About this transcript: This is a full AI-generated transcript of Federal Reserve Holds Rates Steady — Special Coverage from Bloomberg Television, published June 9, 2026. The transcript contains 29,191 words with timestamps and was generated using Whisper AI.
"He disagrees with him. I mean, there's no really predicting that. What I will say is I think that there are a lot of people who are going to be forced into the position of lying to the president about their independence if we are able to preserve Fed independence. It's going to come down to someone"
[00:00:00] Speaker 1: He disagrees with him. I mean, there's no really predicting that. What I will say is I think that there are a lot of people who are going to be forced into the position of lying to the president about their independence if we are able to preserve Fed independence. It's going to come down to someone being a very successful liar to the president in order to say, well, of course, I'll do what you want. And then I'm going to become a Fed chair and you have no control over me. That's a pretty tenuous place for a very vital aspect of our economy to be in.
[00:00:30] Speaker 2: Yeah, that's quite a pretzel. Catherine Edwards, will the president have to deal with the overhang of affordability for the rest of this year?
[00:00:39] Speaker 1: Yes. Yes. It's a it's it's something that I think the Biden administration had to learn as well is that there are some bills in the economy that come due and it's not your fault. You didn't start it, but it's coming due on your watch. We've had a solid five decades of pretty weak income growth in wage growth for the bottom third to 70 percent of the income distribution, depending on the year. We've had very little successful forays into making housing, health care, child care or elder care more affordable for families. And these things are going to stack up over time. They're going to accumulate and get worse. There's no one or two month fix for a five decade problem.
[00:01:22] Speaker 2: We've got about a minute left. Does Jay Powell stay on the Fed board after this term ends? Has the president put him in that position or do you think he cannot wait to leave?
[00:01:33] Speaker 1: I think he stays. I mean, I think his character would be that he would that he would stay and kind of help shepherd the next Fed president through a very delicate fight to maintain independence. And I don't think he would walk away. I mean, he's going to have that great book deal whenever he leaves in a year or four years. So I don't think I don't think he has to rush out to sign. I think that he can stay and finish the job. He strikes me as someone who has a lot of personality buried underneath a public visage.
[00:02:04] Speaker 2: Fascinating. Some unexpected answers from Catherine Edwards. Catherine, it's great to see you. Thanks for being back with us here on Bloomberg and look for her work. Bloomberg Opinion. O-P-I-N-G-O on your terminal and, of course, at the website Bloomberg.com. I'll meet you back on the late edition of Balance of Power. 5 p.m. Eastern Time. Special Fed coverage begins next right here on Bloomberg TV and radio.
[00:02:26] Speaker 3: The trading day is about to start. And you're already looking for that edge.
[00:02:30] Speaker 4: The opening trade brings you everything you need to know as markets open across Europe.
[00:02:34] Speaker 3: Let's talk about the significant risk transfers to find space in their balance sheet. Hedging some of that risk.
[00:02:39] Speaker 5: You could look at it the other way. Obviously, this stuff is risk-weighted.
[00:02:41] Speaker 4: I would much rather be long than be short. We're in a kind of sweet spot. Very, very strong alignment. Three revolutions in one. I'm Guy Johnson.
[00:02:48] Speaker 5: I'm Anna Edwards. And I'm Tom McKenzie. This is your opening trade. Live from New York City this afternoon for our audience worldwide. Good afternoon. Good afternoon. Bloomberg's The Fed Decides starts right now.
[00:03:05] Speaker 6: This is a special edition of Bloomberg Surveillance with Jonathan Farrow, Lisa Abramowitz and Tom Keene. Bloomberg Surveillance.
[00:03:14] Speaker 5: The Fed Decides. Live from New York City for our audience worldwide. Here we go again for the first time in 2026. The first rate decision from the FOMC. That decision 27 minutes away. 30 minutes after that, a news conference with Chairman Powell. And I think it's fair to say, TK, the least anticipated Fed meeting of the last 12 months.
[00:03:33] Speaker 7: Oh, you've taken the Kool-Aid. I disagree. I said this morning, John, you and I know it's a snooze fest sometimes. No, it's not. There's a frenzy here. And just since you and I were on this morning, we've seen Secretary Besant make a little bit more frenzy amid the snooze fest.
[00:03:48] Speaker 5: A frenzy of the politics and maybe not of the policy. In this news conference, journalists will do their best to make this interesting. The last chairman, Powell, about his more assertive, confrontational approach with the White House over the past few weekends. And TK, we'll see if he leans into the question as to whether he's going to stick around beyond May.
[00:04:04] Speaker 7: Yeah, I do think the politics is there and clearly the Waller dissent is front and center here. I guess we're going to get a dissent from Mr. Myron. We had some two-way dissent last time around. You were tough with him last time he was out. I didn't think I was.
[00:04:14] Speaker 5: You got him out to six rate cuts. I've got some respect for everyone on the committee right now. Very political. Can I just say this? Can I just say this and just throw this out there? Governor Myron's taken a lot of criticism. Yes. I think he's been very, very successful at galvanizing the rest of the committee to come out publicly and say what they think about where policy should be. And I welcome a little bit more transparency.
[00:04:35] Speaker 7: And if GDP comes in and not two rate cuts, if you get three or, dare I say, four, he's a genius if we get a four rate cut trend.
[00:04:43] Speaker 5: Equity's going into this one close to all-time highs on the S&P 500. A slight pushback so far this afternoon. Coming up shortly, we'll catch up with Apollo's Torsten Slock, Kathy Jones of Charles Schwab, and Salkjent Sabadjara-Japa. Following the decision, the former Fed vice chair, Rich Clarida, J.P. Morgan's Bob Michael, Diane Swonk of KPMG. And finally, we'll be breaking down the news conference with Stephanie Roth of Wolf Research and BlackRock's Jeffrey Rosenberg. We begin with Torsten Slock of Apollo. Torsten, good afternoon. Good to see you. Good afternoon. What are you expecting to hear in about an hour's time?
[00:05:14] Speaker 8: Well, on the rate decision itself, it will be very clear. Namely, they will say that they're now in wait and see mode, and they're basically waiting to see what's happening on inflation. They're waiting to see what's happening on employment. So from a dual mandate perspective, they feel very comfortable at this spot. Many of them have now argued that we're very close to neutral. We're close to R-star. So for that reason, there is really no reason for them to move rates in any way or signal anything dramatic at this point.
[00:05:38] Speaker 7: You were weaned in the continent on the politics of central bank policy, the experiment of the ECB. I mentioned the frenzy in a light way during the snooze fest. But what we've seen, the disruption since John and Davos with Secretary Besant, the disruption that we've seen for the last week, and particularly yesterday with the dollar, how does that change this moment for Paul?
[00:06:00] Speaker 8: Well, the dollar going down, of course, is potentially something that has some upside risk to inflation. But at this point, it's still very early. So for them, he may be asked about this today. But my best guess is that he will say this is still very early and is still very modest. So from a pure inflation perspective, remember also that the U.S. is a closed economy, exports only 10% of GDP. For most European countries, exports are like 50% of GDP. So from that perspective, the dollar matters actually less for the U.S. inflation relative to how much the euro matters for inflation in the euro area.
[00:06:30] Speaker 5: TK, I think we've got to get to the elephant in the room, and that's Torsten's big call for the year ahead. Do you think that Wall Street is underplaying just how hot GDP could be in the next few quarters?
[00:06:39] Speaker 8: Well, if you do go into your Bloomberg screen and look at the consensus expectations of growth, it tells you that growth is expected for the next 18 months to literally, for every single quarter, be 2.0. That happens to be exactly the potential growth rate from the Congressional Budget Office. In other words, there is not much drama to the upside expected. There's not much drama to the downside. But if you begin to look at what happened on January 1st with the one big beautiful bill being a tailwind, we still have AI and data center build out that's a tailwind. We now also have the dollar going down, that's also a tailwind. And we also have oil prices going down, that's also a tailwind. So the risks are indeed beginning to rise, that we're going to see growth accelerate as we go through this year. So I do think that it is maybe laziness on the forecasting community, but at least it looks like from the forecast that people are just penciling in 2.0, meaning the long-run growth rate.
[00:07:24] Speaker 5: Let me follow up, because I don't want to lose friends this afternoon either. But is Wall Street getting intellectually lazy, or are they just struggling to price the chaos?
[00:07:31] Speaker 8: Well, I do think that it's, of course, a struggle to figure out both, of course, what policy changes have meant. We've been through the last week or so, also some pretty significant changes on the geopolitical front. So it is still very uncertain in terms of what are the implications when it comes to what's coming with tariffs. There's more coming. What's coming with tariff uncertainty. A company is going to pull back because there's more uncertainty. But all that aside, I mean, it still is the case that if you take fiscal policy, very expansionary, now you have the dollar going down, you have oil prices going down, and you still have a strong AI boom with a data center and energy build out. Those are all very strong tailwinds, not only to CapEx, of course, on its own business fixed investment, but also to consumer spending. So I would expect that growth is going to be higher than what the consensus is expecting at the moment.
[00:08:11] Speaker 7: I'm not going to ask this of Vice Chairman Clare. That's not what he does. But I am going to ask you this. I want you to frame out right now your call on real GDP, the actual GDP number, and the inflation on top of it to get the nominal GDP. If I take Atlanta and add inflation, I got the United States pretending it's China right now, 6-7% nominal, 5.375 nominal published. Where are we going to be in a year with a new chairman, real inflation, total nominal?
[00:08:40] Speaker 8: Absolutely. So the starting point for that discussion is exactly that inflation today is about three, a little bit less. It's not two, which is where the Fed is supposed to have inflation. So that's why inflation is a little bit too high already, even before we've begun to see an acceleration. So that's why the next several months, what companies are going to do, especially in response to the one big, beautiful bill, will be very, very critical. Because that may result in that by the end of the year, we could have the nominal GDP could indeed, to your point, Tom, be a lot higher than what people are expecting.
[00:09:08] Speaker 7: Well, let's take this over. While you were in Davos at the piano bar with Barry at Cloud Fair, John, I was reading Orszag Pozen, Peter Orszag-Lazard, Adam Pozen, a giant at Peterson Institute. You and I read the essay on a persistent higher inflation that we're not prepared for. That's how you get there, isn't it? Off the wages they model in their... Absolutely.
[00:09:29] Speaker 8: Peter Orszag and Adam Pozen are heavyweights in the economics profession. And them telling us that inflation will be 4% by the end of the year is something we need to take very seriously. Because there is a compelling story, especially now when fiscal policy is supporting and the AI and data set of boom is also very supportive. So absolutely, there is indeed a chance that nominal GDP could be in the range of 4 to 5 by the end of the year.
[00:09:50] Speaker 5: Just for the record, I did not frequent the piano bar this year. That's TK's old horn. I'd always find him over there in Davos, Switzerland. Torsten, do we have an understanding as to how this Federal Reserve would respond to information like that? Do you have a decent understanding of this Federal Reserve's reaction function?
[00:10:06] Speaker 8: No, because the issue is that the dot plot for now for a long, long time has been telling us rates are going down. So the first regime change is that the dot plot is going to now recognize that and the market is going to recognize that we're going to go up and maybe have no cuts in the near future. And the biggest risk is, to Tom's point, that if we do see acceleration in growth and if Adam Pozen and Pete Orszag are right, of course the risks are beginning to rise. Then we'll see rates begin to go up. And this is not a simple linear development. And it is a very significant change from after a long, long period of saying rates are going down, rates are going down in the front end. So now suddenly come to the conclusion, well, maybe the Fed actually has to hike.
[00:10:40] Speaker 7: That's a key question, John, that you just asked. Reaction functions, plural. They don't have a clue. They're flying. And I don't have a clue either. They're flying blind.
[00:10:49] Speaker 5: That's why I think it's going to be so difficult for the incoming Fed chair. How unruly would this committee be June onwards?
[00:10:54] Speaker 8: Well, and the challenge is, as we all know, there are 12 voting members, seven are the governors, there's five regional Fed presidents. And if you are one of those voting members, maybe together with Steve Miran, you might say, I think interest rates will go down. But think about how this works in practice. You meet with the Fed staff. And the Fed staff, they absolutely know what they're doing. They have a forecast for inflation. So if you go in and say, I think inflation is going down, they will respond, well, okay, where is that forecast coming from? Which parts of inflation is going down? And they will have an answer, excuse me, that is going to be very, very thorough that will tell you that inflation is going in the opposite direction.
[00:11:24] Speaker 7: What's the experience with Trichet? The intellectual battle at the ECB with Jean-Claude Trichet. Did the ECB push back against the different decisions he wanted to make that became controversial?
[00:11:36] Speaker 8: Well, in this case, it's all about the governors and also the regional Fed presidents. They do have the view that they think at the moment that rates should be higher for longer because inflation is higher for longer. It's really quite simple for markets. If inflation is higher for longer, the Fed will also keep rates higher for longer because we're not at 2% yet. Of course, the staff of the Fed will now become very important because the Fed staff, of course, will be sticking lightly with what they've been putting out for the last 12 months. Namely, that inflation is still a problem. That's the forecast that we saw, of course, in the latest print from the ECB. But the bottom line to your question is, if there is a change in the forecast, it will have to come from the Fed staff and less so from the Fed chairman.
[00:12:12] Speaker 7: Is this too highbrow today? No, I think it's fine.
[00:12:15] Speaker 8: What's wrong with this?
[00:12:16] Speaker 7: I think it's good. No, this is basic. This is the problem. There's a lot of people looking at this and they're talking about their wife and they're going, I took her to the supermarket. I don't know why, but I had to start it somewhere. Pretend you got no money. Half of America, John, feels like that British song from years ago.
[00:12:31] Speaker 5: Common People by Pulp. And it's a fantastic song, by the way. We're talking about GDP being sky high. Consumer confidence in this country is the worst it's ever been in the last decade. Just think about everything that's happened in the last 10 years. Consumer confidence hasn't been worse, TK. The conference board number is absolutely remarkable.
[00:12:49] Speaker 7: I agree. It's not a snooze fest. Everyone, you have to stay with us today. It's not a snooze fest. Is that just to keep the audience?
[00:12:58] Speaker 5: Plus, clarity is coming by. True. And Torsten's sticking with us. It's going to be absolutely fantastic. Coming up as well, we'll catch up with Cathy Jones of Charles Schwab, Sabancur Ajapa of SogGen. That Fed decision is about 18 minutes away. Your equity market just pulling back from all-time highs on the S&P 500. In the bond market, yields up by a single basis point. In FX, near to multi-year lows for the U.S. dollar. And gold at all-time highs. More still to come on the markets in just a moment.
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[00:14:09] Speaker 9: If I'm an American company and I want to invest in Asia, why would I want to invest in India over China?
[00:14:15] Speaker 10: India has a lot of similarities to the U.S. It's a democracy. It has rule of law. It's a capitalist society. And that's what a number of companies are seeing.
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[00:15:32] Speaker 14: The Fed's in no hurry to cut rates.
[00:15:34] Speaker 15: They're pretty comfortable pausing here. We're likely to see the Fed pause.
[00:15:37] Speaker 14: The Fed's likely not cutting.
[00:15:39] Speaker 15: We think they'll hold. They'll stay on hold.
[00:15:41] Speaker 14: They're in a holding pattern.
[00:15:43] Speaker 15: It's time to take a breath on these rate cuts.
[00:15:46] Speaker 16: There isn't really a need for immediate movements in interest rates. I don't think they want to move.
[00:15:51] Speaker 15: They're probably towards the tail end of this rate cutting cycle. Hopefully we see a little bit more guidance from the Fed.
[00:15:57] Speaker 12: There'll be a dovish meeting even though they won't cut. The Fed's going to remain data dependent. Powell is going to stick with the hard data.
[00:16:03] Speaker 15: We have been dancing around these threats to independence.
[00:16:07] Speaker 7: The Fed is going to be under enormous pressure.
[00:16:09] Speaker 17: Everybody wants an independent Fed. Put their head down. Do their job. That's the best way that they can demonstrate that independence.
[00:16:16] Speaker 5: The Fed decision 15 minutes away. The scores into it look like this this afternoon. On the S&P 500, a slight pullback from record highs. We've gone five days with no losses on the S&P. Well, these losses stick. In the bond market, twos anchored around to where Fed funds is right now. Let's call it 360 on a two-year tens in a range of 410 to 430 for the year so far. 426 at the moment and up a single basis point. Where the fun and games have been over the last week. The drama, the fireworks, the headlines in foreign exchange. Eurodollar won 19.21 for a heartbeat. Eurodollar was north of 120. And what happened? An ECB member, TK, pushed back against where the euro was and talked up the prospect of acting if this move continues.
[00:16:57] Speaker 7: That's the game theory of this. And you've got a neo-mercantilist president. And I don't think he understands the game theory of how they'll push back. We mentioned Adam Posen earlier. William Klein at Peterson owns the high ground on this. They push back.
