WEBVTT - Instant Reaction: Jay Powell on Fed Policy 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromwoit's along with Tom Keane and Jonathan Ferrow. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.760 Subscribe to Bloomberg Surveillance. 0:00:18.360 --> 0:00:21.840 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.160 --> 0:00:25.200 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:26.440 the Bloomberg Business app. 0:00:27.040 --> 0:00:30.280 The Chairman of the Federal Reserve System, I'm truly in 0:00:30.480 --> 0:00:33.120 historic day. As or Michael McKee said with some emotion 0:00:33.240 --> 0:00:36.320 at two pm, made super hawkish. Fred I saw a 0:00:36.320 --> 0:00:40.080 couple of research notes saying hawkish hawkish. I don't know 0:00:40.120 --> 0:00:42.720 what hawkish means. I certainly don't know what hawkish squared 0:00:43.400 --> 0:00:46.519 means as well, but there you have some piercing questions there, 0:00:46.560 --> 0:00:49.120 and we've got some of the video to playback. That 0:00:49.200 --> 0:00:52.200 did move the market, Lisa, what I would suggest here 0:00:52.240 --> 0:00:55.240 with markets sort of a sigh of relief. We went 0:00:55.360 --> 0:00:58.880 down off the statement, we came back with a nice 0:00:59.000 --> 0:01:02.240 Nasdaq one hundred turn, Apple breaking out to new highs. 0:01:02.280 --> 0:01:04.560 We may have time to get to that, but it 0:01:04.600 --> 0:01:07.720 was in the two year yield a twenty eight basis 0:01:07.760 --> 0:01:11.760 point swing to a much higher two year yield, resetting 0:01:11.840 --> 0:01:14.800 to the new hawkish hawkish, and then we came in, 0:01:15.240 --> 0:01:17.040 is he calm the markets? 0:01:17.080 --> 0:01:20.160 My takeaway is j Powell wants to sound hawkish. He 0:01:20.200 --> 0:01:22.840 wanted to double down on super hawkishness, and he failed 0:01:22.880 --> 0:01:25.440 because basically the real key moment was that when you 0:01:25.480 --> 0:01:28.960 couldn't commit to any July rate hike. To me, this 0:01:29.000 --> 0:01:32.160 stood out in response to a question about what the 0:01:32.520 --> 0:01:35.560 change in the statement of economic projections to shift upward 0:01:35.640 --> 0:01:38.320 fifty basis points of further rate hikes, what that meant 0:01:38.440 --> 0:01:39.000 about July. 0:01:39.080 --> 0:01:39.640 Take a listen. 0:01:39.800 --> 0:01:41.440 We didn't make a decision about July. I mean, of 0:01:41.480 --> 0:01:45.160 course it came up in the meeting from time to time, 0:01:45.200 --> 0:01:47.280 but really the focus was on what to do today. 0:01:47.360 --> 0:01:50.960 I would say about about July two things. One decision 0:01:50.960 --> 0:01:53.520 hasn't been made to I do expect that it will 0:01:53.520 --> 0:01:54.280 be a live meeting. 0:01:54.600 --> 0:01:57.280 The live meeting was not the same as we have 0:01:57.320 --> 0:01:59.480 an indication that we are going to raise rates, and 0:01:59.520 --> 0:02:01.800 at that point you start to see the shift in markets, 0:02:02.000 --> 0:02:04.080 with equity starting to lift and getting it at one 0:02:04.080 --> 0:02:06.080 point up as much as a half a percent on 0:02:06.080 --> 0:02:09.200 the Nasdaq, and you can see a real retracement of 0:02:09.240 --> 0:02:11.799 those bond yields. Basically, if you're not going to commit 0:02:11.840 --> 0:02:14.520 to a July rate hike, why should we believe the 0:02:14.639 --> 0:02:17.680 average of a statement of economic projections by committee members? 0:02:17.720 --> 0:02:20.160 We chat Aaron a moment. We've got some very important 0:02:20.200 --> 0:02:22.560 stuff from some of the great academics across the nation. 0:02:22.600 --> 0:02:25.639 I'm going to feature Jason Furman here in a bit. 0:02:25.639 --> 0:02:28.000 If you're just joining us, we welcome you on radio, 0:02:28.080 --> 0:02:32.320 on television at Worldwide. Tom Keen and Lisa Bramwis. Jonathan 0:02:32.320 --> 0:02:35.320 Ferrell on assignment on one of three islands in Italy. 