WEBVTT - Instant Reaction: Jay Powell on the Fed Decision 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:07.920 --> 0:00:10.600 That wraps up the news conference with Chairman Power down 0:00:10.600 --> 0:00:13.200 in Washington, d C. Here in New York City, we're 0:00:13.240 --> 0:00:15.760 reacting to a twenty five basis point rake cup from 0:00:15.760 --> 0:00:19.320 the Federal Reserve, a descent pushing for fifty basis points, 0:00:19.360 --> 0:00:22.560 and a huge, huge debate about the future, and a 0:00:22.560 --> 0:00:25.159 wong of Bloomberg economics with this to say, I have 0:00:25.280 --> 0:00:29.080 not seen a meeting with so many contradictions. This is 0:00:29.080 --> 0:00:33.920 a low conviction federal reserve with limited, limited visibility and 0:00:34.000 --> 0:00:37.040 a very wide range of views on the future. And 0:00:37.159 --> 0:00:39.440 this is why this market is so confused. Captured by 0:00:39.440 --> 0:00:41.320 this move in the equy market on the S and 0:00:41.320 --> 0:00:45.600 P five hundred, move lower, move higher, all over the place, 0:00:45.680 --> 0:00:49.760 this market is somewhat shaken. This feeder reserve has no 0:00:49.880 --> 0:00:52.320 idea what twenty twenty six is going to bring. And 0:00:52.320 --> 0:00:54.680 this chairman did his mess to articulate that. 0:00:54.920 --> 0:00:56.760 And I don't know that he sent a clear message, 0:00:56.760 --> 0:00:59.400 because it's not possible to send a clear message that 0:00:59.480 --> 0:01:03.800 sounds you. That's the idea of forward guidance dying, because ultimately, 0:01:03.880 --> 0:01:07.360 how can a federal reserve with this level of dispersion 0:01:07.480 --> 0:01:10.240 in views really give any sense of their reaction function. 0:01:10.360 --> 0:01:12.280 And to me, the idea that he said there wasn't 0:01:12.319 --> 0:01:15.280 widespread support at all for a fifty basis point rate cut, 0:01:15.640 --> 0:01:18.200 and talking about this is a risk management rate cut 0:01:18.280 --> 0:01:19.880 flew in the face of the hopes and dreams of 0:01:19.920 --> 0:01:21.760 markets that we're hoping brilliant. 0:01:21.440 --> 0:01:24.240 About forward guidance just evaporating. And Johnny goes back to 0:01:24.319 --> 0:01:26.440 when you looked into the other room here at the 0:01:26.480 --> 0:01:28.600 south wing of our studios, and you looked at the 0:01:28.640 --> 0:01:31.280 dot plot, and the dispersion looked like a B fifty 0:01:31.319 --> 0:01:32.319 two Bombers. 0:01:31.959 --> 0:01:35.280 Wingspan, massive spread, massively least talk about it right now. 0:01:35.400 --> 0:01:35.680 TK. 0:01:35.800 --> 0:01:38.680 At the very bottom of that spread is a dot 0:01:38.720 --> 0:01:42.520 that's basically projecting a massive amount of rate cuts. The 0:01:42.520 --> 0:01:46.480 political dot a sub three percent dot. Tom look above it. 0:01:46.840 --> 0:01:49.200 You've also got a dot there that's looking for a 0:01:49.200 --> 0:01:52.040 federal reserve that could be hiking interest rates of the 0:01:52.120 --> 0:01:54.920 next several meetings. These dots are all over the place. 0:01:54.960 --> 0:01:57.360 And Bramo, you now did a risk management rate cut, 0:01:57.560 --> 0:02:00.320 two sided risk, no risk free path in a meeting 0:02:00.360 --> 0:02:03.000 by meeting situation. I think the chairman did his best 0:02:03.000 --> 0:02:05.560 here to form a consensus that probably didn't exist on 0:02:05.600 --> 0:02:07.960 the committee when they got together for the first day 0:02:08.200 --> 0:02:08.760 just yesterday. 