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Speaker 1: It is the twenty five versus fifty debate. We are

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Speaker 1: over just even odds for fifty basis points of a cut,

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Speaker 1: which means congratulations, fed, you will surprise the market either

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Speaker 1: way you go. Stronger retail sales data and production led

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Speaker 1: to two years, ending the session by about five basis

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Speaker 1: points higher. Little change this morning, up by one basis point. Meanwhile,

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Speaker 1: equity futures are up one tenth of one percent. At

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Speaker 1: one point yesterday we reached an intra day high. It

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Speaker 1: ended the session little change, though the equal weighted version

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Speaker 1: of the S and P five hundred did end at

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Speaker 1: another all time record. Meanwhile, your euro versus the dollar

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Speaker 1: that is stronger to tenths of one percent. One eleven

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Speaker 1: is where we stand on euro versus the dollar. So yes,

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Speaker 1: it is twenty five versus fifty. I'm sure some people

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Speaker 1: are looking forward to having that settled later today. Here's

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Speaker 1: what some of the biggest market voices are saying about

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Speaker 1: that debate. Twenty five to fifty basis police twenty five, fifty,

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Speaker 1: twenty five or fifty, it doesn't make a difference, not.

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Speaker 2: Going to be earth shattering, and they're long away from neutral.

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Speaker 2: I don't think they're going to do fifty, they're losing

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Speaker 2: sense of the bigger picture. Twenty five basis points is

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Speaker 2: going to be dependent would be the right thing to do.

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Speaker 2: If they do twenty five, they'll lather it on pretty quick.

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Speaker 1: That they're going to do more later.

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Speaker 2: I always say, we have a crystal bowl and at

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Speaker 2: the end of the day, well to see what Amaca does.

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Speaker 1: Let's add another brilliant voice to that mixed. Adam Posion

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Speaker 1: of the Peterson Institute writes the following, if they go

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Speaker 1: fifty instead of twenty five, it is Is it a

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Speaker 1: big mistake? Probably not in terms of short term damage

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Speaker 1: to the economic outlook, but it does for their undermine

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Speaker 1: the fed's communication. As you saw, Adam is with us now. Adam,

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Speaker 1: thank you so much for joining this morning. So let's

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Speaker 1: start there. Why is going fifty an issue of credibility?

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Speaker 2: I think, Danny, thanks for having me and FED day.

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Speaker 2: I think what's going on is we're seeing the culmination

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Speaker 2: of months of the FED shortening and shortening and narrowing

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Speaker 2: and narrowing the justificationations they use for their decisions. So

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Speaker 2: we've gone from a world where they were talking about

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Speaker 2: a two year ahead forecasts which is what inflation targets

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Speaker 2: generally do, and talking about multiple factors to a world

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Speaker 2: where and Chair Powells Jackson whole speech, he was talking

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Speaker 2: just about the unemployment rate and just about the real

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Speaker 2: FED funds rate, and just about the next three months.

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Speaker 2: And so then you become what former Bank of England

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Speaker 2: Governor Mervin King used to call a hostage to fortune.

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Speaker 2: So we got a unemployment number that came down last month,

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Speaker 2: and even though it was totally expected that it would

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Speaker 2: come down last month, everybody's like, oh, does that mean

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Speaker 2: the Fed's changing? Does that mean the Fed's doing this?

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Speaker 2: Does that mean the Fed's doing that? It never should

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Speaker 2: have been so dependent on one piece of data, And

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Speaker 2: so I don't understand all the drama, but I do

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Speaker 2: understand that whether they do twenty five or fifty, the

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Speaker 2: real problem is going to be how they say contingently,

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Speaker 2: depending on how the economy goes, what are we going

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Speaker 2: to do? Whereas what they keep saying is they're basically

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Speaker 2: locked in, which I think is a mistake.

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Speaker 1: So what do you want to hear from Powell today?

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Speaker 1: Adam then to clear some of this up, to get

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Speaker 1: to the kind of scenario that you're talking about.

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Speaker 2: I don't think realistically we're going to hear it from

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Speaker 2: him today. I think it needs the committee changing the

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Speaker 2: dots or making a broader statement. That are having Powell

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Speaker 2: read out a broader statement, which is not going to happen.

