WEBVTT - Instant Reaction: The Fed Decides 0:00:04.840 --> 0:00:08.799 This is Bloomberg Surveillance with Tom Keane, Jonathan Ferrow, and 0:00:08.840 --> 0:00:13.080 Lisa Bramowitz on Bloomberg Radio. They raise rates. 0:00:13.200 --> 0:00:15.360 That's about it. Federal funds now at a range of 0:00:15.400 --> 0:00:17.200 five and a quarter to five and a half percent, 0:00:17.400 --> 0:00:20.920 that is the highest in twenty two years. In their statement, 0:00:20.960 --> 0:00:24.479 FED officials drop the phrase about pausing to assess the 0:00:24.520 --> 0:00:28.000 state of the economy, replacing it with the Committee will 0:00:28.000 --> 0:00:32.599 continue to assess additional information and its implications for monetary policy. 0:00:33.159 --> 0:00:36.920 Future guidance was identical to June, leaving the door open 0:00:37.000 --> 0:00:40.600 to another rate move in the future. In determining the 0:00:40.640 --> 0:00:43.680 extent of additional policy firming that may be appropriate to 0:00:43.720 --> 0:00:47.639 return inflation to two percent over time, the statement repeats 0:00:47.920 --> 0:00:50.600 the Committee will take into account the cumulative tightening of 0:00:50.640 --> 0:00:55.240 monetary policy, the lags with which monetary policy affects economic 0:00:55.280 --> 0:01:01.120 activity and inflation, and economic and financial developments. Economic assessment 0:01:01.320 --> 0:01:05.520 is little changed. Activity has been expanding at a moderate pace, 0:01:05.600 --> 0:01:09.679 perhaps a little faster than the modest pace seen in June. 0:01:09.880 --> 0:01:16.200 Job gains remain robust, unemployment remains low, and inflation remains elevated. 0:01:16.480 --> 0:01:20.479 Tighter credit conditions are likely to weigh on economic activity, hiring, 0:01:20.560 --> 0:01:25.000 and inflation, but the extent of these effects remains uncertain, 0:01:25.040 --> 0:01:28.160 the statement says, and the committee remains highly attentive to 0:01:28.319 --> 0:01:33.440 inflation risks no change to QT. The decision was unanimous conclusion. 0:01:34.000 --> 0:01:34.960 See you in September. 0:01:35.040 --> 0:01:38.040 Mi mckaye get on vacation. Seems to be the message 0:01:38.040 --> 0:01:39.880 from Chairman Pound and the team. Chairman Pound's got to 0:01:39.920 --> 0:01:41.959 speak in about twenty eight minutes time the news conference 0:01:42.000 --> 0:01:44.280 coming up. That statement a bit of a snooze. So 0:01:44.360 --> 0:01:46.160 let's check out the price action off the back of it. 0:01:46.160 --> 0:01:49.080 It's one, Are they done? That was your rate high 0:01:49.080 --> 0:01:51.160 from the Federal Reserve. Your equity market just a little 0:01:51.160 --> 0:01:53.560 bit soft, distilled, trying to recover. We're down by about 0:01:53.600 --> 0:01:55.440 two tenths of one percent on the S and P 0:01:55.560 --> 0:01:58.040 five hundred on the Nasdaq. We're negative by zero point 0:01:58.080 --> 0:02:00.160 four percent. The fate of the nastak of course, the 0:02:00.160 --> 0:02:02.639 next week in the hands of earnings from Meta Apple 0:02:02.760 --> 0:02:05.160 Amazon over the next seven or eight days or so. 0:02:05.400 --> 0:02:07.640 Outside of that, into the bond market, your two year 0:02:07.680 --> 0:02:09.880 yield coming in just a touch, just a little bit 0:02:09.960 --> 0:02:13.160 fading after that decision, now just about unchanged on the 0:02:13.240 --> 0:02:15.960 day with a two year at four eighty eight, and 0:02:16.000 --> 0:02:18.079 if you turn to the FX market off the back 0:02:18.120 --> 0:02:21.000 of that, with yields just about unchanged the dollar showing 0:02:21.080 --> 0:02:23.120 just to touch a witness against the euro in response 0:02:23.160 --> 0:02:26.840 to this decision, euro dollar at about one ten seventy 0:02:27.160 --> 0:02:29.760 four a tk A rate hike from the Federal Reserve. 0:02:29.880 --> 0:02:32.480 It's about what's next. It always was twenty. 