WEBVTT - Instant Reaction: The Fed Cuts Rates 50-Basis-Points 0:00:02.720 --> 0:00:07.360 Bloomberg Audio Studios, Podcasts, Radio News, You. 0:00:07.440 --> 0:00:08.960 Fed Decision with Mi McKay. 0:00:10.480 --> 0:00:13.280 It's fifty and the promise of another fifty basis points 0:00:13.320 --> 0:00:15.840 and cuts by the end of the year, and another 0:00:15.960 --> 0:00:19.480 one hundred basis points in twenty twenty five, which would 0:00:19.520 --> 0:00:22.840 put the nation's benchmark rate at three point four percent. 0:00:23.200 --> 0:00:27.280 It's projected to fall another fifty basis points in twenty 0:00:27.400 --> 0:00:30.240 twenty six, which would put the rate at two point 0:00:30.360 --> 0:00:33.760 nine percent, which is now the Fed's median forecast for 0:00:34.080 --> 0:00:37.320 the neutral rate. That is up a tenth from June. 0:00:37.680 --> 0:00:40.600 The consensus is GDP will rise two percent this year, 0:00:40.680 --> 0:00:43.159 down a tenth from the June forecast. Growth will be 0:00:43.200 --> 0:00:46.639 the same in twenty five and twenty six. Unemployment will 0:00:46.680 --> 0:00:49.720 hit four point four percent this year, that's an increase 0:00:50.000 --> 0:00:53.160 from the June figure. It will fall to four point 0:00:53.240 --> 0:00:57.000 three percent in twenty twenty six. PCEE inflation of two 0:00:57.040 --> 0:00:59.440 point three percent this year falls to two point one 0:00:59.520 --> 0:01:02.560 next year and hits the two percent target in twenty 0:01:02.880 --> 0:01:07.800 twenty six. Though inflation remains quote somewhat elevated. The statement 0:01:07.840 --> 0:01:11.240 says they cut because they now have greater confidence inflation 0:01:11.400 --> 0:01:14.800 is moving sustainably toward their two percent target, and the 0:01:14.880 --> 0:01:18.320 risks to inflation and the labor market are roughly balanced. 0:01:18.720 --> 0:01:21.800 While they do not explain why they decided on a 0:01:21.840 --> 0:01:25.480 half point reduction, the statement says the Committee is strongly 0:01:25.520 --> 0:01:29.760 committed to supporting maximum employment and remember in Jackson Hole, 0:01:29.920 --> 0:01:33.199 Chairman Poll said any deterioration in the labor market would 0:01:33.240 --> 0:01:37.520 be unwelcome. There was one descent from Governor Mickey Bowman. 0:01:37.560 --> 0:01:40.320 It's the first descent by a FED governor since two 0:01:41.080 --> 0:01:44.280 and five. It is the first ascent by any member 0:01:44.319 --> 0:01:48.880 of the Committee since twenty twenty two. The statement adjusted 0:01:48.920 --> 0:01:53.000 to say the Committee will as always carefully assess incoming data. 0:01:53.240 --> 0:01:58.400 Quote in considering additional adjustments. There's no changes guys to 0:01:58.680 --> 0:02:01.000 the QT portion over Fed's pause. 0:02:01.360 --> 0:02:03.400 My McKee stay closed, will come back to you. Here's 0:02:03.400 --> 0:02:05.960 the price sanction in response to it. Knee jerk reaction 0:02:06.120 --> 0:02:08.160 is the first move might not stick, but this is 0:02:08.160 --> 0:02:10.560 the move so far. By eight tens of one percent 0:02:10.560 --> 0:02:12.720 on the S and P five hundred, the overwhelming out 0:02:12.720 --> 0:02:15.240 performance on a russell the small caps now up by 0:02:15.280 --> 0:02:18.040 one point seven percent in the bond market, just bear 0:02:18.080 --> 0:02:20.760 in mind we've come a long long way and we've 0:02:20.800 --> 0:02:23.320 priced in a lot to this yield curve. The two 0:02:23.360 --> 0:02:25.840 year just climbing just a little bit to one change 0:02:25.840 --> 0:02:27.839 the three point sixty at the moment at the front 0:02:27.880 --> 0:02:29.799 end of the yield curve and in the FX market, 0:02:30.000 --> 0:02:32.320 dolly and dropping back by about point seven percent. So 0:02:32.360 --> 0:02:35.440 that's a weaker dollar, a stronger japanesey and Lisa forty 0:02:35.480 --> 0:02:36.720 one on that