Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: On Friday morning, some of the most powerful people in
Speaker 2: the financial world crowded into a lodge in Jackson Hole,
Speaker 2: Wyoming to hear the latest announcement from Federal Reserve chair
Speaker 2: to Rome Powell. Bloomberg's Mike McKee was in the room.
Speaker 3: The FED meeting takes place at an unadorned meeting room
Speaker 3: with deer antler lights hanging from the ceiling and just
Speaker 3: long flat tables with folding chairs we sit on. It
Speaker 3: isn't glamorous at all, but it is a beautiful location
Speaker 3: at least.
Speaker 2: What's the energy in the room, like when everyone's waiting
Speaker 2: for Powell to take the dais.
Speaker 3: You know, people in this business and here are pretty
Speaker 3: used to this sort of thing, so it's not like
Speaker 3: you're at a rock concert waiting for somebody to show up.
Speaker 3: But people are interested, very interested in what he has
Speaker 3: to say, particularly where they're anticipating a rake cut announcement
Speaker 3: of some.
Speaker 2: Sort a rate cut. The Federal Reserve has been holding
Speaker 2: interest rates high around five and a half percent for
Speaker 2: a year, but with unemployment creeping up and inflation coming down,
Speaker 2: pressure has been building for the Fed to cut interest rates,
Speaker 2: and when Powell entered the room and took the podium,
Speaker 2: it sounded like he agreed.
Speaker 4: The time has come for policy to adjust. The direction
Speaker 4: of travel is clear, and the timing and pace of
Speaker 4: rate cuts will depend on incoming data, the evolving outlook,
Speaker 4: and the balance of risks.
Speaker 2: Usually Powell's speeches are a little cryptic, there's not a
Speaker 2: lot of direct talk, but not this time.
Speaker 1: Interestrates are coming down. That's the bottom line.
Speaker 3: The FED has decided that the battle against inflation is
Speaker 3: almost one. They're more confident now that they are bringing
Speaker 3: down inflation to their two percent target, and they're starting
Speaker 3: to worry about rising unemployment. So the balance of risks,
Speaker 3: as they call it, has changed, and it is time
Speaker 3: to cut interest rates. So everybody is going to expect
Speaker 3: a rate cut at the September eighteenth meeting.
Speaker 2: Today on the show, FED Chair Jerome Powell's announcement from
Speaker 2: Jackson Hole, Why the FED is signaling that September is
Speaker 2: finally the time for a rate cut, what that rate
Speaker 2: cut could look like, and what it would mean for
Speaker 2: the US economy, the presidential election and beyond. I'm Sarah Holder,
Speaker 2: and this is the big take from Bloomberg News. Bloomberg's
Speaker 2: Mike McKee talked to us from a mobile studio in
Speaker 2: the Tetons as equipment was being broken down around him.
Speaker 2: I asked Mike for a little background on the Jackson
Speaker 2: Hole Conference.
Speaker 3: That's an academic conference designed to present economic theories, papers
Speaker 3: on ideas for doing monetary policy to the policy bakers.
Speaker 2: It's officially called the Jackson Hole Economic Policy Symposium, and
Speaker 2: it's put on by the Federal Reserve Bank of Kansas City.
Speaker 3: It's been going on for forty seven years now, but
Speaker 3: it only really became as big a deal as it
Speaker 3: is now in twenty ten when Ben bernank came out
Speaker 3: and announced here that they would start quantitative easing. And
Speaker 3: since that time BERNANKI and Janet Yellen who followed him,
Speaker 3: and now j Powell have used this occasion to make
Speaker 3: announcements that could really change the direction of the economy, like.
Speaker 2: Twenty twenty two, for example, when Jay Powell came out
Speaker 2: and told the financial world that the fight against inflation
Speaker 2: would mean tough times in the year ahead.
Speaker 4: While higher interest rates, slower growth, and software labor market
Speaker 4: conditions will bring down inflation, they will also bring some
Speaker 4: pain to households and businesses.
Speaker 2: People like Mike who cover the FED are used to
Speaker 2: reading between the lines. That's because FED chairs like Jay
Speaker 2: Powell are very careful with what they say in public.
Speaker 2: A single word from their mouth this can have a
Speaker 2: huge impact on the global economy. The mention of some
Speaker 2: pain a couple of years ago was taken as a
Speaker 2: stroke warning sign and the markets took a dive. But
Speaker 2: Mike says Powell's message this year had a much brighter tone.