0:02:32.240 --> 0:02:34.360 Two years out, you go back. I believe the math 0:02:34.520 --> 0:02:37.359 is to two thousand and one. Joining us Dan Swank, 0:02:37.400 --> 0:02:40.800 chief Economist, keep BMG BYB. Michael Continuing with us with 0:02:40.919 --> 0:02:43.840 JP Morgan, Dan, I'm going to just argue this, and 0:02:43.880 --> 0:02:46.360 I did this two days ago on a YouTube short 0:02:46.560 --> 0:02:49.880 showing the Nasdaq one hundred decline of March of two 0:02:49.960 --> 0:02:53.760 thousand and one. Things unraveled the last time we were 0:02:53.800 --> 0:02:57.160 at interest rates of this level? Do we have an 0:02:57.240 --> 0:03:00.360 analog here to the collapse of the market in March 0:03:00.400 --> 0:03:04.200 of two thousand and one? Can a FED policy affect 0:03:04.560 --> 0:03:06.560 a present stock market collapse? 0:03:09.360 --> 0:03:12.200 We certainly can if they go far enough, and so 0:03:12.360 --> 0:03:15.239 far it's been remarkably resilient. I would argue that we're 0:03:15.240 --> 0:03:18.520 also seeing this against the backdrop of what looks to 0:03:18.560 --> 0:03:22.519 be a bubble emerging in Jenai, which is a little 0:03:22.560 --> 0:03:25.839 reminiscent of two thousand and one but not quite there. 0:03:25.880 --> 0:03:28.680 But I think that's important to remember as well. I 0:03:28.680 --> 0:03:30.880 think the larger issue for the FED at this point 0:03:30.880 --> 0:03:34.359 in time is that financial conditions are fighting them a bit, 0:03:34.440 --> 0:03:38.760 and even though they've got additional quantitative tightening, they've continued that. 0:03:38.760 --> 0:03:40.320 That's why they're still going forward. 0:03:40.320 --> 0:03:43.000 And I would argue one step further in that the 0:03:43.040 --> 0:03:46.800 good news we've gotten on inflation recently further emboldens the 0:03:46.840 --> 0:03:48.640 FED to actually. 0:03:48.240 --> 0:03:50.040 Get to that two percent target. 0:03:50.280 --> 0:03:52.960 There was sort of this sense among people around the 0:03:52.960 --> 0:03:56.119 FED and some within the FED that you know, they'll 0:03:56.200 --> 0:03:58.680 get close to two percent and then feel they've kind 0:03:58.720 --> 0:04:01.240 of done enough because of what they thought would be 0:04:01.280 --> 0:04:03.960 the pain needed and the trade off needed. 0:04:03.920 --> 0:04:05.120 To get to two percent. 0:04:05.280 --> 0:04:07.320 I think they're going to feel a little more emboldened 0:04:07.360 --> 0:04:11.680 now to actually get there, which means tighter policy for 0:04:11.840 --> 0:04:15.000 longer than many expect. And I think that's something that 0:04:15.360 --> 0:04:17.920 we've sort of not really come to terms with yet. 0:04:18.000 --> 0:04:21.279 Is sort of the unspoken side of what the FED 0:04:21.279 --> 0:04:23.840 had been saying, is that people were expecting the FED 0:04:23.880 --> 0:04:26.240 to kind of stop short of two percent. 0:04:26.560 --> 0:04:29.760 It seems like this is operation don't make waves. It 0:04:29.760 --> 0:04:32.200 seems like this was not a FED looking to job 0:04:32.279 --> 0:04:34.640 on the markets into anything. This is a FED trying 0:04:34.680 --> 0:04:37.520 to back into the shrubs and disappear. Diane, would you 0:04:37.520 --> 0:04:40.039 agree with that characterization? Is that sort of the goal 0:04:40.320 --> 0:04:40.680 for FED? 0:04:40.720 --> 0:04:41.240 Shair J. 0:04:41.440 --> 0:04:44.440 Powell as he takes the helm of that press conference 0:04:44.480 --> 0:04:46.160 meeting in about twenty five minutes. 