WEBVTT - Jay Powell, Munis, And ETFs (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.760 at Bloomberg dot com slash podcast. Markets. Uh reacting pretty 0:00:23.760 --> 0:00:26.040 decisively here to the comments we got from FED Chairman 0:00:26.120 --> 0:00:28.600 j pal Uh, he's going to continue to fight inflation, 0:00:28.640 --> 0:00:31.000 push those rates higher. And I think he also was 0:00:31.000 --> 0:00:33.319 trying to send the messages We're committed to do this 0:00:33.400 --> 0:00:36.640 for some time. Uh, So don't bet on us pulling 0:00:36.680 --> 0:00:39.159 back in the near term. That seems to be the 0:00:39.200 --> 0:00:41.320 message here and how the market's reacting. Let's get some 0:00:41.520 --> 0:00:45.440 professional thoughts here. Robert Teeter, head of Investment Policy and 0:00:45.520 --> 0:00:49.560 the Strategy Group at Silver Crest Asset Management, joins us. Robert, 0:00:49.560 --> 0:00:51.440 what's your takeaway? It was a short speech, but I 0:00:51.440 --> 0:00:54.720 think he got his message across. I agree, short speech, 0:00:54.840 --> 0:00:58.279 very powerful, very strong communication that the job isn't done 0:00:58.320 --> 0:01:01.000 until the job is done. Until they get too I 0:01:01.000 --> 0:01:03.000 think some of this reaction that we're seeing here though, 0:01:03.080 --> 0:01:06.880 is perhaps healthy in that in my interpretation, it's ringing 0:01:06.880 --> 0:01:09.319 out some of the last hopes of a pivot. And 0:01:09.360 --> 0:01:11.480 I think pal made it very clear today there's no 0:01:11.520 --> 0:01:13.440 pivot on the horizon. There might be a pause at 0:01:13.440 --> 0:01:15.360 some point, there might be a reduction in the scale 0:01:15.360 --> 0:01:18.840 of increases, but the main focus is on inflation here squarely, 0:01:18.840 --> 0:01:21.880 and I think he communicated that point very clearly and 0:01:22.000 --> 0:01:25.400 very concisely today, and that's how we're seeing the reactions unfold. 0:01:26.040 --> 0:01:27.920 What about on the bond market, I'm confused with the 0:01:27.959 --> 0:01:29.919 bond market is thinking here you're looking at a tenure 0:01:29.959 --> 0:01:33.319 yield that's virtually unchanged, even though being a little bit choppy. 0:01:33.319 --> 0:01:35.920 As Herman Powell was speaking, what do you do with 0:01:36.040 --> 0:01:38.640 the bond market that just seems to hover, or say 0:01:38.640 --> 0:01:42.200 a bond yield that seems to hover around. Yeah, I 0:01:42.200 --> 0:01:44.160 thought that was interesting as well, and that's one of 0:01:44.160 --> 0:01:46.560 the reasons why I thought this reaction has been primarily 0:01:46.560 --> 0:01:48.760 centered on on equities and that hope for a pivot. 0:01:48.920 --> 0:01:50.840 It didn't seem to me that the bond market was 0:01:50.880 --> 0:01:53.760 reflecting any kind of potential change in policy. It looks 0:01:53.800 --> 0:01:56.560 like the mix is still pretty evenly split between fifty 0:01:56.560 --> 0:01:58.760 and seventy five at the next meeting, maybe a slight 0:01:58.800 --> 0:02:01.520 move towards seventy five. Still pretty evenly balanced, and as 0:02:01.520 --> 0:02:03.640 he said, the tenure kind of hanging in right around 0:02:03.680 --> 0:02:06.200 three percent without any major reaction as well. So it 0:02:06.280 --> 0:02:08.040 sort of says to me that maybe the bond market 0:02:08.120 --> 0:02:10.720 has has interpreted the FED for what they've been saying 0:02:10.720 --> 0:02:13.079 in terms of inflation. Maybe the equity market got a 0:02:13.120 --> 0:02:14.880 little bit carried away with that hope for a pivot 0:02:14.919 --> 0:02:16.560 a while back. But I think this is kind of 0:02:16.560 --> 0:02:19.520 a healthy one day adjustment in the equity side of things. 