Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
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Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. Tim's been talking about it.
Speaker 1: I've been talking about it. We've got the US Federal
Speaker 1: Reserve kicking off at two day meeting on monetary policy today.
Speaker 1: We're talking about the policy setting arm of the Fed.
Speaker 1: Decision of course comes tomorrow at this time, twenty four
Speaker 1: hours fast forward, we will be hearing from j. Powell
Speaker 1: in that press conference we got with us and Matt Bosler,
Speaker 1: he's Federal Reserve reporter for Bloomberg News. He joins us
Speaker 1: on the phone from our New York City bureau. Matt,
Speaker 1: good to have you with us this afternoon. I know
Speaker 1: you're busy ahead of this well, I don't want to
Speaker 1: say ahead of the meeting because it's happening now, but
Speaker 1: ahead of tomorrow's press conference. You have a great piece
Speaker 1: out today about the dual mandate that the FED has
Speaker 1: stable prices and maximum employment. But one of those things
Speaker 1: is getting a lot more attention right now, and that,
Speaker 1: of course is stable prices. So how is that employment
Speaker 1: mandate taking a back seat thanks to Tim? Yeah? So,
Speaker 1: I mean, obviously the FED has made fighting inflation and
Speaker 1: bringing it down to their two percent target job number
Speaker 1: one this year, and so UM, you know, as of
Speaker 1: the last meeting in September, they actually came out for
Speaker 1: the first time with projection showing that, UM, they need
Speaker 1: to boost the unemployment rate, you know, almost a full
Speaker 1: percentage point through the end of next year to bring
Speaker 1: inflation down to where they wanted to be. And this
Speaker 1: is really the first time since they started UM publishing
Speaker 1: these projections ten years ago that they've put out such
Speaker 1: a UM kind of dark forecast for what their policy
Speaker 1: is going to do to the unemployment rate. And so
Speaker 1: it's a really interesting time right now, UM where they're
Speaker 1: dealing with uh, you know, increasingly calls from Democratic lawmakers,
Speaker 1: including UM Senator Liz Warren today, Um, for them to
Speaker 1: slow down and remember that they actually have two mandates
Speaker 1: and it's not just all about inflation. Yeah, it's rare though,
Speaker 1: right among global central banks. Matt, Yeah, it is, and
Speaker 1: so um, you know, the Fed has an employment mandate.
Speaker 1: Most other central banks only have the one inflation mandate.
Speaker 1: And um, there's a really interesting history behind the FEDS
Speaker 1: employment mandate, right. It goes back to the civil rights
Speaker 1: movement in the United States back in the nineteen sixties
Speaker 1: and the nineteen seventies. This was really the work of
Speaker 1: civil rights activists who pushed for this and got it
Speaker 1: codified into law at the end of the nineteen seventies.
Speaker 1: It was really kind of like the last, um dying
Speaker 1: breath of the civil rights movement, if you will, to
Speaker 1: get this on the books. But I mean, isn't the
Speaker 1: data that we continue to get showing us that the
Speaker 1: labor market is so resilient. I mean, take that Jolts
Speaker 1: number this morning, that it kind of can take a
Speaker 1: back seat to fighting inflation because as you right, back
Speaker 1: in inflation was high and unemployment was high too. Yeah. No,
Speaker 1: that's right, And so the labor market has been so
Speaker 1: resilient all year and everybody's just kind of waiting for
Speaker 1: it to slow down, right, And we're not seeing that
Speaker 1: in the data yet, even though we've had these very
Speaker 1: aggressive rate increases. So on one hand, you know, perhaps
Speaker 1: you might not expect it to show up in the
Speaker 1: data just yet because you know, the FED really only
Speaker 1: started um doing these rate increases about seven months ago,
Speaker 1: and as we know, it takes time for monetary policy
Speaker 1: to work through the economy. But you know, as the
Speaker 1: labor market data keep coming in so strong, it's also
Speaker 1: causing forecasters to you know, ratchet up their projections for
Speaker 1: where the FED is going to ultimately raise interest rates to.
