WEBVTT - Instant Reaction: Kevin Warsh's First News Conference as Fed Chair 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio News. 0:00:09.200 --> 0:00:13.840 This is a breaking news update from Bloomberg instant reaction 0:00:14.120 --> 0:00:17.959 and analysis from our three thousand journalists and analysts around 0:00:18.000 --> 0:00:18.480 the world. 0:00:19.280 --> 0:00:22.000 A new fed chair in a new era. 0:00:22.239 --> 0:00:25.279 As we do parse through some of the commentary, the 0:00:25.360 --> 0:00:28.240 Kevin Warresh Fedder Reserve is a very different federal reserve 0:00:28.280 --> 0:00:30.560 than the Drome Powell of Federal Reserve. Not only are 0:00:30.560 --> 0:00:32.120 we looking at a statement that was only one hundred 0:00:32.159 --> 0:00:34.440 and thirty two words versus one hundred and seventy five 0:00:34.479 --> 0:00:37.919 words at the April FMC meeting, we're talking about a 0:00:38.000 --> 0:00:41.880 new framework, a new regime, and not giving enemy forward 0:00:41.880 --> 0:00:44.360 guidance because guess what, there's a task force for that 0:00:44.680 --> 0:00:46.280 right now. If you take a look of the reaction 0:00:46.360 --> 0:00:49.239 in Marcus, they are taking this hawkish tilt and they 0:00:49.280 --> 0:00:51.960 are running with it. You can see across the board 0:00:51.960 --> 0:00:54.120 declines on the S and P and the Russell two 0:00:54.200 --> 0:00:57.920 thousand NAZAC now a little changed as they parse through 0:00:58.040 --> 0:01:00.120 all of the reactions. When you take a look at 0:01:00.160 --> 0:01:02.480 the yield space, that's where some of the fireworks are happening. 0:01:02.640 --> 0:01:06.000 It is yield curve compression time in a massive, massive way. 0:01:06.120 --> 0:01:09.119 Thirteen basis point rise on the two year to four 0:01:09.280 --> 0:01:12.520 point one point eight percent. Suddenly the idea of one 0:01:12.600 --> 0:01:15.440 rate hike or even more is on the table. As 0:01:15.440 --> 0:01:18.400 this FED share talks about how this Federal Reserve has 0:01:18.640 --> 0:01:22.120 a commitment to the American people to get price stability 0:01:22.120 --> 0:01:24.560 and that is their goal. He s poo pooed some 0:01:24.680 --> 0:01:27.360 of the dual mandate the thirty year yields. They like 0:01:27.440 --> 0:01:30.080 that down two basis points and it is dollar strength 0:01:30.120 --> 0:01:33.280 across the board. A big question, Scarlett foo was would 0:01:33.400 --> 0:01:36.720 the President have any commentary on this, And it turns 0:01:36.720 --> 0:01:37.759 out that he does. 0:01:37.800 --> 0:01:38.080 He does. 0:01:38.200 --> 0:01:40.440 He's spoken to reporters several times today he's at the 0:01:40.480 --> 0:01:43.800 G seven in France, and he had said that it's 0:01:43.840 --> 0:01:46.280 all right that they held rates whatever. 0:01:46.600 --> 0:01:48.640 He also said that the Fed raising. 0:01:48.440 --> 0:01:51.800 Rates is a possibility, It's possible it could happen, So 0:01:52.360 --> 0:01:54.920 no sign of anger from him. We do know that 0:01:54.920 --> 0:01:57.640 Scott Besson, the Treasury Secretary, had kind of eased the 0:01:57.680 --> 0:02:00.800 path there. He had been talking about the prospect of 0:02:00.840 --> 0:02:02.480 the FED not being able to cut rates as the 0:02:02.520 --> 0:02:06.920 President would want, and that inflation oil prices remains top 0:02:06.920 --> 0:02:09.119 of mind. So we did just listen to Fed Shair 0:02:09.320 --> 0:02:12.240 Kevin Warre, speaking moments ago, is you any kind of 0:02:12.240 --> 0:02:15.480 forward guidance, Where did you put your potential dot if 0:02:15.520 --> 0:02:16.320 you were to have a dot? 0:02:16.400 --> 0:02:17.960 Well, he has an answer for that. 0:02:19.480 --> 0:02:22.480 I'm appointing a task force in each of five areas 0:02:23.000 --> 0:02:27.560 that are central to the broad conduct of monetary policy. First, 0:02:27.960 --> 0:02:35.080 FED communications, second the fed's balance sheet, Third, our use 0:02:35.400 --> 0:02:41.440 and reliance on existing data sources, Fourth, productivity and jobs 0:02:41.800 --> 0:02:46.239 in an era of transformation, and last the fed's inflation frameworks. 