Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is a breaking
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Speaker 1: three thousand journalists and analysts around the world.
Speaker 2: The news is sparse, no change in rates, nine in favor,
Speaker 2: three decent slogan, Hammock and Cashkari. Other than that, there
Speaker 2: is not a word of difference between the June statement
Speaker 2: and this one. Economic activity is expanding at a solid pace.
Speaker 3: It says.
Speaker 2: Uncertainty is elevated in part because of the Middle East. Productivity,
Speaker 2: growth and capital investment are strong. Job gains have kept
Speaker 2: pace with the workforce, and unemployment has changed little. Inflation
Speaker 2: remains elevated relative to the two percent goal, in part
Speaker 2: reflecting supply shocks that have driven price shocks. The statement
Speaker 2: again concludes by saying the Committee will deliver price stability.
Speaker 2: I think this is the shortest summary I have ever
Speaker 2: given you, and I've padded it out a little bit
Speaker 2: just to make it a little longer and feel like
Speaker 2: I've done something. There's no real surprise in here. You
Speaker 2: could point to the dissenters, but they've all said something
Speaker 2: about inflation and the fact that we might have to
Speaker 2: raise interest rates in the future, so it doesn't really
Speaker 2: give you a clue about what's going on, and there's
Speaker 2: no hint in the statement about what might happen in
Speaker 2: the future. So if Kevin Warsh wants a spotlight definitely
Speaker 2: on him today.
Speaker 4: And Michael come back to you in just a second.
Speaker 4: Let's whip through the price action. So as expected, widely expected,
Speaker 4: no change on this decision, some descent not one, not two,
Speaker 4: but three dissenting voices from regional Fed presidents from the
Speaker 4: obvious places. The move in the market is interesting, though.
Speaker 4: Equity's off the lows on the S and P five hundred,
Speaker 4: just to raising some of the losses. So farther southternoon
Speaker 4: on the S and P five hundred, still negative, but
Speaker 4: not as low as we once were with the SMP
Speaker 4: negative just zero point three percent, and we're gaining some
Speaker 4: confidence in the tech trait. The nasdack down by point two.
Speaker 4: In the bond market, let's just the front end of
Speaker 4: the yield curve. Two yr yields were hired by basis
Speaker 4: point of two, now down four to four twenty five.
Speaker 4: So often talk about this Bramo, the difference between economist
Speaker 4: expectations and the risk that the market was pricing gain
Speaker 4: and clearly just a little bit of a gap there
Speaker 4: even with that descent, some relief at the front end
Speaker 4: of the curve a rally on two.
Speaker 5: So there truly was about a thirty percent chance of
Speaker 5: a FED rate hike at this meeting, and that chance
Speaker 5: was not necessarily fulfilled. It is notable, though, that there
Speaker 5: were three descents, and that I think is the news
Speaker 5: from this particular statement, given the fact that Neil Koshkari
Speaker 5: also joined Laurie Logan and Beth Hammick. I was on
Speaker 5: a panel with him and he was talking about this
Speaker 5: with a bunch of CEOs and saying this is a
Speaker 5: problem and it is more pernicious for the average consumer
Speaker 5: in this country right now that inflation is so high,
Speaker 5: the potentially the labor market is oftening because it's not
Speaker 5: and I think that is something that you are hearing
Speaker 5: in the minority.
Speaker 3: On the fair.
Speaker 4: The good news here for the leadership of Kevin Walsh
Speaker 4: early days quick reaction the descent came from the regional
Speaker 4: presidents and not from the board. Because it it came
Speaker 4: from one of the board members this afternoon, I think
Speaker 4: we'd be having a very different conversation tk to the
Speaker 4: one we're about to have.
Speaker 3: It's a market voting Apple five point zero five to
Speaker 3: three trillion dollars just out to a new record high
Speaker 3: three forty four. Is a market voting here on.
Speaker 4: Their new I think Apple's voting on a lack of CAPEX,
Speaker 4: and I think that's been a story on I hope, yeah,
Speaker 4: I know.
Speaker 3: That I get that run. But I mean, right here
Speaker 3: within the minutes after this announcement, with the SPX popping
Speaker 3: up as well, I mean, they certainly like what they saw.
Speaker 4: Well, let's take a step back and think about what's
Speaker 4: been happening in asset classes. We've had this massive move
Speaker 4: higher in energy and lots of volity in between, volatility
Speaker 4: in between. Over the previous five months. You've seen that
Speaker 4: ripple through interest rates. We've priced out cuts and in
Speaker 4: many places priced in hikes and in some places actually
Speaker 4: engineered rate hikes. What we haven't seen is a growth scare.
Speaker 4: The backdrop for growth is still pretty good consensus for
Speaker 4: GDPs that around two unemployment's been falling closer to four
Speaker 4: and away from five. That's good news. Now you've got
Speaker 4: a feeder reserve that doesn't still see a reason even
Speaker 4: with that as your backdrop. They don't see a reason
Speaker 4: high interest rates right now today. Some do, but not
Speaker 4: the committee as a whole. If you're looking at that
Speaker 4: from a risk asset standpoint on, that's risk positive without
Speaker 4: a doubt it is.