0:02:19.680 --> 0:02:23.160 Do you think the equity markets retest their late June lows? 0:02:23.240 --> 0:02:26.120 Robert Um, I don't think we'll get there. I think 0:02:26.120 --> 0:02:28.720 a lot of that depends on on the economic outlook, 0:02:28.720 --> 0:02:31.320 which today it has remained strong. There's been this battle 0:02:31.360 --> 0:02:33.480 between you know, which is going to change first, the 0:02:33.480 --> 0:02:36.720 economy or inflation. It's been quite a long runway for 0:02:36.720 --> 0:02:38.720 for both. The economy is kind of hanging in their 0:02:38.720 --> 0:02:40.680 earnings estimates have been hanging in there, and I think 0:02:40.720 --> 0:02:43.400 that's really the critical point. So if we keep with 0:02:43.400 --> 0:02:46.399 this stability around rates, I think the evaluations will stay 0:02:46.400 --> 0:02:49.000 where they are, and if we keep earnings estimates where 0:02:49.040 --> 0:02:51.400 they are, equity should have an okay backdrop from now 0:02:51.440 --> 0:02:53.200 through the remainder of the year. I think we'll be 0:02:53.240 --> 0:02:55.040 in a bit of a choppy and holding period, though 0:02:55.120 --> 0:02:58.080 certainly through the CPI report and probably through the next 0:02:58.080 --> 0:03:01.200 FED meeting as well. So in the laungic here of 0:03:01.200 --> 0:03:04.440 of the trade when it comes to trading the Fed's credibility. 0:03:04.480 --> 0:03:06.160 The idea here being that if they're going to tackle 0:03:06.200 --> 0:03:09.800 inflation and the market believes it, then they sell off. 0:03:09.840 --> 0:03:12.919 But isn't that a good thing that they're tackling inflation 0:03:12.919 --> 0:03:15.120 are looking to do it because to some extended almost 0:03:15.160 --> 0:03:20.040 delays UH, this inevitable recession perhaps further into arguably into 0:03:20.880 --> 0:03:24.639 isn't that something risk asset should be celebrating. I think 0:03:24.680 --> 0:03:27.320 that's right. I agree with that interpretation, and I think 0:03:27.320 --> 0:03:30.639 that that that follows through in inequities or risk assets 0:03:30.639 --> 0:03:33.120 may take place in in coming weeks. I think today 0:03:33.200 --> 0:03:36.240 was sort of this recognition that there's there's absolutely no 0:03:36.320 --> 0:03:38.360 chance for a pivot. I didn't think there was one. 0:03:38.560 --> 0:03:40.480 You probably didn't think there was one, but maybe there 0:03:40.520 --> 0:03:42.360 was a little bit of hope left for that inequities. 0:03:42.360 --> 0:03:43.840 But I think you're right, and I think the language 0:03:44.040 --> 0:03:46.360 PAL delivered and that that the regional fed shares that 0:03:46.480 --> 0:03:49.120 delivered in terms of front end loading and being really 0:03:49.120 --> 0:03:52.800 clear about this, this is the objective. Inflation is the objective. 0:03:52.840 --> 0:03:55.760 I think that's a strong and healthy message that inflation, 0:03:55.960 --> 0:03:58.200 you know, hopefully will be coming under control. Here. They've 0:03:58.200 --> 0:04:00.800 talked about some glimmers of hope in the monthly reading, 0:04:00.840 --> 0:04:02.800 but Pal made it clear today that one month is 0:04:02.800 --> 0:04:04.760 not enough, and I think ultimately you're right, that's a 0:04:04.840 --> 0:04:07.880 that's a healthy message for risk assets over the long term. Alright, 0:04:07.880 --> 0:04:10.920 So given that backdrop, Robert, how are you guys positioning 0:04:11.240 --> 0:04:13.480 your portfolios there? How much risk are you taking on 0:04:13.480 --> 0:04:15.960 in the near term or is it just kind of 0:04:16.000 --> 0:04:18.320 it's buy some real defensive kind of sectors here and 0:04:18.360 --> 0:04:20.880 just hunkered down for a little bit longer. Yeah. Well, 0:04:20.880 --> 0:04:23.520 we've been slightly above the midpoint of our range for 0:04:23.760 --> 0:04:26.719 risk exposure, mainly for equities, on the basis of we 0:04:26.760 --> 0:04:30.719 think over the medium term horizons, over the next few years, 0:04:30.920 --> 0:04:33.240 earnings we think will track higher, and we think PE's 0:04:33.320 --> 0:04:35.720 have stabilized here. So while there might be some chop um, 0:04:35.760 --> 0:04:38.440 we think we returned to a slow growth economy, called 0:04:38.440 --> 0:04:41.200 it a two percent economy. We think earnings will maybe 0:04:41.200 --> 0:04:43.039 come in a little bit lower than consensus in the 0:04:43.080 --> 0:04:46.160 next few years, but still five six and so we're 0:04:46.240 --> 0:04:49.359 moderately modestly I should say, above midpoint of range for 0:04:49.440 --> 0:04:51.880 risk assets here. So I want to go back to 0:04:51.960 --> 0:04:54.800 something that Sherman Pal specifically said. He said this justification 0:04:55.080 --> 0:04:58.440 for remaining this hawk ish was going back to vulgar. 