WEBVTT - Instant Reaction: The Fed Decides 0:00:02.560 --> 0:00:04.240 Bloomberg Audio Studios. 0:00:04.720 --> 0:00:05.420 Podcasts. 0:00:05.720 --> 0:00:06.260 Radio. 0:00:06.680 --> 0:00:07.100 News. 0:00:09.200 --> 0:00:13.950 This is a breaking news update from Bloomberg. Instant reaction 0:00:14.210 --> 0:00:18.450 and analysis from our 3,000 journalists and analysts around the world. 0:00:19.510 --> 0:00:22.279 Down in Washington, D.C. from the nation's capital is Mike McKee. 0:00:23.460 --> 0:00:25.599 It is a rate increase, the first of a cycle, 0:00:25.700 --> 0:00:29.160 a unanimous decision to raise their benchmark rate a quarter 0:00:29.220 --> 0:00:32.720 point to three and three quarters to four percent. Sixteen 0:00:32.780 --> 0:00:37.270 members of the committee anticipate another increase this year. Only 0:00:37.370 --> 0:00:40.550 two would hold here. Kevin Warsh, the chairman, does not 0:00:40.630 --> 0:00:46.050 submit a dot. Eight, almost half. see another rate increase 0:00:46.150 --> 0:00:49.909 next year, while six call for no change. Four see 0:00:49.990 --> 0:00:53.580 rate cuts in 2027. One of them calls for rates 0:00:53.620 --> 0:00:58.000 to fall to 3.25%. Almost as significant, they raise their 0:00:58.140 --> 0:01:01.080 long-run view, essentially the neutral rate, to 3.2% from 3.1% 0:01:01.080 --> 0:01:02.840 in June. The members see faster growth this year and next, 2.3% 0:01:02.840 --> 0:01:13.330 and 2.4%, up a tenth each. from their June forecasts, 0:01:13.930 --> 0:01:18.190 and the economic activity, the statement says, is expanding at 0:01:18.270 --> 0:01:22.860 a solid pace. Unemployment is forecast to remain at 4.1% 0:01:22.860 --> 0:01:27.740 this year and hold at that level through 2029. Job gains, 0:01:27.840 --> 0:01:30.480 the statement says, have kept pace with the workforce, and 0:01:30.500 --> 0:01:34.319 the unemployment rate has changed little. Inflation, though, according to 0:01:34.360 --> 0:01:38.260 the statement, remains elevated. The median outlook is seen higher 0:01:38.300 --> 0:01:41.250 this year. PCE headline at 3.7%, up from 3.6% in June. 0:01:41.290 --> 0:01:43.589 Next year, it falls to 2.3%. Achieving the 2% target 0:01:43.610 --> 0:01:45.240 gets pushed out, as usual, two years to 2029 now. 0:01:45.250 --> 0:01:46.240 Core PCE will be 3.4% at the end of 2026, 0:01:46.230 --> 0:02:03.050 up a tenth. Next year, it's 2.5% unchanged. The statement concludes, 0:02:03.450 --> 0:02:07.130 today's policy action will support a timelier return to the 0:02:07.170 --> 0:02:11.750 committee's 2% goal. The committee will deliver price stability. 0:02:12.370 --> 0:02:14.600 Mike McKee, thank you, sir. You stay close. Let's go 0:02:14.620 --> 0:02:17.460 through the price action. Bonds advancing into the decision. We 0:02:17.480 --> 0:02:19.580 give only just a little bit of that up. Yields 0:02:19.620 --> 0:02:21.400 are lower by two basis points at a front end, 0:02:21.460 --> 0:02:23.320 twos at $ 4. 0:02:23.080 --> 0:02:23.200 64. 0:02:23.200 --> 0:02:26.880 On tens this afternoon, we're down by $ 5 to $ 4. 0:02:25.800 --> 0:02:26.340 95. 0:02:26.340 --> 0:02:29.280 Earlier in the week, of course, breaching 5%. a number, 0:02:29.540 --> 0:02:31.300 a level we haven't seen going all the way back 0:02:31.500 --> 0:02:34.040 to 2007, at least earlier this week. In the equity 0:02:34.080 --> 0:02:36.440 market this afternoon, on the S & P 500, on 0:02:36.460 --> 0:02:38.800 the Nasdaq, on small caps, the Russell, we're still advanced. 0:02:38.820 --> 0:02:41.380 We're still just about positive, though we're off session highs, 0:02:41.440 --> 0:02:44.359 up by 0.2% on the S & P. The question 0:02:44.400 --> 0:02:46.660 for the chairman in this news conference, was this a 0:02:46.750 --> 0:02:50.490 one-off tweak? Is it high for longer or higher for longer? 0:02:50.550 --> 0:02:53.150 Is it the start of something more than just 25? 