Fed Chair Powell Speaks After Cutting Rates by 25 Basis Points

[00:00:00] Speaker 1: Bloomberg Surveillance. The Fed Decides. Tom Keen and Lisa Abramowitz live from world headquarters in New York straight ahead. I'll meet you back here on the late edition of Balance of Power. That starts at 5 p.m. Eastern Time as we try to keep the beat on politics here in Washington with a big decision on rates straight ahead. Stay with us only on Bloomberg TV and radio. [00:00:30] Speaker 2: What is a media executive doing running a toy company? Well, the opportunity was to take a company that thought it's a toy manufacturing company and turn it into an IP company. [00:00:52] Speaker 3: Good afternoon. Live from New York City for our audience worldwide, Bloomberg's The Fed Decides starts right now. [00:00:58] Speaker 4: This is a special edition of Bloomberg Surveillance with Jonathan Farrow, Lisa Abramowitz, and Tom Keen. Bloomberg Surveillance. The Fed Decides. [00:01:10] Speaker 3: Live on Bloomberg TV and radio, counting down to another Fed rate decision and Chair Powell news conference. Tom Keen here, Lisa Abramowitz, as we count you down to, I think, one of the most exciting Fed meetings we have ever seen, given the fact this might be the last rate cut with a Fed led by Chair Powell. [00:01:26] Speaker 5: I can state with great force, it will not be a snooze fest. I think we're there. Anna Wong within the last hour. My latest favorite forward-looking indicator showing renewed disinflation. That's behind the support of people looking for not only one rate cut, but many rate cuts to come. [00:01:44] Speaker 3: So let's have a sound effect for every time someone says hawkish cut, because that's essentially what people are expecting, that yes, they will cut rates for a total of 175 basis points of decline since last September, but it will come with an indication there probably won't be that many more ahead. [00:02:00] Speaker 5: It's wide open. I mean, we're going to have, as somebody said, it's like a TV soap opera. That's what this is. You're tuning in here at 1.30 for the 2 p.m. days of our lives, I guess, for the Fed. Within all that, as we grab onto the latest statistics, the employment cost index, the ECI today really did indicate a further disinflation, which gets you the confidence to get out to next year. [00:02:25] Speaker 3: Well, the soap opera of markets is a real indirection right now, at least when it comes to equities, really fluctuating between gains and losses as people try to get a sense of exactly what's going forward. Looking at S&P 500, it's almost exactly where it was on October 29th during the Fed's last meeting. Eurodollar also pretty much almost exactly where it was at 116. Gold, however, is 7% higher, stronger than it was back on October 29th. The 2's, 10's, and 30's face is where the action's at. The 2's has been locked in at that 3.6% rate, just a little off that 3.59%. The 10-year, though, markedly higher. It is off today. Yields lower. But watch that 10-year as globally you've got that bond sell-off. [00:03:07] Speaker 5: You do, and the spread market is worth watching. The sophisticated pros like Bob Michael, they're not just looking at one statistic. They're looking at all sorts of fancy spreads, particularly out the curve to get indications. [00:03:19] Speaker 3: Yeah, and how much the yield curve has steepened around the world. We're going to be speaking just shortly with J.P. Morgan's Bob Michael. We're so glad to have him. As well as Kathy Jones of Charles Schwab and Sokjan's Subhaja Rajapa. They'll be taking us up to that Fed rate decision at 2 p.m. Eastern. Then immediate reaction from Jim Bianco of Bianca Research, Diane Swank of KPMG, and Deutsche Bank's Matthew Lizetti. And finally, breaking down Chair Powell's news conference with Stephanie Roth of Wolf Research, Bank of America's Aditya Bahave, and BlackRock's Jeff Rosenberg. So glad to say that joining us here in studio, as he does, is Bob Michael of J.P. Morgan, who helps us lead off our coverage of the Fed meetings. How important is this one in the pantheon of Fed meetings? [00:04:01] Speaker 6: I'm with you on this. This is going to be an extraordinary meeting. There's so much that's going to go on. I think everyone is expecting the 25 basis point rate cut. It would be a stunner if it didn't happen. The Fed would have prepared us by now if it wasn't going to happen. But all the action is going to be with the dissents. How many is he going to have? Will it be limited to two? Or could there be as many as five? I think that would be extraordinary. And then we have to watch the statement after the FOMC meeting to see how they tilt that. Will it be a little hawkish or not? And then the press conference. There's a lot going on. [00:04:38] Speaker 5: I agree. And the specificity of the dissents will be fascinating to dissect. Michael Ferroli at J.P. Morgan is way too young to remember Wayne Angel and some of the fractious moments in the 90s and even back to the 1980s. Bruce Kasman maybe can understand it because he's ancient like me. And the bottom line is, is this new territory or is there an analog Bob Michael can work off of getting to this meeting and beyond? [00:05:01] Speaker 6: First of all, Ferroli does have some gray hair. So he's not as young as we all think. He's been around the block. I think we're entering new territory. I think most everyone has worked through the Greenspan era where Alan Greenspan made sure to corral the Fed and come out with a unanimous decision. And the belief was, if you've got something to say, say it in the meeting. See if you can convince other people. If you can't, then get behind the decision that's been made and let's make it work. We can always come back and adjust. I think a lot of dissents is a seismic shift. [00:05:42] Speaker 5: I had a luxury this week of a spectacular room at the Global Interdependence Center conference on stage with Shirakawa, Frenkel, and Port Gay of Argentina as well. And one of the themes there is the risk, with all the politics behind this meeting, of being unanchored. Do you see any indications among your professionals that the markets are becoming unanchored? [00:06:05] Speaker 6: I don't think we're there yet. I hope we don't get there. I do believe this is a Fed that goes in. It analyzes the data. Yes, there's been a shortage of data. So they've got to try and fill in where there are gaps. We'll get some of the employment data next week. It'll be a little bit later than when they normally make decisions. But I do feel they are trying to do the right thing. And by the way, if they do cut rates 25 basis points, you're down to 3 and 5.8%. You're not at sub 3%. [00:06:39] Speaker 5: Did you see what a money market fund is at? Yeah. I had no idea. I'm in the triple leverage to all cash. I was popping 8%. It's gone. [00:06:47] Speaker 3: Which is the reason why some people think that you should get more of a bid into longer-term treasuries. And I know that Bob Michael is one of those who thinks that if the Fed does cut and indicates further cuts, you want to buy the sell-off in long-term yields. I guess to Tom's point to build on that, do you see any indication that the sell-off globally in bonds is a result of unmoored inflation expectations? Or is this something else that is more of an anomaly that gives you a buying opportunity? [00:07:12] Speaker 6: So I'll tip my hand. We were in buying this morning when we walked in. So we like yields at these levels. We thought that the market had backed up too far and it made sense for us to stick our toe in. We do see a lot of moderation in the labor market. We do see inflation coming down a bit. That will probably be in the summary of economic projections. We should see them drop a tenth for each of the outgoing years. And it just feels to us that the market suddenly woke up to, oh, my God, there could be dissents. They may not go every meeting. And there was selling. And the selling looked well overdone to us. [00:07:52] Speaker 3: Last time you were here, you said that this is a Fed chair, Jay Powell, who has lost control over the FOMC. And we seem to see that with the dissents that came out during that meeting. If there are four or five dissents, can you say that this is a Fed chair, Jay Powell, that is leaving a legacy of a Fed chair that does not control the FOMC in the same kind of way, that you cannot give forward guidance with this type of fissure that we're likely to see persist? [00:08:16] Speaker 6: So there's no wrong model. And the Bank of England operates with, if you disagree, vote that way and we'll go with the majority. I happen to like everyone say what they have to say during the meeting. We've got to make a decision. Once the decision's been made, accept that you were unable to convince people, recognize that the majority wants to go in this direction and get behind it. So I'm more in favor. But if this is a shift, I think that's going to be the future. [00:08:49] Speaker 3: What does that say about a Kevin Hassett Fed or any kind of new leadership that comes in under President Trump? We know that Fed chair Jay Powell will be replaced. Does that mean that that person is less important if the committee is already fractured and not willing to get behind that person? [00:09:03] Speaker 6: Oh, that's such a good question. I'm not a believer that this is a 100 percent deal with Hassett. He's interviewing with President Trump now. And I think President Trump is looking at Scott Besant and saying, is this guy better than Besant? And the one determining factor will be how convincing and persuasive will Hassett be relative to Besant? Besant has done an excellent job getting out there with the administration's message and calming the markets and explaining what's going on. I think that's something that's something that we haven't seen from Hassett yet. [00:09:43] Speaker 5: Who would replace Besant then at Treasury? Would it be a building contractor in London looking for a new building out on the river? I mean, Mr. Diamond would be available? [00:09:54] Speaker 6: Well, Besant had, well, I hope not. I think Jamie's doing a fine job where he is. Let's not start that, let's keep Jamie where he is. I think that's the question. Why is Besant not taking this role? President Trump has made it clear he wants him in this role. If I were Scott Besant, I would say I would go to that role as Fed chair if I could name my successor as Treasury Secretary with you. [00:10:25] Speaker 5: We agree on someone like something out of the 19th century. I don't know which president was before Lincoln, but this meeting is nuts today. [00:10:33] Speaker 3: We are in a new regime and it does feel like we're seeing a sea change in terms of the Bretton Woods Accord, in terms of financial markets, in terms of how the Fed operates going forward. This idea that everyone coalesces around one idea seems to be fading a bit as you see more dissents. Bob Michael is sticking with us to tell us his key question. And so much more after being in markets to really talk about buying the dip, at least in bond prices, yields up. A real question of other people seeing the same thing because of what you said about the cash holdings and how little really gets yielded. [00:11:05] Speaker 5: Biggest meeting since time began today. And, you know, again, the economic data here in four, five, six days, it's an eventful December, to say the least. [00:11:12] Speaker 3: Yeah, biggest meeting since the beginning of time. You've heard it here first. Coming up, Kathy Jones of Charles Schwab and Subhaja Rajapa of SockGen as we count you down to the Fed decision. This is Bloomberg. [00:11:35] Speaker 7: E-Investors, top executives, global innovators. Join me for in-depth conversations with the biggest newsmakers on the day's top stories. Insight with Hazlinda Anand, only on Bloomberg. [00:11:51] Speaker 8: In case you missed us on Bloomberg Grief. This is a big difference from April. Remember when there was no place to hide. And now, even though the tenure is below 4%, if you start to see the labour market showing signs of firing, whether government or the private sector, I think then the tenure has a lot of room to decline because then the Fed's cutting into accommodative territory, not just getting to neutral. Don't miss Bloomberg Grief, live every weekday. [00:12:21] Speaker 9: We're coming to you live from Palo Lumpur. The whole world is here. The APEC Leaders Summit bringing together heads of states of 21 APEC economies. The White House is trying to use the stops to gain additional leverage. [00:12:32] Speaker 10: This big deal with a number of the biggest companies in South Korea. [00:12:36] Speaker 9: That's a big number. [00:12:37] Speaker 10: Deals can be done. [00:12:38] Speaker 11: Trust Bloomberg for on-the-ground coverage. [00:12:40] Speaker 12: Korea is not Japan. [00:12:42] Speaker 11: Up to the minute reporting. In this latest salvo of this trade war. What a visual. And the analysis you need. [00:12:47] Speaker 12: China's not going anywhere, nor are we. [00:12:51] Speaker 13: The Middle East and Africa regions are home to some of the biggest deals and fastest growth in the world. I'm Jumana Versace. Join me on Bloomberg Horizons Middle East and Africa for the stories, newsmakers and insights shaping the decisions of traders across this exciting region. [00:13:07] Speaker 14: We had heightened levels of volatility. There's still room to manoeuvre. Reduce the opportunities. It allows you to increase significantly your net income. [00:13:14] Speaker 13: Watch Horizons Middle East and Africa every trading day at midnight Eastern time. Only on Bloomberg. [00:13:21] Speaker 15: The Fed needs to do more. The Fed needs to cut rates. [00:13:30] Speaker 7: The rate cuts are baked in. We think they will cut. They will cut. [00:13:33] Speaker 16: We do expect the Fed to cut. This cut is going to happen. They're going to cut. They'll try to make it a hawkish cut. [00:13:39] Speaker 15: I think they're going to leave it open-ended today. This should be a mixed decision. I think we'll also see quite a few dissents. Historically, dissents are really the norm. [00:13:49] Speaker 17: Things are confusing, and you can see that within the debate within the FOMC itself. [00:13:53] Speaker 18: We just don't have a real clear picture of what's happening in the economy. Inflation remains a very sizable problem. [00:13:59] Speaker 19: The U.S. labor market is soft right now. The labor market is about as clear as mud. Driving through the fog is a good description. [00:14:07] Speaker 20: It's a cyclical slowdown in the economy. [00:14:09] Speaker 21: The underlying question is what the market expect the Fed to do versus what the Fed should do. [00:14:15] Speaker 22: The market would be surprised by an overly dovish message. [00:14:19] Speaker 23: There's so much at stake going forward with the Fed. We're increasingly moving to an era where the Fed is more divided. [00:14:25] Speaker 3: Clear as mud. This is Countdown to the Fed Decides on Bloomberg TV and Radio. I'm Lisa Abramowitz with Tom Keen. As we see in markets, looking for direction ahead of a meeting that could potentially set a trajectory going forward. Clear as mud time. That's what we hear from so many people. [00:14:39] Speaker 5: There's so many ways to go here. I would go with the latest economic data and what we're going to see after the meeting in the coming days. And as Anna Wong said, within the last hour, there's a new disinflationary perhaps that's out there. It's not sure, but some of the data indicates maybe a new bout to get to a better place, which means more rate cuts down the road. [00:14:59] Speaker 3: Bob Michael of J.P. Morgan still with us. And Bob, how much are you seeing any clarity whatsoever in data that we are getting, given all the data that we are not receiving? [00:15:07] Speaker 6: Not so much. And to admit, the labor market has been mixed. When you look at payroll data and weekly claims, it looks a little better than, say, the ADT data. We talk to a lot of companies that we invest in, and we hear the same message back. They're still trying to figure out what the impact of tariffs and AI will be on their labor force and their profits. So they're pausing on hiring right now. [00:15:33] Speaker 3: What's notable is since the last Fed meeting, we haven't seen much change in the S&P 500, the Euro-dollar cross. We have seen a 7% gain in the value of gold. We haven't seen much of a change in 10-year yields. We have seen in two-year yields. In 10-year yields, we have seen a market shift higher in 30-year yields as well. So it raises this question going forward. What does the market see with respect to the sell-off in bond markets that all other asset classes are not seeing? And is it a positive sign going forward? Joining us now is Kathy Jones of Charles Schwab. Kathy, from your perspective, are we looking at a new neutral rate that the Fed is coalescing around and that they can agree on? [00:16:12] Speaker 16: Well, presumably, they're looking at 3% as a neutral rate, if I can read the various indicators that they provided. And so, you know, they could get down a couple more rate cuts and still be arguing that they were moving towards neutral. I think the problem is convincing the world that there is a neutral rate that can be determined and that they can base policy on. I think when we look at the steepening in the yield curve and what's happening with longer-term rates, it reflects uncertainty about whether the Fed's making the right move by cutting with inflation still elevated. It reflects the fact that bond yields and much of the rest of the world are starting to move higher, especially Japan, worries about fiscal deficits. So it all comes down to, is this the right move at the right time for the Fed? I think the market is not clear on that, and they're building in a risk premium as you go out the curve. [00:17:09] Speaker 5: Okay, so I know you've published your outlook. It's 412 pages. Rip it up. It's going to be dead at 2.15 this afternoon. The new outlook off of this Fed meeting, Kathy, what does it mean for investors? Do you clip a coupon, or is there a total return opportunity into next year? [00:17:27] Speaker 16: You know, right now, most of the return we're expecting will be from the coupon. There may be, if inflation does come down, if the labor market continues to slow from here, which not 100% sure that's going to happen. But if it does, then there might be some capital gains. But I think our expectation is returns will be positive, but not as robust as they have been in 2025. [00:17:51] Speaker 5: Bob Michael with us, J.P. Morgan. Let me go Marty Fritzen on you right now. Give us a review of how J.P. Morgan sees credit quality out there. It's a K-shaped economy. X amount of America's flat on our backs. But I don't see defaults, et cetera, within the credit market. It's pretty good out there, right? [00:18:07] Speaker 6: Yeah, the public credit markets look pretty solid to us. Corporate profitability remains in a very good place. Businesses have been pretty good about how they've controlled costs. A lot of them are thinking about CapEx next year doing a bit of hiring. So we're not hearing the things from corporate America that would particularly get us concerned as credit investors. [00:18:27] Speaker 5: Well, let's go to Lisa Bramos. You're actually expert on this. Are we wicked tight right now? Where is the spread market? [00:18:34] Speaker 3: Right now, it feels like that is the concern, that maybe we are too tight relative to even some of the idiosyncratic credit softening. But still, people want the income. And it raises the question, Subhadra, to the point, excuse me, Kathy, to the point that you're making. We'll get to you in a second, Subhadra. Going forward in terms of, is there a contradiction in the solid credit worthiness of so many companies and the idea that the Fed needs to cut so much more to really support the debt markets? [00:19:00] Speaker 16: Yeah, I think that that's the tension right now. And the reason we have a steeper yield curve is it's not clear to me with financial conditions as easy as they are and inflation still elevated and the economy looking fairly sturdy. It's not clear to me that this is a market that needs a lot more stimulus or needs stimulus or that we're that far from neutral that it's required at this stage of the game. But, you know, they are very focused on the labor market. There has been some slowing there. There's been a little bit of easing in wages. And it seems as if the big concern is the labor market that the Fed really wants to get ahead of. And it is in contradiction to a lot of the other signals that we're getting from the market. Bob, do you agree with that? Do you think that there is a contradiction here? [00:19:52] Speaker 6: I don't think so. I just look at what's happened in the last month as normal volatility. Some markets getting a little bit ahead of themselves. I'm expecting bull markets into year end. I don't care if you're looking at treasuries, you're looking at credit or you're looking at the equity market. That's how much interest we're seeing from our client base. [00:20:13] Speaker 3: Is this just a technical issue? And I guess, Kathy, that's sort of what is part of what's implicated here in Bob's statement, that there's so much cash. If people have $8 trillion of cash and money market funds, there's a lot of money looking for income. At what point does that overwhelm some of these other concerns and really wash out a real sense of whether there are credit worries, etc.? Right now, companies are doing okay, and there are enough people who want to buy. [00:20:39] Speaker 16: Yeah, we're on board with the investment-grade public market. We think it's pretty solid. We look at the corporate profits margins are okay. So, we've been all year saying, you know, stick with higher credit quality or solid credit quality and don't see a big blowout coming. I think the bigger concern for us, obviously, is the public sector debt accumulating and also the risk that the Fed is wrong about inflation coming down further and that it will not get to its target anytime soon. [00:21:13] Speaker 3: Kathy Jones, thank you so much for being with us and we look forward to catching up with you after the Fed decision in just about seven and a half minutes time. Joining us now is Subhaja Rajappa of Sakhjan. We will get to you. Subhaja, wonderful to have you in studio. Always great to see you. How important is this meeting going to be, not just with respect to whether they cut rates and the statement of economic projections, but setting a precedent for a Federal Reserve and how it operates in terms of the Fed chair and its role? [00:21:38] Speaker 24: I think it's going to be very important. I mean, I think that in some, you know, one way to look at it is that Chair Powell is really setting the stage for next year and, you know, kind of setting the tone for what is going to happen as far as policy is concerned. I mean, for the most part, I think the expectation is that it's going to be a hawkish cut. I think if it turns out to be somewhat dovish, I think that that will be, again, quite a surprise for the markets. But, you know, to me, this meeting feels like a deja vu from last year where, you know, coming into the end of the year, the Fed basically guided for, you know, policy to be on hold for a good portion of 2025. That's what we saw. And that's exactly what we're going to hear from them for next year because they have delivered a few preemptive rate cuts. So we'll have to kind of see how, you know, the data evolves from here on and what they have to do going forward. [00:22:33] Speaker 5: Societe Generale owns a derivative market. You're always looking at the cross moments as well. What's the risk profile into this meeting? [00:22:41] Speaker 24: I mean, clearly to me, the risks in an environment where the Fed is biased to ease is towards easing and lower interest rates. In fact, in our year-end forecast for 2026, I think we might be a little bit out of consensus expecting 10-year Treasury yields to actually go lower from here. I think there's some of our counterparts who are expecting higher interest rates. [00:22:59] Speaker 5: What's your forecast to get to 3 o'clock this afternoon? I mean, is there a bet on the market being placed right now? [00:23:05] Speaker 24: So if you look at the last few meetings, the price action has been to kind of be rally softer into the market and then a little bit of a sell-off after the meeting. But for the most part, I