0:04:48.200 --> 0:04:50.440 Well, certainly they didn't want to change their message, whether 0:04:50.560 --> 0:04:52.760 or not that's fading into the background. I mean, given 0:04:52.839 --> 0:04:56.440 the easing and financial conditions that we've seen, particularly in 0:04:56.560 --> 0:04:59.960 recent months and in recent weeks, that's something that FED 0:05:00.160 --> 0:05:03.520 that has to sort of be a bit concerning to 0:05:03.600 --> 0:05:06.960 the FED. What they're worried about is not what the 0:05:07.000 --> 0:05:09.559 inflation data is going to be by September. They're worried 0:05:09.560 --> 0:05:13.240 about the end of the year seeing a potential acceleration 0:05:13.520 --> 0:05:16.560 and that it's a bumpy sort of ride down to 0:05:16.560 --> 0:05:19.040 two percent, and that we go and fits and starts 0:05:19.360 --> 0:05:22.680 and some of those mean an acceleration back up again, and. 0:05:22.600 --> 0:05:24.080 That's what they're worried about. 0:05:24.160 --> 0:05:26.240 And anything that we see that's too much of an 0:05:26.240 --> 0:05:30.480 easy in financial markets that's going to feed into that remember, 0:05:30.560 --> 0:05:32.800 bank credit is only about a third of all credit 0:05:32.839 --> 0:05:35.400 in the US economy, although there are a lot of 0:05:35.480 --> 0:05:40.200 spillover effects even in shadow banking industry for consumers from 0:05:40.320 --> 0:05:42.520 the tightening that we're seeing in the banking sector. 0:05:42.560 --> 0:05:44.240 If you are just tuning in, welcome to the program. 0:05:44.360 --> 0:05:46.840 Fantastic lineup. Going into the news conference with Cham and 0:05:46.880 --> 0:05:49.479 Pound in about twenty five minutes time, we're talking to 0:05:49.800 --> 0:05:51.800 Dian Swamp and Bob Michael as well. Bob Michael of 0:05:51.880 --> 0:05:54.560 JP Morgan Asset Management with us around the table in 0:05:54.600 --> 0:05:57.560 a studio. Bob, just initially, your reaction to that decision 0:05:57.600 --> 0:05:58.279 five minutes ago. 0:05:59.240 --> 0:06:03.400 I think it is exactly on expectations. They wanted to 0:06:03.400 --> 0:06:06.960 get the twenty five basis points done. They didn't want 0:06:07.000 --> 0:06:13.640 to convey accidentally anything dubvish. They reinforce that additional affirming 0:06:13.720 --> 0:06:18.400 may be necessary, that inflation's elevated. They're trying to do 0:06:18.920 --> 0:06:23.080 exactly what Diane talked about, not give financial conditions a 0:06:23.200 --> 0:06:24.400 chance to ease further. 0:06:24.640 --> 0:06:27.760 But they are the Bloomberg Financial Conditions Index. I believe 0:06:27.800 --> 0:06:30.960 it's eleven ratios. Michael Rosenberg invented it with his team. 0:06:31.520 --> 0:06:36.200 It still shows an accommodation it screens. I'm thinking of Hollenhorst, 0:06:36.480 --> 0:06:39.159 it's City Group, and others go the other way, including Ellen. 0:06:40.000 --> 0:06:42.919 The idea, where's the AMMO for the next meeting to 0:06:43.000 --> 0:06:45.880 raise twenty five beeps? What's the data that we'll drive that. 0:06:47.680 --> 0:06:50.960 I think they would need to see inflation start to 0:06:51.040 --> 0:06:55.120 tick up, not stay stable or continue to decline like 0:06:55.400 --> 0:06:58.599 it's doing. That's the only reason I would think they 0:06:58.640 --> 0:07:01.000 would hike at the next meeting. I think by the 0:07:01.120 --> 0:07:04.800 time we get to the September meeting, inflation will have 0:07:05.080 --> 0:07:08.160 improved to a degree, and I think you'll see more 0:07:08.279 --> 0:07:11.760 labor markets lack that they'll sit there and go We've. 0:07:11.600 --> 0:07:15.520 Done plenty Dian, what's your concern for the press conference, 0:07:15.720 --> 0:07:18.680 given the fact that Jay Powell has a penchant for 0:07:18.960 --> 0:07:21.560 being a bit more revealing than he'd like, eliciting the 0:07:22.040 --> 0:07:25.800 reaction that perhaps they were avoiding in the statement. 0:07:28.560 --> 0:07:30.840 Well, I do think that they want I think Ja 0:07:30.960 --> 0:07:32.960 Powell is going to go into this press conference being 0:07:33.040 --> 0:07:36.160 a little more defensive in terms of not wanting to 0:07:36.160 --> 0:07:38.680 ease financial conditions more and not wanting to have a 0:07:38.680 --> 0:07:41.200 confirmation bias on that. So I think he's going to 0:07:41.240 --> 0:07:44.040 be much more astute to that in this particular meeting. 