About this transcript: This is a full AI-generated transcript of Fed Cuts Rates — Chair Powell Holds Press Conference (Live Coverage) from Bloomberg Television, published October 13, 2026. The transcript contains 31,473 words with timestamps and was generated using Whisper AI.
"who won in that case, Jeannie. So there's the consideration of how they might think about that as monetary policymakers, but also just the, where are we going to be on that Fed day in early November, two days out from the vote? Are you confident, Jeannie, that we will actually have a clear winner?..."
[00:00:00] Speaker 1: who won in that case, Jeannie. So there's the consideration of how they might think about that as monetary policymakers, but also just the, where are we going to be on that Fed day in early November, two days out from the vote? Are you confident, Jeannie, that we will actually have a clear winner?
[00:00:18] Speaker 2: I am not confident of that. And I'm just thinking, Kaylee, that you and Joe will probably be going on 48 hours without much sleep by the time that Fed day comes up.
[00:00:27] Speaker 1: I think you're right.
[00:00:28] Speaker 2: I'm sorry to tell you that. But I do think that it is, you know, it is the reality that this was what makes this day today so important for these campaigns is because we're not going to see another one till after. And I am not confident we will know who the president is. You know, I hope we do. But given where we've been in the last four years, I can't feel confident about that at all. And especially looking at the polls and seeing how tight this race remains in every one of these swing states.
[00:01:00] Speaker 3: Rick, we've only got a minute left. Donald Trump has already said it out loud that cutting rates today is, quote, something they know they shouldn't be doing, unquote, before the November elections. Does the Harris campaign need to respond to that? I certainly would.
[00:01:16] Speaker 4: I mean, come on. You know, he scuttled the best border security bill that we've had. He wants to shut down government, and now he doesn't want to give consumers a break on interest rates. I mean, there's your campaign. That's how you close this thing. You got 47 days. That's all I talk about. I mean, it's incredible that he would put all of these things behind his own self-interest. And so, yeah, I'd be all over it. I think it's crazy to take a position like that, including flip-flopping on salt just so that you can get a couple of guys in Congress.
[00:01:49] Speaker 3: Wow. Well, we're going to have a lot to talk about here coming up in this news conference. Rick Davis and G.D. Shanzano, Bloomberg Politics contributors, our signature panel. Thanks for setting us up here and reminding us, Kaylee, that there are enormous political stakes here around this Federal Reserve meeting today, not only because of the timing, its proximity to the election, but it's the number one issue on voters' minds.
[00:02:10] Speaker 1: Yep, absolutely. We're going to have more on that with Catherine Edwards just ahead right here on Bloomberg.
[00:02:16] Sherry Young: Asia is at the forefront of some of the world's biggest stories. I'm Sherry Young in Tokyo.
[00:02:22] Heidi Stradwaltz: And I'm Heidi Stradwaltz here in Sydney where the trading day begins. We're here in the center of all the action to get you set up with the numbers, news and knowledge you need for the day ahead.
[00:02:32] Speaker 7: The demand is indeed recovering. We've been waiting for this moment. The opportunity of a century.
[00:02:38] Sherry Young: Join us on Bloomberg, the Asia trade. Weekdays only on Bloomberg TV. Context changes everything.
[00:02:46] Speaker 8: The top names at Jackson Hole are on Bloomberg. I'd like to see us move toward a more real-time data set. So using new technologies, maybe some of the AI technologies, maybe we get better data as we move forward, but we've got to really focus on that with our economists and our analysts about, you know, where's the data coming from and can we rely on it?
[00:03:09] Speaker 9: Nobody covers Jackson Hole like Bloomberg. Context changes everything.
[00:03:16] Speaker 10: Welcome to the world of decentralized finance. We thought we'd take a look at Bitcoin versus the S&P 500. Bloomberg's covering all things crypto. The people.
[00:03:25] Speaker 11: The tectonic shift emanating from Washington. It's really a tale of two cities and crypto.
[00:03:30] Speaker 12: Crypto shouldn't be partisan. The transactions.
[00:03:33] Speaker 11: Really a record-breaking moment. Crypto VC is back.
[00:03:36] Speaker 13: And the technology. It's really the beginning of a global on-chain economy. And if America doesn't embrace it,
[00:03:41] Speaker 9: we're going to be left behind. Bloomberg Crypto, Tuesdays, only on Bloomberg.
[00:03:46] Tom McKenzie: Good morning. This is Bloomberg Daybreak Europe. I'm Tom McKenzie in London. These are the stories that set your agenda.
[00:03:52] Speaker 9: Taking you from the U.S. market's close to the overnight session in Asia. We'll walk you through what you need to know to kick-start the European trading day. Live from our European headquarters, we bring you the day's top market-moving stories, unmatched expert analysis, and on-the-ground reporting from across the continent. Tune in to Daybreak Europe, only on Bloomberg Television. Context changes everything.
[00:04:16] Speaker 15: People ask me all the time, what is the key to being a really good investor? I tell them, it's to surround yourself with and work with the best investors you can find. On Bloomberg Wealth, I'm going to take you to meet the greatest investors in the world, the people that I would like to have managing my money.
[00:04:32] Speaker 16: I think it's one of the things that we really tried to build the portfolio through, long-term asset allocation. We really don't do a lot of tactical timing. It's hard, right? It's really hard to time the market.
[00:04:49] Speaker 17: It's a countdown to the market open as we bring you the first trades across Europe.
[00:04:53] Tom McKenzie: We'll debate the most important stories and what will drive the big investment decisions throughout the morning. I'm Guy Johnson.
[00:05:00] Speaker 18: I'm Kriti Gupta. And I'm Anna Edwards. Join us every weekday morning for the opening trade, live at 7 a.m. here in London.
[00:05:08] Tom McKenzie: Only on Bloomberg. Context changes everything.
[00:05:15] Speaker 15: What did you say to your mother and father when you said, I'm dropping out despite the fact
[00:05:33] Speaker 19: that I said I wasn't going to drop out? Well, I said I'm just taking some leave. Oh, leave. Yeah. I think I'm still technically on leave. Harvard has kind of a funny relationship. How long can you be on leave for 10 years or so? Well, I guess we're going to find out.
[00:05:49] Speaker 20: It's 121 on Wall Street. We do check markets all day long here at Bloomberg Fed. Wednesday, we've got you covered on Bloomberg Television and Radio. We've got just about eight minutes to go until our special coverage kicks off. Stocks holding on to gains right to the numbers with the S&P up four right now at 56.38, a gain of one-tenth of one percent. The Dow up 16, also higher by about one-tenth of one percent. NASDAQ up 11, also an advance of just about one-tenth of one percent. The 10-year now yielding 3.67% with a two-year 3.64% gold flat on the day of just $1 the ounce to $25.70. West Texas Intermediate Crew dropping 1%, 70.44 for a barrel of WTI. Bitcoin right now down eight-tenths of one percent, below 60,000, 59,667 on Bitcoin. Stocks, though, have been wavering amid uncertainties as to how aggressive the Fed will be with rate cuts after holding them at two-decade highs for more than a year. Contract talks between Boeing and its largest union are set to continue after a first round overseen by a mediator left the labor side, quote, frustrated. Meanwhile, CEO Kelly Ortberg says the company will initiate temporary furloughs over the coming days, and leaders will be taking pay cuts. Boeing shares, a little change now, up by about one-tenth of one percent. So, again, recapping, S&P 500 index in a holding pattern right now up two points of less than one-tenth of one percent. For on-demand news 24 hours a day, subscribe to Bloomberg News Now wherever you get your podcasts. Balance of Power continues. Back we go to Washington. Once again, your hosts, Joe Matthew and Kaylee Lyons.
[00:07:31] Speaker 1: All right, Charlie Pellett in New York with a look at the trading just over half an hour out from this crucial Federal Reserve decision. Thank you so much. I'm Kaylee Lyons alongside Joe Matthew here in Washington, where we do know roughly 36 minutes from now we'll have answers to a few questions. We will know what the move was, 25 or 50 basis points. We will know whether or not this was a unanimous decision or maybe, unusually, we might have dissents. We'll also know what the dot plot looks like, not just about this cut today, but what they expect to do over the coming meetings into next year. But the other answers will be left to one individual, Chairman Powell, when he takes the podium at that news conference 30 minutes later. And that's always where it gets a little trickier.
[00:08:09] Speaker 3: That's right, taking questions from the likes of Michael McKee, who will be reporting a bit later on for Bloomberg, of course. And, yeah, we're knocking the dust off a dot plot from June, I believe, with a major update today. And this is where we start our conversation with Catherine Edwards, economic policy consultant, writer for Bloomberg Opinion. Catherine, welcome back. It's great to see you. I think you're in the 50 camp. If you can let us know, if that is the case, though, getting to Kaylee's reference, does Jay Powell need to have a unanimous decision?
[00:08:41] Speaker 21: I do wonder about what unanimity gives you when he has made very clear that the risk right now is to the labor market and not the fight against inflation. I mean, he signaled that pretty clearly at Jackson Hole. And so to have someone, you know, not in concert, you know, signifies to me either that they don't think the labor market as important, which would be upsetting, I think, to a lot of people, or they're signifying that he hasn't gone far enough. And they tend to, I think, kind of close ranks and come together around the big decisions to let everyone know that this economy is being steered, you know, in concert.
[00:09:17] Speaker 1: So if we consider what he would have to personally message if the move is 50, because there is a narrative out there that a move of that size could signal panic, that they are seeing something that the rest of us might not be yet, that there is more reason for concern in the economy right now. So how important would his messaging be, frankly, in either instance, to explain why they felt the need to front load or not to front load?
[00:09:40] Speaker 21: Yeah, and I worry that if the message around 50 is, or the message around 25 would be, well, we just didn't want to play into market expectations, or we didn't want to think that people were panicking of how much is the message around what other people will be messaging versus what the economy needs. And I think what I've seen in Powell over the years is that he tends to be very plain spoken about this was what the economy needed right now. And if we messed up, we messed up. If we went too low in the past, we went too low in the past. But it's about meeting the needs of the moment. If we said transitory. If we said transitory and we were wrong, then we were wrong. And I think a lot of people were expecting a cut last time they met. They didn't do that. So it is very possible for him to say this is just what the economy needs. It's not panic. It's prescriptive. And this is good.
[00:10:24] Speaker 3: It's not panic. Prescriptive. How about politics? This is the politics program. We'll hand things off to the market experts in about five minutes. Does he need to be deliberate about this issue?
[00:10:35] Speaker 21: I mean, I think the narrative is kind of forcing his hand there to say that this, you know, they can't take an election into account. You know, I kind of think of this as making a little bit of the James Comey mistake, you know, working so hard to look like you're not in support of one person that you actively start supporting the other. You know, you overcorrect. I mean, that's not a word that the Fed really likes, overcorrecting. But that it's definitely a possibility when you're trying to take into account politics. And, you know, what I would say is politics, I mean, economics is hard enough. There's no need to bring politics into this decision.
[00:11:09] Speaker 1: So if politics don't factor into the actual outcomes from the Federal Reserve, that's not to say that what the Federal Reserve decides to do doesn't affect outcomes in politics, right? Absolutely. This is a decision that they're going to be making weeks ahead of a presidential election. So I guess the question is, to what extent do you expect that the actual beginning of the easing cycle will influence consumer sentiment if it is coming simultaneously with a slowdown in the labor market that might be felt first knowing that even eased policy might have a lagged effect kicking in?
[00:11:38] Speaker 21: I mean, most people's impression of the economy is what they experience in their day to day lives. And whatever they, you know, read in the newspaper or see on the news, it's still just how secure they feel. Can they afford a home? Can they find a job? So I think, yes, the narrative that you can spin some type of narrative of like, oh, here's DC conspiring to help, I mean, people are going to say that and then they're going to say like, oh, he didn't go far enough because they want to help Trump. I mean, that all of that is possible. I think the real question is, will people see an improvement in their lives? And if they don't, if they don't start acting in the labor market's best interest soon, the answer to that is almost certainly going to be no.
[00:12:17] Speaker 3: If you're Kamala Harris, though, you're hoping for a psychological impact today. This is a good headline. I don't know to what extent she'll message that was one of the conversations we were having earlier. But how about in terms of a material improvement for consumers? This is a short period of time.
[00:12:32] Speaker 21: It's a short period of time, yeah. Maybe there's a mood boost to this, but it's 165 million workers in a pretty large economy. You don't get to take really dramatic right or left turns. And frankly, we don't want the economy to do that. I mean, we want to be on a steady path and that can be really frustrating for people who want relief immediately just to say it's going to get better soon is cold comfort. So maybe people start cheering about how well the economy is doing and that makes people more mad because they still haven't found their job. It's so hard to predict how an individual will internalize this great big economy that they participate in.
[00:13:05] Speaker 1: Well, of course, one of the most immediate transmissions might be in mortgage rates in the housing market. This is selfish coming from me as I'm in the process of trying to buy my first home and I'm like, rates go as low as possible, please, right? But that's where the dot plot will come into play because those will start moving even before the cuts come if the expectation is there that rates are going to go materially
[00:13:24] Speaker 21: low. Yeah. I think that if we can get built in reductions to the mortgage rates, to get the housing market unlocked, to get people to be willing to sell their homes so that you can buy one, hopefully it's a great place. Can you just lift off the specs that you're looking for here and we'll telegraph that right to pal? Yeah. Yeah. I mean, there's lots of relief coming, but I think sometimes we get a little bit upside down thinking in elections about what does one person want versus the other. And it's always helpful to remember that the housing market has been brutal for so many Americans for these past few years. And any type of movement, however it affects the election, is good for our economy for people to feel confident that they can do something that they see as so fundamental as buying a home.
[00:14:04] Speaker 3: Did Kamala Harris today take credit for winning the war on inflation? It's the first cut. We finally made it.
[00:14:10] Speaker 21: That would be so foolhardy, but I would never put it past a politician not to take credit for something good.
[00:14:16] Speaker 3: I feel like her opponent might do that.
[00:14:17] Speaker 1: Yeah. Well, that's different, right? Mm-hmm. Well, I guess so. Finally, before we let you go, we just have a minute left. There's also the consideration of fiscal policy always that the Fed doesn't have influence on, but they do have to react to. If we actually see the policy proposals, frankly, from both of these candidates coming to fruition, there's an argument that they would be inflationary and maybe cut this cutting cycle short. Mm-hmm.
[00:14:38] Speaker 21: Do you agree? Yes. I mean, we haven't seen a lot of fiscal responsibility telegraphed from either candidate. We've got record deficits right now. We're not at an act of war. We're not in an act of recession. Deficits should not be this high. We have sabotaged our ability to collect sufficient revenue from the federal government. And at some point, we are going to need an adult in the room to say we are not raising enough money. They're not going to say that six weeks before an election, but someone needs to say it. Maybe Powell will today.
[00:15:06] Speaker ?: Who knows?
[00:15:06] Speaker 3: That would be a moment.
[00:15:07] Speaker 21: That would be a moment.
[00:15:08] Speaker 1: That would be a moment. Thank you so much for joining us, Catherine.
[00:15:12] Speaker ?: Thanks so much.
[00:15:12] Speaker 1: Yes, Catherine, of course, Bloomberg Opinion columnist and an economic policy consultant. And we are now officially less than half an hour out, Joe.
[00:15:19] Speaker 3: Yeah, this is going to be interesting. And of course, we'll invite everyone to join us at 5 p.m., the late edition of Balance of Power. Michael McKee will be with us to tell us the tale of what happened in the room. Special coverage is on the way, as you would expect here on Bloomberg TV and radio. We're glad you're along. A special edition of Bloomberg Surveillance, The Fed Decides, is on the way with Tom Keen, Jonathan Farrow, and Lisa Abramowitz on Bloomberg TV and radio.
[00:15:46] Speaker 22: The top names in tech are on Bloomberg. Tools like AI are helping us understand the immune system and how to design vaccines. You know, can they get medical advice in their native language on their cell phone? Diseases that are so ignored, like malaria, can we use AI to develop ways to not only reduce that, but eventually eradicate it? Nobody covers technology like Bloomberg.
[00:16:16] Speaker 23: Live from New York City, for our audience worldwide, Bloomberg's The Fed Decides starts right now.
[00:16:23] Speaker 9: This is a special edition of Bloomberg Surveillance with Tom Keen, Jonathan Farrow, and Lisa Abramowitz. Bloomberg Surveillance, The Fed Decides.
[00:16:34] Speaker 23: Live on Bloomberg TV and radio, good afternoon, good afternoon. Counting down to another Fed rate decision and Chairman Powell News Conference. This one, just a little bit more important. Alongside Tom Keen and Lisa Abramowitz, I'm Jonathan Farrow. Your equity market going towards an eighth day of gains. Very close to all-time highs, 25 or 50 from the FOMC.
[00:16:53] Speaker 24: This is an incredibly different type of meeting than we're used to, and it is a monumental moment. The end of the latest edge of a cycle that has left interest rates at the highest levels that we've seen for the peak of a cycle going back to 2000. This is the first time in years that we've seen such a lack of decisiveness heading into a meeting that in the past was basically predetermined, pre-prescribed.
[00:17:16] Speaker 23: TK, it's a real life meeting. It's finely balanced. You've seen a million of these. This one, just a little bit different.
[00:17:21] Speaker 25: I thought it was snooze fest up to Wednesday, and things changed. Starting Thursday, John, it was completely different. Never seen anything like this, and to have Dr. L. Arian with us is fabulous.
[00:17:30] Speaker 23: It's going to be fantastic. I'm looking forward to it. We've got to talk about where the market is positioned as well, so check out the equity market right now. Very close to all-time highs. Coming into this Fed decision, Lisa, that's the equity market. In the bond market, bond yields very close to the lows of the year.
