WEBVTT - Bloomberg Surveillance TV: September 17, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.120 Terminal and the Bloomberg Business App. Matt Miskin of John 0:00:37.120 --> 0:00:41.000 Hancock Investment Management, writing, if you are not easing your tightening, 0:00:41.280 --> 0:00:43.840 the bond market has already priced in two point five 0:00:43.880 --> 0:00:46.760 percentage points in RAID cuts over the next twelve to 0:00:46.840 --> 0:00:47.800 sixteen months. 0:00:47.880 --> 0:00:48.839 If the Fed shoes is. 0:00:48.880 --> 0:00:52.440 Less than that, in essence, they will be tightening monetary policy. 0:00:52.720 --> 0:00:55.000 Matt joined us now for more. Matt, welcome to the program. 0:00:55.040 --> 0:00:57.000 Have you ever when was the last time you saw 0:00:57.000 --> 0:00:59.920 a decision this finally balanced twenty four hours out? 0:01:01.240 --> 0:01:02.120 I don't remember when. 0:01:02.120 --> 0:01:04.320 I think twenty fifteen was the last one that I 0:01:04.520 --> 0:01:07.080 that I've heard of as a recalling this, but it 0:01:07.120 --> 0:01:09.679 is leaving a lot of uncertainty, and you know, I 0:01:09.680 --> 0:01:12.280 think the FED would like to have more. 0:01:13.000 --> 0:01:15.360 Prepared kind of communication around this. 0:01:16.040 --> 0:01:18.240 And you know what we're looking at is, though not 0:01:18.319 --> 0:01:21.840 to overemphasize one meeting, one data point. I know retail 0:01:21.840 --> 0:01:23.720 sales are going to be exciting here in a couple 0:01:23.959 --> 0:01:26.200 in just about an hour, but at the end of 0:01:26.200 --> 0:01:27.679 the day, we're starting a cutting cycle. 0:01:28.040 --> 0:01:28.720 That's what we know. 0:01:29.120 --> 0:01:31.200 We know that inflation has come down a lot and 0:01:31.240 --> 0:01:34.800 the unemployment rate is rising. Keep it simple, is it 0:01:34.840 --> 0:01:36.959 relates to that? That means the Fed's going to be cutting. 0:01:37.040 --> 0:01:37.920 In argue, we. 0:01:37.880 --> 0:01:40.560 Could end this cutting cycle with a two handle on 0:01:40.600 --> 0:01:43.440 the ten year and frankly a two handle on the 0:01:43.480 --> 0:01:47.240 Fed funds rate. And that's with just inflation coming down 0:01:47.360 --> 0:01:49.360 we see a recession. We think, actually we can get 0:01:49.360 --> 0:01:51.640 a one handle on the Fed funds rate and low 0:01:51.680 --> 0:01:53.040 twos on the tenure. 0:01:53.320 --> 0:01:56.600 Matt, two handles on tens, two handles on Fed funds. 0:01:56.960 --> 0:01:58.560 Tell me where the S and P five hundred is 0:01:58.600 --> 0:01:59.440 against that backdrop? 0:02:01.240 --> 0:02:06.160 Yeah, So that would be assuming a soft landing, which 0:02:06.280 --> 0:02:07.840 to us means more chopped. 0:02:08.280 --> 0:02:09.080 The problem with. 0:02:09.240 --> 0:02:11.160 Wanting more out of the S and P five hundred 0:02:11.200 --> 0:02:13.880 is the valuations are already at the upper end of 0:02:13.880 --> 0:02:16.480 the range, so we're at about twenty one times on 0:02:16.840 --> 0:02:20.120 the forward PE and the SMP, and then we're baking 0:02:20.160 --> 0:02:21.200 in fifteen. 0:02:20.760 --> 0:02:21.880 Percent earning strowth. 0:02:22.200 --> 0:02:25.799 So we need earnings growth from here to drive equities. 0:02:26.080 --> 0:02:29.560 But frankly, there's already baked in massive growth, so it's 0:02:29.600 --> 0:02:31.400 going to be really hard to get much more out 0:02:31.440 --> 0:02:33.680 of that. You can make the argument for rotations. 0:02:33.720 --> 0:02:34.440 We do like that. 0:02:34.600 --> 0:02:38.280 Right now, we're in MidCap for cheaper ideas across the 0:02:38.320 --> 0:02:43.120 equity market, and we're looking at some high quality cyclicals. 