Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa A. Brammo Words. Join us
Speaker 1: each day for insight from the best and economics, geopolitics, financing, investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. That wraps
Speaker 1: up the news conference with Sham and Powell. A balanced
Speaker 1: FED chair Jake Powell, I can tell you the market
Speaker 1: screaming one thing, and that's we've got a round view
Speaker 1: on this. Equities look like this on the SMP five
Speaker 1: hundred afternoon to you, this is the FED decides equity
Speaker 1: is off to the races. That one percent on SMP
Speaker 1: on the nastack up another two percent year today the
Speaker 1: NAST that one hundred is up almost thirteen percentage points.
Speaker 1: In the bond market, big moves yields lower on a
Speaker 1: two year by eight basis points, four point one two
Speaker 1: percent on a two year on a ten year down
Speaker 1: ten basis points to three forty t K. The FED
Speaker 1: chair says we need to stay restrictive for some time.
Speaker 1: The job is not fully done. There's a lot of
Speaker 1: work to do. It's premature to think we've got this,
Speaker 1: he said. If the economy evolves in the way they anticipate,
Speaker 1: they don't see a twenty three rate cut, and yet
Speaker 1: this market is leaning hard the other way. You know,
Speaker 1: we sort of guessed that it was a snooze statement,
Speaker 1: up we go, no big deal, and we said, maybe
Speaker 1: the pressor will be there, and a pressor for a
Speaker 1: number of minutes was as expected. And then maybe, like
Speaker 1: I've never seen, it's not that we're up, John, it's
Speaker 1: the way we're up. Out there right now is a
Speaker 1: massive shortcover into some form of dovish. Oh look, I
Speaker 1: just got a message on the Bloomberg. I won't reveal
Speaker 1: who it is until they give me permission to do so,
Speaker 1: but I can share their words with you. This is
Speaker 1: what happens when you don't validate the December dots. That's
Speaker 1: the view out there on Wall Street at the moment.
Speaker 1: I'd go one step further. In essensely so, he was
Speaker 1: recognizing that the market was appropriately adjusting to incoming information.
Speaker 1: And then at times, in fact, I would say repeatedly
Speaker 1: convincingly and unsuccessfully trying to lean against easy financial conditions simultaneously.
Speaker 1: Then at the end there and we talked about this
Speaker 1: before the decision, he basically said financial conditions hadn't he's
Speaker 1: too much compared to where they were at the last meeting,
Speaker 1: which is a shocking statement. And I want to just
Speaker 1: point that out. Muhammadalarian putting out and saying, not sure
Speaker 1: which index he is using, the most widely cited ones
Speaker 1: show overall financial conditions is loose that they were a
Speaker 1: year ago. Indeed, the Bloomberg Financial Conditions Index shows the
Speaker 1: loosest financial conditions going back to February of two. So okay,
Speaker 1: that's number one, but number two, I would say, right
Speaker 1: out of the gate, the market's got the memo. The
Speaker 1: first question, just as we said, J Powell, are you
Speaker 1: concerned about how the market has rallied about how loose
Speaker 1: financial conditions have become? Immediately he could have said yes,
Speaker 1: this is a huge concern and said it was I'm
Speaker 1: not sure that wasn't and then all of a sudden
Speaker 1: marketing nicely. That was basically that's the short version of
Speaker 1: the conference. He was asked about whether they discussed the
Speaker 1: pause now if you want, can you do that sound
Speaker 1: effect again, because that would be appropriate. And it was
Speaker 1: kind of there in the mines, wait for the minutes,
Speaker 1: t K t K. What did you make of that?
Speaker 1: He's us directly about whether they discussed to pause at
Speaker 1: this meeting in the last couple of days. And you've
Speaker 1: got nothing back. You've got nothing back. The whole tenor
Speaker 1: of it was one of disinflation. I'll let somebody count
Speaker 1: how many times he said disinflation. John, I actually was thinking,
Speaker 1: and folks, I can't convey enough the velocities of the
Speaker 1: market here speaking, price up, yield down. John, the two
Speaker 1: year yield to four digits at one brief second four
Speaker 1: point zero nine eight one. I was thinking to myself,
Speaker 1: is this guy going to drive the two year under
Speaker 1: four by the end of the conference? If the kid
Speaker 1: has three follow ups, we may have gotten earlier on
Speaker 1: this week. We asked, what are you more interested in
Speaker 1: the words of Chairman Pow or the economic data? Based
Speaker 1: on that performance. I'd rather hear from the economic data,
Speaker 1: wouldn't you, Lisa. I mean, basically, what it screams is
Speaker 1: that he is looking at the disinflation and cautiously optimistic.
