About this transcript: This is a full AI-generated transcript of Fed Cuts Rates by 25 Basis Points — Jay Powell Press Conference from Bloomberg Television, published July 11, 2026. The transcript contains 25,803 words with timestamps and was generated using Whisper AI.
"The economy of support, it's often done in the name of good, have hurt the lower 20%. They're dying younger, their income didn't go up for 20 years. They're the ones who have more crime in neighborhoods, their schools don't work. I think we have to be very clear-headed about how we can accomplish..."
[00:00:00] Speaker 1: The economy of support, it's often done in the name of good, have hurt the lower 20%. They're dying younger, their income didn't go up for 20 years. They're the ones who have more crime in neighborhoods, their schools don't work. I think we have to be very clear-headed about how we can accomplish what we want to accomplish to lift up all of America.
[00:00:17] Speaker 2: Nobody covers business like Bloomberg. Context changes everything.
[00:00:24] Jonathan Farrow: Live from New York City for our audience worldwide, Bloomberg's The Fed Decides starts right now.
[00:00:29] Speaker 2: This is a special edition of Bloomberg Surveillance with Tom Keene, Jonathan Farrow, and Lisa Abramowitz. Bloomberg Surveillance, The Fed Decides.
[00:00:40] Jonathan Farrow: Live on Bloomberg TV and radio, counting down to another Fed rate decision and Chairman Powell news conference alongside TK and Lisa Abramowitz. I'm Jonathan Farrow teeing up one of the most bizarre Fed decisions we have seen in a long, long time.
[00:00:54] Speaker 4: They're ultimately political because the economy is political, but they can't represent the political sphere that has just very much changed the entire dynamic in markets. How do they talk about this without talking about this? How do they remain something that's not even news?
[00:01:07] Speaker 5: What's great about it is we've got exit polls coming out at 205, so we'll have our first look here at a different Fed meeting. It's election central at the Eccles building.
[00:01:17] Jonathan Farrow: I'm pleased you've gone there, TK, because I think that's the most important point. We are operating on two completely different planets right now. This market in the last 24 hours has been pricing in a domestic growth shock, a positive growth shock. This Federal Reserve is working on forecasts from back in September, and we're still trying to work out how big the margins might be down in Washington, D.C. for Republicans, whether we can complete the sweep and how workable those margins will be for years to come.
[00:01:42] Speaker 4: Yeah, that exit poll is 205 years from now, and we actually get the transcripts from the meeting, and we get a sense of just how they're discussing that election and the potential ramifications. The issue is they're not going to talk about it. They're going to say, look, we're going to get incoming data. We're not necessarily going to make rash decisions. However, they have to give scenario analysis, and that's what I'm looking for.
[00:02:00] Speaker 5: A scenario analysis. I'm going to scenario to FOMC on the Bloomberg and look at the meetings in 2025. Where's nominal GDP going to be May 7th, the third meeting of 2000? What's the character of it? Is it an inflation dynamic, or does President-elect Trump get the growth he wants?
[00:02:16] Jonathan Farrow: These meetings might look very, very stale by the time we get to spring next year. We've all got to figure out how many of these campaign promises become reality. Equities right now on the S&P 500 up and away in the last 24 hours, up another 6 tenths of 1%. Remember the 10-year yield? That 10-year yield on September 18th, when the Federal Reserve cut interest rates by 50 basis points, was trading in the 360s. Right now, Lisa, 434.
[00:02:41] Speaker 4: It's been a huge move, and to me, this is the main question that Fed Chair Jay Powell needs to address in the press conference. This is effectively a tightening in financial conditions by the tune of 70 basis points since the last Fed meeting. How do they respond to that? Is that actually causing an expediting of the weakness, or is this indicating that there is new strength in the economy based on what we've seen from the Citigroup U.S. Surprise Economic Index that really has a surge to the highest going back to April? Coming up, what we're looking for, Kathy Jones of Charles Schwab and Aditya Bahave of Bank of America Securities. They will be with us until the Fed rate decision at 2 p.m. Eastern. Then, immediate reaction from PIMCO's Litrich, Clarida, Diane Swank of KPMG, and Deutsche Bank's Matt Lizetti. And finally, breaking down Chair Powell's news conference, where he hopes to say nothing, and we will try to find anything but. BlackRock's Rick Reader and Dom Konstem of Mizuho.
[00:03:30] Jonathan Farrow: Some bond market commentary. Academy's Peter Chair. Buy bonds. Strategas. I'm a buyer of bonds. That's Chris Verone. Here's Macquarie's Terry Wiseman. If there's a surprise coming from Trump in the next few months, it will be about fiscal restraint rather than fiscal irresponsibility. Joining us now is Bob Michael of J.P. Morgan. Bob Michael, have you been buying bonds?
[00:03:50] Bob Michael: We have been. Mostly credit, but we've been in the market buying. We see this as the mirror image of what happened at the last FOMC meeting. The Fed did 50 basis points. The market had already priced it in. There was some consolidation back to around 4%, and then all the polls started to come out and shifted that. This time, we look at buy the rumor, sell the news again, where there's been a backup to 440, and suddenly we have the election results. Everyone's looking around. We're at 440. It will take over a year to pass any fiscal stimulus, and suddenly it looks like the market's going to consolidate back around 4%.
[00:04:28] Speaker 4: So then why wouldn't that be an argument by elongated treasuries as the purest bet on this backup, considering that that has been the biggest move?
[00:04:36] Bob Michael: Because the corporate bond market looks more attractive. You get incremental yield. The thought of recession is now almost completely off the table as a tail risk, because you've got a unified Congress and administration in that will do everything possible to prevent that recession, and moreover, ensure that there's reasonable levels of growth.
[00:04:57] Speaker 5: Michael Ferroli, who works for a small bank on Park Avenue, he stated, okay, we've got this meeting today. We've got the December meeting, and then there's a huge mystery out in 2025. Do you have the same feeling that you really don't know where we're going to be first quarter, even second quarter of 2025?
[00:05:14] Bob Michael: I think the Fed today should be discussing what level do they have to get to that's a reasonable resting spot that takes some pressure off of businesses and households, because it's there. Inflation is close to their target. Consumers are struggling a little bit. You see a little pressure in corporate America. Get to a spot that relieves that, and then pause and wait and see what comes out of the administration. Is that four to six rate cuts? Could be.
[00:05:44] Speaker 5: Is that a John Williams spot, or is it a spot much higher?
[00:05:48] Bob Michael: I think it's somewhere around four to four and a half percent. I think you're going to see a rate cut today, a rate cut before year end, and then two to four rate cuts in the first half of next year.
[00:05:59] Jonathan Farrow: How dependent is that on policy down in Washington? From the other side, from fiscal authorities, how dependent is your rate cut call for 2025?
[00:06:07] Bob Michael: Not very dependent. That's just looking at the economy as it looks today. The momentum in the economy is still a slowdown. We know there's likely to be a tremendous amount of stimulus coming. Is that the end of next year or into the following year? But what do you do in the meantime if you're the Fed? You don't pause here and wait for a year to see what it looks like. If you do that, then the probability of recession before then has to go up.
[00:06:34] Speaker 4: Given the fact that you think that the baseline of the economy hasn't changed dramatically from before November 5th and after November 6th, why do you think that higher long-term Treasury yields doesn't exert more downward pressure on this economy and actually expedite any weakness?
[00:06:53] Bob Michael: You're right. The backup in yields is going to be tough for businesses and households to absorb. We were already looking at new and existing home sales were plunging. This isn't going to help them pick up because home prices for sure aren't coming down now and mortgage rates for sure are going up a little bit. And all the amend and extend and pick in corporate credit, a lot of that tells you there was pressure there. So this doesn't help you. There has been a tightening of financial conditions in some parts of the economy.
[00:07:28] Speaker 4: If this is a Fed truly worried about weakening in the labor market, why not stop rolling off their balance sheet? Why not stopping some of this quantitative tightening that they think doing? I mean, why don't they use their balance sheet even with the accusations that could come with it?
[00:07:45] Bob Michael: Okay. So we are for now gliding into a soft landing. They've done a very good job of getting there. I think the path with 25 basis point rate cuts is enough to help them continue to get there. When I think about the balance sheet, I just wonder, is there going to be any more tapering? Is that the passive-aggressive way to push back against the potential for fiscal policy stimulus?
[00:08:11] Speaker 5: Just let it run off. John Edwards sat on a lawn in Louisiana years ago and invented two Americas. We just had an election that starkly is two Americas. Is Jay Powell going to speak to the elites today, booming in this financial market, or can he address two Americas with policy?
[00:08:31] Bob Michael: I think we're going to see three things from Jay Powell. One of the things we're going to see is he's going to confirm that inflation is on their path to 2%. He'll look at three- and six-month annualized core PC. It's right around 2.3%. We expect that we'll see unanimity from the Fed. I think this is a meeting you said, well, it's a bizarre one. This is where you lock arms and walk out of there. And I see zero acknowledgement of the fact it's been a general election.
[00:09:00] Speaker 5: John, should they have a Catherine Mann? I mean, where is Catherine Mann for the Americas?
[00:09:04] Jonathan Farrow: Oh, if only, TK, if only. I do think we've got our head in the sand a little bit here. But what we could see out of this administration, and I know it's hugely dependent on what happens with the House and how workable the margins are. But let's just work through 2025. We could have no taxes on tips. We could have a corporate tax rate come down to 15% from 21. You're going to have a presidency here that's very, very focused on getting financial conditions and equity markets higher. He's going to want, obviously, a much higher growth rate. And I just wonder, Bob, where are you going with this? Because ultimately, 2025 could look and feel so different. This market is pricing in a positive growth shock in America. You see it in equities. You see it in small caps. And we're sitting here saying the Federal Reserve is going to keep cutting interest rates into that with Chair Powell at the helm, even though he might not be there after 2026. Is that what you think?
[00:09:53] Bob Michael: So I think Tom is right about Ferroli. This is not 2025. Yes, eventually you may see no tax on tips and overtime and some other things. But how do you pull that together and get threat through Congress now? You wait until September. You wait until the Tax Cut and Jobs Act is about to come up for expiration. Then you tinker around with that and put all of that in there. I don't know how you go through a budget reconciliation process. I don't know if I'm going to have to do that in the second quarter with, here are a handful of things we want to do. Get it through. I think that kind of thing, this Senate and this House will push back on because the margins aren't that fast.
[00:10:35] Jonathan Farrow: If I think I'm not getting taxes on my tips in 12 months' time, I'm already spending. That's what I would be doing.
[00:10:42] Speaker 4: That's what people will be doing this holiday season. Which is the reason why you're seeing the reaction that you are in equity markets.
[00:10:47] Jonathan Farrow: Bob, you're going to be sticking with us. Bob Michael and J.P. Morgan. Coming up on the program, Kathy Jones of Charles Schwab alongside Aditya Bhave of Bank of America. That decision, 17 minutes away.
[00:10:56] Speaker 2: From the world of politics to the world of business, Joe Matthew and Kaylee Lyons deliver news, insight, and analysis live two times a day, every trading day.
[00:11:18] Speaker 7: It was important that when we came into office, we looked at the books, we assessed the state of the economy. We needed to understand the damage that's being done, and that £22 billion black hole is a real problem that we've got to deal with. And make sure that we go through all the processes necessary for a properly thought-through budget.
[00:11:46] Speaker 2: Nobody covers the top global leaders like Bloomberg. Context changes everything.
[00:11:54] Speaker 8: From the beating heart of global finance, economics, and politics, and wherever newsmakers are moving markets, Bloomberg brings you conversations that allow for deep discussions and important insights. What do you think the future is for inflation? Is this really normal? Are markets too optimistic? How do you worry about the things that are outside your control? How does the current fighting completely stop? I'm Francine Lacqua, and this is The Pulse, every weekday, only on Bloomberg.
[00:12:23] Speaker 2: It's the world's second-largest economy with a growing influence in global affairs. But geopolitical uncertainties, deflationary pressures, and questions about foreign investment linger. Bloomberg, the China show, brings you the unmatched expertise you need to keep track of breaking news, in-depth market analysis, and the most influential newsmakers in and around China. Bloomberg, the China show, weeknights at 8 p.m. Eastern Time, right here on Bloomberg. Context changes everything.
[00:12:58] Speaker 9: The Fed is going to cut rates. The Fed is going to cut rates. They're going to cut today.
[00:13:01] Speaker 10: A 25 basis point cut. 25. 25 basis points. That's pretty certain at this point. We should expect rate cuts at each of the next two meetings.
[00:13:09] Speaker 11: The Fed is still moving in the direction of easing.
[00:13:12] Speaker 12: There's more of a question around December.
[00:13:14] Speaker 11: December is really difficult.
[00:13:15] Speaker 13: We're still debating kind of when the Fed skips now. The Fed is going to be reacting to what we're seeing in current economic data.
[00:13:22] Speaker 11: The Fed is somewhat on autopilot, assuming the economy doesn't take a really bad turn.
[00:13:27] Speaker 14: Chap Howell will obviously potentially get a question around the implications from the U.S. election. It complicates the Fed's job next year.
[00:13:33] Speaker 15: He's going to sidestep that question, and he's going to wait. It remains to be seen what of the things that Trump has talked about he will be implementing.
[00:13:41] Jonathan Farrow: He needs to see what actually emerges in terms of policies. This is a difficult one for the next several meetings for this Federal Reserve. This is the countdown to the Fed Decides on Bloomberg TV and radio. Check out the equity market. All-time highs on the S&P 500 and the Nasdaq. We add some weight to that on the Nasdaq 100, up another 1.25%. This bond market is a very, very different bond market to the one we saw back on September 18th, when the Federal Reserve last met. The two-year and 10-year were trading in the 360s. Right now, the 10-year, just off the day when it was trading in the 440s, Lisa, and just finished short of 450.
[00:14:14] Speaker 4: There has been a massive repricing in the Treasury market. The why behind it is debatable. Some people say it's just that economic data has been coming in better than expected. Other people saying that it's the expectation of Donald Trump possibly coming in with a whole red sweep. And guess what? That's what happened, and we are looking at a market that is still trying to grapple with what the consequences are.
[00:14:32] Jonathan Farrow: Joining us around the table is Kathy Jones of Charles Schwab. Kathy, good afternoon. Hi. Are you buying bonds or selling them here?
[00:14:39] Speaker 16: Well, we're staying pat. So we had been in advising, you know, just hug your benchmark, stay up in credit quality. We like credit. And then when rates go up, extend duration, take advantage of those opportunities. So now we're benchmark or below, we're not going to be aggressive in buying bonds even when yields go up, because we want to get that extra risk premium in case we do get a really expansive fiscal policy that drives up inflation and nominal GDP.
[00:15:10] Speaker 4: To Bob's point that he was making earlier, what gives you confidence that this truly is, or gives you the fear that this truly is a seismic change that's lasting, given that we probably won't see that stimulus until maybe mid-year next year?
