Speaker 1: This is the very definition of a unanimous hawkish pause.
Speaker 1: The Fed leaves rates today in the range of five
Speaker 1: and a quarter to five and a half percent, while
Speaker 1: saying growth is solid and inflation elevated, so higher for longer.
Speaker 1: Policymakers leave another rate move on the table for this
Speaker 1: year and take two reductions off the table for the
Speaker 1: next two years. The statement once again discusses quote the
Speaker 1: extent of additional policy firming that may be appropriate, and
Speaker 1: the dot plot shows that twelve members of the Open
Speaker 1: Market Committee still believes they will raise rates by another
Speaker 1: twenty five basis points this year. The high dot at
Speaker 1: six and a quarter percent, comes out of the dot
Speaker 1: plot with Saint Louis fed's Jim Bullard's retirement. For twenty
Speaker 1: twenty four, the committee now sees a median effective FED
Speaker 1: funds rate five point one percent of fifty basis points
Speaker 1: from their June projection, and for twenty twenty five three
Speaker 1: point nine percent, up from three point four percent in June.
Speaker 1: The long run neutral rate is unchanged at two and
Speaker 1: a half percent, although the central tendency range moves up
Speaker 1: to three point three percent from two point eight, and
Speaker 1: the dots show seven members think that neutral is higher
Speaker 1: than two and a half. All this because the FED
Speaker 1: sis stronger growth, lower unemployment, and lower core inflation. Ahead,
Speaker 1: the economy should grow two point one percent this year.
Speaker 2: They say.
Speaker 1: That is up from one percent their June forecast, more
Speaker 1: than doubling. They say next year growth will be one
Speaker 1: and a half percent, up from one point one percent.
Speaker 1: Unemployment we'll finish this year at three point eight percent,
Speaker 1: down from their June forecast of four point one percent,
Speaker 1: and in the next two years end at four point
Speaker 1: one down from four point five. Pce headline inflation will
Speaker 1: be three point three percent this year, up a tenth
Speaker 1: basically on energy concerns, but their core PCEE forecast falls
Speaker 1: to three point seven percent from three point nine percent.
Speaker 1: Next year it falls to two point six percent. One
Speaker 1: final note, no change in QT, no change in the
Speaker 1: ior or REBO rates.
Speaker 3: Mike, stay closed. I'm just going to work through the
Speaker 3: price section. So off the back of this decision, we're
Speaker 3: negative by let's call it zero point two percent on
Speaker 3: the S and P five hundred. As you might expect,
Speaker 3: the NASDAG underperforming. If you turn to the bond market,
Speaker 3: yields to a lower almost across the curve at the
Speaker 3: front end as well. They're now hired by three basis
Speaker 3: points looking at staring in the face off the potential
Speaker 3: of closing out new cycle highs on the front end.
Speaker 3: Fouve twelve eighty seven turns to five thirteen on a
Speaker 3: US two year, so yields up new cycle highs at
Speaker 3: the front end of the curve, and the dollar off
Speaker 3: the back of it a whole lot stronger. The euro
Speaker 3: against the dollar one oh six point eighty nine on
Speaker 3: the session positive, still by about zero zero point one percent,
Speaker 3: but certainly off the back of that decision, a stronger
Speaker 3: US dollar. Mi mckeir, I want to come to you
Speaker 3: on that medium dot for twenty twenty four. Are you
Speaker 3: basically telling me the I took back half the cuts
Speaker 3: that were priced for twenty four in that previous projection.
Speaker 1: That's basically what I'm telling you.
Speaker 2: John.
Speaker 1: They were looking at four point six percent and now
Speaker 1: they've gone up to five point one. Clearly they think
Speaker 1: the economy is strong enough that they may need to
Speaker 1: do more. At least that's the message they want to
Speaker 1: send to the markets.
Speaker 4: Mike McKee I look at the growth forecast. You went
Speaker 4: through them quickly, maybe they don't make the headlines. I
Speaker 4: think they.
Speaker 5: Should frame out again.
Speaker 4: Their growth vision is Neil Dunna says they're wish casting
Speaker 4: for twenty twenty four.
