WEBVTT - Instant Reaction: The Fed Decides 0:00:05.320 --> 0:00:08.360 Doves fly at the Fed as official signal they are 0:00:08.480 --> 0:00:12.799 done raising rates, instead raising the number of rate cuts 0:00:12.920 --> 0:00:16.639 they see next year. Officials left the overnight rate unchanged 0:00:16.640 --> 0:00:18.919 at five and a quarter to five and a half percent, 0:00:19.280 --> 0:00:22.920 but they essentially confirm that's it. The money quote from 0:00:22.920 --> 0:00:26.800 the statement gets a one word addition in determining the 0:00:26.840 --> 0:00:31.080 extent of any additional policy firming that may be appropriate 0:00:31.120 --> 0:00:34.559 to return inflation to two percent. The dot plot meanwhile 0:00:34.720 --> 0:00:38.000 sees seventy five basis points of cuts next year, one 0:00:38.040 --> 0:00:42.640 more move than they saw in September. The dispersion is wide, however, 0:00:42.920 --> 0:00:47.559 with eight seeing fewer than those three cuts, five seeing 0:00:47.720 --> 0:00:50.800 more than three. In twenty twenty five, they see an 0:00:50.800 --> 0:00:54.800 additional four rate cuts, one down from September and two 0:00:54.880 --> 0:00:57.960 more in twenty twenty six. The longer run neutral rate 0:00:58.200 --> 0:01:01.280 remains at two and a half percent. Their move comes 0:01:01.360 --> 0:01:05.400 as they significantly lower their median headline inflation forecast this 0:01:05.520 --> 0:01:09.080 year to two point eight percent. As the statement notes, 0:01:09.280 --> 0:01:13.800 inflation has eased over the past year but remains elevated 0:01:14.160 --> 0:01:17.520 in the median forecast. It falls further in twenty twenty 0:01:17.560 --> 0:01:20.559 four to two point four percent two point one percent 0:01:20.600 --> 0:01:24.200 in twenty twenty five and two percent. Finally, in twenty 0:01:24.280 --> 0:01:28.520 twenty six, core pcee inflation three point two percent this year, 0:01:28.800 --> 0:01:32.720 down from September's forecast of three point seven percent. It 0:01:32.800 --> 0:01:37.040 keeps falling, hitting two percent also in twenty twenty six. 0:01:37.640 --> 0:01:41.640 The statement says, quote growth of economic activity has slowed 0:01:41.640 --> 0:01:44.200 from its strong pace in the third quarter, but they 0:01:44.280 --> 0:01:47.560 still revise their median forecast for GDP growth this year 0:01:47.600 --> 0:01:50.840 significantly to two point six percent from two point one 0:01:50.920 --> 0:01:54.480 percent in September. It falls to just one point four 0:01:54.720 --> 0:01:58.280 percent next year. Potential growth in the longer run is 0:01:58.320 --> 0:02:01.600 seen at one point eight percent. No change in their 0:02:01.680 --> 0:02:05.440 unemployment forecast of three point eight percent this year, which 0:02:05.560 --> 0:02:10.160 implies the jobless rate moves up in December because it's 0:02:10.240 --> 0:02:14.040 three point seven percent right now. The next three years, 0:02:14.040 --> 0:02:17.320 the median unemployment rate will come in at four point 0:02:17.400 --> 0:02:20.760 one percent. The decision guys again unanimous. 0:02:21.040 --> 0:02:23.240 Mike McKay, Thank you sir. Let's make it very simple. 0:02:23.520 --> 0:02:26.720 The twenty twenty four dot implying three cuts next year 0:02:26.720 --> 0:02:29.360 from this federal reserve. It doesn't meet the market, but 0:02:29.440 --> 0:02:31.840 it closes the gap and endorses the direction of travel 0:02:31.880 --> 0:02:34.400 over the last four to six weeks in the bond market. 