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Speaker 3: The most divided FED since before the pandemic voted to
Speaker 3: lower the benchmark rate by twenty five basis points, as
Speaker 3: investors expected, but there were three descents for the first
Speaker 3: time since twenty nineteen, and on the dot plot, a
Speaker 3: total of six members of the committee suggested they were
Speaker 3: not in favor of lowering rates. There's also a hawkish
Speaker 3: line in the statement in considering the extent and timing
Speaker 3: of additional adjustments to the target range, bringing back language
Speaker 3: from a year ago when they paused their first round
Speaker 3: of rate cuts. No surprise, Stephen Myron wanted a half
Speaker 3: point reduction, but in something of a surprise, Austin Gouldsby
Speaker 3: joined Jeffrey Schmid in dissenting for no cut at all.
Speaker 3: Dot plot suggests just one cut coming. Seven members want
Speaker 3: no move, however, including three who think the rate might
Speaker 3: go up. The committee statement says economic activity has been
Speaker 3: expanding at a moderate pace and the latest forecasts show
Speaker 3: a consensus GDP figure of one point seven percent for
Speaker 3: this year, but in a big move up. They have
Speaker 3: revised growth forecasts for twenty twenty six to two point
Speaker 3: three percent. Unemployment forecasts to finish this year at four
Speaker 3: and a half percent will fall back to four point
Speaker 3: four percent next year. Using identical language from October, the
Speaker 3: statement says job gains have slowed this year and the
Speaker 3: unemployment rate has edged up through September. Nodding to the
Speaker 3: government's shutdown caused absence of data, the statement repeats that
Speaker 3: more recent indicators are consistent with these developments. There's no
Speaker 3: change in the inflation assessment. It has moved up since
Speaker 3: earlier in the year and remains somewhat elevated. However, it
Speaker 3: is seen slowing market next year. PCE headline from two
Speaker 3: point nine percent this year to two point four percent
Speaker 3: in twenty twenty six, and as always, they won't reach
Speaker 3: their two percent target for two more years. In twenty
Speaker 3: twenty eight, core PCE will finish the year at three percent,
Speaker 3: falling to two and a half percent next year. As
Speaker 3: for the balance sheet, the statement now says reserve balances
Speaker 3: have declined to ample levels. The Fed will buy shorter
Speaker 3: term treasuries, mostly bills, but up to three year notes
Speaker 3: as needed to maintain that ample supply. The first operation
Speaker 3: will be announced tomorrow, with the first purchases on a
Speaker 3: Friday of approximately forty billion dollars in treasury bills.
Speaker 4: Guys, Michael McKee, stay close as we parse through this.
Speaker 4: Right now, what you see in markets is a collective cheer.
Speaker 4: Perhaps this was supposed to be a hawkish cut. The
Speaker 4: market is taking it slightly differently, as MPPI had been lower.
Speaker 4: Now it is positive by almost two tounts of percent.
Speaker 4: Euro dollar euro climbing dollar falling on the heels of
Speaker 4: what does seem to be like more FED cuts, and
Speaker 4: across the board tuesd tens, and thirties, you are seeing
Speaker 4: a bid into bonds with this feeling that this is
Speaker 4: a FED that not only is going to support rates
Speaker 4: with further rate cuts, but also with additional bond purchases time.
Speaker 5: To me, the most interesting nuance here is the descent
Speaker 5: of the gentleman from Chicago. This is brilliant academics out
Speaker 5: of Milton Yale and the Massachusetts Institute of Technology. Austin
Speaker 5: Goulesby is basically our technology president. He's wired into the Internet,
Speaker 5: wired into the computers and I'd love to know if
Speaker 5: his descent has to do with the vibrancy of AI
Speaker 5: which leads to a better productivity, a better GDP. Let's
Speaker 5: be careful what we do.
Speaker 4: Yeah, right now we're looking at nine votes, four and
Speaker 4: three descents. Bob Michael of JP Morgan with us here,
Speaker 4: what's your first reaction of this decision?
Speaker 6: Not as bad as it could have been. There could
Speaker 6: have been a lot more descents in favor of rate cuts.
Speaker 6: When we look at things like PCE. We expected they
Speaker 6: would lower core PCE by a tenth. They did that.
