Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: These always go on maybe one or two questions too long,
Speaker 2: don't they.
Speaker 3: That wraps up the first.
Speaker 2: News conference with Chairman Power for twenty twenty five. If
Speaker 2: you are just joining us, welcome to the program. A
Speaker 2: two part story here, one part the statement, the second
Speaker 2: part the news conference. The statement push stocks down and
Speaker 2: bonyards a little bit higher. In the news conference, equities
Speaker 2: came off the lows and bonyards came off the highs.
Speaker 2: In the statement, the Federal Reserve repeated that inflation remained
Speaker 2: somewhat elevated, but removed this reference to this line of
Speaker 2: it having made any progress towards their two percent goals.
Speaker 3: So that sounded somewhat hawkish, didn't it.
Speaker 2: So ultimately, inevitably the Federal Reserve chair was asked about this,
Speaker 2: and this is what he had to say in Oppressor
Speaker 2: just moments ago.
Speaker 4: If you just look at the first paragraph, we did
Speaker 4: a little bit of language clean up there. We took
Speaker 4: out a reference to since earlier in the year is
Speaker 4: related to the labor market, and we just chose to
Speaker 4: shorten that sentence.
Speaker 3: Again.
Speaker 4: I mean, if you look at the sort of intermeding
Speaker 4: data was good, and there was another inflation reading I
Speaker 4: guess just before the December meeting. So we've got two
Speaker 4: good readings in a row that are consistent with two
Speaker 4: percent inflation. Again, we're not going to over interpret two
Speaker 4: good or too bad readings. But this was not meant
Speaker 4: to send a signal other than this.
Speaker 2: Sole So we talked about it for the best part
Speaker 2: of thirty minutes. We thought it was a hawkish till
Speaker 2: and the statement. The chairman came out and said that
Speaker 2: line was not meant to send any signal.
Speaker 5: It was just language cleanup.
Speaker 1: If you look at the first sentence, when you take
Speaker 1: your sharpie, you go like this, and then you go
Speaker 1: like this. I mean, look, this was someone who talked
Speaker 1: in circles quite a bit. It was sort of saying something,
Speaker 1: but what are these? These are words, We don't know anything.
Speaker 1: I don't want to start speculating because he really to
Speaker 1: that and we can't really have any model. So he
Speaker 1: basically came out and did exactly what he wanted to do,
Speaker 1: which was.
Speaker 3: Say nothing on the labor market. Downside.
Speaker 2: Risk of the labor market appeared to have abates it.
Speaker 2: This is a cha from where they were maybe back
Speaker 2: in September. There was this labor market scare tek in
Speaker 2: the summer, which this fed responded to with one hundred
Speaker 2: basis points of carts to insulate the economy from seeing
Speaker 2: getting further weakness, something that the chairman said at Jackson Hole
Speaker 2: he didn't want to see t Ken. It feels like
Speaker 2: they're a lot more comfortable with the situation.
Speaker 6: I totally agree when you heard that from our guests
Speaker 6: in the previous pre press conference. Prestatement as well. And
Speaker 6: it does get to John wnder Claim's breakout the basic
Speaker 6: you know stuff we cover each and every day, and
Speaker 6: it goes to get the march the idea of how
Speaker 6: many meetings do we have, how many inflation reports do
Speaker 6: we have? How many jobs reports? I think the most
Speaker 6: amazing thing about this is you and I could focus here.
Speaker 6: I mean, we're twenty minutes in with Man City, twenty
Speaker 6: three minutes in with Man City, and they haven't got
Speaker 6: it done versus Club Brush.
Speaker 3: I mean, no, no, this is just no, just I
Speaker 3: was joking about it. You're actually watching it. No, it's important,
Speaker 3: you know.
Speaker 6: I mean, there's what eighteen nineteen champions games going on
Speaker 6: that's more exciting than the press conferences.
Speaker 2: Definitely, Roth of woll Th Research is not watching the
Speaker 2: European football right now. Is excite hit on that nearest
Speaker 2: conference we all just had in the last sixty minutes.
Speaker 3: Stephanie's going to see you.
Speaker 7: Good to see you.
Speaker 3: What did you make of that?
