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Let's get to that first FOMC decision of twenty twenty five, the Fed, as expected, holding interest rates steady, pausing to assess the inflation outlook following a string of rate reductions last year. In the statement released with the decision, the Fed repeated that inflation remained somewhat elevated, but removed a reference to it having made progress toward their two percent goal.
Here's j Powell in the statement at the press conference about not needing to hurry to just their policy stance.
Over the course of our three previous meetings, we lowered our policy rate by a full percentage point from its peak. That recalibration or policy stance was appropriate in light of the progress on inflation and the rebalancing in the labor market, with our policy stance significantly less restrictive than it had been, in the economy a strong We do not need to be in a hurry to adjust our policy stance.
We do not need to be in a hurry to adjust our policy stance that of course was Fed jow J. Powell just a few moments ago. We got a big program coming up. We are diving into the FED, and let's do that. We got with us Nate Thuft, chief investment officer at Manual Life Investment Management, joining us from Boston. Also with us as Bloomberg Intelligence Chief US Interest rates Strategist, Ira Jersey, who no, is not in Princeton, New Jersey.
He's here in the Bloomberg Interactive Brokers studio today.
All right, let's go to you first. I got to say our Chris Antsy on our live blog, who follows the global economy, he posed this. He says, it's just logically, you wonder if inflation is no longer making progress toward the Fed's two percent goal inflation goal, and the labor market meantime is solid, how can the risks be balanced? Which is what JA Powell said? Are they balanced? If the two percent target is still out of reach and we're not making progress toward it?
Well, well, I don't think. Firstly, the two percent is out of reach. And look, the FED kind of tied their hands when they went to a firm two percent target because if inflation was right where it is today at you know, two point three, two point four, depending on which measure you look at. We would say, okay, inflation's fine, right, like, we wouldn't worry about it, except we're not at two right, And.
That's the there's sticklers on this two percent.
And that's part of the problem. They should have kept more of a you know, average inflation targeting kind of thing, and I think that would have made their communication a little bit easier. But I think the important thing that came out of today's statement, and with that change in the statement and then j Powell mentioning multiple times it don't have to be in a hurry. This could mean
a skip again in March. And I think that that's very important because I think there were a lot of people, myself included, thinking that, hey, the Fed would cut in December, skip January, cut in March, and then maybe be done after that, or maybe do one more. But now they're talking about multiple weights, and the longer the FED weights, the higher the risk. I think that the next move is actually a hike, so they can stay here for a long time. Probably at this point.
Nate, come on in here, do you agree that do you think that that two percent target is actually out of reach.
I don't think it's out of reach. I think it's all depending on your time horizon. Right, the BED has been very clear as well as most economists that the path to lower inflation isn't going to be as straight line, and we have seen a few pockets of hiccups here, right, But ultimately, our belief is that the trend for inflation is still down, is just not as fast as a
lot of people want it to be. And our view is that the FED will continue to cut even if we don't get to exactly two percent, as long as as they're comfortable that the trend continues towards two percent. And at the same time, they're going to continue to be very focused on the labor market. And right now, the other common for the bet is the labor market looks pretty solid. We would define the labor market as fine, not necessarily solid, but it's not too hot, it's not
too cold. It's okay, but there's still remains risk in the labor market that it could weaken as the year goes on.
All right, Right, let's talk about the moves that we saw in the US rates market, because I feel like the Fed like dusting off Jake Powe dusting off his shoulders and saying, Okay, there was a little reaction, but we're kind of where we were, where we were before the Fed announcement. So is he feeling kind of maybe good about what was done and what was said?
Well, you know, so the guide didn't say I think the market. Remember we had basically three events today from the Fed. So the first one was a statement, and the change in the statement, particularly that inflation statement saying that we're not no longer making progress right, like the removal of that was taken as hawkish pro rates go off, right, So short term industrates went up a little bit, you had Fed fund's future sell off a little. You had so for future sell off a little. You had two
year yields go up about five basis points. And all of that's reasonable because that means that, hey, if the Fed's done hiking, then interest rates are right what they're going to be, So everything should be at four point three percent in terms of two year yields and all the short term rates. But then you had the press conference, and Jay Powell made a little bit of an about face at the press conference, particularly in after his opening remarks to a question about why the change? Right, why
the change? And basically he said, well, we wanted to shorten the sentence, and we you know, we're not making the same kind of progress we were towards the inflations. But it's not a big deal, right, That's what he made it sound like. And that's when you saw rates go the other way and everything went back nearly, not quite, but nearly back to where they were.
