Bloomberg Audio Studios, podcasts, radio news.
The Chairman of the Federal Reserve.
That news conference ended almost as soon as it started. The FED chair thinks we're restrictive. Here are the scores for you in the equity market on the SMP five hundred boom vertical, almost straight away as soon as he started speaking. The equity market positive by one percent on the SMP on'm announcedack cup by one point one percent. The small caps bouncing back from a very very bad
April here in May up by almost two percent. If you switch at the board once again, if it's a FED decision day, apparently it's a rally for the two year yield to lower by seven basis points four ninety six twenty two, and I think it's about four to twenty am in Tokyo. Dolly En looks a little something like this. I match and the Ministry of Finance is a little bit happier. It could have been a whole
lot worse, Dolly n one fifty seven forty nine. Take a listen to what the Chairman of the Federal Reserve had to say.
I do think the evidence shows, you know pretty clearly that policy is restrictive and his wing on demand, and there are a few places I would point to for that. You can start with the labor market. So demand is still strong, the demand side of the labor market in particular, but it's cooled from its extremely high level of a couple of years ago, and you see that in job openings. You saw more evidence of that today in the Jolts report.
As you'll know, it's still higher than pre pandemic, but it has been coming down both in the Indeed Report and in the Jolts Report. That's demand cooling.
No doubt.
So for Nisson's macro, with this line, the statement retains its easing bias power beliefs that policy is restrictive. Look at the price sanction off the back of this, Bramo. The next sixty minutes of that news conference, next fifty minutes hardly worth your time.
Well, especially because the next question was the question that was the key one popping the question that Julian Emmanuel was talking about, which is have you considered a hike? How big is the threshold? Not likely, We're not going to do that. So it was a one two punch. First policy was restrictive dubbish. Then hikes are not on the table, even a bigger rally, and frankly, that's what's feeling basically hawkish, isn't is sex.
In their note Hatziism Company and their note started with the tapering action. I think it was the tanem. I agree with everything you've said. And it was over Johnny after not forty seconds. I think it was over after thirty three seconds. But with dat said, he delivered a lot of what people wanted as an adjustment. You saw it in the real yield. Let's come back a little bit. But you wonder what the follow is? The follow on is the first set of FED speakers out of the block.
I mean, I mean, are they gonna are they gonna go with this tone?
It's been a fantastic lineup of guests over the last couple of hours. Just to shout out to Bob Michael at JP Morgan and Mohammed al Arian asked about stack flation. To remember Buff's response to that. I think the Chairman's gonna laugh at that. Reflect on what happened to the folky is. I think he's gonna laugh. He said this no snack, this very little flation. Ultimately this no stack flation.
Basically he laughed. He said you know, give me a break. This is not what we're talking about.
Honestly, this is a FED show that came out much more dubbish than anyone had expected. And honestly, this raises a question about whether he is entertaining some.
Of the key debates.
He was asked by Michael McKee about long term neutral rates, not going to engage it, asked about long and variable lags stick in a script.
There was no sense that he had entertained a lot of.
The fundamental debates that are dividing Wall Street in a really serious way.
I'm not sure where that leaves people.
I noticed that off the GDP, where we've got a one point six percent statistic, what we heard interview after interview was domestic final sales was actually pretty buoyant. And that's what he alluded to when he went after the stagflation.
Let's be clear, they're not going to count anytime soon. Based on what we just heard, the easing bias remains. It's just the amount of price action we've seen over the last couple of months. When we talked about the Fed champ being hawkish, it was hawkish relative to what we've had. This conversation all day relative to the previous meeting, maybe relative to the price action where we're price four right now.
Very difficult to do.
The bar for that was so high given the fact that this market is only price for one cut in twenty twenty four.
Yeah, this didn't push against that.
I mean, this could very much be consistent with only one rate cut, and that's why you're seeing a bigger move, arguably in stocks. Basically this is the perfect mix for stocks. Where people said you just need the tail risk of a hike off the table.
He did that, and then you can really go to the races.
When we get to Dudley, I'm going to talk about what wasn't talked about too much, which is a labor economy. What evidence do they need to see in the labor economy to really become accommodative, And to me, that's still really unanswered. I don't think it's claims. Maybe it's wages coming down all the time Forcelly and others, But I just really wonder what the labor dialogue is here rather than the parlor game.
Of what is tak You're right, I would pad that with inflation. I think oh they got called it with these hot inflation prints temper their ability to respond to one first shocks the sub called fed put. Based on what we just heard in the last sixty minutes, the fed put is alive and well.
Basically cyflation's not on the table.
