WEBVTT - Fed Makes Second Straight Rate Cut, Splits on Further Action 0:00:00.560 --> 0:00:03.040 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:03.120 --> 0:00:05.600 Jason Kelly. We're here every day bringing you the latest 0:00:05.640 --> 0:00:09.880 news from the world's of business and finance, plus technology, politics, economics, 0:00:09.960 --> 0:00:13.560 all harnessing the power of Bloomberg Business Week reporters and editors, 0:00:13.600 --> 0:00:16.640 not to mention our hundred journalists and analysts and more 0:00:16.640 --> 0:00:19.120 than a hundred and twenty countries. You can download Bloomberg 0:00:19.120 --> 0:00:22.160 Business Week on iTunes, SoundCloud, or Bloomberg dot Com. You 0:00:22.160 --> 0:00:24.280 can also listen to our radio show weekdays at two 0:00:24.320 --> 0:00:27.319 pm Eastern only on Bloomberg Radio. Let's bring in our team, 0:00:27.360 --> 0:00:30.880 make some analysis and some thoughts on that latest FED decision. 0:00:30.920 --> 0:00:33.839 Kathleen Hayes, Global Economics and Policy editor at Bloomberg News. 0:00:33.960 --> 0:00:37.000 Right next to me in our Bloomberg Interactive Broker studio 0:00:37.479 --> 0:00:40.159 and along with us is Dave Wilson, Stocks Editor at 0:00:40.159 --> 0:00:42.800 Bloomberg News, also in our New York studio. Kathleen, let's 0:00:42.800 --> 0:00:45.919 start with you. Widely expected uh we got to uh 0:00:46.159 --> 0:00:49.080 FED lowering it's interest raced by a quarter of a point, 0:00:49.120 --> 0:00:51.760 also lowering it's right on overnight reverse repos by thirty 0:00:51.800 --> 0:00:55.280 basis points. As somebody said, not an enormous surprise for 0:00:55.280 --> 0:00:57.280 the markets. Bonds and the dollar move more than stocks, 0:00:57.280 --> 0:00:59.640 but there is no fireworks to report yet. And that 0:00:59.720 --> 0:01:02.400 makes from j Palis press contin what stands out for 0:01:02.440 --> 0:01:05.200 you well that this is basically what was expected. I 0:01:05.240 --> 0:01:08.360 think anybody who was previewing the FED on radio or 0:01:08.440 --> 0:01:10.600 television in the last twenty four hours was saying, yes, 0:01:11.080 --> 0:01:14.800 basis point cut baked in the cake. Uh. The descents 0:01:14.880 --> 0:01:18.199 by Esther George Present president of Kansas City FED, Eric Rosen, 0:01:18.240 --> 0:01:20.680 Grand President of Boston FED dissenting because they don't think 0:01:20.680 --> 0:01:23.360 a rate cut is needed exactly what happened in July 0:01:23.959 --> 0:01:26.800 also seemed to me and many others that Jim Bullard, 0:01:26.840 --> 0:01:29.880 he who recently argued for a fifty basis point rate cut, 0:01:30.080 --> 0:01:33.399 he dissented in favor of that. Uh. The cutting the 0:01:33.480 --> 0:01:37.039 interest on excess reserves will put more reserves into the 0:01:37.160 --> 0:01:39.720 system because the banks will have less incentive to put 0:01:39.760 --> 0:01:41.720 their reserves at the FED. The lord the rate is 0:01:41.720 --> 0:01:44.039 and they whole and people also were looking for something 0:01:44.080 --> 0:01:46.840 ten to fifteen, maybe the thirty basis points. So that 0:01:46.840 --> 0:01:49.640 should then take pressure off the repo rate. It should 0:01:49.640 --> 0:01:51.880 help people effective funds rate where the FED wants it again, 0:01:51.920 --> 0:01:54.240 that was pretty much expected. I don't and that. So 0:01:54.320 --> 0:01:56.560 this is now the fourth time they've been doing this 0:01:56.800 --> 0:01:59.200 since about the last year and a half. And this 0:01:59.280 --> 0:02:01.320 was also much bigger move in the past when they've 0:02:01.520 --> 0:02:04.080 tweaked that, when they've lowered the interest rate on excess 0:02:04.080 --> 0:02:06.200 reserves to make sure it stays below the FED funds 0:02:06.240 --> 0:02:08.639 rate and puts the reserves into keep the effective funds 0:02:08.720 --> 0:02:10.560 rate from getting too high, it's only been like a 0:02:10.600 --> 0:02:13.000 five basis point move five or ten. So this is 0:02:13.040 --> 0:02:15.600 a more aggressive move, and surely J. Powe