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Speaker 2: And if they just say data dependence, that doesn't help,

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Speaker 2: because the point is we don't know or the Fed

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Speaker 2: doesn't know, whether the monetary policy really is that tight.

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Speaker 2: A lot of people are saying they're a long way

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Speaker 2: from neutral. Well, they're a long way from neutral, but

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Speaker 2: credit conditions are pretty darn easy, especially after the FED

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Speaker 2: raise five hundred basis points. And the fact is our

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Speaker 2: star meet, which is the benchmark, the abstract unmeasurable benchmark

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Speaker 2: for where policy should be in a full employment economy,

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Speaker 2: has probably gone up, so the FED policy's probably not

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Speaker 2: that tight. At the same time, there are a lot

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Speaker 2: of things going on in the labor market that are

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Speaker 2: not just captured in the unemployment rate, so they would

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Speaker 2: have to go out and go back to something like

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Speaker 2: the way Yellen used to talk about a labor market

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Speaker 2: dashboard instead of just saying unemployment rate's going up to.

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Speaker 1: That point, you have a credit market that is still

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Speaker 1: spreads a really tight. As you mentioned, you have equity

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Speaker 1: markets just around an all time high just to get

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Speaker 1: to the fifty basis point. Thing. Last time we have

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Speaker 1: the last few times we've had this, it was COVID,

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Speaker 1: it was a credit market implosion, it was a stock

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Speaker 1: market implosion two thousand and one, twenty seven to twenty twenty.

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Speaker 1: Does it set some different sort of precedent of what

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Speaker 1: it means to do a big sized cut if that's

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Speaker 1: what they do this time, Is it a different transmission

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Speaker 1: mechanism and response mechanism rather that we're dealing with from

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Speaker 1: this FED.

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Speaker 2: You're absolutely right, Danny. They would mean a different context

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Speaker 2: at least, and a different conditionality for what takes a

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Speaker 2: big Now, it's perfectly fair to say they raised rapidly

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Speaker 2: so they can cut rapidly. There shouldn't be an asymmetry.

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Speaker 2: But that means they have confidence in their forecast that

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Speaker 2: they're pretty sure they need to cut a lot and quickly,

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Speaker 2: and they haven't communicated that, and I don't think that's

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Speaker 2: the right forecast. Frankly, it might be right. I think

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Speaker 2: you can argue this risk management that inflation is on

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Speaker 2: a downward path for the moment and so the relative

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Speaker 2: risk of being wrong on a recession versus wrong on

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Speaker 2: inflation goes the way of cutting. But that's a different

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Speaker 2: statement than saying, oh my god, we have to get

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Speaker 2: cutting and we have to lock in the expectations that

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Speaker 2: a year from now we're gonna be down two hundred

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Speaker 2: basis points. And that's where I think the real problem

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Speaker 2: is they're so focused on the short term when there's

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Speaker 2: no clear approximate cause of short term problem, like you

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Speaker 2: just said, which usually is the justification for a big,

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Speaker 2: fast move.

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Speaker 1: I was gonna say, Adam, is it a problem that

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Speaker 1: we're even having this debate that we're coming through a

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Speaker 1: past couple of days where we're talking about reading tea

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Speaker 1: leaves from Colby Smith and Nick Timmeros, that we're trying

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Speaker 1: to decipher things like retail sales to get an idea.

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Speaker 1: Is it a problem that we're even at this point

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Speaker 1: to begin with.

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Speaker 2: I think it's a reflection of an underlying problem. I mean,

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Speaker 2: my personal forecast is they're going to do twenty five

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Speaker 2: and these news stories are going to turn out to

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Speaker 2: have just been speculative news stories we'll see. But the

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Speaker 2: fact is there shouldn't be this much uncertainty about what

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Speaker 2: the FED is considering. So if it is just the

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Speaker 2: unemployment rate and that was all and the FED funds rate,

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Speaker 2: the real FED funds rate, which was all Pal talked

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Speaker 2: about in miss Jackson Hall speech, then it's pretty straightforward

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Speaker 2: and it's weird that it's up in the air. If,

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Speaker 2: on the other hand, as it should be, it's a

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Speaker 2: more contingent, more nuanced forecast, then they have to explain

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Speaker 2: why it's on this sort of tenter hooks and every

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Speaker 2: little bit of data accounts. This is not where you

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Speaker 2: want to be as a central bank. You don't want

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Speaker 2: to be having everyone sort of saying, what are they

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Speaker 2: going to do next. I don't care if they disappoint markets.

