Stocks Fall as Traders See Fed Hike by October — The Close 6/17/2026

[00:00:01] Speaker 1: THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DAY. THIS IS THE CLOSE. [00:00:12] Speaker 2: THE PUSH AND PULL OF FED COMMUNICATION LIVE FROM STUDIO 2 HERE AT BLOOMBERG HEADQUARTERS IN NEW YORK. I'M ROMAINE VOSTICK. [00:00:18] Speaker 3: I'M KATIE GREYFIELD. WE'RE KICKING YOU OFF TO THE CLOSING BELL HERE IN THE U.S. AND ROMAINE, WE JUST SAT THROUGH A VERY CONSEQUENTIAL FIRST FED MEETING FOR THE NEW CHAIRMAN. [00:00:29] Speaker 2: THE FIRST FED MEETING FOR FED CHAIR KEVIN WASH, KATIE, A UNANIMOUS DECISION BY THE FOMC MEMBERS WITH REGARDS TO WHERE RATES ARE WHICH IS BASICALLY WHERE THEY'VE BEEN FOR THE LAST FEW MEETINGS. BUT A FAR FROM UNANIMOUS OPINION WHEN IT COMES TO WHERE THOSE RATES MIGHT GO IN THE FUTURE. THAT REALLY SEEMED TO BE WHAT THE MARKET WAS FOCUSED ON. THIS IDEA OF HOW DO WE EVEN GAGE WHAT COMES NEXT? [00:00:50] Speaker 3: ABSOLUTELY. YOU CAN SEE THAT QUESTION BEING ASKED IN THE MARKETS, IN RISK ASSETS, IN REALTIME. YOU TAKE A LOOK AT THE REACTION IN THE S&P 500. PRETTY DRAMATIC. DOWN 1.3%. SIMILAR STORY WHEN YOU TAKE A LOOK AT TECH STOCKS. BUT A LOT OF THE ACTION IS IN THE BOND MARKET. YOU'RE SEEING RATES RISE ACROSS THE CURVE. BUT MOST DRAMATICALLY WHEN IT COMES TO THE FRONT END. THE TWO-YEAR TREASURY YIELD HIGHER BY 16 BASIS POINTS. THAT IS LEADING TO A VERY DRAMATIC FLATTENING OF THE YIELD CURVE. AS YOU SEE TRADERS NOW PRICING IN A RIGHT HIGH BY OCTOBER. AND AS A RESULT, BOLITILITY MOVING HIGHER. THE VIX TRADING WITH AN 18 HANDLE. [00:01:29] Speaker 2: THAT'S THE BASIS POINT MOVE ON THE TWO-YEAR IS THE FOCUS RIGHT NOW OF THIS MARKET. THE BIGGEST ONE-DAY MOVE THAT WE'VE SEEN ON THE TWO-YEAR YIELD SINCE AT LEAST APRIL OF LAST YEAR. ONE OF THE BIGGEST POST-FOMC MOVES TO THE UPSIDE THAT WE'VE SEEN AT ALL. OF COURSE WE HEARD FROM KEVIN WASH A LITTLE BIT EARLIER, A BIG CHANGING OF THE GUARD. YOU HAVE TO GO BACK, OF COURSE, ALL THE WAY BACK TO 2007 WHEN WE FIRST STARTED TO GET THOSE SUMMERIES OF ECONOMIC PROJECTIONS OUT OF THE FED 15 YEARS AGO WHEN THE NEWS CONFERENCES BEGAN, 14 YEARS AGO WHEN THE DOCT PLOT CAME TO BE, AND EIGHT YEARS AGO WHEN JAY POWELL TOOK OVER. BUT IT'S A NEW DAY. AND KEVIN WASH MADE THAT CLEAR DURING HIS 42-MINUTE PRESS CONFERENCE. [00:02:08] Speaker 4: TAKE A LISTEN. AT ANY INSTITUTION, A CHANGE IN LEADERSHIP IS A NATURAL AND TIMELY OPPORTUNITY TO REAFFIRM ITS MISSION, TO REVIEW CURRENT PRACTICES, AND TO CONSIDER WHETHER THOSE PRACTICES BEST MEET OUR OBJECTIVES. WE'VE DROPPED FORWARD GUIDANCE. I'M APPOINTING A TASK FORCE IN EACH OF FIVE AREAS THAT ARE CENTRAL TO THE BROAD CONDUCT OF MONETARY POLICY. WE RECOGNIZE THAT INFLATION HAS BEEN RUNNING WELL AHEAD OF THE FED'S LONG STATED INFLATION GOAL OF TWO PERCENT. THAT'S BEEN GOING ON FOR MORE THAN FIVE YEARS. THIS COMMITTEE WILL DELIVER PRICE STABILITY. [00:02:49] Speaker 2: LET'S BRING IN KEN SHINOTA, DOUBLE LINE CAPITAL PORTFOLIO MANAGER. THERE WAS A LOT OF FOCUS ON THE RATE DECISION ITSELF, ON THE SUMMARY OF ECONOMIC PROJECTIONS. BUT NO ATTENTION WAS REALLY GREATER THAN WHAT EVERYBODY WAS REALLY LOOKING FOR. AND THAT WAS HOW KEVIN WASH WOULD HANDLE HIMSELF AT THAT PODIUM [00:03:06] Speaker ?: TODAY. [00:03:06] Speaker 2: WHAT DID YOU MAKE OF IT? [00:03:08] Speaker 5: I THINK HE DID A GOOD JOB. HE BRINGS CREDIBILITY TO THE FED. HE MENTIONED MULTIPLE TIMES THAT PRICE STABILITY IS OF MOST IMPORTANCE, BUT HE'S GOT SOME CHANGES I THINK HE WANTS TO MAKE. HE'S NOT A HUGE FAN OF THE SEP DOTS. HE'S NOT A HUGE FAN OF FORWARD GUIDANCE. I THINK WHAT HE'S DONE IS OPENED HIMSELF UP FOR SOME TIME TO PASS AS THESE CONSULTANT GROUPS GET TOGETHER AND EXAMINE DIFFERENT THINGS THAT THE FED LOOKS AT. [00:03:34] Speaker 2: LET'S TALK A LITTLE BIT ABOUT THE DECISION ITSELF. MORE IMPORTANTLY, THE POSITION RIGHT NOW THAT THE FED IS IN. IN THE PAST, YOU'VE TALKED ABOUT THIS IDEA THAT THE FED WAS KIND OF STUCK ON HOLD BECAUSE OF THE SITUATION IN IRAN AND SOME OF THE LONGER TERM INFLATIONARY PRESSURE IS OUT THERE. BASED ON WHAT WE LEARNED TODAY, AND I KNOW THE DOT PLOT, AT LEAST GIVEN WHAT WAR SAID TODAY, WE PROBABLY HAVE TO TAKE WITH A BIG GRAIN OF SALT. BUT DO YOU GET THIS SENSE HERE THAT THE FED REALLY CAN DO ANYTHING OVER THE NEXT FEW MEETINGS? [00:04:00] Speaker 5: I THINK THEY CAN. UNLIKELY THEY CUT BASED ON INFLATION PRESSURES THAT ARE OUT THERE. BUT I THINK THEY'RE GOING TO STAY PATIENT IS MY GUESS. I THINK A LITTLE BIT OF OVERREACTION ON THE TWO-YEAR. I BET THERE WAS A LOT OF SPECULATIVE LONGS THINKING THAT HE'S GOING TO BE MORE DOVISH THAN HE WAS. AND YOU'RE GOING TO UNWIND OF THAT. I DON'T LIKE TO READ TOO MUCH INTO SHORT-TERM PRICE ACTION IN THE BOND MARKET ON FED DAY. I THINK THE TWO YEAR IS PROBABLY A LITTLE BIT OF A BUY HERE. I WOULDN'T BE SURPRISED IF YOU SEE THAT SETTLED BACK DOWN [00:04:31] Speaker 3: ANOTHER 10 BASIS POINTS OR SO CLOSER DOWN TO 4%. WE'LL CERTAINLY HAVE TO SEE BECAUSE RIGHT NOW IT'S 16 BASIS POINTS HIGHER ON THAT TWO-YEAR TREASURY. CERTAINLY TURNING A LOT OF HEADS HERE. YOU TALK ABOUT PATIENTS ON THE PART OF POLICYMAKERS. LET'S TALK A LITTLE BIT MORE ABOUT THE INVESTMENT RANDOMIFICATIONS. I'M TAKING A LOOK AT SOME OF THE NOTES YOU SENT OVER. I KNOW YOU ARE PREACHING PATIENCE WHEN IT COMES TO THE CREDIT MARKET. WHAT DOES THAT MEAN NOW COMING OUT OF THAT DECISION, COMING OUT OF THAT STATEMENT AND THAT PRESSER? WHAT DOES PATIENCE MEAN FOR YOU? HAS IT CHANGED AT ALL? [00:05:04] Speaker 5: THE PATIENCE IS BASED ON VALUATIONS. THE RISK ON IN THE EQUITY MARKETS HAS BEEN GREAT FOR THE CREDIT MARKETS. CREDIT SPREADS HAVE TIGHTENED BACK INTO THE TIGHTS OF THE YEAR. VALUATIONS ARE TIGHT. CREDIT CURVE IS FLAT MEANING YOU DON'T GET PAID AS MUCH TO GO OUT OF THE CREDIT CURVE. AS A CREDIT INVESTOR, IT IS TIME TO BE PATIENT, REALLY WORRY ABOUT BOND SELECTION AND TRY TO AVOID POTENTIAL HICCUPS COMING DOWN THE PIPELINE. [00:05:30] Speaker 3: YOU KNOW, IF WE ARE IN A SITUATION WHERE POLICYMAKERS HAVE TO REMAIN PATIENT AND WE SEE RATES BASICALLY STAY AROUND THESE LEVELS WHEN IT COMES TO THEIR BENCHMARK RATES, WHAT DOES THAT PLAY LOOK LOOK LIKE WHEN IT COMES TO BOND MARKETS MORE BROADLY WHEN YOU THINK ABOUT NOT JUST CORPORATE CREDIT, BUT YOU THINK ABOUT SECURITIZED CREDITS AND SOME OF THOSE AS WELL. IF WE ARE IN A SORT OF HIGHER-ISH RATE ENVIRONMENT FOR THE FORESEEABLE FUTURE, WHAT DOES THAT MEAN FOR YOU? [00:06:01] Speaker 5: HIGHER BUT STABLE CAN BE GOOD FOR THE CREDIT MARKETS. YOU KNOW, FUNDAMENTALS ARE STILL PRETTY STRONG, EARNINGS ARE GOOD, HOUSING MARKETS KIND OF GOING SIDEWAYS IN PRICE, BUT CREDIT PERFORMANCE IS STRONG, SO WE COULD STAY IN THIS UNCOMFORTABLY TIGHT SPREAD ENVIRONMENT FOR SOME TIME. AND SO HIGHER FOR LONGER MEANS FLOATING RATE SECURITIES CAN STILL OFFER ATTRACTIVE EXTRA YIELD. THE SHORT-TERM SECURITY IS KIND OF PRICING OFF THE TWO-YEAR PORTION OF THE