think I'm aligned with Bob and expecting that the market's going to be really cautious heading into year-end. So the bias ultimately towards the end of the year is going to be towards lower yields. [00:23:26] Speaker 3: Bob, let's bring you back in. You're saying there's so much cash here, and that's part of the reason why you think that it's not inconsistent to see a rally, not only in rates, but also in the credit component. Is this liquidity going to get added to by the Fed's balance sheet, right? Are we sort of all careening toward a place where the Fed has to keep adding to its balance sheet in order for repo liquidity for the functioning of markets, which only adds to the cash searching for income? [00:23:50] Speaker 6: Well, let's remember, asset prices are denominated in money, and there's a lot of money sloshing around in the system, both from COVID-era policies and laws, as well as the QE that has now ended. Will the Fed keep growing its balance sheet? Absolutely. They've ended QT. They're starting to recognize that you talked about public sector debt. The size of the Treasury market is a big, unwieldy beast, and you need the Fed balance sheet in there to help stabilize it. So, yeah, I think we're just going to be more of the same. And let's not forget the administration is pro-growth, pro-business, and that means stimulus and lower rates. [00:24:35] Speaker 3: So, Bajra, if you take that backdrop that Bob just laid out, and a lot of people are sympathetic with, why wouldn't you see higher inflation in consumer prices, not just assets? [00:24:45] Speaker 24: You should, but I mean, the realized data has been somewhat on the softer side, right? I mean, we really didn't see the transmission of tariffs through to goods inflation. You're seeing broad-based services inflation. You're seeing a little bit of cloudiness around the outlook for inflation. There's a good chance that inflation could be somewhat more hotter in the first half of next year. But, you know, for the most part, I think that inflation expectations have remained relatively contained. And I think that that leads me to believe that, you know, there's not that much of a concern in the markets about inflation. [00:25:21] Speaker 5: Very quickly here, as we get to the decision, I look at what both of you are saying. I think of Francis Donald today with the Bank of Montreal, and she's like, okay, I parachute in. I'm Rip Van Winkle, and I come down on December 10, 2025. I got 3.5% Atlanta GDP now, real GDP. I got nominal GDP, what, Bob, 5-ish plus? Yeah. 5-ish plus. I got yields backing up a little bit. Everybody, including Lisa, has made a big deal about, OMG, rate cuts as we go, and yet yields are going up, price down. Jim Bianco's with us later. He'll talk about that. Tell me about the descents both ways. Let me start with you, Bob. The people like Myron saying cut now, is it just a political mandate, or is there a case to let's go to cut interest rates? [00:26:12] Speaker 6: Well, the case would be that the entire FOMC is still expecting rates, the neutral rate, to be lower, and the median dot is still down around 3% and will be there. So you're too far away from the median dot. And also, there are signs that there's some slack in the labor market. We'll see over the next couple months. [00:26:33] Speaker 5: Just because of time, we've got to get to the opening face-off. Just because of time here, Sabhadra, tell me about the case to not cut rates today, or even, dare I say, go Kansas City and lift rates today. [00:26:45] Speaker 24: Well, the economy has been extraordinarily strong. You've seen a significant amount of momentum going into the second half of the year. You're going to get a lot of fiscal stimulus next year from the big, beautiful bill. You're also going to be seeing a lot of AI spending coming into the corporate bond market. And you're going to see the reopening from the government shutdown and consumer spending start to pick up in the first quarter of May. [00:27:07] Speaker 5: Lisa, quickly here, then state the case for we delay the meeting, not have an announcement today, and wait for the economic data four, five, six days from now. [00:27:15] Speaker 3: Yeah, December 17th, delay it a week. I think a lot of people would agree. AMH in particular has been arguing for this. They're not going to do that, though. Sabhadra Jappa, thank you so much for being with us. As we count down to this Fed decision, right now we've got about 90 seconds ahead of that decision. And right now, markets churning a little bit of a negative tilt to the S&P, to the Nasdaq in particular. Yields lower on the front end. Watch this space as people expect that 25 basis point rate cut. On the long end, we've seen a little bit of a pulling back from an earlier sell-off with people buying the 10-year yields, including Bob Michael, who said that he was in just earlier 4.16%. Let's just get your view, Bob. Do you think that you're going to get four descents, three descents, or five descents? What's your view? [00:27:58] Speaker 6: Well, exactly. Yes, that's my view. We're going to get some. I think the range is two to five. For sure, you should get Myron on the 50 basis point rate cut. And for sure, I think you should get Schmid on no rate cuts whatsoever. Will we see Musselman, Collins, Goolsby join Schmid? I don't know. We have to watch. [00:28:24] Speaker 3: Right now, the market is watching. And what you are seeing is a 10-year yield that finished on October 29th at 4.07%. We're looking right now at 4.15%. It is somewhat higher, although pulling back from some of the earlier highs. And some could argue it hasn't risen as much as yields, say, in Germany and in France. Eurodollar has just been pegged because, sort of, pick your poison. Is it the European economy that's flagging or the U.S. economy with rate cuts? We are just two seconds away. Let's get to Bloomberg's Michael McKee with that Fed rate decision. [00:28:55] Speaker 25: The most divided Fed since before the pandemic voted to lower the benchmark rate by 25 basis points as investors expected. But there were three descents for the first time since 2019. And on the dot plot, a total of six members of the committee suggested they were not in favor of lowering rates. There's also a hawkish line in the statement. In considering the extent and timing of additional adjustments to the target range, bringing back language from a year ago when they paused their first round of rate cuts. No surprise, Stephen Myron wanted a half-point reduction. But in something of a surprise, Austin Goolsbee joined Jeffrey Schmid in dissenting for no cut at all. Next year's dot plot suggests just one cut coming. Seven members want no move, however, including three who think the rate might go up. The committee statement says economic activity has been expanding at a moderate pace. And the latest forecasts show a consensus GDP figure of 1.7 percent for this year. But in a big move up, they have revised growth forecasts for 2026 to 2.3 percent. Unemployment forecast to finish this year at four and a half percent will fall back to 4.4 percent next year. Using identical language from October, the statement says job gains have slowed this year and the unemployment rate has edged up through September. Nodding to the government shutdown caused absence of data. The statement repeats that more recent indicators are consistent with these developments. There's no change in the inflation assessment. It has moved up since earlier in the year and remains somewhat elevated. However, it is seen slowing markedly next year. PCE headline from 2.9 percent this year to 2.4 percent in 2026. And as always, they won't reach their 2 percent target for two more years in 2028. Core PCE will finish the year at 3 percent, falling to two and a half percent next year. As for the balance sheet, the statement now says reserve balances have declined to ample levels. The Fed will buy shorter-term treasuries, mostly bills, but up to three-year notes, as needed to maintain that ample supply. The first operation will be announced tomorrow with the first purchases on Friday of approximately $40 billion in treasury bills. [00:31:17] Speaker 3: Michael McKee, stay close as we parse through this. Right now, what you see in markets is a collective cheer. Perhaps this was supposed to be a hawkish cut. The market is taking it slightly differently. S&P had been lower. Now it is positive by almost two-tenths of a percent. Euro-dollar, euro-climbing, dollar falling on the heels of what does seem to be like more Fed cuts. And across the board, twos, tens, and thirties, you are seeing a bid into bonds with this feeling that this is a Fed that not only is going to support rates with further rate cuts, but also with additional bond purchases, Tom. [00:31:48] Speaker 5: To me, the most interesting nuance here is the descent of the gentleman from Chicago. This is brilliant academics out of Milton Yale and the Massachusetts Institute of Technology. Austin Goolsby is basically our technology president. He's wired into the Internet, wired into the computers. And I'd love to know if his descent has to do with the vibrancy of AI, which leads to a better productivity, a better GDP. Let's be careful what we do. [00:32:16] Speaker 3: Yeah, right now we're looking at nine votes, four and three dissents. Bob Michael of JPMorgan with us here. What's your first reaction of this decision? [00:32:26] Speaker 6: Not as bad as it could have been. There could have been a lot more dissents in favor of no rate cuts. When we look at things like PCE, we expected they would lower core PCE by a tenth. They did that. They left the unemployment rate for next year roughly where it was last year. They did raise their expectation of GDP a couple tenths from where it was. So to me, that seems to be, if you want to call it a hawkish tilt, the one hawkish tilt. And of course, adding the extent and timing of additional adjustments to rate policy going forward, that was pretty much in the market. So I think mostly as the market expect and nowhere near as bad as the market feared. [00:33:11] Speaker 3: So not maybe as hawkish of a cut as people thought it might have been. Joining us now is Jim Bianco of Bianco Research. Jim, what's your first reaction to this decision, which, as Bob was saying, isn't as bad as it could have been? It could have been four dissents or five dissents, only three dissents. Is this a victory for Jerome Powell? [00:33:27] Speaker 26: It's a victory for Jerome, but I'll take the other side, Bob. I'll say that it's not as good as it could have been. I was hoping for a 7-5 vote. I was hoping for a Fed that was more divided, that was more independent, that was going to send a message to the administration. You could put a guy in that wants to go to 1%, but he's not going to bully us to cut rates next year just because he's the Fed chairman. They kind of left the door open, I think, that the Fed can be bullied by the next Fed chairman to do the bidding of President Trump. [00:33:58] Speaker 3: Bob, you were saying that you wanted to respond? [00:34:02] Speaker 6: Not as good as it could have been with more dissents. I think if you're the administration and you're invested in this market, this is pretty much as good as it could have been, other than no dissents. I'm not sure how additional dissents make this better. [00:34:16] Speaker 5: Will McKee dissent at the press conference? [00:34:18] Speaker 3: Let's find out. Mike, you were parsing through this. You've got something to add. What do you see? [00:34:23] Speaker 25: The point I'd like to make is that the SEP shows that growth is going to pick up significantly next year, unemployment is going to go down, and inflation is going to go down significantly next year. So what was the rush to cut rates today if they think that's the track that we're on? I think that's going to be a key question for Jay Powell in the news conference. Does this raise the possibility that they could be going the wrong direction with rates? There were some people who made that case before we went into today's meeting, and they're going to be still raising questions about it going forward. [00:34:55] Speaker 3: Michael McKee, thank you so much. We will be catching up with you and, of course, listening to your questions. Jim, this is something that is near and dear to your heart as you call yourself a self-dub inflationista. Do you think that this really adds to that inflationary pressure if the Fed essentially is accepting that they're not going to get down to their inflation target for six, seven, potentially even eight years? [00:35:16] Speaker 26: I agree. I think that the Fed has to be very worried about that. We're worried about affordability right now. The CPI is up 27% since the end of COVID, and that's what people are upset about. How do we fix that? We need the inflation rate to run below 2% for a while so that wages can catch up. If the inflation rate is going to stay at three and moderate to two and a half, that is going to keep the affordability anger white-hot over the next year to year and a half or so. And so I don't think that accommodating that by cutting interest rates is going to help. And that's the question I hope the chairman gets is, how are you helping affordability with 175 basis points of cuts in the last 14 months? [00:35:58] Speaker 5: Jim, we've got to review the past here. You were a leader on saying that inflation would be sticky. It was a lonely call years and years ago, and Bianco of Chicago said, you know what, folks, we're not falling down to 2%. So here we are, Jim Bianco. I just want to know the efficacy, Jim Bianco, where he says in the press conference, basically, one and done. We made a rate cut. Maybe we will have a sequence of future rate cuts, but we really, really now have to wait and see what the data says. Isn't that where we are, Jim Bianco? [00:36:31] Speaker 26: Well, that's if that's what he says. And again, what I was trying to say before is if the chairman imitates that it's one and done, means the chairman's running the show. And in May, we're going to have a handpicked successor from Donald Trump running the show. And we know what Trump thinks about interest rates. And that person's going to want to have lower rates. But if he does say that, then maybe the market will take it a little bit differently, and we'll see if he does. But most of the times, he'll just say he's going to be data dependent, and it depends on what the data is. [00:37:01] Speaker 5: This is an important vignette, folks, that I think is just so valuable. I'm in a room with Axel Weber, Shirakawa of Japan, the wonderful John Lipsky, with all of his work on New York Wall Street, many other worries. Tom Honek was there from Kansas City. And the room fell silent, Bob Michael, when they talked about the next regime of the Fed and the risk here that it would be cut, cut, cut, cut. Is that a legitimate fear, that the next chairman and the apparatus will allow us to go towards some regime of new low, low rates? [00:37:35] Speaker 6: Well, I think you have to look at which Fed presidents are coming onto the FOMC next year. And they're mostly in the hawkish cap. So whoever you put in as the Fed chair has to be very persuasive. And I guarantee you, the president isn't looking to appoint the next Paul Volcker. They're looking to appoint someone who believes in supply-side economics. [00:37:59] Speaker 5: And Lisa, this is critical. This is absolutely critical that we have an analog here with the Bank of England that over time has told the governor of the Bank of England, their chairman equivalent, no, we're not in agreement. We're not going to do it. Is that what our 2027 looks like? [00:38:14] Speaker 3: Part of the problem is people get overwhelmed by the state of events. And this is something that you talk about a lot. And Jim, I'd love your thoughts on that, this idea that this is a Fed that is now buying bonds once more, buying notes once more. And they're doing so because of reserves issues and really technical considerations for the market. They don't want another repo freakout. At this point, though, it does indicate a structural issue with how much debt is out there, the government deficit that's not going down, And a question of the Fed's role, are they being forced to monetize the debt in a way that will keep them artificially easy if you were just going off the economic outlook? [00:38:49] Speaker 26: I think they are, at least being forced to acknowledge fiscal dominance that the fiscal situation is important. The Fed's role, the Fed, which funds the $38 trillion Treasury market, is too small. It's too small because the Fed has been doing QT and reducing reserves. Those interest rates, repo rates have been going up. Now, one answer could be to tell Congress, you can't spend as much money. You can't run as big a deficit because the funding markets can't handle that size of a market. But if the Fed wants to elect to let's expand the funding markets to meet the size of the bond market, you're telling Congress, go ahead, spend more money, run bigger deficits. We've got your back. We'll continue to expand that funding market to meet those goals. And the biggest driver of inflation over the last couple of years, other than the supply shock that we had in '21, has been government spending, and they seem to be encouraging more government spending. [00:39:45] Speaker 3: Bob, do you agree with that? [00:39:47] Speaker 6: Absolutely, 100 percent. But it doesn't change the fact that that's what's occurring and the market's responding to that. I look at everything that just happened in the last few minutes and, you know, everyone got what they wanted. Those hawks on the Fed that didn't want to see a rate cut, they got that. When you look at the Fed futures market, we had two rate cuts priced for next year, mid-year and the end of the year. Now there's only one price for next year, and it's in the fourth quarter. So you got what you wanted. You got the market moving away from being in a rate cutting regime going forward. But if you look at the doves on the Fed, if you think about the administration, they got what they wanted. They got another 25 basis point taken off of base rates and the market's responding positively to that. It's rare that everyone gets what they wanted out of an FOMC meeting. [00:40:45] Speaker 3: Jim, I love your comments on that, this idea that everyone wins. If you do have monetization of the debt, yes. You do have ongoing fiscal spending, yes. But that helps support the markets and we're not seeing runaway inflation. So what's the problem? [00:40:58] Speaker 26: We're going to get a new Fed chairman. That's the big issue. And the new Fed chairman is going to be perceived to be having a political agenda. And you were hoping that the current members of the FOMC were going to act as an independent break on a political agenda that was coming in. And that's why I wanted to see more dissents to signal that they were ready, willing and able to be that political break. Now, maybe they will once we get that new Fed chairman. But then that looks political that they didn't take the chance to do it before the new guy came. [00:41:30] Speaker 3: Jim Bianco, thank you so much, as always, for your insights. This really is going to be the debate. How does Fed Chair Jay Powell position himself and position the FOMC as being politically independent at a time that's highly politically charged? We hear every single day about the Fed chair from this president. [00:41:44] Speaker 5: The redo of independence is the core issue, particularly the heritage of the Fed back to 1951. And it's under threat. No question about that. It'll be interesting to see if the president gives way. As Bob Michael mentioned, the FT article today talking about, well, maybe it isn't 100% or 90% Dr. Hassett. And you get to a point where there's a renewed debate. We'll have to see on that. To me, it's a Chicago Fed meeting. We had Goolsby dissenting, which is a shock in itself. And have Jim Bianco with us. This is wonderful. Diane Swank owns the high ground of Middle America with KPMG. She's now out of three zip codes in Manhattan and joins us this afternoon. I look, Diane, at this moment. And when I see Goolsby's dissent, and it's essentially a Chicago dissent, it's a dissent of productivity. Do we have any idea with this new AI that we have a new productivity that will allow for a better real GDP, a more effective and efficient America? [00:42:47] Speaker 27: We don't know that yet. What we do know is that productivity growth has moved up. And that's because firms are doing more with less. We don't know that it's all from AI. We haven't seen enough adoption of AI yet to get there. And also, what we don't know is how AI will be used, whether or not we'll see a lot of new jobs from this new innovation. That's usually what we see from innovation. Certainly, that's not what Silicon Valley is telling us at this point in time. And also, it matters who the gains of the AI actually accrue to. If those productivity gains continue to accrue to the owners of capital instead of workers, workers are going to feel left behind. And they're already feeling left behind because of the fact that the level of prices, as Jim pointed out, is just too high. Even if inflation were to cool from here, the level of prices are still too high. [00:43:37] Speaker 5: Lisa, I set up that question because I knew what Dr. Swank would say. Who's going to be the winner of productivity? Who are going to be the winners out there? And that's the ultimate political tension. [00:43:48] Speaker 3: Which is the reason why the Fed's role in this is getting increasingly politicized. Dan, I'd love your take on how this Fed is taking into account productivity gains of AI and talking about Goldilocks. Because essentially, that is the scenario that they laid out in their statement of economic projections. [00:44:06] Speaker 27: Well, the Goldilocks scenario really requires, with productivity growth, it to be broad-based. And actually, people always forget this part of it. If productivity growth -- they raise their growth rates for next year. If productivity growth is driving gains in overall economic growth, it means we can actually have higher break-evens on the Fed funds rate, because the economy can grow more rapidly without having to lower rates. And I think that's important as well. And so we've really not seen all this yet. And I think it's still ahead of us. I am worried about the fact that we're getting fiscal stimulus in the form of the largest tax refund surge on record in the first and second quarter. We'll hit between March and May. And we know that those tax refunds are treated like windfall gains due to the expansions of tax cuts passed in July of last year. They're retroactive to beginning of 2025. And that's going to be a big bump in fiscal stimulus at a time when we're still feeling the inflation from both tariffs and changes in immigration policy. Yeah. And I think that's really important. We're seeing service sector inflation pick up as well. [00:45:16] Speaker 3: If that's the case, Diane, why are not forward break-even rates rising substantially? I was looking just now at the five-year, five-year, four-year forward break-even rates, and they actually went down after this Fed decision, not up, even though exactly what you're saying, if you do believe that there will be some additional fiscal stimulus that would be inflationary, you would think that this rate decision would only encourage those inflation fears. [00:45:40] Speaker 27: I don't think -- I think we've seen some of it in financial markets already. The fact that it's not happening today doesn't mean it won't happen. And we've already seen some nervousness in the bond market, skittishness about the size of debt that they have to absorb, the mega-merger deals that are coming out that are also financed by debt. All of that together, along with the fact that we're now going to see, in 2026, the government debt is going to eclipse the size of the economy. It has not done that since World War II. And so we're moving into new territory. And I think a lot of people are sort of looking at the way the world was, rather than what's changing. And things are changing very rapidly. [00:46:21] Speaker 3: If you are just joining us, we did get that Fed rate decision. They did lower by 25 basis points, as widely as expected. Nine to three votes, three dissents. The news really is that Austin Goolsbee joined the Fed's Schmidt in dissenting, saying that they should not lower