00:00:02 Speaker 1: Bloomberg Audio Studios. 00:00:04 Speaker 2: Podcasts. 00:00:05 Speaker 3: Radio. 00:00:06 Speaker 4: News. 00:00:09 Speaker 5: This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world. 00:00:19 Speaker 6: Down in Washington, D.C. from the nation's capital is Mike McKee. 00:00:23 Speaker 7: It is a rate increase, the first of a cycle, a unanimous decision to raise their benchmark rate a quarter point to three and three quarters to four percent. Sixteen members of the committee anticipate another increase this year. Only two would hold here. Kevin Warsh, the chairman, does not submit a dot. Eight, almost half. see another rate increase next year, while six call for no change. Four see rate cuts in 2027. One of them calls for rates to fall to 3.25%. Almost as significant, they raise their long-run view, essentially the neutral rate, to 3.2% from 3.1% in June. The members see faster growth this year and next, 2.3% and 2.4%, up a tenth each. from their June forecasts, and the economic activity, the statement says, is expanding at a solid pace. Unemployment is forecast to remain at 4.1% this year and hold at that level through 2029. Job gains, the statement says, have kept pace with the workforce, and the unemployment rate has changed little. Inflation, though, according to the statement, remains elevated. The median outlook is seen higher this year. PCE headline at 3.7%, up from 3.6% in June. Next year, it falls to 2.3%. Achieving the 2% target gets pushed out, as usual, two years to 2029 now. Core PCE will be 3.4% at the end of 2026, up a tenth. Next year, it's 2.5% unchanged. The statement concludes, today's policy action will support a timelier return to the committee's 2% goal. The committee will deliver price stability. 00:02:12 Speaker 6: Mike McKee, thank you, sir. You stay close. Let's go through the price action. Bonds advancing into the decision. We give only just a little bit of that up. Yields are lower by two basis points at a front end, twos at $ 4. 00:02:23 Speaker 2: 64. 00:02:23 Speaker 6: On tens this afternoon, we're down by $ 5 to $ 4. 00:02:25 Speaker 5: 95. 00:02:26 Speaker 6: Earlier in the week, of course, breaching 5%. a number, a level we haven't seen going all the way back to 2007, at least earlier this week. In the equity market this afternoon, on the S & P 500, on the Nasdaq, on small caps, the Russell, we're still advanced. We're still just about positive, though we're off session highs, up by 0.2% on the S & P. The question for the chairman in this news conference, was this a one-off tweak? Is it high for longer or higher for longer? Is it the start of something more than just 25? 00:02:53 Speaker 8: The word that I think is going to be analyzed and overanalyzed will be timelier. a timelier return to 2% inflation. The median forecast in the Statement of Economic Projections, granted it did not include Fed Chair Kevin Warsh, includes an additional 25 basis point hike this year. And as Mike was saying, a higher long-term neutral rate. All of this speaks to the idea that this is part of a cycle. This is not a one-off. and that this is a Fed that has run out of patience. The unanimous decision, Bob Michael nailed that, was a big tell given how many people got on board, including the Fed chair himself. 00:03:27 Speaker 9: I'm absolutely fascinated by the labor call, which I know is off the radar right now, but they don't look for any change in the labor economy. It seems to me they're looking at output to be good and not problematic. This is all going to get solved gloriously by inflation coming down, and output will be fine. 00:03:45 Speaker 5: Says who? And that's, to me, the huge mystery here. 00:03:48 Speaker 6: Neil Dutter of Ren Mac, the first to respond in my inbox, reads as follows. The Fed is not done. The odds are they are underestimating just how much work they need to do. That also explains the gap between the policy rate even now this afternoon and where the two-year is currently, because the two-year is materially higher than the policy rate. 00:04:05 Speaker 8: Ultimately, do they close the gap of 100 basis points? And what direction will that gap be if the Fed is further behind the curve than they realize is? then is the goal here, given the timelier return to 2% inflation, is the goal here to get there more quickly and to take out some of the dynamism that we have seen in, frankly, capital markets as well as just overall growth? 00:04:28 Speaker 9: With Vice Chairman Clarida coming on, his colleague Ned Phelps, the late Ned Phelps of Columbia, that's his favorite word, dynamism. I don't hear anything within the comments of Mike McKee where there's any planning for a slowdown in the American economy right now with half of America basically flat on their back from whatever reason. 