Speaker 1: And so it's kind of a double edged sword in
Speaker 1: that regard that this you know, continued strong labor market
Speaker 1: data makes it look like the Fed is going to
Speaker 1: have to be even more hawkish than previously planned to
Speaker 1: bring inflation down. And that's kind of where they are
Speaker 1: at the moment. Matt, I love you kind of give
Speaker 1: us a history less and when it comes to monetary policy,
Speaker 1: taking us back to Humphrey Hawkins, uh and remind you know,
Speaker 1: and reminding us once again of the Vulcar era maybe
Speaker 1: what we've learned. But what's interesting too, though in your
Speaker 1: reporting and writing, is something that we talk a lot
Speaker 1: about in that some of the inflationary pressures are above
Speaker 1: and beyond Fed control. And so you do wonder with
Speaker 1: this dual mandate whether we need to be thinking that, Wait, guys,
Speaker 1: the FED can only do so much when it comes
Speaker 1: to inflation, and if they overdo it, it's at what
Speaker 1: risk and what costs to the labor market. And so
Speaker 1: this is where you wonder whether policymakers have to come
Speaker 1: in and kind of give the FED an assist here, right,
Speaker 1: And you know that's pretty much been um completely acknowledged
Speaker 1: by the Fed, right for the most part. I mean,
Speaker 1: the one thing that they do say is that, look,
Speaker 1: we do have a very strong labor market. Wage growth
Speaker 1: is very high, and even after some of these temporary
Speaker 1: supply side driven factors um you know, kind of resolve
Speaker 1: themselves and fall out of the inflation data, we're still
Speaker 1: going to be left with very high inflation. And so
Speaker 1: there is room for us to um camp down on
Speaker 1: the labor market with the man side policy. Now that's
Speaker 1: a kind of a big hypothetical. You know, we don't
Speaker 1: really know where inflation is going to settle out, but
Speaker 1: that's the story that they're sticking with us at the moment.
Speaker 1: But it's hard to have a FED where the employment
Speaker 1: inflation mandates are in conflict, as you report. I mean,
Speaker 1: this is not an easy thing to navigate. Met Bosler
Speaker 1: a really smart read. And this story, by the way,
Speaker 1: is going to be in the upcoming new issue of
Speaker 1: Bloomberg Business Week, which is out later this week. It's
Speaker 1: already on the Bloomberg terminal at Bloomberg dot com, but
Speaker 1: be sure to pick up that magazine. Matt, by the way,
Speaker 1: is Federal Reserve reporter at Bloomberg News on the phone
Speaker 1: in our New York City bureau. You didn't give Matt
Speaker 1: the question that you wanted to ask her. Howell tomorrow.
Speaker 1: I'm still working on still working on it. I'm still
Speaker 1: thinking about what's a pivot? Is a pivot like not
Speaker 1: so aggressive? Is it cutting rates? Is it? What? What
Speaker 1: pivot are we talking about? You're listening to Bloomberg Business
Speaker 1: Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic
Speaker 1: on Bloomberg Radio. Blake Masters is betting that more money
Speaker 1: from Peter Teel, Donald Trump, and conservative activists plus some
Speaker 1: rallies with Carry Lake can help put the GOP in control.
Speaker 1: We're talking about Arizona with that story, our own Bloomberg
Speaker 1: business Week calumnist Max Chafkins. He's with us right now
Speaker 1: in the Bloomberg Interactive Broker's Studio. Max. The story is
Speaker 1: featured in the upcoming issue of Business Week magazine, but
Speaker 1: it's available now on the Bloomberg terminal at Bloomberg dot
Speaker 1: com slash business Week. Okay, let's link back to the election,
Speaker 1: Max and Arizona pivotal state, but it ended up going
Speaker 1: for President Biden. Josh Green wrote a really prescient story
Speaker 1: um in basically predicting or or speculating in the possibility
Speaker 1: that Arizona would turn purple and that the thing that
Speaker 1: would drive at purple would be the Maricoba County suburbs.
Speaker 1: And um, you know, Arizona is kind of an interesting
Speaker 1: state because it's sort of was the pioneer of this
Speaker 1: kind of right wing populism. Sure if JR. Pio in
Speaker 1: a lot of ways was a proto Trump, and in
Speaker 1: that stuff looked like it was in the rear view mirror.
