WEBVTT - Instant Reaction: The Fed Decides 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.319 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot com, 0:00:26.640 --> 0:00:29.880 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.240 --> 0:00:32.840 We are about to get some words from the Federal 0:00:32.840 --> 0:00:37.560 Reserve as they embark on a pivot point of potential inflation, disinflation, 0:00:37.800 --> 0:00:40.800 and then potentially the end of a hiking cycle after 0:00:40.920 --> 0:00:42.800 raising rates by five hundred basis points. 0:00:42.840 --> 0:00:45.120 Let's head over to Michael McKean. Now with the latest mic. 0:00:45.840 --> 0:00:50.000 We have a super hawkish skip a unanimous Fed notice 0:00:50.040 --> 0:00:53.040 sense leaves the benchmark rate at five to five and 0:00:53.080 --> 0:00:57.040 a quarter percent. However, the new dot plot shows a 0:00:57.080 --> 0:01:00.480 new terminal rate of five point six percent, which would 0:01:00.480 --> 0:01:03.040 be two to twenty five basis point moves, or at 0:01:03.120 --> 0:01:06.360 least one point fifty Twelve of the eighteen members of 0:01:06.440 --> 0:01:09.640 the committee see rates at that level or above. One 0:01:09.680 --> 0:01:14.120 sees six and a quarter percent, four rates moving up 0:01:14.200 --> 0:01:17.560 only twenty five basis points, but only two see no 0:01:17.760 --> 0:01:20.720 change between now and the end of the year. In 0:01:20.800 --> 0:01:25.080 their statement, the officials say holding the target range steady 0:01:25.080 --> 0:01:28.400 at this meeting allows the Committee to assess additional information 0:01:28.680 --> 0:01:32.280 and its implications for monetary policy, but the very next 0:01:32.319 --> 0:01:37.880 sentence leads us into it with saying instead of saying 0:01:38.000 --> 0:01:41.720 in determining the extent to which additional firming may be appropriated, 0:01:41.880 --> 0:01:46.800 now reads in determining the extent of additional policy firming 0:01:47.000 --> 0:01:50.160 that may be appropriate. There are also significant changes to 0:01:50.200 --> 0:01:53.840 the economic assumptions. Unemployment this year projected to reach only 0:01:54.120 --> 0:01:57.360 four point one percent, down from four point five four 0:01:57.400 --> 0:02:00.280 point five percent next year and in twenty twenty five, 0:02:00.640 --> 0:02:04.160 down from four point six. Growth revised up this year 0:02:04.320 --> 0:02:07.440 to one percent from four tenths and lowered by a 0:02:07.480 --> 0:02:10.920 tenth in the next two years. PCEE inflation forecast at 0:02:10.960 --> 0:02:13.960 three point two percent, down from three point three percent 0:02:14.040 --> 0:02:16.960 this year. Core PCEE is revised up this year to 0:02:17.080 --> 0:02:20.480 three nine from three to six. There are almost no 0:02:20.560 --> 0:02:23.840 significant changes in inflation for the next two years. The 0:02:23.880 --> 0:02:27.240 federal funds rate will be cut, but not until next year. 0:02:27.280 --> 0:02:30.120 The summary shows it will be a big cut as 0:02:30.160 --> 0:02:33.680 well a full percentage point in twenty twenty four, going 0:02:33.720 --> 0:02:36.400 to four point six percent by the end of next year. 0:02:36.639 --> 0:02:39.480 They see rates falling to three point four percent in 0:02:39.480 --> 0:02:43.040 twenty twenty five. The statement says the economy has continued 0:02:43.080 --> 0:02:45.720 to expand at a modest pace, but job gains have 0:02:45.760 --> 0:02:49.760 been robust and inflation remains elevated. While the banking system 0:02:49.919 --> 0:02:53.200 is sound and resilient, they do expect tighter credit conditions 0:02:53.240 --> 0:02:57.160 will weigh on economic activity, hiring, and inflation. The extent 0:02:57.480 --> 0:03:01.280 of those effects remains uncertain, it says, And finally, there 0:03:01.280 --> 0:03:04.440 are no changes to QT the ninety five billion dollars 0:03:04.480 --> 0:03:08.160 a month roll off to repo or