1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day, we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:23,760 Speaker 1: at Bloomberg dot com slash podcast. Markets. Uh reacting pretty 7 00:00:23,760 --> 00:00:26,040 Speaker 1: decisively here to the comments we got from FED Chairman 8 00:00:26,120 --> 00:00:28,600 Speaker 1: j pal Uh, he's going to continue to fight inflation, 9 00:00:28,640 --> 00:00:31,000 Speaker 1: push those rates higher. And I think he also was 10 00:00:31,000 --> 00:00:33,319 Speaker 1: trying to send the messages We're committed to do this 11 00:00:33,400 --> 00:00:36,640 Speaker 1: for some time. Uh, So don't bet on us pulling 12 00:00:36,680 --> 00:00:39,159 Speaker 1: back in the near term. That seems to be the 13 00:00:39,200 --> 00:00:41,320 Speaker 1: message here and how the market's reacting. Let's get some 14 00:00:41,520 --> 00:00:45,440 Speaker 1: professional thoughts here. Robert Teeter, head of Investment Policy and 15 00:00:45,520 --> 00:00:49,560 Speaker 1: the Strategy Group at Silver Crest Asset Management, joins us. Robert, 16 00:00:49,560 --> 00:00:51,440 Speaker 1: what's your takeaway? It was a short speech, but I 17 00:00:51,440 --> 00:00:54,720 Speaker 1: think he got his message across. I agree, short speech, 18 00:00:54,840 --> 00:00:58,279 Speaker 1: very powerful, very strong communication that the job isn't done 19 00:00:58,320 --> 00:01:01,000 Speaker 1: until the job is done. Until they get too I 20 00:01:01,000 --> 00:01:03,000 Speaker 1: think some of this reaction that we're seeing here though, 21 00:01:03,080 --> 00:01:06,880 Speaker 1: is perhaps healthy in that in my interpretation, it's ringing 22 00:01:06,880 --> 00:01:09,319 Speaker 1: out some of the last hopes of a pivot. And 23 00:01:09,360 --> 00:01:11,480 Speaker 1: I think pal made it very clear today there's no 24 00:01:11,520 --> 00:01:13,440 Speaker 1: pivot on the horizon. There might be a pause at 25 00:01:13,440 --> 00:01:15,360 Speaker 1: some point, there might be a reduction in the scale 26 00:01:15,360 --> 00:01:18,840 Speaker 1: of increases, but the main focus is on inflation here squarely, 27 00:01:18,840 --> 00:01:21,880 Speaker 1: and I think he communicated that point very clearly and 28 00:01:22,000 --> 00:01:25,400 Speaker 1: very concisely today, and that's how we're seeing the reactions unfold. 29 00:01:26,040 --> 00:01:27,920 Speaker 1: What about on the bond market, I'm confused with the 30 00:01:27,959 --> 00:01:29,919 Speaker 1: bond market is thinking here you're looking at a tenure 31 00:01:29,959 --> 00:01:33,319 Speaker 1: yield that's virtually unchanged, even though being a little bit choppy. 32 00:01:33,319 --> 00:01:35,920 Speaker 1: As Herman Powell was speaking, what do you do with 33 00:01:36,040 --> 00:01:38,640 Speaker 1: the bond market that just seems to hover, or say 34 00:01:38,640 --> 00:01:42,200 Speaker 1: a bond yield that seems to hover around. Yeah, I 35 00:01:42,200 --> 00:01:44,160 Speaker 1: thought that was interesting as well, and that's one of 36 00:01:44,160 --> 00:01:46,560 Speaker 1: the reasons why I thought this reaction has been primarily 37 00:01:46,560 --> 00:01:48,760 Speaker 1: centered on on equities and that hope for a pivot. 38 00:01:48,920 --> 00:01:50,840 Speaker 1: It didn't seem to me that the bond market was 39 00:01:50,880 --> 00:01:53,760 Speaker 1: reflecting any kind of potential change in policy. It looks 40 00:01:53,800 --> 00:01:56,560 Speaker 1: like the mix is still pretty evenly split between fifty 41 00:01:56,560 --> 00:01:58,760 Speaker 1: and seventy five at the next meeting, maybe a slight 42 00:01:58,800 --> 00:02:01,520 Speaker 1: move towards seventy five. Still pretty evenly balanced, and as 43 00:02:01,520 --> 00:02:03,640 Speaker 1: he said, the tenure kind of hanging in right around 44 00:02:03,680 --> 00:02:06,200 Speaker 1: three percent without any major reaction as well. So it 45 00:02:06,280 --> 00:02:08,040 Speaker 1: sort of says to me that maybe the bond market 46 00:02:08,120 --> 00:02:10,720 Speaker 1: has has interpreted the FED for what they've been saying 47 00:02:10,720 --> 00:02:13,079 Speaker 1: in terms of inflation. Maybe the equity market got a 48 00:02:13,120 --> 00:02:14,880 Speaker 1: little bit carried away with that hope for a pivot 49 00:02:14,919 --> 00:02:16,560 Speaker 1: a while back. But I think this is kind of 50 00:02:16,560 --> 00:02:19,520 Speaker 1: a healthy one day adjustment in the equity side of things. 51 00:02:19,680 --> 00:02:23,160 Speaker 1: Do you think the equity markets retest their late June lows? 52 00:02:23,240 --> 00:02:26,120 Speaker 1: Robert Um, I don't think we'll get there. I think 53 00:02:26,120 --> 00:02:28,720 Speaker 1: a lot of that depends on on the economic outlook, 54 00:02:28,720 --> 00:02:31,320 Speaker 1: which today it has remained strong. There's been this battle 55 00:02:31,360 --> 00:02:33,480 Speaker 1: between you know, which is going to change first, the 56 00:02:33,480 --> 00:02:36,720 Speaker 1: economy or inflation. It's been quite a long runway for 57 00:02:36,720 --> 00:02:38,720 Speaker 1: for both. The economy is kind of hanging in their 58 00:02:38,720 --> 00:02:40,680 Speaker 1: earnings estimates have been hanging in there, and I think 59 00:02:40,720 --> 00:02:43,400 Speaker 1: that's really the critical point. So if we keep with 60 00:02:43,400 --> 00:02:46,399 Speaker 1: this stability around rates, I think the evaluations will stay 61 00:02:46,400 --> 00:02:49,000 Speaker 1: where they are, and if we keep earnings estimates where 62 00:02:49,040 --> 00:02:51,400 Speaker 1: they are, equity should have an okay backdrop from now 63 00:02:51,440 --> 00:02:53,200 Speaker 1: through the remainder of the year. I think we'll be 64 00:02:53,240 --> 00:02:55,040 Speaker 1: in a bit of a choppy and holding period, though 65 00:02:55,120 --> 00:02:58,080 Speaker 1: certainly through the CPI report and probably through the next 66 00:02:58,080 --> 00:03:01,200 Speaker 1: FED meeting as well. So in the laungic here of 67 00:03:01,200 --> 00:03:04,440 Speaker 1: of the trade when it comes to trading the Fed's credibility. 68 00:03:04,480 --> 00:03:06,160 Speaker 1: The idea here being that if they're going to tackle 69 00:03:06,200 --> 00:03:09,800 Speaker 1: inflation and the market believes it, then they sell off. 70 00:03:09,840 --> 00:03:12,919 Speaker 1: But isn't that a good thing that they're tackling inflation 71 00:03:12,919 --> 00:03:15,120 Speaker 1: are looking to do it because to some extended almost 72 00:03:15,160 --> 00:03:20,040 Speaker 1: delays UH, this inevitable recession perhaps further into arguably into 73 00:03:20,880 --> 00:03:24,639 Speaker 1: isn't that something risk asset should be celebrating. I think 74 00:03:24,680 --> 00:03:27,320 Speaker 1: that's right. I agree with that interpretation, and I think 75 00:03:27,320 --> 00:03:30,639 Speaker 1: that that that follows through in inequities or risk assets 76 00:03:30,639 --> 00:03:33,120 Speaker 1: may take place in in coming weeks. I think today 77 00:03:33,200 --> 00:03:36,240 Speaker 1: was sort of this recognition that there's there's absolutely no 78 00:03:36,320 --> 00:03:38,360 Speaker 1: chance for a pivot. I didn't think there was one. 79 00:03:38,560 --> 00:03:40,480 Speaker 1: You probably didn't think there was one, but maybe there 80 00:03:40,520 --> 00:03:42,360 Speaker 1: was a little bit of hope left for that inequities. 