0:02:35.360 --> 0:02:37.080 I'm not sure which one is, Like you know, I 0:02:37.080 --> 0:02:37.600 think Capri. 0:02:37.919 --> 0:02:41.680 How do you call vacation assignment? I don't understand. 0:02:41.280 --> 0:02:44.200 Because I'm American. We don't go on vacation. Little faraoh 0:02:44.240 --> 0:02:46.920 goes in holiday, which is a good and beautiful thing. 0:02:46.919 --> 0:02:49.880 We're gonna have some great conversation coming up here and 0:02:49.960 --> 0:02:53.919 in moments, Talia, do we have the Furman tweet here? 0:02:54.000 --> 0:02:56.079 I think this is too important. It's in a good 0:02:56.120 --> 0:02:59.359 SAGIWI and the Jeffrey Rosenberg here in a moment, did 0:02:59.360 --> 0:03:02.520 we get that this is Jason Furman of Harvard. Of course, 0:03:02.560 --> 0:03:05.640 with his public service to the nation and teaching, I 0:03:05.639 --> 0:03:09.480 should say x ten at Harvard, which gives him great 0:03:09.520 --> 0:03:14.400 credit as well. The FOMC is signaling a baby step 0:03:14.520 --> 0:03:18.320 away from a belief in low equilibrium interest rates. The 0:03:18.440 --> 0:03:22.360 median long run FFR was unchanged, two and a half 0:03:22.360 --> 0:03:25.639 of the central tenantcy shifted up, and then all three 0:03:26.240 --> 0:03:29.960 of the lowest long run dots shifted up. Expect more 0:03:30.000 --> 0:03:35.440 of this shift over time, Professor Furman of Harvard University. 0:03:35.840 --> 0:03:39.520 Joining us on Jeffrey Rosenberg, portfolio manager of Systemic Multi 0:03:39.520 --> 0:03:41.640 Strategy Fund at Blackrock. 0:03:42.320 --> 0:03:43.200 Oh, he's not good yet. 0:03:43.200 --> 0:03:47.080 Okay, we'll get to Jeffrey Rosenberg in a moment. Joining 0:03:47.120 --> 0:03:51.120 us now our academic Michael McKee here, which I thought 0:03:51.160 --> 0:03:52.920 what was great, Mic is for the first time in 0:03:52.960 --> 0:03:55.160 age if someone had a ruder question than you, which 0:03:55.160 --> 0:03:59.800 I think was very good. Michael McKee, Jason Furman, I think, 0:03:59.800 --> 0:04:03.280 with summary here of the history that Mike I heard 0:04:03.360 --> 0:04:08.600 in your voice at two o'clock, this is an extraordinary moment, Mike. 0:04:09.240 --> 0:04:13.320 Is this where the FED begins to shift, where we're 0:04:13.360 --> 0:04:16.680 heading up to our former vice chair? Clarity says so 0:04:17.120 --> 0:04:20.479 the Jason Furman alludes to that finally we're beginning to 0:04:20.520 --> 0:04:22.600 find a new level above two percent. 0:04:23.880 --> 0:04:26.800 Well, it may be the issue there is going to 0:04:26.800 --> 0:04:29.520 be how long it takes inflation to come down, which 0:04:29.560 --> 0:04:31.599 is sort of the genesis of the question that I 0:04:31.680 --> 0:04:34.120 asked in terms of whether it's time or data that's 0:04:34.160 --> 0:04:36.120 going to make a difference. I think a lot of 0:04:36.160 --> 0:04:39.520 what went into today's decision was the Reserve Bank of 0:04:39.560 --> 0:04:42.880 Australia and the Bank of Canada took rate moves off 0:04:42.920 --> 0:04:45.440 the table, and the markets were then shocked when they 0:04:45.440 --> 0:04:48.000 had to come back and raise rates again. So they 0:04:48.000 --> 0:04:50.160 don't know if they're going to need to raise rates again. 