rates. You, of course, had Stephen Myron, a Fed governor, talking about a 50 basis point cut dissenting on the other side. Not as many dissents as people had expected. The Fed did revert back to what we saw in the October statement, using language used just before pausing rate cuts. So potentially the last Fed rate cut for a long time by this chair, Jay Powell. I'm just wondering, Bob, if you think that right now this market is saying they are okay to do this, that the data that is available really doesn't signal that this cut, and then maybe one more next year, really is going to be inflationary. [00:47:11] Speaker 6: Well, I think that's what the market's hoping for. I think there are a lot of businesses that we invest in where we do see the productivity gains from AI already. We also know within our own bank, there are significant productivity gains. So some of that is already out there. The unfortunate price reset from pre-COVID levels to today is also a problem. I get that. But that's damp and aggregate final demand. What do we want going forward? Do we want the disinflation we seem to be in and what the Fed is projecting? Or do we want deflation where prices come down? I would argue we still want disinflation, and hopefully there will be a point in time, in the not-too-distant future, where wage growth and the trend in disinflation will normalize prices again. But all of that still is a headwind to consumption. So businesses are very careful how much cost increases they push through now. [00:48:11] Speaker 5: Can I do a counterfactual? Please. Diane Swank, if we got a 50-B Myron cut, what would happen to the American economy now? With the financialization of the American system, if you gave us a 50-B cut now, it'd be a veritable banking explosion, wouldn't it? [00:48:32] Speaker 27: It would certainly add a lot more stimulus to what we're already seeing. And stimulus is heat. Heat is inflation. Unless you can really get all those offsets from AI in the right places. And I think that's the hard part is the old economy is where the tariffs are hitting the hardest in manufacturing activity. And we are seeing it come through in prices. And we're also seeing labor shortages, even as the labor market weakens, in pockets where immigrants have dominated. That's showing up in prices as well. In-home elder care, child care costs, all soaring. That was just in September. And those shortages have only gotten worse since then. [00:49:11] Speaker 5: Lisa, 2:20:20. I looked at the clock right when Diane Swank said tariffs. The first time we got the tariffs was 20 minutes into the show. For most of our audience, tariffs are a big deal. They're affecting their groceries, their healthcare, everything in the service sector as well. Yeah. [00:49:29] Speaker 3: Plastic Christmas trees, 15 to 20% higher because of tariffs. There you go. So this also is... A real Christmas tree or fake. A fake Christmas tree. But it's also increasing the real ones because of other people. Diane Swank, we'll let you stay out of this conversation. Thank you so much for being with us. Joining us now for this conversation, not this conversation. Matt Lizetti of Deutsche Bank with us, as you typically do before the Fed press conference. Matt, just first, what's your impression? Nine to three, was this what you thought would happen? [00:49:56] Speaker 28: Yeah, to be honest, I think in terms of the statement, the SEP, the dissents, I think it was very much in line with expectations. You know, certainly there was scope to get greater dissents from a hawkish direction than what we got. I think four regional Fed presidents, potentially Governor Barr was also leaning against this cut. But we always thought that it was the job of Chair Powell through the statement, the language change that we got there. But then I think coming up through the press conference signals that he sends to try to rein in some of those dissents, to have a hawkish message that allows, you know, those officials to speak through that. And so I think we probably got that as well. You know, you're seeing markets respond by taking rates down. I don't think that's really anything that we saw in the statement or the SEP or the dissents. I think it really was the Fed ramping up reserve management purchases, these T-bill purchases a little bit earlier than was expected. [00:50:43] Speaker 5: Matt Lizetti, Binky Chata is high on the street looking at the equity markets. He says the stock market's going to go up, up, up. How do you attach Luzetti economics to Binkram Chata's huge equity outlook? [00:50:58] Speaker 28: Yeah, I think, you know, the good thing about how we do it here, it's internally consistent. So I think Binky takes our economic growth forecasts, our global economic growth forecasts, and builds that into his earning projections. We have 2.4% growth for the U.S. economy over the next year. That was sounding, I think, quite bullish relative to consensus expectations. But I would note the Fed median forecast came up to 2.3% today, I think was revised higher than what many anticipated and is now much closer to our own expectations. So I think these two things are mutually reinforcing. We see a stronger growth backdrop. We see financial conditions easing through Binky's equity channel. And those two things reinforcing each other over the next year. [00:51:38] Speaker 3: Matt, your other colleague, Jim Reed, put out a provocative question earlier this morning saying, what if the next Fed move was up? At what point do you think that the move that the Fed is laying out really sets up that counterfactual in a more real way? [00:51:55] Speaker 28: Yeah, certainly a provocative question. And I think over the next year, we are getting more questions about that. And I think it's more coming from the global sphere at this point. You're seeing places like the RBA turn a little bit more hawkish. There's questions about the ECB. Bank of Canada are seeing stronger economic data as of late. For the Fed specifically, though, I think you need two things to happen. One, you have to have a clear elimination of downside risk to the labor market. We are not there yet. There's still some fragility in this labor market over the next several months. Perhaps by the end of next year, we could get there. And two, you need the labor market to return as a source of inflationary pressure. So you need the unemployment rate to decline, quits rate to move higher, and wage growth to accelerate. I think it's possible. I think you are seeing a substantial reduction in labor supply in the U.S. economy. I think if you were to add on even more fiscal stimulus, so if we were to get these $2,000 stimulus checks from the Trump administration, I think that's the type of dynamic where that could really shift the debate. People would begin to think a little bit more actively about rate cuts in the U.S. But to be clear, I don't think we are there. Our baseline expectation is the next move is a cut. [00:53:01] Speaker 3: Bob, what do you think? What do you think it would take for the Fed's next move or a move next year to be a rate hike and not a cut? [00:53:07] Speaker 6: Well, I think you'd have to see the fiscal stimulus from the One Big Beautiful Bill Act hit and accelerate business investment and consumer spending. You'd have to see a labor shortage resulting from that, and you'd have to see a wage price spiral. Maybe you'll see that in the second quarter. But right now, the Fed threaded the needle. Can't we just enjoy this into the holiday season? Come on. You know us. [00:53:34] Speaker 5: That's the smartest thing I've heard today. That's the smartest thing I've heard. And Powell's a pinata. I get that. But the bottom line is we have a prosperous economy for the haves. Let's not upset that apple cart while everyone well-meaning tries to help people that are struggling so much. I mean, that's threading the needle right now is what we're doing. [00:53:57] Speaker 6: Well, yes. But let's not forget that the One Big Beautiful Bill Act also has no taxes on tips over time, social security payments. A lot of those are concentrated in the bottom couple quintiles of earners. So there should be some relief coming there. [00:54:17] Speaker 5: Where's your lack of conviction? Matt Lozetti on an outlook and off of this Fed meeting today. Where's the question of your conviction in the next year? What are you most worried about? [00:54:28] Speaker 28: Yeah, I think in the very near term is that the labor market dynamic, which is this fragile equilibrium with low hiring and low firing, breaks to the downside, that you begin to see layoffs pick up. I really don't think we see that evidence as of yet, but it's a real risk over the next several months. Do you agree? I think over the course of 2026, I think there's some risks to the upside here. You know, as Bob mentioned, on the fiscal side, the stimulus checks that have been floated, not part of our baseline, but would be a very real upside risk. And then I think we just can't put aside these risks around Fed independence. And you know, we've heard Treasury Secretary Besson talking about regional Fed presidents, and we have to go through those votes. And you have a Supreme Court case for Lisa Cook coming up early next year. So there, I think that there are a lot of risks associated with it. From a Fed independence perspective, inflation risk potentially to come, long end of the bond market also at risk potentially from [00:55:20] Speaker 3: that. Matt, we have about three and a half minutes before the press conference begins. From your perspective, what's the one question you have for Fed Chair Jay Powell potentially at the last Fed cut [00:55:30] Speaker 28: that he oversees? Yeah, I think it's a little bit around the language that they introduced into the labor market and into the statement. How are we to think about that? Is that clearly sending a signal that there's a much higher bar in the near term? I also would ask him, you know, are you internalizing what could be a very weak jobs report next week in today's decision? I think that's a really important thing for the market. I think the Fed would probably want to take out some of the sensitivity to next week's data. I think one of the reasons that Chair Powell wanted to push this rate cut through was an expectation you could see some weakness there. My expectation is, you know, next week's data is going to be volatile. They are really putting more weight on the December jobs report in early January and the data we're going to get early next year in that assessment. But I'd like to get confirmation [00:56:14] Speaker 3: of that from the chair today. Matt Lizetti, thank you as always for your time. And I look forward to hearing what you think after the Fed conference. This is an important point. How much is this in some ways forecasting that December 16th jobs report that we should have already had? It should have been sort of one-two punch for last Friday. We got the November jobs report. They took that data into [00:56:34] Speaker 6: hand and then this meeting, they responded to it. Bob? Yeah, I think you can go back to September and say this is another risk management adjustment to policy, that there are some signs of a soft labor market. You're far away from what you're forecasting as your neutral rate. Why not take another 25 basis points off of that? It will help corporate America. I'll get a lot of questions in the next few days. Does 25 basis points actually do anything? Let's remember most of corporate America are small and middle market businesses. Think of a $50 million EBITDA company. They generally have seven times levers. They've got $350 million worth of debt on top of $50 million in EBITDA. It helps them a lot. It helps stabilize middle market corporate America significantly. If we say it's an original [00:57:26] Speaker 5: meeting, we've got to stagger to the next meeting and we'll be wiser. We'll have data and all that. But as Lisa mentioned at the top of the show, the political overlay here is extraordinary. What did JPMorgan's Washington experts say about the politics of January? Well, the question I would want to ask, [00:57:47] Speaker 6: Powell, is were there only three dissents or was there a considerable amount of bargaining to go from five dissents to three dissents? And was that in the statement? And then you ratcheted up GDP, half a percent from where you were at the last summary of economic projections? His answers to questions like that will tell you how politically influenced the current Federal Reserve Board is. That was a fantastic [00:58:14] Speaker 3: question. And I hope that he gets asked that as we really look to understand just what kind of clutch the Fed share holds over this committee. Bob Michael, as always, thank you so much for being with us. For all this time, truly always one of the absolute best right now in markets. A collective sigh of relief. It could have been a lot worse. That is sort of the message coming from it. The S&P up a tenth of a percent. NASDAQ still suffering a little bit down to tenths of a percent suffering, I say, still near all-time highs. And the Russell 2000 seeing that pop up six tenths of a percent. What you are seeing in the bond space twos, tens and thirties is this lift to a bond price down in yield as people expect to see some sort of bond purchases as well as a rate cut coming in next year. It really seems to me that Jay Powell really has the [00:58:59] Speaker 5: chance to split the difference. So we'll have to see. I'm going to watch the bond vigilantes. I think they're in the press conference as well. Edgar Denny's in there somewhere. Well, let's take a listen to [00:59:08] Speaker 3: Fed chair Jerome Powell at his last press conference that of the year and potentially of a rate. Good afternoon. [00:59:15] Speaker 29: 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. Although important federal government data for the past couple of months have yet to be released, available public and private sector data suggests that the outlook for employment and inflation has not changed as much since our meeting in October. Conditions in the labor market appear to be gradually cooling and inflation remains somewhat elevated. In support of our goals, in light of the balance of risks to employment and inflation, today, the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. As a separate matter, we also decided to initiate purchases of shorter term treasury securities solely for the purpose of maintaining an ample supply of reserves over time, thus supporting effective control of our policy rate. I will have more to say about monetary policy and its implementation after briefly reviewing economic developments. Although some key government data have yet to be released, available indicators suggest that economic activity has been expanding at a moderate pace. Consumer spending appears to have remained solid, and business-fixed investment has continued to expand. In contrast, activity in the housing sector remains weak. The temporary shutdown of the federal government has likely weighed on economic activity in the current quarter, but these effects should be mostly offset by higher growth next quarter, reflecting the reopening. In our summary of economic projections, the median participant projects that real GDP will rise 1.7 percent this year and 2.3 percent next year, somewhat stronger than projected in September. In the labor market, although official employment data for October and November are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. The official report on the labor market for September, the most recent release, showed that the unemployment rate continued to edge up, reaching 4.4 percent, and that job gains had slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. In our SEP, the median projection of the unemployment rate is 4.5 percent at the end of this year and edges down thereafter. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2 percent longer-run goal. Very little data on inflation have been released since our meeting in October. Total PCE prices rose 2.8 percent over the 12 months ending in September, and excluding the volatile food and energy categories, core PCE prices also rose 2.8 percent. These readings are higher than earlier in the year as inflation for goods has picked up, reflecting the effects of tariffs. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have declined from their peaks earlier in the year, as reflected in both market and survey-based measures. Most measures of longer-term expectations remain consistent with our 2 percent inflation goal. The median projection in the SEP for total PCE inflation is 2.9 percent this year and 2.4 percent next year, a bit lower than the median projection in September. Thereafter, the median falls to 2 percent. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the Committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3.5 to 3.75 percent. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside, a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem. But with downside risks to employment having risen in recent months, the balance of risks has shifted. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. Accordingly, we judged it appropriate at this meeting to lower our policy rate by a quarter percentage point. With today's decision, we have lowered our policy rate three-quarters of a percentage point over our last three meetings. This further normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend toward 2 percent once the effects of tariffs have passed through. The adjustments to our policy stance since September bring it within a range of plausible estimates of neutral and leave us well-positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks. In our summary of economic projections, FOMC participants wrote down their individual assessments of an appropriate path of the federal funds rate under what each participant judges to be the most likely scenario for the economy. The median participant projects that the appropriate level of the federal funds rate will be 3.4 percent at the end of 2026 and 3.1 percent at the end of 2027, unchanged from September. As is always the case, these individual forecasts are subject to uncertainty, and they're not a committee plan or decision. Monetary policy is not on a preset course, and we will make our decisions on a meeting-by-meeting basis. Let me turn now to issues related to the implementation of monetary policy with the reminder that these issues are separate from and have no implications for the stance of monetary policy. In light of the continued tightening in money market interest rates relative to our administered rates and other indicators of reserve market conditions, the Committee judged that reserve balances have declined to ample levels. Accordingly, at today's meeting, the Committee decided to initiate purchases of shorter-term treasury securities, mainly treasury bills, for the sole purpose of maintaining an ample supply of reserves over time. Such increases in our securities holdings ensure that the federal funds rate remains within its target range and are necessary because the growth of the economy leads to rising demand over time for our liabilities, including currency and reserves. As detailed in a statement released today by the Federal Reserve Bank of New York, reserve management purchases will amount to $40 billion in the first month and may remain elevated for a few months to alleviate expected near-term pressures in money markets. Thereafter, we expect the size of reserve management purchases to decline, so the actual pace will depend on market conditions. In our implementation framework, an ample supply of reserves means that the federal funds rate and other short-term interest rates are primarily controlled by the setting of our administered rates, rather than day-to-day discretionary interventions in money markets. In this regime, standing repurchase agreement, or repo operations, are a critical tool to ensure that the federal funds rate remains within its target range, even on days of elevated pressures in money markets. Consistent with this view, the Committee eliminated the aggregate limit on standing repo operations. These operations are intended to support monetary policy and implementation, and smooth market functioning, and should be used when economically sensible. To conclude, the Fed has been assigned two goals for monetary policy, maximum employment, and stable prices. We remain committed to supporting maximum employment, bringing our inflation sustainably down to our 2 percent goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. At the Fed, we will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions. [01:08:34] Speaker 17: Thank you, Howard Schneider with Reuters. First, turning to the statement, just to be clear, we're on the same page here. The insertion of the phrase, considering the extended timing of additional adjustments, does that indicate that the Fed is now on hold until there's some clear signal from inflation or jobs, or the evolution of the economy along the baseline outlook? [01:08:57] Speaker 29: So, yes, the adjustments since September bring our policy within a broad range of estimates of neutral, and as we noted in our statement today, we are well-positioned to determine the extent and timing of additional adjustments based on the incoming data, the evolving outlook, and the balance of risks. That new language points out that we'll carefully evaluate that incoming data. And also, I would note that having reduced our policy rate by 75 basis points since September, and 175 basis points since last September, the Fed funds rate is now within a broad range of estimates of its neutral value, and we are well-positioned to wait to see how the economy evolves. [01:09:37] Speaker 17: And if I could follow up on the outlook there, it seems like with the additional GDP growth coupled with easing inflation and a fairly steady unemployment rate, this seems like a pretty optimistic outlook for next year. What's given rise to that? Is this an early bet on AI? Is there some sense of improving productivity out there? What's driving that? [01:10:00] Speaker 29: So, a number of things are driving what's happening in the forecast. And I would say, if you look broadly at outside forecasts, you do see a pickup in growth in many of those now, too. So, it's partly that consumer spending has held up. It's been resilient. And to another degree, it is that AI spending on data centers and related to AI has been holding up business investment. So, overall, the baseline expectation for next year is, at least at the Fed, and I think with outside forecasters, too, is a pickup in growth from today's relatively low level of 1.7 percent. I mentioned that the SEP median is 1.7 for this year growth and 2.3 for next year. You actually -- some of that is due to the shutdown. So, you can take two-tenths out of 2026 and put it in 2025. So, it would really be 1.9 and 2.1. But overall, yes, you know, for a few reasons. Fiscal policy is going to be supportive. And as I mentioned, AI spending will continue. The consumer continues to spend. So, it looks like the baseline would be very important. And I think it's going to be a pretty solid growth next year. [01:11:14] Speaker 20: Steve. [01:11:15] Speaker 30: Thank you, Mr. Chairman. We've taken our questions here. The -- you had previously described rate cuts in terms of a risk management framework. And kind of following up on what Howard was asking, is the risk management phase of rate cuts over here? And have you taken out sufficient insurance, I guess, against potential weakness in terms of the data we might get next week when it comes to employment? [01:11:45] Speaker 29: So, we're going to get a great deal of data between now and the January meeting. And I'm sure we'll talk more about that. And that will -- the data that we get are going to factor into our thinking. But, yes, we have -- if you go back, we held our policy rate at, you know, 5.4 percent for more than a year because inflation was high, very high, and unemployment -- and the labor market was really solid at that point. So, what happened is over last summer, summer of 24, inflation came down and the labor market began to show real signs of weakness. And so, we decided, as our framework tells us to do, that when the risks to the two goals become more equal, you should move from a stance that favors really dealing with one of them, in that case, inflation, to a more balanced, more neutral setting. And so, we did