WEBVTT - Instant Reaction: The Fed Decides 0:00:02.480 --> 0:00:11.520 Bloomberg Audio Studios, podcasts, radio news. 0:00:12.240 --> 0:00:14.840 With your Federo SEF decision This afternoon, we can cross 0:00:14.880 --> 0:00:16.320 the DC with Mi mckath. 0:00:18.000 --> 0:00:23.320 The fancies higher growth, stronger inflation, and slightly lower unemployment 0:00:23.480 --> 0:00:27.400 for twenty twenty four, but officials still barely see a 0:00:27.440 --> 0:00:31.120 median of three rate cuts for twenty twenty four. Nine 0:00:31.160 --> 0:00:34.320 of the nineteen members, however, said they thought two or 0:00:34.400 --> 0:00:38.960 fewer rate cuts would be appropriate, ten saw three or more. 0:00:39.479 --> 0:00:42.800 They did not change rates today. The dots move up 0:00:42.840 --> 0:00:45.800 a little bit next year. The median sees two cuts 0:00:45.840 --> 0:00:48.479 to three point nine percent in twenty twenty five instead 0:00:48.479 --> 0:00:51.600 of three cuts three more to three point one percent 0:00:51.880 --> 0:00:56.000 in twenty twenty six, a slightly shallower path the committee's 0:00:56.120 --> 0:00:59.440 media long run. The natural rate also moves up to 0:00:59.440 --> 0:01:03.320 two point zero six percent. GDP is projected to increase 0:01:03.360 --> 0:01:06.880 two point one percent this year, significant upgrade from the 0:01:06.920 --> 0:01:10.520 one point four percent in the December forecast. Growth is 0:01:10.520 --> 0:01:13.960 also higher in twenty twenty five and twenty twenty six. 0:01:14.319 --> 0:01:17.600 Unemployment will end this year at four percent, FED officials 0:01:17.640 --> 0:01:21.119 now say instead of four point one percent, and core 0:01:21.160 --> 0:01:24.720 PCEE inflation will fall, but only to two point six 0:01:24.800 --> 0:01:28.160 percent instead of the two point four percent seen in December. 0:01:28.360 --> 0:01:32.760 Headline inflation unchanged at two point four percent. The only 0:01:33.000 --> 0:01:36.399 change to the statement is job growth is no longer 0:01:36.520 --> 0:01:41.319 characterized as moderating language about considering any adjustment to the 0:01:41.360 --> 0:01:45.280 target rate. Commitment to the two percent inflation target is 0:01:45.440 --> 0:01:49.360 the same. The decision was unanimous, and finally, there was 0:01:49.720 --> 0:01:52.680 no mention of the balance sheet in the statement, beyond 0:01:52.840 --> 0:01:56.280 keeping the ninety five billion dollars in treasury and mortgage 0:01:56.320 --> 0:01:57.840 rate caps each month. 0:01:58.160 --> 0:01:59.920 Mi McKay, I'm going to turn to the price sanction 0:02:00.080 --> 0:02:02.080 the moment, but I've got one question I need to 0:02:02.080 --> 0:02:04.200 ask you right now. Let's go through what you just 0:02:04.280 --> 0:02:09.040 said again. So faster growth, lower unemployment, higher core inflation. 0:02:09.480 --> 0:02:12.520 Then something jumps off the page. It's exactly the same 0:02:12.600 --> 0:02:15.480 median dot with some changes around the surface. I know, 0:02:16.000 --> 0:02:18.320 in and around it's more nuanced than that, but ultimately 0:02:18.360 --> 0:02:21.560 the exact same median dot than December as December. 0:02:21.600 --> 0:02:21.760 Mike. 0:02:21.800 --> 0:02:23.360 Can you make sense of that? How have we just 0:02:24.000 --> 0:02:29.440 revised growth higher, revised unemployment lower, and core inflation up 0:02:29.520 --> 0:02:32.200 for twenty four and left the median dot unchanged. 0:02:34.000 --> 0:02:36.200 Well, you have to look at it as the median dot, 0:02:36.280 --> 0:02:39.640 because others did change their views around that dot, but 0:02:39.720 --> 0:02:44.600 nobody moved significantly higher to push rates up. One person did. 0:02:44.880 --> 0:02:47.200 They needed two to move it up to move the 0:02:47.240 --> 0:02:50.520 median rate up. But as I noted, nine of the 0:02:50.639 --> 0:02:53.840 ten now say two cuts or less. So it is 0:02:53.880 --> 0:02:59.440 certainly possible if we see similar inflation and jobs numbers 0:02:59.480 --> 0:03:02.239 going forward, that this could change again. And at the 0:03:02.280 --> 0:03:04.960 next meeting in June, when they put out a new forecast, 0:03:05.200 --> 0:03:06.079 they could go to two. 0:03:06.360 --> 0:03:08.280 I guess I wonder people at barn stocks right now 0:03:08.360 --> 0:03:09.640 might will come back to you in just a moment. 