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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Lisa Chanlett joins

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Speaker 2: us now of Morgan Stantley, joining us around the table. Lisa,

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Speaker 2: it's good see you, as always great to see you.

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Speaker 2: Is anxiety about tariff distracting from fundamentals? It's a point

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Speaker 2: you've made recently. Do you think it is.

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Speaker 3: I think it absolutely is, And I think tariff's are

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Speaker 3: probably the single biggest thing that are just that is

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Speaker 3: distracting everybody. But I think the pace and the chaotic

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Speaker 3: nature right of the announcements are distracting to everyone. And look,

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Speaker 3: we know markets love certainty, they love predictability. We don't

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Speaker 3: have that at the minute.

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Speaker 2: Is it a justified distraction and other fundamental is good

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Speaker 2: enough to stay commits it and stay the course and

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Speaker 2: stay bullish US equities.

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Speaker 4: I think.

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Speaker 3: So, you know, our perspective has been to pick and

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Speaker 3: choose your spots, and that expectations are key here, you know,

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Speaker 3: our preferences to go where you know, we think companies

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Speaker 3: can beat expectations, and one of the expectations haven't gotten

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Speaker 3: to ahead of themselves.

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Speaker 4: And to you know, Frawdy, you made a point that

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Speaker 4: I thought was fascinating.

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Speaker 5: We talked about the long and variable lags when it

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Speaker 5: came to the FED hiking benchmark rates. We don't talk

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Speaker 5: about the long and variable lags of them cutting by

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Speaker 5: one hundred basis points starting in September of last year.

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Speaker 5: Just how much is that driving some of the optimism

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Speaker 5: and the deal making and the activity that everyone's expecting

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Speaker 5: from corporate America this year.

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Speaker 3: Well, you know, one of the things that's interesting is

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Speaker 3: I think, you know, the rate cuts are certainly driving

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Speaker 3: the animal spirits. Actually haven't seen a year to date

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Speaker 3: the level of deal making that I think a lot

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Speaker 3: of people were hoping for, and that's still a bit

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Speaker 3: on the come. And so you know, I think that

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Speaker 3: certainly the hundred basis points helps. It's getting you know,

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Speaker 3: sentiment juiced. Right. So, we saw small business optimism right

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Speaker 3: sore following the election, and I think part of that was, Hey,

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Speaker 3: I'm going to get some rate cuts and I'm going

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Speaker 3: to get you know, some pro growth policy out of Washington.

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Speaker 3: But it remains to be seen, and I think, you know,

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Speaker 3: to Jonathan's point, some of the chaos and the headlines

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Speaker 3: is starting to cool.

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Speaker 4: Some of those expectations.

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Speaker 3: We saw, you know, that small business optimism come off

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Speaker 3: the boil a little bit yesterday. We've seen some of

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Speaker 3: the CEOs, including the Ford CEO, say, you know, whoa whoa, whoa.

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Speaker 3: You know, let's let's let's you know, cool our debts, folks.

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Speaker 5: There's a tension here between whether there needs to be

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Speaker 5: some rate cuts, additional rate cuts for the broaden out

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Speaker 5: story to really make sense, or whether the one hundred

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Speaker 5: basis points that we got late last year actually was

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Speaker 5: plenty to get this sector driving.

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Speaker 4: Which is it?

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Speaker 3: So I think it's I think it's interesting. You know,

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Speaker 3: our thesis has been that we're in a bifurcated economy

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Speaker 3: for the most part the large cap universe, the megacap

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Speaker 3: universe hasn't needed any rate cuts, right because they've locked

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Speaker 3: and loaded their cost to capital, you know, back in

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Speaker 3: twenty twenty one. I fundamentally believe that the mid cap,

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Speaker 3: smaller cap companies, the lower end the venture capital, some

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Speaker 3: of the private equity portfolio companies do need more than

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Speaker 3: one hundred basis points. So we're going to see, We're

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Speaker 3: going to see where this goes.

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Speaker 6: I know you're watching for a rotation of stock in disease,

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Speaker 6: and you like the idea of cyclicals, energy, domestic manufacturers,

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Speaker 6: But what about the fact that that uncertainty of tariff's

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Speaker 6: just still lingers. Aren't those the ones that are going

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Speaker 6: to be the most hurt.

