WEBVTT - Instant Reaction: The Fed Decides 0:00:02.400 --> 0:00:17.360 Bloomberg Audio Studios, podcasts, radio news. 0:00:13.760 --> 0:00:16.960 With your FEDERALZEV decision. The overwhelming consensus saying a twenty 0:00:16.960 --> 0:00:19.119 five basis point count is Mike mccaith. 0:00:21.079 --> 0:00:23.400 It is a twenty five basis point cut, and the 0:00:23.480 --> 0:00:26.760 number of cuts forecast for next year has been cut 0:00:26.800 --> 0:00:30.880 in half to just two. Another two are seen in 0:00:30.920 --> 0:00:34.360 twenty twenty six and one in twenty twenty seven. And 0:00:34.680 --> 0:00:38.440 as the long run FED funds rate expectation rises to 0:00:38.680 --> 0:00:42.000 three percent, if that's basically seen as Fed officials view 0:00:42.000 --> 0:00:44.239 of the neutral rate, they won't get there under this 0:00:44.360 --> 0:00:48.120 dot pot until twenty twenty eight. We have one descent. 0:00:48.440 --> 0:00:52.400 New Cleveland Fed President Beth Hammick casts her first, preferring 0:00:52.400 --> 0:00:57.360 to leave rates unchanged. Interestingly, three other members of the committee, 0:00:57.400 --> 0:01:02.200 presumably non voters, agreed with her. Ten members see two 0:01:02.240 --> 0:01:06.720 cuts next year five C three or more three forecast one, 0:01:06.920 --> 0:01:09.480 and there's one member who thinks optimal policy would be 0:01:09.520 --> 0:01:12.840 de levee rates unchanged. All of twenty twenty six and 0:01:12.920 --> 0:01:16.080 twenty five, there is only one change to this statement. 0:01:16.200 --> 0:01:19.840 They now promise to carefully assess incoming data quote in 0:01:19.959 --> 0:01:23.960 considering the extent and timing of additional adjustments to the 0:01:24.000 --> 0:01:27.039 target range for the federal funds rate. There's no change 0:01:27.040 --> 0:01:30.120 to the committee's view of inflation, which has quote made 0:01:30.120 --> 0:01:34.919 progress toward the committee's two percent objective but remains somewhat elevated. 0:01:35.319 --> 0:01:39.080 The new economic forecasts, however, show both PCE headline and 0:01:39.200 --> 0:01:43.440 core inflation forecasts revised up significantly. Headline will be two 0:01:43.480 --> 0:01:45.399 and a half percent at the end of next year, 0:01:45.680 --> 0:01:49.000 up from two point one forecast in September. The core 0:01:49.200 --> 0:01:51.880 also two and a half percent, up from two point 0:01:52.000 --> 0:01:55.400 two percent. They do see unemployment at four point three 0:01:55.480 --> 0:01:57.880 percent at the end of next year, which is down 0:01:57.920 --> 0:02:01.600 to tenth from September. The economy will end this year 0:02:01.640 --> 0:02:03.760 with GDP up two and a half percent, that's a 0:02:03.800 --> 0:02:07.960 half percentage point jump from their September outlook, and it 0:02:08.040 --> 0:02:11.040 is going to grow two point one percent in twenty 0:02:11.120 --> 0:02:15.200 twenty six, a significant slowdown. In one technical note, the 0:02:15.200 --> 0:02:18.480 FED did lower the offering rate for overnight reverse repurchase 0:02:18.480 --> 0:02:21.799 agreements by thirty basis points to four point twenty five percent. 0:02:21.880 --> 0:02:24.600 That's the same as the Fed's target range. 0:02:24.760 --> 0:02:27.600 Lower bound Guys, Mike McKee, thank you, sir. There's so 0:02:27.680 --> 0:02:29.200 much to one pack here, so let's just go with 0:02:29.240 --> 0:02:31.760 twenty twenty five and go to the forecasts, so we 0:02:31.840 --> 0:02:34.079 get a twenty five basis point cut, and then they 0:02:34.120 --> 0:02:37.959 do this for twenty twenty five. GDP revised higher, unemployment 0:02:38.160 --> 0:02:40.639 revised just a little bit lower. Then go to PCEE 0:02:41.080 --> 0:02:43.200 once again, revise just that little bit higher. So what 0:02:43.320 --> 0:02:45.960 you get for the top plot, the medium dot was 0:02:46.080 --> 0:02:49.520 actually pointing towards four cuts for twenty twenty five. They've 0:02:49.520 --> 0:02:52.520 cut that in half to two, which basically marks the 0:02:52.560 --> 0:02:54.800 whole thing to market. This is where the market was 0:02:55.120 --> 0:02:57.800 looking for two cuts in twenty twenty five, and this 0:02:57.880 --> 0:02:59.760 is what the Fed is projecting. If you consider this 0:03:00.760 --> 0:03:02.960 in the medium dot, turn into the price section. Off 0:03:02.960 --> 0:03:06.080 the back of this, we unlock another dose of dollar strength. 