Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: With your Fed decision is Mike McCaig.
Speaker 3: There is no change to interest rate. There are a
Speaker 3: number of small changes to the statement, but this is
Speaker 3: not a CU in September announcement, the FEDS forward guidance
Speaker 3: remains unchanged. Quote the Committee does not expect it will
Speaker 3: be appropriate to reduce the target range until it has
Speaker 3: gained greater confidence that inflation is moving sustainably toward two percent.
Speaker 3: There's also no change in the overall assessment that economic
Speaker 3: activity has continued to expand at a solid pace. All
Speaker 3: of the adjustments are basically to adjectives. Job gains have moderated,
Speaker 3: the statement says, instead of remains strong, Unemployment has moved
Speaker 3: up but remains low. Inflation has eased over the past
Speaker 3: year but remains somewhat element and in recent months there
Speaker 3: has been some further progress toward the two percent inflation goal.
Speaker 3: If there is a hint about the future, it's this.
Speaker 3: Instead of saying risks to employment and inflation have moved
Speaker 3: into better balance, the statement now says the Committee is
Speaker 3: attentive to the risks on both sides of its dual mandate.
Speaker 3: The decision was unanimous, and that's basically it. If there
Speaker 3: is going to be a hint about a September move,
Speaker 3: it's going to be up to Chairman Power.
Speaker 2: The two part story, Mike McKay, This was the first part.
Speaker 4: The second part starts at about twenty nine minutes with
Speaker 4: that news conference in Chairman Powell. Let's get to the
Speaker 4: equity market. We stay positive on the S and P
Speaker 4: five hundred up by about one point five percent on
Speaker 4: then that's that one hundred up by two point five
Speaker 4: in the bond market yield to look a little something
Speaker 4: like this, we've done about two basis points on a
Speaker 4: ten year the move at the front end of the curve.
Speaker 4: It's a small one, but notable, up by about two
Speaker 4: basis points on a two year at four thirty eight
Speaker 4: thirty two. I just want to get to those changes
Speaker 4: that might McKee identified. If you go back to the
Speaker 4: second paragraph of the June statement, line of that paragraph
Speaker 4: read as follows, the economic outlook is uncertain and the
Speaker 4: Committee remains highly attentive to inflation risk. If you go
Speaker 4: to the second paragraph and the last line of the
Speaker 4: statement that just dropped, the economic outlook is uncertain and
Speaker 4: the Committee is attentive to the risk to both sides
Speaker 4: of its dual mandate, and Lisa, this is the story
Speaker 4: of the dual mandate and the risks around it coming
Speaker 4: into balance. That looks like the way they formalized it
Speaker 4: this time around in the statement, and I just wonder
Speaker 4: how much the Shairman builds on that in the news
Speaker 4: conference in twenty eight minutes.
Speaker 1: I want to pick up on your point that the
Speaker 1: bond market isn't moving that much. There's only an increase
Speaker 1: of about two basis points on the front end. And
Speaker 1: that is why exactly that they recognize the risk that
Speaker 1: the labor market is one that they.
Speaker 5: Have to care about.
Speaker 1: This sets up Jackson Hole for him to come out
Speaker 1: and change the framework, and then for September to be
Speaker 1: that first rate cut. No one's changing that view based
Speaker 1: on this particular statement.
Speaker 4: The balance of risks has shifted, and you start to
Speaker 4: appear see it appear just a little bit incrementally in
Speaker 4: the statement. The decision rates unchanged. We're looking for a
Speaker 4: move still in September. To Leasa's point, we still have
Speaker 4: a news conference in front of us and Jackson holl
Speaker 4: the ann you'll get together at Jackson holl Well, I
Speaker 4: mean about a month away with us around a type
Speaker 4: on place to say. The film of fed Vice Chair,
Speaker 4: which a clamorat is with us, still with us, is
Speaker 4: about Michael jpmulgan, Asset Management.
Speaker 6: Rich.
Speaker 4: It's good to see you, sir. Let's start with you. You
Speaker 4: listen to Mike. You saw the changes in the statement.
Speaker 4: What do you make of what we just heard?
Speaker 7: Well, I'm a bit surprised, actually, I mean not with
Speaker 7: the adjectives. They needed to change some adjectives up, but
Speaker 7: I was a bit surprised about the reference to the
Speaker 7: the attuned and attentive to the balanced outlook.
Speaker 5: I mean, that's certainly correct.
Speaker 7: The chair has been making that that point, but I
Speaker 7: think it is relevant that they included it in the statement.
Speaker 7: He will certainly, I think, reinforce it in the press conference,
Speaker 7: and I think I do think it does tee up
Speaker 7: Jackson Hole.
