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Speaker 1: Doves fly at the Fed as official signal they are

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Speaker 1: done raising rates, instead raising the number of rate cuts

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Speaker 1: they see next year. Officials left the overnight rate unchanged

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Speaker 1: at five and a quarter to five and a half percent,

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Speaker 1: but they essentially confirm that's it. The money quote from

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Speaker 1: the statement gets a one word addition in determining the

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Speaker 1: extent of any additional policy firming that may be appropriate

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Speaker 1: to return inflation to two percent. The dot plot meanwhile

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Speaker 1: sees seventy five basis points of cuts next year, one

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Speaker 1: more move than they saw in September. The dispersion is wide, however,

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Speaker 1: with eight seeing fewer than those three cuts, five seeing

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Speaker 1: more than three. In twenty twenty five, they see an

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Speaker 1: additional four rate cuts, one down from September and two

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Speaker 1: more in twenty twenty six. The longer run neutral rate

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Speaker 1: remains at two and a half percent. Their move comes

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Speaker 1: as they significantly lower their median headline inflation forecast this

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Speaker 1: year to two point eight percent. As the statement notes,

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Speaker 1: inflation has eased over the past year but remains elevated

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Speaker 1: in the median forecast. It falls further in twenty twenty

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Speaker 1: four to two point four percent two point one percent

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Speaker 1: in twenty twenty five and two percent. Finally, in twenty

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Speaker 1: twenty six, core pcee inflation three point two percent this year,

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Speaker 1: down from September's forecast of three point seven percent. It

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Speaker 1: keeps falling, hitting two percent also in twenty twenty six.

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Speaker 1: The statement says, quote growth of economic activity has slowed

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Speaker 1: from its strong pace in the third quarter, but they

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Speaker 1: still revise their median forecast for GDP growth this year

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Speaker 1: significantly to two point six percent from two point one

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Speaker 1: percent in September. It falls to just one point four

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Speaker 1: percent next year. Potential growth in the longer run is

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Speaker 1: seen at one point eight percent. No change in their

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Speaker 1: unemployment forecast of three point eight percent this year, which

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Speaker 1: implies the jobless rate moves up in December because it's

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Speaker 1: three point seven percent right now. The next three years,

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Speaker 1: the median unemployment rate will come in at four point

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Speaker 1: one percent. The decision guys again unanimous.

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Speaker 2: Mike McKay, Thank you sir. Let's make it very simple.

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Speaker 2: The twenty twenty four dot implying three cuts next year

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Speaker 2: from this federal reserve. It doesn't meet the market, but

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Speaker 2: it closes the gap and endorses the direction of travel

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Speaker 2: over the last four to six weeks in the bond market.

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Speaker 2: This is what's falling right now, yields and falling hard.

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Speaker 2: We're down nineteen call it twenty basis points lower at

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Speaker 2: the front end of the curve on a two year,

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Speaker 2: four fifty three. On a ten year, down thirteen at

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Speaker 2: four point zero seven percent. Once you figure out where

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Speaker 2: the bond market is, take a guess where the FX

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Speaker 2: market is. The dollar looks a little something like this

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Speaker 2: against the Euro at the moment, weaker, the euro stronger,

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Speaker 2: one away forty five. And if you look into equities,

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Speaker 2: we endorse move higher by a half of one percent

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Speaker 2: this morning on a S and P five hundred, up

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Speaker 2: again this afternoon on the Nasdaq by four tenths of

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Speaker 2: one percent, Lisa, the rally moves on.

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Speaker 3: We could end up getting a sub four percent tenure

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Speaker 3: yield by the end of this trading session. As the

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Speaker 3: AS people pass through this to me, the fact that

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Speaker 3: this is unequivocally dubvish, that they endorse the Fed's idea,

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Speaker 3: that the market's idea of rate cuts and then some

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Speaker 3: really speaks to a question of is there going to

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Speaker 3: be clean up acted on I on one or is

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Speaker 3: this going to be Fed chair Powell saying, we're just

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Speaker 3: responding to the data in front of us, and it

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Speaker 3: looks pretty good.

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Speaker 2: Well, we talk about tom, the risks, the potential of

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Speaker 2: being whip swored by Chairman Powell at about twenty seven

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Speaker 2: minutes time. The early take, and we'll see if it sticks.

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Speaker 2: The early take is this. Ultimately you're looking for three

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Speaker 2: cuts next year. Our four or five cuts no longer

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Speaker 2: stands that ridiculous. Now you come closer and closer to

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Speaker 2: where we were before no hedging here.

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Speaker 4: I was going back and forth with a professor at

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Speaker 4: the University of Cambridge and two standard deviations down on

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Speaker 4: tenure yield. John, we almost came to it. We came

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Speaker 4: very very close to a four point eight percent, four

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Speaker 4: point oh seven head four six. Well, to see what

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Speaker 4: plays out with the press conference. But this is frankly

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Speaker 4: more than we expected. We also expect wonderful conversation at

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Speaker 4: this moment with Diane Swarks, she's chief economist at KPMG. Dan,

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Speaker 4: you know, the interest space is the litmus paper of

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Speaker 4: our economic and our FED system. Are we seeing a

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Speaker 4: constructive reduction in yields or does this signal slower economic growth?

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Speaker 5: Well?

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Speaker 6: I think what we're seeing is that the bond market

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Speaker 6: is leaning into the concept of the fact that inflation

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Speaker 6: has plummeted so rapidly. I think this is a full

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Speaker 6: inflation story. There's no question that the Fed has showed

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Speaker 6: its cards here. They're very excited about the fact that

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Speaker 6: inflation has come down at its fastest pace outside of

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Speaker 6: World War Two, the Korean War, and the Vulcar recessions.