Speaker 8: He didn't say all that much, and he then he
Speaker 8: did a little bit of reversal from the hawkish part
Speaker 8: of the statement. It was January clean up, like you
Speaker 8: just mentioned, and then some of the key things was
Speaker 8: meaningfully above long term neutral, and then he made some
Speaker 8: conflicting statements about yes, rates are above neutral, but then
Speaker 8: financial conditions are a little bit easy. So he kind
Speaker 8: of settle a little bit of a lot.
Speaker 1: That's exactly what I've been trying to wrap my head around.
Speaker 1: Meaningfully above neutral, but we can move slowly and we
Speaker 1: don't have to move at all.
Speaker 5: We could just observe we are looking.
Speaker 1: At restrictive rates but also accommodative conditions.
Speaker 5: Was this successful? Yeah?
Speaker 8: I think he wanted to get in and out without
Speaker 8: moving markets all that much, and yeah it was a
Speaker 8: bit of a ride, but that's kind of what he accomplished.
Speaker 6: I want to note Meta and Microsoft leg up here
Speaker 6: as we get to those earnings as well. Somewhere in
Speaker 6: there was some stuff in yourro Off language where he
Speaker 6: talked about a central a limit, you know, a Gaussian curve,
Speaker 6: a bell curve in that My basic is, this is
Speaker 6: not a bell curve society. There's a log normal risk here.
Speaker 6: What's the risk for you, Stephanie Roth In terms of
Speaker 6: the Fed parlor game forward? What's the thing they really
Speaker 6: need to focus on to stagger to march?
Speaker 8: The most important thing that we're going to be watching
Speaker 8: for is what happens from labor supply perspective, because there's
Speaker 8: going to be three and a half million people potentially
Speaker 8: losing their visa status over the next two years, and
Speaker 8: that could tighten the labor market, and it could happen
Speaker 8: kind of slowly and gradually, and maybe we won't really
Speaker 8: realize it until the second half of this year, and
Speaker 8: then you realize, wow.
Speaker 7: The uneployed.
Speaker 6: Right, will the president focus on the labor mandate or
Speaker 6: will the president focus on inflation? Or is he just
Speaker 6: going to focus on I'm a real estate transactional guy
Speaker 6: and I need low rates.
Speaker 8: Probably the latter, but the other things are going to
Speaker 8: be important too, Right, So if we have the immigration
Speaker 8: thing slowly happening in the background, and we don't really
Speaker 8: notice it until the labor market's kind of quite a
Speaker 8: bit tight.
Speaker 7: So we just we just changed our FED call.
Speaker 8: We were calling for previously for two cuts, now we're
Speaker 8: calling for one in May, and then I think after
Speaker 8: that they're going to be done for a while. They're
Speaker 8: gonna have to wait and see how things play out.
Speaker 2: Just out of interest, why mightna We're gonna probably have
Speaker 2: some bad data for the next couple of months from
Speaker 2: an inflation perspective.
Speaker 8: We still have the Q one seasonal problems from inflation,
Speaker 8: so we're gonna have to get through that, and then
Speaker 8: in May you can have some better data because you'll
Speaker 8: start to see a little bit of that inflation coming out.
Speaker 1: Do you feel like there's clarity and meaningfully restrictive. I
Speaker 1: want to go back to that for one second. I'm
Speaker 1: still trying to wrap my head around.
Speaker 3: Well, I'm with you.
Speaker 1: I kind of feel like it's important here because that
Speaker 1: was one of the key questions. That was what Bob
Speaker 1: Michael was talking about, and that is the question how
Speaker 1: much do you.
Speaker 5: Have to reduce it? And then you kind of was like,
Speaker 5: we're above it.
Speaker 1: And maybe we'll reduce it. Is it a problem, just
Speaker 1: going back to this Mohammedalarian point, Is it a problem
Speaker 1: that this is a FED that doesn't seem to have
Speaker 1: a clear message or a clear direction at a time
Speaker 1: when people view this as one of the biggest potential
Speaker 1: upsets to the market and to some of the stability
Speaker 1: that we're seeing in terms of the self landing.
