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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Good afternoon for our audience worldwide, Welcome to the program,

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Speaker 2: a special edition of Bloomberg Surveillance on a Federal Reserve decision.

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Speaker 2: The decision as follows, a fifty basis point cut with

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Speaker 2: a sprinkle of descent. Your ecory market on the S

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Speaker 2: and P five hundreds still just about firmer. But rolling

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Speaker 2: over in that news conference, we're now firmer by just

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Speaker 2: a quarter of one percent on a Russell, still elevated

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Speaker 2: up by more than one full percentage point straight out

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Speaker 2: of the gate in that news conference. Framing policy recalibration

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Speaker 2: something he said multiple times, a process that evolves over time.

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Speaker 2: Take a listen to what the Chairman had to say

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Speaker 2: on the path forward.

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Speaker 3: I do not think that anyone should look at this

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Speaker 3: and say, oh, this is the new pace. You know,

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Speaker 3: you have to have to think about it in terms

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Speaker 3: of the base case. Of course, what happens will happen.

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Speaker 3: In the base case. What you see is look at

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Speaker 3: the SEP. You see cuts moving along. The sense of

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Speaker 3: this is we're recalibrating policy down over time to a

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Speaker 3: more neutral level, and we're moving at the pace that

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Speaker 3: we think is.

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Speaker 2: Appropriate recalibration on repeat, Lisa looking forward to meeting by mating,

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Speaker 2: this is not the new pace. That's something he puts

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Speaker 2: some weights on, some emphasis in that news conference.

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Speaker 1: And if you were basically judging his news conference based

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Speaker 1: on the stock reaction, there's a little wobble after that statement,

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Speaker 1: and even more of a wabble after you really addressed

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Speaker 1: the idea of a neutral race. He told it a

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Speaker 1: sense of neutral, whatever that may be. And he said

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Speaker 1: that my own sense is we're not going back to

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Speaker 1: that nehru time or that negative rate, very low rate time.

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Speaker 1: Neutral rate is probably much higher. You saw a reaction there,

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Speaker 1: but then people shook it off and said, hey, he's

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Speaker 1: got our back.

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Speaker 4: I look, John, I strapped a fibonacci across this, and

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Speaker 4: from where we were to the midpoint of the pandemic

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Speaker 4: low is two and seven eighths. He is correct. It's

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Speaker 4: just a nudge in the distance to travel just to

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Speaker 4: get back to the midpoint.

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Speaker 5: Call it normal.

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Speaker 4: It's a lot longer than the job owning in the

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Speaker 4: press conference that we just saw.

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Speaker 2: We're lucky to have Mohammad alongside us. He won't say

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Speaker 2: mission accomplished. He refused to say in this news conference,

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Speaker 2: But we've got to ask, isn't it implied?

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Speaker 6: Listen to this.

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Speaker 2: The labor market conditions are pretty close to maximum employment.

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Speaker 2: Retail sales GDPs show the economy is growing at a

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Speaker 2: solid pace. We're not seeing rising layoffs or hearing it

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Speaker 2: from companies. It's time to support the labor market when

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Speaker 2: it's strong. That's what we're trying to do. Is that

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Speaker 2: mission accomplished? Isn't it implied?

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Speaker 7: Yeah?

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Speaker 6: I mean Jason Furman put it as well as anybody

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Speaker 6: can when he said if you look at the projection,

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Speaker 6: and now if you listen to his statement, it is

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Speaker 6: and I'm quoting him, just about the closest thing to

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Speaker 6: mission accomplished banner that you can imagine them unfiling. So

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Speaker 6: I think it is the hard thing for Power is

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Speaker 6: that we're not just recalibrating policy. We're recalibrating what we

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Speaker 6: mean by a fifty basis point cut. You don't start

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Speaker 6: a fifty basis point cycle with a fifty basis point

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Speaker 6: cut and say at the same time, the economy is

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Speaker 6: in good place. And that's what he had to navigate

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Speaker 6: all the time. If the economy is in a good place,

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Speaker 6: why are starting with fifty basis points? And it was

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Speaker 6: harder for him to reconcile it too, because he didn't

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Speaker 6: want to acknowledge that keeping weights unchanged in July was

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Speaker 6: a mistake. So that's the tension that played throughout the

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Speaker 6: press conference.

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Speaker 2: He did mention that if they had that Job's report

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Speaker 2: before that mating in July, that maybe they would have

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Speaker 2: gone twenty five at that mate, take what did you

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Speaker 2: make of that?

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Speaker 1: I made of that this idea that what does he

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Speaker 1: mean about the totality of data? And he didn't talk

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Speaker 1: about data dependency in quite the same way when he started.

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Speaker 1: When he was asked by our own Michael McKee about

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Speaker 1: what he was looking for and how much he seems

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Speaker 1: to be reconciling something, he didn't have a real clear

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Speaker 1: view on that. What is the data we're looking at now?

