Speaker 1: Risks to the economy are now balanced, Defense says, and
Speaker 1: they're no longer talking about raising rates, but do not
Speaker 1: expect cuts soon. No change in rates today, and the
Speaker 1: statement drops the reference to additional policy firming, now saying quote,
Speaker 1: in considering any adjustments to the target range, the Committee
Speaker 1: will carefully assess incoming data, the evolving outlook, and the
Speaker 1: balance of risks. But before you buy March futures. The
Speaker 1: statement goes on to say the Committee does not expect
Speaker 1: it will be appropriate to reduce the target range until
Speaker 1: it has gained greater confidence that inflation is moving sustainably
Speaker 1: toward two percent. Official say the economy is solid, job
Speaker 1: gains remain strong, and the Committee judges that risks to
Speaker 1: achieving its employment and inflation goals are moving into better balance. Inflation, however,
Speaker 1: has eased over the past year, but remains abated. This
Speaker 1: statement says the economic outlook is uncertain and the Committee
Speaker 1: remains highly attentive to inflation risks. There is no change
Speaker 1: to balance sheet policy, nor does the statement suggest any
Speaker 1: changes are imminent. The Fed will keep the sixty billion
Speaker 1: dollar cap on treasury roll offs and the thirty five
Speaker 1: billion dollar cap on mortgage bonds. The decision today unanimous.
Speaker 1: And one other bit of business, the Fed has extended
Speaker 1: its tight its tighter policies on investment in trading to
Speaker 1: senior staff and any staff with access to confidential information.
Speaker 2: My McKeith, thank you, sir. Let's get to the price
Speaker 2: sanction immediately, look at equities. Equities on the s and
Speaker 2: P five hundred just to touch lower by almost one
Speaker 2: percent on the SMP. On the NASTAG we're down by
Speaker 2: one point four if you just turn to the bond
Speaker 2: market briefly, yield to a lower by about ten basis
Speaker 2: points at the front end now four twenty five sixty one.
Speaker 2: That may face just a little bit so least. So
Speaker 2: let's go through what we got here. We've dropped the
Speaker 2: tightening bias, but on a full embrace of the right
Speaker 2: cut conversation taking place on Wall Street.
Speaker 3: And then a little bit of appointment clearly that you
Speaker 3: can see on the front end with people maybe thinking
Speaker 3: they would lean into a march rate cut, saying not
Speaker 3: thinking ninety times soon, highly attentive to inflation risks. That
Speaker 3: focus may be casting a bit of cold water on
Speaker 3: some of the hopes and dreams.
Speaker 2: C K down five basis points on the tenure just
Speaker 2: showed a four percent here at about three ninety eight.
Speaker 4: Come in a little move here, John and I still
Speaker 4: say we're radically different from when we were earlier this morning,
Speaker 4: or even days and days ago. Yes, we've pulled back
Speaker 4: a little bit. It'll be interesting to see the press conference,
Speaker 4: to say the least, this is well timed. Joining us
Speaker 4: now is Richard Clarida. He is with Pimpco, our global
Speaker 4: economic advisor. He's the former vice chair of the FED
Speaker 4: and far more associated forever with his Columbia University Richard Clarida.
Speaker 4: Ethan Harris, student of Columbia ex Bank of America wrote
Speaker 4: a brilliant piece off his hero at Columbia, Phil Kagan,
Speaker 4: the other day, and he said, we've blown it on
Speaker 4: our inflation studies. We've got to get on trend. And
Speaker 4: for him, the trend is the Dallas trim mean, the
Speaker 4: Cleveland media and the rest of it. What is a
Speaker 4: trend right now, Professor Clarita in inflation, Well.
Speaker 5: Thank you for having me on.
Speaker 6: Tom a good friend of Ethan, and Phil Kagan was
Speaker 6: a colleague and a friend for many years. I look
Speaker 6: at Dallas Fed trimmed mean too. It's running somewhere in
Speaker 6: the mid twos on an inflation that's down a lot
Speaker 6: from a couple of years ago, but it's still obviously
Speaker 6: somewhat above the Fed's long run goal of two percent.
Speaker 5: But I think that's a good reading right now.
Speaker 2: Rich when you look at the pushback, and it's such
Speaker 2: a pushback in this statement, why do you think this
Speaker 2: Federal Reserve is not quite prepared to fully embrace that
Speaker 2: ray cut conversation taking place on more straight.
Speaker 6: Well on this one, John, I I actually agree with him.