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Speaker 6: That is really stunning given we've not seeing a major

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Speaker 6: increase in unemployment with that, and they're feeling good about it.

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Speaker 6: And I think you're going to see some of that

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Speaker 6: euphoria from Chairman Powell as well. It's more than we

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Speaker 6: expected that. It is important to remember that remember last

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Speaker 6: time they had a rate hike Pope before the end

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Speaker 6: of the year, So just by removing one rate hike

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Speaker 6: out of it, that puts one more cut into twenty

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Speaker 6: twenty four as well. And I think that sort of

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Speaker 6: nuance is lost in translation, but it is part of

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Speaker 6: the story as well. As they're not really backing off

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Speaker 6: higher for a period of time. The next question is

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Speaker 6: higher for how long? Some big things thinks we might

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Speaker 6: be close to higher for long enough.

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Speaker 2: Some big moves in this bond market right now, we're

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Speaker 2: down seventeen basis points on a front end, or a

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Speaker 2: two year at four fifty six on a ten year,

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Speaker 2: down eleven to four point zero nine percent alongside down

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Speaker 2: swamp and place asch Greg Peters of PGM jumps in

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Speaker 2: front of the camera. Greg, let's talk about it in

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Speaker 2: about twenty four minutes time. Chairman Power has an opportunity

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Speaker 2: to clarify some of this. Do you think it needs to.

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Speaker 7: Well, well, I'm not sure there's much you can do

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Speaker 7: at this point. I mean, the market just absolutely loved,

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Speaker 7: loved this result. I thought the market was already leaning

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Speaker 7: a little too much. Evidently that wasn't the case. We

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Speaker 7: weren't leaning enough. So, you know, doves fly and bulls

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Speaker 7: run after this, and I think it's really hard for

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Speaker 7: how to put that genie back in the bottle.

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Speaker 3: Sees that give you a sense doves flying and bulls running,

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Speaker 3: the idea of FOMO and just how much that's taken

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Speaker 3: over the market after so many people missed out in

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Speaker 3: five percent tenure yields.

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Speaker 7: I think that's just artifact of the current market, right.

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Speaker 7: I mean, the markets are much more volatile, They moved

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Speaker 7: much more powerfully. I think that's just the construct right

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Speaker 7: with CTAs and al those and other sorts of things.

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Speaker 7: And I think this is the world that we live in, honestly,

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Speaker 7: So I don't think this is a unique feature anymore.

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Speaker 7: I think this is quite commonplace.

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Speaker 4: Ye, Dan Swank, I did the nominal GDP math here

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Speaker 4: on the inflation gestament and the growth gestament, and boy,

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Speaker 4: it sure looks to me like a four percent nominal

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Speaker 4: GDP even south of that modeled out over the next

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Speaker 4: twenty four months. How do our viewers and listeners react

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Speaker 4: to that? If our animal spirit post pandemic diminishes down

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Speaker 4: sub four percent?

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Speaker 6: We know what's interesting about it is also the part

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Speaker 6: that we didn't talk about in the SEPs is that

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Speaker 6: the Fed's long term estimates of what the neutral rate

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Speaker 6: on the FED funds rate, if you look at their ranges,

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Speaker 6: that has actually continued to move up. And so I

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Speaker 6: think what you're seeing here is an economy that the

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Speaker 6: FED expects to cool below potential unemployment to come up

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Speaker 6: a little bit, although we might not. The consumer has

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Speaker 6: really taken everything the Fed's tried to deal them, and

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Speaker 6: you know, taking it with stride and kept on going

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Speaker 6: and I think that may mean some upside risk to

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Speaker 6: the economic growth side of this situation. But it's really

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Speaker 6: interesting that the Fed's terminal rates now look like they're

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Speaker 6: starting to move up even more than they were last time,

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Speaker 6: and that seems to have gotten lost in translation.

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Speaker 5: That's not what the market's focused.

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Speaker 6: On right now, But I think the FED is looking

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Speaker 6: at an economy that's more resilient and that will take

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Speaker 6: off more rapidly as rates come down.

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Speaker 3: Does that co here with what you think that basically

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Speaker 3: we're talking about a higher neutral rate as we have

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Speaker 3: no landing or a very very soft one.

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Speaker 5: Exactly.

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Speaker 6: I think we are at a higher non inflationary rate,

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Speaker 6: and I think that's something you see it just in

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Speaker 6: the slowness with which the FED puts out its cuts

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Speaker 6: and not getting back The scent on rates is not

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Speaker 6: as rapid as the accent on rates and the need.

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Speaker 6: You see it in their long term forecast. Even as

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Speaker 6: all this good news has come in, it's come in

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Speaker 6: and it's really shifted the narrative in terms of, you know,

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Speaker 6: we're trying so hard to get up to in inflation

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Speaker 6: target for so long, the FED does still believe that

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Speaker 6: we're in a world, and it sort of was illustrated

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Speaker 6: by the volatility and the bond market. We're just talking

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Speaker 6: about that we're in a world that's more susceptible to

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Speaker 6: external shocks and.

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Speaker 8: It once was.

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Speaker 6: We've also gotten incredibly good news on oil prices coming down,

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Speaker 6: helping to spill over into inflation.

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Speaker 5: All of that's great.

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Speaker 6: It doesn't mean that we're going into the world of

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Speaker 6: subpar growth, of inability to get inflation up that we

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Speaker 6: left in the twenty tens. We have healed balance sheets

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Speaker 6: except for the federal government, quite significantly since then, and

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Speaker 6: I think that's where the paradigm shift is.

