July 31, 2024 • 28 mins
Bloomberg's Tom Keene, Lisa Abramowicz and Jonathan Ferro cover the latest remarks from Federal Reserve Chair Jay Powell, following the central bank's latest policy decision.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:11):
This market got the dubvishness it wanted to hear. The
equity market's positive by close to two percent on the
S and P five hundred on the NAS NAK one
hundred up by three point three. We're moving closer to
cunning interest rates. September could well be on the table.
Push that through the bond market. A fifth consecutive day
of gains for the ten year tracery yield to lower.
We're down by four basis points on a ten year.
(00:33):
It's a break of four point one percent. So we've
all got the same question. Just how low is the
bar for a rate cut in September. This is what
the chairman had to say.
Speaker 3 (00:43):
The question will be whether the totality of the data,
the evolving outlook in the balance of risks are consistent
with rising confidence on inflation and maintaining a solid labor market.
If that test is met, a reduction in our policy
rate could be on the table as soon as the
next meeting in September.
Speaker 4 (01:01):
So let's talk about the calendar.
Speaker 2 (01:02):
The next meeting September eighteenth, the data in between August second,
This come in Friday payrolls August fourteenth, CPI report, September sixth,
the jobs report on the eleventh, another CPI report, going
into a Federal Reserve decision week, and most people are
seeming after that, Lisa, we're like this far away from
that interest rate cup, especially at.
Speaker 1 (01:22):
A time where there was a different type of language
in this communication. We are not data dependent. They are
or they are data dependent, They're not data point dependent.
They want to draw distinction that one data point isn't
going to throw them off materially. They repeated the totality
of the data as well as how they just need
to see the same kind of good data that they've
(01:43):
already been seeing.
Speaker 5 (01:44):
Turn continuum to me was critical that Steve Leisman's question
was great about measured alluded to this their slaves to measure. John,
that's other is to it. I just don't know what
else to say. You know, I'll talk to Dudley about
it here. This to have Clarena and Dudley with.
Speaker 2 (01:56):
Us today is fantastic last lights out and I really
for you a global Wall Street.
Speaker 5 (02:01):
What's coming up here with doctor Dudley is required listening.
Speaker 2 (02:04):
There was a fantastic line that came from evercause Krishnakua,
I want to share this quote with you. He thinks
they've laid the foundations for a rake Caunt September. I
think a lot of people observing that news conference would agree.
But this quote's interesting. We think in practice it's not
very data point dependent and view the cautious evolution of
the statement as intended to carry hawks along and avoid descents,
(02:24):
as was indeed the case today. Expect a clearer signal
a month from now at Jackson Hole. I'm thinking about
the minutes as well. I just wonder how well set
the stage is for the doves to dance and sing
very loudly in these minutes that come out in a
number of weeks time.
Speaker 1 (02:40):
I was very happy that the reporter asked him to
elaborate on the fact that at this particular meeting they
did discuss the possibility of cutting reeds, that there were
a few members but not the vast majority. Here is
the question, how loud was that voice and what did
they have to give to those people to get on
board with them in terms of this decision?
Speaker 5 (02:59):
Did you bring the dark to Dudley? Moments ago the
ten yure yield broke down to a four oh eight
ninety two. It's a new low yield. Could you imagine, John,
what our shows are going to be like with a
three ninety nine ten year I can't get.
Speaker 2 (03:11):
There where we're going to be in September. Where's the
unemployment rate going to be in September? That's the big question.
I have gone into the payrolls report this Friday. Bill
Dudley got a shout out in this news conference. Bill
dut Lee joins us now the former New York Fed
president and Bloomberg opinion columnist as well. Bill, I want
to go to your column that you wrote in the
last week or so. It was quoted in this news conference.
(03:31):
I'm sure you heard it. What did you think of
the chairman's response to it?
Speaker 6 (03:36):
I thought it was a fair response. I mean, this
is my opinion and is reaching a slightly different opinion.
I mean, we're at a point where the risks are
pretty closely balanced, and so the question is do you
go a little earlier or do you go a little later?
I think you know the reason why I thought it
makes more sense to go is that if the market's
already pricing in September with a high degree of certainty.
(03:56):
What are you really waiting for at this point? Why
take the additional risk of you know, the community deteriorating further,
so you know, end of the day, it's probably not
going to make a big bit a lot of difference.
But I think you know, given the fact that the
market expects the Fed to cut once that decision is
mostly made, and I think you heard today it was
mostly made, then why are you waiting?
Speaker 5 (04:16):
Bill Dudley, your essay heard around the world, the single
sentence the Fed doesn't want to be fooled again. You've
held court at Princeton, where the late wonderful Daniel Kahneman
held court. Here's common with Taversky. Decision makers know they
are prone to regret, and the anticipation of that painful
emotion plays a part in many decisions. How is regret
(04:38):
aversion playing in to this massive data dependency x post ballet.
Speaker 6 (04:46):
What maybe happening here is the fact that they got
fooled on inflation, you know, earlier this year where the
data came in bad makes them overly cautious that they're
going to make this and that they they can make
the same mistake again by going early. I think it's
you know, kind of has talked about recency bias, you
put too much weight on the most recent experience. So
this may be a case where they're not putting enough
(05:07):
weight on the on the fact that, you know, things
are slowing and the inflation's coming down, and maybe now
it's the time to act. I think it was interesting
you got a question about the sombrule. You know that
the fact when the unemployery climbs above zero point five
percent on a three month moving average basis you always
have recession. He said he's aware of it, but clearly
the FED doesn't put a lot of weight on that risk.
Speaker 1 (05:29):
Do you feel like we're getting closer to the moment
where we will see real dissent on a committee that's
being cobbled together and you can kind of feel the
strains in some of the community case.
Speaker 6 (05:40):
Now, I think what happened, you know today was basically
the Doves got a pretty dubbish statement and a pretty
dubblish press conference, and so you know, they're sort of
set on board, and the Hawks got more patience. And
so when you arrive at the center Tamber meeting, assuming
the outlook doesn't change in the material way and That's
basically what pub was saying. It's not about a single
(06:00):
data point. The outlook has a change in a fundamental
way for the FED not to go to in September.
At that point, you have something to basically you give
to both the doves and the hawks. The doves, you
thank you for being patient. The Hawks, we waited, So
let's go together unanimously at the September meeting. So I think,
you know, I think it's a good, good possibility that
you'll see an unanimous vote at September for a twenty
(06:22):
five base point recud.
Speaker 2 (06:24):
But you brought up the Psalm rule. The chairman also
brought up the yield curve in this news conference as
well and highlights it the false positives we're getting from
traditional indicators. Just to reflect back on that piece that
you wrote for Bloomberg Opinion, can you walk us through
why you do think actually the Psalm rule does matter,
that maybe we should have a little bit more of
a focus on these traditional indicators still and not completely
(06:45):
ignore them.
Speaker 6 (06:47):
Well, if I can start with the yelkur the reason
why I don't think the ill curve is necessarily a
good predictor is the US curves is inverted because people
think monetary policy is tight. So it's not that you'll
cruise shape that causes the economy to week it weaken.
