WEBVTT - Instant Reaction: The Fed Decides 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.200 --> 0:00:13.840 This is a breaking news update from Bloomberg instant reaction 0:00:14.120 --> 0:00:17.959 and analysis from our three thousand journalists and analysts around 0:00:17.960 --> 0:00:21.520 the world. But that FED decision is mimachay. 0:00:23.320 --> 0:00:26.920 No change in rates, no change in dots, one descent, 0:00:27.040 --> 0:00:31.040 but some big changes in inflation expectations. FED official see 0:00:31.080 --> 0:00:34.320 one cut still in two thousand and six. At some point, 0:00:34.600 --> 0:00:38.080 even though their statement notes that uncertainty about the economic 0:00:38.200 --> 0:00:42.720 outlook remains elevated, three members who favored no cuts in 0:00:43.000 --> 0:00:46.360 this year moved their dots down to one. The statement 0:00:46.400 --> 0:00:49.360 goes on to say the implication of developments in the 0:00:49.360 --> 0:00:52.720 Middle East for the US economy are uncertain, and the 0:00:52.720 --> 0:00:56.640 committee remains attentive to risks to both sides of their mandate. 0:00:57.040 --> 0:00:59.960 They still see one more cut in twenty twenty seven. 0:01:00.440 --> 0:01:03.480 Stephen Myyron the only dissenter. He wanted a quarter point 0:01:03.520 --> 0:01:06.120 cut this time, and from the dots we discerned that 0:01:06.160 --> 0:01:08.440 he still wants one hundred basis points at some point 0:01:08.440 --> 0:01:12.360 this year. The language about future moves remains the same. 0:01:12.440 --> 0:01:15.520 They still talk about the extent and timing of additional 0:01:15.520 --> 0:01:20.080 adjustments to the target range. It's the Summary of Economic Projections, 0:01:20.120 --> 0:01:21.920 in which we see a lot of changes. 0:01:22.240 --> 0:01:23.640 PCEE inflation this. 0:01:23.600 --> 0:01:27.040 Year is forecast at two point seven percent, up from 0:01:27.080 --> 0:01:31.199 two point four percent in December. Core is also seen 0:01:31.360 --> 0:01:34.320 at two point seven percent, up from two point five. 0:01:34.800 --> 0:01:37.720 Both dropped to two point two percent next year, up 0:01:37.760 --> 0:01:41.280 from two point four percent in the December SEP. Core 0:01:41.440 --> 0:01:45.839 is seen at two point seven percent this year. Both 0:01:45.920 --> 0:01:49.280 drop back, as I mentioned next year, to two percent 0:01:49.560 --> 0:01:53.000 in twenty and twenty eight. GDP marked up a tenth 0:01:53.400 --> 0:01:55.720 in both years both of the next two years to 0:01:55.760 --> 0:01:58.320 two point four percent this year and two point three 0:01:58.400 --> 0:02:02.280 percent next year. The ployment forecast remains four point four 0:02:02.320 --> 0:02:05.440 percent in twenty twenty six, dropping to four point three 0:02:05.480 --> 0:02:08.840 percent next year. That's up from four point two percent 0:02:08.960 --> 0:02:12.240 in December, and the longer run estimate for FED fund 0:02:12.320 --> 0:02:15.440 seen as the proxy for the neutral rate, rises a 0:02:15.560 --> 0:02:17.520 tick to three point one percent. 0:02:17.600 --> 0:02:19.840 Guys, Ma, Mick Key, thank you sir. We'll catch up 0:02:19.840 --> 0:02:21.239 with you a little bit later. Let's start with the 0:02:21.280 --> 0:02:23.919 price section. We'll got equities, then bonds. We'll have a 0:02:23.960 --> 0:02:25.920 sneak peak of what's happening in the commodity market because 0:02:25.919 --> 0:02:29.160 we're tracking that throughout the day here at Bloomberg Equity Markets, 0:02:29.240 --> 0:02:31.280 looking at the S and P five hundred off session 0:02:31.280 --> 0:02:33.800 lows were still negative by point five percent. In the 0:02:33.800 --> 0:02:35.960 bond market, yields slightly higher on a two year by 0:02:35.960 --> 0:02:39.120 two basis points, basically as you were at three seventy 0:02:39.280 --> 0:02:42.079 on twos on ten to about four to twenty one, 0:02:42.320 --> 0:02:45.040 which is basically where we were going into this decision. 