CURVE LOOKING INTERESTING GIVEN HOW FLAT THE CURVE IS NOW. AND SO I KIND OF LIKE HUGGING THE FRONT END OF THE CURVE IN THE MIX OF FLOATING AND SHORT-TERM FIXED-RATE SECURITIES. TAKES A LITTLE BIT OF CREDIT RISK, MORE INVESTMENT-GRADE CREDIT RISK. YOU CAN GET PAID STILL 100, 150 BASIS POINTS OVER THOSE TREASURY YIELDS, AND THAT'S 5.5%, 6%, NOT TOO BAD. [00:06:49] Speaker 2: I'M CURIOUS WHAT YOU MADE OF SOME OF THIS COMMENTARY, LIMITED COMMENTARY, IF YOU WILL, ABOUT THE BALANCE SHEET AND POTENTIALLY THE DIRECTION OF WHERE THAT GOES. [00:06:59] Speaker 5: WHAT DO YOU THINK? WELL, THEY MENTIONED THAT THEY'RE GOING TO STAY ACCOMMODATIVE FROM A LIQUIDITY STANDPOINT. SO I THINK THEY'RE GOING TO STILL HELP THE REPO MARKETS OUT. BUT WE KNOW THAT HE'S NOT A HUGE FAN OF RUNNING BIG BALANCE SHEETS. SOME PEOPLE ARE WORRIED ABOUT A MOVE ON THE BALANCE [00:07:14] Speaker ?: SHEET. [00:07:14] Speaker 5: I THINK HE'S, YOU KNOW, HE'S GOT HIS CONSULTING TEAMS THAT NEED TO MEET AND TALK ABOUT IT. SO HE'S KIND OF BIDING HIS TIME AND STAYING PATIENT. BUT I THINK IT'S SOMETHING THAT WILL PROBABLY BE APPROACHED TOWARDS THE END OF THE YEAR, ESPECIALLY IF INFLATION STARTS MAKING ITS WAY DOWN. [00:07:29] Speaker 3: TO THAT POINT, CHAIRMAN WORSH, PROMISING REGIME CHANGE AND ANNOUNCING SEVERAL DIFFERENT TASK FORCES HERE. THOSE FIVE AREAS ARE COMMUNICATIONS, THE BALANCE SHEETS, THE FEDS, USE AND RELIANCE ON EXISTING DATA SOURCES, PRODUCTIVITY AND JOBS AS WELL AS THE CENTRAL BANKS INFLATION FRAMEWORK. SO IT'S INTERESTING TO SEE THE CREATION OF THOSE TASK FORCES AND, YOU KNOW, HIM TAKING THE OPPORTUNITY HIS FIRST TIME AT THE PODIUM TO ANNOUNCE THEM. I'M CURIOUS, OF THOSE DIFFERENT AREAS THAT THE CHAIRMAN SAID THAT THEY'RE GOING TO BE FOCUSING ON, WHICH DO YOU THINK IS MOST URGENT? WHICH ARE YOU MOST INTERESTED TO WATCH? [00:08:08] Speaker 5: I THINK THE FIRST ONE HE'S GOING TO ADDRESS IS COMMUNICATION BECAUSE HE DOESN'T LIKE AS MUCH FORWARD GUIDANCE. SO I THINK HE KIND OF ATTACKS THAT FIRST. WE'LL PROBABLY SEE CHANGES TO THE PRESS CONFERENCE. PROBABLY BE SHORTER. I FEEL IT WAS ALREADY SHORTER FORWARD GUIDANCE FORWARD GUIDANCE THAN POWELL'S USUAL CONFERENCES. THEN, AGAIN, I THINK THAT BALANCE SHEET IS GOING TO TAKE A BACKBURNER FOR NOW. [00:08:33] Speaker 2: THAT WILL BE TOWARDS THE END OF THE YEAR, I THINK. HOW COMFORTABLE ARE YOU WITH THAT, KEN, WITH REGARDS TO [00:08:39] Speaker 5: THE END OF THE YEAR. WHAT IS THE END OF THE END OF THE END OF THE END OF THE YEAR IN COMMUNICATION? WE ARE NOT DOING QUIET. WE ARE NOT DOING QUIET. WE ARE NOT DOING QUIET. WE SHOULD BE MORE NIMBLE. WE SHOULD NOT HAVE TO FOLLOW SOME DOTS THAT WE LAID OUT ON A [00:09:16] Speaker 2: BACKWARDS-LOOKING BASIS AS THE DATA CHANGES. I THINK IT IS A STEP IN THE RIGHT DIRECTION. WITH THE FED MECHANISMS OUT THERE, KEN, IT SOUNDS LIKE FROM WHAT WE HEARD TODAY THAT THAT MIGHT NOT BE LONG FOR THE WORLD. KEN SHINOTA, ALWAYS A PLEASURE. DOUBLE-LINE CAPITAL PORTFOLIO MANAGER AND HIS INSTANT REACTION THERE TO THE KNEE-JERK REACTION IN MARKETS TO THE FED DECISION AND MORE IMPORTANTLY THE FED COMMUNICATION BECAUSE THAT'S REALLY WHAT THIS MEETING WAS [00:09:38] Speaker 3: ALL ABOUT. ABSOLUTELY. SO JEFFREY'S CRUNCHED THE NUMBERS. IN TERMS OF WORD COUNT, THE STATEMENT RELEASED TODAY HAD 130 WORDS. THAT COMPARES TO 341 WORDS FOR [00:09:49] Speaker 2: AMERICAN PEOPLE. AS FAR AS THE PRICE ACTION IN MARKETS, KEN DID MAKE A GOOD POINT ABOUT WHAT YOU SAW ON THAT TWO-YEAR YIELD. THE IDEA OF A MARKET THAT WAS REALLY LOOKING FOR SOMETHING A LOT MORE DOVISH OUT OF THE FED TODAY, THEY DID NOT GET IT. TAKE A LOOK AT THE S&P 500, A 91-POINT DROP, ABOUT 1.2%. AND AS FAR AS THE NUMBER OF STOCKS LOWER, THE PERCENTAGE, I WANTED TO SEE THE DECLINES. THE NUMBER OF STOCKS LOWER, THE NASDAQ COMPOSITE DOWN ABOUT 1.3%, A SIMILAR MOVE LOWER FOR THE NASDAQ 100, DOWN ABOUT A PERCENT. THE RUSSELL 2000 DOWN 7/10 OF A PERCENT. [00:10:32] Speaker 3: THE DOW TRANSPORTS LOWER FOR A THIRD STRAIGHT DAY BY 3%. WE'LL TAKE A LOOK AT THE CIRCLE HERE. IT IS JUST A SEA OF RED INDUSTRIALS DOWN THE LEAST. BUT IN TERMS OF WHAT LED THE DECLINES FOR 11 OF 11 SECTORS, COMMUNICATION SERVICES LOWER BY NEARLY 3% AS A SECTOR. CONSUMER DISCRETIONARY, NOT TOO FAR BEHIND REAL ESTATE CONSUMER STAPLES. THE LIST GOES ON CERTAINLY AGAIN, JUST TO SELL EVERYTHING SORT OF MARKET. [00:11:00] Speaker 2: I HAVE TO REITERATE THAT POINT BECAUSE I WAS LOOKING AT THE DATA. I CAN BELIEVE THIS WAS THE BROADEST SELL-OFF WE'VE HAD ALL YEAR, BUT IT GETS TO THIS IDEA, WE TALKED A LOT ABOUT IT ON THIS SHOW, THAT ANYTIME WE DO HAVE A SELL-OFF, AT LEAST ON THE HEADLINE LEVEL, THERE IS STILL THIS ROTATION UNDER THE SURFACE, WHICH AT LEAST MEANS YOUR PI HAS SOME GREEN ON IT. NONE OF THAT TODAY. [00:11:18] Speaker 3: IT IS PRETTY REMARKABLE. BUT YOU THINK ABOUT WHAT WE GOT FROM THE FED, THE FACT THAT THEY REVISED UP THEIR INFLATION FORECAST WHILE IT REVISED DOWN THEIR UNEMPLOYMENT FORECAST. YOU ADD THAT TOGETHER, THIS WAS A PRETTY HAWKISH MEETING. [00:11:35] Speaker 2: YOU HAVE 19 FOMC MEMBERS, NINE OF THEM, NINE OF THE 18 THAT AREN'T NAMED KEVIN WARSCH, PROJECTING IN THAT SEP A HIKE IN RATES BY THE END OF THE YEAR. IT WASN'T ALL THAT DOVISH, AT LEAST NOT THE INTERPRETATION. TAKE A LOOK AT WHAT WE SAW IN THE YIELD SPACE TODAY. IT IS ALL ABOUT WHAT HAPPENED ON THE SHORT END OF THE CURVE. WE'VE GOT TO TAKE A LOOK AT THE END OF THE CURVE. THAT IS PART OF THE YIELD CURVE THAT THE FED HAS THE MOST CONTROL OVER, A 16 BASIS POINT RISE TO 4.2%. WE SHOULD POINT OUT WE HAVEN'T SEEN A RISE LIKE THAT ON A DAILY BASIS SINCE AT LEAST APRIL 9 OF LAST YEAR. THAT WAS DURING ALL THE EREUCTIONS OVER LIBERATION DAY. THAT WAS DURING THE END OF THE CURVE. THAT WAS DURING THE END OF THE CURVE. THAT WAS DURING THE END OF THE CURVE. THAT WAS DURING ACTION AND I GAVE UP AFTER 2023. IT'S CERTAINLY BEEN A WHILE. ONE OTHER ASPECT I WANT TO POINT OUT, THE DIFFERENCE BETWEEN THE SHORT END OF THE CURVE AND THE LONG END OF THE CURVE, THAT IS BASICALLY YIELD CURVE FLATTENING. I BRING THAT UP, MICHAEL, BECAUSE YOU WROTE SOMETHING, I THINK IT WAS EARLIER TODAY, BEFORE THE MEETING, SAYING YOU WERE ACTUALLY ANTICIPATING TO SEE A FLATTENING OF THE YIELD CURVE. WE ARE SEEING THAT IN A BIG WAY, AT LEAST ON A DAILY BASIS, THE BIGGEST FLATTENING WE HAVE SEEN SINCE 2024. [00:12:45] Speaker 6: CREDIBILITY. KEVIN WAS GOING TO COME OUT AND ESTABLISH THIS IS NOW HIS FED. THINGS ARE GOING TO GET BACK INTO THE WAY HE WANTS IT, WHICH MEANS THE SHIP IS NOW GOING TO STEER TOWARDS THE 2% INFLATION TARGET AND NOT KEEP IGNORING IT. THINGS WERE CHANGING AND HE HAD TO ESTABLISH CREDIBILITY. QUITE FRANKLY, I THINK WE ARE GOING TO SEE SOME FOLLOW THROUGH WITH FURTHER FLATTENING HERE BECAUSE THERE IS GOING TO BE CONTINUE QUESTIONING IF WE GET MORE THAN JUST MAYBE ONE HIKE THIS YEAR. I KNOW THE MARKET NOW HAS PUT IN A HIKE, BUT LET'S THINK WE GET TWO OR