1
00:00:00,200 --> 00:00:03,160
Speaker 1: And the savannahs this morning struggling to find consensus.

2
00:00:04,040 --> 00:00:06,640
Speaker 2: It's not just that we don't know what the destination is,

3
00:00:07,320 --> 00:00:10,000
Speaker 2: we don't know what the journey is. Also there's disagreement

4
00:00:10,039 --> 00:00:14,240
Speaker 2: as how quickly will FED official go from backward looking

5
00:00:14,400 --> 00:00:18,320
Speaker 2: data dependents to forward leaning. So we have these disagreement

6
00:00:18,400 --> 00:00:21,680
Speaker 2: both within the FMC and also between the market and

7
00:00:22,400 --> 00:00:25,239
Speaker 2: what seems to be the consensus if there is one

8
00:00:25,440 --> 00:00:28,560
Speaker 2: under FED. So this is for me, it's a fascinating time,

9
00:00:28,840 --> 00:00:30,440
Speaker 2: but it is also a very confusing time.

10
00:00:30,720 --> 00:00:32,440
Speaker 1: I think most of us are confused. So here's the

11
00:00:32,479 --> 00:00:35,480
Speaker 1: latest investors bracing for the Fed's first interest rate count

12
00:00:35,640 --> 00:00:37,800
Speaker 1: in more than four years and looking for answers to

13
00:00:37,840 --> 00:00:40,360
Speaker 1: a lot of big questions. Tolson's lack of apollo, saying,

14
00:00:40,640 --> 00:00:44,240
Speaker 1: despite surveys showing that the consensus expecting a soft landing rates,

15
00:00:44,240 --> 00:00:47,480
Speaker 1: markets are pricing in a full blown recession the Feds.

16
00:00:47,520 --> 00:00:50,400
Speaker 1: Our style model says that neutral monetary policy would mean

17
00:00:50,440 --> 00:00:52,760
Speaker 1: a FED funds rate at three percent, but maybe this

18
00:00:52,960 --> 00:00:56,160
Speaker 1: estimate is wrong. Tilston joins us now for more toasting.

19
00:00:56,200 --> 00:00:58,160
Speaker 1: Good morning to you, sir. We've got a lot to

20
00:00:58,200 --> 00:01:00,440
Speaker 1: work through. When they sit around on the Committee, and

21
00:01:00,480 --> 00:01:03,480
Speaker 1: they continue the conversation today if it doesn't need to continue,

22
00:01:03,640 --> 00:01:06,160
Speaker 1: and they ask themselves what's the biggest risk care upside

23
00:01:06,200 --> 00:01:09,119
Speaker 1: risk to inflation or downside risk to growth? What else

24
00:01:09,160 --> 00:01:10,000
Speaker 1: do you think they come up with.

25
00:01:10,200 --> 00:01:11,880
Speaker 3: I think that they would look at the dual mandate

26
00:01:12,080 --> 00:01:15,040
Speaker 3: and it is absolutely correct that inflation was nine point

27
00:01:15,040 --> 00:01:17,360
Speaker 3: one and the summer of twenty twenty two and now

28
00:01:17,360 --> 00:01:20,080
Speaker 3: it's two point five. So we've come a long long

29
00:01:20,120 --> 00:01:22,720
Speaker 3: way when it comes to inflation. But the other side

30
00:01:22,760 --> 00:01:25,480
Speaker 3: of the dual mandate eavenly full employment. Yes, the unemployer

31
00:01:25,520 --> 00:01:27,800
Speaker 3: rate has gone up a bit, but literally all other

32
00:01:28,040 --> 00:01:32,480
Speaker 3: economic activity indicators, really indicators for everything across GDP, as

33
00:01:32,480 --> 00:01:36,400
Speaker 3: you saw yesterday, industrial production, retail sales remain quite strong.