It's the prison sumption that monitary policy is restricted because
of the economy weaken. Most of the time when the
occurs inverted, monitary policy is tight, and so the he
occurs a good predictor The soumrule, I think is a
(07:10):
little bit different and basically saying once the libor market
deterioration goes beyond a certain point, it becomes self reinforcing. Essentially,
why I think happens is business households here about the
liver market weakening, they pull back on their consumer spending.
That causes businesses to pull back in terms of investment
and hiring, and that leads to further weakness and consumption.
And then for the rises in the unemployer rate, it's
(07:31):
a pretty amazing statistical regularity that either rises less than
a half a percent or next stop is a full
blown recession. There's nothing in between. The smallest increase in
the unemployer rate trough to peak is either between zero
point five and one point nine percentage points. There's nothing
in the middle, which I think is pretty interesting statistically,
Now he did recognize that as a statistical just a
(07:54):
statistical result. There's nothing sort of there's no economic law
behind it. But the track record is thirteen and oh.
So you know, think about the odds of flipping a
coin thirteen times and coming up heads there every time
after a Why you're starting to believe that the next
flip is going to generate the same result?
Speaker 5 (08:08):
Bill take us back to first principles. Why can't they
just cut and say one and done and will observe
versus our addiction to measured?
Speaker 6 (08:19):
Well, I think what will happen is once they start
start to cut, they'll probably keep going. You know, once
they start to do the first rate cut, they basically
decide that mantre Paul's that we've accomplished our mission in
terms of inflation and unemployment. Policies restrict us, so we
know now have to go back to neutral. Neutral's not
twenty five bases points away. So if you have a
rate cut in September, it's probably gonna be followed by
(08:41):
raycuts at least one or two more raycuts later this year.
Speaker 1 (08:45):
Well, it seems like this was a setup for Jackson Hall.
We've been talking about that. It seems like there will
be some sort of policy regime shift that we will
observe in August. What do you think it will be.
Speaker 6 (08:59):
I think that Paul really needs to save much more
than what he said today, frankly, and I think the
changes in the statement and the press conference the day
basically tell you that September is going to happen unless
the economic outlook changes materially. Now that's possible, you could
get a whole string of bad inflation numbers, or the
economy could come in hot, but I think, you know,
(09:21):
in the next six weeks or seven weeks, is the
outlook going to change materially? I doubt it. So I
think regardless of what happens in Jackson Hole, I think
the Fed's going to cut in September. I think, you
know this, Paul will sort of check in at the
Jackson Hole and basically, you know, probably confirm that we're
still on track for this this result for Ray cut
(09:42):
in September. But I don't I don't think it's you know,
I don't think he has to use.
Speaker 1 (09:46):
It for that well, although it's not just about September,
it's not just about whether they're going to move again
one more time this year. It's about what the destination is,
it's about the pace, it's about what the goal is.
In terms of just the view of where the economy is, Bill,
do you expect there to be any discussion about the
terminal rate, about what it means to be neutral at
a time or this is a very different economy than
(10:08):
pre pandemic.
Speaker 6 (10:09):
Well, I would assume that once you get inflation, you know,
highly common the inflation is going back to two percent,
and you think the labor markets and balance, then you
presume you want to go back to a neutral manitrate policy.
And the question is what's neutral? And that comes down
to that whole question of what is the level of
our star the neutral federal fund rate. I think that
neutral is clearly lower than where we are today, But
(10:32):
is it one hundred basis points lower or two hundred
basis points lower. That remains to be seen. So the
Feds can be sort of feeling its way now. Obviously,
if we fall into recession, then the whole story changes
because in a recession environment, the Fed doesn't want to
go to a neutral manitrate policy. They want to go
to a stimulative mantarate policy. So if we actually, if
it turns out, with the benefit of hindsight, that the
(10:53):
FED is late and we have a mild recession, then
the Fed's going to cut rates much more dramatically.
Speaker 5 (10:58):
Bill, I've never said this. I've got Dudley, Krugman and
Blinder on the same page. Never did I think i'd
say that the money paragraph from your good friend Alan Blinder,
any such early cut should be accompanied by a warning
not to expect a steady stream of rap cuts. He
alludes to the ECB. Do we need some MECB religion
(11:20):
at the Eccles building?
Speaker 6 (11:23):
Now? I think that the FED will probably cut more
than one, because once you start to cut, you're basically saying,
I think it's time to remove montary restraint. And Monterey
restraint is not going to be removed with just one
twenty five base point raycut.
Speaker 2 (11:36):
Bell great to get your thoughts, appreciate it, go down
be there. The former New York Thanking President Wengan on
this Federal Reserve decision. As you got a lot of
people talking over the last week about the need to
move in July and the mat thing this just passed,
I want to bring you a headline comes from the
New York Times and it reads as follows around Supreme
leader ordering a retaliatory attack on Israel. The New York Times,
(11:57):
citing three Iranian officials, brief on the order. This is
what I can tell you about crude. Crud's been rallying
all day, and the price of crude looks like this
at a moment, Brent crude by four percentage points TK.
You would off to say, overtaken by events. The last
thing that FED needs other next month or so is
an energy price shock.
Speaker 5 (12:15):
I'm so glad you brought this up. Jan We let
off the show this morning with Ethan Bronner, our Tel
Aviv Nears news bureau chief encyclopedic in the region, and
he says the position here now is unprecedented, and he
made clear there's going to be immediate news following both
from the north to Lebanon. In the news that you
just have from Tate Ryan.
Speaker 2 (12:35):
As we get those updates, we'll bring them to you.
I just want to reset if you are joining us.
We've just had a federal reserve decision in the last
couple of hours. Interest rates unchanged, incremental changes to the statement.
There was a sense that in September the Federal Reserve
chair would set us up for a rake cut. In September,
he took a baby step towards doing so, and the
market picked up on things accordingly, big rally across equities
on the NASTAC on the s and P on a rustle,
(12:57):
it looks like this right now. It fades just to touch,
but we're still higher by one point four percent on
the SMP. Bear in mind, the Nasdaq was poised for
the worst month of the year, and at one point
in the last couple of hours was on course for
its best day of twenty twenty four. That fades, We're
back down to about two point seven percent higher on
the session on the Nasdaq. We reference this stat a
little bit earlier on today a few times. We are
(13:18):
now on course for the seventh consecutive Fed decision day
rally on a two year bond at least, so that
yield is lower by six basis points.
Speaker 1 (13:27):
How much is this just that Jerome Powell tends to
skew dubvish And how much is this that the market
still has a probability or a possibility baked into what
the yield is that the Fed could maybe surprised in
a hawkish manner. Either way, this is a market that
likes to hear FED shero Powell to speak, and today
was no different.
Speaker 2 (13:47):
Mike McKee was in the room with a Federal Reserve
chair down in Washington, d C.
Speaker 4 (13:51):
He joined us from the nation's capital.
Speaker 2 (13:52):
Now, might you've just got outside walk us through your
biggest takeaway from that news conference this afternoon.