THREE NOW POSSIBLY AND THAT'S WHAT SOME OF THE OPTION MARKETS AND SOFARS ARE SHOWING AND PEOPLE ARE STARTING TO TEASE OUT. [00:13:16] Speaker 3: CREDIBILITY IS AN INTERESTING WORD BECAUSE YOU COULD APPROACH IT FROM MANY DIFFERENT ANGLES WHEN IT COMES TO THIS SPECIFIC MEETING, THIS SPECIFIC FED CHAIR. CERTAINLY CREDIBILITY OF THE FED WAS TOP OF MIND WHEN YOU THINK ABOUT THE IDEA THAT WE KNOW THAT PRESIDENT TRUMP WANTS TO SEE LOWER RATES. THE IDEA GOING INTO THIS WAS THAT YOU WERE GOING TO SEE THAT PRESSURE COME ON KEVIN MORISH. TAKING A LOOK AT THE STATEMENT, TAKING A LOOK AT HOW HE PERFORMED AT THE PODIUM, IT DOESN'T SEEM LIKE HE'S NECESSARILY IN ANY RUSH TO LOWER RATES HERE. [00:13:46] Speaker 6: KEVIN IS GOING TO BE HIS OWN MAN. HE HAS A PRETTY DEEP GOP BACKGROUND HIMSELF. HE'S BEEN AROUND. SO I DON'T THINK THE PRESSURE FROM TRUMP, ONE, IS NOT GOING TO COME IMMEDIATELY. THERE WAS SOME FROTH IN THE MARKET. WE'VE OBVIOUSLY SEEN SOME YIELDS FALL. IT WILL BE INTO THIS MEETING. THERE'S SOME WIGGLE ROOM NOW FOR HIM TO PLAY WITH. MEANING BEFORE FINANCIAL CONDITIONS TIGHTENING ENOUGH TO WORRY THE WHITE HOUSE ABOUT THE MIDTERM ELECTIONS. WITH THAT SAID, AGAIN, HE HAS TO COME OUT. HE HAS TO ESTABLISH THAT THIS IS NEW, THIS IS HIM, AND THIS IS ALL GOING TO BE DIFFERENT NOW. THAT'S WHAT THESE TASK FORCES ARE ABOUT. HE'S GOING TO PUT THE STAFF TO WORK. HE'S GOING TO BUILD THE CONSENSUS AROUND THE TABLE, INCLUDING AT THE PRESIDENT LEVEL IN THE REGIONAL BANKS. HE'S GOING TO START TO THINK ABOUT HOW HE WANTS TO GET HIS LONGER-TERM EJECTIVES, WHETHER IT'S SHRINKING THE BALANCE SHEET, WHETHER IT'S LESS COMMUNICATION MEANS. I THINK THAT'S A POSITIVE FOR VOLATILITY. THAT IN ITSELF MAY SUPPORT RISK SENTIMENT AND RISK APPETITE BETTER THAN PEOPLE ARE ANTICIPATING FROM THIS FED MOVE, THIS KNEE-JERK REACTION TODAY. [00:14:36] Speaker 2: WE SHOULD POINT OUT THAT PRESIDENT TRUMP LANDING IN FRANCE FOR A MEETING WITH EMMANUEL MACRON SPEAKING TO REPORTERS. HE WAS ASKED BY OUR JOSH WINDGROVE ABOUT THE FED DECISION AND BASICALLY SAID, I'LL READ IT EXACTLY. ALL RIGHT, THAT THEY HELD RATES, WHATEVER. AMAZING HOW THAT CHANGED. AMAZING HOW IT CHANGED. I WANTED TO TALK ABOUT IT. THE PRESIDENT HAS BEEN TRAVELING, HE MIGHT BE A LITTLE TIRED AND ONCE HE GETS HIS WIND BACK, IT MIGHT BE A DIFFERENT STORY IN A COUPLE OF DAYS. I DON'T WANT TO MAKE LIGHT OF THIS, BUT IT DOES GET TO THIS IDEA OF ARE WE KIND OF IN THIS PERIOD OR ENTERING A PERIOD WHERE WE ARE GOING TO SEE A LOT MORE VOLATILITY AROUND CENTRAL BANK DECISIONS AND JUST THE WHOLE IDEA OF WE'VE HAD THIS COMMUNICATION. WE CAN QUIBBLE AS TO WHETHER IT WAS TOO MUCH FOR THE LONGER-TERM INFLATION PICTURE. IT WAS A LONG-TERM INFLATION PICTURE. [00:15:26] Speaker 6: AT LEAST IT WAS THERE. DO YOU THINK WE WILL GET MORE VOLATILITY NOW THAT WE KNOW IT IS NOT GOING TO BE THERE, AT LEAST NOT AT THE SAME LEVEL? I THINK IT WILL BE GOOD FOR VOLATILITY IN SOME WAYS. THE MARKET WAS CAUGHT OFF SIDES. POSITIONING IN THE FRONT END HAD TO ADJUST QUICKLY. YOU DON'T HAVE TO WORRY ABOUT THE ONE DAY THE FED HAS TO HIKE SUDDENLY UNPREDICTABLY AND ALMOST RUIN THE WHOLE PARTY BECAUSE THEY HAVE BEEN BEHIND FOR SO LONG AND THINGS SPIRAL OUT OF CONTROL. BY GETTING AHEAD OF THE INFLATION STORY WHICH WE'VE ALL BEEN TALKING ABOUT NOW SINCE IRAN AND SINCE THE TARIFFS BECAUSE IT HAS BEEN GROWING NOW FOR 18 MONTHS. IT IS A WAY TO KEEP VOLATILITY LONGER RUN LOWER. IT IS A POSITIVE. [00:16:04] Speaker 3: ON THE INFLATION PICTURE IT IS INTERESTING THAT HE DIDN'T NECESSARILY USE THE WAR AS AN OUT. IT SEEMS LIKE WHAT HE WAS SAYING WHEN IT COMES TO INFLATION THE APPROACH AND HOW THEY ARE THINKING ABOUT INFLATION IT GOES BEYOND JUST WHAT WE ARE SEEING IN THE ENERGY MARKETS THAT PERHAPS IT IS MORE BROAD BASED THAN JUST HIGHER OIL PRICES. IT IS AND I THINK AGAIN THE REAL FOCUS IS ON THIS CORE [00:16:24] Speaker 6: SERVICE INFLATION. IT HAS COME BACK AROUND. WE HAVE SEEN THIS IN THE RECENT CPI, PPI, AND IMPORT PRICE FEEDING INTO WHAT WE KNOW BASICALLY THE NEXT CPI COURSE CPI PRINT WILL BE. IT IS GOING TO BE ACCELERATING. IT NEEDS TO BE ADDRESSED. IT CAN'T BE JUST THIS IS TRANSITORY. WE ARE WAITING. WE ARE PATIENT. KEVIN IS TAKING A DIFFERENT APPROACH. I CAN'T BE SO FAMILIAR WITH HIM YET. HE IS TAKING A DIFFERENT APPROACH SAYING HE WANTS TO GET AHEAD OF THIS. HE WANTS TO SQUASH THE WORRY THAT THIS BECOMES UNANCHORED. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. [00:17:06] Speaker 2: HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. [00:17:52] Speaker 1: HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. HE IS TAKING A DIFFERENT APPROACH. THE COUNTDOWN IS ON. [00:18:02] Speaker 3: EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DAY. [00:18:06] Speaker 2: THIS IS "THE CLOSE." I'M KATIE GRADFIELD. I'M ROMAIN BOSTICK. WE HAD OUR FIRST FED DAY UNDER NEW CHAIRMAN KEVIN WASH. THE MARKET REACTION, CERTAINLY NOT QUITE EXACTLY WHAT A LOT OF PEOPLE THOUGHT. MARKET POSITIONING WAS TILTED TO MORE OF A DOVISH FED IN P-FALL. 1.2% ON THE DAY WITH THE BROADEST BASED SELL-OFF IN TERMS OF THE NUMBER OF STOCKS LOWER VERSUS THE NUMBER HIGHER. THE BROADEST BASED SELL-OFF THAT WE'VE SEEN ALL YEAR. A SIMILAR STORY WITH THE SELL-OFF THAT WE SAW IN THE BOND MARKET WITH TWO-YEAR YIELDS RISING THE MOST ON A ONE-DAY BASIS GOING ALL THE WAY BACK TO APRIL OF LAST YEAR. THE DOLLAR STRENGTHENING VERSUS THE EURO AND REALLY EVERY OTHER CURRENCY BY THE MOST SINCE MARCH OF THIS YEAR. THIS YEAR THERE WERE A FEW BRIGHT SPOTS OUT THERE. YOU DO HAVE SOME GREEN ON THE SCREEN AND SURPRISE IT'S IN THE CHIP SPACE. [00:18:50] Speaker 3: ABSOLUTELY. LED BY THE LIKES OF BROADCOM. SHARES RISING ABOUT 4%. YOUR BIGGEST POINTS CONTRIBUTION TO THE S&P 500 TO THE UPSIDE TODAY. BUT TODAY WAS SO BROAD BASED IN ITS SELL-OFF YOU EVEN SAW SPACEX SHARES FALLING 5%. THE FIRST TIME THAT THEY'VE ACTUALLY DECLINED SINCE THEY WENT PUBLIC LAST WEEK. I ALSO WANT TO HIGHLIGHT MODERNA. ANOTHER BRIGHT SPOT HERE. SHARES RISING ABOUT 11.6%. GETTING WHAT ANALYSTS SAW AS A FAVORABLE READ IN FDA BRIEFING DOCUMENTS FOR THEIR FLU SHOT. MODERNA SHARES HAVING A FANTASTIC DAY. BUT LET'S GET BACK TO OUR TOP STORY THIS HOUR. AND THAT'S KEVIN WORSH HOSTING HIS FIRST PRESS CONFERENCE AS FEDERAL RESERVE CHAIRMAN AFTER THE FOMC VOTED TO HOLD RATE STEADY. WHILE TODAY'S VOTE WAS UNANIMOUS, OFFICIALS WERE SPLIT OVER RATE EXPECTATIONS LATER THIS YEAR. NOW CHAIRMAN WORSH OUTLINING SOME NEW CHANGES COMING TO THE FED UNDER HIS LEADERSHIP, INCLUDING A TASK FORCE TO LOOK AT CENTRAL BANK FUNCTIONS SUCH AS COMMUNICATIONS, THE BALANCE SHEET, EXISTING DATA SOURCES, PRODUCTIVITY, AND THE FED'S INFLATION FRAMEWORK. CERTAINLY A LONG TO-DO LIST, ROMAIN. [00:19:55] Speaker 2: CERTAINLY A LOT OF PEOPLE FOCUS ON THESE FIVE TASK FORCES THAT THE NEW FED CHAIR LAID OUT HERE. I THINK TWO OF THE ONES THAT THE MARKET IS MOST CURIOUS ABOUT IS OBVIOUSLY