0:02:43.520 --> 0:02:45.639 But at the end of the day, what we're seeing 0:02:45.720 --> 0:02:48.160 is the bond market still might have about an eight 0:02:48.200 --> 0:02:50.880 percent total return over the next twelve months. We think 0:02:50.960 --> 0:02:53.600 that's going to be really competitive on a risk adjusted basis. 0:02:53.720 --> 0:02:56.520 It's a pretty radical thought, Matt, the idea of a 0:02:56.600 --> 0:02:58.959 two handle on ten year notes at a time where 0:02:58.960 --> 0:03:01.079 some people are saying it neutral rate is something more 0:03:01.160 --> 0:03:03.280 kin to three and a half percent. Why do you 0:03:03.320 --> 0:03:07.160 reject the markets expectations of where the Fed's neutral rate 0:03:07.240 --> 0:03:08.079 really will end up? 0:03:09.280 --> 0:03:11.440 Yeah, I mean starting out with the neutral rate, you know, 0:03:11.720 --> 0:03:14.000 being around this industry for as long as that in 0:03:14.000 --> 0:03:15.000 about ten years now. 0:03:15.240 --> 0:03:17.680 The neutral rate has always been almost like a. 0:03:17.600 --> 0:03:23.040 Mysterious number that can never be quantified or found out. 0:03:23.280 --> 0:03:25.480 You know, it almost reminds me of productivity in terms 0:03:25.520 --> 0:03:28.639 of economists. But at the end of the day, it's 0:03:28.639 --> 0:03:32.600 a cycle. You know, soft landing isn't destination. We're always 0:03:32.760 --> 0:03:35.720 changing and evolving as relates to economic cycle. I wish 0:03:35.720 --> 0:03:37.440 you could just stay in one place, but that's not 0:03:37.560 --> 0:03:41.520 how it works. If the unemployment rate is changing and 0:03:41.520 --> 0:03:44.920 shifting like a pendulum to a higher unemployment rate, if 0:03:44.920 --> 0:03:48.880 inflation is shifting like a pendulum to lower inflation, to us, 0:03:48.920 --> 0:03:50.840 that means lower rates. And I think one of the 0:03:50.840 --> 0:03:54.600 things we're anchoring on as investors is still thinking about 0:03:54.600 --> 0:03:59.920 the COVID era monetary policy fiscal policy disruptions to the 0:04:00.040 --> 0:04:02.760 global economy as the new normal, and it's not. 0:04:03.400 --> 0:04:05.760 That was a massive outlier. 0:04:05.440 --> 0:04:08.480 That likely will never happen again, knock on wood in 0:04:08.520 --> 0:04:11.440 our lifetime. And therefore, if we're back to the way 0:04:11.480 --> 0:04:13.800 we were pre COVID, why wouldn't. 0:04:13.440 --> 0:04:15.040 We be back to a lower rate regime. 0:04:15.440 --> 0:04:17.800 And if it's a lower rate regime that's actually good 0:04:17.800 --> 0:04:20.279 for stocks and bonds. It means lower inflation, but it 0:04:20.440 --> 0:04:22.880 likely means bonds has more catch up after equities have 0:04:22.920 --> 0:04:24.240 done so well as a belief. 0:04:24.360 --> 0:04:27.640 So it sounds like you're still overweight bonds relative to 0:04:27.680 --> 0:04:30.200 stocks at this juncture. What could make you flip that 0:04:30.560 --> 0:04:32.640 given the fact that ultimately this is a pretty benign 0:04:32.680 --> 0:04:35.400 setup for stocks, given the fact that we spent years 0:04:35.400 --> 0:04:39.400 talking about how low rates really boosted valuations among equities. 0:04:40.360 --> 0:04:44.320 So strategically stocks have done always better than bonds longer term, 0:04:44.400 --> 0:04:47.440 and so we are just a modest underweight to stocks 0:04:47.440 --> 0:04:50.240 first bonds. But the biggest change we made in our 0:04:50.279 --> 0:04:53.480 tactical views is just overweighting higher quality. 0:04:53.160 --> 0:04:53.880 Parts of the market. 