Speaker 3: I mean, I mean, they're moving forward, and to me,
Speaker 3: the key thing after Jackson All is to get to
Speaker 3: that next meeting. All of a sudden, Jackson Hole may
Speaker 3: be interesting.
Speaker 5: Oh, I definitely think it's gonna be interesting. We need
Speaker 5: to hear about insights from task forces. That said, right now,
Speaker 5: I do think you know how I think that they're
Speaker 5: going to be important to me. This is actually a
Speaker 5: fascinating statement. Does he set up a September rate hike
Speaker 5: with the idea that there are three descents and potentially
Speaker 5: there is another CTI and PPI print that will be
Speaker 5: potentially hotter than next.
Speaker 4: Dot to run back always early to publish. He says
Speaker 4: the following, I think the descents tell you the direction
Speaker 4: of travel. It will be very tough for WASH to
Speaker 4: hold the line into September. I hope Mike mc key's
Speaker 4: holding the line. Just before he goes into that news
Speaker 4: conference in about twenty five minutes time, Mike given the
Speaker 4: lack of new information here beyond just a descent. What's
Speaker 4: your approach to the news conference at two thirty Easton time?
Speaker 2: Well, I think we have to ask very direct questions
Speaker 2: of the chair. We can't ask him broad questions like
Speaker 2: what is your reaction function or something like that, because
Speaker 2: then he's going to just lead those questions and we
Speaker 2: won't get good answers. So we'll have to pick out
Speaker 2: some things like where we are with rates, are those
Speaker 2: sufficient at this point? Something to try to get him
Speaker 2: to give us some specifics on how he's thinking. But
Speaker 2: I think what you guys have just gone through is
Speaker 2: what he's looking for. He'd rather have you speculating markets
Speaker 2: speculating than give you a hint. And nature abhors a vacuum,
Speaker 2: so the markets are going to fill it with what
Speaker 2: they think might happen. But it's going to be hard
Speaker 2: for anybody to really know unless Worsh wants to start
Speaker 2: tipping his hand, which it'll be a battle between us
Speaker 2: and him.
Speaker 4: I guess looking forward to it. Mike, thank you, buddy.
Speaker 4: Can't start that news conference. Mi McKay will come into
Speaker 4: that news conference for us. It will begin at about
Speaker 4: twenty five minutes time. If you're just joined the program,
Speaker 4: welcome to the program. So unchanged to the Federal Reserve.
Speaker 4: But the vote is different. It's nine to three and
Speaker 4: the assenting voices are as follows bottom of the statement.
Speaker 4: Beth Hammock, Noil Kashgari, Lori logan descent coming from the
Speaker 4: obvious places, all three of those voting for an interest
Speaker 4: rate hike. At the bottom of the statement. That line
Speaker 4: sticks the committee will deliver price stability. We've got Bob
Speaker 4: Michael a JP Morgan Act Management alongside us. Bob, is
Speaker 4: that line in the statement enough for US not to
Speaker 4: question their commitment to price stability? With inflation running above
Speaker 4: target for as long as it has been running above target.
Speaker 1: I think the three descents are more important than that
Speaker 1: last statement. I think that it shows that they're starting
Speaker 1: to migrate towards tightening policy. You know, there's still seventy
Speaker 1: five percent of the voting members that were in favor
Speaker 1: of no change, so you're only a twenty five percent,
Speaker 1: But I think it's important. If I were at the
Speaker 1: press conference, I'd ask about quantitative tightening. Are they talking
Speaker 1: about that? Is that something they could start up again
Speaker 1: and help snug the liquidity that in the system.
Speaker 4: Best guess for September. Limited additional information, but best guess
Speaker 4: for September. What would you call now.
Speaker 1: They do nothing? But maybe there are four descents.
Speaker 4: Well, Michael is going to stick with us going into
Speaker 4: that news conference. Twenty five minutes away. Joining us now
Speaker 4: is Jim Bianco of Pianco Research. Jim, welcome to the program.
Speaker 4: It's a whole new world, a new era for this
Speaker 4: central bank. You've been writing about it extensively. Just first
Speaker 4: of all, your reaction to this decision this afternoon.
Speaker 6: Not surprised by the decision that the Fed did not
Speaker 6: raise rates. I still would defer with Bob and think
Speaker 6: that they are going to raise rates in September. I
Speaker 6: think the descents are the most important thing because one
Speaker 6: of the things I've been emphasizing is after Trump attacking
Speaker 6: this FED for two years, they want to be independent,
Speaker 6: and they've decided that independence is twelve independent voters. So
Speaker 6: what we're going to get at the press conference is
Speaker 6: one twelfth of the opinion of the Fed is we're
Speaker 6: going to get washed, or maybe we won't get it
Speaker 6: at all. If he doesn't express it. He's got a
Speaker 6: lot of power he could probably, you know, twist some
Speaker 6: arms to get them over the line whichever way he
Speaker 6: wants to go. I suspect that if they were all
Speaker 6: voting their true conscious, we might have had a few
Speaker 6: more descents, maybe not enough to raise raids, but a
Speaker 6: few deferred because he didn't want to do it.
