WEBVTT - Surveillance: The Fed Decision 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:11.680 with Jonathan Farrell and Lisa A. Brammo Words. Join us 0:00:11.760 --> 0:00:16.840 each day for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.480 the Bloomberg Terminal, and the Bloomberg Business app. That wraps 0:00:30.520 --> 0:00:32.680 up the news conference with Sham and Powell. A balanced 0:00:32.760 --> 0:00:35.360 FED chair Jake Powell, I can tell you the market 0:00:35.520 --> 0:00:38.680 screaming one thing, and that's we've got a round view 0:00:38.680 --> 0:00:41.199 on this. Equities look like this on the SMP five 0:00:41.280 --> 0:00:44.960 hundred afternoon to you, this is the FED decides equity 0:00:45.080 --> 0:00:47.120 is off to the races. That one percent on SMP 0:00:47.280 --> 0:00:49.240 on the nastack up another two percent year today the 0:00:49.320 --> 0:00:53.120 NAST that one hundred is up almost thirteen percentage points. 0:00:53.120 --> 0:00:56.240 In the bond market, big moves yields lower on a 0:00:56.280 --> 0:00:58.360 two year by eight basis points, four point one two 0:00:58.400 --> 0:01:00.440 percent on a two year on a ten year down 0:01:00.480 --> 0:01:03.840 ten basis points to three forty t K. The FED 0:01:03.920 --> 0:01:06.000 chair says we need to stay restrictive for some time. 0:01:06.240 --> 0:01:07.959 The job is not fully done. There's a lot of 0:01:07.959 --> 0:01:09.920 work to do. It's premature to think we've got this, 0:01:10.200 --> 0:01:12.399 he said. If the economy evolves in the way they anticipate, 0:01:12.600 --> 0:01:14.479 they don't see a twenty three rate cut, and yet 0:01:14.520 --> 0:01:16.880 this market is leaning hard the other way. You know, 0:01:16.920 --> 0:01:19.679 we sort of guessed that it was a snooze statement, 0:01:19.840 --> 0:01:22.039 up we go, no big deal, and we said, maybe 0:01:22.120 --> 0:01:24.280 the pressor will be there, and a pressor for a 0:01:24.360 --> 0:01:28.640 number of minutes was as expected. And then maybe, like 0:01:28.720 --> 0:01:31.479 I've never seen, it's not that we're up, John, it's 0:01:31.560 --> 0:01:35.600 the way we're up. Out there right now is a 0:01:35.640 --> 0:01:39.680 massive shortcover into some form of dovish. Oh look, I 0:01:39.800 --> 0:01:41.760 just got a message on the Bloomberg. I won't reveal 0:01:41.840 --> 0:01:43.840 who it is until they give me permission to do so, 0:01:43.880 --> 0:01:45.760 but I can share their words with you. This is 0:01:45.800 --> 0:01:49.120 what happens when you don't validate the December dots. That's 0:01:49.160 --> 0:01:50.600 the view out there on Wall Street at the moment. 0:01:50.640 --> 0:01:53.400 I'd go one step further. In essensely so, he was 0:01:53.480 --> 0:01:56.880 recognizing that the market was appropriately adjusting to incoming information. 0:01:57.520 --> 0:01:59.840 And then at times, in fact, I would say repeatedly 0:02:00.080 --> 0:02:05.120 convincingly and unsuccessfully trying to lean against easy financial conditions simultaneously. 0:02:05.120 --> 0:02:07.000 Then at the end there and we talked about this 0:02:07.120 --> 0:02:10.240 before the decision, he basically said financial conditions hadn't he's 0:02:10.280 --> 0:02:12.160 too much compared to where they were at the last meeting, 0:02:12.440 --> 0:02:14.640 which is a shocking statement. And I want to just 0:02:14.680 --> 0:02:17.079 point that out. Muhammadalarian putting out and saying, not sure 0:02:17.080 --> 0:02:19.440 which index he is using, the most widely cited ones 0:02:19.480 --> 0:02:21.679 show overall financial conditions is loose that they were a 0:02:21.760 --> 0:02:26.000 year ago. Indeed, the Bloomberg Financial Conditions Index shows the 0:02:26.040 --> 0:02:30.440 loosest financial conditions going back to February of two. So okay, 0:02:30.520 --> 0:02:32.360 that's number one, but number two, I would say, right 0:02:32.360 --> 0:02:34.480 out of the gate, the market's got the memo. The 0:02:34.520 --> 0:02:37.280 first question, just as we said, J Powell, are you 0:02:37.320 --> 0:02:40.240 concerned