Speaker 1: Chairman Powell wrapping up twenty twenty three and unleashing a
Speaker 1: monster rally from New York City this afternoon, Good afternoon,
Speaker 1: Good afternoon, alongside Tom Keen and Lisa Brownbittz'm Jonathan Ferrow
Speaker 1: here with the scores in the equery market right now
Speaker 1: on the S and P five hundred up by more
Speaker 1: than one percent, on the NASDAK up by one point
Speaker 1: one percent. The words of Emily Rowland of John Hancock Investment,
Speaker 1: it's a pivot party and everybody's invited. Chairman Powell just
Speaker 1: turned up the music. In the bond market two year,
Speaker 1: ten year, thirty year, look a little something like this.
Speaker 1: We're down twenty six basis points on a two year
Speaker 1: to four p forty seven on a ten year, we're
Speaker 1: down sixteen to four point zero four percent. We all
Speaker 1: had a big question coming into this news conference with
Speaker 1: Chairman Pow pushed back against these big moves in this
Speaker 1: bond market, these big moves in this stock market. He said,
Speaker 1: we still have a waste to go. Nobody is declaring victory.
Speaker 1: That would be premature. Then just seconds later he said.
Speaker 2: This question of when will it become appropriate to begin
Speaker 2: dialing back the amount of policy restraint in place that
Speaker 2: begins to come into view and is clearly a discush
Speaker 2: topic of discussion now in the world and also a
Speaker 2: discussion for us.
Speaker 1: At our meeting today, we discussed the timing of raycouts
Speaker 1: at today's mate sink Lisa Ramitz, that was not the
Speaker 1: pushback some people be looking forward.
Speaker 3: If this was pushback, he might as well have screamed,
Speaker 3: we did it at pop Champagne right if you're talking
Speaker 3: about a party. He basically endorsed the view that we
Speaker 3: have of the market. Where I'm looking at right now
Speaker 3: is the expectation of one hundred and forty basis points
Speaker 3: of rate cuts being priced into fed Fund's.
Speaker 4: Futures for next year.
Speaker 3: This is basically an endorsement of that bifed share Powell
Speaker 3: who had ample opportunities to push back and did not
Speaker 3: to me as be honest.
Speaker 5: To the real economy. This is truly an historic meeting.
Speaker 5: I did not expect that. I went back to March
Speaker 5: of twenty twenty, let's call it the pandemic meeting, certainly
Speaker 5: with that impact. But I think you've got to go
Speaker 5: back twenty five years. What was on spoken there As
Speaker 5: everybody plays the fed parlor game, and this and that
Speaker 5: and the other is this is a resounding vote in
Speaker 5: the American real economy and in the productivity of the country.
Speaker 5: That's that's going to all be in the research over
Speaker 5: the next.
Speaker 6: Forty eight hours.
Speaker 1: Jus get and that self to me, it's immaculate productivity
Speaker 1: phrase reading to that in a big why yeah.
Speaker 5: This is I can't I got goosebumps right now, folks.
Speaker 5: I can't emphasize how.
Speaker 6: Unique this meeting is.
Speaker 5: I don't have no idea how the Guard and Dudley
Speaker 5: respond to this. I have no idea what Christine Legard
Speaker 5: does tomorrow.
Speaker 4: I like your phrasing.
Speaker 3: Seduced by the idea that they could potentially get a
Speaker 3: soft landing, and the response to the question about the
Speaker 3: easing of financial conditions and whether that worked against their
Speaker 3: goal was not said. It was not particularly I don't
Speaker 3: want to say satisfactory, but didn't really give me a
Speaker 3: sense of what the answer actually was. Right, because we're
Speaker 3: looking at a situation where people are just all in
Speaker 3: endorsing bonds, endorsing stocks, endorsing the soft landing, and it
Speaker 3: is very rare, it is a unicorn, and so how
Speaker 3: much does this start to push things in the opposite direction.
Speaker 6: John, I'm gonna frame this.
Speaker 5: I wrote to Mohammad al Aria and I think it
Speaker 5: was out on Twitter like twenty minutes before, and I said,
Speaker 5: two standard deviations is four point zero six percent.
Speaker 6: That's right where we went.
Speaker 5: I did not expect that we blew through that and
Speaker 5: almost hit the Bramo line, which is three point nine
Speaker 5: to nine x X.
Speaker 6: We didn't get there. We did not get to the
Speaker 6: land of Bramo, but we were really quite close.