81 00:03:42,360 --> 00:03:43,840 Speaker 1: But I think you're right, and I think the language 82 00:03:44,040 --> 00:03:46,360 Speaker 1: PAL delivered and that that the regional fed shares that 83 00:03:46,480 --> 00:03:49,120 Speaker 1: delivered in terms of front end loading and being really 84 00:03:49,120 --> 00:03:52,800 Speaker 1: clear about this, this is the objective. Inflation is the objective. 85 00:03:52,840 --> 00:03:55,760 Speaker 1: I think that's a strong and healthy message that inflation, 86 00:03:55,960 --> 00:03:58,200 Speaker 1: you know, hopefully will be coming under control. Here. They've 87 00:03:58,200 --> 00:04:00,800 Speaker 1: talked about some glimmers of hope in the monthly reading, 88 00:04:00,840 --> 00:04:02,800 Speaker 1: but Pal made it clear today that one month is 89 00:04:02,800 --> 00:04:04,760 Speaker 1: not enough, and I think ultimately you're right, that's a 90 00:04:04,840 --> 00:04:07,880 Speaker 1: that's a healthy message for risk assets over the long term. Alright, 91 00:04:07,880 --> 00:04:10,920 Speaker 1: So given that backdrop, Robert, how are you guys positioning 92 00:04:11,240 --> 00:04:13,480 Speaker 1: your portfolios there? How much risk are you taking on 93 00:04:13,480 --> 00:04:15,960 Speaker 1: in the near term or is it just kind of 94 00:04:16,000 --> 00:04:18,320 Speaker 1: it's buy some real defensive kind of sectors here and 95 00:04:18,360 --> 00:04:20,880 Speaker 1: just hunkered down for a little bit longer. Yeah. Well, 96 00:04:20,880 --> 00:04:23,520 Speaker 1: we've been slightly above the midpoint of our range for 97 00:04:23,760 --> 00:04:26,719 Speaker 1: risk exposure, mainly for equities, on the basis of we 98 00:04:26,760 --> 00:04:30,719 Speaker 1: think over the medium term horizons, over the next few years, 99 00:04:30,920 --> 00:04:33,240 Speaker 1: earnings we think will track higher, and we think PE's 100 00:04:33,320 --> 00:04:35,720 Speaker 1: have stabilized here. So while there might be some chop um, 101 00:04:35,760 --> 00:04:38,440 Speaker 1: we think we returned to a slow growth economy, called 102 00:04:38,440 --> 00:04:41,200 Speaker 1: it a two percent economy. We think earnings will maybe 103 00:04:41,200 --> 00:04:43,039 Speaker 1: come in a little bit lower than consensus in the 104 00:04:43,080 --> 00:04:46,160 Speaker 1: next few years, but still five six and so we're 105 00:04:46,240 --> 00:04:49,359 Speaker 1: moderately modestly I should say, above midpoint of range for 106 00:04:49,440 --> 00:04:51,880 Speaker 1: risk assets here. So I want to go back to 107 00:04:51,960 --> 00:04:54,800 Speaker 1: something that Sherman Pal specifically said. He said this justification 108 00:04:55,080 --> 00:04:58,440 Speaker 1: for remaining this hawk ish was going back to vulgar. 109 00:04:58,600 --> 00:05:01,840 Speaker 1: The mistake that they made in the seventies was pausing, 110 00:05:02,480 --> 00:05:04,479 Speaker 1: and he doesn't want to make that mistake again. He 111 00:05:04,520 --> 00:05:06,440 Speaker 1: made that very clear. But I'm curious about what happened 112 00:05:06,480 --> 00:05:08,600 Speaker 1: after that in the eighties. And yes, Paul, I know 113 00:05:08,720 --> 00:05:10,840 Speaker 1: I was not born in the eighties, but I have 114 00:05:10,960 --> 00:05:13,960 Speaker 1: studied it, so it's okay I can ask this question. 115 00:05:14,040 --> 00:05:16,599 Speaker 1: Didn't even let me get it, I know, because I 116 00:05:16,680 --> 00:05:19,119 Speaker 1: know you too well. Um, but I have to ask, 117 00:05:19,200 --> 00:05:22,000 Speaker 1: are we in for a repeat of the eighties here? 118 00:05:22,040 --> 00:05:25,120 Speaker 1: And what do you trade if we are? Yeah? I 119 00:05:25,160 --> 00:05:27,600 Speaker 1: thought that was a really interesting point as well. One 120 00:05:27,600 --> 00:05:29,640 Speaker 1: if I takeaways from it was that he mentioned both 121 00:05:29,720 --> 00:05:31,840 Speaker 1: vulgar and green span, which, in a in a weird way, 122 00:05:31,880 --> 00:05:34,400 Speaker 1: I thought was maybe a hint towards balancing out fifty 123 00:05:34,400 --> 00:05:36,760 Speaker 1: and seventy five at the next at the next meeting. 124 00:05:36,880 --> 00:05:38,960 Speaker 1: But I thought that was a really telling comment as well. 125 00:05:39,000 --> 00:05:41,040 Speaker 1: He made it very clear, uh that you know they 126 00:05:41,080 --> 00:05:43,240 Speaker 1: won't finish until the job is done. And I think 127 00:05:43,279 --> 00:05:45,680 Speaker 1: at your point earlier that that's a healthy message for 128 00:05:45,800 --> 00:05:49,360 Speaker 1: equities over the longer term outlook, and so better to 129 00:05:49,480 --> 00:05:52,120 Speaker 1: get the job done now, get it done effectively, uh, 130 00:05:52,160 --> 00:05:54,520 Speaker 1: and hopefully set the stage for as we as we 131 00:05:54,560 --> 00:05:57,200 Speaker 1: saw in the eighties, perhaps not quite so strong in 132 00:05:57,279 --> 00:05:59,599 Speaker 1: terms of economic growth, but at least price stability and 133 00:05:59,640 --> 00:06:02,720 Speaker 1: a bill city for valuations to remain flat or even 134 00:06:02,760 --> 00:06:05,440 Speaker 1: increase a bit if we have a very stable inflation backdrop. 135 00:06:05,800 --> 00:06:09,120 Speaker 1: All right, Robert, really good stuff. You appreciate getting your perspective, 136 00:06:09,160 --> 00:06:12,080 Speaker 1: your views here on the heels of some pretty important 137 00:06:12,120 --> 00:06:14,880 Speaker 1: testimony coming out of Jackson Hole Wyoming from FIT chairman 138 00:06:14,960 --> 00:06:17,560 Speaker 1: j Pal Robert Teter. He's head of Investment Policy and 139 00:06:17,720 --> 00:06:24,520 Speaker 1: Strategy Group at Silver Crest Asset Management. Now on Bloomberg Markets, 140 00:06:24,880 --> 00:06:30,560 Speaker 1: Muni's in focus with Joe Mesa. Alright, our focus on 141 00:06:30,640 --> 00:06:33,440 Speaker 1: Munis today is Rottie, but I build America Mutual when 142 00:06:33,440 --> 00:06:36,799 Speaker 1: the market is unpredictable. Bad gives you certainty. BAM matured 143 00:06:36,880 --> 00:06:40,560 Speaker 1: municipal bonds delivered to fall protection, value preservation and a 144 00:06:40,720 --> 00:06:44,839 Speaker 1: durable rating. Asciar broker about BAM in short municipal bonds 145 00:06:45,200 --> 00:06:48,039 Speaker 1: joining us today, Joe Meisa Bloomberg Briefs. He joins us 146 00:06:48,040 --> 00:06:50,960 Speaker 1: on our Bloomberg Interactive Broker studio as he usually does. 147 00:06:51,040 --> 00:06:53,479 Speaker 1: He's not one to phone it in like some others. 