Fed Cuts Rates by Quarter Point While Hinting at a Policy Pause

or Bloomberg dot com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Welcome to Bloomberg Business Week. On this FED decision day and the FED crossing the headlines uncertainties remain, will assess appropriate ratepath cutting the federal funds rate target twenty five basis points to one and a half to one point seventy so as expected, Jason cutting for a third straight meeting. We're gonna dig into some of these headlines omitting acts

as appropriate. I want to understand what that means when we get to our experts in just a minute. But first let's get some market reaction from Charlie Pellett. Hy Charlie, right now, we have got the SMP five hundred index down down two tenths of one percent. Stocks flat heading into that announcement, the Tenure up seven thirty seconds, with

the yield now of one point eight one percent. The Dow down twenty nine points, dropping one tenth of one percent, NAS Stack Laura by twenty five, down three tenths of one percent, Gold up two tenths four eighty nine, the Ounce and West Texas in enemediate crew down one half percent fifty four seventy one, So again a drop for the down down thirty five, down one tenth SMP now Laura by eight down three tenths and as stacked down by three tenths of one percent. I'm Charlie Pellett. That's

a Bloomberg Business Flash. Charlie, thank you so much for listening to Bloomberg Business Week to focus on the FED. Brought to you by Commonwealth Financial Network. For the sixth straight time, JD Power ranks Commonwealth number one in independent advisory satisfaction among financial investment firms. Is it Commonwealth dot Com to learn more? Where we are all about the

FED right now? So most read story just want to get to our Chris Connon, who puts out our FED story Federal Reserve officials reducing interest rates by order percentage point for the third time this year, hinting they may now put monetary policy on hold for one meeting at least. And we did see equities dig a little bit deeper into the lost column as a result, and as for yield, a slight uptick, but really slight. Let's get into this with our team. Kathleen Hayes is Global Economics and Policy

editor here at Bloomberg News. She's in our interactive broker's studio in New York along with Dave Wilson. Our stocks that are Bloomberg News. Kathleen write to you what stands out? Does this mean the Fed is on pause for December? No, okay, I don't think so. I do think though they could be. I think that the fact that j. Powell and the Fed the FOMC took out act as appropriate to sustain the expansion, which had become a phrase that everyone took

to mean we're going to keep cutting interest rates. That's gone, but they're going to monitor the data and assess the appropriate path of the target reach for the federal funds. Right, So, to me, it's pretty clear. I think this is more or less what people expected. You don't now you're want to get away from promising to do a rate cut at every meeting and maybe even December. But if the data are weak enough, right, then there's that the door is still wide open. And again I think, now what

we have to go ahead? Well, this is what I don't always get because it's like I understand that they take a phrase out of the statement and we you know, assess the significance of it. But the's going to act appropriate as needed no matter what, whether it's in there or not. Right, But what's the well, but what the significance is that when this the statement, this statement that they make, the policy statement is understood to be which

it is something that is so carefully worded. Remember when the forward guidance under Berninky and then Yelling was you know, keeping rates low for an extended period that was considered really important. When they removed that, it was a big deal. So removing this is a one of those soul but so clear signals that they have made a shift. I just think it's so important. Though it doesn't mean they

won't cut in December. It just means out, you know, this is the division we've seen those who don't think we need to cut it all, those who think we need to cut more. Those in the middle are trying to figure out what we need to do, or say, hey, we just cut rates three times and let's don't forget everybody in the background. We do see a mini trade

deal forming. Maybe the trade part is moving ahead. And if there's been one big weight on the US economy, on the global economy, it has been the tensions from trade manufacturing slowing it so that we talk about this, wasn't it canceled? Yeah? It was. Isn't that where they're supposed to meet? Well, maybe they'll find another place. To me maybe I was thinking maybe maral Lago. It's sort of like that that moment where you say, oh, that place we used to go as close, we need to

find a new place. President, they'll write each other beautiful letters. Dave Wilson, come on in here. The stock market reaction, the equity side reaction, sort of bounced a little bit downward, if I could say that, and now it's sort of bouncing back up more or less to where it was. How does an equity investor read this? Well, in short, not much of a reaction as far as the media move goes beyond that, if you look at what's been going on in stocks like that, you see there's been

a real preference for bond proxies. Now what we're talking about their utilities, real estate companies. They've actually been the best performers in the past three months among the eleven main industry groups in the SMP five hundreds. So you know, in fact today utilities are the best performers and they barely budge after this rate decision. So it's clear that what people were figuring on going into the meeting is playing out in terms of the decision, and it's being

reflected in the shares. I mean, heck, I was reading report today from Bank of America talking about that's you know, where the money is flowing into the bond proxies and not into bonds. So it's like there's nothing that really kind of changes the equation at this point in terms

of investor preferences, right, utilities, healthcare, consumer staples. That's if I look at the SPX, the SMP five hundred and the Bloomberg IMAP function on the term, that's where you see a little bit of upside in today's a little bit. I mean, in real estate stocks are holding up reasonably well, They're index is only down the tenth of represent at