0:04:58.600 --> 0:05:01.840 The mistake that they made in the seventies was pausing, 0:05:02.480 --> 0:05:04.479 and he doesn't want to make that mistake again. He 0:05:04.520 --> 0:05:06.440 made that very clear. But I'm curious about what happened 0:05:06.480 --> 0:05:08.600 after that in the eighties. And yes, Paul, I know 0:05:08.720 --> 0:05:10.840 I was not born in the eighties, but I have 0:05:10.960 --> 0:05:13.960 studied it, so it's okay I can ask this question. 0:05:14.040 --> 0:05:16.599 Didn't even let me get it, I know, because I 0:05:16.680 --> 0:05:19.119 know you too well. Um, but I have to ask, 0:05:19.200 --> 0:05:22.000 are we in for a repeat of the eighties here? 0:05:22.040 --> 0:05:25.120 And what do you trade if we are? Yeah? I 0:05:25.160 --> 0:05:27.600 thought that was a really interesting point as well. One 0:05:27.600 --> 0:05:29.640 if I takeaways from it was that he mentioned both 0:05:29.720 --> 0:05:31.840 vulgar and green span, which, in a in a weird way, 0:05:31.880 --> 0:05:34.400 I thought was maybe a hint towards balancing out fifty 0:05:34.400 --> 0:05:36.760 and seventy five at the next at the next meeting. 0:05:36.880 --> 0:05:38.960 But I thought that was a really telling comment as well. 0:05:39.000 --> 0:05:41.040 He made it very clear, uh that you know they 0:05:41.080 --> 0:05:43.240 won't finish until the job is done. And I think 0:05:43.279 --> 0:05:45.680 at your point earlier that that's a healthy message for 0:05:45.800 --> 0:05:49.360 equities over the longer term outlook, and so better to 0:05:49.480 --> 0:05:52.120 get the job done now, get it done effectively, uh, 0:05:52.160 --> 0:05:54.520 and hopefully set the stage for as we as we 0:05:54.560 --> 0:05:57.200 saw in the eighties, perhaps not quite so strong in 0:05:57.279 --> 0:05:59.599 terms of economic growth, but at least price stability and 0:05:59.640 --> 0:06:02.720 a bill city for valuations to remain flat or even 0:06:02.760 --> 0:06:05.440 increase a bit if we have a very stable inflation backdrop. 0:06:05.800 --> 0:06:09.120 All right, Robert, really good stuff. You appreciate getting your perspective, 0:06:09.160 --> 0:06:12.080 your views here on the heels of some pretty important 0:06:12.120 --> 0:06:14.880 testimony coming out of Jackson Hole Wyoming from FIT chairman 0:06:14.960 --> 0:06:17.560 j Pal Robert Teter. He's head of Investment Policy and 0:06:17.720 --> 0:06:24.520 Strategy Group at Silver Crest Asset Management. Now on Bloomberg Markets, 0:06:24.880 --> 0:06:30.560 Muni's in focus with Joe Mesa. Alright, our focus on 0:06:30.640 --> 0:06:33.440 Munis today is Rottie, but I build America Mutual when 0:06:33.440 --> 0:06:36.799 the market is unpredictable. Bad gives you certainty. BAM matured 0:06:36.880 --> 0:06:40.560 municipal bonds delivered to fall protection, value preservation and a 0:06:40.720 --> 0:06:44.839 durable rating. Asciar broker about BAM in short municipal bonds 0:06:45.200 --> 0:06:48.039 joining us today, Joe Meisa Bloomberg Briefs. He joins us 0:06:48.040 --> 0:06:50.960 on our Bloomberg Interactive Broker studio as he usually does. 0:06:51.040 --> 0:06:53.479 He's not one to phone it in like some others. 