[00:17:44] Speaker 24: And where we've come since the last Fed meeting really is rather remarkable. We came from a 4.3% level on the two-year at the previous July Fed meeting. Now we're somewhere around 3.6%. A massive decline as people really front-load this idea of Fed rate cuts. And it's not just the 25 or 50 parlor game that we've been playing for the better part of the past two weeks. There's also a larger question of what is the path going to be? Is it 240 potential basis points of cuts? Coming up this hour, Kathy Jones of Charles Schwab and Aditya Bahave of Bank of America Global Research. They'll be with us until the Fed rate decision at 2 p.m. Eastern. Then immediate reaction from J.P. Morgan's Bob Michael, Deutsche Bank's Matt Lizetti, and Diane Swank of KPMG. And finally, breaking down Chair Powell's every word with former New York Fed President Bill Dudley and BlackRock's Jeff Rosenberg. Honestly, you can't miss this. This is it. It's the Super Bowl of financial markets.
[00:18:39] Speaker 23: There you go. That's the promo. Thank you, Promo. Thanks, Promo. Totally agree. Joining us now to discuss is a special guest, Mohamed Al-Erin of Queen's College, Cambridge, here in New York City. Mohamed, good afternoon. Good afternoon, John. Is it a problem that we don't know the outcome of this meeting? Isn't that how it's meant to be? Is this a good or a bad thing? It's unambiguously bad.
[00:18:55] Speaker 26: Why? It's not that just we don't know the outcome of this meeting. We don't know anything about the cycle. We don't know how far they're going to go. We don't know how fast they're going to go. And this causes undue volatility in markets. That's the first thing. And that has an economic cost. It also is contrary to the whole notion of forward policy guidance and letting the market do the heavy lifting for you. It opens up the Fed to even more political criticism. And finally, the rest of the world is looking at us and saying, you anchor the international monetary system, and yet you have more uncertainty than we have elsewhere. So this is not a good situation to be in, and it's a highly unusual situation to be in.
[00:19:41] Speaker 23: What is it a failure of? And I struggle to ask that question because I imagine the answer is quite long. But what is it a failure of? Is it just down to Federal Reserve communication? Is it the FOMC? Do they have different views when they should just have one? What is it a failure of?
[00:19:55] Speaker 26: So first, clearly, it's an issue of communication. Tom, you put it well. Everything was quiet until last Wednesday. And then suddenly, on the basis of two informed reporting, the whole world changed. And suddenly, the probability of 50 basis points went up over 50%, even though the data was consistent with 25%. So first, there's an issue of communication. Secondly, and you've heard me say that, data dependence is good, but not at the cost of giving up a strategic view of where you're going. And this Fed has been excessively data dependent, and because of that, it hasn't anchored the market. And then third, the third mistake is I think the forecasts have also been misleading, and we're going to see this again today. So it's a combination of things, and it's a shame because I think the Fed had recovered well from its two big mistakes in the last few years. And now it risks, I hope it doesn't, but it risks fumbling the ball again today.
[00:20:51] Speaker 25: I've got eight ways to go here. I'm not, there's just, you know, the story, the time, the narrative is extraordinary in your commitment to Bloomberg surveillance. Thank you so much. As simple as I can, you talk about T decisions, that's out the window, forget about 2550. We're with the central bank losing degrees of freedom. What does it mean for Americans, the political system, the financial system, Jamie Dimon, that we're losing degrees of freedom?
[00:21:17] Speaker 26: So it means that our influence, our ability to inform outcomes is less. It means that our position as the place that people go to outsource their savings becomes less secure. You know, remember, we are at the core of the system, and we are at the core of the system not because the dollar is the reserve currency, but also because we have the most liquid, the most predictable financial system, and you don't want the sense of unpredictability. Add to that that we are in a political environment. I was on the set when I argued going into July that they should come by 25 basis points, and they should have done 25, 25, 25, 25, and not be put in this position where whatever they do today, they're going to be attacked in a significant way politically from either side.
[00:22:07] Speaker 24: Couldn't you argue that it's a bit dramatic to say that the decision between 25 or 50 undermines the possibility of the U.S.'s sort of the preeminent rate-deciding body of the world? I mean, at a certain point, they're going to cut rates. It's about the path that they are on. Yes, there's uncertainty about the size of the first, but not necessarily the pathway. Why is it so problematic?
[00:22:30] Speaker 26: So think of the image of you sitting on a beach, and you're building a sand mountain, and you keep on dropping particles of sand, and nothing changes for a while, and then suddenly something changes due to one particle. This is not the first time we tell the rest of the world we're not a responsible guardian of the system. In 2008, the financial crisis originated in the U.S. The phase of protectionism, 2017, originated in the U.S. The big transitory inflation mischaracterization originated in the U.S. So we have not been giving confidence to the rest of the world that we are responsible stewards of the system. And what you're seeing happening is little pipes being built around the system. Now, my hope is that the Fed will not be bullied into a 50 basis point cut. It will do 25 basis points. And I say this even though I thought they should have started last July. And the Fed will, this time around, come up with clear communication that gives us some notion of where they see the economy going, and what are the policy implications, and not tell us we're all data dependent.
[00:23:35] Speaker 24: So you're saying that they could rectify their mistake if they come out, and Fed Chair Jay Powell says, we're cutting 25 basis points, so-and-so dissented so that we should cut by 50 basis points, and we're going to cut twice more by 50 basis points for the remainder of the year. Goodbye.
[00:23:48] Speaker 26: Now, give us a little bit more guidance in the data that's going to be published, but give us a sense of, first of all, are they a single mandate Fed? The market thinks they're a single mandate Fed. The market thinks it's all about maximum employment. The market has completely forgotten the second part of the mandate. And the battle over inflation has not been won yet. So, first of all, are they a single mandate Fed, or are they a dual mandate Fed? Secondly, what does risk mitigation in this environment mean? They've got to be clear about this. The market now is basically pushing them more and more into a corner that they're going to find it harder to get out of if they don't regain control of the narrative.
[00:24:26] Speaker 23: So you've introduced the balance of risk question, so let's follow that lead. Is the biggest risk today cutting 50 basis points when we do need it, or rather, 50 basis points when we don't? What is it?
[00:24:38] Speaker 26: For me, the biggest risk is cutting 50 basis points when we don't need it. That's why I would prefer to see them cut by 25 and have a clear path and stop this, you called it ping-pong narrative, stop this ping-pong narrative. Regain control of the narrative.
[00:24:53] Speaker 23: What does regaining control of the narrative mean? You mentioned a single mandate Central Bank. It felt like Chairman Powell reinforced that view in his speech in Jackson Hole. Is there any reason to believe he won't go forward with that same theme later on this afternoon?
[00:25:05] Speaker 26: I don't know. He tends to flip-flop, so I don't have a sense for what he's going to put, but he did reinforce it. That phrase, not that time has come and the direction of travel is clear, the phrase that we do not expect or welcome a further weakening of the labour market was a very strong statement.
[00:25:25] Speaker 23: That was a big change for this committee, and Lisa, I think a lot of people have felt like there is a theory out there. We talked about it earlier on this morning. The theory out there is that this is still a divided committee, and the chairman is looking to corner the other people on the FOMC into making a bigger rate cut decision in 20 minutes' time.
[00:25:40] Speaker 24: Which was the reason why some people speculated there was this informed article or two in a couple of journals to try to get other people on board. The question to me is how vociferous is the argument on the other side with respect to the inflationary risks? The idea that Mohammed was just talking about, how 50 basis points of cutting at a time when you don't need to would be the bigger liability.
[00:26:00] Speaker 23: Working at how the bond market responds to this is complex. We talked about this a little bit earlier this morning as well, and I'm fascinated to see how this market responds to this rate cut decision in 20 minutes' time. Because, Lisa, at the moment we've got equities close to all-time highs, and bond yields very close to 2024 lows.
[00:26:15] Speaker 24: If there is a genuine argument that by cutting more aggressively now, you end up reigniting the risk of inflation later on, couldn't you argue that a bigger rate cut now would actually cause the long bond to sell off yields to climb?
[00:26:30] Speaker 23: We'll have this conversation in about five minutes' time, and you'll see it in the real world, potentially, in about 18 minutes. Mohammed's going to be sticking with us through the hour, into the news conference, and out the other side. In just a moment, we'll catch up with Cathy Jones of Charles Schwab, alongside Aditya Bhave of Bank of America Global Research. Your equity market on the S&P 500 climbing for an eighth consecutive session from New York City this afternoon. Good afternoon. Good afternoon.
[00:27:00] Sherry Young: Asia is at the forefront of some of the world's biggest stories. I'm Sherry-Anne in Tokyo.
[00:27:22] Heidi Stradwaltz: And I'm Heidi Stroud-Watz, here in Sydney, where the trading day begins. We're here in the center of all the action to get you set up with the numbers, news, and knowledge you need for the day ahead.
[00:27:32] Speaker 7: The demand is indeed recovering. We've been waiting for this moment. The opportunity of a century.
[00:27:38] Sherry Young: Join us on Bloomberg The Asia Trade. Weekdays only on Bloomberg TV. Context changes everything.
[00:27:45] Speaker 8: The top names at Jackson Hole are on Bloomberg. I'd like to see us move toward a more real-time data set. So, using new technologies, maybe some of the AI technologies, maybe we get better data as we move forward. But we've got to really focus on that with our economists and our analysts about, you know, where is the data coming from and can we rely on it?
[00:28:09] Speaker 9: Nobody covers Jackson Hole like Bloomberg. Context changes everything.
[00:28:16] Speaker 10: Welcome to the world of decentralized finance. We thought we'd take a look at Bitcoin versus the S&P 500. Bloomberg's covering all things crypto. The people.
[00:28:25] Speaker 11: The tectonic shift emanating from Washington. It's really a tale of two cities and crypto.
[00:28:30] Speaker 12: Crypto shouldn't be partisan. The transactions.
[00:28:33] Speaker 11: Really a record-breaking moment. Crypto VC is back.
[00:28:36] Speaker 13: And the technology. It's really the beginning of a global on-chain economy. And if America doesn't embrace it, we're going to be left behind.
[00:28:43] Speaker 9: Crypto Tuesdays only on Bloomberg.
[00:28:51] Speaker 27: The Fed is going to deliver. The question is, is how much?
[00:28:54] Speaker 1: We're in that 25 basis point camp.
[00:28:56] Speaker 18: 25.
[00:28:57] Speaker 1: 25-25.
[00:28:58] Speaker 18: It's really not a bad economy. It's a good economy. Inflation, it's gotten a lot better. It is going in the right direction.
[00:29:03] Speaker 28: And the data that we've gotten since Jackson Hole really hasn't screamed recession.
[00:29:08] Speaker 29: Is there enough room in the rate structure today for them to be aggressive? Absolutely.
[00:29:13] Speaker 30: There's a really good chance that they move 50. They should go 50, yes. 50. 50. 50 basis points at this meeting is, in fact, appropriate. The Fed is way behind the curve.
[00:29:22] Speaker 31: There is a real risk the Fed is falling behind the curve here. The downside risk to the labor market probably outweigh the upside risk to inflation.
[00:29:30] Speaker 29: If you go 50 first, the market will say, what do you know that I don't?
[00:29:35] Speaker 23: 25 or 50, the debate of the last month. Hopefully, this gets settled in a moment. It will in about 15 minutes' time. And then we'll talk about something else. The next decision on November 7th, 25 or 50. We'll do it all over again. Equities right now on the S&P 500 this afternoon. Shaping up as follows. Eight days of gains, up another tenth of 1%. On the NASDAQ 100 into this one, up a tenth of 1%. If you switch up the board in the bond market, yields very close to the lows of the year. We're at 364 on twos, Lisa on tens, just short of 370.
[00:30:06] Speaker 24: Key question is, how much more can this market bake in? And you've raised this question all morning. How much is this market set up for disappointment? And what you saw throughout the session so far this morning, people trying to take chips off the table, kind of retracing just a little bit ahead of a decision that's been so fully baked in that people are now getting a little bit nervous.
[00:30:23] Speaker 23: Joining us now to discuss, Kathy Jones of Charles Schwab, alongside Mohamed El-Erin of Queen's College, Cambridge, still very much with us. Kathy, I ask this question to Mohamed. I want to ask it of you. Is cutting 50 basis points today when we don't need it worse than not cutting 50 basis points when we do? What's the bigger mistake for you?
[00:30:40] Speaker 32: Oh, I think cutting, not cutting when we need it is certainly more of a problem than cutting when we perhaps don't need it. But frankly, 25 or 50 to kick off this rate cycle, I don't think in the grand scheme of things is all that big a deal. We know we need a couple of rate cuts here. We know there's room for them because the Fed fund's upper bound at five and a half is very high relative to inflation. So, you know, whether we start fast or whether we start a little slower, it's really more about how fast are we going and where are we going to end up?
[00:31:13] Speaker 25: Kathy, because Dr. Larian's with us. I had to go to logs. And the answer is I looked at semi-log 10-year real yield. And the answer is the vectors in place, the trends in place, and there's even some convexity, some acceleration to a new lower real yield. Is that the outcome today that American, particularly American finance and business, resets in a lower real yield?
[00:31:36] Speaker 32: You know, I doubt that it happens today because we don't have real economic data that's weak enough to suggest that we really need a much lower real yield, or certainly not one that's accelerating to the downside. I do think real yields will come down from here. There's plenty of room for them to come down. I doubt that today's the day that we'll see an acceleration to the downside.
[00:31:59] Speaker 24: Kathy, what do you think the reaction function is right now in markets in terms of both the short end and the long end when it comes to 25 versus 50?
[00:32:09] Speaker 32: You know, my guess is the market is vulnerable at the short end if it's only 25, because we built in a pretty high probability of 50 at this meeting. So the short end would be vulnerable. If the Fed goes 50 and we don't really have a sense of, you know, what their outlook is longer term, it's unclear, then the long end might be susceptible on renewed growth and inflation fears. But I think that's a play for down the road. I don't think we're there yet. You know, we have fair value in the 10-year round, 375, 380. We have for a long time. So a little bit below that, but not so much that I think that there's a huge market reaction coming from a Fed meeting. It probably will come one way or another from the next set of data.
[00:32:58] Speaker 23: Kathy, as you know, it's not just about 25 or 50. It's the package. It's a three-part act. We've got a statement, a decision, forecast, and a news conference. I want to talk about the complete package here. If this is a low conviction meeting, how can we expect this Federal Reserve to provide any clarity about the outlook whatsoever? This is a market price for a return to neutral. Not just 25 or 50 today, but a one-way trip towards three percentage points. And I struggle to see how we get a full understanding of where the Federal Reserve is going when they failed to commit to whether they were going 25 or 50 ahead of this decision. Are we asking for too much at 2 p.m. Eastern time?
[00:33:36] Speaker 32: Yeah, I think we always ask for too much, right? There's some sort of expectation that the Fed knows what the path is precisely and will lay it out for us. I mean, I remember the years before there were press conferences or announcements or anything. So I can hearken back to times when the market was surprised by what the Fed did or didn't do. And I think it's sort of intellectually honest to simply say, here's what we expect. Here's what we're looking for. Here's what we're aiming for. But look, a lot of things change. A lot of things come up over time. They can't be expected to provide 100% certainty about what's going to happen.
[00:34:14] Speaker 25: Well, how about I look at this and I think John's dead on. There's more going on here than the silliness of 25 and 50 basis points. To me, the ECB does a dramatically better job of saying, here's our growth guesses. Are we going to see growth guesses today or do they have conviction in what nominal and real GDP are doing?
[00:34:31] Speaker 26: I think you're going to see growth guesses. You're going to see unemployment guesses and you're going to see inflation guesses. And there have been guesses because they have been proven consistently wrong. And this is the problem is that even the forecasting issue has broken down. You know, when I listen to Cathy, yes, Cathy, I remember those days as well. But the whole point of modern central banking is to avoid this unnecessary uncertainty because it can break something in the system. So going back to those days is going against a lot of central banking practice and theory.
[00:35:10] Speaker 32: Yeah, I think my point is really they have to be intellectually honest. And I think they have been. When J-Paul is unclear, if the committee is unclear enough to not want to lay out a very long-term forecast, they'll say this is just a forecast. We're driving down that foggy road. We're trying to go slowly so we don't run off the road. I think that that is providing a certain honest assessment that this is a very unusual cycle. It's not following any pattern that we're accustomed to. It is a global cycle. I think they've been pretty clear. We're headed lower. They want to get back to neutral. I think they have an estimate of neutral, which the market is pricing in. The speed maybe of the, you know, are we taking the fast road or are we going to take the slow lane? Maybe that is in question right now. But I don't think that the direction or the destination so far as it's been laid out is really that unclear, at least as far as the market is concerned. So we have priced in a lot and I think that that's a reflection of the estimates that we've had so far and some of the communications we've had so far. So, you know, in an uncertain world, you can express uncertainty and I think that that's okay. Markets can deal with it.
[00:36:30] Speaker 23: Hey, Cathy. It's going to catch up as always. Cathy Jones there of Charles Schwab. I'm so pleased we've started to talk about the ECB. This is old ground. We've talked about this a few times. But TK, can you imagine if this Federal Reserve in the next 90 minutes or so communicates in the way that Christine Lagarde has over at the European Central Bank has said things like, we're going to take this meeting by meeting. We'll offer you no guidance whatsoever about the next move. We won't commit to a thing. You can have 25 basis points today and we'll see you in a couple of months. This market would crater.
[00:36:57] Speaker 25: You're dead on. And the smartest thing I saw today was a single sentence from a guy named Elarian off some tweet. He had some free time or something getting ready for Jets Patriots. And Mohammed said, you know what? This isn't about us. He didn't mention the ECB, but he did mention the Bank of England. And the Bank of Japan watching. This is a global meeting, John.
