WEBVTT - Surveillance: Fed Special 0:00:04.800 --> 0:00:08.720 This is Bloomberg Surveillance with Tom Keane, Jonathan Vero, and 0:00:08.840 --> 0:00:12.760 Lisa Brahma Wentz on Bloomberg Radio. That's all I have 0:00:12.840 --> 0:00:14.720 to say. That's one way of wrapping up a news 0:00:14.760 --> 0:00:17.640 conference with Chairman Poull down in Washington, DC, live from 0:00:17.640 --> 0:00:20.160 New York City. Good afternoon to year Wall. This is 0:00:20.160 --> 0:00:23.840 Bloomberg Surveillance live on TV and radio alongside Lisa Brownbert'. 0:00:23.840 --> 0:00:26.040 I'm Jonathan Ferrow picking up from the news conference after 0:00:26.079 --> 0:00:28.920 Chairman Poun and the committee hiked interest rates by twenty 0:00:29.000 --> 0:00:32.199 five basis points a rate hike, but they considered a pause, 0:00:32.600 --> 0:00:34.720 and he was keen to communicate they don't see rate 0:00:34.760 --> 0:00:37.000 cuts this year as well. Here's the price section for 0:00:37.080 --> 0:00:38.880 you on the sm P five hundred, down about a 0:00:38.920 --> 0:00:41.640 half of one percent. It was higher about thirty minutes 0:00:41.720 --> 0:00:44.040 or so ago. We turned lower likewise with a nat stack, 0:00:44.080 --> 0:00:45.880 we're now down about a tenth of one percent. Also 0:00:46.159 --> 0:00:48.159 in the bondom market, though this moves sticks the two 0:00:48.240 --> 0:00:51.040 year year old down by twenty basis points three ninety seven, 0:00:51.240 --> 0:00:52.960 let's call it. Let's round that up. For you on 0:00:53.040 --> 0:00:55.000 a ten year were down about twelve basis points too. 0:00:55.080 --> 0:00:57.520 Let's call it three fifty, just about sub three fifty 0:00:57.520 --> 0:01:00.320 at three forty eight sixty six taken look at the 0:01:00.360 --> 0:01:03.440 euro against the dollar. Euro dollar looks like this one 0:01:03.480 --> 0:01:06.560 away seventy six fast into about one percent. That is 0:01:06.600 --> 0:01:10.119 a stronger euro, that is a weaker dollar. Lisa, what's 0:01:10.160 --> 0:01:13.200 really interesting about this meeting is that at the same 0:01:13.240 --> 0:01:15.800 time Chairman Power well speak in the Treasury Secretary was 0:01:15.840 --> 0:01:18.880 as well, and arguably in the last hour, you could 0:01:18.920 --> 0:01:21.600 make the argument that the most important headline came from 0:01:21.600 --> 0:01:25.039 the Treasury Secretary and not the FED chair. One FED 0:01:25.120 --> 0:01:27.039 Chair j Power was boring. I mean, let's be honest, 0:01:27.040 --> 0:01:29.000 that was a boring press conference. He didn't really say 0:01:29.000 --> 0:01:31.560 anything other than we're not sure. We adjusted our projections 0:01:31.880 --> 0:01:34.959 and really towed the line. But Janet Yellen said she 0:01:35.120 --> 0:01:38.880 is not considering a broad increase in deposit insurance, despite 0:01:38.959 --> 0:01:42.440 all of the discussions around some sort of blanket deposit insurance. 0:01:42.840 --> 0:01:45.000 This is spooking the market, and you can see that 0:01:45.240 --> 0:01:48.120 mediate response in market. So at what point is this 0:01:48.240 --> 0:01:51.800 counterprogramming Drone Power comes out and he's saying everything's fine, 0:01:51.840 --> 0:01:54.440 we have complete confidence in the stability of financial system. 0:01:54.480 --> 0:01:57.200 And she's here kind of raising questions about what the 0:01:57.240 --> 0:01:59.280 backstop is going to be for some of these regional banks. 0:01:59.280 --> 0:02:00.800 So we asked the question through the last hour, in 0:02:00.840 --> 0:02:03.080 fact the last couple of days. Can you take the 0:02:03.120 --> 0:02:05.280 financial instability of the last two weeks and work out 0:02:05.280 --> 0:02:07.840 how it equates to interest rates at the Federal Reserve. 