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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: With your FEDERALZEV decision. The overwhelming consensus saying a twenty

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Speaker 2: five basis point count is Mike mccaith.

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Speaker 3: It is a twenty five basis point cut, and the

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Speaker 3: number of cuts forecast for next year has been cut

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Speaker 3: in half to just two. Another two are seen in

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Speaker 3: twenty twenty six and one in twenty twenty seven. And

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Speaker 3: as the long run FED funds rate expectation rises to

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Speaker 3: three percent, if that's basically seen as Fed officials view

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Speaker 3: of the neutral rate, they won't get there under this

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Speaker 3: dot pot until twenty twenty eight. We have one descent.

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Speaker 3: New Cleveland Fed President Beth Hammick casts her first, preferring

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Speaker 3: to leave rates unchanged. Interestingly, three other members of the committee,

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Speaker 3: presumably non voters, agreed with her. Ten members see two

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Speaker 3: cuts next year five C three or more three forecast one,

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Speaker 3: and there's one member who thinks optimal policy would be

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Speaker 3: de levee rates unchanged. All of twenty twenty six and

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Speaker 3: twenty five, there is only one change to this statement.

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Speaker 3: They now promise to carefully assess incoming data quote in

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Speaker 3: considering the extent and timing of additional adjustments to the

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Speaker 3: target range for the federal funds rate. There's no change

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Speaker 3: to the committee's view of inflation, which has quote made

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Speaker 3: progress toward the committee's two percent objective but remains somewhat elevated.

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Speaker 3: The new economic forecasts, however, show both PCE headline and

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Speaker 3: core inflation forecasts revised up significantly. Headline will be two

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Speaker 3: and a half percent at the end of next year,

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Speaker 3: up from two point one forecast in September. The core

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Speaker 3: also two and a half percent, up from two point

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Speaker 3: two percent. They do see unemployment at four point three

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Speaker 3: percent at the end of next year, which is down

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Speaker 3: to tenth from September. The economy will end this year

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Speaker 3: with GDP up two and a half percent, that's a

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Speaker 3: half percentage point jump from their September outlook, and it

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Speaker 3: is going to grow two point one percent in twenty

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Speaker 3: twenty six, a significant slowdown. In one technical note, the

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Speaker 3: FED did lower the offering rate for overnight reverse repurchase

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Speaker 3: agreements by thirty basis points to four point twenty five percent.

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Speaker 3: That's the same as the Fed's target range.

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Speaker 2: Lower bound Guys, Mike McKee, thank you, sir. There's so

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Speaker 2: much to one pack here, so let's just go with

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Speaker 2: twenty twenty five and go to the forecasts, so we

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Speaker 2: get a twenty five basis point cut, and then they

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Speaker 2: do this for twenty twenty five. GDP revised higher, unemployment

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Speaker 2: revised just a little bit lower. Then go to PCEE

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Speaker 2: once again, revise just that little bit higher. So what

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Speaker 2: you get for the top plot, the medium dot was

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Speaker 2: actually pointing towards four cuts for twenty twenty five. They've

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Speaker 2: cut that in half to two, which basically marks the

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Speaker 2: whole thing to market. This is where the market was

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Speaker 2: looking for two cuts in twenty twenty five, and this

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Speaker 2: is what the Fed is projecting. If you consider this

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Speaker 2: in the medium dot, turn into the price section. Off

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Speaker 2: the back of this, we unlock another dose of dollar strength.

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Speaker 2: You're a dollar breaking down to one oh four forty

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Speaker 2: four off the back of that move in the bond

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Speaker 2: market with the your tar at the front end of

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Speaker 2: the curve on a two year up by three basis

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Speaker 2: points to four twenty eight on a ten year up

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Speaker 2: by single basis point to four forty one, and the

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Speaker 2: equity market off the back of that, we come off

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Speaker 2: session highs. On I guess and P five hundred, we

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Speaker 2: are just about unchanged. So if you are just joining us,

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Speaker 2: welcome to the program. It's a twenty five basis point

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Speaker 2: reduction from the federal serve with a sprinkle of descent

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Speaker 2: and some big changes leased to the forecasts for twenty

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Speaker 2: five and beyond.

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Speaker 1: And what you can see is basically the market readjusting,

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Speaker 1: but not necessarily of freaking out. I think it's fascinating

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Speaker 1: the idea that Beth Hammock, the new Cleveland FED President,

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Speaker 1: is the loan dissenter three non voting members, as Michael

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Speaker 1: McKee said, seem.

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Speaker 4: To have agreed with her.

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Speaker 1: To me, this is the definition of a hawkish cut.

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Speaker 1: We now have one hundred basis points of rate cuts

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Speaker 1: since that September meeting. Now they seem to be only

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Speaker 1: bigging in two rate cuts, as you said, And it

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Speaker 1: raises a question of what the parameters are, what the

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Speaker 1: message you will be from FED Chair Jpowell.

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Speaker 2: Compare the September forecast to the forecast we just got.

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Speaker 2: Where they thought FED funds would be at the end

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Speaker 2: of next year, is now where they think FED funds

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Speaker 2: will be at the end of twenty twenty six. They've

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Speaker 2: pushed the whole thing out twelve months now, the debate

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Speaker 2: we're going to have, and no doubt the debate they'll

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Speaker 2: have in the news conference with Sham and Powell and

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Speaker 2: the journalists. How much of this is about realized data,

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Speaker 2: the data we've had since the September meeting, and how

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Speaker 2: much of this is about assuming, speculating, guessing what's about

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Speaker 2: to happen with policy well.

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Speaker 1: And ultimately, how much can they divorce the two if

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Speaker 1: they're looking for signals from the collective vetting agency, the

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Speaker 1: collective wisdom of the crowds of markets.

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Speaker 4: At a certain point, they have been.

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Speaker 1: Following the market in certain aspects, and in this case,

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Speaker 1: the market is inferring certain things about policies and the

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Speaker 1: FED cannot ignore that. But I want to hear from

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Speaker 1: Fedchair Powell this afternoon, in just about twenty five minutes time.