Speaker 1: You have to remember, Tom, the end of October when
Speaker 1: people put together the year ahead outlooks for the end
Speaker 1: of twenty twenty four, targets like fifty two hundred was
Speaker 1: twenty percent upside from where we were. And now you
Speaker 1: want to take k is it pullish enough? And that's
Speaker 1: going to make people really, really uncomfortable as we start
Speaker 1: to bring forward a ton of gains into year Row'll.
Speaker 6: Me quick here.
Speaker 5: We got some two special guests for you right now
Speaker 5: on radio and television. But John, what I saw there
Speaker 5: is what I'm going to call non log convexity, which
Speaker 5: is a curve to the Russell two thousand, which is
Speaker 5: an acceleration of money in and I just wonder to
Speaker 5: year in how traditional money reacts and if you get
Speaker 5: what Greg Peters talked about, which is some legit convexity here.
Speaker 1: What's the bet. I think the bet right now, Tom,
Speaker 1: is that growth doesn't get hit hot. This fed's going
Speaker 1: to count based on what we've just been told by
Speaker 1: Chairman Powder, rather what we weren't sold and what's implied
Speaker 1: already in market pricing. But Lisa, what would upset the bet.
Speaker 1: What would upset the bet right now is you've get
Speaker 1: a real down to it in economy that's not part
Speaker 1: of this story that's been priced in at the moment.
Speaker 3: And there's dissonance when the FED statement is saying that
Speaker 3: there is a lagging effect, a lagging impact of FED
Speaker 3: rate hikes that hasn't yet been played out. If that's
Speaker 3: the case, where is that in the statement of economic projection?
Speaker 5: We have a terrific lineup for you, and we start
Speaker 5: strong here after this historic press conference with William Dudley,
Speaker 5: he's a former New York FED president and a student
Speaker 5: at California Berkeley years ago of our monetary history and
Speaker 5: of course Bloomberg economic senior. As I said, Bill, I
Speaker 5: got goosebumps. It just seems to be a massive statement
Speaker 5: that even if we have nominal GDP of four percent,
Speaker 5: we have immaculate productivity and will somehow get through this.
Speaker 5: Do we sustain this market reaction, this belief in America,
Speaker 5: or do we are we inset for some titanic disappointment.
Speaker 7: Well, I think that Peals Prescott has made clear that
Speaker 7: he's really pleased by how the economies performed, the fact
Speaker 7: that you could get inflation down, about the unemployer.
Speaker 8: Rate going up, had some moderation and wages. He thinks
Speaker 8: everything is going really, really well, and I think that's true.
Speaker 9: The question is whether it's going to continue or not,
Speaker 9: and there are definitely things that can go wrong. One
Speaker 9: thing that can could go wrong is the fact keeps
Speaker 9: madret policy too tight for too long and we have
Speaker 9: weaker economy. Another thing that can go wrong is if
Speaker 9: that can ease policy prematurely, or the market itself can
Speaker 9: ease financial conditions prematurely, which will stimulate THEO and make
Speaker 9: it so that the Fed can't cut rates that's at
Speaker 9: all as quickly as the market expects. I think the
Speaker 9: market's getting a little to have itself here in the
Speaker 9: sense of taking the fit's optimism and translating that into
Speaker 9: very large reductions and short term rates in twenty twenty four.
Speaker 1: But what do you think happened to the Chanman pound
Speaker 1: of only two weeks ago.
Speaker 8: I just think that they're very happy with how the
Speaker 8: economy is performed.
Speaker 7: I mean, basically, they've had decent growth, unemploying rates stable,
Speaker 7: and inslation's come down a lot, and.
Speaker 8: That's basically, you know, as good as it can get.
Speaker 7: And that's really what's just summarizing the summary of economic
Speaker 7: production now summary of economic projection shows a very modest
Speaker 7: increase in the unipllyer rate from here and essentially a
Speaker 7: soft landing kind of forecast. Now, soft landings are really
Speaker 7: difficult to pull off, and they're particularly difficult to pull
Speaker 7: off when you've been very late to type monitoring policy.
Speaker 7: And what's allowed this to happen is that there were
Speaker 7: supply disruptions. There was a reduction and labor supply, both
Speaker 7: of those things every verse, and that made the fifth
Speaker 7: job a lot easier.
Speaker 1: Build the prospect of getting sticky in flag shit into
Speaker 1: next year, getting stuck at three. So it makes it
Speaker 1: because six months ago, Bill, we were told that the
Speaker 1: last mile. It was difficult. It was hard. Then Secondary
Speaker 1: and starts sounding like the fat chair again, saying it's
Speaker 1: not that hard. You hear it from chairm and Power
Speaker 1: didn't get any indication it would be particularly difficult into
Speaker 1: next year. Do you think that is the prudent approach
Speaker 1: to what twenty twenty four could look like.