Speaker 5: Would be my guest, Jim, do you think it's significant
Speaker 5: that none of the governors joined with the dissenters, even
Speaker 5: though there were some reports of some pretty interesting family
Speaker 5: fights over dinner last month.
Speaker 6: I'm mildly I was expecting that maybe Chris Waller was
Speaker 6: going to be a dissenter. He still might be a
Speaker 6: voter for a rate hike in September, maybe a couple
Speaker 6: of others. But I do want to emphasize again, we're
Speaker 6: going to parse every word that Warsh wants to say.
Speaker 6: I think that the FED is more of a vote
Speaker 6: tailing our exercise right now. You know, you got to
Speaker 6: look at all twelve people and say which columns are
Speaker 6: they in high colder cut and seven is a majority?
Speaker 6: And which column has seven? And that's what the Fed's
Speaker 6: going to do. That's how they work now.
Speaker 3: But Michael, the young Ripersentagim Bianco a couple of years ago,
Speaker 3: had an arch call calling for higher interest rates when
Speaker 3: no one was looking for it. The other day, Edyard
Speaker 3: Denny said, these are normal rates. We have to get
Speaker 3: used to rates being here again, is doctor Yardnny and
Speaker 3: Jim Bianco correct? We just got to get used to
Speaker 3: these higher rates.
Speaker 7: Yeah.
Speaker 1: I think what we're seeing more broadly across the economy
Speaker 1: is a need for capex. There's demand for capital, there's
Speaker 1: a productive use of it. There's going to be competition
Speaker 1: and a cost of it. That's pre GFC kind of
Speaker 1: macro environment. You're not going back to zero to two
Speaker 1: percent rates.
Speaker 6: No.
Speaker 1: I think there's enough cause for them to hike in
Speaker 1: September as opposed to next year. I don't think inflation
Speaker 1: is going to change that much.
Speaker 3: I can't remember, Jennifer, you're on or off here, but
Speaker 3: you said this twenty minutes ago. What percentage of people
Speaker 3: in the street actually remember pre GFC.
Speaker 4: We were very live, and I remember what I said.
Speaker 4: I talked about the average engine on the trading floor,
Speaker 4: which is probably mid thirties right now. So the world
Speaker 4: that they used to is not the world that Kevin
Speaker 4: Walsh wants to take us. Back to it's also not
Speaker 4: the world that we've experienced in financial markets. Side it
Speaker 4: to your point, we had these anchors across fixed income
Speaker 4: for the last ten to fifteen years at least, and
Speaker 4: I have talked about them daily, how they're disappearing. Germany
Speaker 4: had fiscal prudence for decades, it's disappearing. Japan had disinflation
Speaker 4: deflation for decades. It's changed. And in America, the biggest
Speaker 4: companies in the planet were buying themselves, not issue in stock,
Speaker 4: not issuing debt. That's changed as well, the price of that.
Speaker 4: But what is the price of that and what part
Speaker 4: of this market is most vulnerable to that competition for capital?
Speaker 1: It feels like it's the sovereign market. I don't know
Speaker 1: a sovereign which isn't interested in investing in energy, security,
Speaker 1: in investing in the defense of its borders, in investing
Speaker 1: in AI and technology. More broadly, they don't have the
Speaker 1: budgets to do it. They're going to have to go
Speaker 1: out and borrow. That's going to create more competition for
Speaker 1: the capital. That's okay, that's a normal capitalist environ We're
Speaker 1: okay with that. But it doesn't mean zero to two
Speaker 1: percent central bank rates and treasury government bond yields is
Speaker 1: the right level. It means probably neutral rates for the
Speaker 1: FED are around three to five percent, and you're looking
Speaker 1: at a ten year treasury that who knows could be
Speaker 1: four to six percent.
Speaker 5: In this world where suddenly you have to battle for
Speaker 5: capital and Jim, I'd love your take on this. Is
Speaker 5: it a policy error if a FED share Kevin worsh
Speaker 5: allows the move to stick that we're seeing right now
Speaker 5: in markets. Now there is not a full rate hike
Speaker 5: being baked into September, and frankly, the initial move has
Speaker 5: given back at least at the long end of the
Speaker 5: yield curve. Do you think that it is important for
Speaker 5: this FED, whether it intends to hike or not, to
Speaker 5: keep the message that they are prepared to do so
Speaker 5: to tame inflation.
