1 00:00:02,440 --> 00:00:10,119 Speaker 1: Bloomberg Audio Studios, podcasts, radio news, short and simple. 2 00:00:10,160 --> 00:00:12,959 Speaker 2: A change in the statement, but no change in rates. 3 00:00:13,000 --> 00:00:16,599 Speaker 3: The economic overview remains the same word for word, with 4 00:00:16,760 --> 00:00:20,520 Speaker 3: solid growth, strong job gains, and inflation that's eased over 5 00:00:20,640 --> 00:00:24,800 Speaker 3: the past year but remains elevated and then a new line. 6 00:00:25,120 --> 00:00:27,360 Speaker 3: In recent months, there has been a lack of further 7 00:00:27,440 --> 00:00:32,000 Speaker 3: progress toward the Committee's two percent inflation objective. Still, the 8 00:00:32,040 --> 00:00:36,080 Speaker 3: statement says risks to achieving its employment and inflation goals 9 00:00:36,120 --> 00:00:39,600 Speaker 3: have quote moved toward better balance over the past year, 10 00:00:39,960 --> 00:00:43,560 Speaker 3: putting the assessment in the past tense and adding over 11 00:00:43,600 --> 00:00:46,320 Speaker 3: the past year. The additions to the statement would seem 12 00:00:46,320 --> 00:00:49,000 Speaker 3: to ratify the markets view that there will not be 13 00:00:49,120 --> 00:00:52,519 Speaker 3: three rate cuts this year, if any at all. The 14 00:00:52,560 --> 00:00:55,640 Speaker 3: statement's view that the Committee does not believe it would 15 00:00:55,680 --> 00:00:58,800 Speaker 3: be appropriate to reduce rates until it's gained further confidence 16 00:00:59,040 --> 00:01:02,280 Speaker 3: inflation is moving toward target is unchanged. 17 00:01:02,680 --> 00:01:05,720 Speaker 2: Now the long awaited balance sheet taper is here. 18 00:01:05,880 --> 00:01:09,679 Speaker 3: The treasury roll off cap will drop from sixty billion 19 00:01:09,680 --> 00:01:13,400 Speaker 3: to twenty five billion a month starting on June first. 20 00:01:13,640 --> 00:01:16,920 Speaker 3: Officials had suggested it we'd be lowered to thirty billion 21 00:01:17,240 --> 00:01:20,120 Speaker 3: as expected. No change in the thirty five billion dollar 22 00:01:20,240 --> 00:01:24,960 Speaker 3: cap on mortgage backed securities. However, any maturing securities over 23 00:01:25,000 --> 00:01:29,280 Speaker 3: the cap will be reinvested in treasuries rather than mbs. 24 00:01:29,600 --> 00:01:31,959 Speaker 2: The vote unanimous, and that's it. 25 00:01:32,000 --> 00:01:34,440 Speaker 4: Mike McKay, Thank you, sir, Stay close. Let's run through 26 00:01:34,440 --> 00:01:36,160 Speaker 4: this price action. Mike McKy is going to run into 27 00:01:36,160 --> 00:01:38,600 Speaker 4: that news conference in just a moment. Equity is recovering 28 00:01:38,680 --> 00:01:40,280 Speaker 4: just a little bit, still down on the session by 29 00:01:40,280 --> 00:01:43,360 Speaker 4: a tenth of one percent. Retention, of course, immediately turning 30 00:01:43,360 --> 00:01:45,280 Speaker 4: to what's happening in the bond market. In the bond 31 00:01:45,280 --> 00:01:47,560 Speaker 4: market at the moment the rally sticks you'l to lower 32 00:01:47,600 --> 00:01:49,400 Speaker 4: by four basis points on a ten year four to 33 00:01:49,400 --> 00:01:51,880 Speaker 4: sixty four on a two year down three, just about 34 00:01:51,880 --> 00:01:54,760 Speaker 4: holding on to that five percent level. Lots of attention 35 00:01:54,920 --> 00:01:57,080 Speaker 4: in the FX market, what's happening with Dolly Yen. But 36 00:01:57,160 --> 00:01:59,080 Speaker 4: again strength off the back of this Dolly En backdown 37 00:01:59,120 --> 00:02:01,800 Speaker 4: to one to fifty seven fifty four. It was always 38 00:02:01,880 --> 00:02:04,400 Speaker 4: going to be difficult to out hawk what was already 39 00:02:04,480 --> 00:02:06,920 Speaker 4: very hawkish pricing in this market. Bear in mind, though 40 00:02:07,200 --> 00:02:09,240 Speaker 4: this is the first act of a two part story. 41 00:02:09,280 --> 00:02:11,200 Speaker 4: The other act is in about twenty eight minutes time 42 00:02:11,440 --> 00:02:13,760 Speaker 4: when we hear from the Federal Reserve chairman. So do 43 00:02:13,800 --> 00:02:15,720 Speaker 4: you want to play compare and contrast? I think we 44 00:02:15,720 --> 00:02:18,040 Speaker 4: could do that, Bramo. Briefly, I'll go through this. It 45 00:02:18,120 --> 00:02:20,480 Speaker 4: might sound a little boring, but every word seems to matter. 46 00:02:20,720 --> 00:02:24,440 Speaker 4: The last statement the first paragraph read as follows. Recent 47 00:02:24,520 --> 00:02:27,800 Speaker 4: indicator suggests that economic activity has been expanding at a 48 00:02:27,840 --> 00:02:30,680 Speaker 4: solid pace. Job gains have remained strong, and the unemployment 49 00:02:30,760 --> 00:02:34,000 Speaker 4: rate has remained low. Inflation has eased over the past year, 50 00:02:34,200 --> 00:02:37,919 Speaker 4: but remains elevated. That first paragraph has changed. This is 51 00:02:37,960 --> 00:02:41,400 Speaker 4: how it reads now. Recent indicator suggests that economic activity 52 00:02:41,440 --> 00:02:44,640 Speaker 4: has continued to expand at a solid pace. Job gains 53 00:02:44,639 --> 00:02:47,280 Speaker 4: have remained strong, and the unemployment rate has remained low. 54 00:02:47,360 --> 00:02:50,400 Speaker 4: Inflation has eased over the past year, but remains elevated. 55 00:02:50,520 --> 00:02:53,400 Speaker 4: In recent months, there has been a lack of further 56 00:02:53,440 --> 00:02:57,400 Speaker 4: progress towards the committee's two percent inflation objective. I just 57 00:02:57,480 --> 00:03:00,440 Speaker 4: wonder how long the conversation was Bramo. In the f 58 00:03:00,480 --> 00:03:04,440 Speaker 4: WEMC so agreed to that last line of that first paragraph. 59 00:03:04,560 --> 00:03:07,880 Speaker 1: You know, I wonder because the discussion among Fed officials 60 00:03:07,919 --> 00:03:10,680 Speaker 1: who did speak in the week before the quiet period 61 00:03:11,200 --> 00:03:14,799 Speaker 1: was more hawkish people seemed genuinely concerned. I don't think 62 00:03:14,840 --> 00:03:17,440 Speaker 1: that maybe there was disagreement with this. I just wonder 63 00:03:17,440 --> 00:03:19,480 Speaker 1: how much conviction feed Scher Powell will have in this 64 00:03:19,560 --> 00:03:21,960 Speaker 1: news conference to really build on that and say just 65 00:03:22,000 --> 00:03:24,520 Speaker 1: how much less conviction they have and just how much 66 00:03:24,560 --> 00:03:26,640 Speaker 1: they are going to do to offset some of the 67 00:03:26,760 --> 00:03:27,600 Speaker 1: lack of progress. 