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Speaker 1: Is it basically revisions to the jobs numbers that we're getting,

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Speaker 1: as well as potentially the Beige Book.

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Speaker 2: You've said this a few times. Revisions seems to be

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Speaker 2: more weight now in revisions, and I think over the

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Speaker 2: last few news conferences now he's basically said, whatever payrolls is,

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Speaker 2: he thinks he's overstating jobs growth in this country, which.

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Speaker 1: Has been just the truth over the past couple of

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Speaker 1: months and frankly more than a year. Typically, when you

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Speaker 1: get a weakening labor market, the data that you get

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Speaker 1: initially is stronger than what you get on the revisions downward.

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Speaker 1: But just to build the idea of mission accomplished, he

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Speaker 1: kept saying that the only reason he could really make

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Speaker 1: a commitment to fifty basis points is we are committed

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Speaker 1: to coming up with a good outcome. He came up

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Speaker 1: with lots of He went to the thesaurus of outsoft landing,

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Speaker 1: but that was really where he was heading.

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Speaker 2: Joining us now to discuss the continue the conversation built

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Speaker 2: down to be the former New York Fed president and

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Speaker 2: Bloomberg Economics senior advisor, billing your piece before this decision

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Speaker 2: on Bloomberg opinion, you said the Fed should go big.

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Speaker 2: Now I think it will it did. What did you

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Speaker 2: think of what you heard this afternoon?

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Speaker 7: It's pretty much what I was expecting in the sense

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Speaker 7: that one of the issues that Paul had is how

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Speaker 7: do you two fifty without scaring people that you know

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Speaker 7: something bad about the economy? And I think he did

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Speaker 7: that very well. He basically said we're doing this because

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Speaker 7: the news is good. We've made progress on inflation, as

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Speaker 7: opposed we're doing this because the news is bad. So

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Speaker 7: I thought it was a very uh, you know, providing

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Speaker 7: reassurance to people that thinks that they've they've got it.

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Speaker 7: You also, you know, when he's asked about, you know,

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Speaker 7: the Sam rule and the risks that the unemployment rate

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Speaker 7: could go up by quite a bit, more pretty reassuring

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Speaker 7: on that. You know, thinks that the labyer market can

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Speaker 7: stabilize close to where we are today, and that's really

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Speaker 7: hugely important because you know, if the layer of market

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Speaker 7: doesn't stabilize, then we will have them out recession and

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Speaker 7: then the FED will have to ease a lot more So,

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Speaker 7: I thought the general tone of the of the press

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Speaker 7: conference and the statement was we've got that, We've got it.

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Speaker 4: Bill. Congratulations your essay today. You think you were one

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Speaker 4: of the Fed whispers everybody's talking about out there right now.

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Speaker 4: Bill Dudley, I look at where we are and where

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Speaker 4: we're heading, and it simply comes down to the strength

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Speaker 4: of the American economy. Forgetting about the theater of recession.

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Speaker 4: Where does GDP settle, whether real GDP or nominal GDP.

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Speaker 4: How do you envision that in a year or even

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Speaker 4: two years.

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Speaker 7: I think if you look at the Fed's forecast and

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Speaker 7: look at how that growth affects the unemploying rate, the

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Speaker 7: FED thinks that, you know, growth in the medium term

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Speaker 7: is going to be two percent two percent plus at

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Speaker 7: annual which rates. So and that's sort of what we're

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Speaker 7: doing right now. So you know, the FED got a

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Speaker 7: sort of soft landing in place. If the commy continues

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Speaker 7: to growth at the same pace as it's doing right now,

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Speaker 7: the unemploying rate will stay relatively stable. You know, you

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Speaker 7: saw in the Summary of Economic Projections, the FED shows

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Speaker 7: a modest, very modest, further increase in the unemploying rate

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Speaker 7: of from four point two today to four point four percent,

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Speaker 7: but you know, nothing beyond that. So it's sort of

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Speaker 7: a soft you know, if you look at their forecast,

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Speaker 7: it's a soft landing kind of story, and you know,

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Speaker 7: I hope they could pull it off.

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Speaker 1: Right now, the stock market and the bod market are

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Speaker 1: trying to understand what the reaction function of the Federal

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Speaker 1: Reserve actually is and to which data they're going to

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Speaker 1: look at. It seemed like there was a renewed focus

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Speaker 1: on both jobs revisions as well as the Beige Book,

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Speaker 1: which was the input to potentially some of the heavier

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Speaker 1: weight on fifty basis points. Do you view that now

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Speaker 1: so as sort of these data points is taking on

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Speaker 1: outsized importance.

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Speaker 7: I think they are more focused on the liver market

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Speaker 7: because there has been deterioration in the labor market. I

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Speaker 7: think there are much more confident than inflation is going

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Speaker 7: to continue to come down because they've seen more slack

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Speaker 7: in the economy and the labor market. They've seen inflation

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Speaker 7: progress that we've already had, they've seen wage inflation moderating.

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Speaker 7: So I think their concerns are very much on the

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Speaker 7: labor market side.