0:02:08.120 --> 0:02:10.760 That's clearly something the Fed Chair and the Committee are 0:02:10.800 --> 0:02:12.799 trying to do. Take a listen to what the Fed 0:02:12.880 --> 0:02:17.040 Chair had to say. For purposes of our monetary policy tool, 0:02:17.080 --> 0:02:21.360 we're looking at what's happening among the banks and asking 0:02:21.440 --> 0:02:23.600 is there going to be some tightening and credit conditions, 0:02:23.600 --> 0:02:26.720 And then we're thinking about that as effectively doing the 0:02:26.720 --> 0:02:28.480 same thing that rate hikes do, so in a way 0:02:28.480 --> 0:02:32.760 that's substitutes for rate hikes. So the key is we 0:02:32.800 --> 0:02:34.799 have to have policies. Need got to be tight enough 0:02:34.840 --> 0:02:36.960 to bring inflation down to two percent over time. It 0:02:37.000 --> 0:02:39.079 doesn't all have to come from rate hikes. It can 0:02:39.080 --> 0:02:44.520 come from you from tighter credit conditions. This underpends a 0:02:44.560 --> 0:02:47.239 massive difference between the communication from this FED Chair today 0:02:47.280 --> 0:02:48.760 and what you've heard from President of the Guard in 0:02:48.760 --> 0:02:52.680 the last week. The experiences in this banking system in 0:02:52.720 --> 0:02:56.240 America right now very different to the experience in Europe. 0:02:56.240 --> 0:02:57.959 There is a real belief on the committee at the 0:02:57.960 --> 0:03:01.560 Federal Reserve, communicated by the FED share that they believe, 0:03:01.880 --> 0:03:03.680 like many people do have spoken to us in the 0:03:03.720 --> 0:03:06.679 last couple of weeks, that the financial instability will lead 0:03:06.800 --> 0:03:08.880 to tie to credit conditions and that could be a 0:03:08.919 --> 0:03:12.079 substitute for the tightening through right hikes that this FED 0:03:12.320 --> 0:03:15.359 could deliver. He specified it's hard to know exactly how much, 0:03:15.360 --> 0:03:17.480 and he couldn't come up with a model like some 0:03:17.560 --> 0:03:19.880 others have come up with to try to pin that down. 0:03:19.960 --> 0:03:22.720 But they're trying to game it out anyway. I mean, 0:03:22.760 --> 0:03:25.760 you were noting that and basically there has been a 0:03:25.800 --> 0:03:29.400 market shift in the expectations. Again, a lot of this 0:03:29.760 --> 0:03:32.680 really hinges on the stability of the financial system, and 0:03:32.720 --> 0:03:36.120 so I do wonder why A he didn't really discuss 0:03:36.240 --> 0:03:39.680 deposit insurance and how important that was to the banking system, 0:03:39.760 --> 0:03:42.560 especially as b Jenny Yellen went out there and was like, yay, 0:03:42.560 --> 0:03:44.920 and that's not that's not really going to happen. Do 0:03:45.000 --> 0:03:47.680 you think that's clearly because he wanted Treasury Secretary Jenny 0:03:47.720 --> 0:03:49.720 Yellen to take care of this herself. Knew that she 0:03:49.800 --> 0:03:51.640 was speaking at the same time. You know, I'm not 0:03:51.640 --> 0:03:53.760 going to speculate. I mean, I can speculate, but it's 0:03:53.800 --> 0:03:55.760 not really going to help. It's not going to help anyone. 0:03:56.080 --> 0:03:59.560 I'm just wondering what the communication here is in terms 0:03:59.600 --> 0:04:02.160 of Paul see especially because you need the political world 0:04:02.200 --> 0:04:04.760 to do something like that at a time when it's 0:04:04.800 --> 0:04:06.760 unclear that they can get really much done and we're 0:04:06.800 --> 0:04:09.560 still talking about not getting a budget passed. So I mean, 0:04:09.560 --> 0:04:12.119 I just wonder how that's going to be the fly 0:04:12.200 --> 0:04:15.840 on the ointment for this whole messaging procedure at a 0:04:15.840 --> 0:04:18.520 time when he was successful, it was boring. He didn't 0:04:18.520 --> 0:04:21.360 really make any weaves. And that is an absolute rip 0:04:21.400 --> 0:04:24.240 roaring hall. Yah. That's a big achievement considering how ten 0:04:24.320 --> 0:04:26.680 so difficult this moment was for this Federal Reserve. If 0:04:26.720 --> 0:04:28.640 you are just tuning in, welcome to the program. At 0:04:28.680 --> 0:04:31.120 twenty five basis point hike from the Federal Reserve. We 0:04:31.200 --> 0:04:33.560 had a statement, we had some projections. We've just had 0:04:33.600 --> 0:04:36.160 a folly minute news conference or something like that. In 0:04:36.200 --> 0:04:39.120 the statement, they'd previously said at the last couple of 0:04:39.120 --> 0:04:43.279 meetings that the committee anticipates ongoing increases in the Fed 0:04:43.320 --> 0:04:46.080 funds rate that's been replaced. Now, the committee anticipates that 0:04:46.160 --> 0:04:49.359 some additional policy firming may be appropriate. He was asked 0:04:49.360 --> 0:04:53.840 about what that means policy firming. He said, the important 0:04:53.839 --> 0:04:57.720 words to Lisa or a summon May, summon May, that 0:04:57.839 --> 0:05:00.520 there might be some and it may happen. I guess 0:05:00.560 --> 0:05:02.080 you can read into that whatever you want to read 0:05:02.080 --> 0:05:04.000 into that. Ultimately, they're trying to stay open mind it 0:05:04.160 --> 0:05:06.960 about the whole thing. Ultimately, they're saying, we have no clue. 0:05:06.960 --> 0:05:09.000 I mean, look at the projections that are all over 0:05:09.000 --> 0:05:11.119 the place going out to twenty twenty four and twenty 0:05:11.120 --> 0:05:13.040 twenty five. When you look at the dots, they're saying, 0:05:13.040 --> 0:05:14.760 we don't know. We're watching things the way that you're 0:05:14.760 --> 0:05:16.520 watching things, and we're not going to rock the boat, 0:05:16.560 --> 0:05:19.000 but we still do see inflation being an issue. Basically, 0:05:19.000 --> 0:05:21.440 they've been listening to all of our commentators and representing 0:05:21.440 --> 0:05:23.760 all of their views in a perfect way to not 0:05:23.920 --> 0:05:26.200 rock the boat. My question is, just are we going 0:05:26.279 --> 0:05:28.520 to step away from this? Saying Janet Yellen kind of 0:05:28.520 --> 0:05:30.360 did it for him. So we worked through the projection 0:05:30.400 --> 0:05:34.160 materials for twenty twenty three. The median dots five point 0:05:34.200 --> 0:05:36.920 one percent. The previous set of projections, which I believe 0:05:37.000 --> 0:05:39.280 was back in December also five point one percent, So 0:05:39.480 --> 0:05:41.520 no real change there. But last when I were looking 0:05:41.560 --> 0:05:43.479 at the central tendency and the range of estimates on 0:05:43.480 --> 0:05:45.640 the committee as well, the range of estimates on the 0:05:45.640 --> 0:05:48.719 committee for twenty twenty three, Lisa anywhere from four nine 0:05:48.760 --> 0:05:52.120 to five nine for twenty four. I think you picked 0:05:52.160 --> 0:05:53.880 up on the longer dots as well, three four to 0:05:54.040 --> 0:05:57.040 five six. I mean, we don't get real descent at 0:05:57.080 --> 0:05:59.600 the Federal Reserve. It's rare that you hear from any one. 0:06:00.040 --> 0:06:02.599 It's often the regional Fed presidents when you do get some, 0:06:03.000 --> 0:06:05.760 if not always. But you can see based on the 0:06:05.760 --> 0:06:07.760 projections and the ranges there that there was a pretty 0:06:07.760 --> 0:06:10.559 wide range of views about where they think rates are going. Okay, 0:06:10.560 --> 0:06:12.760 get this, I can't get over this. Twenty twenty five, 0:06:12.880 --> 0:06:16.279 someone has their DAT at five point six percent and 0:06:16.320 --> 0:06:20.040 someone else has their DAT at two point three seven percent, 0:06:20.120 --> 0:06:22.240 So try to square that. I mean, basically you have 0:06:22.320 --> 0:06:24.880 it two and a half to three percentage point gap 0:06:24.960 --> 0:06:28.680 between those two. We don't understand where we're heading. I 0:06:28.800 --> 0:06:30.760 just wonder whether they're going to really be guiding or 0:06:30.800 --> 0:06:32.200 where they're going to be following the market, and the 0:06:32.240 --> 0:06:33.920 market gave him an opening and they took it. Just 0:06:33.960 --> 0:06:36.159 an extra line on financial stability and what the FETE 0:06:36.240 --> 0:06:38.480 chair had to say in the news conference. Remember that 0:06:38.520 --> 0:06:40.520 line from Senator Warren in the last couple of days. 0:06:40.800 --> 0:06:42.479 Was it on Face the Nation on Sunday where she 0:06:42.480 --> 0:06:45.120 said this chairman he said all he wants is looser 0:06:45.560 --> 0:06:48.720 financial regulation. He said, I plan to support strongest supervision 0:06:48.720 --> 