1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,200 --> 00:00:13,840 Speaker 2: This is a breaking news update from Bloomberg instant reaction 3 00:00:14,120 --> 00:00:17,959 Speaker 2: and analysis from our three thousand journalists and analysts around 4 00:00:17,960 --> 00:00:18,439 Speaker 2: the world. 5 00:00:19,480 --> 00:00:22,560 Speaker 3: The most divided FED since before the pandemic voted to 6 00:00:22,560 --> 00:00:25,040 Speaker 3: lower the benchmark rate by twenty five basis points, as 7 00:00:25,120 --> 00:00:28,760 Speaker 3: investors expected, but there were three descents for the first 8 00:00:28,760 --> 00:00:32,040 Speaker 3: time since twenty nineteen, and on the dot plot, a 9 00:00:32,120 --> 00:00:35,239 Speaker 3: total of six members of the committee suggested they were 10 00:00:35,280 --> 00:00:38,680 Speaker 3: not in favor of lowering rates. There's also a hawkish 11 00:00:38,720 --> 00:00:42,159 Speaker 3: line in the statement in considering the extent and timing 12 00:00:42,200 --> 00:00:46,040 Speaker 3: of additional adjustments to the target range, bringing back language 13 00:00:46,040 --> 00:00:48,360 Speaker 3: from a year ago when they paused their first round 14 00:00:48,440 --> 00:00:51,920 Speaker 3: of rate cuts. No surprise, Stephen Myron wanted a half 15 00:00:51,960 --> 00:00:55,280 Speaker 3: point reduction, but in something of a surprise, Austin Gouldsby 16 00:00:55,440 --> 00:00:59,000 Speaker 3: joined Jeffrey Schmid in dissenting for no cut at all. 17 00:01:00,280 --> 00:01:04,639 Speaker 3: Dot plot suggests just one cut coming. Seven members want 18 00:01:04,680 --> 00:01:08,440 Speaker 3: no move, however, including three who think the rate might 19 00:01:08,480 --> 00:01:12,080 Speaker 3: go up. The committee statement says economic activity has been 20 00:01:12,200 --> 00:01:15,959 Speaker 3: expanding at a moderate pace and the latest forecasts show 21 00:01:16,200 --> 00:01:19,440 Speaker 3: a consensus GDP figure of one point seven percent for 22 00:01:19,520 --> 00:01:22,039 Speaker 3: this year, but in a big move up. They have 23 00:01:22,200 --> 00:01:26,199 Speaker 3: revised growth forecasts for twenty twenty six to two point 24 00:01:26,319 --> 00:01:30,080 Speaker 3: three percent. Unemployment forecasts to finish this year at four 25 00:01:30,080 --> 00:01:32,360 Speaker 3: and a half percent will fall back to four point 26 00:01:32,400 --> 00:01:36,440 Speaker 3: four percent next year. Using identical language from October, the 27 00:01:36,440 --> 00:01:39,120 Speaker 3: statement says job gains have slowed this year and the 28 00:01:39,240 --> 00:01:43,760 Speaker 3: unemployment rate has edged up through September. Nodding to the 29 00:01:43,760 --> 00:01:47,360 Speaker 3: government's shutdown caused absence of data, the statement repeats that 30 00:01:47,560 --> 00:01:51,800 Speaker 3: more recent indicators are consistent with these developments. There's no 31 00:01:51,920 --> 00:01:54,800 Speaker 3: change in the inflation assessment. It has moved up since 32 00:01:54,840 --> 00:01:58,480 Speaker 3: earlier in the year and remains somewhat elevated. However, it 33 00:01:58,560 --> 00:02:02,480 Speaker 3: is seen slowing market next year. PCE headline from two 34 00:02:02,520 --> 00:02:05,240 Speaker 3: point nine percent this year to two point four percent 35 00:02:05,280 --> 00:02:08,760 Speaker 3: in twenty twenty six, and as always, they won't reach 36 00:02:08,840 --> 00:02:11,760 Speaker 3: their two percent target for two more years. In twenty 37 00:02:11,840 --> 00:02:15,120 Speaker 3: twenty eight, core PCE will finish the year at three percent, 38 00:02:15,400 --> 00:02:18,560 Speaker 3: falling to two and a half percent next year. As 39 00:02:18,600 --> 00:02:22,200 Speaker 3: for the balance sheet, the statement now says reserve balances 40 00:02:22,280 --> 00:02:25,880 Speaker 3: have declined to ample levels. The Fed will buy shorter 41 00:02:25,960 --> 00:02:28,680 Speaker 3: term treasuries, mostly bills, but up to three year notes 42 00:02:29,080 --> 00:02:33,079 Speaker 3: as needed to maintain that ample supply. The first operation 43 00:02:33,240 --> 00:02:36,720 Speaker 3: will be announced tomorrow, with the first purchases on a 44 00:02:36,880 --> 00:02:41,160 Speaker 3: Friday of approximately forty billion dollars in treasury bills. 45 00:02:41,200 --> 00:02:44,320 Speaker 4: Guys, Michael McKee, stay close as we parse through this. 46 00:02:44,520 --> 00:02:46,720 Speaker 4: Right now, what you see in markets is a collective cheer. 47 00:02:46,840 --> 00:02:49,320 Speaker 4: Perhaps this was supposed to be a hawkish cut. The 48 00:02:49,360 --> 00:02:53,080 Speaker 4: market is taking it slightly differently, as MPPI had been lower. 49 00:02:53,160 --> 00:02:55,600 Speaker 4: Now it is positive by almost two tounts of percent. 50 00:02:55,639 --> 00:02:59,160 Speaker 4: Euro dollar euro climbing dollar falling on the heels of 51 00:02:59,200 --> 00:03:01,840 Speaker 4: what does seem to be like more FED cuts, and 52 00:03:01,880 --> 00:03:04,560 Speaker 4: across the board tuesd tens, and thirties, you are seeing 53 00:03:04,600 --> 00:03:07,200 Speaker 4: a bid into bonds with this feeling that this is 54 00:03:07,200 --> 00:03:09,079 Speaker 4: a FED that not only is going to support rates 55 00:03:09,120 --> 00:03:12,240 Speaker 4: with further rate cuts, but also with additional bond purchases time. 56 00:03:12,360 --> 00:03:15,080 Speaker 5: To me, the most interesting nuance here is the descent 57 00:03:15,280 --> 00:03:18,600 Speaker 5: of the gentleman from Chicago. This is brilliant academics out 58 00:03:18,600 --> 00:03:22,640 Speaker 5: of Milton Yale and the Massachusetts Institute of Technology. Austin 59 00:03:22,680 --> 00:03:28,440 Speaker 5: Goulesby is basically our technology president. He's wired into the Internet, 60 00:03:28,480 --> 00:03:31,280 Speaker 5: wired into the computers and I'd love to know if 61 00:03:31,280 --> 00:03:34,880 Speaker 5: his descent has to do with the vibrancy of AI 62 00:03:35,240 --> 00:03:38,440 Speaker 5: which leads to a better productivity, a better GDP. Let's 63 00:03:38,480 --> 00:03:39,440 Speaker 5: be careful what we do. 64 00:03:39,600 --> 00:03:43,040 Speaker 4: Yeah, right now we're looking at nine votes, four and 65 00:03:43,080 --> 00:03:46,360 Speaker 4: three descents. Bob Michael of JP Morgan with us here, 66 00:03:46,640 --> 00:03:48,680 Speaker 4: what's your first reaction of this decision? 67 00:03:49,920 --> 00:03:52,040 Speaker 6: Not as bad as it could have been. There could 68 00:03:52,080 --> 00:03:56,360 Speaker 6: have been a lot more descents in favor of rate cuts. 69 00:03:56,600 --> 00:04:01,640 Speaker 6: When we look at things like PCE. We expected they 70 00:04:01,680 --> 00:04:04,600 Speaker 6: would lower core PCE by a tenth. They did that. 71 00:04:05,040 --> 00:04:08,520 Speaker 6: They left the unemployment rate for next year roughly where 72 00:04:08,520 --> 00:04:11,920 Speaker 6: it was last year. They did raise their expectation of 73 00:04:11,960 --> 00:04:14,800 Speaker 6: GDP a couple of tenths from where it was. So 74 00:04:15,160 --> 00:04:17,680 Speaker 6: to me, that seems to be, if you want to 75 00:04:17,720 --> 00:04:20,520 Speaker 6: call it, a hawkish tilt, the one hawkish tilt, and 76 00:04:20,560 --> 00:04:24,200 Speaker 6: of course, adding the extent and timing of additional adjustments 77 00:04:24,960 --> 00:04:29,240 Speaker 6: to rate policy going forward, that was pretty much in 78 00:04:29,320 --> 00:04:32,279 Speaker 6: the market. So I think, mostly as the market expect 79 00:04:32,320 --> 00:04:34,560 Speaker 6: and nowhere near as bad as the market feared. 