WEBVTT - Instant Reaction: Jay Powell on Fed Policy 0:00:02.480 --> 0:00:11.320 Bloomberg Audio Studios, podcasts, radio news. 0:00:12.440 --> 0:00:15.239 It's a special coverage of the Federal Reserve meeting. Let's 0:00:15.240 --> 0:00:17.880 start with the scores, all time highs on the S 0:00:17.920 --> 0:00:20.600 and P five hundred positive by zero zero point eight 0:00:20.600 --> 0:00:23.439 percent on the Nasdaq, at one percent on the Russell, 0:00:23.640 --> 0:00:26.040 at one point six in the bond market, a rally 0:00:26.239 --> 0:00:28.520 for most of that news conference on a two year 0:00:28.760 --> 0:00:31.320 yield to lower by six basis points to four sixty 0:00:31.360 --> 0:00:32.120 one ninety three. 0:00:32.360 --> 0:00:33.560 So let's talk about the why. 0:00:33.840 --> 0:00:36.000 The why is in the outlook the projections from the 0:00:36.000 --> 0:00:41.920 Federal Reserve. Growth revised higher, unemployment revised down, inflation revised up, 0:00:42.159 --> 0:00:46.120 all my maintaining the same medium dot implying three cuts 0:00:46.159 --> 0:00:48.159 in twenty twenty four. So there was a clear and 0:00:48.159 --> 0:00:50.680 obvious contradiction in the outlook and a clear and obvious 0:00:50.720 --> 0:00:52.400 question to ask in this press conference. 0:00:52.880 --> 0:00:55.400 What gives this? Is what the chairman had to say, 0:00:56.360 --> 0:00:57.000 It doesn't mean. 0:00:57.400 --> 0:01:00.840 What it means is that you know, we we've seen incoming. 0:01:01.520 --> 0:01:04.720 As I pointed out in my opening remarks, we did 0:01:04.720 --> 0:01:08.760 mark up our growth forecast, and so have many other forecasters. 0:01:08.800 --> 0:01:13.559 So the economy is performing well, and the inflation data 0:01:13.600 --> 0:01:15.319 came in a little bit higher as a separate matter, 0:01:15.400 --> 0:01:18.399 and I think that caused people to write up their inflation. 0:01:19.400 --> 0:01:22.400 But nonetheless we continue to make good progress on bringing 0:01:22.400 --> 0:01:23.200 inflation down. 0:01:23.720 --> 0:01:25.959 There's two ways to interpret this, the unkind way and 0:01:26.000 --> 0:01:28.560 the kind way. The unkind way, if you're a FED Basha, 0:01:28.640 --> 0:01:30.840 you would say he wasn't prepared for that question. The 0:01:30.920 --> 0:01:33.399 kind way would be to assume that he was, and 0:01:33.440 --> 0:01:36.280 there was a message, a signal in that non onset Bramo, 0:01:36.360 --> 0:01:38.520 I have to say, I'm in the natsakamp and not 0:01:38.600 --> 0:01:39.160 the full mat. 0:01:39.280 --> 0:01:40.000 I would agree. 0:01:40.080 --> 0:01:41.920 I actually think that there was a message in this, 0:01:41.959 --> 0:01:44.960 because honestly, he didn't really push back on financial conditions either, 0:01:45.319 --> 0:01:47.800 and didn't really have any concrete answer. I heard a 0:01:47.840 --> 0:01:49.840 lot of words. I didn't hear some sort of answer 0:01:49.880 --> 0:01:54.040 to our financial conditions moving the economy in the wrong direction, 0:01:54.320 --> 0:01:56.760 which makes me think he's comfortable with it. He's not 0:01:56.840 --> 0:01:58.800 going to push back. This is a FED that wants 0:01:58.840 --> 0:02:01.720 to cut rates. They still want cut rates. And when 0:02:01.760 --> 0:02:05.160 he talked about inflation coming down over time, I'll stress 0:02:05.160 --> 0:02:09.080 the overtime. This is higher inflation for a longer period 0:02:09.120 --> 0:02:10.919 of time that will be tolerated by. 0:02:10.760 --> 0:02:11.520 This Federal reserve. 