WEBVTT - Instant Reaction: The Fed Decides 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio News. 0:00:09.200 --> 0:00:13.840 This is a breaking news update from Bloomberg instant reaction 0:00:14.120 --> 0:00:17.959 and analysis from our three thousand journalists and analysts around 0:00:18.000 --> 0:00:18.480 the world. 0:00:19.120 --> 0:00:22.440 The FED decision seconds away unchanged the expectation with. 0:00:22.440 --> 0:00:23.840 The cold is my the cake. 0:00:25.360 --> 0:00:29.040 Well pretty much as expected, no change in rates, and 0:00:29.120 --> 0:00:31.480 the FED leaves open the option of cutting rates in 0:00:31.520 --> 0:00:35.240 the future. Stephen Myron and Chris Waller descent in favor 0:00:35.280 --> 0:00:39.360 of a rake cut. Michelle Bowman does not. Waller's descent, 0:00:39.400 --> 0:00:41.240 of course, could be read as an effort to retain 0:00:41.360 --> 0:00:44.880 his place as a finalist to replace j. Powell later 0:00:45.000 --> 0:00:48.320 this year. The statement keeps the line about considering the 0:00:48.360 --> 0:00:51.680 extent and timing of additional adjustments to the target range, 0:00:52.040 --> 0:00:55.880 suggesting more rake cuts are possible. There's no hint, however, 0:00:56.280 --> 0:00:59.680 of what that would lead them to do that or when. 0:01:00.280 --> 0:01:04.959 The economic assessment is very short and relative to recent stations, 0:01:05.440 --> 0:01:09.760 slightly positive available indicators suggests that economic activity has been 0:01:09.840 --> 0:01:13.200 expanding at a solid pace. It says job gains have 0:01:13.240 --> 0:01:16.880 remained low, and the unemployment rate has shown some signs 0:01:16.880 --> 0:01:22.880 of stabilization. Inflation remains somewhat elevated. The officials say uncertainty 0:01:22.880 --> 0:01:26.880 about the economic outlook remains elevated, but they don't emphasize 0:01:27.000 --> 0:01:30.600 jobs as they have the last three statements or inflation 0:01:31.040 --> 0:01:34.120 as the major concern. The Committee is attentive to the 0:01:34.200 --> 0:01:37.240 risks to both sides of its dual mandate. The statement says, 0:01:37.760 --> 0:01:39.560 the open market desk at the New York Fan is 0:01:39.600 --> 0:01:42.520 again told to maintain an ample level of reserves by 0:01:42.520 --> 0:01:46.760 buying treasury bills or, if necessary, maturities of up to 0:01:46.840 --> 0:01:49.920 three years or less. It's all about as plain vanilla 0:01:49.960 --> 0:01:52.720 as you can get, which shifts the focus, of course 0:01:52.800 --> 0:01:55.760 to Chairman Powell's news conference at the bottom of the hour. 0:01:56.200 --> 0:01:58.720 What does he say about the future of interest rates 0:01:59.120 --> 0:02:01.720 and what does he say about his future as a 0:02:01.720 --> 0:02:03.040 member of the Fed? 0:02:03.480 --> 0:02:04.560 Stay tuned, Mi m. 0:02:04.640 --> 0:02:07.000 Keeeth, we will stay tuned. The news conference about twenty 0:02:07.000 --> 0:02:09.000 eight minutes away. You run into that Mi McKee. Their 0:02:09.000 --> 0:02:12.760 world class. As always a FED decision unchanged the vote 0:02:12.800 --> 0:02:15.480 interesting ten to two to hold Ray steady the two 0:02:15.880 --> 0:02:19.959 Governor Myra and Governor Waller. It' tk is it unfair 0:02:20.639 --> 0:02:23.680 to describe the Governor Waller descent as an audition to 0:02:23.760 --> 0:02:26.119 take the top job at the Federal Reserve. 0:02:25.960 --> 0:02:28.720 Nineteen ninety one is classic paper and game theory. I 0:02:28.800 --> 0:02:32.080 just think we saw a little Waller game theory going 0:02:32.120 --> 0:02:34.680 on to say the least. I don't have a strong 0:02:34.720 --> 0:02:37.440 opinion on it, but definitely that's a setup for the 0:02:37.480 --> 0:02:39.560 President to make a Waller decision. 