0:02:45.120 --> 0:02:47.320 So this is what we're doing. You go into the projections. 0:02:47.480 --> 0:02:49.280 We'll ignore the statement just for a while. We'll go 0:02:49.320 --> 0:02:51.760 into the statement and we'll look at the projections and 0:02:51.800 --> 0:02:54.560 compare what they were projecting back in December and have 0:02:54.600 --> 0:02:56.359 a look at what they're projecting now. So let's just 0:02:56.440 --> 0:03:00.720 go through twenty twenty six. For GDP revise slightly. That's 0:03:00.720 --> 0:03:02.760 some good news. Twenty seven as well, same thing, by 0:03:02.800 --> 0:03:06.520 the way, So the revised GENP higher, that revise, inflation higher, 0:03:06.760 --> 0:03:09.959 and they've kept the projection implied projection for interest rates 0:03:10.200 --> 0:03:13.720 exactly where it was for December. Those kind of moves 0:03:14.000 --> 0:03:17.160 should be music to the ears of bullish market participants. 0:03:17.240 --> 0:03:20.320 This is an incredibly dubvish hold, just by virtue of 0:03:20.320 --> 0:03:22.440 the fact that only one person dissented and it was 0:03:22.480 --> 0:03:26.840 Governor Myron that alone. But these projections highlighting a tolerance 0:03:26.880 --> 0:03:29.280 for higher inflation and still the belief that it will 0:03:29.320 --> 0:03:32.160 come down by twenty twenty seven to that two percent 0:03:32.240 --> 0:03:36.520 level without hiking rates and continuing with rate cuts gives 0:03:36.560 --> 0:03:38.720 you a sense of where this spreed's mind is at. 0:03:38.840 --> 0:03:41.120 This seems like more of a consensus than I expected, 0:03:41.200 --> 0:03:43.120 than a lot of people expected, and it is more 0:03:43.160 --> 0:03:45.480 to looking through any kind of oil price shop. 0:03:45.560 --> 0:03:48.320 In honor of Allen Greenspan's hundredth birthday, it was a 0:03:48.360 --> 0:03:51.240 green Span decision. Everybody got on board with the chairman. 0:03:51.440 --> 0:03:52.400 That's all there is to it. 0:03:52.440 --> 0:03:54.960 And the out years the good news on the inflation front, 0:03:55.280 --> 0:03:58.640 you decide whether this is good. The Fedishville basically forecasting 0:03:58.680 --> 0:04:01.480 the same inflation glide path as they were before, even 0:04:01.480 --> 0:04:03.360 with this lift to twenty twenty six. 0:04:03.520 --> 0:04:05.680 How do you say transitory without saying transitatory. 0:04:05.760 --> 0:04:07.160 It's in there in the forecast, and that's. 0:04:07.000 --> 0:04:08.880 The reason why you're seeing the yield curve steep in 0:04:08.920 --> 0:04:11.120 and on the margins you're seeing tenure yields higher on 0:04:11.160 --> 0:04:13.280 this because ultimately this is a bed that is willing 0:04:13.320 --> 0:04:16.359 to stay on hold and look through an oil price shock, 0:04:16.480 --> 0:04:18.800 look through the fact that even core PC has been 0:04:18.839 --> 0:04:21.080 higher than expected and is expected to stay that way. 0:04:21.320 --> 0:04:24.760 Because ultimately, they do think the labor market is showing 0:04:24.800 --> 0:04:27.520 signs of cracks, even though they don't necessarily see unemployment 0:04:27.600 --> 0:04:30.160 rate ticking up, and they do want to air on 0:04:30.200 --> 0:04:32.640 the side of being more accommodated. 0:04:32.200 --> 0:04:34.080 Especial I'd like to speak to you, just briefly. Get 0:04:34.120 --> 0:04:36.520 him on the phone, Governor Waller. I was about to say, Chris, 0:04:36.920 --> 0:04:38.800 no dissent. He said it was a coin flip. Who 0:04:38.800 --> 0:04:40.440 would come down to the labor market report, and that 0:04:40.520 --> 0:04:43.240 labor market report was overwhelmingly soft. So what does he 0:04:43.279 --> 0:04:45.400 see in the ALEC for inflation that's kept him on 0:04:45.440 --> 0:04:46.000 the sidelines? 