160 --> 00:09:22,480 Speaker 1: necessarily need to do that because right now, the disinflation commentary, 188 00:09:22,160 --> 00:09:26,640 Speaker 1: the trajectory on inflation, the good news that he highlighted 189 00:09:26,720 --> 00:09:29,240 Speaker 1: from the e c I, and the wage picture all 190 00:09:29,280 --> 00:09:32,920 Speaker 1: makes it look like, hey, everything's going according to plan here. 191 00:09:33,360 --> 00:09:37,640 Speaker 1: But if along the way that easing and financial conditions 192 00:09:38,040 --> 00:09:41,400 Speaker 1: undermines that that when you settle back down in terms 193 00:09:41,440 --> 00:09:44,800 Speaker 1: of take out the disinflationary goods piece, I thought he 194 00:09:44,840 --> 00:09:47,920 Speaker 1: did a nice job kind of uh, you know, answering 195 00:09:47,920 --> 00:09:51,160 Speaker 1: the question of I think it was it was the 196 00:09:51,280 --> 00:09:54,920 Speaker 1: question on you know, why isn't you I haven't you 197 00:09:54,960 --> 00:09:58,680 Speaker 1: already gotten success on inflation? Is because you can't annualize 198 00:09:58,960 --> 00:10:03,439 Speaker 1: the disinflation of of the goods portion of the economy. 199 00:10:03,440 --> 00:10:06,520 Speaker 1: When all of that washes out, we may end up 200 00:10:06,559 --> 00:10:09,640 Speaker 1: at a higher level. And if that's the case, it's 201 00:10:09,679 --> 00:10:13,839 Speaker 1: because the wage picture, which he cautioned many times we 202 00:10:13,920 --> 00:10:16,880 Speaker 1: haven't seen success on that, but mostly the market is 203 00:10:17,679 --> 00:10:20,840 Speaker 1: ignoring that. If that comes back to two rout at 204 00:10:20,840 --> 00:10:24,040 Speaker 1: the same time as the easing and financial conditions, it's 205 00:10:24,080 --> 00:10:26,400 Speaker 1: going to make the job harder. And Jonathan, what you 206 00:10:26,440 --> 00:10:31,760 Speaker 1: said earlier about the disconnect between the FED statement of 207 00:10:32,080 --> 00:10:35,480 Speaker 1: staying high at the terminal rate wherever that terminal rate 208 00:10:35,679 --> 00:10:39,400 Speaker 1: sets up is more? Is it fifty more? It's really 209 00:10:39,440 --> 00:10:42,120 Speaker 1: about the markets are pricing not only that, but a 210 00:10:42,160 --> 00:10:45,439 Speaker 1: full pivot and the easy and financial conditions may make 211 00:10:45,520 --> 00:10:48,040 Speaker 1: that very hard to reconcile, but that may be a 212 00:10:48,160 --> 00:10:50,800 Speaker 1: number of months and quarters away before we get to 213 00:10:51,240 --> 00:10:53,800 Speaker 1: figuring that out. Jeff, if I'm a market participant, though, 214 00:10:53,960 --> 00:10:56,520 Speaker 1: I'm listening to what he said about financial conditions and 215 00:10:56,559 --> 00:11:00,520 Speaker 1: I'm just thinking that was bizarre. No. Dutor of Renmac 216 00:11:00,600 --> 00:11:04,080 Speaker 1: just published and they'll said this. Palace said that financial 217 00:11:04,080 --> 00:11:06,840 Speaker 1: conditions of Titan considerably despite the fact that they have 218 00:11:06,920 --> 00:11:09,520 Speaker 1: as considerably. The fact that he has said that is 219 00:11:09,600 --> 00:11:12,360 Speaker 1: defish in its own right. The aults are increasing that 220 00:11:12,400 --> 00:11:15,679 Speaker 1: the fetes declaring victory too soon. Jeff, what would you 221 00:11:15,720 --> 00:11:19,120 Speaker 1: say back to that? Yeah, you know, that's I think 222 00:11:19,160 --> 00:11:23,800 Speaker 1: that's exactly. The interpretation there that if he's saying we're concerned, 223 00:11:23,800 --> 00:11:26,280 Speaker 1: what he said was, we're concerned about the longer run 224 00:11:26,360 --> 00:11:28,640 Speaker 1: financial conditions, We're not going to look at these short 225 00:11:28,760 --> 00:11:31,560 Speaker 1: term measures. What he was doing is he was dismissing 226 00:11:31,559 --> 00:11:34,000 Speaker 1: the thing that the market was most concerned about, that 227 00:11:34,080 --> 00:11:37,720 Speaker 1: they would react to easing of financial conditions. And Niels 228 00:11:37,800 --> 00:11:41,960 Speaker 1: exactly right. It gave a green light for financial conditions 229 00:11:41,960 --> 00:11:44,760 Speaker 1: in the near term to continue to ease, go ahead 230 00:11:44,840 --> 00:11:49,040 Speaker 1: and and rally UH interest rates and and and risky assets. 231 00:11:49,120 --> 00:11:52,000 Speaker 1: And so that was an opening. You know, they may 232 00:11:52,080 --> 00:11:54,280 Speaker 1: look back on that and and and need to walk 233 00:11:54,320 --> 00:11:59,040 Speaker 1: that back months. Jeff, you're in the script. Come on, 234 00:11:59,160 --> 00:12:01,720 Speaker 1: John Ferrell Nott the calendar. Bramo is better at this 235 00:12:01,840 --> 00:12:05,400 Speaker 1: and both to us, exactly when did they start walking 236 00:12:05,440 --> 00:12:07,640 Speaker 1: back this press and a couple of days we'll say, 237 00:12:07,720 --> 00:12:10,160 Speaker 1: we'll say we've got payrolls coming up on Friday. I 238 00:12:10,200 --> 00:12:12,720 Speaker 1: thought it was just really really strange, Tom, really strange. 