Speaker 1: Joe Biden won the state. Our pile has lost like
Speaker 1: the last three elections he's he's contested. So so the
Speaker 1: state is trending um blew er and and and away
Speaker 1: from the kind of you know, sort of hardline right.
Speaker 1: But what we're seeing in two with you know, a
Speaker 1: relatively unpopular president, high inflation and so on, that that
Speaker 1: sort of right wing that has been there in Arizona
Speaker 1: is is surging right now. And um it is what
Speaker 1: Blake Masters and Carry Lake and some of these other
Speaker 1: candidates that are running in the state are betting on
Speaker 1: and and and you know, if they're successful, obviously it
Speaker 1: could um have have serious implications both for the Senate
Speaker 1: and for what is interesting kind of understanding like who's
Speaker 1: funding who in that state and what's going on behind
Speaker 1: the scenes. Right. So Masters is interesting because he's a
Speaker 1: political outsider and he was basically a protege to Peter Tiald,
Speaker 1: the Siliconali investor. Yeah exactly, uh famous uh because he
Speaker 1: uh was co founder of PayPal. He was one of
Speaker 1: the early backers of Facebook. Yeah. I wrote a whole
Speaker 1: book about him. Um, And he basically plucked a couple
Speaker 1: of Senate candidates, um out of relative ob Security J.
Speaker 1: D Vance in Ohio and and Masters, who really had
Speaker 1: no profile whatsoever besides basically being known as Peter Teal's
Speaker 1: right hand man, gave him a ten million dollar seed
Speaker 1: investment and basically carried him through the Republican primary. And
Speaker 1: then when we got to the general election, Masters has
Speaker 1: had a much harder time. Teal had not been funding
Speaker 1: him for for a couple of months, and partly because
Speaker 1: Teal has sort of pushed Masters, I think to the right,
Speaker 1: you saw a hesitancy from sort of more mainstream Republicans
Speaker 1: like Mitch McConnell to fund the campaign. So there's been
Speaker 1: this kind of dance right where you have on one
Speaker 1: side the sort of mainstream Republicans, um Mitch McConnell, and
Speaker 1: then on the other side these kind of activists with
Speaker 1: Peter Teal and Donald Trump being kind of unity right,
Speaker 1: like as you point out when it comes to the
Speaker 1: Republicans in this state. Yeah, what's so interesting is, especially Arizona,
Speaker 1: is you have an entire ticket statewide of basically trumpets
Speaker 1: of candidates who say that the election was in some
Speaker 1: sense stolen. Carry Lake at the top of that ticket.
Speaker 1: Blake Masters has made kind of similar comments, and you
Speaker 1: also have candidates for attorney general and Secretary of State
Speaker 1: kind of saying the same thing. So it's a real test, um,
Speaker 1: I think for sort of that message, the stop the
Speaker 1: steel conspiracy is it can connect actually like win you
Speaker 1: an election in a in a swing state. Um. But
Speaker 1: it's also of course a test for the popularity of
Speaker 1: Donald Trump and and you know the popularity of of Democrats. Frankly, Okay,
Speaker 1: so what do the data tell us right now? What
Speaker 1: did the polls tell us? It's it's very close. Uh,
Speaker 1: you bring up polls, just kidding. So lake has is
Speaker 1: running a little bit ahead of Masters. I think she's
Speaker 1: even or slightly ahead of her Democratic opponent, which is interesting.
Speaker 1: That's one of the people in the Republican Party now
Speaker 1: are are talking about her as a rising star. I
Speaker 1: went to this event in Arizona. They kept referring to
Speaker 1: her as r Rhonda Santis, which that was kind of funny. Um.