0:02:08.840 --> 0:02:10.519 Yeah, I think that that's well said. He even talked 0:02:10.520 --> 0:02:13.079 about the labor market that clearly you can no longer 0:02:13.120 --> 0:02:15.360 say it's very solid. But then he went on to 0:02:15.400 --> 0:02:18.560 say that any kind of headline disappointment was due to 0:02:18.560 --> 0:02:22.200 the immigration picture, probably in a significant part. This is 0:02:22.240 --> 0:02:25.200 the reason why it is it is a federaliser of 0:02:25.240 --> 0:02:28.600 it is unable to really present forward guidance because ultimately 0:02:28.840 --> 0:02:31.160 we don't even know who will be doing the guiding 0:02:31.200 --> 0:02:33.839 and who will be doing the decision making contracts here, 0:02:34.120 --> 0:02:36.080 and that is the reason why there's so many questions 0:02:36.120 --> 0:02:38.760 about that outlier. Tom called it a political dot. That 0:02:38.800 --> 0:02:41.160 political dot potentially has quite a bit of weight. 0:02:41.360 --> 0:02:43.040 Might be a flavor of things to come in twenty 0:02:43.080 --> 0:02:45.040 six and beyond. Joining us now to discuss the former 0:02:45.080 --> 0:02:48.440 New York Fed President Bill Dudley. Bill, welcome to the program, sir. 0:02:48.560 --> 0:02:51.960 A lots of process here, many contradictions. Is that a 0:02:51.960 --> 0:02:53.799 fair way of describing this meeting. 0:02:55.280 --> 0:02:57.640 I think there is a lot of tension between the 0:02:57.880 --> 0:03:00.399 inflation outlook and the labor market. But I think Paul 0:03:00.480 --> 0:03:02.520 said it pretty well. I mean, he said, basically, what 0:03:02.560 --> 0:03:05.880 we think that's the risks on the unemployment side have 0:03:06.280 --> 0:03:08.840 risen more than the risk on the inflation side, and 0:03:08.880 --> 0:03:11.480 so given that we should be less restrictive, and so 0:03:11.560 --> 0:03:15.600 we're taking out essentially a risk management cut to reflect 0:03:15.600 --> 0:03:18.480 the fact that the risk on the leader markets seemed 0:03:18.480 --> 0:03:21.200 to be a little bit higher. You know. After that, 0:03:21.280 --> 0:03:23.560 you know, there's a lot of uncertainty about you know, 0:03:23.639 --> 0:03:26.040 how that's going to evolve in twenty twenty six and 0:03:26.040 --> 0:03:29.400 twenty twenty seven, and the committee, you know, is split 0:03:29.440 --> 0:03:32.560 about what to do going forward. I think it's interesting 0:03:32.560 --> 0:03:34.720 the market reaction initially was like, oh, gee, two more 0:03:34.760 --> 0:03:37.560 rate cuts this year, and then I think people past 0:03:37.640 --> 0:03:39.800 the summary of economic projections a little bit more and 0:03:39.800 --> 0:03:42.840 realized that it was actually nine to nine plus mirn. 0:03:43.320 --> 0:03:48.120 So people wanted no more cuts or one more cut, 0:03:48.800 --> 0:03:51.360 and nine wanted two more cuts. And then there was 0:03:51.400 --> 0:03:55.080 a steam Marin who I'm absolutely confident that that's his dot. 0:03:55.400 --> 0:03:57.280 Well, Bill, I think a lot of people would agree 0:03:57.320 --> 0:04:00.200 with you. I just wonder going forward how much you 0:04:00.240 --> 0:04:04.800 are satisfied by fed Shair Powell's response to why they're 0:04:04.920 --> 0:04:08.600 upgrading their expectation for inflation, Why they always put the 0:04:08.640 --> 0:04:11.520 idea of two percent two years out and why they 0:04:11.520 --> 0:04:13.600 are still cutting even though they have not achieved that 0:04:13.640 --> 0:04:14.720 in more than five years. 0:04:15.880 --> 0:04:18.520 Well, if he didn't think policy was restrictive today, then 0:04:18.560 --> 0:04:20.559 he certainly they certainly wouldn't have cut. But he's starting 0:04:20.680 --> 0:04:23.240 with the premise that policy is restrictive. It's exerting downward 0:04:23.560 --> 0:04:26.880 restraint on the economy and we and basically, given that 0:04:26.920 --> 0:04:30.520 the balance of the risk have shifted towards greater risks 0:04:30.520 --> 0:04:33.040 of the downside on the labor market side, he wants 0:04:33.080 --> 0:04:36.159 policy to be somewhat less restrictive. So this is a 0:04:36.279 --> 0:04:39.240 very modest adjustment, and I don't think there's a lot 0:04:39.240 --> 0:04:41.160 of you know, I don't think there's four guides at 0:04:41.160 --> 0:04:44.200 this point really that that's