Fed Makes Second Straight Rate Cut, Splits on Further Action

Business Week on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Let's bring in our team, make some analysis and some thoughts on that latest FED decision. Kathleen Hayes, Global Economics and Policy editor at Bloomberg News. Right next to me in our Bloomberg Interactive Broker studio and along with us is Dave Wilson, Stocks Editor at Bloomberg News, also in our New York studio. Kathleen, let's

start with you. Widely expected uh we got to uh FED lowering it's interest raced by a quarter of a point, also lowering it's right on overnight reverse repos by thirty basis points. As somebody said, not an enormous surprise for the markets. Bonds and the dollar move more than stocks, but there is no fireworks to report yet. And that makes from j Palis press contin what stands out for

you well that this is basically what was expected. I think anybody who was previewing the FED on radio or television in the last twenty four hours was saying, yes,

basis point cut baked in the cake. Uh. The descents by Esther George Present president of Kansas City FED, Eric Rosen, Grand President of Boston FED dissenting because they don't think a rate cut is needed exactly what happened in July also seemed to me and many others that Jim Bullard, he who recently argued for a fifty basis point rate cut,

he dissented in favor of that. Uh. The cutting the interest on excess reserves will put more reserves into the system because the banks will have less incentive to put their reserves at the FED. The lord the rate is and they whole and people also were looking for something ten to fifteen, maybe the thirty basis points. So that should then take pressure off the repo rate. It should help people effective funds rate where the FED wants it again,

that was pretty much expected. I don't and that. So this is now the fourth time they've been doing this since about the last year and a half. And this was also much bigger move in the past when they've tweaked that, when they've lowered the interest rate on excess reserves to make sure it stays below the FED funds rate and puts the reserves into keep the effective funds rate from getting too high, it's only been like a

five basis point move five or ten. So this is a more aggressive move, and surely J. Powe is going to get so asked so many questions about this starting about a half an hour from now. What about the FED dot plot because I'm looking at it in terms of what we might see, because I think that was also very key, Right we got an update on this and what the expectations are, because I feel like the market expectations are pretty aggressive for more rate cuts to come.

So it looks like one eight seven five percent um. The prior was two point three, same number prior was above that, So it looks like raining it in, pulling him in. But you tell me in terms of I'm trying to kick I'm trying to read really quickly and get a better look at the dot plots themselves, because it seems to me that there there may be a little more generous move here. But um, it's just this

is one of the most hortant parts the boy. That's okay, check that out, because in the meantime, I want to take a look at the equity markets, because we did see equity losses steep and initially we're bouncing back off there's lows. But SNP was down about eight heading into the FED decision, now down about twelve. Dad was off about fifty eight points, now down about eighty six points, and the nastack was showing about a loss of forty

four going into that rate decision. It's now down about fifty eight points, but it did dip even lower Dave. So we did see an initial reaction. Yeah, I mean you've you've seen some volatility really the spind of bouncing around a bit, though it's settled in at lower levels roughly where it was before the decision came out. And

why would the reaction be what it is? Probably as much as anything, because you know, there seems to be a split along the you know, fed governors about what do you do from here and the need for more e absolutely, and that really becomes the question because you know you've got people in the markets looking for multiple rate cuts and with that two of them, but you know that they're anticipating that you were possibly get two more or three and more depending on who you pay

attention to. So really it's it's that that kind of jumps out coming off our news desk here. Uh No surprising on the main action, but the dot plot of rate forecast, just to kind of layer on what Dave just said, is somewhat hawk is showing a split over the need for more easy not just in twenty nineteen,

but in coming year. Seven officials see an end nineteen funds rate of one point six to five percent, with five at one point seven, five at two point one five percent, None see the rate going below one point six too. What's a lot of numbers. I just tho, yeah, I think what I think that's significant. First of all, this is what people expected that you might get what they would call a hawk ish cut, because if there's not a big move towards yes, we do need uh

two or three more rate cuts this year. We need more next year, and you're right, we're not really seeing that. But it looks to me like actually for nineteen you now of you still have what about five who don't see anymore cuts, and then you have five holding steady, and then you still have about seven who are looking for another cut or so, and then um, there's just a division on the committee certainly this year and next year. And I can only imagine the heated debate, right, going

back and forth. Well, and as someone a former FUNE official was telling me in the last twenty four hours, you know, and when a heated debate just means you very calmly state your case, voices, don't raise but he always and look at this a big difference. First of all, look at the recent data. The recent data has not been super weak, right, You've still got very weak investment, you still got trade war concerns. Manufacturing. I s M did flow Paul blow fifty contraction for the first day

