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Decision, no change in rates, but we have four four descents. Laurie Logan, Beth Hammock, Neil Kashkari agreed rates should stay on hold, but they did not support including an easing bias in the statement at this time. Stephen Myron wanted a quarter point cut. The last time there were four
descents October sixth of nineteen ninety two. As for that easing bias, the statement still contains the phrase in considering the extent and timing of additional adjustments to the target range aligned meant to suggest that the easing cycle has not necessarily ended. The Iran War figures prominently in the economic overview. Inflation is elevated, in part reflecting the recent
increase in global energy prices. The statement says developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee remains attentive to the risks on both sides of its dual mandate. It says, even though recent indicators suggest that economic activity has been expanding at a solid pace, job gains have remained low on average, the statement says, and the unemployment rate has been little changed in recent months. The descents open up
a whole new line of questioning for Chair Powell. For descents would ordinarily be a sign of discontent with the Chair. Since this is likely Powell's last meeting as the chair, it may not be anything more than expressions of concern about the toll of the war. At each meeting this year, the number of Open Market Committee members who have worried they might have to raise rates has increased. We shall see when we get a chance to talk to the.
I'm a key, stay close. I just want to run through the price action. I've got a big question to come back at you with in just a moment. Equities have stayed slightly lower, no drama here, down by zero point two percent. Into this decision, Yields were already elevated, particularly at the front end of the curve. They stay somewhat elevated, up seven basis points at three ninety. This isn't the kind of decision that moves around crude could is still higher by sixty seven one eighteen on Brent
Mike McKee. I just wonder coming into this decision, we were talking about the possibility, the potential this Federal Reserve introduced some symmetrical reaction function, but looking at that kind of descent, I wonder if the descent alone has achieved the same thing just by introducing to two way risk. Given the level of descent you can see in this afternoon's decision, that's a.
Very good point because, of course, if Powell leaves the FED, that's one less vote that we know would be on the easing side. At this point, we're going to have to wait for the minutes unless the Chairman wants to give us a number, which I doubt he will. Of people who think that they should be at least suggesting the idea of raising rates in the future, but it's obviously grown since the last time, and feelings have grown more certain, at least among those who think that two
way warning should be included in the statement. It's very, very unusual. Obviously, it has been almost thirty years since we've seen anything like this, and it is definitely a sign that the FED is split over this question. And one would think that if these people were willing to dissent because they wanted a two way warning, because they did not want an easing bias in the statement, that they probably would have voted for a rate increase had that been on the table.
Mamma Kay, appreciate your time you get in the news conference, looking forward to you a lot of questioning. A little bit late to that news conference, twenty seven minutes away, we have an eight to four vote at the Federal Reserve.
That's some level of descent.
Yeah, And didn't Mike just say that that was the first time we've seen that since October sixth, nineteen ninety two. This is unusual to me. This really highlights the committee aspect of this, and the fact that Fedcher J. Powell, for all the job owning from the President, sits on the more dubvish end of this, and I think that
that's very notable. So how does he message this given A, he probably doesn't matter as much, but B, how does he signal that this isn't necessarily a sign of dysfunction ahead of a new FED chair coming in, but rather how difficult this moment really is.
The expert on this is John Ferrell is the gentleman from the United Kingdom, or descent is far more evident. There were two moments of four descents in the eighty nine to ninety two period, and the distinction here, John is those descents were too ease to let up as green span was stricter. And this is radically and historically different.
So I remember a level of descent, at degree of descent back of the bank having that coming out, what to do right? He wanted Milkiwi, And I remember the governor being voted down on countless occasions. On this occasion, I'm looking at this level of descent, and I just wonder if the chairman would welcome it.
I think it's probably a good thing.
Right now that there is no group thing that we're in a situation at the moment that deserves some kind of debate about where policy should be and where is it going and what kind of risks we face in the economy right now. I actually also think that that's the kind of committee that Kevin Wall should want to inherit. Group think has been a problem at this institution for
the last five years. I wouldn't look at that as a committee that's voted down the chairman in quite the same way that the committee voted down the governor at the Bank of England a number of years ago.
This feels somewhat different.