currency pair. 0:02:36.800 --> 0:02:38.520 Yeah, now over the Bank of Japan. And if they 0:02:38.600 --> 0:02:40.880 hike how much does that divergence continue. I also want 0:02:40.919 --> 0:02:43.520 to point out gold. You're seeing a bid into gold 0:02:43.600 --> 0:02:45.040 right now we start to look for some of the 0:02:45.080 --> 0:02:47.960 inflation proxies, So will this sort of feed into that idea? 0:02:48.000 --> 0:02:49.639 I thought it was interesting the long end of the 0:02:49.680 --> 0:02:52.760 yeld curve, just on the margins not significantly yields to 0:02:52.840 --> 0:02:54.799 slightly up on this idea that they're going to go 0:02:54.880 --> 0:02:57.519 bigger and potentially even more down the line. 0:02:57.560 --> 0:03:00.320 So the media and dock can master some disagreement beneath 0:03:00.320 --> 0:03:02.120 the surface. So let's talk about the range and not 0:03:02.200 --> 0:03:04.679 just the median at the f WEBC the median dot 0:03:04.720 --> 0:03:07.120 for twenty twenty five in the projection materials that were 0:03:07.160 --> 0:03:10.600 just published is three point four percent. The range for 0:03:10.639 --> 0:03:13.040 twenty twenty five is anywhere from two point nine to 0:03:13.080 --> 0:03:15.840 four point one. Two point nine to four point one. 0:03:15.960 --> 0:03:18.040 That's quite a range on this f WEBC. And I 0:03:18.040 --> 0:03:19.960 think for the first time at a long time, we 0:03:20.040 --> 0:03:22.960 have some descent playing gap publicly as well, the first 0:03:22.960 --> 0:03:25.800 descent from a sitting governor on the f WEBC since 0:03:25.840 --> 0:03:27.120 two thousand and five. 0:03:27.600 --> 0:03:29.720 This was not a unanimous decision, and it. 0:03:29.639 --> 0:03:33.480 Really highlights why this actually became such a knife edge 0:03:33.840 --> 0:03:36.240 kind of decision. Just to add to that, ten officials 0:03:36.240 --> 0:03:38.440 penciled in one hundred basis points or more of cuts 0:03:38.440 --> 0:03:41.680 for this year. Nine officials penciled in seventy five basis 0:03:41.680 --> 0:03:44.640 points or less for this year. It actually matters quite 0:03:44.680 --> 0:03:47.520 a bit for market expectations, especially given some of the 0:03:47.520 --> 0:03:48.840 policy uncertainty next year. 0:03:48.880 --> 0:03:51.280 So TK we get fifty, we get fifty, and now 0:03:51.320 --> 0:03:53.160 we're waiting for the next act as a news conference 0:03:53.320 --> 0:03:54.480 in twenty six minutes time. 0:03:54.560 --> 0:03:56.880 I think it's a surprise within the zeitgeist. This is 0:03:56.920 --> 0:03:59.240 to the edge of surprise. I think Powell maybe alluded 0:03:59.280 --> 0:04:03.280 to this with this enthusiasms at Jackson. Oh, you touched 0:04:03.280 --> 0:04:06.600 on something. Jason Furman touched on this morning, which is, 0:04:06.680 --> 0:04:09.760 don't forget the dollar, and Muhammad Larian, I'm going to 0:04:09.840 --> 0:04:12.440 be as direct as I can. It's the great unknown 0:04:12.520 --> 0:04:16.320 unknown here, a dollar weakness that anybody with our great 0:04:16.320 --> 0:04:17.120 hair doesn't know. 0:04:18.839 --> 0:04:21.280 That we may not know. I think we've seen it before. 0:04:21.360 --> 0:04:24.320 I remember, I remember periods of dollar weakness. But it 0:04:24.400 --> 0:04:27.120 is dollar weakness. This is not just a fifty basis 0:04:27.120 --> 0:04:31.240 point cut. This is the Duvish fifty bass point cut. Well, 0:04:31.520 --> 0:04:35.680 I mean, if now I agree with you John that 0:04:35.680 --> 0:04:38.160 the Duvish pot comes from the median dots. But if 0:04:38.160 --> 0:04:40.799 you look at the range, it doesn't look at douvies. 0:04:40.880 --> 0:04:42.080 But that's not what the mark is going to hit. 0:04:42.120 --> 0:04:43.560 The mark is going to look at the median dot, 0:04:43.680 --> 0:04:47.360 and we'll interpret this as a Douvish fifty basis points scut. 0:04:47.520 --> 0:04:50.560 And the first reaction was actually steepening of both two 0:04:50.600 --> 0:04:55.880 stands and twos thirties, which tells you something about what 0:04:55.920 --> 0:04:56.960 people are worried about. 