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Speaker 8: So when I'm looking at the economic data right now,

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Speaker 8: I'm focused on the liver market data, and that will

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Speaker 8: determine whether, you know, we just get continued at a

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Speaker 8: relatively modest pace after this the twenty five basis point reductions,

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Speaker 8: which is essentially what was implied in the summary of

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Speaker 8: economic projections, or whether they'll become more concerned about downside

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Speaker 8: risk and then we'll have to get thrown a few fifties.

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Speaker 7: Bill.

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Speaker 6: Congratulations both on what you said they should do. And

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Speaker 6: what you said they would do. And part of your

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Speaker 6: argument was on the unemployment rate. So I want to

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Speaker 6: go back to that. There revision up to four point

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Speaker 6: four percent by the end of this year, stays at

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Speaker 6: four point four percent at the end of twenty twenty five.

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Speaker 6: Are you comfortable that we can stabilize here without the

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Speaker 6: tipping points that you were so worried about.

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Speaker 7: That's well, we're going to find out over the next year.

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Speaker 7: I mean, the somils are very simple, you know, tells

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Speaker 7: us a very simple story. When the unemployment rises beyond

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Speaker 7: a certain threshold, the next stop is a full long recession.

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Speaker 7: The question is what's the right threshold. Historically, the Sambrell

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Speaker 7: threshold has been a half a point rise in the

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Speaker 7: unemploying rate on a three month moving average basis over

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Speaker 7: the over twelve period. And we've already pierced that threshold.

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Speaker 7: So you have to believe that, you know, there is

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Speaker 7: some risk here. You know, Paul was asked about the

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Speaker 7: risk and you know, downside risk to the labor market,

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Speaker 7: and you sort of, you know, mostly dismissed that. But

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Speaker 7: I do think that I actually do think the risks

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Speaker 7: are you know, maybe at best they're balanced, But I

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Speaker 7: would actually be more concerned about the downside risk to

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Speaker 7: the labor market now than thee risk to inflation.

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Speaker 2: Bill, You'll always find a politician that's unhappy. I found one,

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Speaker 2: Senator Warren. This kind of interest rates has yet another

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Speaker 2: acknowledgement that power waited too long to reduce interest rates.

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Speaker 2: I do think the politics are relevant here. November seventh

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Speaker 2: will be the next meeting. We might have a decision

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Speaker 2: in hand by the American public as to who they'd

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Speaker 2: like the next president of the United States to be.

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Speaker 2: We might know the makeup of Congress as well. We

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Speaker 2: might have a better idea of what policy looks like

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Speaker 2: in twenty twenty five.

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Speaker 5: Bill, you've lift this.

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Speaker 2: You were on the FMC back in twenty sixteen, I believe,

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Speaker 2: can you walk me through your experience back then and

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Speaker 2: whether the same applies this time around.

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Speaker 7: I would be very surprised that the election outcome affected

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Speaker 7: what the FED does over the near term, because you know,

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Speaker 7: an election outcome is one thing, but what that incoming

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Speaker 7: president will be able to do with you know, as

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Speaker 7: closely divided Congress, Congress remains very uncertain, and so I

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Speaker 7: think the FED reacts to the world as it is

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Speaker 7: as opposed to speculates about how the world could be.

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Speaker 7: So I would be I would be very surprised if

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Speaker 7: the Fed doesn't cut rates at the November meeting. I mean,

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Speaker 7: if they don't cut rates of the November meeting, it's

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Speaker 7: because the economy is bounced back and very strong, or

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Speaker 7: the inflation news is really bad between now and then,

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Speaker 7: and that's not something I expect at this point. I

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Speaker 7: don't think that Powell expects it. I think, you know,

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Speaker 7: the odds of a twenty five basic point rate cut

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Speaker 7: in November are very very high, and if the economy shows,

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Speaker 7: you know, more weakness than maybe even fifty basis points.

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Speaker 2: I bill appreciate it as always built upley of Bloomberg

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Speaker 2: opinion the Fed should go big now I think it will.

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Speaker 2: It did it did about an hour and thirty minutes ago.

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Speaker 2: Let's bring Gid Michael McKee. He was in the news conference.

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Speaker 2: Mike McKee, I want your thoughts on that press conference

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Speaker 2: where there was a little bit of tension for you.

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Speaker 2: How did you walk out of this one?

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Speaker 9: Well, I don't think there was a huge amount of tension,

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Speaker 9: except for the fact that as you were just talking

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Speaker 9: about with Bill Dudley the idea that there is probably

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Speaker 9: more risk to the labor department, to the labor market

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Speaker 9: than the FED is letting on. And that's the concern.

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Speaker 9: And to get to my question at Lisa mentioned the

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Speaker 9: FED was data dependent until they were confident that inflation.

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Speaker 6: Was going to be down to target.

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Speaker 9: But how can they be data dependent on the unemployment rate?