Stop it already. And that's basically what we heard.
Can you set up a course where we have Frankfurt in London question quality brought over to Washington. Can you arrange that?
Would you want me to offend everyone? No, I'm gonna come say it right now.
There are too many questions that are off topic of the dual mandate of price change. Ethan Harris on fire and LinkedIn on this and on the labor economy. I didn't earn enough about the labor economy.
I have to be I disagree with you. I felt like after the first two questions, people tried every which angle to get something more.
It wasn't happening, period.
Full stop.
He was going to say what he was going to say, which is essentially, we haven't shifted our stance that much.
We're not going to hike rates. Goodbye, see you next time.
Let's speak to a man who's been on the other end to some of these questions. Bill Dentley former New York Fed President and Balloompag economic senior advisa, Bill, what did you make of that performance in that news conference?
Thank your interpretation is exactly right. It was quite dubbish. And he basically said that despite the news that's come in economy, stronger than expected, inflation that's so good in the first three months of the year, the whole game plan is basically unchanged. We're going to keep rates here until we're highly confident that we're going get inflation down in two percent. No hint whatsoever of a rate hike,
no hint that it's not going to work. So mark reaction I think was pretty appropriate given what he said. You know, he basically said, we've got it.
Back to Dudley McKelvey of a few years ago. Bill, Dudley, you're in the trenches at gold and sex gaming the labor economy. What data in the labor economy is important to Chairman Powell to really become accommodative.
I think it's the notion that the labor market is really starting to somehow fall apart and the unemployent rate is starting to rise significantly. He was asked pretty explicitly about that, and he basically said, one or two ten percent rise in the unemployer rate wouldn't really disturb him, you know, I think the interesting question is if the labor market really starts to deteriorate, the problem is that
the next stop, partypically is a recession. We've never had half a percent rise in the unemployment rate without having a recession.
I think it's done player and goes up a couple tens.
I don't think it really bothers him. But if it feels like the labor market is really giving way, then the Fed will put a lot of weight on that, almost regardless of what inflation's doing.
Bill, you said something, he basically said, we got it. The playbook hasn't changed.
Was that the right move.
Time will tell if the playbook is it will actually work with as well as he thinks. I mean, my own personal view is that the legs and launtry policy probably are not as long and very blessed he thinks. And I put a lot more weight on financial conditions
I think than he is currently. The fact that people are taking his comments in a very positive way from financial market perspective means that we're having an easy of financial conditions, which will support the economy, So I think it just reinforces the higher for longer story over the medium term.
He doesn't seem perturbed about that, And he also didn't really deal with a lot of the fundamental questions as we were just saying that have been dividing Wall Street. Didn't address the higher terminal rate. He didn't address this question of what would make him really a second guest idea of restrictiveness or long and variable lags. Do you think that means he's not thinking about it, or that he has rejected it, or do you think he just doesn't want to deal with it in the public right now.
I think he's certainly thinking about it, But I think he's basically saying, from his perspective, the evidence hasn't convinced them that they're on the wrong track. So he thinks policy is restrictive, sufficiently restrictive to do the job. So maybe our starting and maybe the neutral rate is.
A little bit higher, but it's not as high as where they are today.
So yes, could our star be revised up at the next June Summary of Economic projections? Probably will be up revised up a bit, but policy in his mind is still sufficiently tight that he's not worried about that particular variable.
Bill Dudley Ethan Harris has been on fire retired from Bank of America, almost daily on LinkedIn with really intelligent work on trim inflation means which inflation statistic is most informative now to our audience.
To focus on services x housing for two reasons. Number one, this is the problem where the wage inflation drives the actual outcome in terms of services inflation. And number two, you know it's not being bounced around by the supply chain normalization process, which is pulling down as good prices. I think one of the things that's probably destorying the inflation news recently is the fact that goods prices came down a lot because of the normalization of supply chains.
But we ignored the transmittory inflation on the way up. We also have to ignore it on the way down. So we don't want we don't want to overstate that goods price inflation weakness. So I think services sector x X housing is probably a really important thing to focus on. And you know, that's the so called last mile of inflation, and that's the part that's turning out to be more difficult.
But we need to talk to you about the balance sheet as well. So the Federal Reserve announcing today they'll slow the pace of balance sheet runoff starting in June. The Central Bank to lower the treasury runoff cap to twenty five billion from sixty billion. Build market participants right now trying to work out, Okay, if QT wasn't bearish, is tapering QT bullish? But can you help me understand because we were told it's like watching paint dry. It has been when they start to undo it, unwind some
of it. What does it all mean?
