Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This market got the dubvishness it wanted to hear. The
Speaker 2: equity market's positive by close to two percent on the
Speaker 2: S and P five hundred on the NAS NAK one
Speaker 2: hundred up by three point three. We're moving closer to
Speaker 2: cunning interest rates. September could well be on the table.
Speaker 2: Push that through the bond market. A fifth consecutive day
Speaker 2: of gains for the ten year tracery yield to lower.
Speaker 2: We're down by four basis points on a ten year.
Speaker 2: It's a break of four point one percent. So we've
Speaker 2: all got the same question. Just how low is the
Speaker 2: bar for a rate cut in September. This is what
Speaker 2: the chairman had to say.
Speaker 3: The question will be whether the totality of the data,
Speaker 3: the evolving outlook in the balance of risks are consistent
Speaker 3: with rising confidence on inflation and maintaining a solid labor market.
Speaker 3: If that test is met, a reduction in our policy
Speaker 3: rate could be on the table as soon as the
Speaker 3: next meeting in September.
Speaker 4: So let's talk about the calendar.
Speaker 2: The next meeting September eighteenth, the data in between August second,
Speaker 2: This come in Friday payrolls August fourteenth, CPI report, September sixth,
Speaker 2: the jobs report on the eleventh, another CPI report, going
Speaker 2: into a Federal Reserve decision week, and most people are
Speaker 2: seeming after that, Lisa, we're like this far away from
Speaker 2: that interest rate cup, especially at.
Speaker 1: A time where there was a different type of language
Speaker 1: in this communication. We are not data dependent. They are
Speaker 1: or they are data dependent, They're not data point dependent.
Speaker 1: They want to draw distinction that one data point isn't
Speaker 1: going to throw them off materially. They repeated the totality
Speaker 1: of the data as well as how they just need
Speaker 1: to see the same kind of good data that they've
Speaker 1: already been seeing.
Speaker 5: Turn continuum to me was critical that Steve Leisman's question
Speaker 5: was great about measured alluded to this their slaves to measure. John,
Speaker 5: that's other is to it. I just don't know what
Speaker 5: else to say. You know, I'll talk to Dudley about
Speaker 5: it here. This to have Clarena and Dudley with.
Speaker 2: Us today is fantastic last lights out and I really
Speaker 2: for you a global Wall Street.
Speaker 5: What's coming up here with doctor Dudley is required listening.
Speaker 2: There was a fantastic line that came from evercause Krishnakua,
Speaker 2: I want to share this quote with you. He thinks
Speaker 2: they've laid the foundations for a rake Caunt September. I
Speaker 2: think a lot of people observing that news conference would agree.
Speaker 2: But this quote's interesting. We think in practice it's not
Speaker 2: very data point dependent and view the cautious evolution of
Speaker 2: the statement as intended to carry hawks along and avoid descents,
Speaker 2: as was indeed the case today. Expect a clearer signal
Speaker 2: a month from now at Jackson Hole. I'm thinking about
Speaker 2: the minutes as well. I just wonder how well set
Speaker 2: the stage is for the doves to dance and sing
Speaker 2: very loudly in these minutes that come out in a
Speaker 2: number of weeks time.
Speaker 1: I was very happy that the reporter asked him to
Speaker 1: elaborate on the fact that at this particular meeting they
Speaker 1: did discuss the possibility of cutting reeds, that there were
Speaker 1: a few members but not the vast majority. Here is
Speaker 1: the question, how loud was that voice and what did
Speaker 1: they have to give to those people to get on
Speaker 1: board with them in terms of this decision?
Speaker 5: Did you bring the dark to Dudley? Moments ago the
Speaker 5: ten yure yield broke down to a four oh eight
Speaker 5: ninety two. It's a new low yield. Could you imagine, John,
Speaker 5: what our shows are going to be like with a
Speaker 5: three ninety nine ten year I can't get.
Speaker 2: There where we're going to be in September. Where's the
Speaker 2: unemployment rate going to be in September? That's the big question.
Speaker 2: I have gone into the payrolls report this Friday. Bill
Speaker 2: Dudley got a shout out in this news conference. Bill
Speaker 2: dut Lee joins us now the former New York Fed
Speaker 2: president and Bloomberg opinion columnist as well. Bill, I want
Speaker 2: to go to your column that you wrote in the
Speaker 2: last week or so. It was quoted in this news conference.
