Speaker 1: This is Bloomberg Surveillance with Tom Keane, Jonathan Ferrow, and
Speaker 1: Lisa Bramowitz on Bloomberg Radio. They raise rates.
Speaker 2: That's about it. Federal funds now at a range of
Speaker 2: five and a quarter to five and a half percent,
Speaker 2: that is the highest in twenty two years. In their statement,
Speaker 2: FED officials drop the phrase about pausing to assess the
Speaker 2: state of the economy, replacing it with the Committee will
Speaker 2: continue to assess additional information and its implications for monetary policy.
Speaker 2: Future guidance was identical to June, leaving the door open
Speaker 2: to another rate move in the future. In determining the
Speaker 2: extent of additional policy firming that may be appropriate to
Speaker 2: return inflation to two percent over time, the statement repeats
Speaker 2: the Committee will take into account the cumulative tightening of
Speaker 2: monetary policy, the lags with which monetary policy affects economic
Speaker 2: activity and inflation, and economic and financial developments. Economic assessment
Speaker 2: is little changed. Activity has been expanding at a moderate pace,
Speaker 2: perhaps a little faster than the modest pace seen in June.
Speaker 2: Job gains remain robust, unemployment remains low, and inflation remains elevated.
Speaker 2: Tighter credit conditions are likely to weigh on economic activity, hiring,
Speaker 2: and inflation, but the extent of these effects remains uncertain,
Speaker 2: the statement says, and the committee remains highly attentive to
Speaker 2: inflation risks no change to QT. The decision was unanimous conclusion.
Speaker 2: See you in September.
Speaker 3: Mi mckaye get on vacation. Seems to be the message
Speaker 3: from Chairman Pound and the team. Chairman Pound's got to
Speaker 3: speak in about twenty eight minutes time the news conference
Speaker 3: coming up. That statement a bit of a snooze. So
Speaker 3: let's check out the price action off the back of it.
Speaker 3: It's one, Are they done? That was your rate high
Speaker 3: from the Federal Reserve. Your equity market just a little
Speaker 3: bit soft, distilled, trying to recover. We're down by about
Speaker 3: two tenths of one percent on the S and P
Speaker 3: five hundred on the Nasdaq. We're negative by zero point
Speaker 3: four percent. The fate of the nastak of course, the
Speaker 3: next week in the hands of earnings from Meta Apple
Speaker 3: Amazon over the next seven or eight days or so.
Speaker 3: Outside of that, into the bond market, your two year
Speaker 3: yield coming in just a touch, just a little bit
Speaker 3: fading after that decision, now just about unchanged on the
Speaker 3: day with a two year at four eighty eight, and
Speaker 3: if you turn to the FX market off the back
Speaker 3: of that, with yields just about unchanged the dollar showing
Speaker 3: just to touch a witness against the euro in response
Speaker 3: to this decision, euro dollar at about one ten seventy
Speaker 3: four a tk A rate hike from the Federal Reserve.
Speaker 3: It's about what's next. It always was twenty.
Speaker 1: Two years out, you go back. I believe the math
Speaker 1: is to two thousand and one. Joining us Dan Swank,
Speaker 1: chief Economist, keep BMG BYB. Michael Continuing with us with
Speaker 1: JP Morgan, Dan, I'm going to just argue this, and
Speaker 1: I did this two days ago on a YouTube short
Speaker 1: showing the Nasdaq one hundred decline of March of two
Speaker 1: thousand and one. Things unraveled the last time we were
Speaker 1: at interest rates of this level? Do we have an
Speaker 1: analog here to the collapse of the market in March
Speaker 1: of two thousand and one? Can a FED policy affect
Speaker 1: a present stock market collapse?
Speaker 4: We certainly can if they go far enough, and so
Speaker 4: far it's been remarkably resilient. I would argue that we're
Speaker 4: also seeing this against the backdrop of what looks to
Speaker 4: be a bubble emerging in Jenai, which is a little
Speaker 4: reminiscent of two thousand and one but not quite there.
Speaker 4: But I think that's important to remember as well. I
Speaker 4: think the larger issue for the FED at this point
Speaker 4: in time is that financial conditions are fighting them a bit,
Speaker 4: and even though they've got additional quantitative tightening, they've continued that.
Speaker 5: That's why they're still going forward.
Speaker 4: And I would argue one step further in that the
Speaker 4: good news we've gotten on inflation recently further emboldens the
Speaker 4: FED to actually.
Speaker 5: Get to that two percent target.