0:03:06.200 --> 0:03:08.440 You're a dollar breaking down to one oh four forty 0:03:08.440 --> 0:03:10.640 four off the back of that move in the bond 0:03:10.680 --> 0:03:12.160 market with the your tar at the front end of 0:03:12.160 --> 0:03:13.920 the curve on a two year up by three basis 0:03:13.960 --> 0:03:16.240 points to four twenty eight on a ten year up 0:03:16.240 --> 0:03:18.640 by single basis point to four forty one, and the 0:03:18.639 --> 0:03:20.639 equity market off the back of that, we come off 0:03:20.639 --> 0:03:22.720 session highs. On I guess and P five hundred, we 0:03:22.760 --> 0:03:24.840 are just about unchanged. So if you are just joining us, 0:03:24.840 --> 0:03:27.200 welcome to the program. It's a twenty five basis point 0:03:27.240 --> 0:03:29.880 reduction from the federal serve with a sprinkle of descent 0:03:30.160 --> 0:03:32.840 and some big changes leased to the forecasts for twenty 0:03:32.840 --> 0:03:33.480 five and beyond. 0:03:33.520 --> 0:03:35.920 And what you can see is basically the market readjusting, 0:03:35.960 --> 0:03:38.800 but not necessarily of freaking out. I think it's fascinating 0:03:38.840 --> 0:03:41.560 the idea that Beth Hammock, the new Cleveland FED President, 0:03:41.760 --> 0:03:45.320 is the loan dissenter three non voting members, as Michael 0:03:45.360 --> 0:03:46.760 McKee said, seem. 0:03:46.640 --> 0:03:47.680 To have agreed with her. 0:03:47.760 --> 0:03:50.480 To me, this is the definition of a hawkish cut. 0:03:50.560 --> 0:03:52.840 We now have one hundred basis points of rate cuts 0:03:52.880 --> 0:03:56.000 since that September meeting. Now they seem to be only 0:03:56.000 --> 0:03:58.120 bigging in two rate cuts, as you said, And it 0:03:58.200 --> 0:04:01.080 raises a question of what the parameters are, what the 0:04:01.120 --> 0:04:03.200 message you will be from FED Chair Jpowell. 0:04:03.280 --> 0:04:06.160 Compare the September forecast to the forecast we just got. 0:04:06.400 --> 0:04:08.520 Where they thought FED funds would be at the end 0:04:08.520 --> 0:04:10.880 of next year, is now where they think FED funds 0:04:10.880 --> 0:04:13.520 will be at the end of twenty twenty six. They've 0:04:13.520 --> 0:04:16.120 pushed the whole thing out twelve months now, the debate 0:04:16.160 --> 0:04:17.760 we're going to have, and no doubt the debate they'll 0:04:17.760 --> 0:04:19.599 have in the news conference with Sham and Powell and 0:04:19.640 --> 0:04:22.359 the journalists. How much of this is about realized data, 0:04:22.720 --> 0:04:25.400 the data we've had since the September meeting, and how 0:04:25.480 --> 0:04:30.040 much of this is about assuming, speculating, guessing what's about 0:04:30.080 --> 0:04:31.440 to happen with policy well. 0:04:31.320 --> 0:04:34.040 And ultimately, how much can they divorce the two if 0:04:34.040 --> 0:04:37.280 they're looking for signals from the collective vetting agency, the 0:04:37.320 --> 0:04:39.440 collective wisdom of the crowds of markets. 0:04:39.440 --> 0:04:41.320 At a certain point, they have been. 0:04:41.200 --> 0:04:43.919 Following the market in certain aspects, and in this case, 0:04:43.960 --> 0:04:47.760 the market is inferring certain things about policies and the 0:04:47.800 --> 0:04:50.000 FED cannot ignore that. But I want to hear from 0:04:50.040 --> 0:04:54.039 Fedchair Powell this afternoon, in just about twenty five minutes time. 0:04:54.440 --> 0:04:56.160 What is your scenario analysis? 0:04:56.400 --> 0:04:59.600 How do you take in two stride the prospect of 0:04:59.720 --> 0:05:02.680 both tariffs as well as potential changes to immigration. 