Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 2: Tim Stenovek on Bloomberg Radio.
Speaker 3: Let's get to that first FOMC decision of twenty twenty five,
Speaker 3: the Fed, as expected, holding interest rates steady, pausing to
Speaker 3: assess the inflation outlook following a string of rate reductions
Speaker 3: last year. In the statement released with the decision, the
Speaker 3: Fed repeated that inflation remained somewhat elevated, but removed a
Speaker 3: reference to it having made progress toward their two percent goal.
Speaker 3: Here's j Powell in the statement at the press conference
Speaker 3: about not needing to hurry to just their policy stance.
Speaker 4: Over the course of our three previous meetings, we lowered
Speaker 4: our policy rate by a full percentage point from its peak.
Speaker 4: That recalibration or policy stance was appropriate in light of
Speaker 4: the progress on inflation and the rebalancing in the labor market,
Speaker 4: with our policy stance significantly less restrictive than it had been,
Speaker 4: in the economy a strong We do not need to
Speaker 4: be in a hurry to adjust our policy stance.
Speaker 2: We do not need to be in a hurry to
Speaker 2: adjust our policy stance that of course was Fed jow J.
Speaker 2: Powell just a few moments ago. We got a big
Speaker 2: program coming up. We are diving into the FED, and
Speaker 2: let's do that. We got with us Nate Thuft, chief
Speaker 2: investment officer at Manual Life Investment Management, joining us from Boston.
Speaker 2: Also with us as Bloomberg Intelligence Chief US Interest rates Strategist,
Speaker 2: Ira Jersey, who no, is not in Princeton, New Jersey.
Speaker 2: He's here in the Bloomberg Interactive Brokers studio today.
Speaker 3: All right, let's go to you first. I got to
Speaker 3: say our Chris Antsy on our live blog, who follows
Speaker 3: the global economy, he posed this. He says, it's just logically,
Speaker 3: you wonder if inflation is no longer making progress toward
Speaker 3: the Fed's two percent goal inflation goal, and the labor
Speaker 3: market meantime is solid, how can the risks be balanced?
Speaker 3: Which is what JA Powell said? Are they balanced? If
Speaker 3: the two percent target is still out of reach and
Speaker 3: we're not making progress toward it?
Speaker 5: Well, well, I don't think. Firstly, the two percent is
Speaker 5: out of reach. And look, the FED kind of tied
Speaker 5: their hands when they went to a firm two percent
Speaker 5: target because if inflation was right where it is today
Speaker 5: at you know, two point three, two point four, depending
Speaker 5: on which measure you look at. We would say, okay,
Speaker 5: inflation's fine, right, like, we wouldn't worry about it, except
Speaker 5: we're not at two right, And.
Speaker 3: That's the there's sticklers on this two percent.
Speaker 5: And that's part of the problem. They should have kept
Speaker 5: more of a you know, average inflation targeting kind of thing,
Speaker 5: and I think that would have made their communication a
Speaker 5: little bit easier. But I think the important thing that
Speaker 5: came out of today's statement, and with that change in
Speaker 5: the statement and then j Powell mentioning multiple times it
Speaker 5: don't have to be in a hurry. This could mean
Speaker 5: a skip again in March. And I think that that's
Speaker 5: very important because I think there were a lot of people,
Speaker 5: myself included, thinking that, hey, the Fed would cut in December,
Speaker 5: skip January, cut in March, and then maybe be done
Speaker 5: after that, or maybe do one more. But now they're
Speaker 5: talking about multiple weights, and the longer the FED weights,
Speaker 5: the higher the risk. I think that the next move
Speaker 5: is actually a hike, so they can stay here for
Speaker 5: a long time. Probably at this point.
Speaker 2: Nate, come on in here, do you agree that do
Speaker 2: you think that that two percent target is actually out
Speaker 2: of reach.
Speaker 6: I don't think it's out of reach. I think it's
Speaker 6: all depending on your time horizon. Right, the BED has
Speaker 6: been very clear as well as most economists that the
Speaker 6: path to lower inflation isn't going to be as straight line,
Speaker 6: and we have seen a few pockets of hiccups here, right,
Speaker 6: But ultimately, our belief is that the trend for inflation
Speaker 6: is still down, is just not as fast as a
Speaker 6: lot of people want it to be. And our view
Speaker 6: is that the FED will continue to cut even if
Speaker 6: we don't get to exactly two percent, as long as
Speaker 6: as they're comfortable that the trend continues towards two percent.
