WEBVTT - Dow Chemical, Fed Decision, Oprah 0:00:01.480 --> 0:00:05.360 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:05.440 --> 0:00:08.119 weekdays at ten am Eastern on Affo card Playing and 0:00:08.280 --> 0:00:11.160 Broud Auto with the Bloomberg Business app. Listen on demand 0:00:11.200 --> 0:00:15.520 wherever you get your podcasts, or watch us live on YouTube. 0:00:16.520 --> 0:00:19.160 Right now, we're going down to Houston, Texas. Our good 0:00:19.200 --> 0:00:23.079 friend Alextel from Bloomberg Television. She's speaking with Dow CEO 0:00:23.680 --> 0:00:25.880 Jim Fiddling. Let's go to that net right now. 0:00:26.120 --> 0:00:28.280 Paul, good to hear you. I'm glad you're back from vacation. 0:00:28.360 --> 0:00:29.920 That's right, and here with Jim Fitterling. It's such a 0:00:29.960 --> 0:00:31.800 pleasure to have you. Thank you so much for joining. 0:00:31.960 --> 0:00:32.839 Thank you for having me. 0:00:33.120 --> 0:00:36.400 Is this an economy, a US economy that needs bed cuts? 0:00:36.520 --> 0:00:38.040 What's your take on a global scale? 0:00:38.280 --> 0:00:41.080 Yeah, it's starting to feel like the economy is gaining 0:00:41.120 --> 0:00:42.960 a little bit of strength at the beginning of the year. 0:00:43.040 --> 0:00:44.880 It's not. It's not robust. 0:00:44.960 --> 0:00:47.040 Maybe a little bit early to tell if this is 0:00:47.400 --> 0:00:49.840 a long term trend, but it's been a decent start 0:00:49.880 --> 0:00:53.479 to the year. Electronics has been a bit stronger than 0:00:53.520 --> 0:00:55.920 last year. Last year was a kind of a weak spot, 0:00:56.200 --> 0:00:58.800 so our outlook is good. Automotive had a good year 0:00:58.920 --> 0:01:02.160 last year, and I think despite the discussion around electric 0:01:02.280 --> 0:01:05.360 vehicles and some of the flat to negative sentiment that's 0:01:05.360 --> 0:01:07.920 in the news, the reality is I think it's going 0:01:07.959 --> 0:01:11.280 to be another good year in the automotive sector. Housing 0:01:11.360 --> 0:01:14.760 has been the slowest start, but there's been an uptick 0:01:14.840 --> 0:01:19.720 and single family home starts, which is good. That usually 0:01:19.720 --> 0:01:21.880 has a ripple effect through a lot of other durable 0:01:21.880 --> 0:01:26.440 goods manufacturing. We haven't seen that yet, So a modest 0:01:26.640 --> 0:01:29.080 good start to the year and we just see how 0:01:29.120 --> 0:01:29.720 things develop. 0:01:29.800 --> 0:01:30.480 So we're getting there. 0:01:30.520 --> 0:01:33.080 So that begs the question that if we do, say 0:01:33.120 --> 0:01:35.120 get two to three cuts this year, for example, from 0:01:35.160 --> 0:01:39.920 the FED, is your expectation that we see accelerated growth 0:01:40.240 --> 0:01:43.080 higher infletion. Does that actually start more growth? 0:01:43.640 --> 0:01:45.760 Well, I think in the commodity space and in our 0:01:45.800 --> 0:01:48.760 industry in particular, we tend to lead into a slow down, 0:01:49.280 --> 0:01:52.320 and so we started to lead into this eighteen months 0:01:53.040 --> 0:01:55.640 middle of this year will be twenty four months ago, 0:01:55.800 --> 0:01:58.480 and we typically tend to lead out, and so it's 0:01:58.520 --> 0:02:00.960 too early to say we're coming out, but you can 0:02:00.960 --> 0:02:03.680 start to see shoots that are like when we see. 0:02:03.520 --> 0:02:06.120 A recovery and of course that demand. 0:02:06.360 --> 0:02:08.880 You know, what's missing from the economy right now is 0:02:08.880 --> 0:02:12.280 the durable goods demand. And when that construction demand and 0:02:12.320 --> 0:02:15.200 when that comes back, those are high volume applications, and 0:02:15.240 --> 0:02:18.080 that demand pool is going to mean that prices are 0:02:18.080 --> 0:02:20.160 going to move up a bit. I don't know if 0:02:20.200 --> 0:02:24.280 I would call that necessarily inflationary, but that's just the cycle. 