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Speaker 2: I don't care if they surprise markets. So you know,

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Speaker 2: in twenty twenty two, twenty twenty three, they surprised markets

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Speaker 2: by continuing to hike when the markets were not expecting,

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Speaker 2: and that was the right thing. Listen to what I say,

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Speaker 2: We'll keep going, but that's not what they're doing here.

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Speaker 2: If that is what they're doing here, they should just

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Speaker 2: go for it.

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Speaker 1: I'll say. If Powell can't be bullied, Powell and co.

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Speaker 1: By the sixteenth largest US Bank collapsing, then they probably

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Speaker 1: should be bullied by a couple of bond traders trying

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Speaker 1: to price in fifty bases points, Well said Adam.

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Speaker 2: Well said, Danny, thank you, Adam.

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Speaker 1: We were just talking moments ago about the Fed's decision today.

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Speaker 1: I want to know about a month from now when

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Speaker 1: they'll have to make a decision the day after an election,

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Speaker 1: and considering recent history, we might not even know who

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Speaker 1: was elected at that point. What does it mean to

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Speaker 1: be setting monetary policy around such uncertainty.

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Speaker 2: Here? I think the Fed has gotten one thing importantly

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Speaker 2: very right, and one thing not so not so right.

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Speaker 2: The important thing under j Pal's leadership is they have

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Speaker 2: said they are going to be the fair umpire. They're

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Speaker 2: going to do the right thing for the economy, irrespective

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Speaker 2: of the election. Obviously, people cutting rates this close to

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Speaker 2: an election, they are at risk of being accused of

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Speaker 2: playing politics. I believe they're sincerely just trying to do

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Speaker 2: the right thing for the economy, and so they're not

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Speaker 2: going to be afraid. We were just joking about being bullied.

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Speaker 2: They're not going to be afraid where there really is

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Speaker 2: a bully, to do what they think is the right

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Speaker 2: call in November. Where I think they are missing a beat,

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Speaker 2: and I wrote about this before Jackson Hole in the

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Speaker 2: Financial Times and talked about it on odd lots with

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Speaker 2: your colleagues, is that we know, whether it's Harris or Trump,

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Speaker 2: that there's very likely going to be extremely further loose

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Speaker 2: in in fiscal policy, and it's going to be much

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Speaker 2: larger and more irresponsible under Trump than Harris. But either way,

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Speaker 2: there's going to be a loosening. We know that whether

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Speaker 2: it's Harris or Trump, there's going to be increased terrifs. Again,

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Speaker 2: it's going to be much worse, much bigger under Trump

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Speaker 2: than under Harris, based on what they've said, But there

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Speaker 2: will be the additional terrorifts on China and Mexico either way.

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Speaker 2: So there is going to be inflationary pressures by the

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Speaker 2: time we get the second quarter of twenty twenty five.

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Speaker 2: And it would be good if the Fed, in a

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Speaker 2: non partisan way, admitted that they cannot commit, as they

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Speaker 2: keep seeming to do, to being on a long standing

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Speaker 2: path of easing through twenty twenty five given these realities.

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Speaker 1: Adam, just to be clear, and by the way that

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Speaker 1: Audlot's episode was wonderful, I think he used the phrase

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Speaker 1: rifle shot to describe Powell's conference to his speech at

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Speaker 1: Jackson Hole, which was just perfect. But so just to

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Speaker 1: underline what you're saying, whether it's Trump or it's hairtag,

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Speaker 1: are we going to be a situation where mid next

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Speaker 1: year the FED either needs to stop cutting or even hiking,

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Speaker 1: regardless of who's president.

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Speaker 2: In my view, yes, with a high degree of confidence.

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Speaker 2: I think if it's Harris, they'll have to stop cutting,

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Speaker 2: and if it's Trump, they'll have to start hiking based

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Speaker 2: on what the policy statements and the party platforms are.