0:04:53.960 --> 0:04:58.320 So on the equity side, we're overweight higher quality markets, technology, 0:04:58.640 --> 0:05:01.880 US equities, US large your cap versus smaller camp. And 0:05:01.880 --> 0:05:05.200 then in the bond market, investment grade corporates with about 0:05:05.240 --> 0:05:07.839 a single a credit quality is about as much credit 0:05:07.920 --> 0:05:11.680 risk as we really want to overweight. Agency NBS, investment 0:05:11.680 --> 0:05:14.040 grade corporates and things we like. We were doing five 0:05:14.040 --> 0:05:15.960 to six percent in yield just a couple of months ago, 0:05:15.960 --> 0:05:18.240 and now we're doing four to five, but again on 0:05:18.279 --> 0:05:20.840 a risk adju a basis, we think that's really competitive 0:05:20.920 --> 0:05:21.440 versus stocks. 0:05:21.480 --> 0:05:24.000 Here, you're not scared of being contrarian. Do you find 0:05:24.000 --> 0:05:26.200 it uncomfortable that what you're saying this morning is basically 0:05:26.200 --> 0:05:27.960 what everyone's been telling us now for the last month. 0:05:29.160 --> 0:05:31.040 So I hear that a lot, right, So I don't 0:05:31.120 --> 0:05:33.320 hear that a lot, But nowadays we are hearing that 0:05:33.400 --> 0:05:37.120 everyone's bullish on bonds, right, and utilities as you said 0:05:37.320 --> 0:05:40.440 earlier in the show, Jell and around the fund manager survey, 0:05:40.480 --> 0:05:43.280 the interest rate sensitive sectors, you know, And I look 0:05:43.279 --> 0:05:46.000 at the pricing note of the market, and I also 0:05:46.080 --> 0:05:48.440 look at the guts of the market and just cross 0:05:48.480 --> 0:05:51.520 asset performance. So we've got goal doing great, the end 0:05:51.560 --> 0:05:53.920 doing great, Treasury is doing great. 0:05:54.120 --> 0:05:55.360 Those are all defensive. 0:05:55.600 --> 0:05:58.800 Those are all saying, hey, the economy slowing, inflation slowing. 0:05:59.240 --> 0:06:02.000 Then you got high spreads, it's super tight levels, the 0:06:02.160 --> 0:06:05.600 SMP multiple is really high, and it's more small caps 0:06:05.600 --> 0:06:07.560 are starting to do well. We're getting cyclicals out of 0:06:07.600 --> 0:06:11.240 Europe doing well. So it doesn't add up. That's the 0:06:11.279 --> 0:06:13.320 part of the consensus that I don't get. If you 0:06:13.440 --> 0:06:15.600 if you want to say that everyone is more bearish 0:06:15.920 --> 0:06:18.760 or suggesting more rate cuts, there's another part of the 0:06:18.800 --> 0:06:21.039 market that is saying that's contrary to that. So I 0:06:21.040 --> 0:06:23.240 think you just need to be careful with that. When 0:06:23.279 --> 0:06:25.479 we look at what's priced in, it's a lot of 0:06:25.480 --> 0:06:28.479 good news on the risk front, and to me, that 0:06:28.600 --> 0:06:30.680 just needs to be shaken out here because the Fed 0:06:30.800 --> 0:06:33.680 can't do everything. They can't just cut you know, it 0:06:33.839 --> 0:06:37.760 consistently and meet up to these expectations and then you know, 0:06:37.880 --> 0:06:41.080 support everything that has happened here. So we just want 0:06:41.120 --> 0:06:44.160 to take a more managed risk managed approach, a more 0:06:44.200 --> 0:06:47.920 conservative approach. We're not underweight, you know, we're not underinvested, 0:06:49.560 --> 0:06:51.760 but that income is a key component and that's to 0:06:51.839 --> 0:06:53.240 us going to pay off over time. 0:06:53.360 --> 0:06:55.400 Matt, just love your thoughts on how a price going 0:06:55.440 --> 0:06:57.720 into tomorrow and how you think might respond to any 0:06:57.720 --> 0:07:01.080 given decision. Do you think it's sufficient just to validate 0:07:01.160 --> 0:07:03.000 market pricing and the dog plot it is not enough? 0:07:03.080 --> 0:07:04.200 Or does this market need more? 0:07:05.360 --> 0:07:08.160 I think that's key, John to your point, because. 