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Speaker 9: We don't know what it's going to be, and as

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Speaker 9: Bill suggested, it could go up rapidly. Do we get

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Speaker 9: a rapid response then, especially since policy works with a lag,

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Speaker 9: it's a little unclear what their reaction function is going

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Speaker 9: to be going forward.

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Speaker 2: Might looking forward to catching up with you tomorrow. Lots

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Speaker 2: to talk about plenty more data just in the next

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Speaker 2: week or so. Equities right now on the SMP Lisa

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Speaker 2: firma by four tenths of one percent, the unperformance on

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Speaker 2: the small camps that you might expect.

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Speaker 1: Yeah, and the Fed basically gave this market what it

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Speaker 1: was looking for, and then some a question now of

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Speaker 1: just how much this market has moved ahead of what

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Speaker 1: the Fed has said. Mohammed, I would love your thoughts

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Speaker 1: on what the new data dependency actually is given the

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Speaker 1: fact that people are looking for a litmus test to

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Speaker 1: understand what the reaction function is of a FED. That

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Speaker 1: kind of is playing with what they get, which is

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Speaker 1: the same lack of clarity that we have.

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Speaker 6: Yeah, I think the data dependence all comes down to

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Speaker 6: the labor market, and he went through in detail a

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Speaker 6: number of indicators he looks at and when he says

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Speaker 6: the totality of the data, I think he really means

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Speaker 6: it when it comes to the labor market. Lisa, I'm

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Speaker 6: surprised you haven't picked up on the fixed income market

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Speaker 6: and what has happened to treasuries that they're now higher

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Speaker 6: on the day. There's been quite a move when this

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Speaker 6: statement was announced. The tenure went down to three sixty

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Speaker 6: four is currently trading at three seventy.

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Speaker 2: It's up six spaces points space. What do you think

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Speaker 2: that is?

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Speaker 6: I think they some and the curve has steepened. Two

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Speaker 6: stands are now nine basis points. I think there is

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Speaker 6: some concern as what does it mean longer term for inflation.

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Speaker 6: That's the only thing I can think of. But the

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Speaker 6: action has been really interesting, and once again you end

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Speaker 6: up in a different place after the press conference than

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Speaker 6: you wear after the statement.

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Speaker 4: Yes, no question about that I think of David Kelly

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Speaker 4: is JP Morgan. You know John, He's been very good

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Speaker 4: about a vector of nonfirm payrolls that gets you to

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Speaker 4: a negative statistic three month moving average about one hundred

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Speaker 4: and sixteen thousand. Nobody's modeling in here if this job

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Speaker 4: economy USANA one talks about continues to deteriorate.

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Speaker 2: So what are we saying here, Muhammed, We're willing to

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Speaker 2: accept three the high twos, or we're worried about going

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Speaker 2: back to three point five push in four? What's the

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Speaker 2: story here?

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Speaker 6: So we cannot answer that story without bringing in fiscal policy,

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Speaker 6: without bringing in structural reforms. I mean, that's the trap

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Speaker 6: we have all fallen into. That we still think of

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Speaker 6: the FED is the only game in town. But does

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Speaker 6: other things happening that that speak to? What is that weight?

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Speaker 6: And that's why the wage is so wide?

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Speaker 1: You brought this up actually when j Powell said this

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Speaker 1: over time and we're going to get down to two

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Speaker 1: percent over time, it raises this question, especially as he

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Speaker 1: talks about not mission accomplished but sort of you know,

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Speaker 1: wishing to wash plist.

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Speaker 5: But this idea that we could I'm going to ask

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Speaker 5: you to say that again.

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Speaker 1: Please, but this idea that you know, he's so excited

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Speaker 1: about the idea of a soft landing that it will okay,

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Speaker 1: it's okay for it to take a number of years

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Speaker 1: to get back to that two percent target.

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Speaker 6: And that's in the projections. I'm going to have him

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Speaker 6: in front of me, he said, co PC Right now,

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Speaker 6: it's two point seven. They're projected at two point six

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Speaker 6: at the end of this year, two point two at

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Speaker 6: then of next year, and two by twenty twenty six.

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Speaker 6: We basically pushed back the target.

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Speaker 4: I like what you said about mission accomplish, and it's

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Speaker 4: this terror of getting this wrong, whether you're a governor

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Speaker 4: or president. Chairman. Jason Furman out teaching AC ten up

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Speaker 4: at Harvard and he was lectured by his daughter John.

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Speaker 4: We got a tweet out from Jason Furman where his

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Speaker 4: daughter walked in and said to Professor Furman, you were wrong.

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Speaker 4: There's a lot of that going on right now.

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Speaker 2: A lot of people were wrong. I think we should

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Speaker 2: pointing this out. The market was priced for something closer

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Speaker 2: to fifty than twenty five. The overwhelming majority of economists

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Speaker 2: in our survey, and we surveyed more than one hundred

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Speaker 2: not even ten percent of them saw fifty. So shout

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Speaker 2: out Mike Faroli over a JP Morgan, one of the

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Speaker 2: very few together without a one guy belief over at

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Speaker 2: Bloomberg Economics, who we're looking for that fifty today.