I think it is like watching pink right. You can see that in the press conference there are originally no questions about the balance sheet, and he made it very clear that the balance sheet decisions are not part of the monetary policy process of making policy either either easier or tighter. I don't think it has much effect the taper because the destination is the same, the Feds going to a balance sheet size that generates reserves that are
ample but not abundant like they are today. So we may get there slightly over a longer period of time because we're now running off securities at someone's slow place, but we're going to the same place, and so it really has virtually no market implications.
If you were on the Fedstelle, Bill, would you have voted for this type of thing, or would you have aired a little bit more as you were talking about before, about financial conditions easing too much to allow inflation to stay sticky for too long.
I don't think we're at this stage where you know, great hikes are warranted, and so I would have agreed with the decision today. I think where I would have maybe a bit different from cheer Paul a little bit. I would just be a little bit more cautious about the confidence that he's got it.
Bill Dudley, thank you, sir.
The former Fed New York President Bill Fantastic has always recority market fades a little bit. We're up by three quarters of one percent. Make so I appreciated the question at the end of the news conference. I'm not sure about the answer, because effectively, what the journalist in that news conference was asking is whether the lack of descent spoke to a lack of diversity of thought on the FMC.
Correct.
They weren't asking about you know what gender and precisely you know racial composition is on the FED. They were asking about pushback intellectual discourse, and this question about whether anyone was saying, hey, wait a second, maybe we shouldn't be so sure that long and variable lags have the same kind of effect as they have in the past.
That I think is a legitimate question. He didn't address a bunch of questions.
Oh here alluded to and I think Bob Michael's been leading on this, And I mentioned to you and Lingoln earlier, what if we get friendly data, what if we revert to a disinflationary vector. John, I'm doing some research here, and I mean, you know, I look at the G seven meeting in Pulia, trying.
To make that here in June.
And I'm sorry, I got a plane ticket of three thousand and six dollars, not even close to seven thousand dollars eight nine, ten months ago. I'm sorry. You get whispers a service sector disinflation, and you're right back to the boom economy DOW at five hundred what it was ten minutes.
I'll repeat the question I asked a little bit earlier before the news conference started. I'll ignore the reference of the doll The three month average on payrolls is two seventy six. The Federal Reserve chair is just established, conveyed quite clearly that the Fed put is alive and well, they're willing to respond to adverse shocks, downside surprises, particularly if they emerge in the labor market. Now I'm trying to wonder, Lisa, what it would take to reintroduce the
rate cut conversation. Clearly they still have a bias to ease to cut interest rates. Would it be a downside surprise on Friday? With that be sufficient? What would we need to see to get people talking about a different thing, not about hiking, about be sufficiently restrictive? After what we've just witnessed in that news conference, what would it take to have a series of guests to start talking about July at the Federal Reserve?
And j Powell himself might have said, well, it would take a substantial weakening in the labor market. Does this market believe him that it really would or do they think that just the idea that yes, quits rates are increasing, see a slight increase in the labor market. And then to Mohammed's point, if you already see the weakness, it's too late. How much does that haunt him at a time where he's really embracing the recovery that we continue to see in the economy.
Mike McKee was in that news conference. Mike McKee has run out of that news conference. He's with us right now. Mike great exchange with the Federal Reserve chairman in the last Now, what stood out for you?
Well, I think the biggest thing is that there are two audiences here, or two people that are two things that the FED is trying to address. One is the markets and their perception of what the Fed is doing, and the other is the economy and what they need to do to bring down inflation. And the two things are not always compatible, and that's maybe what you have
right now. The Fed is less concerned about how the market feels about all this than they are with setting their own parameters within their meeting of what they think they need to do, and at this point they don't think they need to do anything. The economy seems to be in good shape. We've seen a little bit of slow down, but we're supposed to see a slow down when they raise rates. We have seen inflation stall out.
Maybe that means they haven't got policy tight enough. But now financial conditions have tightened, and so maybe that's going to start to work. Bottom line, they don't know what they're going to do, so they can't then give the markets a good clue.
Mike, and the fan distributions of all this data, the probabilities, the outcomes of all this data, is there in place into the jobs report on Friday an ability to get back to a disinflation or a vector quickly.
Probably not in the sense that we don't have any indication that hiring is going to significantly slow meeting any of the conditions that Jay Powell was talking about for a rate cut, and wages from all the other measures we've seen have still been running above inflation. So at this point one indicator isn't going to do it. It
would take much more than that. If we got a significant rise in unemployment for some reason, then that would set some antenna up, but it wouldn't push anybody to do anything at this point.
