May 7, 2025 • 28 mins
Bloomberg's Tom Keene, Jonathan Ferro and Lisa Abramowicz discuss remarks from Fed Chair Jay Powell following the Federal Reserve's latest policy decision on a special edition of Bloomberg Surveillance.
Federal Reserve Chair Jerome Powell said officials are not in a hurry to adjust interest rates, adding tariffs could lead to higher inflation and unemployment. “If the large increases in tariffs that have been announced or sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment,” Powell said Wednesday at the conclusion of a two-day meeting in Washington. “The effects on inflation could be short lived, reflecting a one time shift in the price level,” he said. But it’s “also possible that the inflationary effects could instead be more persistent.”
Officials voted unanimously to keep the benchmark federal funds rate in a range of 4.25% to 4.5%, where it has been since December. In a statement, policymakers said they see a growing risk of both higher inflation and rising unemployment. “Uncertainty about the economic outlook has increased further,” the Federal Open Market Committee said in a statement. They added, “the risks of higher unemployment and higher inflation have risen.”
The S&P 500 index of US stocks and Treasury yields fell following the announcement, while the dollar pared gains.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is a breaking news update from Bloomberg.
Speaker 3 (00:12):
Instant reaction and analysis from our three thousand journalists and
analysts around the world.
Speaker 4 (00:19):
The Chairman of the Federal Reserve wrapping up the main
news conference, depressed, doing their best to make that interesting.
The Chairman doing his best to make it boring, and
I think he was fairly successful. Your equity market this
afternoon looks like this equity is positive by just a
tenth of one percent on the S and P five
hundred in the bond market on a two year, ten year,
thirty year we look like this on a ten year
maturity yield to lower by a single basis point four
(00:40):
twenty seven ninety one. The risks have risen, the risks
have not materialized. The feted chair Jaypouse, says, we're well
positioned to wait.
Speaker 5 (00:49):
We don't think we need to be in a hurry.
We think we can be patient. We're in a good
position to wait and see is the thing. We don't
have to be in a hurry. The economy has been
resilient and is doing fairly well. Our policies wills the
costs of waiting to see further are fairly low.
Speaker 4 (01:05):
So they aren't going to wait, wait to see the
outcome of trade talks between the United States and China,
wait to see if this economy breaks one way or
the other.
Speaker 6 (01:13):
Why don't you just read moby Dick for an hour
and a half. I mean, honestly, if you want to
know if the how the Fed looks when they fil abuster,
this was it. Ultimately, I thought that line was interesting
that the cost of waiting didn't seem that great. Some
people Neil data might disagree with that, but this right
now is their stance. It is in a good place,
and they did not give any sense of exactly what
it would do to tip their hand away from that.
Speaker 4 (01:35):
His speech at the Economic Club of Chicago, repeated in
the news conference this time around. If current trade policy
is sustained, it could mean high inflation. It could also
mean lower growth. Our job. We have an obligation Tom
to anchor inflation expectations.
Speaker 7 (01:50):
The obligation is there, and of course the reach out
is to when will they do something. There's a lot
of heat to debate, and Neil Dudda sent me a
note here from Renaissance Macro. He's scathing is the only
word I could come up with scathing about their delay here,
as you mentioned Andrew Hollenhorst, with a view and then
you go all the way out. Dare I say in
the next year the dispersion here is right. I just
(02:12):
want to point out that if you had read the
cliff notes of Moby.
Speaker 1 (02:14):
Dick, I did a knowledge.
Speaker 2 (02:16):
They could have pulled it off.
Speaker 4 (02:19):
How much in the transitory this time around? Short lived
or short lived? Yes, it's the new term for the
chairman of the feder Reserve.
Speaker 6 (02:24):
Yeah, in the sense that they will get clarity as
time goes on, and right now they have none, but
it will be made apparent to them as things settle
into place. This idea, though, that right now the economy
is still relatively healthy, is one aspect that I think
maybe is going to become challenging in a month's time.
Speaker 4 (02:41):
Let's get to the conversation joining us now they former
New York Fed President Bill Duntley, Bill, thank you for
joining us. They clearly face a range of risks, risks which,
as the chairman says, have not yet materialized. Can you
walk us through how you think they've responded to the
risk they face and what you make of that news
conference from Sham and Powell, I.
Speaker 1 (02:58):
Don't think the news chre surprising at all. I mean,
the FED is not really sure where Terrists are going
to land, which is important, and when they land, they're
not really sure what the consequences are going to be
on growth versus inflation, on which side they're going to
miss their mandate by a greater degree. So I think
I was expecting him to say something pretty similar to this,
(03:19):
and if I was in issues, I would have done
exactly the same thing.
Speaker 2 (03:22):
I thought the.
Speaker 6 (03:22):
Most notable line was the cost of waiting to see
further data seem fairly low.
Speaker 2 (03:28):
Do you agree with that?
Speaker 6 (03:29):
Do you think that the cost is fairly low of
simply being parked on the sidelines at a time where
a lot of people think that there are signs of
a rapidly slowing economy.
Speaker 1 (03:40):
Well, I think the costs are low relative to the
risk of making a mistake. You know, Let's imagine that
the FED cutting rates dramatically because they were worried about
the labor market, and then it turned out that inflation
expectations got unanchored and the labor market held up pretty well.
That'd be a big mistake. And so the FED really
wants to make sure that they don't go down that path.
This is not just about the central scenario. It's also
(04:01):
about risk management. Try not to do the wrong thing
so that you can respond effectively as things actually unfold.
So I think the fact that the ter policy is
not set is important, and the fact that we don't
have any experience with the tariffs shock of this magnitude
is also important. So in that environment, it's sort of like,
you know, the hippocrat, Oh, do no harm to your patient.
Speaker 7 (04:22):
Bill Dudley, part of your charm is you had a
day job before the FED, job of actually trying to
forecast out the economy. How would you frame that? Now
you've got the luxury of not being at golden sacks.
Can you look out one month? Can you look out
two quarters? Can you model out a fancy McKelvey Dudley
(04:43):
jewel out a year right now? I don't think you can.
Speaker 8 (04:47):
No, no way.
Speaker 1 (04:48):
I mean, I think the only thing we can say
is that the economy, like Teerpaul said, is the economy
right now it seems to still be in good shape.
I think the most important thing I took away from
the press conference that people should take on board is
the fact that don't take the first quarter GDP at
face value. The minus point three reading is all because
of mismeasurements. It's basically, they counted imports a lot better
(05:09):
than they counted inventories, so there was a big drag
from imports that was not upset by a big accumulation
of inventories and domestic private final sales, which he brought
up repeatedly in the press conference, is really a much
more representative measure of how the economy is doing, and
it's doing just fine, rising.
Speaker 8 (05:25):
Three percent, So I think he can put the weight
on the right things.
Speaker 7 (05:28):
I'd point out you on Olssius with a two percent
statistic for this present quarter published I believe last weekend,
Bill Dudley. How does a FED communicate given this mess
that has been wrought? What do they do in speeches
coming up? John and I were talking here as we
are looking at psg Arsenal about Jackson Hole. How do
(05:50):
they get to Jackson Hole and communicate to the nation.
Speaker 1 (05:55):
Well, you can only communicate to the extens that you
actually know what's actually going on. So I think it's
appropriate for the FED not to overpromise or imply that
they have some crystal magic ball that allows them to
see in the future when the future is actually ring cloudy.
