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In the next twenty minutes. On this program, we need to discuss two things. The future of Chairman Paw One the easing bias at the Federal Reserve. Two on the future of Chairman pow staying one as a governor of the Federal Reserve. He was asked why this is what he had to say.
My concern is really about the series of legal attacks on the FED. These attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors.
The Federal Reserve Chairman Jay Powell on independence. I think FED independence is at risk. So what about the easing buss Let's talk about monetary policy. A question coming into this decision is whether this reserve would move to a more symmetrical reaction function. That's the juket. This is a plane speak. Isn't just as likely they'll hike as they'll cut. They didn't do it this time around, but there was some descent. This vote was eight to four. Four descents
haven't seen that since the nineteen nineties. Of those four to three wanted to get rid of that easing bus. This is what the chairman had to say on that issue.
You know a number of people on the committee who either could support that language change, changing to a more neutral stance so that a hike is as likely as a cut. That number has increased over the inter meeting period, and it's easy to see why we had the discussion. The majority are still on the page of not feeling the need to move to that level, and that's where I am.
I get it though.
You know at a certain point you would move, and that that conceivingly could come as soon as the next meeting.
They're getting closer, but they're not there yet. So much to learn apparently over the next thirty to sixty days.
I thought that was the most market moving aspect of the news conference, the idea that it wasn't just the three dissenters who are to shift to a more neutral kind of positioning symmetric kind of positioning, but that it was a bigger group that just didn't feel like there was a need to move right now, because ultimately, why move now, and so much can change. Nonetheless, this goes on for as long as people are might be thinking
based on the oil prices in the future. This is something that clearly will come back on the table.
I like the way on the Bloomberg Professional Service we have a way to see the president's tweets quickly. I am waiting to see a president and tweet wheeler. Do we get it by the time the clock turns around? Or do we get it by metas earnings here in X number of mini.
Things have softened somewhat around this institution just a little bit. We heard from the Treasury Secretary scope person who said it's understandable if this fed remains on hold for some time. But the last thing we had from the President was something like this, if the chairman doesn't leave on time, I'll fire it now.
What is on time actually mean?
Because he can stay on as the Board of governors, he can stay on that board until twenty twenty eight.
Is that on time? Or is the president looking for something else?
Are we entering a new standoff? We're dealing with a standoff of the Middle East. We were dealing with the staring contest between Tom Tillis and Donald Trump, and now might be dealing with President Trump versus j Powell the governor, to see who blinks first, who's going to drop the legal cases, who's going to step away? And this could potentially get pretty tense, especially if the bar is that much higher. Right now for FEED chair Jay Powell.
My mccame is in that news conference. He'll join us in just a moment. I want to start with Jimpanco of Pianco Research. Jim, Welcome to the program, buddy. I think FED independence is at risk. The chairman's words, I'll continue to serve as a governor for a period of time. Recent events have left me no choice but to stay.
Your reaction, please, I think it's one of the most disappointing things that he's done during his chairmanship. That is a political decision. The decision was made to push the investigation of the building to the Inspector General. The Inspector General finds some malfeasans or wrongdoing with the building, they'll
have a criminal referral. That is appropriate. He seems to be saying that has billions of dollars in building construction and no one's allowed to ask any questions about it, and he's going to stand in the doorway and disrupt the FED as long as they're going to look into this building. I think that that is a big, big disappointment. I would have expected more from him, to be very honest,
and I'm a guy that liked him. I'm a guy that would have reappointed him, and I think this is a big disappointment that I've seen from him.
Jim, do you think that it has longer term ramifications for the institution based in the fact that he is saying he does think that this is an independent institution, a committee, but does want to avoid some of the attacks that he says are battering the institution.
Marin or Eccles is the only other FED chairman that stayed on in the late nineteen forties, and his memoirs say that he stayed on because he saw, with Bretton Woods and with the World Bank and the IMF in the post World War two period, change was coming and he wanted to marshal the world through those changes. It seems like what Chairman Paul is saying is we're eighty years later and changes coming. I want to stand in
the doorway and prevent those changes. He said he wants to see a more traditional move back to the FED. He wants to see the FED institution remain the way it is and not evolve. Now, as far as independence goes, I think we've solved the independence pro problem with the vote today eight four. We have twelve independent voters. The Chairman is one of those voters. That is how you're going to get a truly independent FED. The Chairman cannot dictate the policy like he has for the last forty years.
