WEBVTT - Bloomberg Surveillance: Moynihan on Consumer Strength 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromwoyds, along with Tom Keane and Jonathan Farrow. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:19.480 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.600 --> 0:00:22.840 Spotify and anywhere you get your podcasts, and always on 0:00:22.880 --> 0:00:26.440 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.680 --> 0:00:29.120 Right now, I am so pleased to say my colleague 0:00:29.280 --> 0:00:32.720 David Weston joined over with Bank of America Chair and 0:00:32.840 --> 0:00:34.040 CEO Brian Moinihan. 0:00:34.200 --> 0:00:35.400 David, we are. 0:00:35.400 --> 0:00:38.000 Joined now by Brian moynean. He is sharing CEO of 0:00:38.120 --> 0:00:40.080 Bank of America. Brian, thank you so much for joining 0:00:40.159 --> 0:00:41.320 us here at the end of the year. 0:00:41.880 --> 0:00:44.080 David, it's great to have you here in happy holidays, 0:00:44.080 --> 0:00:46.320 and you can see our teammates out there working away 0:00:46.360 --> 0:00:47.920 on the trading floor here at one Brian Park. 0:00:48.000 --> 0:00:49.240 Yeah, and we're going to go back to the trading 0:00:49.240 --> 0:00:50.960 floor because you had quite a year in trading. But 0:00:51.000 --> 0:00:52.960 first talk about the year overall. There have been a 0:00:53.000 --> 0:00:55.680 fair number of surprises given what some people expect at 0:00:55.680 --> 0:00:57.520 the beginning of the year. Certainly, stock Mark has done 0:00:57.600 --> 0:00:59.920 very very well. We had more interest rate hikes than 0:00:59.920 --> 0:01:03.240 we thought we would have. Unemployment has really held down 0:01:03.360 --> 0:01:05.480 pretty well, and we didn't have that recession so many 0:01:05.520 --> 0:01:07.280 people thought we would. Now, I must say, when I 0:01:07.280 --> 0:01:08.800 talked to you throughout the year, you kept saying it 0:01:08.920 --> 0:01:11.520 kind of looks pretty strong. Some of your compatriots were saying, oh, no, 0:01:11.640 --> 0:01:14.360 hurricanes and tornadoes and things like that. So how'd you 0:01:14.400 --> 0:01:14.840 get it right? 0:01:15.400 --> 0:01:17.760 Well, we just we just try to follow the data, 0:01:17.800 --> 0:01:20.679 and I think there were unexpected events. They're unexpected events 0:01:20.680 --> 0:01:22.840 in every year, you know, And so whether it's the 0:01:22.840 --> 0:01:25.479 regional banking crisis early on in the year, or whether 0:01:25.520 --> 0:01:30.000 it was another Hamas attack on Israel and October seventh, 0:01:30.000 --> 0:01:33.520 whether it was escalation and continuation Ukraine, whether it's attentions 0:01:33.520 --> 0:01:35.160 in China. These are all things that happen and they 0:01:35.160 --> 0:01:37.080 go on all the time. But what we look at 0:01:37.160 --> 0:01:39.000 is what goes on in our core customer base, and 0:01:39.000 --> 0:01:41.040 we try to talk about what is going on as 0:01:41.080 --> 0:01:43.080 opposed to what could go on and plan for what 0:01:43.120 --> 0:01:45.720 could go on. And you know, that's been relatively strong 0:01:45.760 --> 0:01:48.120 and our team, you know, the spending continues even today. 0:01:48.120 --> 0:01:49.760 At about four to five percent over. 0:01:49.640 --> 0:01:53.080 Last year, half the growth rate of twenty two to 0:01:53.080 --> 0:01:56.240 twenty one, showing the consumer has slowed down, consistent with 0:01:56.320 --> 0:02:01.000 inflation getting under control, consistent with you know, the using 0:02:01.080 --> 0:02:03.840 the rate structure to choke off some of the activity. 0:02:03.880 --> 0:02:04.640 And it's happened. 