[00:37:17] Speaker 26: Mohammed? It is. And I think what we're going to see this week is dispersion within the general theme of lower rates. So I suspect not. I know the Fed will cut today. Question by how much. I suspect the Bank of England will not cut tomorrow. And I suspect the Bank of Japan will hike on Friday. And just be a reminder that while we talk about a global cycle, there is dispersion within this global cycle.
[00:37:42] Speaker 23: Back-to-back decisions into Thursday. The Bank of England on Friday. The BOJ ahead of the Fed, seven minutes away. Joining us now is Aditya Bhave of Bank of America Global Research. Aditya, let's just start with the base case. What you're looking for from this Federal Reserve, the decisions, and the kind of changes to the forecast you're looking for in about seven minutes' time.
[00:38:00] Speaker 33: Good afternoon. Thank you for having me. So we're in the 25 camp. I think Mohammed made the case a lot more articulately, honestly, than I can. But let me give it a shot and keep it simple. Before the blackout period, after the jobs report, the Fed nodded towards 25. That was our opportunity to tell us we want to go 50. They could have laid that case out. They chose not to. During the blackout period, the data we got were sticky housing inflation. Solid retail sales, strong industrial production. So that should make the case for 25 stronger, not weaker. Obviously, we've gotten some nods towards 50. Those are from voices outside the Fed. I think it would be concerning for the Fed from a credibility perspective if they give the impression that those voices are now more powerful than Fed speakers.
[00:38:48] Speaker 24: That said, Aditya, some people argue that the Fed is far above neutral in terms of their benchmark rate and that if they're going to cut and they're trying to get back down to neutral, given where inflation is, the longer, the slower they go, the more restrictive, in a way, they actually are. Economically, does that argument hold water to you?
[00:39:09] Speaker 33: It's a reasonable argument. And they could have made that case for 50, right? So here's what they could have said. They could have said, this is very similar to the mid-cycle adjustments of 1995 and 2019. It's just that we're significantly above neutral, as you said, Lisa, and so we need to come down in iterations of 50 rather than 25. If they had communicated that clearly, they would have potentially been fine, right? Now the risk is that the market keeps pushing you to do more. So if you do 50 today, everything could still work out fine. But the risk is the next time you get some weak data, and that's inevitable when the economy is slowing down a bit, the markets could push for 75.
[00:39:47] Speaker 25: Aditya, the economist Brian Moynihan, six months ago, lectured Jay Powell that just possibly the consumer may slow down. We're waiting. I'm talking 4.8, 5% nominal GDP. Is the consumer slowing down?
[00:40:05] Speaker 33: The consumer has been remarkably resilient. We had a bit of a softer patch at the start of the year, which is probably what was being referred to. But if you look at the last three or four months, even to our surprise, there's been a rebound. Retail sales over the last four months have just been very, very solid, right? So that's been very helpful because usually what you would see in a labor-driven slowdown is that eventually the consumer collapses under the weight of labor income loss, and that's not happened so far.
[00:40:33] Speaker 26: Aditya, I understand the arithmetic that leads to the hypothesis that we are very restrictive because we're way above neutral. I don't know a single indicator of financial conditions that doesn't flash very loose financial conditions. So can you reconcile the two for us?
[00:40:53] Speaker 33: Yeah, I think neutral could be higher, right? So what do we know about neutral really, to be honest? I think we can say with some conviction that it's somewhere between 2.5% and 4%. Beyond that, I don't think we can say a lot with conviction. So then it's going to come down to we'll learn where neutral is as the Fed cuts based on what the economy does. And if they are able to soft land this economy, if they're sitting at 4% rates three months, six months down the line, depending on how far they cut, then I think the assessment has to be that maybe Rstar has gone up. So even if the dots for Rstar don't go up this time around, they might go up in the future. On the flip side, if we do go into a recession, which is not our base case, then you would say, okay, we were actually a lot more restrictive than we thought in neutral is lower.
[00:41:35] Speaker 23: Aditya, appreciate your insight as always. Looking for 25 in three minutes' time. Aditya Bhave there of Bank of America Global Research. I'm pleased we got to this discussion. Equity markets close to all-time highs. Bond yields are low. Spreads are tight. Tight, tight, tight. We've had a round trip through the whole of August. And think about the demand we're already seeing for debt worldwide, across Europe, here in the United States as well, both sovereign and corporate. And look at what's happening with mortgage applications in America. Before we've even seen the first interest rate cut, we're already starting to unlock a lot of activity. Big move high, TK. A little bit of circulation. Big move high this morning.
[00:42:07] Speaker 24: Which, to me, just highlights the reason why people treat the markets as though they're an adolescent looking for more, and you give them a little bit, and then they're looking for even more. This idea that if the Fed says, fine, you guys can have your 50 basis points, then they're going to keep going with that, and that's going to create much easier financial conditions.
[00:42:25] Speaker 25: Quickly, Peter Orszag at Berkings, with a terrific three essays, Mohamed, on what the pandemic did to our microeconomics of our system. Are we still in the pandemic?
[00:42:34] Speaker 26: No, I think we've mostly exited, with the labor market being the last sector to adjust.
[00:42:41] Speaker 23: Do you think we're in bubble territory here? What do you think about some of these market moves? The fact we haven't even seen a rate cut yet, and we're already at these kind of levels. I think we've gotten carried away on the fixed income side.
[00:42:52] Speaker 26: Bonds more than stocks? I think bonds more than stocks. Why is that, Mohamed? I think stocks, you can make stories for secular changes, for real transformational changes. I think in the bond market, you can't make that argument. If you make it, then you should go the other way, because we have fiscal deficits of 6% to 8%. We have high debt levels. The secular argument isn't in your favor in the bond market.
[00:43:14] Speaker 23: Two issues in the last few weeks. We've talked about them. We had debt out of Italy, record order book. The week before, we had debt out of the UK, record order book. We saw some of the busiest days we've ever seen in the high-grade corporate market in America. Tons of demand to back it up.
[00:43:28] Speaker 24: And when you ask people why, they say there's cash out there, and people want to lock in yields before some of those rates go down. I love this story idea, that basically you can come up with a story for stocks, but the story for bonds doesn't work logically with where it is right now. And that, I think, is the key. If you're storytelling, stocks actually make more sense right now than the story that is the bond market.
[00:43:48] Speaker 23: What did you say this morning? This is a market where logic comes to die. Yes. Isn't that what you said?
[00:43:53] Speaker 34: Yes, that is what I said.
[00:43:54] Speaker 23: That's my line of the month. My line of the month. This is the countdown to the Fed decision. It is literally seconds away. Going into it, your scores look like this in the equity market firmer by about a tenth of one percent on the S&P 500 on an eight-day winning streak. In the bond market, two-year, 10-year, 30-year, your scores as follows. Your two-year yield in America has been moving lower over the last month. Your yield, 365. Your Fed decision with Mike McKee.
[00:44:19] Speaker 35: It's 50, and the promise of another 50 basis points in cuts by the end of the year, and another 100 basis points in 2025, which would put the nation's benchmark rate at 3.4 percent. It's projected to fall another 50 basis points in 2026, which would put the rate at 2.9 percent, which is now the Fed's median forecast for the neutral rate. That is up a tenth from June. The consensus is GDP will rise 2 percent this year, down a tenth from the June forecast. Growth will be the same in 2025 and 2026. Unemployment will hit 4.4 percent this year. That's an increase from the June figure. It will fall to 4.3 percent in 2026. PCE inflation of 2.3 percent this year falls to 2.1 next year and hits the 2 percent target in 2026. Though inflation remains, quote, somewhat elevated, the statement says they cut because they now have greater confidence inflation is moving sustainably toward their 2 percent target, and the risks to inflation and the labor market are roughly balanced. While they do not explain why they decided on a half point reduction, the statement says the committee is strongly committed to supporting maximum employment. And remember, in Jackson Hole, Chairman Powell said any deterioration in the labor market would be unwelcome. There was one dissent from Governor Mickey Bowman. It's the first dissent by a Fed governor since 2005. It is the first dissent by any member of the committee since 2022. The statement adjusted to say the committee will, as always, carefully assess incoming data, quote, in considering additional adjustments.
[00:46:06] Speaker 23: There's no changes, guys, to the QT portion of the Fed's policy. Mike McKee, stay close, we'll come back to you. Here's the price action in response to it. Knee-jerk reaction is the first move. Might not stick, but this is the move so far. Up by 0.8 of 1 percent on the S&P 500. The overwhelming outperformance on the Russell. The small cap's now up by 1.7 percent. In the bond market, just bear in mind, we've come a long, long way. And we've priced in a lot to this yield curve. The two-year, just climbing just a little bit to one change to $3.60 at the moment at the front end of the yield curve. And in the FX market, dollar-yen dropping back by about 0.7 percent. So that's a weaker dollar, a stronger Japanese yen. Lisa, $1.41 on that currency pair.
[00:46:46] Speaker 24: Yeah, now over to the Bank of Japan. And if they hike, how much does that divergence continue? I also want to point out gold. You're seeing a bid into gold right now. We start to look for some of the inflation proxies. Will this sort of feed into that idea? I thought it was interesting, the long end of the yield curve, just on the margins, not significantly, yields just slightly up on this idea that they're going to go bigger and potentially even more down the line.
[00:47:06] Speaker 23: So the median dot can mask some disagreement beneath the surface. So let's talk about the range and not just the median at the FOMC. The median dot for 2025 in the projection materials that were just published is 3.4 percent. The range for 2025 is anywhere from 2.9 to 4.1. 2.9 to 4.1. That's quite a range on this FOMC. And I think for the first time in a long time, we have some dissent playing out publicly as well. The first dissent from a sitting governor on the FOMC since 2005. This was not a unanimous decision.
[00:47:38] Speaker 24: And it really highlights why this actually became such a knife's edge kind of decision. Just to add to that, 10 officials penciled in 100 basis points or more of cuts for this year. Nine officials penciled in 75 basis points or less for this year. It actually matters quite a bit for market expectations, especially given some of the policy uncertainty next year.
[00:47:58] Speaker 23: So, TK, we get 50. We get 50. And now we're waiting for the next act. It's a news conference in 26 minutes' time.
[00:48:04] Speaker 25: I think it's a surprise. Within the zeitgeist, this is to the edge of surprise. I think Powell maybe alluded to this with his enthusiasms. Jackson Hole, you touched on something Jason Furman touched on this morning, which is don't forget the dollar. And Mohamed El-Erian, I'm going to be as direct as I can. Is the great unknown unknown here a dollar weakness that anybody without great hair doesn't know?
[00:48:27] Speaker 26: That we may not know. I think we've seen it before. I remember periods of dollar weakness. But it is dollar weakness. This is not just a 50 basis point cut. This is a dovish 50 basis point cut. Well, yeah. Now, I agree with you, John, that the dovish part comes from the median dots. But if you look at the range, it doesn't look as dovish. But that's not what the market is going to hear. The market is going to look at the median dot. And we'll interpret this as a dovish 50 basis point cut. And the first reaction was actually a steepening of both 2s, 10s and 2s, 30s, which tells you something about what people are worried about.
[00:49:06] Speaker 23: To some extent, this median dot validates market pricing coming into this decision. Is that sufficient? I'm looking at equity market reaction right now. We're up by a half of 1%. We've still got a news conference, a question we've asked for the last several weeks into this. Are we going to end up with disappointment on the other side of this news conference with Chairman Powell? What would your question be now?
[00:49:25] Speaker 26: So, first of all, normally he's more dovish than the statement. So, that's going to be pretty hard to do this time. But let's wait. You know, my question will be what has changed since July when you decided not to cut rates? And now there's this very aggressive cut and aggressive signalling.
[00:49:44] Speaker 23: What has changed? The speech in Sintra, Portugal at the start of summer, very different to what we're hearing from the FOMC just several months later. Joining us now to discuss is Bob Michael of JPMorgan Asset Management. He joins us out of London this afternoon. Bob, we just want your first impression to the decision. What do you make of it?
[00:50:01] Speaker 36: It hit on pretty much everything we were looking for, probably a little less dovish than we thought in two instances. One, there was a dissent, so it wasn't a slam dunk. And we would have liked to have seen the median dot for the end of next year, somewhere around two and three quarters to three percent. But otherwise, as we had been guided over the last week, nothing to quibble about.
[00:50:23] Speaker 25: Bob, which bond series or individual bond provides the most information right now? Is it a real yield? Is it the nominal full faith in credit? What's of the most value to Bob Michael right now?
[00:50:36] Speaker 36: Credit spreads. Credit spreads will tell us whether investors believe the economy is in dire shape, and this was an emergency 50 basis point cut, or whether this is just a Fed a long way from neutral, perhaps, as Mohammed hinted, a meeting or two away from where they should have started the cycle. So they're starting to get towards neutral. All is well.
[00:51:00] Speaker 24: OK, all is well. And yet what we saw earlier this morning was an increase in mortgage applications. What we've seen is already the bond market pricing in, all of this and then some. And basically, this statement only encourages that even more. Do you not see a risk of potentially reignited inflation, Bob, that we could potentially see expressed in the long end? As Mohammed was mentioning, we are seeing that yield curve steepening in a way that hints that something else is amiss, especially when paired with gold.
[00:51:28] Speaker 36: Whoa, whoa, whoa. We're a long way away from that. We're looking at the three-month annualized rate of core PCE running at 1.7%. So that's not inflationary. There's signs of disinflation everywhere. When you look at the labor market, they talked about full employment. Well, the low in unemployment was 3.4%. A couple months ago, it was 4.3%. That's up nine-tenths of a percent. You only see that when there's threat of recession. That's characteristic of that. They've highlighted to us that the neutral Fed funds rate is somewhere around 3%. That's a debate we could have for a long time, but it's nowhere near five and a quarter, five and a half percent. So they can start taking pressure off of businesses and households without reigniting inflation.
[00:52:19] Speaker 26: Bob, I know they call you Bob Michael, but you told me earlier it was Bob Michel, so I'm going to stick to Bob Michel.
[00:52:27] Speaker 36: Mohammed, I came to London because I thought we were going to QPR Millwall on Saturday. Now you're in New York on me?
[00:52:33] Speaker 26: I am. I'll be in London tomorrow. All right. So, Bob, speak a little bit to the revisions and the projections and particularly unemployment. What do you make of that?
[00:52:44] Speaker 36: I didn't catch them. What did they do?
[00:52:47] Speaker 26: They pushed it up.
[00:52:50] Speaker 36: Yeah, I think they have to acknowledge that we're at a challenging time, that there are new entrants to the labor market, but those are still unemployed U.S. workers. And they have to acknowledge that we're not below four percent anymore. We're heading a little bit higher. And that's why you need the policy response to start with 50 basis points. I'm OK with that.
[00:53:19] Speaker 23: Yeah, but Bob, I think we've got to talk about this a little bit more. And I'm pleased we went to unemployment. Unemployment right now in America is at 4.2 percent. These are the Fed's projections out in 2024 year end, out to 25 and beyond. They've got projections of 4.4 percent, the median projection for unemployment this year. Next year, they've got it at 4.4 percent. Given the move we've seen over the last 12 months, Bob, how aspirational is that? How realistic is it that we just kind of pause around these levels for the next 18 months?
[00:53:49] Speaker 36: Well, we very well could. If we get two 25s over the next two meetings and we bring rates down 100 basis points, what we know is there's still a shortage of housing. There are first-time homebuyers queued up to buy homes. So bringing rates down could bring those buyers into the market. We also know that a lot of businesses don't fund themselves in the public bond market. They fund themselves through bank loans, through private credit. Those are floating rate loans. Those are anywhere starting with SOFR at 5 and 3.8 percent. You take 100 basis points off of that, that could help to stabilize things as well. Just because unemployment has headed up over the last year doesn't mean it has to keep going.
[00:54:38] Speaker 23: It can certainly flatten out here if the Fed does its job. Hey, Bob. Appreciate catching up. As always, Bob Michael there of JPMorgan S&M Management. There's a couple of moves in this market that I think are very, very interesting. We've just gone 50. And in some ways, the Dodd plot is validating what we were pricing in this market ahead of time as well. And what you're seeing at the long end is the long bonds sell off and yields climb by two basis points. It's not a big move, but it's notable. We're up by two on 10s. On 30s, we're up by three. And at the same time, we've got gold at all-time highs. What is this market sniffing out?
[00:55:10] Speaker 24: Well, it's sniffing out on the margins a greater inflationary risk than otherwise priced in. Look, I can make an argument about how it might mean that we're going to suddenly get runaway into 70-style inflation. That's not what it's saying. But what it is saying is that on the margins, the idea of a bigger and, frankly, a dovish 50 basis point rate cut really highlights how inflation is still back on the table, at least on the margins.
[00:55:30] Speaker 23: They're talking about a dual mandate imbalance. Mohamed, your impression is that it's a single mandate central bank now. And you don't think we should take our eyes off the other side of the mandate. Do you think the market's speaking to that, just on the margin, this afternoon?
[00:55:42] Speaker 26: I think at the margin, yes. But I do think that this is the reaction of a single mandate Fed right now, especially if you believe 2% is your inflation target.
[00:55:51] Speaker 23: Let's cross over to Diane Swank and bring her in of KPMG. Diane, we'd love your thoughts on the decision, and then we can get into the nuances. What do you make of the 50 instead of the 25?
[00:56:01] Speaker 37: This was a huge victory for Jay Powell, who really laid out at his Jackson Hole speech that he was worried about employment, and that is what this is about. And Mickey Bowman doing a dissent, Powell willing to take a dissent among the board members as opposed to among a president, that is how much he wanted this half percent rate cut. And I think that's very important. I think you're going to see it couched and explained within the context of several participants at the July meeting, thought they were ready to go ahead and cut. So this is a bit of a catch-up to that. And so that should help temper a little bit this dovish read on it. I was surprised that they kept the risks balanced, although clearly the focus is now on employment and not allowing the situation in employment to become much worse. Remember, we're at 116,000 payroll gains, three-month moving average as of August. That's not statistically different from zero. Combined with the downward revisions we saw on August 21st, the day before Powell gave his remarks at Jackson Hole, those downward revisions, record downward revisions, even if they're not as large as they appeared because of some immigration that we're not capturing, they're still large. And it means the birth and death rate, the death rate of firms has picked up. And their small businesses aren't hiring as much as well, which could mean actually the payroll data for this year also gets revised down. And that's what they're worried about.