68 00:03:27,680 --> 00:03:29,920 Speaker 5: I think they've got away for more economic data. In 69 00:03:29,960 --> 00:03:32,240 Speaker 5: the bottom line, John, you tool it off jobs Day? 70 00:03:32,320 --> 00:03:35,160 Speaker 5: Do we link right now to Friday's Jobs Day? I'm 71 00:03:35,200 --> 00:03:38,440 Speaker 5: sorry we do. There's no real indication here of the 72 00:03:38,480 --> 00:03:41,920 Speaker 5: labor market cracking. Jolt survey today was a little week. 73 00:03:41,920 --> 00:03:45,280 Speaker 5: Bob Michael mentioned that, but I just think they have 74 00:03:45,360 --> 00:03:47,640 Speaker 5: to wait there. In massively expost. 75 00:03:47,200 --> 00:03:49,880 Speaker 4: Position fantastic lineup. Gonn gets to the news conference. Bob 76 00:03:49,920 --> 00:03:51,760 Speaker 4: michae is still with us, joining us now a place 77 00:03:51,800 --> 00:03:54,040 Speaker 4: to say, good friend of this program, good friend of ours. 78 00:03:54,240 --> 00:03:56,840 Speaker 4: Mohammed Aaron of Queen's College, Cambridge. Mohamed, You've had a 79 00:03:56,840 --> 00:03:59,960 Speaker 4: few minutes to go over this one. What jumps out. 80 00:04:00,040 --> 00:04:03,600 Speaker 6: Three things, John, One is the characterization of growth is 81 00:04:03,680 --> 00:04:07,520 Speaker 6: stronger than I would have expected. Two is the reduction 82 00:04:07,640 --> 00:04:11,640 Speaker 6: in QE is larger than I expected. And then finally 83 00:04:12,640 --> 00:04:17,000 Speaker 6: that additional sentence they've put in about inflation is going 84 00:04:17,080 --> 00:04:20,159 Speaker 6: to put chair pal in a difficult situation the press 85 00:04:20,160 --> 00:04:23,640 Speaker 6: conference because people are going to say, okay, finish the sentence. 86 00:04:24,760 --> 00:04:29,159 Speaker 6: It's been two the progress hasn't been achieved. Why is 87 00:04:29,200 --> 00:04:32,640 Speaker 6: it something temporary? Is it something structural? So they've left 88 00:04:32,680 --> 00:04:37,360 Speaker 6: wide open the question of why has progress been less 89 00:04:37,360 --> 00:04:38,960 Speaker 6: than they expected on the inflation front? 90 00:04:39,640 --> 00:04:42,040 Speaker 5: Mohammed, if I look at this press conference, this is 91 00:04:42,080 --> 00:04:44,960 Speaker 5: a central banker with an original script and not much 92 00:04:45,000 --> 00:04:47,839 Speaker 5: theory involved at all. Can you get out front of 93 00:04:47,839 --> 00:04:51,280 Speaker 5: the debate ex ante or is this an ex post discussion? 94 00:04:52,520 --> 00:04:54,120 Speaker 2: Tom? I'm really glad you raise it. 95 00:04:54,200 --> 00:04:57,880 Speaker 6: This is an ex post discussion. This is a fed that, 96 00:04:58,000 --> 00:05:00,880 Speaker 6: having been burnt by trying to be the ex anti 97 00:05:01,160 --> 00:05:05,360 Speaker 6: back in twenty twenty one, has become totally exposed, totally 98 00:05:05,440 --> 00:05:10,120 Speaker 6: data dependent, totally we active, and that is a problem 99 00:05:10,160 --> 00:05:13,240 Speaker 6: for the economy. That is a real problem for the economy. 100 00:05:13,320 --> 00:05:15,560 Speaker 6: So no, he's going to remain exposed. We're going to 101 00:05:15,560 --> 00:05:18,279 Speaker 6: hear data dependency I don't know how many times during 102 00:05:18,279 --> 00:05:19,440 Speaker 6: the press conference. 103 00:05:19,320 --> 00:05:21,600 Speaker 1: Which raises this question which data matters more? We were 104 00:05:21,600 --> 00:05:23,800 Speaker 1: talking about data that we got earlier this morning about 105 00:05:23,800 --> 00:05:27,960 Speaker 1: ism manufacturing showing weakening activity to your point about the 106 00:05:28,000 --> 00:05:30,839 Speaker 1: surprise and how much they had conviction and strength, but 107 00:05:30,960 --> 00:05:34,039 Speaker 1: also stickier inflation that came in higher than expected with 108 00:05:34,120 --> 00:05:37,479 Speaker 1: prices paid. How will this fed view that data that 109 00:05:37,640 --> 00:05:39,599 Speaker 1: I don't want to say stagflation because I've said it 110 00:05:39,640 --> 00:05:41,360 Speaker 1: so many times and I'm sure people will be making 111 00:05:41,360 --> 00:05:43,720 Speaker 1: fun of me for that, but I am wondering if 112 00:05:43,720 --> 00:05:45,320 Speaker 1: this is sort of not ideal for them, and if 113 00:05:45,320 --> 00:05:48,040 Speaker 1: there was respond more to the inflation side or the 114 00:05:48,080 --> 00:05:49,000 Speaker 1: economy side. 115 00:05:50,440 --> 00:05:52,920 Speaker 6: So I call it tagflationary wins. 116 00:05:52,680 --> 00:05:56,280 Speaker 1: Thank you. 117 00:05:56,400 --> 00:05:58,720 Speaker 6: I mean, I can live with taxflation or light that 118 00:05:58,800 --> 00:06:02,440 Speaker 6: you used inflationary when they're not going to acknowledge that, 119 00:06:02,560 --> 00:06:07,279 Speaker 6: because it puts a question front and center, which is 120 00:06:07,320 --> 00:06:09,800 Speaker 6: what is the right inflation target for an economy that's 121 00:06:09,839 --> 00:06:14,600 Speaker 6: going through fundamental supply side changes. You know, if you 122 00:06:14,680 --> 00:06:18,000 Speaker 6: look at what is sticking in inflation, it's not particularly 123 00:06:18,040 --> 00:06:20,200 Speaker 6: responsive to higher interest rate for longer. 124 00:06:20,560 --> 00:06:21,440 Speaker 2: It really isn't. 125 00:06:21,880 --> 00:06:28,040 Speaker 6: So if they acknowledge the softer economy, they end up 126 00:06:28,440 --> 00:06:32,640 Speaker 6: having to then discuss, at least internally, whether two percent 127 00:06:32,720 --> 00:06:36,040 Speaker 6: is right inflation target and a phrase that John did 128 00:06:36,080 --> 00:06:39,680 Speaker 6: not read out in the statement is they are strongly committed, 129 00:06:39,800 --> 00:06:42,960 Speaker 6: strongly committed to returning inflation to a two percent target. 130 00:06:43,240 --> 00:06:45,080 Speaker 4: Give me a chance, Mohammed. I was just itching to 131 00:06:45,080 --> 00:06:47,000 Speaker 4: get to you, to get a reaction from Michael with 132 00:06:47,080 --> 00:06:48,160 Speaker 4: us as well, you're going to rite. 133 00:06:49,480 --> 00:06:53,000 Speaker 5: Just threw you under the fail giant. 134 00:06:53,200 --> 00:06:54,760 Speaker 2: We got Mohammed back up. Always got a sense but. 135 00:06:58,360 --> 00:06:58,760 Speaker 7: The state. 136 00:07:00,080 --> 00:07:01,080 Speaker 4: But that was in it before. 137 00:07:01,279 --> 00:07:03,440 Speaker 1: It wasn't the more notable thing. It wasn't struck out. 138 00:07:03,480 --> 00:07:06,200 Speaker 1: It didn't change John. That's the reason why, in fact. 139 00:07:06,200 --> 00:07:08,040 Speaker 5: I've never read a statement continue. 140 00:07:08,600 --> 00:07:10,800 Speaker 4: You didn't even need to tell us that, Hammud, What 141 00:07:10,880 --> 00:07:12,720 Speaker 4: are you doing to me? I don't know. Bob, Michael 142 00:07:12,720 --> 00:07:16,040 Speaker 4: a great friend of this program. To see you, Bobby, 143 00:07:16,040 --> 00:07:16,960 Speaker 4: your thoughts on this one. 144 00:07:17,760 --> 00:07:21,760 Speaker 7: As Michael McKee was reading through the commentary, I thought, boy, 145 00:07:21,880 --> 00:07:25,520 Speaker 7: this is really good for the markets, because here's a 146 00:07:25,600 --> 00:07:28,840 Speaker 7: FED that's telling us look at the longer term, look 147 00:07:28,880 --> 00:07:31,760 Speaker 7: where inflation was, and look where we've gotten it to. 148 00:07:32,040 --> 00:07:34,320 Speaker 7: Don't worry about the last couple of months. We'll see 149 00:07:34,360 --> 00:07:37,720 Speaker 7: what happens there. I actually think that's the right message. 