WEBVTT - Instant Reaction: Jay Powell on Fed Policy 0:00:05.120 --> 0:00:08.240 This is the FED decides. On Bloomberg Television, on Bloomberg Radio, 0:00:08.280 --> 0:00:10.520 Tom King, Jonathan Fair, Lisa A Bram West John Off 0:00:10.520 --> 0:00:13.200 Today and really I've got to just go straight to 0:00:13.240 --> 0:00:16.040 the markets. What the FED said is we don't have 0:00:16.120 --> 0:00:20.160 any decisions about any further rate hikes. What the market 0:00:20.200 --> 0:00:22.640 heard is you're done, and you could see a rally 0:00:22.680 --> 0:00:24.880 in bonds. You're here seeing irrally in stocks. 0:00:25.120 --> 0:00:25.360 Tom. 0:00:25.400 --> 0:00:28.120 That caught my attention at a time when the FED 0:00:28.200 --> 0:00:30.640 is trying to parse through nuance and the market only 0:00:30.640 --> 0:00:31.200 here's one thing. 0:00:31.240 --> 0:00:35.040 The most are so correlated and so abrupt, including Oil 0:00:35.080 --> 0:00:38.120 West Texas Intermedia almost getting down to a seventy nine handle, 0:00:38.120 --> 0:00:40.559 which the chairman alluded to in the final question on 0:00:40.600 --> 0:00:44.400 the war in the Eastern Mediterranean. But in the bond market, Lisa, 0:00:44.440 --> 0:00:47.360 what's so important here is these moves are so large. 0:00:47.479 --> 0:00:52.160 I have to go to a standard deviation analysis. Conventional 0:00:52.760 --> 0:00:57.640 financial TV doesn't capture the magnitude of the vote. You're seeing. 0:00:57.720 --> 0:01:01.040 David Rosenberg, always brilliant out of Toronto, I know, making 0:01:01.120 --> 0:01:03.920 clear this is a FED that is done. And yet 0:01:03.960 --> 0:01:08.479 the singular point was Leastman of CNBC and McKee of Bloomberg, 0:01:08.800 --> 0:01:12.560 where he stopped in the middle of his conversation to say, 0:01:12.600 --> 0:01:16.600 we stand ready to be hawkish against this entire arc 0:01:16.880 --> 0:01:18.080 of we're done. 0:01:17.840 --> 0:01:20.880 Q whether or not they've lost some credibility because he 0:01:20.880 --> 0:01:23.520 could say, we're prepared to hike again. We've made no decisions. 0:01:23.560 --> 0:01:25.360 We're going to have a consensus on the Federal Reserve. 0:01:25.560 --> 0:01:28.640 The market again really is starting to price out further 0:01:28.720 --> 0:01:31.080 rate hikes more materially. I will just say this in 0:01:31.200 --> 0:01:34.399 terms of whether the market is doing the work for them. 0:01:34.640 --> 0:01:38.920 He speculated that it was really persistent changes in financial conditions, 0:01:38.920 --> 0:01:41.960 and it's too soon to say everything was hedged. Everything 0:01:42.040 --> 0:01:44.720 was going back to the notes, Everything was very rode. 0:01:44.720 --> 0:01:47.440 He did as much as he could, as little as possible. 0:01:48.040 --> 0:01:50.280 Yeah, I'll go with that. And I like the idea 0:01:50.320 --> 0:01:52.880 that everything was hedged in the sense of we didn't 0:01:52.920 --> 0:01:56.800 near data dependency much, which surprised me. I thought we'd say, Okay, 0:01:56.880 --> 0:02:00.240 the jobs report, maybe we finally see a crap in 0:02:00.240 --> 0:02:03.880 an economy coming off four point x percent real GDP. 0:02:04.440 --> 0:02:08.639 I think that this was taken by the markets, which 0:02:08.680 --> 0:02:10.760 is really what I would focus on. The diwop two 0:02:10.840 --> 0:02:14.119 hundred and fifty points one point six percent move Nasdaq 0:02:14.440 --> 0:02:18.720 at one hundred and seventeen basis points of soft landing 0:02:18.760 --> 0:02:22.639 in the ten year yield. The market is speaking volumes. 