1 00:00:04,800 --> 00:00:08,720 Speaker 1: This is Bloomberg Surveillance with Tom Keane, Jonathan Vero, and 2 00:00:08,840 --> 00:00:12,760 Speaker 1: Lisa Brahma Wentz on Bloomberg Radio. That's all I have 3 00:00:12,840 --> 00:00:14,720 Speaker 1: to say. That's one way of wrapping up a news 4 00:00:14,760 --> 00:00:17,640 Speaker 1: conference with Chairman Poull down in Washington, DC, live from 5 00:00:17,640 --> 00:00:20,160 Speaker 1: New York City. Good afternoon to year Wall. This is 6 00:00:20,160 --> 00:00:23,840 Speaker 1: Bloomberg Surveillance live on TV and radio alongside Lisa Brownbert'. 7 00:00:23,840 --> 00:00:26,040 Speaker 1: I'm Jonathan Ferrow picking up from the news conference after 8 00:00:26,079 --> 00:00:28,920 Speaker 1: Chairman Poun and the committee hiked interest rates by twenty 9 00:00:29,000 --> 00:00:32,199 Speaker 1: five basis points a rate hike, but they considered a pause, 10 00:00:32,600 --> 00:00:34,720 Speaker 1: and he was keen to communicate they don't see rate 11 00:00:34,760 --> 00:00:37,000 Speaker 1: cuts this year as well. Here's the price section for 12 00:00:37,080 --> 00:00:38,880 Speaker 1: you on the sm P five hundred, down about a 13 00:00:38,920 --> 00:00:41,640 Speaker 1: half of one percent. It was higher about thirty minutes 14 00:00:41,720 --> 00:00:44,040 Speaker 1: or so ago. We turned lower likewise with a nat stack, 15 00:00:44,080 --> 00:00:45,880 Speaker 1: we're now down about a tenth of one percent. Also 16 00:00:46,159 --> 00:00:48,159 Speaker 1: in the bondom market, though this moves sticks the two 17 00:00:48,240 --> 00:00:51,040 Speaker 1: year year old down by twenty basis points three ninety seven, 18 00:00:51,240 --> 00:00:52,960 Speaker 1: let's call it. Let's round that up. For you on 19 00:00:53,040 --> 00:00:55,000 Speaker 1: a ten year were down about twelve basis points too. 20 00:00:55,080 --> 00:00:57,520 Speaker 1: Let's call it three fifty, just about sub three fifty 21 00:00:57,520 --> 00:01:00,320 Speaker 1: at three forty eight sixty six taken look at the 22 00:01:00,360 --> 00:01:03,440 Speaker 1: euro against the dollar. Euro dollar looks like this one 23 00:01:03,480 --> 00:01:06,560 Speaker 1: away seventy six fast into about one percent. That is 24 00:01:06,600 --> 00:01:10,119 Speaker 1: a stronger euro, that is a weaker dollar. Lisa, what's 25 00:01:10,160 --> 00:01:13,200 Speaker 1: really interesting about this meeting is that at the same 26 00:01:13,240 --> 00:01:15,800 Speaker 1: time Chairman Power well speak in the Treasury Secretary was 27 00:01:15,840 --> 00:01:18,880 Speaker 1: as well, and arguably in the last hour, you could 28 00:01:18,920 --> 00:01:21,600 Speaker 1: make the argument that the most important headline came from 29 00:01:21,600 --> 00:01:25,039 Speaker 1: the Treasury Secretary and not the FED chair. One FED 30 00:01:25,120 --> 00:01:27,039 Speaker 1: Chair j Power was boring. I mean, let's be honest, 31 00:01:27,040 --> 00:01:29,000 Speaker 1: that was a boring press conference. He didn't really say 32 00:01:29,000 --> 00:01:31,560 Speaker 1: anything other than we're not sure. We adjusted our projections 33 00:01:31,880 --> 00:01:34,959 Speaker 1: and really towed the line. But Janet Yellen said she 34 00:01:35,120 --> 00:01:38,880 Speaker 1: is not considering a broad increase in deposit insurance, despite 35 00:01:38,959 --> 00:01:42,440 Speaker 1: all of the discussions around some sort of blanket deposit insurance. 36 00:01:42,840 --> 00:01:45,000 Speaker 1: This is spooking the market, and you can see that 37 00:01:45,240 --> 00:01:48,120 Speaker 1: mediate response in market. So at what point is this 38 00:01:48,240 --> 00:01:51,800 Speaker 1: counterprogramming Drone Power comes out and he's saying everything's fine, 39 00:01:51,840 --> 00:01:54,440 Speaker 1: we have complete confidence in the stability of financial system. 40 00:01:54,480 --> 00:01:57,200 Speaker 1: And she's here kind of raising questions about what the 41 00:01:57,240 --> 00:01:59,280 Speaker 1: backstop is going to be for some of these regional banks. 42 00:01:59,280 --> 00:02:00,800 Speaker 1: So we asked the question through the last hour, in 43 00:02:00,840 --> 00:02:03,080 Speaker 1: fact the last couple of days. Can you take the 44 00:02:03,120 --> 00:02:05,280 Speaker 1: financial instability of the last two weeks and work out 45 00:02:05,280 --> 00:02:07,840 Speaker 1: how it equates to interest rates at the Federal Reserve. 46 00:02:08,120 --> 00:02:10,760 Speaker 1: That's clearly something the Fed Chair and the Committee are 47 00:02:10,800 --> 00:02:12,799 Speaker 1: trying to do. Take a listen to what the Fed 48 00:02:12,880 --> 00:02:17,040 Speaker 1: Chair had to say. For purposes of our monetary policy tool, 49 00:02:17,080 --> 00:02:21,360 Speaker 1: we're looking at what's happening among the banks and asking 50 00:02:21,440 --> 00:02:23,600 Speaker 1: is there going to be some tightening and credit conditions, 51 00:02:23,600 --> 00:02:26,720 Speaker 1: And then we're thinking about that as effectively doing the 52 00:02:26,720 --> 00:02:28,480 Speaker 1: same thing that rate hikes do, so in a way 53 00:02:28,480 --> 00:02:32,760 Speaker 1: that's substitutes for rate hikes. So the key is we 54 00:02:32,800 --> 00:02:34,799 Speaker 1: have to have policies. Need got to be tight enough 55 00:02:34,840 --> 00:02:36,960 Speaker 1: to bring inflation down to two percent over time. It 56 00:02:37,000 --> 00:02:39,079 Speaker 1: doesn't all have to come from rate hikes. It can 57 00:02:39,080 --> 00:02:44,520 Speaker 1: come from you from tighter credit conditions. This underpends a 58 00:02:44,560 --> 00:02:47,239 Speaker 1: massive difference between the communication from this FED Chair today 59 00:02:47,280 --> 00:02:48,760 Speaker 1: and what you've heard from President of the Guard in 60 00:02:48,760 --> 00:02:52,680 Speaker 1: the last week. The experiences in this banking system in 61 00:02:52,720 --> 00:02:56,240 Speaker 1: America right now very different to the experience in Europe. 62 00:02:56,240 --> 00:02:57,959 Speaker 1: There is a real belief on the committee at the 63 00:02:57,960 --> 00:03:01,560 Speaker 1: Federal Reserve, communicated by the FED share that they believe, 64 00:03:01,880 --> 00:03:03,680 Speaker 1: like many people do have spoken to us in the 65 00:03:03,720 --> 00:03:06,679 Speaker 1: last couple of weeks, that the financial instability will lead 66 00:03:06,800 --> 00:03:08,880 Speaker 1: to tie to credit conditions and that could be a 67 00:03:08,919 --> 00:03:12,079 Speaker 1: substitute for the tightening through right hikes that this FED 68 00:03:12,320 --> 00:03:15,359 Speaker 1: could deliver. He specified it's hard to know exactly how much, 69 00:03:15,360 --> 00:03:17,480 Speaker 1: and he couldn't come up with a model like some 70 00:03:17,560 --> 00:03:19,880 Speaker 1: others have come up with to try to pin that down. 71 00:03:19,960 --> 00:03:22,720 Speaker 1: But they're trying to game it out anyway. I mean, 72 00:03:22,760 --> 00:03:25,760 Speaker 1: you were noting that and basically there has been a 73 00:03:25,800 --> 00:03:29,400 Speaker 1: market shift in the expectations. Again, a lot of this 74 00:03:29,760 --> 00:03:32,680 Speaker 1: really hinges on the stability of the financial system, and 75 00:03:32,720 --> 00:03:36,120 Speaker 1: so I do wonder why A he didn't really discuss 76 00:03:36,240 --> 00:03:39,680 Speaker 1: deposit insurance and how important that was to the banking system, 77 00:03:39,760 --> 00:03:42,560 Speaker 1: especially as b Jenny Yellen went out there and was like, yay, 78 00:03:42,560 --> 00:03:44,920 Speaker 1: and that's not that's not really going to happen. Do 79 00:03:45,000 --> 00:03:47,680 Speaker 1: you think that's clearly because he wanted Treasury Secretary Jenny 80 00:03:47,720 --> 00:03:49,720 Speaker 1: Yellen to take care of this herself. Knew that she 81 00:03:49,800 --> 00:03:51,640 Speaker 1: was speaking at the same time. You know, I'm not 82 00:03:51,640 --> 00:03:53,760 Speaker 1: going to speculate. I mean, I can speculate, but it's 83 00:03:53,800 --> 00:03:55,760 Speaker 1: not really going to help. It's not going to help anyone. 