is going 0:02:15.680 --> 0:02:17.680 to get so asked so many questions about this starting 0:02:17.680 --> 0:02:19.240 about a half an hour from now. What about the 0:02:19.240 --> 0:02:21.720 FED dot plot because I'm looking at it in terms 0:02:21.720 --> 0:02:23.239 of what we might see, because I think that was 0:02:23.240 --> 0:02:25.519 also very key, Right we got an update on this 0:02:25.639 --> 0:02:28.400 and what the expectations are, because I feel like the 0:02:28.440 --> 0:02:32.520 market expectations are pretty aggressive for more rate cuts to come. 0:02:32.639 --> 0:02:37.440 So it looks like one eight seven five percent um. 0:02:37.440 --> 0:02:43.079 The prior was two point three, same number prior was 0:02:43.160 --> 0:02:46.120 above that, So it looks like raining it in, pulling 0:02:46.160 --> 0:02:48.480 him in. But you tell me in terms of I'm 0:02:48.520 --> 0:02:50.440 trying to kick I'm trying to read really quickly and 0:02:50.440 --> 0:02:53.080 get a better look at the dot plots themselves, because 0:02:53.120 --> 0:02:55.280 it seems to me that there there may be a 0:02:55.360 --> 0:02:59.240 little more generous move here. But um, it's just this 0:02:59.280 --> 0:03:03.600 is one of the most hortant parts the boy. That's okay, 0:03:03.840 --> 0:03:05.520 check that out, because in the meantime, I want to 0:03:05.560 --> 0:03:07.560 take a look at the equity markets, because we did 0:03:07.600 --> 0:03:11.760 see equity losses steep and initially we're bouncing back off 0:03:11.760 --> 0:03:14.720 there's lows. But SNP was down about eight heading into 0:03:14.720 --> 0:03:16.960 the FED decision, now down about twelve. Dad was off 0:03:16.960 --> 0:03:19.720 about fifty eight points, now down about eighty six points, 0:03:19.960 --> 0:03:22.400 and the nastack was showing about a loss of forty 0:03:22.400 --> 0:03:26.280 four going into that rate decision. It's now down about 0:03:26.280 --> 0:03:29.359 fifty eight points, but it did dip even lower Dave. 0:03:29.440 --> 0:03:31.639 So we did see an initial reaction. Yeah, I mean 0:03:31.680 --> 0:03:36.320 you've you've seen some volatility really the spind of bouncing 0:03:36.320 --> 0:03:39.080 around a bit, though it's settled in at lower levels 0:03:39.200 --> 0:03:43.000 roughly where it was before the decision came out. And 0:03:43.240 --> 0:03:46.080 why would the reaction be what it is? Probably as 0:03:46.120 --> 0:03:48.440 much as anything, because you know, there seems to be 0:03:48.440 --> 0:03:52.160 a split along the you know, fed governors about what 0:03:52.200 --> 0:03:54.120 do you do from here and the need for more 0:03:54.160 --> 0:03:58.120 e absolutely, and that really becomes the question because you 0:03:58.120 --> 0:04:00.720 know you've got people in the markets looking for multiple 0:04:00.840 --> 0:04:03.240 rate cuts and with that two of them, but you 0:04:03.320 --> 0:04:06.560 know that they're anticipating that you were possibly get two 0:04:06.560 --> 0:04:08.800 more or three and more depending on who you pay 0:04:08.840 --> 0:04:12.120 attention to. So really it's it's that that kind of 0:04:12.200 --> 0:04:15.040 jumps out coming off our news desk here. Uh No 0:04:15.120 --> 0:04:17.000 surprising on the main action, but the dot plot of 0:04:17.080 --> 0:04:19.240 rate forecast, just to kind of layer on what Dave 0:04:19.320 --> 0:04:21.800 just said, is somewhat hawk is showing a split over 0:04:21.839 --> 0:04:24.040 the need for more easy not just in twenty nineteen, 0:04:24.040 --> 0:04:28.320 but in coming year. Seven officials see an end nineteen 0:04:28.320 --> 0:04:30.880 funds rate of one point six to five percent, with 0:04:31.000 --> 0:04:34.480 five at one point seven, five at two point one 0:04:34.680 --> 0:04:37.560 five percent, None see the rate going below one point 0:04:37.600 --> 0:04:41.200 six too. What's a lot of numbers. I just tho, yeah, 0:04:41.279 --> 0:04:43.080 I think what I think that's significant. First of all, 0:04:43.120 --> 0:04:45.159 this is what people expected that you might get what 0:04:45.240 --> 0:04:48.200 