0:06:51.600 and regulation. Have we put that to bed now? Ultimately 0:06:51.640 --> 0:06:53.320 that's the direction of travel, That's what the fete's going 0:06:53.360 --> 0:06:55.200 to be pushing for. He never came out and said 0:06:55.360 --> 0:06:59.800 all I want is loser financial conditions and less regulations 0:07:00.240 --> 0:07:03.040 that does That's not probably an accurate depiction of what 0:07:03.080 --> 0:07:06.799 he said. There's still our questions emerging when they knew 0:07:07.080 --> 0:07:10.400 what they knew, how quickly they're they're sort of keyed 0:07:10.400 --> 0:07:12.480 off when there is some sort of risk. There's still 0:07:12.480 --> 0:07:14.680 our questions. He's just going to point to the investigation, 0:07:14.840 --> 0:07:16.520 but you know, people are still looking for a lot 0:07:16.560 --> 0:07:18.520 of answers up front. At the top of the news conference, 0:07:18.560 --> 0:07:20.520 we're prepared to use all tools to keep the bank 0:07:20.560 --> 0:07:24.280 system safe. Went on to say there's ample liquidity it's available, 0:07:24.560 --> 0:07:28.360 and that DEPOSITUS savings are safe as well. Now that 0:07:28.440 --> 0:07:32.240 one's interesting to what degree, to what extent, to what amount? 0:07:32.400 --> 0:07:35.240 We know the FDIC limit two hundred and fifty thousand, 0:07:35.720 --> 0:07:38.360 We thought maybe that's going to get changed, inevitable. We 0:07:38.360 --> 0:07:40.560 were just trying to work out what the number might be. 0:07:40.920 --> 0:07:43.480 The Treasury Secretary's comments in the last hour and maybe 0:07:43.560 --> 0:07:45.840 muddy in the water a little bit, a little bit, 0:07:45.880 --> 0:07:47.920 I mean, this was one of the proposals on the 0:07:47.960 --> 0:07:52.000 table was some sort of broad increase in deposit insurance. 0:07:52.040 --> 0:07:55.360 She's saying, we're not considering a broad increase in deposit insurance. 0:07:55.360 --> 0:07:58.360 How much their hands tied when you look at Senator 0:07:58.400 --> 0:08:00.880 Schumer as well as Kevin McCarry, the both sides of 0:08:00.920 --> 0:08:04.640 the aisle, not really having much political will to have 0:08:04.680 --> 0:08:06.840 anything that could be skewed as a bailout in some 0:08:06.880 --> 0:08:09.800 of the political propaganda. I mean, that's really the concern, 0:08:09.880 --> 0:08:12.000 and anything that they do could be skewed as that. 0:08:12.120 --> 0:08:15.600 So there's not really the emphasis on doing something that 0:08:15.920 --> 0:08:18.280 you know, perhaps some of these officials like the sea. 0:08:18.360 --> 0:08:21.400 Let's get down to DC and catch up with MH. Marie. 0:08:21.600 --> 0:08:26.120 Your latest rate on the latest comments from the Treasury Secretary. Well, 0:08:26.120 --> 0:08:28.440 it goes again some of our reporting, but we should 0:08:28.480 --> 0:08:31.320 note that it is within the Treasury Department's per view 0:08:31.440 --> 0:08:34.880 to do due diligence, to look at potentially if they 0:08:34.920 --> 0:08:37.240 were have to do this again to expand the FDIC, 0:08:37.440 --> 0:08:39.760 something that obviously we know midside banks are asking for. 0:08:40.080 --> 0:08:42.800 But Janet Yell and the Treasures Actor didn't mince words. 0:08:42.880 --> 0:08:46.280 She said that at this moment not something that we 0:08:46.320 --> 0:08:49.480 have looked at, so potentially it hasn't gotten to her desk, 0:08:49.559 --> 0:08:51.280 or potentially it's not in a place where they'd be 0:08:51.360 --> 0:08:53.640 making decision on it. But our reporting is that the 0:08:53.679 --> 0:08:57.520 Treasury Department was doing this due diligence, not something to 0:08:57.559 --> 0:09:00.160 invoke risk, but just something that they wanted to make 0:09:00.240 --> 0:09:03.800 sure they could have the research and intelligence done if 0:09:03.840 --> 0:09:06.839 they well have to take that step a Marie, thanks 0:09:06.840 --> 0:09:08.800 for that. Dan in Washington on the lightest two things 0:09:08.840 --> 0:09:11.280 happening at the same time, we've been following the chairman 0:09:11.559 --> 0:09:14.640 news conference. Dan in