239 00:12:12,720 --> 00:12:16,880 Speaker 1: And I guess the simple question is this bullish for 240 00:12:17,000 --> 00:12:21,840 Speaker 1: risk assets? Well, look in the in the short run, 241 00:12:21,880 --> 00:12:26,160 Speaker 1: that's the market interpretation again, because it says, hey, risky assets, 242 00:12:26,200 --> 00:12:29,480 Speaker 1: financial condition easing Fed's not going to react to that, 243 00:12:29,640 --> 00:12:33,160 Speaker 1: so it relieves some of that concern that if you 244 00:12:33,240 --> 00:12:35,120 Speaker 1: go too far then the Fed's got to do more. 245 00:12:35,320 --> 00:12:37,920 Speaker 1: Powell just said, not so worried about that. So in 246 00:12:37,960 --> 00:12:40,560 Speaker 1: the near term, yes, but but you know, you've got 247 00:12:40,559 --> 00:12:44,400 Speaker 1: to take the longer term view here that this is 248 00:12:44,480 --> 00:12:48,680 Speaker 1: going to make the attainment of the inflation objective that 249 00:12:48,760 --> 00:12:51,920 Speaker 1: much harder, and so the uncertainty is there. He had 250 00:12:51,960 --> 00:12:54,000 Speaker 1: one great line, which I think is great and great 251 00:12:54,040 --> 00:12:57,800 Speaker 1: to remember your certainty is not appropriate. And I think 252 00:12:57,840 --> 00:13:00,439 Speaker 1: that's the other takeaway as we as we work through 253 00:13:00,440 --> 00:13:03,440 Speaker 1: this inflation. Truly original, and this Mr Farrell said, as 254 00:13:03,480 --> 00:13:07,160 Speaker 1: the philosopher strange, the two year yield just breaks down 255 00:13:07,160 --> 00:13:11,840 Speaker 1: to new Low's four point zero nine six. With immense respect, Jeff, 256 00:13:12,240 --> 00:13:16,520 Speaker 1: how do you manage multi strategy in this milieu? How 257 00:13:16,559 --> 00:13:20,760 Speaker 1: do you as a pro react to what we're witnessing 258 00:13:20,800 --> 00:13:24,920 Speaker 1: this afternoon? Well, you know, it's it's it's a really 259 00:13:24,960 --> 00:13:27,920 Speaker 1: good key word that you said, which is react, which 260 00:13:28,000 --> 00:13:30,520 Speaker 1: is back to my common a second ago, certainty is 261 00:13:30,559 --> 00:13:34,240 Speaker 1: not appropriate. Forecasting here is very tough. It's very tough. 262 00:13:34,400 --> 00:13:37,640 Speaker 1: It's Powell laid out, we haven't been through five episodes 263 00:13:37,679 --> 00:13:40,720 Speaker 1: of global pandemics and know exactly how the story is 264 00:13:40,760 --> 00:13:43,959 Speaker 1: going to play out. So it is really about reacting, 265 00:13:44,040 --> 00:13:48,719 Speaker 1: not overreacting to this day's financial conditions easing um, but 266 00:13:48,800 --> 00:13:51,360 Speaker 1: it's also taking what the market is going to give you, 267 00:13:51,400 --> 00:13:53,760 Speaker 1: and and right now with the curb and version and 268 00:13:53,760 --> 00:13:56,760 Speaker 1: the opportunity of the highest yields being in the lowest 269 00:13:56,840 --> 00:13:59,760 Speaker 1: risk areas of the fixed income market, sometimes that's what 270 00:13:59,840 --> 00:14:02,080 Speaker 1: you got to take, and some of the other more 271 00:14:02,200 --> 00:14:05,160 Speaker 1: uncertain parts you just have to wait until some of 272 00:14:05,200 --> 00:14:10,320 Speaker 1: that certainty and some of that uncertainty reveals itself. And 273 00:14:10,320 --> 00:14:13,800 Speaker 1: that's critically this path that he talked about in terms 274 00:14:13,880 --> 00:14:16,320 Speaker 1: of the labor markets in the and the wage picture. 275 00:14:16,559 --> 00:14:18,080 Speaker 1: You know Tom joke that we get the two year 276 00:14:18,120 --> 00:14:21,600 Speaker 1: yield below four percent, after j Powell spoke, we're getting 277 00:14:21,600 --> 00:14:24,960 Speaker 1: closer to that four point oh eight o nine percent. 278 00:14:25,120 --> 00:14:27,440 Speaker 1: I am wondering, Jeff, whether you lean against this right 279 00:14:27,480 --> 00:14:30,000 Speaker 1: At what point would you lean against this pretty significant 280 00:14:30,040 --> 00:14:32,440 Speaker 1: move that we're seeing across the yield curve if you 281 00:14:32,560 --> 00:14:36,920 Speaker 1: do think this FED has to walk this back, well, 282 00:14:37,000 --> 00:14:39,600 Speaker 1: I think that the broader issue in terms of leaning 283 00:14:39,600 --> 00:14:43,160 Speaker 1: against is really not so much the short term. But 284 00:14:43,520 --> 00:14:46,240 Speaker 1: what is the market narrative and what is the market 285 00:14:46,280 --> 00:14:50,880 Speaker 1: pricing in. It's pricing in a a very rapid return 286 00:14:51,000 --> 00:14:54,960 Speaker 1: to two percent inflation with with a lot of certainty. 287 00:14:55,520 --> 00:14:57,920 Speaker 1: And I think that's the part that you can push 288 00:14:58,040 --> 00:15:02,680 Speaker 1: back against in terms of if that inflationary trajectory turns 289 00:15:02,720 --> 00:15:05,880 Speaker 1: out to be correct, that's already in the price, and 290 00:15:06,400 --> 00:15:10,280 Speaker 1: if it's not. The surprise is to the upside and 291 00:15:10,280 --> 00:15:14,560 Speaker 1: the vulnerability. I think it is, particularly to those longer 292 00:15:14,600 --> 00:15:18,480 Speaker 1: maturity yields, where they're reflecting not only the attainment of 293 00:15:18,480 --> 00:15:21,320 Speaker 1: that two percent inflation in the lack of any kind 294 00:15:21,320 --> 00:15:25,240 Speaker 1: of inflation term premium, but as well the pivot and 295 00:15:25,280 --> 00:15:27,640 Speaker 1: the cut in interest rates, which would be, you know, 296 00:15:27,680 --> 00:15:32,800 Speaker 1: exceptionally difficult to realize if that inflation trajectory doesn't doesn't 297 00:15:32,800 --> 00:15:35,120 Speaker 1: show up the way the consensus forecast has. I'm sitting 298 00:15:35,120 --> 00:15:36,800 Speaker 1: here and I'm about to do an impression, my best 299 00:15:36,840 --> 00:15:39,960 Speaker 1: impression of trying to be diplomatic, but we all saying 300 00:15:40,040 --> 00:15:42,400 Speaker 1: he's that bad at his job, Jeff, that he's got 301 00:15:42,400 --> 00:15:45,000 Speaker 1: to walk this back in the next couple of weeks. 