0:02:04.880 --> 0:02:07.600 But overall it's been a decent year and the economy's grown, 0:02:07.720 --> 0:02:10.000 unemployment stayed low, and the bank's done very well. 0:02:10.040 --> 0:02:12.800 Let's talk about the consumer. You are the largest consumer 0:02:12.840 --> 0:02:15.640 banking operation in the country. We are in the middle 0:02:16.000 --> 0:02:17.919 towards the end now the holiay season. What are you 0:02:17.960 --> 0:02:19.720 seeing there? I knew until now I was holding up 0:02:19.720 --> 0:02:21.440 pretty well. Where is it right now the consumer as 0:02:21.440 --> 0:02:21.840 of today? 0:02:21.960 --> 0:02:22.160 Sure? 0:02:22.440 --> 0:02:24.560 So, if you looked at it November of twenty three 0:02:24.680 --> 0:02:26.920 over November of twenty two, and this is across about 0:02:26.919 --> 0:02:29.200 three or four hundred billion dollars a month of activity 0:02:29.400 --> 0:02:31.720 customer spending money out of their accounts, that was up 0:02:31.760 --> 0:02:35.200 about four and a half percent. So far in December 0:02:35.200 --> 0:02:37.519 it's holding about the same and again that's about half 0:02:37.520 --> 0:02:39.160 the rate it was growing at last year at this 0:02:39.240 --> 0:02:42.320 time versus the year prior. And that's because the overactivity 0:02:42.360 --> 0:02:44.840 is slowing down what's been interesting is this broaden out 0:02:44.880 --> 0:02:48.000 to all things. There were these periodic things since the pandemic. 0:02:48.000 --> 0:02:49.920 First people hold up and bought stuff with their house. 0:02:49.960 --> 0:02:51.960 Then they started to go out and travel some. Then 0:02:52.000 --> 0:02:55.640 they went to restaurants. Then they had another set of travel, 0:02:55.680 --> 0:02:57.840 different kind of travel, international travel, and then they got 0:02:57.840 --> 0:03:00.320 to concerts and things. That's all through The system is 0:03:00.400 --> 0:03:04.000 spending kind of evenly across. Retail stores are doing fine. 0:03:04.040 --> 0:03:06.880 Online sales are strong. You know, they're all two three 0:03:06.919 --> 0:03:09.440 percent flatish two four percent, depending on what it is. 0:03:09.480 --> 0:03:11.639 So everything's kind of normalized for the US consumer and 0:03:11.639 --> 0:03:14.160 how they're spending money. They are in very good shape. 0:03:14.440 --> 0:03:16.880 They have money in and accounts, they're employed, and the 0:03:16.880 --> 0:03:19.560 wages are growing. It doesn't mean inflation didn't affect certain 0:03:19.600 --> 0:03:25.679 parts of the American public hard, but in general, when 0:03:26.440 --> 0:03:29.520 unemployment rate's still in the mid threes to mid upper threes, 0:03:29.560 --> 0:03:31.680 that is a very strong place for the consumer. 0:03:31.960 --> 0:03:33.040 But it has slowed down. 0:03:33.360 --> 0:03:34.600 You say they're in good shape. That's why I was 0:03:34.600 --> 0:03:36.520 going to ask you, they're spending money, can they afford it? 0:03:36.560 --> 0:03:38.400 What are you seeing in terms of their bank balances? 0:03:38.560 --> 0:03:40.960 I believe those have come down some how, fast are 0:03:40.960 --> 0:03:41.480 they coming down. 0:03:41.680 --> 0:03:44.240 So it's a little bit of two different types of customers. 0:03:44.240 --> 0:03:47.000 For consumers that had a lot of access cash, of course, 0:03:47.000 --> 0:03:48.720 when the rate they could get on that cash one 0:03:48.760 --> 0:03:51.920 from twenty five basis points to five percent plus, guess 0:03:51.960 --> 0:03:52.240 what it did. 0:03:52.280 --> 0:03:53.040 It moved the market. 0:03:53.120 --> 0:03:55.320 So the very upper balances of consumer and our wealth 0:03:55.360 --> 0:03:57.320 manager customers move the market. But if you look at 0:03:57.360 --> 0:03:59.400 the consumers that the accounts are more than money come 0:03:59.440 --> 0:04:01.520 in and out, they're still sitting with multiples of what 0:04:01.520 --> 0:04:04.240 they had pre pandemic. So a cohort of consumers I 0:04:04.280 --> 0:04:06.720 had between two and five thousand dollars in their account's 0:04:06.880 --> 0:04:09.600 pre pandemic average about thirty two to thirty four hundred. 