Speaker 1: This is Bloomberg Surveillance with Tom Keane, Jonathan Vero, and
Speaker 1: Lisa Brahma Wentz on Bloomberg Radio. That's all I have
Speaker 1: to say. That's one way of wrapping up a news
Speaker 1: conference with Chairman Poull down in Washington, DC, live from
Speaker 1: New York City. Good afternoon to year Wall. This is
Speaker 1: Bloomberg Surveillance live on TV and radio alongside Lisa Brownbert'.
Speaker 1: I'm Jonathan Ferrow picking up from the news conference after
Speaker 1: Chairman Poun and the committee hiked interest rates by twenty
Speaker 1: five basis points a rate hike, but they considered a pause,
Speaker 1: and he was keen to communicate they don't see rate
Speaker 1: cuts this year as well. Here's the price section for
Speaker 1: you on the sm P five hundred, down about a
Speaker 1: half of one percent. It was higher about thirty minutes
Speaker 1: or so ago. We turned lower likewise with a nat stack,
Speaker 1: we're now down about a tenth of one percent. Also
Speaker 1: in the bondom market, though this moves sticks the two
Speaker 1: year year old down by twenty basis points three ninety seven,
Speaker 1: let's call it. Let's round that up. For you on
Speaker 1: a ten year were down about twelve basis points too.
Speaker 1: Let's call it three fifty, just about sub three fifty
Speaker 1: at three forty eight sixty six taken look at the
Speaker 1: euro against the dollar. Euro dollar looks like this one
Speaker 1: away seventy six fast into about one percent. That is
Speaker 1: a stronger euro, that is a weaker dollar. Lisa, what's
Speaker 1: really interesting about this meeting is that at the same
Speaker 1: time Chairman Power well speak in the Treasury Secretary was
Speaker 1: as well, and arguably in the last hour, you could
Speaker 1: make the argument that the most important headline came from
Speaker 1: the Treasury Secretary and not the FED chair. One FED
Speaker 1: Chair j Power was boring. I mean, let's be honest,
Speaker 1: that was a boring press conference. He didn't really say
Speaker 1: anything other than we're not sure. We adjusted our projections
Speaker 1: and really towed the line. But Janet Yellen said she
Speaker 1: is not considering a broad increase in deposit insurance, despite
Speaker 1: all of the discussions around some sort of blanket deposit insurance.
Speaker 1: This is spooking the market, and you can see that
Speaker 1: mediate response in market. So at what point is this
Speaker 1: counterprogramming Drone Power comes out and he's saying everything's fine,
Speaker 1: we have complete confidence in the stability of financial system.
Speaker 1: And she's here kind of raising questions about what the
Speaker 1: backstop is going to be for some of these regional banks.
Speaker 1: So we asked the question through the last hour, in
Speaker 1: fact the last couple of days. Can you take the
Speaker 1: financial instability of the last two weeks and work out
Speaker 1: how it equates to interest rates at the Federal Reserve.
Speaker 1: That's clearly something the Fed Chair and the Committee are
Speaker 1: trying to do. Take a listen to what the Fed
Speaker 1: Chair had to say. For purposes of our monetary policy tool,
Speaker 1: we're looking at what's happening among the banks and asking
Speaker 1: is there going to be some tightening and credit conditions,
Speaker 1: And then we're thinking about that as effectively doing the
Speaker 1: same thing that rate hikes do, so in a way
Speaker 1: that's substitutes for rate hikes. So the key is we
Speaker 1: have to have policies. Need got to be tight enough
Speaker 1: to bring inflation down to two percent over time. It
Speaker 1: doesn't all have to come from rate hikes. It can
Speaker 1: come from you from tighter credit conditions. This underpends a
Speaker 1: massive difference between the communication from this FED Chair today
Speaker 1: and what you've heard from President of the Guard in
Speaker 1: the last week. The experiences in this banking system in
Speaker 1: America right now very different to the experience in Europe.
Speaker 1: There is a real belief on the committee at the
Speaker 1: Federal Reserve, communicated by the FED share that they believe,
Speaker 1: like many people do have spoken to us in the
Speaker 1: last couple of weeks, that the financial instability will lead
Speaker 1: to tie to credit conditions and that could be a
Speaker 1: substitute for the tightening through right hikes that this FED
Speaker 1: could deliver. He specified it's hard to know exactly how much,
Speaker 1: and he couldn't come up with a model like some
Speaker 1: others have come up with to try to pin that down.
Speaker 1: But they're trying to game it out anyway. I mean,
Speaker 1: you were noting that and basically there has been a
Speaker 1: market shift in the expectations. Again, a lot of this
Speaker 1: really hinges on the stability of the financial system, and
Speaker 1: so I do wonder why A he didn't really discuss
Speaker 1: deposit insurance and how important that was to the banking system,
Speaker 1: especially as b Jenny Yellen went out there and was like, yay,
Speaker 1: and that's not that's not really going to happen. Do
Speaker 1: you think that's clearly because he wanted Treasury Secretary Jenny
Speaker 1: Yellen to take care of this herself. Knew that she
Speaker 1: was speaking at the same time. You know, I'm not
Speaker 1: going to speculate. I mean, I can speculate, but it's
Speaker 1: not really going to help. It's not going to help anyone.