0:02:53.150 --> 0:02:54.829 The word that I think is going to be analyzed 0:02:54.850 --> 0:02:59.630 and overanalyzed will be timelier. a timelier return to 2% inflation. 0:02:59.950 --> 0:03:03.290 The median forecast in the Statement of Economic Projections, granted 0:03:03.330 --> 0:03:06.120 it did not include Fed Chair Kevin Warsh, includes an 0:03:06.250 --> 0:03:09.460 additional 25 basis point hike this year. And as Mike 0:03:09.480 --> 0:03:13.320 was saying, a higher long-term neutral rate. All of this 0:03:13.440 --> 0:03:15.880 speaks to the idea that this is part of a cycle. 0:03:16.040 --> 0:03:18.120 This is not a one-off. and that this is a 0:03:18.200 --> 0:03:21.059 Fed that has run out of patience. The unanimous decision, 0:03:21.139 --> 0:03:24.520 Bob Michael nailed that, was a big tell given how 0:03:24.560 --> 0:03:27.640 many people got on board, including the Fed chair himself. 0:03:27.900 --> 0:03:30.780 I'm absolutely fascinated by the labor call, which I know 0:03:30.820 --> 0:03:33.230 is off the radar right now, but they don't look 0:03:33.270 --> 0:03:36.010 for any change in the labor economy. It seems to 0:03:36.030 --> 0:03:39.690 me they're looking at output to be good and not problematic. 0:03:39.710 --> 0:03:42.890 This is all going to get solved gloriously by inflation 0:03:42.970 --> 0:03:45.530 coming down, and output will be fine. 0:03:45.650 --> 0:03:48.580 Says who? And that's, to me, the huge mystery here. 0:03:48.600 --> 0:03:50.520 Neil Dutter of Ren Mac, the first to respond in 0:03:50.560 --> 0:03:52.720 my inbox, reads as follows. The Fed is not done. 0:03:53.280 --> 0:03:56.020 The odds are they are underestimating just how much work 0:03:56.580 --> 0:03:58.760 they need to do. That also explains the gap between 0:03:58.780 --> 0:04:01.150 the policy rate even now this afternoon and where the 0:04:01.230 --> 0:04:04.390 two-year is currently, because the two-year is materially higher than 0:04:04.410 --> 0:04:04.990 the policy rate. 0:04:05.210 --> 0:04:07.990 Ultimately, do they close the gap of 100 basis points? 0:04:08.330 --> 0:04:11.440 And what direction will that gap be if the Fed 0:04:11.560 --> 0:04:13.920 is further behind the curve than they realize is? then 0:04:14.080 --> 0:04:17.780 is the goal here, given the timelier return to 2% inflation, 0:04:17.880 --> 0:04:20.280 is the goal here to get there more quickly and 0:04:20.380 --> 0:04:23.490 to take out some of the dynamism that we have 0:04:23.570 --> 0:04:28.150 seen in, frankly, capital markets as well as just overall growth? 0:04:28.210 --> 0:04:31.029 With Vice Chairman Clarida coming on, his colleague Ned Phelps, 0:04:31.050 --> 0:04:34.700 the late Ned Phelps of Columbia, that's his favorite word, dynamism. 0:04:34.860 --> 0:04:37.260 I don't hear anything within the comments of Mike McKee 0:04:37.860 --> 0:04:41.100 where there's any planning for a slowdown in the American 0:04:41.140 --> 0:04:44.740 economy right now with half of America basically flat on 0:04:44.760 --> 0:04:46.440 their back from whatever reason. 0:04:46.460 --> 0:04:48.230 Don't see much of that in the forecast. Mike McKee 0:04:48.290 --> 0:04:50.890 is still standing by before he runs into that news conference. Mike, 0:04:50.930 --> 0:04:53.790 what would you point to in the forecast, the projection 0:04:53.850 --> 0:04:55.950 materials that might set the tone for the news conference 0:04:56.370 --> 0:04:56.910 in 25 minutes' time? 0:04:58.810 --> 0:05:01.070 Well, one of the interesting things is they say that 0:05:01.230 --> 0:05:06.310 this move will result in a timelier move to the 2% target, 0:05:06.410 --> 0:05:09.409 and yet they push the 2% target out another two years, 0:05:09.510 --> 0:05:12.690 as they almost always do with these summaries of economic projections, 0:05:12.890 --> 0:05:16.530 to 2029. So I'm not sure what timelier means in 