Federal Reserve Leaves Rates Unchanged

our ancestors have practiced for centuries [Music] the names that move markets are on Bloomberg there's a complete change in the labor market there's a complete change in the energy future that we are facing under tightening would be a worse mistake than over tightening because we can course correct that the question is whether we need to increase the pressure just keep pushing push and push it we've been getting good news we just have to keep getting good news nobody covers business like Bloomberg your Global business Authority thank you [Music] Wall Street is waking up Europe is already trading and Manas granny and Danny Berger are making sure you have the news data and Analysis you need to set your agenda micro macro and everything in between man is in New York and Danny and London follow the money around the globe take a daily Deep dive into risk and help you make informed decisions for your trading day watch Bloomberg brief weekdays at 5 a.m Eastern only on Bloomberg contacts changes everything [Music] foreign from the city of London for our audience worldwide Bloomberg's the FED decides starts right now this is a special edition of Bloomberg surveillance with Tom King Jonathan Farrell and Lisa ronowitz Bloomberg surveillance the FED designs live on TV and radio for our audience worldwide good afternoon good afternoon the countdown to the FED decision starts right now 27 minutes away TK your Equity Market's slightly positive and the yields very close to cycle highs here from the fog of London it's dickensian out there right now yeah we're going to see if tonight we'll get some clarity from Jerome Powell he's dealing with the fog of the American economy a lot of cross-currents here I'm really interested to hear what Kathy Jones says about what yields tell us right now looking forward to that conversation to you can so much more as you know Thomas a three-part act decision at about 28 minutes bunch of forecasts as well then on to the news conference about an hour away well the news conference is going to be different and again we're going to go to November and what I saw from our guest this morning on surveillance was a real tendency to look to December how does he frame in that press conference the forward view the people in the room are less concerned with September and all the dots okay but I'll give you that John I don't know about the dots but the answer is they're going to go to November and they're going to go to December Andrew honor City looking for that hike in November Holland horse joining us a little bit later this is how the stage is set the price action looks a little something like this on the S P 500 equities are higher by 0.2 percent on the S P yields are backing away from cycle highs we're down about four basis points today to 4 31.67 I've gone through the three-part act the decision the forecast the news conference this is the two-part Act of this show going into that decision coming up Morgan Stanley's Jim Caron Deutsche Banks Matt lazzetti Kathy Jones of Charles swap out the other side after 2 p.m when that decision drops here's the lineup for you cities Andrew honhorst Dan Swank of KPMG Jim Bianca of Bianco research TK Greg Peters of PJ as you can see be ankles may be the most holistic they're pulling in the markets with the economy as well and I go back to the archbianco call now hugely prescient about the longer and that inflation comes down to where we are and goes flat or even with a little bit of an uptick at the time that was controversial and the ultimate contrarian kill that maybe yields just have to go higher from here well they're doing that from Jim will ask that question to Greg paid as a page him is this a Buy in this bond market TK with a tenure where it is where the two-year where it is currently as well it could break either way and you know again I think Paul will give us some direction you know he's going to be cautious he's going to say you know this is what uh we see now but again I'm going to go to the gaming out of this into November December and John quickly here that's going to come off those dot plots that middle range here from the announcement to the press conference the analysis by Mike McKee of those dots is key the median dollar for 23 for 24. the growth projections we're expecting them to Mark to Market essentially growth has been better yeah their forecast might have to come up inflation may be a little bit softer but I'm with you where do they see rates Beyond November into next year not expert at the Dutch but certainly expert at the bond outcome joining us now to get us started on the special show from London is Jim Caron to say his portfolio solutions group CIO at Morgan Stanley investment Management's important what you have to understand is after the physics of Bowden the physics of Caltech he knows the physics of Jerome Powell I'm baffled Jim is this meeting about today or are you looking already to November and December thanks Tom look I I don't think this meeting is about today as you put it this meeting is about November and December and wedding messages look if we break it down this way very very simply 2023 is about the FED cycle coming to an end and them getting the job done to do enough to get inflation down towards Target and keep it anchored there 2024 is about holding rates higher for longer or potentially even cutting if economic conditions seem that it's likely that they need to do so so the market will have no patience for rate hikes further rate hikes in 2024 because if that's happening then that means that has missed something inflation is accelerating and that they're going to have to do something more drastic to bring inflation down so I think if we look at this more broadly we need to see in 2023 the FED get the job done so look as far as the way that I see this uh see this meeting this meeting is all about positioning their their potential Policy Act for November or even December I look at this and the overlay to me is a good work of your Ellen zentner award-winning economics and she's marked down GDP off revisions and some actual present numbers and she's come down a fair amount half a percentage point of real GDP or even more are we on the edge of a stagflation here where we pull in from an Atlanta GDP guess of six percent where all of a sudden GDP slows down and changes the FED decision so so I I think that you know third quarter GDP is likely to be still you know relatively strong and robust in the fourth quarter there's likely to be some give back but I think that I think Ellen's on to something here though I think the markets are going to start to read through this and they're going to say like look third quarter GDP some good technicals things are you know things are strong but this might be the last big thrash in the economy before it really starts to slow down now if we think about this from the fed's perspective this is what rate hikes are supposed to do you're supposed to see a Slowdown in in GDP growth a Slowdown in inflation slow down and wage growth and and everything in even housing and and everything else so the the the goal here for the FED is to get inflation down and keep it anchored and keep it down durably just getting a Slowdown or potentially even a mild recession yeah that could help in terms of bringing inflation down but the point is is that they have to keep it anchored because what could start to happen if they don't is by the middle of 2024 the year-over-year base effects might make inflation start to re-accelerate higher so it's imperative for the FED to get inflation under control between now and the middle of 2024. Jim Bruce kassman JP Morgan on the program with us a little bit earlier on this morning Bruce kasman said that 2024 projections were aspirational they were aspirations and the idea that we can get inflation back to Target without doing real damage to the labor market is aspirational fanciful Jim do you agree I do agree um now Target is two percent do I think we're going to get to two percent and stay there no will the FED take a Victory lap if we get between two and three percent and it shows that it's stable and it's not accelerating above three yes I think that you know what it would take for the FED to actually get inflation of two percent and and keep it there would probably be much higher policy rates and very likely a hard Landing I don't think that's what the FED is aiming towards at this point so I think we have to look at I think we have to look at growth in in 2024 as certainly slowing we just can't see the acceleration of inflation and I think therefore at that point the FED would likely be happy with their policy actions and likely be able to keep rates High look just because rates are high and they're not cutting it doesn't mean that they're easy the rates are still are still impacting the economy and there's about a nine month lag and that is yet to be seen going forward so so I think that the work work that they're doing in 2023 needs to have enough speed to keep momentum going to bring inflation down to last them through 2024 and that's why a November hike or December hike is still likely on the table in their eyes the Jim I don't know what chairman Powell says in the news conference about 50 minutes from now but I can share with you offer you a sneak peek at a Mike McKee performance in that press conference my McKay told us this morning this is the question he wants to ask how much confidence do you have in anything that you are telling us today Jim when we hear the words of chairman Powell how much confidence does he have about the future um I I think he is um making an educated guess like the rest of us I I really think that it's very very uncertain right now we're having a very unusual economic cycle at the moment but the unemployment rate has stayed very low uh wages State relatively robust so it's hard for us to think of having a deep downturn or a recession typically at this point in the cycle we would be really really primed to have a deeper recession and and everything else the markets are just not functioning that way so I think that the feds stance on this in terms of just being very very cautious in terms of how they proceed is is very very important so when the FED says we're data dependent what they're really saying is we're not sure we're not 100 sure as to how things are going to develop and what our actions might be I'm always going to go back to this one point Jonathan which is that the FED needs to get inflation to a level that they're comfortable with and to me that's like two and a half percent some maybe three somewhere in there but make sure it stays there that it doesn't start to re-accelerate higher so it gets anchored at a lower level anchored at a lower level that's the absolute key if it starts to re-accelerate that's bad for everybody and they just need to take the steps today to make sure that that doesn't happen in the future and I think that's the balance of risks that they're playing with hm stay close stick with us this is great Jim Caron there of Morgan Stanley Jim's going to stick with us going through to that decision joining us in just a moment mattersetti of Deutsche Bank Kathy Jones a Schwab looking forward to those conversations TK the words of Jim Caron there when he says and he being chairman Powell says we're data dependent to some extent he just means we don't know well they're back and you go to the door mandate they're not only data dependent on what the job market does which has been booming you know everything considered but also data dependent on a quieter GDP and we really haven't seen a tepid US GDP yet looking forward to the Mike McKee performance in the news conference in about 50 minutes time three-part act you know it well we're going to get a decision some forecasts and a news conference a little bit later this afternoon all in the next hour live from London this is Bloomberg [Music] thank you [Music] foreign [Music] CFOs are reshaping the c-suite Bloomberg's Chief future officer shines the spotlight on these Dynamic leaders today's CFO has to be much much more than a bookkeeper one of the most important things is looking around the corner we have to let go of the traditional Legacy department store their impact goes far beyond the balance sheet and on Chief future officer they focus on much more than just revenues and margins you also have to be credible Business Leaders in order to really impact the business and steer the direction we are like biologists we need to deeply understand the financial DNA of a company people just come with a Playbook and say okay we're going to roll that don't do that think longer term it's an amazing time to be in this role it's a lot more than the profit today it's building the future of Tomorrow get passion perspective and more from the chief future officers of some of the world's most influential companies a new episode every month only on Bloomberg foreign [Music] [Music] the FED will do what we all expected to do so they'll pause pause the pause but an indication that they're prepared to do more they'll keep wide open the possibility of another hike emphasize that November continues to be a live meeting one more rate hike has to remain on the table chair Powell is going to say that they are remaining Vigilant they'll make it very very clear that they are still dates dependent and they're going to push back against this notion that they'll be cutting anytime soon the big question mark is are they going to do something in November what do they do November 1st their next meeting I think that the FED has done hiking rates I see inflation coming down they're going to raise rates in November the economy is still very strong it's a really tricky needle to thread in terms of doing just enough but not too much November we'll see what happens whether this is going to be Escape or a pause is to be sent but it took us at least 15 minutes to say it but we're saying it hawkish pause is what it's widely expected a phrase overused over the last month or so in anticipation of this particular Federal Reserve decision if you are just tuning in welcome to the program live on TV and radio this is a Bloomberg surveillance special counting you down to a Federal Reserve decision for the month of September that decision is about 15 minutes away and the price action has shaping up as follows in the equity Market on the S P 500 almost totally unchanged with positive by about 0.1 percent on the S P at the moment on the NASDAQ we're negative by zero point one four that's how the session is shaping up currently of course that can all change with the decision in just a moment alongside the forecast together with a news conference from chairman Powell which starts in the next hour or so beyond equities in your bond market it's amazing to see it all over again Tom we've talked about it how we're slowly and then quickly internalizing this high for longer message from this Federal Reserve with a two-year still north of five percent Right Moves In this morning and this afternoon and the 10-year still in the 430s and the 30 is still around 4 40. more basis points on the two-year at 5.05 as you mentioned John you're going back and forth with someone here earlier today on a 509 two-year yield I think a huge body of people watching this fed decide special haven't yet framed out a 509 or you know what money market funds do on the way up there is Deborah Cunningham talking it's amazing to see Tom and with that front end elevated we've seen significant dollar strength come through over the previous several weeks the Euro at the moment just about holding on to 107. TK 107 26 on euro dollar is we near here 2 p.m in New York in Washington we have great conversation for you to frame out this moment Kathy Jones joins us Chief fixed income strategist Charles Schwab Matt lazetti at Deutsche Bank and we continue with Mr Karen Jim Karen joins us from Morgan Stanley as well Kathy Jones I want to talk to you about the real yield to me it's ending a real rate analysis we really haven't done that since before 2007 interpret how Jerome Powell and his team interpret a 1.96 10-year real yield how do they handle that I think the way the FED looks is this is as a evidence that um their tightening policy so we haven't seen it play through in the credit Market you know credit spreads have actually fallen and so the financial conditions indices have been relatively buoyant but real yields matter a lot when you're talking about a business investment or consumer spending ultimately that really yields very important so I think the FED is looking at that and saying okay inflation expectations have been anchored but we've had almost all of this lift is coming in real yield I think they're looking at that is yeah we're getting some of the tightening through in our interest rate policy and it's maybe not in the credit markets but it's certainly there in the real economy so Matt lazetti let's build on what Kathy just said given all of that are we sufficiently restrictive yeah I think the FED thinks that that we're close you know they are are likely to show another rate hike this year um our Baseline is that they don't deliver on that that ultimately we get enough evidence that the labor market and growth are slowing into the end of the year that they don't hike in November December so we're at the Peak at the moment you know I think you're beginning to see some evidence of it for the consumer you're saying delinquency rates rise and at the time where you're seeing some of these headwinds hitting the consumer from higher gas prices uh tightening of credit conditions the return of student loan debt I think these things will help them achieve the sufficiently restrictive stamps that they're searching for Matt you're always bravest guy in the street you got a little narrow paragraph at the bottom of your note on 2026 you think we converge to a normal economy something like 2026. what is that real GDP number that you and Jerome Powell have to consider far far out in 2026. yeah look I think there's substantial uncertainty about what the fed's going to do through the rest of this year there's meaningful uncertainty about 2024 there's a ridiculous amount of uncertainty about 2026. I think that is all kind of a messaging perspective from the FED it is you know is the economy converging back to what they think the long run values are on their view it's 1.8 for real GDP I think from our perspective there's there's upside risk to that as you look further out productivity growth from a tight labor market I think could be materially higher than what what the FED is currently pricing in your own view is that that product that potential growth is above two percent um but right look that's mostly a messaging thing from the fed's perspective at the moment you're better at this John than I am do we get 2026 dots today I think the long time is interesting that's going to be the conversation around where they believe neutral is Tom where we will be going back to what does that trip look like I don't think chairman Powell wants to have that conversation at the moment Jackson Hole but Kathy to some extent Mr Williams over at the New York fed has engaged in that conversation when you look at the projections Cafe that come out in 10 minutes beyond the decision most people expect it to be unchanged for growth for inflation The Dot Plot what are you expecting to change how does this shape up compared to say what we saw in July yeah guys sorry growth numbers have revised up a little bit to reflect the third quarter bounce and then the inflation numbers revised down a little bit because you know it we're starting to see that core pce pass through to the downside so those would be the big changes I would expect but they're incremental malazetti I know that you've got a run we've got about 50 seconds left with you can we just finish there as well Matt what you'd expect to change in the forecast the projections we get from the Federal Reserve in nine minutes time yeah I think we know it's going to growth upgraded substantially we think it doubles this year core inflation comes down a bit I think really the the focus should be on 2024. it's on you know do they still expect inflation to be you know 2.6 do they still think that that requires um some pain in the labor market with the unemployment rate rising and really what is that 2024 dot look like you know we think that it comes up by 525 basis points that the FED needs an even higher real fed funds rate to achieve their objectives but I think if we step back you know if that is the hawkus message from this meeting we've gone through a year where the hawkus message was upgrading the terminal rate um upgrading growth and inflation uh if the real hawkishness that comes out of this is some view on 2024 yeah you know I think that that's a hard thing to sell to the market as it is a terribly hawkish message that was Eddie thank you for joining us today and what a great call from uh Dr lazetti that we saw where he said yes recession but out there somewhere no one was more impression about that than Matt Lizetti Jim Karen is with us with Morgan Stanley Jim I look at all that we're talking about here and it comes back to the physics of going back to a normal rate environment not seeing talab the Quant said the gravities return to the system you're you're degreed in the