0:02:39.720 --> 0:02:42.560 This has been an individual, Torsten who has provided thought 0:02:42.639 --> 0:02:45.519 leadership on this committee, effective thought leadership now for a 0:02:45.600 --> 0:02:48.839 number of years. That descent will be described by many 0:02:48.880 --> 0:02:50.720 in this market as an audition for the top job 0:02:50.720 --> 0:02:51.480 at the Federal Reserve. 0:02:51.840 --> 0:02:52.520 Is that unfair? 0:02:52.880 --> 0:02:54.080 I think it is a bit unfair. 0:02:54.160 --> 0:02:56.760 I mean, Chris is very very steady and stable and 0:02:56.840 --> 0:02:59.440 has had his whole career as a PSD economy is 0:02:59.480 --> 0:03:01.840 doing research that's going after the data, being data dependent. 0:03:02.080 --> 0:03:04.080 So I do view this mainly as a sign that 0:03:04.120 --> 0:03:06.960 he actually is worried, and his speeches have also given 0:03:07.080 --> 0:03:09.520 very clear indication of this. He is actually truly worried 0:03:09.520 --> 0:03:12.040 about that the label market might be signaling the things 0:03:12.080 --> 0:03:13.800 about to get worse. So I think it's a little 0:03:13.800 --> 0:03:16.440 bit unfair to put him into that category because I 0:03:16.440 --> 0:03:18.680 do think that it's very important that he is telling 0:03:18.720 --> 0:03:21.120 us that he does believe that rates should have been 0:03:21.120 --> 0:03:21.600 cut today. 0:03:21.680 --> 0:03:24.079 Is that worry about a jobs market justified by the 0:03:24.160 --> 0:03:24.919 data you looking at? 0:03:24.960 --> 0:03:26.000 Well, that's the discussion. 0:03:26.160 --> 0:03:28.160 I happen to have the view that this is all 0:03:28.200 --> 0:03:30.800 because of live supply being much lower. Immigration used to 0:03:30.800 --> 0:03:32.720 be three million a year now it's about four hundred 0:03:32.760 --> 0:03:35.400 thousand from the CBO. So with labor supply is lower, 0:03:35.440 --> 0:03:36.760 you should also expect job. 0:03:36.560 --> 0:03:37.480 Growth to be lower. 0:03:37.640 --> 0:03:40.440 Other people, including Chris put more Roller put more weight 0:03:40.480 --> 0:03:41.720 on labor demand. 0:03:42.000 --> 0:03:43.320 So that's the debate at the moment. 0:03:43.400 --> 0:03:46.080 Yes, there has been very little hiring, little bit very firing, 0:03:46.280 --> 0:03:48.680 suggesting that labor demand is indeed also weak. So this 0:03:48.760 --> 0:03:50.840 is the very important debate, and of course only the 0:03:50.920 --> 0:03:53.120 data over the next seven months would tell whether this 0:03:53.280 --> 0:03:54.800 dissent was actually a good idea or not. 0:03:54.960 --> 0:03:57.800 Jan for the first conference of Vice Chairman Clarita fed 0:03:57.920 --> 0:04:02.160 amidst language on downside risks to employment having risen. Let's 0:04:02.160 --> 0:04:04.680 have a chat with some Amazon people this morning. Let's 0:04:04.720 --> 0:04:07.040 talk to ubs this morning. The mail I get the 0:04:07.040 --> 0:04:10.480 mail you get. People think fancy guys like Torst and 0:04:10.600 --> 0:04:14.120 Slack are nuts when they talk about a fully employed America. 0:04:14.120 --> 0:04:14.560 I don't want to. 0:04:14.560 --> 0:04:16.480 Whyever, do the data that comes from the conference board, 0:04:16.680 --> 0:04:18.760 because consume there's confidence all over the place. Right now 0:04:18.839 --> 0:04:20.919 is skewed by a whole bunch of things, including politics. 0:04:21.160 --> 0:04:23.440 But at a chute to the labor market. When people 0:04:23.480 --> 0:04:25.120 turn around to your tors and they say, right now 0:04:25.240 --> 0:04:27.480 is getting harder to get a job? Jobs are not plentiful, 0:04:27.680 --> 0:04:28.560 you have to take notice. 0:04:28.560 --> 0:04:31.320 Done you absolutely it is absolutely the case that the 0:04:31.400 --> 0:04:34.440 labor market data has become slower in terms of job growth. 