80 00:04:34,680 --> 00:04:36,839 Speaker 4: So not maybe as hawkish of a cut as people 81 00:04:36,839 --> 00:04:38,640 Speaker 4: thought it might have been. Joining us now, as Jim 82 00:04:38,640 --> 00:04:42,240 Speaker 4: Bianco of Bianco Research. Jim, what's your first reaction to 83 00:04:42,440 --> 00:04:44,720 Speaker 4: this decision, which, as Bob was saying, isn't as bad 84 00:04:44,720 --> 00:04:46,120 Speaker 4: as it could have been. It could have been four 85 00:04:46,160 --> 00:04:48,680 Speaker 4: decents or five descents, only three decents. Is this a 86 00:04:48,720 --> 00:04:51,360 Speaker 4: victory for Jerome Powell. 87 00:04:51,400 --> 00:04:53,919 Speaker 2: It's a victory for Jerome. But I'll take the other side, Bob. 88 00:04:53,960 --> 00:04:55,640 Speaker 2: I'll say that it's not as good as it could 89 00:04:55,680 --> 00:04:58,600 Speaker 2: have been. I was hoping for a seven to five vote. 90 00:04:58,960 --> 00:05:01,440 Speaker 2: I was hoping for FED that was more divided, that 91 00:05:01,600 --> 00:05:04,960 Speaker 2: was more independent, that was going to send a message 92 00:05:05,040 --> 00:05:08,000 Speaker 2: to the administration. You could put a guy in that 93 00:05:08,160 --> 00:05:10,640 Speaker 2: wants to go to one percent, but he's not going 94 00:05:10,680 --> 00:05:13,880 Speaker 2: to bully us to cut rates next year just because 95 00:05:13,880 --> 00:05:16,719 Speaker 2: he's the FED chairman. They kind of left the door open. 96 00:05:16,839 --> 00:05:18,960 Speaker 2: I think that the FED can be bullied by the 97 00:05:19,000 --> 00:05:22,240 Speaker 2: next FED chairman to do the bidding of President Trump. 98 00:05:22,520 --> 00:05:25,839 Speaker 4: Bobby, you were saying that you wanted to respond, not 99 00:05:25,960 --> 00:05:28,359 Speaker 4: as good as it could have been with more descents. 100 00:05:28,440 --> 00:05:31,880 Speaker 6: I think if you're the administration and you're invested in 101 00:05:31,920 --> 00:05:35,080 Speaker 6: this market, this is pretty much as good as it 102 00:05:35,120 --> 00:05:38,040 Speaker 6: could have been. Other than no descents, I'm not sure 103 00:05:38,040 --> 00:05:40,000 Speaker 6: how additional descents make this better? 104 00:05:40,080 --> 00:05:41,839 Speaker 5: Well, McKey descent at the press conference. 105 00:05:41,880 --> 00:05:44,320 Speaker 4: Well, let's find out, Mike, you were parsing through this, 106 00:05:44,400 --> 00:05:46,479 Speaker 4: you've got something to add? What do you see? 107 00:05:46,960 --> 00:05:48,960 Speaker 3: Yeah, Well, the point I'd like to make is that 108 00:05:49,040 --> 00:05:51,440 Speaker 3: the SEP shows that growth is going to pick up 109 00:05:51,480 --> 00:05:54,560 Speaker 3: significantly next year, unemployment is going to go down, and 110 00:05:54,600 --> 00:05:57,400 Speaker 3: inflation is going to go down significantly next year. So 111 00:05:57,960 --> 00:06:00,360 Speaker 3: what was the rush to cut rates today if they 112 00:06:00,400 --> 00:06:02,520 Speaker 3: think that's the track that we're on. I think that's 113 00:06:02,560 --> 00:06:04,960 Speaker 3: going to be a key question for JPOW in the 114 00:06:05,000 --> 00:06:09,200 Speaker 3: news conference. Does this raise the possibility that they could 115 00:06:09,200 --> 00:06:11,880 Speaker 3: be going the wrong direction with rates? There were some 116 00:06:11,920 --> 00:06:15,200 Speaker 3: people who made that case before we went into today's meeting, 117 00:06:15,360 --> 00:06:18,280 Speaker 3: and they're going to be still raising questions about it 118 00:06:18,320 --> 00:06:18,880 Speaker 3: going forward. 119 00:06:19,000 --> 00:06:21,239 Speaker 4: Michael McKee, thank you so much. We will be catching 120 00:06:21,279 --> 00:06:23,799 Speaker 4: up with you and of course listening to your questions. Jim, 121 00:06:23,920 --> 00:06:25,920 Speaker 4: this is something that is near and dear to your heart, 122 00:06:25,960 --> 00:06:28,760 Speaker 4: as you call yourself a self dove inflationista, do you 123 00:06:28,800 --> 00:06:31,720 Speaker 4: think that this really adds to that inflationary pressure if 124 00:06:31,760 --> 00:06:34,599 Speaker 4: the FED essentially is accepting that they're not going to 125 00:06:34,600 --> 00:06:38,040 Speaker 4: get down to their inflation target for six seven potentially 126 00:06:38,080 --> 00:06:38,880 Speaker 4: even eight years. 127 00:06:40,480 --> 00:06:42,479 Speaker 2: I agree. I think that the FED has to be 128 00:06:42,560 --> 00:06:45,839 Speaker 2: very worried about that. We're worried about affordability right now. 129 00:06:46,279 --> 00:06:49,279 Speaker 2: The CPI is up twenty seven percent since the end 130 00:06:49,360 --> 00:06:51,800 Speaker 2: of COVID, and that's what people are upset about. How 131 00:06:51,800 --> 00:06:54,599 Speaker 2: do we fix that. We need the inflation rate to 132 00:06:54,680 --> 00:06:57,480 Speaker 2: run below two percent for a while so that wages 133 00:06:57,520 --> 00:06:59,880 Speaker 2: can catch up. If the inflation rate is going to 134 00:07:00,200 --> 00:07:02,560 Speaker 2: at three and moderate to two and a half, that 135 00:07:02,720 --> 00:07:05,840 Speaker 2: is going to keep the affordability anger white hot over 136 00:07:05,880 --> 00:07:08,040 Speaker 2: the next year to year and a half or so. 137 00:07:08,600 --> 00:07:12,480 Speaker 2: And so I don't think that accommodating that by cutting 138 00:07:12,520 --> 00:07:14,760 Speaker 2: interest rates is going to help. And that's the question 139 00:07:14,840 --> 00:07:18,080 Speaker 2: I hope the chairman gets is, how are you helping 140 00:07:18,080 --> 00:07:20,640 Speaker 2: affordability with one hundred and seventy five bases points of 141 00:07:20,680 --> 00:07:21,840 Speaker 2: cuts in the last fourteen months. 