0:07:08.160 --> 0:07:10.040 They could just say twenty five or fifty, but then 0:07:10.080 --> 0:07:12.200 it's how do they say on top of that, what 0:07:12.200 --> 0:07:13.360 we're going to do is the end of the year. 0:07:13.400 --> 0:07:17.239 So in the June Summary of Economic Projections dot plot, 0:07:17.640 --> 0:07:19.720 they said five point one on the FED funds rate 0:07:19.760 --> 0:07:21.400 by the end of the year. That was the mean 0:07:21.600 --> 0:07:25.080 median that has to come down to some degree or else. 0:07:25.080 --> 0:07:29.040 So the market's going to be pissed, right, it's overdo it, 0:07:29.080 --> 0:07:31.679 but it's not going to be happy unless they say, 0:07:31.840 --> 0:07:35.640 on top of this cut, hey, we're still suggesting cuts 0:07:35.640 --> 0:07:39.320 to come. Because again, if they're not easing, they're tightening, 0:07:39.920 --> 0:07:42.000 and that's okay. If they want to push back on 0:07:42.000 --> 0:07:44.280 the bond market, if they want to push back on 0:07:44.280 --> 0:07:47.000 on the easing that's already baked in, that's fine, but 0:07:47.040 --> 0:07:49.200 they got to know that that's what they're doing, and 0:07:49.240 --> 0:07:52.440 it's a precarious time to really put more tightening into 0:07:52.440 --> 0:07:56.160 this market. We would follow the bond market. If you 0:07:56.280 --> 0:07:58.600 want to create a soft landing, you need that, You 0:07:58.640 --> 0:08:00.760 need tight credit sprints, and you need the initial jobs 0:08:00.800 --> 0:08:02.920 claims to stay low. If you get those three things, 0:08:03.160 --> 0:08:06.680 you can keep the soft landing. If not, you're probably 0:08:06.680 --> 0:08:08.120 looking at more risks that come. 0:08:08.480 --> 0:08:10.840 Matt, just to sort of underscore one point that you 0:08:10.960 --> 0:08:14.360 just made about the stock market just generally being pretty 0:08:14.720 --> 0:08:18.560 ticked off, there is a question about whether this photos 0:08:18.600 --> 0:08:19.160 or of cares. 0:08:19.520 --> 0:08:20.360 It didn't really care. 0:08:20.400 --> 0:08:22.320 On the way up, it seems to care on the 0:08:22.360 --> 0:08:25.040 way down. Is that basically the litmus tests that we're 0:08:25.240 --> 0:08:25.960 working with. 0:08:27.200 --> 0:08:29.560 Well, there is a wealth effect to these things. So 0:08:29.760 --> 0:08:32.160 you know, consuming at worth through the second quarter hit 0:08:32.200 --> 0:08:37.120 all time high, ridiculous trillion trillion dollar amount. But that's 0:08:37.160 --> 0:08:40.680 probably helping the economy, that's probably helping consumer spending, that's 0:08:40.679 --> 0:08:44.160 helping consumer confidence. And you know, the markets are very 0:08:44.200 --> 0:08:47.040 thickle and volatile, and it's very difficult for the FED 0:08:47.120 --> 0:08:50.360 to over extrapolate things because it could change on a dime. 0:08:51.280 --> 0:08:53.440 But at the end of the day, they too need 0:08:53.480 --> 0:08:56.920 to be cautious of being too dubbish because yeah, if 0:08:57.080 --> 0:09:00.880 the wealth effect becomes even bigger, of housing continues to 0:09:00.920 --> 0:09:04.040 go hire, that's going to lift inflation. Uh And if 0:09:04.080 --> 0:09:07.120 stock markets continue to go up. We could be cautious 0:09:07.120 --> 0:09:11.640 here because of more bubble territories. We've had histories, lessons 0:09:11.640 --> 0:09:15.600 and lessons of not over stimulating with ultra low interest 0:09:15.640 --> 0:09:18.319 rates because it can create bubbles. You know, for us 0:09:18.400 --> 0:09:21.800 right now cycle wise, we want to protect On the downside, 0:09:21.920 --> 0:09:24.280 I think their mandate really they're dual mandate. They've got 0:09:24.320 --> 0:09:27.480 to focus more on employment than inflation, and that's really 0:09:27.480 --> 0:09:29.480 what we've got to look at. But yeah, they've got 0:09:29.480 --> 0:09:32.160 to use the side of their eye. They've always got 0:09:32.200 --> 0:09:36.120 to be watching for too much speculative nature in markets, 0:09:36.720 --> 0:09:40.240 and we're coming off some pretty sig significant speculation, but 0:09:40.320 --> 0:09:42.560 it's still not relieved from the market yet. 0:09:42.760 --> 0:09:42.960 Match. 