0:04:57.160 --> 0:04:59.800 To some extent, this median dot validates market pricing and 0:04:59.800 --> 0:05:00.960 cut again to this decision. 0:05:01.440 --> 0:05:02.280 Is that sufficient? 0:05:02.480 --> 0:05:04.640 I'm looking at equity market reaction right now, we're up 0:05:04.640 --> 0:05:07.200 by half of one percent. We've still got a news conference, 0:05:07.200 --> 0:05:09.400 a question we've asked for the last several weeks into this. 0:05:10.080 --> 0:05:12.159 Are we going to end up with disappointment on the 0:05:12.160 --> 0:05:14.240 other side of this news conference with Chairman Powell? 0:05:14.320 --> 0:05:15.560 What would your question be now? 0:05:16.160 --> 0:05:19.440 So, first of all, normally he's more dubvish than the statement, 0:05:19.960 --> 0:05:22.640 so that's going to be pretty hard to do this time. 0:05:22.880 --> 0:05:23.919 But let's wait. 0:05:24.920 --> 0:05:28.400 You know, my question will be what has changed since 0:05:28.480 --> 0:05:31.760 July when you decided not to cut weights and now 0:05:31.800 --> 0:05:35.000 there's this very aggressive cut and aggressive signaling. 0:05:35.200 --> 0:05:37.880 What has changed The speech in CenTra Portugal at the 0:05:37.880 --> 0:05:40.240 start of summer very different to what we're hearing from 0:05:40.279 --> 0:05:42.960 the FMC just several months later. Joining us now to 0:05:42.960 --> 0:05:45.280 discuss is Bob Michael, a JP Morgan Asset Management. He 0:05:45.360 --> 0:05:47.640 joins us out of London this afternoon. Bob, we just 0:05:47.640 --> 0:05:49.919 won your first impression to the decision. What do you 0:05:49.960 --> 0:05:51.920 make of it? 0:05:51.920 --> 0:05:54.880 It hit on pretty much everything we were looking for, 0:05:55.279 --> 0:05:59.040 probably a little less dubvish than we thought. In two instances, 0:05:59.080 --> 0:06:01.280 one there was a just so it was in a 0:06:01.360 --> 0:06:03.799 slam dunk and we would have liked to have seen 0:06:04.240 --> 0:06:07.360 the median dot for the end of next year somewhere 0:06:07.360 --> 0:06:10.240 around two and three quarters to three percent. But otherwise, 0:06:10.360 --> 0:06:12.800 as we had been guided over the last week, nothing 0:06:12.839 --> 0:06:13.839 to quibble about. 0:06:14.040 --> 0:06:18.760 Bob, which bond series or individual bond provides the most 0:06:18.800 --> 0:06:20.040 information right now? 0:06:20.080 --> 0:06:21.040 Is it a real yield? 0:06:21.520 --> 0:06:24.200 Is it the nominal full faith and credit? What's the 0:06:24.240 --> 0:06:26.160 most valued, Abob Michael? Right now? 0:06:27.480 --> 0:06:33.040 Credit spreads? Credit spreads will tell us whether investors believe 0:06:33.160 --> 0:06:35.640 the economy is in die or shape and this was 0:06:35.680 --> 0:06:39.039 an emergency fifty basis point cut, or whether this is 0:06:39.200 --> 0:06:42.360 just a fed a long way from neutral, perhaps as 0:06:42.440 --> 0:06:45.440 Muhammad hit it a meeting or two away from where 0:06:45.480 --> 0:06:48.200 they should have started the cycle, so they're starting to 0:06:48.279 --> 0:06:49.640 get towards neutral. 0:06:50.000 --> 0:06:53.159 All is well, okay, all as well? And yet we 0:06:53.200 --> 0:06:56.560 saw earlier this morning was an increase in mortgage applications. 0:06:56.560 --> 0:06:59.480 What we've seen is already the bond market pricing in 0:06:59.640 --> 0:07:01.960 all of this and then some. And basically the statement 0:07:02.040 --> 0:07:05.719 only encourages that even more. Do not see a risk 0:07:05.920 --> 0:07:09.560 of potentially reignited inflation Moob, that we could potentially see 0:07:09.600 --> 0:07:12.120 expressed in the long end, as Muhammad is mentioning, we 0:07:12.200 --> 0:07:14.880 are seeing that yield curve steepening in a way that 0:07:15.280 --> 0:07:17.800 hints that something else is amiss, especially impaired with gold. 0:07:19.120 --> 0:07:23.160 WHOA, We're a long way away from that. We're looking 0:07:23.320 --> 0:07:28.280 at the three month annualized rate of core PCE running 0:07:28.440 --> 0:07:32.760 at one point seven percent, so that's not inflationary. There's 0:07:32.800 --> 0:07:36.440 signs of disinflation everywhere. When you look at the labor market. 