Speaker 1: The idea that he's still talking about a soft landing
Speaker 1: really highlights just this saying that, yeah, maybe the balance
Speaker 1: of risks ham ha, ham ha, you've got concerns about
Speaker 1: perhaps not going far enough, but things look pretty good again.
Speaker 1: This isn't the pushback that people are going to look
Speaker 1: for the mark. I like that question on the balance
Speaker 1: of risk. It came from Colby over at the Financial Times,
Speaker 1: the whole Colby Smith Kelby remember, used to be the
Speaker 1: class of surveillance so many years ago. She asked about
Speaker 1: the balance of risk, and he kind of danced around it.
Speaker 1: Maybe four months ago he would have said, the risk
Speaker 1: of doing too little outweighs the risk of doing too much,
Speaker 1: and then he sort of underno, very difficult to manage
Speaker 1: the risk of doing too little, and obviously if we
Speaker 1: do too much we can do something. But it lacked
Speaker 1: any real conviction, didn't it? Okay, So here's the real question.
Speaker 1: Does he mean what he says? Because if he does
Speaker 1: mean what he says, why didn't you go fifty and
Speaker 1: then just pause? Right? I mean, in other words, if
Speaker 1: he really is concerned about financial conditions at any level,
Speaker 1: then why didn't he do that? And really that is
Speaker 1: the screaming conclusion after this press, I'm looking at two
Speaker 1: point zero five percent nastic lift, you know, the down
Speaker 1: not playing SPX I think is playing out the new
Speaker 1: It's forty one eighteen and I'm thinking of corporation is
Speaker 1: going okay, we need to buy back shares, and the
Speaker 1: CEOs on the phone right now screaming why did we
Speaker 1: do this last Wednesday? Again, it's it's the folks. You
Speaker 1: don't see this. It's the red and green of the
Speaker 1: Bloomberg screen. And John's is different than mine, Lisa's is
Speaker 1: different than John's, etcetera. The pulsing here of the bet
Speaker 1: John is tangible. There is clearly still a massive spread
Speaker 1: between the projections and the top plot from the last
Speaker 1: summery of economic projections and what this market is priceful,
Speaker 1: And that's going to be resolved in the next couple
Speaker 1: of months, potentially to some extent by the incoming information
Speaker 1: of the data, not by the Fed speak. Let's wait
Speaker 1: for the data the CPI prints in the labor market
Speaker 1: day when it starts with pay ross tomorrow. So here's
Speaker 1: my question. If you get an easing and financial conditions,
Speaker 1: does that matter in terms of pushing the economy further
Speaker 1: away from the goal, right, I mean, does it actually
Speaker 1: matter in a tangible way? Do you see animal spirits
Speaker 1: or is this appropriate? It's really important theoretical questions. You know,
Speaker 1: there's a complex question with a complex answer, but the
Speaker 1: answer and he alluded to this, we're in new territories
Speaker 1: as we don't know well. And I will say, Subato,
Speaker 1: drop of Cecia are all writing in saying that he
Speaker 1: did not emphatically push back on financial conditions or market
Speaker 1: pricing of cuts. And that is the big takeaway from this.
Speaker 1: I didn't get the sense he cat about that spread.
Speaker 1: That's so we didn't. Maybe it doesn't matter to them
Speaker 1: in the way that people think it does. The chairman
Speaker 1: of the Federal Reserve, how can interest rates twenty five
Speaker 1: basis points? This is what Chapel had to say. We
Speaker 1: think we've covered a lot of ground, and financial revisions
Speaker 1: have certainly tightened. I would say, uh, we still think
Speaker 1: there's work to do there. We haven't made a decision
Speaker 1: on exactly where that will be. I think, you know,
Speaker 1: we're going to be looking carefully at the incoming data
Speaker 1: between now in the March meeting. The job is not
Speaker 1: fully done, except some people think it is equity by
Speaker 1: one somebody has and on the Mastack wrought by two
Speaker 1: percentage points. We are we have to see how it
Speaker 1: goes in the markets, still moving, still digesting a press
Speaker 1: conference again, the Nastack went under two point two percent.
Speaker 1: We need him and we got it from someone who's
Speaker 1: helped us so much over this pandemic. Jeffrey Rosenberg joined
Speaker 1: us the senior portfolio manager black Rock. Jeff I got
Speaker 1: eight ways to go here. But the bet that we
Speaker 1: saw just played by the markets in the press conference
Speaker 1: and frankly after the press conference, is enormous. Is it
Speaker 1: a reset by the markets? Well, you know, I'm listening
Speaker 1: to the discussion and I think you're spot on here
Speaker 1: at LESA. I think you're your your spot on and
Speaker 1: the comments that you highlighted, I think everybody's picked up
Speaker 1: on it. It is the reflection, it's the answer to
Speaker 1: the question around financial conditions that the markets really sees on.