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Speaker 3: So it's interesting the megacap and large caps are so

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Speaker 3: much more exposed to the tariff conversation. I mean, this

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Speaker 3: is where you know, the mid caps and the small

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Speaker 3: caps actually can get life if in fact the rate cuts,

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Speaker 3: do you know, flow back to them, If in fact

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Speaker 3: we get bank lending in more the regional banking system

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Speaker 3: to accelerate to those pools of companies, I think that

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Speaker 3: they can actually, you know, kind of have a better

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Speaker 3: year relative to mega and large cap companies who are

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Speaker 3: going to have to struggle with their China exposure, with

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Speaker 3: their exposure to global trade, and to dealing with some

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Speaker 3: of the constraints of tariffs and the costs of restructuring

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Speaker 3: supply chains. If it comes to that, something else, you like,

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Speaker 3: right now, a lot of people are hiding out even

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Speaker 3: central bank's gold.

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Speaker 6: Are you adding to that position?

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Speaker 4: We are adding to gold, you know.

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Speaker 3: Our Our perspective is that what's going on with gold

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Speaker 3: very much has to do with folks around the world

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Speaker 3: questioning the primacy of the United States dollar, right, and

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Speaker 3: I think central banks around the world have begun to

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Speaker 3: diversify their reserves. I think that's been one element. I

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Speaker 3: think a lot of the enthusiasm, believe it or not,

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Speaker 3: around cryptocurrencies is also, uh, you know, made people think about, well,

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Speaker 3: you know, what is you know, if this is digital gold,

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Speaker 3: what is you know, hard gold? And maybe I need

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Speaker 3: some of that too. So, you know, our perspective is that,

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Speaker 3: you know, given where we are with debts and deficits,

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Speaker 3: given the extreme bifurcation of global FX markets, UH, that

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Speaker 3: that gold will continue to outperform into.

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Speaker 4: A third year.

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Speaker 5: You're even wearing something to represent the strong filing goal,

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Speaker 5: my goal, the gold blazer. I am curious about whether

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Speaker 5: you see that sort of questioning of the primacy of

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Speaker 5: the dollar shifting into some of the overweight that you

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Speaker 5: might see we have seen over the beginning of this

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Speaker 5: year anyway, in European equi ease as well as Chinese

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Speaker 5: equities actually, which have really peaked up.

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Speaker 4: Are you leaning into that or learning against it?

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Speaker 3: We are one hundred percent leaning into this, you know,

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Speaker 3: mean reversion trade.

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Speaker 1: Uh.

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Speaker 3: The massive underperformance of non US uh equities we believe

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Speaker 3: has has reached extremes. Uh. Our best gas is that

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Speaker 3: you know, the the current administration isn't helping, right, you know,

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Speaker 3: in many ways. While it's great to pursue in America

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Speaker 3: first policy, if you're in America, if you're not in America, Uh,

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Speaker 3: there's all kinds of incentives to.

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Speaker 4: Find ways to uh protect yourself.

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Speaker 3: And that mean may mean uh, you know, creating you

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Speaker 3: know trade arrangements with other countries and each other, uh,

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Speaker 3: where America gets locked out. So you know, our perspective

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Speaker 3: is that, you know, this is a time when not

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Speaker 3: only the combination of valuation extraordinarily low expectations for or

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Speaker 3: you know, regions like Europe potentially, like China, the potential

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Speaker 3: to surprise on the upside, and the potential for some

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Speaker 3: of these countries to actually stimulate, to have more proactive

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Speaker 3: uh central banks. I mean you you know, Lisa, you

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Speaker 3: talked about the fact that the Fed may only cut

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Speaker 3: one or two times this year. It's highly likely that

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Speaker 3: the ECB goes more frequently than that. It's possible that

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Speaker 3: some of the central banks in you know, Latin America, uh,

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Speaker 3: you know, where inflation had run hot, are going to

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Speaker 3: go more more often than that. And those are the

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Speaker 3: kinds of things that kind of create this relative catch

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Speaker 3: up trade we.

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Speaker 2: Told about this last week. It might push these countries

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Speaker 2: to do things that might be good for them. Let's

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Speaker 2: see if that happens. Lisa Shanon to Mokeen standy, Lisa,

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Speaker 2: thank you. West tends to phone exchange foming New York

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Speaker 2: Fed President Bill Duntley making the for king dollar in

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Speaker 2: its latest Bloomberg opinion piece right in the following, America

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Speaker 2: derives immense benefits from the dollars dominance, a position the

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Speaker 2: countries such as China and Russia are seeking to contest

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Speaker 2: by addressing the problem of cross border payments. The US

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Speaker 2: could boost the global economy and cement its central role

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Speaker 2: therein Bill joined US Now for more, but welcome to

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Speaker 2: the program. Lots of topics to count. Let's kick off

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Speaker 2: with this one right here. You start it with a premise,

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Speaker 2: so let's talk about it. The immense benefits from the

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Speaker 2: dollars dominance. Let's start there. But what are they?