0:04:46.080 --> 0:04:48.080 Severn Or Waller, please join us if you want to call, 0:04:48.160 --> 0:04:50.640 it will take you. I mean, ultimately, that is one 0:04:50.640 --> 0:04:52.719 of the key players because he is a pillar of 0:04:52.720 --> 0:04:54.160 the swing vote, if you will, and a lot of 0:04:54.200 --> 0:04:56.880 people are looking to him for some sort of guidance 0:04:56.880 --> 0:04:58.240 about what exactly is driving us to do. 0:04:58.400 --> 0:05:01.080 But at Washington State he was expert and game theory, 0:05:01.160 --> 0:05:03.400 and when there's a war, there's a different game theory. 0:05:03.480 --> 0:05:05.800 This is a major shock. We're working through Bob Michael 0:05:05.800 --> 0:05:08.159 at Jpmorkan Asset Management, still with us around the table. 0:05:08.320 --> 0:05:10.320 Bob's already thoughts off the back of this one. 0:05:10.640 --> 0:05:14.360 I do. They're telling us, don't worry about it. There's 0:05:14.560 --> 0:05:17.359 a little bit of a year term inflation shot. They 0:05:17.440 --> 0:05:21.120 added a tenth more than we did, but it's fine. 0:05:21.240 --> 0:05:24.720 The economy is going to use that to accelerate. So 0:05:25.200 --> 0:05:29.320 they increase GDP that I don't get, and they left 0:05:29.400 --> 0:05:32.599 unemployment where it is. And it also doesn't sync with 0:05:32.720 --> 0:05:37.800 the dots. I heard Mike McKee say that three members 0:05:37.880 --> 0:05:44.560 who previously voted for no cut changed their view so 0:05:45.000 --> 0:05:46.760 and went to a cut. 0:05:46.880 --> 0:05:50.080 The median dot three four December projection the median dot 0:05:50.400 --> 0:05:52.599 three point four joining us now to discuss as the 0:05:52.640 --> 0:05:55.719 former FEDVIZ chair Richard Clarendon now, rich I know the 0:05:55.720 --> 0:05:58.120 word transitory is banned and they can't use it anymore, 0:05:58.120 --> 0:06:03.080 particularly in the news conference. But is this screen transitory, Well, it. 0:06:03.160 --> 0:06:07.760 Certainly screams we need a synonym for it, temporary not 0:06:07.880 --> 0:06:10.160 long lived. You know, they could justify it, perhaps by 0:06:10.200 --> 0:06:13.200 looking at the oil futures, which still show this as 0:06:13.200 --> 0:06:16.520 dissipating over time. But the short answer is nobody, including 0:06:16.520 --> 0:06:20.200 the FED, knows this is very elevated geopolitical risk, and 0:06:20.560 --> 0:06:22.760 there are risk on both sides. But the baseline, I 0:06:22.800 --> 0:06:26.520 agree with your panel is dubvish constructive. 0:06:28.240 --> 0:06:30.799 Rich. I'm just wondering how much this is just AI 0:06:30.920 --> 0:06:33.200 written all over it. How much this is a FED 0:06:33.560 --> 0:06:36.880 that is basing their entire assumption on a productivity boom 0:06:37.240 --> 0:06:40.080 tied to artificial intelligence and the deployment of it through 0:06:40.400 --> 0:06:44.280 the economy and frankly disinflation on its heels. 0:06:45.800 --> 0:06:48.359 I think there's an element of that, perhaps more so 0:06:48.520 --> 0:06:52.360 with the incoming share than some other members. I think 0:06:52.400 --> 0:06:55.880 it's also a statement, however, that AI is a support 0:06:55.920 --> 0:06:59.200 to demand in the economy that to some extent, along 0:06:59.240 --> 0:07:01.960 with those big beauty full bill tax cuts, is probably 0:07:02.040 --> 0:07:04.560 going to offset some of what the drag would be 0:07:04.600 --> 0:07:08.640 from the oil price increases. But again, this is a 0:07:08.680 --> 0:07:12.600 modal or a baseline, and I think certainly internally we'll 0:07:12.640 --> 0:07:15.080 hear that there was a discussion of the risk cases 0:07:15.360 --> 0:07:15.880 as well. 0:07:16.160 --> 0:07:19.280 Professor Clarina, when you were at Columbia herding cats, Xavier 0:07:19.360 --> 0:07:23.560 Salah Martin taught the acclaimed Principles of Economics, talk to 0:07:23.640 --> 0:07:27.880 us about the risk of a demand destruction here. To me, 0:07:27.960 --> 0:07:31.800 it's extraordinary. Whether it's war short term