Speaker 3: This was one hundred and eighty degrees different the last
Speaker 3: two years. Powell had a very strict, severe message that
Speaker 3: the Fed was going to do what it takes. They
Speaker 3: were not going to waiver. Inflation was going to go
Speaker 3: away no matter what it took. This year, inflation has
Speaker 3: come way down and it's headed towards their target. So
Speaker 3: the FED will never take a victory lap, they'll never
Speaker 3: say the word soft landing. But they are feeling much
Speaker 3: better about where the economy is, and I think Powell
Speaker 3: felt more relaxed in talking to people. He said at
Speaker 3: one point, these are my.
Speaker 4: Views, that is my assessment of events.
Speaker 1: Your mileage may vary.
Speaker 4: Your mileage may differ.
Speaker 3: I'm not sure what he meant by that, but it
Speaker 3: did get a laugh in the room.
Speaker 2: Inscrutable Dad jokes aside. Mike says, the fact that Jay
Speaker 2: Powell's throwing in a laugh line or two means that
Speaker 2: the Fed must be feeling pretty good about where the
Speaker 2: economy is headed after two years of severity high interest
Speaker 2: rates and historic levels of inflation. I asked Mike how
Speaker 2: the Fed landed on now as the moment to say
Speaker 2: it's finally time to cut rates.
Speaker 3: They've been following the inflation numbers, of course, very closely.
Speaker 3: Their official measure is the Personal Consumption Expenditures Index, which
Speaker 3: comes out as a part of the GDP numbers. That
Speaker 3: tells them where they think inflation is in terms of
Speaker 3: their two percent target. But of course everybody follows the
Speaker 3: Consumer Price Index. It's the most widely known price index,
Speaker 3: and a lot of civilian people watch that. Americans watch that,
Speaker 3: so they're also very attuned to that, and putting those
Speaker 3: two together, they get a sense of where inflation is going.
Speaker 3: And they've also been watching the employment numbers very closely,
Speaker 3: and for a long time we had very, very high
Speaker 3: job creation and that worried them because if you're looking
Speaker 3: for workers and you can't find them, you're going to
Speaker 3: have to pay more, which could lead to inflation. And
Speaker 3: now what they're saying is that's come down. There's not
Speaker 3: the wage pressure that there was, so we can start
Speaker 3: thinking about cutting rates because both sides of our measures
Speaker 3: have started to come down.
Speaker 2: Of course, the FED doesn't make its decisions in an
Speaker 2: economic vacuum. The fact that we're about seventy days out
Speaker 2: from a US presidential election is impossible to ignore. Powell
Speaker 2: has often talked about how important he feels it is
Speaker 2: for the FED to remain independent.
Speaker 4: It's a very special American institution and it's one that
Speaker 4: works to serve all Americans, and absolutely critical to that
Speaker 4: is staying in our lanes, sticking to our knitting, not
Speaker 4: running to reach out to the big hot political issues
Speaker 4: of the day.
Speaker 2: The Central Bank is meant to be a political Powell
Speaker 2: said he takes that duty so seriously that he's led
Speaker 2: an increasingly private life to ward against any perception that
Speaker 2: politics is involved in the Fed's decision making. Powell's spoke
Speaker 2: about this last month in an interview with Bloomberg host
Speaker 2: and Carlisle co founder and co chairman David Rubinstein.
Speaker 4: When you want to go out to let you have
Speaker 4: a dinner and restaurant, do you worry that people are
Speaker 4: listening to what you're saying?
Speaker 1: They're eavestrapping, so.
Speaker 4: That that is exactly what I worried about. I've I
Speaker 4: have found that I get recognized now and people at
Speaker 4: the next table are always listening. So we don't really
Speaker 4: go to restaurants. So what do you do? You just
Speaker 4: go in a private room, or you don't go to restaurants.
Speaker 4: If if you're at a restaurant, you need to be in
Speaker 4: a private room. And if, by the way, if someone
Speaker 4: at your table were to be well served and start
Speaker 4: to speak loudly, everyone's hearing that too, So so you
Speaker 4: got to be We just don't do that for now.
Speaker 4: We go to you know, we need at home, a
Speaker 4: lot at we need a friend's house.
Speaker 2: So why would j Powell, someone who's taken such great
Speaker 2: pains to keep the FED out of the political spotlight,
Speaker 2: announce a rate cut so close to an election? I
Speaker 2: put that question to Mike. Do politics impact the way
Speaker 2: the FED makes these decisions? Is there a perception that
Speaker 2: the FED is going to cut rates for political reasons?