Speaker 4: There was sort of this sense among people around the
Speaker 4: FED and some within the FED that you know, they'll
Speaker 4: get close to two percent and then feel they've kind
Speaker 4: of done enough because of what they thought would be
Speaker 4: the pain needed and the trade off needed.
Speaker 5: To get to two percent.
Speaker 4: I think they're going to feel a little more emboldened
Speaker 4: now to actually get there, which means tighter policy for
Speaker 4: longer than many expect. And I think that's something that
Speaker 4: we've sort of not really come to terms with yet.
Speaker 4: Is sort of the unspoken side of what the FED
Speaker 4: had been saying, is that people were expecting the FED
Speaker 4: to kind of stop short of two percent.
Speaker 6: It seems like this is operation don't make waves. It
Speaker 6: seems like this was not a FED looking to job
Speaker 6: on the markets into anything. This is a FED trying
Speaker 6: to back into the shrubs and disappear. Diane, would you
Speaker 6: agree with that characterization? Is that sort of the goal
Speaker 6: for FED?
Speaker 5: Shair J.
Speaker 6: Powell as he takes the helm of that press conference
Speaker 6: meeting in about twenty five minutes.
Speaker 4: Well, certainly they didn't want to change their message, whether
Speaker 4: or not that's fading into the background. I mean, given
Speaker 4: the easing and financial conditions that we've seen, particularly in
Speaker 4: recent months and in recent weeks, that's something that FED
Speaker 4: that has to sort of be a bit concerning to
Speaker 4: the FED. What they're worried about is not what the
Speaker 4: inflation data is going to be by September. They're worried
Speaker 4: about the end of the year seeing a potential acceleration
Speaker 4: and that it's a bumpy sort of ride down to
Speaker 4: two percent, and that we go and fits and starts
Speaker 4: and some of those mean an acceleration back up again, and.
Speaker 5: That's what they're worried about.
Speaker 4: And anything that we see that's too much of an
Speaker 4: easy in financial markets that's going to feed into that remember,
Speaker 4: bank credit is only about a third of all credit
Speaker 4: in the US economy, although there are a lot of
Speaker 4: spillover effects even in shadow banking industry for consumers from
Speaker 4: the tightening that we're seeing in the banking sector.
Speaker 3: If you are just tuning in, welcome to the program.
Speaker 3: Fantastic lineup. Going into the news conference with Cham and
Speaker 3: Pound in about twenty five minutes time, we're talking to
Speaker 3: Dian Swamp and Bob Michael as well. Bob Michael of
Speaker 3: JP Morgan Asset Management with us around the table in
Speaker 3: a studio. Bob, just initially, your reaction to that decision
Speaker 3: five minutes ago.
Speaker 7: I think it is exactly on expectations. They wanted to
Speaker 7: get the twenty five basis points done. They didn't want
Speaker 7: to convey accidentally anything dubvish. They reinforce that additional affirming
Speaker 7: may be necessary, that inflation's elevated. They're trying to do
Speaker 7: exactly what Diane talked about, not give financial conditions a
Speaker 7: chance to ease further.
Speaker 1: But they are the Bloomberg Financial Conditions Index. I believe
Speaker 1: it's eleven ratios. Michael Rosenberg invented it with his team.
Speaker 1: It still shows an accommodation it screens. I'm thinking of Hollenhorst,
Speaker 1: it's City Group, and others go the other way, including Ellen.
Speaker 1: The idea, where's the AMMO for the next meeting to
Speaker 1: raise twenty five beeps? What's the data that we'll drive that.
Speaker 7: I think they would need to see inflation start to
Speaker 7: tick up, not stay stable or continue to decline like
Speaker 7: it's doing. That's the only reason I would think they
Speaker 7: would hike at the next meeting. I think by the
Speaker 7: time we get to the September meeting, inflation will have
Speaker 7: improved to a degree, and I think you'll see more
Speaker 7: labor markets lack that they'll sit there and go We've.
Speaker 6: Done plenty Dian, what's your concern for the press conference,
Speaker 6: given the fact that Jay Powell has a penchant for
Speaker 6: being a bit more revealing than he'd like, eliciting the
Speaker 6: reaction that perhaps they were avoiding in the statement.
Speaker 4: Well, I do think that they want I think Ja
Speaker 4: Powell is going to go into this press conference being
Speaker 4: a little more defensive in terms of not wanting to
Speaker 4: ease financial conditions more and not wanting to have a
Speaker 4: confirmation bias on that. So I think he's going to
Speaker 4: be much more astute to that in this particular meeting.
Speaker 4: I do think it's hard for them to raise rates
Speaker 4: in September. However, we know that in October the medical
Speaker 4: component of the CPI at least reverses after twenty five percent.
