Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is a breaking news update from Bloomberg instant reaction
Speaker 2: and analysis from our three thousand journalists and analysts around
Speaker 2: the world. But that FED decision is mimachay.
Speaker 3: No change in rates, no change in dots, one descent,
Speaker 3: but some big changes in inflation expectations. FED official see
Speaker 3: one cut still in two thousand and six. At some point,
Speaker 3: even though their statement notes that uncertainty about the economic
Speaker 3: outlook remains elevated, three members who favored no cuts in
Speaker 3: this year moved their dots down to one. The statement
Speaker 3: goes on to say the implication of developments in the
Speaker 3: Middle East for the US economy are uncertain, and the
Speaker 3: committee remains attentive to risks to both sides of their mandate.
Speaker 3: They still see one more cut in twenty twenty seven.
Speaker 3: Stephen Myyron the only dissenter. He wanted a quarter point
Speaker 3: cut this time, and from the dots we discerned that
Speaker 3: he still wants one hundred basis points at some point
Speaker 3: this year. The language about future moves remains the same.
Speaker 3: They still talk about the extent and timing of additional
Speaker 3: adjustments to the target range. It's the Summary of Economic Projections,
Speaker 3: in which we see a lot of changes.
Speaker 2: PCEE inflation this.
Speaker 3: Year is forecast at two point seven percent, up from
Speaker 3: two point four percent in December. Core is also seen
Speaker 3: at two point seven percent, up from two point five.
Speaker 3: Both dropped to two point two percent next year, up
Speaker 3: from two point four percent in the December SEP. Core
Speaker 3: is seen at two point seven percent this year. Both
Speaker 3: drop back, as I mentioned next year, to two percent
Speaker 3: in twenty and twenty eight. GDP marked up a tenth
Speaker 3: in both years both of the next two years to
Speaker 3: two point four percent this year and two point three
Speaker 3: percent next year. The ployment forecast remains four point four
Speaker 3: percent in twenty twenty six, dropping to four point three
Speaker 3: percent next year. That's up from four point two percent
Speaker 3: in December, and the longer run estimate for FED fund
Speaker 3: seen as the proxy for the neutral rate, rises a
Speaker 3: tick to three point one percent.
Speaker 2: Guys, Ma, Mick Key, thank you sir. We'll catch up
Speaker 2: with you a little bit later. Let's start with the
Speaker 2: price section. We'll got equities, then bonds. We'll have a
Speaker 2: sneak peak of what's happening in the commodity market because
Speaker 2: we're tracking that throughout the day here at Bloomberg Equity Markets,
Speaker 2: looking at the S and P five hundred off session
Speaker 2: lows were still negative by point five percent. In the
Speaker 2: bond market, yields slightly higher on a two year by
Speaker 2: two basis points, basically as you were at three seventy
Speaker 2: on twos on ten to about four to twenty one,
Speaker 2: which is basically where we were going into this decision.
Speaker 2: So this is what we're doing. You go into the projections.
Speaker 2: We'll ignore the statement just for a while. We'll go
Speaker 2: into the statement and we'll look at the projections and
Speaker 2: compare what they were projecting back in December and have
Speaker 2: a look at what they're projecting now. So let's just
Speaker 2: go through twenty twenty six. For GDP revise slightly. That's
Speaker 2: some good news. Twenty seven as well, same thing, by
Speaker 2: the way, So the revised GENP higher, that revise, inflation higher,
Speaker 2: and they've kept the projection implied projection for interest rates
Speaker 2: exactly where it was for December. Those kind of moves
Speaker 2: should be music to the ears of bullish market participants.
Speaker 4: This is an incredibly dubvish hold, just by virtue of
Speaker 4: the fact that only one person dissented and it was
Speaker 4: Governor Myron that alone. But these projections highlighting a tolerance
Speaker 4: for higher inflation and still the belief that it will
Speaker 4: come down by twenty twenty seven to that two percent
Speaker 4: level without hiking rates and continuing with rate cuts gives
Speaker 4: you a sense of where this spreed's mind is at.
Speaker 4: This seems like more of a consensus than I expected,
Speaker 4: than a lot of people expected, and it is more
Speaker 4: to looking through any kind of oil price shop.
Speaker 5: In honor of Allen Greenspan's hundredth birthday, it was a
Speaker 5: green Span decision. Everybody got on board with the chairman.
Speaker 5: That's all there is to it.
Speaker 2: And the out years the good news on the inflation front,
Speaker 2: you decide whether this is good. The Fedishville basically forecasting
Speaker 2: the same inflation glide path as they were before, even
Speaker 2: with this lift to twenty twenty six.