0:02:24.919 --> 0:02:26.000 What do you think it's waiting for. 0:02:26.919 --> 0:02:29.560 I think it's waiting for rate reductions, for the mortgage 0:02:29.639 --> 0:02:32.239 rates to come down. I think that's the next big 0:02:32.280 --> 0:02:35.720 thing that typically triggers kind of a shoot up in 0:02:35.840 --> 0:02:38.840 the housing market, and then that triggers a lot of 0:02:39.160 --> 0:02:42.440 other services and durable goods demand that comes behind it. 0:02:42.639 --> 0:02:45.359 So we may see a second half recovery. I'm hopeful, 0:02:45.400 --> 0:02:47.960 sort of what I'm hearing from you that hopeful. Is 0:02:47.960 --> 0:02:51.760 it a similar picture over in Europe? So the chemical 0:02:51.840 --> 0:02:54.000 sector in Europe is under a lot of pressure. I mean, INPO, 0:02:54.120 --> 0:02:57.600 costs are high. The economy there is weaker in many 0:02:57.639 --> 0:02:59.080 sense compared to the US. 0:02:59.280 --> 0:02:59.919 What's your take. 0:03:00.320 --> 0:03:03.720 European consumer demand is not nearly as strong as it 0:03:03.800 --> 0:03:07.280 is here in the States, and of course the weight 0:03:07.639 --> 0:03:10.560 of a higher energy costs has hit the consumer a 0:03:10.560 --> 0:03:14.240 lot of different ways. Now we're seeing an improvement year 0:03:14.280 --> 0:03:18.160 over year. Obviously, energies come down, but natural gas is 0:03:18.440 --> 0:03:21.959 below ten dollars a million BTU landed in Europe, but 0:03:22.080 --> 0:03:25.120 we sit here today at a dollar sixty and maybe 0:03:25.160 --> 0:03:29.399 the long term trend is two fifty to three Fiftyference still. 0:03:29.160 --> 0:03:30.040 A big difference. 0:03:30.120 --> 0:03:35.160 And electricity, you know which most consumers purchase electricity costs 0:03:35.280 --> 0:03:38.160 are double maybe a little bit more than what they 0:03:38.160 --> 0:03:40.720 are here in the US. So I think, you know, 0:03:40.760 --> 0:03:43.920 there's a big question when I look at my downstream 0:03:43.960 --> 0:03:46.720 customers in Europe, I'm always questioning. 0:03:46.320 --> 0:03:47.560 How long will they be there? 0:03:48.240 --> 0:03:50.600 And if you don't have a domestic market to service 0:03:50.640 --> 0:03:54.000 in Europe, you really can't afford to export from Europe. 0:03:54.160 --> 0:03:56.240 So if you don't have a domestic market to service, 0:03:56.280 --> 0:03:58.560 you have to say, you know, what does my footprint 0:03:58.600 --> 0:04:01.360 need to be? How long can I be there in 0:04:01.440 --> 0:04:03.320 order to be part of that economy. 0:04:03.440 --> 0:04:04.040 That's a big deal. 0:04:04.160 --> 0:04:07.520 You're talking about the automotive industry, construction industry, like, is 0:04:07.560 --> 0:04:08.600 that going to move? 0:04:10.080 --> 0:04:11.200 What's your best sense? 0:04:11.520 --> 0:04:14.120 A lot of technology comes out of there too, I 0:04:14.120 --> 0:04:15.680 mean beyond just the industry. 0:04:15.720 --> 0:04:18.120 A lot of the technology that we use around. 0:04:17.839 --> 0:04:22.000 The world starts in Europe, and so you know, exporting 0:04:22.040 --> 0:04:25.479 technology obviously is a little bit easier than exporting product. 0:04:26.320 --> 0:04:31.000 But we're already starting to see imports of electric vehicles 0:04:31.000 --> 0:04:35.279 from China into Europe. We're seeing China has become a 0:04:35.320 --> 0:04:39.000 lower cost competitor than Europe in petrochemical, so you're starting 0:04:39.040 --> 0:04:42.560 to see product move into Europe. The Middle East obviously 0:04:42.640 --> 0:04:45.600 has been a big supplier because of their cost position 0:04:46.160 --> 0:04:49.040 into Europe. Europe's getting a bit of a reprieve right 0:04:49.040 --> 0:04:52.360 now because of the Suez Canal situation, so operating rates 0:04:52.360 --> 0:04:55.039 are up a little bit, but I think that'll once 0:04:55.080 --> 0:04:59.200 that Israel Gaza conflict is resolved, then we'll see things 0:04:59.240 --> 0:04:59.920 go back to normal. 