Speaker 1: I'm just wondering what the communication here is in terms
Speaker 1: of Paul see especially because you need the political world
Speaker 1: to do something like that at a time when it's
Speaker 1: unclear that they can get really much done and we're
Speaker 1: still talking about not getting a budget passed. So I mean,
Speaker 1: I just wonder how that's going to be the fly
Speaker 1: on the ointment for this whole messaging procedure at a
Speaker 1: time when he was successful, it was boring. He didn't
Speaker 1: really make any weaves. And that is an absolute rip
Speaker 1: roaring hall. Yah. That's a big achievement considering how ten
Speaker 1: so difficult this moment was for this Federal Reserve. If
Speaker 1: you are just tuning in, welcome to the program. At
Speaker 1: twenty five basis point hike from the Federal Reserve. We
Speaker 1: had a statement, we had some projections. We've just had
Speaker 1: a folly minute news conference or something like that. In
Speaker 1: the statement, they'd previously said at the last couple of
Speaker 1: meetings that the committee anticipates ongoing increases in the Fed
Speaker 1: funds rate that's been replaced. Now, the committee anticipates that
Speaker 1: some additional policy firming may be appropriate. He was asked
Speaker 1: about what that means policy firming. He said, the important
Speaker 1: words to Lisa or a summon May, summon May, that
Speaker 1: there might be some and it may happen. I guess
Speaker 1: you can read into that whatever you want to read
Speaker 1: into that. Ultimately, they're trying to stay open mind it
Speaker 1: about the whole thing. Ultimately, they're saying, we have no clue.
Speaker 1: I mean, look at the projections that are all over
Speaker 1: the place going out to twenty twenty four and twenty
Speaker 1: twenty five. When you look at the dots, they're saying,
Speaker 1: we don't know. We're watching things the way that you're
Speaker 1: watching things, and we're not going to rock the boat,
Speaker 1: but we still do see inflation being an issue. Basically,
Speaker 1: they've been listening to all of our commentators and representing
Speaker 1: all of their views in a perfect way to not
Speaker 1: rock the boat. My question is, just are we going
Speaker 1: to step away from this? Saying Janet Yellen kind of
Speaker 1: did it for him. So we worked through the projection
Speaker 1: materials for twenty twenty three. The median dots five point
Speaker 1: one percent. The previous set of projections, which I believe
Speaker 1: was back in December also five point one percent, So
Speaker 1: no real change there. But last when I were looking
Speaker 1: at the central tendency and the range of estimates on
Speaker 1: the committee as well, the range of estimates on the
Speaker 1: committee for twenty twenty three, Lisa anywhere from four nine
Speaker 1: to five nine for twenty four. I think you picked
Speaker 1: up on the longer dots as well, three four to
Speaker 1: five six. I mean, we don't get real descent at
Speaker 1: the Federal Reserve. It's rare that you hear from any one.
Speaker 1: It's often the regional Fed presidents when you do get some,
Speaker 1: if not always. But you can see based on the
Speaker 1: projections and the ranges there that there was a pretty
Speaker 1: wide range of views about where they think rates are going. Okay,
Speaker 1: get this, I can't get over this. Twenty twenty five,
Speaker 1: someone has their DAT at five point six percent and
Speaker 1: someone else has their DAT at two point three seven percent,
Speaker 1: So try to square that. I mean, basically you have
Speaker 1: it two and a half to three percentage point gap
Speaker 1: between those two. We don't understand where we're heading. I
Speaker 1: just wonder whether they're going to really be guiding or
Speaker 1: where they're going to be following the market, and the
Speaker 1: market gave him an opening and they took it. Just
Speaker 1: an extra line on financial stability and what the FETE
Speaker 1: chair had to say in the news conference. Remember that
Speaker 1: line from Senator Warren in the last couple of days.
Speaker 1: Was it on Face the Nation on Sunday where she
Speaker 1: said this chairman he said all he wants is looser
Speaker 1: financial regulation. He said, I plan to support strongest supervision
Speaker 1: and regulation. Have we put that to bed now? Ultimately
Speaker 1: that's the direction of travel, That's what the fete's going
Speaker 1: to be pushing for. He never came out and said
Speaker 1: all I want is loser financial conditions and less regulations
Speaker 1: that does That's not probably an accurate depiction of what
Speaker 1: he said. There's still our questions emerging when they knew
Speaker 1: what they knew, how quickly they're they're sort of keyed
Speaker 1: off when there is some sort of risk. There's still
Speaker 1: our questions. He's just going to point to the investigation,
Speaker 1: but you know, people are still looking for a lot
Speaker 1: of answers up front. At the top of the news conference,
Speaker 1: we're prepared to use all tools to keep the bank
Speaker 1: system safe. Went on to say there's ample liquidity it's available,
Speaker 1: and that DEPOSITUS savings are safe as well. Now that
Speaker 1: one's interesting to what degree, to what extent, to what amount?