0:04:50.240 --> 0:04:53.080 They think if nothing changes that they may need to. 0:04:53.320 --> 0:04:56.960 They're giving themselves that flexibility. They don't want markets to 0:04:57.040 --> 0:05:00.400 price in the end of tightening or any of rate 0:05:00.440 --> 0:05:04.120 reductions in the near term. But Pole seemed to indicate 0:05:04.200 --> 0:05:08.279 that while they have these two rate moves priced into 0:05:08.520 --> 0:05:12.200 their dot plot, it doesn't mean they're necessarily going to 0:05:12.279 --> 0:05:15.240 do them. They will see what happens with inflation with 0:05:15.320 --> 0:05:19.120 the economy going forward. So July may be live, as 0:05:19.160 --> 0:05:21.320 he said, but if we don't see a lot of change, 0:05:22.000 --> 0:05:23.320 I think you're going to see a lot of people 0:05:23.440 --> 0:05:26.400 leaning towards the idea of the Fed holding again. 0:05:26.240 --> 0:05:28.200 That I thought was really interesting, and you asked a 0:05:28.200 --> 0:05:30.279 great question which he did not answer. He really just 0:05:30.360 --> 0:05:32.640 kept saying, look at the statement of economic projections, Look 0:05:32.640 --> 0:05:35.839 at the dot plot. How much we witnessing attention between 0:05:35.920 --> 0:05:39.920 j Powell as an individual representative on the FMC versus 0:05:39.920 --> 0:05:42.880 the committee which is significantly more hawkish than he is. 0:05:43.839 --> 0:05:46.360 I think it's going to be very interesting, Lisa, to 0:05:46.400 --> 0:05:48.400 listen to what the Fed officials have to say over 0:05:48.440 --> 0:05:52.000 the coming weeks, Because if you had asked where we 0:05:52.040 --> 0:05:55.440 would get dissents at this meeting, we would have said, 0:05:55.680 --> 0:05:57.400 and I think everybody on Wall Street would have said, 0:05:57.400 --> 0:06:00.039 from the hawkish members. But now it appears that the 0:06:00.080 --> 0:06:04.280 hawks led the way, Powell going in, Jefferson going in, 0:06:04.600 --> 0:06:08.479 and William's going in, essentially leaning towards the pause and 0:06:08.600 --> 0:06:12.080 leaning perhaps more Dubvish than others. So what was it 0:06:12.160 --> 0:06:15.120 that drew them into this idea of an additional two 0:06:15.200 --> 0:06:17.760 rate moves? If they indeed joined in, it's hard to 0:06:17.800 --> 0:06:20.440 imagine Powell not doing it. But there were some dots 0:06:20.440 --> 0:06:25.960 below the new median, but it does seem that the 0:06:26.000 --> 0:06:30.640 group as a whole group more hawkish. So what brought 0:06:30.680 --> 0:06:34.160 that on? And is their division? Was their division or 0:06:34.160 --> 0:06:36.320 did we all kind of misread it. It's it be 0:06:36.360 --> 0:06:38.279 interesting to listen to their speeches in the next couple 0:06:38.320 --> 0:06:38.880 of weeks. 0:06:38.680 --> 0:06:41.200 Agreed, and he even indicated that listen to their speeches 0:06:41.240 --> 0:06:43.080 and they'll tell you what they think. Michael VICKI thank 0:06:43.120 --> 0:06:44.840 you so much as always for your terrific world and 0:06:44.960 --> 0:06:47.120 just sort of saying right now we are seeing that 0:06:47.200 --> 0:06:50.719 lift reignite inequities NASDAC up three times on the percent 0:06:51.120 --> 0:06:54.360 as you really reassess the commitment that this FMC truly 0:06:54.440 --> 0:06:56.400 has trans rates next. 0:06:56.160 --> 0:06:58.400 Month critically, and this is perfect to go to Jeffrey 0:06:58.480 --> 0:07:00.839 Rosenberg on the VICS, which is in the equity space. 0:07:00.920 --> 0:07:04.040 This is the volatility measurement around the standard of course 0:07:04.080 --> 0:07:07.920 five hundred bursts down to a constructive thirteen point nine. 0:07:07.960 --> 0:07:11.720 A boy, we taken volatility out of the equity markets here, 0:07:11.760 --> 0:07:14.520 and of course Jeff Rosenberg that's part of his view 0:07:14.560 --> 0:07:18.280 as the systemic multi strategy fund manager for black Rock. 0:07:18.360 --> 0:07:21.000 He's been so wonderful to be with surveillance here for 0:07:21.080 --> 0:07:22.640 a good amount of time. Jeff, I'm going to go 0:07:22.680 --> 0:07:24.280 to the history right now. We'll get to the vix 0:07:24.360 --> 0:07:27.080 in a moment and what it means for the yield space. 