Washington as well. Mike McKay's been 0:09:14.720 --> 0:09:17.720 inside that news conference. Mike, let's talk about it. Great 0:09:17.760 --> 0:09:20.720 exchange with you in the FED chair about thirty minutes 0:09:20.760 --> 0:09:24.000 ago what would your tank away? Well, I think there 0:09:24.000 --> 0:09:26.280 a couple takeaways from this. One is that the FED 0:09:26.640 --> 0:09:30.720 is leave the banking system aside, still concerned about inflation, 0:09:30.960 --> 0:09:34.120 still worried that they are not tight enough, and prepared 0:09:34.160 --> 0:09:36.800 to go higher with the FED funds rate to bring 0:09:36.840 --> 0:09:40.360 inflation down, and he reiterated that they're going to leave 0:09:40.480 --> 0:09:45.400 rates at the higher level until they get some progress 0:09:45.520 --> 0:09:50.280 on inflation. So the banking situation doesn't seem to have 0:09:50.320 --> 0:09:54.440 affected the course of monetary policy. The interesting thing on 0:09:54.520 --> 0:09:59.200 the banks, though, is that Powell was ready to say 0:09:59.360 --> 0:10:02.720 that Silica Valley Bank was very badly managed, they did 0:10:02.760 --> 0:10:06.160 the wrong things, and that while there's an investigation into 0:10:06.200 --> 0:10:09.600 what the FED did wrong, this was basically a couple 0:10:09.600 --> 0:10:13.600 of bad banks as opposed to a systemic problem. I'm 0:10:13.640 --> 0:10:17.000 not sure that message is going to get received as 0:10:17.080 --> 0:10:19.679 he specifically tried to get it out there, but he 0:10:19.720 --> 0:10:23.280 was trying to reassure people. As far as the FDIC 0:10:23.440 --> 0:10:28.560 limits and the bank deposit limits, Congress has to approve that, 0:10:28.760 --> 0:10:30.640 and it really doesn't have anything to do with the Fed. 0:10:30.640 --> 0:10:32.959 The Fed can do an emergence, can vote for an 0:10:32.960 --> 0:10:36.199 emergency exception, as they did with these two banks, but 0:10:36.280 --> 0:10:39.080 Treasury has to agree, and the FDIC has to agree. 0:10:39.520 --> 0:10:42.960 It's really a Treasury FDIC proposal that then has to 0:10:43.000 --> 0:10:46.319 go through Congress. So I think what Paul was trying 0:10:46.360 --> 0:10:50.559 to do was reassure Americans that their deposits are safe 0:10:50.600 --> 0:10:53.520 because nobody's going to really let them lose a lot 0:10:53.559 --> 0:10:56.360 of money. But he can't make any promises because it's 0:10:56.400 --> 0:10:58.760 not his business. It's not his job, and we are 0:10:58.800 --> 0:11:02.040 seeing some of those banks fall further after the comments 0:11:02.080 --> 0:11:04.840 from Janet Yellen. Despite some of the assurances from FED 0:11:04.920 --> 0:11:08.679 cher J. Powell, Mike Steve Chavon wrote in saying I'm wrong, 0:11:08.800 --> 0:11:12.280 It's not a boring meeting. It was actually really interesting. 0:11:12.320 --> 0:11:14.400 He said, I think this meeting marks the passing of 0:11:14.440 --> 0:11:17.400 the torch from inflation and duration risks to recession and 0:11:17.520 --> 0:11:19.840 credit risks. Did you take that away too, that the 0:11:19.920 --> 0:11:22.800 tone had shifted in terms of the greater likelihood of 0:11:22.840 --> 0:11:26.000 a hard landing and the greater likelihood of some sort 0:11:26.040 --> 0:11:30.200 of credit event. If there was a shift, I think 0:11:30.240 --> 0:11:33.280 it was more towards uncertainty. I don't think it was 0:11:33.440 --> 0:11:37.079 anything to do with the recession or pull back. The 0:11:37.120 --> 0:11:40.160 FED still thinks inflation is the biggest issue, and the 0:11:40.160 --> 0:11:43.079 FED still wants to stay on its policy path. Is 0:11:43.120 --> 0:11:46.480 a little bit more of a willingness to say, if 0:11:46.600 --> 0:11:49.920 things go south, we would be willing to look at 0:11:50.360 --> 0:11:53.760 monetary policy actions. But several times he repeated rate cuts 0:11:53.760 --> 0:11:55.480 are not in the cards right now. They're going to 0:11:55.559 --> 0:11:57.440 have to wait and see. They don't know what the 0:11:57.520 --> 0:12:00.320 bank of problems are going to mean in terms of 0:12:00.320 --> 0:12:03.240 