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Speaker 2: This is a breaking news update from Bloomberg, instant reaction
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Speaker 2: the world. Mima kay As your.
Speaker 3: Decision, no change in rates, but we have four four descents.
Speaker 3: Laurie Logan, Beth Hammock, Neil Kashkari agreed rates should stay
Speaker 3: on hold, but they did not support including an easing
Speaker 3: bias in the statement at this time. Stephen Myron wanted
Speaker 3: a quarter point cut. The last time there were four
Speaker 3: descents October sixth of nineteen ninety two. As for that
Speaker 3: easing bias, the statement still contains the phrase in considering
Speaker 3: the extent and timing of additional adjustments to the target
Speaker 3: range aligned meant to suggest that the easing cycle has
Speaker 3: not necessarily ended. The Iran War figures prominently in the
Speaker 3: economic overview. Inflation is elevated, in part reflecting the recent
Speaker 3: increase in global energy prices. The statement says developments in
Speaker 3: the Middle East are contributing to a high level of
Speaker 3: uncertainty about the economic outlook. The Committee remains attentive to
Speaker 3: the risks on both sides of its dual mandate. It says,
Speaker 3: even though recent indicators suggest that economic activity has been
Speaker 3: expanding at a solid pace, job gains have remained low
Speaker 3: on average, the statement says, and the unemployment rate has
Speaker 3: been little changed in recent months. The descents open up
Speaker 3: a whole new line of questioning for Chair Powell. For
Speaker 3: descents would ordinarily be a sign of discontent with the Chair.
Speaker 3: Since this is likely Powell's last meeting as the chair,
Speaker 3: it may not be anything more than expressions of concern
Speaker 3: about the toll of the war. At each meeting this year,
Speaker 3: the number of Open Market Committee members who have worried
Speaker 3: they might have to raise rates has increased. We shall
Speaker 3: see when we get a chance to talk to the.
Speaker 4: I'm a key, stay close. I just want to run
Speaker 4: through the price action. I've got a big question to
Speaker 4: come back at you with in just a moment. Equities
Speaker 4: have stayed slightly lower, no drama here, down by zero
Speaker 4: point two percent. Into this decision, Yields were already elevated,
Speaker 4: particularly at the front end of the curve. They stay
Speaker 4: somewhat elevated, up seven basis points at three ninety. This
Speaker 4: isn't the kind of decision that moves around crude could
Speaker 4: is still higher by sixty seven one eighteen on Brent
Speaker 4: Mike McKee. I just wonder coming into this decision, we
Speaker 4: were talking about the possibility, the potential this Federal Reserve
Speaker 4: introduced some symmetrical reaction function, but looking at that kind
Speaker 4: of descent, I wonder if the descent alone has achieved
Speaker 4: the same thing just by introducing to two way risk.
Speaker 4: Given the level of descent you can see in this
Speaker 4: afternoon's decision, that's a.
Speaker 3: Very good point because, of course, if Powell leaves the FED,
Speaker 3: that's one less vote that we know would be on
Speaker 3: the easing side. At this point, we're going to have
Speaker 3: to wait for the minutes unless the Chairman wants to
Speaker 3: give us a number, which I doubt he will. Of
Speaker 3: people who think that they should be at least suggesting
Speaker 3: the idea of raising rates in the future, but it's
Speaker 3: obviously grown since the last time, and feelings have grown
Speaker 3: more certain, at least among those who think that two
Speaker 3: way warning should be included in the statement. It's very,
Speaker 3: very unusual. Obviously, it has been almost thirty years since
Speaker 3: we've seen anything like this, and it is definitely a
Speaker 3: sign that the FED is split over this question. And
Speaker 3: one would think that if these people were willing to
Speaker 3: dissent because they wanted a two way warning, because they
Speaker 3: did not want an easing bias in the statement, that
Speaker 3: they probably would have voted for a rate increase had
Speaker 3: that been on the table.
Speaker 4: Mamma Kay, appreciate your time you get in the news conference,
Speaker 4: looking forward to you a lot of questioning. A little
Speaker 4: bit late to that news conference, twenty seven minutes away,
Speaker 4: we have an eight to four vote at the Federal Reserve.
Speaker 2: That's some level of descent.
Speaker 5: Yeah, And didn't Mike just say that that was the
Speaker 5: first time we've seen that since October sixth, nineteen ninety two.
Speaker 5: This is unusual to me. This really highlights the committee
Speaker 5: aspect of this, and the fact that Fedcher J. Powell,
Speaker 5: for all the job owning from the President, sits on
Speaker 5: the more dubvish end of this, and I think that
Speaker 5: that's very notable. So how does he message this given A,
Speaker 5: he probably doesn't matter as much, but B, how does
Speaker 5: he signal that this isn't necessarily a sign of dysfunction
Speaker 5: ahead of a new FED chair coming in, but rather
Speaker 5: how difficult this moment really is.
