The Fed Decides: Special Bloomberg Surveillance 07/26/2023

>> THE FED DECIDE STARTS NOW. >> THIS IS A SPECIAL EPISODE OF BLOOMBERG SURVEILLANCE. JONATHAN: LIVE ON BLOOMBERG TV AND RADIO, THE FED RATE DECISION 28 MINUTES AWAY, ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I AM JONATHAN FERRO. THAT DECISION JUST AROUND THE CORNER. TOM: I AM GOING TO GIVE YOU A LITTLE HINDSIGHT BACK TO JUNE 14, YOU HAD A 10 YEAR REAL YIELD JUST BEFORE THE MEETING, 1.61%. WE HAVE STORMED TO A MORE ACCOMMODATIVE 1.51% AND THE BLOOMBERG FINANCIAL CONDITIONS INDEX IS NOT GOING THE WAY JEROME POWELL WOULD LIKE IT TO GO. JONATHAN: DOES HE CARE? TOM: THAT IS A GOOD QUESTION, I THINK WE WILL FIND OUT IN THE PRESS CONFERENCE. MCKEE TOOK A NAP, HE IS READY TO GO. I THINK THERE COULD BE FIREWORKS IN THE PRESS CONFERENCE BECAUSE NOBODY KNOWS IF HE CARES, WE WILL FIND OUT. JONATHAN: THAT CONFERENCE ONE HOUR AWAY. IS THAT ONE AND DONE, OR IS THERE MORE TO COME? LISA: THAT IS ONE OF THE QUESTIONS WE ARE PARSING THROUGH, MARKETS ARE PRICING IN A LESS THAN 40% CHANCE THERE WILL BE ANOTHER RATE HIKE AFTER THIS ONE, MAYBE SEPTEMBER OR NOVEMBER. INCREASINGLY, IT IS CONSIDERED NOT ONLY THE 11TH RATE HIKE IN THIS CYCLE, BUT LIKELY TO BE THE LAST AT A TIME WHEN FINANCIAL CONDITIONS ARE ESSENTIALLY EASING AND PEOPLE ARE WONDERING IF HOUSING HAS BOTTOMED AND STARTING TO RE-ACCELERATE. JONATHAN: MAYBE INFLATION ACCELERATES YEAR END. HE HAS TALKED ABOUT THAT REPEATEDLY. LISA: YOU HAVE A NUMBER OF PEOPLE WHO HAVE COME OUT AND SAID, WHO ARE WE KIDDING? INFLATION IS COMING DOWN, WE ARE GOING TO WHERE WE WERE BEFORE. IN THAT SCENARIO -- THIS IS THE KEY QUESTION. JONATHAN: OUR NEXT GUEST IS ITCHING TO GET INTO THE CONVERSATION. LISA: I KNEW IT. JONATHAN: EQUITY MARKET ON THE S&P 500, A SOFTER. IT IS ALL GOING INTO THE DECISION, WE LOOK AT THIS ON A 10 YEAR, 38866. THE EURO AGAINST THE DOLLAR, 11064. LISA: I WENT ON VACATION AND IT IS BACK WHERE WE LEFT. COMING UP, WE HAVE BOB MICHELE. THEN, WE HAVE ICAPTIAL'S ANASTASIA AMOROSO AND DEUTSCHE BANK'S MATTHEW LUZZETTI. AFTER THE NEWS CONFERENCE, THE ALL IMPORTANT NEWS CONFERENCE THAT WILL BE WHERE THE NEWS IS, FORMER NEW YORK FED PRESIDENT BILL DUDLEY IS JOINING US AND BLACKROCK'S JEFF ROSENBERG. TOM: HE WILL PUSH AGAINST THE FIRST RATE CUTS. OUR NEXT GUEST CAN SHOW UP. IF YOU ARE LIVERPOOL AND PLAYING -- THAT IS WHERE THE 18 FOR LIVERPOOL SHOWS UP. THE A TEAM IS GOING TO SHOW UP, IS THIS THE DAY WHERE WE SEE A DISSENT? BOB MICHELE JOINS US NOW. WE GET DISSENT IN 25 MINUTES? BOB: WE SHOULD GET A LITTLE BIT OF DISSENT. I THINK THERE WILL BE A FACTION ON THE FOMC THAT BELIEVES THEY HAVE DONE ENOUGH, THAT YOU HAVE TO WAIT FOR THE LONG AND VARIABLE ASKED TO HIT. REMEMBER THE 475 BASIS POINT RATE ONLY BEGAN LAST JUNE, NOW WE ARE A YEAR AHEAD THE SECOND ONE. THERE ARE TWO MORE IN THE PIPELINE AND THEY'RE GOING TO BE OTHERS THAT POINT TO LIKE INDICATORS, SUCH AS THE CURRENT LEVEL OF INFLATION AND THE LEVEL OF UNEMPLOYMENT AS THEIR RATIONALE FOR WANTING TO DO MORE. TOM: 30 YEAR MORTGAGE, BANKRATE 30, HIGH 7.38%. CAN THE HOUSING INDUSTRY OR SECURITIZE HOUSING INDUSTRY YOU LOOK AT EVERY DAY AT J.P. MORGAN , CAN THEY TAKE ANOTHER 25 BASIS POINTS? BOB: IT IS NOT THE NEXT 25 BASIS POINTS, I THINK THAT IS OK. WHAT YOU ARE SEEING IN THE HOUSING MARKET IS EXISTING HOME SALES ARE PLUMMETING. PEOPLE ARE NOT TAKING OUT MORTGAGES BELOW 3% ANYMORE, THEY ARE OVER 7%. THAT HAS DRAMATICALLY CHANGED WHAT THEY CAN FINANCE. ALL OTHER FORMS OF BORROWING, WHETHER THEY HAVE AN AUTO LOAN OR HAVE PUT STUFF ON THEIR CREDIT CARD, THAT HAS GONE UP AS WELL. THEY ARE STRETCHED AND STARTING TO FEEL THE PAIN. LISA: THEY WERE FEELING THE PAIN A MONTH AGO, THEY WERE SUPPOSED TO FEEL THEM MORE THAN THEY ARE. WHY IS IT TAKING SO LONG AND HEAVY PUSHED OUT A RECESSION FORECAST YOU THOUGHT WOULD BE THE END OF THIS YEAR? BOB: WE STILL THINK IT IS GOING TO BE AT THE END OF THIS YEAR. I WOULD BE DELIGHTED TO PUSH IT OUT INTO THE FIRST QUARTER, BUT IT WILL BE EITHER SIDE OF THE FIRST YEAR. IF I GO BACK TO LAST YEAR KNOWING WHAT I KNOW NOW, I WOULD HAVE THOUGHT WE WOULD HAVE BEEN IN RECESSION NOW AND THAT IS WHAT WE SPEND A LOT OF TIME LOOKING AT. WE GO BACK TO ONE THING, BECAUSE THE IMPACT OF HIGHER RATES WAS HITTING HARD BACK IN MARCH WHEN THE REGIONAL BANKING SYSTEM LOOKED ON THE VERGE OF COLLAPSE. WHEN WE LOOKED AT THE RESPONSE BY VARIOUS AGENCIES, WE INITIALLY LIKENED IT TO A BARRISTERS MOMENT. THAT WAS WRONG, IT WAS MORE A TARP MOMENT BECAUSE YOU BACKSTOP NOT ONLY REGIONAL BANKS, THE ENTIRE BANKING SYSTEM, ANYONE WITH DEPOSITS OVER 250,000. THAT INJECT LIQUIDITY INTO THE SYSTEM. IT HAS NOT CHANGED THE END POINT, WHICH IS RECESSION. IT HAS PUSH IT OUT A LITTLE BIT. LISA: IT RAISED QUESTIONS ABOUT STICKINESS OF INFLATION AT A TIME WHERE GROWTH IS GOING TO REMAIN STRONG. I SUSPECT HE WILL PUSH BACK AGAINST THE IDEA WE WILL HAVE STICKY INFLATION AND THE FED MAY HAVE TO COMPROMISE THEIR 2% TARGET, WHY? BOB: I THINK STICKY INFLATION IS A LOAD OF RUBBISH. LET'S LOOK AT CPI. YEAR-OVER-YEAR, IT PEAKED AT 9%. YOU KNOW WHERE IT IS NOW? 3%. IT IS KIND OF STUCK. WE ACTUALLY LOOK AT THE FEDERAL RESERVE STATEMENT ON LONGER-TERM GOALS AND MONETARY POLICY STRATEGY, AND YOU KNOW WHAT THEY HAVE? THEY ARE TARGETING 2% ON THE PRICE INDEX OF PERSONAL CONSUMPTION EXPENDITURES. NOT CORE, PERSONAL CONSUMPTION EXPENDITURES. THAT IS THEIR METRIC. THAT WAS 7% LAST YEAR, IT IS 3.9% YEAR-OVER-YEAR CURRENTLY. IT IS COMING DOWN. TOM: WHEN YOU SAY CLASSICS AT PENN, WHICH IS A PRESTIGIOUS DEGREE IN LIBERAL ARTS AMERICA, THAT IS WHEN YOU TAKE LOAD OF RUBBISH 302 AND IT GETS YOU SET UP TO FIXED INCOME RATIOS. JONATHAN: YOUR ARGUMENT IS INFLATION IS STICKY, A LOAD OF RUBBISH. WE HAVE J.P. MORGAN ASSET MANAGEMENT TOMORROW MORNING, MAYBE NOT. YOUR OTHER CALL, I BELIEVE IT WAS RATE CUTS IN SEPTEMBER, TWOS OUT OF 30'S ON THE CURVE. HAS THE TRADE CHANGED, EVEN IF THE TIMELINE HAS BEEN PUSHED OUT A LITTLE BIT? BOB: THE TRAIT HAS NOT CHANGED. THE ONE THING WE DEFINITELY GOT RIGHT WAS TO BUY BACKUPS IN YIELDS ON EVERY OPPORTUNITY. I KNEW THE TWO-YEAR HAS GONE BACK UP, BUT IT BARELY BROKE THROUGH THE HIGH A COUPLE MONTHS AGO. OVERALL, YOU ARE LOOKING AT YIELDS THAT ARE PRETTY STABLE. THE PLANET OF BOND INVESTORS DOES NOT BELIEVE THE FED. THEY BELIEVE THERE IS OPPORTUNITY IN THE LONG END OF THE MARKET. WHAT HAS CHANGED IS A RATE CUT IN SEPTEMBER LOOKS UNLIKELY, THE FED IS TELLING US IT IS NOT GOING TO HAPPEN. WHEN WE LOOK AT THE HISTORY OF THE FED, MIDWAY BETWEEN THE LAST RATE HIKE AND RECESSION, THEY START CUTTING RATES. THEY ARE TELLING US TO LOOK AT THE 1981 EXPERIENCE. THEY ARE NOT TELLING US, WE ARE INTERPRETING IT AS THAT. IF YOU GO TO 1981, THEY HIKE RATES IN MAY, CUT RATES IN JUNE AND RECESSION HIT IN JULY. INFLATION NOT BEING CLOSE ENOUGH TO 2%, THEY'RE GOING TO KEEP POLICY RESTRICTIVE UNTIL THEY SEE RECESSION. JONATHAN: DO YOU THINK THEY ARE MORE SCARED OF RECESSION OR INFLATION? BOB: THAT IS A WONDERFUL QUESTION FOR MICHAEL MCKEE TO ASK CHAIRMAN POWELL. I THINK IT IS SPLIT RIGHT NOW. JONATHAN: INTERESTING. YOU WONDER HOW THE SPLIT COMES UP IN ABOUT 20 MINUTES, BOB MICHELE WILL STICK WITH US. WE NEED TO TALK ABOUT CREDIT WITH HIM. IF YOU ARE LOOKING FOR A SLOW DOWN DOWNTURN IN THE ECONOMY, WHAT IS THE TRADE ON CREDIT? TOM: LOOK AT THE BLOOMBERG CORPORATE TOTAL RETURN INDEX, IT HAS BEEN IN BETWEEN THE TOES YOU IT IS GOING TO CUT EITHER WAY. I DID NOT PARTICIPATE IN THAT LAST DISCUSSION. FUTURE IN DISARRAY. SORRY. I WILL DO BETTER AFTER THE PRESS CONFERENCE. JONATHAN: YOUR TRANSFER WINDOW GOT MESSY. JONATHAN: MATTHEW LUZZETTI IS COMING UP. >> THE MOST LIKELY PATH IS ONE AND DONE. >> JULY, 25 BASIS POINT HIKE. >> WE WILL HAVE TO SEE WHAT HAPPENS. >> THE ONLY QUESTION IS WHAT HAPPENS AFTER WEDNESDAY. >> WHAT KIND OF SIGNAL DO THEY GIVE US FOR SEPTEMBER? THE TIMING OF THE NEXT POSSIBLE RATE HIKE IS THE OCTOBER NOVEMBER MEETING. >> POWELL WILL HAVE TO DO A LOT OF HEAVY LIFTING. >> HE CANNOT GO DEVILISH. >> KEEP THE OPTIONALITY TO HIKE FURTHER. >> WE WILL GET MORE DATA BETWEEN NOW AND THEN. JONATHAN: A PRETTY BIG CONSENSUS, ONE AND DONE. THAT ONE FOR MANY PEOPLE COMES IN 15 MINUTES TIME. WE WILL GET A CLUE ON THAT AND ABOUT 45 MINUTES FROM NOW WITH CHAIRMAN POWELL. PRICE ACTION LOOKS A LITTLE SOMETHING LIKE THIS, EQUITY MARKETS LINK BACK JUST A TOUCH BY A THIRD OF 1%, NASDAQ DOWN BY THREE QUARTERS OF ONE PERSON. THE ATTENTION WILL SHIFT TO META AFTER THE CLOSE. THEN, YOU GET NUMBERS FROM APPLE AND AMAZON. TOM: THEY PUT THAT TOGETHER AT 2:00 A.M. YESTERDAY. JONATHAN: MIDDLE OF THE NIGHT. THAT IS THE ACTUAL STORY. TOM: THE ACTUAL STORY IS WHAT IS THE GREATNESS CALLED BACK TO YOUR YEAR END REPORT THAT YOU DID, THE GREAT CALL THAT WE MISSED WAS THE GROWTH OF THE AMERICAN ECONOMY, COCA-COLA TODAY WITH A STUNNING CONSTRUCTION. NOBODY LOOKED FOR SIX MONTHS OUT OF THESE COMPANIES LIKE WE ARE SEEING. JEROME POWELL DID NOT LOOK FOR IT. JONATHAN: LISA, YOU REMEMBER. CHECK KEPT GOING UP, THEN TECH KEPT GOING UP AND THEY JUST CONTINUED. LISA: WITH ARTIFICIAL INTELLIGENCE, IT WAS A SEED CHANGE STORY. ONE OF THE BIGGEST MISSED CALLS IS THE IMPACT OF STIMULUS MONEY THAT HAS NOT WORKED ITS WAY THROUGH THE SYSTEM. VERY CONFUSING. TOM: THEY CODIFY THAT IS THE BIDEN STIMULUS, MAKING SURE IT IS STILL THERE. JUST BECAUSE OF TIME AS WE ARE 15 MINUTES AWAY FROM THE BELL WITH THAT IMPORTANT STATEMENT, WHAT WE WANT TO DO IS BE ECLECTIC. WE DO THAT WITH MATT LUZZETTI OF DEUTSCHE BANK, HE WAS WONDERFUL AT SEEING THE RECESSION WILL TAKE LONGER TO APPEAR DEAD ON. ANASTASIA AMOROSO JOINS US, WHO LINKED WHAT THE FED DOES INTO A BUOYANT STOCK MARKET. WE CONTINUE WITH BOB MICHELE OF JP MORGAN. ANASTASIA, LET ME START WITH YOU. DOES JEROME POWELL CARE THAT IT IS ABLE MARKET? ANASTASIA: I THINK HE DID, AT SOME POINT. WHEN YOU HAVE HAD THE BULL MARKET IN TECH" GO AND ALL OF THAT WAS FINDING ITS WAY INTO THE INFLATION NARRATIVE, BUT THAT HAS SHIFTED A LOT. WE ARE NOT IN THE STATE OF INFLATION EMERGENCY ANYMORE. IT IS 3%. I DO NOT THINK FED CHAIR POWELL CARES QUITE AS MUCH. WHAT HE DOES CARE ABOUT IS THE FED FUNDS RATE IS OVER AND ABOVE THE RATE OF CORE PCE INFLATION AND IS GOING TO CONTINUE TO BE THAT WAY. WHAT THEY CALL ONE AND DONE, I CALL IT HIKE AND HOLD. THAT IS A PERFECTLY ACCEPTABLE STRATEGY. IF THEY HOLD AT 5.5%, THEN CORE PCE INFLATION IS ON THE DECLINING TRAJECTORY. THEY WILL CONTINUE TO INCREASE THE DELTA, INCREASED THE REAL RATES INTO POSITIVE TERRITORY. IF THEY DO NOTHING AND INFLATION COMES DOWN, WE WILL BE AT RESTRICTIVE REAL RATES. THAT IS WHAT I THINK HE IS FOCUSED ON. LISA: JOHN WAS ASKING WHAT IS THE BIGGEST THREAT FOR THE FEDERAL RESERVE. HIS INFLATION OR RECESSION? WHAT DO YOU EXPECT TO HEAR? MATTHEW: IT IS COMING INTO GREATER BALANCE, THIS RISK ASSESSMENT THEY HAVE. THERE HAS BEEN BROADENING OUT OF THIS INFLATION PRESSURES, THEY VIEW THE RISK HAS SUBSIDED SOMEWHAT. I DO NOT THINK CHAIR POWELL IS WILLING TO SAY VERY CLEARLY IT IS SHIFTED TO THE GROWTH SIDE. WE HAD ONE SOFTER INFLATION PRINT, IT WAS A GOOD DEVELOPMENT. THE FED ARE GOING TO WANT TO SEE THAT CONTINUE OVER THE COMING MONTHS. I STILL THINK THEY VIEW THE RISK ASSESSMENT IS TOO MUCH ON THE INFLATION SIDE OF THINGS, PARTICULARLY GIVEN THE GROWTH OF LABOR MARKET DYNAMICS. LISA: YOU WERE TALKING ABOUT KEEPING THE FED FUNDS RATE AROUND 5.5%, OUR GUEST IS SLIGHTLY SHAKING HIS HEAD. HE LOOKS FOR A POTENTIAL CUT BY THE END OF THIS YEAR IN THE FACE OF WEAKNESS. HOW MUCH DO YOU PUSH BACK AGAINST THAT? DO YOU THINK THE FED COULD HOLD RATES AT 5.5% WELL INTO NEXT YEAR? ANASTASIA: IF THE ECONOMY IS ON SOLID FOOTING AND WE ARE NOT LOOKING AT A RECESSION, THAT IS WHAT THE FED WANTS TO DO. THEY WANT TO STAY THERE TO MAKE SURE INFLATION COMES DOWN TOWARD TWO AND A HALF PERCENT. WE DO NOT HAVE A PERFECT CRYSTAL BALL ON WHEN THE SESSION WILL ULTIMATELY MATERIALIZE. BUT IF I LOOK AT THE REAL RATES, WE ARE LIKELY TO GET TOWARD 2% REAL RATE, GIVEN THE FORECAST WE HAVE TODAY, AT SOME POINT IN 2024. IF YOU COMPARED THE 2% REAL RATE , COMPARE THAT TO THE NEUTRAL RATE, THE NEW YORK FEDERAL RESERVE SAYS IT IS SOMEWHERE AROUND 2.97%. AT SOME POINT WE GET INTO RESTRICTIVE TERRITORY, BUT I THINK THAT POINT IS STILL OUT IN 2024. TOM: THIS IS A BOLD STATEMENT, THE IDEA OF A 2% 10 YEAR REAL YIELD BEFORE 07, I EXTRAPOLATED 2.0 5%. MOST EXPERTS ARE SAYING NOT THIS TIME, SHE IS MAY BE AN OUTLIER. LISA: I HAVE A TERMINUS A MAN OF RESPECT FOR ANASTASIA, I COMPLETELY AGREE WITH HER. WE HAVE TO LISTEN TO WHAT SHE IS SAYING. THEY DO ONE AND DONE, THEN THEY ARE ON AUTOPILOT AND LET EVERYTHING ELSE DO THE WORK FOR THEM. INFLATION WILL BE COMING DOWN, SO THE REAL FED FUNDS RATE WILL BE RISING. THEY HAVE GOT QUANTITATIVE TIGHTENING RUNNING IN THE BACKGROUND. THEY DO NOT NEED TO DO MORE THAN TODAY, THEY DO NOT NEED TO DO TODAY. TOM: YOU ARE DISSENTING? LISA: I WOULD BE A DISSENTER IF I WAS ON THERE. AT THE WORK IS BEING DONE FOR THEM IN THE BACKGROUND. JONATHAN: NOMINAL RATES STAY STABLE, INFLATION COMES DOWN SO