WEBVTT - Instant Reaction: Jay Powell on Fed Policy 0:00:02.480 --> 0:00:06.840 Bloomberg Audio Studios, podcasts, radio news. 0:00:13.880 --> 0:00:16.960 After reducing interest rates by twenty five basis points straight 0:00:17.000 --> 0:00:19.120 out of the gate in that news conference, asked an 0:00:19.120 --> 0:00:22.360 obvious question, why do this when you're expecting inflation to 0:00:22.400 --> 0:00:25.960 remain above target? The chairman acknowledging today was a closer 0:00:26.000 --> 0:00:28.560 call that we've cut interest rates by one hundred basis 0:00:28.560 --> 0:00:32.720 points across three meetings. The recalibration phase is over. We're 0:00:32.720 --> 0:00:35.199 in a new phase. Things of foggier, the darker you 0:00:35.280 --> 0:00:37.920 move more slowly. Well, this was the price reaction to 0:00:37.960 --> 0:00:41.120 that in the market. Equities slammed down one point five 0:00:41.159 --> 0:00:42.919 percent on the S and P on the natstack, down 0:00:42.920 --> 0:00:45.879 by more than two the small caps. Some outperformance on 0:00:45.880 --> 0:00:49.760 the small caps going into the decision, real underperformance coming 0:00:49.800 --> 0:00:51.960 out of it, the small caps down by two point 0:00:52.000 --> 0:00:54.280 eight percent. In the bond market, big move at the 0:00:54.320 --> 0:00:57.280 front end of the curve, yields up across the curve twos, tens, 0:00:57.360 --> 0:00:59.760 and thirties on a two year up by more than 0:00:59.800 --> 0:01:03.560 ten to four thirty four eighty two. And off the 0:01:03.560 --> 0:01:05.520 back of that and foreign exchanges, you might expect the 0:01:05.560 --> 0:01:08.720 dollar stronger against everything in G ten ripping up em 0:01:08.840 --> 0:01:10.960 you wrote dollar breaking down through one oh four and 0:01:11.040 --> 0:01:13.039 threatening to do the same to one oh three. You 0:01:13.080 --> 0:01:15.720 wrote dollar right now at one o three sixty four. 0:01:16.040 --> 0:01:18.840 We all had questions about the forecasts. Why have you 0:01:18.840 --> 0:01:21.640 bumped it up on inflation. Why are you projecting higher 0:01:21.640 --> 0:01:24.640 inflation than you were projecting back in September. Why have 0:01:24.720 --> 0:01:27.280 you reduced the number of interest rate cards from four 0:01:27.560 --> 0:01:29.640 to two in the median dot for the dot plot 0:01:29.880 --> 0:01:33.080 in twenty twenty five? Is it about the data or 0:01:33.160 --> 0:01:35.600 is it about Donald Trump? Take a listen to the 0:01:35.680 --> 0:01:36.720 Chairman of the Federal Reserve. 0:01:38.080 --> 0:01:42.360 Some people did take a very preliminary step and start 0:01:42.360 --> 0:01:48.080 to incorporate highly conditional estimates of economic effects of policies 0:01:48.080 --> 0:01:50.840 into their forecasts at this meeting and said so in 0:01:50.880 --> 0:01:54.000 the meeting. Some people said they didn't do so, and 0:01:54.200 --> 0:01:56.400 some people didn't say whether they did or not. So 0:01:56.440 --> 0:01:59.520 we have people making a bunch of different approaches to that. 0:02:00.120 --> 0:02:05.080 But some did identify policy uncertainty as one of the 0:02:05.080 --> 0:02:09.800 reasons for their they're writing down more uncertainty around inflation. 0:02:10.440 --> 0:02:12.600 Compare and contrast that to what you heard from the 0:02:12.680 --> 0:02:16.320 chairman back on November seventh. We don't guess, we don't assume. 0:02:16.560 --> 0:02:20.240 We don't speculate. December eighteenth, some of us guests, some 0:02:20.320 --> 0:02:23.640 of us assume, and Lisa apparently some of us speculate. 0:02:23.800 --> 0:02:25.520 The we is doing a lot of heavy lifting at 0:02:25.520 --> 0:02:28.160 a time where clearly he's reflecting a splintering committee that 0:02:28.240 --> 0:02:31.240 is dealing with a whole host of different outcomes and 0:02:31.280 --> 0:02:34.680 potentially political leanings. And I just want to go here, 0:02:34.960 --> 0:02:38.519 this is going to be viewed through a political lens. Inevitably, 0:02:38.600 --> 0:02:41.400 it already was threatening to do so. Now there are 0:02:41.480 --> 0:02:46.520 some people who are incorporating highly conditional estimates. I wish 0:02:46.520 --> 0:02:49.280 that we had learned more about what those estimates looked 0:02:49.360 --> 0:02:51.920 like and whether they all were inflationary or whether some 0:02:52.000 --> 0:02:53.600 of them were to slower growth. 