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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News, You.

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Speaker 2: Fed Decision with Mi McKay.

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Speaker 3: It's fifty and the promise of another fifty basis points

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Speaker 3: and cuts by the end of the year, and another

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Speaker 3: one hundred basis points in twenty twenty five, which would

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Speaker 3: put the nation's benchmark rate at three point four percent.

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Speaker 3: It's projected to fall another fifty basis points in twenty

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Speaker 3: twenty six, which would put the rate at two point

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Speaker 3: nine percent, which is now the Fed's median forecast for

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Speaker 3: the neutral rate. That is up a tenth from June.

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Speaker 3: The consensus is GDP will rise two percent this year,

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Speaker 3: down a tenth from the June forecast. Growth will be

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Speaker 3: the same in twenty five and twenty six. Unemployment will

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Speaker 3: hit four point four percent this year, that's an increase

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Speaker 3: from the June figure. It will fall to four point

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Speaker 3: three percent in twenty twenty six. PCEE inflation of two

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Speaker 3: point three percent this year falls to two point one

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Speaker 3: next year and hits the two percent target in twenty

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Speaker 3: twenty six. Though inflation remains quote somewhat elevated. The statement

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Speaker 3: says they cut because they now have greater confidence inflation

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Speaker 3: is moving sustainably toward their two percent target, and the

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Speaker 3: risks to inflation and the labor market are roughly balanced.

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Speaker 3: While they do not explain why they decided on a

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Speaker 3: half point reduction, the statement says the Committee is strongly

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Speaker 3: committed to supporting maximum employment and remember in Jackson Hole,

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Speaker 3: Chairman Poll said any deterioration in the labor market would

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Speaker 3: be unwelcome. There was one descent from Governor Mickey Bowman.

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Speaker 3: It's the first descent by a FED governor since two

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Speaker 3: and five. It is the first ascent by any member

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Speaker 3: of the Committee since twenty twenty two. The statement adjusted

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Speaker 3: to say the Committee will as always carefully assess incoming data.

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Speaker 3: Quote in considering additional adjustments. There's no changes guys to

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Speaker 3: the QT portion over Fed's pause.

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Speaker 4: My McKee stay closed, will come back to you. Here's

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Speaker 4: the price sanction in response to it. Knee jerk reaction

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Speaker 4: is the first move might not stick, but this is

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Speaker 4: the move so far. By eight tens of one percent

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Speaker 4: on the S and P five hundred, the overwhelming out

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Speaker 4: performance on a russell the small caps now up by

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Speaker 4: one point seven percent in the bond market, just bear

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Speaker 4: in mind we've come a long long way and we've

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Speaker 4: priced in a lot to this yield curve. The two

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Speaker 4: year just climbing just a little bit to one change

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Speaker 4: the three point sixty at the moment at the front

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Speaker 4: end of the yield curve and in the FX market,

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Speaker 4: dolly and dropping back by about point seven percent. So

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Speaker 4: that's a weaker dollar, a stronger japanesey and Lisa forty

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Speaker 4: one on that currency pair.

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Speaker 1: Yeah, now over the Bank of Japan. And if they

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Speaker 1: hike how much does that divergence continue. I also want

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Speaker 1: to point out gold. You're seeing a bid into gold

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Speaker 1: right now we start to look for some of the

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Speaker 1: inflation proxies, So will this sort of feed into that idea?

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Speaker 1: I thought it was interesting the long end of the

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Speaker 1: yeld curve, just on the margins not significantly yields to

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Speaker 1: slightly up on this idea that they're going to go

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Speaker 1: bigger and potentially even more down the line.

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Speaker 4: So the media and dock can master some disagreement beneath

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Speaker 4: the surface. So let's talk about the range and not

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Speaker 4: just the median at the f WEBC the median dot

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Speaker 4: for twenty twenty five in the projection materials that were

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Speaker 4: just published is three point four percent. The range for

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Speaker 4: twenty twenty five is anywhere from two point nine to

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Speaker 4: four point one. Two point nine to four point one.

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Speaker 4: That's quite a range on this f WEBC. And I

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Speaker 4: think for the first time at a long time, we

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Speaker 4: have some descent playing gap publicly as well, the first

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Speaker 4: descent from a sitting governor on the f WEBC since

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Speaker 4: two thousand and five.

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Speaker 2: This was not a unanimous decision, and it.

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Speaker 1: Really highlights why this actually became such a knife edge

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Speaker 1: kind of decision. Just to add to that, ten officials

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Speaker 1: penciled in one hundred basis points or more of cuts

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Speaker 1: for this year. Nine officials penciled in seventy five basis

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Speaker 1: points or less for this year. It actually matters quite

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Speaker 1: a bit for market expectations, especially given some of the

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Speaker 1: policy uncertainty next year.

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Speaker 4: So TK we get fifty, we get fifty, and now

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Speaker 4: we're waiting for the next act as a news conference

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Speaker 4: in twenty six minutes time.

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Speaker 5: I think it's a surprise within the zeitgeist. This is

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Speaker 5: to the edge of surprise. I think Powell maybe alluded

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Speaker 5: to this with this enthusiasms at Jackson. Oh, you touched

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Speaker 5: on something. Jason Furman touched on this morning, which is,

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Speaker 5: don't forget the dollar, and Muhammad Larian, I'm going to

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Speaker 5: be as direct as I can. It's the great unknown

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Speaker 5: unknown here, a dollar weakness that anybody with our great

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Speaker 5: hair doesn't know.

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Speaker 6: That we may not know. I think we've seen it before.

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Speaker 6: I remember, I remember periods of dollar weakness. But it

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Speaker 6: is dollar weakness. This is not just a fifty basis

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Speaker 6: point cut. This is the Duvish fifty bass point cut. Well,

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Speaker 6: I mean, if now I agree with you John that

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Speaker 6: the Duvish pot comes from the median dots. But if

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Speaker 6: you look at the range, it doesn't look at douvies.