Speaker 6: The expert on this is John Ferrell is the gentleman
Speaker 6: from the United Kingdom, or descent is far more evident.
Speaker 6: There were two moments of four descents in the eighty
Speaker 6: nine to ninety two period, and the distinction here, John
Speaker 6: is those descents were too ease to let up as
Speaker 6: green span was stricter. And this is radically and historically different.
Speaker 4: So I remember a level of descent, at degree of
Speaker 4: descent back of the bank having that coming out, what
Speaker 4: to do right? He wanted Milkiwi, And I remember the
Speaker 4: governor being voted down on countless occasions. On this occasion,
Speaker 4: I'm looking at this level of descent, and I just
Speaker 4: wonder if the chairman would welcome it.
Speaker 2: I think it's probably a good thing.
Speaker 4: Right now that there is no group thing that we're
Speaker 4: in a situation at the moment that deserves some kind
Speaker 4: of debate about where policy should be and where is
Speaker 4: it going and what kind of risks we face in
Speaker 4: the economy right now. I actually also think that that's
Speaker 4: the kind of committee that Kevin Wall should want to inherit.
Speaker 4: Group think has been a problem at this institution for
Speaker 4: the last five years. I wouldn't look at that as
Speaker 4: a committee that's voted down the chairman in quite the
Speaker 4: same way that the committee voted down the governor at
Speaker 4: the Bank of England a number of years ago.
Speaker 2: This feels somewhat different.
Speaker 4: And if you want to move to some kind of
Speaker 4: symmetrical reaction function at the Federal Reserve based on that vote,
Speaker 4: I don't think you need it.
Speaker 2: In the statement, I think the descent already speaks.
Speaker 5: To it, which I think is why I'm noting the
Speaker 5: increase in the dollar more than anything in body yields.
Speaker 5: You're seeing a strengthening in the dollar versus the euro,
Speaker 5: and that I think gives you a sense maybe at
Speaker 5: least of the tendance question and the fact that this
Speaker 5: truly is a committee.
Speaker 6: But to get up in front of a pundits, is
Speaker 6: this the committee and descent that President Trump wants?
Speaker 2: That's a different question.
Speaker 4: Yeah, this president clearly wants lower interest rates TK and
Speaker 4: the kind of thing that we've just seen voted for
Speaker 4: right now is not for lower interest rates. You've got
Speaker 4: a committee that's worried about the prospect of a market
Speaker 4: thinking they'll always get interest rate cuts that they don't
Speaker 4: have to worry about inflation. First and foremost, the first
Speaker 4: rule for any central banker, any real central banker anchor
Speaker 4: inflation expectations.
Speaker 2: This is part of the exercise.
Speaker 5: Yeah, as Neil Dota put it, he messaged, it's clear
Speaker 5: that worsh has his work cut out for him. Good
Speaker 5: luck convincing some of these folks that it's time to
Speaker 5: cut rates and potentially overall the whole system.
Speaker 2: Different question entirely.
Speaker 4: Bob Michael with us around a table from JP Morgan
Speaker 4: Asset Management. Bobby Ready reflections on this decision.
Speaker 1: Yeah, clearly it's in the dissense. Clearly they're moving more
Speaker 1: towards a symmetrical policy. It's confirmed in the first paragraph
Speaker 1: where they characterize inflation previously as remained somewhat elevated, they
Speaker 1: remove the somewhat and it's just elevated. So they're telling
Speaker 1: us they are increasingly concerned about the level of prices,
Speaker 1: the level of oil, and the potential paths through to
Speaker 1: the system. I think you're right. I think this is
Speaker 1: less a message about JPAL and more a message to
Speaker 1: the incoming FED chair that hey, we could be dissenting.
Speaker 1: Get prepared for that. He may welcome that.
Speaker 4: T K asked the question about the president, what the
Speaker 4: president would like? This is another exercise it's quite important.
Speaker 4: Everyone's been worried about the future of the Federal Reserve
Speaker 4: Central Bank independence.
Speaker 2: Will the chairman stay on? That degree of descent makes.
Speaker 4: The life of I think Chairman Powell easier to walk
Speaker 4: away from this institution. There's no capture of this institution.
Speaker 4: This institution is still independent. Inflation expectations are still anchored,
Speaker 4: and that is not dependent on fetch J. Pow staying
Speaker 4: gone as a governor on this board for the next
Speaker 4: two years.
Speaker 5: I see what you did there.
Speaker 2: So maybe they agreed.