Speaker 6: I myself, looking at the data they're looking at, would
Speaker 6: have thought March would be too soon. We don't get
Speaker 6: a lot more data in March than we have today. Moreover,
Speaker 6: as you've pointed out on airon I've been watching, you know,
Speaker 6: there is still some upside risk on the inflation picture.
Speaker 6: So I just think good policy of prudence would call
Speaker 6: for getting more information. And I applaud what they did
Speaker 6: in the statement today they did.
Speaker 5: I don't have it in front of me.
Speaker 6: I read Mike's account. Looks like there's a lot of
Speaker 6: red ink in it, and I think that made sense today.
Speaker 3: Yeah, especially with that particular comment. The committee does not
Speaker 3: expect it will be appropriate to reduce the target rate
Speaker 3: until it has gained greater confidence that inflation is moving
Speaker 3: sustainably toward two percent. I'm wondering, which do you think
Speaker 3: that the New York Community Bank ORP issue changes the
Speaker 3: equation even on the margins for the FED? And if
Speaker 3: you are on the FED, for you.
Speaker 6: Given what I know right now, Lisa, I would say not.
Speaker 6: But I do think that the reality is is that
Speaker 6: you know, we have a number of regional banks in
Speaker 6: the US, you know, above one hundred billion, but not
Speaker 6: in that mega category. And the FED FED did what
Speaker 6: it needed to do last spring, and I have no
Speaker 6: doubt that they will be there if further is needed.
Speaker 6: So I'd say right now, this doesn't appear to me
Speaker 6: to be a stemic. But whenever banking is involved and
Speaker 6: you see an unexpected loss, it certainly is on their radar,
Speaker 6: and I'm sure.
Speaker 2: It is rich as you know, As we know, a
Speaker 2: lot of thought goes into the language that gets put
Speaker 2: in this statement that line greater confidence. A lot of
Speaker 2: people are going to stress test that line greater confidence
Speaker 2: for the next one month or so. Neil datsra good
Speaker 2: friend over renaissance, Macro writes in what exactly does greater
Speaker 2: confidence mean? Can you talk to us about that? Rich?
Speaker 2: What do you think greater confidence means? And I'm going
Speaker 2: to ask this question just to wind up TK.
Speaker 5: Is it one?
Speaker 2: CPI print? Is it two?
Speaker 5: Is it three?
Speaker 7: Rich?
Speaker 2: What is it?
Speaker 5: Well?
Speaker 6: I think you know, at the risk of exaggeration, you
Speaker 6: might have nineteen opinions on that on the committee.
Speaker 5: I think the center of gravity though.
Speaker 6: Look, the price inflation numbers have been moving in a
Speaker 6: very good direction six months now. Core inflation or Dallas
Speaker 6: FED measures are definitely close to to percent. But we
Speaker 6: do have an economy in which wage inflation is running
Speaker 6: about a point hotter than probably they think would be
Speaker 6: consistent with the long run goal. So I think implicitly
Speaker 6: they'll be looking at a number of indicators from the
Speaker 6: labor market. We got some good news today on ECI,
Speaker 6: but even with that, ECI is still probably about a
Speaker 6: point hotter than they would ultimately like to see.
Speaker 4: Rich Clarida measured, I'm going to associate it with Allan Greenspan.
Speaker 8: You.
Speaker 4: Yeah, I got to take it back further, but I'm sorry.
Speaker 4: We are slaves to measured in our great fear of
Speaker 4: becoming unanchored. We have regret. We're worried about the Bank
Speaker 4: of Japan. I believe it was back in the early
Speaker 4: two thousands. We need to be measured.
Speaker 7: How do we be.
Speaker 4: Measured after this pandemic and after this original economics?
Speaker 6: Not surprisingly good question there, because a measured was used
Speaker 6: by the Maestro in four to talk about a measured
Speaker 6: pace of rate increases. But certainly now it may enter
Speaker 6: the conversation once they start to cut, and I think
Speaker 6: here you do see the tug of war.
Speaker 5: Folks look at past history.
Speaker 6: They see that when the FED starts to cut, it
Speaker 6: cuts very fast and in big chunks.
Speaker 5: Oftentimes.
Speaker 6: Typically if you go back and look Tom in soft
Speaker 6: landings and what turned out to be soft landings, it
Speaker 6: looks a lot different, more like two or three cuts
Speaker 6: seventy five bases points there. So so I think a
Speaker 6: lot of the measured in this cycle on the down
Speaker 6: direction is going to depend upon how soft the landing is.