0:07:44.320 --> 0:07:46.160 I do think it's hard for them to raise rates 0:07:46.200 --> 0:07:49.920 in September. However, we know that in October the medical 0:07:50.240 --> 0:07:54.320 component of the CPI at least reverses after twenty five percent. 0:07:54.040 --> 0:07:56.960 Decline and insurance from a year ago in the June. 0:07:56.800 --> 0:08:00.400 Number on CPI that reverses both month to month and 0:08:00.800 --> 0:08:04.720 on an underlying level year over year in October, and 0:08:04.800 --> 0:08:07.760 once you get to November you could see a bump 0:08:07.840 --> 0:08:11.520 up and inflation again. That does worry the FED more, 0:08:11.800 --> 0:08:14.240 along with some other issues that we've got coming in 0:08:14.280 --> 0:08:18.520 the pipeline with supply chain disruptions, everything from what's going 0:08:18.560 --> 0:08:21.480 to happen with grain prices to the fact that energy 0:08:21.480 --> 0:08:24.000 prices have come back up. All of those things coming 0:08:24.040 --> 0:08:29.120 back in with persistent demand. Further complicating September are strikes. 0:08:29.560 --> 0:08:32.840 We've got UAW maybe on strike by September. We have 0:08:32.960 --> 0:08:35.920 avoided the Teamster strike, but the SAG strike has a 0:08:35.960 --> 0:08:39.240 lot of spillover effects, which has the potential of giving 0:08:39.320 --> 0:08:44.560 us a very strange August employment number that could even 0:08:44.640 --> 0:08:47.720 move to zero or into the red just because of 0:08:47.760 --> 0:08:49.360 the fallout effects. 0:08:48.880 --> 0:08:49.720 On the industry. 0:08:50.000 --> 0:08:51.760 And I think those things are going to make it 0:08:51.880 --> 0:08:54.000 very difficult for the FED to move in September. But 0:08:54.080 --> 0:08:57.800 September they lay out their forecast again and we'll get 0:08:58.000 --> 0:09:01.120 the view from there in terms of higher for longer 0:09:01.320 --> 0:09:03.880 and do they expect one more hike. I think they're 0:09:03.880 --> 0:09:07.200 going to want to keep that in their pocket to 0:09:07.280 --> 0:09:09.480 be able to do it if they need to later 0:09:09.520 --> 0:09:09.920 in the year. 0:09:10.160 --> 0:09:13.720 Bob Dan just laid out basically sticky inflation or stickier 0:09:13.800 --> 0:09:17.000 inflation things that come back, whether it's the labor strikes 0:09:17.040 --> 0:09:19.000 or whether it's some of these year over year comps is, 0:09:19.640 --> 0:09:23.320 supply chain issues get rear their heads again, as well 0:09:23.320 --> 0:09:25.199 as a whole host of other issues, including gasoline. We 0:09:25.240 --> 0:09:28.160 mentioned that earlier surging. What's your pushback to that, to 0:09:28.240 --> 0:09:30.480 all of these base effects that start to. 0:09:30.720 --> 0:09:32.840 Lose Not what I heard, or say what I heard, 0:09:32.920 --> 0:09:36.280 or say it's business as usual. Nothing's quite black and white. 0:09:36.679 --> 0:09:40.840 Everything's mixed. We look at a lot of things in here, 0:09:41.320 --> 0:09:47.400 and what you're betting on is if wages still remain elevated, 0:09:47.720 --> 0:09:50.959 that companies will be able to pass along those price 0:09:51.040 --> 0:09:54.720 increases to consumers. We're seeing that they're not able to 0:09:54.880 --> 0:09:58.040 do that to the degree they were able to consumers 0:09:58.080 --> 0:10:01.760 are pushing back their going down brand. We've also looked 0:10:01.800 --> 0:10:04.240 at wages quite a bit, and we looked at a 0:10:04.240 --> 0:10:07.400 lot of them. We looked at unit labor costs, we 0:10:07.440 --> 0:10:10.840 look at the employment cost index, we looked at average 0:10:10.840 --> 0:10:13.960 hourly earnings. We took six of them, we weighted them, 0:10:14.280 --> 0:10:16.920 and we came up with the peak and wage gains 0:10:16.960 --> 0:10:20.839 was last year it was just about six percent. Today 0:10:21.200 --> 0:10:24.440 it's just under four