Speaker 5: Four people dissent, although one of them is perhaps in
Speaker 5: a different direction. You're to Jerome Powell coming out and
Speaker 5: saying I'm gone.
Speaker 2: Good luck for you. Go ahead, Kevin.
Speaker 4: I'm not suggesting there was any choreography here, just that
Speaker 4: there are some benefits to that level of descent stefinitely. Rather,
Speaker 4: Wolf's research has been going through the statement and reacting
Speaker 4: to all of this and looking at the price action. Stephanie,
Speaker 4: you're really take please.
Speaker 7: Yeah, I mean, I think when it tells us that
Speaker 7: the committee is certainly divided, and they're not going to
Speaker 7: be a committee that's willing to just cut rates because
Speaker 7: Warts wants them to do so, and It's also interesting
Speaker 7: because in the hearing last week, Warsh noted that he
Speaker 7: wants the bit in the room, but he wants a
Speaker 7: more unified statement, and that's certainly not what we got today.
Speaker 7: So the odds of COTS later this year certainly should
Speaker 7: go down on the back of what we're seeing today.
Speaker 7: It's just a committee that certainly doesn't even want to
Speaker 7: have an easing bias, let alone easing in the near term.
Speaker 5: Stephany, does it surprise you that more members of the
Speaker 5: Federal Reserve didn't get on board with moving to a
Speaker 5: more symmetrical type of approach.
Speaker 2: A little bit?
Speaker 7: I mean it certainly it sounds like it was a
Speaker 7: fairly divided group, and perhaps there were others that were
Speaker 7: even more on the fence that didn't officially dissent. This
Speaker 7: was a big question for the meeting today. There was
Speaker 7: actually two big questions. One was were they going to
Speaker 7: maintain the easing bias in the statement? And many thought
Speaker 7: that they would actually remove it, So that was, you know,
Speaker 7: perhaps a bit of a surprise to some extent. And then,
Speaker 7: of course the other question is how is how we're
Speaker 7: going to answer the questions about what his plans are
Speaker 7: once wars is actually confirmed.
Speaker 6: But Michael, what is our overall stimulus right now? I
Speaker 6: know we had timing for tech season where everybody got
Speaker 6: a check in the mail and all that, But what
Speaker 6: is all of this discussion about an historic post COVID
Speaker 6: stimulus that it's starting to make the wheels come off
Speaker 6: the wagon.
Speaker 1: Yeah. Well, when I was listening to Matt and Subadra
Speaker 1: earlier going into this, I was thinking the Fed would
Speaker 1: be nuts not to move to a symmetrical posture because
Speaker 1: we know we have higher prices. And what I heard
Speaker 1: from them is the economy is doing just fine. They're right,
Speaker 1: You've got the stimulus from the one big, beautiful Bill
Speaker 1: Act that's not finished. We know there's a tremendous amount
Speaker 1: of CAPEX. When I talk to our clients, they're just
Speaker 1: getting started on the AI journey. There's a lot more
Speaker 1: spending to come. And we also know there's a lot
Speaker 1: of money slashing around the system. You look at any
Speaker 1: measure of money, M two deposits, you know, money market funds,
Speaker 1: they're still going vertical.
Speaker 2: Can I do an audible?
Speaker 6: Yeah, you're doing audible here to get the four pm
Speaker 6: and four fifteen pm. You're the bondpro what's sowhat of
Speaker 6: thirty billion dollars from one of these mag simis. They're
Speaker 6: going to put the money out, They're going to call
Speaker 6: Bob Michael, it's all going to go to JP Morgan.
Speaker 6: And when they do that, what does it mean for
Speaker 6: the dynamics of their balance sheet? What does it mean
Speaker 6: for the dynamics of the American fixed in gum market?
Speaker 1: Well, the guys reporting today, if they were to issue
Speaker 1: thirty billion, you'd hardly notice it. That's how big they are,
Speaker 1: that's how little leverage they've carried. And in our conversations
Speaker 1: with a lot of big borrowers, we want to know
Speaker 1: do they see the demand? These guys have the demand.
Speaker 1: They'll show you the demand, and they can't monetize it
Speaker 1: until they put in place the capacity. So there is
Speaker 1: a big bill to go, and I think these guys
Speaker 1: are right to borrow and get that bill going.
Speaker 4: Are you some twos at three ninety three up? Ten
Speaker 4: basis points off the back of this?
Speaker 5: Do you know?
Speaker 1: You ask me what if the FED did this and
Speaker 1: we never really thought they were going to do this,
Speaker 1: It's a very artistic way to do it. Nope, I
Speaker 1: wouldn't touch it to that.
Speaker 4: Point, to that framing, that's really important. Haven't they achieved
Speaker 4: the same thing you don't need it in the statement?