0:05:02.839 --> 0:05:04.880 To me, the character of the descent's interesting. I don't 0:05:04.880 --> 0:05:07.320 have time to study it, but the uniqueness of you know, 0:05:07.400 --> 0:05:10.240 she's quantitative economics out of Stanford. She certainly knows her 0:05:10.279 --> 0:05:13.000 where around the block. But that's something your first meeting, 0:05:13.000 --> 0:05:15.960 and you descent. I mean, what would Allen Greenspan say 0:05:15.960 --> 0:05:18.440 to that? That's like Lawrence Meyer one oh one. But 0:05:18.560 --> 0:05:20.800 the answer here is the markets are moving. I'm looking 0:05:20.800 --> 0:05:23.080 at yen out to a one point fifty four level. 0:05:23.160 --> 0:05:25.400 Damien would look at it eight different ways. But the 0:05:25.440 --> 0:05:28.760 answer is this is not a snoozefest, and there's a 0:05:28.760 --> 0:05:32.120 lot going on here in a more than expected hawkish cut. 0:05:32.279 --> 0:05:34.120 This is what they call a hawkish cut. I could 0:05:34.120 --> 0:05:36.120 not agree more. And that's judged by what's happening at 0:05:36.120 --> 0:05:37.719 the front end of the curve. Even if they reduce 0:05:37.760 --> 0:05:40.080 interest rates by twenty five basis points, the two years 0:05:40.120 --> 0:05:43.279 higher by seven basis points, we're back through four thirty. 0:05:43.360 --> 0:05:45.760 Bob Michael JP. Morgan's had some time to go over 0:05:45.760 --> 0:05:48.599 the statement, to go over the projections and the market reaction. 0:05:48.680 --> 0:05:49.720 What do you make of this one? 0:05:50.279 --> 0:05:52.480 Well, I think they have an incredible sense of self 0:05:52.480 --> 0:05:55.919 awareness that the economy looks great. The fourth quarter is 0:05:55.960 --> 0:05:59.400 going to come in around four percent. You've got unemployment 0:05:59.440 --> 0:06:01.960 at four point two percent. They'll take the side of 0:06:02.000 --> 0:06:04.839 it that says that's a pretty good level to be at. 0:06:05.000 --> 0:06:08.279 Inflations a little bit above their target. What's the rush 0:06:08.320 --> 0:06:11.320 to keep cutting rates. Let's just back up a little bit. 0:06:12.400 --> 0:06:16.200 I think also they do have to listen to what's 0:06:16.240 --> 0:06:19.800 being talked about at Mara a Lago, and there is 0:06:19.839 --> 0:06:23.359 a lot being talked about. Not any of it is 0:06:23.480 --> 0:06:28.160 going to be disinflationary or a headwind to growth, and 0:06:28.240 --> 0:06:31.800 they have to begin to model that in. I actually 0:06:31.839 --> 0:06:35.640 think they did the right thing. I'm pleasantly surprised they 0:06:35.680 --> 0:06:39.279 went to two cuts next year instead of three. We'll 0:06:39.279 --> 0:06:40.480 see what happens. 0:06:40.279 --> 0:06:42.880 And do they model in does the Trump administration model 0:06:42.920 --> 0:06:46.159 in his behavior, his statements on strong dollar that we 0:06:46.240 --> 0:06:49.919 saw eight years ago, whatever the math is, or is 0:06:49.920 --> 0:06:53.160 there going to be a different discussion about the efficacy 0:06:53.160 --> 0:06:55.760 of a strong dollar For President Trump, he's going to 0:06:55.839 --> 0:06:57.840 demand a week dollar. We got to have exports up 0:06:57.920 --> 0:06:58.920 ers or new behavior. 0:07:00.120 --> 0:07:01.880 I think that's something we're just going to have to 0:07:01.880 --> 0:07:05.360 wish see. I think there's still a view that the 0:07:05.360 --> 0:07:09.159 exceptionalism of the dollar is another one of these things 0:07:09.200 --> 0:07:13.400 that's potentially over invested in. And suddenly if you see 0:07:13.480 --> 0:07:17.520 policies coming out of the administration on Tara said aren't 0:07:17.520 --> 0:07:20.880 as severe as expected, then you're going to see a 0:07:20.920 --> 0:07:24.600 lot of the foreign economies, a lot of the currencies 0:07:24.760 --> 0:07:27.560 and bond markets start to appreciate a bit. 0:07:27.840 --> 0:07:29.120 Do you think that it was a mistake? 