Speaker 4: How do you say transitory without saying transitatory.
Speaker 2: It's in there in the forecast, and that's.
Speaker 4: The reason why you're seeing the yield curve steep in
Speaker 4: and on the margins you're seeing tenure yields higher on
Speaker 4: this because ultimately this is a bed that is willing
Speaker 4: to stay on hold and look through an oil price shock,
Speaker 4: look through the fact that even core PC has been
Speaker 4: higher than expected and is expected to stay that way.
Speaker 4: Because ultimately, they do think the labor market is showing
Speaker 4: signs of cracks, even though they don't necessarily see unemployment
Speaker 4: rate ticking up, and they do want to air on
Speaker 4: the side of being more accommodated.
Speaker 2: Especial I'd like to speak to you, just briefly. Get
Speaker 2: him on the phone, Governor Waller. I was about to say, Chris,
Speaker 2: no dissent. He said it was a coin flip. Who
Speaker 2: would come down to the labor market report, and that
Speaker 2: labor market report was overwhelmingly soft. So what does he
Speaker 2: see in the ALEC for inflation that's kept him on
Speaker 2: the sidelines?
Speaker 4: Severn Or Waller, please join us if you want to call,
Speaker 4: it will take you. I mean, ultimately, that is one
Speaker 4: of the key players because he is a pillar of
Speaker 4: the swing vote, if you will, and a lot of
Speaker 4: people are looking to him for some sort of guidance
Speaker 4: about what exactly is driving us to do.
Speaker 5: But at Washington State he was expert and game theory,
Speaker 5: and when there's a war, there's a different game theory.
Speaker 2: This is a major shock. We're working through Bob Michael
Speaker 2: at Jpmorkan Asset Management, still with us around the table.
Speaker 2: Bob's already thoughts off the back of this one.
Speaker 6: I do. They're telling us, don't worry about it. There's
Speaker 6: a little bit of a year term inflation shot. They
Speaker 6: added a tenth more than we did, but it's fine.
Speaker 6: The economy is going to use that to accelerate. So
Speaker 6: they increase GDP that I don't get, and they left
Speaker 6: unemployment where it is. And it also doesn't sync with
Speaker 6: the dots. I heard Mike McKee say that three members
Speaker 6: who previously voted for no cut changed their view so
Speaker 6: and went to a cut.
Speaker 2: The median dot three four December projection the median dot
Speaker 2: three point four joining us now to discuss as the
Speaker 2: former FEDVIZ chair Richard Clarendon now, rich I know the
Speaker 2: word transitory is banned and they can't use it anymore,
Speaker 2: particularly in the news conference. But is this screen transitory, Well, it.
Speaker 7: Certainly screams we need a synonym for it, temporary not
Speaker 7: long lived. You know, they could justify it, perhaps by
Speaker 7: looking at the oil futures, which still show this as
Speaker 7: dissipating over time. But the short answer is nobody, including
Speaker 7: the FED, knows this is very elevated geopolitical risk, and
Speaker 7: there are risk on both sides. But the baseline, I
Speaker 7: agree with your panel is dubvish constructive.
Speaker 4: Rich. I'm just wondering how much this is just AI
Speaker 4: written all over it. How much this is a FED
Speaker 4: that is basing their entire assumption on a productivity boom
Speaker 4: tied to artificial intelligence and the deployment of it through
Speaker 4: the economy and frankly disinflation on its heels.
Speaker 7: I think there's an element of that, perhaps more so
Speaker 7: with the incoming share than some other members. I think
Speaker 7: it's also a statement, however, that AI is a support
Speaker 7: to demand in the economy that to some extent, along
Speaker 7: with those big beauty full bill tax cuts, is probably
Speaker 7: going to offset some of what the drag would be
Speaker 7: from the oil price increases. But again, this is a
Speaker 7: modal or a baseline, and I think certainly internally we'll
Speaker 7: hear that there was a discussion of the risk cases
Speaker 7: as well.
Speaker 5: Professor Clarina, when you were at Columbia herding cats, Xavier
Speaker 5: Salah Martin taught the acclaimed Principles of Economics, talk to
Speaker 5: us about the risk of a demand destruction here. To me,
Speaker 5: it's extraordinary. Whether it's war short term or a more
Speaker 5: permanent demand destruction, should that be a legitimate concern of
Speaker 5: the Fed.
Speaker 2: Well.