[00:17:10] Speaker 5: What do you make of the sell America trade? It's in this headline. Repeatedly sell America. People are selling America every time we have a bit of dollar weakness. I don't know where I am on this. Go on, tell me. Share it. I've got views too. I've got views too. I'm setting myself up.
[00:17:20] Speaker 7: I was down in Houston with the CFA Institute and somebody said the same thing as well. I think it's the craziest thing going. We have led on technology. I'm going to get emotional here. I remember the day the three astronauts died at Cape Canaveral. I remember it clear is a bell. We had the technology then. It's different now. We're not going. Well, excuse me. Mr. Musk, I know you're listening. We're not going to the moon, but we're there with AI and technology. We're leading the way and everybody else.
[00:17:48] Speaker 5: I'm pleased we get to talk about this, TK, because some of the price action we have seen is also consistent with the pickup and global risk appetite. If you see the Kospi at record highs and up 20% for the year, the Aussie outperforming at G10, copper at a record as well, small caps domestically outperform at large, doesn't that just speak to a better growth pickup domestically and internationally?
[00:18:06] Speaker 7: You know, we made a joke about the British song from Pulp here about the groceries. There's a half of America flat on our back looking for two or three rate cuts now to relieve them. I'm not sure those rate cuts relieve them.
[00:18:17] Speaker 5: Kathy Jones of Charles Schwab joins us now. We're going to get into this Fed action. That decision is about 13 minutes away. A news conference 30 minutes after that. Kathy, let's get into the decision. Most people assume no change. Any nuance in the statement you'll be looking for?
[00:18:32] Speaker 18: In the statement, you might see some adjustment to what they said about inflation, maybe that it has, you know, has stabilized but still elevated and a slight tweak there to the statement. Don't expect much else because, you know, frankly, there's no logic to making a change at this stage of the game. So I doubt that there will be a big change to the statement.
[00:18:55] Speaker 7: Kathy, one thing I've watched in the last 72 hours with the dollar dynamics and, as John mentions, commodities is the real yield, particularly the 10-year real yield, just as a benchmark, has been very quiescent. What does that mean to you that the inflation adjusted yield is, say, stable in a tight range?
[00:19:15] Speaker 18: Yeah, I think that there's some influence here of kind of the stability provided by the Fed now, the expectation of a steady policy. You do have the 40 billion in a month that they're injecting into the system. I think some of that is also reflective of just uncertainty. You know, we don't have a really clear vision of where we're going from here. I think there's this hope for this productivity surge to continue. There's hope at the same time that we're going to get, you know, a big boost in the economy from fiscal policy, which seems logical, and yet there doesn't seem to be the market pricing in a huge risk of inflation going forward. And so I think the markets are sort of sitting here, the real yield sitting here and kind of trying to figure out where we go.
[00:20:07] Speaker 8: Well, and Kathy, given that uncertainty, why do you think the S&P continues to make all-time highs, including today?
[00:20:14] Speaker 18: Well, the good thing is, Thorsen, I don't do equities, but I will say that the financial conditions are very easy. When you look at where we are in financial conditions, credit spreads are very tight, corporate profits are near record highs, and the Fed's bias, at least from the dot plot, is towards easing. And a softer dollar, I would say that all kind of adds up to a pretty good environment for the stock market.
[00:20:41] Speaker 7: Yeah, it's important here. Kevin Gordon had the best tweet out of Schwab yesterday. Kathy took the day off, and Kevin Gordon said, you know what, January feels like it's nine weeks long. That's the wall of worry that makes equities go up. I believe that's what Miss Saunders would say.
[00:20:55] Speaker 5: Nine weeks is kind. This feels like about a year to take care at the moment. Kathy, what's remarkable to me so far is just how stable, until very recently range-bound, the 10-year bond yield has been. In the face of all the risks, not just domestically, but internationally as well. Torsten's talking up the prospect of strong GDP growth for the year ahead, maybe even inflation closer to four, never mind two. And we're trading at 425 on 10s. What gives?
[00:21:19] Speaker 18: Yeah, and I agree with you. I think the yield should be moving higher. We have seen a steepening in the yield curve. And that's really kind of our big call for the year, actually since last year, is a steeper yield curve. On the assumption that the economy outperforms expectations, inflation doesn't come down as anticipated or not as quickly as anticipated. And that the risk from the Fed is, particularly with the change is taking place, is that it acts on an easing bias rather than holding steady for longer. I think right now the market has steady policy priced in, you know, well into the middle of the year. If you get a new Fed chair coming in or some rotation of the members that's unexpected due to all these lawsuits, you could probably see a push for easier policy sooner rather than later. And that, I think, would start to get yields moving higher at the longer end. Tolstin, that's my headline of the year so far. It's not
[00:22:20] Speaker 5: sell America, it's the fact that people haven't really been selling treasuries in the face of everything we're discussing. Why are treasuries so stable in the face of all the risks that you're
[00:22:27] Speaker 8: thinking about? Well, because there's worries now. If the Fed is telling me that short-end rates are going down, well, many people are worried about, well, maybe that means that there is a slowdown in growth coming. But if you begin to add up fiscal policy, AI boom, lower dollar, lower oil, then you do come to the conclusion that maybe those trends will be reversing the Fed's view. And that's why the wait and see mode that they're in today is very important. And that's why the communication from Powell about monetary policy will be very critical. Will he begin to signal that there is indeed some upside risks as we're talking about here? Do you think yields end the year closer to five than four? So I do think that 10-year rates at the moment are driven by, of course, the fiscal challenges, but it's certainly also driven by Fed expectations. So if Fed expectations are indeed that rates are not going to move much in the front end for the rest of this year, well, then I do think that there is a chance that long-end rates could be higher. John, to your good question here, and I'm going to
[00:23:15] Speaker 7: take this for more zag and posen. What's the single catalyst that changes this dialogue? And the answer is it's wage dynamics, inflation-adjusted wages and nominal wages. If you get a wage pop, everything changes in this discussion. I'll tell you one thing, Tom. So far, it's not
[00:23:32] Speaker 5: Tokyo. To have the convulsions we had in JGBs just last week, and for that to only engineer a six, seven, eight basis point move at the long end of the US curve, I was surprised by that. If you told me we'd move by 20 to 30 basis points at the long end of the Japanese curve, see yields we've never seen before in Japan, I would have expected a bigger move last week in treasuries than the one we got.
[00:23:51] Speaker 8: And you did see yesterday at its 40-year auction in JGBs that actually there was very solid demand telling you that we're getting to the point where investors are interested in the levels of yields.
[00:23:59] Speaker 7: Asking for a friend, did Apollo load the boat? I don't think he's going to answer that one.
[00:24:05] Speaker 5: Sivadra Jafra Sokjen Mai. Sivadra, welcome to the program. The stability in bonds so far, what shakes us out of this recent range? I don't think there's a clear catalyst,
[00:24:15] Speaker 19: to be honest with you. I think that what shook us out last week was in fact the sell-off in JGB yields. We did see a pretty dramatic sell-off. Yes, treasuries outperformed JGBs in the sell-off, but for the most part, that was the only catalyst. There are other dynamics that we're missing in the bigger equation, right? It's the fact that the Fed has been buying a lot of treasury bills. There's been a lot more issuance in the very front end of the year curve. And then in the long end, coupon issuances are expected to remain stable for the remainder of the year. So you're looking at a very somewhat stable fiscal situation from a coupon issuance perspective because a lot of the issuance is coming in bills. And that's keeping a lid on term premia in the U.S. and 10-year yields,
[00:24:59] Speaker 7: as a result of that, I think are somewhat range bound. The history, Sivadra, of Sikjen is to really have a pulse on what the bet is on global Wall Street. Is there a bet on this meeting right now?
[00:25:12] Speaker 19: Not really. I think that the expectation is very consensus that the Fed is probably going to keep policy on hold. And if anything, the market seems to be continuing to push back on the timing of the next easing. We're almost have no cuts priced in until June of this year. And there's just a lot of uncertainty. And really, you know, in some respects, it feels like the Fed's job is actually quite easy because you're looking at a pretty strong growth trajectory. We know somewhat where inflation is. The markets are extremely confused in figuring out what the Fed is going to do, as well as navigating a lot of the uncertainty. And it feels especially that the bond market feels like it's a door caught in the headlights, if you will, not knowing where to go from here.
[00:25:57] Speaker 7: Right. Have we priced in a new chairman?
[00:26:02] Speaker 19: No, because we have no information. I mean, it seems to be a moving target. We've been discussing this for a better part of the last six months, and we still don't know who the next Fed chair is going to be. And there's a good chance that we don't get any clarity by the end of the month, which is kind of what was my at least deadline for when we would get an announcement. And it looks like it could drag on well into maybe even, you know, closer to May when Fed chair Powell's term ends. So this uncertainty is definitely here to stay.
[00:26:29] Speaker 5: I think the senator from North Carolina, TK, has given us a decent steer on just how long this will take. He spoke to us in the last week, and he's communicating pretty clearly that it's about the process and not the man for him. It doesn't matter who they nominate. Until we wrap up this mess with the DOJ at the Federal Reserve, he's not going to even entertain confirming, confirming whoever they
[00:26:48] Speaker 7: nominate down at the White House. I'll go with that. And I'll also go with the idea just here, are we going to have a shutdown on Friday? I mean, I have a different script on Monday? My goodness,
[00:26:58] Speaker 5: let's hope not. I don't think any of us want to go through that again. So let's talk about the data, the substance, these conversations about all these other things. There's a reason we're not talking about rate cuts today. And one of the reasons is the labor market data of the last month or so, a pickup in payrolls, a decline in unemployment. How much weight would you put on the recent jobs data?
[00:27:18] Speaker 19: It's a very important indicator. Again, the data has been somewhat muddy. But if you look at the initial jobless claims, you know, coming into the year, we kind of discounted the very, very low claims numbers, saying that it was seasonal. But beyond the normal seasonality, claims have been very, very low. And you're looking at a job market that seems to be somewhat rebounding, if you will. Yes, for the most part, if you look at the unemployment rate, it's been kind of trending lower. The labor market is extraordinarily tight. So to me, it feels like with three preemptive rate cuts last year, it feels like the job market has not only stabilized, but it's also showing signs of improvement.
[00:27:57] Speaker 7: That's an important insight that there's three already done. It's got to be, what, 12 seconds into the press conference? He points that out.
[00:28:04] Speaker 5: I think it's probably right at the top, maybe, Tom. Right at the top. So Badra, thank you. So Badra Jappa, alongside Kathy Jones, the decision about three minutes away. Torsten, are you confident we've seen the last rate cut from Chairman Powell?
[00:28:15] Speaker 8: Well, at least at the moment, it's very clear that the data does not justify rate cuts. So from that perspective, they can certainly go out and explain very clearly. We still have inflation that's too high. We have a labor market that's still okay. And let's not forget that average hourly earnings in the latest trend actually went up. And we're beginning to see some of the leading indicators from the Fed for wage growth actually beginning to move higher. And if at the same time restrict immigration, as dramatically has been done over the last 12 months, you should not be surprised if wage growth does begin to move a little bit higher over the next several months. This sounds like an extended
[00:28:44] Speaker 5: pause. So let me ask you this. The next move after that, a cut or a hike? Well, I do still think that
[00:28:51] Speaker 8: we are at the bottom of the Nike swoosh and therefore growth getting better becomes a discussion around, well, is growth going to get so good that we will begin to see inflation move higher? At this point, I think that there are just so many headwinds to begin to talk about rate hikes. So they will be very, very hesitant to do that. He will certainly not be entertaining that idea today. But you think maybe ultimately that there could be a hike? Well, because the fiscal policy, remember the CBO says that if one big bill of a bill will lift GDP by 0.9%, GDP is normally two. So that means that roughly half of GDP growth this year is coming from fiscal expansion alone, while we at the same time have the AI and data center boom in the background. There are some very good stories and reasons to believe that we could begin to see growth accelerate as we go through this year. And that could, by the middle of the year, get to a situation where they will have to begin to talk about rate hikes.
[00:29:32] Speaker 5: At Austin Slott, can you imagine the new Fed chair going onto the committee, nominated by this White House, entertaining a conversation at the end of the year about interest rate hikes?
[00:29:41] Speaker 8: Well, that's why that is such a difficult thing, because that person has to go in together with the other voting members. There are 12 voting members in total. This is just one vote. And you need to convince the others and the Fed staff of what you think about is the inflation outlook. And therefore, that will be definitely data dependent and data driven. We need to see inflation go up, and then we'll begin to have discussions about temporary, transitory. What is the reason why inflation continues to be so sticky, which is what the consensus continues to expect.
[00:30:05] Speaker 5: Just imagine the drama down at the nation's capital in Washington DC, if any of that materializes. Torsten Slott of Apollo is going to stick with us. The decision is about 45 seconds away. The equity market is just off all-time highs on the S&P 500. So far this year, we have had tremendous outperformance on the Russell. Small caps underperforming this afternoon. The outperformance from big tech, the NASDAQ up by four tenths of one percent. The attention turns to the NASDAQ a little bit later on this afternoon when we get earnings from Microsoft and earnings from Meta. The attention at the moment very much on the Federal Reserve. In the bond market, two-year bond yields anchored around 3.50 to 3.60. 3.58 yields up by not even a basis point. On tens at 4.25.32, up a single basis point. As we kept saying, the drama, the fireworks and headlines have been in the FX market with a dollar trading very close to multi-year lows. The Fed decision seconds away unchanged is the expectation.
[00:30:55] Speaker 20: With the call, his mind the kick. Well, pretty much as expected, John, no change in rates and the Fed leaves open the option of cutting rates in the future. Stephen Myron and Chris Waller dissent in favor of a rate cut. Michelle Bowman does not. Waller's dissent, of course, could be read as an effort to retain his place as a finalist to replace Jay Powell later this year. The statement keeps the line about considering the extent and timing of additional adjustments to the target range, suggesting more rate cuts are possible. There's no hint, however, of what that would lead them to do that or when. The economic assessment is very short. And relative to recent states, slightly positive. Available indicators suggest that economic activity has been expanding at a solid pace, it says. Job gains have remained low and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated. The officials say uncertainty about the economic outlook remains elevated, but they don't emphasize jobs as they have the last three statements or inflation as the major concern. The committee is attentive to the risks to both sides of its dual mandate, the statement says. The open market desk at the New York Fed is again told to maintain an ample level of reserves by buying treasury bills or, if necessary, maturities of up to three years or less. It's all about as plain vanilla as you can get, which shifts the focus, of course, to Chairman Powell's news conference at the bottom of the hour. What does he say about the future of interest rates? And what does he say about his future as a member of the Fed? Stay tuned. Mike McKee,
[00:32:38] Speaker 5: we will stay tuned. The news conference about 28 minutes away. You run into that. Mike McKee there. World class, as always, a Fed decision unchanged. The vote, interesting, 10 to 2 to hold rates steady. The two, Governor Myron and Governor Waller. TK, is it unfair to describe the Governor Waller dissent as an
[00:32:56] Speaker 7: audition to take the top job at the Federal Reserve? 1991 is classic paper on game theory. I just think we saw a little Waller game theory going on to say the least. I don't have a strong opinion on it, but definitely that's a setup for the president to make a Waller decision. This has been an individual, Torsten,
[00:33:14] Speaker 5: who has provided thought leadership on this committee, effective thought leadership now for a number of years. That dissent will be described by many in this market as an audition for the top job at the
[00:33:24] Speaker 8: Federal Reserve. Is that unfair? I think it is a bit unfair. I mean, Chris is very, very steady and stable and has had his whole career as a PSD economist doing research, going after the data, being data dependent. So I do view this mainly as a sign that he actually is worried and his speeches have also given very clear indication of this. He is actually truly worried about that the labor market might be signaling that things are about to get worse. So I think it's a little bit unfair to put him into that category because I do think that it's very important that he is telling us that he does believe that
[00:33:53] Speaker 5: rates should have been cut today. Is that worry about the jobs market justified by the data you're looking at?
[00:33:58] Speaker 8: Well, that's the discussion. I happen to have the view that this is all about the labor supply being much lower. Immigration used to be three million a year. Now it's about 400,000 from the CBO. So if labor supply is lower, you should also expect job growth to be lower. Other people, including Chris, put more weight on labor demand. So that's the debate at the moment. Yes, there has been very little hiring, very little firing, suggesting that labor demand is indeed also weak. So this is the very important debate. And of course, only the data over the next several months will tell whether this dissent was actually a good idea or not.
[00:34:28] Speaker 7: Jan, for the press conference and for Vice Chairman Clarida, Fed omits language on downside risks to employment having risen. Let's have a chat with some Amazon people this morning. Let's talk to UBS this morning. The mail I get, the mail you get. People think fancy guys like Torsten Slack are nuts when they talk about a fully employed America.
[00:34:47] Speaker 5: I don't want to overdo the data that comes from the conference board, because consumers confidence all over the place right now is skewed by a whole bunch of things, including politics. But attitudes to the labor market. When people turn around to you, Torsten, they say right now it's getting harder to get a job. Jobs are not plentiful. You have to take notice, don't you?