credit tightening, but some of that credit tightening from the 0:12:03.240 --> 0:12:05.760 banks maybe exactly what they're looking for so they don't 0:12:05.760 --> 0:12:08.600 have to raise rates as high. But no, I don't 0:12:08.640 --> 0:12:12.280 think the Fed at this point has switched gears at all, 0:12:12.840 --> 0:12:16.360 acknowledging more uncertainty, but not suggesting they're anywhere near a 0:12:16.400 --> 0:12:20.840 hard landing or that they're anywhere near closer knowing how 0:12:20.880 --> 0:12:23.280 the landing is going to come about. And Mike wonderful 0:12:23.240 --> 0:12:25.600 work as always, Mike McKay just one of the best. 0:12:25.720 --> 0:12:28.160 My terminal always lights up when Mike cost the question 0:12:28.360 --> 0:12:31.199 in a news conference. Always great question, might now say, 0:12:31.240 --> 0:12:33.760 if you missed it, has Mike nailing it in a 0:12:33.840 --> 0:12:38.400 news conference. Participants don't see rate cuts this year, They 0:12:38.480 --> 0:12:42.240 just don't. Are you saying that what you see and 0:12:42.520 --> 0:12:46.880 the five point one percent. Basically, consensus is based on 0:12:47.440 --> 0:12:51.800 being it will be sufficiently restrictive or is it leavened 0:12:51.840 --> 0:12:54.079 by the idea of you don't know what's going to happen? 0:12:54.080 --> 0:12:56.560 In other words, what should people think about in terms 0:12:56.600 --> 0:12:59.320 of how the Fed thinks about how far it is 0:12:59.360 --> 0:13:02.240 from the terminal for purposes of our monetary policy tool, 0:13:02.240 --> 0:13:06.520 we're looking at what's happening among the banks and asking 0:13:06.600 --> 0:13:08.720 is there going to be some tightening and credit conditions, 0:13:08.760 --> 0:13:11.840 And then we're thinking about that as effectively doing the 0:13:11.880 --> 0:13:13.600 same thing that rate hikes does so in a way 0:13:13.640 --> 0:13:17.160 that substitutes for rate hikes. Joining us not to discuss 0:13:17.160 --> 0:13:19.720 bolt Down Lee, former New York Fed President and currently 0:13:19.760 --> 0:13:22.679 of course Blinberg opinion columnists built even at some time 0:13:22.720 --> 0:13:24.199 to process out of that what you make of it, 0:13:25.720 --> 0:13:29.079 I think it was pretty logical what happened. Basically, the 0:13:29.160 --> 0:13:31.880 FIT is saying that one uncertainty has gone up a lot, 0:13:32.040 --> 0:13:35.160 We're not sure how long the banking system stress is 0:13:35.200 --> 0:13:37.199 going to last and how severe it's going to be. 0:13:38.040 --> 0:13:41.120 Number two, that that stress is going to restrain the economy, 0:13:41.480 --> 0:13:44.000 and that substitutes a little bit for rate hikes. So 0:13:44.120 --> 0:13:45.360 we're not gonna have to do as much as we 0:13:45.440 --> 0:13:47.599 thought we were gonna have to do earlier. But I 0:13:47.679 --> 0:13:50.160 think the real key is something that Mike mckeed talked about. 0:13:50.400 --> 0:13:52.800 Uncertainty has gone up. Certainty has gone up a lot, 0:13:53.160 --> 0:13:55.320 and I think it's sort of interesting that markets are 0:13:55.400 --> 0:13:58.520 not really fully focused on that because the risk of 0:13:58.559 --> 0:14:01.439 a hard landing is it is higher now because the 0:14:01.559 --> 0:14:04.800 FED isn't going to really know what's the appropriate policy 0:14:04.880 --> 0:14:07.240 to do until they get a lot more information, and 0:14:07.280 --> 0:14:09.960 it's going to take time for that information to be received, 0:14:10.240 --> 0:14:12.559 and it's not gonna be very easy to assess how 0:14:12.679 --> 0:14:15.719 are these banking was going to affect credit conditions and 0:14:15.800 --> 0:14:17.960 how much is that are going to affect economic growth. 