gravity tell me the gravity the physics that Jerome Powell has right now is it a 1994 physics um I think we're getting close to it right so I mean you know these rates are high right now I mean they're not extraordinarily high but they're high enough to put pressure and and force down on the economy to you to to continue with the physics analogy so yes gravity is going to pull this down look I mean there's a lot of things there are a lot of headwinds in 2024 from a policy perspective number one the higher rate hikes are going to start to uh start to bite number two the refinancing people talk about maturity walls um you know that are coming up it's going to be more expensive to do business um and number three it's going to put pressure on valuations right so bond yields being higher our fed that's higher for longer is going to continuously put pressure on just the broader markets Financial conditions Equity markets I would even say um just given the Alternatives that investors have to invest in bonds with a higher potentially more attractive yield as we move into 2024 because look you know as Matt was saying there is a recession and that's out there somewhere whether it's a deep recession or it's a mild recession I'm in the camp it's a mild recession but it's a Slowdown and I think that there's going to be a bigger balance between when we think about asset allocation between fixed income and equity it's just John Paul goes into this press conference in six minutes Jim Caron is he a single mandate fed chairman is he on the edge of Christine Lagarde yeah I I think his primary mandate is getting inflation where it needs to be I think the jobs Market is structurally very strong for various reasons um the the big thing that everybody's talking about what we're all concerned about the most is can the FED get inflation towards an area that they're comfortable with in terms of their target and and keep it there so yes you know the FED does have a dual mandate as you pointed out it's it's it's price stability and full employment but I think the FED is willing to risk it a little bit on the jobs front in order to get inflation down so I hate to phrase it this way but I think that a mild recession actually plays well in the fed's calculus to get inflation down so I think they're willing to push it and and and risk that in order to get inflation to Target so let's not call it a single mandate but but pretty darn close you do we call that a soft Landing Kathy I'd love your view on that we throw around these phrases I don't know what they mean anymore what is a soft Landing to you Kathy what is it well I think it would be a Slowdown in the economy without a reduction in inflation without a big rise in unemployment um and I agree with Jim that's a that's a tough thing to pull off it's more likely we'll have some sort of a downturn in the economy if we really I have a fed that's determined to get back to that two percent Target on inflation So Soft Landing you know seems like uh an aspiration as you mentioned earlier um I think every fed wants to accomplish it but it's really hard to pull off agreed and I think a lot of people listen and agree as well Jim one thing you've been fantastic at all yeah I'm sure there's many but I'll pick out one you asked us to ask and really question what could go right this year and when we think about risk there is upside risk not just downside risk Jim how are you thinking about that particular question now yeah look I I still think that there are upside risks I mean it's you know we're talking a lot about recession but we also have to recognize that if it's a mild recession or if it's a or if it's a soft Landing of some sort however we Define that earnings growth when we think about Bottoms Up earnings that's been rising 2024 earnings around 248 249 dollars right now many people were forecasting that we would have sub two hundred dollar earnings right multiples have held up reasonably well I think what could go right is that the market looks through what is a mild what could be potentially a mild recession and and buys a dip quicker than what many people think the number one question I get from a lot of clients is I miss the rally where can I get in so there are a lot of people with dry powder that's looking to buy the dip Kathy I want to give you the final word what's the number one question you get from clients at the moment is it the same one uh the number one question I get from clients is when do I extend duration uh you know I've been sitting in cash forever and ever and um I want to extend duration because I want to lock in yields but I'm afraid to move we hear that a lot too Kathy thank you Kathy Jones Jim Caron your Federal Reserve decision about three minutes away said this a few times three-part act at the top of the hour you'll get a decision from the Federal Reserve a bunch of forecasts as well Mike McKee's going to break that down for you 30 minutes later a news conference in Washington DC with chairman Powell plenty of questions of course for chairman Powell but TK before we get there you've got the meat of a statement and then straight to the forecast I think for a lot of people part of the matter 2023 how much movement are we expecting growth up inflation down maybe show me the median dot do people start to nudge that extra hike away maybe a little bit does that change the median and then out to 2024. I I think the darts are the most important thing this time I usually don't say that but within that is the background news is it going to address a striking Detroit I believe is uh Jamie Damon of JP Morgan will speak in Detroit today maybe he's already done that we're a bit out of the time zone here but you know I think there's there's a set of data in a set of global events right now including China that he has to allude to in this press conference that's not seen in the dots the dots are a pure U.S guest there's more going on than the dots so Andrew honors the city is going to join us in the next 30 minutes or so Andrew put out and now publishing with the team a little bit earlier City economics and they made three points TK one is the strikes with UAW the second was oil and the third was house prices I would pick up on oil and throw in China so I'm oil in China were believed to be Tailwinds at the start of the Year energy was coming again China was reopening are they headwinds now at the back end of 2023 most people assume they are what they are and this goes to data dependency there's something that's happened in the last 14 days maybe it's 20 days I'm not keeping account but this surge that we've seen in oil with Javier blast looking at Saudi light near a hundred dollars a barrel I saw a 97 quote on cellulite spot I think 48 hours ago that's new and that's new for the people the Eccles building they are data dependent but it's just not economic mumbo jumbo it's what's going on in the rest of the world including China Neil Johnson from Isis macro once the last word gone into the FED decision he's one of our best guests that's a writes in this is witch casting from the FED they are wish casting a self-landing but the reality of 2023 is that we have not landed at all we're running at an above Trend cruising speed we'll get the forecast from the Federal Reserve in about 20 seconds time alongside that fed decision going into it the price action looks like this on the S P 500 positive by 0.2 percent on the NASDAQ almost totally unchanged to the bond market yields on a two-year shaping up as follows near in and around five percent on a two-year in America 5.05 Mike McKee has the decision this is the very definition of a unanimous hawkish pause the FED leaves rates today in the range of five and a quarter to five and a half percent while saying growth is solid and inflation elevated so higher for longer policymakers leave another rate move on the table for this year and take two reductions off the table for the next two years the statement once again discusses quote the extent of additional policy firming that may be appropriate and the Dot Plot shows that 12 members of the Open Market Committee still believes they will raise rates by another 25 basis points this year the High Dot at six and a quarter percent comes out of the Dot Plot with St Louis fed's Jim bullard's retirement for 2024 the committee now sees a median effective fed funds rate of 5.1 percent of 50 basis points from their June projection and for 2025 3.9 percent up from 3.4 percent in June the long run neutral rate is unchanged at two and a half percent although the central tendency range moves up to 3.3 percent from 2.8 and the dots show seven members think that neutral is higher than two and a half all this because the FED sees stronger growth lower unemployment and lower core inflation ahead the economy should grow 2.1 percent this year they say that is up from one percent their June forecast more than doubling they say next year growth will be one and a half percent up from 1.1 percent unemployment will finish this year at 3.8 percent down from their June forecast of 4.1 percent and in the next two years end at 4.1 down from 4.5 pce headline inflation will be 3.3 percent this year up a tenth basically on energy concerns but their core pce forecast Falls to 3.7 percent from 3.9 percent next year it falls to 2.6 said and one final note no change in QT no change in the ior OR repo rates may stay close I'm just going to work through the price section so off the back of this decision we're negative by let's call it 0.2 on the S P 500 as you might expect the NASDAQ underperforming if you turn to the bond market yields were lower almost across the curb at the front end as well they're now Higher by three basis points looking at staring in the face of the potential of closing that new cycle highs on the front end 5 12 87 turns to 5 13 on a us two year so yields up new cycle Highs at the front end of the curve and the dollar off the back of it a whole lot stronger the Euro against the dollar 106.89 on the session positive still by about zero point one percent but certainly off the back of that decision a stronger US dollar my Mickey I want to come to you on that median Dart for 2024. are you basically telling me the FED took back half the cuts that were priced for 24 in their previous projection that's basically what I'm telling you John they were looking at 4.6 percent and now they've gone up to 5.1 clearly they think the economy is strong enough that they may need to do more at least that's the message they want to send to the markets Mike McKee I look at the growth forecast she went through them quickly maybe they don't make the headlines I think they should frame out again their growth Vision as Neil dutta says they're wish casting for 2024. well the biggest change is 2023 this year obviously the way things have been going they need to mark up growth for this year they call it solid 2.1 percent is their final growth but uh growth next year is one and a half percent that's up from one point one percent that's a fairly strong change so they do see uh perhaps the wish casting that Neil is talking about the idea that growth can be stronger into next year and it does certainly suggest the idea of a soft Landing I I look Michael McKee at where we are in this and it gets to November and December I know your first question to the chairman will be tell me about November Mike McKee tell us about what this translates into for the next meeting well it's definitely going to put the markets on guard depending on what kind of data we see especially in the inflation numbers the feds acknowledging that we're going to see a little bit higher headline a little bit lower on the core and if that's what we get then the FED could decide to to raise rates and it's hard to know exactly because of the energy components that are coming into this but that's what to watch for when we get to CPI and pce numbers uh the other of course Joker in the pack is if the government does shut down and there is no data the FED will have to use its own kind of methods to figure out where it thinks inflation is my McKee thank you sir we know you've got to run and get to that news conference might be kid's going to Sprint to that it begins in about 25 minutes time just to go through the forecasts again that is a monster Atwood revision to GDP but then Market to Market at the Federal Reserve so they go from one percent to 2.1 for 2023. Tom the story for me is out in 2026 the story for me on unemployment they've got it at four percent and pce back down to two all the way out there several years away and this is the aspirational fanciful stuff that this is how it's going to happen unemployment for this year by the way 3.8 is the forecast now and it only climbs to 4.1 percent next year Bruce kassman talked about this a little bit early this morning at JP Morgan Tom how hard is unemployment need to go to get inflation lower that's gonna be a question we can explore in the next 25 minutes or so but the Federal Reserve is telling you that they can get back to Target two percent in several years time and unemployment is going to be in and around four percent I'm going to go with dirty here and combine it into what Matt was already said I got lucky and that they picked out about was that he's known his first look in 2026. I don't even know if there's a first look to first quarter 2024. the uncertainty here off the pandemic off the shift from a supply analysis to a demand analysis of the economy and that's a pretty clumsy move John I I looking out to 26 now maybe they're forced to do that but boy that's a tough tough thing let's do this and we're very lucky today to do this because we can fold in what you're all reading and feeling about the strike in America Diane Swank is a steep as steeped I should say in Midwest economics or tenure at bank one and of course are academics at Ann Arbor Andrew Holland horse with us as well Diane Swank I guess the chairman has to mention the strike today how do you fold strike analysis into the chemistry the FED has it's really tough I don't think it first of all the strike is very targeted we'll see over this weekend how far the strike gets I think many people are worried about how long the strike will last and that is important it both suppresses economic activity of course constrains inventories but it's constraining inventories in a different way than the chip shortages did so I'm not as worried about vehicle prices being the push on inflation that they were that some people are given that this is a more limited kind of production hit and it actually gives market share to other producers out there at the same time demand has fallen quite dramatically for new vehicles because financing rates have gone so high I think what's really important in what the FED just did was the whole concept of hire for longer much higher for longer and potentially a higher neutral rate on the other side of this this is what the theme was coming out of Jackson Hole Symposium was how synchronous the idea of higher for longer longer Mantra is across the developed economies that even as we approach this peak in interest rates that the central banks are emboldened because of the resilience that we've seen even in those economies that have suffered recessions have not as been as bad as they expected that they are emboldened to hold rates higher for longer and there is a concern on the other side of this that they're going to need a higher neutral rate this is a different world than the world that we left in 2019. far different far different Andrew at the start of this hiking cycle we asked the pretty important question can we get inflation down to Target without doing too much damage to the labor market overwhelmingly people said we couldn't we've made some progress without killing off the labor market the Federal Reserve today Andrew is extrapolating that out how hopeful Andrew is that forecast I think that's the big question that these forecasts raise you have 2023 growth provides materially higher you have that strong growth continuing into 2024 now in their forecast so you have an economy that's running head or above potential you have an unemployment rate that's historically low and yet we're meant to believe that wages and prices will cool in this economy this just contradicts basic macroeconomic theories so this is a forecast that does not line up with traditional ways of forecasting the economy with the relatively intuitive idea that when labor markets are very tight that pushes up wages and when labor costs are rising that pushes up prices so I think this is a difficult forecast to square with the reality of how economies behave um that's to be addressed at a later point I think what what the FED did today makes sense in the sense that we're running strong growth we're running inflation that's above Target so it makes sense to guide towards higher for longer so they achieved the hawkish skip if that was the intent that's achieved I think in terms of the forecast there are some real questions that need to be answered the hopes and dreams of these forecasts and let's sit on it I remember a word that you used maybe more than a year ago you referred to the forecast from the Federal Reserve as fanciful aspirational was a word we heard again this morning repeated through this afternoon now when you look at these forecasts further out do you think it's the right approach to extrapolate out current Dynamics which essentially is the following inflation come can come down can come in further without doing real damage to the labor market I think it's a great idea and I hope they're right I do think it is still fanciful one of the things that I think that the FED is betting on is that we are seeing the high frequency data as the labor markets have cooled this has been one of the most dramatic frenzied pace of a labor market and then cooling that we've ever seen with unemployment still very low and what they're counting on is the high frequency data on job postings shows that wages are slowing even more rapidly as we go into fall so they're betting on those things helping them at the same time we've never seen we haven't seen in decades as many strike actions as we're seeing right now and that's where things like the current strike with the UAW the strike that we're seeing in health care um the strikes that we're seeing ongoing with the actors and the writers Union those things will have an impact and how much we see the cost of living adjustments baked into contracts going forward is going to be very important remember with the pop in Energy prices we're going to see an increase to September CPI is what sets the numbers for Social Security bump in January that's one of the reasons it's going to be a higher bump now that's one of the reasons we add stickier inflation at the start of this year and so that could be a sticking point and be harder for the Federal Reserve Andrew Holland horse you need a Victory lap right now I got a 5.13 two-year yield I've got a 10-year real yield any moment to pop through two percent uh 1.99 right now how does our economy how does our business Society how does it adapt to a two percent real yield is that a signal of buoyancy and resilience or is that a signal of trouble to come economy a lot more resilient to higher interest rates than I think many people expected at the beginning of this rate hike cycle and part of that is that a lot of the debt that's out there is fixed rate debt that doesn't mature for many years you think about 30-year fixed rate mortgages many of those are still at lower rates you think about some of the corporate borrowing that's taking place and that also hasn't all been refinanced yet so as as that debt is refinanced you start to have people individuals and firms experiencing higher rates that should slow the economy you see credit that's tightening so there is a sense that this is slowing the economy but it has to be sustained and I think that's the message in the Dot Plot for Bloomberg Radio worldwide bring up the chart again on television here that we just put up with a two-year yield Back to Before the pandemic and this is an arch call by Holland horse and Swank was very good at this as well Andrew Holland horse we're back to yields that I remember and Diane Swank doesn't remember the cons the consensus belief out there is OMG we're all gonna die with this yield structure we're going to a six percent two-year Holland horse yield are we all going to die well remember the 2005 to 2007 period this was an extended period of time when the economy performed relatively well and we sustained higher yield levels and it wasn't that long ago but it just feels like a long time ago and many people haven't experienced that yield environment so I I think this is kind of rediscovering that economies can continue to grow continue to produce inflation at higher yield levels eventually these levels may be restrictive enough sufficiently restrictive in the words of the FED to cool the economy but that's a process that can take time ban you're one of the best at this give Mike McKee a little bit more help what's the question for Mike for this chairman in this news conference that starts in about 15 minutes time I really want to know about how they're so optimistic about growth for next year given some of the headwinds that we Face going into next year everything from higher oil prices to student