high since two thousand seven. We got that data to that that came out today. So I think that for for the bolster, the case for weight and see we're making a cut, let's see what happens next. And one more thing, let me say quickly because I want to hear what Dave thinks about this too. The dots are a snapshot of a point in time. If there's a

big shift in the economy stronger or weaker. At the next time they update the Summary of Economic Projections in January, you could see a very different view of where they think rates are heading. They will tell you this is not it's not a forecast. It's based on my view vehicleimy. Now, this is why I think rates should be, but that too could change well. And I just want to point out that the FOMC reiterating we've heard this before that

it will quote act as appropriate to sustain the expansion. UH. This statement containing minimal changes UH. And they have said that mainly. They noted household spending games have been strong, while business fixed investment and exports have weakened. UH. The

mention of exports is new. There's a more explicit nod to trade tensions weighing on growth, which really mirrors, right, Dave, what we got from Federal express I feel like that was kind of a wake up call to everybody that's not taking a hit after its latest earnings and blaming trade absolutely and not only trade, but also just a general slowing that they're seeing, not just you know, in a broad sense, but you know, specifically since June when

they last made a forecast. So you know, it's something that it's definitely creeping up on people in a sense. And FedEx you're looking at the biggest drop and the stop potentially since two thousand and eight. So it just goes to show you, you know, how much the outlook is really kind of raised questions about where this company

is headed. Having said that day, we know that, let's say we get some resolution, although the conversations we've had around this table in our studio is that don't necessarily expect some kind of big resolution. Our own Andy Brown of the Bloomberg New Economy Team editor there um, you know, saying that we might see some little tweaks just to

kind of get past it. But any kind of you know, calmness to that could certainly change the outlook when it comes to corporations, uh, potentially in terms of either spending on things or maybe feeling more calm or calmer about the global economy. Well, there's no doubt trade as a wild card. That said, I mean, you've gotten some indications that companies are at the very least waiting for things to shake out before they're willing to move on things

like business investment. You know, we we had a tried out yesterday which I put on a Twitter feed just re making that point that you know, with the investment not being there, it's a concern that you know, you have to focus on in terms of where the economy is going. But I think I think that's also interesting that UM again look following our our our market Live blog, et cetera, pointing out that you know, five officials see no need for no nor more norma cuts at all.

Five want to see basically one over the rest of the year, and seven want to see two. Now, remember we focused a lot on the voters, right and the and that's right now Esther, George, Eric Rosen Grin, and Jim Bullard, and they're voting until the end of the year. New York Fed President John Williams always votes, and we got the Board of Governors because but when they count

the dots, it's everybody. So when you're looking at people who want more rate cuts than the than the guys who don't want it at all, probably you probably have the cary in that group. Who knows you've got maybe maybe you have J. Powell there, there's no way of knowing. I'll leave that to Blueberg Economics. Those guys just sort it out. You need to look at the voting members, right, But but you have to look at voting members. But

remember it's not just Fed Bank presidents. It's also it's Rich clarin of the vice chair, it's J. Powell the chair, it's uh Low Brainerd on the board of governors. It's so many people. So if there's that many that still to me, it seems so many that still think there's going to be a need for a couple more rate cuts.

You may have some heavy hitters in there, all right, interesting, So you know, I do wonder kind of where we go from here and what should be uh the line of questions, watch the data comes to J Powell, watch the data or J why your board is? You know the FOMAC is very divided. Where are you trying to figure it out? Where the vet chair himself is? That's one thing I'd want to know. Um, what how are you weighing the risks of the trade war continuing? Oh,

by the way, Hong Kong all the geopolitical risks. How does that affect you in terms of your sense of where you want to go? Um And again, of course he's gonna get tons of questions about the rate and if adjusting the interest on access reserves that I E O R is enough? And are you gonna put your standing repo facility that's been discussed so long in place? And do you agree with people say you've got to do a little qui light to get some reserves in there.

You know, he likes to wrap up those press conferences. He's pretty quick with them. And I do wonder if it will go on longer. Dave Wilson, come on in on it, because I do wonder what this means in terms of equity place. We've talked about momentum, We've talked about defense, and we talked about cyclicals. Bank stocks getting a little bit of a lift here on this news on the expectations that maybe RACHEL will be cut so much, and that's good for them, But tell me, you know

how this might affect the trade. Well, I mean, you're right to focus on the banks, because let's face it, you know, when you think about the way that interest rates have been coming down in fact, with the yield curve going negative and still negative by the way, when you look at you know, the midpoint of the Fed funds target relative to even the tenure treasury yield, which is at one and three quarters per cent pretty much as we speak, you know, I mean, the banks have