REAL RATES CLIMB. WHAT DOES THAT MEAN FOR CREDIT MARKETS AND RISK APPETITE? BOB: THE COST OF FUNDING IS STARTING TO LOOK TOO HIGH ON A REAL BASIS, RELATIVE TO EARNINGS. SOME OF THE FRACTURES WE ARE SEEING IN THE CONSUMER WHERE DEPOSIT BALANCES ARE BELOW WHERE THEY WERE PRE-PANDEMIC AND WHERE CREDIT CARD BORROWING HAS GONE VERTICAL, THOSE THINGS WILL BE VERY, VERY PAINFUL. TOM: LET ME CUT TO THE CHASE HERE WITHIN THE DISSENT, ARE WE AT A POINT OF INSTABILITY WHERE YOU COULD SAY WE ARE SUPER RESTRICTIVE? MATTHEW: I DO NOT THINK WE NECESSARILY ARE. WHEN YOU LOOK AT MOST MEASURES OF ASSET BASED PRICE FINANCIAL CONDITIONS, THINGS HAVE EASED MATERIAL WAY. THE FED WILL HAVE TO TAKE ACCOUNT OF THAT. THE BIG QUESTION IS, HOW MUCH OF BANK LENDING CONDITIONS TIGHTENING IS LIKELY TO COME THROUGH THE PIPELINE? WE SHOULD GET ADDITIONAL INFORMATION TODAY, BUT THERE ARE REASONS TO BE SKEPTICAL THAT IS GOING TO COME THROUGH AND IMPACT THE ECONOMY. I AM NOT SURE IT IS OBVIOUS -- PRETTY GOOD WHAT WE ARE SEEING THAT WE ARE AT A SUFFICIENTLY RESTRICTIVE STANCE. TOM: WE HAVE THIS ARGUMENT ABOUT 2% PLUS REAL YIELD, BUT DO YOU LOOK FOR AN ELEVATED 10 YEAR REAL YIELD, OR ARE WE HAD A COMFORTABLE POINT RIGHT NOW? MATTHEW: IT ALL DEPENDS ON HOW YOU MEASURE IT. IF WE ARE LOOKING AT THE ACTUAL FED FUNDS RATE, NO DOUBT THAT IS GOING TO BE RISING AS INFLATION MODERATES. BUT THE MARKET HAS THAT PRICE, TO A CERTAIN EXTENT. IT HAS THIS DISINFLATIONARY IMPULSE. I AM SOMEWHAT SKEPTICAL THAT POLICY BECOMES INCREASINGLY RESTRICTIVE AS INFLATION COMES DOWN. THAT IS WHAT THE MARKET ALREADY HAS PRICED. LISA: JUST TO PUT A BOW ON WHERE YOU AND BOB DEGREE AND DISAGREE, DO YOU SEE THE ENTIRE YIELD CURVE AT 3%? ARE YOU SAYING THE FED WILL CUT RATES AT SOME POINT, WHETHER IT IS THE END OF THIS YEAR OR EARLY NEXT YEAR? ARE YOU SAYING IT IS GOING TO SAY A 5.5% THROUGH THE REMAINDER OR SIGNIFICANT PORTION OF NEXT YEAR? ANASTASIA: MY BEST CRYSTAL BALL TRAJECTORY RIGHT NOW IS TO SAY I THINK THEY DO STAY AT 5.5% FOR THE REST OF THE YEAR, BECAUSE THIS ECONOMY IS LIKELY NOT YET SLIPPING INTO RECESSION. AS INFLATION DECISIVELY TURNS THE CORNER AROUND THE END OF THE YEAR, MAYBE WE DO GET MORE ECONOMIC WEAKNESS BECAUSE SOME OF THE COST OF HOUSING AND COST OF FINANCING CREDIT CARD TRANSACTIONS IS GOING UP. ONCE WE GET MORE OF THE CONSUMER WEAKNESS AND INFLATION HAS TURNED THE CORNER, THAT IS WHEN THE FED MAY START TO TALK AND CUT INTEREST RATES. I DO THINK EARLY 2024, WE BACK OFF OF THIS 5.5% LEVEL. JONATHAN: WHO NEEDS TWITTER WHEN YOU HAVE A BLOOMBERG TERMINAL? BOB MICHELE SHOULD BE NOMINATED FOR THE FED. THIS QUESTION, I HAVE LET YOU OFF ON THAT SUIT ALL DAY. TOM: IT IS 95 DEGREES OUT. JONATHAN: IT IS NOT 95 DEGREES IN HERE. TOM:'TIS THE SEASON. JONATHAN: THAN THIS ONE CAME THROUGH, JUST ON THE MARKET AND I WOULD LIKE YOUR REACTION. AT WHAT POINT DO WE REALIZE THIS FED'S HANDHOLDING AND EMBOLDENED TO RISK-TAKING? SOMETHING IN AND AROUND 5% FROM ALL-TIME HIGHS, WHAT WOULD YOU SAY BACK TO THAT? BOB: I THINK THEY HAVE REALIZED THAT, WHICH IS WHY IN THE LAST FOMC MEETING, WHEN YOU LOOK AT THE SUMMARY OF ECONOMIC REJECTIONS, THEY THREW IN THE EXPECTATION OF TWO ADDITIONAL RATE HIKES, EVEN THOUGH THEY DID NOT HIKE RATES AT THE ACTUAL MEETING. IT IS ALSO WHY THEY WILL NOT ACKNOWLEDGE THE IMPROVEMENT IN INFLATION, BECAUSE THEY DO NOT WANT CAPITAL MARKETS TO RUN WILD. THEY ARE GOING TO MAINTAIN A HAWKISH BIAS UNTIL THEY GET MORE COMFORTABLE THAT A FULL RANGE OF INFLATION METRICS ARE WITHIN THE 2% SPHERE. JONATHAN: CAN WE WORK? THROUGH THE STATEMENT TOGETHER? YOU HAVE THE FIRST PARAGRAPH WITH CHARACTERIZE GROWTH AND INFLATION, THEN THEY TALK ABOUT ADDITIONAL POLICY FIRMING. CAN WE START WITH THE FIRST PARAGRAPH? HOW DO YOU THINK THEY WILL CHARACTERIZE INFLATION? THEY SAY INFLATION REMAINS ELEVATED, MY FIRST QUESTION WOULD BE DOES THAT CHANGE, MY SECOND QUESTION IS ON TEEING UP ADDITIONAL POLICY FIRMING, DO WE EXPECT THAT TO CHANGE IN ANY WAY, SHAPE OR FORM? MATTHEW: THEY TALK ABOUT ROBUST JOBS GAINS, THERE COULD BE AN ARGUMENT THEY CHANGE THAT, BUT I DO NOT THINK THEY DO. I DO NOT THINK THEY CHANGE THE INFLATION STORY, EITHER. THAT COMES AT THE COMING MEETINGS IF WE GET ADDITIONAL IMPROVEMENT. IN TERMS OF FORWARD-LOOKING GUIDANCE, I DO NOT EXPECT THAT TO CHANGE. MOST OFFICIALS EXPECTED ANOTHER RATE HIKE, I DO NOT THINK THEY WANT TO SEND A DOVISH MESSAGE. THEY FOCUS ON THE HIGHER FROM LONGER MESSAGING, BUT I DO NOT THINK THEY DO THAT TODAY BECAUSE THE MARKET TAKES IT AS A SIGNAL THEY ARE PAUSING. JONATHAN: THIS WAS GREAT, MATT LUZZETTI ALONGSIDE ANASTASIA AMOROSO. LISA: I WAS INTERESTED THEY THOUGHT THEY WOULD DO ANYTHING WITH THE STATEMENT ON BANKING REMAINING STABLE AND RESILIENT. THAT COULD COME OUT. JONATHAN: WOULD THAT MEAN ANYTHING? BOB: IT WOULD MEAN WE DO NOT TALK ABOUT IT. IF IT IS IN THERE, PEOPLE ARE GOING TO WONDER WHY. JONATHAN: YOU DO NOT THINK THEY WILL CHANGE IT ON HOW THEY CHARACTERIZE INFLATION, EVEN WITH THE IMPROVEMENT. DO YOU THINK ON THE 10TH AND AUGUST, 13TH AND SEPTEMBER, IS THAT ENOUGH INFORMATION TO MAKE A CHANGE? BOB: BY THEN, THE YEAR-OVER-YEAR WILL MAKE IT EVIDENT THEY HAVE TO ACKNOWLEDGE INFLATION HAS IMPROVED. JONATHAN: THAT IS THE RUNWAY INTO THE SEPTEMBER MEETING. TOM: I GO BEYOND THAT TO NOVEMBER AND DECEMBER. WE ARE TRYING TO GET OUT TWO AND THREE MEETINGS ON THE MOST IMPORTANT THING I HEARD THIS HALF HOUR OF DISCUSSION WAS TALKING ABOUT FORGET ABOUT THE PARLOR GAME, YOU KNOW HOW MUCH I HATE IT. THERE IS A BALANCE SHEET DYNAMIC ALLOWING FOR FURTHER RESTRICTION. JONATHAN: THREE MONTHS DOWN THE ROAD, WE ARE NOT TALKING ABOUT BANKING ISSUES IN THE SAME WAY ANYMORE. I REMEMBER THOSE DAYS WE WERE TALKING ABOUT CREDIT CRUNCH AND HARD LANDING. LISA: THERE IS A FEELING THAT WE REALLY DO NOT KNOW AND THE FED IS A BIT GUN SHY TO CALL ONE THING OR ANOTHER AND HAVE CONVICTION. FOR THEM TO COME OUT AND SAY INFLATION HAS EASED SUBSTANTIALLY MEANS THEY COULD BE SETTING UP FOR ANOTHER TRANSITORY MOMENT AT A TIME WHEN YOU HAVE GASOLINE STARTING TO REAR BACK. THESE ARE SOME OF THE CONCERNS PEOPLE HAVE. TOM: >> -- HE'S GOT A $90,000 PICKUP TRUCK IS TRYING TO SELL. A $91,000 PICKUP TRUCK, THE FIRST PICKUP TRUCK BOB MICHELE HAD WAS THE C10 YOU HAD. YOU COULD SEE THROUGH THE FLOOR. >> WE ARE ABOUT 10 SECONDS AWAY FROM THE FEDERAL RESERVE DECISION. EQUITIES RIGHT NOW, A LITTLE BIT SOFTER ON THE S&P 500. ON THE NASDAQ WE PULLED BY JUST A TOUCH. -- PULLED BACK JUST A TOUCH. >> IT IS THE HIGHEST IN 22 YEARS. FED OFFICIALS DROPPED THE PHRASE ABOUT PAUSING TO ASSESS THE STATE OF THE ECONOMY, REPLACING IT WITH THE COMMITTEE WILL CONTINUE TO ASSESS ADDITIONAL INFORMATION AND ITS IMPLICATIONS FOR MONETARY POLICY. FUTURE GUIDANCE WAS IDENTICAL TO JUNE. LEAVING THE DOOR OPEN TO ANOTHER RATE MOVE IN THE FUTURE. IN DETERMINING THE EXTENT OF ADDITIONAL POLICY, THEY SAY IT MAY BE APPROPRIATE TO RETURN INFLATION TO 2% OVER TIME, THE STATEMENT REPEATS, THE COMMITTEE WILL TAKE INTO ACCOUNT THE CUMULATIVE TIGHTENING OF MONETARY POLICY, THE LEGS WITH WHICH MONETARY POLICY AFFECTS ECONOMIC ACTIVITY AND INFLATION, AND ECONOMIC AND FINANCIAL DEVELOPMENTS. THE ECONOMIC ASSESSMENT IS LITTLE CHANGED. ACTIVITY HAS BEEN EXPANDING AT A MODERATE PACE. PERHAPS A LITTLE FASTER THAN THE MODEST PACE SEEN IN JUNE. JOB GAINS REMAIN ROBUST. UNEMPLOYMENT REMAINS LOW, AND INFLATION REMAINS ELEVATED. TIGHTER CREDIT CONDITIONS ARE LIKELY TO WEIGH ON ECONOMIC ACTIVITY, HIRING AND INFLATION, BUT THE EXTENT OF THESE EFFECTS REMAINS UNCERTAIN, THE STATEMENT SAYS, AND THE COMMITTEE REMAINS HIGHLY ATTENTIVE TO INFLATION RISKS. NO CHANGE TO QT. THE DECISION WAS UNANIMOUS. THE CONCLUSION, SEE YOU IN SEPTEMBER. >> GET ON VACATION SEEMS TO BE A MESSAGE FROM JAY POWELL AND THE TEAM. THE NEWS CONFERENCE, COMING UP. THAT STATEMENT, A BIT OF A SNOOZE. ARE THEY DONE? ON THE NASDAQ, WE ARE NEGATIVE BY 0.4%. THE FATE OF THE NASDAQ, ON THE HANDS OF EARNINGS FROM META, APPLE, AMAZON OVER THE NEXT SEVEN OR EIGHT DAYS OR SO. INTO THE BOND MARKET, YOUR TWO-YEAR YIELD, COMING IN A LITTLE BIT FADING AFTER THAT DECISION. NOW JUST ABOUT UNCHANGED ON THE DAY WITH A TWO-YEAR AT 4.88. YIELDS, JUST ABOUT UNCHANGED. THE DOLLAR SHOWING A TOUCH OF WEAKNESS AGAINST THE EURO IN RESPONSE TO THIS DECISION. EURO-DOLLAR AT ABOUT 110.74. >> 22 YEARS OUT, I BELIEVE THE MATH IS TO 2001. DIANE, I'M GOING TO ARGUE THIS, THE NASDAQ 100'S DECLINE OF 2001, THINGS UNRAVELED THE LAST TIME WE WERE AT INTEREST OF THIS LEVEL. DO WE HAVE AN ANALOG HEAR TO THE COLLAPSE OF THE MARKET? KENNY FED POLICY AFFECT A PRESENT STOCK MARKET COLLAPSE? >> IT CERTAINLY CAN, IF THEY GO FAR ENOUGH. SO FAR IT'S BEEN REMARKABLY RESILIENT. I WOULD ARGUE WE ARE SEEING THIS AGAINST THE BACKDROP OF WHAT LOOKS TO BE A BUBBLE EMERGING IN GEN AI, WHICH IS A LITTLE REMINISCENT OF 2001, BUT NOT QUITE THERE. THAT IS IMPORTANT TO REMEMBER AS WELL. I THINK THE LARGER ISSUE FOR THE FED AT THIS POINT IN TIME IS THAT FINANCIAL CONDITIONS ARE FIGHTING THEM A BIT. EVEN THOUGH THEY'VE GOT ADDITIONAL QUANTITATIVE TIGHTENING, THEY'VE CONTINUED THAT, THAT'S WHY THEY ARE STILL GOING FORWARD. I WOULD ARGUE ONE STEP FURTHER IN THAT THE GOOD NEWS WE'VE GOT ON INFLATION RECENTLY FURTHER EMBOLDENS THE FED TO ACTUALLY GET TO THAT 2% TARGET. THERE WAS SORT OF THIS SENSE AROUND PEOPLE AMONG THE FED AND SOME WITHIN THE FED, THEY FEEL THAT KIND OF DONE ENOUGH BECAUSE OF WHAT THEY THOUGHT WOULD BE THE PAIN NEEDED AND THE TRADE-OFF NEEDED TO GET TO 2%. I THINK THEY ARE GOING TO FEEL A LITTLE MORE EMBOLDENS NOW TO ACTUALLY GET THERE. WHICH MEANS TIGHTER POLICY FOR LONGER THAN MANY EXPECT. I THINK THAT IS SOMETHING WE HAVE SORT OF NOT REALLY COME TO TERMS WITH YET, SORT OF THE UNSPOKEN SIDE OF WHAT THE FED HAD BEEN SAYING IS THAT PEOPLE WERE EXPECTING THE FED TO KIND OF STOPPED SHORT OF 2%. >> IT SEEMS LIKE THIS IS OPERATION DON'T MAKE WAVES. IT SEEMS LIKE THIS WAS NOT A FED LOOKING BACK INTO THE -- LOOKING TO BACK INTO THE SHRUBS AND DISAPPEAR. WOULD YOU AGREE WITH THAT CHARACTERIZATION? IS THAT SORT OF THE GOAL FOR FED CHAIR JAY POWELL AS HE TAKES THE HELM OF THE PRESS CONFERENCE MEETING IN ABOUT 25 MINUTES? >> CERTAINLY THEY DIDN'T WANT TO CHANGE THEIR MESSAGE, WHETHER OR NOT THAT IS FADING INTO THE BACKGROUND, GIVEN THE EASING AND FINANCIAL CONDITIONS WE HAVE SEEN PARTICULARLY IN RECENT MONTHS AND RECENT WEEKS, THAT IS SOMETHING THAT HAS TO SORT OF BE A BIT CONCERNING TO THE FED. WHAT THEY ARE WORRIED ABOUT IS NOT WHAT THE INFLATION DATA IS GOING TO BE BY SEPTEMBER, THEY'RE WORRIED ABOUT THE END OF THE YEAR, SEEING A POTENTIAL ACCELERATION AND THEN A BUMPY SORT OF RIDE DOWN TO 2%. THAT WE GO IN FITS AND STARTS AND SOME OF THOSE MEAN AN ACCELERATION BACK UP AGAIN. THAT IS WHAT THEY ARE WORRIED ABOUT. ANYTHING THAT IS TOO MUCH OF AN EASING AND FINANCIAL MARKETS IS GOING TO FEED INTO THAT. REMEMBER BANK CREDIT IS ONLY ABOUT A THIRD OF ALL CREDIT IN THE U.S. ECONOMY. ALTHOUGH THERE ARE A LOT OF SPILLOVER EFFECTS EVEN IN SHADOW BANKING INDUSTRY FOR CONSUMERS FROM THE TIGHTENING THAT WE ARE SEEING IN THE BANKING SECTOR. >> A FANTASTIC LINE OF GOING INTO THE NEWS CONFERENCE WITH CHAIRMAN POWELL IN ABOUT 25 MINUTES' TIME. WE ARE TALKING TO BOB MICHELE OF JP MORGAN -- BOB MICHELE OF JP MORGAN IN THE STUDIO. >> I THINK THAT WAS EXACTLY ON EXPECTATIONS. THEY WANTED TO GET THE 25 BASIS POINTS DONE. THEY DIDN'T WANT TO CONVEY ANYTHING DOVISH ACCIDENTALLY. THEY REINFORCED THAT ADDITIONAL AFFIRMING MAY BE NECESSARY. THAT INFLATION IS ELEVATED. THEY ARE TRYING TO DO EXACTLY WHAT DIANE TALKED ABOUT. NOT GIVE FINANCIAL CONDITIONS A CHANCE TO EASE FURTHER. >> THE BLOOMBERG FINANCIAL CONDITIONS INDEX, I BELIEVE IT IS 11 RATIOS, MICHAEL ROSENBERG INVENTED IT WITH HIS TEAM. IT IS CITIGROUP'S AND OTHERS GO THE OTHER WAY -- CITIGROUP, AND OTHERS GO THE OTHER WAY. WHERE IS THE AMMO TO RAISE 25 BASIS POINTS? WHAT IS THE DATA THAT WILL DRIVE THAT? >> I THINK THEY WOULD NEED TO SEE INFLATION START TO TICK UP. NOT STAY STABLE OR CONTINUE TO DECLINE LIKE IT IS DOING. THAT'S THE ONLY REASON I WOULD THINK THEY WOULD HIKE AT THE NEXT MEETING. I THINK BY THE TIME WE GOT TO THE SEPTEMBER MEETING, INFLATION WILL HAVE IMPROVED, TO A DEGREE, AND I THINK YOU WILL SEE MORE LABOR MARKETS LAG. THEY WILL SIT THERE AND GO, WE'VE DONE PLENTY. >> WHAT'S YOUR CONCERN FOR THE PRESS CONFERENCE GIVEN THE FACT THAT JAY POWELL HAS A A PENCHANT FOR BEING A BIT MORE REVEALING THAN HE WOULD LIKE? >> I DO THINK THAT JAY POWELL IS GOING TO GO INTO THIS PRESS CONFERENCE BEING A LITTLE MORE DEFENSIVE, IN TERMS OF NOT WANTING TO EASE FINANCIAL CONDITIONS MORE AND NOT WANTING TO HAVE A CONFIRMATION BIAS ON THAT. IS GOING TO BE MUCH MORE ASTUTE TO THAT IN THIS PARTICULAR MEETING. I DO THINK IT'S HARD FOR THEM TO RAISE RATES IN SEPTEMBER. HOWEVER WE KNOW THAT IN OCTOBER, THE MEDICAL COMPONENT OF THE CPI AT LEAST REVERSES AFTER 25% DECLINE IN INSURANCE FROM A YEAR AGO AND THE JUNE NUMBER ON CPI. THAT REVERSES BOTH MONTH TO MONTH AND ON UNDERLYING LEVEL YEAR-OVER-YEAR IN OCTOBER. ONCE