Speaker 5: Decline and insurance from a year ago in the June.
Speaker 4: Number on CPI that reverses both month to month and
Speaker 4: on an underlying level year over year in October, and
Speaker 4: once you get to November you could see a bump
Speaker 4: up and inflation again. That does worry the FED more,
Speaker 4: along with some other issues that we've got coming in
Speaker 4: the pipeline with supply chain disruptions, everything from what's going
Speaker 4: to happen with grain prices to the fact that energy
Speaker 4: prices have come back up. All of those things coming
Speaker 4: back in with persistent demand. Further complicating September are strikes.
Speaker 4: We've got UAW maybe on strike by September. We have
Speaker 4: avoided the Teamster strike, but the SAG strike has a
Speaker 4: lot of spillover effects, which has the potential of giving
Speaker 4: us a very strange August employment number that could even
Speaker 4: move to zero or into the red just because of
Speaker 4: the fallout effects.
Speaker 5: On the industry.
Speaker 4: And I think those things are going to make it
Speaker 4: very difficult for the FED to move in September. But
Speaker 4: September they lay out their forecast again and we'll get
Speaker 4: the view from there in terms of higher for longer
Speaker 4: and do they expect one more hike. I think they're
Speaker 4: going to want to keep that in their pocket to
Speaker 4: be able to do it if they need to later
Speaker 4: in the year.
Speaker 6: Bob Dan just laid out basically sticky inflation or stickier
Speaker 6: inflation things that come back, whether it's the labor strikes
Speaker 6: or whether it's some of these year over year comps is,
Speaker 6: supply chain issues get rear their heads again, as well
Speaker 6: as a whole host of other issues, including gasoline. We
Speaker 6: mentioned that earlier surging. What's your pushback to that, to
Speaker 6: all of these base effects that start to.
Speaker 7: Lose Not what I heard, or say what I heard,
Speaker 7: or say it's business as usual. Nothing's quite black and white.
Speaker 7: Everything's mixed. We look at a lot of things in here,
Speaker 7: and what you're betting on is if wages still remain elevated,
Speaker 7: that companies will be able to pass along those price
Speaker 7: increases to consumers. We're seeing that they're not able to
Speaker 7: do that to the degree they were able to consumers
Speaker 7: are pushing back their going down brand. We've also looked
Speaker 7: at wages quite a bit, and we looked at a
Speaker 7: lot of them. We looked at unit labor costs, we
Speaker 7: look at the employment cost index, we looked at average
Speaker 7: hourly earnings. We took six of them, we weighted them,
Speaker 7: and we came up with the peak and wage gains
Speaker 7: was last year it was just about six percent. Today
Speaker 7: it's just under four percent. Three and a half percent
Speaker 7: wage gains is what the Fed and share pal have
Speaker 7: indicated to us is fairly neutral. They're not that far off.
Speaker 7: It's going in that direction. Prices may go up for
Speaker 7: certain things, but what we're seeing from the consumer is
Speaker 7: they'll just cut back spending somewhere else.
Speaker 3: Let's talk about this cumulative tightening and pull out a
Speaker 3: quote from the statement from the Federal Reserve, which, on
Speaker 3: the surface of things sounds pretty boring. It reads, life follows.
Speaker 3: In determining the extent of additional policy firming that may
Speaker 3: be appropriate to return inflation to two percent over time,
Speaker 3: the Committee will take into account the cumulative tightening of
Speaker 3: monetary policy. The lags the key word to want to
Speaker 3: fix in on the lags with which monetary policy affects
Speaker 3: economic activity and inflation. Nil Dutta, one of my favorites
Speaker 3: out there over at Runmax, saying this, the FED is
Speaker 3: wedded to the long and veriable legs hypothesis. After eighteen months,
Speaker 3: we have seen home prices accelerate, stock prices accelerate, auto
Speaker 3: sales accelerate, and lay off sync. Long and veriable lags
Speaker 3: is the concept that might be outliving its usefulness. That swank,
Speaker 3: I know you've got a run, but i'd love your
Speaker 3: input on this debate. What are your thoughts on that?
Speaker 4: You know, I think actually the legs are much longer
Speaker 4: than the FED actually thought. The FED really had gone
Speaker 4: into this tightening cycle thinking that there was almost a
Speaker 4: real time reaction function that the legs had shortened, and
Speaker 4: they were wrong. And in fact what we saw is
Speaker 4: this mortgage winter where people won't move out of selling
Speaker 4: their three percent mortgage home or listing it, or they've
Speaker 4: already paid off their mortgage and they can't afford to
Speaker 4: go into.