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Speaker 7: I think the dollar is a glunchpin of global financial markets,

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Speaker 7: so we get what's called the exorbitant privilege of people

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Speaker 7: wanting to hold dollar denominated assets. So that makes the

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Speaker 7: cost of funding in the United States less than if

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Speaker 7: the dollar was not viewed as the key currency in

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Speaker 7: the global economy. But that's not necessarily for dain forever,

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Speaker 7: and there are steps we can do to make that

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Speaker 7: more more likely to be sustained in the future. And

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Speaker 7: one thing is to make some progress on cross border payments.

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Speaker 7: Across border are extremely expensive, especially for small retail payments

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Speaker 7: like remittances. They cost maybe as much as six to

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Speaker 7: seven percent. This could be called we could be brought

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Speaker 7: down tremendously if we had if we developed instant payment

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Speaker 7: systems nationally and then link them together. A number of

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Speaker 7: countries have good instant payment systems Brazil, India, for example,

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Speaker 7: The US is basically lower. We have two systems, but

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Speaker 7: nobody uses them. Everybody uses cards and debit cards, benbo

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Speaker 7: or PayPal. So we need to do something to revigorate

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Speaker 7: the US instant payment systems, and then once we have that,

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Speaker 7: we need to start to take steps to link it

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Speaker 7: together with other instant payment systems around the world. If

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Speaker 7: we do that, we can actually lower the cost of

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Speaker 7: payments dramatically and cement the dollar as a key reserve currency.

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Speaker 5: Do you see the FED actually getting on this in

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Speaker 5: any capacity in the near term, considering that they have

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Speaker 5: their hands full with their mandate and a lot of

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Speaker 5: controversy around it.

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Speaker 7: Well, I think you need some support from the administration

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Speaker 7: in Congress. The countries that have been successfu well in this

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Speaker 7: have basically had mandates. They basically said, you need to

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Speaker 7: actually offer this service to your banking customers. In the

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Speaker 7: United States, it's completely voluntary. And since it's completely voluntary,

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Speaker 7: the two instant payment systems we have FED now and

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Speaker 7: Artichs are basically not used by virtually anybody.

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Speaker 8: So they exist. But if they're not used, then.

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Speaker 7: How can you how can that be advantageous to link

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Speaker 7: that into an international regime.

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Speaker 5: Well, well, hopefully we can continue to catch up on

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Speaker 5: this as it progresses, if it does progress this year.

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Speaker 5: In the meantime, they focus very much on inflation and

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Speaker 5: just how the Fed's going to be responding at a

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Speaker 5: time where we're going to get CPI potentially at zero

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Speaker 5: point three percent month over month, which would be the

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Speaker 5: fifth out of the six latest readings at zero point.

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Speaker 4: Three percent or above. How concerned are.

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Speaker 5: You about this stickiness and does it surprise you that

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Speaker 5: we're still not seeing the disinflation that so many people

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Speaker 5: were expecting.

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Speaker 7: I think it's very clear that the last mile is

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Speaker 7: pretty sticky. And one reason is sticky is because we're

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Speaker 7: operating at full employment. You know, there's gonna be a

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Speaker 7: lot of downward pressure on inflation when economy is operating

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Speaker 7: at a very high level of resource utilization, which is

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Speaker 7: where we are today. I think the other thing is

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Speaker 7: something that to Cheer Polty touched on yesterday. It looks

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Speaker 7: like Maentre policy is a lot closer to neutral than

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Speaker 7: what a lot of people.

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Speaker 8: Thought a few months ago.

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Speaker 7: You know, the fact that the economy continues to grow

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Speaker 7: at a trend growth rate at a time where the

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Speaker 7: federal funds rates you know, higher than four percent, tells

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Speaker 7: you that maybe mandre policy doesn't really you know, isn't

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Speaker 7: actually very restrictive at all. And so I think the

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Speaker 7: prospect for further rate cuts has diminished considerably for the.

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Speaker 6: Rest of the year, potentially, especially given the political uncertainty.

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Speaker 8: Well potentially, I mean.

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Speaker 7: The other issue we have, obviously is we have a

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Speaker 7: lot of you know, uncertainty about policy. We have uncertainty

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Speaker 7: about what's going to happen to terrorists, we have uncertainty

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Speaker 7: about deportations, we have uncertainty about fiscal policy. And so

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Speaker 7: the FED is also going to be reluctant to take

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Speaker 7: big steps when they don't really know what the policy.

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Speaker 7: See a mix is going going to be in the

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Speaker 7: second half of the year and into twenty twenty six.

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Speaker 6: But we might not know what the policy is going

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Speaker 6: to be the entire year. It might be like this

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Speaker 6: for four years. So what does the FED do just

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Speaker 6: stay on pause forever?