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Speaker 6: Yeah.

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Speaker 1: Deutsche Back actually did an informal survey also that they

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Speaker 1: put out today, and something like sixty one percent roughly

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Speaker 1: and plus remnus a half a percent came out saying

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Speaker 1: that it was twenty five basis points. So this really

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Speaker 1: was kind of on the back foot.

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Speaker 4: I kept it quiet. Nobody cares what they think, but

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Speaker 4: the fact is I was wrong.

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Speaker 2: Jeff Rosenberger black Rock joins us now for more. He

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Speaker 2: wasn't wrong if you were waiting impatiently to give us

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Speaker 2: his views on this. Jeff, let's talk about the bond market,

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Speaker 2: and you can throw in your thoughts on this Federal Reserve.

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Speaker 2: To say, the projections in the news conference as well,

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Speaker 2: the botmarket's sunning golf. The thirty years up seven basis points,

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Speaker 2: the ten year is up six. What do you think

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Speaker 2: that signal was?

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Speaker 5: Jeff?

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Speaker 10: Yeah, I think the important point here is that there's

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Speaker 10: the action and the fifty basis points, and then there's

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Speaker 10: the expectation and what was priced in. And so while

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Speaker 10: the bond market was leaning towards the fifty basis points,

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Speaker 10: it was really more about that segment Jonathan of the

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Speaker 10: press conference that you highlighted.

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Speaker 5: I had it written in my.

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Speaker 10: Notes as well, the interchange where Powell said, you know,

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Speaker 10: don't take that fifty basis points as the new you

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Speaker 10: know pace, and he pushed back against you know, this

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Speaker 10: is going to be followed by he got several questions

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Speaker 10: on more fifties the problem, and I think to I

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Speaker 10: answer a bit of Muhammad's question, your question to Muhammad

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Speaker 10: and that interchange is that the bond market was pricing

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Speaker 10: in more subsequent fifties and into twenty twenty five still

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Speaker 10: is pricing in bigger increases than what you're getting in

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Speaker 10: the sep and Powell and the press conference really pushed

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Speaker 10: back against that.

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Speaker 5: So I think you have two things going on.

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Speaker 10: I'm very amenable to Mohammad and Lisa's comments that you know,

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Speaker 10: maybe this is a little bit of a sign of

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Speaker 10: inflation and some of those concerns what you're seeing in gold,

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Speaker 10: but it's also I think in the immediacy this is

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Speaker 10: a little bit disappointing relative to what's been built up

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Speaker 10: in bond expectations, and that from a broader perspective is

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Speaker 10: really an important point from an investment perspective that you

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Speaker 10: can have.

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Speaker 5: Here's the headline.

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Speaker 10: Fed cuts interest rates by fifty basis points and the

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Speaker 10: bond market returns are going to be negative today. So

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Speaker 10: it's not just you know, the action I can anticipate,

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Speaker 10: you know, the fence cutting rates.

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Speaker 5: It's time to back up the truck in terms of duration.

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Speaker 10: The problem is it's also a lot in the price,

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Speaker 10: so they've got to over deliver, and they didn't do

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Speaker 10: that relative to bond expectations. And that's why I think

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Speaker 10: you're seeing a little bit of that disappointment out of

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Speaker 10: fixed income markets and they're read on today's decision.

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Speaker 1: Jeff Muhammad scolded me because frankly, I wasn't paying enough

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Speaker 1: attention to the bond market. The bond market is speaking,

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Speaker 1: and the ten year note is speaking, and what it

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Speaker 1: is saying is it at least has a higher yield.

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Speaker 1: But we are speaking to the bond market right now.

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Speaker 1: Jeff Rosenberg, what is your reaction function? Does this make

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Speaker 1: you less interested on the margins in buying ten year

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Speaker 1: or twenty year or thirty year treasuries.

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Speaker 10: Yeah, you know, I've said in lots of different context

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Speaker 10: with you guys that you have to just be careful

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Speaker 10: about where you want to own your fixed income, that

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Speaker 10: the yield curve move can be more important, more determinant

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Speaker 10: to your fixed income returns than just the direction of

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Speaker 10: interest rates. A lot of times we just think about,

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Speaker 10: you want to own bonds when rates are going down

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Speaker 10: when the fed's cutting. You don't want to own bonds

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Speaker 10: when they're hiking. But because the curve is so flat.

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Speaker 5: We're off the peak of inversions.

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Speaker 10: But it's still a historic lack of premium in that

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Speaker 10: back end of the curve. That where you hold your

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Speaker 10: duration is going to matter as much as how much

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Speaker 10: duration you hold. So it's still that story for me.

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Speaker 10: It's still the front end is a little bit better

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Speaker 10: five years and in you want to be careful about

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Speaker 10: that term premium. And the other thing that I'm highlighting

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Speaker 10: here today is you just got to be careful about

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Speaker 10: how much is.