[00:35:02] Speaker 8: Absolutely. It is absolutely the case that the labor market data has become slower in terms of job growth. But what is really critical here to remember is that if you have much fewer immigrants going from three million to 400,000 a year, of course, that's also going to create the growth. That's a lot lower. That used to be 200,000 a year. Now the Fed says it's about 30,000. So the closer you get to zero, of course, the more this will also begin to have more worries among people. Whether can I find a job? Can I not find a job? And those worries, of course, and sentiment are exactly showing up that in particular, the lower leg of the K continues to be under significant
[00:35:36] Speaker 5: distress. The Federal Reserve keeping rates unchanged. If you are just tuning in, as expected, equities on the S&P 500, just a little bit lower, just off all-time highs on the S&P 500. Two dissents looking for a 25 basis point reduction, one from Governor Myron, another from Governor Waller. Joining us now, a man who knows a little something about how this committee makes decisions, the former Fed Vice Chair, Richard Clarida. Rich, welcome to the program, sir. What do you make of this decision and what are you looking for from the news conference in 25
[00:36:03] Speaker 21: minutes' time? You know, it's as expected, pretty minimal changes to the statement. If anything, as you mentioned, though, changing in the wording about the labor market. I thought it was a close call going in whether or not we would see Governor Waller or Vice Chair Bowman dissent. And in the end, we did get the dissent from Chris Waller. I agree with Torsten, who was on earlier. You know, Chris is a good economist. He's been consistent and had a good call on the labor market and inflation. And he's made the case in many speeches that there is a case to get rates down to neutral. So I take him at his word on that. In terms of the press conference, obviously no SEP projections or the like. And I think the reporters will be pressing the chair on what message they should take away from from this in terms of the remainder of the year. When you look at the politics here, I'm
[00:36:55] Speaker 7: hesitant to say Chairman Clarida, but is this a moment where the president goes outside the chosen four
[00:37:00] Speaker 21: candidates? You know, there has been the speculation door number five. There was the reporting of this morning. You know, I know each of the candidates. I think any of them would be a good choice. They bring strengths to the job. But there are a lot of moving parts when you're Fed chair. And so it'll be interesting to see who they finally select. You and I remember the day where Phil Graham went after
[00:37:24] Speaker 7: Alan Greenspan on foreign exchange. Richard Clare, is it appropriate that a Fed chairman speak of dollar dynamics, particularly the whipsaw of president weak dollar and secretary of treasury
[00:37:36] Speaker 21: strong dollar? Great question as usual, Tom. You know, never say never, but both as a policy maker and as a student of policy making, the Fed tries to stay out of any and all discussions about exchange rates. And I would expect Jay Powell today, if he's asked that question, to do the
[00:37:54] Speaker 8: to do the to do the same. So, Rich, when you think about yield curve dynamics, I mean, what is your view on what the yield curve will do? The consensus has the view that it will steepen. Is that also your view? Or do you think front end rates will stay stable and long rates will also stay stable? Or how
[00:38:09] Speaker 21: do you think about the curve at the moment? Yeah. Now, hi, Torsten. You know, what's been remarkable is really since either going back to the last hike, which was all the way back in 23 or the first cut in 2024. The 10 year treasury has been in a range from roughly four and three quarters to three and three quarters. A lot's happened in that intervening period. That importantly reflects much higher real rates than we had pre pandemic. So you have seen a shift up in the curve relative to pre pandemic. And yes, would expect the curve to continue to steepen over time as 10 years stay in that range and as front
[00:38:47] Speaker 5: in rates come down under the new chair. Richard, you identify a range impressively stable so far for you and the team at PIMCO. Rich, what's behind? What's the biggest pillar of that stability that we've
[00:38:58] Speaker 21: seen over the past few months at the long end of the curve? Well, I think it reflects the new dynamics, both because potentially a faster productivity growth and and fiscal concerns. It's appropriate that longer dated real yields are higher than they were before. I think that's an important fact of life. I mean, the real debate and the real issue is, you know, within the Fed and in the markets is, you know, where's the neutral rate? Where do front end rates end up? And we still think that neutral for the funds rate is somewhere down around three percent. But obviously that's going to depend on where we are in the
[00:39:36] Speaker 8: cycle as well. And this may be an unfair question, Rich, but I mean, do you think an incoming Fed chair is going to make dramatic changes to the Fed staff in terms of who is head of which departments? Or how do you think the incoming chair might think about things if he or she doesn't think that it's likely that interest rates are going to be coming down because of persuading the committee?
[00:39:57] Speaker 21: You know, I'm not I'm not sure about that. It is important just for the public to know that that the board staff does report to the chair. You know, during my time there, Chair Powell asked me to get very much involved with the staff and I learned a lot from them. But it's I think there typically have been and always will be changes in staff. People get promoted. People moved on. And I should say, during my time at the Fed, the senior staff I worked with was incredibly capable. So I don't think there
[00:40:30] Speaker 7: will be any issues there. Torsten Slack, I think it's so important that we describe the academics of Richard Clarida. All that he did with this fancy thing, dynamic stochastic general equilibrium theory and monetary policy. John mentioned earlier, do we know the reaction functions? Do you have an operative theory from the world of Richard Clarida now that's operational? Well, Rich is world famous for
[00:40:52] Speaker 8: the credit multiplier and the work he did with Bernanke. And of course, what credit markets have been doing and what credit markets are doing is often very critical, of course, for the economy. Because if credit conditions begin to tighten, the economy has a problem. If credit conditions begin to loosen, of course, the economy could also have a problem, namely that it just becomes too easy money,
[00:41:09] Speaker 7: including in credit markets. And John, conversation after conversation, the assumption is credit markets are going to loosen because we have maybe it's Biden like stimulus. I believe the next six months
[00:41:18] Speaker 5: we're full bore ahead. The credit spreads are very tight and now the dollar's weakening. And when you think about the dollar's influence on financial conditions more broadly, Torsten, what is the contribution that comes through the FX channel? Well, what I think is very important to remember is
[00:41:30] Speaker 8: that foreigners come to the US for two reasons. They come to cut coupons in fixed income because yield levels are higher here and they come to get exposure to AI. So for any discussion for talks about, well, with the dollar begin to go down, you need to come with a view that either AI is going to roll lower or interest rates are going to be a lot lower. So as long as you can cut coupons and get much higher returns in US assets, you will still have foreigners abroad in Europe, Japan, Canada, Australia who come to the US to buy US financial assets because they simply do offer higher returns than what you get in most other countries. Foreign holdings of Treasuries at the end of last year,
[00:42:02] Speaker 5: close to the end of last year, record highs. People hardly talk about that, do they? Well,
[00:42:06] Speaker 8: and if you go back and look at the tick data for net foreign purchases of US assets, you saw that in April of last year during Liberation Day, things were absolutely chaotic. It was indeed the case that the rest of the world was sell America. But since April, for the data we now have from May up until November, it was very, very strong inflow of data into rates, in particular credit, and also, of course, into
[00:42:26] Speaker 5: equities. If you are just tuning in, welcome to the program. About 10 minutes ago, the Federal Reserve leading interest rates unchanged. Two votes for a 25 basis point reduction from Governor Waller and from Governor Myron, a news conference with Chairman Powell in about 20 minutes time. We've got the former Fed Vice Chair Richard Clowder standing by just for one more question. Richard, I want to come to you on this, an important topic, because the chairman will be asked about this in the news conference. I have no doubt of that. A more confrontational approach, a more assertive approach from the chairman a few weekends ago towards the White House. Richard, what do you think prompted that? How much internal
[00:42:57] Speaker 21: debate was there about it? You know, I'm not sure. I guess we'll have to wait for Jay Powell's memoir to to find out. I just infer that the chair made the decision. He'd been, you know, he had been quiet and had really not weighed in in the past. And I think he just made a decision that he he wanted it to be known that that he felt that the Fed needed to focus on independence and focus on making the judgments on monetary policy. Do you think that's made it harder? Any color beyond that, we'll have to wait
[00:43:29] Speaker 5: for the memoir. Rich, do you think it's made it harder to focus on monetary policy, though?
[00:43:34] Speaker 21: I really don't think so. In light of all the things that are going on, I think it was a very clear, a very clear indication that for the remainder of his term as chair, you know, that will be the focus.
[00:43:48] Speaker 5: Richard Clowder, thank you, sir. As always, the former Fed Vice Chair, Rich Clowder, we have no doubt the chairman will be asked about that issue in about 20 minutes time. Joining us now to extend the conversation, Bob Michael of J.P. Morgan Asset Management. Bob, you've always got your own questions, buddy. What do you want to hear from the chairman in the
[00:44:04] Speaker 16: next hour? Well, the question he's not going to answer is does he intend to stay on if after his chair expires? But I think the one to ask is what does he see in the labor market that's particularly wearing to him? And is the Fed undergoing studies about what the broader impact of AI will be across the economy?
[00:44:28] Speaker 7: Bob Michael, you look at the key question that you mentioned is labor. We mentioned this earlier off Orszag and Posen recently. Does your team at J.P. Morgan see any form of wage dynamic that indicates
[00:44:42] Speaker 16: inflation? Not so much right now. I think this low higher, low fire has really dampened wage gains quite a bit. We'll see what happens in the first half of the year. Certainly expectations are pretty good for the economy and corporate spending. Maybe that will lead to higher wages. But right now you're not
[00:45:03] Speaker 7: seeing evidence of that. I really can't emphasize enough folks that phrase there to see into the middle of the year. Then, Bob Michael, with that, with an interest rate strategy and given all the upset at the Fed, how far out is the Bob Michael vision at J.P. Morgan? Can you get out to Q3 or dare I say model out a fixed income portfolio to 2027? You can and you have to. You can't invest a lot of assets
[00:45:30] Speaker 16: without having some view on the short term, the medium term and the longer term. Right now, things look pretty good. On Monday, I said that the yield curve looked about as perfectly priced as you could have it. So does the bond market. It seems to incorporate reasonably good economic activity this year. It seems to incorporate what we think could be disinflationary forces coming from both the headwinds of tariffs on spending and also the impact of AI. It's sort of an ideal market for bonds, including credit.
[00:46:06] Speaker 8: Well, and to the issue about AI, given AI is so prominent in the equity market and now AI is also becoming a bigger weight in the public IG index. And by the way, AI is also hugely in venture capital, two thirds of venture capital is AI. How do you think about the construction of portfolios at the moment when you suddenly have, when you look holistically at asset allocation, one factor,
[00:46:25] Speaker 16: namely AI, that is everywhere? Well, we've seen a lot of sectors in the past access the markets for a lot of funding. And the lesson from that is to wait until the supply starts to weigh on prices. And that's your opportunity to go in. I think what we do understand is there's an enormous need of capital because there's an enormous productive use for it to build the infrastructure that's going to power everything. What we do see at JPMorgan Chase is every line of business is using AI and how it operates. And it is creating a lot of efficiencies. It allows us to scale very, very efficiently. So it's not going away. It only seems to be accelerating. Yeah, Bob, I want to build on this. I think it's really important.
[00:47:14] Speaker 5: And I say this a little tongue in cheek, but ultimately a big factor behind the GDP growth for the last 12 months is the capex spend of a handful of companies. Is that becoming the more important macro indicator, never mind payrolls, is what happens after the close today from Meta, Microsoft and what we hear from
[00:47:28] Speaker 16: the big tech players over the next week? I think so, because they're not only telling us how their businesses look, they're telling us how every other business looks and how every other business is thinking about AI. And are they willing to invest more there? I think we're going to find the answer is yes, that everyone's over the hump. They see this is real. They've lagged a little bit. Why shouldn't they? They were unsure about the impact of tariffs. They were unsure how AI would play out. Now that seems to be in the rearview mirror. I think you are going to see pretty good earnings and pretty good downrange
[00:48:07] Speaker 5: forecasts. Torsten, this is one of the great dilemmas, I think, for monetary policy makers, officials worldwide right now. The divide between GDP and payrolls growth. GDP is fantastic. Payrolls growth is super subdued and you can point to supply side factors like immigration. That's a factor, sure. But the character of GDP is becoming less and less labor intensive based on what we've seen over the last 12 months. Absolutely. And a very important point when we talk about the Fed is that
[00:48:30] Speaker 8: that also is because we simply have that the forces that are driving GDP are actually not very interest rate sensitive because most of the forces that are driving the boom in AI and the energy build out have been coming because of equity valuations being so high. Now there's more in the change in the capital structure towards also more debt issuance. But for the last several years, no matter what the Fed funds rate did, we had a really strong boom in AI and that was driving the economy forward and continues to drive the economy forward because this strength is coming from sources that are much less interest rate sensitive than traditional components of GDP. Let's get a
[00:49:03] Speaker 7: source on this. Torsten Slock this morning. It was good to see you up before 9:00 AM, Torsten. And this is his daily note, the Daily Spark. Bob Michael quantifying the productivity gains from AI. I would say this JP Morgan with what is it? It's like Walmart, two million employees in the US. You people have more knowledge about the new use of AI. Help Dr. Slock out. How are our productivity gains from AI?
[00:49:31] Speaker 16: Well, the aspiration is that you're growing and you can do a lot more with the same amount of resource. So that's the ambition and the aspiration. We're still early into it. We'll see what the payback is down the road.
[00:49:47] Speaker 7: I mean, look at this Torsten. Please expand on this productivity. And I guess it comes down to Solo and this strange thing, total factor productivity, which is basically a made up pixie dust of that, like John, you mentioned earlier, that American spirit. What does our total factor American spirit look
[00:50:05] Speaker 8: like right now? Absolutely. GDP growth can come from three sources, capital, labor and productivity. And the key issue is if productivity is strong, that can more than dominate the other forces of growth, especially when labor is now contributing less because immigration is being restricted. So that means that the requirements coming from total factor productivity or productivity are really significant because that needs to deliver a lot of growth now that we have less growth coming from
[00:50:27] Speaker 5: the labor side. This is why it's hard to sell America. So many of these reasons are just a long list of things as to why it's hard to sell America. Bob, the headlines of the last week or so, not just the last week, but the last 12 months. Do you push back against them as well, Bob?
[00:50:41] Speaker 16: Yeah, they're total hogwash. We invest money for loads of different plans around the world. This time last year into March, April of last year, maybe through the summer, there was some concern. There were plans that were looking at diversifying. We saw very little of it. We're not seeing any of that now. I think there's a realization that the breadth, the depth, the size of the markets in the US make it the best place to exercise your fiduciary duty. And that's what they're seeing. Yeah. Is there some currency hedging going on on the side? A little bit. But is there a wholesale sell America assets? Absolutely not. If it's happening, we're not seeing it. And we pretty much see everything.
[00:51:24] Speaker 7: You know, Bob, I'm thinking of University of Pennsylvania. And you know, you're in Latin class at Pennsylvania, where you've got straight A's. And you know, you look at hogwash as Nougue or Fertilla or in Epsia. I'm butchering the pronunciation here. But stay with me on this, Bob. Is there hogwash among the administration? Bob Michael, you're a bond guy. I want you to help me with foreign exchange in Bruce Kasman's world. I got one day, it's a weak dollar policy. I got the next day, a strong dollar policy. It sounds like it's time for Secretary Diamond.
[00:51:58] Speaker 16: I think he's doing a great job where he is and I hope he stays there.
[00:52:02] Speaker 5: What a way to end an interview. Bob, thank you, sir. Bob Michael of JPMorgan Asset Management staying out of trouble. Hogwash. Hogwash. That's what he thinks of those headlines.
[00:52:12] Speaker 7: That's brilliant. And you hear it in your wonderful morning note as well. People are so frustrated by the spin that they're getting, given the cacophony of our American politics and all.