about how the market has rallied about how loose 0:02:40.280 --> 0:02:43.560 financial conditions have become? Immediately he could have said yes, 0:02:43.639 --> 0:02:45.720 this is a huge concern and said it was I'm 0:02:45.720 --> 0:02:48.000 not sure that wasn't and then all of a sudden 0:02:48.080 --> 0:02:52.400 marketing nicely. That was basically that's the short version of 0:02:52.440 --> 0:02:55.920 the conference. He was asked about whether they discussed the 0:02:55.919 --> 0:02:57.399 pause now if you want, can you do that sound 0:02:57.400 --> 0:02:59.160 effect again, because that would be appropriate. And it was 0:02:59.240 --> 0:03:02.640 kind of there in the mines, wait for the minutes, 0:03:02.680 --> 0:03:04.000 t K t K. What did you make of that? 0:03:04.040 --> 0:03:07.120 He's us directly about whether they discussed to pause at 0:03:07.160 --> 0:03:09.320 this meeting in the last couple of days. And you've 0:03:09.320 --> 0:03:12.200 got nothing back. You've got nothing back. The whole tenor 0:03:12.280 --> 0:03:15.000 of it was one of disinflation. I'll let somebody count 0:03:15.000 --> 0:03:19.400 how many times he said disinflation. John, I actually was thinking, 0:03:19.400 --> 0:03:22.720 and folks, I can't convey enough the velocities of the 0:03:22.720 --> 0:03:27.400 market here speaking, price up, yield down. John, the two 0:03:27.480 --> 0:03:31.800 year yield to four digits at one brief second four 0:03:31.840 --> 0:03:34.600 point zero nine eight one. I was thinking to myself, 0:03:34.840 --> 0:03:36.880 is this guy going to drive the two year under 0:03:36.920 --> 0:03:40.080 four by the end of the conference? If the kid 0:03:40.200 --> 0:03:42.840 has three follow ups, we may have gotten earlier on 0:03:42.840 --> 0:03:44.360 this week. We asked, what are you more interested in 0:03:44.360 --> 0:03:46.480 the words of Chairman Pow or the economic data? Based 0:03:46.480 --> 0:03:48.800 on that performance. I'd rather hear from the economic data, 0:03:49.320 --> 0:03:52.960 wouldn't you, Lisa. I mean, basically, what it screams is 0:03:53.000 --> 0:03:57.440 that he is looking at the disinflation and cautiously optimistic. 0:03:57.520 --> 0:04:01.200 The idea that he's still talking about a soft landing 0:04:01.520 --> 0:04:04.520 really highlights just this saying that, yeah, maybe the balance 0:04:04.520 --> 0:04:07.560 of risks ham ha, ham ha, you've got concerns about 0:04:07.560 --> 0:04:10.600 perhaps not going far enough, but things look pretty good again. 0:04:10.640 --> 0:04:13.040 This isn't the pushback that people are going to look 0:04:13.040 --> 0:04:14.720 for the mark. I like that question on the balance 0:04:14.760 --> 0:04:17.200 of risk. It came from Colby over at the Financial Times, 0:04:17.200 --> 0:04:20.400 the whole Colby Smith Kelby remember, used to be the 0:04:20.400 --> 0:04:23.080 class of surveillance so many years ago. She asked about 0:04:23.120 --> 0:04:25.360 the balance of risk, and he kind of danced around it. 0:04:25.680 --> 0:04:27.640 Maybe four months ago he would have said, the risk 0:04:27.640 --> 0:04:29.800 of doing too little outweighs the risk of doing too much, 0:04:29.800 --> 0:04:32.159 and then he sort of underno, very difficult to manage 0:04:32.160 --> 0:04:34.040 the risk of doing too little, and obviously if we 0:04:34.120 --> 0:04:36.400 do too much we can do something. But it lacked 0:04:36.440 --> 0:04:39.400 any real conviction, didn't it? Okay, So here's the real question. 