0:07:29.160 --> 0:07:32.160 And essentially this is the FED walking back what fedshir 0:07:32.240 --> 0:07:35.640 Powell said about we will not welcome any further weakening 0:07:35.640 --> 0:07:36.560 in the labor market. 0:07:38.160 --> 0:07:40.480 I think there's some of that, and I think they 0:07:40.520 --> 0:07:44.720 looked at the totality of the data. I started by saying, 0:07:45.120 --> 0:07:48.720 when they look at everything, it's the perfect soft landing. 0:07:49.000 --> 0:07:52.120 They're looking for a resting spot. They don't think it's 0:07:52.200 --> 0:07:55.280 three or four rate cuts away. They think it's somewhere 0:07:55.320 --> 0:07:57.000 around two more rate cuts away. 0:07:57.320 --> 0:07:57.840 Do you think that. 0:07:57.840 --> 0:08:00.720 It's good that there's more descent now at a time 0:08:00.760 --> 0:08:03.240 when there is so much dissent and disagreement just about 0:08:03.320 --> 0:08:05.360 understanding where we are currently. 0:08:06.000 --> 0:08:09.760 I love it. I think it's ideal. You heard the 0:08:09.840 --> 0:08:13.360 conversation with Ellen. She's sitting there looking at things are 0:08:13.520 --> 0:08:15.920 about as perfect as you can get them. I try 0:08:15.960 --> 0:08:19.320 to point out housing and she smacks it away. And 0:08:19.520 --> 0:08:22.280 I think that's what you're getting at the FAD, which is, 0:08:22.560 --> 0:08:25.440 you know what, inflation's a little higher than we want. 0:08:25.600 --> 0:08:28.160 Growth is a little bit firmer than we thought. The 0:08:28.240 --> 0:08:30.800 labor market looks pretty healthy. And by the way, has 0:08:30.840 --> 0:08:34.960 anyone talked about holiday sales? The consumers looked pretty good. 0:08:35.200 --> 0:08:37.120 What are we doing cutting rates further? 0:08:37.559 --> 0:08:39.640 Yeah, look at this John and all the things moving 0:08:39.640 --> 0:08:43.679 across the Bloomberg launch pad. Canadian dollars extraordinary. We're not 0:08:43.840 --> 0:08:48.200 nearer one forty four, but it's a jump condition. Unlike others, 0:08:48.200 --> 0:08:49.640 which you're just pushing up as well. 0:08:49.760 --> 0:08:51.880 They've got their own true day shape problems TUMP, and 0:08:51.920 --> 0:08:54.240 Europe's got their own problems too. You're at dollar right 0:08:54.280 --> 0:08:56.680 now breaking down, So one O four twenty just about 0:08:56.720 --> 0:08:58.880 holding on now it's a one A four handle. There's 0:08:58.920 --> 0:09:01.160 one question I've got for you. By it's a forecast. 0:09:01.160 --> 0:09:03.880 We haven't talked about the longer run DOUP. It is 0:09:03.960 --> 0:09:07.040 inched up by like that much from two point nine 0:09:07.200 --> 0:09:09.920 to three. Is there not a bigger realization going on 0:09:09.960 --> 0:09:12.240 in the committee that that needs to come up a 0:09:12.240 --> 0:09:14.280 whole lot more? Why is this taken so long to 0:09:14.360 --> 0:09:15.240 draw that conclusion? 0:09:16.160 --> 0:09:16.520 Yeah? 0:09:16.600 --> 0:09:20.240 I think the realization is setting in, and I think 0:09:20.480 --> 0:09:23.760 having a dissenter on board is going to help drive 0:09:23.840 --> 0:09:27.760 that conversation. But if you step back and think where 0:09:27.840 --> 0:09:31.559 three percent is relative to a few years ago. That 0:09:31.640 --> 0:09:35.240 does seem pretty high. We had negative real FET funds 0:09:35.320 --> 0:09:38.240 rates for a long period of time. The very first 0:09:38.240 --> 0:09:41.959 stop back in twenty twelve was four and a quarter percent. 0:09:42.400 --> 0:09:45.480 Now we're right about that four and a quarter percent. 0:09:45.840 --> 0:09:48.079 Why not just sit there and say we can get 0:09:48.120 --> 0:09:51.480 to around two percent inflation? About one percent of a 0:09:51.520 --> 0:09:54.600 real Fed funds rate is about the right level of pressure. 0:09:54.840 --> 0:09:56.240 I still think it's going higher. 