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Speaker 2: Diane, Let's go through the projections together. The median for

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Speaker 2: twenty twenty four GDP one point four percent, unemployment four

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Speaker 2: point one, core PCE two point four, Fed funds four

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Speaker 2: point six.

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Speaker 9: Dan.

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Speaker 2: Not so long ago you and I used to talk

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Speaker 2: about this being aspirational. How realistic is it now?

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Speaker 6: It now seems entirely possible. And you know what, more

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Speaker 6: things than I can list have surprised me about this

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Speaker 6: economy and this is not where we thought we'd be.

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Speaker 6: But how glorious it is that we're here. It's not

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Speaker 6: been easy. It's not as if interest rate sectors aren't

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Speaker 6: feeling pain.

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Speaker 5: They are.

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Speaker 6: The housing market is still stuck in a mortgage winter,

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Speaker 6: even though rates are coming down. This will help out

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Speaker 6: unlock some demand, but prices are still too high and

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Speaker 6: the supply of homes is still too much in a shortage,

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Speaker 6: especially in the single family home market. So we know

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Speaker 6: there's still strains in this economy. But the good news

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Speaker 6: is we didn't have to get here without the kind

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Speaker 6: of pain that you know. I think back on that

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Speaker 6: speech eight minutes, thirty four seconds August twenty twenty two.

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Speaker 5: It was like a bucket of ice.

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Speaker 6: You know, whether cha Chairman Powell really believed we would

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Speaker 6: have to go through a recession in order to rid

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Speaker 6: ourselves of this inflation and that's just not been the case.

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Speaker 6: Much more of it was supply chains uncurling and the

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Speaker 6: problems that we had there, along with some time to

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Speaker 6: let demand the production pick up with demand, and I

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Speaker 6: think that's important.

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Speaker 3: Otherwise known as transitory, just not called transitory, Greg, could

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Speaker 3: you buy into this this.

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Speaker 6: Was that we're transitory over a much longer period of time.

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Speaker 3: But Peters, can you weigh in a little bit on

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Speaker 3: whether you think this is plausible, or whether you would

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Speaker 3: lean against us right now, or whether you would actually

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Speaker 3: even sell and wait for a better buying moment.

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Speaker 7: I mean, I do think the markets are really pushing

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Speaker 7: the limits here. There's so much good news being priced in,

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Speaker 7: whether it's inflation, whether it's growth. You know, the yield

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Speaker 7: curve is still inverted, right, and so like, how do

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Speaker 7: you reconcile the fact that investors are feeling really good

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Speaker 7: about the growth outlook, inflation's coming down, and the curves inverted,

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Speaker 7: and so I think there's still some repricing ahead. I

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Speaker 7: think there's still quite bumpy elements.

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Speaker 9: In the road ahead.

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Speaker 7: And so yeah, I'm I'm kind of thinking the market

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Speaker 7: is really taking this to the brank here, and I'm

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Speaker 7: and I would be inclined to go the other way, Greg.

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Speaker 4: I'm looking at money market funds five percent and all

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Speaker 4: the other stuff we blather about each and every day.

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Speaker 4: And I know we get convexity in the stock market,

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Speaker 4: do we get convexity in the bond market? When I

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Speaker 4: got a ten year old yield poping to one point

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Speaker 4: nine to one, I got the ten year yield on

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Speaker 4: plus excuse me, minus two standard deviations right down on

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Speaker 4: four point ho six percent. Can there be such a

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Speaker 4: thing as momentum in the bond market? Price up, yield down?

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Speaker 9: Yeah, I think you're saying it, Tom.

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Speaker 7: I mean, if you look at the total return in

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Speaker 7: the bond market over the past month or so, it's

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Speaker 7: been you know, quite astounding, right know, anywhere from five

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Speaker 7: to you know, eight percent.

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Speaker 9: That's real money, right, And so you've seen it.

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Speaker 7: And so there has been some quote unquote positive convexity

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Speaker 7: just given the low level of prices.

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Speaker 9: Right. But but you know, the real question is not

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Speaker 9: what happened, but where are we going?

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Speaker 7: And so you know, once again I worry about, you know,

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Speaker 7: the current market really squeezing a lot of the total

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Speaker 7: return out of the market way too soon.

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Speaker 2: Well, look at the move this afternoon. It's a monster move.

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Speaker 2: We're down almost twenty basis points at the front end

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Speaker 2: of the curve. And let me to share a quote

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Speaker 2: with you. It would be premature to conclude with confidence

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Speaker 2: that we've achieved a sufficiently restrictive stance or to speculate

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Speaker 2: on when policy might ease. Chairman Pal not even two

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Speaker 2: weeks ago on December one, Diane swam In fifteen sixteen

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Speaker 2: seventeen minutes time when we hear from the chairman again,

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Speaker 2: why would the message be any different.

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Speaker 6: Well, I think he's still going to be cautious in

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Speaker 6: his messaging. But you know, you saw a little bit

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Speaker 6: of the lightness in his step. And we saw the

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Speaker 6: bond market rally November first, even though we had what

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Speaker 6: was a hawkish set of you know, in September, a

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Speaker 6: hawkish outlook. By November one, you saw the market unwined

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Speaker 6: significantly since then because of how you four and a

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Speaker 6: little bit excited that Terre Powell was in that press conference,

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Speaker 6: and so I think it's going to be hard for

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Speaker 6: him to walk back a lot at this point in time.

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Speaker 6: I think it would do him good to be cautious

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Speaker 6: and to be a little bit you know, contingent on

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Speaker 6: you know, we're excited, but here's the risks.

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Speaker 5: But I think it's going to be hard.

