WEBVTT - Instant Reaction: Jay Powell on the Fed Decision 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:09.200 --> 0:00:13.840 This is a breaking news update from Bloomberg instant reaction 0:00:14.120 --> 0:00:17.959 and analysis from our three thousand journalists and analysts around 0:00:17.960 --> 0:00:18.439 the world. 0:00:19.239 --> 0:00:20.960 In the next twenty minutes. On this program, we need 0:00:21.000 --> 0:00:24.239 to discuss two things. The future of Chairman Paw One 0:00:24.560 --> 0:00:27.560 the easing bias at the Federal Reserve. Two on the 0:00:27.600 --> 0:00:30.760 future of Chairman pow staying one as a governor of 0:00:30.800 --> 0:00:33.120 the Federal Reserve. He was asked why this is what 0:00:33.200 --> 0:00:34.040 he had to say. 0:00:35.159 --> 0:00:38.839 My concern is really about the series of legal attacks 0:00:38.920 --> 0:00:42.360 on the FED. These attacks are battering the institution and 0:00:42.400 --> 0:00:44.800 putting at risk the thing that really matters to the public, 0:00:45.240 --> 0:00:48.200 which is the ability to conduct monetary policy without taking 0:00:48.200 --> 0:00:50.000 into consideration political factors. 0:00:50.240 --> 0:00:53.559 The Federal Reserve Chairman Jay Powell on independence. I think 0:00:53.600 --> 0:00:56.320 FED independence is at risk. So what about the easing 0:00:56.360 --> 0:00:58.920 buss Let's talk about monetary policy. A question coming into 0:00:58.920 --> 0:01:01.040 this decision is whether this reserve would move to a 0:01:01.080 --> 0:01:04.080 more symmetrical reaction function. That's the juket. This is a 0:01:04.120 --> 0:01:07.479 plane speak. Isn't just as likely they'll hike as they'll cut. 0:01:07.640 --> 0:01:09.120 They didn't do it this time around, but there was 0:01:09.200 --> 0:01:11.760 some descent. This vote was eight to four. Four descents 0:01:11.959 --> 0:01:14.520 haven't seen that since the nineteen nineties. Of those four 0:01:14.520 --> 0:01:16.880 to three wanted to get rid of that easing bus. 0:01:16.920 --> 0:01:19.959 This is what the chairman had to say on that issue. 0:01:20.080 --> 0:01:22.200 You know a number of people on the committee who 0:01:22.200 --> 0:01:26.479 either could support that language change, changing to a more 0:01:26.560 --> 0:01:29.800 neutral stance so that a hike is as likely as 0:01:29.959 --> 0:01:33.480 a cut. That number has increased over the inter meeting period, 0:01:33.640 --> 0:01:35.640 and it's easy to see why we had the discussion. 0:01:35.680 --> 0:01:38.920 The majority are still on the page of not feeling 0:01:39.000 --> 0:01:41.360 the need to move to that level, and that's where 0:01:41.400 --> 0:01:41.720 I am. 0:01:42.800 --> 0:01:43.480 I get it though. 0:01:43.840 --> 0:01:45.920 You know at a certain point you would move, and 0:01:46.000 --> 0:01:48.800 that that conceivingly could come as soon as the next meeting. 0:01:48.880 --> 0:01:51.680 They're getting closer, but they're not there yet. So much 0:01:51.720 --> 0:01:54.559 to learn apparently over the next thirty to sixty days. 0:01:54.600 --> 0:01:57.040 I thought that was the most market moving aspect of 0:01:57.080 --> 0:01:59.000 the news conference, the idea that it wasn't just the 0:01:59.000 --> 0:02:01.360 three dissenters who are to shift to a more neutral 0:02:01.440 --> 0:02:05.120 kind of positioning symmetric kind of positioning, but that it 0:02:05.160 --> 0:02:07.160 was a bigger group that just didn't feel like there 0:02:07.200 --> 0:02:09.440 was a need to move right now, because ultimately, why 0:02:09.520 --> 0:02:12.240 move now, and so much can change. Nonetheless, this goes 0:02:12.280 --> 0:02:14.400 on for as long as people are might be thinking 0:02:14.440 --> 0:02:16.760 based on the oil prices in the future. This is 0:02:16.800 --> 0:02:18.480 something that clearly will come back on the table. 