Speaker 2: I'm sure you heard it. What did you think of
Speaker 2: the chairman's response to it?
Speaker 6: I thought it was a fair response. I mean, this
Speaker 6: is my opinion and is reaching a slightly different opinion.
Speaker 6: I mean, we're at a point where the risks are
Speaker 6: pretty closely balanced, and so the question is do you
Speaker 6: go a little earlier or do you go a little later?
Speaker 6: I think you know the reason why I thought it
Speaker 6: makes more sense to go is that if the market's
Speaker 6: already pricing in September with a high degree of certainty.
Speaker 6: What are you really waiting for at this point? Why
Speaker 6: take the additional risk of you know, the community deteriorating further,
Speaker 6: so you know, end of the day, it's probably not
Speaker 6: going to make a big bit a lot of difference.
Speaker 6: But I think you know, given the fact that the
Speaker 6: market expects the Fed to cut once that decision is
Speaker 6: mostly made, and I think you heard today it was
Speaker 6: mostly made, then why are you waiting?
Speaker 5: Bill Dudley, your essay heard around the world, the single
Speaker 5: sentence the Fed doesn't want to be fooled again. You've
Speaker 5: held court at Princeton, where the late wonderful Daniel Kahneman
Speaker 5: held court. Here's common with Taversky. Decision makers know they
Speaker 5: are prone to regret, and the anticipation of that painful
Speaker 5: emotion plays a part in many decisions. How is regret
Speaker 5: aversion playing in to this massive data dependency x post ballet.
Speaker 6: What maybe happening here is the fact that they got
Speaker 6: fooled on inflation, you know, earlier this year where the
Speaker 6: data came in bad makes them overly cautious that they're
Speaker 6: going to make this and that they they can make
Speaker 6: the same mistake again by going early. I think it's
Speaker 6: you know, kind of has talked about recency bias, you
Speaker 6: put too much weight on the most recent experience. So
Speaker 6: this may be a case where they're not putting enough
Speaker 6: weight on the on the fact that, you know, things
Speaker 6: are slowing and the inflation's coming down, and maybe now
Speaker 6: it's the time to act. I think it was interesting
Speaker 6: you got a question about the sombrule. You know that
Speaker 6: the fact when the unemployery climbs above zero point five
Speaker 6: percent on a three month moving average basis you always
Speaker 6: have recession. He said he's aware of it, but clearly
Speaker 6: the FED doesn't put a lot of weight on that risk.
Speaker 1: Do you feel like we're getting closer to the moment
Speaker 1: where we will see real dissent on a committee that's
Speaker 1: being cobbled together and you can kind of feel the
Speaker 1: strains in some of the community case.
Speaker 6: Now, I think what happened, you know today was basically
Speaker 6: the Doves got a pretty dubbish statement and a pretty
Speaker 6: dubblish press conference, and so you know, they're sort of
Speaker 6: set on board, and the Hawks got more patience. And
Speaker 6: so when you arrive at the center Tamber meeting, assuming
Speaker 6: the outlook doesn't change in the material way and That's
Speaker 6: basically what pub was saying. It's not about a single
Speaker 6: data point. The outlook has a change in a fundamental
Speaker 6: way for the FED not to go to in September.
Speaker 6: At that point, you have something to basically you give
Speaker 6: to both the doves and the hawks. The doves, you
Speaker 6: thank you for being patient. The Hawks, we waited, So
Speaker 6: let's go together unanimously at the September meeting. So I think,
Speaker 6: you know, I think it's a good, good possibility that
Speaker 6: you'll see an unanimous vote at September for a twenty
Speaker 6: five base point recud.
Speaker 2: But you brought up the Psalm rule. The chairman also
Speaker 2: brought up the yield curve in this news conference as
Speaker 2: well and highlights it the false positives we're getting from
Speaker 2: traditional indicators. Just to reflect back on that piece that
Speaker 2: you wrote for Bloomberg Opinion, can you walk us through
Speaker 2: why you do think actually the Psalm rule does matter,
Speaker 2: that maybe we should have a little bit more of
Speaker 2: a focus on these traditional indicators still and not completely
Speaker 2: ignore them.
Speaker 6: Well, if I can start with the yelkur the reason
Speaker 6: why I don't think the ill curve is necessarily a
Speaker 6: good predictor is the US curves is inverted because people
Speaker 6: think monetary policy is tight. So it's not that you'll
Speaker 6: cruise shape that causes the economy to week it weaken.
