WEBVTT - Surveillance Analysis: The Fed Decision 0:00:04.840 --> 0:00:08.799 This is Bloomberg Surveillance with Tom Keane, Jonathan Verrow, and 0:00:08.840 --> 0:00:11.319 Lisa Bramowitz on Bloomberg Radio. 0:00:12.039 --> 0:00:13.720 That is it for the main new conference of the 0:00:13.760 --> 0:00:17.119 Federal Reserve with Chairman Jaypowe. They're following a twenty five 0:00:17.200 --> 0:00:20.400 basis point increase. Looking ahead on the economy, this is 0:00:20.440 --> 0:00:22.599 what he had to say. His forecast is for modest growth, 0:00:22.720 --> 0:00:25.160 not a recession. On policy, he was asked, is this 0:00:25.239 --> 0:00:28.080 a pause? We're getting closer? We maybe there, We discussed it, 0:00:28.160 --> 0:00:30.400 but here's the important But a decision on a pause 0:00:30.480 --> 0:00:33.760 was not taken today. Are we sufficiently restrictive? That's going 0:00:33.800 --> 0:00:37.800 to be an ongoing assessment on cuts. Mike McKee pushing 0:00:37.800 --> 0:00:41.040 hard on that in the news conference the fmc's inflation 0:00:41.120 --> 0:00:44.279 out note Tom doesn't support raycuts. 0:00:43.840 --> 0:00:46.760 The only one in the conference where there was really 0:00:46.880 --> 0:00:51.120 a stumble. Once again, always McKey, always. 0:00:50.720 --> 0:00:52.400 If you are just tuning in on TV and radio. 0:00:52.440 --> 0:00:55.280 And this is a special edition of Bloomberg Surveillance covering 0:00:55.280 --> 0:00:58.960 the Federal Reserve's latest interest rate increase with Tom Keane, 0:00:59.120 --> 0:01:01.840 who wants to go home, alongside Lisa Bradbits'm Jonathan Ferroll, 0:01:01.840 --> 0:01:03.720 who is very happy to stay with you. If you 0:01:03.760 --> 0:01:06.039 are just tuning in, Welcome to the program. This is 0:01:06.040 --> 0:01:07.399 what the Chairman had to say. 0:01:08.160 --> 0:01:10.839 With our monetary policy, we're trying. We're in to reach 0:01:11.040 --> 0:01:14.520 then and then stay at a for an extended period, 0:01:14.959 --> 0:01:18.840 a level of policy, a policy stance that's sufficiently restrictive 0:01:18.880 --> 0:01:20.880 to bring inflation out in two percent over time. We 0:01:20.920 --> 0:01:23.759 always have to balance the risk of not doing enough 0:01:23.920 --> 0:01:27.959 and not getting inflation under control, against the risk of 0:01:28.600 --> 0:01:31.240 maybe slowing down economic activity too much. And we thought 0:01:31.240 --> 0:01:34.640 that this rate hike, along with the meaningful change in 0:01:36.720 --> 0:01:39.160 our policy statement, was the right way to balance that. 0:01:39.319 --> 0:01:41.640 This assessment will be an ongoing one. 0:01:42.240 --> 0:01:44.559 The Chairman of the Federal Reserve said policy was tight. 0:01:44.680 --> 0:01:47.080 You put credit tightening on top of that, throwing QT. 0:01:47.640 --> 0:01:49.840 We may not be far off or possibly even at 0:01:49.840 --> 0:01:52.320 that level. When you get closer and closer to being 0:01:52.400 --> 0:01:55.640 sufficiently restrictive. I think Tom the Chairman is struggling to 0:01:55.640 --> 0:01:59.320 reflect there a consensus on the committee without drowning out 0:01:59.320 --> 0:02:01.320 that consensus of the committee with his own personal view. 0:02:01.840 --> 0:02:04.600 You can sense hows than he was addressing that question, 0:02:04.640 --> 0:02:05.200 And for those of you. 0:02:05.160 --> 0:02:07.240 On radio, there's a time where he looks down and 0:02:07.280 --> 0:02:09.600 reads the prepared comments, and we saw that three, four 0:02:09.680 --> 0:02:13.200 or five times, it seemed throughout. What I would really emphasize, 0:02:13.240 --> 0:02:15.919 besides the decline we see down on two hundred SPX 0:02:15.919 --> 0:02:19.520 down eighteen, is how little the market moved during the 0:02:19.560 --> 0:02:21.959 press conference compared to the last four or five six 0:02:22.040 --> 0:02:25.160 press conferences. I don't think there was a gyrations the 0:02:25.200 --> 0:02:26.440 emotion within the conference. 