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Speaker 5: Already priced in.

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Speaker 10: This is unique about the beginning of a FED cutting cycle.

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Speaker 10: We're about twice the amount of expected cuts priced at

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Speaker 10: the onset.

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Speaker 5: This was John Otter's article.

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Speaker 10: In Bloomberg, he highlighted this, it's a great chart, about

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Speaker 10: twice the amount of historic FED pricing about over two

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Speaker 10: and a half over two one hundred basis points, whereas

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Speaker 10: historically you come in and there's only about one hundred

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Speaker 10: basis points, so a lot is expected. It raises the

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Speaker 10: bar for subsequent fixed income performance. We've had a great run,

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Speaker 10: but that tells you a lot of the performances in

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Speaker 10: the rear view mirror, and so you got to be

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Speaker 10: more thoughtful about where you own that duration around the

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Speaker 10: curve when we look forward.

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Speaker 1: Does it give you more confidence though to go into risk?

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Speaker 10: Jeff, Well, you know, I think the FED did its best.

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Speaker 10: And that was the interchange you just had with Dudley

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Speaker 10: the press conference.

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Speaker 5: Channel lenge was.

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Speaker 10: Give fifty without spooking the market. I think they're successful

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Speaker 10: today in there. That's the response in terms of small caps.

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Speaker 10: You only buy small caps when the fence cutting rates,

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Speaker 10: when you believe in the soft landing and the denominator effect,

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Speaker 10: the discount rate is dominating, you know, any of your

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Speaker 10: concerns in terms of growth.

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Speaker 5: So I think they navigated that pretty well.

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Speaker 10: I think when you go forward, you know it is

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Speaker 10: a soft landing baseline. I think that's exactly what the

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Speaker 10: SEP is saying. When you look at all of the

442
00:20:31,359 --> 00:20:34,840
Speaker 10: other economic data outside of the labor market data, you know,

443
00:20:34,880 --> 00:20:37,879
Speaker 10: it's all very good. It's all very supportive for risky

444
00:20:37,920 --> 00:20:41,240
Speaker 10: assets and the fixed income side. That's a carry story.

445
00:20:41,520 --> 00:20:44,040
Speaker 10: We're pretty comfortable with that. You got to be a

446
00:20:44,040 --> 00:20:46,320
Speaker 10: little bit careful that it's a symmetric that a very

447
00:20:46,359 --> 00:20:48,680
Speaker 10: tight spreads any sign of recession.

448
00:20:49,080 --> 00:20:51,119
Speaker 5: And I don't think we're really seeing.

449
00:20:51,119 --> 00:20:54,439
Speaker 10: The recessionary signs out of the labor markets, but you

450
00:20:54,520 --> 00:20:56,920
Speaker 10: have to be cogniz of it that that is the

451
00:20:56,960 --> 00:20:58,960
Speaker 10: one place where you're seeing some weakness.

452
00:20:59,160 --> 00:21:01,440
Speaker 5: But I think this is still supportive to risky assets.

453
00:21:01,480 --> 00:21:04,560
Speaker 2: It just quickly Jeff November seventh, how different is that

454
00:21:04,600 --> 00:21:07,600
Speaker 2: committee meeting going to be compared to this one?

455
00:21:08,600 --> 00:21:11,560
Speaker 10: Well, you know, as you pointed out, you know you're

456
00:21:11,600 --> 00:21:14,040
Speaker 10: coming on the back side of the election. But you know,

457
00:21:14,320 --> 00:21:17,160
Speaker 10: as Powell answered, they're going to try to avoid any

458
00:21:17,240 --> 00:21:19,040
Speaker 10: kind of discussion on that. It's really going to be

459
00:21:19,080 --> 00:21:21,280
Speaker 10: about the evolution of the data. You know, the interesting

460
00:21:21,359 --> 00:21:23,800
Speaker 10: data point in terms of revisions. You know, we talk

461
00:21:23,880 --> 00:21:27,280
Speaker 10: about data dependence The problem is that data we're dependent

462
00:21:27,280 --> 00:21:28,600
Speaker 10: on is not very dependable.

463
00:21:29,040 --> 00:21:30,280
Speaker 5: Try that out slowly.

464
00:21:31,119 --> 00:21:33,800
Speaker 10: But that's the payroll data, right, and so the revisions

465
00:21:33,800 --> 00:21:34,600
Speaker 10: are going to be important.

466
00:21:34,600 --> 00:21:36,240
Speaker 5: We're going to have another one that's going.

467
00:21:36,160 --> 00:21:40,040
Speaker 10: To dictate a lot of the discussion without a deceleration.