Speaker 5: There'll be some more information before then.
Speaker 6: I look at it, and this show is the best
Speaker 6: one we've ever done. We've got Dudley with his important
Speaker 6: Bloomberg opinion piece a couple number of days ago, and
Speaker 6: I want to go to you on what you own,
Speaker 6: which is the high ground on the x anty x
Speaker 6: post debate. You've got the Economist magazine article you did
Speaker 6: a year whatever ago. You've got your January twenty twenty
Speaker 6: two context and consequence of speech. You want an ex
Speaker 6: anti aspirational FED.
Speaker 5: I don't hear that here.
Speaker 6: They're waiting.
Speaker 5: They're waiting, They're waiting, they are waiting.
Speaker 7: I think they are. They are getting greater confidence. But
Speaker 7: I think the key point not to toot my own
Speaker 7: horn is my view all on it's okay along and
Speaker 7: I think I've said so on this show, is that
Speaker 7: the pal FED really the goal is to get inflation
Speaker 7: to two points something and then they would start thinking
Speaker 7: about the next step, which would be easy, not running
Speaker 7: an easy policy, but removing restriction. So I do think
Speaker 7: this is what we're seeing, and if we do get
Speaker 7: the cut in Septembers, I think we and markets expect
Speaker 7: it will be because they expect inflation x antes to
Speaker 7: continue to fall.
Speaker 6: What are we anywhere near that? I'm sorry, this is
Speaker 6: an ex post FED. Going back to Arthur Burns, there
Speaker 6: is data dependent as I've ever seen.
Speaker 7: Yeah, they are data dependent, but I think that they
Speaker 7: attenuated and focused on the statement today emphasize there's both
Speaker 7: sides of the mandate. So I do think they're looking
Speaker 7: at just the labor market as well as the inflation data.
Speaker 5: Bob, what's your take on this.
Speaker 1: It seems like it's less dubbish, a little bit more
Speaker 1: balanced than you initially thought. Do you think this just
Speaker 1: is trying to move as incrementally as possible.
Speaker 8: I think they preserve full optionality heading into Jackson Hole.
Speaker 8: I also think that central bankers are mindful of what
Speaker 8: happened to the ECB earlier this year, where you could
Speaker 8: have made the same argument, if you're going to go
Speaker 8: next month, why not go this month? And then of
Speaker 8: course you saw what happened. So I don't see too
Speaker 8: much different than what we expected, other than they just
Speaker 8: decided to maintain the full optionality. We'll see what happens
Speaker 8: as we roll into September. We're still very much expecting
Speaker 8: twenty five basis points in September.
Speaker 4: No, doctor, if Runmack just writes in publishes with language
Speaker 4: like this, it means the Fed will have to make
Speaker 4: a more pronounced shift in language in September. I'm surprised
Speaker 4: stocks are holding up well on this statement. Perhaps equities
Speaker 4: of looking ahead to the news conference, the news conference
Speaker 4: starts in about twenty four minutes to because I to say,
Speaker 4: the FETTI is waiting for additional data. Can they even
Speaker 4: articulate why inflation might reaccelerate from here? Can we pick
Speaker 4: up on that question, Bob? Can you articulate the risk
Speaker 4: surround inflation? Why might it reaccelerate from here?
Speaker 8: Corporate profitability still looks great. We talked about S and
Speaker 8: P five hundred earnings. They're coming in ahead of expectations.
Speaker 8: You look at the guidance companies are giving you. They're
Speaker 8: up twelve percent next quarter. So we're not in a recession.
Speaker 8: We're slowing down in some parts of it.
Speaker 5: We'll see.
Speaker 8: You know, I can't find really the argument what's going
Speaker 8: to cause inflation to reaccelerate, To be.
Speaker 1: Honest, Rich, we were talking about how this was definitely
Speaker 1: going to be unanimous, and I wonder how much of
Speaker 1: wrangling of cats there is in the room and whether
Speaker 1: this is basically a representation of that that there's some
Speaker 1: members who believe that inflation has been killed, it is
Speaker 1: nowhere in sight that labor is important. And then you
Speaker 1: have others who say, well, you know, wait for the
Speaker 1: year over year, cops. Is that kind of what we're
Speaker 1: seeing here.
Speaker 5: I think it could be an element.