Speaker 1: So there's a real disconnect between you know, what he said,
Speaker 1: what the statement said, maybe what he wanted to say,
Speaker 1: and what the markets heard. But what the markets heard
Speaker 1: was this issue of the conflict between financial conditions easing
Speaker 1: and whether or not that would impact the FEDS policy making.
Speaker 1: He dismissed it. Lisa, your second quest should answer it
Speaker 1: absolutely matters. It matters, because it was the second thing
Speaker 1: that he said was it's important that financial conditions reflect
Speaker 1: the tightening, and so if they don't and it goes
Speaker 1: too far, it absolutely feeds back into This is how
Speaker 1: modern monetary policy transmits into the real economy, and so
Speaker 1: it will push against the attainment of their goals and
Speaker 1: that will eventually show up. But for today, the market
Speaker 1: reaction is really off of that that state, at least
Speaker 1: of the Bloomberg television banner. I didn't write this one.
Speaker 1: This is a brilliant banner and it really says all here.
Speaker 1: Powell acknowledges disinflation. That's a terrific summary for non sophisticates
Speaker 1: about what they're watching here with titanic market moves, which
Speaker 1: is just a factual statement, right, because we are seeing
Speaker 1: disinflation in the data. And yet the way that it
Speaker 1: was emphasized, the lack of emphasis on the balance of
Speaker 1: risks of not going far enough is what has the
Speaker 1: markets going. Jeff. To your point, if markets aren't listening
Speaker 1: to what j. Powell wants, which is tighter financial can
Speaker 1: isstions in order to get down to that two percent
Speaker 1: call sooner. Does this basically force the Fed's hand to
Speaker 1: go further than might be feasible for this economy. Well,
Speaker 1: you know, it goes back to that very difficult concept
Speaker 1: of long and variable lags that right now they don't
Speaker 1: necessarily need to do that because right now, the disinflation commentary,
Speaker 1: the trajectory on inflation, the good news that he highlighted
Speaker 1: from the e c I, and the wage picture all
Speaker 1: makes it look like, hey, everything's going according to plan here.
Speaker 1: But if along the way that easing and financial conditions
Speaker 1: undermines that that when you settle back down in terms
Speaker 1: of take out the disinflationary goods piece, I thought he
Speaker 1: did a nice job kind of uh, you know, answering
Speaker 1: the question of I think it was it was the
Speaker 1: question on you know, why isn't you I haven't you
Speaker 1: already gotten success on inflation? Is because you can't annualize
Speaker 1: the disinflation of of the goods portion of the economy.
Speaker 1: When all of that washes out, we may end up
Speaker 1: at a higher level. And if that's the case, it's
Speaker 1: because the wage picture, which he cautioned many times we
Speaker 1: haven't seen success on that, but mostly the market is
Speaker 1: ignoring that. If that comes back to two rout at
Speaker 1: the same time as the easing and financial conditions, it's
Speaker 1: going to make the job harder. And Jonathan, what you
Speaker 1: said earlier about the disconnect between the FED statement of
Speaker 1: staying high at the terminal rate wherever that terminal rate
Speaker 1: sets up is more? Is it fifty more? It's really
Speaker 1: about the markets are pricing not only that, but a
Speaker 1: full pivot and the easy and financial conditions may make
Speaker 1: that very hard to reconcile, but that may be a
Speaker 1: number of months and quarters away before we get to
Speaker 1: figuring that out. Jeff, if I'm a market participant, though,
Speaker 1: I'm listening to what he said about financial conditions and
Speaker 1: I'm just thinking that was bizarre. No. Dutor of Renmac
Speaker 1: just published and they'll said this. Palace said that financial
Speaker 1: conditions of Titan considerably despite the fact that they have
Speaker 1: as considerably. The fact that he has said that is
Speaker 1: defish in its own right. The aults are increasing that
Speaker 1: the fetes declaring victory too soon. Jeff, what would you
Speaker 1: say back to that? Yeah, you know, that's I think
Speaker 1: that's exactly. The interpretation there that if he's saying we're concerned,
Speaker 1: what he said was, we're concerned about the longer run
Speaker 1: financial conditions, We're not going to look at these short
Speaker 1: term measures. What he was doing is he was dismissing
Speaker 1: the thing that the market was most concerned about, that
Speaker 1: they would react to easing of financial conditions. And Niels
Speaker 1: exactly right. It gave a green light for financial conditions
Speaker 1: in the near term to continue to ease, go ahead
Speaker 1: and and rally UH interest rates and and and risky assets.
