WEBVTT - Jay Powell, Inflation, and the Biden Budget 0:00:00.760 --> 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 --> 0:00:18.400 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.720 at Bloomberg dot com slash podcast. Let's break it down 0:00:21.760 --> 0:00:23.480 a little bit. We'll get some experts in here, get 0:00:23.520 --> 0:00:29.520 some smart people in the studio. As John Tucker walks out, well, 0:00:29.520 --> 0:00:32.240 it's about I wanted to beat him to it. Ira Jersey, 0:00:32.280 --> 0:00:35.200 chief US interest rate Strategists with Bloomberg Intelligence. He's based 0:00:35.200 --> 0:00:37.600 down there in that Princeton area. Michael McKee and or 0:00:37.640 --> 0:00:43.880 Bloomberg Interactive Broker Studio covered all things economics for Bloomberg Editorial, 0:00:43.920 --> 0:00:46.120 So we appreciate getting these folks on the do a 0:00:46.120 --> 0:00:49.240 little bit of a roundtable here. Let's start with you here. 0:00:50.400 --> 0:00:54.000 I don't know inversion, biggest inversion since nineteen eighty one. 0:00:54.400 --> 0:00:55.960 I mean that was a good year for me, nineteen 0:00:56.000 --> 0:00:59.000 eighty one, by the way, But you know, what does 0:00:59.000 --> 0:01:01.840 that What does that mean to you? Um? It means 0:01:01.880 --> 0:01:05.400 that maybe Blondie's going to come back, Um, Bell bottoms 0:01:05.440 --> 0:01:08.720 and uh and plaid UM. But you know, the the 0:01:08.760 --> 0:01:12.840 inversion is not a huge surprise because at some point, UM, 0:01:12.920 --> 0:01:15.840 we're going to have a significant slowdown in economic activity 0:01:15.959 --> 0:01:18.440 and inflation is going to slow. The question is when, 0:01:19.120 --> 0:01:21.800 um number one and then number two? UM. And this 0:01:21.880 --> 0:01:24.400 is where you know yesterday was important, and I think 0:01:24.400 --> 0:01:28.480 today's reiteration by Chair Powell that there's a possibility that 0:01:28.520 --> 0:01:31.360 they can go fifty basis points in March and certainly 0:01:31.680 --> 0:01:34.080 go higher than what we were expecting prior to his 0:01:34.160 --> 0:01:38.440 testimony yesterday. UM, is it's reasonable to think that we 0:01:38.440 --> 0:01:41.520 could even invert further because the more that the Fed hikes, 0:01:41.520 --> 0:01:43.800 and I've been of this opinion for quite some time 0:01:43.840 --> 0:01:46.440 that the more that the Fed hikes, the the harder 0:01:46.520 --> 0:01:49.000 the ultimate landing will be. UM. You know that the 0:01:49.040 --> 0:01:50.920 timing of when that landing is I think it's more 0:01:50.920 --> 0:01:53.040 in doubt as opposed to whether or not we'll have 0:01:53.120 --> 0:01:55.600 a hard landing. It's just a matter of when. And 0:01:55.880 --> 0:01:58.680 that's why you can get the yield curve inverted by 0:01:58.720 --> 0:02:00.640 one hundred and ten basis points now and maybe one 0:02:00.720 --> 0:02:03.600 hundred and twenty five hundred and fifty basis points ultimately 0:02:03.640 --> 0:02:07.000 in the future. So Mike hop on in here, Michael mckear, 0:02:07.120 --> 0:02:10.720 International Economics and Policy corresponded, to get your title right. 0:02:10.840 --> 0:02:15.160 Fancies fancy that guy? Yeah, that the guy who knows 0:02:15.160 --> 0:02:17.720 the stuff. Well, did we really hear anything new here? 0:02:17.760 --> 0:02:19.800 I mean in today's session or did it was yesterday? 0:02:19.840 --> 0:02:24.200 Really kind of the testimony that took the cake. Almost 0:02:24.240 --> 0:02:28.160 everything that we've heard today has been essentially a repeat. However, 0:02:29.320 --> 0:02:33.440 he did throw in an important line or two when 0:02:33.480 --> 0:02:36.680 he was reading his testimony that they have made no 0:02:36.760 --> 0:02:40.160 decision about twenty five or fifty. That they're going to 0:02:40.200 --> 0:02:44.079 be monitoring the incoming data. The totality of the data 0:02:44.120 --> 0:02:48.280 includes the Job's report, he said, the CPI report. They'll 0:02:48.320 --> 0:02:51.720 be looking at those, they'll be looking at jolts. They're 0:02:51.720 --> 0:02:55.000 going to look at everything that they've got between now 0:02:55.000 --> 0:02:59.799 and then and then make a decision. So I think 0:02:59.800 --> 0:03:05.200 it is probably premature to lock in a bet on 0:03:05.440 --> 0:03:08.640 fifty basis points because the numbers could obviously change that. 0:03:08.919 --> 0:03:12.680 If we get strong numbers, then the Fed is probably 0:03:12.720 --> 0:03:15.520 going to do fifty because he's opened the door for that. 0:03:16.440 --> 0:03:19.079 So Michael, just in terms of the economy, it seemed 0:03:19.120 --> 0:03:21.959 like the recession talk. But I think I was asking 0:03:21.960 --> 0:03:23.760 this question maybe it's recently as two weeks ago. Is 0:03:23.800 --> 0:03:27.160 the recession talk? Is that off the table now? Boy, 0:03:27.160 --> 0:03:29.280 that seems like a long time ago, because now it 0:03:29.320 --> 0:03:31.720 feels like it's right back on their front and center. Yeah, 0:03:31.760 --> 0:03:34.519 if you're looking at the eeel curve, it's right back 0:03:34.560 --> 0:03:37.200 on their front and center. My question was, and I 0:03:37.240 --> 0:03:41.440 was talking about this earlier on Bloomberg Surveillance, if you 0:03:41.560 --> 0:03:44.920 look at a chart of the two year, ten year, 0:03:45.000 --> 0:03:49.120 just to pick one, and you put down the dates 0:03:49.280 --> 0:03:52.320 that we saw the job the FED meaning the Jobs report, 0:03:52.720 --> 0:03:55.440 the CPI report, the retail sales report, and then don't 0:03:55.480 --> 0:03:58.760 forget Laurdemester and Jim Bullard coming out and saying well 0:03:58.800 --> 0:04:01.160 we could have done fifty. You look at all those things, 0:04:01.200 --> 0:04:04.560 and what happened with the yield curve. When those things happened, 0:04:04.800 --> 0:04:09.600 it just traded sideways. It wasn't until yesterday really, until 0:04:09.760 --> 0:04:12.480 Jay Powell came out and said, well, we're going to 0:04:12.600 --> 0:04:15.120 have to do what the yield curve is telling us, 0:04:15.440 --> 0:04:18.000 and you we should be doing. So. I wonder why 0:04:19.600 --> 0:04:22.440 all of a sudden people have decided that this is 0:04:22.680 --> 0:04:27.080 a real thing that we have to react so tremendously too, 0:04:27.520 --> 0:04:29.760 when the data has been pointing in this direction for 0:04:29.800 --> 0:04:32.919 a long time. Well, Irah, you do this for a living. 0:04:33.120 --> 0:04:36.160 Tell us, why why are we looking at a yielding 0:04:36.240 --> 0:04:38.600 version here of one oh eight? What is that really 0:04:38.640 --> 0:04:42.719 telling us? Well, it's all about expectations. So I was 0:04:42.760 --> 0:04:46.640 just just for fun. I was looking at the one 0:04:46.720 --> 0:04:48.920 year forward rates and what the market was implying where 0:04:49.320 --> 0:04:52.440 one year rates would be on a forward basis. And 0:04:52.640 --> 0:04:55.520 when you look at something like one year where the 0:04:55.520 --> 0:04:57.840 one year rate is expected to be three years from now, 0:04:58.160 --> 0:05:01.719 what you realize is, hey, the market's expecting, um, the 0:05:01.800 --> 0:05:04.240 one year rate to be at three point six percent, right, 0:05:04.279 --> 0:05:06.680 so we're talking about, um, you know, one hundred and 0:05:06.760 --> 0:05:09.200 fifty basis points lower than where it is now. So 0:05:09.600 --> 0:05:11.800 all that the market is telling you when it's inverted 0:05:11.800 --> 0:05:14.080 like this, is that the market expects interest rates to 0:05:14.160 --> 0:05:16.479 be lower in the future than they are today. Um. 0:05:16.600 --> 0:05:19.880 And and because of that, you know, And the reason 0:05:20.000 --> 0:05:21.880 is why why does it think that? Well, it thinks 0:05:21.880 --> 0:05:24.200 that because of what I mentioned earlier, is that at 0:05:24.200 --> 0:05:26.360 some point we're going to have a recession. We're going 0:05:26.400 --> 