0:06:54.120 --> 0:06:55.919 So Joe's in our studio. Joe. When you hear the 0:06:55.920 --> 0:07:01.240 Federal Reserve talk about with conviction, we're right, we're raising 0:07:01.320 --> 0:07:04.000 rates here? What does it mean? It's of a bond 0:07:04.080 --> 0:07:08.400 market typically see typically think about Oh man, you know 0:07:08.839 --> 0:07:10.920 what it's seen in the last couple of weeks. Is 0:07:10.960 --> 0:07:17.960 the yield curve inverted in Yes, very unusual occurrence. I 0:07:18.000 --> 0:07:20.520 can't remember the last time I saw it, but this 0:07:20.600 --> 0:07:25.920 is it's it's shocking because hey, Federal Reserves his interest 0:07:26.000 --> 0:07:29.920 rates and you know, the three and six months really 0:07:30.000 --> 0:07:33.920 responded and so now I think it's the three months 0:07:33.960 --> 0:07:36.000 is like a two thirty five, six months is about 0:07:36.280 --> 0:07:40.160 two thirty. These are almost ten year yields right up 0:07:40.160 --> 0:07:43.360 front there. Do I want to ask you about another 0:07:43.400 --> 0:07:45.800 story that's near and dear to my heart, but perhaps 0:07:45.800 --> 0:07:48.480 not in a great way that I'd like to brag about. Um. 0:07:48.520 --> 0:07:50.720 I am a Texan and there's a lot going on 0:07:50.800 --> 0:07:53.640 between the East G space right now in Texas, especially 0:07:53.680 --> 0:07:56.760 when it comes to JP Morgan, black Rock, Ubs, can 0:07:56.800 --> 0:07:58.720 you before? I don't want to step on your toes, 0:07:58.760 --> 0:08:00.880 So I'm gonna let you tell our audience the story 0:08:00.880 --> 0:08:04.680 because it kind of it gets complicated, you know, thank 0:08:04.720 --> 0:08:08.240 you pretty this if this is insane? The Republicans in 0:08:08.440 --> 0:08:12.320 Florida and in Texas. Uh, and several of the states 0:08:12.480 --> 0:08:20.800 are targeting banks and funds that they think are gonna 0:08:20.880 --> 0:08:26.600 put it woke, okay, and uh. This week the Texas 0:08:26.600 --> 0:08:32.559 Controller came out with a list of banks that he 0:08:32.760 --> 0:08:34.960 that he said, you know, you shouldn't do business with 0:08:35.040 --> 0:08:38.959 these banks because they're oil boycotters. Uh. You know people. 0:08:39.040 --> 0:08:41.800 At the top of the list was black Rock. There's 0:08:41.840 --> 0:08:47.240 also Ubs. But I looked at this list and we 0:08:47.400 --> 0:08:52.200 got me was that. Uh. In the in the ten 0:08:52.679 --> 0:08:56.800 firms on the list, we have Donska Bank, and we 0:08:56.880 --> 0:09:04.319 have Nordea Bank, Schroders, Svenska Handelsbankan and Sweed Bank. And 0:09:04.360 --> 0:09:08.760 I thought, really, I just you know, to me, it 0:09:08.840 --> 0:09:14.840 seems that baby he's losing heart for this particular crusade. 0:09:14.960 --> 0:09:19.640 Because how about JP Morgan, Right, JP Morgan. We have 0:09:19.679 --> 0:09:24.240 a story today by Amanda Albright and Danielle Moran about 0:09:24.360 --> 0:09:28.880 JP Morgan getting ready to go back and do municipal 0:09:28.920 --> 0:09:33.360 bond underwriting in the state of Texas. So all right, 0:09:33.400 --> 0:09:35.720 sall see you know you look at that look at 0:09:35.720 --> 0:09:39.240 that list, and then you say ha, because you know 0:09:39.880 --> 0:09:43.120 Texas has some financing needs and you would think they 0:09:43.120 --> 0:09:46.240 would want and many banks bidding as possible to get 0:09:46.240 --> 0:09:51.440 the lower their cost. Alright, key West International Airport, they're 0:09:51.440 --> 0:09:54.040 coming to the inunicipal bob market. What's going on down there? Oh? 0:09:54.080 --> 0:09:58.280 Baby chickens running through the airport by the way, What yes, 0:09:59.640 --> 0:10:04.600 y are have a very fancy refurbishment plan that they're 0:10:04.640 --> 0:10:07.720 cooking up. And they sold about thirty thirty six million 0:10:07.760 --> 0:10:11.080 dollars in bonds this week and the total cost the 0:10:11.080 --> 0:10:14.680 project going to be about a d million. A lot 0:10:14.720 --> 0:10:18.520 of airports have been uh coming to market this year 0:10:19.040 --> 0:10:23.800 and actually the previous two years getting set for you know, 0:10:23.960 --> 0:10:26.360 the expansion that are sure to come. And in the 0:10:26.400 --> 0:10:31.240 case of Key West, one was a record year for him. 0:10:31.280 --> 0:10:35.560 I saw that in your story, Joe, four percent of 0:10:35.600 --> 0:10:39.400 total capacity, you know, right, I mean, nobody wanted to 0:10:39.760 --> 0:10:43.360 literally shut down effectively. But last year people are like, 0:10:43.440 --> 0:10:46.319 we're going back to the Keys. Baby business was a bowman. 