Speaker 6: And at the same time, they're going to continue to
Speaker 6: be very focused on the labor market. And right now,
Speaker 6: the other common for the bet is the labor market
Speaker 6: looks pretty solid. We would define the labor market as fine,
Speaker 6: not necessarily solid, but it's not too hot, it's not
Speaker 6: too cold. It's okay, but there's still remains risk in
Speaker 6: the labor market that it could weaken as the year
Speaker 6: goes on.
Speaker 3: All right, Right, let's talk about the moves that we
Speaker 3: saw in the US rates market, because I feel like
Speaker 3: the Fed like dusting off Jake Powe dusting off his
Speaker 3: shoulders and saying, Okay, there was a little reaction, but
Speaker 3: we're kind of where we were, where we were before
Speaker 3: the Fed announcement. So is he feeling kind of maybe
Speaker 3: good about what was done and what was said?
Speaker 5: Well, you know, so the guide didn't say I think
Speaker 5: the market. Remember we had basically three events today from
Speaker 5: the Fed. So the first one was a statement, and
Speaker 5: the change in the statement, particularly that inflation statement saying
Speaker 5: that we're not no longer making progress right, like the
Speaker 5: removal of that was taken as hawkish pro rates go off, right,
Speaker 5: So short term industrates went up a little bit, you
Speaker 5: had Fed fund's future sell off a little. You had
Speaker 5: so for future sell off a little. You had two
Speaker 5: year yields go up about five basis points. And all
Speaker 5: of that's reasonable because that means that, hey, if the
Speaker 5: Fed's done hiking, then interest rates are right what they're
Speaker 5: going to be, So everything should be at four point
Speaker 5: three percent in terms of two year yields and all
Speaker 5: the short term rates. But then you had the press conference,
Speaker 5: and Jay Powell made a little bit of an about
Speaker 5: face at the press conference, particularly in after his opening
Speaker 5: remarks to a question about why the change? Right, why
Speaker 5: the change? And basically he said, well, we wanted to
Speaker 5: shorten the sentence, and we you know, we're not making
Speaker 5: the same kind of progress we were towards the inflations.
Speaker 5: But it's not a big deal, right, That's what he
Speaker 5: made it sound like. And that's when you saw rates
Speaker 5: go the other way and everything went back nearly, not quite,
Speaker 5: but nearly back to where they were.
Speaker 3: So is this like the FED Twitter you know platform
Speaker 3: only one hundred and forty characters, or like, what how
Speaker 3: do you read something like that from Jay Powell? Editors
Speaker 3: come in and say, we got to make this shorter.
Speaker 3: What is that?
Speaker 5: I think it's a clarification. The way that I look
Speaker 5: at the change in that first paragraph, and all of
Speaker 5: the changes were in that first paragraph, which is about
Speaker 5: the economic environment is a marking to market, So just
Speaker 5: an acknowledgment that the labor market is okay, not great.
Speaker 5: I agree, but nate on that. But then the inflation
Speaker 5: statement saying that hey, we're no longer inflation is still
Speaker 5: above our goal, but no longer making progress like that,
Speaker 5: that means that the next logical step is it goes
Speaker 5: the other way.
Speaker 4: Right.
Speaker 5: Inflation goes higher, right, and that means they have to.
Speaker 2: Like, Hey, Nate, I was saying to Carol before our
Speaker 2: program started, I was surprised at how much politics came up. Carol,
Speaker 2: you weren't surprised, you said it was expected.
Speaker 3: I assumed that that was going to be, like everybody
Speaker 3: was going to obsess over it.
Speaker 2: Well, policies from the Trump administration, tariff's disruption to supply chains,
Speaker 2: tax policy. How do you think the FED is dealing
Speaker 2: with all of that? Do we get any clarity from today?
Speaker 2: I mean that the FED chair was prepared for all
Speaker 2: those questions, it seemed.