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Speaker 6: But that's not what the mark is going to hit.

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Speaker 6: The mark is going to look at the median dot,

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Speaker 6: and we'll interpret this as a Douvish fifty basis points scut.

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Speaker 6: And the first reaction was actually steepening of both two

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Speaker 6: stands and twos thirties, which tells you something about what

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Speaker 6: people are worried about.

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Speaker 4: To some extent, this median dot validates market pricing and

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Speaker 4: cut again to this decision.

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Speaker 2: Is that sufficient?

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Speaker 4: I'm looking at equity market reaction right now, we're up

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Speaker 4: by half of one percent. We've still got a news conference,

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Speaker 4: a question we've asked for the last several weeks into this.

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Speaker 4: Are we going to end up with disappointment on the

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Speaker 4: other side of this news conference with Chairman Powell?

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Speaker 2: What would your question be now?

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Speaker 6: So, first of all, normally he's more dubvish than the statement,

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Speaker 6: so that's going to be pretty hard to do this time.

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Speaker 2: But let's wait.

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Speaker 6: You know, my question will be what has changed since

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Speaker 6: July when you decided not to cut weights and now

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Speaker 6: there's this very aggressive cut and aggressive signaling.

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Speaker 4: What has changed The speech in CenTra Portugal at the

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Speaker 4: start of summer very different to what we're hearing from

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Speaker 4: the FMC just several months later. Joining us now to

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Speaker 4: discuss is Bob Michael, a JP Morgan Asset Management. He

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Speaker 4: joins us out of London this afternoon. Bob, we just

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Speaker 4: won your first impression to the decision. What do you

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Speaker 4: make of it?

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Speaker 7: It hit on pretty much everything we were looking for,

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Speaker 7: probably a little less dubvish than we thought. In two instances,

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Speaker 7: one there was a just so it was in a

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Speaker 7: slam dunk and we would have liked to have seen

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Speaker 7: the median dot for the end of next year somewhere

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Speaker 7: around two and three quarters to three percent. But otherwise,

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Speaker 7: as we had been guided over the last week, nothing

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Speaker 7: to quibble about.

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Speaker 5: Bob, which bond series or individual bond provides the most

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Speaker 5: information right now?

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Speaker 6: Is it a real yield?

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Speaker 5: Is it the nominal full faith and credit? What's the

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Speaker 5: most valued, Abob Michael? Right now?

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Speaker 7: Credit spreads? Credit spreads will tell us whether investors believe

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Speaker 7: the economy is in die or shape and this was

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Speaker 7: an emergency fifty basis point cut, or whether this is

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Speaker 7: just a fed a long way from neutral, perhaps as

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Speaker 7: Muhammad hit it a meeting or two away from where

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Speaker 7: they should have started the cycle, so they're starting to

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Speaker 7: get towards neutral.

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Speaker 1: All is well, okay, all as well? And yet we

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Speaker 1: saw earlier this morning was an increase in mortgage applications.

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Speaker 1: What we've seen is already the bond market pricing in

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Speaker 1: all of this and then some. And basically the statement

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Speaker 1: only encourages that even more. Do not see a risk

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Speaker 1: of potentially reignited inflation Moob, that we could potentially see

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Speaker 1: expressed in the long end, as Muhammad is mentioning, we

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Speaker 1: are seeing that yield curve steepening in a way that

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Speaker 1: hints that something else is amiss, especially impaired with gold.

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Speaker 7: WHOA, We're a long way away from that. We're looking

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Speaker 7: at the three month annualized rate of core PCE running

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Speaker 7: at one point seven percent, so that's not inflationary. There's

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Speaker 7: signs of disinflation everywhere. When you look at the labor market.

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Speaker 7: They talked about full employment, well the low and unemployment

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Speaker 7: was three point four percent. A couple months ago was

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Speaker 7: four point three percent. That's up nine tenths of a percent.

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Speaker 7: You only see that when there's threat of recession. That's

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Speaker 7: characteristic of that. They've highlighted to us that the neutral

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Speaker 7: Fed funds rate is somewhere around three percent. That's a

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Speaker 7: debate we could have for a long time, but it's

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Speaker 7: nowhere near five and a quarter five and a half percent,

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Speaker 7: so they can start taking pressure off of businesses and

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Speaker 7: households without reigniting inflation.

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Speaker 6: Bob, I know they call you Bob Michael, but you

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Speaker 6: told me earlier was Bob Michelle's I'm going to stick

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Speaker 6: to Bob Michelle. Bob Smith.

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Speaker 7: I came to London because I thought we were going

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Speaker 7: to QPR Millwall on Saturday. Now you're in New York

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Speaker 7: on me.

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Speaker 3: I am.

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Speaker 6: I'll be in London tomorrow, So Bob speak a little

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Speaker 6: bit to the revisions and their projections and particularly unemployment.

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Speaker 6: What do you make of that?

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Speaker 7: I didn't catch them.

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Speaker 6: What did they do? They pushed it up?

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Speaker 7: Yeah, I think they have to. I think they have

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Speaker 7: to acknowledge that we're at a challenging time, that there

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Speaker 7: are new entrants to the labor market, but those are

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Speaker 7: still unemployed US workers, and they have to acknowledge that

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Speaker 7: we're not below four percent anymore. We're heading a little

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Speaker 7: bit higher. And that's why you need the policy response

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Speaker 7: to start with fifty basis points. I'm okay with that.

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Speaker 4: Yeah, but Bob, but I think we've got to talk

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Speaker 4: about this a little bit more. And I'm pleased we

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Speaker 4: went to unemployment. Unemployment right now in America is at

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Speaker 4: four point two percent. These are the FETs projections out

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Speaker 4: in twenty twenty four year end out to twenty five

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Speaker 4: and beyond, they've got projections of four point four percent.