0:04:09.800 --> 0:04:12.240 They're now still sitting with about thirteen thousand accounts. It 0:04:12.240 --> 0:04:14.520 has come down from a peak of thirteen four down 0:04:14.520 --> 0:04:16.600 to about twelve eight, so it's come down a bit, 0:04:16.800 --> 0:04:19.680 but still much higher than it was before. That's due 0:04:19.680 --> 0:04:22.080 to all the stimulus and stuff, and then holding on 0:04:22.120 --> 0:04:23.919 to that. Where they go next is going to be 0:04:23.960 --> 0:04:26.479 launching question. They've slowed down their spending because things got 0:04:26.480 --> 0:04:28.600 more expensive. They slow down their spending because they got 0:04:28.640 --> 0:04:30.600 worried a little bit worried about their job. They slowed 0:04:30.600 --> 0:04:32.920 down their spending because the rates on car loans or 0:04:32.960 --> 0:04:36.200 all the things became more expensive. But they're still spending 0:04:36.200 --> 0:04:38.679 more than they did last year. And that's a decent 0:04:38.720 --> 0:04:39.719 setup for a soft landing. 0:04:39.839 --> 0:04:42.240 Are you seeing any softness and consumer credit? I mean, 0:04:42.320 --> 0:04:44.599 are you seeing bounces go up, delinquencies go up? 0:04:44.920 --> 0:04:47.320 Well, bounce has gone up in credit cards back to 0:04:47.320 --> 0:04:49.839 where they were pre pandemic for us in the industry, 0:04:50.000 --> 0:04:52.120 and people are like, oh my gosh, up above that 0:04:52.240 --> 0:04:54.520 even that, But if adjusted for the size of the economy, 0:04:54.520 --> 0:04:57.600 they're actually still down, and so the consumer capacity bar 0:04:57.680 --> 0:04:58.039 is strong. 0:04:58.200 --> 0:05:01.400 Mortgaged mortgages are all locked in low rates that the 0:05:02.200 --> 0:05:04.320 best asset for a lot of households is actually their 0:05:04.400 --> 0:05:05.719 low interest cost liability. 0:05:05.720 --> 0:05:08.680 It's mixing two different things on a balance sheet, but 0:05:08.960 --> 0:05:10.960 the reality is is a three percent mortgage is an 0:05:10.960 --> 0:05:12.680 asset for people right now because it means they are 0:05:12.720 --> 0:05:13.880 payments to have it moved. 0:05:14.000 --> 0:05:14.720 So that's good news. 0:05:14.800 --> 0:05:17.160 The home equity borrowings are down for US from thirty 0:05:17.160 --> 0:05:19.520 billion to twenty some billion. That means that they're not 0:05:19.640 --> 0:05:21.479 using that equin in your house enters more equity in 0:05:21.480 --> 0:05:24.120 your house. On the credit cards, the delinquencies are really 0:05:24.120 --> 0:05:26.520 consistent within nineteen and everybody says, well, it's back to 0:05:27.400 --> 0:05:29.120 nineteen was one of the best credit years in the 0:05:29.120 --> 0:05:32.400 company's history, in the industry's credit history. So that's a 0:05:32.560 --> 0:05:35.560 very strong place, and so we feel good about. 0:05:35.360 --> 0:05:37.560 Consumer credit as long as the employment levels stay there. 0:05:37.560 --> 0:05:39.000 It's a little hard to believe that you'd have it 0:05:39.040 --> 0:05:41.320 now lower FICO scores. You hear people talk about a 0:05:41.320 --> 0:05:44.440 little more noise, but the general consumer is basically a 0:05:44.520 --> 0:05:46.320 prime borrower and they're doing fine. 0:05:46.400 --> 0:05:49.200 What about the commercial side, You're very big in middle market, 0:05:49.279 --> 0:05:51.840 smaller and medium sized enterprises. Is there loan and demand? 0:05:51.880 --> 0:05:52.920 What's the sentiment there? 0:05:53.200 --> 0:05:55.400 So, you know, if you think about the consumer, we 0:05:55.480 --> 0:05:58.040 keep growing customers, keep growing house or keep growing this company. 0:05:58.080 --> 0:06:00.000 If you think about in the commercial we keep growing customers. 