He needs six other people to agree with him in order to get that policy across. What's going to happen if we continue to have these descents. I'll remind you last year the Bank of England had a four to four to one vote. If we get to a six to six vote with this FED we're already at eight four. That gives Chairman Powell all the power to decide what
the policy's going to be. Even though he said he's not going to give any speeches and he's going to remain in the background, or is he saying that he will just do whatever to Chairman wash tells him to do and that's the way he's going to vote and he's not going to vote independently, So it's a big problem that he needs to define and try to explain, and he didn't did this press conference, Jim.
I look at this simplistically. I got oil at one nineteen sixty one in this announcement that I saw on the Bloomberg that we're leaving an aircraft carrier from the Middle East, the gerald Ford, with five four hundred sailors. I believe it as is coming home exhausted. Is Jerome Powell, simplistically in the same way, just staying to block a Trump appoint period.
I hope he's not, you know, and I hope that you know he's he's trying to be fair minded in his decision, and I disagree with the decision, and we can have disagreements in it, and that is it being as political as that that he doesn't want Trump to
have another appointee. And by the way, we'll get the Leasa Cook decision by June when the court adjourns, and if they do allow him to fire Lisa Cook for cause, I would assume probably the same day he'll fire j Paul and we'll have to and then he'll get two votes or he'll get two open seats to be able to replace Now. Of course the court could rule otherwise, but that's coming as well too. But I hope it's
not that. I hope that it is more that he has a view about the institution not changing in a world where I think we're changing and it needs to evolve, and he's preventing that.
Jim, stay close. I've got Miama Cay standing by it.
Just hopped out of the news conference and one of his reactions to one of this as well, Mike here in the room. Have you got a different perspective on things?
Yes, I think I do. I was listening to what Jim said. I don't think Jay Paul is staying because he's trying to stand in the way of progress at the FED. I think Jay Powell is staying because he
doesn't trust the Department of Justice. He noted at the top that the Justice Department had said that they were dropping the probe, but he referenced back to Janine Piro's comment about we could file another criminal complaint and he doesn't know, oh what the Justice Department will do, whether or not there would be validity in what the Justice Department might do, So he wants to make sure that that is the case, and he will at least probably
stay through the Inspector General's report. It is also possible he would stay on beyond that in order, as you did, mention that in order to deny the President the possibility of another seat if he thinks what the President wants to do is take political control of the FED.
Said Jim, I want to give you a chance to respond to that. If anything, the Chairman's been consistent, he said a bah. He said this needs to be rapped up with transparency and finality, and based on the comments we've had, according to the Chairman, he thinks the full and short of that bound.
Jim, Yeah, I think he thinks that. Senator Tillis does not think that. That's why he voted today to advance his nomination. And I agree with Mike that he does not trust the Justice Department. But it's not his call. It's the Justice Department that the American public elected through
the election of Donald Trump. And if he doesn't like it, he's going to then stay as a disruptive force to the FED to prevent them from making any kind of changes or referrals or even looking in Remember this is all about the building cost and why it's been taken several years and his run so expensive, and it seems like he's saying we're not allowed to ask.
I've got another disruptive force to talk about, Jim a labor to jump in one twenty on Brent just breached that level moments ago, high on the session by eight percent. Let's just take a step back. The chairman's future is one part of the discussion. These market moves are something else. At the moment, Brent at one twenty just sit on that yields high at the front end of the curve, retesting the highs of the last two months or so,
and equities bring up the equity screen. At the moment, equity is this afternoon, in the face of these moves and fixed income, these moves in commodities doing almost nothing. Bramo hardly moved, not even phased ahead of these earnings later this so afternoon.
And this was what the Fed was talking about. Right, we have the NASDAK that actually up four tens ofiven percent ahead of those earnings. As we look to the strength that fetcher J. Powell was talking about it as last press conference. But this is where it becomes tricky. At what point do those higher oil prices that might be leaving big tech unphased become an inflationary pressure that can be withstand what we could be withstood simply because there is enough momentum in this economy.
Jim, let's get to the price section.
Not so interested in should should an interested in market consequences. Here's a Federal Reserve debates in dropping its easy bass pressure building the commodity market rice repricing yields higher. What are the consequences, Jim, I think.