0:09:43.040 --> 0:09:45.439 Just to reminder for next time, we curse in surveillance 0:09:45.480 --> 0:09:48.880 after ours, that's a podcast coming in Q four where 0:09:48.880 --> 0:09:53.680 there'll be lots of success if you want to cigaretts. 0:09:53.720 --> 0:09:55.679 Oh yeah, oh yeah, that's you just breaking all the 0:09:55.720 --> 0:09:56.600 rou Oh yeah, completely. 0:09:56.679 --> 0:09:57.680 Let's not get carried away. 0:09:57.840 --> 0:09:58.440 Let's just curse. 0:09:58.520 --> 0:10:11.440 I'm not missing at John Hancock in Lingo Tobimo writing, 0:10:11.480 --> 0:10:13.840 the primary risk of a fifty basis point cut is 0:10:13.840 --> 0:10:16.520 that the market translates the move into a series of 0:10:16.559 --> 0:10:19.720 fifty basis point reductions that quickly brings the FED funds 0:10:19.800 --> 0:10:22.960 rate back to neutral, thereby effectively cutting for the Fed 0:10:23.040 --> 0:10:27.000 and potentially stoking reflation. Ian joins us now for more 0:10:27.040 --> 0:10:29.000 in It's going to see you, sir, Thanks for joining us, 0:10:29.000 --> 0:10:29.520 Thanks for having me. 0:10:29.600 --> 0:10:29.680 Err. 0:10:29.720 --> 0:10:31.319 I want to start with your note from Yes to them. 0:10:31.360 --> 0:10:34.280 Pick out another quote. Can we expect quote a notably 0:10:34.360 --> 0:10:36.840 quick pace of cuts in the absence of more meaningful 0:10:36.880 --> 0:10:40.120 downside in the rear economy, said differently, will the FED 0:10:40.160 --> 0:10:43.080 simply mark to market the dot plot or our investors 0:10:43.120 --> 0:10:45.480 in for a surprise, what's your base case? 0:10:46.280 --> 0:10:48.520 So I think they should go twenty five. But I 0:10:48.559 --> 0:10:51.480 suspect that if we go into the event priced with 0:10:51.720 --> 0:10:54.640 a higher than eighty percent probability of fifty, that there's 0:10:54.679 --> 0:10:57.480 a really good chance there they move fifty simply to 0:10:57.640 --> 0:11:01.320 front load the process. Now this becomes tricky for the 0:11:01.360 --> 0:11:04.400 FED from a communications perspective, because we call what happened 0:11:04.400 --> 0:11:09.040 in June. We went into the June FMC decision, they'd 0:11:09.080 --> 0:11:11.600 already submitted their dots, and so if it is a 0:11:11.600 --> 0:11:15.199 game time decision we're walking in, we're going to get fifty, 0:11:15.520 --> 0:11:17.600 but it's going to be hawkish or twenty five and 0:11:17.640 --> 0:11:18.680 it's going to be duffish. 0:11:18.960 --> 0:11:20.959 And let's talk about resale sales and how that might 0:11:20.960 --> 0:11:23.520 influence things. Are you saying it's not that that data 0:11:23.559 --> 0:11:26.520 point dependent, it's that that data point could shift market 0:11:26.559 --> 0:11:29.640 expectations so close to fifty they won't want to disappoint. 0:11:29.200 --> 0:11:33.000 Them only if it's really weak. If it comes in stronger, 0:11:33.000 --> 0:11:35.720 it's not going to be part of the analysis because 0:11:35.920 --> 0:11:38.880 we already know that the consumer remains and relatively strong footing. 0:11:39.120 --> 0:11:41.920 But if we see a negative print, particularly in that 0:11:42.000 --> 0:11:44.840 control group, that probably tips the scale to fifty. 