0:09:56.280 --> 0:09:59.600 The chairman talked about a recalibration. We've had three meetings 0:09:59.720 --> 0:10:02.720 on basis points of cuts across three meetings. Was that 0:10:02.760 --> 0:10:04.680 the recalibration? Have we had it now? 0:10:05.720 --> 0:10:08.800 I think that's some of it. I think that's only 0:10:08.880 --> 0:10:12.000 part of it. Yeah, I think that's only part of it. 0:10:12.000 --> 0:10:15.760 It just takes a week labor print over the next 0:10:15.800 --> 0:10:19.679 month or so. It takes a surprise to the downside 0:10:19.720 --> 0:10:23.000 in core PCE. One of those things to remind the 0:10:23.040 --> 0:10:26.240 Fed that this level of rates with a four handle 0:10:26.640 --> 0:10:30.400 in this economy that's come from zero interest rates is 0:10:30.440 --> 0:10:33.679 still somewhat restrictive and there's more work to do. 0:10:33.800 --> 0:10:35.640 If you are just joining us, welcome to the program. 0:10:35.679 --> 0:10:38.640 Ten minutes ago, a twenty five basis point reduction from 0:10:38.679 --> 0:10:41.120 the Federal Reserve a sprinkle of descent. But that's not 0:10:41.160 --> 0:10:43.640 where the headlines are. The headlines are in the Summary 0:10:43.760 --> 0:10:47.480 of Economic Projections released alongside the statement from the Federal Reserve, 0:10:47.800 --> 0:10:51.360 where they improved increase their forecast for GDP for twenty five, 0:10:51.720 --> 0:10:54.839 They took down their unemployment rate forecast. They pushed up 0:10:55.000 --> 0:10:58.080 their forecast for PCE, and they did this with interest rates, 0:10:58.160 --> 0:11:01.640 projecting rates would drop only to three ninety when previously 0:11:01.679 --> 0:11:03.680 they were looking for three forty. So the Federal Reserve, 0:11:03.800 --> 0:11:06.480 essentially for the median dot has gone from projecting four 0:11:06.559 --> 0:11:09.360 cuts in twenty twenty five to just two. Off the 0:11:09.400 --> 0:11:11.720 back of that, in the bond market yields a higher 0:11:11.880 --> 0:11:14.240 the dollars stronger, and equity is a rolling Going from 0:11:14.280 --> 0:11:16.240 the S and P five hundred, we are down by 0:11:16.320 --> 0:11:18.640 zero point six percent. So weigh in on this. Dane 0:11:18.640 --> 0:11:21.280 Swamp of KPMG joined us. Now, Dan, you've had some 0:11:21.320 --> 0:11:23.160 time to pour over all of this. Let's start with 0:11:23.200 --> 0:11:25.520 those projections. Was that in line with what you were 0:11:25.520 --> 0:11:26.000 looking for? 0:11:28.240 --> 0:11:30.720 Actually it is, and I'm glad to see it. I 0:11:30.760 --> 0:11:32.480 thought that the Fed was going to if they were 0:11:32.520 --> 0:11:34.800 going to do a quarter point, which was already priced 0:11:34.840 --> 0:11:37.400 into the market that they had to scale back dramatically, 0:11:37.760 --> 0:11:40.559 at least by half. They're a forecast for rate cuts 0:11:40.600 --> 0:11:43.800 next year, which is what they did, and the disagreement 0:11:43.880 --> 0:11:46.960 within the committee is exactly what you would expect. There's 0:11:46.960 --> 0:11:50.199 a lot of debate right now about how close are 0:11:50.240 --> 0:11:53.199 we actually to neutral, and in fact, the new Cleveland 0:11:53.280 --> 0:11:55.040 Fed President was one of the ones that said we 0:11:55.080 --> 0:11:57.680 may be closer than you think. So it's not so 0:11:57.720 --> 0:12:00.920 surprising that she casted as set. Even though it's her 0:12:00.960 --> 0:12:04.319 first meeting, it's also her last meeting to vote before 0:12:04.360 --> 0:12:07.720 we see Austin Goilsby roll back onto the committee in 0:12:07.880 --> 0:12:11.160 January as a voting member. I think it's not surprising 0:12:11.240 --> 0:12:13.360 at all that there were three participants at the meeting 0:12:13.440 --> 0:12:16.040 that also agreed that they don't want so many rate 0:12:16.120 --> 0:12:19.320 cuts next year. The economy they can do it without 0:12:19.400 --> 0:12:23.520 front running any policies. Right now, the economy has come 0:12:23.559 --> 0:12:27.359 in much stronger than they expected. There's been upward revisions 0:12:27.400 --> 0:12:30.920 to both