percent. Three and a half percent 0:10:24.520 --> 0:10:27.800 wage gains is what the Fed and share pal have 0:10:28.000 --> 0:10:32.520 indicated to us is fairly neutral. They're not that far off. 0:10:32.600 --> 0:10:36.080 It's going in that direction. Prices may go up for 0:10:36.200 --> 0:10:39.400 certain things, but what we're seeing from the consumer is 0:10:39.440 --> 0:10:42.120 they'll just cut back spending somewhere else. 0:10:42.240 --> 0:10:44.439 Let's talk about this cumulative tightening and pull out a 0:10:44.559 --> 0:10:46.560 quote from the statement from the Federal Reserve, which, on 0:10:46.600 --> 0:10:49.600 the surface of things sounds pretty boring. It reads, life follows. 0:10:50.040 --> 0:10:53.200 In determining the extent of additional policy firming that may 0:10:53.240 --> 0:10:55.560 be appropriate to return inflation to two percent over time, 0:10:55.760 --> 0:10:58.000 the Committee will take into account the cumulative tightening of 0:10:58.000 --> 0:11:00.760 monetary policy. The lags the key word to want to 0:11:00.760 --> 0:11:03.840 fix in on the lags with which monetary policy affects 0:11:03.920 --> 0:11:07.720 economic activity and inflation. Nil Dutta, one of my favorites 0:11:07.760 --> 0:11:09.839 out there over at Runmax, saying this, the FED is 0:11:09.880 --> 0:11:13.760 wedded to the long and veriable legs hypothesis. After eighteen months, 0:11:14.040 --> 0:11:18.160 we have seen home prices accelerate, stock prices accelerate, auto 0:11:18.240 --> 0:11:21.680 sales accelerate, and lay off sync. Long and veriable lags 0:11:21.679 --> 0:11:25.120 is the concept that might be outliving its usefulness. That swank, 0:11:25.120 --> 0:11:26.679 I know you've got a run, but i'd love your 0:11:26.679 --> 0:11:28.520 input on this debate. What are your thoughts on that? 0:11:31.080 --> 0:11:34.320 You know, I think actually the legs are much longer 0:11:34.320 --> 0:11:37.040 than the FED actually thought. The FED really had gone 0:11:37.120 --> 0:11:40.160 into this tightening cycle thinking that there was almost a 0:11:40.200 --> 0:11:43.920 real time reaction function that the legs had shortened, and 0:11:43.960 --> 0:11:46.520 they were wrong. And in fact what we saw is 0:11:46.520 --> 0:11:49.960 this mortgage winter where people won't move out of selling 0:11:50.000 --> 0:11:53.640 their three percent mortgage home or listing it, or they've 0:11:53.640 --> 0:11:55.960 already paid off their mortgage and they can't afford to 0:11:56.240 --> 0:11:56.880 go into. 0:11:56.679 --> 0:11:57.440 A higher rate. 0:11:58.000 --> 0:12:03.040 That the transmission mechanism on monetary policy was blunted. That 0:12:03.120 --> 0:12:07.520 doesn't mean it doesn't eventually hit, but it has elongated 0:12:08.040 --> 0:12:11.040 the lags, and I think the FED is worried about that, 0:12:11.040 --> 0:12:13.640 that the lags are still out there. And that's again 0:12:13.760 --> 0:12:16.839 why you don't move in September, because you could see 0:12:17.120 --> 0:12:19.640 more headwinds as we talked about earlier, in terms of 0:12:19.920 --> 0:12:23.600 you know, credit market tightening, what consumers face, rejection rates 0:12:23.640 --> 0:12:27.599 on everything from consumer credit cards, mortgage rates and mortgages 0:12:27.720 --> 0:12:31.800 and vehicle loans have all soared now they've soared over 0:12:31.800 --> 0:12:35.160 a period since twenty thirteen to on vehicle side to 0:12:35.200 --> 0:12:37.920 record high levels. But you know, we don't know historically 0:12:37.920 --> 0:12:40.160 if that's really where we're at. But I do think 0:12:40.200 --> 0:12:42.840 it is important to note that there is some things 0:12:42.840 --> 0:12:44.800 the FED is going to be watching for to see 0:12:44.920 --> 0:12:48.080 how much does this slow down the economy going forward. 