0:07:36.760 --> 0:07:41.120 They talked about full employment, well the low and unemployment 0:07:41.160 --> 0:07:43.480 was three point four percent. A couple months ago was 0:07:43.520 --> 0:07:46.440 four point three percent. That's up nine tenths of a percent. 0:07:46.800 --> 0:07:50.520 You only see that when there's threat of recession. That's 0:07:50.600 --> 0:07:54.720 characteristic of that. They've highlighted to us that the neutral 0:07:54.760 --> 0:07:57.960 Fed funds rate is somewhere around three percent. That's a 0:07:58.040 --> 0:08:00.600 debate we could have for a long time, but it's 0:08:00.680 --> 0:08:03.600 nowhere near five and a quarter five and a half percent, 0:08:03.920 --> 0:08:06.680 so they can start taking pressure off of businesses and 0:08:06.760 --> 0:08:09.240 households without reigniting inflation. 0:08:10.280 --> 0:08:12.400 Bob, I know they call you Bob Michael, but you 0:08:12.440 --> 0:08:14.280 told me earlier was Bob Michelle's I'm going to stick 0:08:14.320 --> 0:08:17.720 to Bob Michelle. Bob Smith. 0:08:18.200 --> 0:08:20.400 I came to London because I thought we were going 0:08:20.480 --> 0:08:24.080 to QPR Millwall on Saturday. Now you're in New York 0:08:24.120 --> 0:08:24.360 on me. 0:08:24.760 --> 0:08:25.080 I am. 0:08:25.320 --> 0:08:29.880 I'll be in London tomorrow, So Bob speak a little 0:08:29.920 --> 0:08:33.240 bit to the revisions and their projections and particularly unemployment. 0:08:33.280 --> 0:08:33.920 What do you make of that? 0:08:35.960 --> 0:08:36.920 I didn't catch them. 0:08:36.920 --> 0:08:39.600 What did they do? They pushed it up? 0:08:41.000 --> 0:08:45.319 Yeah, I think they have to. I think they have 0:08:45.440 --> 0:08:50.880 to acknowledge that we're at a challenging time, that there 0:08:50.880 --> 0:08:54.280 are new entrants to the labor market, but those are 0:08:54.360 --> 0:08:59.200 still unemployed US workers, and they have to acknowledge that 0:08:59.280 --> 0:09:02.520 we're not below four percent anymore. We're heading a little 0:09:02.559 --> 0:09:06.600 bit higher. And that's why you need the policy response 0:09:06.679 --> 0:09:09.400 to start with fifty basis points. I'm okay with that. 0:09:09.520 --> 0:09:10.720 Yeah, but Bob, but I think we've got to talk 0:09:10.760 --> 0:09:12.240 about this a little bit more. And I'm pleased we 0:09:12.280 --> 0:09:15.360 went to unemployment. Unemployment right now in America is at 0:09:15.360 --> 0:09:18.240 four point two percent. These are the FETs projections out 0:09:18.280 --> 0:09:20.640 in twenty twenty four year end out to twenty five 0:09:20.679 --> 0:09:23.600 and beyond, they've got projections of four point four percent. 0:09:23.679 --> 0:09:26.840 The medium projection for unemployment this year. Next year, they've 0:09:26.880 --> 0:09:29.920 got it at four point four percent. Given the move 0:09:29.960 --> 0:09:32.920 we've seen over the last twelve months, Bob, how aspirational 0:09:33.000 --> 0:09:33.240 is that? 0:09:33.440 --> 0:09:34.239 How realistic? 0:09:34.320 --> 0:09:36.080 Is it that we just kind of pause around these 0:09:36.160 --> 0:09:38.160 levels for the next eighteen months. 