0:11:45.200 --> 0:11:46.240 What are we pricing in right now? 0:11:46.280 --> 0:11:47.840 In the rates market? We've heard a lot of people 0:11:47.880 --> 0:11:51.000 disagree around this table, some people saying it is accurately 0:11:51.360 --> 0:11:53.880 pricing in about a forty percent chance of recession, which 0:11:53.920 --> 0:11:56.199 is the baseline for bank from America the fund manager 0:11:56.240 --> 0:11:59.240 survey that just came out. Other people saying price is 0:11:59.280 --> 0:12:02.680 in a much bigger tail risk of something that's negative. 0:12:02.720 --> 0:12:03.360 What's your take? 0:12:04.160 --> 0:12:06.960 So when I look at the futures market, what I 0:12:07.040 --> 0:12:09.839 see is the market expects us the FED to get 0:12:09.840 --> 0:12:12.680 back to neutral, but not end up cutting into the 0:12:12.679 --> 0:12:15.640 one handled territory. So that implies that at least from 0:12:15.640 --> 0:12:19.680 a monetary policy perspective, we're still in a soft landing narrative. 0:12:20.080 --> 0:12:23.199 Now. Ten year yields close to three point fifty. 0:12:23.160 --> 0:12:25.679 Suggests that we're in verse of economic downside over the 0:12:25.760 --> 0:12:27.960 course of the next two or three years, which I 0:12:27.960 --> 0:12:31.160 certainly agree with. But I do think that the soft 0:12:31.280 --> 0:12:35.320 landing narrative can probably survive this year, particularly if the 0:12:35.320 --> 0:12:37.840 FED is a bit proactive, and even if we see 0:12:37.840 --> 0:12:40.000 a little bit of weakness towards the end of the year, 0:12:40.120 --> 0:12:41.840 the market will still think that it's a love. 0:12:42.160 --> 0:12:44.319 Do you not buy the argument that they're just trying 0:12:44.320 --> 0:12:47.439 to get back to neutrals, they're not increasing their restrictiveness. 0:12:47.440 --> 0:12:49.800 In other words, does that hold less weight for you 0:12:49.840 --> 0:12:52.040 when you don't have clarity over what they believe the 0:12:52.080 --> 0:12:53.160 neutral right to actually be. 0:12:54.040 --> 0:12:56.920 Well, one thing we know is true is that as 0:12:57.160 --> 0:13:01.040 realized inflation decreases or a year over year basis, that 0:13:01.080 --> 0:13:04.320 means that real policy rates are more restrictive. So given 0:13:04.360 --> 0:13:06.400 where we are in the cycle, they need to cut 0:13:06.480 --> 0:13:09.240 rates just to keep the prevailing level of real rates 0:13:09.240 --> 0:13:09.880 as high as that are. 0:13:10.280 --> 0:13:13.320 And if we get a softer retail sales print and 0:13:13.360 --> 0:13:15.680 we have the FED coming or the markets pricing in 0:13:15.760 --> 0:13:19.040 fifty more notably not on an I edge really starting fifty, 0:13:19.040 --> 0:13:20.480 but the FED comes out in US twenty five, what 0:13:20.559 --> 0:13:21.920 happens to the market. 0:13:22.240 --> 0:13:24.719 I think it all depends on how Powell spins it, 0:13:24.920 --> 0:13:27.959 and it all depends on what the dot plot tells us, 0:13:28.160 --> 0:13:32.199 because recalled that in June the twenty twenty four dot 0:13:32.640 --> 0:13:36.520 was a five. Twenty five was four point one. If 0:13:36.559 --> 0:13:38.640 we look at what's priced into the market to simply 0:13:38.679 --> 0:13:40.760 mark to market, do we have to get to three percent? 0:13:41.240 --> 0:13:44.320 And so if the Fed says, okay, we'll go into neutral, 0:13:44.400 --> 0:13:46.000 that gives us a three percent and they do that 0:13:46.080 --> 0:13:48.560 via the twenty twenty five dot. I think that the 0:13:48.679 --> 0:13:51.960 market doesn't sell off as much as it would otherwise. 0:13:52.200 --> 0:13:55.720 You mentioned the risk of stoking reinflation or reflation Bill 0:13:55.800 --> 0:13:59.079 Dunkley yesterday, formerly the neo Fed right and Bloombag opinion. 0:13:59.360 --> 0:14:00.400 He thinks they should go big. 0:14:00.440 --> 0:14:02.360 He thinks they will go big, and he asked himself 0:14:02.400 --> 0:14:05.280 this question, do downsound risk to employment outweigh upside risk 0:14:05.280 --> 0:14:05.800 to inflation. 