Speaker 6: It's the prison sumption that monitary policy is restricted because
Speaker 6: of the economy weaken. Most of the time when the
Speaker 6: occurs inverted, monitary policy is tight, and so the he
Speaker 6: occurs a good predictor The soumrule, I think is a
Speaker 6: little bit different and basically saying once the libor market
Speaker 6: deterioration goes beyond a certain point, it becomes self reinforcing. Essentially,
Speaker 6: why I think happens is business households here about the
Speaker 6: liver market weakening, they pull back on their consumer spending.
Speaker 6: That causes businesses to pull back in terms of investment
Speaker 6: and hiring, and that leads to further weakness and consumption.
Speaker 6: And then for the rises in the unemployer rate, it's
Speaker 6: a pretty amazing statistical regularity that either rises less than
Speaker 6: a half a percent or next stop is a full
Speaker 6: blown recession. There's nothing in between. The smallest increase in
Speaker 6: the unemployer rate trough to peak is either between zero
Speaker 6: point five and one point nine percentage points. There's nothing
Speaker 6: in the middle, which I think is pretty interesting statistically,
Speaker 6: Now he did recognize that as a statistical just a
Speaker 6: statistical result. There's nothing sort of there's no economic law
Speaker 6: behind it. But the track record is thirteen and oh.
Speaker 6: So you know, think about the odds of flipping a
Speaker 6: coin thirteen times and coming up heads there every time
Speaker 6: after a Why you're starting to believe that the next
Speaker 6: flip is going to generate the same result?
Speaker 5: Bill take us back to first principles. Why can't they
Speaker 5: just cut and say one and done and will observe
Speaker 5: versus our addiction to measured?
Speaker 6: Well, I think what will happen is once they start
Speaker 6: start to cut, they'll probably keep going. You know, once
Speaker 6: they start to do the first rate cut, they basically
Speaker 6: decide that mantre Paul's that we've accomplished our mission in
Speaker 6: terms of inflation and unemployment. Policies restrict us, so we
Speaker 6: know now have to go back to neutral. Neutral's not
Speaker 6: twenty five bases points away. So if you have a
Speaker 6: rate cut in September, it's probably gonna be followed by
Speaker 6: raycuts at least one or two more raycuts later this year.
Speaker 1: Well, it seems like this was a setup for Jackson Hall.
Speaker 1: We've been talking about that. It seems like there will
Speaker 1: be some sort of policy regime shift that we will
Speaker 1: observe in August. What do you think it will be.
Speaker 6: I think that Paul really needs to save much more
Speaker 6: than what he said today, frankly, and I think the
Speaker 6: changes in the statement and the press conference the day
Speaker 6: basically tell you that September is going to happen unless
Speaker 6: the economic outlook changes materially. Now that's possible, you could
Speaker 6: get a whole string of bad inflation numbers, or the
Speaker 6: economy could come in hot, but I think, you know,
Speaker 6: in the next six weeks or seven weeks, is the
Speaker 6: outlook going to change materially? I doubt it. So I
Speaker 6: think regardless of what happens in Jackson Hole, I think
Speaker 6: the Fed's going to cut in September. I think, you
Speaker 6: know this, Paul will sort of check in at the
Speaker 6: Jackson Hole and basically, you know, probably confirm that we're
Speaker 6: still on track for this this result for Ray cut
Speaker 6: in September. But I don't I don't think it's you know,
Speaker 6: I don't think he has to use.
Speaker 1: It for that well, although it's not just about September,
Speaker 1: it's not just about whether they're going to move again
Speaker 1: one more time this year. It's about what the destination is,
Speaker 1: it's about the pace, it's about what the goal is.
Speaker 1: In terms of just the view of where the economy is, Bill,
Speaker 1: do you expect there to be any discussion about the
Speaker 1: terminal rate, about what it means to be neutral at
Speaker 1: a time or this is a very different economy than
Speaker 1: pre pandemic.
Speaker 6: Well, I would assume that once you get inflation, you know,
Speaker 6: highly common the inflation is going back to two percent,
Speaker 6: and you think the labor markets and balance, then you
Speaker 6: presume you want to go back to a neutral manitrate policy.