84 00:03:56,080 --> 00:03:59,560 Speaker 1: I'm just wondering what the communication here is in terms 85 00:03:59,600 --> 00:04:02,160 Speaker 1: of Paul see especially because you need the political world 86 00:04:02,200 --> 00:04:04,760 Speaker 1: to do something like that at a time when it's 87 00:04:04,800 --> 00:04:06,760 Speaker 1: unclear that they can get really much done and we're 88 00:04:06,800 --> 00:04:09,560 Speaker 1: still talking about not getting a budget passed. So I mean, 89 00:04:09,560 --> 00:04:12,119 Speaker 1: I just wonder how that's going to be the fly 90 00:04:12,200 --> 00:04:15,840 Speaker 1: on the ointment for this whole messaging procedure at a 91 00:04:15,840 --> 00:04:18,520 Speaker 1: time when he was successful, it was boring. He didn't 92 00:04:18,520 --> 00:04:21,360 Speaker 1: really make any weaves. And that is an absolute rip 93 00:04:21,400 --> 00:04:24,240 Speaker 1: roaring hall. Yah. That's a big achievement considering how ten 94 00:04:24,320 --> 00:04:26,680 Speaker 1: so difficult this moment was for this Federal Reserve. If 95 00:04:26,720 --> 00:04:28,640 Speaker 1: you are just tuning in, welcome to the program. At 96 00:04:28,680 --> 00:04:31,120 Speaker 1: twenty five basis point hike from the Federal Reserve. We 97 00:04:31,200 --> 00:04:33,560 Speaker 1: had a statement, we had some projections. We've just had 98 00:04:33,600 --> 00:04:36,160 Speaker 1: a folly minute news conference or something like that. In 99 00:04:36,200 --> 00:04:39,120 Speaker 1: the statement, they'd previously said at the last couple of 100 00:04:39,120 --> 00:04:43,279 Speaker 1: meetings that the committee anticipates ongoing increases in the Fed 101 00:04:43,320 --> 00:04:46,080 Speaker 1: funds rate that's been replaced. Now, the committee anticipates that 102 00:04:46,160 --> 00:04:49,359 Speaker 1: some additional policy firming may be appropriate. He was asked 103 00:04:49,360 --> 00:04:53,840 Speaker 1: about what that means policy firming. He said, the important 104 00:04:53,839 --> 00:04:57,720 Speaker 1: words to Lisa or a summon May, summon May, that 105 00:04:57,839 --> 00:05:00,520 Speaker 1: there might be some and it may happen. I guess 106 00:05:00,560 --> 00:05:02,080 Speaker 1: you can read into that whatever you want to read 107 00:05:02,080 --> 00:05:04,000 Speaker 1: into that. Ultimately, they're trying to stay open mind it 108 00:05:04,160 --> 00:05:06,960 Speaker 1: about the whole thing. Ultimately, they're saying, we have no clue. 109 00:05:06,960 --> 00:05:09,000 Speaker 1: I mean, look at the projections that are all over 110 00:05:09,000 --> 00:05:11,119 Speaker 1: the place going out to twenty twenty four and twenty 111 00:05:11,120 --> 00:05:13,040 Speaker 1: twenty five. When you look at the dots, they're saying, 112 00:05:13,040 --> 00:05:14,760 Speaker 1: we don't know. We're watching things the way that you're 113 00:05:14,760 --> 00:05:16,520 Speaker 1: watching things, and we're not going to rock the boat, 114 00:05:16,560 --> 00:05:19,000 Speaker 1: but we still do see inflation being an issue. Basically, 115 00:05:19,000 --> 00:05:21,440 Speaker 1: they've been listening to all of our commentators and representing 116 00:05:21,440 --> 00:05:23,760 Speaker 1: all of their views in a perfect way to not 117 00:05:23,920 --> 00:05:26,200 Speaker 1: rock the boat. My question is, just are we going 118 00:05:26,279 --> 00:05:28,520 Speaker 1: to step away from this? Saying Janet Yellen kind of 119 00:05:28,520 --> 00:05:30,360 Speaker 1: did it for him. So we worked through the projection 120 00:05:30,400 --> 00:05:34,160 Speaker 1: materials for twenty twenty three. The median dots five point 121 00:05:34,200 --> 00:05:36,920 Speaker 1: one percent. The previous set of projections, which I believe 122 00:05:37,000 --> 00:05:39,280 Speaker 1: was back in December also five point one percent, So 123 00:05:39,480 --> 00:05:41,520 Speaker 1: no real change there. But last when I were looking 124 00:05:41,560 --> 00:05:43,479 Speaker 1: at the central tendency and the range of estimates on 125 00:05:43,480 --> 00:05:45,640 Speaker 1: the committee as well, the range of estimates on the 126 00:05:45,640 --> 00:05:48,719 Speaker 1: committee for twenty twenty three, Lisa anywhere from four nine 127 00:05:48,760 --> 00:05:52,120 Speaker 1: to five nine for twenty four. I think you picked 128 00:05:52,160 --> 00:05:53,880 Speaker 1: up on the longer dots as well, three four to 129 00:05:54,040 --> 00:05:57,040 Speaker 1: five six. I mean, we don't get real descent at 130 00:05:57,080 --> 00:05:59,600 Speaker 1: the Federal Reserve. It's rare that you hear from any one. 131 00:06:00,040 --> 00:06:02,599 Speaker 1: It's often the regional Fed presidents when you do get some, 132 00:06:03,000 --> 00:06:05,760 Speaker 1: if not always. But you can see based on the 133 00:06:05,760 --> 00:06:07,760 Speaker 1: projections and the ranges there that there was a pretty 134 00:06:07,760 --> 00:06:10,559 Speaker 1: wide range of views about where they think rates are going. Okay, 135 00:06:10,560 --> 00:06:12,760 Speaker 1: get this, I can't get over this. Twenty twenty five, 136 00:06:12,880 --> 00:06:16,279 Speaker 1: someone has their DAT at five point six percent and 137 00:06:16,320 --> 00:06:20,040 Speaker 1: someone else has their DAT at two point three seven percent, 138 00:06:20,120 --> 00:06:22,240 Speaker 1: So try to square that. I mean, basically you have 139 00:06:22,320 --> 00:06:24,880 Speaker 1: it two and a half to three percentage point gap 140 00:06:24,960 --> 00:06:28,680 Speaker 1: between those two. We don't understand where we're heading. I 141 00:06:28,800 --> 00:06:30,760 Speaker 1: just wonder whether they're going to really be guiding or 142 00:06:30,800 --> 00:06:32,200 Speaker 1: where they're going to be following the market, and the 143 00:06:32,240 --> 00:06:33,920 Speaker 1: market gave him an opening and they took it. Just 144 00:06:33,960 --> 00:06:36,159 Speaker 1: an extra line on financial stability and what the FETE 145 00:06:36,240 --> 00:06:38,480 Speaker 1: chair had to say in the news conference. Remember that 146 00:06:38,520 --> 00:06:40,520 Speaker 1: line from Senator Warren in the last couple of days. 147 00:06:40,800 --> 00:06:42,479 Speaker 1: Was it on Face the Nation on Sunday where she 148 00:06:42,480 --> 00:06:45,120 Speaker 1: said this chairman he said all he wants is looser 149 00:06:45,560 --> 00:06:48,720 Speaker 1: financial regulation. He said, I plan to support strongest supervision 150 00:06:48,720 --> 00:06:51,600 Speaker 1: and regulation. Have we put that to bed now? Ultimately 151 00:06:51,640 --> 00:06:53,320 Speaker 1: that's the direction of travel, That's what the fete's going 152 00:06:53,360 --> 00:06:55,200 Speaker 1: to be pushing for. He never came out and said 153 00:06:55,360 --> 00:06:59,800 Speaker 1: all I want is loser financial conditions and less regulations 154 00:07:00,240 --> 00:07:03,040 Speaker 1: that does That's not probably an accurate depiction of what 155 00:07:03,080 --> 00:07:06,799 Speaker 1: he said. There's still our questions emerging when they knew 156 00:07:07,080 --> 00:07:10,400 Speaker 1: what they knew, how quickly they're they're sort of keyed 157 00:07:10,400 --> 00:07:12,480 Speaker 1: off when there is some sort of risk. There's still 158 00:07:12,480 --> 00:07:14,680 Speaker 1: our questions. He's just going to point to the investigation, 159 00:07:14,840 --> 00:07:16,520 Speaker 1: but you know, people are still looking for a lot 160 00:07:16,560 --> 00:07:18,520 Speaker 1: of answers up front. At the top of the news conference, 161 00:07:18,560 --> 00:07:20,520 Speaker 1: we're prepared to use all tools to keep the bank 162 00:07:20,560 --> 00:07:24,280 Speaker 1: system safe. Went on to say there's ample liquidity it's available, 163 00:07:24,560 --> 00:07:28,360 Speaker 1: and that DEPOSITUS savings are safe as well. Now that 164 00:07:28,440 --> 00:07:32,240 Speaker 1: one's interesting to what degree, to what extent, to what amount? 