[00:57:29] Speaker 25: Diane, your work out on LinkedIn has been just hugely beneficial, a really holistic view of the U.S. economy. I have a Dow Jones Industrial Average bottom of the pandemic up 128%, 21% per year. I've got debt and deficit that Hal Bronner and Bernstein never dreamed of. Diane Swank, is this a Fed just dealing with our stimuli? Is this a Fed just dealing with debt and deficit to the sky?
[00:57:57] Speaker 37: Diane Swank, you know, we've had everything you could possibly imagine pushed up inflation. And now we're seeing it come down despite the fact that we still have a lot of debt. So, you know, on the margin, yes, we do have high debts. And I do believe we need to deal with that at some point in time. And I don't think we have anyone who's willing to talk about it on either side of the aisle, which is another issue. We can talk about that at a later date. But right now, we've got a Federal Reserve that's no longer buying that debt. And you've got a Federal Reserve that is seeing inflation come down despite the fact that we have high debt. And that's because on the margin, after we get past the sort of six months that we put a whole year budget into, from March into October 1st, you get a continuing resolution at best through year-end. And you're going to get more constraints on spending, I think, as we get into 2025.
[00:58:52] Speaker 24: Diane, one reason why this comes as a surprise, this decision, one reason why is because they could have telegraphed this more carefully. There was no data that really moved the needle between the time when the quiet period began and now that would shift us toward 50. Why do you think there wasn't more clear communication that this was a Federal Reserve ready to cut rates by 50 basis points?
[00:59:16] Speaker 37: Well, frankly, I don't think that Jay Powell, by the time the blackout period hit, had the votes in his pocket to be able to do that. And I think we saw that in some of the mixed messages, even the day of the blackout period. Chris Waller, governor on the Federal Reserve, had said, you know, you'd be open to a more aggressive rate cut. But he didn't seem to be really ready to do it in September. We saw John Williams come out that same day and sort of talking about more cautious rate cuts, more of a quarter point kind of rate cut. So they didn't telegraph it because he hadn't corralled the cats. But this really does speak to the fact that he does have an extraordinary ability to actually do just that.
[00:59:55] Speaker 23: Let's get to this quote from Nel Dutta of Runmack, just out at the moment. Here's the issue. The balance of risks have changed. In June, most saw balance risk to unemployment. Right now, this is completely flipped. Most see risk to unemployed skewed to the upside. This will not be the last time we see a 50, in our opinion. Lisa, your thoughts?
[01:00:12] Speaker 24: This is basically what's being priced into this year. I mean, how else do they get to more than 100 basis points, potentially, by the end of this year? And if you think about it, it raises a lot of questions about what they are seeing that suddenly makes that, such a consensus, given that we've gotten a lot of mixed messaging.
[01:00:28] Speaker 23: Let's head back to London and catch up with Bob Michael at J.P. Morgan Asset Management. Bob, I'm sitting there in cash. I've been sat here for a long time. You've been warning me for a long time that I face real reinvestment risk. The Fed's just cut 50, and I'm freaking out. I give you a call. I'm now worried about another 50, and maybe another 50 after that. What are you buying on my behalf?
[01:00:48] Speaker 36: We're telling clients, just get into the bond market. Just get into a general bond fund. It could be an aggregate investment-grade bond fund. It could be a core-plus bond fund if you're in a high-tax bracket. Get into a general municipal bond fund. Yields are coming down. Yields are at this level with $6.3 trillion in cash building up, and most people not liking the bond market. Some buying has brought it down here, and this money will come in because they're going to watch the return on cash go down like power windows.
[01:01:24] Speaker 24: I've got to say, Mohamed, this goes to the point that you were making. I'd love your comments on this, this idea that the Fed was seeing something that made him shift his view, and what we're seeing right now is that maybe he just didn't have the votes. I'm just trying to wrap my head around what that means going forward, that maybe they're going to be even more aggressive than the market previously thought, and that maybe it is appropriate to price in even more spread compression, even more yields going lower.
[01:01:50] Speaker 26: So it would not surprise me if that is the market reaction. It would not surprise me at all because the market has been conditioned to ask for more and more and gets more and more. So it wouldn't surprise me if that is what happens. I will go back to the significant dispersion in FOMC members' view as to what the destination looks like, and that dispersion has got to be reconciled over time. So I don't think it is as clear-cut as the market will make it seem.
[01:02:23] Speaker 25: Diane Swank, I've got eight ways to go here. Let's try this. You've got a wonderful reading of America away from three zip codes in Manhattan, the quadrants of Washington, D.C. This rate cut, how does it affect America that are not the elites, not the people enjoying NVIDIA to the moon?
[01:02:45] Speaker 37: Well, this is really important because the rate cuts, the short-term rate cuts, are what comes through on loans that consumers take out. This is beyond the mortgage rate situation. This also helps the mortgage rate situation, obviously. But the real issue for consumers are short-term interest rates and how they are priced on their debt. Now, on the credit cards, the average credit card rate is about 25%. This is a rounding error on that. It's not going to help a lot on that. That's just incredible how high those rates are. But when you get into auto loans, when you get into other kinds of loans that consumers take in businesses, middle market through small businesses, it affects all those loans. And right now, you can imagine a lot of people are going to get some relief in terms of that. Now, the good news is, there's not a lot of overhang of debt for consumers and they can service the debt they've got. But for those lower-income households that have already exhausted all of their savings and then some, this is good news. They rely on lower rates to buy used vehicles. They can't even afford to buy new vehicles anymore. That goes right up into middle-income households. So that's where we'll see some movement, but it's not immediate. You're not going to see... That also understands there's lags. And I think Mohammed is right about the issue of the market front-running, when the real message here is that this was not signaling that we're ready to cut, cut, cut, cut. This is a window of opportunity to cut now, catch up on July. That's important. But this isn't a signal that they're ready to go half percent, half percent, half percent, sort of continuously. And the election is an uncertainty. That is not factoring into the decision today, but it is an uncertainty in terms of policy for 2025 and 2026. And that could change the trajectory for the Federal Reserve once that cloud of uncertainty regarding the election outcome in the U.S. is lifted.
[01:04:46] Speaker 23: Could not agree more. Dan, just one of the best, as always, the clinic, Diane Swank there of KPMG. November 7th could be a very, very different meeting. If you are just joining us, welcome to the program, 25 or 50. We got 50 from this Federal Reserve. The outlook, unclear. 10 out of 19 officials favoring lowering interest rates by at least an additional half point over the remaining two meetings of 2024. And the next meeting in 2024 could be very interesting if we do indeed have in hand the outcome of the presidential election. Matt Lazzetti of Deutsche Bank joins us now for more. Matt, your first reaction to this one, please, sir. We get 50.
[01:05:22] Speaker 38: Yeah, I think it's all about the messaging that we hear from Chair Powell about the reaction function as we look ahead. You know, as we were thinking through if they go by 50 basis points, what is the communications challenge for them? I think it's two things. One, they have to project confidence in the economy, positivity in the economy, so they avoid a negative confidence signal. And then two, I think that they want to send a signal that this is not the new norm, that they're going to be ratcheting down to 25 basis point increments. And as I look at that dot plot and the skew for this year, it does seem that there's a pretty strong kind of consensus around going 25 basis points from here. I think 18 out of 19 dots showed only an expectation of two more 25 basis point rate cuts or less. And so I think Powell can paint this as a one-off. It was meant to right-size monetary policy to a lower inflation environment, ensure that the real rate doesn't rise too much, and to really show that kind of actions speak louder than words in providing confidence on the soft landing.
[01:06:16] Speaker 25: Matt Lozetti, the 10-year real yield just printed below 1.50. To me, that's a huge signal of coming out of the pandemic. What does a diminished real yield do for American business, American finance, and investment?
[01:06:32] Speaker 38: Look, I think we should expect that the goal of this is to keep financial conditions easy, to ensure that financial conditions don't over-tighten and put a soft landing in jeopardy. That is ultimately the legacy of Chair Powell, and I think that he took out some insurance against that today. I think that's a good outcome for the economy. Hopefully, he can message it in that way, which is, they have a positive outlook. This is not the starting of a 50-basis-point cutting cycle. And I think if you get that, soft landing prospects improve, financial conditions ease, and we have a very good outcome for the economy.
[01:07:00] Speaker 24: Matt, one of the stickiest areas of inflation has been the housing market, and what we've seen there has been recently an uptick in mortgage applications, as well as just in general some of the home lender stocks. How quickly could you see a transition from a market that is completely flat on its back, not shifting around moving at all, to one that is robustly priced, discovering it to the upside with people given renewed confidence by lower rates?
[01:07:26] Speaker 38: Yeah, you know, we got mortgage purchase applications this morning, and they did show a tick up more driven by refinancing activity than purchase activity. It does seem to be lagging a little bit, the move in the mortgage rates so far. My own view is, I think that's driven by, when you look at the University of Michigan or conference board, so many consumers expect rates to come down over the next year. And so that has to happen, and maybe as rate cuts happen, and as mortgage rates fall further, that really does unleash activity in the housing market. That would present upside risks for the economy. You know, I think the reality is Q2 growth was 3%. Q3 growth is tracking near 3% according to the Atlanta Fed GDP. When you look at consumer spending on a three-month annualized rate, it's the highest that we've had since 2011. We've got a robust retail sales report this week. So, you know, I think Chair Powell should present a picture where the underlying economy and fundamentals are resilient and strong here, but they were taking decisive action today to ensure that those outcomes continue.
[01:08:19] Speaker 23: Hey, Matt, final round before you go. Question for the chairman in this news conference. What's your number one question?
[01:08:25] Speaker 38: I think it's all about reaction function. So, you know, the fact that they went by 50 basis points today before seeing very weak outcomes for the economy will naturally raise questions in the market about what if you get a weaker jobs report? Do they go by 75 basis points or not? So, I think it's all about the reaction function from here and, you know, how does he respond to that? Does he kind of set a high bar either for another 50 basis point or even higher rate cuts?
[01:08:48] Speaker 23: Matt Lazzetti at Deutsche Bank. Bob Michael at J.P. Morgan Asset Management still with us. Bob, you love asking this one too, so I'll ask it for you. What's your question for Mike McKee in this news conference a little bit later on this afternoon?
[01:08:59] Speaker 36: Has the concept of an equilibrium long-term neutral Fed funds rate expired? Do we need that anymore? Shouldn't they be talking more in terms of a real Fed funds rate, maybe minus 1% to plus 3%? I mean, for goodness sakes, in my career, I've seen the Fed funds rate at 0 and 20%. So trying to target something like that is nonsensical to me.
[01:09:27] Speaker 23: Hey, Bob, got to catch up as always. Bob Michael at J.P. Morgan Asset Management. We get 50 from the Federal Reserve. Your news conference is five minutes away. The price action looks like this, up a half of 1% on the S&P 500. In the last hour, Lisa printing a new all-time high on the S&P.
[01:09:42] Speaker 24: Which really is in line with what some people were expecting, although disappointment they did not get. If you want to take a look at whether this is a Fed that can outdove market expectations, it seems like they did. And the projections going forward really highlight how this market likes to run ahead of even where Fed pricing is. Just look at this. If you take a look at Fed fund future pricing, we're actually pricing in a 4.1% Fed funds rate to end this year. So we're talking about an additional, almost 100 basis points of additional cuts from here. 150 basis points of cuts, which just again points to why a dovish 50 basis point cut has made a difference in this market.
[01:10:20] Speaker 23: Mohamed, you alluded to this. If they go 50, the pressure will build to go 50 again. Is that what's happening?
[01:10:25] Speaker 26: That is what's happening and the market loves this. And it's been the repeated conditioning of the market. Give it something, it will want more.
[01:10:34] Speaker 25: I look at this late in the press conference, John, when we get to the political questions. Like if I was to parachute, John, into the Elleryan Institute of Behavioral Economics and Policy.
[01:10:44] Speaker 23: Would you behave?
[01:10:45] Speaker 25: The first thing I would behave and the answer is there's two United Kingdoms out there and there's two Americas out there and he has to address within his neutrality and the political debate those two Americas. It's not just about Bob Michael and the portfolio on Park Avenue trying to figure out what to do next.
[01:11:03] Speaker 23: How does he navigate some of those issues, Mohamed? How difficult is it to set policy for two very different experiences in this economy? It's very difficult. It's even more difficult
[01:11:10] Speaker 26: when politicians are shouting Go 75. Go 75. No, it is really difficult. What's not clear to me is if he is actually buying insurance what is the cost of that insurance? What is the downside of buying insurance? You know, insurance is hardly ever costless. So what is the downside of having bought insurance for the economy? And that's something we'll only find out over time.
[01:11:32] Speaker 24: What's the cost of buying insurance for the economy but also for the Fed and for its political independence and its reputation therein? I just wonder if it's more difficult to make the decision now on November 7th now that you've had this initial favori basis point rate cut and you have a market that's now saying yeah, you could do another one in November.
[01:11:51] Speaker 26: Yeah, and that was the argument all along. Start in July. Don't get yourself in this situation but it is what it is and they're now going to have to navigate this. I think Powell is going to be very clear. He'll say we are not impacted by political issues just like he will say that he is blessed to use his word by lots of opinions from outside but ultimately it's what they decide in that room.
[01:12:13] Speaker 23: And they will get lots of opinions after this one. In just a moment, two minutes away Chairman Powell will walk into that room and give us a news conference for the next 60 minutes or so. We'll take that in its entirety on Bloomberg TV and on Bloomberg Radio. Lisa, things could be very different on November 7th. We've said that repeatedly. I don't think you can overstate it. Things could be very different. The outlook for 2025 could shape up in a rather different way depending on what the complexion of Congress looks like, how divided things are in the nation's capital.
[01:12:41] Speaker 24: And whether or not we even know at that point as Anne-Marie likes to say, whether we have a decision. It just will be interesting how much this is a three-part act. We get the third part of the act coming up moments away. How he characterizes what this insurance policy is really for. Is this because they are seeing true weakening in a labor market that otherwise is kind of hanging in there? And that, I think, is one of the key questions.
[01:13:04] Speaker 23: How do you expect him to frame it? Is this a one-off, mid-cycle adjustment, a wait-and-see, we'll regroup in November? Or is this the beginning of a one-way trip back towards what they think is neutral?
[01:13:14] Speaker 24: Could it be both? I mean, right? Is this basically, can everyone have their cake and then eat it too? Because essentially, you have inflation coming down and you have an economy that is in a trajectory that typically does lead to further weakening. Is it history that can actually make sense at a time that has defied a lot of historical precedence? It's going to be a really difficult one for him to really tie.
[01:13:35] Speaker 25: It's going to be difficult because they're coming out of a pandemic and they're making it up every meeting and every day and every speech, John, as they go. They're making this up as they go. Today, they catch up maybe is the right way to put it. But the then what of November and into 2025 is real.
[01:13:52] Speaker 23: We certainly all agree on that. We've said this a few times. We've all been humbled through this pandemic and coming out the other side. Equities right now going into this one, just short, of all-time highs on the S&P 500. We are firmer. By half of 1% in the bond market. This is the yield reaction. On a two-year, we're down four basis points coming into this news conference. Just remember, for seven consecutive Fed decision days, this two-year has rallied. This yield has dropped and that continues at least for now. We're down four basis points at a front end of the curve. The chairman of the Federal Reserve, after cutting interest rates by 50 basis points, takes the floor.
[01:14:27] Speaker 39: Good afternoon. 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. Our 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. Inflation has eased substantially from a peak of 7% to an estimated 2.2% as of August. We're committed to maintaining our economy's strength by supporting maximum employment and returning inflation to our 2% goal. Today, the Federal Open Market Committee decided to reduce the degree of policy restraint by lowering our policy interest rate by a half percentage point. This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%. We also decided to continue to reduce our securities holdings. I will 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. GDP rose at an annual rate of 2.2% in the first half of the year and available data point to a roughly similar pace of growth this quarter. Growth of consumer spending has remained resilient and investment in equipment and intangibles has picked up from its anemic pace last year. In the housing sector, investment fell back in the second quarter after rising strongly in the first. Improving supply conditions have supported resilient demand and the strong performance of the U.S. economy over the past year. In our summary of economic projections, committee participants generally expect GDP growth to remain solid with a median projection of 2% over the next few years. In the labor market, conditions have continued to cool. Payroll job gains averaged 116,000 per month over the past three months, a notable step down from the pay seen earlier in the year. The unemployment rate has moved up but remains low at 4.2%. 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 elevated inflationary pressures. The median projection for the unemployment rate in the SEP is 4.4% at the end of this year, four-tenths higher than projected in June. Inflation has eased notably over the past two years but remains above our longer-run goal of 2%. Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.2% over the 12 months ending in August and that excluding the volatile food and energy categories, core PCE prices rose 2.7%. 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. The median projection in the SEP for total PCE inflation is 2.3% this year and 2.1% next year, somewhat lower than projected in June. Thereafter, the median projection is 2%. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. For much of the past three years, inflation ran well above our 2% goal and labor market conditions were extremely tight. Our primary focus had been on bringing down inflation and appropriately so. We are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation. Our restrictive monetary policy has helped restore the balance between aggregate supply and demand, easing inflationary pressures and ensuring that inflation expectations remain well anchored. Our patient approach over the past year has paid dividends. Inflation is now much closer to our objective, and we have gained greater confidence that inflation is moving sustainably toward 2%. As inflation has declined and the labor market has cooled, the upside risks to inflation have diminished and the downside risks to employment have increased. We now see the risks to achieving our employment and inflation goals as roughly in balance, and we are attentive to the risks to both sides of our dual mandate. In light of the progress on inflation and the balance of risks, at today's meeting, the committee decided to lower the target range for the federal funds rate by a half percentage point to 4.75% to 5%. This 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 begin the process of moving toward a more neutral stance. We are not on any pre-said course. We will continue to make our decisions meeting by meeting. We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing 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. In our SEP, FOMC participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario going forward. If the economy evolves as expected, the median participant projects that the appropriate level of the federal funds rate will be 4.4% at the end of this year and 3.4% at the end of 2020. These median projections are lower than in June, consistent with the projections for lower inflation and higher unemployment, as well as the changed balance of risks. These projections, however, are not a committee plan or decision. As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals. If the economy remains solid and inflation persists, 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 are prepared to respond. 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 back down to our 2% 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 your questions.