reverse repo rates 0:03:08.320 --> 0:03:10.200 or to counter party caps. 0:03:10.720 --> 0:03:13.400 I think what's important here, folks. In the multiple decades 0:03:13.440 --> 0:03:16.760 that I've known Michael McKee, rarely if I heard that 0:03:16.960 --> 0:03:20.960 tone of the McKee voice. He has huge perspective on this. 0:03:21.400 --> 0:03:23.200 And to see the two year yield, Karen, if you 0:03:23.280 --> 0:03:26.120 can't bring up the two year yield right now, which 0:03:26.200 --> 0:03:30.840 only can be captured by a fourteen basis point move 0:03:31.560 --> 0:03:34.639 to high yields, the y axis on the two year 0:03:34.720 --> 0:03:38.720 yield right now, extraordinary equities give back fractionally. But the 0:03:38.800 --> 0:03:42.280 yield move here, Lisa is, Mike, stay with us. The 0:03:42.360 --> 0:03:44.640 yield move here, Lisa's extraordinary. 0:03:44.680 --> 0:03:46.200 They're getting the message loud and clear. 0:03:46.200 --> 0:03:49.360 The FED wants to go again, and quite maybe quite significantly. 0:03:49.560 --> 0:03:51.800 But this from Drew Mattis of MetLife. He writes it 0:03:51.920 --> 0:03:53.680 and says, if they knew they were going to be 0:03:53.720 --> 0:03:56.160 able to go, they would have gone. If they were 0:03:56.240 --> 0:03:59.320 so convinced that they would need to raise rate significantly higher, 0:04:00.720 --> 0:04:01.360 why not today? 0:04:01.480 --> 0:04:04.200 I mean, Michael McKee with then we're really an historic 0:04:04.240 --> 0:04:07.360 dot plot and projection study that you just said. Can 0:04:07.400 --> 0:04:09.640 you say that this is the first time, Michael McKee, 0:04:09.640 --> 0:04:12.680 where we begin to frame something in the vicinity of 0:04:12.720 --> 0:04:14.800 six percent for short paper. 0:04:15.360 --> 0:04:17.960 Well, it's the first time you get anybody suggesting that 0:04:18.000 --> 0:04:21.080 we're now over six percent to six and a quarter 0:04:21.080 --> 0:04:23.320 for at least one member and two think we're going 0:04:23.400 --> 0:04:26.599 to go somewhere in between that. So it does look 0:04:26.640 --> 0:04:29.520 like we're putting it into the ballpark. But still the 0:04:29.520 --> 0:04:31.880 majority think we're going to end up at five point six, 0:04:31.880 --> 0:04:33.840 which is still a significant two moves. 0:04:34.320 --> 0:04:36.640 Honestly, I just keep going back to this idea. 0:04:36.839 --> 0:04:39.760 If they wanted to hike eventually and possibly twice more. 0:04:40.000 --> 0:04:43.360 Why not today the reassessment and potentially the concern out there, 0:04:43.360 --> 0:04:45.320 Michael McKee, stick with us, will be coming back to 0:04:45.360 --> 0:04:48.440 you as we do see markets on the move very much, 0:04:48.520 --> 0:04:51.720 readjusting to a reality where they possibly want to raise rates. 0:04:51.480 --> 0:04:52.520 By two more times. 0:04:52.760 --> 0:04:54.880 Just to put this in a perspective, this is the 0:04:54.920 --> 0:04:58.839 first pause in FED policy in fifteen months. That is 0:04:58.839 --> 0:05:01.719 where we are starting on March twenty twenty two and 0:05:01.760 --> 0:05:04.320 having raised five hundred basis points. They did not raise 0:05:04.400 --> 0:05:07.440 rates tom and you are seeing though their indications of 0:05:07.480 --> 0:05:10.799 further rate hikes being bled out into markets setting them lower. 0:05:10.880 --> 0:05:12.880 And there's what we talked about this morning as well. 0:05:12.920 --> 0:05:17.040 This afternoon, the FED says the FOMC vote was unanimous. 0:05:17.120 --> 0:05:19.279 At this historic moment, it is good to speak with 0:05:19.360 --> 0:05:23.560 Diane Swanck, Chief Economists KPMG, with all sorts of experience 0:05:23.600 --> 0:05:27.640 here out of Michigan and Midwestern Chicago at economics, Dan, 0:05:27.800 --> 0:05:30.080 what in God's name is going on? Should they have 0:05:30.240 --> 0:05:31.200 just raised rates? 