meaningful, because it really is 0:04:44.200 --> 0:04:46.720 going to depend on how the market, you know, the 0:04:46.760 --> 0:04:49.720 economic economy evolves. I mean, look at the data just 0:04:49.960 --> 0:04:51.560 the last for a couple of months. You know, we 0:04:51.600 --> 0:04:55.280 have weakness in the labor market and then we seem 0:04:55.279 --> 0:04:58.599 to have strength in terms of GDP and spending. So 0:04:59.120 --> 0:05:02.039 you know, the l I FED GDP now forecast for 0:05:02.200 --> 0:05:04.320 now cast for the third quarter, is it three point 0:05:04.320 --> 0:05:07.280 four percent. So there's a lot of uncertainty on the outlook. 0:05:07.320 --> 0:05:09.320 But you know, this is a this is an insurance 0:05:09.360 --> 0:05:11.960 rate cut, that's all it is, and it doesn't really 0:05:12.000 --> 0:05:13.880 foreshadow what's going to happen going forward. 0:05:14.040 --> 0:05:16.320 Bill Dudley, you're one of our best at dovetailing the 0:05:16.400 --> 0:05:19.280 dynamics of market economics into our academics. I think a 0:05:19.400 --> 0:05:21.920 Robert Hall who was at Berkeley, and he went over 0:05:21.960 --> 0:05:23.800 to a school across the Bay. I can't remember the 0:05:23.880 --> 0:05:26.600 name of it right now, Bill, I. 0:05:26.640 --> 0:05:27.680 Look at the inflation. 0:05:28.000 --> 0:05:31.200 Let's take East Tampton, Massachusetts, where when you were a kid, 0:05:31.200 --> 0:05:34.200 you were in school there. Sewage rates are up thirty 0:05:34.240 --> 0:05:38.240 three percent in the last twenty four months. Is this 0:05:38.440 --> 0:05:42.680 a FED looking at a purchasing power crisis for too 0:05:42.720 --> 0:05:46.799 many Americans out to the December tenth meeting and into 0:05:46.839 --> 0:05:47.400 next year. 0:05:48.800 --> 0:05:52.160 Well, there's definitely a squeeze on low income houses. Households. 0:05:52.160 --> 0:05:54.640 They don't benefit by the rise in the stock market. 0:05:55.000 --> 0:05:57.279 They don't benefit by the fact that they're lucked. You know, 0:05:57.320 --> 0:06:01.560 they held you know, three percent mortgage mortgages. They're hurt 0:06:01.600 --> 0:06:06.400 by the higher tariffs, they're hurt by the weaker labor market. 0:06:06.600 --> 0:06:09.839 And so it's really a tale of two economies in 0:06:09.920 --> 0:06:14.360 terms of the outlook. Matria policy is a very blonde instrument, 0:06:14.400 --> 0:06:17.800 and unfortunately the FED can't calibrate Maitre policy to sort 0:06:17.800 --> 0:06:20.799 of equally help everybody in the current environment. 0:06:20.960 --> 0:06:24.240 So who do they do it for, John Global wall Street? 0:06:24.400 --> 0:06:25.560 Is that the mandate? You know? 0:06:25.600 --> 0:06:28.000 I was thinking back to tk my day's back at school, 0:06:28.000 --> 0:06:30.040 when I was a kid. If I kept telling my mom, 0:06:30.160 --> 0:06:32.400 in two years, i'll do better, in two years, I'll 0:06:32.400 --> 0:06:34.560 do better, I'm sure my mum at some point would 0:06:34.600 --> 0:06:37.680 lose patience. Bill should we lose patience with this fatal reserve? 0:06:38.040 --> 0:06:40.000 What is this in two years time, we'll hit our 0:06:40.000 --> 0:06:43.400 inflation target. In two years time, we'll hit our inflation target. 0:06:43.640 --> 0:06:45.600 Might McKee address this in the news conference? And I 0:06:45.600 --> 0:06:48.919 actually think it's a really important moment. How credible is 0:06:48.920 --> 0:06:50.560 this pursuit of two percent? 0:06:54.160 --> 0:06:55.880 Well, I think it's a fair point that you know, 0:06:55.960 --> 0:07:00.640 every it's always two years later we're going to finally 0:07:00.640 --> 0:07:05.040 achieve our inflation objective, you know, basically trying to as 0:07:05.320 --> 0:07:07.240 sure Paul made it very clear he's they're trying to 0:07:07.240 --> 0:07:10.640 balance the fact that the two goals are intentioned, and 0:07:10.720 --> 0:07:13.040 so if they just focused on driving immediately to the 0:07:13.040 --> 0:07:17.160 two percent inflation goal, that would lead to much higher unemployment. 