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Speaker 6: Given they signed off on this statement, and they signed

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Speaker 6: off on this forecast, and this is a dubbish is

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Speaker 6: about as dubbish as we could have expected. I this

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Speaker 6: is more than I expected in terms of dubbishness. And

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Speaker 6: I think it's hard for him to walk it back.

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Speaker 6: And I don't think he would be walking it back

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Speaker 6: all that much given the fact that they all.

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Speaker 3: Signed off on it, which is the reason why you're

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Speaker 3: seeing it.

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Speaker 5: I going to add to it.

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Speaker 6: Yeah, he's not going to push back too.

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Speaker 5: Much, which is the reason why.

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Speaker 3: It's a good point that you're seeing an eighteen basis

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Speaker 3: point drop in the two year yield as time goes on,

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Speaker 3: five point four point five to four percent. Greg you

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Speaker 3: said you'd push back against this. The market's really taking

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Speaker 3: this to the brink. What makes you feel that way?

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Speaker 3: And what could you hear from share Powell that could

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Speaker 3: change your mind?

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Speaker 9: Well, so, I'm not sure I'm going to hear much

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Speaker 9: from CAA. Powell.

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Speaker 7: You know, as I mentioned, I think the genies out

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Speaker 7: of the bottle. I think it's hard to walk this back.

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Speaker 7: I think at some level he is quite pleased, and

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Speaker 7: rightfully so. Right they've seen a tremendous amount of dissemplation

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Speaker 7: come through during the course of this year, and that's

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Speaker 7: something to be proud of. But I guess just from

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Speaker 7: a market pricing fixed the income perspective, you know, do

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Speaker 7: we really want to be in an environment where we're

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Speaker 7: taking down yields so aggressively, where we're basically to see

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Speaker 7: these rate cuts come through and then some in order

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Speaker 7: to achieve toald return. So you know, to me, it's

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Speaker 7: just a balance about risk reward and what's embedded in

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Speaker 7: the price. And I think, quite frankly, there's a lot

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Speaker 7: of good news embedded in the price, and that's always

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Speaker 7: something that you should, you know, take a step back a.

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Speaker 2: Ton of good news price. Then over the last month,

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Speaker 2: Greg pay this, Diane swamp to at the very best

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Speaker 2: going into this Federal Reserve news conference, Chairman Pound at

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Speaker 2: about fourteen minutes time, thanks to both of you, let's

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Speaker 2: talk about these moves. No big changes to that statement,

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Speaker 2: no change in the decision, but some monster changes to

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Speaker 2: the projections. Take twenty twenty four, for instance, FED Funds

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Speaker 2: medium dot now four point six percent. Back in September

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Speaker 2: that was five point one. This is a FED some

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Speaker 2: median dot implying that maybe three cuts are in our

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Speaker 2: future from this Federal Reserve. The market maybe fifty basis

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Speaker 2: points lower than that. But ultimately, Lisa, we've closed the

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Speaker 2: gap and we've endorsed the direction of travel over the

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Speaker 2: last six weeks, which is why you've got this monster

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Speaker 2: move again on a two year by nineteen basis points

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Speaker 2: of four to fifty three. So if you don't stop

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Speaker 2: the direction, if you don't stop the momentum, what happens.

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Speaker 2: You did more the same day, Lisa, it isn't that what's.

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Speaker 3: Happening, Which is what Pria Misra said that this was

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Speaker 3: the asymmetry, and this is what Greg Peters as well

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Speaker 3: as Diane Swank both said, which is it was more

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Speaker 3: than they expected and certainly more than the market expected,

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Speaker 3: and the market is cheering. Basically, this message is that

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Speaker 3: Chairpower cannot walk this back. The rest of the Fed

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Speaker 3: members put this in. So he either leans in, either

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Speaker 3: gives an explanation of weakening in the economy that isn't

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Speaker 3: seen in the projections, or he kind of equivoquates and

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Speaker 3: basically is, you know, circling around with his tail.

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Speaker 2: Neil Datta renaissance, macro super modest. Do you want to

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Speaker 2: quote complete vindication of a March cut? Ninety five? Is

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Speaker 2: a good analog? Surgical cuts are coming. Buckle up, risk,

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Speaker 2: appetite has room to run. Well did he nail it?

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Speaker 2: He nailed it for sure. Check out the scores going

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Speaker 2: into the news conference on the S and P. Five

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Speaker 2: hundred and fourth day of gains on the carts unless

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Speaker 2: Chairman Powell messes that up for you. On the s

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Speaker 2: and P five hundred up zero point six percent on

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Speaker 2: the SMP. Into the bond market. I know we've seen

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Speaker 2: some big moves in fixed income, but these are big

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Speaker 2: moves again. We're down twenty basis points on a two

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Speaker 2: year four fifty three fifty three. We've seen big moves

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Speaker 2: coming into today's decision. We're down large again. We're down

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Speaker 2: twelve on a ten year at four point zero eight percent.

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Speaker 2: Let's continue the conversation with Bank for America's Michael Gapan.

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Speaker 2: So Batri Jappa of sock gen so Bad refers to you,

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Speaker 2: you've had some time to chew over this one.

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Speaker 9: What's you take on it?

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Speaker 10: Yeah, definitely the dubbishness in the dots caught me by surprise.

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Speaker 10: But I think it seems like they're looking at inflation

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Speaker 10: starting to come down. Maybe they're looking at three month

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Speaker 10: and six month moving averages and doing exactly what they

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Speaker 10: did a couple of years back. When you know, they're

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Speaker 10: looking at three months and six month moving averages, which

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Speaker 10: we're running a lot harder than the market, and so

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Speaker 10: they had to come in and start hiking. So I

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Speaker 10: think you're looking at a very similar scenario here where

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Speaker 10: they're willing it seems to adjust policy.