0:12:48.240 --> 0:12:51.640 Don swamp O KPMG Dan, thank you as always wonderful 0:12:51.960 --> 0:12:53.480 to get you to weigh in on a FED decision 0:12:53.480 --> 0:12:56.000 which came out about swave or thirteen minutes ago twenty 0:12:56.000 --> 0:12:58.480 five faces point rate high. Bob, you were listening to 0:12:58.520 --> 0:13:01.480 that conversation. Can you make the argument just as easily 0:13:01.840 --> 0:13:04.199 as saying policy lacks of really long by also just 0:13:04.200 --> 0:13:05.360 saying they're also really. 0:13:05.200 --> 0:13:12.240 Short, they're long and variable is what they are. They are, 0:13:12.520 --> 0:13:15.400 I'm going to quit the fact. And also when I 0:13:15.440 --> 0:13:21.520 hear the conversation about supplies and pricing, we're also looking 0:13:21.720 --> 0:13:28.080 at green SPAN's favorite indicator, vendor deliveries, and that's shown 0:13:28.160 --> 0:13:32.600 the greatest improvement going way back before the financial crisis. 0:13:32.920 --> 0:13:36.240 So the thought that there was pricing power because your 0:13:36.240 --> 0:13:39.000 goods were stuck on a container ship in the Pacific, 0:13:39.200 --> 0:13:42.320 forget about it. They're here. They're actually piled up in 0:13:42.400 --> 0:13:45.640 warehouses and on shelves, and when you look at inventory 0:13:45.640 --> 0:13:49.600 to sales, they're off the charts high. The only way 0:13:49.600 --> 0:13:53.280 to clear them in an environment where the consumers clearly 0:13:53.360 --> 0:13:56.240 cutting back, going down brand and is stretched is to 0:13:56.280 --> 0:13:56.920 cut prices. 0:13:57.000 --> 0:13:59.040 That's good. Can you say the same thing about services? 0:14:00.760 --> 0:14:01.960 We'll see I think so. 0:14:02.240 --> 0:14:03.160 Isn't that the big question? 0:14:03.200 --> 0:14:03.360 Though? 0:14:03.480 --> 0:14:04.520 Forget the goods argument. 0:14:05.840 --> 0:14:11.720 I think so. I think just the cost to finance, travel, leisure, 0:14:12.200 --> 0:14:14.600 all of those things on your credit card, which is 0:14:14.640 --> 0:14:18.040 what is happening. That's why we're evolving. Credit usage has 0:14:18.080 --> 0:14:21.520 gone up so much it becomes punitive after a while. 0:14:21.600 --> 0:14:23.040 It's just not sustainable. 0:14:23.080 --> 0:14:25.520 But Michael JP. Morgan asse to management alongside us, some 0:14:25.600 --> 0:14:28.400 FED decision day, the twenty five basis point hike behind us. 0:14:28.400 --> 0:14:30.760 No big changes to the statement. The news conference with 0:14:30.840 --> 0:14:33.560 Chairman Power begins in about sixteen minutes time. Joining us 0:14:33.560 --> 0:14:37.720 now is City Andrew Hollendholst alongside Jim Bianco of Bianco Research. Andrew, 0:14:37.720 --> 0:14:40.280 You've had the benefit of extra time to go through this. 0:14:40.400 --> 0:14:42.520 Your take on what we learned fifteen minutes ago. 0:14:43.440 --> 0:14:46.480 You know, it's interesting. It's interesting because of what did 0:14:46.480 --> 0:14:49.840 not change. This seems to have been very carefully put 0:14:49.880 --> 0:14:52.840 together so as not to send a dubvish message like 0:14:52.920 --> 0:14:56.440 Diane was talking about. Really notable. I think that the 0:14:56.800 --> 0:15:00.440 BED could have taken the opportunity to say headline, inflation 0:15:00.520 --> 0:15:03.360 has come down. Core measures are still elevated, but they 0:15:03.440 --> 0:15:07.160 left that statement unchanged. It still just says inflation is elevated. 0:15:07.760 --> 0:15:10.960 On the growth side, what was oddest growth is now 0:15:11.040 --> 0:15:15.600 characterized as moderate growth. So just the tiniest inkling of 0:15:15.720 --> 0:15:18.560 a little bit hawkishness that's creeping into this statement, at 0:15:18.640 --> 0:15:20.240 least relative to expectations. 