WEBVTT - Instant Reaction: The Fed Decides 0:00:05.960 --> 0:00:09.200 This is the very definition of a unanimous hawkish pause. 0:00:09.440 --> 0:00:11.959 The Fed leaves rates today in the range of five 0:00:11.960 --> 0:00:14.360 and a quarter to five and a half percent, while 0:00:14.400 --> 0:00:19.400 saying growth is solid and inflation elevated, so higher for longer. 0:00:19.760 --> 0:00:22.880 Policymakers leave another rate move on the table for this 0:00:23.079 --> 0:00:26.480 year and take two reductions off the table for the 0:00:26.520 --> 0:00:30.480 next two years. The statement once again discusses quote the 0:00:30.560 --> 0:00:34.159 extent of additional policy firming that may be appropriate, and 0:00:34.240 --> 0:00:36.480 the dot plot shows that twelve members of the Open 0:00:36.479 --> 0:00:39.720 Market Committee still believes they will raise rates by another 0:00:39.760 --> 0:00:42.960 twenty five basis points this year. The high dot at 0:00:43.040 --> 0:00:45.600 six and a quarter percent, comes out of the dot 0:00:45.640 --> 0:00:49.840 plot with Saint Louis fed's Jim Bullard's retirement. For twenty 0:00:49.920 --> 0:00:53.160 twenty four, the committee now sees a median effective FED 0:00:53.200 --> 0:00:57.000 funds rate five point one percent of fifty basis points 0:00:57.160 --> 0:01:00.600 from their June projection, and for twenty twenty five three 0:01:00.640 --> 0:01:04.280 point nine percent, up from three point four percent in June. 0:01:04.600 --> 0:01:07.400 The long run neutral rate is unchanged at two and 0:01:07.400 --> 0:01:10.840 a half percent, although the central tendency range moves up 0:01:10.880 --> 0:01:13.520 to three point three percent from two point eight, and 0:01:13.560 --> 0:01:17.640 the dots show seven members think that neutral is higher 0:01:17.680 --> 0:01:20.080 than two and a half. All this because the FED 0:01:20.120 --> 0:01:24.720 sis stronger growth, lower unemployment, and lower core inflation. Ahead, 0:01:25.000 --> 0:01:27.720 the economy should grow two point one percent this year. 0:01:27.760 --> 0:01:28.280 They say. 0:01:28.560 --> 0:01:32.080 That is up from one percent their June forecast, more 0:01:32.120 --> 0:01:35.319 than doubling. They say next year growth will be one 0:01:35.360 --> 0:01:38.240 and a half percent, up from one point one percent. 0:01:38.600 --> 0:01:41.800 Unemployment we'll finish this year at three point eight percent, 0:01:41.959 --> 0:01:44.880 down from their June forecast of four point one percent, 0:01:45.120 --> 0:01:47.440 and in the next two years end at four point 0:01:47.440 --> 0:01:52.080 one down from four point five. Pce headline inflation will 0:01:52.080 --> 0:01:54.639 be three point three percent this year, up a tenth 0:01:54.880 --> 0:01:59.440 basically on energy concerns, but their core PCEE forecast falls 0:01:59.440 --> 0:02:02.560 to three point seven percent from three point nine percent. 0:02:02.960 --> 0:02:06.680 Next year it falls to two point six percent. One 0:02:06.720 --> 0:02:09.760 final note, no change in QT, no change in the 0:02:09.760 --> 0:02:11.600 ior or REBO rates. 0:02:12.960 --> 0:02:14.720 Mike, stay closed. I'm just going to work through the 0:02:14.760 --> 0:02:16.880 price section. So off the back of this decision, we're 0:02:16.919 --> 0:02:19.680 negative by let's call it zero point two percent on 0:02:19.720 --> 0:02:21.560 the S and P five hundred. As you might expect, 0:02:21.600 --> 0:02:24.560 the NASDAG underperforming. If you turn to the bond market, 0:02:24.639 --> 0:02:26.720 yields to a lower almost across the curve at the 0:02:26.720 --> 0:02:28.960 front end as well. They're now hired by three basis 0:02:28.960 --> 0:02:31.880 points looking at staring in the face off the potential 0:02:31.919 --> 0:02:34.160 of closing out new cycle highs on the front end. 0:02:34.560 --> 0:02:39.040 Fouve twelve eighty seven turns to five thirteen on a 0:02:39.120 --> 