00:04:46 Speaker 6: Don't see much of that in the forecast. Mike McKee is still standing by before he runs into that news conference. Mike, what would you point to in the forecast, the projection materials that might set the tone for the news conference in 25 minutes' time? 00:04:58 Speaker 7: Well, one of the interesting things is they say that this move will result in a timelier move to the 2% target, and yet they push the 2% target out another two years, as they almost always do with these summaries of economic projections, to 2029. So I'm not sure what timelier means in this case. They also do acknowledge that inflation is higher, and I think the move up in the long-run neutral rate is important because they've been talking about that, as a possibility because of AI and the spending on AI. And that could mean that we're in a hire for longer kind of environment, a new regime, as it were, for interest rates. And we've seen that in real rates, echoing the idea that the neutral rate is higher. 00:05:44 Speaker 6: Mike, thank you, sir. Looking forward to your question in the news conference a little bit later on this afternoon, that news conference at 2.30 p.m. 00:05:50 Speaker 5: Eastern Time. 00:05:51 Speaker 6: Just to build on what Mike was talking about, the projections for, let's say, core PCE. Let's take core PCE. That's a 3.4 for 26 compared to the June projection of 3.3. For next year, 2.5. The June projection was 2.5. For the year after Bramow, 2.2. The June projection was 2.1. It is an important question. You're saying one thing about a timely return to target, and then you look at the forecast, and it's not really there, is it? 00:06:13 Speaker 4: Yeah. 00:06:14 Speaker 8: How much are other people on board with this, number one? And is it timely as compared to what as compared to how much more you see inflation potentially accelerating, considering that it's moving in the wrong direction. I also think they still see unemployment declining in terms of the unemployment rate over this period of time. So economic growth, clearly not part of the equation, not a problem to hold them back from additional rate hikes. Again, I'm curious how unified this FOMC committee really is, given some of the rhetoric we've heard. So bring in the speeches that we're going to be hearing over the next couple of weeks. 00:06:44 Speaker 9: I think, you know, you look at the unanimous decision, and maybe that to me is the headline here, is they listen to Bramall. 00:06:49 Speaker 5: It was bad form. They listen to you. Don't dissent. 00:06:52 Speaker 2: Yeah. 00:06:53 Speaker 5: Stay out of trouble. Don't dissent. That's the right phrase. Stay out of trouble. Keep your head down. Get to the next meeting and then keep your head down for the elections. 00:07:00 Speaker 6: Let's talk to a man who's been there, done that. The former Fed vice chair, Rich Clarida, joins us now for more. Rich, welcome. Not a surprise to see 25 basis points. What would you point to that is the key development this afternoon? 00:07:13 Speaker 3: Well, I think Mike McKee, as usual, did a great job. 00:07:16 Speaker 4: You know, the timelier language is noteworthy, but again, the mission accomplished is pushed out two years. I think it is important that it was a unanimous decision. I think it's also relevant that you had 16 people, and I would also count 16 of the dots, and I would count Chairman Warsh. You had 17 folks indicating, I think, another rate hike later this year, which had been our call that this would not be one and done. 00:07:42 Speaker 3: And they give a very firm signal. They may not need to do more. 00:07:46 Speaker 4: I actually think the 3.4 percent on core PCE, which is what I think I heard Mike say, I think is a little lofty. I think we could come in below that, especially given some of the methodology revisions. So, but yeah, I think important that it was a unanimous decision and a clear overwhelming majority of folks think they need to move at least once more, which is in line with what we think as well. 00:08:11 Speaker 8: Rich, what do you think changed so much from the July meeting to today that caused a unanimous decision by all of the members, the voting members, to hike rates and potentially engage in a cycle, not just one and done? 00:08:25 Speaker 4: Well, the history is, Lisa, is that we typically don't see one and done. 00:08:31 Speaker 3: And so I think that's relevant. You think about it. 00:08:34 Speaker 4: If we're targeting our target by more than 100 basis points, what is 25 basis points on rates going to do for that? 00:08:40 Speaker 3: So I think there's a credibility to that. That's very specific communication and guidance. 00:08:48 Speaker 4: Williams and Waller and others saying, look, we want to see progress. I think Williams put out their 0.2 per month on core. And since then, we haven't got 0.2 per month on core, especially given where I think we're going to end up with the core reading later this month. 00:09:04 Speaker 3: And so I think they wanted to see that progress. 00:09:07 Speaker 4: I think Chris Waller said, give disinflation a chance, and they hadn't seen it. So I think especially after Jackson Hole. It was important to ratify that reaction function. 