Speaker 7: You know, we've had some members of the committee, and
Speaker 7: I know most of these folks, but it's a different
Speaker 7: committee than the one I was on, and many of
Speaker 7: them do emphasize both sides of the duel mandate. So
Speaker 7: I'm sure that reflects a number of folks views. I
Speaker 7: do think though, this is a committee that certainly got
Speaker 7: burned earlier in this year because the inflation data went
Speaker 7: the wrong way, and to their credit, they became very
Speaker 7: data dependent, as Tom indicated. I think that they put
Speaker 7: it this way. I think they think they're going to
Speaker 7: go in September. There is a range of data where
Speaker 7: they wouldn't, but I think it's a pretty small range,
Speaker 7: and I think that's really the balance of trying to strike.
Speaker 7: And I think we'll hear that in the press conference.
Speaker 1: We were speaking earlier with James Bullard formally Saint Louis
Speaker 1: fed and he was talking about how he always raised
Speaker 1: the question at meetings that if you wanted to cut rates,
Speaker 1: most certainly at the next meeting, why not cut him now.
Speaker 1: Bob was sort of discussing that earlier, and it sets
Speaker 1: up the sort of difficult period of time where every
Speaker 1: data point could potentially upset the apple cart if it
Speaker 1: doesn't comply. Do you think that they're in that zone
Speaker 1: right now?
Speaker 5: I don't really.
Speaker 7: I mean I've certainly during my time on the committee
Speaker 7: we found ourselves there a couple of times, so it
Speaker 7: can happen. I think the data we have gotten, you know,
Speaker 7: the chair did a lot of communication before blackout, and
Speaker 7: the data since then has reinforced that view. So I
Speaker 7: think there's a pretty wide range of data where they'll
Speaker 7: feel comfortable going in September.
Speaker 5: So I don't think they're in that danger zone.
Speaker 4: Can you confind that Jim actually set those things to
Speaker 4: the fmcs?
Speaker 7: Well, of course I would never reveal what was said
Speaker 7: in an fm C me except what I say, all
Speaker 7: the brilliant things I said.
Speaker 4: So Don Swage joins us now from KPMG, alongside form
Speaker 4: of FET vice chair Rich Cloud above Michael F JP
Speaker 4: Morgan done. I want to get into this statement that
Speaker 4: came out about eight minutes ago. What do you make
Speaker 4: of it? The incremental changes and when you're looking for
Speaker 4: something bigger, I wasn't.
Speaker 9: Looking for anything bigger, and I think one of the
Speaker 9: key issues here is we saw Powell talk about in
Speaker 9: his congressional testimony when pushed on the Jewel mandate. He said, listen,
Speaker 9: this is the thing that keeps me up awake at night.
Speaker 9: The number one thing that keeps me awake at night
Speaker 9: is that overshooting, the overtightening. So that is in there,
Speaker 9: and that is what opens the door a crack, not
Speaker 9: wide open, which is what we expected for September. And
Speaker 9: I do think they do think they're going to move
Speaker 9: in September, and I agree wholeheartedly with rich on this.
Speaker 9: I think the other issue is there's sort of this
Speaker 9: tale of two economies we're seeing and merge out there,
Speaker 9: the one that's in the household survey that's close to
Speaker 9: but not yet triggered the PSALM rule, which is what
Speaker 9: got Bill Dudley up in arms, and how weak employment
Speaker 9: has been in the household survey and the establishment survey,
Speaker 9: the GDP data, other jobs data that suggests the economy
Speaker 9: is still on solid footing. And right now the Fed
Speaker 9: has been opting into more of that establishment survey, where
Speaker 9: payrolls have held up, although that they're not quite as
Speaker 9: strong as they've been. We're going to get probably some
Speaker 9: good public sector hiring in the jobs numbers on Friday again,
Speaker 9: which will help boy those overall numbers adding to some
Speaker 9: weakness in the private sector. But I think that's important
Speaker 9: is that the FED is looking at this and their
Speaker 9: wane which is the right stuff.
Speaker 5: And you really getting.
Speaker 9: To Rich's point too. There isn't just one piece of
Speaker 9: data that the market keeps looking for that could tip
Speaker 9: the apple cart. The FED is looking at the totality
Speaker 9: of the data, and that last line really gets to
Speaker 9: that point. The totality of the data will allow them
Speaker 9: to go in September, and they don't want to make
Speaker 9: the same mistake the ECB made move and then have
Speaker 9: to freeze and be in a purgatory. Their credibility is
Speaker 9: at stake. They want to make sure inflation is coming down.
Speaker 5: But I agree with Rich.
Speaker 9: They'll still cut before inflation reaches it's two percent target,
Speaker 9: anticipating that the economy by lifting off that restriction, the
Speaker 9: economy will get there.
Speaker 6: We have swank and clarity with us. Bob Michael, maybe
Speaker 6: a question for you on the economics of the moment.