0:05:32.800 --> 0:05:35.640 I actually think that they're really concerned. Its attention within 0:05:35.680 --> 0:05:38.440 the Fed that Julia referred to earlier in terms of 0:05:38.440 --> 0:05:41.479 the diversity of views. Chairman Powell is a much more 0:05:41.520 --> 0:05:44.760 skittish about what's going to happen in the financial markets 0:05:45.080 --> 0:05:47.839 and stresses in the financial sector, of the banking sector 0:05:47.880 --> 0:05:51.320 in particular, and not wanting to go too far. That said, 0:05:52.000 --> 0:05:54.920 this is a FED that is committed to additional rate hikes. 0:05:54.960 --> 0:05:58.440 The tricky part of this pause or skip the waller 0:05:58.520 --> 0:06:01.520 skip as we call it, messaging it and this was 0:06:01.560 --> 0:06:05.240 a very effective way to message we're going to assess 0:06:05.680 --> 0:06:08.880 what tightening is out there and how much additional tightening 0:06:08.960 --> 0:06:12.400 is needed. I want to add that much of financial 0:06:12.440 --> 0:06:15.799 markets have ignored that many central banks around the world 0:06:15.800 --> 0:06:19.360 that had paused have had to reassess and go back 0:06:19.400 --> 0:06:22.400 in Bank of Australia, the Reserve Bank of Australia, the 0:06:22.440 --> 0:06:25.680 Bank of Canada in the recent week ECB, all of 0:06:25.720 --> 0:06:28.000 these banks looking to think that they were close to 0:06:28.040 --> 0:06:31.120 a terminal rate now reassessing that. And I think the 0:06:31.160 --> 0:06:33.760 FED doesn't want to look like any pause that it 0:06:33.880 --> 0:06:37.640 takes is behind the curve and not continuing that products 0:06:37.640 --> 0:06:38.360 and the blur. 0:06:38.279 --> 0:06:41.279 Of emotion there from Mike McKee and the data of 0:06:41.320 --> 0:06:45.320 the projections Diane Swank, was this a Fed of a 0:06:45.360 --> 0:06:48.839 single mandate? Have they basically said, we can't opine on 0:06:49.360 --> 0:06:51.800 labor because we're solidly under four percent. 0:06:53.720 --> 0:06:57.680 There is clearly of you that labor markets are extremely tight. 0:06:58.000 --> 0:07:00.599 They acknowledge that I'm not at Also, heis by the 0:07:00.680 --> 0:07:04.600 upward revisions to the forecasting growth, the idea that they're 0:07:04.640 --> 0:07:06.320 still going to get to four and a half percent 0:07:06.400 --> 0:07:10.080 on the unemployment rate, although mild recession is still this 0:07:10.120 --> 0:07:14.040 sort of softish landing kind of scenario they're trying to 0:07:14.080 --> 0:07:17.120 reach for. But when you start looking at the other 0:07:17.280 --> 0:07:19.960 issues on rate hikes, on how many great hikes are 0:07:20.040 --> 0:07:23.680 up are even an excess of a half percent in 0:07:23.760 --> 0:07:26.040 this year, that really gets to the core of the 0:07:26.040 --> 0:07:28.360 issue of how hawkish they think they're going to have 0:07:28.440 --> 0:07:31.080 to be to t rail what's become a more persistent 0:07:31.440 --> 0:07:34.480 global inflation underline inflation. 0:07:34.840 --> 0:07:37.600 After the shock of these folks, equities deteriorate down negative 0:07:37.640 --> 0:07:40.520 three to four. It's okay, Dan, I cough like that 0:07:40.560 --> 0:07:43.440 all the time. SPX down a half a percent, and 0:07:43.480 --> 0:07:45.560 I really want to say that the two year yield 0:07:45.880 --> 0:07:49.800 my litmus paper this afternoon, continues to move to a 0:07:49.920 --> 0:07:55.000 higher yield. We've got a shocking sixteen almost seventeen basis 0:07:55.000 --> 0:07:58.160 point move. That's a ginormous move for those keeping score at. 0:07:58.040 --> 0:08:01.360 Home, Lisa, and I'm watching real yields, basically inflation adjusted 0:08:01.440 --> 0:08:03.920 or the market's perception of inflation over two years, surging 0:08:04.000 --> 0:08:05.960 to the highest going back to two thousand and nine, 0:08:06.400 --> 0:08:09.720 nearly two point seven percent in terms of real yields, 0:08:09.760 --> 0:08:11.760 So it gives you a sense of the tightening as 0:08:11.800 --> 0:08:12.680 we move forward. 