Speaker 8: I think he's telling you what he really thinks.
Speaker 7: I think he's very happy with how things are performed,
Speaker 7: and he didn't say it would necessarily continue, but he
Speaker 7: also said that he was hopeful that.
Speaker 8: These trends would continue into twenty twenty four.
Speaker 7: My own view is that the Fed is going to
Speaker 7: be cutting rates in twenty twenty four.
Speaker 8: We're clearly done in terms of rate hikes.
Speaker 7: The possibility of another radhike is really low at this point.
Speaker 7: The question is really just timing of rate cuts and magnitude,
Speaker 7: and that's going to basically be driven by the strength
Speaker 7: of the economy, pressure on resources, and what actually happens
Speaker 7: to services inflation at this point.
Speaker 3: Bill, do you think that j.
Speaker 4: Powell did a good job.
Speaker 3: Do you think that it was right for him to
Speaker 3: say what he thinks and not push back at all
Speaker 3: against the market Party.
Speaker 7: I always think it's good to say what you really think,
Speaker 7: but I think the problem with doing so is it's
Speaker 7: basically added fuel to the fire.
Speaker 8: Paul talks about the long legs of.
Speaker 7: Entre policy, but financial conditions are much much more commonative
Speaker 7: than there were just a few months ago. And if
Speaker 7: you look at the Fed's own assessment of financial conditions
Speaker 7: back at the end of October, of the impulse from
Speaker 7: financial conditions the economy, based on the fedsal model.
Speaker 8: Was pretty neutral.
Speaker 7: So financial conditions now are actually adding impulse towards the
Speaker 7: economic growth going forward.
Speaker 5: I look Bill at where we are, and it's clearly
Speaker 5: beyond the pandemic. We've had a number of conversations off
Speaker 5: across a long surveillance day about how goods are goods,
Speaker 5: and we've got some deflation and service sector inflation's coming down.
Speaker 6: Is this economy beyond the pandemic? If you were to.
Speaker 5: Talk to Mary Daily in San Francisco, to John will
Speaker 5: at the New York Fed, can we say our economy
Speaker 5: is beyond the pandemic?
Speaker 7: I think mostly in this sense that the conditions today
Speaker 7: are very similar to where we were in February twenty twenty,
Speaker 7: when we had a very tight labor market. The difference
Speaker 7: is wages are a bit higher, inflation's a bit higher,
Speaker 7: and mandre policy.
Speaker 8: Is considerably tighter.
Speaker 7: But it does feel more like February twenty twenty than
Speaker 7: it does between any period.
Speaker 1: After that bill sit tight. I want to bring in
Speaker 1: Mia Kay down in Washington day. Say, Michael McKay, you
Speaker 1: were in that news conference. Were you surprised by the
Speaker 1: approach from Chaman Powell?
Speaker 10: Well, I wasn't surprised by the approach once we'd heard
Speaker 10: from the Fed and in their statement and what we
Speaker 10: saw in the dot plot. But it is a rather
Speaker 10: dramatic change from what he said just twelve days ago
Speaker 10: about it not being time to talk about ray cuts.
Speaker 4: Obviously they did.
Speaker 10: Today they're feeling much better about the overall state of
Speaker 10: the economy. As one analyst put it, today, if good
Speaker 10: inflation report is j PL's idea of a good time,
Speaker 10: then his party has turned into a rager because inflation
Speaker 10: is coming down very quickly. And then the next question becomes,
Speaker 10: as I asked him, when do you cut? And that's
Speaker 10: the part they're not ready to get into yet or describe.
Speaker 4: And so we're probably still.
Speaker 10: In for a few months of the markets watching the
Speaker 10: data and trying to guess when the Fed is going
Speaker 10: to respond.
Speaker 5: Michael, within all the blur of the data and all
Speaker 5: the guestimates forward, did they frame out a subpar GDP,
Speaker 5: either real or nominal? Did they frame out subpar growth?
Speaker 10: Well, basically that's what Paul said, we're going to get
Speaker 10: because the direction of the economy is slower and the
Speaker 10: lagged effects of their rate increases have not yet completely
Speaker 10: been felt, but that the economy will start picking up
Speaker 10: again and growing to potential. And he also admitted the
Speaker 10: possibility of surprise there the economy grows faster than expected
Speaker 10: is also very real. So I think they're at this
Speaker 10: point working on the models that they have, but admitting
Speaker 10: that they have been wrong before and we could see
Speaker 10: faster growth. But the interesting thing was, other than a
Speaker 10: sort of perfunctory caution, he wasn't suggesting that we are
Speaker 10: now that they would go back necessarily to rate increases.