or a more 0:07:31.840 --> 0:07:35.800 permanent demand destruction, should that be a legitimate concern of 0:07:35.840 --> 0:07:36.239 the Fed. 0:07:37.720 --> 0:07:38.080 Well. 0:07:38.240 --> 0:07:41.080 The demand destruction comes simply from the fact that not 0:07:41.160 --> 0:07:44.400 only oil prices, but energy prices and goods that are 0:07:44.440 --> 0:07:47.600 intensive in oil and energy will go up, and that 0:07:47.680 --> 0:07:51.400 will tend to reduce the real incomes for millions and 0:07:51.440 --> 0:07:54.680 tens of millions of households. Now, on the other side 0:07:54.720 --> 0:07:57.360 of that you have the AI boon, but there is 0:07:57.440 --> 0:07:59.880 no doubt that this is going to squeeze real act 0:08:00.120 --> 0:08:03.720 or get a demand the longer the oil shock persists. 0:08:04.080 --> 0:08:06.680 Check out the price action. Let's go to equities. We're 0:08:06.720 --> 0:08:09.920 still down by zero point six percent, unmoved by one. 0:08:10.000 --> 0:08:12.800 The surface of things looks like a duvish decision from 0:08:12.840 --> 0:08:15.559 the central bank. Check out the bond market. Similar story. 0:08:15.600 --> 0:08:17.560 No big moves off the back of this. The only 0:08:17.600 --> 0:08:20.080 takeaway this can change. But the only takeaway for me 0:08:20.800 --> 0:08:24.160 is there is nothing this institution can do to drive 0:08:24.200 --> 0:08:26.679 this market in the face of the shock housewhere Jeff 0:08:26.680 --> 0:08:29.240 Curry of Carlisle said it really well early this morning 0:08:29.360 --> 0:08:32.000 on Bloombog TV when Jeff turned around and said, there's 0:08:32.040 --> 0:08:34.080 nothing the Central Bank can do about this. You cannot 0:08:34.160 --> 0:08:37.760 print barrels. This market is still at the mercy of 0:08:37.800 --> 0:08:40.120 what happens in the commodity market, and the FED is 0:08:40.120 --> 0:08:43.240 not the circuit breaker anymore. Because this FED decision, I 0:08:43.240 --> 0:08:45.680 would sit here and argue is fairly duvish, with the 0:08:45.720 --> 0:08:48.120 exception of the absence of a descent coming from Governor Waller, 0:08:48.440 --> 0:08:50.200 is fairly duvish to come out and say the outlook 0:08:50.240 --> 0:08:53.040 for growth is better, We've revised higher, the outlook for 0:08:53.040 --> 0:08:57.040 inflation and the median dot is exactly the same. Screams dubvish. 0:08:57.080 --> 0:08:59.800 And yet here we are no big moves in financial markets. 0:09:00.040 --> 0:09:00.960 I think that's noticeable. 0:09:01.240 --> 0:09:04.400 The FED is playing dodgeball without the ball. They're not 0:09:04.440 --> 0:09:06.840 the pitcher in a game. And right now what they're 0:09:06.880 --> 0:09:11.120 dealing with is shock after shock without necessarily historic precedent, yes, 0:09:11.200 --> 0:09:13.360 or historic precedents for oil shocks, but not for the 0:09:13.360 --> 0:09:16.400 AI shock and what that does to the overall economy. 0:09:16.520 --> 0:09:20.120 So they might remain on hold, and that might be bullish, 0:09:20.240 --> 0:09:22.760 but not in this moment, because right now, if another 0:09:22.960 --> 0:09:25.840 oil or natural gas plant gets bombed, people are gonna 0:09:25.840 --> 0:09:27.840 be watching that much more than anything coming out of J. 0:09:27.920 --> 0:09:28.160 Powell. 0:09:29.000 --> 0:09:31.400 Vice Chairman CLARIEDA The thing I would point out here, 0:09:31.520 --> 0:09:35.800 Damien Sasawer at Bloomberg is very cautious on EM suddenly 0:09:35.840 --> 0:09:39.040 here in this meeting and in this press conference more 0:09:39.080 --> 0:09:41.640 than ever. Is this the central banker to the world. 