What I'm expecting at Jackson Hole, frankly, is the FED
to talk about their Monitary Policy Framework review and wheel
(06:17):
that out. And I thought some of the questions at
the press combs and that were interesting were Paul admitted
that maybe Quey could have been wrapped up a bit sooner.
So I think they understand that there are some things
that they can improve in the monetary Policy framework, and
so I think that's going to be the most interesting
outcome of Jackson Hall.
Speaker 2 (06:35):
Bill.
Speaker 4 (06:35):
We've spent a lot of time speaking of FED watches
on Wall Street, and they've also had a similar thing
that this time, because of the constraints they might have
to wag late, they won't be able to act preemptively.
And I guess it's important to understand his definition of
being late, because there was this really interesting moment in
the news conference, and I'd love your thoughts on it.
He looked at the cutting that they did last year,
one hundred basis points of rate reductions and said the
(06:57):
FED was a little late to start cutting last year.
Just what is the definition of late on the FMC.
Speaker 1 (07:05):
I think late is when you realize that the risk
on one side of the mandate have become you have
become very predominant. So if the fact is you're only
cutting at that moment means that you're probably late because
the risk have really accumulated on the employment side of
the ledger. And that's what happened last summer, and the
uneplayer went up pretty quickly, and the risk of the
(07:26):
layer markets are of unwinding.
Speaker 9 (07:28):
In a bad way increased, and the Federal Reserve was
pretty slow to get off the mark, and that's why
they ultimately cut rates more quickly than they delayed, and
then they cut more rates quickly than expected.
Speaker 6 (07:39):
I think that that caught John has did attention, and
a caught mine as well, because some people disagreed and
said maybe it was proactive in a way that led
to the increase in longer term benchmark yields this idea
that maybe actually there was more strength and expected in
the underlying economy. I just wonder what that means going
forward about that two percent inflation target. If we're still
(07:59):
not back, if we did see something of affirming up
of the labor market, and yet that still is the
assessment from last year.
Speaker 8 (08:08):
Well, I think there's two things there's are irrelevant going on.
Speaker 1 (08:10):
Number One, the monitor policy may still not be as
restrictive as the FED thinks. That is, I mean, the
fact that the Commune's still doing okay with a resupposedly
restrictive monitary policy in place, I think sort of.
Speaker 8 (08:21):
Is meaningful to at least to me.
Speaker 1 (08:24):
And the second thing I think is going on it's
really important that people aren't putting up weight on is
the labor force is going to grow much slower in
twenty twenty five than it did in twenty twenty three
and twenty twenty four. So the kind of payroll gains
you need to keep the unemployed rates stable are much
dramatically lower this year than last year.
Speaker 6 (08:41):
There is this question going forward of what kind of
pain tolerance would this FED be willing to accept before
they start to have the clarity that they need to
actually make a move. We were talking with Rich Clarita
just before the press conference, and he said, maybe a
half a percent increase in the unemployment rate, something material
that they could point to, what's your assessment that would
act actually provide clarity at a very unclear moment.
Speaker 8 (09:03):
Well, I think I think Rich Clarida is broadly correct.
Speaker 1 (09:06):
If the unemployer rate starts going up rapidly, like we
go from four to two to say four to six,
then the Federal Reserve is going to be thinking, boy, the.
Speaker 8 (09:13):
Layer market really is weakening in a big way.
Speaker 1 (09:16):
We are moving meaningfully away from full employment, and the
risk in that environment is that we're about to have
a full blown recession. The SAM role didn't work well
last year, right, the SAM role. We triggered the sum
roll and there was no recession. But that happened because
the labor force was growing very rapidly, and so the
rise in the uniployer rate was driven by rapid labor
force growth rather than by layoffs. This year, if the
(09:38):
unemployer rate rises rapidly, will be driven by laos.
Speaker 8 (09:41):
Bill Doublon, let me.
Speaker 7 (09:42):
Throw in an audible then on that, given a trade war,
given the ballet in Switzerland here in the coming days,
are we at risk of damaging the productivity that seems
so successful over the last twenty four months.
Speaker 1 (09:57):
Absolutely, I mean this is putting investments, spending plans on hold.
Speaker 8 (10:01):
We are almost certainly.
Speaker 1 (10:02):
Going to have supply chain disruptions even if we were
to resolve this tomorrow, because a lot of ships from
China aren't landing here at coming to port here, and
then that means there's going to be a lot less
time to replenish stores for Christmas. So supply chain disruptions
to some degree are almost inevitable. And that's assuming that
you switch things back. You've turned the whole tariff thing
(10:24):
off almost immediately.
Speaker 4 (10:25):
Hey, Bill, I appreciate your thoughts. As always, built don't
be the former New York Fed President. The Federal Reserve
see it like this, the risks of risen to hire, unemployment,
to hire, inflation, to lower growth. But the risks haven't materialized,
and the risks are around trade talks as well. The
President of the United States. In the last two hours
or so, we've had a load of headlines from the
Federal Reserve, but maybe the most important headline came from
the President. The President said, where I'm willing to lower
(10:47):
tariffs to get China to the table. Now, the US
is in negotiation mode at the moment, going into talks
for the weekend, or already talks about talks between the
United States and China and they can dial up and
down the tariff by policy whenever they like. You can't
set policy in a moment like this because you don't
know what policy is going to be on the other
side of Washington.
Speaker 6 (11:06):
You don't understand necessarily what the supply chain disruptions are
going to look like. Let's say they don't lower tariffs
in anticipation of these types of talks. China has said
that is the only way to start talks. So does
that remove the idea of talks from the table entirely,
even though they might be seeing each other in passing
in Switzerland. The key question here is how do they
start to game out whether this is really a pandemic
(11:28):
like supply side shock, or whether this is something entirely
different that can get remediated in the near term. That
is the difficulty that they are grappling.
Speaker 2 (11:35):
It is different.
Speaker 4 (11:36):
We've said it so many times on this program. I've
heard all these comparisons to COVID. The difference this time
around is you don't have to wait for the vaccine.
The president has the vaccine. He can take the tariffs off,
put the tariffs on whenever he likes. He's in control
of the virus. If that's a good word to use.
Probably not, but ultimately he is if you believe there
are comparisons to COVID. The President is running policy here
(11:57):
for some runaway virus that we don't have control over.
Speaker 7 (12:00):
Chairman of the Fed right now, I.
Speaker 4 (12:01):
Think he's in charge of what the feder Reserve's about
to do without it out and this is the problem
for the feeder reserve. Let's just say in a month,
these talks are fantastic and the Federal Reserve cut interest
rates by fifty basis points, seventy five basis points, one
hundred basis points because they thought these were the new
rules of the game. All of a sudden, policies offside
and guess what, we're about to deliver a big tax
package down in Washington, DC as well. That's why this
(12:23):
is so hard.
Speaker 10 (12:23):
We vecho J.
Speaker 6 (12:24):
Powell alluded to this, saying there are things that can
be done. Some things, you know, we haven't seen them
being done, but there are some things that could be
done that could actually cause outcomes to be very different.