0:05:16.570 --> 0:05:20.290 this case. They also do acknowledge that inflation is higher, 0:05:20.370 --> 0:05:23.210 and I think the move up in the long-run neutral 0:05:23.270 --> 0:05:26.279 rate is important because they've been talking about that, as 0:05:26.320 --> 0:05:30.460 a possibility because of AI and the spending on AI. 0:05:30.900 --> 0:05:33.640 And that could mean that we're in a hire for 0:05:33.730 --> 0:05:38.130 longer kind of environment, a new regime, as it were, 0:05:38.450 --> 0:05:41.430 for interest rates. And we've seen that in real rates, 0:05:41.630 --> 0:05:44.169 echoing the idea that the neutral rate is higher. 0:05:44.470 --> 0:05:47.250 Mike, thank you, sir. Looking forward to your question in 0:05:47.270 --> 0:05:49.270 the news conference a little bit later on this afternoon, 0:05:49.290 --> 0:05:50.140 that news conference at 2.30 p.m. 0:05:50.960 --> 0:05:51.460 Eastern Time. 0:05:51.660 --> 0:05:53.080 Just to build on what Mike was talking about, the 0:05:53.120 --> 0:05:56.200 projections for, let's say, core PCE. Let's take core PCE. 0:05:56.540 --> 0:05:59.640 That's a 3.4 for 26 compared to the June projection 0:05:59.660 --> 0:06:03.440 of 3.3. For next year, 2.5. The June projection was 2.5. 0:06:03.440 --> 0:06:06.790 For the year after Bramow, 2.2. The June projection was 2.1. 0:06:06.790 --> 0:06:09.589 It is an important question. You're saying one thing about 0:06:09.630 --> 0:06:11.910 a timely return to target, and then you look at 0:06:11.930 --> 0:06:13.800 the forecast, and it's not really there, is it? 0:06:13.930 --> 0:06:14.050 Yeah. 0:06:14.150 --> 0:06:16.729 How much are other people on board with this, number one? 0:06:16.970 --> 0:06:19.650 And is it timely as compared to what as compared 0:06:19.710 --> 0:06:23.279 to how much more you see inflation potentially accelerating, considering 0:06:23.320 --> 0:06:25.190 that it's moving in the wrong direction. I also think 0:06:25.230 --> 0:06:28.510 they still see unemployment declining in terms of the unemployment 0:06:28.550 --> 0:06:31.550 rate over this period of time. So economic growth, clearly 0:06:31.770 --> 0:06:34.270 not part of the equation, not a problem to hold 0:06:34.310 --> 0:06:37.090 them back from additional rate hikes. Again, I'm curious how 0:06:37.230 --> 0:06:40.089 unified this FOMC committee really is, given some of the 0:06:40.110 --> 0:06:42.390 rhetoric we've heard. So bring in the speeches that we're 0:06:42.410 --> 0:06:44.169 going to be hearing over the next couple of weeks. 0:06:44.270 --> 0:06:46.589 I think, you know, you look at the unanimous decision, 0:06:46.650 --> 0:06:48.570 and maybe that to me is the headline here, is 0:06:48.589 --> 0:06:49.630 they listen to Bramall. 0:06:49.690 --> 0:06:52.010 It was bad form. They listen to you. Don't dissent. 0:06:52.070 --> 0:06:52.270 Yeah. 0:06:53.080 --> 0:06:56.070 Stay out of trouble. Don't dissent. That's the right phrase. 0:06:56.110 --> 0:06:57.650 Stay out of trouble. Keep your head down. Get to 0:06:57.670 --> 0:06:59.950 the next meeting and then keep your head down for 0:06:59.970 --> 0:07:00.570 the elections. 0:07:00.790 --> 0:07:02.440 Let's talk to a man who's been there, done that. 0:07:02.720 --> 0:07:05.060 The former Fed vice chair, Rich Clarida, joins us now 0:07:05.080 --> 0:07:07.620 for more. Rich, welcome. Not a surprise to see 25 0:07:07.620 --> 0:07:09.690 basis points. What would you point to that is the 0:07:09.730 --> 0:07:11.290 key development this afternoon? 