0:09:43.880 --> 0:09:47.200 Well, sure it is, and I think that the Fed 0:09:47.280 --> 0:09:49.719 FED is aware of that. And I think one thing 0:09:49.800 --> 0:09:52.920 this episode is reminding of folks. We've seen it in 0:09:53.200 --> 0:09:57.160 the in the dollar obviously, is you know, since the 0:09:57.720 --> 0:10:00.280 Iran hostilities commenced, you know, the price of go old 0:10:00.320 --> 0:10:02.240 is down, the price of the dollar is up. So 0:10:02.480 --> 0:10:07.240 I think there is that element as well. But you know, broadly, 0:10:07.800 --> 0:10:10.960 the FED is reacting to events. I think Lisa said 0:10:11.040 --> 0:10:13.400 said it well first and foremost, this is a major 0:10:13.480 --> 0:10:18.439 geopolitical and economic shock. The Dodgeball analogy, I think is 0:10:18.480 --> 0:10:20.400 a good one. So I think, yes, the FED is 0:10:20.440 --> 0:10:22.720 the central banker to the world, but it's not the 0:10:22.760 --> 0:10:24.240 main attraction right now. 0:10:24.200 --> 0:10:26.400 About Michael with us, with JP Morgan And so what 0:10:26.520 --> 0:10:29.880 is the with the tentacles of JP Morgan around the world. 0:10:29.960 --> 0:10:33.040 How is EM doing? I see Philippine pay so almost 0:10:33.040 --> 0:10:35.920 at the sixties saw Australia raising rates and. 0:10:36.240 --> 0:10:39.000 Oh well, well, well we called in Australia. Am no, 0:10:39.000 --> 0:10:42.120 I'm not calling Australia, get you in trouble tating. 0:10:41.720 --> 0:10:42.839 You know. 0:10:43.240 --> 0:10:45.880 I am watching oz EM though, which is of its 0:10:45.920 --> 0:10:50.800 own Sydney watching. Well yeah, early morning, deeply, deeply unhappy 0:10:50.800 --> 0:10:51.040 with that. 0:10:51.080 --> 0:10:53.480 But I read all the level shoot in town Like Alice, 0:10:53.640 --> 0:10:56.840 I want to know h as a central banker of 0:10:56.880 --> 0:11:00.000 the world, the sensitivities he faces, what is jp more 0:11:00.040 --> 0:11:03.120 we're going to see, and the reaction in the currency markets, 0:11:03.160 --> 0:11:07.040 the reaction and fixed income of EM is the chairman speaks. 0:11:08.240 --> 0:11:10.160 I think there are a couple of things. One we 0:11:10.240 --> 0:11:13.520 felt going through this that the dollar would be the 0:11:13.559 --> 0:11:16.600 safe haven bid, and we're seeing a lot of that. 0:11:16.880 --> 0:11:20.040 We also felt, for those who wanted to diversify away 0:11:20.400 --> 0:11:23.800 from dollar, emerging market FX was the place to go. 0:11:23.960 --> 0:11:26.720 The central banks in those regions seem to be on 0:11:26.760 --> 0:11:30.240 top of things, and you had a split between those 0:11:30.280 --> 0:11:34.120 who are energy importers and those are energy exporters, those 0:11:34.280 --> 0:11:37.319 that are sitting on rare earth minerals and other minerals, 0:11:37.360 --> 0:11:39.600 and those who aren't. And I think we're seeing all 0:11:39.640 --> 0:11:41.760 of that play out. But I will tell you our 0:11:41.760 --> 0:11:46.040 client base still feels under allocated to emerging markets, both 0:11:46.280 --> 0:11:50.760 equity and fixed income. We're seeing those allocations continue to 0:11:50.800 --> 0:11:53.360 come in. I think there's a good tal in there. 0:11:53.520 --> 0:11:54.680 We just went along Australia. 0:11:54.760 --> 0:11:56.679 They you go back to back high cudy imagine markets, 0:11:56.679 --> 0:12:00.560 Central Bank cover the BA. See that. Honestly some offending 0:12:00.640 --> 0:12:01.760 people down under right now. 0:12:02.880 --> 0:12:05.040 I'm not wearing it on this one, but I will 0:12:05.040 --> 0:12:06.800 say I will say that tomorrow will be really interesting 0:12:06.800 --> 0:12:07.800 at the BOE and the ECB. 0:12:08.000 --> 0:12:09.880 There you go, you tellon Bromo. All right, Rich Cloud 0:12:09.920 --> 0:12:11.120 is still with us. Rich, I want to come to 0:12:11.160 --> 0:12:13.440 you on an important topic to wrap things up, a 0:12:13.480 --> 0:12:17.880 really serious one, the future for Chairman Powell. This is 0:12:17.920 --> 0:12:21.040 not how usually these things play out. Typically, how this 0:12:21.080 --> 0:12:24.240 plays out, the chairman knows when his term finishes, he 0:12:24.280 --> 0:12:26.480 gets a great send off, he walks away and he 