Speaker 1: We know the FDIC limit two hundred and fifty thousand,
Speaker 1: We thought maybe that's going to get changed, inevitable. We
Speaker 1: were just trying to work out what the number might be.
Speaker 1: The Treasury Secretary's comments in the last hour and maybe
Speaker 1: muddy in the water a little bit, a little bit,
Speaker 1: I mean, this was one of the proposals on the
Speaker 1: table was some sort of broad increase in deposit insurance.
Speaker 1: She's saying, we're not considering a broad increase in deposit insurance.
Speaker 1: How much their hands tied when you look at Senator
Speaker 1: Schumer as well as Kevin McCarry, the both sides of
Speaker 1: the aisle, not really having much political will to have
Speaker 1: anything that could be skewed as a bailout in some
Speaker 1: of the political propaganda. I mean, that's really the concern,
Speaker 1: and anything that they do could be skewed as that.
Speaker 1: So there's not really the emphasis on doing something that
Speaker 1: you know, perhaps some of these officials like the sea.
Speaker 1: Let's get down to DC and catch up with MH. Marie.
Speaker 1: Your latest rate on the latest comments from the Treasury Secretary. Well,
Speaker 1: it goes again some of our reporting, but we should
Speaker 1: note that it is within the Treasury Department's per view
Speaker 1: to do due diligence, to look at potentially if they
Speaker 1: were have to do this again to expand the FDIC,
Speaker 1: something that obviously we know midside banks are asking for.
Speaker 1: But Janet Yell and the Treasures Actor didn't mince words.
Speaker 1: She said that at this moment not something that we
Speaker 1: have looked at, so potentially it hasn't gotten to her desk,
Speaker 1: or potentially it's not in a place where they'd be
Speaker 1: making decision on it. But our reporting is that the
Speaker 1: Treasury Department was doing this due diligence, not something to
Speaker 1: invoke risk, but just something that they wanted to make
Speaker 1: sure they could have the research and intelligence done if
Speaker 1: they well have to take that step a Marie, thanks
Speaker 1: for that. Dan in Washington on the lightest two things
Speaker 1: happening at the same time, we've been following the chairman
Speaker 1: news conference. Dan in Washington as well. Mike McKay's been
Speaker 1: inside that news conference. Mike, let's talk about it. Great
Speaker 1: exchange with you in the FED chair about thirty minutes
Speaker 1: ago what would your tank away? Well, I think there
Speaker 1: a couple takeaways from this. One is that the FED
Speaker 1: is leave the banking system aside, still concerned about inflation,
Speaker 1: still worried that they are not tight enough, and prepared
Speaker 1: to go higher with the FED funds rate to bring
Speaker 1: inflation down, and he reiterated that they're going to leave
Speaker 1: rates at the higher level until they get some progress
Speaker 1: on inflation. So the banking situation doesn't seem to have
Speaker 1: affected the course of monetary policy. The interesting thing on
Speaker 1: the banks, though, is that Powell was ready to say
Speaker 1: that Silica Valley Bank was very badly managed, they did
Speaker 1: the wrong things, and that while there's an investigation into
Speaker 1: what the FED did wrong, this was basically a couple
Speaker 1: of bad banks as opposed to a systemic problem. I'm
Speaker 1: not sure that message is going to get received as
Speaker 1: he specifically tried to get it out there, but he
Speaker 1: was trying to reassure people. As far as the FDIC
Speaker 1: limits and the bank deposit limits, Congress has to approve that,
Speaker 1: and it really doesn't have anything to do with the Fed.
Speaker 1: The Fed can do an emergence, can vote for an
Speaker 1: emergency exception, as they did with these two banks, but
Speaker 1: Treasury has to agree, and the FDIC has to agree.
Speaker 1: It's really a Treasury FDIC proposal that then has to
Speaker 1: go through Congress. So I think what Paul was trying
Speaker 1: to do was reassure Americans that their deposits are safe
Speaker 1: because nobody's going to really let them lose a lot
Speaker 1: of money. But he can't make any promises because it's
Speaker 1: not his business. It's not his job, and we are
Speaker 1: seeing some of those banks fall further after the comments
Speaker 1: from Janet Yellen. Despite some of the assurances from FED
Speaker 1: cher J. Powell, Mike Steve Chavon wrote in saying I'm wrong,
Speaker 1: It's not a boring meeting. It was actually really interesting.