to work through the issues in terms of their profitabile you know, net interest margins, that gap between what they're paying depositors and what they're running on their loans and investments. You can talk about housing picking up, but if the money isn't there in terms of what banks can earn from their mortgages, I mean that becomes an issue for

their profitability down the line. So what's happening on the right front, uh, really front and center for the banks, And I just want to mention our Limberg Glive blog, our whole team on it, and they're saying it doesn't seem like there's any real worry about a slowdown on slowdown on the economic horizon by the members of the FOMC. Well, they're not seeing it yet coming through on the domestic side,

so they're concerned about the global side. But there has been a bit of a move in bond yields on this right, not a big move, but the tenure yield was at one point seven four. It's at one point seven five, um, and I think we've had a bit of move in the shortest so anyway, it's not a big, big difference, but certainly people writing waiting for jap two

years one sixty six now at one sixty nine. All right, Kathleen Hayes, you guys are the best global economics and policy editor at Bloomberg News, Dave Wilson, He's gonna be back a little bit later on Stocks editor at Bloomberg News s indeed, no surprise today's Fed decision. The Fed UH lowering interest rates as widely expected by a quarter of a point, but some concerns that maybe the Fed will't be as devish if you will in the future when it comes to UH lowering rates again later on

this year and maybe into next year. So let's get into it, and let's get into market reaction. Our Jersey is with US Bloomberg Intelligence Chief US Interest rates strategist. He joins us on the phone from b I headquarters in Princeton, New Jersey. Also with us is Steve Skanky. He is former White House National Security Council staff member currently Chief Economic Advisor at keel Point based in Washington, d C. In our Bloomberg Interactive Broker studio in New York. UM,

I want to start with you, Steve. Tell me your thoughts widely expected in terms of the rate cut. What stands out for you in this decision? The rate cut was so baked in it would have been impossible for them not to do it today, even with the the articulated reluctance on the part of many to cut it

all some uh to actually dissented on it. There were a couple that wanted to cut more, but it was hard with what the markets were expecting not to cut even though the recent economic news as recently as housing starts this morning we talked about at the top of our broadcast such a positive rebound the job quit rate up again to expressing confidence in labor markets and among consumers. I think they just got boxed in and didn't know what else to do. All right, We're gonna dig down

a little bit deeper. Are come on in on though what you've seen since the statement has come out, and of course we're waiting for j. Powell, which we will take Live. In about twelve minutes, we'll head to the Federal Reserve. But what stands out for you are not

a huge market reaction in the rates markets. I think the thing that people were looking for in the rates markets was after the volatility in the reproaches degree at market um, they were thinking that maybe there would be some statement about either a modest expansion of the balance sheet so reserves didn't continue to fall as they have been even after quantitative tightenings ended, or some kind of repo facility, like a standing repo facility that would uh

inject reserves whenever they were needed. And you didn't get either of those things. So I think that's something that j. Powell will be f in the press conference coming up, and I think that's going to be probably far more interesting than the statement was. Quite frankly, Yeah, I kind of can't wait for the press conference. And I think it's interesting that, you know, we had a earlier story that Jeff Gunlock of Double Line, you know, saying that we could get from the Fed kind of a quey light.

You know, possibly Steve come on back in here, because I do find it fascinating that heading into this, and I feel like over the last month or so, especially when we saw the sell off on the equity side of things in August concerns about trade that people were thinking, well, maybe we get a half a point cut. How have we seen or how has it been possible that we've gotten such a disconnect between some of the data points that are out there and the expectations uh for the

Federal Reserve. It's really an interesting phenomena that we see that because the data points don't really argue for a cut. Uh. And interestingly, if you look back six weeks ago the SMP in the daw we're basically six weeks ago before the July meeting exactly where they were on Monday, correct, and even oil prices with the machinations were about the same. UM. And recall that after the July thirty one announcement the

market sold off a little bit. The next morning they rebounded, and then the President made a dramatic announcement about further tariffs, which of course we're problematic for the markets. Are you concerned that j. Powell is feeling pressure because the market was expecting it? I mean, you know, what is the role of the Chairman of the Federal reserve. We know

about the MANDA, the dual mandate. I mean, but what is the responsibility to kind of, you know, remove yourself from the noise that's out there, whether it's the presidential tweets or the pressure from investors and just kind of do the right thing. Do you think that certainly is his responsibility, Carol. But but I think that he's been

a little bit overwhelmed by the pressure. Uh, not only from the president, which I think he's been pretty good at resisting, but particularly from the markets, and with all the things that are going on, you know, the weakness in China, the continuing problems in Europe, the incident in Saudi Arabia, which is which is probably not a big deal, but it just increases the fragility or the perceived fragility