00:09:16 Speaker 9: Richard Clarity, your acclaimed research on dynamic stochastic general equilibrium theory. The word stochastic is for shocks. I didn't hear any statement on shocks coming from Michael McKee, and yet they have to live with the shocks at present. Who's right, Waller or Warsh on shocks and the importance of them forward? 00:09:40 Speaker 4: Chris Waller and Chairman Warsh understand and are focused on the shocks. In fact, I think that was one of the big questions that the chairman is wanting to try to answer. So I don't think the committee is disagreeing. I think it's more how persistent will these shocks be? Are we going to be talking about higher memory chip prices a year? 00:10:00 Speaker 5: From now? 00:10:01 Speaker 4: Where will tariffs end up? You know, the oil futures curve has been, you know, on oil prices. And so I think it's not so much shocks or no shocks. It's how persistent are they going to be? 00:10:22 Speaker 6: How much further will they go? And Bram, are they willing to go the final mile? Are they willing to go through the pain to get inflation back down to target? Had a message from a Bloomberg subscriber just moments ago. And that's the question they're asking. Is this Fed willing to go through the economic slump that might be required to get inflation back to target? Because so far, right now, inflation has been above target for quite a while. 00:10:43 Speaker 8: Based on the fact that equities are up, I would say the answer to that right now is perceived to be no, that ultimately they will stop short of engineering a full-blown recession because of the reluctance to do so. And so that is why you're not seeing four, five, or even six rate hikes getting penciled in by anybody. That said, there is a lack of understanding of just how much inflationary pressure and how much growth there is in this economy. It has surprised analyst after analyst after economist. And at what point do we end up seeing that come through in the Fed having to go further than they thought? 00:11:14 Speaker 6: Dan Swank of KPMG standing by to jump into the conversation as well. Dan, welcome to the program. We've got a hike. They're looking for another one. There's a market lean and a lean on the committee to go maybe even further than that, Dan. What are you expecting beyond just 25? 00:11:30 Speaker 2: Well, one of the things that I think is really important is this is the beginning of a rate hiking cycle. 00:11:35 Speaker 1: They've signaled two already. That's important. 00:11:38 Speaker 2: And they don't want to get ahead of themselves because they're managing to the economic aggregates. We've got an economy that's resilient but not resonating with too many issues. 00:11:47 Speaker 1: And I think that's important as well. 00:11:50 Speaker 2: At the end of the day, though, their job is to derail inflation. And if we get into 2027 and we're still seeing stickiness, particularly in the service sector and the dispersion of prices, that's. 00:12:02 Speaker 1: Going to be a real issue for the Fed. And they'll have to go further. 00:12:06 Speaker 2: And then we'll have to see just how much they're willing to derail growth versus higher for longer and hope for a softer landing. 00:12:14 Speaker 8: One thing that I thought was notable, Diane, is that in the statement, they do refer to geopolitical developments in passing. They say, well, uncertainty due to geopolitical developments has been ongoing. Domestic spending has been resilient, a nod almost to the retail sales that we got earlier today. How much are they not really going to address the oil price shock because of the strong economic data elsewhere? In other words, supply-side shocks are fair game as long as they come with strength in other places. 00:12:46 Speaker 1: Well, it really is. 00:12:47 Speaker 2: At the end of the day, we had the retail sales today, and they were stunningly strong and broad-based. Some of those retail sales reflect actually buying ahead of feared increases in tariffs in the vehicle sector, but they weren't all that. And that is, of course, the very behavior that the Fed is tasked to avert. So, I really think it is a combination of demand and supply shocks that they're dealing with now, and they're acknowledging that with more than one rate hike in their forecast. 00:13:17 Speaker 9: Diane Swank, your academics is Michigan, and Michigan has been fabulous in the study of inflation. What I hear is some guess that we can bring down inflation and not bring down real GDP. Can we have that nirvana, or is that just naive? 00:13:36 Speaker 1: I think it's more naive than nirvana. And I am worried. 00:13:39 Speaker 2: And I tell you, all the economists that I'm talking to on the industry level, all the industry economists that I talk to, they are worried about the cost pressures they see in the pipeline and that it will be much more sustained. And what will it take to really derail this inflation? So right now, this is a step in the right direction. But the debate within the economics community is starting to be not whether or not they have to raise again inflation. But how many rate hikes do we need and how much do we need to suffer between here. 00:14:10 Speaker 1: And price stability to get to price stability? 