Speaker 1: But in any case, uh yeah, and there's speculation, Oh,
Speaker 1: she could be a potential you know, vice presidential candidate
Speaker 1: if if if Trump runs in Masters. Um has you know,
Speaker 1: not proven a successful candidate. He also has a um,
Speaker 1: you know, probably a better opponent Mark Kelly, who's incumbent,
Speaker 1: has raised a ton of money UM, and so he's
Speaker 1: running a bit behind Lake, although he is very close
Speaker 1: as well. And you know, at this point it could
Speaker 1: probably go either way. So how do you like you
Speaker 1: do this story? And we're looking at some really kind
Speaker 1: of key pivotal as we always are states in the
Speaker 1: upcoming midterms and certainly it will ultimately in the next
Speaker 1: presidential run. I mean, how do we kind of square
Speaker 1: what's going on in Arizona versus kind of more broadly
Speaker 1: across the country. How do you think about it? I
Speaker 1: think that the same kind of forces are a play.
Speaker 1: You know, you know another stage, which is that you
Speaker 1: have this small but very engaged UM subset of the
Speaker 1: electorate that the sort of Trump portional electorate, which is UM.
Speaker 1: You know, it's it's not a majority, but but they're
Speaker 1: they're extremely enthused. And the question is, you know, are
Speaker 1: they going to turn out, especially in a mid term
Speaker 1: year UM when Donald up is not on the ballot
Speaker 1: UM And and the extent to which you know, these
Speaker 1: these Trump aligne candidates have you know, won their primaries
Speaker 1: and kind of become the main forces in their states
Speaker 1: and and this, this cuts across other states as well.
Speaker 1: You know, it really just shows how Donald Trump is still,
Speaker 1: you know, very much the most important person in the
Speaker 1: Republican Party. UM on the donor side. You know, there's
Speaker 1: a very interesting kind of drama between Teal and and
Speaker 1: as I said, the kind of more moderates, because Teal
Speaker 1: kind of foisted these harder line candidates on the Republican Party,
Speaker 1: carried them through their primary campaigns. And you know, if
Speaker 1: they lose, that's gonna be a huge blow for him.
Speaker 1: It's it's gonna look like he wasted, you know, over
Speaker 1: thirty million dollars, uh, you know, promoting unelectable candidates. If
Speaker 1: they win, though, it's gonna be a huge Uh, it's
Speaker 1: gonna be a huge win for Teal. We'll push the
Speaker 1: Republican Party, they're right, you know. And and I would
Speaker 1: expect he would then play a probably a pretty important
Speaker 1: role in what about economic messaging, Max, because if we
Speaker 1: think about you know, for example, here in New York
Speaker 1: and the reason why he's olden is pulling closer and
Speaker 1: closer to Kathy Hokel, the incumbent is about crime and
Speaker 1: the economy, um, mostly crime. But I'm wondering about the
Speaker 1: economic message, because we see that resonating across the country
Speaker 1: in different states. Is that happening in Arizona? Yeah, I
Speaker 1: mean Masters and Lake are talking about inflation, just like
Speaker 1: everybody else is talking about inflation. Although I think they're
Speaker 1: they're less offering a plan and more sort of offering
Speaker 1: a critique, which is that you know, the Democrats have
Speaker 1: have have led us down and so on, and and
Speaker 1: it's very much, um, a message about sort of culture
Speaker 1: type stuff, as you said, crime in immigration. Um. Sorry,
Speaker 1: in Arizona, of course, immigration is a big thing, right,
Speaker 1: So so they're so Masters is hitting his Democratic opponent
Speaker 1: primarily on inflation and and immigration, saying the border is
Speaker 1: out of control and things like that. It really is
Speaker 1: um uh similar to Trump is um and similar to
Speaker 1: the Trump messaging that we've seen in past elections. Well,
Speaker 1: and key two will be how it plays out for
Speaker 1: the Secretary of State races, right too, because if again
Speaker 1: there's a contested race or ever like election outcome, I mean,
Speaker 1: these are the guys that can decide it. Just got
Speaker 1: about twenty second. Yeah, Arizona is interesting because the Secretary
Speaker 1: of State candidate Mark Fincham, who is allied, allied with
Speaker 1: Lake and Masters is a very hard line you know,
Speaker 1: big borderline conspiracist um. And so if he's able to win,
Speaker 1: you know, that will be a huge vindication for the
Speaker 1: Trump folks and uh and and could have implications. Oh
Speaker 1: my gosh, unbelievable. Well, the midterms what just a week away? Yes,
Speaker 1: one week, Carol, one week from today exactly. I voted
Speaker 1: early here in New York and I did not Mark, Max.