0:02:11.639 --> 0:02:14.480 Strong growth isn't a problem. Equity markets at all time 0:02:14.560 --> 0:02:17.040 highs not a problem the feed chair. I think this 0:02:17.080 --> 0:02:20.400 is important how they've set up the perceived asymmetric policy 0:02:20.440 --> 0:02:22.040 stance of the federal reserve in the minds of so 0:02:22.120 --> 0:02:24.280 many in this market. Right now, the FET chair is 0:02:24.320 --> 0:02:27.120 signaling repeatedly he is more willing to respond to weaker 0:02:27.160 --> 0:02:30.600 growth than he is stronger growth. So even if you 0:02:30.680 --> 0:02:34.000 project stronger growth, Bramo, it doesn't matter. He doesn't mean 0:02:34.360 --> 0:02:36.480 he's going to raise interest rates anytime off the back 0:02:36.520 --> 0:02:36.720 of that. 0:02:36.760 --> 0:02:38.520 But week of growth, they're ready to go. 0:02:38.800 --> 0:02:41.960 And you pointed this out. He distinguished the idea of 0:02:42.080 --> 0:02:45.120 growth that was horder from inflation as though those stories 0:02:45.160 --> 0:02:47.680 were independent of one another. And it raises this question, 0:02:48.240 --> 0:02:50.760 are they still looking at this as a supply side 0:02:50.840 --> 0:02:54.200 driven kind of issue that caused the inflation kind of 0:02:54.200 --> 0:02:57.720 the pandemic effects and the ripple throughs that will naturally subside, 0:02:57.840 --> 0:03:00.800 which raises the question have they really done anything to 0:03:00.880 --> 0:03:03.880 inflation or is this just some sort of other type 0:03:03.919 --> 0:03:06.560 of influence that they're kind of riding and trying to 0:03:06.600 --> 0:03:07.040 give out. 0:03:07.120 --> 0:03:08.480 You know what stood out to me as well, the 0:03:08.520 --> 0:03:11.880 story hasn't changed. When he says the story hasn't changed, 0:03:12.000 --> 0:03:14.160 yet the data has, I think the meaning of what 0:03:14.200 --> 0:03:15.680 he's saying has changed. 0:03:15.800 --> 0:03:16.880 The meaning is different. 0:03:17.080 --> 0:03:19.359 If you say the story hasn't changed even though inflation 0:03:19.440 --> 0:03:22.320 comes in hotter than expected, you're changing. You're sending a 0:03:22.440 --> 0:03:24.600 very different signal to the one that you were sending 0:03:24.639 --> 0:03:26.000 even a month two months ago. 0:03:26.120 --> 0:03:28.000 And you can see that just frankly in the data 0:03:28.000 --> 0:03:30.480 that they should put out there. Their forecasts exactly are 0:03:30.520 --> 0:03:33.640 not the same. When they talk about core PCEE coming 0:03:33.680 --> 0:03:35.240 to two point six percent at the end of this 0:03:35.320 --> 0:03:38.800 year versus the expected two point four percent previously. When 0:03:38.800 --> 0:03:42.720 you talk about the growth projection increasing materially, this is 0:03:42.840 --> 0:03:46.160 a shifted kind of landscape with higher inflation and a 0:03:46.240 --> 0:03:50.040 higher rate for longer. But they're saying the story hasn't changed, 0:03:50.320 --> 0:03:52.680 which again talks about a green light to stocks, which 0:03:52.680 --> 0:03:53.560 is exactly what we're seeing. 0:03:53.640 --> 0:03:55.720 Let's bring in the guests with equities at old time highs. 0:03:55.720 --> 0:03:57.280 We can catch up with Bill Downley, the former New 0:03:57.360 --> 0:04:01.280 York Fed President and Bloomberg Economic senior advisor. Bill the 0:04:01.280 --> 0:04:03.440 feed Chess said, we're committed to getting inflation back to 0:04:03.480 --> 0:04:06.560 two percent. How committed did he sound in that news conference. 0:04:07.600 --> 0:04:09.160 I think he's changed the story at all. 0:04:09.200 --> 0:04:11.440 I think what people are a little bit flummoxed by 0:04:11.520 --> 0:04:14.400 is the fact that fedsi's stronger growth, a little bit 0:04:14.480 --> 0:04:17.279 higher inflation, yet the same number of indust rate cuts 0:04:17.600 --> 0:04:21.080 penciled in for twenty twenty four. I think the reality 0:04:21.200 --> 0:04:23.880 is it almost flipped. I mean, one more person had 0:04:23.920 --> 0:04:26.280 moved their interest rate forecast up, it would have been 0:04:26.320 --> 0:04:28.400 two rate cuts since the media and rather than three, 0:04:28.440 --> 0:04:31.240 and people probably would be interpreting this in a much 0:04:31.279 --> 0:04:34.360 more different manner. I think, you know, Paul's confident about 0:04:34.400 --> 0:04:36.720 a couple of things. Number one, that inflation is coming down. 0:04:37.520 --> 0:04:40.720 Number two that there that the liver supply is increasing 0:04:40.760 --> 0:04:44.360 and that's creating slacking the labor market. And three ben 0:04:44.440 --> 0:04:47.400 mantary policies tight, and that's why he's confident that eventually 0:04:47.400 --> 0:04:48.160 he is going to cut rates. 