YOU GET TO NOVEMBER, YOU COULD SEE A BUMP UP IN INFLATION AGAIN. THAT DOES WORRY THE FED MORE, ALONG WITH SOME OTHER ISSUES THAT WE'VE GOT COMING IN THE PIPELINE WITH SUPPLY CHAIN DISRUPTIONS, EVERYTHING FROM WAS GOING TO HAPPEN WITH GRAIN PRICES TO THE FACT THAT ENERGY PRICES HAVE COME BACK UP. ALL OF THIS THINGS -- THOSE THINGS COMING BACK AND WITH PERSISTENT DEMAND. FURTHER COMPLICATING SEPTEMBER ARE STRIKES. WE HAVE AVOIDED THE TEAMSTERS STRIKE. BUT THE SAG STRIKE HAS A LOT OF SPILLOVER EFFECTS WHICH HAS THE POTENTIAL GIVING US A VERY STRANGE AUGUST EMPLOYMENT NUMBER THAT COULD EVEN MOVE TO ZERO OR INTO THE RED. JUST BECAUSE OF THE FALLOUT EFFECTS ON THE INDUSTRY. THOSE THINGS ARE GOING TO MAKE IT DIFFICULT FOR THE FED TO MOVE IN SEPTEMBER. BUT IN SEPTEMBER THEY LAY OUT THEIR FORECAST AGAIN AND WE WILL GET THE VIEW FROM THERE IN TERMS OF HIGHER FOR LONGER AND DO THEY EXPECT ONE MORE HEIGHT? -- ONE MORE HIKE? THEY WILL WANT TO KEEP THAT IN THEIR POCKET, TO BE ABLE TO DO IT IF THEY NEED TO LATER IN THE YEAR. >> DIANE JUST LAID OUT BASICALLY STICKY INFLATION, STICKIER INFLATION, THINGS THAT COME BACK, WHETHER IT'S THE LABOR STRIKES OR WHETHER IT IS SOME OF THESE YEAR-OVER-YEAR COMPS, SUPPLY CHAIN ISSUES. REARING THEIR HEADS AGAIN. SHE INCLUDED GASOLINE AGAIN SURGING. WHAT ARE THESE BASE EFFECTS -- >> THAT'S NOT WHAT I HEARD HER SAY. I HEARD HER SAY BUSINESS AS USUAL. NOTHING IS QUITE BLACK-AND-WHITE. EVERYTHING IS MIXED. WE LOOK AT A LOT OF THINGS IN HERE. WHAT YOU ARE BETTING ON IS, IF WAGES STILL REMAIN ELEVATED, THAT COMPANIES WILL BE ABLE TO PASS ALONG THOSE PRICE INCREASES TO CONSUMERS. WE ARE SEEING THAT THEY ARE NOT ABLE TO DO THAT TO THE DEGREE THEY WERE ABLE TO. CONSUMERS ARE PUSHING BACK, THEY ARE GOING DOWN BRAND. WE HAVE ALSO LOOKED AT WAGES QUITE A BIT. WE HAVE LOOKED AT A LOT OF THEM. WE LOOKED AT UNIT LABOR COSTS, WE LOOKED AT THE EMPLOYMENT COST INDEX, WE LOOKED AVERAGE HOURLY EARNINGS, WE TOOK SIX OF THEM, WE WAITED THEM, AND WE CAME UP WITH THE PEAK IN WAGE GAINS WAS LAST YEAR, ABOUT 6%, TODAY IT IS JUST UNDER 4%. 2.5% WAGE GAINS IS WHAT THE FED -- 3.5% WAGE GAINS IS WHAT THE FED AND CHAIR POWELL HAS INDICATED TO US IS FAIRLY NEUTRAL. THEY ARE NOT THAT FAR OFF. IT'S GOING IN THAT DIRECTION. PRICES MAY GO UP FOR CERTAIN THINGS. BUT WHAT WE ARE SEEING FROM THE CONSUMER IS THEY WILL JUST CUT BACK SPENDING SOMEWHERE ELSE. >> LET'S TALK ABOUT THIS CUMULATIVE TIMING. THIS READS AS FOLLOWS, IN DETERMINING THE EXTENT OF ADDITIONAL POLICY AFFIRMING US, IT MAY BE APPROPRIATE TO DO PERCENT OVER TIME. THE COMMITTEE WILL TAKE INTO ACCOUNT THE CUMULATIVE TIMING OF MONETARY POLICY, THE LAGS WITH WHICH MONETARY POLICY AFFECTS ECONOMIC ACTIVITY AND INFLATION. ONE OF MY FAVORITES OUT THERE OVER AT RUN MIX, SAYING, AFTER 18 MONTHS, WE HAVE SEEN HOME PRICES ACCELERATE, STOCK PRICES ACCELERATE, AUTO SALES ACCELERATE AND LAYOFFS SINK. LONG AND VARIABLE LAGS MIGHT BE OUTLIVING USEFULNESS. WHAT ARE YOUR THOUGHTS ON THAT? >> I THINK ACTUALLY THE LAGS ARE MUCH LONGER THAN THE FED ACTUALLY THOUGHT. THE FED REALLY HAD GONE INTO THIS TIGHTENING CYCLE THINKING THAT THERE WAS ALMOST A REAL-TIME REACTION FUNCTION, THAT THE LAGS HAD SHORTENED. AND THEY WERE WRONG. WHAT WE SAW IS THIS MORTGAGE WINTER WHERE PEOPLE WON'T MOVE OUT OF SELLING THEIR 3% MORTGAGE HOME. OR LISTING IT. OR THEY HAVE ALREADY PAID OUT THEIR MORTGAGE AND THEY CANNOT AFFORD TO GO INTO A HIGHER RATE. THAT TRANSMISSION MECHANISM ON MONETARY POLICY WAS BLUNTED. THAT DOESN'T MEAN IT DOES NOT EVENTUALLY HIT. BUT IT HAS ELONGATED THE LAGS. I THINK THE FED IS WORRIED ABOUT THAT, THAT THE LAGS ARE STILL OUT THERE. THAT IS AGAIN WHY YOU DON'T MOVE IN SEPTEMBER. BECAUSE YOU COULD SEE MORE HEADWINDS, AS WE TALKED ABOUT EARLIER, IN TERMS OF CREDIT MARKET TIGHTENING AND WHAT CONSUMERS FACE. REDUCTION RATES. EVERYTHING FROM CONSUMER CREDIT CARDS, MORTGAGE RATES, MORTGAGES, VEHICLE LOANS HAVE ALSO WOULD. -- HAVE ALL SOARED. THEY HAVE SOARED TO RECORD HIGH LEVELS BUT WE DON'T KNOW HISTORICALLY IF THAT IS WHERE WE ARE AT. I DO THINK IT IS IMPORTANT TO NOTE THAT IT IS SOMETHING THE FED IS GOING TO BE WATCHING FOR TO SEE HOW MUCH DOES THIS SLOW DOWN THE ECONOMY GOING FORWARD? >> THINKING WAS ALWAYS. WONDERFUL TO GET YOU -- THANK YOU AS ALWAYS. WONDERFUL TO GET YOUR INSIGHT. BOB, YOU WERE LISTENING TO THAT CONVERSATION, CAN YOU MAKE THE ARGUMENT JUST AS EASILY THAT THE LAGS ARE REALLY SHORT? >> THEY ARE LONG AND VARIABLE. ALSO, WHEN I HEAR THE CONVERSATION ABOUT SUPPLIES AND PRICING, WE ARE ALSO LOOKING AT VENDOR DELIVERIES. THAT'S SHOWN THE GREATEST IMPROVEMENT GOING WAY BACK BEFORE THE FINANCIAL CRISIS. SO THE THOUGHT THAT THERE WAS PRICING POWER BECAUSE YOUR GOODS WERE STUCK IN A CONTAINER SHIP ON THE PACIFIC, FORGET ABOUT IT, THEY ARE HERE, THEY ARE ACTUALLY PILED UP IN WAREHOUSES AND ON SHELVES. AND WHEN YOU LOOK AT INVENTORY TO SALES, THEY ARE OFF THE CHARTS HIGH. THE ONLY WAY TO CLEAR THEM IS IN AN ENVIRONMENT WHERE THE CONSUMER IS CUTTING BACK, GOING DOWN BRAND AND THE STRETCH IS TO CUT PRICES. >> CAN YOU SAY THE SAME THING ABOUT SERVICES? >> WE WILL SEE. I THINK SO. >> ISN'T THAT THE BIG QUESTION? FORGET THE GOODS ARGUMENT. >> I THINK SO. JUST THE COST OF FINANCE TRAVEL, LEISURE, ALL OF THOSE THINGS ON YOUR CREDIT CARD, WHICH IS WHAT IS HAPPENING, THAT IS WHY WE -- THAT IS WHY REVOLVING CREDIT USAGE HAS COME UP SO MUCH, IT BECOMES PUNITIVE AFTER A WHILE. IT IS NOT SUSTAINABLE. >> THE 25 BASIS POINT HIKE BEHIND US, NO BIG CHANGES TO THE STATEMENT, THE NEWS CONFERENCE WITH CHAIRMAN POWELL BEGINS IN ABOUT 16 MINUTES' TIME. JOINING US NOW IS BIANCO RESEARCH. YOUR TAKE ON WHAT WE LEARNED MINUTES AGO? >> IT IS INTERESTING, BECAUSE OF WHAT DID NOT CHANGE. THIS SEEMS TO HAVE BEEN VERY CAREFULLY PUT TOGETHER. IT'S NOT JUST -- SO AS NOT TO SEND A DOVISH MESSAGE LIKE DIANE WAS TALKING ABOUT. THE FED COULD HAVE TAKEN THE OPPORTUNITY TO SAY HEADLINE INFLATION HAS COME DOWN, CORE MEASURES ARE STILL ELEVATED, BUT THEY LEFT THAT STATEMENT UNCHANGED. ON THE GROWTH SIDE, WHAT WAS MODEST GROWTH IS NOW CHARACTERIZED AS MODERATE GROWTH. JUST THE TINIEST INKLING OF A LITTLE BIT OF HAWKISHNESS CREEPING INTO THE STATEMENT, RELATIVE TO EXPECTATIONS. >> A LITTLE BIT OF HAWKISHNESS CAME FROM JIM BIANCO. AND LOOK AT WHERE YOU WERE WEEKS AGO, SAYING WE ARE MORE STICKY THAN WE ACTUALLY THINK WE ARE, WHERE IS JEROME POWELL'S PRESUMED R START PATH AT THIS PRESS CONFERENCE? THE ZEITGEIST SAYS HE'S DOWN TO 2%, THINGS ARE NORMAL, WE ARE GOING TO GET BACK TO NORMAL. I'M GOING SUGGEST -- GOING TO SUGGEST YOU DISAGREE WITH THAT. >> I DO. WE MIGHT BE ON A YEAR-OVER-YEAR BASIS LOOKING AT THE LOWS OF THE YEAR IN INFLATION IN JUNE. WE ARE GOING TO SEE IF THERE'S GOING TO BE A BIG BASE EFFECT THE REST OF THE SUMMER AND IS GOING TO START TO DRIFT TOWARDS FOREIGN. WE WOULD BE LOOK BE BACK EVEN CLOSE TO 3% BY THE END OF THE YEAR -- LUCKY TO BE BACK EVEN CLOSE TO 3% BY THE END OF THE YEAR. IS THE LONG RUN RATE OF INFLATION TO PERCENT OR 2.5% OR 3%? THE FED HAS ALREADY TOLD US THAT NEUTRAL RATE IS 50 BASIS POINTS ABOVE THE LONG RUN INFLATION RATE. IF IT IS 2.5%, THAN NEUTRAL IS 3%. IF THE YIELD CURVE GOES BACK TO SOME NORMAL LEVEL AROUND 150 BASIS POINTS, YOU ARE TALKING ABOUT A FAIR VALUE FOR THE 10 YEAR AT 4.5. WE ARE AT 390 RIGHT NOW. WE ARE A LITTLE BIT LOW. IT ALL COMES BACK TO THIS WHOLE ARGUMENT ABOUT INFLATION. WHERE'S INFLATION GOING TO GO? I'VE BEEN ARGUING THAT THIS IS A POST-PANDEMIC ECONOMY, THAT MEANS THAT ALL THE MODELS AND HOW INFLATION ARE GOING TO WORK HAVE NOT WORKED SINCE 2020 AND WE HAVE TO WRITE SOME NEW MODELS ON HOW IT'S GOING TO WORK. WORK FROM HOME BEING ONE BIG THING THAT'S MAJOR ON HOW THE LABOR MARKET HAS CHANGED. THE SUPPLY CHAIN. I THINK WE WILL WIND UP WITH STICKIER INFLATION. >> THIS IS CRITICAL. WE'VE GOT THE MORNING CREW AND THE AFTERNOON CREW THAT DO A 24/7 FOR US. TO SEE THE SET UP HERE AND THE COLLEGIAL DISAGREEMENTS IS THE HEART OF THE MATTER. >> WHICH IS THE REASON WHY I'M KIND OF SHOCKED THAT THIS WAS AN 11-0 DECISION. >> I AGREE WITH THAT STRONGLY. >> THERE ARE SUCH DIVERGENT OPINIONS. >> THIS IS DELUSION OF UNANIMITY. THE BRITISH DID THIS BETTER THAN WE DO. >> THAT'S WHAT I WOULD ASK YOU, ANDREW. DO YOU THINK IT UNDERMINES THE FED TO HAVE UNANIMITY AT A TIME WHERE CLEARLY THERE IS NO UNANIMITY IN MARKETS OR IN THE FED? >> I SHARE WITH THE OTHER SURPRISED THAT WE WOULD HAVE NO DIFFERENCES OF OPINION AT THIS POINT -- WITH YOU THE SURPRISE THAT WE WOULD HAVE NO DIFFERENCES OF OPINION AT THIS POINT. WE SAW THAT SOMETIMES COMING AT THE COST OF CLARITY. THAT'S WHAT HAPPENED IN JUNE. WE HAD THIS STRANGE DECISION NOT TO RAISE RATES. BUT TO SIGNAL THAT IT WOULD BE APPROPRIATE TO RAISE RATES ANOTHER 50 BASIS POINTS. AS YOU TRY TO KEEP THE COMMITTEE TOGETHER AND GET UNANIMITY, IT IS A LITTLE BIT TROUBLING IN TERMS OF GETTING CLARITY IN TERMS OF THE COMMUNICATION. >> BOB, YOUR TAKE ON THIS ON WHETHER IT IS HELPFUL OR HARMFUL TO HAVE UNANIMITY AT A JUNCTION THAT IS CLEARLY SO FRAUGHT WITH THIS AGREEMENT ON THE STREET AND THAT THE FED? >> I DON'T THINK THE UNANIMITY IS THE ACCURATE PORTRAYAL OF WHAT ACTUALLY OCCURRED IN THE MEETING. AND I'M DYING FOR BULLARD TO GO INTO PUBLIC/PRIVATE LIFE SO WE CAN ASK HIM THESE QUESTIONS. I THINK WHAT THEY DID IS THEY LOCKED ARM, AS -- ARMS, AS DIANE POINTED OUT MANY TIMES. THEY ARE CONCERNED ABOUT FINANCIAL CONDITIONS EASING. THIS IS ANOTHER WAY TO TRY TO STOP THAT FROM HAPPENING. >> I COULD JUST SEE YOU WITH A SPEECH WITH BULLARD AT PURDUE. WHAT A SPEECH THAT WOULD BE. THAT GOES TO THE DOTS AND THE DISPERSION. FOR THOSE THAT DON'T KEEP SCORE ON THIS, I DON'T KEEP SCORE ON THIS, THIS WAS A DOT FREE MEETING. HOW IMPORTANT IS THE IMPORTANCE TO THE NEXT THEATER OF DOTS? ARE WE BEYOND THAT? >> WE ARE LIVING IN AN AI WORLD. WHAT ARE WE DOING, NOT DOING DOTS AND SUMMARY OF ECONOMIC PROJECTIONS AT EVERY MEETING? LET'S DO IT AND INDICATE MORE ABOUT WHAT THE FED IS THINKING. >> YOU WANT MORE TRANSPARENCY. >> PARTICULARLY -- NOT USUALLY, BUT AFTER THE LAST MEETING, WE HAVE ALL TALKED ABOUT, WHAT WERE THEY DOING? THEY DIDN'T HIKE IN JUNE BUT THEY INDICATED ANOTHER 50 BASIS POINTS. IF I WAS MIKE MCKEE, I WOULD ASK CHAIR POWELL, WHAT ABOUT THE DOTS AND THE SUMMARY OF ECONOMIC PROJECTIONS FROM THE LAST MEETING? DO YOU STILL STAND BY THOSE, OR WOULD HAVE ANYTHING CHANGED? >> IT IS UNCLEAR WHICH DOT BELONGS TO WHICH POLICYMAKER. BOSTICK MIGHT HAVE DISSENTED. HE DOESN'T HAVE A VOTE ON THE COMMITTEE AT THE MOMENT. THE BOARD OF GOVERNORS WOULD BE WHERE MY ISSUE IS. EVEN IF THEY BELIEVE THEY SHOULDN'T BE DOING ONE THING, THEY ALL VOTE AS A COMMITTEE, AS ONE. I WONDER HOW MUCH WE SHOULD READ INTO THE MEETING TODAY. MAY BE THE SEPTEMBER 1 IS THE ONE WHERE IT GETS A LITTLE BIT MORE FIERY. >> IT IS DEFINITELY THE CASE THAT THERE IS MORE GOING ON BEYOND THE SCENES IN TERMS OF THE DISAGREEMENT. THERE ARE REAL DIFFERENCES OF OPINION. I THINK LIKE DIANE AND THE OTHERS WERE TALKING ABOUT EARLIER, THIS COULD REALLY GET INTERESTING IN SEPTEMBER. THEY WILL HAVE TO MAKE A DECISION, FIRST WHETHER TO HIKE RATES, I THINK THEY PROBABLY WON'T, BECAUSE THE INFLATION DATA HAS BEEN SOFTER, BUT THEN WHAT DO YOU DO WITH THOSE DOTS? ARE YOU STILL SHOWING YOU ARE GOING TO HIKE AGAIN THIS YEAR? THAT WOULD IMPLY A HIKE IN NOVEMBER. ARE YOU THEN INDICATING THAT IS THE LAST HIKE OF THE CYCLE, IF WE SEE INFLATION PICKING UP FURTHER? I THINK THE RISKS ARE THAT IT WILL TOWARDS THE END OF THE YEAR. SO IT GETS REALLY TRICKY AS WE GET TO THAT SEPTEMBER MEETING. THEN DECEMBER, DOTS AGAIN, ARE YOU SHOWING NO FURTHER HIKES, CUTS? >> JIM, COME BACK IN HERE, YOU WERE TALKING ABOUT HOW MODELS ARE BROKEN. THEY ARE NOT REALLY FORECASTING INFLATION IN ANY KIND OF ACCURATE WAY. WHAT IS THE COMPASS FOR THE FED? TO WE HAVE A CLEAR SENSE OF WHAT DATA DEPENDENCY MEANS IN A POST-PANDEMIC ERA, WHERE SUDDENLY THE DATA IS NOT A RELIABLE FORWARD-LOOKING INDICATOR? >> TO BE FRANK, NO, WE DON'T. THAT'S BEEN ONE OF THE BIGGER PROBLEMS. IN A DATA-DEPENDENT WORLD, WAS THE FED IS TRYING TO DO IS DIVORCE THEMSELVES FROM ANY THEORY OF OF THE ECONOMY AND INFLATION IS SUPPOSED TO WORK AND HOW THEY ARE SUPPOSED TO REACT TO THE DATA. THEN WE GET WHAT WE'VE HAD THE LAST TWO MONTHS. THEY PAUSED IN JUNE. WE GOT A BIG MISS ON THE INFLATION REPORT. YEAR-OVER-YEAR IT WENT FROM 4% TO 3%, THEN THEY HIKED. I'M NOT SURE WHY THEY PAUSED OR HIKED. AND WHAT THEY ARE GOING TO DO NEXT. BASED ON THE RECENT ACTION. WHICH IS WHY I WOULD UNDERSCORE WHAT BOB SAID, MIKE MCKEE HAS GOT TO ASK, WHAT ARE YOU DOING? WHAT IS DRIVING THESE DECISIONS? PAUSE, THEN WE GOT GOOD INFLATION DATA, THEN YOU HIKE? THERE'S A BIG CONFUSION GOING ON THERE RIGHT NOW AND IT'S ALL PART OF WHAT WE HAVE SEEN IN THE MARKET, IS BEEN VERY DIFFICULT TO FIGURE IT OUT. >> THE PRESS CONFERENCE IS IN SIX MINUTES, I WANT TO GO TO BIANCO, THEN ANDREW, THEN MICHAEL. I WANT TO KNOW YOUR 12 MONTH FORWARD REAL GDP. YOU VIOLENTLY DISAGREE ON INFLATION. WHAT'S THE STATISTIC? >> ABOUT ONE AND A QUARTER OR