0:02:22.840 --> 0:02:26.560 They loved what they hurt, and this is going to 0:02:26.600 --> 0:02:29.600 of course be due to revision with time, and we've 0:02:29.600 --> 0:02:31.920 known that the knee jerk reaction is not always the 0:02:31.960 --> 0:02:34.640 one that sticks. But tom to me the fact that 0:02:34.680 --> 0:02:36.720 the market is jumping on this and that earlier in 0:02:36.760 --> 0:02:39.840 the day you saw yields tick lower because their funding announcement, 0:02:40.080 --> 0:02:43.160 then even lower, particularly on the long end, after economic 0:02:43.200 --> 0:02:46.000 data that came in weaker than expected, and then Chair 0:02:46.120 --> 0:02:49.080 Powell coming in and pushing them that much further lower 0:02:49.200 --> 0:02:50.480 as people expect them to be done. 0:02:50.639 --> 0:02:52.720 Yeah, it's going to be interesting to see this, say least, 0:02:52.720 --> 0:02:54.920 We'll continue to monitor markets, and we have a stellar 0:02:54.960 --> 0:02:58.280 group of people to drive the conversation forward. Let's drive 0:02:58.320 --> 0:03:01.840 the conversation forward right now. Almost quoting off Star Wars, 0:03:01.840 --> 0:03:05.040 he was very far, very far away. A question from 0:03:05.680 --> 0:03:08.839 Michael McKee. Let us listen to the chairman here on 0:03:08.880 --> 0:03:10.000 what is out there. 0:03:10.400 --> 0:03:13.400 We're going meeting my meeting. We're asking ourselves whether we've 0:03:13.400 --> 0:03:17.120 achieved a stance of policy that is sufficiently restrictive to 0:03:17.160 --> 0:03:20.120 bring inflation down to two percent over time. That's the 0:03:20.200 --> 0:03:22.280 question we're asking. We're looking at the full range of 0:03:22.320 --> 0:03:26.320 economic data, including financial conditions and all of those things 0:03:26.320 --> 0:03:30.040 that we look at, and then we're you know, we've 0:03:30.080 --> 0:03:32.720 come very far with this rate hiking cycle, very far. 0:03:33.960 --> 0:03:37.400 Who nailed this the very far of it was William 0:03:37.640 --> 0:03:40.920 Dudley out of Berkeley for years of course at Golden 0:03:41.040 --> 0:03:45.160 Sachs and the former New York Federal Reserve President, huge 0:03:45.240 --> 0:03:48.720 value at Bloomberg Economics and a senior advisor in economics 0:03:48.760 --> 0:03:52.000 for all of Bloomberg. Bill Dudley, you and I were 0:03:52.040 --> 0:03:55.240 in the lofty, cool climbs of Marrakesh a few weeks ago. 0:03:55.920 --> 0:04:02.320 Is the international community confronted a unique American experiment, a 0:04:02.440 --> 0:04:06.680 dynamic fiscal inducement, a fiscal stimulus? 0:04:06.720 --> 0:04:08.240 To where we are now? 0:04:08.680 --> 0:04:12.200 Your essay in the last two hours for Bloomberg makes 0:04:12.240 --> 0:04:16.600 clear you have immense concern that the Fed, given the 0:04:16.680 --> 0:04:20.359 cards dealt, could get this wrong. What did the chairman 0:04:20.800 --> 0:04:22.880 not address in this press conference. 0:04:24.360 --> 0:04:27.640 I think that he's quite confident that policy is restrictive 0:04:27.760 --> 0:04:30.240 enough to slow the ecomedy down. And I think the 0:04:30.279 --> 0:04:32.719 fact that we just had a growth quarter about nearly 0:04:32.760 --> 0:04:37.040 five percent calls that a little bit into question. Also 0:04:37.080 --> 0:04:40.240 to the notion that financial conditions are truly tight to 0:04:40.839 --> 0:04:42.719 enough to slow the coming down, I think is also 0:04:43.600 --> 0:04:46.919 pretty questionable because if you look at most financial conditioning indexes, 0:04:47.279 --> 0:04:51.840 the CHIAP, the biggest impulse towards restraint really happened last year, 0:04:52.880 --> 0:04:55.280 not right now. So I think that, you know, maybe 0:04:55.279 --> 0:04:56.960 they have done enough, maybe they haven't. But I think 0:04:57.080 --> 0:04:59.800 the reason why markets are hearing this so confidently is 0:04:59.839 --> 0:05:02.160 he he feels very confident that FED has done a lot. 0:05:02.440 --> 0:05:05.280 It feels policy is restrictive, and so I think, you know, 0:05:05.440 --> 0:05:08.200 the market is taking away the notion that he thinks 0:05:08.200 --> 0:05:11.400 he's done. And obviously, you know that depends on how 0:05:11.400 --> 0:05:13.720 the economy of allso has to inflation, what happens to 0:05:13.720 --> 