0:04:48.279 --> 0:04:48.920 Just a question of. 0:04:48.880 --> 0:04:51.760 Timing, Bill, do you think that there's something incompatible about 0:04:52.000 --> 0:04:56.599 shifting upward a growth target, shifting upward targeted PCE for 0:04:56.640 --> 0:04:58.960 the end of the year, and even shifting up just 0:04:59.000 --> 0:05:00.960 slightly where rates are going to be, and saying the 0:05:01.040 --> 0:05:04.880 story hasn't changed. That the inflation target is still the same, 0:05:04.960 --> 0:05:06.359 it just might take a lot longer. 0:05:07.839 --> 0:05:10.359 I think what people I think misinterpret is the Summer 0:05:10.400 --> 0:05:13.600 of Economic Projections is not a Federal Reserve forecast. It's 0:05:13.600 --> 0:05:17.080 not Powell's forecast. It's a collection of individual forecasts. And 0:05:17.120 --> 0:05:19.359 the Fed doesn't coordinate the s B. They're not trying 0:05:19.360 --> 0:05:22.520 to go out and ask people to write down certain 0:05:22.600 --> 0:05:24.080 numbers to tell a certain story. 0:05:24.279 --> 0:05:26.240 It's just a collection of individual forecasts. 0:05:26.360 --> 0:05:28.280 And as we see in this case, you know, one 0:05:28.320 --> 0:05:31.320 dot moves, you have a slightly different story. So I 0:05:31.360 --> 0:05:34.320 think that Powell's basic message is that the underlying story 0:05:34.400 --> 0:05:37.760 hasn't changed. We didn't completely buy into how good the 0:05:37.800 --> 0:05:40.320 inflation numbers were in the second half of the next year. 0:05:40.560 --> 0:05:43.160 We're not completely put off by the bad inflation readings 0:05:43.160 --> 0:05:44.240 in January and February. 0:05:44.440 --> 0:05:47.120 We still think minetary policy is tight. We still think 0:05:47.160 --> 0:05:47.520 we're going. 0:05:47.440 --> 0:05:50.120 To get more confident about getting inflation down to two percent, 0:05:50.440 --> 0:05:51.960 and so we still think we're going to cut rates 0:05:51.960 --> 0:05:53.920 this year time. He's uncertain, and you know he said 0:05:53.920 --> 0:05:56.159 over and over again it depends on the data, but. 0:05:56.320 --> 0:05:57.640 Not all dots are created equally. 0:05:58.080 --> 0:06:00.320 Where do you think Chairman Powell is on this story 0:06:00.400 --> 0:06:02.359 right now, because it just seems to me there is 0:06:02.360 --> 0:06:04.599 a bias to cut interest rate. Steve Raschudov and Zuhi 0:06:04.680 --> 0:06:06.800 came on this program in the last week or so 0:06:06.880 --> 0:06:09.200 and he said, this Federal Reserve wants to cut interest rates. 0:06:09.240 --> 0:06:12.040 Shaman Pale wants to cut interest rates. Is the bias 0:06:12.080 --> 0:06:14.400 to cut regardless of what the data looks like. 0:06:15.839 --> 0:06:17.520 I wouldn't go as far as to say the bias 0:06:17.600 --> 0:06:19.560 is cut no matter what the data looks like. I mean, 0:06:19.600 --> 0:06:21.760 the Fed's still committed to trying to get inflation down 0:06:21.800 --> 0:06:24.840 to two percent. But I think what's driving Pal is 0:06:24.880 --> 0:06:27.680 the fact that he thinks that monetary policy is restricted. 