165 00:07:32,400 --> 00:07:35,240 Speaker 1: We know the FDIC limit two hundred and fifty thousand, 166 00:07:35,720 --> 00:07:38,360 Speaker 1: We thought maybe that's going to get changed, inevitable. We 167 00:07:38,360 --> 00:07:40,560 Speaker 1: were just trying to work out what the number might be. 168 00:07:40,920 --> 00:07:43,480 Speaker 1: The Treasury Secretary's comments in the last hour and maybe 169 00:07:43,560 --> 00:07:45,840 Speaker 1: muddy in the water a little bit, a little bit, 170 00:07:45,880 --> 00:07:47,920 Speaker 1: I mean, this was one of the proposals on the 171 00:07:47,960 --> 00:07:52,000 Speaker 1: table was some sort of broad increase in deposit insurance. 172 00:07:52,040 --> 00:07:55,360 Speaker 1: She's saying, we're not considering a broad increase in deposit insurance. 173 00:07:55,360 --> 00:07:58,360 Speaker 1: How much their hands tied when you look at Senator 174 00:07:58,400 --> 00:08:00,880 Speaker 1: Schumer as well as Kevin McCarry, the both sides of 175 00:08:00,920 --> 00:08:04,640 Speaker 1: the aisle, not really having much political will to have 176 00:08:04,680 --> 00:08:06,840 Speaker 1: anything that could be skewed as a bailout in some 177 00:08:06,880 --> 00:08:09,800 Speaker 1: of the political propaganda. I mean, that's really the concern, 178 00:08:09,880 --> 00:08:12,000 Speaker 1: and anything that they do could be skewed as that. 179 00:08:12,120 --> 00:08:15,600 Speaker 1: So there's not really the emphasis on doing something that 180 00:08:15,920 --> 00:08:18,280 Speaker 1: you know, perhaps some of these officials like the sea. 181 00:08:18,360 --> 00:08:21,400 Speaker 1: Let's get down to DC and catch up with MH. Marie. 182 00:08:21,600 --> 00:08:26,120 Speaker 1: Your latest rate on the latest comments from the Treasury Secretary. Well, 183 00:08:26,120 --> 00:08:28,440 Speaker 1: it goes again some of our reporting, but we should 184 00:08:28,480 --> 00:08:31,320 Speaker 1: note that it is within the Treasury Department's per view 185 00:08:31,440 --> 00:08:34,880 Speaker 1: to do due diligence, to look at potentially if they 186 00:08:34,920 --> 00:08:37,240 Speaker 1: were have to do this again to expand the FDIC, 187 00:08:37,440 --> 00:08:39,760 Speaker 1: something that obviously we know midside banks are asking for. 188 00:08:40,080 --> 00:08:42,800 Speaker 1: But Janet Yell and the Treasures Actor didn't mince words. 189 00:08:42,880 --> 00:08:46,280 Speaker 1: She said that at this moment not something that we 190 00:08:46,320 --> 00:08:49,480 Speaker 1: have looked at, so potentially it hasn't gotten to her desk, 191 00:08:49,559 --> 00:08:51,280 Speaker 1: or potentially it's not in a place where they'd be 192 00:08:51,360 --> 00:08:53,640 Speaker 1: making decision on it. But our reporting is that the 193 00:08:53,679 --> 00:08:57,520 Speaker 1: Treasury Department was doing this due diligence, not something to 194 00:08:57,559 --> 00:09:00,160 Speaker 1: invoke risk, but just something that they wanted to make 195 00:09:00,240 --> 00:09:03,800 Speaker 1: sure they could have the research and intelligence done if 196 00:09:03,840 --> 00:09:06,839 Speaker 1: they well have to take that step a Marie, thanks 197 00:09:06,840 --> 00:09:08,800 Speaker 1: for that. Dan in Washington on the lightest two things 198 00:09:08,840 --> 00:09:11,280 Speaker 1: happening at the same time, we've been following the chairman 199 00:09:11,559 --> 00:09:14,640 Speaker 1: news conference. Dan in Washington as well. Mike McKay's been 200 00:09:14,720 --> 00:09:17,720 Speaker 1: inside that news conference. Mike, let's talk about it. Great 201 00:09:17,760 --> 00:09:20,720 Speaker 1: exchange with you in the FED chair about thirty minutes 202 00:09:20,760 --> 00:09:24,000 Speaker 1: ago what would your tank away? Well, I think there 203 00:09:24,000 --> 00:09:26,280 Speaker 1: a couple takeaways from this. One is that the FED 204 00:09:26,640 --> 00:09:30,720 Speaker 1: is leave the banking system aside, still concerned about inflation, 205 00:09:30,960 --> 00:09:34,120 Speaker 1: still worried that they are not tight enough, and prepared 206 00:09:34,160 --> 00:09:36,800 Speaker 1: to go higher with the FED funds rate to bring 207 00:09:36,840 --> 00:09:40,360 Speaker 1: inflation down, and he reiterated that they're going to leave 208 00:09:40,480 --> 00:09:45,400 Speaker 1: rates at the higher level until they get some progress 209 00:09:45,520 --> 00:09:50,280 Speaker 1: on inflation. So the banking situation doesn't seem to have 210 00:09:50,320 --> 00:09:54,440 Speaker 1: affected the course of monetary policy. The interesting thing on 211 00:09:54,520 --> 00:09:59,200 Speaker 1: the banks, though, is that Powell was ready to say 212 00:09:59,360 --> 00:10:02,720 Speaker 1: that Silica Valley Bank was very badly managed, they did 213 00:10:02,760 --> 00:10:06,160 Speaker 1: the wrong things, and that while there's an investigation into 214 00:10:06,200 --> 00:10:09,600 Speaker 1: what the FED did wrong, this was basically a couple 215 00:10:09,600 --> 00:10:13,600 Speaker 1: of bad banks as opposed to a systemic problem. I'm 216 00:10:13,640 --> 00:10:17,000 Speaker 1: not sure that message is going to get received as 217 00:10:17,080 --> 00:10:19,679 Speaker 1: he specifically tried to get it out there, but he 218 00:10:19,720 --> 00:10:23,280 Speaker 1: was trying to reassure people. As far as the FDIC 219 00:10:23,440 --> 00:10:28,560 Speaker 1: limits and the bank deposit limits, Congress has to approve that, 220 00:10:28,760 --> 00:10:30,640 Speaker 1: and it really doesn't have anything to do with the Fed. 221 00:10:30,640 --> 00:10:32,959 Speaker 1: The Fed can do an emergence, can vote for an 222 00:10:32,960 --> 00:10:36,199 Speaker 1: emergency exception, as they did with these two banks, but 223 00:10:36,280 --> 00:10:39,080 Speaker 1: Treasury has to agree, and the FDIC has to agree. 224 00:10:39,520 --> 00:10:42,960 Speaker 1: It's really a Treasury FDIC proposal that then has to 225 00:10:43,000 --> 00:10:46,319 Speaker 1: go through Congress. So I think what Paul was trying 226 00:10:46,360 --> 00:10:50,559 Speaker 1: to do was reassure Americans that their deposits are safe 227 00:10:50,600 --> 00:10:53,520 Speaker 1: because nobody's going to really let them lose a lot 228 00:10:53,559 --> 00:10:56,360 Speaker 1: of money. But he can't make any promises because it's 229 00:10:56,400 --> 00:10:58,760 Speaker 1: not his business. It's not his job, and we are 230 00:10:58,800 --> 00:11:02,040 Speaker 1: seeing some of those banks fall further after the comments 231 00:11:02,080 --> 00:11:04,840 Speaker 1: from Janet Yellen. Despite some of the assurances from FED 232 00:11:04,920 --> 00:11:08,679 Speaker 1: cher J. Powell, Mike Steve Chavon wrote in saying I'm wrong, 233 00:11:08,800 --> 00:11:12,280 Speaker 1: It's not a boring meeting. It was actually really interesting. 