[00:52:24] Speaker 5: You know, a long time ago, Tom, at the president's first term, Mark Dow wrote a great piece on divorcing your political bias from your market analysis. And I think there are reasons to be worried about diversifying away from the dollar. And I'm not going to colour everyone who has that opinion with the same brush. But I will say this. I think some of this has been driven by people who just don't like the policy out of the White House, Torsten. And dare I say they have a bit of TDS. I do think some of that is colouring some of the analysis that's coming from not just Wall Street, but from research desks around the world. Absolutely. And you go around Europe and you
[00:52:55] Speaker 8: talk to a lot of people who are, of course, saying, oh, my God, what's going on? This is confusing. This is chaotic institutions, all these discussions. And then you ask at the end of the beer, well, how are you even investing your money? Are we still buying dollar assets? Because dollar assets still offer great returns, again, higher levels of yields. Also in AI exposure. You don't get much AI exposure if you invest only in European stocks. You don't get much AI exposure in Japan, Canada and Australia. So the U.S. offers things that are simply not being offered by the rest of the
[00:53:21] Speaker 7: world. I mean, quickly, John, you spent 12 hours on the set in London the day of Brexit here. We're popping 138 on sterling. Does your life change with the 143 sterling? You're still convinced that I get paid in sterling. I hope so. I mean, I'm looking at the chart here and we're right up against the range of
[00:53:36] Speaker 5: given the recent price action. I wish I was funded in sterling. But given this is my 10th year over here, I'm still funded in dollars. Your review is over. Okay. Thank you, sir. Thank you, boss. Let's get to Diane Swank of KPMG. She joins us now. This news conference starts in about seven or eight minutes time. Diane, welcome to the program. What are your questions for Chairman Powell
[00:53:54] Speaker 22: when this news conference starts? Well, I think one of the questions that hasn't been asked of the Fed is we've heard the Fed talk about curbs on immigration and its effect on the break evens on unemployment and the labor market. More broadly, we have not heard anything about the pockets of labor shortages that are beginning to creep up. The quit rate in leisure and hospitality absolutely soared in November and over the summer. And that is because of curbs in immigration. We know that foreign-born and native-born workers in some professions, most notably in the service sector, are complements, not substitutes for each other. And that's something that we're watching closely as well. And even with the productivity growth, we've seen the AI boom that's going on is currently, with that productivity growth, not derailed inflation. And in fact, it is adding to inflation on the margin for insalient prices for many consumers, notably electricity costs. And then you have this cold spell on top of it that added to natural gas costs. But all of that is still pushing up prices rather than down when we're going to get a lot of fiscal stimulus in the beginning of the year as well.
[00:55:04] Speaker 7: Dan, your work recently has been absolutely brilliant about the fabric of employed America. What is the one thing, Wall Street consensus, the three zip codes in Manhattan, what's the one thing they get wrong about labor America?
[00:55:20] Speaker 22: Well, first of all, the overall unemployment rate is not really a good summary statistic right now. We know, at the end of the year, those having to accept part-time, instead of full-time, hit an all-time high. We're now at the place where, in the new millennium, for the last 25 years, we have seen, instead of multiple job holders falling as an expansion goes longer, they're now rising. This is part of that labor share of income being eroded, the inequalities we're seeing out there, and the frozen state of the labor market where those who have a job are clinging on, and those who do not have a job are left wanting. I think it's very important to understand when you think about things like the U-6 measure of unemployment, which gets into that sort of under the hood. That's running around 8.4%, 2.2% above where it was in 2019, and I think those are important issues.
[00:56:17] Speaker 7: Diane, quickly here, the model is that the tech bro are taking over America. We've talked about American exceptionalism, but so many people just want to turn around that ugly labor share vector. How would you do that?
[00:56:31] Speaker 22: Diane: Well, it's a difficult thing to do, and certainly with the way that the C-suite and the gap between employees and the C-suite see AI and how it's affecting productivity growth is another issue. We could literally see a payroll recession as the economy booms in 2026, and that is something that I never expected to see out there. I think it's really important to remember, though, that we still have not ameliorated inflation. We still have inflation, and it's much like compounding stock returns that has driven that wedge of wealth higher. Compounding inflation over the last five years has left prices out of reach for too many. At the same time, the labor market is frozen, and that is why you're seeing the consumer attitude surveys we are.
[00:57:22] Speaker 8: And what are the consequences of the K-shaped situation for the consumer? From a broad macro perspective, the weekly, the monthly retail sales data is still reasonably okay. Does this matter later this year, or how do you think about the K-shaped situation? Is it something that the Fed should take into account, or why does this matter from a macro perspective?
[00:57:43] Speaker 22: It's really important from a macro perspective because I think it's providing an underlying floor under inflation, and that's what I worry about could happen, that with fiscal stimulus on top of it to temporarily disperse economic gains at the beginning of the year as we see those tax refunds come in. That is important because the sugar high could be very short-lived if it only makes inflation stick. And as I said, inflation is already compounded to the place where most Americans feel that things are out of reach, and that underscores and undercuts the Fed's inflation-fighting credibility.
[00:58:22] Speaker 5: Dan, I think we have to say, and I'm sure you share this sentiment, if any of us gets a tax refund, it's paying the energy bill over the last month. Dan, thank you. Dan Swank, waiting in on the Federal Reserve and a backdrop for the economy. I think we just take a beat with the two and a half minutes we have left. What Dan Swank just said there, that we could have an economic boom and a payrolls recession. Now, I know this sounds a little bit philosophical, but what on earth is a boom if we have a payrolls recession?
[00:58:47] Speaker 7: I'm going to go to Torsten. I think your question, John, is brilliant. What she said was remarkable. I don't think I've ever heard that ever, ever. The bottom line is we have a president who is prosecuting a neo-mercantilist strategy. You were weaned on this ages and ages, great-grandpa-slock a million years ago as well. How do we extract ourselves from a neo-mercantilist strategy to get growth back in for the rest of the public not
[00:59:16] Speaker 8: benefiting from this tech boom? Well, the challenge, of course, is that the AI boom has been the main driver for so long. But if you implement policies, of course, that ultimately says that we want fewer goods and fewer peoples to come into the country, the risk is that that, of course, does come deglobalization with a risk of higher inflation, risk of higher inflation in prices, risk of higher inflation in wages. So that's why if we are, this is not only the US, this is also Europe, this is also across the OECD area, you are seeing more and more segmentation of the global economy. Of course, results in now everything needs to be produced domestically, homeshoring, unshoring, reshoring, all that, of course, results for fixed income investors in more upside risk to inflation.
[00:59:54] Speaker 7: Can you just describe the 1930s in the United Kingdom?
[00:59:56] Speaker 5: Tom, the biggest risk of the GDP growth we've discussed over the last 12 months are the populist remedies the White House might introduce to try and correct the case. One of those issues we've talked about for the last few months, the last month or so, has been the introduction of a cap on interest rates on credit cards. That could have the complete opposite intended effect of chilling financial conditions, of tightening credit availability. And they're the kind of things at the moment, this administration, TK, they're the kind of things
[01:00:22] Speaker 7: they're thinking about. I think the phrase is grasping at straws. I don't hear much policy or science behind it. Maybe we'll hear that in these comments.
[01:00:31] Speaker 5: Torsten, this just in from Hugh Van Steenis of Oliver Wyman. I'm sure you know him. He wants us to start a podcast. I wants to know if Mark Rowan will give up Torsten once a week so we can do a little podcast together. He liked the last hour so much. The first guest could be Hugh Van Steenis. Do you think Mark and Jim will get on board with that? Can we have you once a week? Can you write the check if we've got a budget in the surveillance budget? Yeah, I can work it out. We'll try and make that happen. Torsten, this was a pleasure. Thank you, sir. Thank you. Torsten Slock there of Apollo. This could be a snoozer over the next 60 minutes. The last 60 minutes has been anything but. Equities right now very close to all-time highs on the S&P 500. The S&P 500 negative by about two tenths of one percent. For the chairman of the Federal Reserve, let's take a listen down in Washington DC.
[01:01:10] Speaker 23: Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. The U.S. economy expanded at a solid pace last year and is coming into 2026 on a firm footing. While job gains have remained low, the unemployment rate has shown some signs of stabilization, and inflation remains somewhat elevated. In support of our goals, today the Federal Open Market Committee decided to leave our policy rate unchanged. Having lowered our policy rate by 75 basis points over the course of our previous three meetings, we see the current stance of monetary policy as appropriate to promote progress toward both our maximum employment and two percent inflation goals. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a solid pace. Consumer spending has been resilient, and business-fixed investment has continued to expand. In contrast, activity in the housing sector has remained weak. The temporary shutdown of the Federal Government likely weighed on economic activity last quarter, but these effects should be reversed as the reopening boosts growth this quarter. In the labor market, indicators suggest that conditions may be stabilizing after a period of gradual softening. The unemployment rate was 4.4 percent in December and has changed little in recent months. In the labor market, jobs have remained low. Total nonfarm payrolls declined at an average pace of 22,000 per month over the last three months. Excluding government employment, private payrolls rose at an average pace of 29,000 per month. A good part of the slowing in the pace of job growth over the past year 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 fact, the unemployment rate is expected to grow. Other indicators, including openings, layoffs, hiring, and nominal wage growth, show little change in recent months. Inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to our 2 percent longer-run goal. Estimates based on the Consumer Price Index indicate that total PCE prices rose 2.9 percent over the 12 months ending in December, and that excluding the volatile food and energy categories, core PCE prices rose 3.0 percent. These elevated readings largely reflect inflation in the goods sector, which has been boosted by the effects of tariffs. In contrast, disinflation appears to be continuing in the services sector. Near-term measures of inflation expectations have declined from last year's peaks, as reflected in both market and survey-based measures. Most measures of longer-term expectations remain consistent with our 2 percent inflation goal. 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 maintain the target range for the federal funds rate at three-and-a-half to three-and-three-quarters percent. Since last September, we have lowered our policy rate 75 basis points, or three-quarters of a percentage point, bringing it within a range of plausible estimates of neutral. This 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 tariff increases have passed through. We are 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. Monetary policy is not on a preset course, and we will make our decisions on a meeting-by-meeting basis. To conclude, the Fed has been assigned two goals for monetary policy: maximum employment and stable prices. and at the same time, we remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We at the Fed will continue to do our jobs with objectivity, integrity, and a deep commitment to serve the American people. Thank you. I look forward to your questions. Thank you.
[01:05:50] Speaker 24: Chris Rugeber at Associated Press. Thank you. I wanted to ask that you attended the Supreme Court hearing last week on the Lisa Cook case, and Treasury Secretary Scott Besson criticized that as political. Can you say why you attended and what you would say in response to the Secretary's criticism?
[01:06:16] Speaker 23: So let me start with I don't respond to comments by other officials, whoever they may be. It's just not appropriate to do that. I will tell you why I attended. I would say that that case is perhaps the most important legal case in the Fed's 113-year history, and as I thought about it, I thought it might be hard to explain why I didn't attend. In addition, Paul Volcker went to a Supreme Court case famously in, I guess, 1985 or so. So it's precedented, and I thought it was an appropriate thing, and I did it.
[01:06:52] Speaker 24: Great. And then just quickly follow on the job market. You mentioned last month that the household survey might be distorted, and you also mentioned the potential for over-counting jobs, which would suggest that we're still in a negative hiring pace. So do you see the drop in the unemployment rate as solid? And what's the basis for saying that things have stabilized? Thank you.
[01:07:21] Speaker 23: So, yeah, really two questions. One is, so we're getting through the distortions in the data from the shutdown. However big they were in November, they're smaller in December, so we're getting to a place where they're no longer material. They're still there, but it's a tweak here and there. The reason why we changed the statement, let me pull it out, was simply it used to say that judges that downside risks to employment rose in recent months. So we saw, you know, data coming in, which suggests some signs of stabilization. I wouldn't go too far with that, but some signs of stabilization. There are also some signs of continued cooling. And so we thought that was no longer an accurate description of the data. In addition, the outlook for economic activity has improved, clearly improved, since the last meeting, and that should matter for labor demand and for employment over time. So for those two reasons, we thought we would take that language out of the statement.
[01:08:29] Speaker 4: Nick Timberos, The Wall Street Journal. Chair Powell, you've generally avoided engaging with political controversies directly, and the video statement on January 11th was a departure. What made this different? And are you concerned it could draw the institution further into political debates?
[01:08:44] Speaker 23: So today, I'm simply going to refer you to the statement that I made on January 11th. I'm not going to expand on it or repeat it. So I'm just not going to – this is really about the press conference and the economy and what we did today, but – and some ancillary areas, but I'm not going to be getting into that. Can you say whether the Fed has responded to the subpoenas? I have nothing for you on that today.
[01:09:09] Speaker 20: Michael McKee from Bloomberg Radio TV. Have you made a decision on whether you would remain as a governor of the Federal Reserve? And if so, would you tell us what it is? And if not, when might we anticipate a decision?
[01:09:30] Speaker 23: No, and I really, once again, have nothing for you on that today – that either.
[01:09:36] Speaker 20: Michael McKee: Why would you want to leave at all under the circumstances?
[01:09:41] Speaker 23: Michael McKee: Again? I don't want to get into this. It's not something I'm – there's a time and place for these questions, but not something I'm going to be getting into today. Thank you.
[01:09:54] Speaker 25: Claire Jones: Thank you. I'm Claire Jones, Financial Times. Thanks a lot for taking my questions. In another one that might – you know – lead to a similar answer. Michael McKee: Give it a try. Michael McKee: We've seen quite big movements in the dollar over recent days. What do you think is driving the U.S. currency lower? And have you been at all concerned just by the extent of the volatility we've seen this week? Thank you.
[01:10:24] Speaker 23: Michael McKee: So, Claire, as you probably know, you know, we don't comment on the dollar. Really, the administration, especially the Treasury Department, has the job of oversight over the currency, and so – and exchange rates and all that. We don't comment on that. It's not our – not our role. So I have nothing for you.
[01:10:41] Speaker 25: But I mean, what's your view on the market movements? I mean, what do you think behind them? Is it asset managers diversifying? Is it?
[01:10:47] Speaker 23: Michael McKee: Yeah, I just don't – you know, we don't talk about the dollar. We don't talk about what moves it around. It's just – it's just not appropriate for us to do so. Really, the Treasury Department has that. It's their – their role, their bailiwick, and we stay off it. We do monetary policy and some other things, but we don't – we don't comment on the dollar. Sorry.
[01:11:10] Speaker 26: Hi, Chair Powell. Neil Irwin with Axios. Obviously, no SEP in this meeting, but in light of the slight firming up of the language around growth in the labor market and the statement, should we assume that the timeline for any further rate cuts is pushed back compared to what people might have thought in December?
[01:11:23] Speaker 23: CHAIR POWELL. Well, first of all, if you look at the incoming data since the last meeting, clear improvement in the outlook for growth. The data have come in and sentiment, the Beige Book, everything comes in suggesting that this year starts off on a solid footing for growth. Inflation performed about as expected, and as I mentioned, some of the labor market data came in suggesting, you know, evidence of stabilization. So it's overall a stronger forecast, really, if that's your question. I'm not sure I answered your question.
[01:12:00] Speaker 26: MR. But in terms of timing or pacing of any additional easing?
[01:12:04] Speaker 23: MR. So we haven't made – you know, what we'd say about this was that after this meeting, after the three recent rate cuts, we're well positioned to address the risks that we face on both sides of our dual mandate, and we'll continue to make our decisions meeting by meeting based on the incoming data the implications for – and the implications for – and the outlook and the balance of risks. Haven't made any decisions about future meetings, but, you know, the economy is growing at a solid pace. The unemployment rate has been broadly stable, and inflation remains somewhat elevated. So we'll be looking to our goal variables and letting the data light the way for us. MR. Steve.
[01:12:41] Speaker 27: Steve Leisman, CNBC. And sticking with questions you might answer, thank you. You had previously, I believe, described the current policy rate being at the higher end of neutral, and if you look at the longer-run – the SEP and the longer-run rate, 16 of 19 officials are actually below there on their long run. Is the Fed still in a process of bringing it down towards a middle range of neutral, and what would it take to get there?
[01:13:14] Speaker 23: MR. So the count I did was that four of the 19 were at or above that. Maybe I missed by one, but I thought it was four. And if you look at the dealer survey, it was 10 out of 58, where we're at or above. So you're right. It's – it's – it's the high – higher end of the range. What we say is it's – it's within the range of plausible estimates. This is – this is the higher end of that range. But it's in – so for some people, they think it's – it's neutral. I think, and many of my colleagues think, it's hard to look at the incoming data and say that policy is significantly restrictive at this time. It may be – it may be sort of loosely neutral, or it may be somewhat restrictive. You know, it's in the eye of the beholder, and, of course, no one knows with any precision. So – is that – if you had a follow-up?
[01:14:04] Speaker 27: I get what you're saying, but some officials have described the Fed being in a mode of bringing it down eventually over time. Are you still in that mode, or is this a place to hang out?
[01:14:16] Speaker 23: MR. Yeah, no, I – I would say, if you look at the SEP from – from December, you – most people had additional normalization. But at the same time, we've done a lot of the process of normalizing. A good piece of it is done with 75 basis points, and before that, 100. It's 175 basis points we've cut since we began cutting in September of 2024. So you've moved now to, you know, three-point – Fed funds is running just a little below 3.65 percent. So you've moved a good way, and we think we're well positioned here to watch how the economy reforms, look at the data. We're not making decisions about future meetings, but we – we do think we're well positioned after those three cuts to – to let the data speak to us. MS. I'm Merit.
[01:15:02] Speaker 28: MS. Thank you, Chair Powell. I'm Merit from Bloomberg News. MS. To what extent did the – did the committee discuss the possibility of cutting at this meeting or in March? And how are you all thinking about the conditions that would merit another rate cut? Is there a broad agreement on the – on the committee about what it would take?