Speaker 7 (13:58):
Well, I think what you walk away with is what
Bill Dudley was talking about. If the economy doesn't do
something weird, change positions, change directions, then the Fed is
going to be cutting in September.
Speaker 4 (14:09):
But there are a lot of.
Speaker 7 (14:10):
Potential twists and turns between now and then. Friday is
e at risk with the jobs report, and of course
you just mentioned the situation with Iran. I don't think
the Fed was taking those things into consideration today as
reasons not to move today, but they do have to
worry about.
Speaker 4 (14:29):
Them and what might happen.
Speaker 7 (14:31):
So they will at this point be on a cutting
course unless something significantly changes. And I think that was
the message that Paul wanted to deliver, and I think
Bill put it well when he talked about how the
statement was skewed to the doves a little bit, and
the news conference maybe to the hawks, and both sides
(14:52):
get something out of it.
Speaker 5 (14:53):
Mike, you've been doing this for a few years. Back
to mcchestney Martin, we almost printed a four h six
ten year moment. Go Can the bond market tell the
Fed what to do?
Speaker 7 (15:06):
Probably not. And one of the things that you have
to keep in mind is that we have all this
international news going on, and the US bond market is
the haven market. So a certain amount of what's going
on today is probably in reaction to Israel and Iran,
and a certain amount of it is the politics going
(15:26):
on in this country. And then on top of that,
what the FED is considering and what the economic data
are showing. But I suspect today's less about the Fed
and the data than it is about other things. Because
the market had pretty much priced for a September breake cut,
they didn't get any surprises out of the Fed today.
Speaker 1 (15:44):
Mike, you're referring, of course, to the news that John
broke about Uranian Supreme leader ordering an attack on Israel
for the two assassinations that Israel carried out. Right now,
we're seeing crude markedly higher, particularly Brent crud Mike. I
wonder how this relates to Fedchair Powell has been talking
about that this is actually better inflation data today than
(16:05):
it was, say late last year or earlier this year,
simply because it is not being driven by goods, It
is being driven by the employment market, is being driven
by services. How much do you believe based in those comments,
this is a FED that is willing to look through
good side inflation and focus much more on something else.
Speaker 7 (16:24):
Well, I think they are, especially if oil prices go
up only temporarily. The problem is if oil prices go
up for quite some time, then that feeds through into
the real economy, particularly on the services side. See surch
charges by delivery companies. Airline affairs might go up, that
sort of thing. So they're going to have to keep.
Speaker 4 (16:42):
An eye on that.
Speaker 7 (16:43):
But their general instinct would be to look past any
kind of energy price change that comes about that they
think might be temporary. And at this point we have
been waiting for a major shift in energy prices since
October seventh, when the first attack on Israel game.
Speaker 4 (17:01):
So we haven't seen it yet.
Speaker 7 (17:03):
Let's see whether this holds or not, and then the
FED would have to take it into account.
Speaker 4 (17:07):
If it's still going up.
Speaker 2 (17:09):
Five percent rally in crew today might make great work.
As always, sir, appreciate it. We'll catch up with you
a little bit later. This week's not over. Still got
some work to do. The FED decision behind us. Tomorrow
we'll get jobless claims. On Friday, we'll get a payrolls
report and we'll be catching up with Jeff Rosenberg of
black Rock. We can do that now, Jeff at eight
thirty one on Friday, Will this decision today to do nothing?
Speaker 4 (17:30):
Will that look like the right one?
Speaker 8 (17:34):
Well, you know, it might look like the right one.
Speaker 9 (17:36):
But I think the point you're also getting to is
that Friday, and we'll see on Friday as well, is
going to be.
Speaker 8 (17:41):
Much more consequential.
Speaker 9 (17:42):
But I think the important point about how it's going
to be more consequential is what we've heard from everybody
so far. We've heard from the chairman and in the
statement is this is very much setting the table for September,
and the bond market had already priced that outcome. And
so what you look at into and the payroll is
you're setting up the bond market, perhaps broader markets for
(18:04):
a very asymmetric outcome. If the data is much much stronger,
then you're going to have some disappointment. If the data
comes in along lines of what Chairman Powell was talking
about in terms of gradual normalization, or even a little
bit weaker than that, the market will continue to price
(18:25):
in this path of a cut in September, a cut
in December, and even more into twenty twenty five. So
I think Friday, the risk is really on the upside
that you get a surprisingly strong payroll report, and that
has to call into question whether or not policy is
really as tight as it is, and that's really the issue.
(18:47):
Everyone's kind of saying, hey, this is right. The Fed's
got it right. The Fed saying we've got the soft landing.
We want to secure the benefits of soft landing. But
he kept report repeating PDFP at two point six percent.
You look at the GDP number that just came out,
You look at Atlanta Fed GDP now forecast for third quarter.
We are well above in growth terms anything associated with
(19:10):
long term sustainable growth. And so yes, we've seen some
signs of restrictiveness, but how much of that restricted because
that's where the asymmeturity.
Speaker 2 (19:19):
Against the grain totally against the grain. And I think
you know you well, most of the people coming on
this show right now, if they're going against the Federal Reserve,
they're saying it's because they think this FED is too tight,
not restrictive enough. You're making the point, hey, Jeff, that
might be they're not as tight as they think they are.
Now that really goes against the grain, Jeff. Is that
the point you're trying to make?
Speaker 9 (19:39):
That is the point exactly that I just made. No
one's really talking about it because the Fed's not talking
about it, But the data is what your question was
about what happens on Friday and how does that make
this moment?
Speaker 8 (19:51):
Look?
Speaker 9 (19:52):
Well, if the data comes in continually stronger, then we're going.
Speaker 8 (19:57):
To have to start to talk about that.
Speaker 6 (19:58):
Now.
Speaker 9 (19:59):
I'm not saying that that's where we're going. Where we
have been, and what we tend to do is to
extrapolate where we just have been. So we're extrapolating out
the benefits of the gradual slow down in labor markets.
The normalization ecis another great data point.
Speaker 8 (20:15):
There's nothing in the crystal ball that says that that
won't happen.
Speaker 9 (20:18):
But your question was, what if it does then you
start to think about these things. And my point is
everyone is so one sided on this point that the
asymmetry to the market reaction is much greater to the
upside surprise and strength on Friday than it is to
coming in in line or even being weaker.
Speaker 1 (20:37):
So let's put a call around that, Jeff, are you
basically selling to your notes right now, trying to lock
in because you think that this could be the highs
given that they are not recognizing the risk of an
upside surprise to the job's report.
Speaker 9 (20:48):
No, I wouldn't say I'd go that far, But what
I would say is it tempers some of the enthusiasm
for adding to two years at this point when it's
all in the price and even more so, releive to
what the Fed is saying that you're going to get.
So the bar is a little bit higher to what
do I do with this information in my portfolio when
(21:09):
you look at well, you know, the bond market's really
quite a priced a lot of that in so it
makes it a little bit more tricky than just saying, Oh,
the Fed's going to cut rates and I should back
up the truck and buy a whole bunch of duration well,
a lot of that trade has happened in the last month.