Speaker 1: And so that was an opening. You know, they may
Speaker 1: look back on that and and and need to walk
Speaker 1: that back months. Jeff, you're in the script. Come on,
Speaker 1: John Ferrell Nott the calendar. Bramo is better at this
Speaker 1: and both to us, exactly when did they start walking
Speaker 1: back this press and a couple of days we'll say,
Speaker 1: we'll say we've got payrolls coming up on Friday. I
Speaker 1: thought it was just really really strange, Tom, really strange.
Speaker 1: And I guess the simple question is this bullish for
Speaker 1: risk assets? Well, look in the in the short run,
Speaker 1: that's the market interpretation again, because it says, hey, risky assets,
Speaker 1: financial condition easing Fed's not going to react to that,
Speaker 1: so it relieves some of that concern that if you
Speaker 1: go too far then the Fed's got to do more.
Speaker 1: Powell just said, not so worried about that. So in
Speaker 1: the near term, yes, but but you know, you've got
Speaker 1: to take the longer term view here that this is
Speaker 1: going to make the attainment of the inflation objective that
Speaker 1: much harder, and so the uncertainty is there. He had
Speaker 1: one great line, which I think is great and great
Speaker 1: to remember your certainty is not appropriate. And I think
Speaker 1: that's the other takeaway as we as we work through
Speaker 1: this inflation. Truly original, and this Mr Farrell said, as
Speaker 1: the philosopher strange, the two year yield just breaks down
Speaker 1: to new Low's four point zero nine six. With immense respect, Jeff,
Speaker 1: how do you manage multi strategy in this milieu? How
Speaker 1: do you as a pro react to what we're witnessing
Speaker 1: this afternoon? Well, you know, it's it's it's a really
Speaker 1: good key word that you said, which is react, which
Speaker 1: is back to my common a second ago, certainty is
Speaker 1: not appropriate. Forecasting here is very tough. It's very tough.
Speaker 1: It's Powell laid out, we haven't been through five episodes
Speaker 1: of global pandemics and know exactly how the story is
Speaker 1: going to play out. So it is really about reacting,
Speaker 1: not overreacting to this day's financial conditions easing um, but
Speaker 1: it's also taking what the market is going to give you,
Speaker 1: and and right now with the curb and version and
Speaker 1: the opportunity of the highest yields being in the lowest
Speaker 1: risk areas of the fixed income market, sometimes that's what
Speaker 1: you got to take, and some of the other more
Speaker 1: uncertain parts you just have to wait until some of
Speaker 1: that certainty and some of that uncertainty reveals itself. And
Speaker 1: that's critically this path that he talked about in terms
Speaker 1: of the labor markets in the and the wage picture.
Speaker 1: You know Tom joke that we get the two year
Speaker 1: yield below four percent, after j Powell spoke, we're getting
Speaker 1: closer to that four point oh eight o nine percent.
Speaker 1: I am wondering, Jeff, whether you lean against this right
Speaker 1: At what point would you lean against this pretty significant
Speaker 1: move that we're seeing across the yield curve if you
Speaker 1: do think this FED has to walk this back, well,
Speaker 1: I think that the broader issue in terms of leaning
Speaker 1: against is really not so much the short term. But
Speaker 1: what is the market narrative and what is the market
Speaker 1: pricing in. It's pricing in a a very rapid return
Speaker 1: to two percent inflation with with a lot of certainty.
Speaker 1: And I think that's the part that you can push
Speaker 1: back against in terms of if that inflationary trajectory turns
Speaker 1: out to be correct, that's already in the price, and
Speaker 1: if it's not. The surprise is to the upside and
Speaker 1: the vulnerability. I think it is, particularly to those longer
Speaker 1: maturity yields, where they're reflecting not only the attainment of
Speaker 1: that two percent inflation in the lack of any kind
Speaker 1: of inflation term premium, but as well the pivot and
Speaker 1: the cut in interest rates, which would be, you know,
Speaker 1: exceptionally difficult to realize if that inflation trajectory doesn't doesn't
Speaker 1: show up the way the consensus forecast has. I'm sitting
Speaker 1: here and I'm about to do an impression, my best
Speaker 1: impression of trying to be diplomatic, but we all saying
Speaker 1: he's that bad at his job, Jeff, that he's got
Speaker 1: to walk this back in the next couple of weeks.
Speaker 1: I mean, are you cruel? I'm ready to understanding Jeff.
Speaker 1: He would have had time to practice this last night
Speaker 1: and this morning. We all knew what questions would be asked.
Speaker 1: Are we seriously sitting here and saying he didn't mean
Speaker 1: what he said about financial conditions? Well, I think that
Speaker 1: was It was one question. It was in the beginning.