0:05:28.800 to see lower interest rates, We're going to see lower 0:05:28.839 --> 0:05:32.599 inflation UM, and what the market's saying right now is 0:05:32.600 --> 0:05:35.159 that that that's not going to probably start till twenty 0:05:35.200 --> 0:05:37.240 twenty four at this point. So so we're in a 0:05:37.320 --> 0:05:38.960 situation where the FED is going to hike more and 0:05:39.040 --> 0:05:41.240 and the Fed's going to keep rates high. That's what 0:05:41.279 --> 0:05:44.880 the market's uh indicating right now. That's saying that one 0:05:44.920 --> 0:05:46.440 year rates a year from now, we're still going to 0:05:46.520 --> 0:05:49.600 be five percent UM, and that means that you know, 0:05:49.680 --> 0:05:51.760 we're we're probably just going to have a harder landing 0:05:51.839 --> 0:05:55.040 and um and ultimately have a recession. It's just you know, 0:05:55.080 --> 0:05:57.839 these long lags, like like there's not like a set 0:05:57.920 --> 0:06:00.200 time when you say, okay, when two stents inverts, when 0:06:00.240 --> 0:06:02.320 three tens and birds that you're going to get a 0:06:02.360 --> 0:06:04.480 recession right there. There's all these models that the FED 0:06:04.520 --> 0:06:07.280 has and all the economists have, but the thing is 0:06:07.279 --> 0:06:10.160 is that there's a massively wide range as to how 0:06:10.200 --> 0:06:13.920 long that takes. And obviously this cycle is significantly different 0:06:13.920 --> 0:06:16.279 from demos others, in particular because of how tight the 0:06:16.320 --> 0:06:18.720 labor market is. If the labor market wasn't nearly as 0:06:18.760 --> 0:06:21.640 sized as it is, we'd probably already be in a recession. 0:06:21.640 --> 0:06:24.799 We're very darn close to one. But but the fact 0:06:24.880 --> 0:06:28.559 is is that we have changing paradigm in the labor 0:06:28.600 --> 0:06:31.320 market since the end of the pandemic. That's I think 0:06:31.320 --> 0:06:34.159 caused the economy to be more robust than almost anyone 0:06:34.480 --> 0:06:36.920 had expected it to be six months ago or even 0:06:36.920 --> 0:06:40.000 three months ago. Hey, Mike, you know Irish just mentioning 0:06:40.360 --> 0:06:43.120 the Jolts number, and again it's surprised to the upside. 0:06:43.120 --> 0:06:45.720 I guess ten point eight two million job openings versus 0:06:45.760 --> 0:06:48.400 the consensus it's had ten point five five And then 0:06:48.440 --> 0:06:51.719 Bloomer's got a fascinating story that I was talking about earlier. 0:06:52.160 --> 0:06:54.599 Restaurant people are going back to the restaurants like crazy 0:06:54.640 --> 0:06:57.159 despite the inflation, and restaurants are like Gray will up 0:06:57.240 --> 0:06:59.200 up more stores, but they can't find people to work 0:06:59.200 --> 0:07:03.960 in them. What has changed fundamentally about the US labor force? 0:07:04.000 --> 0:07:07.240 Are people really just leaving their incoming back? There are 0:07:07.320 --> 0:07:09.600 fewer people in the labor I mean, the good news 0:07:09.680 --> 0:07:11.760 is you guys are doing a morning show here where 0:07:11.840 --> 0:07:13.640 so you can go out and get a restaurant job 0:07:13.680 --> 0:07:19.720 to not out here on the side. Yeah, exactly. We 0:07:19.800 --> 0:07:23.640 have seen a definite shrinking in the labor force that 0:07:23.800 --> 0:07:25.720 has come about for a number of reasons. We've had 0:07:25.760 --> 0:07:29.920 a long term drop in labor force participation by older 0:07:29.960 --> 0:07:33.240 workers because the baby boomers are hitting sixty five and 0:07:33.440 --> 0:07:36.880 they are starting to retire, and a lot of them 0:07:36.920 --> 0:07:40.280 just up and retired during the pandemic because they couldn't 0:07:40.280 --> 0:07:42.200 go to work anyway, and they say, oh, might as well, 0:07:42.800 --> 0:07:45.840 you know, get that social Security check um. And then 0:07:46.000 --> 0:07:48.720 we saw a lot of people, as they do go 0:07:48.760 --> 0:07:50.640 back to school during that period, took