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Speaker 7: Well poll basically said that the that the FED would

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Speaker 7: cut if either if the ecmomy slowed sharply or if

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Speaker 7: inflation came down. I think I think it may not

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Speaker 7: be quite that simple. It may be that you only

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Speaker 7: cut if the economy slows down. You know, I could

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Speaker 7: see inflation moderating further, the e commedy is staying strong.

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Speaker 7: And in that situation, what's the what's the motivation for

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Speaker 7: cutting rates at that point? So I think this, you know,

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Speaker 7: one or the other might turn out to be that

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Speaker 7: you actually need not just a following inflation, but you

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Speaker 7: also need a substantial slowing of the economy.

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Speaker 5: Well, I'm also curious about the X axis. At a

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Speaker 5: time we're talking about inflation expectations over the next two

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Speaker 5: and five years creeping higher, even though inflation expectations over

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Speaker 5: the next ten years are actually going down. This idea

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Speaker 5: that of the longer term it will suppress growth.

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Speaker 4: How does the FED respond to.

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Speaker 5: That, given that they have been patient with the idea

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Speaker 5: of inflation taking a longer time to get to that

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Speaker 5: two percent, But at a certain point, a long time

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Speaker 5: becomes forever.

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Speaker 8: Well, you're absolutely right.

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Speaker 7: I mean, every year you spend above two percent, there's

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Speaker 7: more risks that inflation expectations, which have been well behaved

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Speaker 7: up to now, finally start to become an anchor. And

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Speaker 7: I think when the FED looks at the effects on

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Speaker 7: terrifts on the economy. They are going to be very

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Speaker 7: focused on whether those higher prices caused by higher terroriffs

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Speaker 7: are actually feeding into inflation expectations. If they do, they'll

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Speaker 7: make the FED more cautious.

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Speaker 8: If they don't, the FED will be focused on the.

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Speaker 7: Growth impacts of higher terrifts slowing down the economy. So

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Speaker 7: I think whether the FACT can look through the tariff

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Speaker 7: increases in terms of their effect on prices will depend

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Speaker 7: very importantly on what happens to inflation expectations over the

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Speaker 7: next year.

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Speaker 2: Hi, Bill, thanks for your time this morning. Looking forward

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Speaker 2: to that second dance hastimately a little bit like to

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Speaker 2: this morning as well. Be former New York FED President

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Speaker 2: built up on the night, saystem with this surrounded table.

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Speaker 2: Bebe Kelly at JP Morgan Asset Management. David, you've had

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Speaker 2: five minutes. What jumps out for you.

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Speaker 9: It's not as bad as it looks at first glance,

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Speaker 9: because the things that the things that bumped higher are

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Speaker 9: three of the flakiest numbers in the CPI. One of

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Speaker 9: them was that shelter increased at four tenser percent. We

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Speaker 9: saw a lodging of one point four percent. If you

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Speaker 9: actually look at only's equivalent rent and rent they were

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Speaker 9: up three tens, so it was a big increase in

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Speaker 9: lodging one. That's not a big deal in April, but

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Speaker 9: it just bounces a lot. If you look at airline affairs,

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Speaker 9: they were up I think it was one point four percent.

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Speaker 9: That's part of the core CPI issue. And then our

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Speaker 9: old favorite auto insurance suddenly jumps two percent. And those

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Speaker 9: three numbers are very bald. The government does not measure

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Speaker 9: them very well. So I don't think that changes the

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Speaker 9: overall thesis that inflation is basically under control. But I

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Speaker 9: certainly agree with the analysis that this is no reason

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Speaker 9: for the Fed to move an interest rate. It says

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Speaker 9: nothing in this report which says we need to have

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Speaker 9: lower interest rates.

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Speaker 2: Just cham and have the luxury of making the same

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Speaker 2: argument in about ninety minutes time on Capitol Hell, he should.

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Speaker 9: You know, you should stand your ground for honest analysis.

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Speaker 9: I know it's easy to come up with a bumper

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Speaker 9: sicuret that inflation is high, but good economists, good central banking,

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Speaker 9: requires you to analyze the numbers. And when he does

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Speaker 9: look at this, he'll say, look, there are some special

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Speaker 9: factors here, and I you know, don't throw things at me.

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Speaker 9: There are some special factors which bumped up the number

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Speaker 9: this month and a few months times, maybe even next month.

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Speaker 9: You'll get a flip on the airlines and the hotels,

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Speaker 9: and suddenly you get a better than expected number. They

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Speaker 9: shouldn't overreact to this. But at the same time, you say,

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Speaker 9: there's nothing here which says it inflation is cooling.

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Speaker 5: I hepe thinking about Steve Rashudo and how he talks

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Speaker 5: about how you can exclude this and exclude that.