Speaker 1: Everything else went to script, right. Everything else was cautionary,
Speaker 1: explaining the different components in terms of inflation, the lack
Speaker 1: of certainty around the wage piece, the importance of why
Speaker 1: we need to keep the pace going slowing but going
Speaker 1: because of their perception of what is the appropriate stand
Speaker 1: So all of that was there. It was this one
Speaker 1: piece on financial conditions. Perhaps there's going to be a clarification.
Speaker 1: We've seen this before in other meetings where there were
Speaker 1: statements made where it wasn't clearly where he was talking
Speaker 1: about short term inflation when talking about real rates or
Speaker 1: long term They came back out to clarify that. So
Speaker 1: you know, perhaps they do. But most of what was
Speaker 1: here and that was the market reaction at the beginning.
Speaker 1: This was sort of relatively hawkish, kind of delivered on
Speaker 1: on expectations. Rates were a little bit higher. But yeah,
Speaker 1: the question on financial conditions certainly has triggered this round answering, Jeff,
Speaker 1: thank you, Thank you, Jeff. Your equity market. Then at
Speaker 1: one point supercent on the natstack, we're up by more
Speaker 1: than two percent the rally in the bond market. Let's
Speaker 1: look at the move Fel's allowed at the front end
Speaker 1: by eleven basis points on a two year tom four
Speaker 1: point zero eight percent on a two year yield. I
Speaker 1: don't want to talk once year because we got two
Speaker 1: great guests coming up. But John talked about in the
Speaker 1: two year yield from above a four his move seventeen
Speaker 1: basis points. I can honestly say I've never observed that.
Speaker 1: And Mike McKay, running out of that news conference, joins
Speaker 1: us right now, Mike, good afternoon. Your thoughts on that one, Well,
Speaker 1: you know, I called up a graph of the Financial
Speaker 1: Conditions Index, and if you look at it six months,
Speaker 1: three months back, Uh, yes, they've eased, But go back
Speaker 1: a year and j Pal's right, they are significantly tighter.
Speaker 1: And so the Fed seems to be saying, we are
Speaker 1: seeing the impact of our cumulative effort of raising interest rates.
Speaker 1: We're not sure how much more we have to do.
Speaker 1: We're leaving the door open to do it if necessary,
Speaker 1: but for the first time, we're starting to acknowledge that
Speaker 1: maybe we don't have to go as high as we
Speaker 1: said at the last meeting in December. And so it's
Speaker 1: kind of the FED trying to have more optionality, I
Speaker 1: think because they are sure of where they are this UH.
Speaker 1: The economy is sort of like Schrodinger's cat at this point,
Speaker 1: and they're trying to direct it. So where do they
Speaker 1: go from here? They keep an eye on all of
Speaker 1: these indicators and his Paul said, we we've got all
Speaker 1: these UH inflation, jobs, and growth indicators coming up before
Speaker 1: our next meeting that we can take a look at
Speaker 1: the markets. However, I want to trade today, And as
Speaker 1: Paul said, they have a different job than we do. Mike,
Speaker 1: do you think that the FED underestimates where financial markets are,
Speaker 1: that they're looking at something else? When he talks about
Speaker 1: tightening and financial conditions amid some of the loosest financial
Speaker 1: conditions according to at least Bloomberg Financial Index Condition and
Speaker 1: UH Conditions Index going back to February of UH. You know,
Speaker 1: you can look at a lot of different indexes for
Speaker 1: financial conditions. They're looking at the overall tightening. I think
Speaker 1: in the bond markets is what really matters to them
Speaker 1: is certainly liquidity and equity markets. But what that does
Speaker 1: is simply makes it easier for companies to spend and
Speaker 1: for people who have a lot of money to have
Speaker 1: more money. But the spending decisions are going to be
Speaker 1: based much more on the cost of borrowing money. And
Speaker 1: they have had some success, they're they're coming down today.
Speaker 1: But what would happen if we got a three point
Speaker 1: five percent unemployment rate on Friday? Bond market might completely
Speaker 1: reverse itself. So the Fed can't be as reactive to
Speaker 1: every change in the way the markets go as the
Speaker 1: markets can be. And I think Paul wanted to make
Speaker 1: that point today. Michael McKie, thank you so much, and
Speaker 1: we'll make further wisdom. I think John here in the
Speaker 1: coming days, we need to frame John who this guest is.
Speaker 1: This guy was out front on a crucial distinction. Yeah,
Speaker 1: gloom recession, but out there everyone else was in short
Speaker 1: and Deutsche Bank said, no, we're up. Make the cold
Speaker 1: recessions on back. This is big a call. Remember the
Speaker 1: conversation when it happened to Misrael. Let's go to Matthew
Speaker 1: Lozetti right now with Deutsche Bank Matthew, do you reaffirm
Speaker 1: a recession call after the bizarness we're seeing today? I
Speaker 1: need I need a nast deck up three and points
Speaker 1: to confirm the bizarness. But do you reaffirm an n
Speaker 1: B E R recession call out there? Yeah, you know,
Speaker 1: that is still our base case. We still have expectations
Speaker 1: that it begins around the middle of the year, but
Speaker 1: you are seeing some changes in risks around that. I
Speaker 1: think we've seen some slaving in the data that's more
Speaker 1: material in the recent data points than we were anticipating.