[00:15:25] Speaker 16: Yeah, and I think it is down the road, but, you know, markets have to discount this ahead of time. So we've already seen the term premium move up. We've seen five-year, five-year move up. We've seen markets trying to discount this. And I think there will be a lot of volatility trying to figure out how much is it, how many basis points is all this worth, right? And we're not going to know for a while. But we want to be cautious about it. Also, keep in mind that core PCE has been coming down nicely, but it's kind of been stuck here for a while. So as the Fed does lower rates, you get a little bit more compression, a little less space there to play with. And we think that that could mean they get a bit more cautious going forward.
[00:16:06] Speaker 5: The Bloomberg Total Corporate Index, price-based, has had a phenomenal year. I think it's way underreported. Stocks have done great. Gold's done great. But far more of the bond markets recovered from negative six standard deviations, almost halfway back to negative 3.x standard deviations. Does it continue with the Trump administration? Does it continue with the Fed that will still cut rates?
[00:16:29] Speaker 16: Yeah, I think we'll get positive returns, maybe not at the rate that we've had over the past 12 months or so, because we've had a pretty good market. But again, the coupon helps you, right? You have a much bigger coupon now. So even with rates standing still or even moving up a little, positive returns are pretty likely. So we feel good about it, but we just don't want to get out in duration right now because we just don't know what to expect down the road.
[00:16:57] Jonathan Farrow: Kathy, do you think this week has the potential to redefine the outlook? Do you believe it might have the potential to?
[00:17:02] Speaker 16: Well, I think it already is. I think that we've already seen the market trying to price in what it means to have a clean sweep and policies that will shift to being stimulative at a time when we already have high deficits. We're already not at our inflation target yet and a lot of unexpected events. So the range of outcomes is really wide. We're not ruling out lower inflation and lower yields, but the bias now we're tilting to, okay, instead of coming down to three, three and a half on the terminal rate, we're probably in the three and a half to four on the terminal rate.
[00:17:38] Jonathan Farrow: Which is why we've all got a lot of sympathy with the Federal Reserve today, because they can't set policy for what may or may not happen down in Washington, D.C. We don't know if we get the sweep. We don't know how big the sweep will be. We don't know how workable those margins will be. We don't know who the future Republican, Kyrsten Sinema and Manchin will be down in Washington, D.C. for the next several years. And yet, Bob, I wonder whether this chairman has to entertain just a little bit of scenario analysis today, just as a risk manager to say, if X happens, then we might have to consider doing something different. Do they have to entertain that at today's meeting?
[00:18:10] Bob Michael: No, that's ridiculous. If I think about this Fed and what we're talking about, we can't just sit there and say, hey, whatever you decide today or in September, you have to live with it for five years. I don't even know when this started, maybe 10, 15 years ago. They very well could cut rates two, four, six more times and wait at that point somewhere around four, four and a half percent when things are stable for businesses and households and see what policy is like. And if there's a torrent of fiscal policy stimulus, this time next year, they could, you know what, they could hike rates. They could go back up to five or so. They used to do that at the Fed. They used to look at what was happening today, what was coming down the road and move rates around. I don't know why we've gotten away from that.
[00:19:02] Speaker 4: At the same time, you could argue that if they try to offset any potential policy down the road, then what is potentially their role as bond purchasers or sellers, right? I mean, ultimately, they do have a big role in setting prices, both on the short end and the long end. I mean, Kathy, what do you think of that, the fact that the Fed shouldn't respond or Fed share Jay Powell shouldn't respond to scenario analysis at a time where people want to understand, would they help monetize this debt? Would they try to offset it? How are they planning to deal with some kind of deluge in the Treasury issuance?
[00:19:38] Speaker 16: Yeah, I think, I mean, I agree with Bob. They can do whatever they want to do and make up their minds along the way. But I do, I'm pretty sure there's some scenario analysis going on at the Fed right now.
[00:19:47] Jonathan Farrow: So it's not ridiculous. That's important.
[00:19:49] Speaker 16: I don't think it's ridiculous.
[00:19:51] Jonathan Farrow: Good.
[00:19:51] Speaker 16: Will he talk about it? Probably not at the press conference. But I do think, just as in 2016, I believe there was some scenario analysis that went on at the Fed because of the fiscal stimulus that was talked about. And I think that they're probably looking into that right now. I mean, that's what a responsible central bank would do. Not that they have to react to it or not that they have to lay it out for us.
[00:20:14] Jonathan Farrow: I imagine he won't talk about it in the news conference, even if they are actually doing that. But we'll see. Let's bring in Aditya Bhave of Bank of America for more on this. Aditya, your thoughts on the events of the week so far, what it might mean for policy in the future, and how you think they're going to navigate these issues in the months to come?
[00:20:29] Speaker 17: Right. So from the Fed's perspective, this is an easy meeting, right? You cut by 25. You don't really talk about politics. You just say, look, we're not going to prejudge the policies of the incoming administration. And you maintain basically the same message, right? The economy is on solid footing. You can cite the GDP, GDI revisions as evidence for that view. You say that the risks to the dual mandate are balanced now because inflation is moving back to target. And then you just move on. It's going forward. It's all data dependent anyway. There's not even probably going to be strong forward guidance for December. So, you know, forget about 2025 in terms of forward guidance.
[00:21:07] Speaker 4: Aditya, do you think that this time is going to be different where Fed chair Jay Powell isn't going to outdove everybody and their mother and the idea of how he comes out and really characterizes conditions in the U.S.?
[00:21:18] Speaker 17: I mean, it depends on what your definition of dovish is, right? So if you go in with the expectation that he's going to say something about pushing back against fiscal policy, then you're probably not going to get that. So he's going to sound dovish, right? There's a really interesting excerpt from the December 2016 transcript where Yellen is addressing the SAP forecast that she's looking at. And she says, look, I'm not going to go out there with the message that we're offsetting fiscal policy, right? We want to be very clear about that, even if your dots show more hikes than before. So I think while there's a lot of things different about where we stand now, inflation's higher deficits are larger, the Fed's cutting, not hiking, It gives you a sense of where the Fed sees itself in the broader institutional framework and there's this very strong inclination that we want to stay in our lane.
[00:22:09] Speaker 5: Aditya, have you changed your view on the animal spirit of the nation with the Trump victory? Have you adjusted nominal GDP out 12 months?
[00:22:20] Speaker 17: I don't think you need to worry about our view. You can look at what happened in markets, right? So we get a very clean read from yesterday's market moves. You can see the big rally in equities, which probably reflects expectations of fiscal stimulus and also expectations of deregulation. If you look at which sectors did the best, you can look at the sell-off in the bond market as well as its nuances and learn two things. One, there was a huge increase in breakevens at the front end, which suggests that markets are expecting tariffs, right? And two, real yields and nominal yields increased much more at the back end, which suggests that we're thinking about structurally higher policy rates and also higher nominal rates at the long end, suggesting that deficits are going to be a problem going forward. So that's the verdict that the markets have delivered.
[00:23:06] Speaker 4: Bob, I'd love your thought on that. Basically, this is what the market is saying, that they're expecting stimulus. It's a forward-looking indicator and that basically the Fed cannot respond to it, but they have to consider that.
[00:23:17] Bob Michael: Yeah, I'll just go back to that's down the road. That could actually be 12 to 18 months away. So there could be a lot of discussion. What do you do in the meantime? Do you just leave rates where they are? Do you know that they're highly restrictive and continue to grind businesses and households? Or do you try to find a reasonable landing spot? Call it either side of 4.5% and just rest there and then pause and wait and see what happens. I think they're looking for that landing spot. We think it's 4% to 4.5%.
[00:23:49] Jonathan Farrow: Aditya, now you've got to run. It's great to catch up with you, sir. Aditya Barber there of Bank of America with about four minutes to go until that Federal Reserve decision. As Aditya said, this decision is an easy one. You believe the next one's an easy one, too. When do they start to get a little bit more complicated for this Federal Reserve?
[00:24:04] Bob Michael: Well, when the data starts to change for them. And the data will come in two areas. It will be inflation and the labor market. That's one area. And then it will be discussion of policies in Washington.
[00:24:19] Jonathan Farrow: Well, let's do some scenario analysis with you. Donald Trump comes in, end of January, says that's it, 10%, 20% blanket tariff. They're going to wait for the data.
[00:24:29] Bob Michael: Will you wait for the data? If I were on the Fed, I would argue cut rates because that's going to be a tax and a headwind to the consumer. And what you're going to see in inflation is an artificial ingredient.
[00:24:43] Speaker 4: Cathy, do you agree that basically people are overestimating the inflationary impact of tariffs and some of these other potential policies?
[00:24:50] Speaker 16: No, you know, I think it's obviously tariffs have that mixed impact of being a price shock on the one hand and negative for growth on the other hand. But I think this particular Fed has to be very conscious of lagging inflation as they did in the past. And I think they may be hyper aware of the message that they send. And so my bias would be to say that they go very cautiously from here simply because the last thing they want to do is get accused of being behind the eight ball on inflation.
[00:25:30] Speaker 5: Let's bring a couple of things together here, Bob. The president's going to have a dessert with Jerome Powell at the White House, two scoops of ice cream, no question about it. And he's going to go, let's do two things at once. We've got to cut rates because I need a weaker dollar. The DXY 104, 105, the first thing out of his mouth is going to be, I need a weaker dollar because those foreigners are getting me. How do you get to a weaker dollar?
[00:25:53] Bob Michael: Yeah, that's going to be a tough one because in theory, the Fed cutting rates takes the pressure off the dollar. Right. But when you know there's a huge stimulus plan coming and, you know, somewhere down the road of some magnitude, you're not really going to take the steam out of the dollar and you throw tariffs on top of it. The dollar's exceptionalism continues. I don't know how you get it down.
[00:26:17] Jonathan Farrow: Do you think U.S. exceptionalism continues when you consider the global backdrop right now, the difficulties in Europe, in China compared to, say, the United States? Do you think that continues?
[00:26:26] Bob Michael: Well, I feel right now when we talk to official institutions, there's a search on for what's the alternate reserve currency to the dollar. And there doesn't seem to be one out there right now.
[00:26:41] Jonathan Farrow: With the exception of maybe gold, which is what we've seen so far this year, right? Yes. Massive run. Massive run.
[00:26:46] Speaker 4: Come on.
[00:26:47] Jonathan Farrow: Record high on election night.
[00:26:48] Speaker 4: That was the big winner, right? So maybe that's the new reserve currency. That's what we're going to be, right? That's what we saw.
[00:26:53] Jonathan Farrow: Yeah, apparently. Apparently. Kathy, it's good to see you. As always, Kathy Jones there of Charles Schwab. But Michael's going to stick with us through the decision. Just to set up the scores for you with about 90 seconds to go, and we'll start with equities after a historic run in this equity market. All-time highs on the S&P 500 this week. Record highs on the NASDAQ 100 this week. Moves we haven't seen on the Russell in several years. A move of almost 6% following the election in the United States of America. In the bond market, I think we should stress once again, Lisa, this is a very different bond market to the one on September 18th when the Federal Reserve reduced interest rates by 50 basis points. The two-year had a three-handle. The 10-year was trading in the 360s. We are 70 basis points higher since then.
[00:27:33] Speaker 4: And it came before the election, and that's what people are pointing to, the fact that we are seeing just an incredible upside surprise to a whole host of economic features here. I do wonder, though, how they frame that, that increase that you've seen in the long end at a time where they are talking about balanced risk and ongoing weakening in the labor market. Is that true?
[00:27:53] Jonathan Farrow: The data surprise to the upside.
[00:27:55] Speaker 4: Yes.
[00:27:55] Jonathan Farrow: It's not just the politics.
[00:27:56] Speaker 4: Correct.
[00:27:57] Jonathan Farrow: The 50 basis point cuts some people believe encouraged the move in long-end rates as well. Do they understand their responsibility in some of the moves we've seen?
[00:28:04] Speaker 4: Which is the reason why some people think that you are going to get another dissent from this rate decision. Potentially, it could be, again, 8 to 1.
[00:28:12] Jonathan Farrow: Ten seconds to go. Apparently, this is an easy decision for the Federal Reserve. And the Federal Reserve decision we're looking for is an interest rate cut on the FOMC of about 25 basis points. With that decision, it's Mike McKee.
[00:28:24] Speaker 18: You got it, John. A quarter point cut in the Fed's benchmark interest rate. A few changes to the statement, and that's about it from the Fed. The target range now 4.5 to 4.75 percent. There is no change to balance sheet policy. The decision this time, unanimous, as September dissenter Mickey Bowman voted for this rate cut. Inflation, the statement says, has made progress, dropping the word further, toward the 2 percent target, but remains somewhat elevated. No longer included, the assertion that the committee has gained greater confidence that inflation is moving sustainably toward 2 percent. The economic assessment suggests a slightly weaker labor market, noting that since earlier this year, labor market conditions have generally eased and the unemployment rate has moved up, but remains low. Still, the statement repeats September's view that risks to achieving its employment and inflation goals are roughly in balance. The rate cut today is in support of its goals instead of September's in light of the progress on inflation and the balance of risks. Policymakers note again they will consider additional adjustments to their benchmark rate, but offer no further guidance beyond that. There is no mention of politics in the statement. That will be up to Chairman Powell in about a half hour.
[00:29:48] Jonathan Farrow: And Mike McKee, it'll be up to you, sir, to ask the questions. How many questions do you expect are going to be leading with the events of this week and not this decision? How much of this is going to be about the politics at 2.30, Mike?
[00:29:59] Speaker 18: I would imagine quite a bit would be, and maybe we want to check the Las Vegas over-underline for that. But he's not going to say anything. He's not going to respond. So the question is, how many different ways can we ask and how many different ways will he parry the question?
[00:30:13] Jonathan Farrow: 60 minutes of that. Looking forward to it. Michael McKee, you've got to run. I know that news conference begins in about 28 minutes' time. So no big changes to the statement. 25 basis point rate cut as expected. And when you see something like that, you're not looking for a big change in the market either. We stay higher on the S&P 500 by about 0.6% of 1%. Yields are still a little bit lower. On a 10-year, we're still down by 8 basis points, 435. And in foreign exchange, the euro gives up a little bit of the move, but still positive on the session. Lisa, 107.84 on euro dollar.
[00:30:41] Speaker 4: I think it's interesting that the Federal Reserve removed a reference to gaining confidence in inflation and saying that labor market conditions have generally eased. Honestly, to me, you're looking at this and on the margins, just setting the stage to potentially be a little less dovish. And that is the tone that I really am curious to hear in the press conference.
[00:31:01] Jonathan Farrow: With us around the table, Bob Michael of J.P. Morgan and a man who's seen it all before, the former Fed Vice Chair, Rich Clarida. Rich, I want to start with you. And not on the 25 basis point rate cut, you lift the tariffs of Trump in volume one on the Federal Reserve. How did you handle it then? How much scenario analysis did you do ahead of time? How do you think this chairman is going to handle it in the months to come?