0:04:34.560 --> 0:04:36.400 But what is very critical here to remember is that 0:04:36.440 --> 0:04:38.920 if you have much fewer immigrants, going from three million 0:04:38.960 --> 0:04:41.200 to four hundred thousand a year, of course, that's also 0:04:41.279 --> 0:04:43.919 going to create the break even rate for unfound prayrolls 0:04:44.000 --> 0:04:46.080 that's a lot lower. That used to be two hundred 0:04:46.080 --> 0:04:47.760 thousand a year, and now the Fed says there's about 0:04:47.800 --> 0:04:48.520 thirty thousand. 0:04:48.680 --> 0:04:51.120 So the closer you get to Sirum, of course, the mall. 0:04:51.240 --> 0:04:54.200 This will also begin to have more worries among people 0:04:54.240 --> 0:04:56.120 whether can I find a job? Cannot find a job, 0:04:56.279 --> 0:04:58.880 and those worries, of course, your sentiment are exactly showing 0:04:58.920 --> 0:05:00.920 up that in particular, the lower leg of the key 0:05:01.240 --> 0:05:03.400 continues to be on the significant distress. 0:05:03.480 --> 0:05:05.800 The Federal Reserve keeping rates unchanged if you want, just 0:05:05.839 --> 0:05:09.039 tuneing in as expected, equities on the sm P five 0:05:09.120 --> 0:05:11.120 hundred just a little bit lower, just off all time 0:05:11.200 --> 0:05:14.520 highs on the SMP five hundred. Two descents looking for 0:05:14.560 --> 0:05:17.320 a twenty five basis point reduction, one from Governor Myron, 0:05:17.520 --> 0:05:19.880 another from Governor Waller. Joining us now a man who 0:05:19.960 --> 0:05:22.360 knows a little something about how this committee makes decisions, 0:05:22.400 --> 0:05:25.480 the former Fed Vice chair Richard Clarida. Rich Welcome to 0:05:25.520 --> 0:05:27.400 the program, sir. What do you make of this decision 0:05:27.440 --> 0:05:29.280 and what are you looking for from the news conference 0:05:29.279 --> 0:05:30.360 in twenty five minutes time? 0:05:31.400 --> 0:05:34.359 You know, it's as expected, pretty minimal changes to the 0:05:34.560 --> 0:05:37.240 statement if anything. As you mentioned though, changing and the 0:05:37.240 --> 0:05:40.839 wording about the labor market. I thought it was a 0:05:40.880 --> 0:05:43.240 close call going in whether or not we would see 0:05:43.279 --> 0:05:46.279 Governor Waller or vice Chair of Bowman descent, and in 0:05:46.320 --> 0:05:48.880 the end we did get the descent from Chris Waller. 0:05:48.920 --> 0:05:51.719 I agree with Torsten who was on earlier. You know, 0:05:51.800 --> 0:05:54.200 Chris is a good economist. He's been consistent and had 0:05:54.240 --> 0:05:57.080 a good call on the labor market and inflation, and 0:05:57.600 --> 0:06:00.920 he's made the case in many speeches that there is 0:06:00.960 --> 0:06:03.480 a case to get rates down to neutral. So I 0:06:03.480 --> 0:06:06.480 take him at his word on that. In terms of 0:06:06.480 --> 0:06:11.800 the press conference, obviously no SEP projections or the like. 0:06:12.680 --> 0:06:15.720 And I think the reporters will be pressing the chair 0:06:15.760 --> 0:06:18.600 on what message they should take away from this in 0:06:18.680 --> 0:06:20.359 terms of the remainder of the year. 0:06:20.360 --> 0:06:23.359 When you look at the politics here, I hesitant to say, Chairman, Clarita, 0:06:23.440 --> 0:06:25.880 but is this a moment where the president goes outside 0:06:26.320 --> 0:06:27.880 the chosen four candidates? 0:06:29.560 --> 0:06:31.760 You know, there has been a speculation, there is the 0:06:31.800 --> 0:06:35.560 reporting this morning. You know, I know each of the candidates. 0:06:35.640 --> 0:06:37.680 I think any of them would be a good choice. 0:06:37.720 --> 0:06:40.680 They bring strengths to the job. But there are a 0:06:40.680 --> 0:06:43.520 lot of moving parts when you're FED chair, and so 0:06:43.600 --> 0:06:46.600 it'll be interesting to see who they finally select. 