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Speaker 4: You guys tend to fight over this, but.

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Speaker 5: At the end of the day, it really is a

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Speaker 5: rate that has been very sticky. Are you saying it's

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Speaker 5: okay for it to be a little bit sticky if

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Speaker 5: it's at three percent not nine percent, and it's okay

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Speaker 5: to just sort of accept a somewhat higher benchmark inflation rate.

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Speaker 9: Yes, because if you look at it at the shelter

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Speaker 9: issue really is very important. The owner's equivalent grant your

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Speaker 9: shelter is still I'm not sure it's only this one.

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Speaker 9: It's a four point four percent. Your review was four

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Speaker 9: point six and so it's coming down, but it's coming

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Speaker 9: down so slowly, but we know it's going to keep

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Speaker 9: coming down. So always we know it's eventually, this is

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Speaker 9: the core of the inflation rates eventually going to come

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Speaker 9: down from three percent to two percent. We know that's

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Speaker 9: going to happen. Didn't happen this month, and there's no

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Speaker 9: reason for the Fed to to move quickly, particularly given

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Speaker 9: all the policy uncertainty.

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Speaker 2: David, appreciate your time as always. David Kenlly, the of

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Speaker 2: JP Morgan Asset Management, joining us now to extend the conversation.

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Speaker 2: Mohammed al Aaron of Queen's College, Cambridge on the latest

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Speaker 2: inflation data with Equity's lower and bond yo hire Muhammed.

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Speaker 2: First question to use, sir, just how high is the

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Speaker 2: hurdle to hike interest rates at the federal serve? And

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Speaker 2: does this conversation get started after a print like that?

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Speaker 1: So I think it will get started in certain segments

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Speaker 1: of the market, it will not get started within the Fed.

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Speaker 1: And you know what, You've heard me say this over

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Speaker 1: and over again, John, if their inflation target is truly

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Speaker 1: two percent, then we would be talking about hikes. We

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Speaker 1: wouldn't be talking about postponing cuts. No, there's three things

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Speaker 1: that are very clear from these numbers. Taking that face value,

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Speaker 1: I'm going to come back to the face value qualification.

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Speaker 1: One day, are hotter than what the FED seems to

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Speaker 1: expect giving it signals, and they're getting hotter second, and

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Speaker 1: this is where I differ with David a little bit.

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Speaker 1: They are consistent with the whole host of other data points.

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Speaker 1: This is not some outlayer. They are consistent with what

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Speaker 1: we've seen in other places. And also they are consistent

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Speaker 1: with the hypothesis that companies and other segments of the

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Speaker 1: population are much more sensitive now to actual and expect.

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Speaker 8: The cost increases.

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Speaker 1: This is not a repeat of twenty twenty one, where

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Speaker 1: you have an unanticipated inflation and people don't adjust quickly.

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Speaker 8: This is a different economy.

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Speaker 2: So Mohammedan, you're suggesting that this economy is more inflation

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Speaker 2: prone now than it was several years ago, more.

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Speaker 8: Inflation sensitive now than it was before.

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Speaker 1: But well, agree with David, And this is a conversation

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Speaker 1: that the FED doesn't want to have, is that it's

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Speaker 1: okay to have slightly higher inflation for now. You don't

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Speaker 1: want to pull their work from under us exceptionalism. There's

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Speaker 1: already a lot of uncertainty in the environment. Finally, John,

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Speaker 1: the face value qualification was important because not only, as

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Speaker 1: Mike pointed out, do we have the annual updates to

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Speaker 1: all sorts of measuring things, but we also have the

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Speaker 1: impact of the wildfire, and we simply don't know what

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Speaker 1: the net net effect is. But at face value, this

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Speaker 1: is certainly not good use for the Fed and the

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Speaker 1: bond market, and.

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Speaker 8: The equity market is reacting accordingly.

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Speaker 4: Mohammed, there are two aspects to this.

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Speaker 5: On one hand, you can say this truly is a

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Speaker 5: more inflation prone market, and especially with companies more able

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Speaker 5: and willing like Coca Cola to pass along price increases,

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Speaker 5: you could see a spike upward, so you should respond

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Speaker 5: as a federal reserve to.

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Speaker 4: Tamp down that inflationary pressure.

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Speaker 5: On the other hand, you're saying that the Fed should

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Speaker 5: be patient because three percent inflation might be okay as

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Speaker 5: long as it keeps going downward.

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Speaker 4: Which is it? What is it appropriate to respond?

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Speaker 1: So it goes back to two issues, one that Powell

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Speaker 1: is finally willing to talk about and the second one

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Speaker 1: that he doesn't want to talk about.

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Speaker 8: The first one is what is the neutral rate? And

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Speaker 8: he said yesterday that the neutral rate had meaningfully moved higher.