0:06:00.000 --> 0:06:03.840 There is more logos as that our teammates called, you know, 0:06:03.920 --> 0:06:06.599 companies that we do business with a record number this year. 0:06:07.120 --> 0:06:08.760 The thing about it is they're not using their lines 0:06:08.800 --> 0:06:11.080 as much. So the loan balance growth on a commercial 0:06:11.080 --> 0:06:12.200 side has been a. 0:06:12.160 --> 0:06:13.679 Little bit sluggish, little bit flatish. 0:06:13.960 --> 0:06:17.119 Looks like it a bounced around on low single DIGITSUS quarter. 0:06:17.440 --> 0:06:18.440 Now, why is that happening? 0:06:18.760 --> 0:06:21.839 Line usage before the pandemic for middle market clients was 0:06:21.880 --> 0:06:24.520 forty percent, dropped to thirty percent, got back up to 0:06:24.520 --> 0:06:26.880 thirty six percent, and then fell a cup hundred basin points. 0:06:27.160 --> 0:06:29.679 Why would companies borrow less at this point? They're worried 0:06:29.680 --> 0:06:32.400 about final demand. It's also a lot more expensive, So 0:06:32.800 --> 0:06:34.719 the FED is having the impact, which is a loan 0:06:34.760 --> 0:06:37.680 that was like three percent four percent is now seven 0:06:37.680 --> 0:06:40.160 to eight you know, seven to eight percent people think 0:06:40.160 --> 0:06:42.160 about using it. So the line uses is down, meaning 0:06:42.160 --> 0:06:44.960 that not beings aggressive buying equipment or hiring people or 0:06:45.160 --> 0:06:48.160 extending inventories, mostly because they're worried about. 0:06:47.920 --> 0:06:48.800 Economy sawing down. 0:06:48.839 --> 0:06:51.000 And when we say a soft landing, it doesn't mean 0:06:51.520 --> 0:06:53.039 the economy goes into recession. 0:06:53.040 --> 0:06:53.520 It says no. 0:06:53.560 --> 0:06:56.039 But what our team is saying Cannabis browning plot and 0:06:56.080 --> 0:06:58.880 researching is that we're slowing from almost a four to 0:06:58.920 --> 0:07:01.640 five percent growth rate to one percent growth rate is 0:07:01.680 --> 0:07:04.480 still a major slowdown, and the business community is wrestling 0:07:04.480 --> 0:07:06.160 with that right now, trying to get that balance right. 0:07:07.240 --> 0:07:09.040 One of the big surprises this year came toward the 0:07:09.080 --> 0:07:11.840 end of the year with the FED decision and then 0:07:11.880 --> 0:07:14.520 the news conference with Jpile that really signaled, at least 0:07:14.600 --> 0:07:17.000 to most of us, Yeah, they're really seriously considering rate cuts. 0:07:17.000 --> 0:07:19.400 It looks like they're coming next year. Were you surprising? 0:07:19.480 --> 0:07:20.680 Why do you think they did it? Do you think 0:07:20.720 --> 0:07:23.200 they're seeing data about the economy that is slowing faster 0:07:23.240 --> 0:07:24.000 than we appreciate. 0:07:24.440 --> 0:07:27.720 Yeah, so let's talk about our economics. Tell me and 0:07:27.800 --> 0:07:30.480 we feed in. We have the number one research team 0:07:30.480 --> 0:07:32.520 in the business, and Kansas and the team do a 0:07:32.520 --> 0:07:36.600 great job. Basically, they just shifted yesterday literally and they 0:07:36.680 --> 0:07:38.360 moved to more rate cuts. 0:07:38.080 --> 0:07:38.760 In twenty four. 0:07:39.240 --> 0:07:40.920 But the real key was what do they see in 0:07:40.920 --> 0:07:43.560 the economy, And they basically have moved from a half 0:07:43.560 --> 0:07:46.360 a percent growth rate annualized for the first three quarters 0:07:46.440 --> 0:07:50.520 next year up above one percent. They've softened their soft landing, 0:07:50.600 --> 0:07:52.880 let's just say that. And by doing that, they've said 0:07:53.040 --> 0:07:55.760 when the FED is seeing inflation slow as fast as 0:07:55.800 --> 0:07:57.560 it is, they basically think we get down to the 0:07:57.600 --> 0:08:00.000 low twos inflation by the year and next year twenty five, 0:08:00.440 --> 0:08:02.680 and it carries into twenty five. The FED needs to 0:08:02.680 --> 0:08:05.840 bring the rate structure down. They're saying, basically two hundred 0:08:05.840 --> 0:08:07.800 