Speaker 3: Well, there might be among campaigns and average people who
Speaker 3: read comments about it. But FED officials insist, and the
Speaker 3: historical record shows that electioneers don't change what they do.
Speaker 3: They have raised rates and cut rates before in election
Speaker 3: years and shortly before election day. There's no indication that
Speaker 3: they have ever been biased, and they take great offense
Speaker 3: at the idea that.
Speaker 1: They would be.
Speaker 3: Their view is, we have one job, which is to
Speaker 3: keep inflation down and employment up. That's what Congress told
Speaker 3: us to do, and so we're going to do that
Speaker 3: no matter what the outside situation is.
Speaker 2: Even though the FED has no political agenda, its decisions
Speaker 2: do have a political impact. So what does the announcement
Speaker 2: of a rate cut mean for the presidential campaign, for
Speaker 2: American consumers and for global markets. That's after the break
Speaker 2: under the antlers. As economists, academics, and journalists sat at
Speaker 2: attention in their folding chairs inside the Jackson Lake Lodge,
Speaker 2: J Powell did the FED equivalent of skywriting his plans
Speaker 2: for interest rates above the tetons. He said, the time
Speaker 2: has come for policy to adjust. Mike McKee, who covers
Speaker 2: international economics and politics for Bloomberg News, was there, so
Speaker 2: I asked him what kind of reaction did Powell's remarks get.
Speaker 3: The reaction in the room was applause, standard applause. I
Speaker 3: don't think anybody was surprised, because everybody was kind of
Speaker 3: expecting that it's time, even though they hadn't said they
Speaker 3: were going to. But what surprised a lot of people
Speaker 3: here was the fact that the stock market took off.
Speaker 3: And I had a couple of FED people say, didn't
Speaker 3: the markets know this was coming? Everybody else seemed to,
Speaker 3: so they're happy with that, but it was a bit
Speaker 3: of a surprise that anybody was surprised.
Speaker 2: Mike says. Part of what markets might have been reacting
Speaker 2: to is the language Paul used. Paul said his confidence
Speaker 2: has grown, which is again quite direct, especially for a
Speaker 2: FED chair. After he said that stock surged.
Speaker 3: It basically tells them that interest rates are going to
Speaker 3: go down and keep going down. And stock market, of course,
Speaker 3: is a forward discounting mechanism, and so if you know
Speaker 3: that they have started a cycle, and historically they've cut
Speaker 3: at least three times every time they have started a
Speaker 3: cutting cycle, then you can start looking out six months,
Speaker 3: nine months, twelve months and discounting what your future returns
Speaker 3: might be. So it makes it easier for people to plan.
Speaker 3: Why they hadn't necessarily planned before or whether they were
Speaker 3: just waiting for that, we don't know. But if we
Speaker 3: knew what the stock market would do, we'd all be rich.
Speaker 2: So Powell speech contained enough foreshadowing to jumpstart the market,
Speaker 2: even though we still don't know the exact scale and
Speaker 2: pay of the rate cutting cycle ahead.
Speaker 4: What do we know.
Speaker 2: About how a rate cut would affect the US economy?
Speaker 2: What are some of the industries that would be most affected.
Speaker 3: Well, the first thing you look at is housing and
Speaker 3: audibobiles because those are very interest rates sensitive. You have
Speaker 3: to take out a loan because it's a big, expensive purchase,
Speaker 3: and so the FED looks at the housing industry and
Speaker 3: the automobile industry, both of which have suffered. We don't
Speaker 3: know what the number is the level of interest rates
Speaker 3: that will bring mortgage rates down enough that will entice
Speaker 3: people to go out again and start buying cars should
Speaker 3: start to do better, and then consumer purchases, we hope
Speaker 3: will increase as credit card rates come down. And we'll
Speaker 3: also watch for business investment. It's been strong. We have
Speaker 3: fiscal spending coming as part of the Inflation Reduction Act
Speaker 3: to build more infrastructure, so there should be some money
Speaker 3: coming in on that side as well. It takes a
Speaker 3: lot longer to hit the economy because it takes will
Speaker 3: to build a big building.
Speaker 1: But those are the things to watch for my a.
Speaker 2: Rate cut in the US mean for the rest of
Speaker 2: the world's economies.