0:07:17.160 --> 0:07:19.080 And so they want to balance those two risks. But 0:07:19.200 --> 0:07:20.720 you know, the resk to the FED is that every 0:07:20.800 --> 0:07:23.920 year you continue to go with inflation above two percent, 0:07:24.120 --> 0:07:27.720 the risk is that inflation expectations finally become unanchored. And 0:07:27.760 --> 0:07:30.960 the attacks on the Fed's independence obviously increase that risk. 0:07:31.480 --> 0:07:33.560 Well, Dudley with the lights to thank you, sir, appreciate 0:07:33.560 --> 0:07:35.720 your reaction, Thanks for standing by the former New York 0:07:35.720 --> 0:07:38.160 FED president. Mi McKey was in that news conference. It 0:07:38.160 --> 0:07:40.440 was an important moment, I think, and Mima Keay joins 0:07:40.520 --> 0:07:42.560 us now for more. My first of all, we assessment 0:07:42.560 --> 0:07:45.000 of the last sixty minutes or so, and what did 0:07:45.040 --> 0:07:47.520 you make of that exchange you had with the FED chat? 0:07:49.320 --> 0:07:50.480 Well, the last sixteen minutes or so. 0:07:50.520 --> 0:07:52.160 I think Jay Poul was trying to walk off very 0:07:52.160 --> 0:07:54.880 fine line because he's got a very divided committee. Nobody 0:07:55.040 --> 0:07:57.480 is sure what's going to happen going forward, except for 0:07:57.520 --> 0:07:59.880 Steven Meier and who thinks that things are going to 0:07:59.920 --> 0:08:02.400 be be absolutely rosy and we need to cut rates 0:08:02.400 --> 0:08:06.760 a lot. Everyone else is uncertain and the dot plot 0:08:07.360 --> 0:08:10.800 median shows two rate cuts this year. But when you 0:08:10.840 --> 0:08:14.040 look at the dot plot itself, it's so narrowly divided 0:08:14.080 --> 0:08:16.160 that you really can't take any signal from it. As 0:08:16.200 --> 0:08:18.960 Bill Dudley was saying, so Paul is trying to tell 0:08:19.000 --> 0:08:22.440 people that we really don't know without saying we really 0:08:22.520 --> 0:08:25.680 don't know. And as Bill said, trying to make this 0:08:25.760 --> 0:08:28.880 an insurance cut the two percent thing, I think is 0:08:28.920 --> 0:08:30.960 a real question for them, And he didn't really give 0:08:31.000 --> 0:08:32.680 a good answer to my question. 0:08:33.200 --> 0:08:34.080 It's not just that. 0:08:35.600 --> 0:08:41.800 Inflation expectations become unanchored, but that higher expectations can become embedded, 0:08:42.080 --> 0:08:45.040 and people don't think you're going to get it down farther, 0:08:45.480 --> 0:08:48.360 And so then how do you fight that going forward 0:08:48.520 --> 0:08:51.920 if you can't make any progress or can't be seen 0:08:51.960 --> 0:08:54.559 to be making any progress towards your target. 0:08:55.160 --> 0:08:58.240 Mike, while you're down there, since you are in the room, 0:08:58.559 --> 0:09:02.880 it sounded like press conference language. We did get a statement, 0:09:02.960 --> 0:09:05.680 we did get a rape decision, But can you tell 0:09:05.760 --> 0:09:08.760 us and just describe to us how different this FED 0:09:08.840 --> 0:09:11.840 meeting felt, what it looked like, what kind of changes 0:09:11.840 --> 0:09:12.959 were made. 0:09:14.200 --> 0:09:16.240 Well, I'll tell you a lot more press here than usual. 0:09:16.280 --> 0:09:20.000 That's one thing that it looked like the changes are 0:09:20.040 --> 0:09:21.480 the kind of things that you would see in the 0:09:21.480 --> 0:09:25.720 statement when they're changing policy, which they did. The dot 0:09:25.760 --> 0:09:30.960 plot maybe a little bit more confusing, less guidance in 0:09:31.000 --> 0:09:33.439 it than we had seen before, and there was obviously 0:09:33.480 --> 0:09:37.200 some tension between what the rate cut medians were with 0:09:37.440 --> 0:09:42.720 what the economic projection medians were, But overall it went 0:09:42.760 --> 0:09:45.679 off pretty much as they usually do. 0:09:47.960 --> 0:09:50.400 The FED statement wasn't that unusual. 