234 00:11:12,320 --> 00:11:14,400 Speaker 1: He said, I think this meeting marks the passing of 235 00:11:14,440 --> 00:11:17,400 Speaker 1: the torch from inflation and duration risks to recession and 236 00:11:17,520 --> 00:11:19,840 Speaker 1: credit risks. Did you take that away too, that the 237 00:11:19,920 --> 00:11:22,800 Speaker 1: tone had shifted in terms of the greater likelihood of 238 00:11:22,840 --> 00:11:26,000 Speaker 1: a hard landing and the greater likelihood of some sort 239 00:11:26,040 --> 00:11:30,200 Speaker 1: of credit event. If there was a shift, I think 240 00:11:30,240 --> 00:11:33,280 Speaker 1: it was more towards uncertainty. I don't think it was 241 00:11:33,440 --> 00:11:37,079 Speaker 1: anything to do with the recession or pull back. The 242 00:11:37,120 --> 00:11:40,160 Speaker 1: FED still thinks inflation is the biggest issue, and the 243 00:11:40,160 --> 00:11:43,079 Speaker 1: FED still wants to stay on its policy path. Is 244 00:11:43,120 --> 00:11:46,480 Speaker 1: a little bit more of a willingness to say, if 245 00:11:46,600 --> 00:11:49,920 Speaker 1: things go south, we would be willing to look at 246 00:11:50,360 --> 00:11:53,760 Speaker 1: monetary policy actions. But several times he repeated rate cuts 247 00:11:53,760 --> 00:11:55,480 Speaker 1: are not in the cards right now. They're going to 248 00:11:55,559 --> 00:11:57,440 Speaker 1: have to wait and see. They don't know what the 249 00:11:57,520 --> 00:12:00,320 Speaker 1: bank of problems are going to mean in terms of 250 00:12:00,320 --> 00:12:03,240 Speaker 1: credit tightening, but some of that credit tightening from the 251 00:12:03,240 --> 00:12:05,760 Speaker 1: banks maybe exactly what they're looking for so they don't 252 00:12:05,760 --> 00:12:08,600 Speaker 1: have to raise rates as high. But no, I don't 253 00:12:08,640 --> 00:12:12,280 Speaker 1: think the Fed at this point has switched gears at all, 254 00:12:12,840 --> 00:12:16,360 Speaker 1: acknowledging more uncertainty, but not suggesting they're anywhere near a 255 00:12:16,400 --> 00:12:20,840 Speaker 1: hard landing or that they're anywhere near closer knowing how 256 00:12:20,880 --> 00:12:23,280 Speaker 1: the landing is going to come about. And Mike wonderful 257 00:12:23,240 --> 00:12:25,600 Speaker 1: work as always, Mike McKay just one of the best. 258 00:12:25,720 --> 00:12:28,160 Speaker 1: My terminal always lights up when Mike cost the question 259 00:12:28,360 --> 00:12:31,199 Speaker 1: in a news conference. Always great question, might now say, 260 00:12:31,240 --> 00:12:33,760 Speaker 1: if you missed it, has Mike nailing it in a 261 00:12:33,840 --> 00:12:38,400 Speaker 1: news conference. Participants don't see rate cuts this year, They 262 00:12:38,480 --> 00:12:42,240 Speaker 1: just don't. Are you saying that what you see and 263 00:12:42,520 --> 00:12:46,880 Speaker 1: the five point one percent. Basically, consensus is based on 264 00:12:47,440 --> 00:12:51,800 Speaker 1: being it will be sufficiently restrictive or is it leavened 265 00:12:51,840 --> 00:12:54,079 Speaker 1: by the idea of you don't know what's going to happen? 266 00:12:54,080 --> 00:12:56,560 Speaker 1: In other words, what should people think about in terms 267 00:12:56,600 --> 00:12:59,320 Speaker 1: of how the Fed thinks about how far it is 268 00:12:59,360 --> 00:13:02,240 Speaker 1: from the terminal for purposes of our monetary policy tool, 269 00:13:02,240 --> 00:13:06,520 Speaker 1: we're looking at what's happening among the banks and asking 270 00:13:06,600 --> 00:13:08,720 Speaker 1: is there going to be some tightening and credit conditions, 271 00:13:08,760 --> 00:13:11,840 Speaker 1: And then we're thinking about that as effectively doing the 272 00:13:11,880 --> 00:13:13,600 Speaker 1: same thing that rate hikes does so in a way 273 00:13:13,640 --> 00:13:17,160 Speaker 1: that substitutes for rate hikes. Joining us not to discuss 274 00:13:17,160 --> 00:13:19,720 Speaker 1: bolt Down Lee, former New York Fed President and currently 275 00:13:19,760 --> 00:13:22,679 Speaker 1: of course Blinberg opinion columnists built even at some time 276 00:13:22,720 --> 00:13:24,199 Speaker 1: to process out of that what you make of it, 277 00:13:25,720 --> 00:13:29,079 Speaker 1: I think it was pretty logical what happened. Basically, the 278 00:13:29,160 --> 00:13:31,880 Speaker 1: FIT is saying that one uncertainty has gone up a lot, 279 00:13:32,040 --> 00:13:35,160 Speaker 1: We're not sure how long the banking system stress is 280 00:13:35,200 --> 00:13:37,199 Speaker 1: going to last and how severe it's going to be. 281 00:13:38,040 --> 00:13:41,120 Speaker 1: Number two, that that stress is going to restrain the economy, 282 00:13:41,480 --> 00:13:44,000 Speaker 1: and that substitutes a little bit for rate hikes. So 283 00:13:44,120 --> 00:13:45,360 Speaker 1: we're not gonna have to do as much as we 284 00:13:45,440 --> 00:13:47,599 Speaker 1: thought we were gonna have to do earlier. But I 285 00:13:47,679 --> 00:13:50,160 Speaker 1: think the real key is something that Mike mckeed talked about. 286 00:13:50,400 --> 00:13:52,800 Speaker 1: Uncertainty has gone up. Certainty has gone up a lot, 287 00:13:53,160 --> 00:13:55,320 Speaker 1: and I think it's sort of interesting that markets are 288 00:13:55,400 --> 00:13:58,520 Speaker 1: not really fully focused on that because the risk of 289 00:13:58,559 --> 00:14:01,439 Speaker 1: a hard landing is it is higher now because the 290 00:14:01,559 --> 00:14:04,800 Speaker 1: FED isn't going to really know what's the appropriate policy 291 00:14:04,880 --> 00:14:07,240 Speaker 1: to do until they get a lot more information, and 292 00:14:07,280 --> 00:14:09,960 Speaker 1: it's going to take time for that information to be received, 293 00:14:10,240 --> 00:14:12,559 Speaker 1: and it's not gonna be very easy to assess how 294 00:14:12,679 --> 00:14:15,719 Speaker 1: are these banking was going to affect credit conditions and 295 00:14:15,800 --> 00:14:17,960 Speaker 1: how much is that are going to affect economic growth. 296 00:14:18,240 --> 00:14:20,360 Speaker 1: So I think that we're actually in a worst place 297 00:14:20,400 --> 00:14:22,840 Speaker 1: today than we were a few weeks ago because they're 298 00:14:22,880 --> 00:14:25,360 Speaker 1: just you know, there's two forces. One force is keeping 299 00:14:25,360 --> 00:14:28,800 Speaker 1: inflation high and other forces slowing the economy down, and 300 00:14:28,920 --> 00:14:30,800 Speaker 1: we don't know which one is going to dominate or 301 00:14:30,880 --> 00:14:32,640 Speaker 1: for how long. So I think the risk of a 302 00:14:32,680 --> 00:14:34,800 Speaker 1: hard landing has definitely gone up. Bill The easy way 303 00:14:34,880 --> 00:14:37,160 Speaker 1: to dismiss any conversation around the FED is just to 304 00:14:37,200 --> 00:14:39,560 Speaker 1: say that data dependent, Hey, that's so much they're going 305 00:14:39,600 --> 00:14:41,280 Speaker 1: to be data dependent. But Bill, at this point, I'm 306 00:14:41,320 --> 00:14:44,120 Speaker 1: wondering what date they are they dependent on for the 307 00:14:44,200 --> 00:14:46,880 Speaker 1: next decision. Well, I think the problem is that the 308 00:14:47,000 --> 00:14:50,680 Speaker 1: data on the effects of credit tightening on the economy 309 00:14:51,040 --> 00:14:54,000 Speaker 1: taken a while to actually be realized. You know, you know, 310 00:14:54,040 --> 00:14:56,760 Speaker 1: we have two sort of open questions about the banking system. 311 00:14:57,080 --> 00:14:58,840 Speaker 1: Number one, how broad is it going to be? How 312 00:14:58,840 --> 00:15:01,280 Speaker 1: many banks are going to be affect? Number two, how 313 00:15:01,360 --> 00:15:03,560 Speaker 1: much are banks that are affected actually going to tighten 314 00:15:03,600 --> 00:15:06,400 Speaker 1: their credit standards? The problem is not a credit problem. 315 00:15:06,480 --> 00:15:09,320 Speaker 1: The problem was actually taking on too much interest rate risk. 316 00:15:09,760 --> 00:15:12,720 Speaker 1: So it's not obvious to me that tightening credit standards 317 00:15:12,880 --> 00:15:15,720 Speaker 1: is really the logical response. And number three, how long 318 00:15:15,800 --> 00:15:17,640 Speaker 1: is this going to go on? So I think that 319 00:15:17,760 --> 00:15:20,640 Speaker 1: there's a lot of uncertain to hear about how much 320 00:15:20,720 --> 00:15:23,800 Speaker 1: of a breaking effect the banking system was there going 321 00:15:23,880 --> 00:15:25,800 Speaker 1: to be on the economy. The fact that the Fed 322 00:15:25,920 --> 00:15:28,080 Speaker 1: basically has one more rate hike and then it keeps 323 00:15:28,160 --> 00:15:31,640 Speaker 1: RATETI throughout the year suggest that at this point they 324 00:15:31,680 --> 00:15:33,560 Speaker 1: don't think that this is going to exert a lot 325 00:15:33,640 --> 00:15:37,200 Speaker 1: of downward momentum on the economy. What's interesting today. Is 326 00:15:37,200 --> 00:15:40,840 Speaker 1: the market reaction to the FEDS, the press, the press conference, 327 00:15:40,920 --> 00:15:44,480 Speaker 1: in the statement and the summary of economic projections was 328 00:15:44,680 --> 00:15:47,160 Speaker 1: to be a slight, ever so slightly surprised by the 329 00:15:47,240 --> 00:15:49,800 Speaker 1: rate hike because it wasn't fully priced in. But it 330 00:15:49,880 --> 00:15:53,560 Speaker 1: actually is pricing in more rate reduction in the rest 331 00:15:53,600 --> 00:15:56,000 Speaker 1: of twenty twenty three and into twenty four than they 332 00:15:56,040 --> 00:15:59,080 Speaker 1: were earlier. And I think that was a little bit surprising, 333 00:15:59,120 --> 00:16:01,440 Speaker 1: frankly to give and the fact that Paul was very 334 00:16:01,480 --> 00:16:04,080 Speaker 1: clear we don't expect to cut rates in twenty twenty three. 