0:02:26.480 --> 0:02:29.080 Initially people Tom described it as dubvish. At least I 0:02:29.120 --> 0:02:31.160 have to say, listening to that news conference, that's not 0:02:31.440 --> 0:02:34.000 my personal assessment of what I heard over the last 0:02:34.040 --> 0:02:34.639 fifty minutes. 0:02:34.720 --> 0:02:38.160 Inflation is a preeminent concern, and that's clear. That said, 0:02:38.320 --> 0:02:40.680 the market has not shifted in its view that this 0:02:40.720 --> 0:02:43.040 will be the last cut in this raid hiking cycle 0:02:43.080 --> 0:02:44.880 that has been the fastest going back to nine to 0:02:44.919 --> 0:02:47.560 eighty one. We just witnessed it according to market pricing, 0:02:47.880 --> 0:02:49.960 and that from here the next move will likely be 0:02:50.080 --> 0:02:52.239 a cut and it could come as soon as September. 0:02:52.520 --> 0:02:55.640 And perhaps he had no conviction about pretty much anything, 0:02:55.680 --> 0:02:59.280 but he did sort of reflect the seesaw underpinning the 0:02:59.320 --> 0:03:02.239 debates at the to reserve at the FMC. That just 0:03:02.280 --> 0:03:04.000 gave confirmation to Marketshay. 0:03:03.560 --> 0:03:05.600 Told you what that new focus was though, right, yeah, 0:03:05.639 --> 0:03:07.720 credit tigning Tom. It's going to be a big focus 0:03:07.760 --> 0:03:08.480 for this committee. 0:03:09.480 --> 0:03:12.400 Is the overlay of all these other events that are 0:03:12.400 --> 0:03:15.919 happening banking, commercial, real estate, et cetera. What does that effect? 0:03:16.000 --> 0:03:18.480 I'm restrictive, and I've repeated this I think twice today. 0:03:18.520 --> 0:03:21.359 It goes back to constant at Missoulo in this phrase 0:03:21.400 --> 0:03:24.239 super restrictive. How restrictive are we now? And some would 0:03:24.240 --> 0:03:27.600 suggest more restrictive than we imagine just looking at the data. 0:03:28.040 --> 0:03:30.040 I'm just going to put this out there. I suspect 0:03:30.080 --> 0:03:32.120 that the Senior Loan Officer Opinion survey is going to 0:03:32.160 --> 0:03:33.920 be really boring. And the reason why is because he 0:03:33.960 --> 0:03:36.200 made it sound that way. He had a written statement. 0:03:36.200 --> 0:03:37.240 When someone asked him what. 0:03:37.200 --> 0:03:37.800 Does it say? 0:03:37.920 --> 0:03:39.600 And he looks down, He's like, oh, I can't give 0:03:39.640 --> 0:03:41.920 you any preview, but just to think it's in line, 0:03:41.960 --> 0:03:44.480 and it's you know, probably we've seen this tightening since 0:03:44.600 --> 0:03:46.360 the second half of last year and it's been on going, 0:03:46.400 --> 0:03:46.840 et cetera. 0:03:46.960 --> 0:03:48.840 So you enjoyed the last fifty minutes. 0:03:49.760 --> 0:03:51.680 I mean I just was thinking to myself, all these 0:03:51.720 --> 0:03:53.560 people trying to get him to say something, and he's 0:03:53.640 --> 0:03:55.520 just like, look, we don't know, and we're doing the 0:03:55.520 --> 0:03:57.160 best that we can. I think the economy is a 0:03:57.160 --> 0:03:58.920 better shape than my colleagues. We all agree though in 0:03:58.960 --> 0:04:00.080 yeah Kumbaya. 0:04:00.000 --> 0:04:02.360 Importent headline from the whole thing looking ahead, we would 0:04:02.400 --> 0:04:08.080 take a date dependent approach, predicted that we will be judge, 0:04:08.440 --> 0:04:09.640 we will be date to dependent. 0:04:09.960 --> 0:04:12.320 Yeah, well, also do this right now. Let us jump 0:04:12.400 --> 0:04:15.720 to someone who's absolutely been out front on the trajectory 0:04:15.760 --> 0:04:18.280 of the FED, and that is William Dudley. He's, yes, 0:04:18.320 --> 0:04:22.240 a Bloomberg opinion columnist, Yes, a former president of the 0:04:22.279 --> 0:04:25.239 New York FED, but far more gentleman of Berkeley, steeped 0:04:25.240 --> 0:04:28.800 in our economic history, Bill Dudley, I've been dying to 0:04:28.839 --> 0:04:31.720 ask you this question. This word pause has come up 0:04:32.200 --> 0:04:34.279 and the arch question to me to get to June 0:04:34.279 --> 0:04:36.440 and on to the rest of what we observe in 0:04:36.480 --> 0:04:42.920 twenty twenty three. If they pause, is it asymmetric or symmetric? 