of the markets and their inability to absorb bad news. Uh. And uh so here we are, we we get the cut. I think he felt that he needed to do it because the markets expected it, even though perhaps even he doesn't believe that a real cut is needed. You know, I think I think one of the things that we have to remember here is that a lot of the data that we're saying that is good. It's really services

sector data. The manufacturing sector continues to slow. So when you look at things like I S M New Order, you know that's below fifty, that's a sign potentially of contraction in the manufacturing sector. And even though it's a relatively small part of the US economy now it's an important part of the economy, and that can feed through to all of the other sectors of the economy and

can be a real worry. And you know, the market even though the markets pricing these things, and one of the reasons is UM, the market tends to follow things like manufacturing, new orders and UM and and because of that, you really I think the FED wants to see a turnaround, at least the doves in the FED want to see a turnaround in some of the the kind of forward looking data before they think about, you know, stopping the

easing cycle. Well, how are folks on Wall Street, uh, you know, in the world of fixed income and fixed rates and the rate environment kind of rethinking some of their formulas going forward because of what we got so far today. Well, yeah, I think rethinking the formulas. We've been trying to do that for a couple of years now because we are in a different environment when it comes to you know, inflation and growth. And you know

he'll b s again. I'm sure j. Powe will be asked about the Phillips curve again and whether or not it still exists. That's relationship between inflation and employment and

why we haven't seen a significant uptaken inflation. And in fact, since the last meeting, the inflation expectations baked into the Treasury Inflation Protected security or the TIPS market has actually come down about thirty basis points because of some of the global inks that have been going on, and as well as a little bit lower oil prices until very recently, so you know, and they didn't change that part of their their statement, um which I had anticipated them noting

a little bit that that inflation measures had come down a little bit. Instead they just say inflation compensation has remained low. Steve, you know, I'm curious to you about what your expectations are about kind of where we are in this economic secle. I feel like it's been a guesting game for many years now at this point. Uh, there was a survey out I believe it was by Duke and half of the CFOs in the service US recession within a year. Um, where are we on that possibility?

Because Jason and my coast UH and I resently caught with James Gorman over at Morgan Stanley and said, you know, look at something like Australia, that economic cycle has gone on for a long time. There's no necessarily any reason why we can't kind of continue UH as we have over the last couple of years. What's your take on that, Carol, I think the big question will be what does the

President doing a trade deal right now? The uncertainty that's in the market about where tariffs and trade matters are probably overwhelms everything else, and the Fed really can't counteract that with a quarter or a half a point cut. And we we've seen that along the way, and there

are positives and negatives. And I agree with what Irish said, but but just looking at consumer confidence, consumer sentiment, small business optimism index, the continuing spending within small business are real drivers of of what's going on in the economy. So it's hard to see what would trigger a recession in the next twelve months. Notwithstanding the Duke survey that

was pretty interesting. There's just so much st that there would have to be an external event like a major trade war or a big disruption that would push the economy toward recession. Otherwise it's hard to see how we we don't get through with the economy and sad Yeah, I actually agree with that sentiment. And I think one of the reasons why a lot of people are thinking

there's a recession is basically twofold. One is that you know, we've just it's been so long since we had a recession and people aren't used to, you know, having much more than a decade. But time is not a variable that recessions necessarily need to care about. And number two is I think people look at some market indicators like an inverted three Montenure yield curve and say, oh, that's

been a recession indicator. But that's a poor recession indicator in my opinion, because it's really you know, the market

forward expectations of where that's going that matter now. And I think, ironically, um, that might not be the same kind of indicator as it's been in the past, primarily because, as with interest rates so low and with the Fed Reserve easing interest rates, at some point, if interest rates get to zero again, the market's going to anticipate more quantitative easing, and because they expect more quantitative easing, curves

will remain flatter than they would otherwise. Be all right, I just want to remind everybody of the big news at this hour, of course, the FED meeting coming out with their rate decision at the top of the hour, Federal policymakers lowering their main interest rate for a second time this year, while splitting over the need for further easing.

They're kind of caught between the uncertainty of our trade and global growth and also a domestic economy as you've been hearing from both Ira and Steve that is holding up well. So what does it mean for the markets. We have seen a deepening when it comes to the equity cell off Right now, the SMP is down just about twenty two points down Jones Industrial Average. We're looking at a loss of about a hundred and sixty four points.