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Speaker 4: What is your scenario analysis?

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Speaker 1: How do you take in two stride the prospect of

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Speaker 1: both tariffs as well as potential changes to immigration.

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Speaker 5: To me, the character of the descent's interesting. I don't

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Speaker 5: have time to study it, but the uniqueness of you know,

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Speaker 5: she's quantitative economics out of Stanford. She certainly knows her

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Speaker 5: where around the block. But that's something your first meeting,

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Speaker 5: and you descent. I mean, what would Allen Greenspan say

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Speaker 5: to that? That's like Lawrence Meyer one oh one. But

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Speaker 5: the answer here is the markets are moving. I'm looking

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Speaker 5: at yen out to a one point fifty four level.

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Speaker 5: Damien would look at it eight different ways. But the

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Speaker 5: answer is this is not a snoozefest, and there's a

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Speaker 5: lot going on here in a more than expected hawkish cut.

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Speaker 2: This is what they call a hawkish cut. I could

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Speaker 2: not agree more. And that's judged by what's happening at

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Speaker 2: the front end of the curve. Even if they reduce

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Speaker 2: interest rates by twenty five basis points, the two years

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Speaker 2: higher by seven basis points, we're back through four thirty.

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Speaker 2: Bob Michael JP. Morgan's had some time to go over

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Speaker 2: the statement, to go over the projections and the market reaction.

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Speaker 2: What do you make of this one?

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Speaker 6: Well, I think they have an incredible sense of self

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Speaker 6: awareness that the economy looks great. The fourth quarter is

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Speaker 6: going to come in around four percent. You've got unemployment

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Speaker 6: at four point two percent. They'll take the side of

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Speaker 6: it that says that's a pretty good level to be at.

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Speaker 6: Inflations a little bit above their target. What's the rush

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Speaker 6: to keep cutting rates. Let's just back up a little bit.

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Speaker 6: I think also they do have to listen to what's

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Speaker 6: being talked about at Mara a Lago, and there is

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Speaker 6: a lot being talked about. Not any of it is

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Speaker 6: going to be disinflationary or a headwind to growth, and

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Speaker 6: they have to begin to model that in. I actually

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Speaker 6: think they did the right thing. I'm pleasantly surprised they

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Speaker 6: went to two cuts next year instead of three. We'll

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Speaker 6: see what happens.

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Speaker 5: And do they model in does the Trump administration model

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Speaker 5: in his behavior, his statements on strong dollar that we

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Speaker 5: saw eight years ago, whatever the math is, or is

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Speaker 5: there going to be a different discussion about the efficacy

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Speaker 5: of a strong dollar For President Trump, he's going to

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Speaker 5: demand a week dollar. We got to have exports up

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Speaker 5: ers or new behavior.

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Speaker 6: I think that's something we're just going to have to

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Speaker 6: wish see. I think there's still a view that the

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Speaker 6: exceptionalism of the dollar is another one of these things

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Speaker 6: that's potentially over invested in. And suddenly if you see

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Speaker 6: policies coming out of the administration on Tara said aren't

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Speaker 6: as severe as expected, then you're going to see a

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Speaker 6: lot of the foreign economies, a lot of the currencies

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Speaker 6: and bond markets start to appreciate a bit.

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Speaker 4: Do you think that it was a mistake?

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Speaker 1: And essentially this is the FED walking back what fedshir

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Speaker 1: Powell said about we will not welcome any further weakening

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Speaker 1: in the labor market.

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Speaker 6: I think there's some of that, and I think they

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Speaker 6: looked at the totality of the data. I started by saying,

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Speaker 6: when they look at everything, it's the perfect soft landing.

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Speaker 6: They're looking for a resting spot. They don't think it's

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Speaker 6: three or four rate cuts away. They think it's somewhere

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Speaker 6: around two more rate cuts away.

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Speaker 4: Do you think that.

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Speaker 1: It's good that there's more descent now at a time

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Speaker 1: when there is so much dissent and disagreement just about

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Speaker 1: understanding where we are currently.

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Speaker 6: I love it. I think it's ideal. You heard the

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Speaker 6: conversation with Ellen. She's sitting there looking at things are

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Speaker 6: about as perfect as you can get them. I try

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Speaker 6: to point out housing and she smacks it away. And

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Speaker 6: I think that's what you're getting at the FAD, which is,

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Speaker 6: you know what, inflation's a little higher than we want.

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Speaker 6: Growth is a little bit firmer than we thought. The

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Speaker 6: labor market looks pretty healthy. And by the way, has

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Speaker 6: anyone talked about holiday sales? The consumers looked pretty good.

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Speaker 6: What are we doing cutting rates further?

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Speaker 5: Yeah, look at this John and all the things moving

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Speaker 5: across the Bloomberg launch pad. Canadian dollars extraordinary. We're not

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Speaker 5: nearer one forty four, but it's a jump condition. Unlike others,

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Speaker 5: which you're just pushing up as well.

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Speaker 2: They've got their own true day shape problems TUMP, and

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Speaker 2: Europe's got their own problems too. You're at dollar right

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Speaker 2: now breaking down, So one O four twenty just about

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Speaker 2: holding on now it's a one A four handle. There's

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Speaker 2: one question I've got for you. By it's a forecast.

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Speaker 2: We haven't talked about the longer run DOUP. It is

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Speaker 2: inched up by like that much from two point nine

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Speaker 2: to three. Is there not a bigger realization going on

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Speaker 2: in the committee that that needs to come up a

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Speaker 2: whole lot more? Why is this taken so long to

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Speaker 2: draw that conclusion?

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Speaker 5: Yeah?

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Speaker 6: I think the realization is setting in, and I think

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Speaker 6: having a dissenter on board is going to help drive

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Speaker 6: that conversation. But if you step back and think where

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Speaker 6: three percent is relative to a few years ago. That

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Speaker 6: does seem pretty high. We had negative real FET funds

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Speaker 6: rates for a long period of time. The very first

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Speaker 6: stop back in twenty twelve was four and a quarter percent.

