WEBVTT - Instant Reaction: The Fed Decides 0:00:02.440 --> 0:00:10.119 Bloomberg Audio Studios, podcasts, radio news, short and simple. 0:00:10.160 --> 0:00:12.959 A change in the statement, but no change in rates. 0:00:13.000 --> 0:00:16.599 The economic overview remains the same word for word, with 0:00:16.760 --> 0:00:20.520 solid growth, strong job gains, and inflation that's eased over 0:00:20.640 --> 0:00:24.800 the past year but remains elevated and then a new line. 0:00:25.120 --> 0:00:27.360 In recent months, there has been a lack of further 0:00:27.440 --> 0:00:32.000 progress toward the Committee's two percent inflation objective. Still, the 0:00:32.040 --> 0:00:36.080 statement says risks to achieving its employment and inflation goals 0:00:36.120 --> 0:00:39.600 have quote moved toward better balance over the past year, 0:00:39.960 --> 0:00:43.560 putting the assessment in the past tense and adding over 0:00:43.600 --> 0:00:46.320 the past year. The additions to the statement would seem 0:00:46.320 --> 0:00:49.000 to ratify the markets view that there will not be 0:00:49.120 --> 0:00:52.519 three rate cuts this year, if any at all. The 0:00:52.560 --> 0:00:55.640 statement's view that the Committee does not believe it would 0:00:55.680 --> 0:00:58.800 be appropriate to reduce rates until it's gained further confidence 0:00:59.040 --> 0:01:02.280 inflation is moving toward target is unchanged. 0:01:02.680 --> 0:01:05.720 Now the long awaited balance sheet taper is here. 0:01:05.880 --> 0:01:09.679 The treasury roll off cap will drop from sixty billion 0:01:09.680 --> 0:01:13.400 to twenty five billion a month starting on June first. 0:01:13.640 --> 0:01:16.920 Officials had suggested it we'd be lowered to thirty billion 0:01:17.240 --> 0:01:20.120 as expected. No change in the thirty five billion dollar 0:01:20.240 --> 0:01:24.960 cap on mortgage backed securities. However, any maturing securities over 0:01:25.000 --> 0:01:29.280 the cap will be reinvested in treasuries rather than mbs. 0:01:29.600 --> 0:01:31.959 The vote unanimous, and that's it. 0:01:32.000 --> 0:01:34.440 Mike McKay, Thank you, sir, Stay close. Let's run through 0:01:34.440 --> 0:01:36.160 this price action. Mike McKy is going to run into 0:01:36.160 --> 0:01:38.600 that news conference in just a moment. Equity is recovering 0:01:38.680 --> 0:01:40.280 just a little bit, still down on the session by 0:01:40.280 --> 0:01:43.360 a tenth of one percent. Retention, of course, immediately turning 0:01:43.360 --> 0:01:45.280 to what's happening in the bond market. In the bond 0:01:45.280 --> 0:01:47.560 market at the moment the rally sticks you'l to lower 0:01:47.600 --> 0:01:49.400 by four basis points on a ten year four to 0:01:49.400 --> 0:01:51.880 sixty four on a two year down three, just about 0:01:51.880 --> 0:01:54.760 holding on to that five percent level. Lots of attention 0:01:54.920 --> 0:01:57.080 in the FX market, what's happening with Dolly Yen. But 0:01:57.160 --> 0:01:59.080 again strength off the back of this Dolly En backdown 0:01:59.120 --> 0:02:01.800 to one to fifty seven fifty four. It was always 0:02:01.880 --> 0:02:04.400 going to be difficult to out hawk what was already 0:02:04.480 --> 0:02:06.920 very hawkish pricing in this market. Bear in mind, though 0:02:07.200 --> 0:02:09.240 this is the first act of a two part story. 0:02:09.280 --> 0:02:11.200 The other act is in about twenty eight minutes time 0:02:11.440 --> 0:02:13.760 when we hear from the Federal Reserve chairman. So do 0:02:13.800 --> 0:02:15.720 you want to play compare and contrast? I think we 0:02:15.720 --> 0:02:18.040 could do that, Bramo. Briefly, I'll go through this. It 0:02:18.120 --> 0:02:20.480 might sound a little boring, but every word seems to matter. 