basis points of rate cuts one hundred next year and 0:08:07.840 --> 0:08:10.120 one hundred and twenty five, which still leaves you at 0:08:10.120 --> 0:08:11.400 three and a quarter to three and a half. Now, 0:08:11.440 --> 0:08:13.760 the last time we were fundamentally at that rate structure 0:08:14.080 --> 0:08:17.000 was almost was eighteen years ago by time we get there, 0:08:17.120 --> 0:08:20.040 so we've had a long stretch of very low rates 0:08:20.080 --> 0:08:23.040 except for what happened very recently, and so that fueled 0:08:23.040 --> 0:08:24.840 a lot of activity, and now the rate structure can 0:08:24.840 --> 0:08:27.440 be fundamentally higher. It's more structurally sound, and the Fed 0:08:27.480 --> 0:08:29.400 is pivot is it's not really pivot to say we 0:08:29.480 --> 0:08:31.520 got to normalize this because we're seeing the economy and 0:08:31.520 --> 0:08:34.560 the inflation come in. Not done yet, but all indications 0:08:34.600 --> 0:08:36.400 are doing there and everything we can see that consumer 0:08:36.440 --> 0:08:39.760 spending is consistent with a two percent inflation economy. That 0:08:39.880 --> 0:08:42.080 level of spending growth in our customers was where it 0:08:42.120 --> 0:08:44.600 was in seventeen eighteen nineteen when the FED raised rates 0:08:44.679 --> 0:08:46.120 to bring the economy back and sink. 0:08:46.840 --> 0:08:48.760 So the stock market did pretty well this year up 0:08:48.880 --> 0:08:51.800 until that Fed decision, and then it's off to the races. 0:08:51.880 --> 0:08:52.360 Since then. 0:08:53.040 --> 0:08:55.839 Your trading desk has done particularly well this year to 0:08:55.840 --> 0:08:57.280 give us a sense of where it is. Right now, 0:08:57.320 --> 0:08:59.240 Are you going to finish the year as strongly as 0:08:59.280 --> 0:09:00.800 you have been going the quarter so far? 0:09:01.040 --> 0:09:03.400 Well, you can from your lips to their ears. So 0:09:03.720 --> 0:09:05.560 they've got a few weeks left now. They're doing fine. 0:09:05.600 --> 0:09:08.280 We said that they be up up year every year, 0:09:08.280 --> 0:09:10.160 which is kind of countered the trend in the market. 0:09:10.200 --> 0:09:12.160 They Jimmy DeMar and the team have done a great job. 0:09:12.520 --> 0:09:15.280 And what's interesting, it's rounded out and it's fixed income, 0:09:15.320 --> 0:09:19.319 its equities, and it's much more consistent. They've I'm not 0:09:19.480 --> 0:09:21.480 quite sure it's exactly true, but basically have made money 0:09:21.480 --> 0:09:24.520 every single trading day this year. And so there's been volatility, 0:09:24.720 --> 0:09:27.160 there's been news, there's been this, and they and that's 0:09:27.200 --> 0:09:28.720 because they have a balance in the business in a 0:09:28.760 --> 0:09:31.240 way that goes through We increase the size of the 0:09:31.640 --> 0:09:34.560 business three or four years ago under Tom Montag's leadership 0:09:34.559 --> 0:09:37.800 and Jimmy's leadership, and that's born fruit and they are 0:09:37.840 --> 0:09:39.520 keep gaining market share and they're doing a great job. 0:09:39.559 --> 0:09:41.199 So I'm glad you raised because three or four years ago 0:09:41.240 --> 0:09:42.640 I was here with you at Back of America and 0:09:42.720 --> 0:09:43.839 you said, you know what, you're going to have to 0:09:43.840 --> 0:09:46.679 devote more capital, more people into that business. You did it, 0:09:46.800 --> 0:09:49.360 you seem to you having success going forward. Is there 0:09:49.440 --> 0:09:51.959 yet more capital that you're going to allocate into trading. 