[01:22:22] Speaker 40: Steve Leesman, CNBC. Thank you, Mr. Chairman, for taking our questions. In July, you said you weren't necessarily thinking about it. You didn't want to be specific, but you said you weren't thinking about it, 50. The inflation data last week came out a little firmer than expected. Retail was strong, third-quarter GDP running 3%. So what changed and made the committee go 50? And how do you respond to the concerns that perhaps it shows the Fed is more concerned about the labor market? And I guess, should we expect more 50s in the months ahead? And based on what, should we make that call? Thank you.
[01:22:53] Speaker 39: So, okay, a lot of questions in there. Let me jump in. Thank you. So, since the last meeting, okay, the last meeting, we have had a lot of data come in. We've had the two employment reports, July and August. We've also had two inflation reports, including one that came in during blackout. We had the QCEW report, which suggests that maybe, not maybe, but suggests that the payroll report numbers that we're getting may be artificially high and will be revised down. You know that. We've also seen anecdotal data like the Beige Book. So we took all of those and we went into blackout and we thought about what to do. And we concluded that this was the right thing for the economy, for the people that we serve. And that's how we made our decision. So that's one question. What was the second
[01:23:46] Speaker 40: and third? Sorry, thank you, sir. How do we figure out in the months ahead is there another 25 or 50 coming in based on what shall we make that call? Thank you. Sure.
[01:23:56] Speaker 39: So a couple things. A good place to start is the SEP. But let me start with what I said, which was that we're going to be making decisions meeting by meeting based on the incoming data, the evolving outlook, the balance of risks. If you look at the SEP, you'll see that it's a process of recalibrating our policy stance away from where we had it a year ago when inflation was high and unemployment low to a place that's more appropriate given where we are now and where we expect to be. And that process will take place over time. There's nothing in the SEP that suggests the committee is in a rush to get this done. This process evolves over time. Of course, that's a projection. That's a baseline projection. We know, as I mentioned in my remarks, that the actual things that we do will depend on the way the economy evolves. We can go quicker if that's appropriate. We can go slower if that's appropriate. We can pause if that's appropriate. But that's what we're contemplating. Again, I would point you to the SEP as just an assessment of what the committee is thinking today. But the individual members rather of the committee are thinking today assuming that their particular forecasts are realized.
[01:25:12] Speaker 41: Chris Rugeber at Associated Press. Thank you. The projections show that the Fed officials expect the Fed Fund's rate to still be above their estimate of long-run neutral by the end of next year. So does that suggest you see rates as restrictive for that entire period? Does that threaten the weakening of the job market that you said you'd like to avoid? Or does it suggest that maybe people see the short-run neutral as a little bit higher?
[01:25:44] Speaker 39: Thank you. I think the way I would really characterize it is this. I think people write down their estimate, individuals do. I think every single person on the committee, if you ask them what's your level of certainty around that, they would say there's a wide range where that could fall. So I think we don't know. There are model-based approaches and empirically-based approaches that estimate what the neutral rate will be at any given time. But realistically, we know it by its works. So that leaves us in a place where we expect, in the base case, to be continuing to remove restriction. And we'll be looking at the way the economy reacts to that. And that'll be guiding us in our thinking about the question that we're asking at every meeting, which is, is our policy stance the appropriate one? We know, if you go back, we know that the policy stance we adopted in July of 2023 came at a time when unemployment was 3.5% and inflation was 4.2%. Today, unemployment is up to 4.2%. Inflation is down to a few tenths above two. So we know that it is time to recalibrate our policy to something that is more appropriate given the progress on inflation and on employment moving to a more sustainable level. So the balance of risks are now even. And this is the beginning of that process. I mentioned the direction of which is toward a sense of neutral. And we'll move as fast or as slow as we think is appropriate in real time. But what you have is our individual accumulation of individual estimates of what that will be in the base case.
[01:27:24] Speaker 42: Howard.
[01:27:28] Speaker 43: Howard Schneider with Reuters. How close was this in terms of the decision? You do have the first dissent by a governor since 2005, I think. Was the weight clearly in favor of a 50 or was this a very close decision?
[01:27:43] Speaker 39: I think we had a good discussion. If you go back, I talked about this at Jackson Hole, but I didn't address the question of the size of the cut and left it open. And I think we left it open going into blackout. And so there was a lot of discussion back and forth, good diversity of deposition, excellent discussion today. I think there was also broad support for the decision that the committee voted on. So I would add, though, look at the SEP. All 19 of the participants wrote down multiple cuts this year. All 19. That's a big change from June, right? Seven of the, seven of them wrote down three or more. Sorry, 17 of the 19 wrote down three or more cuts and 10 of the 19 wrote down four or more cuts. So, you know, there is a dissent and there's a range of views, but there's actually a lot of common ground as well.
[01:28:36] Speaker 43: Follow-up to that. Now that this is in the books, can you give us some guidance as sort of a follow-up to Steve on the pacing here? Would you expect this to be running every other meeting once we get into next year? For example?
[01:28:50] Speaker 39: We're going to take it meeting by meeting. As I mentioned, there's no sense that the committee feels it's in a rush to do this. We made a good, strong start to this, and that's really, frankly, a sign of our confidence, confidence that inflation is coming down toward 2% on a sustainable basis. That gives us the ability. We can, you know, make a good, strong start, but, and I'm very pleased that we did. To me, the logic of this, both from an economic standpoint and also from a risk management standpoint was clear. But I think we're going to go carefully, meeting by meeting, and make our decisions as we go.
[01:29:28] Speaker 17: Gina.
[01:29:32] Speaker 28: Hi, Chair Powell. Gina Smiley with the New York Times. Thanks for taking our questions. You and your colleagues in your economic projections today see the unemployment rate climbing to 4.4% and staying there. Obviously, historically, when the unemployment rate climbs that much over a relatively short period of time, it doesn't typically just stop. It continues increasing. And so I wonder if you can walk us through why you see the labor market stabilizing, sort of what's the mechanism there, and what do you see as the risks?
[01:29:58] Speaker 39: So, again, the labor market is actually in solid condition. And our intention with our policy move today is to keep it there. You can say that about the whole economy. The U.S. economy is in good shape. It's growing at a solid pace. Inflation is coming down. The labor market is in a strong pace. We want to keep it there. That's what we're doing.
[01:30:25] Speaker 37: Sorry, Nick.
[01:30:32] Speaker 44: Nick Tamarosa of the Wall Street Journal. Chair Powell, does today's action constitute a catch-up in action given recent substantial revisions to the employment data or is this larger than typical rate cut a function of the elevated nominal level of the policy rate such that an accelerated cadence could be expected to continue?
[01:30:53] Speaker 39: Okay. Multiple questions. So, I would say we don't think we're behind. We do not think we're behind. We think this is timely. But I think you can take this as a sign of our commitment not to get behind. So, it's a strong... Sorry, your other question was...
[01:31:10] Speaker 44: Well, is this about what happened in the employment data between this meeting and the last meeting or is this about the level of the funds rate, the high nominal level of the funds rate relative to what might be expected if you're trying to maintain equilibrium?
[01:31:24] Speaker 39: I think it's about... We come into this with a policy position that was put in place as you know, I mentioned in July of 2023 which was a time of high inflation and very low unemployment. We've been very patient about reducing the policy rate. We've waited... Other central banks around the world have cut many of them several times. We've waited and I think that patience has really paid dividends in the form of our confidence that inflation is moving sustainably down to 2%. So, I think that is what enables us to take this strong move today. I do not think that anyone should look at this and say, oh, this is the new pace. You know, you have to think about it in terms of the base case. Of course, what happens will happen. So, in the base case, what you see is look at the SEP. You see cuts moving along. The sense of this is we're recalibrating policy down over time to a more neutral level and we're moving at the pace that we think is appropriate given developments in the economy in the base case. The economy can develop in a way that would cause us to go faster or slower, but that's what the base case says.
[01:32:34] Speaker 44: And if I could follow up on the balance sheet. In 2019, when you did the mid-cycle adjustment, you ceased the balance sheet runoff. With a larger cut today, is there any... Should there be any signal inferred about how the committee would approach end state on the balance sheet policy?
[01:32:52] Speaker 39: So, in the current situation, reserves have really been stable. They haven't come down. So, reserves are still abundant and expected to remain so for some time. As you know, the shrinkage in our balance sheet has really come out of the overnight RRP. So, I think what that tells you is we're not thinking about stopping runoff because of this at all. We know that these two things can happen side by side. In a sense, they're both a form of normalization. And so, for a time, you can have the balance sheet shrinking but also be cutting rates.
[01:33:26] Speaker 45: Colby.
[01:33:29] Speaker 46: Thank you. Colby Smith with the Financial Times. Just following up on Gina's question on rising unemployment, is it your view that this is just a function of a normalizing labor market amid improved supply? Or is there anything to suggest that something more concerning perhaps is taking place here given that other metrics of labor demand have softened too? And I guess in direct follow-up to Gina, why should we not expect a further deterioration in labor market conditions if policy is still restrictive?
[01:33:58] Speaker 39: So, I think what we're seeing is clearly labor market conditions have cooled off by any measure as I talked about in Jackson Hole. But they're still at a level. The level of those conditions is actually pretty close to what I would call maximum employment. So, you're close to mandate, maybe at mandate on that. So, what's driving it? Clearly, payroll job creation has moved down over the last few months and this bears watching. By many other measures, the labor market has returned to or below 2019 levels which was a very good strong labor market but this is more sort of 2018-17. So, the labor market bears close watching and we'll be giving it that. But ultimately, we think, we believe, with an appropriate recalibration of our policy that we can continue to see the economy growing and that will support the labor market. In the meantime, if you look at the growth in economic activity data, retail sales data that we just got, second quarter GDP, all of this indicates an economy that is still growing at a solid pace. So, that should also support the labor market over time. So, but again, we're, it bears watching and we're watching.
[01:35:14] Speaker 46: And just on the point about starting to see rising layoffs, if that were to happen, wouldn't the committee already be too late in terms of avoiding a recession?
[01:35:24] Speaker 39: So, we're, that's, you know, our plan, of course, has been to begin to recalibrate and, as you know, we're not seeing rising claims, we're not seeing rising layoffs, we're not seeing that and we're not hearing that from companies that that's something that's getting ready to happen. So, we're not waiting for that because, you know, there is thinking that the time to support the labor market is when it's strong and not when you begin to see the layoffs. There's some lore on that. So, that's the situation we're in. We have, in fact, begun the cutting cycle now and we'll be watching and that'll be one of the factors that we consider. Of course, we're going to look at the totality of the data as we make these decisions meeting by meeting.
[01:36:04] Heidi Stradwaltz: Michael McKee.
[01:36:07] Speaker 35: Michael McKee with Bloomberg TV and radio. To follow up on that, what would constitute for you and the committee a deterioration in the labor market? You're pricing in, basically, by the end of next year, 200 basis points of cuts just to maintain a higher unemployment rate. Would you be moving to a more preemptive monetary policy style rather than, as you did with inflation, waiting until the data gave you a signal?
[01:36:37] Speaker 39: No, we're going to be watching all of the data, right? So, as I mentioned in my remarks, if the labor market were to slow unexpectedly, then we have the ability to react to that by cutting faster. We're also going to be looking at our other mandate, though. We are more great, we have greater confidence now that inflation is moving down to 2%, but at the same time, our plan is that we will be at 2%, you know, over time, over time. So, and policy, we think, is still restrictive, so that should still be happening.
[01:37:10] Speaker 35: I'm just curious as to how sensitive you'll be to the labor market since you forecast we are going to see higher unemployment and it is going to take a significant amount of monetary easing to just maintain it.
[01:37:24] Speaker 39: So, you know, what I would say is we don't think we need to see further loosening in labor market conditions to get inflation down to 2%, but we have a dual mandate and I think you can take this whole action as, take a step back. What have we been trying to achieve? We're trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with disinflation. That's what we're trying to do and I think you can take today's action as a sign of our strong commitment to achieve that goal.
[01:38:02] Speaker 29: Rachel.
[01:38:06] Speaker 47: Hi, Chair Powell, Rachel Siegel from the Washington Post. Thanks for taking our questions. You're describing this view that you don't think you're behind when it comes to the job market. Can you walk us through the specific data points that you found to be most helpful in the discussions at this meeting? You've mentioned a couple, but would you be able to walk us through what that dashboard told you as far as what you know about the job market now?
[01:38:25] Speaker 39: Sure. So we'll start with unemployment, which is the single most important one probably. You're at 4.2%. That's, you know, I know that's higher than we were used to seeing numbers in the mid and even below mid threes last year. But if you look back over the sweep of the years, that's a low, that's a very healthy unemployment rate. And anything in the low fours is a really, is a good labor market. So that's one thing. Participation is at high levels. It's, you know, we've had, we're right adjusted for demographics, for aging. Participation's at pretty high levels. That's a good thing. Wages are still a bit above what would be, their wage increases, rather, are still just a bit above where they would be over the very longer term to be consistent with 2% inflation. But they're very much coming down to what that sustainable level is, so we feel good about that. Vacancies over, you know, per unemployed is back to what is still a very strong level. It's not as high as it was. That number reached two to one. Two vacancies for every unemployed person as measured. It's now below, around, it's around one, but that's still, that's still a very good number, I would say. You know, quits have come back down to normal levels. I mean, that could go on and on. There are many, many employment indicators. What do they say? They say this is still a solid labor market. The question isn't the level. The question is that there has been change over, particularly over the last few months. And, you know, so what we say is as the risks, the upside risks to inflation have really come down, the downside risks to employment have increased. And because we have been patient and held our fire on cutting while inflation has come down, I think we're now in a very good position to manage the risks to both of our goals.
[01:40:14] Speaker 47: And what do you expect to learn between now and November that will help inform the scale of the cut at the next meeting?
[01:40:21] Speaker 39: You know, more data, the usual. Don't look for anything else. We'll see another labor report. We'll see another jobs report. I think we get a, we might, we actually get two, we get a second jobs report on the day of the meeting, I think. No, no, on the Friday before the meeting. So, and inflation data. We'll get all this data. We'll be watching. You know, it's always a question of look at the incoming data and ask what are the implications of that data for the evolving outlook and the balance of risks and then go through our process and think what's the right thing to do. Is policy where we want it to be to foster the achievement of our goals over time? So, that's what it is and that's what we'll be doing.
[01:41:08] Speaker 46: Neil.
[01:41:10] Speaker 48: Thanks. Hi, Chair Powell. Neil Irwin with Axios. We've only been running a little above 100,000 jobs a month on payrolls the last three months. Do you view that level of job creation as worrying or alarming or would you be content if we were to kind of stick at that level? And relatedly, you know, one of the welcome trends of the last couple of years has been labor market steam coming out through job openings falling rather than job losses. Do you think that trend has further to run or do you see risk that further labor market cooling will have to come through job losses?
[01:41:39] Speaker ?: So,
[01:41:39] Speaker 39: on the job creation, it depends on the inflows, right? So, if you're having millions of people come into the labor force then and you're creating 100,000 jobs, you're going to see unemployment go up. So, it really depends on what's the trend underlying the volatility of people coming into the country. We understand there's been quite an influx across the borders and that has actually been one of the things that's allowed unemployment rate to rise. And the other thing is just the slower hiring rate, which is something we also watch carefully. So, it does depend on what's happening on the supply side. And on the beverage curve question, yes, so, we all felt on the committee, not all, but I think everyone on the committee felt that job openings were so elevated that they could fall a long way before you hit the part of the curve where job openings turned into higher unemployment, job loss. And, yes, I mean, I think we are, it's hard to know that you can't know these things with great precision, but certainly, it appears that we're very close to that point, if not at it, so that further declines in job openings will translate more directly into unemployment. but it's been a great ride down. I mean, we've seen a lot of tightness come out of the labor market in that form without it resulting in lower employment.
[01:43:11] Speaker 49: Thanks, Chair Powell. Edward Lawrence of Fox Business. So we've heard some speculation that you may be going with the federal funds rate to 3.5%, maybe under 4%, and there's basically an entire generation that has experienced zero or near zero federal funds rate. Now, some think we're heading in that direction again. What's the likelihood that cheap money is now the norm?
[01:43:30] Speaker 39: So this is a question, and you mean, after we get through all of this, it's just a great question that we can only speculate about. Intuitively, many, many people, anyway, would say we're probably not going back to that era where there were trillions of dollars of sovereign bonds trading at negative rates, long-term bonds trading at negative rates. And it looked like the neutral rate might even be negative. So people were issuing debt at negative rates. It seems that's so far away now. My own sense is that we're not going back to that. But, you know, honestly, we're going to find out. But, you know, it feels to me that the neutral rate is probably significantly higher than it was back then. How high is it? I just don't think we know. Again, we only know it by its works.