Speaker 1: Thank you so much. Max Chafkin, of course, columnist of
Speaker 1: Bloomberg Business Week. Check out his story in the upcoming
Speaker 1: new issue of Business Week, out on news stands later
Speaker 1: this week. Already on the Bloomberg and at Bloomberg dot com.
Speaker 1: It's a great story. Check it out online and of
Speaker 1: course on the terminal as well. And then later this
Speaker 1: week has Carol mentioned and the magazine. You're listening to
Speaker 1: Bloomberg Business Week, and this is Bloomberg Radio. This is
Speaker 1: Bloomberg Business Week with Carol Master and Bloomberg Quick Takes.
Speaker 1: Tim Stinovic on Bloomberg Radio. You've got a very very
Speaker 1: special guest with us right now. Yeah, Firmer, beloved Bloomberg
Speaker 1: colleague him. Yeah, for Bloomberg. Well, he's still be loved,
Speaker 1: but he's a form of Bloomberg goalie. It's that kind
Speaker 1: of a day. Carver Kodanna is now the chief you
Speaker 1: as economist at BnB party and he's here in our
Speaker 1: Bloomberg Interactor Broker studio. How are you. I'm doing fine.
Speaker 1: It's great to hear you. I heard you on a
Speaker 1: radio TV this morning. Yes, on surveillance earlier this morning.
Speaker 1: It was really good. Um did you well? Thanks? All right,
Speaker 1: now we're talking about the important stuff. So let's talk
Speaker 1: about this meeting tomorrow. Yeah, fed meeting. What's top of
Speaker 1: mind for you? Top of mind is going to be
Speaker 1: the signaling in the press conference. The you know, as
Speaker 1: we kind of look at the meeting statement that from
Speaker 1: the prior meeting and think of what needs to change
Speaker 1: at this meeting. It could be as little as the
Speaker 1: date stamped on the meeting statement. So it's all about
Speaker 1: the press conference and the kind of signaling towards what
Speaker 1: they'll do in December. Uh. And knowing j Powell and
Speaker 1: how he operates, I don't see any reason for him
Speaker 1: to get out in front of this. The pivot. The
Speaker 1: market is close to split between fifty and seventy five
Speaker 1: at the December meeting. And I think he's going to
Speaker 1: let the data do the talking. So he'll say, there's
Speaker 1: two more jobs reports, to more inflation reports, two more
Speaker 1: rounds of inflation expectations data. And so you know, we
Speaker 1: will look at, using his word from the last meeting,
Speaker 1: the totality of the data. Uh and uh, you know, determined.
Speaker 1: He'll say that at some point, right, we can't do
Speaker 1: seventy five forever. There will be a point where it
Speaker 1: is appropriate to downshift. Uh it maybe it maybe December,
Speaker 1: but we're not sure yet. And we'll base our decision
Speaker 1: on the upcoming data. Right. The FETIS made it very
Speaker 1: clear this year they are acting on realized data, not forecasts.
Speaker 1: There's a difference though, between down shifting and pausing red hikes.
Speaker 1: So just help us understand the environment that we're ENTERINGE
Speaker 1: do we go to one where we continue to see
Speaker 1: rate hikes of twenty five basis points or fifty basis
Speaker 1: points at meeting after meeting, or do we just get
Speaker 1: to a point where the FED reaches the terminal rate?