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Speaker 6: Now we're right about that four and a quarter percent.

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Speaker 6: Why not just sit there and say we can get

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Speaker 6: to around two percent inflation? About one percent of a

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Speaker 6: real Fed funds rate is about the right level of pressure.

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Speaker 6: I still think it's going higher.

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Speaker 2: The chairman talked about a recalibration. We've had three meetings

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Speaker 2: on basis points of cuts across three meetings. Was that

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Speaker 2: the recalibration? Have we had it now?

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Speaker 6: I think that's some of it. I think that's only

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Speaker 6: part of it. Yeah, I think that's only part of it.

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Speaker 6: It just takes a week labor print over the next

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Speaker 6: month or so. It takes a surprise to the downside

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Speaker 6: in core PCE. One of those things to remind the

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Speaker 6: Fed that this level of rates with a four handle

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Speaker 6: in this economy that's come from zero interest rates is

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Speaker 6: still somewhat restrictive and there's more work to do.

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Speaker 2: If you are just joining us, welcome to the program.

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Speaker 2: Ten minutes ago, a twenty five basis point reduction from

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Speaker 2: the Federal Reserve a sprinkle of descent. But that's not

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Speaker 2: where the headlines are. The headlines are in the Summary

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Speaker 2: of Economic Projections released alongside the statement from the Federal Reserve,

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Speaker 2: where they improved increase their forecast for GDP for twenty five,

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Speaker 2: They took down their unemployment rate forecast. They pushed up

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Speaker 2: their forecast for PCE, and they did this with interest rates,

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Speaker 2: projecting rates would drop only to three ninety when previously

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Speaker 2: they were looking for three forty. So the Federal Reserve,

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Speaker 2: essentially for the median dot has gone from projecting four

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Speaker 2: cuts in twenty twenty five to just two. Off the

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Speaker 2: back of that, in the bond market yields a higher

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Speaker 2: the dollars stronger, and equity is a rolling Going from

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Speaker 2: the S and P five hundred, we are down by

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Speaker 2: zero point six percent. So weigh in on this. Dane

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Speaker 2: Swamp of KPMG joined us. Now, Dan, you've had some

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Speaker 2: time to pour over all of this. Let's start with

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Speaker 2: those projections. Was that in line with what you were

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Speaker 2: looking for?

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Speaker 7: Actually it is, and I'm glad to see it. I

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Speaker 7: thought that the Fed was going to if they were

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Speaker 7: going to do a quarter point, which was already priced

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Speaker 7: into the market that they had to scale back dramatically,

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Speaker 7: at least by half. They're a forecast for rate cuts

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Speaker 7: next year, which is what they did, and the disagreement

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Speaker 7: within the committee is exactly what you would expect. There's

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Speaker 7: a lot of debate right now about how close are

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Speaker 7: we actually to neutral, and in fact, the new Cleveland

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Speaker 7: Fed President was one of the ones that said we

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Speaker 7: may be closer than you think. So it's not so

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Speaker 7: surprising that she casted as set. Even though it's her

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Speaker 7: first meeting, it's also her last meeting to vote before

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Speaker 7: we see Austin Goilsby roll back onto the committee in

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Speaker 7: January as a voting member. I think it's not surprising

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Speaker 7: at all that there were three participants at the meeting

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Speaker 7: that also agreed that they don't want so many rate

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Speaker 7: cuts next year. The economy they can do it without

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Speaker 7: front running any policies. Right now, the economy has come

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Speaker 7: in much stronger than they expected. There's been upward revisions

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Speaker 7: to both employment and inflation has come in hotter, and

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Speaker 7: the consumer is atlas to the US economy and the

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Speaker 7: world at this point in time, and that's important. I

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Speaker 7: think It's also going to be really important to see

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Speaker 7: in the discussion and in the minutes to this, how

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Speaker 7: much they talked about that consumer sentiment number that showed

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Speaker 7: people buying ahead of price hikes and that hoarding activity,

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Speaker 7: which suggests that perhaps inflation expectations are not as well

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Speaker 7: anchored as they thought, and to become a bit more

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Speaker 7: unmurned moored in the post pandemic economy.

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Speaker 5: Diane, Illinois. You're Illinois is the fifth largest state economy.

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Speaker 5: It would be the eighteenth largest economy if it was

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Speaker 5: a country in the world. And yet we perceive Illinois

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Speaker 5: not flat on its back, but a much more diversified,

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Speaker 5: struggling state. What do you see out there about the

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Speaker 5: two Americas that you would tell Chairman Powell.

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Speaker 7: Well, you know, I don't need to tell Chairman Pouel anything,

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Speaker 7: because he spends a lot of time looking at both Americas.

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Speaker 7: I think people don't realize how much time he spends

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Speaker 7: talking to people who are trying to upscale themselves and

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Speaker 7: get out of being paid by the government and get training,

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Speaker 7: especially single women with children. I know how much he

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Speaker 7: spends time. He doesn't want to spend time just talking

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Speaker 7: to executives when he goes out to all of his

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Speaker 7: regional visits at the FED. He actually asked to see

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Speaker 7: the underbelly, to see where people are struggling, what's really

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Speaker 7: going on. I think what's important. I mean, I think

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Speaker 7: about this in my own situation. My son, when I

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Speaker 7: asked him what he wanted for Christmas, he asked me

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Speaker 7: to donate to the homeless and the working homeless are

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Speaker 7: a real problem, and I think that is one of

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Speaker 7: the issues that we're struggling with. And interest rates alone

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Speaker 7: coming down are not going to change the supply of

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Speaker 7: housing that once was a single lever. We know that

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Speaker 7: affordability has been bid up by a whole host of factors,

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Speaker 7: including scarcity of labor and these recent disasters that we've

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Speaker 7: seen which are pushing up the costs of actually construction.