0:04:39.800 --> 0:04:42.520 Does he mean what he says? Because if he does 0:04:42.600 --> 0:04:44.320 mean what he says, why didn't you go fifty and 0:04:44.360 --> 0:04:46.480 then just pause? Right? I mean, in other words, if 0:04:46.480 --> 0:04:49.279 he really is concerned about financial conditions at any level, 0:04:49.400 --> 0:04:51.159 then why didn't he do that? And really that is 0:04:51.160 --> 0:04:54.240 the screaming conclusion after this press, I'm looking at two 0:04:54.279 --> 0:04:57.320 point zero five percent nastic lift, you know, the down 0:04:57.440 --> 0:04:59.800 not playing SPX I think is playing out the new 0:05:00.000 --> 0:05:03.280 It's forty one eighteen and I'm thinking of corporation is 0:05:03.279 --> 0:05:05.200 going okay, we need to buy back shares, and the 0:05:05.320 --> 0:05:07.760 CEOs on the phone right now screaming why did we 0:05:07.800 --> 0:05:11.320 do this last Wednesday? Again, it's it's the folks. You 0:05:11.360 --> 0:05:13.760 don't see this. It's the red and green of the 0:05:13.800 --> 0:05:16.719 Bloomberg screen. And John's is different than mine, Lisa's is 0:05:16.760 --> 0:05:21.200 different than John's, etcetera. The pulsing here of the bet 0:05:21.360 --> 0:05:25.200 John is tangible. There is clearly still a massive spread 0:05:25.320 --> 0:05:27.320 between the projections and the top plot from the last 0:05:27.360 --> 0:05:29.919 summery of economic projections and what this market is priceful, 0:05:30.240 --> 0:05:32.039 And that's going to be resolved in the next couple 0:05:32.080 --> 0:05:35.080 of months, potentially to some extent by the incoming information 0:05:35.080 --> 0:05:37.200 of the data, not by the Fed speak. Let's wait 0:05:37.200 --> 0:05:39.240 for the data the CPI prints in the labor market 0:05:39.279 --> 0:05:41.320 day when it starts with pay ross tomorrow. So here's 0:05:41.360 --> 0:05:44.040 my question. If you get an easing and financial conditions, 0:05:44.120 --> 0:05:47.279 does that matter in terms of pushing the economy further 0:05:47.360 --> 0:05:49.520 away from the goal, right, I mean, does it actually 0:05:49.560 --> 0:05:51.839 matter in a tangible way? Do you see animal spirits 0:05:51.920 --> 0:05:55.520 or is this appropriate? It's really important theoretical questions. You know, 0:05:55.839 --> 0:05:59.279 there's a complex question with a complex answer, but the 0:05:59.320 --> 0:06:02.240 answer and he alluded to this, we're in new territories 0:06:02.279 --> 0:06:04.320 as we don't know well. And I will say, Subato, 0:06:04.400 --> 0:06:06.640 drop of Cecia are all writing in saying that he 0:06:06.680 --> 0:06:09.719 did not emphatically push back on financial conditions or market 0:06:09.760 --> 0:06:12.880 pricing of cuts. And that is the big takeaway from this. 0:06:13.720 --> 0:06:15.520 I didn't get the sense he cat about that spread. 0:06:15.839 --> 0:06:18.320 That's so we didn't. Maybe it doesn't matter to them 0:06:18.440 --> 0:06:20.440 in the way that people think it does. The chairman 0:06:20.440 --> 0:06:22.960 of the Federal Reserve, how can interest rates twenty five 0:06:23.040 --> 0:06:26.680 basis points? This is what Chapel had to say. We 0:06:26.680 --> 0:06:29.280 think we've covered a lot of ground, and financial revisions 0:06:29.320 --> 0:06:34.440 have certainly tightened. I would say, uh, we still think 0:06:34.440 --> 0:06:37.000 there's work to do there. We haven't made a decision 0:06:37.040 --> 0:06:39.880 on exactly where that will be. I think, you know, 0:06:39.880 --> 0:06:42.080 we're going to be looking carefully at the incoming data 0:06:42.120 --> 0:06:44.120 between now in the March meeting. The job is not 0:06:44.200 --> 0:06:47.800 fully done, except some people think it is equity by 0:06:47.839 --> 0:06:50.320 one somebody has and on the Mastack wrought by two 0:06:50.320 --> 0:06:52.680 percentage points. We are we have to see how it 0:06:52.720 --> 0:06:55.520 goes in the markets, still moving, still digesting a press 0:06:55.520 --> 0:06:59.159 conference again, the Nastack went under two point two percent. 