0:02:53.680 --> 0:02:55.680 Neil Datta wanted to jump onto the program. We can 0:02:55.680 --> 0:02:57.880 bring them into the program right now, Nil Detta of 0:02:58.000 --> 0:03:01.080 renmac neil. Is this federal resist on a collision course 0:03:01.400 --> 0:03:02.680 with the incoming administration. 0:03:05.200 --> 0:03:08.600 I mean, it certainly feels like they're tempting faith, you know, 0:03:09.440 --> 0:03:11.680 I mean Powell's talking about he goes through a litany 0:03:11.720 --> 0:03:15.280 of indicators talking about how the labor markets are cooling, 0:03:15.320 --> 0:03:18.320 and then he, you know, in the same sentence basically 0:03:18.320 --> 0:03:21.240 talks about how they're dialing back rate cuts. So I 0:03:21.280 --> 0:03:24.920 think that that's that's a problem. And you know, I 0:03:24.919 --> 0:03:28.480 think the the optimistic take around this is by making 0:03:28.520 --> 0:03:32.160 the forecast adjustments that they've made, they're actually, in some 0:03:32.200 --> 0:03:36.160 respects lowering the bar for additional action, you know, early 0:03:36.280 --> 0:03:40.400 next year. So like two point five percent on core inflation, 0:03:40.480 --> 0:03:45.280 I mean, that's a reasonably high number. And you know, 0:03:45.400 --> 0:03:49.520 given what we know about rental inflation, that's probably going 0:03:49.560 --> 0:03:52.680 to slow down, given what we know about you know, 0:03:52.760 --> 0:03:55.920 consumer goods. You know, if you look at things like 0:03:56.000 --> 0:03:59.920 freight rates, it's probable that consumer durable goods price is moderated, 0:04:00.240 --> 0:04:02.480 you know, over the next couple of months, you know, 0:04:02.640 --> 0:04:06.520 just as the new administration's coming into office. So you know, 0:04:06.640 --> 0:04:10.280 I think they're signaling a pause. But it's also important 0:04:10.280 --> 0:04:12.880 to remember that by March the forecast might look a 0:04:12.920 --> 0:04:17.800 little bit different and they maybe they may have to 0:04:17.960 --> 0:04:18.440 cut again. 0:04:18.839 --> 0:04:21.240 Neil, you were my Economics of the year two years ago. 0:04:21.560 --> 0:04:25.560 You were optimistic when few were. Now you've switched flat 0:04:25.560 --> 0:04:28.640 out switches, no other way to put it. How off 0:04:28.839 --> 0:04:32.800 is Atlanta GDP now at three point one percent? Is 0:04:32.839 --> 0:04:36.560 Powell know something we don't know, and those visible present 0:04:36.760 --> 0:04:38.960 numbers are just flat out wrong. 0:04:39.680 --> 0:04:41.440 I never I never think. I mean, I don't think 0:04:41.480 --> 0:04:44.440 the FED really has an economic forecasting edge of any 0:04:44.480 --> 0:04:49.880 meaningful degree. You know, Tom, the FED doesn't have a 0:04:49.880 --> 0:04:52.840 GDP mandate. So it's interesting to see how much Powell 0:04:52.960 --> 0:04:56.880 was talking up gross domestic product, private final you know, 0:04:57.480 --> 0:05:00.839 domestic sales. I thought that was pretty interesting, quite revealing, actually, 0:05:01.520 --> 0:05:03.360 because that was sort of a way for him to 0:05:03.400 --> 0:05:05.680 avoid the questions around the labor market. And we know 0:05:05.760 --> 0:05:08.200 that duration of unemployment as an example, has gone up 0:05:08.240 --> 0:05:10.360 by two to three weeks over the last couple of months. 0:05:10.960 --> 0:05:12.760 Leaving that aside, I mean, you're right, I mean I 0:05:12.800 --> 0:05:17.440 am more cautious. I remember two years ago, around this time, 0:05:17.520 --> 0:05:21.560 the consensus was conditioned for you know, basically everyone was 0:05:21.560 --> 0:05:24.479 penciling in recession, and all I did was point out 0:05:24.480 --> 0:05:26.960 the fact that the labor markets were fine and housing 0:05:27.000 --> 0:05:29.960 stocks were moving up into the right Fast forward to today, 0:05:30.440 --> 0:05:34.599 it's literally the opposite situation. Everyone is sanguine on growth. 