Speaker 7: The demand destruction comes simply from the fact that not
Speaker 7: only oil prices, but energy prices and goods that are
Speaker 7: intensive in oil and energy will go up, and that
Speaker 7: will tend to reduce the real incomes for millions and
Speaker 7: tens of millions of households. Now, on the other side
Speaker 7: of that you have the AI boon, but there is
Speaker 7: no doubt that this is going to squeeze real act
Speaker 7: or get a demand the longer the oil shock persists.
Speaker 2: Check out the price action. Let's go to equities. We're
Speaker 2: still down by zero point six percent, unmoved by one.
Speaker 2: The surface of things looks like a duvish decision from
Speaker 2: the central bank. Check out the bond market. Similar story.
Speaker 2: No big moves off the back of this. The only
Speaker 2: takeaway this can change. But the only takeaway for me
Speaker 2: is there is nothing this institution can do to drive
Speaker 2: this market in the face of the shock housewhere Jeff
Speaker 2: Curry of Carlisle said it really well early this morning
Speaker 2: on Bloombog TV when Jeff turned around and said, there's
Speaker 2: nothing the Central Bank can do about this. You cannot
Speaker 2: print barrels. This market is still at the mercy of
Speaker 2: what happens in the commodity market, and the FED is
Speaker 2: not the circuit breaker anymore. Because this FED decision, I
Speaker 2: would sit here and argue is fairly duvish, with the
Speaker 2: exception of the absence of a descent coming from Governor Waller,
Speaker 2: is fairly duvish to come out and say the outlook
Speaker 2: for growth is better, We've revised higher, the outlook for
Speaker 2: inflation and the median dot is exactly the same. Screams dubvish.
Speaker 2: And yet here we are no big moves in financial markets.
Speaker 2: I think that's noticeable.
Speaker 4: The FED is playing dodgeball without the ball. They're not
Speaker 4: the pitcher in a game. And right now what they're
Speaker 4: dealing with is shock after shock without necessarily historic precedent, yes,
Speaker 4: or historic precedents for oil shocks, but not for the
Speaker 4: AI shock and what that does to the overall economy.
Speaker 4: So they might remain on hold, and that might be bullish,
Speaker 4: but not in this moment, because right now, if another
Speaker 4: oil or natural gas plant gets bombed, people are gonna
Speaker 4: be watching that much more than anything coming out of J.
Speaker 2: Powell.
Speaker 5: Vice Chairman CLARIEDA The thing I would point out here,
Speaker 5: Damien Sasawer at Bloomberg is very cautious on EM suddenly
Speaker 5: here in this meeting and in this press conference more
Speaker 5: than ever. Is this the central banker to the world.
Speaker 7: Well, sure it is, and I think that the Fed
Speaker 7: FED is aware of that. And I think one thing
Speaker 7: this episode is reminding of folks. We've seen it in
Speaker 7: the in the dollar obviously, is you know, since the
Speaker 7: Iran hostilities commenced, you know, the price of go old
Speaker 7: is down, the price of the dollar is up. So
Speaker 7: I think there is that element as well. But you know, broadly,
Speaker 7: the FED is reacting to events. I think Lisa said
Speaker 7: said it well first and foremost, this is a major
Speaker 7: geopolitical and economic shock. The Dodgeball analogy, I think is
Speaker 7: a good one. So I think, yes, the FED is
Speaker 7: the central banker to the world, but it's not the
Speaker 7: main attraction right now.
Speaker 5: About Michael with us, with JP Morgan And so what
Speaker 5: is the with the tentacles of JP Morgan around the world.
Speaker 5: How is EM doing? I see Philippine pay so almost
Speaker 5: at the sixties saw Australia raising rates and.
Speaker 2: Oh well, well, well we called in Australia. Am no,
Speaker 2: I'm not calling Australia, get you in trouble tating.
Speaker 5: You know.
Speaker 2: I am watching oz EM though, which is of its
Speaker 2: own Sydney watching. Well yeah, early morning, deeply, deeply unhappy
Speaker 2: with that.
Speaker 5: But I read all the level shoot in town Like Alice,
Speaker 5: I want to know h as a central banker of
Speaker 5: the world, the sensitivities he faces, what is jp more
Speaker 5: we're going to see, and the reaction in the currency markets,
Speaker 5: the reaction and fixed income of EM is the chairman speaks.
Speaker 6: I think there are a couple of things. One we
Speaker 6: felt going through this that the dollar would be the
Speaker 6: safe haven bid, and we're seeing a lot of that.
Speaker 6: We also felt, for those who wanted to diversify away
Speaker 6: from dollar, emerging market FX was the place to go.