Speaker 4: You J.
Speaker 6: Powell thinks the runway for a soft landings in sight,
Speaker 6: but right now that's a forecast, so it will be
Speaker 6: data dependent. Sorry that's a cop out, but I do
Speaker 6: think that it will be data dependent.
Speaker 3: Can the FED afford to be measured well, I mean,
Speaker 3: can the FED afford to be measured and start later
Speaker 3: if we're also bumping up against a political silly season.
Speaker 3: As Tom would say, this has become something that more
Speaker 3: and more economists are looking at. Why not start earlier,
Speaker 3: go more slowly, and be less susceptible to becoming a
Speaker 3: political football.
Speaker 5: Great, great point. It is an election year.
Speaker 6: I noticed historically and you can confirm this on your
Speaker 6: Bloomberg terminal the FED. Historically, the FAT has moved in
Speaker 6: election years in both up and down. So I think
Speaker 6: the Paler FED will do what it needs to do
Speaker 6: this year in terms of adjusting rates, presumably downward.
Speaker 5: But I do agree with you Lisa.
Speaker 6: You know, if you think you're going to cut three times, say,
Speaker 6: which was what the December SEP was, certainly it would
Speaker 6: make sense to get that process going, you know, perhaps
Speaker 6: in the summer and not wait till November.
Speaker 4: Shall we say to dovetable the academics of Richard Clara
Speaker 4: joining us now from the Midwest, Diane Swack of Michigan
Speaker 4: chief economist KPMG, really please to have you here with Diane,
Speaker 4: let me get away from the monetary mumbo jumbo. Diane,
Speaker 4: you are expert on the pulse of corporate America on
Speaker 4: this technology overlay we've witnessed look at the profits of
Speaker 4: Microsoft yesterday and also on this new change in productivity.
Speaker 4: Does this Federal Reserve have any understanding of the new
Speaker 4: productive America?
Speaker 8: I think they do. I think they're watching it very
Speaker 8: carefully with the question is is it something that's sustainable?
Speaker 8: And you know, this is why I agree one hundred
Speaker 8: percent with rich the measured concept, because I think the
Speaker 8: markets really want to see much more aggressive rate cuts
Speaker 8: and the FED. I think they start in May, but
Speaker 8: I think what's important about it is they start before
Speaker 8: the second half of the year, before we really get
Speaker 8: into the summer. And I think that's going to be justifiable.
Speaker 8: But I really think it's important to understand what's going
Speaker 8: on in terms of productivity. Growth picked up in part
Speaker 8: because people are not quitting jobs as much, they're learning
Speaker 8: the jobs they had. We're also finally leveraging all that
Speaker 8: technology that we took on as we pivoted online.
Speaker 5: That's all good news.
Speaker 8: The question is how sustainable is it? And I think
Speaker 8: that's something the FED still hasn't figured out. And that's
Speaker 8: what we're going to see in the minutes. I mean,
Speaker 8: it's really interesting to me that the December meeting, when
Speaker 8: Powell came out and had a much more dubbish tone
Speaker 8: and was pretty excited, and markets got pretty excited off
Speaker 8: of his comments. The actual minutes to the meeting were that,
Speaker 8: you know, hey, we're worried inflation rist search of the upside,
Speaker 8: and so it'll be really interesting to see the minutes
Speaker 8: off this meeting in terms of how they see the
Speaker 8: productivity growth continuing in twenty twenty four.
Speaker 5: And you know, it's a cop o.
Speaker 8: The FED gets to be able to react and be
Speaker 8: data dependent, and Rich is absolutely right about that.
Speaker 5: But that's what they're going to do.
Speaker 8: They're looking at a meetium ma Beetian basis, and I think,
Speaker 8: you know, we'll have enough information by May and June
Speaker 8: to begin those cuts. But I think that measured side
Speaker 8: of it is also really important, because the markets really
Speaker 8: want to take off and put a lot more cuts
Speaker 8: in than the FED is really.
Speaker 5: Willing to do.
Speaker 2: It was a really bizarre sequence to have the chairman
Speaker 2: engage in a conversation about interest rate cuts.
Speaker 5: Then New York Fed President.
Speaker 2: John Williams come out and say, not really talking about
Speaker 2: rate cuts, and then the minute seem to back up
Speaker 2: Williams and not power down. We'll let it go. Let's
Speaker 2: see if they repeat it again. I think today there's
Speaker 2: a feeling they are going to engage in a conversation
Speaker 2: a little bit more openly about the timing of interest
Speaker 2: rate reductions. Do you think they need to draw a
Speaker 2: clear distinction between adjusting rates and easing policy.