THE FIRST ONE THAT HE MENTIONED, WHICH WAS OF COURSE, OF COURSE, WAS FED COMMUNICATIONS, BUT ALSO THE IDEA HERE OF THE USE AND RELIANCE ON EXISTING DATA, AND HOW YOU ADJUST THAT, AND WHAT YOU THINK HE CAN DO IN TERMS OF ADJUSTING THAT TO MAKE IT MORE RELEVANT FOR WHERE WE ARE. ON THAT ONE, I HAD A LITTLE BIT HARD TIME UNDERSTANDING WHAT HE MEANS. THAT IS A REALLY NITTY-GRITTY [00:20:32] Speaker 7: DETAIL THING. AS HE MENTIONED IN ONE OF THE QUESTIONS THAT CAME IN THE Q&A, MAYBE ONE OF THE ANSWERS, THE FED IS NOT THE PRODUCER OF MOST OF THESE DATA. IT'S THE PRODUCER OF COURSE OF INDUSTRIAL PRODUCTION AND INTEREST RATES AND LOAN VOLUMES AND THINGS LIKE THAT. BUT MOST OF THE KEY DATA ON PRICES, QUANTITIES, UNEMPLOYMENT, GDP, ARE NOT COMING FROM THE FED. FED STAFF HAVE ALWAYS ENGAGED WITH THE STAFFS OF OTHER STATISTICAL AGENCIES WHEN THEY HAD A THOUGHT ABOUT HOW THINGS MIGHT BE IMPROVED. OR IF THEY JUST WANTED TO KNOW WHAT THE STATISTICAL AGENCIES WERE GOING TO CHANGE AND HOW THAT MIGHT CHANGE, FOR EXAMPLE, THE MEASUREMENT OF INFLATION. SO IT'S NOT LIKE THEY'RE IN TOTAL SILOS. BUT YOU NEED TO REMEMBER THAT VERY LITTLE OF THE DATA THAT GET THE ATTENTION COMES FROM THE FED. [00:21:31] Speaker 2: I AM CURIOUS THOUGH, THEN, WHAT BECOMES THE ASSESSMENT? AND I KNOW THERE'S GOING TO BE A LOT OF HANDWRINGING BY THE MARKETS, AT LEAST, OVER HOW WE SORT OF TRY TO DIVINE EXACTLY WHAT THE FED IS DOING BEHIND CLOSED DOORS. BUT THE IDEA IS THAT THEY WANT SOMETHING THAT'S A LITTLE BIT MORE REAL-TIME, RATHER THAN THE BACKWARD-LOOKING, AT LEAST THE PHRASING THAT WARSH USED WITH SOME OF THAT DATA POINTS. I MEAN, IS THERE EVEN A RELIABLE MECHANISM OUT THERE TO GET SOMETHING, I GUESS, A LITTLE BIT MORE FASTER, BUT ALSO SOMETHING THAT IS INDEED RELIABLE? [00:21:57] Speaker 7: YEAH, THERE ARE. IN THE COMMERCIAL SECTOR, THERE ARE A VARIETY OF DATA FOR DATA SOURCES THAT GIVE YOU DATA, FOR EXAMPLE, ON CONSUMER SPENDING AND OTHER THINGS AS WELL, BUT CONSUMER SPENDING IS OFTEN THE TARGET ON A MUCH QUICKER BASIS. WE GET READINGS ON THAT REALLY QUARTERLY IN THE GDP ACCOUNTS. WE GET READINGS ON THE PRICES, THE CPI MONTHLY. IT IS POSSIBLE TO GET READINGS ON THESE THINGS MORE QUICKLY THAN THE OFFICIAL GOVERNMENT DATA. BUT USERS OF THOSE, IVO, WE SAW A LOT OF THAT DURING THE COVID PERIOD. PEOPLE WERE VERY EAGER TO KNOW WHAT WAS HAPPENING ON ALMOST A DAILY BASIS. I ALWAYS WONDERED ABOUT THE ACCURACY. BETTER TO HAVE IT THAN NOT TO HAVE IT. I DIDN'T DOUBT THAT. BUT I WONDERED ABOUT THE ACCURACY, THE SAMPLING FRAME. THE OFFICIAL GOVERNMENT STATISTICS ARE VERY CAREFULLY CONSTRUCTED. AND I WONDERED ABOUT SOME OF THESE PRIVATE SECTOR INDICES. [00:23:04] Speaker 3: SOMETHING ELSE THAT OF COURSE MARKET PARTICIPANTS GOT USED TO AND REALLY GREW RELY ON DURING COVID IN PARTICULAR WAS SEEMINGLY CONSTANT COMMUNICATION FROM THE FED. WE KNOW THAT COMMUNICATION IS ONE AREA THAT NEW CHAIRMAN WORSH IS FOCUSED ON. IT LOOKS LIKE HE DIDN'T SUBMIT A DOT TO THIS DOT PLOT. YOU TAKE A LOOK AT THE STATEMENT ITSELF, THE WORD COUNT DOWN DRAMATICALLY FROM THE STATEMENT THAT WE GOT IN APRIL. AND THERE IS THIS IDEA OUT THERE THAT WE COULD BE HEADED BACK TOWARDS A MORE 1990S SORT OF FED, A MORE ALLEN GREENSPAN ERA STYLE OF POST MEETING COMMUNICATION. AND THINKING ABOUT WHAT WE GOT TODAY, WHAT WE HEARD FROM THE CHAIRMAN, I WONDER IF THAT IS YOUR ASSESSMENT AS WELL. [00:23:47] Speaker 7: IT COULD BE, AND IT IS NOT SOMETHING I REALLY LIKE. YOU ARE PROBABLY TOO YOUNG TO REMEMBER WHEN I WAS VICE CHAIRMAN OF THE FED, BUT THE THING THAT I FOUGHT -- I DON'T MEAN FOUGHT -- THE THING THAT I OBJECTED TO GREENSPAN MOST WAS THE LACK OF COMMUNICATION. THE MARKETS WOULD GET SOME CRAZY IDEAS IN THEIR HEADS. AND MORE THAN ONCE I WENT TO GREENSPAN AND WOULD SAY IT WOULD ONLY TAKE ONE STATEMENT FROM YOU TO GET THAT CRAZY IDEA OUT OF THEIR HEADS. BUT HE DIDN'T. UNTIL LATE IN HIS TERM WHEN HE WAS STARTING TO CHANGE. I DON'T REALLY LOOK WITH EQUALIMITY GOING BACK TO THE BAD OLD DAYS WHEN THE FED WAS JUST INSCRUTABLE. [00:24:29] Speaker 3: I WILL SAY I WAS ALIVE DURING THE 1990s. I WASN'T PAYING VERY CLOSE ATTENTION. NOW, OF COURSE, TODAY, I WISH I WAS. I ALSO DO WANT TO TALK A LITTLE BIT ABOUT THE COMMUNICATION THAT WE COULD SEE FROM THE REST OF THE COMMITTEE, BECAUSE YOU HAVE MADE RECENT COMMENTS THAT, YOU KNOW, TO THE EXTENT THAT THE CHAIR CAN GET SOME MESSAGE DISCIPLINE ON THE REST OF THE COMMITTEE, IT'S FINE FOR THEM TO TALK. HOW DO YOU ACTUALLY BUILD THAT CONSENSUS? YOU THINK ABOUT THE FED THAT KEVIN WORSH IS INHERITING. IT'S A VERY DIVIDED GROUP. AND HE IS BRAND NEW. AS SOMEONE WHO HAS BEEN IN THE ROOM BEFORE, I MEAN, HOW DO YOU ACTUALLY BUILD THAT CONSENSUS AND THAT AUTHORITY TO SPEAK ON THE COMMITTEE'S BEHALF AND MAYBE SORT OF TRY TO INFLUENCE WHAT THEY'RE ALSO SAYING PUBLICLY AS WELL? [00:25:17] Speaker 7: THERE ARE A FEW WAYS YOU DO IT. ONE IS BY CAJOLING, BEGGING, ASKING PEOPLE TO TRY TO STAY ON SCRIPT. NOW, WHEN I SAY STAY ON SCRIPT, I DON'T MEAN TO READ EXACT WORDS THAT ARE PUT IN FRONT OF YOUR FACE LIKE MANY POLITICIANS DO. BUT TO STAY ON MESSAGE IS WHAT I REALLY SHOULD HAVE SAID. SO YOU DON'T WIND UP HAVING MARKETS HERE, A, B, C, D, ALL THESE DIFFERENT VARIANTS, SOME OF WHICH SOUND CONTRADICTORY TO ONE ANOTHER. ANOTHER THING YOU DO IS GIVE PEOPLE IN THE MEETING AND AFTER THE MEETING THEIR HEADS. LET THEM TALK. LET THEM GET IT OUT, GET IN FRONT OF THE REST OF THE COMMITTEE WHAT THEY THINK. DON'T TRY TO MAKE THIS A CLOSED, A SEMI-CLOSED MEETING DOMINATED BY THE CHAIRMAN. GIVE EVERYBODY A CHANCE TO FEEL THAT THEY'RE INCLUDED IN THE DECISION-MAKING. AND THEN FINALLY, YOU MAY, GREENSMAN USED TO DO THIS, BY THE WAY, YOU MAY GIVE THEM SOME WORDS IN THE STATEMENT THAT MAKE THEM HAPPIER. A NUANCE OF SOMETHING AND YOU PUT IT IN THE STATEMENT FOR EVERYBODY TO READ. SO IT'S A MELANGE OF THINGS, NONE OF WHICH ADDS UP TO PERFECTION. IT'S NOT GOING TO BE LIKE ONE PERSON SPEAKING WITH ONE VOICE WHEN YOU HAVE 19 PEOPLE ON A COMMITTEE. [00:26:38] Speaker 3: THAT'S A GOOD PLACE TO LEAVE IT. IT'S REALLY GREAT TO GET YOUR PERSPECTIVE ON A DAY LIKE TODAY. THAT IS ALLEN BLINDER. HE IS FORMER FED VICE CHAIR AND PROFESSOR OF ECONOMICS AND PUBLIC AFFAIRS AT PRINCETON UNIVERSITY. WE'LL ASK DANA PETERSEN, CHIEF ECONOMIST AND LEADER OF THE ECONOMY STRATEGY AND FINANCE CENTER OVER AT THE CONFERENCE BOARD NEXT. THIS IS THE CLOSE ON BLOOMBERG. WE'RE FOLLOWING THE AFTERMATH OF KEVIN WORSH'S FIRST FOMC MEETING AS FED CHAIR. IS THIS NEW ERA FOR THE FED ENOUGH TO SAVE FLAILING CEO CONFIDENCE, WHICH OUR NEXT GUEST SAYS WENT NEGATIVE IN THE SECOND QUARTER AFTER AN OPTIMISTIC START TO THE YEAR. JOINING US LIVE TO DISCUSS IS DANA PETERSEN. SHE IS CHIEF ECONOMIST AND LEADER OF THE ECONOMY STRATEGY AND FINANCE CENTER OVER AT THE CONFERENCE BOARD. DANA, GREAT TO HAVE YOU WITH US. THE REPORT THAT I'M REFERENCING CAME OUT IN LATE MAY TALKING ABOUT HOW YOU SAW