0:02:18.520 --> 0:02:20.880 I like the way on the Bloomberg Professional Service we 0:02:20.919 --> 0:02:23.280 have a way to see the president's tweets quickly. I 0:02:23.360 --> 0:02:26.440 am waiting to see a president and tweet wheeler. Do 0:02:26.480 --> 0:02:28.560 we get it by the time the clock turns around? 0:02:28.800 --> 0:02:31.239 Or do we get it by metas earnings here in 0:02:31.840 --> 0:02:32.760 X number of mini. 0:02:32.600 --> 0:02:36.200 Things have softened somewhat around this institution just a little bit. 0:02:36.639 --> 0:02:39.240 We heard from the Treasury Secretary scope person who said 0:02:39.400 --> 0:02:42.400 it's understandable if this fed remains on hold for some time. 0:02:42.680 --> 0:02:44.519 But the last thing we had from the President was 0:02:44.560 --> 0:02:47.200 something like this, if the chairman doesn't leave on time, 0:02:47.760 --> 0:02:49.000 I'll fire it now. 0:02:49.120 --> 0:02:50.480 What is on time actually mean? 0:02:50.880 --> 0:02:53.119 Because he can stay on as the Board of governors, 0:02:53.320 --> 0:02:55.520 he can stay on that board until twenty twenty eight. 0:02:55.600 --> 0:02:57.480 Is that on time? Or is the president looking for 0:02:57.520 --> 0:02:58.000 something else? 0:02:58.240 --> 0:03:00.480 Are we entering a new standoff? We're dealing with a 0:03:00.520 --> 0:03:02.200 standoff of the Middle East. We were dealing with the 0:03:02.240 --> 0:03:04.840 staring contest between Tom Tillis and Donald Trump, and now 0:03:05.040 --> 0:03:08.880 might be dealing with President Trump versus j Powell the governor, 0:03:09.520 --> 0:03:11.480 to see who blinks first, who's going to drop the 0:03:11.520 --> 0:03:14.360 legal cases, who's going to step away? And this could 0:03:14.360 --> 0:03:18.000 potentially get pretty tense, especially if the bar is that 0:03:18.120 --> 0:03:20.520 much higher. Right now for FEED chair Jay Powell. 0:03:20.240 --> 0:03:22.240 My mccame is in that news conference. He'll join us 0:03:22.360 --> 0:03:24.240 in just a moment. I want to start with Jimpanco 0:03:24.480 --> 0:03:28.040 of Pianco Research. Jim, Welcome to the program, buddy. I 0:03:28.080 --> 0:03:31.040 think FED independence is at risk. The chairman's words, I'll 0:03:31.040 --> 0:03:33.560 continue to serve as a governor for a period of time. 0:03:33.680 --> 0:03:36.560 Recent events have left me no choice but to stay. 0:03:36.880 --> 0:03:40.680 Your reaction, please, I think it's one of the most 0:03:40.680 --> 0:03:44.160 disappointing things that he's done during his chairmanship. That is 0:03:44.160 --> 0:03:48.160 a political decision. The decision was made to push the 0:03:48.200 --> 0:03:51.640 investigation of the building to the Inspector General. The Inspector 0:03:51.680 --> 0:03:54.760 General finds some malfeasans or wrongdoing with the building, they'll 0:03:54.800 --> 0:03:58.560 have a criminal referral. That is appropriate. He seems to 0:03:58.600 --> 0:04:02.800 be saying that has billions of dollars in building construction 0:04:03.000 --> 0:04:05.280 and no one's allowed to ask any questions about it, 0:04:05.640 --> 0:04:08.200 and he's going to stand in the doorway and disrupt 0:04:08.240 --> 0:04:10.280 the FED as long as they're going to look into 0:04:10.320 --> 0:04:13.520 this building. I think that that is a big, big disappointment. 0:04:13.600 --> 0:04:15.960 I would have expected more from him, to be very honest, 0:04:16.160 --> 0:04:17.960 and I'm a guy that liked him. I'm a guy 0:04:17.960 --> 0:04:20.640 that would have reappointed him, and I think this is 0:04:20.680 --> 0:04:22.680 a big disappointment that I've seen from him. 0:04:22.839 --> 0:04:25.400 Jim, do you think that it has longer term ramifications 0:04:25.400 --> 0:04:28.240 for the institution based in the fact that he is 0:04:28.279 --> 0:04:31.120 saying he does think that this is an independent institution, 0:04:31.200 --> 0:04:34.320 a committee, but does want to avoid some of the 0:04:34.360 --> 0:04:36.520 attacks that he says are battering the institution. 