0:12:26.520 --> 0:12:28.560 does a one million dollar speech in about twelve months 0:12:28.640 --> 0:12:32.120 time and has a happy retirement. This feels so different, Rich, 0:12:32.679 --> 0:12:35.840 Kevin Walsh is ultimately being nominated. We have no idea 0:12:35.880 --> 0:12:39.120 when the confirmation hearing is going to be. Bob Michael 0:12:39.200 --> 0:12:41.240 sat here a little bit earlier and said he thinks 0:12:41.240 --> 0:12:44.240 the Chairman J. Powell is still going to be there 0:12:44.520 --> 0:12:47.079 by the time you get to the midterms, Rich, how 0:12:47.080 --> 0:12:49.199 do you think this process is going to play out 0:12:49.360 --> 0:12:50.440 in the next several months. 0:12:51.640 --> 0:12:57.600 Well, you're absolutely correct. This is unprecedented, unusual that the 0:12:57.640 --> 0:13:02.520 handoff is usually pretty smooth and very well telegraphed. And 0:13:02.760 --> 0:13:07.040 the difference, of course now is several fold. One of course, 0:13:07.360 --> 0:13:10.920 is the you know, the d o J investigation of 0:13:10.960 --> 0:13:14.040 Pal that the FED is pushing back on. In addition, 0:13:14.120 --> 0:13:17.040 of course, the even worsh getting a hearing is now 0:13:17.200 --> 0:13:20.520 up up in the air. You know, I certainly do 0:13:20.559 --> 0:13:24.160 expect J. J. Powell will will will stay on and 0:13:24.240 --> 0:13:27.920 perhaps a meeting or two after Warsh finally arrives. You know, 0:13:27.960 --> 0:13:30.320 whether or not that's after the mid terms, I'm not sure. 0:13:30.520 --> 0:13:32.760 I think Jay Powell will move on once Warsh is 0:13:32.760 --> 0:13:38.200 in place, uh to to his his future life. But 0:13:38.240 --> 0:13:41.800 his real focus is on maintaining the the independence of 0:13:41.880 --> 0:13:45.000 the of the Institution, and I think he will be 0:13:45.000 --> 0:13:47.920 in place until Warsh is confirmed and perhaps the meeting 0:13:48.080 --> 0:13:49.640 or two thereafter. 0:13:50.280 --> 0:13:53.200 Rich, appreciate you're insight on the topic. Thank you, sir, 0:13:53.320 --> 0:13:55.840 Rich Cloud of that the former FED Vice chair on 0:13:55.840 --> 0:13:58.440 this FED decision and the chairman's future. If you are 0:13:58.520 --> 0:14:01.040 just joining us on the program, welcome to the show. 0:14:01.280 --> 0:14:03.839 So unchanged the policy rate of the Federal Reserve about 0:14:03.840 --> 0:14:06.800 fifteen minutes ago, some descent eleven to one. That descent 0:14:06.840 --> 0:14:09.480 came from an obvious place, Governor Meyron voting for an 0:14:09.520 --> 0:14:12.720 interest rate reduction. For the projections, big focus on what 0:14:12.760 --> 0:14:15.880 was happening with inflation. They've lifted their outlook for inflation 0:14:16.040 --> 0:14:18.840 for this year at least, but left the median dot 0:14:18.960 --> 0:14:22.240 ultimately uncased, implying one rate cup from this feeder reserve 0:14:22.480 --> 0:14:23.480 for twenty twenty six. 0:14:23.640 --> 0:14:25.640 To me, the most interesting takeaway is what you said, 0:14:25.720 --> 0:14:27.720 which is this market doesn't seem to care. Even though 0:14:27.720 --> 0:14:30.400 this is very much a Dubvish hold, this actually is 0:14:30.560 --> 0:14:33.320 news in Fedland, and yet the market doesn't pay attention 0:14:33.400 --> 0:14:36.120 because there's another game in town and it's everything else 0:14:36.160 --> 0:14:38.160 in the world. And some people might say, oh no, 0:14:38.440 --> 0:14:40.680 the adults can't control this, they can't step in and 0:14:40.680 --> 0:14:42.600 save us, and the other people will say, we haven't 0:14:42.640 --> 0:14:44.480 had a free market in a long time, and this 0:14:44.520 --> 0:14:46.560 is what it looks like, and guess what it's a welcome, 0:14:47.080 --> 0:14:49.440 welcome exercise. And so those two sides of the debate 0:14:49.480 --> 0:14:50.120 are playing. 0:14:49.880 --> 0:14:51.400 Out market and we've got a free market. 