off some of 0:07:50.640 --> 0:07:55.280 the young people. Uh. And then we had and I 0:07:55.280 --> 0:07:57.960 should throw in, of course, the childcare issues that we 0:07:58.040 --> 0:08:01.920 had in schools out that we had basically a lot 0:08:01.960 --> 0:08:04.840 of people who were looking at the jobs in restaurants 0:08:04.840 --> 0:08:07.920 and saying, well, there's a lot of jobs open that 0:08:08.000 --> 0:08:10.720 won't require me to walk around on my feet for 0:08:10.760 --> 0:08:14.080 eight hours a day and struggle for tips. And so 0:08:14.160 --> 0:08:16.960 people went into other fields of work. So it's been 0:08:17.000 --> 0:08:19.960 a while. The jobs that are have been growing the 0:08:20.000 --> 0:08:23.080 fastest now our restaurant jobs, because they're finally getting around 0:08:23.120 --> 0:08:26.320 to people who are willing to take the jobs again 0:08:26.400 --> 0:08:28.920 and they are getting paid a little bit more now. 0:08:29.000 --> 0:08:32.800 So it's it's been a combination of factors, but it's 0:08:32.800 --> 0:08:36.640 been an issue and one that's gonna likely remain. We're 0:08:37.400 --> 0:08:40.400 not going to see a big increase in the labor force, 0:08:40.480 --> 0:08:42.480 it looks like, and I guess that I just a 0:08:42.520 --> 0:08:44.959 little bit of follow the immigration that's got to play 0:08:44.960 --> 0:08:46.880 a part in it. I mean, immigration became so much 0:08:46.880 --> 0:08:51.040 tougher over the last several years, and especially for some 0:08:51.120 --> 0:08:54.840 of these lower end jobs. If you're an immigrant who 0:08:54.880 --> 0:08:56.880 doesn't speaking, it's gonna be hard to get a restaurant 0:08:56.960 --> 0:09:00.559 or or at least in front of the house restaurant 0:09:00.640 --> 0:09:05.199 or bar job. But other lower paid jobs, it's been 0:09:05.240 --> 0:09:08.079 hard to fill them because they can't find people who 0:09:09.120 --> 0:09:11.679 who want to work for those wages, and immigrants played 0:09:11.679 --> 0:09:15.560 a big role in filling that in the past. Well, 0:09:15.600 --> 0:09:18.160 Ira Hot back in here because we talked a little 0:09:18.160 --> 0:09:20.120 bit about the labor market. Of course, the payrolls report, 0:09:20.160 --> 0:09:23.840 I think, what is it ten ten positive or beat 0:09:23.960 --> 0:09:26.280 or hot reports or something like that is a statistic 0:09:26.320 --> 0:09:30.080 I saw that's on Friday. Then you've got CPI on Tuesday, 0:09:30.240 --> 0:09:35.080 with inflation expected to drop again, um by some margin. 0:09:35.480 --> 0:09:38.080 What is the trade on Monday sandwich between the two 0:09:38.160 --> 0:09:42.120 data points. Um, well, I'm not sure Monday will be 0:09:42.120 --> 0:09:44.160 because obviously Friday is going to be the big one. 0:09:44.200 --> 0:09:47.959 And and we actually did some work on, you know, 0:09:48.080 --> 0:09:51.040 how how big moves tend to be in the bond 0:09:51.080 --> 0:09:54.640 market based on the different data points. And even though 0:09:54.840 --> 0:09:58.240 CPI and inflation is, you know, the hot topic and 0:09:58.320 --> 0:10:00.520 the reason why the Fed's hiking some ch and the 0:10:00.559 --> 0:10:03.280 reason why markets moving the way they are, the market 0:10:03.360 --> 0:10:06.120 still tends to move the most on the payrolls report, 0:10:06.120 --> 0:10:09.040 on the employment number and it's not necessarily the employment 0:10:09.120 --> 0:10:12.600 number itself, although obviously that's critically important, but it's really 0:10:12.640 --> 0:10:14.960 it's also the wage data, right, So the wage numbers 0:10:14.960 --> 0:10:17.440 that come out because like Mike was talking about, with 0:10:18.280 --> 0:10:21.520 a lot of the changes in the job market, Um, 0:10:21.800 --> 0:10:26.080 you know, services jobs and services inflation tend to be 0:10:26.760 --> 0:10:32.680 influenced most heavily by them by the wages of services workers. 