loan repayments and the additional tightening that they expect in the pipeline not only in the banking sector but more broadly so you know that one and a half percent is really pretty stunning with a half percent higher on short-term interest rates that's remarkable resilience with the cooling of inflation and I'm just trying to square how that all comes together yeah oh Diane we all are we're trying to figure this out dad Swank there and Andrew Holland host two of the very best on the Federal Reserve that news conference starts in 15 minutes if you're just joining us welcome special coverage of the September Federal Reserve decision live on TV and radio at Bloomberg surveillance special alongside Tom Keane I'm Jonathan Farrow the decision unchanged no change on rates of the Federal Reserve the focus on the projections of this fed a monster upgrade to GDP for this year in many ways Market to Market no news there we understood that growth was better than expected through much of this year they understand that now the new projection is 2.1 percent the old projection was just one percent an upgrade to the GDP forecast as well for next year too for 2024 that goes from 1.1 to 1.5 some of the projections elsewhere pretty fascinating 12 of the 19 officials on the fomc still forecasting plotting an extra hike this year in 2023 in 2024 the median dot we priced out half the cuts they had projected in the previous set of forecasts But ultimately it's the soft Landing hope and dream the decision Tom today is to extrapolate out current conditions the idea that we can get back to Target all the way back to two percent without seeing unemployment climb much higher than four percent we had a banner up moments ago on television here and I did the quick nominal GDP math and this is basically our 24 months our 36 months you know out to when we turn into a pumpkin John it's simple they're looking at four percent now nominal GDP or lower and there's a lot of people looking at the Spirit of this economy saying that with this inflation that that maybe strengthens the economy and it's a you know to bust brahmos chops it's a toxic brew it is a toxic group I mean but for them right now there's nothing toxic about those projections I I can't get out the time we said max cat in that HSBC he started talking we said that sounds like Goldie looks forever yes aren't those projections Goldilocks for the next 12 months yeah I would I would the rest of this exactly so and what's interesting here folks we're coming here from London is you know for those of you on TV can tell the sunset is spectacular tonight I went out on the sidewalk in the rain here the lovely afternoon rain how did that work out of London practicing for Bank of England tomorrow and this jumble that we're seeing right now in America yeah is the same exact theoretical jumble we're going to see tomorrow with the bank of England these people are making it up as they go let's turn to the price action and see how much chairman Powell has to sign the news conference that starts in about 13 minutes your Equity Market totally unchanged on the S P slightly negative on the NASDAQ but this movement upon Market Tom let's sit on that the two-year cycle highs through 5.1 just like that by three basis points on the session Tom he ordered the 10-year not much price action there 434 30 year let's call it 440 TK on the long Bond let's bring it in right now it's very important P Jones Greg Peters where the sun yield and Jim Bianca with us with Bianco research Jim let me go to you right away I just think this is so so important there's a sense of longer I see a nominal GDP call out 24 months which is not longer it's it finally rates come in do you buy it uh well I buy the idea that you want to be looking at GDP uh nominal GDP as being a benchmark for long-term interest rates but I'm not buying this idea that nominal GDP is going to fall to the levels that they think if I was to describe you know this this confusion that you we seem to have about this fed policy it's they're almost arguing that nothing of significance happened in 2020 and that we're going to return back to normalization in a word we like to use that's replace transitory and go back to something between 2010 and 2019 where we can have you know two two and a half percent real growth one percent to two percent inflation four percent um nominal growth and that would bring everything down and you'd have Goldilocks forever but I'm not so sure that that's the case I think that the economy has changed since the shutdown restarted in 2020 and the Federal Reserve is still struggling to come to grips like that and they're still thinking we're still in the last cycle Greg you've got to work with real money here the decision to extend duration to find a belly of the curve all the other professional stuff you do at P gym does the language and the Nuance of the forecast and the dots does that change your conviction in what you're doing with your portfolios well I would say that we're finally getting what we've been thinking for quite some time and that is higher for longer right the markets have been raging against this notion that rates will remain high all the forward curves are pointing down the Dot Plot pointing down so I think this really throws cold water on that and so for us at PGM you know we really think it's a higher for longer we never felt the need to jump into duration um you know maybe it's closer to that now uh but more in the back end the curve so look I mean I think the FED delivered exactly what they wanted to provide a hawkish uh sap that allows them to speak more dovishly and perhaps not move rates higher here hey Greg it's not just the high for longer message that jumps off the page of the SCP it's the growth inflation mix looking out a year two years that they believe you can get back to Target two percent and unemployment is going to drift higher maybe to four percent and basically stop there Greg that has big implications for how you invest elsewhere Beyond rates bonds and to credit is that your outlook that basically we can achieve back to Target inflation barely shaking up the labor market in any way shape or form well it is very aspirational there's no doubt about it I mean that is a Goldilocks type of uh Outlook if you have an environment where you know rates remain uh higher but growth is quite robust and inflation's coming down I think that is a fantastic investing backdrop I do think we're pretty close to it the challenge of course on the table is all these different uncertainties and cross curves and that has not gone away by any stretch of the imagination so you know we need to take these these forecasts with the grain and salt there's no different than you know our own forecast right they're a Rife with with uncertainties but you know I do think there's a distinct possibility here at least directionally and um you know I feel pretty good about the Outlook and Jim Bianco do you feel pretty good about the Outlook uh yeah if we're talking about the Outlook about the FED um you know I have my issues with it like everybody else but to feed on something that Greg just said let's be real we all have forecasts and most likely they're all wrong but that's okay because we're not getting expected to predict the future the key is whether or not we can adjust we can see that okay the data is coming in not as we expected and we need to adjust these forecasts now the Federal Reserve in the last couple years has not had a good track record on that we can all remember transitory and what I'm afraid of with this Goldilocks forecast is when the situation comes in that it's not panning out they're going to dig in their heels and continue to say it will and they might wind up making another transitory type of mistake in 2024. I'd like to see chairman pollen you know show some flexibility with these forecasts to say look this one I think now but if the circumstances and data comes in soon that's out to win doing we're going to adjust and that like I said that is okay that is what you should do with a forecast not just keep at it because you're afraid of some embarrassment of having to change it uh Jim Bianca the Laureate Paul Krugman with a wonderful essay on disinflation and he really emphasized what the FED doesn't look at which is plain vanilla inflation are they just missed in the fog of London in the fog of Washington the fog of Across America are they missing a disinflationary tendency in place uh I don't necessarily think they are missing a disinflationary tendency I happen to be in the camp that inflation on a year-over-year basis I'm talking about headline CPI has bought him for the year it's going to drift towards four percent not much higher than that energy prices are going to be a big factor in that drift higher and that will be enough maybe to give us that one more rate hike that they're looking for and to at least justify going from two from four to two cuts next year and I think that if that continues that the December update of this plot will probably take those two cuts away as well so I'm in that inflation is sticky camp and that the FED is going to have to come to the realization that they're not going to get close um to three percent so the disinflation that they're hoping for that inflation comes down the employ unemployment rate can stay at four it's been described here as fanciful and I would also be in that camp too that is fanciful and we'll have to see whether or not that type of situation unfolds John moments ago rounded up the 10-year real yield to two percent this is what makes the dominant constant mizzou's idea of we are restrictive so give me for thinking out loud gents there's a very very simplistic approach to markets you get economic information data you think about what it means for the fed and you trade accordingly Now Greg I wonder if that's just changed off the back of these forecasts from the Federal Reserve and let me go one step further and explain why the first Friday of the month will get a payrolls report and if that payroll support is hot typically we'd sit there and say well labor market pressure higher inflation fed has to do more work but Greg hasn't the FED just told us haven't they just de-emphasized the importance of the labor market to the inflation conversation I think that's putting way too much emphasis uh on the set and the forecast I mean at the end of the day we're in this data driven world uh the FED is trying to balance that out and I think the markets given the fact that we're in this data-driven world and we're not getting what we're wanting uh in terms of clarity out of the FED we're relying a little too much on this uh data release so I don't think anything changes I think it's the data change I think the FED policy changes um and you know it's also important remember two things one is that you know they don't have inflation going down to uh you know two percent until 2026 which is you know quite some time from now and then two we just had a massive revision of GDP in this year so you know let's use that as a kind of a reminder that forecast era is really quite High here Jim what are your thoughts on the same question yeah okay if I could give you a cynical thought that is that let's see if we even get a payroll report on October 6th because if we have a government shutdown the BLS is closed and Mike McKee's sitting in front of an empty building on that morning so leaving that aside I I do think though that if you're talking about the payroll report the consistency about it has been it's been much stronger than we've been looking at for the last 14 18 months or so all but something like two or three of the reports have been above consensus and that seems to be the trend that I would think would stay in place and if we see those kind of numbers uh come in it's going to push everybody firmly into that away from that Goldilocks and into that higher for laundry Camp as well we're going to make some money to get home here John Farrell Ian Lincoln the screaming by of the 10-year yield just says this is a Fed doubling down on soft Landing uh Mr Lincoln of course at Greg Greg Peters if they're doubling down on soft Landing for you at PGM is the 10-year yield a screaming Buy no I don't quite understand that um logic could be honest with you um I mean what that would presuppose is that uh you'd have a healthy dose of cuts in response to that soft Landing so no I I think yields are relatively range bound here um I don't really see a big move either way yeah it does look a little oversold there's some technical Dynamics But ultimately on a medium term basis it looks pretty fair value to us so um I don't think the Bond Mark investing in the bond market is not about capital appreciation that is a pre-pandemic trade it is about roll and carry and so no I don't expect it as a screaming Buy with that in mind Greg if there's a pool of money people sitting at home right now they're sitting on the front end they've been told by a couple of people that they should worry about reinvestment risk in the next six months and allocate accordingly further down the curve are you saying relax patience you find where you are yeah so I've been saying that uh the the whole time no one wants to listen to it right I think there's been this tendency to jump back into the pool because these you know higher rates are going to evaporate what the FED has told you today what the markets are finally starting to respond to is that no these rates are uh actually around here for a while so um yeah so I don't think there's any reason to rush and so we like duration but we wouldn't go Hell's Bells sorry and then Let's Fold this into Jim Bianco I mean John it's just simple Bianca was way out front with this idea of defining what longer looks like with a 10-year yield and he's in the camp with Greg Peters hi Jim this was great Jim Bianco together with Craig Peters thank you guys going to get to this Federal Reserve news conference with chairman Powell in about 90 seconds time I can tell you the two-year the higher the session 5 14 80. we've backed away since then Tom we're up by two basis points to about five eleven uh the front end of the curve for those keeping score the third week of August 2000 7 is when the Follies began and there is a headline in the Bloomberg now of a two-year yield back to 2006. lapels were wider in 2006. John I I can honestly say you mean I guess I would you know say historically someday you're going to revisit 2006. did I think we'd see it off this pandemic now never yeah this is a big deal and again I'm going to go folks from the nominal yield that we're all living what is this due to mortgages and and I'm going to go to the real yield analysis printing 1.99 up to two percent right now we've spent 30 minutes or so I'm talking about these forecasts from the Federal Reserve any moment from now chairman Powell is going to walk into the room stand behind that Podium and deliver a statement and take some questions on those forecasts let's reflect on the Mike McKee question of the day how much confidence do you have in anything that you were telling us today and Greg Peter said it we're putting too much emphasis Tom on those forecasts from this Federal Reserve this is the mumbo jumbo of X anti and X post and they've never been this much X post this much data dependent I think we're going to hear that across three Central Bank meetings with a week here in London these people are living exposed because of pandemic because of a massive fiscal stimulus in the United States not in every jurisdiction a war in Ukraine you know the endless litany that we we have but the heart of the matter is we're exposed the chairman Powell walks into the room at the Federal Reserve on the September decision my colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people we understand the hardship that high inflation is causing and we remain strongly committed to Bringing inflation back down to our two percent goal price stability is the responsibility of the Federal Reserve without price stability the economy does not work for anyone in particular without price stability we will not achieve a sustained period of strong labor market conditions that benefit all since early last year the fomc has significantly tightened The Stance of monetary policy we've raised our policy interest rate by five and a quarter percentage points and have continued to reduce our Securities Holdings at a Brisk pace we've covered a lot of ground and the full effects of our tightening have yet to be felt today we decided to leave our policy interest rate unchanged and to continue to reduce our Securities Holdings looking ahead we're in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate our decisions will be based on our ongoing assessments of the incoming data and the evolving Outlook and risks I will have more to say about monetary policy after briefly reviewing economic developments recent indicators suggest that economic activity has been expanding at a solid pace and so far this year growth in Real GDP has come in above expectations recent readings on consumer spending have been particularly robust activity in the housing sector has picked up somewhat though it remains well below levels of a year ago largely reflecting higher mortgage rates higher interest rates also appear to be weighing on business fixed investment in our summary of economic projections or SCP committee participants revised up their assessments of real GDP growth with the median for this year now at 2.1 percent participants expect growth to cool with the median projection falling to 1.5 percent next year the labor market remains tight but supply and demand conditions continue to come into better balance over the past three months payroll job gains averaged 150 000 jobs per month a strong Pace that is nevertheless well below that scene earlier in the year the unemployment rate ticked up in August but remains low at 3.8 percent the labor force participation rate has moved up since late last year particularly for individuals aged 25 to 54 years nominal wage growth has shown some signs of easing and job vacancies have declined so far this year although the jobs to workers Gap has narrowed labor demand still exceeds the supply of available workers fomc participants expect the rebalancing in the labor market to continue easing upward pressures on inflation the median unemployment rate projection in the SCP rises from 3.8 percent at the end of this year to 4.1 percent over the next two years inflation remains well above our longer run goal of two percent based on the Consumer Price Index or CPI and other data we estimate that total pce Prices rose 3.4 percent over the 12 months ending in August and that excluding the volatile food and energy categories core pce prices Rose 3.9 percent inflation has moderated somewhat since the middle of last year and longer term inflation expectations appeared to remain well anchored as reflected in a broad range of surveys of households businesses and forecasters as well as measures from financial markets nevertheless the progress the process of getting inflation sustainably down to two percent has a long way to go the median projection in the SCP for total pce inflation is 3.3 percent this year Falls to two and a half percent next year and reaches two percent in 2026. the fed's monetary policy actions are Guided by our mandate to promote maximum employment and stable prices for the American people my colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power especially for those least able to meet the higher costs of Essentials like food housing and transportation we are highly attentive to the risks that high inflation poses to both sides of our mandate and we are strongly committed to returning inflation to our two percent objective as I noted earlier since earlier last year we have raised our policy rate by five and a quarter percentage points we see the current stance of monetary policy as restrictive putting downward pressure on economic activity hiring and inflation in addition the economy is facing headwinds from tighter credit conditions for households and businesses in light of how far we have come in tightening policy the committee decided at today's meeting to maintain the target range for their federal funds rate at five and a quarter to five and a half percent and to continue the process of significantly reducing our Securities Holdings we are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to our two percent goal over time in our SCP fomc participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely sorry the most likely scenario going forward if the economy evolves as projected the median participant projects at the appropriate level of the federal funds rate will be 5.6 percent at the end of this year 5.1 percent at the end of 2024 and 3.9 percent at the end of 2025. compared with our June summary of economic projections the median projection is unrevised toward the end of this year but has moved up by a half percentage point at the end of the next two years these prediction projections of course are not a committee's decision or plan if the economy does not evolve as projected the path of policy will adjust as appropriate to Foster our maximum employment and price stability goals we will continue to make our decisions meeting by meeting based on the totality of the incoming data