0:07:13.000 --> 0:07:15.560 Well, I think Mike McKee, as usual, did a great job. 0:07:16.200 --> 0:07:19.610 You know, the timelier language is noteworthy, but again, the 0:07:20.070 --> 0:07:23.210 mission accomplished is pushed out two years. I think it 0:07:23.270 --> 0:07:26.670 is important that it was a unanimous decision. I think 0:07:27.270 --> 0:07:30.300 it's also relevant that you had 16 people, and I 0:07:30.320 --> 0:07:33.120 would also count 16 of the dots, and I would 0:07:33.160 --> 0:07:36.760 count Chairman Warsh. You had 17 folks indicating, I think, 0:07:36.860 --> 0:07:40.580 another rate hike later this year, which had been our 0:07:40.640 --> 0:07:42.520 call that this would not be one and done. 0:07:42.560 --> 0:07:45.500 And they give a very firm signal. They may not 0:07:45.560 --> 0:07:46.570 need to do more. 0:07:46.670 --> 0:07:49.990 I actually think the 3.4 percent on core PCE, which 0:07:50.050 --> 0:07:53.650 is what I think I heard Mike say, I think 0:07:53.710 --> 0:07:55.510 is a little lofty. I think we could come in 0:07:55.570 --> 0:08:00.710 below that, especially given some of the methodology revisions. So, 0:08:00.990 --> 0:08:03.610 but yeah, I think important that it was a unanimous 0:08:03.650 --> 0:08:07.920 decision and a clear overwhelming majority of folks think they 0:08:07.940 --> 0:08:10.280 need to move at least once more, which is in 0:08:10.320 --> 0:08:11.560 line with what we think as well. 0:08:11.960 --> 0:08:14.040 Rich, what do you think changed so much from the 0:08:14.080 --> 0:08:18.460 July meeting to today that caused a unanimous decision by 0:08:18.680 --> 0:08:21.410 all of the members, the voting members, to hike rates 0:08:21.450 --> 0:08:23.710 and potentially engage in a cycle, not just one and done? 0:08:25.780 --> 0:08:28.800 Well, the history is, Lisa, is that we typically don't 0:08:28.860 --> 0:08:30.620 see one and done. 0:08:31.120 --> 0:08:33.970 And so I think that's relevant. You think about it. 0:08:34.420 --> 0:08:37.630 If we're targeting our target by more than 100 basis points, 0:08:37.990 --> 0:08:40.429 what is 25 basis points on rates going to do 0:08:40.470 --> 0:08:40.809 for that? 0:08:40.870 --> 0:08:45.830 So I think there's a credibility to that. That's very 0:08:46.250 --> 0:08:48.010 specific communication and guidance. 0:08:48.920 --> 0:08:51.400 Williams and Waller and others saying, look, we want to 0:08:51.420 --> 0:08:54.420 see progress. I think Williams put out their 0.2 per 0:08:54.460 --> 0:08:57.380 month on core. And since then, we haven't got 0.2 0:08:57.380 --> 0:09:00.900 per month on core, especially given where I think we're 0:09:00.940 --> 0:09:03.980 going to end up with the core reading later this month. 0:09:04.080 --> 0:09:07.080 And so I think they wanted to see that progress. 0:09:07.140 --> 0:09:09.990 I think Chris Waller said, give disinflation a chance, and 0:09:10.020 --> 0:09:13.449 they hadn't seen it. So I think especially after Jackson Hole. 0:09:13.470 --> 0:09:16.829 It was important to ratify that reaction function. 0:09:16.990 --> 0:09:22.930 Richard Clarity, your acclaimed research on dynamic stochastic general equilibrium theory. 0:09:23.309 --> 0:09:26.189 The word stochastic is for shocks. I didn't hear any 0:09:26.250 --> 0:09:30.010 statement on shocks coming from Michael McKee, and yet they 0:09:30.030 --> 0:09:32.929 have to live with the shocks at present. Who's right, 0:09:33.240 --> 0:09:37.420 Waller or Warsh on shocks and the importance of them forward? 0:09:40.790 --> 0:09:45.790 Chris Waller and Chairman Warsh understand and are focused on 0:09:45.830 --> 0:09:47.530 the shocks. In fact, I think that was one of 0:09:47.550 --> 0:09:49.780 the big questions that the chairman is wanting to try 0:09:49.800 --> 0:09:53.400 to answer. So I don't think the committee is disagreeing. 0:09:53.440 --> 0:09:56.530 I think it's more how persistent will these shocks be? 0:09:56.830 --> 0:09:58.910 Are we going to be talking about higher memory chip 0:09:58.950 --> 0:09:59.770 prices a year? 0:10:00.130 --> 0:10:00.610 From now? 0:10:01.730 --> 0:10:06.579 Where will tariffs end up? You know, the oil futures 0:10:06.650 --> 0:10:15.260 curve has been, you know, on oil prices. And so 0:10:15.300 --> 0:10:17.920 I think it's not so much shocks or no shocks. 