468
00:21:40,440 --> 00:21:42,440
Speaker 10: I don't think you're going to be talking about fifties,

469
00:21:42,520 --> 00:21:44,960
Speaker 10: but they've clearly laid the groundwork here for a twenty

470
00:21:45,000 --> 00:21:48,040
Speaker 10: five in November, twenty five in December. That's what I

471
00:21:48,080 --> 00:21:51,360
Speaker 10: think is will price back into the bond market. That's

472
00:21:51,359 --> 00:21:53,440
Speaker 10: why you're seeing a little bit higher rates. If they

473
00:21:53,480 --> 00:21:56,400
Speaker 10: deliver on that, then there won't be as much surprise

474
00:21:56,560 --> 00:21:58,399
Speaker 10: or anticipation as we had in this meeting.

475
00:21:58,640 --> 00:22:00,880
Speaker 6: So Jeff, let me ask the question that I suspect

476
00:22:00,880 --> 00:22:05,280
Speaker 6: you hate being asked. And let's assume that you're being

477
00:22:05,280 --> 00:22:08,840
Speaker 6: asked for a retail investor sixty forty simple portfolio. What

478
00:22:08,920 --> 00:22:11,119
Speaker 6: should they do now given everything you've.

479
00:22:11,000 --> 00:22:15,159
Speaker 10: Just said, Yeah, I mean, the part of this discussion

480
00:22:15,240 --> 00:22:18,240
Speaker 10: around the forty, around the fixed income piece, Mohammed is

481
00:22:18,480 --> 00:22:21,679
Speaker 10: is that it's not the old sixty forty. It's not

482
00:22:21,920 --> 00:22:26,520
Speaker 10: this era where bond volatility is three percent. Bond volatility

483
00:22:26,560 --> 00:22:30,240
Speaker 10: is six to eight percent in the post COVID environment.

484
00:22:30,600 --> 00:22:33,280
Speaker 10: So the forty side is really where we've got to

485
00:22:33,320 --> 00:22:35,919
Speaker 10: do some rethinking, and that's where we talk about.

486
00:22:35,640 --> 00:22:38,200
Speaker 5: Diversifying your diversifiers.

487
00:22:37,600 --> 00:22:40,800
Speaker 10: Thinking about different ways of finding ballast in your portfolio

488
00:22:41,240 --> 00:22:44,400
Speaker 10: because of the uncertainty of how duration and risk free

489
00:22:44,480 --> 00:22:47,920
Speaker 10: rates are going to perform in a more inflation uncertain environment.

490
00:22:47,960 --> 00:22:50,119
Speaker 10: That's the points about the yield curve and what's already

491
00:22:50,119 --> 00:22:52,240
Speaker 10: priced in. So I think in that sixty forty it's

492
00:22:52,280 --> 00:22:57,439
Speaker 10: really about, you know, using different ways to find diversification

493
00:22:57,840 --> 00:23:01,199
Speaker 10: and diversifying that forty bucket away from kind of just

494
00:23:01,240 --> 00:23:02,639
Speaker 10: piling into traditional duration.

495
00:23:02,760 --> 00:23:05,520
Speaker 6: Did I hear you say a more inflation uncertain environment?

496
00:23:06,600 --> 00:23:07,520
Speaker 5: That is what I said.

497
00:23:07,600 --> 00:23:10,119
Speaker 6: Yes, I don't think that's what Pole thinks.

498
00:23:11,720 --> 00:23:15,159
Speaker 10: There's greater confidence that inflation is on a path to

499
00:23:15,280 --> 00:23:18,399
Speaker 10: returning to two percent, but we're not at two percent

500
00:23:18,480 --> 00:23:21,000
Speaker 10: and that path, as we saw in the interchange, the

501
00:23:21,040 --> 00:23:25,520
Speaker 10: shelter inflation, the uncertainty around how far we're going, and

502
00:23:25,560 --> 00:23:29,080
Speaker 10: the wage inflation picture. Right, there's a lot of confidence

503
00:23:29,080 --> 00:23:32,240
Speaker 10: that we're moving towards there, but we're not quite there yet.

504
00:23:32,280 --> 00:23:36,520
Speaker 10: That's the point about a more uncertain inflationary environment, and

505
00:23:36,560 --> 00:23:40,080
Speaker 10: with respect to kind of negative stockbond correlation, which is

506
00:23:40,160 --> 00:23:40,640
Speaker 10: really the.

507
00:23:40,680 --> 00:23:42,879
Speaker 5: Driver of the sixty forty part.

508
00:23:43,040 --> 00:23:46,080
Speaker 10: The challenge is that was really working well in your

509
00:23:46,119 --> 00:23:50,280
Speaker 10: portfolio when inflation was missing from below. Inflation is still

510
00:23:50,280 --> 00:23:53,399
Speaker 10: missing from above, and until you get back to the

511
00:23:53,440 --> 00:23:56,520
Speaker 10: period where we have too little inflation, you're not really

512
00:23:56,560 --> 00:24:00,160
Speaker 10: back to that halcyon days of fixed income in sixty forty.