Speaker 8: I mean, so the channel, they don't they don't have
Speaker 8: a firm view on policy, and they don't even seem
Speaker 8: to agree to some extent, nor do they want to
Speaker 8: come out and say it from a policy in terms
Speaker 8: of how they're assessing fiscal right. So it's going to
Speaker 8: very much depend on inflation expectations.
Speaker 7: Are they anchored?
Speaker 8: And Powell mentioned the Teal book from September twenty eighteen,
Speaker 8: and I think that's exactly how they're going to look
Speaker 8: at it. If we see inflation expectations remain anchored, the
Speaker 8: Fed could wait for a while and then next year
Speaker 8: we're probably going to see slower growth as a result,
Speaker 8: and that's when they might have an opportunity to cut again.
Speaker 1: When you talk about inflation expectations in near term and
Speaker 1: long term, what are we talking about Are we talking
Speaker 1: about the University of Michigan sentiment survey that is hugely
Speaker 1: politically affected. Are we talking about the consumer Conference board?
Speaker 1: Are we talking about five year five year forward break events?
Speaker 7: Right?
Speaker 5: What is the gauge that is important to this federal Reserve?
Speaker 8: I would say probably you missed and probably inflation break evens.
Speaker 8: The combination, even though we all know you miss isn't
Speaker 8: that grade of a measure.
Speaker 7: But we all seem to watch it anyway. I don't
Speaker 7: know why, but.
Speaker 3: We watch it because they do. That's fair and pound
Speaker 3: on this Federal Reserve. Respect on the two edge.
Speaker 2: You remember that jump by right hind back in the day,
Speaker 2: you Mitch apparently, Yeah, and.
Speaker 8: It notoriously comes out with the reading and then the
Speaker 8: final reading ends up getting revised back down from an
Speaker 8: inflation perspective.
Speaker 7: Where are we in June?
Speaker 6: I mean you mentioned March and May and the meetings,
Speaker 6: But within the conversation we have with four or five
Speaker 6: worthies today, the question is what real GDP does out
Speaker 6: to June? I mean, you know, the facts change, Are
Speaker 6: the facts going to change? Or are we going to
Speaker 6: continue with this growth economy helping part of America not
Speaker 6: all of America.
Speaker 7: We're probably going to be in this growth economy.
Speaker 8: The one thing from from a sort of lower income
Speaker 8: perspective is animal spirits may support the broad based the
Speaker 8: broad based consumer. We might actually start to see good
Speaker 8: spending pick up, which could help kind of the bulk
Speaker 8: of the economy because they're getting ahead of tariffs.
Speaker 6: Yeah, and John, I mean I got Microsoft legging up
Speaker 6: here now or it was before the meeting. I mean,
Speaker 6: we're going into earnings in one part of America.
Speaker 2: John.
Speaker 6: They don't give a damn what Jerome poll says. They're
Speaker 6: just looking at free cash flow. Microsoft.
Speaker 2: On the rest, I'm miss working with you on a
Speaker 2: daily basis for a whole host of reasons. But just
Speaker 2: then I had no idea if you're coming to me
Speaker 2: because Man City had scored.
Speaker 3: If they'd scored, I.
Speaker 6: Wasn't sure what to brak is in my ear saying,
Speaker 6: don't you dare? I don't even know how to pronounce it.
Speaker 6: Zagreb one ac milan zero.
Speaker 3: Is that that's true? Is that just happened? You're okay? Okay,
Speaker 3: Well I'm not okay.
Speaker 2: Now's continue by talking about financial market and central bank decisions.
Speaker 2: Lisa mentioned the Bank of Canada a little bit earlier,
Speaker 2: Luke Howard writes and and said thank you, by the way.
Speaker 5: Yeah, well it's important, Luke, I got you back.
Speaker 2: Tiff Maclin and a Bank of Canada. They did decide
Speaker 2: to reduce interest rates. They did decide to say, you
Speaker 2: know what, we can't offer guidance because of Tariff's Why
Speaker 2: is it any different for Chairman Powell and this feeder reserve.
Speaker 8: We have an economy that's running well above trend. We
Speaker 8: were going to see a GDP print that's close to
Speaker 8: three percent this week.
Speaker 6: Right.
Speaker 8: The ecomomy's fine, there's no rush, and that's what he said.