It was down just about sixty prior to the Fed decision, and the NASDAC, which was off forty four before the rate decision, now down about eighty four points. In terms of UH the fixed income market, let's get an update there, because we have seen a little bit of an uptick in yields ten year note right now with the yield of one seventy six, the five year note yielding one sixty three, and the two year note with the yield

of one seventy one. Steve the press conference, we're getting ready to head to d C and listen to J. Pow. What would you ask him? I would I would ask him if he can give us forward guidance on where they're going to keep rates rather than continuing to cut. You know, the Fed used forward guidance very effectively in the past, and they haven't done it recently except to

say that we will follow the data. And the following the data issue is so complicated because the the market really doesn't know what data they're following anymore and what makes a difference in what doesn't. So to hear the chairman speak as to that, I think would be really helpful and I would certainly ask him that question if I were in the room, I want to ask you to just if I may follow, because you're at the intersection of Washington and markets. We just had President Trump

tweet and here's the tweet. J Powell and the Federal Reserve fail again. No guts, no sense, no vision, a terrible communicator, Um, Steve, he's wrong. Well, the Chairman of the Federal Reserve hasn't exhibited the communication skills that some of his predecessors have, and that's been challenging for the market when they're hanging on every word. Uh. He's a

very bright and skilled later at the Federal Reserve. But when you look at the deft that Janet Yellen and Ben Bernankey had in really saying a lot but not much, it left the market guessing just enough that they were really quite happy with what they did. I think Chairman Powell has had the disadvantage of maybe being a little bit too specific as to what he says and what he means. All right, and what are your thoughts on that.

I think that the President likes Jim Jim Bullard because he dissented and wanted fifty basis points and hem, I'm not sure. I think the President is not acting rationally, like if he wanted lower interest rates, the Feds delivering that, it's just maybe not at the pace that he had hoped. I mean, it's you know, the FEDS job. The Fed

tends to move incrementally. The only time that really they move very quickly and cut introduced very quickly is when we're already in recession, which you know, as we've noted, you know, we're not nearer recession right now, but the Fed wants to, you know, make these incremental cuts to try and avoid a recession because you know, some data is bad, some global data is not looking good. But as a whole, the US um, the U S economy

is holding up, you know, much better than others. Gentlemen, thank you so much, really appreciate your input and analysis.

Our Jersey chief US interest rate strategist at Bloomberg Intelligence on the phone from URBI headquarters in Princeton, New Jersey, and Dr Steve Skanky, thank you, thank you, a chief economic advisor at kill Point form, a White House National Security Council staff member based in Washington, d C. But finding his way to our Bloomberg and director Broker studio on this Wednesday, all right, just to rehash, of course, we're waiting comments by J. Powell, the Chairman of the

Federal Reserve, will take you there as soon as he begins speaking the news Federal Reserve policymakers lowering their main interest rate for a second time this year, while splitting over the need for further easing, and we have seen the equity markets dip lower as a result on that news um and the FED being maybe not as uh, indicating that there are a lot more rate cuts to come, if you will, in the future, which the markets have been highly expecting. That's a great song, man, It's so relevant.

Alex Harris is in the house bond reporter at Bloomberg News. Here in our interactive broker studio. Josh Wright was like, what did I miss? What did I miss? Maybe we'll play it on the way out. His chief economists at I SIMS also in our Bloomberger Directive broker studio, perfect too, individuals to talk to about the FED rate decision j Powell's press conference. They've been listening closely. I've been watching

and listening closely. We did see, uh, some market reaction, but we've kind of bounced back, certainly on the equity side of things. So let me start with you, Josh. What stood up for you? What's up for me is how much the power FED continues to get away with this divergence between what they're projecting and versus what the market expects. So the market expects lots of recuts, more re cuts this year and continuing on, and the FED continues to say, you know, we're just gonna take it

step by step. We're not going to provide any forward guidance, any formal forward guidance, and even with our rap projections, we're gonna say we don't expect anything to move. And the market apparently just expects that the FED will deliver um and that they are right and the and the

Fed is wrong. Is this just like a spoiled child and just wants what it wants or is it you know that in terms of the market kind of you know, ignoring some of the economic data points that are out there that do show that things seem to be okay.