0:05:00.120 --> 0:05:02.039 Is it fair to say that you wouldn't build a 0:05:02.080 --> 0:05:03.360 new chemical plant in. 0:05:03.360 --> 0:05:04.039 Europe right now? 0:05:04.279 --> 0:05:04.960 Be very tough. 0:05:05.080 --> 0:05:08.960 You'd have to be in a very specialized downstream market 0:05:08.960 --> 0:05:12.240 that you knew could handle the higher input costs. But 0:05:12.520 --> 0:05:14.320 I would say, in general, be very tough. 0:05:14.680 --> 0:05:16.600 So for you, then let's take a look at inmpleation 0:05:16.680 --> 0:05:19.080 for a second. Where are costs still rising and where 0:05:19.120 --> 0:05:19.760 are they falling. 0:05:20.600 --> 0:05:24.080 You're starting to see some costs I mean cost and 0:05:24.120 --> 0:05:27.640 commodities came off pretty dramatically. I think one of the 0:05:27.640 --> 0:05:31.359 reasons we announced our final investment decision on our project 0:05:31.400 --> 0:05:33.440 in Canada at the end of last year was because 0:05:33.480 --> 0:05:35.960 we were able to lock in a lot of bulk 0:05:36.000 --> 0:05:42.400 material costs like steel, concrete, cement, all the things we 0:05:42.440 --> 0:05:43.440 need to build a plan. 0:05:44.680 --> 0:05:46.640 So I think that's been good now. 0:05:46.760 --> 0:05:49.920 Obviously, as some of this construction demand and things come back, 0:05:50.000 --> 0:05:53.280 that'll tend to rise with the cycle. But I think 0:05:53.320 --> 0:05:55.880 if you looked at the commodity portion, a lot of 0:05:55.880 --> 0:05:59.680 inflation came out of there. If you look at the 0:05:59.680 --> 0:06:03.360 concer like going to the grocery store, some of that 0:06:03.440 --> 0:06:06.200 hasn't come out yet, and so I think we're starting 0:06:06.200 --> 0:06:06.800 to see that. 0:06:07.320 --> 0:06:09.200 With the de stalking that happened. 0:06:08.960 --> 0:06:13.840 Last year, no signs of really restocking in the value chain, 0:06:14.400 --> 0:06:15.960 I think you're going to start to see some of 0:06:15.960 --> 0:06:18.320 that consumer inflation come out to and I think that's 0:06:18.360 --> 0:06:20.000 a little bit what the Fed's looking at. 0:06:20.160 --> 0:06:23.880 Are you worried about tariffs come I don't know November 0:06:24.320 --> 0:06:26.800 January from either President. 0:06:27.720 --> 0:06:30.160 Yeah. You make a great point, both. 0:06:32.839 --> 0:06:35.680 As a global company and as a company that's been 0:06:35.760 --> 0:06:40.440 part of global trade for many, many years. Tariffs don't 0:06:40.760 --> 0:06:45.080 stimulate demand anywhere, So I think what would happen under 0:06:45.120 --> 0:06:48.279 a teriff regime is we might not be happy with 0:06:48.360 --> 0:06:52.440 the demand result. Global free trade has been a better 0:06:52.520 --> 0:06:55.960 platform for growth. It's been better for growth, not just 0:06:56.000 --> 0:06:59.320 for the US, and we're advantaged, of course because of 0:06:59.440 --> 0:07:03.520 energy among other things, but it's been great for other countries. 0:07:03.600 --> 0:07:06.080 It's lifted so many people out of poverty, it's created 0:07:06.120 --> 0:07:11.000 a middle class, it's allowed technology to trans transfer around 0:07:11.040 --> 0:07:11.760 the world. 0:07:12.200 --> 0:07:13.720 So I would also just mean that you would have 0:07:13.760 --> 0:07:18.480 to produce and use the products in country, right, You 0:07:18.480 --> 0:07:20.800 have to produce and do in country be totally separate 0:07:20.920 --> 0:07:21.480 from each other. 