Speaker 6: The central banks in those regions seem to be on
Speaker 6: top of things, and you had a split between those
Speaker 6: who are energy importers and those are energy exporters, those
Speaker 6: that are sitting on rare earth minerals and other minerals,
Speaker 6: and those who aren't. And I think we're seeing all
Speaker 6: of that play out. But I will tell you our
Speaker 6: client base still feels under allocated to emerging markets, both
Speaker 6: equity and fixed income. We're seeing those allocations continue to
Speaker 6: come in. I think there's a good tal in there.
Speaker 5: We just went along Australia.
Speaker 2: They you go back to back high cudy imagine markets,
Speaker 2: Central Bank cover the BA. See that. Honestly some offending
Speaker 2: people down under right now.
Speaker 4: I'm not wearing it on this one, but I will
Speaker 4: say I will say that tomorrow will be really interesting
Speaker 4: at the BOE and the ECB.
Speaker 2: There you go, you tellon Bromo. All right, Rich Cloud
Speaker 2: is still with us. Rich, I want to come to
Speaker 2: you on an important topic to wrap things up, a
Speaker 2: really serious one, the future for Chairman Powell. This is
Speaker 2: not how usually these things play out. Typically, how this
Speaker 2: plays out, the chairman knows when his term finishes, he
Speaker 2: gets a great send off, he walks away and he
Speaker 2: does a one million dollar speech in about twelve months
Speaker 2: time and has a happy retirement. This feels so different, Rich,
Speaker 2: Kevin Walsh is ultimately being nominated. We have no idea
Speaker 2: when the confirmation hearing is going to be. Bob Michael
Speaker 2: sat here a little bit earlier and said he thinks
Speaker 2: the Chairman J. Powell is still going to be there
Speaker 2: by the time you get to the midterms, Rich, how
Speaker 2: do you think this process is going to play out
Speaker 2: in the next several months.
Speaker 7: Well, you're absolutely correct. This is unprecedented, unusual that the
Speaker 7: handoff is usually pretty smooth and very well telegraphed. And
Speaker 7: the difference, of course now is several fold. One of course,
Speaker 7: is the you know, the d o J investigation of
Speaker 7: Pal that the FED is pushing back on. In addition,
Speaker 7: of course, the even worsh getting a hearing is now
Speaker 7: up up in the air. You know, I certainly do
Speaker 7: expect J. J. Powell will will will stay on and
Speaker 7: perhaps a meeting or two after Warsh finally arrives. You know,
Speaker 7: whether or not that's after the mid terms, I'm not sure.
Speaker 7: I think Jay Powell will move on once Warsh is
Speaker 7: in place, uh to to his his future life. But
Speaker 7: his real focus is on maintaining the the independence of
Speaker 7: the of the Institution, and I think he will be
Speaker 7: in place until Warsh is confirmed and perhaps the meeting
Speaker 7: or two thereafter.
Speaker 2: Rich, appreciate you're insight on the topic. Thank you, sir,
Speaker 2: Rich Cloud of that the former FED Vice chair on
Speaker 2: this FED decision and the chairman's future. If you are
Speaker 2: just joining us on the program, welcome to the show.
Speaker 2: So unchanged the policy rate of the Federal Reserve about
Speaker 2: fifteen minutes ago, some descent eleven to one. That descent
Speaker 2: came from an obvious place, Governor Meyron voting for an
Speaker 2: interest rate reduction. For the projections, big focus on what
Speaker 2: was happening with inflation. They've lifted their outlook for inflation
Speaker 2: for this year at least, but left the median dot
Speaker 2: ultimately uncased, implying one rate cup from this feeder reserve
Speaker 2: for twenty twenty six.
Speaker 4: To me, the most interesting takeaway is what you said,
Speaker 4: which is this market doesn't seem to care. Even though
Speaker 4: this is very much a Dubvish hold, this actually is
Speaker 4: news in Fedland, and yet the market doesn't pay attention
Speaker 4: because there's another game in town and it's everything else
Speaker 4: in the world. And some people might say, oh no,
Speaker 4: the adults can't control this, they can't step in and
Speaker 4: save us, and the other people will say, we haven't
Speaker 4: had a free market in a long time, and this
Speaker 4: is what it looks like, and guess what it's a welcome,
Speaker 4: welcome exercise. And so those two sides of the debate
Speaker 4: are playing.
Speaker 2: Out market and we've got a free market.
Speaker 4: Well, I mean that's the whole thing.
Speaker 2: Ultimately, it's too exciting.