0:03:09.680 --> 0:03:11.680 On the S and P five hundred positive by a 0:03:11.680 --> 0:03:13.760 third of one percent. Here's the price action four your 0:03:13.760 --> 0:03:16.600 stocks higher on the NASDA cup by zero point four percent. 0:03:16.840 --> 0:03:18.680 In the bond market rally at the front end, we're 0:03:18.680 --> 0:03:22.000 down about four basis points to four sixty four on 0:03:22.080 --> 0:03:24.040 a US two year yield, and the dollar a little 0:03:24.040 --> 0:03:26.440 bit weaker here the euro at one away eighty five. 0:03:26.520 --> 0:03:26.600 Bro. 0:03:26.720 --> 0:03:29.040 My first reaction to this just to see faster growth 0:03:29.360 --> 0:03:32.800 for twenty twenty four, lower unemployment and higher core inflation 0:03:32.880 --> 0:03:34.200 and a median dot, and we can get into the 0:03:34.280 --> 0:03:36.800 changes beneath the service. I know, but a median dot 0:03:36.800 --> 0:03:39.120 that's unchanged in the face of all of that. If 0:03:39.120 --> 0:03:41.560 your inequities at the moment, that sounds pretty bullish to me, 0:03:41.880 --> 0:03:42.360 doesn't it. 0:03:42.560 --> 0:03:45.960 This is a federal reserve that suddenly, under the hood 0:03:46.240 --> 0:03:49.560 seems to be accepting higher than expected inflation for a 0:03:49.600 --> 0:03:52.480 longer period of time, taking longer to get down to 0:03:52.480 --> 0:03:55.080 that neutral rate, because there is no other way to 0:03:55.160 --> 0:03:57.800 interpret all the numbers that you just laid out. Harder 0:03:57.800 --> 0:04:01.200 inflation than expected for the next couple of years, faster growth, 0:04:01.400 --> 0:04:03.320 and the fact that they're still planning for similar types 0:04:03.360 --> 0:04:06.160 of cuts highlights where the bias is right now for 0:04:06.200 --> 0:04:08.600 a federal reserve that still does want to cut rates. 0:04:08.600 --> 0:04:10.400 If you're just change again, joining us around the table, 0:04:10.520 --> 0:04:13.120 Muhammad el Are, and it is alongside us together with 0:04:13.240 --> 0:04:17.159 Prayer Misra, fixed income portfolio manager at JP Morgan Asset Management. Prayer, 0:04:17.160 --> 0:04:18.880 I want to cross cyber to you just your first 0:04:18.880 --> 0:04:20.760 thoughts on the projections in the statement that we got 0:04:20.880 --> 0:04:21.640 just moments ago. 0:04:22.400 --> 0:04:24.080 I think this is a feed that really wants that 0:04:24.160 --> 0:04:26.800 soft landing to continue. They saw a path or that 0:04:27.960 --> 0:04:30.960 for that soft landing. Now we have had better, better 0:04:31.000 --> 0:04:33.800 inflation data, higher inflation data than the Fed would have liked, 0:04:34.000 --> 0:04:36.200 I think the last two months, but it's two months, 0:04:36.360 --> 0:04:38.240 you know, you just go back four months. We had 0:04:38.279 --> 0:04:41.640 really weak inflation data November. In December, jan infeb came 0:04:41.680 --> 0:04:43.480 in a little higher. I mean, it was never going 0:04:43.480 --> 0:04:45.120 to be a straight line down to two percent. I 0:04:45.120 --> 0:04:46.960 think the Fed is saying we're going to be patient. 0:04:47.240 --> 0:04:49.840 There's a long time between now and December those projections 0:04:49.839 --> 0:04:53.240 and December projections that growth getting higher. I wonder if 0:04:53.240 --> 0:04:56.839 they're telling you the supply side's working, whether it's population growth, 0:04:56.880 --> 0:05:00.160 whether it's supply chains coming back, that's allowing growth to 0:05:00.200 --> 0:05:02.360 be strong, that's allowing the label market to be okay, 0:05:02.800 --> 0:05:04.920 and the fighter saying be patient, we're going to get 0:05:04.960 --> 0:05:07.880 close to that two percent might take a little bit longer. 