0:02:20.720 --> 0:02:24.440 The last statement the first paragraph read as follows. Recent 0:02:24.520 --> 0:02:27.800 indicator suggests that economic activity has been expanding at a 0:02:27.840 --> 0:02:30.680 solid pace. Job gains have remained strong, and the unemployment 0:02:30.760 --> 0:02:34.000 rate has remained low. Inflation has eased over the past year, 0:02:34.200 --> 0:02:37.919 but remains elevated. That first paragraph has changed. This is 0:02:37.960 --> 0:02:41.400 how it reads now. Recent indicator suggests that economic activity 0:02:41.440 --> 0:02:44.640 has continued to expand at a solid pace. Job gains 0:02:44.639 --> 0:02:47.280 have remained strong, and the unemployment rate has remained low. 0:02:47.360 --> 0:02:50.400 Inflation has eased over the past year, but remains elevated. 0:02:50.520 --> 0:02:53.400 In recent months, there has been a lack of further 0:02:53.440 --> 0:02:57.400 progress towards the committee's two percent inflation objective. I just 0:02:57.480 --> 0:03:00.440 wonder how long the conversation was Bramo. In the f 0:03:00.480 --> 0:03:04.440 WEMC so agreed to that last line of that first paragraph. 0:03:04.560 --> 0:03:07.880 You know, I wonder because the discussion among Fed officials 0:03:07.919 --> 0:03:10.680 who did speak in the week before the quiet period 0:03:11.200 --> 0:03:14.799 was more hawkish people seemed genuinely concerned. I don't think 0:03:14.840 --> 0:03:17.440 that maybe there was disagreement with this. I just wonder 0:03:17.440 --> 0:03:19.480 how much conviction feed Scher Powell will have in this 0:03:19.560 --> 0:03:21.960 news conference to really build on that and say just 0:03:22.000 --> 0:03:24.520 how much less conviction they have and just how much 0:03:24.560 --> 0:03:26.640 they are going to do to offset some of the 0:03:26.760 --> 0:03:27.600 lack of progress. 0:03:27.680 --> 0:03:29.920 I think they've got away for more economic data. In 0:03:29.960 --> 0:03:32.240 the bottom line, John, you tool it off jobs Day? 0:03:32.320 --> 0:03:35.160 Do we link right now to Friday's Jobs Day? I'm 0:03:35.200 --> 0:03:38.440 sorry we do. There's no real indication here of the 0:03:38.480 --> 0:03:41.920 labor market cracking. Jolt survey today was a little week. 0:03:41.920 --> 0:03:45.280 Bob Michael mentioned that, but I just think they have 0:03:45.360 --> 0:03:47.640 to wait there. In massively expost. 0:03:47.200 --> 0:03:49.880 Position fantastic lineup. Gonn gets to the news conference. Bob 0:03:49.920 --> 0:03:51.760 michae is still with us, joining us now a place 0:03:51.800 --> 0:03:54.040 to say, good friend of this program, good friend of ours. 0:03:54.240 --> 0:03:56.840 Mohammed Aaron of Queen's College, Cambridge. Mohamed, You've had a 0:03:56.840 --> 0:03:59.960 few minutes to go over this one. What jumps out. 0:04:00.040 --> 0:04:03.600 Three things, John, One is the characterization of growth is 0:04:03.680 --> 0:04:07.520 stronger than I would have expected. Two is the reduction 0:04:07.640 --> 0:04:11.640 in QE is larger than I expected. And then finally 0:04:12.640 --> 0:04:17.000 that additional sentence they've put in about inflation is going 0:04:17.080 --> 0:04:20.159 to put chair pal in a difficult situation the press 0:04:20.160 --> 0:04:23.640 conference because people are going to say, okay, finish the sentence. 0:04:24.760 --> 0:04:29.159 It's been two the progress hasn't been achieved. Why is 0:04:29.200 --> 0:04:32.640 it something temporary? Is it something structural? So they've left 0:04:32.680 --> 0:04:37.360 wide open the question of why has progress been less 0:04:37.360 --> 0:04:38.960 than they expected on the inflation front? 0:04:39.640 --> 0:04:42.040 Mohammed, if I look at this press conference, this is 0:04:42.080 --> 0:04:44.960 a central banker with an original script and not much 0:04:45.000 --> 0:04:47.839 theory involved at all. Can you get out front of 0:04:47.839 --> 0:04:51.280 the debate ex ante or is this an ex post discussion? 0:04:52.520 --> 0:04:54.120 Tom? I'm really glad you raise it. 0:04:54.200 --> 0:04:57.880 This is an ex post discussion. This is a fed that, 0:04:58.000 --> 0:05:00.880 having been burnt by trying to be the ex anti 0:05:01.160 --> 0:05:05.360 back in twenty twenty one, has become totally exposed, totally 0:05:05.440 --> 0:05:10.120 data dependent, totally we active, and that is a problem 0:05:10.160 --> 0:05:13.240 for the economy. That is a real problem for the economy. 