0:04:38.160 --> 0:04:40.280 Marin or Eccles is the only other FED chairman that 0:04:40.360 --> 0:04:43.159 stayed on in the late nineteen forties, and his memoirs 0:04:43.240 --> 0:04:46.320 say that he stayed on because he saw, with Bretton 0:04:46.360 --> 0:04:49.159 Woods and with the World Bank and the IMF in 0:04:49.200 --> 0:04:51.640 the post World War two period, change was coming and 0:04:51.680 --> 0:04:55.120 he wanted to marshal the world through those changes. It 0:04:55.160 --> 0:04:58.400 seems like what Chairman Paul is saying is we're eighty 0:04:58.440 --> 0:05:00.560 years later and changes coming. I want to stand in 0:05:00.600 --> 0:05:03.520 the doorway and prevent those changes. He said he wants 0:05:03.600 --> 0:05:05.880 to see a more traditional move back to the FED. 0:05:06.320 --> 0:05:09.159 He wants to see the FED institution remain the way 0:05:09.200 --> 0:05:12.680 it is and not evolve. Now, as far as independence goes, 0:05:13.120 --> 0:05:16.320 I think we've solved the independence pro problem with the 0:05:16.400 --> 0:05:20.760 vote today eight four. We have twelve independent voters. The 0:05:20.920 --> 0:05:23.880 Chairman is one of those voters. That is how you're 0:05:23.920 --> 0:05:27.560 going to get a truly independent FED. The Chairman cannot 0:05:28.040 --> 0:05:31.360 dictate the policy like he has for the last forty years. 0:05:31.560 --> 0:05:34.160 He needs six other people to agree with him in 0:05:34.240 --> 0:05:37.000 order to get that policy across. What's going to happen 0:05:37.000 --> 0:05:39.120 if we continue to have these descents. I'll remind you 0:05:39.200 --> 0:05:41.360 last year the Bank of England had a four to 0:05:41.400 --> 0:05:43.520 four to one vote. If we get to a six 0:05:43.560 --> 0:05:45.640 to six vote with this FED we're already at eight four. 0:05:46.240 --> 0:05:49.440 That gives Chairman Powell all the power to decide what 0:05:49.520 --> 0:05:51.840 the policy's going to be. Even though he said he's 0:05:51.839 --> 0:05:53.359 not going to give any speeches and he's going to 0:05:53.400 --> 0:05:56.000 remain in the background, or is he saying that he 0:05:56.040 --> 0:05:59.800 will just do whatever to Chairman wash tells him to 0:05:59.839 --> 0:06:01.240 do and that's the way he's going to vote and 0:06:01.240 --> 0:06:03.760 he's not going to vote independently, So it's a big 0:06:03.839 --> 0:06:07.400 problem that he needs to define and try to explain, 0:06:07.720 --> 0:06:09.880 and he didn't did this press conference, Jim. 0:06:10.080 --> 0:06:12.600 I look at this simplistically. I got oil at one 0:06:12.720 --> 0:06:15.800 nineteen sixty one in this announcement that I saw on 0:06:15.800 --> 0:06:18.400 the Bloomberg that we're leaving an aircraft carrier from the 0:06:18.400 --> 0:06:22.240 Middle East, the gerald Ford, with five four hundred sailors. 0:06:22.279 --> 0:06:26.440 I believe it as is coming home exhausted. Is Jerome Powell, 0:06:26.560 --> 0:06:31.240 simplistically in the same way, just staying to block a 0:06:31.360 --> 0:06:33.720 Trump appoint period. 0:06:35.520 --> 0:06:37.760 I hope he's not, you know, and I hope that 0:06:37.920 --> 0:06:41.240 you know he's he's trying to be fair minded in 0:06:41.320 --> 0:06:44.159 his decision, and I disagree with the decision, and we 0:06:44.200 --> 0:06:47.440 can have disagreements in it, and that is it being 0:06:47.640 --> 0:06:50.720 as political as that that he doesn't want Trump to 0:06:50.760 --> 0:06:53.120 have another appointee. And by the way, we'll get the 0:06:53.200 --> 0:06:57.719 Leasa Cook decision by June when the court adjourns, and 0:06:58.200 --> 0:07:01.400 if they do allow him to fire Lisa Cook for cause, 0:07:01.560 --> 0:07:04.480 I would assume probably the same day he'll fire j 0:07:04.680 --> 0:07:07.040 Paul and we'll have to and then he'll get two 0:07:07.120 --> 0:07:09.760 votes or he'll get two open seats to be able 0:07:09.760 --> 0:07:13.160 to replace Now. Of course the court could rule