WEBVTT - Fed Holds Rates Steady, Pausing for Further Inflation Progress

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News.

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<v Speaker 2>You're listening to Bloomberg Business Week with Carol Masser and

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<v Speaker 2>Tim Stenovek on Bloomberg Radio.

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<v Speaker 3>Let's get to that first FOMC decision of twenty twenty five,

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<v Speaker 3>the Fed, as expected, holding interest rates steady, pausing to

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<v Speaker 3>assess the inflation outlook following a string of rate reductions

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<v Speaker 3>last year. In the statement released with the decision, the

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<v Speaker 3>Fed repeated that inflation remained somewhat elevated, but removed a

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<v Speaker 3>reference to it having made progress toward their two percent goal.

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<v Speaker 3>Here's j Powell in the statement at the press conference

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<v Speaker 3>about not needing to hurry to just their policy stance.

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<v Speaker 4>Over the course of our three previous meetings, we lowered

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<v Speaker 4>our policy rate by a full percentage point from its peak.

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<v Speaker 4>That recalibration or policy stance was appropriate in light of

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<v Speaker 4>the progress on inflation and the rebalancing in the labor market,

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<v Speaker 4>with our policy stance significantly less restrictive than it had been,

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<v Speaker 4>in the economy a strong We do not need to

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<v Speaker 4>be in a hurry to adjust our policy stance.

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<v Speaker 2>We do not need to be in a hurry to

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<v Speaker 2>adjust our policy stance that of course was Fed jow J.

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<v Speaker 2>Powell just a few moments ago. We got a big

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<v Speaker 2>program coming up. We are diving into the FED, and

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<v Speaker 2>let's do that. We got with us Nate Thuft, chief

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<v Speaker 2>investment officer at Manual Life Investment Management, joining us from Boston.

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<v Speaker 2>Also with us as Bloomberg Intelligence Chief US Interest rates Strategist,

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<v Speaker 2>Ira Jersey, who no, is not in Princeton, New Jersey.

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<v Speaker 2>He's here in the Bloomberg Interactive Brokers studio today.

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<v Speaker 3>All right, let's go to you first. I got to

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<v Speaker 3>say our Chris Antsy on our live blog, who follows

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<v Speaker 3>the global economy, he posed this. He says, it's just logically,

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<v Speaker 3>you wonder if inflation is no longer making progress toward

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<v Speaker 3>the Fed's two percent goal inflation goal, and the labor

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<v Speaker 3>market meantime is solid, how can the risks be balanced?

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<v Speaker 3>Which is what JA Powell said? Are they balanced? If

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<v Speaker 3>the two percent target is still out of reach and

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<v Speaker 3>we're not making progress toward it?

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<v Speaker 5>Well, well, I don't think. Firstly, the two percent is

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<v Speaker 5>out of reach. And look, the FED kind of tied

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<v Speaker 5>their hands when they went to a firm two percent

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<v Speaker 5>target because if inflation was right where it is today

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<v Speaker 5>at you know, two point three, two point four, depending

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<v Speaker 5>on which measure you look at. We would say, okay,

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<v Speaker 5>inflation's fine, right, like, we wouldn't worry about it, except

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<v Speaker 5>we're not at two right, And.

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<v Speaker 3>That's the there's sticklers on this two percent.

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<v Speaker 5>And that's part of the problem. They should have kept

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<v Speaker 5>more of a you know, average inflation targeting kind of thing,

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<v Speaker 5>and I think that would have made their communication a

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<v Speaker 5>little bit easier. But I think the important thing that

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<v Speaker 5>came out of today's statement, and with that change in

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<v Speaker 5>the statement and then j Powell mentioning multiple times it

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<v Speaker 5>don't have to be in a hurry. This could mean

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<v Speaker 5>a skip again in March. And I think that that's

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<v Speaker 5>very important because I think there were a lot of people,

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<v Speaker 5>myself included, thinking that, hey, the Fed would cut in December,

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<v Speaker 5>skip January, cut in March, and then maybe be done

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<v Speaker 5>after that, or maybe do one more. But now they're

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<v Speaker 5>talking about multiple weights, and the longer the FED weights,

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<v Speaker 5>the higher the risk. I think that the next move

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<v Speaker 5>is actually a hike, so they can stay here for

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<v Speaker 5>a long time. Probably at this point.

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<v Speaker 2>Nate, come on in here, do you agree that do

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<v Speaker 2>you think that that two percent target is actually out

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<v Speaker 2>of reach.

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<v Speaker 6>I don't think it's out of reach. I think it's

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<v Speaker 6>all depending on your time horizon. Right, the BED has

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<v Speaker 6>been very clear as well as most economists that the

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<v Speaker 6>path to lower inflation isn't going to be as straight line,

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<v Speaker 6>and we have seen a few pockets of hiccups here, right,

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<v Speaker 6>But ultimately, our belief is that the trend for inflation

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<v Speaker 6>is still down, is just not as fast as a

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<v Speaker 6>lot of people want it to be. And our view

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<v Speaker 6>is that the FED will continue to cut even if

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<v Speaker 6>we don't get to exactly two percent, as long as

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<v Speaker 6>as they're comfortable that the trend continues towards two percent.