Speaker 6: I think so. If you want to back up, go
Speaker 6: back to September of twenty four, that's when the FED
Speaker 6: first started cutting rates. The thirty year yield was four percent,
Speaker 6: was exactly four percent. Right now it's five to ten.
Speaker 6: It's going up one hundred and ten basis points. While
Speaker 6: the FED has been cutting rates. By my measures, I
Speaker 6: can't find another example of a rate cutting cycle that
Speaker 6: produced that big a rate a yield increase in the
Speaker 6: long end since the nineteen eighties. But then again, we
Speaker 6: also had fourteen percent interest rates then and without that
Speaker 6: never in anything back to the nineteen fifties. So really,
Speaker 6: the market is trying to tell you that I think
Speaker 6: the direction of travel is going to be higher. It's
Speaker 6: more worried about inflation. And if the you know, go
Speaker 6: back to that last sentence, if the Fed wants to
Speaker 6: deliver price stability, I'll throw one another into you. Kevin
Speaker 6: Walsh said that inflation is a choice. They might have
Speaker 6: to choose to do something about it fairly soon and
Speaker 6: maybe as early as the September meeting.
Speaker 5: Jim.
Speaker 3: If they do something about it, do we continue with
Speaker 3: this robust nominal GDP we've seen.
Speaker 6: I think we can, and I also think if the
Speaker 6: Fed were to raise rates that that might put the
Speaker 6: high end yields for the year. I think part of
Speaker 6: the problem has been that now that we don't have
Speaker 6: forward guidance, the market is pricing what it thinks, and
Speaker 6: I think it thinks that's there's an inflation, let's say
Speaker 6: issue or worry. I don't want to go full blown
Speaker 6: problem or crisis it's not that bad. Yeah, and that's
Speaker 6: why yields keep going up. And I think you would
Speaker 6: like to see the old line, the old adage on
Speaker 6: Wall Street I've been using is that bond traders can
Speaker 6: relax or stop panicking won the FED starts panicking, and
Speaker 6: maybe a little bit of panic from the Fed might
Speaker 6: go a long way to helping the bond market stop
Speaker 6: with this yield rise on the long end.
Speaker 4: As about a point, Jim, I appreciate your time, buddy,
Speaker 4: as always, Jim Pianco there of Bianco Research, if you're
Speaker 4: just shown in the program, welcome a news conference with
Speaker 4: Chair Wash in about seventeen minutes time. The decision thirteen
Speaker 4: minutes ago, leaving rates unchanged to vote of nine to three,
Speaker 4: three dissenting voices, three regional FED presidents Hammock of Cleveland,
Speaker 4: Kashgari of Minneapolis, and Logan of Dallas, three voices who
Speaker 4: have given us a decent step that this might be
Speaker 4: the outcome of this meeting, at least for them. Next
Speaker 4: two weeks might be interesting. I think we're all going
Speaker 4: to look for that schedule, aren't we. Those speeches what
Speaker 4: everyone thinks, and this was always the problem for this
Speaker 4: fed chair looking to put communication back in the box,
Speaker 4: back in the bottle, and throw it away and bury it.
Speaker 4: Everybody else still wants to talk. And if you speak less,
Speaker 4: we just put more weight on the people that do speak.
Speaker 4: And that's what we'll be doing in the coming weeks.
Speaker 5: It's going to be a vote telling exercise over the
Speaker 5: next two weeks, with people watching every single press conference,
Speaker 5: every single speech and wondering who is going to be
Speaker 5: the additional voice to vote for a rate hike and
Speaker 5: how close are they And that is ultimately the calculus
Speaker 5: that we're going to see. Kevin Warsh could potentially put
Speaker 5: that back in the bottle if he gives us some
Speaker 5: sort of quantification or characterization of what the reaction function is.
Speaker 5: But barring that, we're going to be doing vote telling
Speaker 5: and we're going to have a bingo card and it's
Speaker 5: going to be a.
Speaker 1: Lot of fun.
Speaker 4: Can we go from three to four, to five, to six, etc.
Speaker 4: To seven? Dance swamk of KPMG joined just now for more. Dan,
Speaker 4: Welcome to the program. Do you believe this is the
Speaker 4: direction of travel? This is the first of many votes
Speaker 4: that will look for higher interest rates?
Speaker 7: Absolutely. I think the three percents from the president is
Speaker 7: exactly we should expect right now, and those descents were
Speaker 7: not done in a vacuum. They also are representing presidents
Speaker 7: who could not vote at this meeting. That is often
Speaker 7: what is done. And I also think many people on
Speaker 7: the board are leaning towards a rate hike as well.
Speaker 7: We've already gotten a lot of indication of that, and
Speaker 7: so I do think we do get rate hikes in September.
Speaker 7: I actually think today would have been better, but I
Speaker 7: expected them to skip today even though there was a
Speaker 7: thirty percent chance out there that they would do it today,
Speaker 7: because we're starting to get This is something that Kevin
Speaker 7: Warsh has said himself. We've had five years of inflation.