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Speaker 5: Given the data that we have right now on inflation.

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Speaker 4: Michael Gape and thrilled to have you with us, particularly

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Speaker 4: with the reach of the Bank of America across all

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Speaker 4: of America, the consumer, the pulse of our seventy percent consumption.

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Speaker 4: Do you buy this idea of the massive potential GDP

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Speaker 4: slowdown of the next two years? Sub two percent real

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Speaker 4: GDP inflation that's quite acent nominal GDP, it's four percent

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Speaker 4: if we're lucky. Is that the evidence that the Bank

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Speaker 4: of americacies.

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Speaker 9: Unbalance?

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Speaker 8: Yes, So our ba A card data has been showing

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Speaker 8: resiliency and consumer spending, a pretty good holiday spend. So

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Speaker 8: our view is the slowdown, if we get one, is

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Speaker 8: going to come in your non consumer related components, business spending,

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Speaker 8: the fiscal drag, and so forth. So we think it's possible.

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Speaker 8: We think the narrative around the idea that you don't

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Speaker 8: need as much labor market pain to bring inflation down.

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Speaker 8: The data is kind of confirming that, and it matches

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Speaker 8: with what we're seeing from our card data and around

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Speaker 8: the health of the consumer.

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Speaker 2: So yes, the.

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Speaker 8: Economic activity should moderate, even personal consumption spending should slow.

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Speaker 8: But we've gotten a lot of evidence here now over

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Speaker 8: the past few months that maybe we don't need to

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Speaker 8: crimp demand as much to return inflation to two percent,

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Speaker 8: and we can allow some of these supply side factors,

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Speaker 8: whether it's supply chain or the rebound in the labor

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Speaker 8: force to help us out.

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Speaker 3: Michael, could this rip boring rally go against that? Could

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Speaker 3: it make it more difficult to achieve the actual end

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Speaker 3: of the soft landing by rejuvenating certain demand and rejuvenating

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Speaker 3: animal spirits.

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Speaker 8: Possibly, But I think you know from the FED kind

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Speaker 8: of modulates demand right, that they don't really control the

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Speaker 8: supply side as much. And so I think what the

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Speaker 8: balance here is to say, Okay, maybe demand picks up

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Speaker 8: a little bit, but that's probably more about the timing

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Speaker 8: of the cuts and the pace of the cuts in

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Speaker 8: that end terminal rate rather than the direction of travel.

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Speaker 8: So yes, there's a risk that things would ease to quickly.

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Speaker 8: The FED prejudges this and they have to come back

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Speaker 8: later and backtrack. That's going to be around the wait

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Speaker 8: and see and how much confidence that they have in

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Speaker 8: order to start a cutting cycle. But I think that's

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Speaker 8: more about the timing and the pace of cuts than

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Speaker 8: it is about having to.

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Speaker 3: Backtrack so badre you and many other people were expecting

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Speaker 3: hawkish pushback. That was actually the consensus belief coming into

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Speaker 3: this meeting. Does anything about this statement make you rethink

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Speaker 3: how you would respond to this that basically load the

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Speaker 3: boat fomo is on, let's go.

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Speaker 5: Yeah, I know, definitely.

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Speaker 10: I mean, I think the Pomo trade has already happened, right,

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Speaker 10: We've had ten years declined from five percent all the

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Speaker 10: way down to now close to four percent in a

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Speaker 10: very short amount of time. So you know, I think

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Speaker 10: I would have to agree with the statement you read

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Speaker 10: from new data earlier, which is maybe the market is

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Speaker 10: looking towards a much more of an adjustment and policy

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Speaker 10: as we go along motors OPPRANDI from the Fed.

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Speaker 5: I mean, that's not our view.

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Speaker 10: We still think that the FED is going to keep

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Speaker 10: policy on hold at least till till May, so they

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Speaker 10: see a very clear signal that inflation is trending towards

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Speaker 10: their two percent target, and we think that the economy

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Speaker 10: broadly speaking, should hold up up until that point because

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Speaker 10: it's I mean once we get to that point, I

439
00:21:57,760 --> 00:22:00,480
Speaker 10: think the FED can very quickly cut freights innovation amount

440
00:22:00,480 --> 00:22:02,920
Speaker 10: of time if there is a meaningful store on. The

441
00:22:03,040 --> 00:22:05,520
Speaker 10: risk is that if they deliver these cuts too soon,

442
00:22:06,200 --> 00:22:10,640
Speaker 10: then you could see perhaps a resurgence of this sort

443
00:22:10,680 --> 00:22:13,879
Speaker 10: of services side inflation that we've been experiencing over the

444
00:22:13,960 --> 00:22:14,640
Speaker 10: last couple of years.

445
00:22:14,760 --> 00:22:17,119
Speaker 4: John, I'm going to predict that everybody's going to go

446
00:22:17,200 --> 00:22:19,080
Speaker 4: in and they're going to blow up their call. They're

447
00:22:19,080 --> 00:22:21,239
Speaker 4: going to blow up their year end Outlook, I hear

448
00:22:21,320 --> 00:22:24,000
Speaker 4: all this good talk. I think Michael Gabin is absolutely dead.