0:09:51.920 --> 0:09:53.880 Yeah, as long as they can get the returns. You know, 0:09:54.080 --> 0:09:56.680 at the end of the day, our return on equities 0:09:56.679 --> 0:09:59.280 you have fifteen percent of the company this business because 0:09:59.280 --> 0:10:02.160 all of regularly in the capital is a little lower 0:10:02.200 --> 0:10:04.840 in that but is well bubber cost of capital. As 0:10:04.840 --> 0:10:06.920 long as they can keep deployment, We'll keep pushing capital 0:10:07.000 --> 0:10:08.920 because it's a great business in great format, and we're 0:10:08.920 --> 0:10:11.480 gaining market share honestly across the world, and it's a 0:10:11.520 --> 0:10:14.160 global business so it can access much deeper client base. 0:10:14.200 --> 0:10:16.040 And team's done a great job, so they'll keep getting 0:10:16.080 --> 0:10:18.520 more commitments consistent with them being able to get the 0:10:18.559 --> 0:10:19.199 returns on them. 0:10:19.200 --> 0:10:20.880 One last one, Brian, are you concerned at all of 0:10:20.920 --> 0:10:23.400 the markets maybe overreacting to what they heard from shairpo. 0:10:24.240 --> 0:10:27.000 I think he's got this challenge that you know he was, 0:10:27.280 --> 0:10:28.839 you know, the Fed in our own mission it was 0:10:28.920 --> 0:10:30.240 late to cutting off inflation. 0:10:30.320 --> 0:10:31.439 Now he's been a careful. 0:10:31.160 --> 0:10:33.280 Not to be late to stop cutting off inflation, and 0:10:33.640 --> 0:10:34.920 the market's going to have and flow. 0:10:35.000 --> 0:10:36.839 But I think people have to be a little careful. 0:10:36.880 --> 0:10:37.600 This is trading talk. 0:10:37.640 --> 0:10:39.600 This is you know, the ten year moving around between 0:10:39.960 --> 0:10:43.320 you know, three ninety and four fifty four seventy. It's 0:10:43.360 --> 0:10:45.520 not the real kind. Real economy is still heavily impacted 0:10:45.520 --> 0:10:47.839 by the overall rate level is very restrictive, and it's 0:10:47.840 --> 0:10:49.880 still coming through the system. Against that, we still have 0:10:49.920 --> 0:10:51.679 a lot of stimulus coming through the system, you know, 0:10:52.000 --> 0:10:53.920 the infrastructure, build a chipsack to IRA. 0:10:54.080 --> 0:10:55.480 Those are all still coming through the system. 0:10:55.559 --> 0:10:57.920 So that's a tuggle where he's up against it, but 0:10:58.040 --> 0:11:01.840 overall we believe he's engineer soft landing through the interest 0:11:01.880 --> 0:11:02.439 rate environment. 0:11:02.480 --> 0:11:04.800 Brian, thank you so much. As Brian moynahan, he's chair 0:11:04.840 --> 0:11:15.400 and CEO of Bank of America. 0:11:17.280 --> 0:11:20.200 This is a conversation that to me caps off one 0:11:20.280 --> 0:11:23.440 of the most fascinating periods of FED history and economic 0:11:23.520 --> 0:11:26.120 history that I've ever seen. Rich Clarida, a former FED 0:11:26.200 --> 0:11:29.760 Vice chair, as well as Columbia University professor and PIMCO 0:11:30.000 --> 0:11:34.000 Global Economic Advisor, as well as renowned singer. Rich Clarida, 0:11:34.040 --> 0:11:36.120 thank you so much for being here in person. I 0:11:36.120 --> 0:11:37.920 just want to start with what you make of the 0:11:37.960 --> 0:11:41.000 past week FED Chair Powell's comments and the market's reaction. 0:11:41.840 --> 0:11:47.640 Well, the chairs comments took me by surprise, and he 0:11:47.720 --> 0:11:50.880 had a difficult mission because it's the last meeting of 0:11:50.920 --> 0:11:55.079 the year, natural to look ahead. But yes, I thought 0:11:55.080 --> 0:11:58.439 both the press conference and the FMC statement were more 0:11:58.480 --> 0:12:01.720 dubvish than I expected. You know, there is a soft 0:12:01.760 --> 0:12:04.960 landing base case. We're all hoping for it, and I 0:12:04.960 --> 0:12:07.839 think the markets are really focused on that. He didn't 0:12:07.840 --> 0:12:10.840 say mission accomplished. I'm not sure if he thinks mission accomplished, 0:12:10.840 --> 0:12:14.280 but that's being interpreted that way. And of course, as 0:12:14.280 --> 0:12:16.120 you've mentioned on air, we've had a little bit of 0:12:16.160 --> 0:12:20.560 pushback recently, so we're all now trying to assess, you know, 0:12:20.880 --> 0:12:22.440 what message they would like to deliver. 