0:08:12.920 --> 0:08:15.160 Diane, we were talking about how Chair. 0:08:15.040 --> 0:08:20.440 Powell doesn't necessarily want to fractionalize his committee. He wants 0:08:20.520 --> 0:08:22.440 to keep people on the same page, and because of 0:08:22.520 --> 0:08:25.920 the varying views was why they didn't go. Is that 0:08:26.320 --> 0:08:29.280 uncertainty good or is it bad for a federal reserve 0:08:29.320 --> 0:08:31.240 setting policy at such an uncertain time. 0:08:32.600 --> 0:08:34.560 I think I actually agree with Julia on this. I 0:08:34.600 --> 0:08:37.440 mean the idea of having First of all, he's been 0:08:37.480 --> 0:08:41.079 remarkably successful at corralling the cats. That's just something he. 0:08:41.080 --> 0:08:42.160 Is very good at doing. 0:08:42.640 --> 0:08:45.520 That said, the diversity of views when you're trying to 0:08:45.600 --> 0:08:49.640 calibrate policy very hard to do, and given the uncertainties 0:08:49.679 --> 0:08:53.200 we phase is healthy. And I think what Julia pointed out, 0:08:53.240 --> 0:08:55.200 if we had gotten a descent, what we did is 0:08:55.440 --> 0:08:58.400 he you served a descent by making this a very 0:08:58.440 --> 0:09:02.800 hawkish statement. Basically, give guarantee a July rate hike as well. 0:09:03.240 --> 0:09:04.760 That was his way of buying time. 0:09:04.840 --> 0:09:07.600 That was a compromise cut, so he did not get 0:09:07.600 --> 0:09:09.960 a ascent at this meeting. But I do think it 0:09:10.000 --> 0:09:13.680 is healthy to understand where the spectrum of views are 0:09:13.679 --> 0:09:16.840 given the uncertainty and the unprecedented nature. Are hete even 0:09:16.920 --> 0:09:19.040 using that word anymore, but we all know it. Julia 0:09:19.120 --> 0:09:21.240 did a very good job of saying how many things 0:09:21.280 --> 0:09:24.400 that were all integrating to try to understand this environment. 0:09:24.679 --> 0:09:26.840 But having that spectrum of views on the bed and 0:09:26.920 --> 0:09:30.240 the diversity of views within the Federal Reserve is a 0:09:30.400 --> 0:09:32.599 strength of the FED, not a weakness. 0:09:33.040 --> 0:09:35.240 Just to rehash if you're just joining us now. The 0:09:35.280 --> 0:09:38.720 Fed did not hike, but it was a super hawkish skip. 0:09:38.760 --> 0:09:42.600 According to Michael McKee, looking at a median rate forecast 0:09:42.840 --> 0:09:46.280 for the end of this year five point six percent, 0:09:46.600 --> 0:09:49.360 that is up from about five percent right now. It 0:09:49.360 --> 0:09:51.959 also sees the end of twenty twenty four rates being 0:09:52.000 --> 0:09:55.760 at four point six percent. Definitely seeing a tilt upwards 0:09:55.800 --> 0:09:59.080 as they signal two more rate hikes by your end, Diane, 0:09:59.080 --> 0:10:01.880 I'm curious from your van point does that seem realistic 0:10:02.160 --> 0:10:05.080 based on the economic slowing and the disinflation that you're seeing, 0:10:05.160 --> 0:10:07.880 that that is what's required to truly bring inflation to 0:10:07.920 --> 0:10:09.319 the two percent target. 0:10:10.000 --> 0:10:11.960 Well, it is our forecast, so we expect them to 0:10:12.080 --> 0:10:15.160 raise rates both in July and in September as to 0:10:15.240 --> 0:10:18.360 that half percent up. And I think that's important because 0:10:18.480 --> 0:10:22.120 the resilience that we've seen, even though inflation is cooled dramatically, 0:10:22.120 --> 0:10:25.360 which is wonderful, a lot of it has been concentrated 0:10:25.400 --> 0:10:28.760 in food and energy prices. Again very important for consumers. 0:10:29.040 --> 0:10:31.960 But remember why did the Bank of Canada go back 0:10:32.000 --> 0:10:34.960 in because they saw bottoming in the housing market that 0:10:35.080 --> 0:10:38.240 could mean additional inflation down the road in shelter costs. 