CONFIDENCE AMONG THE C-Suite REALLY TAKE A TUMBLE IN THE SECOND QUARTER. YOU THINK ABOUT KEVIN WORSH REALLY RESTATING THE FED'S COMMITMENT TO INFLATION, BRINGING IT UNDER CONTROL, PRICE STABILITY. HOW DO YOU THINK THAT IS BEING RECEIVED? [00:27:56] Speaker 8: I THINK COMPANIES REALLY APPRECIATE THAT PROMISE, OR AT LEAST THE COMMITMENT FOR KEEPING PRICE STABILITY AND MAINTAINING IT. I THINK THAT IS REALLY IMPORTANT GIVEN THE FACT THAT INFLATION HAS BEEN AVERAGING HIGHER OVER THE LAST YEAR AND A HALF. SOME OF ITS TARIFFS, WE OF COURSE HAD THE OIL PRICE SHOCK AND THEN THE PASS THROUGH THROUGH THE SUPPLY CHAINS AND ALL THOSE THINGS ARE NOT ONLY CONCERNING BUSINESSES BUT ALSO CONSUMERS. SO I THINK THAT COMMITMENT TO PRICE STABILITY IS REALLY [00:28:28] Speaker 3: IMPORTANT. WEIGH THAT AGAINST THE IDEA THAT JUST TAKING A LOOK AT WHAT MARKETS ARE EXPECTING, WE ARE NOT GOING TO SEE RATES MOVE LOWER ANYTIME SOON. IN FACT, YOU HAVE THE BOND MARKET PRICING IN A FULL 25 BASIS POINT RATE HIKE BY OCTOBER. OF COURSE, THE CENTRAL BANK HERE COMMITTED TO PRICE STABILITY. HOW DOES THAT SORT OF WASH OUT AGAINST THE IDEA THAT WE ARE [00:28:54] Speaker 8: NOT GETTING INTEREST RATE RELIEF ANYTIME SOON? I THINK IT'S GOING TO BE A TEMPORARY SHOCK AND PASS THROUGH AND WE DON'T REALLY NEED TO DO ANYTHING. JUST SIT TIGHT. AND OTHERS ARE SAYING THIS MAY BE MORE PERSISTENT AND WE ALSO HAVE THESE OTHER STRUCTURAL DRIVERS OF INFLATION THAT ALSO ADD ON TO THE SHOCKS. SO MAYBE WE NEED TO BE A LITTLE BIT STRICTER. BUT I THINK THAT, YOU KNOW, FOR THE MOST PART, THEY'RE PROBABLY NOT GOING TO DO ANYTHING THIS YEAR. [00:29:34] Speaker 2: YEAH. WELL, I AM CURIOUS THERE, DANA. I MEAN, YOU KIND OF CAME OUT OF THE GATE AND ACKNOWLEDGED THE IDEA OF THE 2% SORT OF THE RUNNING -- EXCUSE ME -- THE RUNNING ABOVE THAT 2% TARGET NOW FOR FIVE YEARS. HE THEN, OF COURSE, TALKED ABOUT THIS IDEA HOW HE ROUNDS DOWN AND AS LONG AS THERE'S A TWO ON ONE SIDE OF THE DECIMAL, HE DOESN'T CARE ON THE OTHER. EVEN THOUGH WE'RE AT 2.9 ON HEADLINE INFLATION. SO I THINK YOU WOULD RISE UP. AND, OF COURSE, CORE PCE IS EVEN HIGHER THAN THAT. BUT IT RAISES THE QUESTION AS TO -- AND I'M GOING TO BORROW A QUESTION THAT SOMEONE ASKED HIM DURING THAT PRESS CONFERENCE. IT'S ONE THING TO SPEAK TO THE MARKET. IT'S ANOTHER THING THAT IF YOU RAN INTO SOMEBODY AT THE GROCERY STORE AND THEY ASKED YOU ABOUT THE PRICES, WHAT WOULD YOU COMMUNICATE TO THEM? GIVEN WHAT YOU DO FOR A LIVING AND BASICALLY SURVEYING WHAT I GUESS REAL PEOPLE ON THE GROUND OFTEN THINK, I DO WONDER IF THE COMMUNICATION MECHANISM TO THE PUBLIC MIGHT BE A LITTLE BIT OFF-KILTER THAN MAYBE WHAT HE'S TRYING TO COMMUNICATE TO THE MARKETS. [00:30:30] Speaker 8: WHAT DO YOU THINK ABOUT THE MARKETS? DIFFERENT COMMUNICATIONS. MARKETS WANT TO KNOW ABOUT FINANCIAL CONDITIONS. CONSUMERS WANT TO KNOW ABOUT HOW MUCH BREAD COSTS. I THINK THE COMMUNICATION TO THE CONSUMER IS ALSO PROMISING THEM, YES, THE FED IS GOING TO BE VERY FOCUSED ON KEEPING INFLATION DOWN BECAUSE THERE IS THAT KIND OF MOVEMENT. IF INFLATION IS LOW, YOU CAN GROW INFLATION DOWN. YOU CAN GROW THEM INFLATION AND ALSO HAVE TECHNOLOGY COME IN AND BRING DOWN INFLATION. THOSE THINGS TAKE TIME. I THINK THAT FOR MOST CONSUMERS, THEY UNDERSTAND THE FED DOES HAVE SOME CONTROL OVER INFLATION. FROM AN ECONOMIC PERSPECTIVE, IT IS DEMAND SHOCKS AND DEMAND. WHEN YOU HAVE SUPPLY SHOCKS, THE FED DOESN'T HAVE MUCH CONTROL. YOU CAN PROMISE SOMETHING, BUT IT MAY BE [00:31:24] Speaker 2: DIFFICULT TO EXECUTE. INFLATION IS A CHOICE. INFLATION IS A CHOICE, THE FED IN HIS VIEW IS RESPONSIBLE FOR A LOT OF THE INFLATION. A FEW MINUTES LATER, HE WAS TALKING ABOUT THE DIFFERENCE BETWEEN DEMAND AND SUPPLY SHOCKS AND THINGS THAT ARE OUTSIDE OF HIS CONTROL. HE ALSO TALKED ABOUT A TASK FORCE FOR A REIMAGINING OF THE INFLATION FRAMEWORK. I AM CURIOUS ABOUT YOUR OPINION [00:31:51] Speaker 8: DEMAND. I THINK THAT IS CLEAR. IT SEEMS LIKE THERE IS NO DESIRE TO MOVE AWAY FROM A 2% INFLATION TARGET. I THINK THAT STILL NEEDS TO BE DISCUSSED. THERE REALLY WASN'T MUCH TALK ABOUT THE DUAL MANDATE. THERE WAS THAT ONE SENTENCE IN THE STATEMENT THAT REAFFIRMED SOMETHING THAT REAFFIRMED OUT OF THE STATEMENT. I THINK WE HAVE A SHIFT TOWARDS PRICE STABILITY, HOWEVER DONE. BUT PROBABLY LESS FOCUS ON THE LABOR MARKET. IT IS HARD TO SAY WHETHER THAT IS RIGHT OR NOT. ESPECIALLY GIVEN THE FACT THAT WE ARE EXPERIENCING LABOR SHORTAGES IN A NUMBER OF INDUSTRIES. GETTING PEOPLE TO WORK IS NOT THE PROBLEM. UNEMPLOYMENT IS SOMETHING THAT IMPACTS THE INDIVIDUAL. [00:32:53] Speaker 2: WE SHOULD POINT OUT THAT VERY LAST LINE OF THAT STATEMENT FOCUSED ON PRICE STABILITY. DANA PETERSON, CHIEF ECONOMIST AND LEADER OF THE ECONOMY STRATEGY AND FINANCE CENTER AT THE CONFERENCE BOARD AS WE CONTINUE TO BREAK DOWN KEVIN WARSH'S FIRST MEETING AS FED CHAIR. WE'LL TALK TO SOMEBODY WHO HAD A CHANCE TO WORK WITH HIM BACK IN THE DAY, SHEILA BEHR, FORMER FDIC CHAIR, JOINS US NEXT. [00:33:18] Speaker 4: WE HAVE THE CAPABILITY AND COMMITMENT TO DELIVER ON OUR PRICE STABILITY OBJECTIVE OF 2%. THAT'S EXACTLY WHAT WE'RE GOING TO DO. IN THE FED'S REVIEW OF ITS STRATEGY OVER THE LAST ANY NUMBER OF YEARS, IN JANUARY, THE FED, INCLUDING THE STRATEGY THAT WE'RE STILL BOUND BY, THE FED STATEMENT SAYS THAT INFLATION IS PRIMARILY DETERMINED BY MONETARY POLICY. [00:33:41] Speaker 2: YOU BET IT IS. AND THAT IS KEVIN WARSH, THE FEDERAL RESERVE CHAIR, LEADING HIS FIRST MEETING TODAY. OUR NEXT GUEST HAS HAD A CHANCE TO WORK WITH HIM OVER THE YEARS. FIRST, OF COURSE, WHEN WARSH WAS AT THE WHITE HOUSE AND SHE WAS AT THE TREASURY DEPARTMENT, AND LATER WHEN WARSH WAS ON THE FED BOARD OF GOVERNORS AND SHE WAS LEADING THE FDIC. SHE JOINS US RIGHT NOW, SHEILA BEHR, FORMER FDIC CHAIR AND SENIOR FELLOW AT THE CENTER FOR FINANCIAL STABILITY. SHEILA, GREAT TO HAVE YOU HERE. QUICK REACTION HERE. I DON'T KNOW IF YOU HAD A CHANCE TO SEE KEVIN WARSH PERFORM TODAY. I CAN TELL YOU, IT IS HARD TO GET IN FRONT OF JOURNALISTS AND ASK YOU A BUNCH OF QUESTIONS THAT YOU PROBABLY DON'T WANT TO ANSWER. WHAT DID YOU MAKE OF THIS PRESS CONFERENCE? [00:34:21] Speaker 9: I CAUGHT MOST OF IT. I THOUGHT HE DID A NICE JOB. HE STUCK TO HIS GUNS ON NOT TRYING TO PREDICT IN THE FUTURE WHAT MIGHT HAPPEN ONE WAY OR THE OTHER. HE WAS VERY JUDICIOUS ABOUT SHARING THE CONVERSATIONS THAT OCCURRED AT THE FOMC. VERY FIRM COMMITMENT ON PRICE STABILITY, WHICH I WELCOME. SO, YEAH, I GIVE HIM AN A-PLUS. I THINK HE DID A GREAT JOB. [00:34:41] Speaker 2: THIS GETS TO THE QUESTION NOW. A LOT OF PEOPLE ARE FOCUSED ON THE PRICE STABILITY LANGUAGE IN THE STATEMENT AND FOCUSED ON THAT IN THE PRESS CONFERENCE. AND THIS WAS REALLY SORT OF TOP OF MIND, OBVIOUSLY BECAUSE OF THE WAR IN IRAN, BUT EVEN PRIOR TO THAT, WHEN YOU LOOK AT THE STATEMENT, YOU LOOK AT THE SUMMARY OF ECONOMIC PROJECTIONS AS TO HOWEVER RELIABLE THEY CAN BE AND WHAT WAR SAID