Speaker 1: Well, the biggest change is twenty twenty three. This year, obviously,
Speaker 1: the way things have been going, they need to mark
Speaker 1: up growth for this year. They call it solid. Two
Speaker 1: point one percent is their final growth. But growth next
Speaker 1: year is one and a half percent. That's up from
Speaker 1: one point one percent. That's a fairly strong change. So
Speaker 1: they do see perhaps the wish casting that Neil is
Speaker 1: talking about the idea that growth can be stronger into
Speaker 1: next year and certainly suggests the idea of a soft landing.
Speaker 4: I look, Michael McKee at where we are in this
Speaker 4: and it gets to November and December. I know your
Speaker 4: first question to the chairman will be tell me about November,
Speaker 4: Mike McKee, tell us about what this translates in new
Speaker 4: for the next meeting.
Speaker 1: Well, it's definitely going to put the markets on guard
Speaker 1: depending on what kind of data we see, especially in
Speaker 1: the inflation numbers. The Fed's acknowledging that we're going to
Speaker 1: see a little bit higher headline, a little bit lower
Speaker 1: on the core and If that's what we get, then
Speaker 1: the FED could decide to raise rates. It's hard to
Speaker 1: know exactly because of the energy components that are coming
Speaker 1: into this, but that's what to watch for when we
Speaker 1: get the CPI and PCE numbers. The other, of course,
Speaker 1: joker in the pack is if the government does shut
Speaker 1: down and there is no data, the FED will have
Speaker 1: to use its own kind of methods to figure out
Speaker 1: where it thinks inflation.
Speaker 3: Is my McKay, Thank you, sir. We know you've got
Speaker 3: to run and getst that news conference. M key is
Speaker 3: going to sprint to that. It begins in about twenty
Speaker 3: five minutes time. Just to go through the forecasts again,
Speaker 3: that is a monster Upwood revision to GDP, but their
Speaker 3: market to market at the Federal Reserve, so they go
Speaker 3: from one percent to two point one for twenty twenty three.
Speaker 2: Tom.
Speaker 3: The story for me is out in twenty twenty six.
Speaker 3: The story for me on unemployment. They've got it at
Speaker 3: four percent and PCE back down to two all the
Speaker 3: way out there.
Speaker 2: Yeah, several years away.
Speaker 3: And this is the aspirational, fanciful stuff that this is
Speaker 3: how it's going to happen. Unemployment for this year by
Speaker 3: the way. Three point eight percent is the forecast now
Speaker 3: and it only climbs to four point one percent next year.
Speaker 3: Bruce Casman talked about this a little bit early this
Speaker 3: morning at JP Morgan Tom, How how does unemployment need
Speaker 3: to go to get inflation lower? That's going to be
Speaker 3: a question we could explore in the next twenty five
Speaker 3: minutes or so. But the Federal Reserve is telling you
Speaker 3: that they can get back to target two percent in
Speaker 3: several years time, and unemployment is going to be in
Speaker 3: and around four percent.
Speaker 4: I'm going to go with Doddy here in combine it
Speaker 4: into what Mattlazetti said. I got lucky in that I
Speaker 4: picked out of Mattlazetti's note his first look at twenty
Speaker 4: twenty six. I don't even know if there's a first
Speaker 4: look to first quarter twenty twenty four, and certainty hear
Speaker 4: off the pandemic off the shift from a supply analysis
Speaker 4: to a demand analysis of the economy, and that's a
Speaker 4: pretty clumsy move. John looking out to twenty six. Now,
Speaker 4: maybe they're forced to do that, but boy, that's a
Speaker 4: tough tough thing. Let's do this, and we're very lucky
Speaker 4: today to do this because we can fold in what
Speaker 4: you're all reading and feeling about the strike in America.
Speaker 4: Diane Swank is steep steeped, I should say in Midwest
Speaker 4: economics or tenure at Bank one, and of course are
Speaker 4: academics at ann Arbor.
Speaker 5: Andrew hollandhorse with us as well.
Speaker 4: Diane Swank, I guess the chairman has to mention the
Speaker 4: strike today. How do you fold strike analysis into the
Speaker 4: chemistry the FED has?
Speaker 5: It's really tough.
Speaker 6: I don't think. First of all, the strike is very targeted.
Speaker 6: We'll see over this weekend how far the strike gets.