Speaker 1: And I would love to hear what you think the
Speaker 1: terminal rate is going to be? And leaves it there
Speaker 1: for for what how long. Well, the level of rates
Speaker 1: matters relative to the growth rate in the economy. So
Speaker 1: if we look at GDP right now, we're growing at
Speaker 1: about a nine percent pace. The Fed Funds rate is
Speaker 1: far below that, right, so it's it's not as restrictive
Speaker 1: as it might seem. But we see that growth is
Speaker 1: decelerating sharply, the housing sector obviously heading into a pretty
Speaker 1: significant contraction maybe annualized decline in the back half of
Speaker 1: this year. We see the factory sector starting to respond
Speaker 1: to the strength and the dollar, which has crimped export
Speaker 1: demand and whatnot. So we see more parts of the
Speaker 1: economy starting to creak as FED tightening weighs in on
Speaker 1: the economy. Our baseline view is that we will get
Speaker 1: another seventy five basis point hike at the December meeting,
Speaker 1: another fifty basis points in the first quarter of next year,
Speaker 1: probably at the February meeting. That gives us to a
Speaker 1: terminal FED funds rate of five and a quarter meeting December,
Speaker 1: and then fifty and Q one, probably fifty at the
Speaker 1: February meeting. Right, it could be between February March, but
Speaker 1: we don't want we don't want to forecast around two corners,
Speaker 1: So so the downshift is coming, maybe not in time
Speaker 1: four December, but with the FED funds right north of
Speaker 1: five cent unfortunately, I have to use that our word
Speaker 1: on your program, Carol, and uh, we think that this
Speaker 1: means recession in the first half. We're not there already
Speaker 1: because we still have positive income growth in the economy.
Speaker 1: We're creating positive monthly gains and employment, which is a
Speaker 1: very important barometer of recession. So we're not quite there yet,
Speaker 1: but things are slowing, and I think this will become
Speaker 1: more evident when we see payrolls on Friday. Uh and
Speaker 1: over the course of this quarter, and especially as we
Speaker 1: get into Q one of next year. What would be
Speaker 1: recessionary about payrolls on Friday? I mean, we're guessing, right,
Speaker 1: So so if we're close to know what's recessionary out
Speaker 1: that is the direction of travel. So I'm at about
Speaker 1: two D fifteen thousand on that forecast. But we're cooling
Speaker 1: from a pace of four hundred five hundred thousand per
Speaker 1: month earlier this year. So if we extend that trend,
Speaker 1: it doesn't become processionary necessarily in Q four, but by
Speaker 1: the first part of next year, then we're getting into
Speaker 1: the realm of a negative payroll print coming in. Where
Speaker 1: there's one, they're like cockroaches, there will there will be
Speaker 1: multiple uh. And that probably means that that we've we've
Speaker 1: slid into contraction. And just the last point I would
Speaker 1: add to that, um, consumers have been uh surfing on
Speaker 1: a wave of excess savings. Right. This has propped up
Speaker 1: consumers even while inflation is high. Uh two levels of
Speaker 1: performance and consumption that wouldn't otherwise be possible. But those
Speaker 1: savings are you know, poised to run dry, so to speak,
Speaker 1: in the first half of next year. Right, we're burning
Speaker 1: through about a trillion dollars of excess savings per quarter.
Speaker 1: We started at about you know, just north of two trillion, uh.
Speaker 1: And so you know, just use that math and that
Speaker 1: shows you that the tank runs on the fumes in
Speaker 1: in Q one of NEXTEL. One of the discussions we've
Speaker 1: been having, like on the other side of this, as
Speaker 1: we get our way through this fed cycle, should we
Speaker 1: just as a civilization just say, hey, inflation is going
Speaker 1: to run a little bit hotter than it has traditionally
Speaker 1: because of things that are going on were broadly strategically
Speaker 1: and fundamentally, I think we're in a regime shift on
Speaker 1: inflation where a lot of factors, whether it's de globalization
Speaker 1: or moving away from you know, petroleum and and whatnot,
Speaker 1: carbon emitting fuel, energy sources, uh, demographics, all of these
Speaker 1: things could mean higher inflation. But if the FED is
Speaker 1: focused on getting it to two percent, that just means
Speaker 1: there will be a more restrictive FED response. So we
Speaker 1: said recession next year. Typically in recession, the FED is
Speaker 1: the white Night riding to the rescue, cutting quickly and aggressively.
Speaker 1: I don't think we can count on that to happen
Speaker 1: this time around. They're going to keep a foot on
Speaker 1: the brake pedal to make sure they ring the inflation
Speaker 1: pressures out of the system. Inflation is real. Absolutely, they
Speaker 1: are not abandoning that target anytime soon, or they will
Speaker 1: risk the sagrin of the U. S. Congress if they do.