0:04:43.200 --> 0:04:46.440 Does a pause mean rate cuts to come? Or they 0:04:46.440 --> 0:04:49.040 can say we're going to pause and we can go 0:04:49.120 --> 0:04:53.479 either way. The historians John Taylor of Stanford across the 0:04:53.560 --> 0:04:57.280 pond from your Berkeley, Barry Ikengreen and others, would they 0:04:57.320 --> 0:05:02.680 say there's a precedent to analyzing asymmetric or symmetric pausing. 0:05:04.440 --> 0:05:07.479 Well, I think they can pause and then continue to 0:05:07.480 --> 0:05:09.920 tighten again if the data turns out to support that. 0:05:10.680 --> 0:05:13.160 But obviously when they do pause, they're making a pretty 0:05:13.200 --> 0:05:16.200 strong statement that they've gotten enough information that they're confident 0:05:16.240 --> 0:05:19.599 that policy is sufficiently restrictive to use German policy terms 0:05:19.760 --> 0:05:22.520 to bring inflation down to two percent over time. So 0:05:22.600 --> 0:05:24.960 a pause is going to be a pretty significant event 0:05:24.960 --> 0:05:27.600 from the FED. Now, obviously contact matters that we're in 0:05:27.600 --> 0:05:30.039 the middle of a debt limit ceiling fight at the 0:05:30.040 --> 0:05:32.479 time of the June FMC meeting. You might take a 0:05:32.520 --> 0:05:35.080 pause for other reasons, but I would say a pause 0:05:35.120 --> 0:05:38.440 will be pretty important event. What the FED was trying 0:05:38.480 --> 0:05:40.279 to do today was say, look, we don't know if 0:05:40.320 --> 0:05:44.240 we're going to pause or not at this point. The message, 0:05:44.279 --> 0:05:46.520 I think in the statement and in the prescotte is 0:05:46.560 --> 0:05:49.240 pretty clear. We think we're getting close to a level 0:05:49.240 --> 0:05:53.359 that's sufficient restrictive. We're not absolutely certain the data is. 0:05:53.320 --> 0:05:53.880 Going to do that. 0:05:54.000 --> 0:05:56.040 We have to do a little bit more. We're clearly 0:05:56.040 --> 0:05:59.040 not going to cut yet. So I think the pushback 0:05:59.080 --> 0:06:01.160 that the FED is making relate to the markets pricing 0:06:01.200 --> 0:06:03.760 and rate cuts. The FED thinks that the process of 0:06:03.760 --> 0:06:05.440 getting inflation down to two percent. 0:06:05.240 --> 0:06:07.240 Is going to take some time, a lot longer than 0:06:07.279 --> 0:06:08.119 what the market thinks. 0:06:08.200 --> 0:06:11.000 I heard one word in the beginning of the comments, 0:06:11.000 --> 0:06:14.880 and it echoed from Lyle Brainerd. I believe she's at 0:06:14.920 --> 0:06:19.120 sixteen hundred Pennsylvania this week, and the former vice chair 0:06:19.160 --> 0:06:23.560 would suggest cumulative What is a cumulative effect of where 0:06:23.560 --> 0:06:26.920 we are right now, given how you nailed the need 0:06:27.000 --> 0:06:29.440 for higher rates to fight inflation. 0:06:30.480 --> 0:06:33.599 Well, we're certainly in the vicinity of what's sufficient. I 0:06:33.600 --> 0:06:36.000 think in my mind whether they have to do another 0:06:36.640 --> 0:06:39.120 you know, increase or two it's hard to say. 0:06:39.160 --> 0:06:39.760 At this point. 0:06:40.440 --> 0:06:42.280 We've come a long way in the last year, as 0:06:42.320 --> 0:06:44.520 Pope Chair Paul said in his pres coms, you five 0:06:44.600 --> 0:06:47.000 hundred basis point five percent increase in short term rates. 