I think that every time you have a new FED chair, and although you know, Chair Powell has been in office for a little while now, there's always this process of the market getting to know the FED and the FED getting to know the market, how they're going to communicate with each other, and it seems like they've worked out m oh, you know, they're they're okay with the style

of communication at this point. So j Pala does something and the President tweets, because we know that the President did tweet saying j Pala, the FED fail again, no guts, no sense, no vision, A terrible communicator. Not my words, but the president. Um, Alex, come on in on this and what you saw today in terms of the decision, the statement, the press conference, Oh goodness. Well, you know,

the reporters exceeded. They went over. You know, Usually I joke with some people about the number of questions that you know, reporters will tend to ask about reserves, balance sheet, all the toolkit things that that I love to talk about. And we set that number to I mean, today was an easy beat. We were we were over on that one. Usually we're sellers on that um, you know. But so

it was kind of interesting. The one thing I did wish they would have asked and they missed, is not only did they lower the interest on excess reserves rate, which they had done three other times before this, but they also were the rate on its overnight reverse repurchase agreement facility, which has sort of acted like a de facto floor here. And so that's what I think a lot of people, at least in the front end now

we're confused about UM. And I talked to him, my clority at RBC, and we just put out kind of what his thoughts on it, and and he's like, look, you know, if like, if you have funds flowing into that facility, it actually drains reserves from the system, so it just induces more volatility. So this is sort of their way maybe of getting ahead of it UM. But we don't know. But it says to me that maybe they are a little bit more concerned about reserve scarcity

than maybe they wore before. And I think Powell said, hey, look, we have six weeks to evaluate this to see like how much of a problem is He's like, reserves move. Well, come on, Josh, talk to me a little bit about what happened this week in terms of the overnight UM market, uh, and what the Fed had to do. How do you see it? Because we certainly have a lot of folks, including our Alex Harris, you know, and others, kind of explaining logically what happened. Are you concerned about it or

how do you see it? I think eventually the Feed's gonna sort this out, but we are in an awkward moment here where the FETE has really been wrong footed. They thought they had some sense of where the market was they knew, they weren't sure. But it turns out that we are in that seat part of the curve when you think about you con one oh one, this is the demand curve, and that curve has got a slope that shifts depending on how much money you've got out there. And we are not where we thought we were.

That's the big story here. The Fed is surprised that actually they need to manage reserves in a much more dynamic and proactive way than they expected to be doing for you months. How did they miss it? What go ahead out? How did they miss it? Um? I really think that this is again a trargery supply story. And know Powell had some comments towards the end and what he said, he goes, we kind of knew this was

coming right. There had been stories that had been written about this and the expectations, but but the magnitude of it was yeah, and you know, and this is the other issue is that you know the treasury, it's it's really on the treasury side, and it's a fiscal problem. And I and I think Powell sort of hinted at that, is that and you have the treasury supply growing by this much, it's gonna put pressure on everything else. The cash balance is getting bigger, that drains reserve, so that

adds to reserve scarcity. So there's all these issues at play here and and really at the end of the day, I was talking to something about this earlier, like what we've learned from the volatility and the funding markets this week is that we have too much debt and it's only getting bigger. And that's very problematic here. I'm not considered commercially, I'm talking about treasury data and it's only

going up and this is a problem. So ultimately, what they're going to have to do with everyone calling for, you know, the FED to start looking at you know, expanding the balance sheet again and doing what everyone's calling KWI light and buying assets again is you know, it's almost like, in a way, like an m m T kind of light that you know you're using, you're using

monetary problem. You know, you're you're going to monetize the debt and essentially, you know, give them more room because now if you're buying treasuries, you're absorbing a lot of that supply that the keeps bringing into the market. The irony is that We've been so conditioned to think of this as being unprecedented times and it's the new normal that we all want to talk about it as que

light and something that's really dramatically different. The reality is that this is going back to the way the FED ran operations before the financial crisis. They didn't want to go there. They wanted to stick with the new normal. In fact, we are currently, at least temporarily revisiting the old normal. So this is kind of how it used to be. Yes, And that's a reminders step in every day and just you know, try to you know, shave things very thinly in order to get the rate where

they want it. So what, no, no, please help us out because I feel like this has been an interesting week because of what happened in Saudi Arabia and all of a sudden, you know, we're worried about the energy markets and the potential for a shock globally because of that, and then of course you had concerns with the overnight markets, and I do wonder how do we put all of that together with what's going on in the global economy,

the US economy. You know, how much of that that has happened potentially can have some kind of longer inter longer term impact on the US economy s scifically that will cause the FED to maybe have to be more aggressive or potentially back off at some point. Sorry, there's a lot. There's been a crazy week already and it's only Wednesday. But those are two big macro stories that have consumed a lot of time here at Bloomberg, and I'm wondering, are we spending too much time on it?