34
00:01:36,680 --> 00:01:38,080
Speaker 3: So now you begin to sit and look at the

35
00:01:38,120 --> 00:01:39,640
Speaker 3: real side of the economy and say, should I put

36
00:01:39,680 --> 00:01:41,600
Speaker 3: a lot of weight on the unemployer rate going up

37
00:01:41,600 --> 00:01:44,720
Speaker 3: a bit because of largely because of labels apply or

38
00:01:44,760 --> 00:01:47,000
Speaker 3: should I put more weight on all the other real

39
00:01:47,040 --> 00:01:49,840
Speaker 3: economy indicators are actually still in relatively good shape. So

40
00:01:49,880 --> 00:01:51,800
Speaker 3: I think that they would do it from the perspective

41
00:01:51,840 --> 00:01:54,160
Speaker 3: of saying, what's the dual mandate, saying and where are

42
00:01:54,200 --> 00:01:56,440
Speaker 3: we on the various indicators on the side of the door.

43
00:01:56,520 --> 00:01:58,840
Speaker 1: So do you take issue today with the decision of

44
00:01:58,920 --> 00:02:01,760
Speaker 1: reducing interest rates or take issue with the conversation about

45
00:02:01,760 --> 00:02:03,960
Speaker 1: them returning back to three percent quickly?

46
00:02:04,160 --> 00:02:05,960
Speaker 3: So I do think that it is the returning back

47
00:02:06,000 --> 00:02:09,040
Speaker 3: to three percent that's problematic because the three percent number

48
00:02:09,120 --> 00:02:11,480
Speaker 3: there are star number or the terminal estimate that they

49
00:02:11,480 --> 00:02:13,480
Speaker 3: have put out in the dot plot that they now

50
00:02:13,520 --> 00:02:15,840
Speaker 3: literally have on the New York Fed homepage that our

51
00:02:15,880 --> 00:02:18,520
Speaker 3: style where we're going is three percent. That turns out

52
00:02:18,520 --> 00:02:21,639
Speaker 3: to be wrong because if this were the case, Markesterry

53
00:02:21,680 --> 00:02:25,040
Speaker 3: policy would be much more restrictive. And the incoming data,

54
00:02:25,120 --> 00:02:27,520
Speaker 3: when you look at it Atlanta FEDGDP now at three

55
00:02:27,560 --> 00:02:30,560
Speaker 3: percent yesterday, that's not restrictive. If you look at what

56
00:02:30,600 --> 00:02:33,600
Speaker 3: happens to industrial production yesterday, that's not restrictive either. If

57
00:02:33,600 --> 00:02:36,200
Speaker 3: you look across the board on a wide range of indicators,

58
00:02:36,400 --> 00:02:39,000
Speaker 3: it doesn't look like Marnins Terry policy is particularly restrictive.

59
00:02:39,040 --> 00:02:41,960
Speaker 3: Most importantly in credit and in private credit. You're seeing

60
00:02:42,040 --> 00:02:45,080
Speaker 3: that loan default rates are going down. If we had

61
00:02:45,080 --> 00:02:47,200
Speaker 3: a recession, defall rates would not be going down.

62
00:02:47,240 --> 00:02:48,040
Speaker 1: There would be going up.

63
00:02:48,160 --> 00:02:49,800
Speaker 3: Even if we had a slow down, it would be

64
00:02:49,800 --> 00:02:52,520
Speaker 3: the same show. Given this vast majority of indicators, when

65
00:02:52,560 --> 00:02:54,600
Speaker 3: you look out of the windows still telling you that

66
00:02:54,639 --> 00:02:57,400
Speaker 3: things are actually still okay, then it is problematic to

67
00:02:57,440 --> 00:03:00,000
Speaker 3: sit there with high conviction and saying that Marnsterry Poles

68
00:03:00,120 --> 00:03:00,959
Speaker 3: is very restrictive.