Key question, and this is something that comes up in
a lot of our discussions with analysts and economists. There
is damage being done. It's not as if this genie
can go back into the bottle so easily, and there
are ships that are not going to get here, and
(12:45):
there are already supply chain disruptions. So at some point
that is the reason why people are saying the pain
is already being felt, the damage is being done, it's
not just a matter of magnitude.
Speaker 7 (12:54):
A number of weeks ago, we had a yeah, but
where best, and maybe Lutnik had to go the president
and say you're off side, fix this right now? And
what in ten minutes they had it fixed.
Speaker 4 (13:06):
And that initiatesd the night day pause we have and
the negotiations are starting. But if you're the chairman of
the Federal Reserve, look, it's an industry to go after
the Federal Reserve.
Speaker 2 (13:15):
We all partake.
Speaker 4 (13:16):
I understand that we've been very critical, but I have
some sympathy with the institution at the moment, I don't
understand how you set policy for the medium term in
a moment like this one.
Speaker 6 (13:25):
I think that's the reason why the policy tool that
is communication is now filibustering, because ultimately there is no
communication that can be had at a time where there
is no information, solid information that can be had and
so maybe maybe we'll get more to the limits.
Speaker 2 (13:40):
Of course, you know.
Speaker 7 (13:42):
That is co dependent on the president. The president's driving
the dialogue right now. It's standard psychiatric work. They're codependent
at the White House.
Speaker 4 (13:53):
The White House is in the drive and seat couldn't
be more TK. Mi McKay was in the room. He's
out of the room now. Mi McKay, welcome back to
the You said it multiple times, Mike can the lead
up to this. I don't have anything to add on that.
Chaman Powell and Mike on a number of issues. He
didn't have much to add.
Speaker 10 (14:10):
No, he didn't. You've been talking about it. The FED
doesn't know what's going to happen. Nobody knows what's going
to happen, so you can't make policy. But one thing
I would add is that you've been talking about this
as a supply shock, which it very well could be,
but the FED was also setting the message today that
it could be a demand shock. And if there's a
demand shock, it could be reflected in things beyond just
(14:34):
the unemployment rate and the inflation rate. We could see
people start to pull back on spending significantly because either
the shelves are empty or because they think things are
going to be bad. Maybe they listened to Jay Powell
today talking about the elevated risks. So there's a lot
going on, a lot of cross currents going on, and
(14:55):
it really comes down to how does all this affect
the consumer? And by that I also mean businesses, because
as you reported, every day people are pulling guidance. They
don't know what's going to happen. So at this point
the economy could go either way. The Fed's stuck in
the middle. And really there isn't much to say about
the FED for right now except that they're watching like
(15:16):
we are.
Speaker 1 (15:16):
Mike.
Speaker 6 (15:16):
You're a student of FED history, and I wonder how
much this has a parallel in recent history at a
time when the FED is just going to say uncertainty
in fifteen different ways and then sometimes the same way
over and over again.
Speaker 10 (15:30):
Well, I think there isn't an exact comparison, but what
you might look at is obviously the pandemic, where nobody
knew what was going to happen, because we hadn't had
this happen before, and so the FED was stuck in
a situation where it knew things were bad, it knew
it had to do something but how long did that
have to go on and how far did they need
to go? That was the question that was never really
(15:52):
decided and we kept talking about for months and months.
But the idea of we've got stagflation out there, but
we don't know if it's going to happen, and if
it does happen, we don't know how bad it's going
to be or when it's going to happen. That I
don't see any precedent for Michael.
Speaker 7 (16:08):
McKee for International Audience briefest right now and you and
I know the shadow FOMC iconic at Carnegie Mellon and
the rest tell us about the Trumpian shadow FOMC right now?
Is there coalescing a beast that's going to send signals,
send messages? Critique Jerown Powell.
Speaker 10 (16:30):
Well, there are a couple of different groups going on.
You could say the Shadow Open Market Committee doesn't really
have a lot of critiques at this point other than
what we were talking about earlier, the Fed's mission creep.
The question I asked him, there are people who are
contenders for the FED chairmanship when the President finally makes
a decision, who could be having things to say. Kevin
(16:52):
Warsh talked last week a week before about that. But
really the opposition or the people who are going to
the questions are in the administration right now. Because the
President wants to influence the FED. He can't really do it,
but he wants to. So there are going to be
other people who are going to pick up on this
stuff and talk about it. Scott Besson's been asked about it.
(17:13):
He was asked about it today. They want the FED
to lower rates, but I think mister Bessett knows even
if mister Trump doesn't, the FED can't move right now
because they don't know what mister Trump's going to do.
Speaker 4 (17:24):
My McKay appreciate the reaction we're here from Mike throughout
today on Blombag TV and on Bloomberg Radio. So we've
had plenty of sympathy for the institution. It ends right now.
Here's the criticism. It goes like this. I've heard it
now from the previous Minneapolis FED president, Saint Louis FED
President rather Jim Ballad. I've heard it directly from muhammadan
Aeron as well, that this FEDER reserve is only really
(17:44):
entertaining one scenario. They hear a lot of people talking
about a wide range of outcomes, but emphasis matters at
a news conference, and the emphasis which Sham and Powell
keeps landing on stackflation without saying stackflation, and Jibilla said
this Muhamma set it as well. What they don't entertain
is the prospect of a good outcome, the prospect that
the Chinese turn around over the next few weeks and say,
you know what will give you what you want. The
(18:05):
Europeans do the same thing, and you end up in
a situation where you have lower teriffs, and maybe you
end up in a situation where you have a reduced
tax rate as well, and perhaps by the end of
this year you're in a better position for both the
risk assets and growth too. And you don't hear any
of that when you listen to Chairman powt and I
didn't hear much of that at all in the last
ninety minutes.
Speaker 6 (18:23):
There is a key question here. Is there a scenario
in which they would have to high rates. Is there
a scenario in which they don't have to move at all,
because this is a soft landing in the same kind
of way that they used to with no tariffs. There
is a positive economic outcome that he kind of alluded
to in passing, but it wasn't necessarily the main story.
Speaker 4 (18:41):
Yeah, kinda but not really very Joining us now to
discuss Jeff Rosenberg of Black Croc geff I make it simple,
is this a moment to own bonds and if so,
wear on the curve.
Speaker 3 (18:53):
It's certainly a moment to be adding diversification to your
portfolio because the whole theme everybody's been talking about, and
Powell answered in multiple ways, is we don't know and
he doesn't know, and it's heightened uncertainty. So you need
more balance in your portfolio. And now the subsequent question
is the bonds give it to you? And there I'd
say you got to be more anchored to the front
(19:14):
end of the curve. The back end has a lot
of uncertainty. You got to look for alternative ways of
finding diversification in your portfolio. And beta exposures are just directional.
Is the market going up? Is it going down? Is
it a good outcome? Is it a bad outcome? Is
as LISTA was just outlining, you know, it's incredibly uncertain
and so it's a time for diversification.
Speaker 6 (19:36):
Jeff, This feels like in high school when someone really
likes someone else, and they keep talking about them at nauseum,
and you feel like there's nothing else to talk about,
and you're kind of sick of the conversation, but you
feel like you have to keep entertaining it. It feels
like everyone's trying to get into the head of one
person again and again and again and is sort of
exhausted by the end of the day.
Speaker 2 (19:54):
How do you rise above.
Speaker 6 (19:55):
That and understand what's actually happening in the economy in
some kind of way, to understand what way things are turning.