0:02:41.920 US two year, so yields up new cycle highs at 0:02:41.960 --> 0:02:43.760 the front end of the curve, and the dollar off 0:02:43.800 --> 0:02:46.040 the back of it a whole lot stronger. The euro 0:02:46.120 --> 0:02:48.080 against the dollar one oh six point eighty nine on 0:02:48.120 --> 0:02:51.079 the session positive, still by about zero zero point one percent, 0:02:51.120 --> 0:02:53.680 but certainly off the back of that decision, a stronger 0:02:53.760 --> 0:02:55.720 US dollar. Mi mckeir, I want to come to you 0:02:55.760 --> 0:02:58.280 on that medium dot for twenty twenty four. Are you 0:02:58.360 --> 0:03:01.840 basically telling me the I took back half the cuts 0:03:01.880 --> 0:03:04.560 that were priced for twenty four in that previous projection. 0:03:06.000 --> 0:03:07.760 That's basically what I'm telling you. 0:03:07.840 --> 0:03:08.240 John. 0:03:08.639 --> 0:03:11.040 They were looking at four point six percent and now 0:03:11.040 --> 0:03:13.639 they've gone up to five point one. Clearly they think 0:03:13.680 --> 0:03:16.360 the economy is strong enough that they may need to 0:03:16.360 --> 0:03:18.200 do more. At least that's the message they want to 0:03:18.200 --> 0:03:19.040 send to the markets. 0:03:20.440 --> 0:03:22.600 Mike McKee I look at the growth forecast. You went 0:03:22.680 --> 0:03:24.920 through them quickly, maybe they don't make the headlines. I 0:03:24.960 --> 0:03:25.519 think they. 0:03:25.400 --> 0:03:27.239 Should frame out again. 0:03:27.400 --> 0:03:31.360 Their growth vision is Neil Dunna says they're wish casting 0:03:31.440 --> 0:03:32.839 for twenty twenty four. 0:03:34.360 --> 0:03:38.120 Well, the biggest change is twenty twenty three. This year, obviously, 0:03:38.200 --> 0:03:40.080 the way things have been going, they need to mark 0:03:40.160 --> 0:03:42.560 up growth for this year. They call it solid. Two 0:03:42.560 --> 0:03:46.720 point one percent is their final growth. But growth next 0:03:46.800 --> 0:03:49.400 year is one and a half percent. That's up from 0:03:49.440 --> 0:03:52.400 one point one percent. That's a fairly strong change. So 0:03:52.480 --> 0:03:55.840 they do see perhaps the wish casting that Neil is 0:03:55.880 --> 0:03:59.160 talking about the idea that growth can be stronger into 0:03:59.200 --> 0:04:02.560 next year and certainly suggests the idea of a soft landing. 0:04:03.960 --> 0:04:06.240 I look, Michael McKee at where we are in this 0:04:06.400 --> 0:04:08.880 and it gets to November and December. I know your 0:04:08.920 --> 0:04:12.480 first question to the chairman will be tell me about November, 0:04:12.640 --> 0:04:15.440 Mike McKee, tell us about what this translates in new 0:04:15.760 --> 0:04:16.680 for the next meeting. 0:04:18.160 --> 0:04:20.520 Well, it's definitely going to put the markets on guard 0:04:20.640 --> 0:04:23.520 depending on what kind of data we see, especially in 0:04:23.600 --> 0:04:26.560 the inflation numbers. The Fed's acknowledging that we're going to 0:04:26.560 --> 0:04:29.159 see a little bit higher headline, a little bit lower 0:04:29.240 --> 0:04:32.239 on the core and If that's what we get, then 0:04:32.440 --> 0:04:36.880 the FED could decide to raise rates. It's hard to 0:04:36.920 --> 0:04:40.239 know exactly because of the energy components that are coming 0:04:40.240 --> 0:04:42.480 into this, but that's what to watch for when we 0:04:42.520 --> 0:04:45.799 get the CPI and PCE numbers. The other, of course, 0:04:45.920 --> 0:04:48.320 joker in the pack is if the government does shut 0:04:48.360 --> 0:04:50.800 down and there is no data, the FED will have 0:04:50.800 --> 0:04:54.080 to use its own kind of methods to figure out 0:04:54.080 --> 0:04:55.680 where it thinks inflation. 