Speaker 6: And the question is what's neutral? And that comes down
Speaker 6: to that whole question of what is the level of
Speaker 6: our star the neutral federal fund rate. I think that
Speaker 6: neutral is clearly lower than where we are today, But
Speaker 6: is it one hundred basis points lower or two hundred
Speaker 6: basis points lower. That remains to be seen. So the
Speaker 6: Feds can be sort of feeling its way now. Obviously,
Speaker 6: if we fall into recession, then the whole story changes
Speaker 6: because in a recession environment, the Fed doesn't want to
Speaker 6: go to a neutral manitrate policy. They want to go
Speaker 6: to a stimulative mantarate policy. So if we actually, if
Speaker 6: it turns out, with the benefit of hindsight, that the
Speaker 6: FED is late and we have a mild recession, then
Speaker 6: the Fed's going to cut rates much more dramatically.
Speaker 5: Bill, I've never said this. I've got Dudley, Krugman and
Speaker 5: Blinder on the same page. Never did I think i'd
Speaker 5: say that the money paragraph from your good friend Alan Blinder,
Speaker 5: any such early cut should be accompanied by a warning
Speaker 5: not to expect a steady stream of rap cuts. He
Speaker 5: alludes to the ECB. Do we need some MECB religion
Speaker 5: at the Eccles building?
Speaker 6: Now? I think that the FED will probably cut more
Speaker 6: than one, because once you start to cut, you're basically saying,
Speaker 6: I think it's time to remove montary restraint. And Monterey
Speaker 6: restraint is not going to be removed with just one
Speaker 6: twenty five base point raycut.
Speaker 2: Bell great to get your thoughts, appreciate it, go down
Speaker 2: be there. The former New York Thanking President Wengan on
Speaker 2: this Federal Reserve decision. As you got a lot of
Speaker 2: people talking over the last week about the need to
Speaker 2: move in July and the mat thing this just passed,
Speaker 2: I want to bring you a headline comes from the
Speaker 2: New York Times and it reads as follows around Supreme
Speaker 2: leader ordering a retaliatory attack on Israel. The New York Times,
Speaker 2: citing three Iranian officials, brief on the order. This is
Speaker 2: what I can tell you about crude. Crud's been rallying
Speaker 2: all day, and the price of crude looks like this
Speaker 2: at a moment, Brent crude by four percentage points TK.
Speaker 2: You would off to say, overtaken by events. The last
Speaker 2: thing that FED needs other next month or so is
Speaker 2: an energy price shock.
Speaker 5: I'm so glad you brought this up. Jan We let
Speaker 5: off the show this morning with Ethan Bronner, our Tel
Speaker 5: Aviv Nears news bureau chief encyclopedic in the region, and
Speaker 5: he says the position here now is unprecedented, and he
Speaker 5: made clear there's going to be immediate news following both
Speaker 5: from the north to Lebanon. In the news that you
Speaker 5: just have from Tate Ryan.
Speaker 2: As we get those updates, we'll bring them to you.
Speaker 2: I just want to reset if you are joining us.
Speaker 2: We've just had a federal reserve decision in the last
Speaker 2: couple of hours. Interest rates unchanged, incremental changes to the statement.
Speaker 2: There was a sense that in September the Federal Reserve
Speaker 2: chair would set us up for a rake cut. In September,
Speaker 2: he took a baby step towards doing so, and the
Speaker 2: market picked up on things accordingly, big rally across equities
Speaker 2: on the NASTAC on the s and P on a rustle,
Speaker 2: it looks like this right now. It fades just to touch,
Speaker 2: but we're still higher by one point four percent on
Speaker 2: the SMP. Bear in mind, the Nasdaq was poised for
Speaker 2: the worst month of the year, and at one point
Speaker 2: in the last couple of hours was on course for
Speaker 2: its best day of twenty twenty four. That fades, We're
Speaker 2: back down to about two point seven percent higher on
Speaker 2: the session on the Nasdaq. We reference this stat a
Speaker 2: little bit earlier on today a few times. We are
Speaker 2: now on course for the seventh consecutive Fed decision day
Speaker 2: rally on a two year bond at least, so that
Speaker 2: yield is lower by six basis points.
Speaker 1: How much is this just that Jerome Powell tends to
Speaker 1: skew dubvish And how much is this that the market
Speaker 1: still has a probability or a possibility baked into what
Speaker 1: the yield is that the Fed could maybe surprised in
Speaker 1: a hawkish manner. Either way, this is a market that
Speaker 1: likes to hear FED shero Powell to speak, and today
Speaker 1: was no different.