0:09:40.120 --> 0:09:44.480 Well, we very well could. I if we get two 0:09:44.640 --> 0:09:47.840 twenty five's over the next two meetings and we bring 0:09:47.920 --> 0:09:51.200 rates down one hundred basis points. What we know is 0:09:51.360 --> 0:09:54.600 there's still a shortage of housing. There are first time 0:09:54.880 --> 0:09:59.200 home buyers queued up to buy homes, so bringing rates 0:09:59.240 --> 0:10:02.800 down could bring those buyers into the market. We also 0:10:02.880 --> 0:10:06.480 know that a lot of businesses don't fund themselves in 0:10:06.520 --> 0:10:10.040 the public bond market. They fund themselves through bank loans, 0:10:10.080 --> 0:10:14.079 through private credit. Those are floating rate loans. Those are 0:10:14.200 --> 0:10:17.400 anywhere starting with SOFA at five and three eighty percent. 0:10:17.440 --> 0:10:20.520 You take one hundred basis points off of that. That 0:10:20.559 --> 0:10:24.360 could help to stabilize things as well. Just because unemployment 0:10:24.400 --> 0:10:27.719 has headed up over the last year doesn't mean it 0:10:27.760 --> 0:10:30.600 has to keep going. It can certainly flatten out here 0:10:31.000 --> 0:10:32.480 if the Fed does its job. 0:10:32.679 --> 0:10:35.240 Hey, Bob, appreciate catching up as always, Bob Michael There 0:10:35.240 --> 0:10:37.560 of JP Morganes and management, there's a couple of moves 0:10:37.559 --> 0:10:39.520 in this market that I think are very very interesting. 0:10:39.760 --> 0:10:42.080 We've just gone fifty and in some ways the dot 0:10:42.080 --> 0:10:44.680 plot is validating what we were pricing in this market 0:10:44.720 --> 0:10:46.640 ahead of time as well. And what you're saying at 0:10:46.679 --> 0:10:48.360 the long end is the long bond sell off and 0:10:48.440 --> 0:10:51.240 yields climb by two basis points. It's not a big move, 0:10:51.480 --> 0:10:54.240 but it's notable by two on tens, on thirties, we're 0:10:54.320 --> 0:10:56.120 up by three. And at the same time we've got 0:10:56.160 --> 0:11:01.200 gold at all time highs. What is this market sniffing out, Well. 0:11:01.080 --> 0:11:04.120 It's sniffing out on the margins a greater inflationary risks 0:11:04.160 --> 0:11:06.240 than otherwise priced in. Look, I can make an argument 0:11:06.280 --> 0:11:07.880 about how it might mean that we're going to suddenly 0:11:07.880 --> 0:11:09.880 get run away into somebody style inflation. That's not what 0:11:09.920 --> 0:11:11.680 it's saying. But what it is saying is that on 0:11:11.760 --> 0:11:14.480 the margins, the idea of a bigger and frankly a 0:11:14.520 --> 0:11:18.960 Dubvish fifty basis point rate cut really highlights how inflation 0:11:19.080 --> 0:11:21.120 is still back on the table, at least on the margins. 0:11:21.200 --> 0:11:24.600 They're talking about a dual mandate imbalance. Mohammed, your impression 0:11:24.640 --> 0:11:26.480 is that it's a single man date central bank now, 0:11:27.040 --> 0:11:28.520 and you don't think we should take our eyes off 0:11:28.559 --> 0:11:30.600 the other side of the mandate in the market. Speaking 0:11:30.600 --> 0:11:32.479 to that, just on the margin, this afternoon. 0:11:33.000 --> 0:11:35.319 I think at the margin, yes, but I do think 0:11:35.400 --> 0:11:37.560 that this is the reaction of a single mandate FED 0:11:37.640 --> 0:11:40.840 right now, especially if you believe two percent is your 0:11:40.840 --> 0:11:41.600 inflation target. 0:11:42.040 --> 0:11:44.120 Let's cross Ouf it's a Diian swamp and bring her 0:11:44.160 --> 0:11:46.280 in a KPMG. Dan, we'd love your thoughts on the 0:11:46.320 --> 0:11:48.120 decision and that we can get into the nuances. What 0:11:48.120 --> 0:11:50.440 do you make of the fifty instead of the twenty five. 0:11:52.679 --> 0:11:55.240 This was a huge victory for j Powell, who really 0:11:55.320 --> 0:11:58.120 laid out at his Jackson Hall speech that he was 0:11:58.120 --> 0:12:01.440 worried about employment and that is what this is about. 