Speaker 1: Mike McKay, thank you so great job today. As always,
Speaker 1: the reaction pouring in this afternoon, This line from Steve
Speaker 1: chevon over it federates it initial takes. He wants to come.
Speaker 1: He always saw inflation as transitory Bramo your favorite. It's
Speaker 1: come down on the supply side. He smells a self
Speaker 1: landing and wants to cut to stick the landing. He
Speaker 1: had no interest in pushing back against market expectations, right
Speaker 1: or wrong. It's bullish for now. As a takeaway from
Speaker 1: Chevon this afternoon.
Speaker 3: That's exactly where I wanted to go, and I wanted
Speaker 3: to get Bill Dudley's opinion about whether we did get
Speaker 3: basically confirmation of transitory. Do you think when we look back,
Speaker 3: the Fed won't have been wrong when it came to
Speaker 3: transitory inflation. They just were premature.
Speaker 7: I think that most of the inflation pressure had which
Speaker 7: was transitory, but not all of it. I mean, I
Speaker 7: think some of the services inflation is due to the
Speaker 7: tightness of the layer market. I think what's really interesting
Speaker 7: about Paul's press conference today is he talked to us
Speaker 7: about the risk of being too late to cut.
Speaker 8: So he actually admitted the possibility that if we.
Speaker 7: Stay tight for too long, we could actually have a
Speaker 7: whip comomy that's too weak relative to what we desire.
Speaker 8: And that's something new from your pom.
Speaker 5: That's a very important point, the ex postedness of it.
Speaker 5: If you will doctor Dudley. They've got a weight weight
Speaker 5: weight after the fact. So let's say something coarse like
Speaker 5: the unemployment rate. How many months do they have to
Speaker 5: wait until they get real confidence that the labor economy
Speaker 5: is caught up with our immaculate disinflation.
Speaker 7: I think they're gonna be looking at what happens to
Speaker 7: the unemployed rate, the tightness of the labor market, and
Speaker 7: what the consequences that are for wages. Paul did admit
Speaker 7: that wage inflation still will bit too high to be
Speaker 7: consistent with two percent inflation. But boy, the FED is
Speaker 7: pretty close to where they want to be in their
Speaker 7: outlook at this point.
Speaker 1: Bill, you've been on the committee before. You can look
Speaker 1: at this from the outside. Now. It's a tricky game,
Speaker 1: this one to get into someone's head, and I think
Speaker 1: maybe what we shouldn't play, but I think on this
Speaker 1: occasion we should. Two weeks ago, I heard from a
Speaker 1: very different FED chairman, and I'm trying to work out
Speaker 1: what happened today. Whether that was just a man who
Speaker 1: was representing his own views and this was a man
Speaker 1: who was representing the committee's view, or whether, like we've indicated,
Speaker 1: he's being seduced by this idea of netting a soft landing,
Speaker 1: and the guy who was trying to act like Vulka
Speaker 1: was never really Vulka. What is it? What do you
Speaker 1: make of who Chairman Powell is and what he ultimately
Speaker 1: thinks about things?
Speaker 7: Well, the fact that he's worried about keeping MADRI policy
Speaker 7: too tight for too long tells you that he's not
Speaker 7: thinking like Paul Bulkery.
Speaker 8: So there is and there's a risk cutting rates prematurely,
Speaker 8: But I.
Speaker 7: Think it's coming from us to the fact that he's
Speaker 7: just really really happy with how things have evolved and that,
Speaker 7: you know, optimism is showing through as it has shown.
Speaker 8: Through from time to time and has pressed conferences.
Speaker 6: Bill.
Speaker 5: It's maybe not your remit, but it's certainly the New
Speaker 5: York Fed's remit. They're going to keep track of flows
Speaker 5: off of declining interest rates. What is a stability or
Speaker 5: instability that you observe in six trillion dollars of cash,
Speaker 5: let's say most of it loaded money market funds? Is
Speaker 5: that yield comes down? Is our system going to be
Speaker 5: able to handle it?
Speaker 8: Yeah? I don't think there's gonna be any problem.
Speaker 7: I mean, you know, the Fed Reserve says the short
Speaker 7: term interest rates and then money market rates trade off
Speaker 7: that if if money market rates, you know, firm up
Speaker 7: a little bit, then money will flow back into the
Speaker 7: money market fature just ones.
Speaker 8: I'm not worried about that at all at this point.
Speaker 3: Bill, Just to wrap it all together, do you think
Speaker 3: that the chance of a hard landing has gone down
Speaker 3: materially over the past month or do you think that
Speaker 3: it's about the same or even has gone up.