0:06:47.000 --> 0:06:48.120 That's a lot in a year. 0:06:48.400 --> 0:06:50.560 And we're also starting to see some of the effects 0:06:50.600 --> 0:06:53.320 of that on the banking system, so that the FED 0:06:53.360 --> 0:06:56.800 has a whole nother source of restraint, which is credit 0:06:57.640 --> 0:06:59.640 conditions are going to tighten because some banks are going 0:06:59.640 --> 0:07:00.000 to pull up. 0:07:00.240 --> 0:07:02.120 Now the hard part is, he said in his press 0:07:02.160 --> 0:07:05.520 conference it's very hard to access. How important that channel 0:07:05.600 --> 0:07:06.040 is going to be. 0:07:06.440 --> 0:07:08.279 My own personal view is it's going to be fairly 0:07:08.320 --> 0:07:10.960 weak because the problems that these banks face were not 0:07:11.040 --> 0:07:13.119 that they went out and made bad loans. The problem 0:07:13.160 --> 0:07:15.080 that these banks faces they went out and took a 0:07:15.080 --> 0:07:16.080 lot of interest rate risks. 0:07:17.280 --> 0:07:20.360 Bill, were you satisfied with the explanations or the answers 0:07:20.360 --> 0:07:23.520 to the questions about the supervisory of some of these 0:07:23.560 --> 0:07:25.200 banking institutions that have failed. 0:07:26.480 --> 0:07:29.640 Well, I don't think the FED is you know, taking 0:07:29.640 --> 0:07:34.000 the full responsibility for being pretty slow on this process. 0:07:34.040 --> 0:07:35.280 I mean, if you go back and look at the 0:07:35.320 --> 0:07:39.280 November Financial Stability Report, which I did this morning, there's 0:07:39.320 --> 0:07:41.560 there's basically no mention of any kind of you know, 0:07:41.640 --> 0:07:45.679 interest rate risk mismatch, any prime kind of potential liquidity 0:07:45.760 --> 0:07:49.000 problem in the bank. So it wasn't just a question 0:07:49.200 --> 0:07:53.680 of the supervision not being more aggressive with Silicon Valley Bank. 0:07:53.720 --> 0:07:56.360 I think the FED basically missed the risk here that 0:07:56.480 --> 0:07:59.600 deposits could flow out very very quickly because of the 0:07:59.640 --> 0:08:02.120 marked market losses on some of these banks balance sheets. 0:08:02.320 --> 0:08:04.480 Do you think, then, Bill, they're still missing it that 0:08:04.560 --> 0:08:07.360 they don't appreciate the full extent of it, based on, 0:08:08.000 --> 0:08:09.920 for example, the preliminary look that they got to the 0:08:09.960 --> 0:08:13.320 Senior Loan Officer Opinion survey, which seemed to indicate just 0:08:13.360 --> 0:08:15.760 an ongoing trend of what they had seen. Are then 0:08:15.840 --> 0:08:18.360 underappreciating a new pressure in the market. 0:08:20.240 --> 0:08:22.440 I think that his answer on the Senior Loan Officers 0:08:22.440 --> 0:08:25.760 survey was that it's moving in the same direction that 0:08:25.840 --> 0:08:29.520 it was upward in the tightening of credit conditions, but 0:08:29.560 --> 0:08:32.240 not in a way that would suggest that the problems 0:08:32.240 --> 0:08:35.640 of the banking system since mid March have led to 0:08:35.679 --> 0:08:38.400 a significant further tightening of credit conditions. So I think 0:08:38.600 --> 0:08:41.080 he's basically saying there's not really any new information in 0:08:41.120 --> 0:08:42.520 the Senior Loan Officers survey. 0:08:42.520 --> 0:08:45.920 That was my sense of his response to that question. 0:08:46.120 --> 0:08:50.120 Doctor Dudley, what you just said is extraordinary. You said, basically, 0:08:50.200 --> 0:08:55.160 the FED missed the ramifications of new digital technology the 0:08:55.200 --> 0:08:58.960 speed with which we can move deposits out a delicate question, 0:08:59.040 --> 0:09:02.439 if I may, Bill, and that is basically they want 0:09:02.480 --> 0:09:06.280 Mary Daily's head. There's no other way to put it nicely. 0:09:06.520 --> 0:09:10.360 You've had experience being a president of a FED. Do 0:09:10.480 --> 0:09:13.800 you go after the president of any given regional FRED 0:09:13.840 --> 0:09:16.520 when there's a major blow up like this, or is 0:09:16.559 --> 0:09:19.480 it much more down the food chain looking at the 0:09:19.520 --> 0:09:22.600 process of supervision and regulation. 