they would call a hawk ish cut, because if there's 0:04:48.240 --> 0:04:50.960 not a big move towards yes, we do need uh 0:04:51.040 --> 0:04:53.120 two or three more rate cuts this year. We need 0:04:53.160 --> 0:04:55.640 more next year, and you're right, we're not really seeing that. 0:04:55.680 --> 0:04:59.120 But it looks to me like actually for nineteen you 0:04:59.240 --> 0:05:04.000 now of you still have what about five who don't 0:05:04.000 --> 0:05:07.880 see anymore cuts, and then you have five holding steady, 0:05:07.960 --> 0:05:11.080 and then you still have about seven who are looking 0:05:11.120 --> 0:05:15.640 for another cut or so, and then um, there's just 0:05:15.680 --> 0:05:18.200 a division on the committee certainly this year and next year. 0:05:18.320 --> 0:05:20.360 And I can only imagine the heated debate, right, going 0:05:20.400 --> 0:05:22.479 back and forth. Well, and as someone a former FUNE 0:05:22.480 --> 0:05:24.040 official was telling me in the last twenty four hours, 0:05:24.040 --> 0:05:25.560 you know, and when a heated debate just means you 0:05:25.720 --> 0:05:29.359 very calmly state your case, voices, don't raise but he 0:05:29.640 --> 0:05:32.920 always and look at this a big difference. First of all, 0:05:32.920 --> 0:05:35.359 look at the recent data. The recent data has not 0:05:35.520 --> 0:05:38.839 been super weak, right, You've still got very weak investment, 0:05:38.880 --> 0:05:41.240 you still got trade war concerns. Manufacturing. I s M 0:05:41.279 --> 0:05:44.400 did flow Paul blow fifty contraction for the first day 0:05:44.520 --> 0:05:46.640 high since two thousand seven. We got that data to 0:05:46.800 --> 0:05:49.480 that that came out today. So I think that for 0:05:49.480 --> 0:05:52.280 for the bolster, the case for weight and see we're 0:05:52.279 --> 0:05:54.440 making a cut, let's see what happens next. And one 0:05:54.440 --> 0:05:55.680 more thing, let me say quickly because I want to 0:05:55.680 --> 0:05:58.280 hear what Dave thinks about this too. The dots are 0:05:58.320 --> 0:06:01.560 a snapshot of a point in time. If there's a 0:06:01.600 --> 0:06:04.159 big shift in the economy stronger or weaker. At the 0:06:04.240 --> 0:06:08.120 next time they update the Summary of Economic Projections in January, 0:06:08.240 --> 0:06:10.560 you could see a very different view of where they 0:06:10.600 --> 0:06:12.719 think rates are heading. They will tell you this is 0:06:12.760 --> 0:06:16.320 not it's not a forecast. It's based on my view vehicleimy. Now, 0:06:16.400 --> 0:06:18.920 this is why I think rates should be, but that 0:06:18.960 --> 0:06:20.840 too could change well. And I just want to point 0:06:20.839 --> 0:06:23.320 out that the FOMC reiterating we've heard this before that 0:06:23.320 --> 0:06:27.240 it will quote act as appropriate to sustain the expansion. UH. 0:06:27.360 --> 0:06:31.599 This statement containing minimal changes UH. And they have said 0:06:31.760 --> 0:06:35.200 that mainly. They noted household spending games have been strong, 0:06:35.560 --> 0:06:38.719 while business fixed investment and exports have weakened. UH. The 0:06:38.720 --> 0:06:41.360 mention of exports is new. There's a more explicit nod 0:06:41.400 --> 0:06:44.320 to trade tensions weighing on growth, which really mirrors, right, Dave, 0:06:44.360 --> 0:06:46.200 what we got from Federal express I feel like that 0:06:46.279 --> 0:06:48.240 was kind of a wake up call to everybody that's 0:06:48.279 --> 0:06:51.320 not taking a hit after its latest earnings and blaming 0:06:51.320 --> 0:06:55.279 trade absolutely and not only trade, but also just a 0:06:55.360 --> 0:06:58.680 general slowing that they're seeing, not just you know, in 0:06:58.720 --> 0:07:02.279 a broad sense, but you know, specifically since June when 0:07:02.279 --> 0:07:05.440 they last made a forecast. So you know, it's something 0:07:05.520 --> 0:07:08.200 that it's definitely creeping up on people in a sense. 