[00:31:23] Speaker 19: Well, the staff did good work, and some of that's in the public domain now. It comes out every five years. The reality is, during my time at the Fed, inflation was running a little bit below target. The tariffs that were put in place made the headlines, but they didn't really push up inflation very much. You know, the devil will be in the details, I think, both on trade policy and fiscal policy. And I don't think they need to make any big decisions at this meeting or the next meeting about how they'll strategize for 2025.
[00:31:51] Speaker 5: Vice Chairman, I want to go to the politics of the moment. We're not going to get an answer from Jerome Powell, so we're going to get it from you right now. Harry Truman, 1950, before William McChesney Martin saved the day. I quote, President Truman, I hope the board will not allow the bottom to drop out from under securities. If that happens, that is exactly what Mr. Stalin wants. We've had this pressure before, and you and your brethren are going to get the pressure this time from President-elect Trump. How does the Fed deal with it?
[00:32:24] Speaker 19: I think they deal with it, Tom, the way that they did the last time. It's just stick your, you know, keep your focus on the goals of policy, price stability, maximum employment, and do what you think can best achieve those goals. You know, as you point out, opinions on the Fed, including from presidents, are not unheard of, and so we could see more of that. But I think the Powell Fed will just keep doing what they're doing.
[00:32:47] Speaker 4: How much is the market, though, speaking louder than any policy that's going to come down the pike? The fact that we've seen this massive rally in stocks and a sell-off from bonds that hasn't really hit risk assets. How much does that have to really cause the Fed to pause and even reconsider whether to cut rates again in December?
[00:33:03] Speaker 19: Good point. You know, I do think financial conditions are obviously an input to policy, but I would hope the Fed does not convey the impression that they're too sensitive to financial conditions because they can rise and fall for a number of reasons. And my own sense of what we're seeing this week is some of it is not so much more stimulus down the road as more certainty that the existing 2017 tax bill is going to be extended, right? So it's the absence of a tax hike as opposed to necessarily a tax cut. And I do think the deregulation piece of this is also important. So we've certainly seen a level set. I wouldn't necessarily extrapolate this from here. We'll just have to see how this plays out.
[00:33:41] Speaker 4: Either way, what we've heard is just the deficit is likely to expand. It's been one of the main stories and consistency throughout all of the analysis. Does the Fed deal with that at all by signaling what they plan to do with their balance sheet? There's some speculation that, you know, they could potentially monetize the debt to keep even keel economic conditions.
[00:34:02] Speaker 19: Well, certainly there would be that pressure, but I have high confidence that they would resist that. Look, the Fed is judged primarily on whether or not it achieves the inflation target. And when inflation is getting to 2%, that's really the focus. I think monetizing the debt is something that I've done on a sustained basis is inconsistent with the inflation target. You do raise another point, though, which is a good one, Lisa, which is the fact that they are doing QT right now. You know, during my time there, the Fed stopped QT about the time that it cut rates in 2019. So the Powell Fed's continuing to shrink the balance sheet. They've given some indication about when they'll stop, but that, I think, will be a decision they'll need to make next year. And that could be in the context of pretty depressing budget numbers.
[00:34:47] Speaker 5: Bob, Michael, all of this seems very predictable. You get this from a former Fed official, Columbia professor, as well. What is the surprise you're worried about in the Q1, Q2?
[00:34:59] Bob Michael: Well, I guess my question for Rich is, what are they modeling? Are they modeling all the probabilities that fiscal stimulus could look like? Are they modeling the extension of the tax cuts? Are they just modeling the existing economy?
[00:35:15] Speaker 19: Well, I guess the short answer is, I don't know. We'll find out in five years. My sense, though, is certainly if I were there, what I would be focused on is a scenario where you may get a tariff. And then the question is, is that inflationary or is it a price level effect? Or in the wonky notion of central bankers, are there second round effects? Chris Waller, who I have enormous regard for, worked with Chris, gave a speech several months ago in which, or a Q&A, maybe on Bloomberg, in which he said, look, a tariff is a one-time increase in the price level. It's not necessarily inflationary. So I think if I were there, I'd be wanting to see, will that play out in various scenarios? But beyond that, the details will matter.
[00:35:54] Speaker 5: Well, my chart of the day is Jim Bianco had a fabulous chart showing the inflation, Bob Michael, coming out of 2021-22. And, yeah, it's noodling along right now. The economists, like Claire, are looking at the noodling along right now. And the public that just voted for Donald Trump is looking at the jump condition in inflation on a level change. Where are we going to be in 2025? Are we going to be looking at level change in the memory of it? Or are we going to be noodling along feeling happy?
[00:36:20] Bob Michael: Well, we're not going to feel happy because there's no deflation. We're not going to feel happy because by the end of 2025, there will be tariffs, and some of that will be passed along to the consumer. We're not going to be happy because I don't think there will be additional tax cuts, maybe on tips and overtime and corporate tax cuts in 2025. I think that's a 2026 issue. So we're not going to be real happy with further improvement in inflation. To me, I took the same thing Lisa took away. They dropped gaining confidence in inflation out of the statement. To me, that was an acknowledgment of a change in potential fiscal policy.
[00:37:02] Speaker 4: Do you think that that means potentially they won't cut even in December?
[00:37:06] Bob Michael: No. How do you get from here to there? It could be a number of quarters. You've got to preserve the economy in some sort of steady state. We're too high right now.
[00:37:18] Speaker 19: If I could jump off preserve, I think Jay Powell will want to preserve optionality for 2025. A lot can happen. It'll be more tricky in December because there's the dots. And so whatever the dots show, there will be questions about how confident the Fed is on that path. And I would suspect today he will begin to lay out a path to give themselves a lot of optionality in December as well.
[00:37:38] Jonathan Farrow: Rich, this is important. You think they begin to communicate or at least open the door to have the option to pause in December. And that starts today? I do. It may be subtle, but I do. Help me understand what that sounds like at 2.30. What does he say? What kind of language should we look for?
[00:37:54] Speaker 19: Well, since there is no SEP today, I would imagine, well, again, hypotheticals will know. Hypothetical would be a question about next year. And the chair will say something along the lines of it's too soon to make a judgment. And we'll be looking at the incoming assessment. And he'll remind folks that the rate path in the SEP is conditional on inflation continuing to come down. If there is a risk that it doesn't, that would factor into the rate path. So it's more not so much about getting into scenario details as it is, look, the rate path depends on continued progress on inflation or disinflation.
[00:38:23] Jonathan Farrow: If you are just joining us, welcome to the program, a 25 basis point reduction of the Federal Reserve, a news conference with Chairman Powell in about 20 minutes time. Joining us now is Diane Swank of KPMG. Diane, a 25 basis point reduction and welcome to the program at a time where the data is still holding up. Jobless claims are still quite low. Do they have the luxury of waiting, of setting up a pause in December?
[00:38:45] Speaker 20: Why do you think they're going to be as exactly as everyone has said, that they want optionality? I think they're still going to cut again in December. That said, the Fed wants to start talking about calibrating rate cuts to the economy, and they're not going to be wanting to pull rate cuts, do as many rate cuts sequentially, I think, in 2025. And optionality, as Rich said, is going to be number one issue because they don't know exactly what the policy will be, when policy will change, how it will affect the economy. And that is going to matter, exactly as Rick stated, that the certainty on the dot plot in December is going to be really uncertainty. And I think one of the greatest challenges that the Fed now faces is communication. This is not a period where you can give a lot of forward guidance because of the uncertainty on the course of policy going forward.
[00:39:38] Speaker 5: Dan Swank, I was thunderstruck by the shift across the blue wall towards Mr. Trump. We all saw it, frankly, we saw it out in Long Island here in New York as well. There seem to be a haves and a have-nots here within this election. How does Mr. Powell address both groups into 2025? How does he aggregate and make a constructive policy for the people flat on their back that voted for Donald Trump?
[00:40:05] Speaker 20: Well, at the end of the day, and Rich has made this point, and I agree with him, at the end of the day, the Fed's job is price stability. There is deflation in some goods prices, so some goods prices are coming down. They're still elevated from where they were. I do worry about shelter costs and whether or not those can really come down, like many would like, and that is a problem. And also insurance costs. Those are more structural in nature. But at the end of the day, it's the Fed's job, one way or the other, to get enough prices to fall to get to that price stability, but to get inflation to no longer be number one issue. I think that's going to be more challenging as we get into 2026. I agree wholeheartedly that the bulk of the policy shifts that we see, especially in terms of fiscal policy, are not likely to hit until 2026. And I don't expect a lot more than the extension of the tax cuts that we had with maybe some additional corporate tax cuts. But we will see. And I think it will take some time. I don't think it's all going to be done in the first hundred days. The tariffs, as Rich said, are issues that can be a level change. But if you combine them with curbs on immigration at this time and actually have any kind of deportations along with that, that tends to both stem growth and stoke inflation in this environment. We are not where we were pre-pandemic, and certainly tariffs in sequential order, along with retaliatory tariffs, that kind of a situation will be much harder for the Federal Reserve to deal with. And the pressure on the Fed is going to intensify if that occurs.
[00:41:46] Speaker 4: There's a lot of nodding around the table. I find it fascinating how little we understand inflation and exactly what's going to cause a real surge in it. And I do have to wonder, and Bob, I'll throw this to you because I know you think that the Fed should keep cutting and that there is weakness to be addressing. I am struck by the fact that there hasn't been a more marked slowdown in any of the economic data with high yields, with rates at the long end, as high as they've gotten. Doesn't that tell us something about how restrictive or not that restrictive policy actually is at this level?
[00:42:18] Bob Michael: Well, I think it's unfair to say there are no signs of a slowdown. As I said, you look at new and existing home sales. Those are purely dependent on the level of rates currently because we know home prices aren't going to come back, and they're quite high. And so new and existing home sales are down. They're going to decline further with this pop-up in rates. And as I said, in corporate America, you look at the amount of amended and extended and picked, there is a lot of corporate America that's struggling with the higher cost of funding, and a lot of that is floating rate. So for me, if you're at the Fed, you've got to step back and say, okay, we're also looking at performance of credit cards and auto loans and other things. We do continue to need to take some of the pressure off to ensure we have a soft landing. I'm not talking about going to 0, 2, or 3%. I'm just saying where we are currently, around 5%, is still a little bit too high.
[00:43:18] Speaker 5: I'm going to be the rude one today. The former vice chairman of the Federal Reserve System. This is Kyle LaTosche over at CNN. Michael McKee passes this on to us. McKee insists that I'm as rude as I can be to Richard Clarida. There's speculation here after the Powell term. Your name is not mentioned. That's, I guess, the good news. There's Kevin Hassett and Kevin Warsh as well. Those are two very different people. What kind of person do we need to run the Fed into the Trump administration? Do we need a monetary expert like you on DSGE, or can we use someone like Warsh who's more a part of the regulatory and Wall Street system?
[00:43:54] Speaker 19: Well, I would also throw on Chris Waller's name as well, certainly beyond my list.
[00:44:00] Speaker 5: Let's throw on Richard Clarida's name as well, while we're here making some news.
[00:44:03] Speaker 19: Look, I think that there is no one cookie cutter job description. I think that Jay Powell's been an incredibly successful Fed chair, Ben Bernanke, Janet Yellen. So you can certainly come from a background. What I would say about it is that in the world today, it's not just hiking and lowering rates. There's the communication piece we talked about. There is the supervision and regulatory piece that is not just only about banks. It's about how the economy functions. And so it requires a special skill set and a special person. But all the names you made, I think, mentioned would be good choices.
[00:44:38] Jonathan Farrow: I just wanted to cross over to Dan Swank just to fit in a final question before you run away, Dan. We always ask you this question. If you had a question for the chairman today in the news conference, Dan, what would it be?
[00:44:48] Speaker 20: It would be how much discussion was there about the labor market and the recent inflation numbers? I mean, that is where the tire meets the road in terms of where the next rate cut is going to be. And how much are they secure in the labor market weakness that we saw being transitory with regard to hurricanes and strikes? We know that part is transitory, but there is some signs that the labor market is slowing. And how concerned are they on that? The other issue I think is really important, one that we talk about all the time, that word that's out there, non-linearity. What the Fed always worries about, and this gets to the issue of, you know, when do rates have a bigger impact on the economy, is the non-linear effects, I think, in both delinquencies, but also particularly in the business sector, where we do see some floating rates out there. There is some stress now starting to show in the business sector, and I think that's a very important issue.
[00:45:47] Jonathan Farrow: Diane, you're one of the best. It's always great to get some time with you. Diane Swank there of KPMG, if you are just joining us, about 12, 13 minutes away from a news conference with Chairman Powell. Equities at the moment still near session highs, at all-time highs on the S&P 500. We're at 1.4% on the Nasdaq. That itself is a record as well, following a 25 basis point reduction at the Federal Reserve. Equities stay elevated. Not much price action off the back of this decision this afternoon, though. Joining us now is Matt Lozetti over at Deutsche Bank. Matt, I want your thoughts on the outlook. And Matt, welcome to the program. Have you made any changes since the election this week? And if so, how many?
[00:46:21] Speaker 21: Yeah, thanks for having me. So we haven't really made any official changes to the outlook at this point. I think, you know, we need to gain clarity on a number of things. You know, how we're thinking about tax policy, the sequencing of that between trade and tariffs will be really important. But we did publish a note just given kind of a guidepost of where we think the economy may be moving and where the Fed outlook may be moving for next year. And in particular, you know, we do think that we could upgrade our growth forecast for next year, probably into the 2.5% range, give or take or so. A labor market that is probably going to look a little bit tighter on the back of tax cuts that we're likely to see, easier financial conditions that we're likely to have. But also a Fed that is likely cutting rates less next year than we previously thought. And so, you know, we are kind of outlined a scenario in which the Fed stops cutting rates above 4% next year.
[00:47:09] Speaker 4: Yeah, this is one comment from the recent note that you put out, that if it truly is a red sweep, then the likelihood is the Fed funds rate remains above 4% by the end of next year with growth and inflation revised upward. Matt, what would you have to see to make that your base case?
[00:47:26] Speaker 21: Look, I think, you know, we're close to that. I think it's just getting clarity on how we think the policy outlook is likely to evolve. You know, I think we know a few things since the September meeting. One, labor market data, I think, on balance have come in better and have diminished some of the downside risks that we've been worried about. Two, inflation data have come in hotter than anticipated. And so I think if the Fed were to have revised their forecast today, it's inflation higher, a labor market that is tighter. Three, financial conditions have eased considerably since the September meeting. And so I think as you look at all of that and just ignore the election for the time being, you've actually had an evolution in the data and financial conditions, which would be hawkish for the Fed. Now, we overlay on top of that, you know, fiscal stimulus that may come via tax cuts, trade policy that could lift inflation next year. And I think undeniably, together, these are just hawkish developments for the Fed.
[00:48:15] Speaker 5: Matt Wazzotti, George Saravella's talked to him the other day. He's a little occupied with the collapse of the German government. But what does Deutsche Bank feel about the ability to steer to a weaker dollar, something President Trump would like?