0:07:27.440 --> 0:07:30.880 Professor Furman at Harvard says, today's a sea change. And 0:07:31.000 --> 0:07:34.520 finally we're getting the verbiage from our central bank to 0:07:34.600 --> 0:07:36.720 get away from what you know. I'm going to associate 0:07:36.760 --> 0:07:39.400 this with John Taylor, where we had a run rate 0:07:39.520 --> 0:07:42.080 under two percent one point eight one point seven percent. 0:07:42.440 --> 0:07:45.480 We use two percent as a language, and finally we're 0:07:45.520 --> 0:07:47.720 going to start admitting we're going to come down to 0:07:47.960 --> 0:07:53.000 something above two percent. Is that what hawkish hawkish meant today? 0:07:53.600 --> 0:07:55.960 You know, it could be part of that Tom That's a. 0:07:56.120 --> 0:07:58.600 That's a that's a huge deal long run, because it 0:07:58.680 --> 0:08:02.800 implies that lot or space for the FED to reach 0:08:02.840 --> 0:08:05.920 its terminal rate because the real neutral rate is higher 0:08:06.200 --> 0:08:10.200 than anticipated. I'm not sure that's so clear. I think 0:08:10.200 --> 0:08:13.080 that's an interesting read. I think what's really clear here 0:08:13.120 --> 0:08:15.680 in the market reaction is the FED, you know, mark 0:08:15.760 --> 0:08:16.800 to market and upgrade. 0:08:16.800 --> 0:08:19.400 It's upgraded its assessment. 0:08:19.120 --> 0:08:23.640 Of the economy, and you know that's good news in 0:08:23.680 --> 0:08:26.320 some sense. This is about you know, really pushing back 0:08:26.480 --> 0:08:34.800 hard against the recession. Consensus, the recession expectations from consensus 0:08:34.880 --> 0:08:38.640 in terms of economics, and consistent refrain all year long 0:08:38.720 --> 0:08:41.679 that it's just around the corner. It's just around the corner, 0:08:42.200 --> 0:08:44.760 not around the corner. And yes, you've got the FED 0:08:44.800 --> 0:08:47.440 who's got to push back against that. But for the 0:08:47.520 --> 0:08:50.280 kind of back in and forth in financial markets is 0:08:50.280 --> 0:08:52.600 a little bit about, hey, this economy is a little 0:08:52.600 --> 0:08:56.480 bit more resilient, and Powell admitted it, it's been much 0:08:56.520 --> 0:08:59.920 more resilient to the five hundred basis points than they expect, 0:09:00.080 --> 0:09:02.319 than anyone expected, both in terms of the economy. 0:09:02.760 --> 0:09:05.199 Jeff, to me, this is a foundational moment, and your 0:09:05.280 --> 0:09:09.720 colleague Waylee nailed this a couple of days ago, and 0:09:09.760 --> 0:09:13.040 that there just seems to be a resilience here that 0:09:13.240 --> 0:09:17.439 deserves a higher interest rate structure. Did we get wrong 0:09:17.559 --> 0:09:22.960 the recession idea in the sense that for whatever reason, technology, demographics, 0:09:23.040 --> 0:09:26.480 the other factors. Blenchard talks about that this is just 0:09:26.520 --> 0:09:31.720 simply a much more resilient American economy that we have 0:09:31.760 --> 0:09:33.079 to deal with in finance. 0:09:33.600 --> 0:09:37.920 Yeah, and resilient to what resilient to interest rate sensitivity? 0:09:38.160 --> 0:09:38.280 Right? 0:09:38.360 --> 0:09:42.480 I got done talking about housing interest rate sensitive sectors 0:09:42.559 --> 0:09:45.160 they're the most, they're the fastest to respond. 0:09:45.440 --> 0:09:48.040 Yes, we've seen that. What we haven't seen is the 0:09:48.080 --> 0:09:50.160 rest of the economy. And so what that might. 0:09:50.760 --> 0:09:55.080 Imply is a lot less interest rate sensitivity to tightening, 0:09:55.360 --> 0:09:58.400 and higher interest rate than is expected. And so either 0:09:58.480 --> 0:10:01.800 you need a lot more and what's really missing here 0:10:01.880 --> 0:10:04.120 is the admission that you need to do a lot 0:10:04.160 --> 0:10:06.920 more damage to the labor markets to really reign in 0:10:06.960 --> 0:10:07.640 that inflation. 