00:14:13 Speaker 5: Perfectly said. John Farrow, it's as simple as this. 00:14:16 Speaker 9: Is that debate happening at the Fed or are they walking on eggshells because of 1600 Pennsylvania Avenue? 00:14:22 Speaker 6: Well, I think they're certainly having that debate. And the White House is having no influence over this conversation because they've just high-priced by 25 basis points and signaled they're willing to go again. Dan, I just want to build on this conversation you're having because I think it's so, so important. Do you believe this labor market is tight enough to put up the wage growth that would support these higher prices? Do you believe the consumer price tolerance exists to pass on these higher prices? Do you think we're in that situation now? 00:14:52 Speaker 2: In terms of the labor market right now, I'm seeing two labor markets at the same time. There's pockets of labor shortages where wages are starting to pick up. I was just talking to a bank CEO yesterday who said all his clients are can't find workers at the entry level. 00:15:06 Speaker 1: These are not new college grads. These are entry. 00:15:09 Speaker 2: Level positions that once might have been filled by foreign born workers that are not being filled anymore. and that's putting upward pressure on wages there. On the higher level, we just saw some economic research that showed those professions that are most exposed to AI are seeing a slowdown in their wage gains. We're not seeing job losses per se from AI, but we are seeing a slowdown in wage gains in those sectors most exposed. And so you have this dichotomy that the Fed is trying to deal with And the bottom line is, again, they can only deal with the economic aggregates. They can't deal with the inequalities and the unevenness of this expansion, which has gotten extremely concentrated in the AI build-out as well. 00:15:56 Speaker 8: We just got a message from Steve Chivarona, Federated Hermes, the chief investment officer there. And he had this comment that I think is really important, Diane. If Warsh characterizes this as a recalibration to higher neutral rate, reflecting higher nominal growth, he can land the plane. Do you think that we're going to get that much, Diane, or do you think that ultimately we're going to have another exercise in letting the actions speak for themselves? 00:16:20 Speaker 2: Well, I think that we're probably going to have to go through many iterations on markets on this, and I think it's going to be hard for the Federal Reserve. I think the move up in the neutral rate, I expected that, but. 00:16:33 Speaker 1: It's still too low. 00:16:34 Speaker 2: I actually think this is neutral, what we're at right now. And that means we're way too accommodative at the moment. That's a very different perspective than what they just put out in the summary of economic projections. 00:16:45 Speaker 9: Diane Swamp, a simple question. Will you miss the dots if they do away with the dots? 00:16:55 Speaker 1: Would I care if they do away with the dots? 00:16:57 Speaker 5: Would you miss the dots? 00:16:59 Speaker 2: I actually. 00:17:01 Speaker 2: You know, the dots are... They're the dots. They give us an inclination that they're in a rate hiking cycle. I think the verbiage in the statement itself basically gave us already that we're in a rate hiking cycle. 00:17:13 Speaker 1: If it's one, it's more than one. 00:17:15 Speaker 2: As I agree with Rich, we actually have two more additional rate hikes and it could be more than that. And I think that's the important thing that we should be focusing on is they actually even changed the statement on this one. 00:17:27 Speaker 6: Dan Swank, KPMG. Dan, thank you. Appreciate it. If he did not have the dots today, I think we'd have a slightly different conversation because you wouldn't really know what was implied in the forecast at all. There wouldn't be any forecasts. We wouldn't be having that conversation about what comes next. We'd be pretty blind at the moment. And I'm not sure the Fed chair is going to give you much in this news conference either, based on recent performances at the presser. 00:17:47 Speaker 8: Yeah, what we have is an imperfect measure of a cycle, not necessarily a one and done, which is incredibly rare. And that is ratifying market expectations. 00:17:54 Speaker 6: You're right. 00:17:54 Speaker 8: Without that, what would this Fed chair do, given the fact that he doesn't want to really give it to us verbally? At a certain point, though, you start to wonder whether the jury has come back with respect to a reaction function, not necessarily forward guidance. to say that when you don't tell people, they price in an extra premia to offset the chance of a Fed that moves less predictably than some people were expecting. 00:18:15 Speaker 9: I look at the set of things that come into this mystery meeting we're having today, and I really didn't expect a Fed looking for a nirvana of, yeah, we can do this. 00:18:23 Speaker 5: Inflation's going to come in, and there'll be almost a painless growth side. is what I see. 00:18:28 Speaker 9: And I did not hear from Diane Swank the idea that would be a successful outcome. 