0:14:51.760 --> 0:14:52.800 Well, I mean that's the whole thing. 0:14:52.960 --> 0:14:54.400 Ultimately, it's too exciting. 0:14:54.800 --> 0:14:56.720 I'm kind of excited about this. I mean, that's kind 0:14:56.760 --> 0:14:58.280 of a nice thing. Not to have the thumb on 0:14:58.280 --> 0:15:00.560 the scale all the time and same story right over again. 0:15:00.560 --> 0:15:03.880 It's a change. It's a change, definitely, Roth of Wolf Research. 0:15:03.920 --> 0:15:05.400 I can see how excited you are. You're not alive. 0:15:05.520 --> 0:15:07.320 I've been waiting for that moment for a long long time. 0:15:07.480 --> 0:15:10.120 Agent moves five percent away from old time highs. 0:15:09.880 --> 0:15:10.880 Even a Japanese market. 0:15:10.960 --> 0:15:13.280 It's how exciting know they're actually tried to the bench. 0:15:14.280 --> 0:15:15.040 There's actually traders. 0:15:15.120 --> 0:15:17.560 Definitely, I'm sorry, so definitely. Roth of Wolf Research joins 0:15:17.600 --> 0:15:19.760 us now for more. Definitely, we need your reaction to 0:15:19.880 --> 0:15:22.160 the decision and why you expect the emphasis to be 0:15:22.520 --> 0:15:23.560 in this news conference? 0:15:24.520 --> 0:15:26.320 Yeah, I mean the emphasis is going to be on 0:15:26.480 --> 0:15:29.760 the reaction function provided that energy prices end up staying 0:15:29.760 --> 0:15:31.640 long or the question is are they going to end 0:15:31.720 --> 0:15:34.200 up looking through this or do they ultimately end up 0:15:34.200 --> 0:15:36.720 having to be dubvish as a result, because growth will 0:15:36.760 --> 0:15:39.400 end up slowing. And our own view is that because 0:15:39.440 --> 0:15:41.800 the economy is so different today versus twenty twenty two, 0:15:42.040 --> 0:15:44.200 they'll ultimately have to be more Dubvish as a result 0:15:44.640 --> 0:15:48.120 of the war and Iran, rather than the opposite. Otherwise, 0:15:48.120 --> 0:15:50.920 it tells you a story of productivity and that growth 0:15:50.960 --> 0:15:52.840 is actually going to be higher in the future years, 0:15:52.880 --> 0:15:55.200 but then you know, nothing else changes. And the one 0:15:55.200 --> 0:15:57.440 thing that we didn't talk about, that wasn't talked about 0:15:57.520 --> 0:16:00.600 yet was was the longer run dot shipping a little bit. 0:16:01.080 --> 0:16:03.480 Well, this to me is Sephanie, that I'm really wondering 0:16:03.480 --> 0:16:07.320 about is how much does a more duvish fed enable 0:16:07.400 --> 0:16:09.960 something that looks more like nineteen seventies or more like 0:16:10.000 --> 0:16:13.360 twenty twenty two. And what we saw with inflation and 0:16:13.400 --> 0:16:18.360 the read through, is that something of a concern for you. 0:16:16.840 --> 0:16:19.680 No, because the backdrop is so different today versus twenty 0:16:19.720 --> 0:16:21.200 twenty two. If you look at twenty twenty two, the 0:16:21.280 --> 0:16:24.360 unemployment rate was three seven heading to three five today 0:16:24.360 --> 0:16:27.360 it's four to four. Hero Games was growing at six 0:16:27.440 --> 0:16:30.240 hundred thousand today they're somewhere between zero and fifty thousand 0:16:30.280 --> 0:16:33.920 on average. The inflation backdrop was different and core inflation 0:16:34.040 --> 0:16:36.440 was five and a half today it's three. So the 0:16:36.520 --> 0:16:38.440 idea that we're going to have a repeat of twenty 0:16:38.480 --> 0:16:41.000 twenty two seems like a very low likelihood event, and 0:16:41.080 --> 0:16:43.560 therefore that's not something I would expect the FED to 0:16:43.600 --> 0:16:46.720 react in that way because the data probably won't support 0:16:47.120 --> 0:16:48.800 a reflationary type of environment. 0:16:48.960 --> 0:16:52.080 The seventy given a war, given what oil's doing. John 0:16:52.160 --> 0:16:56.480 mentions it's sixty to basically sixty two hundred or even higher. 