0:10:17.990 --> 0:10:21.530 It's how persistent are they going to be? 0:10:22.590 --> 0:10:24.550 How much further will they go? And Bram, are they 0:10:24.570 --> 0:10:26.869 willing to go the final mile? Are they willing to 0:10:26.910 --> 0:10:29.189 go through the pain to get inflation back down to target? 0:10:29.550 --> 0:10:31.730 Had a message from a Bloomberg subscriber just moments ago. 0:10:31.890 --> 0:10:35.170 And that's the question they're asking. Is this Fed willing 0:10:35.210 --> 0:10:37.410 to go through the economic slump that might be required 0:10:37.429 --> 0:10:40.720 to get inflation back to target? Because so far, right now, 0:10:41.380 --> 0:10:42.959 inflation has been above target for quite a while. 0:10:43.450 --> 0:10:45.429 Based on the fact that equities are up, I would 0:10:45.450 --> 0:10:48.109 say the answer to that right now is perceived to 0:10:48.150 --> 0:10:51.430 be no, that ultimately they will stop short of engineering 0:10:51.470 --> 0:10:54.530 a full-blown recession because of the reluctance to do so. 0:10:54.950 --> 0:10:57.370 And so that is why you're not seeing four, five, 0:10:57.410 --> 0:11:00.120 or even six rate hikes getting penciled in by anybody. 0:11:00.530 --> 0:11:03.560 That said, there is a lack of understanding of just 0:11:03.620 --> 0:11:05.820 how much inflationary pressure and how much growth there is 0:11:05.860 --> 0:11:10.230 in this economy. It has surprised analyst after analyst after economist. 0:11:10.270 --> 0:11:12.130 And at what point do we end up seeing that 0:11:12.510 --> 0:11:14.430 come through in the Fed having to go further than 0:11:14.450 --> 0:11:14.770 they thought? 0:11:14.929 --> 0:11:17.270 Dan Swank of KPMG standing by to jump into the 0:11:17.309 --> 0:11:19.830 conversation as well. Dan, welcome to the program. We've got 0:11:19.850 --> 0:11:22.550 a hike. They're looking for another one. There's a market 0:11:22.590 --> 0:11:24.770 lean and a lean on the committee to go maybe 0:11:24.809 --> 0:11:26.830 even further than that, Dan. What are you expecting beyond 0:11:26.870 --> 0:11:28.990 just 25? 0:11:30.320 --> 0:11:32.210 Well, one of the things that I think is really 0:11:32.250 --> 0:11:34.970 important is this is the beginning of a rate hiking cycle. 0:11:35.030 --> 0:11:38.089 They've signaled two already. That's important. 0:11:38.650 --> 0:11:40.940 And they don't want to get ahead of themselves because 0:11:40.980 --> 0:11:44.760 they're managing to the economic aggregates. We've got an economy 0:11:44.780 --> 0:11:47.520 that's resilient but not resonating with too many issues. 0:11:47.960 --> 0:11:50.040 And I think that's important as well. 0:11:50.460 --> 0:11:52.350 At the end of the day, though, their job is 0:11:52.380 --> 0:11:56.329 to derail inflation. And if we get into 2027 and 0:11:56.650 --> 0:12:00.550 we're still seeing stickiness, particularly in the service sector and 0:12:00.570 --> 0:12:03.050 the dispersion of prices, that's. 0:12:02.790 --> 0:12:05.150 Going to be a real issue for the Fed. And 0:12:05.170 --> 0:12:06.189 they'll have to go further. 0:12:06.410 --> 0:12:09.150 And then we'll have to see just how much they're 0:12:09.190 --> 0:12:12.830 willing to derail growth versus higher for longer and hope 0:12:13.370 --> 0:12:14.410 for a softer landing. 0:12:14.890 --> 0:12:16.550 One thing that I thought was notable, Diane, is that 0:12:16.670 --> 0:12:20.960 in the statement, they do refer to geopolitical developments in passing. 0:12:21.620 --> 0:12:26.620 They say, well, uncertainty due to geopolitical developments has been ongoing. 0:12:26.660 --> 0:12:29.480 Domestic spending has been resilient, a nod almost to the 0:12:29.520 --> 0:12:32.520 retail sales that we got earlier today. How much are 0:12:32.540 --> 0:12:36.079 they not really going to address the oil price shock 0:12:36.240 --> 0:12:39.520 because of the strong economic data elsewhere? In other words, 0:12:39.640 --> 0:12:42.240 supply-side shocks are fair game as long as they come 0:12:42.520 --> 0:12:43.820 with strength in other places. 