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Speaker 1: Because of this fragility, and Bob, I'm curious your thoughts.

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Speaker 1: Some people are saying that essentially this is a hawkish tone,

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Speaker 1: but this still is a FED with a pretty low

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Speaker 1: bar to cut again, that is the comment from Neil

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Speaker 1: Dudda as he looks underneath the hood of some of

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Speaker 1: the employment markets that Diane was talking about.

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Speaker 6: Do you agree, I think the bar was low. It

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Speaker 6: got a lot higher because they're telling us they're rethinking

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Speaker 6: how many cuts they have to do. And certainly by

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Speaker 6: the time they meet again at the end of January,

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Speaker 6: they're going to hear a lot more from the administration,

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Speaker 6: and it's going to be the administration, not the incoming administration,

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Speaker 6: and they're clearly going to have to model that in

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Speaker 6: wigh that. So I don't think there's a pretty low

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Speaker 6: bar here. I think it's gotten higher.

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Speaker 2: I'm really pleased you brought up Nil Datta's no if

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Speaker 2: you go to the bottom of this noe Nil from Renmack.

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Speaker 2: Of course, there's an interesting line here on the incoming administration.

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Speaker 2: There is plenty of speculation of what the Trump administration

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Speaker 2: will do, but they have to actually walk through the door.

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Speaker 2: The FED ought to focus on the here and now.

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Speaker 2: The risk is now that the economy slows and the

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Speaker 2: FED is passively tightening by doing nothing. And here's the kicker.

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Speaker 2: I think the punchline curious that the FED was about

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Speaker 2: to cut a hundred basis points and then all of

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Speaker 2: a sudden stops as Trump walks through the door. Diane,

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Speaker 2: how much of these moves, the change to the forecast

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Speaker 2: that we're seeing are about the incoming data since September,

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Speaker 2: and how much of it is about expected changes to

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Speaker 2: policy that will shape that data in the years to come.

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Speaker 7: Well, we do know that with the continuing resolution that

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Speaker 7: they're talking about a fairly large increase in bailout funds

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Speaker 7: for the affected states from the two hurricanes. That will

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Speaker 7: boost growth at the beginning of the year, and it

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Speaker 7: is inflationary at the same time, So that is sort

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Speaker 7: of already baked into the cake. Are they doing scenarios,

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Speaker 7: Of course they are, but they can couch certainly. I

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Speaker 7: think you're going to see Powell couch very much and

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Speaker 7: be very cautious to say they're not front running any policy.

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Speaker 7: They did cut at this meeting. If they were front

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Speaker 7: running policy, they wouldn't have cut at this meeting. And

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Speaker 7: I think that's what Powell wanted to say, even with

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Speaker 7: the descent, with this hawkish tone, this is sort of

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Speaker 7: the perfect way for him to say, we're doing our job.

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Speaker 7: We're looking at the data. It's coming in stronger, the

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Speaker 7: economy is solid, and it justifies higher rates. Now, you

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Speaker 7: always worry about what's going to break going forward. The

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Speaker 7: administration coming in, they will have more information on it,

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Speaker 7: but even tariffs take quite a while to kick in.

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Speaker 7: They don't kick in overnight, and I think people forget

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Speaker 7: about that and we don't know what Not only will

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Speaker 7: the tariffs completely look like we have ideas and we

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Speaker 7: can model out scenarios, but retaliation will be designed to

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Speaker 7: disrupt supply chains. That's very important because when you're thinking

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Speaker 7: about it that way, that is inflationary and we're in

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Speaker 7: a much more fragile supply chain environment, which we've already seen.

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Speaker 7: Vehicle prices have already gone up again just in response

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Speaker 7: to the damages and the buying ahead of additional price

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Speaker 7: hikes due to two monster hurricanes. So we're in a

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Speaker 7: situation where we have much more fragile supply chains with

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Speaker 7: the embers of inflation still smoldering. That's just not a

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Speaker 7: situation you want to add fuel to the fire on

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Speaker 7: you want to keep the lid on inflation. And I

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Speaker 7: think the FED is still hoping to hit that soft landing.

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Speaker 7: But a soft landing, really they will not declare victory.

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Speaker 7: And this will not be Chairman Powell that we saw

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Speaker 7: a year ago, who was pretty jubulant a year ago

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Speaker 7: when we were sitting in this exact spot. I think

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Speaker 7: you're going to see a Chairman Powell that is cautious

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Speaker 7: optimistic about the economy, talking about the strength of the economy.

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Speaker 7: That's why they're doing what they're doing. That's why the

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Speaker 7: outlook looks like it is not front running policy.

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Speaker 5: Michael, I got a ten year yield move and the

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Speaker 5: real yield, the real yield was a two five two,

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Speaker 5: all of a sudden popping four basis points rounded up

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Speaker 5: about the two point one to three percent. What does

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Speaker 5: that signal to your bond market? What does that signal

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Speaker 5: the business? Just to see the real yield Butcher's up

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Speaker 5: write against recent husbec six months.

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Speaker 6: It tells me that investors might have been tilted the

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Speaker 6: wrong way coming into the FOMC decision, and they're unwinding

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Speaker 6: some of that. We'll see where it closes. I'm pretty

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Speaker 6: optimistic things will settle down. I think Diane said it

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Speaker 6: correctly that this is still a FED that cut rates

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Speaker 6: in front of incoming policies. So they must see something

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Speaker 6: in the improvement in inflation that they like, and they

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Speaker 6: must see something in the labor market that they want

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Speaker 6: to make sure it doesn't metastasize.

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Speaker 2: We'll find out more in about eleven minutes time. In

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Speaker 2: this news conference, stants a special thanks to Dan Swamp

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Speaker 2: of KPMG. Want to draw your attention to what's developing

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Speaker 2: in the FX market and elsewear. So we're starting the

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Speaker 2: bond market just a flavor of that yields up on

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Speaker 2: a front end by seven basis points the two year

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Speaker 2: back through four p thirty. If you take that move,

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Speaker 2: just push it through foreign exchange. What do you expect

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Speaker 2: bit of moves in G ten the dollars stronger against

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Speaker 2: absolutely everything, against the majors in G ten. Beyond that,

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Speaker 2: in em tom two percent move against Brazil two again negative,

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Speaker 2: that's another two each of them.