that. We did some cutting. And then we paused for a while to work our way through what was happening in the middle of the year. And then we resumed cuts in September. And we've cut now three. We've now cut a total of 175 basis points. And as I mentioned, you know, we feel like where we're positioned now puts -- we're well positioned to wait and see how the economy evolves from here. If I could just follow up on the SEP, [01:13:05] Speaker 30: you have a whole lot of -- a big increase in the growth numbers, but not a big decline in the unemployment numbers. And is that an AI factor in there? What is going on through the dynamic of you get more growth, but you don't get a whole lot of decline in unemployment? Thank you, sir. [01:13:20] Speaker 29: So, it is -- and the implication is obviously higher productivity. And some of that may be AI. It just -- also, I think productivity has just been almost structurally higher for several years now. So, if you start thinking of it as 2% per year, you can sustain higher growth without more -- without more job creation. Of course, higher productivity is also what enables incomes to rise over long periods of time. So, it's basically a good thing. But that may be -- that's certainly the implication. [01:13:53] Speaker 31: Thank you. Colby Smith with the New York Times. Today's decision was clearly very divided. It wasn't just the two official dissents against the cut, but there were also soft dissents from four others. And I'm just wondering if this reluctance from several people to support recent reductions suggests that there is a much higher bar for cuts in the near term. And what exactly does the committee need to see if things are well positioned right now to support a January reduction? [01:14:20] Speaker 29: Colby Smith: Sure. So, let me just say, as I mentioned -- and as I've mentioned here before, the situation is -- is that our two goals are a bit in tension, right? So, interestingly, everyone around the table at the FOMC agrees that inflation is too high and that we want it to come down and agrees that the labor market has softened and that there's further risk. Everyone agrees on that. Where the -- where the difference is, is how do you weight those risks? And what does your forecast look like? And where do you -- ultimately, where do you think the bigger risk is? And -- and, you know, it's very unusual to have persistent tension between the two parts of the mandate. And when you do, this is what you see. And I think it's actually what you would expect to see. And we do see it. Meanwhile, the discussions we have are as good as any we've had in my 14 years at the Fed. They're very thoughtful, respectful, and you just have people who have strong views. And, you know, we -- we come together and -- and we reach -- we reach, you know, a place where we can make a decision. We made a decision today. We had, you know, 9 out of 12 supported it. So, fairly broad support. But it's not like the normal situation where everyone agrees on the direction and what -- and what to do. It's more -- it's more spread out. And I think that's only inherent in the situation. In terms of what it would take, you know, we all have an outlook in terms of what's going to come. But I think, ultimately, having cut 75 and, you know, the effects of the 75 basis points will only begin to be coming in. As I've said before a couple times, we're well positioned to wait to see how the economy evolves. We'll just have to see. And we will get, as you know, quite a bit of data. I should mention on the data, as long as I'm talking about it, that we're going to need to be careful in assessing particularly the household survey data. There are very technical reasons about the way data are collected in some of these measures, both in, you know, inflation and in labor -- in the labor market -- so that the data may be distorted and not just sort of more volatile, but distorted. And that's really because data was not collected in October and half of November. So we're going to get data, but we're going to have to look at it carefully and with a somewhat skeptical eye by the time of the January meeting. Notwithstanding that, we will have a lot of the December data by the time of the January meeting. So we expect to see a lot more, but I'm just saying that what we get for, for example, CPI or for the household survey, we're going to look at that really carefully and understand that it may be distorted by very technical factors. [01:17:08] Speaker 31: And just one more question on dissents. I mean, you talk about it in a very positive way, just given the complicated nature of the situation we're in economically. But is there any point in which those dissents become counterproductive, either to, you know, the Fed's communication and the messaging around the policy path forward? [01:17:26] Speaker 29: I wouldn't, I don't feel that we're at that point at all. I don't. I would say, again, these are, these are good, thoughtful, respectful discussions. And you hear people say, and you'll hear, you hear many, many outside analysts say the same thing. I could make a case for either, for either side. I mean, I could make that case. It's, it's a close call. We have to make decisions. And we, you know, we always hope that the data will, will give us a clear read. But in this situation, you have, you have competing, as you, if you looked at, if you look through the SEP, you'll see that a very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation. So what do you do? You've got one tool. You can't do two things at once. So at what pace do you move? How, how, what, what size moves do you make? And that kind of thing. And what, what's the timing of them? It's, it's very, it's a very challenging situation. I think we're in a good place to, as I mentioned, to wait and see how the economy evolves. [01:18:26] Speaker 6: Nick. [01:18:32] Speaker 19: Nick Timmeros of the Wall Street Journal. Chair Powell, there's been some discussion recently of the 1990s. In the 1990s, the committee did two discrete sequences of three quarter point cuts, one in 1995-96 and one in 1998. And after both of those, the next move in rates was up, not down. With policy now closer to neutral, is it a foregone conclusion that the next move in rates is down? Or should we think of policy risks [01:19:02] Speaker 29: as genuinely two sided from here? So I don't think that, um, a, a rate hike is anybody's base, as the next thing, is anybody's base case at this point. And I'm not hearing that. What you, what you see is, um, some people feel we should stop here and, and that we're at the right place and just wait. Some people feel like we should cut once or more this year and next year. But the, the, but when people are writing down their estimates of policy of where it should go, it, it is a, is either holding here or cutting a little or cutting more than a little. So I don't see that as, I don't see the base case as involving that. So of course, you know, a data set of two, now three is, is not a big data set, but you're, you are right about those two, uh, three cut times in, in the nineties. [01:19:51] Speaker 19: If I could follow up, the unemployment rate has been rising very gradually for the better part of two years. And indeed the statement today no longer describes the unemployment rate as remaining low. What gives you confidence that won't continue rising in 2026, especially when housing and other rate sensitive sectors still appear to be feeling restrictive policy from the, uh, notwithstanding the 150 basis points and cuts prior to today? So the, the, I think the idea is that with now having [01:20:20] Speaker 29: cut 75, five basis points more now and having policy, you know, I'd call it in a broad range of, of plausible estimates of neutral, that that will be a place where, which will enable the label market to stabilize or to only tick up one or two more tents, but we won't see, uh, you know, any kind of a sharper downturn, which we haven't seen any evidence, evidence of at all. At the same time, uh, policy is still in a place where it's not accommodative and, and we, we feel like, we feel like we have made progress this year in non tariff related inflation. And it, as tariffs come through, as they flow through, that'll show through next year. But as I said, we're, we're well past, well placed to, to wait and see how that turns out. That is our expectation. But, you know, we're going to start to see the data [01:21:10] Speaker 32: and it'll tell us whether we were right or not. Claire Jones, Financial Times. Um, a lot of people interpreted your comments at the October meeting that, you know, when there's a foggy situation, we slow down to mean that, you know, there won't be a cut now, there'd be a cut in January instead. So it'd be good to get a sense of why did the committee decide to move today rather than to move in January [01:21:43] Speaker 29: instead? Thank you. Right. So in October, I said, um, that there was no certainty of moving. And that was, that was indeed correct. I said, it's possible you could think about it that way, but I was careful to say other people could look at it differently. So why did we move today? You know, I would say point to a couple of things. First of all, gradual cooling in the labor market has continued. Unemployment is now up three tenths, uh, from June through September. Payroll jobs, uh, averaging 40,000 per month since April. We think there's an overstatement in, in these numbers by about 60,000. So that would be negative 20,000 per month. Um, and also just to point out one other thing, surveys of households and businesses both showed declining supply and demand for workers. So I think you can say that the labor market has, um, uh, continued to cool gradually, maybe just a touch more gradually than we thought. Um, you know, in terms of inflation, um, we are, it's come in a touch lower. And I think the evidence is, uh, uh, is, uh, kind of growing that what's happening here is services inflation coming down and that's offset by increases in, in, in goods. And that goods inflation is entirely in sectors where there are tariffs. So that does build on the story. And so far, it's only a story that this is that, that the goods inflation, which is really the source of the excess at this point, that that, uh, most, almost more than half the source of the excess inflation is goods, is tariffs. And you've got to say then, so what do we expect from tariffs? Um, and it's, I would say that is to some extent down to looking for broader economic, uh, you know, uh, heat. You know, do we see a hot economy? Do we see constraints? Do we see what's going on with wages? You saw the ECI report today. It doesn't feel like a hot economy that wants to generate, you know, Phillips curve kind of inflation. So we look at all those things, um, and we say that this was a decision to make. It obviously wasn't, uh, unanimous. And, um, but overall that was the judgment that, that we made and that's the action we took. [01:24:02] Speaker 32: Just on the Ambul Reserves point, how concerned were people around the table about some of the [01:24:07] Speaker 29: tensions we've seen in money markets? Thank you. I wouldn't say concerned. So what really happened is this, um, uh, balance sheet shrinkage sometimes called QT went on. We had a framework in place for monitoring it and nothing happened. The overnight reverse repo facility went down pretty much close to zero. Uh, and then beginning in, in September, uh, the federal funds rate started to tick up within the range, right? And it ticked up almost all the way to, uh, interest on reserve balances. There's nothing wrong with that. What that's telling you is that we're actually in reserves in an ample reserves regime. So, you know, we, we knew this was going to come when it finally did come. It came a little quicker than expected, but we were absolutely there to take the actions that we said we would take. So, and we, those actions are today. So, you know, we, we announced that we're resuming reserve management purchases. That is completely separate from monetary policy. It's just, we need to keep an ample supply of reserves out there. Why so big? The answer to that is, uh, you know, if you look ahead, you'll see that, that April 15th is coming up and our, our framework is such that we want to have ample reserves, even at times when reserves are at a low level temporarily. So that's what happens on tax day. People pay a lot of money to the government reserves, drop sharply and temporarily. So this seasonal buildup that we'll see in the next few months was going to happen anyway. It was going to happen because April 15th is April 15th. There's also a secular ongoing growth of the balance sheet. We have to keep reserves, call it constant as a, as it relates to the banking system or to the whole, whole economy. And that alone calls for us to increase about 20, 25 billion dollars per month. So that's a small part that that's going on. It's also happening in the context of a temporary few months, uh, front loading to get, to get reserves high enough to get through the, you know, the tax period in, in, in mid April. So that's what's happening there. [01:26:16] Speaker 31: Andrew. [01:26:20] Speaker 33: Thanks, Mr. Chairman. Um, uh, this is the last post FOMC press conference, uh, before an important Supreme Court, uh, hearing next month. Can you talk about how you're hoping the Supreme Court will rule? And, uh, I'm just curious why the Fed's been so reticent on such a pivotal matter. [01:26:37] Speaker 29: It's not something I want, I want to address here, Andrew. Um, you know, we're not, uh, we're not legal commentators. It's, it's before the courts. And, uh, we think our, we, we don't think that we help matters by trying to engage as a, as a, as a, as a public discussion of that. I'll [01:26:54] Speaker 33: give you a mulligan though. Thanks. I don't know if that means I get three questions, but, uh, just one, just one more. I guess I wanted to come back to the 1990s question and like, do you see that as a useful model for thinking about, uh, what is happening in the economy right now? [01:27:12] Speaker 29: I don't think it rises to that level. So I did think that in, in 2000 and was it 19 where we cut three times, but you know, this is such a unique situation. We, this is, it's not, um, uh, it's not the 1970s. Let's put it that way. But we do have tension between our two goals. And so that's, that's just unique in, in my time at the Fed. And I think going back a long ways, we haven't had that in our framework. Our framework, as you know, says that when that's the case, uh, that we try to, you know, take a balanced approach to, to the two things and we look at how far they are and how long it would take to get them back to each of them back to the goal. And that's a very subjective analysis, really. But it just tells you, you've got to the end. I think ultimately what it says is when they're broadly equally threatened or equally at risk, you should be kind of neutral. Because if you're, if you're either accommodative or, or, or tight, you're favoring one or the other goal. And so we've been trying to, we've been sort of moving in the direction of neutral. Now we're in the range of neutral. We're in the high end of the range of neutral, I would say. And that's what we're doing now. It, it so happened that we, we've cut three times that, you know, we have, we haven't made any decision about January, but as, as I've said, we think we're well positioned to, uh, wait and see [01:28:28] Speaker 23: how the economy performs. Thanks, Mr. Chairman. Edward Lawrence, uh, with Fox Business. I wanted to ask you, um, the inflation expectations, uh, has, has come down in your SEP report. Um, do you see the tariff price increases as passing through in the next three months? Is it a six month process that we're looking for that to end? And then because of that is jobs, the threat to the economy. [01:28:56] Speaker 29: So with, with tariff inflation, you know, it takes, there's the announcement of a tariff and then there's, you know, they start to take effect. And then it takes some months. Goods may have to be shipped from other parts of the, you know, it may take, you know, quite a while for an individual tariff to take its full effect. But once it's had that effect, then the question is, isn't that just a one-time price increase? So we've actually, we actually look at it, all of the announcements and, and, and, and what you get from all that, you see sort of a, for each one of them, there's a time period and then it's fully in. So if there are no new tariff announcements, and we don't know that, but let's assume there are no major new tariff announcements, inflation from goods, uh, should peak in the first quarter or so, right, or roughly, you know, we haven't been able to predict this with any precision. No one is. But call it the first quarter or, or, or so of next year should be the peak. And from here, it should be, it shouldn't be big. It should be a couple of tenths or, or even less than that. We don't really have precision on this. But, and after that, again, if there are no new tariffs that are, that are being announced, that will take nine months to get fully in, nine months is also an estimate. Um, then you should start to see that coming down in the back half of next year. [01:30:09] Speaker 23: And, and I wanted to see if I could address sort of the opener. And the president's been talking openly about, um, a new fed chairman. Does that hinder your current job right now or change your thinking at all? [01:30:19] Speaker 25: No. Mike. No mulligans for it. Michael, Michael McKee from, uh, Bloomberg Radio and Television. Uh, 10 year rates have, are 50 basis points higher than when you started cutting back in September of 2024. And the yield curve basically has been steepening. Uh, why do you think that continuing to cut now, especially in the absence of data is going to bring down the yield on the thing that will move the economy the most? [01:30:50] Speaker 29: So we're, we're looking at the real economy and focusing on that. And you have, you've got, when the, when the long bonds move around, you've got to look at why they're moving around. If you look at inflation compensation, it's very, you know, that's one part of it is, is inflation compensation, break evens. And, you know, they're at very comfortable levels. They're at levels consistent, um, past the, once you get out past the very short term now, uh, break evens are at a, you know, at, at quite levels that are quite consistent with 2% inflation over time. So there's nothing happening with rates going up out there that suggests concern about inflation in the long term or anything like that. I mean, I look, I look at these things pretty regularly. Same thing with surveys. Surveys are all saying that, uh, the public understands our commitment to 2% and, and expects us to get back there. So, so why, why are rates going up? It has to be something else. It must be, you know, an expectation of higher growth or something like that. And that's, that's a lot of what's been going on. I mean, you saw a big move, you know, toward the end of last year, which was not to do with us. It was to do with other developments. [01:31:54] Speaker 25: Well, you just mentioned that, um, we're, the public is expecting you to get back to 2% and Americans overwhelmingly are citing high prices, inflation as their number one concern. Can you explain to them why you're prioritizing, uh, the labor market, which seems relatively stable to most people instead of their number one concern inflation? [01:32:15] Speaker 29: So we, um, as you know, we have, uh, a network of contacts in the U.S. economy, which is really unmatched if you go through the 12 reserve banks. Uh, so we hear loud and clear how people are experiencing, um, really costs. It's really, it's really high costs. And a lot of that is not the current rate of inflation. A lot of that is just embedded higher costs due to higher inflation in 2022 and 23. Uh, so that's what's going on. And so the best thing we can do is restore inflation to, to, to, to its 2% goal. And our policy is, is intended to do that, but also have a strong economy where real wages are going up, where people are getting jobs and, and earning money. And, and, uh, we're going to need to have some years where real compensation is higher. You know, it's positive, significantly positive. So wages, nominal wages are higher than inflation for people to start feeling good about affordability, the affordability issue. And, you know, so we're, we're working hard on that. We want to, we're trying to keep inflation under control, but also support the labor market and strong wages so that people are earning enough money and, and feeling economically healthy again. Victoria. [01:33:31] Speaker 18: Victoria. Um, hi, Victoria Guido with 1 to Go. Uh, just to follow up on that. I mean, this is now the third time that you've cut this year and inflation is around 3%. So is the message that you're sort of trying to send with that, that you're okay with where inflation is for now, as long as people understand that at some point you still want to get back to 2% because inflation is relatively stable where it [01:33:59] Speaker ?: is. [01:33:59] Speaker 29: Uh, everyone should understand and the surveys show that they do that we're committed to 2% inflation and we will deliver 2% inflation, but it's a complicated, unusual, difficult situation where the labor market is also under pressure, where job creation may actually be negative. Now supply of workers has also gone way down. So the unemployment rate hasn't moved that much, but, um, you know, it's, it's a labor market that, that seems to have significant downside risks. People care a lot about that. That's their jobs. That's their ability. If they get laid off or if they're entering the labor force to find work. So that's, that's really important to people. Um, the story with inflation and, uh, you know, we're well aware that this is a story at this point is that the, the, if you get away from tariffs, inflation is in the low twos, right? So it's really tariffs and that that's causing the most of the inflation overshoot. And we do think of those as likely to, in the current situation as likely to be a one time, you know, one time price increase. Our job is to make sure that it is, and we will do that job. But right now you, you've got this difficult balance and there risks to both sides. There's no risk free path. If we were, if we, you know, if it was just inflation and the labor market was just really strong and then we'd rates would be higher as they were for more than a year. You know, we didn't have to worry about inflation, sorry about the, about the labor market, uh, because the labor market, unemployment was very low. If you remember when inflation was very high, uh, there was a labor shortage. So we could focus entirely on, on inflation. Now it's different. We actually have risks to both. And I think we're, we're doing the best we can for people. They also care about their jobs. They do care about affordability. And the best thing we can do there is to, is both to support economic activity, but also, you know, um, make sure that when tariff inflation goes down and disappears, inflation lands around 2%. [01:35:54] Speaker 34: Elizabeth. [01:35:57] Speaker 35: Thanks so much. Elizabeth Schulze with ABC News. Just to follow up, you keep talking about job growth being negative. Why do you think job growth is so much worse than some of the official data? Why do you think job growth is to follow up on your comments about job growth? Why is it so much [01:36:11] Speaker 29: worse than the official data is suggesting? Oh, well, we just, we know, I think it's, it's, um, this is, I don't think this is particularly controversial. There's a, it's very difficult to, to estimate job growth in real time. They don't count everybody. They have a survey. And there's been something of a systematic overcount. And so we, we expected, and they correct it twice a year. So the last time they corrected it, we thought the correction would be eight or 900,000. I won't get the numbers exactly right. And that was, that was exactly what happened. So we think that that has persisted. And, uh, so there's a, there's an overcount in the payroll job numbers, we think continuing, and it will be corrected. I don't have the exact month in my head right now, but, and that's just, I don't, I, again, I think forecasters generally understand that. So, and we think it's about 