Speaker 8: I think it's gone down materially over the last six months.
Speaker 8: I mean over the last month.
Speaker 7: I don't things have changed very much, but definitely the prospects.
Speaker 9: Of the soft landing are the best they've been in
Speaker 9: last year or two.
Speaker 1: Something changed in the last two weeks for Chairman Powell,
Speaker 1: that's for sure. Bill Good to catch up Bill Dudley
Speaker 1: there of Bloomberg Opinion, former New York Fed President. Let's
Speaker 1: recap the price action some well moves across the board
Speaker 1: in the equity market and in bonds since the start
Speaker 1: of November the end of October this afternoon at one
Speaker 1: percent on the SMP. The gains fade a touch, but
Speaker 1: big gains nonetheless on the NaSTA Cup by zero point
Speaker 1: nine percent. How about the Russell the small caps up
Speaker 1: by two point seven percent. We are talking about gains
Speaker 1: of more than ten percent since early November on the
Speaker 1: sm P five hundred a year in a month. In
Speaker 1: the bond market two year, ten year, thirty year, two year,
Speaker 1: four forty seven when the FED met in November, the
Speaker 1: morning at that meeting, on the second day of that meeting,
Speaker 1: four ninety two on a two year right now four
Speaker 1: forty seven, twenty five. What a turnaround? TK close to
Speaker 1: five percent and all the way back down again.
Speaker 6: There's't anybory's looking at.
Speaker 5: I mean, it's something as idiosyncratic as a Turkish liras
Speaker 5: on a bid today for the first time since the
Speaker 5: time began. But yeah, you can look across all of
Speaker 5: the equities, bonds, currencies, commodities and see the effect of this.
Speaker 6: John, I want to go on one week. I want
Speaker 6: to go on two weeks.
Speaker 5: Every strategist out there has to republish and readjust and
Speaker 5: let me tell you got your outlook to bed December five.
Speaker 6: Yeah, let's go in this weekend. We're rewriting it. I mean,
Speaker 6: is this is that dramatic?
Speaker 1: I have to create what I said, I was quoting
Speaker 1: the tenure. The tenure was a fornaty two. The two
Speaker 1: year back in early November was three five percent. These
Speaker 1: are massive changes back down to four forty seven on
Speaker 1: a two year on a tenure just above four percent
Speaker 1: in the effects market. I think we've got to talk
Speaker 1: about this, the Tucker war that we're going to see
Speaker 1: play out now off the back of what we've just
Speaker 1: heard and into tomorrow with the ECB. The euro at
Speaker 1: the moment looks like this one to wait sixty eight,
Speaker 1: that currency pair positive by zero point seven percent. Given
Speaker 1: the moves we've seen in the bobs market, that dollar
Speaker 1: is a whole lot weaker. Where does this leave present
Speaker 1: leguard in to morrow's mathic hold my beer?
Speaker 3: I mean, essentially, is this what she's going to say
Speaker 3: is okay, I'll take that, and I'll raise you by
Speaker 3: saying I think we should raise we should cut reads.
Speaker 3: In March, this is going to be a bigger question.
Speaker 3: Did the whole world experience pandemic era inflation that has
Speaker 3: largely subsided and that was ultimately transfittory or is there
Speaker 3: something else at play? Jpell did not want to embrace
Speaker 3: the question about financial conditions loosening and what that means.
Speaker 3: Are we going to hear the same thing from Christine Lagard.
Speaker 1: There was a moment in that news conference, just a
Speaker 1: moment where he reflected on how wrong so many people
Speaker 1: have been in twenty twenty three, and I think before
Speaker 1: we go home for Christmas, the holidays and look ahead
Speaker 1: to twenty twenty four, tom we need to reflect with
Speaker 1: some humidity about what went wrong in twenty twenty three.
Speaker 1: Last year, twelve months ago, looking out twelve months, we
Speaker 1: were talking about the prospect of recession, of much higher unemployment.
Speaker 1: We called the Fed's forecast aspirational ck. We had bank failure,
Speaker 1: some of the biggest bank failures we've seen in decades,
Speaker 1: not just in this country but around the world. And
Speaker 1: yet a couple of quarters later, we had GDP north
Speaker 1: of fifth point. So when we talk about NED and
Speaker 1: ASoft landing getting all these rate cuts the FED is
Speaker 1: talking about without the economic weakness, I think we've got
Speaker 1: to remember this has been a very very difficult economy
Speaker 1: to forecast, and the next twelve months might best tricky.