0:10:08.040 --> 0:10:08.840 Otherwise you're going. 0:10:08.760 --> 0:10:11.720 To be living with a lot longer, more persistent inflation 0:10:12.640 --> 0:10:15.480 than a lot of the forecasts, including the FED, and 0:10:15.520 --> 0:10:17.319 these updated SAP are implying. 0:10:17.679 --> 0:10:20.320 Jeff, do you believe Fed Chair J Powell that this 0:10:20.400 --> 0:10:21.679 FED is going to go twice more? 0:10:23.320 --> 0:10:26.480 I think twice more is not too high of a bar. 0:10:26.559 --> 0:10:29.000 I think the market had one more. A little bit 0:10:29.000 --> 0:10:32.120 of the surprise in the sep here is that you've 0:10:32.160 --> 0:10:35.439 got two more. I don't really think that's the surprise. 0:10:35.559 --> 0:10:37.880 I think the surprise is what I was just sort 0:10:37.880 --> 0:10:42.800 of implying that, if indeed you don't see inflation. 0:10:42.520 --> 0:10:44.720 Respond more aggressively. 0:10:45.440 --> 0:10:48.880 And to Tom's first question, if indeed the real neutral 0:10:48.960 --> 0:10:52.200 rate is much higher than what Williams was just highlighting 0:10:52.200 --> 0:10:55.280 in a recent speech. Yes, and what people think is, 0:10:55.640 --> 0:10:59.040 you know, no change from the pre COVID environment, then 0:10:59.080 --> 0:11:02.720 that terminal rate is much higher. Not fifty basis points, 0:11:02.720 --> 0:11:05.400 but hundreds of basis points, and that would end up 0:11:05.400 --> 0:11:07.600 being a big surprise. I'm not saying that's where we're going. 0:11:07.760 --> 0:11:10.960 But the longer that you don't see the response in 0:11:11.080 --> 0:11:15.280 labor markets in inflation, the more the data is telling 0:11:15.320 --> 0:11:18.320 you that you're not tight in terms of policy, and 0:11:18.400 --> 0:11:20.560 to get tight you got to go a much higher. 0:11:20.800 --> 0:11:23.000 If that's the case, then why are equity markets up 0:11:23.080 --> 0:11:25.960 right now? Why is the Nasdaq actually gaining stability and 0:11:26.000 --> 0:11:29.240 then some even on the heels of projected further tightening. 0:11:30.320 --> 0:11:32.760 So I think, you know, there's a big story around 0:11:32.760 --> 0:11:37.520 the Nasdaq and some concentration issues around spots. 0:11:38.240 --> 0:11:41.040 Tech is back as sort of the safe haven and 0:11:41.120 --> 0:11:41.880 the safe. 0:11:41.600 --> 0:11:43.280 Place to go, so you have a little bit of 0:11:43.320 --> 0:11:45.719 that issue. It's not a high breadth market move. 0:11:45.760 --> 0:11:48.280 You well, one a second, but Jeff, I'm sorry to interrupt, 0:11:48.320 --> 0:11:50.640 and I realized this is difficult, but this is important 0:11:50.640 --> 0:11:53.280 because it's not just what it has been doing. It 0:11:53.360 --> 0:11:56.520 is in response to what we saw today that as 0:11:56.760 --> 0:11:59.319 j Powell started to talk, and as he was basically 0:11:59.360 --> 0:12:01.760 saying they have no committed to a July rate hike, 0:12:02.080 --> 0:12:06.040 you saw a real enthusiasm kind of percolate up. Doesn't 0:12:06.040 --> 0:12:08.640 that tell you something more than just simply AI hype. 0:12:09.679 --> 0:12:10.920 Well, it is more than that. 0:12:11.040 --> 0:12:14.120 And what I was going to extend that is it's 0:12:14.240 --> 0:12:17.640 back to what is the safe haven for equity investors. 0:12:17.679 --> 0:12:21.000 The safe haven is large cap tech and so you've 0:12:21.040 --> 0:12:24.839 added a few new semiconductor companies in that list. We 0:12:24.960 --> 0:12:30.280 got new funny acronyms to describe that new equity market concentration. 0:12:30.920 --> 0:12:34.000 But it's about where do I go when I'm uncertain. 