[01:44:22] Speaker 49: And one more. How do you respond to the criticism that will likely come that a deeper rate cut now before the election has some political motivations?
[01:44:30] Speaker 39: Yeah, so, you know, this is my fourth presidential election, at the Fed. And, you know, it's always the same. We're always going into this meeting in particular and asking what's the right thing to do for the people we serve. And we do that and we make a decision as a group and then we announce it. And that's always what it is. It's never about anything else. Nothing else is discussed. And I would also point out that the things that we do really affect economic conditions for the most part with a lag. So, nonetheless, this is what we do. Our job is to support the economy on behalf of the American people. And if we get it right, this will benefit the American people significantly. So, this really concentrates the mind. And, you know, it's something we all take very, very seriously. We don't put up any other filters. I think if you start doing that, I don't know where you stop. And so, we just don't do that.
[01:45:29] Speaker 42: Jolene. Thank you, Chair Powell. I'm Jolene Kent with CBS News. My first question is, very simply, what message are you trying to send American consumers, the American people, with this unusually large rate cut?
[01:45:47] Speaker 39: I would just say that, you know, the U.S. economy is in a good place and our decision today is designed to keep it there. More specifically, the economy is growing at a solid pace. Inflation is coming down closer to our 2 percent objective over time. And the labor market is still in solid shape. So, our intention is really to maintain the strength that we currently see in the U.S. economy. And we'll do that by returning rates from their high level, which has really been the purpose of which has been to get inflation under control. We're going to move those down over time to a more normal level over time.
[01:46:27] Speaker 42: Just a quick follow-up to that. Listening to you talk about inflation moving meaningfully down to 2 percent, is the Federal Reserve effectively declaring a decisive victory over inflation and rising prices?
[01:46:40] Speaker 39: No. We're not. So, inflation, you know, what we say is we want inflation, the goal is to have inflation move down to 2 percent on a sustainable basis. And, you know, we're not really, we're close, but we're not really at 2 percent. And I think we're going to want to see it be, you know, around 2 percent and close to 2 percent for some time. But we're certainly not doing, we're not saying mission accomplished or anything like that. But I have to say, though, we're encouraged by the progress that we have made.
[01:47:16] Speaker ?: and I think we're going to, we're going to have a lot of,
[01:47:18] Speaker 50: we're going to have a lot of,
[01:47:19] Speaker ?: we're going to have a lot of,
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[01:47:21] Speaker ?: we're going to have a lot of,
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[01:47:22] Speaker ?: we're going to have a lot of,
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[01:47:25] Speaker ?: we're going to have a lot of,
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[01:47:38] Speaker 39: we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of, we're going to have a lot of,
[01:49:02] Speaker 50: rates, you could reignite demand in housing, and see prices go up even more. You know, what's the likelihood of that? And how, how would you react to that?
[01:49:13] Speaker 39: The housing market, it's hard to, to game that out. The housing market is in part frozen, because of lock-in with low rates, people don't want to sell their home. So, because they have a very low mortgage, it would be quite expensive to refinance. As rates come down, people will start to move more, and that's probably beginning to happen already. But remember, when that happens, you've got a, you've got a seller, but you've also got a new buyer in many cases. So, it's not, you know, obvious how much additional demand that would make. I mean, the, the real issue with housing is, that we have had, and are on track to continue to have, not enough housing. And so, it's going to be challenging. It's hard to find, to zone lots, that are in places where people want to live. It's, it's, all of the aspects of housing are, are, one more difficult. And, you know, where are we going to get the supply? And this is not something that the Fed can, can really fix. But I, I think as we normalize rates, you'll see the housing market normalize. And, I mean, ultimately, by getting inflation broadly down, and getting those rates normalized, and getting the housing, housing cycle normalized, that's the best thing we can do for householders. And then, the supply question will have to be dealt with, by the market, and also by government. Victoria.
[01:50:30] Speaker 51: Hi, Victoria Guido with Politico. Just following up on some of the labor market talk earlier, you know, monetary policy operates with long and variable lags. And I'm wondering how much you see being able to keep the unemployment rate from, raising too much, comes from the fact that you're starting to act now, and that's going to give people more room to run, versus just the labor market is strong. And then also, if I could, following up on Nick's question, do you see today's 50 basis point move as partially a response to the fact that you didn't cut in July, and that sort of gets you to the same place?
[01:51:11] Speaker 39: So, you're right about lags, but I would just point to the overall economy. You have an economy that is growing at a solid pace. If you look at forecasters or talk to companies, they'll say that they think 2025 should be a good year, too. So, there's no sense- the U.S. economy is basically fine. If you talk to market participants, I mean, you know, business people who are actually out there doing business. So, I think, you know, I think our move is timely. I do. And as I said, you can see our 50 basis point move as a commitment to make sure that we don't fall behind. So, you're really asking about- your second question, you're asking about July. And I guess if you ask, you know, if we'd gotten the July report, before the meeting, would we have cut- we might well have. We didn't make that decision, but, you know, we might well have. I think that's not- you know, that doesn't really answer the question that we ask ourselves, which is let's look- you know, at this meeting, we're looking back to the July employment report, the August employment report, the two CPI reports, one of which came, of course, during blackout, and all of the other things that I mentioned. We're looking at all of those things and we're asking ourselves, what's the right- what's our- what's the policy stance we need to move to? We knew- it's clear that we clearly- literally everyone on the committee agreed that it's time to move. It's just how big- how fast do you go and what do you think about the path forward? So this decision we made today had- had broad support on the committee and I've- I've discussed the path ahead. Elizabeth.
[01:52:51] Speaker 52: Thank you, Chair Powell. Elizabeth Schulze with ABC News. Mortgage rates have already been dropping in anticipation of this announcement. How much more should borrowers expect those rates to drop over the next year?
[01:53:06] Speaker 39: Very hard for me to say. That's- from our standpoint, I can- I can't really speak to mortgage rates. I will say, you know, that'll depend on- on how the economy evolves. Our- our intention, though, is we- we think that our policy was appropriately restrictive. We think that it's time to begin the process of recalibrating it to a level that's more neutral rather than restrictive. We- we expect that process to take some time, as you can see in- in the projections that we released today. And- and as- if- if things work out according to that forecast, other rates in the economy will come down as well. However, the rate at which those things happen will really depend on how the economy performs. We- we can't see- we can't look a year ahead and know what the economy is to be doing- going to be doing.
[01:53:56] Speaker 52: What's your message to households who are frustrated that home prices have still stayed so high as rates have been high? What do you say to those households?
[01:54:06] Speaker 39: Well, I can- what I can say to the public is that we had the highest- we had a burst of inflation. Um, many other countries around the world had a- had a similar burst of inflation. And when that happens, part of the answer is that we raise interest rates in order to cool the economy off, in order to reduce inflationary pressures. It's- it's not something that, uh, people experience as pleasant. It's pleasant. But at the end, what you get is low inflation restored, price stability restored. And a good definition of price stability is that people in their daily decisions, they're not thinking about inflation anymore. That's where everyone wants to be, is back to what's inflation. You know, we just keep it low, keep it stable. We're restoring that. So what we're going through now really, it restores- it will benefit people over a long period of time. Price stability benefits everybody over a long period of time just by virtue of the fact that they don't have to deal with inflation. So that's what's been going on. And I- I think we've made real progress. I completely- we don't tell people how to think about the economy, of course. And, of course, people are experiencing high prices as opposed to high inflation. And we understand that's painful.
[01:55:26] Speaker 45: Greg.
[01:55:33] Speaker 53: Hi, Chair Powell. Greg Robb from marketwatch.com. I was wondering if you could go through- you said just at the beginning that the- coming into the blackout, there was like an open thought of 25 or 50. You know, the Fed could move either 25 or 50. I would sort of argue that when we had those two last speeches by Governor Waller and New York Fed President John Williams that they were- they were sort of saying that maybe a gradual approach was going to win the day. I mean, I sort of want to ask a seven-part question about this, but, I mean, could you talk- would you have cut rates by 50 basis points if the market had been pricing in, like, low odds of a 50-point move like they were last Wednesday, you know, after the CPI number came out? It was a really small probability of a 50-point cut. Does that play- play in your consideration at all? Just talk a little bit about that.
[01:56:29] Speaker ?: Thank you.
[01:56:29] Speaker 39: We're always going to try to do what we think is the right thing for the economy at that time. That's what we'll do.
[01:56:35] Speaker ?: And that's what we did today.
[01:56:35] Speaker 39: Simon. Thank you, Chair Powell. Simon Rabinovich with The Economist.
[01:56:38] Speaker 54: You've mentioned how closely you're watching the labour market, but you also noted that payroll numbers have been a little bit less reliable lately because of the big downward revisions. Does that put your focus overwhelmingly on the unemployment rate? And given the SEP projection of 4.4 basically being the peak in the cycle, would going above that be the kind of thing that would trigger another 50 basis point cut?
[01:57:08] Speaker 39: So we will continue to look at that broad array of labour market data, including the payroll numbers. We're not discarding those. I mean, we'll certainly look at those, but we will mentally tend to adjust them based on the QCEW adjustment, which you referred to. There isn't a bright line. You know, it will be- the unemployment rate's very important, of course, but there isn't a single statistic or a single bright line over which that thing- that might move that would dictate one thing or another. We'll look at each meeting, we'll look at all the data on inflation, economic activity, and the labour market, and we'll make decisions about is our policy stance where it needs to be to, you know, to foster over the medium term our mandate goals. Yeah. So I can't- I can't say we- we have a bright line in- in mind.
[01:57:59] Speaker 46: Matt Egan. Thanks, Chair Powell.
[01:58:03] Speaker 29: Matt Egan from CNN. I know that you discussed earlier how the Fed does whatever the right thing is and nothing else factors in. But, you know, in general, can you talk about whether or not you believe a sitting U.S. president should have a say in Fed decisions on interest rates? Because that's something that former President Trump, who obviously appointed you, has previously- previously suggested. And I know the Fed is designed to be independent, but why? Can you tell the public why you view that so important? Sure.
[01:58:34] Speaker 39: So countries that are- democracies around the world, countries that are sort of like the United States, all have what are called independent central banks. And the reason is that- that people have found over time that insulating the central bank from direct control by political authorities avoids making monetary policy in a way that- that favors maybe people who are in office as opposed to people who are not in office. So that's- that's- that's the idea, is that, you know, and I think the data are clear that countries that have independent central banks, they get lower inflation. And so we're- you know, we're not- we do our work to- to- to serve all Americans. We're not serving any politician, any political figure, any cause, any issue, nothing. It's just maximum employment and price stability on behalf of all Americans. And that's how the other central banks are set up, too. It's a good institutional arrangement, which has been good for the public. And I hope it- I hope and- and strongly- strongly believe that it will, you know, continue.
[01:59:41] Speaker ?: Kyle.
[01:59:46] Speaker 27: Kyle Campbell for American Banker. Thanks for taking the questions, Chair Powell. A couple regulatory developments in the past week that I want to ask you about. First, last week, Vice Chair for Supervision, Michael Barr, outlined his views for the changes to the Basel III endgame. I'm wondering if you are in alignment with- with him on what those changes should be, if those have support on the board in a broad way that you're looking for, and if you think the other agencies are also fully on board with that approach. And then yesterday, other banking regulators- You know what, hold the second question.
[02:00:18] Speaker 39: Okay, sure. Let me- let me- we'll give you the second question. So, um, the answer to your question is that, uh, yes, I- those- those changes were negotiated between the agencies with my support and with my involvement. Uh, with the idea that we were going to re-propose- re-propose the changes that we- that- that, uh, Vice Chair Barr talked about and then take comment on them. So, yes, that- that is, uh, you know, I- that's happening with- with my support.
[02:00:53] Speaker 27: And then is there a date for that?
[02:00:55] Speaker 39: That's not a final proposal, though, you understand. We're putting them out for comment. We're going to take comment and make appropriate changes. We don't have a- we don't have a- a calendar date for that. And as for the other agencies, you know, the idea is that we're all moving together. We're not moving separately. So that- I- I don't- I don't know exactly where that is. But the idea is that we will move as a group, uh, to- to put this again out- out for comment. And then, you know, it'll- it'll come- the comments will come back 60 days later and we'll dive into them and we'll try to bring this to a conclusion sometime in the first half of next year.
[02:01:29] Speaker ?: Right.
[02:01:30] Speaker 27: Uh, and then yesterday, there were, uh, merger reform finalizations from the other bank regulators. What does the Fed have to do to align itself on, uh, merger?
[02:01:38] Speaker 39: You know, I would- I would, uh, uh, bounce that question to Vice Chair Barr. Uh, it's a good question, but I- I don't have that today.
[02:01:46] Speaker 42: Thanks. And Jennifer for the last question.
[02:01:50] Speaker 45: Thank you, Chair Powell. Jennifer Schoenberger with Yahoo Finance. Uh, you said earlier that the decision today reflects with appropriate recalibration strength in the labor market that can be maintained in the context of moderate growth. Even though the policy statement says you view the risks to inflation and job growth as roughly balanced. Given what you've said, though, today, I'm curious. Are you more worried about the job market and growth than inflation? Are they not roughly balanced?
[02:02:21] Speaker 39: No, I think- I think and we think they are now roughly balanced. So, so if you go back for- for a long time, um, the risks were on inflation. We had a historically tight labor market, historically tight. There was a severe labor shortage. So very, um, very hot labor market. And we had inflation way above target. So, you know, that said to us, concentrate on inflation, concentrate on inflation. And we did for a while, and we- and we kept at that. That the stance that we put in place 14 months ago was a stance that was focused on bringing down inflation. Part of bringing down inflation, though, is- is cooling off the economy and- and a little bit cooling off the labor market. You now have a cooler labor market, in part because of- of our activity. So what that tells you is, it's time to change our stance. So we did that. The sense of the change in the stance is that we're recalibrating our policy over time to a stance that will be more neutral. And today was- we- I think we made a good, strong start on that. I think it was the right decision. And I think it should send a signal that we, you know, that we're committed to- to, um, to coming up with a good outcome here.
[02:03:25] Speaker 45: Is the economy more favorable to a shock now that could tip it into recession?
[02:03:30] Speaker 39: I don't think so. I- I- I- I don't- there's- as I look- well, let me look at it this way. I- I don't see anything in the economy right now that suggests that the likelihood of a recession- sorry- of a downturn is elevated. Okay? I don't see that. You see- you see growth at a solid rate. You see inflation coming down and you see a labor market that's- that's still at very solid levels. It's- so- so I- I don't really see that, no. Thank you.
[02:04:02] Speaker ?: Thank you.
[02:04:04] Speaker 23: That wraps up a news conference that probably should have wrapped up 15 minutes ago. Live from New York City this afternoon. Good afternoon for our audience worldwide. Welcome to the program. A special edition of Bloomberg Surveillance on a Federal Reserve decision. The decision as follows: a 50 basis point cut with a sprinkle of dissent. Your equity market on the S&P 500 still just about firmer but rolling over in that news conference. We're now firmer by just a quarter of one percent. And Honor Russell still elevated up by more than one full percentage point. Straight out of the gate in that news conference framing. Policy recalibration. Something he said multiple times. A process that evolves over time. Take a listen to what the chairman had to say on the path forward.
[02:04:45] Speaker 39: I do not think that- that anyone should look at this and say, oh, this is the new pace. Uh, I- you know, you have to- have to think about it in terms of the base case. Of course, what happens will happen. So- so in the base case, what you see is look at the S&P. You see cuts moving along. The- the sense of this is we're recalibrating policy down over time to a- a- a more neutral level. And we're moving at- at the pace that we think is appropriate.
[02:05:13] Speaker 23: Recalibration on repeat. Lisa, looking forward meeting by meeting. This is not the new pace. That's something he put some weight on, some emphasis in that news conference.
[02:05:24] Speaker 24: And if you were basically judging his news conference based on the stock reaction, there was a little wobble after that statement and even more of a wobble after he really addressed the idea of a neutral race. He told it a sense of neutral, whatever that may be. And he said that my own sense is we're not going back to that Nehru time or that negative rate, very low rate time. Neutral rate is probably much higher. You saw a reaction there, but then people shook it off and said, hey, he's got our back.
[02:05:50] Speaker 25: I- I look, uh, Johnny strapped a Fibonacci across this from where we were to the midpoint of the pandemic low is two and seven eights. He is correct. It's just a nudge in the distance to travel just to get back to the midpoint. Call it normal. It's a- it's a lot longer than the jawboning in the press conference that we just saw.
[02:06:14] Speaker 23: We're lucky to have Mohammed alongside us. He won't say mission accomplished. He refused to say in this news conference, but we've got to ask, isn't it implied? Listen to this. The labor market conditions are pretty close to maximum employment. Retail sales GDP show the economy is growing at a solid pace. We're not seeing rising layoffs or hearing it from companies. It's time to support the labor market when it's strong. That's what we're trying to do. Is that mission accomplished? Isn't it implied?
[02:06:38] Speaker 26: Yeah, I mean, Jason Furman put it as- as well as anybody can when he said, if you look at the projection and now if you listen to his statement, it is, and I'm quoting him, just about the closest thing to missing accomplished banner that you can imagine them unfurling. So I think it is. The hard thing for Powell is that we're not just recalibrating policy. We're recalibrating what we mean by 50 basis point cut. You don't start a 50 basis point cycle with a 50 basis point cut and say at the same time, the economy is in good place. And that's what he had to navigate all the time. If the economy is in a good place, why are you starting with 50 basis points? And it was harder for him to reconcile the two because he didn't want to acknowledge that keeping rates unchanged in July was a mistake. So that's the tension that played throughout the press conference.
[02:07:30] Speaker 23: He did mention that if they had that jobs report before that meeting in July, that maybe they would have gone 25 at that meeting. What did you make of that?