Speaker 8: There's no They're not in a hurry.
Speaker 6: This is the single most important observation fed the sides today.
Speaker 6: America is totally different than when I witnessed in Toronto
Speaker 6: a number of months ago. We are separate in our
Speaker 6: exceptionalism and it was in spades when I.
Speaker 2: Was up in case just because of the strength of
Speaker 2: the economy. Somo, do you think it's it's a tech overlay.
Speaker 2: This is about the President of the United States and
Speaker 2: that worried about what it's.
Speaker 6: A little bit. I'll go with that overlay, but it's
Speaker 6: most about Clarita's colleague Ned Phelps, and our dynamism is
Speaker 6: tangible again with Microsoft kicking it off here with Meta
Speaker 6: in a bit, Lisa, you feel the same way.
Speaker 1: I guess the US has a much more robust economy.
Speaker 1: It also is essential bank to the world in many
Speaker 1: different ways.
Speaker 5: It also is not being subject to a president.
Speaker 1: It is part of a country with a president. It's
Speaker 1: very different for say Canada that is facing off with that.
Speaker 1: I was a little lost in thought there, and the
Speaker 1: reason why is because.
Speaker 3: You're watching a football take and.
Speaker 1: I'm trying to wrap my head around whether it's appropriate
Speaker 1: for this fed to be sort of directionless right now,
Speaker 1: or whether it's inappropriate. You know, I don't know whether
Speaker 1: it is appropriate because it is an uncertain time, and
Speaker 1: I don't know if it's inappropriate because they have to
Speaker 1: give some sort of sense of what the reaction function
Speaker 1: is and the scenario analysis and they.
Speaker 5: Could have a more clear view. I don't have an
Speaker 5: answer on that.
Speaker 6: Seventy year off how x post are they? That's all
Speaker 6: there is to it to me. They're massively exposed waiting
Speaker 6: for data.
Speaker 8: Yeah, I think that's been the case over the past
Speaker 8: couple of years. Is they've been very much data point dependent,
Speaker 8: which they say.
Speaker 7: They don't want to be, but they have been.
Speaker 3: But they are.
Speaker 8: They are, and they have been, and that's going to
Speaker 8: be the case for much of this year. They're going
Speaker 8: to react to see how fiscal policy ends up playing out,
Speaker 8: and they're in a weight and see mode, which is
Speaker 8: confusing for investors. But at least at this point, the
Speaker 8: E commy's doing just fine. Inflation has settled down, so
Speaker 8: it's not really that big of a problem.
Speaker 2: This found like a clean up for December. That's what
Speaker 2: it found like to me, a cleanup for December. This
Speaker 2: isn't about policy changes, This isn't about expected policy changes.
Speaker 2: This is about you on the labor market and inflation,
Speaker 2: and that's why we've not got interest rates today. Back
Speaker 2: in December, chem and Powell made a hash of that,
Speaker 2: and I think he made a hash of it, and
Speaker 2: I do have some sympathy that it was because of
Speaker 2: what happened with the forecasts and how some officials incorporated
Speaker 2: some policy uncertainty TK and ultimately they changed.
Speaker 6: The better because I don't Lisa reads the minutes, but
Speaker 6: when Colby, I think it was her follow on question,
Speaker 6: and you played it there when Colby Smith at the
Speaker 6: Times he's hit some mumbo jump about we cleaned up
Speaker 6: the language.
Speaker 3: What God's does read that, it's hard not to read that.
Speaker 2: It's hard to read that, and just walk away with
Speaker 2: this idea that, yeah, that doesn't mean anything. I mean,
Speaker 2: I take signal from that, whether he says there's no
Speaker 2: signal in it or not, I take signal from that.
Speaker 1: Change, which is the reason why the market hasn't given
Speaker 1: back the entirety of the move. You're right, though, again,
Speaker 1: how do we interpret the fact that don't see what
Speaker 1: your eyes see, don't read what your eyes read.
Speaker 5: There is no meaning in words.