otherwise, 0:07:13.160 --> 0:07:15.400 but that's coming as well too. But I hope it's 0:07:15.440 --> 0:07:18.280 not that. I hope that it is more that he 0:07:18.480 --> 0:07:22.240 has a view about the institution not changing in a 0:07:22.280 --> 0:07:25.040 world where I think we're changing and it needs to evolve, 0:07:25.040 --> 0:07:26.040 and he's preventing that. 0:07:26.600 --> 0:07:29.120 Jim, stay close. I've got Miama Cay standing by it. 0:07:29.200 --> 0:07:30.720 Just hopped out of the news conference and one of 0:07:30.720 --> 0:07:32.880 his reactions to one of this as well, Mike here 0:07:32.880 --> 0:07:35.080 in the room. Have you got a different perspective on things? 0:07:36.520 --> 0:07:38.560 Yes, I think I do. I was listening to what 0:07:38.640 --> 0:07:40.720 Jim said. I don't think Jay Paul is staying because 0:07:40.720 --> 0:07:43.320 he's trying to stand in the way of progress at 0:07:43.360 --> 0:07:45.920 the FED. I think Jay Powell is staying because he 0:07:45.920 --> 0:07:48.520 doesn't trust the Department of Justice. He noted at the 0:07:48.560 --> 0:07:51.920 top that the Justice Department had said that they were 0:07:52.000 --> 0:07:55.520 dropping the probe, but he referenced back to Janine Piro's 0:07:55.560 --> 0:07:59.520 comment about we could file another criminal complaint and he 0:07:59.560 --> 0:08:02.760 doesn't know, oh what the Justice Department will do, whether 0:08:02.960 --> 0:08:06.600 or not there would be validity in what the Justice 0:08:06.640 --> 0:08:09.680 Department might do, So he wants to make sure that 0:08:09.680 --> 0:08:12.480 that is the case, and he will at least probably 0:08:12.520 --> 0:08:15.880 stay through the Inspector General's report. It is also possible 0:08:15.920 --> 0:08:19.120 he would stay on beyond that in order, as you did, 0:08:19.160 --> 0:08:22.800 mention that in order to deny the President the possibility 0:08:22.800 --> 0:08:25.480 of another seat if he thinks what the President wants 0:08:25.520 --> 0:08:28.240 to do is take political control of the FED. 0:08:28.200 --> 0:08:29.840 Said Jim, I want to give you a chance to 0:08:29.880 --> 0:08:33.000 respond to that. If anything, the Chairman's been consistent, he 0:08:33.080 --> 0:08:35.040 said a bah. He said this needs to be rapped 0:08:35.120 --> 0:08:37.960 up with transparency and finality, and based on the comments 0:08:37.960 --> 0:08:40.000 we've had, according to the Chairman, he thinks the full 0:08:40.040 --> 0:08:41.000 and short of that bound. 0:08:41.040 --> 0:08:46.600 Jim, Yeah, I think he thinks that. Senator Tillis does 0:08:46.640 --> 0:08:48.920 not think that. That's why he voted today to advance 0:08:48.960 --> 0:08:52.520 his nomination. And I agree with Mike that he does 0:08:52.640 --> 0:08:56.880 not trust the Justice Department. But it's not his call. 0:08:57.400 --> 0:09:00.320 It's the Justice Department that the American public elected through 0:09:00.480 --> 0:09:03.480 the election of Donald Trump. And if he doesn't like it, 0:09:03.880 --> 0:09:07.080 he's going to then stay as a disruptive force to 0:09:07.120 --> 0:09:09.320 the FED to prevent them from making any kind of 0:09:09.360 --> 0:09:12.959 changes or referrals or even looking in Remember this is 0:09:13.000 --> 0:09:16.400 all about the building cost and why it's been taken 0:09:16.480 --> 0:09:19.720 several years and his run so expensive, and it seems 0:09:19.720 --> 0:09:21.480 like he's saying we're not allowed to ask. 0:09:21.559 --> 0:09:23.880 I've got another disruptive force to talk about, Jim a 0:09:23.920 --> 0:09:26.720 labor to jump in one twenty on Brent just breached 0:09:26.720 --> 0:09:29.679 that level moments ago, high on the session by eight percent. 