Speaker 1: He said, I think this meeting marks the passing of
Speaker 1: the torch from inflation and duration risks to recession and
Speaker 1: credit risks. Did you take that away too, that the
Speaker 1: tone had shifted in terms of the greater likelihood of
Speaker 1: a hard landing and the greater likelihood of some sort
Speaker 1: of credit event. If there was a shift, I think
Speaker 1: it was more towards uncertainty. I don't think it was
Speaker 1: anything to do with the recession or pull back. The
Speaker 1: FED still thinks inflation is the biggest issue, and the
Speaker 1: FED still wants to stay on its policy path. Is
Speaker 1: a little bit more of a willingness to say, if
Speaker 1: things go south, we would be willing to look at
Speaker 1: monetary policy actions. But several times he repeated rate cuts
Speaker 1: are not in the cards right now. They're going to
Speaker 1: have to wait and see. They don't know what the
Speaker 1: bank of problems are going to mean in terms of
Speaker 1: credit tightening, but some of that credit tightening from the
Speaker 1: banks maybe exactly what they're looking for so they don't
Speaker 1: have to raise rates as high. But no, I don't
Speaker 1: think the Fed at this point has switched gears at all,
Speaker 1: acknowledging more uncertainty, but not suggesting they're anywhere near a
Speaker 1: hard landing or that they're anywhere near closer knowing how
Speaker 1: the landing is going to come about. And Mike wonderful
Speaker 1: work as always, Mike McKay just one of the best.
Speaker 1: My terminal always lights up when Mike cost the question
Speaker 1: in a news conference. Always great question, might now say,
Speaker 1: if you missed it, has Mike nailing it in a
Speaker 1: news conference. Participants don't see rate cuts this year, They
Speaker 1: just don't. Are you saying that what you see and
Speaker 1: the five point one percent. Basically, consensus is based on
Speaker 1: being it will be sufficiently restrictive or is it leavened
Speaker 1: by the idea of you don't know what's going to happen?
Speaker 1: In other words, what should people think about in terms
Speaker 1: of how the Fed thinks about how far it is
Speaker 1: from the terminal for purposes of our monetary policy tool,
Speaker 1: we're looking at what's happening among the banks and asking
Speaker 1: is there going to be some tightening and credit conditions,
Speaker 1: And then we're thinking about that as effectively doing the
Speaker 1: same thing that rate hikes does so in a way
Speaker 1: that substitutes for rate hikes. Joining us not to discuss
Speaker 1: bolt Down Lee, former New York Fed President and currently
Speaker 1: of course Blinberg opinion columnists built even at some time
Speaker 1: to process out of that what you make of it,
Speaker 1: I think it was pretty logical what happened. Basically, the
Speaker 1: FIT is saying that one uncertainty has gone up a lot,
Speaker 1: We're not sure how long the banking system stress is
Speaker 1: going to last and how severe it's going to be.
Speaker 1: Number two, that that stress is going to restrain the economy,
Speaker 1: and that substitutes a little bit for rate hikes. So
Speaker 1: we're not gonna have to do as much as we
Speaker 1: thought we were gonna have to do earlier. But I
Speaker 1: think the real key is something that Mike mckeed talked about.
Speaker 1: Uncertainty has gone up. Certainty has gone up a lot,
Speaker 1: and I think it's sort of interesting that markets are
Speaker 1: not really fully focused on that because the risk of
Speaker 1: a hard landing is it is higher now because the
Speaker 1: FED isn't going to really know what's the appropriate policy
Speaker 1: to do until they get a lot more information, and
Speaker 1: it's going to take time for that information to be received,
Speaker 1: and it's not gonna be very easy to assess how
Speaker 1: are these banking was going to affect credit conditions and
Speaker 1: how much is that are going to affect economic growth.
Speaker 1: So I think that we're actually in a worst place
Speaker 1: today than we were a few weeks ago because they're
Speaker 1: just you know, there's two forces. One force is keeping
Speaker 1: inflation high and other forces slowing the economy down, and
Speaker 1: we don't know which one is going to dominate or
Speaker 1: for how long. So I think the risk of a
Speaker 1: hard landing has definitely gone up. Bill The easy way
Speaker 1: to dismiss any conversation around the FED is just to
Speaker 1: say that data dependent, Hey, that's so much they're going
Speaker 1: to be data dependent. But Bill, at this point, I'm
Speaker 1: wondering what date they are they dependent on for the
Speaker 1: next decision. Well, I think the problem is that the
Speaker 1: data on the effects of credit tightening on the economy
Speaker 1: taken a while to actually be realized. You know, you know,
Speaker 1: we have two sort of open questions about the banking system.
Speaker 1: Number one, how broad is it going to be? How
Speaker 1: many banks are going to be affect? Number two, how
Speaker 1: much are banks that are affected actually going to tighten
Speaker 1: their credit standards? The problem is not a credit problem.
Speaker 1: The problem was actually taking on too much interest rate risk.