[00:48:29] Speaker 21: Yeah, you know, I'm not sure that that's actually something that's going to be a key policy objective of the Trump administration. I think some of their tone has changed on that. I think that they have emphasized that the reserve currency is a really important part, that they're making the U.S. economy a place for investment is a really important part from a policy perspective. Now, certainly, you know, a weaker dollar could help on some of the trade objectives, but I don't anticipate kind of talking down the dollar is going to be a big part of the next administration.
[00:48:55] Jonathan Farrow: Matt, we've been told so many times by so many people that the decision today was an easy one and that maybe December will be an easy one. When do these decisions start to get hard?
[00:49:06] Speaker 21: So today was easy. I'm not sure December is going to be as easy. You know, if the incoming data continue to point to a labor market that looks resilient and downside risks have diminished, and if we get inflation data that continue to come in a little bit hotter, along with financial conditions that are easy, you know, we are beginning to approach a range of kind of reasonable estimates of neutral from our perspective. You know, we think neutral from a nominal rate perspective could be anywhere probably between three and a half and four percent. So after this cut, you know, perhaps the December one can come and they can still feel comfortable with that. But I really do think that the December meeting is the first one where we probably have a little bit more contentiousness around it because they're approaching neutral, the data look fine, and you do have risk to the outlook, where just from a risk management perspective, it could make some sense to slow the pace of cuts.
[00:49:51] Speaker 4: Rich, do you agree with that, especially with the fact that they have to come out with a statement of economic projections, how that makes them, forces them to really write down, codify this idea of a neutral rate north of four percent?
[00:50:02] Speaker 19: Yeah, I guess, I think that scenario is certainly a plausible one. The nuance I would offer is I could see a scenario where they get the funds rate down to around four and stay there, not because neutral is four, but just inflation stuck at two and a half. I don't see the Powell Fed breaking a lot of China to get inflation down from two and a half to two with rate hikes, but they may just pause at a funds rate in the low fours because inflation stuck at two and a half. So that's another way that delivers Matt's scenario.
[00:50:29] Speaker 4: Matt, what do you think of the idea of tariffs being inflationary versus not, right? I mean, what are you sort of looking at as the most inflationary aspects of policy that would be maybe a warning sign for the Federal Reserve?
[00:50:42] Speaker 21: Yeah, I think the complications for the Fed next year could be that we have demand-side policy in terms of tax cuts happening with an economy that is already strong, being coupled with supply-side policy via tariffs that would lift inflation. And both of those things being kind of giving an inflationary outcome where it makes it difficult to disentangle what's happening from a demand-side versus a supply-side story. You know, certainly if the Fed was able to identify, they could potentially look through the tariff effects on inflation. But I think that they were probably just less prone to do so for a few reasons. One, inflation is already above their target and is continuing to do so. Two, you know, inflation expectations could be at risk of moving higher. And I think that this is primarily or even more so an issue if those tariffs are phased in over time. It makes it more difficult and complicated, I think, to identify the price level shock and makes you a little bit more worried about it factoring into inflation expectations.
[00:51:35] Speaker 5: So, Bob Michael, if I want to affect the Luzetti-Claire to move here in bonds, price up, yield down, how far out on duration do I want to be into 2025? Do I want to extend duration?
[00:51:47] Bob Michael: Yeah, I think you do here. I think there are a lot of things to do. That's the kind of interest we're seeing from clients. The municipal bond market is a large part of that. A lot of clients who own municipal bonds have ladders. Stuff is rolling off. Roll it out to 10 years. There's a lot going on in credit. Get out there and invest. You have to recognize there's been a pretty significant backup in yield. We don't know what fiscal policy will look like. And it sure looks like we're not going to see a lot before a year or so.
[00:52:17] Jonathan Farrow: You know, there's some people, Bob, worried about a buyer strike emerging in the bond market. And I just wonder, with yields at these levels, do we just keep sucking capital away from the rest of the world here in the United States? Because if I'm thinking about the policy coming down the pike, from my perspective and many others as well, if you're investing in America, there's going to be policies to reward it. If you're exporting it, that's a very, very different scenario of trying to export into America. But do we just keep sucking capital away from the rest of the world?
[00:52:41] Bob Michael: Well, yesterday was the perfect evidence of that. There was every reason to hide from the bond market. You had a 30-year auction, and it went flawlessly. You see the same thing, Rich?
[00:52:53] Speaker 19: I do. And in particular, look, we focus on the U.S., but it's a global bond market. And Treasury yields, four and a half. We saw a year ago, almost exactly a year ago, Treasury yields got to five. And there was a voracious appetite to lock in those yields. And so I do think there's a range within which the growth and the Fed and the fiscal pit plays in. But beyond a certain point, it becomes very attractive to international investors.
[00:53:15] Jonathan Farrow: And so we retain the privilege of acting recklessly, as some people might say. Absolutely.
[00:53:19] Speaker 4: Kicking that can down the road. Yeah, although I do wonder what the consequence is of kicking the can down the road and then Germany saying, hey, they're doing it, so we'll do it too. You know, this sounds like a good plan. France, hey, what about us? And all of a sudden you get yields rising higher. And how much does the bond market suck in the capital away from other risk assets? That's the question. No, I'm serious. That's one of my main questions.
[00:53:41] Jonathan Farrow: Some of these European bond markets have learned they're not American. And that has been a painful lesson.
[00:53:45] Speaker ?: Some.
[00:53:46] Speaker 4: Which one in particular?
[00:53:46] Jonathan Farrow: We've seen that in the U.K. We had a little sprinkle of that in France. We saw that in the periphery a decade ago.
[00:53:52] Speaker 19: Well, I'm just saying the challenge for many European countries is the countries they'd like to invest on don't have a lot of debt outstanding, like Germany and Switzerland. And the countries that want to borrow have to pay a big premium.
[00:54:03] Jonathan Farrow: So, yeah. I want to cross back over to Matt Lozetti. Matt, just before you run, what's the best way of getting the chairman to answer a question about the election without answering a question about the election? Because that's all every journalist on the planet right now is thinking. And every single journalist in that news conference will be trying to do.
[00:54:18] Speaker 21: Yeah, I think it's a really difficult one. I think at the moment, you know, Chair Powell has really no incentive to answer any question about what fiscal policy is going to look like. There's so much uncertainty. You know, I think he's going to emphasize data dependence. I guess if you could do it through a few avenues, it would be, one, you know, how would they think about risks to the outlook as they look ahead, you know, in terms of the policy outlook? That has to factor into how they're thinking about things. Two, I think it was interesting at the September meeting, he noted that the neutral rate has risen, quote unquote, significantly relative to the pre-COVID levels. And I would, you know, just kind of think, you know, if we're getting additional fiscal stimulus on that, how would he view the outlook for the neutral rate as evolving in that type of environment? But to be honest, I think it's difficult to get kind of a solid answer for him about what the election could mean for the outlook at this meeting.
[00:55:03] Jonathan Farrow: Matt, appreciate your time, sir. Matt Lazelli of Deutsche Bank. About three minutes to go until this news conference starts. Rich, you're perfectly placed to answer that question. What would you lean into in this news conference? If you were on the other side asking the questions, what would you lean on?
[00:55:17] Speaker 19: I think I'd ask the chair about financial conditions broadly versus the real funds rate, because it does seem over the last year, the committee at some points emphasizes tighter financial conditions. We saw that explicitly in the statement in both November and December of last year. More recently, they've emphasized, well, look, the funds rate's well above the rate of inflation, but at the same time, financial conditions have been getting easier. And it's not necessarily if you have to pick one or the other, but get a sense of how he and the committee are thinking about that right now in a global market and in the U.S. market in which it's definitely risked on in the last several days and really for some time now.
[00:55:56] Speaker 5: I've asked this before, but I think it's so important. Where's the animal spirit into 2025? President Trump's going to go, go, go, go, go. He's going to do that before January, whatever, the inauguration. How goosed is the economy going to be under Trump?
[00:56:13] Speaker 19: Well, I think there is that element at minimum because we did resolve some uncertainty, I think, about the extension of the existing. I would again remind you, if we extend the existing tax cuts, it's very expensive in terms of the way it's scored by the CBO, but it doesn't change anybody's tax rates relative to what they're paying now. I think the regulation, in particular certain sectors, energy and perhaps financial services, is sort of a one-time reassessment. I don't think you can keep that going. I think we are seeing a more or less rational, at least directionality-wise reaction to markets. And to point on the dollar, strong dollar. I know some would like it weaker, but this is the dollar. Here's the sum. Yeah.
[00:56:53] Speaker 4: So, Bob, final question. We're about a minute, 90 seconds away from this press conference. How would you get him to answer something about his new balance of risks?
[00:57:03] Bob Michael: You know, I'd ask the question we had gone back and forth on. Ask him, what is your staff modeling now? Because there's the current and expected set of data, and there's the majority probability that there's enormous fiscal stimulus coming down the pike a year from now. What do you model?
[00:57:22] Jonathan Farrow: This has been a fantastic conversation, gents. Bob Michael and the former Fed Vice Chair, Richard Clarida, to the two of you, just absolutely brilliant. Just some takeaways from the last 30 minutes, if you're just joining us. Richard Clarida talking about maybe finding some space to generate some optionality going into 2025, and I think it's a consensus around this table as well, that the decision gets harder once you get to December, and that this one was an easy one, and maybe December is a tricky one.
[00:57:46] Speaker 4: My big takeaway is that the Fed removed the reference in their statement to gaining confidence on inflation at the same time that our panelists, our esteemed panelists, are talking about opening the door in December to either not cutting rates or potentially going forward and maybe not cutting next year.
[00:58:01] Jonathan Farrow: Are you ready for a 45-minute clinic on how to not answer questions?
[00:58:05] Speaker 4: Are you ready for this? I actually am so excited. Is this a certified snoozefest? No, absolutely not. Attention's going to be pretty wild.
[00:58:12] Jonathan Farrow: I think it's going to be one of those news conferences, and Mr. Clarida knows this well, where you have a sheet of paper in front of you, you've got your notes written down, and every time you get that question, 20 different versions of it, that sheet of paper comes up, and you read it verbatim and hope they get bored of asking.
[00:58:26] Speaker 4: My favorite is when they have multiple sheets, when J-PAL has multiple sheets and someone asks a question, you see him going through the papers. Wait, where is it? Okay, there's the answer.
[00:58:35] Speaker 5: Have you ever written one of those questions, answer sheets for the chairman?
[00:58:39] Jonathan Farrow: I participated in discussions of press conference briefings, yes. 25 basis point reduction over the Federal Reserve.
[00:58:46] Speaker 22: Here's the chairman, J-PAL. My colleagues and I remain squarely focused on achieving our dual-mandate goals of maximum employment and stable prices for the benefit of the American people. The economy is strong overall and has made significant progress toward our goals over the past two years. The labor market has cooled from its formerly overheated state and remains solid. Inflation has eased substantially from a peak of 7 percent to 2.1 percent as of September. We are committed to maintaining our economy's strength by supporting maximum employment and returning inflation to our 2 percent goal. Today, the FOMC decided to take another step in reducing the degree of policy restraint by lowering our policy interest rate by a quarter percentage point. We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained. We continue to reduce our securities holdings, with inflation moving sustainably down to 2 percent. We also decided to continue to reduce our securities holdings. I'll have more to say about monetary policy after briefly reviewing economic developments. Recent indicators suggest that economic activity has continued to expand at a solid pace. In the future, GDP rose at an annual rate of 2.8 percent in the third quarter, about the same pace as in the second quarter. Growth of consumer spending has remained resilient, and investment in equipment and intangibles has strengthened. In contrast, activity in the housing sector has been weak. Overall, improving supply conditions have supported the strong performance of the U.S. economy over the past year. In the labor market, conditions remain solid. Payroll job gains have slowed from earlier in the year, averaging 104,000 per month over the past three months. This figure would have been somewhat higher were it not for the effects of labor strikes and hurricanes on employment in October. Regarding the hurricanes, let me extend our sympathies to all the families, businesses, and communities who have been harmed by these devastating storms. The unemployment rate is notably higher than it was a year ago, but it has edged down over the past three months and remains low at 4.1 percent in October. Nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed. Overall, a broad set of indicators suggest that conditions in the labor market are now less tight than just before the pandemic in 2019. The labor market is not a source of significant inflationary pressures. Inflation has eased significantly over the past two years. Total PCE prices rose 2.1 percent over the 12 months ending in September, excluding the volatile food and energy categories. Core PCE prices rose 2.7 percent. Overall, inflation has moved much closer to our 2 percent longer-run goal, but core inflation remains somewhat elevated. Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we're attentive to the risks to both sides of our mandate. At today's meeting, the Committee decided to lower the target range for the federal funds rate by a quarter percentage point to four-and-a-half percent to four-and-three-quarters percent. This further recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we move toward a more neutral stance over time. We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. We are not on any pre-set course. We will continue to make our decisions meeting by meeting. As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals. If the economy remains strong and inflation is not sustainably moving toward 2 percent, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can move more quickly. Policy is well-positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate. The Fed has been assigned two goals for monetary policy: maximum employment and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored. our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We, at the Fed, will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to our discussion.
[01:04:47] Speaker 23: Thank you. Given the expectation that the election outcome will produce policies that would meaningfully impact the U.S. economy next year, how is the Committee taking these proposals into account for upcoming decisions, including potentially the next one in December? And can you give us any more sense of how proactive or reactive the Fed is prepared to be to changes in economic policies with the next administration?
[01:05:07] Speaker 22: Sure. So let me say that in the near term, the election will have no effects on our policy decisions. As you know, many, many things affect the economy, and anyone who writes down forecasts in their job will tell you that the economy is quite difficult to forecast, looking out past the very near term. Here, we don't know what the timing and substance of any policy changes will be. We, therefore, don't know what the effects on the economy would be, specifically whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability. We don't-we don't guess, we don't speculate, and we don't assume. Now, just in principle, it's possible that any administration's policies or-or policies put in place by Congress could have economic effects that over time-over time that would matter for our pursuit of our dual-mandate goals. So we-along with countless other factors, forecasts of those economic effects would be included in our models of the economy, and would be taken into account through that channel.
[01:06:13] Speaker 20: Nick.
[01:06:19] Speaker 24: Chair Powell, Nick Timrose from the Wall Street Journal. Roughly one year ago, when the 10-year Treasury was flirting with 5 percent and 30-year mortgage rates were near 8 percent, you noted how higher borrowing costs, if they were sustained, could weigh on economic activity. Given that you've said you believe policy is restrictive and the Fed is now dialing back that restriction, are the growth risks presented by higher U.S. Treasury yields today any different from those you identified one year ago when inflation was still meaningfully above your target?