00:18:33 Speaker 6: I certainly hope they can. 00:18:34 Speaker 5: We hope to. Absolutely. 00:18:35 Speaker 6: I think we've all got a bias here. It's a good economy. And I hope they can land that plane. The evidence of the last five years, though, Tom, is it's tremendously difficult to get inflation back to target with nominal GDP this high and with the crude story in the mix, too. And this is the problem that many people will have with this hike this afternoon. This Federal Reserve can't print molecules. It can't print barrels of crude. It can't build refineries. It can't sign peace accords. There is nothing they can do about the situation in the Middle East. And I know we've been above target for a long time before this war even started. But without this war, without the shock in energy prices, we wouldn't be having this conversation about hikes to the ECB. I don't think we'd be having this conversation about additional hikes to the Federal Reserve either. 00:19:13 Speaker 9: I know you want to get to Matt Lazzetti here, but I think this is important. Dominic Constant with a brilliant research note from Mizzou. And he partitioned Waller and Walsh and said there's not enough discussion about shocks and what they mean for the economy. And, of course, from an institution like this, we're not going to get a shock discussion today. 00:19:33 Speaker 5: I get that. 00:19:34 Speaker 9: That's fair game. But the idea here of how these shocks play out is far more important than the dialogue I'm hearing today. 00:19:42 Speaker 6: I wanted to give the former Fed Vice Chair of the Federal Reserve just a final word on the conversation we're having. Rich Cloward is still standing by. Rich, thanks for your patience, sir. I know we had a technical problem on our end just moments ago. Rich, in your opinion, do you think we can get inflation back to target at this Federal Reserve without causing demand destruction in this economy? 00:20:03 Speaker 5: I do. 00:20:03 Speaker 4: We saw an example of disinflation without a recession between 2022 and 2024 and 5. I think it can happen. I think, to be blunt, I think the PCE price index is overstating underlying inflation in the economy. If you look at the labor market, if you look at the CPI, inflation's above target, but it's not as far above target as the PCE is showing. 00:20:27 Speaker 3: Some of that may get revised away in a. 00:20:32 Speaker 4: We've seen it before, and I think it's certainly something that can happen again. 00:20:36 Speaker 6: Can the chair entertain that discussion without damaging its credibility? 00:20:42 Speaker 4: Well, it'll be interesting to see how Chairman Warsh navigates today. He may get that question. I'm eager to hear what he says. But yes, I think there's an affirmative case that one can make that, as I said, I think the PCE index is overstating underlying inflation. I think they have less ground to cover than maybe some of the indicators suggest. So I'll be interested to see if he makes that argument. He chose not to at Jackson Hole, but we'll see if he does make that argument. 00:21:09 Speaker 6: Watch this space. That news conference begins in 10 minutes time. The former Fed Vice Chair Richard Clarida there weighing in on a decision, a 25 basis point hike, the forecast implying one more to go for this year. And a lean, as many people have indicated this afternoon in their research notes, that there might be more to come. in 2027. 00:21:24 Speaker 8: It wasn't just core PCE. If you look at core CPI, which is essentially that classic consumer price index stripped out of energy and food, you can see that it was 0% in June, month over month, 0.2% in July, and 0.3% in August in terms of the increase. It is broad-based, and that, I think, is the reason why people are saying. 00:21:43 Speaker 1: They're taking action. 00:21:44 Speaker 6: Matt Lozetti of Deutsche Bank standing by. Matt, welcome to the program. Before this, you said this, It is not clear the Fed is sufficiently restrictive. We now expect the Fed to deliver 75 basis points of tightening in total. We've had 25. Do you believe they validated the other 50 with this this afternoon? 00:22:02 Speaker 10: Yeah, I think the dot pod was a little bit more hawkish than I was anticipating. I think you've got a strong consensus for at least two rate. 16 out of the 18 dots expect at least two rate hikes this year. And actually, it's a committee that's pretty closely split on whether or not you have two or three rate hikes in total for next year. I think that there's eight dots that show the Fed funds rate 75 basis points above yesterday's levels through the end of next year. So I think it's very much in line with our view at this point, which is that the Fed has started a mild tightening cycle and that it's a pretty strong base case that the Fed is likely to take back the 75 basis points of reductions that they gave us last year. 00:22:38 Speaker 1: Matt, what do you think they're hoping to accomplish? 