0:07:21.680 --> 0:07:24.600 Right When we have a supply chain today that is 0:07:24.640 --> 0:07:28.320 not US centric and hasn't had time to reshore, so 0:07:28.400 --> 0:07:31.760 that would become inflationary in and of itself. So I think, 0:07:32.120 --> 0:07:34.960 you know, the thing we're trying to fight and the 0:07:35.000 --> 0:07:38.800 tool we're using, they both could end up being inflationary. 0:07:38.880 --> 0:07:40.760 I don't know that tariffs is the answer. 0:07:41.560 --> 0:07:44.160 Let's turn to if you're building a new plant today, 0:07:44.640 --> 0:07:47.000 what are you going to power it with in the 0:07:47.040 --> 0:07:48.880 next ten to fifteen years, Like, what's going to. 0:07:48.800 --> 0:07:49.240 Be that thing? 0:07:49.480 --> 0:07:53.040 Well, we're all building a new plant in Canada, and 0:07:53.120 --> 0:07:55.400 the purpose for going up there was to build the 0:07:55.440 --> 0:07:59.480 world's first zero scope on and two emissions ethylene complex. 0:08:00.840 --> 0:08:02.800 We will power it with hydrogen. 0:08:04.640 --> 0:08:08.440 It's a pretty elegant solution because we actually take ethane 0:08:08.440 --> 0:08:11.280 and natural gas liquid, we crack it to make ethylene 0:08:11.840 --> 0:08:15.720 and we make two byproducts methane and hydrogen. Lindy will 0:08:15.760 --> 0:08:19.040 come in and build an auto thermal reformer that'll convert 0:08:19.080 --> 0:08:21.520 that to pure hydrogen, and that pure hydrogen will fire 0:08:21.600 --> 0:08:25.400 the furnace. So it's a very closed loop system that 0:08:25.480 --> 0:08:28.280 will allow us to capture all the CO two off 0:08:28.280 --> 0:08:33.160 the auto thermal reformer and sequester that and make Zeroscope 0:08:33.160 --> 0:08:35.520 one and two ethylene and plastics there. 0:08:36.280 --> 0:08:37.559 It'll be the biggest. 0:08:37.440 --> 0:08:41.440 Hydrogen carbon capture project of its kind in the world, 0:08:41.600 --> 0:08:43.679 and it'll be the first one. First phase will be 0:08:43.800 --> 0:08:44.959 up in twenty twenty seven. 0:08:45.200 --> 0:08:47.280 One more question on that, when are you going to 0:08:47.320 --> 0:08:49.599 make money off of it? And that's why way of 0:08:49.679 --> 0:08:53.000 understanding is it to put together as soon. 0:08:52.840 --> 0:08:53.640 As we started up. 0:08:53.720 --> 0:08:56.640 It'll be as competitive as our project that we did 0:08:56.720 --> 0:09:00.480 here in Texas and started up in twenty seventeen has 0:09:00.480 --> 0:09:03.320 got a Price on Carbon, so we were able to 0:09:03.360 --> 0:09:05.800 recover some of the higher costs of scrubbing out the 0:09:05.840 --> 0:09:08.720 CO two from the price on carbon. And the Alberta 0:09:08.760 --> 0:09:12.079 government and the federal government in Canada have investment tax 0:09:12.120 --> 0:09:15.080 credits and incentives for us to put in the hydrogen 0:09:15.160 --> 0:09:15.959 technology in. 0:09:15.880 --> 0:09:16.600 The first place. 0:09:17.240 --> 0:09:19.640 So both of those things mean we'll be able to 0:09:19.640 --> 0:09:21.959 make a return like the project we build down here 0:09:21.960 --> 0:09:22.640 in Texas. 0:09:23.080 --> 0:09:24.120 And I think if you look. 0:09:24.000 --> 0:09:27.120 At what we did with IRA, we also made a 0:09:27.120 --> 0:09:31.520 big step forward one with the tax credits and the 0:09:31.559 --> 0:09:35.400 support for new technologies, but I think more importantly the 0:09:35.440 --> 0:09:38.600 breadth of the IRA. So we as opposed to say 0:09:38.640 --> 0:09:42.520 the EU, which is very focused on a transition but 0:09:42.760 --> 0:09:45.880 very specific you can only make green hydrogen a certain way. 0:09:46.520 --> 0:09:50.320 We said, look, all forms of low carbon energy are 0:09:50.360 --> 0:09:52.800 part of the equation, and we're going to make it 0:09:53.440 --> 0:09:56.040 accessible for everybody to be part of the equation. So 0:09:56.120 --> 0:09:59.960 that could be small modular nuclear, which we've signed up 0:10:00.320 --> 0:10:03.959 with the DOE and the Advanced Reactor Demonstration program with 0:10:04.200 --> 0:10:07.120 x Energy. We're looking at one of our sites here 0:10:07.160 --> 0:10:11.800 in Texas, seed Drift near Victoria, Texas, and we're looking 0:10:11.840 --> 0:10:15.480 at that site to basically replace all of our combined 0:10:15.480 --> 0:10:19.720 cycle gas COGEN with a small modular reactor for eighty 0:10:19.760 --> 0:10:23.400 megawatt units that would take all the power and steam. 