0:06:47.000 --> 0:06:47.520 You And I. 0:06:47.440 --> 0:06:50.040 Remember the day where Phil Graham went after Alan Green 0:06:50.120 --> 0:06:53.839 span on foreign exchange, Richard Claret, is it appropriate that 0:06:53.880 --> 0:06:57.719 a FED chairman speak of dollar dynamics, particularly the whip 0:06:57.760 --> 0:07:02.479 saw of President week dollars and Secretary of Treasury strong dollar? 0:07:03.800 --> 0:07:06.560 Great question, as usual, Tom, You know, never say never, 0:07:06.800 --> 0:07:09.279 But both as a policy maker and as a student 0:07:09.320 --> 0:07:12.640 of policy making, the FED tries to stay out of 0:07:12.680 --> 0:07:15.560 any and all discussions about exchange rates, and I would 0:07:15.600 --> 0:07:19.960 expect J. Powell today, if he's asked that question the 0:07:19.960 --> 0:07:20.960 the to do the same. 0:07:22.040 --> 0:07:24.920 So, Rich, when you think about yield curve dynamics, I mean, 0:07:24.960 --> 0:07:26.480 what is your view on what the yel. 0:07:26.360 --> 0:07:26.880 Cub will do? 0:07:27.160 --> 0:07:28.920 The consensus has to view that it will steepen. 0:07:29.400 --> 0:07:30.120 Is that also your you? 0:07:30.360 --> 0:07:32.360 Or do you think front end rates will stay stable 0:07:32.400 --> 0:07:33.360 and long rates. 0:07:33.200 --> 0:07:34.080 Will also stay stable? 0:07:34.120 --> 0:07:34.240 All? 0:07:34.280 --> 0:07:35.800 How do you think about the curve at the moment? 0:07:35.960 --> 0:07:36.200 Yeah? 0:07:36.240 --> 0:07:37.000 Now, High Torston. 0:07:37.280 --> 0:07:40.720 You know what's been remarkable is really since either going 0:07:40.760 --> 0:07:42.640 back to the last hike which is all the way 0:07:42.680 --> 0:07:46.160 back in twenty three or the first cut in twenty 0:07:46.200 --> 0:07:48.280 twenty four, the ten year treasury has been in a 0:07:48.440 --> 0:07:51.400 range from roughly four and three quarters to three and 0:07:51.480 --> 0:07:55.960 three quarters. A lot's happen in that intervening period. That 0:07:56.080 --> 0:08:01.480 importantly reflects much higher real rates than we had pre pandemic. 0:08:01.600 --> 0:08:03.559 So you have seen a shift up in the curve 0:08:03.640 --> 0:08:07.280 relative to pre pandemic. And yes, would expect the curve 0:08:07.360 --> 0:08:11.119 to continue to steepen over time as ten years stay 0:08:11.120 --> 0:08:14.000 in that range and as front end rates come down 0:08:14.120 --> 0:08:15.000 under the new chair. 0:08:15.280 --> 0:08:19.040 Rich, as you identify a range impressively stable so far 0:08:19.120 --> 0:08:21.440 for you and the team at Pinco Ridge. What's behind 0:08:21.480 --> 0:08:23.800 what's the biggest pillar of that stability that we're seeing 0:08:23.800 --> 0:08:25.520 over the past few months at the long end of 0:08:25.560 --> 0:08:25.880 the curve. 0:08:27.600 --> 0:08:31.560 Well, I think it reflects the new dynamics, both because 0:08:31.600 --> 0:08:36.920 potentially a faster productivity growth and fiscal concerns. It's appropriate 0:08:36.960 --> 0:08:41.040 that longer dated real yields are higher than they were before. 0:08:41.160 --> 0:08:43.880 I think that's an important fact of life. I mean, 0:08:43.920 --> 0:08:46.120 the real debate and the real issue is, you know, 0:08:46.679 --> 0:08:48.640 within the FAED and in the market says, you know, 0:08:48.679 --> 0:08:49.760 where's the neutral rate? 0:08:50.040 --> 0:08:52.120 Where do front end rates end up? 0:08:52.160 --> 0:08:54.719 And we still think that neutral for the fund rate 0:08:54.800 --> 0:08:59.600 is somewhere down around three percent, But obviously that's going 0:08:59.640 --> 0:09:04.040 to depend on where we are in the cycle as well. 0:09:04.200 --> 0:09:05.560 And this may be an unfair question. 0:09:05.760 --> 0:09:07.800 Do you think an incoming FITCHA is going to make 0:09:08.120 --> 0:09:11.480 dramatic changes to the fit staff in terms of who's 0:09:11.520 --> 0:09:13.839 head of which departments? How do you think the incoming 0:09:13.920 --> 0:09:17.040 chair might think about things if he or she doesn't 0:09:17.240 --> 0:09:19.120 think that it's likely that interest rates are going to 0:09:19.160 --> 0:09:21.520 be coming down because of persuading the committee. 