Speaker 5: A higher rate.
Speaker 4: That the transmission mechanism on monetary policy was blunted. That
Speaker 4: doesn't mean it doesn't eventually hit, but it has elongated
Speaker 4: the lags, and I think the FED is worried about that,
Speaker 4: that the lags are still out there. And that's again
Speaker 4: why you don't move in September, because you could see
Speaker 4: more headwinds as we talked about earlier, in terms of
Speaker 4: you know, credit market tightening, what consumers face, rejection rates
Speaker 4: on everything from consumer credit cards, mortgage rates and mortgages
Speaker 4: and vehicle loans have all soared now they've soared over
Speaker 4: a period since twenty thirteen to on vehicle side to
Speaker 4: record high levels. But you know, we don't know historically
Speaker 4: if that's really where we're at. But I do think
Speaker 4: it is important to note that there is some things
Speaker 4: the FED is going to be watching for to see
Speaker 4: how much does this slow down the economy going forward.
Speaker 3: Don swamp O KPMG Dan, thank you as always wonderful
Speaker 3: to get you to weigh in on a FED decision
Speaker 3: which came out about swave or thirteen minutes ago twenty
Speaker 3: five faces point rate high. Bob, you were listening to
Speaker 3: that conversation. Can you make the argument just as easily
Speaker 3: as saying policy lacks of really long by also just
Speaker 3: saying they're also really.
Speaker 7: Short, they're long and variable is what they are. They are,
Speaker 7: I'm going to quit the fact. And also when I
Speaker 7: hear the conversation about supplies and pricing, we're also looking
Speaker 7: at green SPAN's favorite indicator, vendor deliveries, and that's shown
Speaker 7: the greatest improvement going way back before the financial crisis.
Speaker 7: So the thought that there was pricing power because your
Speaker 7: goods were stuck on a container ship in the Pacific,
Speaker 7: forget about it. They're here. They're actually piled up in
Speaker 7: warehouses and on shelves, and when you look at inventory
Speaker 7: to sales, they're off the charts high. The only way
Speaker 7: to clear them in an environment where the consumers clearly
Speaker 7: cutting back, going down brand and is stretched is to
Speaker 7: cut prices.
Speaker 3: That's good. Can you say the same thing about services?
Speaker 7: We'll see I think so.
Speaker 3: Isn't that the big question?
Speaker 7: Though?
Speaker 3: Forget the goods argument.
Speaker 7: I think so. I think just the cost to finance, travel, leisure,
Speaker 7: all of those things on your credit card, which is
Speaker 7: what is happening. That's why we're evolving. Credit usage has
Speaker 7: gone up so much it becomes punitive after a while.
Speaker 7: It's just not sustainable.
Speaker 3: But Michael JP. Morgan asse to management alongside us, some
Speaker 3: FED decision day, the twenty five basis point hike behind us.
Speaker 3: No big changes to the statement. The news conference with
Speaker 3: Chairman Power begins in about sixteen minutes time. Joining us
Speaker 3: now is City Andrew Hollendholst alongside Jim Bianco of Bianco Research. Andrew,
Speaker 3: You've had the benefit of extra time to go through this.
Speaker 3: Your take on what we learned fifteen minutes ago.
Speaker 8: You know, it's interesting. It's interesting because of what did
Speaker 8: not change. This seems to have been very carefully put
Speaker 8: together so as not to send a dubvish message like
Speaker 8: Diane was talking about. Really notable. I think that the
Speaker 8: BED could have taken the opportunity to say headline, inflation
Speaker 8: has come down. Core measures are still elevated, but they
Speaker 8: left that statement unchanged. It still just says inflation is elevated.
Speaker 8: On the growth side, what was oddest growth is now
Speaker 8: characterized as moderate growth. So just the tiniest inkling of
Speaker 8: a little bit hawkishness that's creeping into this statement, at
Speaker 8: least relative to expectations.
Speaker 1: Some of that little bit of hawkishness, and the street
Speaker 1: folks came from Jim Bianco, who joins us right now
Speaker 1: in Chicago. Jim Bianco you know, I look at where
Speaker 1: you are in the bombshell. You had a number of
Speaker 1: weeks ago saying maybe we're a little more sticky than
Speaker 1: we actually think we are. Where is Jerome Powells presumed
Speaker 1: our starred path at this press conference the Zeitgeisters, he's
Speaker 1: down to two percent. Things are normal, We're going to
Speaker 1: get back to normal. I'm going to suggest you disagree
Speaker 1: with that.