Is it important in terms of how it my impact as I said, US economy, global economy, and then ultimately what the FED has to do well. This is the hard and important important work or trying to figure out what is going on in real time. But I think so far, the early indications are that these are bumps that we're going to get over. I think we are going to be in a period where people will be more closely attuned, of course to what's going on in oil and what's going on in short term markets. But

the FED has the tools. I mean, ultimately, what we're looking at right here is it's nothing like two thousand seven, two thous We're not dealing with concerns about stigma or specific lenders or borrowers not being credit worthy. We're not worried about the collateral in the system. This isn't a question of contagion. This is right back in ironically the FED sweet spot, which is just the absolute supply of

money out there. This is about, you know, companies or banks are not wanting to lend to others right because of concerns about risks. Correct, It's just they need the cash, they need the dollars, and somehow that hasn't been calibrated correctly. Yeah, it's sort of like I mean, you know, we've talked

about it. If you think about it as like a giant like it's plumbing, you know, and so there's there's a lot of certain cash like assets and you know, but it's creating blockages in the system and that's ultimately what we're dealing with here, and the FEDS just trying to figure out how to keep that moving to avoid situations like this. Do you feel like, are you satisfied with what we got from j Powell on what happened this week overnight markets? I think he I think he

actually went further. This was the funny thing. Someone just said. He exceeded my expectations and addressing in in addressing it, um, you know, he provided more information than I think people asked, even like, uh, CNBC Steve Leesman asked a question and

Powell went further to answer it. But at the end of the day, like everything is going to be dependent on where that FED funds rate trades and whether or not the FED can continue to control it, and and frankly, what we're seeing and a money fund manager said this to me when describing this week as eye popping, is like, I don't think they realized how much work needs to be done in order to control the FED funds right now.

And I think they've underestimated that. As if FED still have control of rates, Josh, it needs it needs to get the supply right in order to control them, so it has temporary loss control, but it has the tools to addrest them. I actually thought it was interesting his response as well, because it was kind of like he was going back to a very non j Pell kind of playbook. He likes to be the straight shooter, talking

very briefly and concisely. I took that answer as really being I'm going to drown you with details, and but he didn't really answer any of the big questions about what's going to happen with a standing REPO facility or any kind of longer term fixed what the operational framework will be. He just said, look, we've got it covered and here all the details of the things that we're moving, all the levels one of those, Honey, don't worry. I'm going to take care of it. But you know, again,

it's going to be a wait and see thing. All right, we just get a few more minutes. But what about up beyond all of this? Uh? In terms of his expectations and what he talked about in terms of inflation pressures clearly remained muted. He still expects the economy to expand at a moderate Rady talked about trade tensions, about signs of weakness abroad. Um, Josh, what of note in terms of kind of the normal stuff that we typically talk about when it comes to the Fed. Well, we're

still in a period of incredible uncertainty. And we see just how hard that is making it for the Fed to communicate, because you've got these two sided descents going on and they can't provide the forward guidance. Um. But amazingly the market is still giving them a pass on that Alex and I don't know. I mean, again, like Josh said, yeah, I think the market is giving them

a pass. But ultimately I almost feel like after listening to all this, I don't know where to turn, Like I feel like my head I'm just on a swivel. There's so much to focus on here, and you know, a lot of this is just going to write on like the FED and what they're able to do, you know, globally, because again everyone is looking to them. I mean, the e c B in the BOJ are negative rates. I'm not looking at them for any sort of guidance here

because they're a bit dysfunctional. So the FET is really the only game in town here, and they have a lot on their plate to be worrying about and not just don't even know where to look today and trying to once again push the baton back to lawmakers, saying fiscal policy can do more than monetar in the long run. So A remindered everybody that we can do just so much, although physical policy just seems to be exploding the debt and the deficit, and that's a big problem and that

we need to get under control. All right, Thank you guys, Really appreciate your analysis. Alex Harris, Bon reporter at Bloomberg News, Josh Wright, chief economist, and I Sims, both of them in or Interactor Broker Studio journal Now, but you let me drive none please, I want to drive. This is the drive to the globe community. Thanks. We'll try us on Bloomberg Radio list. Indeed, everyone, just a few minutes

left in today's trading session. It is time to take a look at what's going on in the market, says we drive to the close Charlie, of course, breaking down the numbers, and we're pretty much on the equity side of the universe at our best levels of the desh of the session. So slight gains on the SMP and the dawn a little bit lower still on the nasdac

Win Wicker is back with us. He is chief investment officer Advantage Point Investment Advisors, twenty nine billion dollars in assets under management, based in Washington, d C. He's been on the road a lot, and he found some time for us here in our Bloomberg Interactor Broker studio in New York. Welcome back, Hi, Carol. How are you. I'm doing well? So what's the conversation that you're having most

with your clients as you partake on your travels. Well, I think everybody is concerned about what's going on outside the United States. Certainly teariffs down in Washington, d C. Where we're based, Uh, takes front and center. I think in most conversations, right, Yeah, And what do you think about trade? Well, I think everybody, I think underestimates how

long it takes. The more folks I talk on Capitol Hill about this issue, uh, they come back and say, well, you know, the only thing that we have to benchmark this current trade War two is Japan back in the late eighties. And then they remind me it took fifteen years and forty two treaties to get a trade agreement put together with them. So that gives you some idea of how complicated some of these things. But not apples

to apples. I mean, China is not Japan. And I know Japan if you think about when it was buying all the real estate in the US and we thought it was going to take over the world. But what's interesting is China is realistically an incredible economic might, you know, with goals of its own and you know, our talk that we've been having here is you know, don't expect any major trade deal that they will try and maybe patch up something just to kind of of make everybody happy.