0:12:34.120 --> 0:12:36.959 I go into these large cap companies because that's what's say. 0:12:37.080 --> 0:12:39.560 If you want to see the broader economic impact, then 0:12:39.600 --> 0:12:41.520 you got to look at Russell two thousand. You got 0:12:41.520 --> 0:12:43.400 to look at small caps and you see a big 0:12:43.440 --> 0:12:46.000 gap in that performance today. I think that's where you 0:12:46.160 --> 0:12:49.920 search more about the economic sensitivity and where the vulnerabilities. 0:12:49.960 --> 0:12:52.520 Thank you very much for pulling that up. 0:12:52.559 --> 0:12:55.199 And that's where you see the disconnected and that's where 0:12:55.240 --> 0:12:58.480 I think you can square somewhat of the Oh that's 0:12:58.480 --> 0:13:00.880 got to do more, that's not so good for the economy. 0:13:01.080 --> 0:13:02.160 Okay, so that's not so. 0:13:02.200 --> 0:13:06.280 Good for the movement into economic sensitive stuff. If you 0:13:06.360 --> 0:13:08.120 if you run this back a little bit further from 0:13:08.160 --> 0:13:10.160 the beginning of the month, from the end of May payrolls, 0:13:10.160 --> 0:13:13.880 you see Russell was actually leading the stock markets. 0:13:13.920 --> 0:13:15.760 And so this kind of rotation is. 0:13:15.720 --> 0:13:17.640 About uh oh, all right, I go back to my 0:13:17.760 --> 0:13:20.920 safe haven. It's just my safe haven in this new 0:13:20.960 --> 0:13:23.960 world is large cap tech. It's not the two The 0:13:23.960 --> 0:13:26.680 Fed's raising rates, and so this is where you see 0:13:26.720 --> 0:13:27.600 market dynamics going. 0:13:27.600 --> 0:13:29.000 I think it's all very consistent. 0:13:29.559 --> 0:13:32.080 Jeff Rosenberg, thank you so much today with black Rock 0:13:32.160 --> 0:13:34.400 on a busy, busy afternoon. You want to get Michael 0:13:34.440 --> 0:13:37.360 McKeon here for one more question before we get to 0:13:37.400 --> 0:13:40.800 doctor Carpenter as well. Mike, I'm going to assume the 0:13:40.840 --> 0:13:45.000 dots of twenty twenty three, I was twenty five sprawl 0:13:45.040 --> 0:13:48.280 from Bullard to Goulesby. What are we going to hear 0:13:48.360 --> 0:13:51.480 in the next FED speak Derby? How do all these 0:13:51.559 --> 0:13:55.320 speakers deal with a hawkish hawkish statement? 0:13:56.559 --> 0:13:58.400 Well, I think first of all, you throw out the 0:13:58.400 --> 0:14:01.200 twenty twenty five dots because those are just sort of 0:14:01.360 --> 0:14:02.240 darts on a board. 0:14:03.160 --> 0:14:06.559 They don't have Yes, you may. 0:14:07.800 --> 0:14:09.400 They don't have any idea where we're going to be 0:14:09.440 --> 0:14:12.520 in twenty twenty five. They don't know about twenty twenty four. 0:14:12.800 --> 0:14:15.400 As Powell admitted today, the economy has surprised with its 0:14:15.440 --> 0:14:18.559 strength this year, and we got these surprising move in 0:14:18.679 --> 0:14:21.200 the dot plot this time. So I wouldn't look that 0:14:21.320 --> 0:14:23.480 far out. But I think what you do want to 0:14:23.560 --> 0:14:27.920 say is that we're going to see who can define 0:14:28.080 --> 0:14:31.880 what it would take for them to move again. Obviously 0:14:31.920 --> 0:14:34.760 Austin Golesby probably doesn't want to do very much. But 0:14:35.000 --> 0:14:37.160 if the Fed is going to move, if Jim Bullard 0:14:37.200 --> 0:14:39.120 is going to move, is it going to be that 0:14:39.320 --> 0:14:42.920 time question, the fact that inflation doesn't come down, or 0:14:42.960 --> 0:14:45.280 is it going to be the fact that inflation goes 0:14:45.320 --> 0:14:46.200 back up again. 0:14:46.280 --> 0:14:47.760 That's what they need to find out. 0:14:48.080 --> 0:14:51.040 Based on this question that Tom is rightly asking. Are 0:14:51.040 --> 0:14:53.960 you seeing this shift as evidenced by some of these 0:14:54.000 --> 0:14:57.200 projections and even what we heard from j Powell? Are 0:14:57.240 --> 0:15:00.120 they moving the terminal rate higher than what we've I'm 0:15:00.120 --> 0:15:00.720 accustomed to. 0:15:01.840 --> 0:15:03.400 Well, yes, I think they are. 0:15:03.800 --> 0:15:07.160 They do think that we could go to as much 0:15:07.240 --> 0:15:09.560 as five and three quarters percent. 