513
00:24:00,240 --> 00:24:03,280
Speaker 2: Jeff, this was perfect. Thank you, sir, Jeff Rosenberg. There

514
00:24:03,440 --> 00:24:05,760
Speaker 2: of black rock on the Federal Reserve decision. If you

515
00:24:05,800 --> 00:24:07,639
Speaker 2: are just joining us, welcome to the program. It's a

516
00:24:07,640 --> 00:24:10,560
Speaker 2: fifty basis point CUD from the Federal Reserve with some descent,

517
00:24:10,920 --> 00:24:13,639
Speaker 2: the first descent we've seen from a sitting governor on

518
00:24:13,640 --> 00:24:16,399
Speaker 2: the FMC going all the way back to two thousand

519
00:24:16,480 --> 00:24:19,560
Speaker 2: and five Governor Mickey Bowman. Not a surprise for many

520
00:24:19,560 --> 00:24:21,240
Speaker 2: of you who's followed some of those speeches over the

521
00:24:21,320 --> 00:24:23,679
Speaker 2: last month or so. If you're looking at the equity market,

522
00:24:23,840 --> 00:24:26,399
Speaker 2: just about just about attempting to hold on to an

523
00:24:26,440 --> 00:24:28,800
Speaker 2: eighth day of gains on a S and P five hundred,

524
00:24:29,000 --> 00:24:31,199
Speaker 2: and it's a struggle. We turned slightly negative on the

525
00:24:31,240 --> 00:24:33,920
Speaker 2: SMP on the NASNAK one hundred, we're negative by zero

526
00:24:34,000 --> 00:24:37,639
Speaker 2: point zero five percent. Mohammed, just a final thought what

527
00:24:37,760 --> 00:24:40,560
Speaker 2: I heard from you, then, if you have any confidence

528
00:24:40,600 --> 00:24:43,000
Speaker 2: the inflation story is done, that we're on a one

529
00:24:43,040 --> 00:24:45,040
Speaker 2: way trip now back to neutral, which might be around

530
00:24:45,080 --> 00:24:48,440
Speaker 2: three percent, are you suggesting that confidence might be misplaced?

531
00:24:48,680 --> 00:24:51,360
Speaker 6: I think it's too early to declare mission accomplished. We've

532
00:24:51,400 --> 00:24:55,240
Speaker 6: come a long way, but their inherent contradiction that still

533
00:24:55,240 --> 00:24:58,040
Speaker 6: have to be sorted. John, this was historic. I mean,

534
00:24:58,080 --> 00:25:00,679
Speaker 6: we're going to look back on this day not only

535
00:25:00,720 --> 00:25:04,680
Speaker 6: as the beginning of the cutting cycle, but as having

536
00:25:04,720 --> 00:25:09,160
Speaker 6: we calibrated what we mean by fifty basis point start

537
00:25:09,280 --> 00:25:11,640
Speaker 6: to a cutting cycle. And we're going to look back

538
00:25:11,680 --> 00:25:14,520
Speaker 6: and either this will be the absolutely white bet, which

539
00:25:14,560 --> 00:25:17,879
Speaker 6: is be preemptive on the labor market after you were

540
00:25:18,000 --> 00:25:21,320
Speaker 6: reactive to inflation this is a fundamental change in their

541
00:25:21,320 --> 00:25:25,200
Speaker 6: reaction function. Or alternatively, we will look at this as

542
00:25:25,240 --> 00:25:28,199
Speaker 6: being too aggressive. I'm hoping that it will be the first,

543
00:25:29,160 --> 00:25:32,680
Speaker 6: because we all want the labor market to do well.

544
00:25:32,800 --> 00:25:34,880
Speaker 1: Of course, Michael B. Key asked for about being preemptive,

545
00:25:34,920 --> 00:25:37,520
Speaker 1: and he said data dependency or the totality of data

546
00:25:37,640 --> 00:25:39,320
Speaker 1: My big issue coming out of this is do we

547
00:25:39,400 --> 00:25:42,200
Speaker 1: understand the fed's reaction function more or do we understand

548
00:25:42,240 --> 00:25:43,600
Speaker 1: it less than we did before.

549
00:25:43,760 --> 00:25:45,240
Speaker 2: I think we've got a lot of questions that still

550
00:25:45,240 --> 00:25:47,440
Speaker 2: demand answers, and hopefully we'll get them over the next

551
00:25:47,440 --> 00:25:49,840
Speaker 2: few weeks, but I doubt it once that data starts

552
00:25:49,880 --> 00:25:51,600
Speaker 2: to come in. I'm looking forward to hearing from the

553
00:25:51,640 --> 00:25:53,960
Speaker 2: rest of the committee, aren't you. Oh yeah, over the

554
00:25:53,960 --> 00:25:54,720
Speaker 2: next few days.

555
00:25:54,760 --> 00:25:55,720
Speaker 1: It's quiet a sense.

556
00:25:55,920 --> 00:25:58,080
Speaker 2: Yeah, let's just see how close some of them were

557
00:25:58,320 --> 00:26:02,119
Speaker 2: to actually gun twenty five, not the fifty Mohammed Thank you,