0:05:13.320 --> 0:05:15.560 So no, he's going to remain exposed. We're going to 0:05:15.560 --> 0:05:18.279 hear data dependency I don't know how many times during 0:05:18.279 --> 0:05:19.440 the press conference. 0:05:19.320 --> 0:05:21.600 Which raises this question which data matters more? We were 0:05:21.600 --> 0:05:23.800 talking about data that we got earlier this morning about 0:05:23.800 --> 0:05:27.960 ism manufacturing showing weakening activity to your point about the 0:05:28.000 --> 0:05:30.839 surprise and how much they had conviction and strength, but 0:05:30.960 --> 0:05:34.039 also stickier inflation that came in higher than expected with 0:05:34.120 --> 0:05:37.479 prices paid. How will this fed view that data that 0:05:37.640 --> 0:05:39.599 I don't want to say stagflation because I've said it 0:05:39.640 --> 0:05:41.360 so many times and I'm sure people will be making 0:05:41.360 --> 0:05:43.720 fun of me for that, but I am wondering if 0:05:43.720 --> 0:05:45.320 this is sort of not ideal for them, and if 0:05:45.320 --> 0:05:48.040 there was respond more to the inflation side or the 0:05:48.080 --> 0:05:49.000 economy side. 0:05:50.440 --> 0:05:52.920 So I call it tagflationary wins. 0:05:52.680 --> 0:05:56.280 Thank you. 0:05:56.400 --> 0:05:58.720 I mean, I can live with taxflation or light that 0:05:58.800 --> 0:06:02.440 you used inflationary when they're not going to acknowledge that, 0:06:02.560 --> 0:06:07.279 because it puts a question front and center, which is 0:06:07.320 --> 0:06:09.800 what is the right inflation target for an economy that's 0:06:09.839 --> 0:06:14.600 going through fundamental supply side changes. You know, if you 0:06:14.680 --> 0:06:18.000 look at what is sticking in inflation, it's not particularly 0:06:18.040 --> 0:06:20.200 responsive to higher interest rate for longer. 0:06:20.560 --> 0:06:21.440 It really isn't. 0:06:21.880 --> 0:06:28.040 So if they acknowledge the softer economy, they end up 0:06:28.440 --> 0:06:32.640 having to then discuss, at least internally, whether two percent 0:06:32.720 --> 0:06:36.040 is right inflation target and a phrase that John did 0:06:36.080 --> 0:06:39.680 not read out in the statement is they are strongly committed, 0:06:39.800 --> 0:06:42.960 strongly committed to returning inflation to a two percent target. 0:06:43.240 --> 0:06:45.080 Give me a chance, Mohammed. I was just itching to 0:06:45.080 --> 0:06:47.000 get to you, to get a reaction from Michael with 0:06:47.080 --> 0:06:48.160 us as well, you're going to rite. 0:06:49.480 --> 0:06:53.000 Just threw you under the fail giant. 0:06:53.200 --> 0:06:54.760 We got Mohammed back up. Always got a sense but. 0:06:58.360 --> 0:06:58.760 The state. 0:07:00.080 --> 0:07:01.080 But that was in it before. 0:07:01.279 --> 0:07:03.440 It wasn't the more notable thing. It wasn't struck out. 0:07:03.480 --> 0:07:06.200 It didn't change John. That's the reason why, in fact. 0:07:06.200 --> 0:07:08.040 I've never read a statement continue. 0:07:08.600 --> 0:07:10.800 You didn't even need to tell us that, Hammud, What 0:07:10.880 --> 0:07:12.720 are you doing to me? I don't know. Bob, Michael 0:07:12.720 --> 0:07:16.040 a great friend of this program. To see you, Bobby, 0:07:16.040 --> 0:07:16.960 your thoughts on this one. 0:07:17.760 --> 0:07:21.760 As Michael McKee was reading through the commentary, I thought, boy, 0:07:21.880 --> 0:07:25.520 this is really good for the markets, because here's a 0:07:25.600 --> 0:07:28.840 FED that's telling us look at the longer term, look 0:07:28.880 --> 0:07:31.760 where inflation was, and look where we've gotten it to. 0:07:32.040 --> 0:07:34.320 Don't worry about the last couple of months. We'll see 0:07:34.360 --> 0:07:37.720 what happens there. I actually think that's the right message. 