Speaker 1: In consumer spending capac Certainly, the housing market has kind
Speaker 1: of been in dire straits. We got anism report this
Speaker 1: morning that shows very clear weakness, and so I do
Speaker 1: think that there's you know, conditional on recession happening. There
Speaker 1: is some risk that happens a little bit earlier than
Speaker 1: what we have built in the forecast. At the same time,
Speaker 1: you know, I do agree with Chair palle Bit that
Speaker 1: the price and disinflation that we're seeing wages coming down
Speaker 1: at the same time with financial conditions easing. If price
Speaker 1: inflation continues to come down as it has, it does
Speaker 1: open up a greater path to US soft landing so
Speaker 1: still have a base case for recession timing is unchanged.
Speaker 1: Where there has been a shifting in risks around that.
Speaker 1: The advantage is Peter Hooper and others were we've been
Speaker 1: talking here in the last twenty minutes about the assumption
Speaker 1: they will adjust to this FED press press conference, which
Speaker 1: is massively market moving. I'll let you into the data check.
Speaker 1: I can't look at those big numbers like he can
Speaker 1: look at them. But the bottom line here Matt was Eddy,
Speaker 1: I don't know, come on with NAS deck out two
Speaker 1: point seven percent up three points on the NAVS deck.
Speaker 1: This is a massive market move. Do you expect them
Speaker 1: to walk back this press conference? Matt? Look, you know
Speaker 1: I think that there were three dubs things at the
Speaker 1: mark was latching onto you. Guys have certainly been talking
Speaker 1: about the f CI point. I think the other two
Speaker 1: points would be He did not reaffirm the December sep
Speaker 1: although he did indicate a couple more rate hikes as
Speaker 1: an expectation, and he also hinted at that there were
Speaker 1: clearly discussions about pausing. The way that I would read
Speaker 1: the FED from now now on is you know they
Speaker 1: are clearly guiding towards another hike in in March of
Speaker 1: twenty basis points, but they are highly data dependent at
Speaker 1: this point. If we get inflation accelerating in the near term,
Speaker 1: which is our base case, and it sounds like it's
Speaker 1: the Fed's base case as well, I think they likely
Speaker 1: do deliver on that. That may rate hike as well,
Speaker 1: but it'll be highly dependent on what happens with the
Speaker 1: inflation data in terms of whether they should push back
Speaker 1: on this or not. I do think they downweight equities
Speaker 1: in terms of thinking about financial conditions. When you look
Speaker 1: at broader based measures of financial conditions, what's happening with
Speaker 1: bank lending channels, what's happening with cn I lending conditions,
Speaker 1: There's been a much more substantial tightening there. So I
Speaker 1: do think you have had a broader tightening of financial conditions.
Speaker 1: You know. All that said, do they want equities to
Speaker 1: be ripped thing right now and using pinecial conditions substantially
Speaker 1: more than where they were? I would say, you know, sequel,
Speaker 1: that was probably not the expectation from from the press
Speaker 1: count Did you get there from Biggie Charger? That was
Speaker 1: like ripping? I actually wish someone in the news conference
Speaker 1: has said the natstack is up two point six percent.
Speaker 1: What do you think. I think for a lot of
Speaker 1: people in this market, they done with the inflation story
Speaker 1: we send the peak of that. They're done with the
Speaker 1: FED hike and cycle. They believe the terminal rate is
Speaker 1: just around a corner. The big debate now is what
Speaker 1: do we come down to. Where do we settle down
Speaker 1: on CPI is at four pc? Can we get that
Speaker 1: nice claim trajectory back to two without doing too much damage?
Speaker 1: And how long is the Fed going to stay at peak?