0:10:38.320 --> 0:10:41.880 We're experiencing something very similar in the United States at 0:10:41.880 --> 0:10:45.880 the same time that core services inflation has proven sticky, 0:10:46.280 --> 0:10:49.520 not just in the US but globally, even in Europe 0:10:49.840 --> 0:10:52.439 where they've had a technical recession. 0:10:52.480 --> 0:10:55.240 Now just joining US Steian Swan KPMG with us right now, 0:10:55.280 --> 0:10:57.600 Lisa Brawmwinson, Tom Keen on a meeting that is not 0:10:57.679 --> 0:11:00.200 a snooze fest. You heard it from our Michael McKee. 0:11:00.440 --> 0:11:04.520 An extraordinary and truly super hawkish statement. That is mister 0:11:04.600 --> 0:11:07.480 mckees's language. I'm going to take five point six percent 0:11:07.480 --> 0:11:09.680 on the terminal rate. Let's round it up collegiately to 0:11:09.760 --> 0:11:12.800 six percent. You can do that in biology. It's not biology, 0:11:12.800 --> 0:11:15.840 but we'll go there. Michael Gapin with US US economist 0:11:15.920 --> 0:11:18.560 Bank of America, and of course Michael Collins Senior. We 0:11:18.640 --> 0:11:21.080 only booked Michael's today is how it works exactly well, 0:11:21.120 --> 0:11:24.120 Michael Collins with U A PGM fixed income as well, 0:11:24.120 --> 0:11:26.319 Michael Gabon. I got to go right to the terminal rate. 0:11:26.360 --> 0:11:29.440 It seems like we're flying blind. Does Bank of America 0:11:29.559 --> 0:11:33.040 have to adjust a money market fund a five five 0:11:33.080 --> 0:11:36.280 point one five point two percent? And are we migrating 0:11:36.320 --> 0:11:39.200 towards a five point six five point eight Dare I 0:11:39.240 --> 0:11:42.000 say six percent? Short term piece of paper? 0:11:43.320 --> 0:11:45.440 It certainly looks that way, Tom. I think you could 0:11:45.480 --> 0:11:47.600 add to that story a whole bunch of Treasury bill 0:11:47.600 --> 0:11:51.280 issuans coming in a hurry, so T bill yields as 0:11:51.320 --> 0:11:54.640 well as other money market yields. Look, I think five 0:11:54.679 --> 0:11:57.000 point six is where the Fed is wanting to go. 0:11:57.120 --> 0:11:59.640 I to answer your earlier question, if I may pose 0:11:59.640 --> 0:12:03.080 it to myself, Yeah, they should have hiked today, but 0:12:03.160 --> 0:12:05.400 I think they got stuck on timing at the end, 0:12:05.400 --> 0:12:08.240 and market pricing wasn't where they wanted, and maybe it 0:12:08.280 --> 0:12:10.120 would have been a little too disruptive to try and 0:12:10.160 --> 0:12:13.040 squeeze that in at the end. So we get I 0:12:13.040 --> 0:12:15.240 think what it will be a difficult message, which is 0:12:15.280 --> 0:12:17.960 for some reason, we saw enough to pause today, but 0:12:18.040 --> 0:12:19.960 we've also seen enough to tell you we think we 0:12:20.040 --> 0:12:21.560 need to do two more rate hikes. 0:12:21.840 --> 0:12:24.440 Michael Collins, I flunk not one, not two, but three 0:12:24.480 --> 0:12:28.640 exams over the word disintermediation and what that means to 0:12:28.679 --> 0:12:33.120 me is not chaos but just uncertainty and discontinuities within 0:12:33.160 --> 0:12:36.560 the global fixed income space. Does the shock of this 0:12:36.679 --> 0:12:40.360 decision is super hawkish? Does it put a little bit 0:12:40.440 --> 0:12:43.040 of tension into the fixed income markets? 0:12:43.080 --> 0:12:48.200 pGEM looks at yeah, absolutely, Tom. You know, we've been 0:12:48.240 --> 0:12:51.160 thinking the risk to the market pricing, which, as you know, 0:12:51.320 --> 0:12:54.400 have been pricing in a lot of rate cuts starting 0:12:54.720 --> 0:12:56.440 by the end of this year. We thought the risk 0:12:56.559 --> 0:12:59.719 was that those would be taken off the table, and 0:12:59.760 --> 0:13:04.800 sure enough, this really hawkish forward looking dot plot does that. 0:13:04.920 --> 0:13:08.400 So the big kind of bear steepening or flattening, we're 0:13:08.400 --> 0:13:11.240 seeing in the yield curve is lined up with our 0:13:11.280 --> 0:13:15.560 positioning fortunately and is really to me what the FED 0:13:15.600 --> 0:13:17.240 should be doing is expected. 