Speaker 3 (20:02):
Yeah, it's a good it's a it's a good metaphor,
it's fun metaphor, and uh, and it's and a tough question.
And I think one one way is to really think
about it from a portfolio construction point of view of
what am I exposed.
Speaker 2 (20:15):
To in my portfolio?
Speaker 3 (20:16):
Right, So, if it's about one person and one outcome,
that's kind of the antithesis to what we've all learned
over the years of how to build a good portfolio.
Don't put all your eggs in one basket. In this context,
it is, don't have all of your outcomes determined by
that uncertain and unforecastable outcome. Uh, and so that's really
(20:38):
about diversifying my sources of return. I've talked about it
on this program before. Often all we talk about is
the beta outcome, the directional outcome. And there's another good
news story here for investors, which is all this uncertainty
actually increases opportunities. But if you're investing not in directional space,
but in the cross section, and so you're creating bigger
(20:59):
winners and losers in the micro space, there's greater divergences
and dispersion in the macro space.
Speaker 2 (21:06):
And so if you have strategies that.
Speaker 3 (21:07):
Are more about betting on the differences and not the direction,
you can balance out your exposure to not just one
person that's a really tough outcome, but to hundreds of
different outcomes that's a better chance for success. And that's
a way to pivot away from this kind of unipolar focus.
Speaker 2 (21:27):
On that you know, popular person in high school.
Speaker 8 (21:32):
Is there anything else you'd like to a pod?
Speaker 6 (21:43):
Good idea, just sort of it's just sort of exhausting.
Speaker 2 (21:45):
There's something more to say or talk about. Everyone's exhausting.
Speaker 8 (21:48):
I'll take that from you. There's no question about that.
Speaker 2 (21:50):
Jeff Off.
Speaker 7 (21:51):
Your remit what I'm seeing is a multi standard deviation
move in selected currencies. Where's your unexpected out there across equities, bonds, commodities,
and particularly the depth of the currency markets.
Speaker 3 (22:07):
Yeah, I mean the FX move is really important here, right,
and so like let's just kind of look at what's
happened in markets since April second.
Speaker 2 (22:15):
Is you've had this remarkable rebound in.
Speaker 3 (22:18):
Risky assets, equities, subequity indices, factor exposures, and we've kind
of are above in many of those measures. The April
second tariff Day Liberation Day announcement. The one exception, you know,
all a lot of these boxes are the same. Which
one's different is the dollar and the FX piece of that,
and that's really talking about kind of the global impact
(22:41):
here and that that hasn't been resolved because you know,
are we going to be talking about deficit equalization or
tariff equalization. The latter is a pretty good outcome to
the earlier conversation. You could get lower tariffs, This could
be really positive. But the former, which is what was
the initial thrust of the policy announcement, is deficit equalization.
(23:03):
That's very problematic and it's problematic to the flip side
of deficit equalization is a big collapse in the US
capital account surplus, and that's what you see on the
currency piece.
Speaker 2 (23:13):
That's the big surprise move.
Speaker 3 (23:15):
We got to keep an eye on that, and I
think that's a really key development. You know, especially as
we go through each one of these announcements on bilateral
trade negotiations, you're going to look at the voting evaluation
of those pronouncements in the currency markets.
Speaker 2 (23:33):
I think you'll get a good read.
Speaker 6 (23:34):
This goes to the heart of your whole discussion around
diversification and balance. How much is that diversification and balance
increasingly international as a result of that uncertainty around the
dollar and the space going forward.
Speaker 3 (23:47):
Yeah, I mean that's a huge theme. You see it
in the flows, you see it in the.
Speaker 2 (23:50):
Relative equity returns.
Speaker 3 (23:53):
It's partly what's reflective in the currency that you are
seeing from a global investor perspective, kind of a questioning
of the overweighting that has existed in say equity portfolios
because of the dominance of US capital markets.
Speaker 7 (24:09):
Right.
Speaker 3 (24:09):
You look at GDP VERSUS market cap differentials and you
have a very big gap. The largest gap is in
the US, and so that's one way of sort of
thinking about where would the rebalancing occur, and the trigger
for that is again this assessment. Are we going to
push further on this policy towards deficit equalization?
Speaker 2 (24:29):
Then I think you're going to be looking.
Speaker 3 (24:31):
More at equalization between market cap and say GDP contributions
in the global cross section.
Speaker 7 (24:39):
John and John. The fiscal debate may get overwhelmed by
the actual data of employment and interest rates, back to
the FED and all that, But I would go back
to what you and I first talked about decades ago,
which is Euroswissy and the fact that you have strong
Swiss right now, and as Jeff alluded to, anybody in
equity who's including all our listeners and viewers in the
stock market, don't forget a monitor foreign exchange each and
(25:02):
every day. The Swiss Frank is talking right now.
Speaker 4 (25:05):
And these central banks will have a decision to make
how to respond to some of these shocks, and I
think it's clear the kind of decision they're making so far, Lisa,
We've talked about it, the ECB reducing interest rates, the
Chinese coming out reducing interest rates, the Federal Reserve doesn't
really understand the nature of the shock yet. The rest
of the world has decided it's disinflationary. Maybe they have
the capacity to reduce interest rates in a way that
the Federal Reserve does not. But we've talked about this
(25:27):
a million times trade talks. Things can change from hour
to hour, never mind day to day. It's only a
few hours ago we read a headline from the President
of the United States that said he wasn't willing to
reduce terarists to engage in negotiations with the Chinese. And
then we have reporting moments ago that says the President
is ready to rescind global chip curbs. Now, this is
sort of one versus the other. Every single headline moves
(25:49):
this market one way versus the next. The Federal Reserve
can't behave that way. It can't reduce rates twenty five
minutes ago and then hikem the next That's the problem
they've got at the moment.
Speaker 6 (25:58):
In fairness, a lot of people feel like they can't
live like this right now. A lot of traders out
there are saying, what's the point. I mean, you see
that whip saw in the Nasdaq in particular, this is
something that Nvidia has wanted. There is this tension between
the fast moving headlines of a tweet or a truth
or a statement with the real economy and companies that
have to make longer term decisions. And as an investor,
(26:19):
especially where speed was your friend, how do you deal
with that in a very different.
Speaker 2 (26:24):
Backdrop, Jeffy, you toda this yet?
Speaker 4 (26:26):
How you fading?
Speaker 2 (26:28):
Look, we're feeling great.
Speaker 3 (26:29):
This is creating a lot of opportunities if you know
where to look and rewait your sources of returns away
from the stuff that's impossible to forecast, right and so
like in this last conversation, this is sort of in
our kind of systematic framing. It's like momentum signals versus reversal.
Momentum is a really tough strategy right now. Reversal much better,
(26:50):
exactly the description that you're just talking about. One day,
it's one headline, even within a headline. Within a day,
the headlines are reversing around. So that creates opportunities if
you're way your sources returns to the right environment. And
it's just kind of like recognizing, Look, the easy momentum
macro trade of the post COVID environment is not the
(27:11):
trade right now. It's much more in the cross section,
much more reversal. That's where you can find some opportunities.
And if you're trying to predict, you know what the
next you know trade headline is going to be, that's
going to be a very frustrating place.
Speaker 2 (27:24):
Yeah, good luck to you.