0:05:08.200 --> 0:05:09.600 We can start normalizing. 0:05:09.760 --> 0:05:11.599 Well, it's feeling a rally, and gold God is up 0:05:11.600 --> 0:05:13.440 by zero point six percent of the back of some 0:05:13.520 --> 0:05:15.560 of this, Mohammed your thoughts on what we've just heard 0:05:15.560 --> 0:05:16.480 from this Federal Reserve. 0:05:16.839 --> 0:05:19.960 So I would have agreed with everything that she said, 0:05:20.000 --> 0:05:22.839 with one exception, which is a revision up in the 0:05:22.880 --> 0:05:26.359 PCEE core to two point six So that puts me 0:05:26.440 --> 0:05:28.960 more in Lisa's camp. I think this is a signal 0:05:29.000 --> 0:05:31.520 and the market is taking it as that that there 0:05:31.520 --> 0:05:34.160 will tolerate slightly higher inflation for longer. 0:05:35.320 --> 0:05:38.000 This is a reason why maybe if you look incrementally 0:05:38.080 --> 0:05:40.520 under the hood, you're seeing some inflation expectations of the 0:05:40.560 --> 0:05:43.159 longer term start to pick up just a little bit. Priya, 0:05:43.279 --> 0:05:45.960 from that point of view, does this kind of call, 0:05:46.080 --> 0:05:49.719 all things being equal, make you less enthusiastic about longer 0:05:49.800 --> 0:05:52.040 term treasuries if it seems like this is a FED 0:05:52.440 --> 0:05:55.880 that wants to stick the soft landing, regardless of what 0:05:55.960 --> 0:05:58.680 the data might be suggesting and even their own projections. 0:05:58.880 --> 0:06:01.240 I would say the leave of the curve is still 0:06:01.240 --> 0:06:03.719 the most attractive because you know whether they start, whether 0:06:03.760 --> 0:06:05.560 they cut two times or three times. Let's look at 0:06:05.560 --> 0:06:08.159 the total amount of cuts that's priced in. The neutral 0:06:08.240 --> 0:06:10.719 rate that the market is expecting on the end point 0:06:10.960 --> 0:06:13.600 is three seventy five. I mean, the FEDS neutral late 0:06:13.640 --> 0:06:16.400 is two and a half. The market is well north 0:06:16.400 --> 0:06:18.160 of that. So the part of the curve that's the 0:06:18.200 --> 0:06:22.039 most i'd say sensitive to the totality of rate cuts 0:06:22.080 --> 0:06:23.440 is that five to ten year part. 0:06:23.600 --> 0:06:24.560 You're right going. 0:06:24.360 --> 0:06:27.680 Out into the thirty year, there's still premium that's supply demand. 0:06:27.960 --> 0:06:30.080 But I will say if the soft landing continues, that 0:06:30.240 --> 0:06:33.159 six trillions sitting in money market funds starts to go 0:06:33.200 --> 0:06:36.520 into bond funds equity funds, that's a positive for duration 0:06:36.600 --> 0:06:37.000 as well. 0:06:37.160 --> 0:06:40.640 Mohammed, I have to say this idea of potentially inflation 0:06:40.800 --> 0:06:43.960 being higher for longer one, is it kind of a 0:06:44.040 --> 0:06:47.280 sort of tacit acceptance of two points something something you've 0:06:47.320 --> 0:06:49.760 talked a lot about, rather than looking for two percent 0:06:49.880 --> 0:06:51.600 is even a goal if it takes ten years, are 0:06:51.600 --> 0:06:54.040 we talking about two percent as the target anymore? 0:06:54.600 --> 0:06:56.200 No, if it takes ten years, then we're not talking 0:06:56.240 --> 0:07:00.440 about two percent anymore. I think you're cutting that ascid 0:07:00.600 --> 0:07:04.839 agreement that in order to achieve the soft landing, we 0:07:04.920 --> 0:07:07.440 have to redefine what we think is the inflation rate 0:07:07.440 --> 0:07:09.479 that goes with that soft landing. It is not two. 0:07:09.720 --> 0:07:11.400 I think it is nearer to three than it is 0:07:11.440 --> 0:07:13.520 to two, And I think that this is a first 0:07:13.520 --> 0:07:14.640 step in this process. 