0:05:16.160 the labor market. And another thing that the market is 0:05:16.200 --> 0:05:18.960 taking a lot of a positive signal from is he 0:05:19.040 --> 0:05:25.039 talked about how all these pandemic effects are washing out 0:05:25.080 --> 0:05:28.000 now in a good way. So labor market is becoming 0:05:28.120 --> 0:05:31.560 much more in balance, labor force growth is picked up. 0:05:31.880 --> 0:05:34.920 It's a very benign story about how this stall played out. 0:05:35.160 --> 0:05:37.360 It's basically a story where the FED really hasn't had 0:05:37.360 --> 0:05:39.719 to do that much to bring inflation down, and the 0:05:39.760 --> 0:05:41.960 FED basically is saying we don't think we're going to 0:05:41.960 --> 0:05:43.080 have to do much more from here. 0:05:44.240 --> 0:05:46.440 Char Powell also didn't seem to think that there was 0:05:46.480 --> 0:05:50.280 any casualty in pausing, letting time go on, and then 0:05:50.360 --> 0:05:53.560 restarting rate hikes. He said that that wasn't problematic at all. 0:05:53.600 --> 0:05:54.480 Do you disagree. 0:05:55.880 --> 0:05:58.960 Obviously, if it turns out that they need to do more, 0:05:59.000 --> 0:06:00.719 they're probably going to have to do more than just 0:06:00.760 --> 0:06:03.200 one quarter point move. You know, if you've taken a 0:06:03.240 --> 0:06:07.039 break for let's say six months, and the evidence accumulates 0:06:07.040 --> 0:06:08.960 that Madre policy is not as tight as you think 0:06:09.000 --> 0:06:11.679 it is, and inflation expectations are starting to become un anchored, 0:06:11.920 --> 0:06:14.480 labor markets not loosening, wages are stuck at four and 0:06:14.520 --> 0:06:18.080 a half percent, then it's unlikely that one quarter point 0:06:18.120 --> 0:06:20.039 move is going to be sufficient to do the job. 0:06:20.279 --> 0:06:23.240 So I think it's either zero or multiple rate hikes. 0:06:23.200 --> 0:06:25.920 Which is the reason why I probably some people are 0:06:25.920 --> 0:06:28.120 looking at this like yourself and saying they could be 0:06:28.120 --> 0:06:30.159 on the brink of an error. There was a question 0:06:30.240 --> 0:06:33.799 about how financial conditions really played into the Fed's decision 0:06:34.080 --> 0:06:37.000 whether higher yields were doing their work. He had some 0:06:37.160 --> 0:06:40.400 nuance around this, talking about a sustained move higher. Take 0:06:40.440 --> 0:06:42.640 a listen to Chair Powell speaking on the issue. 0:06:43.680 --> 0:06:47.039 Persistent changes in broader financial conditions can have implications for 0:06:47.080 --> 0:06:49.800 the path of monetary policy. In this case, the title 0:06:49.880 --> 0:06:52.440 financial conditions we're seeing from higher long term rates, but 0:06:52.480 --> 0:06:56.640 also from other sources like the stronger dollar and lower 0:06:56.680 --> 0:07:00.880 equity prices could matter for future rate decisions. With financial conditions, 0:07:01.040 --> 0:07:03.640 we're looking for persistent changes that are material. 0:07:04.760 --> 0:07:07.719 Bill Dudley, from your vantage point, does this give any 0:07:07.760 --> 0:07:11.280 clarity as to how the Fed is counting yields in 0:07:11.320 --> 0:07:14.480 their picture of what restrictive really looks like? 0:07:15.680 --> 0:07:17.840 Well, I think I agree with him that persistence is 0:07:17.880 --> 0:07:20.200 what matters. I mean, bonials go up for a week 0:07:20.280 --> 0:07:21.800 or two and then come right back down. That's not 0:07:21.840 --> 0:07:24.520 going to presert much restraint on the economy. You know, 0:07:24.560 --> 0:07:26.640 one problem I think that Chairman has at this point 0:07:26.720 --> 0:07:28.760 is by talking to the markets in a sort of 0:07:29.080 --> 0:07:34.560 supportive way, stocks rally, bonial's fall, that's loosening financial conditions, 0:07:34.560 --> 0:07:37.240 and so that's removing some of the restraint that was 0:07:38.120 --> 0:07:42.800 creating some impetus for not tightening