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Speaker 2: This is a breaking news update from Bloomberg instant reaction
Speaker 2: and analysis from our three thousand journalists and analysts around
Speaker 2: the world.
Speaker 3: I'm going to start with a quote from a lay
Speaker 3: fed chair This one from Anna Greenspan.
Speaker 2: I know you think you understand.
Speaker 3: What you thought I said, but I'm not sure you
Speaker 3: realize that what you heard is not what I meant.
Speaker 3: I don't think anyone really understood much the last forty
Speaker 3: five minutes in the market right now, still trying to
Speaker 3: figure it out. The chairman talked about this market move
Speaker 3: we've seen in between meetings. This market is playing the
Speaker 3: ball and not the referee. Take a listen.
Speaker 4: Nominal and real yields are materially higher across the treasury curve.
Speaker 4: In fact, some of the increases in market interest rates
Speaker 4: between FMC meetings are among the most significant in the
Speaker 4: last last two decades. In the inter meeting period, market
Speaker 4: attention centered on real data and real economic developments. Prices
Speaker 4: reacted in real time to incoming information, and the reduction
Speaker 4: in forward guidance may have been a factor. Market participants
Speaker 4: are learning to play the ball, not the referee, and
Speaker 4: market prices will continue to respond in the direction and
Speaker 4: magnitude they see fit.
Speaker 3: So it's the FED chair outsourcing monetment policy to the market.
Speaker 3: And if it is, is this market starting to wonder
Speaker 3: whether this FED will actually follow through the most important
Speaker 3: part of this move today in this market, crossessor is
Speaker 3: in the bond market.
Speaker 2: Check this out.
Speaker 3: Look at the yield curve two year yields questioning whether
Speaker 3: this FED will actually follow through on an interest rate
Speaker 3: high yields dropping at the front end by six basis points,
Speaker 3: and with that questioning the conviction to actually do something
Speaker 3: about the inflation that the chairman is telling you they
Speaker 3: will do something about. Look at the longer end of
Speaker 3: the yield curve, thirties untethered yields up by seven basis
Speaker 3: points five p. Sixteen on thirties, Lisa, that's an interesting
Speaker 3: market reaction to a FED share that for many was
Speaker 3: confusing over the past forty five minutes.
Speaker 5: Frankly, he came out said that he was really happy
Speaker 5: to have the input of the market, but he wasn't
Speaker 5: outsourcing the Fed's decision to the market. He talked about
Speaker 5: these four goals, these deep questions that we talk about
Speaker 5: every single day, but gave no conclusion as to direction.
Speaker 5: You talked about a divided committee as not divided but
Speaker 5: united in a determination to bring down inflation, and this
Speaker 5: market said, you know what, we're going to call bs
Speaker 5: on this, and you're not going to hike rates and
Speaker 5: you're going to try to job on us, and you
Speaker 5: think that we're going to do the job for you,
Speaker 5: and so they're calling the bluff.
Speaker 6: I would like us to extend the show to five PM. Frankly, John,
Speaker 6: I know you got early hours tomorrow morning, but that
Speaker 6: was in historic press conference. There was all sorts of
Speaker 6: little tidbits there, and we've got wonderful guests to talk
Speaker 6: to about this, but every sense of that was radically
Speaker 6: different than anything we've seen in recent.
Speaker 3: And allow me to quote another central banker, and this
Speaker 3: is the FED governor on the board right now, Chris Waller,
Speaker 3: going into the quiet period, he made this statement, Stanley's
Speaker 3: staring at inflation until it mounts before our withering gaze
Speaker 3: is not an option, Bramo, Is it an option?
Speaker 5: So what I love from Renaissance and Macro from Neil
Speaker 5: Duddy came over and he said, worsh judgment is this
Speaker 5: is a period of watchful thinking. So I guess the
Speaker 5: withering gaze is an option. Because ultimately, Kevin worsh could
Speaker 5: not answer the question, if you still believe that inflation
Speaker 5: is a problem, why did you not hike today? He
Speaker 5: could not answer that question, what would make you hike?
Speaker 2: Reaction function?
Speaker 5: Reaction function is just guidance, is just a prediction hidden
Speaker 5: in that?
Speaker 7: Is that true?
Speaker 5: No, it's an understanding of which data and what can
Speaker 5: potentially make you pull the trigger. What I also think
Speaker 5: was interesting he kept saying that the market is a
Speaker 5: pure input into what the market believes, that the data
Speaker 5: showing us no. And Neildta points this out too. It
Speaker 5: was a reaction to Fed speeches. They were indicating they
Speaker 5: were moving any more hawkish direction. This is very difficult
Speaker 5: to say that this market is just playing the ball
Speaker 5: and not the referee.
Speaker 2: Three descents.
Speaker 3: At this Federal Reserve meeting, Race kept unchanged the confusing
Speaker 3: news conference for the past forty five minutes. Bramo, did
Speaker 3: you nail it?
Speaker 5: I missed and missed by twenty seconds. I believe no, no, no,
Speaker 5: by by seventeenth.
Speaker 3: On how much this news conference would last, I came
Speaker 3: pretty close.
Speaker 7: Forty five thirty two.