Speaker 7: It's not all the Fed's fault, but at the end
Speaker 7: of the day, it is the fed's choice, as Jim
Speaker 7: pointed out, to do something about it, and we need
Speaker 7: to do something about this inflation and has been around
Speaker 7: for too long and created a muscle memory. It's becoming
Speaker 7: the norm instead of the anomaly. And tomorrow we're going
Speaker 7: to get that PCE data, which the reason why Beth
Speaker 7: Hammock sort of threw down the Gauntlin and wrote the
Speaker 7: LinkedIn post hours befoard the fed's blackout period, letting us
Speaker 7: know exactly how she felt about race was because they
Speaker 7: were tracking the inputs on that number, and it will
Speaker 7: be three point three percent on the core and on
Speaker 7: the supercore I think three point seven percent supercore services.
Speaker 7: That is sticky and hot and hotter than it was
Speaker 7: at the beginning of the year.
Speaker 5: Well, Michael had a really good point earlier and she said,
Speaker 5: it kind of depends why they hike. Is it going
Speaker 5: to be that the data shows a reacceleration or is
Speaker 5: it just that they're running out of patients. And if
Speaker 5: they're running out of patients and tolerance of high inflation
Speaker 5: after more than five years, that typically isn't a great
Speaker 5: place for a central banker to be. And would you
Speaker 5: agree with that?
Speaker 7: I do agree with that to some extent, although I
Speaker 7: think we still got a little more inflation out there
Speaker 7: as well. But the problem is that it's just been
Speaker 7: too persistent. This is too long, for too much, for
Speaker 7: too long, and it's compounded much like I've argued, you know,
Speaker 7: compounding stock returns have raised the level of wealth, compounding
Speaker 7: inflation has risen the level of prices to be too
Speaker 7: high for too many, and that being front and center
Speaker 7: is not the definition of price stability. And that is
Speaker 7: what the Federal Reserve is charged to do. And with
Speaker 7: the labor market in a stronger position, there's no reason
Speaker 7: not to do it.
Speaker 3: Now. Well, Michael, I'm not going to go to the
Speaker 3: one with Sterling academics at Michigan and economics. I'm going
Speaker 3: to go to the classics major from Pennsylvania. Is it
Speaker 3: a small matter that the three des centers are an
Speaker 3: aerospace engineer educated, a public policy Lori Logan educated, and
Speaker 3: Beth Hammock of twenty one was on the desk at
Speaker 3: Golden Sex. Is this almost a dissent rebellion against traditional
Speaker 3: monetary economics?
Speaker 1: It may be more common sense than anything else. I think,
Speaker 1: as Diane pointed out, you've been a long way away
Speaker 1: from the two percent target for a long period of time.
Speaker 1: There could be a little bit of disinflation the system.
Speaker 1: I wonder what happens if the next couple prints on
Speaker 1: core PCEE you go from three to four to three,
Speaker 1: three to three one, and you see you're still above
Speaker 1: two percent. But what about in core CPI you go
Speaker 1: from two six to two five to two three, you're
Speaker 1: still above two percent. I think the sense reflect that, hey,
Speaker 1: we're not at our target. If this swings around the
Speaker 1: other way, we're poised to move, but you don't move yet.
Speaker 1: If you're starting to see some disinflat when.
Speaker 4: You talk about Goldman the death star in front of
Speaker 4: JP Morgan, can we do that on the desk?
Speaker 3: And I just nobody, nobody dissenting. John did the usual
Speaker 3: economic path.
Speaker 4: Let's go to that. Let's go to the quote of
Speaker 4: hers in the LinkedIn statement going into the quiet period,
Speaker 4: the lead up to this descent, there is no conflict
Speaker 4: in our mandate. Inflation is too high, the labor market
Speaker 4: is run around my level of maximum employment. For the
Speaker 4: first time in my tenure, I'm hearing from businesses who
Speaker 4: say they think we need to take action to curb inflation.
Speaker 4: And that's pretty punchy stuff. And when you said that
Speaker 4: dissent might be on the behalf of others on the
Speaker 4: committee who don't get a vote. How many regional FED
Speaker 4: presidents are hearing the same thing from that districts across
Speaker 4: this country.
Speaker 7: I think they all are, And I think that's the
Speaker 7: important you know, sort of what we're seeing out there.
Speaker 7: We are seeing many people across the country showing up
Speaker 7: in the Beige book as well. It's showing up out
Speaker 7: there that firms still have some pipeline even on last
Speaker 7: year's tariffs. So the new tariffs, they're reinstating old tariffs
Speaker 7: that won't add a lot of extra tariffs out there.
Speaker 7: But we also have Russia sanctions which allow up to
Speaker 7: one hundred percent tariffs on some of our trading partners
Speaker 7: at the discretion of the President. So those are coming
Speaker 7: going through Congress right now. All of that is more
Speaker 7: chook points, more shocks at the same time that we
Speaker 7: still have this persistent underlying inflation that's just not going away.