laundry policy further, the. 0:07:42.920 --> 0:07:44.560 Harder the matter to me, Bill, and I don't want 0:07:44.600 --> 0:07:48.240 to turn this into Dale Jorgenson's through three ratio course, 0:07:48.720 --> 0:07:51.520 and Juliet Coronado has been brilliant on this as well. 0:07:51.560 --> 0:07:54.680 So let's listen to doctor Coronado and doctor Dudley, Folks, 0:07:55.080 --> 0:08:01.120 and Bill Dudley said, barring unexpectedly fast productivity growth, there 0:08:01.120 --> 0:08:03.760 seems to be almost a hope and prayer Bill Dudley, 0:08:04.280 --> 0:08:07.320 that this time is different and instantly we have a 0:08:07.360 --> 0:08:11.320 new elevated productivity. Do you see any signal of this 0:08:11.720 --> 0:08:13.520 in post pandemic America. 0:08:15.120 --> 0:08:17.680 I think it's really too soon to make any decisions 0:08:17.720 --> 0:08:20.560 about protivty at all. Protivy growth took a real hit 0:08:20.640 --> 0:08:23.080 during the pandemic, and then it picked up as we reopened. 0:08:23.920 --> 0:08:26.760 What the trend is at this point is very, very uncertain. 0:08:27.000 --> 0:08:29.720 And you noticed that Chapaul did not talk about protin 0:08:29.920 --> 0:08:33.360 growth at that trend changing. What he talked about was 0:08:33.400 --> 0:08:35.960 a labor force growth had picked up a lot because 0:08:36.040 --> 0:08:40.880 labor ports, participation on you know, adult workers have climbed 0:08:40.920 --> 0:08:43.800 a lot, and immigration I picked up. He saw that 0:08:43.840 --> 0:08:48.120 as a positive supply side surprise. But I don't think 0:08:48.160 --> 0:08:51.439 that the FED, or or Eye for that matter, think 0:08:51.520 --> 0:08:54.679 that there is a pro to vy growth miracle right 0:08:54.720 --> 0:08:55.319 around the corner. 0:08:55.480 --> 0:08:58.200 Bill Dudley's Wednesday, We're going to a job's report on Friday. 0:08:58.280 --> 0:09:00.760 Let's go back to Dudley and mckelviy, Gold and Sex 0:09:01.080 --> 0:09:05.360 a few years ago. What's an appropriate non firm payroll statistic? 0:09:06.040 --> 0:09:09.120 Not on Friday, but say three month moving average out 0:09:09.360 --> 0:09:12.080 where you can say all clear. And finally, we have 0:09:12.160 --> 0:09:16.320 a labor economy settling down? Is it sub one hundred thousand? 0:09:17.160 --> 0:09:19.720 Yeah, it's probably in that ballpark. I mean, as pure 0:09:19.720 --> 0:09:22.600 Paul said, we are getting a surgeon liver force this year, 0:09:22.920 --> 0:09:24.880 but I think he also expects that that will peter 0:09:25.000 --> 0:09:27.280 out over time, and then you're just stuck with the 0:09:27.280 --> 0:09:30.560 growth rate of the working age population, which is probably 0:09:30.600 --> 0:09:32.280 only growing in about a half a percent a year, 0:09:32.280 --> 0:09:34.960 and so that's consistent with payroll gains of maybe one 0:09:35.040 --> 0:09:37.200 hundred thousand a months or even a little bit less. 0:09:37.480 --> 0:09:39.400 So I think that eventually the FED needs to bring 0:09:39.400 --> 0:09:41.440 payroll growth below one hundred thousand if they're going to 0:09:41.520 --> 0:09:44.360 generate enough slack in the labor market to bring wage 0:09:44.360 --> 0:09:47.840 inflation down to levels consistent with two percent inflation. 0:09:48.080 --> 0:09:50.800 Given the volatility that we've seen in the bond market, Bill, 0:09:50.960 --> 0:09:54.600 how concerned are you about a real blowback on Friday 0:09:54.640 --> 0:09:56.880 should we get a job report that comes in materially 0:09:56.920 --> 0:09:59.960 hotter than expected and we continue to see those upsides 0:10:00.080 --> 0:10:02.640 surprises that you say may post the biggest risk. 0:10:03.600 --> 0:10:06.040 Well, I personally would not put too much attention on 0:10:06.080 --> 0:10:08.920 any one given economic release at this point because the 0:10:08.920 --> 0:10:11.720 Fed is basically said we are patient now, and so 0:10:11.920 --> 0:10:14.640 one economic report is not going to change their thinking. 