[01:06:51] Speaker 22: So, I would just say this. You know, we've watched the-the run-up in bond rates, and it's-it's nowhere near where it was, of course, a year ago. I guess the-you know, the long-run rates are-are well below that level. So we're watching that. Things have been moving around. And we'll see where they settle. I think it's-it's too early to really say where they settle. Ultimately, I'm sure we've all read these decompositions of-of what, you know-and I certainly have, but it's not really our job to provide our specific decomposition. I will say, though, that it appears that the moves are not-not principally about higher inflation expectations, they're really about a sense of more likelihood of stronger growth and perhaps less in the way of downside risks. So that's what they're about. You know, we do take financial conditions into account if they-if they're persistent and if they're material, then we'll certainly take them into account in our policy. But I would say we're not at-we're not at that stage right now. It's just something that we're-we're watching. And again, these things don't really have mainly to do with-with Fed policy but to do with other factors in the economy.
[01:07:58] Speaker 24: If I could follow up, is the September SEP-are those rate projections still valid? Do they still seem relevant given where we are now?
[01:08:07] Speaker 22: You know, it's-you get halfway through the cycle between the-the last set and the next set. I would-I-I wouldn't want to comment one way or the other. You know, people are-you-w-let's talk about the data we've gotten since the last meeting. So, in the main, the-the economic activity data have been stronger than expected. The NIPA revision was stronger. Certainly, the-the September employment report was stronger. The October report, not stronger. Retail sales, stronger. So, overall, though, I think you take away a sense of-of some of the downside risks to economic activity having-having-having been diminished with the NIPA revisions in particular. And so, overall, feeling-feeling good about economic activity. So, I think we would factor that in. At the same time, we got one inflation report, which was-it wasn't terrible, but it was-it was a little higher than expected. So, I think, really, the question is-is December-and, you know, by December, we'll have-we'll have more data-I guess one more employment report, two more inflation reports, and lots of other data, we'll make a decision as we get to December. Gina Smilick from the New York Times. Thanks for
[01:09:23] Speaker 25: taking our questions, Chair Powell. When it comes to December, what will you be looking at specifically as you try to make that decision? And then, as of the Fed's economic projections in September, you-you had written down four quarter point interest rate cuts in 2025. Do you still think that those are likely? Is that sort of the baseline outlook at this point, or has that shifted? And if it shifted at all, can you-can you give a little bit of detail as to why? You know, I can't-we don't fill out a-we
[01:09:49] Speaker 22: don't fill out an SEP, and I can't-I can't characterize one that-that wasn't filled out today. So, I can't really speak for kind of exactly where the-where the committee is. Um, I-I will just say for December, we're going to be-again-at every meeting, we're going to be looking at the incoming data and how that affects the outlook. As you know, we're in the process of recalibrating from a fairly restrictive level at 5.33 percent. After today's move, we're down 75 basis points. And we're-we're asking ourselves, is that where we need to be? You know that we're-we're trying to steer between the risk of moving too quickly and perhaps, um, undermining our progress on inflation or moving too slowly and allowing the labor market to weaken too much. We're trying to-to-to be on a middle path where we can maintain the strength in the labor market while also enabling further progress on inflation. We think that's where we are, but that's the question we're going to be asking in September and-and in other meetings. And again, I-I can't really update you on the committee's thinking because we don't fill out an
[01:10:49] Speaker 25: SEP at this meeting. Yeah, totally appreciate that. I guess when it comes to your own thinking, do you think that that-a full percentage point of rate cuts in 2025 is a reasonable outlook?
[01:11:00] Speaker 22: Again, I'm going to wait-we're going to wait and see how things, uh, come in in December. I mean, I-I-I-I-I-I-it's just, uh, I would put it this way. We're-we're-we're on a path to a more nor-neutral, uh, stance. And-and that's very much what we're on. That has not changed at all since September. Uh, and, um, you know, we're just going to have to see where the-where the data lead us. We have, you know, a whole six weeks of data to look at, to make that decision in December. Obviously, I'm not ruling it out or in, but-but, you know, I would say, um, uh, you know, I-I would say that, uh, uh, uh, you know, again, we didn't update the-the SEP, so I'm not going to characterize, you know, where the committee would be.
[01:11:41] Speaker 26: Howard. Uh, thanks. Howard Schneider with Reuters. I wondered if you could please, uh, elaborate, explain a little bit the, uh, two changes in the language of the statement here. Um, in the first paragraph, when you say inflation has made progress, dropping the word "further progress," uh, and in the second paragraph, uh, dropping the sentence that the committee had gained greater confidence that inflation was progressing, uh, towards its two percent goal. Is there any policy substance behind either of those, uh, changes in language? Is it-is it meant to open the door to a December pause? Is it meant to communicate anything about the stickiness of core inflation in the last three months?
[01:12:19] Speaker 22: Howard. Not really, no. So, let me tell you what we were thinking. So, the test of, um, gaining, uh, further confidence was a-was-was our test, uh, for the first rate cut, right? And so, we-we-we net that test in September, and therefore, we take that test out. If you leave it in, then it's new forward guidance. It's brand new forward guidance. What do you mean by it? Are you-are you making-are you requiring yet further-we have to say yes or no at every meeting whether we've made further progress? The point is we have gained confidence that-that we're on a sustainable path down to two percent. So, that-that I would tell you is-is what that's really all about. Uh, it's not meant to send a signal. Neither of those is meant to send a further signal. And, you know, saying further progress, it becomes a test. We're-we don't want to be-we don't think it's a good time to be doing a lot of-of-of forward guidance. You know, we're-there's a fair amount of uncertainty in that-in what I've said. Uh, the path that we're on, we do know what-where the destination is, but we don't know the right pace, and we don't know exactly where the destination is. So, the-the-the-the-the-the-the-the-the point is to find that-to find the right pace and the right destination as we go. And I think there's a fair amount of uncertainty about that. And I-you know, you don't want to tie yourself up with-uh, uh, with guidance. You want to be able to make sensible decisions as you go.
[01:13:45] Speaker 4: Okay. Steve.
[01:13:49] Speaker 27: Steve Leisman, CNBC. Mr. Chairman, you talked about, um, higher rates, perhaps from an expectation of higher growth. You didn't talk about it in terms of expectations of higher deficits. Is that something you think might be behind the recent rise in interest rates? And is that-are rising deficits a concern to you?
[01:14:05] Speaker 22: So, we don't comment on fiscal policy. And again, I'm-I don't have a lot more to say on-on what's driving bond yields. Um, in terms of, um, of-of policy changes, though, let me give you a sense of how this-this works in the ordinary case. Let's say Congress is, uh, considering a-a rewrite of the tax laws. It doesn't matter what's in the content-the content. So, we would follow that. At a certain point, we'd-we'd think we see the outline. So, we'd start to model it. And then we'd wait, and we'd wait. And at a certain point, the staff would brief the FOMC and say, you know, this is-these are the likely effects. There's lots and lots of literature on the effects of tax policy changes to-on various parts of the economy. So, we'd-we'd try to get smart on that. And then-then the law actually passes. And, you know, you'd start to put it-you'd probably run an alternative simulation before that happens, just-just to keep people trying to understand it. Then you-then when it actually passes, it goes into the model, along with a million other things. So, you know, these-we have a very large economy. Many things are affecting it at any given time. And, you know, a law change of-of some kind would go in there, but-it would go in. But it would-you know, it's a process that takes some time. Clearly, the legislative process takes a lot of time. And, of course, the real question is not the effect of that law. It's all of the policy changes that are happening. What's the net effect? And, you know, the overall effect on the economy at any given time. So, I think that's a-that's a process that takes a lot of time and that we go through all the time with every administration constantly. And I just-this will be no different. But, you know, right now we're-there's nothing to-there's nothing to model right now. We're-it's such an early stage. We-we don't know what the policies are. And once we know what they are, we won't-we won't have a sense of, you know, when they'll be implemented or-or all those sorts of things. So, I-I think I would just say we're-we're not doing that now. And all that will take time. And it will be very much regular order when we-when we do
[01:16:04] Speaker 27: do that. If I could just follow up on Nick's question. Are the current rates something you feel like you need to lean against in that they go against the direction of policy by being-adding restrictions to the economy? Or do you just take them as a given and perhaps a signal that you
[01:16:19] Speaker 22: should do less? I-look, I just think-the first question is how long will they be sustained? If you remember the-the 5 percent tenure people were drawing were massively important conclusions only to find, you know, three weeks later the-the tenure was 50 basis points lower. So, you know, it's-it-what-it's material changes in financial conditions that last, that are persistent, that really matter. And we don't know that about these. What we've seen so far, you know, we're watching it. We're reading-you know, we're-we're doing the decompositions and reading others. But right now, it's not a major factor in-in how we're thinking about things.
[01:16:54] Speaker 25: Chris.
[01:16:58] Speaker 9: Thank you, Chris Rugeber at Associated Press. You mentioned the positive economic data that we've seen since the September meeting, uh, including the revisions to things like savings, higher GDP growth. Uh, we saw stock market jump yesterday. That's renewed some of the questions about why, uh, why do many cuts at all in this, uh, with this backdrop?
[01:17:19] Speaker 22: So, you're right. As I-as I mentioned, as you mentioned, the latest economic data have been strong, and that's, of course, a great thing and highly welcome. But, of course, our mandate is maximum for employment and price stability. And we think that even with today's cut, policy is still restrictive. We understand it's not possible to say precisely how restrictive, but we feel that it is still restrictive. And if you look at our goal variables, uh, the labor market has cooled a great deal from its overheated state of two years ago and is now essentially in balance. It is continuing to cool, um, and we don't think that the labor market has moved down, albeit at a-at a modest rate. And we don't need further cooling, we-we don't think, to achieve our inflation mandate. So, that's the labor market. Inflation has moved down a great deal from its, uh, higher-its, uh, highs of two years ago. And we judged, as I mentioned, that it's on a sustainable path back to 2 percent. So, the job's not done on inflation. But if you look at those two things, we judged in September that it was appropriate to begin to recalibrate our policy stance to reflect this progress. And today's decision is really another step in that process. Overall, as I mentioned, we believe that with an appropriate recalibration of our policy stance, we can maintain strength in the labor market, even as, uh, our policy stance enables further progress toward our inflation goal. Great. And just to follow up, could you-what might
[01:18:40] Speaker 9: cause you to pause rate cuts in December? What kind of economic data would lead you to that, uh, path?
[01:18:46] Speaker 22: Thank you. So, um, we haven't, you know, made any decision like that at all. But we're-we're-so, we're in the process, as I mentioned, of moving policy down-our stance down over time to more-more neutral level. And as a general matter, as we move ahead, we are prepared to adjust our assessments of the appropriate pace and destination as the outlook evolves. So, for example, if we were to see the labor market deteriorating, we'd be prepared to move more quickly. Alternatively, we'd be prepared to move more quickly, but we'd be prepared to move more quickly to move more quickly. So, um, as we approach levels that are plausibly neutral-or close to neutral, it may turn out to be appropriate to slow the pace at which we're dialing back restriction. Um, again, haven't made any decisions about that, but-but that's certainly a possibility. If-you can think of it as similar to what we do with asset purchase-with asset runoff, with QT. So, we reach a point where we slow the pace, much like an airplane reaching the airport slows down. And so, it-it-you know, it-uh-we're thinking about it that way. But it's-it's-it's something that we're-we're just beginning to think about.
[01:19:51] Speaker 16: Edward.
[01:19:53] Speaker 28: Thanks, Chair Powell. Um, so, with-with-with the noise in the jobs reports that we've seen, um, and you look at the Fed's favorite inflation, PCE inflation, overall it's 2.1 percent, very close to the Fed's target, but core inflation is 2.7 percent, and it's been that way since July. So, why doesn't this data give fuel to a rate pause for this meeting?
[01:20:17] Speaker 22: Well, um, so, I think if you look at the three- and six-month, um, you're-you're quoting the 12-month. So, we look-we look at all of them, right? But if you look at the three- and six-month core PCE, you'll see they're around 2.3 percent. So, we look at all of them, and we look at-we also look at 12 as well, but what it's telling us is that we really have made significant progress, and, um, we expect there to be bumps. For example, um, you know, the-the-the, uh, the last three months of last year, the core PCE readings were very, very low, probably unsustainably low. So, that's why you see-that's why forecasts generally see a couple of upticks toward the end of the year. On the other hand, the January reading certainly looks like an example of residual seasonality, so-so that that-that we saw last year. So, when that falls out of the, uh, 12-month calculation in February, we should see a thing down. So, it will literally be a bump up and then down. We understand that. Overall, you see the progress on inflation, and you also look at the economy, and you say, what's-what is the inflation story now? Where's it coming from? So, I point to a couple of things. One is, the, um, non-housing services and goods, which together make up 80 percent of that, of the core PCE index, are back to the levels they were at the last time we had sustained 2 percent inflation, which happens to be in the early 2000s for a period of five, six, seven years. So, they're back to that level. What's not is housing services. So, let's talk about housing services. Housing services is higher. What's going on there is, you know, market rents, newly signed leases, are experiencing very low inflation. And what's happening is older, you know, leases that are turning over are taking several years to catch up to where market leases are, market rent leases are. So, that's just a catch-up problem. It's not really reflecting current inflationary pressures. It's reflecting past inflationary pressures. So, that's, um, that's, uh, one, one thing. The other thing is, I'd say, look, look at the labor market, not a source of inflationary pressures. Where's it coming from? It's not a very tight economy. What is the story about inflation? You see that catch-up inflation also in insurance and, and several other areas. So, you're seeing, uh, we're not, we're not declaring victory, obviously, but we feel like the story is very consistent with inflation continuing to come down on a bumpy path over the next couple of years and settling around 2 percent. That story is intact and it won't be one or two really good data, uh, months or bad data months aren't going to really change the pattern at this point now that we're this far into the process. So, are you quickly trying
[01:22:55] Speaker 28: to get to that, uh, neutral rate that you see or do you foresee that you have some time to get there?
[01:23:00] Speaker 22: Nothing in the economic data suggests that the committee has any need to be in a hurry to get there. And so, um, it's not going to be in a hurry to get there, to get there, to get there, to get there. Um, and so, uh, we are seeing strong economic activity. We are seeing ongoing strength in the labor market. We're watching that carefully, but we do see maintaining strength there. Um, and so we think that, that the right way to, the right way to find neutral, if you will, is carefully, patiently. Um, again, that, that's, that's not meant to have a problem. Um, and so, um, again, that's what we're seeing. So, uh, we're seeing, uh, that we're seeing that the economy remains strong. We have the ability to, to take advantage of that as we try to navigate that, that middle path between the two risks. Craig.
[01:23:38] Speaker 29: Hi, Chair Powell. Uh, Craig Torres from Bloomberg. Two questions today. Uh, did you learn anything about what Americans think about the economy from the election results? First question. Second question. I want to talk about some labor market indicators, and I do so with, uh, great respect for your attentiveness to the, uh, uh, maximum employment side of the mandate, Chair Powell. So the unemployment rate has been at 4% or higher for six months. Uh, one of the broadest measures of unemployment is up about a half a point from a year ago. Compensation gains are sliding back. The quits rate, a signal of labor market dynamism has been heading down to that bad neighborhood of the 20 teens. So you have put a marker at Jackson Hole saying any further cooling is unwelcome. It is cooling generally a little bit further. So at what point do we reach what you would describe as a shortfall from maximum employment? Thank you.