0:10:47.000 --> 0:10:50.480 And you know that's because, uh, they couldn't go anywhere else. 0:10:51.000 --> 0:10:54.600 They were quarantines and or you know, shutdowns of of 0:10:54.960 --> 0:10:58.880 the international flight and and you know, you couldn't get 0:10:58.880 --> 0:11:00.640 you here, and even if you did, then you might 0:11:00.679 --> 0:11:02.840 not be able to get back in. So people looked 0:11:02.840 --> 0:11:04.959 at it and said like, great, let's go to the Keys, 0:11:05.480 --> 0:11:08.600 Let's go to see Gars, let's go to Maine, right 0:11:08.760 --> 0:11:13.160 And so last year booming at this airport, and of 0:11:13.200 --> 0:11:15.240 course I wanted to go see heming Wise house. Yeah 0:11:15.280 --> 0:11:19.200 that's yeah, we've got that down there. Yeah, it's a 0:11:19.200 --> 0:11:21.280 good it's fun boy down there right now. That I 0:11:21.280 --> 0:11:23.360 actually don't mind the drive down the Keys. You flying 0:11:23.480 --> 0:11:26.200 Fort Lauderdale because it's easier to find into Miami, cross 0:11:26.240 --> 0:11:27.960 another half hour river the drive because it's a little 0:11:27.960 --> 0:11:30.199 bit north of Miami Airport, But then to drive down 0:11:30.240 --> 0:11:34.239 through the Keys is very cool, very picturesque, very picturesque, 0:11:34.280 --> 0:11:37.080 and in fact, you bring that up. Um, you know 0:11:37.320 --> 0:11:42.240 Moody is in their rating, uh of this airport brought 0:11:42.280 --> 0:11:44.120 that up. They said, you know, there are harder the 0:11:44.120 --> 0:11:47.360 airports you could take. And it's a very picturesque drive. Yeah, 0:11:47.440 --> 0:11:49.600 and it's a tay. They stepped up out of Newark. 0:11:49.600 --> 0:11:52.160 They stepped up the number of flights down to key West. 0:11:52.720 --> 0:11:54.840 Good stuff there, unless you get stuck behind like a 0:11:54.840 --> 0:11:56.839 big truck because it's only a two two lane road 0:11:56.920 --> 0:11:59.000 most of the way. So yeah, so that can get 0:11:59.040 --> 0:12:02.720 a little top, all right, Joe Misa, guess what what? No, No, 0:12:02.840 --> 0:12:05.040 that's it. That's it. There you go, Boom, we can 0:12:05.040 --> 0:12:07.360 all have a drink. That's it. There you go. Joe Mysa. 0:12:07.480 --> 0:12:12.280 He covers all things Muni's for Bloomberg Markets. Bloomberg briefs. 0:12:12.760 --> 0:12:15.720 The inverted yield curve in the MUNI market. I didn't 0:12:15.720 --> 0:12:17.480 know there was such a thing, but there is, and 0:12:17.520 --> 0:12:20.800 it takes Joe's reporting. The Muni yield curve remains inverted 0:12:20.880 --> 0:12:24.240 a rare occurrence in Muni's. So there you go, all right, 0:12:24.360 --> 0:12:26.040 smp F I found it off two percent here and 0:12:26.040 --> 0:12:29.560 looking at the corporate the treasury yield tenure treasury up 0:12:29.800 --> 0:12:32.319 just to smidge three point zero three percent the two 0:12:32.400 --> 0:12:35.480 year up four basis points three point four. Oh, it's 0:12:35.480 --> 0:12:39.320 it's about a thirty seven point inversion in the US 0:12:39.360 --> 0:12:44.280 treasury yield curve. We'd like to welcome all of our 0:12:44.360 --> 0:12:48.800 viewers and listeners worldwide to Bloomberg as we digest Jpile's 0:12:48.800 --> 0:12:52.079 speech this morning, as guy mentioned a very very short 0:12:52.120 --> 0:12:55.040 speech eight minutes thirty eight seconds. Uh, it was six 0:12:55.080 --> 0:12:58.720 pages long. His previous speeches have been like fifteen sixteen 0:12:58.800 --> 0:13:01.920 pages long, and if very direct message, stay the course. 