0:04:55.400 --> 0:04:58.479 Is my McKay, Thank you, sir. We know you've got 0:04:58.520 --> 0:05:00.480 to run and getst that news conference. M key is 0:05:00.480 --> 0:05:02.279 going to sprint to that. It begins in about twenty 0:05:02.279 --> 0:05:05.279 five minutes time. Just to go through the forecasts again, 0:05:05.560 --> 0:05:09.360 that is a monster Upwood revision to GDP, but their 0:05:09.400 --> 0:05:11.839 market to market at the Federal Reserve, so they go 0:05:11.880 --> 0:05:14.560 from one percent to two point one for twenty twenty three. 0:05:14.880 --> 0:05:15.120 Tom. 0:05:15.160 --> 0:05:18.320 The story for me is out in twenty twenty six. 0:05:19.360 --> 0:05:22.320 The story for me on unemployment. They've got it at 0:05:22.360 --> 0:05:27.000 four percent and PCE back down to two all the 0:05:27.040 --> 0:05:27.760 way out there. 0:05:27.920 --> 0:05:29.279 Yeah, several years away. 0:05:29.600 --> 0:05:32.800 And this is the aspirational, fanciful stuff that this is 0:05:32.800 --> 0:05:35.160 how it's going to happen. Unemployment for this year by 0:05:35.160 --> 0:05:37.720 the way. Three point eight percent is the forecast now 0:05:37.760 --> 0:05:40.039 and it only climbs to four point one percent next year. 0:05:40.240 --> 0:05:42.760 Bruce Casman talked about this a little bit early this 0:05:42.800 --> 0:05:45.560 morning at JP Morgan Tom, How how does unemployment need 0:05:45.560 --> 0:05:47.400 to go to get inflation lower? That's going to be 0:05:47.440 --> 0:05:49.080 a question we could explore in the next twenty five 0:05:49.120 --> 0:05:51.240 minutes or so. But the Federal Reserve is telling you 0:05:51.560 --> 0:05:54.400 that they can get back to target two percent in 0:05:54.480 --> 0:05:56.839 several years time, and unemployment is going to be in 0:05:56.880 --> 0:05:58.320 and around four percent. 0:05:58.400 --> 0:06:00.200 I'm going to go with Doddy here in combine it 0:06:00.200 --> 0:06:02.440 into what Mattlazetti said. I got lucky in that I 0:06:02.560 --> 0:06:05.440 picked out of Mattlazetti's note his first look at twenty 0:06:05.520 --> 0:06:07.719 twenty six. I don't even know if there's a first 0:06:07.720 --> 0:06:11.240 look to first quarter twenty twenty four, and certainty hear 0:06:11.440 --> 0:06:15.400 off the pandemic off the shift from a supply analysis 0:06:15.400 --> 0:06:18.480 to a demand analysis of the economy, and that's a 0:06:18.520 --> 0:06:22.560 pretty clumsy move. John looking out to twenty six. Now, 0:06:22.600 --> 0:06:24.719 maybe they're forced to do that, but boy, that's a 0:06:24.760 --> 0:06:27.960 tough tough thing. Let's do this, and we're very lucky 0:06:28.000 --> 0:06:30.400 today to do this because we can fold in what 0:06:30.520 --> 0:06:35.280 you're all reading and feeling about the strike in America. 0:06:35.440 --> 0:06:39.799 Diane Swank is steep steeped, I should say in Midwest 0:06:39.800 --> 0:06:42.600 economics or tenure at Bank one, and of course are 0:06:42.640 --> 0:06:44.440 academics at ann Arbor. 0:06:44.480 --> 0:06:46.960 Andrew hollandhorse with us as well. 0:06:47.240 --> 0:06:50.120 Diane Swank, I guess the chairman has to mention the 0:06:50.200 --> 0:06:55.040 strike today. How do you fold strike analysis into the 0:06:55.160 --> 0:06:56.520 chemistry the FED has? 0:06:56.839 --> 0:06:57.679 It's really tough. 0:06:57.720 --> 0:07:00.960 I don't think. First of all, the strike is very targeted. 0:07:01.000 --> 0:07:04.279 We'll see over this weekend how far the strike gets. 0:07:04.480 --> 0:07:07.159 I think many people are worried about how long the 0:07:07.200 --> 0:07:10.720 strike will last, and that is important. It both suppresses 0:07:10.760 --> 0:07:16.320 economic activity, of course constrains inventories, but it's constraining inventories 0:07:16.360 --> 0:07:18.640 in a different way than the chip shortages did. So 0:07:18.840 --> 0:07:22.600 I'm not as worried about vehicle prices being the push 0:07:22.640 --> 0:07:25.960 on inflation that they were. That some people are given 0:07:26.000 --> 0:07:28.800 that this is a more limited kind of production hit, 0:07:29.040 --> 0:07:32.320 and it actually gives market share to other producers out there. 