[01:15:18] Speaker 23: MR. So there was broad support on the committee for holding today – broad, I would say, including among non-voters. So that's where that was. Of course, some people did want to cut and – and dissented, but committee pretty broadly for – for holding today. We're not trying to articulate a – you know, a test for what – for when to next cut or whether to cut at the next meeting. You know, what we're saying is we're well positioned as we make decisions meeting by meeting, looking at the incoming data, evolving outlook and all that. And, you know, we're in a position where, you know, we have to – we still have some tension between employment and inflation, but it's less than it was. I think that the upside risks to inflation and the downside risks to – risks have probably both diminished a bit. So, you know, we'll be looking at that. It's about how you weigh the risks to the two goals and – and how big those – and quantify them. And so there are different views on the committee. And, you know, we'll find our way forward as the data evolve.
[01:16:28] Speaker 29: Thank you. Thank you, Mr. Chairman. Edward Lawrence from Fox Business. Has the effects of tariffs already moved through the economy on prices?
[01:16:39] Speaker 23: A lot of it has. So, basically, there are many different estimates and – and they're all highly uncertain. But most of the overrun in goods prices is from tariffs. And that's actually good news, because if it weren't from tariffs, it might mean it's from demand. And, you know, that's a harder problem to solve. We do think tariffs are likely to move through and be a one-time price increase. So, most of the overshoot – if you were to take that out, you'd get – and you would – I mean, inflation – core PC inflation is running just a bit above 2 percent X the effects of tariffs on goods. And the other good news is if you look away from goods and look at services, you do see ongoing disinflation in all the categories of services. So that's a healthy development. So that's what's going on. The expectation is that we will see the effects of tariffs flowing through goods prices, peaking, and then starting to come down, assuming there are no new major tariff increases that are begun. And that's what we expect to see over the course of this year. If we see that – if we see that, that would be something that tells us that we can – we can loosen policy. Also, if we see something that suggests that the labor market is not stabilizing, that, in fact, it's – the downside risks reemerge or the data just get worse, we'd have to look at both of those. We have a two-sided mandate.
[01:18:04] Speaker 29: If I could – if President Trump does pick a new Fed chairman before May, what does that look like? How would you work with that person? And what does that transition period look like?
[01:18:12] Speaker 23: I don't have anything for you on that. I – you know, it's – that will depend on – on Congress's actions and things I – I can't speculate on. Howard.
[01:18:23] Speaker 30: Howard Schneider with Reuters. Thank you for taking our questions. Given the changes in the statement and all you've said so far, is it – is it fair to describe risks to your – to both sides of the Band-Aid as roughly balanced right now? And is the next move necessarily down?
[01:18:43] Speaker 23: I'd say that the – again, the upside risks to inflation and the downside risks to employment have diminished, but there's – they still exist. So there's still some tension between the mandates. Are they fully in balance? Hard to say. Hard to say. And, you know, we – again, we think our policy is in a good place. I've just discussed reasons why we might change our policy. And, you know, we'll just have to see how the data lead us.
[01:19:14] Speaker 30: I'm wondering – you – a minute ago, you said you felt expectations were consistent with your – with your mandate. The two in the 10-year break-evens have moved quite notably in the last couple of weeks, I believe. Is there any concern on that front?
[01:19:29] Speaker 23: I mean, the – I recently looked at all – all of the – both survey and market-based short-term inflation expectations have come way down. You know, they – they were in a good place at the beginning of last year. They spiked around Liberation Day, and now they've fully retraced in the last few months. So that's very comforting. And the longer-term inflation expectations have remained in places that are, you know, very consistent with 2 percent inflation over time. So expectations are – have been solid, and they reflect, you know, confidence in the return to 2 percent inflation.
[01:20:05] Speaker 17: Andrew.
[01:20:08] Speaker 31: I mean, apologies if this is a little bit repetitive, but in the past, you've said that the reason you cut rates was that the risk to the labor market was greater than the risk to the inflation side. Is that still true?
[01:20:21] Speaker 23: You know, we haven't made – you're right. We – we saw the labor market weakening, and we acted. And I think that was the appropriate thing to do. We have – you know, we will always act to address what we see as the economy moving away from our goals. Risks to both of the variables are a little less. I think that the upside risk to inflation, again, a little bit less, and the downside risk to employment, a little less. I just would say that. I'm not making a judgment about how, you know, one of them is more at risk than the other, just that the risks to both of them have – have diminished.
[01:21:01] Speaker 31: Okay. Thanks. BIS wrote a paper last summer which concluded that global investors were hedging their dollar exposures in ways that previously they – they hadn't because of policy uncertainty. Do you agree with BIS?
[01:21:14] Speaker 23: We really don't see much at all about – about that – that whole – that whole story. There's just not a lot of data that – that suggests that there's much to that. Thanks.
[01:21:23] Speaker 32: Anna. Anna Swanson with The New York Times. Can you talk more about what you would need to see in the labor market to conclude its time to resume easing? Do you need to see further deterioration in the labor market, or would it be enough for inflation to soften?
[01:21:40] Speaker 23: So we'll always be looking at both things. And so there could be combinations, infinite numbers of combinations that would cause us to want to move. Certainly, a weakening labor market would be an argument for loosening. But what's happening with inflation? If inflation were at the same time getting worse, you know, you'd just – you just have a very difficult situation there. So we'll be looking at both. Clearly, a weakening labor market calls for cutting. A stronger labor market says that the rates are in a good place. We'll have to be making
[01:22:09] Speaker 32: similar judgments, too, on inflation, though. And if inflation does pick back up and the labor market doesn't show further signs of deterioration, is there a chance that you could raise rates rather than simply remaining on hold? What would you need to see to consider hiking?
[01:22:22] Speaker 23: You know, we don't – we don't take things off the table, but it isn't anybody's base case right now – anybody's base case – that the next move will be a rate hike. But, you know, ultimately, we'll do – we'll do what we think is the right thing. But that's – that's not where people's expectations are right now.
[01:22:40] Speaker 33: Victoria Guido with Politico. I wanted to ask – you've talked in the past about concerns about the U.S. fiscal trajectory, and we've seen in the Japanese bond market a lot of turmoil recently, in part due to concerns over their fiscal and long-term economic outlook. So do you worry that the U.S. could at some point find itself in a similar situation to Japan, whether for fiscal or demographic reasons?
[01:23:05] Speaker 23: You know, over time, you've seen that U.S. rates have remained pretty – they haven't moved a lot, really, for a while, but they haven't moved a lot because of what's been happening in Japan. So it's more of an overtime thing. The U.S. federal budget deficit is, you know, uncontroversially on an unsustainable path. The level of debt is not unsustainable, it's very much sustainable, but the path is unsustainable. And the sooner we work on it, the better. But, you know, right now, we're running a very large deficit at, essentially, full employment. And so the fiscal picture needs to be addressed, and it's not really being addressed. So that's important. I'm not in any way connecting it to some sort of near-term market event, but ultimately, it's something we'll have to deal with. And, you know, in the end game, that's where you wind up is in some kind of a difficult thing. But that's not where we are. It's not what Japan is, either. But it's certainly not where we are right now.
[01:24:04] Speaker 33: AMY GOODMAN. Does it reduce the effect of your rate cuts, that longer-term rates have, overall, not really budged that much?
[01:24:11] Speaker 23: I wouldn't say that. You know, the thing is, I mean, technically, higher-longer-term rates means less accommodated financial conditions. But remember, many, many things move longer-term rates. It's not-and it's not mostly what happens on the short end. There can be effects of longer-term rates from our moving our policy around. But, you know, it's much more, you know, assessments of the fiscal path and fiscal policies and risks and things like that that move the 10-year around. You can look back at and find periods where we've been very actively moving the policy rate over the course of a year. And over the course of that year, the 10-year is exactly where it started. So it's not-there's not a tight link between, you know, 10-year rates and the overnight rate.
[01:25:01] Speaker 34: Elizabeth. Thanks so much. Elizabeth Schulze with ABC News. Republican Senator Tom Tillis, who sits on the Senate Banking Committee, said he will block any Fed nominee, including the chair, until this investigation into you is resolved. Do you support this move by the senator? And what conversations have you had with the senator?
[01:25:19] Speaker 23: I-I've got nothing for you on that.
[01:25:21] Speaker 34: More broadly, what would happen to American households if the Federal Reserve loses its ability to operate independent from politics?
[01:25:29] Speaker 23: So really, the point of independence is not to protect policy makers or anything like that. It just is that every advanced economy democracy in the world has come around to this common practice. It's just an institutional arrangement that is-that has served the people well. And that is to-to have a separation between-to not have direct elected official control over the setting of monetary policy. And the reason is that monetary policy can be used, you know, through an election cycle to-to affect the economy in a way that will be politically worthwhile. So this isn't-I'm not talking about the U.S. context. This is very advanced economy democracy of any size. So it's a-it's a good practice. It's pretty much everywhere among-among countries that look at all like the United States. And I think if you lose that, um, it's-first of all, it would be hard to restore the credibility of the institution if people lose their faith that we're-we're-we're making decisions, you know, only on the basis of our-of our assessment of what's best for-for everyone, for the-for the wide public, rather than trying to benefit one group or another. If-if you lose that, it's going to be hard to retain it. And we-we haven't lost it. I-I don't believe we will. I certainly hope we won't. But it's very important. And the reason it's important is that it's enabled central banks generally not to be perfect, but to serve the public
[01:26:56] Speaker 34: well. You're confident it can maintain that independence at this point?
[01:26:59] Speaker 23: Yes. I mean, I'm-I'm strongly committed to that and so are my colleagues.
[01:27:06] Speaker 19: Archie.
[01:27:10] Speaker 35: Archie Hall from The Economist. On that sort of stabilization of the labor market question, how much do you see the weakening we saw over the past six months a year as a kind of data mirage around immigration and the government shutdown and so on that's now resolved? Or how much have we seen a kind of real underlying firming up in the state of the labor market,
[01:27:27] Speaker 23: do you think? Well, part of it is, to your point, part of it just is that-that labor supply-growth in labor supply has come to essentially a halt from a fairly fast clip of growth over the last couple of years, driven by immigration. And then the halt being driven by a very sudden stop in immigration. So many outcomes were possible with that. You know, supply came way down. It turns out that demand for labor also came down a very similar amount, maybe just a little bit more, which is why the unemployment rate has gone up. So I don't know whether that's a coincidence or not, but that's-that's what's happened with-with that part. But if you look at other things like, for example, the-just to pick a point, but I think it's a little bit more, but I think there's a couple-the conference board's-measure of job availability that came out-I don't know, was it yesterday or today? But, you know, it shows-it's a survey showing that-that workers feel like job availability is-it's a very low reading. Just one reading, but it's an indication of softening. People-part-time for economic reasons, which is a category within the broader U6 category measure, has moved up significantly. So there are lots of-and I could go on and on-there are lots of little places that suggest that the labor market has softened. But part-but you're right, part of payroll job softening is that both the supply and demand for labor has-has come down-growth in those two have come down. So that-that makes it a difficult time to read the labor market, you know. So imagine they both came down a lot to the point where there is no job growth. Is that full employment? In a sense, it is. If demand and supply are in-are in balance, you know, that you could say that's full employment. At the same time, is it-do we really feel like that's-that's a maximum employment economy? You know, it's a challenging-it's very challenging and quite unusual situation. Thanks. And one more. On
[01:29:30] Speaker 35: growth and the kind of strong growth outlook, your strengthening growth outlook, you're now seeing, how much of that is the fiscal stimulus we're seeing from the beautiful bill, the tax cuts,
[01:29:37] Speaker 23: and all of that? So you're seeing it already. You don't have much of the fiscal-I think the outlook, you're right. It's financial conditions and it's fiscal policy for 26. But you've got strong consumption that's been happening before financial conditions have been supportive, but before the fiscal effects really are shown. So essentially, the economy has once again surprised us with its strength, not for the first time. You know, consumer spending, although it's, you know, it's uneven across income categories, but consumer spending overall numbers are good. And we're benefiting from the, you know, from the AI build-out of data centers. That's-that's another thing we're benefiting from. But economy overall growth is-growth is on a solid footing, it looks like. And it's not just those things, it's-it's just the consumers-the consumer is filling out, you know, surveys that sound really negative, and then spending. So there's been a disconnect for some time between downbeat surveys and, you know, reasonably good spending data.
[01:30:47] Speaker 36: Thanks, Chair Powell. Christine Romans from NBC News. You talked about how consumer spending is uneven. The President calls inflation defeated and solved. The FOMC says it's a somewhat elevated inflation. But you talked about those customer survey-or those consumer sentiment surveys and public opinion polls that show that most families say the cost of living is still issue, number one. What is the conversation around the table with your colleagues about how wealthier consumers seem to be driving so much of the economy? And why so many families still feel like they just can't make ends meet after five years of rising prices? What is that discussion like?
[01:31:26] Speaker 23: So, a couple things. One, there's something-something to it in-in that we know that higher income households that tend to own real estate and tend to own stocks, stocks, you know, securities, and those assets have been going up in value and, and, you know, increases in wealth do support spending over time. So, and that's-that's clearly a part of the story. We also know that for some time now, for, you know, a year or more, we've been hearing from retailers, for example, that serve lower income customers, whether it be food or the big box stores or anything. They're-they're saying the same thing, which is our consumers are looking to economize. They're-they're trading down from brands and they're buying less and it's changing their buying habits and that kind of thing. So we're seeing that. And that's-that's-that is a reality of what we're seeing. They're still consuming, but-but they're-they're feeling it in a different way. I would say more broadly on affordability. We, you know, we have a vast network through the reserve banks and also through the Board of Governors where we talk to small and large businesses and households. And so we do hear a lot about affordability and we take-we take that very seriously. And we take it to heart because, you know, our job is-one of our jobs is price stability. And so, you know, the-the best thing we can do for-for people who are feeling that squeeze is to keep inflation under control and, you know, frankly, to finish the job of getting inflation back down to 2%.
[01:32:56] Speaker 36: You mentioned the AI build out as being positive for economic growth this year. I wonder, as you look at the weakest year last year for job creation of a non-recession year since like 2003, 2003. Are you concerned about AI maybe supplanting more entry-level work and entry-level jobs? And how does that play into your-what you're watching about the labor market?
[01:33:17] Speaker 23: You know, so everyone, of course, is watching AI and the deployment and, you know, trying to understand exactly what's happening. And there's a wide range of possibilities. It's-it's hard to say. We're-and, of course, anyone who uses it is amazed at-at what it can accomplish, right? So, uh, every-every technological wave will-will eliminate some jobs and-and create other jobs. And it's always been the case, if you look back wave after wave after wave, there will be some disruption. But ultimately, technology, uh, increases productivity, which is the basis for rising wages. And it may not all happen immediately, but over time, it's what-it's what enables incomes to rise over time is rising productivity. So we'll-and we always ask, well, this-this is gonna be different, you know, uh, is-is it gonna be different? And we-we don't know. Um, and we may, in any case, see in the short-term, uh, jobs that are being eliminated by the capabilities of AI. We may see that. Um, we just don't know what the overall effect is gonna be. So how to think about it in-in terms-in macroeconomic terms, it's very hard. You know, we-we can look at the aggregate data. Uh, we can-we can analyze, for example, the-the-the-there is some connection, it appears, between the, um, low hiring rate for recent college grads, uh, and AI. But it's not the-the-the main or only driver. Um, you hear large companies, though, saying, many of them, saying that they either won't be hiring for some time, or that they're hiring less, or that they're laying people off. And they-they tend to refer to AI, uh, when they-when they-when they do that. So we're all watching and learning, and it could-could certainly have pretty significant effects on the economy, the workforce, and our society. Um, we don't really have the tools to address the concerns that may arise, but we have a lot of people who-who focus on analyzing it, and try to-and try to understand what the macroeconomic implications are, which-which is our job. Begye.
[01:35:17] Speaker 37: Thank you, Chair Powell. Begye from AFP News Agency. Um, you mentioned earlier that on inflation, the broad expectation was for a one-time pricing curve, for a one-time price increase, and then for inflation to come down. And I was wondering, you know, is your expectation still for inflation to start cooling in the second half of 2026? And, you know, if you could elaborate how far we are from Target currently. Thank you.
[01:35:42] Speaker 23: So how far we are from Target is, um, as I mentioned in my opening remarks, we're-we had 3 percent-3.0 percent core PCE inflation over the 12 months ending in December. And that's pretty much what we had the year before. So, on net, no progress. But the story behind that is-is modestly positive in that most of the overshoot was in goods prices, which we think is related to tariffs. And ultimately, we think those will not result in inflation as opposed to a one-time price increase. Okay. So that's-that's where-where it is. In terms of-you asked, um-so no one thinks they-they will, uh, you know, ex ante understand really clearly precisely when this will happen. But there's an expectation that sometime in the middle quarters of the year we'll see tariff inflation topping out. So what we do is we-when-when a tariff is put in place, we track the effect of those tariffs over a six, seven, eight, nine-month period. And you can see-and then you can see for that tariff how long it takes to reach a place where it's-it's affected the price level and that's it. So we're getting better at that and-and our estimate is that it'll be sometime in the middle of the year. But I wouldn't look for great precision in that. But, you know, we'll be able to see whether things are moving in that direction. I think, you know, we will be able to see. Richard Escobedo.