0:12:46.790 --> 0:12:47.710 Well, it really is. 0:12:47.890 --> 0:12:49.370 At the end of the day, we had the retail 0:12:49.410 --> 0:12:54.290 sales today, and they were stunningly strong and broad-based. Some 0:12:54.330 --> 0:12:58.590 of those retail sales reflect actually buying ahead of feared 0:12:58.850 --> 0:13:02.380 increases in tariffs in the vehicle sector, but they weren't 0:13:02.390 --> 0:13:04.980 all that. And that is, of course, the very behavior 0:13:05.040 --> 0:13:07.740 that the Fed is tasked to avert. So, I really 0:13:07.780 --> 0:13:11.520 think it is a combination of demand and supply shocks 0:13:11.559 --> 0:13:14.920 that they're dealing with now, and they're acknowledging that with 0:13:15.000 --> 0:13:17.260 more than one rate hike in their forecast. 0:13:17.640 --> 0:13:20.850 Diane Swank, your academics is Michigan, and Michigan has been 0:13:21.000 --> 0:13:24.370 fabulous in the study of inflation. What I hear is 0:13:24.550 --> 0:13:28.430 some guess that we can bring down inflation and not 0:13:28.510 --> 0:13:32.110 bring down real GDP. Can we have that nirvana, or 0:13:32.170 --> 0:13:33.170 is that just naive? 0:13:36.100 --> 0:13:39.100 I think it's more naive than nirvana. And I am worried. 0:13:39.260 --> 0:13:41.640 And I tell you, all the economists that I'm talking 0:13:41.679 --> 0:13:44.320 to on the industry level, all the industry economists that 0:13:44.360 --> 0:13:47.300 I talk to, they are worried about the cost pressures 0:13:47.340 --> 0:13:49.870 they see in the pipeline and that it will be 0:13:49.970 --> 0:13:53.190 much more sustained. And what will it take to really 0:13:53.230 --> 0:13:57.490 derail this inflation? So right now, this is a step 0:13:57.630 --> 0:14:01.170 in the right direction. But the debate within the economics 0:14:01.250 --> 0:14:03.970 community is starting to be not whether or not they 0:14:04.010 --> 0:14:06.660 have to raise again inflation. But how many rate hikes 0:14:06.720 --> 0:14:08.500 do we need and how much do we need to 0:14:08.559 --> 0:14:10.460 suffer between here. 0:14:10.740 --> 0:14:13.099 And price stability to get to price stability? 0:14:13.120 --> 0:14:15.900 Perfectly said. John Farrow, it's as simple as this. 0:14:16.000 --> 0:14:18.459 Is that debate happening at the Fed or are they 0:14:18.480 --> 0:14:22.060 walking on eggshells because of 1600 Pennsylvania Avenue? 0:14:22.160 --> 0:14:24.960 Well, I think they're certainly having that debate. And the 0:14:24.980 --> 0:14:27.260 White House is having no influence over this conversation because 0:14:27.280 --> 0:14:30.270 they've just high-priced by 25 basis points and signaled they're 0:14:30.290 --> 0:14:32.230 willing to go again. Dan, I just want to build 0:14:32.250 --> 0:14:34.070 on this conversation you're having because I think it's so, 0:14:34.110 --> 0:14:37.750 so important. Do you believe this labor market is tight 0:14:37.790 --> 0:14:39.770 enough to put up the wage growth that would support 0:14:39.810 --> 0:14:42.370 these higher prices? Do you believe the consumer price tolerance 0:14:42.430 --> 0:14:45.840 exists to pass on these higher prices? Do you think 0:14:46.100 --> 0:14:47.320 we're in that situation now? 0:14:52.970 --> 0:14:55.330 In terms of the labor market right now, I'm seeing 0:14:55.430 --> 0:14:57.990 two labor markets at the same time. There's pockets of 0:14:58.050 --> 0:15:01.170 labor shortages where wages are starting to pick up. I 0:15:01.190 --> 0:15:03.610 was just talking to a bank CEO yesterday who said 0:15:04.010 --> 0:15:06.750 all his clients are can't find workers at the entry level. 0:15:06.790 --> 0:15:09.530 These are not new college grads. These are entry. 