0:02:34.600 --> 0:02:37.520 This is what's falling right now, yields and falling hard. 0:02:37.520 --> 0:02:40.320 We're down nineteen call it twenty basis points lower at 0:02:40.360 --> 0:02:41.880 the front end of the curve on a two year, 0:02:41.960 --> 0:02:45.080 four fifty three. On a ten year, down thirteen at 0:02:45.120 --> 0:02:48.079 four point zero seven percent. Once you figure out where 0:02:48.080 --> 0:02:50.360 the bond market is, take a guess where the FX 0:02:50.440 --> 0:02:53.000 market is. The dollar looks a little something like this 0:02:53.080 --> 0:02:56.560 against the Euro at the moment, weaker, the euro stronger, 0:02:56.760 --> 0:02:59.240 one away forty five. And if you look into equities, 0:02:59.440 --> 0:03:02.240 we endorse move higher by a half of one percent 0:03:02.280 --> 0:03:04.480 this morning on a S and P five hundred, up 0:03:04.520 --> 0:03:06.960 again this afternoon on the Nasdaq by four tenths of 0:03:07.040 --> 0:03:10.040 one percent, Lisa, the rally moves on. 0:03:10.360 --> 0:03:12.959 We could end up getting a sub four percent tenure 0:03:13.040 --> 0:03:15.040 yield by the end of this trading session. As the 0:03:15.440 --> 0:03:17.880 AS people pass through this to me, the fact that 0:03:17.919 --> 0:03:21.280 this is unequivocally dubvish, that they endorse the Fed's idea, 0:03:21.360 --> 0:03:23.800 that the market's idea of rate cuts and then some 0:03:24.320 --> 0:03:27.000 really speaks to a question of is there going to 0:03:27.000 --> 0:03:29.160 be clean up acted on I on one or is 0:03:29.200 --> 0:03:31.440 this going to be Fed chair Powell saying, we're just 0:03:31.520 --> 0:03:33.040 responding to the data in front of us, and it 0:03:33.080 --> 0:03:33.720 looks pretty good. 0:03:33.840 --> 0:03:35.960 Well, we talk about tom, the risks, the potential of 0:03:36.000 --> 0:03:38.520 being whip swored by Chairman Powell at about twenty seven 0:03:38.600 --> 0:03:41.280 minutes time. The early take, and we'll see if it sticks. 0:03:41.480 --> 0:03:44.400 The early take is this. Ultimately you're looking for three 0:03:44.520 --> 0:03:47.080 cuts next year. Our four or five cuts no longer 0:03:47.120 --> 0:03:50.120 stands that ridiculous. Now you come closer and closer to 0:03:50.200 --> 0:03:52.200 where we were before no hedging here. 0:03:52.280 --> 0:03:54.040 I was going back and forth with a professor at 0:03:54.040 --> 0:03:57.200 the University of Cambridge and two standard deviations down on 0:03:57.320 --> 0:04:00.480 tenure yield. John, we almost came to it. We came 0:04:00.680 --> 0:04:04.800 very very close to a four point eight percent, four 0:04:04.840 --> 0:04:06.800 point oh seven head four six. Well, to see what 0:04:06.880 --> 0:04:08.960 plays out with the press conference. But this is frankly 0:04:09.520 --> 0:04:13.560 more than we expected. We also expect wonderful conversation at 0:04:13.600 --> 0:04:17.800 this moment with Diane Swarks, she's chief economist at KPMG. Dan, 0:04:17.920 --> 0:04:21.840 you know, the interest space is the litmus paper of 0:04:21.960 --> 0:04:25.560 our economic and our FED system. Are we seeing a 0:04:25.680 --> 0:04:31.640 constructive reduction in yields or does this signal slower economic growth? 0:04:34.360 --> 0:04:34.520 Well? 0:04:34.520 --> 0:04:37.200 I think what we're seeing is that the bond market 0:04:37.440 --> 0:04:40.640 is leaning into the concept of the fact that inflation 0:04:40.800 --> 0:04:43.320 has plummeted so rapidly. I think this is a full 0:04:43.400 --> 0:04:47.200 inflation story. There's no question that the Fed has showed 0:04:47.240 --> 0:04:49.800 its cards here. They're very excited about the fact that 0:04:49.920 --> 0:04:53.520 inflation has come down at its fastest pace outside of 0:04:53.880 --> 0:04:57.640 World War Two, the Korean War, and the Vulcar recessions. 