Speaker 4: Haven't the sents achieved the same thing?
Speaker 1: Well, it's kind of in the statement. It's the last
Speaker 1: line at the statement. It's and you talked about was
Speaker 1: this choreographed or not? I absolutely think it was. Every
Speaker 1: single word in the statement is choreographed. They sit there
Speaker 1: and they debate it. I think this very nicely opens
Speaker 1: the door for Jay to peacefully deparse it, depart from
Speaker 1: the FED.
Speaker 5: So this is their sort of offering to him. The
Speaker 5: farewell gift to him is here you go, and that
Speaker 5: ultimately we're going to give Kevin wartsh a hard time.
Speaker 1: I don't well, okay, I didn't say that. I think
Speaker 1: what they're indicating is, like, we recognize inflation is a problem.
Speaker 1: We're not going to sit there and keep advocating for
Speaker 1: more monetary ease. We're going to be more balance, don't
Speaker 1: worry about the independence of the FED. Jay go off
Speaker 1: into retirement.
Speaker 4: You said you wouldn't buy it. Why wouldn't you buy it?
Speaker 1: Because I think the FLED has flipped the tables on
Speaker 1: the markets right now, and what does that mean I
Speaker 1: think they've now shifted to something. It's not outright hawkish,
Speaker 1: but it's more hawkish than where they've been. And then
Speaker 1: you step back and go there is still stimulus out there,
Speaker 1: and we're in the middle of the Middle East conflict.
Speaker 1: Those things have yet to be settled. Let's just get
Speaker 1: out of the way of this and see where them.
Speaker 2: Okay, so let's build on that. Let's extend the conversation
Speaker 2: a little bit more.
Speaker 4: Tens are at full forty one right now, what kind
Speaker 4: of numbers are you thinking about?
Speaker 1: Well, we were breaking through to new highs. I don't
Speaker 1: think you get to five percent, but do you get
Speaker 1: to something like four and five eighths, Probably, then I
Speaker 1: get interested. Then you're starting to you're putting a percent
Speaker 1: on the Fed funds rate. And I think it's one
Speaker 1: thing to switch to a symmetrical bias. It's another thing
Speaker 1: to actually come in and start hiking rates. And I
Speaker 1: did say I don't expect any changes in rates this year.
Speaker 1: That's cuts or hikes.
Speaker 6: John. Five eighths is how we used to quote papers.
Speaker 6: Thirty seconds in the next hour.
Speaker 4: I'm aware tends right now at full forty one. With
Speaker 4: this move at the front end of the curve. As
Speaker 4: I mentioned, up ten basis points three ninety four, let's
Speaker 4: call it three ninety three. Equity start to break down
Speaker 4: just a little bit. Don't make too much of this.
Speaker 4: We're down by zero point three percent on the S
Speaker 4: and P five hundred. You will notice Bramma the on
Speaker 4: the performance in a Russo down by one percent plus.
Speaker 5: These are the companies that are most vulnerable to rates
Speaker 5: going higher. I really am struck by what Bob's talking about,
Speaker 5: because this is a market shift, and really it does
Speaker 5: highlight how much this war has changed the dynamic fundamentally
Speaker 5: for people who believed that rates would just gradually go lower.
Speaker 5: And if they don't, how much does that change some
Speaker 5: of the expectations about the equal weight market which we've
Speaker 5: seen in being baked in, and frankly about the broadening
Speaker 5: out trade, and adding to that, how much steam can
Speaker 5: it be behind some of the tech trades that are
Speaker 5: somewhat dependent on some of.
Speaker 2: The consumer aspects.
Speaker 5: I'm thinking, for example, meta advertising or Amazon, your cleaning supplies,
Speaker 5: your children's costumes, whatever children's costumes.
Speaker 2: I ended to buying a lot of those. Okay, well,
Speaker 2: I had a Halloween it's getting the discount.
Speaker 5: And also senior parties.
Speaker 4: Okay, all right, important stuff. Hey's definitely good to hear
Speaker 4: from me this afternoon. Thanks for your time, Stephanie Roth
Speaker 4: for for research to talk about the equity market. Kate
Speaker 4: Moore City joined us now for more. Kay, you're just
Speaker 4: starting to move higher, getting a squeeze over and crude
Speaker 4: Brent out to close to one twenty. Equities somewhat softer
Speaker 4: but not really looking at this as a dramatic event.
Speaker 4: How would you frame things?