150 00:07:37,840 --> 00:07:41,200 Speaker 7: I don't believe the law of long and variable lags 151 00:07:41,240 --> 00:07:44,360 Speaker 7: has been repealed. I think they've been delayed because of 152 00:07:44,440 --> 00:07:47,400 Speaker 7: all the physical stimulus that's still on the pipeline, but 153 00:07:47,440 --> 00:07:50,360 Speaker 7: they're still there. You are seeing some pressures on the economy. 154 00:07:50,840 --> 00:07:53,280 Speaker 7: Like Muhammad, the only thing I was surprised about is 155 00:07:53,320 --> 00:07:57,160 Speaker 7: that they characterized the economy as still solid. 156 00:07:58,360 --> 00:08:00,000 Speaker 5: I look, Muhammad, I want to bring this up everybody 157 00:08:00,080 --> 00:08:00,760 Speaker 5: up earlier with Bob. 158 00:08:00,800 --> 00:08:00,920 Speaker 7: Mike. 159 00:08:00,960 --> 00:08:02,360 Speaker 5: Come to do with you right now. I don't know 160 00:08:02,400 --> 00:08:04,360 Speaker 5: where you were in nineteen ninety five, maybe at the 161 00:08:04,400 --> 00:08:07,720 Speaker 5: White House, Muhammed, maybe IMF. But the answer is Bob 162 00:08:07,800 --> 00:08:11,800 Speaker 5: Michael says, there's whispers here of nineteen ninety five. The 163 00:08:11,960 --> 00:08:16,280 Speaker 5: stack market was a moonshot off of the success of 164 00:08:16,440 --> 00:08:19,360 Speaker 5: nineteen ninety five. Is that what we are prepared for 165 00:08:19,560 --> 00:08:22,320 Speaker 5: here that they may get this right, we may have 166 00:08:22,480 --> 00:08:24,800 Speaker 5: a constructive nineteen ninety five and up we go. 167 00:08:26,720 --> 00:08:31,360 Speaker 6: So where I agree with Bob without any qualifications, is 168 00:08:31,480 --> 00:08:35,599 Speaker 6: that this particular statement is something that the markets will like. 169 00:08:36,240 --> 00:08:41,000 Speaker 6: It's exactly what the market wanted as to are we 170 00:08:41,320 --> 00:08:45,200 Speaker 6: going to repeat ninety five in terms of market reaction? 171 00:08:45,640 --> 00:08:48,760 Speaker 6: Tom What I'm worried about because I truly believe that 172 00:08:48,960 --> 00:08:52,319 Speaker 6: this is not about lags, that there are structural aspects 173 00:08:52,679 --> 00:08:57,480 Speaker 6: that are running the equilibrium inflation rate higher than it 174 00:08:57,559 --> 00:09:00,280 Speaker 6: has been in the past. I worry that the it's 175 00:09:00,320 --> 00:09:03,480 Speaker 6: going to be overtight this year. I worry that the 176 00:09:03,559 --> 00:09:05,800 Speaker 6: FED is not going to end up cutting because they're 177 00:09:05,800 --> 00:09:09,080 Speaker 6: going to be so data dependent, so reactive, that they're 178 00:09:09,160 --> 00:09:12,600 Speaker 6: not going to look at the weakness that's coming. In fact, 179 00:09:12,960 --> 00:09:19,679 Speaker 6: if you simply read the earnings reports of McDonald's, Starbucks, PepsiCo, Nestley, 180 00:09:19,760 --> 00:09:22,199 Speaker 6: the list goes on. There is no doubt that low 181 00:09:22,280 --> 00:09:26,120 Speaker 6: income consumers are struggling, that balance sheet effects have gone 182 00:09:26,160 --> 00:09:29,160 Speaker 6: from positive to negatives, the pandemic savings are run down, 183 00:09:29,480 --> 00:09:34,000 Speaker 6: that credit card balances are high. They rely entirely on 184 00:09:34,120 --> 00:09:38,120 Speaker 6: the labor market, entirely on wage income, and if something 185 00:09:38,200 --> 00:09:40,439 Speaker 6: goes wrong in that labor market, we are going to 186 00:09:40,480 --> 00:09:43,360 Speaker 6: see this economy slow, much faster than anybody would like 187 00:09:43,400 --> 00:09:43,880 Speaker 6: it to slow. 188 00:09:44,360 --> 00:09:46,800 Speaker 4: Well might as well talking about a loss of pricing power. 189 00:09:46,840 --> 00:09:48,600 Speaker 4: Have been talking about that over the last few months 190 00:09:48,720 --> 00:09:50,920 Speaker 4: or so. But Michael and place that Tom brought up 191 00:09:50,960 --> 00:09:53,040 Speaker 4: the mid nineties, you've talked about the mid two thousands. 192 00:09:53,280 --> 00:09:56,480 Speaker 4: You share those concerns about economic weakness cracks's time to build. 193 00:09:56,520 --> 00:09:59,000 Speaker 4: Yet you are still bullish, as bullish as you have 194 00:09:59,120 --> 00:10:01,559 Speaker 4: been since the two thousands. Could you explain why? 195 00:10:02,040 --> 00:10:05,199 Speaker 7: Well, I think Muhammed's right. I think you have to 196 00:10:05,360 --> 00:10:09,480 Speaker 7: watch how businesses are reacting in this environment, and there 197 00:10:09,600 --> 00:10:12,400 Speaker 7: are some pressures. I think what we need to watch 198 00:10:12,720 --> 00:10:15,920 Speaker 7: is the unemployment rate does not start to go above 199 00:10:16,000 --> 00:10:18,920 Speaker 7: four percent, and certainly at four point two percent, it 200 00:10:18,960 --> 00:10:22,199 Speaker 7: would get the Fed's attention and they would do something 201 00:10:22,600 --> 00:10:26,000 Speaker 7: as long as inflation is reasonable. And what they did 202 00:10:26,080 --> 00:10:29,199 Speaker 7: in ninety five is come in and cut rates three times. 203 00:10:29,480 --> 00:10:32,600 Speaker 7: As I said, that's the one soft landing that I've 204 00:10:32,679 --> 00:10:35,000 Speaker 7: lived through in my forty plus years in the market. 205 00:10:35,600 --> 00:10:38,400 Speaker 7: It looks like it's doable again, but it can't be 206 00:10:38,520 --> 00:10:41,800 Speaker 7: a FED that sits on the sidelines the entire year 207 00:10:42,240 --> 00:10:43,880 Speaker 7: and leaves real yields where they are. 208 00:10:44,040 --> 00:10:45,720 Speaker 1: I have to give you a victory Lapbob, because you've 209 00:10:45,760 --> 00:10:47,520 Speaker 1: basically said that this is what they might do to 210 00:10:47,600 --> 00:10:49,320 Speaker 1: kind of give a nod to a little bit more 211 00:10:49,360 --> 00:10:51,480 Speaker 1: of a dubish stance while having a more hawkish stance 212 00:10:51,800 --> 00:10:55,120 Speaker 1: in the actual statement, which is maybe essentially what they're doing, 213 00:10:55,160 --> 00:10:56,959 Speaker 1: which is the reason why the market might like this. 214 00:10:57,559 --> 00:11:00,400 Speaker 1: I am wondering that Muhammed's point about stagflation light or 215 00:11:00,440 --> 00:11:03,360 Speaker 1: the wins of stagflation, that they're not going to address this. 216 00:11:03,640 --> 00:11:05,760 Speaker 1: They're going to talk about strength in the economy, so 217 00:11:05,880 --> 00:11:08,160 Speaker 1: they don't have to address that. Maybe they're looking at 218 00:11:08,200 --> 00:11:11,000 Speaker 1: a three percent target of inflation rather than two. 219 00:11:12,200 --> 00:11:17,079 Speaker 7: Pal's probably laughing every time he hears stagflation because he 220 00:11:17,320 --> 00:11:19,840 Speaker 7: remembers and he's probably thinking, what I am a vulgar? 