0:04:57.760 --> 0:05:00.960 That is really stunning given we've not seeing a major 0:05:01.080 --> 0:05:04.120 increase in unemployment with that, and they're feeling good about it. 0:05:04.360 --> 0:05:06.120 And I think you're going to see some of that 0:05:06.640 --> 0:05:10.200 euphoria from Chairman Powell as well. It's more than we 0:05:10.360 --> 0:05:14.440 expected that. It is important to remember that remember last 0:05:14.560 --> 0:05:17.320 time they had a rate hike Pope before the end 0:05:17.360 --> 0:05:20.200 of the year, So just by removing one rate hike 0:05:20.360 --> 0:05:23.640 out of it, that puts one more cut into twenty 0:05:23.760 --> 0:05:25.920 twenty four as well. And I think that sort of 0:05:26.080 --> 0:05:29.280 nuance is lost in translation, but it is part of 0:05:29.400 --> 0:05:31.760 the story as well. As they're not really backing off 0:05:32.279 --> 0:05:35.480 higher for a period of time. The next question is 0:05:36.040 --> 0:05:38.680 higher for how long? Some big things thinks we might 0:05:38.760 --> 0:05:40.680 be close to higher for long enough. 0:05:41.040 --> 0:05:42.760 Some big moves in this bond market right now, we're 0:05:42.760 --> 0:05:45.040 down seventeen basis points on a front end, or a 0:05:45.080 --> 0:05:47.440 two year at four fifty six on a ten year, 0:05:47.560 --> 0:05:50.240 down eleven to four point zero nine percent alongside down 0:05:50.279 --> 0:05:53.040 swamp and place asch Greg Peters of PGM jumps in 0:05:53.040 --> 0:05:55.080 front of the camera. Greg, let's talk about it in 0:05:55.120 --> 0:05:57.599 about twenty four minutes time. Chairman Power has an opportunity 0:05:57.640 --> 0:05:59.599 to clarify some of this. Do you think it needs to. 0:06:01.160 --> 0:06:03.720 Well, well, I'm not sure there's much you can do 0:06:03.839 --> 0:06:07.279 at this point. I mean, the market just absolutely loved, 0:06:08.080 --> 0:06:11.719 loved this result. I thought the market was already leaning 0:06:11.800 --> 0:06:14.680 a little too much. Evidently that wasn't the case. We 0:06:14.800 --> 0:06:19.120 weren't leaning enough. So, you know, doves fly and bulls 0:06:19.240 --> 0:06:22.760 run after this, and I think it's really hard for 0:06:23.440 --> 0:06:25.440 how to put that genie back in the bottle. 0:06:25.680 --> 0:06:29.599 Sees that give you a sense doves flying and bulls running, 0:06:29.839 --> 0:06:32.640 the idea of FOMO and just how much that's taken 0:06:32.760 --> 0:06:35.360 over the market after so many people missed out in 0:06:35.440 --> 0:06:36.760 five percent tenure yields. 0:06:38.680 --> 0:06:42.040 I think that's just artifact of the current market, right. 0:06:42.120 --> 0:06:45.680 I mean, the markets are much more volatile, They moved 0:06:45.839 --> 0:06:49.560 much more powerfully. I think that's just the construct right 0:06:49.600 --> 0:06:52.440 with CTAs and al those and other sorts of things. 0:06:52.480 --> 0:06:55.040 And I think this is the world that we live in, honestly, 0:06:55.200 --> 0:06:57.960 So I don't think this is a unique feature anymore. 0:06:58.000 --> 0:06:59.640 I think this is quite commonplace. 0:07:00.040 --> 0:07:03.120 Ye, Dan Swank, I did the nominal GDP math here 0:07:03.240 --> 0:07:06.000 on the inflation gestament and the growth gestament, and boy, 0:07:06.080 --> 0:07:08.880 it sure looks to me like a four percent nominal 0:07:08.960 --> 0:07:13.240 GDP even south of that modeled out over the next 0:07:13.320 --> 0:07:17.360 twenty four months. How do our viewers and listeners react 0:07:17.480 --> 0:07:21.560 to that? If our animal spirit post pandemic diminishes down 0:07:21.720 --> 0:07:22.680 sub four percent? 0:07:25.520 --> 0:07:28.960 We know what's interesting about it is also the part 0:07:29.000 --> 0:07:31.440 that we didn't talk about in the SEPs is that 0:07:31.560 --> 0:07:35.280 the Fed's long term estimates of what the neutral rate 0:07:35.480 --> 0:07:38.080 on the FED funds rate, if you look at their ranges, 0:07:38.320 --> 0:07:41.160 that has actually continued to move up. And so I 0:07:41.200 --> 0:07:43.880 think what you're seeing here is an economy that the 0:07:43.920 --> 0:07:47.040 FED expects to cool below potential unemployment to come up 0:07:47.160 --> 0:07:51.360 a little bit, although we might not. The consumer has 0:07:51.400 --> 0:07:54.080 really taken everything the Fed's tried to deal them, and 0:07:54.440 --> 0:07:56.920 you know, taking it with stride and kept on going 0:07:57.160 --> 0:08:00.080 and I think that may mean some upside risk to 0:08:00.160 --> 0:08:03.480 the economic growth side of this situation. But it's really 0:08:03.560 --> 0:08:07.200 interesting that the Fed's terminal rates now look like they're 0:08:07.240 --> 0:08:10.360 starting to move up even more than they were last time, 0:08:10.680 --> 0:08:12.600 and that seems to have gotten lost in translation. 