0:12:22.520 --> 0:12:24.160 Well, that's exactly what I wanted to ask you. What 0:12:24.200 --> 0:12:25.280 do you make of the pushback? 0:12:27.120 --> 0:12:29.600 Well, I think the delicate challenge, and we've discussed this 0:12:29.679 --> 0:12:32.560 on the show in the past, is a tug of 0:12:32.559 --> 0:12:35.560 war between their guidance and market pricing. You know, part 0:12:35.600 --> 0:12:38.200 of the reason LISA inflation is expected to come down 0:12:38.200 --> 0:12:42.479 next year to two points something is because financial conditions 0:12:42.480 --> 0:12:45.800 have tightened. Well as the markets think mission accomplished. In 0:12:45.880 --> 0:12:49.000 rate cuts, six cuts are coming in next year devil 0:12:49.080 --> 0:12:52.400 ease conditions. That makes it less likely that inflation comes down. 0:12:52.520 --> 0:12:55.200 So it's a tricky point right now for the FED. 0:12:55.360 --> 0:12:58.000 Do you think that Fed Shair Powell made a mistake. 0:12:58.920 --> 0:13:00.960 I don't think so. I think I think he was 0:13:01.040 --> 0:13:05.679 reflecting his committee, and I think in the press conference 0:13:05.679 --> 0:13:08.680 sometimes chairs concerted distance themselves, and I think he was 0:13:08.760 --> 0:13:12.160 embracing the baseline view. But there is a risk case 0:13:12.360 --> 0:13:15.240 as well, and I think perhaps some of the pushback 0:13:15.320 --> 0:13:17.720 is to remind folks about those other scenarios. 0:13:18.000 --> 0:13:22.440 Mary Daily, in a Wall Street Journal discussion yesterday, came 0:13:22.480 --> 0:13:24.600 out and said, even if the FED cuts rates by 0:13:24.679 --> 0:13:28.800 three times next year, the Fed's benchmark rate will still 0:13:28.840 --> 0:13:31.960 be quite restrictive. Even if in that scenario, And then 0:13:32.000 --> 0:13:34.480 you want to say, we have to be forward looking 0:13:34.679 --> 0:13:37.280 and make sure that we don't give people price stability 0:13:37.520 --> 0:13:38.640 but take away jobs. 0:13:39.000 --> 0:13:40.880 Is this a new emphasis for the Fed? 0:13:41.240 --> 0:13:44.880 Well, Lisa, I think at the margin it is because 0:13:44.960 --> 0:13:47.840 I think inflation was so high for so long. I 0:13:47.840 --> 0:13:50.040 think the FED effectively had a single mandate for a 0:13:50.080 --> 0:13:52.640 couple of years. We got to get inflation lower. The 0:13:52.679 --> 0:13:57.160 federal course has a dual mandate. But I do think 0:13:57.520 --> 0:13:59.319 and I, of course work closely with Mary. I'm a 0:13:59.360 --> 0:14:02.240 big fan of her. I do think the issue is 0:14:02.280 --> 0:14:06.080 here is that the Committee itself emphasizes financial conditions. Indeed, 0:14:06.080 --> 0:14:09.600 financial conditions made an appearance in the November statement and 0:14:09.640 --> 0:14:14.040 reappeared in December. It is true that one element is 0:14:14.080 --> 0:14:17.320 the real funds rate, but other financial conditions are easy, which, 0:14:17.320 --> 0:14:21.000 as we said, makes it less likely that inflation does come. 0:14:20.800 --> 0:14:23.880 Down, which raises this question about whether you are right 0:14:24.280 --> 0:14:27.360 the two point something kind of view of inflation is 0:14:27.440 --> 0:14:29.960 kind of what the FED is embracing right now in 0:14:30.080 --> 0:14:31.960 order not to jeopardize the labor market. 0:14:32.000 --> 0:14:35.080 Is that what your sense is, Well, I've always thought 0:14:35.720 --> 0:14:38.400 that two points something would be the point at which 0:14:38.400 --> 0:14:40.840 they start to think about cutting, So that is playing 0:14:40.880 --> 0:14:43.240 out in their projection. 