Speaker 8: Yes, absolutely, and I'm sure Rich would agree with me.
Speaker 8: I mean, this is removing the restriction, but not trying
Speaker 8: to stimulate the economy, and I think that's very important.
Speaker 8: They're trying to normalize rates, They're not trying to stimulate
Speaker 8: a moribund economy, and that's a very different scenario as
Speaker 8: when you pointed out from a soft landing and what
Speaker 8: may be at the moment and extremely soft landing. We
Speaker 8: also know that, you know, we're kind of coming in
Speaker 8: really strong in the first quarter on consumer spending, even
Speaker 8: with January and some weather disruptions. You don't mean much
Speaker 8: consumer spending for it to be very robust in the
Speaker 8: first quarter, and that's something that Fed's very attentive to
Speaker 8: right now as well.
Speaker 3: So in the press conference, most certainly rich. There's going
Speaker 3: to be someone who comes up and asks fed Shaw
Speaker 3: J Powell, so how much did you guys talk about
Speaker 3: rate cuts?
Speaker 5: Did you throw out dates?
Speaker 3: Did you throw out what your criteria are? If you
Speaker 3: were on the FED, what would you hope he would say?
Speaker 3: How granular should they be? Given the fact that people
Speaker 3: know they're talking about it, they have to be talking
Speaker 3: about it. Everybody else is talking about it. How much
Speaker 3: do they really telegraph.
Speaker 5: To the market. I'ms Lisa when the press conference is.
Speaker 6: Moving beyond what was in the statement, sometimes because the
Speaker 6: chair wants to move in that direction, or because you've
Speaker 6: got a dividing committee. I think today, and of course
Speaker 6: we'll find out to thirty, I think today is a
Speaker 6: day when the chair on that question in particular, will
Speaker 6: hug the FOMC statement pretty closely, because it was a
Speaker 6: big change from December. Some of it was expected, some
Speaker 6: of it was a little bit more hawkish, and so
Speaker 6: knowing J. Powell, I think today will be a day
Speaker 6: when he gets a question like that, he will hug
Speaker 6: the FMC statement language pretty tightly.
Speaker 2: That's what you do with Bramo questions, just hold on
Speaker 2: to the statement, trying to cap All the question. I
Speaker 2: just wonder how many times they shared the love letter
Speaker 2: from Senate Banking Committee chairs share a brown and the
Speaker 2: letter from Senator Elizabeth Warren had a Democratic colleagues, Rich,
Speaker 2: you've got experience of this under the Trump administration. It's
Speaker 2: often and I'll say it for you. It was inappropriate,
Speaker 2: then it's inappropriate. Now how did you deal with it?
Speaker 7: Then?
Speaker 2: How do you suspect this FMC will deal with it now?
Speaker 2: As you see lines like this from senators down in Washington,
Speaker 2: d C. That I urged the Federal Reserve to ease
Speaker 2: monetary policy early this year.
Speaker 5: How'd you deal with that? Rich?
Speaker 6: Obviously we had to deal with it in a different contact.
Speaker 6: But it goes way way back, and I think FED
Speaker 6: institutionally and Jay Powell individually understands the stakes and I
Speaker 6: think he just thinks this is just part part.
Speaker 5: Of the job, and the FED will, FED will look
Speaker 5: through it.
Speaker 6: And of course the data is breaking in a direction
Speaker 6: where that completely reinforces it.
Speaker 4: Richie Clarido, though, this is a good time to mention,
Speaker 4: of course, this is your public service to the nation
Speaker 4: is with John Snow and Treasury Paul O'Neil. Your work
Speaker 4: of course, is vice chair recently annoyed by the Museum
Speaker 4: of American Financial the Whitehead Award, and I'm going to
Speaker 4: go back there to Paul Voker and others. I'm sorry,
Speaker 4: Richard Claire. At the end of the day, you were
Speaker 4: teaching politics one on one at Columbia. This FED has
Speaker 4: to go into an election cycle.
Speaker 5: No one watching or listening.
Speaker 4: Has ever seen how political does the FED get, say,
Speaker 4: Labor Day.