0:12:01.880 --> 0:12:05.559 And Mickey Bowman doing a discent. Powell willing to take 0:12:05.600 --> 0:12:08.800 a descent among the board members as opposed to among 0:12:08.840 --> 0:12:12.720 a president. That is how much he wanted this half 0:12:12.760 --> 0:12:15.560 percent rate cut. And I think that's very important. I 0:12:15.559 --> 0:12:18.280 think you're going to see it. Couch and explained within 0:12:18.320 --> 0:12:21.520 the context of several participants at the July meeting thought 0:12:21.600 --> 0:12:23.839 they were ready to go ahead and cut. So this 0:12:23.880 --> 0:12:25.720 is a bit of a catch up to that, and 0:12:25.760 --> 0:12:28.480 so that should help temper a little bit this Duvish 0:12:28.600 --> 0:12:31.120 read on it. I was surprised that they kept the 0:12:31.200 --> 0:12:35.640 risk balanced, although clearly the focus is now unemployment and 0:12:35.679 --> 0:12:40.600 not allowing the situation and employment to become much worse. Remember, 0:12:40.640 --> 0:12:44.280 we're at one hundred and sixteen thousand payroll gains three 0:12:44.320 --> 0:12:47.880 month moving average as of August. That's not statistically different 0:12:47.880 --> 0:12:51.040 from zero. Combined with the downward revisions we saw on 0:12:51.160 --> 0:12:54.840 August twenty first, the day before Powell gave his remarks 0:12:54.880 --> 0:12:59.040 at Jackson Hole, those downward revisions record downward revisions. Even 0:12:59.120 --> 0:13:01.720 if they're not as as large as they appeared because 0:13:01.760 --> 0:13:05.000 of some immigration that we're not capturing, they're still large. 0:13:05.080 --> 0:13:07.640 And it means the birth and death rate, the death 0:13:07.720 --> 0:13:11.160 rate of firms has picked up and their small businesses 0:13:11.240 --> 0:13:14.640 aren't hiring as much as well, which could mean actually 0:13:15.040 --> 0:13:18.600 the payroll data for this year also gets revised down. 0:13:18.920 --> 0:13:20.360 And that's what they're worried about. 0:13:20.600 --> 0:13:24.040 Dan, your workout on LinkedIn has been just hugely beneficial, 0:13:24.040 --> 0:13:27.160 a really holistic view of the US economy. I have 0:13:27.200 --> 0:13:30.240 a Dow Jones industrial leavage, bottom of the pandemic up 0:13:30.280 --> 0:13:33.800 one hundred and twenty eight percent twenty one percent per year. 0:13:34.160 --> 0:13:37.079 I've got debt and deficit that hal Bronner and Bernstein 0:13:37.120 --> 0:13:40.440 never dreamed of. Diane Swank Is this a FED just 0:13:40.559 --> 0:13:44.040 dealing with our stimuli? Is this a FED just dealing 0:13:44.120 --> 0:13:46.280 with debt and deficit to the sky. 0:13:49.080 --> 0:13:52.560 You know, we've had everything you could possibly imagine pushed 0:13:52.600 --> 0:13:55.680 up inflation, and now we're seeing it come down despite 0:13:55.720 --> 0:13:57.840 the fact that we still have a lot of debt. 0:13:58.080 --> 0:14:01.000 So you know that on the margin, yes, we do 0:14:01.080 --> 0:14:03.080 have high debts, and I do believe we need to 0:14:03.120 --> 0:14:05.160 deal with that at some point in time, and I 0:14:05.200 --> 0:14:07.480 don't think we have anyone who's willing to talk about 0:14:07.520 --> 0:14:10.040 it on either side of the aisle, which is another issue. 0:14:10.120 --> 0:14:12.840 We can talk about that at a later date. But 0:14:13.000 --> 0:14:15.400 right now we've got a federal reserve that's no longer 0:14:15.520 --> 0:14:18.920 buying that debt, and you've got a federal reserve that 0:14:19.200 --> 0:14:22.800 is seeing inflation come down despite the fact that we 0:14:22.960 --> 0:14:26.640 have high debt. And that's because on the margin, after 0:14:26.680 --> 0:14:28.840 we get past the sort of six months that we 0:14:28.920 --> 0:14:33.280 put a whole year budget into from March into October, first, 0:14:33.800 --> 0:14:37.520 you get a continuing resolution at best through your end, 0:14:37.880 --> 0:14:41.080 and you're going to get more constraints on spending. I 0:14:41.080 --> 0:14:43.920 think as we get into twenty twenty five, Diane. 0:14:44.000 --> 0:14:47.080 One reason why this comes as a surprise this decision. 