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Speaker 1: The other one is what is the right inflation target,

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Speaker 1: and that's the one he doesn't want to talk about.

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Speaker 1: You know, my hope is that this FED will understand

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Speaker 1: that if it could, and I understand why it couldn't,

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Speaker 1: if we could talk about what is the right inflation

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Speaker 1: target for an economy going to massive structural change, it

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Speaker 1: would not be so obsessed with two percent.

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Speaker 8: It would be flexible, It would target a range. Look, Lisa,

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Speaker 8: it can be both.

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Speaker 1: It can be that you should tolerate slightly hotter inflation prints,

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Speaker 1: assuming that expectations remain relatively stable, and then you should

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Speaker 1: promise us.

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Speaker 8: Two percent down the road. But please don't target two

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Speaker 8: percent for anytime soon.

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Speaker 5: Mohamed, I'm struggling with the idea that the average inflation

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Speaker 5: might be three percent, but Enory's eggs are fifteen percent higher.

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Speaker 5: Or you know, you go to get to fly to

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Speaker 5: a popular route and suddenly it's twenty percent higher. That

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Speaker 5: there are select pockets of inflation where companies see they

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Speaker 5: have the ability to kick up prices in a way

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Speaker 5: that maybe they weren't at a time five years ago

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Speaker 5: when this was a less inflation prone market. Does that

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Speaker 5: raise concerns about longer term how much this could affect

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Speaker 5: consumer confidence, especially at the lower end of the consumer scale.

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Speaker 8: So I think there's two things.

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Speaker 1: Eggs is, like David said, that is a supply shop,

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Speaker 1: very different from higher prices for something where the demand

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Speaker 1: is very high and the supply is an elastic So

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Speaker 1: you know, these two things are happening, but they're economically

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Speaker 1: very different in terms of attributes. And that's the reality

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Speaker 1: of an average inflation rate is you have things going

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Speaker 1: up very high and things going very low. The key

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Speaker 1: thing to remember, at least what I look at, is

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Speaker 1: the bet that the FED and others we're making is

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Speaker 1: that service inflation would come down fast enough to upset

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Speaker 1: goods inflation.

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Speaker 8: That is no longer going down, no longer going negative.

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Speaker 8: Now what we're seeing is goods.

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Speaker 1: Inflation is starting to pick up, and service inflation hasn't

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Speaker 1: come down fast enough. And I think that is a

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Speaker 1: nature of the economy that we're functioning in right now.

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Speaker 6: If that's the nature of where we are right now,

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Speaker 6: was it an error, a policy error for the FED

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Speaker 6: to cut one hundred basis points.

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Speaker 8: And I believe that this FED has no strategic anchoring.

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Speaker 1: It is a ridiculous sequence that we've had in July

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Speaker 1: there's no need for a cut. In September there's need

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Speaker 1: for a jumble cut of fifty basis points, and not

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Speaker 1: much has changed in between. Then we come to the

440
00:22:21,320 --> 00:22:25,040
Speaker 1: next two and we are recalibrating, meaning we're getting down

441
00:22:25,080 --> 00:22:28,640
Speaker 1: to the twenty five regular twenty five. Now suddenly there's

442
00:22:28,640 --> 00:22:31,800
Speaker 1: a huge discussion. Are we skipping? Are we pausing? There

443
00:22:31,960 --> 00:22:35,440
Speaker 1: is no meaningful forward policy guidance coming from this FED,

444
00:22:36,440 --> 00:22:39,360
Speaker 1: and that is the mistake, that is the big, big mistake,

445
00:22:39,880 --> 00:22:45,560
Speaker 1: is that they are just incapable. It seems certainly unwilling,

446
00:22:45,760 --> 00:22:49,280
Speaker 1: but but it seems incapable of taking a strategic view

447
00:22:49,400 --> 00:22:52,359
Speaker 1: of where the economy is going. They have been so

448
00:22:52,600 --> 00:22:55,560
Speaker 1: burned by their huge mistake in twenty twenty one, where

449
00:22:55,600 --> 00:22:57,240
Speaker 1: they did take a strategic view, but they took the

450
00:22:57,280 --> 00:22:59,200
Speaker 1: wrong strategy view, that they don't want to take any

451
00:22:59,240 --> 00:23:02,480
Speaker 1: strategy view. So look for the FED policy not to

452
00:23:02,640 --> 00:23:06,000
Speaker 1: act as an anchor for this economy, but to fuel

453
00:23:06,119 --> 00:23:09,680
Speaker 1: volatility further. And I think that is the basic problem

454
00:23:09,760 --> 00:23:11,600
Speaker 1: we have right now with this fetter reserve.