148 00:06:54,120 --> 00:06:55,919 Speaker 1: So Joe's in our studio. Joe. When you hear the 149 00:06:55,920 --> 00:07:01,240 Speaker 1: Federal Reserve talk about with conviction, we're right, we're raising 150 00:07:01,320 --> 00:07:04,000 Speaker 1: rates here? What does it mean? It's of a bond 151 00:07:04,080 --> 00:07:08,400 Speaker 1: market typically see typically think about Oh man, you know 152 00:07:08,839 --> 00:07:10,920 Speaker 1: what it's seen in the last couple of weeks. Is 153 00:07:10,960 --> 00:07:17,960 Speaker 1: the yield curve inverted in Yes, very unusual occurrence. I 154 00:07:18,000 --> 00:07:20,520 Speaker 1: can't remember the last time I saw it, but this 155 00:07:20,600 --> 00:07:25,920 Speaker 1: is it's it's shocking because hey, Federal Reserves his interest 156 00:07:26,000 --> 00:07:29,920 Speaker 1: rates and you know, the three and six months really 157 00:07:30,000 --> 00:07:33,920 Speaker 1: responded and so now I think it's the three months 158 00:07:33,960 --> 00:07:36,000 Speaker 1: is like a two thirty five, six months is about 159 00:07:36,280 --> 00:07:40,160 Speaker 1: two thirty. These are almost ten year yields right up 160 00:07:40,160 --> 00:07:43,360 Speaker 1: front there. Do I want to ask you about another 161 00:07:43,400 --> 00:07:45,800 Speaker 1: story that's near and dear to my heart, but perhaps 162 00:07:45,800 --> 00:07:48,480 Speaker 1: not in a great way that I'd like to brag about. Um. 163 00:07:48,520 --> 00:07:50,720 Speaker 1: I am a Texan and there's a lot going on 164 00:07:50,800 --> 00:07:53,640 Speaker 1: between the East G space right now in Texas, especially 165 00:07:53,680 --> 00:07:56,760 Speaker 1: when it comes to JP Morgan, black Rock, Ubs, can 166 00:07:56,800 --> 00:07:58,720 Speaker 1: you before? I don't want to step on your toes, 167 00:07:58,760 --> 00:08:00,880 Speaker 1: So I'm gonna let you tell our audience the story 168 00:08:00,880 --> 00:08:04,680 Speaker 1: because it kind of it gets complicated, you know, thank 169 00:08:04,720 --> 00:08:08,240 Speaker 1: you pretty this if this is insane? The Republicans in 170 00:08:08,440 --> 00:08:12,320 Speaker 1: Florida and in Texas. Uh, and several of the states 171 00:08:12,480 --> 00:08:20,800 Speaker 1: are targeting banks and funds that they think are gonna 172 00:08:20,880 --> 00:08:26,600 Speaker 1: put it woke, okay, and uh. This week the Texas 173 00:08:26,600 --> 00:08:32,559 Speaker 1: Controller came out with a list of banks that he 174 00:08:32,760 --> 00:08:34,960 Speaker 1: that he said, you know, you shouldn't do business with 175 00:08:35,040 --> 00:08:38,959 Speaker 1: these banks because they're oil boycotters. Uh. You know people. 176 00:08:39,040 --> 00:08:41,800 Speaker 1: At the top of the list was black Rock. There's 177 00:08:41,840 --> 00:08:47,240 Speaker 1: also Ubs. But I looked at this list and we 178 00:08:47,400 --> 00:08:52,200 Speaker 1: got me was that. Uh. In the in the ten 179 00:08:52,679 --> 00:08:56,800 Speaker 1: firms on the list, we have Donska Bank, and we 180 00:08:56,880 --> 00:09:04,319 Speaker 1: have Nordea Bank, Schroders, Svenska Handelsbankan and Sweed Bank. And 181 00:09:04,360 --> 00:09:08,760 Speaker 1: I thought, really, I just you know, to me, it 182 00:09:08,840 --> 00:09:14,840 Speaker 1: seems that baby he's losing heart for this particular crusade. 183 00:09:14,960 --> 00:09:19,640 Speaker 1: Because how about JP Morgan, Right, JP Morgan. We have 184 00:09:19,679 --> 00:09:24,240 Speaker 1: a story today by Amanda Albright and Danielle Moran about 185 00:09:24,360 --> 00:09:28,880 Speaker 1: JP Morgan getting ready to go back and do municipal 186 00:09:28,920 --> 00:09:33,360 Speaker 1: bond underwriting in the state of Texas. So all right, 187 00:09:33,400 --> 00:09:35,720 Speaker 1: sall see you know you look at that look at 188 00:09:35,720 --> 00:09:39,240 Speaker 1: that list, and then you say ha, because you know 189 00:09:39,880 --> 00:09:43,120 Speaker 1: Texas has some financing needs and you would think they 190 00:09:43,120 --> 00:09:46,240 Speaker 1: would want and many banks bidding as possible to get 191 00:09:46,240 --> 00:09:51,440 Speaker 1: the lower their cost. Alright, key West International Airport, they're 192 00:09:51,440 --> 00:09:54,040 Speaker 1: coming to the inunicipal bob market. What's going on down there? Oh? 193 00:09:54,080 --> 00:09:58,280 Speaker 1: Baby chickens running through the airport by the way, What yes, 194 00:09:59,640 --> 00:10:04,600 Speaker 1: y are have a very fancy refurbishment plan that they're 195 00:10:04,640 --> 00:10:07,720 Speaker 1: cooking up. And they sold about thirty thirty six million 196 00:10:07,760 --> 00:10:11,080 Speaker 1: dollars in bonds this week and the total cost the 197 00:10:11,080 --> 00:10:14,680 Speaker 1: project going to be about a d million. A lot 198 00:10:14,720 --> 00:10:18,520 Speaker 1: of airports have been uh coming to market this year 199 00:10:19,040 --> 00:10:23,800 Speaker 1: and actually the previous two years getting set for you know, 200 00:10:23,960 --> 00:10:26,360 Speaker 1: the expansion that are sure to come. And in the 201 00:10:26,400 --> 00:10:31,240 Speaker 1: case of Key West, one was a record year for him. 202 00:10:31,280 --> 00:10:35,560 Speaker 1: I saw that in your story, Joe, four percent of 203 00:10:35,600 --> 00:10:39,400 Speaker 1: total capacity, you know, right, I mean, nobody wanted to 204 00:10:39,760 --> 00:10:43,360 Speaker 1: literally shut down effectively. But last year people are like, 205 00:10:43,440 --> 00:10:46,319 Speaker 1: we're going back to the Keys. Baby business was a bowman. 206 00:10:47,000 --> 00:10:50,480 Speaker 1: And you know that's because, uh, they couldn't go anywhere else. 207 00:10:51,000 --> 00:10:54,600 Speaker 1: They were quarantines and or you know, shutdowns of of 208 00:10:54,960 --> 00:10:58,880 Speaker 1: the international flight and and you know, you couldn't get 209 00:10:58,880 --> 00:11:00,640 Speaker 1: you here, and even if you did, then you might 210 00:11:00,679 --> 00:11:02,840 Speaker 1: not be able to get back in. So people looked 211 00:11:02,840 --> 00:11:04,959 Speaker 1: at it and said like, great, let's go to the Keys, 212 00:11:05,480 --> 00:11:08,600 Speaker 1: Let's go to see Gars, let's go to Maine, right 213 00:11:08,760 --> 00:11:13,160 Speaker 1: And so last year booming at this airport, and of 214 00:11:13,200 --> 00:11:15,240 Speaker 1: course I wanted to go see heming Wise house. Yeah 215 00:11:15,280 --> 00:11:19,200 Speaker 1: that's yeah, we've got that down there. Yeah, it's a 216 00:11:19,200 --> 00:11:21,280 Speaker 1: good it's fun boy down there right now. That I 217 00:11:21,280 --> 00:11:23,360 Speaker 1: actually don't mind the drive down the Keys. You flying 218 00:11:23,480 --> 00:11:26,200 Speaker 1: Fort Lauderdale because it's easier to find into Miami, cross 219 00:11:26,240 --> 00:11:27,960 Speaker 1: another half hour river the drive because it's a little 220 00:11:27,960 --> 00:11:30,199 Speaker 1: bit north of Miami Airport, But then to drive down 221 00:11:30,240 --> 00:11:34,239 Speaker 1: through the Keys is very cool, very picturesque, very picturesque, 222 00:11:34,280 --> 00:11:37,080 Speaker 1: and in fact, you bring that up. Um, you know 223 00:11:37,320 --> 00:11:42,240 Speaker 1: Moody is in their rating, uh of this airport brought 224 00:11:42,280 --> 00:11:44,120 Speaker 1: that up. They said, you know, there are harder the 225 00:11:44,120 --> 00:11:47,360 Speaker 1: airports you could take. And it's a very picturesque drive. Yeah, 226 00:11:47,440 --> 00:11:49,600 Speaker 1: and it's a tay. They stepped up out of Newark. 