[01:37:07] Speaker 38: Thanks, Chair Powell. I'm Richard Escobedo with CBS News. I want to look outside the U.S. about what's happening outside our shores and how it impacts the U.S. Canada's Prime Minister said last week that there's been a rupture in the global order. And I wonder how you're thinking about geopolitical risk as it relates to the U.S. economy.
[01:37:29] Speaker 23: So I can't-I can't comment on that-on that speech or statement or anything like that. You know, geopolitical risk for us is-a lot of it is around energy, oil. And so far we haven't-you know, with all-for all the turmoil we really-oil prices are-have come down, as you know. And so we don't really see much, you know, longer than that. It's trade and, you know, the trade-the economy-our economy has pulled through pretty well, you'd have to say, given the very significant changes in trade policy. The U.S. economy has-has pushed right through. Partly that is that the-the way that-what was implemented was significantly less than what-what was announced at the beginning. In addition, other countries didn't retaliate. And in addition, a good part of it hasn't been passed through to consumers yet. It's being-it's being taken by companies that stand between the consumer and the-and the exporter. So that's where that is.
[01:38:29] Speaker 39: Jennifer. Thank you, Chair Powell. Jennifer Schoenberger with Yahoo Finance. With third quarter GDP growing at 4.4 percent, and the fourth quarter expected to have a five-handle on it, as to what the Atlanta Fed is predicting, at a time when you had a government shutdown, we thought that was going to shave off some growth. You've also got the fiscal tailwinds you've talked about, big tax refunds coming, potential tariff dividend. How could you cut rates and not spur inflation in that environment?
[01:39:01] Speaker 23: Well, we didn't cut rates today. But, you know, it would depend-it depends on how fast potential output is growing, right? I'm just asking in principle, I'm not-you know, I'm not saying this is what's happening. But, you know, there's growth, and there's how fast the potential is growing. And at a time of, you know, high productivity growth, potential output is rising. So it really matters whether potential output is growing as fast as actual output. And it would matter over time. The numbers you cite were for quarters, and quarterly GDP is-you need to look at 12 months, because quarterly GDP can be very lumpy. You know, GDP was negative in the first quarter last year. So the overall, over the year, the numbers were nothing like that. You know, it was more in the mid twos for the year.
[01:39:49] Speaker 39: And how do you explain the divide right now between strong economic growth and the job market? Is it productivity that's filling the gap? And is productivity being driven by AI at this point?
[01:40:02] Speaker 23: So we-there has been-you're right-there has been a divide of solid growth, but what looked like a weakening labor market. And that can be explained by-by rising productivity. But I would say we do see signs of-certainly of the unemployment rate stabilizing. So it may be we're seeing the beginning of the resolution of those two things. Also, as you probably know, the lore is that when GDP and the labor market get into an argument, in the end, uh, labor market is more-the labor market data is more reliable. GDP data is just very hard to-to collect and understand. But nonetheless, I think we-we may be seeing that-that tension resolving a little bit. Too soon to say with any, uh, confidence, though.
[01:40:55] Speaker 36: Matt Egan.
[01:40:56] Speaker 40: Matt Egan with CNN. Chair Powell, after today, you have two meetings left as Fed chair. You've obviously experienced a lot during your time as Fed chair, served under multiple presidents. I'm wondering what advice you have for whoever your successor might be.
[01:41:16] Speaker 23: Honestly, I'd say a couple of things. One is, um, you know, stay out of elected politics. Don't get pulled into elected politics. Don't do it. And that's-that's another thing. Another is, um, that, you know, our window into democratic accountability is Congress. And it's not a passive burden for us to go to Congress and talk to people. It's an affirmative, regular obligation. If you want democratic legitimacy, you earn it by your interactions with the-our elected overseers. And so it's something you need to work hard at, and I-I have worked hard at it. So, um, and the last thing is, you know, it's easy to-it's easy to criticize government institutions so many ways. I will tell whoever it is, you're about to meet the most qualified group of people you-you not only have ever worked with, you will ever work with. And when you meet Fed staff, and not everybody's perfect, but-but there isn't a better cadre of professionals more dedicated to the public well-being than work at the Fed.
[01:42:30] Speaker 40: Thanks for that answer. If I may follow up, as I'm sure you've noticed, gold and silver prices have experienced historic gains of late. And I'm wondering how much attention, if any, you pay to those moves, and-and what message you may take from these, uh, significant price increases we've seen for precious metals?
[01:42:49] Speaker 14: Don't-don't take much message macroeconomically.
[01:42:53] Speaker 23: Um, the argument can be made, it's, you know, that we're losing, uh, credibility or something. It's simply not the case. If you look-if you look at where inflation expectations are, our credibility is right where it needs to be. So we look at those things. We don't-we don't get spun up over particular asset price changes, although we do-we do monitor them, of course.
[01:43:12] Speaker 36: Nicole, for the last question.
[01:43:16] Speaker 17: Hi, Nicole Goodkind Barons. Some prominent critics have charged that the Fed's economic models are-are somewhat backward-looking, um, but should be more forward-looking, incorporating things like productivity increases from AI. How do you incorporate current and future developments into your analysis and decision-making, and do you have a-an answer to those critics?
[01:43:40] Speaker 23: Yeah, so, by and large, those criticisms, as somebody on the inside, they just don't make sense, and I'll tell you why. Every FOMC participant writes down a forecast every quarter, right, the summary of economic projections, and that's the basis for how we think about the economy. So, and the other thing is, you know, what any-what an economic model can do is it can grind up all the data for the last number of years, 50 years, let's say, and it can-it can identify what are the relationships between variables A, B, C, D, and all that kind of thing. And it can tell you, if you change one of those variables, this is what should happen in the macroeconomy. That's just the way it works. However, the structure of the macroeconomy is constantly changing. For example, we hadn't had a pandemic in 100 years. It wasn't in the model, and we knew it from the very beginning. It was not in the model. A trade war of this scope, we'd never had that in, you know, in 100 years. And so there's great uncertainty at different points. Another thing I'll say is, you know, when it comes to, you know, technological developments that raise potential output, some kind of technological revolution like happened in the '90s here and like maybe happening now with AI, we're all over that. And, you know, we've -- everyone studies those periods, and, you know, we're very clear-eyed about the possibility that this higher productivity may persist and also that it may not. You know, we're not -- no one's sitting here unaware of the possibility of higher productivity. We've been talking about it for three years. It long predates the current situation. It's been going on for five or six years we've had productivity higher. We've been talking about it that whole time. So it's very much on our minds, and we are well aware that higher productivity means higher potential output, and it changes the way you think about potentially inflation, growth, labor market, and all those things. That's all in our models. I mean, if it's a question of using better models, bring them on. You know, where are they? We'll take them. But I think, you know, we certainly are in contact with anybody who does economic modeling, and we're always looking to do better at that. But that's how I think about that.
[01:46:01] Speaker 17: And just a quick follow-up. We've been talking a lot about tariffs and passing through, and we've been talking a lot about them for the past few months. You know, the trade landscape is still in a constant state of flux. Announcements, threats, negotiations, they're all frequently changing. So I'm wondering how you actually track these. How -- what data channels are most critical to follow this in real time? Trade? Yeah. The impact of tariffs and how they're changing.
[01:46:28] Speaker 23: Yeah, I think our staff has done a really nice job on that. And they've kind of put it together in real time. So as I mentioned, a tariff gets put in place. You can pretty much track its effects on pricing and on everything. And so you build a model up from all of the tariffs. At the beginning, it was very much of a forecast. Now it's -- every cycle that goes by, it becomes more informed by actual data. And, you know, we were -- our forecasts were not far off. What changed was, as I think I said earlier, what changed was, what was implemented was smaller than what was announced. In addition, we didn't see retaliation internationally, and I think people did generally expect that because we saw that in the past. And that really mattered, too. And then the other thing is it passed through, didn't know how fast that was going to be to consumers, didn't know how much exporters would take, how much companies in the middle would take, and how much the consumer would take. And it turns out it's a lot of companies in the middle who, by the way, are pretty strongly committed to passing the rest of it through, which is one of the reasons why we need to keep our eye on inflation and not declare victory prematurely. Thank you.
[01:47:41] Speaker 41: We're done?
[01:47:42] Speaker 23: We're done.
[01:47:43] Speaker 41: Okay.
[01:47:44] Speaker 5: Thank you very much. The chairman of the Federal Reserve. That did not sound like a skip. It felt like a pause, and maybe a very long pause at the Federal Reserve. The beginning of a walk into the sunset for the chairman of the Federal Reserve. Jay Powell only has two more of these meetings on the calendar as the chairman of the world's most important central bank. For the equity market on the S&P 500, still close to all-time highs on the S&P. On the Nasdaq 100, up by 0.5 in the bond market. On 2s, 10s, and 30s, we look like this. Yields just about unchanged. Your 10-year, 425. Your two-year, 358. Journalists did their best to make this one interesting. Chairman Powell was determined to make it boring. Take a listen to what the chairman had to say.
[01:48:25] Speaker 23: Some people didn't want to cut and dissented, but committee pretty broadly for holding today. We still have some tension between employment and inflation, but it's less than it was. I think the upside risks to inflation and the downside risks have probably both diminished a bit. So, you know, we'll be looking at that. There are different views on the committee, and, you know, we'll find our way forward as the data evolve.
[01:48:50] Speaker 5: TK, just my takeaway, just my observation. Towards the end, it felt like a man who was looking forward to retiring and stepping down.
[01:48:57] Speaker 7: Yeah, you know, there was a gold question. That's great. He doesn't have Krugerrands in the drawer. He's got the Jerry Garcia commemorative gold coins in the drawer. So way looser. There's no question about that. But it was really interesting to see the nuances of the market away from the things we usually quote, folks, to look at what seriously what Sterling was doing, the way Euro was vibrating in that. And I would suggest they can go back and say, you know, we got through that in one piece.
[01:49:23] Speaker 5: He's got some advice for the next Fed chair. Stay out of politics. Stephanie Roth of Wolf Research joins us now for more. Stephanie, the questions loaded with politics. He was not engaging. He was not playing. What was the takeaway for you?
[01:49:34] Speaker 42: Yeah, I think it's a Fed that is comfortable with the backdrop of data, which I think is the right call. The data seem to be improving from here. We actually think that it will continue to get better, in which case this will certainly be the last cut under Chair Powell. There's no more cuts under Chair Powell. He's done. And I think that's right. He's fading into the sunset and just wants to avoid all of the questions that he didn't really want to answer.
[01:49:56] Speaker 7: Unfair question, but I can save it for your morning note at Wolf Research. Maybe it'll help. You think Mark Kearney at Davos talking about the new geometry of middle countries. You look at the president, neo-mercantilism, the president, weak dollar. Did the Secretary of Treasury save this press conference by coming out hours before and sounding like James Baker from another time and place on strong dollar?
[01:50:19] Speaker 42: Yeah, I mean, last night it was getting to be a little bit concerning when Trump made the comments regarding his comfort around the sharp drop in the dollar that we've seen. That could also have reverberations throughout the rest of the market. So I think that is fair to some extent. Powell clearly don't want to comment on the dollar regardless. Right. But there was the legitimate risk, and there still is, that there could become reverberations as the carry trade unwinds. But it seems that Besant is very well aware of the aftermath of that.
[01:50:48] Speaker 7: Can I ask economic questions? Please go for it. This is the appropriate forum. Absolutely. Anna Wong has been great on this, as you have as well, Stephanie Roth, where the idea of the vector in goods we take for granted is disinflation. That's turned around. Now we've got goods moving up. We've got gold, copper and all the other stuff John's talking about. Do you just assume out there somewhere after stimulus that goods roll over again into some form of disinflation, even if service sector stays with an inflationary tone?
[01:51:16] Speaker 42: Yeah, we're probably going to see a backdrop where we're likely to have some firm goods prices in the next couple of months in the sense that, one, you tend to have, there's some seasonal issues in some of the data. You have consumer stimulus that's going to hit goods prices for the next quarter or so. And then beyond that, you're going to move to an environment where goods are running at roughly 0% year-over-year, and then it's back to an environment where it's all about the service sector.
[01:51:38] Speaker 5: Away from the politics of Washington, one of the takeaways from that particular news conference that I have is something I've heard repeatedly from a lot of Wall Street participants. market participants is that the data is going to be better. It will improve. The chairman's saying overall it's a stronger forecast than in December. The data since the last meeting show clear growth improvement, and a lot of people think that's going to continue because of the tax refunds. How important are these tax refunds going to be? Do you think people are overly optimistic about the impact this might have?
[01:52:05] Speaker 42: I think they will be positive for the consumer, but this is a consumer that is already doing fairly well. Spending has been fairly solid in the fourth quarter, and everyone's revised up their GDP numbers in the fourth quarter. Q1 should be equally pretty solid. I think the main takeaway is that, yeah, maybe even you do get a bit of a bump in consumer spending. People will spend the stimulus checks that come to them, that is the American consumer. But then beyond that, this is an environment where you have positive momentum in the economy. So I think it will be important. That's entirely fair, but it's also an economy that's performing a lot better than many expected towards the back part of the year. Last year, when everyone was concerned about the health of the consumer, which was entirely overdone.
[01:52:46] Speaker 5: A journalist in the news conference asked the question, why wouldn't that lead to higher inflation, given how in some parts of this economy we are supply constrained? What's the answer to that?
[01:52:54] Speaker 42: The answer is that you'll see some sticky inflation through the first part of the year, in which case the next Fed chair is going to be in an environment where inflation is running roughly 3%, the economy is fairly firm, and they're going to be trying to cut interest rates, and they're probably going to have trouble at first. It's going to be later in the year when inflation starts to cool again. You lose a little bit of that momentum where it becomes a little bit easier of a conversation.
[01:53:14] Speaker 7: I haven't asked anyone this question. I think it's fair to ask now after this press conference. We talked about, and the president with great negativity would talk about the Biden stimulus. What does the Trump stimulus actually look like into the midterm elections?
[01:53:30] Speaker 42: Well, certainly you'll see that better consumer for the first part of the year. It will fade into the election period of time, in which case then the focus is going to continue to be on affordability. So that's the opposite of stimulus from a sentiment perspective. And this is going to be the biggest challenge for the administration they're going to be dealing with all year, and they're going to have a lot of trouble. They've been throwing a lot of different things at the wall to see what will stick, and there is not that much they can do to change.
[01:53:58] Speaker 7: There's nothing sticking right now, but any given central bank, whether it's Chairman Waller, Chairman Mirren, whoever, Chairman Farrow, whatever we see with the central bank, they've got to figure out what will stick with half of America flat on their back. What's the Wolf research plan for that, besides a check in the mail?
[01:54:18] Speaker 42: There is not that much can be done. The one positive is not about anything the administration can do. It is just a cyclical pickup in the economy that will help at the margin for a lot of the bottom end of the K who has been left out. They've been left out for a whole list of reasons.
[01:54:33] Speaker 7: And this is what Orszag and Poisson are saying is, you know, you get a pickup in the economy, you get productivity, and it pulls up people. I mean, that's the reigning theory here, John, into Labor Day and into the end of the year.
[01:54:46] Speaker 5: And just on the next Fed chair, this from the Treasury Secretary in the last hour or so, speaking to Yahoo, saying the pick may come in a week or so. It just feels like a rolling week at the moment. We're waiting another week to get that Fed chair pick. If you're just joining us, we're live on Bloomberg TV and on Bloomberg Radio, a Fed rate decision behind us, a decision to keep rates unchanged after cutting at three consecutive meetings. We did get some dissent from two Fed governors, one being Governor Waller, the other being Governor Myron, looking for a 25 basis point reduction. Let's get to Michael McKee, who was in that news conference with Chairman Powell. Mike, welcome back. I give you an A for trying, a big A for trying. What was your takeaway from the chairman moments ago?
[01:55:20] Speaker 20: Well, I think we got the answer to whether Jay Powell would talk politics or policy. He focused on policy, tried to stay away as much as possible from politics. When I asked him and Nick Timmeros from the Wall Street Journal asked him and then he was asked about the dollar, all three of us got sort of the Seinfeld answer. No soup for you. He's not going to talk about that issue right now. In terms of policy, however, he seemed to be a little bit stronger on the outlook for the economy than his feelings about what rates would be doing. He didn't give us any indication that rates would be going down, but he didn't give us any indication that they think they're at neutral. He suggested we're at the high end of it, which would leave you open to a rate cut if you were able to. In other words, if inflation is going down and unemployment calls for it. But as Stephanie was saying, inflation is going to stay elevated for a while. So it's going to be hard in the remainder of Powell's term to have any rate cuts. And it'd be hard for somebody new coming in to get rate cuts right in the beginning, even if, as Powell says, they think that inflation X tariffs is running just about 2 percent or a little above.