0:14:18.240 --> 0:14:20.360 So I think that we're actually in a worst place 0:14:20.400 --> 0:14:22.840 today than we were a few weeks ago because they're 0:14:22.880 --> 0:14:25.360 just you know, there's two forces. One force is keeping 0:14:25.360 --> 0:14:28.800 inflation high and other forces slowing the economy down, and 0:14:28.920 --> 0:14:30.800 we don't know which one is going to dominate or 0:14:30.880 --> 0:14:32.640 for how long. So I think the risk of a 0:14:32.680 --> 0:14:34.800 hard landing has definitely gone up. Bill The easy way 0:14:34.880 --> 0:14:37.160 to dismiss any conversation around the FED is just to 0:14:37.200 --> 0:14:39.560 say that data dependent, Hey, that's so much they're going 0:14:39.600 --> 0:14:41.280 to be data dependent. But Bill, at this point, I'm 0:14:41.320 --> 0:14:44.120 wondering what date they are they dependent on for the 0:14:44.200 --> 0:14:46.880 next decision. Well, I think the problem is that the 0:14:47.000 --> 0:14:50.680 data on the effects of credit tightening on the economy 0:14:51.040 --> 0:14:54.000 taken a while to actually be realized. You know, you know, 0:14:54.040 --> 0:14:56.760 we have two sort of open questions about the banking system. 0:14:57.080 --> 0:14:58.840 Number one, how broad is it going to be? How 0:14:58.840 --> 0:15:01.280 many banks are going to be affect? Number two, how 0:15:01.360 --> 0:15:03.560 much are banks that are affected actually going to tighten 0:15:03.600 --> 0:15:06.400 their credit standards? The problem is not a credit problem. 0:15:06.480 --> 0:15:09.320 The problem was actually taking on too much interest rate risk. 0:15:09.760 --> 0:15:12.720 So it's not obvious to me that tightening credit standards 0:15:12.880 --> 0:15:15.720 is really the logical response. And number three, how long 0:15:15.800 --> 0:15:17.640 is this going to go on? So I think that 0:15:17.760 --> 0:15:20.640 there's a lot of uncertain to hear about how much 0:15:20.720 --> 0:15:23.800 of a breaking effect the banking system was there going 0:15:23.880 --> 0:15:25.800 to be on the economy. The fact that the Fed 0:15:25.920 --> 0:15:28.080 basically has one more rate hike and then it keeps 0:15:28.160 --> 0:15:31.640 RATETI throughout the year suggest that at this point they 0:15:31.680 --> 0:15:33.560 don't think that this is going to exert a lot 0:15:33.640 --> 0:15:37.200 of downward momentum on the economy. What's interesting today. Is 0:15:37.200 --> 0:15:40.840 the market reaction to the FEDS, the press, the press conference, 0:15:40.920 --> 0:15:44.480 in the statement and the summary of economic projections was 0:15:44.680 --> 0:15:47.160 to be a slight, ever so slightly surprised by the 0:15:47.240 --> 0:15:49.800 rate hike because it wasn't fully priced in. But it 0:15:49.880 --> 0:15:53.560 actually is pricing in more rate reduction in the rest 0:15:53.600 --> 0:15:56.000 of twenty twenty three and into twenty four than they 0:15:56.040 --> 0:15:59.080 were earlier. And I think that was a little bit surprising, 0:15:59.120 --> 0:16:01.440 frankly to give and the fact that Paul was very 0:16:01.480 --> 0:16:04.080 clear we don't expect to cut rates in twenty twenty three. 0:16:04.440 --> 0:16:06.760 Does that open up a question about the credibility of 0:16:06.800 --> 0:16:09.600 the FED? I think it opens up a question that 0:16:09.680 --> 0:16:12.880 people are just very uncertain about what the banking system 0:16:12.920 --> 0:16:16.000 wills mean for economic activity, and then how does that 0:16:16.080 --> 0:16:18.880 actually translate to the FED. I think, you know, people 0:16:18.920 --> 0:16:22.360 are worried about the downside risk from the banking sector. 0:16:23.560 --> 0:16:26.080 Steve Shivna, Federated. I keep going back to this because 0:16:26.320 --> 0:16:28.960 I think it's a really salient point. This meeting marks 0:16:29.000 --> 0:16:31.480 the passing of the torch from inflation into ration risks, 0:16:31.560 --> 0:16:35.240 he wrote, to recession and credit risks. Arguably what we 0:16:35.320 --> 0:16:38.240 have seen is not a credit crunch. However, often liquidity 0:16:38.240 --> 0:16:41.240 crunches can lead to credit crunches, as we've seen in 0:16:41.280 --> 0:16:43.880 the past. Bill, do you agree that this really is 0:16:44.040 --> 0:16:46.640 a tipping point as represented to some of the changes 0:16:46.960 --> 0:16:50.160 in the statement. I think it really depends on how 0:16:50.280 --> 0:16:52.240 broad and how long. I mean. You know, we've had 0:16:52.320 --> 0:16:54.640 