November 7, 2024 • 30 mins
Bloomberg's Tom Keene, Jonathan Ferro and Lisa Abramowicz break down the Federal Reserve's latest policy decision on a special edition of Bloomberg Surveillance
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:13):
The Federal Reserve decision we're looking for is an interest
rate cut on the FMC of about twenty five basis points.
With that decision is Mike mckayth you.
Speaker 3 (00:22):
Got it, John, A quarter point cut in the Fed
spencemark interest rate. A few changes to this statement, and
that's about it from the Fed. The target range now
four and a half to four and three quarters percent.
There is no change to balance sheet policy. The decision
this time unanimous, as September dissenter Mickey Bowman voted for
this rate cut. Inflation, the statement says, has made progress,
(00:46):
dropping the word further toward the two percent target, but
remains somewhat elevated. No longer included the assertion that the
Committee has gained greater confidence that inflation is moving sustainably
toward two percent. The economic assessment suggests a slightly weaker
labor market, noting that since earlier this year, labor market
(01:07):
conditions have generally eased and the unemployment rate has moved
up but remains low still. The statement repeats September's view
that risks to achieving its employment and inflation goals are
roughly in balance. The rate cut today is in support
of its goals instead of September's in light of the
progress on inflation and the balance of risks. Policymakers note
(01:32):
again they will consider additional adjustments to their benchmark rate,
but offer no further guidance beyond that. There is no
mention of politics in the statement. That will be up
to Chairman Powell in about a half hour.
Speaker 2 (01:45):
Am I McKay. It'll be up to you, sir, to
ask the questions. How many questions do you expect are
going to be leading with the events of this week
and not this decision? How much of this is going
to be about the politics at two thirty, Mic, I.
Speaker 3 (01:56):
Would imagine quite a bit would be, and maybe we
want to check the law vegas over underline for that.
But he's not going to say anything. He's not going
to respond. So the question is how many different ways
can we ask and how many different ways will he
parry the question?
Speaker 2 (02:10):
Sixty minutes of that looking forward to it, Michael McKee,
you've got to run. I know that news conference begins
in about twenty eight minutes time, So no big changes
to the statement. Twenty five basis point Raika as expected,
and when you see something like that, you're not looking
for a big change in the market either. We stay
higher on a SMP five hundred by about six tens
of one percent, yields are still a little bit lower.
On a ten year, we're still down by eight basis
(02:30):
points four thirty five. And in foreign exchange, the euro
gives up a little bit of the move, but still
positive on the session at least, so one oh seven
eighty four on euro dollar.
Speaker 1 (02:38):
I think it's interesting that he that the Federal Reserve
moved a reference to gaining confidence in inflation and saying
that labor market conditions have generally eased. Honestly, to me,
you're looking at this and on the margins, just setting
the stage to potentially feel a little less dubvish. And
that is a tone that I really curious to hear
in the press conference.
Speaker 2 (02:58):
With a surround the table by Michael of JPMUL and
a man who's seen it oh before, the former Fed
Vice chair Rich clouder Rich. Want to start with you
and not on the twenty five basis point right cut,
you lift the tariff, You lift the tariffs of Trump.
In Volume one on the Federal Reserve, how did you
handle it then? How much scenario analysis do you did
you do ahead of time? How do you think this
chairman's going to handle it in a months to come.
Speaker 4 (03:20):
Well, the staff did good work, and some of that's
in the public domain now comes out every five years.
The reality is in during my time at the FED,
inflation was running a little bit below target. The tariffs
that were put in place made the headlines, but they
didn't really push up inflation very much. You know, the
devil will be in the details, I think, both on
trade policy and physical policy, and I don't think they
(03:43):
need to make any big decisions at this meeting or
the next meeting about how they'll strategize for twenty twenty five.
Speaker 5 (03:48):
Vice Chairman, I want to go to the politics of
the moment. We're not going to get an answer from
Jerome Powell, so we're going to get it from you
right now. Harry Truman nineteen fifty before William McChesney Martin
saved the day. I quote the President President Truman, I
hope the board will not allow the bottom to drop
out from under securities. If that happens, that is exactly
(04:11):
what mister Stalin wants. We've had this pressure before, and
you and your brethren you have the pressure this time
from President elect Trump. How does a FED deal with it?
Speaker 4 (04:21):
I think they deal with it, Tom, the way that
they did the last time is just stick your you know,
keep your focus on the goals of policy, price stability,
maximum employment, and do what you think can best achieve
those goals. You know, as you point out, opinions on
the FED from including from presidents or not unheard of
and so we could see more of that, but I
(04:42):
think the power Fed will just keep doing what they're doing.
Speaker 1 (04:44):
How much is the market, though, speaking, louder than any
policy that's going to come down the pike. The fact
that we've seen this massive rally in stocks and a
sell off from bonds that hasn't really hit risk assets,
how much does that have to really cause the FED
to pause and even reconsider whether it cut rates to
get in December?
Speaker 4 (05:00):
Good point, you know, I do think financial conditions are
obviously an input to policy, but I would hope the
FED does not convey the impression that they're too sensitive
to financial conditions because they can rise and fall for
a number of reasons. My own sense of what we're
seeing this week is some of it is not so
much more stimulus down the road as more certainty that
(05:20):
the existing twenty seventeen tax bill is going to be extended, right,
So it's the absence of a tax hike as opposed
to necessarily a tax cut. And I do think the
deregulation piece of this is also important. So we've certainly
seen a level set. I wouldn't necessarily extrapolate this from here.
We'll just have to see how this plays out either way.
Speaker 1 (05:39):
What we've heard is just the deficit is likely to expand,
and one of the main stories and consistency throughout all
of the analysis, does the FED deal with that at
all by signaling what they plan to do with their
balance sheet. There is some speculation that they could potentially
monetize the debt to keep even keel economic conditions.
Speaker 4 (06:00):
Well, certainly there would be that pressure, but I have
high confidence that they would resist that. Look, the FED
is judged on primarily and whether or not it achieves
the inflation target, and when inflation is getting to two percent,
that's really the focus. I think monetizing the debt is
something that I've done on a sustained basis, is inconsistent
with the inflation target. You do raise another point, though,
(06:22):
which is a good one, Lisa, which is the fact
that they are doing QT right now. You know, during
my time there, the FED stop QT about the time
that it cut rates in twenty nineteen. So the Paler
Fed's continuing to shrink the balance sheet. They've given some
indication about when they'll stop, but that I think will
be a decision they'll need to make next year, and
that could be in the context of pretty depressing budget numbers.
Speaker 5 (06:44):
But mikel all of this seems very predictable. You get
this from a former FED official Columbia professor as well.
What is the surprise you're worried about into Q one
Q two?
Speaker 6 (06:56):
Well, I guess my question for Rich is what are
they model? Are they modeling all the probabilities that fiscal
stimulus could look like? Are they modeling the extension of
the tax cuts? Are they just modeling the existing economy?
Speaker 4 (07:12):
Well, I guess the short answer is, I don't know.
We'll find out in five years. My sense, though, certainly
if I were there, what I would be focused on
is a scenario where you may get a tariff, and
then the question is is that inflation area, or is
it a price level effect? Or in the wonking noition
of central bankers are their second round of facts. Chris Waller,
who have enormous regard for work with Chris, gave a
(07:34):
speech several months ago in which or Q and a
Maybe on Bloomberg in which he said, look, a tariff
is a one time increase in the price level. It's
not necessarily inflationary. So I think if I were there,
I'd be wanting to see will that play out in
various scenarios, But beyond that the details will matter.