0:02:46.600 --> 0:02:50.080 My expectation, I'm still in the business of recruiting and 0:02:50.120 --> 0:02:54.079 finalizing them. My expectation is the task forces will begin 0:02:54.240 --> 0:02:57.080 work in the next couple of weeks and we'll start 0:02:57.080 --> 0:03:00.400 to get some more information from them, some more framing 0:03:00.440 --> 0:03:03.120 of how they see things, starting in the fall end, 0:03:03.400 --> 0:03:06.440 hopefully most if not all of them, concluding by year end. 0:03:06.680 --> 0:03:08.760 Joining us now to discuss is Kate Moore of City 0:03:08.800 --> 0:03:11.000 and Jim Bianco of Bianco Research, or either of you 0:03:11.320 --> 0:03:12.760 being recruited for the task force. 0:03:12.800 --> 0:03:13.440 We'll start with that. 0:03:13.840 --> 0:03:16.840 I just texted my text messages and nothing came through yet, 0:03:16.919 --> 0:03:19.120 so but it's still early at the profressor. All right, 0:03:19.160 --> 0:03:21.320 what's your first reaction to what we just heard, Kate, Well, 0:03:21.360 --> 0:03:23.639 a couple things. Number One, there was broad acknowledgement that 0:03:23.639 --> 0:03:26.160 the economy is in good shape. There's also broad acknowledgement 0:03:26.200 --> 0:03:29.080 that the rates as they currently stand are not actually 0:03:29.080 --> 0:03:33.040 restricting any major sector outside of course housing, which worsh mentioned. 0:03:33.520 --> 0:03:35.240 And there was like a lot. 0:03:35.080 --> 0:03:37.440 Of collegial talk about, you know, how well the FED 0:03:37.520 --> 0:03:41.120 is working together, how well they're communicating, how welcoming Warshfeldt, 0:03:41.160 --> 0:03:43.480 you know, in his new chair position. So there was 0:03:43.520 --> 0:03:45.640 actually kind of a positive tone about both the economy 0:03:45.640 --> 0:03:48.040 and the functioning of the institution and in. 0:03:48.120 --> 0:03:49.400 Terms of changes that he's made. 0:03:49.440 --> 0:03:52.240 Lisa, you already highlighted the fact that the statement was 0:03:52.320 --> 0:03:52.760 much shorter. 0:03:52.800 --> 0:03:54.160 The news conference was sugar. 0:03:53.920 --> 0:03:56.400 As well, and we definitely heard a different side to 0:03:56.640 --> 0:04:00.880 these Fed news conferences, Jim. One thing that Kevin Morshman 0:04:00.960 --> 0:04:05.000 clear was that for longer term changes, including communications, including. 0:04:05.000 --> 0:04:07.040 The dot plot, there's going to be a task force 0:04:07.080 --> 0:04:07.280 for that. 0:04:07.800 --> 0:04:11.160 How do you anticipate that kind of information to come out? 0:04:11.280 --> 0:04:12.840 Is that going to be a surprise when it just 0:04:12.840 --> 0:04:15.440 comes out, or is he the FED going to give 0:04:15.520 --> 0:04:17.200 markets time to digest all of them. 0:04:17.480 --> 0:04:19.760 Well, he also said that the task force might include 0:04:19.760 --> 0:04:23.120 people outside the FED, so I would assume that you're 0:04:23.160 --> 0:04:25.240 going to have leaks, so you might as well be 0:04:25.839 --> 0:04:28.359 doing it almost in real time, telling us what's happening, 0:04:28.600 --> 0:04:30.560 because there's going to be some people outside the FED. 0:04:30.600 --> 0:04:33.760 But in general, I think that this is a welcome thing. 