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Speaker 5: Yeah, but each of them are radiosyncredits on.

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Speaker 2: The top of the twenty so far this ye, yeah, she.

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Speaker 5: Got Turkish lera popping through thirty five today finally. But

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Speaker 5: they're each a different story. But as Damian Sasomer says

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Speaker 5: his expert on this, it is a flat out six

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Speaker 5: percent depreciation an them currencies, and John, I'm looking at

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Speaker 5: the drawer and the standard of course five hundred. I'm

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Speaker 5: not using the dow here in the SPX is we

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Speaker 5: have a drawdown a negative one point five percent.

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Speaker 2: Sessions carnage of the session line with down about point

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Speaker 2: seven percent on the session. On the SMP, Mattless seti

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Speaker 2: off Deutsche Bank joined US now and we tased this

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Speaker 2: one U Matt a little bit earlier in the program,

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Speaker 2: we said, Mattless, Eddi is looking for one more Cup

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Speaker 2: said it was a close call for December, and then

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Speaker 2: ultimately you think they're done for twenty twenty five. Matt,

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Speaker 2: Are they getting close into your world?

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Speaker 6: Well?

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Speaker 8: Yeah, I mean you have to to say that the

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Speaker 8: dots move closer to that world today, I think really

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Speaker 8: importantly within the SVP. You know, obviously a lot of

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Speaker 8: focus on the dot plot, but what drove that was

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Speaker 8: this big upwardess assessment in inflation. They moved up their

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Speaker 8: core PC inflation forecast to two and a half percent

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Speaker 8: next year. That's closer to our own view. They moved

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Speaker 8: up their core PC inflation forecast for two point two

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Speaker 8: percent in twenty twenty six. Really takes till twenty twenty

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Speaker 8: seven really to get back to their inflation target of

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Speaker 8: two percent. And then there was a big reassessment of

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Speaker 8: the risk assessment around both the labor marketing and inflation

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Speaker 8: risks to the upside of inflation, everybody kind of anticipates

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Speaker 8: and move back to in that direction, and they're much

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Speaker 8: more balanced risks to the labor market. So it's kind

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Speaker 8: of an sep from a forecast perspective and from a

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Speaker 8: risk assessment perspective that looks a lot more like it

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Speaker 8: did in June than September.

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Speaker 1: Matt, how much do you think this really is stemming

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Speaker 1: from the data that we've gotten of late versus just

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Speaker 1: a promise change in policies next year? In other words,

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Speaker 1: is this as Neil Dutta says that they cut by

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Speaker 1: one hundred basis points and then Trump walked in the door.

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Speaker 8: I think a lot of this is just the incoming

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Speaker 8: data that we've seen. You know, they marked up their

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Speaker 8: growth forecast as everybody else has, by about fifty basis

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Speaker 8: points since the September meeting. They marked up their inflation

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Speaker 8: forecast just given the incoming data by twenty basis points

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Speaker 8: since the September meeting, marked down their labor market forecast

437
00:21:46,480 --> 00:21:48,720
Speaker 8: by twenty basis since the September meeting. I think the

438
00:21:48,800 --> 00:21:51,720
Speaker 8: data since the September meeting confirmed a few things. One,

439
00:21:51,960 --> 00:21:54,880
Speaker 8: growth is robust to the downside, risks to the labor

440
00:21:54,920 --> 00:21:57,560
Speaker 8: market and consumer are less than they were three months ago,

441
00:21:57,960 --> 00:22:00,240
Speaker 8: and three there are risks that inflation is just year

442
00:22:00,280 --> 00:22:03,840
Speaker 8: than many anticipated. Just put into some context, core PC

443
00:22:04,000 --> 00:22:06,199
Speaker 8: ended last year at three percent, it's likely an end

444
00:22:06,200 --> 00:22:07,600
Speaker 8: of this year at two point eight or two point

445
00:22:07,680 --> 00:22:10,240
Speaker 8: nine percent. That's very little progress over the course of

446
00:22:10,240 --> 00:22:12,399
Speaker 8: this year, and they basis points despite that.

447
00:22:12,840 --> 00:22:16,479
Speaker 5: Matt Jason Furman just publishes up at Harvard Teaching at

448
00:22:16,560 --> 00:22:20,320
Speaker 5: ten his first sentence mad as simple. I don't know

449
00:22:20,359 --> 00:22:24,480
Speaker 5: why the FED cut. Matt Lazzetti, Why did the FED cut?

450
00:22:25,560 --> 00:22:27,480
Speaker 8: I think it's a great question, and I you know,

451
00:22:27,560 --> 00:22:30,600
Speaker 8: as you know, it was kind of discussed. We thought

452
00:22:30,600 --> 00:22:32,560
Speaker 8: that there was a lot of good reasons not to cut.

453
00:22:33,400 --> 00:22:35,199
Speaker 8: I think when Chair Palace asked this question is going

454
00:22:35,200 --> 00:22:36,520
Speaker 8: to be difficult one for him. But the way that

455
00:22:36,560 --> 00:22:38,600
Speaker 8: I think he'll frame it is they still believe that

456
00:22:38,600 --> 00:22:41,080
Speaker 8: they were restrictive, and we still believe that they are

457
00:22:41,080 --> 00:22:43,560
Speaker 8: as well, and that even with a twenty five basis

458
00:22:43,600 --> 00:22:46,960
Speaker 8: point cut, they maintained that level of restriction and that

459
00:22:47,000 --> 00:22:49,439
Speaker 8: they're still kind of being able to balance the risks

460
00:22:49,440 --> 00:22:52,120
Speaker 8: assessment from a labor market inflation perspective. At this point