221 00:11:20,080 --> 00:11:24,160 Speaker 7: Here go two point eight percent core PCE year over year. 222 00:11:24,400 --> 00:11:27,199 Speaker 7: I would take that in as second. And if you 223 00:11:27,280 --> 00:11:29,640 Speaker 7: go back to ninety five to ninety eight, which Tom 224 00:11:29,720 --> 00:11:33,160 Speaker 7: points out was great for markets, inflation traded between two 225 00:11:33,240 --> 00:11:37,200 Speaker 7: and a half three percent. It was a pretty vibrant economy. 226 00:11:37,240 --> 00:11:39,199 Speaker 7: I don't know what markets will do. I think that 227 00:11:39,400 --> 00:11:41,720 Speaker 7: kind of economic scenario is really. 228 00:11:41,640 --> 00:11:43,839 Speaker 5: Let me joh on next moon exit nineteen ninety eight 229 00:11:43,960 --> 00:11:47,240 Speaker 5: was a moonshot, the that one from four thousand, ten thousand, 230 00:11:47,760 --> 00:11:48,160 Speaker 5: just you know. 231 00:11:48,200 --> 00:11:50,960 Speaker 7: I remember somebody's looking to get out of triple eleven. 232 00:11:51,640 --> 00:11:52,800 Speaker 8: That's what I'm I'm. 233 00:11:52,679 --> 00:11:54,800 Speaker 2: Looking for the first tra triple leverage. 234 00:11:55,400 --> 00:11:58,360 Speaker 4: Today's the days, Today the day Buff's got some buns 235 00:11:58,400 --> 00:12:00,920 Speaker 4: to sound and I swung to and just now chief 236 00:12:00,960 --> 00:12:03,160 Speaker 4: economists the KPMG, Mohammed and Bob are going to be 237 00:12:03,200 --> 00:12:05,599 Speaker 4: sticking with us. Dan, you've had eleven twelve minutes to 238 00:12:05,640 --> 00:12:07,559 Speaker 4: go over this, going against the news conference with Chairman 239 00:12:07,640 --> 00:12:10,440 Speaker 4: Pou eighteen minutes away. What's your big question for him 240 00:12:10,640 --> 00:12:11,720 Speaker 4: after reading that statement. 241 00:12:13,840 --> 00:12:15,880 Speaker 9: Well, one of the things that I'm surprised at that 242 00:12:16,000 --> 00:12:17,959 Speaker 9: they could have gone more hawkish on, and I think 243 00:12:18,120 --> 00:12:21,040 Speaker 9: the nod to inflation picking up more recently was the 244 00:12:21,120 --> 00:12:24,480 Speaker 9: compromise is that they left that they're waiting to decide 245 00:12:24,520 --> 00:12:27,480 Speaker 9: when to reduce rates. And you've got to believe within 246 00:12:27,559 --> 00:12:31,319 Speaker 9: that meeting, given that we've heard that it's a possibility 247 00:12:31,559 --> 00:12:35,040 Speaker 9: that we could see rate hikes if inflation persists, from 248 00:12:35,160 --> 00:12:39,959 Speaker 9: FED leadership themselves that to keep that line reduce rates 249 00:12:40,360 --> 00:12:42,720 Speaker 9: when they're going to reduce rates, that they still think 250 00:12:43,040 --> 00:12:46,040 Speaker 9: the threshold to raise rates is much higher than the 251 00:12:46,120 --> 00:12:48,920 Speaker 9: threshold to cut rates. I think that's where the bias 252 00:12:49,120 --> 00:12:51,719 Speaker 9: is within the FED. However, what I'll be looking for 253 00:12:51,800 --> 00:12:54,840 Speaker 9: in the conference the press conference is was their debate 254 00:12:55,000 --> 00:12:57,480 Speaker 9: and in the minutes to this meeting, was their debate 255 00:12:57,520 --> 00:13:01,079 Speaker 9: about the possibility that they might need to raise rates now. 256 00:13:01,400 --> 00:13:05,600 Speaker 9: I think the move up in inflation we've seen is been, 257 00:13:06,160 --> 00:13:09,600 Speaker 9: you know, somewhat overstated. We know there's some residual seasonality 258 00:13:09,720 --> 00:13:12,199 Speaker 9: somewhere between the fourth quarter and the first quarter's reality 259 00:13:12,559 --> 00:13:13,840 Speaker 9: that's still too hot. 260 00:13:14,320 --> 00:13:15,400 Speaker 8: And there are what we. 261 00:13:15,520 --> 00:13:19,199 Speaker 9: Saw in inflation was much more broad based inflation in 262 00:13:19,280 --> 00:13:23,880 Speaker 9: the service sector, things like home maintenance, car maintenance. It 263 00:13:24,040 --> 00:13:27,720 Speaker 9: wasn't insurance as much this month, but those are things 264 00:13:27,760 --> 00:13:30,520 Speaker 9: that are the things that Muhammad talks about less retractable 265 00:13:30,880 --> 00:13:34,640 Speaker 9: and also more systemic. But there was service sector inflation 266 00:13:35,000 --> 00:13:38,120 Speaker 9: in the employment costs index as well. Not in the 267 00:13:38,240 --> 00:13:42,480 Speaker 9: lowest wage jobs, particularly in food services and accommodation, where 268 00:13:42,480 --> 00:13:47,040 Speaker 9: they've been decelerating quite rapidly and are now trailing overall 269 00:13:47,160 --> 00:13:50,880 Speaker 9: inflation numbers, but in the overall services sector, where we 270 00:13:51,000 --> 00:13:55,240 Speaker 9: do have some labor shortages still pretty acute, there is 271 00:13:55,480 --> 00:13:57,640 Speaker 9: wage pressures there, and that's what the Fed's going to 272 00:13:57,640 --> 00:13:58,160 Speaker 9: be focused on. 273 00:13:58,520 --> 00:14:00,640 Speaker 5: Diane. You know that, Diane smart arm As you're not 274 00:14:00,760 --> 00:14:03,559 Speaker 5: living within three zip codes, there's some fancy university in 275 00:14:03,640 --> 00:14:07,560 Speaker 5: the United Kingdom. Diane, just simply put, if you drive 276 00:14:07,720 --> 00:14:11,360 Speaker 5: seven hours south of Chicago, what's it like right now, 277 00:14:11,600 --> 00:14:13,480 Speaker 5: because I see you with all the mail I get. 278 00:14:13,720 --> 00:14:16,559 Speaker 5: What you get out on LinkedIn is there's a massive 279 00:14:16,640 --> 00:14:19,840 Speaker 5: divide right now between the financial people and the rest 280 00:14:19,880 --> 00:14:20,520 Speaker 5: of America. 281 00:14:20,960 --> 00:14:22,840 Speaker 2: What's like south of Illinois. 