Fed’s Daly Sets High Bar for Slowing Policy Pace

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YouTube search Bloomberg Global News. Well, so much for the recent upbeat change in the stock market sentiment that two day equity rallies we just talked about here in the United States with Abigail really coming to an handle, though we're definitely off our loads of this session thanks to hot economic data pouring cold water on investor thinking that the global monetary tightening cycle was close to peaking, and we did feel like pigpiling on that thinking was the

president of San Francisco fed Mary Daily, who stopped by Bloomberg headquarters. She caught up with our own Bloomberg News International Economics and Policy correspondent Michael McKee, who joins us here in our Interactive Brokers studio. And so we are all talking pivot and yet well we had to ask her about pivot because that's what's the main topic in the markets. It's interesting because we've seen markets get very schizophrenic about this. One week, they think the FED is

going to cut back. Just last week, the FED was not going to cut rates at all. And now you've got a rate cut priced in starting in March. And hey, so I asked Mary Daily about that and uh, and the graph you can see on the w I r P function, the bar chart that shows these rate cuts, and she said, I'm not going to happen. Well, she's one of these classic data dependent FED non voting member this year voting member. But she's basically saying, look at

core inflation, core inflation, it's pointing the wrong way. We're accelerating July to August, and we will get September a later date. That's a point where, isn't it. Yeah, here's what you said. I don't see that happening at all. I see us as raising to a level that we believe is restrictive enough to bring inflation down and then holding it there until we see inflation truly get close to two percent and and demonstrate that price stability is restored.

So basically, Mary Dale, president of San Francisco, FETs so basically, stop it, right, everybody. Yeah, I've actually been warning us. Every time we've said it. You're like, no, there's no pivot. Yeah, there's no pivot. And I asked her if we debate constantly for what they're gonna do with the next meeting. And I asked her about that, and she said, it's not how much we do at each meeting, it's where we get to and then how long it stays there.

She wants the the terminal FED funds rate. She thinks it's gonna be somewhere between four and a half and five percent, and that they're going to try to get to percent by the end of this year and then they leave it there until they see significant progress. Uh, if inflation should collapse, then maybe we do get a pivot. She talks about being nimble. I think, yeah, nimble, but resolute. And she said, you know, people, I go out to Boise, Idaho, and people don't know what I mean. By that, and

she said, we are focused on bringing inflation down. That is what we're going to do. But how we do it. We can be nimble and we can react. You know, if there's some issue in the economy, we don't have to raise rates as fast, or we don't have to raise rates that month or whatever. It's just going to be a question of keeping an eye on the economy, but also keeping your eye on the main goal, which

is bringing down inflation. So we know you had to ask about the pivot because of the rally that you've seen, certainly in the equity markets. But what was top of mind for you, Mike, who follows this day in and day out. Well, I think that was the biggest Uh. The idea that she communicated, the idea that no, we're not we're not watching the markets for signals for what

we're going to do, We're watching inflation. Uh. She said, Basically, what the Fed wants to see, and this is something to keep in mind for Friday, is the economy moderating. That we see jobs, job gains start to slow down, and we see inflation, particularly core inflation, start to slow down.

It doesn't go away immediately, but you see a process underway, and then they'll know they're doing the right thing and then they can um sort of stop where they are and leave it where they are until they see there's enough restraint on the economy to get this inflation problem out of the way. So today's economic data, how does that play into the thought? Uh, you know, it kind of goes against the idea that she was talking about the the I S M Services numbers today, but she

did point out the Jolts numbers yesterday. She said she's been talking to corporations all over the West Big District and they've been saying that they are cutting back on their hiring and in many cases and ed you know this better than anybody, the tech companies are just they're not gonna hire anymore this year. They're done, and some of them are actually talking about some layoffs. Uh. She said.

What happens is the companies go to these online firms with resident post resumes and job openings, and they signed a three month contract and they don't say, all right, call the firm up and cancel a contract a month early. They just let it run out, which is why job postings have remained high. And she said she thinks they've been telling her for months that this is going to happen. She thinks that's what we saw in yesterday's data, that

the companies are seriously starting to slow down on their hiring. Uh. And concomminately, she said, don't look at jobless claims because that's the last thing that's going to happen in this economy. There's still so many openings that nobody's talking about layoffs. They're just talking about not hiring. You've been very kind over the is to take me to meet Mary Daily, and she's one of these sort of Fed Inaction type figures.