Speaker 6: I think many people are worried about how long the
Speaker 6: strike will last, and that is important. It both suppresses
Speaker 6: economic activity, of course constrains inventories, but it's constraining inventories
Speaker 6: in a different way than the chip shortages did. So
Speaker 6: I'm not as worried about vehicle prices being the push
Speaker 6: on inflation that they were. That some people are given
Speaker 6: that this is a more limited kind of production hit,
Speaker 6: and it actually gives market share to other producers out there.
Speaker 6: At the same time, demand has fallen quite dramatically for
Speaker 6: new vehicles because financiing rates have gone so high. I
Speaker 6: think what's really important in What the FEDGIS did was
Speaker 6: the whole concept of higher for longer, much higher for longer,
Speaker 6: and potentially a higher neutral rate on the other side
Speaker 6: of this. This is what the theme was coming out
Speaker 6: of Jackson Hole Symposium was how synchronous the idea of
Speaker 6: higher for longer, longer montre is across the developed economies
Speaker 6: that even as we approach this peak in interest rates,
Speaker 6: that the central banks are emboldened because of the resilience
Speaker 6: that we've seen, even in those economies that have suffered
Speaker 6: recessions have not as been as bad as they expected,
Speaker 6: that they are emboldened to hold rates higher for longer.
Speaker 6: And there is a concern on the other side of
Speaker 6: this that they're going to need a higher neutral rate.
Speaker 6: This is a different world than the world that we
Speaker 6: left in twenty.
Speaker 3: Nineteen, far different, far different. Andrew, the start of this
Speaker 3: hiking cycle, we asked a pretty important question, can we
Speaker 3: get inflation down to target without doing too much damage
Speaker 3: to the labor market. Overwhelmingly people said we couldn't. We've
Speaker 3: made some progress without killing off the labor market. The
Speaker 3: Federal Reserve today Andrew is extrapolating that out. How hopeful
Speaker 3: Andrew is that forecast.
Speaker 7: I think that's the big question that these forecasts raise.
Speaker 7: You have twenty twenty three growth revised materially high. You
Speaker 7: have that strong growth continuing into twenty twenty four now
Speaker 7: in their forecast. So you have an economy that's running
Speaker 7: head or above potential, you have an unemployment rate that's
Speaker 7: historically low, and yet we're meant to believe that wages
Speaker 7: and prices will cool in this economy. This just contradicts
Speaker 7: basic macroeconomic theory. So this is a forecast that does
Speaker 7: not line up with traditional ways of forecasting the economy,
Speaker 7: with the relatively intuitive idea that when labor markets are
Speaker 7: very tight, that pushes up wages. When labor costs arising,
Speaker 7: that pushes up prices. So I think this is a
Speaker 7: difficult forecast to square with the reality of how economy
Speaker 7: us behave. That's to be addressed at a later point.
Speaker 7: I think what the Fed did today makes sense in
Speaker 7: the sense that we're running strong growth, we're running inflation
Speaker 7: that's above target, so it makes sense to guide towards
Speaker 7: higher for longer. So they achieved the hawkish skip. If
Speaker 7: that was the intent that's achieved. I think in terms
Speaker 7: of the forecast, there are some real questions that need
Speaker 7: to be answered.
Speaker 3: The hopes and dreams of these forecasts. Then let's sit
Speaker 3: on it. I remember a word that you used, maybe
Speaker 3: more than a year ago. You refer to the forecast
Speaker 3: from the feder Reserve as fanciful. Aspirational was a word
Speaker 3: we heard again this morning, repeated through this afternoon. And
Speaker 3: when you look at these forecasts further out, do you
Speaker 3: think it's the right approach to extrapolate out current dynamics,
Speaker 3: which essentially is the following inflation can come down, can
Speaker 3: come in further without doing real damage to the labor market.
Speaker 6: I think it's a great idea, and I hope they're right.
Speaker 6: I do think it is still fanciful. One of the
Speaker 6: things that I think that the FED is betting on
Speaker 6: is that we are seeing the high frequency data as
Speaker 6: the labor markets have cooled. This has been one of
Speaker 6: the most dramatic frenzied pace of a labor market and
Speaker 6: then cooling that we've ever seen, with unemployment still very low.