TODAY, WHAT EXACTLY DO YOU THINK HE AND MORE IMPORTANTLY THE FED CAN DO OVER THE NEXT FEW MONTHS AND NEXT FEW FED MEETINGS TO TRY TO CONTAIN INFLATION AND BRING IT DOWN? [00:35:09] Speaker 9: YEAH, SO I THINK THE FIRST, YOU KNOW, DO NO HARM. INFLATION HAS BEEN PERSISTENT. I'M HOPING IT WILL COME DOWN. IT SHOULD COME DOWN IF THE STATE OF HOMOZ IS TRULY OPEN AND WE CAN GET ENERGY PRICES BACK DOWN TO WHERE THEY WERE BEFORE. SO WHAT YOU DON'T WANT TO DO IS, WHEN YOU STILL HAVE A SUPPLY CONSTRAINED ECONOMY, TO MAKE IT WORSE BY LOWERING RATES. SO I THINK HOLDING FIRM WAS ABSOLUTELY THE RIGHT CHOICE. IF EVEN WITH OIL IS FLOWING AGAIN AND WE STILL HAVE INFLATION, THEN I THINK THEY WILL HAVE TO REASSESS WHETHER THEY NEED A RATE HEIGHT. BUT I DO THINK THE MARKETS ARE ASSUMING THAT THERE'S GOING TO BE A RATE HIGH AND I'M NOT SURE WHY. NINE FOMC MEMBERS SAID THEY WANTED IT HIGHER. NINE SAID THE SAME OR LOWER. AND THEN THE CHAIRMAN OBVIOUSLY DIDN'T SAY ANYTHING. HE'S KIND OF IN THE CAPRID SEAT ON THIS. SO I'M NOT ASSUMING THERE IS GOING TO BE A RATE HACK LATER THIS YEAR. I THINK IT'S ALL GOING TO BE ABOUT WHAT HAPPENS WITH THE INFLATION NUMBERS. BUT I DIDN'T READ THAT AS DEFINITIVELY AS THE MARKET SEEMED TO BE GIVEN THE WAY THE STOCK MARKETS REACTED. ABSOLUTELY. [00:36:12] Speaker 3: THE STOCK MARKET AND THE BOND MARKET, YOU SEE THAT SURGE IN TWO-YEAR TREASURY YIELDS. TRADERS FULLY PRICING IN A FULL 25 BASIS RATE HIKE BY OCTOBER, IT CURRENTLY LOOKS LIKE. YOU MENTIONED OIL AND OF COURSE YOU MENTIONED INFLATION. BUT I THOUGHT IT WAS REALLY INTERESTING THAT THE FORECAST FOR 2026 CORE INFLATION, WHICH OF COURSE EXCLUDES FOOD AND ENERGY, THAT ALSO INCREASED TO 3.3 PERCENT FROM 2.7 PERCENT, SUGGESTING THAT THIS ISN'T JUST ABOUT ENERGY WHEN IT COMES TO SOME OF THE INFLATIONARY EXPECTATIONS. [00:36:45] Speaker 9: THAT'S ABSOLUTELY RIGHT. I THINK, YOU KNOW, ENERGY WAS TRENDING DOWN. IT WAS HELPING MR. TRUMP EARLY ON BEFORE HE LAUNCHED THIS WAR. BUT, YEAH, WE HAVE INFLATION AND HOUSING CONTINUES TO BE A PROBLEM, SERVICES, SOME ISSUES THERE. SO WE'RE NOT OUT OF THE WOODS, EVEN IF ENERGY PRICES COME DOWN. IT'S GOING TO BE A LOT BETTER, BUT WE'RE NOT OUT OF THE WOODS. I THINK -- BUT THERE AGAIN, BACK TO THE QUESTION OF WHAT CAN THE FED DO ABOUT IT, SO MUCH OF HOUSING IS DEALING WITH SUPPLY, NOT TO -- NOT TO DEMAND. AND IF YOU LOWER RATES TO GET MORTGAGE RATES DOWN, WHEN SUPPLY IS STILL CONSTRAINED, YOU COULD HAVE -- YOU COULD JUST BE OFFSETTING IT WITH HIGHER HOME PRICES. SO FINALLY, THERE'S BEEN A FOCUS ON GETTING MORE HOUSING SUPPLY. AGAIN, THAT TAKES TIME. BUT WE'RE STILL SEEING SOME PROGRESS. SO DEFINITELY THERE ARE OTHER ISSUES. BUT, YOU KNOW, I THINK IT'S IMPORTANT TO -- YOU KNOW, IT'S IRONIC TO ME THAT MR. TRUMP WENT AFTER JAY POWELL SO HARD BECAUSE HE WAS REALLY DOVISH. I MEAN, YOU SAW A HALF DOZEN RATE CUTS BEGINNING IN 2024, WHEN WE WERE STILL ABOVE TARGET SIGNIFICALLY IN SOME OF THAT TIME PERIOD. SO, YOU KNOW, IT'S KIND OF LIKE WHY ARE YOU UNHAPPY WITH HIM IF THERE'S A CRITICISM OF HIM? AND I THINK HE WAS A GOOD CHAIR, BUT IT WAS LIKE HE WAS TOO DOVISH, NOT THE OTHER WAY AROUND. SO JUST BECAUSE WE'RE ABOVE TARGET IN THE PAST AT LEAST DOESN'T MEAN THAT THE FED IS GOING TO HIGH RATES. SO I THINK IT REALLY DEPENDS ON WHAT THE TRENDS ARE AND HOW HIGH UP IT IS. AND SOME OF THIS STUFF, I THINK, ESPECIALLY HOUSING, CAN GET SORTED OUT OVER TIME. AND I THINK WE'RE SEEING SOME PROGRESS THERE ALREADY. [00:38:18] Speaker 3: WELL, SHEILA, YOU MADE THE CASE THAT YOU DON'T REALLY SEE THE CASE, THE LOGIC HERE FOR A RATE HIGH IN THIS ENVIRONMENT. I DO WANT TO TALK ABOUT THE OTHER SIDE OF THAT. YOU KNOW, A CUT IN THIS ENVIRONMENT. WHAT WOULD BE THE COST OF A PREMATURE CUT AT THIS POINT? [00:38:36] Speaker 9: YEAH. I THINK THE LAST THING YOU WANT TO DO IS REIGNITE OR MAKE INFLATION WORSE. AND I HOPE MR. TRUMP RECOGNIZES THAT. YOU KNOW, HE WON LARGELY BECAUSE OF THE COST OF LIVING. THAT WAS KILLING THE DEMOCRATIC TICKET. AND THEN AGAIN, I THINK THE FED BEARS SOME RESPONSIBILITY FOR THAT. SO FOR HAVE HIS NEW FED CHAIR TO COME IN AND PUT PRESSURE ON HIM TO LOWER RATES, WHICH WILL REIGNITE INFLATION, WHICH WILL MAKE THE SITUATION WORSE AND VOTERS EVEN MORE UNHAPPY COMING INTO THE NOVEMBER ELECTIONS. I THINK THAT IS AGAINST HIS INTEREST. SO I WOULD SAY THERE IS ENOUGH UNCERTAINTY NOW WITH THE WAR. IS IT REALLY ENDING? IS IT REALLY ENDING? IS IT REALLY REOPENING? JUST STANDING PAT, WHICH WAS THE UNANIMOUS DECISION, AT LEAST FOR THIS MEETING, I THINK MAKES TONS OF SENSE. AND WE'LL SEE WHAT THE TRENDS ARE IN OCTOBER. BUT, YOU KNOW, IF HE NEEDS TO HIKE, HE NEEDS TO HIKE. AND THE PRESIDENT NEEDS TO SUPPORT HIM ON THAT. BECAUSE THE COST OF LIVING IS HURTING TRUMP, IT'S HURTING REPUBLICANS, AND THEY NEED TO HAVE A FED CHAIR THAT HAS THE INDEPENDENCE AND TO MAKE THE RIGHT DECISIONS ON THIS. [00:39:41] Speaker 2: WELL, IT GETS TO THIS IDEA, TOO. I AM CURIOUS, SHEILA, JUST ABOUT SOME OF THE LONGER-TERM ISSUES THAT WASH WANTS TO TACKLE. HE LAID OUT THAT HE WAS STARTING TASK FORCES TO DEAL WITH THE FIVE ISSUES, INCLUDING HOW TO DEAL WITH THE BALANCE SHEET, WHICH IS SOMETHING THAT HASN'T BEEN DEALT WITH. HOW TO MOTENTIALLY CHANGE FED COMMUNICATION, OBVIOUSLY THE INFLATION QUESTION. ONE THING THAT I ZEROED IN ON, AND THIS IS THE OTHER SIDE OF THE MANDATE, IT HAS TO DO WITH JOBS, AND HE COUCHED THAT IN THE SAME SENTENCE AS PRODUCTIVITY, THE IDEA THAT YOU HAVE, IN HIS VIEW, PRODUCTIVITY IMPROVEMENTS COMING DOWN THE WAY. I'M CURIOUS ABOUT THE LINK TO JOBS, AND THEN WHETHER THERE'S A READ-THROUGH INTO HOW HE MAY BE VIEWING SORT OF THE TRACT OF INFLATION. YEAH. [00:40:19] Speaker 9: WELL, I THINK IN GENERAL, I MEAN, HE SAID IN THE PAST, HE WAS A LITTLE MORE GUARDED THIS TIME, THE AI, THE PRODUCTIVITY GAINS, THE AI MEANING YOU CAN HAVE A BOOMING LABOR MARKET AND BOOMING PRODUCTIVITY, AND YOU DON'T NEED TO WORRY ABOUT A BOOMING LABOR MARKET FLOWING THROUGH TO INFLATION. SO, GENERALLY, I DO AGREE WITH HIM THAT THE FED NEEDS TO BE FOCUSED MORE ON SUPPLY. HE SAID THAT TODAY, THEY'RE SO FOCUSED ON DEMAND, BUT INFLATION IS A RESULT OF DEMAND SUPPLY IMBALANCES. AND SO, IF THE LABOR MARKET IS GOING GREAT GUNS, IF PRODUCTIVITY IS GROWING GREAT GUNS TOO, YOU DON'T NEED TO WORRY ABOUT THAT. THAT'S BEST FOR EVERYBODY. AND THE CONVENTIONAL WASM IN THE PAST HAS BEEN, OH, MY GOSH, THE LABOR MARKET IS GOING UP, WAGES ARE GOING UP. WE NEED TO STOP THE PARTY. THAT'S GOING TO BE INFLATIONARY. WE NEED TO RAISE RATES. I DON'T KNOW THAT THAT'S NECESSARILY THE CASE. AND YOU'VE HAD THIS PERVERSE SITUATION FOR YEARS NOW WHERE EVERY TIME WE HAVE GOOD LABOR MARKET DATA, THE STOCK MARKET GOES DOWN. SO, IF HE CAN BREAK THAT KIND OF THINKING, I THINK THAT'S GOOD. AND, BUT, AGAIN, THERE ARE TIME LAGS IN TERMS OF ANY BENEFITS TO AI. THERE ARE GOING TO BE TIME LAGS. AND RIGHT NOW IT'S FUELING THE DEMAND SIDE. SO, THEY NEED TO