SO. >> I THINK WE WILL HAVE SEEN A RECESSION BY THEN SO WE WILL BE SOMEWHAT AROUND YOU TO BE. >> I THINK WE WILL HAVE PASSED THROUGH MINUS ONE AND A HALF TO -2% REAL GDP. >> THIS IS NOT IN THE AMERICANS' EYESIGHT RIGHT NOW. DIFFERENT INFLATION OUTLOOKS. THIS IS REMOVED FROM META, REMOVED FROM GOOGLE. >> THERE ARE STILL SEVEN MINUTES BEFORE THE MEETING. [LAUGHTER] AN -- UNTIL THE TELECONFERENCE. [OVERLAPPING CHATTER] IN ALL SERIOUSNESS, WHO IS PAYING THESE HIGH RATES? >> THAT'S A GOOD QUESTION. I THINK THEY ARE BITING AT THE BUSINESS LEVEL. THEY ARE WAN DEFINITELY BITING AT THE RESIDENTIAL REAL ESTATE LEVEL. YOU HAVE SEEN A WHOLESALE CHANGE IN THE WITH THE RESIDENTIAL REAL ESTATE MARKET -- EXISTING HOMES DON'T MOVE, WE HAVE BEEN TRYING TO FILL THE GAP WITH NEW CONSTRUCTION, BECAUSE WE'VE GOT A MULTIYEAR LOW IN THE VOLUME OF EXISTING HOMES. THEY HAVE BEEN BITING THERE AS WELL. WHERE THEY HAVE NOT BEEN BITING IS IN THE COST OF CAPITAL IN THE STOCK MARKET. NOT BOTHERED BY IT AT ALL. IT IS UNCLEAR AS TO WHERE IT IS. THAT MIGHT BE LEADING TO AN IDEA THAT MAY BE ALL WE'VE GOT WITH A 500 BASIS POINT PLUS RISE IN RATES IS JUST PRETTY MUCH TRACK NEUTRAL AND WE ARE REALLY NOT THAT RESTRICTIVE WHICH IS WHY WE ARE NOT SEEING THESE SUPER HIGH RATES HURT THE ECONOMY AS MUCH AS WE THOUGHT. >> WHAT WOULD YOU SAY ABOUT THAT, MICHAEL? >> I THINK IT IS BITING AND A LOT OF PLACES. I THINK IT IS BITING IN THE CORPORATE WORLD. YOU LOOK AT BANK LOANS, DEFAULTS RISING PRETTY SHARPLY. YOU LOOK AT THE PRIVATE CREDIT MARKET, THERE ARE REAL TREMORS THERE IN TERMS OF WHAT'S HAPPENING IN EXTENSIONS. WE DIDN'T TALK ABOUT CENTRAL BUSINESS DISTRICT OFFICE SPACE. THAT IS STILL OUT THERE OWNER-OCCUPIED. THAT IS OWNED AND PLACES. WE SAW THAT IN GOLDMAN'S EARNINGS. THAT HAS YET TO BE RECONCILED. IT'S BITING HARD. WE TALKED ABOUT THE CONSUMER. THEY ARE REALLY STRUGGLING. >> ANDREW, I THINK WE NEED TO SPEND A BIT MORE TIME TALKING ABOUT THIS. HOW MUCH OF THE DISINFLATION WE HAVE SEEN RECENTLY AS A CONSEQUENCE OF THE TIGHTENING CYCLE OVER THE LAST YEAR -- IS A CONSEQUENCE OF THE TIGHTENING CYCLE OVER THE LAST YEAR? HOW DO YOU IDENTIFY THAT KIND OF THING? >> THAT'S WHY THE FED IS IN A LITTLE BIT OF A DIFFICULT POSITION HERE. . THEY HAVE TAKEN SOME CREDIT FOR SOME DISINFLATION THAT THEY DID NOT HAVE A LOT TO DO WITH, WHICH IS THE DECLINE IN ENERGY PRICES, THE DECLINE IN FOOD PRICES. AND THEN WE ARE SEEING INTO THIS MEETING, WE ARE HAVING VERY LARGE DAILY INCREASES IN GASOLINE PRICES. SO IT IS CERTAINLY NOT GOING TO FEEL TO A LOT OF PEOPLE LIKE INFLATION HAS BEEN CONQUERED. SOMEWHERE WHERE THEY DO HAVE A DIRECT EFFECT IS ON THE HOUSING SECTOR, SHELTER INFLATION. I WOULD RAISE THE CAUTION THERE THAT WE ARE KIND OF IN THIS NARRATIVE THAT SHELTER PRICES ARE SLOWING, AND THEY ARE. THERE IS A LAG INTRODUCED IN THE WAY THAT THAT ARE PUT TOGETHER. SO THE SHELTER PLACES WILL -- SHELTER PRICES WILL SLOW, BUT LOOK AT THE READING FROM CASE-SHILLER, LOOK WHAT WE ARE SEEING IN THE REAL-TIME HOUSING PRICE DATA. THOSE HOW PRICES ARE RISING QUICKLY -- THOSE HOUSE PRICES ARE RISING QUICKLY NOW. MAYBE 5%, FIVE -- 5.5% POLICY RATES ARE NOT THE RESTRAINT ON THE HOUSING SECTOR THAT WE THOUGHT IT WAS GOING TO BE. >> THE NEWS CONFERENCE IS ABOUT THREE OR FOUR MINUTES AWAY. WE NEED TO GET YOUR QUESTIONS FOR CHAIRMAN POWELL. WE TOUCHED ON IT BRIEFLY. JIM, WHAT WOULD YOU ASK THE CHAIRMAN TODAY IN ABOUT FOUR MINUTES? >> BASICALLY, WHAT'S BEEN DRIVING THE DECISION-MAKING TO PAUSE OR TO HIKE? I KIND OF SAID THAT EARLIER. IT DOES DRIVE AT THE CONFUSION AS TO WHAT IS REALLY ON TOP OF MIND FOR THE FEDERAL RESERVE. >> ANDREW, WHAT ABOUT YOU? >> I WOULD ASK ABOUT THE REBOUND IN THE HOUSING SECTOR, PRICES, GROWTH. >> MICHAEL? >> I'D ASK WHAT RANGE OF INFLATION AND GROWTH METRICS ARE THEY USING AND WHAT LEVELS WOULD THEY LOOK AT FOR THEM TO, ONE, PAUSE PERMANENTLY, AND SECONDLY, CUT RATES? >> WHAT WOULD THEY TOLERATE? MAYBE TO POINT SOMETHING -- PIMCO SAID 2.SOMETHING%. >> WE ARE MINUTES AWAY FROM THE FED CHAIRMAN. YOU CAN HEAR FROM THE PANEL IN THE LAST 20 MINUTES A BIT OF CONFUSION OVER WHY THEY PAUSED LAST TIME AROUND AND HIKED THIS TIME AROUND. IF THEY ARE TRULY DATA DEPENDENT >> WHAT DATA THEY ARE LOOKING AT, WHAT THEIR MODEL IS TO GAUGE ON INFLATION GOING FORWARD, WHAT THEIR THRESHOLD IS TO HIKE OR TO CUT. WE DON'T HAVE A SENSE OF ANY OF THESE THINGS. THE MODEL IS, COME ON, WE LOOKING AT IT. >> EVERYONE IS HIGH-FIVING THE FED -- WAS HIGH-FIVING THE FED A FEW YEARS AGO WHEN WE GOT INFLATION DATA. -- WEEKS AGO WHEN WE GOT INFLATION DATA. PEOPLE ARE TALKING ABOUT A VICTORY LAP FOR THE CHAIRMAN. >> IF YOU STEP BACK AND LOOK AT GROWTH AND INFLATIONARY PRESSURES, THEY ARE MODERATING. THEY SHOULD JUST PUT IT IN PARK AND COME BACK AND JANUARY -- IN JANUARY. >> AND DO A VICTORY LAP? THAT SEEMS PREMATURE TO ME. >> THAT HAS BEEN A FASCINATING DISCUSSION. THANK YOU SO MUCH FOR OUR TEAM -- TO OUR TEAM FOR PUTTING THIS TOGETHER. THE COMMON THEME HERE FROM MARK ACADEMICS, UCLA ACADEMICS, THE UNIVERSITY OF PENNSYLVANIA ACADEMICS, IS THIS IS A PRESS CONFERENCE WITHOUT THEORY. AND I KNOW I'M GOING TO GET PUSHBACK ON THAT. FROM MIKE MCKEE AND OTHERS. BUT OFF THE PANDEMIC, THEY ARE FLYING BLIND. I WOULD SAY THEY ARE AS DATA-DEPENDENT AS WE HAVE EVER SEEN. >> I THINK SO. >> EVER. >> I THINK THAT YOU ARE RIGHT. THAT THIS IS PERHAPS A THEORY FREE FEDERAL RESERVE THAT IS STILL TRYING TO FIND SOME OF THE THEORIES THAT UNDERPINNED THEIR ROLE IN ALL OF THIS. I WOULD ARGUE ONE OF THE BIGGEST QUESTIONS IS WHETHER TIGHTENING HAS THE SAME EFFECT ON AN ECONOMY THAT IS NOT SHOWING SIGNS OF SLOWING DOWN. TO YOUR POINT, THE LAG, THE LONG AND VARIABLE LAGS. >> SUPERLONG. >> BUT ALSO VARIABLE. [LAUGHTER] HOW DO WE TALK ABOUT THE EFFICACY OF WHAT THEY ARE DOING? >> WHICH IS WHY THEY ARE IN THE RISK MANAGEMENT BUSINESS AND HAVE TO WORK OUT, WHAT IS THE BIGGEST RISK? CUTTING TOO SOON OR HOLDING TOO LONG? THAT IS REALLY DIFFICULT TO DO. IT IS HARDER TO >> I DON'T KNOW THE ANSWER TO THE BIGGEST FEAR. INFLATION OR RECESSION. WE DON'T KNOW. AND WE HEAR FROM WALL STREET A DIFFERENT ANSWER FROM EVERYONE. JONATHAN: EURO NEGATIVE ZERO ON THE S&P 500 FOLLOWING A 25 BASIS POINT HIKE FROM THE FED RESERVE. HERE IS CHAIRMAN POWELL. >> WE STAY COMMITTED TO ENSURING STABLE PRICES FOR THE AMERICAN PEOPLE. WE UNDERSTAND THE HARDSHIP THAT INFLATION IS CAUSING AND WE REMAIN STRONGLY COMMITTED TO BRINGING INFLATION DOWN TO OUR 2% GOAL. PRICE STABILITY IS THE RESPONSIBILITY OF THE FEDERAL RESERVE. AND WITHOUT STABILITY, THE ECONOMY DOES NOT WORK FOR ANYONE. WITHOUT PRICE STABILITY WE WILL NOT HAVE A SUSTAINED PERIOD OF MARKET CONDITIONS. EARLY LAST YEAR, -- SINCE EARLY LAST YEAR, THE FOMC HAS SEVERELY TIGHTENED MONETARY POLICY. WE TOOK ANOTHER STEP BY RAISING THE POLICY A QUARTER PERCENTAGE POINT. AND WE ARE REDUCING SECURITIES AT A IMPRESSIVE PACE. WE HAVE COVERED A LOT OF GROUND AND THE FULL EFFECT OF TIGHTENING HAS YET TO BE FELT. LOOKING TO FED -- LOOKING AHEAD, WE TAKE A DAY TODAY -- A DATABASED APPROACH TO THE POLICY THAT MAY BE APPROPRIATE. I WILL HAVE MORE TO SAY ABOUT MONETARY POLICY AFTER A REVIEW ON ECONOMIC DEVELOPMENTS. ECONOMIC ACTIVITY HAS BEEN EXPANDING AT A MODERATE PACE. ROADS AND CONSUMER SPENDING SEEMS TO HAVE SLOWED FROM EARLIER IN THE YEAR. THE HOUSING PACK -- HOUSING SECTOR HAS PICKED UP BUT REFLECTS HIGHER MORTGAGE RATES. OUTPUT GROWTH IS WEIGHING ON BUSINESS FIXED INVESTMENT. THE LABOR MARKET IS TIGHT AND IT IS AN AVERAGE OF $240,000 -- 244,000 JOBS PER MONTH. THAT IS A STRONG PACE. UNEMPLOYMENT REMAINS LOW AT 3.6%. THERE ARE CONTINUING SIGNS THAT DEMAND AND THE LABOR MARKET ARE COMING INTO BETTER BALANCE. THE LABOR WORKFORCE FOR DISSIPATION RATE HAS MOVED UP SINCE LAST YEAR FOR INDIVIDUALS AGE 25-54 YEARS. NOMINAL WAGE GROWTH HAS SHOWN A SIGN OF EASING JOB VACANCIES HAVE DECLINED THIS YEAR. LABOR DEMAND IS STILL EXCEEDING THE SUPPLY OF THE AVAILABLE WORKERS. INFLATION REMAINS ABOVE OUR GOAL OF 2%. IN MAY TOTAL PCU PRICES ROSE 3%. CORE PCE ROSE 3% -- 4.3%. THE CHANGE IN CONSUMER PRICING CAME IN AT 3.0%. -- INFLATION HAS MODERATED SINCE LAST YEAR. THE PROCESS OF GETTING TO 2% STILL HAS A LONG WAY TO GO. DESPITE ELEVATED INFLATION, EXPECTATIONS ARE WELL ANCHORED IN A SURVEY OF HOUSEHOLD MEMBERS. THE FED MONETARY OPTIONS ARE PROMOTING MAXIMUM EMPLOYMENT AND STABLE PRICES FOR THE AMERICAN PEOPLE. MY COLLEAGUES ARE AWARE THAT INFLATION POSES HARDSHIP WITH PURCHASING POWER ESPECIALLY FOR THOSE UNABLE TO MEET THE COST OF ESSENTIALS LIKE FOOD, HOUSING AND SO ON. WE ARE STRONGLY COMMITTED TO TURNING INFLATION TO OUR 2% OBJECTIVE. WE HAVE A TARGET RANGE RAISED BY .25 PERCENTAGE POINT BRINGING IT TO 5.5%. WE ARE ALSO CONTINUING THE PROCESS OF SIGNIFICANTLY REDUCING. WITH TODAY'S ACTION WE HAVE RAISED OUR POLICY RATE BY 5.25 PERCENTAGE POINTS SINCE EARLY LAST YEAR. WE SEE THE EFFECTS OF OUR POLICY TIGHTENING ON-DEMAND AND IN THE MOST INTEREST-RATE SENSITIVE SECTORS OF THE ECONOMY. IT WILL TAKE TIME FOR THE FULL EFFECT TO BE REALIZED ON INFLATION. THE ECONOMY FACES TIGHTER CREDIT CONDITIONS WHICH AWAY ON ECONOMIC ACTIVITY AND INFLATION. WITH ADDITIONAL POLICY, THE COMMITTEE WILL TAKE INTO ACCOUNT CUMULATIVE MONETARY POLICY, THE LAGS IN WHICH THIS IMPACTS INFLATION AND ECONOMIC AND FINANCIAL DEVELOPMENTS. WE WILL MAKE OUR DECISIONS MEETING BY MEETING BASED ON THE TOTALITY OF THE ONCOMING DATA AND THE IMPLICATION OF THE OUTLOOK FOR ECONOMIC ACTIVITY AND INFLATION AS WELL AS THE BALANCE OF RISKS. WE ARE COMMITTED TO BRINGING INFLATION BACK TO OUR 2% GOAL. REDUCING INFLATION IS LIKELY TO HAVE BELOW TREND GROWTH AND SOFTENING OF THE LABOR MARKET CONDITIONS. RESTORING PRICE STABILITY IS ESSENTIAL TO SEPARATE STAGE FOR ACHIEVING MAXIMUM EMPLOYMENT AND STABLE PRICES ON THE LONG RUN. WE UNDERSTAND OUR ACTIONS AFFECT EVERYONE ACROSS THE COUNTRY. WE HAD THE FED WILL DO WHAT WE CAN TO ACHIEVE OUR MAXIMUM EMPLOYMENT AND PRICE STABILITY GOALS. THANK YOU. I LOOK FORWARD TO YOUR QUESTIONS. REPORTER: MR. CHAIRMAN, THANK YOU. IN YOUR OPENING REMARKS YOU TALK ABOUT THE EXTENT OF THE POLICY -- SHOULD WE TAKE THAT TO MEAN ADDITIONAL HIKES ARE LIKELY ON THE WAY? SHOULD WE ALSO BELIEVE FUTURE MEETINGS IN SEPTEMBER AND NOVEMBER ARE LIVE OR ARGUE ON AN EVERY OTHER MEETING MOVE. >> WE WILL GO TO A MEETING BY MEETING -- WE HAVE NOT MADE ANY DECISIONS ABOUT FUTURE MEETINGS INCLUDING THE PACE WE CONSIDER HIKING, BUT WE WILL BE ASSESSING THE NEED FOR FURTHER TIGHTENING THAT MAY BE APPROPRIATE. AND RETURNING INFLATION TO 2% OVER TIME. I WOULD SAY THE INTER-MEETING DATA CAME BROADLY IN LINE WITH EXPECTATIONS. ECONOMIC ACTIVITY IS RESILIENT. JOB CREATION IS STRONG WHILE COOLING A BIT IN THE JUNE CPI REPORT COMING IN BETTER THAN EXPECTATION FOR A CHANGE. THE JUNE CPI REPORT WAS WELCOMED, BUT IT IS ONLY ONE REPORT. WE HOPE INFLATION WILL FOLLOW A LOWER PATH AS WILL BE CONSISTENT WITH THE CPI READING BUT WE DO NOT KNOW. WE ARE LOOKING AT THE BROADER PICTURE WITH MODERATE GROWTH. SUPPLY AND DEMAND THROUGH THE ECONOMY COMING INTO BALANCE PARTICULARLY IN THE LABOR MARKET. WE LOOK AT INFLATION AND ASK OURSELVES DOES IS HOLD THE DATA. DO WE NEED TO RAISE RATES FURTHER? IF WE MAKE THAT CONCLUSION THAT WE WILL RAISE RATES. THAT IS HOW WE ARE THINKING ABOUT THE NEXT MEETING AND HOW WE THINK ABOUT MEETINGS GOING FORWARD POTENTIALLY. I WILL ALSO SAY SINCE WE ARE TALKING ABOUT IT BETWEEN NOW AND SEPTEMBER WE GET TO MORE JOB REPORTS AND CPI REPORTS. WE WILL HAVE LOTS OF DATA ON ECONOMIC ACTIVITY. ALL OF THE INFLAMMATION WILL INFORM OUR -- INFORMATION WILL INFORM OUR DECISION AS WE GO INTO THE MEETING. IT IS POSSIBLE THAT WE WILL RAISE FUNDS AGAIN AT THE SEPTEMBER MEETING IF THE DATA BARRED IT. AND IT IS ALSO POSSIBLE WE MAY CHOOSE TO HOLD STEADY AT THE MEETING. WE WILL MAKE CAREFUL ASSESSMENTS MEETING BY MEETING. I WILL CLOSE BY SAME WE RAISE THE FEDERAL FUNDS RATE BY 5.25 POINTS. THAT IS PUTTING DOWNWARD PRESSURE ON ECONOMIC ACTIVITY AND INFLATION. REPORTER: IF YOU WOULD ALLOW ME TO FOLLOW-UP UP, YOU SAID THE DATA CAME IN IN LINE WITH EXPECTATIONS. DOES THAT MEAN THERE IS LIKELY TO BE A CHANGE IN THE OVERALL ROLLING OUT OF THE COMMITTEE THAT TWO MORE HIKES ARE NECESSARY? >> I WILL GO BACK TO WHAT I SAID. WE HAVE EIGHT WEEKS UNTIL THE SEPTEMBER MEETING. WE WILL LOOK AT THE DATA AND MAKE THAT ASSESSMENT IN. -- ASSESSMENT THEN. WE DID HAVE A GOOD DATA READING BUT IT IS JUST ONE. WE HAVE SEEN THIS BEFORE IN THE DATA. MANY FORECAST CALL FOR INFLATION TO REMAIN LOW BUT WE DO NOT KNOW UNTIL WE SEE THE DATA. REPORTER: THANK YOU. OBVIOUSLY YOU CREATED THE LANGUAGE AROUND GROWTH WE HAVE SEEN IT TODAY BE -- TODAY THE BARBIE MOVIE NUMBERS AND TAYLOR SWIFT. IT SEEMS LIKE THE CONSUMER IS IN GOOD SHAPE AND GROWTH IS PICKING UP. IN YOUR PERSPECTIVE, DO YOU THINK WE WILL SEE GROWTH STABILIZING AND PERFORMING WELL THIS SUMMER? IS THAT A PROBLEM BECAUSE IT IS INFLATIONARY OR IS IT GOOD NEWS BECAUSE IT SUGGEST A SOFT LANDING IS MORE LIKELY? HOW ARE YOU THINKING ABOUT THE TRAJECTORY? >> I WOULD SAY IT THIS WAY, THE