0:06:27.760 --> 0:06:30.360 So if you stay at the current setting, the connie 0:06:30.400 --> 0:06:33.200 will gradually slow, and that will set the stage for 0:06:33.560 --> 0:06:36.040 less strength in the labor market, which will then motivate 0:06:36.440 --> 0:06:39.200 cutting interest rates. That's what he's highly confident about. When 0:06:39.240 --> 0:06:41.440 he got the question to day about financial conditions, he 0:06:41.560 --> 0:06:45.760 showed no concern at all about easing and making the 0:06:45.760 --> 0:06:49.400 economy too strong. I thought that was noteworthy because in 0:06:49.440 --> 0:06:51.600 the past he's talked about financial conditions a lot. It's 0:06:51.600 --> 0:06:55.560 an important way that monetary policy gets transmitted to the 0:06:55.600 --> 0:06:56.280 real economy. 0:06:56.279 --> 0:06:58.520 But this time he did not take the bit on 0:06:58.560 --> 0:07:00.760 financial conditions easing. And of course when he doesn't take 0:07:00.760 --> 0:07:03.280 debate on financial conditions easy, what does it do. Because 0:07:03.560 --> 0:07:05.320 financial conditions to ease more. 0:07:05.279 --> 0:07:07.280 It's a green light to buy stocks. That's exactly what's 0:07:07.279 --> 0:07:09.200 happened in the S and P five hundred at all 0:07:09.240 --> 0:07:11.920 time highs and up another zero point eight percent. But 0:07:12.040 --> 0:07:14.600 we often hear that we're restrictive, and there are some 0:07:14.600 --> 0:07:16.560 people to come on the program and push back against that. 0:07:16.920 --> 0:07:20.000 Exactly because stocks at all time highs, credit spreads are 0:07:20.040 --> 0:07:23.200 very tight, and unemployment is still below four percent. What 0:07:23.240 --> 0:07:25.320 do you point to if you were back on the FMC, 0:07:25.880 --> 0:07:28.560 just to demonstrate more clearly to people as to why 0:07:28.600 --> 0:07:31.840 this FMC believes we are sufficiently restrictive. 0:07:33.480 --> 0:07:35.840 Well, first of all, the economy does seem like it's slowing. 0:07:35.880 --> 0:07:38.240 I mean, we grew four percent in the third quarter, 0:07:38.320 --> 0:07:40.200 three something set in the fourth quarter. 0:07:40.240 --> 0:07:41.920 It looks like we're gonna get something like two percent 0:07:41.960 --> 0:07:44.400 in the first quarter, and there are signs of weakness. 0:07:44.440 --> 0:07:46.680 And if you look at industrial production over the last year, 0:07:46.720 --> 0:07:47.600 it's actually been down. 0:07:47.880 --> 0:07:49.840 If you look at ours work they've been soft. So 0:07:50.120 --> 0:07:50.920 I think the economy. 0:07:51.080 --> 0:07:53.040 I think the FED is getting enough evidence that the 0:07:53.040 --> 0:07:56.680 economy is slowing that gives them confidence that monetary policy 0:07:56.760 --> 0:08:00.680 is actually restrictive. And of course, you know, as loans mature, 0:08:00.800 --> 0:08:03.720 they get repriced at higher interest rates, and so you know, as. 0:08:03.640 --> 0:08:05.960 Time passes, you stay at the current level of interst. 0:08:05.720 --> 0:08:07.680 Rates, that's going to exert more restraint because it's going 0:08:07.720 --> 0:08:09.960 to drive up financing costs for a lot of smaller 0:08:10.000 --> 0:08:11.720 businesses and for consumers. 0:08:11.840 --> 0:08:13.480 I guess I want to just sit on the whole idea, 0:08:13.480 --> 0:08:15.640 that of financial conditions and the idea that he didn't 0:08:15.640 --> 0:08:17.360 push back and that's why it's a green light to 0:08:17.360 --> 0:08:20.960 buy stocks. Is that correct in your view that this 0:08:21.160 --> 0:08:23.920 isn't something that's going to move against them in terms 0:08:24.000 --> 0:08:28.040 of allowing capital markets to really foster a lot faster 0:08:28.200 --> 0:08:31.120 growth and potentially even more inflation, like we hear from 0:08:31.240 --> 0:08:35.000 lenders themselves, even to middle market companies day after day. 0:08:36.160 --> 0:08:38.200 I don't think it's a green light to buy stocks 0:08:38.240 --> 0:08:41.680 because it could be the wrong decision. Maybe financial conditions 0:08:41.720 --> 0:08:43.920 are making the economy too strong, and maybe they will 0:08:44.000 --> 0:08:46.400 keep inflation too high, and in that case, then the Federaliser 0:08:46.440 --> 0:08:48.000 won't cut rates, and. 0:08:47.600 --> 0:08:49.559 Then financial conditions will will tighten. 