0:07:32.520 --> 0:07:36.200 At the same time, demand has fallen quite dramatically for 0:07:36.320 --> 0:07:40.160 new vehicles because financiing rates have gone so high. I 0:07:40.160 --> 0:07:43.400 think what's really important in What the FEDGIS did was 0:07:43.640 --> 0:07:47.080 the whole concept of higher for longer, much higher for longer, 0:07:47.160 --> 0:07:50.840 and potentially a higher neutral rate on the other side 0:07:50.840 --> 0:07:52.960 of this. This is what the theme was coming out 0:07:53.000 --> 0:07:57.840 of Jackson Hole Symposium was how synchronous the idea of 0:07:57.920 --> 0:08:03.000 higher for longer, longer montre is across the developed economies 0:08:03.240 --> 0:08:06.320 that even as we approach this peak in interest rates, 0:08:06.560 --> 0:08:10.280 that the central banks are emboldened because of the resilience 0:08:10.280 --> 0:08:13.360 that we've seen, even in those economies that have suffered 0:08:13.400 --> 0:08:16.560 recessions have not as been as bad as they expected, 0:08:16.800 --> 0:08:19.720 that they are emboldened to hold rates higher for longer. 0:08:19.960 --> 0:08:22.880 And there is a concern on the other side of 0:08:22.920 --> 0:08:25.960 this that they're going to need a higher neutral rate. 0:08:26.240 --> 0:08:28.720 This is a different world than the world that we 0:08:28.880 --> 0:08:30.320 left in twenty. 0:08:30.080 --> 0:08:33.200 Nineteen, far different, far different. Andrew, the start of this 0:08:33.280 --> 0:08:36.760 hiking cycle, we asked a pretty important question, can we 0:08:36.800 --> 0:08:40.439 get inflation down to target without doing too much damage 0:08:40.480 --> 0:08:44.040 to the labor market. Overwhelmingly people said we couldn't. We've 0:08:44.040 --> 0:08:46.920 made some progress without killing off the labor market. The 0:08:46.920 --> 0:08:51.800 Federal Reserve today Andrew is extrapolating that out. How hopeful 0:08:51.840 --> 0:08:53.479 Andrew is that forecast. 0:08:54.200 --> 0:08:56.679 I think that's the big question that these forecasts raise. 0:08:56.760 --> 0:09:00.680 You have twenty twenty three growth revised materially high. You 0:09:00.760 --> 0:09:03.959 have that strong growth continuing into twenty twenty four now 0:09:04.000 --> 0:09:06.360 in their forecast. So you have an economy that's running 0:09:06.400 --> 0:09:09.720 head or above potential, you have an unemployment rate that's 0:09:09.840 --> 0:09:14.679 historically low, and yet we're meant to believe that wages 0:09:14.720 --> 0:09:18.640 and prices will cool in this economy. This just contradicts 0:09:18.720 --> 0:09:23.280 basic macroeconomic theory. So this is a forecast that does 0:09:23.320 --> 0:09:27.400 not line up with traditional ways of forecasting the economy, 0:09:27.880 --> 0:09:33.600 with the relatively intuitive idea that when labor markets are 0:09:33.679 --> 0:09:36.920 very tight, that pushes up wages. When labor costs arising, 0:09:36.920 --> 0:09:39.800 that pushes up prices. So I think this is a 0:09:39.960 --> 0:09:44.640 difficult forecast to square with the reality of how economy 0:09:44.720 --> 0:09:48.000 us behave. That's to be addressed at a later point. 0:09:48.080 --> 0:09:50.200 I think what the Fed did today makes sense in 0:09:50.240 --> 0:09:53.079 the sense that we're running strong growth, we're running inflation 0:09:53.120 --> 0:09:55.920 that's above target, so it makes sense to guide towards 0:09:56.000 --> 0:09:59.559 higher for longer. So they achieved the hawkish skip. If 0:09:59.559 --> 0:10:02.240 that was the intent that's achieved. I think in terms 0:10:02.240 --> 0:10:04.520 of the forecast, there are some real questions that need 0:10:04.559 --> 0:10:05.559 to be answered. 