Speaker 6: Are we slaves to measure we have measured for decades.
Speaker 6: We're being very measured, where maybe other central banks aren't.
Speaker 6: Are we just just so afraid to move and we're
Speaker 6: over careful, over cautious, because once we move, we've got
Speaker 6: to move in a measured vector.
Speaker 8: I feel like we're back to the green span FED,
Speaker 8: where every word is so carefully thought out it makes
Speaker 8: you want to overanalyze it and no one can give
Speaker 8: an inch. If the wrong word is in there, then
Speaker 8: the FOMA gets concerned about the market pricing and hundreds
Speaker 8: of basis points of rate cuts and risk assets being
Speaker 8: up tentskers. Okay, please, but we're talking about and rich
Speaker 8: touched on it. We're in I think, very restrictive range
Speaker 8: twenty five basis points. You're not in a loose monetary
Speaker 8: world with money flooding all over the place. You're still restrictive.
Speaker 8: You've got to start that journey somehore.
Speaker 6: This is too important, Lawrence Meyer, Washington University. Is some
Speaker 6: monograph a term at the FED to our green span
Speaker 6: apart that it was a dictatorship? Are we getting to
Speaker 6: the point now no one can dissent and everyone's measured
Speaker 6: because we're measured and appropriate.
Speaker 7: No, I think no one has descended because two years
Speaker 7: ago inflation was too damn high and they all agree
Speaker 7: they wanted to get it lower. It'll get more interesting
Speaker 7: as we get close. But what I want to say
Speaker 7: to invoke the Olympics, now, this is a FED that
Speaker 7: really wants to stick the landing. You know, they won't
Speaker 7: say this word, but their projection and what we're seeing
Speaker 7: in Bloomberg Consensus and elsewhere is a soft landing and
Speaker 7: they want to stick it. And you know, the data
Speaker 7: is now solid, is moving in the right direction, and
Speaker 7: so you know, getting back to the Green Span FED,
Speaker 7: there was a soft landing or so in those years,
Speaker 7: Alan Blinder is written. They're not common, but we do
Speaker 7: see them. I think towards in twenty nineteen. I think
Speaker 7: the Palfed got a soft landing. We don't see it
Speaker 7: in the data because we got the pandemic. The Ecomomie
Speaker 7: looked pretty good in January.
Speaker 5: Of twenty twenty. So they're trying to stick the soft landing.
Speaker 8: Forget about sticking the landing, Let's just throw them in
Speaker 8: the seine the waters.
Speaker 1: Thought there's another there's another analogy. Matt Hornback puts this
Speaker 1: out earlier, and I'd love your thoughts on this, Diane. Basically,
Speaker 1: the Olympic motto to carry on with this reads faster, higher,
Speaker 1: stronger together could have been used to talk about central
Speaker 1: banks globally altogether. Now it might be at more opper, boat, slower, lower,
Speaker 1: weaker together. Diane, how much is that looming over this
Speaker 1: FED meeting? The idea not of synchronized swimming or synchronized
Speaker 1: rate cuts, but this idea of trying to sort of
Speaker 1: take an edge off for the rest of the world.
Speaker 1: That really does seem to be dealing a little bit
Speaker 1: more with some negative growth.
Speaker 9: I don't think that's the fed's main concern, and I'm
Speaker 9: sure rich will backed me up on that. I remember
Speaker 9: seeing Ben Bernaki actually go after another central banker said
Speaker 9: you guys need to change your policy to help us out,
Speaker 9: and he said that's not our problem, basically at a
Speaker 9: Jackson Hole meetings. So that is not the fed's primary concern.
Speaker 9: That said, a strong galer helps us out down the
Speaker 9: road and keeping goods prices lower, so that helps the
Speaker 9: FED out. I think what's more important here in terms
Speaker 9: of the Olympic analogies, is that the road to gold
Speaker 9: is often paved with tears and obstacles, and I think
Speaker 9: people forget that. I'm thinking of Simone Biles here.
Speaker 5: I'm sorry.
Speaker 9: She's my hero and heroin at this point in time.
Speaker 9: But I'm thinking about, you know, soft landings. People forget
Speaker 9: the nineteen ninety four ninety five situation. It looks great
Speaker 9: on paper. I lived it.
Speaker 5: I remember it rich. You lived it too.
Speaker 9: It was ugly at the time. Chairman Greenspan's reappointment as
Speaker 9: his third term as FED chair was held up for
Speaker 9: four months in nineteen ninety six because he nearly crashed
Speaker 9: the economy in nineteen ninety five and people were so
Speaker 9: angry at him for not easying sooner. And it was
Speaker 9: his own colleagues, including Jennet Yellentt on the FED that
Speaker 9: got him to experiment with pro activity, growth and intense
Speaker 9: form competition that bringing down inflation and allowing the unemployment
Speaker 9: rate to fall instead of using monetary policy.