0:08:49.679 --> 0:08:52.160 I mean, one reason why financial conditions are as easy 0:08:52.200 --> 0:08:54.280 as they are is because the market is highly confident 0:08:54.320 --> 0:08:55.800 that the Fed's going to cut rates, not just in 0:08:55.840 --> 0:08:58.280 twenty twenty four, but also in twenty twenty five. You 0:08:58.280 --> 0:09:01.200 look at the so for a few market they have 0:09:01.280 --> 0:09:02.800 rates coming down to about three and a half percent 0:09:02.840 --> 0:09:03.360 over the next. 0:09:03.240 --> 0:09:05.600 Couple of years. So it's that prospect of. 0:09:05.640 --> 0:09:09.520 Rate cuts that's really providing support to the stock market 0:09:09.559 --> 0:09:13.360 and to credit spreads. You know, the market basically sees 0:09:13.400 --> 0:09:15.600 the Fed is having their back. If the e commedy weakens, 0:09:15.679 --> 0:09:17.240 the Federal cut rates. I mean, that's the other thing 0:09:17.280 --> 0:09:19.960 that came through in his remarks today. If the labor 0:09:20.000 --> 0:09:22.760 market were to weaken, the Federal Reserve would take that 0:09:22.840 --> 0:09:25.520 into account in terms of the timing of interest rate cuts. 0:09:25.800 --> 0:09:28.160 So we don't really have to worry about the economy 0:09:28.160 --> 0:09:31.400 collapsing because of it starts to weaken significantly, the Federal 0:09:31.400 --> 0:09:33.640 Reserve will ride to the rescue with rate cuts. 0:09:34.559 --> 0:09:36.640 I'm looking right now at FED Fund's futures and it 0:09:36.720 --> 0:09:39.720 points to yesterday a fifty seven percent chance of a 0:09:39.840 --> 0:09:42.640 June rate cut and right now it's something around sixty 0:09:42.679 --> 0:09:46.520 eight sixty nine percent chance, so increasing the expectation for 0:09:46.640 --> 0:09:48.720 a rate cut in June despite the fact that the 0:09:48.800 --> 0:09:52.920 data didn't give j. Powell any extra confidence. Some people 0:09:52.960 --> 0:09:55.520 would look at this and say, Okay, maybe they see 0:09:55.559 --> 0:09:57.800 signs of restrictiveness, although what he pointed to was the 0:09:57.840 --> 0:10:00.520 quits rate, which is the common sort of the thing 0:10:00.559 --> 0:10:03.240 that people point to as signs of weakness. Other people 0:10:03.280 --> 0:10:06.360 would say, why the urgency is as politically motivated to 0:10:06.400 --> 0:10:08.720 get going before the election takes off, because then they 0:10:08.720 --> 0:10:11.720 could potentially be influenced even more. There is there something 0:10:11.800 --> 0:10:17.120 else weighing on the decision making process that's pushing the 0:10:17.120 --> 0:10:19.280 FED to air on the side of being a bit 0:10:19.320 --> 0:10:22.000 more dubvish and allowing this economy to run hot. 0:10:23.280 --> 0:10:26.280 Well, I think, as he said, as inflation comes down, 0:10:26.800 --> 0:10:28.760 then the FED can focus on both sides of their 0:10:28.840 --> 0:10:30.800 dual man and not just the inflation side, but also 0:10:30.920 --> 0:10:32.880 the growth side. And so I think he Fed more 0:10:32.920 --> 0:10:35.960 and more is conscious of the fact that they they 0:10:36.040 --> 0:10:38.160 want to do enough to bring inflation down to two percent, 0:10:38.200 --> 0:10:41.160 but they don't want to overdo it inadvertently cause or recession. 0:10:41.480 --> 0:10:42.880 So in some ways, the Fed is trying to have 0:10:42.960 --> 0:10:44.040 their taken hit it too right. 0:10:44.600 --> 0:10:47.440 They want to ease, but not so soon that they 0:10:47.840 --> 0:10:50.840 that they run the risk of easing prematurely. 0:10:50.440 --> 0:10:52.040 Just to go through these full costs. It's a big 0:10:52.120 --> 0:10:54.880 up with revision to GDP. December projection was one point 0:10:54.880 --> 0:10:58.480 four percent. New projection is two point one col pc eight. 