0:07:08.240 --> 0:07:10.840 And FedEx you're looking at the biggest drop and the 0:07:10.880 --> 0:07:13.560 stop potentially since two thousand and eight. So it just 0:07:13.600 --> 0:07:17.000 goes to show you, you know, how much the outlook 0:07:17.080 --> 0:07:20.440 is really kind of raised questions about where this company 0:07:20.520 --> 0:07:23.240 is headed. Having said that day, we know that, let's 0:07:23.240 --> 0:07:26.080 say we get some resolution, although the conversations we've had 0:07:26.080 --> 0:07:29.520 around this table in our studio is that don't necessarily 0:07:29.520 --> 0:07:32.280 expect some kind of big resolution. Our own Andy Brown 0:07:32.680 --> 0:07:36.240 of the Bloomberg New Economy Team editor there um, you know, 0:07:36.320 --> 0:07:38.200 saying that we might see some little tweaks just to 0:07:38.280 --> 0:07:41.720 kind of get past it. But any kind of you know, 0:07:41.920 --> 0:07:45.160 calmness to that could certainly change the outlook when it 0:07:45.200 --> 0:07:49.080 comes to corporations, uh, potentially in terms of either spending 0:07:49.080 --> 0:07:51.720 on things or maybe feeling more calm or calmer about 0:07:51.720 --> 0:07:53.920 the global economy. Well, there's no doubt trade as a 0:07:53.920 --> 0:07:57.280 wild card. That said, I mean, you've gotten some indications 0:07:57.320 --> 0:07:59.920 that companies are at the very least waiting for things 0:08:00.040 --> 0:08:02.800 to shake out before they're willing to move on things 0:08:02.840 --> 0:08:05.040 like business investment. You know, we we had a tried 0:08:05.080 --> 0:08:07.080 out yesterday which I put on a Twitter feed just 0:08:07.120 --> 0:08:10.960 re making that point that you know, with the investment 0:08:11.040 --> 0:08:13.600 not being there, it's a concern that you know, you 0:08:13.720 --> 0:08:15.760 have to focus on in terms of where the economy 0:08:15.840 --> 0:08:17.960 is going. But I think I think that's also interesting 0:08:18.240 --> 0:08:22.640 that UM again look following our our our market Live blog, 0:08:22.720 --> 0:08:27.240 et cetera, pointing out that you know, five officials see 0:08:27.280 --> 0:08:29.760 no need for no nor more norma cuts at all. 0:08:29.800 --> 0:08:32.679 Five want to see basically one over the rest of 0:08:32.679 --> 0:08:35.800 the year, and seven want to see two. Now, remember 0:08:36.200 --> 0:08:38.280 we focused a lot on the voters, right and the 0:08:38.679 --> 0:08:41.000 and that's right now Esther, George, Eric Rosen Grin, and 0:08:41.080 --> 0:08:42.840 Jim Bullard, and they're voting until the end of the year. 0:08:42.840 --> 0:08:44.839 New York Fed President John Williams always votes, and we 0:08:44.920 --> 0:08:47.640 got the Board of Governors because but when they count 0:08:47.679 --> 0:08:51.280 the dots, it's everybody. So when you're looking at people 0:08:51.280 --> 0:08:53.400 who want more rate cuts than the than the guys 0:08:53.440 --> 0:08:55.680 who don't want it at all, probably you probably have 0:08:55.720 --> 0:08:58.280 the cary in that group. Who knows you've got maybe 0:08:58.400 --> 0:09:01.360 maybe you have J. Powell there, there's no way of knowing. 0:09:01.440 --> 0:09:04.040 I'll leave that to Blueberg Economics. Those guys just sort 0:09:04.080 --> 0:09:06.000 it out. You need to look at the voting members, right, 0:09:06.040 --> 0:09:07.800 But but you have to look at voting members. But 0:09:07.880 --> 0:09:10.880 remember it's not just Fed Bank presidents. It's also it's 0:09:10.960 --> 0:09:13.200 Rich clarin of the vice chair, it's J. Powell the chair, 0:09:13.520 --> 0:09:16.520 it's uh Low Brainerd on the board of governors. It's 0:09:16.520 --> 0:09:19.240 so many people. So if there's that many that still 0:09:19.360 --> 0:09:21.600 to me, it seems so many that still think there's 0:09:21.600 --> 0:09:23.360 going to be a need for a couple more rate cuts. 0:09:23.600 --> 0:09:26.160 You may have some heavy hitters in there, all right, interesting, 0:09:26.280 --> 0:09:28.200 So you know, I do wonder kind of where we 0:09:28.280 --> 0:09:32.120 go from here and what should be uh the line 0:09:32.120 --> 0:09:35.240 of questions, watch the data comes to J Powell, watch 