0:16:56.640 --> 0:16:59.520 We're still slaves to the job market. And the answer 0:16:59.520 --> 0:17:03.280 is the un deployment rate hasn't broken with the war, 0:17:03.440 --> 0:17:07.840 with the distractions. How ex post is this fed into 0:17:07.840 --> 0:17:08.359 the summer? 0:17:09.880 --> 0:17:11.320 Yeah, I mean, I think they're going to be in 0:17:11.359 --> 0:17:15.640 an environment over the summer where base cases the unemployment 0:17:15.680 --> 0:17:17.919 rate is probably steady, but they're going to be looking 0:17:17.920 --> 0:17:19.640 at this most cools. That's going to be the deciding 0:17:19.640 --> 0:17:22.800 factor between whether they're able to cut Probably not at 0:17:22.920 --> 0:17:25.879 Worsh's first meeting, maybe in September or December, right, and 0:17:25.960 --> 0:17:27.680 it's going to all go down to the unemployment rate. 0:17:27.720 --> 0:17:30.160 Is it notably above four or five, in which case 0:17:30.200 --> 0:17:31.640 they have a window to be able. 0:17:31.400 --> 0:17:33.520 To ease and if not. 0:17:33.600 --> 0:17:35.120 Then it's going to be tough for worse to get 0:17:35.119 --> 0:17:36.240 the rest of the members on board. 0:17:36.359 --> 0:17:39.800 Bob synthesized Michael Feruli's work on this. Then the fact 0:17:39.840 --> 0:17:43.200 is the labor market has encrect yet they have to wait, 0:17:43.359 --> 0:17:43.800 don't they. 0:17:45.480 --> 0:17:47.920 I think that's part of it. I'm still gop smacked 0:17:48.000 --> 0:17:51.359 by the Fed's decision. They're basically saying all of this 0:17:51.520 --> 0:17:55.040 going on in the Middle East is a speed bump 0:17:55.119 --> 0:17:58.800 that yeah, inflation will tick up, you know, three tenths 0:17:59.440 --> 0:18:03.760 and two here and there, but the economy will accelerate, 0:18:03.920 --> 0:18:07.960 unemployment will stay stable, and it's off to the races. 0:18:08.000 --> 0:18:10.439 I just don't see that. I think there is a 0:18:10.560 --> 0:18:15.000 real impact to inflation then ultimately to the economy and 0:18:15.000 --> 0:18:15.520 the laborook. 0:18:15.560 --> 0:18:17.119 This is the heart of the matter, John, This is 0:18:17.119 --> 0:18:19.080 the absolute heart of the matter, and everybody has to 0:18:19.160 --> 0:18:22.199 recalibrate their access to how long is this going to 0:18:22.200 --> 0:18:24.320 go on? And then you get to demand destruction. 0:18:24.440 --> 0:18:26.320 We mentioned this earlier and I think it's important to 0:18:26.400 --> 0:18:28.960 keep going over it. We've repriced a lot in this market. 0:18:29.080 --> 0:18:31.800 We've repriced energy, got a big move from the sixties 0:18:31.880 --> 0:18:35.280 out to triple digits. We've repriced interest rates, We've taken 0:18:35.320 --> 0:18:37.359 out a lot of easing for the Federal Reserve, and 0:18:37.400 --> 0:18:39.920 we've priced in hikes in places like the ECB, two 0:18:39.920 --> 0:18:42.119 of them I think for this year now. Yet we 0:18:42.160 --> 0:18:45.640 haven't repriced growth and the Fed hasn't either. And I'm 0:18:45.680 --> 0:18:47.639 not just talking about where Spot is trading or the 0:18:47.640 --> 0:18:49.720 front month on the Future's curve. If you go out 0:18:49.760 --> 0:18:52.359 to December and look at where December is traded right now, 0:18:52.440 --> 0:18:54.880 we're close to eighty. So we got from the sixties 0:18:54.920 --> 0:18:57.679 to close to eighties on the December contract, and the 0:18:57.720 --> 0:19:01.560 Federal Reserve has lifted the outlook the growth. What's driving that? 0:19:02.400 --> 0:19:06.439 I wonder how much momentum they think is in the economy, 0:19:06.760 --> 0:19:10.520 how much AI and data center spending is going on. 0:19:11.560 --> 0:19:14.760 Were they surprised by the delta earnings and that you 0:19:14.800 --> 0:19:18.160 know sales are at a high despite higher energy prices. 0:19:18.480 --> 0:19:20.679 I think the reality is when you've had close to 0:19:20.720 --> 0:19:24.560 a fifty percent hike in energy prices, its attacks on 0:19:24.680 --> 0:19:28.960