Speaker 5 (07:51):
My chart of the day is Jim Biarco had a
fabulous chart showing the inflation Bob Michael coming out of
twenty twenty one, twenty two, and yeah, it's a noodle
in along right now. The economists like Claire and are
looking at the noodle in a lawn right now, and
the public that just voted for Donald Trump is looking
at the jump condition and inflation on a level change.
Where are we going to be in twenty twenty five?
(08:11):
Are we going to be looking at level change in
the memory of it or are we going to be
noodling along feeling happy.
Speaker 6 (08:17):
Well, we're not going to feel happy because there's no deflation.
We're not going to feel happy because by the end
of twenty twenty five there will be tariffs and some
of that will be passed along to the consumer. We're
not going to be happy because I don't think there
will be additional tax cuts maybe on tips and overtime
and corporate tax cuts in twenty twenty five. I think
(08:39):
that's a twenty twenty six issue. So we're not going
to be real happy with further improvement and inflation. To me,
I took the same thing Lisa took away. They drop
gaining confidence in inflation out of the statement. To me,
that was an acknowledgement of a change in potential fiscal policy.
Speaker 1 (08:59):
Do you think that that means potentially they won't cut
even in December?
Speaker 6 (09:03):
No, I think there is how do you get from
here to there? It could be a number of quarters.
You've got to preserve the economy in some sort of
steady state. We're too high right now.
Speaker 4 (09:15):
If I could jump off preserve I think j Powell
will want to preserve optionality. For twenty twenty five, A
lot can happen. It'll be more tricky in December because
there's the dots and so whatever the dots show, there'll
be questions about how confident the FED is on that path.
And I would suspect today he will begin to lay
out a path to give themselves a lot of optionality
in December as well.
Speaker 2 (09:35):
Rich, This is important. You think they begin to communicate
at least open the door to have the option to
pause in December, and that starts today.
Speaker 6 (09:42):
I do.
Speaker 4 (09:44):
It may be subtle, but I do.
Speaker 2 (09:47):
Help me understand what that sounds like at two thirty
what's SAP today?
Speaker 4 (09:52):
I would imagine, Well, again, hypotheticals will know hypothetical would
be a question about next year, and the chairit will
say something along the lines of it too soon to
make a judgment, and we'll be looking at the incoming assessment.
And he'll remind folks that the rate path in the
SEP is conditional on inflation continuing to come down. If
there is a risk that it doesn't, that would factor
into the rate path. So it's more not so much
(10:14):
about getting into scenario details as it is. Look, the
rate path depends on continued progress on inflation or disinflation.
Speaker 2 (10:20):
If you are just joining us, welcome to the program.
At twenty five basis point, reduction of the Federal Reserve
and news conference with Cham and pal in about twenty
minutes time, joining us nas Dyne Swunk of KPMG down
a twenty five basis point reduction and welcome to the program.
At a time, whether it's eights are still holding up
jobs claims are still quite low? Do they have the
luxury of waiting of setting up a pause in December?
Speaker 7 (10:42):
Well, I do think they're going to be as exactly
as everyone has said that they want optionality. I think
they're still going to cut again in December. That said,
the good wants to start talking about calibrating rate cuts
to the economy and they're not going to be wanting
to pull rate cuts do as cuts sequentially. I think
in twenty twenty five, and optionality, as Rich said, is
(11:05):
going to be number one issue because they don't know
exactly what the policy will be, when policy will change,
how it will affect the economy, and that is going
to matter exactly as Rick stated that the certainty on
the dot plot in December is going to be really uncertainty.
And I think one of the greatest challenges that the
(11:25):
Fed now faces is communication. This is not a period
where you can give a lot of forward guidance because
of the uncertainty on the course of policy going forward.
Speaker 5 (11:35):
Dan swank I was thunderstruck by the shift across the
Blue Wall towards mister Trump. We all saw it, frankly,
we saw it out in Long Island. Here in New
York as well. There seemed to be a halves and
a have nots here within the election. How does mister
Powell address both groups into twenty twenty five, How does
he aggregate and make a constructive policy for the people
(12:00):
a lot on their back that voted for Donald Trump.
Speaker 7 (12:04):
Well, at the end of the day, Riches made this
point and I agree with them. At the end of
the day, the Fed's job is price stability. There is
deflation in some goods prices, so some goods prices are
coming down, they're still elevated from where they were. I
do worry about shelter costs and whether or not those
can really come down like many would like, and that
(12:27):
is a problem, and also insurance costs. Those are more
structural in nature. But at the end of the day,
it's the Fed's job, one way or the other to
get enough prices to fall to get to that price stability,
but to get inflation to no longer be number one issue,
I think that's going to be more challenging as we
get into twenty twenty six. I agree wholeheartedly that the
(12:48):
bulk of the policy shifts that we see, especially in
terms of fiscal policy, are not likely to hit till
twenty twenty six, and I don't expect a lot more
than the extension of the tax cuts that we had,
with maybe some additional corporate text cuts. But we will see,
and I think it will take some time. I don't
think it's all going to be done in the first
(13:08):
hundred days. The tariffs, as Rich said, are issues that
can be a level change, but if you combine them
with curbs and immigration at this time and actually have
any kind of deportations along with that, that tends to
both stem growth and stoke inflation. In this environment, we
are not where we were a pre pandemic, and certainly
(13:29):
tariffs in sequential order along with retaliatory tariffs, that kind
of a situation would be much harder for the Photo
Reserve to deal with, and the pressure on the FED
is going to intensify if that occurs.
Speaker 1 (13:43):
There's a lot of nodding around the table. I find
it fascinating how little we understand inflation and exactly what's
going to cause a real surge in it. And I
do have to wonder and Bobb, I'll throw this to you,
because I know you think that the Fed should keep
cutting and that there is weakness to be addressing. I
am struck by the fact that there hasn't been a
more market slowdown in any of the economic data, with
(14:04):
high yields, with rates at the long end as high
as they've gotten, doesn't that tell us something about how
restrictive or not that restrictive policy actually is at this level.
Speaker 6 (14:16):
Well, I think it's unfair to say there are no
signs of a slowdown. As I said, you look at
new and existing home sales, those are purely dependent on
the level of rates currently because we know home prices
aren't going to come back and they're quite high, and
so new and existing home sales are down. They're going
to decline further with this pop up in rates. And
(14:39):
as I said, in corporate America, you look at the
amount of amended and extent and pick there is a
lot of corporate America that's struggling with the higher cost
of funding, and a lot of that is floating rate.
So for me, if you're at the FED, you've got
to step back and say, okay, we're also looking at
performance of credit cards and audit loans and other things.
(15:01):
We do continue to need to take some of the
pressure off to ensure we have a soft lining. I'm
not talking about going to zero, two or three percent,
just saying where we are currently around five percent is
still a little bit too high.
Speaker 5 (15:15):
I'm going to be the rude one today. The former
vice chairman of the Fuller Reserve System. This is Kylo
tash Over at C and N. Michael McKee passes it's
on to us. McKee insists that I'm as rude as
I can be. To Richard Clarita, there's speculation here after
the Powell term, your name is not mentioned. That's I
guess the good news. There's Kevin Hassett and Kevin Walsh
(15:35):
as well. Those are two very different people. What kind
of person do we need to run the FED into
the Trump administration? Do we need a monetary expert like
you on DSGE or can we use someone like worsh
who's more a part of the regulatory and wall street system.
Speaker 4 (15:51):
Well, and also I would also throw on Chris Waller's
name as well as certainly beyond my life throwing rich. Look,
I think that there is no one cookie cutter job description.
I think that Jay Pal's been an incredibly successful FED chair,
Ben Burnankee Janet Yellen, so you can certainly come from
(16:12):
a background. What I would say about it is that
in the world today, it's not just hiking and lowering rates.
There's the communication piece we talked about. There is the
supervision and regulatory piece that is not just only about banks.