0:10:14.920 --> 0:10:18.000 It's only accumulation of evidence to suggests that policy is 0:10:18.040 --> 0:10:20.760 not sufficiently restricted to do the job, which will cause 0:10:20.760 --> 0:10:23.320 the FED to start to tighten Entrey Pauls again, So 0:10:23.360 --> 0:10:27.439 I think we need to maybe downplay any single report 0:10:27.480 --> 0:10:29.800 at this point. It's going to take an accumulation of 0:10:29.800 --> 0:10:31.640 evidence for the FED to decide that they need to 0:10:31.640 --> 0:10:32.839 do more on Luntary Pauls. 0:10:33.320 --> 0:10:36.760 Bill Dudley, thank you so much, greatly, greatly appreciated this morning, folks. 0:10:36.800 --> 0:10:39.440 I'll send out the essay across all my social heres 0:10:39.559 --> 0:10:42.360 op ed is really must read some really good writing 0:10:42.440 --> 0:10:44.360 just in the last twenty four hours from a number 0:10:44.360 --> 0:10:47.880 of people within the zeitgeist. I need to do a 0:10:47.920 --> 0:10:51.079 market check here because this is an historic move. They say, 0:10:51.080 --> 0:10:52.440 I'm going to be as quick as I can only 0:10:52.480 --> 0:10:54.719 says you go to Michael McKee. The Dow up two 0:10:54.760 --> 0:10:57.840 hundred and fifty eight points, heading towards a one percent lift. 0:10:57.880 --> 0:11:00.520 I got a one percent lift, SMP five one hundred 0:11:00.600 --> 0:11:04.000 up solid forty seven points, Nasdaq one hundred on fire 0:11:04.640 --> 0:11:08.120 up one point seven percent. That into Apple earnings tomorrow 0:11:08.440 --> 0:11:11.160 at Lisa, I should point out tenure yield eighteen basis 0:11:11.200 --> 0:11:15.200 points modest move as well, and the real yield Lisa 0:11:15.320 --> 0:11:19.160 craters two point five oh percent after my first glass 0:11:19.160 --> 0:11:24.560 of tang this morning, and we are down sixteen basis 0:11:24.600 --> 0:11:28.040 points on the inflation of just a yield. The operative word, folks, 0:11:28.080 --> 0:11:29.959 is never. I don't think I've ever seen that. 0:11:30.160 --> 0:11:34.000 It has been a pretty significant move and continues to 0:11:34.080 --> 0:11:36.360 be as the session grows older. Let's check back in 0:11:36.400 --> 0:11:38.440 with our own Michael McKee, who is in the room 0:11:38.480 --> 0:11:41.840 in Washington, DC. Mike, do you think the FED would 0:11:41.840 --> 0:11:45.280 be disappointed to see the market's reaction to Fed shair 0:11:45.360 --> 0:11:46.600 j Palace press conference? 0:11:48.679 --> 0:11:52.520 Not disappointed in that sense, clearly, If we continue to 0:11:52.559 --> 0:11:56.680 see this kind of drop in yields, it's going to 0:11:56.720 --> 0:12:00.600 take some of that market pressure off of the economy, 0:12:00.679 --> 0:12:03.480 and the FED sort of goes backwards a little bit. 0:12:03.760 --> 0:12:06.000 But I don't think they are counting on the markets 0:12:06.080 --> 0:12:09.480 being tight for a long time to completely do their 0:12:09.559 --> 0:12:11.880 job for them, because, as you mentioned just a moment ago, 0:12:11.920 --> 0:12:15.679 if you get a blowout number on Friday, then everybody's 0:12:15.760 --> 0:12:18.200 going to reverse. I think the takeaway here is that 0:12:18.800 --> 0:12:21.400 the FED would like to be done, or at least 0:12:21.440 --> 0:12:24.800 at peak, and switch to the idea of how long, 0:12:25.240 --> 0:12:27.679 but they can't be sure yet. And I think the 0:12:27.720 --> 0:12:30.839 analogy I would use is the FED chairman is Potter 0:12:30.960 --> 0:12:34.480 Stewart at this point, the former Supreme Court justice who 0:12:34.520 --> 0:12:36.800 said that he could not define pornography, but he knew 0:12:36.800 --> 0:12:39.480 it when he sees it. At this point, the FED 0:12:39.520 --> 0:12:42.479 can't define what sufficiently tight. 