WEBVTT - Instant Reaction: Jay Powell on the Fed Decision 0:00:02.520 --> 0:00:15.960 Bloomberg Audio Studios, podcasts, radio news. 0:00:12.480 --> 0:00:16.440 Chairman pell fascinating news conference, the most interesting news conference 0:00:16.480 --> 0:00:18.760 we've seen with a FED share in quite a while. 0:00:18.880 --> 0:00:21.239 Let's start with the price action, a big portion of 0:00:21.320 --> 0:00:25.920 uncertainty with a sprinkle of transit tree equity markets rocketing. 0:00:26.079 --> 0:00:27.840 We're up by one point five percent on the S 0:00:27.880 --> 0:00:30.080 and P five hundred on the NASDAG, up by one 0:00:30.160 --> 0:00:32.720 point nine on a Russell, up by close to two 0:00:32.840 --> 0:00:35.199 in the bond market, two year, ten year, thirty year 0:00:35.280 --> 0:00:37.080 yields down and down hard at the front end of 0:00:37.080 --> 0:00:39.920 the curve by five basis points to three ninety eight. 0:00:40.000 --> 0:00:44.360 Check out the commodity market, gold all time highs intra 0:00:44.440 --> 0:00:46.440 day up by about a third of one percent. 0:00:46.600 --> 0:00:48.839 There's a couple of interpretations here. Here's one. 0:00:48.880 --> 0:00:51.080 It's the bad news, so they've downgraded the outlook for 0:00:51.080 --> 0:00:54.880 growth but haven't responded by projecting additional cuts. Here's the 0:00:54.920 --> 0:00:56.920 good news, and this is what the market seems to 0:00:56.960 --> 0:00:58.840 be leaning on just a little bit more, and a 0:00:58.920 --> 0:01:01.800 FED chair spoke to it. Based on the forecast, the 0:01:01.800 --> 0:01:04.960 FED believes that any upward revision to inflation in twenty 0:01:05.000 --> 0:01:09.039 twenty five won't last beyond twenty twenty five into twenty 0:01:09.080 --> 0:01:12.160 six into twenty seven. On that and more, take a 0:01:12.200 --> 0:01:15.120 listen to what the FED share had to say. 0:01:15.240 --> 0:01:17.560 It can be the case that it's appropriate sometimes to 0:01:17.600 --> 0:01:20.800 look through inflation if it's going to go away quickly 0:01:20.840 --> 0:01:24.480 without action by us, if it's transitory, And that can 0:01:24.520 --> 0:01:28.800 be the case in the case of tariff inflation. I 0:01:28.800 --> 0:01:33.800 think that would depend on the tariff inflation moving through 0:01:33.840 --> 0:01:36.759 fairly quickly, and would depend critically as well on inflation 0:01:36.840 --> 0:01:41.319 expectations being well anchored longer term inflation expectations being well anchored. 0:01:41.480 --> 0:01:44.840 A willingness to look through this perhaps reinforced by this 0:01:44.920 --> 0:01:49.560 take on you, Mitch Michigan. Inflation expectations reading is an outlier. 0:01:49.840 --> 0:01:52.240 Okay, going back, there's a lot to unpack here. We 0:01:52.280 --> 0:01:54.600 can talk about you Michigan and how much that actually 0:01:54.600 --> 0:01:57.000 did or did not inform the back of twenty twenty two, 0:01:57.360 --> 0:02:00.880 and why it's less relevant now. The point of transitory 0:02:01.080 --> 0:02:04.080 is a key one. This market is looking through the 0:02:04.120 --> 0:02:07.720 downward revision to growth, the stagflationary like circumstances that frankly 0:02:07.960 --> 0:02:10.240 defy logic for why that should be good for risk 0:02:10.280 --> 0:02:13.440 assets and points squarely to this belief that the Fed 0:02:13.600 --> 0:02:17.000 has resurrected transitory it is going to cut rates in 0:02:17.040 --> 0:02:17.960 the face of weakness. 0:02:18.480 --> 0:02:20.960 What I find fascinating is John, you mentioned it correctly. 