Speaker 6: It was a forty five play the Ball from Caddyshack.
Speaker 2: You're not sure where that quote is from? Play the Ball,
Speaker 2: not the referee? Wow, Like, well, no, I think so,
Speaker 2: from the world. Yeah, I think so.
Speaker 6: It was from the rural.
Speaker 2: Okay, all right?
Speaker 6: Two?
Speaker 3: Your yearlds down by seven basis points. Stopped to running
Speaker 3: the program Towston's Slock of Apolo where it's around the
Speaker 3: table Tilston, Good afternoon, for a big challenge for you, buddy.
Speaker 3: First up, translate the last forty five minutes. What did
Speaker 3: your land?
Speaker 8: Well, the first observation is that pol action you also
Speaker 8: had three descents in April, and you also have three
Speaker 8: descents in December, so having descents is not unusual. That's
Speaker 8: not a watsht thing. We also had that on the Powell.
Speaker 8: But that being said, there's very little to hang your
Speaker 8: hat on in the market. We didn't get any guidance
Speaker 8: in any direction, and it was also a little bit
Speaker 8: complicated to figure out what was the basis for the
Speaker 8: decision today, in the sense of when Mike McKee asked, well,
Speaker 8: what are we waiting for? We didn't get a clear
Speaker 8: answer for what exactly are we waiting for? Which was
Speaker 8: of course, was a subtle way to try to get
Speaker 8: some forward guidance.
Speaker 7: But this is the part of the challenge.
Speaker 8: We're not delivering forward guidance that when Mike and others
Speaker 8: ask about what is it that you're watching, what exactly
Speaker 8: should we be watching, then the answer is that we're
Speaker 8: not really giving any guidance and the market can figure
Speaker 8: it out on their own.
Speaker 3: The price for that is volatility, and you could see
Speaker 3: that in the swing in the market over the last
Speaker 3: hour or so. Equities were positive, if they turned negative again,
Speaker 3: bring up the bondboard if we can, and just look
Speaker 3: at twos, tens, and thirties. This move in the yield
Speaker 3: curve toss And I'd love to get your reaction to this,
Speaker 3: because you were watching this closely throughout the news conference,
Speaker 3: this move of the front end and how it informs
Speaker 3: this move at the long end of the curve.
Speaker 8: Well, what was interesting was that tenure rates really went
Speaker 8: up and down like a yo yo better part of
Speaker 8: the conference.
Speaker 7: That's a little bit unusual.
Speaker 8: Normally ten ure rates take a step either up or
Speaker 8: down as we move forward in the press conference. But
Speaker 8: the fact that there was such a swing it is
Speaker 8: also telling you that markets are trying to figure out
Speaker 8: are they hiking at the next meeting. So yes, from
Speaker 8: Futures are saying now there's a seventy percent chance that
Speaker 8: they will hike at the next meeting. But what was
Speaker 8: also the interesting question is when he was asked about, well,
Speaker 8: if markets are not predicting, say eighty percent ninety percent
Speaker 8: chance of a hike going into a meeting, are you
Speaker 8: going to deliver on that, And the answer was no,
Speaker 8: we're not going to deliver on that. It will all
Speaker 8: be contingent on the debate that we're having, and markets
Speaker 8: may be pricing what they're pricing, but we're still going
Speaker 8: to go with just what the committee is thinking. So
Speaker 8: in that sense, the market pricing in some sense is helpful.
Speaker 8: But at the same time, we in markets can't really
Speaker 8: even rely on that if pictations are saying we're getting
Speaker 8: a hike at the next meeting, that we are actually
Speaker 8: getting a hike.
Speaker 5: What this market is saying right now is that he's bluffing,
Speaker 5: because if you take a look at it, it was
Speaker 5: seventy percent chance of a September rate hike. Now it's
Speaker 5: fifty percent chance of a September rate hike, and dropping
Speaker 5: in real time. How much do you view the thirty
Speaker 5: is the real tell in terms of what the market
Speaker 5: is taking from this fad, which is potentially you're not
Speaker 5: going to hike rates and you're going to hope that
Speaker 5: job owning is just going to.
Speaker 6: Do the job.
Speaker 8: Yeah, because thirty r rates are basically saying, if you're
Speaker 8: not hiding rates, then we are hiking rates. And that's
Speaker 8: why thirty hour rates have just made it much more
Speaker 8: expensive to borrow to buy a house. And as a
Speaker 8: result of that, financial conditions are tightening. And he didn't
Speaker 8: tighten financial conditions, but the market decided to say, well,
Speaker 8: then we think it's time to tighten financial And.
Speaker 6: John, I know you've got a question. The key thing
Speaker 6: to meet John is thirty yr rates. Five twenty is
Speaker 6: a key print. We're at five seventeen. Five twenty is
Speaker 6: an OMG print.
Speaker 3: The price of volatility is that what we're learning, the
Speaker 3: price of reducing guidance, reducing communication, being very very unclear
Speaker 3: about what on earth they're going to do with policy,
Speaker 3: and we pin the price this morning, in this afternoon.
Speaker 8: But that's why the task forces will be very very
Speaker 8: interesting because they will certainly also on their communication task force.