0:10:32.960 --> 0:10:36.000 So if restaurant employees are making more money, that's going 0:10:36.040 --> 0:10:37.920 to be passed on at least to some degree to 0:10:38.160 --> 0:10:40.440 their consumer. Right that either that or the margins for 0:10:40.480 --> 0:10:44.600 those businesses have to contract. So so the the job 0:10:44.720 --> 0:10:46.559 number is going to be critically important, and I think 0:10:46.559 --> 0:10:49.560 the CPI report maybe a little bit less so interestingly, 0:10:49.640 --> 0:10:52.280 and I think this is um kind of with in 0:10:52.320 --> 0:10:55.720 our analysis of the market moves versus the data released, 0:10:56.080 --> 0:10:58.599 retail sales actually is the second most important and with 0:10:58.760 --> 0:11:02.240 CPI as a third. So so retail sales is still 0:11:02.280 --> 0:11:04.800 which makes sense, right, So if there's more demand and 0:11:04.920 --> 0:11:08.640 sales remain strong, then clearly prices will probably be stickier 0:11:08.640 --> 0:11:11.520 than they would be if if sales started to either 0:11:11.600 --> 0:11:15.120 decline or didn't grow as quickly as they had men So, 0:11:15.120 --> 0:11:18.200 so really it's still retail sales and jobs still are 0:11:18.720 --> 0:11:22.080 the key elements of what the market is looking at 0:11:22.280 --> 0:11:25.600 in terms of in terms of the future moves. All right, ire, 0:11:25.720 --> 0:11:28.480 let's fast forward to March twenty second, what is your 0:11:28.520 --> 0:11:33.600 federal reserve going to do? Twenty five, fifty or maybe other? Yeah, 0:11:33.640 --> 0:11:36.640 so you know, it's it's hard to gauge right now 0:11:36.640 --> 0:11:39.840 because I do think that they are incredibly data dependent. 0:11:39.960 --> 0:11:42.640 So if the data comes out as strong as the 0:11:42.679 --> 0:11:45.240 market's expecting, then I would not be surprised to see 0:11:45.240 --> 0:11:48.280 a fifty basis point move again, I think seventy five 0:11:48.440 --> 0:11:50.560 like so that other you know, there has been some 0:11:50.600 --> 0:11:53.160 talk about that. But I don't see the FED jumping 0:11:53.240 --> 0:11:56.600 from twenty five basis point moves to seventy five, you know, 0:11:56.679 --> 0:11:58.959 incrementally that though they could move back to a fifty 0:11:59.000 --> 0:12:01.160 basis point move, particularly if the data is very hot, 0:12:02.200 --> 0:12:05.240 it's that stepped down versus step up approach. It feels 0:12:05.240 --> 0:12:08.880 like if we go fifty, Mike, how scary is that? 0:12:08.960 --> 0:12:11.120 Did that? Then put on the table perhaps seventy five 0:12:11.280 --> 0:12:17.080 for the next meeting? No, UM, want to make it 0:12:17.120 --> 0:12:19.680 that way. Remember where we are, not where we were. 0:12:19.720 --> 0:12:21.800 I mean we're at four seven five. Now, if you 0:12:21.800 --> 0:12:26.280 did fifty, you'd be at twenty five, So seventy five 0:12:26.320 --> 0:12:30.160 would put you over six at that point? Why why 0:12:30.840 --> 0:12:33.199 you wouldn't need to go that fat far that fast? 0:12:33.240 --> 0:12:35.560 And the feed isn't sure that it needs to go 0:12:35.800 --> 0:12:39.440 to six yet we haven't even seen their SEP So 0:12:39.559 --> 0:12:42.400 I think that it doesn't put seventy five on the table. 0:12:42.720 --> 0:12:47.800 But what it does do is raises the question of 0:12:47.840 --> 0:12:51.920 were they behind the curve? And I think what what 0:12:52.200 --> 0:12:54.680 to be honest if everybody were honest about it, is 0:12:54.720 --> 0:12:58.400 everybody's behind the curve. And if we get this data 0:12:58.440 --> 0:13:01.160 that comes in strong and they're doing the market's going 0:13:01.160 --> 0:13:04.040 to be essentially giving them permission to do it, saying, 0:13:04.200 --> 0:13:07.320 you know, this is uh, this is scaring us too. 0:13:07.600 --> 0:13:11.240 And so the FED would do probably fifty, as Iris says, 0:13:11.360 --> 0:13:13.920 to catch up. But I don't think they need to 0:13:13.920 --> 0:13:17.040 go beyond that, I mean not in one move. Put 0:13:17.040 --> 0:13:19.400 it that way, all