60,000 a month. So 40,000 jobs could be negative 20. And, you know, that could be wrong by 10 or 20 in either direction. But in any case, and, but the thing is that's, um, that's job creation in a way that's job, that's demand labor supply has also come down quite sharply. So, you know, if you had, had a world where they're just, there's just no growth in workers, and you really don't need a lot of jobs to have a, to have full employment, some people argue that's what we're looking at. But I think a world where job creation is negative, I just think we need to watch that situation very carefully and be in a position where we're not, you know, pushing down on job creation with our policy. When we're talking [01:37:41] Speaker 35: about supply, we have seen major American employers like Amazon cite AI in job cuts. How much right now are you factoring in AI into the current weakness in the job market? So it's probably part of the [01:37:55] Speaker 29: story. It's not, it's not a big part of the story yet. We don't know whether it will be. But, um, you know, for example, if you look at, you can't miss the big announcements of layoffs and, and also companies saying that they're, they're not going to hire anybody for a long time, and they cite AI. That, that's all clearly happening. At the same time, um, people are not filing for unemployment insurance. And, uh, since job creation, job finding rates are extremely low. If there were big numbers of layoffs, you'd expect the, the continuing claims to go up and you expect new claims to go up and really haven't much. Uh, so it's, it's a little bit curious, but longer term though, you know, the, the question is, what are we going to see here? And we don't, we don't know, but it's, you know, there's a, it may be that in past technology, really significant technology in, uh, uh, innovation eras, you have seen some jobs destroyed and other jobs made. Ultimately, what's happened for a couple hundred years is when you get through all that, you have higher productivity and you have, you have new jobs and there are enough jobs for people. This is a, this may be different. You know, it's, uh, every time we have a wave of technology, we think, oh, this could, this could put a lot of people out of work. What are they going to do? In the past, there's always been more work and higher productivity and incomes have risen. What will happen here? We're going to have to see. But right now is such early days. We don't think we see much, uh, it's certainly not showing up in, in layoffs yet. [01:39:29] Speaker 36: We're going to say that. Thank you, Chair. Enda Curran, Bloomberg News. Given the breadth of views on the policy committee, why is there such a division of views between the policy what? On the committee. Thank you. Why is there such a division of views between the presidents and the board members? [01:39:45] Speaker 29: You know, it's, it's not so stark as that there, there's depth there. The views are, are more varied on each, in each group as well. There's some of that, but I would say they're also governors and, and, uh, and, and they're, they're, they're people in, in both, on both sides, in both groups. I wouldn't [01:40:00] Speaker 36: put too much in that. Okay. And just to follow up, please. Given your growth upgrade, um, how would you factor in or what would be the economic impact if the Supreme Court is to strike down the tariffs that they're currently hearing, please, in terms of growth and inflation? Thank you. [01:40:15] Speaker 29: I, I really don't know. It would depend, um, it would depend on a whole bunch of things we don't know. So I can't really help you there. [01:40:25] Speaker 20: Dr. Christine. Thank you. [01:40:30] Speaker 37: Thank you, Chair Powell. Christine Romans, NBC News. I wanted to ask you about how the higher income households are really driving spending right now. They're backed by home equity and stock market wealth, but lower income consumers are really struggling with the accumulation of five years now of rising prices. It's price levels, not really the inflation rate, holding some of these families back. How sustainable is this so-called K-shaped economy? And, and what are the Fed's thoughts [01:40:56] Speaker 29: on whether that's a risk going forward? So we do, um, through our vast network of contacts and just through our observation of what's going on in the economy, we hear about this a lot. Uh, if you listen to the earnings reports for consumer-facing companies that tend to deal with low and moderate income people, they'll all say that we're seeing people, you know, tightening their belts, uh, you know, changing products that they buy, buying less and that sort of thing. And so it's clearly a thing. It's also clearly a thing that, you know, asset values, housing values and, and, and, uh, securities values are high and they tend to be owned by people more at the higher end of the income and wealth. So as how sustainable it is, I don't know. Most of the consumption does happen by people who have more means. Uh, I think, you know, the top, the top third accounts for way more than a third of the consumption, for example. So, um, it's a good question how sustainable that is. Uh, you know, the best we can do is to, is to have a, you know, price stability and a strong labor market. What we saw, for example, what we saw at the end of the, you know, the very, very long, um, expansion that ended with the outbreak of the pandemic, we saw that it was 10 years and eight months or something like that. The longest one in recorded history in the last two years, most of the job, the largest part of the, of the wage gains were coming, going to people in the bottom quartile, the bottom part of the lower, low and moderate income. So, you know, uh, having a, a strong labor market for a long period of time is really, really good from a social standpoint. It, it, it's helping people at the lower income levels. And that's what we all want to get back to. But we got to, we got to have price stability and we got to have, uh, you know, full employment, maximum employment. And just quickly, you mentioned [01:42:48] Speaker 37: the housing market remains kind of weak with these rate cuts that we've seen. Is there a chance we're going to see more affordability in the housing market so more people can maybe enjoy that part of wealth creation? I mean, the average age or median age of a first time home buyer is now 40 years old. [01:43:00] Speaker 29: That's the highest on record. Yeah. So the housing market faces, um, some really significant challenges. And, uh, I don't know that, you know, a 25 basis point decline in the federal funds rate is going to make much of a difference for people. Um, you know, housing supply is low. Um, many people have very, very low, low, uh, uh, low rate mortgages from the pandemic period. And they kept refinancing and caught the, the really low. So it's made expensive of them to move. And, you know, we're, we're, we're a ways away from that changing. Also, we're just, we haven't built enough housing in the country for a long time. And so a lot of estimates suggest that we just need more housing of different kinds. So housing is going to be a, uh, you know, a problem and, and, you know, really the tools to address it are, are, we can, we can raise and lower interest rates, but we don't really have the tools to address, you know, a secular housing shortage, a structural housing shortage. [01:44:03] Speaker 38: Chris. Uh, thanks, Chris Rugeber, Associated Press. Um, you mentioned on inflation, uh, services, inflation being low goods, inflation looking like maybe it'll peak. Uh, we had the wages report you mentioned today showing, uh, moderating wage growth. Where are the inflation risks? It looks like inflation is cooling in your view. At the same time, you have potentially negative hiring. Why not? Uh, why aren't we hearing [01:44:31] Speaker 29: more about maybe more cuts in this environment? Well, I think the risk, risk inflation is pretty clear to see. And that is, you know, we, we see, um, higher inflation, as I mentioned, most of the inflation over target is from goods. And we think, we estimate, we expect most of us that, uh, that inflation will be a one-time price increase and then come down. We just came off an experience where, um, inflation turned out to be much more persistent than anyone had expected. Is that going to happen now? Uh, you know, that's, so that's the risk. The risk is, is either that, that, that tariff inflation just turns out to be more and more persistent, maybe because, uh, uh, companies who are now holding back from passing through the tariffs will just keep doing that. So you'll see, you, you see that. Um, I think the other possibility is, is less likely. And that is just that, uh, you know, the labor market gets tight or the economy gets tight and you see, you know, just, just traditional inflation. I don't see that as particularly likely. But, uh, so I, I think, you know, again, uh, you know, all across the committee, uh, people see the, the picture pretty similarly, but see the risks quite differently. And some people do see the, the inflation risk. And I, I wouldn't dismiss that case. I, I don't dismiss that case, but you've gotta, you gotta make an assessment. And this is the assessment we made. [01:46:04] Speaker 39: Hi, Chair Powell, uh, Neil Irwin with Axios. Um, so this has come up a couple of times today, but to be clear, do you believe that we're experiencing a positive productivity shock, whether from AI or policy factors or whatever? Uh, and how much of that is, how much is that [01:46:17] Speaker 29: driving the higher GDP project projection in the SCP? So, yeah, I mean, uh, I never thought I would see a time when we had, you know, five, six years of 2% productivity growth. This is, this is higher, you know, this is definitely higher. And it was, it was before, before it could be attributed to AI. I think you, I also think if you look at what AI can do, and if you use it in your personal life, as I, I imagine many of us have, you can see the prospects for productivity. I think it makes people who use it more productive. It may make other people have to find other jobs though. So, so, so it could have productivity implications while also having, you know, social and labor market implications that we don't have the tools to deal with. But yes, I think we are seeing, we're definitely seeing higher productivity. I don't, I think it's a little quick to be saying it's, it's generative AI, but, um, I don't know, you know, the, the pandemic may have induced people to do more automation and do more things with computers to replace people and that raises productivity, you know, output per hour. Does that, does that imply a higher, [01:47:23] Speaker 39: does that imply a higher neutral rate and therefore the policy might be a little easier than it seems? [01:47:26] Speaker 29: All, you know, all things equal, yes, but all things aren't equal. There are many, many things pushing in, in different directions on where the neutral rate would be. But yes, [01:47:35] Speaker 31: that, that argument does come up. Matt Egan. [01:47:44] Speaker 40: Thanks, Chair Powell. Matt Egan with CNN. After today, you only have three more meetings at the helm of the Fed. Since becoming Fed chair, you've seen multiple trade wars, the pandemic, COVID reopening, period of high inflation. I know your term's not up as chair until May, but I'm wondering if you've given any thought to what you want your legacy to be. My legacy, I, my thought is that, [01:48:10] Speaker 29: I really want to turn this job over to whoever replaces me in, with the economy in really good shape. That's what I want to do. I want, I want inflation to be under control, coming back down to 2%, and I want the labor market to be strong. That's what I want. And all of my efforts are to, to get to that place. They have been all along, but ultimately that's, that's what I'm, and it's, you know, I don't have time to think about the bigger things. I have, I'll have, I hope many years ahead to worry about that, but there's enough to do. Relatedly, um, have you given any more thought [01:48:46] Speaker 40: and can you tell us any more about your plans on whether or not you plan to stay on the Fed board of [01:48:51] Speaker 29: governors, even after your term as chair expires? Again, I'm, I'm focused on, I'm focused on my remaining time as chair. I haven't got anything new on that to tell you. [01:49:02] Speaker 31: Go to Mark for the last question. [01:49:04] Speaker 41: Chairman Mark Hamrick with Bankrate. Even while many price levels remain elevated, the reductions in the federal funds rate means that savings rates or yields, to be more precise, have peaked, while key borrowing rates remain elevated. And that's, as we've discussed here, as many Americans struggle with liquidity or emergency savings challenges. Is that just collateral damage or an unintended consequence because your tools are limited in addressing individual or household liquidity constraints, insufficient money in the bank? [01:49:36] Speaker 29: I don't know. I would, I wouldn't, um, agree that that's collateral damage of our, of our, um, I mean, over time, over time we do what we do in order to create price stability and maximum employment. And those things are hugely valuable to, to all the people we serve. Um, when we raise rates to bring inflation down, you know, that does work by slowing the economy, but we've moved back our rate, our policy back down to where it's not, it's certainly not strongly restrictive at this point. I think it's uh, it's kind of, it's kind of in the range of neutral. Um, so that's what we're trying to do. And, uh, I would want people to understand, to understand that. I think what people, what people are feeling is the effect of higher prices. There was a global wave, sort of every large economy in the world, sort of every, every large open economy, uh, market-based economy in the world had a wave of inflation that looked an awful lot like ours. We actually came through better than any other country, substantially better. We had higher growth. We had better labor market. And this is really due to the American economy. We have an extraordinary economy and, uh, you know, people are innovative. They work hard. And, uh, so, you know, we're all of those, all of us who work in economics jobs are really fortunate to have, to have the U.S. economy. So, [01:50:58] Speaker 3: thank you very much. This is The Fed Decides on Bloomberg Television and Radio. Fed share Jay Powell wrapping up his news conference, the last news conference of 2025. A Fed that's divided, but not as divided as it could have been. And a Chair Powell that was trying to be somewhat hawkish, but wasn't as hawkish as he could have been. In fact, the market is taking this as more of a dovish tilt than expected. You could see the markets take off around 2:44 p.m. when he talked about productivity. You could see the Russell 2000 up almost 2 percent on the heels of his comments. NASDAQ up 6 tenths of a percent. S&P up eight tenths of a percent. In the bond space, a huge bid into the front end. A disproportionate bid, especially because this is a Federal Reserve that's going to buy 40 billion dollars of T-bills on Friday. This is earlier than people expected. It's a seven basis point drop at the front end to 3.54. Much more muted at the long end. Bigger questions here with the third year at 4.78 percent. And when you bleed it through the currency space, it is a weaker dollar, markedly so, with the euro almost breaking 117, 116.92, up about half a percent on those comments. Take a listen. Fed chair speaking just a moment ago, in particular about productivity and its effect on the economy. Take a listen. [01:52:20] Speaker 29: The implication is obviously higher productivity. And some of that may be AI. Also, I think productivity has just been almost structurally higher for several years now. So if you start thinking of it as two percent per year, you can sustain higher growth without more job creation. Of course, higher productivity is also what enables incomes to rise over long periods of time. So it's basically a good thing. But that may be that's certainly the implication. The idea of productivity underpitting [01:52:48] Speaker 3: the ability for Goldilocks to take hold, where essentially inflation can remain in check while the GDP continues to expand at the level that we've seen so far. We brought it up earlier and it came up twice [01:52:58] Speaker 5: in the press conference. I'm looking at the data and it tells me the bond vigilantes are out this afternoon. There's no question about that. So where's the happy happy? And the happy is, is this American economy different than we used to know and even different than what we perceive right now, that the gloom is just unfounded as we bet on this productivity down the road? [01:53:21] Speaker 3: This is the reason why this is a Fed that can increase its GDP expectations, leave unemployment rates relatively low and still cut maybe once more next year, maybe once more in 2027. Also talking about the potential for some sort of ongoing easing, even though they're in the neutral range because of the softness that they see in the labor market. The other aspect of this press conference, and I do want to highlight this, is QE. And no one's going to call it QE, certainly not the Federal Reserve, but they are going to start buying bills sooner than they expected. Take a listen to what he had to say [01:53:55] Speaker 29: about that. Reserve management purchases will amount to $40 billion in the first month and may remain elevated for a few months to alleviate expected near-term pressures in money markets. Thereafter, we expect the size of reserve management purchases to decline, though the actual pace will depend on market conditions. [01:54:20] Speaker 3: Joining us now to talk about all of this is Stephanie Roth of Wolf Research. Stephanie, I would love your take on what the most important part of this news conference was. Was it the emphasis on productivity or is it the emphasis on QE light? [01:54:32] Speaker 42: I mean, the combination of the two, I think the productivity thing is important. We saw GDP get revised up. Of course, some of that had to do with government shutdown. But even taking that out, the 20 basis points out for 26, that still has higher GDP numbers, the median dot looking the same for Fed funds, and unemployment rate remaining where it is, in which case we're talking about a productivity boom to some extent. I think he was trying to say that perhaps we're going to get a jobless pickup in growth next year, which could at the margin be a little bit more dovish. And then, of course, the market is reacting to the surprise in terms of the Fed buying bills, which was notable in terms of timing and then notable in terms of the amount. So it was overall, even though it was supposed to be a hawkish cut based on many expectations, but it ended up being a fairly dovish [01:55:24] Speaker 5: result. The cross-currents here of a non-snoozefest, and I think the summary here for everyone, including the President of the United States, is the mandate is 2%. This goes back ages. Are we really jawboning our way to a new mandate, which is 2.x percent, or dare I say 3.0% ? I don't think so. I [01:55:44] Speaker 42: mean, in their projections, they have lower inflation numbers. I think that's right. I think we're going to be in an environment where inflation is gradually moving lower. If you were to ask most forecasters by this point, would inflation actually be running just around 3% ? I think no. I think the pass-through on inflation has been a lot less than many had anticipated. Marginals have been kind of okay. Right. It's gone a lot better than most forecasters thought. One of my interviews of the year was [01:56:11] Speaker 5: Nancy Lazar. We had Nancy Lazar at the beginning of the show, and she nailed it when she said there's all this Fed mumbo-jumbo, but it's just a cyclical slowdown. Do you bet at Wolf Research in a cyclical recovery here as Anna Wong alluded to today? Yeah, I think that's right. I think we're starting to see [01:56:29] Speaker 42: signs of it. Of course, it's mixed at best. Jolt openings starting to pick up. You're seeing temp hiring start to look a little bit better. It seems to be just a cyclical slowdown and part driven by tariff-related uncertainty. As that uncertainty starts to fade, you're likely to see an improvement in growth. The Fed's probably not going to cut through the first half of next year, and it's going to be an environment where the economy is running fairly firm. Something that you noted is that this had a [01:56:52] Speaker 3: sort of dovish tilt to it. I think it's really important to note that, and that's certainly the response that we're seeing in markets across the board. They talked about weakness in the labor market. Jay Powell was talking about 40,000 jobs getting created each month, saying you can downgrade that by about 60,000 if you take looking back. Thank you for bringing this up. All of a sudden, you're looking at implied weakness that they're sort of bringing forward from the report that we're going to get next week. How credible do you see that, especially given the guidance that he kept emphasizing that they hear from the regional Fed districts? I was surprised by his estimates on [01:57:23] Speaker 42: QCW, the assumptions that it's going to be a 60,000 downward revision. My estimate is about half of that. That was a pretty dovish statement. That was sort of the higher end of what it could have been, suggesting that at least his view on the labor market is we've been running minus 20,000 non-farm payrolls for quite some time. That's pretty dovish. I think what will surprise most folks is in the next couple of months, you'll probably see a bit of a bounce back in terms of hiring. You were on the phone [01:57:47] Speaker 5: talking with your children about Alonzo from the Mets to the Orioles and you missed. When he talked about the job adjustment, the market moved. Yeah. I mean, the fact is the market, the bond vigilante's walked away and he got a price up, yield down at that moment. Yeah. I mean, my son actually messaged [01:58:03] Speaker 3: me, could I please have money for more food to cope with Alonzo signing with the Orioles? And I gave him $2 because- Oh, big spender, $2. That frankly is all that that's worth to me. So anyway, we're looking, though, at essentially a message from the Fed that you can have your cake and eat it too. That this inflation from the most part was driven maybe by the tariffs, but that is transitory for lack of a better word. And going forward, there is going to be this productivity boom that's going to help support things. How much does this really line up with two more rate cuts in 2026, 2027? And how much does this line up to either more rate cuts or potentially a rate hike? I certainly don't think [01:58:39] Speaker 42: there'll be a hike and it seems like Powell will dismiss that too. I think you could see some more rate cuts in the back part of next year because what you'll likely see is the first part you might elevate- Inflation should still be a little bit elevated. You're going to see that cyclical pickup. In the back part of next year, you might start to see the economy cool down a little bit. And then inflation is likely to slow back down because that's where you're passing that peak of tariff-related inflation. And that could be an environment where they could cut a couple more times, albeit slowly. And that's because you're going to see sort of a fairly sluggish job trajectory. And if they're chopping off an extra $60,000 off that, they're going to be even more cautious on the labor market [01:59:14] Speaker 5: than the payroll numbers would suggest. As we speak, Lisa, the 210 vanilla spread goes out to a new, steeper yield curve. The bond market's speaking here in spades. Speaking that, frankly, this is a Fed [01:59:27] Speaker 3: that's going to lower the front end as much as they can. But on the long-end yields, there is less control over that. Let's bring back Bloomberg's Michael McKee, who is in that room asking questions. Mike, potentially the last press conference with a rate cut from Fed Chair Jay Powell, a notable one for a somewhat dovish tilt. Well, I'm not sure it was a dovish tilt. [01:59:49] Speaker 25: I think the chair tried to keep his options as open as possible. You noted that he suggested that there may be some data accuracy problems with the numbers for the jobs