Speaker 8: They will have to discuss what is the best approach.
Speaker 8: Is it the best approach to have no forward guidance?
Speaker 8: Is it a better approach to have forward guidance. If
Speaker 8: you do not have forward guidance, you do have more volatility.
Speaker 8: But in fairness to Kevin Watsh's point, it did say that, well,
Speaker 8: when we don't say anything, Margat's reacting to the data
Speaker 8: as we go along. But the risk, of course is
Speaker 8: that if de marget is only reacting to some data,
Speaker 8: that then also needs to be resolved in the task
Speaker 8: force on communication, namely, is that the right way to
Speaker 8: do it because it runs the risk, as you're saying, John,
Speaker 8: that you will get had mobile.
Speaker 7: It's Citizy Turist's thrilled.
Speaker 6: To have you here with this really odd press conference.
Speaker 6: There was a bombshell in there where he went back
Speaker 6: to twenty fourteen and a paper he did on the
Speaker 6: Lucas critique. It's just slipped in there for a second,
Speaker 6: but to academic economists that is a bombshell. What he said,
Speaker 6: and what he's basically saying is the distrust that Robert Lucas,
Speaker 6: the laureate had of models. Are we you know, I
Speaker 6: think I Claudia, Sam Lisa, you mentioned this earlier, the
Speaker 6: idea of reaction functions. Is this a new almost model
Speaker 6: free federal reserve away to Lucas and even away from
Speaker 6: the giant Olivia Blanchard.
Speaker 8: It does lean into the Chicago stand for a school
Speaker 8: of thinking Nami that when you have a policy that
Speaker 8: you're changing, you should not run regressions and look historically
Speaker 8: at the data up to where we are now, because
Speaker 8: the change in the policy is going to change how
Speaker 8: people say a new model.
Speaker 6: Then is there a new fresh Worsh model we need
Speaker 6: to discover?
Speaker 8: Yeah, because I think he's saying that you can't just
Speaker 8: look at all the models that look back, because when
Speaker 8: we are now changing policy, then forward looking people are
Speaker 8: going to change behavior.
Speaker 6: And how do you determine an inflation rate? A process?
Speaker 6: If you take dsge Richard Claire to Girdler Brown, if
Speaker 6: you take the mathematics of that, throw it out the
Speaker 6: window for this show. But the bottom line is inflation
Speaker 6: is the measurement we use. How will we measure inflation
Speaker 6: with a new Worsh Lucas model?
Speaker 7: But that's exactly right, Tom.
Speaker 8: That's why if you don't have the models that look
Speaker 8: at the latest data, then what are you then looking at?
Speaker 8: What are you then relying on for forecasting what inflation
Speaker 8: will do going forward? So in other ways, if I'm
Speaker 8: not allowed to look backwards and say this is where
Speaker 8: the data is coming from, and the trend is whatever,
Speaker 8: this or that, well, then what am I then.
Speaker 7: Using as the guidepost?
Speaker 8: I was thinking about what inflation will do going forward?
Speaker 3: Basis point move on thirties there it is well most
Speaker 3: time by eleven basis points and closing in on five nineteen.
Speaker 3: I'm thinking of all the people that would be unhappy
Speaker 3: with this news conference in the last sixty minutes. Forget
Speaker 3: market participants. Imagine being at the Treasury right now and
Speaker 3: you're Scott Besson and you're seeing yields go higher on tens,
Speaker 3: materially higher on thirties. And then I'm thinking about the
Speaker 3: others on the committee. I'm not an establishment guy. I'm
Speaker 3: very very happy to blow things up and have a
Speaker 3: new era. I've got no problem with that. I'm open
Speaker 3: to new ideas. But I just wonder how offended some
Speaker 3: of the sitting officials might be by how patronizing much
Speaker 3: of that news conference was over the last sixty minutes.
Speaker 8: Well, it's clear that the sitting committee that he came
Speaker 8: into had already thought about basically all areas of the
Speaker 8: task forces before.
Speaker 7: So it's clear that the market.
Speaker 8: Here is saying, well, if we now are getting a
Speaker 8: day with a no hike, well then the long end
Speaker 8: of course is moving, basically telling you that, well, this
Speaker 8: is all about credibilite. Are you really going to follow
Speaker 8: through on inflation? And that's of course the thing that
Speaker 8: THEFMC needs to go home and think about. Now. The
Speaker 8: market reaction speaks very clearly that now we need to
Speaker 8: talk about what is the credibility of the committee because
Speaker 8: it cannot only be talk.
Speaker 7: You will eventually have to follow through.
Speaker 8: And that's why the probability, given this market reaction now
Speaker 8: has gone up quite significantly that they will have to
Speaker 8: move at the next meeting.
Speaker 2: But this is really important.
Speaker 5: In other words, you're saying that the reaction the long
Speaker 5: en of the yield curve has a challenge the credibility
Speaker 5: of this federal reserve and will force their hand that
Speaker 5: if they do not hike grate since September, you will
Speaker 5: see some sort of unmooring of long term yields.