right. I'm looking at the World 0:13:19.559 --> 0:13:23.679 interest rate probability function on the Bloomberg turb Terminal WARP 0:13:23.880 --> 0:13:26.559 wi RP, and it shows me it's kind of got. 0:13:27.160 --> 0:13:31.120 I don't know. FED fund rates peaking maybe September ish 0:13:31.120 --> 0:13:35.040 around five point six percent. Is that enough because I've 0:13:35.040 --> 0:13:37.520 been hearing talk about a six percent number, maybe even 0:13:37.559 --> 0:13:42.440 six and a quarter. Is the market still not buying it? Well? 0:13:42.720 --> 0:13:45.719 I think the markets, you know, when we look at 0:13:45.760 --> 0:13:48.439 something like w IRP, we're looking at a linear probability. 0:13:48.520 --> 0:13:51.640 So we're saying, okay, the the average, right, So so 0:13:51.720 --> 0:13:54.439 the average, the weight at average thinks that we're going 0:13:54.480 --> 0:13:56.559 to hike to around five point seventy five percent at 0:13:56.559 --> 0:13:59.079 this point, right, which is gets you too. And that's 0:13:59.080 --> 0:14:01.800 on the upper bounds. That's a five point six percent, 0:14:01.840 --> 0:14:04.240 which is it looks like the market is pricing that 0:14:04.320 --> 0:14:07.320 for four July. But keep in mind, is that some 0:14:07.400 --> 0:14:09.640 of that is six percent, and then built into that 0:14:09.679 --> 0:14:12.440 also is only five and a half. So you know, 0:14:12.440 --> 0:14:14.920 when you think about the probabilities that are being built in, 0:14:15.040 --> 0:14:18.520 that's just the kind of the the median probability or 0:14:18.520 --> 0:14:22.280 the mean probability of that distribution. So, I, you know, 0:14:22.320 --> 0:14:24.880 it's very unclear right now, and I think that the 0:14:25.200 --> 0:14:27.680 Federal Reserve is still in calibration mode, and they've been 0:14:27.720 --> 0:14:30.240 in calibration mode for the last you know, basically since 0:14:30.280 --> 0:14:33.360 the December meeting. But you know, is that calibration going 0:14:33.400 --> 0:14:34.920 to be that we're only hiking to five and a 0:14:35.000 --> 0:14:36.360 half or is it that we have to hike to 0:14:36.440 --> 0:14:39.280 six because the data is not not cooperating the way 0:14:39.320 --> 0:14:41.280 that we had hoped, and it's possible that they could 0:14:41.280 --> 0:14:44.520 go more. Right like, look, right now, we're all data 0:14:44.560 --> 0:14:48.280 dependent and almost everyone's forecast from the beginning of the year. 0:14:48.280 --> 0:14:49.840 If you go back to December and you look at 0:14:49.880 --> 0:14:52.240 what everyone was thinking the path of the economy and 0:14:52.240 --> 0:14:55.600 inflation was going to be in in twenty twenty three, 0:14:55.800 --> 0:14:59.080 the January data blew those up. And because of that, 0:14:59.160 --> 0:15:03.600 we're now to say, okay, is the market going to 0:15:03.600 --> 0:15:05.800 follow what the economy is doing. And if the economy 0:15:05.880 --> 0:15:08.000 is hot, that means we're going to have higher interest 0:15:08.080 --> 0:15:09.400 rates in the front and that means we're going to 0:15:09.440 --> 0:15:12.760 get a more inverted yield curve. And that's just the 0:15:12.800 --> 0:15:14.640 way that I think this year is going to shape 0:15:14.680 --> 0:15:16.120 up is that we just have to look at each 0:15:16.200 --> 0:15:18.240 data point as it comes in, and the Fed is 0:15:18.240 --> 0:15:20.560 going to be reactive to all of those. I're at 0:15:20.600 --> 0:15:22.120 thirty seconds, yere, I'm gonna put you on the spot 0:15:22.120 --> 0:15:23.760 and looking at a two year yield at five oz 0:15:23.920 --> 0:15:26.960 two for talking about six percent, do we also see 0:15:27.000 --> 0:15:29.840 six percent on the two year yield this year? Now, 0:15:30.400 --> 0:15:32.840 the two year yield will would probably get up to 0:15:32.880 --> 0:15:35.960 like five twenty five, five forty, because that really depends 0:15:35.960 --> 0:15:38.360 on when they start to cut and which the market 0:15:38.400 --> 0:15:40.280 is still going too price for twenty twenty four cuts 0:15:40.320 --> 0:15:42.440 at some point, So the question is how fast and 0:15:42.480 --> 0:15:45.000 when do they start those cuts. So you'll never have 0:15:45.120 --> 0:15:46.920 the two year yield up to the Fed funds rate, 0:15:47.240 --> 0:15:50.320 but it'll be it'll still go in the same direction, 0:15:50.400 --> 0:15:53.280 just with a lower data All right, good stuff, I Jersey, 0:15:53.320 --> 0:15:55.280 thank you so much for joining us. Our Jersey chief 0:15:55.360 --> 0:15:58.240 US interest Rate strategist for Bloomer Intelligence, joining us from 0:15:58.520 --> 0:16:00.640 Lovely Princeton, New Jersey. Michael mcke here in the Bloomberg 0:16:00.640 --> 0:16:04.240 inter Actor Broker Studio, International Economics and Policy reporter for 0:16:04.320 --> 0:16:07.520 Bloomberg TV and Radio, just kind of breaking down what 0:16:07.560 --> 0:16:10.720 we have been hearing from this feder Reserve, what we 0:16:10.760 --> 0:16:13.440 were likely to see from the Federal Reserve, kind of 0:16:13.480 --> 0:16:15.880 in the context of a lot of data coming out 0:16:16.360 --> 0:16:18.480 over the next several days. It seems like there always 0:16:18.560 --> 0:16:20.960 is data, but this is a really important because, as 0:16:21.240 --> 0:16:24.600 Mike mckehon and our Jersey were suggesting, this is a 0:16:24.640 --> 0:16:27.480 federal reserve that is data dependent. So the day we'll 0:16:27.520 --> 0:16:30.240 be looking at, you know, the job's number on Friday, 0:16:30.280 --> 0:16:34.480 the CPI number next week, retail sales as well, so 0:16:34.520 --> 0:16:41.040 we'll be following that as well. Alice Andrea Joyan says 0:16:41.080 --> 0:16:45.120 she's US Interest Rates and Foreign Exchange reporter for Bloomberg News. Alice, 0:16:45.120 --> 0:16:47.480 I'd love to get your perspective on kind of how 0:16:47.520 --> 0:16:50.920 you've interpreted FED Chairman Pal's test menu over the past 0:16:50.960 --> 0:16:54.000 couple of days. Well, you know, he really had an 0:16:54.000 --> 0:16:57.040 opportunity to walk it back today and take back a 0:16:57.080 --> 0:16:59.800 little bit of that hawkishness that he brought out yesterday, 0:16:59.840 --> 0:17:03.360 and he just didn't you know, we settled September fed 0:17:03.440 --> 0:17:06.600 swaps around five to sixty three yesterday and they're five 0:17:06.800 --> 0:17:10.280 sixty four today, So you know, he knew where these were, 0:17:10.320 --> 0:17:14.399 and he knew that the market was pricing in potentially 0:17:14.400 --> 0:17:16.520 a bigger hike coming up at this March meeting, and 0:17:16.560 --> 0:17:18.520 he didn't take it as an opportunity to say no, 0:17:18.520 --> 0:17:21.439 no, no no, we're going to do twenty five. So you 0:17:21.480 --> 0:17:24.399 know what's happening in the treasury market is there. They've 0:17:24.440 --> 0:17:27.120 obviously flattened the curve quite a bit. We did see 0:17:27.160 --> 0:17:30.520 some historic tights today down to about minus one hundred 0:17:30.560 --> 0:17:34.159 and ten on two tents, and investors are putting some 0:17:34.200 --> 0:17:37.880 money behind this for sure. What we're seeing here is 0:17:38.119 --> 0:17:42.280 that the thematic trades that are going through is we're 0:17:42.280 --> 0:17:45.840 seeing very very strong real money buying in the back 0:17:45.960 --> 0:17:47.840 end of the curve. Now, real money buyer would be 0:17:47.880 --> 0:17:50.360 something like an end user or something like an asset 0:17:50.480 --> 0:17:53.800 manager and ensure and a pension fund, and we are 0:17:53.840 --> 0:17:57.080 seeing those types of accounts buying in the five year sector, 0:17:57.640 --> 0:18:01.280 ten year sector, and ultra ten years spector, mostly in 0:18:01.359 --> 0:18:05.240 the future's curve, and traders there are telling me that 0:18:05.320 --> 0:18:08.560 also there's been some big option plays that are targeting 0:18:08.600 --> 0:18:11.960 three sixty on tens that's about thirty four basis points 0:18:12.000 --> 0:18:14.639 below where we are now. So we're getting some real 0:18:14.720 --> 0:18:17.240 money investing in the back end of the curve looking 0:18:17.280 --> 0:18:21.639 for lower rates. So, Alice, you have cut your teeth 0:18:21.680 --> 0:18:25.240 on Wall Street as a tried and true professional bond trader. 