0:09:50.520 --> 0:09:52.800 There obviously was the big elephant in the room of 0:09:52.840 --> 0:09:56.000 Stephen Myron that the chairman declined to comment on. 0:09:56.120 --> 0:09:58.560 He also declined to comment on Lisa Cook. 0:09:58.840 --> 0:10:01.920 He tried to keep it just to the FED, So 0:10:02.200 --> 0:10:06.280 it's it really wasn't a hugely different dynamic, except that 0:10:06.320 --> 0:10:09.360 there were a lot more moving parts than we often see, 0:10:09.440 --> 0:10:12.400 or at least than we've seen in a number of years. 0:10:12.440 --> 0:10:14.400 Just before you go, there was a moment there where 0:10:14.440 --> 0:10:16.960 I do think he addressed the Governor Maron question the 0:10:16.960 --> 0:10:20.360 importance of one individual on the committee and how much 0:10:20.559 --> 0:10:23.480 sway they have on the f WEMC, how they've got 0:10:23.520 --> 0:10:26.199 to persuade the other individuals in the room, and Mike, 0:10:26.200 --> 0:10:29.000 I think it begs the question if that's Stephen Myron 0:10:29.080 --> 0:10:32.160 doll that Governor Myron dot sub three percent is a 0:10:32.200 --> 0:10:35.040 flavor of things to come, Mike, to what extent this 0:10:35.080 --> 0:10:37.040 committee will push back? 0:10:39.240 --> 0:10:41.800 Well, clearly the committee pushed back today and we didn't 0:10:41.880 --> 0:10:44.960 see a dissent from Mickey Bowman or Chris Waller. So 0:10:45.360 --> 0:10:48.240 they seem to be satisfied with where they are at 0:10:48.280 --> 0:10:51.720 the moment. And that suggests that Stephen Myron is not 0:10:51.760 --> 0:10:53.200 going to have a lot of influence. 0:10:53.240 --> 0:10:54.640 Nobody really expected him to. 0:10:55.200 --> 0:10:57.760 It does raise the question, though, John, as you sort 0:10:57.800 --> 0:11:00.920 of imply there that if the president gets more people 0:11:01.000 --> 0:11:03.840 on the board, where do we go from here? And 0:11:04.160 --> 0:11:07.760 Themyron dot is a sign that the president's people would 0:11:07.800 --> 0:11:10.520 definitely try to push rates lower, whether or not the 0:11:10.720 --> 0:11:12.040 economy justifies it. 0:11:12.160 --> 0:11:14.679 Might mc kay with Altis Mike clinic Hanci always you're 0:11:14.679 --> 0:11:16.800 one of the very best. Appreciate your time. I think 0:11:16.800 --> 0:11:18.920 it would be a massive mistake just to say that's 0:11:18.920 --> 0:11:21.240 all political. We have this conversation with Greg Peters a 0:11:21.280 --> 0:11:24.240 PGM right before the news conference. He said, what's political 0:11:24.360 --> 0:11:27.160 and what's real. Whatever you think is political right now 0:11:27.320 --> 0:11:30.200 might be real next year. That might be a flavor 0:11:30.200 --> 0:11:32.840 of what's still to come from the incoming chairman for 0:11:32.920 --> 0:11:35.640 twenty twenty six. And it's not just about being able 0:11:35.679 --> 0:11:38.040 to persuade the rest of the committee. It's a question 0:11:38.120 --> 0:11:41.040 about how credible it will be with fixed income and 0:11:41.080 --> 0:11:41.880 broader markets. 0:11:41.920 --> 0:11:44.800 And right now it seems like it was credible to 0:11:44.840 --> 0:11:46.840 the extent that it's not causing some sort of massive 0:11:46.880 --> 0:11:50.319 sell off in long term yields. I do think it's 0:11:50.400 --> 0:11:53.079 notable that there was only one percent about a fifty 0:11:53.120 --> 0:11:54.679 basis point rate cut, and I think we have to 0:11:54.760 --> 0:11:57.559 keep going back to that. But Stephen Myron was alone. 0:11:57.760 --> 0:12:01.000 He didn't get a sort of concurrent opinion from Mickey 0:12:01.000 --> 0:12:02.199 Bowman or Chris Waller. 