So if you're just talking about maintenance cuts and the
degree of maintenance cuts that are required is what you
(21:31):
were talking about with Bill Dudley a minute ago. We
don't really know where that neutral is. So how do
we know where neutral is? You know it when you
see it, meaning you know it when you see it
in the data. So if the economy doesn't slow and
that unemployment rate doesn't continue to rise, and it says
you're not so restrictive as you think you are, and
(21:52):
I think, you know, we just kind of have a
pile up on one side of the debate here when
the data is still saying two point six percent PDFP.
Speaker 8 (22:03):
He said it twice during the press conference.
Speaker 9 (22:07):
He also said the other thing that has been supportive
of restrictedness interest rates, sensitive sectors and the slowdown in
the labor market. But it's a more balanced view around
this debate around how restrictive we are than where the
market is kind of lining up, and that sets up
in asymmetry to the outcome.
Speaker 5 (22:22):
And Jeffrey a great student of history, and if we
have the headlines that John Farrell was talking about, there
of Tehran and Israel, and for that matter, up to
Lebanon as well. How far out the full faith and
credit curve does politics does war do our fears play in?
Is it short term, is it out to the two
(22:43):
year pinch, or is it out even further to the
ten year note.
Speaker 9 (22:49):
So I'm going to frame that in that question or
my answer to that question, in terms of how does
the kind of flight quality response in the bond market
place out in this environment. I've said this on the
show maybe a couple of times. We've written about it,
that flight to quality during the q zero interest rate
policy environment was.
Speaker 8 (23:10):
A curve flattener.
Speaker 9 (23:11):
If you're very close to zero rates in the front
end and you're looking for portfolio protection, you buy it
in the long end. Today we're in a very different environment.
Five and a quarter to five and a half. There's
plenty of room for the front end to go down,
and so it's more of that pre GFC kind of
bond market reaction, where flight to quality is a steepener
(23:32):
and it's in the front end of the curve.
Speaker 8 (23:33):
So I think you see the most powerful reaction.
Speaker 9 (23:36):
It's hard to disentangle the high frequency between the news
that Jonathan Broke and.
Speaker 8 (23:42):
The result of the press conference.
Speaker 9 (23:44):
But you do see a little bit of a steepener
move into the market. Again, hard to disentangle the two,
but I think when you take a step back, flight
to quality now is the steepener trade, and your better
yield response is going to be more in the front
end in this kind of environment.
Speaker 1 (24:00):
What's interesting to me today, Jeff, is what's not rallying
on the heels of some of those headlines, especially in
light of the fed's dubbish tilt. Yes, but they did
not cut rates, is that the dollar is not catch
it a bit. It's weakening pretty dramatically. You're seeing the
Bank of Japan very happy today. They're getting what they
wanted in terms of a little bit more yen strength.
How much is this sort of the new narrative that
(24:21):
in a flight to safety type of moment, if the
FED is going to cut rates and not recognize that
upside risk, you will see persistent dollar weakness heading into
next year.
Speaker 9 (24:32):
It's a tricky one, Lisa, because you know, on the
one hand, you've got kind of interest rate differentials driving
some of those dollar moves. Clearly with the yen a
balanced against the other side of flight to quality, which
is which is the pure risk off trade, is usually
dollar strength. You go for the strongest institutional protection in
(24:56):
terms of wealth, and so I think I think initially
the move is much more about interest rate differentials, and
that's why you're not seeing so much of the move
on the dollar. I think it's too soon to say
whether or not you're going to see a bid to
the dollar from political risk.
Speaker 8 (25:10):
But I think if it was a.
Speaker 9 (25:12):
Larger issue that spreads, you're going to think more Traditionally
that's going to be dollar strength.
Speaker 5 (25:18):
You got to jump down and gold up forty one dollars.
Speaker 2 (25:20):
Got a big running in the bond market too, and
equities as well. Jeff, just find a question before I go.
There's people watching listening to this program right now. They
just want to know, can I buy the S and
P five hundred and take a vacation? Is there anything
to worry about between now and September.
Speaker 8 (25:35):
Well, you know, you never want to say take a vacation.
Speaker 9 (25:38):
You know, buying equities you've got some risk, but you
take the totality of what the chairman went over, and
this is a lot of good news. I mean, this
is a chairman, basically saying without saying it, we've achieved
the soft landing. That's a great outcome for the equity market,
it's a great outcome for the economy.
Speaker 8 (25:58):
It's a great outcome.
Speaker 9 (25:59):
More more broadly, So I think that's the takeaway and
generally that's going to be pretty supportive. I think the
other thing, just to mention, obviously, you know you're not
really buying the S and P five hundred.
Speaker 8 (26:10):
It's not the economy.
Speaker 9 (26:11):
It's a collection of stocks that has a very high
weight to a secular technology theme. And that secular technology
theme is playing out again today following Microsoft's earnings and
you're seeing a bid back to Semis. So you've got
like the micro story there a lot as well as
the policy story, and we've got to keep that in
mind when we're looking at this high frequency data, and
(26:32):
if you're buying the S and P five hundred with
a very high historical share to tech, it's really also
buying into that tech story as much as it is
about the macro economy.
Speaker 4 (26:42):
Just trying to take a vacation.
Speaker 2 (26:43):
Jeff, appreciate it, Jeff Rosenberg, the frank Row Jeff, thank you,
deeply thoughtful stuff go into payrolls on Friday. We should
share with you the numbers that we're looking for on Friday.
Just another peak snap peak of the payrolls survey here
at Bloomberg. The meeting estimate, it's one seventy five on Friday,
the previous number two of six. Unemployment coming into focus
much more for many of you, I know. So here's
(27:04):
the estimate for unemployment four point one percent, in line
with the previous number previous month of four point one percent.
Speaker 4 (27:09):
Lisa.
Speaker 1 (27:10):
And the reason why it matters that unemployment read possibly
more than anything else, is because of a guest to
four point two percent.
Speaker 4 (27:15):
It triggers a S rule.
Speaker 1 (27:16):
Bill Dudley talking about why that's important at that point,
Historically it becomes a self reinforcing mechanism of weakness.
Speaker 5 (27:24):
The difference is you and I are taking vacation like
eighteen hours. Pharaoh's taken eighteen days. That's the difference here.
Speaker 1 (27:30):
Actually, I'm missing Fridays. I'm going to be on vacation.
Thank you you're missing it's on American It had to
do a kid's schedule.
Speaker 4 (27:38):
That's a manager here.
Speaker 2 (27:39):
As a manager, here are I track everyone's vacation. You
absolutely correct, you've both taken much more than I have. Okay,
just for the bar chart of it I do at home.
It's a spreadsheet I let up with the Boomberg terminal
and a monochy vacation at the same time.
Speaker 1 (27:55):
That's productivity.
Speaker 4 (27:56):
Miss this, haven't we appreciate?
Speaker 2 (27:58):
It's going to see its TK Please, thank you, sir, Lisa,
thank you, thank you. You're going to bless us with
some of your criticism of the Federal Reserve tomorrow.
Speaker 4 (28:10):
That's the line of the press conference.