Speaker 1: So it's not obvious to me that tightening credit standards
Speaker 1: is really the logical response. And number three, how long
Speaker 1: is this going to go on? So I think that
Speaker 1: there's a lot of uncertain to hear about how much
Speaker 1: of a breaking effect the banking system was there going
Speaker 1: to be on the economy. The fact that the Fed
Speaker 1: basically has one more rate hike and then it keeps
Speaker 1: RATETI throughout the year suggest that at this point they
Speaker 1: don't think that this is going to exert a lot
Speaker 1: of downward momentum on the economy. What's interesting today. Is
Speaker 1: the market reaction to the FEDS, the press, the press conference,
Speaker 1: in the statement and the summary of economic projections was
Speaker 1: to be a slight, ever so slightly surprised by the
Speaker 1: rate hike because it wasn't fully priced in. But it
Speaker 1: actually is pricing in more rate reduction in the rest
Speaker 1: of twenty twenty three and into twenty four than they
Speaker 1: were earlier. And I think that was a little bit surprising,
Speaker 1: frankly to give and the fact that Paul was very
Speaker 1: clear we don't expect to cut rates in twenty twenty three.
Speaker 1: Does that open up a question about the credibility of
Speaker 1: the FED? I think it opens up a question that
Speaker 1: people are just very uncertain about what the banking system
Speaker 1: wills mean for economic activity, and then how does that
Speaker 1: actually translate to the FED. I think, you know, people
Speaker 1: are worried about the downside risk from the banking sector.
Speaker 1: Steve Shivna, Federated. I keep going back to this because
Speaker 1: I think it's a really salient point. This meeting marks
Speaker 1: the passing of the torch from inflation into ration risks,
Speaker 1: he wrote, to recession and credit risks. Arguably what we
Speaker 1: have seen is not a credit crunch. However, often liquidity
Speaker 1: crunches can lead to credit crunches, as we've seen in
Speaker 1: the past. Bill, do you agree that this really is
Speaker 1: a tipping point as represented to some of the changes
Speaker 1: in the statement. I think it really depends on how
Speaker 1: broad and how long. I mean. You know, we've had
Speaker 1: other examples where there have been all sorts of market
Speaker 1: turbulence and no recession resulted. At most obvious example that
Speaker 1: was the nineteen eighty seven stock market crash, where people
Speaker 1: were talking about making analogies back to the Great Depression,
Speaker 1: and the economy can't go into recession at all. So
Speaker 1: I think the real issue here is how many banks
Speaker 1: are affected and how strongly do they react. When I
Speaker 1: look around at the US banking system today, I see
Speaker 1: only a handful of banks that have actually been affected,
Speaker 1: and they only account for a few percentage points of
Speaker 1: total banking assets. So I personally think that if this
Speaker 1: thing is stabilized right here, the effects on the real
Speaker 1: economy are going to be pretty modest. So to be clear, then,
Speaker 1: built that's an important point, because we're only two weeks
Speaker 1: into this. If it doesn't spill over and carry on bleeding,
Speaker 1: are we going to go back to what we were
Speaker 1: talking about two three weeks ago. In another two weeks,
Speaker 1: we very well can I mean, I don't think I
Speaker 1: don't think we'll have the clarity in two weeks. But
Speaker 1: you know, six weeks from now, the next FL and
Speaker 1: C meeting, you know, maybe we're back in the situation
Speaker 1: where the banks that were under pressure have either remedied
Speaker 1: themselves or been acquired, and the rest of the banking
Speaker 1: system is fine, and the economy is still too strong,
Speaker 1: and the labor market is still too tight, and inflation
Speaker 1: is still too high. I mean, the reality is the
Speaker 1: FED actually hasn't accomplished much yet in terms of generating
Speaker 1: more slack in the labor market or actually bringing services
Speaker 1: inflation down. And that's important to recognize. So when the
Speaker 1: FED chest says we're not thinking about kind of interest
Speaker 1: rates this year, I guess you're saying we should really
Speaker 1: take him seriously because you don't think that's going to
Speaker 1: happen at all. Well, there's a lot of you know,
Speaker 1: there's a lot of there's a wide band around that
Speaker 1: possible outcome. But I think what he's saying is that
Speaker 1: job number one for the FED is to get inflation
Speaker 1: down to two percent and they think that's going to
Speaker 1: be a long drawn out process, not something that's going
Speaker 1: to happen very very quickly. I thought it was interesting
Speaker 1: in the summary of economic projections, if you look at
Speaker 1: their forecasts, the forecast virtually unchanged from the December meeting.
Speaker 1: So essentially what they did was economy is stronger than
Speaker 1: we thought, inflation is higher than we thought. Oh, but
Speaker 1: we have had some banking systems. What should we do
Speaker 1: to our forecast. Well, let's leave it basically unchanged, because
Speaker 1: that's a set, and they're doing that because they just
Speaker 1: don't know which is those two forces predominates. John mentioned
Speaker 1: that you could drive a truck through some of the
Speaker 1: economic projections if you take a look at the dots
Speaker 1: and how far apart the highest and the lowest are.
Speaker 1: I was really struck by twenty twenty five dots and
Speaker 1: just the range of estimates from five point six percent
Speaker 1: to two and a half percent. I'm wondering if you've
Speaker 1: ever seen anything like this before where there is so
Speaker 1: little of a compass directing all FED members. But even
Speaker 1: if they're on the same page right now, I think
Speaker 1: they're on the same page in terms of if you
Speaker 1: told them what the economic forecast was they would break
Speaker 1: down interest rate path that was pretty similar. I think
Speaker 1: they're what they probably disagree on is how is the
Speaker 1: economy actually going to evolve? How quickly is inflation going
Speaker 1: to come down? What's going to happen to economic growth?