Speaker 1: That are very deliberately crafted to give meaning and to
Speaker 1: really gives some indication to the markets. Which is the
Speaker 1: reason why I'm grappling with the idea of a rudderless market,
Speaker 1: a rudderless fed, I should say, and whether that is
Speaker 1: okay inappropriate or whether it is potentially inappropriate at a
Speaker 1: time when a lot of people are worried about a
Speaker 1: potential FED policy.
Speaker 2: Er, Stephanie, it's going to see you as always, thanks
Speaker 2: for dropping by Stephanie Rothmare of Wolf Research. Then that's
Speaker 2: like just moments ago turning positive slightly negative now in
Speaker 2: the s and P. Five hundred, erasing the losses of
Speaker 2: this afternoon. Mike McKee was in the news conference. He's
Speaker 2: back out now he can share some of his thoughts
Speaker 2: with us. Mike, share with us how that went from
Speaker 2: your side, from your perspective in the room.
Speaker 9: Well, I would disagree with you a little bit, John,
Speaker 9: and say that this wasn't probably an effort to send
Speaker 9: some sort of signal or even necessarily a cleanup as such.
Speaker 9: I think the FED is sort of at sea. They
Speaker 9: don't know what is going to happen, and since the
Speaker 9: economy is performing well, unemployment is low, inflation is not
Speaker 9: going back up, it has stalled out a little bit,
Speaker 9: they feel they can wait. They don't need to do
Speaker 9: anything else at this point. I asked him specifically whether
Speaker 9: they had a forecast they could rely on, and he
Speaker 9: said no. He was also asked is March a live meeting,
Speaker 9: and he said, it's a live meeting.
Speaker 3: But we don't have any idea.
Speaker 9: We're going to look to the data, et cetera. So
Speaker 9: I think right now what you've got is FED that's
Speaker 9: just trying to stay out of the way as long
Speaker 9: as they can and they can as long as the
Speaker 9: data continue to show the economy's doing okay.
Speaker 1: Mike, do you expect that in March it's going to
Speaker 1: be a more complicated staying out of the way at
Speaker 1: a time where you have to reflect a number of
Speaker 1: views that might not be in the same vein as J.
Speaker 5: Powell.
Speaker 1: That seemed to be what the problem was in December,
Speaker 1: reflecting that some members did think about what policies could
Speaker 1: be going forward.
Speaker 9: Well, I think it'll probably be more confusing, But how
Speaker 9: confusing will depend on the president and what is happening.
Speaker 9: If he has imposed tariffs, if those tariffs invite retaliation,
Speaker 9: how long the tariffs will last, how high the tariffs
Speaker 9: will be, will probably present different economic models to the
Speaker 9: various voters on the Open Market Committee, and there may
Speaker 9: be some disagreement. I suppose they'll come together on whether
Speaker 9: they need to cut rates or not to overcome some
Speaker 9: of the issues that that would raise. But they're going
Speaker 9: to have to wait and see exactly.
Speaker 3: What this does.
Speaker 9: Now by March, you probably won't have much of an
Speaker 9: economic effect, so they will have to game out what
Speaker 9: they think will happen from whatever tariff announcements come out.
Speaker 2: As the defender of chief of that great institution behind you, Mike,
Speaker 2: I had no doubt you disagree with me, Michael mckaytha.
Speaker 2: Everybody on the Federals might thank you. If they're trying
Speaker 2: to stay out the way this time, it's because they
Speaker 2: got in the way back in December. And I think
Speaker 2: a lot of paper would take that perspective as well.
Speaker 1: This was I trying to walk back the idea of
Speaker 1: talking about speculation around policies. It seems as there is
Speaker 1: a divide and there is a curious question around whether
Speaker 1: it this is something built ugly raised. They're going to
Speaker 1: start to go towards the staff assumption and really reflect
Speaker 1: the staff economic forecasts and not necessarily desparate fed members.
Speaker 1: It might clear the air a little bit in terms
Speaker 1: of having some of these awkward moments.
Speaker 6: I go back to just Stephanie Roth. I think nailed
Speaker 6: it on the mandate. It's a job market.
Speaker 7: You know.
Speaker 6: Guess what Thursday claims matter. You can need afford having average.
Speaker 6: Thursday claims it hasn't broken yet, and when until the
Speaker 6: job market breaks? And I feel bad about this because
Speaker 6: again off Craig tour is reporting a good portion of
Speaker 6: America the job market's already broken.