Speaker 6: Yeah. I think the FED was expecting it as well,
Speaker 6: because it is a hot topic, and even their counterparts
Speaker 6: in other central banks north of the border, as an example,
Speaker 6: Bank of Canada, they explicitly addressed terrorists of being a
Speaker 6: negative impact in their commy. So I think the FED
Speaker 6: was prepared for it. But I also think the FED
Speaker 6: came into this meeting with two goals, one to maintain
Speaker 6: as much optionality as they could and two not to
Speaker 6: move the markets a lot. And I think overall cech
Speaker 6: Chechas state in the conference they balanced that pretty well.
Speaker 6: So ultimately they were expecting it, but they weren't going
Speaker 6: to give a lot of detail and a lot of
Speaker 6: offerings as to what the policies actually need. One they
Speaker 6: don't fully know, but too we don't know. We'll actually
Speaker 6: be fully into Nate.
Speaker 3: I want to ask you for the financial markets, especially
Speaker 3: the equity markets, but really all of it. It's been
Speaker 3: a wild week. It could be even more as we
Speaker 3: wait a big batch of big tech earnings that are
Speaker 3: coming out after the close today and also tomorrow after
Speaker 3: the close. What's the smart equity trade right now? Is
Speaker 3: it wait and see?
Speaker 1: Is it by the dip? Is it sell? What is it?
Speaker 6: We still lean in on being overweight equities. I think
Speaker 6: the general fundamentals, despite where valuations are, still says be
Speaker 6: overweight equities. Maybe not as much as people happen, but
Speaker 6: still lean into that trade. So by the depth, including
Speaker 6: tech stocks is still our general argument for our clients
Speaker 6: in our current position and portfolios.
Speaker 2: IIRA, come on back in here and next vocal point
Speaker 2: for you when you're looking at rates. We just heard
Speaker 2: from the FED, so that's behind us. Now what's the
Speaker 2: next vocal point for you?
Speaker 1: Yeah?
Speaker 5: So, firstly, additional details of some of Donald Trump's policies, right, so,
Speaker 5: I think that those are going to be.
Speaker 1: Very important, which one specifically, well things.
Speaker 5: Not so much immigration, we see what's going to going
Speaker 5: on there, but things like tariffs, like are we going
Speaker 5: to get across the board tariffs? There's a lot of
Speaker 5: different pieces of that. And then also what kind of
Speaker 5: cuts does he expect to make quickly in terms of
Speaker 5: government spending? Right, so there's some there's not much really
Speaker 5: he can do with what's been appropriated already. That's constitutional. Right,
Speaker 5: we can get into the Budget Empowerment Act of nineteen
Speaker 5: seventy four. If you're really do want to get super wonky, I'm.
Speaker 1: Happy to do that with you any time now.
Speaker 3: But there's certain things that if it's already been allocated
Speaker 3: he Congression.
Speaker 5: He can't do that right then, and the courts will
Speaker 5: come in and he'll probably be overruled, just like he
Speaker 5: was with a couple of other things. But that being said,
Speaker 5: in the future, he can say, Okay, we're gonna we
Speaker 5: would like to see cuts here, cuts there, And as
Speaker 5: the Republicans have both Houses of Congress, it's very likely
Speaker 5: that you're going to see some programs cuts. So the
Speaker 5: question is how much of those cuts are going to
Speaker 5: be able to offset the tax cuts that he wants
Speaker 5: to wants to do, and what does that do to
Speaker 5: the budget deficit.
Speaker 2: Well, did get a question about, you know, the staffing
Speaker 2: at the FED, and he said he runs the FED
Speaker 2: at a very careful budget process.
Speaker 1: And that's all I'm going to say.
Speaker 3: Here's also about if he had any contact with President Trump,
Speaker 3: and he was like said, no, no.
Speaker 1: No, no, no, he did give someone a mulligan. I
Speaker 1: like that. I'm not going to answer that question. I'm
Speaker 1: giving you a mulligan. I don't know for all.
Speaker 3: Nerds, but I love watching a FED press conference and
Speaker 3: listening to j Powell take the questions.
Speaker 1: Yeah, we're nerds.
Speaker 3: Thank you, Thank you every Jersey as always, Gie us
Speaker 3: interest rates strategist here, Bloomberg Intelligence here in studio. I'm
Speaker 3: losing my voice a little bit.
Speaker 1: Well then I'm going to help you out here.
Speaker 2: Also, a big thank you to Nate Thufft, chief investment
Speaker 2: officer at Manual Life Investment Management joining us.
Speaker 3: What can I tell you