But you know, it's different. It's different. China, you know, has, as I mentioned, it's mission, its goals of what it wants to be in this world, and maybe we're not going to get the concessions that everybody's expecting. Well, I think that last time you and I talked, that's what we said. You know, we said that, uh, we thought the market was too optimistic about getting something done quickly, and that on both sides they have very opinionated views and China has a lot longer time frame to deal

with that than we probably do. When do you think we ultimately end up in a world where it's China versus the United States and basically China and its allies and a trading block, and then you've got us and its allies and a trading block. Well, it certain seems

to be lining up that way right now, correct. I Mean, look, Carol, we saw last weekend some of the things that happened with Saudi Arabia, and the first thing that comes to my mind is this is one of the reasons why China is starting to make inroads with Russia because they could be an alternative trading partner for energy. And so your analogy of could that be one side against the other, I think you're actually starting to see some of these

sides lining up. So if that's what plays out, what does it mean then potentially you know for the business environment, the market environment, and what does it mean for investors. Well, for investors, I think it it makes it life a lot more complicated, right, because you've got to determine, you know, how much of the revenues of these multinational companies are going to be uh impacted by some stringent trading policies

that may go into effect. I think that for those that are looking at some of the domestic companies around here, it's going to be life as as usual. But for those multinational companies where we are seeing a lot of growth, whether it's technology or uh you know, some of the industrials or even somebody like Boeing for instance, who they're really focusing on China as the next big partner in terms of the number of airplanes they have to build over the next twenty years. All Right, So if you're

having a conversation with an investor. I know this is very simplistic, but I'm just going to go there. So if they say, all right, Waite, that's your outlook Bowing, should I get out of it? So I think a company like Boeing, if we're going to take that one for an example, I think Boeing is going to be

fine over the long run. I know that there's a lot of issues right now with the seven thirty seven max, but if you look at their balance sheet, you look at what they are doing on the defense side, which is one of the themes that I think. I'm very and UH. Those contracts really go a long time, and they have a very strong UH management team in place. So Bowing, for example, I feel pretty comfortable with over the long run. We'll talk to a little bit about

the defense. I mean, then that is often seen as kind of a safe play because certainly if you've got you know, money coming from the government allocated towards it, that's a good thing. Typically for the defense companies that it's no longer just a republican play. It seems like both sides of the aisle U commit money. So you like that area, Yeah, well, we're remember this last summer, Congress agreed on a new budget agreement that's going to

bolster our defense spending. Now, some of it is being I think put into play for the wall that that President Trump wants to put together. But if you take the bigger picture into play, that is an area where we are going to see uh, significantly more money going into that. And I think things like last weekend play into the hands of some of these defense contractors as we get more concerned about some of the geopolitical issues

that are going on around the world. You also like and tell me a little bit about energy, because you're thinking that the market, the equity markets, that ultimately we could see it expand out to energy, which certainly got to kick uh this this week because of concerns about supply concerns. I find it kind of ironic. We went from you know, we have so much supply that all of a sudden, and I understand it was a big shock here in terms of what happened to Saudi Arabia,

but all of a sudden, now we're concerned about supply. Well, I think some of that was a knee jerk reaction, uh. And I think that My focus on energy is that, uh, it's the most under owned sector around these days, right, I mean, everybody hates energy, so it's more of a contrarian play. But I think for those investors looking for a stream of dividends, uh, they've been playing reads, have

been playing utilities. Uh. You know, a lot of the big multinational energy companies have been washed out to levels there where you have yields of four to seven percent. Interesting. Yeah, we've heard a lot of our guests talk about that if you're kind of unsure with what's going on in the world, um, whether it's global concerns, domestic concerns. Look

at some of those dividend paying stocks. Energy, by the way, it's up for the year, up as a whole about seven percent, but it's your second worst performing group among those eleven major groups in the SMP five Waynwicker, nice to have you here, Thanks alright, Chief investment Officer, Advantage Point Investment Advisors, twenty nine billion in assets under management, based in Washington, d See in our Bloomberg Interactive Broker Studio.

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