0:10:05.920 --> 0:10:08.480 The hopes and dreams of these forecasts. Then let's sit 0:10:08.520 --> 0:10:11.040 on it. I remember a word that you used, maybe 0:10:11.040 --> 0:10:13.480 more than a year ago. You refer to the forecast 0:10:13.520 --> 0:10:17.280 from the feder Reserve as fanciful. Aspirational was a word 0:10:17.280 --> 0:10:20.199 we heard again this morning, repeated through this afternoon. And 0:10:20.360 --> 0:10:23.000 when you look at these forecasts further out, do you 0:10:23.080 --> 0:10:27.240 think it's the right approach to extrapolate out current dynamics, 0:10:27.440 --> 0:10:30.959 which essentially is the following inflation can come down, can 0:10:31.000 --> 0:10:34.520 come in further without doing real damage to the labor market. 0:10:34.800 --> 0:10:37.200 I think it's a great idea, and I hope they're right. 0:10:37.840 --> 0:10:41.080 I do think it is still fanciful. One of the 0:10:41.080 --> 0:10:43.160 things that I think that the FED is betting on 0:10:43.480 --> 0:10:46.360 is that we are seeing the high frequency data as 0:10:46.480 --> 0:10:48.480 the labor markets have cooled. This has been one of 0:10:48.559 --> 0:10:52.320 the most dramatic frenzied pace of a labor market and 0:10:52.360 --> 0:10:56.079 then cooling that we've ever seen, with unemployment still very low. 0:10:56.480 --> 0:10:58.880 And what they're counting on is the high frequency data 0:10:58.960 --> 0:11:02.679 on job posting shows that wages are slowing even more 0:11:02.760 --> 0:11:05.920 rapidly as we go into fall so they're betting on 0:11:06.080 --> 0:11:09.920 those things helping them. At the same time, we've never 0:11:10.000 --> 0:11:14.160 seen we haven't seen in decades as many strike actions 0:11:14.200 --> 0:11:17.080 as we're seeing right now. And that's where things like 0:11:17.280 --> 0:11:20.040 the current strike with the UAW, the strike that we're 0:11:20.080 --> 0:11:23.800 seeing in healthcare, the strikes that we're seeing ongoing with 0:11:23.880 --> 0:11:26.840 the actors and the Writers' Union, those things will have 0:11:26.880 --> 0:11:30.480 an impact. And how much we see the cost of 0:11:30.559 --> 0:11:34.160 living adjustments baked into contracts going forward is going to 0:11:34.160 --> 0:11:38.359 be very important. Remember, with the pop and energy prices, 0:11:38.559 --> 0:11:42.640 we're going to see an increase to September. CPI is 0:11:42.880 --> 0:11:48.280 what sets the numbers for Social Security bump in January. 0:11:48.600 --> 0:11:50.800 That's one of the reasons its going to be higher bumped. 0:11:50.840 --> 0:11:51.040 Now. 0:11:51.160 --> 0:11:54.240 That's one of the reasons we had stickier inflation at 0:11:54.240 --> 0:11:56.880 the start of this year, and so that could be 0:11:56.920 --> 0:12:00.719 a sticking point and be harder for the Federal Reserve and. 0:12:00.840 --> 0:12:02.680 Hall and hors. You need a victory lap right now. 0:12:02.720 --> 0:12:04.679 I've got a five point one to three percent two 0:12:04.760 --> 0:12:05.320 year yield. 0:12:05.360 --> 0:12:06.720 I've got a ten year real yield. 0:12:06.800 --> 0:12:10.120 Any moment to pop through two percent one point nine 0:12:10.160 --> 0:12:13.480 to nine percent right now, how does our economy, how 0:12:13.520 --> 0:12:17.040 does our business society. How does it adapt to a 0:12:17.160 --> 0:12:20.880 two percent real yield? Is that a signal of buoyancy 0:12:20.960 --> 0:12:24.000 and resilience or is that a signal of trouble to come. 0:12:25.160 --> 0:12:27.640 You know, we've seen the economy a lot more resilient 0:12:27.720 --> 0:12:30.960 to higher interest rates than I think many people expected 0:12:31.000 --> 0:12:33.520 at the beginning of this rate height cycle. And part 0:12:33.559 --> 0:12:35.680 of that is that a lot of the debt that's 0:12:35.679 --> 0:12:38.720 out there is fixed rate debt that doesn't mature for 0:12:38.800 --> 0:12:41.800 many years. You think about thirty year fixed rate mortgages, 0:12:42.160 --> 0:12:44.760 many of those are still at lower rates. You think 0:12:44.760 --> 0:12:46.920 about some of the corporate