Speaker 1: That would be a pivot. Car Kada's so great to
Speaker 1: see you. Here is the economist at BNP Pariba joining
Speaker 1: us here in studio. I'm roam Marco journal. Yeah but
Speaker 1: you let me drive? No no, no no, no home all
Speaker 1: right please, I'll do the riding gravels. I want to drive.
Speaker 1: It's a good question. Drive. This is the Drive to
Speaker 1: the clothes down on Bluebird Radio. All right, just under
Speaker 1: ten minutes until we ring the closing bell on this
Speaker 1: Tuesday's session of trade, first trading day in November, and
Speaker 1: we are seeing stocks off their worst levels of the session,
Speaker 1: but pretty much down across the board. So let's get
Speaker 1: to it. Our drive to the close, guest is with us.
Speaker 1: We got Amanda Gotti with US, chief investment officer at
Speaker 1: P and C Asset Management Groups. She joins us on
Speaker 1: the phone from Philadelphia. I always think of the what
Speaker 1: is it the twelve Rings of Christmas, Amanda Gotti, because
Speaker 1: it's not That's what I was gonna say. Now that
Speaker 1: we're in November, we're gonna get closer and I don't
Speaker 1: want to know what inflationary things look like this year.
Speaker 1: Uh So stay tuned for, you know, around Christmas time
Speaker 1: when Amanda comes back. But before we get there, Amanda,
Speaker 1: we have got a long way to go, because we
Speaker 1: got a FED meeting that has kicked off today. We
Speaker 1: hear from FED share J Powell tomorrow. Um markets were
Speaker 1: very optimistic in October. What's top of mind for you
Speaker 1: right now? Well, thanks, so much for having me. We're
Speaker 1: definitely excited to share the insights from the Christmas Price index.
Speaker 1: So I'm looking forward to that conversation. But the thing
Speaker 1: that certainly top of mind right now is ultimately what
Speaker 1: the FED does in terms of action items here and
Speaker 1: also in terms of forward guidance. And so I think
Speaker 1: from our perspective seventy five basis points, it's pretty much
Speaker 1: a foregone conclusion in terms of the action item coming
Speaker 1: out of the meeting. But what is an entire really
Speaker 1: clear is the guidances they're going to provide or ultimately
Speaker 1: you know, where the end state for monetary policy ends.
Speaker 1: And you know, I could talk all day about you know,
Speaker 1: the still somewhat solid underlying fundamentals, the health of the consumer,
Speaker 1: what's going on in credit markets, even some of the
Speaker 1: economic days today looked okay ish, But I think the
Speaker 1: only thing that really matters in terms of the pass
Speaker 1: forward is what the FED does. Well, no, it's a
Speaker 1: really good point. Well, how would you assess what you're
Speaker 1: seeing in terms of the economic backdrop and market backdrop
Speaker 1: and what that means and what that pretends for corporate
Speaker 1: earnings going forward? We're still of course going through earnings,
Speaker 1: but what it means perhaps going into next year. Yeah. So,
Speaker 1: I mean in terms of the economic data that came
Speaker 1: out today, there's clearly some flowing and some settling, you know,
Speaker 1: crisis levels coming down. Uh, And it's really a reflection
Speaker 1: of the said doing what they're trying to do right there,
Speaker 1: tightening financial conditions. There's lowing down the backdrop. But the
Speaker 1: frustrating part about this is for as aggressive and hawkishness
Speaker 1: hawkish as they have been in terms of you know,
Speaker 1: these consistent outside rate hikes, hasn't really made that much
Speaker 1: of a difference in terms of the inflationary backdrop. We
Speaker 1: haven't made that much progress. And it comes back to
Speaker 1: this idea that there's a perfect storm of headwinds swirling
Speaker 1: here that the FEDS policy tools in the tool kit
Speaker 1: really aren't effective at combating, and talk well, can you
Speaker 1: talk about some of those Amanda, sorry to jump in,
Speaker 1: I just want you to talk about some of those
Speaker 1: specific headwinds here that that have you concerned, because it
Speaker 1: does seem it does seem pretty puzzling that, you know,
Speaker 1: despite not puzzling, because we know this stuff takes time,
Speaker 1: but I think frustrating to a lot of people that
Speaker 1: where we see softness now is housing, but kind of
Speaker 1: nowhere else. Right, So, so some of the challenges that
Speaker 1: we're seeing are certainly, you know, as it relates to
Speaker 1: the pandemic itself and the grip that it continues to have.