0:10:23.120 --> 0:10:25.439 At the site to zero carbon. Wow. 0:10:26.200 --> 0:10:29.920 That's a big project, but we think we can do 0:10:30.000 --> 0:10:34.640 that and help Xynergy bring that cost competitive with hydrogen 0:10:34.679 --> 0:10:39.040 carbon capture or combined cycle gas with CO two scrubbing. 0:10:39.679 --> 0:10:41.800 We think we can be competitive with both of those. 0:10:42.240 --> 0:10:43.040 Jim, so great. 0:10:43.080 --> 0:10:45.480 I love getting that perspective, the global perspective and the 0:10:45.840 --> 0:10:47.040 energy transition perspective. 0:10:47.040 --> 0:10:49.880 Thanks so much. In Fiddling a CEO of doubt, Paul 0:10:49.920 --> 0:10:50.880 and Molly back to you. 0:10:51.200 --> 0:10:53.760 All right, Thanks very much. Alex appreciate that. That's Alex Steele. 0:10:53.800 --> 0:10:56.680 She was sitting down with dal CEO Jim Fiddling in 0:10:56.720 --> 0:10:58.400 Bloomberg's Houston bureau. 0:10:58.440 --> 0:11:03.800 There you're listening to the Bloomberg Intelligence Podcast. Catch us 0:11:03.840 --> 0:11:07.240 live weekdays at ten am Eastern on applecard Play and 0:11:07.240 --> 0:11:10.160 Android Auto with the Bloomberg Business Act. You can also 0:11:10.240 --> 0:11:13.720 listen live on Amazon Alexa from our flagship New York station, 0:11:14.080 --> 0:11:17.839 Just Say Alexa playing Bloomberg eleven thirty. 0:11:18.360 --> 0:11:20.920 All right, let's check in with Ira Jersey. He is 0:11:20.960 --> 0:11:24.199 our go to guy on markets, the treasure markets that 0:11:24.280 --> 0:11:27.400 really prices in kind of where this FED may want 0:11:27.400 --> 0:11:29.720 to go. Here, our Jersey chief interest rate strategist for 0:11:29.720 --> 0:11:34.640 Bloomberg Intelligence, joining us from the confines of our Princeton University, 0:11:35.200 --> 0:11:39.160 our Princeton, New Jersey set down there. IIRA again, not 0:11:39.200 --> 0:11:42.520 looking for anything tomorrow, but you're the smart money. When 0:11:42.520 --> 0:11:44.120 we've heard of the smart money, we talk about the 0:11:44.160 --> 0:11:45.080 Irad Jerseys of the world. 0:11:45.120 --> 0:11:46.160 What are you going to be listening for? 0:11:46.800 --> 0:11:48.600 Yeah, I'm going to be looking for a couple of things, Paul. 0:11:48.640 --> 0:11:51.280 So number one is a balanceee policy. 0:11:51.280 --> 0:11:51.920 You know, we've been. 0:11:51.840 --> 0:11:55.360 Waiting for more information and details on how that was 0:11:55.400 --> 0:11:58.720 going to develop over time, and at the last meeting, 0:11:58.840 --> 0:12:01.120 Jay Powell said, hey, hey, the next meeting, we're going 0:12:01.160 --> 0:12:03.240 to start talking about what we're going to do. So 0:12:03.679 --> 0:12:05.839 I'll be listening in this post meeting press conference as 0:12:05.880 --> 0:12:08.760 to what are the options maybe they're considering. There won't 0:12:08.760 --> 0:12:11.559 be any decisions and they won't make a and there 0:12:11.600 --> 0:12:13.720 won't be a lot of detail yet, but yeah, you know, 0:12:13.760 --> 0:12:15.800 what are they thinking in terms of timing and also 0:12:15.840 --> 0:12:18.640 in terms of size of how they're going to cut 0:12:18.679 --> 0:12:23.200 back their asset asset run off So that's number one, 0:12:23.200 --> 0:12:25.120 and then number two is obviously some of the nuanced 0:12:25.120 --> 0:12:27.880 in details. How do the dots change, And in