It's about how the economy functions and so and so.
It requires a special skill set and a special person.
But all the names you mean I think mentioned would
(16:34):
be good choices.
Speaker 2 (16:35):
I just wanted to cross side of today and Swunk
just to fit in a final question before you run Awhite, Diane,
we always answer this question. If you had a question
for the chairman today in the news conference, Dan, what
would it be?
Speaker 7 (16:46):
It would be how much discussion was there about the
labor market and the recent inflation numbers. I mean, that
is where the tire meets the road in terms of
where the next rate cut is going to be and
how much much are they secure in the labor market
weakness that we saw being transitory with regard to hurricanes
(17:07):
and strikes. We know that part is transitory, but there
is some signs that the labor market is slowing and
how concerned are they on that. The other issue I
think is really important one that we talk about all
the time. That word that's out there, nonlinearity, what the
FED always worries about. And this gets to the issue
of you know, when do rates have a bigger impact
(17:27):
on the economy? Is the nonlinear effects I think in
both delinquencies but also particularly in the business sector where
we do see some floating rates out there. There is
some stress now starting to show in the business sector,
and I think that's a very important issue.
Speaker 2 (17:44):
Dan, you're one of the best. It is always greats get
some time with the Dan Swunk the of KPMG if
you want, just joining us about twelve thirteen minutes away
from a news conference with Chairman Powell. Equities at the moment,
Stone ass session highs at all time highs on the
S and P five hundred one point four percent on
the mat snack that is south as of rerec called
as well following a twenty five basis point reduction of
the Federal Reserve equity stay elevated. Not much price section
(18:05):
off the back of this decision this afternoon though, Joining
us now is Matt Lazeti over at Deutsche Bank. Matt,
I want your thoughts on the outlook and Matt, welcome
to the program. Have you made any changes since the
election this week, and if so, how many?
Speaker 8 (18:19):
Yeah, thanks for having me. So we haven't really made
any official changes to the OUTLOK at this point. I think,
you know, we need to get in clarity on a
number of things. You know, how we're thinking about tax policy,
the sequencing of that between trade and tariffs will be
really important. But we did publish a note just given
kind of a guidepost to where we think the economy
may be moving and where the FED outlook may be
moving for next year, and in particular, you know, we
(18:40):
do think that we could upgrade our growth forecast for
next year, probably into the two and a half percent range,
give or take, or so. A labor market that is
probably going to look a little bit tighter on the
back of tax cuts that were likely to see easier
financial conditions that were likely to have but also a
FED that is likely cutting rates less next year than
we previously thought, and so yeah, we are kind of
(19:01):
outlined a scenario in which the FED stops cutting rates
above four percent next year.
Speaker 1 (19:06):
Yeah, this is one comment from the recent note that
you put out that if it truly is a red
sweet and the likelihood is the FED funds rate remains
above four percent by the end of next year, with
growth and inflation revised upward. Matt, what would you have
to see to make that your base case?
Speaker 8 (19:23):
Look, I think we're close to that. I think it's
just getting clarity on how we think the policy outlook
is likely to like it to evolve. You know, I
think we know a few things since the September meeting. One,
labor market data, I think, on balance have come in
better and have diminished some of the downside risks that
we've been worried about. Two, inflation data have come in
hotter than anticipated, and so I think if the Fed
were to have revised their forecast today, it's inflation higher,
(19:46):
a labor market that is tighter. Three financial conditions have
eased considerably since the September meeting, and so I think
as you look at all of that and just ignore
the election for the time being. You've actually had an
evolution in the data financial conditions, which would be hawkers
for the FED. Now we overlay on top of that,
you know, fiscal stiveness that may come via tax cuts,
(20:07):
trade policy that could lift inflation next year, and I think,
undeniably together these are just hawkersh developments for the VED.
Speaker 5 (20:12):
That was Odie George Saravella's talk to them the other day.
He's a little occupied with the collapse of the German government.
But what does Deutsche Bank feel about the ability to
steer to a weaker dollar or something President Trump would like?
Speaker 8 (20:26):
Yeah, you know, I'm not sure that that's actually something
that's going to be a key policy objective of the
Trump administration. I think some of their tone has changed
on that. I think that they have emphasized that the
reserve currency is a really important part. That they're making
the US economy a place for investment is a really
important part from a policy perspective. Now, certainly, you know,
a weeker dollar could help on some of the trade objectives,
(20:47):
but I don't anticipate kind of talking down the dollar
is going to be a big part of the next administration.
Speaker 2 (20:52):
Matt, We've been told so many times by so many
people that the decision today was an easy one and
then maybe descend but will be an easy one when
do they decisions start to get hot?
Speaker 8 (21:03):
So today was easy, I'm not sure December is going
to be as easy. If the incoming data continue to
point to a labor market that looks resilient and downside
risks have diminished, and if we get inflation data that
continue to come in a little bit hotter, along with
financial conditions that are easy, you know, we are beginning
to approach a range of kind of reasonable estimates of
neutral from our perspective. You know, we think neutral from
(21:24):
a nominal rate perspective could be anywhere probably between three
and a half and four percent. So after this cut,
you know, perhaps the December one can come and they
can still feel comfortable with that. But I really do
think that the December meeting is the first one where
we probably have a little bit more contentiousness around it
because they're approaching neutral. The data look fine, and you
do have risks to the outlook where just from a
(21:44):
risk management perspective, it could make some sense to slow
the pace of cuts.
Speaker 1 (21:48):
Which do you agree with that, especially with the fact
that they have to come out with a statement of
economic projections. How that makes them forces them to really
write down, codify this idea of a neutral rate north
to four percent.
Speaker 4 (21:59):
Yes, I think that scenario is certainly a plausible one.
The nuance I would offer is I could see a
scenario where they get the funds rate down to a
round four and stay there, not as neutrals four, but
just inflation stuck at two and a half. I don't
see the power Fed breaking a lot of China to
get inflation down from two and a half to two
with raid hikes, but they may just pause at a
funds rate in the low force because inflation stuck it
(22:21):
at two and a half. So that's another way that
delivers Math's scenario.
Speaker 1 (22:26):
Matt, what do you think of the idea of tariffs
being inflationary versus not?
Speaker 5 (22:30):
Right?
Speaker 1 (22:30):
I mean, what are you sort of looking at as
the most inflationary aspects of policy? That would be maybe
a warning side signed for the Federal Reserve.
Speaker 7 (22:39):
Yeah.
Speaker 8 (22:39):
I think the complications for the Fed next year could
be that we have demand side policy in terms of
tax cuts happening with an economy that is already strong,
being coupled with supply side policy via tariffs that would
lift inflation, and both of those things being kind of
giving an inflationary outcome where it makes it difficult to
disentangle what's happening from a demand side versus a supply
(23:00):
side story. You know, certainly if the VED was able
to identify, they could potentially look through the tariff effects
on inflation. But I think that they are probably just
less prone to do so for a few reasons. One,
inflation is already above their target and is continuing to
do so. Two, inflation expectations could be at risk of
moving higher, and I think that this is primarily or
(23:20):
even more so an issue if those tariffs are phased
in over time. It makes it more difficult and complicated,
I think, to identify the price level shock and makes
you a little bit more worried about it factoring into
inflation expectations.
Speaker 5 (23:32):
So about Michael, if I want to affect the Lazetti
Claire to move here in bonds, price up, yield down?
How far out unduration do I want to be into
twenty twenty five? Do I want to extend duration?
Speaker 7 (23:45):
Yeah?