0:15:20.360 --> 0:15:22.320 Some of that little bit of hawkishness, and the street 0:15:22.360 --> 0:15:24.960 folks came from Jim Bianco, who joins us right now 0:15:25.000 --> 0:15:27.600 in Chicago. Jim Bianco you know, I look at where 0:15:27.640 --> 0:15:29.520 you are in the bombshell. You had a number of 0:15:29.520 --> 0:15:32.080 weeks ago saying maybe we're a little more sticky than 0:15:32.120 --> 0:15:36.960 we actually think we are. Where is Jerome Powells presumed 0:15:37.120 --> 0:15:41.640 our starred path at this press conference the Zeitgeisters, he's 0:15:41.680 --> 0:15:44.080 down to two percent. Things are normal, We're going to 0:15:44.120 --> 0:15:46.760 get back to normal. I'm going to suggest you disagree 0:15:46.800 --> 0:15:47.000 with that. 0:15:48.200 --> 0:15:48.800 Yeah, I do. 0:15:48.920 --> 0:15:50.960 I do think that we might be on a year 0:15:51.000 --> 0:15:53.400 over year basis looking at the lows of the year 0:15:53.440 --> 0:15:56.760 in inflation, you know, in June, and that we're going 0:15:56.840 --> 0:15:58.120 to see if there's going to be a big base 0:15:58.120 --> 0:15:59.840 effect for the rest of the summer, and it's going 0:15:59.840 --> 0:16:02.440 to start to drift towards four and we'll be lucky 0:16:02.440 --> 0:16:04.360 to be back even close to three by the end 0:16:04.360 --> 0:16:06.720 of the year. And that will bring up the big 0:16:06.800 --> 0:16:09.520 question is is the long run you know, rate of 0:16:09.560 --> 0:16:11.960 inflation is it two or is it two and a 0:16:12.000 --> 0:16:14.720 half or three? And remember the Fed has already told 0:16:14.760 --> 0:16:17.960 us that neutral rate is fifty basis points above the 0:16:18.280 --> 0:16:20.400 long run inflation rate. So if it's two and a half, 0:16:20.440 --> 0:16:23.000 then neutral is three. And if the yield curve goes 0:16:23.040 --> 0:16:25.400 back to some normal level, which is around one hundred 0:16:25.400 --> 0:16:28.080 and fifty basis points. You're talking about a fair value 0:16:28.120 --> 0:16:29.880 for the ten year at four and a half and 0:16:29.920 --> 0:16:32.560 we're at three ninety right now, so we're a little 0:16:32.560 --> 0:16:35.560 bit low. And so it all comes back to this 0:16:35.680 --> 0:16:39.040 whole argument about inflation and where's inflation going to go? 0:16:39.640 --> 0:16:42.240 And I've been arguing, you know, the big fancy word, 0:16:42.240 --> 0:16:44.040 that this is a post pandemic economy. 0:16:44.480 --> 0:16:45.400 That means that. 0:16:45.360 --> 0:16:47.760 All the models on how inflation are going to work 0:16:48.200 --> 0:16:50.800 have it worked since twenty twenty, and we have to 0:16:50.840 --> 0:16:52.960 write some new models on how it's going to work. 0:16:53.160 --> 0:16:55.720 Work from home being one big thing, about how major 0:16:55.760 --> 0:16:58.040 that the labor market has changed, and a lot of 0:16:58.080 --> 0:17:00.480 other things too, like with the supply chain, and I 0:17:00.520 --> 0:17:03.160 think we're gonna wind up with stick your inflation and LISTA. 0:17:03.200 --> 0:17:05.960 This is critical because this is what our booking team. 0:17:05.960 --> 0:17:08.000 We've got the morning crew in the afternoon crew that 0:17:08.080 --> 0:17:10.119 do it twenty four to seven for us. And to 0:17:10.160 --> 0:17:14.159 see the setup here of Hollendhorst, Michael and Bianco in 0:17:14.200 --> 0:17:17.479 the collegial disagreements they have is the heart of the 0:17:17.520 --> 0:17:20.200 matter and how it rolls back over into whatever we're 0:17:20.240 --> 0:17:21.679 to make or lose in the stock. 0:17:21.440 --> 0:17:23.479 Market, which is the reason why I'm kind of shocked 0:17:23.520 --> 0:17:25.800 that this was an eleven zero decision there was. 0:17:26.000 --> 0:17:27.679 I agree with that strongly. 0:17:27.760 --> 0:17:30.160 In fact, that there are such divergent. 0:17:29.880 --> 0:17:34.919 This delusion, this delusion of unanimity is just it's I 0:17:34.920 --> 0:17:36.600 don't know the British to do this better than. 0:17:36.480 --> 0:17:37.200 We do well. 0:17:37.240 --> 0:17:39.480 I guess that That's what I would ask you, Andrew. 