0:09:23.720 --> 0:09:28.400 I think it's a much broader issue about supervisors finding 0:09:28.440 --> 0:09:31.400 problems with banks and then not forcing the banks to 0:09:31.440 --> 0:09:34.960 remedy those problems in a timely way. The second issue 0:09:34.960 --> 0:09:37.400 here was I think the FED broadly missed the fact 0:09:37.440 --> 0:09:40.240 that this interest rate risk that they had created by 0:09:40.360 --> 0:09:43.600 being very late to tighten monitary policy, that they created 0:09:43.600 --> 0:09:46.800 by flooding the bank with deposits by doing quantitative easing, 0:09:47.320 --> 0:09:49.320 that they created part of the stress and the banking 0:09:49.360 --> 0:09:53.640 system that arose when they had to tighten monetary policy 0:09:53.679 --> 0:09:55.280 by five percent in a little. 0:09:55.040 --> 0:09:55.520 Over a year. 0:09:55.800 --> 0:09:58.560 So the Federal Reserve has some culpability here, both in 0:09:58.640 --> 0:10:01.880 terms of the monitary policy policies that they pursued over 0:10:01.880 --> 0:10:05.720 the last few years and also on the supervisory. 0:10:05.040 --> 0:10:06.320 So it's certainly culpability. 0:10:06.320 --> 0:10:08.640 They're not really looking to go out and acknowledge in 0:10:08.640 --> 0:10:10.120 a major way, that's for sure, based on some of 0:10:10.120 --> 0:10:12.720 the statements we've heard, they have to a degree. 0:10:12.760 --> 0:10:15.840 I mean, I thought the FED report from Michael Barr 0:10:15.920 --> 0:10:18.439 that came out last week was did acknowledge that there 0:10:18.480 --> 0:10:20.520 was a lot of improvement on the supervisory side that 0:10:20.520 --> 0:10:22.520 that needed to be made. But I don't think the 0:10:22.520 --> 0:10:25.360 FED has acknowledged the fact that the monetary policy regime 0:10:25.400 --> 0:10:28.319 that they followed, which was to be purposely late and 0:10:28.400 --> 0:10:31.800 tightening minetary policy, meant you were encouraging banks to take 0:10:31.880 --> 0:10:34.480 on more interest rate risk, and then those banks got 0:10:34.480 --> 0:10:37.120 caught and the Fed a reserve raised by five hundred 0:10:37.120 --> 0:10:37.679 basis points. 0:10:37.720 --> 0:10:39.880 Well, that's an assessment your successor at the New York 0:10:39.920 --> 0:10:42.640 FED certainlytors in chair based on his most recent comments 0:10:42.720 --> 0:10:44.640 Mike McKay's run out of the news conference to catch 0:10:44.720 --> 0:10:47.120 up with us. My wonderful questioning to the chairman as 0:10:47.160 --> 0:10:49.320 always in the news conference, thank you for that on 0:10:49.400 --> 0:10:51.600 behalf of the whole audience really pressing him on those 0:10:51.640 --> 0:10:53.240 rate cuts. Mike, what was the assessment of what you 0:10:53.240 --> 0:10:54.440 heard in the last sixty minutes? 0:10:55.720 --> 0:10:58.400 Well, I think basically what we heard was the FED 0:10:58.440 --> 0:11:00.520 saying we don't know exactly what we going to do, 0:11:00.559 --> 0:11:03.360 so we're going to play it carefully and we will 0:11:03.800 --> 0:11:07.160 punt on a decision or on forward guidance for now 0:11:07.480 --> 0:11:10.839 until we get a better read on the economy. Powell 0:11:10.880 --> 0:11:13.320 as it pains to say his own personal opinion is 0:11:13.480 --> 0:11:16.520 we're not going to receive a recession. But he also 0:11:16.640 --> 0:11:19.720 ruled out rate cuts in case somebody is thinking that 0:11:19.800 --> 0:11:23.280 they might do that soon. So a very cautious FED here. 0:11:24.200 --> 0:11:26.839 If I could, I'd like to ask Bill Dudley a 0:11:26.920 --> 0:11:29.800 question to be still with us about that. Because the 0:11:29.880 --> 0:11:33.320 data don't change a whole lot in six weeks. What 0:11:33.360 --> 0:11:35.640 would be the bar for the FED, since you've been 0:11:35.640 --> 0:11:38.760 in