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<v Speaker 6>And at the same time, they're going to continue to

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<v Speaker 6>be very focused on the labor market. And right now,

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<v Speaker 6>the other common for the bet is the labor market

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<v Speaker 6>looks pretty solid. We would define the labor market as fine,

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<v Speaker 6>not necessarily solid, but it's not too hot, it's not

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<v Speaker 6>too cold. It's okay, but there's still remains risk in

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<v Speaker 6>the labor market that it could weaken as the year

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<v Speaker 6>goes on.

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<v Speaker 3>All right, Right, let's talk about the moves that we

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<v Speaker 3>saw in the US rates market, because I feel like

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<v Speaker 3>the Fed like dusting off Jake Powe dusting off his

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<v Speaker 3>shoulders and saying, Okay, there was a little reaction, but

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<v Speaker 3>we're kind of where we were, where we were before

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<v Speaker 3>the Fed announcement. So is he feeling kind of maybe

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<v Speaker 3>good about what was done and what was said?

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<v Speaker 5>Well, you know, so the guide didn't say I think

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<v Speaker 5>the market. Remember we had basically three events today from

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<v Speaker 5>the Fed. So the first one was a statement, and

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<v Speaker 5>the change in the statement, particularly that inflation statement saying

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<v Speaker 5>that we're not no longer making progress right, like the

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<v Speaker 5>removal of that was taken as hawkish pro rates go off, right,

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<v Speaker 5>So short term industrates went up a little bit, you

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<v Speaker 5>had Fed fund's future sell off a little. You had

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<v Speaker 5>so for future sell off a little. You had two

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<v Speaker 5>year yields go up about five basis points. And all

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<v Speaker 5>of that's reasonable because that means that, hey, if the

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<v Speaker 5>Fed's done hiking, then interest rates are right what they're

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<v Speaker 5>going to be, So everything should be at four point

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<v Speaker 5>three percent in terms of two year yields and all

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<v Speaker 5>the short term rates. But then you had the press conference,

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<v Speaker 5>and Jay Powell made a little bit of an about

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<v Speaker 5>face at the press conference, particularly in after his opening

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<v Speaker 5>remarks to a question about why the change? Right, why

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<v Speaker 5>the change? And basically he said, well, we wanted to

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<v Speaker 5>shorten the sentence, and we you know, we're not making

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<v Speaker 5>the same kind of progress we were towards the inflations.

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<v Speaker 5>But it's not a big deal, right, That's what he

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<v Speaker 5>made it sound like. And that's when you saw rates

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<v Speaker 5>go the other way and everything went back nearly, not quite,

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<v Speaker 5>but nearly back to where they were.

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<v Speaker 3>So is this like the FED Twitter you know platform

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<v Speaker 3>only one hundred and forty characters, or like, what how

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<v Speaker 3>do you read something like that from Jay Powell? Editors

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<v Speaker 3>come in and say, we got to make this shorter.

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<v Speaker 3>What is that?

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<v Speaker 5>I think it's a clarification. The way that I look

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<v Speaker 5>at the change in that first paragraph, and all of

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<v Speaker 5>the changes were in that first paragraph, which is about

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<v Speaker 5>the economic environment is a marking to market, So just

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<v Speaker 5>an acknowledgment that the labor market is okay, not great.

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<v Speaker 5>I agree, but nate on that. But then the inflation

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<v Speaker 5>statement saying that hey, we're no longer inflation is still

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<v Speaker 5>above our goal, but no longer making progress like that,

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<v Speaker 5>that means that the next logical step is it goes

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<v Speaker 5>the other way.

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<v Speaker 4>Right.

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<v Speaker 5>Inflation goes higher, right, and that means they have to.

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<v Speaker 2>Like, Hey, Nate, I was saying to Carol before our

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<v Speaker 2>program started, I was surprised at how much politics came up. Carol,

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<v Speaker 2>you weren't surprised, you said it was expected.

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<v Speaker 3>I assumed that that was going to be, like everybody

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<v Speaker 3>was going to obsess over it.

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<v Speaker 2>Well, policies from the Trump administration, tariff's disruption to supply chains,

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<v Speaker 2>tax policy. How do you think the FED is dealing

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<v Speaker 2>with all of that? Do we get any clarity from today?

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<v Speaker 2>I mean that the FED chair was prepared for all

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<v Speaker 2>those questions, it seemed.