0:09:23.120 --> 0:09:25.520 You know, I'm not sure about that. 0:09:25.720 --> 0:09:27.760 It is important just for the public to know that 0:09:28.160 --> 0:09:31.360 the board staff does report to the chair. You know, 0:09:31.440 --> 0:09:33.839 during my time there, Chair Palell asked me to get 0:09:33.960 --> 0:09:35.880 very much involved with the staff, and I learned a 0:09:35.920 --> 0:09:41.440 lot from them. But it's I think there typically have 0:09:41.600 --> 0:09:45.280 been and always will be changes in staff. People get promoted, 0:09:45.320 --> 0:09:48.600 people moved on, and I should stay. During my time 0:09:48.640 --> 0:09:51.160 at the FED, the senior staff I worked with was 0:09:51.200 --> 0:09:56.520 incredibly capable, so I don't think there'll be any issues there. 0:09:56.880 --> 0:09:58.680 Turst and Sucker, I think it's so important that we 0:09:58.720 --> 0:10:01.520 described the academics Richard Claire to all that he did 0:10:01.559 --> 0:10:04.880 with this fancy thing dynamics still cast a general equilibrium 0:10:04.960 --> 0:10:08.720 theory and monetary policy John mentioned earlier, do we know 0:10:08.800 --> 0:10:12.120 the reaction functions? Do you have an operative theory from 0:10:12.160 --> 0:10:15.560 the world of Richard Clara, Now that's operational well. 0:10:15.640 --> 0:10:17.920 Rich is well famous for their credit multiply and they 0:10:17.920 --> 0:10:20.520 work with Binenke. And of course what credit markets have 0:10:20.600 --> 0:10:23.080 been doing and what credit markets are doing is often 0:10:23.160 --> 0:10:25.120 very critical, of course for the economy, because if credit 0:10:25.160 --> 0:10:27.679 conditions begin to tighten, the economy has a problem. If 0:10:27.679 --> 0:10:30.600 credit conditions begin to losen, of course, the economy could 0:10:30.600 --> 0:10:32.880 also have a problem, namely that it just becomes too 0:10:32.920 --> 0:10:34.839 easy money, including in creditib. 0:10:34.760 --> 0:10:38.240 Gen conversation after conversation, the assumption is credit markets are 0:10:38.280 --> 0:10:41.439 going to loosen because we have maybe it's Biden like stimulus. 0:10:41.520 --> 0:10:43.959 I believe the next six months we're full bore ahead. 0:10:43.960 --> 0:10:46.160 The credit spriends are very tight, and now the dollars weakening. 0:10:46.320 --> 0:10:48.120 And when you think about the dollars influence on final 0:10:48.600 --> 0:10:51.240 conditions more broadly tossed and what is the contribution that 0:10:51.240 --> 0:10:52.760 comes for the fects channel, Well, what. 0:10:52.760 --> 0:10:55.079 I think is very important to remember is that foreigners 0:10:55.120 --> 0:10:57.080 come to the US for two reasons. They come to 0:10:57.160 --> 0:11:00.000 cut coupons in fixed income because levels are higher here, 0:11:00.360 --> 0:11:02.600 and they come to get exposure to AI. So for 0:11:02.640 --> 0:11:05.120 any discussion, for talks about well with it, all of 0:11:05.160 --> 0:11:07.240 ag intergo down, you need to come with a view 0:11:07.240 --> 0:11:09.560 that either AI is going to roll lower, all interest 0:11:09.640 --> 0:11:11.600 rates are going to be a lot lower. So as 0:11:11.600 --> 0:11:13.560 long as you can cut coupons and get much higher 0:11:13.600 --> 0:11:16.640 returns in US assets, you will still have foreigners abroad 0:11:16.760 --> 0:11:19.800 in Europe, Japan, Canada, Australia who come to the US 0:11:19.800 --> 0:11:22.679 to buy US financial assets because they simply do offer 0:11:22.880 --> 0:11:25.120 higher returns than what you get in most other countries. 