Speaker 8: Yeah, I don't think today's event and would have said
Speaker 8: is the big event for equities right now. This is
Speaker 8: also like a massive lallabluzo when it comes to earnings
Speaker 8: this week, which you know Donvin quite well. And I
Speaker 8: think the equity market attention is much more there and
Speaker 8: so far everything that we got yesterday, expectations for Act
Speaker 8: of the Clothes today and tomorrow are for actually quite
Speaker 8: strong numbers, reiterating not just the AI text story but
Speaker 8: also actually a very solid US consumer. So I think
Speaker 8: that is really where kind of equity risk is focused
Speaker 8: right now. Less so on this what is what I
Speaker 8: would argue is also a very interesting set of descents
Speaker 8: in the FMC.
Speaker 5: That said, is there a level or is there some
Speaker 5: sort of rate of change that gets you concerned as
Speaker 5: an equity investor about what's going on in the bond market.
Speaker 5: Should this FED suddenly move to put rate hikes squarely
Speaker 5: on the table.
Speaker 8: It seems unlikely in our view that the FED is
Speaker 8: going to put great hikes on the table. Lisa, I
Speaker 8: would say that is not in our kind of any
Speaker 8: of our distribution for the back half of this year stability,
Speaker 8: even as inflation is warm, and even as the FED
Speaker 8: is going to wait and see and more descent happens
Speaker 8: across the FMC. But we of course will watch what happens.
Speaker 8: Because the relationship between equities and bonds has broken down
Speaker 8: a number of times over the last couple of years.
Speaker 8: The correlations are not exactly what they had been historically,
Speaker 8: and bonds have not been the safe even asset that
Speaker 8: some people had become used to in their early days
Speaker 8: of acid allocation. So across our multi asset portfolios, we've
Speaker 8: been more Tactical's continue to be short duration. I heard
Speaker 8: Bob a moment ago say he wouldn't be buying two
Speaker 8: years at this point. I tend to agree with that.
Speaker 8: And we tend to like to take most of our
Speaker 8: risk on the equity side and think about other diversifiers
Speaker 8: outside of the fixed income space.
Speaker 6: Gay I look at where we are in the market,
Speaker 6: and John I brought this up today because frankly I
Speaker 6: have misplaced this. The Dow up twenty percent one year trailing,
Speaker 6: SPX up twenty eight percent one year trailing, all in
Speaker 6: Nasdaq of forty one percent one year trailing. Kate's completely
Speaker 6: separated from the nation's angst. What do you see as
Speaker 6: an indication that that keeps going and how can the
Speaker 6: Fed and assist with that?
Speaker 8: Yeah, Tom, One of the things we've been focusing on
Speaker 8: in something our Investment Committee was talking about earlier today
Speaker 8: is the massive dispersion in terms of sectoral earnings, not
Speaker 8: just this order, but through the balance of twenty twenty six.
Speaker 8: And this is also kind of what we're seeing in
Speaker 8: the overall economy. We've gotten hired. I think of talking
Speaker 8: about the case shaped consumer because even the bottom part
Speaker 8: of the case seems to be holding up relatively well
Speaker 8: with decent real wages, but there is a huge amount
Speaker 8: of dispersion below the surface in the equity market fundamentals
Speaker 8: and in the macro fundamentals, and that can make people uncomfortable,
Speaker 8: But unfortunately, what's really driving the market higher has been
Speaker 8: extremely strong earnings and expected free cash flow from the
Speaker 8: large parts of the market cap. And we continue to
Speaker 8: stay kind of anchored to the equity risk and loving
Speaker 8: US large caps, even as we recognize it is going
Speaker 8: to be a very uneven experience and perhaps a better
Speaker 8: opportunity for some more active management as we go through
Speaker 8: this year.
Speaker 4: Unfortunately, part of the downs right now monitoring equity markets,
Speaker 4: bond markets, and commodity markets. More importantly is following these
Speaker 4: headlines regarding the Middle East, and we've got more from
Speaker 4: the President this time, some comments on the Russian leader,
Speaker 4: Vladimir Putin. They've had a conversation. The Russian leader said
Speaker 4: he'd like to help with the Iranian enrichment. There has
Speaker 4: been some suspicion for a while that maybe that in
Speaker 4: rich Iranian would be moved to a third party, and
Speaker 4: perhaps that would be Russia. And some headlines I have
Speaker 4: to say, looking at this that are lose to that, Lisa,
Speaker 4: at least a soufternoon now, as we said on countless
Speaker 4: occasions over the last two months, one headline that speaks
Speaker 4: to one story will last about five minutes, and things
Speaker 4: can quickly change. All I can do with you is
Speaker 4: share with you the current headlines, and that the headlines
Speaker 4: that dropped just moments ago.
Speaker 5: Yeah, and they include the idea of potentially having a
Speaker 5: ceasefire with Ukraine in Russia and then Urania moving from
Speaker 5: ran over to Russia. I mean a lot of things
Speaker 5: that are a lot of questions what you do with this.