0:10:58.600 --> 0:11:00.400 It goes up from two point four to two point 0:11:00.400 --> 0:11:02.360 six And I just want to get into the details 0:11:02.360 --> 0:11:02.840 of that with you. 0:11:02.840 --> 0:11:03.040 Bill. 0:11:03.120 --> 0:11:05.480 Constant Hunter just wrote in said why is the equity 0:11:05.480 --> 0:11:07.920 market up so much with a basically unchanged dot plot? 0:11:08.120 --> 0:11:11.440 Because productivity is expected to continue, which will allow stronger 0:11:11.480 --> 0:11:15.400 growth with little additional inflationary pressure. This scenario is good 0:11:15.440 --> 0:11:17.280 for risk. Can you talk to us about that, Bill, 0:11:17.320 --> 0:11:21.120 the relationship between stronger growth and maybe muted inflation. Inflation 0:11:21.160 --> 0:11:23.640 that doesn't climb that much off the back of a 0:11:23.640 --> 0:11:26.679 whole economy. How important is that missing ingredient that has 0:11:26.720 --> 0:11:29.600 been missing over the previous ten years, Say that productivity 0:11:29.840 --> 0:11:31.880 that maybe we're starting to see come back through in 0:11:31.920 --> 0:11:34.480 a stronger way, I mean. 0:11:34.400 --> 0:11:35.640 Protin It could be part of that. 0:11:35.679 --> 0:11:37.240 We don't really know what the pro to A trend 0:11:37.240 --> 0:11:38.880 has been it was very weak during the pandemic, and 0:11:38.880 --> 0:11:40.560 that it's been very strong over the last year. I 0:11:40.559 --> 0:11:43.200 think the big thing where the FEDS taking some comfort 0:11:43.200 --> 0:11:45.120 from is the fact that the liver force growth has 0:11:45.120 --> 0:11:50.200 picked up dramatically, both because of participation rates among working 0:11:50.200 --> 0:11:53.439 age population has increased quite a bit and also immigration. 0:11:53.960 --> 0:11:56.280 So you know, the real question is how long is 0:11:56.320 --> 0:11:58.680 that strong labor force growth going to last. If it 0:11:58.800 --> 0:12:00.959 lasts all the way through twenty twenty four, that allows 0:12:01.000 --> 0:12:03.480 the economy to grow, you know, more quickly without it 0:12:03.800 --> 0:12:06.280 generating a tighter labor market. So the growth rate of 0:12:06.280 --> 0:12:07.959 the layer force is can be a very very important 0:12:08.000 --> 0:12:11.720 factor determining exactly when the Fed can cut rates in 0:12:11.760 --> 0:12:12.559 at what growth rate. 0:12:12.920 --> 0:12:15.360 And Bill he did mention immigration, and I really that 0:12:15.440 --> 0:12:17.400 was notable to me because we heard from Morgan Stanley's 0:12:17.400 --> 0:12:19.800 Ellen Sentner, and we also heard from Jon Hatsias at 0:12:19.800 --> 0:12:22.800 Goldman Sachs in his reports where he's talking about immigration 0:12:22.920 --> 0:12:24.760 is one of the big wild cards for why you 0:12:24.840 --> 0:12:28.000 have seen some of the wage pressure come off and 0:12:28.080 --> 0:12:30.280 participation go up, and even some of the unemployment data 0:12:30.320 --> 0:12:32.160 take a little bit higher just because some of the 0:12:32.559 --> 0:12:37.400 new members, new new migrants to this country are filing 0:12:37.840 --> 0:12:41.079 for claims. How much is that changing the dynamic in 0:12:41.160 --> 0:12:42.520 ways that is unappreciated. 0:12:44.200 --> 0:12:46.040 Well, I think you know what's happened is we had 0:12:46.040 --> 0:12:50.640 a very sharp restraint on labor supply during the pandemic 0:12:51.200 --> 0:12:53.720 because we weren't letting letting anybody into this country except 0:12:53.760 --> 0:12:54.440 people who are. 0:12:54.320 --> 0:12:55.280 Coming over illegally. 0:12:56.040 --> 0:12:58.920 And then all of a sudden, you have a ketchup 0:12:58.920 --> 0:13:01.040 for all those people that wanted to get come into 0:13:01.040 --> 0:13:03.959 the country, you know, in twenty twenty and twenty twenty one, 0:13:04.040 --> 0:13:06.720 twenty twenty two, now coming in twenty twenty three. So 0:13:06.760 --> 0:13:09.040 the real question is that just a temporary period of 0:13:09.120 --> 0:13:11.880 ketchup or do we have a sustained growth of faster 0:13:12.440 --> 0:13:15.800 labor force growth. So I think that's that's that's a 0:13:15.800 --> 0:13:16.920 wildcard for the outlook. 