[02:07:39] Speaker 24: I made of that this idea that what does he mean about the totality of data? And he didn't talk about data dependency in quite the same way. When he started, when he was asked by our own Michael McKee about what he was looking for and how much he seems to be reconciling something, he didn't have a really clear view on that. What is the data we're looking at now? Is it basically revisions to the jobs numbers that we're getting as well as potentially the beige book?
[02:08:08] Speaker 23: You've said this a few times, revisions. Seems to be more weight now than revisions. And I think over the last few news conferences now, he's basically said whatever payrolls is, he thinks is overstating jobs growth in this country.
[02:08:19] Speaker 24: Which has been just the truth over the past couple of months and frankly more than a year. Typically, when you get a weakening labor market, the data that you get initially is stronger than what you get on the revisions downward. But just to build from the idea of mission accomplished. He kept saying that the only reason he could really make a commitment to 50 basis points is, we are committed to coming up with a good outcome. He came up with lots of, he went to the thesaurus about soft landing. But that was really where he was heading.
[02:08:45] Speaker 23: Joining us now to discuss to continue the conversation, Bill Dudley, the former New York Fed president and Bloomberg economics senior advisor. Bill, in your piece before this decision on Bloomberg opinion, you said the Fed should go big now. I think it will. It did. What did you think of what you heard this afternoon?
[02:09:03] Speaker 31: It's pretty much what I was expecting in the sense that one of the issues that Paul had is how do you do 50 without scaring people that you know something bad about the economy. And I think he did that very well. He basically said we're doing this because the news is good. We've made progress on inflation as opposed to we're doing this because the news is bad. So I thought it was a very, you know, he's providing reassurance to people that the Fed thinks that they've got it. You know, also, you know, when he's asked about, you know, the SOM rule and the risks that the unemployment rate could go up by quite a bit more. You know, pretty reassuring on that, you know, thinks that the labor market can stabilize close to where we are today. And that's really hugely important because, you know, if the labor market doesn't stabilize, then we will have a mild recession and then the Fed will have to ease a lot more. So I thought the general tone of the of the press conference and the statement was, we've got that. We've got it.
[02:09:56] Speaker 25: Bill, congratulations. Your essay today, you think you are one of the Fed whisperers everybody's talking about out there right now. Bill Dudley, I look at where we are and where we're heading, and it simply comes down to the strength of the American economy. Forgetting about the theater of recession, where does GDP settle, whether real GDP or nominal GDP? How do you envision that in a year or even two years?
[02:10:23] Speaker 31: I think if you look at the Fed's forecast and look at how that growth affects the unemployment rate, the Fed thinks that, you know, look, growth in the medium term is going to be 2%, 2% plus at an annual average rate. So and that's sort of what we're doing right now. So, you know, the Fed's got a sort of soft landing in place. If the economy continues to grow at the same pace as it's doing right now, the unemployment rate will stay relatively stable. You know, you saw in the summary of economic projections, the Fed shows a modest, very modest, further increase in the unemployment rate from 4.2 today to 4.4%. But, you know, nothing beyond that. So it's sort of a soft, you know, if you look at their forecast, it's a soft landing kind of story. And, you know, I hope they could pull it off.
[02:11:06] Speaker 24: Right now, the stock market and the bond market are trying to understand what the reaction function of the Federal Reserve actually is and to which data they're going to look at. It seemed like there was a renewed focus on both jobs revisions as well as the Beige Book, which was the input to potentially some of the heavier weight on 50 basis points. Do you view that now as sort of these data points as taking on outsized importance?
[02:11:30] Speaker 31: I think they are more focused on the labor market because there has been deterioration in the labor market. I think they're much more confident that inflation is going to continue to come down because they've seen, you know, more slack in the economy in the labor market. They've seen, you know, inflation progress that we've already had. They've seen wage inflation moderating. So I think their concerns are very much on the labor market side. So when I'm looking at the economic data right now, I'm really focused on the labor market data. And that will determine whether, you know, we just get continue at a relatively modest pace after this of 25 basis point reductions, which is essentially what was implied in the summary of economic projections or whether they'll become more concerned about downside risk. And then we'll have to get thrown a few fifties.
[02:12:11] Speaker 26: Bill, congratulations both on what you said they should do and what you said they would do. And part of your argument was on the unemployment rate. So I want to go back to that. The revision up to 4.4% by the end of this year stays at 4.4% at the end of 2025. Are you comfortable that we can stabilize here without the tipping points that you are so worried about?
[02:12:35] Speaker 31: That's well, we're going to find out over the next next year. I mean, the sovereign is a very simple, you know, tells a very simple story. When the unemployment rises beyond a certain threshold, the next stop is a full loan recession. The question is, what's what's the right threshold? Historically, the sovereign threshold has been a half a point rise in the unemployment rate on a three month moving average basis over the over 12 month period. And we've already pierced that threshold. So you have to believe that, you know, there is some risk here. You know, Paul was asked about the risk and, you know, downside risk to the to the labor market. And he sort of, you know, mostly dismissed that. But I do think that I actually do think the risks are, you know, maybe at best they're balanced. But I would actually be more concerned about the downside risk to the labor market now than the upside risk to inflation.
[02:13:22] Speaker 23: Bill, you'll always find a politician that's unhappy. I found one. Senator Warren, this kind of interest rates is yet another acknowledgement that power waited too long to reduce interest rates. I do think the politics are relevant here. November 7th will be the next meeting. We might have a decision in hand by the American public as to who they'd like the next president of the United States to be. We might know the makeup of Congress as well. We might have a better idea of what policy looks like in 2025. Bill, you've lived this. You were on the FOMC back in 2016, I believe. Can you walk me through your experience back then and whether the same applies this time around?
[02:13:55] Speaker 31: I would be very surprised if the election outcome affected what the Fed does over the near term because, you know, an election outcome is one thing. But what that incoming president will be able to do with, you know, as closely divided Congress, Congress remains very uncertain. And so I think the Fed reacts to the world as it is as opposed to speculates about how the world could be. So I would be very surprised if the Fed doesn't cut rates at the November meeting. I mean, if they don't cut rates at the November meeting, it's because the economy has bounced back and very strong or the inflation news is, you know, really bad between now and then. And that's not something I expect at this point. I don't think that Powell expects that. I think, you know, the odds of a 25 basis point rate cut in November are very, very high. And if the economy shows, you know, more weakness than maybe even 50 basis points.
[02:14:45] Speaker 23: Hey, Bill, appreciate it. As always, Bill Dudley of Bloomberg Opinion. The Fed should go big now. I think it will. It did. It did about an hour and 30 minutes ago. Let's bring in Michael McKee. He was in the news conference. Mike McKee, I want your thoughts on that press conference where there was a little bit of tension for you. How did you walk out of this one?
[02:15:03] Speaker 35: Well, I don't think there was a huge amount of tension except for the fact that, as you were just talking about with Bill Dudley, the idea that there is probably more risk to the labor department, to the labor market than the Fed is letting on. And that's the concern. And to get to my question that Lisa mentioned, the Fed was data dependent until they were confident that inflation was going to be down to target. But how can they be data dependent on the unemployment rate? We don't know what it's going to be. And as Bill suggested, it could go up rapidly. Do we get a rapid response then, especially since policy works with a lag? It's a little unclear what their reaction function is going to be going forward.
[02:15:45] Speaker 23: Mike, looking forward to catching up with you tomorrow. Lots to talk about. Plenty more data just in the next week or so. Equities right now on the S&P, Lisa, firmer by four tenths of one percent. The outperformance on the small caps, as you might expect. Yeah.
[02:15:57] Speaker 24: And the Fed basically gave this market what it was looking for and then some. A question now of just how much this market has moved ahead of what the Fed has said. Mohammed, I would love your thoughts on what the new data dependency actually is, given the fact that people are looking for a litmus test to understand what the reaction function is of a Fed that kind of is playing with what they get, which is the same lack of clarity that we have.
[02:16:23] Speaker 26: Yeah, I think the data dependence all comes down to the labour market. And he went through in detail a number of indicators he looks at. And when he says the totality of the data, I think he really means it when it comes to the labour market. Lisa, I'm surprised you haven't picked up on the fixed income market and what has happened to Treasuries, that they're now higher on the day. There's been quite a move. When the statement was announced, the 10 year went down to 364. It's currently trading at 370. It's up six basis points. It's up six basis points. What do you think that is? I think that there is some and the curve has steepened. Two stands are now nine basis points. I think there is some concern as what does it mean longer term for inflation. That's the only thing I can think of. But the action has been really interesting. And once again, you end up in a different place after the press conference than you were after the statement. Yes.
[02:17:19] Speaker 25: No question about that. I think of David Kelly and J.P. Morgan. You know, John, he's been very good about a vector of nonfarm payrolls that gets you to a negative statistic. Three months moving average, about 116,000. Nobody's modelling in here if this job economy, as Anna Wong talks about, continues to deteriorate. So what are we saying here, Mohammed?
[02:17:41] Speaker 23: We're willing to accept three, the high twos, or we're worried about going back to 3.5, pushing four. What's the story here?
[02:17:48] Speaker 26: So we cannot answer that story without bringing in fiscal policy, without bringing in structural reforms. I mean, that's the trap we have all fallen into. That we still think of the Fed as the only game in town. But there's other things happening that speak to what is that rate. And that's why the range is so wide.
[02:18:05] Speaker 24: You brought this up, actually, when J.Powell said this. Over time. And we're going to get down to 2%. Over time. It raises this question, especially as he talks about not mission accomplished, but sort of, you know, wishing to wash blished. But this idea that maybe we could end up with some scrutiny. I'm not going to ask you to say that again.
[02:18:24] Speaker 23: Please don't ever do that again. I won't.
[02:18:26] Speaker 24: No, but this idea that, you know, he's so excited about the idea of a soft landing that it's okay for it to take a number of years to get back to that 2% target.
[02:18:37] Speaker 26: And that's in the projections. I mean, I have them in front of me. He said core PCE right now is 2.7. They're projected at 2.6 at the end of this year, 2.2 at the end of next year, and two by 2026. We've basically pushed back the target.
[02:18:51] Speaker 25: I like what you said about mission accomplice, and it's this terror of getting this wrong, whether you're a governor, a president, whether you're the chairman. Jason Furman out teaching Act 10 up at Harvard, and he was lectured by his daughter, John. We got a tweet out from Jason Furman where his daughter walked in and said to Professor Furman, you were wrong. There's a lot of that going on right now.
[02:19:13] Speaker 23: A lot of people were wrong.
[02:19:14] Speaker ?: Yes.
[02:19:14] Speaker 23: I think we should point this out. The market was priced for something closer to 50 than 25. The overwhelming majority of economists in our survey, and we surveyed more than 100, not even 10% of them saw 50. So shout out Mike Firoli over at J.P. Morgan, one of the very few, together with Anna Wong, I believe, over at Bloomberg Economics, who were looking for that 50 today.
[02:19:33] Speaker 24: Yeah, Deutsche Bank actually did an informal survey also that they put out today, and something like 61% roughly, plus or minus a half a percent, came out saying that it was 25 basis points. So this really was kind of on the back foot.
[02:19:44] Speaker 25: I kept it quiet. Nobody cares what I think, but the fact is, I was wrong.
[02:19:48] Speaker 23: Jeff Rosenberg of BlackRock joins us now for more. He wasn't wrong. He was waiting patiently to give us his views on this. Jeff, let's talk about the bond market, and you can throw in your thoughts on this Federal Reserve decision, the projections in the news conference as well. The bond market is selling off. The 30-year is up seven basis points. The 10-year is up six. What do you think that signals, Jeff?
[02:20:05] Speaker 55: Yeah, I think the important point here is that there's the action and the 50 basis points, and then there's the expectation and what was priced in. And so while the bond market was leaning towards the 50 basis points, it was really more about that segment, Jonathan, of the press conference that you highlighted. I had it written in my notes as well, the interchange where Powell said, you know, don't take that 50 basis points as the new, you know, pace. And he pushed back against, you know, this is going to be followed by, you've got several questions on more 50s. The problem, and I think to answer a bit of Muhammad's question, your question to Muhammad and that interchange, is that the bond market was pricing in more subsequent 50s. And into 2025, still is pricing in bigger increases than what you're getting in the SEP. And Powell in the press conference really pushed back against that. So I think you have two things going on. I'm very amenable to Muhammad and Lisa's comments that, you know, maybe this is a little bit of a sign of inflation and some of those concerns, what you're seeing in gold. But it's also, I think, in the immediacy, this is a little bit disappointing relative to what's been built up in bond expectations. And that, from a broader perspective, is really an important point from an investment perspective that you can have. Here's the headline, Fed cuts interest rates by 50 basis points and the bond market returns are going to be negative today. So it's not just, you know, the action I can anticipate, you know, the Fed's cutting rates, it's time to back up the truck in terms of duration. The problem is, it's also a lot in the price. So they've got to over-deliver and they didn't do that relative to bond expectations. And that's why I think you're seeing a little bit of that disappointment out of fixed income markets and their read on today's decision.
[02:21:53] Speaker 24: Jeff, Muhammad schooled me because, frankly, I wasn't paying enough attention to the bond market. The bond market is speaking and the 10-year note is speaking. And what it's saying is it at least has a higher yield. But we are speaking to the bond market right now. Jeff Rosenberg, what is your reaction function? Does this make you less interested on the margins in buying 10-year or 20-year or 30-year treasuries?
[02:22:15] Speaker 55: Yeah, you know, I've said in lots of different contexts with you guys that you have to just be careful about where you want to own your fixed income. That the yield curve move can be more important, more determinant to your fixed income returns than just the direction of interest rates. A lot of times we just think about you want to own bonds when rates are going down, when the Fed's cutting. You don't want to own bonds when they're hiking. But because the curve is so flat, we're off the peak of inversions. But it's still a historic lack of premium in that back end of the curve that where you hold your duration is going to matter as much as how much duration you hold. So it's still that story for me. It's still the front end is a little bit better five years and in. You want to be careful about that term premium. And the other thing that I'm highlighting here today is you just got to be careful about how much is already priced in. This is unique about the beginning of a Fed cutting cycle. We're about twice the amount of expected cuts priced at the onset. This was John Otter's article in Bloomberg. He highlighted this. It's a great chart. About twice the amount of historic Fed pricing, about over 200 basis points, whereas historically you come in and there's only about 100 basis points. So a lot is expected. It raises the bar for subsequent fixed income performance. We've had a great run, but that tells you a lot of the performances in the rearview mirror. And so you've got to be more thoughtful about where you own that duration around the curve when we look forward.
[02:23:47] Speaker 24: Does it give you more confidence, though, to go into risk, Jeff?
[02:23:51] Speaker 55: Well, you know, I think the Fed did its best, and that was the interchange you just had with Dudley. The press conference challenge was give 50 without spooking the market. I think they're successful today in there. That's the response in terms of small caps. You only buy small caps when the Fed's cutting rates, when you believe in the soft landing and the denominator effect. The discount rate is dominating, you know, any of your concerns in terms of growth. So I think they navigated that pretty well. I think when you go forward, you know, it is a soft landing baseline. I think that's exactly what the SEP is saying. When you look at all of the other economic data outside of the labor market data, you know, it's all very good. It's all very supportive for risky assets. And the fixed income side, that's a carry story. We're pretty comfortable with that. You've got to be a little bit careful that it's asymmetric that it very tight spreads any sign of recession. And I don't think we're really seeing the recessionary signs out of the labor markets. But you have to be cognizant of it that that is the one place where you're seeing some weakness. But I think this is still supportive to risky assets.
[02:24:59] Speaker 23: Just quickly, Jeff. November 7th. How different is that committee meeting going to be compared to this one?
[02:25:04] Speaker 55: Well, you know, as you pointed out, you know, you're coming on the backside of the election. But, you know, as Powell answered, they're going to try to avoid any kind of discussion on that. It's really going to be about the evolution of the data. You know, the interesting data point in terms of revisions. You know, we talk about data dependence. The problem is the data we're dependent on is not very dependable. All right, try that out slowly. But that's the payroll data, right? And so the revisions are going to be important. We're going to have another one. That's going to dictate a lot of the discussion without a deceleration. I don't think you're going to be talking about 50s, but they've clearly laid the groundwork here for a 25 in November, 25 in December. That's what I think will price back into the bond market. That's why you're seeing a little bit higher rates. If they deliver on that, then there won't be as much surprise or anticipation as we had in this meeting.
[02:25:56] Speaker 26: So, Jeff, let me ask the question that I suspect you hate being asked. And let's assume that you're being asked for a retail investor 60-40 simple portfolio. What should they do now, given everything you've just said?
[02:26:09] Speaker 55: Yeah, I mean, the part of this discussion around the 40, around the fixed income piece, Mohamed, is that it's not the old 60-40. It's not this era where bond volatility is 3%. Bond volatility is 6% to 8% in the post-COVID environment. So, the 40 side is really where we've got to do some rethinking. And that's where we talk about diversifying your diversifiers, thinking about different ways of finding ballast in your portfolio, because of the uncertainty of how duration and risk-free rates are going to perform in a more inflation-uncertain environment. That's the points about the yield curve and what's already priced in. So, I think in that 60-40, it's really about, you know, using different ways to find diversification and diversifying that 40 bucket away from kind of just piling into traditional duration.
[02:27:00] Speaker 26: Did I hear you say a more inflation-uncertain environment? That is what I said, yes. I don't think that's what Powell thinks.
[02:27:07] Speaker 55: There's greater confidence that inflation is on a path to returning to 2%, but we're not at 2%, and that path, as we saw in the interchange, the shelter inflation, the uncertainty around how far we're going, and the wage inflation picture, right? There's a lot of confidence that we're moving towards there, but we're not quite there yet. That's the point about a more uncertain inflationary environment. And with respect to kind of negative stock bond correlation, which is really the driver of the 60-40 part, the challenge is that was really working well in your portfolio when inflation was missing from below. Inflation is still missing from above. And until you get back to the period where we have too little inflation, you're not really back to that halcyon days of fixed income in 60-40.