Speaker 4: I'm kind of excited about this. I mean, that's kind
Speaker 4: of a nice thing. Not to have the thumb on
Speaker 4: the scale all the time and same story right over again.
Speaker 2: It's a change. It's a change, definitely, Roth of Wolf Research.
Speaker 2: I can see how excited you are. You're not alive.
Speaker 2: I've been waiting for that moment for a long long time.
Speaker 2: Agent moves five percent away from old time highs.
Speaker 4: Even a Japanese market.
Speaker 2: It's how exciting know they're actually tried to the bench.
Speaker 4: There's actually traders.
Speaker 2: Definitely, I'm sorry, so definitely. Roth of Wolf Research joins
Speaker 2: us now for more. Definitely, we need your reaction to
Speaker 2: the decision and why you expect the emphasis to be
Speaker 2: in this news conference?
Speaker 8: Yeah, I mean the emphasis is going to be on
Speaker 8: the reaction function provided that energy prices end up staying
Speaker 8: long or the question is are they going to end
Speaker 8: up looking through this or do they ultimately end up
Speaker 8: having to be dubvish as a result, because growth will
Speaker 8: end up slowing. And our own view is that because
Speaker 8: the economy is so different today versus twenty twenty two,
Speaker 8: they'll ultimately have to be more Dubvish as a result
Speaker 8: of the war and Iran, rather than the opposite. Otherwise,
Speaker 8: it tells you a story of productivity and that growth
Speaker 8: is actually going to be higher in the future years,
Speaker 8: but then you know, nothing else changes. And the one
Speaker 8: thing that we didn't talk about, that wasn't talked about
Speaker 8: yet was was the longer run dot shipping a little bit.
Speaker 4: Well, this to me is Sephanie, that I'm really wondering
Speaker 4: about is how much does a more duvish fed enable
Speaker 4: something that looks more like nineteen seventies or more like
Speaker 4: twenty twenty two. And what we saw with inflation and
Speaker 4: the read through, is that something of a concern for you.
Speaker 8: No, because the backdrop is so different today versus twenty
Speaker 8: twenty two. If you look at twenty twenty two, the
Speaker 8: unemployment rate was three seven heading to three five today
Speaker 8: it's four to four. Hero Games was growing at six
Speaker 8: hundred thousand today they're somewhere between zero and fifty thousand
Speaker 8: on average. The inflation backdrop was different and core inflation
Speaker 8: was five and a half today it's three. So the
Speaker 8: idea that we're going to have a repeat of twenty
Speaker 8: twenty two seems like a very low likelihood event, and
Speaker 8: therefore that's not something I would expect the FED to
Speaker 8: react in that way because the data probably won't support
Speaker 8: a reflationary type of environment.
Speaker 5: The seventy given a war, given what oil's doing. John
Speaker 5: mentions it's sixty to basically sixty two hundred or even higher.
Speaker 5: We're still slaves to the job market. And the answer
Speaker 5: is the un deployment rate hasn't broken with the war,
Speaker 5: with the distractions. How ex post is this fed into
Speaker 5: the summer?
Speaker 8: Yeah, I mean, I think they're going to be in
Speaker 8: an environment over the summer where base cases the unemployment
Speaker 8: rate is probably steady, but they're going to be looking
Speaker 8: at this most cools. That's going to be the deciding
Speaker 8: factor between whether they're able to cut Probably not at
Speaker 8: Worsh's first meeting, maybe in September or December, right, and
Speaker 8: it's going to all go down to the unemployment rate.
Speaker 8: Is it notably above four or five, in which case
Speaker 8: they have a window to be able.
Speaker 4: To ease and if not.
Speaker 8: Then it's going to be tough for worse to get
Speaker 8: the rest of the members on board.
Speaker 5: Bob synthesized Michael Feruli's work on this. Then the fact
Speaker 5: is the labor market has encrect yet they have to wait,
Speaker 5: don't they.
Speaker 6: I think that's part of it. I'm still gop smacked
Speaker 6: by the Fed's decision. They're basically saying all of this
Speaker 6: going on in the Middle East is a speed bump
Speaker 6: that yeah, inflation will tick up, you know, three tenths
Speaker 6: and two here and there, but the economy will accelerate,
Speaker 6: unemployment will stay stable, and it's off to the races.
Speaker 6: I just don't see that. I think there is a
Speaker 6: real impact to inflation then ultimately to the economy and
Speaker 6: the laborook.