0:02:21.000 --> 0:02:22.919 Does see gold go out to a record high two 0:02:22.919 --> 0:02:25.840 thirds of the ways of the press conference, Folks, I've 0:02:26.000 --> 0:02:30.919 never said that in the technical destruction of the equity markets, 0:02:30.919 --> 0:02:32.680 to see the Dow and the S and P popped 0:02:32.720 --> 0:02:35.320 the way they are, by no means do they have 0:02:35.400 --> 0:02:38.720 some buoyancy of a bicygnal. I mean there's some damage 0:02:38.720 --> 0:02:41.799 out there from the politics folding into what he has 0:02:41.840 --> 0:02:42.200 to deal with. 0:02:42.320 --> 0:02:44.280 The market reaction carries a lot of way, and right now, 0:02:44.280 --> 0:02:46.919 this equity market, it's rallying, going into the closing ball 0:02:46.960 --> 0:02:49.280 about forty minutes from now. Joining us on the program 0:02:49.280 --> 0:02:52.000 to react, the former New York Fed President Bill Duntley 0:02:52.160 --> 0:02:54.280 Bell three poun acts. We've wrapped it up, We've had 0:02:54.280 --> 0:02:56.400 the full cost that decision, and now the news conference. 0:02:56.440 --> 0:02:58.239 What's your reaction to all of the above. 0:03:00.120 --> 0:03:03.160 The summary of economic projections is actually a bit hawkish 0:03:03.240 --> 0:03:05.520 in the sense that they that keep down graded growth 0:03:05.560 --> 0:03:08.840 and pushed up inflation, and the dot plots, you know 0:03:08.919 --> 0:03:12.079 that plot did shift up. They didn't shift up enough 0:03:12.120 --> 0:03:14.799 to change it from two to one rate cut this year, 0:03:15.240 --> 0:03:16.600 but they did did shift up. 0:03:16.880 --> 0:03:18.760 Powell then came in, and I think he gave. 0:03:18.639 --> 0:03:21.240 A pretty dubbish performance in the sense that you know, 0:03:21.280 --> 0:03:23.560 we got this, We're in a good place, we can 0:03:23.560 --> 0:03:26.560 afford to wait, we'll see how it goes, We're going 0:03:26.639 --> 0:03:29.720 to get the job done. So he I think was 0:03:29.760 --> 0:03:32.960 pretty reassuring to people that this was all, you know, 0:03:33.040 --> 0:03:36.440 quite manageable. I think the reality is, I mean, growth 0:03:36.440 --> 0:03:39.640 outlook is worse, the inflation outlook is worse, and certainty 0:03:39.680 --> 0:03:40.360 is a lot higher. 0:03:40.920 --> 0:03:43.520 I'm not really sure how you parse that out as positive. 0:03:44.120 --> 0:03:46.600 But Paul put a pretty dubbish spin on it. 0:03:46.680 --> 0:03:49.720 Bill that's where transitory comes in. It was resurrected, the 0:03:49.720 --> 0:03:52.360 word that was once left for dead. Thought to look 0:03:52.440 --> 0:03:56.640 through some of the tariff induced inflation, saying it probably 0:03:56.800 --> 0:03:59.240 would subside. What do you make of that, because it's 0:03:59.240 --> 0:04:00.920 giving a lot of confident to this market. 0:04:02.200 --> 0:04:04.839 Well, one thing that he did talk about was inflation expectations, 0:04:04.840 --> 0:04:07.200 and he basically said, look, there's only one indicator that's 0:04:07.240 --> 0:04:11.160 really shown a significant increase in long term inflation expectations. 0:04:11.320 --> 0:04:12.400 Everything else looks fine. 0:04:12.600 --> 0:04:14.640 So he's basically telling people if you can ignore the 0:04:14.760 --> 0:04:18.120 University of Michigan long Term inflation Expectations measure, which has 0:04:18.400 --> 0:04:21.280 shot up very sharply the last month or so. 0:04:21.279 --> 0:04:22.560 So that's reassuring. 0:04:22.880 --> 0:04:25.880 So I think people think that's got this, you know, 0:04:25.880 --> 0:04:28.640 I think the reality is they're flying blind. They don't 0:04:28.640 --> 0:04:30.720 really know what's going to happen to growth, they don't 0:04:30.720 --> 0:04:34.240 know what it's going to happen to inflation, and you know, 0:04:34.279 --> 0:04:37.320 that increases the risk of making a policy mistake or 0:04:37.440 --> 0:04:38.039 just being late. 0:04:38.440 --> 0:04:41.719 There's a book years ago, Bill Dudley, with a chapter 0:04:41.839 --> 0:04:44.960 by Bill Dudley and Ed McKelvey, and you set off 0:04:44.960 --> 0:04:49.159 of Patrick O'Brien. There's not a moment to lose, how 0:04:49.400 --> 0:04:52.560 x post is this fed? They're to me not, It 0:04:52.680 --> 0:04:54.120 is not a moment to lose. 0:04:54.560 --> 0:04:55.280 They are weight. 