0:13:02.559 --> 0:13:05.719 We do want to welcome now Cleveland fled President Loretta Mr. 0:13:05.960 --> 0:13:09.400 You were in the room. Uh, did he give from 0:13:09.480 --> 0:13:12.400 your perspective the way you look at the markets, and 0:13:12.920 --> 0:13:15.480 did he give the message that you felt needed to 0:13:15.480 --> 0:13:18.360 be given. I think that was a very strong message, 0:13:18.360 --> 0:13:20.640 and I'm certainly aligned with that. This is not a 0:13:20.720 --> 0:13:24.040 short campaign here. It's gonna take time and more fed 0:13:24.080 --> 0:13:27.400 work and more fed attention to get inflation on a 0:13:27.480 --> 0:13:29.960 trajectory down to our two percent goal when we're all 0:13:30.000 --> 0:13:32.400 in and we're gonna be resolute about it. So I 0:13:32.400 --> 0:13:36.679 thought the message was strong and right resolute from your 0:13:36.720 --> 0:13:38.800 point of view, What does that mean? Resolute? Means that 0:13:38.960 --> 0:13:40.840 this is not a quick fix. This is we're going 0:13:40.920 --> 0:13:43.280 to have to bring rates up from their current levels 0:13:43.280 --> 0:13:46.719 and continue doing that until we see compelling evidence and 0:13:46.800 --> 0:13:49.880 inflation is moving back down towards two percent, and until 0:13:49.960 --> 0:13:53.480 it does, um, we're gonna have to just be very 0:13:53.640 --> 0:13:57.000 very resolute in in that being our goal. You know, 0:13:57.080 --> 0:14:00.760 the July inflation import was welcome news, but we really 0:14:00.840 --> 0:14:04.320 can't let wishful thinking substitute for compelling evidence. So we 0:14:04.360 --> 0:14:06.200 need to see a lot more data. I personally need 0:14:06.240 --> 0:14:09.280 to see a lot more convincing evidence than inflation is 0:14:09.280 --> 0:14:11.800 moving back down. Do you have a feeling about September 0:14:11.880 --> 0:14:14.320 twenty one? You get more evidence and the jobs report 0:14:14.360 --> 0:14:16.720 in the CPI report before then. But are you leaning 0:14:16.720 --> 0:14:18.200 one way or another at this point? I mean, I 0:14:18.200 --> 0:14:20.240 want to wait until the data comes in. I mean, 0:14:20.760 --> 0:14:23.160 as the markets assume it's going to be fifty or 0:14:23.240 --> 0:14:25.400 to seventy five, you know, that's what my head is, 0:14:25.440 --> 0:14:27.600 that's going to be one of those two. But I 0:14:27.640 --> 0:14:29.320 do think that we're going to have to move interest 0:14:29.400 --> 0:14:32.040 rates up from current levels, so I want to see 0:14:32.080 --> 0:14:35.800 that data. I'll sess it. Look at the decompositions of 0:14:35.880 --> 0:14:40.800 the inflation data um more carefully, and also the the 0:14:40.840 --> 0:14:43.760 inflation expectations data I think is very important as well. 0:14:44.080 --> 0:14:46.360 We had good news on that front today that Michigan 0:14:46.440 --> 0:14:51.920 numbers come down obviously gasoline, but they're still elevated. Do 0:14:51.920 --> 0:14:54.480 you still have any concerns at this point that we 0:14:54.560 --> 0:14:58.840 have seen any kind of expectations get built in? Well, 0:14:58.840 --> 0:15:01.320 I do think we're at the for the range of 0:15:01.640 --> 0:15:05.240 you know, being longer term inflation expectations being consistent with 0:15:05.280 --> 0:15:09.920 two inflation. I don't think they're they're over that range yet, 0:15:10.040 --> 0:15:12.440 but I think we have to take it very seriously 0:15:12.480 --> 0:15:16.960 when we see those those levels being elevated and sustained elevated, 0:15:17.040 --> 0:15:21.720 because if inflation expectations were to move above levels consistent 0:15:21.760 --> 0:15:24.240 with two percent or long run two percent inflation goal, 0:15:24.480 --> 0:15:26.920 then getting inflation back down will be that much harder 0:15:26.920 --> 0:15:29.520 and that much more painful. And so that's why I'm 0:15:29.640 --> 0:15:32.080 very focused on that as well as well as the 0:15:32.080 --> 0:15:34.920 other data on inflation to be able to assess, you know, 0:15:35.040 --> 0:15:39.760 how much demand moderation is happening, how much supply change 0:15:39.800 --> 0:15:43.560 is happening, because we really have an imbalance in demand 0:15:43.640 --> 0:15:46.880 and supply. Of course, the FED tools work on the 0:15:46.880 --> 0:15:53.520 demand side. Um, so that's the one thing you can't 0:15:53.560 --> 0:15:57.200 control here, and that is obviously a danger going forward. 