461
00:22:52,160 --> 00:22:54,239
Speaker 8: in time, So I think that'll be the argument at

462
00:22:54,240 --> 00:22:56,840
Speaker 8: this At this point. That said, I think the signal

463
00:22:56,880 --> 00:22:58,919
Speaker 8: from them is that they're not just on this regular

464
00:22:58,960 --> 00:23:01,840
Speaker 8: cadence of ray cuts. They're not just kind of on

465
00:23:01,920 --> 00:23:04,520
Speaker 8: a path a smooth passed down to a neutral rate

466
00:23:04,760 --> 00:23:07,040
Speaker 8: that is kind of uncertain. That it does look like

467
00:23:07,080 --> 00:23:09,200
Speaker 8: they are going to be pausing for a bit longer here,

468
00:23:09,280 --> 00:23:12,280
Speaker 8: given their baseline forecast for the data, and that's in

469
00:23:12,320 --> 00:23:15,040
Speaker 8: line with their own expectations that the data flow, we

470
00:23:15,080 --> 00:23:17,720
Speaker 8: think over the coming months and then coming quarters will

471
00:23:17,840 --> 00:23:20,120
Speaker 8: just not be consistent with dialing back more restraint.

472
00:23:20,320 --> 00:23:20,560
Speaker 4: Tom.

473
00:23:20,600 --> 00:23:22,280
Speaker 1: I thought that was a great question, and I'd like

474
00:23:22,359 --> 00:23:24,639
Speaker 1: Bob's answer because honestly, I think that that really is

475
00:23:24,640 --> 00:23:26,320
Speaker 1: a key question, and it's going to be very difficult

476
00:23:26,320 --> 00:23:28,919
Speaker 1: for this FED chair to really answer. If you actually

477
00:23:29,000 --> 00:23:32,280
Speaker 1: are upgrading your expectation for core PCEE, why did you

478
00:23:32,320 --> 00:23:33,200
Speaker 1: cut at all this meeting?

479
00:23:34,680 --> 00:23:37,960
Speaker 6: Yeah, and so Matt may eventually be right that this

480
00:23:38,119 --> 00:23:41,560
Speaker 6: was the last one. As he was talking, I was thinking, bohy,

481
00:23:41,640 --> 00:23:45,200
Speaker 6: this is really reminiscent of nineteen ninety five when they

482
00:23:45,280 --> 00:23:48,640
Speaker 6: had pike rates from three to six percent. Everyone thought

483
00:23:48,640 --> 00:23:51,440
Speaker 6: they'd have to cut rates to four. They did seventy

484
00:23:51,480 --> 00:23:54,560
Speaker 6: five basis points. That was it five and a quarter,

485
00:23:54,800 --> 00:23:57,359
Speaker 6: and then they came back shortly there after starting the

486
00:23:57,440 --> 00:24:00,959
Speaker 6: hike rates. You do look around and do see that

487
00:24:01,600 --> 00:24:05,000
Speaker 6: actually the economy's doing pretty well. Now there are things

488
00:24:05,000 --> 00:24:07,760
Speaker 6: below the surface in the labor market they have to

489
00:24:07,840 --> 00:24:10,840
Speaker 6: be concerned about. There is a nine tenths of a

490
00:24:10,920 --> 00:24:14,240
Speaker 6: percent increase in the unemployment rate. You've never had that

491
00:24:14,320 --> 00:24:17,760
Speaker 6: without a recession. We look at job gains and look

492
00:24:17,800 --> 00:24:20,640
Speaker 6: at the six month moving average one hundred and eight thousand,

493
00:24:20,840 --> 00:24:24,560
Speaker 6: haven't seen that since twenty ten. So why not continue

494
00:24:24,600 --> 00:24:27,920
Speaker 6: to take a little pressure off of businesses in house?

495
00:24:28,119 --> 00:24:30,080
Speaker 2: Given everything we've learned in the last twenty four minutes,

496
00:24:30,400 --> 00:24:32,320
Speaker 2: does it make you more or less comfortable in pricing

497
00:24:32,440 --> 00:24:33,639
Speaker 2: risk this afternoon?

498
00:24:34,720 --> 00:24:38,840
Speaker 6: It makes me more comfortable. I think the Fed sees

499
00:24:39,280 --> 00:24:41,560
Speaker 6: what we see, which is, hey, this is a pretty

500
00:24:41,560 --> 00:24:45,080
Speaker 6: good economy. We'll see what policies look like. Let's find

501
00:24:45,119 --> 00:24:47,239
Speaker 6: a place to rest for a bit. We're not going

502
00:24:47,320 --> 00:24:50,560
Speaker 6: to break anything. And it could be with a couple

503
00:24:50,600 --> 00:24:53,000
Speaker 6: more rate cuts, and that's it. Matt could be right,

504
00:24:53,040 --> 00:24:55,400
Speaker 6: It could be here. We'll find that out by March.

505
00:24:55,600 --> 00:24:59,320
Speaker 5: Now, Zodie, what's the elasticity here? The Atlanta GDP statistic

506
00:24:59,480 --> 00:25:02,960
Speaker 5: is three points one percent. Can this suddenly saved your

507
00:25:02,960 --> 00:25:06,760
Speaker 5: own power? Can we get a suddenly so slower economy

508
00:25:06,960 --> 00:25:08,520
Speaker 5: or do you really have to glide out to the

509
00:25:08,520 --> 00:25:09,680
Speaker 5: same middle of next year?

510
00:25:11,160 --> 00:25:14,000
Speaker 8: Look, the slower economy is something that you know, we

511
00:25:14,200 --> 00:25:16,960
Speaker 8: in consensitive have been expecting for the past several years.

512
00:25:17,000 --> 00:25:19,520
Speaker 8: It just has not come at all. You see the

513
00:25:19,560 --> 00:25:22,280
Speaker 8: past several quarters two point eight percent growth in Q three,

514
00:25:22,760 --> 00:25:26,720
Speaker 8: as you mentioned Q four, tracking at you know, about

515
00:25:26,720 --> 00:25:28,880
Speaker 8: three percent at this point in time. Our own growth

516
00:25:28,960 --> 00:25:31,680
Speaker 8: forecast is for two and a half percent growth next year.