455
00:23:11,800 --> 00:23:14,159
Speaker 6: Muhammad though, is this the Fed's fault in terms of

456
00:23:14,200 --> 00:23:16,160
Speaker 6: what's going on right now? Or is it just because

457
00:23:16,160 --> 00:23:18,480
Speaker 6: they're dealing with a tremendous amount of uncertainty extent of

458
00:23:18,560 --> 00:23:21,960
Speaker 6: clarity on some big policy issues in Washington.

459
00:23:23,320 --> 00:23:28,679
Speaker 1: Well, what I just said predated the great uncertainty in Washington.

460
00:23:28,760 --> 00:23:32,600
Speaker 1: It predated it. So the FED has a problem. But

461
00:23:32,720 --> 00:23:35,600
Speaker 1: you would hope that when you would look around and

462
00:23:35,760 --> 00:23:39,520
Speaker 1: companies look around about in this uncertain world, that they

463
00:23:39,560 --> 00:23:43,440
Speaker 1: at least think that there's one bit that provides the anchor.

464
00:23:43,440 --> 00:23:44,560
Speaker 8: And the FED is not doing that.

465
00:23:44,840 --> 00:23:48,040
Speaker 1: So whatever volatility is in the system right now, the

466
00:23:48,119 --> 00:23:50,680
Speaker 1: FED will amplify it. And that's not what it should

467
00:23:50,680 --> 00:23:52,920
Speaker 1: be doing, and that's not what forward politic cadence is

468
00:23:52,960 --> 00:23:56,600
Speaker 1: all about. But if you are excessively data dependent, you

469
00:23:56,640 --> 00:23:57,359
Speaker 1: will amplify it.

470
00:23:57,760 --> 00:24:00,960
Speaker 2: Mohammed Adam Posen the Peterson Institute thinks the next move

471
00:24:01,040 --> 00:24:04,240
Speaker 2: is a hike. Tilson Slock Apollo has made the argument

472
00:24:04,280 --> 00:24:06,520
Speaker 2: on this program a number of times. Things potentially the

473
00:24:06,600 --> 00:24:09,159
Speaker 2: next move is a hike. When you think about the

474
00:24:09,240 --> 00:24:10,840
Speaker 2: next move and you know what the next question is

475
00:24:10,920 --> 00:24:13,240
Speaker 2: going to be, is the next move still a cup

476
00:24:13,800 --> 00:24:14,480
Speaker 2: or is it a hike?

477
00:24:17,560 --> 00:24:20,399
Speaker 1: If they believe in that two percent inflation target, the

478
00:24:20,520 --> 00:24:21,640
Speaker 1: next move would.

479
00:24:21,440 --> 00:24:22,000
Speaker 8: Be a hike.

480
00:24:22,560 --> 00:24:25,600
Speaker 1: I think they will tolerate high inflation without telling us

481
00:24:25,600 --> 00:24:27,360
Speaker 1: they're doing so, they're just going to keep on promising

482
00:24:27,480 --> 00:24:30,200
Speaker 1: us that everything's going to be fine. And I think

483
00:24:30,280 --> 00:24:33,879
Speaker 1: that we are going to be pausing. The pause button

484
00:24:34,000 --> 00:24:35,760
Speaker 1: is going to be on a lot longer than what

485
00:24:35,840 --> 00:24:37,160
Speaker 1: the market has been expecting.

486
00:24:37,320 --> 00:24:39,160
Speaker 2: Do you think that should be a feature of today's

487
00:24:39,200 --> 00:24:42,359
Speaker 2: conversation of day two on Capitol Hill in front of

488
00:24:42,400 --> 00:24:46,480
Speaker 2: the House Financial Services Committee? Is this committee tacitly accepting

489
00:24:46,640 --> 00:24:49,680
Speaker 2: a higher inflation rate, an inflation rate that they shouldn't

490
00:24:49,680 --> 00:24:50,200
Speaker 2: be targeting.

491
00:24:52,040 --> 00:24:56,720
Speaker 1: This committee should be having a very detailed talk about

492
00:24:56,760 --> 00:25:00,760
Speaker 1: monetary policy, and it should be talking about the different

493
00:25:00,800 --> 00:25:04,080
Speaker 1: scenarios that are facing the economy right now and what

494
00:25:04,200 --> 00:25:05,399
Speaker 1: is the role of monetary policy.

495
00:25:05,680 --> 00:25:08,440
Speaker 8: That is what it should it should do. But you know,

496
00:25:08,560 --> 00:25:09,320
Speaker 8: depending on your.