Speaker 2: Mike McKee was in the room with a Federal Reserve
Speaker 2: chair down in Washington, d C.
Speaker 4: He joined us from the nation's capital.
Speaker 2: Now, might you've just got outside walk us through your
Speaker 2: biggest takeaway from that news conference this afternoon.
Speaker 7: Well, I think what you walk away with is what
Speaker 7: Bill Dudley was talking about. If the economy doesn't do
Speaker 7: something weird, change positions, change directions, then the Fed is
Speaker 7: going to be cutting in September.
Speaker 4: But there are a lot of.
Speaker 7: Potential twists and turns between now and then. Friday is
Speaker 7: e at risk with the jobs report, and of course
Speaker 7: you just mentioned the situation with Iran. I don't think
Speaker 7: the Fed was taking those things into consideration today as
Speaker 7: reasons not to move today, but they do have to
Speaker 7: worry about.
Speaker 4: Them and what might happen.
Speaker 7: So they will at this point be on a cutting
Speaker 7: course unless something significantly changes. And I think that was
Speaker 7: the message that Paul wanted to deliver, and I think
Speaker 7: Bill put it well when he talked about how the
Speaker 7: statement was skewed to the doves a little bit, and
Speaker 7: the news conference maybe to the hawks, and both sides
Speaker 7: get something out of it.
Speaker 5: Mike, you've been doing this for a few years. Back
Speaker 5: to mcchestney Martin, we almost printed a four h six
Speaker 5: ten year moment. Go Can the bond market tell the
Speaker 5: Fed what to do?
Speaker 7: Probably not. And one of the things that you have
Speaker 7: to keep in mind is that we have all this
Speaker 7: international news going on, and the US bond market is
Speaker 7: the haven market. So a certain amount of what's going
Speaker 7: on today is probably in reaction to Israel and Iran,
Speaker 7: and a certain amount of it is the politics going
Speaker 7: on in this country. And then on top of that,
Speaker 7: what the FED is considering and what the economic data
Speaker 7: are showing. But I suspect today's less about the Fed
Speaker 7: and the data than it is about other things. Because
Speaker 7: the market had pretty much priced for a September breake cut,
Speaker 7: they didn't get any surprises out of the Fed today.
Speaker 1: Mike, you're referring, of course, to the news that John
Speaker 1: broke about Uranian Supreme leader ordering an attack on Israel
Speaker 1: for the two assassinations that Israel carried out. Right now,
Speaker 1: we're seeing crude markedly higher, particularly Brent crud Mike. I
Speaker 1: wonder how this relates to Fedchair Powell has been talking
Speaker 1: about that this is actually better inflation data today than
Speaker 1: it was, say late last year or earlier this year,
Speaker 1: simply because it is not being driven by goods, It
Speaker 1: is being driven by the employment market, is being driven
Speaker 1: by services. How much do you believe based in those comments,
Speaker 1: this is a FED that is willing to look through
Speaker 1: good side inflation and focus much more on something else.
Speaker 7: Well, I think they are, especially if oil prices go
Speaker 7: up only temporarily. The problem is if oil prices go
Speaker 7: up for quite some time, then that feeds through into
Speaker 7: the real economy, particularly on the services side. See surch
Speaker 7: charges by delivery companies. Airline affairs might go up, that
Speaker 7: sort of thing. So they're going to have to keep.
Speaker 4: An eye on that.
Speaker 7: But their general instinct would be to look past any
Speaker 7: kind of energy price change that comes about that they
Speaker 7: think might be temporary. And at this point we have
Speaker 7: been waiting for a major shift in energy prices since
Speaker 7: October seventh, when the first attack on Israel game.
Speaker 4: So we haven't seen it yet.
Speaker 7: Let's see whether this holds or not, and then the
Speaker 7: FED would have to take it into account.
Speaker 4: If it's still going up.
Speaker 2: Five percent rally in crew today might make great work.
Speaker 2: As always, sir, appreciate it. We'll catch up with you
Speaker 2: a little bit later. This week's not over. Still got
Speaker 2: some work to do. The FED decision behind us. Tomorrow
Speaker 2: we'll get jobless claims. On Friday, we'll get a payrolls
Speaker 2: report and we'll be catching up with Jeff Rosenberg of
Speaker 2: black Rock. We can do that now, Jeff at eight
Speaker 2: thirty one on Friday, Will this decision today to do nothing?