0:08:12.760 --> 0:08:14.280 That's not what the market's focused. 0:08:14.000 --> 0:08:15.600 On right now, But I think the FED is looking 0:08:15.600 --> 0:08:18.840 at an economy that's more resilient and that will take 0:08:18.920 --> 0:08:21.280 off more rapidly as rates come down. 0:08:21.520 --> 0:08:23.360 Does that co here with what you think that basically 0:08:23.480 --> 0:08:27.600 we're talking about a higher neutral rate as we have 0:08:27.720 --> 0:08:29.560 no landing or a very very soft one. 0:08:31.920 --> 0:08:32.360 Exactly. 0:08:32.440 --> 0:08:35.240 I think we are at a higher non inflationary rate, 0:08:35.559 --> 0:08:38.240 and I think that's something you see it just in 0:08:38.360 --> 0:08:41.520 the slowness with which the FED puts out its cuts 0:08:41.720 --> 0:08:45.000 and not getting back The scent on rates is not 0:08:45.120 --> 0:08:47.920 as rapid as the accent on rates and the need. 0:08:48.120 --> 0:08:50.439 You see it in their long term forecast. Even as 0:08:50.520 --> 0:08:53.079 all this good news has come in, it's come in 0:08:53.360 --> 0:08:57.559 and it's really shifted the narrative in terms of, you know, 0:08:57.640 --> 0:09:00.720 we're trying so hard to get up to in inflation 0:09:00.920 --> 0:09:04.559 target for so long, the FED does still believe that 0:09:04.720 --> 0:09:07.280 we're in a world, and it sort of was illustrated 0:09:07.320 --> 0:09:09.600 by the volatility and the bond market. We're just talking 0:09:09.640 --> 0:09:12.319 about that we're in a world that's more susceptible to 0:09:12.440 --> 0:09:13.320 external shocks and. 0:09:13.360 --> 0:09:14.360 It once was. 0:09:14.559 --> 0:09:18.320 We've also gotten incredibly good news on oil prices coming down, 0:09:18.679 --> 0:09:20.760 helping to spill over into inflation. 0:09:21.200 --> 0:09:22.120 All of that's great. 0:09:22.160 --> 0:09:25.199 It doesn't mean that we're going into the world of 0:09:25.440 --> 0:09:30.000 subpar growth, of inability to get inflation up that we 0:09:30.240 --> 0:09:33.920 left in the twenty tens. We have healed balance sheets 0:09:34.360 --> 0:09:38.120 except for the federal government, quite significantly since then, and 0:09:38.240 --> 0:09:40.439 I think that's where the paradigm shift is. 0:09:40.679 --> 0:09:43.360 Diane, Let's go through the projections together. The median for 0:09:43.480 --> 0:09:47.199 twenty twenty four GDP one point four percent, unemployment four 0:09:47.240 --> 0:09:51.719 point one, core PCE two point four, Fed funds four 0:09:51.800 --> 0:09:52.320 point six. 0:09:52.800 --> 0:09:53.000 Dan. 0:09:53.080 --> 0:09:54.719 Not so long ago you and I used to talk 0:09:54.720 --> 0:09:57.880 about this being aspirational. How realistic is it now? 0:10:00.640 --> 0:10:03.480 It now seems entirely possible. And you know what, more 0:10:03.559 --> 0:10:07.319 things than I can list have surprised me about this 0:10:07.440 --> 0:10:09.599 economy and this is not where we thought we'd be. 0:10:09.760 --> 0:10:12.480 But how glorious it is that we're here. It's not 0:10:12.640 --> 0:10:15.800 been easy. It's not as if interest rate sectors aren't 0:10:15.800 --> 0:10:16.360 feeling pain. 0:10:16.480 --> 0:10:16.880 They are. 0:10:17.320 --> 0:10:19.920 The housing market is still stuck in a mortgage winter, 0:10:20.080 --> 0:10:22.520 even though rates are coming down. This will help out 0:10:22.679 --> 0:10:25.400 unlock