particular, 0:12:27.920 --> 0:12:29.480 I'm not going to really look at the twenty twenty 0:12:29.520 --> 0:12:31.400 four dots, you know, there's a lot of focus on that, 0:12:31.760 --> 0:12:33.760 but it's the twenty twenty five dots that are going 0:12:33.840 --> 0:12:35.720 to matter for like the long term end of the 0:12:35.720 --> 0:12:40.000 treasury market and also for the mortgage market. So look 0:12:40.040 --> 0:12:42.680 at those twenty twenty five dots. How low does the 0:12:42.720 --> 0:12:44.840 Fed still think it's going to cut interest rates? Is 0:12:44.840 --> 0:12:46.760 it going to be lower than what they've said, or 0:12:46.800 --> 0:12:49.040 maybe are they going to you know, cut a little 0:12:49.120 --> 0:12:53.240 less than they said based on their projections of those dots. 0:12:53.480 --> 0:12:55.640 Well, let's get into the projections also a little bit 0:12:55.679 --> 0:12:58.720 more that this is going to be the first updated 0:12:58.760 --> 0:13:01.480 summary of economic projects we're going to get this year. 0:13:01.600 --> 0:13:04.480 So the twenty twenty three dots at the end of 0:13:04.600 --> 0:13:07.440 in December that we saw had those three cuts priced 0:13:07.440 --> 0:13:09.960 in for this year. As you said, maybe to twenty 0:13:10.000 --> 0:13:13.240 twenty four dots less interesting than twenty five. But we're 0:13:13.240 --> 0:13:17.719 also going to get updated inflation projections, updated GDP projections, 0:13:18.040 --> 0:13:20.160 any movement a sense might happen in there. 0:13:21.200 --> 0:13:25.320 Yeah, I think that the GDP projections maybe not so much, 0:13:25.360 --> 0:13:29.080 but the CPI projections and the PC core PC projections 0:13:29.120 --> 0:13:30.880 probably have to move up a little bit just based 0:13:30.920 --> 0:13:34.040 on the data and information that we've gotten so far. 0:13:34.360 --> 0:13:36.320 I would be pretty surprised if we didn't get an 0:13:36.400 --> 0:13:39.800 uptick in what they call the central tendency. So keep 0:13:39.840 --> 0:13:42.800 in mind when you see the summary of economic projections, 0:13:43.120 --> 0:13:45.800 they come up with what's called the central tendency, which 0:13:45.840 --> 0:13:47.800 is a trimmed mean they take off some of the 0:13:48.120 --> 0:13:50.800 outliers and then say, here's the central tendency that we 0:13:50.880 --> 0:13:53.600 think that CPI and GDP are going to be in 0:13:53.640 --> 0:13:55.760 this year. So I would be pretty surprised if those 0:13:55.800 --> 0:13:57.800 didn't come up. The other one to watch, of course, 0:13:58.679 --> 0:14:01.960 is going to be there expectation of the employment situation. 0:14:02.080 --> 0:14:05.360 So where's the unemployment rate going in their forecast, because 0:14:05.679 --> 0:14:09.680 that is obviously the second key to their dual mandate 0:14:09.800 --> 0:14:11.880 besides besides the inflation. 0:14:12.640 --> 0:14:13.800 That besides inflation. 0:14:14.200 --> 0:14:16.880 So right now they don't have to worry about the 0:14:18.080 --> 0:14:20.960 employment situation because things are very tight, so a three 0:14:20.960 --> 0:14:23.360 point nine percent unemployment and the like. But if their 0:14:23.400 --> 0:14:26.600 forecast suggests that maybe employment is going to remain better 0:14:27.040 --> 0:14:30.640 than what the December SEP had said. Then there's the 0:14:30.680 --> 0:14:33.080 possibility that maybe at some point in the not too 0:14:33.120 --> 0:14:36.760 distant future they might go from three cuts to two. 0:14:36.680 --> 0:14:38.480 Cuts in the dot plot come June. 0:14:39.120 --> 0:14:41.000 Of course, there's a lot of data we get before then, 0:14:41.080 --> 0:14:44.240 but I think that in order to prepare the market 0:14:44.280 --> 0:14:46.560 for that, one of the ways that it can it 0:14:46.600 --> 0:14:49.920 can do so without without having two