OVERALL RESILIENCE OF THE ECONOMY AND THE FACT THAT WE HAVE ACHIEVED DISINFLATION SO FAR WITHOUT A MEANINGFUL IMPACT ON THE LABOR MARKET THE STRENGTH OF THE ECONOMY OVERALL IS A GOOD THING. YOU SEE CONSUMER CONFIDENCE GOING UP AS WELL. BUT YOU'RE RIGHT STRONGER GROWTH COULD LEAD TO HIGHER INFLATION WHICH WOULD REQUIRE A RESPONSE FOR MONETARY POLICY. WE WILL WATCH IT CAREFULLY AND SEE HOW IT EVOLVES OVER TIME. REPORTER: THANK YOU. -- AS YOU REFERENCED EARLIER, SOFT CPI, JOBS REPORT STILL STRONG. IF YOU ARE DATA DEPENDENT, WHY NOT PAUSE AND STAY ON HOLD AND TAKE ANOTHER MEETING OFF WHEN THE DATA IS MOVING IN THE DIRECTION YOU WANT TO SEE? >> SO IF YOU GO BACK TO WHAT WE ARE TRYING TO DO WE ARE TRYING TO BRING INFLATION DOWN TO 2%. AT THE LAST MEETING WE WROTE DOWN OUR AS SHOULD -- INDIVIDUAL OF WHAT IT WOULD TAKE AN IT WAS ADDITIONAL TO RATE HIKES. WE LOOKED AT THE INTERMEDIATE DATA. IT WAS BROADLY CONSISTENT NOT PERFECTLY BUT BROADLY. AS A RESULT WE TOOK ANOTHER STEP. THE LABOR MARKET SAY STRONG BUT IS GRADUALLY SLOWING. THE INFLATION REPORT WAS A LOW BIT BETTER BEEN EXPECTED. WE WILL BE CAREFUL ABOUT TAKING TOO MUCH SIGNAL FROM A SINGLE READING. GRAND CAYMAN STRONGER THAN EXPECTED. THAT IS HOW WE LOOK AT IT. THAT IS WHY WE TOOK THAT STEP TODAY. REPORTER: NICK WITH THE WALL STREET JOURNAL. THE MARKETS BELIEVE THE FOMC MEETINGS -- PARTICIPANTS FOR THE FOURTH QUARTER OF THIS YEAR WILL BE TOO HIGH GIVEN AUTOS, SHELTER, AND BY SEPTEMBER IT MAY WARRANT DOWN REVISION OF 20-30 BASIS POINTS. WITH THAT INFLATION PROGRESS BE ENOUGH TO HOLD RATES STEADY FROM HERE OR DO YOU NEED TO SEE BELOW TREND GROWTH? AND DECELERATING LABOR INCOME GROWTH TO BE CONVINCED YOU HAVE DONE ENOUGH? >> IT IS HARD TO PICK THE PIECES APART AND SAY HOW MUCH OF THIS OR THAT. WE LOOK AT EVERYTHING. WE WILL BE LOOKING TO SEE IF THE SIGNAL FROM JUNE CPI IS REPLICATED OR THE OPPOSITE OR SOMEWHERE IN THE MIDDLE. WE WILL LOOK AT THE GROWTH DATA AND LABOR MARKET DATA AND MAKE AN OVERALL JUDGMENT. IT IS THE TOTALITY OF THE DATA. WITH A FOCUS ON MAKING PROGRESS ON INFLATION. REPORTER: LAST MONTH YOU SAID THERE ARE BENEFITS TO MODERATING THE INCREASES BECAUSE IT WOULD GIVE YOU BENEFIT TO MAKE DECISIONS. LIKE THE ONE WE SAW IN JUNE, WOULD IT ALLOW YOU TO SLOW THE PACE AND DIFFER UNTIL THE FALL UNTIL YOU NEED A SECOND RATE HIKE? >> I WILL TELL YOU WHAT WE WILL DO IN SEPTEMBER. WE LOOK AT TWO ADDITIONAL JOB REPORTS AND CPI REPORTS. A LOT OF ACTIVITY DATA. WE WILL MAKE THAT DECISION THEN. THEY COULD BE ANOTHER RATE HIKE IN SEPTEMBER OR MAINTAINING AT THAT LEVEL. THE QUESTION WE ASK OURSELVES IS THE OVERALL SIGNAL ONE THAT WE NEED TO DO MORE AND TIGHTEN FURTHER. IF THAT SIGNAL IS -- IF THAT IS A COLLECTIVE JUDGMENT OF THE COMMITTEE WE WILL MOVE FORWARD BUT IF WE DO NOT WE WILL MAINTAIN POLICY AT THAT LEVEL -- THAT IS AN OPTION. IT IS DEPENDENT ON THE DATA AND WE DO NOT HAVE IT YET. REPORTER: CHRIS ASSOCIATED PRESS. CONSUMER CONFIDENCE IN THE ECONOMY IS RISING. LIKELY IN A LARGE PART BECAUSE OF A DECLINE IN THE HEADLINE INFLATION. YOU ALSO SEE WAGES AND THEIR RISING ASKED HER THAN PRICES NOW. HOW MUCH ARE AMERICANS TRULY HARMED BY INFLATION AT ITS CURRENT LEVEL HEADLINE LEVEL OF 3%? WITH THAT IN MIND, WHEN YOU PULL BACK ON THE EMPLOYMENT SIDE OF THE DUAL MANDATE? >> FIRST, IT'S GOOD HEADLINE INFLATION HAS COME DOWN. IT ALMOST CREATES AND STRENGTHENS THE BROAD SENSE THE PUBLIC HAS BELIEVING INFLATION IS COMING DOWN AN INTERN THAT HELPS -- WE HOPE IT WILL HELP MOVE INFLATION DOWN. WHAT WAS YOUR QUESTION? REPORT: YOU TALKED HOW HARD THE INFLATION IS FOR PEOPLE SO HOW MUCH DO WE SEE THAT WITH INFLATION AT 3%? >> I WOULD SAY IT THIS WAY, IT IS A QUESTION OF HOW YOU BALANCE THE TWO RISKS OF DOING TOO MUCH OR TOO LITTLE. I WOULD SAY THAT WE ARE COMING TO A PLACE WHERE THERE ARE RISKS ON BOTH SIDES AND IT IS HARD TO SAY WHETHER THEY ARE IN BALANCE OR NOT. BUT WE DO CONSTANTLY FACE THAT RISK. WE NEED TO SEE THAT INFLATION IS DURABLY DOWN THAT FAR. WE THINK IN MOST ECONOMISTS THINK THAT COOLER INFLATION IS A BETTER SIGNAL OF WHERE HEADLINE INFLATION IS GOING. INFLATION IS AFFECTED GREATLY BY VOLATILE ENERGY AND MOOD PRICES. -- FOOD PRICES. WE WANT CORE INFLATION TO COME DOWN BECAUSE CORE IS SIGNALING OF WHERE WE MIGHT GO IN THE FUTURE. CORE INFLATION IS STILL PRETTY ELEVATED. THERE IS REASON TO THINK IT COULD COME DOWN BUT IT IS STILL QUITE ELEVATED AND WE STILL NEED TO STAY ON TASK AND WE THINK WE NEED TO HOLD CERTAINLY HOLD POLICY AT RESTRICTIVE LEVELS FOR SOME TIME. WE NEED TO BE PREPARED TO RAISE FURTHER IF WE THINK THAT IS APPROPRIATE. REPORTER: AND A QUICK FOLLOW-UP, IF INFLATION STAYS AT 3% OR DROPS MORE, HOW MUCH OF AN INCREASE IN AN LIMIT DO YOU THINK IS INSEPARABLE -- ACCEPTABLE TO GET THAT LAST BIT OF INFLATION PEOPLE ARE TALKING ABOUT WITH THE POTENTIAL DIFFICULTY OF THE SO-CALLED LAST MILE OF INFLATION? HOW MUCH UNEMPLOYMENT DO YOU THINK IS JUSTIFIED TO GET DOWN TO THAT LAST PART? >> IT IS A POSITIVE THING. THE EMPLOYMENT RATE IS THE SAME AS IT WAS AT 3.6% LAST MONTH. WE HAVE BEEN ABLE TO ACHIEVE SOME DISINFLATION AND WE DO NOT SEEK TO. WE ARE NOT AIMING TO RAISE UNEMPLOYMENT BUT WE HAVE TO BE HONEST ABOUT THE HISTORICAL RECORD. IN THE RESULT SEEMS TO BE SOFTENING OF THE MARKET CONDITIONS. THAT IS LIKELY HERE. WE HOPE THAT IS AS LITTLE AS POSSIBLE BUT THAT IS THE LIKELY OUTCOME. THE WORSE OUTCOME FOR EVERYONE WOULD BE NOT TO DEAL WITH INFLATION NOW, NOT GET IT DONE. WHATEVER THE SHORT-TERM SOCIAL COST OF GETTING INFLATION DONE THE LONG-TERM COST OF FAILING TO DO SO ARE GREATER. THE HISTORICAL RECORD IS CLEAR ON THAT. IF YOU GO THROUGH A PERIOD OF EXPECTATIONS WHERE IT IS NOT ANCHORED, IT INTERFERES WITH PEOPLE'S LIVES AND ECONOMIC ACTIVITY. THAT IS THE THING WE REALLY NEED TO AVOID. REPORTER: AT THIS POINT YOU SAY THE POLICY IS RESTRICTIVE, ALL YEAR LONG WE HAVE SEEN GROWTH RISE TO THE UPSIDE. UNEMPLOYMENT TO THE DOWNSIDE AND INFLATION LATELY TO BE DOWNSIDE. I AM WONDERING, BY DEFINITION, SHOULD YOU BE RESTRICTED BEEN ENOUGH RIGHT OUT UNDER THESE CONDITIONS? DO YOU THINK YOU MIGHT NEED TO DO MORE? I'M CURIOUS WHAT YOU SEE AS FAR AS INFLATION DYNAMICS IS THE ECONOMY STILL MOVING IN A DIRECTION WHERE IT CREATES MORE INFLATION? PEOPLE TALK ABOUT PACE AFFECTS AND HIGHER ENERGY CROSSED -- COST AND HOW WE HAVE LARGE LABOR SETTLEMENTS. OR IS THE ECONOMY DOES INFLATING -- THIS INFLATING -- DEFLATING? >> THE BROADER PICTURE OF WHAT WE WANT TO SEE IS WE SEE EASING OF SUPPLY CONSTRAINT AND NORMALIZATION OF PANDEMIC RELATED DISTORTIONS TO DEMAND AND SUPPLY. WE WANT TO SEE ECONOMIC WROTE RUNNING AT MODERATE OR HONEST LEVELS. WE WANT TO SEE SUPPLY AND DEMAND BALANCE IN THE LABOR MARKET. THAT SHOULD LEAD TO DECLINE OF INFLATION PRESSURE. WE ARE SEEING PIECES OF THE PUZZLE COMING TOGETHER BUT POLICY HAS NOT: RESTRICTIVE ENOUGH FOR LONG ABOUT TO HAVE ITS FULL DESIRED EFFECT. -- WE THINK THE PROCESS STILL PROBABLY HAS A LONG WAY TO GO TO REACH OUR 2% TARGET. REPORTER: DO YOU THINK UNDERCURRENT CONDITIONS YOU ARE RESTRICTIVE ENOUGH UNLESS SOMETHING CHANGES? >> WE THINK TODAY'S RATE HIKE WAS APPROPRIATE AND I THINK WE WILL LOOK AT THE INCOMING DATA TO INFORM OUR DECISION OF THE NEXT MEETING ABOUT IF THE INCOMING DATA IS TELLING US TO DO MORE AND IF THAT TELLS US THAT COLLECTIVELY THEN WE WILL DO IT. REPORTER: KOBY SMITH OF THE FINANCIAL TIMES. IF SEPTEMBER IS A LIVE MEETING HOW DOES THAT SQUARE WITH THE NEED OF A GRADUAL TIGHTENING PACE THAT YOU SPOKE OF LAST MONTH. >> A MORE GRADUAL PACE DOES NOT GO TO EVERY OTHER MEETING. HE COULD BE TWO OUT OF THREE MEETINGS. IT IS SLOWING DOWN. THE POINT WAS TO SLOW DOWN THE DECISION CYCLE AS WE GET CLOSER AND CLOSER TO OUR DESTINATION. I WOULDN'T WANT TO GO AUTOMATICALLY TO EVERY OTHER MEETING BECAUSE I DON'T THINK THAT -- I THINK IT IS NOT AN ENVIRONMENT WHERE WE HAVE A LOT OF FORWARD GUIDANCE. THERE'S A LOT OF UNCERTAINTY OUT THERE. AND WE WANT TO KEEP MOVING AND WHAT WE THINK IS RIGHT PACE. IT MAKES ALL THE SINS AND THE WORLD TO SLOW DOWN AS WE MAKE THE FINAL JUDGED DECISIONS. IT IS POSSIBLE, I MENTIONED BEFORE IT IS POSSIBLE WE MOVED TO CONSECUTIVE MEETINGS SO WERE NOT TAKING THAT OFF A TABLE OR WE MIGHT NOT. IT DEPENDS ON WHAT THE DATA TELLS US. REPORTER: WE SHOULD NOT ASSUME EVERY OTHER MEETING IS THE LOWEST TIGHTENING FREQUENCY. IT BE LONGER INTERVALS IN BETWEEN AS WELL? >> I THINK WE WILL MAKE A DECISION ABOUT THE NEXT MEETING ON THE ONE AFTER THAT. I THINK IT WILL SORT ITSELF OUT. REPORTER: HOWARD SCHNEIDER -- PEOPLE OF SEVEN THEY FEEL VERY LITTLE TRANSMISSION HAS TAKEN PLACE FOR MONETARY POLICY IN THE ECONOMY AND THERE ARE THOSE THAT FEEL IT HAS HAPPEN FAST. WHERE ARE YOU ON THAT CONTINUUM? >> THERE IS A LONG-RUNNING DEBATE ABOUT THE LAG BETWEEN CHANGES IN FINANCIAL CONDITIONS AND A RESPONSE TO THE CHANGES FROM ECONOMIC ACTIVITY. WE KNOW WHEN THE MODERATE ERA FINANCIAL CONDITIONS MOVE IN ANTICIPATION OF OUR DECISIONS. THAT HAS BEEN THE CASE FOR THE CYCLES OF THE CLARK -- THE CLOCK STARTS EARLIER. THAT IS THE EXPECTATION WE HAVE. WE KNOW THE FINANCIAL -- HAS A LAG BIG CAN BE LONG AND VARIABLE. A LOT OF UNCERTAINTY AROUND THE LINK OF THE LAGS AND THAT IS ONE POINT OF THE BROAD UNCERTAINTY WE FACE. THE FIRST THING I WOULD SAY WE ARE DETERMINED TO BRING INFLATION DOWN TO 2%. WE WILL USE THE TOOLS TO DO THAT. BUT LOOK AT IT THIS WAY, THE REAL FEDERAL FUNDS RATE IS A MEANINGFULLY POSITIVE TERRITORY. IF IT AT THE RATE AND SUBTRACT -- YOU GET THE REAL FEDERAL FUNDS RATE WHICH IS WELL OVER THE LONG-TERM INTEREST RATE. I WAS A MONETARY POLICY IS RESTRICTIVE AFTER TODAY'S DECISION. MEANING IT IS PUTTING DOWNWARD PRESSURE ON ECONOMIC ACTIVITY AND INFLATION. WE KEEP MONETARY POLICY RESTRICTIVE INTO WE THINK IT IS NOT APPROPRIATE TO DO SO. THAT IS HOW I THINK ABOUT IT. IF A SUMMIT UP, I WOULD SAY WE HAVE COME A LONG WAY AND WE ARE COMMITTED TO RETURNING INFLATION TO OUR 2% GOAL OVER TIME. AT SOME POINT THIS MAY CHANGE, WE HAVE TO BE READY TO FOLLOW THE DATA AND GIVEN HOW FOUR-WEEK HAVE COME WE CAN AFFORD TO BE PATIENT AND RESOLUTE AS WE LET THIS UNFOLD. REPORTER: ON THE CREDIT SIDE I'M WONDERING IF YOU HAVE SEEN ANYTHING THAT WOULD GIVE YOU A QUANTUM OF CONTRACTION. THEY ARE HEADING BELOW ZERO WHICH IS USUALLY AN INFLATION INDICATOR. >> THE DATA WILL COME OUT EARLY NEXT WEEK AND IT IS BROADLY IN CONDITION CONSISTENT WITH WHAT YOU EXPECT. CONDITIONS ARE TIGHT AND A LITTLE BIT TIGHTER AND WEAK DEMAND. AS A PICTURE OF TIGHT CREDIT CONDITIONS IN THE ECONOMY. IT WAS HARD TO SAY HOW MUCH IS FOR THIS SOURCE OR THAT SOURCE BUT THE OVERALL PICTURE IS TIGHTENING OF LENDING CONDITIONS. THAT IS WHAT THIS SAYS. REPORTER: RACHEL SIEGEL FROM THE WASHINGTON POST. ENKE FOR TAKING OUR QUESTIONS. -- THANK YOU FOR TAKING OUR QUESTIONS. -- GOOD TO BREAK DOWN THE FACTORS OF RATE HIKES FOR THE ONES THAT ARE NOT IN YOUR CONTROL IT ALL LIKE THE ENERGY PRICE HIKES OVER THE PAST YEAR? >> INTERESTING QUESTION. THE INFLATION SURGE WE SAW IN THE PANDEMIC RESULTED IN A COLLISION FROM ELEVATED DEMAND AND CONSTRAINTS APPLY -- CONSTRAINTS APPLY WHICH STEMMED FROM THE PANDEMIC. WE ALWAYS EXPECTED THE DISINFLATIONARY COST WOULD STEMMED FROM THE PANDEMIC AND RESTRICTIVE MONETARY POLICY WHICH WOULD RESTRAIN DEMAND. WE THINK BROADLY THAT IS WHAT WE SEE. TO BREAK IT DOWN FURTHER, HEADLINE INFLATION HAS COME DOWN SHARPLY FROM ELEVATED LEVELS. ENERGY PRICES HAVE COME DOWN MOSTLY FROM THE WAR EFFECTS IN UKRAINE. THAT IS A GOOD THING. THE PUBLIC EXPERIENCES THAT. WITH CORE INFLATION, THERE HAS BEEN A ROLE FOR BOTH FACTORS THAT I MENTIONED. CLEARLY, FOR GOOD NORMALIZATION OF SUPPLY CONDITIONS IS A PRIMARY ROLE AS WELL AS THE BEGINNING OF THE REVERSAL OF THE SPINNING BACK INTO SERVICES GOING FROM GOODS. AND THE CULMINATION OF AN INCREASE OF SALES INVENTORIES WHILE VEHICLE INFLATION HAS DECELERATED POINTS TO A SUBSTANTIAL NEED FOR SUPPLY BUT THERE IS ALSO ROOM FOR DEMAND AS LOANS ARE MORE EXPENSIVE. HOUSING SERVICES AND INFLATION START TO MOVE DOWN CLEARLY HIGHER RATES HAVE SLOWED THE HOUSING MARKET. I WOULD SAY MONETARY POLICY IS WORKING ABOUT AS WE EXPECT. WE THINK WE PLAY AN IMPORTANT ROLE GOING FORWARD IN ON HOUSING SERVICES WHERE WE REALLY THINK THAT IS WHERE THE LABOR MARKET WILL COME IN AND THAT'S A VERY IMPORTANT FACTOR. WE THINK BOTH OF THOSE SOURCES OF DISINFLATION ARE PLAYING AN IMPORTANT ROLE. REPORTER: DO YOU THINK WITH THOSE TWO SOURCES THAT CORPORATE ROLLOVER FROM THE RATE HIKES OR IS THERE A MORE EVEN SPLIT THEY ARE? >> I THINK MONETARY POLICY WILL BE IMPORTANT GOING FORWARD. WE ARE REAPING THE BENEFITS NOW OF THE REVERSAL OF SOME OF THE VERY SPECIFIC PANDEMIC THINGS WE ARE SEEING WITH GOODS IN PARTICULAR AND FOOD SUPPLY CHAIN AND SHORTAGES. I THINK GOING FORWARD MONETARY POLICY WILL BE -- IN THAT NON-HOUSING SERVICES SECTOR. >> THANK YOU. LET ME COME LIMIT YOUR CHOICE OF TIME. SO, THANK YOU FOR TAKING OUR QUESTIONS. INPUT COST PRESSURE REMAIN ELEVATED FOR THE SERVICES FORMED. MANUFACTURING SECTOR, IS THAT IN INDICATION THAT THERE IS A WAGE INFLATION PRESSURE? HOW DO YOU TARGET THE PRESSURE