Speaker 6: They left the unemployment rate for next year roughly where
Speaker 6: it was last year. They did raise their expectation of
Speaker 6: GDP a couple of tenths from where it was. So
Speaker 6: to me, that seems to be, if you want to
Speaker 6: call it, a hawkish tilt, the one hawkish tilt, and
Speaker 6: of course, adding the extent and timing of additional adjustments
Speaker 6: to rate policy going forward, that was pretty much in
Speaker 6: the market. So I think, mostly as the market expect
Speaker 6: and nowhere near as bad as the market feared.
Speaker 4: So not maybe as hawkish of a cut as people
Speaker 4: thought it might have been. Joining us now, as Jim
Speaker 4: Bianco of Bianco Research. Jim, what's your first reaction to
Speaker 4: this decision, which, as Bob was saying, isn't as bad
Speaker 4: as it could have been. It could have been four
Speaker 4: decents or five descents, only three decents. Is this a
Speaker 4: victory for Jerome Powell.
Speaker 2: It's a victory for Jerome. But I'll take the other side, Bob.
Speaker 2: I'll say that it's not as good as it could
Speaker 2: have been. I was hoping for a seven to five vote.
Speaker 2: I was hoping for FED that was more divided, that
Speaker 2: was more independent, that was going to send a message
Speaker 2: to the administration. You could put a guy in that
Speaker 2: wants to go to one percent, but he's not going
Speaker 2: to bully us to cut rates next year just because
Speaker 2: he's the FED chairman. They kind of left the door open.
Speaker 2: I think that the FED can be bullied by the
Speaker 2: next FED chairman to do the bidding of President Trump.
Speaker 4: Bobby, you were saying that you wanted to respond, not
Speaker 4: as good as it could have been with more descents.
Speaker 6: I think if you're the administration and you're invested in
Speaker 6: this market, this is pretty much as good as it
Speaker 6: could have been. Other than no descents, I'm not sure
Speaker 6: how additional descents make this better?
Speaker 5: Well, McKey descent at the press conference.
Speaker 4: Well, let's find out, Mike, you were parsing through this,
Speaker 4: you've got something to add? What do you see?
Speaker 3: Yeah, Well, the point I'd like to make is that
Speaker 3: the SEP shows that growth is going to pick up
Speaker 3: significantly next year, unemployment is going to go down, and
Speaker 3: inflation is going to go down significantly next year. So
Speaker 3: what was the rush to cut rates today if they
Speaker 3: think that's the track that we're on. I think that's
Speaker 3: going to be a key question for JPOW in the
Speaker 3: news conference. Does this raise the possibility that they could
Speaker 3: be going the wrong direction with rates? There were some
Speaker 3: people who made that case before we went into today's meeting,
Speaker 3: and they're going to be still raising questions about it
Speaker 3: going forward.
Speaker 4: Michael McKee, thank you so much. We will be catching
Speaker 4: up with you and of course listening to your questions. Jim,
Speaker 4: this is something that is near and dear to your heart,
Speaker 4: as you call yourself a self dove inflationista, do you
Speaker 4: think that this really adds to that inflationary pressure if
Speaker 4: the FED essentially is accepting that they're not going to
Speaker 4: get down to their inflation target for six seven potentially
Speaker 4: even eight years.
Speaker 2: I agree. I think that the FED has to be
Speaker 2: very worried about that. We're worried about affordability right now.
Speaker 2: The CPI is up twenty seven percent since the end
Speaker 2: of COVID, and that's what people are upset about. How
Speaker 2: do we fix that. We need the inflation rate to
Speaker 2: run below two percent for a while so that wages
Speaker 2: can catch up. If the inflation rate is going to
Speaker 2: at three and moderate to two and a half, that
Speaker 2: is going to keep the affordability anger white hot over
Speaker 2: the next year to year and a half or so.
Speaker 2: And so I don't think that accommodating that by cutting
Speaker 2: interest rates is going to help. And that's the question
Speaker 2: I hope the chairman gets is, how are you helping
Speaker 2: affordability with one hundred and seventy five bases points of
Speaker 2: cuts in the last fourteen months.
Speaker 5: Jim, We've got to review the past. Here you were
Speaker 5: a leader on saying that inflation would be sticky. It
Speaker 5: was a lonely call years and years ago, and Bianco
Speaker 5: of Chicago said, you know what, folks were not falling
Speaker 5: down to two percent. So here we are, Jim Bianco,
Speaker 5: I just want to know the efficacy Jim Bianco where
Speaker 5: he says in the press conference, basically, one and done.
Speaker 5: We made a rate cut. Maybe we will have a
Speaker 5: sequence of future rate cuts, but we really really now
Speaker 5: have to wait and see what the data says. Isn't
Speaker 5: that where we are Jim Bianco, Well, that's if that's
Speaker 5: what he says.