some demand, but prices are still too high and 0:10:25.520 --> 0:10:28.840 the supply of homes is still too much in a shortage, 0:10:28.920 --> 0:10:31.640 especially in the single family home market. So we know 0:10:31.800 --> 0:10:35.040 there's still strains in this economy. But the good news 0:10:35.160 --> 0:10:38.160 is we didn't have to get here without the kind 0:10:38.200 --> 0:10:40.559 of pain that you know. I think back on that 0:10:40.679 --> 0:10:44.079 speech eight minutes, thirty four seconds August twenty twenty two. 0:10:44.280 --> 0:10:45.520 It was like a bucket of ice. 0:10:45.880 --> 0:10:49.440 You know, whether cha Chairman Powell really believed we would 0:10:49.520 --> 0:10:52.679 have to go through a recession in order to rid 0:10:52.760 --> 0:10:55.520 ourselves of this inflation and that's just not been the case. 0:10:55.640 --> 0:11:00.319 Much more of it was supply chains uncurling and the 0:11:00.440 --> 0:11:03.199 problems that we had there, along with some time to 0:11:03.480 --> 0:11:06.719 let demand the production pick up with demand, and I 0:11:06.800 --> 0:11:07.800 think that's important. 0:11:08.040 --> 0:11:10.920 Otherwise known as transitory, just not called transitory, Greg, could 0:11:10.920 --> 0:11:12.360 you buy into this this. 0:11:12.880 --> 0:11:15.959 Was that we're transitory over a much longer period of time. 0:11:16.120 --> 0:11:18.280 But Peters, can you weigh in a little bit on 0:11:18.559 --> 0:11:21.000 whether you think this is plausible, or whether you would 0:11:21.080 --> 0:11:23.280 lean against us right now, or whether you would actually 0:11:23.320 --> 0:11:26.200 even sell and wait for a better buying moment. 0:11:27.600 --> 0:11:30.080 I mean, I do think the markets are really pushing 0:11:30.880 --> 0:11:34.880 the limits here. There's so much good news being priced in, 0:11:35.160 --> 0:11:38.520 whether it's inflation, whether it's growth. You know, the yield 0:11:38.600 --> 0:11:41.800 curve is still inverted, right, and so like, how do 0:11:41.880 --> 0:11:45.079 you reconcile the fact that investors are feeling really good 0:11:45.120 --> 0:11:48.920 about the growth outlook, inflation's coming down, and the curves inverted, 0:11:49.160 --> 0:11:53.199 and so I think there's still some repricing ahead. I 0:11:53.280 --> 0:11:57.240 think there's still quite bumpy elements. 0:11:57.120 --> 0:11:57.960 In the road ahead. 0:11:58.679 --> 0:12:01.959 And so yeah, I'm I'm kind of thinking the market 0:12:02.080 --> 0:12:04.160 is really taking this to the brank here, and I'm 0:12:04.360 --> 0:12:08.040 and I would be inclined to go the other way, Greg. 0:12:08.240 --> 0:12:10.720 I'm looking at money market funds five percent and all 0:12:10.760 --> 0:12:13.280 the other stuff we blather about each and every day. 0:12:13.800 --> 0:12:16.199 And I know we get convexity in the stock market, 0:12:16.280 --> 0:12:18.240 do we get convexity in the bond market? When I 0:12:18.280 --> 0:12:20.240 got a ten year old yield poping to one point 0:12:20.320 --> 0:12:22.880 nine to one, I got the ten year yield on 0:12:23.040 --> 0:12:26.400 plus excuse me, minus two standard deviations right down on 0:12:26.520 --> 0:12:29.079 four point ho six percent. Can there be such a 0:12:29.160 --> 0:12:33.440 thing as momentum in the bond market? Price up, yield down? 0:12:34.720 --> 0:12:36.120 Yeah, I think you're saying it, Tom. 0:12:36.280 --> 0:12:38.640 I mean, if you look at the total return in 0:12:38.760 --> 0:12:41.800 the bond market over the past month or so, it's 0:12:41.880 --> 0:12:45.320 been you know, quite astounding, right know, anywhere from five 0:12:45.440 --> 0:12:46.760 to you know, eight percent. 0:12:46.920 --> 0:12:50.040 That's real money, right, And so you've seen it. 0:12:50.600 --> 0:12:54.400 And so there has been some quote unquote positive convexity 0:12:54.559 --> 0:12:56.480 just given the low level of prices. 