0:13:16.960 --> 0:13:19.480 Frankly, hey, Bill enjoyed this fantastic catch out with this 0:13:20.000 --> 0:13:22.520 Bill Anty there, the former New York Fed President, reacting 0:13:22.559 --> 0:13:25.320 to that news conference with Chairman Powell. This afternoon, old 0:13:25.320 --> 0:13:27.480 time highs on the S and P five hundred zero 0:13:27.559 --> 0:13:30.360 point nine percent, up more than one four percentage point 0:13:30.559 --> 0:13:33.360 on the NASNAK Right now, the small CAPSNA performing positive 0:13:33.559 --> 0:13:36.480 by two point two percent on the Russell two thousand. 0:13:36.640 --> 0:13:39.640 In that news conference, Mike McKee asking a couple of questions. 0:13:39.679 --> 0:13:41.839 He's back out of that news conference for us now, Mike, 0:13:41.920 --> 0:13:43.679 your reaction to that one, please. 0:13:45.120 --> 0:13:47.160 Well, basically, I think Bill Dudley has it right. The 0:13:47.280 --> 0:13:50.079 chairman was trying to tell people that the situation hasn't changed, 0:13:50.120 --> 0:13:53.040 even if the FED is being more realistic, shall we 0:13:53.120 --> 0:13:55.439 say about growth and inflation? 0:13:55.679 --> 0:13:55.880 Now? 0:13:56.120 --> 0:13:59.040 The thing he left out is that a significant number 0:13:59.160 --> 0:14:03.600 of members of the committee did raise their inflation forecasts, 0:14:04.600 --> 0:14:08.080 and that has some implications down the road in that 0:14:08.559 --> 0:14:12.040 with only one dot needing to switch, we aren't guaranteed 0:14:12.120 --> 0:14:14.560 three this year. We could see if we get another 0:14:14.600 --> 0:14:18.480 bad inflation report. This easily flipped two dots instead of 0:14:18.520 --> 0:14:21.800 three dots. But for right now, he's saying there isn't 0:14:22.040 --> 0:14:23.040 really a change. 0:14:23.200 --> 0:14:25.280 Bill Dudley pointed to the fact that there was no 0:14:25.360 --> 0:14:28.560 pushback to the financial conditions point, and this was notable 0:14:28.600 --> 0:14:30.600 because this is a second press conference in a row 0:14:30.640 --> 0:14:33.920 that people asked about financial conditions easing and he didn't 0:14:33.960 --> 0:14:36.760 take the bait. How much signal is there in this 0:14:36.920 --> 0:14:39.160 that essentially he is not bothered by the fact that 0:14:39.200 --> 0:14:40.840 we're seeing stocks at all time highs. 0:14:42.640 --> 0:14:45.840 Well, the FED doesn't really worry about stock hitting all 0:14:45.880 --> 0:14:48.560 time highs, except for if there's some sort of bubble 0:14:49.280 --> 0:14:52.040 bursts that they have to deal with. They view it 0:14:52.080 --> 0:14:56.120 as just another way that people are collecting income. Now, 0:14:56.200 --> 0:14:58.800 it could be a bubble, but they're looking at the 0:14:58.920 --> 0:15:01.720 cost of doing this business. And right now what we're 0:15:01.760 --> 0:15:05.120 seeing is the prime rate is unchanged. Mortgage rates have 0:15:05.160 --> 0:15:07.880 come down, but only a little bit. Credit card rates 0:15:07.920 --> 0:15:12.640 have actually gone up on average. Companies are still borrowing, 0:15:12.880 --> 0:15:16.480 and credit spreads have come down, but they're not borrowing 0:15:16.520 --> 0:15:19.600 as much as they were. So at this point, is 0:15:19.640 --> 0:15:24.160 it restrictive? Is it not restrictive? Financial conditions reflect what's 0:15:24.160 --> 0:15:26.600 happening in the stock market and to a lesser extent, 0:15:26.600 --> 0:15:29.120 the bond market, but not necessarily what's happening in the 0:15:29.160 --> 0:15:29.920 real economy. 