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Speaker 4: The medium projection for unemployment this year. Next year, they've

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Speaker 4: got it at four point four percent. Given the move

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Speaker 4: we've seen over the last twelve months, Bob, how aspirational

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Speaker 4: is that?

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Speaker 2: How realistic?

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Speaker 4: Is it that we just kind of pause around these

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Speaker 4: levels for the next eighteen months.

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Speaker 7: Well, we very well could. I if we get two

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Speaker 7: twenty five's over the next two meetings and we bring

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Speaker 7: rates down one hundred basis points. What we know is

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Speaker 7: there's still a shortage of housing. There are first time

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Speaker 7: home buyers queued up to buy homes, so bringing rates

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Speaker 7: down could bring those buyers into the market. We also

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Speaker 7: know that a lot of businesses don't fund themselves in

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Speaker 7: the public bond market. They fund themselves through bank loans,

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Speaker 7: through private credit. Those are floating rate loans. Those are

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Speaker 7: anywhere starting with SOFA at five and three eighty percent.

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Speaker 7: You take one hundred basis points off of that. That

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Speaker 7: could help to stabilize things as well. Just because unemployment

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Speaker 7: has headed up over the last year doesn't mean it

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Speaker 7: has to keep going. It can certainly flatten out here

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Speaker 7: if the Fed does its job.

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Speaker 4: Hey, Bob, appreciate catching up as always, Bob Michael There

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Speaker 4: of JP Morganes and management, there's a couple of moves

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Speaker 4: in this market that I think are very very interesting.

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Speaker 4: We've just gone fifty and in some ways the dot

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Speaker 4: plot is validating what we were pricing in this market

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Speaker 4: ahead of time as well. And what you're saying at

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Speaker 4: the long end is the long bond sell off and

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Speaker 4: yields climb by two basis points. It's not a big move,

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Speaker 4: but it's notable by two on tens, on thirties, we're

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Speaker 4: up by three. And at the same time we've got

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Speaker 4: gold at all time highs. What is this market sniffing out, Well.

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Speaker 1: It's sniffing out on the margins a greater inflationary risks

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Speaker 1: than otherwise priced in. Look, I can make an argument

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Speaker 1: about how it might mean that we're going to suddenly

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Speaker 1: get run away into somebody style inflation. That's not what

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Speaker 1: it's saying. But what it is saying is that on

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Speaker 1: the margins, the idea of a bigger and frankly a

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Speaker 1: Dubvish fifty basis point rate cut really highlights how inflation

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Speaker 1: is still back on the table, at least on the margins.

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Speaker 4: They're talking about a dual mandate imbalance. Mohammed, your impression

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Speaker 4: is that it's a single man date central bank now,

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Speaker 4: and you don't think we should take our eyes off

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Speaker 4: the other side of the mandate in the market. Speaking

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Speaker 4: to that, just on the margin, this afternoon.

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Speaker 6: I think at the margin, yes, but I do think

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Speaker 6: that this is the reaction of a single mandate FED

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Speaker 6: right now, especially if you believe two percent is your

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Speaker 6: inflation target.

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Speaker 4: Let's cross Ouf it's a Diian swamp and bring her

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Speaker 4: in a KPMG. Dan, we'd love your thoughts on the

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Speaker 4: decision and that we can get into the nuances. What

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Speaker 4: do you make of the fifty instead of the twenty five.

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Speaker 8: This was a huge victory for j Powell, who really

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Speaker 8: laid out at his Jackson Hall speech that he was

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Speaker 8: worried about employment and that is what this is about.

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Speaker 8: And Mickey Bowman doing a discent. Powell willing to take

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Speaker 8: a descent among the board members as opposed to among

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Speaker 8: a president. That is how much he wanted this half

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Speaker 8: percent rate cut. And I think that's very important. I

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Speaker 8: think you're going to see it. Couch and explained within

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Speaker 8: the context of several participants at the July meeting thought

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Speaker 8: they were ready to go ahead and cut. So this

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Speaker 8: is a bit of a catch up to that, and

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Speaker 8: so that should help temper a little bit this Duvish

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Speaker 8: read on it. I was surprised that they kept the

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Speaker 8: risk balanced, although clearly the focus is now unemployment and

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Speaker 8: not allowing the situation and employment to become much worse. Remember,

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Speaker 8: we're at one hundred and sixteen thousand payroll gains three

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Speaker 8: month moving average as of August. That's not statistically different

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Speaker 8: from zero. Combined with the downward revisions we saw on

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Speaker 8: August twenty first, the day before Powell gave his remarks

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Speaker 8: at Jackson Hole, those downward revisions record downward revisions. Even

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Speaker 8: if they're not as as large as they appeared because

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Speaker 8: of some immigration that we're not capturing, they're still large.

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Speaker 8: And it means the birth and death rate, the death

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Speaker 8: rate of firms has picked up and their small businesses

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Speaker 8: aren't hiring as much as well, which could mean actually

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Speaker 8: the payroll data for this year also gets revised down.

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Speaker 8: And that's what they're worried about.

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Speaker 5: Dan, your workout on LinkedIn has been just hugely beneficial,

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Speaker 5: a really holistic view of the US economy. I have

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Speaker 5: a Dow Jones industrial leavage, bottom of the pandemic up

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Speaker 5: one hundred and twenty eight percent twenty one percent per year.

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Speaker 5: I've got debt and deficit that hal Bronner and Bernstein

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Speaker 5: never dreamed of. Diane Swank Is this a FED just

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Speaker 5: dealing with our stimuli? Is this a FED just dealing

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Speaker 5: with debt and deficit to the sky.

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Speaker 8: You know, we've had everything you could possibly imagine pushed

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Speaker 8: up inflation, and now we're seeing it come down despite

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Speaker 8: the fact that we still have a lot of debt.

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Speaker 8: So you know that on the margin, yes, we do

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Speaker 8: have high debts, and I do believe we need to

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Speaker 8: deal with that at some point in time, and I

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Speaker 8: don't think we have anyone who's willing to talk about

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Speaker 8: it on either side of the aisle, which is another issue.