0:07:37.840 --> 0:07:41.200 I don't believe the law of long and variable lags 0:07:41.240 --> 0:07:44.360 has been repealed. I think they've been delayed because of 0:07:44.440 --> 0:07:47.400 all the physical stimulus that's still on the pipeline, but 0:07:47.440 --> 0:07:50.360 they're still there. You are seeing some pressures on the economy. 0:07:50.840 --> 0:07:53.280 Like Muhammad, the only thing I was surprised about is 0:07:53.320 --> 0:07:57.160 that they characterized the economy as still solid. 0:07:58.360 --> 0:08:00.000 I look, Muhammad, I want to bring this up everybody 0:08:00.080 --> 0:08:00.760 up earlier with Bob. 0:08:00.800 --> 0:08:00.920 Mike. 0:08:00.960 --> 0:08:02.360 Come to do with you right now. I don't know 0:08:02.400 --> 0:08:04.360 where you were in nineteen ninety five, maybe at the 0:08:04.400 --> 0:08:07.720 White House, Muhammed, maybe IMF. But the answer is Bob 0:08:07.800 --> 0:08:11.800 Michael says, there's whispers here of nineteen ninety five. The 0:08:11.960 --> 0:08:16.280 stack market was a moonshot off of the success of 0:08:16.440 --> 0:08:19.360 nineteen ninety five. Is that what we are prepared for 0:08:19.560 --> 0:08:22.320 here that they may get this right, we may have 0:08:22.480 --> 0:08:24.800 a constructive nineteen ninety five and up we go. 0:08:26.720 --> 0:08:31.360 So where I agree with Bob without any qualifications, is 0:08:31.480 --> 0:08:35.599 that this particular statement is something that the markets will like. 0:08:36.240 --> 0:08:41.000 It's exactly what the market wanted as to are we 0:08:41.320 --> 0:08:45.200 going to repeat ninety five in terms of market reaction? 0:08:45.640 --> 0:08:48.760 Tom What I'm worried about because I truly believe that 0:08:48.960 --> 0:08:52.319 this is not about lags, that there are structural aspects 0:08:52.679 --> 0:08:57.480 that are running the equilibrium inflation rate higher than it 0:08:57.559 --> 0:09:00.280 has been in the past. I worry that the it's 0:09:00.320 --> 0:09:03.480 going to be overtight this year. I worry that the 0:09:03.559 --> 0:09:05.800 FED is not going to end up cutting because they're 0:09:05.800 --> 0:09:09.080 going to be so data dependent, so reactive, that they're 0:09:09.160 --> 0:09:12.600 not going to look at the weakness that's coming. In fact, 0:09:12.960 --> 0:09:19.679 if you simply read the earnings reports of McDonald's, Starbucks, PepsiCo, Nestley, 0:09:19.760 --> 0:09:22.199 the list goes on. There is no doubt that low 0:09:22.280 --> 0:09:26.120 income consumers are struggling, that balance sheet effects have gone 0:09:26.160 --> 0:09:29.160 from positive to negatives, the pandemic savings are run down, 0:09:29.480 --> 0:09:34.000 that credit card balances are high. They rely entirely on 0:09:34.120 --> 0:09:38.120 the labor market, entirely on wage income, and if something 0:09:38.200 --> 0:09:40.439 goes wrong in that labor market, we are going to 0:09:40.480 --> 0:09:43.360 see this economy slow, much faster than anybody would like 0:09:43.400 --> 0:09:43.880 it to slow. 0:09:44.360 --> 0:09:46.800 Well might as well talking about a loss of pricing power. 0:09:46.840 --> 0:09:48.600 Have been talking about that over the last few months 0:09:48.720 --> 0:09:50.920 or so. But Michael and place that Tom brought up 0:09:50.960 --> 0:09:53.040 the mid nineties, you've talked about the mid two thousands. 0:09:53.280 --> 0:09:56.480 You share those concerns about economic weakness cracks's time to build. 0:09:56.520 --> 0:09:59.000 Yet you are still bullish, as bullish as you have 0:09:59.120 --> 0:10:01.559 been since the two thousands. Could you explain why? 0:10:02.040 --> 0:10:05.199 Well, I think Muhammed's right. I think you have to 0:10:05.360 --> 0:10:09.480 watch how businesses are reacting in this environment, and there 0:10:09.600 --> 0:10:12.400 are some pressures. I think what we need to watch 0:10:12.720 --> 0:10:15.920 is the unemployment rate does not start to go above 0:10:16.000 --> 0:10:18.920 four percent, and certainly at four point two percent, it 0:10:18.960 --> 0:10:22.199 would get the Fed's attention and they would do something 0:10:22.600 --> 0:10:26.000 as long as inflation is reasonable. And what they did 0:10:26.080 --> 0:10:29.199 in ninety five is come in and cut rates three times. 