0:05:35.360 --> 0:05:38.520 It's very difficult to talk about recession. No one really 0:05:38.520 --> 0:05:40.720 wants to hear it. And at the same time, we 0:05:40.800 --> 0:05:45.640 know that the labor markets are slowing by Powell's owned admission. Okay, 0:05:45.720 --> 0:05:48.560 and just pull up a chart of homebuilding stocks. 0:05:49.839 --> 0:05:51.800 Well, meanwhile, Neil, I just want to point out the 0:05:51.839 --> 0:05:54.080 fact that other people are taking a different tack than 0:05:54.120 --> 0:05:56.640 you are, as you say, your contrarian thinking that there's 0:05:56.640 --> 0:05:59.560 more weakness in the market. Peter sheher saying this he 0:05:59.600 --> 0:06:01.719 doesn't think is necessarily political. He said, this is a 0:06:01.720 --> 0:06:04.680 fed that is worried that inflation isn't coming down fast enough. 0:06:04.920 --> 0:06:07.520 And well, it might play in the back of their mind. 0:06:07.600 --> 0:06:10.800 They aren't responding to fiscal potential policy on the margins. 0:06:10.839 --> 0:06:13.040 Some are, but he's saying in general they are not. 0:06:13.760 --> 0:06:16.000 Why do you disagree so fundamentally with that? 0:06:16.440 --> 0:06:20.560 Just go through the go through the document, look at 0:06:20.560 --> 0:06:24.440 the balance of risk to the inflation forecast. It's a 0:06:24.560 --> 0:06:27.320 dramatic increase in the number of participants that see the 0:06:27.400 --> 0:06:32.240 risk to headline and core inflation eskewed to the upside. So, 0:06:32.760 --> 0:06:34.960 I mean, they can say whatever it is they want, 0:06:35.000 --> 0:06:37.400 but based on the data, it's very difficult to justify 0:06:37.480 --> 0:06:42.279 the distribution of risk that you see in the projections. 0:06:43.360 --> 0:06:46.600 And how are the risks to inflation going up at 0:06:46.600 --> 0:06:49.240 a time when labor is cooling and wages are slowing. 0:06:49.279 --> 0:06:51.919 We know that recruiting intensity is down, we know that 0:06:52.000 --> 0:06:57.240 quits rates have collapsed. Okay, that probably implies that there's 0:06:57.279 --> 0:07:00.520 further cooling with respect to compensation growth between now and 0:07:00.600 --> 0:07:04.719 the next couple of quarters. The dollar is surging today 0:07:04.960 --> 0:07:07.440 because of what just happened, you have to start thinking 0:07:07.440 --> 0:07:10.120 about what that might mean for the emerging market space, 0:07:10.160 --> 0:07:12.880 because obviously these countries have a lot of dollar denominated 0:07:12.960 --> 0:07:15.760 debt and that's going to imply tighter financial conditions in 0:07:15.800 --> 0:07:20.160 those economies. So okay, I mean, I think based on 0:07:20.200 --> 0:07:22.720 the data, it's really difficult to say that the distribution 0:07:22.800 --> 0:07:25.520 of risks have changed that much. And Powell even said 0:07:26.200 --> 0:07:30.520 that based on the inputs from core CPI and producer prices, 0:07:30.840 --> 0:07:33.280 you'll probably get a pretty weak reading on core pc 0:07:33.440 --> 0:07:36.920 inflation when that data are released on Friday. And the 0:07:36.920 --> 0:07:39.320 big story again out of the inflation data over the 0:07:39.400 --> 0:07:42.600 last week has been the normalization of housing rental inflation. 0:07:43.640 --> 0:07:47.920 So I think, you know, to me, this is it 0:07:47.960 --> 0:07:51.800 feels a little bit like they're pre judging potential policy outcomes. 0:07:51.400 --> 0:07:54.240 Em currencies right now getting hammered. Neil, I don't expect 0:07:54.240 --> 0:07:57.080 the caller. I don't expect the tide, but maybe just 0:07:57.120 --> 0:07:59.880 a jack in next time, Noil, maybe a jack hid 0:08:00.160 --> 0:08:03.040 you know, for some post fed show commentary. 0:08:03.400 --> 0:08:04.000 In the studio. 