Speaker 7: And to think that it's going to go away on
Speaker 7: ZWN when we're seeing things like in the wages in
Speaker 7: the leisure and hospitality sector, which shed jobs last month,
Speaker 7: wages actually accelerated, that's something to watch. That's it's the
Speaker 7: service sector that is where we're seeing that booing sort
Speaker 7: of effect of wages. Also the cost holding up that inflation.
Speaker 7: That is something the Federal Reserve is very concerned about.
Speaker 7: You want low wage workers to get more pay, but
Speaker 7: only if they get more paid that's above and beyond
Speaker 7: the level of inflation.
Speaker 1: Bob, I'm struck by the neutral rate.
Speaker 5: We haven't talked about it once, but given the sort
Speaker 5: of competition for capital that seems to be going on globally,
Speaker 5: is it possible just that the real rate has to
Speaker 5: be a whole lot higher than people previously expected. And frankly,
Speaker 5: we're seeing that in the lack of any kind of
Speaker 5: erosion from demand.
Speaker 1: Remember when the Fed first started doing the dots in
Speaker 1: twenty twelve because they didn't think we in the markets
Speaker 1: were smart enough to know what normal look like. Again,
Speaker 1: so they were going to help us out. And you
Speaker 1: go to that long term median dot, which was perfect textbook.
Speaker 1: It was four and a quarter percent. How did they
Speaker 1: get there? Over the one hundred odd year history of
Speaker 1: the FED, the real Fed funds rate had been two
Speaker 1: and a quarter percent? What were they targeting two percent?
Speaker 1: You put the two together. There's your fancy algorithm for
Speaker 1: and a quarter percent. Wouldn't it be funny if that
Speaker 1: proves to be correct over the next decade.
Speaker 3: I look, John, where we are with this, and I
Speaker 3: just again, we got to get to the next meeting,
Speaker 3: this press conference. To me, I mean to Bob, it's
Speaker 3: gone out on Twitter. What Bob said about what are
Speaker 3: we going to see? We have no clue what we're
Speaker 3: going to see.
Speaker 4: Here zero zero, It's totally up to him.
Speaker 3: Will he be on time?
Speaker 4: I mentioned to Mike, I hope he will be. I
Speaker 4: mentioned to Mike earlier on this morning when we're on
Speaker 4: Bloomberg's surveillance, and I said to Mike, as a journalist,
Speaker 4: you have to change your questions because no one wants
Speaker 4: to be the journalist in the news conference that gets
Speaker 4: a two word response and it involves task force. No
Speaker 4: one wants to be that guy. So what the kind
Speaker 4: of questions you need to ask Kevin Walsh that maybe
Speaker 4: wouldn't have thought of asking cham and Powell?
Speaker 5: Yeah, well what? And what Mike said was you've got
Speaker 5: to be very specific. And I liked his question about specifically,
Speaker 5: how are you thinking about oil because right now you
Speaker 5: could say a lot of the inputs to inflation or
Speaker 5: supply shocks. How do you consider supply shocks when they
Speaker 5: are repeated supply shocks again and again and aren't likely
Speaker 5: to stop being shocks considering the fact that this conflict
Speaker 5: isn't going away anytime soon.
Speaker 4: Dan, You're great at this final question what's your question
Speaker 4: for the FED share You've talked about a new chair,
Speaker 4: an old guard. What's your question for this guy.
Speaker 7: I guess my question is really on that neutral rate,
Speaker 7: exactly as Bob outlined. I think we're actually lower than
Speaker 7: the neutral rate right now, and I think many on
Speaker 7: the FED believe that we're lower than the neutral rate,
Speaker 7: or at least at the neutral rate, which is not
Speaker 7: where we should be if inflation is at this level.
Speaker 4: Dan appreciate it. Dan swunk there at KPMG is such
Speaker 4: a good point. There's a phrase that you heard a lot,
Speaker 4: I think over the previous year or two when there
Speaker 4: were cunning rates. They talk about being sufficiently restrictive. How
Speaker 4: many times have you heard that in the last six months,
Speaker 4: being sufficiently restrictive. I haven't heard it at all from
Speaker 4: a single FED member.
Speaker 5: Because, guess what, the evidence doesn't back that up, that
Speaker 5: they're sufficially restrictive, because inflation moved in the wrong direction,
Speaker 5: and increasingly people are saying that the three insurance cuts
Speaker 5: you last year were a mistake, and that act we
Speaker 5: old some of the incredible run up and some of
Speaker 5: the memory chip names.
Speaker 4: Victori Fana as a crossmok joins us now for more Victoria,
Speaker 4: welcome to the program. Is it time to take back
Speaker 4: some of the insurance we took out last year with
Speaker 4: three cuts and the year before with interest rate cuts
Speaker 4: then too, Yeah.