the moment. Let's remember that that two things that happened today. One, I mean, you just talking about stocks and where they've been, but think about spire is heating another record, another record, another area. Right, and today GDP came in at one point nine percent, a bit stronger than forecast, so just above what the Fed seas is potential. We're waiting for a job support on Friday. That could be on the

weaker side. But I mean, I think if you're one of the people the Fed saying let's let's stop now, you're feeling pretty good about that decision, right, that those kinds of things are backing up your sense that you know the world's meant tough the trade war. Maybe we'll have well people, we'll go back pedaling alls all of a sudden, but for now, there's it doesn't seem to be that the reason it's not as compelling to keep going and cutting reins. But I think again, I think

the stock market really has got to be a big one. Right, Yeah, it's a good point, and so we will hear from the FED chair J Powell. In about twenty five minutes or so, he'll take the podium in Washington. Kathleen Hayes, what do you expect will be the key questions that he will get off the top? What is this a pause? Or are you telling us no more interest rate cuts?

Why if he says dances whatever, he says, well, I think he's gonna do that little data tod I think I think it's going to say well I said, I think I'll be very interested. I don't know, because J. Powell, in a lot of ways is a pretty straight shooter. He may say, well, we we mean what we said. Yeah, things are looking a bit better. We've cut right three times, so yeah, this may be a pause, but we are watching what also says that we're gonna follow the appropriate

path for the federal funds? Right? And then people are gonna say, well, what are you watching? Are you watching the jobs report? What if it's weak? Well, are you watching the stock market? Well? Is it the trade war? And he's gonna be he's going to be hit with so many different questions on this. Uh, I think we

should get some good, some good perspective. I think we'll get more information, and J. Powe knows full well that this is what the press conference is for, is to flesh out that policy statement and as much as he can clarify the f O m C. Thinking well, and you know, when we have the FED say once again, which we've heard them off and say, uncertainties remain, I want to know specifically, like I'd love a pecking order of Okay, sure, what's the biggest absolutely, because then you

can assess it and then maybe figure out and predict what future FED policy is. Absolutely should ask question, Well, if I was in Washington, I would let's just do the show right in the on Twitter and they cannot true? Can you keep it down? I have a question? And so, Dave, are there in certain sectors that you look at as you go down a level that react in one way

or another to this type of decision? Well, I mean just looking at today's trading and you're not really seeing a whole lot post FED that you didn't see pre FED, So it's not like there's really that much move within the industry groups. And like I say, seeing utilities on top of the heap though it's kind of telling and they're hanging in there. I mean, you know, so it shows that you know, people looking for income, you know, focusing on the stock market as much or more than

they do on the bob market everywhere. I like to reconcile maybe what we're gonna hear from the Fed if you know, they're being a little bit more optimistic. So we've got to see what they're looking at. But I do wonder what the equity markets, as Kathleen said, you know here we are continuing to hit records out there. There's a fair amount of recession talks. We've heard it from the CEOs, concerns about trade in their earnings releases.

So I'm trying to reconcile with the equity markets are telling versus some of the economic data points and what we might hear from J. Powell. What does the equity market tell us? What do earnings tell us? J? Well, clearly people are expecting better results down the road, and that's consistent with the analysts forecast anticipating a return you know, to growth in the fourth quarter, assuming they end up

being right for the third quarter. In essent, people I under profit falls and then next year, you know, you get back towards ten percent growth if you buy what the analysts are selling in terms of their predictions. That said, I have seen lately, you know, some strategists expressing optimism about next year when it comes to Arni's and and saying that at least there are some investors kind of

going along with that view quickly. I just want to add that, you know, Jim Bullard has been dissenting, dissenting, dissenting for bigger cuts for more, you know, and today he didn't dissent. So I think that's very interesting. Jim Bullard St. Louis fed present if he is now ready to say, okay, we cut three times. You know, I wanted to try, and this YO curb has uninverted, right, I've helped change that. Um, you know, inflation expectations are

still low. Inflation is still a low target. But we've done enough for now, you know, cittain weight. I think that is a pretty significant voice to join that consensus in the middle saying we've done enough for now. Let's see what happens next. Yeah, all right, well, I think we're gonna leave it there. When have you guys, we really appreciated Kathleen Hayes Global Economics and policiator for Bloomberg here in our Bloomberg Interactive Broker studio, and Dave Wilson,