449
00:22:26,040 --> 00:22:28,040
Speaker 4: It's not that it's both. This is this is really

450
00:22:28,119 --> 00:22:30,560
Speaker 4: really important. This goes back to Diane swamp Gino, Martin

451
00:22:30,560 --> 00:22:33,399
Speaker 4: Adams and others. This to me is far more a

452
00:22:33,640 --> 00:22:38,040
Speaker 4: real economy analysis redounding back to these dynamics. In the

453
00:22:38,119 --> 00:22:41,080
Speaker 4: last two minutes, John, I got a four oh seven

454
00:22:41,240 --> 00:22:44,240
Speaker 4: retest of the ten year yield down thirteen beefs. If

455
00:22:44,280 --> 00:22:47,080
Speaker 4: that puppy breaks through four point zero six, that is

456
00:22:47,200 --> 00:22:51,440
Speaker 4: a massive signal that everybody has to rip up the

457
00:22:51,480 --> 00:22:53,240
Speaker 4: script this afternoon.

458
00:22:52,960 --> 00:22:54,840
Speaker 2: Reach out to early this morning that if the party

459
00:22:54,920 --> 00:22:57,240
Speaker 2: started at the end of October. Governor Walla bought the

460
00:22:57,280 --> 00:22:59,000
Speaker 2: tequila in the last couple of weeks.

461
00:22:59,119 --> 00:22:59,560
Speaker 9: It's not him.

462
00:22:59,560 --> 00:23:01,560
Speaker 2: I don't think we need to talk about I think

463
00:23:01,560 --> 00:23:03,399
Speaker 2: we need to be talking about New York Fed President

464
00:23:03,480 --> 00:23:04,080
Speaker 2: John Williams.

465
00:23:04,680 --> 00:23:04,880
Speaker 9: Mike.

466
00:23:04,920 --> 00:23:07,600
Speaker 2: I remember when President Williams a number of months ago

467
00:23:07,840 --> 00:23:11,719
Speaker 2: engaged a conversation about reducing interest rates as inflation continued

468
00:23:11,760 --> 00:23:14,680
Speaker 2: to fall, just to keep real rates stable and so

469
00:23:14,840 --> 00:23:18,280
Speaker 2: ensure that things didn't become tighter over time. Is it

470
00:23:18,400 --> 00:23:20,720
Speaker 2: too early, too premature for chairman Power to engage in

471
00:23:20,800 --> 00:23:23,000
Speaker 2: that type of conversation in this news conference.

472
00:23:24,440 --> 00:23:24,880
Speaker 9: I don't.

473
00:23:25,119 --> 00:23:27,800
Speaker 8: I mean, so, maybe I'm a bit of a contrarian here,

474
00:23:27,920 --> 00:23:30,040
Speaker 8: because you know, we thought the medium dot would come

475
00:23:30,080 --> 00:23:32,680
Speaker 8: in at four to six. We expected to shift in communication.

476
00:23:33,000 --> 00:23:36,120
Speaker 8: So what I'm hearing today so far is in line

477
00:23:36,200 --> 00:23:38,120
Speaker 8: with what I thought. So I do think it would

478
00:23:38,160 --> 00:23:40,600
Speaker 8: be a proper first step to get out of a

479
00:23:40,720 --> 00:23:44,160
Speaker 8: hawkish bias and a hiking bias and then start getting

480
00:23:44,200 --> 00:23:46,680
Speaker 8: into a world of you know, talking at least about

481
00:23:46,720 --> 00:23:50,399
Speaker 8: a more balanced reaction function, not ruling out hikes, but

482
00:23:50,520 --> 00:23:54,080
Speaker 8: also talking about conditions under which you might ease. You

483
00:23:54,200 --> 00:23:56,920
Speaker 8: have to start moving in that direction inflation, at least

484
00:23:57,000 --> 00:24:00,520
Speaker 8: at the moment is decelerating fast enough where it's not

485
00:24:00,720 --> 00:24:03,400
Speaker 8: crazy to think you could cut in March if you're

486
00:24:03,440 --> 00:24:06,320
Speaker 8: a committee member based on inflation alone. So there's not

487
00:24:06,359 --> 00:24:08,920
Speaker 8: a lot of time to prepare between now and then.

488
00:24:09,040 --> 00:24:11,040
Speaker 8: So it's something I think you do need to entertain.

489
00:24:11,480 --> 00:24:13,719
Speaker 3: So Aboudra, I'm curious your view on something we were

490
00:24:13,760 --> 00:24:17,159
Speaker 3: hearing from died Swank that this sort of soft landing

491
00:24:17,400 --> 00:24:20,919
Speaker 3: implies actually a higher long term neutral rate, that essentially

492
00:24:21,000 --> 00:24:23,840
Speaker 3: there is more strength in this economy that can handle

493
00:24:23,920 --> 00:24:27,080
Speaker 3: rates at a higher level. Are you seeing that within

494
00:24:27,200 --> 00:24:30,680
Speaker 3: some of these projections and kind of adjusting your expectation

495
00:24:30,920 --> 00:24:32,680
Speaker 3: just for that base of where the Fed's going to

496
00:24:32,760 --> 00:24:33,640
Speaker 3: ultimately cut too.

497
00:24:35,200 --> 00:24:38,680
Speaker 5: Yeah, that's and I completely agree with that.

498
00:24:38,840 --> 00:24:41,200
Speaker 10: I mean, our view is that the FED will cut

499
00:24:41,320 --> 00:24:43,920
Speaker 10: rates by one hundred and fifty basis points next year,

500
00:24:44,400 --> 00:24:46,840
Speaker 10: and there will be more cuts in twenty twenty five,

501
00:24:47,800 --> 00:24:50,960
Speaker 10: with the FED funds rate getting a little bit north

502
00:24:51,080 --> 00:24:53,879
Speaker 10: of three percent, so that's you know, pretty much getting

503
00:24:53,960 --> 00:24:56,680
Speaker 10: down to where they have their long run neutral rate

504
00:24:57,080 --> 00:24:58,840
Speaker 10: of two and a half percent.