0:11:25.160 --> 0:11:26.959 Foreign holdings of treasuries at the end of last year, 0:11:27.000 --> 0:11:29.319 close to the end of last year record heighs. People 0:11:29.320 --> 0:11:30.480 hardly talk about that today. 0:11:30.640 --> 0:11:31.719 Well, and if you go back and look at the 0:11:31.760 --> 0:11:34.480 TICK data for netfoink purchases of US assets, you saw 0:11:34.520 --> 0:11:37.040 that in April of last year, during Liberation Day, things 0:11:37.080 --> 0:11:39.560 were absolutely chaotic. It was indeed the case that the 0:11:39.600 --> 0:11:42.360 rest of the world was sell America. But since April, 0:11:42.400 --> 0:11:44.520 for the data we now have from May up onto November, 0:11:44.800 --> 0:11:47.280 it was very very strong inflow of data and to 0:11:47.440 --> 0:11:50.640 rates in particular credit and also of course in two equities. 0:11:50.679 --> 0:11:52.240 If you are just chaining again, welcome to the program. 0:11:52.280 --> 0:11:54.120 About ten minutes ago the Federal Reserve leaving it to 0:11:54.160 --> 0:11:57.440 strains unchanged two votes straight twenty five bases point reduction 0:11:57.520 --> 0:11:59.719 from Governor Waller and from Governor Myra, and the news 0:11:59.720 --> 0:12:00.760 come with Chairman Pale. 0:12:00.840 --> 0:12:01.920 In about twenty minutes time. 0:12:02.080 --> 0:12:03.720 We've got the form of FED Vice chair of Richard 0:12:03.720 --> 0:12:05.800 Clouder standing by just one more question, rich I want 0:12:05.800 --> 0:12:08.080 to come to you on this an important topic because 0:12:08.120 --> 0:12:10.600 the Chairman will be asked about this in the news conference. 0:12:10.600 --> 0:12:14.880 I have no doubt that a more confrontational approach, a 0:12:14.880 --> 0:12:17.440 more assertive approach from the chairman a few weekends ago 0:12:17.840 --> 0:12:20.559 towards the White House, Rich, what do you think prompted that? 0:12:20.600 --> 0:12:22.959 How much internal debate was there about it? 0:12:24.640 --> 0:12:26.520 You know, I'm not sure. I guess we'll have to 0:12:26.520 --> 0:12:30.080 wait for J. Powell's memoir to find out. I just 0:12:30.160 --> 0:12:35.160 infer that the Chair made the decision he'd been you know, 0:12:35.200 --> 0:12:38.880 he had been quiet and had really not weighed in 0:12:38.880 --> 0:12:40.440 in the past, and I think he just made a 0:12:40.440 --> 0:12:43.400 decision that he wanted it to be known that he 0:12:43.480 --> 0:12:47.240 felt that the FED needed to focus on independence and 0:12:47.280 --> 0:12:51.960 focus on making the judgments on monetary policy. Any color 0:12:52.000 --> 0:12:54.439 beyond that, we'll have to wait for the memoir. 0:12:54.559 --> 0:12:56.240 Rich, Do you think it's made it harder to focus 0:12:56.240 --> 0:12:57.120 on monetary policy? 0:12:57.120 --> 0:12:57.320 Though? 0:12:59.080 --> 0:12:59.880 I really don't think. 0:13:00.000 --> 0:13:02.920 I don't think so, in light of all the things 0:13:02.920 --> 0:13:05.360 that are that are going on. I think it was 0:13:05.400 --> 0:13:08.760 a very clear, very clear indication that for the remainder 0:13:08.800 --> 0:13:11.240 of his term as chair, you know, that will be 0:13:11.840 --> 0:13:12.760 will be the focus. 0:13:12.920 --> 0:13:15.640 Richid Cloud, Thank you, sir, as always, thanks for FED 0:13:15.720 --> 0:13:18.559 Vice Chair, Rich CLOUDA. We have no doubt the Chaman 0:13:18.640 --> 0:13:21.200 will be asked about that issue in about twenty minutes time. 0:13:21.280 --> 0:13:23.960 Joining us now to extend the conversation, Bob Michael of 0:13:24.040 --> 0:13:27.400 JP Mulgan Asset Management. Bobby, You've always got your own questions, buddy. 0:13:27.559 --> 0:13:29.080 What do you want to hear from the chairman in 0:13:29.120 --> 0:13:29.720 the next hour. 0:13:30.679 --> 0:13:34.520 Well, the question he's not going to answer is does 0:13:34.559 --> 0:13:39.000 he intend to stay on if after his chair expires? 