Stocks editor for Bloomberg. He's also here with us in New York City. All right, time to head on over to Charlie Pellett for check in the world of business and a look at today's trading. All right, I thank you very much. We've got the down higher SMP nes stack both lower, recapping resetting FED officials reducing rates by a quarter percentage point for the third time this year, hinting they may now put monetary policy on hold for one meeting. At least. Our coverage will continue in just

a moment right here on Bloomberg Radio. SMP down two now at three thousand thirty four. That is a drop of one tenth of one percent. We've got the Dow higher little change now, but on the plus side, up seven, up by less than one tenth of one percent. We did see a dip right after the headlines crossed on the Bloomberg, but again the dow rebounding ne stack down six now a drop there of one tenth of one percent. Your ten year up eleven thirty seconds yield one point

seven nine percent gold up three tenths fourteen. Note he won the ounce where Texas ENEMYIA crew to retreat today down one point two fifty eight seven a barrel. So again, FED cuts rates by a quarter point while hinting at a pause, SMP down two points lower by one tenth of one percent. I'm Charlie Pellett. That's a Bloomberg Business Flash three number. Well, and it seems like three. It was the magic number at least for now. The FED

as expected cutting for a third straight meeting. Uh, let's get into that decision in some of the analysis we heard from the FED so far. Of course, in about fifteen minutes we will head to the Federal Reserve to hear from FED Chair J Powell. In the meantime, all Jersey, he is our chief US interest rate strategist here at Bloomberg Intelligence. He's with us along with Steve Blitz, chief US economist at TS Lombard, both in our Bloomberg Interactor

Broker studio in New York. I'm gonna start with you. You've been taking part in our Bloomberg Live blog. What's notable to you in this FED decision? Yeah? Not not really a lot there wasn't much that changed. I think that some people were expecting, including me, quite frankly, that they would have at least modestly changed their assessment of the economy. So they have this whole first paragraph where they talk about the economy and they basically left it unchanged.

And I think, you know, with things like the Michigan Survey of UH consumer attitudes and in particular the inflation portion of that hitting all time record lows, that they would have at least acknowledged that inflation was still running below their their targets. So so some people, and I think the market reaction, the rates market is suggesting that the Fed will have to do more because they're not yet acknowledging the fact that the economy is not as

strong as they hoped it would be by this point. Alright, Steve, so come on in here. What was your initial read? You're sitting uh in our lovely Bloomberg in director Broker's lounge looking at all of this play through on the Bloomberg. You've got your notes? What what jumped out at you? Well? Two things. First of all, I've been I've been expecting the FED to say we're done. Now we know the Feds never just gonna come out and say we're done.

But when you go from will monitor and act as appropriate, two will monitor and assess the appropriate path. They're done. Now. Obviously, what they're saying is if the data falls apart between now in December, they're lacked again. I mean, they're always going to leave that door open. They're not gonna close

it completely. And in fact, if you look at even their quarter GDP, you look at so many, so much economic data from their perspective, right and you listen to Powell's speech from a couple of weeks ago, they think that domestic economy is just fine. So you don't think, like il Reads said that they're kind of ignoring some of the weakness and the economy. You don't. You don't. I don't think so much that they're ignoring the weakness. The weakness is the reason why they've cut three times.

The reason is why over the next eight months they're basically putting back all the tightening they they put into the balance sheet. They're putting it back. They are buying over the next eight months about of net new treasury issuance. That's a lot of cash going into the bill market. It's going to steep in the curve, it's going to help weaken the dollar. These all the things that they've wanted to get done. Well, it's not because they're not

buying term yields. But you know, if you take all the gold away and then you put it back, it's still policies. So well, I think a couple of things. I think firstly that the Fed will probably actually slow down it's bill purchases come January, so UM, so we're expecting closer. It's still a lot right, so they're still buying a lot of UM, a lot of bills, a lot of net issuance UM. But it's it's not que

just because of what they're buying. And in a way, it's kind of like balance sheet normalization because they haven't owned T bills for twelve years and now all of a sudden they're gonna buit T bills again, which I haven't owned for a very long time. I think, on the on the other side that yeah, I agree that

the FED is not ignoring it. I suspect that since we're doing this in real time, I expect that we'll see a bigger market reaction from the press conference than we give the statement because I think that there'll be

a little bit more nuance in there. I would be shocked if if j Pal, particularly if they are done tightening or easy and excuse me, and they don't want to cut in December at least that he'll talk about monetary policy working on long and variable legs, and we're not sure what that is and we need to see more incoming data before we make any additional decisions. Right, So something along that vein I think will be re iterated two, three or four times during the course of

the press conference. And and the more you hear that, the more that that means they're not going in December. Well, it doesn't take January off the table by any Yes, but I think that January it doesn't take any month off the table. But you have to recognize they made

in terms of the communication. They made this move on the balance sheet a couple of weeks ago when everybody was expecting them to announce it at this meeting, because they wanted to say something special at this meeting and they didn't want to have the message mixed up with the balance sheet. There was no fire drill on October eleven that required them to make that particular announcement about what they wanted to do over the next eight months.

I disagree with that because in the funding markets, in the treasury market, they were really worried about what was going to happen on October fifteenth during the settlement of significant portion of new debt that was going to be issued, and the balance sheets of dealers has been very tight, so they wanted to do something to at least alleviate the idea that we're going to have tight funding markets forever.