0:15:57.320 --> 0:15:59.640 You don't know what's going to happen. Well, but they're 0:15:59.720 --> 0:16:02.280 ups I'd risks they're right because we know that the 0:16:02.320 --> 0:16:06.080 European situation with Ukraine and the Russian supply of oil 0:16:06.640 --> 0:16:09.440 that's going to be you know, those numbers are coming 0:16:09.440 --> 0:16:13.600 out or that environment means that probably gasoline prices may 0:16:13.600 --> 0:16:16.680 not be sustained at lower levels. So again, I don't 0:16:16.680 --> 0:16:19.359 think this is a time to declare victory over inflation. 0:16:19.480 --> 0:16:21.880 There's a lot going on in the economy that will 0:16:21.920 --> 0:16:24.640 affect inflation going forward, and we just have to be 0:16:24.960 --> 0:16:28.200 very resolute. If you look at services inflation, rents are 0:16:28.240 --> 0:16:32.640 still very elevated, and rents flow through into those underlying 0:16:32.680 --> 0:16:36.560 inflation numbers with a lag. And so again I think 0:16:36.560 --> 0:16:40.760 there's reasons to be cautious on declaring that inflation is peaked, 0:16:41.160 --> 0:16:44.600 and cautious in thinking that it's on a trajectory moving down. 0:16:44.640 --> 0:16:46.960 And that's the approach I'm taking. I really need to 0:16:46.960 --> 0:16:50.600 see convincing evidence of that before I would say that 0:16:50.680 --> 0:16:54.120 we can ease off of our need to raise interest rates. 0:16:54.480 --> 0:16:57.240 Chairman said that the goal is to get rates to 0:16:57.640 --> 0:17:00.840 a slightly restrictive stance, which he said, you look at 0:17:00.840 --> 0:17:04.119 that summary of academic projections from June and it was 0:17:04.280 --> 0:17:09.679 around three four. Buddy caveated debt by saying September twenty one, 0:17:09.880 --> 0:17:12.280 you have a new set of projections. Have you changed 0:17:12.359 --> 0:17:16.320 your view on where you think the terminal rate needs 0:17:16.359 --> 0:17:19.600 to be? So there's a lot of confusion out there 0:17:19.640 --> 0:17:23.119 about what that three point for UM. That's a long 0:17:23.240 --> 0:17:26.240 run You know, there's a long run neutral and a 0:17:26.280 --> 0:17:30.080 short run neutral. And if you think about where inflation 0:17:30.119 --> 0:17:32.560 expectations are, and you think about what's a real rate, 0:17:33.119 --> 0:17:36.240 a neutral real rate UM, that's like about a half 0:17:36.280 --> 0:17:39.199 a percent. We're still in negative real rates. So we 0:17:39.240 --> 0:17:43.040 haven't even gotten to a neutral in that sense um 0:17:43.160 --> 0:17:45.960 inflate fed funds rates. So we're gonna have to move 0:17:46.080 --> 0:17:48.560 rates up. I mean, I think we're going to have 0:17:48.600 --> 0:17:50.520 to move them up, and this is based on just 0:17:50.600 --> 0:17:54.560 my current rate of the data above four and probably 0:17:54.600 --> 0:17:58.119 need to hold them there next year. So in other words, 0:17:58.160 --> 0:18:02.040 move them up to slightly above four percent UM sometime 0:18:02.119 --> 0:18:04.679 early next year, and it just keep them there in 0:18:04.800 --> 0:18:07.920 order to get this inflation under control went back down 0:18:07.920 --> 0:18:12.520 to two. The markets looked at what the VET has 0:18:12.520 --> 0:18:14.720 been saying about that and say we don't think they 0:18:14.720 --> 0:18:18.280 can do that, that we're going to see recession going forward. 