Speaker 8: Yeah, I do.
Speaker 9: I do think that we might be on a year
Speaker 9: over year basis looking at the lows of the year
Speaker 9: in inflation, you know, in June, and that we're going
Speaker 9: to see if there's going to be a big base
Speaker 9: effect for the rest of the summer, and it's going
Speaker 9: to start to drift towards four and we'll be lucky
Speaker 9: to be back even close to three by the end
Speaker 9: of the year. And that will bring up the big
Speaker 9: question is is the long run you know, rate of
Speaker 9: inflation is it two or is it two and a
Speaker 9: half or three? And remember the Fed has already told
Speaker 9: us that neutral rate is fifty basis points above the
Speaker 9: long run inflation rate. So if it's two and a half,
Speaker 9: then neutral is three. And if the yield curve goes
Speaker 9: back to some normal level, which is around one hundred
Speaker 9: and fifty basis points. You're talking about a fair value
Speaker 9: for the ten year at four and a half and
Speaker 9: we're at three ninety right now, so we're a little
Speaker 9: bit low. And so it all comes back to this
Speaker 9: whole argument about inflation and where's inflation going to go?
Speaker 9: And I've been arguing, you know, the big fancy word,
Speaker 9: that this is a post pandemic economy.
Speaker 4: That means that.
Speaker 9: All the models on how inflation are going to work
Speaker 9: have it worked since twenty twenty, and we have to
Speaker 9: write some new models on how it's going to work.
Speaker 9: Work from home being one big thing, about how major
Speaker 9: that the labor market has changed, and a lot of
Speaker 9: other things too, like with the supply chain, and I
Speaker 9: think we're gonna wind up with stick your inflation and LISTA.
Speaker 1: This is critical because this is what our booking team.
Speaker 1: We've got the morning crew in the afternoon crew that
Speaker 1: do it twenty four to seven for us. And to
Speaker 1: see the setup here of Hollendhorst, Michael and Bianco in
Speaker 1: the collegial disagreements they have is the heart of the
Speaker 1: matter and how it rolls back over into whatever we're
Speaker 1: to make or lose in the stock.
Speaker 6: Market, which is the reason why I'm kind of shocked
Speaker 6: that this was an eleven zero decision there was.
Speaker 10: I agree with that strongly.
Speaker 6: In fact, that there are such divergent.
Speaker 10: This delusion, this delusion of unanimity is just it's I
Speaker 10: don't know the British to do this better than.
Speaker 5: We do well.
Speaker 6: I guess that That's what I would ask you, Andrew.
Speaker 6: Do you think that it undermines the FED to have
Speaker 6: unanimity at a time where they're clearly is not unanimity
Speaker 6: in markets or on the FED.
Speaker 8: Look, I share with you the surprise that we would
Speaker 8: have no differences of opinion at this point. I think
Speaker 8: Powell has been somewhat masterful in terms of getting these
Speaker 8: decisions to be unanimous, but we saw that sometimes coming
Speaker 8: at the cost of Clay. I think that's what happened
Speaker 8: in June, where we had this strange decision not to
Speaker 8: raise raids, but to signal that it would be appropriate
Speaker 8: to raise raids another fifty bait basis points. So as
Speaker 8: you try to keep that committee together and get unanimity,
Speaker 8: it's a little bit troubling in terms of getting clarity
Speaker 8: in terms of the communication.
Speaker 6: Bob, your take on this in terms of whether it's
Speaker 6: helpful or harmful to have unanimity at a junction that
Speaker 6: is clearly so fraught with disagreement on the street and
Speaker 6: at the FED.
Speaker 7: I don't think the unanimity is the accurate portrayal of
Speaker 7: what actually occurred in the meeting. And I'm dying for
Speaker 7: Bullard to go into public life, so that into private life,
Speaker 7: so that we can ask them these questions. I think
Speaker 7: what they did is they locked arms. As Diane's pointed
Speaker 7: out many times, they are concerned about financial conditions easing.
Speaker 7: This is another way to try to stop that from happening.
Speaker 1: I look back with this, I can just see you
Speaker 1: with a speech with Buller down at Purdue. What a
Speaker 1: debate that would be right now as he moves from
Speaker 1: the Saint Louis Fed to Purdue, that goes to the
Speaker 1: dots in the dispersion.
Speaker 10: This was a FED.
Speaker 1: Let's speak for those that don't keep score on this,
Speaker 1: like I don't keep score on this. This is a
Speaker 1: dot free meeting. How important is the set up to
Speaker 1: the next dispersion? The next theater of dots? Are we
Speaker 1: beyond that?