Speaker 8 (28:12):
That really is
Speaker 6 (28:15):
M m hm
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:11):
This market got the dubvishness it wanted to hear. The
equity market's positive by close to two percent on the
S and P five hundred on the NAS NAK one
hundred up by three point three. We're moving closer to
cunning interest rates. September could well be on the table.
Push that through the bond market. A fifth consecutive day
of gains for the ten year tracery yield to lower.
We're down by four basis points on a ten year.
(00:33):
It's a break of four point one percent. So we've
all got the same question. Just how low is the
bar for a rate cut in September. This is what
the chairman had to say.
Speaker 3 (00:43):
The question will be whether the totality of the data,
the evolving outlook in the balance of risks are consistent
with rising confidence on inflation and maintaining a solid labor market.
If that test is met, a reduction in our policy
rate could be on the table as soon as the
next meeting in September.
Speaker 4 (01:01):
So let's talk about the calendar.
Speaker 2 (01:02):
The next meeting September eighteenth, the data in between August second,
This come in Friday payrolls August fourteenth, CPI report, September sixth,
the jobs report on the eleventh, another CPI report, going
into a Federal Reserve decision week, and most people are
seeming after that, Lisa, we're like this far away from
that interest rate cup, especially at.
Speaker 1 (01:22):
A time where there was a different type of language
in this communication. We are not data dependent. They are
or they are data dependent, They're not data point dependent.
They want to draw distinction that one data point isn't
going to throw them off materially. They repeated the totality
of the data as well as how they just need
to see the same kind of good data that they've
(01:43):
already been seeing.
Speaker 5 (01:44):
Turn continuum to me was critical that Steve Leisman's question
was great about measured alluded to this their slaves to measure. John,
that's other is to it. I just don't know what
else to say. You know, I'll talk to Dudley about
it here. This to have Clarena and Dudley with.
Speaker 2 (01:56):
Us today is fantastic last lights out and I really
for you a global Wall Street.
Speaker 5 (02:01):
What's coming up here with doctor Dudley is required listening.
Speaker 2 (02:04):
There was a fantastic line that came from evercause Krishnakua,
I want to share this quote with you. He thinks
they've laid the foundations for a rake Caunt September. I
think a lot of people observing that news conference would agree.
But this quote's interesting. We think in practice it's not
very data point dependent and view the cautious evolution of
the statement as intended to carry hawks along and avoid descents,
(02:24):
as was indeed the case today. Expect a clearer signal
a month from now at Jackson Hole. I'm thinking about
the minutes as well. I just wonder how well set
the stage is for the doves to dance and sing
very loudly in these minutes that come out in a
number of weeks time.
Speaker 1 (02:40):
I was very happy that the reporter asked him to
elaborate on the fact that at this particular meeting they
did discuss the possibility of cutting reeds, that there were
a few members but not the vast majority. Here is
the question, how loud was that voice and what did
they have to give to those people to get on
board with them in terms of this decision?
Speaker 5 (02:59):
Did you bring the dark to Dudley? Moments ago the
ten yure yield broke down to a four oh eight
ninety two. It's a new low yield. Could you imagine, John,
what our shows are going to be like with a
three ninety nine ten year I can't get.
Speaker 2 (03:11):
There where we're going to be in September. Where's the
unemployment rate going to be in September? That's the big question.
I have gone into the payrolls report this Friday. Bill
Dudley got a shout out in this news conference. Bill
dut Lee joins us now the former New York Fed
president and Bloomberg opinion columnist as well. Bill, I want
to go to your column that you wrote in the
last week or so. It was quoted in this news conference.
(03:31):
I'm sure you heard it. What did you think of
the chairman's response to it?
Speaker 6 (03:36):
I thought it was a fair response. I mean, this
is my opinion and is reaching a slightly different opinion.
I mean, we're at a point where the risks are
pretty closely balanced, and so the question is do you
go a little earlier or do you go a little later?
I think you know the reason why I thought it
makes more sense to go is that if the market's
already pricing in September with a high degree of certainty.
(03:56):
What are you really waiting for at this point? Why
take the additional risk of you know, the community deteriorating further,
so you know, end of the day, it's probably not
going to make a big bit a lot of difference.
But I think you know, given the fact that the
market expects the Fed to cut once that decision is
mostly made, and I think you heard today it was
mostly made, then why are you waiting?
Speaker 5 (04:16):
Bill Dudley, your essay heard around the world, the single
sentence the Fed doesn't want to be fooled again. You've
held court at Princeton, where the late wonderful Daniel Kahneman
held court. Here's common with Taversky. Decision makers know they
are prone to regret, and the anticipation of that painful
emotion plays a part in many decisions. How is regret
(04:38):
aversion playing in to this massive data dependency x post ballet.
Speaker 6 (04:46):
What maybe happening here is the fact that they got
fooled on inflation, you know, earlier this year where the
data came in bad makes them overly cautious that they're
going to make this and that they they can make
the same mistake again by going early. I think it's
you know, kind of has talked about recency bias, you
put too much weight on the most recent experience. So
this may be a case where they're not putting enough
(05:07):
weight on the on the fact that, you know, things
are slowing and the inflation's coming down, and maybe now
it's the time to act. I think it was interesting
you got a question about the sombrule. You know that
the fact when the unemployery climbs above zero point five
percent on a three month moving average basis you always
have recession. He said he's aware of it, but clearly
the FED doesn't put a lot of weight on that risk.
Speaker 1 (05:29):
Do you feel like we're getting closer to the moment
where we will see real dissent on a committee that's
being cobbled together and you can kind of feel the
strains in some of the community case.
Speaker 6 (05:40):
Now, I think what happened, you know today was basically
the Doves got a pretty dubbish statement and a pretty
dubblish press conference, and so you know, they're sort of
set on board, and the Hawks got more patience. And
so when you arrive at the center Tamber meeting, assuming
the outlook doesn't change in the material way and That's
basically what pub was saying. It's not about a single
(06:00):
data point. The outlook has a change in a fundamental
way for the FED not to go to in September.
At that point, you have something to basically you give
to both the doves and the hawks. The doves, you
thank you for being patient. The Hawks, we waited, So
let's go together unanimously at the September meeting. So I think,
you know, I think it's a good, good possibility that
you'll see an unanimous vote at September for a twenty
(06:22):
five base point recud.
Speaker 2 (06:24):
But you brought up the Psalm rule. The chairman also
brought up the yield curve in this news conference as
well and highlights it the false positives we're getting from
traditional indicators. Just to reflect back on that piece that
you wrote for Bloomberg Opinion, can you walk us through
why you do think actually the Psalm rule does matter,
that maybe we should have a little bit more of
a focus on these traditional indicators still and not completely
(06:45):
ignore them.
Speaker 6 (06:47):
Well, if I can start with the yelkur the reason
why I don't think the ill curve is necessarily a
good predictor is the US curves is inverted because people
think monetary policy is tight. So it's not that you'll
cruise shape that causes the economy to week it weaken.