And they didn't want to have to do, you know, massive open market operations in order to alleviate that stress on a moment's notice. So I think that that's one of the reasons why they announced it on October eleventh, as opposed to weight here. Now. I I initially thought that they would probably wait till this this meeting to do it. But at the same time, I think that they were really scared because they were getting yeah, yeah, or at least at least the market fear yeah, so

the market fear to get ahead of it. You know, let's announce this, so at least if they know that, at least we're paying attention. If nothing, when you guys disagree, Well, I would say this. You know, first of all, they could have done rebo right. Secondly, but they are I know that. But they could go back to the way life was before two thousand and eight and just do repot.

The truth is that, because of regulatory reasons, basically you have balance sheets at the broker deals and at the banks that are smaller than they've been since at least thirty years, if not longer, while obviously the dead side has grown, so they have to be the balance sheet. And to say it's not QE okay, is it's falling into their semantic argument. Okay. The fact is that they are adding a tremendous amount of liquidity to the system.

They need to buy bills. Because they don't buy bills, they can't grow their balance sheet because they have to wash the yields at the lower end so that banks will hold these reserves which are not required at the FED. If it just keeps leaking elsewhere, they can't grow their balance sheet, so they have to wash yields at the lower end, which is why they're buying bills. Right. So now, if I buy this many bills for eighty billion over

the next eight months. That's a lot of money and it's going to impact the market already has begun to do that, you know, in terms of watching slow steepening of the curve. So if you're the Fed, you've got a steepening of the curve, you've got a lessening of the mess of foreign headwinds, at least seemingly with the US, China and the domestic economy. From their perspective, it's doing fine, and that they've done enough given leads and legs, And I agree you're gonna hear a lot about leads and

legs in the press. Cart I just want to mention the equity markets are now positive territories and we've bounced back of Dow's up thirty, the nastacks up about a point little changed, unchanged almost but a little bit higher. So actually on the SB I'm just saying the equitive to watch it sort of. I mean, it's bouncing really like right along that gain and loss markets pretty much where it was if you're the Fed. If you're the Fed,

you don't you there's no recession. So there's a limit to how far you're gonna cut rates because your financial stability issues, etcetera. So it weren't even the Trump wants that. They don't. They're not going to zero without a recession, so there's a normal point for them to stop. What they need to do is have the markets buy in that they're stopping, not for a bad reason, but for good reason, that the economy looks like it's gonna do better.

And and if the market buys into that viewpoint, the equity market does better, the curse steepens up a little bit, and it's back to being risk on. And if the data follow through, they're not cutting again for you know, until the data tells me. I mean, in fairness, the market had already been discounting a cut until May or June of next year, right, So so basically that the statement, at least from a market perspective, seemed to be pretty

much what the market was anticipating, right. And I think a few people, obviously guess you have in the market reaction, had expected them perhaps to be a little bit more devish. But it's you know, semantics and not not that big of a deal. So Ira, let's go back to this press conference that we will hear and give or take seven eight minutes when J Powell, uh takes the podium down there in Washington at the Federal Reserve because and

everybody around this table knows this. Well. The stock market has generally, shall we say, not been a big fan of these press conferences in terms of it has I think in all but one meeting, Uh, there's been a sell off as J. Powell has been speaking. What is he going to be saying? What does he need to say to at least keep us kind of where we are here, which is just barely in the green. Well, I'm not sure about the I mean, for for the

equity market. I suppose for all risk assets, they just want to make sure that they're nowhere near tightening and that they're gonna keep on. You know. You know, there's other things that he can hint at, too, right, So one of the there are some d davish actions that

he might be asked about. So, for example, the mortgage basis, the difference between mortgage backed securities and treasuries is the widest that it's been since they for about three years, right, And so one of the things that he could hint at is, you know, if someone asked him this question, which I hope someone does, what other devish actions can you take without actually cutting He can say, well, we can start reinvestments of mortgage backed securities again, which might

tighten tighten the basis right, so that could be one of the things we can buy longer term securities and basically saying we're we can start que So there's other things that they could do besides cutting rates. More So, what do you want to hear stee Blitz when j Pal speaks in seven or eight minutes, clarity of purpose? How is that meaning? What meaning? He out of me?

Every day? You know? It's it's just like I think, I think, I think he's I think what you need to hear is just some plain and simple talk about what they're doing and why and and rather uh and not skip stumble over his words and get the kind of negative market reaction he's gotten in the past. Look, tenure yields are down, the housing markets responding, capital spending a little respond with the lag and all of that, and he just needs to lay out a very positive

economic story. But can he do that? I mean, or do you think that there's enough there? But I think it's I think that's a little bit tricky. But when you look at you look at some of the data that I look at. For example, I have some new orders, which tends to be a very good leading indicator of a lot of other things that that looks like it may have stabilized, which is not dis similar to what

happened in two thousand sixteen. So unless you start to make kind of new loads and some of that kind of data, you can argue that we're starting to stabilize the economy. And assuming it stabilizes, then it means that the Fed's probably done its job. And then you have to wait, you know, two three more months at least before you get enough data to say that, hey, the Fed,

you know, needs to do more or not. And I think that that's where we would like to get the market at this point, so kind of say like, look, we're steady, let's wait until early next year, which a strong economy or decent it's not so much. I think

it's the point that things are bottoming out. I mean, if you look at a lot of the manufacturing data right now the very short term, it's a little mixed up because yeah, but it's just it looks like it's stabilizing out that the household sector continues to buy the great inventory. Uh, reduction hasn't really occurred. Uh. Net exports are kind of sel so you don't see anything that's really deteriorating. And housing is starting starting to pick up.