0:07:14.880 --> 0:07:16.920 I wish that these forecasts came out before the semi 0:07:16.920 --> 0:07:19.640 annual testimony, because I do wonder how different the questions 0:07:19.680 --> 0:07:22.520 would have been. There would be serious questions now about 0:07:22.520 --> 0:07:26.440 how serious they are about getting inflation back down to target. Lisa, 0:07:26.640 --> 0:07:28.000 I think we have to go through these numbers. If 0:07:28.000 --> 0:07:29.640 you're just joining us here, they are. So I give 0:07:29.640 --> 0:07:32.040 you the number now, the forecast for twenty four, and 0:07:32.080 --> 0:07:34.600 you can compare it to December. As Mike McKee explained 0:07:34.680 --> 0:07:37.960 quite clearly, these are the median projections two point one 0:07:38.000 --> 0:07:41.080 percent for GDP for twenty four. In December it was 0:07:41.120 --> 0:07:44.600 one point four. The unemployment rate for twenty four four 0:07:44.600 --> 0:07:48.400 percent in December it was four point one PCE two 0:07:48.480 --> 0:07:51.800 point four December two point four, core PCE two point 0:07:51.800 --> 0:07:55.760 six December two point four. The medium DOT for this 0:07:55.920 --> 0:08:01.360 year unchanged at four point six, implying three recuts. Now, Bramo, 0:08:01.600 --> 0:08:04.200 if you put that in front of any committee, any 0:08:04.200 --> 0:08:07.840 press conference, the obvious question for any journalist today this 0:08:07.960 --> 0:08:11.360 afternoon is how serious you are taking it to get 0:08:11.360 --> 0:08:13.480 it back to two percent? Because based on that, I mean, 0:08:14.040 --> 0:08:16.239 what are you taking seriously? And I think you absolutely 0:08:16.280 --> 0:08:19.920 nailed it. Are they beginning to tolerate something a bit above. 0:08:19.640 --> 0:08:23.040 Target because ultimately they want to prioritize the labor market 0:08:23.120 --> 0:08:26.160 over inflation data that is noisy, and they've talked about 0:08:26.160 --> 0:08:27.840 that and higher than expected. It will just say if 0:08:27.840 --> 0:08:30.560 it came up for semi annual testimony, I wonder if 0:08:30.600 --> 0:08:32.720 they'll ask about bitcoin, because they probably wouldn't read it 0:08:32.720 --> 0:08:34.640 and then ask that question. But I'm glad that we 0:08:34.679 --> 0:08:36.559 have a good journalist who are going to be asking 0:08:36.559 --> 0:08:37.520 that question in the press. 0:08:37.320 --> 0:08:39.640 Comp I think Senator Warren also sent another lesson recently 0:08:39.640 --> 0:08:41.440 saying you should cut rates, like right. 0:08:41.320 --> 0:08:42.200 Now, maybe they're listening. 0:08:42.320 --> 0:08:44.200 Yeah, I'm sure that won't come up in the news 0:08:44.200 --> 0:08:46.480 conference a little bit later. Joining us to discuss this 0:08:46.480 --> 0:08:49.319 one is Dan Swart, the chief economist the KPMG, alongside 0:08:49.320 --> 0:08:51.720 Bank of America's Michael Gape. And Dan, i'd love your 0:08:51.760 --> 0:08:53.640 reaction just to these projections and what you've heard so 0:08:53.760 --> 0:08:55.040 far from this Federal Reserve. 0:08:56.400 --> 0:08:58.840 Well, I think a couple of things are really important. 0:08:58.880 --> 0:09:02.079 First of all, the throw to cut rates is a 0:09:02.120 --> 0:09:05.360 little higher than many people thought. But also they're not 0:09:05.400 --> 0:09:08.240 talking about raising rates even though they've had this higher inflation. 0:09:08.679 --> 0:09:11.440 And I do think remember they're going through their process 0:09:11.480 --> 0:09:16.880 of reevaluating rates. What is the optimal inflation rate and 0:09:17.080 --> 0:09:19.840 what is the optimal policy path? And I think on 0:09:20.000 --> 0:09:22.559 hedging what they're doing right now as they're saying, we're 0:09:22.600 --> 0:09:24.840 willing to hold it higher for longer to get there. 