The consequences are huge because if you look at the way that oil is trading. You're right that the June contract went over one twenty a few minutes ago, and that's the highest it's been since June of twenty two. What about the long term? Okay, let's look at the December contract. The December contract is making new all time highs too, and it's saying to us, at least if you want to take it at phase value, that the price of oil is going to stay elevated at least
through the end of the year. As Chairman Paul said, we already have he said, three and a half percent on PCE inflation. That's their measure, and if it's all driven by energy, it's going to stay there right now, and it's going to be problematic for the Fed to even talk about an easing with that level of inflation. It's not going to disappear and go away unless there's some resolution in the war. And the problem is the
market doesn't see the resolution in the war. That's why both the June all the way to the December contract continues to move higher.
Ay, Jim, going to see you. I appreciate your opinion, Jim of Biancore Research. Mike always go to see you, buddy. Great work in the news conference. Mike mckaye down in Washington, d C. If you're just joining us, welcome to the program. We have set out for quiet an afternoon now in the next sixty minutes so sun, we should hear from four of the biggest companies on the planet, Microsoft, METSA Alphabet, Amazon.
Before we get there, some big market moves to talk about eight consecutive days of high crude prices Brent crude through one twenty. Just briefly, we've taken out the heighs of the year closing basis. If we close at these levels one nineteen ninety five. Look at that WCI comfortably into triple digits. This move in the bond market off the back of it yields high at the front end of the curve, up by ten basis points. Not just about oil, also about this feeder reserve. If you missed it,
here's a summary an eight to four vote. Haven't seen that level of descent since nineteen ninety two. Of that four, three hawkish descents a conversation about dropping the easing bias. They haven't got enough people on site just to do that just yet, but we're losing support for that easing bias at this feeder reserve.
And potentially if this conflict in the Middle East doesn't get resolved, then all of a sudden, you will have a consensus to move to asymmetric risk. We have now priced out a rate cut for twenty twenty six and the Fed Fund's futures. At what point do we start repricing in hikes, because ultimately, this is an economy that can would stand oil prices at this level, rates at this level, and that was the ward that we heard from the Federal Reserve.
Repricing here is hard because it's a war. Somebody mentioned there it's a war. We forget we're in a war. And within that, I don't know what the unknown known is tomorrow or out to June seventeenth. Nobody knows. We're just going to take in the data and take in the war news. And what I'm waiting for John is to take in the next marginal.
President Trump tweet the S and P five hundred down by a tenth of one percent. If you looked at that, it's a snoozy afternoon and nothing happened at this Federo's Eerve meeting. That's just not the case. Jeffrey Rosenberg of Black Rock joined us now for more. Jeff, what's the bill case in the face of what's brewing elsewhere?
Well, you know, you highlighted it well between trying to disconnect what's going on between oil prices and the committee meeting today and what we heard, and you know, I want to highlight, you know, the thing that I found most interesting about Powell's comments were explaining the I think the second main point and takeaway at the meeting, which is this this theme of a divided committee that comes out of the eight to four vote, and he framed it as a natural consequence of the conflict in the
FEDS objectives between growth and inflation, which is the one hundred and twenty oil you know? Is that is that you know point? And he got asked the question about pass through and this is I think what the markets are really struggling with is he basically made the point it's all about the time of which the Straits of Hormuz remains closed, and no one knows what that will look like.
So Jim just talked about the forward curve. Uh, you know, December contract making its new highs, but it's it's significantly lower than the front end of the curve. So there's an expectation here that at some point that's opening up. We don't know what that is, and I think Divided Committee is likely to be the continuation because of this point that Powell highlighted that when you're faced with the conflict of the dual objectives, that people are going to
see that in different ways. Some are going to be arguing for the growth impact, some are going to be arguing for the inflation impact, and that might be the more expected outcome as opposed to what we've seen and the historical comparisons of this being you know, very unusual, will maybe get used to that being a little bit more usual.
Jeff, it seems like the conflict of the Middle East isn't necessarily that close to wrapping up. Maybe it is, and we just all are getting mixed signals. Do you think this market needs to price in a greater chance of a rate hike as the next move by the Federal Reserve?