00:22:40 Speaker 8: Is it just taking the froth out of equity markets? Is it on the margins, just crimping the extra consumer spending power that there was, even with consumer discretionary we're seeing in terms of the stock performance, not doing very well? 00:22:53 Speaker 10: Yeah, I think the motivations are similar to monetary policy tightening that you would typically have. 00:22:58 Speaker 5: I understand. 00:22:59 Speaker 10: that there are supply shocks ongoing. But I think it is not just about supply shocks. You have a very strong growth backdrop as well. As we saw with retail sales this morning, the Atlanta Fed GDP tracker is 5.1% annualized. Consumer spending is expected to grow above 4%. You have a big CapEx boom that is taking place. Wealth effects are meaningful. So what the Fed should do is to try to tighten financial conditions in order to likely slow demand growth and help to guide inflation back to target. Now, will they get all the way back to target without significantly reducing demand? I guess I have some skepticism about that, but can they at least get closer? Can they get something closer to 2.5%, something closer to 2%, whereas it looks like we are stuck closer to 3% at this point? I think that's the objective. I think the other objective is to take the steam out of upside risks, to buy back into Fed credibility. to ensure that inflation expectations don't pick up as well. And so it's about risk distribution, risk management, but also helping your modal forecast get it closer to 2%. 00:23:58 Speaker 8: Matt, how important is the word timelier in this Fed statement? It's doing a lot of heavy lifting at a time when the SEP does not seem to indicate a sooner return to 2%. 00:24:09 Speaker 10: Yeah, I think we have to view that as versus the counterfactual. So if they did not have 50 or 75 basis points of rate hikes, in their forecast for this SEP, we would have expected that their inflation forecast for next year, perhaps the year after that, would have also risen. 00:24:26 Speaker 4: You're right. 00:24:26 Speaker 10: I think time of the year is doing a lot of work. But I think what we see is that inflation is not moving down fast enough for the Fed. They've lost some patience, I think, with that progress that they were seeing or lack of progress. And therefore, it is very clear that they feel they need to act. And there's a pretty strong consensus enacting again with at least another 25 basis point hike this year. 00:24:47 Speaker 6: Matt, when we spoke to Vice Chair Clarida and we asked him whether you could get inflation back to target without causing real demand destruction, he said yes. And he pointed to a period after the pandemic. We didn't have time to get into it, but I think that period is worth discussing. We also had through that time A massive positive supply shock for Labour. And we're not going to litigate this right now. You're certainly not in the right seat to do that. But ultimately, there was a very, very odd approach to immigration in this country at the southern border, which allowed a lot of people to come across and wait on wages in this country. Matt, we don't have that anymore. In fact, we've had a negative supply shock on labor, a negative supply shock on goods, a negative supply shock in the energy market as well, Matt. How do you achieve that story of getting inflation back to target without demand destruction? Because right now, barring a peace accord in the Middle East, I don't see where the positive supply response comes from. 00:25:42 Speaker 10: Yeah, look, the early stages of this coming out of COVID, we did see this immaculate disinflation taking place where we were able to get inflation from very high levels down on the core PC index closer to 3%. That had the Fed tightening policy very aggressively, helping to bring inflation expectations into check. But as you mentioned, we had very positive supply side forces at that point in time. It's very different right now. You have all the negative supply-side forces that you mentioned. The Fed cannot do anything about those. But there's also a very robust demand force here. AI-related investment is strong. Consumer spending growth is strong as well. And so I do think that inflation is likely stuck, core PC, between 2.5% and 3%, unless the Fed acts. And the ultimate question was, were they happy enough or content enough with an environment where their forecast would be to 2.5% into the future. And I think we just now see that the Fed's patience has run out and they think they need to act. I think that's the right move. 00:26:38 Speaker 6: Matt, the issue you've described, though, when you've identified the parts of the economy that are supporting the economy right now, they're the most rate-insensitive parts of the economy. The rate-sensitive parts of the economy already on its knees. And they're just kind of hammered even more. So, Matt, ultimately, what we've identified here are the things that are supporting prices at the moment are the things that this rate hike does nothing about. So, Matt, before we go into this news conference, can you point to exactly what this hike achieves this afternoon? 