Speaker 5: This is the heart of the matter, John, This is
Speaker 5: the absolute heart of the matter, and everybody has to
Speaker 5: recalibrate their access to how long is this going to
Speaker 5: go on? And then you get to demand destruction.
Speaker 2: We mentioned this earlier and I think it's important to
Speaker 2: keep going over it. We've repriced a lot in this market.
Speaker 2: We've repriced energy, got a big move from the sixties
Speaker 2: out to triple digits. We've repriced interest rates, We've taken
Speaker 2: out a lot of easing for the Federal Reserve, and
Speaker 2: we've priced in hikes in places like the ECB, two
Speaker 2: of them I think for this year now. Yet we
Speaker 2: haven't repriced growth and the Fed hasn't either. And I'm
Speaker 2: not just talking about where Spot is trading or the
Speaker 2: front month on the Future's curve. If you go out
Speaker 2: to December and look at where December is traded right now,
Speaker 2: we're close to eighty. So we got from the sixties
Speaker 2: to close to eighties on the December contract, and the
Speaker 2: Federal Reserve has lifted the outlook the growth. What's driving that?
Speaker 6: I wonder how much momentum they think is in the economy,
Speaker 6: how much AI and data center spending is going on.
Speaker 6: Were they surprised by the delta earnings and that you
Speaker 6: know sales are at a high despite higher energy prices.
Speaker 6: I think the reality is when you've had close to
Speaker 6: a fifty percent hike in energy prices, its attacks on
Speaker 6: businesses and households, and they will respond by cutting back
Speaker 6: some of their consumption.
Speaker 4: We have the smartest viewers, and I just want to
Speaker 4: point that out. A lot of viewers. You wrote in
Speaker 4: we do and pointed out that among the members, the
Speaker 4: actual dots might say one thing, but the risk to
Speaker 4: GDP downside included fourteen members versus eight prior at the
Speaker 4: December meeting, the risk to the upside with sixteen members
Speaker 4: for core PCE as well as the unemployment rate that
Speaker 4: was up from twelve and thirteen members, respectively, So that
Speaker 4: stagflationary outcome still in the back minds of so many
Speaker 4: of these FED members. They just aren't making and it's
Speaker 4: their base case. So I just I don't understand, Bob,
Speaker 4: and I guess that this is my question. Is the
Speaker 4: reaction function essentially they will hold pat even in this scenario,
Speaker 4: or do you have a sense of what the reaction
Speaker 4: function is to true saguflation.
Speaker 6: Well, the bottom line is the market is just looking
Speaker 6: through the FED right here and saying doesn't make sense,
Speaker 6: don't get it, don't know what they were thinking. The
Speaker 6: projections don't make sense to me. But I know where
Speaker 6: we are. There's a lot of tension still in the
Speaker 6: Middle East. It's yet to completely play out. I think
Speaker 6: where we are now is about fair. It can go
Speaker 6: either way from here. So it's completely dismissive of the
Speaker 6: FOMC statement.
Speaker 2: Hey, Stephanie, before you go, what's the number one question
Speaker 2: for Chairman poal into this news conference?
Speaker 8: Yeah, I mean the biggest question is going to be
Speaker 8: provided energy prices are elevated through rough much of the summer,
Speaker 8: how are you going to think about the balance of risk?
Speaker 8: Is it's going to be something that you're going to
Speaker 8: look through and do you expect that growth is going
Speaker 8: to lower as a result, or is this something that
Speaker 8: you're worried about more similar to twenty twenty two? And
Speaker 8: what are the balance of risks in your mind in
Speaker 8: terms of how this could play out.
Speaker 2: Stephanitiely good to see as always, Thanks for jumping on, Stephanie.
Speaker 2: Rolf There of Wolf Research. To build on the conversation,
Speaker 2: Dan SWANMK of KPMG, Dan, I'm going to use a
Speaker 2: quote of yours to ask you the question, a duel
Speaker 2: mandate or a dueling mandate? What have we got?
Speaker 1: A dueling mandate? And I think that's a real problem.
Speaker 1: I think the FED is this dubvish sort of numbers
Speaker 1: don't add up. I think I agree with that completely.
Speaker 1: A duvish pause is not what I would expect. I
Speaker 1: would have expected some people to actually put in rate
Speaker 1: hikes in this meeting, and they didn't. And I think
Speaker 1: there's a real issue about we saw rate cuts in
Speaker 1: late twenty twenty four to shore up the labor market,
Speaker 1: we didn't get any jobs. We saw rate cuts in
Speaker 1: late twenty twenty five to shore up the labor market.