142 00:07:21,920 --> 00:07:23,960 Speaker 5: Jim, We've got to review the past. Here you were 143 00:07:24,040 --> 00:07:27,040 Speaker 5: a leader on saying that inflation would be sticky. It 144 00:07:27,080 --> 00:07:30,200 Speaker 5: was a lonely call years and years ago, and Bianco 145 00:07:30,280 --> 00:07:32,520 Speaker 5: of Chicago said, you know what, folks were not falling 146 00:07:32,600 --> 00:07:35,960 Speaker 5: down to two percent. So here we are, Jim Bianco, 147 00:07:36,520 --> 00:07:39,040 Speaker 5: I just want to know the efficacy Jim Bianco where 148 00:07:39,040 --> 00:07:42,560 Speaker 5: he says in the press conference, basically, one and done. 149 00:07:42,680 --> 00:07:45,520 Speaker 5: We made a rate cut. Maybe we will have a 150 00:07:45,640 --> 00:07:49,360 Speaker 5: sequence of future rate cuts, but we really really now 151 00:07:49,920 --> 00:07:53,560 Speaker 5: have to wait and see what the data says. Isn't 152 00:07:53,600 --> 00:07:56,880 Speaker 5: that where we are Jim Bianco, Well, that's if that's 153 00:07:56,920 --> 00:07:57,679 Speaker 5: what he says. 154 00:07:57,800 --> 00:07:59,880 Speaker 2: And again, what I was trying to say before is 155 00:08:00,000 --> 00:08:03,200 Speaker 2: if the chairman imitates that it's one and done, he's 156 00:08:03,240 --> 00:08:06,000 Speaker 2: a chairman's running the show. And in May we're going 157 00:08:06,040 --> 00:08:09,239 Speaker 2: to have a handpicked successor from Donald Trump running the show. 158 00:08:09,280 --> 00:08:11,560 Speaker 2: And we know what Trump thinks about it illustrates and 159 00:08:11,600 --> 00:08:13,720 Speaker 2: that person's going to want to have lower rates. But 160 00:08:14,040 --> 00:08:16,720 Speaker 2: if he does say that, then maybe the market will 161 00:08:16,760 --> 00:08:19,480 Speaker 2: take it a little bit differently. And we'll see if 162 00:08:19,480 --> 00:08:21,360 Speaker 2: he does. But most of the times he'll just say 163 00:08:21,400 --> 00:08:23,280 Speaker 2: he's going to be data dependent, and it depends on 164 00:08:23,320 --> 00:08:24,360 Speaker 2: what the data is. 165 00:08:24,840 --> 00:08:27,080 Speaker 5: This is an important ving at folks that I think 166 00:08:27,320 --> 00:08:30,440 Speaker 5: just so valuable. I'm in a room with Axel Weber, 167 00:08:30,960 --> 00:08:34,600 Speaker 5: Sharkawa of Japan, the wonderful John Lipski with all of 168 00:08:34,640 --> 00:08:37,640 Speaker 5: his work on New York Wall Street, many other worries. 169 00:08:37,679 --> 00:08:41,160 Speaker 5: Tomahonig was there from Kansas City and the room fell silent, 170 00:08:41,320 --> 00:08:45,200 Speaker 5: Bob Michael when they talked about the next regime of 171 00:08:45,240 --> 00:08:47,960 Speaker 5: the FED and the risk here that it would be 172 00:08:48,040 --> 00:08:51,640 Speaker 5: cut cut, cut cut. Is that a legitimate fear that 173 00:08:51,720 --> 00:08:55,760 Speaker 5: the next chairman and the apparatus will allow us to 174 00:08:55,840 --> 00:08:58,680 Speaker 5: go towards some regime of new lo low rates. 175 00:08:58,880 --> 00:09:02,240 Speaker 6: Well, I think you have to look at which FED 176 00:09:02,320 --> 00:09:07,240 Speaker 6: presidents are coming onto the FOMC next year, and they're 177 00:09:07,280 --> 00:09:10,760 Speaker 6: mostly in the hawkish cap. So whoever you put in 178 00:09:10,800 --> 00:09:14,520 Speaker 6: as the FED chair has to be very persuasive. And 179 00:09:14,600 --> 00:09:18,280 Speaker 6: I guarantee you the President isn't looking to appoint the 180 00:09:18,320 --> 00:09:21,960 Speaker 6: next Paul Vulker. They're looking to appoint someone who believes 181 00:09:22,000 --> 00:09:23,679 Speaker 6: in supply side economic. 182 00:09:23,320 --> 00:09:25,880 Speaker 5: And Lisa, this is critical, This is absolutely critical. That 183 00:09:25,920 --> 00:09:27,840 Speaker 5: we have an analog here with the Bank of England 184 00:09:28,080 --> 00:09:30,600 Speaker 5: that over time has told the Governor of the Bank 185 00:09:30,640 --> 00:09:33,880 Speaker 5: of Inland and their chairman equivalent, no, we're not in agreement, 186 00:09:34,160 --> 00:09:35,840 Speaker 5: We're not going to do it. Is that what our 187 00:09:35,840 --> 00:09:37,480 Speaker 5: twenty twenty seven looks like. 188 00:09:37,600 --> 00:09:39,920 Speaker 4: Part of the problem is people get overwhelmed by the 189 00:09:39,960 --> 00:09:42,120 Speaker 4: state of events, and this is something that you talk 190 00:09:42,120 --> 00:09:44,160 Speaker 4: about a lot, and Jim, I'd love your thoughts on 191 00:09:44,200 --> 00:09:46,880 Speaker 4: that this idea, that this is a FED that is 192 00:09:46,920 --> 00:09:49,920 Speaker 4: now buying bonds once more, buying notes once more, and 193 00:09:49,960 --> 00:09:53,600 Speaker 4: they're doing so because of reserves issues and really technical 194 00:09:53,760 --> 00:09:57,040 Speaker 4: considerations for the market. They don't want another repo freak 195 00:09:57,080 --> 00:09:59,960 Speaker 4: out at this point, though, it does indicate a structural 196 00:10:00,080 --> 00:10:02,760 Speaker 4: issue with how much debt is out there, the government 197 00:10:02,800 --> 00:10:05,480 Speaker 4: deficit that's not going down, and a question of the 198 00:10:05,480 --> 00:10:07,880 Speaker 4: Fed's role. Are they being forced to monetize the debt 199 00:10:08,080 --> 00:10:10,680 Speaker 4: in a way that will keep them artificially easy if 200 00:10:10,720 --> 00:10:14,520 Speaker 4: you're just going off the economic outlook, I. 201 00:10:14,480 --> 00:10:18,120 Speaker 2: Think they are at least being force to acknowledge fiscal dominance, 202 00:10:18,160 --> 00:10:22,640 Speaker 2: that the fiscal situation is important. Basically, the funding market, 203 00:10:22,679 --> 00:10:25,400 Speaker 2: the repo market, which funds the thirty eight trillion dollar 204 00:10:25,480 --> 00:10:28,400 Speaker 2: treasury market, is too small. It's too small because the 205 00:10:28,440 --> 00:10:32,240 Speaker 2: Fed has been doing QTE and reducing reserves. Those interest 206 00:10:32,280 --> 00:10:35,800 Speaker 2: rates report rates have been going up. Now. One answer 207 00:10:35,840 --> 00:10:38,800 Speaker 2: could be to tell Congress you can't spend as much money, 208 00:10:38,800 --> 00:10:41,240 Speaker 2: you can't run as big a deficit because the funding 209 00:10:41,280 --> 00:10:43,960 Speaker 2: markets can't handle that size of a market. But if 210 00:10:44,000 --> 00:10:46,840 Speaker 2: the FED wants to elect to, let's expand the funding 211 00:10:46,880 --> 00:10:49,520 Speaker 2: markets to meet the size of the bond market. You're 212 00:10:49,559 --> 00:10:53,160 Speaker 2: telling Congress, go ahead, spend more money, run bigger deficits. 213 00:10:53,200 --> 00:10:56,160 Speaker 2: We've got your back. We'll continue to expand that funding 214 00:10:56,200 --> 00:10:59,080 Speaker 2: market to meet those goals. And the biggest driver of 215 00:10:59,160 --> 00:11:01,840 Speaker 2: inflation will over the last couple of years, other than 216 00:11:01,880 --> 00:11:04,280 Speaker 2: the supply shock that we had in twenty one, has 217 00:11:04,320 --> 00:11:08,280 Speaker 2: been government spending. And they seem to be encouraging more 218 00:11:08,320 --> 00:11:09,160 Speaker 2: government spending. 219 00:11:09,400 --> 00:11:13,240 Speaker 6: Bob, do you agree with that, absolutely, one hundred percent. 220 00:11:13,320 --> 00:11:17,520 Speaker 6: But it doesn't change the fact that that's what's occurring 221 00:11:17,960 --> 00:11:21,679 Speaker 6: and the markets responding to that. I look at everything 222 00:11:21,760 --> 00:11:24,840 Speaker 6: that just happened in the last few minutes, and you know, 223 00:11:25,080 --> 00:11:28,520 Speaker 6: everyone got what they wanted. Those hawks on the Fed 224 00:11:28,600 --> 00:11:31,840 Speaker 6: that didn't want to see a rate cut, they got that. 225 00:11:31,920 --> 00:11:34,920 Speaker 6: When you look at the Fed futures market, we had 226 00:11:35,040 --> 00:11:38,199 Speaker 6: two rate cuts priced for next year, midyear, and the 227 00:11:38,320 --> 00:11:40,600 Speaker 6: end of the year. Now there's only one price for 228 00:11:40,720 --> 00:11:44,080 Speaker 6: next year and it's in the fourth quarter. So you 229 00:11:44,200 --> 00:11:47,120 Speaker 6: got what you wanted. You got the market moving away 230 00:11:47,480 --> 00:11:51,280 Speaker 6: from being in a rate cutting regime going forward. But 231 00:11:51,679 --> 00:11:54,040 Speaker 6: if you look at the doves on the Fed, if 232 00:11:54,120 --> 00:11:57,440 Speaker 6: you think about the administration, they got what they wanted. 