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Speaker 8: We can talk about that at a later date. But

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Speaker 8: right now we've got a federal reserve that's no longer

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Speaker 8: buying that debt, and you've got a federal reserve that

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Speaker 8: is seeing inflation come down despite the fact that we

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Speaker 8: have high debt. And that's because on the margin, after

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Speaker 8: we get past the sort of six months that we

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Speaker 8: put a whole year budget into from March into October, first,

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Speaker 8: you get a continuing resolution at best through your end,

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Speaker 8: and you're going to get more constraints on spending. I

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Speaker 8: think as we get into twenty twenty five, Diane.

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Speaker 1: One reason why this comes as a surprise this decision.

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Speaker 1: One reason why is because they could have telegraphed this

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Speaker 1: more carefully. There was no data that really moved the

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Speaker 1: needle between the time when the quiet period began and

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Speaker 1: now that would chip us toward fifty Why do you

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Speaker 1: think there wasn't more clue communication that this was a

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Speaker 1: Federal Reserve ready to cut rates by fifty basis points.

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Speaker 8: Well, Frankly, I don't think that Jay Powell, by the

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Speaker 8: time the blackout period hit had the votes in his

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Speaker 8: pocket to be able to do that, and I think

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Speaker 8: we saw that in some of the mixed messages. Even

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Speaker 8: the day of the blackout period, Chris Waller, governor on

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Speaker 8: the Federal Reserve, had said, you know, you'd be open

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Speaker 8: to a more aggressive rate cut, but he didn't seem

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Speaker 8: to be really ready to do it. In September, we

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Speaker 8: saw John Williams come out that same day and sort

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Speaker 8: of talking about more cautious rate cuts, more of a

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Speaker 8: quarter point kind of rate cuts. So they didn't telegraph

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Speaker 8: it because he hadn't crowded the cats. But this really

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Speaker 8: does speak to the fact that he does have an

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Speaker 8: extraordinary ability to actually do just that.

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Speaker 4: Let's get to this quote from no data of Runmack

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Speaker 4: just down at the moment.

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Speaker 2: Here's the issue.

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Speaker 4: The balance of risks have changed and June most saret

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Speaker 4: balanced risk to un employment. Right now this is completely

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Speaker 4: flipped mostly risk to one employed skews to the upside.

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Speaker 4: This will not be the last time we see a

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Speaker 4: fifty in our opinion, Lacy, your thoughts.

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Speaker 1: This is basically being priced into this year. I mean,

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Speaker 1: how else do they get to more than one hundred

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Speaker 1: basis points potentially by the end of this year. And

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Speaker 1: if you think about it, it raises a lot of

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Speaker 1: questions about what they are seeing that suddenly makes that

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Speaker 1: such a consensus. Given that we've gotten a lot of

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Speaker 1: mixed messaging.

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Speaker 4: Let's head back to London and catch up with Bob

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Speaker 4: Michael at JPMorgan Asset Management. Bob, I'm sitting there in cash.

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Speaker 4: I've been sat here for a long time. You've been

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Speaker 4: wanting me for a long time that I face real

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Speaker 4: reinvestment risk. The fence just cut fifty and I'm freaking out.

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Speaker 2: I give you a call.

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Speaker 4: I'm now worried about another fifty and maybe another fifty

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Speaker 4: after that. What are you buying on my behalf?

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Speaker 7: We're telling clients just get into the bond market. Just

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Speaker 7: get into a general bond fund. It could be an

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Speaker 7: aggregate investment grade bond fund, could be a core plus

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Speaker 7: bond fund. If you're in a high tax bracket, get

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Speaker 7: into a general municipal bond fund. Yields are coming down.

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Speaker 7: Yields are at this level with six point three trillion

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Speaker 7: dollars in cash building up and most people not liking

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Speaker 7: the bond market. Some buying has brought it down here,

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Speaker 7: and this money will come in because they're going to

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Speaker 7: watch the return on cash go down like power windows.

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Speaker 1: I got to say, Muhammad, this goes to the point

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Speaker 1: that you were making. I love your comments on this,

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Speaker 1: this idea that the Fed was seeing something that ndeim

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Speaker 1: shifts his view, and what we're seeing right now is

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Speaker 1: that maybe he just didn't have the votes. I'm just

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Speaker 1: trying to wrap my head around what that means going forward,

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Speaker 1: that maybe they're going to be even more aggressive than

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Speaker 1: the market previously thought, and that maybe it is appropriate

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Speaker 1: to price in even more spread compression, even more yields

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Speaker 1: going lower.

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Speaker 6: So it would not surprise me if that is the

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Speaker 6: market reaction. It would not surprise me at all, because

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Speaker 6: the market has been conditioned to ask for more and

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Speaker 6: more and gets more and more. So when't surprise me

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Speaker 6: if that, If that is what happens, I will go

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Speaker 6: back to the significant dispersion in people in FMC members

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Speaker 6: view as to what the destination looks like, and that

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Speaker 6: discussion has got to be reconciled over time. So I

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Speaker 6: don't think it is as clear cut as the market

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Speaker 6: will make it seem.

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Speaker 5: Diane Swarck, I got eight ways to go here. Let's

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Speaker 5: try this. You've got a wonderful reading of America away

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Speaker 5: from three zip codes in Manhattan, the quadrants of Washington, DC.

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Speaker 5: This rate cut, how does it affect America that are

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Speaker 5: not the elites, not the people enjoying Nvidia to the moon.

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Speaker 8: Well, this is really important because the rate cuts, the

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Speaker 8: short term rate cuts, are what comes through on loans

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Speaker 8: that consumers take out. This is beyond the mortgage rate situation.