517
00:25:32,040 --> 00:25:34,600
Speaker 8: But that's a deceleration relative to where we are. Financial

518
00:25:34,600 --> 00:25:38,480
Speaker 8: conditions are easy, credit conditions have the sentiment has improved.

519
00:25:38,840 --> 00:25:42,280
Speaker 8: So I do think that this economy has a substantial

520
00:25:42,720 --> 00:25:45,000
Speaker 8: momentum behind it, and I think can give you strong

521
00:25:45,440 --> 00:25:47,720
Speaker 8: growth outcomes. One thing I'm a little bit surprised about

522
00:25:47,760 --> 00:25:49,920
Speaker 8: is actually their potential growth estimate remained at one point

523
00:25:49,960 --> 00:25:53,040
Speaker 8: eight percent. They've been talking so much about productivity growth,

524
00:25:53,040 --> 00:25:55,159
Speaker 8: the supply side of the economy. I thought that that

525
00:25:55,200 --> 00:25:57,600
Speaker 8: would begin to manifest in a higher potential growth rate

526
00:25:57,600 --> 00:26:00,000
Speaker 8: in their forecasts. Didn't happen today, but maybe that's an

527
00:26:00,080 --> 00:26:00,719
Speaker 8: coming quarters.

528
00:26:00,800 --> 00:26:02,879
Speaker 1: Matt, what would you want to ask j Powell at

529
00:26:02,880 --> 00:26:04,679
Speaker 1: a time when everyone's going to try to get him

530
00:26:04,720 --> 00:26:07,080
Speaker 1: to comment on Trump policies and everyone's going to try

531
00:26:07,080 --> 00:26:10,600
Speaker 1: to understand just how high the bar is to cut again.

532
00:26:12,000 --> 00:26:13,760
Speaker 8: Yeah, so I think you know, I was going to

533
00:26:13,760 --> 00:26:15,600
Speaker 8: ask about kind of the level of restriction if they

534
00:26:15,640 --> 00:26:18,119
Speaker 8: had three cuts baked in, But I think it's more

535
00:26:18,119 --> 00:26:20,560
Speaker 8: about understanding how they how they think about a few

536
00:26:20,560 --> 00:26:22,639
Speaker 8: things in the labor market. Bob mentioned, you know, some

537
00:26:22,680 --> 00:26:25,560
Speaker 8: weakness in the labor market. I'd be interested in whether

538
00:26:25,640 --> 00:26:27,440
Speaker 8: or not the rise of the unemployment today they would

539
00:26:27,480 --> 00:26:29,720
Speaker 8: view similarly to the rise through the summer. I think

540
00:26:29,720 --> 00:26:32,639
Speaker 8: there's many reasons for them not to payrel games are stronger,

541
00:26:32,640 --> 00:26:35,280
Speaker 8: the quits rate has moved higher, the hiring rate has

542
00:26:35,440 --> 00:26:37,359
Speaker 8: stabilized a little bit, job openings have picked up. But

543
00:26:37,600 --> 00:26:40,160
Speaker 8: are they as concerned about this rise in the unemployment

544
00:26:40,240 --> 00:26:42,240
Speaker 8: rate as they were during the summer. Second question I

545
00:26:42,280 --> 00:26:44,280
Speaker 8: think is on shelter inflation. We did have this big

546
00:26:44,280 --> 00:26:47,600
Speaker 8: downdraft in the latest print that went against chair palacing

547
00:26:47,600 --> 00:26:49,320
Speaker 8: that it's going to be a very slow progress on

548
00:26:49,359 --> 00:26:51,119
Speaker 8: this front. How are they just thinking about over the

549
00:26:51,160 --> 00:26:53,439
Speaker 8: next several months. I think it's an important question for

550
00:26:53,480 --> 00:26:53,840
Speaker 8: them as well.

551
00:26:53,920 --> 00:26:54,120
Speaker 7: Matt.

552
00:26:54,119 --> 00:26:56,480
Speaker 2: There's one problem, one big problem I've got with this decision,

553
00:26:56,880 --> 00:26:58,600
Speaker 2: and it's the words the chairman used in the last

554
00:26:58,680 --> 00:27:03,199
Speaker 2: news conference. I guess we don't assume, we don't speculate

555
00:27:03,600 --> 00:27:06,399
Speaker 2: that inflation forecast, Matt. Are we're sitting here and really

556
00:27:06,400 --> 00:27:09,040
Speaker 2: saying that that much has changed in two months. The

557
00:27:09,119 --> 00:27:11,760
Speaker 2: warrants the upgrade to that inflation forecast of the FMC

558
00:27:12,200 --> 00:27:15,159
Speaker 2: without guessing, speculating or assuming on what policy is going

559
00:27:15,200 --> 00:27:15,399
Speaker 2: to do.

560
00:27:16,680 --> 00:27:19,399
Speaker 8: So our own inflation forecast is two point six percent.

561
00:27:19,480 --> 00:27:22,600
Speaker 8: That builds in about twenty basis points from tariff, So

562
00:27:23,560 --> 00:27:24,800
Speaker 8: you know, they'd be a little bit more hawkers on

563
00:27:24,880 --> 00:27:26,680
Speaker 8: the inflation front then then we would be, you know,

564
00:27:26,840 --> 00:27:29,400
Speaker 8: just going back to twenty nineteen. I don't think they're

565
00:27:29,440 --> 00:27:32,800
Speaker 8: really building in tariff effects explicitly into the forecast as

566
00:27:32,800 --> 00:27:35,240
Speaker 8: of yet. I do think that that is factoring into

567
00:27:35,240 --> 00:27:36,960
Speaker 8: the risk assessments that we see in the back of

568
00:27:36,960 --> 00:27:39,880
Speaker 8: the SEP where everybody kind of moves shifted back towards

569
00:27:39,960 --> 00:27:42,400
Speaker 8: upside risks to the inflation front. But that should also

570
00:27:42,400 --> 00:27:44,080
Speaker 8: make you worry to a certain extent. You know, if

571
00:27:44,080 --> 00:27:46,320
Speaker 8: their baseline is two and a half percent without tariffs,

572
00:27:46,520 --> 00:27:48,640
Speaker 8: it'd be even higher than that with tariffs which are

573
00:27:48,720 --> 00:27:51,320
Speaker 8: likely coming, and therefore they'd probably be taking out even

574
00:27:51,320 --> 00:27:52,679
Speaker 8: a little bit more of those rate custom that they

575
00:27:52,680 --> 00:27:54,920
Speaker 8: were anticipating, which was already leaning in a hawker's direction.