0:09:35.320 --> 0:09:37.600 the data or J why your board is? You know 0:09:37.679 --> 0:09:40.319 the FOMAC is very divided. Where are you trying to 0:09:40.320 --> 0:09:42.520 figure it out? Where the vet chair himself is? That's 0:09:42.520 --> 0:09:45.400 one thing I'd want to know. Um, what how are 0:09:45.440 --> 0:09:49.600 you weighing the risks of the trade war continuing? Oh, 0:09:49.640 --> 0:09:52.439 by the way, Hong Kong all the geopolitical risks. How 0:09:52.440 --> 0:09:54.560 does that affect you in terms of your sense of 0:09:54.559 --> 0:09:57.240 where you want to go? Um And again, of course 0:09:57.559 --> 0:09:59.560 he's gonna get tons of questions about the rate and 0:09:59.640 --> 0:10:02.920 if adjusting the interest on access reserves that I E 0:10:03.000 --> 0:10:05.800 O R is enough? And are you gonna put your 0:10:05.840 --> 0:10:09.120 standing repo facility that's been discussed so long in place? 0:10:09.440 --> 0:10:11.640 And do you agree with people say you've got to 0:10:11.679 --> 0:10:13.720 do a little qui light to get some reserves in there. 0:10:13.720 --> 0:10:15.520 You know, he likes to wrap up those press conferences. 0:10:15.760 --> 0:10:17.520 He's pretty quick with them. And I do wonder if 0:10:17.520 --> 0:10:19.240 it will go on longer. Dave Wilson, come on in 0:10:19.240 --> 0:10:21.480 on it, because I do wonder what this means in 0:10:21.559 --> 0:10:23.720 terms of equity place. We've talked about momentum, We've talked 0:10:23.720 --> 0:10:26.040 about defense, and we talked about cyclicals. Bank stocks getting 0:10:26.040 --> 0:10:28.959 a little bit of a lift here on this news 0:10:28.960 --> 0:10:31.679 on the expectations that maybe RACHEL will be cut so much, 0:10:31.720 --> 0:10:34.880 and that's good for them, But tell me, you know 0:10:34.960 --> 0:10:37.600 how this might affect the trade. Well, I mean, you're 0:10:37.679 --> 0:10:40.120 right to focus on the banks, because let's face it, 0:10:40.400 --> 0:10:42.120 you know, when you think about the way that interest 0:10:42.200 --> 0:10:44.120 rates have been coming down in fact, with the yield 0:10:44.160 --> 0:10:46.760 curve going negative and still negative by the way, when 0:10:46.800 --> 0:10:49.280 you look at you know, the midpoint of the Fed 0:10:49.360 --> 0:10:52.560 funds target relative to even the tenure treasury yield, which 0:10:52.600 --> 0:10:54.600 is at one and three quarters per cent pretty much 0:10:54.600 --> 0:10:57.280 as we speak, you know, I mean, the banks have 0:10:57.440 --> 0:10:59.880 to work through the issues in terms of their profitabile 0:11:00.440 --> 0:11:03.240 you know, net interest margins, that gap between what they're 0:11:03.240 --> 0:11:06.000 paying depositors and what they're running on their loans and investments. 0:11:06.080 --> 0:11:09.000 You can talk about housing picking up, but if the 0:11:09.080 --> 0:11:11.559 money isn't there in terms of what banks can earn 0:11:11.600 --> 0:11:14.199 from their mortgages, I mean that becomes an issue for 0:11:14.240 --> 0:11:16.640 their profitability down the line. So what's happening on the 0:11:16.720 --> 0:11:19.520 right front, uh, really front and center for the banks, 0:11:19.559 --> 0:11:21.400 And I just want to mention our Limberg Glive blog, 0:11:21.800 --> 0:11:23.760 our whole team on it, and they're saying it doesn't 0:11:23.800 --> 0:11:26.680 seem like there's any real worry about a slowdown on 0:11:26.920 --> 0:11:30.720 slowdown on the economic horizon by the members of the FOMC. Well, 0:11:30.800 --> 0:11:34.440 they're not seeing it yet coming through on the domestic side, 0:11:34.480 --> 0:11:36.559 so they're concerned about the global side. But there has 0:11:36.600 --> 0:11:38.400 been a bit of a move in bond yields on 0:11:38.400 --> 0:11:40.920 this right, not a big move, but the tenure yield 0:11:40.920 --> 0:11:42.400 was at one point seven four. It's at one point 0:11:42.400 --> 0:11:44.920 seven five, um, and I think we've had a bit 0:11:44.920 --> 0:11:46.880 of move in the shortest so anyway, it's not a big, 0:11:46.920 --> 