So is this like the FED Twitter you know platform only one hundred and forty characters, or like, what how do you read something like that from Jay Powell? Editors come in and say, we got to make this shorter. What is that?
I think it's a clarification. The way that I look at the change in that first paragraph, and all of the changes were in that first paragraph, which is about the economic environment is a marking to market, So just an acknowledgment that the labor market is okay, not great.
I agree, but nate on that. But then the inflation statement saying that hey, we're no longer inflation is still above our goal, but no longer making progress like that, that means that the next logical step is it goes the other way.
Right.
Inflation goes higher, right, and that means they have to.
Like, Hey, Nate, I was saying to Carol before our program started, I was surprised at how much politics came up. Carol, you weren't surprised, you said it was expected.
I assumed that that was going to be, like everybody was going to obsess over it.
Well, policies from the Trump administration, tariff's disruption to supply chains, tax policy. How do you think the FED is dealing with all of that? Do we get any clarity from today? I mean that the FED chair was prepared for all those questions, it seemed.
Yeah. I think the FED was expecting it as well, because it is a hot topic, and even their counterparts in other central banks north of the border, as an example, Bank of Canada, they explicitly addressed terrorists of being a negative impact in their commy. So I think the FED was prepared for it. But I also think the FED came into this meeting with two goals, one to maintain as much optionality as they could and two not to
move the markets a lot. And I think overall cech Chechas state in the conference they balanced that pretty well. So ultimately they were expecting it, but they weren't going to give a lot of detail and a lot of offerings as to what the policies actually need. One they don't fully know, but too we don't know. We'll actually be fully into Nate.
I want to ask you for the financial markets, especially the equity markets, but really all of it. It's been a wild week. It could be even more as we wait a big batch of big tech earnings that are coming out after the close today and also tomorrow after the close. What's the smart equity trade right now? Is it wait and see?
Is it by the dip? Is it sell? What is it?
We still lean in on being overweight equities. I think the general fundamentals, despite where valuations are, still says be overweight equities. Maybe not as much as people happen, but still lean into that trade. So by the depth, including tech stocks is still our general argument for our clients in our current position and portfolios.
IIRA, come on back in here and next vocal point for you when you're looking at rates. We just heard from the FED, so that's behind us. Now what's the next vocal point for you?
Yeah?
So, firstly, additional details of some of Donald Trump's policies, right, so, I think that those are going to be.
Very important, which one specifically, well things.
Not so much immigration, we see what's going to going on there, but things like tariffs, like are we going to get across the board tariffs? There's a lot of different pieces of that. And then also what kind of cuts does he expect to make quickly in terms of government spending? Right, so there's some there's not much really he can do with what's been appropriated already. That's constitutional. Right, we can get into the Budget Empowerment Act of nineteen
seventy four. If you're really do want to get super wonky, I'm.
Happy to do that with you any time now.
But there's certain things that if it's already been allocated he Congression.
He can't do that right then, and the courts will come in and he'll probably be overruled, just like he was with a couple of other things. But that being said, in the future, he can say, Okay, we're gonna we would like to see cuts here, cuts there, And as the Republicans have both Houses of Congress, it's very likely
that you're going to see some programs cuts. So the question is how much of those cuts are going to be able to offset the tax cuts that he wants to wants to do, and what does that do to the budget deficit.
Well, did get a question about, you know, the staffing at the FED, and he said he runs the FED at a very careful budget process.
And that's all I'm going to say.
Here's also about if he had any contact with President Trump, and he was like said, no, no.
No, no, no, he did give someone a mulligan. I like that. I'm not going to answer that question. I'm giving you a mulligan. I don't know for all.
Nerds, but I love watching a FED press conference and listening to j Powell take the questions.
Yeah, we're nerds.
Thank you, Thank you every Jersey as always, Gie us interest rates strategist here, Bloomberg Intelligence here in studio. I'm losing my voice a little bit.
Well then I'm going to help you out here.
Also, a big thank you to Nate Thufft, chief investment officer at Manual Life Investment Management joining us.
What can I tell you