335 00:16:04,440 --> 00:16:06,760 Speaker 1: Does that open up a question about the credibility of 336 00:16:06,800 --> 00:16:09,600 Speaker 1: the FED? I think it opens up a question that 337 00:16:09,680 --> 00:16:12,880 Speaker 1: people are just very uncertain about what the banking system 338 00:16:12,920 --> 00:16:16,000 Speaker 1: wills mean for economic activity, and then how does that 339 00:16:16,080 --> 00:16:18,880 Speaker 1: actually translate to the FED. I think, you know, people 340 00:16:18,920 --> 00:16:22,360 Speaker 1: are worried about the downside risk from the banking sector. 341 00:16:23,560 --> 00:16:26,080 Speaker 1: Steve Shivna, Federated. I keep going back to this because 342 00:16:26,320 --> 00:16:28,960 Speaker 1: I think it's a really salient point. This meeting marks 343 00:16:29,000 --> 00:16:31,480 Speaker 1: the passing of the torch from inflation into ration risks, 344 00:16:31,560 --> 00:16:35,240 Speaker 1: he wrote, to recession and credit risks. Arguably what we 345 00:16:35,320 --> 00:16:38,240 Speaker 1: have seen is not a credit crunch. However, often liquidity 346 00:16:38,240 --> 00:16:41,240 Speaker 1: crunches can lead to credit crunches, as we've seen in 347 00:16:41,280 --> 00:16:43,880 Speaker 1: the past. Bill, do you agree that this really is 348 00:16:44,040 --> 00:16:46,640 Speaker 1: a tipping point as represented to some of the changes 349 00:16:46,960 --> 00:16:50,160 Speaker 1: in the statement. I think it really depends on how 350 00:16:50,280 --> 00:16:52,240 Speaker 1: broad and how long. I mean. You know, we've had 351 00:16:52,320 --> 00:16:54,640 Speaker 1: other examples where there have been all sorts of market 352 00:16:54,680 --> 00:16:58,320 Speaker 1: turbulence and no recession resulted. At most obvious example that 353 00:16:58,480 --> 00:17:01,360 Speaker 1: was the nineteen eighty seven stock market crash, where people 354 00:17:01,360 --> 00:17:04,760 Speaker 1: were talking about making analogies back to the Great Depression, 355 00:17:05,160 --> 00:17:07,840 Speaker 1: and the economy can't go into recession at all. So 356 00:17:07,960 --> 00:17:10,720 Speaker 1: I think the real issue here is how many banks 357 00:17:10,760 --> 00:17:13,680 Speaker 1: are affected and how strongly do they react. When I 358 00:17:13,760 --> 00:17:15,840 Speaker 1: look around at the US banking system today, I see 359 00:17:15,960 --> 00:17:18,320 Speaker 1: only a handful of banks that have actually been affected, 360 00:17:18,720 --> 00:17:21,200 Speaker 1: and they only account for a few percentage points of 361 00:17:21,280 --> 00:17:24,280 Speaker 1: total banking assets. So I personally think that if this 362 00:17:24,440 --> 00:17:27,280 Speaker 1: thing is stabilized right here, the effects on the real 363 00:17:27,320 --> 00:17:29,840 Speaker 1: economy are going to be pretty modest. So to be clear, then, 364 00:17:29,880 --> 00:17:32,960 Speaker 1: built that's an important point, because we're only two weeks 365 00:17:33,000 --> 00:17:37,000 Speaker 1: into this. If it doesn't spill over and carry on bleeding, 366 00:17:37,240 --> 00:17:38,760 Speaker 1: are we going to go back to what we were 367 00:17:38,800 --> 00:17:42,160 Speaker 1: talking about two three weeks ago. In another two weeks, 368 00:17:42,920 --> 00:17:44,480 Speaker 1: we very well can I mean, I don't think I 369 00:17:44,520 --> 00:17:46,760 Speaker 1: don't think we'll have the clarity in two weeks. But 370 00:17:47,600 --> 00:17:49,280 Speaker 1: you know, six weeks from now, the next FL and 371 00:17:49,359 --> 00:17:52,000 Speaker 1: C meeting, you know, maybe we're back in the situation 372 00:17:52,080 --> 00:17:54,920 Speaker 1: where the banks that were under pressure have either remedied 373 00:17:54,960 --> 00:17:58,680 Speaker 1: themselves or been acquired, and the rest of the banking 374 00:17:58,720 --> 00:18:01,600 Speaker 1: system is fine, and the economy is still too strong, 375 00:18:01,640 --> 00:18:03,520 Speaker 1: and the labor market is still too tight, and inflation 376 00:18:03,600 --> 00:18:05,720 Speaker 1: is still too high. I mean, the reality is the 377 00:18:05,840 --> 00:18:10,040 Speaker 1: FED actually hasn't accomplished much yet in terms of generating 378 00:18:10,119 --> 00:18:13,040 Speaker 1: more slack in the labor market or actually bringing services 379 00:18:13,080 --> 00:18:15,879 Speaker 1: inflation down. And that's important to recognize. So when the 380 00:18:15,960 --> 00:18:17,840 Speaker 1: FED chest says we're not thinking about kind of interest 381 00:18:17,960 --> 00:18:20,520 Speaker 1: rates this year, I guess you're saying we should really 382 00:18:20,520 --> 00:18:22,119 Speaker 1: take him seriously because you don't think that's going to 383 00:18:22,200 --> 00:18:24,720 Speaker 1: happen at all. Well, there's a lot of you know, 384 00:18:24,760 --> 00:18:26,960 Speaker 1: there's a lot of there's a wide band around that 385 00:18:27,080 --> 00:18:29,080 Speaker 1: possible outcome. But I think what he's saying is that 386 00:18:29,400 --> 00:18:31,680 Speaker 1: job number one for the FED is to get inflation 387 00:18:31,880 --> 00:18:34,480 Speaker 1: down to two percent and they think that's going to 388 00:18:34,520 --> 00:18:36,919 Speaker 1: be a long drawn out process, not something that's going 389 00:18:37,000 --> 00:18:39,200 Speaker 1: to happen very very quickly. I thought it was interesting 390 00:18:39,240 --> 00:18:41,080 Speaker 1: in the summary of economic projections, if you look at 391 00:18:41,080 --> 00:18:45,320 Speaker 1: their forecasts, the forecast virtually unchanged from the December meeting. 392 00:18:45,680 --> 00:18:48,960 Speaker 1: So essentially what they did was economy is stronger than 393 00:18:49,040 --> 00:18:51,280 Speaker 1: we thought, inflation is higher than we thought. Oh, but 394 00:18:51,400 --> 00:18:53,840 Speaker 1: we have had some banking systems. What should we do 395 00:18:53,920 --> 00:18:57,359 Speaker 1: to our forecast. Well, let's leave it basically unchanged, because 396 00:18:57,560 --> 00:18:59,840 Speaker 1: that's a set, and they're doing that because they just 397 00:19:00,040 --> 00:19:04,040 Speaker 1: don't know which is those two forces predominates. John mentioned 398 00:19:04,080 --> 00:19:05,359 Speaker 1: that you could drive a truck through some of the 399 00:19:05,480 --> 00:19:07,240 Speaker 1: economic projections if you take a look at the dots 400 00:19:07,280 --> 00:19:09,280 Speaker 1: and how far apart the highest and the lowest are. 401 00:19:09,600 --> 00:19:11,960 Speaker 1: I was really struck by twenty twenty five dots and 402 00:19:12,040 --> 00:19:14,440 Speaker 1: just the range of estimates from five point six percent 403 00:19:14,520 --> 00:19:16,760 Speaker 1: to two and a half percent. I'm wondering if you've 404 00:19:16,840 --> 00:19:19,760 Speaker 1: ever seen anything like this before where there is so 405 00:19:20,000 --> 00:19:22,800 Speaker 1: little of a compass directing all FED members. But even 406 00:19:22,840 --> 00:19:26,000 Speaker 1: if they're on the same page right now, I think 407 00:19:26,040 --> 00:19:27,920 Speaker 1: they're on the same page in terms of if you 408 00:19:28,119 --> 00:19:30,440 Speaker 1: told them what the economic forecast was they would break 409 00:19:30,520 --> 00:19:33,120 Speaker 1: down interest rate path that was pretty similar. I think 410 00:19:33,640 --> 00:19:35,920 Speaker 1: they're what they probably disagree on is how is the 411 00:19:35,960 --> 00:19:39,199 Speaker 1: economy actually going to evolve? How quickly is inflation going 412 00:19:39,240 --> 00:19:41,800 Speaker 1: to come down? What's going to happen to economic growth? 