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Speaker 2: And you know, I'm sixty five seventy percent sure they're

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Speaker 2: not going to do the one hundred basis points currently

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Speaker 2: priced in for twenty twenty five. Whether or not they're

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Speaker 2: gonna hike is contingent on whether Trump wins. But either way,

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Speaker 2: I think it's wrong for the FED to just pretend

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Speaker 2: the future isn't going to happen. I think it will

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Speaker 2: be right for them to reverse, but I think it

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Speaker 2: would be good if they said in a non partisan

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Speaker 2: way that possibility is there.

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Speaker 1: But Adam, I got to be honest, like, how do

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Speaker 1: they actually do something like that? Because you know, if

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Speaker 1: they start talking about tariffs, people are automatically going to say, Okay,

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Speaker 1: the FED is going after or Trump with a presidential

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Speaker 1: nominee who has already threatened the Fed's independence. Not directly,

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Speaker 1: of course, it's been according to reports, but there's already

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Speaker 1: just so much contention over this issue.

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Speaker 2: I think Trump has directly threatened to FED independence. It's

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Speaker 2: not according to reports. He said he wants a say

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Speaker 2: as president of a monetary policy, which your Bloomberg colleague

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Speaker 2: David Wilcox has written about is a direct threat to

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Speaker 2: FED independence. But anyway, leaving that aside, this is why

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Speaker 2: the FED people were not happy with my writing or

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Speaker 2: talking about this. Not that they care that much, when

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Speaker 2: I say, but to the degree they care, and I

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Speaker 2: understand that their instinct is, let's just shorten the time horizon.

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Speaker 2: Let's just try not to offend anybody. Let's just try

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Speaker 2: to keep it narrow. But I think it puts them.

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Speaker 2: All that does is move the awkwardness, you know, So

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Speaker 2: it doesn't, in the end make things better, I think.

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Speaker 2: And central banks cope with this all the time, central

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Speaker 2: banks and developing countries where the politics is what the

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Speaker 2: US politics unfortunately is increasingly looking like largely due to

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Speaker 2: Trump is going to be much more uncertain, much more unstable,

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Speaker 2: and the Central Bank has to be an anchor, and

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Speaker 2: it doesn't fulfill its role as an anchor if it

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Speaker 2: just sort of keeps its.

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Speaker 1: Head down and away from the Fed. We are in

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Speaker 1: this period where you have a grab bag of policies

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Speaker 1: being thrown out there by the candidates, from tariffs to deportation,

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Speaker 1: and then from Harris you have things like small business

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Speaker 1: tax credits, promoting home building, supporting first time home buyers.

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Speaker 1: As you dig through the details, putting aside the likelihood

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Speaker 1: of some of these things actually being passed, are you

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Speaker 1: hearing anything that you think would be beneficial at this

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Speaker 1: point in the cycle.

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Speaker 2: Oh, there's a lot out there that's beneficial. You were

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Speaker 2: talking with Anne Marie, I think before I came on

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Speaker 2: about the salt deduction and some of these others things,

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Speaker 2: And I don't know if either of you said it.

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Speaker 2: I mean, Trump's like, you know the old Oprah joke,

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Speaker 2: ry you get a car, you get a car, you

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Speaker 2: get a tax cut, you get a tax cut. Harris

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Speaker 2: is less. So I mean it's a meaningful difference. But

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Speaker 2: you know, the key question is, as Reagan said, as

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Speaker 2: Biden said, is it spending to increase supply? Is it

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Speaker 2: investment or is it spending just for spending. Similarly, tax cuts,

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Speaker 2: is it tax cuts to increase investment or is it

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Speaker 2: just tax cuts? And that's the criterion. You got to

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Speaker 2: look through this and some of the things that Harris

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Speaker 2: is talking about continue to build up supply. There are

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Speaker 2: a few things Trump is talking about that build up supply,

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Speaker 2: but mostly not.

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Speaker 1: Okay, Adam, we're gonna have to leave it there. Thank

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Speaker 1: you so much for joining this morning. It is always

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Speaker 1: a true pleasure to speak with you. Adam Posion of

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Speaker 1: the Peterson Institute,