Speaker 6: I think the pal FED will not be political, but
Speaker 6: it's inevitable monetary policy will be pulled into the political
Speaker 6: presidential discussion. I think they're prepared for it, and I
Speaker 6: think they have decided or they're deciding what they think
Speaker 6: they need to do based on the economics, and when
Speaker 6: they're ready to go, they'll communicate it. I'm confident they'll succeed,
Speaker 6: but I don't disagree that there is going to be
Speaker 6: an enhanced emphasis and focus and a political element to
Speaker 6: the focus on this.
Speaker 3: In the meantime, there's a real question, Diane about what
Speaker 3: exactly greater confidence means. As John was talking about earlier,
Speaker 3: what metrics are you looking at? I was struck by
Speaker 3: doom spending, which of course caught my eye, but some
Speaker 3: of these areas that might be distorted because of changes
Speaker 3: post pandemic. What gives you the clearest read.
Speaker 8: Oh, I think you're just going to have to continue
Speaker 8: on the labor market and inflation. Those are the two
Speaker 8: most important things. Those are the two most important data
Speaker 8: points to the Federal Reserve, and that's what they're going
Speaker 8: to be watching. I want to just echo something that
Speaker 8: you know, Rich said. You know, we've seen Powell go
Speaker 8: through some pretty hard political times already, and he's proven
Speaker 8: himself to be an institutionalist with the FED on that
Speaker 8: and I think that's a positive thing. The FED doesn't
Speaker 8: have a horse in this race. That said, they will
Speaker 8: be blamed for no matter what they do, no matter what,
Speaker 8: and they know that. And I think that's what Rich
Speaker 8: is telling you, and that's you know, that doesn't mean
Speaker 8: their decisions are going to be influenced by it. It
Speaker 8: just means that they know how to go through the
Speaker 8: hailstorm that's about to hit them. That said, they're looking
Speaker 8: for continued improvement in inflation and continued improvement in services inflation.
Speaker 8: I think they're going to get it, and I think
Speaker 8: they will be moving by May. But the bottom line
Speaker 8: is they want to see that continued. And they're also
Speaker 8: watching the consumer out there pretty closely, because this has
Speaker 8: been a remarkable not only resilient consumer, a defiant consumer,
Speaker 8: showing just how strong they really are.
Speaker 2: Diane my McKee is still listening before he goes into
Speaker 2: that news conference. Questions for Chairman Powell, what are they now?
Speaker 8: The biggest questions are, you know, how do you talk about?
Speaker 8: What is that exact issue is? What does this mean
Speaker 8: when you guys feel confident enough to cut rates? What
Speaker 8: is going to be the criteria? That's what all the
Speaker 8: focus is going to be on. And my guess is
Speaker 8: he's going to talk about it vaguely. And that's the
Speaker 8: problem for financial markets because they want something corincrete. And
Speaker 8: this is when you get as rich about it, but
Speaker 8: you get to the hard part between monetary policy as
Speaker 8: a science or an art.
Speaker 2: This is the art at the moment, Dane. Thank you
Speaker 2: Van swamp there on the latest Let's reset here if
Speaker 2: you are just joining us live on TV and radio.
Speaker 2: It is a special edition of Bloomberg Surveillance. The FED decides,
Speaker 2: the news conference is in about thirteen minutes time. We
Speaker 2: had the decision about seventeen minutes ago. No change on
Speaker 2: interest rates. They drop this bias towards further tightening. There's
Speaker 2: this new line we need to talk about. The Committee
Speaker 2: does not expect it will be appropriate to reduce the
Speaker 2: target range until it has gained greater confidence that inflation
Speaker 2: is moving sustainably towards two percent. So listen to the
Speaker 2: market response to all of this. The rectory market this
Speaker 2: afternoon looks like this. On the S and P five hundred,
Speaker 2: down by zero point nine percent. We're down one point
Speaker 2: three on the net stack LISA in the bond market
Speaker 2: by eight or nine basis points, not session lows on
Speaker 2: bond yields. I have to say this move faded just
Speaker 2: to touch. So the market is looking at the Federal
Speaker 2: Reserve hoping the inch towards interest rate cards. They're kind
Speaker 2: of taking a baby step today, but not fully embracing
Speaker 2: the idea just yet.
Speaker 3: The fact that they sort of said there's still a
Speaker 3: prolonged period of time before we reach our inflation targets
Speaker 3: to cast some cold water. There's store people out there.
Speaker 3: We thought maybe we'd get a cut at this meeting.