[01:56:32] Speaker 5: On the committee, Mike, there is still a push for an interest rate reduction from both Governor Myron and Governor Waller. Mike, for the people that missed your coverage a little bit earlier, immediately following the decision, what's the rationale for that push from those two governors on this FOMC?
[01:56:46] Speaker 20: Well, we know Myron has sort of been ordered to dissent. It's interesting that he only dissented for 25 basis points this time instead of for 50. Either he thinks they've gone far enough or he didn't need to do 50 to keep the president's favor. For Chris Waller, the initial reaction I've seen from just about everybody who has written about it is that he's trying to keep his place in line for a possible promotion to Fed chair, replacing Powell. But I would imagine also that Waller, knowing him and knowing his reputation, will probably come out on Friday when the blackout lifts and give us some sort of statement on the economic reasons why he thinks a cut is important at this time. It's a little bit different situation now because the unemployment rate has gone down. Inflation is, according to the Fed's calculations, which Powell talked about, going to, for the core PCE, hit 3 percent. So it's harder to make the case for a cut at the moment.
[01:57:46] Speaker 5: So it'll be interesting to see what Waller has to say. Mike McKee, thank you, sir. Stay close. We'll come back to you a little bit later in the program. We talked about this in the immediate aftermath of the decision, that dissent from Governor Waller for a 25 basis point reduction. We heard from Vice Chair, former Vice Chair Richard Clarida, from Torsten Slock of Apollo, essentially calling it unfair to characterize this as a man purely voting for a reduction to keep his name in the running to become the Fed chair. Yeah. That has been a man who's delivered effective leadership, thought leadership of the Federal Reserve and caught every single turn in the economy over the last several years.
[01:58:16] Speaker 7: Yeah, I think Torsten summed it up nicely. This is a legit academic, folks, with major credit out at Washington State. He wrote a very important, small, tiny, perfect paper in 1991, I believe it was. It made his reputation. And it's on game theory, but accessible game theory. You know, besides, he's like you. He's cut and chiseled. He's lifting weights every day.
[01:58:39] Speaker 5: I wish I lifted like he did. Have you seen him deadlift? Oh, yeah. Have you seen this video? It's ridiculous. Yeah. It's ridiculous how much weight he lifts. But yes, please, continue.
[01:58:47] Speaker 7: He's a legitimate guy. I mean, Ken Rogo's a huge fan of what this academic has done, and he's delivered it. And here's the key thing, and I think, attractive to the president. He's done it in a plain-spoken way, and that may be to the benefit of President Trump.
[01:59:01] Speaker 5: I want to avoid the politics of this, Tom, but we've complained so much about groupthink of the Federal Reserve. We can't complain when someone sticks their neck out and says we need to do something different, and this is why I think we need to do this differently. Risk cut both ways. And we've seen that coming out of the pandemic, how wrong the consensus has been. Oh, yeah. Risk cuts both ways.
[01:59:19] Speaker 7: Humility is in order, and frankly, I heard that from Chairman Powell today.
[01:59:24] Speaker 5: Jeffrey Rosenberg of BlackRock joins us now to weigh in on all of this. Jeff, welcome to the show, sir. The big takeaway for you, unchanged, and a chairman who's not looking to change things for the next several months. Would you agree?
[01:59:37] Speaker 43: Yeah. I think the big takeaway on the policy side was the removal of the balance of risks from the labor market assessment. He got asked that question. I think the most interesting interchange was in the very first question, where he very clearly laid out he wasn't going to address the politics side and got into the substance on the change of the balance of risks. And I think from the economic perspective, that was the most interesting thing in acknowledging that they moved away from both sides of the inflation and the labor market tension that was there previously. And that's an upgrade to the assessment. I think the near-term implication is the bond market has the pricing right that in the next six months, there's really no real movement towards a cut. Now, obviously, it depends on the data. And everything in terms of the expectations for the FOMC is going to be in the back half of the year.
[02:00:30] Speaker 7: Jeff Rosenberg, maybe more important than the press conferences, the American exceptionalism at 402, Microsoft, 403, Tesla, 405, Meta, 408, IBM. Honey, thank you so much for those times. I mean, what's keeping this Fed going is this exceptional America. How do they keep that experiment going with their policy given politics?
[02:00:55] Speaker 43: Yeah, that's a really important point, Tom. And it came up a little bit in the press conference. You just had to, like, listen for it. It's a point I've made often, you know, in these discussions that, you know, where is the surprise coming from? It's coming from the consumption side. It's being supported by the wealth effect. And the wealth effect is being supported by all of those earnings and that AI story. So, you know, we talk a lot about the macroeconomic perspective here. But it's really about the micro. And the micro is the AI and the technology story, the concentration. And it's flowing through from the micro to the macro through the wealth effect. And that was why most economists are under clubbing growth in 2025. It may be, again, the story in 2026. It's a little bit of the K-shaped economy story as well, because it's only a small portion that are benefiting. But that small portion overwhelmingly is influencing that consumption side. Stephanie Roth, I look at that.
[02:01:55] Speaker 7: I love how Mr. Rosenberg goes to the wealth effect as well. I want to frame out what we talked to Torsten Slock about. Real GDP, which is being buoyant by the wealth effect, maybe with a little bit of add-on inflation. Where do you see nominal GDP for the next chairman? John, we go out two meetings. Then there's like one or two or three meetings. October 29 is a dead meeting because of the election. Where's nominal Labor Day-ish in America?
[02:02:22] Speaker 42: Yeah, you're going to be sitting 5%, a little bit higher.
[02:02:26] Speaker 7: Wealth effect, John. That's what we call this. Rosenberg's right.
[02:02:30] Speaker 42: Yeah, and the wealth effect has been really important for the past couple of years, partially just because it has broadened out beyond just the very wealthy. This is a consumer where younger people are involved in equities, more people, even though they don't have the lion's share of the equities, they are still more invested than many years past. So it's helping a big part of America, of course, not that bottom of the K, which just continues to struggle.
[02:02:55] Speaker 5: And by some measures, by some measures, conference board, consumer confidence hasn't been lower in the last decade. Explain.
[02:03:02] Speaker 42: Yeah, conference board was weaker. UMICH was stronger. I think the net of the two is a consumer that feels bad about the price level in the economy, which is something that cannot be changed easily by any means, but they're largely employed and they don't like the policy uncertainty. They continue to spend because most of them are employed and continue to make decent wage gains. They also have the benefit from that wealth effect. But when you ask them how do you feel about the economy, it's perhaps not great.
[02:03:31] Speaker 5: Or maybe four or five percent nominal GDP is not what it used to be. That it's not as labor intensive. That this growth is coming from capex spend. They're not changing the lives of everyday Americans, at least not now. Isn't that a good explanation as to what's going on?
[02:03:45] Speaker 42: Yeah, I think that's part of it. And also concerned about the future prospects because we all know AI is going to have important impacts on the labor market. You continue to see headlines about job cuts. The thing is that this part of the year there is often headlines about job cuts and everybody gets scared in January about the labor market because they see all these headlines and then it proves to be not such a big problem.
[02:04:02] Speaker 7: Jeff Rosenberg, I'm sure you're aware of Posen and Orszag's mapping out of a higher inflation, a more resilient inflation. What does your bond world do if we get inflation resilience?
[02:04:18] Speaker 43: So a big part of that, Tom, is in the term premium, right? The Fed and what we saw in 2025 was that the short end of the yield curve, shorter maturities were very responsive to policy rates. It came up in the press conference today in the question about long term interest rates. And Powell basically admitted that, you know, longer term interest rates are going to be a function. He focused on the fiscal policy uncertainty, but there's more than that. There's real interest rates. The whole other picture to AI is an incredible shift in investment demand. That raises real interest rates. And the inflation piece to your question, Tom, is about inflation risk premia. And as you move further out in time, there's more time for that uncertainty for all those reasons to affect inflation. And the bond market impact is a steeper yield curve reflective in nominal space of greater inflation risk premia.
[02:05:10] Speaker 7: I mean, I look at this, Jeff, and the question of where we are, and this goes back to dollar analysis of the last couple days, is it's very nonlinear at some point. If I look, you know, to look at the benchmark 10 year yield, how close are we to a point where you get accelerated tendencies if we unwind? That would be lower bond prices, higher yield. Is it 10 beeps away? Is it 30 beeps away? Is it a fiction that's just out there somewhere? Yeah.
[02:05:38] Speaker 43: Again, it kind of came up in the context of the recent volatility in JGBs. You know, is there a nonlinear event for the U.S. bond market? You know, it's a different market. It's much bigger. It's much deeper. There's a lot more impact in terms of price and substitution effects that can happen. He talked about it in terms of the fiscal side. You know, the debt level is sustainable, but the path is unsustainable at some point. You know, no one really knows where that point is. We used to talk about it in the context of small open market economies around 100 percent, 80 percent debt to GDP. That's a very different setup than for the U.S. economy. And we don't really know. I would I think it's a much longer term process in terms of building a risk premia slowly and less of this kind of tipping point argument. But we don't really know for the U.S. bond market what that will what that will look like.
[02:06:34] Speaker 5: Jeff, I'll ask you a direct question. I asked this to Torsten Schlock of Apollo in the last hour, and he said no. Do you have a decent understanding now of this Fed's reaction function?
[02:06:42] Speaker 43: I mean, I don't know if it's as clear as no. I mean, I think that they shifted in the summer and Waller was ahead of it with regards to the payroll side, the labor market side. They were validated in that shift by the slowdown in the labor market. And they told us today that slowdown market in the labor market is kind of stabilized. So if you look at the response function, at least for consistency, they paused the cutting and it appears to be justified by the reduction in the downside risk to the labor market. So to me, that kind of validates a little bit of what we understand about their response function of this current Fed, that they are more keyed in on the labor market risks than they are on the growth side. And the growth side is being upgraded at the same time. He talked a little bit about that. So I think we're still getting, you know, some view into that response function.
[02:07:35] Speaker 5: Well, let me put it another way. Let's say growth picks up in the way that Stephanie and Torsten are looking for. And let's say inflation picks up alongside that. Do you have an understanding of what they will or won't do later this year?
[02:07:46] Speaker 43: Well, he kind of answered that one as well, at least from Powell's perspective, is that no one has, trying to find my notes on this one, no one has rate hikes in the expectation. The economics of an uptick in growth and an uptick in inflation, you know, might otherwise say that. But, yes, in terms of the response function, it's still asymmetric here where they're looking, you know, to be stable or maybe looking for economic reasons to cut, but not looking for an economic scenario where they're raising interest rates.
[02:08:17] Speaker 7: And, folks, I really want to say that Jeffrey Rosenberg here with Stephanie Roth is important because they both carry their day-to-day work with a lot of humility. Where in your head is the unemployment rate where everyone involved goes, oops, it's not 4.6, 4.7 or that. Is there a Stephanie Roth unemployment rate where the dialogue radically changes if we get that?
[02:08:39] Speaker 42: Yeah, if you start to shift towards 5%, then the dynamics...
[02:08:44] Speaker 7: A good round number, 5%.
[02:08:46] Speaker 42: A good round number, 5%.
[02:08:47] Speaker 7: Is that 5% now the same as it was a 5% 10 or 30 years ago? I don't think it is. No, I don't think so either.
[02:08:53] Speaker 42: In what way?
[02:08:54] Speaker 7: Describe to our audiences here worldwide why a 5% all-American unemployment rate now was, you know, 7% unemployment rate back when.
[02:09:05] Speaker 42: Yeah, it's structurally shifted down over time in which case...
[02:09:09] Speaker ?: Why?
[02:09:10] Speaker 42: Because the labor market dynamics have changed material. The economy, what keeps us in full employment today is not the same as what we were. So therefore, if we're sitting at 5%, that's a much riskier environment than what it would have been.
[02:09:30] Speaker 7: John, you live this in Coventry with the auto business in the United Kingdom. I just watched the destruction of Eastman Kodak yesterday. Great YouTube video. It's like walking through my childhood. But that world is gone when it was a 7% unemployment. And now we're walking around happy with a 5% number.
[02:09:48] Speaker 5: Well, the thing to build on there, Tom, I think we have to confront a new risk. You bring up the old manufacturing hubs, the basis of, say, the United Kingdom and for that matter, Detroit here in the United States. That's what globalization did to manufacturing. And the risk now that we have to confront in the West, at least, is whether AI is going to do that to services. What globalization did to manufacturing. Do you think there was a brief acknowledgement there from the chairman in that news conference, just to give a little nod to the prospect of a reduction in jobs, at least in the short term, because of this new technology?
[02:10:14] Speaker 42: Yeah, I think that's fair. And I guess that is the risk in the future that we end up with a structural shift higher. Because before it was, you know, a backdrop where globalization and manufacturing helped to sort of bring the economy into today. We're a much more developed economy than we were, you know, of course. That's the risk that we see into the future that we end up with a structurally slightly higher unemployment rate. But I'm not convinced that it will end up being quite that. I think there's an environment where you end up with job gains as a result.
[02:10:48] Speaker 5: I think that's the problem being a policymaker right now. I'm not convinced of anything. And I'm not sure they are either. Things have changed. We asked Bob Michael at JP Morgan, your former colleague, the question a little bit earlier. What's more important for the outlook for the economy now? The spending numbers from these big names that report at about 20 minutes time in the next hour or the payrolls report that we get every first Friday of the month. And he's pointing to capex from the major tech players in the United States. That has completely changed the conversation. How do you set policy with traditional macro indicators when what's driving the economy right now is something else?
[02:11:22] Speaker 42: So I think what's driving markets is of course AI and that kind of is required to continue moving ahead in order for the US economy to be okay. Right. If tech capex started to slow down materially as a result of AI, for whatever reason they decided the return on that investment wasn't quite as high, the US economy would still be okay. We're not at a place where AI is so ingrained and important into the economy that if those dynamics were to change the economy would be in big trouble. We estimate that the domestic share of capex, of AI related capex is at one and a half percent of GDP. Housing is, you know, a little over three. So it's not that ingrained yet. In a couple of years, if this continues at the pace, then the conversation is different.
[02:12:06] Speaker 7: Jeff Rosenberg, let me ask you a Stephanie Roth question. I think it fits in here fine. And that is if you look at the labor upset that's out there, John and I are overwhelmed every day with emails talking about fancy people at BlackRock and Wolf Research, talking about AI this, AI that. When does the central bank just have to address with these two Americas? When do they address two Americas?
[02:12:32] Speaker 43: It's a great conversation. It came up again in the press conference. And I think Powell did a really nice job in addressing what we don't really know. And we don't know what that impact is going to be. But he also critically added this comment on this is not something that Fed policy is well suited to. Right. So if we want to address labor market frictions and disruptions, that's much better suited to other government policies than the broad cudgel of monetary policy. I want to just come back to your earlier conversation and just make one other point that the wealth effect that we are discussing, it's a double-edged sword. So while the CapEx impact that Stephanie was talking about, well, point well taken, the wealth effect, if you were to have, you know, a challenge to the valuations or concerns or repricing, the benefits that we've seen can also, you know, turn into headwinds. And so we should just be kind of aware of that fact of the AI micro impact to the macro economy.
[02:13:36] Speaker 5: Jeff, I just want to avoid the ramp, but we have got a few more minutes. I get frustrated when we say things like the Fed can't do things about certain situations when they've contributed to them themselves. And I'm talking specifically about, say, inequality and the K-shaped economy. Jeff, haven't they contributed to that problem?
[02:13:54] Speaker 43: Yeah, it's one of my favorite discussions. And, you know, it goes back, you know, Jonathan, even the comment that I just made. You know, how does the Fed address these things in their policy framework? It's financial conditions. And the Fed does affect financial conditions and they are affected by financial conditions. And so, you know, when the Fed made a policy choice back in the GFC through the portfolio channel to try to address the challenges of the collapse in the housing market, they kind of pushed up into their transmission mechanism toolkit, transmission through financial conditions. And so that's really the problem that we've been inheriting for the last two decades. And so, yes, it is something that they're part of. It's part of Besant's, you know, criticism in the gain of function. And it's part of the kind of, you know, future potential for Fed policy review of, you know, how do we extract or how does the institution extract itself from those things? At a simple level, it's it's what should the portfolio look like? What should the holdings look like? Should we still have mortgages? And that's one example of how you could, you know, change some of those functions in a new policy setting.
[02:15:05] Speaker 5: Rent over. That's the challenge for the next guy. Jeff, it's good to see you. Jeffrey Rosenberg there of BlackRock. Thank you. Did you like that? Yeah, it was great. Okay. He's practicing. I could see him at the Eccles Board. Oh, can you? Yeah, I could see him, too. What, as a vice chair? Well, not vice chair, but, you know, a good, you know. Just in case the other guy becomes the chair.
[02:15:22] Speaker 7: Chairman Reeder, I can just see it.