Speaker 4 (27:24):
Never mind within a day, within the hour, Jeff, Thank you, sir,
Jeff Rosenberg of Flackrock. The latest reporting from the team
here at Bloomberg the Trump administration planning to rescind Binden
Era AI chip curbs. According to people familiar with the METSA.
Speaker 6 (27:37):
You look at in video shares, there are more than
two percent on this news, and it makes sense given
how vociferously against this they've been. This goes to the
question of what is the ultimate goal of some of
the tit for tat in the trade war that is
between the China and the US. Is it just completely
coupling when it comes to tech? Is this trying to
tweak the rules confusing
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is a breaking news update from Bloomberg.
Speaker 3 (00:12):
Instant reaction and analysis from our three thousand journalists and
analysts around the world.
Speaker 4 (00:19):
The Chairman of the Federal Reserve wrapping up the main
news conference, depressed, doing their best to make that interesting.
The Chairman doing his best to make it boring, and
I think he was fairly successful. Your equity market this
afternoon looks like this equity is positive by just a
tenth of one percent on the S and P five
hundred in the bond market on a two year, ten year,
thirty year we look like this on a ten year
maturity yield to lower by a single basis point four
(00:40):
twenty seven ninety one. The risks have risen, the risks
have not materialized. The feted chair Jaypouse, says, we're well
positioned to wait.
Speaker 5 (00:49):
We don't think we need to be in a hurry.
We think we can be patient. We're in a good
position to wait and see is the thing. We don't
have to be in a hurry. The economy has been
resilient and is doing fairly well. Our policies wills the
costs of waiting to see further are fairly low.
Speaker 4 (01:05):
So they aren't going to wait, wait to see the
outcome of trade talks between the United States and China,
wait to see if this economy breaks one way or
the other.
Speaker 6 (01:13):
Why don't you just read moby Dick for an hour
and a half. I mean, honestly, if you want to
know if the how the Fed looks when they fil abuster,
this was it. Ultimately, I thought that line was interesting
that the cost of waiting didn't seem that great. Some
people Neil data might disagree with that, but this right
now is their stance. It is in a good place,
and they did not give any sense of exactly what
it would do to tip their hand away from that.
Speaker 4 (01:35):
His speech at the Economic Club of Chicago, repeated in
the news conference this time around. If current trade policy
is sustained, it could mean high inflation. It could also
mean lower growth. Our job. We have an obligation Tom
to anchor inflation expectations.
Speaker 7 (01:50):
The obligation is there, and of course the reach out
is to when will they do something. There's a lot
of heat to debate, and Neil Dudda sent me a
note here from Renaissance Macro. He's scathing is the only
word I could come up with scathing about their delay here,
as you mentioned Andrew Hollenhorst, with a view and then
you go all the way out. Dare I say in
the next year the dispersion here is right. I just
(02:12):
want to point out that if you had read the
cliff notes of Moby.
Speaker 1 (02:14):
Dick, I did a knowledge.
Speaker 2 (02:16):
They could have pulled it off.
Speaker 4 (02:19):
How much in the transitory this time around? Short lived
or short lived? Yes, it's the new term for the
chairman of the feder Reserve.
Speaker 6 (02:24):
Yeah, in the sense that they will get clarity as
time goes on, and right now they have none, but
it will be made apparent to them as things settle
into place. This idea, though, that right now the economy
is still relatively healthy, is one aspect that I think
maybe is going to become challenging in a month's time.
Speaker 4 (02:41):
Let's get to the conversation joining us now they former
New York Fed President Bill Duntley, Bill, thank you for
joining us. They clearly face a range of risks, risks which,
as the chairman says, have not yet materialized. Can you
walk us through how you think they've responded to the
risk they face and what you make of that news
conference from Sham and Powell, I.
Speaker 1 (02:58):
Don't think the news chre surprising at all. I mean,
the FED is not really sure where Terrists are going
to land, which is important, and when they land, they're
not really sure what the consequences are going to be
on growth versus inflation, on which side they're going to
miss their mandate by a greater degree. So I think
I was expecting him to say something pretty similar to this,
(03:19):
and if I was in issues, I would have done
exactly the same thing.
Speaker 2 (03:22):
I thought the.
Speaker 6 (03:22):
Most notable line was the cost of waiting to see
further data seem fairly low.
Speaker 2 (03:28):
Do you agree with that?
Speaker 6 (03:29):
Do you think that the cost is fairly low of
simply being parked on the sidelines at a time where
a lot of people think that there are signs of
a rapidly slowing economy.
Speaker 1 (03:40):
Well, I think the costs are low relative to the
risk of making a mistake. You know, Let's imagine that
the FED cutting rates dramatically because they were worried about
the labor market, and then it turned out that inflation
expectations got unanchored and the labor market held up pretty well.
That'd be a big mistake. And so the FED really
wants to make sure that they don't go down that path.
This is not just about the central scenario. It's also
(04:01):
about risk management. Try not to do the wrong thing
so that you can respond effectively as things actually unfold.
So I think the fact that the ter policy is
not set is important, and the fact that we don't
have any experience with the tariffs shock of this magnitude
is also important. So in that environment, it's sort of like,
you know, the hippocrat, Oh, do no harm to your patient.
Speaker 7 (04:22):
Bill Dudley, part of your charm is you had a
day job before the FED, job of actually trying to
forecast out the economy. How would you frame that? Now
you've got the luxury of not being at golden sacks.
Can you look out one month? Can you look out
two quarters? Can you model out a fancy McKelvey Dudley
(04:43):
jewel out a year right now? I don't think you can.
Speaker 8 (04:47):
No, no way.
Speaker 1 (04:48):
I mean, I think the only thing we can say
is that the economy, like Teerpaul said, is the economy
right now it seems to still be in good shape.
I think the most important thing I took away from
the press conference that people should take on board is
the fact that don't take the first quarter GDP at
face value. The minus point three reading is all because
of mismeasurements. It's basically, they counted imports a lot better
(05:09):
than they counted inventories, so there was a big drag
from imports that was not upset by a big accumulation
of inventories and domestic private final sales, which he brought
up repeatedly in the press conference, is really a much
more representative measure of how the economy is doing, and
it's doing just fine, rising.
Speaker 8 (05:25):
Three percent, So I think he can put the weight
on the right things.
Speaker 7 (05:28):
I'd point out you on Olssius with a two percent
statistic for this present quarter published I believe last weekend,
Bill Dudley. How does a FED communicate given this mess
that has been wrought? What do they do in speeches
coming up? John and I were talking here as we
are looking at psg Arsenal about Jackson Hole. How do
(05:50):
they get to Jackson Hole and communicate to the nation.
Speaker 1 (05:55):
Well, you can only communicate to the extens that you
actually know what's actually going on. So I think it's
appropriate for the FED not to overpromise or imply that
they have some crystal magic ball that allows them to
see in the future when the future is actually ring cloudy.
What I'm expecting at Jackson Hole, frankly, is the FED
to talk about their Monitary Policy Framework review and wheel
(06:17):
that out. And I thought some of the questions at
the press combs and that were interesting were Paul admitted
that maybe Quey could have been wrapped up a bit sooner.
So I think they understand that there are some things
that they can improve in the monetary Policy framework, and
so I think that's going to be the most interesting
outcome of Jackson Hall.
Speaker 2 (06:35):
Bill.