as meetings for the FED to race rates to 0:11:38.880 --> 0:11:41.080 change its mind to say we need to do more, 0:11:41.240 --> 0:11:42.600 what would they need to see? 0:11:43.800 --> 0:11:46.520 I think they have to see evidence that the economy 0:11:46.559 --> 0:11:49.000 isn't slowing, that the labor markets not loose thing, that 0:11:49.040 --> 0:11:53.680 wages aren't coming down, that core inflation's not falling, you know. 0:11:53.720 --> 0:11:55.360 I mean, at the end of the day, what they're 0:11:55.360 --> 0:11:58.720 trying to do is assess what is sufficiently restrictive in 0:11:58.800 --> 0:12:02.000 order to get inflation back down to two percent. Before 0:12:02.000 --> 0:12:05.520 the banking system problems, they thought sufficiently restricted was higher. 0:12:05.240 --> 0:12:06.080 Than what we are today. 0:12:06.240 --> 0:12:08.319 In fact, Paul was talking about potentially even doing a 0:12:08.360 --> 0:12:11.280 fifty basis point Radhi cut not too long ago, and then. 0:12:11.200 --> 0:12:13.920 The banking problems hit, and so that's caused. 0:12:13.679 --> 0:12:16.680 The BED to lower their estimate of what sufficiently restrictive is. 0:12:17.000 --> 0:12:20.400 So the data will inform them about what's sufficiently restrictive is. 0:12:20.440 --> 0:12:22.719 If the data is really strong, they'll revives up their 0:12:22.720 --> 0:12:24.400 notion of what's sufficiently restrictively. 0:12:24.720 --> 0:12:26.360 Well, Bill, are they going to put more weight on 0:12:26.640 --> 0:12:28.719 financial sector data or are they going to put more 0:12:28.760 --> 0:12:31.080 weight on the data coming from traditional indicators. 0:12:32.480 --> 0:12:33.880 I think they're going to put a lot of weight 0:12:33.960 --> 0:12:36.720 on what they're seeing in terms of the labor market, 0:12:36.920 --> 0:12:38.240 wages and inflation. 0:12:38.720 --> 0:12:41.400 You know, that's really where they haven't made much progress yet. 0:12:41.840 --> 0:12:43.760 They're also going to probably take some signal by what's 0:12:43.760 --> 0:12:45.600 happening in the housing sector, because if you look at 0:12:45.600 --> 0:12:48.400 the single family housing sector, it looks like it's actually stabilizing. 0:12:48.880 --> 0:12:52.040 So the policy restraint that's already been put in place 0:12:52.360 --> 0:12:54.640 looks like it's the effects of that on housing are 0:12:54.640 --> 0:12:55.400 starting to fade. 0:12:55.480 --> 0:12:57.440 A butot just a fine question from a soul. This 0:12:57.520 --> 0:12:59.560 is something the case brought up over the last week 0:12:59.600 --> 0:13:02.040 in my car conversations with him. Whether this would be 0:13:02.040 --> 0:13:04.920 a nod to June two thousand and six. You obviously 0:13:05.000 --> 0:13:07.120 have a deep understanding of the history of the Federal 0:13:07.120 --> 0:13:10.280 Reserve back in June O six. They wrote in the statement, 0:13:10.320 --> 0:13:12.720 the extent and timing of any additional firming that maybe 0:13:12.720 --> 0:13:15.439 needed to address these risks will depend on the evolution 0:13:15.559 --> 0:13:18.160 of the outlook and et cetera, et cetera, inflation and 0:13:18.200 --> 0:13:22.000 economic growth implied by incoming information. Now, Bill, do you 0:13:22.000 --> 0:13:25.480 think it's a deliberate nod to Juneo six when essentially 0:13:25.480 --> 0:13:27.400 that decision ended up being a pause. 0:13:29.000 --> 0:13:30.320 No. I don't think they know yet, And I think 0:13:30.600 --> 0:13:33.480 Power is being true, very honest when he said that 0:13:33.520 --> 0:13:35.400 we haven't made any decision about whether we're going to 0:13:35.400 --> 0:13:38.440 pause yet. I think they think that the probability is 0:13:38.559 --> 0:13:41.079 higher that they're going to pause, but they haven't actually 0:13:41.120 --> 0:13:41.840 got there yet. 0:13:42.080 --> 0:13:43.880 Bill, Thanks for that. Wonderful to get your perspective. 