302 00:15:45,040 --> 00:15:48,560 Speaker 1: I mean, are you cruel? I'm ready to understanding Jeff. 303 00:15:48,600 --> 00:15:51,320 Speaker 1: He would have had time to practice this last night 304 00:15:51,600 --> 00:15:54,000 Speaker 1: and this morning. We all knew what questions would be asked. 305 00:15:54,000 --> 00:15:56,520 Speaker 1: Are we seriously sitting here and saying he didn't mean 306 00:15:56,560 --> 00:16:01,960 Speaker 1: what he said about financial conditions? Well, I think that 307 00:16:02,160 --> 00:16:05,040 Speaker 1: was It was one question. It was in the beginning. 308 00:16:05,280 --> 00:16:09,680 Speaker 1: Everything else went to script, right. Everything else was cautionary, 309 00:16:09,880 --> 00:16:13,280 Speaker 1: explaining the different components in terms of inflation, the lack 310 00:16:13,360 --> 00:16:17,400 Speaker 1: of certainty around the wage piece, the importance of why 311 00:16:17,440 --> 00:16:21,040 Speaker 1: we need to keep the pace going slowing but going 312 00:16:21,080 --> 00:16:24,280 Speaker 1: because of their perception of what is the appropriate stand 313 00:16:24,320 --> 00:16:26,440 Speaker 1: So all of that was there. It was this one 314 00:16:26,480 --> 00:16:29,880 Speaker 1: piece on financial conditions. Perhaps there's going to be a clarification. 315 00:16:29,920 --> 00:16:31,880 Speaker 1: We've seen this before in other meetings where there were 316 00:16:31,920 --> 00:16:34,560 Speaker 1: statements made where it wasn't clearly where he was talking 317 00:16:34,560 --> 00:16:38,000 Speaker 1: about short term inflation when talking about real rates or 318 00:16:38,080 --> 00:16:40,720 Speaker 1: long term They came back out to clarify that. So 319 00:16:40,960 --> 00:16:43,840 Speaker 1: you know, perhaps they do. But most of what was 320 00:16:43,880 --> 00:16:46,040 Speaker 1: here and that was the market reaction at the beginning. 321 00:16:46,040 --> 00:16:49,560 Speaker 1: This was sort of relatively hawkish, kind of delivered on 322 00:16:49,560 --> 00:16:53,160 Speaker 1: on expectations. Rates were a little bit higher. But yeah, 323 00:16:52,840 --> 00:16:58,360 Speaker 1: the question on financial conditions certainly has triggered this round answering, Jeff, 324 00:16:58,640 --> 00:17:04,840 Speaker 1: thank you, Thank you, Jeff. Your equity market. Then at 325 00:17:04,840 --> 00:17:07,239 Speaker 1: one point supercent on the natstack, we're up by more 326 00:17:07,280 --> 00:17:09,320 Speaker 1: than two percent the rally in the bond market. Let's 327 00:17:09,320 --> 00:17:10,919 Speaker 1: look at the move Fel's allowed at the front end 328 00:17:10,920 --> 00:17:13,440 Speaker 1: by eleven basis points on a two year tom four 329 00:17:13,440 --> 00:17:16,159 Speaker 1: point zero eight percent on a two year yield. I 330 00:17:16,200 --> 00:17:17,720 Speaker 1: don't want to talk once year because we got two 331 00:17:17,720 --> 00:17:20,080 Speaker 1: great guests coming up. But John talked about in the 332 00:17:20,119 --> 00:17:23,720 Speaker 1: two year yield from above a four his move seventeen 333 00:17:23,760 --> 00:17:27,679 Speaker 1: basis points. I can honestly say I've never observed that. 334 00:17:27,800 --> 00:17:30,720 Speaker 1: And Mike McKay, running out of that news conference, joins 335 00:17:30,800 --> 00:17:35,800 Speaker 1: us right now, Mike, good afternoon. Your thoughts on that one, Well, 336 00:17:35,840 --> 00:17:38,680 Speaker 1: you know, I called up a graph of the Financial 337 00:17:38,720 --> 00:17:41,879 Speaker 1: Conditions Index, and if you look at it six months, 338 00:17:41,960 --> 00:17:45,480 Speaker 1: three months back, Uh, yes, they've eased, But go back 339 00:17:45,520 --> 00:17:49,159 Speaker 1: a year and j Pal's right, they are significantly tighter. 340 00:17:49,600 --> 00:17:52,560 Speaker 1: And so the Fed seems to be saying, we are 341 00:17:52,600 --> 00:17:56,879 Speaker 1: seeing the impact of our cumulative effort of raising interest rates. 