employment and inflation has come in hotter, and 0:12:30.960 --> 0:12:34.560 the consumer is atlas to the US economy and the 0:12:34.600 --> 0:12:37.840 world at this point in time, and that's important. I 0:12:37.840 --> 0:12:40.160 think It's also going to be really important to see 0:12:40.200 --> 0:12:43.120 in the discussion and in the minutes to this, how 0:12:43.200 --> 0:12:47.240 much they talked about that consumer sentiment number that showed 0:12:47.440 --> 0:12:51.599 people buying ahead of price hikes and that hoarding activity, 0:12:51.840 --> 0:12:56.680 which suggests that perhaps inflation expectations are not as well 0:12:56.720 --> 0:12:59.199 anchored as they thought, and to become a bit more 0:12:59.320 --> 0:13:03.480 unmurned moored in the post pandemic economy. 0:13:03.160 --> 0:13:07.360 Diane, Illinois. You're Illinois is the fifth largest state economy. 0:13:07.400 --> 0:13:10.959 It would be the eighteenth largest economy if it was 0:13:11.000 --> 0:13:14.480 a country in the world. And yet we perceive Illinois 0:13:14.559 --> 0:13:17.800 not flat on its back, but a much more diversified, 0:13:17.880 --> 0:13:21.600 struggling state. What do you see out there about the 0:13:21.640 --> 0:13:29.960 two Americas that you would tell Chairman Powell. 0:13:27.240 --> 0:13:29.960 Well, you know, I don't need to tell Chairman Pouel anything, 0:13:30.000 --> 0:13:32.920 because he spends a lot of time looking at both Americas. 0:13:32.960 --> 0:13:35.880 I think people don't realize how much time he spends 0:13:35.960 --> 0:13:39.920 talking to people who are trying to upscale themselves and 0:13:40.200 --> 0:13:43.440 get out of being paid by the government and get training, 0:13:43.559 --> 0:13:47.000 especially single women with children. I know how much he 0:13:47.040 --> 0:13:49.280 spends time. He doesn't want to spend time just talking 0:13:49.280 --> 0:13:51.400 to executives when he goes out to all of his 0:13:51.480 --> 0:13:54.760 regional visits at the FED. He actually asked to see 0:13:54.920 --> 0:13:57.679 the underbelly, to see where people are struggling, what's really 0:13:57.720 --> 0:14:00.440 going on. I think what's important. I mean, I think 0:14:00.480 --> 0:14:03.480 about this in my own situation. My son, when I 0:14:03.480 --> 0:14:05.720 asked him what he wanted for Christmas, he asked me 0:14:05.760 --> 0:14:08.920 to donate to the homeless and the working homeless are 0:14:08.920 --> 0:14:11.840 a real problem, and I think that is one of 0:14:11.880 --> 0:14:14.360 the issues that we're struggling with. And interest rates alone 0:14:14.480 --> 0:14:17.240 coming down are not going to change the supply of 0:14:17.320 --> 0:14:20.640 housing that once was a single lever. We know that 0:14:20.720 --> 0:14:24.640 affordability has been bid up by a whole host of factors, 0:14:24.760 --> 0:14:29.040 including scarcity of labor and these recent disasters that we've 0:14:29.080 --> 0:14:32.960 seen which are pushing up the costs of actually construction. 0:14:32.880 --> 0:14:35.480 Because of this fragility, and Bob, I'm curious your thoughts. 0:14:35.680 --> 0:14:38.920 Some people are saying that essentially this is a hawkish tone, 0:14:39.160 --> 0:14:41.200 but this still is a FED with a pretty low 0:14:41.240 --> 0:14:43.440 bar to cut again, that is the comment from Neil 0:14:43.480 --> 0:14:45.640 Dudda as he looks underneath the hood of some of 0:14:45.680 --> 0:14:48.680 the employment markets that Diane was talking about. 0:14:48.720 --> 0:14:53.720 Do you agree, I think the bar was low. It 0:14:53.840 --> 0:14:57.720 got a lot higher because they're telling us they're rethinking 0:14:58.040 --> 0:15:00.960 how many cuts they have to do. And certainly by 0:15:00.960 --> 0:15:03.840 the time they meet again at the end of January, 0:15:03.880 --> 0:15:06.520 they're going to hear a lot more from the administration, 0:15:07.040 --> 0:15:11.160 and it's going to be the administration, not the incoming administration, 0:15:11.600 --> 0:15:13.960 and they're clearly going to have to model that in 0:15:14.040 --> 0:15:16.520 wigh that. So I don't think there's a pretty low 0:15:16.560 --> 0:15:18.040 bar here. I think it's gotten higher. 