0:17:39.680 --> 0:17:41.920 Do you think that it undermines the FED to have 0:17:42.040 --> 0:17:45.240 unanimity at a time where they're clearly is not unanimity 0:17:45.440 --> 0:17:46.680 in markets or on the FED. 0:17:47.560 --> 0:17:49.639 Look, I share with you the surprise that we would 0:17:49.640 --> 0:17:52.719 have no differences of opinion at this point. I think 0:17:52.800 --> 0:17:55.200 Powell has been somewhat masterful in terms of getting these 0:17:55.240 --> 0:17:59.200 decisions to be unanimous, but we saw that sometimes coming 0:17:59.200 --> 0:18:01.200 at the cost of Clay. I think that's what happened 0:18:01.240 --> 0:18:04.639 in June, where we had this strange decision not to 0:18:04.720 --> 0:18:07.680 raise raids, but to signal that it would be appropriate 0:18:07.720 --> 0:18:11.080 to raise raids another fifty bait basis points. So as 0:18:11.080 --> 0:18:14.360 you try to keep that committee together and get unanimity, 0:18:15.040 --> 0:18:19.080 it's a little bit troubling in terms of getting clarity 0:18:19.119 --> 0:18:20.159 in terms of the communication. 0:18:20.880 --> 0:18:22.960 Bob, your take on this in terms of whether it's 0:18:23.000 --> 0:18:26.520 helpful or harmful to have unanimity at a junction that 0:18:26.640 --> 0:18:29.600 is clearly so fraught with disagreement on the street and 0:18:29.720 --> 0:18:30.240 at the FED. 0:18:30.960 --> 0:18:35.399 I don't think the unanimity is the accurate portrayal of 0:18:35.440 --> 0:18:38.240 what actually occurred in the meeting. And I'm dying for 0:18:38.400 --> 0:18:42.320 Bullard to go into public life, so that into private life, 0:18:42.359 --> 0:18:45.200 so that we can ask them these questions. I think 0:18:45.240 --> 0:18:48.639 what they did is they locked arms. As Diane's pointed 0:18:48.680 --> 0:18:52.679 out many times, they are concerned about financial conditions easing. 0:18:53.119 --> 0:18:56.800 This is another way to try to stop that from happening. 0:18:58.400 --> 0:18:59.879 I look back with this, I can just see you 0:19:00.080 --> 0:19:02.199 with a speech with Buller down at Purdue. What a 0:19:02.240 --> 0:19:04.159 debate that would be right now as he moves from 0:19:04.160 --> 0:19:07.239 the Saint Louis Fed to Purdue, that goes to the 0:19:07.280 --> 0:19:08.720 dots in the dispersion. 0:19:08.800 --> 0:19:09.520 This was a FED. 0:19:09.640 --> 0:19:11.440 Let's speak for those that don't keep score on this, 0:19:11.600 --> 0:19:13.800 like I don't keep score on this. This is a 0:19:13.840 --> 0:19:16.840 dot free meeting. How important is the set up to 0:19:16.880 --> 0:19:20.960 the next dispersion? The next theater of dots? Are we 0:19:21.080 --> 0:19:21.600 beyond that? 0:19:22.040 --> 0:19:24.840 We're living in an ai world. Now, what are we 0:19:24.880 --> 0:19:29.400 doing not doing dots and summary of economic projections at 0:19:29.400 --> 0:19:33.520 every meeting? Let's do it and indicate more about what 0:19:33.560 --> 0:19:34.399 the FED is thinking. 0:19:34.440 --> 0:19:36.200 I think transparency. 0:19:36.800 --> 0:19:38.760 If you're gonna no one, I think. 0:19:38.600 --> 0:19:38.960 What is that? 0:19:39.640 --> 0:19:44.440 Particularly? Not usually? But after the last meeting, we've all 0:19:44.480 --> 0:19:47.119 talked about what were they doing. They didn't hike in June, 0:19:47.119 --> 0:19:51.560 but they indicated another fifty. If I were Mike McKee, 0:19:51.600 --> 0:19:55.480 I would ask Chair Pale, what about the dots and 0:19:55.520 --> 0:19:58.199 the summary of economic projections from the last meeting? Do 0:19:58.240 --> 0:20:02.280 you still stand by those or would have anything changed? 0:20:02.320 --> 0:20:05.560 Well, it's unclear which dot belongs to which policymaker Bostick 0:20:05.640 --> 0:20:07.480 might have been one of those that would dissent today. 0:20:07.520 --> 0:20:10.000 Bostic doesn't have a vote on the committee at the moment, 0:20:10.040 --> 0:20:12.879 but that doesn't have a vote on the committee either. 0:20:13.280 --> 0:20:15.639