and their implications for the outlook for economic activity and inflation as well as the balance of risks given how far we have come we are in a position to proceed carefully as we assess the incoming data and the evolving Outlook and risks real interest rates now are well above mainstream estimates of the neutral policy rate but we are mindful of the inherent uncertainties in precisely gauging The Stance of policy we're prepared to raise rates further if appropriate and we intend to hold policy at a restrictive level until we're confident that inflation is moving down sustainably toward our objective in determining the extent of additional policy firming that may be appropriate to return inflation to two percent over time the committee will take into account the cumulative tightening of monetary policy the lags with which monetary sub policy affects economic activity and inflation and economic and financial developments we remain committed to Bringing inflation back down to our two percent goal into keeping longer-term inflation expectations well anchored reducing inflation is likely to require a period of below Trend growth and some softening of labor market conditions restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run to conclude we understand that our actions affect communities families and businesses across the country everything we do is in service to our public mission we at the FED will do everything we can to achieve our maximum employment and price stability goals thank you and I look forward to your questions the financial times what makes the committee inclined to think that the Fed fund's rate at this level is not yet sufficiently restrictive especially when in officials are forecasting a slightly more benign inflation outlook for this year there's noted uncertainty about policy lags headwinds have emerged from the looming government shutdown the end of federal child care funding resumption of student debt payments things of that nature all right so I guess I would um characterize the the situation a little bit differently so we decided to maintain the target range for the Feller funds rate where it is at five and a quarter to five and a half percent while continuing to reduce our Securities Holdings and we say we're committed to achieving and sustaining a stance of monetary policy that's sufficiently restrictive to bring down inflation to two percent over time we said that um but the fact that we decided to maintain the policy rate at this meeting doesn't mean that we've decided that we have or have not at this time reached uh that that that stance of monetary policy that we're seeking if you looked at the SCP as you as you obviously will have done you'll see that a majority of participants believe that it is more likely than not that we will that it will be appropriate for us to raise rates one more time in the two remaining meetings this year others believe that we have already reached that so it's it's something where we're bite by we're not making a decision by by deciding to uh about that question by deciding to just maintain the rate and await further data um so right now it's still an open question about sufficiently restrictive you're not saying today that we've reached this level um we're not saying yeah no I know clearly we're just what we decided to do is maintain the policy rate and await further data we want to see convincing evidence really that we have reached the appropriate level and and you know we we're seeing progress and and we welcome that but you know we need to see more progress before we'll be willing to to reach that conclusion and just on the 2024 projections what's behind that shallower path for interest rate cuts and the need for real rates to be 50 basis points higher right so um I would say it this way first of all um interest rates real interest rates are are positive now they're meaningfully positive and that's a good thing we need a policy to be restrictive so that we can get inflation down to Target okay and we need we're going to need that to remain to be the case for some time uh so I think you know remember that the of course the SCP is not a plan that is negotiated or discussed really as a plan it's accumulation really and what you see are the medians the accumulation of individual forecasts from 19 people and then what you're seeing are the median so I wouldn't want to you know bestow upon it the idea that it's really a plan but what it reflects though is that economic activity has been stronger than we expected stronger than I think everyone expected and and so what what you're what you're seeing is this is what people believe as of now will be appropriate to achieve what we're looking to achieve which is progress toward our uh toward our inflation goal as you see in the SCP thanks let's go to Rachel hi chair Powell Rachel Siegel from The Washington Post thanks for taking our questions how would you characterize the debate around another hike or holding study is it discussion around lag times fear of too much slowing too little slowing could you walk us through what this disagreement was about at the meeting yeah so the proposal at the meeting was to was to maintain our current policy stance and and I think there was obviously unanimous support for that but this of course is an SCP meeting and so people write down what they think and you've got you have some you saw I think seven wrote down no hike at this at this meeting or between now and the end of the year and I think 12 wrote down uh another single hike in one of the next two meetings that we have between the end of the year so it wasn't like we were arguing over that people just stating their positions and really what what people are saying is let's see how the data come in you know we want to see you know we want to see we want to see that that this this uh these good inflation readings that we've been seeing for the last three months we want to see that it's more than just three months right we want to see you know the the labor market report that we received the last one that received was a good example of we do what we do want to see it was a combination of of uh you know across a broad range of indicators continuing rebalancing of the labor market so those are the two things those are our two mandate variables and that's that's the progress that we want to see but I think people they want to be convinced you know they want to be careful to not to jump to a conclusion really one way or the other but just be convinced that the data you know support that conclusion and that's why uh given how far we've come and how quickly we've come we're actually in a position to be able to proceed carefully as we assess the incoming data and the evolving outlooks and risks and make these decisions meeting by meeting and in your view what would an know nothing has been decided yet but what would one more hike at the end of the year do to the economy or to inflation on and on the other side what would no hike do if you could sort of game that out for us so you know you can make the argument that one hike one way or the other won't matter but for us we're trying we've obviously as a group it's a pretty tight cluster of uh of where we think that that policy stance might be but we're always going to be learning from data you know we've learned all through the course of the last year that actually we needed to go further than we had thought if you go back a year and what we thought what we wrote down it's actually gotten higher and higher so we don't really know and until and that's why again we're in a position to proceed carefully at this point a year ago we proceeded pretty quickly to get rates up now now we're fairly close we think to where we need to get um it's it's just a question of reaching the right stance I wouldn't attribute huge importance to one hike in macroeconomic terms nonetheless you know we need we need to get to a place where we're confident that we have a stance that will bring inflation down to two percent over time that's what we need to get to and we've been you know we've been moving toward it as we've gotten closer to it we've slowed the pace at which we've moved I think that was appropriate and now that we're getting closer we again we have the ability to proceed carefully let's go to Steve uh Stephen CNBC Mr chair I want to return to Kobe's question here um what is it saying about the committee's view of the inflation dynamic in the economy that you achieve the same forecast inflation rate for next year but need another half a point of the funds rate on it does it tell you that tell us that the committee believes inflation to be more persistent requires more medicine effectively and I guess a related question is if you're going to project a funds rate above the longer run rate for four years in a row at what point do we start to think hey maybe the longer rate or the Nutri rate is actually higher thank you so I I guess I would Point more to rather than pointing to a sense of inflation having become more persistent I wouldn't think that's not we've seen inflation be more persistent over the course of the past year but I wouldn't say that's something that's appeared in the recent data it's more about stronger economic activity I would say so if I had to attribute one thing again we're we're picking a medians here and trying to attribute one explanation but I think broadly stronger economic activity means means rates we have to do more with rates and that's what that's what that meaning is is telling you um in terms of of what the neutral rate can be you know we we uh we we know it by its works we only know advice works really we can't we can't you know the the models and and that we use you ultimately you only know when you get there and and by by the way the economy reacts and again that's another reason why we're we're moving carefully now because you know there are lags here so that it it may it may of course be that the uh that the neutral rate has risen you do see people you don't see the median moving but you do see people raising their estimates of of the neutral rate and it's certainly plausible that the neutral rate is higher than uh than the longer run rate remember what we write down in the SCP is the longer run rate it is certainly possible that uh you know that the that the neutral rate at this moment is higher than that and that uh that's part of the explanation for why the economy has been more resilient than than expected Howard Schneider with Reuters thank you um so you've said several times that the economy needed a period of below Trend growth to get inflation consistently back to two percent you kind of get that in 2024 a little bit 1.5 percent is just a touch below uh what's the estimate of potential so uh the fact that you're getting so much done at so much less cost does that represent a change in how you think inflation works and changing how you think the economy Works a change in the mix of Supply healing versus demand destruction that's necessary to achieve this yes of course it is a it is a good thing that we've we've seen now meaningful rebalancing in the labor market without an increase in unemployment and that's that's because we're seeing that rebalancing in other places in for example job openings and in um the jobs worker Gap you're also seeing supply side things so so that's happening um I would say though we still I still think and I think broadly people still think that they'll have to be some softening in the labor market that can come through some more Supply as we've seen as well also remember the natural rate we think is is coming down which is a supply side thing so that the the gap between any given unemployment rate that's lower than that and the natural rate comes down that's a way for supplies that's a way for the labor market to achieve a better balance so all of those things are happening you're right in in the in the median forecast we don't see a big increase in unemployment we do see an increase and but that's that really is just playing forward the trends that we've been seeing that is not guaranteed there there may come a time when unemployment goes up more than that but that's that's really what we've been seeing is progress without higher unemployment for now so just to boil that down for a second um you know we've gone from a very narrow path to a to a soft Landing uh to something different um would you call the soft Landing now a Baseline expectation no no uh I would not do that I I would just say what would I say about that um I've always thought that the soft Landing was was a plausible outcome that there was a path really to to a soft Landing I thought that and I've said that since we lifted off it's also possible that the path is narrowed and it's widened apparently uh ultimately um it may this may be decided by factors that are that are outside our control at the end of the day but I do think it's I do think it's possible uh and you know I also think you know this is why we're in a position to to move carefully again that we will restore price stability we know that we have to do that and we know the public depends on us doing that and we know that we have to do it so that we can achieve the kind of labor market that we all want to achieve which is a an extended period sustained period of strong labor market conditions that benefit all we know that the fact that we've come this far lets us really proceed carefully is as I keep saying so I think you know that's that's the end we're trying to achieve um I wouldn't want to handicap the likelihood of it though it's not up to me to do that [Music] Nick tamarosa The Wall Street Journal uh chair Powell both you and vice chair Williams have indicated that sufficiently restrictive will be judged on a real rather than nominal basis implying some scope for nominal rate Cuts next year provided further compelling evidence the price pressures will continue to subside is the fomc focused on targeting a real level of policy restriction and can you explain what would constitute enough evidence that will allow the fomc to normalize the nominal stance of policy while keeping real policy settings sufficiently restrictive I mean yes we we understand that it's a real rate that will matter and it needs to be sufficiently restrictive um and again I would say you know you know sufficiently restrictive only when you see it that you it's not something you can arrive at with confidence in a model or or in various estimates you know and so what are we seeing we're seeing you know through a combination of the you know the unwinding of the pandemic related demand and supply distortions and monetary policies work in suppressing demand or or alleviating very high demand the combination of those two things is actually working you're seeing you know uh inflation coming down it's principally now in Goods also in Housing Services you begin to see effects of it in non-housing Services as well so I think we think that that is working and um I I think what you know as we've said we want to reach that we want to reach Something That We're confident uh it gets us to that level and I think confidence comes from seeing you know enough data that you feel like yes okay this feels like it we can we can for now decide that this is the right level and just agree to stay here we're not permanently deciding not to go higher but but we would if let's say if we get to that level and then the question is how long do you stay at that level and that's a whole other set of questions for now the question is trying to find that level where we think we can stay there and we haven't we haven't gotten to a point of confidence about that yet uh that's that's what we're that's the stage we're at though but it looks like there was because there wasn't across-the-board drop in the core pce projection core PC inflation projection for this year and even then it seems possible the core pce inflation could come in even lower than the median at 3.7 percent would you see a case to raise rates still if it turned out that you were going to achieve the same real rate this year because the decline in inflation proceeds somewhat better than you than you currently anticipate the decision that we make at you know at each meeting and certainly at the last two meetings this year it's going to depend on the totality of all the data so the inflation data the labor market data the growth data the the balance of risks and the other events that are happening out there we'll make we take all of that into account so I can't really answer a hypothetical about one piece of that it'll it'll be trying to reach a judgment over whether we should move forward with another rate hike overall and whether that would increase our confidence that that yes this is an appropriate movement it will help help us be more confident that we've gotten to the level that we need to get to following up on next question actually John Williams the New York fed president obviously has said things to the effect of next year as we see inflation kind of again can explain as we see inflation coming down we're going to need to reduce interest rates to make sure that we're not squeezing the economy harder and harder over time and I wonder if that's basically the logic that you apply you know is that how you think about it and then I also wonder in the last press conference you said something to the effect of you know it's a full year out those discussions and people interpreted that to mean that you didn't see a possibility of a rate cut in the first half of next year and I wonder if that was what you meant by that or whether you know how you're thinking about that timing no when so when I answer these questions about hypotheticals about about cutting I'm never intending to send a signal about timing I'm just answering them as as the question is expressed so so please I I wouldn't want to be taken that way sorry the first question was that Helm yeah so we're as we go into next year that's the question We'll be asking is you know taking into account lags and and everything else we know about the economy and everything we know about monetary policy um the the time will come at some point and I'm not saying when uh that it's that it's appropriate to cut part of that may be that real rates are rising because inflation is coming down part of it just may be that it'll be all the factors that we see in the economy and you know that time will certainly come at some point and you what you see is us writing down you know a year ahead estimates of what that might be and you know this does you know there's so much uncertainty around that when we in the moment we'll do what we think makes sense no one will look back at this and say hey we made a plan it's not like that at all it's this is these are estimates made a year in advance that are highly uncertain and uh that's how it is [Music] thanks so much uh chair Powell Neil Irwin with axios I wonder how do you think about the question of whether the strong GDP growth we've been seeing is driven by excess Demand versus supply side factors productivity labor force growth uh and relatedly uh if GDP keeps coming in hot even in the absence of inflation Resurgence would that on its own be a reason to consider more tightening foreign so on on your first question I mean we're looking at GDP very very carefully to try to understand really what's the direction of it what's what's uh what's driving it and it's it's a lot of consumer spending you know it's been the consumer's been very uh robust and it's in in spending so that is um you know that's how we're looking at it um sorry your second question was there's GDP uh stays hot but without inflation so I I think the question will be GDP is not a mandate right a maximum employment and price stability are the mandates the question will be is is the level is GDP is the is the heat that we see in GDP is it really a threat to our ability to get back to two percent inflation that's going to be the question it's not it's not a question about GDP on its own it's you you know you're expecting to see this Improvement you know continued rebalancing in the labor market and inflation moving back down to two percent in a sustainable way we have to have confidence in that and you know we'd be looking at GDP just just to the extent that it threatens one or both of those Victoria hi Victoria Guida with Politico there are multiple external factors that are playing out right now we see Rising oil prices we see Auto Workers striking where's the looming very real possibility of a government shutdown and I was just wondering for each of those things could you talk about how you're thinking about how that might affect the course for the fed and the economy so there's a there is a long list and you hit some of them but it you know it's it's the strike it's government shutdown resumption of student loan payments higher long-term rates oil price shock you know you could there are a lot of things that you can you can look at um and you know so what we try to do is assess all of them and and handicap all of them and ultimately though there's so much uncertainty around around these things I mean to start with the strike first of all we absolutely don't comment on the strike as we have no view on the strike one way or the other but we we do have to make an assessment of its economic effects to do our jobs so um