Speaker 2: I think people have.
Speaker 5: Shrugged it off and moved on because they don't know
Speaker 5: what to do with it, because it's just a headline.
Speaker 5: So they look at things like, oh, the placating idea
Speaker 5: of rates going down. You start removing some of these pillars.
Speaker 5: That's when suddenly some of the inks starts to percolate
Speaker 5: up a little bit more.
Speaker 4: Initially, I think this market took comfort from the intent
Speaker 4: they commit to de escalation, the commitment to de escalation
Speaker 4: and not returning to hostilities. But the fact of the
Speaker 4: matter is that over this entire period, creud's not been moving.
Speaker 4: Energy has not been flowing sufficiently, and every day for
Speaker 4: the last eight sessions, crew keeps grinding higher.
Speaker 2: It's intriguing about this.
Speaker 4: Every time we get a bit of hopeium some headlines
Speaker 4: and reports here, there and everywhere. CREWD has really stopped
Speaker 4: responding to it in the same way Brent is still
Speaker 4: elevated here TK one to eighteen and up on the
Speaker 4: session by six percent.
Speaker 6: I really agree with that. And you see the angst
Speaker 6: in Southeast Asia and other selected geographies, and it's way
Speaker 6: more tangible than anything we have. The sum of this
Speaker 6: is real GDP and the inflation piled on top of it.
Speaker 6: Kate Moore, if you're still with us, I'm absolutely fascinated
Speaker 6: how you feel nominal GDP will affect our listeners. In viewers,
Speaker 6: it's still going to be buoyant, I guess. But it's
Speaker 6: a different nominal GDP, isn't it.
Speaker 5: Yeah, it is.
Speaker 8: And look, I think some of this tom is getting
Speaker 8: reflected in the consumer confidence data and the surveys that
Speaker 8: have come out out where consumers are talking about their discomfort.
Speaker 8: It's not just high gas line prices, and maybe it's
Speaker 8: they don't like the direction of the country. They don't
Speaker 8: feel as confident as they have in the past. Yet
Speaker 8: the thing that I keep anchoring on is actually what's
Speaker 8: happening in their behavior. And we've been looking at all
Speaker 8: this high frequency consumer data VITA, whether it's around dining
Speaker 8: outside the home or traveling and spending. And we've got
Speaker 8: some good reports from our couple early consumer companies this quarter,
Speaker 8: and all of it is showing that despite all these
Speaker 8: negative surveys, people feeling uncomfortable with the path of the economy,
Speaker 8: that they're continuing to operate more bau. So, Tom, this
Speaker 8: is a little bit of a friction I think we have,
Speaker 8: which is maybe we don't get a massive acceleration that
Speaker 8: benefits all parts of the economy, but as long as
Speaker 8: both the consumer and the AI text space continue to fire,
Speaker 8: you know, we feel like you can't be on the
Speaker 8: sidelines for risk assets.
Speaker 4: Okay, it's going to say the cash up, as always
Speaker 4: came more than of citsy breaking down the secuity market
Speaker 4: and reflecting on this decision from the Federal Reserve about
Speaker 4: twenty minutes ago. If you're just churning again, welcome to
Speaker 4: the program. At about him time, we're here from the
Speaker 4: Chairman of the Federal Reserve, Chairman J. Powell, in what
Speaker 4: could be should be his final meeting at the Federal Reserve.
Speaker 2: Just moments ago.
Speaker 4: Twenty minutes ago, we had a decision from the Federal
Speaker 4: Reserve to leave interest rates unchanged. What stood out was
Speaker 4: the degree of descent eight to four, eight four, and
Speaker 4: that eight to four vote marking the first time since
Speaker 4: October nineteen ninety two the four officials have dissented against
Speaker 4: an f WEBC decision, so something we haven't seen a
Speaker 4: number of decades. All of this and anticipation of earnings
Speaker 4: after the closing bow from some of the biggest companies
Speaker 4: on the planet, including Microsoft, Amazon, Meta Alphabet, all of
Speaker 4: that's still to come, which has supported the Nasdaq. The
Speaker 4: nasdak is still positive by a quarter of one percent.
Speaker 4: But if you want to look at the small caps
Speaker 4: right now, the Russell down by one percent. Allow me
Speaker 4: to give you a why this move at the front
Speaker 4: end of the yield curve on a two year up
Speaker 4: nine basis points to three ninety three Off the back
Speaker 4: of this move in the commodity market, Lisa Brent crude
Speaker 4: one to eighteen and up six percent.
Speaker 5: Fed funds features have now priced out completely at any
Speaker 5: rate cuts this year. We are now racing out interest
Speaker 5: rate cuts by the Fed Reserve for twenty twenty six.