227 00:11:49,600 --> 00:11:52,160 Speaker 1: They stepped up the number of flights down to key West. 228 00:11:52,720 --> 00:11:54,840 Speaker 1: Good stuff there, unless you get stuck behind like a 229 00:11:54,840 --> 00:11:56,839 Speaker 1: big truck because it's only a two two lane road 230 00:11:56,920 --> 00:11:59,000 Speaker 1: most of the way. So yeah, so that can get 231 00:11:59,040 --> 00:12:02,720 Speaker 1: a little top, all right, Joe Misa, guess what what? No, No, 232 00:12:02,840 --> 00:12:05,040 Speaker 1: that's it. That's it. There you go, Boom, we can 233 00:12:05,040 --> 00:12:07,360 Speaker 1: all have a drink. That's it. There you go. Joe Mysa. 234 00:12:07,480 --> 00:12:12,280 Speaker 1: He covers all things Muni's for Bloomberg Markets. Bloomberg briefs. 235 00:12:12,760 --> 00:12:15,720 Speaker 1: The inverted yield curve in the MUNI market. I didn't 236 00:12:15,720 --> 00:12:17,480 Speaker 1: know there was such a thing, but there is, and 237 00:12:17,520 --> 00:12:20,800 Speaker 1: it takes Joe's reporting. The Muni yield curve remains inverted 238 00:12:20,880 --> 00:12:24,240 Speaker 1: a rare occurrence in Muni's. So there you go, all right, 239 00:12:24,360 --> 00:12:26,040 Speaker 1: smp F I found it off two percent here and 240 00:12:26,040 --> 00:12:29,560 Speaker 1: looking at the corporate the treasury yield tenure treasury up 241 00:12:29,800 --> 00:12:32,319 Speaker 1: just to smidge three point zero three percent the two 242 00:12:32,400 --> 00:12:35,480 Speaker 1: year up four basis points three point four. Oh, it's 243 00:12:35,480 --> 00:12:39,320 Speaker 1: it's about a thirty seven point inversion in the US 244 00:12:39,360 --> 00:12:44,280 Speaker 1: treasury yield curve. We'd like to welcome all of our 245 00:12:44,360 --> 00:12:48,800 Speaker 1: viewers and listeners worldwide to Bloomberg as we digest Jpile's 246 00:12:48,800 --> 00:12:52,079 Speaker 1: speech this morning, as guy mentioned a very very short 247 00:12:52,120 --> 00:12:55,040 Speaker 1: speech eight minutes thirty eight seconds. Uh, it was six 248 00:12:55,080 --> 00:12:58,720 Speaker 1: pages long. His previous speeches have been like fifteen sixteen 249 00:12:58,800 --> 00:13:01,920 Speaker 1: pages long, and if very direct message, stay the course. 250 00:13:02,559 --> 00:13:05,719 Speaker 1: We do want to welcome now Cleveland fled President Loretta Mr. 251 00:13:05,960 --> 00:13:09,400 Speaker 1: You were in the room. Uh, did he give from 252 00:13:09,480 --> 00:13:12,400 Speaker 1: your perspective the way you look at the markets, and 253 00:13:12,920 --> 00:13:15,480 Speaker 1: did he give the message that you felt needed to 254 00:13:15,480 --> 00:13:18,360 Speaker 1: be given. I think that was a very strong message, 255 00:13:18,360 --> 00:13:20,640 Speaker 1: and I'm certainly aligned with that. This is not a 256 00:13:20,720 --> 00:13:24,040 Speaker 1: short campaign here. It's gonna take time and more fed 257 00:13:24,080 --> 00:13:27,400 Speaker 1: work and more fed attention to get inflation on a 258 00:13:27,480 --> 00:13:29,960 Speaker 1: trajectory down to our two percent goal when we're all 259 00:13:30,000 --> 00:13:32,400 Speaker 1: in and we're gonna be resolute about it. So I 260 00:13:32,400 --> 00:13:36,679 Speaker 1: thought the message was strong and right resolute from your 261 00:13:36,720 --> 00:13:38,800 Speaker 1: point of view, What does that mean? Resolute? Means that 262 00:13:38,960 --> 00:13:40,840 Speaker 1: this is not a quick fix. This is we're going 263 00:13:40,920 --> 00:13:43,280 Speaker 1: to have to bring rates up from their current levels 264 00:13:43,280 --> 00:13:46,719 Speaker 1: and continue doing that until we see compelling evidence and 265 00:13:46,800 --> 00:13:49,880 Speaker 1: inflation is moving back down towards two percent, and until 266 00:13:49,960 --> 00:13:53,480 Speaker 1: it does, um, we're gonna have to just be very 267 00:13:53,640 --> 00:13:57,000 Speaker 1: very resolute in in that being our goal. You know, 268 00:13:57,080 --> 00:14:00,760 Speaker 1: the July inflation import was welcome news, but we really 269 00:14:00,840 --> 00:14:04,320 Speaker 1: can't let wishful thinking substitute for compelling evidence. So we 270 00:14:04,360 --> 00:14:06,200 Speaker 1: need to see a lot more data. I personally need 271 00:14:06,240 --> 00:14:09,280 Speaker 1: to see a lot more convincing evidence than inflation is 272 00:14:09,280 --> 00:14:11,800 Speaker 1: moving back down. Do you have a feeling about September 273 00:14:11,880 --> 00:14:14,320 Speaker 1: twenty one? You get more evidence and the jobs report 274 00:14:14,360 --> 00:14:16,720 Speaker 1: in the CPI report before then. But are you leaning 275 00:14:16,720 --> 00:14:18,200 Speaker 1: one way or another at this point? I mean, I 276 00:14:18,200 --> 00:14:20,240 Speaker 1: want to wait until the data comes in. I mean, 277 00:14:20,760 --> 00:14:23,160 Speaker 1: as the markets assume it's going to be fifty or 278 00:14:23,240 --> 00:14:25,400 Speaker 1: to seventy five, you know, that's what my head is, 279 00:14:25,440 --> 00:14:27,600 Speaker 1: that's going to be one of those two. But I 280 00:14:27,640 --> 00:14:29,320 Speaker 1: do think that we're going to have to move interest 281 00:14:29,400 --> 00:14:32,040 Speaker 1: rates up from current levels, so I want to see 282 00:14:32,080 --> 00:14:35,800 Speaker 1: that data. I'll sess it. Look at the decompositions of 283 00:14:35,880 --> 00:14:40,800 Speaker 1: the inflation data um more carefully, and also the the 284 00:14:40,840 --> 00:14:43,760 Speaker 1: inflation expectations data I think is very important as well. 285 00:14:44,080 --> 00:14:46,360 Speaker 1: We had good news on that front today that Michigan 286 00:14:46,440 --> 00:14:51,920 Speaker 1: numbers come down obviously gasoline, but they're still elevated. Do 287 00:14:51,920 --> 00:14:54,480 Speaker 1: you still have any concerns at this point that we 288 00:14:54,560 --> 00:14:58,840 Speaker 1: have seen any kind of expectations get built in? Well, 289 00:14:58,840 --> 00:15:01,320 