413 00:19:41,840 --> 00:19:43,840 Speaker 1: Are we're going to have a hard landing or soft landing? 414 00:19:44,080 --> 00:19:46,320 Speaker 1: And so there's probably just a lot of uncertainty about 415 00:19:46,359 --> 00:19:48,280 Speaker 1: how the actual economy is going to involve, and that 416 00:19:48,400 --> 00:19:51,720 Speaker 1: uncertainty about the economic forecast I think has gone up. 417 00:19:51,800 --> 00:19:54,720 Speaker 1: So you know, the mortal forecast contained in the Summary 418 00:19:54,760 --> 00:19:57,360 Speaker 1: of Economic Projections has not changed very much at all, 419 00:19:57,920 --> 00:20:01,720 Speaker 1: but the distribution that probably built distribution is wide, not dramatically, 420 00:20:02,080 --> 00:20:05,560 Speaker 1: in part because of the banking laws. Final question, Bill, 421 00:20:05,920 --> 00:20:08,440 Speaker 1: next decision is my third? Is that enough time to 422 00:20:08,480 --> 00:20:12,600 Speaker 1: get the incoming information you think they need. We'll see. 423 00:20:12,960 --> 00:20:14,240 Speaker 1: I mean, you know, I think it's going to be 424 00:20:14,320 --> 00:20:17,440 Speaker 1: either banking system stabilizes pretty quickly in the next few 425 00:20:17,480 --> 00:20:22,240 Speaker 1: weeks or we just have you know, creeping problems. You know, 426 00:20:22,359 --> 00:20:24,960 Speaker 1: the problem that in the banking system is when the 427 00:20:25,040 --> 00:20:29,000 Speaker 1: first weakest, the weakest bank gets into difficulty, that raises 428 00:20:29,040 --> 00:20:32,320 Speaker 1: the stress on everybody else because everyone else gets more skittish. 429 00:20:32,680 --> 00:20:35,480 Speaker 1: You know, all the people that are using the banks 430 00:20:35,680 --> 00:20:38,159 Speaker 1: are much more skittish today than they were before the 431 00:20:38,440 --> 00:20:42,200 Speaker 1: Silicon Valley Bank failed. And so it doesn't take as 432 00:20:42,280 --> 00:20:45,920 Speaker 1: much bad news today to generate the same response as 433 00:20:46,200 --> 00:20:48,440 Speaker 1: a couple of weeks ago. I built this was wonderful 434 00:20:48,560 --> 00:20:51,120 Speaker 1: as always both doubtly that the former New York Fed 435 00:20:51,200 --> 00:20:55,480 Speaker 1: President currently, amongst other things a Blimberg opinion columnists wait 436 00:20:55,520 --> 00:20:57,600 Speaker 1: and get on the decision from the Federal Reserve at 437 00:20:57,680 --> 00:20:59,920 Speaker 1: least of what a moment. Quite clearly they take away 438 00:21:00,040 --> 00:21:02,760 Speaker 1: for me after that news conference, after that conversation just there, 439 00:21:03,160 --> 00:21:05,879 Speaker 1: when we talk about being dated dependent, what are we 440 00:21:05,960 --> 00:21:08,600 Speaker 1: really dependent on between now and that next mat sync 441 00:21:08,680 --> 00:21:11,439 Speaker 1: in early May? How many more banks fail? It's CPI 442 00:21:11,560 --> 00:21:14,679 Speaker 1: is whether we get some kinds of real credit tightening. 443 00:21:15,040 --> 00:21:17,480 Speaker 1: Right it's all backward looking and right now the president 444 00:21:17,560 --> 00:21:19,280 Speaker 1: is moving so quickly. And that was very clear and 445 00:21:19,440 --> 00:21:21,720 Speaker 1: very present, which is the reason why people seem to 446 00:21:21,760 --> 00:21:23,640 Speaker 1: still be responding to what Janet Ellen is saying. She's 447 00:21:23,640 --> 00:21:25,200 Speaker 1: still testifying in front of the Senate, and I do 448 00:21:25,280 --> 00:21:28,240 Speaker 1: want to just give you a sense of what else 449 00:21:28,480 --> 00:21:30,920 Speaker 1: she did say. It seemed like she softened her tone 450 00:21:31,000 --> 00:21:33,440 Speaker 1: just a touch, which is the walk back that some 451 00:21:33,480 --> 00:21:36,480 Speaker 1: people were expecting. She said, not time yet to say 452 00:21:36,680 --> 00:21:40,160 Speaker 1: if FDIC insurance cap is appropriate. So you know, basically 453 00:21:40,280 --> 00:21:42,560 Speaker 1: hedging and hying. And you saw her vival in some 454 00:21:42,680 --> 00:21:45,040 Speaker 1: of the shares of these banks. So right now people 455 00:21:45,040 --> 00:21:47,919 Speaker 1: are tracking her comments, probably more than any fallout from 456 00:21:47,920 --> 00:21:50,120 Speaker 1: the FED. But this, to me was interesting. She said, 457 00:21:50,160 --> 00:21:53,320 Speaker 1: the supposits left Silicon Valley Bank at a pace that 458 00:21:53,440 --> 00:21:55,920 Speaker 1: was never seen before. And this comes at a time 459 00:21:56,200 --> 00:22:00,480 Speaker 1: where there is a new threat of and people blame Twitter, people, media, 460 00:22:00,560 --> 00:22:03,639 Speaker 1: people blamed everything. But you can withdraw money at the 461 00:22:03,760 --> 00:22:06,480 Speaker 1: top of a phone, and that has changed the scenario 462 00:22:06,920 --> 00:22:09,359 Speaker 1: and the protocol for banks that really rely on these 463 00:22:09,440 --> 00:22:11,800 Speaker 1: deposits in a way that the larger complex of the 464 00:22:11,840 --> 00:22:14,480 Speaker 1: banking world does not. I've always said, when these officials testify, 465 00:22:14,520 --> 00:22:17,280 Speaker 1: they should have a Blimberg terminal, just a life fate 466 00:22:17,600 --> 00:22:19,879 Speaker 1: of where markets are heard when they speak, just to 467 00:22:19,960 --> 00:22:22,600 Speaker 1: sort of like, you know, also correct them. I think 468 00:22:22,640 --> 00:22:25,000 Speaker 1: maybe she does right. Maybe she was like, all right, 469 00:22:25,280 --> 00:22:28,199 Speaker 1: I have back. Maybe Jeff Rosenberg joined us now from 470 00:22:28,240 --> 00:22:31,080 Speaker 1: Black Rock. Jeff, I think people are asking the question, 471 00:22:31,200 --> 00:22:36,360 Speaker 1: was the hike today the final hike. Well, I think 472 00:22:36,440 --> 00:22:39,000 Speaker 1: Powell was very clear to try to indicate not only 473 00:22:39,160 --> 00:22:42,199 Speaker 1: is this not the final hike, but that to Mike 474 00:22:42,320 --> 00:22:45,639 Speaker 1: McKee's question, that there's a real disconnect between what the 475 00:22:45,680 --> 00:22:48,880 Speaker 1: FETE is telling the market in terms of their forecasts 476 00:22:48,880 --> 00:22:51,560 Speaker 1: and their expectations, and what the market is pricing in 477 00:22:51,680 --> 00:22:54,800 Speaker 1: in terms of cuts at the at the May meeting, 478 00:22:54,880 --> 00:22:57,160 Speaker 1: as soon as the May meeting. So I think this meeting, 479 00:22:57,400 --> 00:23:02,600 Speaker 1: you know, is really about dealing with the present crisis 480 00:23:02,760 --> 00:23:07,520 Speaker 1: in the banking sector, and that unknown is really you know, 481 00:23:07,680 --> 00:23:10,560 Speaker 1: that's going to determine where we are in May. But 482 00:23:10,800 --> 00:23:14,480 Speaker 1: but you know, Powell said something very important about why 483 00:23:14,600 --> 00:23:17,399 Speaker 1: they changed the statement. They changed the statement it was 484 00:23:17,520 --> 00:23:20,000 Speaker 1: much more dubbish because of the banking crisis. And then 485 00:23:20,040 --> 00:23:24,160 Speaker 1: he went on to say why the SEP forecast were 486 00:23:24,200 --> 00:23:28,159 Speaker 1: relatively unchanged, and that was due to offsetting factors. The 487 00:23:28,240 --> 