or more members 0:14:50.000 --> 0:14:52.120 move their dots up, would be to say, hey, we 0:14:52.240 --> 0:14:54.280 actually think the employment situation is going to be better 0:14:54.680 --> 0:14:57.080 than we thought just three months ago. 0:14:57.880 --> 0:15:01.520 So IRA w I r PG, the WORP function. We 0:15:01.520 --> 0:15:04.440 started the year with six the market pricing in approximately 0:15:04.480 --> 0:15:07.800 six rate cuts were now down to approximately three. Does 0:15:07.840 --> 0:15:09.800 that seem more realistic to you? 0:15:11.040 --> 0:15:14.160 That's been our call since last October, So yeah, it's 0:15:14.200 --> 0:15:16.640 like come back. You know, quite frankly that that pricing 0:15:16.640 --> 0:15:18.960 of six cuts was one of the three things that 0:15:19.000 --> 0:15:22.320 we highlighted as maybe being the biggest missed pricings in 0:15:22.360 --> 0:15:26.800 the rates market. That and also inflation expectations, because we 0:15:26.880 --> 0:15:30.880 had five year inflation expectations earlier in the year approaching 0:15:30.880 --> 0:15:32.960 two percent, and we thought that that was somewhat too 0:15:33.000 --> 0:15:36.400 low and unrealistically low and that they would probably have 0:15:36.480 --> 0:15:40.119 to come up. So three cuts at this point seems reasonable. 0:15:40.880 --> 0:15:43.800 It's because you know, obviously the Federal Reserve could cut five, 0:15:44.040 --> 0:15:46.880 they could cut one, right, they could cut zero. So 0:15:46.960 --> 0:15:50.120 I think that that's a more reasonable midpoint of potential 0:15:50.160 --> 0:15:52.880 outcomes than is that than was the six cuts that 0:15:52.920 --> 0:15:55.120 were priced in January. 0:15:55.280 --> 0:15:56.840 And yeah, you know, you look. 0:15:56.680 --> 0:15:58.640 At the rest of the treasury market, like two year 0:15:58.720 --> 0:16:02.400 yields at four point four point seven percent, two year 0:16:02.440 --> 0:16:04.920 yields are exactly pricing for three cuts this year and 0:16:04.960 --> 0:16:08.080 three cuts next year. So you know, I think that that, 0:16:08.200 --> 0:16:10.680 you know, those are pretty close to fair value. When 0:16:10.680 --> 0:16:13.520 they were down at four point four percent, they were uh, 0:16:13.800 --> 0:16:16.120 you know, obviously a little bit overpriced, and now it's 0:16:16.120 --> 0:16:18.160 it's more more realistic pricing. 0:16:18.200 --> 0:16:20.240 I think for the potential policy outcomes. 0:16:20.520 --> 0:16:22.280 How much do you think Powell is going to get 0:16:22.280 --> 0:16:25.720 into the cadence of rate cuts. I think it was 0:16:25.800 --> 0:16:29.680 maybe Vice Chair Jefferson who had brought up recently that 0:16:29.800 --> 0:16:32.520 in I think it was in Greenspan's tenure that the 0:16:32.560 --> 0:16:35.280 Fed had cut and then you know, waited a couple 0:16:35.240 --> 0:16:38.360 of meetings cut again. So maybe the you know, the 0:16:38.400 --> 0:16:41.120 stop and go nature of coming down. If Powell might 0:16:41.440 --> 0:16:44.760 allude to how that spacing is going to play out. 0:16:45.000 --> 0:16:47.240 Yeah, I doubt that that the chair is going to 0:16:47.400 --> 0:16:50.960 say anything completely outrageous, so he'll leave his options open. 0:16:51.600 --> 0:16:53.720 But I wouldn't be surprised if he mentioned. 0:16:53.440 --> 0:16:57.200 That, uh that a stop, stop go or not going 0:16:57.240 --> 0:17:00.560 every meeting, not cutting every meeting is a realistic potility. 