0:13:43.880 --> 0:13:46.520 Bill Dundley there on the latest from Bloomberg Opinion and 0:13:46.640 --> 0:13:49.280 of course the former New York Fed President on this 0:13:49.320 --> 0:13:51.360 Federal Reserve decision. If you are just tuning in, welcome 0:13:51.360 --> 0:13:53.839 to the program on TV and radio. Special coverage here 0:13:53.880 --> 0:13:58.600 Bloomberg Surveillance After Hours, late, very late, Tom Keane, Lisa Brammitts, 0:13:58.640 --> 0:14:01.400 Jonathan Farrow after aur at like three pm, which is 0:14:01.640 --> 0:14:02.040 bed time. 0:14:02.200 --> 0:14:04.439 What you may all being. We got a pop turnel. 0:14:04.120 --> 0:14:07.000 React marketing negative zero point six percent on the smp 0:14:07.120 --> 0:14:09.679 TK and upon market that's seven basis points now but 0:14:09.720 --> 0:14:11.640 two year right now, three eighty eight. 0:14:11.640 --> 0:14:13.440 Not what he's giveaway. There's no question about it. I've 0:14:13.480 --> 0:14:15.920 been looking at Apple. We'll get to that tomorrow. But John, 0:14:16.080 --> 0:14:19.240 what doctor Dudley said there is extraordinary. He did not 0:14:19.520 --> 0:14:26.520 mince any words about this institution missing the effect, the 0:14:26.600 --> 0:14:30.720 slew that the Newtonian rates of change of the interest 0:14:30.800 --> 0:14:33.320 rate movement hasn't been enough talk about this. You can 0:14:33.360 --> 0:14:35.520 do it on the Bloomberg terminal. It's in your face. 0:14:36.160 --> 0:14:38.560 And to hear that from Bill Dudley, I don't care 0:14:38.640 --> 0:14:41.640 that he's an ex official. That was a scathing rebuke 0:14:41.720 --> 0:14:42.600 of his institution. 0:14:42.800 --> 0:14:44.880 Feut On regultary I have signed to some extent. It's 0:14:44.880 --> 0:14:47.880 been an acknowledgment of that in the most recent one. 0:14:48.000 --> 0:14:48.400 But two. 0:14:48.560 --> 0:14:52.200 To your point, they increased interest rates aggressively from zero 0:14:52.240 --> 0:14:54.800 to five. They went fromt loading. They were catching up, 0:14:55.120 --> 0:14:56.560 and because they had to catch up, you've had this 0:14:56.680 --> 0:14:59.400 rate shock, and that's what Bill Dupley is talking about. 0:14:59.640 --> 0:15:01.880 We're going to at the Jeff Rosenberg. But basically, folks, 0:15:01.880 --> 0:15:03.840 this is Bramo and Farrell all wound up and me 0:15:03.880 --> 0:15:07.520 and McKee are more institutionally friendly. I'm sorry some of 0:15:07.560 --> 0:15:08.360 the people that. 0:15:09.480 --> 0:15:11.120 Let me clean up what you just said? What you 0:15:11.160 --> 0:15:12.960 mean by that, and I'll leave my count of it 0:15:13.000 --> 0:15:14.600 is that you have the establishment view. 0:15:15.080 --> 0:15:16.360 Yeah, and that's way questioning. 0:15:16.520 --> 0:15:20.840 You know, it's like twenty twenty they like everybody else. 0:15:20.880 --> 0:15:24.520 But the bottom line is, here's a guy with immense experience. 0:15:24.520 --> 0:15:27.280 Bill was in my book blah blah blah, great, he 0:15:27.520 --> 0:15:30.080 was scathing about his institution. 0:15:30.440 --> 0:15:33.320 Debt crises always happened in the instruments that are thought 0:15:33.360 --> 0:15:36.120 of as safe. That is always what has happened. Back 0:15:36.160 --> 0:15:38.080 in two thousand and seven, two thousand and eight, it 0:15:38.120 --> 0:15:40.960 was the triple A rated or debt that was tied 0:15:40.960 --> 0:15:44.400 to mortgage mortgages that were basically bundled together. So here's 0:15:44.440 --> 0:15:48.160 the question. Has this Federal Reserve and frankly regulators generally 0:15:48.160 --> 0:15:49.000 just let me finish. 0:15:49.200 --> 0:15:50.760 Have they basically. 0:15:50.320 --> 0:15:53.440 Assumed a complete lack of risk in some of the 0:15:53.480 --> 0:15:56.720 benchmark treasuries that they're using as like the safety pools, 0:15:56.760 --> 0:15:59.920 as the buffers, and this really if it's not appreciated. 