0:09:25.160 --> 0:09:28.000 And Jay Paul really made this point that market sort 0:09:28.000 --> 0:09:31.440 of ran off on in December, is that we don't 0:09:31.440 --> 0:09:33.680 think we need a recession anymore to get back to 0:09:33.720 --> 0:09:36.760 our inflation target. They're willing to be patient to get 0:09:36.760 --> 0:09:39.600 down there. I do think over time there is going 0:09:39.640 --> 0:09:42.320 to be a debate of what is the optimal inflation rate? 0:09:42.679 --> 0:09:44.520 Is it two and a half percent? I don't think 0:09:44.520 --> 0:09:47.120 it's closer to three. But I do think that there 0:09:47.200 --> 0:09:49.760 is something to the fact that they're willing to tolerate 0:09:49.840 --> 0:09:52.640 a little higher inflation for a little bit longer rather 0:09:52.679 --> 0:09:56.440 than higher unemployment. But they also are not willing to 0:09:57.160 --> 0:10:00.480 raise rates again, and I think that's important too. But 0:10:00.520 --> 0:10:03.240 the threshold to cut is a little higher than it 0:10:03.360 --> 0:10:04.880 was prior to this meeting. Dan. 0:10:05.000 --> 0:10:06.880 Before I get Mike Apen's thoughts, I just want to 0:10:06.880 --> 0:10:09.280 come back to on something you said, we don't need 0:10:09.440 --> 0:10:11.880 a recession is very different so we don't want one. 0:10:12.440 --> 0:10:14.880 Do you think that is the difference this afternoon, is 0:10:14.880 --> 0:10:17.360 this we don't need a recession to get inflation back 0:10:17.400 --> 0:10:19.120 to target, or we don't want one. 0:10:19.360 --> 0:10:22.200 Oh, I think it's that they don't need a recession. 0:10:22.240 --> 0:10:24.640 They don't believe they need a recession, and they don't 0:10:24.679 --> 0:10:27.040 want one if they don't need it. So I think 0:10:27.120 --> 0:10:32.080 that's really the important two pieces to this equation is 0:10:32.120 --> 0:10:34.760 that if they had to take a recession, you know, 0:10:34.880 --> 0:10:37.800 August twenty twenty two, bucket of cold ice on us 0:10:37.840 --> 0:10:41.520 at Jackson Hole, we'll take a recession if we need 0:10:41.559 --> 0:10:45.079 it to get inflation down. They're wrong. We didn't need it. 0:10:45.240 --> 0:10:48.840 They got pretty far. We've made enough progress now that 0:10:49.040 --> 0:10:51.560 to take a recession to make it the last of 0:10:51.640 --> 0:10:55.160 the last mile on this road on inflation, it's not 0:10:55.400 --> 0:10:58.120 worth it. And I think that's the hedge that you're 0:10:58.120 --> 0:10:59.080 seeing played. 0:10:58.760 --> 0:10:59.560 Out right now. 0:11:00.040 --> 0:11:01.679 Also has a bit of a shifting in the goalposts, 0:11:01.720 --> 0:11:05.000 given the fact that we're looking at inflation that's coming 0:11:05.040 --> 0:11:07.080 down but not coming down to two percent and then 0:11:07.160 --> 0:11:10.280 that's okay, that is considered success. How much is this 0:11:10.360 --> 0:11:14.199 statement and these projections really signaling an acceptance of higher 0:11:14.200 --> 0:11:15.400 inflation for longer to you? 0:11:17.160 --> 0:11:19.920 So to me, it's not. I mean, I think they're 0:11:19.960 --> 0:11:23.040 looking at changing policy today or setting policy today and 0:11:23.080 --> 0:11:26.400 trying to get to their macro objectives over the three 0:11:26.520 --> 0:11:29.280 or forecast horizon. They're still saying we'll get there in 0:11:29.400 --> 0:11:32.199 twenty twenty six, which is the same story that they've 0:11:32.679 --> 0:11:35.000 given in the past. So, yes, they have to tolerate 0:11:35.360 --> 0:11:38.240 a little higher inflation in the near term this year 0:11:38.480 --> 0:11:41.520 and next year, but I don't think they're giving up 0:11:41.559 --> 0:11:44.480 on that two percent goal. I think the flavor to 0:11:44.600 --> 0:11:49.080 the revisions to me, says the media and member is 0:11:49.200 --> 0:11:53.360 fully embracing this supply side story and the economy can 0:11:53.480 --> 0:11:59.320 run faster at least temporarily without generating significant overheating pressures. 0:11:59.400 --> 0:12:02.560 So to me, that's the main message from the statement. 