Mike, we talked a lot about how the key question was going to be whether they were entertaining the idea of rate hikes. Were you surprised, and he completely dismissed that out right.
No, I wasn't surprised because Lisa, you just have to play game theory and ask what would have happened if he didn't dismiss it. Then all of a sudden, you've got people really moving the markets around trying to price for something like that. At this point, the FED doesn't see a reason to raise rates because they think that overall the economy is slowing a little bit as they want it to, and it is doing so without rising unemployment. So things are kind of working out the way they had planned.
Mi mackay, great work has a waste, buddy, Well, can't chat with you tomorrow morning.
Mi McKay.
That breaking it down for you down in Washington, DC. That pop in the equity market get in sold just a little bit. We're still positive. But Tomney by zero point four percent?
Can I go to November seven? November seven is two days after a modest election. I'm sorry, but that's the meeting I'm focused on. November seven could be wild.
Hey, Eve's real He directs about it in the news conference. They do not want to talk about politics at all, not part of the conversation, and.
They want to give the sense that they truly are independent at a time where they're actually being challenged in terms of their independence.
The more people start talking about.
When people, i mean the former president Trump comes out and starts talking about the potential for you know, taking ownership over fed decision making, they're going to be much more adamant about being.
I'm waiting for him to address that story that came out from the Journal in the last week, still anonymous sources around the president talking about these issues.
These are big issues, so you feel like people are kind of like spitballing out there and seeing how the people react to it before they yeah, yeah, before they really kind of put any emphasis behind it.
Jeff Rosenbersts got things to say about this, joins us now from Black Rock. He really doesn't that take with us, Jeff, I'm not going there.
Don't worry.
Jeff is great to catch up with you as always, sir. After what you just heard, does it make you incrementally more bullish in any way, shape or form.
Well, let's just say that going into this meeting, there was a lot of bearishness and fear that he would come out more hawkish. If you even look at you know, Bloomberg Economics put out their kind of preview, it was overwhelmingly.
Expecting a very hawkish message.
So I think there's a lot of relief here that the chairman stayed true to what we've seen from this chairman. He's been very much on the other side, has been one sided, looking at the glass half four and reiterating, you know, kind of the key point around an asymmetric response function. If inflation is higher and it has been higher over the last three months, okay, we won't cut as soon as we were anticipating. But the questions and people who tried to pigeonhole them on are you going
to hike? Did you talk about hikes? You know, just deflected all of that, and.
That was that was a relief.
So the reiteration on the asymmetry as a result of the reiteration on they believe that policy is sufficiently restrictive. Those are two key things here that keeps a more dubvish orientation in the face of some challenging economic data.
And Jeff Rozenberg on Planet Blackrock, is the economy doing okay? Is the real misestimation here? A one point six percent GDP which made a lot of news, but domestic final sales were much much better. Is it better out there than we actually think and that's why we're heard at Dubvish poll today.
Well, I think you have a mixture there and you've heard it, you know, as part of the exchange during the Q and A. You know the aggregate data, Yes, one point six understates it because as you rightly point out, if we look at domestic demand, it's running at a stronger level.
So the economy in aggregate terms is stronger.
But what Bob Michelle talked about in the earlier or Michael, I'm not sure which way you pronounce it talk about is you know there are pockets that.
Was I can confirm it's Michael, carry on, Jeff.
Thank you.
So there are pockets of hurt going on here, but there are also pockets of strength. So you have a distributional aspect in terms of what's going on in terms of the economic growth side. But clearly the amount of slowing it was a question in the Q and A, didn't you need to have more pain to get the disinflation.
Good news is we're still on the.
Path of the immaculate disinflation and the growth side is holding up. So I think that's quite supportive here to the risky asset perspective, it.
Seems like this is more supportive to the risky ascids than it is to government bonds, right, I mean, this basically raises the specter of taking a rate hike off the table, which will benefit stocks of companies that have done really well with respect to earnings, but doesn't necessarily give that much of a boost to government bonds that are still subject to hire for longer. Is that kind of your view in terms of positioning on the heels of this on the margin, Yeah, And you know.
I think we have to segment between the front end of the curve and the back end of the curve. When you know, I think this is challenging for the long run in the back end of the curve. Right, The FED is from the most part dismissive of the inflation increase. They're not really taking it in too much into account. The characterization of it was bumpy, what me worry.
So that's fine, But if you're holding thirty years of debt at interest rates that you know may not sufficiently compensate you, if you are at a longer period of a three percent inflationary period, that's a bit challenging and a little bit problematic.
I think for the front end.