FOCUS. BUT I THINK THE IMPORTANT POINT IS HE'S GOING TO FOCUS ON BOTH. AND I DON'T THINK THAT'S BEEN DONE ENOUGH IN THE PAST. AND I THINK THAT WILL RESULT IN MORE SENSIBLE MONETARY POLICIES. ALL RIGHT, SHEILA. [00:41:42] Speaker 3: REALLY GREAT TO GET SOME TIME WITH YOU TODAY. THAT IS SHEILA BAIR. FORMER FDIC CHAIR AND SENIOR FELLOW AT THE CENTER FOR FINANCIAL STABILITY. [00:41:51] Speaker 2: I KNOW THAT YOU DON'T WANT TO MAKE TOO MUCH OUT OF THE KNEE-JERK MARKET REACTION ON THE DAY OF. IF YOU RUN THE WORK FUNCTION ON THE BLOOMBERG TERMINAL, WE HAVE A MARKET PRICING IN AT LEAST ONE RATE HIKE BY THE END OF THIS YEAR AND THE SECOND ONE BY THE FIRST QUARTER OF NEXT YEAR. MEANWHILE, I SAW A HEADLINE ACROSS THE BLOOMBERG TERMINAL A LITTLE WHILE AGO. THE CITIGROUP IS NOW SEEING THE FED RATE CUT IN OCTOBER. IT HAD ALREADY BEEN FORECASTING ONE FOR SEPTEMBER. IT'S BASICALLY A LITTLE MORE HAWKISH SAYING WE MIGHT HAVE TO WAIT A MONTH BEFORE WE GET THAT CUT. THIS IS GOING TO BE THE PARLOR GAME FOR THE NEXT FEW MONTHS AS PEOPLE TRY TO FIGURE OUT WHERE THE FED IS GOING. [00:42:25] Speaker 3: ABSOLUTELY. IT REALLY RAISES THE STATES ON ANY INFLATION DATA THAT WE GOT. EVEN THOUGH THE STATEMENT DIDN'T HAVE A LOT OF WORDS IN IT, THE WORDS THAT IT DID HAVE, IT USED TO TALK ABOUT THAT COMMITMENT TO PRICE STABILITY THERE. DID YOU READ ALL OF THOSE WORDS? OVER AND OVER AGAIN. I KNOW THAT YOU DID AS WELL. YOU PROBABLY HAVE IT MEMORIZED. [00:42:45] Speaker 2: PARTICULARLY THAT LAST LINE AND JUST FOR OUR VIEWERS, WE SHOULD POINT OUT THAT I THINK NEXT WEEK WE GET AN UPDATE ON THE PCE NUMBERS. THAT'S JUNE 25TH. AND THEN WE HAVE TO WAIT A FEW MORE WEEKS. IN MID-JULY WE GET THAT LATEST UPDATE ON CPI AND PPI. SO A LOT GOING ON BEFORE WE GET TO THE NEXT FED MEETING THAT IS GOING TO GIVE US MAYBE A LITTLE CLARITY ABOUT WHERE THEY GO. [00:43:08] Speaker 3: ABSOLUTELY. YOU THINK ABOUT ALL THAT DATA COMING, THE FACT THAT WE MIGHT BE HEARING LESS COMMUNICATION FROM THE FEDERAL [00:43:13] Speaker 2: RESERVE. [00:43:17] Speaker 3: WE HAVE A WHOLE FED SPECIAL THAT IS BUILT AROUND THESE MEDIENTS. [00:43:21] Speaker 2: MORE VOLATILITY IN THE MARKETS, IT IS A TRADERS' [00:43:23] Speaker ?: PARADISE. JULY 29TH, 2:00 P.M. [00:43:23] Speaker 2: IT STARTS AT 1:30 P.M. [00:43:33] Speaker 3: THIS IS BLOOMBERG, BY THE WAY. CLOSELY TRACKING THE BOND MARKET IN THE WAKE OF TODAY'S FED DECISION TO LEAVE RATES UNCHANGED. A FOURTH STRAIGHT HOLD FROM THE CENTRAL BANK AND A WIDELY EXPECTED MOVE FROM KEVIN WORSH'S FIRST MEETING AS CHAIRMAN. WHAT OUR NEXT GUEST SAYS IS THE HEALTHIEST GLOBAL HIGH-YIELD MARKET STRUCTURE SHE HAS SEEN IN DECADES. JOINING US LIVE IN STUDIO IS KELLY BURTON. SHE IS HIGH-YIELD PORTFOLIO MANAGER OVER AT BEARINGS. KELLY, GREAT TO HAVE YOU WITH US. THERE IS A LOT TO GET INTO WHEN IT COMES TO HIGH-YIELD. BUT WE HAVE TO COUCH THIS CONVERSATION IN WHAT WE JUST HEARD FROM THE FEDERAL RESERVE. SO A CLEAR FOCUS HERE ON INFLATION, RESTORING AND MAINTAINING PRICE STABILITY. AND THE IDEA THAT WE COULD SEE A FED IN A HOLDING PATTERN FOR A WHILE RIGHT NOW AND THEIR NEXT MOVE IS A COIN FLIP. HOW DOES THIS WRAP INTO YOUR WORLD OF HIGH-YIELD DEBT? [00:44:23] Speaker 10: WHILE WE PAY A LOT OF ATTENTION TO INTEREST RATES IN THE FIXED-INCOME MARKET, FORTUNATELY IN HIGH-YIELD WE ARE IN A VERY SHORT-DURATION ASSET CLASS SO THAT KIND OF PROTECTS US SOMEWHAT. THE VOLATILITY WE ARE SEEING POST THE PRESSOR TODAY, THE VOLATILITY WE HAVE SEEN WITH THESE VARIOUS TENSIONS IN THE MARKET ON A YEAR-TO-DATE BASIS, IT HAS REALLY IMPACTED RATES AND EQUITIES MUCH MORE SO THAN IN THE WORLD OF FIXED-INCOME. IN FACT, THE LAST COUPLE OF YEARS, THOSE MARKETS HAVE HAD THREE TO FOUR TIMES LEVEL OF VOLATILITY AS WE HAVE SEEN IN HIGH-YIELD. WHAT WE REALLY FOCUS ON IS TRUE CREDIT RISK AND UNDERWRITING THE PORTFOLIOS ON A VERY DISCIPLINED BASIS. AS YOU MENTIONED, WE ARE IN A PRETTY GOOD SPOT ALREADY. AS WE KNOW, CORPORATE EARNINGS HAVE BEEN VERY RESILIENT THIS YEAR. THAT IS GOING INTO THE HIGH-YIELD MARKET AS WELL. WE HAVE NOW MORE THAN 60% OF OUR CREDITS ARE DOUBLE-B RATED. AND JUST ABOUT 8% OF GLOBAL HIGH-YIELD IS C-C-RATED. YOU ARE NOT SEEING A LOT OF NEW JUNKY ASSETS COMING IN. I THINK ONLY 3% OF OUR MARKET SO FAR THIS YEAR HAS ACTUALLY HAD [00:45:30] Speaker 3: C-C-RATINGS ATTACHED TO IT. INTERESTING. WITHIN THAT DISCIPLINED APPROACH, I DO WANT TO TALK ABOUT VALUATIONS A LITTLE BIT BECAUSE IT'S A CONVERSATION WE'VE BEEN HAVING FOR BOTH INVESTMENT GRADE AND HIGH-YIELD FOR MONTHS, MAYBE YEARS NOW. THE FACT THAT SPREADS ARE VERY, VERY TIGHT. THEY SEEM TO KEEP GRINDING TIGHTER. YOU MAKE THE POINT THAT THE VALUATION DISCUSSION IS A LITTLE BIT MORE NUANCED THAN THAT. [00:45:58] Speaker 10: WHAT DIFFERENT DETAILS AND INPUTS ARE YOU LOOKING AT THERE? I THINK WE HAVE TO TAKE INTO CONSIDERATION THE STRUCTURAL CHANGES OVER THE LAST COUPLE OF DECADES IN THE MARKET. SO ON AN ABSOLUTE OUTRIGHT BASIS, YOU CAN'T ARGUE THAT SPREADS LOOK TIGHT RELATIVE TO THE HISTORICAL STANDARDS. BUT I THINK WE'VE BEEN IN THIS LONG RANGE-BOUND ZONE BECAUSE WE ARE IN A HEALTHIER MARKET. IF YOU GO BACK OVER TIME AND REALLY ADJUST THOSE SPREADS TO BE TODAY'S RATINGS COMPOSITION, TODAY'S HISTORICALLY LOW SHORT DURATION PROFILE, WE ALSO HAVE A RECORD HIGH LEVEL OF SECURE BONDS THAT MAKE UP OUR MARKET, SO IF YOU MAKE THOSE ADJUSTMENTS, THE SPREADS LOOK NOT SO TIGHT. ALSO, YIELDS CONTINUE TO STAND OUT. THEY ARE REALLY ELEVATED. WE CAN GET DOUBLE B CREDITS BETWEEN SIX AND SEVEN PERCENT, SINGLE B'S SEVEN TO EIGHT PERCENT. THAT STORY KIND OF WORKS FOR GOOD INSTITUTIONAL CLIENTS LIKE ON THE PENSION AND INSURANCE SIDE. [00:46:53] Speaker 2: IT CERTAINLY DOES. AND THERE'S BEEN A LOT OF TALK THAT THOSE YIELDS WILL REMAIN RELATIVELY ELEVATED, NO MATTER WHAT THE FED DOES, CERTAINLY, AT LEAST SHORT-TERM. NO MATTER WHAT THE FED DOES. I AM CURIOUS, THOUGH, AND I KNOW WE DON'T WANT TO MAKE TOO MUCH OF WHAT WE'RE SEEING WITH REGARDS TO TREASURY YIELDS IN TERMS OF THE EFFECT ON THERE. I'VE HEARD THE BIG ARGUMENT AS OF LATE THAT YOU PROBABLY GET MORE OF A CUE ON WHAT'S GOING ON IN THE TREASURY MARKET FROM WHAT'S GOING ON RIGHT NOW IN THE CORPORATE SPACE. BUT WHEN YOU LOOK AT MACRO CONDITIONS, AS MUCH AS YOU CAN DIVIDE THEM FROM YOUR SEAT HERE, DO YOU NOT SEE ANY RISK THAT CREDIT RISK INCREASES? [00:47:25] Speaker 10: YEAH, SO THERE'S DEFINITELY BEEN A PUSH AND PULL. YOU'VE HAD THAT STRONG CORPORATE OUTLOOK. YOU'VE HAD THE REALLY AI-FULED GROWTH THAT'S GOING ON IN THAT SPACE, BUT ON THE OTHER SIDE, THERE'S CERTAINLY BEEN CONCERNS AROUND INFLATION, BECAUSE THE RAND WAR REALLY COMPLICATED MATTERS. YOU'VE HAD OIL PRICES AT VERY HIGH LEVELS. HOPEFULLY, LET'S HOPE THAT A PEACE DEAL REALLY DOES GET BUTTONED UP SOON, AND I THINK THAT CAN REALLY PROVIDE A NICE REPRIEVE TO THOSE CONCERNS. BUT OUTSIDE OF ENERGY, WE DEFINITELY HAVE SEEN PIPELINE PRESSURES BECAUSE OF THAT AI BUILDOUT. YOU