342 00:17:57,160 --> 00:17:59,920 Speaker 1: We're not sure how much more we have to do. 343 00:18:00,520 --> 00:18:04,680 Speaker 1: We're leaving the door open to do it if necessary, 344 00:18:04,720 --> 00:18:06,720 Speaker 1: but for the first time, we're starting to acknowledge that 345 00:18:06,840 --> 00:18:10,080 Speaker 1: maybe we don't have to go as high as we 346 00:18:10,160 --> 00:18:14,160 Speaker 1: said at the last meeting in December. And so it's 347 00:18:14,440 --> 00:18:18,440 Speaker 1: kind of the FED trying to have more optionality, I 348 00:18:18,480 --> 00:18:23,400 Speaker 1: think because they are sure of where they are this UH. 349 00:18:23,480 --> 00:18:26,040 Speaker 1: The economy is sort of like Schrodinger's cat at this point, 350 00:18:26,359 --> 00:18:29,640 Speaker 1: and they're trying to direct it. So where do they 351 00:18:29,640 --> 00:18:32,320 Speaker 1: go from here? They keep an eye on all of 352 00:18:32,359 --> 00:18:34,840 Speaker 1: these indicators and his Paul said, we we've got all 353 00:18:34,880 --> 00:18:38,800 Speaker 1: these UH inflation, jobs, and growth indicators coming up before 354 00:18:38,840 --> 00:18:41,000 Speaker 1: our next meeting that we can take a look at 355 00:18:41,640 --> 00:18:44,680 Speaker 1: the markets. However, I want to trade today, And as 356 00:18:44,720 --> 00:18:47,200 Speaker 1: Paul said, they have a different job than we do. Mike, 357 00:18:47,280 --> 00:18:51,680 Speaker 1: do you think that the FED underestimates where financial markets are, 358 00:18:51,720 --> 00:18:54,119 Speaker 1: that they're looking at something else? When he talks about 359 00:18:54,280 --> 00:18:57,480 Speaker 1: tightening and financial conditions amid some of the loosest financial 360 00:18:57,480 --> 00:19:00,119 Speaker 1: conditions according to at least Bloomberg Financial Index Condition and 361 00:19:00,480 --> 00:19:06,919 Speaker 1: UH Conditions Index going back to February of UH. You know, 362 00:19:07,640 --> 00:19:09,879 Speaker 1: you can look at a lot of different indexes for 363 00:19:09,880 --> 00:19:13,480 Speaker 1: financial conditions. They're looking at the overall tightening. I think 364 00:19:13,520 --> 00:19:16,440 Speaker 1: in the bond markets is what really matters to them 365 00:19:16,800 --> 00:19:20,080 Speaker 1: is certainly liquidity and equity markets. But what that does 366 00:19:20,200 --> 00:19:23,159 Speaker 1: is simply makes it easier for companies to spend and 367 00:19:23,280 --> 00:19:25,320 Speaker 1: for people who have a lot of money to have 368 00:19:25,400 --> 00:19:28,240 Speaker 1: more money. But the spending decisions are going to be 369 00:19:28,320 --> 00:19:31,120 Speaker 1: based much more on the cost of borrowing money. And 370 00:19:31,160 --> 00:19:34,399 Speaker 1: they have had some success, they're they're coming down today. 371 00:19:34,440 --> 00:19:37,280 Speaker 1: But what would happen if we got a three point 372 00:19:37,320 --> 00:19:41,160 Speaker 1: five percent unemployment rate on Friday? Bond market might completely 373 00:19:41,160 --> 00:19:44,480 Speaker 1: reverse itself. So the Fed can't be as reactive to 374 00:19:44,640 --> 00:19:48,639 Speaker 1: every change in the way the markets go as the 375 00:19:48,680 --> 00:19:50,960 Speaker 1: markets can be. And I think Paul wanted to make 376 00:19:51,000 --> 00:19:53,639 Speaker 1: that point today. Michael McKie, thank you so much, and 377 00:19:53,680 --> 00:19:56,480 Speaker 1: we'll make further wisdom. I think John here in the 378 00:19:56,520 --> 00:19:59,240 Speaker 1: coming days, we need to frame John who this guest is. 379 00:19:59,280 --> 00:20:03,200 Speaker 1: This guy was out front on a crucial distinction. Yeah, 380 00:20:03,320 --> 00:20:08,960 Speaker 1: gloom recession, but out there everyone else was in short 381 00:20:09,680 --> 00:20:12,360 Speaker 1: and Deutsche Bank said, no, we're up. Make the cold 382 00:20:13,160 --> 00:20:16,680 Speaker 1: recessions on back. This is big a call. Remember the 383 00:20:16,720 --> 00:20:19,359 Speaker 1: conversation when it happened to Misrael. Let's go to Matthew 384 00:20:19,400 --> 00:20:23,159 Speaker 1: Lozetti right now with Deutsche Bank Matthew, do you reaffirm 385 00:20:23,240 --> 00:20:26,960 Speaker 1: a recession call after the bizarness we're seeing today? I 386 00:20:27,000 --> 00:20:29,080 Speaker 1: need I need a nast deck up three and points 387 00:20:29,160 --> 00:20:33,000 Speaker 1: to confirm the bizarness. But do you reaffirm an n 388 00:20:33,080 --> 00:20:36,239 Speaker 1: B E R recession call out there? Yeah, you know, 389 00:20:36,280 --> 00:20:39,800 Speaker 1: that is still our base case. We still have expectations 390 00:20:39,800 --> 00:20:42,399 Speaker 1: that it begins around the middle of the year, but 391 00:20:42,480 --> 00:20:45,600 Speaker 1: you are seeing some changes in risks around that. I 392 00:20:45,600 --> 00:20:48,080 Speaker 1: think we've seen some slaving in the data that's more 393 00:20:48,119 --> 00:20:50,399 Speaker 1: material in the recent data points than we were anticipating. 394 00:20:50,400 --> 00:20:53,560 Speaker 1: In consumer spending capac Certainly, the housing market has kind 395 00:20:53,560 --> 00:20:55,479 Speaker 1: of been in dire straits. We got anism report this 396 00:20:55,520 --> 00:20:58,439 Speaker 1: morning that shows very clear weakness, and so I do 397 00:20:58,520 --> 00:21:00,879 Speaker 1: think that there's you know, conditional on recession happening. There 398 00:21:00,920 --> 00:21:02,560 Speaker 1: is some risk that happens a little bit earlier than 399 00:21:02,600 --> 00:21:05,440 Speaker 1: what we have built in the forecast. At the same time, 400 00:21:05,480 --> 00:21:07,320 Speaker 1: you know, I do agree with Chair palle Bit that 401 00:21:07,960 --> 00:21:10,680 Speaker 1: the price and disinflation that we're seeing wages coming down 402 00:21:10,720 --> 00:21:13,840 Speaker 1: at the same time with financial conditions easing. If price 403 00:21:13,840 --> 00:21:16,440 Speaker 1: inflation continues to come down as it has, it does 404 00:21:16,520 --> 00:21:18,760 Speaker 1: open up a greater path to US soft landing so 405 00:21:19,200 --> 00:21:22,040 Speaker 1: still have a base case for recession timing is unchanged. 