0:13:17.600 --> 0:13:20.040 Michael Gapan, you were talking, first of all, happy birthday 0:13:20.559 --> 0:13:22.959 on this FED day to you. You were talking about 0:13:22.960 --> 0:13:26.120 how the FED didn't raise rates because the market wasn't 0:13:26.120 --> 0:13:29.200 aligned and they kind of ran out of time. Was 0:13:29.240 --> 0:13:31.960 that the right call given the fact that they want 0:13:32.120 --> 0:13:34.880 tightening financial conditions to help them get to their goal. 0:13:36.679 --> 0:13:39.840 Look, I think I think in general, as a policymaker, 0:13:39.880 --> 0:13:42.920 you do not want to surprise markets with rate hikes. 0:13:42.920 --> 0:13:45.640 So I think that is the right base point of view. 0:13:45.720 --> 0:13:48.400 But I also think the data moved quickly against them. 0:13:49.120 --> 0:13:51.360 Just at the end of the intermeding period. We have 0:13:51.720 --> 0:13:55.319 upward revisions to construction spending and trade which puts Q 0:13:55.400 --> 0:13:59.320 one growth at two percent, very strong employment report. You know, 0:13:59.520 --> 0:14:01.120 I think you have to you're going to get a 0:14:01.240 --> 0:14:06.240 significant market reaction today. Anyway, you know, I think they 0:14:06.320 --> 0:14:08.800 probably if they had another week, they would have they 0:14:08.800 --> 0:14:10.880 would have pushed us all into a hike in June. 0:14:11.160 --> 0:14:13.400 Michael Collins, I'm looking right now at the projection of 0:14:13.440 --> 0:14:15.640 five point six percent rates by the end of this year. 0:14:15.679 --> 0:14:18.360 Two more rate hikes and four point six percent by 0:14:18.400 --> 0:14:21.120 the end of the following year. I keep asking, this, 0:14:21.400 --> 0:14:24.080 is this realistic based on the slowdowns that we're seeing 0:14:24.120 --> 0:14:26.120 in different areas. Do you think that they will actually 0:14:26.160 --> 0:14:28.720 achieve this? And if they don't, what kind of credibility 0:14:28.760 --> 0:14:29.680 are they sacrificing. 0:14:30.880 --> 0:14:33.360 Yeah. I think what they really need to do, Lisa 0:14:33.400 --> 0:14:35.520 is try to convince the markets that they'll at least 0:14:35.560 --> 0:14:38.480 keep this funds rate where it is somewhere in the 0:14:38.920 --> 0:14:42.320 low to mid fives for longer than the markets are 0:14:42.360 --> 0:14:46.760 pricing in. Sending this more more hawkish message certainly does 0:14:46.800 --> 0:14:49.440 that right, and the markets are readjusting, as Tom said, 0:14:50.040 --> 0:14:53.160 to this higher yielding world. So I think that's the 0:14:53.680 --> 0:14:56.920 right message, the right move. But ultimately I don't think 0:14:56.920 --> 0:15:00.840 they'll be able to get two more rate hikes off. Ultimately, 0:15:00.880 --> 0:15:02.880 I don't think they'll be able to have a FED 0:15:02.920 --> 0:15:06.240 funds rate, you know, in the mid to high fours 0:15:06.320 --> 0:15:09.760 or fives for more than the next year or so. 0:15:09.760 --> 0:15:12.360 So I think ultimately you will see more cuts. But 0:15:12.400 --> 0:15:14.520 for now, I mean rates are going to stay higher 0:15:14.560 --> 0:15:16.440 for a little longer than was priced in. I think 0:15:16.480 --> 0:15:17.520 that's the right message. 0:15:17.720 --> 0:15:19.320 Dane Swank with us as well. I want to go 0:15:19.320 --> 0:15:20.600 to all three of you on this. I think it's 0:15:20.640 --> 0:15:24.160 so important. Swank. I want to look at the dot plot, 0:15:24.280 --> 0:15:26.320 and you know, I'm not a fan of it. I 0:15:26.360 --> 0:15:28.240 took Richard Berner one on one and I'm just not 0:15:28.320 --> 0:15:31.680 a fan of all this verbiage. I look at twenty three, 0:15:31.760 --> 0:15:34.760 I'm okay, there's sort of a cohesion, cohesion to it. 0:15:35.240 --> 0:15:38.200 I look at twenty five, it's a lesser cohesion. The 0:15:38.240 --> 0:15:42.160 dot plot right now in twenty twenty five, Diane Swank 0:15:42.840 --> 0:15:47.800 is a complete mess. There's no cohesion. It's basically a 0:15:47.880 --> 0:15:52.840 linear point estimate from low to high. Dian Swank is 0:15:52.840 --> 0:15:53.920 a dot plot broken. 