0:08:06.120 --> 0:08:10.320 Back in the studio, I'll put on you know, my 0:08:10.320 --> 0:08:11.240 my Gucci for you. 0:08:11.440 --> 0:08:13.240 There we go. I'll make that happen, Neil, make it 0:08:13.280 --> 0:08:15.960 happen soon and Neil appreciate it, sir, enjoy the holidays. 0:08:16.000 --> 0:08:16.840 Neil Dutta there. 0:08:17.200 --> 0:08:18.760 Showing up in a Christmas sweater. 0:08:18.880 --> 0:08:22.000 I mean, next time, white t shirt was better. I've 0:08:22.040 --> 0:08:23.880 got one with a better bad joke on the back. 0:08:24.000 --> 0:08:25.200 Do you really a number ten? 0:08:25.640 --> 0:08:28.760 Produce Christmas hanging like. 0:08:29.800 --> 0:08:31.880 Not with like you know, jingle bows going on. 0:08:31.880 --> 0:08:36.200 Like lights, its lights. It serves Monday. I mean it serves. 0:08:36.000 --> 0:08:38.560 Monday, Monday, definitely when I'm not here. Sarah House of 0:08:38.559 --> 0:08:41.840 Wells Fargo joins us. Now for more, Sarah, These forecasts 0:08:41.840 --> 0:08:44.640 some controversy around them. Neil Duttter making the argument that 0:08:44.679 --> 0:08:48.080 he believes that underpinning that shift in inflation higher in 0:08:48.200 --> 0:08:50.920 those dots for the dots coming down from four cuts 0:08:50.960 --> 0:08:53.880 to two, he believes as a real Trump effect in 0:08:53.920 --> 0:08:56.640 the forecasts. Sarah, is it the data or is it 0:08:56.640 --> 0:08:57.600 the incoming president. 0:08:59.400 --> 0:09:01.360 I think it's a little bit of both. John, So, 0:09:01.480 --> 0:09:04.000 I think you've seen certainly there's been a little bit 0:09:04.040 --> 0:09:06.560 stronger momentum in terms of the inflation numbers. That's why 0:09:06.640 --> 0:09:10.120 you got the upward revisions to the Q four numbers 0:09:10.160 --> 0:09:12.959 here for this year. But I think when you look 0:09:13.000 --> 0:09:15.640 at just the magnitude of the change as well as 0:09:15.679 --> 0:09:18.360 the balance of risks. We heard pal say that at 0:09:18.440 --> 0:09:22.400 least some participants included some assumptions around policy, and some 0:09:22.480 --> 0:09:24.480 didn't say if they were. So I think there is 0:09:24.559 --> 0:09:27.640 a little bit of recentering the risks around the forecast 0:09:27.960 --> 0:09:29.680 within these projections. 0:09:29.760 --> 0:09:32.199 Sir, When you do all the math at Wells Fargo 0:09:32.240 --> 0:09:34.880 as you do with Jay Brice, and when you sum 0:09:34.880 --> 0:09:36.760 it up, what are you going to watch forward to 0:09:36.800 --> 0:09:39.400 the next FED meeting? I mean, Neil Dudda just said 0:09:39.760 --> 0:09:42.600 GDP is not part of the mandate. Do we watch 0:09:42.600 --> 0:09:45.240 the jobs report? Do we look at inflation? I mean, 0:09:45.280 --> 0:09:49.520 what really matters in the guestimate forward into late January? 0:09:51.240 --> 0:09:54.480 Yeah, it's jobs and inflation. So I think after today's 0:09:54.520 --> 0:09:56.960 meeting it's a little bit more on inflation. So I 0:09:56.960 --> 0:09:59.079 think that's one of the big takeaways is we're seeing 0:09:59.080 --> 0:10:02.360 that emphasis shift back towards more of a focus on 0:10:02.440 --> 0:10:05.400 inflation after I think the labor market took more of 0:10:05.440 --> 0:10:07.560 the spotlight in the late summers. We had a couple 0:10:07.640 --> 0:10:11.199 week jobs report, unemployment rate going up pretty quickly there. 0:10:11.480 --> 0:10:14.920 But I think today's Today's message was they have less 0:10:14.920 --> 0:10:17.760 conviction about that downward path of inflation. So I think 0:10:17.960 --> 0:10:20.760 the next few reports, especially getting through the first quarter, 0:10:20.880 --> 0:10:24.240 where there's a lot of questions about residual seasonality. So 0:10:24.440 --> 0:10:26.960 do we actually see enough of a slowdown where you 0:10:27.000 --> 0:10:29.160 start to see that twelve month trend which Paul talked 0:10:29.160 --> 0:10:31.720 about so much in today's press conference, do you see 0:10:31.720 --> 0:10:34.480 that begin to come back down? But they are still 0:10:34.559 --> 0:10:36.520 looking at the labor market, and I think that did 0:10:36.559 --> 0:10:39.560 feature in not just today's cut, but also still what 0:10:39.720 --> 0:10:41.839 is an easy bias where they do have a couple 0:10:41.880 --> 0:10:44.679 more rate cuts penciled in for next year, because as 0:10:44.679 --> 0:10:47.160 you heard Paul also talk about in the press conference, 0:10:47.360 --> 0:10:49.199 they're still seeing that labor market. 