Speaker 1: I do think we're at the for the range of 290 00:15:01,640 --> 00:15:05,240 Speaker 1: you know, being longer term inflation expectations being consistent with 291 00:15:05,280 --> 00:15:09,920 Speaker 1: two inflation. I don't think they're they're over that range yet, 292 00:15:10,040 --> 00:15:12,440 Speaker 1: but I think we have to take it very seriously 293 00:15:12,480 --> 00:15:16,960 Speaker 1: when we see those those levels being elevated and sustained elevated, 294 00:15:17,040 --> 00:15:21,720 Speaker 1: because if inflation expectations were to move above levels consistent 295 00:15:21,760 --> 00:15:24,240 Speaker 1: with two percent or long run two percent inflation goal, 296 00:15:24,480 --> 00:15:26,920 Speaker 1: then getting inflation back down will be that much harder 297 00:15:26,920 --> 00:15:29,520 Speaker 1: and that much more painful. And so that's why I'm 298 00:15:29,640 --> 00:15:32,080 Speaker 1: very focused on that as well as well as the 299 00:15:32,080 --> 00:15:34,920 Speaker 1: other data on inflation to be able to assess, you know, 300 00:15:35,040 --> 00:15:39,760 Speaker 1: how much demand moderation is happening, how much supply change 301 00:15:39,800 --> 00:15:43,560 Speaker 1: is happening, because we really have an imbalance in demand 302 00:15:43,640 --> 00:15:46,880 Speaker 1: and supply. Of course, the FED tools work on the 303 00:15:46,880 --> 00:15:53,520 Speaker 1: demand side. Um, so that's the one thing you can't 304 00:15:53,560 --> 00:15:57,200 Speaker 1: control here, and that is obviously a danger going forward. 305 00:15:57,320 --> 00:15:59,640 Speaker 1: You don't know what's going to happen. Well, but they're 306 00:15:59,720 --> 00:16:02,280 Speaker 1: ups I'd risks they're right because we know that the 307 00:16:02,320 --> 00:16:06,080 Speaker 1: European situation with Ukraine and the Russian supply of oil 308 00:16:06,640 --> 00:16:09,440 Speaker 1: that's going to be you know, those numbers are coming 309 00:16:09,440 --> 00:16:13,600 Speaker 1: out or that environment means that probably gasoline prices may 310 00:16:13,600 --> 00:16:16,680 Speaker 1: not be sustained at lower levels. So again, I don't 311 00:16:16,680 --> 00:16:19,359 Speaker 1: think this is a time to declare victory over inflation. 312 00:16:19,480 --> 00:16:21,880 Speaker 1: There's a lot going on in the economy that will 313 00:16:21,920 --> 00:16:24,640 Speaker 1: affect inflation going forward, and we just have to be 314 00:16:24,960 --> 00:16:28,200 Speaker 1: very resolute. If you look at services inflation, rents are 315 00:16:28,240 --> 00:16:32,640 Speaker 1: still very elevated, and rents flow through into those underlying 316 00:16:32,680 --> 00:16:36,560 Speaker 1: inflation numbers with a lag. And so again I think 317 00:16:36,560 --> 00:16:40,760 Speaker 1: there's reasons to be cautious on declaring that inflation is peaked, 318 00:16:41,160 --> 00:16:44,600 Speaker 1: and cautious in thinking that it's on a trajectory moving down. 319 00:16:44,640 --> 00:16:46,960 Speaker 1: And that's the approach I'm taking. I really need to 320 00:16:46,960 --> 00:16:50,600 Speaker 1: see convincing evidence of that before I would say that 321 00:16:50,680 --> 00:16:54,120 Speaker 1: we can ease off of our need to raise interest rates. 322 00:16:54,480 --> 00:16:57,240 Speaker 1: Chairman said that the goal is to get rates to 323 00:16:57,640 --> 00:17:00,840 Speaker 1: a slightly restrictive stance, which he said, you look at 324 00:17:00,840 --> 00:17:04,119 Speaker 1: that summary of academic projections from June and it was 325 00:17:04,280 --> 00:17:09,679 Speaker 1: around three four. Buddy caveated debt by saying September twenty one, 326 00:17:09,880 --> 00:17:12,280 Speaker 1: you have a new set of projections. Have you changed 327 00:17:12,359 --> 00:17:16,320 Speaker 1: your view on where you think the terminal rate needs 328 00:17:16,359 --> 00:17:19,600 Speaker 1: to be? So there's a lot of confusion out there 329 00:17:19,640 --> 00:17:23,119 Speaker 1: about what that three point for UM. That's a long 330 00:17:23,240 --> 00:17:26,240 Speaker 1: run You know, there's a long run neutral and a 331 00:17:26,280 --> 00:17:30,080 Speaker 1: short run neutral. And if you think about where inflation 332 00:17:30,119 --> 00:17:32,560 Speaker 1: expectations are, and you think about what's a real rate, 333 00:17:33,119 --> 00:17:36,240 Speaker 1: a neutral real rate UM, that's like about a half 334 00:17:36,280 --> 00:17:39,199 Speaker 1: a percent. We're still in negative real rates. So we 335 00:17:39,240 --> 00:17:43,040 Speaker 1: haven't even gotten to a neutral in that sense um 336 00:17:43,160 --> 00:17:45,960 Speaker 1: inflate fed funds rates. So we're gonna have to move 337 00:17:46,080 --> 00:17:48,560 Speaker 1: rates up. I mean, I think we're going to have 338 00:17:48,600 --> 00:17:50,520 Speaker 1: to move them up, and this is based on just 339 00:17:50,600 --> 00:17:54,560 Speaker 1: my current rate of the data above four and probably 340 00:17:54,600 --> 00:17:58,119 Speaker 1: need to hold them there next year. So in other words, 341 00:17:58,160 --> 00:18:02,040 Speaker 1: move them up to slightly above four percent UM sometime 342 00:18:02,119 --> 00:18:04,679 Speaker 1: early next year, and it just keep them there in 343 00:18:04,800 --> 00:18:07,920 Speaker 1: order to get this inflation under control went back down 344 00:18:07,920 --> 00:18:12,520 Speaker 1: to two. The markets looked at what the VET has 345 00:18:12,520 --> 00:18:14,720 Speaker 1: been saying about that and say we don't think they 346 00:18:14,720 --> 00:18:18,280 Speaker 1: can do that, that we're going to see recession going forward. 347 00:18:18,520 --> 00:18:22,760 Speaker 1: Are you willing to go into recession to maintain rates 348 00:18:23,000 --> 00:18:25,080 Speaker 1: at that level? Well, I think we're going to have 349 00:18:25,160 --> 00:18:28,879 Speaker 1: to assess demand versus supply right the imbalanced there, But 350 00:18:29,000 --> 00:18:31,320 Speaker 1: I do think we'd have to see inflation coming back 351 00:18:31,320 --> 00:18:34,320 Speaker 1: down because even if UM growth and I do think 352 00:18:34,320 --> 00:18:38,200 Speaker 1: growth will be slow. Um, I'm not projecting over recession, 353 00:18:38,240 --> 00:18:40,560 Speaker 1: but I do think we're gonna have below trend trend 354 00:18:40,600 --> 00:18:44,080 Speaker 1: growth UM this year and into next year. But I 355 00:18:44,119 --> 00:18:47,120 Speaker 1: think that's necessary in order to get inflation under control. 