[02:27:58] Speaker 23: Jeff, this was perfect. Thank you, sir. Jeff Rosenberg there of BlackRock on the Federal Reserve decision. If you are just joining us, welcome to the program. It's a 50 basis point card from the Federal Reserve with some dissent. The first dissent we've seen from a sitting governor on the FOMC going all the way back to 2005. Governor Mickey Bowman, not a surprise for many of you who've followed some of those speeches over the last month or so. If you're looking at the equity market, just about, just about attempted to hold on to an eighth day of gains on the S&P 500. And it's a struggle. We turned slightly negative on the S&P. On the Nasdaq 100, we're negative by 0.05%. Mohamed, just a final thought. What I heard from you then, if you have any confidence the inflation story is done, that we're on a one-way trip now back to neutral, which might be around 3%, are you suggesting that confidence might be misplaced?
[02:28:46] Speaker 26: I think it's too early to declare mission accomplished. We've come a long way, but there are inherent contradictions that still have to be sorted. John, this was historic. I mean, we're going to look back on this day, not only as the beginning of the cutting cycle, but as having recalibrated what we mean by 50 basis point start to a cutting cycle. And we're going to look back, and either this will be the absolutely right bet, which is be preemptive on the labor market after you are reactive to inflation. This is a fundamental change in the reaction function. Or alternatively, we will look at this as being too aggressive. I'm hoping that it will be the first, because we all want the labor market to do well.
[02:29:30] Speaker 24: Of course, Michael McKee asked about being preemptive, and he said data dependency or the totality of data. My big issue coming out of this is, do we understand the Fed's reaction function more, or do we understand it less than we did before?
[02:29:41] Speaker 23: I think we've got a lot of questions that still demand answers, and hopefully we'll get them over the next few weeks, but I doubt it. Once that data starts to come in, I'm looking forward to hearing from the rest of the committee, aren't you? Oh, yeah. Over the next few days? This quiet descents.
[02:29:53] Speaker 24: Yeah.
[02:29:54] Speaker 23: Let's just see how close some of them were to actually going 25 and another 50. Mohammed, thank you.
[02:30:00] Speaker ?: Thank you.
[02:30:00] Speaker 23: Just awesome. Thank you, sir. Appreciate your time. A pleasure, as always. Good afternoon. Thank you for choosing Bloomberg TV. Good afternoon. Thank you for choosing Bloomberg TV.
[02:30:12] Speaker ?: We'll be right back. We'll be right back.
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[02:31:37] Speaker 7: The demand is indeed recovering. We've been waiting for this moment. The opportunity of a century.
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[02:31:55] Speaker 22: In 2015, I was not optimistic because nobody was working on the hard problems. The energy R&D budgets had gone down. The venture investing and climate had gone down. It was completely out of fashion. So I don't know what people are optimistic about then. The fact is we built essentially from scratch, you know, with lots of supporters, a really mind-blowing level of innovation against emissions. And, you know, in the last nine years, that's gone better than I would have expected. So only now could you even, you know, plausibly be optimistic about the path of emissions. And someone who said, hey, nobody's ever scaled things up like this, the speed that we knew to before, they're welcome to say, hey, I'll believe this when I see it. You know, in the meantime, some people who care about this issue are really out, you know, trying to think. Do we need permitting reform? You know, do we find what new ideas haven't we found yet? You know, how do we fund people with those new ideas? How do we get the cost of these things down? How do we collaborate on a global basis? So we're still not at the point where it's guaranteed or even that it'll be easy. But at least there's a theory of change.
[02:33:27] Speaker 8: There's a real-time data set. So using new technologies, maybe some of the AI technologies, maybe we get better data as we move forward. But we've got to really focus on that with our economists and our analysts about, you know, where's the data coming from and can we rely on it?
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[02:33:59] Speaker 3: You're watching the close. Welcome to Balance of Power.
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[02:34:14] Speaker 56: Four and a half years since its last rate cut. About 14 months since the last rate hike. Bloomberg's coverage of the Fed decision continues right now live from Studio 2 here at Bloomberg headquarters in New York. I'm Romain Boston.
[02:34:34] Speaker 57: And I'm Alex Steele. And if I told you we had a jumbo rate cut and stocks may close flat and the bond market was selling off, you would not have believed me.
[02:34:40] Speaker 56: I kind of would have actually believed you. Oh, no, I wouldn't have.
[02:34:43] Speaker 57: You wouldn't have believed me. Thank you very much. Even the Russell, would you think the small caps are going to be the stock index that's going to do really well on this kind of jumbo rate cut? Or even mid caps, they can't hold on to this as well. The Russell 2000 is just up by one-tenth of one percent. And I feel like, Romain, if you take a look at the dollar in the two-year, that does not encapsulate the drama that has unfolded over the last couple hours in terms of the market action.
[02:35:05] Speaker 56: And a big part of that drama was just the outsized nature of this cut and Jay Powell trying to thread that needle, giving the market some sort of reassurance that this was about, I think in his words, supporting a strong labor market but not necessarily saving us from a weak economy. I don't think everyone's buying it.
[02:35:19] Speaker 57: No, slow your roll, but we have zero tolerance for higher employment. I feel like that's the combo.
[02:35:25] Speaker 56: And, of course, we came in to this day not knowing if we were going to get that jumbo rate cut, as Alex was just talking about. Most economists out there were predicting 25 basis points, but Jay Powell went with 50. Here he is, weighing in on today's decision.
[02:35:38] Speaker 39: I do not think that anyone should look at this and say, oh, this is the new pace. You know, you have to think about it in terms of the base case. Of course, what happens will happen. So in the base case, what you see is look at the SEP. You see cuts moving along. The sense of this is we're recalibrating policy down over time to a more neutral level, and we're moving at the pace that we think is appropriate.
[02:36:07] Speaker 56: We're going to get some great insights on the big program today from a lot of folks, including former Fed Governor Betsy Duke, economist extraordinaire Claudia Somm, and a conversation a little bit later here with the SEC Chair Gary Gensler. But let's start with the headliner, Ken Shinoda, portfolio manager over at Double Line Capital, flying all the way in from California just to see us here in New York. Ken, great to have you here. Thanks for having me. Were you surprised?
[02:36:30] Speaker 58: Not really surprised. I think that they were so behind the curve, hiking rates when inflation had picked up, that they wanted to tell the market that we're not afraid to cut. And so I think they did the right thing by cutting 50 basis points. It was kind of priced in the markets this morning, and I think why equities have pulled back a little bit is while they cut 50, they're still data dependent, and they didn't get too dovish in his remarks.
[02:36:53] Speaker 56: Well, I'm curious about that, too, because when we talk about what the market expectations are, I mean, they gave some projections in that dot plot that seemed to suggest they're going to be relatively aggressive with additional rate cuts going forward here. And I'm wondering why the market didn't find some solace in that.
[02:37:09] Speaker 58: Yeah, they're projecting another called 50 basis points to the end of the year, so we'll get another 25, 25 the next two meetings, and then 100 over the next through 2025. And I think maybe the market wanted to hear some more dovish language on we're going to get back to neutral quicker. They also moved the neutral rate up a little higher. Their estimation of the neutral rate moved up a little bit, so maybe that has something to do with it, too. Like 3.4%, right?
[02:37:33] Speaker 57: Yeah, but it was interesting, though. I mean, 10 officials still see 100 basis point cuts or more. 9 see 75 or less. So it's still really wide for this year. So what do you do in the market? Like, is this a good time for corporate credit? Like, do you just sit tight on where you are in the curve?
[02:37:49] Speaker 58: Well, I think a lot of people have been hesitant to move back into the fixed income markets. They've been sitting in the T-bill and chill, and you've got to start coming out the curve. I know the rates have rallied, and the last couple times we've been on, you've said, what do you recommend investors do? And I've been saying, you've got to come out the curve. Maybe you don't want to go all the way out to the 10-year. Come out to the 2-year. The 2-year was at 5% not so long ago. Now it's down to 3.5%. So you've got to start increasing that duration of your portfolio. The timing isn't that great since we're at the lower end of the trading range, but you're never going to time the bottom perfectly, just like you own an equity. So you've got to start legging into more fixed income into your portfolios.
[02:38:25] Speaker 57: What about the corporate bond market?
[02:38:26] Speaker 58: The corporate bond market has had a great run from a spread standpoint. It's tightened a lot. It's very high quality, but just from a spread standpoint, it looks a little expensive. But I'd rather be there than in some of the riskier parts of the market. The credit curve has flattened a lot, meaning the yield pickup to go buy something riskier, like triple C high yield, for example, has come down a lot. So you're not getting paid that much more to take more risk. So I do like staying in the higher quality parts of the fixed income market.
[02:38:53] Speaker 56: Can you sort of elaborate on that as well? Because we're hearing the same thing from folks in the equity space saying, yeah, we're going to stay invested, but we're gravitating to things that are a little bit more safe or defensive or boring, I think, as one of our guests called it earlier this week here. But what does that mean? I mean, in terms of, because if it's not just the shortest of short-term duration in terms of, you know, doing NT bills and other money market type instruments, then where do you find that safety?
[02:39:16] Speaker 58: Well, high quality can also be out the curve. Ten-year treasury is high quality. It's government guaranteed. You could pick up additional yield by going into the-
[02:39:23] Speaker 56: Locking in for 10 years or just, or taking that with the idea-
[02:39:26] Speaker 58: I'm just saying you can buy treasuries to get high quality exposure. The next step would be going to things like government guaranteed agency mortgage-backed securities. You get paid some spread to take on prepayment risk, and those look really cheap relative to history. And investing rate corporate bonds are another tool in the toolkit for investors where you can pick up a little bit of spread, but you're not really taking a lot of credit risk. I also don't mind the higher quality parts of, for example, high yield, double B high yield. They're still pretty good quality companies. If you do your credit selection, you can pick up some additional spread there, and you're not going to the junkiest parts of the market.
[02:40:00] Speaker 56: When you look at past easing cycles at the start of it and the reaction that you got, let's take agency MBS, for example, mortgage-backed securities. Do you think we're going to see a similar repeat of those moves, or has that market changed so much from the previous easing cycles or major easing cycles that we saw?
[02:40:14] Speaker 58: No, I think agency mortgages had been the value trap in fixed income for the better part of two years up until the last few months. They had just continuously lagged treasuries and corporate bonds. And really part of the reason was the rates were so high, and a lot of investors need the short-term rates to come down to buy these assets on a levered basis. As the Fed cuts, this is the best environment for those assets. So I think we're going to see continued performance out of that and fixed income broadly. I do think we ran a little too far too fast. We're going to see a little bit of a pullback potentially. You're already seeing it today. Use that as an opportunity to add some more fixed income into your portfolios.
[02:40:52] Speaker 57: Yep, looking at the 10-year at 3.7 is where we sit right now. Before we let you go, how do you trade the next data point? And, like, what is that now?
[02:41:01] Speaker 58: Well, per Powell's comments, I think a lot of it's on jobs, right? We want to see what's going on with the labor market. To get more aggressive cuts than they're talking about, we need to see a more rapidly cooling labor market in order to get kind of more aggressive views from them.
[02:41:18] Speaker 56: All right, Ken, great to have you guys a little bit there. Ken Shinoda, Portfolio Manager over at Double Line Capital. Reaction here to the big Fed decision and reaction, Alex Thiel, to the market reaction, which I think, as you alluded to at the start of this program, not what I think a lot of folks expected. At one point, we did have a decent rally going on here, but that has faded in a big way.
[02:41:36] Speaker 57: It really has. And even in the mid-caps, which you could argue should be the best beneficiary of this, at least that's what Bank of America thinks, right? Even there, they're barely up, just up by a one-tenth of one percent. I do wonder, though, how much of this is going to be position and position shakeout, particularly when some longs were taken off, like in the Treasury market. So once we get a cleaner read, will we get a cleaner read then on how the market will react to the Fed?
[02:41:58] Speaker 56: The volume really did pick up here in the final few minutes of trade, seeing a spike in the VIX here. And interesting, too, looking at that two-tenths curve now at the highest level that we've had going back to 2022. A full breakdown of all the market action coming up in a second, right here on Bloomberg.
[02:42:17] Speaker 9: The Closing Bell, Bloomberg's comprehensive cross-platform coverage of the U.S. market close, starts right now.
[02:42:26] Speaker 56: And right now, we are two minutes away from the end of the trading day. Romain Bostic alongside Alex Steele taking you through the Closing Bell with a global simulcast that starts right now. Carol Master joining us in the radio booth alongside David Gurra filling in today for Tim Stenevich. Welcome to our audiences across all of our Bloomberg platforms, including our partnership here on YouTube. And Carol, we talk about the market reaction to that Fed meeting, the market reaction to J-PAL. Not quite what we expected.
[02:42:54] Speaker 34: No. First of all, I was surprised by the 50 basis points. Kind of shocked me. We saw such a significant or decent, I should say, equity rally right off of that. And then we've seen stocks retrench. So I feel like investors are still trying to figure it out. Does 50 basis points, David, you know, does it mean that there's some troubles ahead?
[02:43:11] Speaker 59: Yeah, and I just was struck by how emphatic Chair Jerry Powell was during the course of that press conference saying the Fed is not behind the curve here, saying things are different than they were back in July, saying this isn't a sign that they missed the ball back at that last meeting. Very forthright. Also, promoting a lot of clarity, a lot of caution going ahead to this next meeting that, you know, it's not divine, it's not gospel what's going to happen next when they meet again in November.
[02:43:32] Speaker 57: But I am interested into the reaction function, right? It's very clear that they have zero tolerance for a weaker labor market. So what does that actually mean? So you get one-tenth of a tick up in the unemployment rate. What is that then reaction function? They're expecting 4.4% for you three in 2024. So how do you then trade something like that?
[02:43:51] Speaker 56: And particularly, too, when we talk about this idea of that neutral rate coming up, at least their projection for it at 3.4%, definitely higher than what the market had priced in. So maybe you get a bit of a repricing. But as we always have to point out here, the market reactions that you typically get on the day of these Fed meetings can change in a big way in the days that follow. Here on this Wednesday afternoon Fed Day, the screen looking a lot different than what it looked like just a few minutes ago. All red across the screen with the Dow Jones Industrial Average down roughly about 100 points on the day or about two-tenths of a percent. The S&P 500 down about 16 points or three-tenths of a percent, a similar percentage drop for the NASDAQ composite as well as the NASDAQ 100. And if you're looking for outperformance, well, there you have it on your screen, and it is minor outperformance. The Russell 2000, fractionally higher here on the day. We'll just call it unchanged. S&P mid-caps, also similar move. And the Dow transports a little bit better of a performance, though that's only up four-tenths of one percent.
[02:44:47] Speaker 34: Right, and small caps at their highs today, up almost two-and-a-half percent. In terms of the S&P 500, though, if you look at it, almost an even split, more than 200 names actually gaining ground here at the close, 286 to the downside. So, Alex, a little bit more of a negative tilt.
[02:45:03] Speaker 57: Yeah, and you take a look at the IMAP. It is mixed, but I think that what it's mixed by is quite interesting. You have – well, actually, it's not that mixed. I was looking at mid-caps. You're actually looking at the majority in the red. Utilities, though, not doing as great. And that's so interesting because if you were going to have a 50-basis point cut, you would have thought that utilities would have done really well. But that necessarily isn't the case today, which just shows that we can't really predict how the market's going to react to this. You have tech getting hit as well as financials.
[02:45:32] Speaker 17: Not a brat, Matt. That's Matt. No. Not on this Fed Wednesday. All right, let's get to some of the individual gainers, folks.
[02:45:37] Speaker 56: You're so hip, Carol.
[02:45:39] Speaker 17: She was just in L.A. Was it L.A.? I can't be huge. She was somewhere cool.
[02:45:42] Speaker 56: No, she never tells us where she is. She was somewhere cool. She just disappears in the IGs for days.
[02:45:45] Speaker 17: I highly recommend doing a show on the beach. Yeah. It's a really good thing.
[02:45:49] Speaker 56: Thanks for rubbing it. We'll work on that. We'll put it back on that, yeah.
[02:45:51] Speaker 34: You're all invited next time. All right, let's get to some of the individual gainers. GM, finishing off its highs, at its highs up more than 4%, but still a 2.4% gain here at the close. The company's EV customers can now tap into the Tesla i superchargers starting this month. Remember they had an agreement last year between Mary Barr and Elon Musk, so some upward sentiment, if you will, for General Motors. Victoria's Secret, check it out, guys, up about 3.5% here. The company was upgraded. The stock was to equal weight from underweight over at Barclays, which said the worst is behind the company. Also raised the price target to $25 a share from 23. So this stock, finishing pretty much at $25 a share in today's session. HubSpot, another one, an outperformer up 2.3%. Call options also tripling today. Our BI team out with a note talking about the company's analyst day, saying the company's position in sales, marketing, and service software continue to strengthen in the small and medium-sized business segment due to AI innovation and more. And they also noted some of the company's product launches. So that's some of the outperformers here today, David.
[02:46:57] Speaker 59: Looking at those underperformers today, a few caught my eye. Zegna Group, maker of men's suits, men's clothing, Italian company, went public via SPAC back in 2021.
[02:47:06] Speaker 34: I think Romain, your suit came from there.
[02:47:08] Speaker 59: Oh, I didn't want to call him out. Perhaps it did.
[02:47:10] Speaker 34: He has a whole wardrobe here.
[02:47:12] Speaker 57: That's the thing.
[02:47:12] Speaker 59: Anyway, flagging that profits were lower there at that company in the first half of this year compared to the quarter and a half before that.
[02:47:17] Speaker 56: So I can expect some discounts.