Speaker 5: To do it.
Speaker 9: That is really important to remember is that soft landings
Speaker 9: are not easy. They look good on paper, but getting
Speaker 9: there can be a hard path.
Speaker 4: Dan, Where does the confidence come? Where does it come from?
Speaker 4: The unemployment stabilizes at these levels and doesn't carry on
Speaker 4: shifting higher into year end?
Speaker 2: What underpends that?
Speaker 9: Well? I think I don't know if unemployment is going
Speaker 9: to stay there or not. It often moves up slowly
Speaker 9: and then moves up rapidly. Alls I know is that
Speaker 9: even Claudia sam who wants to FED to cut right now,
Speaker 9: has argue to her own rule might not be applicable
Speaker 9: in the post pandemic economy because of all the changes
Speaker 9: we've seen. We've seen much of the rise in unemployment
Speaker 9: has come from more people seeking jobs, an increase in
Speaker 9: the participation rately among primate workers. We've seen an influx
Speaker 9: of foreign workers, foreign born workers accounting for over seventy
Speaker 9: percent of the growth and civilian labor force since Februar
Speaker 9: of twenty twenty. That's helped to buoy the unemployment rate
Speaker 9: as opposed to a surge in layoffs. That doesn't mean
Speaker 9: there aren't stresses in the labor market. That doesn't mean
Speaker 9: there aren't still problems. But at the end of the day,
Speaker 9: what is it that people complain most about. They can
Speaker 9: complain most about the high level of prices still, and
Speaker 9: that's something that the FED also has to keep in
Speaker 9: front of its mind. And I think that's where we're
Speaker 9: at at the end of the day. We don't want
Speaker 9: to lose this and not hit that soft landing, but
Speaker 9: it's a rocky road to get there. I think we're
Speaker 9: still going to make it, given the fact that we
Speaker 9: saw the positive of consumers pushed back in the second
Speaker 9: quarter on price hikes, and retailers and producers capitulated.
Speaker 5: They rolled back.
Speaker 9: Prices on goods, and we saw a rebound in growth,
Speaker 9: doubling the pace of the first quarter, driven in large
Speaker 9: part by a rebound in consumer spending. That's the Goldilock
Speaker 9: scenario towards a soft landing.
Speaker 1: There's this issue, Bob. We're looking at market pricing, and
Speaker 1: right now it seems like this is consensus that they
Speaker 1: are going to land the soft landing, even though it
Speaker 1: is sort of a rarity or a white elephant. Do
Speaker 1: you think that the market has overpriced that soft landing
Speaker 1: or even underpriced it because the internal skepticism just keeps.
Speaker 8: On roaring Now, I think the markets are right on
Speaker 8: track with the soft landing, and if it in fact happens,
Speaker 8: the FED can bring down rates a fair amount and
Speaker 8: the markets will continue to appreciate. I think what's different
Speaker 8: this time is the FED and investors have a lot
Speaker 8: more real time information. I was around in ninety four
Speaker 8: ninety five. I was around in eighty one and you
Speaker 8: didn't have that information, and now you have it. It's
Speaker 8: real time, it's live. You can see what's going on.
Speaker 8: Businesses have it, households have it. And maybe it gives
Speaker 8: policymakers a false sense of comfort, but they have that
Speaker 8: sense of comfort, which.
Speaker 1: Really kind of leaves the market kind of in the way,
Speaker 1: sort of in the same boat that the FED is in.
Speaker 1: And I wonder, rich you know, if you were still
Speaker 1: on the Fed, how much the FED looks at the
Speaker 1: market to kind of gauge progress sort of follows them,
Speaker 1: if you will, because they are gauging real time data.
Speaker 1: And if anything, this is the collective will. And I
Speaker 1: love the war stories from the mid nineteen fifties for everybody,
Speaker 1: but I wonder if you know, if that's something that
Speaker 1: they could really kind of sink their teeth into.
Speaker 7: Oh sure, well, I mean, I'll just speak for myself.
Speaker 7: But you're looking at the market hopefully to try to
Speaker 7: extract signal.
Speaker 5: There's always noise.
Speaker 7: You have to be honest with yourself, but it's particularly
Speaker 7: irrelevant for things like the growth outlook and the inflation outlook.
Speaker 5: You need to know what is being expected.