Speaker 6: And what they're counting on is the high frequency data
Speaker 6: on job posting shows that wages are slowing even more
Speaker 6: rapidly as we go into fall so they're betting on
Speaker 6: those things helping them. At the same time, we've never
Speaker 6: seen we haven't seen in decades as many strike actions
Speaker 6: as we're seeing right now. And that's where things like
Speaker 6: the current strike with the UAW, the strike that we're
Speaker 6: seeing in healthcare, the strikes that we're seeing ongoing with
Speaker 6: the actors and the Writers' Union, those things will have
Speaker 6: an impact. And how much we see the cost of
Speaker 6: living adjustments baked into contracts going forward is going to
Speaker 6: be very important. Remember, with the pop and energy prices,
Speaker 6: we're going to see an increase to September. CPI is
Speaker 6: what sets the numbers for Social Security bump in January.
Speaker 6: That's one of the reasons its going to be higher bumped.
Speaker 8: Now.
Speaker 6: That's one of the reasons we had stickier inflation at
Speaker 6: the start of this year, and so that could be
Speaker 6: a sticking point and be harder for the Federal Reserve and.
Speaker 5: Hall and hors. You need a victory lap right now.
Speaker 4: I've got a five point one to three percent two
Speaker 4: year yield.
Speaker 5: I've got a ten year real yield.
Speaker 4: Any moment to pop through two percent one point nine
Speaker 4: to nine percent right now, how does our economy, how
Speaker 4: does our business society. How does it adapt to a
Speaker 4: two percent real yield? Is that a signal of buoyancy
Speaker 4: and resilience or is that a signal of trouble to come.
Speaker 7: You know, we've seen the economy a lot more resilient
Speaker 7: to higher interest rates than I think many people expected
Speaker 7: at the beginning of this rate height cycle. And part
Speaker 7: of that is that a lot of the debt that's
Speaker 7: out there is fixed rate debt that doesn't mature for
Speaker 7: many years. You think about thirty year fixed rate mortgages,
Speaker 7: many of those are still at lower rates. You think
Speaker 7: about some of the corporate borrowing that's taking place, and
Speaker 7: that also hasn't all been refinanced yet. So as that
Speaker 7: debt is refinanced, you start to have people, individuals and
Speaker 7: firms experiencing higher rates that should slow the economy. You
Speaker 7: see credit that's tied up, so there is a sense
Speaker 7: that this is slowing the economy, but it has to
Speaker 7: be sustained. I think that's the message in the dot
Speaker 7: plot for.
Speaker 5: Bloomer Radio Worldwide.
Speaker 4: Bring up the chart again on television here that we
Speaker 4: just put up with a two year yield back to
Speaker 4: before the pandemic, and this is an arch call by
Speaker 4: Holland Ors.
Speaker 5: So Swank was very good at this as well.
Speaker 4: Andrew Holland Orse, we're back to yields that I remember,
Speaker 4: and Diane Swank doesn't remember. The consensus belief out there
Speaker 4: is OMG, We're all going to die with his yield structure.
Speaker 4: We're going to a six percent two year hollan Orse yield.
Speaker 5: Are we all going to die?
Speaker 6: Well?
Speaker 7: Remember the two thousand and five to two thousand and
Speaker 7: seven period. This was an extended period of time when
Speaker 7: the economy performed relatively well and we sustained higher yield levels.
Speaker 7: And it wasn't that long ago, but it just feels
Speaker 7: like a long time ago, and many people haven't experienced
Speaker 7: that yield environment. So I think this is kind of
Speaker 7: rediscovering that economies can continue to grow, continue to produce
Speaker 7: inflation at higher yield levels. Eventually, these levels may be
Speaker 7: restrictive enough, sufficiently restrictive in the words of the Fed,
Speaker 7: to cool the economy, but that's a process that can
Speaker 7: take time.
Speaker 3: Van you want of the best of this, give Mike
Speaker 3: McKay a little bit more help. What's the question for
Speaker 3: Mike for this chairman in this news conference? The starts
Speaker 3: in about fifteen minutes time.