0:10:29.480 --> 0:10:32.600 As I said, that's the one soft landing that I've 0:10:32.679 --> 0:10:35.000 lived through in my forty plus years in the market. 0:10:35.600 --> 0:10:38.400 It looks like it's doable again, but it can't be 0:10:38.520 --> 0:10:41.800 a FED that sits on the sidelines the entire year 0:10:42.240 --> 0:10:43.880 and leaves real yields where they are. 0:10:44.040 --> 0:10:45.720 I have to give you a victory Lapbob, because you've 0:10:45.760 --> 0:10:47.520 basically said that this is what they might do to 0:10:47.600 --> 0:10:49.320 kind of give a nod to a little bit more 0:10:49.360 --> 0:10:51.480 of a dubish stance while having a more hawkish stance 0:10:51.800 --> 0:10:55.120 in the actual statement, which is maybe essentially what they're doing, 0:10:55.160 --> 0:10:56.959 which is the reason why the market might like this. 0:10:57.559 --> 0:11:00.400 I am wondering that Muhammed's point about stagflation light or 0:11:00.440 --> 0:11:03.360 the wins of stagflation, that they're not going to address this. 0:11:03.640 --> 0:11:05.760 They're going to talk about strength in the economy, so 0:11:05.880 --> 0:11:08.160 they don't have to address that. Maybe they're looking at 0:11:08.200 --> 0:11:11.000 a three percent target of inflation rather than two. 0:11:12.200 --> 0:11:17.079 Pal's probably laughing every time he hears stagflation because he 0:11:17.320 --> 0:11:19.840 remembers and he's probably thinking, what I am a vulgar? 0:11:20.080 --> 0:11:24.160 Here go two point eight percent core PCE year over year. 0:11:24.400 --> 0:11:27.199 I would take that in as second. And if you 0:11:27.280 --> 0:11:29.640 go back to ninety five to ninety eight, which Tom 0:11:29.720 --> 0:11:33.160 points out was great for markets, inflation traded between two 0:11:33.240 --> 0:11:37.200 and a half three percent. It was a pretty vibrant economy. 0:11:37.240 --> 0:11:39.199 I don't know what markets will do. I think that 0:11:39.400 --> 0:11:41.720 kind of economic scenario is really. 0:11:41.640 --> 0:11:43.839 Let me joh on next moon exit nineteen ninety eight 0:11:43.960 --> 0:11:47.240 was a moonshot, the that one from four thousand, ten thousand, 0:11:47.760 --> 0:11:48.160 just you know. 0:11:48.200 --> 0:11:50.960 I remember somebody's looking to get out of triple eleven. 0:11:51.640 --> 0:11:52.800 That's what I'm I'm. 0:11:52.679 --> 0:11:54.800 Looking for the first tra triple leverage. 0:11:55.400 --> 0:11:58.360 Today's the days, Today the day Buff's got some buns 0:11:58.400 --> 0:12:00.920 to sound and I swung to and just now chief 0:12:00.960 --> 0:12:03.160 economists the KPMG, Mohammed and Bob are going to be 0:12:03.200 --> 0:12:05.599 sticking with us. Dan, you've had eleven twelve minutes to 0:12:05.640 --> 0:12:07.559 go over this, going against the news conference with Chairman 0:12:07.640 --> 0:12:10.440 Pou eighteen minutes away. What's your big question for him 0:12:10.640 --> 0:12:11.720 after reading that statement. 0:12:13.840 --> 0:12:15.880 Well, one of the things that I'm surprised at that 0:12:16.000 --> 0:12:17.959 they could have gone more hawkish on, and I think 0:12:18.120 --> 0:12:21.040 the nod to inflation picking up more recently was the 0:12:21.120 --> 0:12:24.480 compromise is that they left that they're waiting to decide 0:12:24.520 --> 0:12:27.480 when to reduce rates. And you've got to believe within 0:12:27.559 --> 0:12:31.319 that meeting, given that we've heard that it's a possibility 0:12:31.559 --> 0:12:35.040 that we could see rate hikes if inflation persists, from 0:12:35.160 --> 0:12:39.959 FED leadership themselves that to keep that line reduce rates 0:12:40.360 --> 0:12:42.720 when they're going to reduce rates, that they still think 0:12:43.040 --> 