Speaker 6 (23:45):
I think you do. Here, I think there are a
lot of things to do. That's kind of interest we're
seeing from clients to municipal bond market is a large
part of that. A lot of clients owned municipal bonds
have ladders. Stuff is rolling off, roll it out to
ten years. There's a lot going on in credit. Get
out there and invest. You have to recognize there's been
a pretty significant backup in yield. We don't know what
(24:08):
fiscal policy will look like, and it sure looks like
we're not going to see a lot before a year
or so.
Speaker 2 (24:14):
You know, there's some people Bob worried about it by
a strike emerging in the bond market, and I just wonder,
with yields at these levels, do we just keep sucking
capital away from the rest of the world here in
the United States, Because if I'm thinking about the policy
coming down the pike from my perspective and many others
as well, if you're investig in America, there's going to
be policies to reward it. If you're exporting it, that's
a very very different scenario of trying to export into America.
(24:34):
But do we just keep sucking capital away from the
rest of the world.
Speaker 6 (24:38):
Well, yesterday was the perfect evidence of that. There was
every reason to hide from the bond market. You had
a thirty year auction and it went flawlessly.
Speaker 4 (24:49):
You see the same thing, Rich, I do, And in particular, look,
we focus on the US, but it's a global bond market,
and treasure yields four and a half. We saw a year,
almost exactly a year ago, treasure yields got to five,
and there was a voracious appetite to lock in those
those yields. And so I do think there's a range
within which the growth and the FED and the fiscal
pit plays in. But beyond a certain point, it becomes
(25:09):
very attractive to international investors.
Speaker 2 (25:12):
So we retain the privilege of acting recklessly. Some people
might say iolutely.
Speaker 4 (25:16):
Kicking that can down the road.
Speaker 1 (25:18):
Yeah, although I do wonder what the consequence is of
kicking the can down the road and then Germany saying, hey,
they're doing it, so we want to too. You know,
this sounds like a good plan France, Hey what about us?
And all of a sudden you get yields rising higher?
And how much does the bond market suck in the
capital away from other risk assets?
Speaker 8 (25:35):
That's the question.
Speaker 1 (25:36):
No, I'm serious That's one of my main questions.
Speaker 2 (25:38):
Some of these European bond markets have learned they're not
American and that has been a painful lesson which one
you've seen that In the UK you had a little
sprinkle of that. In France we still that and the
periphery a decade ago.
Speaker 4 (25:49):
Well, I'm just saying the challenge for many European countries
is the countries they'd like to invest on don't have
a lot of debt out standing, like Germany and Switzerland,
and the countries that want to borrow have to pay
a big premium.
Speaker 2 (26:00):
So yeah, I want to cross back out. It's a MATLAZETI matight,
just before you run, what's the best way of getting
the chairman to answer a question about the election without
answering a question about the election, because that's all every
journalist on the planet right now is thinking, and every
single journalist in that news conference will be trying to do.
Speaker 8 (26:16):
Yeah, I think it's a really difficult one. I think
at the moment, you know, chair Pal has really no
incentive to answer any question about what fiscal policy.
Speaker 6 (26:22):
Is going to look like.
Speaker 8 (26:23):
There's so much uncertainty, you know, I think he's going
to emphasize data dependence. I guess if you could do
it through a few avenues, it would be one, you know,
how they think about risks to the outlook as they
look ahead, you know, in terms of the policy outlook
that has to fact earned out to the thinking about things. Two.
I think it was interesting at the September meeting he
noted that the neutral rate has risen quote unquote significantly
(26:43):
relative to the pre COVID levels, And I would you know,
just kind of think, you know, if we're getting additional
and fiscal stimulus on that, how would he view the
outlook for the neutral rate as evolving in that type
of environment. But to be honest, I think it's difficult
to get kind of a solid answer for him about
what the election could mean for the OUTLOK at this meeting.
Speaker 2 (27:00):
Matt, I appreciate your time, Sir Matta SETI if Deutsche
Bank about three minutes ago until this news conference starts,
Rich'll perfectly placed to answer that question. What would you
lead into in this news conference if you will on
the side asking the questions, what would you lean on?
Speaker 4 (27:14):
I think I'd ask the chair about financial conditions broadly
versus the real funds right, because it does seem over
the last year the Committee at some points emphasizes tighter
financial conditions. We saw that explicitly in the statement in
both November and December of last year. More recently they've emphasized, well, look,
the funds rates well above the rate of inflation. But
(27:35):
at the same time, financial conditions have been getting easier.
And it's not necessarily have to pick one or the other,
but get a sense of how he and the Committee
are thinking about that right right now in a global
market and in the US market in which it's definitely
risk gone in the last several days and really for
some time now.
Speaker 5 (27:53):
I've asked this before, but I think it's so important.
Where's the animal spirit into twenty twenty five? President Trump's
going to go, go, go, go go. He's going to
do that before January whatever the inauguration. How goosed is
the economy economy going to be under Trump?
Speaker 4 (28:10):
Well, I think there is that element at minimum, because
we did resolve some uncertainty. I think about the extension
of the existing I would again remind you if we
extend the existing tax cuts, it's very expensive in terms
of the way it's scored by the CBO, but it
doesn't change anybody's you know, tax rates relative to what
they're paying paying now. I think the regulation in particular
(28:30):
certain sectors energy and perhaps financial services is sort of
a one time reassessment. I don't think you can keep
that going. I think we are seeing more or less rational,
least directionality wise reaction to markets. And to point on
the dollar, strong, strong dollar. I know someone like a weaker,
but this is the dollar is the sum.
Speaker 1 (28:50):
Yeah, So, Bob, final question, we're about a minute ninety
seconds away from this press conference. How would you get
him to answer something about his new risks?
Speaker 6 (29:00):
You know, I'd ask the question we had gone back
and forth on, ask him, what is your staff modeling now?
Because there's the current and expect set of data, and
there's the majority probability that there's enormous fiscal stimulus coming
down the pike a year from now, what do you model?
Speaker 2 (29:19):
This has been a fantastic conversation, gents, Bob Michael and
a former FED Vice chair Richard Cloda, to the two
of you, just absolutely brilliant. Just some takeaway from the
last thirty minutes if you're just joining us, Richard Cloud,
are talking about maybe finding some space to generate some
optionality going into twenty twenty five, and if it's a
consensus around this table as well, that the decision gets
harder once you get to December, and that this one
(29:40):
was an easy one and maybe December is a tricky one.
Speaker 1 (29:43):
My big takeaway is that the FED removed the reference
and their statement to gaining confidence on inflation at the
same time that our panelists, our Steam panelists, are talking
about opening the door in December to either not cutting
rates or potentially going forward and maybe not cutting next year.
Speaker 2 (29:58):
Are you ready for a forty five minute clinic on
how to not answer questions? Are you ready for this ex.
Speaker 8 (30:03):
I'm so excited.
Speaker 5 (30:04):
Is this a certified snooze first?
Speaker 1 (30:06):
No, absolutely, not touch It is going to be pretty well.
Speaker 2 (30:09):
I think it's going to be one of those news
conferences and mister Clarenden knows this well, where you have
a sheet of paper in front of you, You've got
your notes written down, and every time you get that question,
different versions off it.
Speaker 6 (30:19):
That sheet of.
Speaker 2 (30:19):
Paper comes up and you read it verbatim and hope
they get bored of asking.
Speaker 1 (30:24):
My favorite is when they have multiple sheets when Jay
Pall has multiple sheets, and someone asks a question, you
see him going through the papers. Wait, where's okay, there's
the answer.
Speaker 5 (30:32):
Have you ever written one of those questions the answer
sheets for the chairman.
Speaker 4 (30:37):
I participated in discussions of press conference briefings.
Speaker 2 (30:40):
Yes, twenty five bases point reduction over the federerser
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:13):
The Federal Reserve decision we're looking for is an interest
rate cut on the FMC of about twenty five basis points.
With that decision is Mike mckayth you.