0:15:18.120 --> 0:15:20.560 I'm really pleased you brought up Nil Datta's no if 0:15:20.560 --> 0:15:22.760 you go to the bottom of this noe Nil from Renmack. 0:15:22.800 --> 0:15:25.720 Of course, there's an interesting line here on the incoming administration. 0:15:26.120 --> 0:15:28.720 There is plenty of speculation of what the Trump administration 0:15:28.800 --> 0:15:31.440 will do, but they have to actually walk through the door. 0:15:31.720 --> 0:15:33.640 The FED ought to focus on the here and now. 0:15:33.720 --> 0:15:35.960 The risk is now that the economy slows and the 0:15:35.960 --> 0:15:38.960 FED is passively tightening by doing nothing. And here's the kicker. 0:15:39.000 --> 0:15:41.320 I think the punchline curious that the FED was about 0:15:41.360 --> 0:15:43.280 to cut a hundred basis points and then all of 0:15:43.280 --> 0:15:47.000 a sudden stops as Trump walks through the door. Diane, 0:15:47.040 --> 0:15:49.680 how much of these moves, the change to the forecast 0:15:49.720 --> 0:15:53.480 that we're seeing are about the incoming data since September, 0:15:53.520 --> 0:15:56.000 and how much of it is about expected changes to 0:15:56.080 --> 0:15:59.120 policy that will shape that data in the years to come. 0:16:01.640 --> 0:16:04.360 Well, we do know that with the continuing resolution that 0:16:04.360 --> 0:16:09.400 they're talking about a fairly large increase in bailout funds 0:16:09.440 --> 0:16:12.360 for the affected states from the two hurricanes. That will 0:16:12.360 --> 0:16:14.760 boost growth at the beginning of the year, and it 0:16:14.800 --> 0:16:18.000 is inflationary at the same time, So that is sort 0:16:18.000 --> 0:16:20.960 of already baked into the cake. Are they doing scenarios, 0:16:21.000 --> 0:16:24.000 Of course they are, but they can couch certainly. I 0:16:24.000 --> 0:16:26.600 think you're going to see Powell couch very much and 0:16:26.640 --> 0:16:29.960 be very cautious to say they're not front running any policy. 0:16:30.040 --> 0:16:32.600 They did cut at this meeting. If they were front 0:16:32.640 --> 0:16:35.800 running policy, they wouldn't have cut at this meeting. And 0:16:35.840 --> 0:16:38.440 I think that's what Powell wanted to say, even with 0:16:38.480 --> 0:16:41.640 the descent, with this hawkish tone, this is sort of 0:16:41.680 --> 0:16:44.160 the perfect way for him to say, we're doing our job. 0:16:44.400 --> 0:16:47.200 We're looking at the data. It's coming in stronger, the 0:16:47.280 --> 0:16:51.680 economy is solid, and it justifies higher rates. Now, you 0:16:51.720 --> 0:16:55.360 always worry about what's going to break going forward. The 0:16:55.440 --> 0:16:58.320 administration coming in, they will have more information on it, 0:16:58.560 --> 0:17:01.400 but even tariffs take quite a while to kick in. 0:17:01.480 --> 0:17:04.800 They don't kick in overnight, and I think people forget 0:17:04.800 --> 0:17:07.640 about that and we don't know what Not only will 0:17:07.640 --> 0:17:10.840 the tariffs completely look like we have ideas and we 0:17:10.840 --> 0:17:14.679 can model out scenarios, but retaliation will be designed to 0:17:14.800 --> 0:17:18.960 disrupt supply chains. That's very important because when you're thinking 0:17:19.000 --> 0:17:22.119 about it that way, that is inflationary and we're in 0:17:22.160 --> 0:17:26.160 a much more fragile supply chain environment, which we've already seen. 0:17:26.520 --> 0:17:30.240 Vehicle prices have already gone up again just in response 0:17:30.280 --> 0:17:33.640 to the damages and the buying ahead of additional price 0:17:33.720 --> 0:17:37.080 hikes due to two monster hurricanes. So we're in a 0:17:37.119 --> 0:17:41.439 situation where we have much more fragile supply chains with 0:17:41.720 --> 0:17:46.240 the embers of inflation still smoldering. That's just not a 0:17:46.280 --> 0:17:49.280 situation you want to add fuel to the fire on 0:17:49.560 --> 0:17:52.159 you want to keep the lid on inflation. And I 0:17:52.160 --> 0:17:55.440 think the FED is still hoping to hit that soft landing. 