0:12:46.040 the threshold to raise rates is much higher than the 0:12:46.120 --> 0:12:48.920 threshold to cut rates. I think that's where the bias 0:12:49.120 --> 0:12:51.719 is within the FED. However, what I'll be looking for 0:12:51.800 --> 0:12:54.840 in the conference the press conference is was their debate 0:12:55.000 --> 0:12:57.480 and in the minutes to this meeting, was their debate 0:12:57.520 --> 0:13:01.079 about the possibility that they might need to raise rates now. 0:13:01.400 --> 0:13:05.600 I think the move up in inflation we've seen is been, 0:13:06.160 --> 0:13:09.600 you know, somewhat overstated. We know there's some residual seasonality 0:13:09.720 --> 0:13:12.199 somewhere between the fourth quarter and the first quarter's reality 0:13:12.559 --> 0:13:13.840 that's still too hot. 0:13:14.320 --> 0:13:15.400 And there are what we. 0:13:15.520 --> 0:13:19.199 Saw in inflation was much more broad based inflation in 0:13:19.280 --> 0:13:23.880 the service sector, things like home maintenance, car maintenance. It 0:13:24.040 --> 0:13:27.720 wasn't insurance as much this month, but those are things 0:13:27.760 --> 0:13:30.520 that are the things that Muhammad talks about less retractable 0:13:30.880 --> 0:13:34.640 and also more systemic. But there was service sector inflation 0:13:35.000 --> 0:13:38.120 in the employment costs index as well. Not in the 0:13:38.240 --> 0:13:42.480 lowest wage jobs, particularly in food services and accommodation, where 0:13:42.480 --> 0:13:47.040 they've been decelerating quite rapidly and are now trailing overall 0:13:47.160 --> 0:13:50.880 inflation numbers, but in the overall services sector, where we 0:13:51.000 --> 0:13:55.240 do have some labor shortages still pretty acute, there is 0:13:55.480 --> 0:13:57.640 wage pressures there, and that's what the Fed's going to 0:13:57.640 --> 0:13:58.160 be focused on. 0:13:58.520 --> 0:14:00.640 Diane. You know that, Diane smart arm As you're not 0:14:00.760 --> 0:14:03.559 living within three zip codes, there's some fancy university in 0:14:03.640 --> 0:14:07.560 the United Kingdom. Diane, just simply put, if you drive 0:14:07.720 --> 0:14:11.360 seven hours south of Chicago, what's it like right now, 0:14:11.600 --> 0:14:13.480 because I see you with all the mail I get. 0:14:13.720 --> 0:14:16.559 What you get out on LinkedIn is there's a massive 0:14:16.640 --> 0:14:19.840 divide right now between the financial people and the rest 0:14:19.880 --> 0:14:20.520 of America. 0:14:20.960 --> 0:14:22.840 What's like south of Illinois. 0:14:24.800 --> 0:14:26.920 Well, you know what's really interesting is they've just done 0:14:26.960 --> 0:14:29.760 a study on this in terms of how different people 0:14:29.920 --> 0:14:33.800 view what the inflation problem is. Wealthy households, those in 0:14:34.000 --> 0:14:37.600 the urban areas, they tend to view the entire inflation 0:14:37.760 --> 0:14:41.080 problem as completely the fault of the Fed. Those who 0:14:41.160 --> 0:14:44.440 are less wealthy see this as price gouging. They see 0:14:44.480 --> 0:14:47.760 this as an inequality issue. And we still have gross 0:14:47.800 --> 0:14:52.160 inequalities even though we had this massive leveling up of wages, 0:14:52.240 --> 0:14:55.600 even for low wage workers. As I've said before, they 0:14:55.720 --> 0:14:58.000 move from the shadows of the economy into the sun, 0:14:58.200 --> 0:15:01.360 only to be burned by inflation and that inequality. And 0:15:01.800 --> 0:15:05.640 even though wealth picked up, we saw a cross income 0:15:05.720 --> 0:15:10.000 strata that wasn't enough, because inequality continued to worsen. And 0:15:10.160 --> 0:15:13.040 I think that's what you see when you're dealing with 0:15:13.160 --> 0:15:15.600 this kind of inflation, even though it's at a low grade, 0:15:15.640 --> 0:15:18.600 and I wouldn't compare it to nineteen ninety five. Nineteen 0:15:18.680 --> 0:15:21.440 ninety five the food was wrong. In nineteen ninety four, 0:15:21.800 --> 0:15:24.680 Chairman Greenspan had a checklist I remember it well, and 0:15:24.800 --> 0:15:26.560 it filled it out, and he thought he could preempt 0:15:26.600 --> 0:15:29.040 inflation and he was wrong, and he nearly derailed the 0:15:29.120 --> 0:15:33.160 economy that was not coming off an inflationary kind of 0:15:33.400 --> 0:15:36.040 situation that we have today. It's just not comparable. 