576
00:27:55,080 --> 00:27:56,960
Speaker 2: No doubt you'll hear lots of questions about that. About

577
00:27:57,000 --> 00:27:59,040
Speaker 2: three minutes time when this news conference starts, Matt will

578
00:27:59,080 --> 00:28:02,080
Speaker 2: let you Runt of Deutsche Bank No dot sev Renmack

579
00:28:02,200 --> 00:28:04,639
Speaker 2: writes in talked about him a few times already this afternoon.

580
00:28:04,840 --> 00:28:08,120
Speaker 2: The Fed is pre judging policy, that's one view. That's

581
00:28:08,200 --> 00:28:08,760
Speaker 2: Neil's view.

582
00:28:08,840 --> 00:28:11,000
Speaker 1: Yeah, and he's talking about the fact that there has

583
00:28:11,080 --> 00:28:14,320
Speaker 1: been such a huge shift without some sort of massive

584
00:28:14,440 --> 00:28:16,600
Speaker 1: change in the tone of the data that I think

585
00:28:16,600 --> 00:28:18,760
Speaker 1: people will disagree with. We have some people who say

586
00:28:18,800 --> 00:28:21,160
Speaker 1: the data has come in a lot hotter. Nonetheless, they

587
00:28:21,200 --> 00:28:24,280
Speaker 1: have a lot of things to explain in this press conference.

588
00:28:24,320 --> 00:28:27,000
Speaker 2: Well, Michael, if they speculatink, are they assuming? Are they

589
00:28:27,000 --> 00:28:28,160
Speaker 2: guessing at the FMC?

590
00:28:28,600 --> 00:28:32,199
Speaker 6: Do you know what their inflation forecast? Just struck me

591
00:28:32,280 --> 00:28:37,119
Speaker 6: as frustration, frustration with well with the stickiness of inflation.

592
00:28:37,560 --> 00:28:40,560
Speaker 6: It should be one point nine to two percent by now.

593
00:28:40,800 --> 00:28:43,680
Speaker 6: Look at how the labor market has loosened up, look

594
00:28:43,720 --> 00:28:46,200
Speaker 6: at how growth has slowed down, and here we are

595
00:28:46,480 --> 00:28:49,440
Speaker 6: still around two and a quarter to two point six percent.

596
00:28:49,880 --> 00:28:51,840
Speaker 6: I don't read anything into it more than that.

597
00:28:52,080 --> 00:28:54,240
Speaker 1: So basically, do you think that at this point this

598
00:28:54,360 --> 00:28:57,680
Speaker 1: is a federal reserve that basically really is just throwing

599
00:28:57,720 --> 00:28:58,640
Speaker 1: darts at the dark board.

600
00:29:00,240 --> 00:29:02,720
Speaker 6: I think they have to be because they don't They

601
00:29:02,720 --> 00:29:06,960
Speaker 6: don't what he's saying, because they don't know what. By

602
00:29:07,000 --> 00:29:09,800
Speaker 6: the way, back in two thousand and nine, they would

603
00:29:09,840 --> 00:29:11,720
Speaker 6: have forecast two and a quarter to two and a

604
00:29:11,760 --> 00:29:15,240
Speaker 6: half because remember they had the flexible average inflation targeting.

605
00:29:15,520 --> 00:29:18,800
Speaker 6: They wanted higher inflation for a period of time, and

606
00:29:18,840 --> 00:29:22,440
Speaker 6: that's what existed in ninety five during the last soft landing.

607
00:29:23,440 --> 00:29:28,680
Speaker 6: They don't guess speculate, but they model, and they've modeled something.

608
00:29:28,800 --> 00:29:31,560
Speaker 5: Yeah. I brought this, Colin Hurst, Let me bring it

609
00:29:31,640 --> 00:29:33,560
Speaker 5: up with you. It's real simple. Are they going to

610
00:29:33,600 --> 00:29:35,560
Speaker 5: stay on an ext post method that they use for

611
00:29:35,600 --> 00:29:38,320
Speaker 5: four hundred years or are they actually getting out front

612
00:29:38,320 --> 00:29:40,720
Speaker 5: and predicting. I don't buy it. They got to be exposed.

613
00:29:40,720 --> 00:29:44,520
Speaker 5: They gotta wait for GDPD crack for unemployment to five percent.

614
00:29:44,840 --> 00:29:47,160
Speaker 6: Right now, they have the cover of both, don't they.

615
00:29:47,080 --> 00:29:49,800
Speaker 5: Yeah, exactly. I mean they're just an ex post machine.

616
00:29:49,800 --> 00:29:50,680
Speaker 5: That's all there is to it.

617
00:29:51,360 --> 00:29:53,320
Speaker 2: But Michael, this was fun. It's going to see you, sir,

618
00:29:53,680 --> 00:29:56,040
Speaker 2: almost that almost of the holidays after this. This is

619
00:29:56,160 --> 00:29:57,920
Speaker 2: like kind of it for many of you, I know,

620
00:29:58,040 --> 00:29:59,920
Speaker 2: going into YEARN for us included

621
00:30:01,520 --> 00:30:03,320
Speaker 7: You want to tack to eas