0:04:33.960 --> 0:04:37.520 The FED needed to change. This communication style that they 0:04:37.520 --> 0:04:40.719 have now is about twenty years old, and the world 0:04:40.720 --> 0:04:44.840 has changed. Communication has changed, the role of the FED 0:04:44.880 --> 0:04:48.520 has changed, and so it is a positive thing. I'll 0:04:48.520 --> 0:04:51.400 also mentioned that one of the things that Walsh talked 0:04:51.400 --> 0:04:55.520 about before you was chairman was all of these prognostications 0:04:55.520 --> 0:04:57.800 the Fed's going to cut rates carding to the dot plot. 0:04:58.279 --> 0:05:00.880 He pointed out it very rarely happens the way that 0:05:00.920 --> 0:05:02.520 they say it's going to be. So it was always 0:05:02.520 --> 0:05:05.720 an institution that was giving an inaccurate forecast, and we 0:05:05.720 --> 0:05:08.680 were over relying on that inaccurate forecast, and maybe it 0:05:08.720 --> 0:05:10.640 is time that they try a different approach. 0:05:10.920 --> 0:05:14.160 Kate is chair Kevin Worsh kind of consistent with what 0:05:14.440 --> 0:05:17.560 former governor Fed Governor Kevin Worsh sounded. 0:05:17.160 --> 0:05:19.480 Like, I mean, I'm going to go back to this world. 0:05:19.520 --> 0:05:21.440 I just mentioned a moment ago collegial. I mean, it 0:05:21.480 --> 0:05:24.960 really felt like that was the sort of the overall tone. 0:05:25.040 --> 0:05:27.440 And I think something is very important here, which is 0:05:27.440 --> 0:05:31.160 that we are having more consistency of policy here between 0:05:31.680 --> 0:05:34.560 last meeting with Chair Powell and Chare Wosh, which I 0:05:34.600 --> 0:05:36.640 think is going to be comforting to the markets, even 0:05:36.640 --> 0:05:38.320 if risk assets, you know, dip. 0:05:38.160 --> 0:05:39.440 A little bit on this news. 0:05:39.760 --> 0:05:42.120 It's just kind of reiterating what we already know though, 0:05:42.200 --> 0:05:45.200 right that inflation has been warmer, spicier than many people 0:05:45.200 --> 0:05:49.919 had expected, certainly even pre the Iran conflict, and we 0:05:50.040 --> 0:05:51.839 know that there's been a broadening out of some of 0:05:51.839 --> 0:05:53.839 these price pressures while the labor market had been solid. 0:05:53.880 --> 0:05:56.880 I just felt like, you know, Chair Worsh made those points, 0:05:56.960 --> 0:06:00.640 conceded that, and so was consistent with the person that 0:06:00.680 --> 0:06:02.799 he has always been, which is someone who's really grounded 0:06:02.839 --> 0:06:03.440 in data. 0:06:03.520 --> 0:06:05.279 There's also been a comment and I thought that his 0:06:05.360 --> 0:06:08.400 answer to one of the questions was really interesting about 0:06:08.760 --> 0:06:12.240 why he thinks that this shouldn't be an overly communicative fed, 0:06:12.600 --> 0:06:14.680 how the data and how the market responds to the 0:06:14.760 --> 0:06:16.599 data should be done more purely. 0:06:16.720 --> 0:06:18.840 Take a listen to exactly what he had to say. 0:06:19.839 --> 0:06:25.400 I think financial markets perform best when they react to 0:06:25.560 --> 0:06:30.960 incoming data. I think the financial markets work less efficiently 0:06:31.480 --> 0:06:34.360 when they ask a question, how will the Federal Reserve 0:06:34.520 --> 0:06:39.360 react to that incoming information. The more that markets are 0:06:39.400 --> 0:06:43.640 paying attention to what's happening in the real economy, deciding 0:06:43.720 --> 0:06:46.960 what's good data and what's less good data, the more 0:06:47.000 --> 0:06:50.479 financial markets can price what they believe is the most 0:06:50.640 --> 0:06:52.360 likely and what are the tail risks. 0:06:53.279 --> 0:06:56.240 This actually, to me, I highlighted a real question that's. 0:06:56.120 --> 0:06:58.800 Been asked Jim. Is this sort of codifying the fact 0:06:58.800 --> 0:06:59.960 that the Fed's going to follow the market. 0:07:00.040 --> 0:07:01.839 So the market is going to be sort of the 0:07:01.960 --> 0:07:04.159 arbitrator of what the FED should do because it is 0:07:04.200 --> 0:07:07.320 a pure indicator of the collective wisdom of crowds. 0:07:07.680 --> 0:07:10.200 I think the market should be the thing that the 0:07:10.200 --> 0:07:10.960 FED follows. 