00:23:30,480 Speaker 1: offsetting factors here is that if we didn't have this 488 00:23:30,640 --> 00:23:34,160 Speaker 1: banking crisis, then this would have been a more hawkish 489 00:23:35,480 --> 00:23:37,760 Speaker 1: result and it would have been a terminal rate that 490 00:23:37,920 --> 00:23:40,560 Speaker 1: probably went higher. He said that explicitly, our path was 491 00:23:40,600 --> 00:23:44,000 Speaker 1: probably going to be higher than what we had projected 492 00:23:44,200 --> 00:23:47,000 Speaker 1: in the December sep So, going back to what Bill 493 00:23:47,080 --> 00:23:49,520 Speaker 1: Dudley said, I just want to add that, you know, 494 00:23:49,640 --> 00:23:54,600 Speaker 1: the uncertainty grows on both sides. It's the tail risks 495 00:23:54,720 --> 00:23:57,879 Speaker 1: that are increasing. And while most people are looking at 496 00:23:57,920 --> 00:24:00,359 Speaker 1: the market and saying, oh, we're really worried about this 497 00:24:00,480 --> 00:24:04,720 Speaker 1: banking crisis and the hard landing, uncertainty cuts both ways. 498 00:24:04,840 --> 00:24:06,840 Speaker 1: And so the other way to think about the uncertainty 499 00:24:06,920 --> 00:24:09,680 Speaker 1: here is that the FED didn't do what it otherwise 500 00:24:09,760 --> 00:24:12,920 Speaker 1: would have done, given the fundamentals of the inflation data. 501 00:24:13,000 --> 00:24:16,240 Speaker 1: That got very little attention at all to the question 502 00:24:16,280 --> 00:24:19,080 Speaker 1: about twelve times, and it's a feature and not above. 503 00:24:19,520 --> 00:24:23,080 Speaker 1: The focus in this meeting is distracted, perhaps rightly so, 504 00:24:23,560 --> 00:24:28,080 Speaker 1: or perhaps as we'll see if this crisis fades, that 505 00:24:28,200 --> 00:24:31,280 Speaker 1: it distracted from the fundamental issue, and that by not 506 00:24:31,640 --> 00:24:34,280 Speaker 1: having tighten more, they raised the risk on the other 507 00:24:34,400 --> 00:24:37,160 Speaker 1: side of a more persistent inflation outlook. So I think 508 00:24:37,359 --> 00:24:40,119 Speaker 1: when we talk about uncertainty going up, which I agree with, 509 00:24:40,440 --> 00:24:43,359 Speaker 1: it's a two sided uncertainty. Jeff, I'm really glad that 510 00:24:43,400 --> 00:24:44,879 Speaker 1: you brought this up, But I want to build on 511 00:24:45,000 --> 00:24:48,840 Speaker 1: that this idea that perhaps people are traumatically under pricing 512 00:24:48,920 --> 00:24:53,160 Speaker 1: longer term inflation as a result of not an artificial 513 00:24:53,320 --> 00:24:55,840 Speaker 1: but an interrupted rate hiking cycle that would have looked 514 00:24:55,880 --> 00:24:59,159 Speaker 1: different based on the data from your vantage point. Is 515 00:24:59,240 --> 00:25:02,680 Speaker 1: that the risk that is most underpriced in markets right now? 516 00:25:04,040 --> 00:25:07,800 Speaker 1: I think it is. It's a very asymmetric outcome. Right now. 517 00:25:07,880 --> 00:25:12,440 Speaker 1: The market is pricing for the bank scenario. It's pricing 518 00:25:12,640 --> 00:25:16,320 Speaker 1: for the last twenty or thirty years of FED policy behavior. 519 00:25:16,760 --> 00:25:22,159 Speaker 1: Financial sector stress leads to a FED that pauses and 520 00:25:22,320 --> 00:25:26,320 Speaker 1: that cuts. That's what we've seen from the Federal Reserve, 521 00:25:26,520 --> 00:25:30,119 Speaker 1: and if the crisis is big enough, we'll see that again. 522 00:25:30,359 --> 00:25:35,440 Speaker 1: But that's a big if. And as Powell stated very clearly, 523 00:25:35,600 --> 00:25:39,840 Speaker 1: trying to estimate the impact is guesswork, you know, So 524 00:25:40,040 --> 00:25:43,320 Speaker 1: these numbers that are being thrown around those are guesses. 525 00:25:43,720 --> 00:25:46,200 Speaker 1: Is it twenty five, is it one hundred and fifty? 526 00:25:46,680 --> 00:25:49,040 Speaker 1: No one knows. When you look at the market reaction 527 00:25:49,160 --> 00:25:51,280 Speaker 1: the two year yield chart and you pull that back 528 00:25:51,320 --> 00:25:54,040 Speaker 1: a little bit longer, it looks like a lot for 529 00:25:54,119 --> 00:25:58,040 Speaker 1: the markets pricing. They're giving a lot of impact to 530 00:25:58,520 --> 00:26:02,639 Speaker 1: future monetary policy and very soon to be cuts as 531 00:26:02,720 --> 00:26:07,160 Speaker 1: a result of this event. But the extent, I think 532 00:26:07,320 --> 00:26:10,240 Speaker 1: was the word he was using is highly uncertain. And 533 00:26:10,480 --> 00:26:12,440 Speaker 1: what we also have to talk about not only is 534 00:26:12,480 --> 00:26:16,480 Speaker 1: the extent, but the marginal impact. Powell talked about financial 535 00:26:16,560 --> 00:26:19,840 Speaker 1: condition indicase, and they mostly don't measure this. And so 536 00:26:19,920 --> 00:26:23,320 Speaker 1: if you look at bank lending standards, if you look 537 00:26:23,359 --> 00:26:27,280 Speaker 1: at tightening conditions that incorporate that you're going to use 538 00:26:27,400 --> 00:26:31,800 Speaker 1: the Survey of Lending Standards and that has been showing 539 00:26:31,880 --> 00:26:36,119 Speaker 1: a tightening condition for a very long time. Certainly this 540 00:26:36,359 --> 00:26:39,840 Speaker 1: event marginally increases it. But the question is really to 541 00:26:39,960 --> 00:26:43,800 Speaker 1: what extent, and this ends up like uk LDI, then 542 00:26:43,880 --> 00:26:46,680 Speaker 1: this will be a lot less of an extent, and 543 00:26:46,800 --> 00:26:51,200 Speaker 1: therefore the market is overpricing the amount of cuts that 544 00:26:51,520 --> 00:26:54,320 Speaker 1: they should be taking out of the market expectation market 545 00:26:54,359 --> 00:26:56,080 Speaker 1: to one side, Jeff, I'm with you. It is a 546 00:26:56,160 --> 00:26:58,440 Speaker 1: guessing game. But I believe the FET's taken a stamp 547 00:26:58,480 --> 00:27:01,560 Speaker 1: at it because if we got an EP two weeks ago, 548 00:27:01,960 --> 00:27:04,280 Speaker 1: I think that rate that dog goes from five one 549 00:27:04,320 --> 00:27:06,280 Speaker 1: to five sixty. I think most people thought that was 550 00:27:06,320 --> 00:27:08,000 Speaker 1: what was going to happen. So Jeff, with that in mind, 551 00:27:08,119 --> 00:27:10,160 Speaker 1: hasn't effect just told us that they think it probably 552 00:27:10,160 --> 00:27:13,400 Speaker 1: a quat to about fifty basis points. Yeah, I think 553 00:27:13,400 --> 00:27:16,560 Speaker 1: it's I think he even said, you know, one maybe 554 00:27:17,480 --> 00:27:19,600 Speaker 1: some more. He was kind of anchoring to twenty five 555 00:27:19,760 --> 00:27:22,200 Speaker 1: or fifty. And I think you can infer from the 556 00:27:22,520 --> 00:27:25,359 Speaker 1: counterfactual on the SEP that that is kind of the 557 00:27:25,440 --> 00:27:30,960 Speaker 1: implicit projection. But it's again it's it's it's highly uncertain, 558 00:27:32,280 --> 00:27:34,480 Speaker 1: you know. And then you know, John, you just asked 559 00:27:34,560 --> 00:27:36,399 Speaker 1: the question around, you know, what are we going to 560 00:27:36,680 --> 00:27:41,040 Speaker 1: learn between now and then, you know, if this crisis subsides, 561 00:27:41,240 --> 00:27:46,399 Speaker 1: if the interventions are successful, and think about that, you know, globally, um, 562 00:27:46,560 --> 00:27:48,560 Speaker 1: you know, then it will be about the data and 563 00:27:48,680 --> 00:27:51,720 Speaker 1: we'll go back to what about the data and the 564 00:27:51,800 --> 00:27:56,800 Speaker 1: evolution and are we seeing that disinflationary trend that the 565 00:27:56,920 --> 00:28:01,280 Speaker 1: market is also expecting to see, or to some of 566 00:28:01,320 --> 00:28:03,520 Speaker 1: the comments today and what would have been the most 567 00:28:03,600 --> 00:28:08,320 Speaker 1: recent reflection of inflation data that you're not seeing that 568 00:28:08,560 --> 00:28:12,360 Speaker 1: and that will