ON THE WAGE INFLATION WITHOUT PUSHING THE ECONOMY INTO A RECESSION? >> AS IT RELATES TO GOODS, IT IS AN INDICATION THAT THE SUPPLY CHAIN AND SHORTAGES ARE EASING. WITH THE FIRST PART ABOUT -- REPORTER: WITH WAGE INFLATION HOW DO YOU TARGET WAGE INFLATION WITHOUT PUSHING THE ECONOMY INTO A RECESSION? >> I DON'T THINK WE ARE TARGETING WAGE INFLATION. I THINK WHAT WE ARE LOOKING FOR IS A BROAD COOLING IN THE LABOR MARKET CONDITIONS. THAT IS WHAT WE ARE SEEING AREA WAGES HAVE ACTUALLY BEEN GRADUALLY MOVING DOWN. THEY ARE STILL AT LEVELS THAT WOULD BE CONSISTENT OVER A LONG PERIOD OF TIME WITH 2% INFLATION, NONETHELESS, WE ARE MAKING PROGRESS. BY SO MANY INDICATORS, LABOR MARKET DEMAND IS COOLING. YOU CAN LOOK AT SURVEYS, IS THIS IS THAT SAY THAT. HE CAN LOOK AT THE QUITS RATE NORMALIZING AND THE JOB OPENINGS COMING DOWN. YOU CAN LOOK AT JOB CREATION IN THE ESTABLISHMENT SURVEY AND IT IS STILL AT A HIGH LEVEL, BUT IT WAS EDITED -- AT AN EXTRAORDINARILY HIGH LEVEL FOR THE LAST TWO YEARS. YOU SEE A COOLING IN THE PRIVATE SECTOR IN THE LAST REPORT. I THINK WE SEE THAT AND IT IS HAPPENING AT A GRADUAL PACE. THAT IS ACTUALLY NOT A BAD THING IN A SENSE BECAUSE IF WHAT WE SEE IS THE LABOR MARKET -- VERY STRONG DEMAND FOR LABOR WHICH IS REALLY THE INTERIM -- ENGINE OF THE ECONOMY MANY PEOPLE ARE GETTING HIRED AND GOING BACK TO WORK. GETTING WAGES AND SPENDING MONEY. THAT IS WHAT IS DRIVING THE ECONOMY BUT IT IS GRADUALLY SLOWING AND COOLING. THAT IS A GOOD PRESCRIPTION TO GET WHERE WE WANT TO GET. REPORTER: THERE'S A LOT OF UNIONS ON STRIKE. THE COMMON THING IS THEY COME OUT WITH AGREEMENTS LIKE PIT -- BIG PAY AGREEMENTS. ARE YOU CONCERNED ABOUT A SERIES OF BIG UNIONS IN THE CONTRACT PUSHING WAGE INFLATION? >> NOT FOR US TO COMMENT ON CONTRACT NEGOTIATIONS. NOT OUR JOB. WE MONITOR THESE THINGS AND WE WILL KEEP AN EYE ON IT BUT REALLY THAT IS SOMETHING THAT IS HANDLED AT A DIFFERENT LEVEL. REPORTER: VICTORIA GUIDO FOE -- FROM POLITICO. I WANT TO ASK ABOUT THE SEP THAT SUGGEST YOU WOULD CUT RATES WHEN OVERALL CORE PCE GET UNDER 3%. I'M WONDERING IF THE LEVEL OF INFLATION -- WHAT IS IMPORTANT THERE AND THINK ABOUT GETTING TO 2% WHEN YOU START CUTTING RATES. OR THE SPEED IN WHICH INFLATION IS FALLING IS THAT ALSO IMPORTANT? >> YOU ALL THE -- YOU TAKE BOTH INTO ACCOUNT. YOU TAKE EVERYTHING INTO ACCOUNT. IT WOULD COUNT ON A WIDE RANGE OF THINGS. PEOPLE WITH RATE CUTS NEXT YEAR -- IT IS JUST A SENSE THAT INFLATION IS COMING DOWN AND WE ARE COMFORTABLE IT IS COMING DOWN AND IT IS TIME TO START CUTTING RATES. BUT I THINK, THERE IS A LOT OF UNCERTAINTY BETWEEN WHAT HAPPENS IN THE NEXT MEETING CYCLE AND THE NEXT YEAR AND LET ALONE THE YEAR AFTER THAT. SO IT IS HARD TO SAY EXACTLY WHAT HAPPENS THEY ARE. >> IF IT STUBBORNLY, IN THE HIGH TUESDAY WOULD NOT NECESSARILY COVER THAT? >> I AM NOT SAYING THAT IT ALL I'M NOT GIVING YOU MIRACLE GUIDANCE ON THAT. WE WOULD BE COMFORTABLE CUTTING RATES WHEN WE ARE COMFORTABLE CUTTING RATES AND I DO NOT THINK THAT WOULD BE THIS YEAR, MANY PEOPLE WROTE DOWN RATE CUTS FOR NEXT YEAR AND THE MEETING WAS SEVERAL FOR NEXT YEAR. I THINK THAT IS GOING TO BE A JUDGMENT WE MAKE THEN A FULL YEAR FROM NOW. IT WILL BE ABOUT HOW CONFIDENT WE ARE THAT INFLATION IS IN FACT COMING DOWN TO OUR 2% GOAL. REPORTER: A GOOD PART OF WALL STREET HAS BECOME MORE CONFIDENT THAT THE FED IS GOING TO BE ABLE TO ENGINEER A SOFT LANDING. THEY HAVE REDUCED THEIR FORECAST FOR A RECESSION AND I AM WONDERING IF A -- THE STAFF HAS CHANGED ITS VIEW ON THE LIKELIHOOD OF A RECESSION AND IF YOU PERSONALLY HAVE CHANGED YOUR VIEW IN TERMS OF BECOMING MORE CONFIDENT THAT YOU CAN ACHIEVE A SOFT LANDING. >> SO, IT HAS BEEN MY VIEW CONSISTENTLY THAT WE DO HAVE A SHOT. MY BASE CASE IS THAT WE WILL BE ABLE TO ACHIEVE INFLATION MOVING BACK DOWN TO OUR TARGET WITHOUT A DECLINE OF SIGNIFICANT DOWNTURN THAT RESULTS IN HIGH LEVELS OF JOB LOSSES THAT WE HAVE SEEN IN SOME PAST INSTANCES. MANY PAST INSTANCES OF TIGHTENING THAT LOOK LIKE OURS. THAT HAS BEEN MY VIEW AND THAT IS STILL MY VIEW. I THINK THAT IS SORT OF CONSISTENT WITH WHAT I SEE TODAY. IT IS A LONG WAY FROM ASSURED AND WE HAVE A LONG WAY -- A LOT LEFT TO SEE IF THAT WILL HAPPEN. THE STAFF HAS A NOTICEABLE SLOWDOWN IN GROWTH STARTING LATER THIS YEAR WITH THE FORECAST. GIVEN THE RESILIENCE OF THE ECONOMY RECENTLY THEY ARE NO LONGER FORECASTING A RECESSION. I JUST WANT TO NOTE THAT OUR STAFF PRODUCES ITS OWN FORECAST WHICH IS INDEPENDENT OF A FORECAST THAT WE AS AN FOMC PARTICIPANTS PRODUCE. HAVING INDEPENDENT STAFF FORECAST AS WELL AS THE INDIVIDUAL PARTICIPANT FORECAST IS A STRENGTH OF OUR PROCESS. IT GIVES US A LOT OF I THINK CONSTRUCTIVE DIVERSITY OF OPINION THAT HELPS US MAKE -- HELPS INFORM OUR DELIBERATIONS AND HELPS US HOPE I MAKE -- HELPS US I HOPE MAKE BETTER DECISIONS. REPORTER: IS IT THE CASE THAT LABOR HAS COME DOWN AND -- INFLATION HAS COME DOWN AND LABOR IS STILL STRONG DOES THAT STILL LEAD TO THE OPTIMISM? >> I WOULD NOT SAY OPTIMISM YET BUT I WOULD SAY THERE IS A PATHWAY. YES, THAT IS A GOOD WAY TO THINK ABOUT IT. WE HAVE SEEN SO FAR DISINFLATION WITHOUT ANY REAL COST IN THE LABOR MARKET. THAT IS A REALLY GOOD THING. I WOULD JUST ALSO SAY THE HISTORICAL RECORD SUGGESTS IT IS LIKELY TO BE SOME SOFTENING IN THE LABOR MARKET CONDITIONS. CONSISTENT WITH HAVING TO SOFT LANDING, YOU WOULD HAVE SOME SOFTENING IN LABOR MARKET CONDITIONS. THAT IS STILL LIKELY AS WE GO FORWARD WITH THIS PROCESS. IT IS A GOOD THING TODAY THAT WE HAVE NOT REALLY SEEN THAT. WE SEE SOFTENING THROUGH -- NOT THROUGH UNEMPLOYMENT, BUT WE SEE IT THROUGH JOB OPENINGS COMING DOWN PART OF THE WAY BACK TO MORE NORMAL LEVELS. THE QUITS RATE PEOPLE ARE NOT QUITTING AS MUCH. WE HAVE SEEN PARTICIPATION AND PEOPLE COMING IN AND LABOR SUPPLY HAS IMPROVED WHICH IS LOWERING THE TEMPERATURE IN THE LABOR MARKET WHICH IS QUITE OVERHEATED GOING BACK A YEAR OR SO. WE ARE SEEING THAT KIND OF COOLING AND WE HOPE IT CONTINUES. REPORTER: THANK YOU CHAIRMAN -- YOU AND OTHER FAIR -- FED OFFICIALS HAVE SUGGESTED THAT YOU DO NOT NEED TO KEEP HIKING UNTIL INFLATION ISN'T 2%. I AM WONDERING HOW CLOSE WE NEED TO GET TO THE INFLATION NUMBERS COMING DOWN. HOW MANY MONTHS OF DATA DO YOU NEED TO SEE THAT WILL GIVE YOU SUFFICIENT CONFIDENCE? HOW FAR DOES THIS FIGHT NEED TO GO BEFORE YOU ARE WILLING TO DECLARED VICTORY ON IT? >> THE IDEA THAT WE WOULD KEEP HIKING UNTIL INFLATION GETS TO 2% WOULD BE A PRESCRIPTION OF GOING WAY PAST THE TARGET. IT IS NOT THE APPROPRIATE WAY TO THINK ABOUT IT. IN EFFECT, IF YOU LOOK AT THE FORECAST, THE MEETING PARTICIPANT -- VISA FORECASTING OUT A YEAR TAKE IT WITH A GRAIN OF SALT. PEOPLE ARE CUTTING RATES NEXT YEAR BECAUSE THE FEDERAL FUNDS RATE IS AT A RESTRICTIVE LEVEL. SO IF WE SEE THEM PLACING COMING DOWN CREDIBLY, SUSTAINABLY, THEN WE DO NOT NEED TO BE AT A RESTRICTIVE LEVEL ANYMORE. WE CAN MOVE BACK TO A NEUTRAL LEVEL. AND BELOW A NEUTRAL LEVEL AT A CERTAIN POINT. I THINK WE OF COURSE WOULD BE VERY CAREFUL ABOUT THAT. WE WANT TO BE SURE THAT INFLATION IS COMING DOWN SUSTAINABLY. IT IS HARD TO MAKE -- I WILL NOT TRY TO MAKE A NUMERICAL ASSESSMENT OF WHERE THAT WILL BE A THAT IS THE WAY I THINK ABOUT IT. YOU WOULD STOP RAISING LONG BEFORE YOU GOT TO 2% INFLATION. HE WOULD START CUTTING BEFORE YOU GOT TO 2% INFLATION AS WELL BECAUSE WE DO NOT SEE OURSELVES ADDING TO 2% INFLATION UNTIL 2025 OR SO. REPORTER: THANK YOU JENNIFER WITH YAHOO! FINANCE. IT'S BEEN OVER FOUR MONTHS SINCE A HANDFUL OF REGIONAL BANKS INCLUDING SILICON VALLEY BANK FAILED. WHEN YOU LOOK AT THE CREDIT CONDITIONS NOW GIVEN THE BANK OF CALIFORNIA ACQUISITION OF PAC WEST DOES IS ACQUISITION SUGGEST THE FULL IMPACT IS NOT BEEN FELT . ARE YOU COMFORTABLE SAYING THAT WE CAN SEE MOST OF THE RIPPLE EFFECTS THAT HAVE OCCURRED AT THIS POINT. HOW DOES THIS LAY INTO YOUR OUTLOOK FOR POLICY? >> I DID NOT WANT TO COMMENT ON ANY PARTICULAR MERGER PROPOSAL BUT I WILL SAY THINGS HAVE SETTLED DOWN FOR SURE OUT THERE. CAPITAL AND LIQUIDITY REMAIN STRONG, BANK LENDING IS STABLE QUARTER OVER QUARTER IT IS UP SIGNIFICANTLY YEAR-OVER-YEAR, THE BANK SECTOR PROFITS ARE COMING IN STRONGER THIS QUARTER AND OVERALL THE SYSTEM REMAIN STRONG AND RESILIENT. WE ARE STILL WATCHING THE SITUATION CAREFULLY. AND WE ARE MONITORING THE CONDITIONS IN THE BANKING SECTOR. IN TERMS OF THE ACTUAL EFFECT ON -- IF YOU THINK OF A PARTICULAR SET OF BANKS THAT WERE EFFECTIVE BECAUSE OF THEIR SIZE AND BUSINESS MODEL, THINGS LIKE THAT, THEY WERE MORE AFFECTED BY THE TURMOIL IN MARCH. WITH OTHERS WE -- IT IS HARD TO TEASE OUT THE EFFECTS ON THIS ECONOMY OF OURS ON THEM TIGHTENING. THEY MAY BE TIGHTENING A LITTLE MORE THAN OTHER BANKS. FOR MORE THAN A YEAR, THE SLOUGHS HAVE BEEN TELLING US THAT BANKING CONDITIONS ARE TIGHTENING. THAT WILL RESTRAIN ECONOMIC GROWTH. I THINK WE HAVE TO TAKE A STEP BACK FROM IT. I DO NOT THINK WE CAN SEPARATE THOSE ANYMORE. I THINK A SICKLY WE ARE LOOKING AT THE OVERALL PICTURE -- BASICALLY WE ARE LOOKING AT THE OVERALL PICTURE -- AND THAT IS RESTRAINING ECONOMIC ACTIVITY. REPORTER: HOW IS THAT INFORMING YOUR OUTLOOK FOR POLICY? CLICK STATUS AND EXPECTED RESULT WITH TIGHTENING INTEREST RATE POLICY. BANK CREDIT CONDITIONS AND BANK LENDING CONDITIONS WILL TIGHTEN AS WELL. THE QUESTION IS, IS IT MORE EFFECTIVE THIS TIME BECAUSE OF WHAT HAPPENED IN MADE? I DID NOT KNOW THAT -- IN MAY? I DO NOT KNOW THAT. WE LOOK AT GDP DATA AND WE SEE STRONG SPENDING AND A STRONG ECONOMY AND IT MADE IS CONFIDENT THAT WE CAN GO AHEAD AND RAISE INTEREST RATES NOW FOR THE THIRD TIME SINCE MARGINS. AND IT SEEMS LIKE THE ECONOMY IS WEATHERING THIS WELL, BUT OF COURSE WE ARE WATCHING IT CAREFULLY. WE EXPECT TO CONTINUE TO DO THAT. REPORTER: THANK YOU FOR TAKING THIS QUESTION. -- I WONDERED ON WAGES IF YOU ARE ALL CONCERNED ABOUT INFLATIONARY IMPACT OF WAGES OUTPACING ELATION. IT IS LIKELY CONTRIBUTING TO CONSUMER SENTIMENT AND THE STRENGTH OF THE CONSUMER THAT WE HAVE BEEN SEEING. >> WAGES IN EXCESS OF INFLATION MEAN REAL WAGES ARE POSITIVE. THAT IS A GREAT THING. WE WANT THAT AND WE WANT PEOPLE TO HAVE REAL WAGES BUT IT IS GOING UP TO A LEVEL THAT IS CONSISTENT WITH 2% INFLATION OVER TIME. NOMINAL WAGES HAVE BEEN COMING DOWN GRADUALLY AND THAT IS WHAT WE WANT TO SEE. WE EXPECT TO SEE MORE OF THAT. IT IS MORE OF WHAT IS CONSISTENT OVER A LONG PERIOD OF TIME. WE DID NOT REALLY THINK THAT WAGES ARE AN IMPORTANT CAUSE OF INFLATION IN THE FIRST YEAR OR SO OF THE OUTBREAK BUT I WOULD SAY WAGES ARE PROBABLY AN IMPORTANT ISSUE GOING FORWARD. LABOR MARKET CONDITIONS BROADLY ARE GOING TO BE AN IMPORTANT PART OF GETTING INFLATION BACK DOWN. THAT IS WHY WE NEED FURTHER SOFTENING IN THE LABOR MARKET CONDITIONS. >> YOU MENTIONED AT THE START HOW YOU ARE KEEPING AN EYE ON CONSUMER ACTIVITY AND THE REBOUND THEY ARE. I AM CURIOUS WITH THE FED'S EXPLANATION -- WHAT IT WOULD BE WITH FAMILIES IF INTEREST RATES STARTED TO HIT. AND DRIVING THE SENTIMENT BACK DOWN. WHAT IS THE MESSAGE OF WHY YOU CONTINUE TO KEEP RATES ELEVATED TO RAISE THEM? >> WE HAVE A JOB ASSIGNED TO US BY PROGRESS -- CONGRESS TO GET INFLATION UNDER CONTROL. WE THINK THE SINGLE MOST IMPORTANT THING TO DO TO BENEFIT THE VERY FAMILIES AND FAMILIES AT THE LOWER INCOME OF THE SPECTRUM IS TO GET INFLATION SUSTAINABLY UNDER CONTROL AND RESTORE PRICE STABILITY. WE THINK THAT IS THE MOST IMPORTANT THING WE CAN DO NOW AND WE ARE DETERMINED TO DO THAT. I WOULD JUST WE NOW, THE PEOPLE WHO ARE MOST HURT BY INFLATION RIGHT AWAY ARE PEOPLE WHO WERE ON A LOW FIXED INCOME WHO, WHEN YOU TALK ABOUT TRAVEL, TRANSPORTATION COSTS, EATING COSTS, CLOTHING, FOOD, THINGS LIKE THAT. IF YOU'RE JUST MAKING IT THROUGH EACH MONTH ON YOUR PAYCHECK AND THE PRICES GO UP YOU'RE IN TROUBLE RIGHT AWAY. THE MIDDLE-CLASS PEOPLE HAVE SOME RESOURCES AND CAN ABSORB INFLATION. PEOPLE ON THE LOWER INCOME OF THE SPECTRUM -- LOWER INCOME SPECTRUM HAVE A HARDER TIME DOING THAT. WE NEED TO GET THIS DONE IN THE RECORD IS CLEAR THAT IF WE TAKE TOO LONG OR IF WE DO NOT SUCCEED THAT THE PAIN WILL ONLY BE GREATER. THAT IS HOW I WOULD EXPLAIN WHAT WE ARE DOING. REPORTER: THANK YOU CHAIR POWELL, -- WITH THE ECONOMIST. YOU SAID LAST MONTH THIS MEETING THIS WEEK WAS GOING TO BE ALIVE ONE IN THE EVENT THAT THE MARKET HAS A 99% PROBABILITY TO THE RIGHT MOVE YOU ANNOUNCED TODAY. THE DECISION IS UNANIMOUS OF COURSE. THE STATE IS BASICALLY UNCHANGED FROM LAST MONTH. MAY I ASK, TO WHAT EXTENT WAS THE MEETING ACTUALLY A LIVE ONE? ARE THERE ANY DOUBT OVER THE PAST TWO DAYS OF WHAT THE DECISION WAS ACTUALLY GOING TO BE? >> WAS THERE DOUBT? I WOULD SAY THERE IS A RANGE OF VIEWS ON THE COMMITTEE. WHEN YOU SEE THE MINUTES YOU WILL SEE THAT. THERE IS A RANGE OF VIEWS OF WHAT WE SHOULD DO THIS MEETING ON THE NEXT. WHEN WE GO INTO A MEETING THE DECISION IS NOT FUNDAMENTALLY IN DOUBT NONETHELESS WE HAVE THE MEETING. SOME MEETINGS ARE LESS UNCERTAIN THAN OTHERS AND I WILL JUST LEAVE IT AT THAT. REPORTER: EVAN REISER MARKET NEWS INTERNATIONAL. THANK YOU. FINANCIAL CONDITIONS HAVE BEEN LOOSENING AT A FAIRLY STEADY CLIP IN RECENT