Don't we need companies though, to do capital expenditures in order to keep this economic momentum going, Like we're late in the cycle. Don't we need that? Yeah? We do, we do ultimately, but that's going to take a while because that tends to follow um. That tends to follow

profits by about two quarters. So we need to turn in profits, and everything that's going on should eventually turn profits, and that becomes more of a or late twenties story than something you're gonna get over the next couple of quarters. And they know that, I mean, they'd be in the fitness So I want to ask you, you know, this whole sort of repo market question. I mean, it's been so front of mine. I mean, we've talked about the repo market on this show probably more cumulatively over the

past month than we had in the previous ten years. Uh, how much do you think that will come up in the press conference? I mean, you've got Jamie Diamond talking about it, You've got the Secretary of the Treasury talking about it, like and in what context what can the FED chairmans say to sort of calm people down here. Well, for one thing, I think he could point to evidence that right now it looks like this month end is going to be just boring in terms of funding markets

in a good way. And in a good way, yeah, yeah, so so so basically not they've basically provided enough liquidity to the funding markets via the repurchase agreements that they've been doing both term and overnight, that the market is not going to be significantly worried about about funding treasuries.

And I think he could talk about He is probably going to talk about, you know, is there going to be a a new facility that they're gonna do that's gonna maybe be a full allotment UH overnight facility instead of them doing the the current operations which are more traditional kind of reproach agreements. I'm not sure they have do they can keep on doing what they're doing and

that would work out fine. But um, but I think he's gonna be asked about that and and and a lot of the details in that, quite frankly won't come out at the press conference. Those will be things that you know will happen probably else in other forms. Maybe some good reporting by Bloomberg News reporters will elucidate some

of that. I have a feeling all right, Thanks, thank you so much, Chief US Interest Rate Strategies for Bloomberg Intelligence and Steve Let's chief US economist for T. S. Lombard, both here with us in New York City, are well. Did it covers quarter point widely as expected? Its third consecutive cut this year, signal to pause in further cuts unless the economic outlook changes materially. Equity markets they are near their highs of the session, so they've certainly turned around.

Rallied UH to some extent on that news, and in terms of the rate picture, I just want to recap pretty much where we were prior actually a little bit higher on the shorter into the Yeel curve, the longer end of the Yel curb, pretty much where it was prior to the FED decision. Let's get into it though, with our team here and we've got in the house.

We've got Alex Harris, Bond, reporter at Bloomberg New Sorry are these people who just wanted into our studio and also with us is Josh right chief Econos and I Sims both in our Bloomberg Interactive Broker studio. Sorry, I'm looking at too many notes today, is it? J pal j Is that you know? Jason? Nice of you to

join us, right, Josh, let's start with you. Would you make of a decision and the press conference, Well, we're looking for a hawk is cut and that's very much what we got with this strong bias to hold um from infect isn't it? You know, that's really what the market seems to think. But I was surprised by how

explicit the chairman was. No, he didn't come out and say in exactly these words, but saying a material reassessment of our outlook is about as much of a promise as he's going to make to say, you know, we're kind of done now, all right, Alex Harris, you were on the desk amid the fevered uh, listening and analyzing a number of our colleagues weighing in with questions there Mike mckeye and Steve Matthews making his land from Atlanta to ask a question, what did you make? What was

sort of catching people's attention? Where were you sort of looking around and saying, well, we're looking around that. How often the reporters in that room asked the same like a variation on the same exact question. Um. You know, one of the things I talked to people about on the desk is, you know, there's a lot of operational things that were discussed off meeting, and you know, Powell reiterated, yes, they're going to be, you know, doing Treasury bill purchases

at least through the second quarter. They're doing these repo

operations through the at least through January. And you know, one of the things that caught our attention, and we we pinned, you know, our team in the room and said, someone asked him, how do they expect to remove that liquidity from the market in January and not cause any sort of disturbance, you know, and Powell probably would have said something about, oh, well, our reserve levels will be kind of more normal, but that's a that's a serious question.