report and the CPI that we're going to get next week. And into January, the catch up from the Bureau of Labor Statistics and the Bureau of Economic Analysis, as they get out the data that we missed during the government shutdown. And so I think they don't want to put themselves in a position of saying that we're leaning one way or another. And by doing that, because they've cut so many times in a row, it sounds a bit like they're still dovish. But I don't think that's the case anymore. And you do have some people, and I noted what Stephanie just said, but you do have some members of the committee, the overall committee, who suggested we might see rate increases next year. The thing I think maybe out of all of this that you want to pull out is Powell's emphasis when he was answering my question about we need to see wage increases. And wage increases are going to depend on the status of the labor market. If wages are going up, then people are less concerned about inflation. If wages are not going up, then that's a problem for the American public. And it also is a problem for the overall economy. Michael McKee, thank you so much, [02:01:09] Speaker 3: as always, for all your work at the Fed press conference and before. Right now, we are getting comments from President Trump, who's speaking at a roundtable in the White House. He's talking about his ongoing criticism of Jerome Powell, saying we should be able to do more than 3 percent or 4 percent GDP. He has said repeatedly too late. Powell has talked about that guy. He's not doing a very good job, and they would have fired him. And ultimately, this just sort of reiterates the split screen of Jerome Powell on one hand and President Trump on the other, really highlights the political pressures coming [02:01:41] Speaker 5: down the pike in 2026. We've got a great headline team. Here's the headline, the president. Don't see why we can't have 20 percent to 25 percent GDP growth. I think all of the adults, whatever their belief, dissent here, dissent there, are dealing with a president who's got a very vociferous cacophony of opinions on the economy. You don't plan on Donald Trump's economic vision. That's all there is to it. He's [02:02:06] Speaker 3: a debt guy. He's a developer. Of course, he wants rates to be lower. He also says that interest rates could have been doubled in terms of the amount of cuts. I'm just wondering, Stephanie, from your perspective, if you had gotten 50 basis points of rate cuts, how much would that have turbocharged 2026? [02:02:22] Speaker 42: It would have, but then I'd be afraid that the long end of the bond market would have backed up even more than it has been most recently. That would be not a great outcome because that's an environment where we're truly turbocharging sort of the economy from a rate perspective, but then you have long ends backing up. That's not good for markets. We're not in an environment where we need to be at 50 basis point cuts. It's a question whether they should have been cutting 25 basis points today, [02:02:47] Speaker 3: let alone should they be cutting even more than that. Joining us now to join the conversation, Aditya Bahave of Bank of America. Aditya, just before we get started, kind of a dovish tilt. Certainly, that's the way it's being received by markets. Do you think that this is the right call as the Fed accelerates the timeline for bills purchases and talks about the ongoing deterioration in the labor market? [02:03:09] Speaker 43: Good afternoon. Thanks for having me. So we were skeptical going into the meeting about whether Chair Powell would really be able to deliver a hawkish cut given how much data we're getting between now and the January meeting. And indeed, he didn't. They kind of nudged in the direction of, okay, we should probably stay on hold or our base case for January is a hold, but they can't close the door on January. We thought the one arrow in Powell's quiver that he hadn't fired at his hawkish press conferences at July and October, which, by the way, didn't change the policy path at all. The one thing he had left to say was policies at neutral, and he got very close to saying that. He said we're within the plausible range of estimates of neutral, but then when he gave his own opinion, he said we're probably at the higher end of that range. So I think he's still left the door open for January, but they really [02:03:55] Speaker 5: want to tell us that the base case is a hold for January. Then if we're at that tip point, which will matter more, an analysis of inflation or an analysis of the job market? [02:04:07] Speaker 43: I think they're still more focused on the labor market. A simple way to think about it, which maybe he muddied the waters a little bit by talking about the measurement issues with the unemployment rate, but we're going to get not only the November unemployment rate, but also the December unemployment rate before the January meeting. If that December unemployment rate is up to 4.7%, I think they're going in January. 4.5% or lower, they're going to stay on hold, and 4.6% is going to be a close call. [02:04:36] Speaker 5: Really well said, but then what's so important here within this, and let's look at the Bank of America now GDP report. I got Atlanta at 3.5%. Where is the economy right now? Just say in terms of [02:04:49] Speaker 43: nominal GDP. It's a boom economy, isn't it? Yep. It is. We have around 5% nominal GDP growth for next year, and that's well above consensus. We were very happy to see that the Fed is coming very close to our view now. The GDP upgrades were quite significant, but honestly, it's not that hard to get into the low to mid twos next year. As Powell mentioned, you'll get about two-tenths, maybe even three-tenths just from the shutdown. You're going to get another three to four-tenths from the big, beautiful bill. So the hurdle for the rest of GDP growth is only about 1.7%, 1.9%, which frankly is what we did this year, even with all the trade disruptions. So we should be in the twos next year, in my view. [02:05:29] Speaker 3: Stephanie, it strikes me that there's a new psychology taking hold of the Fed that has been for the past six months, and it goes to Tom's point about productivity. This idea that at times of transition, it pays to run the economy hot to avoid some of the jobs losses that do come into effect in these huge technological shifts that take hold. Do you think that that is what's going on, that this is a Fed that is biased to running the economy hotter than it otherwise would because there are job losses during times like this, and those job losses are hard to replace even as productivity comes back? [02:06:02] Speaker 42: Yeah, I think that's exactly what's happening, and that's kind of what Powell alluded to today, that this is the productivity-enhancing backdrop that we're seeing. They're certainly coming across as more dovish than generally expected, and they're going to take a haircut off the job numbers that we're getting and whether or not 60,000 is the right number. So any numbers that we get from a job perspective, you have to, in your mind, take that down even lower, which then is at the margin going to make them more dovish and running the economy hotter than would otherwise be the case. The sum total here, [02:06:32] Speaker 5: Lisa, is what the gentleman from Bank of America said. You get a 4.7 percent unemployment rate. None of this analysis matters. Until midterm elections, 4.7 is getting up there, and I can't imagine [02:06:45] Speaker 3: 4.9 or 5.0. Which is the reason why, Aditya, to bring you back in, you're talking about the chance of a potential additional rate cut come January, should we get that kind of employment stress. What are you seeing? Were you surprised, just to pick up on the conversation we were having with Stephanie, were you surprised at how negative Jerome Powell was in his interpretation of the labor market and the job losses that we've seen over the past few months? That was definitely a dovish surprise to talk about, [02:07:14] Speaker 43: you know, we're going to mark down 40,000 a month by 60,000 per month. So now you're looking at negative 20. And then at the same time, he says that he doesn't expect the unemployment rate to go up a lot further from here. So what is his read on break even? He had previously told us his read on break even was between 0 and 50,000. So a little bit of inconsistency there in our view. If they stick with the view that break evens between 0 and 50 and we're only growing at negative 20, then either you need to see payrolls bounce back or they're going to continue to worry about downside risk to the unemployment rate. And again, it's not our base case that they're going to keep cutting rates, but they might well be [02:07:52] Speaker 3: inclined to do so. Adichie Bahave, thank you so much for being with us this morning. Joining us now is Jeff Rosenberg of BlackRock. Jeff, always great to speak with you. Want to get your take about whether what we had just heard in that press conference makes you incredibly more risk on in terms of going out, double fisting it. QE light is coming back. They're buying bills. They're also potentially looking to weakness in the labor market. Is this risk on? [02:08:15] Speaker 44: Well, you said one of my three takeaways, which is number three of today's meeting, which I'll call QE confusion. I'll come back to that. The first takeaway is the pause is in. We kind of knew that. The second one, which you've already talked about, is why? Because we're in the realm of neutral. And the third is getting a little bit confused about the QE confusion. It was a little bit more dovish than maybe expected, as the previous commentators talked about. But it's not that far off of expectations. The market's at about a 90 percent expectation for the 25 basis point cut, expected for a pause. It'll be data dependent, as you were previously discussing. If it's 4.7, you know, that's a different set of circumstances. And Tom, as you said, you know, you can throw the rest of this analysis out the window because the facts have changed. But we don't know that is happening. So given the trajectory that we have today, the Fed's on pause because we've gotten to the realm of neutral. And the other side of the debate, inflation, wages, growth, all basically say this isn't been a particularly restrictive Fed. Even if they think they're on the high end, now they're, you know, in the neutral end so they can wait. And we'll see how the data evolves. To your point on QE, he only gave you half the story in terms of expanding the balance sheet because the other part of the balance sheet is contracting because the mortgages run off. But that technical detail got left off. I think it was an accidental dovish commentary on the QC. He kind of dismissed and said, hey, everybody knows this. This is a technical factor. And the preamble ahead of the QE comment was, please disregard everything I'm about to say in terms of its implications for monetary policy. Of course, nobody did that. And they hear the Fed's buying treasuries. And so there's the knee jerk response to that from what we were taught over the post GFC environment. So it's a little bit of a misread there. But it is what it is. It's a little bit less of a hawkish hold than the [02:10:16] Speaker 5: market was expecting. Jeff, 12 minutes ago, I was thinking of Alan Meltzer of your Carnegie Mellon University. How far are we from a traditional Fed analysis, whether it's Meltzer at Carnegie Mellon, Clarida at Columbia, John Taylor out at Stanford, how far are we away from conventional theories, plural? [02:10:39] Speaker 44: Well, I think the key thing that kept coming back over and over again in this meeting, and it happened in October, was the difference in Fed policy today. It came up around the questions of the comparisons to the mid-1990s. The challenges to Fed monetary policy when its dual mandate is in conflict. There is no divine coincidence of monetary policy. There is no environment that we had over that prior 30-year period of too little inflation. So there is no risk-free path. And that's really the biggest difference here. And they're still navigating that. And I think the discussion about how everyone on the panel, on the committee, agrees to the facts, but we disagree on how to deal with the risks. And that's getting to the heart of inflation versus growth. And which way do you emphasize? I'd add the piece that's missing to this conversation, however, is financial conditions. And that if your goals are conflicting and it's sort of a tie, then I think you break the tie with financial conditions. But they're just not discussing that at all anymore, which I think could come back to haunt them. But I think that's the piece of the conversation. Mike McKee, maybe next press conference. It would be interesting to ask that question because they used to talk about it all the time. The whole point of the balance sheet was portfolio rebalance. The impact of the K-shaped recovery, they've had a lot to do with that in terms of the wealth effect is supported by the balance sheet and the Fed's activities. They absolve themselves of any of that. I think there's more there to unpack. [02:12:16] Speaker 3: Jeff Rosenberg, indeed, especially as we see markets climb close to all-time highs once again. Jeff Rosenberg of BlackRock, thank you so much, as always, for being with us. Stephanie, to that point, right now we're seeing a surge in futures equities. Excuse me, I'm used to early shifts, as well as a decline in bond yields. At what point is this a liability for the Federal Reserve that will keep consumption elevated and fuel any nascent inflationary pressures? I mean, it's hard to be worried about the [02:12:45] Speaker 42: consumer and then concerned that consumers can be too strong at the same time. I think we're in an environment where the consumer has slowed down a lot, so an easing in financial conditions isn't necessarily the worst thing. We're worried about the K-shaped consumer. Of course, the bottom of the K doesn't necessarily benefit from a lot of this, but the middle of the consumer has also slowed down. So if we see a bit of a pickup on the back of this plus next year we're going to get a decent amount of fiscal stimulus coming around tax season, that's a reason why we're probably going to see a bit of a pickup in growth for next year. So not necessarily the worst thing, just given we have seen a pretty big slowdown, but to the extent this continues to remain for quite some time, then you might get [02:13:24] Speaker 3: concerned on the other side. Just real quick, does this press conference and this meeting make you [02:13:28] Speaker 42: upgrade your inflation forecasts longer term? At the margin plus the combination of we know we're going to get a more dovish chair. It's likely going to be Hassett, in which case, you know, that sort of adds to that argument. [02:13:43] Speaker 3: Stephanie Roth, wonderful to see you as always. Thank you so much for being with us here. Stephanie Roth there. Honestly, this was a fascinating meeting. This was a snooze fest. We just saw the best FOMC day when you look at market performance going back to March and the most [02:13:56] Speaker 5: ascents going back to 2014. Can I use my Peter Fisher hand? Please, I was hoping that you would. Three months, 30 year bond. It gets steeper. It's at 51 basis points since October 16th. And we're buttressed right up at new wides. And the broad yield curve is giving us that steeper. And that always creates a tension within the economy. Eight basis point decline in two year yields just [02:14:19] Speaker 3: in this session alone. You're seeing about a two basis point decline at the long end. Coming up on the close, much more on the Fed with former Boston Fed President Eric Rosengren. As we see markets broadly cheer this, what we are seeing is the Russell 2000 outperforming almost up two percent on the backs of what was supposed to be a hawkish cut. Instead, can we say it a non hawkish cut or a dovish cut? Can we say that? I think that that's fair. Absolutely. From Tom Keem and myself from New York, for our TV and radio audience worldwide that does it from us. This was the Fed Decide. [02:15:12] Speaker ?: We'll be right back. [02:15:42] Speaker 8: We'll be right back. I think then the tenure has a lot of room to decline because then the Fed's cutting into accommodated territory, not just getting to neutral. Don't miss Bloomberg Brief, live every weekday. [02:16:30] Speaker 7: Nobu-san, would you say when you look at your career that the pivotal moment was actually that meeting with Robert De Niro? It took him four years to convince you to open a restaurant near him. You eventually did, and that started a partnership that has lasted through the decade. [02:16:47] Speaker 21: You know, I met him in 1988 after my first restaurant opened. He asked me to come to open a restaurant in New York. And beginning, I didn't know what he did there. [02:16:58] Speaker 31: You didn't know he was an actor? [02:17:00] Speaker 21: No, I don't know what he was doing. And because I never watched the movies, you know, I was traveling in the business. But of course, after, you know, people, hey, Nobu, so you must know him. And then I understand. How is he as a partner? He's a, for me, and a great partner. He understands my concept. He supports me 100%. But he also, he's a very smart people. Sometimes, it's a strange idea, but it's a good idea. So, for example, Nobu Hotel's idea comes from him. He said, hey, Nobu, so we have a lot of new restaurants coming in somebody's hotel. So, for him, it doesn't make any sense. Then we started Nobu Hotel in Las Vegas 11 years ago. Now it's a big success. So, next step is the residents. [02:17:56] Speaker 7: We're coming to you live from Kuala Lumpur. [02:17:58] Speaker 9: The whole world is here. The APEC Leaders Summit bringing together heads of states of 21 APEC economies. The White House is trying to use the stops to gain additional leverage. [02:18:07] Speaker 10: This big deal with a number of the biggest companies in South Korea. [02:18:11] Speaker 9: That's a big number. [02:18:12] Speaker 10: Deals can't be done. [02:18:13] Speaker 4: Trust Bloomberg for on-the-ground coverage. Korea is not Japan. [02:18:17] Speaker 11: Up-to-the-minute reporting. In this latest salvo of this trade war. Not a visual. And the analysis you need. [02:18:22] Speaker 12: China's not going anywhere, nor are we. [02:18:26] Speaker 3: Making money isn't about drowning in emotions. It's about understanding what's actually happening. Markets are the best way to glean signal from noise, and that is what we try to do every morning. This is Bloomberg Surveillance. [02:18:41] Speaker 45: Bringing you the world's business and financial news whenever and wherever it happens. I'm Michael McKee at Mount Everest. And this is Bloomberg. [02:18:53] Speaker 4: The countdown is on. Everything you need to get the edge at the end of the market day. This is The Close. [02:19:03] Speaker 46: The Fed decides and the markets react. Welcome to The Close. This is Romaine Bostic. [02:19:09] Speaker 34: And I'm Katie Greifeld. [02:19:10] Speaker 46: You are certainly Katie Greifeld. Of course, we are just about 10 minutes until the closing bells. And about 30 minutes removed from the Fed's last meeting and press conference of 2025. And here is the lay of the land here. A 25 basis point, which, of course, which came as expected. The third straight cut that we've gotten out of the Fed in the last three meetings. And we should point out, though, the policy projection for 2026. One more, just one more quarter point rate cut heading into next year. But the two biggest developments of this meeting. One, the resumption of those Treasury bill purchases. An acknowledgment of a potential crash crunch going on right now in the short-term money markets. And number two, the era of Fed congeniality apparently over. For the fourth straight meeting, we've seen dissents. And the dissents at this meeting, three, the most we've had since 2019. Here's Jay Powell just moments ago. [02:20:00] Speaker 29: Today, the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. Available indicators suggest that economic activity has been expanding at a moderate pace. Consumer spending appears to have remained solid. And business fixed investment has continued to expand. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. As detailed in a statement released today by the Federal Reserve Bank of New York, reserve management purchases will amount to $40 billion in the first month and may remain elevated for a few months. So I don't think that a rate hike is anybody's base case at this point. [02:20:48] Speaker 34: You take a look at the market reaction. The knee-jerk reaction to the Federal Reserve's comments there, you can see, has been to buy stocks and to buy bonds. The S&P 500 set to close at what would be a record high. The Russell 2000 as well, higher by about 1.4%. That would be an all-time high for the small cap index as well. Helped by what we're seeing in the bond market, a bit of relief coming through across the curve. That 10-year Treasury yield, which we've been keeping a very close eye on, down nearly five basis points right now. And the ultimate risk asset you can see as well, catching a bit on the heels of this meeting. Bitcoin higher, just a little bit, about a tenth of a percent, Romain. [02:21:27] Speaker 46: Ken Shinoda joins us right now, Portfolio Manager over at Double Line Capital. And a little bit earlier, before the Fed meeting, Ken, we had a chance to catch up with Bob Michael over at JPMorgan Investment and Management. And I thought it was kind of interesting. His reaction to this report was basically, in his words, it was not as much as the market expected, but not as bad as the market feared. What did you make of today's decision? [02:21:50] Speaker 12: Yeah, I think the market expected more of a hawkish cut. That's why the Treasury curve had been selling off for the last couple of days. I know we're rallying today. We're basically back to where we were at the beginning of last week. I kind of view it as a pretty balanced Fed with maybe a dovish tilt. And I think one of the things that led to that bond market rally was the announcement of Treasury purchases, T-bill purchases. We joked on the desk here that we're doing quasi-QE again. [02:22:18] Speaker 46: Well, that's what I'm curious about. I mean, let's just point out he avoided calling it QE. But is that effectively what it is? And I guess more importantly, Ken, why do you think they felt the need to do this now? I know there had been some pressure coming out of the folks in the Treasury market saying that the Fed needed to step back in. Was that the reason? [02:22:36] Speaker 12: Well, I think you're seeing a little bit of lack of liquidity in the repo markets. And going into year-end, they want to keep that liquidity high. So I think it's really to kind of support those repo markets and balance sheet liquidity out there. [02:22:48] Speaker 34: And let's talk a little bit about the bond market reaction. Because, again, you see that over the past couple of weeks, there's been this rise in the long end. And there's been some concern about what that means. You're seeing 10-year yields in particular come in a little bit today. I wonder how you're thinking about some of the movements on the curve and whether the respite maybe that we're seeing is something that's going to be sustainable. [02:23:10] Speaker 12: Well, we've been trading range-bound. And 4% on the lower-bound has kind of been a sticky spot. It's been hard to break through. And I don't think the bond market can break through that 4% without considerable weakness in the labor market. And I know the Fed's definitely concerned about that. They mentioned it a couple times, and I think it's the labor market data that has led them to their cut today. One thing that Powell noted is that the payroll numbers have been coming in around $40,000. And they actually think they're overstated by about $60,000, which means we had negative payrolls. And I think that's a main reason they cut. Now, the other thing the market's concerned about, and it comes and goes, is fiscal concerns about too much spending and the interest costs on outstanding debt that continues to rise. So I think there's this push and pull between weakness in the labor market, helping long-term rates fall, and then concerns that deficits are already high and we're not even in a recession. So if we go into a recession, I'm