Speaker 4: Will that look like the right one?
Speaker 8: Well, you know, it might look like the right one.
Speaker 9: But I think the point you're also getting to is
Speaker 9: that Friday, and we'll see on Friday as well, is
Speaker 9: going to be.
Speaker 8: Much more consequential.
Speaker 9: But I think the important point about how it's going
Speaker 9: to be more consequential is what we've heard from everybody
Speaker 9: so far. We've heard from the chairman and in the
Speaker 9: statement is this is very much setting the table for September,
Speaker 9: and the bond market had already priced that outcome. And
Speaker 9: so what you look at into and the payroll is
Speaker 9: you're setting up the bond market, perhaps broader markets for
Speaker 9: a very asymmetric outcome. If the data is much much stronger,
Speaker 9: then you're going to have some disappointment. If the data
Speaker 9: comes in along lines of what Chairman Powell was talking
Speaker 9: about in terms of gradual normalization, or even a little
Speaker 9: bit weaker than that, the market will continue to price
Speaker 9: in this path of a cut in September, a cut
Speaker 9: in December, and even more into twenty twenty five. So
Speaker 9: I think Friday, the risk is really on the upside
Speaker 9: that you get a surprisingly strong payroll report, and that
Speaker 9: has to call into question whether or not policy is
Speaker 9: really as tight as it is, and that's really the issue.
Speaker 9: Everyone's kind of saying, hey, this is right. The Fed's
Speaker 9: got it right. The Fed saying we've got the soft landing.
Speaker 9: We want to secure the benefits of soft landing. But
Speaker 9: he kept report repeating PDFP at two point six percent.
Speaker 9: You look at the GDP number that just came out,
Speaker 9: You look at Atlanta Fed GDP now forecast for third quarter.
Speaker 9: We are well above in growth terms anything associated with
Speaker 9: long term sustainable growth. And so yes, we've seen some
Speaker 9: signs of restrictiveness, but how much of that restricted because
Speaker 9: that's where the asymmeturity.
Speaker 2: Against the grain totally against the grain. And I think
Speaker 2: you know you well, most of the people coming on
Speaker 2: this show right now, if they're going against the Federal Reserve,
Speaker 2: they're saying it's because they think this FED is too tight,
Speaker 2: not restrictive enough. You're making the point, hey, Jeff, that
Speaker 2: might be they're not as tight as they think they are.
Speaker 2: Now that really goes against the grain, Jeff. Is that
Speaker 2: the point you're trying to make?
Speaker 9: That is the point exactly that I just made. No
Speaker 9: one's really talking about it because the Fed's not talking
Speaker 9: about it, But the data is what your question was
Speaker 9: about what happens on Friday and how does that make
Speaker 9: this moment?
Speaker 8: Look?
Speaker 9: Well, if the data comes in continually stronger, then we're going.
Speaker 8: To have to start to talk about that.
Speaker 6: Now.
Speaker 9: I'm not saying that that's where we're going. Where we
Speaker 9: have been, and what we tend to do is to
Speaker 9: extrapolate where we just have been. So we're extrapolating out
Speaker 9: the benefits of the gradual slow down in labor markets.
Speaker 9: The normalization ecis another great data point.
Speaker 8: There's nothing in the crystal ball that says that that
Speaker 8: won't happen.
Speaker 9: But your question was, what if it does then you
Speaker 9: start to think about these things. And my point is
Speaker 9: everyone is so one sided on this point that the
Speaker 9: asymmetry to the market reaction is much greater to the
Speaker 9: upside surprise and strength on Friday than it is to
Speaker 9: coming in in line or even being weaker.
Speaker 1: So let's put a call around that, Jeff, are you
Speaker 1: basically selling to your notes right now, trying to lock
Speaker 1: in because you think that this could be the highs
Speaker 1: given that they are not recognizing the risk of an
Speaker 1: upside surprise to the job's report.
Speaker 9: No, I wouldn't say I'd go that far, But what
Speaker 9: I would say is it tempers some of the enthusiasm
Speaker 9: for adding to two years at this point when it's
Speaker 9: all in the price and even more so, releive to
Speaker 9: what the Fed is saying that you're going to get.