Well, it's already done that. And to this discussion about the easing bias and the language, you know, the market already took the easing bias out. It did that at the onset of the oil price impact from the Iran war. So I don't think that as a catalyst for sort of the next move that's made. Mostly, you know, the Fed is a deliberate a body getting the right number of people willing. You heard Powell talk about that they're
slow to move that bias. The market is not, and it's moved the bias to easing out of the market pricing. So I don't think that's really the market event. The market event is really the uncertain unknown question that he was asked, what's the pass through from headline inflation to core inflation? You heard Worsh talk about it in terms of trimmed mean and not looking at core PCE as a measure. That's a very particular way of looking at the potential for pass through. Will he get and move
the rest of the committee onto that view. If so, that's a very dubvish implication, and you bring the bias back in. But as Powell highlighted, we really just don't know. So you're going to have to see whether or not those pass through of headline into core shows up, whether Worsh is more dubbish interpretation shows up, and whether you can push the committee towards his direction, and that will bring the bias back into market pricing. But right now we're pricing.
Yeah, Jeff, I.
Got eight questions in time for one, and it's just simple for our listeners interviewers across this nation and worldwide. What is the best tool to use in the bond market to study the potential dynamics? Don't you know the benchmark tenure or that, or is there a unique Rosenberg spread? It makes sense. What is the efficacious way to study the pulse is seen in fixed income?
Yeah? You know, Tom, the kind of historical rule of thomb is if you want to keep it simple, it's about the five year maturity point on the treasury curve. That's kind of impacts the best estimations of where you're looking for current and forward looking FED expectations, and that kind of is your benchmark for looking at you can look a little bit shorter. Two year is going to be the more near term expectations. I think that's a
really good metric. And then on the inflation side, remember inflation. You know, headline inflation is going to impact shorter maturities.
You want to look a little bit further out, you can look at the slope of the curve five year, five year forward measures on break even inflation is better when looking at longer term market expectations of the impact on inflation, and so far, you know that's been relatively benign, and so that's kind of supporting you know, Powells comments in terms of market longer term expectations not being unduly impacted.
If you started to see that change, that's going to be a major signal for FED policy pivoting more towards the inflation concern. If you start to see that show up in that metri Jeff.
Last question from US last time we had to yo it at these levels close to them was the end of March, and every person we spoke to and fixed income on Wall Street had a very favorable interpretation of these moves. They said we were creating value and they wanted to buy it. Jeff, do you think we're creating value this afternoon and do you want to buy.
Well?
I think the move in the front end is creating some value. You know, you're seeing a big curve flattening again. A lot of it is conditional on that pass through of inflation, but stepping out of the curve into the front end, we're having Warsh come in. He's already signaled that he wants to look through that and take a more dubvish interpretation, be able to bring the committee along with them. You know, when you start pricing hikes in it depends on the oil move and it's persistent. But
I think there's a little bit of value there. A completely different answer really to the opposite side. When you look in the long end of the curve, the long end needs to build term premium. We got a savings glut that's turning into a savings deficit, particularly as we need to reshure, rebuild, reallocate in global savings around the implications of this Iran war, all at the same time as fiscal deficits are increasing the demand for that borrowing.
I think there you see a different story, and that's a that's less of a buying opportunity and more of something we're going to need to see increase in terms of the term premium to bring investors back into the long end of the curve.
He jeff got to see you a great answer, Jeffrey Rosenberg there of Black Crock breaking down its views, not because I think it's the right answer, just it's an important answer to a very difficult question. Right now to ya yields high by ten basis points tens full forty one.
If you think that right now there's a great opportunity to buy and the tenure, give us a call, because right now everyone who we ask seems to say go right to the front end and saying that's where I'm going to get some yeals. But right now on the long end, things might be changing, and ultimately we just can't get ahead of it. And that seems to be a theme again and again.
Bob just emails in he's on his way to Step one in Miami's here, and Bob's looking at and he's going. The price of guests went up ten cents yesterday, twenty two cents this week. People are needing out at restaurants. That's got a lot more to do with us than any of the.
Things that flight got more expensive. This afternoon is not over. Big tech coming up after the close, coming up tomorrow on Bluebacks, tav On Bloembock surveillance. We'll kick things off with Jutying and Manuell. I've ever Call, will catch up with Mike Wilson, I've Morgan Stanley, and a whole lot more from New York City this afternoon.
Good afternoon,