0:12:42.400 --> 0:12:45.480 Is, but meeting by meeting, they. 0:12:45.360 --> 0:12:46.880 Will decide what they see. 0:12:47.280 --> 0:12:49.520 So you kind of throw out the dot plot, which 0:12:49.559 --> 0:12:52.160 is what I was getting at with my question sem 0:12:53.000 --> 0:12:55.960 The markets can't predict anymore what the FED is going 0:12:56.000 --> 0:12:58.199 to do. They have to go into every meeting trying 0:12:58.200 --> 0:13:00.920 to assess what the FED will think about conditions at 0:13:00.960 --> 0:13:04.000 the time rather than some sort of objective data release. 0:13:04.200 --> 0:13:07.280 Mike McKee and your tenure back to Arthur Burns, you 0:13:07.280 --> 0:13:10.040 were young buck there with Arthur Burns a few years ago. 0:13:10.640 --> 0:13:14.600 Have you ever seen a FED working away from theory, 0:13:14.720 --> 0:13:18.319 away from the orthodox They seem to be literally as 0:13:18.360 --> 0:13:21.880 you and Steve Lesman alluded to, making it up meeting 0:13:22.000 --> 0:13:22.560 to meeting. 0:13:24.440 --> 0:13:28.800 Yeah, I mean orthodoxy changes obviously, and the time from 0:13:29.120 --> 0:13:32.280 Burns to green Span it changed quite a bit. And 0:13:32.840 --> 0:13:36.520 it's still a FED truism that the inflation is kind 0:13:36.520 --> 0:13:39.480 of the key to everything. But they don't know what's 0:13:39.520 --> 0:13:42.080 going on. The models don't work or haven't worked coming 0:13:42.160 --> 0:13:45.200 out of the pandemic. It's all something new. So they 0:13:45.200 --> 0:13:47.000 are doing their best to try to figure out what's 0:13:47.000 --> 0:13:51.040 going on without using some of the history based models 0:13:52.040 --> 0:13:58.800 and previous outcomes that they would have had to use 0:13:58.800 --> 0:14:01.000 in the past. And this will in gender a lot 0:14:01.040 --> 0:14:04.079 of rewrites of monetary policy. Thinking, I'm sure. 0:14:03.920 --> 0:14:06.319 Going down the road just to sum this all up, 0:14:06.440 --> 0:14:09.400 is strategically patient, the news sufficiently restrictive. 0:14:10.640 --> 0:14:14.360 I saw that comment and I think it is. It 0:14:14.440 --> 0:14:17.680 sums it up pretty well. They are going to be 0:14:17.760 --> 0:14:20.480 patient they're going to have to have a good reason 0:14:20.640 --> 0:14:24.560 to do whatever, whether it's cutting rates, raising rates, they 0:14:24.600 --> 0:14:26.440 will not have to have a good reason to just 0:14:26.800 --> 0:14:28.000 leave rates where they are. 0:14:28.040 --> 0:14:30.400 They could just go with the economy as they see it. 0:14:30.840 --> 0:14:34.680 Michael McKee, thank you, and wonderful question. As always, strategically 0:14:34.920 --> 0:14:36.200 are you strategically patient? 0:14:36.280 --> 0:14:37.360 Last night at nine pm? 0:14:38.480 --> 0:14:41.920 I was not absolutely with the sugar highs, etc. But 0:14:41.960 --> 0:14:45.600 this to me really highlights what they're saying. And then 0:14:45.640 --> 0:14:47.600 you put the stock chart and you put the bond 0:14:47.680 --> 0:14:49.280 chart next to it, and you hear what the bond 0:14:49.320 --> 0:14:51.840 market is hearing. Just want to point this out to 0:14:51.920 --> 0:14:56.360 your yields four point ninety three percent, getting close to 0:14:56.680 --> 0:15:00.520 crossing that threshold into the four point ninety. No, it's 0:15:00.560 --> 0:15:03.560 a bouncing around, but just highlights what a massive move 0:15:03.560 --> 0:15:04.480 we've seen on the front end. 0:15:04.600 --> 0:15:07.200 Massive is definement by the pros folks, and we welcome 0:15:07.280 --> 0:15:10.000 all of you not part of global Wall Street. People 0:15:10.000 --> 0:15:13.680 look at this strange phrase standard deviation, and all you 0:15:13.720 --> 0:15:16.480 need to know is you look back twenty days, forty days, whatever, 0:15:16.560 --> 0:15:19.320 twenty weeks and you try to figure out how much 0:15:19.360 --> 0:15:22.920 have we moved off the center trend. Jeffrey Rosenberg of 0:15:23.000 --> 0:15:26.440 Blackrock knows we've seen a standard deviation move. He is 0:15:26.480 --> 0:15:30.120 with their systematic multi strategy fund. Oh, I can see 0:15:30.160 --> 0:15:32.640 you in the classroom as a freshman at Carnegie Melon 0:15:32.960 --> 0:15:36.280 Jeff Rosenberg going, what in God's name is standard deviation? 