0:16:00.000 --> 0:16:02.400 How much further does it potentially got light? 0:16:02.440 --> 0:16:05.720 You know, I'm slowly losing it with ut campecific. 0:16:05.200 --> 0:16:09.000 West specific West easing into the clothes. I'm sorry, Pacific 0:16:09.040 --> 0:16:11.560 West has given me a seven down to six point 0:16:11.600 --> 0:16:14.200 five to two. And when you see people like this 0:16:14.280 --> 0:16:16.360 with this language, it's enough to make you know, Jeff 0:16:16.440 --> 0:16:18.200 Rosenberg's gonna get his first gray hair. 0:16:18.480 --> 0:16:20.120 Jeff's waiting for us. That's why it's agent. 0:16:20.240 --> 0:16:24.160 Jeff Blackcock joined us right now. Jeff, you've got all 0:16:24.200 --> 0:16:26.320 of that, not this, all of that made in the 0:16:26.360 --> 0:16:28.920 news conference with him and power. Jeff, you take away please? 0:16:30.320 --> 0:16:32.680 Yeah, I've got three key takeaways here. 0:16:32.720 --> 0:16:32.880 You know. 0:16:33.000 --> 0:16:35.720 First thing is when you just look at the totality 0:16:35.760 --> 0:16:39.440 of this, this is pretty much on uh spot on 0:16:39.680 --> 0:16:44.280 for market expectations. The statement all but basically admits to 0:16:44.760 --> 0:16:47.520 this is a pause. In the press conference, he tried 0:16:47.600 --> 0:16:50.440 really hard to not say that, but to say that, 0:16:50.480 --> 0:16:52.800 and I think it's pretty clear that that's that's where 0:16:52.800 --> 0:16:53.080 we're at. 0:16:53.160 --> 0:16:54.960 Second thing that I took away. 0:16:54.920 --> 0:16:58.320 I'll call it the new Powell arithmetic as to how 0:16:58.360 --> 0:17:03.160 he gets to the pause in that policy is sufficiently restrictive, 0:17:03.200 --> 0:17:05.760 and so what is that new arithmetic, it's the nominal 0:17:05.840 --> 0:17:09.080 rate minus three percent inflation gets you to a two 0:17:09.160 --> 0:17:13.840 percent real rate. Add to that credit tightening and add 0:17:13.880 --> 0:17:16.280 to that QT, and that's how. 0:17:16.080 --> 0:17:18.320 He gets to sufficiently restrictive. 0:17:18.359 --> 0:17:20.840 And so I think when we look forward, it's really 0:17:20.840 --> 0:17:26.439 going to be the assessment on this arithmetic towards sufficiently restrictive. 0:17:26.800 --> 0:17:29.360 First of all, is three percent the right inflation rate 0:17:29.400 --> 0:17:33.280 to subtract from that nominal rate? If inflation stays high, 0:17:33.840 --> 0:17:38.200 that real rate isn't as tight as he's implying. Second 0:17:38.240 --> 0:17:41.040 piece is and he admitted this, we don't really know 0:17:41.520 --> 0:17:43.600 the magnitude of this credit tightening. 0:17:43.640 --> 0:17:45.240 We only know the directionality. 0:17:45.240 --> 0:17:47.960 And the third piece is how much is QT really 0:17:48.480 --> 0:17:52.520 generating sufficient tightening in the real economy remains kind of 0:17:53.880 --> 0:17:58.600 very unclear. And the third key takeaway here and he 0:17:58.680 --> 0:18:02.280 talked about this and McKee great question because you got 0:18:02.320 --> 0:18:05.520 this out of him. You know what about rate cuts 0:18:05.640 --> 0:18:08.760 in the market, and he highlighted that's the difference between 0:18:08.760 --> 0:18:12.800 the market inflation forecast, which is a very aggressive decline 0:18:12.880 --> 0:18:15.920 back down to two percent, versus the Fed's forecast, which 0:18:15.960 --> 0:18:20.000 is for a much more gradual inflation for decline and 0:18:20.359 --> 0:18:23.840 that's what separates market expectations for FED cuts from the 0:18:23.880 --> 0:18:28.840 fed's reiteration again here that they will hold rates at 0:18:28.840 --> 0:18:31.480 this level for a long period of time in contrast 0:18:31.520 --> 0:18:35.159 to market expectations. So it gets us back to a 0:18:35.200 --> 0:18:36.720 focus on the inflation data. 0:18:37.480 --> 0:18:40.520