Speaker 1: Are we're going to have a hard landing or soft landing?
Speaker 1: And so there's probably just a lot of uncertainty about
Speaker 1: how the actual economy is going to involve, and that
Speaker 1: uncertainty about the economic forecast I think has gone up.
Speaker 1: So you know, the mortal forecast contained in the Summary
Speaker 1: of Economic Projections has not changed very much at all,
Speaker 1: but the distribution that probably built distribution is wide, not dramatically,
Speaker 1: in part because of the banking laws. Final question, Bill,
Speaker 1: next decision is my third? Is that enough time to
Speaker 1: get the incoming information you think they need. We'll see.
Speaker 1: I mean, you know, I think it's going to be
Speaker 1: either banking system stabilizes pretty quickly in the next few
Speaker 1: weeks or we just have you know, creeping problems. You know,
Speaker 1: the problem that in the banking system is when the
Speaker 1: first weakest, the weakest bank gets into difficulty, that raises
Speaker 1: the stress on everybody else because everyone else gets more skittish.
Speaker 1: You know, all the people that are using the banks
Speaker 1: are much more skittish today than they were before the
Speaker 1: Silicon Valley Bank failed. And so it doesn't take as
Speaker 1: much bad news today to generate the same response as
Speaker 1: a couple of weeks ago. I built this was wonderful
Speaker 1: as always both doubtly that the former New York Fed
Speaker 1: President currently, amongst other things a Blimberg opinion columnists wait
Speaker 1: and get on the decision from the Federal Reserve at
Speaker 1: least of what a moment. Quite clearly they take away
Speaker 1: for me after that news conference, after that conversation just there,
Speaker 1: when we talk about being dated dependent, what are we
Speaker 1: really dependent on between now and that next mat sync
Speaker 1: in early May? How many more banks fail? It's CPI
Speaker 1: is whether we get some kinds of real credit tightening.
Speaker 1: Right it's all backward looking and right now the president
Speaker 1: is moving so quickly. And that was very clear and
Speaker 1: very present, which is the reason why people seem to
Speaker 1: still be responding to what Janet Ellen is saying. She's
Speaker 1: still testifying in front of the Senate, and I do
Speaker 1: want to just give you a sense of what else
Speaker 1: she did say. It seemed like she softened her tone
Speaker 1: just a touch, which is the walk back that some
Speaker 1: people were expecting. She said, not time yet to say
Speaker 1: if FDIC insurance cap is appropriate. So you know, basically
Speaker 1: hedging and hying. And you saw her vival in some
Speaker 1: of the shares of these banks. So right now people
Speaker 1: are tracking her comments, probably more than any fallout from
Speaker 1: the FED. But this, to me was interesting. She said,
Speaker 1: the supposits left Silicon Valley Bank at a pace that
Speaker 1: was never seen before. And this comes at a time
Speaker 1: where there is a new threat of and people blame Twitter, people, media,
Speaker 1: people blamed everything. But you can withdraw money at the
Speaker 1: top of a phone, and that has changed the scenario
Speaker 1: and the protocol for banks that really rely on these
Speaker 1: deposits in a way that the larger complex of the
Speaker 1: banking world does not. I've always said, when these officials testify,
Speaker 1: they should have a Blimberg terminal, just a life fate
Speaker 1: of where markets are heard when they speak, just to
Speaker 1: sort of like, you know, also correct them. I think
Speaker 1: maybe she does right. Maybe she was like, all right,
Speaker 1: I have back. Maybe Jeff Rosenberg joined us now from
Speaker 1: Black Rock. Jeff, I think people are asking the question,
Speaker 1: was the hike today the final hike. Well, I think
Speaker 1: Powell was very clear to try to indicate not only
Speaker 1: is this not the final hike, but that to Mike
Speaker 1: McKee's question, that there's a real disconnect between what the
Speaker 1: FETE is telling the market in terms of their forecasts
Speaker 1: and their expectations, and what the market is pricing in
Speaker 1: in terms of cuts at the at the May meeting,
Speaker 1: as soon as the May meeting. So I think this meeting,
Speaker 1: you know, is really about dealing with the present crisis
Speaker 1: in the banking sector, and that unknown is really you know,
Speaker 1: that's going to determine where we are in May. But
Speaker 1: but you know, Powell said something very important about why
Speaker 1: they changed the statement. They changed the statement it was
Speaker 1: much more dubbish because of the banking crisis. And then
Speaker 1: he went on to say why the SEP forecast were
Speaker 1: relatively unchanged, and that was due to offsetting factors. The
Speaker 1: offsetting factors here is that if we didn't have this
Speaker 1: banking crisis, then this would have been a more hawkish
Speaker 1: result and it would have been a terminal rate that
Speaker 1: probably went higher. He said that explicitly, our path was
Speaker 1: probably going to be higher than what we had projected
Speaker 1: in the December sep So, going back to what Bill
Speaker 1: Dudley said, I just want to add that, you know,
Speaker 1: the uncertainty grows on both sides. It's the tail risks
Speaker 1: that are increasing. And while most people are looking at
Speaker 1: the market and saying, oh, we're really worried about this
Speaker 1: banking crisis and the hard landing, uncertainty cuts both ways.