Speaker 2: And again, what I was trying to say before is
Speaker 2: if the chairman imitates that it's one and done, he's
Speaker 2: a chairman's running the show. And in May we're going
Speaker 2: to have a handpicked successor from Donald Trump running the show.
Speaker 2: And we know what Trump thinks about it illustrates and
Speaker 2: that person's going to want to have lower rates. But
Speaker 2: if he does say that, then maybe the market will
Speaker 2: take it a little bit differently. And we'll see if
Speaker 2: he does. But most of the times he'll just say
Speaker 2: he's going to be data dependent, and it depends on
Speaker 2: what the data is.
Speaker 5: This is an important ving at folks that I think
Speaker 5: just so valuable. I'm in a room with Axel Weber,
Speaker 5: Sharkawa of Japan, the wonderful John Lipski with all of
Speaker 5: his work on New York Wall Street, many other worries.
Speaker 5: Tomahonig was there from Kansas City and the room fell silent,
Speaker 5: Bob Michael when they talked about the next regime of
Speaker 5: the FED and the risk here that it would be
Speaker 5: cut cut, cut cut. Is that a legitimate fear that
Speaker 5: the next chairman and the apparatus will allow us to
Speaker 5: go towards some regime of new lo low rates.
Speaker 6: Well, I think you have to look at which FED
Speaker 6: presidents are coming onto the FOMC next year, and they're
Speaker 6: mostly in the hawkish cap. So whoever you put in
Speaker 6: as the FED chair has to be very persuasive. And
Speaker 6: I guarantee you the President isn't looking to appoint the
Speaker 6: next Paul Vulker. They're looking to appoint someone who believes
Speaker 6: in supply side economic.
Speaker 5: And Lisa, this is critical, This is absolutely critical. That
Speaker 5: we have an analog here with the Bank of England
Speaker 5: that over time has told the Governor of the Bank
Speaker 5: of Inland and their chairman equivalent, no, we're not in agreement,
Speaker 5: We're not going to do it. Is that what our
Speaker 5: twenty twenty seven looks like.
Speaker 4: Part of the problem is people get overwhelmed by the
Speaker 4: state of events, and this is something that you talk
Speaker 4: about a lot, and Jim, I'd love your thoughts on
Speaker 4: that this idea, that this is a FED that is
Speaker 4: now buying bonds once more, buying notes once more, and
Speaker 4: they're doing so because of reserves issues and really technical
Speaker 4: considerations for the market. They don't want another repo freak
Speaker 4: out at this point, though, it does indicate a structural
Speaker 4: issue with how much debt is out there, the government
Speaker 4: deficit that's not going down, and a question of the
Speaker 4: Fed's role. Are they being forced to monetize the debt
Speaker 4: in a way that will keep them artificially easy if
Speaker 4: you're just going off the economic outlook, I.
Speaker 2: Think they are at least being force to acknowledge fiscal dominance,
Speaker 2: that the fiscal situation is important. Basically, the funding market,
Speaker 2: the repo market, which funds the thirty eight trillion dollar
Speaker 2: treasury market, is too small. It's too small because the
Speaker 2: Fed has been doing QTE and reducing reserves. Those interest
Speaker 2: rates report rates have been going up. Now. One answer
Speaker 2: could be to tell Congress you can't spend as much money,
Speaker 2: you can't run as big a deficit because the funding
Speaker 2: markets can't handle that size of a market. But if
Speaker 2: the FED wants to elect to, let's expand the funding
Speaker 2: markets to meet the size of the bond market. You're
Speaker 2: telling Congress, go ahead, spend more money, run bigger deficits.
Speaker 2: We've got your back. We'll continue to expand that funding
Speaker 2: market to meet those goals. And the biggest driver of
Speaker 2: inflation will over the last couple of years, other than
Speaker 2: the supply shock that we had in twenty one, has
Speaker 2: been government spending. And they seem to be encouraging more
Speaker 2: government spending.
Speaker 6: Bob, do you agree with that, absolutely, one hundred percent.
Speaker 6: But it doesn't change the fact that that's what's occurring
Speaker 6: and the markets responding to that. I look at everything
Speaker 6: that just happened in the last few minutes, and you know,
Speaker 6: everyone got what they wanted. Those hawks on the Fed
Speaker 6: that didn't want to see a rate cut, they got that.