0:07:11.240 --> 0:07:12.400 His statement reminded me. 0:07:12.360 --> 0:07:14.720 Of that famous line from the economist Charles Goodheart. When 0:07:14.720 --> 0:07:17.640 a measure becomes a target, it seeks being a measure. 0:07:17.720 --> 0:07:20.520 Meaning if the FED has already decided what they're going 0:07:20.560 --> 0:07:22.760 to do, then we can ignore the pay or report. 0:07:22.800 --> 0:07:25.080 We could ignore the CPI. Maybe we shouldn't. Maybe we 0:07:25.120 --> 0:07:27.480 should be reacting to all of this and having the 0:07:27.560 --> 0:07:30.520 market express its best judgment and then letting the FED 0:07:30.560 --> 0:07:32.920 bring in that information that I agree with him is 0:07:32.960 --> 0:07:35.480 the proper way for things to be done. Then them 0:07:35.520 --> 0:07:38.400 to just summarily decide what they're going to do, say 0:07:38.440 --> 0:07:40.320 they care about the data, but they've already made. 0:07:40.200 --> 0:07:40.840 Up their mind. 0:07:40.960 --> 0:07:41.680 Kate, do you agree? 0:07:41.880 --> 0:07:43.600 Yeah, I think that makes a lot of sense, right, 0:07:43.640 --> 0:07:46.440 the market being an important signal, an important source of 0:07:46.520 --> 0:07:49.440 data for the FED instead of this kind of manipulation. 0:07:49.560 --> 0:07:52.360 It is really hard, though, as market participants not to 0:07:52.360 --> 0:07:55.040 try and to anticipate what other market participants or other 0:07:55.040 --> 0:07:58.440 policy makers or other people making decisions are doing or 0:07:58.440 --> 0:08:01.440 interpreting with the data. And that is part of the 0:08:01.480 --> 0:08:03.360 game and part of the behavioral side of things that 0:08:03.360 --> 0:08:06.240 we all incorporate into our process. But I think, you know, 0:08:06.920 --> 0:08:10.640 Chairworsh's point was very clear that the market and that mechanism, Jim, 0:08:10.680 --> 0:08:13.120 as you're pointing out, is a really powerful mechanism and 0:08:13.160 --> 0:08:14.760 we shouldn't fait it right now. 0:08:14.960 --> 0:08:16.880 We want to get back with a part of the 0:08:16.960 --> 0:08:17.559 task force. 0:08:17.600 --> 0:08:19.600 I don't believe he actually has been appointed to a 0:08:19.640 --> 0:08:22.480 task force. He is officially the Bloomberg Task Force on 0:08:22.520 --> 0:08:24.600 the federers or of Bloomberg's Michael McKee, You are in 0:08:24.880 --> 0:08:28.240 the room, and the press conference actually went on a 0:08:28.240 --> 0:08:32.319 little bit longer than some people had expected. The commitment 0:08:32.360 --> 0:08:35.600 to a press conference, though not exactly concrete. His answer 0:08:35.600 --> 0:08:37.920 to you is really interesting. What was your takeaway from 0:08:37.920 --> 0:08:38.560 this conference? 0:08:39.760 --> 0:08:41.959 Well, the answer, of course, like almost all of his answers, 0:08:42.080 --> 0:08:44.480 ended with there's a task force for that. But basically 0:08:44.520 --> 0:08:48.160 they're going to look at all communications, and he did 0:08:48.240 --> 0:08:51.319 express the idea that he doesn't necessarily think you should 0:08:51.360 --> 0:08:54.520 have a press conference after every meeting if you don't 0:08:54.559 --> 0:08:56.880 have something to say now, that's going to be the 0:08:56.920 --> 0:08:58.680 thing that the task force is going to have to 0:08:58.720 --> 0:09:03.040 look at, is what qualified is something important to say today? Obviously, 0:09:03.440 --> 0:09:06.400 but if you're in a situation where you don't know 0:09:06.440 --> 0:09:08.600 where inflation's going, where you're going to vote the whole 0:09:08.720 --> 0:09:13.200 rates where they are, does that require a meet a 0:09:13.240 --> 0:09:16.280 press conference? If not, then how do the markets react? 