0:10:48.880 --> 0:10:51.600 Cool Right now, We're seeing markets respond pretty strongly to 0:10:51.640 --> 0:10:55.520 this and people forecasting that maybe at least this is 0:10:55.559 --> 0:10:59.880 the implication this could potentially make a more difficult circumstance, 0:11:00.040 --> 0:11:03.640 particularly for smaller companies. From your vantage point on the margins, 0:11:03.679 --> 0:11:05.840 if this is a FED that sees itself in a 0:11:05.920 --> 0:11:09.400 dark room full of furniture or in a foggy land 0:11:09.920 --> 0:11:12.440 that's moving more slowly that that on the margins is 0:11:12.440 --> 0:11:15.520 going to slow your expectations, Sarah, for growth next year, 0:11:17.480 --> 0:11:18.360 I think a little bit. 0:11:18.440 --> 0:11:21.200 I mean, we're still looking for three rate cuts next year, 0:11:21.280 --> 0:11:24.520 so not terribly different from what the FED has penciled in, 0:11:24.559 --> 0:11:27.320 but of course when they come could have implications for 0:11:27.400 --> 0:11:31.120 what happens with financial conditions over the coming months. So 0:11:31.160 --> 0:11:33.800 I think when we look at the inflation picture the 0:11:33.880 --> 0:11:37.800 rate picture, I think overall we're not seeing a meaningful 0:11:38.000 --> 0:11:40.880 dialing back of policy in the months ahead to the 0:11:40.880 --> 0:11:44.320 same extent that we were over the past four months, 0:11:44.559 --> 0:11:47.000 where you still have the real rates you know, closer 0:11:47.000 --> 0:11:49.760 to one and a half percent, so not much change there, 0:11:49.800 --> 0:11:51.840 and I think that is still likely to be ahead 0:11:51.840 --> 0:11:54.439 when particularly in some sectors like you know, Neil was 0:11:54.480 --> 0:11:57.720 talking about home builders. So I think there's still certainly 0:11:57.720 --> 0:12:00.000 some pressure in some of those more rate sensitive sectors 0:12:00.040 --> 0:12:01.920 of the economy that are going to feel it a 0:12:01.960 --> 0:12:03.480 little bit more. If the Fed's not going to be 0:12:03.480 --> 0:12:05.280 cutting quite as much or quite as fast as what 0:12:05.280 --> 0:12:06.560 they were thinking a few months ago. 0:12:06.920 --> 0:12:09.199 The next twelve months is going to be quite a ride. Sarah, 0:12:09.280 --> 0:12:11.760 thank you. I appreciate your time. Sarah House of Wells Fargo. 0:12:12.120 --> 0:12:14.600 This is the FED Decide to Bloomberg Savaded Special live 0:12:14.679 --> 0:12:17.160 on Bloomberg TV and on Bloomberg Radio if you are 0:12:17.200 --> 0:12:19.920 just joining us. A twenty five basis point reduction from 0:12:19.960 --> 0:12:22.920 the feder Reserve about an hour and thirty five minutes ago, 0:12:23.080 --> 0:12:25.640 followed up by quit a news conference with the chairman J. Powell. 0:12:25.679 --> 0:12:28.360 Lots of questions about the forecast. They revised their forecast 0:12:28.360 --> 0:12:31.480 for inflation a bit higher for twenty twenty five and beyond, 0:12:31.520 --> 0:12:33.960 and they took down their projection for interest rate reductions 0:12:34.200 --> 0:12:36.720 for next year down from four in the medium dot 0:12:37.040 --> 0:12:38.960 down to two. Off the back of that, there were 0:12:38.960 --> 0:12:41.600 some questions about why cut interest rates at all. The 0:12:41.720 --> 0:12:44.760 chairman called it a close call, said the recalibration phase 0:12:44.840 --> 0:12:46.439 was behind us. We're in a new phase where we 0:12:46.520 --> 0:12:48.840 have to move more slowly. Off the back of that, 0:12:49.040 --> 0:12:51.640 Equerry is just getting absolutely smoked right now. We're down 0:12:51.679 --> 0:12:53.160 by more than two percent on the s and P 0:12:53.280 --> 0:12:56.400 five hundred down by close to four on the Russell 0:12:56.440 --> 0:13:00.000 two thousand, some severe significant underperformance on a small caps 0:13:00.200 --> 0:13:02.040 If you check out the bond market, we'll just take 0:13:02.040 --> 0:13:04.160 a quick slice of it, the two year the yield 0:13:04.240 --> 0:13:06.760 higher at the front end by double ditchits. The two 0:13:06.880 --> 0:13:09.480 year yield pushing higher up by a round about ten 0:13:09.520 --> 0:13:11.959 basis points on my screen at the moment, cool eleven 0:13:12.040 --> 0:13:15.280 now to four thirty five. That's cross over. Toma McKee 0:13:15.320 --> 0:13:17.199 was in the room in the news conference, Mike, you'll 0:13:17.240 --> 0:13:19.120 big takeaway walking out of that room. 0:13:20.559 --> 0:13:20.679 Well. 0:13:20.720 --> 0:13:23.000 A number of interesting things in the news conference, including 0:13:23.000 --> 0:13:26.760 the chairman talking about some members of the committee pricing 0:13:26.880 --> 0:13:31.720 in some possible effects from the new Trump administration fiscal policies. 0:13:32.160 --> 0:13:35.240 But the biggest takeaway that I had is that the Fed, 0:13:35.720 --> 0:13:39.640 including the Chairman, are less confident. He wouldn't say he's 0:13:39.720 --> 0:13:42.600 not confident anymore, but they are less confident about the 0:13:42.640 --> 0:13:46.560 path of inflation. He basically said, it's come down, so 0:13:46.640 --> 0:13:49.360 we think it's going to keep going down. But it's 0:13:49.400 --> 0:13:52.160 not like we were seeing in the summertime, where they 0:13:52.160 --> 0:13:54.880 were very convinced that inflation was on the right track 0:13:55.200 --> 0:13:57.720 and headed to two percent, So that's really going to 0:13:57.760 --> 0:14:01.480 inform their decisions as they go forward. The other thing 0:14:01.520 --> 0:14:03.720 that I take away from this, John, interesting is we 0:14:03.800 --> 0:14:06.840 need to rename this show because you call it the 0:14:06.840 --> 0:14:11.319 FED Decides, but I would add the words the market disagrees. 0:14:11.800 --> 0:14:14.760 If you look at the forecast now in the markets, 0:14:15.240 --> 0:14:18.960 there is only one cut fully priced in for next year. 0:14:19.480 --> 0:14:21.800 So we're going to have this tug of war back 0:14:21.840 --> 0:14:24.120 and forth between the markets and the Fed. It seems 0:14:24.360 --> 0:14:25.560 ongoing from here. 0:14:25.520 --> 0:14:28.200 That tension continues. Mike, appreciate your time, sir, great work 0:14:28.240 --> 0:14:32.200 as always. Join us Now is Jeff Rosenberg of Blackrock. Jeff, 0:14:32.280 --> 0:14:34.640 I want your first thoughts. I asked the question to 0:14:34.880 --> 0:14:37.680 Bob Michael at JP Morkan Asset Management, and I said 0:14:37.720 --> 0:14:39.920 to him going into the news conference, are you more 0:14:40.040 --> 0:14:43.320 or less confident embracing risk given what you've just learned 0:14:43.320 --> 0:14:45.000 from the Federal Reserve? And Jeff, I want to ask 0:14:45.000 --> 0:14:47.280 that question of you after that, are you more or 0:14:47.360 --> 0:14:50.040 less confident embracing risk into twenty twenty five? 0:14:51.640 --> 0:14:54.600 Well, you can see, Jonathan, you know this is a 0:14:54.640 --> 0:14:58.320 surprise to markets, and so one of the things the 0:14:58.360 --> 0:15:01.760 markets had hoped for was a FED that was very 0:15:01.840 --> 0:15:06.560 much leaning towards easy financial conditions, focusing more on the 0:15:06.640 --> 0:15:09.040 labor side than on the inflation side, and that was 0:15:09.080 --> 0:15:12.920 pretty supportive to financial conditions and taking risks. So you 0:15:12.960 --> 0:15:15.600 see the market reactions that you just talked about not 0:15:15.720 --> 0:15:18.720 what markets were expecting. And so certainly that's a little 0:15:18.760 --> 0:15:22.360 bit less favorable environment for risk taking because you have 0:15:22.400 --> 0:15:24.920 a FED that has really kind of surprised me. I 0:15:24.960 --> 0:15:28.400 think it surprised the market here in saying, hey, we're 0:15:28.520 --> 0:15:31.880 more worried or as worried about the inflation side now 0:15:31.920 --> 0:15:34.920 than we were about the labor markets, and that means 0:15:34.920 --> 0:15:37.960 we're not going to be as quick to cut. And 0:15:38.000 --> 0:15:40.840 it's the cut in the policy and the favoring of 0:15:40.880 --> 0:15:44.120 easy financial conditions that was so supportive to taking risk. 0:15:44.360 --> 0:15:47.200 Jeff, the reviews are coming in. That was one of them. 0:15:47.320 --> 0:15:51.360 Here's some others. Steve Shivron worst performance worst power performance 0:15:51.480 --> 0:15:54.520 is twenty one. They overreacted to labor market data in September. 