0:06:59.320 --> 0:07:01.720 We need him and we got it from someone who's 0:07:01.720 --> 0:07:05.240 helped us so much over this pandemic. Jeffrey Rosenberg joined 0:07:05.320 --> 0:07:08.320 us the senior portfolio manager black Rock. Jeff I got 0:07:08.360 --> 0:07:11.360 eight ways to go here. But the bet that we 0:07:11.440 --> 0:07:14.840 saw just played by the markets in the press conference 0:07:14.840 --> 0:07:18.680 and frankly after the press conference, is enormous. Is it 0:07:18.760 --> 0:07:23.640 a reset by the markets? Well, you know, I'm listening 0:07:23.640 --> 0:07:26.440 to the discussion and I think you're spot on here 0:07:26.520 --> 0:07:28.720 at LESA. I think you're your your spot on and 0:07:28.760 --> 0:07:32.040 the comments that you highlighted, I think everybody's picked up 0:07:32.080 --> 0:07:34.960 on it. It is the reflection, it's the answer to 0:07:35.000 --> 0:07:38.840 the question around financial conditions that the markets really sees on. 0:07:39.040 --> 0:07:41.840 So there's a real disconnect between you know, what he said, 0:07:41.920 --> 0:07:45.679 what the statement said, maybe what he wanted to say, 0:07:45.720 --> 0:07:48.280 and what the markets heard. But what the markets heard 0:07:48.480 --> 0:07:53.000 was this issue of the conflict between financial conditions easing 0:07:53.400 --> 0:07:57.720 and whether or not that would impact the FEDS policy making. 0:07:57.920 --> 0:08:01.200 He dismissed it. Lisa, your second quest should answer it 0:08:01.320 --> 0:08:05.280 absolutely matters. It matters, because it was the second thing 0:08:05.320 --> 0:08:08.880 that he said was it's important that financial conditions reflect 0:08:08.960 --> 0:08:12.480 the tightening, and so if they don't and it goes 0:08:12.600 --> 0:08:16.280 too far, it absolutely feeds back into This is how 0:08:16.360 --> 0:08:20.120 modern monetary policy transmits into the real economy, and so 0:08:20.200 --> 0:08:23.000 it will push against the attainment of their goals and 0:08:23.040 --> 0:08:26.640 that will eventually show up. But for today, the market 0:08:26.680 --> 0:08:29.480 reaction is really off of that that state, at least 0:08:29.480 --> 0:08:31.760 of the Bloomberg television banner. I didn't write this one. 0:08:31.800 --> 0:08:34.720 This is a brilliant banner and it really says all here. 0:08:34.880 --> 0:08:40.240 Powell acknowledges disinflation. That's a terrific summary for non sophisticates 0:08:40.280 --> 0:08:43.320 about what they're watching here with titanic market moves, which 0:08:43.360 --> 0:08:45.760 is just a factual statement, right, because we are seeing 0:08:45.760 --> 0:08:48.280 disinflation in the data. And yet the way that it 0:08:48.360 --> 0:08:51.199 was emphasized, the lack of emphasis on the balance of 0:08:51.280 --> 0:08:53.440 risks of not going far enough is what has the 0:08:53.480 --> 0:08:57.360 markets going. Jeff. To your point, if markets aren't listening 0:08:57.400 --> 0:08:59.960 to what j. Powell wants, which is tighter financial can 0:09:00.000 --> 0:09:02.560 isstions in order to get down to that two percent 0:09:02.640 --> 0:09:05.960 call sooner. Does this basically force the Fed's hand to 0:09:06.040 --> 0:09:10.680 go further than might be feasible for this economy. Well, 0:09:10.720 --> 0:09:13.520 you know, it goes back to that very difficult concept 0:09:13.600 --> 0:09:17.120 of long and variable lags that right now they don't 0:09:17.160 --> 0:09:22.480 necessarily need to do that because right now, the disinflation commentary, 0:09:22.160 --> 0:09:26.640 the trajectory on inflation, the good news that he highlighted 0:09:26.720 --> 0:09:29.240 from the e c I, and the wage picture all 0:09:29.280 --> 0:09:32.920 makes it look like, hey, everything's going according to plan here. 0:09:33.360 --> 0:09:37.640 But if along the way that easing and financial conditions 0:09:38.040 --> 0:09:41.400 undermines that that when you settle back down in terms 0:09:41.440 --> 0:09:44.800 of take out the disinflationary goods piece, I thought he 0:09:44.840 --> 0:09:47.920 did a nice job kind of uh, you know, answering 0:09:47.920 --> 0:09:51.160 the question of I think it was it was the 0:09:51.280 --> 0:09:54.920 question on you know, why isn't you I haven't you 0:09:54.960 --> 0:09:58.680 already gotten success on inflation? Is because you can't annualize 0:09:58.960 --> 0:10:03.439 the disinflation of of the goods portion of the economy. 