Speaker 5: Whether we shift to people starting to price in rate
Speaker 5: hikes like we did a couple of weeks ago. That
Speaker 5: remains to be seen. It also is unclear exactly how
Speaker 5: much the press conference can really do to that. It
Speaker 5: will be political intrigue and drama whether Jerome Powell's future. Nonetheless,
Speaker 5: this market is moving, it's responding, and the idea that
Speaker 5: the strength of the US economy can continue is the
Speaker 5: reason why this is viewed as more inflationary right now
Speaker 5: than maybe disinflation or outright deflationary later on.
Speaker 4: The cross asset moves are particularly spectacular. We've gone back
Speaker 4: to where we were about a month ago, about a
Speaker 4: month ago when the equity market was about thirteen percentage
Speaker 4: points south of where it is right now. In the
Speaker 4: s and P five hundred yields to bat through the
Speaker 4: heights on some maturities, I'm looking more at the long
Speaker 4: end of a curve. The long bond on thirties and
Speaker 4: crude has made new highs as well. And what's more important,
Speaker 4: I think, away from the front month of the future's curve,
Speaker 4: is what's happening on longer dated prices as well. You've
Speaker 4: talked about this around the week on Bloomberg's surveillance promo
Speaker 4: where decembers training, where the latter months are the back
Speaker 4: end of the future's curve that's making new highs as well.
Speaker 4: This is a market that's pricing high for longer, not
Speaker 4: just for interest rates, but for energy as well.
Speaker 5: And that's why we always have been talking about boiling
Speaker 5: the frog, because it's getting harder and harder and harder.
Speaker 5: And at what point do capital markets start to slow
Speaker 5: down as a result of benchmark rates going higher and
Speaker 5: inflationary pressures being This has.
Speaker 4: Been the exercise for US now for the best part
Speaker 4: of two months. Energy shock, rates shock, What does it
Speaker 4: mean for growth? But that's the question I think is
Speaker 4: still an open ended question.
Speaker 2: Really.
Speaker 4: We've seen it in commodities, we've seen it in energy,
Speaker 4: and I'm asking this question with America in might before
Speaker 4: we get to the international bank drop where it's much harder.
Speaker 2: What does it mean for US growth if anything at all?
Speaker 1: Well, I think we have to acknowledge that the three
Speaker 1: descents weren't in favor of hikes. They were in favor
Speaker 1: of a more symmetrical policy, which leaves three quarters of
Speaker 1: the FED still biased towards ease. So let's accept that.
Speaker 1: That said, the bar to hikes just got lowered a notch.
Speaker 1: What does it mean for growth? It means that unless
Speaker 1: the economy can absorb higher prices from energy and higher
Speaker 1: cost of funding from where rates are, then you're going
Speaker 1: to see a real slow down.
Speaker 5: At what point do higher yields start to crimp the
Speaker 5: capital markets activity? I'm talking about all the bond sales.
Speaker 5: I'm talking about beyond that, mergers and acquisitions that have
Speaker 5: been absolutely flying recently.
Speaker 1: I don't think we're there yet. I think really you'd
Speaker 1: have to get the ten year above five percent to
Speaker 1: create any kind of damage. And let's also remember that
Speaker 1: most of corporate America finances itself with floating rate. We
Speaker 1: should know that from private credit and direct lending now.
Speaker 1: So unless the FED is going to start hiking rates,
Speaker 1: which we're not calling for this year, then the cost
Speaker 1: of funding for most of corporate America is going to
Speaker 1: remain roughly the same.
Speaker 6: Is the FED doing policy for the havels. It's just
Speaker 6: as simple as that. The economy here between the halves
Speaker 6: and the havens. Witness attention or fourth sense, How does
Speaker 6: the new chairman address the have nuts, the people flat
Speaker 6: in their back.
Speaker 1: I don't think it's a question of have or have nots,
Speaker 1: and I think you go back to the twenty twenty
Speaker 1: two experience. I think they're scarred from that. They were
Speaker 1: late to react. Inflation was painful and it hit all
Speaker 1: levels of the economy, both the haves and the have nots.
Speaker 1: And I think they are genuinely as a body trying
Speaker 1: to get their arms around that. And there are a
Speaker 1: group of people who were courageous enough to step forward
Speaker 1: and do something different than what's been done in the past.
Speaker 6: What will the next meeting look like? For you? You
Speaker 6: guess right now what the next meeting will look like.
Speaker 1: I think there will be a lot more to a
Speaker 1: debate on whether they should be hiking rates, will they
Speaker 1: have to cut rates down the road, or will they
Speaker 1: remain Larry.