And if you want to move to some kind of symmetrical reaction function at the Federal Reserve based on that vote, I don't think you need it.
In the statement, I think the descent already speaks.
To it, which I think is why I'm noting the increase in the dollar more than anything in body yields. You're seeing a strengthening in the dollar versus the euro, and that I think gives you a sense maybe at least of the tendance question and the fact that this truly is a committee.
But to get up in front of a pundits, is this the committee and descent that President Trump wants?
That's a different question.
Yeah, this president clearly wants lower interest rates TK and the kind of thing that we've just seen voted for right now is not for lower interest rates. You've got a committee that's worried about the prospect of a market thinking they'll always get interest rate cuts that they don't have to worry about inflation. First and foremost, the first rule for any central banker, any real central banker anchor inflation expectations.
This is part of the exercise.
Yeah, as Neil Dota put it, he messaged, it's clear that worsh has his work cut out for him. Good luck convincing some of these folks that it's time to cut rates and potentially overall the whole system.
Different question entirely.
Bob Michael with us around a table from JP Morgan Asset Management. Bobby Ready reflections on this decision.
Yeah, clearly it's in the dissense. Clearly they're moving more towards a symmetrical policy. It's confirmed in the first paragraph where they characterize inflation previously as remained somewhat elevated, they remove the somewhat and it's just elevated. So they're telling us they are increasingly concerned about the level of prices, the level of oil, and the potential paths through to
the system. I think you're right. I think this is less a message about JPAL and more a message to the incoming FED chair that hey, we could be dissenting. Get prepared for that. He may welcome that.
T K asked the question about the president, what the president would like? This is another exercise it's quite important. Everyone's been worried about the future of the Federal Reserve Central Bank independence.
Will the chairman stay on? That degree of descent makes.
The life of I think Chairman Powell easier to walk away from this institution. There's no capture of this institution. This institution is still independent. Inflation expectations are still anchored, and that is not dependent on fetch J. Pow staying gone as a governor on this board for the next two years.
I see what you did there.
So maybe they agreed.
Four people dissent, although one of them is perhaps in a different direction. You're to Jerome Powell coming out and saying I'm gone.
Good luck for you. Go ahead, Kevin.
I'm not suggesting there was any choreography here, just that there are some benefits to that level of descent stefinitely. Rather, Wolf's research has been going through the statement and reacting to all of this and looking at the price action. Stephanie, you're really take please.
Yeah, I mean, I think when it tells us that the committee is certainly divided, and they're not going to be a committee that's willing to just cut rates because Warts wants them to do so, and It's also interesting because in the hearing last week, Warsh noted that he wants the bit in the room, but he wants a more unified statement, and that's certainly not what we got today. So the odds of COTS later this year certainly should go down on the back of what we're seeing today.
It's just a committee that certainly doesn't even want to have an easing bias, let alone easing in the near term.
Stephany, does it surprise you that more members of the Federal Reserve didn't get on board with moving to a more symmetrical type of approach.
A little bit?
I mean it certainly it sounds like it was a fairly divided group, and perhaps there were others that were even more on the fence that didn't officially dissent. This was a big question for the meeting today. There was actually two big questions. One was were they going to maintain the easing bias in the statement? And many thought that they would actually remove it, So that was, you know,
perhaps a bit of a surprise to some extent. And then, of course the other question is how is how we're going to answer the questions about what his plans are once wars is actually confirmed.
But Michael, what is our overall stimulus right now? I know we had timing for tech season where everybody got a check in the mail and all that, But what is all of this discussion about an historic post COVID stimulus that it's starting to make the wheels come off the wagon.
Yeah. Well, when I was listening to Matt and Subadra earlier going into this, I was thinking the Fed would be nuts not to move to a symmetrical posture because we know we have higher prices. And what I heard from them is the economy is doing just fine. They're right, You've got the stimulus from the one big, beautiful Bill Act that's not finished. We know there's a tremendous amount of CAPEX. When I talk to our clients, they're just getting started on the AI journey. There's a lot more
spending to come. And we also know there's a lot of money slashing around the system. You look at any measure of money, M two deposits, you know, money market funds, they're still going vertical.
Can I do an audible?