0:15:09.360 --> 0:15:10.160 Or six percent. 0:15:10.480 --> 0:15:13.000 The issue is if they start to get that high, 0:15:13.160 --> 0:15:15.680 what second round effects are there, and so they're going 0:15:15.720 --> 0:15:17.840 to be reluctant to move, but they want to leave 0:15:17.880 --> 0:15:21.360 that possibility open because the economy has been so strong 0:15:21.400 --> 0:15:23.920 and they don't think that it is going to react 0:15:24.480 --> 0:15:27.520 as it has in the past. And one interesting thing 0:15:27.560 --> 0:15:30.040 today is by moving up to one percent for a 0:15:30.160 --> 0:15:32.080 GDP growth figure this year, they're. 0:15:31.920 --> 0:15:34.359 Implicitly pricing out a recession. 0:15:34.640 --> 0:15:36.720 So while pal says the risks are still onto the 0:15:36.800 --> 0:15:39.920 upside for inflation, they're not to the downside anymore, at 0:15:40.000 --> 0:15:42.200 least as far as the Fed is concerned, it seems, 0:15:42.760 --> 0:15:45.760 with going too far, tightening too much and sending the 0:15:45.800 --> 0:15:47.080 economy into contraction. 0:15:47.520 --> 0:15:50.360 Michael McKeith, thank you so much, really really exceptional. They're 0:15:50.360 --> 0:15:52.880 reporting us out at two o'clock and how original this 0:15:52.960 --> 0:15:55.960 statement was today, mister McKee in charge of all of 0:15:56.000 --> 0:16:00.960 our economic coverage, we finished strong. Lisa with the or ghost. 0:16:00.840 --> 0:16:03.560 With someone who has extensive experience at the Federal Reserve 0:16:03.960 --> 0:16:06.680 and beyond in government making some of these decisions and 0:16:06.680 --> 0:16:10.160 seeing the mechanics of it. Someone who currently heads the 0:16:10.320 --> 0:16:13.800 economics team as global chief Economist at Morgan Stanley, Seth 0:16:13.800 --> 0:16:17.120 Carpenter joining us now, and I am curious your reaction. 0:16:17.520 --> 0:16:20.720 Why are markets up if the FED is shifting upward 0:16:20.800 --> 0:16:22.800 its expectation of terminal rates. 0:16:24.080 --> 0:16:26.080 Yeah, I think there was a lot to impact there. 0:16:26.120 --> 0:16:28.240 I think Lisa was listening to the show earlier and 0:16:28.280 --> 0:16:32.880 you pointed out that Powell was unwilling to commit to July, 0:16:33.200 --> 0:16:35.760 called it a live meeting, which I think makes sense, 0:16:35.800 --> 0:16:38.080 but he didn't want to lock himself in. And I 0:16:38.080 --> 0:16:41.400 think the equity market might be saying, gosh, maybe we 0:16:41.440 --> 0:16:43.480 got off easy. There could have been an even more 0:16:43.640 --> 0:16:46.920 hawkish outcome. Look what happened with the dots, and now 0:16:47.400 --> 0:16:50.000 Powell is saying, Okay, that's not baked in the cake. 0:16:50.040 --> 0:16:52.280 So I think your analysis earlier was pretty. 0:16:52.040 --> 0:16:53.640 Spot on at this point. 0:16:53.840 --> 0:16:56.560 Was that a failure at a time when inflation has 0:16:56.600 --> 0:17:00.160 been sticky or is it FED seeing something that perhaps 0:17:00.160 --> 0:17:03.920 others are overlooking in terms of how quickly this economy 0:17:03.960 --> 0:17:04.879 is seeing justinflation. 