[01:24:40] Speaker 22: Sure. So on your first question, I'm, I'm not going to talk about anything that relates directly into or indirectly. to the election. Uh, on the second one, you're, you know, this is the great question. And so when we think about all the time, so I'll just say a couple of things. Um, you know, nothing, there's nothing really surprising here. What we know is that the unemployment rate is low. We also know that it's come down significantly, sorry, moved up significantly, uh, from a year or so ago. So we've seen a big change upward in unemployment. Sometimes that has meant bad things. So far, it doesn't appear to be-it appears that the-I wouldn't say that the labor market has fully stabilized, because I do think it's continuing to very gradually cool, but it seems to be in a good place. And our policy, of course, is designed to keep it in that good place, to maintain the strength in the labor market while also enabling further progress on inflation. You know, you-you mentioned a bunch of-of, um, of indicators. And-and you're right. Uh, you know, the-the-the openings to unemployment rate is back to a normal level. I would-I would characterize it more broadly as normalizing. You mentioned wages. Wages are still running, um, just a bit above where they would need to be-to be consistent with 2 percent inflation, unless productivity is going to remain at this high level. If we see the-if we see productivity, you know, more sustainably at these high levels, then that would sustain higher-higher wage gains. So, I would say-in fact, you can say it the other way, um, that-that wage increases are now consistent with 2 percent inflation given current, um, productivity readings. But, of course, that, you know, the-the lore on productivity readings is whenever you see high readings, you should assume they're going to re-revert pretty quickly to the longer-term trend. That has always been the case for 50 years. But, you know, it may be that we-we're now five years-if you look at the-the NIPA revisions that came out a month ago. We're five years into a-into a nice, uh, set of productivity readings, which are sustained and-and very healthy. But, overall, it's a good labor market. We could talk about 20 different data series. We'll be looking at all of them, of course. Um, but, um, you know, we-we don't want the labor market to-to soften much from here. Uh, we don't think we need that to happen to get inflation, uh, back to 2 percent.
[01:27:08] Speaker 30: Victoria.
[01:27:10] Speaker ?: Hi.
[01:27:12] Speaker 14: Victoria Guido with Politico. Um, some of the president-elect's advisors have suggested that you should resign. Um, if he asked you to leave, would you go? No. Uh, can you follow-up on- is- do you think that, legally, you're not required to leave? No. Mike? Uh, Michael McKee from Bloomberg Radio and Television.
[01:27:30] Speaker 18: Uh, you talk a lot, uh, about, um, what the data are telling you and how you are dependent on the data. But in terms of forward-looking, uh, assessments of the economy, what are you hearing from CEOs or other officials around the country? What did you hear today from the regional bank presidents about what companies and consumers think about where the economy is going from here rather than looking backwards? And does that match up with what your forecasts have been and what you think the appropriate policy path should be?
[01:28:14] Speaker 22: So, it's hard to characterize a, you know, really interesting set of discussions we had. And, of course, you'll see them in the minutes, uh, in three weeks. But I would say this. I think, you know, the-the comments from, um, our Reserve Bank colleagues and from the CEOs that they talked to are-are pretty constructive on the economy right now. Pretty constructive. Feeling that the labor market is-is, you know, back to normal to the point where it's no longer that much of a discussion topic. Whereas, two years ago, it was all they were talking about. So, they feel like the labor market's in balance. People feel good about where the economy is. Demand is obviously pretty strong. And, um, you know, you-you're seeing, what, 2.8 percent growth in the third quarter estimated. Maybe the year's two and a half. This is-this is, you know, this is a strong economy. It's-it's actually remarkable how well the U.S. economy has been performing with, you know, strong growth, a strong labor market, inflation coming down. We're, you know, really performing better than any of our global peers. And I think that is reflected in what you hear from-what I hear people hear from CEOs. I don't get to talk to a lot of CEOs in my job, but I hear what others summarize from those. And, of course, I hear the Reserve Bank presidents do a lot of that. And it's pretty constructive overall. Now, that's not to say there are areas of caution and things like that, but, ultimately, overall, pretty positive. Well, the-to follow-up, the areas of caution, I think there are areas of caution, and-and things like that. But, ultimately, overall, pretty positive. Well, the-to follow-up, the areas of caution, is that there are areas of caution. There are areas of caution. There are areas of caution, and-and things like that. But, ultimately, overall, pretty positive. Well, the-to follow-up, the areas of caution is that there are areas of caution.
[01:29:44] Speaker 18: If there were black clouds on the horizon that you identified as something you're watching, what would they be?
[01:29:50] Speaker 22: I think it's, you know, it's things like-clearly, geopolitical risks around the world are elevated. And, just as clearly, they've had relatively little effect on the U.S. economy. Now, that can change through the price of oil or otherwise. But people talk about those as, you know, something that's on the horizon all the time. But, you know, ultimately, if you look at the U.S. economy, it's-it's performance has been very good. And that's what-that's what we hear from business people, and expectation that that will continue. If anything, people feel next year-I've heard this from several people-that next year could even be stronger than this year. Andrew.
[01:30:32] Speaker ?: Andrew.
[01:30:33] Speaker 12: Hi.
[01:30:34] Speaker 10: It's Andrew Ackerman with The Washington Post. I just wanted to follow up on the discussion earlier on fiscal policy. Your predecessors, Greenspan and Volcker, spoke up loudly when they thought large budget deficits, endangered financial-economic or financial stability. Will you do that, too? And right now, we're in a period of full employment. We have large budget deficits and debt at historic-historic highs that are-and rising. Is that something you'd speak out against?
[01:31:07] Speaker 22: So, you know, I have said many times, no more, no less than what the predecessors you mentioned have said. And what that is is that the U.S. fiscal-federal government's fiscal path-fiscal policy is on an unsustainable path. The level of our debt relative to the economy is not unsustainable. The path is unsustainable. And we see that in, you know, you've got a very large deficit at-you're at full employment, and that's expected to continue. So, it's important that we-you know, that-that to be dealt with. It is ultimately a threat to the economy. Now, I-I can say that. I don't have oversight. We don't have oversight over fiscal policy. I've said it on many occasions. Just said it again.
[01:31:53] Speaker 10: Okay. Thank you. I guess the other-any other question is, to follow up on Victoria's question, do you believe the president has the power to fire or demote you, and has the Fed determined the legality of a president demoting at will any of the other governors with leadership positions? Not permitted under the law.
[01:32:12] Speaker 22: Not what? Not permitted under the law. Thank you.
[01:32:16] Speaker 8: Courtney.
[01:32:17] Speaker ?: I'm Chair Powell.
[01:32:18] Speaker 12: Courtney Brown from Axios. In response to Howard's question, you said it wasn't an ideal time to give forward guidance because of the economic uncertainties. Can you lay out what some of those uncertainties are and whether or not it includes some of the proposals that the president-elect has put out on the campaign trail? Tariffs, for instance? No.
[01:32:40] Speaker 22: I was not referring to the new administration's policies at all, nor will I today. So, I would-what I'm-what I'm just saying is, as we look ahead, we know, as I mentioned this in my statement, that the risks are two sides. I guess I should start by saying that we think that the economy and we think our policy are both in a very good place-a very good place. And-but, as you look forward, you say, what are the risks? And one risk is that we would move too quickly and find ourselves having moved too quickly and inflation comes back, and we-and we lost our chance to get inflation back to 2 percent. So, we have to avoid that risk. And that-that-to avoid that risk, that means you want to move carefully. The other risk is that we move too slowly and that we allow the labor market to weaken too much and do unnecessary damage to the labor market and to people's working lives. That-that-that says don't get behind the curve. So, these are two-these two things are the two risks that we have to manage. And so, we're-we're in the middle there. We try to be in the middle and deal with both of the-manage both of those. Again, the idea is to maintain support, the strength we have in the labor market and in the economy, but also with a-with somewhat less restrictive but still restrictive policy, enable further progress toward our 2 percent inflation goal. There-and there-so there's, you know, there-this is a thing where-we're meeting by meeting, we're going to be making our assessment of what the right path is. You know, it-it's not as important-the precise timing of these things is not as important as the overall arc of them. And the arc of them is to move from where we are now to a sense of neutral, a more neutral policy. We don't know exactly where that is. We only know it by its works. Um, we-we're pretty sure it's below where we are now. But as we move further, there will be more uncertainty about where that is. And we're going to move carefully, uh, as-as this goes on so that, you know, we can increase the chances that we will get it right.
[01:34:43] Speaker ?: Thank you.
[01:34:44] Speaker 4: Simon.
[01:34:45] Speaker 31: Uh, thank you, Chair Powell. Simon Reminovich with The Economist. Um, I know you don't want to share your decomposition of bond yields, uh, but if you look at the break-evens, it-it is clear that longer-term inflation expectations do seem to have risen, uh, up at about 2.5 percent, for example, on the five-year. That's off half a point from when you cut in September. Um, do you have any concern at all that longer-term inflation expectations are de-anchoring, uh, or put another way, are anchoring at a slightly higher level? Thanks.
[01:35:17] Speaker 22: So we-we would be concerned if we saw, uh, if we thought we saw longer-term inflation expectations anchoring at a higher level. That's not what we're seeing. We're-we're still seeing, between surveys and market readings, broadly consistent with, uh, you know, I-I was-I looked at the five-year, five-year earlier today, and it's probably moved, but it's not-it's just-it's kind of right where it's been, and also it's-it's pretty close to consistent with 2 percent PCE inflation. So that's one that's been a traditional one that we look at a lot. But overall, expectations seem to be-and really have throughout this, uh, in a place that's consistent with 2 percent inflation. But you-you're right to say we-we watch that very carefully, and we-we will not allow inflation expectations to drift upward. But that's-that's really why we reacted so sharply back in 2022, was-was to avoid that. Kelly.
[01:36:11] Speaker ?: Hi, Chair Powell. Kelly O'Grady, CBS News.
[01:36:13] Speaker 13: Uh, we just talked about what you've heard from business leaders on the economy, but many average Americans are still not feeling the strength of the economy in their wallets. So what's your message to them on when they might expect relief?
[01:36:31] Speaker 22: So, um, you're right that, um, we-you know, we say the economy's performing well, and it is, but we also know that people are still feeling the effects of high prices, for example. Uh, and we went through-the world went through a global inflation shock, and inflation went up everywhere. And, you know, it-it stays with you because the price level doesn't come back down. So what that takes is-it takes some years of real wage gains for people to feel better. And that's what we're-that's what we're trying to create. And I think we're well on the road to creating that. When inflation has come way down, the economy's still strong here. Wages are moving up, but-but at a-at a sustainable level. So it's just-I think-I think what needs to happen is happening, and-and for the most part has happened. But it'll be some time before people, you know, regain their confidence and feel that. And, you know, we-we don't tell people how to-how to feel about the economy. We respect-completely respect what they're feeling. Those feelings are true. They're accurate. They're accurate. We don't question them. We-you know, we respect them.
[01:37:32] Speaker 13: And just a quick follow-up: President-elect Trump has been critical of your performance. Any concern about his influence on the Fed's independence?
[01:37:42] Speaker 22: I'm not gonna-I'm not gonna get into any of the political things here today, but thank you.
[01:37:48] Speaker ?: Nancy.
[01:37:49] Speaker 30: Hi, Chair Powell. Nancy Marshall-Genser with Marketplace. What is your plan if we start to see stagflation?
[01:37:59] Speaker 22: Well, so that's a-you know, the whole plan is not to have stagflation, so we don't have to deal with it. So that's our-that is actually our plan. You know, it's, of course, a very difficult thing, because you're-you know, you're-you're-anything you do with interest rates will-will hurt one side or the other, either the inflation mandate or the-or the-or the employment mandate. I would just say that, you know, we've-we've been able to see inflation come down a whole lot, you know, much closer to our-our goal, without the kind of sharp increase in unemployment that has often accompanied programs of disinflation. So, knock on wood, we've gotten this far without seeing a real weakening in-in the labor market. And we-we believe we can complete the inflation task while also keeping the labor market strong, and that, of course, is exactly what we're trying to do.
[01:38:56] Speaker 30: Can you rule out an interest rate hike next year?
[01:39:00] Speaker 22: I-no, I wouldn't rule anything out or in that far away. But that's certainly not-not our plan. I mean, our-our baseline expectation is that we'll continue to-to move gradually down towards neutral, that the economy will continue to grow at a healthy clip, and that the labor market will remain strong. If you look at our-look at our-that-that will not change from the September SEP. You know, that-that is our baseline forecast. And short of some exogenous event, it will-that will continue to be our forecast for the foreseeable future. So-but-but ultimately, you know, it's-we're not in the-we're not in a world where we can afford to rule-rule things out a full year in advance. It's-there's just too much uncertainty in what we do.
[01:39:41] Speaker 4: Let's go to Jean for the last question.
[01:39:47] Speaker 32: Hi, Chair Powell. Jean Young with M&I Market News. I wanted to go back to a comment that you had made about Americans being quite unhappy about the cumulative price level rises over the past few years, even though now inflation is back on a path to 2 percent. Would it be appropriate for the Fed to undershoot for a while on its inflation goal under the average inflation-targeting regime, so people have a chance to catch up?
[01:40:13] Speaker 22: No, that's-that's not the way our framework works. We're aiming for inflation at-at 2 percent. We're-we do not have-we did not think it would be appropriate to-to deliberately undershoot. And, you know, part of the problem there is that low inflation can be a problem, too, in a way. But that's not part of our framework, and it's not something we're going to be-we're going to be looking at in our framework review. Thank you very much.
[01:40:42] Jonathan Farrow: An absolutely fascinating news conference with Chairman Powell. Where do we start? Where do we end? A 25 basis point reduction for the Federal Reserve as anticipated, but some drama over the last 45 minutes or so. Let's start with the equity market. On the S&P 500, we look a little something like this at all-time highs up eight-tenths of 1 percent. On the NASDAQ, we're up by 1.6. At the moment, looking at the Russell, we're up down by about a tenth of 1 percent. Let's switch it up and get to the bond market, and we'll go through these yields. Let's look at yields at the moment down six basis points on twos and down about 11 on tens. On the 30-year, we're down about eight basis points at the moment. On policy, this was really, really subtle. Did they drop their easing bias? Not quite. Did they find a way to find some optionality? Without a doubt. Effectively endorsing a view that we've had around this table over the last few hours. As time goes by, these decisions get a whole lot harder. Reluctance to endorse the September forecast. Acknowledgement that downside risks have diminished. Awareness that White House policy could redefine the outlook. As anticipated, a lot of questions on one thing. This week's election. Take a listen.
[01:41:52] Speaker 22: In the near term, the election will have no effects on our policy decisions. Here, we don't know what the timing and substance of any policy changes will be. We therefore don't know what the effects on the economy would be. Specifically, whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment and price stability. We don't guess, we don't speculate and we don't assume.
[01:42:16] Jonathan Farrow: That's the takeaway on the election. The obvious follow-up to that question, are the September forecasts still valid? Take a listen.