406 00:21:22,280 --> 00:21:24,159 Speaker 1: Where there has been a shifting in risks around that. 407 00:21:24,640 --> 00:21:27,520 Speaker 1: The advantage is Peter Hooper and others were we've been 408 00:21:27,560 --> 00:21:30,920 Speaker 1: talking here in the last twenty minutes about the assumption 409 00:21:31,119 --> 00:21:34,520 Speaker 1: they will adjust to this FED press press conference, which 410 00:21:34,560 --> 00:21:38,120 Speaker 1: is massively market moving. I'll let you into the data check. 411 00:21:38,160 --> 00:21:40,640 Speaker 1: I can't look at those big numbers like he can 412 00:21:40,640 --> 00:21:42,720 Speaker 1: look at them. But the bottom line here Matt was Eddy, 413 00:21:44,000 --> 00:21:46,080 Speaker 1: I don't know, come on with NAS deck out two 414 00:21:46,119 --> 00:21:49,680 Speaker 1: point seven percent up three points on the NAVS deck. 415 00:21:49,760 --> 00:21:53,800 Speaker 1: This is a massive market move. Do you expect them 416 00:21:53,840 --> 00:21:58,240 Speaker 1: to walk back this press conference? Matt? Look, you know 417 00:21:58,320 --> 00:21:59,920 Speaker 1: I think that there were three dubs things at the 418 00:22:00,040 --> 00:22:02,280 Speaker 1: mark was latching onto you. Guys have certainly been talking 419 00:22:02,320 --> 00:22:05,520 Speaker 1: about the f CI point. I think the other two 420 00:22:05,560 --> 00:22:08,240 Speaker 1: points would be He did not reaffirm the December sep 421 00:22:08,480 --> 00:22:10,639 Speaker 1: although he did indicate a couple more rate hikes as 422 00:22:10,640 --> 00:22:13,680 Speaker 1: an expectation, and he also hinted at that there were 423 00:22:13,720 --> 00:22:16,480 Speaker 1: clearly discussions about pausing. The way that I would read 424 00:22:16,520 --> 00:22:18,840 Speaker 1: the FED from now now on is you know they 425 00:22:18,920 --> 00:22:22,040 Speaker 1: are clearly guiding towards another hike in in March of 426 00:22:22,080 --> 00:22:25,040 Speaker 1: twenty basis points, but they are highly data dependent at 427 00:22:25,040 --> 00:22:28,800 Speaker 1: this point. If we get inflation accelerating in the near term, 428 00:22:29,040 --> 00:22:30,720 Speaker 1: which is our base case, and it sounds like it's 429 00:22:30,720 --> 00:22:32,879 Speaker 1: the Fed's base case as well, I think they likely 430 00:22:32,920 --> 00:22:35,200 Speaker 1: do deliver on that. That may rate hike as well, 431 00:22:35,520 --> 00:22:37,480 Speaker 1: but it'll be highly dependent on what happens with the 432 00:22:37,480 --> 00:22:39,800 Speaker 1: inflation data in terms of whether they should push back 433 00:22:39,800 --> 00:22:42,560 Speaker 1: on this or not. I do think they downweight equities 434 00:22:42,600 --> 00:22:44,680 Speaker 1: in terms of thinking about financial conditions. When you look 435 00:22:44,680 --> 00:22:47,240 Speaker 1: at broader based measures of financial conditions, what's happening with 436 00:22:47,600 --> 00:22:50,440 Speaker 1: bank lending channels, what's happening with cn I lending conditions, 437 00:22:50,600 --> 00:22:53,359 Speaker 1: There's been a much more substantial tightening there. So I 438 00:22:53,440 --> 00:22:57,000 Speaker 1: do think you have had a broader tightening of financial conditions. 439 00:22:57,280 --> 00:22:59,639 Speaker 1: You know. All that said, do they want equities to 440 00:22:59,640 --> 00:23:03,480 Speaker 1: be ripped thing right now and using pinecial conditions substantially 441 00:23:03,640 --> 00:23:06,000 Speaker 1: more than where they were? I would say, you know, sequel, 442 00:23:06,040 --> 00:23:08,840 Speaker 1: that was probably not the expectation from from the press 443 00:23:08,840 --> 00:23:11,680 Speaker 1: count Did you get there from Biggie Charger? That was 444 00:23:11,720 --> 00:23:13,679 Speaker 1: like ripping? I actually wish someone in the news conference 445 00:23:13,720 --> 00:23:15,760 Speaker 1: has said the natstack is up two point six percent. 446 00:23:15,800 --> 00:23:17,679 Speaker 1: What do you think. I think for a lot of 447 00:23:17,680 --> 00:23:20,240 Speaker 1: people in this market, they done with the inflation story 448 00:23:20,280 --> 00:23:22,439 Speaker 1: we send the peak of that. They're done with the 449 00:23:22,440 --> 00:23:24,800 Speaker 1: FED hike and cycle. They believe the terminal rate is 450 00:23:24,840 --> 00:23:27,399 Speaker 1: just around a corner. The big debate now is what 451 00:23:27,440 --> 00:23:29,720 Speaker 1: do we come down to. Where do we settle down 452 00:23:29,720 --> 00:23:31,919 Speaker 1: on CPI is at four pc? Can we get that 453 00:23:32,040 --> 00:23:34,920 Speaker 1: nice claim trajectory back to two without doing too much damage? 