other examples where there have been all sorts of market 0:16:54.680 --> 0:16:58.320 turbulence and no recession resulted. At most obvious example that 0:16:58.480 --> 0:17:01.360 was the nineteen eighty seven stock market crash, where people 0:17:01.360 --> 0:17:04.760 were talking about making analogies back to the Great Depression, 0:17:05.160 --> 0:17:07.840 and the economy can't go into recession at all. So 0:17:07.960 --> 0:17:10.720 I think the real issue here is how many banks 0:17:10.760 --> 0:17:13.680 are affected and how strongly do they react. When I 0:17:13.760 --> 0:17:15.840 look around at the US banking system today, I see 0:17:15.960 --> 0:17:18.320 only a handful of banks that have actually been affected, 0:17:18.720 --> 0:17:21.200 and they only account for a few percentage points of 0:17:21.280 --> 0:17:24.280 total banking assets. So I personally think that if this 0:17:24.440 --> 0:17:27.280 thing is stabilized right here, the effects on the real 0:17:27.320 --> 0:17:29.840 economy are going to be pretty modest. So to be clear, then, 0:17:29.880 --> 0:17:32.960 built that's an important point, because we're only two weeks 0:17:33.000 --> 0:17:37.000 into this. If it doesn't spill over and carry on bleeding, 0:17:37.240 --> 0:17:38.760 are we going to go back to what we were 0:17:38.800 --> 0:17:42.160 talking about two three weeks ago. In another two weeks, 0:17:42.920 --> 0:17:44.480 we very well can I mean, I don't think I 0:17:44.520 --> 0:17:46.760 don't think we'll have the clarity in two weeks. But 0:17:47.600 --> 0:17:49.280 you know, six weeks from now, the next FL and 0:17:49.359 --> 0:17:52.000 C meeting, you know, maybe we're back in the situation 0:17:52.080 --> 0:17:54.920 where the banks that were under pressure have either remedied 0:17:54.960 --> 0:17:58.680 themselves or been acquired, and the rest of the banking 0:17:58.720 --> 0:18:01.600 system is fine, and the economy is still too strong, 0:18:01.640 --> 0:18:03.520 and the labor market is still too tight, and inflation 0:18:03.600 --> 0:18:05.720 is still too high. I mean, the reality is the 0:18:05.840 --> 0:18:10.040 FED actually hasn't accomplished much yet in terms of generating 0:18:10.119 --> 0:18:13.040 more slack in the labor market or actually bringing services 0:18:13.080 --> 0:18:15.879 inflation down. And that's important to recognize. So when the 0:18:15.960 --> 0:18:17.840 FED chest says we're not thinking about kind of interest 0:18:17.960 --> 0:18:20.520 rates this year, I guess you're saying we should really 0:18:20.520 --> 0:18:22.119 take him seriously because you don't think that's going to 0:18:22.200 --> 0:18:24.720 happen at all. Well, there's a lot of you know, 0:18:24.760 --> 0:18:26.960 there's a lot of there's a wide band around that 0:18:27.080 --> 0:18:29.080 possible outcome. But I think what he's saying is that 0:18:29.400 --> 0:18:31.680 job number one for the FED is to get inflation 0:18:31.880 --> 0:18:34.480 down to two percent and they think that's going to 0:18:34.520 --> 0:18:36.919 be a long drawn out process, not something that's going 0:18:37.000 --> 0:18:39.200 to happen very very quickly. I thought it was interesting 0:18:39.240 --> 0:18:41.080 in the summary of economic projections, if you look at 0:18:41.080 --> 0:18:45.320 their forecasts, the forecast virtually unchanged from the December meeting. 0:18:45.680 --> 0:18:48.960 So essentially what they did was economy is stronger than 0:18:49.040 --> 0:18:51.280 we thought, inflation is higher than we thought. Oh, but 0:18:51.400 --> 0:18:53.840 we have had some banking systems. What should we do 0:18:53.920 --> 0:18:57.359 to our forecast. Well, let's leave it basically unchanged, because 0:18:57.560 --> 0:18:59.840 that's a set, and they're doing that because they just 0:19:00.040 --> 0:19:04.040 don't know which is those two forces predominates. John mentioned 0:19:04.080 --> 0:19:05.359 that you could drive a truck through some of the 0:19:05.480 --> 0:19:07.240 economic projections if you take a look at the dots 0:19:07.280 --> 0:19:09.280 and how far apart the highest and the lowest are. 0:19:09.600 --> 0:19:11.960