HAVE PRETTY EXTREME PRICES IN THE INPUT COUNTRY. THERE ARE DIFFICULTY IN FINDING THE LABOR AND BUILDING OUT SOME OF THOSE DATA CENTER ASSETS. AND SO THOSE CAN BE AREAS OF CONCERN. IS THAT AN EXTREME CONCERN, THOUGH? [00:48:14] Speaker 2: WE TALK ABOUT THE DEBT BEING SOLD AND OBVIOUSLY THE ACTUAL SORT OF PROOF OF LIFE, IF YOU WILL, WHEN THESE DATA CENTERS ARE ACTUALLY UP AND RUNNING. THERE IS A LONGER DURATION TO A CERTAIN EXTENT THAN MAYBE WHAT SOME PEOPLE REALIZE. IS THAT A WORRY OR DO YOU FACTOR THAT IN AS YOU LOOK FOR WHATEVER RATE YOU ARE GOING TO TAKE? [00:48:32] Speaker 10: IN THE AI SPACE SPECIFICALLY, THAT IS A RAPIDLY GROWING MARKET WITHIN THE WORLD OF HIGH YIELD. AND SO AT BEARINGS, WE HAVE COME UP WITH A VERY SPECIFIC CRITERIA AND FRAMEWORK AS TO HOW WE ARE GOING TO UNDERRATE THOSE CREDITS. SO IT NEEDS TO CHECK OFF CERTAIN BOXES FOR US. THINGS LIKE IG COUNTERPARTIES, TAKE OR PAY AGREEMENTS. WHERE ARE THESE LOCATIONS OF DATA CENTERS? ARE THEY NEAR POPULATION CENTERS? WHO ARE THE ENERGY ENGINEERING COMPANIES THAT ARE BUILDING THEM OUT? THERE IS A NUMBER OF THINGS THAT NEED TO FIT THE BOX THERE. OVERALL, I THINK THERE ARE SOME VERY GOOD INVESTIBLE OPPORTUNITIES. RIGHT NOW, IT IS ONLY MAYBE 2%, 2.5% OF OUR MARKET. BUT BASED ON WHAT I AM HEARING, IT SOUNDS LIKE THAT COULD EASILY DOUBLE BY THE END OF THE YEAR. THE AI SPACE HAS REALLY BEEN ABOUT 40% OR SO OF ALL NEW ISSUES THAT HAS ACTUALLY COME OUR WAY IN RECENT MONTHS. ALL RIGHT, KELLY, GREAT TO HAVE YOU. [00:49:27] Speaker 2: KELLY BURTON THERE, HIGH YIELD PORTFOLIO MANAGER OVER AT BEARINGS, OUR COVERAGE HERE ON "THE CLOSE" CONTINUES. DON'T GO ANYWHERE. WE ARE GOING TO CHECK IN WITH MIKE MCKEY DOWN IN WASHINGTON AND SET YOU UP FOR WHAT TO WATCH OVER THE NEXT 24 HOURS RIGHT HERE ON "BLOOMBERG." [00:49:42] Speaker ?: LET'S WRAP THINGS UP ON A BIG DAY FOR THE U.S. [00:49:45] Speaker 3: FEDERAL RESERVE. JOINING US LIVE FROM WASHINGTON, D.C., IS BLOOMBERG'S MIKE MCKEY. MIKE, IT'S HARD TO KNOW WHERE TO START WHEN IT COMES TO KEVIN WASHES' DEBUT PERFORMANCE AS FED CHAIRMAN. A LOT HAS BEEN MADE ABOUT THE FACT THAT HE DIDN'T SUBMIT A DOT AND THE ANNOUNCEMENT OF THESE FIVE DIFFERENT TASK FORCES. I MEAN, WHAT REALLY STUCK OUT TO YOU TODAY? WELL, I THINK WHAT'S STUCK OUT TO ME IS THAT KEVIN WASHES GONE BACK TO HIS HAWKISH NATURE. [00:50:11] Speaker 11: HE WAS A HAWK WHEN HE WAS ON THE FED BEFORE. AND WHILE HE MAY HAVE ADJUSTED HIS VIEWS OR TRIMED HIS SALES TO GET THE FED CHAIR'S JOB, HE REALLY DOESN'T LIKE INFLATION. AND HE REALLY THINKS THAT SHOULD BE THE FED'S FIRST JOB. AND, OF COURSE, NOW HE'S ON A COMMITTEE WHERE A GROWING NUMBER OF MEMBERS THINK THE SAME THING. AND SO IT IS DEFINITELY A HAWKISH OUTCOME OF THIS MEETING. AND THE ONLY ISSUE IS THAT THE FED MAY NOT BE ABLE TO DO ANYTHING ABOUT A SUPPLY CHAIN-DRIVEN INFLATION. BUT THE FED IS RIGHT NOW LOOKING MORE LIKELY TO RAISE RATES THEN TO CUT RATES AND THAT IS NOT WHAT A LOT OF PEOPLE ON WALL STREET EXPECTED. [00:50:58] Speaker 2: I AM CURIOUS OF WHAT YOU MAKE OF THE IDEA OF WHAT COMMUNICATION LOOKS LIKE FROM THE FED, PARTICULARLY GIVEN THAT WE ARE AT AN INFLECTION POINT IN TERMS OF WHERE RATES WILL GO. SEVERAL PEOPLE ASKED QUESTIONS ABOUT THAT, INCLUDING YOU. I THINK YOU ASKED ABOUT WHETHER THERE WOULD BE ANY MEETINGS. I DON'T KNOW IF THAT WAS JUST FOR YOURSELF TO MAKE SURE YOU STILL HAVE A JOB, MIKE. BUT IT GETS TO THIS IDEA OF DO YOU THINK WE CAN -- AND YOU HAVE BEEN DOING THIS IN ALL SERIES. YOU HAVE BEEN COVERING THE FED FOR A LONG TIME. SO YOU UNDERSTAND WHAT THE COMMUNICATION WAS LIKE YEARS AGO WHICH WAS A LOT LESS, IF YOU WILL. DO YOU THINK WE ARE KIND OF GOING BACK TO SORT OF A PRE-BERNANKE TYPE OF COMMUNICATION APPARATUS OR ARE WE GOING TO SEE SOME SORT OF HYBRID BETWEEN WHERE J-PAL TOOK US AND WHAT BEN BERNANKE STARTED? [00:51:38] Speaker 11: I THINK YOU WILL PROBABLY END UP WITH SOMETHING OF A HYBRID BECAUSE IT IS HARD TO PUT A GENIE BACK IN THE BOTTLE. THE WHOLE IDEA OF FED COMMUNICATIONS HAS BECOME A NORM FOR WALL STREET. THERE IS A WHOLE INDUSTRY AROUND IT AT THIS POINT WHEN YOU LOOK AT THE MONEY MARKETS. AND SO I DON'T THINK HE CAN GET RID OF IT COMPLETELY. BUT I DO THINK WHAT KEVIN WARSCH WANTS TO DO IS GO BACK A LITTLE BIT TO THE PHILOSOPHY OF ALAN GREENSPAN AND THE FED CHAIRS BEFORE THAT THAT THE MARKET WOULD LEAD THE FED, THAT THE MARKET WOULD SEND PRICE SIGNALS AND THE FED WOULD RESPOND TO THAT RATHER THAN AS KEVIN SAID TODAY THE MARKET LOOKING TO RESPOND TO WHAT IT THINKS THE FED IS GOING TO DO. BEN BERNANKE THOUGHT THAT WAS A GOOD IDEA BECAUSE THEN YOU WOULD ABSORB THE FED'S POLICIES INTO THE MARKET STRUCTURE EARLIER AND HAVE A GREATER EFFECT ON MONETARY POLICY. BUT IT DOESN'T LOOK LIKE KEVIN WARSCH THINKS THAT'S A GOOD IDEA AT THIS POINT. SO I THINK WE'LL LOSE THE DOT PLOT. THE SEP MAY CHANGE SOME. HOPEFULLY HE DOES CONTINUE WITH THE NEWS CONFERENCES SO I HAVE A JOB. BUT THERE'S A TASK FORCE FOR [00:52:45] Speaker 3: THAT. I AM PRETTY CONFIDENT IN YOUR JOB SECURITY HERE, MIKE, FOR WHAT IT'S WORTH. BUT IT'S INTERESTING TO HEAR YOUR COMMENTS ON MAYBE AN ALAN GREENSPAN FED. THAT WAS THE READ OF SOME OF THE ECONOMISTS AND ANALYSTS OVER AT JEFFREY'S THAT WE COULD BE HEADING BACK TOWARDS THAT SORT OF ENVIRONMENT. BUT OKAY, WE LOSE THE DOT PLOT. MAYBE WHAT DOES THIS MEAN FOR GATHERINGS SUCH AS JACKSON HOLD? TRADITIONALLY A STAGE WHERE, YOU KNOW, NEW SORT OF PROJECTS ARE ANNOUNCED, IF YOU WILL. THAT'S COMING UP IN JUST A COUPLE OF MONTHS. LESS THAN THAT. [00:53:16] Speaker 11: YEAH, I DON'T THINK WE'RE GOING TO SEE THE SAME KIND OF FED PERFORMANCE AT JACKSON HOLD. THE CONFERENCE ITSELF IS NOTABLE FOR BRINGING TOGETHER A LOT OF CENTRAL BANKERS. BUT IT'S BASICALLY AN ACADEMIC CONFERENCE WITH PAPERS ON VARIOUS IDEAS IN ECONOMICS THAT DON'T NECESSARILY HAVE A BEARING ON THE IMMEDIATE ECONOMY. AND WHAT HAPPENED WAS THAT GOT CO-OPTED A BIT BY FIRST BEN BERNANKEY AND THEN JANET YELLEN AND JAY POWELL WHO USED THE OPPORTUNITY TO SEND A MESSAGE TO THE MARKETS ABOUT CHANGES IN MONETARY POLICY. I DON'T THINK THAT KEVIN WASH IS GOING TO DO THAT. MUCH OF THE HISTORY OF JACKSON HOLD THE FED CHAIRS JUST GAVE A WELCOMING ADDRESS STRESSING THE TOPICS OF THE ACTUAL MEETING AND I THINK WE'LL GO BACK TO THAT. [00:54:06] Speaker 2: MICHAEL MCKEE DOWN THERE IN WASHINGTON WRAPPING UP THE FIRST FED MEETING BY KEVIN WASH AS A FED CHAIR AS WE PUSH AHEAD TO TOMORROW. WE'RE GOING TO GET ANOTHER RATE DECISION BY A CENTRAL BANK. THIS ONE BY THE BANK OF ENGLAND. IT'S GOING TO BE INTERESTING TO [00:54:22] Speaker 3: SEE THEM TAKE THE STAGE. WE ALSO HAVE A LEADING INDEX AT 10:00 A.M. ALSO AT 10:00 A.M., THE NICKS PARADING AROUND MANHATTAN. [00:54:32] Speaker 2: JUST LOWER MANHATTAN. SOME OF US HAVE TO GET TO WORK HERE. THE CITY ON FIRE. I HOPE YOU WEAR YOUR COLORS TOMORROW. All right. That does it for us here on Bloomberg. Balance of Power coming up next.