454 00:23:35,280 --> 00:23:37,320 Speaker 1: And how long is the Fed going to stay at peak? 455 00:23:37,400 --> 00:23:38,919 Speaker 1: And Matt, I just wonder is the date on a 456 00:23:39,000 --> 00:23:41,840 Speaker 1: calendar where you think that difference that spread between this 457 00:23:41,880 --> 00:23:45,840 Speaker 1: market and this Feller reserve starts to get reconciled, resolved 458 00:23:46,200 --> 00:23:49,320 Speaker 1: in one way or the other. Yeah. I think there's 459 00:23:49,359 --> 00:23:51,679 Speaker 1: there's two elements to this. There's the terminal rate pricing, 460 00:23:51,720 --> 00:23:54,480 Speaker 1: the gap that's there and can that possibly close? And 461 00:23:54,520 --> 00:23:57,080 Speaker 1: then there's the rate cut part to it. Um. I 462 00:23:57,160 --> 00:23:59,600 Speaker 1: do think if we get you know, stronger inflation prints 463 00:23:59,640 --> 00:24:02,600 Speaker 1: over the next few months, which is offline expectation as 464 00:24:02,640 --> 00:24:04,720 Speaker 1: I mentioned, I think it's the Feds as well that 465 00:24:04,800 --> 00:24:07,639 Speaker 1: you will likely see the market price greater probability of 466 00:24:07,880 --> 00:24:09,840 Speaker 1: a hike into May, and so that will help to 467 00:24:10,080 --> 00:24:12,359 Speaker 1: I think, narrow the gap between the Fed and the 468 00:24:12,400 --> 00:24:15,159 Speaker 1: market on terminal rate pricing. There's the other side of this, 469 00:24:15,240 --> 00:24:17,640 Speaker 1: which is then the rate cut part, and I think 470 00:24:17,680 --> 00:24:19,480 Speaker 1: that will just take you know, evidence on are we 471 00:24:19,520 --> 00:24:21,960 Speaker 1: get over accession or not. Are we seeing inflation come 472 00:24:22,000 --> 00:24:24,199 Speaker 1: down in a way in which the unemployment rate is 473 00:24:24,240 --> 00:24:27,720 Speaker 1: not moving higher? Um? But really I think, you know, 474 00:24:27,720 --> 00:24:30,720 Speaker 1: wrote a piece last week. Under most of the conditions 475 00:24:30,760 --> 00:24:33,199 Speaker 1: that we expect that the consensus expects, or even the 476 00:24:33,200 --> 00:24:36,320 Speaker 1: FED expects, they likely should begin to cut rates this year. 477 00:24:36,680 --> 00:24:38,840 Speaker 1: And that's because they are coming from such a restrictive 478 00:24:38,880 --> 00:24:43,680 Speaker 1: stance for monetary policy that that even as inflation comes down, 479 00:24:43,720 --> 00:24:46,359 Speaker 1: they can keep real rates positive while still cutting the 480 00:24:46,440 --> 00:24:48,480 Speaker 1: nominal Fed funds rate. And so I do see a 481 00:24:48,560 --> 00:24:50,080 Speaker 1: high probability of them cutting rates by the end of 482 00:24:50,119 --> 00:24:51,639 Speaker 1: the year. We have a fifty basis point cut in 483 00:24:51,640 --> 00:24:54,680 Speaker 1: December as our baseline expectation. So how high is the 484 00:24:54,760 --> 00:24:56,719 Speaker 1: hurdle for that? Can you just put some more numbers 485 00:24:57,080 --> 00:25:00,719 Speaker 1: on that particular code. Yeah, I think, you know, if 486 00:25:00,760 --> 00:25:03,840 Speaker 1: you do not see progress in the labor market loosening, 487 00:25:04,280 --> 00:25:06,560 Speaker 1: and if you were to get an inflation forecast that 488 00:25:06,600 --> 00:25:08,640 Speaker 1: is close to the FEDS. So by that, I mean, 489 00:25:08,800 --> 00:25:10,199 Speaker 1: you know, CORPC at the end of this year at 490 00:25:10,200 --> 00:25:12,560 Speaker 1: three and a half percent, the unemployment rate at or 491 00:25:12,600 --> 00:25:15,320 Speaker 1: below four percent. In that world, the FED would most 492 00:25:15,400 --> 00:25:18,560 Speaker 1: likely not be cutting rates. But we think inflation is 493 00:25:18,600 --> 00:25:20,440 Speaker 1: gonna fall a bit faster than the FED. We think 494 00:25:20,440 --> 00:25:22,520 Speaker 1: that the labor market is going to loosen a lot 495 00:25:22,560 --> 00:25:26,399 Speaker 1: more aggressively, um than you know where it is today. 496 00:25:26,480 --> 00:25:28,240 Speaker 1: And I think if you're anywhere you know, call it 497 00:25:28,280 --> 00:25:29,840 Speaker 1: four and a half to five percent on on the 498 00:25:29,880 --> 00:25:32,600 Speaker 1: unemployment rate, and that inflation CORPC has fallen into the 499 00:25:32,600 --> 00:25:35,120 Speaker 1: three percent range, you're likely to begin to at least 500 00:25:35,160 --> 00:25:37,480 Speaker 1: see a modest adjustment and monetary policy lower by the 501 00:25:37,520 --> 00:25:40,280 Speaker 1: end of the year. When does the loosening in financial 502 00:25:40,320 --> 00:25:42,720 Speaker 1: conditions that we see today with the two point six 503 00:25:42,720 --> 00:25:45,960 Speaker 1: percent gain on the NASDAC, when does that lucien ing 504 00:25:46,240 --> 00:25:49,080 Speaker 1: start to push us further away from the FEDS goal, 505 00:25:49,440 --> 00:25:53,400 Speaker 1: further away from a soft landing. Yeah. I think would 506 00:25:53,400 --> 00:25:55,919 Speaker 1: certainly agree with Chapal today that you don't want to 507 00:25:55,960 --> 00:26:00,400 Speaker 1: over emphasize any short term movements, especially want to over 508 00:26:00,440 --> 00:26:04,119 Speaker 1: emphasized movements around a key event risk, as as what 509 00:26:04,240 --> 00:26:06,560 Speaker 1: we've had with with today's FMC. So we'll have to 510 00:26:06,560 --> 00:26:08,800 Speaker 1: see what happens with the market over the next few days. 511 00:26:08,880 --> 00:26:12,439 Speaker 1: We have key data points, key earnings