0:12:02.240 --> 0:12:03.960 We're going to get to Jeff Rosenberg, but Jen I 0:12:04.000 --> 0:12:05.440 was going to go to Mike on and so let 0:12:05.480 --> 0:12:08.320 me just bring it up April twenty nine, next year, 0:12:08.440 --> 0:12:11.600 June seventeenth, next year, July twenty nine. I think there's 0:12:11.640 --> 0:12:15.280 an election just after the October twenty eighth meeting. When 0:12:15.320 --> 0:12:19.560 does House politics or even Senate politics come into this 0:12:19.600 --> 0:12:22.200 discussion with a vengeance, I don't know when it is. 0:12:22.320 --> 0:12:24.560 I think we're right there right now. Yeah, you know, 0:12:24.920 --> 0:12:27.640 before this decision, Tom, we sat around the table and 0:12:27.679 --> 0:12:29.760 I said, this is the last set of forecast you'll 0:12:29.760 --> 0:12:32.679 get from cham and Powell without knowing who the incoming 0:12:32.760 --> 0:12:34.880 feed share is going to be. And I think we 0:12:34.880 --> 0:12:37.040 can say that by the time we get to December, 0:12:37.200 --> 0:12:38.920 we'll know who the FED share is. We expect to 0:12:38.960 --> 0:12:41.240 know who the FED share is, and you're also going 0:12:41.280 --> 0:12:43.200 to know what they think about where policy should be 0:12:43.600 --> 0:12:45.560 in twenty twenty six. And that's going to bring a 0:12:45.679 --> 0:12:48.280 very different flavor to the meeting at the end of 0:12:48.280 --> 0:12:50.319 this year. Chairman Power did the best job he could 0:12:50.320 --> 0:12:52.719 possibly do in that news conference given all the contradictions 0:12:52.720 --> 0:12:55.640 of this moment, not just about the contradictions within the committee, 0:12:55.800 --> 0:12:58.640 the contradictions almost all over the place. The fact we've 0:12:58.640 --> 0:13:00.520 had to step down and pay ross growth we've had 0:13:00.679 --> 0:13:03.679 and unemployment has been super super stable over that period. 0:13:03.920 --> 0:13:05.760 The fact we're looking for a better growth profile for 0:13:05.800 --> 0:13:08.319 twenty six yet at the same time we're talking about 0:13:08.480 --> 0:13:11.600 more rate cuts, not less. It's a very unusual environment, 0:13:11.679 --> 0:13:13.160 and I think the chairman did the best they could 0:13:13.160 --> 0:13:15.800 do given the circumstances to communicate that. 0:13:16.000 --> 0:13:17.839 Yeah, and I think that if you did sound a 0:13:17.880 --> 0:13:20.320 little bit like word Salid occasionally it probably was to 0:13:20.360 --> 0:13:22.320 be forgiven, just based on the fact that there aren't 0:13:22.360 --> 0:13:24.679 good answers to any of these things, especially given the 0:13:24.720 --> 0:13:26.240 dissent that you're getting on the committee. 0:13:26.320 --> 0:13:28.880 Jeff Rosenberg of black Rock Joints just now for more. Jeff, 0:13:29.240 --> 0:13:32.320 welcome to the program. We often say, you and I 0:13:32.520 --> 0:13:34.960 the first move isn't always the right move, and we'll 0:13:34.960 --> 0:13:37.120 see if it sticks in financial markets. But what do 0:13:37.120 --> 0:13:39.199 you make of this move in response to some of 0:13:39.240 --> 0:13:41.960 the contradictions we've heard over the last ninety minutes. 0:13:43.679 --> 0:13:45.560 Yeah, you guys have covered a lot of it. I'd say, 0:13:45.640 --> 0:13:48.280 you know, the three big takeaways for me. You know, 0:13:48.400 --> 0:13:52.360 Number one, it's the validation of the Waller Bowman critique 0:13:52.360 --> 0:13:57.200 from the summer. It's not unexpected, but it's important to recognize. 0:13:57.320 --> 0:13:58.920 You know, that was the first thing that the markets 0:13:59.000 --> 0:14:02.800 reacted to, the language and the statement, and it clearly 0:14:02.920 --> 0:14:05.760 was echoed by Powell in the press conference that. 0:14:05.760 --> 0:14:08.760 The impact of the revisions on the data. 0:14:08.800 --> 0:14:11.480 He kind of like focused on it and then said, well, 0:14:11.480 --> 0:14:13.080 it's not just that, but then he went back to 0:14:13.120 --> 0:14:15.360 it again and again, and so that was the first takeaway. 