0:12:56.800 --> 0:12:59.719 Right. But but you know, the real question is not 0:13:00.080 --> 0:13:02.120 what happened, but where are we going? 0:13:03.120 --> 0:13:06.240 And so you know, once again I worry about, you know, 0:13:06.360 --> 0:13:09.520 the current market really squeezing a lot of the total 0:13:09.600 --> 0:13:11.480 return out of the market way too soon. 0:13:11.640 --> 0:13:13.880 Well, look at the move this afternoon. It's a monster move. 0:13:14.000 --> 0:13:16.000 We're down almost twenty basis points at the front end 0:13:16.000 --> 0:13:17.680 of the curve. And let me to share a quote 0:13:17.720 --> 0:13:20.320 with you. It would be premature to conclude with confidence 0:13:20.360 --> 0:13:23.160 that we've achieved a sufficiently restrictive stance or to speculate 0:13:23.200 --> 0:13:26.200 on when policy might ease. Chairman Pal not even two 0:13:26.280 --> 0:13:30.640 weeks ago on December one, Diane swam In fifteen sixteen 0:13:30.760 --> 0:13:32.959 seventeen minutes time when we hear from the chairman again, 0:13:33.559 --> 0:13:35.000 why would the message be any different. 0:13:37.520 --> 0:13:40.079 Well, I think he's still going to be cautious in 0:13:40.240 --> 0:13:42.400 his messaging. But you know, you saw a little bit 0:13:42.440 --> 0:13:44.120 of the lightness in his step. And we saw the 0:13:44.160 --> 0:13:47.160 bond market rally November first, even though we had what 0:13:47.400 --> 0:13:51.679 was a hawkish set of you know, in September, a 0:13:51.760 --> 0:13:56.040 hawkish outlook. By November one, you saw the market unwined 0:13:56.640 --> 0:14:00.559 significantly since then because of how you four and a 0:14:00.600 --> 0:14:04.960 little bit excited that Terre Powell was in that press conference, 0:14:05.320 --> 0:14:06.839 and so I think it's going to be hard for 0:14:06.960 --> 0:14:09.120 him to walk back a lot at this point in time. 0:14:09.360 --> 0:14:11.800 I think it would do him good to be cautious 0:14:12.280 --> 0:14:14.959 and to be a little bit you know, contingent on 0:14:15.280 --> 0:14:17.640 you know, we're excited, but here's the risks. 0:14:17.960 --> 0:14:19.200 But I think it's going to be hard. 0:14:19.360 --> 0:14:22.160 Given they signed off on this statement, and they signed 0:14:22.200 --> 0:14:25.440 off on this forecast, and this is a dubbish is 0:14:25.440 --> 0:14:27.920 about as dubbish as we could have expected. I this 0:14:28.120 --> 0:14:30.720 is more than I expected in terms of dubbishness. And 0:14:30.760 --> 0:14:32.480 I think it's hard for him to walk it back. 0:14:32.560 --> 0:14:35.040 And I don't think he would be walking it back 0:14:35.240 --> 0:14:38.160 all that much given the fact that they all. 0:14:38.120 --> 0:14:39.880 Signed off on it, which is the reason why you're 0:14:39.880 --> 0:14:40.160 seeing it. 0:14:40.200 --> 0:14:40.920 I going to add to it. 0:14:41.200 --> 0:14:42.640 Yeah, he's not going to push back too. 0:14:42.640 --> 0:14:43.920 Much, which is the reason why. 0:14:44.080 --> 0:14:46.080 It's a good point that you're seeing an eighteen basis 0:14:46.120 --> 0:14:48.840 point drop in the two year yield as time goes on, 0:14:49.000 --> 0:14:52.160 five point four point five to four percent. Greg you 0:14:52.280 --> 0:14:54.480 said you'd push back against this. The market's really taking 0:14:54.520 --> 0:14:56.960 this to the brink. What makes you feel that way? 0:14:57.320 --> 0:14:59.560 And what could you hear from share Powell that could 0:14:59.640 --> 0:15:00.320 change your mind? 0:15:01.560 --> 0:15:03.040 Well, so, I'm not sure I'm going to hear much 0:15:03.080 --> 0:15:03.840 from CAA. Powell. 