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Speaker 8: This also helps the mortgage rate situation obviously, but the

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Speaker 8: real issue for consumers are short term interest rates and

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Speaker 8: how they are priced on their debt. Now, on the

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Speaker 8: credit cards, the average credit card rate is about twenty

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Speaker 8: five percent. This is a rounding era on that. It's

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Speaker 8: not going to help a lot on that. That's just

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Speaker 8: incredible how high those rates are. But when you get

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Speaker 8: into auto loans, when you get into other kinds of

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Speaker 8: loans that consumers take in businesses, middle market through small businesses,

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Speaker 8: it affects all those loans. And right now you can

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Speaker 8: imagine a lot of people are going to get some

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Speaker 8: relief in terms of that. Now, the good news is

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Speaker 8: there's not a lot of overhang of debt for consumers

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Speaker 8: and they can service the debt they've got. But for

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Speaker 8: those lower income households that have already exhausted all of

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Speaker 8: their savings and then some this is good news. They

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Speaker 8: rely on lower rates to buy used vehicles. They can't

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Speaker 8: even afford to buy new vehicles anymore. That goes right

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Speaker 8: up into middle income households. So that's where we'll see

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Speaker 8: some movement, but it's not immediate. You're not going to

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Speaker 8: see that. Also understands there's legs and I think Muhammad

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Speaker 8: Muhammad is right about the issue of the market front running.

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Speaker 8: When the real message here is that this was not

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Speaker 8: signaling that we're ready to cut cut, cut, cut, This

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Speaker 8: is a window of opportunity to cut now catch up

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Speaker 8: on July, that's important, But this isn't a signal that

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Speaker 8: they're ready to go half percent, half percent, half percent

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Speaker 8: sort of continuously. And the election is an uncertainty that

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Speaker 8: is not factoring into the decision today, but it is

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Speaker 8: an uncertainty in terms of policy for twenty twenty five

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Speaker 8: and twenty twenty six, and that could change the trajectory

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Speaker 8: for the Federal Reserve once that cloud of uncertainty regarding

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Speaker 8: the election outcome in you as is lifted.

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Speaker 2: I could not agree more.

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Speaker 4: Dan, just one of the best, as always a clinic

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Speaker 4: Dane swamp there of KPMG November seventh could be a

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Speaker 4: very very different meeting if you are just joining us,

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Speaker 4: Welcome to the program. Twenty five or fifty. We got

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Speaker 4: fifty from this Federal Reserve. The outlook unclear. Ten out

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Speaker 4: of nineteen officials favoring learning interest rates by at least

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Speaker 4: an additional half point over the remaining two meetings of

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Speaker 4: twenty twenty four, and the next meeting in twenty twenty

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Speaker 4: four could be very interesting if we do indeed have

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Speaker 4: in hand the outcome of the presidential election. Mattas eerdiodoutsche

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Speaker 4: Bank joins us now for more. Matt, your first reaction

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Speaker 4: to this one place, sir, we get fifty.

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Speaker 9: Yeah, I think it's all about the messaging that we

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Speaker 9: hear from Chair Powell about the reaction function as we

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Speaker 9: look ahead, you know, as we were thinking through. If

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Speaker 9: they go by fifty basis points, what does the communications

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Speaker 9: challenge for them? I think it's two things. One, they

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Speaker 9: have to project confidence in the economy, positivity in the economy,

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Speaker 9: so they avoid a negative confidence signal. And then two,

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Speaker 9: I think that they want to send a signal that

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Speaker 9: this is not the new norm, that they're going to

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Speaker 9: be ratcheting down at twenty five basis point increments. And

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Speaker 9: as I look at that dot plot and the skew

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Speaker 9: for this year, it does seem that there's a pretty

439
00:21:43,000 --> 00:21:45,800
Speaker 9: strong kind of consensus around going twenty five basis points

440
00:21:45,800 --> 00:21:48,479
Speaker 9: from here. I think eighteen out of nineteen dots showed

441
00:21:49,119 --> 00:21:51,560
Speaker 9: only an expectation of two more twenty five basis point

442
00:21:51,880 --> 00:21:54,160
Speaker 9: rate cuts are less, and so I think Powell can

443
00:21:54,200 --> 00:21:56,240
Speaker 9: paint this as a one off. It was meant to

444
00:21:56,320 --> 00:21:59,520
Speaker 9: right size monetary policy to a lower inflation environment, ensure

445
00:21:59,560 --> 00:22:02,359
Speaker 9: that the real rate deprize too much, and to really

446
00:22:02,520 --> 00:22:04,840
Speaker 9: show that kind of actions speak louder than words in

447
00:22:04,880 --> 00:22:06,880
Speaker 9: providing confidence on the soft lanning, Matt.

448
00:22:06,720 --> 00:22:09,800
Speaker 5: Lozzetti, The ten year real yield just printed below one

449
00:22:09,840 --> 00:22:13,240
Speaker 5: point five zero to mean, that's a huge signal coming

450
00:22:13,280 --> 00:22:17,119
Speaker 5: out of the pandemic. What does a diminished real yield

451
00:22:17,200 --> 00:22:21,320
Speaker 5: do for American business, American finance and investment.

452
00:22:22,680 --> 00:22:25,800
Speaker 9: Look, I think we should expect that the goal of

453
00:22:25,840 --> 00:22:28,760
Speaker 9: this is to keep financial conditions easy, to ensure that

454
00:22:28,800 --> 00:22:32,320
Speaker 9: financial conditions don't overtighten and put a soft landing in jeopardy.

455
00:22:32,600 --> 00:22:34,639
Speaker 9: That is ultimately the legacy of chair Pal and I

456
00:22:34,640 --> 00:22:36,639
Speaker 9: think that he took out some insurance against that. Today.