Speaker 7: That's a key input to monetary policy, our expectations. I
Speaker 7: gave one of my speeches at the FED was on
Speaker 7: this point avoiding the hall of mirror problems by looking
Speaker 7: at market prices. So I'm not saying it it's easy,
Speaker 7: but I don't think there's an alternative.
Speaker 4: I want to cross back over Todayne Dan, I know
Speaker 4: you've got to go in a second. Just a quick
Speaker 4: final word a question for Chairman Powell in this news conference, Dan,
Speaker 4: what will it be?
Speaker 9: Well, this is on communication, so I think it's going
Speaker 9: to be very hard for the FED to communicate. We're
Speaker 9: already seen financial markets are trying to front run the
Speaker 9: FED on a larger cut in September. How do they
Speaker 9: calibrate their communications to deal with what may be more
Speaker 9: measured cuts?
Speaker 2: Interesting?
Speaker 4: Dan, Thank you as always, Dan Swamklair of KPMG. If
Speaker 4: you are just joining us, welcome to the program. The
Speaker 4: FED decision came out about twenty minutes ago, unchanged on
Speaker 4: interest rates and the statement largely unchanged as well, just
Speaker 4: some incremental changes. So the focus on the news conference now,
Speaker 4: which starts at about ten minutes time with us joining
Speaker 4: us now, and please to say as Mike Capen of
Speaker 4: Bank for America, Michael, going into this news conference, very
Speaker 4: incremental changes in that statement. Were you expecting more than
Speaker 4: what they delivered?
Speaker 10: No, I wasn't. I think with the strong growth numbers
Speaker 10: we receive, the right place for them to make adjustments
Speaker 10: is exactly where they did. Reflect it a little bit
Speaker 10: in cooling labor market conditions, reflect a little bit more
Speaker 10: progress on inflation, kind of pin down and nail down
Speaker 10: that balance of risks argument, because that's what the share
Speaker 10: had said in front of Congress. So I think this
Speaker 10: was the right incremental move. I think the Fed feels
Speaker 10: that it's in a sweet spot right now that the
Speaker 10: data is moving in its direction, so it's getting closer.
Speaker 10: It just needs a little bit more and then that confidence,
Speaker 10: that nebulous confidence may be there. So this is what
Speaker 10: we were expecting. We weren't expecting a big lean in
Speaker 10: either direction from the statement.
Speaker 4: The market, as you know, Mike, has been looking for
Speaker 4: September at a baby step towards that you and a
Speaker 4: team have been looking for December. What separates you at
Speaker 4: the moment, Michael, the data that backs up your view.
Speaker 4: What separates you from the rest of the street at
Speaker 4: the moment.
Speaker 10: Well, I'd say we have less concern about downside risk
Speaker 10: to the economy. We certainly are watching for it and
Speaker 10: looking out for that. We may be wrong on this view,
Speaker 10: but the economy grew at a pretty solid pace in
Speaker 10: the second quarter, and yes, things are moderating and cooling,
Speaker 10: but I still think that there's a lot of resilience
Speaker 10: to both the economy and labor markets. And we'll see.
Speaker 10: Maybe there's a little unevenness in this inflation story, but
Speaker 10: certainly September, a September cut has moved a lot closer
Speaker 10: to our baseline. So, yeah, we're still in December, but
Speaker 10: we've got two employment reports and two inflation reports between
Speaker 10: now and now, and then you know, further progress in
Speaker 10: those two variables, a little bit weaker employment, kind of
Speaker 10: repeats of what we just saw in June inflation that
Speaker 10: could easily put a cut on the table in September.
Speaker 10: So September can happen, but it may not. So I
Speaker 10: think that's how i'd frame it right now, Michael.
Speaker 1: Let's just put a bow on this. What does further
Speaker 1: progress look like to you? In the two labor market reports,
Speaker 1: the toy flation reads that we get until the next meeting.
Speaker 10: Well, I think the labor market report is maybe a
Speaker 10: little more asymmetric. You know, a strong report's probably not
Speaker 10: going to prevent them from cutting, but obviously a week
Speaker 10: one could. So if they feel the labor market is
Speaker 10: softening more than they expect, they could go in that regard. Otherwise,
Speaker 10: I think to your earlier question of what's going to
Speaker 10: cause inflation to rise, I can't see it, I agree,
Speaker 10: But I don't think what they can rule out right
Speaker 10: now is that inflation settles in at a level that
Speaker 10: feels a little uncomfortable for them. So I think, on
Speaker 10: the margin, a little more evidence that no, we're not
Speaker 10: going to get stuck with say core PCE in the
Speaker 10: high twos. It does look like it's moving lower. So
Speaker 10: one or two more reports that give them confidence about that,
Speaker 10: then I think is probably enough.