233 00:11:57,440 --> 00:12:00,280 Speaker 6: They got another twenty five basis point take and off 234 00:12:00,280 --> 00:12:03,720 Speaker 6: of base rates, and the markets responding positively to that. 235 00:12:04,040 --> 00:12:07,720 Speaker 6: It's rare that everyone gets what they wanted out of 236 00:12:07,760 --> 00:12:08,959 Speaker 6: an FOMC meeting. 237 00:12:09,160 --> 00:12:11,360 Speaker 4: Jim, I love your comments on that, this idea that 238 00:12:11,440 --> 00:12:14,400 Speaker 4: everyone wins. If you do have monetization of the debt, yes, 239 00:12:14,480 --> 00:12:17,120 Speaker 4: you do have ongoing fiscal spending, yes, but that helps 240 00:12:17,120 --> 00:12:19,560 Speaker 4: support the markets. And we're not seeing runaway inflation, so 241 00:12:19,800 --> 00:12:21,160 Speaker 4: what's the problem. 242 00:12:22,400 --> 00:12:24,400 Speaker 2: We're going to get a new FED chairman, that's the 243 00:12:24,400 --> 00:12:26,440 Speaker 2: big issue. And the new FED chairman is going to 244 00:12:26,440 --> 00:12:29,360 Speaker 2: be perceived to be having a political agenda, and you 245 00:12:29,440 --> 00:12:33,480 Speaker 2: were hoping that the current members of the FOMC were 246 00:12:33,520 --> 00:12:36,600 Speaker 2: going to act as an independent break on a political 247 00:12:36,640 --> 00:12:39,480 Speaker 2: agenda that was coming in. And that's why I wanted 248 00:12:39,480 --> 00:12:43,000 Speaker 2: to see more dissents to be signal that they were ready, 249 00:12:43,040 --> 00:12:46,000 Speaker 2: willing and able to be that political break. Now maybe 250 00:12:46,000 --> 00:12:48,560 Speaker 2: they will once we get that new FED chairman, but 251 00:12:48,600 --> 00:12:51,040 Speaker 2: then that looks political that they didn't take the chance 252 00:12:51,160 --> 00:12:53,280 Speaker 2: to do it before the new guy came. 253 00:12:53,679 --> 00:12:56,400 Speaker 4: Jim Bianco, thank you so much, as always for your insights. 254 00:12:56,400 --> 00:12:58,160 Speaker 4: This really is going to be the debate. How does 255 00:12:58,160 --> 00:13:01,360 Speaker 4: fedhair J. Powell position himself and position the FMC is 256 00:13:01,400 --> 00:13:05,360 Speaker 4: being politically independent at a time that's highly politically charged. 257 00:13:05,480 --> 00:13:07,760 Speaker 4: We hear every single day about the FED share from 258 00:13:07,840 --> 00:13:08,440 Speaker 4: this president. 259 00:13:08,520 --> 00:13:12,040 Speaker 5: The redo of independence is the core issue, particularly of 260 00:13:12,080 --> 00:13:14,640 Speaker 5: the heritage of the fedback to nineteen fifty one, and 261 00:13:14,720 --> 00:13:17,480 Speaker 5: it's under threat, no question about that. It'd be interesting 262 00:13:17,559 --> 00:13:20,200 Speaker 5: to see if the President gives way. Is Bob Michael 263 00:13:20,240 --> 00:13:23,000 Speaker 5: mentioned the FT article today talking about well maybe it 264 00:13:23,080 --> 00:13:26,760 Speaker 5: isn't one hundred percent or ninety percent, doctor Hassett, and 265 00:13:26,800 --> 00:13:28,720 Speaker 5: you get to a point where there's a renewed debate. 266 00:13:28,800 --> 00:13:30,760 Speaker 5: We'll have to see on that. To me, it's a 267 00:13:30,840 --> 00:13:33,880 Speaker 5: Chicago FED meeting. We had Goulesby dissenting, which is a 268 00:13:33,960 --> 00:13:37,360 Speaker 5: shock in itself, and have Jim Bianco with this is wonderful. 269 00:13:37,760 --> 00:13:40,600 Speaker 5: Diane Swank owns the high ground of Middle America with 270 00:13:40,679 --> 00:13:43,559 Speaker 5: kp MG. She's not out of three zip codes in 271 00:13:43,600 --> 00:13:48,319 Speaker 5: Manhattan and joins us this afternoon. I look Diane at 272 00:13:48,320 --> 00:13:52,280 Speaker 5: this moment, and when I see Goulesby's descent, and it's 273 00:13:52,320 --> 00:13:56,560 Speaker 5: sents me a Chicago descent. It's a descent of productivity. 274 00:13:56,840 --> 00:14:00,560 Speaker 5: Do we have any idea with this new AI that 275 00:14:00,640 --> 00:14:04,320 Speaker 5: we have a new productivity that will allow for a 276 00:14:04,480 --> 00:14:09,559 Speaker 5: better real GDP, a more effective and efficient America. 277 00:14:11,240 --> 00:14:13,200 Speaker 1: We don't know that yet. What we do know is 278 00:14:13,240 --> 00:14:16,679 Speaker 1: that productivity growth has moved up, and that's because firms 279 00:14:16,720 --> 00:14:18,800 Speaker 1: are doing more with less. We don't know that it's 280 00:14:18,800 --> 00:14:22,080 Speaker 1: all from AI. We haven't seen enough adoption of AI 281 00:14:22,160 --> 00:14:24,720 Speaker 1: yet to get there. And also what we don't know 282 00:14:25,040 --> 00:14:28,280 Speaker 1: is how AI will be used, whether or not we'll 283 00:14:28,400 --> 00:14:30,560 Speaker 1: see a lot of new jobs from this new innovation. 284 00:14:30,720 --> 00:14:33,600 Speaker 1: That's usually what we see from innovation. Somealy, that's not 285 00:14:33,680 --> 00:14:36,480 Speaker 1: what Silicon Valley is telling us at this point in time. 286 00:14:36,840 --> 00:14:39,960 Speaker 1: And also it matters who the gains of the AI 287 00:14:40,160 --> 00:14:43,640 Speaker 1: actually accrue to. If those productivity gains continue to accrue 288 00:14:43,960 --> 00:14:47,080 Speaker 1: to the owners of capital instead of workers, workers are 289 00:14:47,120 --> 00:14:50,200 Speaker 1: going to feel left behind, and they're already feeling left 290 00:14:50,200 --> 00:14:53,000 Speaker 1: behind because of the fact that the level of prices, 291 00:14:53,040 --> 00:14:56,360 Speaker 1: as Jin pointed out, is just too high. Even if 292 00:14:56,360 --> 00:15:00,119 Speaker 1: inflation were to cool from here, the level of prices 293 00:15:00,160 --> 00:15:01,000 Speaker 1: are still too hot. 294 00:15:01,160 --> 00:15:03,400 Speaker 5: Lisa, I set up that question because I knew what 295 00:15:03,480 --> 00:15:06,520 Speaker 5: doctor Swank would say. Who's going to be the winner 296 00:15:06,640 --> 00:15:09,840 Speaker 5: of productivity? Who are going to be the winners out there, 297 00:15:09,960 --> 00:15:12,600 Speaker 5: and that's the ultimate political tension. 298 00:15:12,280 --> 00:15:14,520 Speaker 4: Which is the reason why the fed's role in this 299 00:15:14,680 --> 00:15:17,800 Speaker 4: is getting increasingly politicized. And i'd love your tech take 300 00:15:18,200 --> 00:15:21,720 Speaker 4: on how this FED is taking into account productivity gains 301 00:15:21,720 --> 00:15:25,080 Speaker 4: of AI and talking about goldilocks, because essentially that is 302 00:15:25,120 --> 00:15:27,200 Speaker 4: the scenario that they laid out in their statement of 303 00:15:27,200 --> 00:15:28,240 Speaker 4: economic projections. 