Speaker 1: I don't think we're going to get a lot of
Speaker 1: jobs from those. That brings up the issue is, is
Speaker 1: the problem in the labor market more structure and systemic,
Speaker 1: something that rate cuts alone cannot cure and spur the
Speaker 1: demand for workers on. If that's the case, if you
Speaker 1: cut rates further, you're risking a more persistent bout of
Speaker 1: inflation or worse, a stagflationary scenario. And I think the
Speaker 1: devil in the detail is in that stagflation scenario. Also
Speaker 1: important is that they raise their non inflationary rate. That
Speaker 1: is reflecting yes, productivity growth and the idea that the
Speaker 1: economy can grow more robustly without having without having inflation.
Speaker 1: But that also means higher non inflationary rate, which is
Speaker 1: an important marker to put down before Kevin Warsh takes
Speaker 1: on as FED chair, since he has argued that productivity
Speaker 1: growth should lower that non inflationary rate. That is not
Speaker 1: what the FED is saying, and I think that's very important.
Speaker 1: But I am very concerned about five years in. We've
Speaker 1: got consumer is expecting more inflation than they did in
Speaker 1: late twenty twenty four, and those expectations are going to rise,
Speaker 1: especially with salient prices like prices at the pump going up.
Speaker 1: And there's already a long tail due to the problems
Speaker 1: in the Middle East. Production idled is not easily brought
Speaker 1: back online. It's weeks to months and we're roling supply
Speaker 1: chains the world over. You create scarcities that go below
Speaker 1: the destruction and demand that gives you stagflation.
Speaker 4: Van Is this the FED meeting where Ford guidance just died?
Speaker 1: Absolutely. We didn't have a lot of Ford guidance to
Speaker 1: begin with, but absolutely. And I think what really will
Speaker 1: be interesting in the Chairman's comments is what was the
Speaker 1: debate in terms of growth? What went into these numbers?
Speaker 1: How does the debate fall out? I think the devil
Speaker 1: in the details here is that there is a bit
Speaker 1: of a stag inflationary concern out there, and there should be.
Speaker 5: There's a we suffer from three zip code scenario here
Speaker 5: in New York City you've got a much greater national perspective.
Speaker 5: I take real issue with a narrow part of America
Speaker 5: being affected by five dollars a gallon gas. How much
Speaker 5: of America is going to be flat on their back
Speaker 5: from some of these shocks.
Speaker 1: Well, unfortunately or fortunately, we do have fiscal stimulus right now,
Speaker 1: and that fiscal stimulus will help absorb the shock instead
Speaker 1: of going into other kinds of spending, and that will
Speaker 1: help households. Tax refunds are showing up in consumer bank
Speaker 1: accounts right now. But the combination of fiscal stimulus with remember,
Speaker 1: inflation is accelerating right now. We saw PCEE accelerate. We
Speaker 1: saw the PPI numbers today. The translation of the PPI
Speaker 1: and the CPI for PCE for the month of February hotter,
Speaker 1: especially on course services. That's aside from what's going on
Speaker 1: in terms of tariff based inflation. That is important right now,
Speaker 1: and I think that's getting lost in translation. But it
Speaker 1: does show up in the double and the details of
Speaker 1: those dots and how the forecasts show up. You could
Speaker 1: have had one very strong forecast push up the GDP number.
Speaker 1: Within the group, there are people who believe within the
Speaker 1: administration that will get five to six percent growth this year.
Speaker 1: That was their forecast going in. If Steve Moran wrote
Speaker 1: down a number like that, that would have raised the
Speaker 1: overall growth figure, when in fact the rest of the
Speaker 1: committee is seeing a more stag inflationary scenario. I do
Speaker 1: think it's a dubbsh pause that is a bit disappointing
Speaker 1: right now given where we're at. Even though I'm very
Speaker 1: worried about the labor market, I just don't think the
Speaker 1: Fed can cure what ails it.
Speaker 2: So, Diane, what do you think the emphasis Why do
Speaker 2: you think the emphasis will be in this news conference
Speaker 2: with Chaman Pound in about five minutes time.
Speaker 1: I think the emphasis is going to be uncertainty and
Speaker 1: wait and see, and that will just sort of be
Speaker 1: where they are right now and that they don't know
Speaker 1: where the next rate move is actually going to be.
Speaker 1: And I think that's the right way to play it.
Speaker 2: Van Swank, Dan always going to catch up with you.