0:09:29.720 --> 0:09:31.920 Let's just take a step back. The chairman's future is 0:09:31.920 --> 0:09:34.719 one part of the discussion. These market moves are something else. 0:09:34.760 --> 0:09:37.679 At the moment, Brent at one twenty just sit on 0:09:37.720 --> 0:09:40.160 that yields high at the front end of the curve, 0:09:40.240 --> 0:09:42.400 retesting the highs of the last two months or so, 0:09:42.640 --> 0:09:44.800 and equities bring up the equity screen. At the moment, 0:09:45.520 --> 0:09:48.240 equity is this afternoon, in the face of these moves 0:09:48.240 --> 0:09:52.840 and fixed income, these moves in commodities doing almost nothing. 0:09:52.840 --> 0:09:55.760 Bramo hardly moved, not even phased ahead of these earnings 0:09:55.880 --> 0:09:57.079 later this so afternoon. 0:09:56.800 --> 0:09:59.040 And this was what the Fed was talking about. Right, 0:09:59.080 --> 0:10:01.120 we have the NASDAK that actually up four tens ofiven 0:10:01.160 --> 0:10:04.120 percent ahead of those earnings. As we look to the 0:10:04.160 --> 0:10:06.800 strength that fetcher J. Powell was talking about it as 0:10:06.920 --> 0:10:09.920 last press conference. But this is where it becomes tricky. 0:10:10.000 --> 0:10:12.600 At what point do those higher oil prices that might 0:10:12.640 --> 0:10:17.520 be leaving big tech unphased become an inflationary pressure that 0:10:17.559 --> 0:10:20.320 can be withstand what we could be withstood simply because 0:10:20.720 --> 0:10:22.520 there is enough momentum in this economy. 0:10:22.600 --> 0:10:23.760 Jim, let's get to the price section. 0:10:23.920 --> 0:10:27.960 Not so interested in should should an interested in market consequences. 0:10:28.160 --> 0:10:30.920 Here's a Federal Reserve debates in dropping its easy bass 0:10:31.080 --> 0:10:34.880 pressure building the commodity market rice repricing yields higher. What 0:10:34.960 --> 0:10:37.760 are the consequences, Jim, I think. 0:10:37.640 --> 0:10:39.840 The consequences are huge because if you look at the 0:10:39.840 --> 0:10:42.160 way that oil is trading. You're right that the June 0:10:42.160 --> 0:10:44.400 contract went over one twenty a few minutes ago, and 0:10:44.400 --> 0:10:46.480 that's the highest it's been since June of twenty two. 0:10:47.160 --> 0:10:49.240 What about the long term? Okay, let's look at the 0:10:49.280 --> 0:10:52.640 December contract. The December contract is making new all time 0:10:52.720 --> 0:10:55.839 highs too, and it's saying to us, at least if 0:10:55.840 --> 0:10:57.800 you want to take it at phase value, that the 0:10:57.840 --> 0:11:00.960 price of oil is going to stay elevated at least 0:11:01.040 --> 0:11:03.640 through the end of the year. As Chairman Paul said, 0:11:03.679 --> 0:11:06.520 we already have he said, three and a half percent 0:11:06.679 --> 0:11:10.640 on PCE inflation. That's their measure, and if it's all 0:11:10.760 --> 0:11:13.800 driven by energy, it's going to stay there right now, 0:11:13.840 --> 0:11:16.760 and it's going to be problematic for the Fed to 0:11:16.840 --> 0:11:20.280 even talk about an easing with that level of inflation. 0:11:20.440 --> 0:11:23.840 It's not going to disappear and go away unless there's 0:11:23.880 --> 0:11:27.560 some resolution in the war. And the problem is the 0:11:27.600 --> 0:11:30.040 market doesn't see the resolution in the war. That's why 0:11:30.080 --> 0:11:32.839 both the June all the way to the December contract 0:11:33.160 --> 0:11:34.520 continues to move higher. 0:11:34.640 --> 0:11:36.320 Ay, Jim, going to see you. I appreciate your opinion, 0:11:36.400 --> 0:11:39.280 Jim of Biancore Research. Mike always go to see you, buddy. 0:11:39.320 --> 0:11:41.840 Great work in the news conference. Mike mckaye down in Washington, 0:11:41.920 --> 0:11:44.160 d C. If you're just joining us, welcome to the program. 0:11:44.240 --> 0:11:46.080 We have set out for quiet an afternoon now in 0:11:46.120 --> 0:11:47.960 the next sixty minutes so sun, we should hear from 0:11:48.000 --> 0:11:52.200 four of the biggest companies on the planet, Microsoft, METSA Alphabet, Amazon. 