Speaker 1: And so the other way to think about the uncertainty
Speaker 1: here is that the FED didn't do what it otherwise
Speaker 1: would have done, given the fundamentals of the inflation data.
Speaker 1: That got very little attention at all to the question
Speaker 1: about twelve times, and it's a feature and not above.
Speaker 1: The focus in this meeting is distracted, perhaps rightly so,
Speaker 1: or perhaps as we'll see if this crisis fades, that
Speaker 1: it distracted from the fundamental issue, and that by not
Speaker 1: having tighten more, they raised the risk on the other
Speaker 1: side of a more persistent inflation outlook. So I think
Speaker 1: when we talk about uncertainty going up, which I agree with,
Speaker 1: it's a two sided uncertainty. Jeff, I'm really glad that
Speaker 1: you brought this up, But I want to build on
Speaker 1: that this idea that perhaps people are traumatically under pricing
Speaker 1: longer term inflation as a result of not an artificial
Speaker 1: but an interrupted rate hiking cycle that would have looked
Speaker 1: different based on the data from your vantage point. Is
Speaker 1: that the risk that is most underpriced in markets right now?
Speaker 1: I think it is. It's a very asymmetric outcome. Right now.
Speaker 1: The market is pricing for the bank scenario. It's pricing
Speaker 1: for the last twenty or thirty years of FED policy behavior.
Speaker 1: Financial sector stress leads to a FED that pauses and
Speaker 1: that cuts. That's what we've seen from the Federal Reserve,
Speaker 1: and if the crisis is big enough, we'll see that again.
Speaker 1: But that's a big if. And as Powell stated very clearly,
Speaker 1: trying to estimate the impact is guesswork, you know, So
Speaker 1: these numbers that are being thrown around those are guesses.
Speaker 1: Is it twenty five, is it one hundred and fifty?
Speaker 1: No one knows. When you look at the market reaction
Speaker 1: the two year yield chart and you pull that back
Speaker 1: a little bit longer, it looks like a lot for
Speaker 1: the markets pricing. They're giving a lot of impact to
Speaker 1: future monetary policy and very soon to be cuts as
Speaker 1: a result of this event. But the extent, I think
Speaker 1: was the word he was using is highly uncertain. And
Speaker 1: what we also have to talk about not only is
Speaker 1: the extent, but the marginal impact. Powell talked about financial
Speaker 1: condition indicase, and they mostly don't measure this. And so
Speaker 1: if you look at bank lending standards, if you look
Speaker 1: at tightening conditions that incorporate that you're going to use
Speaker 1: the Survey of Lending Standards and that has been showing
Speaker 1: a tightening condition for a very long time. Certainly this
Speaker 1: event marginally increases it. But the question is really to
Speaker 1: what extent, and this ends up like uk LDI, then
Speaker 1: this will be a lot less of an extent, and
Speaker 1: therefore the market is overpricing the amount of cuts that
Speaker 1: they should be taking out of the market expectation market
Speaker 1: to one side, Jeff, I'm with you. It is a
Speaker 1: guessing game. But I believe the FET's taken a stamp
Speaker 1: at it because if we got an EP two weeks ago,
Speaker 1: I think that rate that dog goes from five one
Speaker 1: to five sixty. I think most people thought that was
Speaker 1: what was going to happen. So Jeff, with that in mind,
Speaker 1: hasn't effect just told us that they think it probably
Speaker 1: a quat to about fifty basis points. Yeah, I think
Speaker 1: it's I think he even said, you know, one maybe
Speaker 1: some more. He was kind of anchoring to twenty five
Speaker 1: or fifty. And I think you can infer from the
Speaker 1: counterfactual on the SEP that that is kind of the
Speaker 1: implicit projection. But it's again it's it's it's highly uncertain,
Speaker 1: you know. And then you know, John, you just asked
Speaker 1: the question around, you know, what are we going to
Speaker 1: learn between now and then, you know, if this crisis subsides,
Speaker 1: if the interventions are successful, and think about that, you know, globally, um,
Speaker 1: you know, then it will be about the data and
Speaker 1: we'll go back to what about the data and the
Speaker 1: evolution and are we seeing that disinflationary trend that the
Speaker 1: market is also expecting to see, or to some of
Speaker 1: the comments today and what would have been the most
Speaker 1: recent reflection of inflation data that you're not seeing that
Speaker 1: and that will re emerges the focus. Jeff. That's what's
Speaker 1: going to make the next month or so pretty difficult
Speaker 1: to trade because, Jeff, if you think about it, I
Speaker 1: believe right now this market is likely to ignore the
Speaker 1: incoming economic data, whether it's inflation or payrolls, and focus
Speaker 1: on what we hear from the banking sector. So, Jeff,