Speaker 8: Yeah, because The risk is if you keep on just
Speaker 8: talking tough, tough, tough, and therefore markets end up saying, well,
Speaker 8: this is just a lot of talk and you don't
Speaker 8: deliver on that tough talk. The risk is of course
Speaker 8: that the long end will say, well, if you don't deliver,
Speaker 8: we worry that you implicity allow inflation to be higher
Speaker 8: despite the talk about not allowing inflations to be higher,
Speaker 8: and that is indeed a question about the ultimate credibility.
Speaker 7: Is the committee ready to vote next time?
Speaker 8: This was not only Kevin wash This was nine members
Speaker 8: who voted to keep interest rates at this meeting. So
Speaker 8: at the next meeting many of them must look at
Speaker 8: the reactions today and come to the conclusion, if we
Speaker 8: want to keep our curitybigency, we do have to move
Speaker 8: to make sure that inflation comes down and therefore ultimately
Speaker 8: long rates also begin to go down.
Speaker 3: Michael McKay was in the room. Our colleague joins us
Speaker 3: snap for more from Washington, d C. Michael McKay, we'd
Speaker 3: love your review of the last sixty minutes. What's the
Speaker 3: big tank?
Speaker 6: Kawai?
Speaker 9: I think it's very similar to yours. A lot of words,
Speaker 9: not much information, and the FED chair leaves with markets
Speaker 9: probably going the wrong way from what he would like
Speaker 9: to see at this point. The thing he wouldn't answer
Speaker 9: is what they actually did today. He talked a lot
Speaker 9: about talking, but when are they actually going to do something,
Speaker 9: whether it is acknowledging that the three and a half
Speaker 9: to three seven five rate range is adequate for the
Speaker 9: job they want, or it's not and they need to
Speaker 9: raise interest rates, And there was no acknowledgment of what
Speaker 9: the case was really on either side. It was a
Speaker 9: lot of talk about while we're talking, and that don't
Speaker 9: get the markets anywhere, and people aren't going to be
Speaker 9: very happy with what they heard.
Speaker 3: I think, Mike, there was an interesting exchange and you
Speaker 3: were part of it too when he was asked why
Speaker 3: didn't you raise interest rates and he basically said, well,
Speaker 3: I think rates did rise, and he talked about the
Speaker 3: move in the last forty two days, and Mike, rates
Speaker 3: rose because for many people they thought this FED might
Speaker 3: follow through on the data that we've been seeing over
Speaker 3: the subsequent few weeks, follow through on some of the
Speaker 3: FED speak that we'd seen from the likes of Walla,
Speaker 3: the likes of Hammack and others too, and Mike and
Speaker 3: then it got to this moment where I just thought, Okay,
Speaker 3: is the FED share outsource in monetary policy to the market,
Speaker 3: And if he is, but I don't think he's going
Speaker 3: to hike interest rates. We'll take all that back and Mike,
Speaker 3: then we see this move in the bond market, and
Speaker 3: I don't want to have made too much of a
Speaker 3: big deal of this move. We can take it back
Speaker 3: tomorrow and the next week or so, but it's material.
Speaker 3: You're up eleven basis points at the long end of
Speaker 3: the curve on thirties. And Mike, the conversation we're having
Speaker 3: around the table, do you believe that is a market
Speaker 3: beginning to question the credibility of this institution.
Speaker 9: I don't know if that's necessarily true because it's still
Speaker 9: so early in his chairmanship, but it is an indication
Speaker 9: that the market disagrees with what the FED is doing.
Speaker 9: The market thinks at this point that interest rates should
Speaker 9: be higher. And whether or not you believe it's because
Speaker 9: they're only looking at the data, it is telling the
Speaker 9: market something that data.
Speaker 2: I suspect that the markets are still.
Speaker 9: Looking at the data and putting it in context of, well,
Speaker 9: what's the FED going to do?
Speaker 6: About it.
Speaker 9: Because the FED controls the benchmark lending rate for the country.
Speaker 9: The markets don't. The markets react, the markets move around,
Speaker 9: but the benchmark rate is going to be set by
Speaker 9: the Fed, and the Fed is going to be reacting
Speaker 9: to the conditions in the economy. And we got nothing
Speaker 9: on what he thought the conditions in the economy are
Speaker 9: or would be. And we got nothing basically on why
Speaker 9: the markets might be right or wrong and whether that's
Speaker 9: an adequate response, an adequate measure to keep inflation under control.
Speaker 2: Thank you about it.
Speaker 3: These comments from the president certainly want how so, we've
Speaker 3: got the White House review of things they've just published.
Speaker 3: This is from the president. Kevin Walsh is fantastic. Wash
Speaker 3: has a board. It's a political one. Wassh would love
Speaker 3: to see lower interest rates. Given the move we're seeing
Speaker 3: on the screen right now, thirty yields up by eleven
Speaker 3: basis points. Those comments from the President this afternoon will
Speaker 3: not help.
Speaker 5: Thirty year yields have just broken through the highest levels
Speaker 5: going back to two thousand and seven. Just to give
Speaker 5: you a sense right now of the bond vigilanteism that
Speaker 5: you're seeing in bond markets, because they are seeing a
Speaker 5: more potentially politically motivated, not necessarily that being the case,
Speaker 5: but given the lack of clarity, a lot of circular talk,
Speaker 5: the lack of any kind of straight answers about reaction function,
Speaker 5: are exactly why they remained on hold. And then the
Speaker 5: president's comments are not a good brew.