not saying that's my base case, that would mean even more spending has to come. So this is the push and pull that long-end of the yield curve has to deal with right now. [02:24:17] Speaker 34: Absolutely. And the result, as you mentioned, has been sort of a range-bound trading environment. But let's take a look into next year because I thought it was interesting to hear the chairman say that this further normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend towards 2%. That could be setting up a pause here when you think about both sides of the dual mandate and the threading that they need to do. How did you read that comment? And if we are headed to a Fed pause, which makes sense at least until May 2026, what does that mean for you and your seat as a portfolio manager? [02:24:54] Speaker 12: I definitely think it's possible. He mentioned many times that we're in a good place. I think he said we're in a good place five, six times, which means that he feels that they're at a good spots. And I think short-term rates have now come down to where the two-year is. The two-year had come down much more than policy rates. And we're now pretty close to the 3% neutral rate that many market participants believe is where we should get to. So I think with inflation kind of remaining sticky at that 3%, that gives them the potential to stay on hold and wait for data. And so they're really going to be relying on that labor information coming through. [02:25:34] Speaker 46: When you look at longer-term yields, though, Ken, I mean, do you get a sense here that we will see a more meaningful resumption of the steepening of the yield curve, not so much just because of what the Fed is doing, but obviously with a lot of the other noise going on in the background, whether it's the deluge of corporate issuance on the AI side, the increase in the term premium, et cetera? [02:25:53] Speaker 12: I think all those things are part of it and also what's going on internationally. I think one of the reasons we saw this recent move was they're starting to talk about rate hikes over in Europe. And in Japan, that could continue to happen, too. So, you know, in other parts of the globe, you're seeing inflation kind of pick back up. So if you're starting to see hikes over in Europe, it's going to be hard for the long end to rally. [02:26:17] Speaker 46: All right, Ken, always appreciate the quick and instant analysis coming out of these Fed meetings. Ken Shinoda, Portfolio Manager over at Double Line Capital. And we should point out, Katie Greifeld, you take a look at markets right now. And I was looking at the most recent meetings, the last four or five meetings. The S&P has largely been flat on those meetings. A big change today with the S&P trading at a record high. [02:26:37] Speaker 34: Absolutely. A big reaction here. Also in the small cap. So it's really across the size spectrum, that positive reaction. [02:26:43] Speaker 46: Record highs potentially for the S&P, the Russell, as well as bank stocks. A full breakdown of all of today's market action starts right now. [02:26:53] Speaker 4: The Closing Bell. Bloomberg's comprehensive cross-platform coverage of the U.S. market close starts right now. [02:27:02] Speaker 46: And right now we are two minutes away from the end of the trading day. Romain Bostic here with Katie Greifeld. Taking you through to that closing bell with the Global Simulcast. We're joined now by Carol Masser and Tim Stenevich from the radio booth. Welcome to our audiences across all of our Bloomberg platforms, including our partnership with YouTube. Here on Fed Day, the last Fed Day of 2025. No surprises in the cut, but maybe a little bit of confusion about what comes next, Carol. [02:27:27] Speaker 20: Yeah, absolutely. Which is something we've been talking about all week, right? And that's what everybody wants to know. What comes after this meeting? Having said that, definitely seeing some outperformance in terms of the KBW Bank Index. That's up about 2.6%. We also, we just mentioned, too, we're watching shares of Warner Brothers Discovery up about 4.5%. President Trump saying any Warner Brothers deal must include a sale of CNN. So certainly this gets more interesting and it makes you think what deal is going to happen. [02:27:55] Speaker 46: Why does it need to include a sale of CNN? [02:27:57] Speaker 20: I don't know. We're going to have to find out from the president. [02:28:00] Speaker 47: But remember that Netflix's offer does not include acquiring CNN. It doesn't include acquiring those traditional cable channels. It only includes the studios. So what he would be speaking about ostensibly is a Paramount Skydance's deal, which includes, you know, all of Warner Brothers Discovery. Yeah. [02:28:15] Speaker 34: Well, we've certainly heard a lot of opinions on what is going to happen. Now we have the president chiming in as well. We know that this deal is going to take a long, long time to play out. Certainly got a little bit more interesting. But so too are these markets in terms of being interesting when you consider the S&P 500 moments away from a record high. [02:28:32] Speaker 46: So let's go back. So we have Trump also speaking at the White House. This guy decided to hold this meeting at the same time Powell was speaking. He is also addressing the issue with regards to interest rates as usual, making the case in his words that apparently Jay Powell has not done enough. He's also talked about the selection process for a new Fed chair, said that he's meeting today with Kevin Walsh. So a lot of what comes next for the Fed, of course, will depend on who's in that Fed chair seat come May of 2026. And maybe we get a little more clarity on that in the weeks ahead. Meanwhile, here on this Wednesday afternoon, does look like record highs for at least two of the major indices. The S&P 500 is going to close higher, 6,886 and change, up about 46 points or 7 tenths of 1%. That's a record high. The Dow Jones Industrial Average up almost 500 points or 1% on the day. The Nasdaq Composite adding about 3 tenths of 1%. And the Russell 2000 up about 1.3%. And that is also going to be good enough for a fresh record high. We should also point out that the KBW Bank Index also closing today at a fresh record high. [02:29:32] Speaker 20: Yeah, a real surge in that, no doubt about that. And that Russell also moving significantly, as you mentioned, Romaine. So really some standout. Hey, S&P 500, let's go back to the big caps if we may. 389 names in the S&P 500 hired today. 113 to the downside. And Katie, one unchanged. [02:29:49] Speaker 34: Let's take a look at the sector level here. Broad breadth overall. Nine of 11 sectors finishing in the green. You can see that big tech finished just a hair higher. It was industrials really, though, that stole the show up by 1.8% as a sector, followed by materials and consumer discretionary. In terms of what didn't perform on this Fed Day Wednesday, utilities down about a tenth of a percent. And consumer staples pretty much flat on the day, but slightly red, Carol. [02:30:15] Speaker 20: All right. Let's go to some of the individual gainers. GE Vernova, shares climbing 16%, biggest one-day gain on record. So this stock soaring. It's the top-performing stock in the S&P 500 today. The company doubling its dividend, increased the scope for share buybacks and raised earnings projections. Keep in mind, this is a company, we've been talking about this here, right, that it has really benefited for the soaring U.S. demand for electricity, whether it's data centers, AI largely, and just really the overall electrification of the economy. That stock is up about 118% year-to-date, and so quite some outperformance there. Let's go to Warner Brothers Discovery, because this one's certainly on my list. I think it was a top gainer in the NASDAQ 100, 4.5% to the upside. We just got some comments from President Trump saying that any deal for Warner Brothers Discovery must include CNN. And as we pointed out, that deal, the offers that we've gotten, Paramount, includes the CNN property. The Netflix deal does not. But nonetheless, Warner Brothers Discovery, it's up about four days in a row, a gain of about 16%, up 135% since September. And just for something different, Dave & Buster's, I know it's a small cap company, plays the ticker, up about 13% in today's session. This is Wall Street analysts highlight improving comp sales trends in October and November, despite a third quarter miss. And during the conference call, the company did come out and say that traffic in its dining rooms late in the quarter was meaningful, up year over year, with October same-store food sales being the best month of the year and improving in November. Stock is down about 31% year-to-date, 38% of the float is short. [02:31:50] Speaker 46: Hey, I just want to add an honorable mention in there too, Carol. Keep an eye on shares of Cisco, which have been rallying now for seven straight days, adding 9 tenths of a percent on the day. And that's actually going to be good enough for a record high and significant because it hasn't hit a record high since the dot-com bubble burst all the way back in 2020. The first record high for Cisco in 25 years. And I bring that up as well because, of course, we talk about some of these old tech stocks that have found some new life here in the AI era. We are expected to get earnings a little bit later today from Oracle, which, of course, hit a record high back in September. [02:32:21] Speaker 47: Well, before we get those earnings, let's go over some of the other movers to the downside today on the day. I do want to start with shares of Netflix down 4.2% today. Six session in a row to the downside. This is the longest losing streak going back to January. Now, over this time, the last six days, it's fallen 15%. That's the worst since 2022. This all is the bidding war for Warner Brothers. Discovery heats up. And just a reminder of what we heard from the president moments ago at the White House. He says that any Warner Brothers deal must include the sale of CNN. Also, Paramount out with some headlines, too, saying that the Netflix cash component is about $7 a share lower. Paramount also says in a letter that it's $30 a share offer is superior. So, like Katie said, this story is one that continues. But Netflix has taken a hit over the last few days as a result. Also, large hospital chains, including HCA Healthcare and Tenant Healthcare, fell today after reports indicated that Republican congressional leaders are considering a Medicare pay cut for hospitals as counterproposal to Democrats' demand to renew Obamacare subsidies. HCA Healthcare, ticker HCA, fell 4% today. That policy was included in a list of healthcare options presented to Republican House members in a meeting today. This, according to a document viewed by Bloomberg. It could lower costs for patients and save the Medicare program substantial amounts of money. But it has been opposed to hospitals due to the higher overhead costs. And finally, the parent company of Instacart, Maple Bear, down 6% today. It was one of the numerous online gig economy stocks that took a hit, including Lyft, Uber, DoorDash, and more. This after Amazon said its expanded same-day delivery offering for perishable groceries to over 2,300 cities and towns. [02:33:57] Speaker 46: Oracle earnings crossing the wire right now. Let's get right to it here. It does look like the top and bottom lines are meeting second quarter numbers up about 14% on the revenue side to roughly $16 billion. Though that does look like it's just a tad light. The street was looking for $16.2 billion. Revenue on a constant currency basis up 13%. That's also light. The street was looking for roughly about 14.6. We'll round that up to 15%. EPS in the quarter, $2.26 a share. That is a beat, a sizable beat. The street was looking for $1.64 here. I'm not seeing a guidance just yet here, but we should point out that cloud revenue was up 36% in the most recent quarter. Cloud infrastructure revenue, a separate category, that was up 71% in the most recent quarter. And cloud application revenue was up about 11%. [02:34:45] Speaker 34: All right, let's take a quick look at Adobe. Those earnings also crossing the wire here. Adobe shares higher by about 2% after reporting that fourth quarter adjusted EPS beat the estimate. The numbers there for fourth quarter adjusted EPS coming in at $5.50. The estimate had been for $5.39. Also, fourth quarter revenue coming in ahead of expectations as well. You take a look at the guide here. They see first quarter revenue between $6.25 billion and $6.3 billion. The estimate had been for $6.24 billion. So, the midpoint of that range comfortably ahead of the estimate. They also see first quarter adjusted EPS between $5.85 to $5.90. The estimate had been for $5.66. So, it looks like a beat and raised quarter there. You can see that reflected in Adobe shares after hour higher by about 2%. We know this company has been pretty beaten up in the stock market this year. [02:35:41] Speaker 47: I'm getting back to Oracle and looking at the commentary. Lots of commentary coming from executives at the company. Oracle CEO Mike Cecilia is saying that AI training and selling AI models are very big business. But we think there's an even larger opportunity embedding AI in a variety of different products. Oracle is in a unique position to embed AI in all three layers of our software products. Cloud data center software, autonomous database, and analytics software, and our application software. Shares of Oracle down about close to 6% in the after hours. [02:36:10] Speaker 20: All right. Let's get to the application software company synopsis. It is also reporting its results and into the outlook. Let's start there. Sees first quarter revenue of $2.37 billion to $2.42 billion. The estimate on the street is $2.36 billion. First quarter adjusted EPS, again, to the outlook, $3.52 a share to $3.58 a share. Estimate on the street is $3.46. So it does look like it's bumping that higher. And we do see the stock up 2.6% in the aftermarket. 2026 revenue, $9.56 billion to $9.66 billion. That compares with $9.63 billion in terms of the estimate. And it sees 2026 adjusted EPS of $14.32 a share to $14.40. That, too, is handily above the street estimate of $14.11. So, again, that stock up about 2% in the aftermarket. And fourth quarter revenue, just for some growth year over year, up 38%. And fourth quarter adjusted EPS, so a look back at the quarter that was $2.90 versus $3.40 year over year. But nonetheless, tempering some of its gains in the aftermarket, but still up, you guys, about 1% here. [02:37:14] Speaker 46: Absolutely. And we go back to, of course, Oracle, which obviously sort of is kind of the fulcrum for everything that we're reading now with regards to Synopsys, Adobe, and the rest of that AI trade. And I was looking through their presentation on their website. And they talk a lot about the new customers that they've signed up in the most recent quarter for the services. But a big part of this, and a big part of why you're seeing the shares down, there's a lot of concern about Oracle's ability to fund that. Remember, unlike some of the hyperscalers and the others that we've talked about who've been able to fund their AI dreams primarily with their own cash on the balance sheet, Oracle has relied on a big way on the debt markets. And the expectation is they will return to the debt markets to fulfill some of those obligations. And some big questions here about whether that erodes profitability. [02:37:55] Speaker 47: All right. You guys are talking tech. I'm also looking at what's happening in the ski business. Vail Resorts reporting down just about 1% in the after hours. First quarter net revenue missed estimates. First quarter total skier visits came in above estimates. First quarter loss per share came in slightly above estimates at $5.20. Once again, shares of Vail Resorts down about 1.1% in the after hours. [02:38:18] Speaker 20: All right. And back to Adobe. It is up about 2.6% here in the after market. And we're looking at Oracle under pressure, continuing to see it trade lower here in the after market. It is down about 5.1%. All right, guys. That's a wrap. Our cross-platform radio, TV, YouTube, Bloomberg Originals. Katie and Romaine continuing there on the close on TV. Tim and I continuing on Bloomberg Businessweek Daily right here on Bloomberg Radio. We'll see you again, same time, same place tomorrow. [02:38:44] Speaker 46: All right. Stick with us. Our coverage continues here on the close with a focus on those results that we just got out of Oracle. We're going to talk to Brent Hill, tech sector leader of software and internet research over at Jeffries. We should point out Oracle shares down about 6% and is dragging a lot of the AI cohorts down with it, including names like CoreWeave, Tara Wolf, as well as PureSword and Applied Digital, that conversation coming up after the break. Stick with us. This is the close on Bloomberg. We'll be right back. [02:39:39] Speaker 35: In case you missed it on Bloomberg Crypto. [02:39:53] Speaker 47: Well, we certainly understand needing to pay back the debt. That certainly makes sense. But on the dividend, why are you so committed to paying this dividend? Would you ever consider suspending it? Companies do suspend dividends from time to time. [02:40:05] Speaker 15: Yeah, companies do suspend the dividend, but it creates fear. And certainly doubt in our preferred shareholders, which will impact our convertible shareholders, which will impact our equity shareholders. So I think preserving the payment of the dividend, even if our board has the rights to suspend it, it's the right thing for the short term for the next one, two, three years. And it's important. It's also important for the Bitcoin asset class. And we realize we play a role bigger than just strategy in the Bitcoin world. So would you say investors should think you will never suspend that dividend? Never say never, but yeah, our objective is to pay the dividend into perpetuity. [02:40:44] Speaker 20: Don't miss Bloomberg Crypto Live Tuesdays. [02:40:50] Speaker 13: The Middle East and Africa regions are home to some of the biggest deals and fastest growth in the world. I'm Jumana Versace. I'm Jumana Versace. Join me on Bloomberg Horizons Middle East and Africa for the stories, newsmakers and insight shaping the decisions of traders across this exciting region. [02:41:06] Speaker 14: We had heightened levels of volatility. There's still room to maneuver. We do see opportunities. It allows you to increase significantly your net income. [02:41:13] Speaker 13: Watch Horizons Middle East and Africa every trading day at midnight Eastern time, only on Bloomberg. [02:41:28] Speaker 4: The countdown is on. Everything you need to get the edge at the end of the market day. This is The Close. [02:41:39] Speaker 34: Welcome back to The Close. I'm Katie Greifel. [02:41:41] Speaker 46: And I'm Romaine Bostic. One of the more meaningful updates that we've had in equity markets coming off of that Fed meeting, the Fed press conference, and maybe a little bit more conviction here about what comes next. The S&P 500 up about seven-tenths of a percent, though it did close just shy of its all-time high by a couple of points or so. Meanwhile, the Russell 2000 did notch a fresh record high, adding about 33 points or 1.3%. We also saw the KBW Bank Index move higher as well into record territory and keep an eye on yields. We actually saw today for the first time in quite some time a drop in short-term yields. But that, of course, means a steepening of the yield curve. We're now back on the two-tenths to some of the steepest levels since early September, late August. [02:42:22] Speaker 34: And we did get some interesting tech earnings after the bell. Let's take a look at those after-hours movers right now. Take a look at Adobe. I'll start there because initially we saw a big pop in Adobe shares after the close. It was a beat and raised quarter for this company. The second quarter to adjusted revenue actually met expectations. Their backlog numbers coming in pretty good as well. But certainly, Romaine, this is a company with pretty high expectations on the street. [02:42:52] Speaker 46: Yeah, a big beat on the bottom line with regards to profitability here. They're adjusted EPS at 226. The street was looking for 164. Revenue pretty much in line with estimates, up about 14%. But you just mentioned it, Katie. That backlog, $523 billion worth right now sitting there for the taking. Brent Thill joins us right now, tech sector leader of software and internet research over at Jeffries. And let's start off with that backlog. Brent, I know that number looks big. I guess the big question is, do you think Oracle is going to be able to fulfill it? [02:43:24] Speaker 48: Yeah, that's the billion-dollar question. And we won't know for years because the open-AI relationship is going to take several years to fulfill. So if you're an investor, you're excited because the backlog isn't going to go down because they can't take it to revenue. The fear short-term is they can actually deliver on this infrastructure. And when they signed that $300 billion deal last quarter, I think many of us asked that it followed Oracle for many decades. It's like this contract's five times the size of your annual revenue stream. How do you deliver on something so big? Little did we know that the street would be so focused and so negative on this. And you can see the negativity of that continuing to present an overhang on the stock. So I think that the challenge with this quarter was it was an okay quarter, but there was no massive elephant transaction. You kind of had the antelopes, if you will, roaming, not the elephants. And you had a good print overall. Just things were kind of in line where the street wanted. Last quarter was obviously a blowout. So I think the challenge is there's not many $300 billion deals out there. And there's incremental revenue to be had. But who's going to come over the top on open AI on a transaction that big? So that's the challenge for Oracle in the short term. [02:44:46] Speaker 46: Do you actually see their customer base broadening a little bit specifically for the cloud AI products? [02:44:53] Speaker 48: Yeah, I do. I mean, the beauty is they run Uber. They run TikTok. They run some really meaningful companies. They run many of the top banks in the world, insurance companies. And I think the fact when you can win a deal from the number one AI company in the world, which is OpenAI, it tells you that if they're going to let that Oracle deal with the data, that everyone else should deal with the data. And this goes back to the founding of Oracle at the CIA. You know, this company is effectively the underbelly of every major corporation that's out there. And there was a worry in cloud and the worry in SaaS that that data was going to go somewhere else. And Oracle's hung on to that data. And now they're creating a great bridge to the cloud. They're creating a new AI avenue. So our belief is that they will broaden. And this is global in Europe and in Asia. They're getting some great wins. We'll hear more about that on the call. We definitely think the base is broadening at Oracle. And again, when you get a vote of confidence of a company that knows more about data than anyone, hence Oracle that level of a check. And again, they handed Microsoft a $250 billion backlog contract as well. Right. You know, there are only a few companies on your hand that can actually do this. And Oracle is one of only a few. [02:46:10] Speaker 34: And Brent, I want to talk a little bit about the debt side of things. Because you think about the fact that Oracle's free cash flow expected to be negative for several quarters here, potentially the next couple of years. You think about their credit risk reaching the highest level since 2009 last week. You know, as someone who covers the equity, Oracle equity, how are you thinking a little bit about the debt component here? [02:46:32] Speaker 48: Yeah, I mean, it's a it's a concern. They have a high debt load already and we've been flagging this. The debt load has not been has been a concern for a while and now it's even a bigger concern. So we're conscious and we view it as a risk factor. But I think much of the OpenAI contract has been stripped out of the stock, out of the equity. And so if they win more deals with with others, we think that can get restored back into the equity. But I think what OpenAI and many have said is that