0:14:15.480 --> 0:14:18.640 Is this labor market slowed in has clearly resonated. It's 0:14:18.640 --> 0:14:22.400 shifted the balance of risks, and that was the initial 0:14:22.440 --> 0:14:25.480 market reaction. Rates went lower and they were a bit 0:14:25.520 --> 0:14:27.960 positive on that, but when we got into the press conference, 0:14:28.320 --> 0:14:31.200 it became a little bit less focus on that and 0:14:31.280 --> 0:14:35.680 more about the forward twenty twenty six twenty twenty seven outlook. 0:14:35.680 --> 0:14:38.160 And that's where my second point is kind of a 0:14:38.160 --> 0:14:40.560 big takeaway here, is that the bond market and the 0:14:40.560 --> 0:14:45.360 twenty year end twenty five outlook are basically aligned. It's 0:14:45.400 --> 0:14:49.040 when you look further out into those projections relative to 0:14:49.040 --> 0:14:51.400 where the bond market is pricing where there's a lot 0:14:51.440 --> 0:14:52.160 of disagreement. 0:14:52.200 --> 0:14:52.920 And it gets to this. 0:14:53.000 --> 0:14:57.080 Notion of the spread that you were talking about before 0:14:57.120 --> 0:15:00.360 in the dots, as you look at the dispersion there 0:15:00.520 --> 0:15:03.560 and finally here I think you mentioned it before, you know, 0:15:03.640 --> 0:15:06.080 going into the meeting, there was a lot of you know, 0:15:06.200 --> 0:15:09.280 uncertainty about whether you'd get more than one descent, whether 0:15:09.320 --> 0:15:12.480 Waller and Bowman would advocate for a faster move. 0:15:12.520 --> 0:15:13.000 They didn't. 0:15:13.040 --> 0:15:15.800 They were kind of on board with this adoption of 0:15:15.880 --> 0:15:18.760 the balance of risks shifting, and I think that's important 0:15:18.760 --> 0:15:21.120 in terms of validating that earlier point. It just made 0:15:21.200 --> 0:15:23.160 that you know, bond markets for the end of this 0:15:23.240 --> 0:15:26.200 year are kind of right online with where the FED is. 0:15:26.240 --> 0:15:26.920 I think the. 0:15:26.960 --> 0:15:29.760 Disconnect into next year is interesting and that's going to 0:15:29.800 --> 0:15:30.600 have to be resolved. 0:15:30.680 --> 0:15:34.200 I guess, Jeff, how much does this increase the weight 0:15:34.440 --> 0:15:37.400 of just how many seats the president has to fill? 0:15:37.440 --> 0:15:40.520 Given the fact that, as John and Tom were talking about, 0:15:40.560 --> 0:15:43.920 we did see pushback from the other members from going 0:15:43.960 --> 0:15:47.760 fifty basis points. We didn't see that coalescing around that view. 0:15:50.200 --> 0:15:51.800 Yeah, that's going to be a big issue, and I 0:15:51.840 --> 0:15:54.440 think that's part of what you're seeing in terms of 0:15:54.480 --> 0:15:57.400 the disconnect between the dots today and the bond market 0:15:57.440 --> 0:16:02.120 expectations for the past of policy rates in twenty twenty six, 0:16:02.160 --> 0:16:05.080 because the path of actual policy rates is what the 0:16:05.120 --> 0:16:08.160 bond market is pricing, and the path that's written down 0:16:08.240 --> 0:16:11.600 today is based on the current makeup, right, And so 0:16:11.720 --> 0:16:15.080 that's where you see like effectively a disconnect in the 0:16:15.080 --> 0:16:19.400 bond market, incorporating the possibility of a different makeup of 0:16:19.560 --> 0:16:24.000 the FMC underlying the expectations of the distribution of outcomes 0:16:24.000 --> 0:16:27.760 for where policy rates evolve beyond the near term, where 0:16:27.760 --> 0:16:30.760 you see really clear alignment at Jeff Rozenberg. 