Speaker 7: We're living in an ai world. Now, what are we
Speaker 7: doing not doing dots and summary of economic projections at
Speaker 7: every meeting? Let's do it and indicate more about what
Speaker 7: the FED is thinking.
Speaker 3: I think transparency.
Speaker 7: If you're gonna no one, I think.
Speaker 11: What is that?
Speaker 7: Particularly? Not usually? But after the last meeting, we've all
Speaker 7: talked about what were they doing. They didn't hike in June,
Speaker 7: but they indicated another fifty. If I were Mike McKee,
Speaker 7: I would ask Chair Pale, what about the dots and
Speaker 7: the summary of economic projections from the last meeting? Do
Speaker 7: you still stand by those or would have anything changed?
Speaker 3: Well, it's unclear which dot belongs to which policymaker Bostick
Speaker 3: might have been one of those that would dissent today.
Speaker 3: Bostic doesn't have a vote on the committee at the moment,
Speaker 3: but that doesn't have a vote on the committee either.
Speaker 3: The border governors. That would be where my issue is,
Speaker 3: because the border governors, even if they believe that they
Speaker 3: shouldn't be doing one thing, they all vote as a
Speaker 3: committee as one. So I just wonder Andrew how much
Speaker 3: we should read into the lack of descent at today's
Speaker 3: meeting that maybe the September one is the one where
Speaker 3: it gets a little bit more fiery.
Speaker 8: Yeah, I think it's definitely the case that there's a
Speaker 8: lot more going up behind the scenes here in terms
Speaker 8: of some disagreement. We saw some of that in the
Speaker 8: minutes to the June meeting, So there are real differences
Speaker 8: of opinion, and I think, like Diane, like the others
Speaker 8: were talking about earlier, this could really get interesting in September.
Speaker 8: In September, they'll have to make a decision first whether
Speaker 8: to hike rates. I think they probably won't because the
Speaker 8: inflation did has been softer. But then what do you
Speaker 8: do with those dots? Are you still showing that you're
Speaker 8: going to hike again this year that would imply a
Speaker 8: hike in November. Are you then indicating that that's the
Speaker 8: last tyke of the cycle if we see inflation picking
Speaker 8: up further, And I think that the risks are that
Speaker 8: it will as we get towards the end of the year.
Speaker 8: So it gets really tricky as they get to that
Speaker 8: September meeting and then December dots again, Are you showing
Speaker 8: no further hikes? Are you showing cuts? What do financial
Speaker 8: conditions do with that?
Speaker 6: Jim come back in here, because you were talking about
Speaker 6: how models are broken and they're not really forecasting inflation
Speaker 6: in any kind of accurate way.
Speaker 5: What is the compass for the FED?
Speaker 6: Do we have a clear sense of what data dependency
Speaker 6: means in the post pandemic era where suddenly the data
Speaker 6: is not irreliable forward looking indicator.
Speaker 9: To be frank, No, we don't. And that has been
Speaker 9: one of the bigger problems is that in a data
Speaker 9: dependent world, what the FED is trying to do is
Speaker 9: they're trying to divorce themselves from any theory that of
Speaker 9: how the economy and inflation is supposed to work, and
Speaker 9: they're supposed to react to the data, and then we
Speaker 9: get what we've had in the last two months. They
Speaker 9: paused in June, we got a big miss on in
Speaker 9: the inflation report, your over year one from four to three,
Speaker 9: and then they hiked. And so I'm not exactly sure
Speaker 9: why they paused and why they hiked and what they're
Speaker 9: going to do next based on their recent action, which
Speaker 9: is why I would underscore what Bob said that you know,
Speaker 9: Mike McKee's got to ask what are you doing and
Speaker 9: what is driving these decisions?
Speaker 1: Right?
Speaker 9: Pause and then we get good inflation data and then
Speaker 9: you hike. So there's a big confusion going on out
Speaker 9: there right now, and it's all part of the modeling
Speaker 9: that we've seen in the market. It's been very difficult
Speaker 9: to figure it out.
Speaker 1: I want to set up one question here and give
Speaker 1: it back to John to get to the press conference
Speaker 1: in six minutes. I want to go to Bianco, and
Speaker 1: then Holland Horst and then Michael here.
Speaker 10: I want to know you.
Speaker 1: Twelve months forward real GDP? Is you also violently disagree
Speaker 1: on inflation? Jim Biyonco twelve months forward real GDP? What's
Speaker 1: the statistic about one in a quarter or so?