Speaker 3 (00:22):
Got it, John, A quarter point cut in the Fed
spencemark interest rate. A few changes to this statement, and
that's about it from the Fed. The target range now
four and a half to four and three quarters percent.
There is no change to balance sheet policy. The decision
this time unanimous, as September dissenter Mickey Bowman voted for
this rate cut. Inflation, the statement says, has made progress,
(00:46):
dropping the word further toward the two percent target, but
remains somewhat elevated. No longer included the assertion that the
Committee has gained greater confidence that inflation is moving sustainably
toward two percent. The economic assessment suggests a slightly weaker
labor market, noting that since earlier this year, labor market
(01:07):
conditions have generally eased and the unemployment rate has moved
up but remains low still. The statement repeats September's view
that risks to achieving its employment and inflation goals are
roughly in balance. The rate cut today is in support
of its goals instead of September's in light of the
progress on inflation and the balance of risks. Policymakers note
(01:32):
again they will consider additional adjustments to their benchmark rate,
but offer no further guidance beyond that. There is no
mention of politics in the statement. That will be up
to Chairman Powell in about a half hour.
Speaker 2 (01:45):
Am I McKay. It'll be up to you, sir, to
ask the questions. How many questions do you expect are
going to be leading with the events of this week
and not this decision? How much of this is going
to be about the politics at two thirty, Mic, I.
Speaker 3 (01:56):
Would imagine quite a bit would be, and maybe we
want to check the law vegas over underline for that.
But he's not going to say anything. He's not going
to respond. So the question is how many different ways
can we ask and how many different ways will he
parry the question?
Speaker 2 (02:10):
Sixty minutes of that looking forward to it, Michael McKee,
you've got to run. I know that news conference begins
in about twenty eight minutes time, So no big changes
to the statement. Twenty five basis point Raika as expected,
and when you see something like that, you're not looking
for a big change in the market either. We stay
higher on a SMP five hundred by about six tens
of one percent, yields are still a little bit lower.
On a ten year, we're still down by eight basis
(02:30):
points four thirty five. And in foreign exchange, the euro
gives up a little bit of the move, but still
positive on the session at least, so one oh seven
eighty four on euro dollar.
Speaker 1 (02:38):
I think it's interesting that he that the Federal Reserve
moved a reference to gaining confidence in inflation and saying
that labor market conditions have generally eased. Honestly, to me,
you're looking at this and on the margins, just setting
the stage to potentially feel a little less dubvish. And
that is a tone that I really curious to hear
in the press conference.
Speaker 2 (02:58):
With a surround the table by Michael of JPMUL and
a man who's seen it oh before, the former Fed
Vice chair Rich clouder Rich. Want to start with you
and not on the twenty five basis point right cut,
you lift the tariff, You lift the tariffs of Trump.
In Volume one on the Federal Reserve, how did you
handle it then? How much scenario analysis do you did
you do ahead of time? How do you think this
chairman's going to handle it in a months to come.
Speaker 4 (03:20):
Well, the staff did good work, and some of that's
in the public domain now comes out every five years.
The reality is in during my time at the FED,
inflation was running a little bit below target. The tariffs
that were put in place made the headlines, but they
didn't really push up inflation very much. You know, the
devil will be in the details, I think, both on
trade policy and physical policy, and I don't think they
(03:43):
need to make any big decisions at this meeting or
the next meeting about how they'll strategize for twenty twenty five.
Speaker 5 (03:48):
Vice Chairman, I want to go to the politics of
the moment. We're not going to get an answer from
Jerome Powell, so we're going to get it from you
right now. Harry Truman nineteen fifty before William McChesney Martin
saved the day. I quote the President President Truman, I
hope the board will not allow the bottom to drop
out from under securities. If that happens, that is exactly
(04:11):
what mister Stalin wants. We've had this pressure before, and
you and your brethren you have the pressure this time
from President elect Trump. How does a FED deal with it?
Speaker 4 (04:21):
I think they deal with it, Tom, the way that
they did the last time is just stick your you know,
keep your focus on the goals of policy, price stability,
maximum employment, and do what you think can best achieve
those goals. You know, as you point out, opinions on
the FED from including from presidents or not unheard of
and so we could see more of that, but I
(04:42):
think the power Fed will just keep doing what they're doing.
Speaker 1 (04:44):
How much is the market, though, speaking, louder than any
policy that's going to come down the pike. The fact
that we've seen this massive rally in stocks and a
sell off from bonds that hasn't really hit risk assets,
how much does that have to really cause the FED
to pause and even reconsider whether it cut rates to
get in December?
Speaker 4 (05:00):
Good point, you know, I do think financial conditions are
obviously an input to policy, but I would hope the
FED does not convey the impression that they're too sensitive
to financial conditions because they can rise and fall for
a number of reasons. My own sense of what we're
seeing this week is some of it is not so
much more stimulus down the road as more certainty that
(05:20):
the existing twenty seventeen tax bill is going to be extended, right,
So it's the absence of a tax hike as opposed
to necessarily a tax cut. And I do think the
deregulation piece of this is also important. So we've certainly
seen a level set. I wouldn't necessarily extrapolate this from here.
We'll just have to see how this plays out either way.
Speaker 1 (05:39):
What we've heard is just the deficit is likely to expand,
and one of the main stories and consistency throughout all
of the analysis, does the FED deal with that at
all by signaling what they plan to do with their
balance sheet. There is some speculation that they could potentially
monetize the debt to keep even keel economic conditions.
Speaker 4 (06:00):
Well, certainly there would be that pressure, but I have
high confidence that they would resist that. Look, the FED
is judged on primarily and whether or not it achieves
the inflation target, and when inflation is getting to two percent,
that's really the focus. I think monetizing the debt is
something that I've done on a sustained basis, is inconsistent
with the inflation target. You do raise another point, though,
(06:22):
which is a good one, Lisa, which is the fact
that they are doing QT right now. You know, during
my time there, the FED stop QT about the time
that it cut rates in twenty nineteen. So the Paler
Fed's continuing to shrink the balance sheet. They've given some
indication about when they'll stop, but that I think will
be a decision they'll need to make next year, and
that could be in the context of pretty depressing budget numbers.
Speaker 5 (06:44):
But mikel all of this seems very predictable. You get
this from a former FED official Columbia professor as well.
What is the surprise you're worried about into Q one
Q two?
Speaker 6 (06:56):
Well, I guess my question for Rich is what are
they model? Are they modeling all the probabilities that fiscal
stimulus could look like? Are they modeling the extension of
the tax cuts? Are they just modeling the existing economy?
Speaker 4 (07:12):
Well, I guess the short answer is, I don't know.
We'll find out in five years. My sense, though, certainly
if I were there, what I would be focused on
is a scenario where you may get a tariff, and
then the question is is that inflation area, or is
it a price level effect? Or in the wonking noition
of central bankers are their second round of facts. Chris Waller,
who have enormous regard for work with Chris, gave a
(07:34):
speech several months ago in which or Q and a
Maybe on Bloomberg in which he said, look, a tariff
is a one time increase in the price level. It's
not necessarily inflationary. So I think if I were there,
I'd be wanting to see will that play out in
various scenarios, But beyond that the details will matter.
Speaker 5 (07:51):
My chart of the day is Jim Biarco had a
fabulous chart showing the inflation Bob Michael coming out of
twenty twenty one, twenty two, and yeah, it's a noodle
in along right now. The economists like Claire and are
looking at the noodle in a lawn right now, and
the public that just voted for Donald Trump is looking
at the jump condition and inflation on a level change.
Where are we going to be in twenty twenty five?
(08:11):
Are we going to be looking at level change in
the memory of it or are we going to be
noodling along feeling happy.