re emerges the focus. Jeff. That's what's 569 00:28:12,400 --> 00:28:14,560 Speaker 1: going to make the next month or so pretty difficult 570 00:28:14,680 --> 00:28:17,000 Speaker 1: to trade because, Jeff, if you think about it, I 571 00:28:17,160 --> 00:28:19,920 Speaker 1: believe right now this market is likely to ignore the 572 00:28:20,000 --> 00:28:23,719 Speaker 1: incoming economic data, whether it's inflation or payrolls, and focus 573 00:28:24,160 --> 00:28:26,560 Speaker 1: on what we hear from the banking sector. So, Jeff, 574 00:28:26,560 --> 00:28:28,760 Speaker 1: with that in mind, where you talk about those two uncertainties, 575 00:28:29,119 --> 00:28:31,000 Speaker 1: it sounds like the inflation risk is just going to 576 00:28:31,040 --> 00:28:33,800 Speaker 1: get packed and maybe built throughout the rest of this 577 00:28:33,840 --> 00:28:36,560 Speaker 1: summer until we get some clarity on what financial stability 578 00:28:36,640 --> 00:28:38,240 Speaker 1: really looks like. Now, Jeff, you've got to put money 579 00:28:38,240 --> 00:28:41,000 Speaker 1: to work against that backdrop, knowing that maybe this market 580 00:28:41,080 --> 00:28:45,160 Speaker 1: might be less sensitive to incoming information traditional data points, CPI, 581 00:28:45,240 --> 00:28:48,959 Speaker 1: pay ros, etc. How would you manage that? Yeah, you're 582 00:28:48,960 --> 00:28:52,520 Speaker 1: absolutely right, Gentalthan. I mean, the banking sector crisis will 583 00:28:52,600 --> 00:28:56,320 Speaker 1: happen faster. It's evolution will happen faster than the incoming 584 00:28:56,360 --> 00:28:59,400 Speaker 1: inflation data. That's good in the sense that you know, 585 00:28:59,480 --> 00:29:02,440 Speaker 1: if it's stabilizes, it will become stable. Very clear. We're 586 00:29:02,440 --> 00:29:05,160 Speaker 1: gonna get resolution on some of the other outstanding banks 587 00:29:05,520 --> 00:29:08,719 Speaker 1: that global issues seem to becoming resolved, So you can 588 00:29:08,840 --> 00:29:11,960 Speaker 1: get to that resolution quickly, or you can get to 589 00:29:12,120 --> 00:29:14,880 Speaker 1: a contagion effect and they need to ramp up, you know, 590 00:29:15,000 --> 00:29:21,160 Speaker 1: broader intervention policy that will reconcile relatively quickly. We just 591 00:29:21,240 --> 00:29:24,160 Speaker 1: don't know in what direction. In the interim, you know, 592 00:29:24,320 --> 00:29:30,400 Speaker 1: higher uncertainty really means that it's very risky, very tough 593 00:29:30,480 --> 00:29:34,120 Speaker 1: to make a definitive statement in terms of portfolio positioning. 594 00:29:34,440 --> 00:29:38,240 Speaker 1: Our stance has been and it remains pretty defensive with 595 00:29:38,440 --> 00:29:42,400 Speaker 1: respect to the hard landing outcomes, and defensive with regards 596 00:29:42,480 --> 00:29:44,960 Speaker 1: to how much duration risk you want to take here, 597 00:29:45,320 --> 00:29:47,840 Speaker 1: given the inversion of the yield curve, you know you 598 00:29:47,920 --> 00:29:51,080 Speaker 1: can find some decent yield without taking a lot of 599 00:29:51,160 --> 00:29:53,080 Speaker 1: duration risk in the front end of the curve. Just 600 00:29:53,160 --> 00:29:55,200 Speaker 1: real quick, Jeff, what would it take for you to 601 00:29:55,240 --> 00:29:58,960 Speaker 1: become less defensive, perhaps a little more aggressive, to feel 602 00:29:58,960 --> 00:30:02,959 Speaker 1: a little bit more conviction. Well, I think two things right. 603 00:30:03,240 --> 00:30:08,200 Speaker 1: It's about reconciling both of those uncertainties in a positive manner, 604 00:30:08,280 --> 00:30:10,880 Speaker 1: the first obviously being the banking sector crisis and the 605 00:30:11,000 --> 00:30:16,280 Speaker 1: degree to which it's spilled over into too much or overtightening. Effectively, 606 00:30:16,320 --> 00:30:18,720 Speaker 1: when you look at the bond market pricing in cuts 607 00:30:18,800 --> 00:30:21,760 Speaker 1: by May, they're saying the Fed's too tight. It's going 608 00:30:21,800 --> 00:30:25,520 Speaker 1: to have to reconcile that by cutting, and the banking 609 00:30:25,920 --> 00:30:30,400 Speaker 1: system crisis has accelerated the degree of tightening. I think 610 00:30:30,440 --> 00:30:32,760 Speaker 1: if you saw that reconcile to the positive sense where 611 00:30:32,800 --> 00:30:36,640 Speaker 1: there was relief in terms of the hard landing scenario. 612 00:30:36,880 --> 00:30:39,239 Speaker 1: That's going to reduce the recession risk. And then if 613 00:30:39,280 --> 00:30:41,840 Speaker 1: you also at the same time start to get back 614 00:30:41,920 --> 00:30:46,440 Speaker 1: to some positive developments on inflation, you further remove the 615 00:30:46,680 --> 00:30:49,160 Speaker 1: threat that we were talking and worried about, say two 616 00:30:49,200 --> 00:30:52,160 Speaker 1: weeks ago, that the FED had to go longer, faster, 617 00:30:53,000 --> 00:30:55,719 Speaker 1: narrowing the runway for that soft landing that he got 618 00:30:55,760 --> 00:30:57,160 Speaker 1: the question for it. I think if you see those 619 00:30:57,200 --> 00:30:59,520 Speaker 1: two developments, you know, then I think it's going to 620 00:30:59,560 --> 00:31:03,280 Speaker 1: be a much clearer environment for reducing the tail risk 621 00:31:03,320 --> 00:31:05,560 Speaker 1: of recession and pricing that in you can start to 622 00:31:05,600 --> 00:31:09,680 Speaker 1: add some more risk economic exposure down and quality credit 623 00:31:09,800 --> 00:31:13,680 Speaker 1: exposure into the portfolio. If you saw those two things happen, 624 00:31:13,880 --> 00:31:16,280 Speaker 1: y Jeff, wonderful to catch up with you, sir, as always, 625 00:31:16,320 --> 00:31:19,560 Speaker 1: Jeff Rosenberg there of black Rock on the latest fat decision. 626 00:31:19,800 --> 00:31:21,200 Speaker 1: I think a lot of people walk away from this 627 00:31:21,320 --> 00:31:24,160 Speaker 1: thinking Chamanpow handled that well. History is going to be 628 00:31:24,200 --> 00:31:27,160 Speaker 1: the ultimate judge. If this financial stability issue gets worse 629 00:31:27,240 --> 00:31:29,640 Speaker 1: than the twenty five basis point high, looks terrible. If 630 00:31:29,680 --> 00:31:32,000 Speaker 1: it goes away and inflation stays elevated, it looks like 631 00:31:32,080 --> 00:31:33,440 Speaker 1: it's the right thing to do, and that's why so 632 00:31:33,560 --> 00:31:37,240 Speaker 1: difficult to be a policymaker confronting decisions like this one. Today. 633 00:31:38,160 --> 00:31:40,080 Speaker 1: What I heard from him was basically, you guys can 634 00:31:40,160 --> 00:31:42,800 Speaker 1: have your views, I'll have mine. None of us know. 635 00:31:43,320 --> 00:31:46,040 Speaker 1: We don't anticipate cutting rates. The market says, yeah, you're 636 00:31:46,040 --> 00:31:48,200 Speaker 1: going to cut rates by almost a percentage point by 637 00:31:48,200 --> 00:31:51,120 Speaker 1: the beginning of by the end of January. He says, look, 638 00:31:51,160 --> 00:31:53,160 Speaker 1: you guys, do what you want. We'll play it by ear. 639 00:31:53,440 --> 00:31:57,720 Speaker 1: We've got the backs of banks. It was successful. It 640 00:31:57,800 --> 00:31:59,840 Speaker 1: was not that interesting. He didn't, which was good. Stay 641 00:32:00,040 --> 00:32:02,680 Speaker 1: the banks going into the clothes. That's what you need 642 00:32:02,720 --> 00:32:05,760 Speaker 1: to watch. First Republic down seventeen percent and rolling over 643 00:32:06,160 --> 00:32:08,200 Speaker 1: coming up of the clothes. Remain boss. That's going to 644 00:32:08,280 --> 00:32:11,520 Speaker 1: lead the coverage. Morgan Stanley's Seth Carpenter, hr Denny Off 645 00:32:11,600 --> 00:32:16,000 Speaker 1: ther Denny Research. The bank's rolling over Secretary Yellen Waying, 646 00:32:16,080 --> 00:32:19,520 Speaker 1: Gin Shechem and Powe goes twenty five from New York. 647 00:32:19,960 --> 00:32:20,800 Speaker 1: This is Bloomberg