0:14:43.720 --> 0:14:46.160 I do believe down to the individual there are nineteen 0:14:46.200 --> 0:14:48.200 of them. They all want inflation to get to two, 0:14:49.240 --> 0:14:51.040 and I do agree with them that if they hold 0:14:51.080 --> 0:14:53.880 off cutting rates at all until inflation gets to two, 0:14:54.160 --> 0:14:58.400 they're probably going to overshoot. But the timing is delicate, 0:14:58.840 --> 0:15:00.560 and I think there is a you know, there's a 0:15:00.640 --> 0:15:04.240 risk case on both sides. But I do think they 0:15:04.280 --> 0:15:07.440 are emphasizing now the dual mandate more than they have been. 0:15:07.840 --> 0:15:10.320 Do you think it's because they're seeing something that other 0:15:10.360 --> 0:15:12.960 people aren't, or they're at least emphasizing in their own 0:15:13.040 --> 0:15:16.720 data some of the weakness that maybe is overlooked by 0:15:16.760 --> 0:15:18.320 people who are piling into the market. 0:15:20.160 --> 0:15:22.400 I'm not really sure of that. I think it's important 0:15:22.400 --> 0:15:25.960 for them. You know, the FED was criticized a lot 0:15:25.960 --> 0:15:28.160 in twenty twenty one and twenty twenty two for being 0:15:28.200 --> 0:15:31.320 behind the curve. I think it's appropriate to step back 0:15:31.360 --> 0:15:35.480 and acknowledge the progress and disinflation, and I think they're 0:15:35.520 --> 0:15:39.120 seeing that, but I think there's still still a ways 0:15:39.160 --> 0:15:42.120 to go, and I think in particular, the labor market 0:15:42.160 --> 0:15:45.360 may require more adjustment than they're factoring in. 0:15:45.600 --> 0:15:47.920 Sorry, no, it's all right. I'll let you get breath. 0:15:48.880 --> 0:15:51.480 It's a confusing moment for all of us, and I'm 0:15:51.520 --> 0:15:54.120 wondering if you think it helps or hurts the cause 0:15:54.600 --> 0:15:56.800 to see the FED come out feed show j Powell 0:15:56.880 --> 0:16:00.720 with one message and then Austin Goolsby saying, you guys, 0:16:00.800 --> 0:16:03.840 I'm surprised by a reaction and hearing from John william 0:16:03.880 --> 0:16:06.040 saying we're not really talking about rate cuts. 0:16:07.840 --> 0:16:10.640 That's you know, that's not that's not something you'd like 0:16:10.720 --> 0:16:13.840 to see coming out of a of a meeting. I 0:16:14.560 --> 0:16:19.040 think the market reaction easing financial conditions is something that 0:16:19.080 --> 0:16:21.080 they are trying to push back against. I don't know 0:16:21.080 --> 0:16:23.480 how successful that they they can be. 0:16:23.640 --> 0:16:28.200 However, do you think that easing and financial conditions does 0:16:28.320 --> 0:16:31.120 have ultimately an inflationary impact? 0:16:31.240 --> 0:16:31.960 Right now? 0:16:32.440 --> 0:16:35.680 Well, to the to the to the same extent that 0:16:35.680 --> 0:16:39.040 if you titan financial conditions, it lowers inflation if they're 0:16:39.160 --> 0:16:42.000 if they're eased on a sustainable basis, credit spreads are 0:16:42.040 --> 0:16:45.880 type borrowing cost or lower valuations are up at the margin. 0:16:46.000 --> 0:16:48.160 It supports demand and if you think there's a demand 0:16:48.200 --> 0:16:50.480 piece to inflation, then yes, So. 0:16:50.520 --> 0:16:53.240 Right now, do you think that it is potentially concerning 0:16:53.320 --> 0:16:56.640 encounter to what the FED is looking for? Given the 0:16:56.720 --> 0:16:59.360 all in feeling and frankly, I mean we just heard 0:16:59.360 --> 0:17:02.320 this morning the FED shot the bears. The FED wants 0:17:02.360 --> 0:17:03.400 to make people happy. 0:17:03.640 --> 0:17:05.720 I was bearished, but now I'm really bullish. I mean, 0:17:05.800 --> 0:17:06.840 is this a positive thing? 0:17:07.960 --> 0:17:11.680 Well, look, I'm very convinced that the power FED will 0:17:11.720 --> 0:17:15.320 do what it takes. I think that the communications challenges, 0:17:15.400 --> 0:17:19.000 which were substantial in twenty twenty three maybe even more 0:17:19.040 --> 0:17:21.120 substantial in twenty twenty four. 0:17:21.560 --> 0:17:24.840 There's been speculation from a number of guests that there 0:17:24.920 --> 0:17:28.399