282 00:14:24,800 --> 00:14:26,920 Speaker 9: Well, you know what's really interesting is they've just done 283 00:14:26,960 --> 00:14:29,760 Speaker 9: a study on this in terms of how different people 284 00:14:29,920 --> 00:14:33,800 Speaker 9: view what the inflation problem is. Wealthy households, those in 285 00:14:34,000 --> 00:14:37,600 Speaker 9: the urban areas, they tend to view the entire inflation 286 00:14:37,760 --> 00:14:41,080 Speaker 9: problem as completely the fault of the Fed. Those who 287 00:14:41,160 --> 00:14:44,440 Speaker 9: are less wealthy see this as price gouging. They see 288 00:14:44,480 --> 00:14:47,760 Speaker 9: this as an inequality issue. And we still have gross 289 00:14:47,800 --> 00:14:52,160 Speaker 9: inequalities even though we had this massive leveling up of wages, 290 00:14:52,240 --> 00:14:55,600 Speaker 9: even for low wage workers. As I've said before, they 291 00:14:55,720 --> 00:14:58,000 Speaker 9: move from the shadows of the economy into the sun, 292 00:14:58,200 --> 00:15:01,360 Speaker 9: only to be burned by inflation and that inequality. And 293 00:15:01,800 --> 00:15:05,640 Speaker 9: even though wealth picked up, we saw a cross income 294 00:15:05,720 --> 00:15:10,000 Speaker 9: strata that wasn't enough, because inequality continued to worsen. And 295 00:15:10,160 --> 00:15:13,040 Speaker 9: I think that's what you see when you're dealing with 296 00:15:13,160 --> 00:15:15,600 Speaker 9: this kind of inflation, even though it's at a low grade, 297 00:15:15,640 --> 00:15:18,600 Speaker 9: and I wouldn't compare it to nineteen ninety five. Nineteen 298 00:15:18,680 --> 00:15:21,440 Speaker 9: ninety five the food was wrong. In nineteen ninety four, 299 00:15:21,800 --> 00:15:24,680 Speaker 9: Chairman Greenspan had a checklist I remember it well, and 300 00:15:24,800 --> 00:15:26,560 Speaker 9: it filled it out, and he thought he could preempt 301 00:15:26,600 --> 00:15:29,040 Speaker 9: inflation and he was wrong, and he nearly derailed the 302 00:15:29,120 --> 00:15:33,160 Speaker 9: economy that was not coming off an inflationary kind of 303 00:15:33,400 --> 00:15:36,040 Speaker 9: situation that we have today. It's just not comparable. 304 00:15:36,240 --> 00:15:38,440 Speaker 1: This race is his question, and Mohammed, I'd love to 305 00:15:38,480 --> 00:15:40,680 Speaker 1: get your answer. Since you live within a couple of 306 00:15:40,720 --> 00:15:44,000 Speaker 1: zip codes of a fancy UK college that Tom was maligning, 307 00:15:44,200 --> 00:15:45,720 Speaker 1: I will say I want to hear what you have 308 00:15:45,840 --> 00:15:48,680 Speaker 1: to say about this idea of the messaging of fed 309 00:15:48,720 --> 00:15:51,720 Speaker 1: share Powell in the press conference, do you think he 310 00:15:51,960 --> 00:15:54,400 Speaker 1: needs to be hawkish, that he needs to keep the 311 00:15:54,520 --> 00:15:57,240 Speaker 1: market under pressure in order to keep them on this 312 00:15:57,440 --> 00:15:59,880 Speaker 1: goal of at least even having the covered cut rates 313 00:16:00,160 --> 00:16:02,600 Speaker 1: here as you think is necessary, as they want to do, 314 00:16:03,200 --> 00:16:06,600 Speaker 1: but under the aspis of data dependency is difficult without. 315 00:16:06,400 --> 00:16:07,080 Speaker 2: Some more cracking. 316 00:16:08,400 --> 00:16:10,360 Speaker 6: I think the most important thing, Lisa, for him is 317 00:16:10,440 --> 00:16:13,320 Speaker 6: to stick to what actually happened in the meetings and 318 00:16:13,480 --> 00:16:15,760 Speaker 6: not end up like we have in the past, where 319 00:16:15,840 --> 00:16:19,040 Speaker 6: his messaging is different from the messaging from the minutes 320 00:16:19,040 --> 00:16:20,560 Speaker 6: that we're going to get in a few weeks, because 321 00:16:20,560 --> 00:16:24,280 Speaker 6: if that happens, that is going to cause too much 322 00:16:24,360 --> 00:16:29,320 Speaker 6: volatility yet again confusion, and is going to erode forward 323 00:16:29,360 --> 00:16:34,720 Speaker 6: policy guidance. If what he says is in fact what 324 00:16:34,960 --> 00:16:37,920 Speaker 6: was said in the meeting and is confirmed by the minutes, 325 00:16:38,520 --> 00:16:40,920 Speaker 6: then what he should do is stick to where he 326 00:16:41,080 --> 00:16:44,840 Speaker 6: is right now, which is not validate the amount of 327 00:16:45,680 --> 00:16:47,880 Speaker 6: the hawkish pivot. If you like that, the market has done, 328 00:16:47,960 --> 00:16:51,040 Speaker 6: not go all the way, but goes some of the way. 329 00:16:51,920 --> 00:16:55,080 Speaker 6: My concern is ultimately he may end up more hawkish 330 00:16:55,120 --> 00:16:56,600 Speaker 6: than he needs to be for the well being of 331 00:16:56,640 --> 00:16:59,120 Speaker 6: the economy, but that's more for the next meeting than. 332 00:16:59,040 --> 00:16:59,880 Speaker 2: It is for this meeting. 333 00:17:00,360 --> 00:17:02,280 Speaker 1: Diane, your view on that, Do you think that he's 334 00:17:02,320 --> 00:17:04,360 Speaker 1: going to come out maybe more hawkish that he needs 335 00:17:04,400 --> 00:17:04,880 Speaker 1: to be as well? 336 00:17:07,240 --> 00:17:07,760 Speaker 5: I think he is. 337 00:17:07,880 --> 00:17:09,680 Speaker 9: I think that is the risk, and it's because the 338 00:17:09,760 --> 00:17:12,280 Speaker 9: risk has been on the other side. And Muhammed's exactly right. 339 00:17:12,359 --> 00:17:15,640 Speaker 9: It's very hard these press conferences, having them every single meeting. 340 00:17:16,040 --> 00:17:18,280 Speaker 9: There is a downside to transparency. We see all the 341 00:17:18,320 --> 00:17:21,080 Speaker 9: sausage being made, but you also see individual personality of 342 00:17:21,160 --> 00:17:23,840 Speaker 9: the chairman himself and his own views and how that 343 00:17:23,960 --> 00:17:27,240 Speaker 9: gets translated and gets muddled in terms of what the 344 00:17:27,320 --> 00:17:30,640 Speaker 9: overall messaging is. And it's not that he's a bad communicator, 345 00:17:30,720 --> 00:17:33,120 Speaker 9: but it is that this is really hard. I think 346 00:17:33,400 --> 00:17:35,520 Speaker 9: one of the things that I get really frustrated with 347 00:17:36,040 --> 00:17:39,800 Speaker 9: is how little uncertainty the leaders ship of the Federal 348 00:17:39,840 --> 00:17:42,919 Speaker 9: Reserve have really shown about the economy. I think Chair 349 00:17:43,000 --> 00:17:45,600 Speaker 9: Powell has actually been more humble in that regard because 350 00:17:45,600 --> 00:17:48,399 Speaker 9: he's had to eat crow in public on this issue. 351 00:17:48,680 --> 00:17:52,359 Speaker 9: But the humility in uncertainty we face is very high. 352 00:17:52,920 --> 00:17:55,120 Speaker 9: And that is the sort of you know, coming out 353 00:17:55,160 --> 00:17:58,960 Speaker 9: and making statements following the meeting to counter or to 354 00:17:59,160 --> 00:18:01,320 Speaker 9: change the message reflect the message that was in the 355 00:18:01,440 --> 00:18:05,560 Speaker 9: meeting I think is not productive. But it's also the 356 00:18:06,320 --> 00:18:09,159 Speaker 9: certainty with which some of these comments are made is 357 00:18:09,240 --> 00:18:12,480 Speaker 9: really not helpful either, because there is a lot of uncertainty. 