Speaker 3: Well, it means a lot, especially to smaller economies which
Speaker 3: are if dependent on the dollar, react to the dollar
Speaker 3: because if the dollar is strong, then their currency is
Speaker 3: going to be weak, and the rest of the world
Speaker 3: their currencies will strengthen. It's just a question of how
Speaker 3: much they strengthen. It will take a while for that
Speaker 3: to happen, but we've already seen some adjustment in the
Speaker 3: foreign exchange markets with the euro and the Japanese yen
Speaker 3: and the British pound the bigger currencies, and that'll start
Speaker 3: to filter down to the emerging markets as well.
Speaker 2: Will Powell speech also have an impact on the looming
Speaker 2: US election. Mike says that while both candidates would likely
Speaker 2: welcome lower interest rates when in office, the economic effects
Speaker 2: on the American consumer might be too small to have
Speaker 2: a significant impact on the way people vote, especially if
Speaker 2: interest rates are cut by a quarter percentage point, which
Speaker 2: is the hoe when the water rate cut many are expecting.
Speaker 3: Twenty five basis points isn't going to change anybody's monthly
Speaker 3: payments more than a few cents, if at all. It might,
Speaker 3: as a psychological thing tell people that things are getting better,
Speaker 3: and if people feel better about the economy, they might
Speaker 3: vote one way or another. The Fed's view is it
Speaker 3: doesn't have a major effect, but it doesn't matter to them.
Speaker 3: They're going to do it anyway.
Speaker 2: There's still a lot that can change before November, and
Speaker 2: a lot more data to be released before September eighteenth.
Speaker 2: That's when the FED meets next and when they're expected
Speaker 2: to announce how deep these long awaited rate cuts could be.
Speaker 3: We will have a number of economic data, including the
Speaker 3: latest GDP numbers and the latest spending numbers, which will
Speaker 3: matter to the Fed. Are Americans still spending money? And
Speaker 3: then we go into the first week of September, which
Speaker 3: is always first week of the month. There's always a
Speaker 3: big week because we get numbers on actoring and on
Speaker 3: employment that matter a lot. And of course we have
Speaker 3: the jobs report that'll be September sixth, so that's a
Speaker 3: date to watch. If nothing goes wrong there, then rake
Speaker 3: cuts are coming.
Speaker 2: The next few weeks will be busy for j Powell.
Speaker 2: But before the fedcher had to go back to d C,
Speaker 2: Mike tried to get him to let loose a little.
Speaker 2: He invited Powell to the famous Jackson Hole rodeo.
Speaker 3: He's not going to the rodeo as far as I know.
Speaker 3: I've invited him, but he is going to yesterday. Yes,
Speaker 3: he's declined. I think he doesn't feel like hanging out
Speaker 3: with a bunch of reporters, but.
Speaker 1: I don't know why. I don't know why.
Speaker 3: Yeah, but he is going on hikes and he and
Speaker 3: his wife do quite a bit of that when they're
Speaker 3: out here, and they might do some canoeing or something
Speaker 3: like that as well.
Speaker 2: So the only bulls Powell will see will have to
Speaker 2: be in the markets. This is the big take from
Speaker 2: Bloomberg News. I'm Sarah Holder. This episode was produced by
Speaker 2: David Fox. It was mixed by Alex Sugia. It was
Speaker 2: fact checked by Adrian A. Tapia. It was edited by
Speaker 2: Stacy Vennick Smith, Kate Davidson, and Christopher Condon. Special thanks
Speaker 2: to read Pickert for her rodeo footage. Our senior producers
Speaker 2: are Naomi Shaven and Kim Gittleson. Our executive producer is
Speaker 2: Nicole Beemsterboor. Sage Bauman is Bloomberg's head of podcasts. If
Speaker 2: you liked this episode, make sure to subscribe and review
Speaker 2: The Big Take wherever you listen to podcasts. It helps
Speaker 2: people find the show. Thanks for listening. We'll be back tomorrow.
Speaker 1: Oh yeah, let's go to.
Speaker 3: Everybody's supposed to dress up in Western Where do you
Speaker 3: have woots?
Speaker 1: Oh?
Speaker 3: I have boots and I have a hat. I mean,
Speaker 3: I grew up out West, so I dressed for the occasion.
Speaker 3: But some of the city slickers or some of the
Speaker 3: people from other countries are going to have to work
Speaker 3: at it.
Speaker 2: I think you're gonna have to show them how it's done.
Speaker 4: It's the reason the team to help out the