0:17:00.640 --> 0:17:04.760 And clearly, you know, three cuts this year would require 0:17:04.840 --> 0:17:07.880 them to skip at least one meeting, if not too 0:17:08.280 --> 0:17:10.200 depending on when they started, right, So it wouldn't it 0:17:10.240 --> 0:17:13.200 wouldn't surprise me personally if the Federal Reserve did cut 0:17:13.200 --> 0:17:16.679 in June and then waited again until September to see 0:17:16.880 --> 0:17:19.720 what the economy was doing, get you wind up getting, 0:17:19.920 --> 0:17:22.760 you know, to almost three more months of data in 0:17:22.800 --> 0:17:28.040 between June and the September meeting. So given that, you know, 0:17:28.080 --> 0:17:31.440 I think that that going in June actually gives the 0:17:31.920 --> 0:17:35.920 Fed a lot more optionality. You know, cutting in July 0:17:36.560 --> 0:17:39.960 would also give them similar optionality where maybe they cut 0:17:40.000 --> 0:17:42.480 in July and then they don't cut again until November 0:17:42.840 --> 0:17:45.000 and then wait till December. Right, And there's the possibility 0:17:45.000 --> 0:17:47.560 that if the economy continues to be pretty good, then 0:17:47.600 --> 0:17:50.000 there's no reason for the FED to necessarily cut in December. 0:17:50.040 --> 0:17:52.120 And you only get fifty basis points of cuts this year, 0:17:52.800 --> 0:17:54.800 so that would not be a surprise, you know, going 0:17:54.880 --> 0:17:57.480 in a measured pace, right, something like that. That was 0:17:57.520 --> 0:18:01.720 the green Span hiking cycle back in the mid two 0:18:01.760 --> 0:18:03.800 thousands when he said, you know, we're going to go 0:18:03.800 --> 0:18:07.359 to measured pace, So this could be something similar. It's 0:18:07.480 --> 0:18:09.800 been hard for the FED in the past to calibrate 0:18:09.840 --> 0:18:13.080 things that way because they're always they've always been reacting 0:18:13.119 --> 0:18:16.720 to some crisis or some massive downturn in the economy 0:18:16.760 --> 0:18:20.040 that was where they were behind the curve. So I 0:18:20.040 --> 0:18:21.720 think the FED at this point would like to get 0:18:21.720 --> 0:18:24.520 in front of the curve and start to cut. The 0:18:24.600 --> 0:18:28.320 risk is that they make the mistake of reaccelerating inflation, right, 0:18:28.359 --> 0:18:30.919 and that's something that a lot of market participants are 0:18:31.000 --> 0:18:33.760 very worried about as well. So the FED is in 0:18:33.840 --> 0:18:37.040 a tough place right here, quite frankly, so doing nothing 0:18:37.160 --> 0:18:39.520 is actually the path of least resistance, at least until 0:18:39.760 --> 0:18:42.639 it's clear that the economy is slowing enough that they 0:18:42.640 --> 0:18:44.040 can feel comfortable cutting rates. 0:18:44.119 --> 0:18:46.520 Yeah. Well, I mean that's there's going to be a 0:18:46.600 --> 0:18:48.480 kind of a high bar to get that amount of 0:18:48.520 --> 0:18:51.040 slowing between now and June. Now, I mean, looking at 0:18:51.080 --> 0:18:53.600 the data that we've gotten for the first two months 0:18:53.600 --> 0:18:56.560 of the year, it looks like inflation is still pretty firm, 0:18:56.800 --> 0:19:01.639 the job market's still pretty strongly seen a ton of that, 0:19:01.840 --> 0:19:04.760 like you know, slowing activity that that you know, Powell 0:19:04.840 --> 0:19:07.760 said in his congressional testimony that they're not far from 0:19:07.760 --> 0:19:10.720 getting that level of confidence to start cutting rates. But 0:19:11.119 --> 0:19:13.520 I don't think we've really gotten much news since those 0:19:13.520 --> 0:19:15.880 comments that would make them more confident. 0:19:17.320 --> 0:19:19.760 Yeah, I don't disagree with that. I think that that's 0:19:19.800 --> 0:19:22.320 the reason why the markets, you know, now pricing for 0:19:22.440 --> 0:19:25.439 a July cut instead of a June first cut. But 0:19:25.640 --> 0:19:28.679 you still get another three months of data. There's still 0:19:29.119 --> 0:19:31.360 there are some signs that the economy is slowing. When 0:19:31.359 --> 0:19:33.159 you look at some of the uh some of the 0:19:33.160 --> 0:19:37.240 survey data, for example, you're you're seeing some confidence levels 0:19:37.280 --> 0:19:40.199