reports. UM. But 512 00:26:12,640 --> 00:26:17,199 Speaker 1: you have seen these high frequency estimates of fcies clearly easing. Uh. 513 00:26:17,280 --> 00:26:19,240 Speaker 1: And if that's occurring in a world where we have 514 00:26:19,280 --> 00:26:22,400 Speaker 1: some acceleration and inflation data over the coming months, UH, 515 00:26:22,520 --> 00:26:24,120 Speaker 1: then I think, you know, the FED would have likely 516 00:26:24,119 --> 00:26:26,080 Speaker 1: have to push back on that. It could very well 517 00:26:26,080 --> 00:26:28,520 Speaker 1: come simply by pricing in what the FED already expects 518 00:26:28,560 --> 00:26:30,400 Speaker 1: for the terminal rate about five percent. Do you think 519 00:26:30,520 --> 00:26:34,000 Speaker 1: the Fed did a good job today? You know, I 520 00:26:34,280 --> 00:26:36,520 Speaker 1: think was quite honest. I think they want to be 521 00:26:36,560 --> 00:26:38,920 Speaker 1: backing away from for guidance. At this point in time. 522 00:26:38,960 --> 00:26:41,080 Speaker 1: There is a lot of uncertainty. You know, there's questions 523 00:26:41,119 --> 00:26:43,040 Speaker 1: about risk management. We are coming to a world where 524 00:26:43,040 --> 00:26:44,879 Speaker 1: there's much more two side of risk because we're seeing 525 00:26:45,119 --> 00:26:48,280 Speaker 1: procession risks at the same time where inflation is moderating. 526 00:26:48,640 --> 00:26:51,119 Speaker 1: It's a difficult one always, I think to produce a 527 00:26:51,160 --> 00:26:54,119 Speaker 1: neutral outcome for the market, the market will kind of 528 00:26:54,160 --> 00:26:56,720 Speaker 1: anticipate and see and latch onto what it wants to 529 00:26:56,800 --> 00:26:58,960 Speaker 1: latch onto. I guess I would counter with there were 530 00:26:58,960 --> 00:27:02,280 Speaker 1: a few hawkers point in his um. In the press conference, 531 00:27:02,440 --> 00:27:04,320 Speaker 1: he noted a couple more rate hikes, which I would 532 00:27:04,359 --> 00:27:07,639 Speaker 1: kind of read as reaffirming that the May FMC, or sorry, 533 00:27:07,640 --> 00:27:11,480 Speaker 1: the December FMC, meaning he said that they need substantially 534 00:27:11,480 --> 00:27:14,480 Speaker 1: more evidence on the inflation front. All that, in my read, 535 00:27:14,520 --> 00:27:16,720 Speaker 1: actually suggests that the baseline remains that they hiked through 536 00:27:16,760 --> 00:27:19,160 Speaker 1: may you know, putting aside with the market has latched 537 00:27:19,160 --> 00:27:21,640 Speaker 1: onto m from from these other data points, I Matt 538 00:27:21,680 --> 00:27:23,680 Speaker 1: wonderful to catch up with the set as always Matt 539 00:27:23,720 --> 00:27:26,600 Speaker 1: LAZETI there of Deutsche Bank following the latest move from 540 00:27:26,640 --> 00:27:28,200 Speaker 1: the Federal Reserve. I want to pick up on that phrase. 541 00:27:28,240 --> 00:27:31,400 Speaker 1: It's an important one, Tom, more two sided risk. There 542 00:27:31,480 --> 00:27:33,439 Speaker 1: is a much more two sided than they were just 543 00:27:33,520 --> 00:27:36,480 Speaker 1: several months ago. And I think that maybe if you 544 00:27:36,520 --> 00:27:39,359 Speaker 1: send some hesitation in that news conference, it's a reflection 545 00:27:39,400 --> 00:27:42,640 Speaker 1: of that. Really really a good point. And what's important 546 00:27:42,680 --> 00:27:46,399 Speaker 1: here is the two sided risk is not symmetrical. The 547 00:27:46,560 --> 00:27:50,080 Speaker 1: history of central banking, going not back to biblical but 548 00:27:50,200 --> 00:27:53,639 Speaker 1: easily back to the nineteenth century, is it's always in 549 00:27:53,800 --> 00:27:58,119 Speaker 1: every case a symmetric and they're battling that reality of 550 00:27:58,200 --> 00:28:02,080 Speaker 1: asymmetry within the certainty that he mentioned there, it's an 551 00:28:02,160 --> 00:28:04,120 Speaker 1: uncertainty that all of us are living day to day. 552 00:28:04,200 --> 00:28:06,440 Speaker 1: Probably good fortune fortunate that they don't have to put 553 00:28:06,440 --> 00:28:08,919 Speaker 1: on any projections today, any forecast, because I think it's 554 00:28:08,920 --> 00:28:12,160 Speaker 1: tremendously difficult to forecast this economy one year round, given 555 00:28:12,200 --> 00:28:14,480 Speaker 1: what's happening with China. And China wasn't a big feature 556 00:28:14,800 --> 00:28:16,960 Speaker 1: of that news conference, and I imagined in a couple 557 00:28:17,000 --> 00:28:19,919 Speaker 1: of months time, I think, just sitting care guessing, I 558 00:28:19,960 --> 00:28:22,400 Speaker 1: can imagine a news conference that's got way way more 559 00:28:22,480 --> 00:28:25,080 Speaker 1: questions about China than it's us right now. He flicked 560 00:28:25,119 --> 00:28:27,560 Speaker 1: at it, though, when he started talking about whether his 561 00:28:27,880 --> 00:28:31,560 Speaker 1: statement of economic projections was changing, he talked about international 562 00:28:31,600 --> 00:28:36,560 Speaker 1: affairs were affecting some of the potential projections, so flicking 563 00:28:36,560 --> 00:28:39,440 Speaker 1: at this idea that perhaps the reopening of China could 564 00:28:39,760 --> 00:28:42,760 Speaker 1: help the situation. Pair that, though, with the fact that 