0:14:47.560 --> 0:14:49.760 One reason why is because they could have telegraphed this 0:14:49.880 --> 0:14:52.520 more carefully. There was no data that really moved the 0:14:52.560 --> 0:14:56.160 needle between the time when the quiet period began and 0:14:56.200 --> 0:14:58.760 now that would chip us toward fifty Why do you 0:14:58.800 --> 0:15:01.360 think there wasn't more clue communication that this was a 0:15:01.360 --> 0:15:04.480 Federal Reserve ready to cut rates by fifty basis points. 0:15:07.120 --> 0:15:09.160 Well, Frankly, I don't think that Jay Powell, by the 0:15:09.200 --> 0:15:11.720 time the blackout period hit had the votes in his 0:15:11.840 --> 0:15:14.280 pocket to be able to do that, and I think 0:15:14.440 --> 0:15:17.160 we saw that in some of the mixed messages. Even 0:15:17.200 --> 0:15:20.440 the day of the blackout period, Chris Waller, governor on 0:15:20.480 --> 0:15:22.360 the Federal Reserve, had said, you know, you'd be open 0:15:22.400 --> 0:15:24.720 to a more aggressive rate cut, but he didn't seem 0:15:24.760 --> 0:15:27.480 to be really ready to do it. In September, we 0:15:27.560 --> 0:15:30.440 saw John Williams come out that same day and sort 0:15:30.480 --> 0:15:33.200 of talking about more cautious rate cuts, more of a 0:15:33.320 --> 0:15:36.560 quarter point kind of rate cuts. So they didn't telegraph 0:15:36.640 --> 0:15:40.120 it because he hadn't crowded the cats. But this really 0:15:40.200 --> 0:15:42.080 does speak to the fact that he does have an 0:15:42.120 --> 0:15:45.160 extraordinary ability to actually do just that. 0:15:45.520 --> 0:15:47.640 Let's get to this quote from no data of Runmack 0:15:48.000 --> 0:15:49.160 just down at the moment. 0:15:49.240 --> 0:15:50.080 Here's the issue. 0:15:50.240 --> 0:15:52.280 The balance of risks have changed and June most saret 0:15:52.320 --> 0:15:54.800 balanced risk to un employment. Right now this is completely 0:15:54.840 --> 0:15:57.920 flipped mostly risk to one employed skews to the upside. 0:15:57.920 --> 0:15:59.640 This will not be the last time we see a 0:15:59.640 --> 0:16:02.440 fifty in our opinion, Lacy, your thoughts. 0:16:02.760 --> 0:16:05.320 This is basically being priced into this year. I mean, 0:16:05.360 --> 0:16:07.040 how else do they get to more than one hundred 0:16:07.080 --> 0:16:09.840 basis points potentially by the end of this year. And 0:16:09.920 --> 0:16:12.520 if you think about it, it raises a lot of 0:16:12.600 --> 0:16:15.640 questions about what they are seeing that suddenly makes that 0:16:16.000 --> 0:16:18.360 such a consensus. Given that we've gotten a lot of 0:16:18.440 --> 0:16:19.600 mixed messaging. 0:16:19.360 --> 0:16:21.040 Let's head back to London and catch up with Bob 0:16:21.080 --> 0:16:24.600 Michael at JPMorgan Asset Management. Bob, I'm sitting there in cash. 0:16:24.720 --> 0:16:26.520 I've been sat here for a long time. You've been 0:16:26.560 --> 0:16:28.760 wanting me for a long time that I face real 0:16:28.800 --> 0:16:31.440 reinvestment risk. The fence just cut fifty and I'm freaking out. 0:16:31.480 --> 0:16:32.160 I give you a call. 0:16:32.480 --> 0:16:35.240 I'm now worried about another fifty and maybe another fifty 0:16:35.240 --> 0:16:37.320 after that. What are you buying on my behalf? 0:16:39.040 --> 0:16:43.400 We're telling clients just get into the bond market. Just 0:16:43.480 --> 0:16:46.440 get into a general bond fund. It could be an 0:16:46.480 --> 0:16:49.920 aggregate investment grade bond fund, could be a core plus 0:16:49.960 --> 0:16:52.520 bond fund. If you're in a high tax bracket, get 0:16:52.520 --> 0:16:56.560 into a general municipal bond fund. Yields are coming down. 0:16:56.720 --> 0:17:00.600 Yields are at this level with six point three trillion 0:17:00.680 --> 0:17:04.120 dollars in cash building up and most people not liking 0:17:04.160 --> 0:17:07.760 the bond market. Some buying has brought it down here, 0:17:08.119 --> 0:17:11.159 and this money will come in because they're going to 0:17:11.200 --> 0:17:14.600 watch the return on cash go down like power windows. 