She goes out into the real world and she seems to be saying, here, we recognize the pain of everyday Americans, but they also need to know that the FED is, as you said, resolute in fighting inflation, not necessarily listening to their pain and how they decided to take action. She talks about going to a Walmart in the San Francisco Bay area, um, just just in a sweatshirt and jeans.

She told them she was an economist, but she didn't tell them who she was, and she walked around interviewing customers and they all said they're much more worried about inflation than they are about jobs. More worried about inflation rather than jobs. All right, great reporting has always in a great interview Bloomberg News International Economics and Policy Correspondent Michael McKee on Bloomberg. You're listening to Bloomberg Business Week

with Carol Masser and Bloomberg Quick Takes. Tim Stenovic on Bloomberg Radio. We mentioned as headlines that the judge in the Elon Musk Twitter trial saying she hasn't received any filing yet to halt the case. Uh, and that's that October seventeenth trial is still on for now. So I feel like Ed La Loow, you've been covering this story. You're here the editor Bloomberg Business Week, also in our studio. It's a story that keeps on giving, just when we think we're getting to an end. Yeah. I mean, as

it stands, I'm still off to Delaware. But what I would say is language is important. Right, So must said, you know what, I will buy Twitter for fifty four dollars twenty cents to share? What did Twitter say? Twitter said, we're committed to closing the deal at fifty four dollars twenty cents to share nowhere did they say we accept your re offer, Mr Musk. You know, so we've been waiting to see what they'll do, whether they drop proceedings against him, and now we know they are yet to

do so. All right, we also want to bring in and we mentioned to Ael Webber is with us the editor of Bloomberg Business Week. So too is Bloomberg Sarah Fryer, who's writing about Elan's turnabout as well. She's Bloomberg News Big Tech team leader, author of No Filter, the inside story of of Instagram. Excuse me, she joins us on the phone from San Francisco. But Uh, Jill, I mean, if you had to put this story to bed, what would you do right now? You call, you call Sarah,

you say, what's going on? Um? Uh, there's a piece of art that we commissioned to go with Sarah's story that is the art of the moment. It's a tesla covered in bird poop. Um and uh, it's awesome and it's perfect. In the headline. My headline for it is Twitter's turn And I think you know, and I think this is also, um what what Sarah ultimately rights here is. For a while, it's been sort of like, who's actually in charge right here? Who who's Who's who got the

high ground? And I think what this shows is that Twitter now officially has the high ground. Um. So Sarah talked to us about how you expressed that idea. Well, I think about what Elon Musk is offering here is what he's already offered. He's already said that he would the company for ford for a billion. This doesn't give Twitter anything that they didn't already have. So they have no reason to take him out as a word, because let's look at how his word has has happened, you

know how, It's how it's resulted in prior occasions. Right, he said he would join Twitter's board, and then he reneged on that shortly thereafter, um, when he got in an argument, and and then he said he would buy the company, and then a couple of weeks later he said he wouldn't. So I think that Twitter really has no reason to trust him. And I don't see a scenario where they are going to, um just take take

this new offer and call it a day. I think that they're they're going to be really careful and and and um, you know, if they're wise that keep keep the lawyers involved. So the alternative headline doesn't go quite as well with the image that I proposed. But show me the money, right, absolutely, I mean I think that that is that's really the ticket here. I mean, we know the funding is in place. Um, we know that that everything is is as it should be. Um to

close the deal. Um, nothing has really changed on that front. What has changed. It's been a you know, particularly embarrassing a few weeks for Elon Musk. Is private text messages have become public. Um, he's he's a table read of all of those text messages. There are just for like go through a mall, but anyway, go ahead. Oh my goodness, there's so many gems. But but yeah, I think I think there's that. But you know, he he is is.

I talked to a lawyer today who said the most cynical view of this, this move from Elon Musk is that he is maybe trying to trying to pressure Twitter publicly into dropping the suit and then he might still not buy Twitter, and it might um, you know, find another another reason to like one of these stories, Joel, where you're like, this cannot get any more weird, and you walk into work on a Tuesday, and suddenly it gets more weird. But it is Sarah's point. We learned

a lot from the discovery process. The text messages you wonder what we didn't learn, And this is part of our Bloomberg reporting what we we have found. If that deposition goes ahead and then it's filed as evidence, Joel later in the week, if the trial happens, perhaps you'd like to go to Delaware for us and find out well as its stands. As I say, I am going to Delaware. But I mean, and look like this. This is why it's like the best business story of the year.