0:10:03.440 --> 0:10:06.520 When all of that washes out, we may end up 0:10:06.559 --> 0:10:09.640 at a higher level. And if that's the case, it's 0:10:09.679 --> 0:10:13.839 because the wage picture, which he cautioned many times we 0:10:13.920 --> 0:10:16.880 haven't seen success on that, but mostly the market is 0:10:17.679 --> 0:10:20.840 ignoring that. If that comes back to two rout at 0:10:20.840 --> 0:10:24.040 the same time as the easing and financial conditions, it's 0:10:24.080 --> 0:10:26.400 going to make the job harder. And Jonathan, what you 0:10:26.440 --> 0:10:31.760 said earlier about the disconnect between the FED statement of 0:10:32.080 --> 0:10:35.480 staying high at the terminal rate wherever that terminal rate 0:10:35.679 --> 0:10:39.400 sets up is more? Is it fifty more? It's really 0:10:39.440 --> 0:10:42.120 about the markets are pricing not only that, but a 0:10:42.160 --> 0:10:45.439 full pivot and the easy and financial conditions may make 0:10:45.520 --> 0:10:48.040 that very hard to reconcile, but that may be a 0:10:48.160 --> 0:10:50.800 number of months and quarters away before we get to 0:10:51.240 --> 0:10:53.800 figuring that out. Jeff, if I'm a market participant, though, 0:10:53.960 --> 0:10:56.520 I'm listening to what he said about financial conditions and 0:10:56.559 --> 0:11:00.520 I'm just thinking that was bizarre. No. Dutor of Renmac 0:11:00.600 --> 0:11:04.080 just published and they'll said this. Palace said that financial 0:11:04.080 --> 0:11:06.840 conditions of Titan considerably despite the fact that they have 0:11:06.920 --> 0:11:09.520 as considerably. The fact that he has said that is 0:11:09.600 --> 0:11:12.360 defish in its own right. The aults are increasing that 0:11:12.400 --> 0:11:15.679 the fetes declaring victory too soon. Jeff, what would you 0:11:15.720 --> 0:11:19.120 say back to that? Yeah, you know, that's I think 0:11:19.160 --> 0:11:23.800 that's exactly. The interpretation there that if he's saying we're concerned, 0:11:23.800 --> 0:11:26.280 what he said was, we're concerned about the longer run 0:11:26.360 --> 0:11:28.640 financial conditions, We're not going to look at these short 0:11:28.760 --> 0:11:31.560 term measures. What he was doing is he was dismissing 0:11:31.559 --> 0:11:34.000 the thing that the market was most concerned about, that 0:11:34.080 --> 0:11:37.720 they would react to easing of financial conditions. And Niels 0:11:37.800 --> 0:11:41.960 exactly right. It gave a green light for financial conditions 0:11:41.960 --> 0:11:44.760 in the near term to continue to ease, go ahead 0:11:44.840 --> 0:11:49.040 and and rally UH interest rates and and and risky assets. 0:11:49.120 --> 0:11:52.000 And so that was an opening. You know, they may 0:11:52.080 --> 0:11:54.280 look back on that and and and need to walk 0:11:54.320 --> 0:11:59.040 that back months. Jeff, you're in the script. Come on, 0:11:59.160 --> 0:12:01.720 John Ferrell Nott the calendar. Bramo is better at this 0:12:01.840 --> 0:12:05.400 and both to us, exactly when did they start walking 0:12:05.440 --> 0:12:07.640 back this press and a couple of days we'll say, 0:12:07.720 --> 0:12:10.160 we'll say we've got payrolls coming up on Friday. I 0:12:10.200 --> 0:12:12.720 thought it was just really really strange, Tom, really strange. 0:12:12.720 --> 0:12:16.880 And I guess the simple question is this bullish for 0:12:17.000 --> 0:12:21.840 risk assets? Well, look in the in the short run, 0:12:21.880 --> 0:12:26.160 that's the market interpretation again, because it says, hey, risky assets, 0:12:26.200 --> 0:12:29.480 financial condition easing Fed's not going to react to that, 0:12:29.640 --> 0:12:33.160 so it relieves some of that concern that if you 0:12:33.240 --> 0:12:35.120 go too far then the Fed's got to do more. 0:12:35.320 --> 0:12:37.920 Powell just said, not so worried about that. So in 0:12:37.960 --> 0:12:40.560 the near term, yes, but but you know, you've got 0:12:40.559 --> 0:12:44.400 to take the longer term view here that this is 0:12:44.480 --> 0:12:48.680 going to make the attainment of the inflation objective that 0:12:48.760 --> 0:12:51.920 much harder, and so the uncertainty is there. He had 0:12:51.960 --> 0:12:54.000 one great line, which I think is great and great 0:12:54.040 --> 0:12:57.800 to remember your certainty is not appropriate. And I think 0:12:57.840 --> 0:13:00.439 that's the other takeaway as we as we work through 0:13:00.440 --> 0:13:03.440 this inflation. Truly original, and this Mr Farrell said, as 0:13:03.480 --> 0:13:07.160 the philosopher strange, the two year yield just breaks down 0:13:07.160 --> 0:13:11.840 to new Low's four point zero nine six. With immense respect, Jeff, 0:13:12.240 --> 0:13:16.520 how do you manage multi strategy in this milieu? How 0:13:16.559 --> 0:13:20.760 do you as a pro react to what we're witnessing 0:13:20.800 --> 0:13:24.920 this afternoon? Well, you know, it's it's it's a really 0:13:24.960 --> 0:13:27.920 good key word that you said, which is react, which 0:13:28.000 --> 0:13:30.520 is back to my common a second ago, certainty is 0:13:30.559 --> 0:13:34.240 not appropriate. Forecasting here is very tough. It's very tough. 0:13:34.400 --> 0:13:37.640 It's Powell laid out, we haven't been through five episodes 0:13:37.679 --> 0:13:40.720 of global pandemics and know exactly how the story is 0:13:40.760 --> 0:13:43.959 going to play out. So it is really about reacting, 0:13:44.040 --> 0:13:48.719 not overreacting to this day's financial conditions easing um, but 0:13:48.800 --> 0:13:51.360 it's also taking what the market is going to give you, 0:13:51.400 --> 0:13:53.760 and and right now with the curb and version and 0:13:53.760 --> 0:13:56.760 the opportunity of the highest yields being in the lowest 0:13:56.840 --> 0:13:59.760 risk areas of the fixed income market, sometimes that's what 0:13:59.840 --> 0:14:02.080 you got to take, and some of the other more 0:14:02.200 --> 0:14:05.160 uncertain parts you just have to wait until some of 0:14:05.200 --> 0:14:10.320 that certainty and some of that uncertainty reveals itself. And 0:14:10.320 --> 0:14:13.800 that's critically this path that he talked about in terms 0:14:13.880 --> 0:14:16.320 of the labor markets in the and the wage picture. 0:14:16.559 --> 0:14:18.080 You know Tom joke that we get the two year 0:14:18.120 --> 0:14:21.600 yield below four percent, after j Powell spoke, we're getting 0:14:21.600 --> 0:14:24.960 closer to that four point oh eight o nine percent. 0:14:25.120 --> 0:14:27.440 I am wondering, Jeff, whether you lean against this right 0:14:27.480 --> 0:14:30.000 At what point would you lean against this pretty significant 0:14:30.040 --> 0:14:32.440 move that we're seeing across the yield curve if you 0:14:32.560 --> 0:14:36.920 do think this FED has to walk this back, well, 0:14:37.000 --> 0:14:39.600 I think that the broader issue in terms of leaning 0:14:39.600 --> 0:14:43.160 against is really not so much the short term. But 0:14:43.520 --> 0:14:46.240 what is the market narrative and what is the market 0:14:46.280 --> 0:14:50.880 pricing in. It's pricing in a a very rapid return 0:14:51.000 --> 0:14:54.960 to two percent inflation with with a lot of certainty. 0:14:55.520 --> 0:14:57.920 And I think that's the part that you can push 0:14:58.040 --> 0:15:02.680 back against in terms of if that inflationary trajectory turns 0:15:02.720 --> 0:15:05.880 out to be correct, that's already in the price, and 0:15:06.400 --> 0:15:10.280 if it's not. The surprise is to the upside and 0:15:10.280 --> 0:15:14.560 the vulnerability. I think it is, particularly to those longer 0:15:14.600 --> 0:15:18.480 maturity yields, where they're reflecting not only the attainment of 0:15:18.480 --> 0:15:21.320 that two percent inflation in the lack of any kind 0:15:21.320 --> 0:15:25.240 of inflation term premium, but as well the pivot and 0:15:25.280 --> 0:15:27.640 the cut in interest rates, which would be, you know, 0:15:27.680 --> 0:15:32.800 exceptionally difficult to realize if that inflation trajectory doesn't doesn't 0:15:32.800 --> 0:15:35.120 show up the way the consensus forecast has. I'm sitting 0:15:35.120 --> 0:15:36.800 here and I'm about to do an impression, my best 0:15:36.840 --> 0:15:39.960 impression of trying to be diplomatic, but we all saying 0:15:40.040 --> 0:15:42.400 he's that bad at his job, Jeff, that he's got 0:15:42.400 --> 0:15:45.000 to walk this back in the next couple of weeks. 