you know the the thing about it is so uncertain it will depend the economic effects it could affect you look we've looked back at history it could affect economic output hiring and inflation but that's really going to depend on how broad it is and how long it's sustained for and we and then it also depends on how quickly production can make up for for lost production so none of those things are known right now it's very very hard to know so you just have to leave that uncertain and we'll be learning I think over the course of the next intermediate period much more about that and the same is true for the others we I don't know if you mentioned shutdown I think of all these as being on the list we don't comment on that it doesn't traditionally had much of any of a macroeconomic effect um you know Energy prices being higher that's that is a significant thing uh we um Energy prices being up can affect spending it can affect cons over time a sustained period of higher of higher energy prices can affect consumer expectations about inflation we tend to look through short-term volatility and look at look at core inflation but so the question is how long or are higher prices sustained we have to we have to take those macroeconomic effects into account as well those are those are some of them I'm not sure if I hit them all but I mean ultimately you know you're coming into this with an economy that appears to have significant momentum and uh that's that's what we start with and we but we do have this collection of risks that you mentioned okay all right Craig Torres from Bloomberg News I was a little surprised chairpal to hear you say that a soft Landing is not a primary objective this economy seeing added Supply in a way that could create long-term inflation stability we have prime age labor force participation moving up where people can add skills workers want to work we have a boom in manufacturing construction we've had a decent Spate of Home Building and since uh inflation's coming down with strong GDP growth we may have higher productivity all are which good for the fed's longer run Target of low inflation and if we lose that in a recession aren't we opting for the awful hysteresis that we had in 2010 so are you taking this into account as you pursue policy thank you to begin a soft Landing is a primary objective and I did not say otherwise I mean that's that's what we've been trying to achieve for all this time um the the real point though is uh the worst thing we can do is to fail to restore price stability because the record is clear on that if you you don't restore price stability inflation comes back and you go through you can have a long period where uh the economy is just very uncertain and it'll affect growth it'll affect all kinds of things it can be a miserable period to have inflation constantly coming back and the FED coming in and having to tighten again and again so the best thing we can do for everyone we believe is to restore price stability I think now today we actually uh you know we have the ability to be careful at this point and move carefully and that's what we're planning to do um so we fully appreciate that you know the benefits of being able to continue what we see already which is rebalancing in the labor market and inflation coming down without seeing uh you know an important a large increase in unemployment which has been typical of other tightening Cycles so let's go to Chris hi uh thank you Christopher gabright Associated Press uh when you look at the disinflation that has taken place so far do you see it mostly As a result of uh what some economists are calling the low-hanging fruit such as the unwinding of supply chain snarls and other pandemic disruptions or is it more a broad inflation a disinflationary trend that involves most goods and services across the economy thank you so if I if I understood your question it's I would say it this way I think we knew from the time from before when we left it off but certainly by the time we lived we knew that bringing inflation back down was going to take as I call it the unwinding of these distortions to both supply and demand that happened because of the pandemic and the response so that unwinding was going to be important in addition monetary policy was going to help it was going to help supply side heal by by cooling demand off and just in general a lot better aligning Supply with demand so those two forces were always going to be important I think it's very hard to pull them apart they work together I do think both of them are at work now and I think they're at work in a way that shows you the progress that we that we are seeing let's go to Mike Michael McKee from Bloomberg television radio in June you forecast A 5.6 year-end median fed funds rate and since then you've more than doubled your growth forecast you lowered your unemployment forecast significantly so what would justify that last move because the median forecast is for lower inflation and given all the known unknowns that you face how much confidence do you have can investors have or the American people have in your forecasts well forecasts are highly uncertain forecasting is very difficult forecasters are a humble lot with much to be humble about um but to get to your question though um what's happened is growth has come in stronger right stronger than expected and that's required higher rates unemployment you know you also see um that the the ultimate unemployment rate is not as high but that that's really because of what we've been seeing in the labor market we've seen more and more progress in the labor market without seeing significantly higher unemployment so we're continuing that Trend in terms of inflation you are seeing the last three readings are uh are very very good readings it's only three readings you know we were well aware that we need to see more than three readings but if you look at June July and August you're looking at you know really significant declines in core inflation largely in the good sector also to some extent in Housing Services and just a little in non-housing Services those are the three buckets headline isolation of course has come way down largely due to lower energy prices some of which is now reversing so I I think people should know that that economic forecasting is is very difficult and these are highly uncertain forecasts but um these are these are our forecasts they're you know they're they're we have very high quality people working on these forecasts and I think they stand up well against other forecasters but just the nature of the businesses the economy is very difficult to forecast given the forecast of that you have what Justified not moving today and what could justify moving in the future if you think inflation is coming down in other words why did you leave that extra dot in well I think we have come very far very fast in in the rate increases that we've made and I think it was important at the beginning that we moved quickly and we did and and I think as we get closer to the rate that we think the stance of monetary policy that we think is appropriate to bring inflation down to two percent over time you know the risks become more two-sided and the risk of overtighting and the risk of of under tightening that becomes more equal and I think that the natural Common Sense thing to do is as you approach that you move a little more slowly as you get closer to it and that that's what we're doing so we're we're taking advantage of the fact that we have moved quickly to move a little more carefully now as we as we as we sort of find our way to to the right level of restriction that we need to get inflation back down to two percent Jennifer thank you chair pal Jennifer Sean Berger with Yahoo finance with your focus on year over year pce isn't it true that base effects are huge and that by the time you meet in November that it's more likely that you'll have a low pce number that would make you feel more comfortable and secondly how would the lack of key indicators like CPI the jobs report impact your approach in upcoming meetings if we were to have a government shutdown thank you I missed the first question what was the Miss what factors the base factors base factors are so on that we're you know we're looking at just monthly right you can look at just monthly readings and see what the increase was from the prior month so you're right when you go back 3 6 and 12 months you get base factors but we we can we can we can adjust for that in terms of not getting data you know again we don't we don't comment on government shutdowns it it's possible if there is a government shutdown and it lasts uh through the uh the next meeting then it's possible we wouldn't we wouldn't be getting some of the data that we would ordinarily get and we you know we would just have to deal with that and uh I don't know it's hard for me to say in advance how that would affect that meeting it would depend on all kinds of factors that I don't know about now but it's certainly a reality that that that's a possibility but would you feel more comfortable on the base effects that as those kind of fall out of the equation for the next couple of readings by November would you feel uncomfortable at that point you know yes I mean if you're looking if we we can tell how much inflation has gone up in a given month right and you know that's what we're looking at and month by month what's the reading and you know uh I I think I think what we're really looking at is there's a tendency to look at you know shorter and shorter maturities but they're incredibly volatile and they can be misleading that's why we look at 12 months but I think in this situation where it looks like we've had a bit of a turn in inflation starting in June we're also looking at six months and even three months but really six months inflation so you're looking at it over that period and over longer periods that that's the right way to go and we don't we don't need to be in a hurry in getting to a conclusion about what to do we can let the data evolve so thanks for the question uh Sheriff Edward Lawrence with Fox Business so I want to focus back in on oil prices um we're seeing oil prices as you mentioned move up and that's pushing the price of gas so how does that factor into your decision to raise rates or not because the last two inflation reports pce and CPI we've seen the overall inflation is actually risen right so um you know Energy prices are very important for the consumer this this can affect consumer spending it certainly can affect consumer sentiment I mean gas prices are one of the big things that that affects consumer sentiment it really comes down to how persistent how sustained these Energy prices are we the reason why we look at core inflation which excludes food and energy is that energy goes up and down like that and it doesn't energy energy prices mostly mostly don't contain much of a signal about how tight the economy is and hence don't tell you much about where inflation's really going however we're well aware though that that you know if an energy prices increase and stay high that'll have an effect on spending and and it may have an effect on on consumer expectations of inflation things like that that's just things we have to monitor so oh yeah on the consumer um they're putting more and more of this on their credit card the consumer seeing you know record credit spending how long do you think the consumer can manage that debt at higher interest rates now and are you concerned about a dead bubble related to that so to finish my prior thought I was saying that's why we we tend to look through energy moves that we that we can see as short-term volatility um you know when turning to Consumer Credit you know of course we watch that carefully consumer uh distress measures of distress among consumers were at historic lows quite recently uh you know after during and after the pan the pandemic they're now moving back up to normal we're watching that carefully but at this point these these readings are not they're not at troublingly high levels they're just kind of moving back up to what was the typical in the pre-pandemic era hi Gene Young with m i market news um yields along the treasury curve have risen to their highest in years uh what is the fed's view about what's been driving that increase in recent weeks and how much of it can be attributed to macro explanations and how much to technical factors so you're right um you know rates have moved up significantly I think uh it's always hard to say precisely but it's most most people do a common decomposition of the increase and they'll they'll The View will be it's not it's not mostly about inflation expectations it's mostly about other things you know uh either term premium or real yields and it's hard to be precise about this of course everyone's got models that will give you a very precise answer but they give you different answers so but essentially they're moved they're moving up because it's not because of inflation it's because probably it'll probably have something to do with stronger growth I would say more more supply of treasuries you know the common explanations that you hear in the markets kind of make sense Kyle Campbell American Banker thank you for taking the questions um just two on on housing you've said slower shelter cost growth is in the pipeline and will reflect in inflation readings as new leases are signed but there's also some questions out there about the way housing costs are measured particularly the use of rental equivalence which are estimates from homeowners about what their homes would rent for if they were in the rental market so my question is how much of the effort to tame inflation both as it's measured and felt by the broader public hinges on housing Supply and then as far as a constrained housing Supply being sort of exacerbated by this sort of lock-in effect of mortgages being higher now than they were at their recent historic lows how is that going to impact future thinking about taking interest rates to that lower Bound in the future so on the supply point of course Supply is very important over time in in setting house prices and and for that matter rents and so and Supply is kind of structurally constrained but in terms of of where inflation is going in the near term though as as you obviously know a lot of it is is leases that are running off and then being re-signed or released at a level that's that's um not as not it won't be that much higher it would have it a year ago it would have been much higher than it was a year before now it may be below or at the same level so as those leases are rolling over we're seeing what we expect which is measured Housing Services inflation coming down your second question was the lock-ins how much is that affecting things really your decisions to potentially bring rates down to their lower Bound in the future sort of creating that that sort of bubble of buying and then a lock-in that sort of stagnates the housing market I I think we look at the I would look at the lock-in this the idea being that people are in in very low mortgage very low rate mortgages and uh if they even if they want to move now they it would be hard because the new mortgage would be so expensive and that's explaining some of the that's one of the explanations for what's happening broadly in the labor market would that play a role in in uh in our future decisions in a in a future tight in a future loosening cycle about whether we would cut rates no I I don't think it would I mean I don't think that's I I think we'd be looking at what the you know fundamentally what what rates does the economy need and you know in an emergency like the pandemic or during the global financial crisis you you know the the you have to cut rates to the point that you get to do do what you can to support the economy so I wouldn't I wouldn't think that that would be a reason for us not to do that it's not something we're thinking about at all right now but down the road I wouldn't think so Nancy hi Nancy Marshall ginser with Marketplace um chair pal you've mentioned several things that would possibly weigh on consumer confidence maybe cut back consumer spending possible government shutdown high gas prices at this point with the FED welcome a decrease in consumer spending would that help you get inflation closer to your two percent Target I wouldn't say it that way we're not looking for a decrease in consumer spending um it's a good thing that the economy is strong it's a good thing that the economy has been able to hold up under under the tightening that we've done it's a good thing that the labor Market's strong the only concern and it it it just it just means this if the econ if the economy comes in stronger than expected that just means we'll have to do more in terms of monetary policy to get back to two percent because we will get back to two percent is that answer your question yeah and I guess on the other hand would you worry that that could contribute to an economic slowdown or even a recession well that's always a concern I mean concern number one is is restoring price stability because in the long run that's that's something we have to do so that we can have the kind of economy we really want which is one with sustained period of tight labor market conditions that benefit all as I've said a couple times so um that that said of course you know we we could we also now given how far we've come with our rate hikes and how quickly we've come here we do have the ability to be careful as we move forward because of that consideration uh thank you chair Powell Simon rabinovich with the economist um one of the factors in the economic resilience to date appears to be a lesser degree of rate sensitivity than in the past obviously we've talked about households with long fixed rate mortgages also companies that refinanced before last year what is your thinking about the efficacy of rates and how that's changed and then related to that um how do you think about the distributional consequences in the sense that if you're a relatively wealthy household with a long fixed rate mortgage the past year has not been all that tough with rates going up whereas if you're relying on your credit card for supporting your consumption in fact times are getting a lot tougher a lot more quickly thanks so what I guess it's fair it's fair to say that the economy has been stronger than many expected given given what's been happening with with interest rates why is that many candidate explanations possibly a number of them make sense one one is just that household balance sheets and business balance sheets have been stronger than we had understood and so that that spending is held up and that kind of thing we're not sure about that the savings rate for consumers has come down a lot the question is whether that's sustainable that could be it could just mean that that the date of effect is is uh is later it could also be that for other reasons the neutral rate uh of interest is is higher for for various reasons we don't know that it could also just be that policy hasn't been restrictive enough for long enough and uh it's there are many candidate explanations we have to in in all this uncertainty make policy and I you know I feel like what we have right now is of what's still a very strong labor market but that's coming back into balance we were making progress on inflation growth is strong um but I think by many forecasts uh many many forecasts call for for growth to to moderate over the course of the next year so that's where we are and you know we have to we have to deal with what comes on your second question was which was sorry your second question was distributional but can you can you be a little clearer about that uh yeah my point there was that if you're somebody who has a long fixed rate mortgage you've been able to endure the higher rates relatively easily if you're somebody who's living month to month off of your credit card Uh current financing rates are punitive yes and so the point I would make there is that we're trying to get inflation back down the people who were most hurt by inflation are the people who are on a fixed income if you're a person who spends all of your income you don't really have any meaningful savings you spend all your income on the basics of Life clothing food Transportation heating the basics and prices go up by five six seven percent you you're in trouble right away whereas even even middle class people have some savings and some ability to absorb that so it is for those people as much as for anybody that we need to restore price stability and and we we want to do it as quickly as possible obviously we we would like to do that we'd like the current Trend to continue which is that we're making progress without seeing the kind of increase in unemployment that we've seen in past in past things but you're right though when we raise rates people who are you know who are living on credit cards and and borrowing are going to feel that more they are and of course people with with lots of saving things also have a much lower marginal propensity to consume and so they're not going to it's not going to affect them as much [Music] thank you chair Powell Craig Robb from Marco watch um I have a beige book recently you can tell that the FED has been surveying non-profits and Community groups about