0:09:16.320 --> 0:09:19.200 The FED there is kind of leading the markets, and 0:09:19.240 --> 0:09:21.400 if they come to you and say, hey, come on over, 0:09:21.440 --> 0:09:23.839 we're gonna have a press conference today, then they're also 0:09:23.960 --> 0:09:28.160 leading the markets. So it's a difficult needle to thread 0:09:28.240 --> 0:09:28.920 at this point. 0:09:29.040 --> 0:09:31.000 I think for Walsh to. 0:09:30.920 --> 0:09:32.760 Try to get out of this, to put that genie 0:09:32.760 --> 0:09:36.120 back in the bottle. But we'll see what the task 0:09:36.160 --> 0:09:40.480 force comes up with. He was very, very complimentary of 0:09:40.559 --> 0:09:44.760 Fed officials today, and he basically framed this all as 0:09:44.800 --> 0:09:47.360 we're all working together to make this work better for 0:09:47.440 --> 0:09:51.080 monetary policy. So it's going to be we're all going 0:09:51.160 --> 0:09:54.040 to be sitting back and waiting for these task force reports. 0:09:53.640 --> 0:09:54.160 To come out. 0:09:54.440 --> 0:09:57.160 Michael McKee, thanks so much for all of your work 0:09:57.200 --> 0:09:58.320 and insight today. 0:09:58.640 --> 0:09:59.520 Just real quick here. 0:09:59.640 --> 0:10:02.120 It does see him alike the market he's not necessarily 0:10:02.160 --> 0:10:04.800 paying attention to. In the initial salvos of the reaction, 0:10:05.280 --> 0:10:07.679 he went on and said, honestly, I'm not that concerned 0:10:07.679 --> 0:10:10.880 in the first hours that said, the idea that they 0:10:10.960 --> 0:10:14.160 dropped any kind of commentary on the labor market, and 0:10:14.200 --> 0:10:16.520 the fact that he said we've missed for five years 0:10:16.559 --> 0:10:17.760 our inflation target and we. 0:10:17.760 --> 0:10:18.720 Are going to fix that. 0:10:19.240 --> 0:10:22.280 Is there any other way to interpret this other kate 0:10:22.480 --> 0:10:24.199 than unabashedly hawkish. 0:10:24.360 --> 0:10:26.120 I mean, look, here's what I would say. 0:10:26.120 --> 0:10:28.640 The fact that he repeated that we have been overshooting 0:10:28.640 --> 0:10:30.880 the target for five years, something our team talks. 0:10:30.640 --> 0:10:31.679 About all of the time. 0:10:32.480 --> 0:10:35.240 I thought was incredibly important and actually was a comfort 0:10:35.280 --> 0:10:37.600 to me, this acknowledgment that policy is going to be 0:10:38.040 --> 0:10:40.640 really active in terms of getting us to the goal. 0:10:40.800 --> 0:10:43.079 I thought that other comedy made around paying attention to 0:10:43.120 --> 0:10:46.000 the left of the decimal point versus the right, that 0:10:46.600 --> 0:10:50.840 the target is two, not too in something sort of 0:10:50.880 --> 0:10:53.360 reaffirms that commitment and the way that he'll work with 0:10:53.400 --> 0:10:55.960 the Committee frankly to get policy in a place that 0:10:56.000 --> 0:10:59.800 we go closer to target over time. So it's hard 0:10:59.840 --> 0:11:03.080 not to interpret that where we are today as a 0:11:03.080 --> 0:11:06.520 little bit more hawkish than otherwise people might have expected. 0:11:06.840 --> 0:11:09.840 But also that's thinking perhaps more clearly than perhaps what 0:11:09.880 --> 0:11:12.079 we had heard in the past. Right, there's no two issh, 0:11:12.120 --> 0:11:15.079 it's just two. And he's happy with that. I'm curious. 0:11:15.160 --> 0:11:17.679 In terms of the labor market, there was a question 0:11:17.760 --> 0:11:20.320 posed about what the Committee thinks of the labor market Jim, 0:11:20.360 --> 0:11:22.440 and he said trends matter more than data points. The 0:11:22.520 --> 0:11:24.160 job data has been moving in a good direction. It 0:11:24.160 --> 0:11:26.200 feels like that's all he said about the labor market. 0:11:26.200 --> 0:11:28.199 He's not concerned with it one way or another. 0:11:28.400 --> 0:11:30.120 Yeah, And if you go back to the statement, they 0:11:30.120 --> 0:11:32.120 didn't put anything in the statement in the one question 0:11:32.200 --> 0:11:34.000 he said, we're not worried about the labor market. 0:11:34.040 --> 0:11:35.760 Okay, that is not a problem. 