457
00:22:36,960 --> 00:22:39,600
Speaker 9: I think that's a good outcome for the economy. Hopefully

458
00:22:39,600 --> 00:22:41,639
Speaker 9: he can message it in that way, which is they

459
00:22:41,640 --> 00:22:43,960
Speaker 9: have a positive outlook. This is not the starting of

460
00:22:43,960 --> 00:22:46,320
Speaker 9: a fifty basis point cutting cycle. And I think if

461
00:22:46,320 --> 00:22:49,320
Speaker 9: you get that soft lanning, prospects improve financial conditions ease,

462
00:22:49,359 --> 00:22:51,240
Speaker 9: and we have a very good outcome for the economy.

463
00:22:51,520 --> 00:22:51,720
Speaker 5: Matt.

464
00:22:51,760 --> 00:22:54,119
Speaker 1: One of the stickiest areas of inflation has been a

465
00:22:54,119 --> 00:22:57,000
Speaker 1: housing market, and what we've seen there has been recently

466
00:22:57,000 --> 00:23:00,639
Speaker 1: an uptick in mortgage applications as well as just in

467
00:23:00,640 --> 00:23:03,280
Speaker 1: general some of the Homelander stocks. How quickly could you

468
00:23:03,320 --> 00:23:06,639
Speaker 1: see a transition from a market that is completely flat

469
00:23:06,680 --> 00:23:09,080
Speaker 1: on its back, not shifting around moving at all, to

470
00:23:09,119 --> 00:23:12,399
Speaker 1: one that is robustly priced, discovering to the upside with

471
00:23:12,480 --> 00:23:15,879
Speaker 1: people given renewed confidence by lower rates.

472
00:23:17,200 --> 00:23:19,720
Speaker 9: Yeah, you know, we got mortgage purchase applications this morning

473
00:23:19,720 --> 00:23:22,080
Speaker 9: and they did show a tick up, more driven by

474
00:23:22,080 --> 00:23:25,159
Speaker 9: refinancing activity than purchase activity. It does seem to be

475
00:23:25,280 --> 00:23:27,120
Speaker 9: lagging a little bit to move in the mortgage rates

476
00:23:27,119 --> 00:23:29,200
Speaker 9: so far. My own view is, I think that's driven

477
00:23:29,240 --> 00:23:31,359
Speaker 9: by when you look at the University of Michigan or

478
00:23:31,400 --> 00:23:34,480
Speaker 9: Conference Board, so many consumers expect rates to come down

479
00:23:34,480 --> 00:23:36,560
Speaker 9: over the next year, and so that has to happen,

480
00:23:36,760 --> 00:23:39,120
Speaker 9: and maybe as rate cuts happen, and as mortgage rates

481
00:23:39,160 --> 00:23:41,760
Speaker 9: fall further, that really does unleash activity in the housing

482
00:23:41,800 --> 00:23:44,720
Speaker 9: market that would present upside risks for the economy. You know,

483
00:23:44,720 --> 00:23:48,280
Speaker 9: I think the reality is Q two growth was three percent.

484
00:23:48,440 --> 00:23:50,720
Speaker 9: Q three growth is tracking near three percent. According to

485
00:23:50,760 --> 00:23:53,440
Speaker 9: the Lanta Fed GDP, we look at consumer spending on

486
00:23:53,480 --> 00:23:55,440
Speaker 9: a three month anualized rate. It's the highest that we've

487
00:23:55,440 --> 00:23:58,119
Speaker 9: had since twenty eleven. We got a robust retail sales

488
00:23:58,119 --> 00:24:01,200
Speaker 9: report this week, so you know, I think Chapell should

489
00:24:01,200 --> 00:24:03,960
Speaker 9: present a picture where the underlying economy and fundamentals are

490
00:24:03,960 --> 00:24:06,960
Speaker 9: resilient and strong here, but they were taking decisive action

491
00:24:07,040 --> 00:24:09,600
Speaker 9: today to ensure that those outcomes continue.

492
00:24:09,680 --> 00:24:12,040
Speaker 4: Hey, Matt, final round before you go. Question for the

493
00:24:12,119 --> 00:24:14,520
Speaker 4: chairman in this news conference? What's your number one question?

494
00:24:16,040 --> 00:24:18,480
Speaker 9: I think it's all about reaction function. So the fact

495
00:24:18,480 --> 00:24:20,760
Speaker 9: that they went by fifty basis points today before seeing

496
00:24:21,000 --> 00:24:24,320
Speaker 9: very weak outcomes for the economy will naturally raise questions

497
00:24:24,720 --> 00:24:26,440
Speaker 9: in the market about what if you get a weaker

498
00:24:26,640 --> 00:24:28,600
Speaker 9: job support, do they go by seventy five basis points

499
00:24:28,680 --> 00:24:30,480
Speaker 9: or not? So I think it's all about the reaction

500
00:24:30,600 --> 00:24:33,800
Speaker 9: function from here, and how does he respond to that?

501
00:24:33,880 --> 00:24:35,879
Speaker 9: Does he kind of set a high bar either for

502
00:24:35,920 --> 00:24:39,119
Speaker 9: another fifty basis point or even higher rate cuts?

503
00:24:39,160 --> 00:24:41,640
Speaker 4: Manas Ddie at Deutsche Bank, Bob Michael JP Morgan assad

504
00:24:41,640 --> 00:24:44,120
Speaker 4: Management still with us. Bob, you love asking this one too,

505
00:24:44,359 --> 00:24:46,399
Speaker 4: so I'll ask it for you. What's your question for

506
00:24:46,480 --> 00:24:48,639
Speaker 4: Mike mccainn this news conference? A little bit likester on

507
00:24:48,640 --> 00:24:49,760
Speaker 4: this soufternoon.

508
00:24:50,760 --> 00:24:55,600
Speaker 7: As the concept of an equal labrim long term neutral

509
00:24:56,160 --> 00:25:00,280
Speaker 7: FED funds rate expire, do we need that any more?

510
00:25:00,480 --> 00:25:02,960
Speaker 7: Shouldn't they be talking more in terms of a real

511
00:25:03,000 --> 00:25:07,360
Speaker 7: Fed funds rate maybe minus one percent to plus three percent.