the economic health of low-income Americans moderate because Americans I have two questions about this are you going to use that data to maybe come up with a sort of like a quarterly survey of those groups like the senior loan officer survey and um you know from your and also the second question is from your recent look readings of these surveys how are low and moderate Americans doing is there this thing where like the GDP is strong because of wealthy Americans kind of driving things and just want to get your sense of the health of that sector thank you so I don't know about the quarterly survey that's an idea we can we can take away and think about it in terms of how low and moderate Americans you know there clearly were suffering from it from high inflation I think during the pandemic um the the government transfers that happened uh were very meaningful and you know if you know the the surveys that we take showed that so that low and moderate income people were actually in very very strong financial condition I think now it's a very hot labor market uh and um you're seeing High nominal wages and you're starting to see real wages are now positive by most by most measures so um I I think overall households are in good shape surveys are a different thing so surveys are showing dissatisfaction and I think a lot of that is just people hate inflation hate it and uh that that causes people to say the economy is terrible but at the same time they're spending money their behavior is is not exactly what you would expect from the surveys that's kind of a guess at what the answer might be but I think there's a there's a lot of good good things happening on household balance sheets and certainly in the labor market and with wages the biggest wage increases having gone to relatively low wage jobs and now inflation coming down you're seeing real wages which is a good thing thanks very much yeah foreign [Music] bank that underpins of course the world's largest economy I guess trying to do here on the tail end of this Ray tightening cycle what he tried to do at the onset more than 18 months ago and that is to guide Market expectations to the same path that the FED wants to draw our special coverage of the FED decides here on Bloomberg continues right now on the close as team surveillance right now passes the Baton along to Scarlet Foo along to Katie greifeld and along to myself Romaine Bostic as we take you to the closing bell and Beyond guys 13 fomc meetings we've had of course going back to March of last year 11 rate hikes coming out of those 13. we're back to pause but Jay Powell wants you to believe that they're going to hike again this year yeah is made clear in the in the human of economic projections right where they see one more rate hike this year they also revised up GDP forecasts for this year while seeing lower inflation as well what I found really interesting was J Powell's pushback that the SCP is not a plan this is simply the median of all the individual forecasts that have been compiled and he made clear that forecasts are highly uncertain for anyone who's out there trying to craft a narrative based on all those projections he's saying you know what this is hard work and this is the best that we can come up with no one would ever craft an airplane no no no it's a reminder that monetary policy is an art not a science well let's go sure some people believe that that sounds you sound like an economist uh but let's just go through real quickly some of those numbers that we did get out of those projections basically leaving The Benchmark rate where it is but making it clear in that dot pot 12 of the 19 officials right now favoring another rate hike for this year and they're saying they're going to raise their projections for 2024 as well as 2025 a revision higher on GDP expectations for this year and next and a revision lower for the employment rate which I thought was interesting not only for this year but for the next two years out and you marry those numbers into what we heard heard from the man himself in the press conference this moment really stuck out to me when asked if when he pulled out that iPad that was pretty good I do have a lot of questions about that the best advertising apples had in years you didn't see the stockpot but uh in response to a question whether a soft Landing whether it's safe to call that the Baseline he said that he wouldn't call a soft Landing the Baseline expectation yes it's their primary objective it's possible but not the Baseline but then back to Scarlet's point you take a look at those revised numbers uh it kind of looks like they're projecting us softly but don't read too much into that trying not to yeah I think though he wants the market I guess to at least have enough sense of urgency that yeah another hike is going to come but at the same time have enough confidence that the economy isn't going to fall off the cliff it was interesting to see the market reaction of course we talk about stocks at one point just a few minutes ago we're at session lows and of course you had that two-year yield which everyone's going to be talking about camped out at the highest level since 06. yeah moving up up up at at least in the aftermath it came back down a little bit but still remains higher 5.135 percent that's the highest in a couple years let's walk you through some of the Cross asset price action Abigail do a little standing by Abigail well remain this fed meeting certainly not a snooze Fest and from across asset class standpoint lots and lots of movement and I would say that if we were to title the overall meeting higher for longer take a look at the two-year yield that you were just talking about so when the decision came out and the sense that they will be raising at least one more time this year plus the Dot Plot being raised uh for the subsequent years hotter economic projections up then down and now higher and at the highest level since 2006 essentially signaling that the market has taken to Fed seriously on the idea that they are going to be staying higher for longer similar message for the Bloomberg dollar Index Rising rates will support the Bloomberg dollar Index and from a technical standpoint and a longer term standpoint the Bloomberg dollar Index is breaking out suggesting that the rates Rising that we're seeing today that this trend not just today over the last several weeks months and even years over the last two years is going to continue now you're talking about stocks this is interesting because the NASDAQ 100 overnight really Treading Water basically into the meeting even treading order but at this point down eight tenths of one percent so investors stock investors also taking seriously the message that more money coming out of the system and evaluation especially for big Tech like this could be uh put made more precarious if we go to other indexes we are going to see stocks I think basically at the lows the S P 500 down half a percent now heading toward its third week down week in a row small cap also down four tons of one percent I think below its 200-day moving average the stock's down one percent and then that New York thing at X down 1.3 percent a hawkish pause higher for longer one of those characterizations does seem to be appropriate or maybe both for this meeting the market reacting right now of course the FED back in July did hike rates putting them back on pause today Jay Powell making it clear that the decision to hold today is based on how far we've come take a listen to some of the other comments that he just made at that press conference real interest rates now are well above mainstream estimates of the neutral policy rate but we are mindful of the inherent uncertainties in precisely gauging The Stance of policy we're prepared to raise rates further if appropriate and we intend to hold policy at a restrictive level until we're confident that inflation is moving down sustainably toward our objective the chairman of the Federal Reserve speaking just a little while ago a little bit earlier today Bloomberg opinion columnist Bill Dudley said that there were going to be five key things that he was watching in today's fed forecast including will there be another rate height this year what's the outlook for unemployment how low can unemployment go without stoking inflation and what's the neutral feds funds rate and when will rates start coming down now that the forecasts are out let's bring in Bill Dudley joining us right now former New York fed president a former Vice chair as well and over at Princeton University senator for economic policy studies and let's start with the neutral rate because this seemed to be one part of the press conference where he seemed to struggle a little bit in articulating exactly how they're going to assess when they think they've finally arrived at that rate I think the message of the meeting was basically two things number one uh soft Landing is more likely because you can see the unemployment rate only has to rise now to 4.1 percent to get the job done uh back in June it had to rise to 4.5 percent and number two economy's stronger than expected and therefore while policy is probably not as tight as we think it is so there have been a little bit of upward movement in people's estimates of the long-term Federal fund rate in this summary of economic projections first in June and again this month so what basically the FED is concluding is maybe monetary policies not quite as tight as we think it is but they're also very very happy about how the labor markets uh unfolding they basically think of soft Landing is more likely quite a bit more likely I'm a little surprised by the market reaction I I think this this Market reaction should be bond yields up because the fence can be tighter for longer stock prices sort of mixed uh higher body is Weighing on stock price but more of a chance of soft Wang that's a good thing for stock prices so I'm a little confused by the important reaction the that's interesting you mentioned the stock market reaction because one point you make in your column today is that keeping a rate hike in the forecast you write has a tactical benefit of restraining markets which might otherwise decide that we're done and generate an unwanted easing in financial conditions Bill you've been in the room before during these discussions how mindful are policy makers of the Market's Tendencies to immediately make assumptions off of each clue that's dropped the Market's always searching uh for for what the fed's going to do from anything from the statement from press conferences from speeches so I do think keeping One Rate hike in the forecast does sort of you know keep the market from running away from the FED but as chair Apollo mentioned in his press conference it probably doesn't really matter that much at the end of the day whether they do that Library hack or not it's not like the economy is going to turn around dramatically If the Fed does record a point more or a quarter point less I think the way he's trying to explain why they might do another quarter is to make them themselves more confident that they're going to achieve their objective so let's imagine the data the data sort of ambiguous as we go through the next couple months because if it's ambiguous the fed's not really sure that they're actually going to achieve their objective in a timely way with the current level of rates you do one more rate hike to try to increase your level of confidence so at this point it's not really about you know do they have to go another quarter or not it's really more about uh with going another quarter make them more confident and Bill Beyond whether or not they're going to hike one more time or not I think it was interesting that they actually took a few cuts out of next year's forecast when you think about the expectations for 2024 what should we read into that is that the soft Landing perhaps coming into fruition or should we take that as maybe inflation is going to continue to be a problem here well they didn't really change the inflation trajectory very much so I think the way out way I view the taking the rate hikes out Ray cuts out is the fact that the economy is just stronger than expected if the economy has more momentum I don't need to support the economy as much with rape with rate Cuts so I think that's really the message because the inflation forecast didn't really change in a minute away uh we're in conversation right now with uh Bill Dudley Bloomberg opinion columnist and of course a former chair of the New York fed want to bring into this conversation our very own Michael McKee our chief International and economics correspondent here at Bloomberg who actually wants to participate in this conversation Mike take it away yeah well let me tell you uh what I take out of this press conference and then I want to ask Bill what he thinks because he's the central banker and he has a much better idea than I do of what they're talking about in the room but it seems to me that there's a bit of an internal inconsistency in their forecasts in that uh they've more than doubled their growth forecast they significantly lowered their unemployment forecast and yet inflation is supposed to come down so are they saying at this point that the stronger growth we've seen is not inflationary and my takeaway from that would be they're done but they're leaving that extra rate increase in before the end of the year as an insurance policy and the same sort of thing holding true for the cuts they took out last year if the economy were to produce inflation then they have something in there that they can point to the markets and say we did this uh bill is is that kind of the way people should take this I think that's that the way people should take it I mean I think it's very interesting that before they had the unemployment rate going up to four and a half percent now the unemployment rate only has to go up to 4.1 percent to do the job what that's telling them is they're taking quite a bit of signal of the fact that the labor market seems to be kidding to better balance even without the unemployment rate Rising very much so they're more uh confident that the labor market can essentially normalize on its own that the FED doesn't have to generate as much slack in the labor market to get inflation back down to two percent so it's a you know and chairpal talked about the increase in labor force participation I talked about the fact that the racial unfilled jobs to unemployed workers has come down so they're taking quite a bit of positive signal about how the labor market is is developing well if uh the economy develops Ambiguously as you say over the next couple of months would you be surprised if they raised rates again I think at this point they would they they probably think that they will not have to uh but they they know that if they're going to move in One Direction the other in the next few months it's definitely a rate hike not a rate cut uh so I think it's you know it's going to depend on how the data unfolds and you know as the press conference uh there's a lot of discussion the president there's a lot of shocks in the economy right now governments shut down Auto Workers strike the beginning of student loan repayments uh oil price shock so I think the and the federal mean I actually have actually have the Comfort data in terms of the economic releases of the government shutdown shutdown goes fine for any length of time so I'm going to be very surprised if they hike in November and then we'll see where we are at the December FMC meeting yeah we'll see where we are and that's something that pal made extra clear they're going to proceed carefully cautiously Bill Dudley thank you so much bill is Bloomberg opinion columnist senior advisor to Bloomberg economics and of course a former New York fed president and of course our thanks to Bloomberg's Michael McKee in Washington here in New York with us right now now to continue the conversation after the Federal Reserve policy setting meeting is Torsten slock partner and chief Economist at Apollo it's so good to see you here in studio today did j-pal come across you as hawkish or dovish well I think the clear signal they want to send here is that we need to slow this economy more down I mean they could have decided to hike rage today obviously that was not Market expectations but I think this was a very hocused pause I mean the whole communication the way that the statement was written and changed and what he said at the press conference it clearly signaled that we can allow ourselves to keep rates higher for longer and taking two cuts out of next year by definition means that rates will be higher for longer and the fact that as Phil Dudley just mentioned the fact that this is happening without any increase in the unemployment rate the unemployment rate today is 3.8 and now they see it going up to 4.1 that's really almost a rounding error so saying the labor market is just not going to change in the forecast that is quite incredible in particular when they're at the same time say we're worried about inflation and they're really saying a word about inflation being too sticky and therefore the risk that inflation might not come down to two percent well torson seizing on the idea that higher for longer is really the takeaway from this decision from this presser I want to go right to your notes because you wrote before the decision that rates and therefore the cost of capital are going to stay elevated for another 9 to 12 months and credit and Equity investors should plan accordingly what should that plan look like because I look at the equity Market this year I see it double digits higher look at credit spreads and they're pretty tight I know but what's going on and he was asked about this also is that you're seeing both for consumers and for firms higher interest rates are higher cost of capital are beginning to bite harder and harder we're beginning to see the language of rates going up for consumers and credit cards and other loans we're beginning to see default rates going up on high yields if we are going to keep rates at these levels for another nine twelve months we should be extrapolating the current lines for what's going on with the language rates and default rates and that runs the risk in particular in high yield where the fall rates are now up to 4.3 in the data for August that just came out that that could continue for the next six nine months and that's then going to open up a risk that if we're good to see the cost of capital bite harder and harder on companies every single day that cannot either get a new loan or refinance an existing loan we begin to run the risk of course they will begin to see more companies defaulting and on the consumer side more people falling behind on their payments he was asked about are you worried about the language of rates going up for consumers and he said oh this is just a normalization but I think the important thing here is why is it normalizing because interest rates have gone up so I do take that high interest rates are biding both on consumers and on corporates and they're going to allow that process to continue now for potentially even not only the next nine to 12 months but maybe even the next 18 months because they're going to keep rates higher and I think that process is exactly what I would call the crystallization of the transmission mechanism monetary policy trying to slow the economy down gradually more and more and that's the process that we're seeing across the board both for consumers and corporates and pal really didn't make that correlation maybe not explicitly but as explicitly as we're ever going to get out of a Fed chair when he did talk about this idea that if the economy strengthened or did perform better than what was our already in their projections then we were going to get more hikes here so he's basically sending that message loud and clear that at least the economic activity we're at right now that might actually be the baseline or I should say maybe the Top Line absolutely because think about it in credit Minds we are every single day when interest rates and cost of capital as Katie has just highlighted these high levels this is having real implications there are real firms that need to roll over loans they are real firms that need to think about do they want to have a new loan and if the cost of capital stays at these levels for another year that means that for the next three four quarters we are likely to see the increase in default rates in particular for lower rated companies and Loans in a high yield continue to slowly grind higher and this becomes a difficult process to manage for them in particular if they start to remember there's about 11 million people who work in the companies that are high yield issuers so that means that from a total employment perspective there's potentially a lot of people in the high-yield industries that are at risk of losing their jobs if this default cycle continues when you looked at the SCP numbers today the economic projection numbers today are they pretty much in line with your own Outlook yeah I would also expect this summary of your own projections I said as it said that things are still okay for now but they are projecting and that's also what I would expect that's also what the consensus is expecting they are expecting that things gradually