0:11:35.800 --> 0:11:38.920 The problem seems to be the inflation problem, and that's 0:11:38.960 --> 0:11:42.120 what they addressed. So I almost suspect that this statement 0:11:42.160 --> 0:11:45.560 is going to be flexible. So today, now it's inflation. 0:11:45.960 --> 0:11:48.920 I could see a statement in you know, six months 0:11:48.960 --> 0:11:51.440 a year where there's no mention of inflation and it's 0:11:51.520 --> 0:11:54.360 all about the labor market, it's all about real growth. 0:11:54.040 --> 0:11:55.760 Then at that point, Yeah, and he said that it 0:11:55.760 --> 0:11:58.720 wasn't necessarily in conflict with each other. Right now, let's 0:11:58.720 --> 0:12:01.240 bring in Stephanie Rotha Research, who's been listening to all 0:12:01.240 --> 0:12:03.440 of this. Stephanie, your first take and what we just 0:12:03.520 --> 0:12:04.960 heard from fed share Kevin. 0:12:04.720 --> 0:12:07.720 Worsh Yeah, I mean it was he's setting up to 0:12:07.760 --> 0:12:10.040 be a very credible fed He seems to be very 0:12:10.040 --> 0:12:13.280 smart about getting everybody on his side and getting the consensus. 0:12:13.320 --> 0:12:15.920 It seems well he was not in favor of a 0:12:16.000 --> 0:12:19.400 hike today. You know, that could very much change with 0:12:19.480 --> 0:12:22.320 the incoming data. So it was certainly more hawkish than 0:12:22.480 --> 0:12:24.400 what some people had thought. Some people thought he would 0:12:24.440 --> 0:12:27.360 just come in and try to push through rake cuts, 0:12:27.400 --> 0:12:29.760 because that's what the president wants, and that wouldn't necessarily, 0:12:29.800 --> 0:12:32.400 quite frankly, be very good for markets anyway. So this 0:12:32.559 --> 0:12:34.760 was a very deliberate and patient approach, and we'll see, 0:12:35.000 --> 0:12:37.520 you know, through the path of incoming data how this plays. 0:12:37.520 --> 0:12:40.199 At our base case is that inflation will cool enough, 0:12:40.280 --> 0:12:42.960 labor market will show some signs of softening such that 0:12:43.280 --> 0:12:45.120 in the coming weeks they don't actually have to hike. 0:12:45.200 --> 0:12:47.400 But certainly the odds have risen after this. 0:12:47.400 --> 0:12:48.240 Meeting, Stephanie. 0:12:48.280 --> 0:12:50.680 Does this silence the critics who thought that we would 0:12:50.720 --> 0:12:53.959 not have an independent FED under Kevin worsh Yes. 0:12:53.760 --> 0:12:56.880 I think it absolutely does. He is, you know, looking 0:12:56.880 --> 0:12:59.160 at the incoming data. He doesn't seem to be somebody 0:12:59.160 --> 0:13:02.560 who was scared to be hiking if we don't actually 0:13:02.640 --> 0:13:05.400 get closer to the inflation goal than would otherwise be 0:13:05.440 --> 0:13:08.000 the case. He doesn't seem to be giving way to 0:13:08.040 --> 0:13:10.040 any sort of pressure. So I mean that's a very 0:13:10.040 --> 0:13:12.760 good thing for markets. The markets should want an independent FED. 0:13:13.000 --> 0:13:16.000 So just pushing through rates for the sake of appeasing 0:13:16.040 --> 0:13:19.840 the president is not something that will ultimately result in 0:13:20.040 --> 0:13:21.920 a better economy or markets at the end of the day. 0:13:21.960 --> 0:13:23.640 And I think we should all feel better about that 0:13:23.880 --> 0:13:24.800 after what we heard today. 0:13:25.040 --> 0:13:28.760 How do you anticipate economists to respond or to react 0:13:28.760 --> 0:13:31.240 to the fact that nine of the members want a hike? 0:13:31.320 --> 0:13:33.360 I mean, how is this going to adjust what Wall 0:13:33.360 --> 0:13:35.080 Street thinks is going to happen with inflation? 