0:12:03.080 --> 0:12:06.800 Although I acknowledge with revising up the inflation path two 0:12:06.840 --> 0:12:09.440 tenths this year one tenth next year does say we 0:12:09.520 --> 0:12:12.679 may have to have a little higher inflation in the meantime, 0:12:12.720 --> 0:12:14.240 But I don't think they're giving up on that two 0:12:14.280 --> 0:12:15.000 percent target. 0:12:15.120 --> 0:12:17.240 Prier I see vigorously nodding you agree. 0:12:17.360 --> 0:12:19.880 I completely agree. I think it's the supply side that's 0:12:19.920 --> 0:12:20.320 the key. 0:12:20.840 --> 0:12:23.560 I think the entire soft landing was predicated on the 0:12:23.600 --> 0:12:26.800 FED starting to ease. What they're telling us is that 0:12:26.840 --> 0:12:29.000 the starting point. I think the starting point matters. We're 0:12:29.040 --> 0:12:31.480 at five and a half on FED funds. Daniel real 0:12:31.559 --> 0:12:35.360 rates at two percent, this is restrictive policy. Can they 0:12:35.400 --> 0:12:38.240 start to normalize, Start to cut a little bit, not 0:12:38.360 --> 0:12:40.920 the entire cycle. They don't have to cut consecutively all 0:12:40.960 --> 0:12:43.200 the way down to two and a half percent. Start 0:12:43.240 --> 0:12:46.440 that process of normalization. If that means inflation's a little 0:12:46.480 --> 0:12:48.960 higher than their target this year, so be it. 0:12:49.080 --> 0:12:50.480 We'll get there in the next couple of years. 0:12:50.520 --> 0:12:53.120 If the supply side is working, it allows growth to 0:12:53.160 --> 0:12:56.480 be strong without creating inflation. Maybe the target is two 0:12:56.559 --> 0:12:58.439 to three percent. I don't think they can politically say 0:12:58.480 --> 0:13:01.040 it or have much credit. It's like me saying I 0:13:01.040 --> 0:13:03.240 can't run a marathon and I can't run one hundred 0:13:03.280 --> 0:13:04.680 miles meters. 0:13:05.080 --> 0:13:06.559 But essentially, you. 0:13:06.480 --> 0:13:08.520 Know, when you can't reach your target, you should not 0:13:08.880 --> 0:13:12.000 change the target. But can they act as if you'll 0:13:12.040 --> 0:13:14.880 get there, we just push out that two percent a 0:13:15.000 --> 0:13:17.200 year out or two years out. I think that's what 0:13:17.240 --> 0:13:20.559 they're telling us. They're telling us, let's start. We're not committing. 0:13:20.600 --> 0:13:23.120 This is a data dependent FED. We can decide twenty 0:13:23.120 --> 0:13:25.640 five and twenty six cuts. We have a lot of 0:13:25.679 --> 0:13:27.679 time to do that. Let's just start the process now, 0:13:27.679 --> 0:13:29.400 because we're in restrictive territory prayer? 0:13:29.400 --> 0:13:31.840 Is that a reason to buy the tenure treasury or salad. 0:13:32.480 --> 0:13:35.280 Ah the ten years harder? It's a reason why the 0:13:35.320 --> 0:13:35.920 five year. 0:13:37.320 --> 0:13:40.440 For now, I would say buy it because I think 0:13:40.480 --> 0:13:43.400 this keeps demand coming into fixed income. I think the 0:13:43.480 --> 0:13:46.720 raids market was actually slightly hawkishly positioned into this meeting 0:13:46.920 --> 0:13:50.319 because of this debate between two and three cuts. The 0:13:50.320 --> 0:13:53.400 EU risk assets have been on a tear. I mean, 0:13:53.440 --> 0:13:55.839 there's been nothing stopping that. I don't think now anything 0:13:55.880 --> 0:13:59.440 stops it because unless the growth data weakens, the Fed's 0:13:59.440 --> 0:14:01.840 telling you they're willing to let this run. They're willing 0:14:01.880 --> 0:14:04.720 to ease, to allow that soft landing to continue. 0:14:04.840 --> 0:14:06.760 Dan, I'd love your thoughts on how to navigate this 0:14:06.800 --> 0:14:08.680 news conference when there is such a clear and obvious 0:14:08.679 --> 0:14:12.280 contradiction in the medium projections for twenty twenty four. How 0:14:12.280 --> 0:14:14.480 do you think Chairman Power will explore this one in 0:14:14.559 --> 0:14:15.480 sixteen minutes time. 0:14:16.920 --> 0:14:19.680 He's going to be straight in and full on and 0:14:19.680 --> 0:14:22.080 we're still committed to getting to two percent. He will 0:14:22.080 --> 0:14:25.720 not back off that kind of rhetoric, and I think 0:14:25.720 --> 0:14:29.040 that's important. He's saying, we're just willing to We've not 0:14:29.200 --> 0:14:31.320 changed the time frame, it's just going to come down 0:14:31.360 --> 0:14:34.400 a little slower than we thought. But also there's a tradeoff. 