0:04:55.520 --> 0:04:58.440 Wait, wait, isn't their their best outcome? 0:04:59.560 --> 0:05:01.839 Well, I don't fault them for waiting. 0:05:01.880 --> 0:05:03.920 I mean, I think when uncertainty's really high and you're 0:05:04.400 --> 0:05:06.160 in the economy is in a pretty good place. I mean, 0:05:06.200 --> 0:05:08.320 on inflation's rates running two and a half three percent, 0:05:08.640 --> 0:05:11.479 the unemploying rates around four percent, you know, staying here, 0:05:11.560 --> 0:05:14.120 you know, and definitely would not be a really bad outcome. 0:05:14.360 --> 0:05:16.479 So I think that's what gives them the ability to wait, 0:05:16.520 --> 0:05:19.200 because you're the starting point is actually pretty good. Another 0:05:19.240 --> 0:05:21.240 thing I thought it was interesting about Pauwell's remarks is 0:05:21.279 --> 0:05:25.920 he started to minimize the soft data that's showing a 0:05:25.960 --> 0:05:28.120 lot of weakness and said, we're really sort of focusing 0:05:28.160 --> 0:05:30.160 on the hard data. We haven't seen weakness in the 0:05:30.160 --> 0:05:32.400 hard data yet, So that was also reassuring. 0:05:32.839 --> 0:05:35.760 This is what Marko Khlanovic formally, if JP Morgan has 0:05:35.800 --> 0:05:38.640 to say out on excess afternoon, not in a hurry 0:05:39.040 --> 0:05:41.320 means we will drag our feet when things get worse 0:05:41.480 --> 0:05:43.839 like in the fall of twenty eighteen. This is not 0:05:43.960 --> 0:05:46.919 bullish at all, but you've lived a lot of this 0:05:47.040 --> 0:05:49.239 in the past. Is there a risk of a repeat 0:05:49.400 --> 0:05:50.520 of twenty eighteen here? 0:05:51.480 --> 0:05:53.160 Well, I just think there's a risk that the FED 0:05:53.240 --> 0:05:55.400 will be late, because if you have to have the 0:05:55.440 --> 0:05:58.359 information in hand before you act, and they're long and 0:05:58.480 --> 0:06:02.240 vera lags of monetary policy, you're not gonna uh to 0:06:02.320 --> 0:06:05.400 the necessary action in a timely way. I think that 0:06:05.480 --> 0:06:07.160 the same. But at the same time, I mean, which 0:06:07.200 --> 0:06:08.960 way does the FED lean? Do they willing against the 0:06:08.960 --> 0:06:11.240 inflation or do you lean against the growth side. That 0:06:11.400 --> 0:06:13.320 was interesting in the summary of the economic projections also 0:06:13.360 --> 0:06:16.160 didn't get a lot of attention, but people's assessment of 0:06:16.640 --> 0:06:21.120 uncertainty about inflation and employment both went up. Their assessment 0:06:21.160 --> 0:06:23.720 of risk to inflation and employment both went up. But 0:06:23.760 --> 0:06:26.280 I think that's really what tells you what's what's bad 0:06:26.279 --> 0:06:29.960 about the economic outlook now is that this dispersion of 0:06:30.000 --> 0:06:33.160 possible outcomes is pretty wide, and we just don't know 0:06:33.279 --> 0:06:34.680 which which way we're heading. 0:06:35.120 --> 0:06:37.160 Bill, you said that this is a FED that's flying 0:06:37.160 --> 0:06:38.440 blind and essentially fed. 0:06:38.520 --> 0:06:38.760 Char J. 0:06:38.920 --> 0:06:41.880 Powell said it as much when he was asked why 0:06:41.920 --> 0:06:45.080 there was this ongoing to rate cuts priced into a 0:06:45.200 --> 0:06:49.600 market where you'd had some pretty sizable changes to growth 0:06:49.760 --> 0:06:52.159 and inflation, and he said, what would you write down? 0:06:52.279 --> 0:06:54.120 It's really hard to know how this is going to 0:06:54.200 --> 0:06:57.080 work out. Is there any time in history, Bill that 0:06:57.160 --> 0:06:59.680 you can think of where the FED was as flying 0:06:59.720 --> 0:07:01.239 blind as they are right now? 0:07:02.839 --> 0:07:04.599 Well, I'm sure there's been other times. 