Speaker 3: It's tough.
Speaker 2: I can't believe it's actually one nail. And I've got
Speaker 2: mail wound up about the football. Jeff Rosenberg and black
Speaker 2: Rocks joins us now to talk about the markets and
Speaker 2: not the European football. Jeff, Welcome to the program sir.
Speaker 2: Lots of debate about what was intended and what wasn't
Speaker 2: intended in that statement throughout that news conference. What was
Speaker 2: your big takeaway this afternoon?
Speaker 10: So a couple of takeaways, but I think the big
Speaker 10: takeaway is clearly a reiteration of the end of the
Speaker 10: December FMC signaling that this is a FED that's not
Speaker 10: in a hurry to take any further actions. And and
Speaker 10: so you kind of bookmark where we are. This is
Speaker 10: the pause, this is the articulation of the pause.
Speaker 8: Uh.
Speaker 10: And he outlined those those reasons, and I think that's
Speaker 10: kind of overriding the main story. It's not a huge
Speaker 10: story because that was pretty much well.
Speaker 3: In the market.
Speaker 10: You're not seeing a big market reaction. Second thing I
Speaker 10: would take away, Lisa, you highlighted it. You know, there's
Speaker 10: some contradictions here, uh, and they were kind of highlighted
Speaker 10: in the press conference and we've had those contradictions for
Speaker 10: a while. You know, meaningfully restrictive yet financial conditions are easy,
Speaker 10: meaningfully restrictive, yet we're not in a hurry. And I
Speaker 10: agree with you, Lisa, and have said for for a while, this,
Speaker 10: this failure to kind of take into account the role
Speaker 10: of financial conditions in the setting of policy, kind of
Speaker 10: like moving that more to the background, is a real
Speaker 10: issue here for the conduct of monetary policy, and it
Speaker 10: and it remains in that and that kind of that
Speaker 10: kind of came up. And then the third point I'd
Speaker 10: kind of highlighted, Jhonath, this is where you just left off,
Speaker 10: is you know, just how is the FED going to
Speaker 10: manage through this environment of heightened policy uncertainty? And he
Speaker 10: kind of addressed it and then didn't want to address
Speaker 10: it because there's no real good answers for that because
Speaker 10: the policy is being made and the outcomes are not known,
Speaker 10: so they're gonna have to be reactive to that. There's
Speaker 10: no forecast ability. There's a range of outcomes that he
Speaker 10: talked about, it's not elevated relative to COVID or GFC.
Speaker 10: So he got that question to kind of, you know,
Speaker 10: tamp down some of the concerns around it being elevated,
Speaker 10: but it's an elevated degree of uncertainty centered around policy uncertainty.
Speaker 1: Jeff I was musing over whether it was appropriate for
Speaker 1: a federal reserve to basically not have a clear message
Speaker 1: at a time where there are very clear economic conditions
Speaker 1: and potential.
Speaker 5: Policies down the pike.
Speaker 1: I'm going to ask you this in a slightly different
Speaker 1: way as a market participant.
Speaker 5: Does it introduce a.
Speaker 1: Greater degree of liability tied to FED decisions not having
Speaker 1: a good understanding understanding of exactly how they are going
Speaker 1: to proceed given certain potential developments.
Speaker 10: Yeah, it's what we call the reaction function, and we're
Speaker 10: very much focused on thinking a couple of steps ahead
Speaker 10: of how is the FED going to react to data?
Speaker 10: How is the FED going to react to uncertainty, because
Speaker 10: that's how we're going to price in the bond markets.
Speaker 10: You know, we moved a long way away from forecast
Speaker 10: dependency and a forecast dependent FED towards a data dependent
Speaker 10: FED and now a policy dependent FED, and so that
Speaker 10: makes it a bit challenging, but again kind of in
Speaker 10: the context of putting it into a historical context, not
Speaker 10: more challenging than it has been in the past. The FED,
Speaker 10: you know, gives us some guidance. I think he reiterated
Speaker 10: that guidance here. You see it in the pricing. The
Speaker 10: disconnect between market expectations and the FED rhetoric is actually
Speaker 10: the lowest it's been and that kind of narrows the
Speaker 10: range of outcomes here. So it's a little bit in
Speaker 10: some sense less uncertainty around the disconnect between bond market
Speaker 10: pricing and what the FED is signaling.