Speaker 6: When you look at the Fed futures market, we had
Speaker 6: two rate cuts priced for next year, midyear, and the
Speaker 6: end of the year. Now there's only one price for
Speaker 6: next year and it's in the fourth quarter. So you
Speaker 6: got what you wanted. You got the market moving away
Speaker 6: from being in a rate cutting regime going forward. But
Speaker 6: if you look at the doves on the Fed, if
Speaker 6: you think about the administration, they got what they wanted.
Speaker 6: They got another twenty five basis point take and off
Speaker 6: of base rates, and the markets responding positively to that.
Speaker 6: It's rare that everyone gets what they wanted out of
Speaker 6: an FOMC meeting.
Speaker 4: Jim, I love your comments on that, this idea that
Speaker 4: everyone wins. If you do have monetization of the debt, yes,
Speaker 4: you do have ongoing fiscal spending, yes, but that helps
Speaker 4: support the markets. And we're not seeing runaway inflation, so
Speaker 4: what's the problem.
Speaker 2: We're going to get a new FED chairman, that's the
Speaker 2: big issue. And the new FED chairman is going to
Speaker 2: be perceived to be having a political agenda, and you
Speaker 2: were hoping that the current members of the FOMC were
Speaker 2: going to act as an independent break on a political
Speaker 2: agenda that was coming in. And that's why I wanted
Speaker 2: to see more dissents to be signal that they were ready,
Speaker 2: willing and able to be that political break. Now maybe
Speaker 2: they will once we get that new FED chairman, but
Speaker 2: then that looks political that they didn't take the chance
Speaker 2: to do it before the new guy came.
Speaker 4: Jim Bianco, thank you so much, as always for your insights.
Speaker 4: This really is going to be the debate. How does
Speaker 4: fedhair J. Powell position himself and position the FMC is
Speaker 4: being politically independent at a time that's highly politically charged.
Speaker 4: We hear every single day about the FED share from
Speaker 4: this president.
Speaker 5: The redo of independence is the core issue, particularly of
Speaker 5: the heritage of the fedback to nineteen fifty one, and
Speaker 5: it's under threat, no question about that. It'd be interesting
Speaker 5: to see if the President gives way. Is Bob Michael
Speaker 5: mentioned the FT article today talking about well maybe it
Speaker 5: isn't one hundred percent or ninety percent, doctor Hassett, and
Speaker 5: you get to a point where there's a renewed debate.
Speaker 5: We'll have to see on that. To me, it's a
Speaker 5: Chicago FED meeting. We had Goulesby dissenting, which is a
Speaker 5: shock in itself, and have Jim Bianco with this is wonderful.
Speaker 5: Diane Swank owns the high ground of Middle America with
Speaker 5: kp MG. She's not out of three zip codes in
Speaker 5: Manhattan and joins us this afternoon. I look Diane at
Speaker 5: this moment, and when I see Goulesby's descent, and it's
Speaker 5: sents me a Chicago descent. It's a descent of productivity.
Speaker 5: Do we have any idea with this new AI that
Speaker 5: we have a new productivity that will allow for a
Speaker 5: better real GDP, a more effective and efficient America.
Speaker 1: We don't know that yet. What we do know is
Speaker 1: that productivity growth has moved up, and that's because firms
Speaker 1: are doing more with less. We don't know that it's
Speaker 1: all from AI. We haven't seen enough adoption of AI
Speaker 1: yet to get there. And also what we don't know
Speaker 1: is how AI will be used, whether or not we'll
Speaker 1: see a lot of new jobs from this new innovation.
Speaker 1: That's usually what we see from innovation. Somealy, that's not
Speaker 1: what Silicon Valley is telling us at this point in time.
Speaker 1: And also it matters who the gains of the AI
Speaker 1: actually accrue to. If those productivity gains continue to accrue
Speaker 1: to the owners of capital instead of workers, workers are
Speaker 1: going to feel left behind, and they're already feeling left
Speaker 1: behind because of the fact that the level of prices,
Speaker 1: as Jin pointed out, is just too high. Even if
Speaker 1: inflation were to cool from here, the level of prices
Speaker 1: are still too hot.
Speaker 5: Lisa, I set up that question because I knew what
Speaker 5: doctor Swank would say. Who's going to be the winner
Speaker 5: of productivity? Who are going to be the winners out there,
Speaker 5: and that's the ultimate political tension.
Speaker 4: Which is the reason why the fed's role in this
Speaker 4: is getting increasingly politicized. And i'd love your tech take
Speaker 4: on how this FED is taking into account productivity gains
Speaker 4: of AI and talking about goldilocks, because essentially that is
Speaker 4: the scenario that they laid out in their statement of
Speaker 4: economic projections.