0:15:30.120 --> 0:15:31.720 Do you get the sense, Mike, that there's a bit 0:15:31.720 --> 0:15:33.640 of hurting cats here? I mean, as Bill was talking 0:15:33.640 --> 0:15:35.720 about Bill dud Layton and former New York FED president, 0:15:35.800 --> 0:15:38.320 that there is a sense it's not a collective view 0:15:38.480 --> 0:15:41.400 of what's going to happen. It's each FED member coming 0:15:41.440 --> 0:15:43.960 out with their projections and him having to cobble together 0:15:44.000 --> 0:15:47.480 a narrative about that. Is that essentially what we saw, 0:15:47.640 --> 0:15:49.960 in particular with the first answer to this question of 0:15:50.000 --> 0:15:52.400 trying to pull together all of these new pieces. 0:15:53.760 --> 0:15:55.680 Yeah, I think the first question was one that any 0:15:55.720 --> 0:15:58.040 one of us would have asked because it was so 0:15:58.240 --> 0:16:02.360 obvious the Fed is raising its inflation forecast, it's growth forecast, 0:16:02.400 --> 0:16:04.320 and not changing. The fact that it wants to cut 0:16:04.360 --> 0:16:08.400 three times makes sense of that. I'm not sure he 0:16:08.560 --> 0:16:11.520 completely made sense of it, except for the fact, as 0:16:11.520 --> 0:16:14.880 Bill Dudley put it out, that not everybody switched their vote. 0:16:14.920 --> 0:16:17.160 We needed one more dot to move, and we could 0:16:17.200 --> 0:16:20.760 have seen that. But they do have a problem with 0:16:20.840 --> 0:16:23.000 the dot plot in that Wall Street tends to see 0:16:23.000 --> 0:16:26.479 it as a collective forecast rather than as a collection 0:16:27.080 --> 0:16:30.760 of nineteen individual forecasts. And if you break that down, 0:16:30.840 --> 0:16:32.760 you do see what I was talking about earlier, that 0:16:33.280 --> 0:16:36.040 a significant number raised their inflation forecast, and so it 0:16:36.040 --> 0:16:39.280 probably wouldn't take much to tip us into two if 0:16:39.480 --> 0:16:43.200 we continue to see this kind of inflation data. It 0:16:43.440 --> 0:16:47.240 was interesting though, that he gave us the Fed's core 0:16:47.320 --> 0:16:52.880 PCE reading basically thirty basis points for the month of February. 0:16:53.000 --> 0:16:56.880 We haven't got that yet, but that would suggest that 0:16:56.960 --> 0:17:00.800 inflation on a PCE basis is not excelting the same 0:17:00.840 --> 0:17:02.840 way we saw CPI and PPI. 0:17:02.560 --> 0:17:05.159 Did and Mi niquay, thank you, sir. I appreciate it. 0:17:05.200 --> 0:17:07.520 Trying to explain what's going on that news conference. Let's 0:17:07.520 --> 0:17:10.360 just put it this way. The optic's not great when 0:17:10.400 --> 0:17:12.120 you look at the medians and the shift we've seen 0:17:12.480 --> 0:17:13.880 now relative to December. 0:17:14.000 --> 0:17:16.680 I do like this explanation that basically it's not the 0:17:16.800 --> 0:17:19.560 sort of cabal coming up with some thesis that he 0:17:19.600 --> 0:17:21.320 can then put out there. It's him trying to pull 0:17:21.359 --> 0:17:23.320 together the different narratives. It is an interesting point that 0:17:23.359 --> 0:17:26.600 they basically leaked the core PCEE. They leaked this course 0:17:26.680 --> 0:17:29.320 sort of key metric as reason to not be more 0:17:29.359 --> 0:17:31.320 hawkish and push back against the market. 0:17:31.480 --> 0:17:33.760 So Pittchit had this to say, the medium didn't change 0:17:33.760 --> 0:17:36.439 for twenty four but the average change by eleven basis points, 0:17:36.640 --> 0:17:38.560 and at four point eight one percent, it's closer to 0:17:38.600 --> 0:17:41.440 two cuts than it is to three. That's a kind 0:17:41.440 --> 0:17:43.399 of way of shaping things up if he wanted to 0:17:43.400 --> 0:17:44.960 frame things at a federal reserve. In fact, that it 0:17:45.040 --> 0:17:47.119 might have been a better response for the fetcham and 0:17:47.440 --> 0:17:49.760 in the news conference to explain what's going on. 0:17:49.880 --> 0:17:52.240 Yeah, on the margins, This does shift people to have 0:17:52.280 --> 0:17:55.600