Speaker 3: Right that it was a live meeting. We heard some
Speaker 3: people saying that's what they should do right. This casts
Speaker 3: some serious cold water on it. I love the idea
Speaker 3: of what we're going to hear from j Power. Absolutely nothing.
Speaker 3: You will hug that statement. He will say as little
Speaker 3: as possible. He will be as ambiguous as possible. Just
Speaker 3: wait for it.
Speaker 5: We could get a.
Speaker 4: Surprise at last time. And I think Dan Swark was
Speaker 4: absolutely right about the science and the art. John. We're
Speaker 4: coming out of a pandemic. The great miss call last
Speaker 4: year was economic growth. Where were we twelve months ago?
Speaker 5: Doom?
Speaker 2: Gloom totally now total, just total bloom.
Speaker 4: Everybody was wrong playing I was wrong, everybody else was?
Speaker 2: He just taking this personally right now, down right in
Speaker 2: the new studio.
Speaker 5: The brim up him looks beautiful. But the point here, John,
Speaker 5: is it is in art.
Speaker 4: They're making it up as they go after this massive
Speaker 4: pandemic and massive stimulus. So I think today is less
Speaker 4: predictable because I was humbled, less.
Speaker 5: Present, Tom.
Speaker 2: It's important to pause here, and I'm pleased you've brought
Speaker 2: it up. It's important to pause and go over where
Speaker 2: we were, where we thought we'd be, and where we
Speaker 2: actually are. Where we are right now, it's unemployment, sat
Speaker 2: the four percent, inflation's doing better core PC. Last week
Speaker 2: we were talking about a two hand or not a three,
Speaker 2: which is a massive change as well. And GDP Tom
Speaker 2: gross how up in the face of interest rights climbate aggressively. Now,
Speaker 2: this is not a judgment about where we going. This
Speaker 2: is just an observation about where we are, and where
Speaker 2: we are is so much better than where we thought
Speaker 2: we'd be twelve months.
Speaker 4: There, he's been one on one.
Speaker 5: I mean, forget about measured.
Speaker 4: We have a stock market which is voting every day,
Speaker 4: every tick, and I believe since October has been on
Speaker 4: a tear.
Speaker 5: They have to fold that.
Speaker 2: Into the just putting back from old time highs. Robert
Speaker 2: Tip is with US of PGM sixth income alongside the
Speaker 2: former Fed Vice chair Richard Klouda. Robert Tip, You've had
Speaker 2: about twenty minutes to go over this one. Your reaction
Speaker 2: to it?
Speaker 7: Sure, Yeah, you know where we are versus where we expected.
Speaker 7: I mean, we did not have a backdrop for a recession.
Speaker 7: Interest rates were raised for a reason. The system had
Speaker 7: a clean backdrop. It was not one of these backdrops
Speaker 7: that was going to crumble when interest rates were raised.
Speaker 7: It continued right through SVD. The economy has plowed through
Speaker 7: and the Fed is fine tuning the policy at this point. Now.
Speaker 7: They started off with the first notion of cutting rates,
Speaker 7: I mean arguably back in July, Palell talked about how
Speaker 7: they would not wait for two percent inflation. They'll be
Speaker 7: cutting way ahead of that.
Speaker 8: Now.
Speaker 7: September saw a huge U turn, so they were fine
Speaker 7: tuning with maybe like a chainsaw at that point. December,
Speaker 7: you know, they came in and we had a U
Speaker 7: turn and a U turn frankly before that in October
Speaker 7: they called an audible as rates went up to five
Speaker 7: percent and they started to talk down their own higher
Speaker 7: for longer. At this point, they're really balanced. The market
Speaker 7: wants to get two hundred basis points ahead of them,
Speaker 7: which is actually kind of understandable. The five point three
Speaker 7: percent Fed funds rate they're running right now is a
Speaker 7: long way from the two and a half percent that
Speaker 7: they're putting forward as neutral. And inflation is hundreds of
Speaker 7: basis points off its highs and pretty sustainably, you know,
Speaker 7: is down in the threes, if not down at target
Speaker 7: right now for about six months. So their comments, you know,
Speaker 7: suggest they want to see a few more months or
Speaker 7: maybe be a big team of them want to see
Speaker 7: another six months before they go.
Speaker 5: Robert from the parlor game.
Speaker 4: Let's go to what you and Greg Peters do every day,
Speaker 4: which you've got to.
Speaker 5: Be in the market.
Speaker 4: Are you being in the market clipping the coupon or
Speaker 4: can you actually still pop a good total return this year?