I mean, you think about where this started. I mean think about and you know, Matt Levine wrote this in his newsletter today, money stuff that you know, just from a money standpoint, like Morgan Stanley, this does not look good for Morgan Stanley the and you know, when when all this was proposed, it all sounded great and like we were in a completely different economic environment. Now he's in terms of the financing talking about the debt here right, that must lined up as part of his funding for

the deer. And and so I think the conversation is um and how much bashing, you know, Twitter hasn't has endured here and you know, ultimately, Sarah, I thought the most interesting thing of that you had in the remarks ultimately is this scene that you you culminate with, which is this conversation that's happening at Twitter. Well, when this

news happens, right, we'll take us there. So at Twitter, in my colleague Kurt Wagner, UM has many sources, sources of the company, and he found that they were listening of all things, to presentations from teams on our plan, which if this deal goes through, a total waste of time, UM, because Elon Musk has very different ideas about how to run Twitter. And what's interesting was you nobody really stopped

to acknowledge that this news had just gone by. And I think that this is just a company that's used to being in limbo. This is this is UM you know, always they're always finding themselves at the center of some dramma or other. They have they've had activists on their board, they've shuffled through leaders, they've they've been in UM you know, acquisition flirtations in the past. So I think that these

employees they're they're also UM. You think they can they can complain on slack or or make means of the situation. But I do think that, um, you know, these really big decisions are are probably gonna wait until we actually

know the rayon must in this company. Yeah. I was told by a sore Sarah, as you know that in the first fifteen minutes of that meeting, paragagrole, the CEO of Twitter, made a presentation and then disappeared from the meeting and for two or three hours, employees sat there while the news was breaking all around them and nothing, you know, there was silence, you know, Sarah, what happens next very quickly? Well, I think we have to see

what how Twitter respond. And the two sides were talking today. Um, whether an agreement will come out of that, we might hear today, we might not. Um. The judges says she has not received the filing for a request to stay in the case, So that means that, um, you know, things are not all settled. Um, we we still have some Twitter clearly still have some some you know, discussions they need to have to be to their satisfaction. It's like an episode of Billions. Oh, I mean, let's have

our own show about Way Past the Fall. My my most favorite thing here is Delaware. Yeah, Delaware, alright, Sarta Fire, thank you so much. As always big tech team leader Bloomberg News, also author of No Filter, the inside story of Instagram. These are the remarks this week Mars indeed alright in upcoming issue of the magazine. Of course, that was the voice of the editor of Blomberg Business Week, Weber.

This is Bloomberg Radio. This is Bloomberg Business Week with Carol mat Sure and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. As we've talked about, I just got to pull up actually Twitter because with the market turnaround, I just want to see what Twitter is doing. Still down about one percent because there's still some uncertainty whether or not Elon Musk will cross the finish line when it comes to buying the company. Meantime, I love this, Ellen, Ellen.

I feel like um Ed is flashing that new shiny thing which he is good about doing, and it's called what X the everything app Yeah. I mean we always talk about this in the context of Tesla, right, that one of his skills is keeping everyone looking to the horizon, forget what's happening right now, you know, look away, look away, from honestly X. What is X? I don't know? Do you know? Does our next guests? No? I guess we should find out. All right, Tom Giles, come on in,

an executive editor of Bloomberg Technology. He's with us from our San Francisco beer. All right, Tom, it's so great to have you here, the three of us. Uh, fun conversation. So what is X? Well, based on yesterday's tweet, he's calling it X the everything app. It makes me think of the everything store, right that Amazon wants to provide all of these services and sell all of these items to everybody in around the world. What he's talking about, what he's alluding to, is some kind of a super app.

It's a one stop shop where you can go and do much more than what you can do on Twitter. Now. It's already a very useful tool for those of us who are who are who are big Twitter users, know what we're up to, um stuff we're reporting on. But he wants to make it more useful. And one of his one of his complaints, and he has many complaints about Twitter, is that he wants it to be more

useful to people. And what he's what he's alluding to is the way that companies like ten Cent in China have used whee chat and turned it into something called a super app. That's something like I said, at one stop shop, where you can go and do much more than communicate. You can you know, you can have your your d ms with folks, you can have group chats, but you can also do things like book cars. So it plays plays the role of an uber. Or you can use it to order in food. Uh so it's

your grub hub. You can use it for a whole host of of of services. And this is something that has taken off in parts of Asian certainly certainly gained a lot of popularity in China where tent set is, where we chat is everywhere. And he would certainly, uh, he'd certainly love to have Twitter have that same kind

of usefulness. I mean, to me, this is logical because I believe I'm right and saying must said he wanted to grow twitters use a base from around two million now to a billion, and you wonder how is he going to get there? I mean, we use Twitter actively, much of the press does, and the media, but you wonder who the new audience for Twitter will be. I mean,