Speaker 5: We're repiecing the show together for tomorrow, folks. This is
Speaker 5: so profound. Our team's going to work all evening to
Speaker 5: give you the best tomorrow morning that we can. And
Speaker 5: Amy said to me, who do we talk to? And
Speaker 5: you know the usual names you mentioned, Bob Michael, JP Morgan.
Speaker 5: I think to see a bank like JP Morgan recast.
Speaker 6: Their view forward.
Speaker 5: But I looked to Uri and timmor at Fideli with
Speaker 5: decades of experience of real economy analysis.
Speaker 6: And this is the regard distinction. If we do four
Speaker 6: percent nomenal, what's the character of that.
Speaker 5: American four percent growth versus whatever number you have in Europe?
Speaker 5: They don't have the technological pop that we have.
Speaker 1: Can we introduce some politics into this?
Speaker 6: Did you speak with Chirbiden?
Speaker 1: This gets really really difficult going into next year. Okay,
Speaker 1: let's say we get seventy five basis points of cuts.
Speaker 1: Where are they landing and does the political calendar shape
Speaker 1: where you think that comes later? Given that we're going
Speaker 1: to have campaign in full flow, full flow going through
Speaker 1: next year, are you telling me they're going to wait
Speaker 1: until June. We had Matt Lazelli, a Deutsche Bank on
Speaker 1: the program a little bit earlier, Lisa, and he said,
Speaker 1: they start in June and they go one hundred and
Speaker 1: seventy five basis points they start in June and go
Speaker 1: on seventy five into the election.
Speaker 3: Right now, there is a seventy four percent chance of
Speaker 3: a rate cut at the March meeting for the Federal Reserve.
Speaker 3: That is what I'm looking at in terms of what
Speaker 3: people are expecting. If the FED is currently talking about
Speaker 3: cutting rates, why would they wait until June? From politics?
Speaker 3: For politics, they could be accused of political interference either
Speaker 3: way deciding on when they meet.
Speaker 1: TK that's the question.
Speaker 6: Why wait, Well, there's a y.
Speaker 5: Weight, but there's also a look the further data, and
Speaker 5: again I'm skewed towards a study of the real economy.
Speaker 6: We finished stronger.
Speaker 5: Jeffrey Rosenberg with his portfolio manager, Blackrock Systematic Multi Strategy Fund,
Speaker 5: he will be systematically reviewing everything after this historic meeting. Jeff,
Speaker 5: you know we're at gunpoint at Carnegie. Mellen you were
Speaker 5: required to read both volumes of Alan Meltzer and get
Speaker 5: out the sixties and seventies and FED meeting. And what
Speaker 5: doctor Meltzer would say is it is at the end
Speaker 5: of the day about the real economy. What did Jerome
Speaker 5: Powell today say about the American economy? With the stunning
Speaker 5: statement the dots in the Q and A.
Speaker 11: Yeah, it was overall a validation of the transitory view.
Speaker 11: And you know, what was a little bit feared going
Speaker 11: into the press conference was whether he would push back.
Speaker 11: He got the softball from Nick Timmeros on financial.
Speaker 12: Conditions now being nice and clearly, you know, chose not
Speaker 12: to hit it out out of the park in terms
Speaker 12: of pushing back on on financial conditions, and that was
Speaker 12: a green light to continue the initial reaction from what
Speaker 12: we got in the statement of economic projections and the
Speaker 12: dots and the seventy five basis points and the dots
Speaker 12: is clearly the surprise.
Speaker 4: So you know, this is a green light for investors.
Speaker 11: I think nixt question and this question of financial conditions,
Speaker 11: and Bill Dudley mentioned in a minute ago this is
Speaker 11: the problem is that this can go on for a
Speaker 11: while and it can get overdone in terms of how
Speaker 11: much easing the market does before the FED. But the
Speaker 11: message today is the Fed is very happy with what
Speaker 11: they've seen.
Speaker 4: What changed. You know, clearly it's.
Speaker 11: The validation on the inflation story, and they're very pleased
Speaker 11: that after getting it wrong for so long, they're really
Speaker 11: getting the validation in getting it right.
Speaker 1: So, Jeff, what do you do. Stay on the bill,
Speaker 1: hold on to it tightly, don't let go what you do.
Speaker 11: I mean the short term is, you can't really fight
Speaker 11: this until there's some kind of fundamental data from the
Speaker 11: economy side that pushes back, and there hasn't been.
Speaker 4: It's all been coming up.
Speaker 11: Soft landing, inflation declines yesterday. You can squint at Core Corp.