Speaker 3: Yeah?
Speaker 7: I think big picture, the market is going to clip
Speaker 7: a good return. I think that your spread products, you know,
Speaker 7: as we've said, starting off, put out a piece at
Speaker 7: the end of twenty twenty two yield his destiny. You
Speaker 7: are going to clip that coupon. But we've seen the
Speaker 7: market seventy five one hundred basis points on either side
Speaker 7: of four percent roughly, and I think we're going to
Speaker 7: continue to see these big swings. Right now, the market
Speaker 7: wants to go in the dutish direction. But this powle
Speaker 7: fed is aware that the second big woop move higher
Speaker 7: in inflation in the seventies came with hostility in the Mideast,
Speaker 7: with volatility in the Middle East and a big increase
Speaker 7: in oil prices. And we have full employment around the world.
Speaker 7: We've seen very high inflation that brought about higher wages.
Speaker 7: All of that is in retrograde right now. They're going
Speaker 7: to want to make sure they have that really under
Speaker 7: control before they turn aggressively here.
Speaker 3: It's a good point, Robert, and I expect that we
Speaker 3: will hear from Fetcher J. Powell. They are watching the
Speaker 3: issues and the conflict in the Middle East carefully, Rich Clarita,
Speaker 3: one thing that was really notable about the December press
Speaker 3: conference was that Fetcher J. Powell had an opportunity to
Speaker 3: push back against that rosy outlook, the sort of flooding
Speaker 3: into risk assets that Robert Tip was talking about and
Speaker 3: that so many people have embraced.
Speaker 5: He didn't push back.
Speaker 3: Do you think it's going to be the same at
Speaker 3: this press conference that he will just say ultimately, the
Speaker 3: markets will do what we want, what they want to do,
Speaker 3: we're watching something else and we're on a good glide path.
Speaker 5: Again.
Speaker 6: I think this is going to be a press conference
Speaker 6: where it will make sense for the chair to to
Speaker 6: really hug that FMC statement.
Speaker 5: There was a lot of red ink.
Speaker 6: It was therefore a reason it gave the message that
Speaker 6: you know, basically trying to dissuade folks from pricing in
Speaker 6: that March adjustment and talk about they want to see
Speaker 6: the considerable and additional evidence and so I think that's
Speaker 6: a pretty good place for him to spend most of
Speaker 6: the day, at least on those sorts of questions.
Speaker 2: I have to say, Rich, you're not hyping up this
Speaker 2: news conference until it sounds like I can't repeat. I
Speaker 2: appreciate the honesty, though, Robert Tip. Just finally, I'm getting
Speaker 2: a load of people right in to say, what's the trade?
Speaker 2: What's your favorite trade right now? Robert, after what you've
Speaker 2: just heard.
Speaker 7: Yeah, I think that it's not the whether the cuts
Speaker 7: price in are correct or not. I think it's the
Speaker 7: timing and the shape of the curve, the ends.
Speaker 4: Of the curve.
Speaker 7: You know, whether you're looking at the next six months
Speaker 7: or whether you're looking at the tenure or the third
Speaker 7: year point, those look more reasonably priced than some of
Speaker 7: your two year out interest rates that are really banking
Speaker 7: on two hundred basis points of interest rate cuts in
Speaker 7: the next eighteen months. And I think if you can
Speaker 7: stay in the market and clip that coupon, avoid rolling
Speaker 7: up the yield curved, and also make some money on
Speaker 7: the tactics of trading this wide range on rates, I
Speaker 7: think it's gonna be a very good year for bonds.
Speaker 2: Robert Hip, thank you. Sir, from Pajim on the latest
Speaker 2: from the Fed for reserve for more his Bank for
Speaker 2: America's Mike Gape and the chief economist, Mike, you've got
Speaker 2: the Fed going in March. Do you like what you
Speaker 2: hear today? We make in that closest step, another baby
Speaker 2: step towards you'll cool.
Speaker 7: We are.
Speaker 9: I think you can interpret the statement as saying risk
Speaker 9: to the outlook our balance, therefore, our guidance should be balanced.
Speaker 9: And then did we debate a rate cut today? Yes,
Speaker 9: we did, just not for very long. What we need
Speaker 9: is more confidence before we cut rates. And I do
Speaker 9: think that involves seeing more progress on services inflation and
Speaker 9: more progress on wages, because as you know, a lot
Speaker 9: of the disinflation has come from goods price. Those declines
Speaker 9: may not persist. So the Fed we'll see more of
Speaker 9: that data. I think they can get there by March.