0:14:34.560 --> 0:14:37.920 You know, are we willing to create unnecessary pain which 0:14:37.960 --> 0:14:42.560 is the Fed's word for euphanism, euphanism for unemployment for 0:14:42.680 --> 0:14:45.560 no reason? Do we really need that at this point 0:14:45.560 --> 0:14:47.440 in time? And I think what they're saying is no. 0:14:47.680 --> 0:14:50.800 We see even in the labor market, we've seen a 0:14:50.880 --> 0:14:55.560 surgeon immigration, We've seen rebalancing in the labor market that's continuing. 0:14:56.040 --> 0:14:59.760 If the labor market were to get significantly softer, they 0:15:00.160 --> 0:15:02.760 cut more rapidly. I think that's the other side of 0:15:02.800 --> 0:15:05.400 this that is interesting, is that we were seeing that 0:15:05.480 --> 0:15:07.720 we saw are starting to see sort of a division 0:15:07.840 --> 0:15:10.680 within the FED on what are the balance of risks. 0:15:10.920 --> 0:15:12.720 But at the end of the day, the FED is 0:15:12.720 --> 0:15:15.960 looking at this saying, we've had a pretty resilient economy 0:15:16.160 --> 0:15:19.280 and there's no reason to derail a resilient economy. As 0:15:19.280 --> 0:15:22.200 long as we're moving in the right direction. How fast 0:15:22.320 --> 0:15:26.080 we get there doesn't matter given the progress we've made. 0:15:26.560 --> 0:15:28.360 And I think, you know, it does matter if it's 0:15:28.400 --> 0:15:31.480 ten years, like Mohammad said, yes, then it's not. But 0:15:31.880 --> 0:15:34.680 I think in the context of where we've been and 0:15:34.720 --> 0:15:38.240 what we're doing. This is sort of the more the 0:15:38.320 --> 0:15:41.200 way to think about it as a way to not 0:15:41.480 --> 0:15:44.080 cause undue pain in the economy for no reason. 0:15:44.440 --> 0:15:46.760 So then I agree with you, and I think it's 0:15:46.800 --> 0:15:51.440 important that we're redefining patients going into this meeting. Patients 0:15:51.440 --> 0:15:54.960 meant there's no rush to cut rates now. Patients means 0:15:55.480 --> 0:15:58.080 we may have to wait a little bit longer to 0:15:58.080 --> 0:16:01.640 get to two percent or to paff will be slightly different. 0:16:02.320 --> 0:16:06.080 But whenever I say that out, the reaction, the pushback 0:16:06.120 --> 0:16:10.040 I get is but that's going to destabilize inflation expectations. 0:16:11.400 --> 0:16:12.240 I don't think it will. 0:16:12.280 --> 0:16:14.360 Do you agree? Do you agree that you will? 0:16:15.920 --> 0:16:18.160 Yeah, I'm with you, Muhammad on this. I don't think 0:16:18.200 --> 0:16:23.400 it will because we've seen remarkably anchored inflation expectations throughout 0:16:23.400 --> 0:16:26.360 all this. Now, if it did begin to the fact, 0:16:26.360 --> 0:16:29.480 we'd be changing its tune pretty quickly, right, So this 0:16:29.520 --> 0:16:32.040 is something they're looking at. They're looking at that inflation 0:16:32.120 --> 0:16:35.720 expectations have been fail well anchored, and that's a good 0:16:35.960 --> 0:16:38.520 dying for them that this is an okay path to take. 0:16:38.560 --> 0:16:41.520 But you're absolutely right, if we were to see inflation 0:16:41.680 --> 0:16:44.800 expectations shift on the basis of this, they'd have to 0:16:44.880 --> 0:16:46.720 change their tune and their strategy. 0:16:46.880 --> 0:16:48.080 My cape and I want to give you the final 0:16:48.080 --> 0:16:50.360 work against this news conference. What would you look for? 0:16:52.480 --> 0:16:55.080 Well, I think that the balance so what's been discussed 0:16:55.080 --> 0:16:58.040 here is essentially you know, do you really have a 0:16:58.120 --> 0:17:01.280 higher bar to start? Are you less confident about starting? 