Speaker 6: I really want to know about how they're so optimistic
Speaker 6: about growth for next year given some of the headwinds
Speaker 6: that we face going into next year, everything from higher
Speaker 6: oil prices to student loan repayments and the additional tightening
Speaker 6: that they expect in the pipeline, not only in the
Speaker 6: banking sector but more broadly. So you know that one
Speaker 6: and a half percent is really pretty stunning. With a
Speaker 6: half percent higher on short term interest rates, that's remarkable
Speaker 6: resilience with a cooling of inflation. And I'm just trying
Speaker 6: to square all that all comes together.
Speaker 3: Yeah, oh, Diane, we all are. We're trying to figure
Speaker 3: this out. Dana Swank there and Andrew Hollenholst, two of
Speaker 3: the very best on a federal reserve. That news conference
Speaker 3: starts in fifteen minutes. If you're just joining us, welcome
Speaker 3: special coverage of the September Federal Reserve decision life on
Speaker 3: TV and radio at Bloomberg Surveillant Special alongside Tom Kean,
Speaker 3: I'm Jonathan Ferrow. The decision unchanged, no change on rates
Speaker 3: of the Federal Reserve, the focus on the projections of
Speaker 3: this FED, a monster upgrade to GDP for this year
Speaker 3: in many ways marking to market.
Speaker 2: No news there.
Speaker 3: We understood that growth was better than expected through much
Speaker 3: of this year. They understand that now the new projection
Speaker 3: is two point one percent. The old projection was just
Speaker 3: one percent. An upgrade to the GDP forecast as well
Speaker 3: for next year two for twenty twenty four that goes
Speaker 3: from one point one percent to one point five Some
Speaker 3: of the projections elsewhere pretty fascinating. Twelve of the nineteen
Speaker 3: officials on the f webc still forecasting, plotting an extra
Speaker 3: hike this year in twenty twenty three.
Speaker 2: In twenty twenty four, the medium.
Speaker 3: Dot we priced out half the cuts they had projected
Speaker 3: in the previous set of forecasts. But ultimately it's the
Speaker 3: self landing hope and dream. The decision tom today is
Speaker 3: to extrapolate out current conditions, the idea that we can
Speaker 3: get back to target all the way back to two
Speaker 3: percent without seeing gunemployment climb much higher than four percent.
Speaker 4: We had a banner up moments ago on television here
Speaker 4: and I did the quick nominal GDP math and this
Speaker 4: is basically out twenty four months, our thirty six months
Speaker 4: you know, out to when we turned into a pumpkin
Speaker 4: Giant's simple. They're looking at four percent nominal GDP or lower.
Speaker 4: And there's a lot of people looking at the spirit
Speaker 4: of this economy saying that with this inflation, that that
Speaker 4: maybe strengthens the economy. And it's a you know, to
Speaker 4: bust Bramo's chops, it's a toxic brew.
Speaker 3: It is a toxic bru I mean, but for them
Speaker 3: right now, there's nothing toxic about those projections.
Speaker 5: I can't get out to Max.
Speaker 3: Katona, We said Max Catton at HSBC. He started talking
Speaker 3: and we said that sounds like Goldie looks forever. Yes,
Speaker 3: on those projections, Goldie looks for the next twelve months.
Speaker 2: Yeah, I would, I would the rest of the cycle.
Speaker 4: And what's interesting here, folks we're coming here from London,
Speaker 4: is you know those of you in TV Counto, the
Speaker 4: sunset is spectacular tonight. I went out on the sidewalk
Speaker 4: in the rain here, the lovely afternoon rain. Out of
Speaker 4: that workoff for London, practicing for Bank of England tomorrow
Speaker 4: in this jumble that we're seeing right now in America, Yeah,
Speaker 4: is the same exact theoretical jumble we're going to see
Speaker 4: tomorrow with the Bank of England.
Speaker 5: These people are making it up as they go.
Speaker 3: Let's turn to the price section and see how much
Speaker 3: Chairman Powell has to sign the news conference it starts
Speaker 3: in about thirteen minutes. Your equity market totally unchanged on
Speaker 3: the S and P, slightly negative on the Nasdaq. But
Speaker 3: this move in the bond market, Tom, let's sit on
Speaker 3: that the two year cycle highst yeah, four through five
Speaker 3: point one percent, just like that, up by three basis
Speaker 3: points on the session Tom yield only ten year, not
Speaker 3: much price section there, four thirty, four, thirty year, let's
Speaker 3: call it four forty TK on the long bond.