WEEKS. THE DOLLAR IN THE STOCK MARKET ETC. WHAT IS IT MEAN FOR THE FED MAKING SURE INFLATION WILL COME DOWN TO TARGET? >> WE MONITOR FINANCIAL CONDITIONS, BROAD FINANCIAL CONDITIONS YOU ARE RIGHT IT IS THE DOLLAR IN EQUITIES BUT WE ARE VERY FOCUSED ON RATES AND POLICY. WE WILL, WE ARE GOING TO USE OUR POLICY TOOLS TO WORK THROUGH FINANCIAL CONDITIONS TO GET INFLATION UNDER CONTROL. THE IMPLICATION IS WE WILL DO WHAT IT TAKES TO GET INFLATION DOWN. THE PRINCIPAL -- IN PRINCIPLE, THAT COULD MEAN IF FINANCIAL CONDITIONS GET LOOSER WE HAVE TO DO MORE BUT WHAT TENDS TO HAPPEN IS WHEN FINANCIAL CONDITIONS GET OUT OF LINE WITH WHAT WE ARE DOING, OVER TIME WE KNOW WHERE WE NEED TO GO. REPORTER: WHEN I CAN -- I -- DO YOU EXPECT THE FED TO CUT NOMINAL RATES NEXT YEAR WHILE CONTINUING QT? >> THAT COULD HAPPEN. THE QUESTION IS IS THAT CONSISTENT WITH -- YOU THINK ABOUT THEM BOTH AS NORMALIZATION. IMAGINE A WORLD WHERE THINGS ARE OK AND IT IS TIME TO BRING RATES DOWN FROM WHAT OUR RESTRICTIVE LEVELS TO MORE NORMAL LEVELS -- MORE -- NORMALIZATION IN CASE OF THE BALANCE SHEET WOULD BE TO REDUCE QT. IF YOU WERE TO CONTINUE HAD, DEPENDING ON WHERE YOU ARE THE CYCLE, THERE ARE TWO INDEPENDENT THINGS. THE ACTIVE TOOL MONETARY POLICY IS RATES. YOU CAN IMAGINE CIRCUMSTANCES IN WHICH WILL BE APPROPRIATE TO HAVE THEM WORKING AND WHAT MIGHT BE SEEN TO BE DIFFERENT WAYS. IF THAT WOULD NOT BE THE CASE. REPORTER: THANKS CHAIR POWELL, KYLE CAMPBELL FROM EVAN BANKER. I HAVE A QUESTION ABOUT THE DISCOUNT WINDOW. I AM WONDERING SINCE THE BANK FAILURES OF THE SPRING IF YOU HAVE SEEN SIGNS THAT THE BANKS HAVE TAKEN STEPS TO BE MORE PROACTIVE IN ENSURING THE RATE USES THE FACILITIES THEY NEED TO. DO YOU HAVE ANY THOUGHTS ON WHETHER POLICIES MIGHT BE APPROPRIATE FOR MAKING SURE THE BANKS TEST REGULARLY TO SHOW THAT THEY ARE PREPARED TO USE IT? >> THAT IS A VERY IMPORTANT THING. YES, YES TO BOTH SIDES OF THAT. YES, THE BANKS ARE NOW WORKING TO SEE THAT THEY ARE READY TO USE THE DISCOUNT WINDOW. WE ARE STRONGLY ENCOURAGING THEM TO DO THAT. BANKS BROADLY. WE DID FIND AS YOU KNOW DURING THE EVENT OF MARCH THAT IT IS A LITTLE CLUNKIER AND NOT AS QUICK AS IT NEEDS TO BE SOMETIMES. SO YOU WHY NOT BE IN A SITUATION WHERE YOU ARE MUCH MORE READY IN CASE YOU NEED TO ACCESS THIS. REPORTER: MR. CHAIRMAN, MARK CAMERON -- I SPOKE AS SHE TALKED IN THE PAST ABOUT GETTING THE HOUSING MARKET BACK IN BETTER BALANCE. EXCUSE ME AND THAT THE MARKET MIGHT BOTTOM. WHERE DO YOU SEE THE SITUATION AND BALANCE OR LACK THEREOF RIGHT NOW PARTICULARLY WITH THE RESTRAINT AND CONSTRAINT OF INVENTORY OF EXISTING HOMES THAT MIGHT OTHERWISE BE COMING ONTO THE MARKET AT A TIME WHERE EXISTING HOMEOWNERS ARE RELUCTANT TO MOVE. AND ALL OF THAT HAPPENING WITH THE 30 YEAR FIXED RATE MORTGAGE AROUND 7% ON THE HEELS OF FED TIGHTENING. WITH WHAT YOU ARE TALKING ABOUT TIGHTENING IN THE LENDING STANDARDS. ARE WE CLOSER TO BALANCE OR FARTHER AWAY? WHAT IS YOUR SENSE RUSSIAN MARK >> I THINK WE -- WHAT IS YOUR SENSE? >> I THINK WE HAVE A WAYS TO GO WITH THE REASONS YOU TALKED ABOUT. I THINK THERE ARE PEOPLE WITH LOW WAGES THAT IN A NORMAL SITUATION THEY MAY WANT TO SELL AND THEY ARE NOT GOING TO BECAUSE THEY HAVE SO MUCH VALUE IN THEIR MORTGAGE. THE SUPPLY OF EXISTING HOMES IS REALLY TIGHT. BUT THERE IS A LOT OF SUPPLY COMING ONLINE NOW. THERE ARE PEOPLE COMING IN AND A LOT OF THE BUYERS ARE FIRST-TIME BUYERS COMING IN AND BUYING WITH THESE RELATIVELY ELEVATED MORTGAGE RATES. I THINK THIS WILL TAKE SOME TIME TO WORK THROUGH. MORE SUPPLY COMES A LINE HOPEFULLY AND WE WORK THROUGH IT. WE ARE STILL LIVING THROUGH THE AFTERMATH OF A PANDEMIC. REPORTER: HEY CHAIR POWELL, NANCY MARSHALL WITH MARKETPLACE. RUSSIA HAS PULLED OUT OF AN AGREEMENT ALLOWING SHIPMENT OF GREEN SAFE PASSAGE THROUGH THE BLACK SEA AND ALTERNATIVE ROUTES AT THIS POINT COULD BE CLOSED OFF. JUST WONDERING HOW COULD THAT CONTRIBUTE TO HIGHER FOOD ICES AND INFLATION GENERALLY AND HOW CLOSELY ARE YOU WATCHING THAT? >> WE ARE WATCHING IT OF COURSE CLOSELY. YOU WERE RIGHT THOUGH WITHDRAW FROM THE BLACK SEA RAIN INITIATIVE RAISES CONCERNS ABOUT FOOD PARTICULARLY FOR POORER COUNTRIES. GRAIN PRICES DID GO UP ON THE NEWS BUT THEY REMAIN WELL BELOW THE PEAK OF LAST SPRING. THE MOVES WE HAVE SEEN SO FAR ARE NOT EXPECTED TO MAKE A SIGNIFICANT CONTRIBUTION TO U.S. INFLATION. WE WILL BE WATCHING THAT SITUATION CAREFULLY. REPORTER: YOU DO NOT THINK IT WOULD HAVE A BIG EFFECT ON FED POLICY AT THIS POINT? >> YOU WOULD NOT SAY SO LOOKING AT WHAT WE KNOW NOW. THANK YOU VERY MUCH. JONATHAN: THAT IS A MAN WHO WANTS TO GET OUT OF THE ROOM. LIVE FROM NEW YORK CITY -- THAT WAS CHAIRMAN POWELL WRAPPING UP THE FED NEWS CONFERENCE FOLLOWING A 25 BASIS POINT HIKE. ALONGSIDE ME IS LISA BRENDAN WITTS. -- AND WE LOOK AT THE NEWS CONFERENCE INITIALLY WITH THE EQUITY MARKET. I WILL GET TO THIS WE HAVE THE FADE IN JUST THE FADE IN JUST A MOMENT. THE EQUITY MARKET IS NEGATIVE BY .3%. MAKE OF THIS WHAT YOU WILL, IT IS POSSIBLE TO RAISE OR HOLD IN SEPTEMBER IF THE DATA WARRANTED IT. ARE WE RESTRICTIVE? THEY BELIEVE THE MONETARY POLICY IS RESTRICTIVE BUT POLICY IS NOT STRICT ENOUGH OR LONG ENOUGH. THE FED FUNDS RATE IS MEANINGFULLY, -- POSITIVE LEVEL. MY BASE CASE IS ACHIEVING 2% INFLATION WITHOUT JOB LOSSES. HE GOES ON TO SAY THE FED STAFF NO LONGER FORECAST A RECESSION BUT ON THE CPI RELEASE THIS IS WHERE THE EQUITY MARKET STARTS TO FADE. I DID NOT SEE THEM RATION BACK AT 2% UNTIL ABOUT 2020 FIVE. SELECT WAY IN THE DISTANCE. LISA: THIS WAS OPERATION SAY NOTHING WHERE YOU BASICALLY REPEAT DATA-DEPENDENT OVER AND OVER AGAIN AND YOU BASICALLY HAVE A LITTLE BIT FOR EVERYBODY SAYING WE ARE CONCERNED ABOUT THEM RATION BUT RECOGNIZING THAT IN LESION HAS COME IN SOMEWHAT. THIS IS OPERATION DO NO HARM AND THEY NOTHING AND GET OUT OF THERE AS QUICKLY AS POSSIBLE WHICH HE JUST DID. JONATHAN: HIGHLY REPETITIVE AND SOMETIMES TEDIOUS IN THE BOND MARKET. THE TWO YEAR YIELD IS DOWN BY RE-OR FOUR BASIS POINTS IN THE BOND MARKET. 48391. TOM: YEAH THE NEW YORK TIMES PULLING THE BARBIE MOVIE GIVES US THE SPIRIT OF THE AMERICAN ECONOMY. JANUARY 31, 2024 IS HE GOING TO HAVE A GUARD LIKE PRESS CONFERENCE IN THE FIRST OF YEAR FOR THE FED LIKE TOMORROW -- LIKE THE PRESS CONFERENCE IF HE GETS A GDP SLOWDOWN. I AM FASCINATED ABOUT THE LUXURY RIGHT NOW OF A BLAND AMERICAN ECONOMY. AND IF THAT DRIFTS AWAY, I AM NOT PREDICTING THAT, BUT EVENT DRIFTS AWAY, IS IT GUARD LIKE IN JANUARY? JONATHAN: TOM: YES, VERY MUCH. JONATHAN: ON THE BALANCE OF RISK AROUND THE ECONOMY TAKE A LOOK AT WHAT FED CHAIRMAN HOW TO SAY. >> IT IS REALLY A QUESTION OF HOW YOU BALANCE TO RISK THE RISK OF DOING TOO MUCH AND TOO LITTLE. WE WOULD SAY THAT WE ARE COMING TO A PLACE WHERE THERE REALLY ARE RISKS ON BOTH SIDES. IT IS HARD TO SAY EXACTLY WHETHER THEY ARE IN BALANCE OR NOT. AS OUR STANCE BECOMES MORE RESTRICTIVE, WE DO FACE THAT RISK. JONATHAN: THE ANSWER WAS OBVIOUS WHAT IS THE BIGGEST RISK DOING TOO MUCH OR TOO LITTLE AND THEY WOULD SAY THE BIGGEST RISK IS DOING TOO LITTLE WE NEED TO HIKE DOING 50 OR MORE THAN THAT. BUT THE LONGER YOU GET INTO THIS JOURNEY OF CHAIRMAN POWELL, THE LESS OBVIOUS THE ANSWER TO THAT COMES. TOM: WE ARE POST-PANDEMIC WITHOUT A THEORY. IF YOU WENT TO BERKELEY AND YOU HAVE A PHD YOU CAN FIGURE OUT THE RESULTS OF POST-PANDEMIC. BUT I DO NOT SEE IT. WILLIAM DUDLEY JOINS US RIGHT NOW AREA DOING MARKET ECONOMICS IN GOLDMAN SACHS. AND WE ARE PLEASED THAT HE CAN JOIN US. WE HAVE TO WAKE UP EVERYONE AFTER THAT PRESS CONFERENCE. THIS BILL WAS 20-30 DAYS AGO. THE CURRENT USE TREASURY IS FAR FROM OVER. I HAVE NOT HEARD TODAY THE DISCUSSION ABOUT THE HIGHER INTEREST RATES. WHAT IS YOUR BELIEF THAT WE COULD SEE HIGHER INTEREST RATES? BILL: THE CHAIR MADE IT VERY CLEAR IN THE PRESS CONFERENCE HE DOES NOT SEE THE NEED TO GO THAT MUCH FURTHER. IT IS SORT OF MEETING BY MEETING NOW. HE THINKS MAYBE THERE ARE NO MORE RATE HIKES. BUT THAT IS A DIFFERENT STORY THAN WHAT IT MEANS TO THE BOND MARKET. BOND YIELD ARE LOW WITH SHORT-TERM INTEREST RATES. THAT IS OF THE REASON WHY BOND RATES COULD MOVE HIGHER. IT WILL NOT AVERAGE AT 2% IT WILL PROBABLY AVERAGE HIGHER. BECAUSE THEY HAVE AN ACE OR MAGICAL -- ASYMMETRICAL CHAIN WHERE THE THEY HAVE A SURPRISE TO THE UPSIDE AND NOT THE OTHER WAY AROUND. AND WHEN YOU LOOK AT THIS, PAYROLL IS NOT AS STRONG AS IT WAS BEFORE BECAUSE WE HAVE MORE INVESTMENT PROGRAMS WITH THE BIDEN ADMINISTRATION POLICIES. AND THE SAME IS ALSO AFFECTED BY LARGE PHYSICAL IMBALANCES LIKELY TO RUN FOR MANY YEARS. THAT IMPLIES THAT PERHAPS A NEUTRAL -- MONETARY POLICY WOULD GO HIGHER. AND THE RISKS ARE ON TWO SIDES FOR THE BOND MARKET IT WAS ALL ABOUT I CAN HOLD ON AND WE CAN END UP GETTING A RECESSION -- ABOUT THE BOND MARKET BUT NOW WE ARE FAR AWAY FROM THE LOWER UPON THE RISK OF GETTING STUCK AT ZERO -- AND THE RISK OF INFLATION REMAIN STICKY. TOM: WE HAD AN ARTICLE AT BLOOMBERG THIS WEEK, JOHN AUTHERS AND ISABEL LEE REPORTED ON THE STRATEGY WORLD AND HOW ABSOLUTELY IT IS BRUTAL AND IT HAS BEEN FOR WALL STREET STRATEGIST. BILL DUDLEY LIVED THIS GOLDMAN SACHS EIGHT YEARS AGO. HOW CLEAR IS YOUR CRYSTAL BALL RIGHT NOW? WHAT IS ADDITION YOU'VE GOT? OR ARE YOU MAKING IT UP AS YOU GO? WILLIAM: I AM A LOT LESS CLEAR THAN IT WAS A YEAR AND. -- AND A HALF AGO. -- THEY WOULD HAVE TO MOVE FAST TO GET TO RESTRICTIVE AND MOVED TO GET -- AVOID GETTING INFLATION TOTALLY OUT OF CONTROL. NOW THEY HAVE TWO FIGURE OUT HOW HIGH THEY HAVE TO GO TO BE RESTRICTIVE AND HOW LONG THEY HAVE TO STAY THERE. AND I THINK -- IT IS BREAKING IN A DIRECTION IN THE SENSE THAT THEY ARE GETTING DISINFLATION WITHOUT IT AFFECTING THE GROWTH RATE VERY MUCH OR WITHOUT ACTUALLY PUTTING UP A LOT OF WORK. THE FACT THAT INFLATION HAS COME DOWN, UNEMPLOYMENT RATE IS 3.6% IS GOOD NEWS FOR THE FED PERSPECTIVE. BUT I AM STILL WORRIED LIKE A WAS BEFORE I THINK THE FED MAY -- FOR LONGER. I THINK THEY WILL EMPHASIZE THE LONGER PIECE. WHEN YOU LOOK AT THEIR FORECAST THEY DID NOT SEE INFLATION BACK AT 2% UNTIL 2025. THEY THINK THE ALL SAYS HAS A LONG WAY TO GO. LISA: HOW IMPORTANT DO YOU THINK IT IS THAT THIS FED IS ESSENTIALLY NO LONGER GIVING FORWARD GUIDANCE? WILLIAM: I THINK IT IS SORT OF APPROPRIATE. IF YOU'VE GOTTEN INTO THE VICINITY OF WHERE YOU THINK YOU NEED TO BE AND YOU ARE UNCERTAIN ABOUT WHERE -- WHAT IS NEXT BECAUSE YOU DON'T KNOW IF YOU'VE DONE ENOUGH AND YOU DON'T KNOW A LOT ABOUT THE LONG-TERM EFFECT OF THE MONETARY POLICY. AND FINANCIAL SOLUTIONS AND PEOPLE WILL REACT TO WHAT YOU SAY AND DO YOU DO NOT WANT TO GIVE GUIDANCE. IT WILL PROBABLY BE MISLEADING AS OPPOSED TO WAITING. SO I THINK IT MAKES SENSE FOR THEM TO TALK ABOUT GOING MEETING TO MEETING. ONE THING I WAS SURPRISED ABOUT TODAY WAS THERE WAS NOT MUCH TALK ABOUT THE LIKES OF MONETARY POLICY AND NEEDING TO SLOW DOWN THE TIGHTENING ROSS AS. -- PROCESS. POWELL VERY CLEARLY WITH THE SEPTEMBER MEETING BACK ON THE TABLE. I WAS SURPRISED BY THAT BECAUSE THE LAST MEETING WAS ABOUT SLOWING DOWN AND GOING OUT OF SLOWER PACE. AND NOW WE FIND OUT THAT THERE MAY BE A LIVE MEETING. LISA: HE WAS BLUNT ON THAT. SOMEONE ASKED HIM SPECIFICALLY OF HOW THIS JIVES WITH WHAT YOU SAID BUT THE PREVIOUS MEETING. HE WAS LIKE THAT IS ALL I HAVE TO SAY ABOUT THAT I WILL NOT CONTINUE. I AM WONDERING IF YOU THINK IT IS MORE CAN USING THAT THERE WAS NOT DISSENT AT A TIME WHERE I WAS A RANGE OF OPINION AND WE HAVE THE FED CHAIR READING THE SAME THING OVER AND OVER AGAIN IN RESPONSE TO EVERYONE'S QUESTION. WILLIAM: IT JUST MEANS PEOPLE ARE COMFORTABLE WITH THE GENERAL TRAJECTORY OF MONETARY POLICY. AND THEY ARE HAPPY THAT INFLATION IS GOING DOWN WITHOUT ACTUALLY HAVING TO MOVE OR PUSH THE UNEMPLOYMENT RATE I AT LEAST AT THIS POINT. AND IN SEPTEMBER, IF YOU DECIDE NOT TO HIKE, WHAT WE ARE SHOW IN THAT PROJECTION? YOU WILL SHOW FOR THE RATE HIKES. AND IF YOU SHOW FURTHER RATE HIKES IT WILL RAISE THE MULTIPLE. JUST LIKE WHAT WE SAW THE LAST MEETING. AND IF YOU DO HIKE, THEN THE QUESTION IS, OK, WHY ARE YOU GOING QUICKER NOW? AND WE SHOW FURTHER RATE HIKES AFTER THE SEPTEMBER RATE HIKING. SO I THINK YOU CAN GET AWKWARD IN TERMS OF TIMING THE PROJECTION OF WHAT WILL HAPPEN IN THE FUTURE AND WHAT YOU SAY IN SEPTEMBER IN TERMS OF KEEPING RATES UNCHANGED. I THINK IT WOULD CREATE A BIT OF CONFUSION AND IT WOULD BE WORTH IT TO STICK TO THE STORY OF MONETARY POLICY WITH LONGER LEGS AND WE ARE CLOSER TO WHERE WE NEED TO BE. BUT HE DEFINITELY PUT SEPTEMBER BACK ON THE TABLE. HE TALKED ABOUT IT WITH TWO MORE EMPLOYMENT REPORTS IN CPI REPORTS BEFORE SEPTEMBER. HE PUT THE SEPTEMBER MEETING BACK ON THE TABLE. I THOUGHT HE WOULD NOT HAVE DONE THAT GIVEN THAT HE TALKED ABOUT THE NEED TO GO MORE SLOWLY. I FOUND THAT CONFUSING. JONATHAN: ARE SOME PEOPLE COME -- FRUSTRATED ABOUT THE SEPTEMBER MEETING? ONE ROAD IN AND SAID QUESTIONS ABOUT WHETHER THEY HIKE IN SEPTEMBER. HE WENT ON TO SAY THE PRESS CONFERENCE GAVE NO INDICATION ABOUT FISCAL POLICY WORKING AWESOME PURPOSES WITH MONETARY POLICY AND NO QUESTIONS ABOUT THE DEEP CURVE OF IMPLANT -- IMPACT