0:13:39.320 --> 0:13:41.480 But I think the one to ask is what does 0:13:41.520 --> 0:13:45.320 he see in the labor market that's particularly wearing to him? 0:13:45.480 --> 0:13:49.400 And is the FED undergoing studies about what the broader 0:13:49.440 --> 0:13:52.079 impact of AI will be across the economy. 0:13:52.960 --> 0:13:55.480 Bob Michael, you look at the key question that you 0:13:55.559 --> 0:13:59.319 mentioned is labor. We mentioned this earlier off Orzag and Posen. 0:14:00.760 --> 0:14:04.320 Does your team at JP Morgan see any form of 0:14:04.400 --> 0:14:06.960 wage dynamic that indicates inflation? 0:14:09.400 --> 0:14:12.960 Not so much right now. I think this low, higher 0:14:13.080 --> 0:14:17.560 low fire has really dampened wage gains quite a bit. 0:14:18.000 --> 0:14:20.400 We'll see what happens in the first half of the year. 0:14:20.760 --> 0:14:24.480 Certainly expectations are pretty good for the economy and corporate spending. 0:14:24.800 --> 0:14:27.120 Maybe that will lead to higher wages, but right now 0:14:27.160 --> 0:14:28.480 you're not seeing evidence of that. 0:14:28.600 --> 0:14:31.000 I really can't emphasize on the folks that Fraser it'll 0:14:31.040 --> 0:14:33.800 see into the middle of the year than Bob Michael 0:14:33.880 --> 0:14:36.480 with that with an interest rate strategy. And given all 0:14:36.520 --> 0:14:39.440 the upset at the FED, how far out is the 0:14:39.440 --> 0:14:42.600 Bob Michael vision at JP Morgan? Can you get out 0:14:42.640 --> 0:14:45.240 to Q three or dare I say, model out of 0:14:45.320 --> 0:14:48.920 fixed income portfolio to twenty twenty seven? 0:14:50.640 --> 0:14:53.480 You can, and you have to. You can't invest a 0:14:53.520 --> 0:14:57.440 lot of assets without having some view on the short term, 0:14:57.480 --> 0:15:01.040 the medium term, and the longer term. Right now, things 0:15:01.040 --> 0:15:04.760 look pretty good. On Monday, I said that the Yell 0:15:04.840 --> 0:15:08.080 curve looked about as perfectly priced as you could have it. 0:15:08.160 --> 0:15:12.440 So does the bond market. It seems to incorporate reasonably 0:15:12.480 --> 0:15:16.560 good economic activity this year. It seems to incorporate what 0:15:16.600 --> 0:15:21.040 we think could be disinflationary forces coming from both the 0:15:21.080 --> 0:15:25.320 headwinds of tariffs on spending and also the impact of AI. 0:15:25.840 --> 0:15:29.840 It's sort of an ideal market for bonds, including credit. 0:15:30.800 --> 0:15:33.000 Well under the issue about AI, given AI is so 0:15:33.080 --> 0:15:35.560 prominent in the equity market, and now AI is also 0:15:35.600 --> 0:15:38.160 becoming a bigger weight in the public IG index. And 0:15:38.200 --> 0:15:40.760 by the way, AI is also hugely in venture capitil 0:15:40.840 --> 0:15:43.280 two thirds of venture capitul is AI. How do you 0:15:43.480 --> 0:15:45.960 think about the construction of portfolios at the moment when 0:15:45.960 --> 0:15:48.720 you certainly have when you look holistically at asset occasion 0:15:48.920 --> 0:15:51.640 one fact on named the AI that is everywhere. 0:15:53.040 --> 0:15:57.000 Well, we've seen a lot of sectors in the past 0:15:57.800 --> 0:16:00.560 access the markets for a lot of funding, and the 0:16:00.640 --> 0:16:04.400 lesson from that is to wait until the supply starts 0:16:04.440 --> 0:16:07.760 to weigh on prices and that's your opportunity to go in. 0:16:08.560 --> 0:16:11.760 I think what we do understand is there's an enormous 0:16:11.800 --> 0:16:15.640 need of capital because there's an enormous productive use for 0:16:15.720 --> 0:16:19.200 it to build the infrastructure that's going to power everything. 0:16:19.640 --> 0:16:22.560 What we do see at JP Morgan Chase is every 0:16:22.640 --> 0:16:26.080 line of business is using AI and how it operates, 0:16:26.440 --> 0:16:30.160 and it is creating a lot of efficiencies. It allows 0:16:30.240 --> 0:16:34.240 us to scale very very efficiently. So it's not going away. 0:16:35.040 --> 0:16:36.520 It only seems to be accelerating. 