0:15:54.880 --> 0:15:59.520 Now they are overreacting to inflation data. Krishna MoManI, probably 0:15:59.560 --> 0:16:01.840 the worst Russer so far of his tenure, seems to 0:16:01.880 --> 0:16:04.200 support for this cut was quite spotty, but they went 0:16:04.280 --> 0:16:06.280 ahead with it anyway, Jeff, do you agree with that? 0:16:07.960 --> 0:16:10.560 Yeah, you know a lot of the sentiments in there 0:16:10.640 --> 0:16:14.800 are about just how much the FED when they stopped 0:16:14.920 --> 0:16:18.800 forecasting and became data dependent. The problem is they're dependent 0:16:18.840 --> 0:16:21.120 on like as much as he said they're not trying 0:16:21.120 --> 0:16:23.840 to be, it feels like they're dependent on the last 0:16:24.160 --> 0:16:27.560 few data releases and so yes, going into September, it 0:16:27.600 --> 0:16:30.160 was all about labor markets. Now it seems it's all 0:16:30.160 --> 0:16:32.200 about inflation. I think one of the earlier guests end 0:16:32.240 --> 0:16:35.040 and I would agree with this. You know, this is 0:16:35.080 --> 0:16:37.680 not going to be a great forecast for where the 0:16:37.680 --> 0:16:41.360 fed's future forecasts have been because they've been just so 0:16:42.000 --> 0:16:44.640 whipped around by short term movements in data. And that 0:16:45.120 --> 0:16:48.160 certainly is kind of frustrating. And Jonathan, you earlier question, 0:16:48.400 --> 0:16:50.920 you know, makes it makes risk taking a bit tougher 0:16:51.120 --> 0:16:53.480 because the FED signaling and what we're going to get 0:16:53.480 --> 0:16:55.520 out of the FED is just that much more uncertain. 0:16:55.640 --> 0:16:59.560 Atche Frozenberg, Ellen Meltzer, you're Carnegie Mellon come runer up 0:16:59.560 --> 0:17:03.080 at Rock had a shadow Open Market Committee, which was 0:17:03.160 --> 0:17:04.800 the first rule was stability. 0:17:04.840 --> 0:17:05.520 Stability. 0:17:05.960 --> 0:17:09.600 I don't see stability in EM I don't see stability. Granted, 0:17:09.640 --> 0:17:12.840 it's a different story in generic China ten year. 0:17:13.240 --> 0:17:15.560 They're going to open here in three or four hours. 0:17:16.000 --> 0:17:21.120 Is Blackrock internationally concerned about the Asia opening here? 0:17:21.520 --> 0:17:23.120 Call it seven pm our time? 0:17:25.760 --> 0:17:30.119 So, you know, Neil mentioned it in his comments about 0:17:30.119 --> 0:17:34.280 the impact. You know, the FED sets monetary policy based 0:17:34.280 --> 0:17:38.320 on domestic US conditions, but the impact on the rest 0:17:38.400 --> 0:17:42.240 of the world is as important, particularly when it flows 0:17:42.320 --> 0:17:44.959 back into the United States. And how is the channel 0:17:44.960 --> 0:17:47.640 for that flowing back. It's through the potential of tightening 0:17:47.640 --> 0:17:50.720 and financial conditions. I think the tightening and financial conditions 0:17:50.760 --> 0:17:53.200 from the dollar increase is going to be much more 0:17:53.240 --> 0:17:57.439 front and center in emerging markets. What Powell talked about 0:17:57.800 --> 0:18:01.280 is the exceptionalism. What no one really talked about was 0:18:01.320 --> 0:18:03.480 what is the source of that exceptionalism? What is the 0:18:03.480 --> 0:18:09.520 source of that exceptionalism. Partly, it's this incredible technology AI 0:18:09.800 --> 0:18:14.560 wealth creation story that is feeding into positive animal spirits. 