Speaker 8: Okay, Hollenhurst, I think we will have seen a decline.
Speaker 8: I think we'll have seen a recession by then, will
Speaker 8: be some one percent GDP for Rely.
Speaker 7: Kasmin, what do they say folded in I think we'll
Speaker 7: have passed through minus one and a half to minus
Speaker 7: two percent real GDP.
Speaker 1: This is not John in the American zeitgeist right now,
Speaker 1: the combination of those three opinions wrapped around their different
Speaker 1: inflation outlooks.
Speaker 10: This is removed from Meta, removed from Google.
Speaker 3: We can't let them go just yet to there's still
Speaker 3: seven minutes before they.
Speaker 10: No I know but you're gonna know, I got to
Speaker 10: get back to Toddenham.
Speaker 11: I'm trying to see what the future is made us
Speaker 11: say for seven minutes now, as you was talking about
Speaker 11: that was noticing Messides Benz rise that full yet got
Speaker 11: and the thinking hike again fifty basis points.
Speaker 3: Messides still getting it done. Yeah, Jim, let's talk about
Speaker 3: that though, in oh seriousness, who's paying these high rates?
Speaker 3: Where are they bites in?
Speaker 9: That's a good question. I think that they're biting at
Speaker 9: the business level that they're they're wanting up to pay
Speaker 9: higher rates. They're definitely biting at the residential real estate level.
Speaker 9: You've seen a wholesale change in the way that the
Speaker 9: residential real estate market existing homes to don't move, and
Speaker 9: we've been trying to fill the gap with new construction
Speaker 9: because we've got a multi year low and then the
Speaker 9: volume of existing homes. So they've been biting there as well.
Speaker 9: Where they're not biting, by the way, it seems to
Speaker 9: be in the cost of capital in the stock market
Speaker 9: that doesn't seem to be bothered by it at all.
Speaker 9: So it's unclear as to where it is, and that
Speaker 9: might be leading to an idea that maybe all we've
Speaker 9: done with a five hundred basis point plus rise and
Speaker 9: rates is just pretty much trek neutral and we're not
Speaker 9: really that restrictive, which is why we're not seeing these
Speaker 9: high rates hurt the economy as much as we thought about.
Speaker 3: Michael, what would you say banks to that.
Speaker 7: I think it's biting in a lot of places. I
Speaker 7: think it is biting in the corporate world. You look
Speaker 7: at bank loans, defaults are arising pretty sharply. You look at
Speaker 7: the private credit markets. Talk to people and they're there
Speaker 7: are real tremors there about what's happening in terms of
Speaker 7: exchanges and extensions. You start looking at we didn't talk
Speaker 7: about central business district office space that's still out there unoccupied,
Speaker 7: that's owned in places. We saw that in Goldman's earnings
Speaker 7: that has yet to be reconciled. So it's fighting hard.
Speaker 7: We talked a lot about the consumer. They are really struggling.
Speaker 3: Would you like to talk more about Goldman annex? No,
Speaker 3: take a pass on that thought you might, and I've
Speaker 3: said Goman, No, Andrew, I think we need to spend
Speaker 3: a bit more time talking about this. Just how much
Speaker 3: of the disinflation that we've seen recently is a consequence
Speaker 3: of the tightening cycle of the last year. How do
Speaker 3: you know, how do you identify that kind of thing?
Speaker 8: Well, I think that's partly why the Feds in a
Speaker 8: little bit of a different difficult position here, because they've
Speaker 8: taken some credit for some disinflation that they did not
Speaker 8: have a lot to do with, which is the decline
Speaker 8: and energy prices, which is the decline in food prices.
Speaker 8: And then we're seeing as we head into this meeting,
Speaker 8: we're having very large increases in gasoline prices. So it's
Speaker 8: certainly not going to feel to a lot of people
Speaker 8: like inflation really has been conquered.
Speaker 7: Now.
Speaker 8: Somewhere where they do have a direct effect is on
Speaker 8: the housing sector, shelter inflation. And again though I would
Speaker 8: raise a caution there that we're kind of in this
Speaker 8: that shelter prices are slowing, and they are, there's a
Speaker 8: lag that's introduced into the way that the data are
Speaker 8: put together, so those shelter prices will slow in official
Speaker 8: inflation statistics. But look at the reading from Case Shiller.
Speaker 8: Look at what we're seeing in the real time housing
Speaker 8: price data. Those house prices are rising quickly now, so
Speaker 8: there's some real upside risks to inflation, which we kind
Speaker 8: of go back to Jim's point that maybe five percent
Speaker 8: five and a half percent policy rates are the amount
Speaker 8: of restraint on the housing sector at least that we
Speaker 8: thought it was going to be.