Speaker 1: And Matt, I just wonder is the date on a
Speaker 1: calendar where you think that difference that spread between this
Speaker 1: market and this Feller reserve starts to get reconciled, resolved
Speaker 1: in one way or the other. Yeah. I think there's
Speaker 1: there's two elements to this. There's the terminal rate pricing,
Speaker 1: the gap that's there and can that possibly close? And
Speaker 1: then there's the rate cut part to it. Um. I
Speaker 1: do think if we get you know, stronger inflation prints
Speaker 1: over the next few months, which is offline expectation as
Speaker 1: I mentioned, I think it's the Feds as well that
Speaker 1: you will likely see the market price greater probability of
Speaker 1: a hike into May, and so that will help to
Speaker 1: I think, narrow the gap between the Fed and the
Speaker 1: market on terminal rate pricing. There's the other side of this,
Speaker 1: which is then the rate cut part, and I think
Speaker 1: that will just take you know, evidence on are we
Speaker 1: get over accession or not. Are we seeing inflation come
Speaker 1: down in a way in which the unemployment rate is
Speaker 1: not moving higher? Um? But really I think, you know,
Speaker 1: wrote a piece last week. Under most of the conditions
Speaker 1: that we expect that the consensus expects, or even the
Speaker 1: FED expects, they likely should begin to cut rates this year.
Speaker 1: And that's because they are coming from such a restrictive
Speaker 1: stance for monetary policy that that even as inflation comes down,
Speaker 1: they can keep real rates positive while still cutting the
Speaker 1: nominal Fed funds rate. And so I do see a
Speaker 1: high probability of them cutting rates by the end of
Speaker 1: the year. We have a fifty basis point cut in
Speaker 1: December as our baseline expectation. So how high is the
Speaker 1: hurdle for that? Can you just put some more numbers
Speaker 1: on that particular code. Yeah, I think, you know, if
Speaker 1: you do not see progress in the labor market loosening,
Speaker 1: and if you were to get an inflation forecast that
Speaker 1: is close to the FEDS. So by that, I mean,
Speaker 1: you know, CORPC at the end of this year at
Speaker 1: three and a half percent, the unemployment rate at or
Speaker 1: below four percent. In that world, the FED would most
Speaker 1: likely not be cutting rates. But we think inflation is
Speaker 1: gonna fall a bit faster than the FED. We think
Speaker 1: that the labor market is going to loosen a lot
Speaker 1: more aggressively, um than you know where it is today.
Speaker 1: And I think if you're anywhere you know, call it
Speaker 1: four and a half to five percent on on the
Speaker 1: unemployment rate, and that inflation CORPC has fallen into the
Speaker 1: three percent range, you're likely to begin to at least
Speaker 1: see a modest adjustment and monetary policy lower by the
Speaker 1: end of the year. When does the loosening in financial
Speaker 1: conditions that we see today with the two point six
Speaker 1: percent gain on the NASDAC, when does that lucien ing
Speaker 1: start to push us further away from the FEDS goal,
Speaker 1: further away from a soft landing. Yeah. I think would
Speaker 1: certainly agree with Chapal today that you don't want to
Speaker 1: over emphasize any short term movements, especially want to over
Speaker 1: emphasized movements around a key event risk, as as what
Speaker 1: we've had with with today's FMC. So we'll have to
Speaker 1: see what happens with the market over the next few days.
Speaker 1: We have key data points, key earnings reports. UM. But
Speaker 1: you have seen these high frequency estimates of fcies clearly easing. Uh.
Speaker 1: And if that's occurring in a world where we have
Speaker 1: some acceleration and inflation data over the coming months, UH,
Speaker 1: then I think, you know, the FED would have likely
Speaker 1: have to push back on that. It could very well
Speaker 1: come simply by pricing in what the FED already expects
Speaker 1: for the terminal rate about five percent. Do you think
Speaker 1: the Fed did a good job today? You know, I
Speaker 1: think was quite honest. I think they want to be
Speaker 1: backing away from for guidance. At this point in time.
Speaker 1: There is a lot of uncertainty. You know, there's questions
Speaker 1: about risk management. We are coming to a world where
Speaker 1: there's much more two side of risk because we're seeing
Speaker 1: procession risks at the same time where inflation is moderating.
Speaker 1: It's a difficult one always, I think to produce a
Speaker 1: neutral outcome for the market, the market will kind of
Speaker 1: anticipate and see and latch onto what it wants to
Speaker 1: latch onto. I guess I would counter with there were
Speaker 1: a few hawkers point in his um. In the press conference,
Speaker 1: he noted a couple more rate hikes, which I would
Speaker 1: kind of read as reaffirming that the May FMC, or sorry,
Speaker 1: the December FMC, meaning he said that they need substantially
Speaker 1: more evidence on the inflation front. All that, in my read,
Speaker 1: actually suggests that the baseline remains that they hiked through
Speaker 1: may you know, putting aside with the market has latched
Speaker 1: onto m from from these other data points, I Matt
Speaker 1: wonderful to catch up with the set as always Matt
Speaker 1: LAZETI there of Deutsche Bank following the latest move from
Speaker 1: the Federal Reserve. I want to pick up on that phrase.