69
00:03:01,160 --> 00:03:03,000
Speaker 4: We're in a Kumbayah kind of mood. We're trying to

70
00:03:03,000 --> 00:03:05,600
Speaker 4: find consensus. And one thing that strikes me about what

71
00:03:05,639 --> 00:03:09,800
Speaker 4: you said is it doesn't sort of really reduce the

72
00:03:09,880 --> 00:03:12,240
Speaker 4: need for a fifty basis point rate cut today. You're

73
00:03:12,280 --> 00:03:15,320
Speaker 4: just saying longer term, maybe they should push back against

74
00:03:15,320 --> 00:03:18,520
Speaker 4: some of the expectations for two hundred basis points of

75
00:03:18,520 --> 00:03:21,560
Speaker 4: reduction quickly like that, to get down to that level

76
00:03:21,600 --> 00:03:23,800
Speaker 4: that is closer to what may be neutral.

77
00:03:23,840 --> 00:03:24,480
Speaker 1: Is that correct?

78
00:03:24,600 --> 00:03:26,960
Speaker 3: Well, if a style where we're going the term will

79
00:03:26,960 --> 00:03:30,080
Speaker 3: fitfunds rate, if we think that's three but it actually

80
00:03:30,240 --> 00:03:32,799
Speaker 3: is more like four four and a half, then you're

81
00:03:32,800 --> 00:03:34,880
Speaker 3: not in a rush to cut fifty. Then you could

82
00:03:34,920 --> 00:03:36,760
Speaker 3: just take twenty five and say, if we need to

83
00:03:36,800 --> 00:03:38,440
Speaker 3: get to four and a half, that's just seventy five

84
00:03:38,560 --> 00:03:40,800
Speaker 3: hundred basis points lower than where we are, So there's

85
00:03:40,840 --> 00:03:44,120
Speaker 3: no need to hurry to lower interest rates. If you

86
00:03:44,200 --> 00:03:46,640
Speaker 3: have that, we don't need to get quickly down to three,

87
00:03:46,800 --> 00:03:48,320
Speaker 3: but we just need to get to four and a half.

88
00:03:48,400 --> 00:03:50,920
Speaker 3: So it does become quite important whether it's twenty five

89
00:03:51,000 --> 00:03:53,240
Speaker 3: or fifty, because it signals whether we are in a

90
00:03:53,360 --> 00:03:55,960
Speaker 3: hurry to do something or whether we still have time

91
00:03:56,240 --> 00:03:58,320
Speaker 3: to look at the incoming data that still continues to

92
00:03:58,320 --> 00:03:58,760
Speaker 3: be strong.

93
00:03:58,960 --> 00:03:59,840
Speaker 1: What in the en.

94
00:04:00,040 --> 00:04:03,480
Speaker 4: Humming data makes you concerned about a reacceleration of inflation,

95
00:04:03,520 --> 00:04:05,440
Speaker 4: which would be the other side of the mandate that

96
00:04:05,480 --> 00:04:10,120
Speaker 4: could potentially be negative if the federal to cut overlay aggressive.

97
00:04:10,160 --> 00:04:12,840
Speaker 3: Well, one obvious area is of course housing. Given housing

98
00:04:12,880 --> 00:04:15,520
Speaker 3: has a weight of thirty five percent in the CPI basket,

99
00:04:15,680 --> 00:04:18,440
Speaker 3: now you see the NHB has begun to increase. Of course,

100
00:04:18,440 --> 00:04:21,120
Speaker 3: if you lower Morgus raised dramatically, as we've seen here

101
00:04:21,160 --> 00:04:23,120
Speaker 3: over the last three four weeks, that will also give

102
00:04:23,160 --> 00:04:25,200
Speaker 3: a boost to housing. We're seeing some of the housing

103
00:04:25,200 --> 00:04:27,960
Speaker 3: indicators show signs of turning around, and with an already

104
00:04:28,120 --> 00:04:31,520
Speaker 3: low supply of houses and therefore inventory being very very

105
00:04:31,520 --> 00:04:34,640
Speaker 3: low by historical standards, you could have that housing inflation

106
00:04:34,680 --> 00:04:37,320
Speaker 3: at least if you take the chart of case Shiller

107
00:04:37,360 --> 00:04:40,240
Speaker 3: and that with Oeer, it does look like we could

108
00:04:40,279 --> 00:04:42,599
Speaker 3: get a rebound over the next several months in the

109
00:04:42,640 --> 00:04:43,680
Speaker 3: housing components of the.