0:17:55.760 --> 0:17:58.639 But a soft landing, really they will not declare victory. 0:17:58.640 --> 0:18:00.880 And this will not be Chairman Powell that we saw 0:18:00.920 --> 0:18:04.080 a year ago, who was pretty jubulant a year ago 0:18:04.600 --> 0:18:06.920 when we were sitting in this exact spot. I think 0:18:06.960 --> 0:18:09.359 you're going to see a Chairman Powell that is cautious 0:18:09.720 --> 0:18:13.560 optimistic about the economy, talking about the strength of the economy. 0:18:13.960 --> 0:18:16.200 That's why they're doing what they're doing. That's why the 0:18:16.200 --> 0:18:18.920 outlook looks like it is not front running policy. 0:18:19.200 --> 0:18:20.919 Michael, I got a ten year yield move and the 0:18:21.000 --> 0:18:24.560 real yield, the real yield was a two five two, 0:18:24.560 --> 0:18:27.439 all of a sudden popping four basis points rounded up 0:18:27.440 --> 0:18:30.200 about the two point one to three percent. What does 0:18:30.280 --> 0:18:33.359 that signal to your bond market? What does that signal 0:18:33.400 --> 0:18:36.760 the business? Just to see the real yield Butcher's up 0:18:36.800 --> 0:18:39.360 write against recent husbec six months. 0:18:39.520 --> 0:18:43.119 It tells me that investors might have been tilted the 0:18:43.200 --> 0:18:48.879 wrong way coming into the FOMC decision, and they're unwinding 0:18:48.920 --> 0:18:51.399 some of that. We'll see where it closes. I'm pretty 0:18:51.400 --> 0:18:54.920 optimistic things will settle down. I think Diane said it 0:18:55.040 --> 0:18:59.240 correctly that this is still a FED that cut rates 0:18:59.440 --> 0:19:04.600 in front of incoming policies. So they must see something 0:19:04.760 --> 0:19:07.800 in the improvement in inflation that they like, and they 0:19:07.840 --> 0:19:10.760 must see something in the labor market that they want 0:19:10.800 --> 0:19:12.760 to make sure it doesn't metastasize. 0:19:12.800 --> 0:19:14.560 We'll find out more in about eleven minutes time. In 0:19:14.560 --> 0:19:16.720 this news conference, stants a special thanks to Dan Swamp 0:19:16.880 --> 0:19:19.400 of KPMG. Want to draw your attention to what's developing 0:19:19.400 --> 0:19:21.439 in the FX market and elsewear. So we're starting the 0:19:21.440 --> 0:19:24.199 bond market just a flavor of that yields up on 0:19:24.240 --> 0:19:26.359 a front end by seven basis points the two year 0:19:26.720 --> 0:19:29.080 back through four p thirty. If you take that move, 0:19:29.320 --> 0:19:31.520 just push it through foreign exchange. What do you expect 0:19:31.760 --> 0:19:34.040 bit of moves in G ten the dollars stronger against 0:19:34.080 --> 0:19:37.199 absolutely everything, against the majors in G ten. Beyond that, 0:19:37.240 --> 0:19:40.919 in em tom two percent move against Brazil two again negative, 0:19:41.880 --> 0:19:43.120 that's another two each of them. 0:19:43.200 --> 0:19:44.960 Yeah, but each of them are radiosyncredits on. 0:19:44.920 --> 0:19:46.840 The top of the twenty so far this ye, yeah, she. 0:19:46.800 --> 0:19:49.679 Got Turkish lera popping through thirty five today finally. But 0:19:50.040 --> 0:19:53.120 they're each a different story. But as Damian Sasomer says 0:19:53.160 --> 0:19:56.000 his expert on this, it is a flat out six 0:19:56.080 --> 0:19:59.679 percent depreciation an them currencies, and John, I'm looking at 0:19:59.680 --> 0:20:02.320 the drawer and the standard of course five hundred. I'm 0:20:02.359 --> 0:20:05.199 not using the dow here in the SPX is we 0:20:05.240 --> 0:20:08.440 have a drawdown a negative one point five percent. 0:20:08.359 --> 0:20:10.760 Sessions carnage of the session line with down about point 0:20:10.800 --> 0:20:13.400 seven percent on the session. On the SMP, Mattless seti 0:20:13.440 --> 0:20:15.840