0:07:04.640 --> 0:07:06.920 For example, you know, when you had the two oil 0:07:06.960 --> 0:07:09.320 price shocks in the nineteen seventies, that wasn't very good. 0:07:09.520 --> 0:07:11.840 They had a great financial crisis in two thousand and seven, 0:07:11.880 --> 0:07:14.760 two thousand and eight, you know, the week Lennon Brothers 0:07:14.760 --> 0:07:17.200 failed over the weekend, and then the FED was meeting 0:07:17.240 --> 0:07:19.560 the next Tuesday and Wednesday. So that was probably a 0:07:19.560 --> 0:07:21.760 pretty flying blind moment. So I think there's been other 0:07:21.920 --> 0:07:24.560 times like this. The good news is that you're economy, 0:07:24.560 --> 0:07:26.960 as Chair Paul made it clear, is starting from a 0:07:26.960 --> 0:07:29.040 pretty good police That's the important part. 0:07:29.400 --> 0:07:33.080 John Pharaoh, David Rosenberg just out on Twitter right now. Really, 0:07:33.480 --> 0:07:37.120 this is the insight that I had with Boby Michael before. 0:07:37.360 --> 0:07:40.920 A four point four percent unemployment is a single stick 0:07:41.000 --> 0:07:44.559 one hundred basis points above the three point four percent low. 0:07:44.880 --> 0:07:48.240 You got to go back to nineteen forty eight to 0:07:48.400 --> 0:07:51.480 see that abruptness without a recession. 0:07:51.640 --> 0:07:54.280 So we had some deterioration last Summer's Home. I'm with you, 0:07:54.360 --> 0:07:56.040 but it turned out to be a head fake, and 0:07:56.080 --> 0:07:58.560 the Federal Reserve was somewhat unerved by going into Jackson 0:07:58.600 --> 0:08:01.040 Hull and Sick noted some reaction to it, Lisa, and 0:08:01.040 --> 0:08:03.320 they followed up with a hundred basis points of interest 0:08:03.400 --> 0:08:05.480 rate reductions. And here we are again, and we're trying 0:08:05.520 --> 0:08:08.320 to figure out if the soft data and the deterioration 0:08:08.360 --> 0:08:11.080 we've seen in the survey data is a head fake 0:08:11.200 --> 0:08:13.600 or not on whether it will translate into softer heart 0:08:13.680 --> 0:08:14.440 data down the road. 0:08:14.680 --> 0:08:17.240 And it seemed like this was a FED more willing 0:08:17.360 --> 0:08:19.760 to say maybe it is a headfake with respect to 0:08:20.160 --> 0:08:24.080 soft data, and not necessarily emphasizing it as much as say, 0:08:24.080 --> 0:08:26.440 the hard data at the same time reducing their forecast. 0:08:26.760 --> 0:08:28.720 I wonder if we're making too much of the dots. 0:08:28.800 --> 0:08:30.440 I wonder if we're making too much of all of 0:08:30.440 --> 0:08:33.079 these utterances when essentially you have a FED chair himself 0:08:33.120 --> 0:08:36.160 saying we have no clue, we don't know, we don't 0:08:36.200 --> 0:08:38.800 know inertia, we kept it the same because what are 0:08:38.800 --> 0:08:40.880 we supposed to do? And so there is this element 0:08:41.080 --> 0:08:42.840 where you have to look at this and say, on 0:08:42.920 --> 0:08:46.040 a fundamental level, is monetary policy still in the driver's 0:08:46.040 --> 0:08:48.560 seat at this point or is this a fiscally fiscal 0:08:48.559 --> 0:08:52.720 policy driven market and frankly an economically driven market that 0:08:52.760 --> 0:08:55.360 the FED cannot really engage with in a constructive way. 0:08:55.480 --> 0:08:57.240 So, Lisa, for moments like this, I wouldn't put too 0:08:57.280 --> 0:08:59.600 much weight on the forecast because the chairman is telling you, 0:08:59.640 --> 0:09:01.520 we don't know. I'd put a lot of weight on 0:09:01.640 --> 0:09:06.000 the communicated reaction function, how they're communicating, how we'd respond 0:09:06.040 --> 0:09:08.719 to certain information points. And Bill, I wonder what we've 0:09:08.760 --> 0:09:10.920 learned today If we did get a deterioration in the 0:09:10.960 --> 0:09:13.880 economic data over the next several months in the hard data, 0:09:14.280 --> 0:09:16.400 have we learned that this FED would respond to that, 0:09:16.960 --> 0:09:19.440 or would this FED weight because I think that's critical 0:09:19.480 --> 0:09:22.680 for a lot of investors. Are they constrained it's the 0:09:22.720 --> 0:09:26.560 easy bus now constrained by the inflation uncertainty of the 0:09:26.559 --> 0:09:27.680 next twelve months. 