512
00:25:07,680 --> 00:25:10,400
Speaker 7: I mean, for goodness sakes, in my career, I've seen

513
00:25:10,440 --> 00:25:14,160
Speaker 7: the Fed funds rate at zero and twenty percent, So

514
00:25:14,520 --> 00:25:17,840
Speaker 7: trying to target something like that is nonsensical to me.

515
00:25:18,040 --> 00:25:20,000
Speaker 4: Hi, Bob got to catch up as always, Bob Michael

516
00:25:20,000 --> 00:25:22,919
Speaker 4: at JP Morgan Asset Management, we get fifty from the

517
00:25:22,920 --> 00:25:25,040
Speaker 4: Federal Reserve. The price action looks like this, up a

518
00:25:25,040 --> 00:25:26,960
Speaker 4: half of one percent on the s and P five

519
00:25:27,040 --> 00:25:30,160
Speaker 4: hundred in the last hour, Lisa printing a new old

520
00:25:30,160 --> 00:25:31,640
Speaker 4: time high on the SMP.

521
00:25:31,680 --> 00:25:34,560
Speaker 1: Which really is in line with what some people were expecting,

522
00:25:34,560 --> 00:25:37,280
Speaker 1: although disappointment they did not get. If you want to

523
00:25:37,320 --> 00:25:38,840
Speaker 1: take a look at whether this is a Fed that

524
00:25:38,840 --> 00:25:41,639
Speaker 1: can outdove market expectations, it seems like they did. And

525
00:25:41,680 --> 00:25:44,960
Speaker 1: the projections going forward really highlight how this market likes

526
00:25:44,960 --> 00:25:48,159
Speaker 1: to run ahead of even where Fed pricing is. Just

527
00:25:48,200 --> 00:25:49,880
Speaker 1: look at this. If you take a look at Fed

528
00:25:49,880 --> 00:25:53,600
Speaker 1: fund future pricing, we're actually pricing in a four point

529
00:25:53,720 --> 00:25:56,439
Speaker 1: one percent Fed funds rate to end this year, so

530
00:25:56,480 --> 00:26:00,280
Speaker 1: we're talking about an additional almost one hundred basis of

531
00:26:00,280 --> 00:26:03,240
Speaker 1: additional cuts from here one hundred and fifty basis points

532
00:26:03,240 --> 00:26:06,400
Speaker 1: of cuts, which just again points to why a Dubvish

533
00:26:06,400 --> 00:26:09,000
Speaker 1: fifty basis point cut has made a difference in this market.

534
00:26:09,119 --> 00:26:11,520
Speaker 4: Mohammad, you alluded to this. If they go fifty, the

535
00:26:11,560 --> 00:26:14,200
Speaker 4: pressure will build to go fifty again. Is that what's happening.

536
00:26:14,560 --> 00:26:17,080
Speaker 6: That is what's happening. And the market loves this, and

537
00:26:17,119 --> 00:26:20,880
Speaker 6: it's been the repeated conditioning of the market. Give it

538
00:26:21,000 --> 00:26:22,240
Speaker 6: something it will want more.

539
00:26:22,800 --> 00:26:26,000
Speaker 5: I look at this late in the press conference John,

540
00:26:26,040 --> 00:26:28,679
Speaker 5: when we get to the political questions, like if I

541
00:26:28,760 --> 00:26:32,080
Speaker 5: was to parachute John into the Alarian Institute of Behavioral

542
00:26:32,119 --> 00:26:32,960
Speaker 5: Economics and.

543
00:26:32,960 --> 00:26:34,159
Speaker 2: Policy, would you behave?

544
00:26:34,440 --> 00:26:36,800
Speaker 5: The first I would behave? And the answer is there's

545
00:26:36,840 --> 00:26:40,480
Speaker 5: two United Kingdoms out there, and there's two Americas out there,

546
00:26:40,720 --> 00:26:43,960
Speaker 5: and he has to address within his neutrality and the

547
00:26:44,040 --> 00:26:47,760
Speaker 5: political debate those two Americas. It's not just about Bob

548
00:26:47,800 --> 00:26:51,040
Speaker 5: Michael and the portfolio and Park Avenue trying to figure

549
00:26:51,040 --> 00:26:51,880
Speaker 5: out what to do next.

550
00:26:51,920 --> 00:26:53,719
Speaker 2: How does he navigate some of those issues? Muhammad?

551
00:26:53,720 --> 00:26:56,080
Speaker 4: How difficult is it to set policy for two very

552
00:26:56,119 --> 00:26:57,560
Speaker 4: different experiences in this economy?

553
00:26:57,960 --> 00:27:01,200
Speaker 6: It's very difficult. It's even more difficult when politicians are shouting,

554
00:27:01,560 --> 00:27:04,720
Speaker 6: go seventy five or seventy five, Now it is really difficult.

555
00:27:04,800 --> 00:27:07,920
Speaker 6: What's not clear to me is if he is actually

556
00:27:07,960 --> 00:27:10,720
Speaker 6: buying insurance, what is the cost of that insurance? What

557
00:27:10,880 --> 00:27:13,840
Speaker 6: is the downside of buying insurance? You know, insurance is

558
00:27:13,840 --> 00:27:17,040
Speaker 6: hardly ever costless. So what is the downside of having

559
00:27:17,119 --> 00:27:20,000
Speaker 6: brought insurance for the economy? And that's something we'll only

560
00:27:20,000 --> 00:27:20,879
Speaker 6: find out over time.