0:15:36.240 --> 0:15:38.440 This race is his question, and Mohammed, I'd love to 0:15:38.480 --> 0:15:40.680 get your answer. Since you live within a couple of 0:15:40.720 --> 0:15:44.000 zip codes of a fancy UK college that Tom was maligning, 0:15:44.200 --> 0:15:45.720 I will say I want to hear what you have 0:15:45.840 --> 0:15:48.680 to say about this idea of the messaging of fed 0:15:48.720 --> 0:15:51.720 share Powell in the press conference, do you think he 0:15:51.960 --> 0:15:54.400 needs to be hawkish, that he needs to keep the 0:15:54.520 --> 0:15:57.240 market under pressure in order to keep them on this 0:15:57.440 --> 0:15:59.880 goal of at least even having the covered cut rates 0:16:00.160 --> 0:16:02.600 here as you think is necessary, as they want to do, 0:16:03.200 --> 0:16:06.600 but under the aspis of data dependency is difficult without. 0:16:06.400 --> 0:16:07.080 Some more cracking. 0:16:08.400 --> 0:16:10.360 I think the most important thing, Lisa, for him is 0:16:10.440 --> 0:16:13.320 to stick to what actually happened in the meetings and 0:16:13.480 --> 0:16:15.760 not end up like we have in the past, where 0:16:15.840 --> 0:16:19.040 his messaging is different from the messaging from the minutes 0:16:19.040 --> 0:16:20.560 that we're going to get in a few weeks, because 0:16:20.560 --> 0:16:24.280 if that happens, that is going to cause too much 0:16:24.360 --> 0:16:29.320 volatility yet again confusion, and is going to erode forward 0:16:29.360 --> 0:16:34.720 policy guidance. If what he says is in fact what 0:16:34.960 --> 0:16:37.920 was said in the meeting and is confirmed by the minutes, 0:16:38.520 --> 0:16:40.920 then what he should do is stick to where he 0:16:41.080 --> 0:16:44.840 is right now, which is not validate the amount of 0:16:45.680 --> 0:16:47.880 the hawkish pivot. If you like that, the market has done, 0:16:47.960 --> 0:16:51.040 not go all the way, but goes some of the way. 0:16:51.920 --> 0:16:55.080 My concern is ultimately he may end up more hawkish 0:16:55.120 --> 0:16:56.600 than he needs to be for the well being of 0:16:56.640 --> 0:16:59.120 the economy, but that's more for the next meeting than. 0:16:59.040 --> 0:16:59.880 It is for this meeting. 0:17:00.360 --> 0:17:02.280 Diane, your view on that, Do you think that he's 0:17:02.320 --> 0:17:04.360 going to come out maybe more hawkish that he needs 0:17:04.400 --> 0:17:04.880 to be as well? 0:17:07.240 --> 0:17:07.760 I think he is. 0:17:07.880 --> 0:17:09.680 I think that is the risk, and it's because the 0:17:09.760 --> 0:17:12.280 risk has been on the other side. And Muhammed's exactly right. 0:17:12.359 --> 0:17:15.640 It's very hard these press conferences, having them every single meeting. 0:17:16.040 --> 0:17:18.280 There is a downside to transparency. We see all the 0:17:18.320 --> 0:17:21.080 sausage being made, but you also see individual personality of 0:17:21.160 --> 0:17:23.840 the chairman himself and his own views and how that 0:17:23.960 --> 0:17:27.240 gets translated and gets muddled in terms of what the 0:17:27.320 --> 0:17:30.640 overall messaging is. And it's not that he's a bad communicator, 0:17:30.720 --> 0:17:33.120 but it is that this is really hard. I think 0:17:33.400 --> 0:17:35.520 one of the things that I get really frustrated with 0:17:36.040 --> 0:17:39.800 is how little uncertainty the leaders ship of the Federal 0:17:39.840 --> 0:17:42.919 Reserve have really shown about the economy. I think Chair 0:17:43.000 --> 0:17:45.600 Powell has actually been more humble in that regard because 0:17:45.600 --> 0:17:48.399 he's had to eat crow in public on this issue. 