Speaker 3: For this particular lime Attol and Bremo to your point,
Speaker 3: I think we're both on the same page about this.
Speaker 3: I don't believe that Kevin Wassh is doing the president's
Speaker 3: bidding right now. He's widely backed by several establishment figures
Speaker 3: when he got the nomination for this job.
Speaker 2: I'm thinking of one.
Speaker 3: I can't think of anyone more establishment than Mark Calmy,
Speaker 3: the Canadian Prime minister, who gave him a pretty fantastic
Speaker 3: endorsement when he got selected for the position. I don't
Speaker 3: think he's doing the president's bidding, but the optics of
Speaker 3: it absolutely stink. When you have a problem with inflation
Speaker 3: and you're saying you're committed to doing something about it,
Speaker 3: but don't follow through and then highlight the market that's
Speaker 3: doing the work for you, and now the market is
Speaker 3: beginning to push back, and at the same time, the
Speaker 3: President's putting out words saying that this is actually what
Speaker 3: Kevin Wassh wants.
Speaker 2: The optics of that, the backdrop for it not.
Speaker 5: A good one, and conflicting the idea of a FED
Speaker 5: funds rate with the market rate, and saying that there
Speaker 5: was something that happened and that we have done something
Speaker 5: because that moved the market, saying we're not that silly,
Speaker 5: we're not that ignorant.
Speaker 2: We know how this is done.
Speaker 5: It was an anticipatory It was an anticipatory market and
Speaker 5: if you're not going to make good on that, we're
Speaker 5: going to call your bluff.
Speaker 6: Jen, this is an historic more. But the charts I'm
Speaker 6: seeing on the screen right now, John, I've never seen
Speaker 6: this is basically was called a rever vers operation twist
Speaker 6: in real time. We've never seen it in what's key here?
Speaker 6: Which tourist and I know you've got Stephanie Roth and Deeck.
Speaker 6: The first and second derivatives of this move have to
Speaker 6: be digested by a huge body of the American economy.
Speaker 6: Let's just start with a housing market as just one example.
Speaker 3: Well, let's just start with what we thought this was
Speaker 3: all about. There was a belief that we were reducing
Speaker 3: forward guidance so that we could introduce some volatility into
Speaker 3: the front end of the curve, which would help cap
Speaker 3: longer end yields. That you'd start to be more uncertain
Speaker 3: about what this fed might do, but in a different
Speaker 3: way that maybe the outcome would be more hawkish than
Speaker 3: it would have been otherwise. And what we saw more recently, Lisa,
Speaker 3: was that dynamic people were talking about it. This would
Speaker 3: contribute to longer yields over time at the longer end
Speaker 3: of the curve, lower yields over time.
Speaker 2: That's not what you see this afternoon.
Speaker 3: When you drop by five basis points at the front
Speaker 3: end and you are seeing a move of eleven at
Speaker 3: the long end through five twenty on thirties.
Speaker 2: That's not good. But that is not the outcome people
Speaker 2: we're looking for. No volatility.
Speaker 5: If you truly are potentially on the fence and are
Speaker 5: going to move, is one thing. But if you've got
Speaker 5: a parent who's saying, if you do that again, I'm
Speaker 5: going to turn the car right around and go home,
Speaker 5: and the kids keeps doing that, and the parent keeps
Speaker 5: driving straight to go to the amusement park, well guess what,
Speaker 5: the kid's going to keep goofing around in the back seat,
Speaker 5: and that's what's going to keep happening, because ultimately, if
Speaker 5: you don't believe that they're actually going to do anything,
Speaker 5: why should you start to prepare and price that in.
Speaker 2: That right there, that's experience, take case, that's experience. That's
Speaker 2: whys real world experience.
Speaker 6: When you're driving and you lean over to.
Speaker 2: More than one need to have.
Speaker 3: Definitely, Wroth of Wolf Research joins a snaff and more. Stephanie, welcome.
Speaker 3: It's a confusing one. Sometimes this is straightforward. The last
Speaker 3: hour is anything. But what's your take away?
Speaker 10: Yeah, I mean, I think markets just don't believe them.
Speaker 1: The thing is, I do think that the FED will
Speaker 1: ultimate that the data will ultimately bail out the FED
Speaker 1: to some extent, because the market saying we don't believe
Speaker 1: that the FED is necessarily going to be hiking in September,
Speaker 1: you know, the raises his inflation expectations. That does exactly
Speaker 1: the opposite of exactly what worsh had set out to do.
Speaker 10: Today. If we do end up seeing inflation data come
Speaker 10: in a little bit softer, that might bail him out.
Speaker 1: He's basically rather than doing latchful thinking, he's really doing
Speaker 1: wishful thinking. If the data ends up coming in line
Speaker 1: with his side. This may all work out, but if not,
Speaker 1: it could end pretty poorly.