0:16:30.800 --> 0:16:34.640 I assume you survived probability and statistics at temper at 0:16:34.680 --> 0:16:38.640 Carnegie Mellon. What's the standard eraror these fancy guys at 0:16:38.680 --> 0:16:42.120 the FED are working with. How certain can we be 0:16:42.240 --> 0:16:45.160 of the path forward? Are they really making it up 0:16:45.280 --> 0:16:46.880 meeting to meeting as they go. 0:16:49.000 --> 0:16:51.800 Yeah, it gets to this dispersion within the dots, and 0:16:51.840 --> 0:16:54.880 it gets to something Powell talked you mentioned a couple 0:16:54.920 --> 0:16:57.600 of times, which I think is a really important way 0:16:57.640 --> 0:17:00.800 of thinking about and framing this moment in time for 0:17:00.840 --> 0:17:04.040 the bond market and for how the bond market follows 0:17:04.440 --> 0:17:05.120 what the FED does. 0:17:05.160 --> 0:17:08.159 And he said there is no risk free path, and 0:17:08.200 --> 0:17:09.840 that's a really important concept. 0:17:09.840 --> 0:17:12.639 And what he means by no risk free path is 0:17:12.680 --> 0:17:15.760 that there's risks to airing on the dual mandate. A 0:17:15.760 --> 0:17:18.280 little question about their or third mandate in there later, 0:17:18.359 --> 0:17:21.080 but there's a risk to the dual mandate if you 0:17:21.240 --> 0:17:25.320 pursue the maximum employment and you put the inflation at risk, 0:17:25.400 --> 0:17:27.920 and vice versa. If you focus on inflation, you put 0:17:27.960 --> 0:17:28.880 the employment at risk. 0:17:28.880 --> 0:17:32.560 And that's a very uncomfortable and unfamiliar spot. 0:17:32.680 --> 0:17:36.760 We called it before we got into the post COVID. 0:17:36.560 --> 0:17:37.920 Environment of too much inflation. 0:17:38.000 --> 0:17:41.760 We called it divine coincidence of monetary policy. The policy 0:17:42.440 --> 0:17:45.600 mandates were aligned, they never faced that conflict, and so 0:17:45.680 --> 0:17:49.159 bond markets never faced the uncertainty that the dispersion in 0:17:49.240 --> 0:17:52.520 the dots is reflecting. And there's really no resolution of that. 0:17:52.640 --> 0:17:56.400 It's going to be the data and what is the 0:17:56.440 --> 0:17:59.840 marginal change in data that the market's focused on, the 0:18:00.080 --> 0:18:03.280 Fed's focused on, and the marginal changes that employment has 0:18:03.280 --> 0:18:06.919 been the big downward revision. Inflation has kind of been 0:18:07.000 --> 0:18:10.440 persistently above target, as we talked about going on five 0:18:10.520 --> 0:18:13.680 years in the projections, but it's not accelerating. 0:18:13.920 --> 0:18:14.800 And that's the key. 0:18:15.160 --> 0:18:18.159 It's what's the rate of change between the dual mandate. 0:18:18.560 --> 0:18:20.639 Right now, it's all on the labor markets, and that's 0:18:20.680 --> 0:18:21.760 going to keep its focus. 0:18:22.240 --> 0:18:23.679 That may change and as that changes. 0:18:23.920 --> 0:18:26.720 Absolutely brilliant, John. What this amounts to is is it 0:18:26.760 --> 0:18:28.120 a new data dependency. 0:18:28.280 --> 0:18:30.760 They've made a choice, and I think we should respect 0:18:30.800 --> 0:18:33.159 that fact. Jeff, you can always fall into the trap 0:18:33.400 --> 0:18:36.119 of suggesting what the FED should do, what it shouldn't do, 0:18:36.680 --> 0:18:39.840 Jeff the chairman saying there's no risk free path. But 0:18:39.880 --> 0:18:43.000 the committee's made a choice to cut interest rates to 0:18:43.080 --> 0:18:45.520 signal more to come if there is a consensus is 0:18:45.560 --> 0:18:49.119 to cut again, cut again, and cut again. Now, Jeff, 0:18:49.480 --> 0:18:51.600 as a market participant, you've got to respect that the 0:18:51.640 --> 0:18:54.200 Federal Reserve has made a choice to take that risk. 0:18:54.560 --> 0:18:57.360 And I want to understand from your perspective how credible 0:18:57.400 --> 0:19:00.199 you think the pursuit of two percent actually is, and 0:19:00.240 --> 0:19:03.480 as a bond investor, how your approach to a market 0:19:03.640 --> 0:19:08.320 should change given the information that you've had this afternoon. 0:19:10.600 --> 0:19:13.080 Well, and it was in your conversation with Mike McGee 0:19:13.080 --> 0:19:15.720 and his question. You know, the risk is they lose 0:19:15.800 --> 0:19:18.880 credibility on the two percent number. Now, you can get 0:19:19.240 --> 0:19:24.040