borrowing that's taking place, and 0:12:46.960 --> 0:12:50.320 that also hasn't all been refinanced yet. So as that 0:12:50.400 --> 0:12:54.920 debt is refinanced, you start to have people, individuals and 0:12:55.000 --> 0:12:58.440 firms experiencing higher rates that should slow the economy. You 0:12:58.520 --> 0:13:01.400 see credit that's tied up, so there is a sense 0:13:01.440 --> 0:13:03.680 that this is slowing the economy, but it has to 0:13:03.720 --> 0:13:05.719 be sustained. I think that's the message in the dot 0:13:05.760 --> 0:13:06.839 plot for. 0:13:06.800 --> 0:13:08.239 Bloomer Radio Worldwide. 0:13:08.280 --> 0:13:10.480 Bring up the chart again on television here that we 0:13:10.559 --> 0:13:12.360 just put up with a two year yield back to 0:13:12.440 --> 0:13:15.600 before the pandemic, and this is an arch call by 0:13:15.640 --> 0:13:16.280 Holland Ors. 0:13:16.280 --> 0:13:18.120 So Swank was very good at this as well. 0:13:18.480 --> 0:13:21.959 Andrew Holland Orse, we're back to yields that I remember, 0:13:22.400 --> 0:13:27.520 and Diane Swank doesn't remember. The consensus belief out there 0:13:27.760 --> 0:13:31.520 is OMG, We're all going to die with his yield structure. 0:13:31.760 --> 0:13:36.240 We're going to a six percent two year hollan Orse yield. 0:13:36.600 --> 0:13:37.600 Are we all going to die? 0:13:39.679 --> 0:13:39.880 Well? 0:13:40.000 --> 0:13:42.079 Remember the two thousand and five to two thousand and 0:13:42.120 --> 0:13:45.080 seven period. This was an extended period of time when 0:13:45.440 --> 0:13:50.680 the economy performed relatively well and we sustained higher yield levels. 0:13:50.679 --> 0:13:54.559 And it wasn't that long ago, but it just feels 0:13:54.600 --> 0:13:56.959 like a long time ago, and many people haven't experienced 0:13:56.960 --> 0:13:59.920 that yield environment. So I think this is kind of 0:14:00.400 --> 0:14:05.040 rediscovering that economies can continue to grow, continue to produce 0:14:05.080 --> 0:14:09.720 inflation at higher yield levels. Eventually, these levels may be 0:14:10.040 --> 0:14:12.880 restrictive enough, sufficiently restrictive in the words of the Fed, 0:14:13.200 --> 0:14:15.240 to cool the economy, but that's a process that can 0:14:15.240 --> 0:14:15.600 take time. 0:14:17.040 --> 0:14:18.640 Van you want of the best of this, give Mike 0:14:18.720 --> 0:14:21.120 McKay a little bit more help. What's the question for 0:14:21.240 --> 0:14:23.600 Mike for this chairman in this news conference? The starts 0:14:23.640 --> 0:14:24.800 in about fifteen minutes time. 0:14:25.720 --> 0:14:29.280 I really want to know about how they're so optimistic 0:14:29.320 --> 0:14:31.920 about growth for next year given some of the headwinds 0:14:31.960 --> 0:14:35.000 that we face going into next year, everything from higher 0:14:35.000 --> 0:14:39.160 oil prices to student loan repayments and the additional tightening 0:14:39.200 --> 0:14:41.400 that they expect in the pipeline, not only in the 0:14:41.400 --> 0:14:44.640 banking sector but more broadly. So you know that one 0:14:44.640 --> 0:14:48.560 and a half percent is really pretty stunning. With a 0:14:48.600 --> 0:14:53.280 half percent higher on short term interest rates, that's remarkable 0:14:53.360 --> 0:14:57.480 resilience with a cooling of inflation. And I'm just trying 0:14:57.520 --> 0:14:59.560 to square all that all comes together. 0:14:59.640 --> 0:15:02.240 Yeah, oh, Diane, we all are. We're trying to figure 0:15:02.240 --> 0:15:04.880 this out. Dana Swank there and Andrew Hollenholst, two of 0:15:04.960 --> 0:15:06.960 the very best on a federal reserve. That news conference 0:15:06.960 --> 0:15:09.600 starts in fifteen minutes. If you're just joining us, welcome 0:15:09.680 --> 0:15:12.600 special coverage of the September Federal Reserve decision life on 0:15:12.640 --> 0:15:15.840 TV and radio at Bloomberg Surveillant Special alongside Tom Kean, 0:15:15.840 --> 0:15:19.760 I'm Jonathan Ferrow. The decision unchanged, no change on rates 0:15:19.800 --> 0:15:22.560 of the Federal Reserve, the focus on the projections of 0:15:22.600 --> 0:15:25.440 this FED, a monster upgrade to GDP for this year 0:15:25.680 --> 0:15:27.400 in many ways marking to market. 