Yeah, you're doing audible here to get the four pm and four fifteen pm. You're the bondpro what's sowhat of thirty billion dollars from one of these mag simis. They're going to put the money out, They're going to call Bob Michael, it's all going to go to JP Morgan. And when they do that, what does it mean for the dynamics of their balance sheet? What does it mean for the dynamics of the American fixed in gum market?
Well, the guys reporting today, if they were to issue thirty billion, you'd hardly notice it. That's how big they are, that's how little leverage they've carried. And in our conversations with a lot of big borrowers, we want to know do they see the demand? These guys have the demand. They'll show you the demand, and they can't monetize it until they put in place the capacity. So there is a big bill to go, and I think these guys are right to borrow and get that bill going.
Are you some twos at three ninety three up? Ten basis points off the back of this?
Do you know?
You ask me what if the FED did this and we never really thought they were going to do this, It's a very artistic way to do it. Nope, I wouldn't touch it to that.
Point, to that framing, that's really important. Haven't they achieved the same thing you don't need it in the statement? Haven't the sents achieved the same thing?
Well, it's kind of in the statement. It's the last line at the statement. It's and you talked about was this choreographed or not? I absolutely think it was. Every single word in the statement is choreographed. They sit there and they debate it. I think this very nicely opens the door for Jay to peacefully deparse it, depart from the FED.
So this is their sort of offering to him. The farewell gift to him is here you go, and that ultimately we're going to give Kevin wartsh a hard time.
I don't well, okay, I didn't say that. I think what they're indicating is, like, we recognize inflation is a problem. We're not going to sit there and keep advocating for more monetary ease. We're going to be more balance, don't worry about the independence of the FED. Jay go off into retirement.
You said you wouldn't buy it. Why wouldn't you buy it?
Because I think the FLED has flipped the tables on the markets right now, and what does that mean I think they've now shifted to something. It's not outright hawkish, but it's more hawkish than where they've been. And then you step back and go there is still stimulus out there, and we're in the middle of the Middle East conflict. Those things have yet to be settled. Let's just get out of the way of this and see where them.
Okay, so let's build on that. Let's extend the conversation a little bit more.
Tens are at full forty one right now, what kind of numbers are you thinking about?
Well, we were breaking through to new highs. I don't think you get to five percent, but do you get to something like four and five eighths, Probably, then I get interested. Then you're starting to you're putting a percent on the Fed funds rate. And I think it's one thing to switch to a symmetrical bias. It's another thing to actually come in and start hiking rates. And I did say I don't expect any changes in rates this year. That's cuts or hikes.
John. Five eighths is how we used to quote papers. Thirty seconds in the next hour.
I'm aware tends right now at full forty one. With this move at the front end of the curve. As I mentioned, up ten basis points three ninety four, let's call it three ninety three. Equity start to break down just a little bit. Don't make too much of this. We're down by zero point three percent on the S and P five hundred. You will notice Bramma the on the performance in a Russo down by one percent plus.
These are the companies that are most vulnerable to rates going higher. I really am struck by what Bob's talking about, because this is a market shift, and really it does highlight how much this war has changed the dynamic fundamentally for people who believed that rates would just gradually go lower.
And if they don't, how much does that change some of the expectations about the equal weight market which we've seen in being baked in, and frankly about the broadening out trade, and adding to that, how much steam can it be behind some of the tech trades that are somewhat dependent on some of.
The consumer aspects.
I'm thinking, for example, meta advertising or Amazon, your cleaning supplies, your children's costumes, whatever children's costumes.
I ended to buying a lot of those. Okay, well, I had a Halloween it's getting the discount.
And also senior parties.
Okay, all right, important stuff. Hey's definitely good to hear from me this afternoon. Thanks for your time, Stephanie Roth for for research to talk about the equity market. Kate Moore City joined us now for more. Kay, you're just starting to move higher, getting a squeeze over and crude Brent out to close to one twenty. Equities somewhat softer but not really looking at this as a dramatic event. How would you frame things?