0:17:01.840 --> 0:17:03.640 We all seem to think that they still have a 0:17:03.680 --> 0:17:06.679 lot of confidence about disinflation remaining in place. So I 0:17:06.680 --> 0:17:10.440 would kind of address those those two confidences, and honestly, 0:17:10.720 --> 0:17:13.840 I would try and tease out any information on the 0:17:13.880 --> 0:17:16.560 balance sheet discussion. The market I think needs to know 0:17:17.280 --> 0:17:21.680 that does taper start when overnight reverse repo balances are 0:17:21.760 --> 0:17:23.960 just low? Or do we have to get to zero? 0:17:24.200 --> 0:17:27.399 On that? I do think some information there would be helpful. 0:17:27.440 --> 0:17:29.320 I think we'll beginning some questions on that, no doubt 0:17:29.320 --> 0:17:31.240 about it. Might GAPE and a Bank for America, the 0:17:31.280 --> 0:17:33.359 brilliant Dan Swamk of KPMG to the two of you. 0:17:33.720 --> 0:17:35.760 Thank you if you are just joining us thirteen minutes 0:17:35.800 --> 0:17:39.119 away from a news conference with Chairjpal of the Federal Reserve. 0:17:39.200 --> 0:17:42.399 No change to interest rates, plenty of changes to the 0:17:42.400 --> 0:17:46.680 outlook for twenty twenty four, faster growth, lower unemployment, higher 0:17:46.680 --> 0:17:49.240 core inflation, and then I guess the news is where 0:17:49.240 --> 0:17:52.560 there is no change, the medium dot still implying three 0:17:52.640 --> 0:17:55.680 cuts for twenty twenty four. Now you're all making me 0:17:55.720 --> 0:17:57.680 feel a little bit uncomfortable because you all agree with 0:17:57.720 --> 0:17:58.920 each other. So I've got to be that guy, and 0:17:58.920 --> 0:18:00.800 I think least's on the same page just me. There's 0:18:00.840 --> 0:18:02.240 going to be a lot of people watching this that 0:18:02.359 --> 0:18:04.280 just think, well, hang on a minute, there's a huge 0:18:04.280 --> 0:18:07.400 contradiction in this. In all of this that you've revised 0:18:07.480 --> 0:18:12.440 higher inflation, revised lower unemployment, you're looking for a faster economy, 0:18:12.800 --> 0:18:16.479 and your projection for rates stays unchanged. That sounds super davish, 0:18:16.560 --> 0:18:19.480 and I would say displays a real tolerance for above 0:18:19.560 --> 0:18:23.040 target inflation with equities at all time highs and credit 0:18:23.080 --> 0:18:26.960 spreads very very tight. Why are we wrong when people 0:18:26.960 --> 0:18:29.840 come on this program and say we are sufficiently restrictive. 0:18:30.119 --> 0:18:32.840 In fact, some people come on this program and say significantly, 0:18:32.920 --> 0:18:35.720 So where is the evidence of that based on what 0:18:35.720 --> 0:18:39.000 we're seeing this afternoon? Where is the evidence? Muhammad? 0:18:39.840 --> 0:18:43.679 So the evidence was given to you earlier by Kathy, 0:18:43.800 --> 0:18:47.639 which is if you just look at one price, which 0:18:47.680 --> 0:18:52.360 is where the policy ad is relative to where core 0:18:52.400 --> 0:18:54.960 PCEE is. That's where you get the restrictive. But I 0:18:55.040 --> 0:18:56.800 agree with you if you look at the financial conditions 0:18:56.800 --> 0:19:00.639 as a whole, these are very loose financial conditions that I'm. 0:19:00.520 --> 0:19:02.600 Looking at in the statement is that the FED took 0:19:02.640 --> 0:19:05.600 out language saying job gains had moderated. It really was 0:19:05.640 --> 0:19:09.760 the only change to the statement prea fewer perspective. Everyone's 0:19:09.760 --> 0:19:11.919 been saying, it's all about the labor market. If we 0:19:12.000 --> 0:19:14.920 don't see moderation in the labor market, and if it's 0:19:14.920 --> 0:19:17.919 actually reigniting, how are we going to get down to 0:19:17.960 --> 0:19:22.119 two percent from here? If maybe people are saying it's restrictive, 0:19:22.440 --> 0:19:25.159