continues to slow down remember they have two goals of course they have inflation and they have employment and you need to have a soft Landing not only in inflation we are well on track there but we also need a soft land in the labor market and the fact that they are almost saying that we have almost achieved a soft Landing because the unemployment rate is very close to the end goal where they think it will be in two years that's saying that we can get inflation down with no implications for the labor market that would be quite remarkable when you at the same time think about how companies as we speak are seeing default rates going up in particular again for lower rated credits with higher leverage and lower interest coverage ratios all right torson really appreciate your time great to see you on set with that instant fed analysis that is torson slack of Apollo meanwhile you take a look at these markets stocks down yields up Bloomberg's just Menton standing by with check okay Katie romaine and Scarlett taking a look at the S P 500 the round trip it's made since the Federal Reserve first began raising interest rates in the cycle back in March of 2022 if you look in that span the S P 500 is up close to about four percent in that time frame but also if you look back where it bottomed in October of last year up well over 20 actually around 23 at this time frame but if you're looking at where things are trading today not a ton of movement as stocks have been fluctuating this afternoon typically historically over the past three decades the stock market usually on fed days the S P 500 does in-flat but going through today there actually has already been 101 trading days since the last time the S P 500 has seen a decline of at least one and a half percent so today would Mark 102 trading sessions that's the longest streak since 2018 so it's going to be interesting to see apparently this wasn't necessarily the Catalyst that investors may have been expecting to see a downward decline there but something to definitely keep an eye on Katie romaine and Scarlett just great Roundup really appreciate and you know it's a big day because Bloomberg intelligence chief U.S interest rate strategist Ira Jersey isn't the New York office coming up from Princeton and Ira it was really interesting listening to Jerome Powell he brought up real yields multiple times just to go through some of the headlines here he said that real interest rates are quote meaningfully positive now and also that they need to stay positive for quote some time when you think about where really rates are right now you think about five-year real rates well above two percent how much of a tightening impulse is that doing for the FED yeah I think that the the tightening and the real rate environment is exactly where the FED wants it so I think the question becomes is how long do they keep it there and then what happens if say inflation continues to come down a lot and therefore real rates just are even higher right so so one of the things that we looked at in a note this morning was where the market is pricing the expert station for the real fed funds rate a year from now and basically where the Market's thinking that actually real rates are going to come down a little bit because this morning anyway or yesterday last night when I put the piece together everyone thought that the FED might you know be cutting interest rates a little bit more than they think now right but but I think that the the fact is is that the market still wants and still believes that the FED is going to be able to hold the policy rate above inflation for at least the next couple of years you know one question I thought was really interesting was the question on the efficacy of rates this idea that households and businesses that should be hurting more from the steady increase in rates have actually done okay in large part because they locked in lower rates either through 30 or fixed rate mortgages or refinancing when before the FED began raising rates what did you think of a chair Palace explanation about how just balance sheets are healthier than we might have expected yeah so he didn't mention this directly but it all goes to the long and variable lags argument right so it's just a longer and maybe more variable this time in large part because of what you just noted right a lot of basically the terming out of debt both by the household sector and the business sector and it's something that's basically been going on since the late 1990s so this is a a generational shift it just means that it's going to take monetary policy longer to work it's not that monetary policy won't work it's just that it takes much longer to feed through the system um you know when 25 percent of corporate debt was in commercial paper and it was all two and three month CP that affected the market immediately yeah there's no more CP as a as a share of corporate funding right so so it's not going to affect businesses and business activity as much now now but over time you have less capex right because maybe you're not willing to borrow a little bit more to do that capital expenditure that you would have but again that's a much longer that's a three four five year type of activity rather than you know three months or a year all right Ira great to catch up with you here Ira Jersey over at Bloomberg intelligence the chief U.S interest rate strategist there as we continue our special coverage of the FED decides here on this Wednesday afternoon we continue to count it down to the closing bills as well which are just about 14 minutes away and uh Ira we uh want to actually keep you here Ira if you can before we I'll let you go because you're so good we decided to ask you additional questions and and I do have one question here about the idea that how many people were betting on the steepening of the curve meaning and investors in the market and when you looked at the Dot Plot and the economic projections here do you think that's going to be enough ammunition to actually see a significant unwind in some of those bets yeah so I think that's actually one of the reasons you've seen some of the what we call Bear steepening over the last couple of weeks which is people thought that maybe the the Federal Reserve was going to cut interest rates pretty aggressively next year and because of that you wind up with two-year yields rallying a lot and two-year yields much lower and that that was the interest rate the steepner and that was a consensus for a while and I thought that for a little while too although I backed off from that the last couple of months um so so I do think that some of the move that you're seeing today or people saying okay well look the fed's on hold two-year yields aren't going to uh two year yields aren't going to go down a whole heck of I want to follow up on that too because I mean we're whatever is it something like 18 months from when we first started this cycle I'm really close to two years when you consider when you started to try to Jawbone the market your expectations when you go back maybe to late 2021 early 2022 compared to your general expectations now here did they shift meaningfully well yeah yeah of course because we wound up getting much higher inflation than we thought right we were thinking that 10-year yields would Peak somewhere under four percent we've obviously peaked above four percent um the you know the challenge with managing money and trying to determine where uh interest rates are going to go particularly longer term interest rates it has to evolve right so getting direction right ends up being much more important than getting the magnitude right because you can always stay in a trade longer if it's working then um than you know getting it wrong and getting stopped out or losing a lot of money right so so we we were we thought that yields were going to go up in 2022 right that that was a pretty consensus view yeah but we thought again like 3.3 percent now it's 4.3 percent I do think though overall you have to you have to think about for the longer end of the curve are we near or at the peak of of interest rates and I think we probably are but there is a big risk here because we've tested this 4.35 percent on the 10-year if we break through that you could there's going to be a lot of stops where a lot of people like buying at like four and a quarter but if you get the four and a half those people are going to get out of that trade and you wind up with a big spike in interest rates what would be the impulse for long end rates to go higher for the the 10 years specifically to reach four and a half what would be the actual Catalyst to drive it there yeah I think it would have to be a re-acceleration of inflation so basically CPI and the core PC deflator moving up a bit and then as that occurs basically even more shifting of expectations for what the fed's going to do so I think in order to see you know a five percent ten year you probably need to have expectations of a six percent fed funds rate or higher just because the the market is going to continue to think that at some point the FED will cut interest rates but if the FED is still hiking interest rates then you wind up having a significantly higher you know 10-year yield as well so you know another 50 basis points or 75 base points of hikes by the FED that might get you close to five percent on a 10-year now I don't that's not our base case expectation obviously but that's probably the the likely Market outcome of that scenario all right Ira now you can go thanks I think the Amtrak trains are a back up and running Bloomberg intelligence chief U.S interest rate strategist Ira Jersey there helping us walk through not only his take care on those economic projections guys but more importantly how the market might react should some of those projections get hit and of course uh the big move today is in that two-year yield the most rate sensitive part of at least the main part of the curve here up seven basis points right now Five Spot one five eight seven and change the highest level since 2006 we also have the 10-year yield moving marginally Higher One thing that we were trying to figure out yesterday was the big move up in yields as well and there are different reports but Canadian CPI picking up quickening in August after you know it had appeared to stabilize raising some concerns that we're going to see a similar re-acceleration of inflation here in the U.S because the Bank of Canada was ahead of us with the the hawkish pause yeah and it's interesting too I mean we talk about the equity Market reaction we're still around session lows here for most of the major Equity indices here and I was just looking at the s p sectors and basically what's leading it right now is consumer staples and Healthcare and real estate and then you take a look at the NASDAQ 100 your big Tech names the NASDAQ 100 off by 1.2 percent I thought it was interesting it was Bill Dudley right who said that okay if you take a look at what the expectations are rate Cuts coming off the table next year shouldn't stocks be higher yeah he was puzzled by that for sure I mean big Tech is so you know maybe that should lift the markets overall let's not forget that we do have earnings coming out after the Bell yeah there's still corporate news and FedEx will be reporting will be all over that yeah we're going to get FedEx and I see you got clavio up there it's a Dave you here on the day let's continue this conversation right now as we count you down to the close Jeffrey Rosenberg joining us right now BlackRock portfolio manager of the systematic multi-strategy fund and Jeff I just want to get your take right off the top here when you heard the commentary from Powell at the press conference and kind of the back and forth with regards to where rates might be where the neutral rate might end up here this seemed to be just once again him trying to work that magic on the market and keeping their expectations in line with the fed's expectations do you buy into it well I think that you know most of the action in this uh meeting you know comes from the statement of economic projections and as Powell you know tried to lay out that's that's not part of the committee's deliberations it's not a plan but it is really you know the signaling of the of each individual participants you know expectations and so that was really the dominant story and so Powell had to kind of navigate that but I think it was a story that he wanted to tell particularly in in showing uh you know higher or restricted for longer in terms of the 20 to 24 dot the 2023 did not have the decline uh so overall it it preserves a lot of policy flexibility to become less restrictive over time and I think that's the easier path for Powell to have taken I think that's probably a good outcome for him in the fomc today Lester would suggest that current policy is sufficiently restrictive and I I fixed on that Clause that phrase because that's a qualitative not quantitative judgment isn't it what does sufficiently restrictive mean in the current context is it a moving definition or range or is it a fixed Target during this rate high cycle yeah and as you do as you saw there was a lot of discussion and a lot of questions on that and I think the answer is sort of you you know it when you see it yeah which is that the policy rate has the impact on the data on the economy and most importantly on inflation that they're expecting so you know most of the forecasts that uh were written down today and most of the market forecasts basically say the fed's going to have success here on inflation and so therefore we're sufficiently restrictive and we're about to move the discussion to are you too restrictive what about Cuts in 2024 why did you take 50 basis points out of the cuts in 2024 but that may be premature it's basically uh you know counting your chickens before they've hatched in the form of we're expecting that inflation Decline and if we don't get that expected decline that's going to be a bigger surprise noting that you know we've had a lot of failures in the consensus forecasting around inflammation now it's it's too benign now the market is is too complacent around the expectations that inflation will go back down to its pre-covered level I think that's where the surprise in in the forecast May Come From but right now you know there's there's pretty good consensus both at the FED uh in the SCP and in the market that inflation has been uh won the war on inflation has been won and it's just not as as power laid out and part of the Q a you know now it's more two-sided and trying to secure that soft Landing uh that is so much in the consensus and I think it's also reflected you know partly in these SCP forecasts as well so Jeff how high is a hurdle for a rate hike in November and he himself said that you know probably wouldn't do anything for the economy yeah I mean as he said and I think it's right you know one more hike here is not really the make or break story the story is is really that they're going to be high for longer restricted for longer we're pretty much at the end of the hiking cycle whether there's one more or not you know very much depends on how strong the economy is and as he highlighted you know the change from the the prior forecast there's really about the strength in the economy uh you know contributing to people's unease about how quickly they had penciled in Cuts in 2024 so that's really going to be the story here going forward is does the strength persist does inflation not fall as much as forecasts because of that strength uh and the FED actually needs to do more or hold at the higher rate well both needs to do more in the form of one increase but then hold at that higher rate for a longer period of time into 2024. and Jeff I'm still stuck on chair Pal's comments on real rates these meaningfully positive real rates and just to recap what we've seen so far in 2023 you have 10-year real yields up about 45 basis points you look at the S P 500 up about 15 so far this year at the moment I know that AI is very exciting but when does the U.S equity markets start to respect what we're seeing in the bond market well the discussion on real rates is very interesting because you know both you have an increase in kind of the projected real rate into 2024 with the 50 basis points of cuts and nominal rates being taken out at the same time as you basically maintain the inflation rate decline yet the discussion also brought about the longer run estimate and effectively the discussion on you know what is the real neutral rate so you know right now estimates for the real neutral rate imply that these are very high and therefore restrictive real rates but there is this possibility and Powell talked about it he admitted that you know the resilience of the economy might point to the fact that your neutral rates are indeed higher that post-covet structural changes have led to that and you know that will be the kind of historical Reckoning of this tightening cycle that if real rates that indeed uh did go up that we actually weren't as tight as that uh as we expected in real time and that might explain the lack of the inflation line down to the two percent level uh you know sort of the easy parts of inflation declines uh are behind us the hard part is ahead of us and whether we achieve that as easily as uh these forecasts and the SCP are implying very much depends on whether or not these real rates are as are as tight as as we think they are today all right uh Jeff gonna have to leave it there Jeffrey Rosenberg over at BlackRock he basically made it clear here guys that I thought he used the phrase here the hard part really is here and I just want to quote something endicor on one of our Bloomberg reporters here wrote something great in the live blog that we had and he basically said it's clear in his words it's clear the FED is now in a much more quote complicated judgment territory than it has been and he goes on to talk about this idea that when you go forward these next few meetings it's going to be insane what do they say about script writing that the third Act is the hardest uh I I don't know I've never taken a script writing class what are you doing maybe I revealed too much about myself yeah what is the script about you think about how close the Finish Line does it involve me and Scarlett no it's all about the FED actually yeah basically and how hard it is uh their path forward I'll hold that thought Katie griffeld we're moving closer to these closing Bells our full Market coverage right here on Bloomberg as we take you to the bell and Beyond beyond the bell Bloomberg's comprehensive cross-platform coverage of the U.S market close starts right now and right now we are two minutes away from the end of the trading day Romaine Bostick alongside Katie griffel and Scarlet Foo we're counting you down to the closing bell and it'll take us beyond the bell it's a global simulcast with our friends Carol masser and Tim cenovic Welcome to our audiences across all of our Bloomberg platforms here on fed day of course the big headline guys is the Fed holding rates here at the September meeting but making it clear in those projections that it expects rates to be higher for longer into 2024 and Beyond right and it looks like remained that the treasury trade certainly got that memo and that note and that message very clear yeah to your note now at 5 15. I mean what we're at the highest in what since 2006 I believe so we've really seen kind of a bit of a reset again I feel like this week and certainly on this day when it comes to rate expectations and we just talked with Larry pitkowski over at good Haven and he said I love what he said I think we're in a high rate risk-free environment without existential worry so in other words higher rates for longer get it but maybe without some big risks but but here's the thing when you look at the summary of economic projections how can you know what's going to happen in 2024 how can you know what's going to happen in 2025. it's you really as you'll initially it's over at BNP paraba told us you have to take anything beyond this year with a giant grain of salt we just don't know what's going to happen so Scarlet should it should it not be considered a plan then he was very clear that this was not a plan these are the median the average forecast among uh you know all these different participants who submitted their numbers and by the way economic forecasting is very difficult guys I've heard that before I've heard that today actually from Craig Powell I mean not if you have a crystal ball so do you guys not have one yeah we don't let's walk you through the market numbers here we've been talking a lot about the macro but it was a pretty busy day for Equity markets obviously on pins and needles about the FED but of course you had an IPO today in clavio and not necessarily uh the best trading day for instacart and arm once again the net effect of it all is a Dow Jones Industrial Average lower by about two tenths of a percent the S P 500 giving back almost a percent on the day of roughly 41 points of close right around that 4 400 level of key technical level there the NASDAQ Composite down about 200 points or one and a half percent while the Russell 2000 looks like it's going to finish out the day lower by about nine tenths of a percent all right quick look at the S P 500 in terms of the names