0:11:50.000 big difference, but certainly people writing waiting for jap two 0:11:50.040 --> 0:11:52.160 years one sixty six now at one sixty nine. All right, 0:11:52.200 --> 0:11:54.240 Kathleen Hayes, you guys are the best global economics and 0:11:54.240 --> 0:11:56.520 policy editor at Bloomberg News, Dave Wilson, He's gonna be 0:11:56.559 --> 0:11:58.599 back a little bit later on Stocks editor at Bloomberg 0:11:58.600 --> 0:12:09.440 News s indeed, no surprise today's Fed decision. The Fed 0:12:09.960 --> 0:12:12.760 UH lowering interest rates as widely expected by a quarter 0:12:12.800 --> 0:12:15.320 of a point, but some concerns that maybe the Fed 0:12:15.400 --> 0:12:19.000 will't be as devish if you will in the future 0:12:19.040 --> 0:12:21.959 when it comes to UH lowering rates again later on 0:12:22.000 --> 0:12:23.920 this year and maybe into next year. So let's get 0:12:23.920 --> 0:12:26.600 into it, and let's get into market reaction. Our Jersey 0:12:26.679 --> 0:12:29.600 is with US Bloomberg Intelligence Chief US Interest rates strategist. 0:12:29.840 --> 0:12:31.720 He joins us on the phone from b I headquarters 0:12:31.760 --> 0:12:35.320 in Princeton, New Jersey. Also with us is Steve Skanky. 0:12:35.400 --> 0:12:38.040 He is former White House National Security Council staff member 0:12:38.080 --> 0:12:41.559 currently Chief Economic Advisor at keel Point based in Washington, 0:12:41.640 --> 0:12:45.679 d C. In our Bloomberg Interactive Broker studio in New York. UM, 0:12:45.720 --> 0:12:48.440 I want to start with you, Steve. Tell me your 0:12:48.480 --> 0:12:52.280 thoughts widely expected in terms of the rate cut. What 0:12:52.440 --> 0:12:55.240 stands out for you in this decision? The rate cut 0:12:55.320 --> 0:12:57.200 was so baked in it would have been impossible for 0:12:57.240 --> 0:13:00.480 them not to do it today, even with the the 0:13:00.679 --> 0:13:04.760 articulated reluctance on the part of many to cut it 0:13:04.840 --> 0:13:10.120 all some uh to actually dissented on it. There were 0:13:10.120 --> 0:13:14.360 a couple that wanted to cut more, but it was 0:13:14.480 --> 0:13:17.280 hard with what the markets were expecting not to cut 0:13:17.320 --> 0:13:20.720 even though the recent economic news as recently as housing 0:13:20.800 --> 0:13:23.480 starts this morning we talked about at the top of 0:13:23.480 --> 0:13:27.720 our broadcast such a positive rebound the job quit rate 0:13:28.559 --> 0:13:33.880 up again to expressing confidence in labor markets and among consumers. 0:13:34.880 --> 0:13:37.000 I think they just got boxed in and didn't know 0:13:37.040 --> 0:13:38.559 what else to do. All right, We're gonna dig down 0:13:38.600 --> 0:13:40.400 a little bit deeper. Are come on in on though 0:13:40.440 --> 0:13:43.959 what you've seen since the statement has come out, and 0:13:43.960 --> 0:13:45.959 of course we're waiting for j. Powell, which we will 0:13:45.960 --> 0:13:49.000 take Live. In about twelve minutes, we'll head to the 0:13:49.040 --> 0:13:51.280 Federal Reserve. But what stands out for you are not 0:13:51.440 --> 0:13:54.000 a huge market reaction in the rates markets. I think 0:13:54.520 --> 0:13:56.960 the thing that people were looking for in the rates 0:13:57.000 --> 0:14:00.160 markets was after the volatility in the reproaches degree at 0:14:00.200 --> 0:14:02.800 market um, they were thinking that maybe there would be 0:14:02.840 --> 0:14:06.320 some statement about either a modest expansion of the balance 0:14:06.360 --> 0:14:09.080 sheet so reserves didn't continue to fall as they have 0:14:09.200 --> 0:14:13.200 been even after quantitative tightenings ended, or some kind of 0:14:13.440 --> 0:14:16.880 repo facility, like a standing repo facility that would uh 0:14:16.880 --> 0:14:19.520 inject reserves whenever they were needed. And you didn't get 0:14:19.520 --> 0:14:21.680 either of those things. So I think that's something that j. 0:14:21.800 --> 0:14:24.320 Powell will be f in the press conference coming up, 0:14:24.360 --> 0:14:26.360 and I think that's going to be probably far more 0:14:26.400 --> 0:14:28.600 interesting than the statement was. Quite frankly, Yeah, I kind 0:14:28.600 --> 0:14:30.120 of can't wait for the press conference. And I think 0:14:30.120 --> 0:14:32.120 it's interesting that, you know, we had a earlier story 0:14:32.120 --> 0:14:35.400 that Jeff Gunlock of Double Line, you know, saying that 0:14:35.440 --> 0:14:37.280 we could get from the Fed kind of a quey light. 