Speaker 11: Nobody seems to look at Corecorp anymore. He mentioned it
Speaker 11: very briefly. It actually popped up. So there are some,
Speaker 11: you know, vulnerabilities, but the message and the concern, no
Speaker 11: one's looking at the vulnerabilities. They're looking at the validation.
Speaker 11: And so with that validation, this bullish sentiment can go
Speaker 11: on for a while until we get a new.
Speaker 4: Round of economic data.
Speaker 11: And until then, I think, I think the message is
Speaker 11: pretty clear that the FED is more than willing to
Speaker 11: see an easy in financial conditions, won't step in the
Speaker 11: way of that.
Speaker 3: Kathy Jones of Schwab Josh Schwab put this out on
Speaker 3: x or Twitter. With that, I have to revise my
Speaker 3: twenty twenty four outlook.
Speaker 4: Happy to do it.
Speaker 3: Are you revising your twenty twenty four outlook after this meeting?
Speaker 11: You know, I've done this for so long that I
Speaker 11: don't do the whole you know, Christmas in July outlooks
Speaker 11: in October kind of thing, because you end up with
Speaker 11: this problem. So no, I don't have to revise it
Speaker 11: because I just I just haven't put it out yet.
Speaker 4: So that's that's a good plan.
Speaker 5: B Look, Jeff, at where we are, and I just
Speaker 5: looked up one of the black Rock money market funds
Speaker 5: five point two four nine one percent. Where's all that
Speaker 5: money going? I mean, this is right up your wheelhouse.
Speaker 6: Where's all that money going when that yield comes down?
Speaker 4: Yeah?
Speaker 11: You know you ask this question in the pre segment
Speaker 11: to one of the guests, and I was listening in,
Speaker 11: and you know, this is the change.
Speaker 4: This is the.
Speaker 11: Turning point because last year it was all about you're
Speaker 11: rewarded for staying in cash when the cash rates are
Speaker 11: going up. When the cash rates start going down, now
Speaker 11: your rate of return starts going down in cash. So
Speaker 11: it is the signal to start moving out of cash
Speaker 11: into into more term rates in fixed income, to lock
Speaker 11: in rates at their highest yields. If you're going into
Speaker 11: a cutting cycle, to move back into risk. As we
Speaker 11: talked about earlier, the lack of the hard landing, the
Speaker 11: over forecasting of recession fears, the legacy of the damage
Speaker 11: of twenty twenty two that's kept people happily in cash.
Speaker 4: All of that dissipates, and I think that's what I
Speaker 4: was referring to before.
Speaker 11: You got to be careful as to how big that
Speaker 11: easing and financial conditions can become and how that can
Speaker 11: undo some of what the FED thinks is the right stance.
Speaker 11: But that being said, this is a turning point, and
Speaker 11: I think you do start to see that money move
Speaker 11: out of money markets into risk of your assets, into
Speaker 11: more term rates to lock.
Speaker 4: In higher rates.
Speaker 11: As the cash rates start to come down. You're penalized
Speaker 11: now in twenty twenty four for holding cash because the
Speaker 11: rates and the prospect of the rates is to go lower.
Speaker 1: Jeff, what would you advocate for You're sitting in cash,
Speaker 1: You've missed the rally of the last month, You see
Speaker 1: yield drop and you get nervous. Reinvestment risk is not
Speaker 1: just going to worry about.
Speaker 4: It's real.
Speaker 1: You see the moves in a single day of more
Speaker 1: than twenty basis points. What are you antificating for?
Speaker 11: Well, I think there's lots of different ways to step
Speaker 11: out of cash into It depends on the risk perspective,
Speaker 11: but in fixed income, you know that movement into the
Speaker 11: front end of the curve, you can step out a
Speaker 11: little bit more into the belly. It's going to lock
Speaker 11: in not only some yield levels, but you'll pick up
Speaker 11: a bit more price appreciation in a total return context.
Speaker 4: In a falling rate environment, I think you can go further.
Speaker 11: The soft landing the lack of economic recession. It bolsters
Speaker 11: yield and you'll pick up in terms of income and
Speaker 11: credit risk.
Speaker 4: That credit risk it's priced in, but it's not going
Speaker 4: to collapse.
Speaker 11: And so if you avoid the recession, investors can can
Speaker 11: step out on the risk spectrum and fixed income increase
Speaker 11: yield levels relative to cash, lock those in and as
Speaker 11: long as that recession outlook is avoided. And that's not
Speaker 11: a guarantee, but that seems again with what the data
Speaker 11: is showing to be the more likely scenario. You know
Speaker 11: you'll lock in those yields and achieve a higher return
Speaker 11: than what you're going to get out of sitting cap.