0:09:28.160 --> 0:09:30.000 It's definitely constrained to a degree. I think the thing 0:09:30.000 --> 0:09:32.160 to focus on is the unemployment rate. If the unemployer 0:09:32.240 --> 0:09:34.520 rate stays where it is, then the fact can wait. 0:09:34.840 --> 0:09:36.480 The underplanner rate goes up to say four and a 0:09:36.520 --> 0:09:39.040 half percent, then the FED has to worry about the 0:09:39.040 --> 0:09:42.120 whole thing giving way. So I think the the tightness 0:09:42.120 --> 0:09:43.920 of the layer market, how the layer market's performing, is 0:09:43.960 --> 0:09:47.080 really important. That itself has a lot of uncertainty because remember, 0:09:47.200 --> 0:09:48.839 the growth rate of the labor force this year is 0:09:49.000 --> 0:09:50.719 to be much much slower. 0:09:50.200 --> 0:09:52.400 Than it was in twenty twenty three or twenty. 0:09:52.200 --> 0:09:57.280 Twenty four because very little in migration keyportations so speak, 0:09:57.320 --> 0:09:58.720 slow down in the layer force growth. 0:09:58.800 --> 0:10:01.679 So what that means is you can have growth and 0:10:01.720 --> 0:10:03.720 not have much change in the unemployer rate. 0:10:03.760 --> 0:10:05.840 So I think the unemploy rate is the summary statistic 0:10:06.000 --> 0:10:07.040 that I'd be focusing on. 0:10:07.400 --> 0:10:10.160 I agree with that, doctor Dudley. And my question is, 0:10:10.280 --> 0:10:13.120 is a four point four to four point five percent 0:10:13.200 --> 0:10:16.640 YOU three unemployment rate? Is that the same as a 0:10:16.800 --> 0:10:20.440 YOU three unemployment rate of ten or twenty or thirty 0:10:20.520 --> 0:10:20.960 years ago. 0:10:22.679 --> 0:10:25.880 Oh, I mean, I think the unemployed rate consistent with 0:10:25.880 --> 0:10:27.720 full employment has come down over time. 0:10:28.360 --> 0:10:30.480 Part of that's due to the aging of the population. 0:10:31.480 --> 0:10:34.959 You know, older workers are employed at a higher percentage 0:10:35.000 --> 0:10:35.520 of the time. 0:10:36.000 --> 0:10:37.040 So I think, you. 0:10:36.960 --> 0:10:39.640 Know, the fed's view is that we're basically at full 0:10:39.640 --> 0:10:42.480 employment right now four percent or so. But if we 0:10:42.480 --> 0:10:44.400 go it to four and a half, the Fed's going 0:10:44.440 --> 0:10:45.959 to be starting to worry that this whole thing is 0:10:46.040 --> 0:10:48.959 unwinding in a bad way, and then they'll be really 0:10:49.080 --> 0:10:53.560 assessing is if inflation bad news bad news transitory or 0:10:53.600 --> 0:10:57.280 is it getting into into into inflation expectations. 0:10:57.400 --> 0:10:59.320 It's difficult to say. With that, you might build that 0:10:59.360 --> 0:11:01.199 this FED is a is in a good place. Do 0:11:01.280 --> 0:11:02.280 you think it's in a good place. 0:11:03.080 --> 0:11:05.439 Well, they're in a good place in the sense that 0:11:05.080 --> 0:11:07.719 the the starting point for the commie is in a 0:11:07.720 --> 0:11:09.840 good place. They're not in a good place in the 0:11:09.880 --> 0:11:12.240 sense that they're being hit with shocks that are bad 0:11:12.320 --> 0:11:15.040 for growth and bad for inflation, and they don't really 0:11:15.080 --> 0:11:16.400 know what the policy is going to be yet. 0:11:16.480 --> 0:11:17.880 So I think they're not in. 0:11:17.800 --> 0:11:20.040 Good shape in the sense that, let's put it this way, 0:11:20.080 --> 0:11:22.520 they like where their car is sitting today, but they 0:11:22.600 --> 0:11:26.040 now have to drive down the road a very big 0:11:26.360 --> 0:11:27.480 foggy environment. 