356 00:18:47,240 --> 00:18:51,000 Speaker 1: And we'll see increasing in the unemployed rate unfortunately. UM. 357 00:18:51,040 --> 00:18:54,920 Speaker 1: But I don't think excessively deep in terms of either 358 00:18:54,960 --> 00:18:58,320 Speaker 1: a pullback and growth or UM labor markets, you know, 359 00:18:58,400 --> 00:19:00,920 Speaker 1: being totally disruptive because the labor market is so strong 360 00:19:01,000 --> 00:19:03,879 Speaker 1: right now. It's still extreme, you know, very tight. We 361 00:19:03,960 --> 00:19:07,840 Speaker 1: have labor demand really outpacing labor supply. So again there's 362 00:19:07,840 --> 00:19:09,720 Speaker 1: a reason to think that, yes, we're going to see 363 00:19:09,720 --> 00:19:12,840 Speaker 1: a slowing in fact, our policy is intended to work 364 00:19:12,880 --> 00:19:15,760 Speaker 1: on that demand side. But there's also reason to think 365 00:19:15,760 --> 00:19:18,440 Speaker 1: that it may not be um a prolonged or deep 366 00:19:19,119 --> 00:19:21,679 Speaker 1: um slow down. It could very well be that we 367 00:19:21,760 --> 00:19:24,359 Speaker 1: have to have some slow down, but it won't be 368 00:19:24,480 --> 00:19:27,840 Speaker 1: one that's really a painful one in terms of the 369 00:19:27,960 --> 00:19:31,399 Speaker 1: longevity or deepness in it. That said, we're going to 370 00:19:31,480 --> 00:19:33,359 Speaker 1: have to have that, I mean, and if we don't 371 00:19:33,359 --> 00:19:35,640 Speaker 1: have that, I don't think we're gonna get inflation moving 372 00:19:35,680 --> 00:19:38,280 Speaker 1: back down, and that will create more problems. It'll be 373 00:19:38,400 --> 00:19:40,280 Speaker 1: very painful. We won't be able to get the strong 374 00:19:40,359 --> 00:19:43,439 Speaker 1: labor market conditions we had in the last expansion unless 375 00:19:43,480 --> 00:19:46,400 Speaker 1: we get this inflation down. We're speaking with Lareta Master, 376 00:19:46,600 --> 00:19:49,320 Speaker 1: the president of the Cleveland Federal Reserve Bank, who was 377 00:19:49,359 --> 00:19:52,359 Speaker 1: in the room as Jaremen J. Powell spoke today. Uh, 378 00:19:52,560 --> 00:19:56,240 Speaker 1: some of your colleagues argue for a go go slower 379 00:19:56,320 --> 00:20:00,480 Speaker 1: approach in terms of raising rates to that restricted because 380 00:20:00,560 --> 00:20:03,639 Speaker 1: they're considered about long run legs, and some of the 381 00:20:03,680 --> 00:20:06,879 Speaker 1: others we've talked to say, Uh, that's not really an 382 00:20:06,920 --> 00:20:10,840 Speaker 1: issue because policy lags are much shorter these days, and 383 00:20:10,920 --> 00:20:12,560 Speaker 1: so we don't have to worry that a year from 384 00:20:12,600 --> 00:20:14,919 Speaker 1: now we're going to be choking the economy. Where do 385 00:20:14,960 --> 00:20:17,040 Speaker 1: you follow on that spectrum? Well, I do think that 386 00:20:17,040 --> 00:20:19,520 Speaker 1: the because of the forward guidance that the FED gave 387 00:20:19,560 --> 00:20:23,800 Speaker 1: when it pivoted, you saw the financial markets react probably 388 00:20:23,880 --> 00:20:28,359 Speaker 1: sooner um and more sharply than typically. But that doesn't 389 00:20:28,400 --> 00:20:31,159 Speaker 1: necessarily mean that the real economy is going to the 390 00:20:31,200 --> 00:20:33,600 Speaker 1: effect of the policy changes on the real economy are 391 00:20:33,600 --> 00:20:36,640 Speaker 1: going to happen faster. So I think I'm agnostic on that. 392 00:20:36,960 --> 00:20:39,679 Speaker 1: And even when we say long and variable, it's a 393 00:20:39,680 --> 00:20:42,560 Speaker 1: long and variable part. So six months, eighteen months is 394 00:20:42,560 --> 00:20:44,720 Speaker 1: still a long time. So that isn't really a frame 395 00:20:44,760 --> 00:20:47,800 Speaker 1: that I'm I'm using to sort of determine where I 396 00:20:47,840 --> 00:20:51,120 Speaker 1: think appropriate policy is. Rather, I'm going to be looking 397 00:20:51,160 --> 00:20:53,119 Speaker 1: at the data and what it's informing me about the 398 00:20:53,160 --> 00:20:55,639 Speaker 1: outlawk So I know a lot of people say, well, 399 00:20:55,640 --> 00:20:57,919 Speaker 1: why are you looking at data that's past, you know, 400 00:20:57,960 --> 00:21:00,160 Speaker 1: talking about the past and not looking forward. I I'm 401 00:21:00,200 --> 00:21:03,720 Speaker 1: looking forward. But the data helps inform my outlook for 402 00:21:03,760 --> 00:21:06,560 Speaker 1: the economy and assess the risk to that outlook. And 403 00:21:06,600 --> 00:21:08,840 Speaker 1: so I'm looking forward, and I think we have to 404 00:21:08,920 --> 00:21:12,439 Speaker 1: with policy. So, for example, I don't believe we're going 405 00:21:12,480 --> 00:21:14,840 Speaker 1: to be raised it would be appropriate to continue raising 406 00:21:14,920 --> 00:21:19,080 Speaker 1: rates until inflation is down to two We're gonna at 407 00:21:19,119 --> 00:21:22,880 Speaker 1: some point have to pause, keep rates probably at an 408 00:21:22,880 --> 00:21:26,520 Speaker 1: elevated level for some time, and then make sure that 409 00:21:26,560 --> 00:21:30,000 Speaker 1: inflation is on the downward trajectory. What do you see 410 00:21:30,160 --> 00:21:32,640 Speaker 1: or what are people telling you in your district, both 411 00:21:32,640 --> 00:21:36,440 Speaker 1: businesses and consumers about how they feel about the economy, 412 00:21:36,480 --> 00:21:41,800 Speaker 1: because there's a potential uh self creating problem there. I 413 00:21:41,840 --> 00:21:45,000 Speaker 1: think there's a lot of concern about the future. If 414 00:21:45,040 --> 00:21:47,280 Speaker 1: you talk to businesses now, a lot of them say, 415 00:21:47,560 --> 00:21:50,080 Speaker 1: you know, things are so really good. I still have orders, 416 00:21:50,119 --> 00:21:52,240 Speaker 1: you know, I have a backlog of orders, and manufacturer 417 00:21:52,240 --> 00:21:54,919 Speaker 1: will say so, I think that activity will stay, you know, 418 00:21:55,359 --> 00:21:58,840 Speaker 1: relatively strong this year. It's about the future. It's about 419 00:21:58,920 --> 00:22:01,879 Speaker 1: what's going to happen next year and and going forward. 420 00:22:01,880 --> 00:22:03,520 Speaker 1: And the same on the consumer side. When you talk 421 00:22:03,560 --> 00:22:06,400 Speaker 1: to the the households, you know they're struggling with this inflation. 422 00:22:06,440 --> 00:22:09,600 Speaker 1: I mean, the inflation is very painful, and that's why 423 00:22:09,680 --> 00:22:12,880 Speaker 1: it's some imparative that the Fed do this action um 424 00:22:12,920 --> 00:22:16,000 Speaker 1: to get that inflation under control. But again, most of 425 00:22:16,040 --> 00:22:19,320 Speaker 1: it's not about necessarily the current situation. It's really what 426 00:22:19,480 --> 00:22:21,840 Speaker 1: is the future going to bring and that's why it's 427 00:22:21,920 --> 00:22:24,600 Speaker 1: very important for the FED to be doing actions now 428 00:22:25,000 --> 00:22:27,920 Speaker 1: so that the future can be a better future. Well, 429 00:22:27,920 --> 00:22:29,920 Speaker 1: thank you very much for joining us today. The right 430 00:22:29,920 --> 00:22:33,840 Speaker 1: semester is the president of the Federal Reserve Bank of Cleveland. 