505
00:24:59,400 --> 00:25:01,640
Speaker 5: So of trajectory makes sense.

506
00:25:01,760 --> 00:25:04,640
Speaker 10: The question really is what does the curve do under

507
00:25:04,680 --> 00:25:07,600
Speaker 10: the circumstances and that's really where I feel like there's

508
00:25:07,920 --> 00:25:10,320
Speaker 10: the story of the rebuilt in term premier is still

509
00:25:10,440 --> 00:25:13,680
Speaker 10: very much in play because the demand dynamics are still

510
00:25:13,760 --> 00:25:15,960
Speaker 10: very skewed. We still have a decent amount of supply,

511
00:25:16,440 --> 00:25:18,480
Speaker 10: and I think that that could lead to a meaningful

512
00:25:18,880 --> 00:25:19,960
Speaker 10: steepening of the curve.

513
00:25:20,560 --> 00:25:22,080
Speaker 5: That while the cutting happens.

514
00:25:21,880 --> 00:25:26,480
Speaker 4: The sobrieter to the heritage of derivatives at Sakchen where

515
00:25:26,920 --> 00:25:29,800
Speaker 4: I have no idea where this happens. But if we

516
00:25:29,880 --> 00:25:31,720
Speaker 4: have a foot, what does at least the money market

517
00:25:31,760 --> 00:25:36,440
Speaker 4: fund now five point what well, five point five point

518
00:25:37,280 --> 00:25:40,640
Speaker 4: at what points so subted? If we bring the money

519
00:25:40,680 --> 00:25:43,920
Speaker 4: market fund down, does a wall of money try to

520
00:25:43,960 --> 00:25:45,160
Speaker 4: find a new warm place.

521
00:25:47,000 --> 00:25:49,640
Speaker 10: Yeah, that's that's the risk, right. We have almost six

522
00:25:49,760 --> 00:25:53,440
Speaker 10: trillion in money market funds. That money is the returns

523
00:25:53,480 --> 00:25:56,720
Speaker 10: are not attractive. Are going to try to migrate towards

524
00:25:57,320 --> 00:25:59,440
Speaker 10: other parts of the of the ill curve?

525
00:26:00,160 --> 00:26:03,560
Speaker 4: Or give me a level? I mean, this is so important.

526
00:26:03,960 --> 00:26:05,840
Speaker 4: Is this going to happen at four point eight percent?

527
00:26:06,200 --> 00:26:06,880
Speaker 9: Do we got to wait?

528
00:26:06,920 --> 00:26:09,520
Speaker 4: Wait for three point eight percent? When is the money

529
00:26:09,560 --> 00:26:10,720
Speaker 4: market game over?

530
00:26:12,320 --> 00:26:15,600
Speaker 10: Well, when the curve dis inverts, perhaps at the current

531
00:26:15,680 --> 00:26:19,440
Speaker 10: time two year yields is still higher than where tenure

532
00:26:19,520 --> 00:26:23,080
Speaker 10: yields are, and so you're going to see money continue

533
00:26:23,119 --> 00:26:25,320
Speaker 10: to flow into the into the very front end of

534
00:26:25,480 --> 00:26:26,080
Speaker 10: the yield curve.

535
00:26:26,160 --> 00:26:30,280
Speaker 5: At some point. I think that when the market, when when.

536
00:26:30,240 --> 00:26:33,680
Speaker 10: Cuts have been sufficient, cuts have been delivered, and it's

537
00:26:33,720 --> 00:26:36,080
Speaker 10: been stimulative, I think that you're going to see that

538
00:26:36,160 --> 00:26:40,560
Speaker 10: money migrate towards risky assets or other higher yielding assets.

539
00:26:41,280 --> 00:26:44,440
Speaker 10: But at the current time, you know, with the curve inverted,

540
00:26:44,480 --> 00:26:46,880
Speaker 10: I think that the front end still looks quite attractive

541
00:26:46,920 --> 00:26:48,560
Speaker 10: to us on a duration adjusted basis.

542
00:26:48,680 --> 00:26:50,720
Speaker 2: Let's play questions for Chair and Pound the news conference

543
00:26:50,720 --> 00:26:53,600
Speaker 2: about three minutes away. Michael Gapin, what would you ask today?

544
00:26:56,240 --> 00:26:58,800
Speaker 8: I mean I would ask kind of what you One

545
00:26:58,920 --> 00:27:02,119
Speaker 8: question would be what you're referencing, essentially, is what's the

546
00:27:02,200 --> 00:27:04,760
Speaker 8: purpose of the cutting cycle to get policy easy to

547
00:27:05,160 --> 00:27:08,960
Speaker 8: track a real rate of interest that you think is appropriate.

548
00:27:09,320 --> 00:27:12,280
Speaker 8: If so, what's what's that rate? The second I would

549
00:27:12,280 --> 00:27:16,639
Speaker 8: ask him is policy really restrictive? What evidence outside of

550
00:27:16,720 --> 00:27:20,600
Speaker 8: housing do you have to suggest that that policy is

551
00:27:20,680 --> 00:27:23,280
Speaker 8: currently restrictive? So that'd be a bit of a counterfactual

552
00:27:23,359 --> 00:27:26,840
Speaker 8: to his view, and otherwise the third question I'd ask

553
00:27:27,040 --> 00:27:29,400
Speaker 8: is you know, is it feasible just to make it clear,

554
00:27:29,720 --> 00:27:32,240
Speaker 8: is it feasible to cut on the inflation data alone?