0:11:27.679 --> 0:11:27.800 Hi. 0:11:27.880 --> 0:11:29.920 Bill, thanks for having to make sense of it. Appreciate it. 0:11:29.920 --> 0:11:32.520 Built down be that the former New York FED president lates, 0:11:32.640 --> 0:11:34.640 after a conversation like that, you wouldn't have guessed the 0:11:34.679 --> 0:11:37.240 equity market is up by one point percent. 0:11:37.080 --> 0:11:37.679 On a SMP. 0:11:38.320 --> 0:11:41.600 I don't go understand in any way why a stagflationary 0:11:41.679 --> 0:11:44.559 environment would be positive for risk assets. I think that 0:11:44.559 --> 0:11:46.360 that was sort of what Bill Dudley had to say 0:11:46.360 --> 0:11:46.880 as well. 0:11:47.080 --> 0:11:49.319 You raised a point though, if this is a FED that. 0:11:49.280 --> 0:11:52.240 Still is going back to the transitory idea and believes 0:11:52.280 --> 0:11:55.960 as their base case that these tariffs are going to 0:11:56.040 --> 0:11:59.280 have a one time inflation ramification, but that will die down, 0:11:59.760 --> 0:12:02.720 then why wouldn't they be more inclined to cut rates 0:12:02.760 --> 0:12:05.559 in the face of weakness, And that goes to this 0:12:05.679 --> 0:12:08.200 dubvish aspect that's being reflected in markets. 0:12:08.280 --> 0:12:10.079 Mi McKay joins us. Now he's run out of the 0:12:10.120 --> 0:12:12.520 news conference to catch out with us. Michael McKay, the 0:12:12.640 --> 0:12:15.160 T word makes a comeback in the news conference. 0:12:15.200 --> 0:12:19.400 What was your reaction, Well, it did cause my eyebrows 0:12:19.440 --> 0:12:21.079 to go up a little bit, and I wondered if 0:12:21.080 --> 0:12:25.040 he had been warned against that. But seriously, you guys 0:12:25.040 --> 0:12:27.000 had the smart people out ahead of me, Bill Sadley 0:12:27.160 --> 0:12:29.520 and Lisa brahm Witz. I agree with both of the 0:12:29.559 --> 0:12:33.080 things that they said. That Bill Dudley said, this FED 0:12:33.160 --> 0:12:35.080 is lost, and I think that is the case. They 0:12:35.120 --> 0:12:38.640 don't have any idea what's going on in the economy. 0:12:39.000 --> 0:12:42.839 And as Lisa said, you really can't believe or take 0:12:42.960 --> 0:12:47.079 seriously anything that they projected today because they don't know. 0:12:47.240 --> 0:12:49.920 This stuff has a half life of the next tweet. 0:12:50.280 --> 0:12:53.120 So at this point, the FED is just trying to 0:12:53.160 --> 0:12:57.480 reassure the country, which probably explains what we're seeing in 0:12:57.520 --> 0:13:00.880 the markets today. Is that J. Powell sounded like he 0:13:01.040 --> 0:13:04.520 was reassuring, But I wouldn't take any message out of this. 0:13:05.040 --> 0:13:08.920 Everything after that, he said, after good afternoon, I would 0:13:08.960 --> 0:13:10.200 sort of put to the side. 0:13:10.520 --> 0:13:13.480 What did you make, Mike of his complete dismissal at 0:13:13.480 --> 0:13:15.400 the University of Michigan sentiment survey. 0:13:17.160 --> 0:13:20.720 Well, that's this kind of standard thing for Fed officials, 0:13:20.800 --> 0:13:23.200 the old uh. We watch what they do, not what 0:13:23.240 --> 0:13:27.160 they say, and people have The inflation numbers in these 0:13:27.200 --> 0:13:30.320 surveys have been distorted a lot in the past because 0:13:30.320 --> 0:13:32.719 people don't really have a good handle on what the 0:13:32.720 --> 0:13:35.400 inflation rate is. They just know their grocery prices are 0:13:35.400 --> 0:13:37.640 going up. So I can understand why he said that, 0:13:37.679 --> 0:13:39.560 And it was just a one month move in the 0:13:39.679 --> 0:13:42.000 longer run. The shorter run has moved up for a 0:13:42.000 --> 0:13:44.719 couple of months, So I think this is maybe a 0:13:44.760 --> 0:13:49.439 little whistling past the graveyard in terms of not trying 0:13:49.559 --> 0:13:51.880 to give the impression that the Fed is worried and 0:13:51.960 --> 0:13:53.200 going to have to take some action. 