It's the prison sumption that monitary policy is restricted because
of the economy weaken. Most of the time when the
occurs inverted, monitary policy is tight, and so the he
occurs a good predictor The soumrule, I think is a
(07:10):
little bit different and basically saying once the libor market
deterioration goes beyond a certain point, it becomes self reinforcing. Essentially,
why I think happens is business households here about the
liver market weakening, they pull back on their consumer spending.
That causes businesses to pull back in terms of investment
and hiring, and that leads to further weakness and consumption.
And then for the rises in the unemployer rate, it's
(07:31):
a pretty amazing statistical regularity that either rises less than
a half a percent or next stop is a full
blown recession. There's nothing in between. The smallest increase in
the unemployer rate trough to peak is either between zero
point five and one point nine percentage points. There's nothing
in the middle, which I think is pretty interesting statistically,
Now he did recognize that as a statistical just a
(07:54):
statistical result. There's nothing sort of there's no economic law
behind it. But the track record is thirteen and oh.
So you know, think about the odds of flipping a
coin thirteen times and coming up heads there every time
after a Why you're starting to believe that the next
flip is going to generate the same result?
Speaker 5 (08:08):
Bill take us back to first principles. Why can't they
just cut and say one and done and will observe
versus our addiction to measured?
Speaker 6 (08:19):
Well, I think what will happen is once they start
start to cut, they'll probably keep going. You know, once
they start to do the first rate cut, they basically
decide that mantre Paul's that we've accomplished our mission in
terms of inflation and unemployment. Policies restrict us, so we
know now have to go back to neutral. Neutral's not
twenty five bases points away. So if you have a
rate cut in September, it's probably gonna be followed by
(08:41):
raycuts at least one or two more raycuts later this year.
Speaker 1 (08:45):
Well, it seems like this was a setup for Jackson Hall.
We've been talking about that. It seems like there will
be some sort of policy regime shift that we will
observe in August. What do you think it will be.
Speaker 6 (08:59):
I think that Paul really needs to save much more
than what he said today, frankly, and I think the
changes in the statement and the press conference the day
basically tell you that September is going to happen unless
the economic outlook changes materially. Now that's possible, you could
get a whole string of bad inflation numbers, or the
economy could come in hot, but I think, you know,
(09:21):
in the next six weeks or seven weeks, is the
outlook going to change materially? I doubt it. So I
think regardless of what happens in Jackson Hole, I think
the Fed's going to cut in September. I think, you
know this, Paul will sort of check in at the
Jackson Hole and basically, you know, probably confirm that we're
still on track for this this result for Ray cut
(09:42):
in September. But I don't I don't think it's you know,
I don't think he has to use.
Speaker 1 (09:46):
It for that well, although it's not just about September,
it's not just about whether they're going to move again
one more time this year. It's about what the destination is,
it's about the pace, it's about what the goal is.
In terms of just the view of where the economy is, Bill,
do you expect there to be any discussion about the
terminal rate, about what it means to be neutral at
a time or this is a very different economy than
(10:08):
pre pandemic.
Speaker 6 (10:09):
Well, I would assume that once you get inflation, you know,
highly common the inflation is going back to two percent,
and you think the labor markets and balance, then you
presume you want to go back to a neutral manitrate policy.
And the question is what's neutral? And that comes down
to that whole question of what is the level of
our star the neutral federal fund rate. I think that
neutral is clearly lower than where we are today, But
(10:32):
is it one hundred basis points lower or two hundred
basis points lower. That remains to be seen. So the
Feds can be sort of feeling its way now. Obviously,
if we fall into recession, then the whole story changes
because in a recession environment, the Fed doesn't want to
go to a neutral manitrate policy. They want to go
to a stimulative mantarate policy. So if we actually, if
it turns out, with the benefit of hindsight, that the
(10:53):
FED is late and we have a mild recession, then
the Fed's going to cut rates much more dramatically.
Speaker 5 (10:58):
Bill, I've never said this. I've got Dudley, Krugman and
Blinder on the same page. Never did I think i'd
say that the money paragraph from your good friend Alan Blinder,
any such early cut should be accompanied by a warning
not to expect a steady stream of rap cuts. He
alludes to the ECB. Do we need some MECB religion
(11:20):
at the Eccles building?
Speaker 6 (11:23):
Now? I think that the FED will probably cut more
than one, because once you start to cut, you're basically saying,
I think it's time to remove montary restraint. And Monterey
restraint is not going to be removed with just one
twenty five base point raycut.
Speaker 2 (11:36):
Bell great to get your thoughts, appreciate it, go down
be there. The former New York Thanking President Wengan on
this Federal Reserve decision. As you got a lot of
people talking over the last week about the need to
move in July and the mat thing this just passed,
I want to bring you a headline comes from the
New York Times and it reads as follows around Supreme
leader ordering a retaliatory attack on Israel. The New York Times,
(11:57):
citing three Iranian officials, brief on the order. This is
what I can tell you about crude. Crud's been rallying
all day, and the price of crude looks like this
at a moment, Brent crude by four percentage points TK.
You would off to say, overtaken by events. The last
thing that FED needs other next month or so is
an energy price shock.
Speaker 5 (12:15):
I'm so glad you brought this up. Jan We let
off the show this morning with Ethan Bronner, our Tel
Aviv Nears news bureau chief encyclopedic in the region, and
he says the position here now is unprecedented, and he
made clear there's going to be immediate news following both
from the north to Lebanon. In the news that you
just have from Tate Ryan.
Speaker 2 (12:35):
As we get those updates, we'll bring them to you.
I just want to reset if you are joining us.
We've just had a federal reserve decision in the last
couple of hours. Interest rates unchanged, incremental changes to the statement.
There was a sense that in September the Federal Reserve
chair would set us up for a rake cut. In September,
he took a baby step towards doing so, and the
market picked up on things accordingly, big rally across equities
on the NASTAC on the s and P on a rustle,
(12:57):
it looks like this right now. It fades just to touch,
but we're still higher by one point four percent on
the SMP. Bear in mind, the Nasdaq was poised for
the worst month of the year, and at one point
in the last couple of hours was on course for
its best day of twenty twenty four. That fades, We're
back down to about two point seven percent higher on
the session on the Nasdaq. We reference this stat a
little bit earlier on today a few times. We are
(13:18):
now on course for the seventh consecutive Fed decision day
rally on a two year bond at least, so that
yield is lower by six basis points.
Speaker 1 (13:27):
How much is this just that Jerome Powell tends to
skew dubvish And how much is this that the market
still has a probability or a possibility baked into what
the yield is that the Fed could maybe surprised in
a hawkish manner. Either way, this is a market that
likes to hear FED shero Powell to speak, and today
was no different.
Speaker 2 (13:47):
Mike McKee was in the room with a Federal Reserve
chair down in Washington, d C.
Speaker 4 (13:51):
He joined us from the nation's capital.
Speaker 2 (13:52):
Now, might you've just got outside walk us through your
biggest takeaway from that news conference this afternoon.
Speaker 7 (13:58):
Well, I think what you walk away with is what
Bill Dudley was talking about. If the economy doesn't do
something weird, change positions, change directions, then the Fed is
going to be cutting in September.