Speaker 3: I want to just point out that we're down now
Speaker 3: about a percentage point in less than a month on
Speaker 3: ten year benchmark yields. This is full faith and credit,
Speaker 3: the most liquid market in the world, and we're seeing
Speaker 3: fluctuations that we have never seen before. Does that raise
Speaker 3: any concerns for you that we are seeing such incredible
Speaker 3: volatility in just the market's psychology on not that much
Speaker 3: different in terms of news, as you pointed out earlier.
Speaker 11: Yeah, it's a really good point when thinking about what
Speaker 11: the fixed income market looks like from a portfolio context.
Speaker 11: We just have to get more used to this higher
Speaker 11: level of volatility. You know, the AG index, the benchmark
Speaker 11: for fixed income, used to be a three to four
Speaker 11: percent volatility instrument. Today it's about double that. So when
Speaker 11: you're balancing out portfolios, there's just a higher level of risk.
Speaker 11: You can mitigate that by being shorter in terms of duration.
Speaker 11: Some of the more attractiveness in the front end of
Speaker 11: the curve is you've got still the highest yields and
Speaker 11: with the lower duration, less volatility, but a bit less
Speaker 11: price appreciation too, So there's a little bit of a
Speaker 11: trade off there, But it is to Lisa's point, you
Speaker 11: gotta expect this isn't the old fixed income market.
Speaker 4: It's a newer fixed income market.
Speaker 11: It means higher volatility better yields still in the front
Speaker 11: end until we normally.
Speaker 6: Jet One final question.
Speaker 5: Torston, Slack and Apollo head out a stunning chart today
Speaker 5: of a spike in bankruptcies within all this, and I
Speaker 5: mean from a political economic standpoint, the history of this meeting,
Speaker 5: the shock of this meeting. Is this a meeting that
Speaker 5: just benefits the halves of America? Half does countries flat
Speaker 5: on their back and the others are living large. The
Speaker 5: dows up four hundred and sixty points. Is this just
Speaker 5: about almost the financialization and advantage of the elite in America?
Speaker 4: So I love Torreston, love his work.
Speaker 11: You know what he's highlighting now, and he's done this
Speaker 11: for a while. Is there there's a distributional aspect of
Speaker 11: our economy that gets lost in these aggregate statistics. And
Speaker 11: so there is an impact of rising interest rates, There
Speaker 11: is an impact of the significant tightening and interest rate policy,
Speaker 11: but you don't see it as much in the aggregate.
Speaker 11: You see it when you disaggregate, and that distributional side.
Speaker 11: So the bottom end of consumers, the bottom end of
Speaker 11: credit is more vulnerable, and you're starting to see that,
Speaker 11: but it's still a distributional story. It's what you would
Speaker 11: expect to see in the tails, and it is showing
Speaker 11: the effect of that. But that doesn't necessarily mean that
Speaker 11: story is exacerbated strapolated into the aggregate view.
Speaker 4: It's part of the story, it's an important part.
Speaker 11: Credit cycles begin from the bottom, and so you got
Speaker 11: to watch that. But the counterpoint is that the rest
Speaker 11: of the distribution has created a lot of immunity, if
Speaker 11: you will, not permanent immunity, but a lot of reservoirs
Speaker 11: to buffer the increases in interest rates. On the consumer side,
Speaker 11: that's from savings. On the corporate side, that's from fixing
Speaker 11: maturities and turming out interest rates. And the reason is
Speaker 11: we had such a prolonged period of zero interest rates
Speaker 11: so that the shock of interest rates isn't as much
Speaker 11: of a shock as it appears it can be. And
Speaker 11: we have to watch it, and you're certainly seeing it.
Speaker 11: It's tors and highlighting, you know, in some of the tales,
Speaker 11: but it's not really the aggregate story yet.
Speaker 1: Jeff, I've got a few seconds. Pick a month for
Speaker 1: the first rate cut, and you're not gonna give us
Speaker 1: an outlook, but just pick a month.
Speaker 11: Jeff, I'm gonna give I'm gonna give you. I'm gonna
Speaker 11: give you June. You know, sometime in the summer, I
Speaker 11: think the March, and I know Neil maybe a little
Speaker 11: bit early.
Speaker 4: What's the rush.
Speaker 11: They still want to make sure they've nailed the inflations.
Speaker 1: We've got to leave it that. Jeff got to catch out, Buddy,
Speaker 1: always says Jeff Rosenberg there of black Rock, the Federal
Speaker 1: Reserve chair, does not want a claim victory. Let me
Speaker 1: tell you this market already has.
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Speaker 6: And of course on the terminal. I'm Tom Keen, and
Speaker 6: this is Bloomer