Speaker 5: Let's bring it in right now. This is very important.
Speaker 4: P James Greg Peters with US on yield and Jim
Speaker 4: Bianco with US with Bianco Research. Jim, let me go
Speaker 4: to you right away. I just think this is so
Speaker 4: so important. There's a sense of longer. I see a
Speaker 4: nominal GDP call out twenty four months, which is not longer.
Speaker 5: It's it finally rates come in. Do you buy it?
Speaker 7: Well?
Speaker 8: I buy the idea that you want to be looking
Speaker 8: at GDP nominal GDP as being a benchmark for long
Speaker 8: term interest rates. But I'm not buying this idea that
Speaker 8: nominal GDP is going to fall to the levels that
Speaker 8: they think. If I was to describe, you know, this
Speaker 8: this confusion that we seem to have about this FED policy,
Speaker 8: it's they're almost arguing that nothing of significance happened in
Speaker 8: twenty twenty and that we're going to return back to
Speaker 8: normalization in the word we like to use, that's replaced transitory,
Speaker 8: and go back to something between twenty ten and twenty
Speaker 8: nineteen where we can have you know, two and a
Speaker 8: half percent real growth, one percent to two percent inflation,
Speaker 8: four percent nominal growth, and that would bring everything down
Speaker 8: and you'd have Goldie locks forever. But I'm not so
Speaker 8: sure that that's the case. I think that the economy
Speaker 8: has changed since the shutdown restart in twenty twenty, and
Speaker 8: the Federal Reserve is still struggling to come to and
Speaker 8: they're still thinking we're still in the last cycle.
Speaker 4: Greg, you've got to work with real money here. The
Speaker 4: decision to extend duration, to find a belly of the curve,
Speaker 4: all the other professional stuff you.
Speaker 5: Do with PGM.
Speaker 4: Does the language and the nuance of the forecast and
Speaker 4: the dots, does.
Speaker 5: That change your conviction and what you're doing with your portfolios.
Speaker 9: Well, I would say that we're finally getting what we've
Speaker 9: been thinking for quite some time, and that is higher
Speaker 9: for longer. Right, the markets have been raging against this
Speaker 9: notion that rates will remain high. All the forward curves
Speaker 9: are pointing down, the dot plot pointing down. So I
Speaker 9: think this really throws cold water on that. And so
Speaker 9: for us at PGIM, you know, we really think it's
Speaker 9: a higher for longer. We never felt the need to
Speaker 9: jump into duration. You know, maybe it's closer to that now,
Speaker 9: but more in the back end the curve. So look,
Speaker 9: I mean, I think the Fed delivered exactly what they
Speaker 9: wanted to by it a hawkish SAP that allows them
Speaker 9: to speak more dubbishly and perhaps not move rates higher.
Speaker 3: Here, Greg, it's not just the high for longer message
Speaker 3: that jumps off the page of the SCP. It's the
Speaker 3: growth inflation mix looking out a year two years, so
Speaker 3: they believe you can give back to target two percent,
Speaker 3: an unemployment is going to drift higher, maybe to four
Speaker 3: percent and basically stop there.
Speaker 2: Greg.
Speaker 3: That has big implications for how you invest elsewhere beyond rates,
Speaker 3: bonds and to credit. Is that your outlook that basically
Speaker 3: we can achieve back to target inflation barely shaking up
Speaker 3: the labor market in any way, shape or form.
Speaker 9: Well, it is very aspirational, There's no doubt about it.
Speaker 9: I mean, that is a Goldie Loocks type of outlook.
Speaker 9: If you have an environment where rates remain higher but
Speaker 9: growth is quite robust and inflation's coming down, I think
Speaker 9: that is a fantastic investing backdrop. I do think we're
Speaker 9: pretty close to it. The challenge, of course, on the
Speaker 9: table is all these different uncertainties and cross currents, and
Speaker 9: that has not gone away by any stretch of the imagination.
Speaker 9: So you know, we need to take these these forecasts
Speaker 9: with the grain and salt. There's no different than our
Speaker 9: own forecasts, right, They're rife with uncertainties. But you know,
Speaker 9: I do think there's a distinct possibility here, at least directionally.
Speaker 9: And you know, I feel pretty good about the outlook.