Speaker 5: You said his side, and this is important, Stephanie. It
Speaker 5: seems like the takeaway is that Kevin worsh is much
Speaker 5: more dubbish than people previously thought. Do you think that
Speaker 5: that's the correct interpretation.
Speaker 7: Yeah.
Speaker 1: I think he didn't want to say anything because he
Speaker 1: didn't want to make it clear that he is, you know,
Speaker 1: in favor of staying unfold.
Speaker 10: He wants to make to have markets do the work
Speaker 10: for him.
Speaker 1: The problem is, like you all were talking about earlier,
Speaker 1: that might have worked up until now being at being
Speaker 1: following what we've heard today, the markets are going to
Speaker 1: be the exact opposite.
Speaker 10: And then what is he going to say in September?
Speaker 1: So I think this is the market realizing that the
Speaker 1: first FMC was him trying to establish credibility, trying to
Speaker 1: come across as hawkish, and now Marcus are just not
Speaker 1: buying it.
Speaker 6: Tursted Sluck. I've got the thirty year at a five
Speaker 6: point two zero rounded up to five point two to one.
Speaker 6: We can do that this late in the day. I
Speaker 6: have us moved into thirty years old. I'm up to
Speaker 6: standard deviations. How will finance obviously your good people will apollow,
Speaker 6: but how will finance adapt to what they heard, adapt
Speaker 6: to this reverse twist? I've never seen it? How do
Speaker 6: you adapt tomorrow morning?
Speaker 8: Well, this is a very historic day in the sense
Speaker 8: that we have seen a very significant steepening of the
Speaker 8: curve that is quite dramatic. I'm trying to think back
Speaker 8: when we've ever seen like twenty basis points move in
Speaker 8: the curve in this deepness like this.
Speaker 7: It is really unusual.
Speaker 8: And the answer to your question is that there's sensitive
Speaker 8: components of GDP that are interest sensitive. Of course, housing
Speaker 8: and autos will probably continue to struggle. They have struggled
Speaker 8: for quite some time when interest rates up in high
Speaker 8: but the tailwinds to growth coming from AI spending, coming
Speaker 8: from the one pepot of a bill coming from the
Speaker 8: home shoring, those things will still continue to see tailwind
Speaker 8: That's why we might get in the next half hour
Speaker 8: when the news come from both the hyperscalers today and tomorrow.
Speaker 8: This would also create more volatility because that will also
Speaker 8: begin to become a macro event. If that does begin
Speaker 8: to send signals around what is the outpoot for the
Speaker 8: broad economy, especially around the data center.
Speaker 3: Build out Tustin, Can we talk about the price of
Speaker 3: the data center build out and the capital raising that
Speaker 3: we're saying worldwide right now, thirty eight yields up eleven
Speaker 3: basis points. That's before we even find out the capex
Speaker 3: and tentions of some major companies in the next twenty
Speaker 3: four hours or so. How much price heer does the
Speaker 3: cost of capital get with this federal reserve.
Speaker 8: Well, that's exactly the discussion because not only, of course,
Speaker 8: have spreads on hyperscalers widen out and CDs as also
Speaker 8: widened out.
Speaker 7: Now the base rate has also moved up and in this.
Speaker 8: Case actually much more than spreads and widen out, So
Speaker 8: they're all in yield for financings. Of course, in the
Speaker 8: public market for hyperscalers have definitely increased quite significantly. The
Speaker 8: issue now becomes, well, if your returns in ai I
Speaker 8: expect it to be like ten fifteen percent or higher, Well,
Speaker 8: then these things are relatively small peanuts relative to the
Speaker 8: big picture of the returns that are going to come along.
Speaker 8: But ultimately that discussion is all about the economics one
Speaker 8: on one, namely, what is the marginal revenue you expect
Speaker 8: to generate and what is the module cost of producing
Speaker 8: that piece of revenue.
Speaker 7: So, for compute, the debate is.
Speaker 8: Around, well, now that rates have gone up and all
Speaker 8: in yields have gone up, is the case that we're
Speaker 8: reaching a level of all in yields or all in
Speaker 8: cost of capsule that's beginning to become more problematic for
Speaker 8: the hyperscaler.
Speaker 7: So far that has not been the case.
Speaker 8: But the question is, of course, over the next twenty
Speaker 8: four hours whether we get any either confirmation that that's happening,
Speaker 8: or whether we in the contrary, beginning to see still
Speaker 8: more upside risks to more data center build out just continuing.
Speaker 2: And this is the reason why.
Speaker 5: And Stephani, I'd love your thought and what Torsen said
Speaker 5: earlier that all of this is not a virtuous cycle
Speaker 5: and it's not something that FED wants to see. And
Speaker 5: so Torsen was saying that he thinks that the probability
Speaker 5: of a September rate hike is even greater now to
Speaker 5: try to control the long end of the yield curve
Speaker 5: and prevent this sort of higher borrowing costs for some
Speaker 5: of these hyperscalers in the build out.
Speaker 2: Do you agree with that, I.
Speaker 10: Mean, I do if the data don't improve.