0:11:52.360 --> 0:11:54.360 Before we get there, some big market moves to talk 0:11:54.400 --> 0:11:57.040 about eight consecutive days of high crude prices Brent crude 0:11:57.080 --> 0:11:59.600 through one twenty. Just briefly, we've taken out the heighs 0:11:59.640 --> 0:12:02.240 of the year closing basis. If we close at these 0:12:02.320 --> 0:12:05.839 levels one nineteen ninety five. Look at that WCI comfortably 0:12:05.840 --> 0:12:07.840 into triple digits. This move in the bond market off 0:12:07.840 --> 0:12:09.240 the back of it yields high at the front end 0:12:09.240 --> 0:12:11.280 of the curve, up by ten basis points. Not just 0:12:11.320 --> 0:12:14.199 about oil, also about this feeder reserve. If you missed it, 0:12:14.480 --> 0:12:17.120 here's a summary an eight to four vote. Haven't seen 0:12:17.160 --> 0:12:20.320 that level of descent since nineteen ninety two. Of that four, 0:12:20.720 --> 0:12:24.600 three hawkish descents a conversation about dropping the easing bias. 0:12:25.000 --> 0:12:26.920 They haven't got enough people on site just to do 0:12:26.960 --> 0:12:29.520 that just yet, but we're losing support for that easing 0:12:29.559 --> 0:12:30.880 bias at this feeder reserve. 0:12:30.960 --> 0:12:33.800 And potentially if this conflict in the Middle East doesn't 0:12:33.800 --> 0:12:35.960 get resolved, then all of a sudden, you will have 0:12:36.040 --> 0:12:38.880 a consensus to move to asymmetric risk. We have now 0:12:38.920 --> 0:12:41.560 priced out a rate cut for twenty twenty six and 0:12:41.600 --> 0:12:43.960 the Fed Fund's futures. At what point do we start 0:12:44.000 --> 0:12:46.520 repricing in hikes, because ultimately, this is an economy that 0:12:46.520 --> 0:12:48.800 can would stand oil prices at this level, rates at 0:12:48.840 --> 0:12:50.800 this level, and that was the ward that we heard 0:12:50.880 --> 0:12:51.760 from the Federal Reserve. 0:12:51.920 --> 0:12:54.480 Repricing here is hard because it's a war. Somebody mentioned 0:12:54.480 --> 0:12:56.760 there it's a war. We forget we're in a war. 0:12:57.400 --> 0:12:59.400 And within that, I don't know what the unknown known 0:12:59.520 --> 0:13:03.080 is tomorrow or out to June seventeenth. Nobody knows. We're 0:13:03.120 --> 0:13:05.040 just going to take in the data and take in 0:13:05.040 --> 0:13:07.079 the war news. And what I'm waiting for John is 0:13:07.120 --> 0:13:08.520 to take in the next marginal. 0:13:08.840 --> 0:13:11.320 President Trump tweet the S and P five hundred down 0:13:11.320 --> 0:13:14.040 by a tenth of one percent. If you looked at that, 0:13:14.120 --> 0:13:16.920 it's a snoozy afternoon and nothing happened at this Federo's 0:13:16.920 --> 0:13:19.360 Eerve meeting. That's just not the case. Jeffrey Rosenberg of 0:13:19.400 --> 0:13:21.640 Black Rock joined us now for more. Jeff, what's the 0:13:21.679 --> 0:13:24.280 bill case in the face of what's brewing elsewhere? 0:13:26.520 --> 0:13:30.240 Well, you know, you highlighted it well between trying to 0:13:30.280 --> 0:13:33.600 disconnect what's going on between oil prices and the committee 0:13:33.640 --> 0:13:35.959 meeting today and what we heard, and you know, I 0:13:36.000 --> 0:13:39.280 want to highlight, you know, the thing that I found 0:13:39.280 --> 0:13:44.319 most interesting about Powell's comments were explaining the I think 0:13:44.360 --> 0:13:46.920 the second main point and takeaway at the meeting, which 0:13:46.960 --> 0:13:49.880 is this this theme of a divided committee that comes 0:13:49.880 --> 0:13:52.200 out of the eight to four vote, and he framed 0:13:52.200 --> 0:13:56.880 it as a natural consequence of the conflict in the 0:13:56.920 --> 0:13:59.480 FEDS objectives between growth and inflation, which is the one 0:13:59.520 --> 0:14:02.960 hundred and twenty oil you know? Is that is that you 0:14:02.960 --> 0:14:06.600 know point? And he got asked the question about pass 0:14:06.679 --> 0:14:08.720 through and this is I think what the markets are 0:14:08.720 --> 0:14:11.520 really struggling with is he basically made the point it's 0:14:11.559 --> 0:14:16.000 all about the time of which the Straits of Hormuz 0:14:16.080 --> 0:14:18.880 remains closed, and no one knows what that will look like. 0:14:18.960 --> 0:14:21.720 So Jim just talked about the forward curve. Uh, you know, 0:14:21.840 --> 0:14:27.440 December contract making its new highs, but it's it's significantly 0:14:27.480 --> 0:14:29.040 lower than the front end of the curve. So there's 0:14:29.080 --> 0:14:32.320 an expectation here that at some point that's opening up. 0:14:32.360 --> 0:14:34.680 We don't know what that is, and I think Divided 0:14:34.800 --> 0:14:38.960 Committee is likely to be the continuation because of this 0:14:39.000 --> 0:14:42.200 point that Powell highlighted that when you're faced with the 0:14:42.320 --> 0:14:45.240 conflict of the dual objectives, that people are going to 0:14:45.360 --> 0:14:48.160 see that in different ways. Some are going to be 0:14:48.240 --> 0:14:49.840 arguing for the growth impact, some are going to be 0:14:49.880 --> 0:14:52.080 arguing for the inflation impact, and that might be the 0:14:52.200 --> 0:14:56.600 more expected outcome as opposed to what we've seen and 0:14:56.640 --> 0:15:00.000 the historical comparisons of this being you know, very unusual, 0:15:00.080 --> 0:15:02.040 will maybe get used to that being a little bit 0:15:02.080 --> 0:15:02.680 more usual. 0:15:02.840 --> 0:15:04.760 Jeff, it seems like the conflict of the Middle East 0:15:04.800 --> 0:15:08.240 isn't necessarily that close to wrapping up. Maybe it is, 0:15:08.400 --> 0:15:11.000 and we just all are getting mixed signals. Do you 0:15:11.040 --> 0:15:13.120 think this market needs to price in a greater chance 0:15:13.120 --> 0:15:15.280 of a rate hike as the next move by the 0:15:15.280 --> 0:15:15.960 Federal Reserve? 0:15:17.560 --> 0:15:20.880 Well, it's already done that. And to this discussion about 0:15:20.880 --> 0:15:23.840 the easing bias and the language, you know, the market 0:15:23.880 --> 0:15:26.920 already took the easing bias out. It did that at 0:15:26.920 --> 0:15:30.120 the onset of the oil price impact from the Iran war. 0:15:30.440 --> 0:15:33.040 So I don't think that as a catalyst for sort 0:15:33.080 --> 0:15:36.040 of the next move that's made. Mostly, you know, the 0:15:36.080 --> 0:15:39.160 Fed is a deliberate a body getting the right number 0:15:39.200 --> 0:15:42.120 of people willing. You heard Powell talk about that they're 0:15:42.200 --> 0:15:45.040 slow to move that bias. The market is not, and 0:15:45.080 --> 0:15:49.360 it's moved the bias to easing out of the market pricing. 0:15:49.400 --> 0:15:51.720 So I don't think that's really the market event. The 0:15:51.760 --> 0:15:55.240 market event is really the uncertain unknown question that he 0:15:55.400 --> 0:15:59.640 was asked, what's the pass through from headline inflation to 0:15:59.760 --> 0:16:03.400 core inflation? You heard Worsh talk about it in terms 0:16:03.440 --> 0:16:06.880 of trimmed mean and not looking at core PCE as 0:16:06.880 --> 0:16:10.480 a measure. That's a very particular way of looking at 0:16:10.520 --> 0:16:13.640 the potential for pass through. Will he get and move 0:16:13.800 --> 0:16:16.840 the rest of the committee onto that view. If so, 0:16:17.120 --> 0:16:20.600 that's a very dubvish implication, and you bring the bias 0:16:20.680 --> 0:16:24.000 back in. But as Powell highlighted, we really just don't know. 0:16:24.080 --> 0:16:26.280 So you're going to have to see whether or not 0:16:26.320 --> 0:16:29.520 those pass through of headline into core shows up, whether 0:16:29.560 --> 0:16:33.400 Worsh is more dubbish interpretation shows up, and whether you 0:16:33.440 --> 0:16:37.120 can push the committee towards his direction, and that will 0:16:37.120 --> 0:16:39.880 bring the bias back into market pricing. But right now 0:16:39.880 --> 0:16:40.360 we're pricing. 