Speaker 3: And Jim Bianco, do you feel pretty good about the outlook?
Speaker 8: You know, if we're talking about the outlook about the FED,
Speaker 8: you know, I have my issues with it.
Speaker 5: Like everybody else.
Speaker 8: But to eat on something that Greg just said, let's
Speaker 8: be real. We all have forecasts and most likely they're
Speaker 8: all wrong. But that's okay because we're not getting expected
Speaker 8: to predict the future.
Speaker 5: The key is whether or not we can adjust.
Speaker 8: We can see that, okay, the data is coming in
Speaker 8: not as we expected, and we need to adjust these forecasts.
Speaker 8: And I fed a reserve in the last couple of
Speaker 8: years not had a good track record on that. We
Speaker 8: can all remember transitory. And what I'm afraid of with
Speaker 8: this Goldilock's forecast is when the situation comes in that
Speaker 8: it's not panning out, they're going to dig in their
Speaker 8: heels and continue to say it will and they might
Speaker 8: wind up making another transitory type of mistake in twenty
Speaker 8: twenty four. I'd like to see Chairman Polly, you know,
Speaker 8: show some flexibility with these forecasts, to say, look this
Speaker 8: one you think now, but if the circumstances and data
Speaker 8: comes in soon, that's out the window and we're going
Speaker 8: to adjust. And that, like I said, that is okay.
Speaker 8: That is what you should do with a forecast, not
Speaker 8: just keep at it because you're afraid of some embarrassment
Speaker 8: of having to change it.
Speaker 4: And Jimmy uncle the Lauriate Paul Kruman with a wonderful
Speaker 4: essay on disinflation, and he really emphasized what the FED
Speaker 4: doesn't look at, which is plain vanilla inflation. Are they
Speaker 4: just miss in the fog of London, in the fag
Speaker 4: of Washington, the fag of cross America? Are they missing
Speaker 4: a disinflationary tendency in place?
Speaker 8: I don't necessarily think they are missing a disinflationary tendency.
Speaker 8: I happen to be in the camp that inflation on
Speaker 8: a year over your basis, I'm talking about headline CPI
Speaker 8: has bottom for the year, it's going to drift towards
Speaker 8: four percent, not much higher than that. Energy prices are
Speaker 8: going to be a big factor in that drift higher,
Speaker 8: and that will be enough maybe to give us that
Speaker 8: one more rate hike that they're looking for and to
Speaker 8: at least justify going from two from four to two
Speaker 8: cuts next year. And I think that if that continues
Speaker 8: that the December update of this plot will probably take
Speaker 8: those two cuts away as well. So I'm in that
Speaker 8: inflation is sticky camp, and that the FED is going
Speaker 8: to have to come to the realization that they're not
Speaker 8: going to get close to three percent, so the disinflation
Speaker 8: that they're hoping for, that inflation comes down, the unemployment
Speaker 8: rate can stay at four. It's been described here as fanciful,
Speaker 8: and I would also be in that camp too, That
Speaker 8: is fanciful, and we'll have to see whether or not
Speaker 8: that situation on faults.
Speaker 4: John moments ago rounded up the ten year real yield
Speaker 4: to two percent. This is what the most the dominic
Speaker 4: constant at Mizuo's idea of we are restrictive.
Speaker 3: Forgive me for thinking out loud, gents, there's a very
Speaker 3: very simplistic approach to markets. You get economic information data,
Speaker 3: you think about what it means for the FED, and
Speaker 3: you trade accordingly. Now, Greg, I wonder if that's just
Speaker 3: changed off the back of these forecasts from the Federal Reserve.
Speaker 3: And let me go one step further and explain why
Speaker 3: the first Friday of the month we'll get a payrolls report,
Speaker 3: and if that payrolls report is hot, typically we sit
Speaker 3: there and say, well, labor market pressure higher inflation.
Speaker 2: FED has to do more work.
Speaker 3: But Greg, hasn't the FED just told us ho, don't
Speaker 3: they just de emphasized the importance of the labor market
Speaker 3: to the inflation conversation?