Speaker 1: Well, the Goldilock scenario really requires with productivity growth it
Speaker 1: to be broad based. And actually people always forget this
Speaker 1: part of it. If productivity growth, they raise their growth
Speaker 1: rates for next year. If productivity growth is driving gains
Speaker 1: in overall economic growth, it means we can actually have
Speaker 1: higher break evens on the FED funds rate because the
Speaker 1: economy can grow more rapidly without having to lower rates.
Speaker 1: And I think that's important as well. And so we've
Speaker 1: really not seen all this yet and I think it's
Speaker 1: still ahead of us. I am worried about the fact
Speaker 1: that we're getting fiscal stimulus in the form of the
Speaker 1: largest tax refunds surge on record in the first and
Speaker 1: second quarter we'll hit between March and May, and we
Speaker 1: know that those tax refunds are treated like windfall gains
Speaker 1: due to the expansions of tax cuts passed in July
Speaker 1: of last year. They're retroactive to beginning of twenty twenty five,
Speaker 1: and that's going to be a big bump in fiscal
Speaker 1: stimulus at a time when we're still feeling the inflation
Speaker 1: from both tariffs and changes in immigration policy, and I
Speaker 1: think that's really important. We're seeing service sector inflation pick
Speaker 1: up as well.
Speaker 4: If that's the case, dine, why are not forward break
Speaker 4: even rates rising substantially. I was looking just now at
Speaker 4: the five year five year forward break even rates, and
Speaker 4: they actually went down after this FED decision, not up,
Speaker 4: even though exactly what you're saying, if you do believe
Speaker 4: that there will be something additional fiscal stimulus that would
Speaker 4: be inflationary, you would think that this rate decision would
Speaker 4: only encourage those inflation fears.
Speaker 1: I don't think. I think we've seen some of it
Speaker 1: in financial markets already. The fact that it's not happening
Speaker 1: today doesn't mean it won't happen. And we've already seen
Speaker 1: some nervousness in the bond market, skidtishness about the size
Speaker 1: of debt that they have to absorb, the mega merger
Speaker 1: deals that are coming out that are also financed by debt.
Speaker 1: All of that together along with the fact that we're
Speaker 1: now going to see in twenty twenty six, the government
Speaker 1: debt is going to eclipse the size of the economy.
Speaker 1: It has not done that since World War Two, and
Speaker 1: so we're moving into new territory, and I think a
Speaker 1: lot of things people are sort of looking at the
Speaker 1: way the world was rather than what's changing, and things
Speaker 1: are changing very rapidly.
Speaker 4: If you are just joining us. We did get that
Speaker 4: FEDER rate decision. They did lower by twenty five basis
Speaker 4: points as widely as expected, nine to three vote three descents.
Speaker 4: The news really is that Austin Goolsby joined FED the
Speaker 4: Fed Schmidt in dissenting saying that they should not lower rates,
Speaker 4: who of course had Stephen Myron, a FED governor, talking
Speaker 4: about a fifty basis point cut dissenting on the other side.
Speaker 4: Not as many descents as people had expected. The Fed
Speaker 4: did revert back to what we saw in the October statement,
Speaker 4: using language used just before pausing rate cuts, so potentially
Speaker 4: the last FED rate cut for a long time by
Speaker 4: this chair. J.
Speaker 5: Powell.
Speaker 4: I'm just wondering, Bob, if you think that right now
Speaker 4: this market is saying they are okay to do this,
Speaker 4: that the data that is available really doesn't signal that
Speaker 4: this cut and then maybe one more next year really
Speaker 4: is going to be inflationary.
Speaker 6: Well, I think that's what the market's hoping for. I
Speaker 6: think there are a lot of businesses that we invest
Speaker 6: in where we do see the productivity gains from AI already.
Speaker 6: We also know within our own bank there are significant
Speaker 6: productivity gains, so some of that is already out there.
Speaker 6: The unfortunate price reset from pre COVID levels to today
Speaker 6: is also a problem. I get that, but that's damp
Speaker 6: and aggregate final demand. What do we want going forward?
Speaker 6: Do we want the disinflation we seem to be in
Speaker 6: and what the FED is projecting, or do we want
Speaker 6: deflation where prices come down. I would argue we still
Speaker 6: want disinflation, and hopefully there will be a point in
Speaker 6: time in the not too distant future where wage growth
Speaker 6: and the trend in disinflation will normalize prices again. But
Speaker 6: all of that still is a headwind to consumption, so
Speaker 6: businesses are very careful how much cost increases they push through.