Speaker 4: Speaking of discomfort, we know a topic they're uncomfortable with,
Speaker 4: and that's politics, and it comes up in this news conference.
Speaker 2: We know what Chairman Power is going to do. He's
Speaker 2: going to ignore it.
Speaker 4: But there was a less sent to him by Senator
Speaker 4: Warren Company and TK there's a quote in this let's
Speaker 4: say the immediate press release read as follows, the failure
Speaker 4: to cut rates would indicate that the FED is giving
Speaker 4: into bullying and it's putting political considerations ahead of its
Speaker 4: jull mandate to promote maximum employment and stable prices. So
Speaker 4: you've got the Republicans saying, if you cut rights, it's political,
Speaker 4: and you've got the Democrats saying, if you don't cut rights,
Speaker 4: it's political. Sort of stuck in a rock and hard
Speaker 4: place between the boat.
Speaker 6: And what's important here, John, it's so so important is
Speaker 6: that Richard Claret is one of the people that bought
Speaker 6: history back to economics with his work at Columbia. I
Speaker 6: sat at the FED with you in that magnificent library
Speaker 6: of first editions, and Elizabeth Warren reached down and said,
Speaker 6: take the book off the shelf. And I took Torsten
Speaker 6: Veblin The Theory of the Leisure Class off the shelf,
Speaker 6: and you and I were talking about it. This is
Speaker 6: a few years back. That's what Senator Warren's talking about
Speaker 6: is the Gilded Age. Are we in a gilded age
Speaker 6: where the elites are talking only to the fancy people
Speaker 6: and indirectly doing monetary policy only for the fans see people?
Speaker 7: Well, no, And in one word, I think you know
Speaker 7: the FED has the dual mandate, inflation was too high.
Speaker 5: They're focused on both sides.
Speaker 7: I think the economies in a place where it can
Speaker 7: certainly adjust and wait another two months until the cuts command.
Speaker 5: So I would push back on that.
Speaker 4: Mike Cap, you push back, just how relevant is the
Speaker 4: US selection and US politics?
Speaker 10: Well, the way I would frame this, and I think
Speaker 10: Rich would agree. I was formerly on staff at the board,
Speaker 10: and I learned quickly that no matter what you do
Speaker 10: or don't do, somebody is going to be upset, and
Speaker 10: one side will complain or the other will complain. So
Speaker 10: I think you learned quickly the best thing to do
Speaker 10: is to do what you think is right. So I
Speaker 10: would put it at that. So they have competing opinions here,
Speaker 10: the right thing to do is to do what they
Speaker 10: feels right.
Speaker 4: Michael finished with the same question I finished with Diane
Speaker 4: Swamp questions for the chairman. If Michael McKay's listening going
Speaker 4: into this news conference, what's the number one question for you?
Speaker 10: Well, the chair is said that they could ease if
Speaker 10: there's unexpected weakness in the labor market, which is actual
Speaker 10: data that comes in below their expectation. But what about
Speaker 10: preemptive using on the risk of labor market weakening. I
Speaker 10: think that might get the gap between market pricing and
Speaker 10: what the Fed thinks that will deliver.
Speaker 4: Mike Gapin, Thank you, sir, Michael Gapin there Bank for America.
Speaker 4: The news conference about five minutes away.
Speaker 2: But there is a.
Speaker 4: Question here about what kind of interest rate it would
Speaker 4: be when we get one, if we get one in September.
Speaker 4: Is it a risk management decision? Is it a mid
Speaker 4: cycle adjustment the beginning of something much bigger than that?
Speaker 4: Do you think they have to frame it at this point?
Speaker 4: Do they think they have to characterize what it might be?
Speaker 8: I think they do, and I think they'd like it
Speaker 8: to be part of the normalization process. That they've achieved
Speaker 8: their targets on both sides of their dual mandate, and
Speaker 8: they could start to bring down what is a restrictive policy.
Speaker 6: Michael Gabin echoed your speech of January two twenty two.
Speaker 6: It's about ex ante aspiration. I don't want you to
Speaker 6: voice for the chairman. I know that's inappropriate, but how
Speaker 6: does he voice the aspiration of getting out front here
Speaker 6: in six seven minutes?