Speaker 2: Thanks for being with us, Dan Swank. They're breaking down
Speaker 2: the FED decision. If you are just joining us, welcome
Speaker 2: to the program. The news conference about four minutes away
Speaker 2: with the Chairman of the Federal Reserve down in Washington, DC,
Speaker 2: in any other time, at any other moment, we'd be
Speaker 2: talking about the penultimate meeting of the Federal Reserve Chair.
Speaker 2: But we have not spoken to a single person today
Speaker 2: who thinks this is the penultimate meeting of the Federal
Speaker 2: Reserve Chair. And most believe Chairman Powell, including the former
Speaker 2: Fed Vice Chair, is going to be sticking around for
Speaker 2: at least a few more months.
Speaker 4: Lightly because we don't know when the confirmation of the
Speaker 4: next FETI chair is going to be, And that ultimately
Speaker 4: lies with the man from North Carolina, Tom Tillis. Ultimately
Speaker 4: that there is this question about credibility for the Fed continuity.
Speaker 4: I just wonder if he gets up there and he
Speaker 4: says what we do doesn't matter right now, as long
Speaker 4: as we don't hike, and as long as we don't
Speaker 4: cut that much. Not in the driver's seat. I mean, ultimately,
Speaker 4: this is their past to say, this is an economy
Speaker 4: that's moved on from us. We are not in control.
Speaker 4: We are watching it just like you.
Speaker 5: Unspoken John will be the idea of the recent election results,
Speaker 5: including yesterday in Illinois. And I also point out a
Speaker 5: set of allies saying no to the President on this war.
Speaker 5: And then mister Powell representing the institution will stay around
Speaker 5: more so than the last meeting.
Speaker 2: A big pace of this bull case for this economy,
Speaker 2: for this market has been tax refunds. We hear that
Speaker 2: phrase get banded around all the time on this program,
Speaker 2: tax refunds, tax refunds. How big are these tax refunds
Speaker 2: actually going to be? And how our attitudes towards the
Speaker 2: economy changing Given the shock of the past few weeks.
Speaker 2: What about that money actually got well?
Speaker 6: We're seeing it now when we look at Chase deposit accounts.
Speaker 6: We're seeing, particularly the bottom couple quintiles of earners, see
Speaker 6: their deposit balances start to go up a bit. But
Speaker 6: the uncomfortable truth is they're now paying that out again
Speaker 6: at the pump. And we can't forget that businesses and
Speaker 6: households were already paying a higher tax because of tariffs
Speaker 6: on prices, and now energy prices are going to create
Speaker 6: yet another tax on their disposable income.
Speaker 2: Brow by the squeeze. Israel, the energy bill is a
Speaker 2: severe and they were high already and now they.
Speaker 4: Get in high delta and American we're perfect examples of
Speaker 4: how the economy is doing pretty well and people are
Speaker 4: still spending. The difference is that the cost are getting
Speaker 4: that much higher, and so the room that people have
Speaker 4: and that companies have to do okay is getting narrower
Speaker 4: and narrower. In the FEDS watching this, and they don't
Speaker 4: have the silver bullet to really make this a better situation.
Speaker 5: I did scientific surveillance research today and we wr to
Speaker 5: Charles de Gaull was popping the two of us. You
Speaker 5: could easily do it for seven thousand dollars, and you're
Speaker 5: enjoying it this morning just under eleven thousand dollars.
Speaker 2: Are you're pretending you don't flap business over three? It's
Speaker 2: that way you did.
Speaker 5: No, it's not premier. We're not doing the first class thing,
Speaker 5: but business class. I'm going to suggest us up at
Speaker 5: least twenty percent doing.
Speaker 2: Is that Polaris? Is that United? Business class? Is that
Speaker 2: the front of the plane?
Speaker 4: I actually don't even know. Yes, that's yes, Actually I do.
Speaker 4: I remember going to something a demonstration about it. Not actually.
Speaker 5: For everybody to know, for everybody out in the world.
Speaker 5: Johan and I are in steerage and you're on the golf.
Speaker 4: That is such a load of nice ones.
Speaker 2: Hey, Bob, before you go just to find a word
Speaker 2: about a minute away from this news conference. What are
Speaker 2: you looking for?
Speaker 6: I'm looking for a couple of things. I want to
Speaker 6: understand how they're thinking about the war and the elevated
Speaker 6: risk to both sides of their mandate. And then secondly,
Speaker 6: I want to know how they got to their forecast numbers.
Speaker 6: I think Diane's right, there needs to be some explanation there,
Speaker 6: and the explanation could be quite simple. Could be, well,
Speaker 6: one member put in a six percent exact growth rate. Okay,
Speaker 6: well let us know that
Speaker 5: Se