Speaker 6: And Jeff the technology of America, you're hardwired with it
Speaker 6: with your heritage to Carnegie Mellon. We saw the technology
Speaker 6: bro line up at the inauguration front and center as well.
Speaker 6: How do you overlay this technology boom that we're in
Speaker 6: right now? I'm looking at the Nasdaq back thirty years
Speaker 6: It's unreal, And he answered, Jeffers, how do you overlay
Speaker 6: this technology boom into your rate space and into what
Speaker 6: the FED will do? It's a bolt on which I
Speaker 6: just can't get a handle on.
Speaker 10: Yeah, it's a great question. It came up a little
Speaker 10: bit in the press conference today as well, and so
Speaker 10: you know, one way and it's not the only way,
Speaker 10: because what we're talking about here and when we talk
Speaker 10: about the megaforces of AI, you know are so profound
Speaker 10: through so many parts of our economy, But a very
Speaker 10: simple way of thinking about it in the macro lens
Speaker 10: is the wealth creation that we've seen in terms of
Speaker 10: the equity market, equity market performance, the way in which
Speaker 10: that translates into financial conditions, into wealth effects, into confidence effects,
Speaker 10: and ultimately into consumption.
Speaker 3: I think it's a.
Speaker 10: Big reason for why the disconnect between looking at the
Speaker 10: degree of policy restrictiveness, meaningfully restrictive takes the lens of
Speaker 10: what is the interest rate relative to inflation? How does
Speaker 10: that look historically, But it ignores the impact of the
Speaker 10: wealth effect that we're seeing in consumer confidence effects from that,
Speaker 10: which have a large element of the AI mega trends,
Speaker 10: the AI boom, the incredible experiment in profits and revenues
Speaker 10: that we're seeing flow through into people's feelings of wealth,
Speaker 10: and we know that consumers and consumption is very much
Speaker 10: driven by that aspect. And so I think that's been
Speaker 10: kind of an underappreciated element to why despite meaningfully restrictive policy,
Speaker 10: we haven't seen it in the data in the economic performal.
Speaker 6: This is critical. We had green span of red chapter
Speaker 6: twenty two and said, you know what, the stock market matters.
Speaker 6: I believe we have a president who says the stock
Speaker 6: market matters. Do you see evidence that this fed in
Speaker 6: Chairman Powell care about that wealth effect.
Speaker 10: They most certainly care about the wealth effect.
Speaker 3: Understand it.
Speaker 10: He answered that question when he got the question about
Speaker 10: the earlier moves in the stock market on Monday, and
Speaker 10: he talked about the persistency of the impact on financial conditions.
Speaker 10: So there is the answer, right, They're not gonna worry
Speaker 10: about one two days worth of selloffs. They're gonna look
Speaker 10: at financial conditions and the wealth component, the stock market
Speaker 10: component of that, the only thing that goes into financial conditions.
Speaker 10: He was clear to highlight that the increase in interest
Speaker 10: rates in the long end has been tightening financial conditions,
Speaker 10: the impact on housing. But they're well aware of the impact.
Speaker 3: Of wealth effect. But it's not a small move.
Speaker 10: It's not an isolated move in one part of the
Speaker 10: equity market. It has to be broad based, it has
Speaker 10: to be persistent, and that's what we've seen in the
Speaker 10: past of when you can flip the script on is
Speaker 10: the economy driving markets or is the market driving the economy?
Speaker 10: When the market has a big enough decline and it
Speaker 10: impacts the wealth and confidence, then it's markets that then
Speaker 10: lead the economy, and the FED will be having to
Speaker 10: take that into account in their setting a policy.
Speaker 1: All right, Fed, Chaer Rosenberg, I want to talk to
Speaker 1: you about getting several steps ahead then of the Federal
Speaker 1: Reserve as you figure out how to position.
Speaker 5: What are you looking at?
Speaker 1: What is your scenario analysis when the policies come down
Speaker 1: the pike to understand whether they're going to be potentially inflationary,
Speaker 1: whether they're going to be disinflationary, whether they can boost
Speaker 1: growth or slow.