0:15:09.290 --> 0:15:13.070 Level positions that once might have been filled by foreign 0:15:13.090 --> 0:15:16.410 born workers that are not being filled anymore. and that's 0:15:16.450 --> 0:15:20.010 putting upward pressure on wages there. On the higher level, 0:15:20.050 --> 0:15:24.420 we just saw some economic research that showed those professions 0:15:24.480 --> 0:15:28.220 that are most exposed to AI are seeing a slowdown 0:15:28.620 --> 0:15:31.300 in their wage gains. We're not seeing job losses per 0:15:31.340 --> 0:15:34.400 se from AI, but we are seeing a slowdown in 0:15:34.480 --> 0:15:37.760 wage gains in those sectors most exposed. And so you 0:15:37.800 --> 0:15:40.410 have this dichotomy that the Fed is trying to deal 0:15:40.450 --> 0:15:43.690 with And the bottom line is, again, they can only 0:15:43.730 --> 0:15:47.050 deal with the economic aggregates. They can't deal with the 0:15:47.150 --> 0:15:51.730 inequalities and the unevenness of this expansion, which has gotten 0:15:51.930 --> 0:15:55.600 extremely concentrated in the AI build-out as well. 0:15:56.260 --> 0:15:59.360 We just got a message from Steve Chivarona, Federated Hermes, 0:15:59.380 --> 0:16:02.100 the chief investment officer there. And he had this comment 0:16:02.120 --> 0:16:04.740 that I think is really important, Diane. If Warsh characterizes 0:16:04.760 --> 0:16:07.900 this as a recalibration to higher neutral rate, reflecting higher 0:16:08.080 --> 0:16:11.120 nominal growth, he can land the plane. Do you think 0:16:11.130 --> 0:16:12.540 that we're going to get that much, Diane, or do 0:16:12.560 --> 0:16:14.940 you think that ultimately we're going to have another exercise 0:16:15.460 --> 0:16:17.340 in letting the actions speak for themselves? 0:16:20.220 --> 0:16:22.000 Well, I think that we're probably going to have to 0:16:22.040 --> 0:16:25.830 go through many iterations on markets on this, and I 0:16:25.870 --> 0:16:27.850 think it's going to be hard for the Federal Reserve. 0:16:28.810 --> 0:16:32.430 I think the move up in the neutral rate, I 0:16:32.470 --> 0:16:33.790 expected that, but. 0:16:33.730 --> 0:16:34.430 It's still too low. 0:16:34.910 --> 0:16:37.230 I actually think this is neutral, what we're at right now. 0:16:37.640 --> 0:16:40.340 And that means we're way too accommodative at the moment. 0:16:40.620 --> 0:16:43.060 That's a very different perspective than what they just put 0:16:43.160 --> 0:16:45.250 out in the summary of economic projections. 0:16:45.570 --> 0:16:48.690 Diane Swamp, a simple question. Will you miss the dots 0:16:48.990 --> 0:16:50.450 if they do away with the dots? 0:16:55.740 --> 0:16:57.260 Would I care if they do away with the dots? 0:16:57.300 --> 0:16:58.380 Would you miss the dots? 0:16:59.100 --> 0:16:59.520 I actually. 0:17:01.060 --> 0:17:04.369 You know, the dots are... They're the dots. They give 0:17:04.410 --> 0:17:07.050 us an inclination that they're in a rate hiking cycle. 0:17:07.190 --> 0:17:11.250 I think the verbiage in the statement itself basically gave 0:17:11.290 --> 0:17:13.800 us already that we're in a rate hiking cycle. 0:17:13.820 --> 0:17:15.260 If it's one, it's more than one. 0:17:15.880 --> 0:17:18.180 As I agree with Rich, we actually have two more 0:17:18.220 --> 0:17:21.320 additional rate hikes and it could be more than that. 0:17:21.540 --> 0:17:23.550 And I think that's the important thing that we should 0:17:23.570 --> 0:17:26.310 be focusing on is they actually even changed the statement 0:17:26.390 --> 0:17:26.850 on this one. 0:17:27.230 --> 0:17:30.619 Dan Swank, KPMG. Dan, thank you. Appreciate it. If he 0:17:30.630 --> 0:17:32.199 did not have the dots today, I think we'd have 0:17:32.240 --> 0:17:34.780 a slightly different conversation because you wouldn't really know what 0:17:34.820 --> 0:17:36.379 was implied in the forecast at all. There wouldn't be 0:17:36.420 --> 0:17:38.919 any forecasts. We wouldn't be having that conversation about what 0:17:38.960 --> 0:17:40.980 comes next. We'd be pretty blind at the moment. And 0:17:41.000 --> 0:17:43.040 I'm not sure the Fed chair is going to give 0:17:43.080 --> 0:17:45.300 you much in this news conference either, based on recent 0:17:45.320 --> 0:17:46.899 performances at the presser. 