431 00:22:33,840 --> 00:22:36,680 Speaker 1: A busy day, J Pile telling the markets to stay 432 00:22:36,680 --> 00:22:39,760 Speaker 1: the course. There, Atemester telling us she's with J Pop. 433 00:22:43,240 --> 00:22:45,359 Speaker 1: All right, let's stay on this. We want to just 434 00:22:45,400 --> 00:22:48,720 Speaker 1: get some more color here because it is clearly moving 435 00:22:48,920 --> 00:22:51,199 Speaker 1: the markets where the equity market is bringing. Steve Matthews, 436 00:22:51,280 --> 00:22:55,280 Speaker 1: US economy reporter for Bloomberg News. Steve again, you know, 437 00:22:55,320 --> 00:22:57,440 Speaker 1: we were kind of parsing through what we heard from 438 00:22:57,480 --> 00:23:00,760 Speaker 1: FED Chairman J. Pal but in terms a messaging, well 439 00:23:00,800 --> 00:23:05,080 Speaker 1: you gotta give him two thumbs up. Pretty clear, pretty concise, uh, 440 00:23:05,119 --> 00:23:08,280 Speaker 1: and really didn't leave much wiggle him there. Yeah, that's 441 00:23:08,320 --> 00:23:11,439 Speaker 1: exactly right. I mean I saw one Wall Street report 442 00:23:11,480 --> 00:23:15,119 Speaker 1: that referred to the speeches short and sweet, although it 443 00:23:15,200 --> 00:23:18,440 Speaker 1: was really more short and not very sweet. I mean 444 00:23:18,480 --> 00:23:21,639 Speaker 1: it was like, we're gonna do whatever it takes, and 445 00:23:21,840 --> 00:23:26,159 Speaker 1: that's gonna mean pain for the economy, pain for households, 446 00:23:26,200 --> 00:23:28,520 Speaker 1: and we're okay with that. I mean, there were all 447 00:23:28,600 --> 00:23:33,200 Speaker 1: these references to Paul Vulker, who was the FED chair 448 00:23:33,240 --> 00:23:37,280 Speaker 1: in the early nineteen eighties and caused unemployment to hit 449 00:23:37,320 --> 00:23:45,160 Speaker 1: ten percent and serious recession, actually two recessions, and that 450 00:23:45,280 --> 00:23:49,520 Speaker 1: was kind of the praiseworthy FED chair that that he cited. 451 00:23:49,640 --> 00:23:55,879 Speaker 1: So it was pretty clear that the big message was UH, 452 00:23:55,960 --> 00:24:00,679 Speaker 1: in July after the FED meeting when they rates by 453 00:24:00,720 --> 00:24:05,520 Speaker 1: seventy five basis points, and he said at the press conference, 454 00:24:05,560 --> 00:24:09,000 Speaker 1: We're gonna see some slowing of rate increases in the future, 455 00:24:10,040 --> 00:24:13,560 Speaker 1: and you know, it would be extraordinary to continue to 456 00:24:13,600 --> 00:24:16,959 Speaker 1: have seventy five basis points every meeting. Uh and and 457 00:24:17,000 --> 00:24:20,639 Speaker 1: there would be no forward guidance. Wall Street took that. 458 00:24:20,720 --> 00:24:23,919 Speaker 1: I mean, the FED is about the pivot. We're on 459 00:24:24,040 --> 00:24:29,040 Speaker 1: the verge of a pivot. And today's message was no, no, no, 460 00:24:29,200 --> 00:24:34,280 Speaker 1: there's no pivot. We're our resolute We're going to continue 461 00:24:34,440 --> 00:24:37,280 Speaker 1: to push higher rates and we're going to keep them 462 00:24:37,280 --> 00:24:40,040 Speaker 1: there for a long time because that's what we think 463 00:24:40,160 --> 00:24:43,560 Speaker 1: is necessary to get inflation down. Paul, I have to say, 464 00:24:43,560 --> 00:24:45,520 Speaker 1: I love the Have you ever kind of pay attention 465 00:24:45,600 --> 00:24:48,080 Speaker 1: with Steve or Mike McKee talk about Wall Street and 466 00:24:48,119 --> 00:24:52,080 Speaker 1: it's kind of like Oh those guys again. Um, see, 467 00:24:52,080 --> 00:24:54,000 Speaker 1: if I gotta ask you, I mean, right now, the 468 00:24:54,320 --> 00:24:56,520 Speaker 1: the bets here, it seems like it's a coin toss 469 00:24:56,520 --> 00:24:59,800 Speaker 1: between fifty and seventy five. What would the extra basis 470 00:24:59,800 --> 00:25:04,720 Speaker 1: point difference really make in the September hike, well, in 471 00:25:04,800 --> 00:25:09,639 Speaker 1: the in the greater scheme of things, As you correctly 472 00:25:10,040 --> 00:25:13,040 Speaker 1: point out or suggest with your question, it doesn't mean 473 00:25:13,080 --> 00:25:15,200 Speaker 1: a lot of difference. I mean, it's the the ending 474 00:25:15,240 --> 00:25:19,000 Speaker 1: point is probably more important than whether it's fifty or 475 00:25:19,040 --> 00:25:24,399 Speaker 1: seventy five. Those who favor seventy five, the folks like 476 00:25:24,520 --> 00:25:27,040 Speaker 1: Jim Bullard, the head of the St. Louis FED, who 477 00:25:27,080 --> 00:25:31,000 Speaker 1: has been, you know, the most hawkish FED official for 478 00:25:31,040 --> 00:25:36,400 Speaker 1: some time, argued that frontloading will help, you know, push 479 00:25:36,480 --> 00:25:40,600 Speaker 1: the economy down. I mean, basically, the whole point of 480 00:25:40,640 --> 00:25:44,360 Speaker 1: the FED tightening is you want to match supply and demand. 481 00:25:44,400 --> 00:25:48,240 Speaker 1: There's too much demand, there's not enough supply. Supply is 482 00:25:48,240 --> 00:25:51,280 Speaker 1: not really coming up, so you have to do something 483 00:25:51,320 --> 00:25:56,239 Speaker 1: to depress demand to have it below trend, and that 484 00:25:56,320 --> 00:25:59,600 Speaker 1: really hasn't happened so far. You're still getting huge jobs, 485 00:25:59,680 --> 00:26:05,080 Speaker 1: get job gains and UH and income gains, so they 486 00:26:05,119 --> 00:26:09,399 Speaker 1: want to move at rates higher faster so that you 487 00:26:09,440 --> 00:26:13,320 Speaker 1: can get that downward pressure on the economy and the 488 00:26:13,960 --> 00:26:18,200 Speaker 1: rates would be theoretically restrictive as opposed to we're about 489 00:26:18,240 --> 00:26:21,600 Speaker 1: neutral right now. And Steve, another takeaway, at least for me, 490 00:26:22,040 --> 00:26:27,080 Speaker 1: is that recession is clearly on the table here. Um, 491 00:26:27,480 --> 00:26:29,199 Speaker 1: how do you think the FED thinks about it? How 492 00:26:29,200 --> 00:26:31,360 Speaker 1: do you think the White House thinks about it? I mean, 493 00:26:31,480 --> 00:26:34,119 Speaker 1: is it something that the Fed is saying, you know, 494 00:26:34,280 --> 00:26:36,520 Speaker 1: shallow recession is not the worst thing in the world, 495 00:26:36,560 --> 00:26:38,879 Speaker 1: because if that gets us to lower inflation, so be 496 00:26:38,960 --> 00:26:40,400 Speaker 1: it is that kind of how we should be thinking 497 00:26:40,400 --> 00:26:44,679 Speaker 1: about it. Powell is talking about below trend growth today, 498 00:26:44,680 --> 00:26:48,600 Speaker 1: which is not exactly recession. If you if you consider 499 00:26:48,680 --> 00:26:52,120 Speaker 1: that the trend growth for the economy is maybe one 500 00:26:52,160 --> 00:26:55,680 Speaker 1: and a half to two percent, you could get below 501 00:26:55,720 --> 00:26:59,920 