0:17:06.640 --> 0:17:08.399 I wouldn't call it a failure, and I don't know 0:17:08.440 --> 0:17:10.840 that they're seeing something that other people are. And I 0:17:10.840 --> 0:17:14.400 think one way you can interpret the rates market reaction, 0:17:14.680 --> 0:17:18.439 which is say, not solely pricing in what dot plot says, 0:17:18.600 --> 0:17:22.720 is the market understands that the FED decisions will be 0:17:22.800 --> 0:17:25.440 dependent on the incoming data, and I don't think the 0:17:25.480 --> 0:17:28.399 market shares the view that inflation is going to be 0:17:28.480 --> 0:17:30.480 nearly as high as what the Fed's written down. 0:17:30.600 --> 0:17:32.560 Their forecast for core. 0:17:32.400 --> 0:17:35.159 PCE inflation at the end of this year went up 0:17:35.200 --> 0:17:39.840 by a sizeable amount. Looking at my colleague Ellen Zenner 0:17:39.920 --> 0:17:43.400 and her team's forecast for CPI inflation, just the next 0:17:43.480 --> 0:17:46.000 print that we get next month, it's going to be really, 0:17:46.040 --> 0:17:49.080 really hard to get anywhere close to the Fed's core 0:17:49.320 --> 0:17:52.040 inflation forecast for this year. And so if we're right, 0:17:52.119 --> 0:17:54.080 and if the market's right on where inflation is going 0:17:54.160 --> 0:17:57.080 to go for the next print, boyd, the committee probably 0:17:57.119 --> 0:17:58.560 will be seeing a different tune. 0:17:58.640 --> 0:18:00.600 I think that's part of what's going on. 0:18:00.720 --> 0:18:03.400 That will actually, I think did a reasonably good job 0:18:03.520 --> 0:18:07.040 keeping that hawkish option there while not having a hike 0:18:07.080 --> 0:18:07.639 at this meeting. 0:18:07.920 --> 0:18:10.399 It's original territory to say the least focus is not 0:18:10.440 --> 0:18:14.200 a cliche. This is not something Seth. Carpenter was taught 0:18:14.200 --> 0:18:17.640 at Princeton by a guy named Bernanki and Alan Blinder 0:18:17.720 --> 0:18:22.080 and other greats of a Princeidon. Doctor Carpenter, I look 0:18:22.119 --> 0:18:24.359 at where we are, and if I can state it 0:18:24.520 --> 0:18:29.720 is original territory, it's in some form original economics. Do 0:18:29.800 --> 0:18:33.040 we just simply have to really start thinking of a 0:18:33.160 --> 0:18:38.040 higher our start is Jeff Rosenberg said, maybe away from 0:18:38.040 --> 0:18:41.080 what John Williams codified a few weeks ago. 0:18:42.119 --> 0:18:45.399 I'm not convinced that we have enough information yet to 0:18:45.440 --> 0:18:48.480 get there. And in fact, any estimation that gets done 0:18:48.760 --> 0:18:51.720 of our star just takes so many years of data 0:18:51.760 --> 0:18:53.320 to get any sort of precision on it. 0:18:53.800 --> 0:18:55.280 And the committee really. 0:18:55.040 --> 0:18:57.760 Has to make decisions at a meeting by meeting basis. 0:18:57.800 --> 0:19:00.600 So they're going to do in practice what all of 0:19:00.640 --> 0:19:03.919 those fancy statistical techniques do, which is look at the 0:19:04.000 --> 0:19:07.600 data and ask the question, given where the industrate is now, 0:19:07.760 --> 0:19:10.800 is inflation rising or falling? Is the economy slowing or 0:19:10.840 --> 0:19:13.680 speeding up? And if the answer is inflation's coming down 0:19:13.720 --> 0:19:15.600 a bit and the economy is slowing down a bit, 0:19:15.640 --> 0:19:19.800 then you just conclude we're above are star. It's literally 0:19:19.840 --> 0:19:22.000 as simple as that, and in real time, it is 0:19:22.040 --> 0:19:23.040 the best that they can do. 0:19:23.920 --> 0:19:27.479 I first met ellen Zettner in a true expertise of 0:19:27.560 --> 0:19:31.359 measuring the American consumer. I believe it saw a FED 0:19:31.359 --> 0:19:34.720 today walk greatly away from a recession call. Maybe we'll 0:19:34.720 --> 0:19:38.520 see contractions slow down in some form of stag nation. 0:19:38.680 --> 0:19:42.640 Who knows, but doctor Carpenter. If I look at Alan 0:19:42.760 --> 0:19:46.679 Zettner's study of the American consumer, the great miscall of 0:19:46.720 --> 0:19:50.560 the last six months is this is a good economy. 0:19:50.680 --> 0:19:54.240 We are buoyant, we are spending money. Do you see 0:19:54.280 --> 0:19:57.479 any amendment of that today? I mean, can we believe 0:19:57.480 --> 0:20:01.720 in that forward that it's a better than good econom. 0:20:02.200 --> 0:20:04.959