Speaker 8: Jonathan, I actually thought that's why we might actually see
Speaker 8: a rate hike today, and that was going to be
Speaker 8: the explanation for it. Not that they were concerned about
Speaker 8: longer term inflation. They were going to be looking through
Speaker 8: the Middle East, through oil, all of that. I think
Speaker 8: that the concern was going to say, or the explanation
Speaker 8: was going to be, we're just taking off some of
Speaker 8: that accommodation from last year that wasn't really necessary. I
Speaker 8: wouldn't be surprised if that's part of the explanation they
Speaker 8: use at the September meeting, if they decide to hike then,
Speaker 8: but I definitely think it's part of that story. It's
Speaker 8: part of where is neutral rate. It's part of the
Speaker 8: concept that maybe we are not as restrictive as a
Speaker 8: lot of people think we are. All of that goes
Speaker 8: together to tell us we probably have a rate hike coming.
Speaker 5: Victoria. Or you're in the heart of oil land in
Speaker 5: the United States, you're in Houston and it's a huge
Speaker 5: boon going on, and I'm looking at the earnings coming
Speaker 5: from the oil sector and they're doing wonderfully. It's been
Speaker 5: both yes, penalization for some consumers, but on the flip side,
Speaker 5: it's only adding to some of the robustness that oil
Speaker 5: prices have gone up to such degree. How much do
Speaker 5: you agree with what we've heard from some regional FED presidents,
Speaker 5: which is that companies are asking for action as they
Speaker 5: see both the momentum increase in tandem with prices.
Speaker 6: Yeah.
Speaker 8: You know, Lisa, it's an interesting topic because you always
Speaker 8: have people when oil prices come down, they want to
Speaker 8: know why they're not, you know, moving fast enough to
Speaker 8: bring oil prices down. And yet at the same time
Speaker 8: they want to know why these oil companies aren't investing
Speaker 8: more cash, Why aren't they drilling more, Why aren't they
Speaker 8: doing more things? And they have to have the free
Speaker 8: cash flow to do that, and I know their balance
Speaker 8: sheets are really strong right now. Energy is the best
Speaker 8: performing sector that we've seen so far this year, So
Speaker 8: I think there's an element here that the energy companies
Speaker 8: are really kind of sitting on their hands a little
Speaker 8: bit because they know that when the Middle East conflict
Speaker 8: is resolved, they're going to see that drop in prices.
Speaker 8: Look how quickly we saw prices come down almost what
Speaker 8: twenty five to thirty dollars a barrel for Brent and
Speaker 8: WTI when we had the memorandum of understanding, and we've
Speaker 8: seen it go back up in the last few days.
Speaker 8: I do think there's going to be a lot of
Speaker 8: volatility here. Earnings are actually expected to come down the
Speaker 8: rest of the year when you're looking at the energy sector,
Speaker 8: So I would be careful here. They're doing really well
Speaker 8: right now. I think it's a great long term holding
Speaker 8: to have in your portfolio, but I do think the
Speaker 8: energy companies are going to be a little bit cautious here, Victoria.
Speaker 4: Look how limited the runny was in bonds when we
Speaker 4: had that correction. Include It tells me that the outlook
Speaker 4: for rates is not that dependent on the path for royal.
Speaker 4: Is that a fair assumption of fact conclusion?
Speaker 8: I think it's a pretty fair assumption, Jonathan, because actually
Speaker 8: I think what the bond market is looking at is saying,
Speaker 8: wait a minute, yes we have this oil component, and
Speaker 8: it's making the headline numbers come down quite negatively. When
Speaker 8: we're looking at inflation reports, but the core and the
Speaker 8: super core where it's not included, we're actually seeing some
Speaker 8: still moves higher in those elements. So to me, that's
Speaker 8: the key question to this FED. How are we going
Speaker 8: to measure how much some of these shocks that you
Speaker 8: want to look through are actually seeping down into the
Speaker 8: economy as a whole. They say, the economy is expanding
Speaker 8: at a solid pace, but how long if we keep
Speaker 8: seeing pressures come in at that point? So I think
Speaker 8: the bond market is more concerned around that, more concerned
Speaker 8: around deficit spending, around money supply, not so much around
Speaker 8: oil price changes.
Speaker 4: Victoria, it's going to see you. I appreciate your time
Speaker 4: as always, Victoria Fernandez. There of crossmud going in on
Speaker 4: this FED decision. Equities this afternoon still negative by zero
Speaker 4: point five on the S and P five hundred in
Speaker 4: the bond market, twos, tens and thirty shaping up as
Speaker 4: follows twos yields down just a single basis point right now,
Speaker 4: twos around four twenty eight. Framing matters these three descents,
Speaker 4: What are the character what is the character of each
Speaker 4: individual descent? What will they say in the coming weeks
Speaker 4: in their statements? Is this about taking back the insurance
Speaker 4: they took out last year and the year before, or
Speaker 4: is it more than just that.