110
00:04:43,640 --> 00:04:45,920
Speaker 5: CPI if the Fed comes out and cuts twenty five

111
00:04:45,960 --> 00:04:48,960
Speaker 5: basis points, but Powell has very dubvish language. Will that

112
00:04:49,000 --> 00:04:51,559
Speaker 5: be to the markets almost equal to a fifty bas

113
00:04:51,560 --> 00:04:52,080
Speaker 5: point cut?

114
00:04:52,160 --> 00:04:55,000
Speaker 3: Well, I do think that exactly the communication around what

115
00:04:55,040 --> 00:04:56,880
Speaker 3: they do today, So I think that they will go

116
00:04:57,000 --> 00:04:59,680
Speaker 3: twenty five, But if they do go fifty, how they

117
00:04:59,720 --> 00:05:02,159
Speaker 3: talk about this will be extremely important. So that's why

118
00:05:02,200 --> 00:05:05,320
Speaker 3: the dot plot coming along today with the statement is

119
00:05:05,400 --> 00:05:08,719
Speaker 3: very very critical for rates expectations. Markets are obviously pricing

120
00:05:08,920 --> 00:05:11,760
Speaker 3: ten cuts through this cycle, which is basically based on

121
00:05:11,800 --> 00:05:13,400
Speaker 3: the idea that we got to get down to neutral.

122
00:05:13,400 --> 00:05:15,000
Speaker 3: We got to get down to neutral and three percent

123
00:05:15,040 --> 00:05:17,960
Speaker 3: as quickly as possible. But if the dot plot certainly

124
00:05:17,960 --> 00:05:20,440
Speaker 3: now tells you will maybe you're not getting ten cuts,

125
00:05:20,440 --> 00:05:23,360
Speaker 3: maybe we're getting only six seven cuts. Then of course

126
00:05:23,360 --> 00:05:25,200
Speaker 3: that will also mean that Marcus will look at that

127
00:05:25,279 --> 00:05:28,080
Speaker 3: and say, well, maybe we are overpricing this and maybe

128
00:05:28,120 --> 00:05:30,880
Speaker 3: we are to hooked on. Excuse me, the model in

129
00:05:30,920 --> 00:05:33,479
Speaker 3: the FEDS basement, name me our star. Rather than going

130
00:05:33,520 --> 00:05:35,520
Speaker 3: up into the living room and looking at the incoming data.

131
00:05:35,800 --> 00:05:38,400
Speaker 5: I want to ask you a quick question on fiscal viewers.

132
00:05:38,480 --> 00:05:41,440
Speaker 5: Government every day pays out billions. When we pay out

133
00:05:41,480 --> 00:05:45,120
Speaker 5: our interest three billion. With the FED cutting, how much

134
00:05:45,200 --> 00:05:46,800
Speaker 5: less money is the government actually need to pay on

135
00:05:46,839 --> 00:05:47,360
Speaker 5: our interest.

136
00:05:47,480 --> 00:05:50,360
Speaker 3: Yes, so we calculated that if the Fed cuts one

137
00:05:50,360 --> 00:05:53,360
Speaker 3: percent is point the interest payments on a daily basis

138
00:05:53,360 --> 00:05:56,040
Speaker 3: with decline from three billion to two and a half billion.

139
00:05:56,240 --> 00:05:58,720
Speaker 3: But that's still a very very significant number of reads

140
00:05:58,760 --> 00:06:01,039
Speaker 3: it to where we've been historically. So you're absolutely right.

141
00:06:01,320 --> 00:06:04,200
Speaker 3: Knowing interest rates helps in terms of dead servicing costs.

142
00:06:04,360 --> 00:06:06,560
Speaker 3: But in the background, we of course still have dead

143
00:06:06,640 --> 00:06:09,839
Speaker 3: levels continuing to rise and that's of course creating challenges

144
00:06:09,880 --> 00:06:11,680
Speaker 3: for the fiscal situation. Maybe in the near term it

145
00:06:11,680 --> 00:06:13,560
Speaker 3: will be a little bit of relief, but down the

146
00:06:13,600 --> 00:06:15,400
Speaker 3: road this problem is of course not going away.