358 00:18:12,680 --> 00:18:15,359 Speaker 9: Let's face it, We're at two percent on the Fed's 359 00:18:15,560 --> 00:18:18,399 Speaker 9: you know, run rate for three and six months on 360 00:18:18,640 --> 00:18:22,160 Speaker 9: core and overall inflation coming down, and people were arguing 361 00:18:22,240 --> 00:18:24,720 Speaker 9: that they should be cutting like crazy, and the Fed, 362 00:18:25,480 --> 00:18:28,480 Speaker 9: at least in a prescient manner, said let's be cautious here. 363 00:18:28,960 --> 00:18:31,879 Speaker 9: We've been for me once shame on me for me twice. 364 00:18:32,760 --> 00:18:35,159 Speaker 9: Shame on yous fiemy twice, Shame on me. They said, no, 365 00:18:35,280 --> 00:18:37,399 Speaker 9: I'm not going to be headfaked by this again, and 366 00:18:37,520 --> 00:18:40,399 Speaker 9: they held back. That was good to hold back, because 367 00:18:40,520 --> 00:18:43,639 Speaker 9: in fact we have seen an acceleration. It's probably overstated, 368 00:18:43,840 --> 00:18:46,320 Speaker 9: but we've got to see where we're going, and there 369 00:18:46,440 --> 00:18:49,560 Speaker 9: is time with the legs that are already still in 370 00:18:49,760 --> 00:18:52,520 Speaker 9: the market with regard to fed tightening. 371 00:18:52,760 --> 00:18:55,600 Speaker 4: Diane, this was great. Dane swamk KPMG. Dan, thank you 372 00:18:55,920 --> 00:18:58,080 Speaker 4: talking about humility. You've got to remember four months ago 373 00:18:58,359 --> 00:19:00,880 Speaker 4: we have people in this program talking about in March, 374 00:19:01,160 --> 00:19:02,800 Speaker 4: this was a fat that was meant to be already cutting, 375 00:19:02,840 --> 00:19:05,320 Speaker 4: and now there's a conversation about him at least entertaining 376 00:19:05,359 --> 00:19:08,280 Speaker 4: the potential of hiking interest rates. Mike Gape at a 377 00:19:08,320 --> 00:19:10,359 Speaker 4: Bank of America with us now, Michael Gape, and I 378 00:19:10,480 --> 00:19:12,280 Speaker 4: keep hearing that Chairman Pound is going to be hawkish. 379 00:19:12,320 --> 00:19:14,280 Speaker 4: Could you define for us what hawkish will sound like 380 00:19:14,560 --> 00:19:17,879 Speaker 4: in this news conference, given you, like others, think that 381 00:19:17,960 --> 00:19:21,760 Speaker 4: the first cut comes in December, which is not anytime soon. 382 00:19:24,160 --> 00:19:27,639 Speaker 8: I think hawkish today simply simply is a wait and 383 00:19:27,800 --> 00:19:32,040 Speaker 8: see message. A we need, we need to give policy 384 00:19:32,200 --> 00:19:35,800 Speaker 8: more time to work. That's really about as far as 385 00:19:35,920 --> 00:19:38,280 Speaker 8: I think they go today. I think he can repeat 386 00:19:38,400 --> 00:19:41,680 Speaker 8: or will repeat their view that the supply side is 387 00:19:41,760 --> 00:19:44,600 Speaker 8: helping bring inflation down. So inflation is still in a 388 00:19:44,680 --> 00:19:48,920 Speaker 8: downward trend. Progress hasn't been where we wanted it to be, 389 00:19:49,240 --> 00:19:51,560 Speaker 8: but we think our policy stance is tight. So the 390 00:19:51,720 --> 00:19:55,240 Speaker 8: answer is let that type policy work for longer. I 391 00:19:55,280 --> 00:19:57,800 Speaker 8: think that's about as far as they're they're ready to 392 00:19:57,960 --> 00:19:59,000 Speaker 8: go today. 393 00:19:59,160 --> 00:20:00,520 Speaker 2: That's that's hawk may. 394 00:20:00,600 --> 00:20:02,520 Speaker 8: We'll see what hawkish might look like in June. 395 00:20:03,440 --> 00:20:06,800 Speaker 5: Michael, Are we back to normal? Are we beyond the pandemic? 396 00:20:06,920 --> 00:20:10,440 Speaker 5: Are we talking about fixed income dynamics FOBOSEI one oh one, 397 00:20:11,040 --> 00:20:13,679 Speaker 5: it makes sense now post pandemic. Or we still live 398 00:20:13,760 --> 00:20:16,800 Speaker 5: in the debris of what we had for three four years. 399 00:20:17,240 --> 00:20:20,400 Speaker 7: No, we're still in the shadow of COVID strung. There's 400 00:20:20,440 --> 00:20:24,840 Speaker 7: still stimulus that's being distributed. When we talk to our 401 00:20:25,080 --> 00:20:29,000 Speaker 7: municipal research team, they're talking about state and local governments 402 00:20:29,160 --> 00:20:32,840 Speaker 7: accessing it, going out, doing some hiring, and spending it. 403 00:20:33,280 --> 00:20:36,920 Speaker 7: When you talk to businesses, they're talking about accessing some 404 00:20:37,080 --> 00:20:40,399 Speaker 7: of the Infrastructure Act, some of the chips act, so 405 00:20:40,600 --> 00:20:43,960 Speaker 7: that money is still there. When you look at consumer 406 00:20:44,080 --> 00:20:48,640 Speaker 7: balance sheets, deposit balances on averages are still a little 407 00:20:48,680 --> 00:20:51,240 Speaker 7: bit above where they were pre COVID, So it's still 408 00:20:51,320 --> 00:20:54,560 Speaker 7: sloshing around a little bit, but it's coming down pretty quickly. 409 00:20:54,880 --> 00:20:57,000 Speaker 1: Which ray is a question about long and variable lags 410 00:20:57,000 --> 00:20:59,200 Speaker 1: and exactly how the FED views at Michael Gabe, and 411 00:20:59,200 --> 00:21:01,560 Speaker 1: I'm curious about you or review about whether this is 412 00:21:01,560 --> 00:21:03,959 Speaker 1: a FED that has yet abandoned that or not. Considering 413 00:21:04,000 --> 00:21:05,639 Speaker 1: the fact that so many people are saying this is 414 00:21:05,680 --> 00:21:07,679 Speaker 1: an economy that can live with higher rates. This has 415 00:21:07,720 --> 00:21:10,000 Speaker 1: been the evidence of it is the strength and the market, 416 00:21:10,080 --> 00:21:13,000 Speaker 1: the strength and debt markets in general. Do you think 417 00:21:13,040 --> 00:21:14,879 Speaker 1: that they're going to go there that it matters in 418 00:21:15,000 --> 00:21:16,920 Speaker 1: terms of their faith in long and variable lags. 419 00:21:18,840 --> 00:21:22,240 Speaker 8: I don't think they'll go there and say great detail today. 420 00:21:22,400 --> 00:21:24,880 Speaker 8: But I agree with some of the comments that Bob 421 00:21:25,000 --> 00:21:28,720 Speaker 8: made earlier about long and variable lags kind of still 422 00:21:28,760 --> 00:21:30,520 Speaker 8: being in the pipeline. I think some parts of the 423 00:21:30,600 --> 00:21:34,639 Speaker 8: economy reacted very quickly to higher rates. Others it may 424 00:21:34,720 --> 00:21:37,480 Speaker 8: still be in front of us. So things like fixed 425 00:21:37,560 --> 00:21:41,480 Speaker 8: rate mortgages, the effective mortgage rate only rising very little 426 00:21:41,600 --> 00:21:44,480 Speaker 8: corporates needing to refinance at some point there, I think 427 00:21:44,520 --> 00:21:47,040 Speaker 8: you can make a case that some of the monetary 428 00:21:47,119 --> 00:21:50,680 Speaker 8: policy tightening is still in the pipeline. It's just been elongated. 