Yeah, I don't think today's event and would have said is the big event for equities right now. This is also like a massive lallabluzo when it comes to earnings this week, which you know Donvin quite well. And I think the equity market attention is much more there and so far everything that we got yesterday, expectations for Act of the Clothes today and tomorrow are for actually quite strong numbers, reiterating not just the AI text story but
also actually a very solid US consumer. So I think that is really where kind of equity risk is focused right now. Less so on this what is what I would argue is also a very interesting set of descents in the FMC.
That said, is there a level or is there some sort of rate of change that gets you concerned as an equity investor about what's going on in the bond market. Should this FED suddenly move to put rate hikes squarely on the table.
It seems unlikely in our view that the FED is going to put great hikes on the table. Lisa, I would say that is not in our kind of any of our distribution for the back half of this year stability, even as inflation is warm, and even as the FED is going to wait and see and more descent happens across the FMC. But we of course will watch what happens. Because the relationship between equities and bonds has broken down a number of times over the last couple of years.
The correlations are not exactly what they had been historically, and bonds have not been the safe even asset that some people had become used to in their early days of acid allocation. So across our multi asset portfolios, we've been more Tactical's continue to be short duration. I heard Bob a moment ago say he wouldn't be buying two years at this point. I tend to agree with that.
And we tend to like to take most of our risk on the equity side and think about other diversifiers outside of the fixed income space.
Gay I look at where we are in the market, and John I brought this up today because frankly I have misplaced this. The Dow up twenty percent one year trailing, SPX up twenty eight percent one year trailing, all in Nasdaq of forty one percent one year trailing. Kate's completely separated from the nation's angst. What do you see as an indication that that keeps going and how can the Fed and assist with that?
Yeah, Tom, One of the things we've been focusing on in something our Investment Committee was talking about earlier today is the massive dispersion in terms of sectoral earnings, not just this order, but through the balance of twenty twenty six. And this is also kind of what we're seeing in
the overall economy. We've gotten hired. I think of talking about the case shaped consumer because even the bottom part of the case seems to be holding up relatively well with decent real wages, but there is a huge amount of dispersion below the surface in the equity market fundamentals and in the macro fundamentals, and that can make people uncomfortable, But unfortunately, what's really driving the market higher has been extremely strong earnings and expected free cash flow from the
large parts of the market cap. And we continue to stay kind of anchored to the equity risk and loving US large caps, even as we recognize it is going to be a very uneven experience and perhaps a better opportunity for some more active management as we go through this year.
Unfortunately, part of the downs right now monitoring equity markets, bond markets, and commodity markets. More importantly is following these headlines regarding the Middle East, and we've got more from the President this time, some comments on the Russian leader, Vladimir Putin. They've had a conversation. The Russian leader said he'd like to help with the Iranian enrichment. There has been some suspicion for a while that maybe that in rich Iranian would be moved to a third party, and
perhaps that would be Russia. And some headlines I have to say, looking at this that are lose to that, Lisa, at least a soufternoon now, as we said on countless occasions over the last two months, one headline that speaks to one story will last about five minutes, and things can quickly change. All I can do with you is share with you the current headlines, and that the headlines that dropped just moments ago.
Yeah, and they include the idea of potentially having a ceasefire with Ukraine in Russia and then Urania moving from ran over to Russia. I mean a lot of things that are a lot of questions what you do with this.
I think people have.
Shrugged it off and moved on because they don't know what to do with it, because it's just a headline. So they look at things like, oh, the placating idea of rates going down. You start removing some of these pillars. That's when suddenly some of the inks starts to percolate up a little bit more.
Initially, I think this market took comfort from the intent they commit to de escalation, the commitment to de escalation and not returning to hostilities. But the fact of the matter is that over this entire period, creud's not been moving. Energy has not been flowing sufficiently, and every day for the last eight sessions, crew keeps grinding higher.
It's intriguing about this.
Every time we get a bit of hopeium some headlines and reports here, there and everywhere. CREWD has really stopped responding to it in the same way Brent is still elevated here TK one to eighteen and up on the session by six percent.
I really agree with that. And you see the angst in Southeast Asia and other selected geographies, and it's way more tangible than anything we have. The sum of this is real GDP and the inflation piled on top of it. Kate Moore, if you're still with us, I'm absolutely fascinated how you feel nominal GDP will affect our listeners. In viewers, it's still going to be buoyant, I guess. But it's a different nominal GDP, isn't it.