304 00:15:30,560 --> 00:15:34,120 Speaker 1: Well, the Goldilock scenario really requires with productivity growth it 305 00:15:34,160 --> 00:15:37,400 Speaker 1: to be broad based. And actually people always forget this 306 00:15:37,520 --> 00:15:40,160 Speaker 1: part of it. If productivity growth, they raise their growth 307 00:15:40,240 --> 00:15:45,040 Speaker 1: rates for next year. If productivity growth is driving gains 308 00:15:45,120 --> 00:15:47,800 Speaker 1: in overall economic growth, it means we can actually have 309 00:15:48,240 --> 00:15:52,120 Speaker 1: higher break evens on the FED funds rate because the 310 00:15:52,160 --> 00:15:55,840 Speaker 1: economy can grow more rapidly without having to lower rates. 311 00:15:55,880 --> 00:15:59,120 Speaker 1: And I think that's important as well. And so we've 312 00:15:59,160 --> 00:16:01,360 Speaker 1: really not seen all this yet and I think it's 313 00:16:01,400 --> 00:16:03,880 Speaker 1: still ahead of us. I am worried about the fact 314 00:16:03,920 --> 00:16:07,440 Speaker 1: that we're getting fiscal stimulus in the form of the 315 00:16:07,600 --> 00:16:11,320 Speaker 1: largest tax refunds surge on record in the first and 316 00:16:11,400 --> 00:16:14,680 Speaker 1: second quarter we'll hit between March and May, and we 317 00:16:14,800 --> 00:16:17,920 Speaker 1: know that those tax refunds are treated like windfall gains 318 00:16:18,200 --> 00:16:21,400 Speaker 1: due to the expansions of tax cuts passed in July 319 00:16:21,520 --> 00:16:25,600 Speaker 1: of last year. They're retroactive to beginning of twenty twenty five, 320 00:16:25,960 --> 00:16:28,480 Speaker 1: and that's going to be a big bump in fiscal 321 00:16:28,480 --> 00:16:32,480 Speaker 1: stimulus at a time when we're still feeling the inflation 322 00:16:32,640 --> 00:16:36,280 Speaker 1: from both tariffs and changes in immigration policy, and I 323 00:16:36,280 --> 00:16:39,640 Speaker 1: think that's really important. We're seeing service sector inflation pick 324 00:16:39,720 --> 00:16:40,360 Speaker 1: up as well. 325 00:16:40,560 --> 00:16:42,720 Speaker 4: If that's the case, dine, why are not forward break 326 00:16:42,760 --> 00:16:45,840 Speaker 4: even rates rising substantially. I was looking just now at 327 00:16:45,880 --> 00:16:48,760 Speaker 4: the five year five year forward break even rates, and 328 00:16:48,840 --> 00:16:51,640 Speaker 4: they actually went down after this FED decision, not up, 329 00:16:51,760 --> 00:16:54,520 Speaker 4: even though exactly what you're saying, if you do believe 330 00:16:54,560 --> 00:16:57,320 Speaker 4: that there will be something additional fiscal stimulus that would 331 00:16:57,320 --> 00:17:00,400 Speaker 4: be inflationary, you would think that this rate decision would 332 00:17:00,400 --> 00:17:02,120 Speaker 4: only encourage those inflation fears. 333 00:17:04,520 --> 00:17:06,320 Speaker 1: I don't think. I think we've seen some of it 334 00:17:06,400 --> 00:17:09,160 Speaker 1: in financial markets already. The fact that it's not happening 335 00:17:09,200 --> 00:17:12,280 Speaker 1: today doesn't mean it won't happen. And we've already seen 336 00:17:12,320 --> 00:17:16,439 Speaker 1: some nervousness in the bond market, skidtishness about the size 337 00:17:16,440 --> 00:17:19,359 Speaker 1: of debt that they have to absorb, the mega merger 338 00:17:19,400 --> 00:17:22,320 Speaker 1: deals that are coming out that are also financed by debt. 339 00:17:22,720 --> 00:17:25,600 Speaker 1: All of that together along with the fact that we're 340 00:17:25,600 --> 00:17:29,160 Speaker 1: now going to see in twenty twenty six, the government 341 00:17:29,280 --> 00:17:32,280 Speaker 1: debt is going to eclipse the size of the economy. 342 00:17:32,480 --> 00:17:35,159 Speaker 1: It has not done that since World War Two, and 343 00:17:35,240 --> 00:17:38,159 Speaker 1: so we're moving into new territory, and I think a 344 00:17:38,200 --> 00:17:40,159 Speaker 1: lot of things people are sort of looking at the 345 00:17:40,160 --> 00:17:43,880 Speaker 1: way the world was rather than what's changing, and things 346 00:17:43,960 --> 00:17:45,400 Speaker 1: are changing very rapidly. 347 00:17:45,520 --> 00:17:47,239 Speaker 4: If you are just joining us. We did get that 348 00:17:47,359 --> 00:17:49,800 Speaker 4: FEDER rate decision. They did lower by twenty five basis 349 00:17:49,800 --> 00:17:54,200 Speaker 4: points as widely as expected, nine to three vote three descents. 350 00:17:54,320 --> 00:17:57,560 Speaker 4: The news really is that Austin Goolsby joined FED the 351 00:17:57,560 --> 00:18:01,240 Speaker 4: Fed Schmidt in dissenting saying that they should not lower rates, 352 00:18:01,240 --> 00:18:04,280 Speaker 4: who of course had Stephen Myron, a FED governor, talking 353 00:18:04,280 --> 00:18:07,600 Speaker 4: about a fifty basis point cut dissenting on the other side. 354 00:18:07,600 --> 00:18:10,080 Speaker 4: Not as many descents as people had expected. The Fed 355 00:18:10,119 --> 00:18:13,080 Speaker 4: did revert back to what we saw in the October statement, 356 00:18:13,200 --> 00:18:17,679 Speaker 4: using language used just before pausing rate cuts, so potentially 357 00:18:17,720 --> 00:18:21,080 Speaker 4: the last FED rate cut for a long time by 358 00:18:21,119 --> 00:18:21,680 Speaker 4: this chair. J. 359 00:18:21,880 --> 00:18:22,200 Speaker 5: Powell. 360 00:18:22,280 --> 00:18:24,800 Speaker 4: I'm just wondering, Bob, if you think that right now 361 00:18:24,840 --> 00:18:27,080 Speaker 4: this market is saying they are okay to do this, 362 00:18:27,160 --> 00:18:30,480 Speaker 4: that the data that is available really doesn't signal that 363 00:18:30,560 --> 00:18:33,000 Speaker 4: this cut and then maybe one more next year really 364 00:18:33,040 --> 00:18:34,240 Speaker 4: is going to be inflationary. 365 00:18:35,119 --> 00:18:38,399 Speaker 6: Well, I think that's what the market's hoping for. I 366 00:18:38,440 --> 00:18:41,000 Speaker 6: think there are a lot of businesses that we invest 367 00:18:41,040 --> 00:18:45,399 Speaker 6: in where we do see the productivity gains from AI already. 368 00:18:46,280 --> 00:18:49,720 Speaker 6: We also know within our own bank there are significant 369 00:18:49,920 --> 00:18:53,680 Speaker 6: productivity gains, so some of that is already out there. 370 00:18:54,080 --> 00:18:58,520 Speaker 6: The unfortunate price reset from pre COVID levels to today 371 00:18:59,080 --> 00:19:02,440 Speaker 6: is also a problem. I get that, but that's damp 372 00:19:02,480 --> 00:19:06,040 Speaker 6: and aggregate final demand. What do we want going forward? 