0:15:55.480 --> 0:15:57.160 I think the dot poll has been broken for a 0:15:57.160 --> 0:15:59.120 long time. I don't think it's the most effective thing, 0:15:59.160 --> 0:16:01.360 and I think the Fed now it's really more short 0:16:01.400 --> 0:16:04.560 term than long term, but it really underscores the uncertainty 0:16:04.600 --> 0:16:06.760 that we face out there. And I will add one 0:16:06.760 --> 0:16:09.720 more reason of why the Fed paused at this particular meeting, 0:16:09.760 --> 0:16:12.760 that Treasury issuance issue. That is something they wanted to 0:16:12.800 --> 0:16:14.760 get over the hump on. And remember, we start to 0:16:14.760 --> 0:16:18.080 get corporate tax revenues in tomorrow, which may be able 0:16:18.280 --> 0:16:20.640 depending on how you know a day before the Fed 0:16:20.680 --> 0:16:24.080 makes this decision on how fast treasury issuans have to go. 0:16:24.280 --> 0:16:27.480 This is another thing that the chair Powell himself, I think, 0:16:27.840 --> 0:16:31.000 was working to get some space around. But I also 0:16:31.120 --> 0:16:35.000 think it's really important to understand that so far around 0:16:35.080 --> 0:16:39.960 the world, central banks have underestimated the ability of the 0:16:40.040 --> 0:16:43.960 transmission effect of higher rates and their economies. Their economies 0:16:44.000 --> 0:16:47.920 have proven much more resistant to rate hikes than they 0:16:47.920 --> 0:16:49.960 thought they were. They thought they'd happen on a real 0:16:50.000 --> 0:16:52.800 time basis. There were estimates out there that this would 0:16:52.800 --> 0:16:55.520 be almost real time in the legs would disappear. Two 0:16:55.600 --> 0:16:59.560 things are happening. One is governments intervene to dampen the effect. 0:16:59.640 --> 0:17:03.840 Particular have to Russia invaded Ukraine of higher inflation, which 0:17:03.920 --> 0:17:07.160 extended out the period of inflation and dampen the effect 0:17:07.200 --> 0:17:10.159 of higher rates. But it also has put us in 0:17:10.160 --> 0:17:12.840 this situation where central banks are now having to go 0:17:12.960 --> 0:17:15.920 back in and the concern is that we could get 0:17:15.920 --> 0:17:20.120 a reacceleration or more entrenched inflation. And that's why this 0:17:20.200 --> 0:17:21.040 is so hawkish. 0:17:21.240 --> 0:17:23.520 Michael Gaban when you're right about this, and again I'm 0:17:23.560 --> 0:17:26.679 going to go out eighteen months to the craziness of 0:17:26.720 --> 0:17:30.440 beginning twenty twenty five with a dot pot that's absolutely 0:17:30.440 --> 0:17:32.840 original and from I'm going to call it buller to 0:17:32.920 --> 0:17:35.920 high to whoever low goules, be low whatever. I'm just 0:17:36.040 --> 0:17:38.960 guessing their folks. But Michael gaban as you right for 0:17:39.000 --> 0:17:43.000 the Bank of America, what's the single biggest mystery to 0:17:43.080 --> 0:17:46.960 you in the GDP equation. What's the mystery that's going 0:17:47.040 --> 0:17:48.280 to come out of this press. 0:17:48.040 --> 0:17:52.320 Conference in the short run. I would say that what 0:17:52.600 --> 0:17:55.840 surprised me and I think others has been how much 0:17:55.920 --> 0:18:00.000 labor supply has grown and responded in twenty twenty three, 0:18:00.200 --> 0:18:03.960 the massive surgeon immigration, the pickup and late in the 0:18:04.000 --> 0:18:08.159 labor force. The shortfall between labor supply and labor demand 0:18:08.160 --> 0:18:11.359 has narrowed quickly. As Diana said, it's meant the labor 0:18:11.400 --> 0:18:13.880 market is held up, spending is held up, and there's 0:18:13.920 --> 0:18:17.320 a lot more resilience in the economy. And as Lisa mentioned, 0:18:17.320 --> 0:18:20.639 maybe it's even adding to that excess saving argument just 0:18:20.640 --> 0:18:24.000 because of higher income. The further we go to we 0:18:24.040 --> 0:18:26.960 go out, it's we don't know how quickly inflation is 0:18:27.000 --> 0:18:29.320 going to come down. And I think that twenty twenty 0:18:29.359 --> 0:18:33.359 five distribution tells you the median of that means absolutely nothing. 