00:27:04 Speaker 2: Sure. 00:27:04 Speaker 10: So I think you're absolutely right that there are sectors for which financial conditions are tight. The housing market is the clear example. I think it's also right that AI-related investment is not going to come down simply because the Fed hiked rates by 25 basis points today. That's clearly not going to derail incentives around AI. But what it can do is help to tighten broader financial conditions. It can help to lift the dollar. It can help bring the equity markets down a bit. It can help to lead to wider credit spends. Those things through various channels will reduce demand side pressures. That is what the Fed can do. That's what monetary policy is intended to do. You know, I think that there's just very strong signals that monetary policy is not restrictive, is not sufficiently restrictive. The Fed's goals and what they have to do is essentially set monetary policy so that it is sufficiently restrictive to get inflation down to target over a time period that they are happy with. And that's what today is intended to do. I think it's the right move to do that. 00:27:58 Speaker 6: Matt, thank you, sir. As predicted by you. Matt Lozelli there. of Deutsche Bank and others too. A 25 basis point hike from this Federal Reserve, a signal they'll go again before the end of the year. Most people who come on this programme will suggest that won't happen in October, right before the election. We'll see. 00:28:11 Speaker 5: We'll see. 00:28:12 Speaker 6: And then again in 27, maybe they'll go again. Neil Dutter was one of the first to react over at Renmac. He made the point that they're underestimating how much they'll need to do to get inflation back to target. Now, Matt talked about financial conditions and maybe doing it through that channel. Lisa, we've had yields up at the front end by 100 basis points year to date. Equities are higher. Credit spreads have done nothing, even with a mountain of supply going into YG. Where are the type of financial conditions coming from? 00:28:36 Speaker 8: We've been asking this for quite a while, and it's a good point to bring up. I'm glad you really went hard on that because ultimately a question here is what exactly is 25 basis points going to do, given the fact that we already have had that baked in? What will 75 basis points do? What will 100 basis points do? Ultimately, how much is it just a signaling to financial conditions? Is that really the transmission mechanism to slow down some of the deals activity to potentially bring inflation to check? 00:29:03 Speaker 5: That's the heart of the matter. You nailed it. 00:29:05 Speaker 9: Like some people would say, they should be on 50 basis points today. The fact is, 25 basis points is nothing except for the guy at 1600 Pennsylvania Avenue. And we have to see the response from the White House to this. I thought Lozetti was just absolutely brilliant there on this nirvana that they're in. 00:29:20 Speaker 5: You know what? 00:29:21 Speaker 9: How do you get inflation down? And you keep saying demand destruction. It's fancy talk, OK? It's just slower economy. Who wants a slower economy into an election? 00:29:32 Speaker 6: This is the pain that the former Fed chair talked about in Jackson Hole when we were all together. A few years ago, a few summers ago, he talked about the pain required to get inflation back to target. Unemployment is still around four. There are people in pain in this economy. I certainly don't want to understate that. 00:29:47 Speaker 3: There are. 00:29:47 Speaker 6: But at the aggregate level, the headline number, you don't see it in unemployment. right now. You certainly don't see it in GDP. And that's why people are wondering whether they're willing to go that extra mile. Are they actually really willing to cause that kind of problem, that demand destruction to get inflation back to target? 00:30:03 Speaker 8: Kevin Gordon of Charles Schwab said the struggle of this supply shock environment, the inflation data might at times be driven by idiosyncrasies, but the Fed deals in aggregates. They have a blunt tool. It's their only tool. It is not clean. It potentially will take some casualties. But it's the only tool they've got. And that was the conversation that we had with Beth Hammock in Jackson Hole. And clearly, a lot of Fed officials are on board with that. 00:30:23 Speaker 6: That door's going to open any second now. The Fed chair, Kevin Walsh, will step in. Some inside baseball for you on the journalism front. Mike McKee telling us that they've reordered the press room in alphabetical order. So now Mike McKee is on the second row and a Wall Street journalist at the back. I've got no idea what that means for how the questions are asked and what order they're asked in. But that's what I heard. 00:30:41 Speaker 5: We heard. 00:30:42 Speaker 6: About 45 minutes ago. 00:30:43 Speaker 8: Yeah, I gather that's one of a number of changes that may come down the pike for this meeting. I am curious how long it's going to end up being as well.