0:14:06.360 --> 0:14:08.280 I'm going to address you with that question. Do you 0:14:08.280 --> 0:14:11.240 think they do well? They certainly did throughout the bulk 0:14:11.280 --> 0:14:11.920 of this cycle. 0:14:12.280 --> 0:14:15.360 Now we're at the point where we have seen the 0:14:15.440 --> 0:14:18.120 unemployment rate materially increase off of. 0:14:18.040 --> 0:14:18.760 The cycle low. 0:14:19.160 --> 0:14:22.400 The conversation about whether we're overdue for a spike higher 0:14:22.400 --> 0:14:26.760 and on the unemployment remains very valid. In effect, what 0:14:26.800 --> 0:14:30.920 the Fed is doing is their changing monetary policy for 0:14:31.160 --> 0:14:33.600 the second half of next year, not for the current data. 0:14:33.800 --> 0:14:36.120 So it's the trajectory of the prevailing data, and it 0:14:36.200 --> 0:14:40.160 might make sense to go big early with the expectations 0:14:40.160 --> 0:14:42.480 that they can solve next year's problem. 0:14:42.520 --> 0:14:44.600 We keep saying the FED, but when we're talking about 0:14:44.640 --> 0:14:48.040 the FED, we're talking about a group of individual policymakers 0:14:48.240 --> 0:14:50.360 who apparently have some different views on where we are 0:14:50.440 --> 0:14:53.160 at the moment. And I wonder tomorrow, when that decision 0:14:53.240 --> 0:14:55.960 drops and we talk about the decision twenty five versus fifteen, 0:14:55.960 --> 0:14:57.720 then we go for the forecast, we'll just be talking 0:14:57.760 --> 0:15:00.960 about medians. Will that mask a great divide on a 0:15:01.000 --> 0:15:01.600 cephalem C? 0:15:02.680 --> 0:15:04.680 I think that we also might see a descent. 0:15:05.120 --> 0:15:08.480 There's nothing to suggest that everyone needs to vote in 0:15:08.600 --> 0:15:10.800 for twenty five or fifty, So I think that that 0:15:10.840 --> 0:15:14.480 could be another way to communicate to the market that 0:15:14.560 --> 0:15:18.360 it was a knife edged decision and it's uncertain going forward. 0:15:18.880 --> 0:15:20.480 Do you think that there's a chance of a seventy 0:15:20.480 --> 0:15:23.000 five basis point rate cut because of Elizabeth Warren? 0:15:24.440 --> 0:15:26.440 That's really not been top of mine recently. 0:15:27.320 --> 0:15:29.440 The reason why I had is because we were talking 0:15:29.480 --> 0:15:31.680 about it earlier, and as someone who's in this market, 0:15:31.920 --> 0:15:34.760 I wonder sort of whether people actually dismiss this, whether 0:15:34.800 --> 0:15:37.600 it's actually harmful to the functioning of the Federal Reserve, 0:15:37.720 --> 0:15:41.600 or basically just noise with people trying to get their 0:15:41.680 --> 0:15:42.200 voices heard. 0:15:43.520 --> 0:15:45.280 I think the I think the latter point. I think 0:15:45.280 --> 0:15:46.640 that they're just trying. 0:15:46.400 --> 0:15:49.680 To be part of the micro conversation and it's not 0:15:49.720 --> 0:15:51.880 going to be particularly influential for the FLMC. 0:15:52.040 --> 0:15:53.560 I love that you got last it a site noise 0:15:53.640 --> 0:16:06.520 for you to continue this conversation. Joining us now, Islurina 0:16:06.840 --> 0:16:10.120 Ruchi of t row Price Plurina, let's get to this data. 0:16:10.200 --> 0:16:12.840 It seems to have settled absolutely nothing about whether we 0:16:12.920 --> 0:16:15.960 go twenty five or fifty tomorrow afternoon. What's your base 0:16:16.000 --> 0:16:17.200 case now? 0:16:18.080 --> 0:16:21.080 So I would say that what we discussed here in 0:16:21.120 --> 0:16:24.520 the past is still valid, that the FED is data dependent, 0:16:24.600 --> 0:16:27.400 not data point dependent, And so I hope when they 0:16:27.480 --> 0:16:30.240 sit in their deliberations today and tomorrow, they'll look at 0:16:30.400 --> 0:16:33.320 what we've seen in the economy over the last three months. 