0:18:25.359 --> 0:18:29.239 What's the trade here? Well, I have to say that 0:18:29.320 --> 0:18:35.760 people have been in flatners for a very long time. Sure, 0:18:35.840 --> 0:18:38.160 a flatner is something where you might want to sell 0:18:38.240 --> 0:18:40.359 the front end of the treasury curve and buy the 0:18:40.359 --> 0:18:42.160 back end. So we're seeing the buying in the back 0:18:42.280 --> 0:18:44.960 end today as I telegraphed earlier, and so you'd want 0:18:44.960 --> 0:18:46.639 to sell the front end buy the back end, and 0:18:46.760 --> 0:18:51.360 that the spread between these two instruments would then flatten out. 0:18:51.400 --> 0:18:55.360 And at the current pace, we're seeing that spread inverted, 0:18:55.520 --> 0:19:00.919 meaning that it's negative. So two year yields yielding one 0:19:01.000 --> 0:19:04.040 hundred and ten basis points over a ten year treasury 0:19:04.440 --> 0:19:08.200 and economists Alice have told me, and I'm an equity person, 0:19:08.200 --> 0:19:09.480 so I don't know, but they told me. When that 0:19:09.520 --> 0:19:12.560 happens to this degree. Again, we haven't seen that inversion 0:19:12.680 --> 0:19:18.800 since nineteen eighty one. I think, what does that tell you? Well, 0:19:19.200 --> 0:19:22.400 to me, it tells me that the consumer is very strong, 0:19:23.480 --> 0:19:27.800 that people think that this will continue, that we will 0:19:27.840 --> 0:19:33.199 continue to see more inflation. And the problem with the 0:19:33.240 --> 0:19:35.440 two tenths curve right now is that it's really in 0:19:35.520 --> 0:19:38.840 no man's lands. Right we hit that triple digit target 0:19:38.920 --> 0:19:41.600 that we've been really eyeing since November. We got to 0:19:41.680 --> 0:19:45.560 that one hundred level and it really splids fast down 0:19:45.560 --> 0:19:48.400 to one hundred and ten. Problem is, right now it's 0:19:48.440 --> 0:19:50.080 in a little bit of no man's land. There's no 0:19:50.160 --> 0:19:54.560 support until two hundred basis points. I think that that's 0:19:54.600 --> 0:19:56.520 like an outlier. I don't think that we're going to 0:19:56.560 --> 0:19:58.479 get there. But at this point, what you have to 0:19:58.520 --> 0:20:01.800 watch for is like the round targets. Now, today we 0:20:02.040 --> 0:20:05.199 slipped another ten basis points, so minus one hundred and ten. 0:20:05.240 --> 0:20:08.200 The next one might be a one hundred and twenty 0:20:08.200 --> 0:20:10.800 five basis points. So we need to test these levels 0:20:10.840 --> 0:20:13.400 to see and you know, until we can finally pick 0:20:13.440 --> 0:20:17.639 a bottom it. I will mention that treasury yields at 0:20:17.680 --> 0:20:21.120 the back end would be even lower if it had 0:20:21.160 --> 0:20:25.600 not been for some supply coming in in the mortgage market. 0:20:26.000 --> 0:20:28.119 We've had about two and a half billion in mortgage 0:20:28.160 --> 0:20:31.560 origination in the last three days. That's a lot. That's 0:20:31.560 --> 0:20:33.760 a way lot. And what that's telling me is that 0:20:33.840 --> 0:20:37.360 consumers again are being very stabby. They're seeing these yields 0:20:37.359 --> 0:20:39.560 fall at the back end of the curve and they're saying, 0:20:39.600 --> 0:20:42.480 this is an opportunity for me to get this mortgage 0:20:42.640 --> 0:20:46.280 by this house. It's becoming more affordable to me. And 0:20:46.680 --> 0:20:49.600 you know when you see people buying houses and the 0:20:49.680 --> 0:20:53.040 housing market elevating, all that means to me is more 0:20:53.080 --> 0:20:57.400 consumer demand, more inflation. Well, Alice, then walk us through 0:20:57.680 --> 0:20:59.399