Speaker 6 (08:17):
Well, we're not going to feel happy because there's no deflation.
We're not going to feel happy because by the end
of twenty twenty five there will be tariffs and some
of that will be passed along to the consumer. We're
not going to be happy because I don't think there
will be additional tax cuts maybe on tips and overtime
and corporate tax cuts in twenty twenty five. I think
(08:39):
that's a twenty twenty six issue. So we're not going
to be real happy with further improvement and inflation. To me,
I took the same thing Lisa took away. They drop
gaining confidence in inflation out of the statement. To me,
that was an acknowledgement of a change in potential fiscal policy.
Speaker 1 (08:59):
Do you think that that means potentially they won't cut
even in December?
Speaker 6 (09:03):
No, I think there is how do you get from
here to there? It could be a number of quarters.
You've got to preserve the economy in some sort of
steady state. We're too high right now.
Speaker 4 (09:15):
If I could jump off preserve I think j Powell
will want to preserve optionality. For twenty twenty five, A
lot can happen. It'll be more tricky in December because
there's the dots and so whatever the dots show, there'll
be questions about how confident the FED is on that path.
And I would suspect today he will begin to lay
out a path to give themselves a lot of optionality
in December as well.
Speaker 2 (09:35):
Rich, This is important. You think they begin to communicate
at least open the door to have the option to
pause in December, and that starts today.
Speaker 6 (09:42):
I do.
Speaker 4 (09:44):
It may be subtle, but I do.
Speaker 2 (09:47):
Help me understand what that sounds like at two thirty
what's SAP today?
Speaker 4 (09:52):
I would imagine, Well, again, hypotheticals will know hypothetical would
be a question about next year, and the chairit will
say something along the lines of it too soon to
make a judgment, and we'll be looking at the incoming assessment.
And he'll remind folks that the rate path in the
SEP is conditional on inflation continuing to come down. If
there is a risk that it doesn't, that would factor
into the rate path. So it's more not so much
(10:14):
about getting into scenario details as it is. Look, the
rate path depends on continued progress on inflation or disinflation.
Speaker 2 (10:20):
If you are just joining us, welcome to the program.
At twenty five basis point, reduction of the Federal Reserve
and news conference with Cham and pal in about twenty
minutes time, joining us nas Dyne Swunk of KPMG down
a twenty five basis point reduction and welcome to the program.
At a time, whether it's eights are still holding up
jobs claims are still quite low? Do they have the
luxury of waiting of setting up a pause in December?
Speaker 7 (10:42):
Well, I do think they're going to be as exactly
as everyone has said that they want optionality. I think
they're still going to cut again in December. That said,
the good wants to start talking about calibrating rate cuts
to the economy and they're not going to be wanting
to pull rate cuts do as cuts sequentially. I think
in twenty twenty five, and optionality, as Rich said, is
(11:05):
going to be number one issue because they don't know
exactly what the policy will be, when policy will change,
how it will affect the economy, and that is going
to matter exactly as Rick stated that the certainty on
the dot plot in December is going to be really uncertainty.
And I think one of the greatest challenges that the
(11:25):
Fed now faces is communication. This is not a period
where you can give a lot of forward guidance because
of the uncertainty on the course of policy going forward.
Speaker 5 (11:35):
Dan swank I was thunderstruck by the shift across the
Blue Wall towards mister Trump. We all saw it, frankly,
we saw it out in Long Island. Here in New
York as well. There seemed to be a halves and
a have nots here within the election. How does mister
Powell address both groups into twenty twenty five, How does
he aggregate and make a constructive policy for the people
(12:00):
a lot on their back that voted for Donald Trump.
Speaker 7 (12:04):
Well, at the end of the day, Riches made this
point and I agree with them. At the end of
the day, the Fed's job is price stability. There is
deflation in some goods prices, so some goods prices are
coming down, they're still elevated from where they were. I
do worry about shelter costs and whether or not those
can really come down like many would like, and that
(12:27):
is a problem, and also insurance costs. Those are more
structural in nature. But at the end of the day,
it's the Fed's job, one way or the other to
get enough prices to fall to get to that price stability,
but to get inflation to no longer be number one issue,
I think that's going to be more challenging as we
get into twenty twenty six. I agree wholeheartedly that the
(12:48):
bulk of the policy shifts that we see, especially in
terms of fiscal policy, are not likely to hit till
twenty twenty six, and I don't expect a lot more
than the extension of the tax cuts that we had,
with maybe some additional corporate text cuts. But we will see,
and I think it will take some time. I don't
think it's all going to be done in the first
(13:08):
hundred days. The tariffs, as Rich said, are issues that
can be a level change, but if you combine them
with curbs and immigration at this time and actually have
any kind of deportations along with that, that tends to
both stem growth and stoke inflation. In this environment, we
are not where we were a pre pandemic, and certainly
(13:29):
tariffs in sequential order along with retaliatory tariffs, that kind
of a situation would be much harder for the Photo
Reserve to deal with, and the pressure on the FED
is going to intensify if that occurs.
Speaker 1 (13:43):
There's a lot of nodding around the table. I find
it fascinating how little we understand inflation and exactly what's
going to cause a real surge in it. And I
do have to wonder and Bobb, I'll throw this to you,
because I know you think that the Fed should keep
cutting and that there is weakness to be addressing. I
am struck by the fact that there hasn't been a
more market slowdown in any of the economic data, with
(14:04):
high yields, with rates at the long end as high
as they've gotten, doesn't that tell us something about how
restrictive or not that restrictive policy actually is at this level.
Speaker 6 (14:16):
Well, I think it's unfair to say there are no
signs of a slowdown. As I said, you look at
new and existing home sales, those are purely dependent on
the level of rates currently because we know home prices
aren't going to come back and they're quite high, and
so new and existing home sales are down. They're going
to decline further with this pop up in rates. And
(14:39):
as I said, in corporate America, you look at the
amount of amended and extent and pick there is a
lot of corporate America that's struggling with the higher cost
of funding, and a lot of that is floating rate.
So for me, if you're at the FED, you've got
to step back and say, okay, we're also looking at
performance of credit cards and audit loans and other things.
(15:01):
We do continue to need to take some of the
pressure off to ensure we have a soft lining. I'm
not talking about going to zero, two or three percent,
just saying where we are currently around five percent is
still a little bit too high.
Speaker 5 (15:15):
I'm going to be the rude one today. The former
vice chairman of the Fuller Reserve System. This is Kylo
tash Over at C and N. Michael McKee passes it's
on to us. McKee insists that I'm as rude as
I can be. To Richard Clarita, there's speculation here after
the Powell term, your name is not mentioned. That's I
guess the good news. There's Kevin Hassett and Kevin Walsh
(15:35):
as well. Those are two very different people. What kind
of person do we need to run the FED into
the Trump administration? Do we need a monetary expert like
you on DSGE or can we use someone like worsh
who's more a part of the regulatory and wall street system.
Speaker 4 (15:51):
Well, and also I would also throw on Chris Waller's
name as well as certainly beyond my life throwing rich. Look,
I think that there is no one cookie cutter job description.
I think that Jay Pal's been an incredibly successful FED chair,
Ben Burnankee Janet Yellen, so you can certainly come from
(16:12):
a background. What I would say about it is that
in the world today, it's not just hiking and lowering rates.
There's the communication piece we talked about. There is the
supervision and regulatory piece that is not just only about banks.
It's about how the economy functions and so and so.
It requires a special skill set and a special person.
But all the names you mean I think mentioned would
(16:34):
be good choices.
Speaker 2 (16:35):
I just wanted to cross side of today and Swunk
just to fit in a final question before you run Awhite, Diane,
we always answer this question. If you had a question
for the chairman today in the news conference, Dan, what
would it be?