0:17:15.359 --> 0:17:17.600 I got to say, Muhammad, this goes to the point 0:17:17.600 --> 0:17:19.640 that you were making. I love your comments on this, 0:17:19.640 --> 0:17:23.399 this idea that the Fed was seeing something that ndeim 0:17:23.400 --> 0:17:26.040 shifts his view, and what we're seeing right now is 0:17:26.040 --> 0:17:27.639 that maybe he just didn't have the votes. I'm just 0:17:27.640 --> 0:17:30.560 trying to wrap my head around what that means going forward, 0:17:30.840 --> 0:17:33.399 that maybe they're going to be even more aggressive than 0:17:33.440 --> 0:17:36.119 the market previously thought, and that maybe it is appropriate 0:17:36.400 --> 0:17:40.479 to price in even more spread compression, even more yields 0:17:40.480 --> 0:17:41.040 going lower. 0:17:41.520 --> 0:17:43.399 So it would not surprise me if that is the 0:17:43.440 --> 0:17:46.400 market reaction. It would not surprise me at all, because 0:17:46.720 --> 0:17:50.439 the market has been conditioned to ask for more and 0:17:50.520 --> 0:17:53.080 more and gets more and more. So when't surprise me 0:17:53.080 --> 0:17:56.080 if that, If that is what happens, I will go 0:17:56.240 --> 0:18:02.720 back to the significant dispersion in people in FMC members 0:18:02.800 --> 0:18:06.080 view as to what the destination looks like, and that 0:18:06.160 --> 0:18:08.720 discussion has got to be reconciled over time. So I 0:18:08.720 --> 0:18:12.720 don't think it is as clear cut as the market 0:18:12.760 --> 0:18:13.560 will make it seem. 0:18:14.560 --> 0:18:17.200 Diane Swarck, I got eight ways to go here. Let's 0:18:17.240 --> 0:18:21.280 try this. You've got a wonderful reading of America away 0:18:21.280 --> 0:18:25.359 from three zip codes in Manhattan, the quadrants of Washington, DC. 0:18:26.200 --> 0:18:29.880 This rate cut, how does it affect America that are 0:18:29.920 --> 0:18:33.440 not the elites, not the people enjoying Nvidia to the moon. 0:18:36.080 --> 0:18:39.199 Well, this is really important because the rate cuts, the 0:18:39.240 --> 0:18:42.480 short term rate cuts, are what comes through on loans 0:18:42.920 --> 0:18:46.640 that consumers take out. This is beyond the mortgage rate situation. 0:18:46.800 --> 0:18:51.280 This also helps the mortgage rate situation obviously, but the 0:18:51.320 --> 0:18:55.240 real issue for consumers are short term interest rates and 0:18:55.280 --> 0:18:57.359 how they are priced on their debt. Now, on the 0:18:57.440 --> 0:18:59.800 credit cards, the average credit card rate is about twenty 0:18:59.800 --> 0:19:02.280 five percent. This is a rounding era on that. It's 0:19:02.280 --> 0:19:04.240 not going to help a lot on that. That's just 0:19:04.480 --> 0:19:07.800 incredible how high those rates are. But when you get 0:19:07.800 --> 0:19:10.919 into auto loans, when you get into other kinds of 0:19:10.960 --> 0:19:15.680 loans that consumers take in businesses, middle market through small businesses, 0:19:15.800 --> 0:19:18.600 it affects all those loans. And right now you can 0:19:18.640 --> 0:19:21.040 imagine a lot of people are going to get some 0:19:21.400 --> 0:19:23.760 relief in terms of that. Now, the good news is 0:19:24.000 --> 0:19:26.960 there's not a lot of overhang of debt for consumers 0:19:27.280 --> 0:19:30.399 and they can service the debt they've got. But for 0:19:30.520 --> 0:19:33.560 those lower income households that have already exhausted all of 0:19:33.560 --> 0:19:37.200 their savings and then some this is good news. They 0:19:37.240 --> 0:19:40.080 rely on lower rates to buy used vehicles. They can't 0:19:40.119 --> 0:19:43.000 even afford to buy new vehicles anymore. That goes right 0:19:43.080 --> 0:19:46.040 up into middle income households. So that's where we'll see 0:19:46.080 --> 0:19:48.800 some movement, but it's not immediate. You're not going to 0:19:48.840 --> 0:19:52.200