Speaker 5: Now, can I do a counterfactual, please, Diane Swank if
Speaker 5: we got a fifty beep Myron cut, what would happen
Speaker 5: to the American economy now? With the financialization of the
Speaker 5: American system, If you gave us a fifty beep cut now,
Speaker 5: it'd be a veritable banking explosion, wouldn't it.
Speaker 1: It would certainly add a lot more stimulus to what
Speaker 1: we're already seeing. And stimulus is heat. Heat is inflation
Speaker 1: unless you can really get all those offsets from AI
Speaker 1: in the right places. And I think that's the hard
Speaker 1: part is the old economy is where the tariffs are
Speaker 1: hitting the hardest in manufacturing activity, and we are seeing
Speaker 1: it come through in prices. And we're also seeing labor
Speaker 1: shortages even as the labor market weekends in pockets where
Speaker 1: immigrants have dominated. That's showing up in prices as well.
Speaker 1: In Howmelda Care childcare costs all soaring. That was just
Speaker 1: in September, and those shortages have only gotten worse since then.
Speaker 5: Lisa, two twenty twenty. I looked at the clock right
Speaker 5: when Diane Swank said tariffs one. First time we got
Speaker 5: the tariffs was twenty minutes into the show. For most
Speaker 5: of our audience, tariffs are a big deal they're affecting
Speaker 5: their groceries, their healthcare, everything in the service sector as well.
Speaker 4: Yeah, plastic Christmas trees fifteen to twenty percent higher because
Speaker 4: of tariffs. There you go. So this also is.
Speaker 5: A real Christmas tree of fake okay Christmas tree.
Speaker 4: It's so increasing the real ones because of other people.
Speaker 4: Diane Swank, Well, let you stay out of this conversation.
Speaker 4: Thank you so much for being with us. Joining us
Speaker 4: now for this conversation, not this conversation. Matt Lazetti of
Speaker 4: Deutsche Bank with us as you typically do before the
Speaker 4: FED press conference. Matt, just first, what's your impression nine
Speaker 4: to three? Is this what you thought would happen.
Speaker 7: Yeah, to be honest, I think in terms of the statement,
Speaker 7: the SEP, the descent, so I think it was very
Speaker 7: much in line with expectations. You know, certainly there was
Speaker 7: scope to get greater descents from a hawker's direction than
Speaker 7: what we got. I think for regional FED presidents potentially
Speaker 7: Governor Barr was also leaning against this cut, but we
Speaker 7: always thought that it was the job of chair pal
Speaker 7: through the statement the language change that we got there.
Speaker 7: But then I think coming up through the press conference
Speaker 7: signals that he sends to try to rein in some
Speaker 7: of those descents to have a hawkers message that allows,
Speaker 7: you know, those officials to speak through that. And so
Speaker 7: I think we probably got that as well. You know,
Speaker 7: you're seeing markets respond by taking rates down. I don't
Speaker 7: think that's really anything that we saw in the statement
Speaker 7: or the SEP or the descent. I think it really
Speaker 7: was the FED ramping up reserve management purchases, these T
Speaker 7: bill purchases a little bit earlier than was expected.
Speaker 5: Matt Lazetti Binki Chada is high on the street looking
Speaker 5: at the equity markets. He says, the stock market's going
Speaker 5: to go up, up, up. How do you attach Lizzetti
Speaker 5: economics to bankram Chada's huge equity outlook?
Speaker 7: Yeah, I think you know the good thing about how
Speaker 7: we do it here, it's internally consistent. So I think
Speaker 7: Binkie takes our economic growth forecasts are global economic growth forecasts,
Speaker 7: and builds that into his earning projections. We have two
Speaker 7: point four percent growth for the Yose economy over the
Speaker 7: next year. That was sounding I think, quite bullish relative
Speaker 7: to consensus expectations. But I would note the FED median
Speaker 7: forecast came up to two point three percent today, I
Speaker 7: think was revised higher than what many anticipated and is
Speaker 7: now much closer to our own expectations. So I think
Speaker 7: these two things are mutually reinforcing. We see a stronger
Speaker 7: growth backdrop, we see financial conditions easing through Binkie's equity channel,
Speaker 7: and those two things reinforcing each other over the next year.