0:15:45.040 --> 0:15:48.560 I mean, are you cruel? I'm ready to understanding Jeff. 0:15:48.600 --> 0:15:51.320 He would have had time to practice this last night 0:15:51.600 --> 0:15:54.000 and this morning. We all knew what questions would be asked. 0:15:54.000 --> 0:15:56.520 Are we seriously sitting here and saying he didn't mean 0:15:56.560 --> 0:16:01.960 what he said about financial conditions? Well, I think that 0:16:02.160 --> 0:16:05.040 was It was one question. It was in the beginning. 0:16:05.280 --> 0:16:09.680 Everything else went to script, right. Everything else was cautionary, 0:16:09.880 --> 0:16:13.280 explaining the different components in terms of inflation, the lack 0:16:13.360 --> 0:16:17.400 of certainty around the wage piece, the importance of why 0:16:17.440 --> 0:16:21.040 we need to keep the pace going slowing but going 0:16:21.080 --> 0:16:24.280 because of their perception of what is the appropriate stand 0:16:24.320 --> 0:16:26.440 So all of that was there. It was this one 0:16:26.480 --> 0:16:29.880 piece on financial conditions. Perhaps there's going to be a clarification. 0:16:29.920 --> 0:16:31.880 We've seen this before in other meetings where there were 0:16:31.920 --> 0:16:34.560 statements made where it wasn't clearly where he was talking 0:16:34.560 --> 0:16:38.000 about short term inflation when talking about real rates or 0:16:38.080 --> 0:16:40.720 long term They came back out to clarify that. So 0:16:40.960 --> 0:16:43.840 you know, perhaps they do. But most of what was 0:16:43.880 --> 0:16:46.040 here and that was the market reaction at the beginning. 0:16:46.040 --> 0:16:49.560 This was sort of relatively hawkish, kind of delivered on 0:16:49.560 --> 0:16:53.160 on expectations. Rates were a little bit higher. But yeah, 0:16:52.840 --> 0:16:58.360 the question on financial conditions certainly has triggered this round answering, Jeff, 0:16:58.640 --> 0:17:04.840 thank you, Thank you, Jeff. Your equity market. Then at 0:17:04.840 --> 0:17:07.239 one point supercent on the natstack, we're up by more 0:17:07.280 --> 0:17:09.320 than two percent the rally in the bond market. Let's 0:17:09.320 --> 0:17:10.919 look at the move Fel's allowed at the front end 0:17:10.920 --> 0:17:13.440 by eleven basis points on a two year tom four 0:17:13.440 --> 0:17:16.159 point zero eight percent on a two year yield. I 0:17:16.200 --> 0:17:17.720 don't want to talk once year because we got two 0:17:17.720 --> 0:17:20.080 great guests coming up. But John talked about in the 0:17:20.119 --> 0:17:23.720 two year yield from above a four his move seventeen 0:17:23.760 --> 0:17:27.679 basis points. I can honestly say I've never observed that. 0:17:27.800 --> 0:17:30.720 And Mike McKay, running out of that news conference, joins 0:17:30.800 --> 0:17:35.800 us right now, Mike, good afternoon. Your thoughts on that one, Well, 0:17:35.840 --> 0:17:38.680 you know, I called up a graph of the Financial 0:17:38.720 --> 0:17:41.879 Conditions Index, and if you look at it six months, 0:17:41.960 --> 0:17:45.480 three months back, Uh, yes, they've eased, But go back 0:17:45.520 --> 0:17:49.159 a year and j Pal's right, they are significantly tighter. 0:17:49.600 --> 0:17:52.560 And so the Fed seems to be saying, we are 0:17:52.600 --> 0:17:56.879 seeing the impact of our cumulative effort of raising interest rates. 0:17:57.160 --> 0:17:59.920 We're not sure how much more we have to do. 0:18:00.520 --> 0:18:04.680 We're leaving the door open to do it if necessary, 0:18:04.720 --> 0:18:06.720 but for the first time, we're starting to acknowledge that 0:18:06.840 --> 0:18:10.080 maybe we don't have to go as high as we 0:18:10.160 --> 0:18:14.160 said at the last meeting in December. And so it's 0:18:14.440 --> 0:18:18.440 kind of the FED trying to have more optionality, I 0:18:18.480 --> 0:18:23.400 think because they are sure of where they are this UH. 0:18:23.480 --> 0:18:26.040 The economy is sort of like Schrodinger's cat at this point, 0:18:26.359 --> 0:18:29.640 and they're trying to direct it. So where do they 0:18:29.640 --> 0:18:32.320 go from here? They keep an