0:13:35.920 --> 0:13:37.880 Yeah, and you're seeing that in markets today. You know, 0:13:38.000 --> 0:13:41.520 the shorter end of the curve rates are significantly and 0:13:41.559 --> 0:13:43.640 you have to raise your odds of a near term hike. 0:13:44.160 --> 0:13:49.200 Knowing that many more FOMC members than was generally expected 0:13:49.280 --> 0:13:51.600 or looking for a hike before this meeting, I would 0:13:51.600 --> 0:13:54.120 say somewhere between. The expectation was somewhere between three and 0:13:54.160 --> 0:13:56.280 six members were expected to be penciling in a hike. 0:13:56.559 --> 0:13:59.440 Now you're substantially above that. So now we're talking about 0:13:59.480 --> 0:14:02.520 about half the many is very much interested in hiking 0:14:02.559 --> 0:14:05.240 rates given the data that we have today. So whatever 0:14:05.280 --> 0:14:08.560 your odds were of a hike you know before today, 0:14:08.679 --> 0:14:11.160 you know it certainly has to be to be rising. 0:14:10.960 --> 0:14:13.560 If you are just joining us. We're parsing through a 0:14:13.720 --> 0:14:17.559 very noteworthy FED meeting, the first for Kevin worsh as chairman, 0:14:17.960 --> 0:14:19.520 and he made a lot of changes. 0:14:19.720 --> 0:14:21.240 I did want to make one correction. 0:14:21.440 --> 0:14:23.200 I said that there were one hundred and seventy five 0:14:23.240 --> 0:14:25.840 words in the April statement. It was actually three hundred 0:14:25.880 --> 0:14:28.440 and forty one words versus the one hundred and thirty 0:14:28.440 --> 0:14:31.720 one words in this latest statement. As we've been mentioning 0:14:31.760 --> 0:14:34.480 in markets, you can see a real hawkish tilt that 0:14:34.560 --> 0:14:38.400 is filtering through markets. I'm wondering, Jim, from your perspective, 0:14:38.400 --> 0:14:40.800 do you like long bonds better given what we just heard? 0:14:40.840 --> 0:14:42.120 I mean, does this actually give you. 0:14:42.040 --> 0:14:44.880 More confidence that this is a federal reserve that wants 0:14:44.920 --> 0:14:47.360 to anchor inflation expectations at. 0:14:47.240 --> 0:14:49.360 Two point zho not two points something? 0:14:49.640 --> 0:14:52.360 It should The old Wall Street adage that as a 0:14:52.400 --> 0:14:56.200 bond investor, I can stop panicking when the FED starts 0:14:56.280 --> 0:15:00.760 panicking really applies. If the FED is going to vigilant 0:15:00.840 --> 0:15:04.040 about inflation, that in all of it self should be 0:15:04.120 --> 0:15:07.080 positive for bonds. Now today it's positive for bonds with 0:15:07.120 --> 0:15:10.080 the yield curve flattening because they're not rising and yield as. 0:15:10.080 --> 0:15:11.320 Much as the front end of the curve. 0:15:11.680 --> 0:15:13.480 But yes, you know, if you want to go back 0:15:13.480 --> 0:15:16.160 to twenty twenty two, to give another example, the infliction 0:15:16.280 --> 0:15:18.640 rate hit nine percent, but with the FED raising rates 0:15:18.640 --> 0:15:20.160 seventy five basis points of her meeting. 0:15:20.400 --> 0:15:22.920 It never got above four and a quarter the entire year. 0:15:23.600 --> 0:15:25.360 The FED was in full panic mode. 0:15:25.600 --> 0:15:28.320 Bond investors on a relative base is held in Kate. 0:15:28.360 --> 0:15:31.280 You agree, ah man, we have been very underweight duration 0:15:31.560 --> 0:15:34.000 for like the duration of my time here in the city, 0:15:34.240 --> 0:15:37.240 to be fair, and we have debated over and over again, 0:15:37.320 --> 0:15:39.240 what is it going to be that lets us kind 0:15:39.240 --> 0:15:42.440 of extend duration in portfolios? But I just can't get there. 0:15:42.480 --> 0:15:44.080 I mean, our view as at inflation is going to 0:15:44.120 --> 0:15:46.920 be more persistent and broader than a lot of people 0:15:46.960 --> 0:15:50.600 expected for quarters to come. So even against that backdrop, 0:15:50.640 --> 0:15:53.680 against the comments from I'm chair warsh and from kind 0:15:53.680 --> 0:15:55.840 of the tone of the FMC, you know, we're just 0:15:55.880 --> 0:15:57.640 not in a place yet more we're buyers. 