Speaker 5: Well, they were all indicated about taking back the insurance
Speaker 5: from last year, and they've all talked about the price
Speaker 5: pressure that consumers are feeling and that they're hearing, even
Speaker 5: from companies that said, my question is about the others
Speaker 5: and who's going to potentially join them at a time
Speaker 5: of incredibly volatile inflation, And is the volatility and inflation
Speaker 5: enough to actually get them more concerned that they need
Speaker 5: to make a move and take a step there.
Speaker 3: In defense of Chairman Warrish, we're all going to be
Speaker 3: waiting on the data now. I mean the data is
Speaker 3: incredibly important. Through Jackson hole under the next week.
Speaker 4: You're curious case of this particular meeting Tacres that we
Speaker 4: looked at the data and it was sefter than expected
Speaker 4: on CPI and PPI and it was a feeling that
Speaker 4: we would move on. And we sat around this table
Speaker 4: at the time when the data dropped on Bluebeck Savants
Speaker 4: on Blueback TV on that very morning, sat there with
Speaker 4: you and we both said the same thing. It removes
Speaker 4: the urgency to hike. It won't kill the story. The
Speaker 4: debate continues, and the debate does continue even this afternoon,
Speaker 4: and now we're talking about September and maybe Septembers the day,
Speaker 4: and this is the direction of travel. Story just won't
Speaker 4: go away.
Speaker 5: Take a look at earnings. Earnings have been on fire.
Speaker 5: And it's not just in the tech sector, it's across
Speaker 5: the board. The equal weights up performing also because of
Speaker 5: a fundamental kind of bleed.
Speaker 4: Up and regional banks in this country.
Speaker 5: I mean, really, it's something that's more significant, so sufficiently restrictive.
Speaker 5: If you're looking at crimp growth in any capacity or
Speaker 5: looking for a slowdown, it's not happening.
Speaker 4: Well, what I was going to say, final word, but
Speaker 4: you might be sticking around. I have no idea how
Speaker 4: this news conference will be, but give us a final
Speaker 4: thought on what you'll be looking for through what is
Speaker 4: not a sleepy summer.
Speaker 1: I think the Fed got it right today so far.
Speaker 1: We'll see if there's a press conference in what gets
Speaker 1: up or not. I'm particularly glad with the fact that
Speaker 1: they've listed the three dissenters. Let's assume that the vote
Speaker 1: had been seven to five in favor of a rate hike.
Speaker 1: By listing the five dissenters, we would know the seven
Speaker 1: people who voted for a rate hike, and we'd sit
Speaker 1: there and go, we got two or three, Where did
Speaker 1: the other four or five come from? What were they
Speaker 1: looking at? They didn't say any of this two weeks ago.
Speaker 1: What changed their mind is at all emotion, and I
Speaker 1: think that's a great regulator to a central bank and
Speaker 1: prevents them from just acting on emotion.
Speaker 4: Well, Michael at JP Morgan Asset Management, Bob, thank you.
Speaker 4: Might be back within five or ten minutes time. This
Speaker 4: news conference is about to begin. In about sixty seconds
Speaker 4: from now, a newly minted FED check Kevin Walsh, will
Speaker 4: appear for his second press conference. Widely criticized last time around,
Speaker 4: not for his refusal to offer forward guidance that's gone,
Speaker 4: We've moved on, but his refusal to articulate his so
Speaker 4: called reaction function. I think three dissenters of the FED
Speaker 4: have been pretty clear about how they think about the
Speaker 4: incoming data and where they think policy should be.
Speaker 5: I think Mike's question earlier is a really important one.
Speaker 5: How do you consider oil and how potentially does the
Speaker 5: increase in prices affect your view? Considering it does tend
Speaker 5: to be a one time shock, but when you have
Speaker 5: rolling shocks, there is another type of dynamic that takes hold,
Speaker 5: and that is what we've seen.
Speaker 4: I'm not a big gambler. In fact, I'm against betting,
Speaker 4: but we'll ask this question, how many trading flows right now?
Speaker 4: Do you think of taking bets about how long this
Speaker 4: news conference will be? Oh with Kevin Walsh.
Speaker 5: I think that's the question. I think we're taking bets
Speaker 5: right now because we're trying to figure out for programming reasons,
Speaker 5: we're gonna have to book out rush number. I think
Speaker 5: it's going to be. I think it's going to be
Speaker 5: forty five minutes and seconds.
Speaker 4: Bramot forty five and how many seconds?
Speaker 5: Forty five and thirty two seconds?
Speaker 4: You planned this game.
Speaker 3: I'm not playing this game. I think you watching Kelsey
Speaker 3: Barrow at JP Morgan with k Here. They're all around
Speaker 3: the terminals, you know, betting here.
Speaker 4: They're probably wants running the book at JP mooret.
Speaker 3: Yeah, I think she's running the book. They're probably in
Speaker 3: a bar over at they're New dis Skyscraper