[01:42:24] Speaker 22: I think you take away a sense of some of the downside risks to economic activity having been diminished with the NIPA revisions in particular. And so, overall, feeling good about economic activity. I think, really, the question is December and, you know, by December we'll have more data. I guess one more employment report, two more inflation reports and lots of other data. And, you know, we'll make a decision as we get to December.
[01:42:52] Jonathan Farrow: So, obviously, that decision in December will be totally data dependent. But that sound you heard, just the door, slowly opening to a pause if they need to. Now, that's policy. Let's talk about leadership. You want some tension in this news conference? Take a listen to this exchange from about 20 minutes ago.
[01:43:08] Speaker 14: Some of the president's elect advisors have suggested that you should resign. If he asked you to leave, would you go?
[01:43:17] Speaker 22: No.
[01:43:18] Speaker 14: Can you follow-up on -- do you think that legally you're not required to leave? No.
[01:43:25] Jonathan Farrow: No, and then no again. And a follow-up question a little bit later in the news conference. The answer to that follow-up, Lisa, not permitted under the law.
[01:43:33] Speaker 4: Even demotion is not necessarily permitted under law. The interesting aspect of this, number one, he was very definitive. Number two, he had a clear answer. It was clear that he had looked at that law ahead of this meeting and that it was fresh on his mind. It seems like this is going to be a very interesting transcript that we get in five years.
[01:43:51] Speaker 5: There's two press conferences today, Gina Smiley, Colby Smith, Steve Leesman, and all asking adult questions about the economics. I went to Craig Torres after his question, our great historian on economics, and I said, Craig, finally. And with Craig Torres launching off, John, we got into the emotion of this election and fed independence into 2025.
[01:44:12] Jonathan Farrow: We've got to separate these two issues, haven't we? Policy for December, which seems highly dependent on recent data and incoming data between now and then. Then the projections around policy, which still feels some way off at the moment. There's nothing to model, I think is basically what Chairman Powell said in that news conference. So let's park the politics just for a while, just park the policy. Based on the data we've had since that September meeting, and basically depending on the data we get when we go into December, that sounds like a Federal Reserve that's teeing us up for something that the former Vice Chair Richard Clarida talked about in this program before that news conference started, that we could see Chairman Powell look to find some optionality going into December.
[01:44:51] Speaker 4: That is what the market was looking at. And what I was looking at was a Fed Funds Futures, which actually after pricing in a 95 percent, a 95 percent chance of a Fed rate cut in December, as recently as the end of October, was pricing in a 60 percent chance as recently as a few minutes ago as Jay Powell was talking. Key question is how much does this turn up the volume on CPI that we get next Wednesday, especially given that he pinpointed just some stickiness in the latest inflation.
[01:45:18] Jonathan Farrow: There's something you said when the news conference is on, Lisa and I were talking about this, and you said this is a Federal Reserve that prepared for this moment. The very fact that he responded in this fashion that he responded to the questions in such a direct way going into next year. It sets up some real tension for 2025 and perhaps even beyond.
[01:45:34] Speaker 4: Because this is not a Fed that is just being passive and hoping people don't ask the questions. This is a Fed that's very prepared. They were prepared in how they were going to answer it. They were prepared even for the yield move question, saying that we only take it into consideration when it has been that way for a prolonged period of time. Again, this is setting up tests for the market to take it into consideration at a time when they are saying they are opening the door to responding by not necessarily cutting in December.
[01:45:59] Jonathan Farrow: Equity markets right now, session highs, record highs on the S&P 500, up by nine tenths of one percent. Yesterday, a big sell off in fixed income. TK, this afternoon, we're seeing a bit of a rally. Yields slower across the curve.
[01:46:10] Speaker 5: A bit of a rally. John, do you have your 6,000 banner ready? On the S&P? I mean, you've got to have that SBX 6,000 banner ready. What are we, TK? 17 points away?
[01:46:18] Jonathan Farrow: Yeah, we're getting there.
[01:46:19] Speaker 5: We're not far away. We can't do Dow 44,000 banner, but we can do SBX 6,000. We may get there.
[01:46:24] Jonathan Farrow: I'm sure the president elect will be very interested in doing Dow whatever thousand. He will be. He will be. Through next year. I said earlier on in the program this morning. It's a new America. It's funny you mentioned this. Stuart Kaiser was sitting right there this morning and he said, "You know TK likes the Dow." And I said, "I'm trying to change that." Going into next year, I'm trying to change president elect as well to make sure that maybe he shifts away from that to the S&P 500.
[01:46:46] Speaker 4: I think that you have an equal chance at both. Which is no chance. Exactly. Which is no chance. Here's my response.
[01:46:52] Speaker 5: No.
[01:46:53] Speaker 4: Yeah, exactly. But what about if...
[01:46:55] Jonathan Farrow: No.
[01:46:56] Speaker 4: No.
[01:46:57] Jonathan Farrow: And I'm sure the president elect would say the same thing. Rick Reeder joins us now from BlackRock, one of the very best in global fixed income and cross-asset in markets worldwide. Rick, welcome to the program. You followed that news conference. Let's just start with your first takeaway, Rick. What's your big one?
[01:47:11] Speaker 11: So, first of all, like you say, there's some drama there. And I thought that was interesting. Listen, I think I agree with the comments that they have to introduce some balance, I think, in December. Listen, I think the takeaway is they still think rate is restrictive. I still think you've got to get that funds rate down to four-ish. I think that you've got to -- you're going to go in December. I think you've got to get the -- you know, you've got to be really careful about the mortgage rate in this country, as we can talk about. But I think they're going to go in December. I think he's got that, that that's part of the plan. But then as you get into next year, listen, I mean, you've got what could be a pretty significant policy change, set of policy changes. And I think the dots, when you go back to the September forecast, I think you've got to, you know, really think about that and evaluate that. I think that's going to be one of the most fascinating things going forward is how do they adjust terminal rate from here? How do they adjust where they project growth to be when you're going to go through what could be some pretty significant evolution from here?
[01:48:07] Jonathan Farrow: So, Rick, as I go through the calendar over at the Federal Reserve, there's two dates with some asterisks over the next six months or so. And those little stars in the corner of those dates mean you get some projections at those meetings. So the next one is December 18th. And then as we work forward into the following year, we're going to get a decision from the Federal Reserve in 2025 in the spring on March 19th. On March 19th, Rick, we'll have a new president who may be already coming forward with some policies and some big tariffs. Rick, do you think it's still too early on March 19th to expect this Federal Reserve to bake in some policy from DJT, the former president and president-elect Donald Trump?
[01:48:46] Speaker 11: Can I also say that we'll wait and see. Listen, I think you're going to have to evaluate that policy. I mean, we're going to get more data on tariffs. We're going to get more data on how we deal with spending deficits. Listen, I think there are some extremes that gets set in a – when you go through an election campaign like this, how aggressive we'll be on tariffs, how aggressive we'll be on cutting spending. And then I think you're going to start to see some clarity. You're going to see – by the way, you're going to see what a cabinet looks like. You're going to see who the people are. You're going to have a sense for those personalities and then, you know, what their disposition is with regard to policy. So, yes, I think in March, then you're going to have – you're going to have to evaluate that and then have to evaluate what it means for the forward growth forecast.
[01:49:34] Speaker 4: That said, Rick, one thing really stood out to me in the press conference. And, yes, it was the no, no, and the preparation for that question. But also, this focus on inflation being a little bit stickier than in prior readings. And to me, that was notable because it seemed like they had left inflation for dead. That wasn't even part of the mandate. It was, you know, sort of autopilot cutting until you sort of get to a certain place and then you wait and see. How much does this turn the volume up on CPI that comes out on Wednesday?
[01:50:04] Speaker 11: It does. I mean, it's going to – listen, I think – one man's opinion or more, our team's forecast. Listen, we think most of the descent in inflation has happened. You know, we think you've got tremendous goods deflation. Now you've got base effects that aren't a tailwind going forward. What does service inflation do from here? I mentioned it earlier. I think shelter's a really big deal. And part of why I think you've got to get that rate down. You know, you have – you've seen – you know, what you've seen over the last month, you look at housing affordability is still a problem. Housing starts are low. Building permits are low. Existing home sales are low. You have a problem today. Shelter's – you're not getting enough home building. You look at all the home builder earnings. You know, pretty rough because they're subsidizing mortgages. They're subsidizing houses through their bottom line. Listen, I think you've got to get the rate down. You've got to get housing moving more efficiently. Right. And that – by the way, that will bring shelter inflation down. But that's been the thing that's sticky. But yeah, I think we're going to focus on what these – in particular, I focus on service inflation. Where are we going to be over the next couple of months? And I think it's going to be pretty important. I think most of the benefit you've seen it play out already.
[01:51:09] Speaker 5: Rick, it's away from your remit. I was talking with Eric Belchunas, our ETF ace. BlackRock's got an interest in Bitcoin. Moments from printing 77,000. Equities are moving. Bonds are moving in the way we've discussed. What does Bitcoin at 77,000 signal to fixed income and to equities and, for that matter, to the dollar?
[01:51:33] Speaker 11: These are good questions, hard questions. Listen, I will say one thing. I mean, obviously, what Bitcoin is reflecting is a change, a potential change in policy and a more favorable disposition towards crypto. I think that's point one. And that's clearly the big driver. Second one that I'll throw out there that I think is robust. Listen, we've got to deal with debt and deficits and what does it mean for currency going forward. And listen, I mean, it's a scarce asset. It's becoming more scarce. And I think – and I will say from doing a lot of client meetings – people more and more are thinking about real estate. People are thinking about, gosh, in a different world, you know, what does it mean? You know, we've got to get our spending down because our debt is too large. Do I own some scarce assets, some hard – some real assets? And I think that's playing through. Obviously, alongside the bigger one being a more favorable disposition from policy in terms of where that is. But, gosh, I hear more and more about real assets, not just crypto, but in other places.
[01:52:30] Jonathan Farrow: Rick, I've got a follow on that. I really want to understand from your perspective whether you see signs at the moment of people putting it in, because of the deficit. So let's take yesterday's price action as just a snapshot of where things are out. So we saw a big sell-off in fixed income. And typically, if this was EMC and we saw moves like that and I was worried about the fiscal position of that country, we'd see the currency weakness too. But you didn't see that yesterday. You saw a lot of dollar strength. So I'm wondering from your perspective outside of that whether you are already seeing signs of pushback. And whether you'd expect to see it pop up in the U.S. dollar anytime soon, if at all.
[01:53:04] Speaker 11: So I think the first thing people react to is you've got to change in policy, tariffs, stronger dollar generally. And I think that's a market tends to knee-jerk. Mark, it usually can only focus on one thing at a time. And I think it was focused on that. I don't do a client meeting today where the first or second question is about the debt in the country, the deficits we're running. I think this administration is going to have to address, this Congress is going to have to address. It's too much debt coming to you. If you said to me next year, like Lisa said, we're going to be laser focused on inflation. We're also going to be laser focused on auctions because we're issuing so much debt every single week. Every client wants to know. And I think it gets to that question of why people are buying real assets, how they're thinking about it. By the way, equities are an operating leverage machine on GDP. And, you know, quite frankly, you think about what does well in this environment. Equities still do well. But I, gosh, every client meeting I go to, people want to talk about the debt. And I think it is definitely going to become much, much more of the regular dialogue in everything we do, investment. By the way, not just financial investors, corporate CEOs, CFOs, how they think about CapEx, R&D. I think it's going to be a big deal going forward.
[01:54:18] Speaker 4: Can you just elaborate on that in terms of when we'll actually see it in a more dramatic fashion? Because you can make a lot of arguments for why yields have gone up. And frankly, Jay Powell said, I'm not going to parse out what's what. But some of it could be deficit. Some of it could be the political regime. Some of it could be better than expected growth. I don't even know. I don't care. It's going to stop anyway. At what point do you say this is real and this is actually a risk premium that's being put on for the first time in a long time?
[01:54:44] Speaker 11: You know, I would say a couple of things. You know, listen, it's hard to parse any individual movement that takes place in markets. But I think more and more, you know, by the way, you look at what's happened in the credit markets. Spreads keep tightening. Spreads keep tightening. You know, I've said this before. If you go through some of the companies today, high free cash flow, don't borrow on the front end of the curve, don't have any financing, don't have a maturity wall. And the thing about the U.S. government, we threaten a default every couple of years. We borrow at the front end. And the immense size of bill coupons or bill auctions we do every week, coupon auctions we do every week. Listen, I think it is, you know, it's part of why every auction you got to watch, you know, is the market, particularly in the back end of the curve. Listen, I think there's going to continue to be a strong bid to, you know, and by the way, part of why I like portfolios clip a lot of yield in the front end. Just keep clipping that yield, clipping that yield. You know, the back end, I think, is going to be a big focus going forward. Like you said, you know, we've never had, I would argue, in the U.S., it's not just the amount of debt. It's the debt service. We're talking about interest rates. We used to print treasury bills at 0%, 1%. You know, now we're printing huge size treasury bills every week at high level. So it's going to be a big focus. And, you know, is there one event? Listen, I think auctions are going to be worth watching. And listen, the shape of the curve. You know, I would say one last thing. And I think Jay Powell was very clear and right in this. Markets can be wrong a lot. You know, we priced two hard landings already this year. Markets can get crazy extreme one way or the other. But I think you've got to watch over time the premium we're paying in this country for the amount of debt that we're going to issue. What it means for the currency and what it means, you know, for how much will people absorb, not just domestically, but internationally.
[01:56:30] Jonathan Farrow: Rick, I've heard a couple of whispers. And I'd love your response to this from a couple of banks. They're anticipating that maybe credit trades through treasuries, investment grade, U.S. corporate credit trading through treasuries. I'd love your view on that. Is that possible? Because for some companies, we're not that far away. Do you think we could see that in the next 12 months?
[01:56:52] Speaker 11: So, Jonathan, I never thought, if you go back a few years ago, I never thought, and we've talked about it years ago. Remember, we were funding companies at negative yield. Like, I never thought that would happen. Remember that in Europe? Like, we're lending companies. I remember explaining to my kids, like, I'm lending money to companies that are negative. I'm paying them to take my money. But, you know, explaining white bonds where they are, it's hard to explain. Anyway, so is it possible? It's definitely possible. You know, the supply-demand dynamics are quite different. And it's definitely possible. I mean, the spread tightening you're seeing across the board is pretty powerful. Listen, one thing, ultimately, taxing authority is a really big deal. And there's one thing that I think is hugely important for the next couple of years. There's been a massive transfer of money from the public sector to the private sector. The private sector has got, I think the number is 220 trillion of net worth. The asset coverage in the United States is pretty darn good. How do you get at that asset coverage? How do you get at that net worth to send some of that money back to the government versus what they've transferred to the private sector? And that's going to be the evolution that I think this administration is going to have to navigate.
[01:57:52] Speaker 5: John, your insight there is critical. At least 35 years ago, I had the privilege of hearing John Templeton say the same idea. The credit would trade through full faith in credit. Then it was unbelievable. Now it's unbelievable. But it's a critical insight.