what other concrete proposals that we have from Musk. Tom Well, he's talked about you know, he's talked about you know, he talked he's compared to TikTok and wanting there to be more functionality in terms of the stuff that you share on the blogging service. Right now, Twitter is still very much a tool that we use for short, short tweets that are you know, full of our words and sometimes there's images and sometimes there's video. But it's not a big video sharing site, um, you know, but there's

a lot of things. I mean, remember where Elon Musk got his start, which was in payments, which is in you know, revolutionizing the way people send and receive money. So imagine, if you will, if if he has his way, and if he you know, can can can unleash his engineers and get them to you know, make the products,

uh that that would make it more effective. Think about what if what if Twitter was more of like a pain it's company where you could use it to you know, to carry out transactions in the way that we currently use Venmo or PayPal or some of these other services. If you could do other you know, carry out other financial transactions with it, Um, you know, and I mean the other thing that the other thing that people you know, whach tent spent is also a big entertainment purveyor of entertainment.

We don't think of Twitter as being a platform for that kind of thing. We think of that more, you know, that's more YouTube, and to some degree even Facebook. But uh and and obviously uh, you know, Apple and some of the other some of the other sellers of devices that we have. The problem that I have with this concept of a super app is, while it has taken off in parts of Asia, in the United States, we become really really accustomed to having a whole slew of

apps on our phones. We're very comfortable with it. I find it kind of clunky, and I love the idea of something more like a super app. The problem is, we're really entrenched, and we've really become accustomed to having you know, hundred apps on our phone and just you know, scrolling right and left to get from app to app. We've grown accustomed to it, even though it's clunky, even though it's inconvenient. If he could revolutionize that, it would certainly be a sea change in the way at least

people here in the United States use our smartphones. Yeah, I mean, I agree with you. I'd love to have like some streamlining have so many apps. But I do wonder like, how do you move from where we are today to kind of an aggregator to unless to some extent where it's one stop shopping. Um, great stuff. Tom Giles, thank you so much. We always appreciate when you can find time for us. He's Bloomberg Technology executive editor, joining

us from our San Francisco bureau. But I do kind of a blown away again by Ellen and his ability to get us to be having a conversation about something else. Tom leads our coverage of TACH. He leads the team, and we're already looking to the what next. We're not really you're what now? You know those headlines that the trial is still going ahead. We're not done yet. We're not done yet. I really want to know about that white robot, that humanoid. Let's stick stick on topic, the

human in the body. Oh my gosh, you can't make this stuff up. You are listening and watching Bluebirg Radio. I'm bro journal now, but you let me drive? No, no, no no, no, please, I'll do the riding gravels. I want to drive it's a good question. This is the Drive to the Clothes on Bluebird Radio. All right, let's get to it, everybody. Just about a little under ten minutes left in today's trading session. You heard Charlie breakdown

the numbers. We're just off our highs. We're seeing a little bit of selling in the last few minutes, but we're definitely off our loads of the session. Call it for the most part, unchanged, but slightly lower when it comes to those major equity averages. So let's get to the Drive to the clothes. Aaron Kennon is back. He's co founder and chief executive officer at Clear Harbor Asset Management, roughly over a billion in assets under management. On the

phone from Stanford, Connecticut. Hey, Aaron, good to have you here. Ed lud Low is in for Tim on this Wednesday. Let's talk about um, the markets. Do you feel like we are seeing a market capitulation at this point, that maybe we bottomed out when it comes to equities. Well, I certainly hope so, Caroline d but I fear that

that may not be the case. When you know, we sort of look at the historic analog of what tends to happen when markets find bottoms and bear markets, and usually that means the FED is stopped tightening and they are actually starting to reduce their FED funds rate. It usually means that the interest rate curve is positive and nicely positive. And usually there's some sort of panic um embedded in the market where valuations cut through sort of

longer term averages. And we haven't really seen that. We've seen a correction and evaluations, but we haven't sliced through those averages. So somewhat cautious there. And on the bond side,

you know, probably a little more just incrementally constructive. You know, when you look at the inflation adjusted rates of return, real rates are positive by about a hundred and fifty basis points now, and if we're sitting here in December thirty one, there were there were negative by about a hundred ten basis points, and so there's certainly more cushion and there is an alternative on the margin to two

equities at least here in the short term. Yeah, looking at the yield on the tenure pushing up by around twelve basis points is following kind of push hard and yields in Europe earlier he Aaron for you how much of this is a story of good data bad news in the context of the FED. We've kind of been talking about this all day on Bloomberg Radio and television. Yeah,