Speaker 4 (06:35):
We've spent a lot of time speaking of FED watches
on Wall Street, and they've also had a similar thing
that this time, because of the constraints they might have
to wag late, they won't be able to act preemptively.
And I guess it's important to understand his definition of
being late, because there was this really interesting moment in
the news conference, and I'd love your thoughts on it.
He looked at the cutting that they did last year,
one hundred basis points of rate reductions and said the
(06:57):
FED was a little late to start cutting last year.
Just what is the definition of late on the FMC.
Speaker 1 (07:05):
I think late is when you realize that the risk
on one side of the mandate have become you have
become very predominant. So if the fact is you're only
cutting at that moment means that you're probably late because
the risk have really accumulated on the employment side of
the ledger. And that's what happened last summer, and the
uneplayer went up pretty quickly, and the risk of the
(07:26):
layer markets are of unwinding.
Speaker 9 (07:28):
In a bad way increased, and the Federal Reserve was
pretty slow to get off the mark, and that's why
they ultimately cut rates more quickly than they delayed, and
then they cut more rates quickly than expected.
Speaker 6 (07:39):
I think that that caught John has did attention, and
a caught mine as well, because some people disagreed and
said maybe it was proactive in a way that led
to the increase in longer term benchmark yields this idea
that maybe actually there was more strength and expected in
the underlying economy. I just wonder what that means going
forward about that two percent inflation target. If we're still
(07:59):
not back, if we did see something of affirming up
of the labor market, and yet that still is the
assessment from last year.
Speaker 8 (08:08):
Well, I think there's two things there's are irrelevant going on.
Speaker 1 (08:10):
Number One, the monitor policy may still not be as
restrictive as the FED thinks. That is, I mean, the
fact that the Commune's still doing okay with a resupposedly
restrictive monitary policy in place, I think sort of.
Speaker 8 (08:21):
Is meaningful to at least to me.
Speaker 1 (08:24):
And the second thing I think is going on it's
really important that people aren't putting up weight on is
the labor force is going to grow much slower in
twenty twenty five than it did in twenty twenty three
and twenty twenty four. So the kind of payroll gains
you need to keep the unemployed rates stable are much
dramatically lower this year than last year.
Speaker 6 (08:41):
There is this question going forward of what kind of
pain tolerance would this FED be willing to accept before
they start to have the clarity that they need to
actually make a move. We were talking with Rich Clarita
just before the press conference, and he said, maybe a
half a percent increase in the unemployment rate, something material
that they could point to, what's your assessment that would
act actually provide clarity at a very unclear moment.
Speaker 8 (09:03):
Well, I think I think Rich Clarida is broadly correct.
Speaker 1 (09:06):
If the unemployer rate starts going up rapidly, like we
go from four to two to say four to six,
then the Federal Reserve is going to be thinking, boy, the.
Speaker 8 (09:13):
Layer market really is weakening in a big way.
Speaker 1 (09:16):
We are moving meaningfully away from full employment, and the
risk in that environment is that we're about to have
a full blown recession. The SAM role didn't work well
last year, right, the SAM role. We triggered the sum
roll and there was no recession. But that happened because
the labor force was growing very rapidly, and so the
rise in the uniployer rate was driven by rapid labor
force growth rather than by layoffs. This year, if the
(09:38):
unemployer rate rises rapidly, will be driven by laos.
Speaker 8 (09:41):
Bill Doublon, let me.
Speaker 7 (09:42):
Throw in an audible then on that, given a trade war,
given the ballet in Switzerland here in the coming days,
are we at risk of damaging the productivity that seems
so successful over the last twenty four months.
Speaker 1 (09:57):
Absolutely, I mean this is putting investments, spending plans on hold.
Speaker 8 (10:01):
We are almost certainly.
Speaker 1 (10:02):
Going to have supply chain disruptions even if we were
to resolve this tomorrow, because a lot of ships from
China aren't landing here at coming to port here, and
then that means there's going to be a lot less
time to replenish stores for Christmas. So supply chain disruptions
to some degree are almost inevitable. And that's assuming that
you switch things back. You've turned the whole tariff thing
(10:24):
off almost immediately.
Speaker 4 (10:25):
Hey, Bill, I appreciate your thoughts. As always, built don't
be the former New York Fed President. The Federal Reserve
see it like this, the risks of risen to hire, unemployment,
to hire, inflation, to lower growth. But the risks haven't materialized,
and the risks are around trade talks as well. The
President of the United States. In the last two hours
or so, we've had a load of headlines from the
Federal Reserve, but maybe the most important headline came from
the President. The President said, where I'm willing to lower
(10:47):
tariffs to get China to the table. Now, the US
is in negotiation mode at the moment, going into talks
for the weekend, or already talks about talks between the
United States and China and they can dial up and
down the tariff by policy whenever they like. You can't
set policy in a moment like this because you don't
know what policy is going to be on the other
side of Washington.
Speaker 6 (11:06):
You don't understand necessarily what the supply chain disruptions are
going to look like. Let's say they don't lower tariffs
in anticipation of these types of talks. China has said
that is the only way to start talks. So does
that remove the idea of talks from the table entirely,
even though they might be seeing each other in passing
in Switzerland. The key question here is how do they
start to game out whether this is really a pandemic
(11:28):
like supply side shock, or whether this is something entirely
different that can get remediated in the near term. That
is the difficulty that they are grappling.
Speaker 2 (11:35):
It is different.
Speaker 4 (11:36):
We've said it so many times on this program. I've
heard all these comparisons to COVID. The difference this time
around is you don't have to wait for the vaccine.
The president has the vaccine. He can take the tariffs off,
put the tariffs on whenever he likes. He's in control
of the virus. If that's a good word to use.
Probably not, but ultimately he is if you believe there
are comparisons to COVID. The President is running policy here
(11:57):
for some runaway virus that we don't have control over.
Speaker 7 (12:00):
Chairman of the Fed right now, I.
Speaker 4 (12:01):
Think he's in charge of what the feder Reserve's about
to do without it out and this is the problem
for the feeder reserve. Let's just say in a month,
these talks are fantastic and the Federal Reserve cut interest
rates by fifty basis points, seventy five basis points, one
hundred basis points because they thought these were the new
rules of the game. All of a sudden, policies offside
and guess what, we're about to deliver a big tax
package down in Washington, DC as well. That's why this
(12:23):
is so hard.
Speaker 10 (12:23):
We vecho J.
Speaker 6 (12:24):
Powell alluded to this, saying there are things that can
be done. Some things, you know, we haven't seen them
being done, but there are some things that could be
done that could actually cause outcomes to be very different.
Key question, and this is something that comes up in
a lot of our discussions with analysts and economists. There
is damage being done. It's not as if this genie
can go back into the bottle so easily, and there
are ships that are not going to get here, and
(12:45):
there are already supply chain disruptions. So at some point
that is the reason why people are saying the pain
is already being felt, the damage is being done, it's
not just a matter of magnitude.
Speaker 7 (12:54):
A number of weeks ago, we had a yeah, but
where best, and maybe Lutnik had to go the president
and say you're off side, fix this right now? And
what in ten minutes they had it fixed.
Speaker 4 (13:06):
And that initiatesd the night day pause we have and
the negotiations are starting. But if you're the chairman of
the Federal Reserve, look, it's an industry to go after
the Federal Reserve.