429 00:21:50,800 --> 00:21:53,480 Speaker 8: I doubt that the chair is going to get into 430 00:21:53,560 --> 00:21:56,600 Speaker 8: that today, although I think it's a very reasonable question 431 00:21:56,760 --> 00:21:59,760 Speaker 8: to ask him, you know, in lights of inflation and 432 00:21:59,800 --> 00:22:02,639 Speaker 8: re months, is your policy stance as tight as you 433 00:22:02,760 --> 00:22:04,560 Speaker 8: think it is? If not, what are you going to 434 00:22:04,600 --> 00:22:05,000 Speaker 8: do about it? 435 00:22:05,160 --> 00:22:07,720 Speaker 4: Are they sufficiently restrictive? Mike Gape And just a final 436 00:22:07,840 --> 00:22:09,960 Speaker 4: question from me once to explore. I think we spent 437 00:22:10,040 --> 00:22:12,280 Speaker 4: the last month or so trying to work out how 438 00:22:12,320 --> 00:22:15,120 Speaker 4: this Federal Reserve is going to respond every single day 439 00:22:15,240 --> 00:22:17,959 Speaker 4: to website surprises. Could you entertain this just a little bit, 440 00:22:18,040 --> 00:22:21,280 Speaker 4: just indulge me. How reactive will they be to downside surprises? 441 00:22:21,320 --> 00:22:23,639 Speaker 4: I'm trying to understand. You get a downside surprise on Friday, 442 00:22:23,680 --> 00:22:27,359 Speaker 4: how quickly will this conversation change? Will we be sitting 443 00:22:27,400 --> 00:22:29,200 Speaker 4: here talking about cuts all over again? 444 00:22:31,040 --> 00:22:33,720 Speaker 8: I mean, I think you'd probably need a number under 445 00:22:33,840 --> 00:22:38,439 Speaker 8: one fifty to get that discussion on the table. If 446 00:22:38,520 --> 00:22:41,399 Speaker 8: consensus is right in that two forty to two seventy 447 00:22:41,440 --> 00:22:44,440 Speaker 8: five R and you have to majorly undershoot that you 448 00:22:44,520 --> 00:22:47,920 Speaker 8: need something that changes the overall narrative, and people like 449 00:22:48,040 --> 00:22:49,920 Speaker 8: me would need to say it looks like the catch 450 00:22:50,000 --> 00:22:53,240 Speaker 8: up effect and services employment is done is over, so 451 00:22:53,400 --> 00:22:56,440 Speaker 8: the labor market looks fundamentally different. It's a pretty big 452 00:22:56,520 --> 00:22:57,880 Speaker 8: hurdle in my view. 453 00:22:58,040 --> 00:23:00,239 Speaker 4: Mike Gape and a Bank of America, Mike, thank you, sir. 454 00:23:00,640 --> 00:23:02,720 Speaker 4: Great to catch up with you. Mike Capeen and Bank 455 00:23:02,760 --> 00:23:05,080 Speaker 4: of America base case December is going to be that 456 00:23:05,160 --> 00:23:06,840 Speaker 4: first cut. Well, Mohammed, I want to come to you 457 00:23:06,960 --> 00:23:09,320 Speaker 4: on that. You've talked about how sensitive this federal reserve 458 00:23:09,480 --> 00:23:12,120 Speaker 4: is from data point to data point. Do you think 459 00:23:12,200 --> 00:23:15,080 Speaker 4: this has the potential, This conversation has the potential to 460 00:23:15,240 --> 00:23:17,080 Speaker 4: change and change quite fast in the other direction. 461 00:23:18,840 --> 00:23:21,280 Speaker 6: I do, John, because they're so reactive. I mean, the 462 00:23:21,359 --> 00:23:23,600 Speaker 6: one thing we didn't talk about and Tom talked about 463 00:23:23,640 --> 00:23:28,040 Speaker 6: the nineties is the economy is changing, both domestically and internationally. 464 00:23:28,640 --> 00:23:30,280 Speaker 2: The nineties was. 465 00:23:30,320 --> 00:23:37,200 Speaker 6: About deregulation, liberalization, and fiscal prudence. Today it's about reregulation, 466 00:23:37,520 --> 00:23:43,359 Speaker 6: heavier government intervention, and physical irresponsibility. The nineties was about globalization. 467 00:23:45,280 --> 00:23:50,680 Speaker 6: Now it's about fragmentation. This is a significantly different operating environment. 468 00:23:51,440 --> 00:23:56,280 Speaker 6: So the risk is that you miss all those signals 469 00:23:57,119 --> 00:24:01,239 Speaker 6: and you end up reacting too slowly to what's coming up. 470 00:24:01,760 --> 00:24:04,639 Speaker 6: You know, I smiled when I when I heard Bob say, well. 471 00:24:04,600 --> 00:24:05,560 Speaker 2: It's very easy. 472 00:24:05,640 --> 00:24:08,000 Speaker 6: You know, if we get all these bad numbers, the 473 00:24:08,080 --> 00:24:11,920 Speaker 6: FED can simply react, but by the time it reacts, 474 00:24:12,240 --> 00:24:13,920 Speaker 6: the harm has been made. It's a little bit like 475 00:24:14,000 --> 00:24:17,080 Speaker 6: being on a plane where the pilot is reacting to 476 00:24:17,320 --> 00:24:20,560 Speaker 6: past turbulence. He's just going to add to the turbulence 477 00:24:21,640 --> 00:24:24,000 Speaker 6: in the short term. So there is an issue about 478 00:24:24,160 --> 00:24:27,440 Speaker 6: having to step back and ask the question what economy 479 00:24:27,480 --> 00:24:29,640 Speaker 6: we're operating in and where is the balance of risk 480 00:24:29,720 --> 00:24:31,160 Speaker 6: for this economy, which has. 481 00:24:31,119 --> 00:24:32,760 Speaker 1: Been a big debate. Bob, what's your take on that. 482 00:24:32,880 --> 00:24:36,040 Speaker 1: Do you agree with Muhammad that maybe they should move 483 00:24:36,119 --> 00:24:39,080 Speaker 1: quickly if they start to see weakness, unclear what they 484 00:24:39,160 --> 00:24:39,480 Speaker 1: will do. 485 00:24:40,440 --> 00:24:43,440 Speaker 7: It's already there some of the weakness. When you look 486 00:24:43,480 --> 00:24:47,719 Speaker 7: at consumer sentiment, consumers are frustrated, they're having to make 487 00:24:47,880 --> 00:24:52,000 Speaker 7: choices on where their dollar goes. They're going down brand. 488 00:24:52,920 --> 00:24:56,560 Speaker 7: When you look at the housing market, home affordability is 489 00:24:56,680 --> 00:24:59,359 Speaker 7: a train wreck, and you look at existing home sales 490 00:24:59,400 --> 00:25:02,320 Speaker 7: they're low, so the consumer is feeling the pressure. You 491 00:25:02,440 --> 00:25:05,760 Speaker 7: look at middle market corporate America. Their cost of funding 492 00:25:05,840 --> 00:25:08,960 Speaker 7: went from call it six percent to somewhere around ten 493 00:25:09,080 --> 00:25:12,400 Speaker 7: to twelve percent, and that's what they're paying and they're 494 00:25:12,480 --> 00:25:17,000 Speaker 7: feeling the pressure of higher input costs. That's really strangling 495 00:25:17,119 --> 00:25:19,920 Speaker 7: their margins. So a lot of it is there, A 496 00:25:20,000 --> 00:25:22,720 Speaker 7: lot of it is slowing down. Maybe that's some of 497 00:25:22,840 --> 00:25:26,359 Speaker 7: what we saw in first quarter GDP. I don't know, 498 00:25:26,960 --> 00:25:29,720 Speaker 7: but we were going to see more of it. If 499 00:25:29,760 --> 00:25:32,480 Speaker 7: you look at the unemployment number, for me, if that 500 00:25:32,640 --> 00:25:35,159 Speaker 7: starts to go about four percent, that's really going to 501 00:25:35,200 --> 00:25:35,840 Speaker 7: get defence ative. 502 00:25:35,880 --> 00:25:36,600 Speaker 2: He and trek Joe Warren. 