Speaker 4: Matt, your other colleague Jim Reid, put out a provocative
Speaker 4: question earlier this morning, saying, what if the next FED
Speaker 4: move was up? At what point do you think that
Speaker 4: the move that the Fed is laying out really sets
Speaker 4: up that counter factual in a more real way.
Speaker 7: Yeah, certainly a provocative question, and I think over the
Speaker 7: next year we are getting more questions about that, and
Speaker 7: I think it's more coming from the global sphere. At
Speaker 7: this point. You're seeing places like the RBA turn a
Speaker 7: little bit more hawkish. There's questions about the ECB Bank
Speaker 7: of Canada seeing stronger economic data as of late. For
Speaker 7: the FED specifically, though, I think you need two things
Speaker 7: to happen. One, you have to have a clear elimination
Speaker 7: of downside risks to the labor market. We are not
Speaker 7: there yet. There's still some fragility in this labor market
Speaker 7: over the next several months, perhaps by the end of
Speaker 7: next year, we could get there. And two, you need
Speaker 7: the labor market to return as a source of inflationary pressure,
Speaker 7: so you need the unemployment rate to decline, quits rate
Speaker 7: to move higher, and wage growth to accelerate. It's possible.
Speaker 7: I think you are seeing a substantial reduction and labor
Speaker 7: supply in the US economy. I think if you were
Speaker 7: to add on even more physical stimulus, So if we
Speaker 7: were to get these two thousand dollars stimulus checks from
Speaker 7: the Trump administration, I think that's the type of dynamic
Speaker 7: where that could really shift the debate. People would begin
Speaker 7: to think a little bit more actively about rate cuts
Speaker 7: in the US. But to be clear, I don't think
Speaker 7: we are there. Our baseline expectation is the next move
Speaker 7: is a cut.
Speaker 4: Bob, What do you think. What do you think it
Speaker 4: would take for the Fed's next move or a move
Speaker 4: next year to be a rate hike and not a cut.
Speaker 6: Well, I think you'd have to see the fiscal stimulus
Speaker 6: from the One Big Beautiful Bill Act hit and accelerate
Speaker 6: business investment and consumer spending. You'd have to see a
Speaker 6: labor shortage resulting from that then you'd have to see
Speaker 6: a wage price spiral. Maybe you'll see that in the
Speaker 6: second quarter, But right now, the FED thread at the needle.
Speaker 6: Can't we just enjoy this into the holiday sees I
Speaker 6: you know us.
Speaker 5: That's the smartest thing i've today. That's the smartest thing
Speaker 5: I've heard in Powell's opiniata. I get that. But the
Speaker 5: bottom line is we have a prosperous economy for the halves.
Speaker 5: Let's not upset that apple cart while everyone well meaning
Speaker 5: tries to help people that are struggling so much. I mean,
Speaker 5: that's threading the needle right now, is what we're doing.
Speaker 6: Well, Yes, but let's not forget that. The One Big
Speaker 6: Beautiful Bill Act also has no taxes on tips, over
Speaker 6: time social Security payments. A lot of those are concentrated
Speaker 6: in the bottom couple quintiles of earners, so there should
Speaker 6: be some relief coming there.
Speaker 5: Where's your lack of conviction? That was Eddie on an
Speaker 5: outlooking off of this FED meeting today. Where's the question
Speaker 5: of your conviction in the next year? What are you
Speaker 5: most worried about?
Speaker 7: Yeah, I think in the very near term is that
Speaker 7: the labor market dynamic, which is this fragile equilibrium with
Speaker 7: low hiring and low firing breaks to the downside, they
Speaker 7: begin to see layoffs pick up. I really don't think
Speaker 7: we see that evidence as of yet, but it's a
Speaker 7: real risk over the next several months. I think over
Speaker 7: the course of twenty twenty six, I think there's some
Speaker 7: risks to the upside here. You know, as Bob mentioned,
Speaker 7: on the fiscal side, the stimulus checks that have been
Speaker 7: floated not part of our baseline, but would be a
Speaker 7: very real upside risk. And then I think we just
Speaker 7: can't put the side these risks around FED independence. And
Speaker 7: you know we heard Treasure Secretary best In talking about
Speaker 7: regional FED president and we have to go through those votes.
Speaker 7: And you have a Supreme Court case for Lisa Cook
Speaker 7: coming up early next year. So there, I think that
Speaker 7: there are a lot of risks associated with it from
Speaker 7: a FED independence perspective. Inflation risk potentially to come along
Speaker 7: end of the bond market also at risk potentially from that.