about 173 to the upside 328 to the downside so certainly only more of that risk off trade no doubt about it and too unchanged Scarlet yeah volume also slightly lower than the year-to-date average let's look at the sector performances here for the S P 500 it was a down day for the major indexes as Romaine told us but there are some sectors that did finish higher including Telecom names Healthcare equipment and food beverage and tobacco so you're seeing a lot of those dividend plays those safety plays come out ahead on the flip side you've got a lot of those big Tech names media entertainment semi and semiconductor equipment companies and Tech Hardware along with software and services all leading to the downside all down by at least one and a half percent all right a little nervous making sure that my gainers actually held on to their gains but let's go to it um clavia right the IPO it's been a big week can we just get rid of that fourth one darn it gosh yeah well I already just block out our box you know wow again I'm here I can hear this all right so clavio up about almost 32 of its highs today and its first day of trading as a public entity uh here uh finishing up though with about a nine percent gain uh it was over subscribed nearly think 30 times uh so you know it's interesting limited Supply another one of that another one of those kind of IPOs but nonetheless again but lost a lot of that momentum that it saw earlier in the session uh Pinterest I want to go there because it's been on quite a two-day rally up another three percent again three percent yesterday analysts were impressed by Tuesday's investor day saying that the social networking company was upbeat and that the long-term targets look achievable it's up roughly about 12 13 so far this year and then Enphase energy once again rallying up four percent yesterday up another one and a half percent today news Monday late Monday after the close at uh co-director Thurman Rogers bought about four million dollars worth of shares it's the only news I could find but it looks like still some momentum still down more than 50 year to date and you got about eight percent of the float shorted initially a lot of other solar names were higher which meant the Invesco solar ETF was up almost two percent of its highs today but want finishing with a decline of one tenth of one percent so over to you Mr recliner handing it off to me I'll take it I'll take it um let's talk about uh some of the stocks that moved lower on the day today in the S P 500 Mega Tech Mega cap Tech declining after the fed's higher for longer message Apple among the worst performers on a points basis in their Microsoft there as well Nvidia alphabet there as well we should note that Dow Jones also reported a note from ubs's David vote that question demand for the pro version of Apple's new phone saying demand was not as strong as it was for the Pro Models last year and then zebra Technologies the worst perform on a percentage basis in the S P 500 down 6.5 percent today it's a company that makes barcode scanners interactive kiosks and more got downgraded to underweight from equal weight at Morgan Stanley Morgan Stanley analyst writing that the pace of recovery at the consumer electronics company will likely be slower than expected and then let's checking on Maple bear that's of course instacart the price for that IPO was thirty dollars it closed today just above that IPO price so hang on to that but still down 10.7 percent today this after raising earlier this week 660 million dollars do you know why it's Maple bear no well anyway oh do we have something more important let's go to something more important well something more important I would say good is the bond market I know there were some totally single sock stories but on fed day of course we got to take a look at what's happening across the treasury curve all the action in the front end as you can see there you have two-year yields managing drives six seven basis points 5.15 that is the highest two-year yield since 2006. you go out the curve uh not as interesting you have 10 year yields I'm gonna call that unchanged your 10 year yield uh about one basis point higher two basis points higher 4.37 percent that curve back to inversion inverting rather at about negative 78 basis points remain Yeah we actually are still getting some earnings uh believe it or not here that's kind of the last stragglers from the past quarter FedEx out with their numbers here for their fiscal of first quarter Revenue coming in at about 21.7 billion dollars that's a smidge lower than what the street was looking for at 21.84 but operating income does look like a pretty solid beat at 1.59 billion versus a street estimate on average of about 1.34 billion here's your forecast here the company basically saying that it's these full year adjusted EPS at 17 to 1850 a share the previous guidance it gave was 1650 to 1850 so effectively just raising the lower end of that range by about 50 cents you can see the price reaction there the knee-jerk reaction Higher by about two percent and of course when it comes to FedEx what's notable of course is how it stands in contrast to UPS UPS had to give big pay raises to his workers who had threatened to strike FedEx of course is uh you know has been cutting costs and has been doing that and the CEO says that they're well positioned to deliver or they've started fiscal 2024 with strong momentum and are well positioned to deliver improved profitability so kind of just putting that out there reminding everyone yeah they're not Apples to Apples when you look at FedEx and UPS we often talk about their different models but man investors have been really sitting up and taking notice of what FedEx has been doing in terms of transforming the company I mean it's up more than 40 percent this year you've got UPS down about nine percent they are of course uh have been you know concerned with the Striking you know strikes and so on and so forth so very different stories for these but it really does feel like uh Wall Street investors have taken notice of what the changes they've made but it's interesting too to look at this report as well as a couple of the reports and just sort of tie that into some of the questions that Powell was peppered with here this isn't a revenue growth Story I mean this is cost cutting and I think this is the fear that a lot of investors have that yeah that's great in the short term It Gets You Through the quarter and it bolsters the stock price but how much longer do we go like this particularly if you do believe that rates are going to stay higher yeah the press release Romaine literally spells that out it said that first quarter results improved primarily due to the execution of the company's Drive program and continued focus on Revenue quality but and this is a big but the Improvement in operating results was partially offset by ongoing demand weakness that's the thing I mean it's you can cut costs no one's no one's poo pooing that right but you can't sort of cut your way to Prosperity more or less right and you sort of wonder what the strategy is for FedEx and we don't want to just pick on FedEx here a lot of other companies are in the same boat as them other Blue Chip companies on the same boat as them and I wonder if that's sort of the next thing that the FED really has to be mindful of we've so focused on the consumer and the homeowner but we forget there are stresses out there for businesses as well but maybe against this backdrop that's good enough and you can see that in the share reaction after hours FedEx shares up two and a half percent to your point that I mean that's not necessarily growing that's cutting costs but you think about some of FedEx's peers maybe cost cutting is good enough to make it stand out well and sometimes you have to clean house right to get to a better business strategy or a business equation I do also want to mention that and this could be another reason why the stock is popping a company expects to buy back an additional one and a half billion dollars in shares during fiscal 2024 we see companies doing that a lot you know when they've got some excess cash again billion dollars to buy back the stock right not not into cat-backs not into the business it's not building the business paying workers whatever like yeah no it allows you to buy time while you wait for things to recover right I mean um Jay Paul made it really clear that the economy is doing better and holding up better than a lot of people anticipate certainly than the FED anticipated and so demand might be more muted than it was before the rate hikes but it's held up for the most part no you do Wonder right you can't cost cut your way to you know a really strong company but you can certainly make investors happy maybe for a little while so uh two more to come certainly on that story um guys that's a wrap all right that'll do it for our cross platform good to see five of us yeah did Tim say big butt before no did you did that's a big butt you said that oh okay sorry I know I'm being like an eight-year-old again um that's a wrap our cross platform coverage radio tv YouTube and Bloomberg Originals we will see you again tomorrow stick with us a lot more coverage coming up here on Bloomberg television a reaction to what we learned out of the FED today a reaction to what we learned in markets as well David Balin from City John Taylor from Stanford University and rock around Raja former India Reserve Bank Governor all that more coming up in just a bit this is Bloomberg [Music] thank you [Music] foreign [Music] was one of the largest and wealthiest consumer markets in the world and there are very few global companies that can afford not the trade in the EU so as the price for accessing the European market these companies need to obey European regulations that's not surprising but often these companies choose that they will extend the European standards across their Global conduct and their Global Production because they want to avoid the cost of complying with multiple different regulatory regimes so there are benefits to standardization that benefits to uniform production so all the EU needs to do is to regulate the single Market it is then the market forces and the business incentives of global companies that transform that EU role [Music] Business Week radio live weekday afternoons at 3 pm Eastern we got a little bit of talking harnessing the power of Bloomberg businessweek Carol Messer and Tim stanovic bring you the latest news from the worlds of business technology politics and more how does the FED play into this and what the FED does potentially this is so exhausting and this is so all-encompassing listen on Bloomberg Radio and streaming on YouTube and Bloomberg Originals [Music] foreign [Music] day for Equity markets an update for yields the most severe price reaction the most severe volatility of course coming right around the 2PM Mark here in New York when the FED released its decision the big thing though the big takeaway though that we learned from that press conference from Jay Powell and from those economic projections is the idea that the economy has held up way better than what the FED had originally projected when it embarked on this raid tightening campaign about 18 months ago and so too did the market in fact the s p while down about nine tenths of a percent on the day believe it or not actually still hovering just slightly above the levels it was at in March of 2022 when the FED started this rate tightening cycle so a market that has been through a lot of ups and downs ever since then but the net effective is that it's held up and more importantly delivered for most investors some modicum of return the Dow Jones Transportation average a slightly uh unchanged here on the day while we did finally see a pullback in the oil markets we saw a pullback in gold and we saw a bid come back into the dollar that's basically the cross asset story right now minus what we saw in yields but let's talk about what we saw in yields today of course there will be will be a lot of talk about the two-year yield hitting the highest level since 06 but quite frankly most of the treasury curve right now has been camped out at some of those levels that we've seen back in 0607 and 08 that includes your 10-year that includes your five-year here a cycle right now that has us at these well let's just call it a cycle High a generational high if you will but if you believe those economic projections and if you believe the words that came out of Jay Powell's mouth these lines will continue to creep higher yeah I like the way you put that generational High well the fed's ongoing draining of its balance sheet has also removed a backs up for a key corner of the funding space and that is fueling volatility in the market for repos repurchase agreements for more let's bring in Bloomberg's Alex Harris I think we tend to forget that at the same time they're still quantitative tightening happening why is this important yeah you know I wish we would have heard a little bit more about it in the press conference today because it is important and especially if you think about in the context of these basis trades the whole Foundation of a basis trade is you're taking a position in Futures but you're also taking a position in the cash market for treasuries and those trades get that leg gets financed in the repo market so now if you're trying to finance basis trades and now you're looking for paper and it's not there and you can't go to the fed and get more of it because they're backstop they don't they're not holding as many treasuries anymore this gets really expensive and it makes for a very very volatile repo Market more so than we already see just on typical periods but why don't you think that pal is at least publicly and that doesn't seem to be as concerned about it I mean he only really mentioned this once on his own and I think one of the questions that was posed on this he kind of didn't really even answer it you know I I think there's just so many wild cards when it comes to the balance sheet in terms of reserves you know the key question when everyone talks about the balance sheet and quantitative tightening is this is this lowest comfortable level of reserves how What's the total number of reserves that Banks need to be holding on to before you hit that point of scarcity before the markets get volatile and we get something similar to a blow up that we saw in 2019 and after March of 2023 after svb and the other bank and the turmoil in the banking sector nobody knows and there was a senior Financial Officer survey that the FED released in August yeah and they were saying that those levels are actually much higher than they were at the beginning of the year so now the calculus has changed and nobody knows and it's a big wild card and I think if you're the fed you need to present confidence that this is going well but if you're the 19 members here on FMC or if you're the staff providing these reports and you go into that next meeting October 31st November 1st and you have to discuss this issue here can't you make a case and I think Powell used this phrase to some degree or another of normal realization the idea that while there is some Russians going on in the market it's kind of just taking us back to what in his mind where the market should have already been said no but again it's like it's like that risk of going too far and that's what we saw in 2019 and I think that's what really um has people concerned is when the FED isn't quite sure of where that lowest comfortable level reserves is where that flat part of the demand curve is you know that's what gets them scared because if they don't know nobody knows and then you risk running into you know and creating this volatility and creating this turmoil and then that causes an abrupt stop to their whole plan so that means no rate hikes because how do you communicate that you're stopping the balance sheet unwind while you're still raising interest rates and communication let's face it it's necessarily the FED strong suit and trying to to work with these dualities yeah all right Alex Harris great to see you I know it's time for you by the way yeah I think it's the best we've had in years you think he's doing a good job and is it good I just said it's better better than what we've had I agree with that uh well let's ask our next guest that question we have Andre skiba he is RBC global Asset Management head of Blue Bay U.S fixed income and Andre come into that debate that we just had when you think about what we heard from pal and what we've heard from pal really over the past couple of years how would you rate his communication job uh well hello uh thanks for having me um it's been a difficult message because uh fed is essentially telling you uh it's all going to be okay on multiple fronts that growth uh will come back soon close to Long ground averages inflation will moderate and unemployment will only take up uh modestly and there is a fair dose of awareness within the market that feds projections have changed dramatically uh every three months quite a few times when you're looking at historical summary of economic projections and what we could be hearing from the FED uh six nine months down the line could be very uh different from the very benign message that we're hearing today so there is a fair amount of questioning is it too good to be true in terms of the forecasts yeah and I think that that question was put to Jay Powell as well when people kept pressing on this idea of a soft Landing what surprised me is that I believe I think for the first time I heard him say that the soft Landing or Asos Landing is a primary objective for the fomc even though we know it's not part of its mandate do you get a sense that policymakers are getting ahead of themselves here in talking up the likelihood of a small a soft Landing New York fed President John Williams recently said recession talk in the finance sector has basically vanished look there is some truth and validity to that concern that how much are you locking yourself into specific outcomes but at the same time chair Powell was careful not to say that that is their base case scenario so that still opens the door to responding to changing economic conditions over the coming months and quarters and at the end of the day after so many hikes and also meaningful tightening of Bank lending standards that is filtering through the economy it would be really surprising to see everything proceeding very smoothly over the quarters to come so saying that soft Landing is not a base case scenario we think that is appropriate then when you measure up the market reaction today and we'll see whether this actually carries over Beyond just a couple of hours post meeting here but we talk about the direction of the yield curve right now pretty much across the board we talk about inflation expectations if you go out at least two to five ten years seem relatively grounded here and of course you had the big sell-off on the front end of the curve and somewhat sparing the longer end of the curve what does that tell us well uh higher for longer seems to be the theme of the day doves did not get any get any uh interesting news from the press conference uh so the market is adjusting front end of the raids higher and the expectations for maybe middle of the year uh Cuts next year have been pushed out to maybe July or September and look we will see how the data is evolving uh it is very clear that the world can look very different six months down the line so we should be open-minded to Fed adjusting communication further down the road what was interesting though is how some of the fomc members have changed their long run rate expectations so there's been this great debate about what is the art style what is the neutral rate and is there a need for that to increase and we have now seen the evidence in the summary of economic projections that the range of estimates has actually the upper van has moved up and chair Powell has also admitted that it it's a possibility that it's higher than fed is currently forecasting and when we're looking at fixed income Universe over the coming quarters how that debate is unfolding will also have meaningful implications for how risk assets are doing and whether people are taking advantage of the current high yields within fixed income or taking a step back yeah and it's interesting too we should point out a unanimous decision today and we should point out all the meetings we've had going back to March 2022 all but two of them uh unanimous uh Andre great to catch up with you Andre skiba there over at RBC Global Asset Management we're going to continue this conversation our special fed day coverage continuing with David Bale and City Global wealth Chief investment officer and Global head of Investments that conversation coming up after the break this is Bloomberg [Music] foreign [Music] foreign [Music] I've always been a person who's just been attracted to hair I like to sit and think and theorize how I can manifest these visions that I have for braiding and how I can take something that may seem like it's a line drawing in my mind and apply that to someone's scalp we are the

Channel: Bloomberg Television

Views: 183,437

Keywords: finance, news, Bloomberg

Id: 28uSmcz8YF4

Length: 171min 40sec (10300 seconds)

Published: Wed Sep 20 2023