0:18:18.520 --> 0:18:22.760 Are you willing to go into recession to maintain rates 0:18:23.000 --> 0:18:25.080 at that level? Well, I think we're going to have 0:18:25.160 --> 0:18:28.879 to assess demand versus supply right the imbalanced there, But 0:18:29.000 --> 0:18:31.320 I do think we'd have to see inflation coming back 0:18:31.320 --> 0:18:34.320 down because even if UM growth and I do think 0:18:34.320 --> 0:18:38.200 growth will be slow. Um, I'm not projecting over recession, 0:18:38.240 --> 0:18:40.560 but I do think we're gonna have below trend trend 0:18:40.600 --> 0:18:44.080 growth UM this year and into next year. But I 0:18:44.119 --> 0:18:47.120 think that's necessary in order to get inflation under control. 0:18:47.240 --> 0:18:51.000 And we'll see increasing in the unemployed rate unfortunately. UM. 0:18:51.040 --> 0:18:54.920 But I don't think excessively deep in terms of either 0:18:54.960 --> 0:18:58.320 a pullback and growth or UM labor markets, you know, 0:18:58.400 --> 0:19:00.920 being totally disruptive because the labor market is so strong 0:19:01.000 --> 0:19:03.879 right now. It's still extreme, you know, very tight. We 0:19:03.960 --> 0:19:07.840 have labor demand really outpacing labor supply. So again there's 0:19:07.840 --> 0:19:09.720 a reason to think that, yes, we're going to see 0:19:09.720 --> 0:19:12.840 a slowing in fact, our policy is intended to work 0:19:12.880 --> 0:19:15.760 on that demand side. But there's also reason to think 0:19:15.760 --> 0:19:18.440 that it may not be um a prolonged or deep 0:19:19.119 --> 0:19:21.679 um slow down. It could very well be that we 0:19:21.760 --> 0:19:24.359 have to have some slow down, but it won't be 0:19:24.480 --> 0:19:27.840 one that's really a painful one in terms of the 0:19:27.960 --> 0:19:31.399 longevity or deepness in it. That said, we're going to 0:19:31.480 --> 0:19:33.359 have to have that, I mean, and if we don't 0:19:33.359 --> 0:19:35.640 have that, I don't think we're gonna get inflation moving 0:19:35.680 --> 0:19:38.280 back down, and that will create more problems. It'll be 0:19:38.400 --> 0:19:40.280 very painful. We won't be able to get the strong 0:19:40.359 --> 0:19:43.439 labor market conditions we had in the last expansion unless 0:19:43.480 --> 0:19:46.400 we get this inflation down. We're speaking with Lareta Master, 0:19:46.600 --> 0:19:49.320 the president of the Cleveland Federal Reserve Bank, who was 0:19:49.359 --> 0:19:52.359 in the room as Jaremen J. Powell spoke today. Uh, 0:19:52.560 --> 0:19:56.240 some of your colleagues argue for a go go slower 0:19:56.320 --> 0:20:00.480 approach in terms of raising rates to that restricted because 0:20:00.560 --> 0:20:03.639 they're considered about long run legs, and some of the 0:20:03.680 --> 0:20:06.879 others we've talked to say, Uh, that's not really an 0:20:06.920 --> 0:20:10.840 issue because policy lags are much shorter these days, and 0:20:10.920 --> 0:20:12.560 so we don't have to worry that a year from 0:20:12.600 --> 0:20:14.919 now we're going to be choking the economy. Where do 0:20:14.960 --> 0:20:17.040 you follow on that spectrum? Well, I do think that 0:20:17.040 --> 0:20:19.520 the because of the forward guidance that the FED gave 0:20:19.560 --> 0:20:23.800 when it pivoted, you saw the financial markets react probably 0:20:23.880 --> 0:20:28.359 sooner um and more sharply than typically. But that doesn't 0:20:28.400 --> 0:20:31.159 necessarily mean that the real economy is going to the 0:20:31.200 --> 0:20:33.600 effect of the policy changes on the real economy are 0:20:33.600 --> 0:20:36.640 going to happen faster. So I think I'm agnostic on that. 0:20:36.960 --> 0:20:39.679 And even when we say long and variable, it's a 0:20:39.680 --> 0:20:42.560 long and variable part. So six months, eighteen months is 0:20:42.560 --> 0:20:44.720 still a long time. So that isn't really a frame 0:20:44.760 --> 0:20:47.800 that I'm I'm using to sort of determine where I 0:20:47.840 --> 0:20:51.120 think appropriate policy is. Rather, I'm going to be looking 0:20:51.160 --> 0:20:53.119 at the data and what it's informing me about the 0:20:53.160 --> 0:20:55.639 outlawk So I know a lot of people say, well, 0:20:55.640 --> 0:20:57.919 why are you looking at data that's past, you know, 0:20:57.960 --> 0:21:00.160 talking about the past and not looking forward. I I'm 0:21:00.200 --> 0:21:03.720