0:18:33.680 --> 0:18:37.560 There's no weight to that middle. The committee simply doesn't know. 0:18:38.640 --> 0:18:40.960 We're on radio and television. We welcome all of you 0:18:41.080 --> 0:18:44.360 across this nation and worldwide. Michael McKee has gone into 0:18:44.359 --> 0:18:47.200 the hermetically sealed press conference and i'll see that in 0:18:47.200 --> 0:18:50.240 about eleven maybe twelve minutes. Here, Lisa, we've not talked 0:18:50.280 --> 0:18:53.080 about something. Lisia, you and thank you so much hitsf 0:18:53.119 --> 0:18:57.080 for bringing this up out on Twitter. The steepening of 0:18:57.119 --> 0:19:01.119 a prea misra like twos tens spread here out to 0:19:01.240 --> 0:19:05.639 ninety three basis points. Let's remind ourselves of how this 0:19:05.680 --> 0:19:08.400 is a Michael mc gapein taught me this word. It's 0:19:08.440 --> 0:19:13.879 a ginormous curve in version that we see redone today, redone. 0:19:13.400 --> 0:19:16.440 Today, ninety two basis points of inversion that we're looking 0:19:16.480 --> 0:19:19.320 at right now. Not quite the record high or record low, 0:19:19.320 --> 0:19:20.960 i should say, for the cycle of one hundred and seven, 0:19:21.040 --> 0:19:25.760 nonetheless highlighting how higher near term rates are really not 0:19:26.000 --> 0:19:28.960 coherent with the long term rates that are going down. 0:19:29.000 --> 0:19:32.800 I'm also looking at the rate expectations going out by 0:19:32.840 --> 0:19:37.040 September five point three percent by January now the implied 0:19:37.080 --> 0:19:39.320 FED funds rate is five point two percent. 0:19:39.680 --> 0:19:41.480 Michael Collins, how do you play this? 0:19:41.640 --> 0:19:43.840 Do you lean into the long term yield story with 0:19:43.880 --> 0:19:47.159 this idea that the Fed will necessarily bring inflation down 0:19:47.200 --> 0:19:48.600 at whatever cost to growth? 0:19:49.960 --> 0:19:54.920 Absolutely, a really hawkish Fed, Lisa, this late in the cycle, 0:19:54.960 --> 0:19:58.680 when you're already seeing evidence of growth and demand and 0:19:58.720 --> 0:20:02.560 inflation lowing is definitely bullish for the long end. It 0:20:02.600 --> 0:20:06.600 means that they will by hooker by crook control inflation, right. 0:20:06.640 --> 0:20:10.320 They are adamant about that. I think they're very convincing 0:20:10.359 --> 0:20:14.040 to the market. So this big kind of flattening we're 0:20:14.040 --> 0:20:17.080 seeing in the market is definitely evidence of that. And 0:20:17.400 --> 0:20:20.000 I think, you know, long term rates are pretty much 0:20:20.040 --> 0:20:20.560 capped here. 0:20:20.680 --> 0:20:22.560 Do you think, Michael Collins, that there is going to 0:20:22.560 --> 0:20:25.360 be an issue with riskier credit as the Fed does 0:20:25.400 --> 0:20:27.760 double down and as you start to see pretty significant 0:20:27.840 --> 0:20:30.199 refinancing costs as time goes on. 0:20:31.600 --> 0:20:33.879 Yeah, no doubt right. I mean this does take a 0:20:33.960 --> 0:20:38.240 little bit of time, right. The long these high rates 0:20:38.280 --> 0:20:41.480 for longer will eventually bite is more and more companies, 0:20:41.720 --> 0:20:44.879 more and more commercial you know, real estate mortgages, more 0:20:44.920 --> 0:20:48.679 and more individuals, more and more governments, have to refinance 0:20:48.720 --> 0:20:51.480 their debt at these higher rates. You will see tremendous 0:20:51.800 --> 0:20:56.040 dispersion in the markets. You'll see weaker credits, more levered companies, 0:20:56.880 --> 0:21:01.720 companies exposed to floating rate dat really start to suffer here. 0:21:01.760 --> 0:21:04.440 And that's that's part of the Fed's intention, really right, 0:21:04.440 --> 0:21:07.480