0:17:48.680 --> 0:17:52.359 But the humility in uncertainty we face is very high. 0:17:52.920 --> 0:17:55.120 And that is the sort of you know, coming out 0:17:55.160 --> 0:17:58.960 and making statements following the meeting to counter or to 0:17:59.160 --> 0:18:01.320 change the message reflect the message that was in the 0:18:01.440 --> 0:18:05.560 meeting I think is not productive. But it's also the 0:18:06.320 --> 0:18:09.159 certainty with which some of these comments are made is 0:18:09.240 --> 0:18:12.480 really not helpful either, because there is a lot of uncertainty. 0:18:12.680 --> 0:18:15.359 Let's face it, We're at two percent on the Fed's 0:18:15.560 --> 0:18:18.399 you know, run rate for three and six months on 0:18:18.640 --> 0:18:22.160 core and overall inflation coming down, and people were arguing 0:18:22.240 --> 0:18:24.720 that they should be cutting like crazy, and the Fed, 0:18:25.480 --> 0:18:28.480 at least in a prescient manner, said let's be cautious here. 0:18:28.960 --> 0:18:31.879 We've been for me once shame on me for me twice. 0:18:32.760 --> 0:18:35.159 Shame on yous fiemy twice, Shame on me. They said, no, 0:18:35.280 --> 0:18:37.399 I'm not going to be headfaked by this again, and 0:18:37.520 --> 0:18:40.399 they held back. That was good to hold back, because 0:18:40.520 --> 0:18:43.639 in fact we have seen an acceleration. It's probably overstated, 0:18:43.840 --> 0:18:46.320 but we've got to see where we're going, and there 0:18:46.440 --> 0:18:49.560 is time with the legs that are already still in 0:18:49.760 --> 0:18:52.520 the market with regard to fed tightening. 0:18:52.760 --> 0:18:55.600 Diane, this was great. Dane swamk KPMG. Dan, thank you 0:18:55.920 --> 0:18:58.080 talking about humility. You've got to remember four months ago 0:18:58.359 --> 0:19:00.880 we have people in this program talking about in March, 0:19:01.160 --> 0:19:02.800 this was a fat that was meant to be already cutting, 0:19:02.840 --> 0:19:05.320 and now there's a conversation about him at least entertaining 0:19:05.359 --> 0:19:08.280 the potential of hiking interest rates. Mike Gape at a 0:19:08.320 --> 0:19:10.359 Bank of America with us now, Michael Gape, and I 0:19:10.480 --> 0:19:12.280 keep hearing that Chairman Pound is going to be hawkish. 0:19:12.320 --> 0:19:14.280 Could you define for us what hawkish will sound like 0:19:14.560 --> 0:19:17.879 in this news conference, given you, like others, think that 0:19:17.960 --> 0:19:21.760 the first cut comes in December, which is not anytime soon. 0:19:24.160 --> 0:19:27.639 I think hawkish today simply simply is a wait and 0:19:27.800 --> 0:19:32.040 see message. A we need, we need to give policy 0:19:32.200 --> 0:19:35.800 more time to work. That's really about as far as 0:19:35.920 --> 0:19:38.280 I think they go today. I think he can repeat 0:19:38.400 --> 0:19:41.680 or will repeat their view that the supply side is 0:19:41.760 --> 0:19:44.600 helping bring inflation down. So inflation is still in a 0:19:44.680 --> 0:19:48.920 downward trend. Progress hasn't been where we wanted it to be, 0:19:49.240 --> 0:19:51.560 but we think our policy stance is tight. So the 0:19:51.720 --> 0:19:55.240 answer is let that type policy work for longer. I 0:19:55.280 --> 0:19:57.800 think that's about as far as they're they're ready to 0:19:57.960 --> 0:19:59.000 go today. 0:19:59.160 --> 0:20:00.520 That's that's hawk may. 0:20:00.600 --> 0:20:02.520 We'll see what hawkish might look like in June. 0:20:03.440 --> 0:20:06.800 Michael, Are we back to normal? Are we beyond the pandemic? 0:20:06.920 --> 0:20:10.440 Are we talking about fixed income dynamics FOBOSEI one oh one, 0:20:11.040 --> 0:20:13.679 it makes sense now post pandemic. Or we still live 0:20:13.760 --> 0:20:16.800 in the debris of what we had for three four years. 0:20:17.240 --> 0:20:20.400 No, we're still in the shadow of COVID strung. There's 0:20:20.440 --> 0:20:24.840 still stimulus that's being distributed. When we talk to our 0:20:25.080 --> 0:20:29.000