Speaker 9: Johan, I think I'm putting way too much emphasis on
Speaker 9: the step and the forecast. I mean, at the end
Speaker 9: of the day, we're in this data driven world. The
Speaker 9: FED is trying to bounce that out. And I think
Speaker 9: the markets, given the fact that we're in this data
Speaker 9: driven world and we're not getting we're wanting in terms
Speaker 9: of clarity out of the FED, we're relying a little
Speaker 9: too much on this data release. So I don't think
Speaker 9: anything changes. I think it's the data change. I think
Speaker 9: that FED policy changes. And you know, it's also important
Speaker 9: remember two things. One is that you know they don't
Speaker 9: have inflation going down to you know, two percent until
Speaker 9: twenty twenty six, which is you know, quite some time
Speaker 9: from now. And then two, we just had a massive
Speaker 9: revision of GDP in this year, so you know, let's
Speaker 9: use that as kind of a reminder that forecast era
Speaker 9: is really quite high here.
Speaker 2: And Jim, what do you throw us on the same question.
Speaker 8: Yeah, if I could give you a cynical thought, that
Speaker 8: is that let's see if we even get a payroll
Speaker 8: report in October six, because if we have a government shutdown,
Speaker 8: the BLS is closed and Mike McKee's sitting in front
Speaker 8: of an empty building on that morning. So leaving that aside,
Speaker 8: I do think though that if you're talking about the
Speaker 8: payroll report, the consistency about it, it's been it's been
Speaker 8: much stronger than we've been looking at for the last
Speaker 8: fourteen eighteen months or so, all but something like two
Speaker 8: or three of the reports have been above consensus. And
Speaker 8: that seems to be the trend that I would think
Speaker 8: would stay in place. And if we see those kind
Speaker 8: of numbers come in, it's going to push everybody firmly
Speaker 8: into that away from that goldielax and into that higher
Speaker 8: for Lunger camp as well.
Speaker 4: We got to make some money to get home here,
Speaker 4: John Farrell, Ian Lingen, the screaming buy of the ten
Speaker 4: year yield just says, this is a FED doubling.
Speaker 5: Down on soft landing.
Speaker 4: Mister Lincoln, of course, of bemo, thanks Greg, Greg Peters.
Speaker 4: If they're doubling down on soft landing for you at PGIM,
Speaker 4: is the ten year yield a screaming buy?
Speaker 9: No, I don't quite understand that logic, could be honest
Speaker 9: with you. I mean, what that would presuppose is that
Speaker 9: you'd have a healthy dose of cuts.
Speaker 5: In response to that soft landing.
Speaker 9: I think yields are relatively range bound here. I don't
Speaker 9: really see a big move either way. Yeah, it does
Speaker 9: look a little over sold. There's some technical dynamics, but
Speaker 9: ultimately on a medium term basis, it looks pretty fair
Speaker 9: value to us. So I don't think the bond mark.
Speaker 9: Investing in the bond market is not about capital appreciation.
Speaker 9: That is a pre pandemic trade. It is about roll
Speaker 9: and carry, and so no, I don't expect it as
Speaker 9: a screaming buy.
Speaker 3: With that in mind, Greg, if there's a pool of
Speaker 3: money people sitting at home right now, they're sitting on
Speaker 3: the front end. They've been told by a couple of
Speaker 3: people that they should worry about reinvestment risk in the
Speaker 3: next six months and allocate accordingly further down the curve.
Speaker 3: Are you saying, relax, patients, you find where you are.
Speaker 9: Yeah, so I've been saying that the whole time. No
Speaker 9: one wants to listen to it, right. I think there's
Speaker 9: been this tendency that jump back into the pool because
Speaker 9: these higher rates are going to evaporate. What the Fed
Speaker 9: isld you today with the markets are finally starting to
Speaker 9: respond to is that no, these rates are actually around
Speaker 9: here for a while. So yeah, so I don't think
Speaker 9: there's anything reading the rush and so we like duration,
Speaker 9: but we wouldn't go Hell's belts.
Speaker 4: Sorry, let's fold this into Jim Bianco. I mean, John,
Speaker 4: it's just simple. Bianco was way out front with this
Speaker 4: idea of defining what longer looks like with a ten
Speaker 4: year yield, and he's in the camp with Greg Peters.
Speaker 3: Hi, Jim, this was great. Jim Bianca, together with Craig
Speaker 3: paid us. Thank you, guys.
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