And and the other thing that kind of caught our attention on that front is why does the Federal Reserve that has all these very intelligent economists seem absolutely bump fuzzled, puzzled. I liked as to like, why why banks didn't come in, you know, when repo writs spiked last month, and to me, it's signals that you know, they're one of the regulators of the banks, they conduct monetary policy, and yet they have no idea how the two intersect and work off

of each other. And that is a little concerning for me. Deemed man. There was a stunning turnaround from just a year ago when you had Simon Potter the New York Fed saying, oh, we feel pretty good about reserve levels, We've got ways to go, and kind of like how Powell had to do the turnaround at the end of twenty team going into early twenty nineteen feeling good about rates and then suddenly, oh, maybe that was a mistake. Another big turn around that we saw, though it was

look at the market reaction. This is an incredible turnaround for Chair Powell's performance. In a press conference, I mean, we were all complaining, well, I think effective the market is. You know, this is a hawkish cut, even more hawkish than I and some other people expected, and yet the market is taking it very well. A hundred and twenty

four points now on the Dow Jones Industrial average. We're up about twelve points, so we're looking about point four percent higher on the SNP, almost a half a percent higher on both the TAO and the NAZAC. That is interesting. The dynamic has really changed. And he even was pretty explicit about what kinds of considerations will be looking for before they raise rates again. And I think that's probably part of why the market tickets so well because a

lot of those conditions are pretty remote. Do you think inflation is gonna spike anytime soon? Do you think inflation expectations are gonna going to perk up? Because the two was yielding Okay, this is minor was yielding about one six one prior to the FED decisions, now at one fifty nine, uh five years yielding one six two is at one sixty. So we've seen a little bit of a what does that mean? I think you need to look at it more than the next of the curves,

you know. And Stott Minern from Guggenheim was on Bloomberg TV after the statement was real used talking about this very effect, which is the two ten curve flattened after we got that statement, and so I think it's either you know, he was saying, it's either the front end that is repricing you know, less easy to come, or it's a market that's concerned that more stimulus is going to be needed here because we're going to hit a very you know, a slow patch for the economy, and

and so that you know, flattening and the curves or something that we're going to have to keep an eye on here. Not just the outright you know, benchmark ded

recession completely off the table. Now, oh wait, go ahead. Well, I was just just gonna say, I think there's also the possibility of pricing out on the tail risk of the Fed being even more hawkish today than it was, you know, I mean, yes, it was relatively explicit, but again, those conditions under which they would be raising rates seem pretty remote, and tail risk was really one of the big themes.

You know. Sometimes the last questions in the press conference, you think, okay, we've heard every ready to go now. But I thought Don Lee from the l A Times really elicited an interesting comment where some we found out what is it that you think Powell has changed? And yet look you said, look it's the tail risks that

are gone. We don't know what's gonna happen with trade, but we're less concerned that's going to blow up in our faces, which is I mean, I feel like trade was very much front of mind with him the last time we heard from him in this sort of setting, but also in the intervening speeches and q and a's that he's given and his colleagues have given. Are they right to be less worried? Does the bond market and

do investors agree with that sentiment? Alex, I think it's just more that the trade rhetoric has become less inflammatory than it has been. I still think it's a concern. I think, you know, Brexit is still on the burner. I think trade still on the burner, but I think because the rhetoric around it has been less inflammatory, that it's not an immediate concern. You know, I do want to mention Carol. You mentioned the inflation and Powell had a comment where he said inflation seems to be settling

below two percent. And Vince Saignarella, you know, my our colleague here at Bloomberg, Um, you know, we've had this discussion that it's like, oh gosh, you know, if the central banks around the world had to acknowledge that maybe inflation, like a two percent inflation target is unrealistic and inflation is just gonna end up being below there. Then it's like the jig is up. Why do you need stimulus?

So then it calls into question every global central bank stimulus program if you acknowledge that inflation might never reach

two percent again. And I think that's an interesting comment and something that we should really be thinking about because now we have to talk about the efficacy of the tool kits and and why are we even doing all these things in the first place if this is just where inflation is going to be settling Now about that, well, I wanted to go back to the trade point, this idea that you know, we've had played lucy with the football several times now with yes, the trade talks are

on again and they're off again. I think one of the differences here in slippery football too. But we're heading into a different environment because next year is an election year, of course, so I'm sure that there are a lot of people in the market we're thinking, you know, it's a lot less likely that they're going to blow something up in an election year. That's just kind of the

real politique from a market perspective right now. It's like if you're the Trump team, you know, the White House team, and you're strategizing about you've got to start thinking, Okay, what are the things that we need to come and get some closure on, even if it's a mini trade dealer, whatever the heck it is, you've got to figure it out.