0:15:27.560 --> 0:15:28.320 No news there. 0:15:28.440 --> 0:15:30.800 We understood that growth was better than expected through much 0:15:30.840 --> 0:15:33.280 of this year. They understand that now the new projection 0:15:33.360 --> 0:15:36.160 is two point one percent. The old projection was just 0:15:36.240 --> 0:15:39.120 one percent. An upgrade to the GDP forecast as well 0:15:39.200 --> 0:15:41.400 for next year two for twenty twenty four that goes 0:15:41.400 --> 0:15:44.200 from one point one percent to one point five Some 0:15:44.240 --> 0:15:47.040 of the projections elsewhere pretty fascinating. Twelve of the nineteen 0:15:47.080 --> 0:15:50.640 officials on the f webc still forecasting, plotting an extra 0:15:50.720 --> 0:15:52.720 hike this year in twenty twenty three. 0:15:52.920 --> 0:15:54.640 In twenty twenty four, the medium. 0:15:54.360 --> 0:15:57.160 Dot we priced out half the cuts they had projected 0:15:57.320 --> 0:16:00.280 in the previous set of forecasts. But ultimately it's the 0:16:00.320 --> 0:16:04.080 self landing hope and dream. The decision tom today is 0:16:04.160 --> 0:16:07.480 to extrapolate out current conditions, the idea that we can 0:16:07.520 --> 0:16:10.000 get back to target all the way back to two 0:16:10.040 --> 0:16:13.520 percent without seeing gunemployment climb much higher than four percent. 0:16:13.680 --> 0:16:15.840 We had a banner up moments ago on television here 0:16:15.840 --> 0:16:18.000 and I did the quick nominal GDP math and this 0:16:18.120 --> 0:16:21.200 is basically out twenty four months, our thirty six months 0:16:21.520 --> 0:16:23.280 you know, out to when we turned into a pumpkin 0:16:23.360 --> 0:16:27.280 Giant's simple. They're looking at four percent nominal GDP or lower. 0:16:27.880 --> 0:16:30.200 And there's a lot of people looking at the spirit 0:16:30.240 --> 0:16:34.440 of this economy saying that with this inflation, that that 0:16:34.920 --> 0:16:38.360 maybe strengthens the economy. And it's a you know, to 0:16:38.440 --> 0:16:40.520 bust Bramo's chops, it's a toxic brew. 0:16:40.600 --> 0:16:42.400 It is a toxic bru I mean, but for them 0:16:42.480 --> 0:16:44.479 right now, there's nothing toxic about those projections. 0:16:44.520 --> 0:16:46.800 I can't get out to Max. 0:16:46.680 --> 0:16:49.560 Katona, We said Max Catton at HSBC. He started talking 0:16:49.600 --> 0:16:52.480 and we said that sounds like Goldie looks forever. Yes, 0:16:52.600 --> 0:16:54.800 on those projections, Goldie looks for the next twelve months. 0:16:55.080 --> 0:16:56.840 Yeah, I would, I would the rest of the cycle. 0:16:57.200 --> 0:16:59.400 And what's interesting here, folks we're coming here from London, 0:16:59.480 --> 0:17:01.200 is you know those of you in TV Counto, the 0:17:01.240 --> 0:17:04.480 sunset is spectacular tonight. I went out on the sidewalk 0:17:04.480 --> 0:17:06.760 in the rain here, the lovely afternoon rain. Out of 0:17:06.800 --> 0:17:10.240 that workoff for London, practicing for Bank of England tomorrow 0:17:10.560 --> 0:17:14.480 in this jumble that we're seeing right now in America, Yeah, 0:17:14.640 --> 0:17:17.160 is the same exact theoretical jumble we're going to see 0:17:17.160 --> 0:17:18.359 tomorrow with the Bank of England. 