Speaker 10: Yeah, it's about this kind of reaction function, and it's
Speaker 10: a little bit about the assessment of the asymmetry to
Speaker 10: the reaction function. You know, will they tolerate a little
Speaker 10: bit of missing on the two percent inflation trajectory relative
Speaker 10: to an outturn in labor market tightening? And so far,
Speaker 10: I think that we've seen the Fed given the willingness
Speaker 10: to cut interest rates. He got the question around you
Speaker 10: have to wait till you hit two percent. No, we
Speaker 10: already know the answers to that. They started cutting before
Speaker 10: they got to two percent, So we know that the
Speaker 10: Fed at least in the recent experience has been more
Speaker 10: concerned about labor market tightening, the concern about over tightening.
Speaker 10: The classical FED did it in terms of the create
Speaker 10: causing the recession. That creates a little bit of asymmetry
Speaker 10: of willingness to accept not getting to two percent, so
Speaker 10: that your reaction, the Fed's reaction, my expectation around the
Speaker 10: Fed's reaction to a weakening and labor markets might be
Speaker 10: more to cut than the opposite of let's say the
Speaker 10: inflation figures they start to, you know, instead of sticky,
Speaker 10: it's sticky in a little bit upward. Is the FED
Speaker 10: going to raise interest rates into that?
Speaker 5: I think it's a.
Speaker 10: Much higher bar. That asymmetry is kind of helpful to
Speaker 10: positioning and fixed income in the FED centric kind of
Speaker 10: maturity spectrum, kind of the short end of the intermediate
Speaker 10: end of the curve that are going to be more
Speaker 10: responsive to what the Fed's doing. And I think that's
Speaker 10: the place where you have a little bit better assessment
Speaker 10: because of this asymmetry between growth and inflation.
Speaker 2: JEF always great to get your views, Appreciate them this afternoon.
Speaker 2: Thank you, sir, Jeff Rosenberg. There a black rock on
Speaker 2: the latest FED decision of course, it wasn't just about
Speaker 2: the FED today, and Tom brought up the tech plays.
Speaker 2: So we're here from Meta, Microsoft and Tesla of the
Speaker 2: next few hours, and I want to bring you a
Speaker 2: number from Deutsche Bank, Amazon, Microsoft, downflimat METSA expected to
Speaker 2: surpass two hundred billion dollars in AI capex over the
Speaker 2: course of the past year. That is real money. We've
Speaker 2: talked a lot about the Federal Reserve's role in this economy.
Speaker 2: Those tech players have a huge role in this economy.
Speaker 1: On every level, and arguably some people could say that
Speaker 1: chat GPT single handedly save the US from a technical corcession,
Speaker 1: if not an outright de session, based on some of
Speaker 1: the investments that have been made. You're right to focus
Speaker 1: on big tech earnings because what this FED news conference
Speaker 1: just showed us is that you're not going to learn
Speaker 1: anything there, but you will learn from what you hear
Speaker 1: from some of these executives in terms of how much
Speaker 1: more they're going to keep investing and where they see
Speaker 1: the gravitational str quickly.
Speaker 6: Here there's a parallel to nineteen ninety five. I remember
Speaker 6: the first time I heard the word Google. I was
Speaker 6: like really, and uh yeah, sure, I didn't pony it up.
Speaker 6: But the bottom line is John, as you're right, this
Speaker 6: Capex overwhelms everything, and we're going to see that here
Speaker 6: as we begin the tech derby with Microsoft.
Speaker 2: We'll see if they can justify it, give them what
Speaker 2: we found out on Monday. If that is in date,
Speaker 2: the real tale coming up on the close, they'll follow
Speaker 2: through with the Federal Reserve decision and go into the
Speaker 2: close and pick up on a text story. Now doubt
Speaker 2: we're going to catch up with Bessie Duke, the former
Speaker 2: Federal Reserve governor, in just a moment. Like from New
Speaker 2: York City this afternoon. Good afternoon to you all. Thank
Speaker 2: you for choosing Bloomberg TV and Radio. This was the
Speaker 2: FED Decides