they can fund this. They believe they can fund this. I would say the announcement yesterday by OpenAI announcing Denise Dressers, the head of sales, gives you further conviction if you're an Oracle equity investor that she's one of the best enterprise reps on the planet. And Sam Altman picked her over everyone else and having her the keys to OpenAI is the enterprise. And if they can get these enterprise contracts going, not just us paying 30 bucks a month to OpenAI, but they get my firm and your firm to pay like that's where the funding is going to come for Oracle. So I have even more conviction now that that they can they can do this with her rival. And I think there's going to be other data points along the way that will leave, I think, some of the debt holders a little more comfortable that they can make these payments. And again, remember Oracle City and I are very high margin software business. This isn't core weave where you have a lower margin infrastructure business. You have a very high margin software business that generates a lot of cash flow. And so they can back off the investments very quickly and move quickly to, you know, cash flow positive if they want to pull back the infrastructure bill out because they have a great apps business. They have a platform as a service business. So that's something to keep an eye on as well. [02:48:15] Speaker 34: All right, Brent. Unfortunately, got to leave it there. Really appreciate your quick insight there. That is Brent Thill. He is tech sector leader of software and internet research over at Jeffries. Now coming up, the founder of Clio Capital, Sarah Koontz joins us next to take a closer look at today's tech earnings. This is The Close. We'll be right back. [02:49:02] Speaker 49: We'll be right back. We go on the road for a look at what lies behind the headlines of today and what will likely be the headlines tomorrow. We need more transparency. Oil and gas is still important. [02:49:42] Speaker 37: They said every citizen should be investing in the market. [02:49:45] Speaker 48: Accelerate progress in all fields of science. [02:49:48] Speaker 49: Watch Wall Street Week right here on Bloomberg. More than what you need to know, it's what you need to think about. [02:49:54] Speaker 7: Bringing you up-to-the-minute news whenever and wherever it happens. I'm Haslund Amon in Bangkok. This is Bloomberg. [02:50:05] Speaker 50: It's an astonishing day for U.S. technology. [02:50:08] Speaker 51: Shaping the region's technology ecosystem. [02:50:12] Speaker 8: Asia's biggest tech news and innovation. [02:50:19] Speaker 51: Tech is integrated into every aspect of our lives. From finance to defence, AI to entertainment, and from the road to the stars. Bloomberg brings you the latest stories from the people and companies pushing the tech sector to new frontiers and the politics that shape global tech markets. I'm Tom McKenzie in London. Watch Bloomberg Tech Europe. New episode Friday, only on Bloomberg Television. [02:50:56] Speaker 34: Let's get another check on earnings and the AI trade. Shares of Synopsis in particular, you can see flying right now after reporting earnings just moments ago. Also keeping an eye on shares of Oracle and Adobe. Let's discuss it all with Sarah Koons. She is managing director and founder over at Clio Capital. Sarah, it's great to have you with us. I want to start with Adobe because initially you saw a pop. The numbers that Adobe delivered were pretty good, especially when it comes to the outlook on sales and revenue. Now we're turning lower in the after hours trade. And it just feels like sentiment on this stock has been so negative for so long here. [02:51:32] Speaker 52: Yeah, you know, it's interesting because when you look at that sort of analyst average price target, it's quite a bit higher than where Adobe is trading right now. But I think the reality is that we see all of these new tools. Google just came out with with Nana Banana Pro. And it's really hard to see a ton of growth ahead for their core business for that subscription around a lot of their creative tools. [02:51:59] Speaker 34: Yeah. And you think about, I mean, that partnership, you want to call it, that announced earlier today, Photoshop and Acrobat going to be integrated into chat GPT. It's going to be offered free to chat bot users. The hope there is that its features are going to be seen by a wider audience, kind of increasing the visibility. I mean, if you're Adobe, what else is there to do than try to broaden the net, even if you're offering it free? [02:52:24] Speaker 52: Yeah, and I think that's the scary part, right? They don't have a business model that makes them a lot of money with people using it for free. There's not necessarily a lot of network effects there. And so, yeah, this might get them more eyeballs, but it feels like it might be a little bit of a better deal for open AI than it is for Adobe. And so I just, I think there's concern about sort of this dwindling we hear about, you know, AI is going to take all these creative jobs. Those creatives, the photographers, the graphic designers, are the people who are paying often a lot of money to Adobe. And so what happens when they don't have that money anymore? And the reality is it could lead to a long time downturn in sales. [02:53:08] Speaker 46: Yeah, and it gets to this idea too, Sarah, about these companies that are trying to sort of transform for the era. And we know that Adobe has had some success, obviously, in moving to that subscription model. But when you look at some of their competitors, particularly some of the upstarts coming in here, is there a case to be made that there might be better value in those names than in Adobe? [02:53:26] Speaker 52: I certainly think that that could be true. You know, Canva is a privately traded company, but they've done a great job at just sort of creating things that are lower touch, easier to use, cheaper. You know, Figma has some of that as well. And those companies haven't been around as long. But when you look at their growth, I think that a lot of the excitement and interest in the space does sort of shift over. And then the reality is that even the apples of the world do a pretty good job of having a great camera where you can take a great picture. And then they have some neat sort of baked in photo editing tools or Instagram. And so I think some of it is that we no longer are looking for the same level of quality in some of these tools. And so we're perfectly happy with what's baked in or provided for free. [02:54:13] Speaker 46: I want to get your thoughts real quickly here on Synopsys. Not a name that we talk about a lot, but the shares are having a pretty good after-hours session, up about 8%. And it gets to this idea that some of the plays in the AI, and let's just call it the broader cloud space right now, aren't necessarily through the data center operators or even the hyperscalers. Some of it is in these second-tier companies. I don't know if you had a chance to look at the report that we just got out of them, but what is your general outlook for where this company and where management can actually take it? [02:54:42] Speaker 52: You know, I think that in general, when a shiny new object pops up, can you trust Jensen that, hey, they put a bunch of money in, there's probably some there there? Absolutely. Should you YOLO completely into that name? Sight unseen, maybe not, right? Maybe take a minute, read some of their old filings, right? Be able to tell your family at dinner, hey, this is what these companies actually do. And so I think we're seeing some of that pile on trade, some of that excitement of people trying to catch the upside, driving it higher. But then you kind of plateau out and say, is this company really that different than it was two weeks ago? And now I think it's up something like 15% from them. And so there is, in my mind, just a question mark of, is there too much momentum in some of these sort of second-tier names, as you call them? [02:55:29] Speaker 34: And, Sarah, we have less than a minute left here, but let's quickly talk about Oracle posting disappointing cloud revenue. You can see the shares taking a hit after hours. What would you want to hear from executives on the call? [02:55:40] Speaker 52: I think that people want to know who they're going to sell to, who actually has the money in the bank to buy what they are selling, because that is not OpenAI. [02:55:49] Speaker 46: All right, Sarah, always great to catch up with you. Sarah Cohns, Managing Director, Founder over at Clio Capital, as we continue our coverage deeper into the results that we just got out of three big tech names, but none more important than Oracle. We've seen the revenue growth. We've seen the profit beat in the most recent quarter. And we've seen that more than $500 billion backlog. But the big question is, how do they pay for it all? There's a credit risk concern out there, and we have that discussion when we come back after the break. Taking a look at shares of Oracle in the after hours trade, down about 6.5%, Katie, and that's dragging some other names down, particularly some of those needle clouds like CourtWeave. [02:56:25] Speaker 34: Yeah, absolutely. A lot to dig into when it comes to Oracle, when it comes to free cash flow, when it comes to customer concentration risk. And, of course, we're going to dig into those credit concerns up next. This is a close. Thank you. [02:57:06] Speaker 22: Bringing you up-to-the-minute geoeconomic news whenever and wherever it happens. I'm Bonnie Quinn in Sao Paulo, Brazil, and this is Bloomberg. [02:57:34] Speaker 4: Why do the biggest names in business choose Bloomberg Television? That's a great question. It's a very good question. [02:57:41] Speaker 2: Interesting question. Good question. Great question. I so appreciate that question. You said they ask interesting questions. [02:57:47] Speaker 4: Bloomberg Television. Top experts. Great questions. [02:57:51] Speaker 53: Some people travel to see the world. I travel to question the forces that shape the entire nations. Wow! Is it possible? My name is Professor Han Fry. I want to meet the people with unexpected stories to tell. And dig up the peculiar and wonderful treasures that reveal what a country is made of. Yeah, guys. [02:58:21] Speaker 4: Bloomberg brings you breaking news 24 hours a day. Powered by more than 3,000 journalists and analysts in more than 100 bureaus across the globe. Bloomberg Television. Context changes everything. [02:58:36] Speaker 22: Bringing you up-to-the-minute geopolitical news whenever and wherever it happens. I'm Tyler Kendall in Tokyo. And this is Bloomberg. [02:58:57] Speaker 46: All right. Three months ago, Oracle reported earnings and it saw a more than 30% jump in the stock in one day. The shares in the after-hours trade down about 6%, adding to what has now been a more than 30% drop in that stock since its September highs. A lot of this, of course, surrounding a lot of the concerns about the potential of a bubble growing in the AI space. This, just as of last week, the cost of protecting Oracle's debt against default hit its highest level since 2009. 24 Asset Management taking note, writing, the pockets of risk, particularly in the rapid scaling of AI-driven issuance in investment grade, will require elevated due diligence. Here to talk a little bit more about the debt side of the Oracle story is Will Smith, Alliance Berenstain, Senior Vice President and Director of Credit. And, Will, I do want to start with this. I mean, Oracle's already gone to the bond market. I mean, so far, investors have digested that. But the idea that when you have a company sitting on a $500 billion backlog that we know, at least looking at its balance sheet, it can't necessarily fulfill based on the cash on hand. How much does Oracle, and for that matter, some of its peers, going back into debt markets become a credit event for everyone else? [03:00:08] Speaker 54: So Oracle really matters because it is the, quote-unquote, harbinger of the AI CapEx boom. So investors are really focused on everything that Oracle has to say and, crucially, how they plan on financing the amount of CapEx that's going to be required for this generation of AI build. Now, what we think gets lost a bit is that investors are being skeptical in a lot of different ways. We think this repricing in debt markets is very consistent with the view that risks are building. There's more uncertainty about the payback period, the amount of CapEx, and the financing of that CapEx going forward. And to us, it's a very healthy dynamic for debt investors. [03:00:50] Speaker 46: So a healthy dynamic for debt investors, do we have to worry at all about the idea of credit quality or the complexion overall changing because of some of the, and obviously we're talking hypotheticals here, but some of the new issuance that is likely to come down the pipe? [03:01:06] Speaker 54: We, of course, have to be concerned about it. I mean, as debt investors, that's really all we're doing is pricing what we think the downside risks are. And in this case, it is a little bit unique versus history because that risk is really building in the investment-grade universe in some of the very best, most cash-generative companies in the U.S. today. And that's different than other big CapEx booms. So in our view, that means the risks are really around credit downgrades. And we talk about Oracle and some other names. Maybe they're not as high quality, a single A plus, as they've been in the past, but maybe they're moving towards low BBB, high BBB. And that requires a repricing of that risk. That's a different risk profile for investors. That gives investors who are willing to be a little bit more provocative an opportunity. And we think the recent repricing in most of these hyperscalers is a pretty good opportunity for debt investors to step in. [03:02:05] Speaker 34: Interesting. So just to make sure I'm understanding you, Will, so when you see some of those names, some of those hyperscalers who have been tapping the bond market in a big way come under pressure, it sounds like that would be a buying opportunity to your eyes. [03:02:18] Speaker 54: It does. And I think the crucial element here is these companies are not likely to spend all of this CapEx without some more clarity about what the payback period will be on these businesses. So I think in a lot of ways, investors are concerned that the payback period is super uncertain and these companies are going to spend all of this capital for the next five to 10 years, regardless of what the payback period looks like, what that revenue capacity really actually is. And we think that's a little bit backwards. These companies are likely to spend this much money if the revenues and earnings follow these models and really accrue to these companies. And so we think that there's a little bit of a path dependency here that investors are missing. [03:03:01] Speaker 34: And I do just want to talk about supply overall. Again, a lot of this conversation is happening in the U.S. investment grade universe. You take a look at the house view over at TD. They would expect to see IG sales hit a record of $2.1 trillion in 2026, fueled by what we're talking about. Their view is that high-grade spreads could reach a base range between 100 and 110 basis points, which isn't that high in the grand scheme of life. But you consider where we are right now on spreads, around 80 basis points. Will, does it seem reasonable that we could meaningfully go above 100 next year? [03:03:37] Speaker 54: It certainly could happen, Katie. We think it's probably unlikely that it happens just because of supply issues. Supply is generally the mechanism that kind of corrects markets. So when we feel really good about the economy, growth, and corporate earnings, we see more supply as a result. But if we start to feel less good about the direction of the economy or corporate earnings, then supply will start to decrease. And so we think that it's likely that spreads go wider at some point, but it's probably because we get concerned about growth at some point. [03:04:07] Speaker 46: Is there any sense, any sort of tie-in with Fed policy and the idea of at least what we learned today and the idea of what the market has been trying to price in for 2026? [03:04:19] Speaker 54: For sure, there's a tie-in. And when we think about what companies and investors are expecting for next year, in a lot of ways, you could be extremely excited about that outlook because you're seeing actually a pretty large fiscal stimulus come through next year at the same time the Fed's cutting rates. And we also have this manufacturing and capex resurgence as a result of artificial intelligence. So that could be a pretty positive dynamic for investors. And I think a lot of folks are looking at potential M&A activity and they're saying, well, I can probably buy these assets for a better price today than I might be able to in the next few years. And if I expect my cost of debt to move lower over that same time period, then that's probably my best opportunity to get these big M&A deals done. So we're likely to see a lot more of that happening. [03:05:09] Speaker 34: And it's interesting, Will, how private markets factor in. You point out in the notes you sent over to our producers that private investment-grade funding will remain central to this AI build-out. And increasingly, I mean, you think about issuers hopping back and forth between private and public markets to get this funding. It feels like that line is blurring. [03:05:30] Speaker 54: It for sure is blurring. The reality is the private credit market is now a really substantial part of how companies think about financing their businesses, and that is really unlikely to change. And when we think about the AI capex spend, it's going to require a lot of different types of capital to really achieve what we think will happen. So that's going to require private credit markets to look at deals in structure in a way that makes sense for them, bond markets, loan markets to also participate, and also for securitizations to happen as there's a lot of infrastructure that's required to make this happen. [03:06:09] Speaker 34: All right, Will, great to check in with you. Really appreciate your time. That is William Smith. He is Alliance Bernstein's senior vice president and director of credit. Meanwhile, let's take a look at the equity market reaction to that earnings report. You take a look at Oracle shares falling after hours. And it's not just Oracle, which is interesting, because you're also seeing shares of CoreWeave and NVIDIA move lower as well on the heels of that report, Romain. [03:06:33] Speaker 46: Yeah, and it gets the idea of whether maybe people are throwing the baby out with the bathwater. Oracle is definitely a very unique situation. Obviously, it's sort of like an embarrassment of riches right now for this company. But one, they have to find a way to fund in a way that's actually going to be palatable to investors. Meanwhile, some of those other names, you know, I mean, there's really no sense, at least right now, that they're having any kind of funding issues. And obviously, we get back to your, you know, Ouroboros. I'm going to learn that word at some point in 2025. [03:06:58] Speaker 34: I knew in my heart you were going there. [03:06:59] Speaker 46: But there is a lot of support. We're talking about Synopsys, of course, the big investment that NVIDIA made there. And, of course, we talk about the double dealing to a certain extent, which for some people is a bad thing, but some investors see it as a good thing. It's a good thing, at least one that keeps, adds some support to some of those names. [03:07:12] Speaker 34: Absolutely. We'll continue to follow, of course, that daisy chain. I will point out, Adobe Shares poking into the green. This is the close. [03:07:20] Speaker 7: e-investors, top executives, global innovators. Join me for in-depth conversations with the biggest newsmakers on the day's top stories. Insight with Haslinda Amin, only on Bloomberg. [03:07:40] Speaker 55: The name here is understanding. These digital assets have the ability to change the payment landscape of the world. And we need to be ready. We, the regulators, the world needs to be ready for a new wave of technology. [03:07:54] Speaker 56: Stablecoins are almost entirely used in the mechanisms of trading cryptocurrencies. What we saw is the opportunity for digital assets broadly, stablecoins in particular, to be used as a medium of exchange outside of the crypto world, what is today the fiat currency world. At some point, I think these digital asset wallets will be big enough and people will be comfortable enough using them. I think we'll have a flip from conventional payment mechanisms into stablecoin-based mechanisms. [03:08:20] Speaker 53: Does that mean banks such as yourselves issuing stablecoins? [03:08:24] Speaker 56: We could. We could. We are issuing Hong Kong dollar stablecoins today. We're in a sandbox for tokenized bank deposits in Hong Kong. We're effectively issuing tokens related to trade finance in Singapore. So it's all on the table, but we're always going to tie it back to what our clients want and need, because if we don't get that one right, the rest doesn't matter. [03:08:45] Speaker 55: The market capitalization of both type of instruments, crypto and digital assets, are both very low. Stablecoins today have $20 billion of flows a day. It's less than 1% of the flows of the payment system in the world. But because they have the ability to be very helpful in use cases, particularly in retail to begin with, but then potentially on the wholesale side, I think we will see a lot more of them. [03:09:10] Speaker 50: We're at the epicenter of a global realignment on a scale not seen for decades. At the intersection between markets, economics and geopolitics, a forum for sophisticated conversation. This is Bloomberg Surveillance. [03:09:26] Speaker 4: It's a multi-trillion dollar industry. We'll show you what's happening in ETFs like no one else. ETF IQ. Mondays on Bloomberg. [03:09:41] Speaker 34: All right, let's get back to that Fed decision. The S&P 500 posting its biggest Fed day gain since March, closing in on record highs yet again after the third straight interest rate cut in a row. Fed Chair Jerome Powell forecasting solid growth in the year ahead, saying that the economy is in good shape and that the Fed is, quote, well-positioned to wait after what could be the final cut of his tenure as chairman. Joining us now, I'm pleased to say, is former Boston Fed President Eric Rosengren. Great to have you with us. I want to start with the dissents. This was a 9-3 vote. Three dissents. This was the first time since 2019 that you had three officials vote against the decision, and you had this on both sides of the policy spectrum. I know that the three dissents in particular were perhaps expected here, but if we continue down this path, if we see more discord among the FOMC, at what point does it start to become counterproductive or start to complicate the Fed's messaging here? [03:10:38] Speaker 57: I don't know whether it affects the Fed messaging, but I think it makes it much more challenging for whoever the new Fed chair is, that there's a committee that doesn't seem particularly inclined to significantly decrease interest rates over the course of next year. So with this dissent, there were two presidents and one governor. The governor, Myron, thought that there should be a deeper cut, and the two presidents presumably concerned about inflation being too close to 3%, not close enough to the 2% target. We're worried that we weren't putting enough weight on inflation, and as a result, dissented for no change. [03:11:20] Speaker 34: It was interesting, too, to hear Jerome Powell weigh in during the Q&A, saying that, you know, there are arguments on both sides, when you consider both sides of the mandate, and they have one tool, one lever, which they can pull. And I wonder, you know, how you see that balance right now when it comes to inflation, but also the trajectory of this labor market? [03:11:43] Speaker 57: Well, I think he characterized it very accurately. Inflation is definitely much higher than the target and hasn't been moving in the right direction. So those people that are concerned about the inflation part of the mandate have a very credible argument. But I would say also on the employment side, one of the reasons this is difficult is because the unemployment rate has been gradually rising.