373 00:19:06,119 --> 00:19:09,360 Speaker 6: Do we want the disinflation we seem to be in 374 00:19:09,720 --> 00:19:12,480 Speaker 6: and what the FED is projecting, or do we want 375 00:19:12,520 --> 00:19:15,960 Speaker 6: deflation where prices come down. I would argue we still 376 00:19:16,000 --> 00:19:19,760 Speaker 6: want disinflation, and hopefully there will be a point in 377 00:19:19,840 --> 00:19:23,080 Speaker 6: time in the not too distant future where wage growth 378 00:19:23,160 --> 00:19:26,760 Speaker 6: and the trend in disinflation will normalize prices again. But 379 00:19:26,960 --> 00:19:29,840 Speaker 6: all of that still is a headwind to consumption, so 380 00:19:29,960 --> 00:19:34,480 Speaker 6: businesses are very careful how much cost increases they push through. 381 00:19:34,560 --> 00:19:38,560 Speaker 5: Now, can I do a counterfactual, please, Diane Swank if 382 00:19:38,560 --> 00:19:42,840 Speaker 5: we got a fifty beep Myron cut, what would happen 383 00:19:42,880 --> 00:19:47,000 Speaker 5: to the American economy now? With the financialization of the 384 00:19:47,000 --> 00:19:50,640 Speaker 5: American system, If you gave us a fifty beep cut now, 385 00:19:51,000 --> 00:19:56,119 Speaker 5: it'd be a veritable banking explosion, wouldn't it. 386 00:19:56,119 --> 00:19:58,760 Speaker 1: It would certainly add a lot more stimulus to what 387 00:19:58,800 --> 00:20:02,160 Speaker 1: we're already seeing. And stimulus is heat. Heat is inflation 388 00:20:02,480 --> 00:20:05,520 Speaker 1: unless you can really get all those offsets from AI 389 00:20:06,000 --> 00:20:08,920 Speaker 1: in the right places. And I think that's the hard 390 00:20:08,920 --> 00:20:12,480 Speaker 1: part is the old economy is where the tariffs are 391 00:20:12,520 --> 00:20:16,399 Speaker 1: hitting the hardest in manufacturing activity, and we are seeing 392 00:20:16,400 --> 00:20:19,160 Speaker 1: it come through in prices. And we're also seeing labor 393 00:20:19,200 --> 00:20:22,680 Speaker 1: shortages even as the labor market weekends in pockets where 394 00:20:22,720 --> 00:20:26,479 Speaker 1: immigrants have dominated. That's showing up in prices as well. 395 00:20:26,680 --> 00:20:30,800 Speaker 1: In Howmelda Care childcare costs all soaring. That was just 396 00:20:30,840 --> 00:20:35,160 Speaker 1: in September, and those shortages have only gotten worse since then. 397 00:20:35,359 --> 00:20:37,600 Speaker 5: Lisa, two twenty twenty. I looked at the clock right 398 00:20:37,640 --> 00:20:41,399 Speaker 5: when Diane Swank said tariffs one. First time we got 399 00:20:41,440 --> 00:20:45,119 Speaker 5: the tariffs was twenty minutes into the show. For most 400 00:20:45,200 --> 00:20:48,840 Speaker 5: of our audience, tariffs are a big deal they're affecting 401 00:20:48,880 --> 00:20:52,360 Speaker 5: their groceries, their healthcare, everything in the service sector as well. 402 00:20:52,440 --> 00:20:55,080 Speaker 4: Yeah, plastic Christmas trees fifteen to twenty percent higher because 403 00:20:55,080 --> 00:20:57,120 Speaker 4: of tariffs. There you go. So this also is. 404 00:20:57,080 --> 00:20:59,440 Speaker 5: A real Christmas tree of fake okay Christmas tree. 405 00:20:59,560 --> 00:21:03,080 Speaker 4: It's so increasing the real ones because of other people. 406 00:21:03,119 --> 00:21:05,520 Speaker 4: Diane Swank, Well, let you stay out of this conversation. 407 00:21:05,600 --> 00:21:07,520 Speaker 4: Thank you so much for being with us. Joining us 408 00:21:07,560 --> 00:21:10,440 Speaker 4: now for this conversation, not this conversation. Matt Lazetti of 409 00:21:10,480 --> 00:21:14,160 Speaker 4: Deutsche Bank with us as you typically do before the 410 00:21:14,280 --> 00:21:17,240 Speaker 4: FED press conference. Matt, just first, what's your impression nine 411 00:21:17,280 --> 00:21:18,920 Speaker 4: to three? Is this what you thought would happen. 412 00:21:20,520 --> 00:21:23,040 Speaker 7: Yeah, to be honest, I think in terms of the statement, 413 00:21:23,400 --> 00:21:26,000 Speaker 7: the SEP, the descent, so I think it was very 414 00:21:26,080 --> 00:21:28,320 Speaker 7: much in line with expectations. You know, certainly there was 415 00:21:28,960 --> 00:21:31,520 Speaker 7: scope to get greater descents from a hawker's direction than 416 00:21:31,560 --> 00:21:34,400 Speaker 7: what we got. I think for regional FED presidents potentially 417 00:21:34,440 --> 00:21:37,240 Speaker 7: Governor Barr was also leaning against this cut, but we 418 00:21:37,280 --> 00:21:39,320 Speaker 7: always thought that it was the job of chair pal 419 00:21:39,840 --> 00:21:42,040 Speaker 7: through the statement the language change that we got there. 420 00:21:42,359 --> 00:21:44,200 Speaker 7: But then I think coming up through the press conference 421 00:21:44,320 --> 00:21:47,199 Speaker 7: signals that he sends to try to rein in some 422 00:21:47,240 --> 00:21:49,800 Speaker 7: of those descents to have a hawkers message that allows, 423 00:21:50,160 --> 00:21:52,000 Speaker 7: you know, those officials to speak through that. And so 424 00:21:52,040 --> 00:21:54,000 Speaker 7: I think we probably got that as well. You know, 425 00:21:54,040 --> 00:21:56,840 Speaker 7: you're seeing markets respond by taking rates down. I don't 426 00:21:56,840 --> 00:21:58,520 Speaker 7: think that's really anything that we saw in the statement 427 00:21:58,640 --> 00:22:01,120 Speaker 7: or the SEP or the descent. I think it really 428 00:22:01,200 --> 00:22:04,359 Speaker 7: was the FED ramping up reserve management purchases, these T 429 00:22:04,480 --> 00:22:06,560 Speaker 7: bill purchases a little bit earlier than was expected. 430 00:22:06,880 --> 00:22:10,840 Speaker 5: Matt Lazetti Binki Chada is high on the street looking 431 00:22:10,880 --> 00:22:14,119 Speaker 5: at the equity markets. He says, the stock market's going 432 00:22:14,200 --> 00:22:17,440 Speaker 5: to go up, up, up. How do you attach Lizzetti 433 00:22:17,600 --> 00:22:21,680 Speaker 5: economics to bankram Chada's huge equity outlook? 434 00:22:22,960 --> 00:22:24,719 Speaker 7: Yeah, I think you know the good thing about how 435 00:22:24,720 --> 00:22:26,879 Speaker 7: we do it here, it's internally consistent. So I think 436 00:22:26,920 --> 00:22:31,520 Speaker 7: Binkie takes our economic growth forecasts are global economic growth forecasts, 437 00:22:31,520 --> 00:22:34,280 Speaker 7: and builds that into his earning projections. We have two 438 00:22:34,320 --> 00:22:36,720 Speaker 7: point four percent growth for the Yose economy over the 439 00:22:36,800 --> 00:22:40,000 Speaker 7: next year. That was sounding I think, quite bullish relative 440 00:22:40,040 --> 00:22:43,399 Speaker 7: to consensus expectations. But I would note the FED median 441 00:22:43,440 --> 00:22:45,359 Speaker 7: forecast came up to two point three percent today, I 442 00:22:45,400 --> 00:22:48,399 Speaker 7: think was revised higher than what many anticipated and is 443 00:22:48,440 --> 00:22:51,280 Speaker 7: now much closer to our own expectations. So I think 444 00:22:51,320 --> 00:22:54,680 Speaker 7: these two things are mutually reinforcing. We see a stronger 445 00:22:54,680 --> 00:22:59,200 Speaker 7: growth backdrop, we see financial conditions easing through Binkie's equity channel, 446 00:22:59,520 --> 00:23:01,960 Speaker 7: and those two things reinforcing each other over the next year. 447 00:23:02,080 --> 00:23:05,639 Speaker 4: Matt, your other colleague Jim Reid, put out a provocative 448 00:23:05,720 --> 00:23:08,560 Speaker 4: question earlier this morning, saying, what