0:16:33.840 --> 0:16:36.160 I would say, before the quiet period, we. 0:16:36.120 --> 0:16:38.640 Didn't have an indication that they wanted to start this 0:16:38.720 --> 0:16:41.680 cutting cycle with a big cut. But it seems like 0:16:42.240 --> 0:16:46.160 perhaps we don't have as good a sense of how 0:16:46.200 --> 0:16:49.640 the FED is interpreting the labor market data as we should, 0:16:50.040 --> 0:16:52.040 And so I think into the decision. 0:16:52.080 --> 0:16:53.720 It's really essentially a coin flip. 0:16:53.720 --> 0:16:56.960 And I don't disagree with market expectations here. I do 0:16:57.040 --> 0:17:00.640 think that the FED perhaps is looking at the fall 0:17:00.720 --> 0:17:04.119 in vacancy rates, at the recent uptack in the unemployment rate, 0:17:04.560 --> 0:17:09.560 and the labor market differential from the consumer side of 0:17:09.600 --> 0:17:12.000 the data, and saying, Okay, the labor market is really 0:17:12.000 --> 0:17:15.040 slowing down, and perhaps we are a bit behind the curve, 0:17:15.080 --> 0:17:17.720 and we want to take some insurance cuts early in 0:17:17.760 --> 0:17:20.040 the cycle. So I think it's completely possible that we 0:17:20.080 --> 0:17:24.520 get a fifty basis point cut tomorrow. And I do 0:17:24.560 --> 0:17:27.680 think that the Summary of Economic Projections is probably going 0:17:27.760 --> 0:17:30.320 to show that the dot plot has one hundred basis 0:17:30.359 --> 0:17:33.159 point worth of cuts for the year as a whole. 0:17:33.480 --> 0:17:37.480 And I think if you consider how the market deals 0:17:37.520 --> 0:17:43.160 with uncertainty, perhaps from the FMCS perspective, it makes communication easier. 0:17:43.200 --> 0:17:45.679 They start with fifty basis points and then the market 0:17:45.880 --> 0:17:49.399 can expect that the November and December meeting a couple 0:17:49.440 --> 0:17:51.200 of twenty five basis point cuts. 0:17:51.560 --> 0:17:53.919 You mentioned the SEP. Let's start there and we'll unpack 0:17:53.920 --> 0:17:55.680 the rest in just a moment. The so Many of 0:17:55.680 --> 0:17:58.439 Economic Projections was last published on June twelfth, and that 0:17:58.560 --> 0:18:01.800 is super superstow. We're going to see some major revisions 0:18:01.880 --> 0:18:03.920 to that one. You mentioned how the median dot would 0:18:03.960 --> 0:18:06.040 come down and show in basically one hundred basis points 0:18:06.080 --> 0:18:09.080 of cuts for this year. Can you walk me through 0:18:09.119 --> 0:18:12.440 twenty twenty five? Where's that median doll for twenty five. 0:18:13.960 --> 0:18:15.800 Right? I think you're absolutely right. 0:18:15.840 --> 0:18:18.240 We're going to get a much more doavash dot cloud 0:18:18.280 --> 0:18:20.640 than we had in June. Just a reminder in June 0:18:20.640 --> 0:18:23.359 which had only one cut for this year. So the 0:18:23.440 --> 0:18:27.359 INFORMC has really changed their assessment of the economy and 0:18:27.640 --> 0:18:33.200 of the cutting cycle for next year. I don't expect changes. 0:18:33.320 --> 0:18:36.639 I think they're going to still have four cuts. It 0:18:36.680 --> 0:18:39.760 would be a very doubbish surprise if they fully embrace 0:18:39.880 --> 0:18:43.200 market pricing and show four cuts this year and six 0:18:43.280 --> 0:18:46.040 cuts next year. It's a risk to my view, but 0:18:46.080 --> 0:18:49.639 I do think that's shifting to eight cuts over the 0:18:49.680 --> 0:18:52.600 next fifteen months or so. It's already a very douvish 0:18:52.720 --> 0:18:55.400 move from the side of the fat. And then if 0:18:55.440 --> 0:18:58.920 you consider where they had interest rates at the end 0:18:59.080 --> 0:19:01.880 of the cutting sete, I think essentially what's. 0:19:01.640 --> 0:19:03.919