Speaker 3: So I promise you this ready is to find a
Speaker 3: round of questions for three of you. With the news
Speaker 3: conference about three or four minutes to why we need
Speaker 3: to get your questions for chair and Power. We touched
Speaker 3: on it briefly. You don't get to repeat that twice. Jim,
Speaker 3: what would you ask the chairman today in about four minutes.
Speaker 9: Basically what has been driving the decision making to pause
Speaker 9: into hike? I kind of said that earlier, but it
Speaker 9: does drive at the confusion as to what is really
Speaker 9: on top of mind for the Federal Reserve.
Speaker 3: Andrew, what about you?
Speaker 8: I would ask about the rebound in the housing sector, prices,
Speaker 8: growth upside rest to both well.
Speaker 7: Michael, I'd ask what range of inflation and growth metrics
Speaker 7: are they using and what levels would they look at
Speaker 7: for them to one pause permanently and secondly cut rates.
Speaker 3: What would they tolerate. I've heard that from Pimco that
Speaker 3: maybe two points something they'd be happy with that. They'd
Speaker 3: be okay with that. Does that resonate with you?
Speaker 7: Two points something on headline for sure, as long as
Speaker 7: the trend is headed down.
Speaker 3: Jim Bianco Andrew Hollenhorst, that are two of you. Thank
Speaker 3: you moments away from that news conference with Chairman Pow
Speaker 3: following a twenty five basis point hike from the FED
Speaker 3: Chairman Bramo. So it's almost questioned time and you can
Speaker 3: hear from the panel in the last twenty minutes bit
Speaker 3: of confusion over what they paused last time around, why
Speaker 3: they hike this time around, if they are truly data dependent.
Speaker 6: What data they're looking at, what their model is there
Speaker 6: now to gauge out inflation going forward, what their threshold is,
Speaker 6: as Bob was saying, to hike or to cut. We
Speaker 6: don't have a sense of any of these things. The
Speaker 6: model is, come on, we're looking at it and they're supercore.
Speaker 3: And yeah, everyone was high five in the FED a
Speaker 3: few weeks ago when we got that inflation data. It
Speaker 3: was like victory lap time, Bob, victory lamp. People talking
Speaker 3: about a victory lamp for the chairman at the Federal Reserve.
Speaker 7: If you step back and look at growth and inflationary pressures.
Speaker 7: They are moderating. They should just put it in park
Speaker 7: and come back in January.
Speaker 3: And do a victory lamp.
Speaker 7: I don't know that.
Speaker 3: I feel that feels too premature to me. That really
Speaker 3: does one print TK and start celebrating.
Speaker 1: This has been a fascinating discussion. Thank you so much
Speaker 1: to our team for putting together. That's just brilliant conversation.
Speaker 1: Collegial disagreement. The common theme here from Marquette academics to
Speaker 1: UCLA academics to University of Pennsylvania academics is this is
Speaker 1: a press conference without theory. And I know I'm going
Speaker 1: to get pushedback on that from Mike McKee and others.
Speaker 1: But off the pandemic, they're flying blind, and Bob I
Speaker 1: would say, there is data dependent as we've ever seen.
Speaker 6: Yeah, I think so Ever, well, look, I think that
Speaker 6: you are right that this is perhaps a theory free
Speaker 6: Federal Reserve that's still trying to hue some of the
Speaker 6: theories that underpinned their role in all of this. I
Speaker 6: would argue one of the biggest questions John is whether
Speaker 6: tightening has the same effect on an economy that is
Speaker 6: not showing signs of slowing down to your point, the
Speaker 6: lag the variable long, and variable.
Speaker 5: Lives long but also variable.
Speaker 6: So then how do we then talk about the efficacy
Speaker 6: of what they're doing.
Speaker 3: They said they don't know, which is why they're in
Speaker 3: the risk management business, and they've got to work out
Speaker 3: what is the biggest risk cutting too soon or holding
Speaker 3: too long, And that's really really difficult to do. I
Speaker 3: think it's easier to say we need to cut because
Speaker 3: we've gone too far. It's harder to say, these disinflationory
Speaker 3: trends are on their way back towards taking us to
Speaker 3: a sustainable path to two percent. That's a much much
Speaker 3: bigger call.
Speaker 6: I don't know the answer to what's the biggest fear
Speaker 6: inflation or recession.
Speaker 5: We don't know.
Speaker 6: And what you hear is from everyone on Wall Street
Speaker 6: a different answer.