if the next FED 449 00:23:08,600 --> 00:23:11,119 Speaker 4: move was up? At what point do you think that 450 00:23:11,200 --> 00:23:13,720 Speaker 4: the move that the Fed is laying out really sets 451 00:23:13,800 --> 00:23:17,080 Speaker 4: up that counter factual in a more real way. 452 00:23:18,680 --> 00:23:21,760 Speaker 7: Yeah, certainly a provocative question, and I think over the 453 00:23:21,800 --> 00:23:23,760 Speaker 7: next year we are getting more questions about that, and 454 00:23:23,760 --> 00:23:25,719 Speaker 7: I think it's more coming from the global sphere. At 455 00:23:25,720 --> 00:23:29,960 Speaker 7: this point. You're seeing places like the RBA turn a 456 00:23:30,000 --> 00:23:32,840 Speaker 7: little bit more hawkish. There's questions about the ECB Bank 457 00:23:32,880 --> 00:23:36,720 Speaker 7: of Canada seeing stronger economic data as of late. For 458 00:23:36,760 --> 00:23:39,240 Speaker 7: the FED specifically, though, I think you need two things 459 00:23:39,240 --> 00:23:41,960 Speaker 7: to happen. One, you have to have a clear elimination 460 00:23:42,000 --> 00:23:43,800 Speaker 7: of downside risks to the labor market. We are not 461 00:23:43,840 --> 00:23:46,840 Speaker 7: there yet. There's still some fragility in this labor market 462 00:23:46,880 --> 00:23:49,159 Speaker 7: over the next several months, perhaps by the end of 463 00:23:49,200 --> 00:23:51,720 Speaker 7: next year, we could get there. And two, you need 464 00:23:51,720 --> 00:23:54,719 Speaker 7: the labor market to return as a source of inflationary pressure, 465 00:23:54,760 --> 00:23:57,400 Speaker 7: so you need the unemployment rate to decline, quits rate 466 00:23:57,400 --> 00:24:00,480 Speaker 7: to move higher, and wage growth to accelerate. It's possible. 467 00:24:00,600 --> 00:24:04,200 Speaker 7: I think you are seeing a substantial reduction and labor 468 00:24:04,200 --> 00:24:06,320 Speaker 7: supply in the US economy. I think if you were 469 00:24:06,320 --> 00:24:08,399 Speaker 7: to add on even more physical stimulus, So if we 470 00:24:08,440 --> 00:24:11,040 Speaker 7: were to get these two thousand dollars stimulus checks from 471 00:24:11,040 --> 00:24:13,520 Speaker 7: the Trump administration, I think that's the type of dynamic 472 00:24:13,600 --> 00:24:16,400 Speaker 7: where that could really shift the debate. People would begin 473 00:24:16,560 --> 00:24:19,280 Speaker 7: to think a little bit more actively about rate cuts 474 00:24:19,600 --> 00:24:21,360 Speaker 7: in the US. But to be clear, I don't think 475 00:24:21,359 --> 00:24:24,000 Speaker 7: we are there. Our baseline expectation is the next move 476 00:24:24,119 --> 00:24:24,600 Speaker 7: is a cut. 477 00:24:24,760 --> 00:24:26,119 Speaker 4: Bob, What do you think. What do you think it 478 00:24:26,119 --> 00:24:28,760 Speaker 4: would take for the Fed's next move or a move 479 00:24:28,840 --> 00:24:31,560 Speaker 4: next year to be a rate hike and not a cut. 480 00:24:32,160 --> 00:24:35,760 Speaker 6: Well, I think you'd have to see the fiscal stimulus 481 00:24:35,800 --> 00:24:39,160 Speaker 6: from the One Big Beautiful Bill Act hit and accelerate 482 00:24:39,200 --> 00:24:43,639 Speaker 6: business investment and consumer spending. You'd have to see a 483 00:24:43,760 --> 00:24:47,040 Speaker 6: labor shortage resulting from that then you'd have to see 484 00:24:47,080 --> 00:24:51,080 Speaker 6: a wage price spiral. Maybe you'll see that in the 485 00:24:51,160 --> 00:24:54,520 Speaker 6: second quarter, But right now, the FED thread at the needle. 486 00:24:54,600 --> 00:24:57,280 Speaker 6: Can't we just enjoy this into the holiday sees I 487 00:24:57,440 --> 00:24:58,040 Speaker 6: you know us. 488 00:24:58,920 --> 00:25:01,720 Speaker 5: That's the smartest thing i've today. That's the smartest thing 489 00:25:01,720 --> 00:25:05,000 Speaker 5: I've heard in Powell's opiniata. I get that. But the 490 00:25:05,040 --> 00:25:10,360 Speaker 5: bottom line is we have a prosperous economy for the halves. 491 00:25:11,000 --> 00:25:15,000 Speaker 5: Let's not upset that apple cart while everyone well meaning 492 00:25:15,040 --> 00:25:18,000 Speaker 5: tries to help people that are struggling so much. I mean, 493 00:25:18,000 --> 00:25:20,399 Speaker 5: that's threading the needle right now, is what we're doing. 494 00:25:21,160 --> 00:25:24,400 Speaker 6: Well, Yes, but let's not forget that. The One Big 495 00:25:24,440 --> 00:25:28,879 Speaker 6: Beautiful Bill Act also has no taxes on tips, over 496 00:25:28,920 --> 00:25:33,520 Speaker 6: time social Security payments. A lot of those are concentrated 497 00:25:33,840 --> 00:25:37,359 Speaker 6: in the bottom couple quintiles of earners, so there should 498 00:25:37,400 --> 00:25:40,320 Speaker 6: be some relief coming there. 499 00:25:40,880 --> 00:25:43,359 Speaker 5: Where's your lack of conviction? That was Eddie on an 500 00:25:43,359 --> 00:25:47,240 Speaker 5: outlooking off of this FED meeting today. Where's the question 501 00:25:47,359 --> 00:25:49,399 Speaker 5: of your conviction in the next year? What are you 502 00:25:49,440 --> 00:25:50,359 Speaker 5: most worried about? 503 00:25:52,080 --> 00:25:53,600 Speaker 7: Yeah, I think in the very near term is that 504 00:25:53,640 --> 00:25:57,159 Speaker 7: the labor market dynamic, which is this fragile equilibrium with 505 00:25:57,200 --> 00:26:00,439 Speaker 7: low hiring and low firing breaks to the downside, they 506 00:26:00,560 --> 00:26:02,320 Speaker 7: begin to see layoffs pick up. I really don't think 507 00:26:02,320 --> 00:26:04,679 Speaker 7: we see that evidence as of yet, but it's a 508 00:26:04,680 --> 00:26:07,360 Speaker 7: real risk over the next several months. I think over 509 00:26:07,359 --> 00:26:10,800 Speaker 7: the course of twenty twenty six, I think there's some 510 00:26:10,920 --> 00:26:13,800 Speaker 7: risks to the upside here. You know, as Bob mentioned, 511 00:26:13,840 --> 00:26:16,040 Speaker 7: on the fiscal side, the stimulus checks that have been 512 00:26:16,040 --> 00:26:17,879 Speaker 7: floated not part of our baseline, but would be a 513 00:26:18,000 --> 00:26:21,280 Speaker 7: very real upside risk. And then I think we just 514 00:26:21,359 --> 00:26:25,080 Speaker 7: can't put the side these risks around FED independence. And 515 00:26:25,160 --> 00:26:27,560 Speaker 7: you know we heard Treasure Secretary best In talking about 516 00:26:27,600 --> 00:26:30,040 Speaker 7: regional FED president and we have to go through those votes. 517 00:26:30,080 --> 00:26:32,400 Speaker 7: And you have a Supreme Court case for Lisa Cook 518 00:26:32,440 --> 00:26:35,119 Speaker 7: coming up early next year. So there, I think that 519 00:26:35,160 --> 00:26:37,800 Speaker 7: there are a lot of risks associated with it from 520 00:26:37,840 --> 00:26:42,040 Speaker 7: a FED independence perspective. Inflation risk potentially to come along 521 00:26:42,160 --> 00:26:44,560 Speaker 7: end of the bond market also at risk potentially from that. 522 00:26:44,760 --> 00:26:46,639 Speaker 4: Matt, we have about three and a half minutes before 523 00:26:46,680 --> 00:26:49,240 Speaker 4: the press conference begins. From your perspective, what's the one 524 00:26:49,359 --> 00:26:51,520 Speaker 4: question you have for FED Shair J. 525 00:26:51,680 --> 00:26:52,040 Speaker 2: Powell. 