503 00:25:36,720 --> 00:25:38,040 Speaker 5: I got to be real quick here, but I think 504 00:25:38,080 --> 00:25:41,200 Speaker 5: it's timely. With college protests across America. I'm not sure 505 00:25:41,240 --> 00:25:43,040 Speaker 5: what's going on at Cambridge. 506 00:25:42,920 --> 00:25:44,560 Speaker 2: But I want to be very clear here. 507 00:25:44,680 --> 00:25:48,640 Speaker 5: Mohammed on Joe Stigler's book, The Road to Freedom Economics 508 00:25:48,840 --> 00:25:52,320 Speaker 5: in the Good Society. Is Chairman Powell today going to 509 00:25:52,440 --> 00:25:57,639 Speaker 5: speak to a fractured America, to the polarities of America, 510 00:25:57,840 --> 00:26:00,359 Speaker 5: or is this basically to the financial law audience. 511 00:26:01,440 --> 00:26:03,639 Speaker 6: I think he's going to speak to everybody in the 512 00:26:03,720 --> 00:26:06,960 Speaker 6: beginning when he says that the FED is committed to 513 00:26:07,080 --> 00:26:10,080 Speaker 6: the well being of Americans, all Americans, etc. But he's 514 00:26:10,119 --> 00:26:12,960 Speaker 6: going to stay a mile away from what's going on 515 00:26:13,280 --> 00:26:14,280 Speaker 6: on college campuses. 516 00:26:14,480 --> 00:26:16,200 Speaker 1: Yeah, he might not say a mile away though, of 517 00:26:16,359 --> 00:26:18,240 Speaker 1: the fact that they are not necessarily going to be 518 00:26:18,280 --> 00:26:20,480 Speaker 1: focused on the election. And Bob, do you have the 519 00:26:20,560 --> 00:26:23,119 Speaker 1: sense that they do not cut rates in July. They 520 00:26:23,240 --> 00:26:26,479 Speaker 1: only can go in December because of the potential election 521 00:26:26,760 --> 00:26:28,320 Speaker 1: questions and political interference. 522 00:26:28,960 --> 00:26:33,000 Speaker 7: No, I've had enough conversations with former FED officials that 523 00:26:33,520 --> 00:26:35,800 Speaker 7: if they need to go in September, they will go 524 00:26:35,960 --> 00:26:36,679 Speaker 7: in September. 525 00:26:37,240 --> 00:26:39,080 Speaker 2: What does need to go look like exactly? 526 00:26:40,400 --> 00:26:45,320 Speaker 7: For us? It is rising unemployment. It's something about four points. 527 00:26:45,440 --> 00:26:46,240 Speaker 2: That's the threashout. 528 00:26:46,680 --> 00:26:47,000 Speaker 7: That's it. 529 00:26:47,240 --> 00:26:48,000 Speaker 4: Break into the falls. 530 00:26:48,560 --> 00:26:51,160 Speaker 2: Would you agree with that? I would. I think Bob 531 00:26:51,280 --> 00:26:53,240 Speaker 2: is right, get into the falls. 532 00:26:53,280 --> 00:26:55,480 Speaker 4: They start to cut what twenty five basis points, so 533 00:26:55,520 --> 00:26:56,440 Speaker 4: they start to freak out. 534 00:26:56,760 --> 00:27:01,439 Speaker 7: Well, it depends what else is going on, because Muhammed 535 00:27:01,640 --> 00:27:06,200 Speaker 7: is right, once this starts, it tends to escalate very quickly. 536 00:27:06,560 --> 00:27:08,560 Speaker 7: So if you're going to make that first cut after 537 00:27:08,680 --> 00:27:11,520 Speaker 7: waiting so long, why not do fifty. 538 00:27:11,760 --> 00:27:14,119 Speaker 1: Mohammed I'm just curious what your question would be to 539 00:27:14,200 --> 00:27:16,080 Speaker 1: Fed Shair J. Powell at a time when a lot 540 00:27:16,119 --> 00:27:18,280 Speaker 1: of people are just saying simply, what would it take 541 00:27:18,320 --> 00:27:19,200 Speaker 1: for you to hike rates? 542 00:27:19,240 --> 00:27:20,240 Speaker 2: What would your question be? 543 00:27:21,480 --> 00:27:24,200 Speaker 6: The one thing we haven't talked about at all is 544 00:27:24,760 --> 00:27:26,960 Speaker 6: what is a terminal rate? Where does he think we 545 00:27:27,119 --> 00:27:29,800 Speaker 6: end up? You know, we talk about the journey, but 546 00:27:30,119 --> 00:27:32,000 Speaker 6: will someone tell us where the destination is? 547 00:27:33,440 --> 00:27:35,320 Speaker 4: Will you tell us what you think the destination is? 548 00:27:35,400 --> 00:27:39,200 Speaker 6: Mohammed, I think it's significantly higher than what the Fed 549 00:27:39,320 --> 00:27:39,959 Speaker 6: is saying right now? 550 00:27:40,640 --> 00:27:43,000 Speaker 4: There it what Mohammed? So in something two and a half. 551 00:27:44,400 --> 00:27:46,840 Speaker 6: Oh no, I think we are Bob sweet in terms. 552 00:27:46,600 --> 00:27:48,760 Speaker 4: Of yeah, you think the closet have thought? 553 00:27:49,520 --> 00:27:51,640 Speaker 6: Yes, yes, that's what I think we are, Bob. 554 00:27:51,640 --> 00:27:52,760 Speaker 2: How do you do quickly here, Bob? 555 00:27:52,800 --> 00:27:55,280 Speaker 5: But how do you dovetail with that? With Feruli's potential 556 00:27:55,359 --> 00:27:57,760 Speaker 5: GDP under two percent, how do we have a run 557 00:27:57,840 --> 00:28:00,639 Speaker 5: rate above three percent? Is doctor Larian talks about in 558 00:28:00,760 --> 00:28:04,080 Speaker 5: JP Morgan's publishing out an economy that's a little bit 559 00:28:04,160 --> 00:28:04,560 Speaker 5: beneath that. 560 00:28:04,680 --> 00:28:10,760 Speaker 7: To be kind, everything goes in stages, and a high 561 00:28:10,800 --> 00:28:13,160 Speaker 7: real FED funds rate is going to slow things down. 562 00:28:13,560 --> 00:28:16,600 Speaker 7: The Fed will pull back the FED funds rate. I 563 00:28:16,720 --> 00:28:19,080 Speaker 7: agree with Muhammad, maybe something like in that three and 564 00:28:19,119 --> 00:28:21,880 Speaker 7: a half to four percent bracket. I think two point 565 00:28:21,960 --> 00:28:26,280 Speaker 7: six percent is a fantasy that will create enough stimulus 566 00:28:26,600 --> 00:28:29,399 Speaker 7: that things will pick up again. So it's going to 567 00:28:29,440 --> 00:28:31,760 Speaker 7: come in cycles again as it always does. 568 00:28:31,840 --> 00:28:34,080 Speaker 4: Makes the question it is a fantasy. Why are they 569 00:28:34,119 --> 00:28:36,000 Speaker 4: adjusting that? Do you think that's just something they don't 570 00:28:36,000 --> 00:28:38,160 Speaker 4: want to engage with at the moment. Have a debate 571 00:28:38,200 --> 00:28:40,040 Speaker 4: about where that long dots should be. Is that what 572 00:28:40,160 --> 00:28:40,600 Speaker 4: that's about? 573 00:28:40,920 --> 00:28:44,680 Speaker 7: Well, my question that Mike McKee should be asking is 574 00:28:44,840 --> 00:28:48,280 Speaker 7: have the dots outlive their usefulness? I believe they have. 575 00:28:48,560 --> 00:28:50,760 Speaker 7: I think they should do away with it. I think 576 00:28:50,840 --> 00:28:54,720 Speaker 7: in twenty twelve, when they were in completely uncharted territory, 577 00:28:55,200 --> 00:28:57,760 Speaker 7: they helped for a very brief period of time. 578 00:28:58,000 --> 00:29:00,640 Speaker 4: Bob Michael if JP Morgan's is a brilliant Mohammed al 579 00:29:00,760 --> 00:29:02,480 Speaker 4: Errand of Queen's College, Cambridge that to both of you, 580 00:29:02,840 --> 00:29:04,160 Speaker 4: thank you very much for being with us.