[01:58:09] Jonathan Farrow: Yeah, but you heard what Rick said there. And it's really important. Through the pandemic, there was a massive transfer of money, Tom. And it was from the sovereign to corporate America, to individuals, to households, which is why what we've seen ultimately because of policy coming out of the pandemic. I agree with that. The balance sheets for corporates are better. Balance sheets for households were rock solid. And what got weaker? Where was the leverage? The sovereign. Now, Rick, you followed that up and said that ultimately that's going to have to be a source of revenue. But that's not the policy proposal. The policy proposal, as you know, is to drop corporate tax rates from 21 to 15 with conditions, which is domestic manufacturing. I get all of that, Rick. Are you basically saying that at some point we need to understand that that's what we need to do, even if it's not what we want to do? And Rick, for that to happen, you need guardrails. You need constraining forces. And I don't see any sign of that from any policymakers in Washington. And ultimately, it means it needs to come from the market. And the question is, Rick, it's the question we've asked for a decade plus. Will the market actually provide those forces? Will they constrain the hopes of fiscal policymakers, the tax cut hopes from campaigning? Do you think the market will be a constraining factor or not?
[01:59:16] Speaker 11: The answer is yes. Listen, I think policy generally doesn't react. You know, hopefully I'm wrong in this case. But generally, policy doesn't react until the shark is right next to the boat. And I think, you know, the markets will usually tend to anticipate things. And by the way, I often anticipate them, you know, too early or wrong. But I think the markets are going to be a great barometer for what, you know, policy needs to adjust to. So, you know, I'm hoping it's not egregious in terms of how that manifests itself. And I will say one thing. We can debate tax policy, marginal tax rates. Listen, I think the U.S. economy, there's only one way that you bring the debt down. You've got to outrun it. Nominal GDP, we have to grow. The economy's got to grow. There's a series of initiatives you can have. You can have fiscal spend as long as it's got velocity to it and that the economy is growing. And then the cost of the debt has to come down. And the sheer size of the debt has to come down. And then we slowly bring the debt problem down in this country. But I think it has to be a whole series of initiatives. And quite frankly, policy needs to create confidence of investors, of the general populace, that they're moving the boat in that direction. And by the way, confidence is hugely powerful. You can do a tremendous amount in your comment or your comment about emerging markets. The one thing U.S. has and you look at the faith in the Fed and the faith in the confidence that will ultimately do the right thing. But I think that's going to be really critical going forward.
[02:00:40] Jonathan Farrow: Rick, you're a money manager. Can we finish there on what you've been doing? Were you selling bonds yesterday? Thank you. No.
[02:00:46] Speaker 11: No, not yesterday. But you've been selling. You know, I would just say, you know, listen, without getting specific in terms of things we're doing, you know, I think there was regulatory change or I think there's potential regulatory change. I think the financials are interesting. I think fixed income products like mortgages are interesting when you change the regulatory dynamic around banks and their ability to buy different things. So, you know, those assets have become more interesting. Listen, I think equities are rightly moving in the direction they should move with a series of initiatives that could stimulate growth here going forward. So, you know, I like parts of the equity market. And so that's been and then, you know, the other side of it is that, you know, something that I'm just going to keep persisting on the front to the belly of the curve, yielding assets, credit, securitized assets, Europe, the way you buy credit, etc. Like if you just keep clipping this yield, it is, I mean, even if rates move up somewhat, you're still able to build portfolios with the CTF, you're still able to create this portfolio six and a half percent yield. That's pretty spectacular with inflation running at two, you could be 2.3 percent. So that's my key is like, just let's keep buying this yield and hold this yield in the front of the belly and then let people take the risk further out the yield curve.
[02:02:05] Jonathan Farrow: Rick, this was awesome. It's going to catch up with you, sir. Appreciate it. Rick Reeder of BlackRock. Where do you begin with that conversation? It's a lot to chew over.
[02:02:12] Speaker 4: Yeah. Well, first of all, he was talking about inflation possibly being sticky even before what transpired in Washington, D.C. I love his response to you about were you selling bonds? We like mortgages.
[02:02:25] Jonathan Farrow: We like banks.
[02:02:26] Speaker 4: We like banks. We like stocks. But this to me is really the key debate, which is how much can you buy the front end, clip the coupon. Is this making cash great again, essentially, for people who want to sort of get some income on the margins, but then go into asset classes that are going to be less vulnerable to a potential inflationary shock?
[02:02:43] Jonathan Farrow: It's just a guess, and I haven't heard directly. I'm not sure if the Trump administration is looking to make cash great again, but we'll see. I guess maybe that is a goal.
[02:02:50] Speaker 4: Well, maybe it's make crypto great again. Actually, I think that it's making dollar less great so that it's weaker, although it seems like that's somewhat contradictory.
[02:02:57] Jonathan Farrow: Let's get to Mike McKee. Mike McKee was in that room in that news conference. And Mike McKee, at some point there was some tension with Chairman Powell. Were you surprised?
[02:03:04] Speaker 18: No, I don't think anybody was surprised. We got about as much out of him as we thought we would get on the issue of Donald Trump and the elections. He just answered with one word and then one sentence. No, he's not going to resign if asked. And it's not permitted by law for the president to demote anybody on the Fed. And there wasn't as many questions along those lines as maybe we thought there would be because he was so definitive on those two answers. I think what you got today was two different news conference messages. One was to the people inside the Beltway here in Washington about his relationship with Donald Trump. And the other is to the markets, and Rick picked up on this very well. The Fed does not know what it's going to do. There are a lot of cross currents coming in 2025. So if you think that the Fed is on some sort of path because of the last SEP and the last dot plot, you're going to probably be wrong. The Fed has a lot to keep an eye on, not just with the president, but with everything else going on in the world.
[02:04:09] Speaker 4: With respect to the message to the markets, he was asked about the fact that the Fed removed the reference to gaining confidence on inflation. And he basically said there's nothing to see here. It was just a semantic issue that we already said that and we're not going to repeat it. Do you buy that?
[02:04:23] Speaker 18: I do. And that was the conclusion that not only I came to when I read the statement in the lockup, but that all the other reporters basically came to as well. We've seen this before. When they start changing policy, they give a rationale for that. We're moving in the direction or we're getting close to where we need to be. And then after that, they're already there. So they don't need to keep repeating that. They just took it out, as he said, for clarity.
[02:04:47] Jonathan Farrow: Mike McKee on the latest in that news conference. Mike, we'll have a longer conversation tomorrow when you get back to New York City. What a news conference with Chairman Powell. Now, Dom Constant with us now of Mizzou. Dom, welcome to the program. We'll just give you the opportunity to share your initial takes from that news conference and then we'll get into it. What stood out for you?
[02:05:05] Speaker 15: It was pretty much as expected in the sense that he's still committing to the easing cycle. I think the sort of new news might be where might they pause in the context of the new policy regime that we'll be getting with the change in administration. But the idea is I think there are, you know, are subject to the data really shocking. They're kind of on autopilot to get rates down to around 4 percent in the early part of next year. And then we take it from there. If they have to respond to policies that adjust the balance of risks, for example, then, you know, they'll figure that out then. But the election itself isn't really affecting what we thought anyway they were going to do.
[02:05:42] Speaker 5: Dominic, if the theme of a Trump administration is growth at any cost, pushing against all this is going to be a nominal GDP lift. When you sum things together with Steve Rusciuto, do you just assume a run rate 5 percent nominal GDP? Or can I even look for an animal spirit towards 6 percent?
[02:06:03] Speaker 15: Well, I definitely think there's there's an animal spirits thing out there that's pretty interesting. I mean, the only the only caveat is when we went through tariffs before, you know, when they started to sort of hit, it wasn't clear in 2019 that the animal spirits were exactly kicking in. And the Fed had to get into extra easing mode by then. So I think there is certainly some definitely uncertainty around the whole thing. Right now, though, you know, the issue is the labor market, you know, it's not great. I mean, employment growth is sort of stagnating. I would say the economy has been bifurcated. You've had some very strong sectors, some weak sectors. And, you know, if it wasn't for the latest, you know, the election, we'd still be in the mode whereby the Fed would be preemptively trying to cut rates quite quickly to stop unemployment going up. So we can't forget that. And we're going to have a few more months whereby if animal spirits don't kick up, you might still well see unemployment rising above where the Fed expects it to be. And therefore, you know, some disappointment. I mean, growth itself is a bit of a lagging indicator, and it really reflects the average of the economy. It doesn't reflect the underlying weaknesses in some of the sectors.
[02:07:10] Speaker 5: If we expect the unexpected, is a euro through parity or, dare I say, 103 maybe, and yen through 160, will it signal a new, resilient, and stronger dollar?
[02:07:20] Speaker 15: Well, I mean, it really should do. I mean, you know, especially if you're going to start pricing for the tariffs. And again, what we don't know is whether the tariff threat is just a threat or whether it's going to be enacted. If you are going to enact tariffs, then, you know, there is obviously the risk. The dollar is going to basically go up. And that's a big part of that. And then you get into the, you know, the instance of the tariff is obviously falling onto the exporters. The consumer is going to be somewhat protected. You know, that's where we might end up getting. But, you know, Trump is Trump. And so, you know, it could well be just a big bargaining chip, and we might not get the full force of the tariffs. I would say one thing about tariffs is we do actually need them if he's genuine about his tax cuts and the modification to the tax law next year. You do need the tariffs to actually pay for that. So, you know, I'm guessing we're going to get the tariffs in the end.
[02:08:09] Speaker 4: Just putting the policy aside, there have been other changes that have happened in the past three, four weeks that also were addressed here. Yields have gone up because of economic surprises to the upside. Inflation on the margins has been slightly stickier. There have been questions about why long term yields are so high. And frankly, my risk assets don't care because they're basically treating it like it's for the right reason. Dom, at what point do these yields force the Fed to take notice in a way that they don't have to now? They can just dismiss it as a blip potentially.
[02:08:40] Speaker 15: Well, I do think a lot of the moving yields is obviously being driven by term premium, what we call term premium. And they're good reasons for why term premium is rising. One of them is tariffs, but another one is obviously the fiscal supply. So that means you kind of get this sort of steepening pressure through the yield market. And it's obviously consistent with, you know, the deficit concerns that are being, you know, coming out of the new policy regime forthcoming. In terms of how that affects risk assets, it's really a balancing act. If you have term premium going up, normally all else equal risk assets would suffer. However, if on the other side of that you're getting a sort of higher level of growth, let's say because of the fiscal stimulus coming through, then that really does kind of easily overwhelm the impact of term premium. Term premium has been very low. So to expect it to sort of go up is not unreasonable. It's almost, if you like, normalizing by some models we look at. And if you can take a quid pro quo and say, well, look, we're going to have higher growth coming out of all of this, then there's no reason for risk assets to perform badly. And I think that's kind of where we are. So we're in the sort of, you know, best of all possible worlds in the sense where risk assets are okay. And yes, long term yields are rising, but they're not rising so much that they're going to unravel the story for risk assets. And bear in mind the Fed is in restrictive mode. So by the fact that they can reduce their short term rates, it will help anchor the curve lower. So you may well have higher term premium, but if short rates are still falling at the other end, then the whole curve is somewhat getting anchored, which is actually quite good news. And it does avoid one of the problems we had last year, if you recall. I used to, I call it the Liz Trust moment, where if the Fed threatens higher yields at the front end and you have a term premium rising in terms of hurting the long end, that's really bad news for risk assets because that kind of unravels, you know, both sides of the equation, so to speak.
[02:10:37] Speaker 4: You said a number of things there. One aspect is you said that the Fed is clearly in restrictive territory at this point and it will be easing. Jay Powell actually maybe cast a little bit of question around just how restrictive they were, saying that they're trying to get down to a place and then adjust so they can figure out what that neutral rate is. Do you think that he was opening the door to pausing in December, to not necessarily cutting more for the rest of this year?
[02:11:04] Speaker 15: I sort of feel that they're pretty much on autopilot for a December cut. I definitely think he's opening the door to a pause, let's say, within the next six months. So they're not going to sort of run all the way down to 3%, which is where they have that neutral rate. But they could definitely pause around 4%. Pausing around 4.5% is a little premature, particularly since they haven't even seen, wouldn't have seen the new administration come in. So to my mind, not yet is the pause, and therefore they can sort of plow through into a Q1 easing and then pause then. In terms of neutral and where it is, obviously no one really knows where it is. But we've done some interesting work to suggest that if interest rates don't come down, employment in certain sectors will continue to slow and go negative. And that's this kind of preemptive aspect of why they want to bring down rates. And that's kind of where, you know, why I feel that neutral is not here. It's probably not at 4% and it's probably close to 3%. But we'll see in the end.
[02:12:01] Speaker 5: So what do Constamin and Rashido say about a run rate of non-farm payrolls? I mean, can you get non-farm payrolls permanent under 100,000 or can you even go to a negative statistic?
[02:12:12] Speaker 15: Well, I think, I mean, clearly you can. And I think that's the problem. I mean, Powell himself said the labor market has eased enough. You can't, you don't really want to have payrolls running 100,000 or so or less. The reason is because layoffs are still very low. The layoff rate is still running below 1.2% of the employed workforce. The idea before COVID, the layoff rate was in a range of 1.2 to 1.4%. So adjusting layoffs higher, which will be reflected, for example, in the claims data going higher, normalizing, if you like, with employment growth down in around 100,000 or so, you will see unemployment rate rising well above the Fed's forecast. So you have to have basically payrolls accelerating or somehow cross your fingers and hope layoffs never actually go up. And we're in a new world where companies just won't fire people. And in a way, that comes back to the animal spirits. Animal spirits to either not lay off or animal spirits to hire more people and get payrolls accelerating to keep the unemployment rate where it is, in line with where the Fed would like to see it in the medium term.
[02:13:19] Jonathan Farrow: Hey, Dom, this was great. It's good to hear from you, sir. It's been too long. Dom Consdom there of Mizzou on the Federal Reserve. We'll do this all over again in December. But the key one, I think, circle it on the calendar for 2025, March 19th. March 19th, spring of 2025, when they have to produce some new forecasts with some new policies in mind.
[02:13:36] Speaker 4: Maybe. Especially as the Fed finishes out the first 100 days, it raises this real question. How many of the policy implementations have really affected the trajectory of the economy? And they can't use this as a punt. We'll see what we see. They'll have seen and they'll have to react.
[02:13:51] Jonathan Farrow: The Fed is reactionary. The market is anticipatory. The Fed is reacting to the data. This market is anticipating changes to policy. And a lot of that right now hinges on what happens with the House and whether we get this GOP sweep. From New York City, that does it for us. Thank you very much for choosing Bloomberg TV and radio. Coming up in the close, Romain will get you there with Cathy Wood of Ark Invest. From New York, this is Bloomberg. We'll be right back.
[02:14:15] Speaker ?: We'll be right back. We'll be right back. We'll be right back. We'll be right back.