Speaker 7: Well, I think he'll stick to the mandate and he'll
Speaker 7: stick to documenting the progress, and again he won't use
Speaker 7: the word soft landing, although that's I think what they're
Speaker 7: trying to, what they're trying to achieve, and I think
Speaker 7: Governor Waller's done a very effective job as many speeches
Speaker 7: in making the point that they have time because the
Speaker 7: data is holding up quite well. You know, it was
Speaker 7: a very bold call a couple of years ago for
Speaker 7: Waller to say we can disinflate without this huge pain
Speaker 7: in the labor market. I think they were prepared to
Speaker 7: take it if it was required. It hasn't happened, So
Speaker 7: now I think they're even more focused on the soft landing,
Speaker 7: and I do think they do want to avoid a
Speaker 7: premature declaration of mission accomplished, because even if underlying inflations
Speaker 7: are going to target, there's always noise in the data,
Speaker 7: and two or three months of noise in the wrong
Speaker 7: side is a bit uncomfortable.
Speaker 1: Rich there's this feeling baked into markets that Vecho J.
Speaker 1: Powell is much more dubvish than the statement might suggest.
Speaker 1: Are you expecting that tone to kind of come out
Speaker 1: in the news conference?
Speaker 5: Interesting?
Speaker 7: You know, we heard a lot from Chair Powell at
Speaker 7: CenTra on Capitol Hill, sitting down at the Economic.
Speaker 5: Club of DC. I've gone through and looked at that.
Speaker 7: I would actually expect him to stick pretty close to
Speaker 7: that which which was very balanced, not declaring victory but
Speaker 7: acknowledging progress, emphasizing, as the statement does today, that they
Speaker 7: are really attuned and attentive to both sides of.
Speaker 5: The duel mandate. You know.
Speaker 7: So there are some times where I think the press
Speaker 7: conference is really the chair using a lot of this
Speaker 7: is what I think. I think we'll hear a lot
Speaker 7: of this is what we think today. The Committee's pretty
Speaker 7: tight tightly aligned on where they are.
Speaker 1: Bob, what are you listening for today?
Speaker 8: I actually think he will come out a bit more dubbish.
Speaker 8: I think that's the way he's rolled the last several meetings.
Speaker 8: He's surprised us by deviating from the script and indicating that, yeah,
Speaker 8: you know, he could see rate cuts on the horizon.
Speaker 8: I can't take my eyes off of the last sentence
Speaker 8: in the second paragraph, where the committee is attentive to
Speaker 8: the risk of both sides of its dual mandate. I
Speaker 8: got what I wanted at least, which is acknowledgement of
Speaker 8: risks in the labor market. The more I look at that,
Speaker 8: the more it's clear to me that they're going in September.
Speaker 8: If I were Mike McKee, a lot of people try
Speaker 8: to press the Fed on what their neutral long term
Speaker 8: rate is, I would ask him, at what level is
Speaker 8: the FED funds rate no longer restrictive?
Speaker 2: Do you think they can answer that?
Speaker 5: Rich Well, I think they won't answer that.
Speaker 7: I think they have, and this is one of their
Speaker 7: probably nineteen different opinions on the committee. One thing I'll
Speaker 7: say a little bit is right now, as I look
Speaker 7: at my Bloomberg screen or I did twenty five minutes ago,
Speaker 7: September was more than one hundred percent priced. And even
Speaker 7: I wouldn't say it's one hundred percent. There are there's
Speaker 7: data we could get between now and then that where
Speaker 7: they might not go. So that's why I skeel a
Speaker 7: little bit to being a little bit more balanced than
Speaker 7: maybe Dubvish.
Speaker 5: But you know, we'll find out.
Speaker 4: I'm pleasing you brought up Central Portugal because I think
Speaker 4: it's really important to reflect on the comments from chem
Speaker 4: and Power back in Central Portugal at the ECPs, and
Speaker 4: you'll get together. Chem and Power was talking about the
Speaker 4: strength of the labor market and the strength of the
Speaker 4: labor market being a reason for them to wait, that
Speaker 4: they have time, they can wait and see a few
Speaker 4: more months of data.
Speaker 2: Maybe.
Speaker 4: And it's his characterization again in this news conference of
Speaker 4: the labor market that I think is matters. Off the
Speaker 4: back of that incremental change in the statement that you're
Speaker 4: all picking up on around the table, that last line
Speaker 4: of the second paragraph. You've seen this incrementally in the
Speaker 4: FED speeches over the last few weeks, lease of the
Speaker 4: last month. They've placing greater emphasis on the other side
Speaker 4: of the mandate in a way that it wasn't even
Speaker 4: part of the conversation a year or so ago. Think
Speaker 4: about where we've come from two years ago. Jackson Hole,
Speaker 4: August twenty twenty two, Pain pain to get inflation down.
Speaker 4: The focus was getting inflation down. You can start to
Speaker 4: hear the focus shifting to the labor market.