0:18:14.600 --> 0:18:18.000 It's feeding directly into consumption through the wealth effect, and 0:18:18.040 --> 0:18:21.639 so that creates a little bit of a buffer around 0:18:21.680 --> 0:18:24.800 the US economy around some of the blowback issues you 0:18:24.920 --> 0:18:29.240 raise in terms of currency open and Asia. So I think, 0:18:29.480 --> 0:18:31.119 you know, we keep an eye on it, But so 0:18:31.359 --> 0:18:35.639 far it's really this much bigger story about American exceptionalism, 0:18:35.680 --> 0:18:39.000 which has a kernel a really important point of that 0:18:39.280 --> 0:18:42.320 about this incredible wealth creation we're seeing coming out of technology. 0:18:42.359 --> 0:18:44.160 Jeff, I'm pleased that Tom brought this up. The move 0:18:44.200 --> 0:18:46.840 we're seeing on the screen, the phone exchange screen on 0:18:46.880 --> 0:18:49.600 the Bloomberg terminal really lighting up. We've got a three 0:18:49.600 --> 0:18:53.520 percent move on the Brazilian currency. Yet today we're talking 0:18:53.560 --> 0:18:56.760 about a move of twenty three percent on the Brazilian currency, 0:18:56.960 --> 0:18:59.560 twenty one on the antentigin PA. So we're looking at 0:18:59.560 --> 0:19:02.640 something like seventeen percent on the Mexican pay. So, Jeff, 0:19:02.680 --> 0:19:05.080 as I look around the world beyond DM, not just 0:19:05.119 --> 0:19:09.000 the Europe, but including Asia and China specifically, China is 0:19:09.040 --> 0:19:12.280 looking at a disinflation rebust potentially. The chart of the 0:19:12.359 --> 0:19:16.200 yields government bond yields in China just lower, lower, lower, 0:19:16.240 --> 0:19:20.080 and rolling over into year end. Jeff, how much divergence 0:19:20.119 --> 0:19:22.600 do you expect for the US versus the rest of 0:19:22.600 --> 0:19:24.280 the world in twenty five. 0:19:25.560 --> 0:19:27.960 Yeah, you know, we're really exiting. 0:19:27.960 --> 0:19:31.160 We talked about exiting the phase of monetary policy. We're 0:19:31.160 --> 0:19:37.920 also exiting this phase of kind of harmonized macroeconomic implications 0:19:38.080 --> 0:19:42.119 for inflation that was then feeding into harmonization for central 0:19:42.160 --> 0:19:45.760 bank policies, and so as kind of the reasons that 0:19:45.800 --> 0:19:48.879 Powell talked about for that decline in inflation without kicking 0:19:49.000 --> 0:19:53.040 up unemployment rate, it was really about the restoration of 0:19:53.160 --> 0:19:55.800 supply chains and the post COVID impact that was a 0:19:55.840 --> 0:19:59.840 global impact that's now starting to dissipate, and what's coming 0:19:59.840 --> 0:20:02.200 in and the aftermath of that are a lot more 0:20:02.280 --> 0:20:08.160 of the idiosyncratic country specific fundamentals driving those economies performance 0:20:08.200 --> 0:20:11.080 the currency you mentioned a bunch of different countries there, 0:20:11.080 --> 0:20:15.000 from Brazil to Argentina to China. That's really all about 0:20:15.040 --> 0:20:21.639 domestic economic policies economic performance that is driving. And so 0:20:21.720 --> 0:20:26.440 that's really a market environment of divergences rather than convergences, 0:20:27.200 --> 0:20:31.639 and so that's really affecting the investment outlookause, particularly for 0:20:31.880 --> 0:20:35.879 investing between the markets in what I call a cross 0:20:35.880 --> 0:20:39.600 section that's actually a better investment environment. It takes out 0:20:39.720 --> 0:20:41.959 kind of the directional call is the dollar going up, 0:20:42.000 --> 0:20:43.880 is the dollar going down? You have a lot more 0:20:43.920 --> 0:20:47.840 opportunities within that global cross section of investing both in 0:20:47.880 --> 0:20:53.280 currencies FX curves. It actually creates a better environment in 0:20:53.320 --> 0:20:59.080 some sense for alpha creation, because divergences create more alpha opportunity. 0:20:59.359 --> 0:21:02.280 Jeff, you've said a number of times that because of 0:21:02.320 --> 0:21:05.040 the increase in uncertainty at the FED to reserve, an 0:21:05.080 --> 0:21:08.359 increase and uncertainty as to the path of their policy, 0:21:08.840 --> 0:21:11.000