ON THE SMALL BANKS AND PRIVATE CREDIT. LET'S PICK UP ON THE FIRST QUESTION. WHERE FISCAL POLICY IS WORKING WITH PURPOSES OF MONETARY POLICY. DO YOU THINK IT IS? WILLIAM: -- WE HAVE LARGE CHRONIC BUDGET DEFICITS. THEY WILL CONTINUE AS FAR AS THE I CAN THE DASHES THE EYE CAN SEE. -- AS THE EYE CAN SEE. OVER THE NEXT YEAR, WE WILL SEE A LOT MORE SUPPLY NOW THAT THE PRICE OF BUYING, THE TREASURY WILL RAMP UP ITS BORROWING NEEDS. AND THE FED RESERVE IS GOING TO CONTINUE TO SELL AND GOING TO CONTINUE TO LET 900 BILLION DOLLAR EURO TREASURY SECURITIES COME OUT. IT WILL BE A TREMENDOUS AMOUNT OF SUPPLY. TOM: THE HALLMARK OF YOUR WORK AT GOLDMAN SACHS AGES AGO, WAS IT OPTIMISM ABOUT THE ECONOMIC EXPERIMENT? THE MOST MEMORABLE MOMENT WAS JANICE MALIK HOLDING IN THE BARBIE MOVIE INTO THE DISCUSSION WITH THE CHAIRMAN OF THE FED RESERVE ABOUT THE RESILIENCY OF THE AMERICAN ECONOMY. DO SMART GUYS LIKE YOU, EVERYBODY ASSEMBLED IN THE ROOM, EVERYBODY IN THE ECONOMIC BRACKET, WE JUST GET WRONG THE RESILIENCY OF AMERICA? WILLIAM: I THINK THAT WE HAVE GOTTEN WRONG THE RESILIENCY OF THE U.S. CONSUMER. AND I THINK WHAT IS DRIVING IT IS THAT THE FACT DURING THE PANDEMIC THE LARGE PHYSICAL TREASURY FROM THE FEDERAL GOVERNMENT TO THE HOUSE -- HOUSEHOLD SECTOR AND THEY DID THREE THINGS BASICALLY. ONE THIRD WAS SPEND, ONE THIRD WAS USED TO PAY DOWN DEBT, ONE THIRD WAS SAVED. COMING OUT OF THE PANDEMIC HOUSEHOLD BALANCE SHEETS WERE BETTER THAN THEY TYPICALLY ARE IN A CYCLE. THAT IS WHY THE CONSUMER CAN DO THIS. BUT THE POINT SHE WAS MAKING IS THAT MENTIONING BARBIE, IN A THEATER IT IS A PERFECT EXAMPLE OF DISCRETIONARY CONSUMPTION. PEOPLE ARE EXCITED -- IT IS NOT A CORE NECESSITY. IN THE FACT THAT THE BOX OFFICE WOULD REOPEN FOR BARBIE SO GOOD WAS SORTA EVIDENCE FROM HER PERSPECTIVE THAT CONSUMER HAS A LIFE. TOM: IT IS A SURVEILLANCE MOVIE REVIEW. JONATHAN: BILL, DID YOU WATCH THE MOVIE OVER THE WEEKEND? WILLIAM: I WENT TO MISSION IMPOSSIBLE I HAVE NOT GONE TO BARBIE OR OPPENHEIMER. THAT IS NOT IN MY PLAN. JONATHAN: WE SHOULD CONTINUE. WILL CHECK NEXT WEEKEND. BILL, THANK YOU. INCREDIBLY INSIGHTFUL -- AT THE FEDERAL RESERVE IS THE YOU NORD -- NEW YORK PRESIDENT. IF YOU'RE JUST JOINING US GOOD AFTERNOON TO YOU ALL. THE FEDERAL RESERVE HIKED BY 25 BASIS POINTS. THAT CHAIR SAYING HE BELIEVES MONETARY POLICY YEARS RISK -- POLICY IS RESTRICTED. MIKE MCKEE JOINS US NOW. THE EVIDENCE OF POLICY IS RESTRICTIVE, CAN YOU POINT TO IT? MIKE: HE POINTED TO THE FACT THAT INFLATION HAS COME DOWN AND THE FED FUNDS RATE IS ABOVE THE CPI IN QUARTER AND HEADLINE. REAL INTEREST RATES ARE STARTING TO RISE ABOVE ZERO. THEY DO SEE SOME RESTRICTION ON THE ECONOMY. I THINK ONE OF THE KEY THINGS HE SAID WAS HIS ANSWER TO ME AND HE SAID POLICY HAS NOT BEEN RESTRICTIVE ENOUGH FOR LONG ENOUGH. HE DOES NOT WANT TO PUT A TIMEFRAME OR A ACTUAL NUMBER ON WHAT RESTRICTIVE IS, BUT CLEARLY THEY COULD BE THERE. THEY JUST HAVE TO LEAVE IT THERE LONGER. THIS IS A MAN WHO WANTED TO BASICALLY KEEP HIS OPTIONS OPEN AND NOT GET TIED DOWN TO ANYTHING AT THIS POINT. TOM: WHAT IS THIS 25 BASIS POINT MOVE DUE TO OUR LISTENERS AND VIEWERS? WENT THROUGH THIS WAS ALLUDED TO BY A NUMBER OUR GUESTS TWO YEARS AGO, WHAT IS THE IMPACT OF THE LIFT IN HOUSING, FOOD, THE DAY-TO-DAY LIFE THAT WE HAVE? MIKE: IT IS PROBABLY NOT GOING TO HAVE MUCH OF AN IMPACT OVERALL IN A 285 BASIS POINT SENSE. IT IS A CUMULATIVE AMOUNT OF THE TIGHTENING THAT HAS BEEN DONE AND THAT IS WHAT JAY POWELL HAS BEEN REFERRING TO OVER THE LAST YEAR AND I HAVE WHERE THEY HAVE GONE 550 BASIS POINTS. NOW WHAT YOU'RE LOOKING AT HIS IS DECISIONS MADE ON INTEREST RATES OVER A PERIOD OF TIME. YOU DON'T BUY A HOUSE EVERYDAY OR A CAR EVERY DAY. YOU DON'T SPEND MONEY INVESTING IN A NEW FACTORY EVERY DAY. IT WILL TAKE TIME FOR IT TO WORK ITS WAY INTO THE ECONOMY. WE DO NOT KNOW -- THEY DID NOT KNOW HOW RESTRICTIVE THEY HAVE TO BE CLEARLY THEY HAVE NOT BEEN RESTRICTIVE ENOUGH IN THE HOUSING SENSE BECAUSE HOME PRICES HAVE STILL BEEN RISING, BUT OVERALL THEY ARE GETTING CLOSE TO THAT AREA AND I DO NOT THINK THE AVERAGE AMERICAN IS GOING TO NOTICE REALLY ANYTHING DIFFERENT ABOUT THIS 25 BASIS POINT MOVE. LISA: EVERY TIME THE FED HAS A MEETING YOU SIT THERE AND LISTEN TO THE DINNER WITH SNAFUS, THE WAY THAT PEOPLE ASK QUESTIONS. TODAY YOU HEARD A REPETITIVE STICK TO THE SCRIPT JAY POWELL. THERE WAS NO FORWARD GUIDANCE. WHEN WAS THE LAST TIME THE FEDERAL RESERVE GAVE NO FORWARD GUIDANCE ABOUT WHAT THEY ARE GOING TO DO OR HOW PEOPLE ARE THINKING ABOUT THE DATA THAT IS COMING IN? MIKE: IT HAS BEEN QUITE SOME TIME. THE IDEA TODAY, I SAID THIS BEFORE THE MEETING WAS COMING TO MAKE HIS LITTLE NEWS AS POSSIBLE. THEY'VE ARE LOCKED INTO RAISING RATES BECAUSE THE MARKET DECIDED THAT IS WHAT THEY ARE GOING TO DO AND SO THE FED WENT AHEAD AND DID THAT. BEYOND THAT, THEY BASICALLY TRIED TO LEAVE THEIR OPTIONS OSAN -- OPEN. JAY POWELL WAS VERY RESERVED BUT HE DID SOUND MORE RELAXED AS HE DID THE LAST COUPLE MEETINGS. FROM THAT STANDPOINT, THEY WOULD SAY MAYBE THE FIVE WAS THEY ARE GETTING CLOSE TO THE END. I AM NOT SURE THIS POINT THAT THEY WOULD RAISE RATES AGAIN. THEY DON'T WANT THE MARKETS TO WALK AWAY FROM THIS THINKING THAT THEY ARE GOING TO DO ONE THING OR ANOTHER SO THEY TRIED TO NOT REALLY GIVE ANY GUIDANCE. JONATHAN: WE ARE COVERING THE NEWS CONFERENCE RIGHT NOW WITH MIKE MCKEE. THANK YOU. IN WASHINGTON DC. WE APPRECIATE IT AS ALWAYS. SEPTEMBER 20, THE NEXT FED RESERVE DECISION. AND THE DATA ON AUGUST 4, PAYROLLS, AUGUST 10 CPI, SEPTEMBER 10 PAYROLLS, SEPTEMBER 13 CPI. TAKING TWO OF EACH CPI AND PAYROLLS. WE HAVE THE NEXT FED MEETING. YOU TAKE AWAY FROM THIS NEWS CONFERENCE WHATEVER YOU WANT AND THE CONVERSATION CAN CHANGE QUICKLY BASED ON TWO PRINTS OF CPI AND TO RENTS OF PAYROLLS. TOM: HE SAYS HE IS COMPLETELY DATA-DEPENDENT. I DO NOT THINK THERE IS A THEORY HERE OR TEXTBOOKS. THE CONVERSATION HE HAD BEFORE THE PRESS CONFERENCE WAS BRILLIANT ON THE AMBIGUITY OF THE MOMENT. RIGHT NOW WITH CLARITY BECAUSE HE HAS TO MANAGE MONEY. JEFFREY ROSENBERG JOINS US RIGHT NOW PORTFOLIO MANAGER AT BLACKROCK. MY DEEPEST SYMPATHIES, YOU HAVE TO HAVE A CONVICTION AND LEE FORWARD. WHAT IS YOUR CONVICTION NOW GIVEN THE AMBIGUITY THAT WE WITNESSED TODAY? I THINK WE HAVE A LITTLE BIT OF SILENCE HERE. JONATHAN: JUST PUT IT ON MUTE. HE'S GOT TO UNMUTE HIMSELF. TOM: YOU KNOW THE AMBIGUITY HERE IS IMPORTANT. JONATHAN: YEAH YOU ARE IN THE TEAM MEETING AND LISA STARTS CALLING THINGS ON THE SCREEN. IT LISA: OH EXCUSE ME, PASS THE TEA. [LAUGHTER] TOM: I AM GOING DEED TO THE NORTHEAST. IT'S GOING TO BE -- I'M TAKING A MONTH OFF. JONATHAN: TAKING A MONTH OFF. TOM: IF YOU HAVE THE FORMER VICE CHAIR OF THE FED AND SCHEDULED TOMORROW IN BLOOMBERG SURVEILLANCE IN THE MORNING CHECK IT OUT. AND I AM SORRY, THE QUESTION HERE IS -- LISA: WHAT IS THIS? JONATHAN: THAT IS THE TEASE RIGHT THERE. -- TOGETHER WITH PIMCO THEY CAME OUT WITH OUTLOOK A COUPLE MONTHS AGO AND ULTIMATELY IS A UNDERLYING BELIEF THAT THEY WILL TOLERATE HIGHER ABOVE TARGET INFLATION OF TO POINT SOMETHING BECAUSE HE HINTED AT THAT SAYING THEY WILL NOT HIKE UNTIL THEY GET TO 2%. AND WE ALSO THINK WE WILL NOT GET TO 2% UNTIL 2025. WITHIN THAT I THINK THERE IS A MESSAGE THAT THEY ARE WILLING TO TOLERATE TO POINT SOMETHING BECAUSE THEY ARE WILLING TO TOLERATE ABOVE TARGET INFLATION FOR THE YEAR ALL IT -- ALL THE WAY OUT UNTIL 2025. LISA: YOU MAKE AN INTERESTING POINT BECAUSE IT HIGHLIGHTS THE UNCERTAINTY AROUND LONG AND INVARIABLE LAG. HE SAYS WE WILL NECESSARILY HAVE GONE TOO FAR. SO HOW LONG DO YOU HAVE TO WAIT BEFORE YOU UNDERSTAND THE RAMIFICATIONS WHEN YOU HIKE? IS THIS A CONCESSION YOU'RE WILLING TO GO TO 2.5%. THAT IS WHAT PEOPLE ARE TRYING TO PARSE THROUGH. JONATHAN: WE HAVE NOT TALKED ABOUT THIS ENOUGH. AND I THINK -- CONGRATULATIONS FOR BRINGING THIS UP REPEATEDLY WHAT IS THE APPROPRIATE TIME HORIZON THE BRIEF PERIOD TO BRING INFLATION BACK TOWARD 2%? WHAT IS IT? ONE MAN'S TOLERANCE OF ABOVE TARGET INFLATION IS ANOTHER MAN SAYING WE NEED LONGER. AND IF HE SAYS 2025, ISN'T FATHEAD -- HIM -- ISN'T THAT HIM SAYING THAT THEY ARE WILLING TO WAIT FOR LONGER? LISA: YES THEY ISSUE IS WILL IT BECOME A SELF FULFILLING PROPHECY AT SOME POINT? JONATHAN: IS THERE A WINDOW, THAT IS WHAT YOU'RE SAYING. LISA: YES, THAT IS WHAT I'M SAYING I APPRECIATE THAT. JONATHAN: WE WERE TOGETHER SOMETIMES WE CAN ANTICIPATE OUR SENTIMENT. -- WE ARE TALKING ABOUT 5% WAGE HIKES. THEY WILL NOT BE ALONE ARE THEY? LISA: HOW WE SEE THAT ACROSS THE BOARD. PEOPLE TALKING ABOUT THE LABOR BOARD. THAT CHANGES THE SCENARIO IN A PROFOUND WAY. THIS IS THE SITUATION PEOPLE ARE LOOKING AT AND YOU SEE THE DIVIDE. TOM: YOU SEE THE DIVIDE AND A LOT OF PEOPLE DO NOT PARSE OUT UNEMPLOYMENT RATE OR THIS OR THAT OR THE OTHER THING THEY ARE ONLY LOOKING AT WAGE INFLATION. SET -- THEY SAY WHAT IS THIS LOOK LIKE COMPARED TO THE OTHER 10 MEETINGS WE HAVE? AND I AM WITH BILL DUDLEY THAT WE HAVE A REAL -- IN THIS COUNTRY. THAT CHANGES THE EMOTION AND THE BEHAVIOR OF PEOPLE. PEOPLE REALLY PUSHING AGAINST THE GLOOM WE HEARD FROM OUR GUEST SAYING WE HAVE A LEGITIMATE REAL GDP FORWARD. PART OF THAT IS THE LEGITIMATE WAGE GROWTH. I DO NOT THINK THAT IS MORE OF A DEBATE RIGHT NOW. JONATHAN: I AM NOT WORRIED ABOUT GETTING A PAY RAISE. YOU KNOW HE'S FIND IT WEIRD FOR ECONOMISTS TO SAY THIS IS UNCOMFORTABLE. WAGES ARE TOO HIGH. EVERYONE IS LIKE THERE IS NOTHING UNCOMFORTABLE ABOUT THIS. DOES WHAT I WANT AT YEAR END A PAY RAISE. LISA: AND WE HEARD JAY POWELL SPEAK TO THAT. WE WANT TO BIZ IS A GOOD THING THAT WAGES ARE GOING UP FASTER THAN INFLATION AND GET IS IT IF THAT IS THE GOAL TO GET DOWN TO 2%? AND HE TRIED TO PARSE IT THROUGH BY SAYING NOTHING. JONATHAN: WE WILL TRY TO PARSE THROUGH THIS TOMORROW MORNING ALONE BECAUSE TOM WILL NOT BE WITH US. WHAT IS RESTRICTIVE AND WHAT EVIDENCE DO WE HAVE? THIS IS WHAT THE CHAIRMAN SAID THE FOMC BELIEVES THE POLICY IS RESTRICTIVE. HE ACKNOWLEDGED IT HAS NOT BEEN RESTRICTIVE FOR LONG ENOUGH AND THEY NEED TO HOLD IT FOR ALONE TIME. BUT IF YOU LOOK AT THE REAL FUNDS RATE IS IT AT A POSITIVE LEVEL? OK -- I GO ONE STEP FURTHER. WHAT EVIDENCE WITH THE DISINFLATION WE HAVE SEEN SO FAR IS A CONSEQUENCE OF WHAT WE SEEN WITH -- I GO TO WHAT WAS SAID IN THE NEWS CONFERENCE. I WILL READ WHAT WAS SENT TO ME AND HE IS HAPPY FOR ME TO SHARE IT WITH YOU ALL HE SAID THE FED REMAINS WILLING TO THE LONG VARIABLE LAG HYPOTHESIS AFTER 18 MONTHS WE SEE HOME PRICES THAT CELEBRATE, STOCK PRICES ACCELERATE, AUTO IT CELERY, AND LAYOFFS THINK -- LAYOFFS SINK. FOR THE SAME PEOPLE LOOKING AT THE SAME EVIDENCE -- YOU HAVE ONE INDIVIDUAL THAT LOOKS AT YOU SAYING THE LONG AND BEARABLE LAGS MAY BE LONGER. SOMEONE ELSE CAN MAKE THE DIFFERENT CASE WITH THE SAME DATA AND SAY I THINK THEY ARE A LOT SHORTER. THEY HAVE NOT HAD AN EFFECT YET. LISA: WITH ANYONE WHO IS LOOKING FOR GUIDANCE THEY WILL NOT GIVE YOU ANY. WHAT I HEARD WAS THE CHAIR MOVING THE GOALPOST SAYING IT MAY BE RESTRICTIVE BUT IT HAS NOT BEEN RESTRICTED FOR LONG ENOUGH. IS THIS A NEW CRITERIA THAT IT HAS TO BE LONG ENOUGH? THEN THAT WILL TAKE PLACE? THEY DO NOT KNOW. THAT IS HOW THEY COMMUNICATE. WE DON'T KNOW. TOM: I THINK OUT OF THIS CONVERSATION -- CORE ISI -- AND I THINK THEY WERE BRILLIANT TODAY ON THIS. THERE IS AN ENTIRE MONETARY OR MONEY SIDE OF THIS. INCLUDING SOMETHING THAT NO ONE TALKS ABOUT ANYMORE WHICH IS M2. IF I WAS DOWN THERE WITH POWELL. IF I WAS DOWN THERE WITH POWELL. AND I WAS IN QUESTION -- [NO AUDIO] BOB MICHELE IS HERE AND I SAW HIM ON HIS PHONE DOING COMMERCIAL REAL ESTATE WORK WITH JAMIE DIMON WHILE HE IS SITTING ON SET WITH THE COMMERCIAL. WARNING ABOUT THINGS TO BE. JONATHAN: YOU TEED UP EUROPE QUITE NICELY. TOM: I TRIED. -- ADAM LAGARDE WOULD LIKE ME TO BE THERE. JONATHAN: THE CENTRAL BANK DECISION IS TOMORROW AND IT IS WORTH REPEATING. THE DATA IS DREADFUL AND INFLATION IS STILL STICKING. LISA: THIS IS THE FEAR WHAT HAPPENS IF THIS ENDS UP BEING THE SIMILAR STORY IN THE U.S.. IF ACCELERATION -- WE DID NOT HEAR SUCH FROM JAY POWELL HIS BASE CASE IS WE AVOID A RECESSION AND WE BRING INFLATION DOWN TO 2%. THE GOLDILOCKS. HE IS LEANING INTO THAT. TOM: I DO NOT THINK HE HAS LEANED INTO GOLDILOCKS. I THINK HE IS WORRIED ABOUT BILL DUDLEY OUTLOOK. I THINK THEY DO NOT WANT TO MAKE A MISTAKE ON THE UPSIDE. THEY DO NOT WANT TO CUT BEFORE THEY ARE CERTAIN OF THIS THAT IS THE EMOTION OF THE DISCUSSION. JONATHAN: I ASKED WHETHER THE BIGGEST RISK IS CUTTING TOO SOON OR HOLDING TOO LONG AND I THINK I AGREE WITH YOU. TOM: YES, --[INDISCERNIBLE] LISA: I THINK THAT JAY POWELL WAS CHECKING THE TRAIN SCHEDULE AT THE SAME TIME. JONATHAN: HE WANTED OUT OF THERE. WE DO AS WELL. WE WILL SEE YOU TOMORROW MORNING. TK WILL BE GONE. THANK YOU FOR CHOOSING BLOOMBERG RADIO AND TV FOR YOUR COVERAGE.

Channel: Bloomberg Television

Views: 14,176

Keywords: Federal Reserve, Jay Powell, Jerome Powell, Jon Ferro, Lisa Abramowicz, Tom Keene

Id: Bp2Xj-Lbkqo

Length: 132min 18sec (7938 seconds)

Published: Thu Jul 27 2023