What you're laughing, I'm laughing because one of those things on the list, you know, we don't want to wait in there, but we're all probably thinking it, which is probably, you know, impeachment or don't get No. I think we can talk about that. I mean, no, I think that's that's absolutely true. I mean we've got the House, uh, you know, essentially exploring exactly what they're gonna do along

those lines right now. I mean, when we think about what we're telling our viewers in our weekend show, we're starting to think about brexit and impeachment and not just the new economy. Just a reminder, the Fed reducing interest rates by a quarter percentage point for the third time this year, signaling a pause and further cuts unless the economic outlooks changes materially. Let's continue the conversation with our

team here. Alex Harris, Bonding, reporter for Bloomberg and Josh Wright, chief economists forms both in our Bloomberg Interactive Broker studio. We kept him hanging around to get some final thoughts as we continue to synthesize digest a little bit what we heard from j Pale. So Josh right, what happens next? Like, you know, as they look at data, the f O M C. J. Powell and his colleagues, as you look at data, what are you looking for? Job stay obviously

right around the corner. Yeah, that's a big deal coming up on Friday. I think the one of the things is we talk about data dependence. Which kind of data is that that's going to be focused on in a world where unemployment is already lower than the FED is actually comfortable with, inflation is pretty soft. Are they focused on real economic variables or they focus more on how the financial markets respond to them? Because a lot of it has to do with where you think, do you

want your policy to be accommodative or neutral? Sounds like cha Powell wants it to be a little bit accommodative. Yeah, what's the deal with inflation? I mean, are we truly in a different environment like the jury Seinfeld question inflation? What's the deal. I don't know what do you I mean, Josh, what's the conversation do you guys having at your place? It's a lot of head scratching. You know, we've been

having this conversation for a couple of years now. It's clear that there are some structural factors, you know, we work for alone to Oh it's gonna, it's gonna, it's coming, it's coming. It hasn't. I think we have to acknowledge that. You know, there's some ways in which we're going back to the old normal, but this is a way in which we do not seem to be headed backwards. Right. We've got technology changes, those are deep and long lasting.

We've got demographic changes, those are deep and long lasting, and that that seems to be holding these numbers down, which actually is helpful for the FED in a lot of ways. Yeah, exactly. But I think also you have it on a from a global standpoint, and I know our BA Governor Phil Lowe makes this point quite a bit when he speaks that, you know, globalization has an impact here and that's something that I think Powell has

maybe like quietly acknowledged and remarks. But I mean that is a factor as well, that it's not just about the U S. It's inflation broadly, because globalization does change the game a little bit. And despite the confidence that fed share Powell was evincing today, I think we do need to be concerned about assetprice inflation. So traditionally we worried about consumers inflation, but really it's been asset prices that have been the problem for the last two segments.

If we're there yet, I mean, he was very optimistic, He said, I don't see broad problems. Yes, there's some concerns of the corporate debt market seems contained. They have like a you know, clear analytical framework that he laid out. Um, but we can't deny the fact that there's a possibility that we could simply get a shock to confidence through

some kind of tumble in the stock market. I mean, how many people really feel that all those stocks out there, some of them, I mean, look at what's happened in i Pos this year. How many people really feel confident that the stock market actually what it has happened in IPOs To meet to this your kind of gives me some confidence that I feel like the capital markets have said either you're not making money so you're going to get beat up, or you're not going to come to market,

or you know what I mean. Like to some extent, I feel like the markets are doing what they're supposed to. I think that's right. A little healthy popping of bubbles along the way you can can really help. We've seen that true, But it requires continued vigilance. I mean, still you've got some some companies still have some pretty optimistic

evaluations out there. Yeah, that's fair. I think the other point that Joshua, you know, and going back to what Powell said about corporate debt and pimco's anti Christians, was on radio this morning with Tom Kinge and John Farrow, making this point is like the problem is there a Batman and Robin by the way, which is which is which? I don't know, but I guess this is what happens when we get ninety minutes into the FED decision on

But here's the issue and anti Christians. He was making this point is that everything is well and good in corporate bonds except when you have to sell and and this is the problem though, And he was making the point that the structure of the markets has changed, and this is where he was equating kind of what happened in the money markets to what could potentially happen with the corporate bonds is that banks are no longer the intermediaris that they once were, and he said, they're now movers.

They're they're not warehousing anymore. They're just trying to move inventory off their balance sheet. They don't want to have it. And so this is going to be the problem if you get waves of investors trying to sell their corporate brownhold things all at once. And and this is what that we need to be concerned about. And I think what the FEND needs to be vigilant about the law

of unintended consequences. Right there, Powell said that they weren't going to take another look at regulations, but I think you just made the best argument for why they should. Yeah, she's always good to make I know she makes good recommendations. The Great round Table. I'm not saying who's Batman, who's Robin, Who's Superman? Who's wonder was that woman? It's all all one and the same, alright. Alex Harris Bond, reporter for Bloomberg gosh right, chief economists for I SAMs. I'm gonna

get out while the getting is good. Journal, Yeah, but you let me drive. Oh no, no, no, no home, please revel, I want to dry ball. Just drive baby, good questions, drive to the globe that communings, We'll drive us on Bloomberg Radio. All right, it's time for the drive to the clothes. On this FED day Wednesday, David diets back with US president, chief investment officer for Point View Wealth Management, looking after about five point eight billion