Speaker 1: So if we're sitting here in September and the data
Speaker 1: just continue to remain firm, especially on the inflation side,
Speaker 1: also on the growth in the kepex data in terms
Speaker 1: of capa AI related catbec just continuing to move higher,
Speaker 1: then yeah, absolutely that increases the odds that they're going
Speaker 1: to ultimately be hiking.
Speaker 10: I do think that we'll see seasonality and the inflation.
Speaker 1: Data and a bit of a cooling such a thing
Speaker 1: that this may all work out, such as that doesn't
Speaker 1: actually have to cut September, and in that environment, it
Speaker 1: will do so in an environment that's a little bit
Speaker 1: more market friendly. But if that forecast is wrong, then
Speaker 1: absolutely they're going to This makes them even more likely
Speaker 1: to have to be cutting in September, because it tells
Speaker 1: you that they're making a policy mistake.
Speaker 6: I look at this moment, John, of course, I got
Speaker 6: to go to the quality, full faith, and credit documents.
Speaker 6: SpaceX is thirty year bond six point sixty five percent.
Speaker 6: We're enjoying it at seven point eight percent right now,
Speaker 6: not quite through a new low. But again, the mystery
Speaker 6: to me is the permeation of this through Wall Street.
Speaker 6: It's not just about Fom's Lucas critique and all that.
Speaker 6: What does this do to Wall Street?
Speaker 2: Starting in Asia here in X number of hours and SpaceX.
Speaker 3: So they came out with the dead issue in the
Speaker 3: last month or so, and the demand was softer, below average,
Speaker 3: and then we had Amazon follow up TK and concessions
Speaker 3: were larger, and then you start to see spreads widen
Speaker 3: out in the secondary market to across a number of
Speaker 3: tech names as well. Tom and We've been talking about
Speaker 3: this dynamic for a while, the crowding out of the market,
Speaker 3: that there is a race to raise capital, and that
Speaker 3: we've been worrying about the additional supply coming from the
Speaker 3: treasury for the best part of fifteen twenty years.
Speaker 2: The deficit.
Speaker 3: It was okay at the time because not everybody else
Speaker 3: was doing the same thing. Now we talked about this
Speaker 3: already earlier in the program. Germany has gone away from
Speaker 3: fiscal prudence to borrowing and spending. Germany has moved onto
Speaker 3: something else. Japan has as well. They've had decades of deflation.
Speaker 3: They now have inflation anchors away there for that bond
Speaker 3: market yields up. We've now got the hyper scalers moving
Speaker 3: away from buying their own equity to negative free cash
Speaker 3: flow and now issuing equity and issuing debt. That's a
Speaker 3: di supply here, there, and everywhere and every way you look.
Speaker 3: Right now, there are increased capital demands. So to have
Speaker 3: the fed chare perform in the way he has in
Speaker 3: the last sixty minutes to see the market reaction to
Speaker 3: that that's led to high yields at the long end
Speaker 3: at a curve. To have that in this moment laser
Speaker 3: things get tied to, things get harder, and yields go up,
Speaker 3: and the price for capital gets more expensive.
Speaker 5: The value of the dollar on the global stage goes down,
Speaker 5: and we're seeing that in a pretty big way. It
Speaker 5: is notable to see the long end of the yield
Speaker 5: curve in particular perform this way. And has Torsen made
Speaker 5: a good point about the hyperscalers. They have been issuing
Speaker 5: disproportionately at the long end of the yield curve. They
Speaker 5: have issued more on the long end than the US government,
Speaker 5: And you have to wonder how much this is going
Speaker 5: to constrain some of the productivity and the virtuous aspects
Speaker 5: of what a lot of people are expecting and prolong
Speaker 5: the uncomfortable mismatch period that he was talking about.
Speaker 8: That's also the additional challenge that if you take your
Speaker 8: textbook out and interest rates go up in the long end,
Speaker 8: the dollars should be going up. So that's why you're
Speaker 8: in now beginning to ask, well, the's a dollar and
Speaker 8: our beginning to react to front end rates.
Speaker 7: It is long end that moves the dollar most.
Speaker 8: So that's a lot of considerations also around why is
Speaker 8: the dollar going down so much at the same time
Speaker 8: while short rates are moving down and long rates are
Speaker 8: moving up.
Speaker 3: Stephanie, in the next two weeks will all be very
Speaker 3: focused on the Fed Speak. We were calling this a
Speaker 3: three part act all day. The statements one act, the
Speaker 3: news conference is another. It was quite an act. The
Speaker 3: third act is going to be the speeches of all
Speaker 3: the officials that haven't had their say yet. What are
Speaker 3: you looking for from the Fed speak in the coming weeks.
Speaker 1: Yeah, so we're certainly going to hear from those that descended,
Speaker 1: why did they dissent? Because worst certainly didn't really answer
Speaker 1: that question, So we'll here, we'll certainly hear that argument.
Speaker 1: And I'm going to be looking for you know, eventually
Speaker 1: in the next speech by Waller, because that's going to
Speaker 1: give us a sense of what did the core of
Speaker 1: the committee actually, what is he thinking. He's been amongst
Speaker 1: the most transparent and represents more of the middle folks
Speaker 1: on the committee, and that's going to give us a
Speaker 1: much better sense of what are they thinking, what are
Speaker 1: they leaning, and what does he think about what price
Speaker 1: action is doing? Because he is somebody who's very willing
Speaker 1: to give his reaction function and his thoughts on what
Speaker 1: markets and the data are going to do.