Speaker 9: So I'd say the statement was broadly in line with
Speaker 9: our thinking.
Speaker 4: Michael Gape And how aggregated are we or disaggregated are there?
Speaker 4: To America's out there in America flat on its back?
Speaker 4: And then the prosperous America is witnessed by Microsoft's profit yesterday.
Speaker 9: Yeah, there is you know, the economy is bifurgate, bifurcated.
Speaker 9: I think more broadly you could just say, you know,
Speaker 9: industrials and goods versus services. The industrial side of the
Speaker 9: economy has been suffering. Regional banks, obviously with news headlines
Speaker 9: this morning, still continue to struggle, but the consumers in
Speaker 9: good shape. The services side of the economy is doing well.
Speaker 9: Tech earnings are doing well. It has been kind of
Speaker 9: a rolling recessionary story where certain segments of the economy
Speaker 9: have had problems at different points in time, but the
Speaker 9: economy overalls has powered through. So thinking about it in
Speaker 9: that way, Tom, I think makes a lot of sense.
Speaker 3: Michael, I love hearing the bustle and the hustle behind you,
Speaker 3: and I imagine everybody's saying, the balance of risks, how
Speaker 3: do we get the greater confidence in equation is coming down?
Speaker 3: What does that mean? So what do you think that
Speaker 3: means in terms of how much you've got to get
Speaker 3: in terms of data underbelt?
Speaker 9: So I think they can get there by March in
Speaker 9: the following way, and that they'll get February PCE and
Speaker 9: they'll get the CPI and the PPI for that next
Speaker 9: pc I'm sorry the January PCE. But then they'll get
Speaker 9: CPI and PPI for that February PCE print during the
Speaker 9: blackout period, so they'll have two more inflation reports. They'll
Speaker 9: get more information on where is services inflation, where is sheltered,
Speaker 9: They'll get more wage data in the next two employment reports.
Speaker 9: I really think it's about that side of the ledger.
Speaker 9: For some on the committee for Governor Waller, he says
Speaker 9: the components don't matter. I just look at inflation, so
Speaker 9: his bar may may be lower, but others are really
Speaker 9: kind of concerned about that good services trade off and
Speaker 9: worry that services are too sticky.
Speaker 2: And it would optionality written this way because it can
Speaker 2: mean whatever they want it to mean, Lisa at any
Speaker 2: time over the next few months, which.
Speaker 3: Is the reason why he's going to hug that statement
Speaker 3: so close and everyone's going to be happy. And then you.
Speaker 4: Really, so I'm going to read a statement or read
Speaker 4: the minutes, and it's going to say in there it
Speaker 4: is written, it's gonna it's going to actually say it.
Speaker 2: Richard Clarity, let's come to you and just wind things
Speaker 2: up and put a bow on it if we can.
Speaker 2: This has been a single mandate Central Bank for the
Speaker 2: last couple of years where they focus on inflation and
Speaker 2: getting it back down towards two percent. Can we talk
Speaker 2: about the other side of the Jewel mandate? Is there
Speaker 2: anything to worry about in the labor market?
Speaker 6: From your perspective, the labor market is in a very
Speaker 6: good place. If anything, it's it's running a little hot. Uh,
Speaker 6: But I do think there's a path for that to
Speaker 6: adjust under the under the outlook. So yeah, the labor
Speaker 6: market is, you know, that's what we want maximum employment.
Speaker 6: We're at perhaps a little bit more than maximum employment.
Speaker 6: But but wage inflation is decelerating. We saw on the
Speaker 6: e CI, and I think that that's what they're factoring
Speaker 6: in for this year.
Speaker 2: Continuing there, Michael Gape, And do you agree?
Speaker 7: I do.
Speaker 9: I would say if concerns would be about the dispersion
Speaker 9: of employment growth, which is pretty narrow focused in leisure
Speaker 9: and hospitality and education and health, and then remaining growth
Speaker 9: in the private sector is basically flat. But I agree
Speaker 9: with Rich the labor market's in a good place and
Speaker 9: it's helping to drive the outlook.
Speaker 5: Mike can I You've got to run.
Speaker 2: It's great to get you cool. Michael Gape In there
Speaker 2: of Banks for America looking for a March interest rate reduction.
Speaker 2: Richard Clarida, Thank you, sir, and congratulations on that Whitehead Award.
Speaker 2: Truly prestigious, Sir. We appreciate your time.