561
00:27:21,320 --> 00:27:24,600
Speaker 1: What's the cost of buying insurance for the economy but

562
00:27:24,680 --> 00:27:28,119
Speaker 1: also for the FED and for its political independence and

563
00:27:28,160 --> 00:27:31,359
Speaker 1: this reputation therein I just wonder if it's more difficult

564
00:27:31,640 --> 00:27:34,159
Speaker 1: to make the decision now in November seventh, now that

565
00:27:34,200 --> 00:27:36,760
Speaker 1: you've had this initial faithacy basis point rate cut and

566
00:27:36,800 --> 00:27:38,960
Speaker 1: you have a market that's now saying, yeah, you could

567
00:27:38,960 --> 00:27:40,160
Speaker 1: do another one in November.

568
00:27:40,520 --> 00:27:40,760
Speaker 3: Yeah.

569
00:27:40,880 --> 00:27:44,040
Speaker 6: And that was the argument all along, start in July.

570
00:27:44,160 --> 00:27:46,639
Speaker 6: Don't get yourself in this situation, but it is what

571
00:27:46,800 --> 00:27:48,959
Speaker 6: it is. And then now going to have to navigate this.

572
00:27:49,240 --> 00:27:51,040
Speaker 6: I think power is going to be very clear. He'll

573
00:27:51,040 --> 00:27:56,199
Speaker 6: say we are not impacted by political issues, just like

574
00:27:56,240 --> 00:27:58,760
Speaker 6: he will say that he is blessed, to use his word,

575
00:27:59,000 --> 00:28:01,560
Speaker 6: by loss of opinions from outside, but ultimately it's what

576
00:28:01,600 --> 00:28:02,360
Speaker 6: they're deciding that.

577
00:28:02,400 --> 00:28:04,560
Speaker 4: Room, and they will get lots of opinions after this one.

578
00:28:04,640 --> 00:28:06,479
Speaker 4: In just a moment two minutes away, Chem and Pal,

579
00:28:06,800 --> 00:28:08,480
Speaker 4: we'll walk into that room and give us a news

580
00:28:08,480 --> 00:28:10,440
Speaker 4: conference for the next sixty minutes or so. We'll take

581
00:28:10,480 --> 00:28:14,399
Speaker 4: that in its entirety on Bloomberg TV and on Bloomberg Radio. Lisa,

582
00:28:14,440 --> 00:28:17,000
Speaker 4: things could be very different. On November seventh, we said

583
00:28:17,000 --> 00:28:19,880
Speaker 4: that repeatedly. I don't think you can overstate it. Things

584
00:28:19,880 --> 00:28:22,200
Speaker 4: could be very different. The outlook for twenty twenty five

585
00:28:22,440 --> 00:28:25,240
Speaker 4: could shape up in a rather different way, dependent on

586
00:28:25,720 --> 00:28:28,600
Speaker 4: what the complexion of Congress looks like, how divided things

587
00:28:28,600 --> 00:28:30,280
Speaker 4: are in the nation's capital, and.

588
00:28:30,240 --> 00:28:32,239
Speaker 1: Whether or not we even know at that point, as

589
00:28:32,240 --> 00:28:35,520
Speaker 1: Amory likes to say, whether we have a decision just

590
00:28:35,640 --> 00:28:38,200
Speaker 1: will be interesting. How much this is the three part act.

591
00:28:38,240 --> 00:28:40,640
Speaker 1: We get the third part of the act coming up

592
00:28:40,840 --> 00:28:45,120
Speaker 1: moments away. How he characterizes what this insurance policy is

593
00:28:45,160 --> 00:28:48,400
Speaker 1: really for. Is this because they are seeing true weakening

594
00:28:48,440 --> 00:28:51,040
Speaker 1: in a labor market that otherwise is kind of hanging

595
00:28:51,040 --> 00:28:52,160
Speaker 1: in there, And that I think is one of the

596
00:28:52,200 --> 00:28:52,800
Speaker 1: key questions.

597
00:28:52,840 --> 00:28:54,800
Speaker 4: How do you expect him to frame it Is this

598
00:28:54,800 --> 00:28:57,160
Speaker 4: a one off mid cycle adjustment, a wait and see,

599
00:28:57,200 --> 00:29:00,240
Speaker 4: we'll regroup in November. Or is this the beginning a

600
00:29:00,280 --> 00:29:02,840
Speaker 4: one way trip back towards what they think is neutral?

601
00:29:03,080 --> 00:29:05,640
Speaker 1: Can it be both? I mean, right, is there basically?

602
00:29:05,680 --> 00:29:08,000
Speaker 1: Can everyone have their cake and then eat it too?

603
00:29:08,040 --> 00:29:11,520
Speaker 1: Because essentially you have inflation coming down and you have

604
00:29:11,560 --> 00:29:15,000
Speaker 1: an economy that is in a trajectory that typically does

605
00:29:15,120 --> 00:29:18,160
Speaker 1: lead to further weakening. Is it history that can actually

606
00:29:18,160 --> 00:29:19,960
Speaker 1: make sense at a time that has defied a lot

607
00:29:19,960 --> 00:29:23,120
Speaker 1: of historical precedence. It's going to be a really difficult

608
00:29:23,160 --> 00:29:24,640
Speaker 1: one for him to really, it's.

609
00:29:24,480 --> 00:29:26,200
Speaker 5: Going to be difficult because they're coming out of a

610
00:29:26,280 --> 00:29:28,880
Speaker 5: pandemic and they're making it up every meeting and every

611
00:29:28,960 --> 00:29:32,440
Speaker 5: day and every speech, gen as they go. They're making

612
00:29:32,480 --> 00:29:35,440
Speaker 5: this up as they go. Today they catch up, maybe

613
00:29:35,560 --> 00:29:37,560
Speaker 5: is the right way to put it. But the then,

614
00:29:37,640 --> 00:29:40,920
Speaker 5: what of November and in the twenty twenty five is real?

615
00:29:41,040 --> 00:29:42,720
Speaker 4: We sent the Oula Gray on that We've said this

616
00:29:42,760 --> 00:29:45,240
Speaker 4: a few times. We've all been humbled for this pandemic

617
00:29:45,400 --> 00:29:50,720
Speaker 4: and coming down the other side