526 00:26:52,040 --> 00:26:55,000 Speaker 4: Potentially at the last FED cut that he oversees. 527 00:26:56,560 --> 00:26:58,760 Speaker 7: Yeah, I think it's a little bit around the language 528 00:26:58,760 --> 00:27:01,400 Speaker 7: that they introduced into the late market, into the statement 529 00:27:01,440 --> 00:27:03,920 Speaker 7: how are we to think about that? Is that clearly 530 00:27:04,359 --> 00:27:06,760 Speaker 7: sending a signal that there's a much higher bar in 531 00:27:06,760 --> 00:27:09,840 Speaker 7: the near term. I also would ask him, are you 532 00:27:09,880 --> 00:27:12,560 Speaker 7: internalizing what could be a very weak jobs report next 533 00:27:12,600 --> 00:27:15,480 Speaker 7: week in today's decision. I think that's a really important 534 00:27:15,480 --> 00:27:18,080 Speaker 7: thing for the market. I think the Fed would probably 535 00:27:18,080 --> 00:27:20,160 Speaker 7: want to take out some of the sensitivity to next 536 00:27:20,160 --> 00:27:22,399 Speaker 7: week's data. I think one of the reasons that chairpal 537 00:27:22,480 --> 00:27:25,400 Speaker 7: wanted to push this great cut through was an expectation 538 00:27:25,440 --> 00:27:29,160 Speaker 7: you could see some weakness there. My expectation is next 539 00:27:29,160 --> 00:27:31,360 Speaker 7: week's data is going to be volatile. They are really 540 00:27:31,400 --> 00:27:33,680 Speaker 7: putting more weight on the December jobs report in early 541 00:27:33,760 --> 00:27:36,000 Speaker 7: January and the data we're going to get early next 542 00:27:36,080 --> 00:27:37,880 Speaker 7: year in that assessment. But I'd like to get confirmation 543 00:27:37,920 --> 00:27:38,879 Speaker 7: of that from the chair today. 544 00:27:38,920 --> 00:27:41,600 Speaker 4: Matt Zetti, thank you as always for your time, and 545 00:27:41,720 --> 00:27:44,320 Speaker 4: I look forward to hearing what you think after the 546 00:27:44,359 --> 00:27:47,280 Speaker 4: FED conference. This is an important point. How much is 547 00:27:47,320 --> 00:27:51,040 Speaker 4: this in some ways forecasting that December sixteenth jobs report 548 00:27:51,040 --> 00:27:52,840 Speaker 4: that we should have already had. It should have been 549 00:27:53,119 --> 00:27:55,360 Speaker 4: sort of one two punch for last Friday. We got 550 00:27:55,359 --> 00:27:58,320 Speaker 4: the November jobs report, they took that data into hand, 551 00:27:58,480 --> 00:28:00,560 Speaker 4: and then this meeting they respond to it. 552 00:28:00,680 --> 00:28:04,600 Speaker 6: Bob, Yeah, I think you can go back to September 553 00:28:04,640 --> 00:28:09,639 Speaker 6: and say, this is another risk management adjustment to policy, 554 00:28:09,960 --> 00:28:13,160 Speaker 6: that there are some signs of a soft labor market. 555 00:28:13,480 --> 00:28:16,960 Speaker 6: You're far away from what you're forecasting as your neutral rate. 556 00:28:17,320 --> 00:28:20,640 Speaker 6: Why not take another twenty five basis points off of that. 557 00:28:21,080 --> 00:28:23,159 Speaker 6: It will help corporate America. I'll get a lot of 558 00:28:23,240 --> 00:28:25,960 Speaker 6: questions in the next few days. Does twenty five basis 559 00:28:25,960 --> 00:28:29,639 Speaker 6: points actually do anything. Let's remember most of corporate America 560 00:28:29,680 --> 00:28:32,960 Speaker 6: are small and middle market businesses. Think of a fifty 561 00:28:33,040 --> 00:28:37,119 Speaker 6: million dollar EBAA company, they generally have seven times levers. 562 00:28:37,160 --> 00:28:39,600 Speaker 6: They've got three hundred and fifty million dollars worth of 563 00:28:39,640 --> 00:28:43,080 Speaker 6: debt on top of fifty million in IBADA. It helps 564 00:28:43,120 --> 00:28:48,720 Speaker 6: them a lot. It helps stabilize middle market corporate America significantly. 565 00:28:48,840 --> 00:28:51,600 Speaker 5: If we say it's an original meeting, we've got to 566 00:28:51,680 --> 00:28:54,000 Speaker 5: stagger to the next meeting. It will be wiser, we'll 567 00:28:54,000 --> 00:28:56,640 Speaker 5: have data and all that. But as Lisa mentioned at 568 00:28:56,680 --> 00:29:01,160 Speaker 5: the top of the show, the political overlay here is extraordinary. 569 00:29:01,200 --> 00:29:06,480 Speaker 5: What did JP Morgan's Washington experts say about the politics 570 00:29:06,600 --> 00:29:07,400 Speaker 5: of January? 571 00:29:08,160 --> 00:29:11,560 Speaker 6: Well, the question I would want to ask pal is 572 00:29:12,160 --> 00:29:15,760 Speaker 6: were there only three descents or was there a considerable 573 00:29:15,840 --> 00:29:20,080 Speaker 6: amount of bargaining to go from five descents to three descents? 574 00:29:20,200 --> 00:29:23,440 Speaker 6: And was that in the statement? And then you ratcheted 575 00:29:23,440 --> 00:29:27,200 Speaker 6: it up GDP half a percent from where you were 576 00:29:27,440 --> 00:29:31,080 Speaker 6: at the last summary of economic projections. His answers to 577 00:29:31,200 --> 00:29:35,120 Speaker 6: questions like that will tell you how politically influenced the 578 00:29:35,200 --> 00:29:36,800 Speaker 6: current Federal Reserve Board is. 579 00:29:37,000 --> 00:29:39,560 Speaker 4: That was a fantastic question, and I hope that he 580 00:29:39,640 --> 00:29:42,160 Speaker 4: guts asked that we really look to understand just what 581 00:29:42,280 --> 00:29:45,280 Speaker 4: kind of clutch the Fed share holds over this committee. 582 00:29:45,280 --> 00:29:47,280 Speaker 4: Bob Michael as always, thank you so much for being 583 00:29:47,280 --> 00:29:50,400 Speaker 4: with us for all this time. Truly always one of 584 00:29:50,480 --> 00:29:53,640 Speaker 4: the absolute best. Right now in markets a collective sigh 585 00:29:53,680 --> 00:29:55,640 Speaker 4: of relief. It could have been a lot worse. That 586 00:29:55,760 --> 00:29:57,920 Speaker 4: is sort of the message coming from it. The S 587 00:29:57,960 --> 00:29:59,960 Speaker 4: and P up a tenth of a percent, NASDAK still 588 00:30:00,040 --> 00:30:02,200 Speaker 4: suffering a little bit down to tens of a percent, suffering, 589 00:30:02,200 --> 00:30:04,080 Speaker 4: I say, still near our all time highs. And the 590 00:30:04,160 --> 00:30:06,240 Speaker 4: Russell two thousand, seeing that pop up six tens of 591 00:30:06,280 --> 00:30:09,440 Speaker 4: a percent, which you are seeing in the bond space twos, 592 00:30:09,520 --> 00:30:13,120 Speaker 4: tens and thirties. Is this lift to a bond price 593 00:30:13,360 --> 00:30:16,240 Speaker 4: down and yield as people expect to see some sort 594 00:30:16,240 --> 00:30:18,800 Speaker 4: of bond purchases as well as a rate cut coming 595 00:30:18,880 --> 00:30:21,600 Speaker 4: in next year, it really seems to me that Jay 596 00:30:21,680 --> 00:30:24,240 Speaker 4: Powell really has the chance to split the difference. 597 00:30:24,360 --> 00:30:26,800 Speaker 5: I'll have to see. I'm going to watch some bond vigilantes. 598 00:30:26,840 --> 00:30:28,640 Speaker 5: I think they're in the press conference as well.