0:16:36.600 --> 0:16:37.880 Yeah, Papa, I want to build on this. I think 0:16:37.960 --> 0:16:38.600 is really important. 0:16:38.640 --> 0:16:40.280 And I say this a little tongue in cheek, but 0:16:40.360 --> 0:16:43.000 ultimately a big factor behind the GDP growth for the 0:16:43.080 --> 0:16:45.400 last twelve months is the capex spend of a handful 0:16:45.400 --> 0:16:48.280 of companies. Is that becoming the more important macro indicator, 0:16:48.320 --> 0:16:50.920 never mind payrolls. Is what happens after the close today 0:16:50.920 --> 0:16:52.840 from METSA, Microsoft and what we hear from the big 0:16:52.840 --> 0:16:54.520 tech players over the next week. 0:16:56.240 --> 0:17:00.160 I think so, because they're not only telling us how 0:17:00.200 --> 0:17:04.480 their businesses look, they're telling us how every other business looks, 0:17:04.800 --> 0:17:08.399 and how every other business is thinking about AI and 0:17:08.480 --> 0:17:11.400 are they willing to invest more there. I think we're 0:17:11.440 --> 0:17:14.800 going to find the answer is yes, that everyone's over 0:17:14.840 --> 0:17:17.800 the hump. They see this as real. They've lagged a 0:17:17.840 --> 0:17:20.840 little bit. Why shouldn't they. They were unsure about the 0:17:20.880 --> 0:17:24.440 impact of Taris. They were unsure how AI would play out. 0:17:24.720 --> 0:17:26.959 Now that seems to be in the rear view mirror. 0:17:27.440 --> 0:17:29.680 I think you are going to see pretty good earnings 0:17:29.960 --> 0:17:33.040 and pretty good downrage forecasts Alston. 0:17:33.080 --> 0:17:34.639 This is one of the great dilemmas I think for 0:17:34.720 --> 0:17:39.320 manegy policymakers officials worldwide right now the divide between GDP 0:17:40.040 --> 0:17:43.760 and payrolls growth. GDP's fantastic payroll growth super subdued. And 0:17:43.760 --> 0:17:46.360 you can point to supply side factors like immigration. That's 0:17:46.359 --> 0:17:49.119 a factor, sure, but the character of GDP is becoming 0:17:49.160 --> 0:17:51.280 less and less labor intensive based on what we've seen 0:17:51.520 --> 0:17:52.440 over the last twelve months. 0:17:52.520 --> 0:17:54.520 Absolutely, and a very important point when we talk about 0:17:54.520 --> 0:17:56.760 the FIT is that that also is because we simply 0:17:56.760 --> 0:17:59.560 have that the forces that are driving GDP are actually 0:17:59.640 --> 0:18:01.120 not very interest rate sensitive. 0:18:01.359 --> 0:18:03.119 Because most of the false insessive. 0:18:02.880 --> 0:18:05.280 Driving the boom in AI and the energy built out 0:18:05.400 --> 0:18:07.840 had been coming because of equity valuations. 0:18:07.320 --> 0:18:08.000 Being so high. 0:18:08.160 --> 0:18:10.560 Now there's mall in the change in the capitalist structure 0:18:10.640 --> 0:18:13.720 to watch also motet issuance. But for the last several years, 0:18:13.800 --> 0:18:15.919 no matter what their fitfund straight did, we had a 0:18:15.920 --> 0:18:18.439 really strong boom in AI and that was driving the 0:18:18.480 --> 0:18:21.520 economy forward and continues to drive the economy forward because 0:18:21.560 --> 0:18:24.320 this strength is coming from sources that are much less 0:18:24.320 --> 0:18:27.080 interest rate sensitive than traditional components of GDP. 0:18:27.320 --> 0:18:29.800 Let's get a source on this. Turston slock this morning. 0:18:29.880 --> 0:18:31.879 It was good to see up before nine am. Turston. 0:18:32.640 --> 0:18:35.399 This is his daily note, the daily Spark. Bob Michael, 0:18:35.520 --> 0:18:40.200 quantifying the productivity gains from AI, I would say, it's 0:18:40.280 --> 0:18:42.879 JP Morgan with what is it? It's like Walmart two million 0:18:42.920 --> 0:18:46.520