0:13:53.480 --> 0:13:56.160 Mat McKay appreciated the updates, looking forward to your conference 0:13:56.160 --> 0:13:58.440 frant today and into the weekend as well. Lost the 0:13:58.440 --> 0:14:01.080 process here, equity is up nice by one point two 0:14:01.120 --> 0:14:03.000 percent on the S and P five hundred. That bounce 0:14:03.040 --> 0:14:05.240 continues with us around the table to close things out. 0:14:05.440 --> 0:14:07.560 Amandalina of black croc Amanda. 0:14:07.720 --> 0:14:09.679 Where to begin? So lots of process here. 0:14:09.760 --> 0:14:11.680 One thing we haven't talked about enough, and Lisa mentioned 0:14:11.720 --> 0:14:14.160 it coming into the decision, a reduction in QT. 0:14:14.720 --> 0:14:16.640 How important is that to this market? 0:14:16.960 --> 0:14:19.120 Well, good afternoon, thank you for having me. Two things 0:14:19.200 --> 0:14:21.600 jump out to me. One is going back to the 0:14:21.640 --> 0:14:24.040 growth inflation mix being more challenging. A lot of this 0:14:24.160 --> 0:14:26.560 was baked in heading into this expectation, and so I 0:14:26.560 --> 0:14:28.720 think that's part of why we're seeing the market reaction. 0:14:28.760 --> 0:14:30.680 We've had just such a bruising few weeks in the 0:14:30.720 --> 0:14:34.680 equity market. Most forecasters have reflected a lower growth and 0:14:34.720 --> 0:14:37.080 higher inflation, and I think that's part of what's driving 0:14:37.080 --> 0:14:39.160 this here. And I would just underscore something that Bill 0:14:39.200 --> 0:14:42.040 Dudley said, which is I think this just makes the 0:14:42.080 --> 0:14:44.960 growth backdrop all the more critical because the FED is 0:14:45.000 --> 0:14:48.480 telling you that inflation will not allow them to be responsive. 0:14:48.800 --> 0:14:51.680 And so really that one point seven percent growth in 0:14:51.720 --> 0:14:55.000 the s SEP slightly below trend that really has to 0:14:55.000 --> 0:14:57.680 hold up for risk assets to validate this move, because 0:14:57.760 --> 0:14:59.720 the Fed's telling you that they can't respond as it 0:14:59.760 --> 0:15:02.000 really to QT. I think maybe that's why you're seeing 0:15:02.080 --> 0:15:04.400 some modest relief in longer and yields and in the 0:15:04.400 --> 0:15:06.600 bond market. I think on the margin that could be 0:15:06.800 --> 0:15:09.680 somewhat helpful versus the counterfactual, but I don't think it's 0:15:09.720 --> 0:15:10.280 the main driver. 0:15:10.360 --> 0:15:12.160 I think the main driver here is that. 0:15:12.120 --> 0:15:14.120 A lot of this bad news was baked in heading 0:15:14.120 --> 0:15:17.400 into this expectation. A more challenging growth inflation mix is 0:15:17.480 --> 0:15:20.040 the base case, and I think it warrants some widening 0:15:20.040 --> 0:15:20.760 in credit spreads. 0:15:20.840 --> 0:15:23.560 Do you think it's positive that he resurrected the transitory word. 0:15:24.760 --> 0:15:26.920 I mean, I think it was accompanied with a healthy 0:15:26.960 --> 0:15:31.160 dose of we're not quite sure what's going on, I 0:15:31.240 --> 0:15:33.880 think so, I don't. I think the market is kind 0:15:33.880 --> 0:15:37.880 of looking through that. But from my perspective, his kind 0:15:37.880 --> 0:15:39.880 of reinforcing that the labor market is still in a 0:15:39.920 --> 0:15:42.560 solid place is to me the key thing, because if 0:15:42.600 --> 0:15:45.320 you think what's driving the resilient growth that we've seen 0:15:45.360 --> 0:15:47.360 over the past few quarters in the US, it's the 0:15:47.360 --> 0:15:50.800 consumer in aggregate, if we have a higher layoff rate, 0:15:50.880 --> 0:15:53.760 so if corporates start to be concerned about margins, they 0:15:53.800 --> 0:15:56.400 flex that layoff tool more aggressively, which is still quite 0:15:56.440 --> 0:15:59.320 low that's a situation where that weakness that's so far 0:15:59.400 --> 0:16:01.920 confined to the low end consumer could extend more broadly. 