0:16:40.520 --> 0:16:41.360 Yeah, Jeff, I. 0:16:41.320 --> 0:16:43.800 Got eight questions in time for one, and it's just 0:16:43.880 --> 0:16:48.239 simple for our listeners interviewers across this nation and worldwide. 0:16:48.760 --> 0:16:51.840 What is the best tool to use in the bond 0:16:51.960 --> 0:16:55.800 market to study the potential dynamics? Don't you know the 0:16:55.840 --> 0:16:59.880 benchmark tenure or that, or is there a unique Rosenberg spread? 0:17:00.120 --> 0:17:03.320 It makes sense. What is the efficacious way to study 0:17:03.360 --> 0:17:05.840 the pulse is seen in fixed income? 0:17:07.440 --> 0:17:11.000 Yeah? You know, Tom, the kind of historical rule of 0:17:11.000 --> 0:17:13.480 thomb is if you want to keep it simple, it's 0:17:13.520 --> 0:17:17.960 about the five year maturity point on the treasury curve. 0:17:18.040 --> 0:17:22.000 That's kind of impacts the best estimations of where you're 0:17:22.040 --> 0:17:26.359 looking for current and forward looking FED expectations, and that 0:17:26.440 --> 0:17:28.520 kind of is your benchmark for looking at you can 0:17:28.520 --> 0:17:30.800 look a little bit shorter. Two year is going to 0:17:30.840 --> 0:17:33.119 be the more near term expectations. I think that's a 0:17:33.160 --> 0:17:38.160 really good metric. And then on the inflation side, remember inflation. 0:17:38.560 --> 0:17:42.360 You know, headline inflation is going to impact shorter maturities. 0:17:42.520 --> 0:17:44.960 You want to look a little bit further out, you 0:17:45.000 --> 0:17:47.080 can look at the slope of the curve five year, 0:17:47.160 --> 0:17:50.639 five year forward measures on break even inflation is better 0:17:50.720 --> 0:17:55.720 when looking at longer term market expectations of the impact 0:17:55.760 --> 0:17:59.120 on inflation, and so far, you know that's been relatively benign, 0:17:59.160 --> 0:18:02.800 and so that's kind of supporting you know, Powells comments 0:18:02.840 --> 0:18:07.200 in terms of market longer term expectations not being unduly impacted. 0:18:07.440 --> 0:18:09.840 If you started to see that change, that's going to 0:18:09.840 --> 0:18:14.479 be a major signal for FED policy pivoting more towards 0:18:14.480 --> 0:18:17.760 the inflation concern. If you start to see that show 0:18:17.840 --> 0:18:18.640 up in that metri Jeff. 0:18:18.680 --> 0:18:21.159 Last question from US last time we had to yo 0:18:21.240 --> 0:18:23.439 it at these levels close to them was the end 0:18:23.480 --> 0:18:26.000 of March, and every person we spoke to and fixed 0:18:26.000 --> 0:18:28.639 income on Wall Street had a very favorable interpretation of 0:18:28.680 --> 0:18:32.040 these moves. They said we were creating value and they 0:18:32.040 --> 0:18:34.639 wanted to buy it. Jeff, do you think we're creating 0:18:34.720 --> 0:18:36.760 value this afternoon and do you want to buy. 0:18:38.680 --> 0:18:38.880 Well? 0:18:38.920 --> 0:18:41.240 I think the move in the front end is creating 0:18:41.280 --> 0:18:46.080 some value. You know, you're seeing a big curve flattening again. 0:18:46.440 --> 0:18:48.720 A lot of it is conditional on that pass through 0:18:48.840 --> 0:18:52.080 of inflation, but stepping out of the curve into the 0:18:52.119 --> 0:18:55.240 front end, we're having Warsh come in. He's already signaled 0:18:55.240 --> 0:18:57.760 that he wants to look through that and take a 0:18:57.800 --> 0:19:01.560 more dubvish interpretation, be able to bring the committee along 0:19:01.600 --> 0:19:04.520 with them. You know, when you start pricing hikes in 0:19:05.040 --> 0:19:07.800 it depends on the oil move and it's persistent. But 0:19:07.800 --> 0:19:09.399 I think there's a little bit of value there. A 0:19:09.440 --> 0:19:12.720 completely different answer really to the opposite side. When you 0:19:12.760 --> 0:19:14.600 look in the long end of the curve, the long 0:19:14.720 --> 0:19:18.560 end needs to build term premium. We got a savings 0:19:18.600 --> 0:19:22.040 glut that's turning into a savings deficit, particularly as we 0:19:22.119 --> 0:19:27.080