147
00:06:15,480 --> 00:06:18,680
Speaker 1: And we suggesting John Williams is in the basement, Well, I'm.

148
00:06:18,560 --> 00:06:21,520
Speaker 3: Just saying that the focus here on what it is

149
00:06:21,520 --> 00:06:23,560
Speaker 3: that is the narrative. Also, if you think carefully about

150
00:06:23,600 --> 00:06:25,440
Speaker 3: what is the easy be saying, what is the Bank

151
00:06:25,480 --> 00:06:29,039
Speaker 3: of England saying they're not framing their decisions for marninterry policy.

152
00:06:29,120 --> 00:06:32,360
Speaker 3: According to some excuse me, academic healmen Field for what's

153
00:06:32,360 --> 00:06:35,120
Speaker 3: happening with our Star, They're framing their debate as what

154
00:06:35,200 --> 00:06:37,680
Speaker 3: is the incoming data doing? So in that sense, I

155
00:06:37,839 --> 00:06:40,200
Speaker 3: love us Star, and I think everything that goes into it,

156
00:06:40,240 --> 00:06:42,039
Speaker 3: and trust me, I have I spent a lot of

157
00:06:42,040 --> 00:06:44,120
Speaker 3: time thinking about and I have a psd in economics.

158
00:06:44,160 --> 00:06:45,760
Speaker 3: It is a very interesting thing to spend time on.

159
00:06:46,120 --> 00:06:48,040
Speaker 3: But I'm just telling you that if you think about

160
00:06:48,160 --> 00:06:50,560
Speaker 3: the incoming data then putting it up on the scale,

161
00:06:50,640 --> 00:06:52,760
Speaker 3: maybe the incoming data should get a bit more weight.

162
00:06:52,920 --> 00:06:54,560
Speaker 1: Get out of the basement and get in the living

163
00:06:54,640 --> 00:06:55,559
Speaker 1: room and looking at the window.

164
00:06:56,440 --> 00:06:59,240
Speaker 4: Nobody quins Chard Williams in the basement.

165
00:07:00,279 --> 00:07:01,359
Speaker 1: Is you know, there is this.

166
00:07:01,480 --> 00:07:04,280
Speaker 4: Feeling that maybe we are making a little bit too

167
00:07:04,400 --> 00:07:06,719
Speaker 4: much or placing too much emphasis and certain measures that

168
00:07:06,760 --> 00:07:08,680
Speaker 4: are you know, fuzzy or dusty.

169
00:07:08,800 --> 00:07:10,800
Speaker 1: Jim Bianco of Bianca Research made this point. There's a

170
00:07:10,800 --> 00:07:13,000
Speaker 1: great divide right now, you know, going into this decision

171
00:07:13,000 --> 00:07:16,200
Speaker 1: between market pricing and economists. In our survey, more than

172
00:07:16,200 --> 00:07:19,240
Speaker 1: one hundred economists surveyed in our survey, not even ten

173
00:07:19,280 --> 00:07:22,080
Speaker 1: percent of them think a fifty basis point cup happens today.

174
00:07:22,200 --> 00:07:24,600
Speaker 1: That's how big the spread is between professional economists at

175
00:07:24,640 --> 00:07:26,360
Speaker 1: the moment and market participants.

176
00:07:26,600 --> 00:07:29,600
Speaker 4: How do you make a move that is outsized at

177
00:07:29,640 --> 00:07:33,640
Speaker 4: a time where you're only able to see lagging indicators

178
00:07:33,680 --> 00:07:37,080
Speaker 4: and the data itself is kind of contradictory. We're seeing

179
00:07:37,080 --> 00:07:40,800
Speaker 4: different signals from say, the mortgage market versus say, Autoloe delinquencies.

180
00:07:40,920 --> 00:07:42,760
Speaker 1: Turston, this was wonderful, be one of the best thing.

181
00:07:42,760 --> 00:07:43,880
Speaker 1: We appreciate it. Thank you, sir,