Speaker 1: Even though it may feel like we're kind of getting
Speaker 1: back to normal business as usual pre pandemic, there's still
Speaker 1: a grip there in terms of the pandemic itself, and
Speaker 1: it's showing up in the flickering on and off and lockdowns.
Speaker 1: As it relates to China and other parts of Asia,
Speaker 1: there's still some pretty significant supply chain disruptions. We certainly
Speaker 1: have Russia and Ukraine applying a ton of pressure on
Speaker 1: commodity prices and energy prices in particular. Just because the
Speaker 1: FED raises raised, we're tapers are balance sheet and a
Speaker 1: more accelerating rate, does that have any impact on those
Speaker 1: key variables? You know? So I keep coming back to
Speaker 1: this idea that there's a perfect storm here that's driving
Speaker 1: inflation here, and so you know, the FED continues to
Speaker 1: raise rates, but I think we're getting to a point
Speaker 1: where we're not an overly restrictive territory, but we can
Speaker 1: easily tip into that place and we ultimately end up
Speaker 1: with still elevated inflation in the backdrop. All right, so
Speaker 1: what do we do? We've got money to put to
Speaker 1: work or we're just trying to protect our assets. What
Speaker 1: do we do in this environment? Nanda, Well, there's no
Speaker 1: question evaluation multiples have responded accordingly to the challenges that
Speaker 1: we've been facing this year. So from evaluation perspective, it
Speaker 1: definitely look more attractive on a relative basis today than
Speaker 1: where we started the year, But we're still playing quite
Speaker 1: a bit of defense. The contrarian and me wants to
Speaker 1: start getting excited about new investment opportunities that major inflection
Speaker 1: points in the cycle, that's really where opportunities are born.
Speaker 1: But we're still playing quite a bit of defense here
Speaker 1: in the short run, until we can get a better
Speaker 1: handle on how far and how fast the FED is
Speaker 1: going to continue to move from here. So from our perspective,
Speaker 1: you gotta go US over international in terms of positioning
Speaker 1: larger caps over smaller and then we've effectively neutralized our
Speaker 1: growth versus value um bet inequities. That one, that one
Speaker 1: has been really challenging, kind of the pendulum swinging back
Speaker 1: and force between growth and value all years, so that
Speaker 1: one hasn't really paid to kind of pick um size
Speaker 1: in terms of positioning in the past. Forward, Amanda, when
Speaker 1: are we going to start to see some good news here?
Speaker 1: I gotta tell you, I'm feeling a little pessimistic after
Speaker 1: after hearing from you. It's which is fine. I mean,
Speaker 1: it's your take on the markets, um, But when you know,
Speaker 1: if you help us look forward to is there any
Speaker 1: optimism that you have? So I don't want to be
Speaker 1: overly bearished sounding. I think it's just important to be
Speaker 1: a little cautious here at this point that I'm already
Speaker 1: getting my Christmas wish tied up for for Sanza here,
Speaker 1: and it's sort of the impossible thing, but I'm hoping
Speaker 1: for a December FED pause. I don't think that I'm
Speaker 1: actually going to get it. I think my gifts will
Speaker 1: get lost in supply chain disruptions. But I think, honestly,
Speaker 1: I keep coming back to this idea that the single
Speaker 1: most important variable for the path forward is where FED
Speaker 1: policy ends. It's not so much one individual meeting or another,
Speaker 1: it's where that end state or terminal rate UH for
Speaker 1: monetary policy lands. And I think if we stopped short
Speaker 1: of where the dot plot suggests the FET is headed. Um,
Speaker 1: we still have the potential to avoid recession. It's not
Speaker 1: a foregone conclusion at all. It just comes back to
Speaker 1: what the FET ultimately chooses to do well. It's an
Speaker 1: interesting time, that's for sure, Amanda. Thank you so much,
Speaker 1: Amita Gotti. She's chief investment strategist over at P ANDC
Speaker 1: Asset Management Group, joining us on the phone in Philadelphia.
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