0:14:37.600 --> 0:14:40.120 You know, possibly Steve come on back in here, because 0:14:40.120 --> 0:14:42.720 I do find it fascinating that heading into this, and 0:14:42.760 --> 0:14:45.000 I feel like over the last month or so, especially 0:14:45.000 --> 0:14:46.600 when we saw the sell off on the equity side 0:14:46.600 --> 0:14:49.720 of things in August concerns about trade that people were thinking, well, 0:14:49.720 --> 0:14:51.680 maybe we get a half a point cut. How have 0:14:51.800 --> 0:14:53.920 we seen or how has it been possible that we've 0:14:53.960 --> 0:14:56.920 gotten such a disconnect between some of the data points 0:14:56.960 --> 0:14:59.720 that are out there and the expectations uh for the 0:14:59.720 --> 0:15:04.600 Federal Reserve. It's really an interesting phenomena that we see 0:15:04.640 --> 0:15:09.280 that because the data points don't really argue for a cut. Uh. 0:15:09.320 --> 0:15:12.400 And interestingly, if you look back six weeks ago the 0:15:12.560 --> 0:15:16.200 SMP in the daw we're basically six weeks ago before 0:15:16.280 --> 0:15:19.320 the July meeting exactly where they were on Monday, correct, 0:15:19.440 --> 0:15:24.440 and even oil prices with the machinations were about the same. UM. 0:15:24.560 --> 0:15:27.680 And recall that after the July thirty one announcement the 0:15:27.720 --> 0:15:30.600 market sold off a little bit. The next morning they rebounded, 0:15:30.880 --> 0:15:35.720 and then the President made a dramatic announcement about further tariffs, 0:15:35.960 --> 0:15:39.240 which of course we're problematic for the markets. Are you 0:15:39.320 --> 0:15:42.600 concerned that j. Powell is feeling pressure because the market 0:15:42.640 --> 0:15:45.360 was expecting it? I mean, you know, what is the 0:15:45.520 --> 0:15:47.640 role of the Chairman of the Federal reserve. We know 0:15:47.680 --> 0:15:49.880 about the MANDA, the dual mandate. I mean, but what 0:15:50.040 --> 0:15:53.840 is the responsibility to kind of, you know, remove yourself 0:15:53.840 --> 0:15:56.040 from the noise that's out there, whether it's the presidential 0:15:56.040 --> 0:15:59.400 tweets or the pressure from investors and just kind of 0:15:59.440 --> 0:16:03.240 do the right thing. Do you think that certainly is 0:16:03.280 --> 0:16:06.600 his responsibility, Carol. But but I think that he's been 0:16:06.640 --> 0:16:09.600 a little bit overwhelmed by the pressure. Uh, not only 0:16:09.640 --> 0:16:11.600 from the president, which I think he's been pretty good 0:16:11.600 --> 0:16:15.960 at resisting, but particularly from the markets, and with all 0:16:16.000 --> 0:16:17.880 the things that are going on, you know, the weakness 0:16:17.880 --> 0:16:22.720 in China, the continuing problems in Europe, the incident in 0:16:22.880 --> 0:16:26.080 Saudi Arabia, which is which is probably not a big deal, 0:16:26.480 --> 0:16:29.800 but it just increases the fragility or the perceived fragility 0:16:29.840 --> 0:16:34.520 of the markets and their inability to absorb bad news. Uh. 0:16:34.520 --> 0:16:38.720 And uh so here we are, we we get the cut. 0:16:38.800 --> 0:16:40.640 I think he felt that he needed to do it 0:16:40.680 --> 0:16:44.920 because the markets expected it, even though perhaps even he 0:16:45.320 --> 0:16:48.640 doesn't believe that a real cut is needed. You know, 0:16:48.680 --> 0:16:50.640 I think I think one of the things that we 0:16:50.680 --> 0:16:52.120 have to remember here is that a lot of the 0:16:52.200 --> 0:16:54.680 data that we're saying that is good. It's really services 0:16:54.720 --> 0:16:58.280 sector data. The manufacturing sector continues to slow. So when 0:16:58.280 --> 0:16:59.920 you