0:15:36.680 --> 0:15:38.760 Did we get a jump condition today? 0:15:38.840 --> 0:15:44.640 Jeff Rosenberg towards a less restrictive FED well. 0:15:44.840 --> 0:15:47.840 As Lisa pointed out earlier, there's a lot of data 0:15:47.880 --> 0:15:51.200 coming out today, and so parsing out the reaction from 0:15:51.280 --> 0:15:54.000 the Fed versus the earlier you know, kind of main 0:15:54.040 --> 0:15:57.880 event behind the Treasury refunding is a little bit tricky, 0:15:57.920 --> 0:16:02.240 but I would highlight that the main differentiation is really 0:16:02.280 --> 0:16:04.600 the reaction in the front end of the curve, right 0:16:04.760 --> 0:16:06.560 from the refunding announcement. 0:16:06.680 --> 0:16:08.200 That was really the back end. 0:16:08.240 --> 0:16:10.800 As Lisa highlighted, a little bit of the weaker data 0:16:10.840 --> 0:16:15.000 on pmis also helping the back end rally, But the 0:16:15.040 --> 0:16:16.280 Fed market. 0:16:15.920 --> 0:16:17.880 Reaction was really in the front end. 0:16:18.200 --> 0:16:21.520 So I think, Powell, you want to look at the statement, 0:16:21.560 --> 0:16:23.280 and you want to look at the opening to the 0:16:23.320 --> 0:16:27.040 press conference. That's what they intended to say versus what 0:16:27.560 --> 0:16:30.160 the market interpreted from the Q and A. 0:16:30.280 --> 0:16:32.720 What they intended to say was to try to be balanced. 0:16:33.000 --> 0:16:37.040 Resiliency on economic growth implies we need to stay tight, 0:16:37.400 --> 0:16:40.760 maybe do one more against the tightening of financial conditions, 0:16:40.760 --> 0:16:42.119 which implies maybe. 0:16:41.880 --> 0:16:44.320 We've done enough. That's what they were hoping to say. 0:16:44.360 --> 0:16:47.760 Clearly, what the market saw was a preference for the 0:16:47.800 --> 0:16:51.640 worry of tightening financial conditions where at sufficiently restricted we 0:16:51.680 --> 0:16:53.840 can be done, and so you price out a little 0:16:53.840 --> 0:16:57.600 bit of probability for the next hike. That's the market reaction, 0:16:58.240 --> 0:17:00.920 as you went over in the earlier segment with Dudley. 0:17:01.160 --> 0:17:03.800 You know, it remains to be seen. The data will 0:17:03.840 --> 0:17:08.400 dictate that. But certainly to your question, Tom big reaction, 0:17:08.640 --> 0:17:10.880 I think a lot more of that standard deviation move 0:17:10.880 --> 0:17:13.560 has to do with the refunding earlier a little bit 0:17:13.680 --> 0:17:15.040 coming out of this press comp How do. 0:17:15.080 --> 0:17:16.720 You play this then, Jeff, if you think that the 0:17:16.760 --> 0:17:19.720 market is reading way too much into what Jay Powell said, 0:17:19.720 --> 0:17:22.159 which is trying to stick close to the script, although 0:17:22.200 --> 0:17:25.320 perhaps giving a different tone than people thought of, do 0:17:25.359 --> 0:17:27.400 you then sell to your notes and wait for them 0:17:27.520 --> 0:17:29.399 for yields to go back up, for them to cheapen 0:17:29.440 --> 0:17:30.160 and buy them back. 0:17:31.960 --> 0:17:34.080 Well, you know, I think it's less a question about 0:17:34.119 --> 0:17:36.760 selling the two year note. Now, I think given the 0:17:36.800 --> 0:17:40.399 pricing and given the data that we have that Powell 0:17:40.480 --> 0:17:43.960 refer to two more inflation prints, two more labor prints, 0:17:44.240 --> 0:17:47.080 and what Dudley was just hinting at, You know, are 0:17:47.080 --> 0:17:50.359 we really seeing the degree of tightness. The degree is 0:17:50.400 --> 0:17:54.760 sufficiently restrictive given the trajectory of growth that we just 0:17:54.840 --> 0:17:59.000 came off of. Obviously no one expects that to persist. 