Speaker 1: trend growth of I mean, if you had the theoretical 502 00:27:00,119 --> 00:27:03,200 Speaker 1: soft landing, you could get blow trend growth of one percent, 503 00:27:03,680 --> 00:27:07,359 Speaker 1: a half percent, you know, something close to zero and 504 00:27:07,480 --> 00:27:11,120 Speaker 1: still not push the economy into recession. And I think 505 00:27:11,280 --> 00:27:14,760 Speaker 1: that's their big hope, that there's still some kind of 506 00:27:14,840 --> 00:27:18,280 Speaker 1: avenue to get below trend growth but without there being 507 00:27:18,320 --> 00:27:22,520 Speaker 1: a serious recession, and if there is recession. They would 508 00:27:22,520 --> 00:27:26,399 Speaker 1: certainly be happier with a shallow as opposed to a 509 00:27:26,480 --> 00:27:29,919 Speaker 1: deep recession. But you know, the message again today was 510 00:27:30,720 --> 00:27:33,680 Speaker 1: whatever it takes, so that if it, if it becomes 511 00:27:33,720 --> 00:27:38,840 Speaker 1: necessary to have a significant recession to bring inflation down. 512 00:27:39,240 --> 00:27:42,679 Speaker 1: They view inflation as job one, and that you know, 513 00:27:42,760 --> 00:27:46,600 Speaker 1: really having stable prices is a prerequisite for having a 514 00:27:46,600 --> 00:27:49,800 Speaker 1: good economy. So it's like it's not an either or situation. 515 00:27:49,960 --> 00:27:53,399 Speaker 1: It's really almost a sole focus right now on inflation. 516 00:27:54,320 --> 00:27:56,800 Speaker 1: Can we talk about them for a moment about the 517 00:27:56,880 --> 00:28:01,879 Speaker 1: quantity of tightening piece of equation. They are undertaking something 518 00:28:01,880 --> 00:28:05,440 Speaker 1: that has never really been done to this extent before 519 00:28:05,480 --> 00:28:08,080 Speaker 1: and only been done successfully once, and even then it 520 00:28:08,119 --> 00:28:11,680 Speaker 1: wasn't done completely. Correct me if I'm wrong, Steve. But 521 00:28:11,680 --> 00:28:14,840 Speaker 1: but I'm curious about what this means for the Fed's 522 00:28:14,840 --> 00:28:17,240 Speaker 1: playbook when it comes to future recessions. Let's get past 523 00:28:17,240 --> 00:28:20,119 Speaker 1: this shallow recession that seems to be this inevitability. But 524 00:28:20,200 --> 00:28:22,200 Speaker 1: in the future, this is a tool that is now 525 00:28:22,880 --> 00:28:27,400 Speaker 1: in their toolbox, and I'm curious about the success right here. 526 00:28:27,480 --> 00:28:29,760 Speaker 1: Does this mean that every time we hit a recession 527 00:28:30,160 --> 00:28:32,920 Speaker 1: similar to the Global Financial Crisis or COVID for that matter, 528 00:28:33,160 --> 00:28:36,359 Speaker 1: that quwie is going to be a tool that the 529 00:28:36,359 --> 00:28:40,440 Speaker 1: FED uses. I think the answer to that is yes. 530 00:28:40,680 --> 00:28:44,760 Speaker 1: I mean that they have been relatively clear, not necessarily 531 00:28:44,800 --> 00:28:47,840 Speaker 1: every recession, because it's like with with this recession, if 532 00:28:47,880 --> 00:28:51,560 Speaker 1: we have a recession, and while you may think it's inevitable, 533 00:28:51,600 --> 00:28:55,200 Speaker 1: the FED is still holding out hope that it's not inevitable. 534 00:28:55,760 --> 00:28:59,520 Speaker 1: But when you hit a recession and you want to 535 00:28:59,600 --> 00:29:03,640 Speaker 1: stimula like growth, then you know you have a lack 536 00:29:03,680 --> 00:29:06,960 Speaker 1: of options. You have forward guidance, you have cut you 537 00:29:07,160 --> 00:29:09,120 Speaker 1: don't really don't have cutting rights. You can cut rates 538 00:29:09,160 --> 00:29:13,400 Speaker 1: to zero, but that that's it, and so you know 539 00:29:13,680 --> 00:29:17,360 Speaker 1: you're left with QUEI. And and I think that's it's 540 00:29:17,360 --> 00:29:20,640 Speaker 1: gonna be a permanent tool. And I think they are 541 00:29:20,720 --> 00:29:25,280 Speaker 1: resolved that, you know, with with rates at zero, they 542 00:29:25,320 --> 00:29:27,480 Speaker 1: have no choice but to use it as a tool 543 00:29:27,520 --> 00:29:30,240 Speaker 1: in the future. I'm glad you said that, because it 544 00:29:30,280 --> 00:29:32,640 Speaker 1: feels like when you have QUI as part of the playbook, 545 00:29:32,720 --> 00:29:36,160 Speaker 1: with that also comes asset price inflation. So I'm wondering 546 00:29:36,240 --> 00:29:39,440 Speaker 1: that in the process of quantity of TWITE tightening, why 547 00:29:39,800 --> 00:29:42,800 Speaker 1: is the asset price inflation as a function of QUEI 548 00:29:43,240 --> 00:29:47,760 Speaker 1: such a surprise. Well that it really shouldn't be. I mean, 549 00:29:47,760 --> 00:29:51,560 Speaker 1: the problem with what the Fed has is they have 550 00:29:51,640 --> 00:29:55,080 Speaker 1: a lack of tools. I mean it's like interest rates 551 00:29:55,120 --> 00:29:57,840 Speaker 1: are a blunt instrument. You can raise them, you can 552 00:29:57,880 --> 00:30:01,000 Speaker 1: lower them, and then you have QUI, which is also 553 00:30:01,160 --> 00:30:04,520 Speaker 1: kind of a blunt instrument. I mean, it's essentially another 554 00:30:04,960 --> 00:30:10,680 Speaker 1: facet of of of interest rates, and you know it's 555 00:30:10,720 --> 00:30:15,000 Speaker 1: going to affect asset prices, and they you know, obviously 556 00:30:15,720 --> 00:30:19,920 Speaker 1: in retrospect, they should have judged this a little bit sooner. 557 00:30:20,280 --> 00:30:23,520 Speaker 1: They should have seen what was happening with housing prices 558 00:30:23,560 --> 00:30:27,280 Speaker 1: and with stock prices and maybe moved a little bit faster, 559 00:30:27,320 --> 00:30:30,640 Speaker 1: which they now kind of recognize. But they let things 560 00:30:30,720 --> 00:30:33,360 Speaker 1: get out of uh, get get a little bit ahead 561 00:30:33,360 --> 00:30:35,680 Speaker 1: of them, right, all right, Steve, great stuff is always 562 00:30:35,680 --> 00:30:39,360 Speaker 1: Steve Matthews, US economy reporter for Bloomberg News. Steve has 563 00:30:39,400 --> 00:30:44,280 Speaker 1: been in our Atlantic bureau since I'm gonna do the 564 00:30:44,280 --> 00:30:47,520 Speaker 1: math for everybody. That's twenty five years and good for Steve. 565 00:30:47,760 --> 00:30:55,320 Speaker 1: Awesome reporting coming out of Atlanta, Georgia. Thanks for listening 566 00:30:55,320 --> 00:30:58,840 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 567 00:30:58,840 --> 00:31:03,160 Speaker 1: to interviews with Apple podcasts or whatever podcast platform you prefer. 568 00:31:03,520 --> 00:31:07,480 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three. 569 00:31:08,120 --> 00:31:10,720 Speaker 1: On Fall Sweeney, I'm on Twitter at pt Sweeney. Before 570 00:31:10,760 --> 00:31:13,600 Speaker 1: the podcast. You can always catch us worldwide at Bloomberg 571 00:31:13,640 --> 00:31:13,920 Speaker 1: Radio