Speaker 1: with that in mind, where you talk about those two uncertainties,
Speaker 1: it sounds like the inflation risk is just going to
Speaker 1: get packed and maybe built throughout the rest of this
Speaker 1: summer until we get some clarity on what financial stability
Speaker 1: really looks like. Now, Jeff, you've got to put money
Speaker 1: to work against that backdrop, knowing that maybe this market
Speaker 1: might be less sensitive to incoming information traditional data points, CPI,
Speaker 1: pay ros, etc. How would you manage that? Yeah, you're
Speaker 1: absolutely right, Gentalthan. I mean, the banking sector crisis will
Speaker 1: happen faster. It's evolution will happen faster than the incoming
Speaker 1: inflation data. That's good in the sense that you know,
Speaker 1: if it's stabilizes, it will become stable. Very clear. We're
Speaker 1: gonna get resolution on some of the other outstanding banks
Speaker 1: that global issues seem to becoming resolved, So you can
Speaker 1: get to that resolution quickly, or you can get to
Speaker 1: a contagion effect and they need to ramp up, you know,
Speaker 1: broader intervention policy that will reconcile relatively quickly. We just
Speaker 1: don't know in what direction. In the interim, you know,
Speaker 1: higher uncertainty really means that it's very risky, very tough
Speaker 1: to make a definitive statement in terms of portfolio positioning.
Speaker 1: Our stance has been and it remains pretty defensive with
Speaker 1: respect to the hard landing outcomes, and defensive with regards
Speaker 1: to how much duration risk you want to take here,
Speaker 1: given the inversion of the yield curve, you know you
Speaker 1: can find some decent yield without taking a lot of
Speaker 1: duration risk in the front end of the curve. Just
Speaker 1: real quick, Jeff, what would it take for you to
Speaker 1: become less defensive, perhaps a little more aggressive, to feel
Speaker 1: a little bit more conviction. Well, I think two things right.
Speaker 1: It's about reconciling both of those uncertainties in a positive manner,
Speaker 1: the first obviously being the banking sector crisis and the
Speaker 1: degree to which it's spilled over into too much or overtightening. Effectively,
Speaker 1: when you look at the bond market pricing in cuts
Speaker 1: by May, they're saying the Fed's too tight. It's going
Speaker 1: to have to reconcile that by cutting, and the banking
Speaker 1: system crisis has accelerated the degree of tightening. I think
Speaker 1: if you saw that reconcile to the positive sense where
Speaker 1: there was relief in terms of the hard landing scenario.
Speaker 1: That's going to reduce the recession risk. And then if
Speaker 1: you also at the same time start to get back
Speaker 1: to some positive developments on inflation, you further remove the
Speaker 1: threat that we were talking and worried about, say two
Speaker 1: weeks ago, that the FED had to go longer, faster,
Speaker 1: narrowing the runway for that soft landing that he got
Speaker 1: the question for it. I think if you see those
Speaker 1: two developments, you know, then I think it's going to
Speaker 1: be a much clearer environment for reducing the tail risk
Speaker 1: of recession and pricing that in you can start to
Speaker 1: add some more risk economic exposure down and quality credit
Speaker 1: exposure into the portfolio. If you saw those two things happen,
Speaker 1: y Jeff, wonderful to catch up with you, sir, as always,
Speaker 1: Jeff Rosenberg there of black Rock on the latest fat decision.
Speaker 1: I think a lot of people walk away from this
Speaker 1: thinking Chamanpow handled that well. History is going to be
Speaker 1: the ultimate judge. If this financial stability issue gets worse
Speaker 1: than the twenty five basis point high, looks terrible. If
Speaker 1: it goes away and inflation stays elevated, it looks like
Speaker 1: it's the right thing to do, and that's why so
Speaker 1: difficult to be a policymaker confronting decisions like this one. Today.
Speaker 1: What I heard from him was basically, you guys can
Speaker 1: have your views, I'll have mine. None of us know.
Speaker 1: We don't anticipate cutting rates. The market says, yeah, you're
Speaker 1: going to cut rates by almost a percentage point by
Speaker 1: the beginning of by the end of January. He says, look,
Speaker 1: you guys, do what you want. We'll play it by ear.
Speaker 1: We've got the backs of banks. It was successful. It
Speaker 1: was not that interesting. He didn't, which was good. Stay
Speaker 1: the banks going into the clothes. That's what you need
Speaker 1: to watch. First Republic down seventeen percent and rolling over
Speaker 1: coming up of the clothes. Remain boss. That's going to
Speaker 1: lead the coverage. Morgan Stanley's Seth Carpenter, hr Denny Off
Speaker 1: ther Denny Research. The bank's rolling over Secretary Yellen Waying,
Speaker 1: Gin Shechem and Powe goes twenty five from New York.
Speaker 1: This is Bloomberg