Yeah, it is.
And look, I think some of this tom is getting reflected in the consumer confidence data and the surveys that have come out out where consumers are talking about their discomfort. It's not just high gas line prices, and maybe it's they don't like the direction of the country. They don't feel as confident as they have in the past. Yet the thing that I keep anchoring on is actually what's
happening in their behavior. And we've been looking at all this high frequency consumer data VITA, whether it's around dining outside the home or traveling and spending. And we've got some good reports from our couple early consumer companies this quarter, and all of it is showing that despite all these negative surveys, people feeling uncomfortable with the path of the economy,
that they're continuing to operate more bau. So, Tom, this is a little bit of a friction I think we have, which is maybe we don't get a massive acceleration that benefits all parts of the economy, but as long as both the consumer and the AI text space continue to fire, you know, we feel like you can't be on the sidelines for risk assets.
Okay, it's going to say the cash up, as always came more than of citsy breaking down the secuity market and reflecting on this decision from the Federal Reserve about twenty minutes ago. If you're just churning again, welcome to the program. At about him time, we're here from the Chairman of the Federal Reserve, Chairman J. Powell, in what could be should be his final meeting at the Federal Reserve.
Just moments ago.
Twenty minutes ago, we had a decision from the Federal Reserve to leave interest rates unchanged. What stood out was the degree of descent eight to four, eight four, and that eight to four vote marking the first time since October nineteen ninety two the four officials have dissented against an f WEBC decision, so something we haven't seen a
number of decades. All of this and anticipation of earnings after the closing bow from some of the biggest companies on the planet, including Microsoft, Amazon, Meta Alphabet, all of that's still to come, which has supported the Nasdaq. The nasdak is still positive by a quarter of one percent. But if you want to look at the small caps
right now, the Russell down by one percent. Allow me to give you a why this move at the front end of the yield curve on a two year up nine basis points to three ninety three Off the back of this move in the commodity market, Lisa Brent crude one to eighteen and up six percent.
Fed funds features have now priced out completely at any rate cuts this year. We are now racing out interest rate cuts by the Fed Reserve for twenty twenty six. Whether we shift to people starting to price in rate hikes like we did a couple of weeks ago. That remains to be seen. It also is unclear exactly how much the press conference can really do to that. It
will be political intrigue and drama whether Jerome Powell's future. Nonetheless, this market is moving, it's responding, and the idea that the strength of the US economy can continue is the reason why this is viewed as more inflationary right now than maybe disinflation or outright deflationary later on.
The cross asset moves are particularly spectacular. We've gone back to where we were about a month ago, about a month ago when the equity market was about thirteen percentage points south of where it is right now. In the s and P five hundred yields to bat through the heights on some maturities, I'm looking more at the long end of a curve. The long bond on thirties and crude has made new highs as well. And what's more important, I think, away from the front month of the future's curve,
is what's happening on longer dated prices as well. You've talked about this around the week on Bloomberg's surveillance promo where decembers training, where the latter months are the back end of the future's curve that's making new highs as well. This is a market that's pricing high for longer, not just for interest rates, but for energy as well.
And that's why we always have been talking about boiling the frog, because it's getting harder and harder and harder. And at what point do capital markets start to slow down as a result of benchmark rates going higher and inflationary pressures being This has.
Been the exercise for US now for the best part of two months. Energy shock, rates shock, What does it mean for growth? But that's the question I think is still an open ended question.
Really.
We've seen it in commodities, we've seen it in energy, and I'm asking this question with America in might before we get to the international bank drop where it's much harder.
What does it mean for US growth if anything at all?
Well, I think we have to acknowledge that the three descents weren't in favor of hikes. They were in favor of a more symmetrical policy, which leaves three quarters of the FED still biased towards ease. So let's accept that. That said, the bar to hikes just got lowered a notch. What does it mean for growth? It means that unless the economy can absorb higher prices from energy and higher cost of funding from where rates are, then you're going to see a real slow down.
At what point do higher yields start to crimp the capital markets activity? I'm talking about all the bond sales. I'm talking about beyond that, mergers and acquisitions that have been absolutely flying recently.