0:17:47.060 --> 0:17:49.679 Yeah, what we have is an imperfect measure of a cycle, 0:17:49.740 --> 0:17:52.120 not necessarily a one and done, which is incredibly rare. 0:17:52.200 --> 0:17:54.360 And that is ratifying market expectations. 0:17:54.619 --> 0:17:54.900 You're right. 0:17:54.920 --> 0:17:57.300 Without that, what would this Fed chair do, given the 0:17:57.340 --> 0:17:59.119 fact that he doesn't want to really give it to 0:17:59.180 --> 0:18:01.669 us verbally? At a certain point, though, you start to 0:18:01.730 --> 0:18:04.670 wonder whether the jury has come back with respect to 0:18:05.090 --> 0:18:07.949 a reaction function, not necessarily forward guidance. to say that 0:18:07.990 --> 0:18:10.550 when you don't tell people, they price in an extra 0:18:10.630 --> 0:18:13.670 premia to offset the chance of a Fed that moves 0:18:13.890 --> 0:18:15.460 less predictably than some people were expecting. 0:18:15.480 --> 0:18:17.000 I look at the set of things that come into 0:18:17.080 --> 0:18:19.600 this mystery meeting we're having today, and I really didn't 0:18:19.680 --> 0:18:22.439 expect a Fed looking for a nirvana of, yeah, we 0:18:22.480 --> 0:18:22.919 can do this. 0:18:23.000 --> 0:18:25.470 Inflation's going to come in, and there'll be almost a 0:18:25.530 --> 0:18:28.110 painless growth side. is what I see. 0:18:28.369 --> 0:18:31.630 And I did not hear from Diane Swank the idea 0:18:31.650 --> 0:18:33.169 that would be a successful outcome. 0:18:33.310 --> 0:18:34.130 I certainly hope they can. 0:18:34.430 --> 0:18:35.890 We hope to. Absolutely. 0:18:35.930 --> 0:18:38.080 I think we've all got a bias here. It's a 0:18:38.100 --> 0:18:40.300 good economy. And I hope they can land that plane. 0:18:40.760 --> 0:18:42.720 The evidence of the last five years, though, Tom, is 0:18:42.760 --> 0:18:45.680 it's tremendously difficult to get inflation back to target with 0:18:45.740 --> 0:18:48.580 nominal GDP this high and with the crude story in 0:18:48.600 --> 0:18:50.040 the mix, too. And this is the problem that many 0:18:50.080 --> 0:18:52.680 people will have with this hike this afternoon. This Federal 0:18:52.700 --> 0:18:55.520 Reserve can't print molecules. It can't print barrels of crude. 0:18:55.800 --> 0:18:58.240 It can't build refineries. It can't sign peace accords. There 0:18:58.290 --> 0:19:00.330 is nothing they can do about the situation in the 0:19:00.350 --> 0:19:02.710 Middle East. And I know we've been above target for 0:19:02.730 --> 0:19:05.750 a long time before this war even started. But without 0:19:05.770 --> 0:19:08.050 this war, without the shock in energy prices, we wouldn't 0:19:08.070 --> 0:19:10.409 be having this conversation about hikes to the ECB. I 0:19:10.450 --> 0:19:12.430 don't think we'd be having this conversation about additional hikes 0:19:12.450 --> 0:19:13.380 to the Federal Reserve either. 0:19:13.470 --> 0:19:15.000 I know you want to get to Matt Lazzetti here, 0:19:15.060 --> 0:19:17.500 but I think this is important. Dominic Constant with a 0:19:17.600 --> 0:19:22.500 brilliant research note from Mizzou. And he partitioned Waller and 0:19:22.540 --> 0:19:27.240 Walsh and said there's not enough discussion about shocks and 0:19:27.280 --> 0:19:30.220 what they mean for the economy. And, of course, from 0:19:30.260 --> 0:19:32.220 an institution like this, we're not going to get a 0:19:32.280 --> 0:19:33.340 shock discussion today. 0:19:33.400 --> 0:19:33.860 I get that. 0:19:34.560 --> 0:19:39.000