Speaker 7 (16:46):
It would be how much discussion was there about the
labor market and the recent inflation numbers. I mean, that
is where the tire meets the road in terms of
where the next rate cut is going to be and
how much much are they secure in the labor market
weakness that we saw being transitory with regard to hurricanes
(17:07):
and strikes. We know that part is transitory, but there
is some signs that the labor market is slowing and
how concerned are they on that. The other issue I
think is really important one that we talk about all
the time. That word that's out there, nonlinearity, what the
FED always worries about. And this gets to the issue
of you know, when do rates have a bigger impact
(17:27):
on the economy? Is the nonlinear effects I think in
both delinquencies but also particularly in the business sector where
we do see some floating rates out there. There is
some stress now starting to show in the business sector,
and I think that's a very important issue.
Speaker 2 (17:44):
Dan, you're one of the best. It is always greats get
some time with the Dan Swunk the of KPMG if
you want, just joining us about twelve thirteen minutes away
from a news conference with Chairman Powell. Equities at the moment,
Stone ass session highs at all time highs on the
S and P five hundred one point four percent on
the mat snack that is south as of rerec called
as well following a twenty five basis point reduction of
the Federal Reserve equity stay elevated. Not much price section
(18:05):
off the back of this decision this afternoon though, Joining
us now is Matt Lazeti over at Deutsche Bank. Matt,
I want your thoughts on the outlook and Matt, welcome
to the program. Have you made any changes since the
election this week, and if so, how many?
Speaker 8 (18:19):
Yeah, thanks for having me. So we haven't really made
any official changes to the OUTLOK at this point. I think,
you know, we need to get in clarity on a
number of things. You know, how we're thinking about tax policy,
the sequencing of that between trade and tariffs will be
really important. But we did publish a note just given
kind of a guidepost to where we think the economy
may be moving and where the FED outlook may be
moving for next year, and in particular, you know, we
(18:40):
do think that we could upgrade our growth forecast for
next year, probably into the two and a half percent range,
give or take, or so. A labor market that is
probably going to look a little bit tighter on the
back of tax cuts that were likely to see easier
financial conditions that were likely to have but also a
FED that is likely cutting rates less next year than
we previously thought, and so yeah, we are kind of
(19:01):
outlined a scenario in which the FED stops cutting rates
above four percent next year.
Speaker 1 (19:06):
Yeah, this is one comment from the recent note that
you put out that if it truly is a red
sweet and the likelihood is the FED funds rate remains
above four percent by the end of next year, with
growth and inflation revised upward. Matt, what would you have
to see to make that your base case?
Speaker 8 (19:23):
Look, I think we're close to that. I think it's
just getting clarity on how we think the policy outlook
is likely to like it to evolve. You know, I
think we know a few things since the September meeting. One,
labor market data, I think, on balance have come in
better and have diminished some of the downside risks that
we've been worried about. Two, inflation data have come in
hotter than anticipated, and so I think if the Fed
were to have revised their forecast today, it's inflation higher,
(19:46):
a labor market that is tighter. Three financial conditions have
eased considerably since the September meeting, and so I think
as you look at all of that and just ignore
the election for the time being. You've actually had an
evolution in the data financial conditions, which would be hawkers
for the FED. Now we overlay on top of that,
you know, fiscal stiveness that may come via tax cuts,
(20:07):
trade policy that could lift inflation next year, and I think,
undeniably together these are just hawkersh developments for the VED.
Speaker 5 (20:12):
That was Odie George Saravella's talk to them the other day.
He's a little occupied with the collapse of the German government.
But what does Deutsche Bank feel about the ability to
steer to a weaker dollar or something President Trump would like?
Speaker 8 (20:26):
Yeah, you know, I'm not sure that that's actually something
that's going to be a key policy objective of the
Trump administration. I think some of their tone has changed
on that. I think that they have emphasized that the
reserve currency is a really important part. That they're making
the US economy a place for investment is a really
important part from a policy perspective. Now, certainly, you know,
a weeker dollar could help on some of the trade objectives,
(20:47):
but I don't anticipate kind of talking down the dollar
is going to be a big part of the next administration.
Speaker 2 (20:52):
Matt, We've been told so many times by so many
people that the decision today was an easy one and
then maybe descend but will be an easy one when
do they decisions start to get hot?
Speaker 8 (21:03):
So today was easy, I'm not sure December is going
to be as easy. If the incoming data continue to
point to a labor market that looks resilient and downside
risks have diminished, and if we get inflation data that
continue to come in a little bit hotter, along with
financial conditions that are easy, you know, we are beginning
to approach a range of kind of reasonable estimates of
neutral from our perspective. You know, we think neutral from
(21:24):
a nominal rate perspective could be anywhere probably between three
and a half and four percent. So after this cut,
you know, perhaps the December one can come and they
can still feel comfortable with that. But I really do
think that the December meeting is the first one where
we probably have a little bit more contentiousness around it
because they're approaching neutral. The data look fine, and you
do have risks to the outlook where just from a
(21:44):
risk management perspective, it could make some sense to slow
the pace of cuts.
Speaker 1 (21:48):
Which do you agree with that, especially with the fact
that they have to come out with a statement of
economic projections. How that makes them forces them to really
write down, codify this idea of a neutral rate north
to four percent.
Speaker 4 (21:59):
Yes, I think that scenario is certainly a plausible one.
The nuance I would offer is I could see a
scenario where they get the funds rate down to a
round four and stay there, not as neutrals four, but
just inflation stuck at two and a half. I don't
see the power Fed breaking a lot of China to
get inflation down from two and a half to two
with raid hikes, but they may just pause at a
funds rate in the low force because inflation stuck it
(22:21):
at two and a half. So that's another way that
delivers Math's scenario.
Speaker 1 (22:26):
Matt, what do you think of the idea of tariffs
being inflationary versus not?
Speaker 5 (22:30):
Right?
Speaker 1 (22:30):
I mean, what are you sort of looking at as
the most inflationary aspects of policy? That would be maybe
a warning side signed for the Federal Reserve.
Speaker 7 (22:39):
Yeah.
Speaker 8 (22:39):
I think the complications for the Fed next year could
be that we have demand side policy in terms of
tax cuts happening with an economy that is already strong,
being coupled with supply side policy via tariffs that would
lift inflation, and both of those things being kind of
giving an inflationary outcome where it makes it difficult to
disentangle what's happening from a demand side versus a supply
(23:00):
side story. You know, certainly if the VED was able
to identify, they could potentially look through the tariff effects
on inflation. But I think that they are probably just
less prone to do so for a few reasons. One,
inflation is already above their target and is continuing to
do so. Two, inflation expectations could be at risk of
moving higher, and I think that this is primarily or
(23:20):
even more so an issue if those tariffs are phased
in over time. It makes it more difficult and complicated,
I think, to identify the price level shock and makes
you a little bit more worried about it factoring into
inflation expectations.
Speaker 5 (23:32):
So about Michael, if I want to affect the Lazetti
Claire to move here in bonds, price up, yield down?
How far out unduration do I want to be into
twenty twenty five? Do I want to extend duration?
Speaker 7 (23:45):
Yeah?
Speaker 6 (23:45):
I think you do. Here, I think there are a
lot of things to do. That's kind of interest we're
seeing from clients to municipal bond market is a large
part of that. A lot of clients owned municipal bonds
have ladders. Stuff is rolling off, roll it out to
ten years. There's a lot going on in credit. Get
out there and invest. You have to recognize there's been
a pretty significant backup in yield. We don't know what
(24:08):
fiscal policy will look like, and it sure looks like
we're not going to see a lot before a year
or so.