it's interesting. I mean, you know, day to day earlier this week that certainly seemed to play out where we had the jolt status suggesting that maybe there was some softening in the employment side of the docket. And then we saw the equity market surge and the dollar was was weakening too over the last couple of days, which certainly was a tailwind too. I think the equity and risk on trade, but you know today is a little

different yet. I s M services that were stronger than expected in the markets on changed and bonds are actually selling off in price higher and yield. So but I do think the longer term trend is what you're alluding to, which is the FED is looking for evidence that the employment picture is indeed softening and that there's a trend line to it. We'll see, of course pay rolls on Friday, um. But they're also looking for the economic data to play through,

and that's been very mixed. We saw I s M manufacturing earlier this week, which was weaker than anticipated, and then of course the services number today was stronger. So um, you know, well, we'll have to see there. There's certainly, you know, caught between a bit of a rock and a hard place, and and they know there are reputations on the line. They probably entered the game of raising rates a little too late and they certainly do not want to be accused of pulling the rip cord on

their tightening exercise too early. So does that mean we're in a recession, will be in a recession, or I don't know, how do you see that side of the conversation. Well, you know, I I we do debate that question. We have had two consecutive quarters of negative GDP growth, so you know that tends to be the definition. Um, some refer to that as a technical recession and others consider it an unofficial one. We'll have to see what the

NBR says later on on that front. But what I do think, you know, we need to be thinking about is, you know, where where is the trend for earnings. We haven't seen earnings roll over yet. There's an anticipation that that's going to hurt, that's going to occur in the quarters ahead, and how will the markets react to that, and will they get ahead of it? Is this going to be a shower recession or a deep recession? And um, you know, certainly there there's there's lots of sort of

varying opinions around that particular point. Hey guys, just a kind of public service announcement, and then ask that one just ticking into the red down two tents of one percent, joining other major industries. That is a pretty short lived late rally in the session, with about five minutes left to go in trading. It's interesting, is recession priced in? You know, we've kind of seen earnings expectations and equities come down aaron, but in a recession, typically reprice expectations

right ten. And it doesn't feel like we actually have that full recession pricing, particularly in the technology sector, but other corners of the equities market. Yeah, I think a very shallow recession, I would argue, is probably priced in. But if we are seeing some sort of double digit decline and let's say SMP earnings next year, um, that's probably not yet priced into the markets. And um, and so you know, we'll see how we'll have to see how that how that trend plays out. Certainly there are

headwinds to the strong dollar. It was nice to see earlier this week the dollar weekend, which I think is providing a bit of an airbag for the equity market here. But there's a lot of uncertainty outside the United States, which can on the margin, keep the dollar stronger even if our economic that is deteriorating. So where do you commit new money? Which is a question I like to ask everybody, and I am curious. You know, Aaron, is

new money coming in? Uh? Well yes? And also on the on the first question, um, and you know, whenever there's uncertainty, there's there's concerned. Whenever there's concerned, there are um people that may feel as though they need better advice or they haven't had professional advice before. So we're in the business of providing that to two clients and creating you risk adjusted asset allocations and providing advice across their their financial life, whether it's an individual, family or

non for profit organization. So for us, we're not heavily tactical, but if we are not at target on certain asset classes, we will make adjustments. I think at this moment where interest rates are making adjustments, extending duration on the margin, UH within fixed income makes sense. You can buy an investment grade portfolio that mature is at the end of two thousand and twenty four with a yield to maturity of almost five percent right now, and that has an

average maturity of less than two years. You can buy something similar that matures at the end of two thousand twenty three with a yield to maturity of four seventy and has an average maturity of less than one year. You know, you have two year treasury yields at the beginning of this year at twenty basis points. Now we're at four fifteen. So we think the portfolio makes a lot more sense going forward here than it did at

the beginning of the year. And so you know, on the margin, on a risk adjusted basis, we think if you're underweight, you're fixed income exposure, may want to may want to wake up and and reallocate on the margin. Also, mortgage backed securities Fannie and Freddy mortgages, you can buy

them through an e t F for individually. Those are quite attractive, trading below below par right now with a five and a half percent coupon interest been compelling risk adjusted return opportunity or in our opinion, as you said earlier, there's an alternative stocks at this point because of the move up that we've seen in various fixed income and yields in particular. Aaron Kennon, co founder and CEO Clear Harbor Asset Management, joining us on the phone from Stanford, Connecticut.

Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube. Search to Bloomberg Global News