0:16:02.200 --> 0:16:05.320 So what to watch micro level commentary, high frequency data 0:16:05.360 --> 0:16:08.720 on a labor market, capital markets functioning right, like the 0:16:09.040 --> 0:16:12.320 idea that corporates can issue just at a higher cost. 0:16:12.760 --> 0:16:14.680 That's fine for market functioning. I think where the FED 0:16:14.720 --> 0:16:16.920 starts to get concerned as if the markets are frozen. 0:16:17.320 --> 0:16:19.480 There's also this question of the long end of the 0:16:19.560 --> 0:16:22.760 yield curve and why it should go down. If this 0:16:22.920 --> 0:16:26.800 FED is biased to looking through any inflationary shock as 0:16:26.840 --> 0:16:29.440 simply near term, if that is their base case and 0:16:29.440 --> 0:16:31.800 we will not know for a longer period of time, 0:16:32.280 --> 0:16:36.080 does that raise concerns about longer term entrenched inflation, especially 0:16:36.120 --> 0:16:38.920 at a time of global fiscal releveraging. 0:16:38.960 --> 0:16:41.120 Absolutely, And I think our base case is that longer 0:16:41.200 --> 0:16:42.680 end yields are structurally higher. 0:16:42.800 --> 0:16:42.960 Right. 0:16:43.040 --> 0:16:46.360 So that's the view across a variety of platforms at 0:16:46.360 --> 0:16:49.680 black Rock, and I think right now what we're seeing 0:16:49.760 --> 0:16:53.320 is that treasuries are not a reliable hedge in risk 0:16:53.400 --> 0:16:56.520 asset underperformance. And so what you've seen, you've seen to 0:16:56.600 --> 0:16:59.800 a certain extent, treasuries can rally when there are growth 0:16:59.840 --> 0:17:02.240 can but it kind of peters out at a certain point. 0:17:02.320 --> 0:17:05.479 And really for rates to rally significantly, you actually need 0:17:05.560 --> 0:17:07.920 to have more valid recessionary like concerns. 0:17:07.920 --> 0:17:10.800 You can't just have a growth slow down. So what we're. 0:17:10.600 --> 0:17:14.040 Seeing is that it's almost like a quasi hedge, but 0:17:14.080 --> 0:17:17.880 it's not a firm hedge. As for the inflation expectations, 0:17:18.040 --> 0:17:20.760 I do think it is concerning that they're not expecting 0:17:20.800 --> 0:17:23.280 inflation to get back to target until twenty twenty seven. 0:17:23.320 --> 0:17:26.520 Similar message from the ECB Frankly, where President Leaguard said. 0:17:26.560 --> 0:17:27.720 It's going to be a further path. 0:17:27.760 --> 0:17:30.680 When you think about the spillovers of German fiscal spending right, 0:17:30.760 --> 0:17:34.720 higher bund yields. These markets don't operate in a vacuum, right, 0:17:34.760 --> 0:17:37.240 So equity is verse credit or you're versus us, and 0:17:37.280 --> 0:17:39.919 so I think we are bracing for structurally higher rates 0:17:40.480 --> 0:17:41.600 and structuring higher inflation. 0:17:41.800 --> 0:17:44.320 If we have one point seven percent, and if we 0:17:44.400 --> 0:17:47.560 get the X axis were on and it extends, that 0:17:47.680 --> 0:17:50.560 tells me Republicans get tossed out of Congress just as 0:17:50.600 --> 0:17:54.280 one talking point, and it'll be huge pressure. Does it 0:17:54.400 --> 0:17:57.239 just evolve down to price up, yield down? And we 0:17:57.280 --> 0:18:01.160 go through four percent. As Bob Michael told us the conference. 0:18:00.920 --> 0:18:02.920 I think, I mean, I think you asked earlier the 0:18:03.000 --> 0:18:06.880 unemployment rate that's really problematic for consumer credit. Five percent 0:18:07.160 --> 0:18:11.440 is the metric that we're hearing that things really become problematic. 0:18:11.480 --> 0:18:13.240 But I think on the way to that journey, so 0:18:13.280 --> 0:18:14.920 when you start to get to four and a half percent, 0:18:15.119 --> 0:18:17.240 I think you start to get concerning. It's the velocity 0:18:17.280 --> 0:18:19.959