Speaker 6: That's right where I wanted to go. Stephanie Tourresten Slock.
Speaker 6: How does chairmansh react to what we're seeing on the
Speaker 6: screen the data And the fact is he's going to
Speaker 6: have to amend the way he speaks the concepts he
Speaker 6: speaks the McKinsey mba of it and talk to academic economists.
Speaker 8: I think that it's not only him, it is the
Speaker 8: nine versus three on the committee here that there were
Speaker 8: nine members who voted to keep raids constant today. So
Speaker 8: the consideration for the whole committee must be to go
Speaker 8: home and think hard about how do we communicate this?
Speaker 7: Do we do this before their meeting?
Speaker 8: What do we say at the press conference, how do
Speaker 8: you communicate in this statement, because it is clear that
Speaker 8: this is a somewhat worrying development, especially in the long end.
Speaker 8: We do have next week nonfarm payrolls. Let's not forget that.
Speaker 8: So to Stephanie's good point, the data could begin to
Speaker 8: move in the opposite direction.
Speaker 7: So who knows.
Speaker 8: We all have all kinds of views on what might
Speaker 8: be happening on the late market at the moment. So
Speaker 8: far it's been read very strong, But you're right, tom
Speaker 8: at this point it must really inspire them to look
Speaker 8: themselves in the mirror here and begin to think about
Speaker 8: how do we think about this situation.
Speaker 3: And given what just happened to be lots of FED
Speaker 3: chairs make communication errors, particularly at the start of their term.
Speaker 3: We've seen that repeatedly and feder Reserve history, this in
Speaker 3: that way might be no different. We do have to
Speaker 3: go through this process and start to understand how this
Speaker 3: new FED chair communicates what it means to markets. And
Speaker 3: I mentioned this earlier, this move in the bond market.
Speaker 3: Don't know where it goes. We could take it back tomorrow.
Speaker 3: That's not really the point. The point is whether this
Speaker 3: is by design or not Is this the intention? Is
Speaker 3: this actually what Kevin Wash, the new FED chair, wants
Speaker 3: to see. Is this the outcome to that news conference
Speaker 3: that he was looking for.
Speaker 6: Well, if the.
Speaker 5: Data is speaking, the market is speaking, and the market
Speaker 5: is saying, right now, we don't believe you, So does
Speaker 5: he have to come out and high grates?
Speaker 7: Who is his audience?
Speaker 5: Who is he speaking to? I asked that because typically
Speaker 5: FED chairs have an odd job of try trying to
Speaker 5: toggle between the broader public and the markets. He wasn't
Speaker 5: speaking to the markets, or if he was, then he's
Speaker 5: not getting the reaction. Then necessarily he wants given the
Speaker 5: fact that they've talked about wanting to bring down mortgage
Speaker 5: rates in particular, and this is going to move it
Speaker 5: in the opposite direct.
Speaker 2: Stephanie, It's good to see. It's always great to catch up.
Speaker 3: Stephanie Rofair of Wolf Tolson Slock of Apollo wank In
Speaker 3: on this decision from the FED share Kevin Wash and
Speaker 3: a decision by the committee to keep interest rates unchanged
Speaker 3: with three per cents from three regional FED presidents and
Speaker 3: then a very confusing news conference that has come with
Speaker 3: the price and that price this afternoon is high Yield
Speaker 3: to the long end of the curve.
Speaker 5: Yeah, the highest levels that we've seen since two thousand
Speaker 5: and seven. At one point in the final moments of
Speaker 5: the trading session. You have to wonder, to your point,
Speaker 5: whether he is satisfied, as well as whether he is
Speaker 5: going to rethink how much information he would like to disclose.
Speaker 5: It seems like he thinks the less information he gives
Speaker 5: us a virtue. However, I think a lot of people
Speaker 5: would say that maybe this is not the controlled kind
Speaker 5: of response that leads to any kind of predictability.
Speaker 6: John Quickley, the bank rate thirty year mortgage is six
Speaker 6: point seven zero percent. Are we going to enjoy an
Speaker 6: eight percent mortgage soon after?
Speaker 2: This is going up?
Speaker 3: I don't know about eight, but it's gone up after this.
Speaker 3: If this continues, without a doubt, the FED check Kevin
Speaker 3: Walsh wrapping up his news conference the good news. Maybe
Speaker 3: it's bad news for you, I don't know, but we'll
Speaker 3: be here at every meeting because there will be a
Speaker 3: news conference for the rest of this year after every meeting,
Speaker 3: a commitment to that from the FED chair.
Speaker 2: Again, why then.
Speaker 5: Would it he introduce the idea of not potentially having one.
Speaker 5: There's so many questions here. The lack of clarity is
Speaker 5: one thing, if it's instrumental in creating volatility, or if
Speaker 5: it's lack of clarity for lack of clarity's sake, because
Speaker 5: ultimately you don't want to put invoke political ire.
Speaker 2: I don't know, and let's see if these moves stick.