Speaker 6: Meyer wrote that monograph years ago about Alan Greenspan, and
Speaker 6: there was some real John, There were some real back
Speaker 6: and forth going on way back. Is that what we're
Speaker 6: up for now is a Lawrence Meyer Allen Greenspan fed
Speaker 6: with Chairman wsh It.
Speaker 1: Probably it doesn't feel like the Middle East is in
Speaker 1: the rear view mirror or will be six weeks from now.
Speaker 4: I've got a personnel question. When the next mate should
Speaker 4: be chairman. Walsh is pal there or not.
Speaker 1: I don't think he will be.
Speaker 2: You think he steps away.
Speaker 1: I think the FED is in good hands with Walsh.
Speaker 1: I think you've had a group of people say, don't worry,
Speaker 1: we're still independent, and I think you've just got to
Speaker 1: pass the reins on and let somebody else try things
Speaker 1: that may be a little bit more innovative, a little
Speaker 1: bit different from what you've done.
Speaker 5: Is there a market liability if he doesn't do that?
Speaker 5: Is there a market reaction?
Speaker 1: I don't think so. I think there will be a
Speaker 1: lot of concern that it's too much of a political decision.
Speaker 1: I think the door is wide open to exit gracefully.
Speaker 6: John June seventeenth, I guess I got to cancel my plans.
Speaker 6: I was supposed to be in chulting him, but instead
Speaker 6: I'll be June seventeenth.
Speaker 4: I'll be here two things, one chout them and two
Speaker 4: for the record, I won't be here.
Speaker 2: I will be away. I won't be a chouten him,
Speaker 2: though I'll be missing that one.
Speaker 4: Does this make the life of Kevin Walsh just that
Speaker 4: a little bit easier entering the Federal Reserve? This might
Speaker 4: sound somewhat counterintuitive, but entering the Federal Reserve under a
Speaker 4: little bit of a dark cloud where some people are concerned,
Speaker 4: particularly the Fed watchers, about the future of this institution
Speaker 4: and central Bank independence. I think not only of these
Speaker 4: dissenters done Shairman Powell a favor. I do think they've
Speaker 4: done Kevin Walsh a favor as well. Yes, he doesn't
Speaker 4: want this planing out in public, but one of the
Speaker 4: criticisms of this institution, particularly under Chairman Powell, is the
Speaker 4: group thing. I think it's refreshing to see the descent.
Speaker 4: We've been asking for it for ages. You can't complain
Speaker 4: about it once you've got it.
Speaker 5: Not only that, but arguably the inner Kevin worsh is
Speaker 5: a hawk is somebody who wants to say inflation is
Speaker 5: a choice. He didn't mention employment once, We didn't talk
Speaker 5: about the labor market in those hearings. He wasn't talking
Speaker 5: about the average American flat on their back. He talked
Speaker 5: about inflation and how important it was to the credibility
Speaker 5: of the Fed to get it under control. So what's
Speaker 5: the risk that he comes in is actually incredibly hawkish.
Speaker 5: It joins those three other dissenters in case of a
Speaker 5: more symmetric risk. What does a market do with that?
Speaker 4: This is the secret source of central bank independence. He
Speaker 4: want to make it easier to cut rates, convince the
Speaker 4: market you're willing to hike, and we have gone some
Speaker 4: way through that exercise the sou afternoon with this degree
Speaker 4: of descent.
Speaker 5: What's interesting is what Bob said is that levels here
Speaker 5: are not going to necessarily hijack any of the capital
Speaker 5: markets activity. It's not going to slow the M and A,
Speaker 5: it's not going to slow the huge tech trade that's
Speaker 5: really been the ballast to this market. So what exactly
Speaker 5: is it going to do to actually slow the economy
Speaker 5: and actually achieve what the FED is looking to do?
Speaker 4: Bob Michael In just about ninety seconds time, the Chairman
Speaker 4: of the Federal Serve, J. Powell, walks into that room
Speaker 4: and steps up behind that podium for probably likely the
Speaker 4: final time. Just a reflection on this man and his
Speaker 4: tenure at this institution.
Speaker 1: I think he was dealt some shockingly difficult circumstances, and
Speaker 1: I think he did his best to navigate through them.
Speaker 1: We did get through COVID, we got through the regional
Speaker 1: banking crisis. We've gotten through different rounds of tariffs, and
Speaker 1: we're looking at an economy that's actually doing pretty well considering.
Speaker 1: I think he's done a really good job. And Walsh
Speaker 1: isn't an outsider, he's an insider. He was at the
Speaker 1: FED before. He'll do a good job.
Speaker 4: But Michael, I appreciate your time, sir, thank you. BUTB
Speaker 4: Michael there of JP Morgan