Speaker 2 (13:15):
We all partake.
Speaker 4 (13:16):
I understand that we've been very critical, but I have
some sympathy with the institution at the moment, I don't
understand how you set policy for the medium term in
a moment like this one.
Speaker 6 (13:25):
I think that's the reason why the policy tool that
is communication is now filibustering, because ultimately there is no
communication that can be had at a time where there
is no information, solid information that can be had and
so maybe maybe we'll get more to the limits.
Speaker 2 (13:40):
Of course, you know.
Speaker 7 (13:42):
That is co dependent on the president. The president's driving
the dialogue right now. It's standard psychiatric work. They're codependent
at the White House.
Speaker 4 (13:53):
The White House is in the drive and seat couldn't
be more TK. Mi McKay was in the room. He's
out of the room now. Mi McKay, welcome back to
the You said it multiple times, Mike can the lead
up to this. I don't have anything to add on that.
Chaman Powell and Mike on a number of issues. He
didn't have much to add.
Speaker 10 (14:10):
No, he didn't. You've been talking about it. The FED
doesn't know what's going to happen. Nobody knows what's going
to happen, so you can't make policy. But one thing
I would add is that you've been talking about this
as a supply shock, which it very well could be,
but the FED was also setting the message today that
it could be a demand shock. And if there's a
demand shock, it could be reflected in things beyond just
(14:34):
the unemployment rate and the inflation rate. We could see
people start to pull back on spending significantly because either
the shelves are empty or because they think things are
going to be bad. Maybe they listened to Jay Powell
today talking about the elevated risks. So there's a lot
going on, a lot of cross currents going on, and
(14:55):
it really comes down to how does all this affect
the consumer? And by that I also mean businesses, because
as you reported, every day people are pulling guidance. They
don't know what's going to happen. So at this point
the economy could go either way. The Fed's stuck in
the middle. And really there isn't much to say about
the FED for right now except that they're watching like
(15:16):
we are.
Speaker 1 (15:16):
Mike.
Speaker 6 (15:16):
You're a student of FED history, and I wonder how
much this has a parallel in recent history at a
time when the FED is just going to say uncertainty
in fifteen different ways and then sometimes the same way
over and over again.
Speaker 10 (15:30):
Well, I think there isn't an exact comparison, but what
you might look at is obviously the pandemic, where nobody
knew what was going to happen, because we hadn't had
this happen before, and so the FED was stuck in
a situation where it knew things were bad, it knew
it had to do something but how long did that
have to go on and how far did they need
to go? That was the question that was never really
(15:52):
decided and we kept talking about for months and months.
But the idea of we've got stagflation out there, but
we don't know if it's going to happen, and if
it does happen, we don't know how bad it's going
to be or when it's going to happen. That I
don't see any precedent for Michael.
Speaker 7 (16:08):
McKee for International Audience briefest right now and you and
I know the shadow FOMC iconic at Carnegie Mellon and
the rest tell us about the Trumpian shadow FOMC right now?
Is there coalescing a beast that's going to send signals,
send messages? Critique Jerown Powell.
Speaker 10 (16:30):
Well, there are a couple of different groups going on.
You could say the Shadow Open Market Committee doesn't really
have a lot of critiques at this point other than
what we were talking about earlier, the Fed's mission creep.
The question I asked him, there are people who are
contenders for the FED chairmanship when the President finally makes
a decision, who could be having things to say. Kevin
(16:52):
Warsh talked last week a week before about that. But
really the opposition or the people who are going to
the questions are in the administration right now. Because the
President wants to influence the FED. He can't really do it,
but he wants to. So there are going to be
other people who are going to pick up on this
stuff and talk about it. Scott Besson's been asked about it.
(17:13):
He was asked about it today. They want the FED
to lower rates, but I think mister Bessett knows even
if mister Trump doesn't, the FED can't move right now
because they don't know what mister Trump's going to do.
Speaker 4 (17:24):
My McKay appreciate the reaction we're here from Mike throughout
today on Blombag TV and on Bloomberg Radio. So we've
had plenty of sympathy for the institution. It ends right now.
Here's the criticism. It goes like this. I've heard it
now from the previous Minneapolis FED president, Saint Louis FED
President rather Jim Ballad. I've heard it directly from muhammadan
Aeron as well, that this FEDER reserve is only really
(17:44):
entertaining one scenario. They hear a lot of people talking
about a wide range of outcomes, but emphasis matters at
a news conference, and the emphasis which Sham and Powell
keeps landing on stackflation without saying stackflation, and Jibilla said
this Muhamma set it as well. What they don't entertain
is the prospect of a good outcome, the prospect that
the Chinese turn around over the next few weeks and say,
you know what will give you what you want. The
(18:05):
Europeans do the same thing, and you end up in
a situation where you have lower teriffs, and maybe you
end up in a situation where you have a reduced
tax rate as well, and perhaps by the end of
this year you're in a better position for both the
risk assets and growth too. And you don't hear any
of that when you listen to Chairman powt and I
didn't hear much of that at all in the last
ninety minutes.
Speaker 6 (18:23):
There is a key question here. Is there a scenario
in which they would have to high rates. Is there
a scenario in which they don't have to move at all,
because this is a soft landing in the same kind
of way that they used to with no tariffs. There
is a positive economic outcome that he kind of alluded
to in passing, but it wasn't necessarily the main story.
Speaker 4 (18:41):
Yeah, kinda but not really very Joining us now to
discuss Jeff Rosenberg of Black Croc geff I make it simple,
is this a moment to own bonds and if so,
wear on the curve.
Speaker 3 (18:53):
It's certainly a moment to be adding diversification to your
portfolio because the whole theme everybody's been talking about, and
Powell answered in multiple ways, is we don't know and
he doesn't know, and it's heightened uncertainty. So you need
more balance in your portfolio. And now the subsequent question
is the bonds give it to you? And there I'd
say you got to be more anchored to the front
(19:14):
end of the curve. The back end has a lot
of uncertainty. You got to look for alternative ways of
finding diversification in your portfolio. And beta exposures are just directional.
Is the market going up? Is it going down? Is
it a good outcome? Is it a bad outcome? Is
as LISTA was just outlining, you know, it's incredibly uncertain
and so it's a time for diversification.
Speaker 6 (19:36):
Jeff, This feels like in high school when someone really
likes someone else, and they keep talking about them at nauseum,
and you feel like there's nothing else to talk about,
and you're kind of sick of the conversation, but you
feel like you have to keep entertaining it. It feels
like everyone's trying to get into the head of one
person again and again and again and is sort of
exhausted by the end of the day.
Speaker 2 (19:54):
How do you rise above.
Speaker 6 (19:55):
That and understand what's actually happening in the economy in
some kind of way, to understand what way things are turning.
Speaker 3 (20:02):
Yeah, it's a good it's a it's a good metaphor,
it's fun metaphor, and uh, and it's and a tough question.
And I think one one way is to really think
about it from a portfolio construction point of view of
what am I exposed.
Speaker 2 (20:15):
To in my portfolio?
Speaker 3 (20:16):
Right, So, if it's about one person and one outcome,
that's kind of the antithesis to what we've all learned
over the years of how to build a good portfolio.