0:17:59.400 --> 0:18:03.840 But the risk there is that you're not pricing enough 0:18:03.880 --> 0:18:06.320 of the possibility of another hike, and so maybe you 0:18:06.400 --> 0:18:09.080 hold off on adding twoes for me at these levels. 0:18:09.119 --> 0:18:11.159 And jeffrom while you said at black Rock and I 0:18:11.200 --> 0:18:13.639 understand there's an index play here, but there's some active 0:18:13.680 --> 0:18:16.160 management and you're watching everybody else in the game. 0:18:16.720 --> 0:18:17.600 What's the bet of. 0:18:17.520 --> 0:18:20.199 The market right now? Is the bet that we're going 0:18:20.280 --> 0:18:23.760 to get this fed done in a more dubvish, less 0:18:23.800 --> 0:18:26.800 restrictive tone, or is a bet, hey, we're scared stiff 0:18:26.800 --> 0:18:27.879 and we may move higher. 0:18:29.600 --> 0:18:31.239 Well, I mean, you have a number, you have a 0:18:31.240 --> 0:18:33.400 couple of different cross currents on there. 0:18:33.760 --> 0:18:33.960 You know. 0:18:34.240 --> 0:18:38.480 Obviously there's been a lot of talk about movement into 0:18:38.520 --> 0:18:42.280 the long end, movement of retail flows buying the long end. 0:18:42.280 --> 0:18:46.399 That's very much kind of we're we're at or close 0:18:46.440 --> 0:18:48.600 to the end, and we're going back to the old 0:18:48.680 --> 0:18:52.600 playbook that you know, once the FED is done tightening, 0:18:52.640 --> 0:18:53.840 then you get a big rally. 0:18:54.160 --> 0:18:54.879 I think I think you. 0:18:54.960 --> 0:18:57.040 Got to be a little bit cautious about we're just 0:18:57.080 --> 0:18:59.639 simply going back to the old playbook, but certainly, you 0:18:59.680 --> 0:19:01.639 know there's a degree of that in the market. And 0:19:01.680 --> 0:19:04.720 then the other really big kind of consensus story is 0:19:04.800 --> 0:19:07.520 around the steepness of the curve, that the curve is 0:19:07.560 --> 0:19:10.640 just way too inverted, that you need to see normalization 0:19:10.760 --> 0:19:13.320 of the curve, all the factors around that. You know, 0:19:13.320 --> 0:19:15.720 the refunding was a little bit of that. That that 0:19:15.840 --> 0:19:19.919 kicked in post the August refunding announcement Japan and the 0:19:19.920 --> 0:19:23.119 news on the boj and yield curve coroll, you know, 0:19:23.240 --> 0:19:24.200 deficit financing. 0:19:24.480 --> 0:19:26.040 There's a litany of list but there's a. 0:19:26.119 --> 0:19:28.960 Very popular positioning around the steepening, and I think the 0:19:29.000 --> 0:19:32.520 reaction to the refunding earlier today really reflects that very 0:19:32.520 --> 0:19:37.320 crowded steepening position that exacerbates that standard deviation move that 0:19:37.320 --> 0:19:37.840 we saw earlier. 0:19:38.000 --> 0:19:40.000 Je If I want to go full circle to where 0:19:40.040 --> 0:19:42.159 Lisa and I were early this morning. Folks, we've been 0:19:42.240 --> 0:19:44.840 livecence two am this morning. It's really, you know, you know, 0:19:44.960 --> 0:19:48.679 quite something, And Jeff, it's about the commercial banking system 0:19:48.720 --> 0:19:51.520 of America, which the chairman alluded to maybe a little 0:19:51.560 --> 0:19:55.080 bit and maybe not enough for my taste. Can we 0:19:55.119 --> 0:19:58.840 get a bond market that heals to take those bond 0:19:58.920 --> 0:20:02.760 losses and drift them away into twenty twenty five where 0:20:02.800 --> 0:20:05.199 things can even get better if we don't get a 0:20:05.280 --> 0:20:08.040 massive bond move, but just enough of a bond move. 0:20:08.320 --> 0:20:09.720 Is there really the strategy here? 0:20:11.600 --> 0:20:14.479 No, And you did hear that question. It was probably 0:20:14.520 --> 0:20:17.840 one of the few questions on that topic. I mean, 0:20:17.880 --> 0:20:20.639 this is a historic move in terms of interest rates. 0:20:20.680 --> 0:20:24.280 So you know, even if you get a modest kind 0:20:24.320 --> 0:20:26.960 of cut in interest rates that the bond market in 0:20:27.000 --> 0:20:30.600