0:15:04.040 --> 0:15:06.560 You know, as I mentioned, I think the genies out 0:15:06.600 --> 0:15:09.840 of the bottle. I think it's hard to walk this back. 0:15:10.320 --> 0:15:13.200 I think at some level he is quite pleased, and 0:15:13.320 --> 0:15:16.920 rightfully so. Right they've seen a tremendous amount of dissemplation 0:15:17.080 --> 0:15:20.000 come through during the course of this year, and that's 0:15:20.040 --> 0:15:22.320 something to be proud of. But I guess just from 0:15:22.360 --> 0:15:25.320 a market pricing fixed the income perspective, you know, do 0:15:25.440 --> 0:15:28.080 we really want to be in an environment where we're 0:15:28.160 --> 0:15:32.760 taking down yields so aggressively, where we're basically to see 0:15:33.880 --> 0:15:37.360 these rate cuts come through and then some in order 0:15:37.480 --> 0:15:40.200 to achieve toald return. So you know, to me, it's 0:15:40.280 --> 0:15:43.080 just a balance about risk reward and what's embedded in 0:15:43.160 --> 0:15:46.080 the price. And I think, quite frankly, there's a lot 0:15:46.200 --> 0:15:50.160 of good news embedded in the price, and that's always 0:15:50.640 --> 0:15:53.840 something that you should, you know, take a step back a. 0:15:53.920 --> 0:15:55.960 Ton of good news price. Then over the last month, 0:15:56.040 --> 0:15:57.800 Greg pay this, Diane swamp to at the very best 0:15:57.880 --> 0:16:00.760 going into this Federal Reserve news conference, Chairman Pound at 0:16:00.760 --> 0:16:03.800 about fourteen minutes time, thanks to both of you, let's 0:16:03.840 --> 0:16:06.840 talk about these moves. No big changes to that statement, 0:16:07.080 --> 0:16:09.960 no change in the decision, but some monster changes to 0:16:10.040 --> 0:16:13.680 the projections. Take twenty twenty four, for instance, FED Funds 0:16:13.920 --> 0:16:17.359 medium dot now four point six percent. Back in September 0:16:17.640 --> 0:16:19.920 that was five point one. This is a FED some 0:16:20.080 --> 0:16:22.800 median dot implying that maybe three cuts are in our 0:16:22.880 --> 0:16:26.040 future from this Federal Reserve. The market maybe fifty basis 0:16:26.080 --> 0:16:28.920 points lower than that. But ultimately, Lisa, we've closed the 0:16:29.000 --> 0:16:31.440 gap and we've endorsed the direction of travel over the 0:16:31.520 --> 0:16:33.320 last six weeks, which is why you've got this monster 0:16:33.400 --> 0:16:35.960 move again on a two year by nineteen basis points 0:16:36.000 --> 0:16:37.520 of four to fifty three. So if you don't stop 0:16:37.560 --> 0:16:40.640 the direction, if you don't stop the momentum, what happens. 0:16:40.760 --> 0:16:42.720 You did more the same day, Lisa, it isn't that what's. 0:16:42.600 --> 0:16:44.800 Happening, Which is what Pria Misra said that this was 0:16:44.840 --> 0:16:48.400 the asymmetry, and this is what Greg Peters as well 0:16:48.480 --> 0:16:50.400 as Diane Swank both said, which is it was more 0:16:50.480 --> 0:16:52.920 than they expected and certainly more than the market expected, 0:16:52.960 --> 0:16:56.840 and the market is cheering. Basically, this message is that 0:16:56.960 --> 0:16:59.760 Chairpower cannot walk this back. The rest of the Fed 0:17:00.000 --> 0:17:03.040 members put this in. So he either leans in, either 0:17:03.080 --> 0:17:05.680 gives an explanation of weakening in the economy that isn't 0:17:05.680 --> 0:17:09.560 seen in the projections, or he kind of equivoquates and 0:17:10.119 --> 0:17:13.280 basically is, you know, circling around with his tail. 0:17:13.520 --> 0:17:16.080 Neil Datta renaissance, macro super modest. Do you want to 0:17:16.119 --> 0:17:20.240 quote complete vindication of a March cut? Ninety five? Is 0:17:20.280 --> 0:17:23.160 a good analog? Surgical cuts are coming. Buckle up, risk, 0:17:23.200 --> 0:17:25.399 appetite has room to run. Well did he nail it? 0:17:25.720 --> 0:17:27.719 He nailed it for sure. Check out the scores going 0:17:27.760 --> 0:17:29.480 into the news conference on the S and P. Five 0:17:29.600 --> 0:17:32.159 hundred and fourth day of gains on the carts unless 0:17:32.200 --> 0:17:34.040 Chairman Powell messes that up for you. On the s 0:17:34.080 --> 0:17:36.399 and P five hundred up zero point six percent on 0:17:36.480 --> 0:17:39.160 the SMP. Into the bond market. I know we've seen 0:17:39.200 --> 0:17:41.439 some big moves in fixed income, but these are big 0:17:41.520 --> 0:17:43.600 moves again. We're down twenty basis points on a two 0:17:43.720 --> 0:17:46.800 year four fifty three fifty three. We've seen big moves 0:17:46.840 --> 0:17:49.680 coming into today's decision. We're down large again. We're down 0:17:49.760 --> 0:17:52.480 twelve on a ten year at four point zero eight percent. 