Speaker 9: So the bar is a little bit higher to what
Speaker 9: do I do with this information in my portfolio when
Speaker 9: you look at well, you know, the bond market's really
Speaker 9: quite a priced a lot of that in so it
Speaker 9: makes it a little bit more tricky than just saying, Oh,
Speaker 9: the Fed's going to cut rates and I should back
Speaker 9: up the truck and buy a whole bunch of duration well,
Speaker 9: a lot of that trade has happened in the last month.
Speaker 9: So if you're just talking about maintenance cuts and the
Speaker 9: degree of maintenance cuts that are required is what you
Speaker 9: were talking about with Bill Dudley a minute ago. We
Speaker 9: don't really know where that neutral is. So how do
Speaker 9: we know where neutral is? You know it when you
Speaker 9: see it, meaning you know it when you see it
Speaker 9: in the data. So if the economy doesn't slow and
Speaker 9: that unemployment rate doesn't continue to rise, and it says
Speaker 9: you're not so restrictive as you think you are, and
Speaker 9: I think, you know, we just kind of have a
Speaker 9: pile up on one side of the debate here when
Speaker 9: the data is still saying two point six percent PDFP.
Speaker 8: He said it twice during the press conference.
Speaker 9: He also said the other thing that has been supportive
Speaker 9: of restrictedness interest rates, sensitive sectors and the slowdown in
Speaker 9: the labor market. But it's a more balanced view around
Speaker 9: this debate around how restrictive we are than where the
Speaker 9: market is kind of lining up, and that sets up
Speaker 9: in asymmetry to the outcome.
Speaker 5: And Jeffrey a great student of history, and if we
Speaker 5: have the headlines that John Farrell was talking about, there
Speaker 5: of Tehran and Israel, and for that matter, up to
Speaker 5: Lebanon as well. How far out the full faith and
Speaker 5: credit curve does politics does war do our fears play in?
Speaker 5: Is it short term, is it out to the two
Speaker 5: year pinch, or is it out even further to the
Speaker 5: ten year note.
Speaker 9: So I'm going to frame that in that question or
Speaker 9: my answer to that question, in terms of how does
Speaker 9: the kind of flight quality response in the bond market
Speaker 9: place out in this environment. I've said this on the
Speaker 9: show maybe a couple of times. We've written about it,
Speaker 9: that flight to quality during the q zero interest rate
Speaker 9: policy environment was.
Speaker 8: A curve flattener.
Speaker 9: If you're very close to zero rates in the front
Speaker 9: end and you're looking for portfolio protection, you buy it
Speaker 9: in the long end. Today we're in a very different environment.
Speaker 9: Five and a quarter to five and a half. There's
Speaker 9: plenty of room for the front end to go down,
Speaker 9: and so it's more of that pre GFC kind of
Speaker 9: bond market reaction, where flight to quality is a steepener
Speaker 9: and it's in the front end of the curve.
Speaker 8: So I think you see the most powerful reaction.
Speaker 9: It's hard to disentangle the high frequency between the news
Speaker 9: that Jonathan Broke and.
Speaker 8: The result of the press conference.
Speaker 9: But you do see a little bit of a steepener
Speaker 9: move into the market. Again, hard to disentangle the two,
Speaker 9: but I think when you take a step back, flight
Speaker 9: to quality now is the steepener trade, and your better
Speaker 9: yield response is going to be more in the front
Speaker 9: end in this kind of environment.
Speaker 1: What's interesting to me today, Jeff, is what's not rallying
Speaker 1: on the heels of some of those headlines, especially in
Speaker 1: light of the fed's dubbish tilt. Yes, but they did
Speaker 1: not cut rates, is that the dollar is not catch
Speaker 1: it a bit. It's weakening pretty dramatically. You're seeing the
Speaker 1: Bank of Japan very happy today. They're getting what they
Speaker 1: wanted in terms of a little bit more yen strength.
Speaker 1: How much is this sort of the new narrative that
Speaker 1: in a flight to safety type of moment, if the
Speaker 1: FED is going to cut rates and not recognize that
Speaker 1: upside risk, you will see persistent dollar weakness heading into
Speaker 1: next year.
Speaker 9: It's a tricky one, Lisa, because you know, on the
Speaker 9: one hand, you've got kind of interest rate differentials driving
Speaker 9: some of those dollar moves. Clearly with the yen a
Speaker 9: balanced against the other side of flight to quality, which
Speaker 9: is which is the pure risk off trade, is usually
Speaker 9: dollar strength. You go for the strongest institutional protection in
Speaker 9: terms of wealth, and so I think I think initially
Speaker 9: the move is much more about interest rate differentials, and
Speaker 9: that's why you're not seeing so much of the move
Speaker 9: on the dollar. I think it's too soon to say
Speaker 9: whether or not you're going to see a bid to
Speaker 9: the dollar from political risk.