[02:15:23] Speaker 5: You think Chairman Reeder takes Jeffrey with him? Takes him with him, yeah. Possibly. Do you want to ask him?
[02:15:28] Speaker 38: We'll get him back.
[02:15:29] Speaker 5: Yeah, we'll see. I don't think he'll engage in that conversation. I don't think he will. Just got a sneaky feeling. Got some time for a final word, Stephanie. Final word for today and for monetary policy and the outlook over the next several months, given we should at some point find out who the next Fed chair is going to be.
[02:15:41] Speaker 42: Yes, I think we're in an environment where certainly the Fed is no longer cutting. In the middle of the year, it's going to be a tough one for the new chair to really try to move policy because inflation will be running at 3%. Growth is going to be fairly solid. Our view is that the labor market is going to start to improve. So we'll see job gains look even a little bit better. The risk is the unemployment rate is ticking down, at least modestly. In which case, certainly, it's going to be a very tough first couple of meetings. Besant knows that, which is probably why he doesn't necessarily want to take the job. But there's only so much that the chair can do if he's in a Fed that's incredibly divided.
[02:16:20] Speaker 7: Mike, real quick. Sure. The crew looking for low rates, rate cuts, rate cuts. John, you and I upset them. The crew looking for no rate cuts. You and I, we upset them. We upset everybody. Those are successful shows.
[02:16:31] Speaker 5: There we go. That's a fantastic program. Stephanie, appreciate your time. Stephanie Roth there of Wolf Research. Coming up, earnings from Meta and Microsoft from New York City this afternoon. Good afternoon. This was a Fed special, a Fed on hold, and maybe for a little while from now.
[02:17:09] Speaker ?: We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week. We'll be back in the next week.
[02:18:09] Speaker 9: I'm an American company and I want to invest in Asia. Why would I want to invest in India over China? India has a lot of similarities to the U.S.
[02:18:22] Speaker 10: It's a democracy. It has rule of law. It's a capitalist society. And that's what a number of companies are seeing.
[02:18:30] Speaker 41: When I visited Fernandez at IMAX's headquarters outside Toronto, we went to the facility where IMAX designs and maintains its cameras. The latest next-gen equipment was out with directors on filmed for IMAX sets. But there was still plenty of cool gear on view. As the head of the finance department, do you look at all the things in this room and think, this costs that amount of money, this costs that amount of money?
[02:18:52] Speaker 44: Thankfully, no. I don't. When I think about cameras in general and what we, you know, when we first, I'll give you a really prime example, the film cameras. When you thought about it, okay, are we building two? Are we building four? Are you building eight, right? And that's where I start to think about, well, what makes the most sense from a return perspective? Because yes, Nolan wants the cameras, but how many other filmmakers out there use the film cameras? The lens that I look at it through is essentially, how many do we build and in what way? Because the one thing is, is we are going to invest to build it right and to build it for longevity. But do you need 10 of them? No. Building four, that was the right number. And do we potentially want to build a couple more? Maybe a couple more, but I don't think we need 10 because they won't always be in use all the time.
[02:19:45] Speaker 41: I imagine that at different points you need to tell people no. What's that process like for you?
[02:19:50] Speaker 44: Oh yeah, it's a key role in the CFO position. It is a word that most people are used to and yet they still think you're not going to say it.
[02:20:01] Speaker 3: In case you missed it on Bloomberg Tech Asia.
[02:20:04] Speaker 11: It's not scary, it's very cute. I can patrol for 20 to 20 kilometers per second. This is the one that's in the U.S. market. Yeah, it's already in the U.S. market for half a year. Many U.S. customers use robots for package delivery, for fast food delivery, for patrol inspection and for firefighting.
[02:20:27] Speaker 3: Don't miss Bloomberg Tech Asia every month.
[02:20:31] Speaker 45: Asia is at the forefront of some of the world's biggest stories. And we're here where the action starts in Sydney. And in Tokyo, get ahead as the Global Trading Day begins. The Asia Trade, weekdays only on Bloomberg.
[02:20:46] Speaker 46: Bringing you up to the minute global news whenever and wherever it happens. I'm Anne-Marie Horderen in Davos, Switzerland. And this is Bloomberg.
[02:20:57] Speaker 6: The countdown is on. Everything you need to get the edge at the end of the market day. This is The Close.
[02:21:08] Speaker 12: Was it a skip or was it a pause? The Fed decides to do nothing. Live from Studio 2 here at Bloomberg headquarters in New York, I'm Romain Bostic.
[02:21:16] Speaker 13: And I'm Katie Greifeld. We're taking you to the closing bell here in the United States.
[02:21:21] Speaker 12: Here on the first Fed decision day of the new year. Bringing a policy statement with no real surprises and no real shift in tone. Benchmark rates left unchanged at 3.5 to 375% with two descents from the usual suspects and a slight upgrade in their view of the labor market.
[02:21:38] Speaker 13: Let's take a quick look at how that is translating into these markets. The S&P 500 pretty much unchanged on the day with the Fed standing pat. Same thing too when you take a look at the two-year Treasury yield where you are seeing some actions when it comes to the dollar rising as measured by the Bloomberg dollar spot index. Fed Chair Jerome Powell had nothing to say about that. But the Treasury Secretary did earlier. We will get to that. And gold continuing its winning ways now higher by about 4%, Romain.
[02:22:07] Speaker 12: Yeah, that press conference with Jay Powell entertaining to be sure. Not so much because of the answers he gave, but more importantly, the answers he didn't give. Batting down questions about his future, batting down questions about that Supreme Court case. He did have some thoughts, though, on the state of the economy and some advice for his yet-to-be-named successor. Take a listen.
[02:22:27] Speaker 23: The U.S. economy expanded at a solid pace last year and is coming into 2026 on a firm footing. There was broad support on the committee for holding today, broad. We will see the effects of tariffs flowing through goods prices, peaking, and then starting to come down, assuming there are no new major tariff increases.
[02:22:50] Speaker 14: I'm wondering what advice you have for whoever your successor might be. Stay out of elected politics.
[02:22:57] Speaker 12: Jay Powell, just moments ago, as we count you down to the closing bell, Ken Shinoda joins us, portfolio manager over at Double Line Capital. And, Ken, we weren't really expecting to hear a whole lot out of the Fed today, at least in terms of shifts in policy. But when you listen to the tone of the statement and of Jay Powell, are the expectations for rate cuts, at least based on economic conditions, is that still intact?
[02:23:21] Speaker 47: I think there's a chance for rate cuts, but I don't think it's until later this year. He's pretty happy with where policy is. He mentioned it many times that they're in a good spot, that the balanced risks of the labor market inflation have kind of come down a bit. So I think they're on hold until the data tells them otherwise, whether the labor market weakens or inflation comes down more.
[02:23:43] Speaker 12: And I don't mean to be flippant about this, but are they effectively on hold until June 17th and they have a new Fed chair sitting?
[02:23:50] Speaker 47: It sure seems so, and I think that's what the market's pricing in. Basically, nothing until Powell's term is over, and then maybe, at best, two cuts through the end of the year.
[02:23:59] Speaker 13: And I'm curious to know what you make of the race for the next Fed chair. It seems like the short list involves, of course, the Kevins. Kevin Worsh, maybe a little bit more than Kevin Hassett. BlackRock executive Rick Reeder and Christopher Waller dissenting today. I imagine that means he is still in the running. How closely are you watching this from the perspective of a portfolio manager?
[02:24:20] Speaker 47: I mean, it's just so volatile. I don't know if you look at the poly markets. They're very popular these days. People like betting on everything, up, down, left, right. And Rick Reeder's probabilities recently skyrocketed. He was like sub 10%, I think, towards the end of last year or so. I feel like Worsh is a little close to the administration. And so I would put Waller probably as the front runner right now.
[02:24:46] Speaker 13: Yeah. Well, I mean, you take a look at Polymarket to your point on Reeder's odds. I believe he's solidly still in the 40s right now. So, I mean, game planning this a little bit. If we are on hold until we get that June meeting with the new Fed chair in place, you have to imagine that they're going to lower interest rates. When with the expectation that, you know, we will get more cuts, it'll just be a few months delayed here. I mean, how does that translate into what you're doing in the bond markets right now?
[02:25:13] Speaker 47: Well, if they're not going to cut till, you know, sometime in the second half of the year, floating rate securities that people worried the coupons were going to drop will earn a little bit more carry. So I think some floaters here are attractive. The bond market's been unusually stable. I mean, it's the two years in less than a 20 basis point trading range. The 10-year oddly is higher in yield since we started cutting again last September. But still, it's been in this kind of 4 to 425, 430 trading range. So here, credit markets, spreads are tight. But with earnings strong, I think credit can perform well. So it's kind of an earn your carry market and fixed income this year.
[02:25:53] Speaker 12: Any concerns, Ken, about some of the moves that we've seen in the dollar? And more importantly, the tone coming out of the White House with regards to what at least appears to be an avocation or at least some comfort with softness in the dollar? I thought Jay Powell kind of brushing that off, saying that's not really the Fed's purview. That's basically the Treasury's decision here. Any concern, any overlap?
[02:26:13] Speaker 47: You know, we've been talking about adding non-dollar diversification to your both fixed income and equity portfolios for almost a year now. And it didn't really work for a while until maybe middle of last year. And we still think that's a good idea. The dollar remains strong for a long time. But policies in place today, along with continued issuance of debt and fiscal concerns, I think it makes sense for investors to diversify both fixed income and equity portfolios.
[02:26:43] Speaker 13: Absolutely. And you have to imagine that that dollar volatility, really FX volatility in general, will continue, Ken. But I want to go back to the point that you made when it comes to credit markets at this point. You called it sort of an earn-your-carry type of market. Where can you best do that right now when you take a look across the landscape?
[02:27:01] Speaker 47: Well, our favorite part of the credit market is probably shorter duration, where you can be at the front end of the curve. You don't have to take that much interest rate risk. You don't have to take much spread duration, which is the sensitivity of a bond to movements and spreads. So shorter-duration type assets where you can still pick up, you know, maybe 100, 200 basis points over treasuries. I think that's a nice place to kind of hide out until we get some vol. Hopefully we do get some vol. It's been kind of a boring market. Equities just seem to climb the war of worry higher and fixed income just kind of move sideways. So as an investor, although it can be stressful, we enjoy these times of volatility because that's when you can find opportunities in the marketplace.
[02:27:41] Speaker 12: All right. Well, be careful what you wish for, Ken. I am curious, though, too, when you look at particularly in the credit space, are you willing to take on a little bit more risk right now? Or do you actually sort of just maintain a little bit more of a safer posture, if you will?
[02:27:55] Speaker 47: Yeah, you know, the corporate credit markets have gotten very tight, especially high yield. We're approaching 250 spread on an option-adjusted basis, but there's still pockets in that securitized space. So things backed by, you know, non-government guaranteed residential commercial mortgages, parts of the asset-backed security market where you can still find, you know, I think high yield type spreads with investment grade ratings. And so that's kind of where we're hiding out right now. We can still pick up kind of the same spreads that you do in double B, single B, high yield, but we've got structural protections in the capital structure and we've got hard assets underneath those securities.
[02:28:33] Speaker 12: Ken, always a pleasure. Ken Shinoda, Portfolio Manager over at Double Line Capital, instant analysis on the back of that Fed decision in the market. Read on that, basically nothing's happening.
[02:28:43] Speaker 13: A little bit ho-hum, certainly when you take a look at the bond markets and the equity markets right now.
[02:28:48] Speaker 12: A full breakdown of all of today's market action and, well, a full breakdown of some big earnings crossing the wire in just a minute.
[02:28:57] Speaker 6: The Closing Bell, Bloomberg's comprehensive cross-platform coverage of the U.S. market close, starts right now.
[02:29:05] Speaker 12: And right now we are two minutes away from the end of the trading day. Romain Bostic alongside Katie Greifeld taking you through to that Closing Bell with the Global Simulcast. Carol Masser and Tim Stenevich join us now. Welcome to our audiences across all of our Bloomberg platforms, television, radio, our partnership with YouTube. Carol Masser, we should point out, I know it's Fed Day, but you have about $8 trillion in market capitalization set to report earnings in just a moment. Microsoft, Meta, Tesla, the biggest there. The Fed couldn't move the markets, but maybe those companies will.
[02:29:35] Speaker 48: I'm so glad you went there because just tracking the markets, you're right, nothing really happened. But I think these companies, because they are so big and they're so much in terms of their percentage in terms of the market cap and market overall, but also in terms of the narrative, where the spend's been happening, the AI story. We'll see whether or not we get a gut check on that and whether or not it's good or bad.
[02:29:57] Speaker 49: What does CapEx look like, especially from a company like Microsoft, a company like Meta Platforms, Katie? If Microsoft is spending money, it's a signal that others are spending money with Microsoft. If Meta is spending money, well, investors don't necessarily love that as much.
[02:30:12] Speaker 13: Yeah, neither, not necessarily in either of those two names, though, I will point out. You take a look at Microsoft and Meta as compared to the other members of the Magnificent Seven. Over the past three months, these are your two worst performers. So there's a lot of skepticism to your point, Tim, exactly on that CapEx and where it's going for both of those names.
[02:30:31] Speaker 12: I'm sorry, for our TV viewer, did you two get evicted from your old studio or something?
[02:30:35] Speaker 48: We forgot to make the rent payment.
[02:30:37] Speaker 12: All right, and we get the closing bells here in New York. We should also point out we get some other earnings as well out of Lamb Research, Las Vegas Sands, Whirlpool, and IBM. But obviously Microsoft, Meta, and Tesla are going to be the big focus in just a few minutes. The closing bells here in New York unchanged on the Dow Jones Industrial Average, unchanged on the S&P 500, up about a tenth of a percent on the NASDAQ, and the Russell 2000 lower on the day by about a half of a percent.
[02:31:03] Speaker 48: All right, guys, and just taking a quick check here on the S&P 500. It's funny, I had NI earnings up, and I was just like, have they come across yet? You've got 190 names, Katie, to the upside, 313 to the downside.
[02:31:15] Speaker 13: All right, let's take a look at the sector performance as we count down slightly more losers than winners in terms of what did perform today. Energy putting up a gain of about seven-tenths of a percent. Tech up about six-tenths of a percent as we await these ginormous earnings. Materials communication services also in the green. In terms of what didn't perform so hot today on this Fed Day, real estate down by nine-tenths of a percent. Consumer staples, Carol, also off by about eight-tenths of a percent.
[02:31:42] Speaker 12: Microsoft earnings crossing the wire right now. First here on Bloomberg, we take a look at the headline number revenue in the most recent quarter, $81.27 billion. The street was looking for 80.3. EPS coming in at $5.16 a share. I don't have a comparison for you just yet, but here's the intelligent cloud business. $32.91 billion, relatively in line with estimates. The street was looking on average for 32.39. And we should also point to Azure and other cloud revenue, XFX. That was up 38% in the quarter, right around what the street was looking for, Carol.
[02:32:16] Speaker 48: All right, let's go to Meta, also crossing the Bloomberg terminal as we speak. I'm going to go right to the outlook. The first quarter revenue looking at $53.5 billion to $56.5. The street estimate was for $51.27 billion. The stock right now bopping around, but lower just about nine-tenths to the downside. Now maybe kicking a little bit higher. Let's go to the fourth quarter. Revenue, $59.89 billion, better than the street estimate of $58.42 billion. Ad revenue, so important. Let's see whether or not all those AI investments are paying off when it comes to getting more eyeballs and more ad revenue. $58.14 billion, that is a beat. $56.79 was the street estimate. And also EPS, $8.88 a share versus $8.02 the year before. So, again, that stock, though, a little bit lower, down about 1% here in the aftermarket. That CapEx number.
[02:33:10] Speaker 12: Yes.
[02:33:11] Speaker 47: Mm-hmm.
[02:33:12] Speaker 12: 2026, companies saying CapEx $115 billion to $135 billion. The street was looking for about $110. So, Meta and, more importantly, Mark Zuckerberg still all in here on the AI build-out.
[02:33:23] Speaker 13: Well, to that point, Mark Zuckerberg saying that we had strong business performance in 2025. I'm looking forward to advancing personal superintelligence for people around the world in 2026. Lofty ambitions, of course, but as you can see in the after-hours reaction, investors want to know, how do you translate that into actual profits and revenue and the bottom line here?
[02:33:44] Speaker 49: I want to go back to this CapEx here. It's in the press release. It's a headline in the Bloomberg. We anticipate 2026 capital expenditures, including principal payments on finance leases, to be in the range of $115 to $135 billion, with year-over-year growth driven by increased investments to support our Meta Superintelligence Labs efforts and core business. That is so much higher, and that is also a much bigger range than I would have anticipated, up to $135 billion to spend on CapEx in 2026.
[02:34:14] Speaker 12: And just adding to that, the total expense number, $162 to $169 billion. The street was looking for $151 billion. And this really gets to the idea. I mean, we can quibble over the numbers from a fundamental basis.