0:17:52.680 --> 0:17:55.359 Let's continue the conversation with Bank for America's Michael Gapan. 0:17:55.600 --> 0:17:58.240 So Batri Jappa of sock gen so Bad refers to you, 0:17:58.840 --> 0:18:00.359 you've had some time to chew over this one. 0:18:00.400 --> 0:18:01.119 What's you take on it? 0:18:02.800 --> 0:18:07.280 Yeah, definitely the dubbishness in the dots caught me by surprise. 0:18:08.200 --> 0:18:12.280 But I think it seems like they're looking at inflation 0:18:12.480 --> 0:18:14.760 starting to come down. Maybe they're looking at three month 0:18:14.800 --> 0:18:18.080 and six month moving averages and doing exactly what they 0:18:18.240 --> 0:18:21.200 did a couple of years back. When you know, they're 0:18:21.240 --> 0:18:23.400 looking at three months and six month moving averages, which 0:18:23.400 --> 0:18:26.560 we're running a lot harder than the market, and so 0:18:26.680 --> 0:18:28.920 they had to come in and start hiking. So I 0:18:28.960 --> 0:18:31.720 think you're looking at a very similar scenario here where 0:18:32.480 --> 0:18:35.480 they're willing it seems to adjust policy. 0:18:36.560 --> 0:18:39.840 Given the data that we have right now on inflation. 0:18:40.119 --> 0:18:42.560 Michael Gape and thrilled to have you with us, particularly 0:18:42.600 --> 0:18:45.520 with the reach of the Bank of America across all 0:18:45.600 --> 0:18:50.520 of America, the consumer, the pulse of our seventy percent consumption. 0:18:51.119 --> 0:18:55.040 Do you buy this idea of the massive potential GDP 0:18:55.200 --> 0:18:58.560 slowdown of the next two years? Sub two percent real 0:18:58.640 --> 0:19:03.679 GDP inflation that's quite acent nominal GDP, it's four percent 0:19:04.200 --> 0:19:06.880 if we're lucky. Is that the evidence that the Bank 0:19:06.920 --> 0:19:08.720 of americacies. 0:19:09.840 --> 0:19:10.399 Unbalance? 0:19:10.520 --> 0:19:15.399 Yes, So our ba A card data has been showing 0:19:15.560 --> 0:19:19.440 resiliency and consumer spending, a pretty good holiday spend. So 0:19:19.880 --> 0:19:22.040 our view is the slowdown, if we get one, is 0:19:22.080 --> 0:19:25.240 going to come in your non consumer related components, business spending, 0:19:25.520 --> 0:19:29.600 the fiscal drag, and so forth. So we think it's possible. 0:19:29.880 --> 0:19:32.080 We think the narrative around the idea that you don't 0:19:32.160 --> 0:19:34.800 need as much labor market pain to bring inflation down. 0:19:35.760 --> 0:19:38.480 The data is kind of confirming that, and it matches 0:19:38.560 --> 0:19:42.399 with what we're seeing from our card data and around 0:19:42.480 --> 0:19:43.440 the health of the consumer. 0:19:43.520 --> 0:19:44.040 So yes, the. 0:19:44.160 --> 0:19:48.240 Economic activity should moderate, even personal consumption spending should slow. 0:19:48.920 --> 0:19:50.880 But we've gotten a lot of evidence here now over 0:19:50.960 --> 0:19:53.480 the past few months that maybe we don't need to 0:19:53.560 --> 0:19:56.359 crimp demand as much to return inflation to two percent, 0:19:56.480 --> 0:19:59.520 and we can allow some of these supply side factors, 0:19:59.560 --> 0:20:01.880 whether it's supply chain or the rebound in the labor 0:20:01.960 --> 0:20:03.640 force to help us out. 0:20:04.080 --> 0:20:06.520 Michael, could this rip boring rally go against that? Could 0:20:06.520 --> 0:20:09.359