I don't think we're there yet. I think really you'd have to get the ten year above five percent to create any kind of damage. And let's also remember that most of corporate America finances itself with floating rate. We should know that from private credit and direct lending now. So unless the FED is going to start hiking rates, which we're not calling for this year, then the cost of funding for most of corporate America is going to remain roughly the same.
Is the FED doing policy for the havels. It's just as simple as that. The economy here between the halves and the havens. Witness attention or fourth sense, How does the new chairman address the have nuts, the people flat in their back.
I don't think it's a question of have or have nots, and I think you go back to the twenty twenty two experience. I think they're scarred from that. They were late to react. Inflation was painful and it hit all levels of the economy, both the haves and the have nots. And I think they are genuinely as a body trying to get their arms around that. And there are a group of people who were courageous enough to step forward and do something different than what's been done in the past.
What will the next meeting look like? For you? You guess right now what the next meeting will look like.
I think there will be a lot more to a debate on whether they should be hiking rates, will they have to cut rates down the road, or will they remain Larry.
Meyer wrote that monograph years ago about Alan Greenspan, and there was some real John, There were some real back and forth going on way back. Is that what we're up for now is a Lawrence Meyer Allen Greenspan fed with Chairman wsh It.
Probably it doesn't feel like the Middle East is in the rear view mirror or will be six weeks from now.
I've got a personnel question. When the next mate should be chairman. Walsh is pal there or not.
I don't think he will be.
You think he steps away.
I think the FED is in good hands with Walsh. I think you've had a group of people say, don't worry, we're still independent, and I think you've just got to pass the reins on and let somebody else try things that may be a little bit more innovative, a little bit different from what you've done.
Is there a market liability if he doesn't do that? Is there a market reaction?
I don't think so. I think there will be a lot of concern that it's too much of a political decision. I think the door is wide open to exit gracefully.
John June seventeenth, I guess I got to cancel my plans. I was supposed to be in chulting him, but instead I'll be June seventeenth.
I'll be here two things, one chout them and two for the record, I won't be here.
I will be away. I won't be a chouten him, though I'll be missing that one.
Does this make the life of Kevin Walsh just that a little bit easier entering the Federal Reserve? This might sound somewhat counterintuitive, but entering the Federal Reserve under a little bit of a dark cloud where some people are concerned, particularly the Fed watchers, about the future of this institution and central Bank independence. I think not only of these dissenters done Shairman Powell a favor. I do think they've
done Kevin Walsh a favor as well. Yes, he doesn't want this planing out in public, but one of the criticisms of this institution, particularly under Chairman Powell, is the group thing. I think it's refreshing to see the descent. We've been asking for it for ages. You can't complain about it once you've got it.
Not only that, but arguably the inner Kevin worsh is a hawk is somebody who wants to say inflation is a choice. He didn't mention employment once, We didn't talk about the labor market in those hearings. He wasn't talking about the average American flat on their back. He talked about inflation and how important it was to the credibility of the Fed to get it under control. So what's the risk that he comes in is actually incredibly hawkish. It joins those three other dissenters in case of a
more symmetric risk. What does a market do with that?
This is the secret source of central bank independence. He want to make it easier to cut rates, convince the market you're willing to hike, and we have gone some way through that exercise the sou afternoon with this degree of descent.
What's interesting is what Bob said is that levels here are not going to necessarily hijack any of the capital markets activity. It's not going to slow the M and A, it's not going to slow the huge tech trade that's really been the ballast to this market. So what exactly is it going to do to actually slow the economy and actually achieve what the FED is looking to do?
Bob Michael In just about ninety seconds time, the Chairman of the Federal Serve, J. Powell, walks into that room and steps up behind that podium for probably likely the final time. Just a reflection on this man and his tenure at this institution.
I think he was dealt some shockingly difficult circumstances, and I think he did his best to navigate through them. We did get through COVID, we got through the regional banking crisis. We've gotten through different rounds of tariffs, and we're looking at an economy that's actually doing pretty well considering. I think he's done a really good job. And Walsh isn't an outsider, he's an insider. He was at the FED before. He'll do a good job.
But Michael, I appreciate your time, sir, thank you. BUTB Michael there of JP Morgan