Speaker 4 (14:09):
But there are a lot of.
Speaker 7 (14:10):
Potential twists and turns between now and then. Friday is
e at risk with the jobs report, and of course
you just mentioned the situation with Iran. I don't think
the Fed was taking those things into consideration today as
reasons not to move today, but they do have to
worry about.
Speaker 4 (14:29):
Them and what might happen.
Speaker 7 (14:31):
So they will at this point be on a cutting
course unless something significantly changes. And I think that was
the message that Paul wanted to deliver, and I think
Bill put it well when he talked about how the
statement was skewed to the doves a little bit, and
the news conference maybe to the hawks, and both sides
(14:52):
get something out of it.
Speaker 5 (14:53):
Mike, you've been doing this for a few years. Back
to mcchestney Martin, we almost printed a four h six
ten year moment. Go Can the bond market tell the
Fed what to do?
Speaker 7 (15:06):
Probably not. And one of the things that you have
to keep in mind is that we have all this
international news going on, and the US bond market is
the haven market. So a certain amount of what's going
on today is probably in reaction to Israel and Iran,
and a certain amount of it is the politics going
(15:26):
on in this country. And then on top of that,
what the FED is considering and what the economic data
are showing. But I suspect today's less about the Fed
and the data than it is about other things. Because
the market had pretty much priced for a September breake cut,
they didn't get any surprises out of the Fed today.
Speaker 1 (15:44):
Mike, you're referring, of course, to the news that John
broke about Uranian Supreme leader ordering an attack on Israel
for the two assassinations that Israel carried out. Right now,
we're seeing crude markedly higher, particularly Brent crud Mike. I
wonder how this relates to Fedchair Powell has been talking
about that this is actually better inflation data today than
(16:05):
it was, say late last year or earlier this year,
simply because it is not being driven by goods, It
is being driven by the employment market, is being driven
by services. How much do you believe based in those comments,
this is a FED that is willing to look through
good side inflation and focus much more on something else.
Speaker 7 (16:24):
Well, I think they are, especially if oil prices go
up only temporarily. The problem is if oil prices go
up for quite some time, then that feeds through into
the real economy, particularly on the services side. See surch
charges by delivery companies. Airline affairs might go up, that
sort of thing. So they're going to have to keep.
Speaker 4 (16:42):
An eye on that.
Speaker 7 (16:43):
But their general instinct would be to look past any
kind of energy price change that comes about that they
think might be temporary. And at this point we have
been waiting for a major shift in energy prices since
October seventh, when the first attack on Israel game.
Speaker 4 (17:01):
So we haven't seen it yet.
Speaker 7 (17:03):
Let's see whether this holds or not, and then the
FED would have to take it into account.
Speaker 4 (17:07):
If it's still going up.
Speaker 2 (17:09):
Five percent rally in crew today might make great work.
As always, sir, appreciate it. We'll catch up with you
a little bit later. This week's not over. Still got
some work to do. The FED decision behind us. Tomorrow
we'll get jobless claims. On Friday, we'll get a payrolls
report and we'll be catching up with Jeff Rosenberg of
black Rock. We can do that now, Jeff at eight
thirty one on Friday, Will this decision today to do nothing?
Speaker 4 (17:30):
Will that look like the right one?
Speaker 8 (17:34):
Well, you know, it might look like the right one.
Speaker 9 (17:36):
But I think the point you're also getting to is
that Friday, and we'll see on Friday as well, is
going to be.
Speaker 8 (17:41):
Much more consequential.
Speaker 9 (17:42):
But I think the important point about how it's going
to be more consequential is what we've heard from everybody
so far. We've heard from the chairman and in the
statement is this is very much setting the table for September,
and the bond market had already priced that outcome. And
so what you look at into and the payroll is
you're setting up the bond market, perhaps broader markets for
(18:04):
a very asymmetric outcome. If the data is much much stronger,
then you're going to have some disappointment. If the data
comes in along lines of what Chairman Powell was talking
about in terms of gradual normalization, or even a little
bit weaker than that, the market will continue to price
(18:25):
in this path of a cut in September, a cut
in December, and even more into twenty twenty five. So
I think Friday, the risk is really on the upside
that you get a surprisingly strong payroll report, and that
has to call into question whether or not policy is
really as tight as it is, and that's really the issue.
(18:47):
Everyone's kind of saying, hey, this is right. The Fed's
got it right. The Fed saying we've got the soft landing.
We want to secure the benefits of soft landing. But
he kept report repeating PDFP at two point six percent.
You look at the GDP number that just came out,
You look at Atlanta Fed GDP now forecast for third quarter.
We are well above in growth terms anything associated with
(19:10):
long term sustainable growth. And so yes, we've seen some
signs of restrictiveness, but how much of that restricted because
that's where the asymmeturity.
Speaker 2 (19:19):
Against the grain totally against the grain. And I think
you know you well, most of the people coming on
this show right now, if they're going against the Federal Reserve,
they're saying it's because they think this FED is too tight,
not restrictive enough. You're making the point, hey, Jeff, that
might be they're not as tight as they think they are.
Now that really goes against the grain, Jeff. Is that
the point you're trying to make?
Speaker 9 (19:39):
That is the point exactly that I just made. No
one's really talking about it because the Fed's not talking
about it, But the data is what your question was
about what happens on Friday and how does that make
this moment?
Speaker 8 (19:51):
Look?
Speaker 9 (19:52):
Well, if the data comes in continually stronger, then we're going.
Speaker 8 (19:57):
To have to start to talk about that.
Speaker 6 (19:58):
Now.
Speaker 9 (19:59):
I'm not saying that that's where we're going. Where we
have been, and what we tend to do is to
extrapolate where we just have been. So we're extrapolating out
the benefits of the gradual slow down in labor markets.
The normalization ecis another great data point.
Speaker 8 (20:15):
There's nothing in the crystal ball that says that that
won't happen.
Speaker 9 (20:18):
But your question was, what if it does then you
start to think about these things. And my point is
everyone is so one sided on this point that the
asymmetry to the market reaction is much greater to the
upside surprise and strength on Friday than it is to
coming in in line or even being weaker.
Speaker 1 (20:37):
So let's put a call around that, Jeff, are you
basically selling to your notes right now, trying to lock
in because you think that this could be the highs
given that they are not recognizing the risk of an
upside surprise to the job's report.
Speaker 9 (20:48):
No, I wouldn't say I'd go that far, But what
I would say is it tempers some of the enthusiasm
for adding to two years at this point when it's
all in the price and even more so, releive to
what the Fed is saying that you're going to get.
So the bar is a little bit higher to what
do I do with this information in my portfolio when
(21:09):
you look at well, you know, the bond market's really
quite a priced a lot of that in so it
makes it a little bit more tricky than just saying, Oh,
the Fed's going to cut rates and I should back
up the truck and buy a whole bunch of duration well,
a lot of that trade has happened in the last month.