look at things like I S M New Order, 0:17:00.320 --> 0:17:03.560 you know that's below fifty, that's a sign potentially of 0:17:03.600 --> 0:17:05.800 contraction in the manufacturing sector. And even though it's a 0:17:05.800 --> 0:17:08.560 relatively small part of the US economy now it's an 0:17:08.560 --> 0:17:11.000 important part of the economy, and that can feed through 0:17:11.080 --> 0:17:13.640 to all of the other sectors of the economy and 0:17:13.720 --> 0:17:15.840 can be a real worry. And you know, the market 0:17:15.920 --> 0:17:17.680 even though the markets pricing these things, and one of 0:17:17.720 --> 0:17:21.119 the reasons is UM, the market tends to follow things 0:17:21.200 --> 0:17:24.920 like manufacturing, new orders and UM and and because of that, 0:17:25.280 --> 0:17:27.760 you really I think the FED wants to see a turnaround, 0:17:27.800 --> 0:17:29.480 at least the doves in the FED want to see 0:17:29.480 --> 0:17:31.800 a turnaround in some of the the kind of forward 0:17:31.800 --> 0:17:35.040 looking data before they think about, you know, stopping the 0:17:35.080 --> 0:17:38.880 easing cycle. Well, how are folks on Wall Street, uh, 0:17:39.040 --> 0:17:41.920 you know, in the world of fixed income and fixed 0:17:42.000 --> 0:17:45.240 rates and the rate environment kind of rethinking some of 0:17:45.240 --> 0:17:47.600 their formulas going forward because of what we got so 0:17:47.680 --> 0:17:51.880 far today. Well, yeah, I think rethinking the formulas. We've 0:17:51.880 --> 0:17:53.480 been trying to do that for a couple of years 0:17:53.480 --> 0:17:56.000 now because we are in a different environment when it 0:17:56.040 --> 0:17:58.560 comes to you know, inflation and growth. And you know 0:17:59.119 --> 0:18:00.840 he'll b s again. I'm sure j. Powe will be 0:18:00.840 --> 0:18:02.679 asked about the Phillips curve again and whether or not 0:18:02.720 --> 0:18:06.679 it still exists. That's relationship between inflation and employment and 0:18:06.720 --> 0:18:09.960 why we haven't seen a significant uptaken inflation. And in fact, 0:18:09.960 --> 0:18:14.240 since the last meeting, the inflation expectations baked into the 0:18:14.240 --> 0:18:17.320 Treasury Inflation Protected security or the TIPS market has actually 0:18:17.320 --> 0:18:19.960 come down about thirty basis points because of some of 0:18:20.000 --> 0:18:22.320 the global inks that have been going on, and as 0:18:22.359 --> 0:18:25.080 well as a little bit lower oil prices until very recently, 0:18:25.440 --> 0:18:27.520 so you know, and they didn't change that part of 0:18:27.560 --> 0:18:31.480 their their statement, um which I had anticipated them noting 0:18:31.520 --> 0:18:34.560 a little bit that that inflation measures had come down 0:18:34.560 --> 0:18:37.720 a little bit. Instead they just say inflation compensation has 0:18:37.760 --> 0:18:40.720 remained low. Steve, you know, I'm curious to you about 0:18:40.760 --> 0:18:42.760 what your expectations are about kind of where we are 0:18:42.800 --> 0:18:44.280 in this economic secle. I feel like it's been a 0:18:44.280 --> 0:18:46.719 guesting game for many years now at this point. Uh, 0:18:46.760 --> 0:18:49.399 there was a survey out I believe it was by 0:18:49.440 --> 0:18:52.920 Duke and half of the CFOs in the service US 0:18:52.960 --> 0:18:56.760 recession within a year. Um, where are we on that possibility? 0:18:56.800 --> 0:18:59.920 Because Jason and my coast UH and I resently caught 0:19:00.000 --> 0:19:02.240 with James Gorman over at Morgan Stanley and said, you know, 0:19:02.240 --> 0:19:04.640 look at something like Australia, that economic cycle has gone 0:19:04.680 --> 0:19:07.160 on for a long time. There's no necessarily any reason 0:19:07.240 --> 0:19:10.440 why we can't kind of continue UH as we have 0:19:10.880 --> 0:19:13.520 over the last couple of years. What's your take on that, Carol, 0:19:13.560 --> 0:19:16.560 I think the big question will be what does the 0:19:16.560 --> 0:19:19.960 President doing a trade deal right now? The uncertainty that's 0:19:19.960 --> 0:19:22.760