Speaker 2 (24:14):
You know, there's some people Bob worried about it by
a strike emerging in the bond market, and I just wonder,
with yields at these levels, do we just keep sucking
capital away from the rest of the world here in
the United States, Because if I'm thinking about the policy
coming down the pike from my perspective and many others
as well, if you're investig in America, there's going to
be policies to reward it. If you're exporting it, that's
a very very different scenario of trying to export into America.
(24:34):
But do we just keep sucking capital away from the
rest of the world.
Speaker 6 (24:38):
Well, yesterday was the perfect evidence of that. There was
every reason to hide from the bond market. You had
a thirty year auction and it went flawlessly.
Speaker 4 (24:49):
You see the same thing, Rich, I do, And in particular, look,
we focus on the US, but it's a global bond market,
and treasure yields four and a half. We saw a year,
almost exactly a year ago, treasure yields got to five,
and there was a voracious appetite to lock in those
those yields. And so I do think there's a range
within which the growth and the FED and the fiscal
pit plays in. But beyond a certain point, it becomes
(25:09):
very attractive to international investors.
Speaker 2 (25:12):
So we retain the privilege of acting recklessly. Some people
might say iolutely.
Speaker 4 (25:16):
Kicking that can down the road.
Speaker 1 (25:18):
Yeah, although I do wonder what the consequence is of
kicking the can down the road and then Germany saying, hey,
they're doing it, so we want to too. You know,
this sounds like a good plan France, Hey what about us?
And all of a sudden you get yields rising higher?
And how much does the bond market suck in the
capital away from other risk assets?
Speaker 8 (25:35):
That's the question.
Speaker 1 (25:36):
No, I'm serious That's one of my main questions.
Speaker 2 (25:38):
Some of these European bond markets have learned they're not
American and that has been a painful lesson which one
you've seen that In the UK you had a little
sprinkle of that. In France we still that and the
periphery a decade ago.
Speaker 4 (25:49):
Well, I'm just saying the challenge for many European countries
is the countries they'd like to invest on don't have
a lot of debt out standing, like Germany and Switzerland,
and the countries that want to borrow have to pay
a big premium.
Speaker 2 (26:00):
So yeah, I want to cross back out. It's a MATLAZETI matight,
just before you run, what's the best way of getting
the chairman to answer a question about the election without
answering a question about the election, because that's all every
journalist on the planet right now is thinking, and every
single journalist in that news conference will be trying to do.
Speaker 8 (26:16):
Yeah, I think it's a really difficult one. I think
at the moment, you know, chair Pal has really no
incentive to answer any question about what fiscal policy.
Speaker 6 (26:22):
Is going to look like.
Speaker 8 (26:23):
There's so much uncertainty, you know, I think he's going
to emphasize data dependence. I guess if you could do
it through a few avenues, it would be one, you know,
how they think about risks to the outlook as they
look ahead, you know, in terms of the policy outlook
that has to fact earned out to the thinking about things. Two.
I think it was interesting at the September meeting he
noted that the neutral rate has risen quote unquote significantly
(26:43):
relative to the pre COVID levels, And I would you know,
just kind of think, you know, if we're getting additional
and fiscal stimulus on that, how would he view the
outlook for the neutral rate as evolving in that type
of environment. But to be honest, I think it's difficult
to get kind of a solid answer for him about
what the election could mean for the OUTLOK at this meeting.
Speaker 2 (27:00):
Matt, I appreciate your time, Sir Matta SETI if Deutsche
Bank about three minutes ago until this news conference starts,
Rich'll perfectly placed to answer that question. What would you
lead into in this news conference if you will on
the side asking the questions, what would you lean on?
Speaker 4 (27:14):
I think I'd ask the chair about financial conditions broadly
versus the real funds right, because it does seem over
the last year the Committee at some points emphasizes tighter
financial conditions. We saw that explicitly in the statement in
both November and December of last year. More recently they've emphasized, well, look,
the funds rates well above the rate of inflation. But
(27:35):
at the same time, financial conditions have been getting easier.
And it's not necessarily have to pick one or the other,
but get a sense of how he and the Committee
are thinking about that right right now in a global
market and in the US market in which it's definitely
risk gone in the last several days and really for
some time now.
Speaker 5 (27:53):
I've asked this before, but I think it's so important.
Where's the animal spirit into twenty twenty five? President Trump's
going to go, go, go, go go. He's going to
do that before January whatever the inauguration. How goosed is
the economy economy going to be under Trump?
Speaker 4 (28:10):
Well, I think there is that element at minimum, because
we did resolve some uncertainty. I think about the extension
of the existing I would again remind you if we
extend the existing tax cuts, it's very expensive in terms
of the way it's scored by the CBO, but it
doesn't change anybody's you know, tax rates relative to what
they're paying paying now. I think the regulation in particular
(28:30):
certain sectors energy and perhaps financial services is sort of
a one time reassessment. I don't think you can keep
that going. I think we are seeing more or less rational,
least directionality wise reaction to markets. And to point on
the dollar, strong, strong dollar. I know someone like a weaker,
but this is the dollar is the sum.
Speaker 1 (28:50):
Yeah, So, Bob, final question, we're about a minute ninety
seconds away from this press conference. How would you get
him to answer something about his new risks?
Speaker 6 (29:00):
You know, I'd ask the question we had gone back
and forth on, ask him, what is your staff modeling now?
Because there's the current and expect set of data, and
there's the majority probability that there's enormous fiscal stimulus coming
down the pike a year from now, what do you model?
Speaker 2 (29:19):
This has been a fantastic conversation, gents, Bob Michael and
a former FED Vice chair Richard Cloda, to the two
of you, just absolutely brilliant. Just some takeaway from the
last thirty minutes if you're just joining us, Richard Cloud,
are talking about maybe finding some space to generate some
optionality going into twenty twenty five, and if it's a
consensus around this table as well, that the decision gets
harder once you get to December, and that this one
(29:40):
was an easy one and maybe December is a tricky one.
Speaker 1 (29:43):
My big takeaway is that the FED removed the reference
and their statement to gaining confidence on inflation at the
same time that our panelists, our Steam panelists, are talking
about opening the door in December to either not cutting
rates or potentially going forward and maybe not cutting next year.
Speaker 2 (29:58):
Are you ready for a forty five minute clinic on
how to not answer questions? Are you ready for this ex.
Speaker 8 (30:03):
I'm so excited.
Speaker 5 (30:04):
Is this a certified snooze first?
Speaker 1 (30:06):
No, absolutely, not touch It is going to be pretty well.
Speaker 2 (30:09):
I think it's going to be one of those news
conferences and mister Clarenden knows this well, where you have
a sheet of paper in front of you, You've got
your notes written down, and every time you get that question,
different versions off it.
Speaker 6 (30:19):
That sheet of.
Speaker 2 (30:19):
Paper comes up and you read it verbatim and hope
they get bored of asking.
Speaker 1 (30:24):
My favorite is when they have multiple sheets when Jay
Pall has multiple sheets, and someone asks a question, you
see him going through the papers. Wait, where's okay, there's
the answer.
Speaker 5 (30:32):
Have you ever written one of those questions the answer
sheets for the chairman.
Speaker 4 (30:37):
I participated in discussions of press conference briefings.
Speaker 2 (30:40):
Yes, twenty five bases point reduction over the federerser
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Law & Order: Criminal Justice System - Season 1 & Season 2
Season Two Out Now! Law & Order: Criminal Justice System tells the real stories behind the landmark cases that have shaped how the most dangerous and influential criminals in America are prosecuted. In its second season, the series tackles the threat of terrorism in the United States. From the rise of extremist political groups in the 60s to domestic lone wolves in the modern day, we explore how organizations like the FBI and Joint Terrorism Take Force have evolved to fight back against a multitude of terrorist threats.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com