497
00:25:09,240 --> 00:25:16,080
Speaker 1: Sports chair, pal is in the game of either sidelining

498
00:25:16,280 --> 00:25:21,240
Speaker 1: difficult question or punting on difficult questions, or ducking and

499
00:25:21,359 --> 00:25:25,800
Speaker 1: weaving on deficult questions. He doesn't want to make news.

500
00:25:26,520 --> 00:25:28,679
Speaker 1: He already made some news yesterday that I don't think

501
00:25:28,720 --> 00:25:32,480
Speaker 1: he was comfortable making. So even if you get the questions,

502
00:25:32,920 --> 00:25:34,000
Speaker 1: you're not going to get the answers.

503
00:25:34,560 --> 00:25:36,480
Speaker 4: Mohammed putting together what you're saying.

504
00:25:36,880 --> 00:25:40,680
Speaker 5: If this FED does want to tolerate a higher inflation rate,

505
00:25:41,320 --> 00:25:45,600
Speaker 5: is this neutral? Not necessarily any distance at all from neutral.

506
00:25:47,000 --> 00:25:49,080
Speaker 1: So you've heard me say this again, and that's because

507
00:25:49,080 --> 00:25:51,560
Speaker 1: I focus on the structural element of this economy.

508
00:25:52,040 --> 00:25:55,000
Speaker 8: We are very near neutral. We may be at neutral already.

509
00:25:55,720 --> 00:25:59,280
Speaker 1: The economy has fundamentally changed from what it was in

510
00:25:59,320 --> 00:26:02,600
Speaker 1: the last decade, and that's because the supply side has

511
00:26:03,119 --> 00:26:04,080
Speaker 1: fundamentally changed.

512
00:26:04,680 --> 00:26:06,440
Speaker 8: So yes, I've been saying this for a while.

513
00:26:06,840 --> 00:26:09,240
Speaker 1: Okay, we are very close, if not at neutral. And

514
00:26:09,680 --> 00:26:14,200
Speaker 1: and I heard Chair Powi yesterday say that for the

515
00:26:14,240 --> 00:26:16,919
Speaker 1: first time he said this, that the neutral rate has

516
00:26:16,960 --> 00:26:19,280
Speaker 1: moved out meaningfully since.

517
00:26:20,520 --> 00:26:21,320
Speaker 8: In the last few years.

518
00:26:21,600 --> 00:26:23,640
Speaker 2: Somehowm it just to find a question then without of mind,

519
00:26:23,680 --> 00:26:25,600
Speaker 2: And that has implications for the front end of the curve.

520
00:26:26,080 --> 00:26:28,160
Speaker 2: What would this mean from your perspective for the bond

521
00:26:28,240 --> 00:26:30,760
Speaker 2: market going forward from here? The shape of the curve,

522
00:26:30,880 --> 00:26:33,960
Speaker 2: how things look compared to how they looked a decade ago.

523
00:26:35,320 --> 00:26:37,840
Speaker 1: So the front end and up to about you know,

524
00:26:38,000 --> 00:26:41,040
Speaker 1: four or five years is easier for me than the

525
00:26:41,119 --> 00:26:43,160
Speaker 1: long end. And it's easier for me because I think

526
00:26:43,200 --> 00:26:45,119
Speaker 1: the market is going to it's going to move to

527
00:26:45,240 --> 00:26:47,760
Speaker 1: the expectation that we're not going to get a cut

528
00:26:47,800 --> 00:26:48,520
Speaker 1: for quite a while.

529
00:26:49,600 --> 00:26:51,680
Speaker 8: The long end, John, is really hard.

530
00:26:52,280 --> 00:26:54,720
Speaker 1: You have a massive tug of war right now in

531
00:26:54,800 --> 00:27:00,680
Speaker 1: the Big five the irregulation fiscal both both on the

532
00:27:00,720 --> 00:27:07,760
Speaker 1: expenditure sign the revenue side, trade, immigration, and watch the

533
00:27:07,800 --> 00:27:09,480
Speaker 1: fifth and I'm missing a fifth one I think of

534
00:27:09,520 --> 00:27:13,560
Speaker 1: it in a minute. So those Big five drawn are

535
00:27:14,400 --> 00:27:16,760
Speaker 1: not clear how they're going to net out yet, and

536
00:27:16,880 --> 00:27:19,800
Speaker 1: that's going to impact the long end in a meaningful fashion.

537
00:27:20,080 --> 00:27:22,720
Speaker 2: Muhammed, this was a clinic, it always is. We appreciate

538
00:27:22,760 --> 00:27:25,200
Speaker 2: your time, sir. Thank you. Mohammed Al Aaron There of

539
00:27:25,320 --> 00:27:28,800
Speaker 2: Queen's College, Cambridge on the latest inflation print. This is

540
00:27:28,920 --> 00:27:33,200
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541
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544
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