Speaker 8: But I think if it was a.
Speaker 9: Larger issue that spreads, you're going to think more Traditionally
Speaker 9: that's going to be dollar strength.
Speaker 5: You got to jump down and gold up forty one dollars.
Speaker 2: Got a big running in the bond market too, and
Speaker 2: equities as well. Jeff, just find a question before I go.
Speaker 2: There's people watching listening to this program right now. They
Speaker 2: just want to know, can I buy the S and
Speaker 2: P five hundred and take a vacation? Is there anything
Speaker 2: to worry about between now and September.
Speaker 8: Well, you know, you never want to say take a vacation.
Speaker 9: You know, buying equities you've got some risk, but you
Speaker 9: take the totality of what the chairman went over, and
Speaker 9: this is a lot of good news. I mean, this
Speaker 9: is a chairman, basically saying without saying it, we've achieved
Speaker 9: the soft landing. That's a great outcome for the equity market,
Speaker 9: it's a great outcome for the economy.
Speaker 8: It's a great outcome.
Speaker 9: More more broadly, So I think that's the takeaway and
Speaker 9: generally that's going to be pretty supportive. I think the
Speaker 9: other thing, just to mention, obviously, you know you're not
Speaker 9: really buying the S and P five hundred.
Speaker 8: It's not the economy.
Speaker 9: It's a collection of stocks that has a very high
Speaker 9: weight to a secular technology theme. And that secular technology
Speaker 9: theme is playing out again today following Microsoft's earnings and
Speaker 9: you're seeing a bid back to Semis. So you've got
Speaker 9: like the micro story there a lot as well as
Speaker 9: the policy story, and we've got to keep that in
Speaker 9: mind when we're looking at this high frequency data, and
Speaker 9: if you're buying the S and P five hundred with
Speaker 9: a very high historical share to tech, it's really also
Speaker 9: buying into that tech story as much as it is
Speaker 9: about the macro economy.
Speaker 4: Just trying to take a vacation.
Speaker 2: Jeff, appreciate it, Jeff Rosenberg, the frank Row Jeff, thank you,
Speaker 2: deeply thoughtful stuff go into payrolls on Friday. We should
Speaker 2: share with you the numbers that we're looking for on Friday.
Speaker 2: Just another peak snap peak of the payrolls survey here
Speaker 2: at Bloomberg. The meeting estimate, it's one seventy five on Friday,
Speaker 2: the previous number two of six. Unemployment coming into focus
Speaker 2: much more for many of you, I know. So here's
Speaker 2: the estimate for unemployment four point one percent, in line
Speaker 2: with the previous number previous month of four point one percent.
Speaker 4: Lisa.
Speaker 1: And the reason why it matters that unemployment read possibly
Speaker 1: more than anything else, is because of a guest to
Speaker 1: four point two percent.
Speaker 4: It triggers a S rule.
Speaker 1: Bill Dudley talking about why that's important at that point,
Speaker 1: Historically it becomes a self reinforcing mechanism of weakness.
Speaker 5: The difference is you and I are taking vacation like
Speaker 5: eighteen hours. Pharaoh's taken eighteen days. That's the difference here.
Speaker 1: Actually, I'm missing Fridays. I'm going to be on vacation.
Speaker 1: Thank you you're missing it's on American It had to
Speaker 1: do a kid's schedule.
Speaker 4: That's a manager here.
Speaker 2: As a manager, here are I track everyone's vacation. You
Speaker 2: absolutely correct, you've both taken much more than I have. Okay,
Speaker 2: just for the bar chart of it I do at home.
Speaker 2: It's a spreadsheet I let up with the Boomberg terminal
Speaker 2: and a monochy vacation at the same time.
Speaker 1: That's productivity.
Speaker 4: Miss this, haven't we appreciate?
Speaker 2: It's going to see its TK Please, thank you, sir, Lisa,
Speaker 2: thank you, thank you. You're going to bless us with
Speaker 2: some of your criticism of the Federal Reserve tomorrow.
Speaker 4: That's the line of the press conference.
Speaker 8: That really is
Speaker 6: M m hm