555
00:27:32,680 --> 00:27:35,280
Speaker 8: Or do you need to see weakness and activity in

556
00:27:35,320 --> 00:27:36,000
Speaker 8: the labor market.

557
00:27:36,080 --> 00:27:38,320
Speaker 2: Those are three you don't get through Markey, lucky. If

558
00:27:38,359 --> 00:27:40,239
Speaker 2: you get two, if you might make if you get one,

559
00:27:40,680 --> 00:27:43,120
Speaker 2: Bach give us the final word. What would you ask today?

560
00:27:44,400 --> 00:27:47,760
Speaker 10: I'm curious to see the federal be inclined to deliver

561
00:27:48,400 --> 00:27:51,000
Speaker 10: sort of you know, adjustments in policy like they did

562
00:27:51,080 --> 00:27:53,920
Speaker 10: back in the nineties, because that's something that the market

563
00:27:54,000 --> 00:27:57,879
Speaker 10: is looking towards. This Perhaps they adjust, they stay on hold,

564
00:27:57,920 --> 00:28:00,720
Speaker 10: and then they cut some more if needed. So it's

565
00:28:00,800 --> 00:28:02,840
Speaker 10: not sort of your conventional sacke I think to me

566
00:28:03,400 --> 00:28:05,560
Speaker 10: that's a very underpriced risk in the market is a

567
00:28:05,640 --> 00:28:07,719
Speaker 10: ninety style rate cut cycle.

568
00:28:08,560 --> 00:28:11,080
Speaker 2: So Maatri Jappa, Michael Gapin to the two of you,

569
00:28:11,240 --> 00:28:14,000
Speaker 2: thank you, just put in as always Michael Gapin over

570
00:28:14,000 --> 00:28:15,600
Speaker 2: at Bank of America, back in the seat, and good

571
00:28:15,640 --> 00:28:18,280
Speaker 2: to see. Absolutely now do it looking for three cuts

572
00:28:18,520 --> 00:28:20,320
Speaker 2: to go into that median dot in twenty twenty four

573
00:28:20,560 --> 00:28:22,320
Speaker 2: at least? So I think he's right to talk about

574
00:28:22,720 --> 00:28:26,280
Speaker 2: not just dates but thresholds. What is the bar where

575
00:28:26,400 --> 00:28:28,040
Speaker 2: is the bar or when you start to deliver those cuts,

576
00:28:28,080 --> 00:28:29,879
Speaker 2: what are you looking for? And now you've priced that

577
00:28:30,080 --> 00:28:32,280
Speaker 2: implied that in your projections, have they got to engage

578
00:28:32,280 --> 00:28:34,160
Speaker 2: in that conversation over the next hour.

579
00:28:34,280 --> 00:28:37,159
Speaker 3: It is lower inflation enough, right just by de facto?

580
00:28:37,400 --> 00:28:39,880
Speaker 3: Or do they have to see some other sort of weakness?

581
00:28:40,120 --> 00:28:42,000
Speaker 3: And what are the parameters? What are the levels?

582
00:28:42,000 --> 00:28:43,080
Speaker 5: These are important questions.

583
00:28:43,400 --> 00:28:46,600
Speaker 3: I also just think that right now, what's he going

584
00:28:46,680 --> 00:28:49,200
Speaker 3: to say other than just read it and we've got

585
00:28:49,360 --> 00:28:52,760
Speaker 3: some sort of new sense that we are disinflating and

586
00:28:52,840 --> 00:28:55,880
Speaker 3: it's a positive thing, and we'll be vigilant and watch.

587
00:28:55,720 --> 00:28:57,959
Speaker 5: It and go with where we think.

588
00:28:58,000 --> 00:29:00,360
Speaker 4: It's a brook preserved from our guests. They did not

589
00:29:00,520 --> 00:29:03,080
Speaker 4: expect this. I did not expect this. This is a

590
00:29:03,320 --> 00:29:08,080
Speaker 4: sea change shift back to the regime pre pandemic. And John,

591
00:29:08,160 --> 00:29:11,719
Speaker 4: you nailed it bringing up John Williams and the idea

592
00:29:12,080 --> 00:29:15,480
Speaker 4: months ago of a shocking reset to the our star

593
00:29:15,720 --> 00:29:21,960
Speaker 4: before the pandemic, and today is a massive shift, a

594
00:29:22,160 --> 00:29:25,640
Speaker 4: sea change moment in terms of getting beyond the pandemic.

595
00:29:25,760 --> 00:29:27,360
Speaker 2: I went over this quote a little bit early this

596
00:29:27,480 --> 00:29:31,680
Speaker 2: morning of Chairman POWs not even two weeks ago. It

597
00:29:31,680 --> 00:29:33,920
Speaker 2: would be premature to conclude with confidence that we have

598
00:29:33,960 --> 00:29:37,600
Speaker 2: achieved a sufficiently restrictive stance, or to speculate on when

599
00:29:37,680 --> 00:29:39,000
Speaker 2: policy my aid.

600
00:29:40,640 --> 00:29:44,640
Speaker 4: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

601
00:29:44,760 --> 00:29:48,280
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602
00:29:48,400 --> 00:29:52,600
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603
00:29:52,760 --> 00:29:57,840
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604
00:29:58,000 --> 00:30:03,280
Speaker 4: and international relations. And subscribe to the Surveillance podcast on

605
00:30:03,400 --> 00:30:08,400
Speaker 4: Apple Podcastsoundcloud, Bloomberg dot com, and of course I'm the terminal.

606
00:30:08,880 --> 00:30:11,600
Speaker 4: I'm Tom Keen, and this is Bloomer