Of the curve, you know, it's a little bit easier story because you have less exposure because of the maturity and roll down that you benefit from there. But I think you have to be a little bit concerned about the longer run trajectory here, both from what we heard today in terms of monetary policy, but the other side of this, which we were a little bit this morning in terms of treasury refunding on the fiscal side, that's a bit more of a challenging environment for back end duration.
JEF.
I want to build on that just a little bit.
Given how estamplished the reaction function is now at the Federal Reserve, highlighted again by the chairman in this news conference, how do you think HEELDS will respond to the longer end to incoming information the data on Friday an upside surprise versus say, a downside surprise.
Yeah, you know, we're gonna pivot right to Friday and we'll be back and we'll talk to you guys then. But you know, I think that will very much be more about the front end reaction, because that's gonna be about is the FED really getting the slowdown in the labor markets, the normalization in the labor markets that they keep talking about, but the data isn't really supportive. Nonfarm payroll is not supportive, wage is not supportive.
I'm a little.
Surprised you to get more pushback on ECI, their favorite measure.
Everybody expected it to go down. It went up.
Yes, we can dismiss it and add special factors. It was a bit more state and local, it was a little bit more union than private. But it didn't go down as fast as the normalization would say. And there is that kind of lurking question, Mike McKee, you asked it, you know, are you not as restrictive as you think you are? And they'll continue to believe that they are restrictive.
That's kind of the fundamental belief at this point. The question is if the data keeps pushing against that, then does the FED have to make a bigger pivot.
Today was not that day.
Way too soon to get there, and that's why Powell purposefully came out very dubvish. But inside the statement, one thing people one questioner picked up on. There are a little bit of hints here of moving around the removal of the kind of the implicit forward guidance on the peak policy rate, the implicit promise that the next move would be a cut in the introductory statement.
I think that's notable.
We'll see that in the minutes in terms of the debate and what the Chairman obviously couldn't talk about here, but next month we will talk about is the shifting in the distribution of the voting members with respect to their forecasts of economic policy that you didn't get this meeting, but obviously that's what the markets wants to see. And you can kind of read into the statement and the and the press conference that there is a shift going
on there. It was underplayed, not really many people picked up on it. He wasn't going to highlight it, but you can see that is going on.
Like ros Jeff Rosenberg right to catch up with you, sir. The shade at JP Morgan from Black Crost stop you think they kill Rick Rick Ryder?
You know, Jpmurlgan.
It's a fair mischaracterization. You think that was intentional? That was your takeaway from the.
Jo of course it was I don't know who bub Michael is. Give me two great this s and P.
Five hundred is fading going into the clothes let's bring up the chart briefly. We're up now by only a tenth of one percent at the peak. In that news conference, the S and P five hundred was positive by one point two. Something that sticks, though interestingly herely so it's the running bonds. The two are still down by about eight basis points.
It took the prospect of hikes off the table, so that potential tail risk not necessarily there. I thought what Jeff Rosenberg said though about the long end was interesting and we're not seeing it in the price action at all, saying but that in the longer run this becomes a
real problem for the long end. Essentially, if you have a FED that is hardwired to cut rates on any weakness, but not necessarily the high rates on the sense of any kind of durability of inflation, does that mean that inflation is going to stay higher for longer and that there needs to be a higher risk premium.
I was pleased she took the conversation there. Lisa.
This from Mohammad al Arian out on x formally known as Twitter, with this to say. The question, now, this is an important one which will only be answered in a few weeks when the meeting's minutes und released is the extent to which his remarks reflect his own biases or constitute an accurate summary of what was discussed by him and his f OO WEBC colleagues. And the Fed speak's going to start pretty immediately, Tom, almost straight after this gun into payrolls.
We're going to hear from Fed officials.
I agree with the first week's important. If we get a two forty on survey on non farm payrolls three months trailing two forty three oh three, two seventy, that's a fully employed America.
Well, and you raised a real interesting question, which is essentially, is there now a new asymmetry in the market where the long end will sell off disproportionately if we do get a really big.
Or hot print in the labor market.
Essentially, the Fed's not going to look at this as a reason to hikered even to keep rates higher for longer necessarily, but it could mean longer term there could be a much more inflationary pressure.
Under the hood.
Really important staff ahead of payrolls on Friday, as Tom mentioned, the estimate in our survey two hundred and forty thousand, the previous number three hundred and three coming up next on the close, canning you into that in about fifteen minutes away Seth Compent, a chief Global Economy at Morgan Stanley. For the three of us will see you again, same time, same place, for the next Federal Reserve decision from New York City. This was the Fed Decides