Don't put all your eggs in one basket. In this context,
it is, don't have all of your outcomes determined by
that uncertain and unforecastable outcome. Uh, and so that's really
(20:38):
about diversifying my sources of return. I've talked about it
on this program before. Often all we talk about is
the beta outcome, the directional outcome. And there's another good
news story here for investors, which is all this uncertainty
actually increases opportunities. But if you're investing not in directional space,
but in the cross section, and so you're creating bigger
(20:59):
winners and losers in the micro space, there's greater divergences
and dispersion in the macro space.
Speaker 2 (21:06):
And so if you have strategies that.
Speaker 3 (21:07):
Are more about betting on the differences and not the direction,
you can balance out your exposure to not just one
person that's a really tough outcome, but to hundreds of
different outcomes that's a better chance for success. And that's
a way to pivot away from this kind of unipolar focus.
Speaker 2 (21:27):
On that you know, popular person in high school.
Speaker 8 (21:32):
Is there anything else you'd like to a pod?
Speaker 6 (21:43):
Good idea, just sort of it's just sort of exhausting.
Speaker 2 (21:45):
There's something more to say or talk about. Everyone's exhausting.
Speaker 8 (21:48):
I'll take that from you. There's no question about that.
Speaker 2 (21:50):
Jeff Off.
Speaker 7 (21:51):
Your remit what I'm seeing is a multi standard deviation
move in selected currencies. Where's your unexpected out there across equities, bonds, commodities,
and particularly the depth of the currency markets.
Speaker 3 (22:07):
Yeah, I mean the FX move is really important here, right,
and so like let's just kind of look at what's
happened in markets since April second.
Speaker 2 (22:15):
Is you've had this remarkable rebound in.
Speaker 3 (22:18):
Risky assets, equities, subequity indices, factor exposures, and we've kind
of are above in many of those measures. The April
second tariff Day Liberation Day announcement. The one exception, you know,
all a lot of these boxes are the same. Which
one's different is the dollar and the FX piece of that,
and that's really talking about kind of the global impact
(22:41):
here and that that hasn't been resolved because you know,
are we going to be talking about deficit equalization or
tariff equalization. The latter is a pretty good outcome to
the earlier conversation. You could get lower tariffs, This could
be really positive. But the former, which is what was
the initial thrust of the policy announcement, is deficit equalization.
(23:03):
That's very problematic and it's problematic to the flip side
of deficit equalization is a big collapse in the US
capital account surplus, and that's what you see on the
currency piece.
Speaker 2 (23:13):
That's the big surprise move.
Speaker 3 (23:15):
We got to keep an eye on that, and I
think that's a really key development. You know, especially as
we go through each one of these announcements on bilateral
trade negotiations, you're going to look at the voting evaluation
of those pronouncements in the currency markets.
Speaker 2 (23:33):
I think you'll get a good read.
Speaker 6 (23:34):
This goes to the heart of your whole discussion around
diversification and balance. How much is that diversification and balance
increasingly international as a result of that uncertainty around the
dollar and the space going forward.
Speaker 3 (23:47):
Yeah, I mean that's a huge theme. You see it
in the flows, you see it in the.
Speaker 2 (23:50):
Relative equity returns.
Speaker 3 (23:53):
It's partly what's reflective in the currency that you are
seeing from a global investor perspective, kind of a questioning
of the overweighting that has existed in say equity portfolios
because of the dominance of US capital markets.
Speaker 7 (24:09):
Right.
Speaker 3 (24:09):
You look at GDP VERSUS market cap differentials and you
have a very big gap. The largest gap is in
the US, and so that's one way of sort of
thinking about where would the rebalancing occur, and the trigger
for that is again this assessment. Are we going to
push further on this policy towards deficit equalization?
Speaker 2 (24:29):
Then I think you're going to be looking.
Speaker 3 (24:31):
More at equalization between market cap and say GDP contributions
in the global cross section.
Speaker 7 (24:39):
John and John. The fiscal debate may get overwhelmed by
the actual data of employment and interest rates, back to
the FED and all that, But I would go back
to what you and I first talked about decades ago,
which is Euroswissy and the fact that you have strong
Swiss right now, and as Jeff alluded to, anybody in
equity who's including all our listeners and viewers in the
stock market, don't forget a monitor foreign exchange each and
(25:02):
every day. The Swiss Frank is talking right now.
Speaker 4 (25:05):
And these central banks will have a decision to make
how to respond to some of these shocks, and I
think it's clear the kind of decision they're making so far, Lisa,
We've talked about it, the ECB reducing interest rates, the
Chinese coming out reducing interest rates, the Federal Reserve doesn't
really understand the nature of the shock yet. The rest
of the world has decided it's disinflationary. Maybe they have
the capacity to reduce interest rates in a way that
the Federal Reserve does not. But we've talked about this
(25:27):
a million times trade talks. Things can change from hour
to hour, never mind day to day. It's only a
few hours ago we read a headline from the President
of the United States that said he wasn't willing to
reduce terarists to engage in negotiations with the Chinese. And
then we have reporting moments ago that says the President
is ready to rescind global chip curbs. Now, this is
sort of one versus the other. Every single headline moves
(25:49):
this market one way versus the next. The Federal Reserve
can't behave that way. It can't reduce rates twenty five
minutes ago and then hikem the next That's the problem
they've got at the moment.
Speaker 6 (25:58):
In fairness, a lot of people feel like they can't
live like this right now. A lot of traders out
there are saying, what's the point. I mean, you see
that whip saw in the Nasdaq in particular, this is
something that Nvidia has wanted. There is this tension between
the fast moving headlines of a tweet or a truth
or a statement with the real economy and companies that
have to make longer term decisions. And as an investor,
(26:19):
especially where speed was your friend, how do you deal
with that in a very different.
Speaker 2 (26:24):
Backdrop, Jeffy, you toda this yet?
Speaker 4 (26:26):
How you fading?
Speaker 2 (26:28):
Look, we're feeling great.
Speaker 3 (26:29):
This is creating a lot of opportunities if you know
where to look and rewait your sources of returns away
from the stuff that's impossible to forecast, right and so
like in this last conversation, this is sort of in
our kind of systematic framing. It's like momentum signals versus reversal.
Momentum is a really tough strategy right now. Reversal much better,
(26:50):
exactly the description that you're just talking about. One day,
it's one headline, even within a headline. Within a day,
the headlines are reversing around. So that creates opportunities if
you're way your sources returns to the right environment. And
it's just kind of like recognizing, Look, the easy momentum
macro trade of the post COVID environment is not the
(27:11):
trade right now. It's much more in the cross section,
much more reversal. That's where you can find some opportunities.
And if you're trying to predict, you know what the
next you know trade headline is going to be, that's
going to be a very frustrating place.
Speaker 2 (27:24):
Yeah, good luck to you.
Speaker 4 (27:24):
Never mind within a day, within the hour, Jeff, Thank you, sir,
Jeff Rosenberg of Flackrock. The latest reporting from the team
here at Bloomberg the Trump administration planning to rescind Binden
Era AI chip curbs. According to people familiar with the METSA.
Speaker 6 (27:37):
You look at in video shares, there are more than
two percent on this news, and it makes sense given
how vociferously against this they've been. This goes to the
question of what is the ultimate goal of some of
the tit for tat in the trade war that is
between the China and the US. Is it just completely
coupling when it comes to tech? Is this trying to
tweak the rules confusing
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