dollars out in Summit, New Jersey. That's where he joins us on the phone. David, Nice to have you back with us as always. Thank you so much. Jason. All right, so let's talk a little FED since it's top of mine. What did you hear? Because the market, at least the equity markets, seem to like what they heard from old JP. Well, well, certainly they complied with what the market was expecting, which

was their third quarter point caught in as many months. UM. But then they talked about the future and the change of language a little bit, suggesting that we were not going to expect any time soon additional rate cuts. But when queried as to what would be the grounds to reverse rate cuts and increase, they talked about, UM, seeing more inflation, which by all accounts is not going to

come anytime soon. So people like what they heard. I think the main takeaway from me was they got the rate cut, rache are going to stay low, but they didn't scare us in terms of their concerns over the economy. Perhaps goldilocks, dare I say, David, Yeah, that's what I think the market heard. Of course, that was juxtaposed with a better than expected reading on GDP. We got a one point nine percent reading today, which was um not as good as the two from two two, but better

than the market expected. So that adds to that Goldilocks story. And so what do you do as an investor here, David, Because you know, we've had a nice run up here in a bun to names and sort of pretty broadly. You know, we were talking with Dave Wilson even at the top of the show and thinking about how the markets have generally been reacting. You know, sp is going to hit another record today if I'm reading my chart right, So what's not to like here or what do you

especially like? Maybe it's a better way to ask. In sure, absolutely, I think longer term we're still very constructive, and I think the key metric that I continue to share with my clients is you've got to yield on the SMP of two. You've got to yield on the ten year treasury well under that at one point seven, which means over the next ten years, with dividends typically increasing and of course fixed income staying fixed, you've got a high likelihood over time of making more money in them in

the market. But certainly near term, any types of headwinds could develop. Just today we heard that UM, the much vaunted meeting of of of World Monetary Chiefs and and so forth in Santiago, Chile is going to be canceled. We were hoping that we could put a bow on Phase one down there. That doesn't look likely right now, So that's potential near term volatility UM. Of course, there's still concerns over the economy abroad, particularly in Europe as

they as they face and deal with Brexit UM. But you know, given the valuation tilt in favor of equities, we're focusing on areas that have lagged a little bit. And to be honest with you, Jason, we like companies that are blockbusters in their fields. You know, I go back a generation to what Jack Welch said that all the profits of every industry is made pretty much by those companies who are number one or number two. So we try and pick them out within industries that we

think makes sense invest accordingly. So Budweiser and that's when that falls into that category. So I mean and iSER Bush, which is basically the merger of the Belgian InBev and of course Budweiser. Here they dominate the beer industry like if few companies any type of industry do, owning five of the top brands across the planet, um eighteen of their brands generating more than one billion in revenues. They got four nearly half of the US market, nearly two

thirds of many of the markets in Brazil. But the stock is down from July. There was some weakness in Asia in terms of volumes. But at the end of the day, when there's any kind of hiccup in an industry, the biggest company can squeeze costs further, push harder on their networks. And of course those brands are not to be duplicated. And I think, while you're waiting, you've got the two and a half percent dividend, This looks good,

no matter what the economic climate going forward looks. All right, David, got to ask you about Wells Fargo because I feel like we've been talking about it every time you've come to visit this or been able to call in. They got their CEO. You must be so happy, Yeah, I am. And it did get the stock above fifty um, it's spurred about ten per done in the news. It has fallen back. Of course, all the banks that even today, the banks didn't participate in the rally so much, are

still grappling with these narrow net interest margins. In the amount that they're paying is a lot relative to what they can lend. That's hurting them. But again, Wells Fargo has one of the best franchises coast to coast, which gives them tremendous economies of scale in terms of distribution, in terms of branches, in terms of advertising, and I

think they can make money here. Again, while you're waiting, you're collecting a four percent dividend, and recently, of course, with the lower interest rates, the re five business is perking back up, and apparently Wells fargoes getting more than its fair share of that. All right, And you also like speaking of dividends. Those pharmaceutical companies as are always a good place to go. Fiser is the one that you liked, also a huge player, and you're talking about

a three point seven percent dividend exactly. You know, the biggest sales force in the world, the largest amount spent on R and D. I still don't think the market is giving them enough credit for what they have in the pipeline. I think the eight hundred pound guerilla over the industry, of course, is politics and certainly proposals as we get into the political season to radically change the

health care system. But quite frankly, we have seen that movie before, and you know, certainly, I think after the candidates um, after the primaries are over and and and the candidates on the Democratic side start playing for that middle I think they'll back off some of the most radical plans and people will see its business as usual. Five is fifty two weeks forty four right now, thirty eight, collect three percent and move up another fift with one

of your top healthcare companies in the world. Doesn't look so bad at the intentional We're going to talk about some of the political market plays coming up in the final hour of the show for now, We're gonna leave it there with David Deed's President, chief investment officer of Point View Wealth Management joining us on the phone from Summit, New Jersey. Love talking names with him. Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern only on Bloomberg Radio.