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<v Speaker 6>Yeah. I think the FED was expecting it as well,

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<v Speaker 6>because it is a hot topic, and even their counterparts

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<v Speaker 6>in other central banks north of the border, as an example,

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<v Speaker 6>Bank of Canada, they explicitly addressed terrorists of being a

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<v Speaker 6>negative impact in their commy. So I think the FED

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<v Speaker 6>was prepared for it. But I also think the FED

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<v Speaker 6>came into this meeting with two goals, one to maintain

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<v Speaker 6>as much optionality as they could and two not to

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<v Speaker 6>move the markets a lot. And I think overall cech

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<v Speaker 6>Chechas state in the conference they balanced that pretty well.

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<v Speaker 6>So ultimately they were expecting it, but they weren't going

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<v Speaker 6>to give a lot of detail and a lot of

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<v Speaker 6>offerings as to what the policies actually need. One they

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<v Speaker 6>don't fully know, but too we don't know. We'll actually

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<v Speaker 6>be fully into Nate.

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<v Speaker 3>I want to ask you for the financial markets, especially

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<v Speaker 3>the equity markets, but really all of it. It's been

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<v Speaker 3>a wild week. It could be even more as we

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<v Speaker 3>wait a big batch of big tech earnings that are

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<v Speaker 3>coming out after the close today and also tomorrow after

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<v Speaker 3>the close. What's the smart equity trade right now? Is

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<v Speaker 3>it wait and see?

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<v Speaker 1>Is it by the dip? Is it sell? What is it?

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<v Speaker 6>We still lean in on being overweight equities. I think

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<v Speaker 6>the general fundamentals, despite where valuations are, still says be

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<v Speaker 6>overweight equities. Maybe not as much as people happen, but

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<v Speaker 6>still lean into that trade. So by the depth, including

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<v Speaker 6>tech stocks is still our general argument for our clients

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<v Speaker 6>in our current position and portfolios.

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<v Speaker 2>IIRA, come on back in here and next vocal point

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<v Speaker 2>for you when you're looking at rates. We just heard

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<v Speaker 2>from the FED, so that's behind us. Now what's the

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<v Speaker 2>next vocal point for you?

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<v Speaker 1>Yeah?

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<v Speaker 5>So, firstly, additional details of some of Donald Trump's policies, right, so,

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<v Speaker 5>I think that those are going to be.

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<v Speaker 1>Very important, which one specifically, well things.

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<v Speaker 5>Not so much immigration, we see what's going to going

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<v Speaker 5>on there, but things like tariffs, like are we going

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<v Speaker 5>to get across the board tariffs? There's a lot of

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<v Speaker 5>different pieces of that. And then also what kind of

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<v Speaker 5>cuts does he expect to make quickly in terms of

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<v Speaker 5>government spending? Right, so there's some there's not much really

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<v Speaker 5>he can do with what's been appropriated already. That's constitutional. Right,

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<v Speaker 5>we can get into the Budget Empowerment Act of nineteen

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<v Speaker 5>seventy four. If you're really do want to get super wonky, I'm.

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<v Speaker 1>Happy to do that with you any time now.

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<v Speaker 3>But there's certain things that if it's already been allocated

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<v Speaker 3>he Congression.

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<v Speaker 5>He can't do that right then, and the courts will

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<v Speaker 5>come in and he'll probably be overruled, just like he

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<v Speaker 5>was with a couple of other things. But that being said,

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<v Speaker 5>in the future, he can say, Okay, we're gonna we

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<v Speaker 5>would like to see cuts here, cuts there, And as

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<v Speaker 5>the Republicans have both Houses of Congress, it's very likely

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<v Speaker 5>that you're going to see some programs cuts. So the

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<v Speaker 5>question is how much of those cuts are going to

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<v Speaker 5>be able to offset the tax cuts that he wants

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<v Speaker 5>to wants to do, and what does that do to

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<v Speaker 5>the budget deficit.

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<v Speaker 2>Well, did get a question about, you know, the staffing

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<v Speaker 2>at the FED, and he said he runs the FED

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<v Speaker 2>at a very careful budget process.

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<v Speaker 1>And that's all I'm going to say.

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<v Speaker 3>Here's also about if he had any contact with President Trump,

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<v Speaker 3>and he was like said, no, no.

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<v Speaker 1>No, no, no, he did give someone a mulligan. I

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<v Speaker 1>like that. I'm not going to answer that question. I'm

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<v Speaker 1>giving you a mulligan. I don't know for all.

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<v Speaker 3>Nerds, but I love watching a FED press conference and

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<v Speaker 3>listening to j Powell take the questions.

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<v Speaker 1>Yeah, we're nerds.

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<v Speaker 3>Thank you, Thank you every Jersey as always, Gie us

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<v Speaker 3>interest rates strategist here, Bloomberg Intelligence here in studio. I'm

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<v Speaker 3>losing my voice a little bit.

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<v Speaker 1>Well then I'm going to help you out here.

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<v Speaker 2>Also, a big thank you to Nate Thufft, chief investment

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<v Speaker 2>officer at Manual Life Investment Management joining us.

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<v Speaker 3>What can I tell you