0:15:58.440 --> 0:16:01.080 How does this make you think about credit? Would you 0:16:01.160 --> 0:16:03.960 be changing any of your allocation to it or what 0:16:04.040 --> 0:16:04.480 you prefer? 0:16:04.760 --> 0:16:06.440 Yeah, we think about credit a course in the risk 0:16:06.480 --> 0:16:08.800 asset spectrum too, not just in terms of yield. Right, 0:16:08.840 --> 0:16:12.520 And in this case, you know, equities, not credit, have 0:16:12.680 --> 0:16:15.200 had kind of a step down in valuation over the 0:16:15.240 --> 0:16:17.640 course of twenty twenty six because of course earnings have 0:16:17.680 --> 0:16:19.680 been much stronger than the price movement. 0:16:19.840 --> 0:16:21.600 And so you know, we're still close to. 0:16:21.560 --> 0:16:24.280 That kind of fifteen year high in terms of credit valuations, 0:16:24.320 --> 0:16:27.200 but we've come, you know, significantly lower in equities before 0:16:27.240 --> 0:16:31.080 to take our risk asset exposure inequities over credit. We've 0:16:31.120 --> 0:16:33.280 positioned that way over the course of the year. That 0:16:33.280 --> 0:16:34.880 doesn't mean no credit, but we just want to be 0:16:34.880 --> 0:16:37.800 more selective frankly, and I wish I didn't just love 0:16:37.800 --> 0:16:40.000 equities so much and think they're going to go higher. 0:16:40.080 --> 0:16:42.160 Actually a pause to breathe. 0:16:42.240 --> 0:16:44.440 I think, as we've seen over some last trading sessions, 0:16:44.480 --> 0:16:47.360 is a good thing going into the summer. But I 0:16:47.400 --> 0:16:50.400 also wish I could use fixingco more actively in portfolios. 0:16:50.400 --> 0:16:53.240 But given where we are on rates and inflation, as 0:16:53.280 --> 0:16:54.800 I said, we're very underweight duration. 0:16:55.400 --> 0:16:58.160 Staying on that idea, we also heard from Kevin worsh 0:16:58.520 --> 0:17:01.840 Stuffanie about his thought on how restrictive policy is right now, 0:17:01.840 --> 0:17:04.240 and his answer was it's uneven. If you look at housing, 0:17:04.280 --> 0:17:07.439 for instance, FED policy does appears restrictive because you have 0:17:07.480 --> 0:17:10.160 that affordability crisis, not just in the actual housing crisis, 0:17:10.200 --> 0:17:12.760 but in mortgage rates. But he doesn't see that in 0:17:12.840 --> 0:17:16.159 financial markets, noting the record highs that we're seeing inequities 0:17:16.160 --> 0:17:17.679 and the tight spreads that we see in credit. 0:17:17.800 --> 0:17:18.679 How do you think about that? 0:17:19.960 --> 0:17:22.719 Yeah, I mean, so you know, the initial idea, well, 0:17:23.200 --> 0:17:26.320 policy is somewhat uneven. You could initially be interpreted as well, 0:17:26.359 --> 0:17:29.040 that's somewhat of a dubbish comment until he later said, 0:17:29.080 --> 0:17:32.080 you don't really see anywhere outside of housing, So it's 0:17:32.160 --> 0:17:36.119 pointing to that is policy is largely, you know, not 0:17:36.240 --> 0:17:38.919 that restrictive outside of one sector of the economy. So 0:17:39.160 --> 0:17:42.639 once you hear that further information, it suggests that, you know, 0:17:42.920 --> 0:17:46.560 the the economy is certainly running fairly hot relative to 0:17:46.760 --> 0:17:49.199 to sort of where rates are. So, you know, our 0:17:49.240 --> 0:17:52.960 expectation is that was a you know, somewhat somewhat hawkish 0:17:53.240 --> 0:17:56.679 comment after you know, you could initially have been interpreted 0:17:56.840 --> 0:17:58.320 as a little bit more balanced. 0:17:58.760 --> 0:18:02.720 We heard him say confidently Stephanie that he was not 0:18:02.760 --> 0:18:04.800 concerned with how the market was moving in the initial 0:18:04.840 --> 0:18:08.000 aftermath of this press conference. He wouldn't make too much 0:18:08.000 --> 0:18:08.760 of those moves. 0:18:08.800 --> 0:18:10.120 Do you think that that was a mistake. 0:18:12.119 --> 0:18:13.560 No, I mean, I think I think he believes that. 0:18:13.640 --> 0:18:15.800