Speaker 4: Matt, we have about three and a half minutes before
Speaker 4: the press conference begins. From your perspective, what's the one
Speaker 4: question you have for FED Shair J.
Speaker 2: Powell.
Speaker 4: Potentially at the last FED cut that he oversees.
Speaker 7: Yeah, I think it's a little bit around the language
Speaker 7: that they introduced into the late market, into the statement
Speaker 7: how are we to think about that? Is that clearly
Speaker 7: sending a signal that there's a much higher bar in
Speaker 7: the near term. I also would ask him, are you
Speaker 7: internalizing what could be a very weak jobs report next
Speaker 7: week in today's decision. I think that's a really important
Speaker 7: thing for the market. I think the Fed would probably
Speaker 7: want to take out some of the sensitivity to next
Speaker 7: week's data. I think one of the reasons that chairpal
Speaker 7: wanted to push this great cut through was an expectation
Speaker 7: you could see some weakness there. My expectation is next
Speaker 7: week's data is going to be volatile. They are really
Speaker 7: putting more weight on the December jobs report in early
Speaker 7: January and the data we're going to get early next
Speaker 7: year in that assessment. But I'd like to get confirmation
Speaker 7: of that from the chair today.
Speaker 4: Matt Zetti, thank you as always for your time, and
Speaker 4: I look forward to hearing what you think after the
Speaker 4: FED conference. This is an important point. How much is
Speaker 4: this in some ways forecasting that December sixteenth jobs report
Speaker 4: that we should have already had. It should have been
Speaker 4: sort of one two punch for last Friday. We got
Speaker 4: the November jobs report, they took that data into hand,
Speaker 4: and then this meeting they respond to it.
Speaker 6: Bob, Yeah, I think you can go back to September
Speaker 6: and say, this is another risk management adjustment to policy,
Speaker 6: that there are some signs of a soft labor market.
Speaker 6: You're far away from what you're forecasting as your neutral rate.
Speaker 6: Why not take another twenty five basis points off of that.
Speaker 6: It will help corporate America. I'll get a lot of
Speaker 6: questions in the next few days. Does twenty five basis
Speaker 6: points actually do anything. Let's remember most of corporate America
Speaker 6: are small and middle market businesses. Think of a fifty
Speaker 6: million dollar EBAA company, they generally have seven times levers.
Speaker 6: They've got three hundred and fifty million dollars worth of
Speaker 6: debt on top of fifty million in IBADA. It helps
Speaker 6: them a lot. It helps stabilize middle market corporate America significantly.
Speaker 5: If we say it's an original meeting, we've got to
Speaker 5: stagger to the next meeting. It will be wiser, we'll
Speaker 5: have data and all that. But as Lisa mentioned at
Speaker 5: the top of the show, the political overlay here is extraordinary.
Speaker 5: What did JP Morgan's Washington experts say about the politics
Speaker 5: of January?
Speaker 6: Well, the question I would want to ask pal is
Speaker 6: were there only three descents or was there a considerable
Speaker 6: amount of bargaining to go from five descents to three descents?
Speaker 6: And was that in the statement? And then you ratcheted
Speaker 6: it up GDP half a percent from where you were
Speaker 6: at the last summary of economic projections. His answers to
Speaker 6: questions like that will tell you how politically influenced the
Speaker 6: current Federal Reserve Board is.
Speaker 4: That was a fantastic question, and I hope that he
Speaker 4: guts asked that we really look to understand just what
Speaker 4: kind of clutch the Fed share holds over this committee.
Speaker 4: Bob Michael as always, thank you so much for being
Speaker 4: with us for all this time. Truly always one of
Speaker 4: the absolute best. Right now in markets a collective sigh
Speaker 4: of relief. It could have been a lot worse. That
Speaker 4: is sort of the message coming from it. The S
Speaker 4: and P up a tenth of a percent, NASDAK still
Speaker 4: suffering a little bit down to tens of a percent, suffering,
Speaker 4: I say, still near our all time highs. And the
Speaker 4: Russell two thousand, seeing that pop up six tens of
Speaker 4: a percent, which you are seeing in the bond space twos,
Speaker 4: tens and thirties. Is this lift to a bond price
Speaker 4: down and yield as people expect to see some sort
Speaker 4: of bond purchases as well as a rate cut coming
Speaker 4: in next year, it really seems to me that Jay
Speaker 4: Powell really has the chance to split the difference.
Speaker 5: I'll have to see. I'm going to watch some bond vigilantes.
Speaker 5: I think they're in the press conference as well.