565 00:28:42,800 --> 00:28:45,040 Speaker 1: now we're pricing it evidently the FED swaps pricing in 566 00:28:45,080 --> 00:28:48,640 Speaker 1: fifty basis points of rate cuts by year end. I mean, 567 00:28:48,920 --> 00:28:51,920 Speaker 1: that's both a gloomy picture and an optimistic picture. I 568 00:28:51,960 --> 00:28:53,760 Speaker 1: can't figure out which. My head's kind of just in 569 00:28:53,800 --> 00:28:55,920 Speaker 1: a nut. Another beating up on a feed as a sport, 570 00:28:56,120 --> 00:28:59,000 Speaker 1: and a lot of people enjoy playing that sport. But 571 00:28:59,040 --> 00:29:00,640 Speaker 1: if you were to sit here and say, is that 572 00:29:00,680 --> 00:29:04,000 Speaker 1: the outcome the FED chair wanted from this particular meeting, Tom, 573 00:29:04,040 --> 00:29:06,600 Speaker 1: I think it's fair to say it probably isn't. Yes, 574 00:29:06,680 --> 00:29:08,680 Speaker 1: I agree, it was in a way, it was almost 575 00:29:08,720 --> 00:29:11,240 Speaker 1: like he was in the metaverse. I mean, you know, 576 00:29:11,040 --> 00:29:14,680 Speaker 1: we don't have the metaverse within monetary policy, but I'm 577 00:29:14,680 --> 00:29:18,000 Speaker 1: looking at a market reactions that screams metaverse. Well, here's 578 00:29:18,000 --> 00:29:20,760 Speaker 1: the thing. And to be fair to J. Powell, he's 579 00:29:20,800 --> 00:29:23,200 Speaker 1: trying to speak the truth, and the truth is nuanced 580 00:29:23,360 --> 00:29:26,400 Speaker 1: to a market that doesn't want nuance and doesn't want that, 581 00:29:26,400 --> 00:29:29,080 Speaker 1: that wants a hard statement. This is what we're going 582 00:29:29,120 --> 00:29:31,120 Speaker 1: to do. This is where we lean. And he's saying, 583 00:29:31,120 --> 00:29:33,080 Speaker 1: you know, okay, we've got this, We've got that. That 584 00:29:33,240 --> 00:29:36,040 Speaker 1: nuance isn't playing well in a market that is looking 585 00:29:36,080 --> 00:29:38,600 Speaker 1: for something definitive. I just want him to reflect the 586 00:29:38,640 --> 00:29:41,400 Speaker 1: consensus on the committee. And when he's asked straight questions 587 00:29:41,480 --> 00:29:43,880 Speaker 1: like did you discuss a pause? Just answer the question 588 00:29:44,240 --> 00:29:46,720 Speaker 1: did you discuss the pause? And what are you really 589 00:29:46,720 --> 00:29:48,840 Speaker 1: worried about? If you say I discussed the pause. Then 590 00:29:48,840 --> 00:29:51,400 Speaker 1: now's that going up four? So what you've told us 591 00:29:51,400 --> 00:29:53,800 Speaker 1: you're not really bothered about financial conditions, What does that matter? 592 00:29:54,280 --> 00:29:56,960 Speaker 1: They're the kind of weird hesitant moments that I think 593 00:29:57,000 --> 00:30:00,320 Speaker 1: the market matches onto and investors just sit here and say, Okay, 594 00:30:00,440 --> 00:30:03,120 Speaker 1: let's buy, let's go. They're done here, they're hesitating, Let's 595 00:30:03,160 --> 00:30:04,920 Speaker 1: move on. And when we talk about moving on, we're not. 596 00:30:04,960 --> 00:30:06,880 Speaker 1: We're moving on to right, We're moving on to this 597 00:30:06,920 --> 00:30:10,800 Speaker 1: big conversation about the economic data, the incoming information, and 598 00:30:10,800 --> 00:30:12,719 Speaker 1: at this point, I don't think anything else matters, right, 599 00:30:13,080 --> 00:30:15,760 Speaker 1: and which economic data. They are talking about jobs, but 600 00:30:15,800 --> 00:30:18,600 Speaker 1: they're also talking about tom as you mentioned, disinflation, and 601 00:30:18,640 --> 00:30:21,320 Speaker 1: that says a lot, the fact that as focused and 602 00:30:21,360 --> 00:30:24,080 Speaker 1: emphasizing that as much as the jobs and the fully 603 00:30:24,080 --> 00:30:27,520 Speaker 1: employed America, it's disinflation within the Murta verse, speaking of murder, 604 00:30:27,720 --> 00:30:30,080 Speaker 1: get some earnings a little bit later, t K. That 605 00:30:30,120 --> 00:30:35,120 Speaker 1: does it for us. Absolutely. I think we're here again 606 00:30:35,120 --> 00:30:39,080 Speaker 1: in a few hours, exactly like tas Away exactly's just 607 00:30:39,120 --> 00:30:40,959 Speaker 1: going to say about beds. Were all that a crazy, 608 00:30:41,000 --> 00:30:43,040 Speaker 1: crazy time with a crazy time. We'll pick up the 609 00:30:43,040 --> 00:30:46,120 Speaker 1: pieces tomorrow morning, looking forward to that coverage with you 610 00:30:46,480 --> 00:30:49,440 Speaker 1: from New York City. For our audience worldwide, this was 611 00:30:49,520 --> 00:30:53,400 Speaker 1: the FET decides. This is Bloomberg. Good afternoon. Subscribe to 612 00:30:53,400 --> 00:30:56,840 Speaker 1: the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else 613 00:30:56,880 --> 00:31:00,200 Speaker 1: you get your podcasts. Listen live every weekday, started at 614 00:31:00,240 --> 00:31:02,800 Speaker 1: seven am Eastern on Bloomberg dot Com, the I Heart 615 00:31:02,880 --> 00:31:06,160 Speaker 1: Radio app tune In, and the Bloomberg Business app. You 616 00:31:06,160 --> 00:31:09,480 Speaker 1: can watch us live on Bloomberg Television and always on 617 00:31:09,520 --> 00:31:13,000 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz, and 618 00:31:13,080 --> 00:31:13,960 Speaker 1: this is Bloomberg.