0:17:18.480 --> 0:17:20.000 These people are making it up as they go. 0:17:20.160 --> 0:17:21.840 Let's turn to the price section and see how much 0:17:21.880 --> 0:17:24.080 Chairman Powell has to sign the news conference it starts 0:17:24.359 --> 0:17:27.119 in about thirteen minutes. Your equity market totally unchanged on 0:17:27.160 --> 0:17:29.600 the S and P, slightly negative on the Nasdaq. But 0:17:29.640 --> 0:17:31.439 this move in the bond market, Tom, let's sit on 0:17:31.480 --> 0:17:34.760 that the two year cycle highst yeah, four through five 0:17:34.760 --> 0:17:37.280 point one percent, just like that, up by three basis 0:17:37.280 --> 0:17:39.800 points on the session Tom yield only ten year, not 0:17:39.880 --> 0:17:42.520 much price section there, four thirty, four, thirty year, let's 0:17:42.560 --> 0:17:44.560 call it four forty TK on the long bond. 0:17:44.800 --> 0:17:46.880 Let's bring it in right now. This is very important. 0:17:46.880 --> 0:17:49.000 P James Greg Peters with US on yield and Jim 0:17:49.040 --> 0:17:51.280 Bianco with US with Bianco Research. Jim, let me go 0:17:51.320 --> 0:17:53.040 to you right away. I just think this is so 0:17:53.040 --> 0:17:56.840 so important. There's a sense of longer. I see a 0:17:56.920 --> 0:18:00.800 nominal GDP call out twenty four months, which is not longer. 0:18:00.840 --> 0:18:02.919 It's it finally rates come in. Do you buy it? 0:18:05.080 --> 0:18:05.240 Well? 0:18:05.280 --> 0:18:06.840 I buy the idea that you want to be looking 0:18:06.920 --> 0:18:10.680 at GDP nominal GDP as being a benchmark for long 0:18:10.760 --> 0:18:13.800 term interest rates. But I'm not buying this idea that 0:18:14.160 --> 0:18:16.720 nominal GDP is going to fall to the levels that 0:18:16.800 --> 0:18:20.040 they think. If I was to describe, you know, this 0:18:20.040 --> 0:18:23.800 this confusion that we seem to have about this FED policy, 0:18:23.840 --> 0:18:27.080 it's they're almost arguing that nothing of significance happened in 0:18:27.119 --> 0:18:30.280 twenty twenty and that we're going to return back to 0:18:30.520 --> 0:18:33.800 normalization in the word we like to use, that's replaced transitory, 0:18:34.080 --> 0:18:36.240 and go back to something between twenty ten and twenty 0:18:36.359 --> 0:18:39.760 nineteen where we can have you know, two and a 0:18:39.800 --> 0:18:43.400 half percent real growth, one percent to two percent inflation, 0:18:43.640 --> 0:18:47.440 four percent nominal growth, and that would bring everything down 0:18:47.480 --> 0:18:50.159 and you'd have Goldie locks forever. But I'm not so 0:18:50.240 --> 0:18:52.600 sure that that's the case. I think that the economy 0:18:52.680 --> 0:18:56.800 has changed since the shutdown restart in twenty twenty, and 0:18:57.280 --> 0:19:01.080 the Federal Reserve is still struggling to come to and 0:19:01.119 --> 0:19:03.199 they're still thinking we're still in the last cycle. 0:19:04.119 --> 0:19:06.560 Greg, you've got to work with real money here. The 0:19:06.640 --> 0:19:09.560 decision to extend duration, to find a belly of the curve, 0:19:09.640 --> 0:19:11.600 all the other professional stuff you. 0:19:11.640 --> 0:19:12.480 Do with PGM. 0:19:12.960 --> 0:19:15.760 Does the language and the nuance of the forecast and 0:19:15.800 --> 0:19:17.080 the dots, does. 0:19:16.920 --> 0:19:21.800 That change your conviction and what you're doing with your portfolios. 0:19:22.960 --> 0:19:25.440 Well, I would say that we're finally getting what we've 0:19:25.440 --> 0:19:28.720 been thinking for quite some time, and that is higher 0:19:28.720 --> 0:19:31.359 for longer. Right, the markets have been raging against this 0:19:31.520 --> 0:19:35.359 notion that rates will remain high. All the forward curves 0:19:35.359 --> 0:19:37.920 are pointing down, the dot plot pointing down. So I 0:19:38.000 --> 0:19:41.000 think this really throws cold water on that. And so 0:19:41.119 --> 0:19:44.160 for us at PGIM, you know, we really think it's 0:19:44.160 --> 0:19:47.960 a higher for longer. We never felt the need to 0:19:48.280 --> 0:19:52.520 jump into duration. You know, maybe it's closer to that now, 0:19:53.080 --> 0:19:55.840 but more in the back end the curve. So look, 0:19:55.920 --> 0:19:58.200 I mean, I think the Fed delivered exactly what they 0:19:58.280 --> 0:20:03.120