eye on all of 0:18:32.359 --> 0:18:34.840 these indicators and his Paul said, we we've got all 0:18:34.880 --> 0:18:38.800 these UH inflation, jobs, and growth indicators coming up before 0:18:38.840 --> 0:18:41.000 our next meeting that we can take a look at 0:18:41.640 --> 0:18:44.680 the markets. However, I want to trade today, And as 0:18:44.720 --> 0:18:47.200 Paul said, they have a different job than we do. Mike, 0:18:47.280 --> 0:18:51.680 do you think that the FED underestimates where financial markets are, 0:18:51.720 --> 0:18:54.119 that they're looking at something else? When he talks about 0:18:54.280 --> 0:18:57.480 tightening and financial conditions amid some of the loosest financial 0:18:57.480 --> 0:19:00.119 conditions according to at least Bloomberg Financial Index Condition and 0:19:00.480 --> 0:19:06.919 UH Conditions Index going back to February of UH. You know, 0:19:07.640 --> 0:19:09.879 you can look at a lot of different indexes for 0:19:09.880 --> 0:19:13.480 financial conditions. They're looking at the overall tightening. I think 0:19:13.520 --> 0:19:16.440 in the bond markets is what really matters to them 0:19:16.800 --> 0:19:20.080 is certainly liquidity and equity markets. But what that does 0:19:20.200 --> 0:19:23.159 is simply makes it easier for companies to spend and 0:19:23.280 --> 0:19:25.320 for people who have a lot of money to have 0:19:25.400 --> 0:19:28.240 more money. But the spending decisions are going to be 0:19:28.320 --> 0:19:31.120 based much more on the cost of borrowing money. And 0:19:31.160 --> 0:19:34.399 they have had some success, they're they're coming down today. 0:19:34.440 --> 0:19:37.280 But what would happen if we got a three point 0:19:37.320 --> 0:19:41.160 five percent unemployment rate on Friday? Bond market might completely 0:19:41.160 --> 0:19:44.480 reverse itself. So the Fed can't be as reactive to 0:19:44.640 --> 0:19:48.639 every change in the way the markets go as the 0:19:48.680 --> 0:19:50.960 markets can be. And I think Paul wanted to make 0:19:51.000 --> 0:19:53.639 that point today. Michael McKie, thank you so much, and 0:19:53.680 --> 0:19:56.480 we'll make further wisdom. I think John here in the 0:19:56.520 --> 0:19:59.240 coming days, we need to frame John who this guest is. 0:19:59.280 --> 0:20:03.200 This guy was out front on a crucial distinction. Yeah, 0:20:03.320 --> 0:20:08.960 gloom recession, but out there everyone else was in short 0:20:09.680 --> 0:20:12.360 and Deutsche Bank said, no, we're up. Make the cold 0:20:13.160 --> 0:20:16.680 recessions on back. This is big a call. Remember the 0:20:16.720 --> 0:20:19.359 conversation when it happened to Misrael. Let's go to Matthew 0:20:19.400 --> 0:20:23.159 Lozetti right now with Deutsche Bank Matthew, do you reaffirm 0:20:23.240 --> 0:20:26.960 a recession call after the bizarness we're seeing today? I 0:20:27.000 --> 0:20:29.080 need I need a nast deck up three and points 0:20:29.160 --> 0:20:33.000 to confirm the bizarness. But do you reaffirm an n 0:20:33.080 --> 0:20:36.239 B E R recession call out there? Yeah, you know, 0:20:36.280 --> 0:20:39.800 that is still our base case. We still have expectations 0:20:39.800 --> 0:20:42.399 that it begins around the middle of the year, but 0:20:42.480 --> 0:20:45.600 you are seeing some changes in risks around that. I 0:20:45.600 --> 0:20:48.080 think we've seen some slaving in the data that's more 0:20:48.119 --> 0:20:50.399 material in the recent data points than we were anticipating. 0:20:50.400 --> 0:20:53.560 In consumer spending capac Certainly, the housing market has kind 0:20:53.560 --> 0:20:55.479 of been in dire straits. We got anism report this 0:20:55.520 --> 0:20:58.439 morning that shows very clear weakness, and so I do 0:20:58.520 --> 0:21:00.879 think that there's you know, conditional on recession happening. There 0:21:00.920 --> 0:21:02.560 is some risk that happens a little bit earlier than 0:21:02.600 --> 0:21:05.440 what we have built in the forecast. At the same time, 0:21:05.480 --> 0:21:07.320 you know, I do agree with Chair palle Bit that 0:21:07.960 --> 0:21:10.680