Speaker 1: It's an important one, Tom, more two sided risk. There
Speaker 1: is a much more two sided than they were just
Speaker 1: several months ago. And I think that maybe if you
Speaker 1: send some hesitation in that news conference, it's a reflection
Speaker 1: of that. Really really a good point. And what's important
Speaker 1: here is the two sided risk is not symmetrical. The
Speaker 1: history of central banking, going not back to biblical but
Speaker 1: easily back to the nineteenth century, is it's always in
Speaker 1: every case a symmetric and they're battling that reality of
Speaker 1: asymmetry within the certainty that he mentioned there, it's an
Speaker 1: uncertainty that all of us are living day to day.
Speaker 1: Probably good fortune fortunate that they don't have to put
Speaker 1: on any projections today, any forecast, because I think it's
Speaker 1: tremendously difficult to forecast this economy one year round, given
Speaker 1: what's happening with China. And China wasn't a big feature
Speaker 1: of that news conference, and I imagined in a couple
Speaker 1: of months time, I think, just sitting care guessing, I
Speaker 1: can imagine a news conference that's got way way more
Speaker 1: questions about China than it's us right now. He flicked
Speaker 1: at it, though, when he started talking about whether his
Speaker 1: statement of economic projections was changing, he talked about international
Speaker 1: affairs were affecting some of the potential projections, so flicking
Speaker 1: at this idea that perhaps the reopening of China could
Speaker 1: help the situation. Pair that, though, with the fact that
Speaker 1: now we're pricing it evidently the FED swaps pricing in
Speaker 1: fifty basis points of rate cuts by year end. I mean,
Speaker 1: that's both a gloomy picture and an optimistic picture. I
Speaker 1: can't figure out which. My head's kind of just in
Speaker 1: a nut. Another beating up on a feed as a sport,
Speaker 1: and a lot of people enjoy playing that sport. But
Speaker 1: if you were to sit here and say, is that
Speaker 1: the outcome the FED chair wanted from this particular meeting, Tom,
Speaker 1: I think it's fair to say it probably isn't. Yes,
Speaker 1: I agree, it was in a way, it was almost
Speaker 1: like he was in the metaverse. I mean, you know,
Speaker 1: we don't have the metaverse within monetary policy, but I'm
Speaker 1: looking at a market reactions that screams metaverse. Well, here's
Speaker 1: the thing. And to be fair to J. Powell, he's
Speaker 1: trying to speak the truth, and the truth is nuanced
Speaker 1: to a market that doesn't want nuance and doesn't want that,
Speaker 1: that wants a hard statement. This is what we're going
Speaker 1: to do. This is where we lean. And he's saying,
Speaker 1: you know, okay, we've got this, We've got that. That
Speaker 1: nuance isn't playing well in a market that is looking
Speaker 1: for something definitive. I just want him to reflect the
Speaker 1: consensus on the committee. And when he's asked straight questions
Speaker 1: like did you discuss a pause? Just answer the question
Speaker 1: did you discuss the pause? And what are you really
Speaker 1: worried about? If you say I discussed the pause. Then
Speaker 1: now's that going up four? So what you've told us
Speaker 1: you're not really bothered about financial conditions, What does that matter?
Speaker 1: They're the kind of weird hesitant moments that I think
Speaker 1: the market matches onto and investors just sit here and say, Okay,
Speaker 1: let's buy, let's go. They're done here, they're hesitating, Let's
Speaker 1: move on. And when we talk about moving on, we're not.
Speaker 1: We're moving on to right, We're moving on to this
Speaker 1: big conversation about the economic data, the incoming information, and
Speaker 1: at this point, I don't think anything else matters, right,
Speaker 1: and which economic data. They are talking about jobs, but
Speaker 1: they're also talking about tom as you mentioned, disinflation, and
Speaker 1: that says a lot, the fact that as focused and
Speaker 1: emphasizing that as much as the jobs and the fully
Speaker 1: employed America, it's disinflation within the Murta verse, speaking of murder,
Speaker 1: get some earnings a little bit later, t K. That
Speaker 1: does it for us. Absolutely. I think we're here again
Speaker 1: in a few hours, exactly like tas Away exactly's just
Speaker 1: going to say about beds. Were all that a crazy,
Speaker 1: crazy time with a crazy time. We'll pick up the
Speaker 1: pieces tomorrow morning, looking forward to that coverage with you
Speaker 1: from New York City. For our audience worldwide, this was
Speaker 1: the FET decides. This is Bloomberg. Good afternoon. Subscribe to
Speaker 1: the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else
Speaker 1: you get your podcasts. Listen live every weekday, started at
Speaker 1: seven am Eastern on Bloomberg dot Com, the I Heart
Speaker 1: Radio app tune In, and the Bloomberg Business app. You
Speaker 1: can watch us live on Bloomberg Television and always on
Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz, and
Speaker 1: this is Bloomberg.