So if you're just talking about maintenance cuts and the
degree of maintenance cuts that are required is what you
(21:31):
were talking about with Bill Dudley a minute ago. We
don't really know where that neutral is. So how do
we know where neutral is? You know it when you
see it, meaning you know it when you see it
in the data. So if the economy doesn't slow and
that unemployment rate doesn't continue to rise, and it says
you're not so restrictive as you think you are, and
(21:52):
I think, you know, we just kind of have a
pile up on one side of the debate here when
the data is still saying two point six percent PDFP.
Speaker 8 (22:03):
He said it twice during the press conference.
Speaker 9 (22:07):
He also said the other thing that has been supportive
of restrictedness interest rates, sensitive sectors and the slowdown in
the labor market. But it's a more balanced view around
this debate around how restrictive we are than where the
market is kind of lining up, and that sets up
in asymmetry to the outcome.
Speaker 5 (22:22):
And Jeffrey a great student of history, and if we
have the headlines that John Farrell was talking about, there
of Tehran and Israel, and for that matter, up to
Lebanon as well. How far out the full faith and
credit curve does politics does war do our fears play in?
Is it short term, is it out to the two
(22:43):
year pinch, or is it out even further to the
ten year note.
Speaker 9 (22:49):
So I'm going to frame that in that question or
my answer to that question, in terms of how does
the kind of flight quality response in the bond market
place out in this environment. I've said this on the
show maybe a couple of times. We've written about it,
that flight to quality during the q zero interest rate
policy environment was.
Speaker 8 (23:10):
A curve flattener.
Speaker 9 (23:11):
If you're very close to zero rates in the front
end and you're looking for portfolio protection, you buy it
in the long end. Today we're in a very different environment.
Five and a quarter to five and a half. There's
plenty of room for the front end to go down,
and so it's more of that pre GFC kind of
bond market reaction, where flight to quality is a steepener
(23:32):
and it's in the front end of the curve.
Speaker 8 (23:33):
So I think you see the most powerful reaction.
Speaker 9 (23:36):
It's hard to disentangle the high frequency between the news
that Jonathan Broke and.
Speaker 8 (23:42):
The result of the press conference.
Speaker 9 (23:44):
But you do see a little bit of a steepener
move into the market. Again, hard to disentangle the two,
but I think when you take a step back, flight
to quality now is the steepener trade, and your better
yield response is going to be more in the front
end in this kind of environment.
Speaker 1 (24:00):
What's interesting to me today, Jeff, is what's not rallying
on the heels of some of those headlines, especially in
light of the fed's dubbish tilt. Yes, but they did
not cut rates, is that the dollar is not catch
it a bit. It's weakening pretty dramatically. You're seeing the
Bank of Japan very happy today. They're getting what they
wanted in terms of a little bit more yen strength.
How much is this sort of the new narrative that
(24:21):
in a flight to safety type of moment, if the
FED is going to cut rates and not recognize that
upside risk, you will see persistent dollar weakness heading into
next year.
Speaker 9 (24:32):
It's a tricky one, Lisa, because you know, on the
one hand, you've got kind of interest rate differentials driving
some of those dollar moves. Clearly with the yen a
balanced against the other side of flight to quality, which
is which is the pure risk off trade, is usually
dollar strength. You go for the strongest institutional protection in
(24:56):
terms of wealth, and so I think I think initially
the move is much more about interest rate differentials, and
that's why you're not seeing so much of the move
on the dollar. I think it's too soon to say
whether or not you're going to see a bid to
the dollar from political risk.
Speaker 8 (25:10):
But I think if it was a.
Speaker 9 (25:12):
Larger issue that spreads, you're going to think more Traditionally
that's going to be dollar strength.
Speaker 5 (25:18):
You got to jump down and gold up forty one dollars.
Speaker 2 (25:20):
Got a big running in the bond market too, and
equities as well. Jeff, just find a question before I go.
There's people watching listening to this program right now. They
just want to know, can I buy the S and
P five hundred and take a vacation? Is there anything
to worry about between now and September.
Speaker 8 (25:35):
Well, you know, you never want to say take a vacation.
Speaker 9 (25:38):
You know, buying equities you've got some risk, but you
take the totality of what the chairman went over, and
this is a lot of good news. I mean, this
is a chairman, basically saying without saying it, we've achieved
the soft landing. That's a great outcome for the equity market,
it's a great outcome for the economy.
Speaker 8 (25:58):
It's a great outcome.
Speaker 9 (25:59):
More more broadly, So I think that's the takeaway and
generally that's going to be pretty supportive. I think the
other thing, just to mention, obviously, you know you're not
really buying the S and P five hundred.
Speaker 8 (26:10):
It's not the economy.
Speaker 9 (26:11):
It's a collection of stocks that has a very high
weight to a secular technology theme. And that secular technology
theme is playing out again today following Microsoft's earnings and
you're seeing a bid back to Semis. So you've got
like the micro story there a lot as well as
the policy story, and we've got to keep that in
mind when we're looking at this high frequency data, and
(26:32):
if you're buying the S and P five hundred with
a very high historical share to tech, it's really also
buying into that tech story as much as it is
about the macro economy.
Speaker 4 (26:42):
Just trying to take a vacation.
Speaker 2 (26:43):
Jeff, appreciate it, Jeff Rosenberg, the frank Row Jeff, thank you,
deeply thoughtful stuff go into payrolls on Friday. We should
share with you the numbers that we're looking for on Friday.
Just another peak snap peak of the payrolls survey here
at Bloomberg. The meeting estimate, it's one seventy five on Friday,
the previous number two of six. Unemployment coming into focus
much more for many of you, I know. So here's
(27:04):
the estimate for unemployment four point one percent, in line
with the previous number previous month of four point one percent.
Speaker 4 (27:09):
Lisa.
Speaker 1 (27:10):
And the reason why it matters that unemployment read possibly
more than anything else, is because of a guest to
four point two percent.
Speaker 4 (27:15):
It triggers a S rule.
Speaker 1 (27:16):
Bill Dudley talking about why that's important at that point,
Historically it becomes a self reinforcing mechanism of weakness.
Speaker 5 (27:24):
The difference is you and I are taking vacation like
eighteen hours. Pharaoh's taken eighteen days. That's the difference here.
Speaker 1 (27:30):
Actually, I'm missing Fridays. I'm going to be on vacation.
Thank you you're missing it's on American It had to
do a kid's schedule.
Speaker 4 (27:38):
That's a manager here.
Speaker 2 (27:39):
As a manager, here are I track everyone's vacation. You
absolutely correct, you've both taken much more than I have. Okay,
just for the bar chart of it I do at home.
It's a spreadsheet I let up with the Boomberg terminal
and a monochy vacation at the same time.
Speaker 1 (27:55):
That's productivity.
Speaker 4 (27:56):
Miss this, haven't we appreciate?
Speaker 2 (27:58):
It's going to see its TK Please, thank you, sir, Lisa,
thank you, thank you. You're going to bless us with
some of your criticism of the Federal Reserve tomorrow.
Speaker 4 (28:10):
That's the line of the press conference.
Speaker 8 (28:12):
That really is
Speaker 6 (28:15):
M m hm
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