Jay Powell and Meta

high for longer, you know, as expected. He kind of had the burden of proof going in the idea that he needed to make that case. He made it pretty well and I thought it was interesting. I think my favorite part of the testimony had to be the Elizabeth Warren. Oh yeah, back, that was brutal. We knew, we knew, we knew that was going to happen. We knew. There's many a conversation about recession and jobs, but Chairman Powell

handled it beautifully. He said, look, would it be better to not have a recession but then have a lot of these working income families deal with extremely high inflation? And yeah, no bias here, but that's a pretty fair point. Yeah, absolutely. I mean, the FED is clearly sticking with its we are fighting inflation montra. All right, let's bring in somebody here who does this whole FED thing, this interest rate thing.

He does it for a living. Bloomberg Intelligence US interest rate strategist Jersey joined us from Petetown, New Jersey, IRA. What'd you take away from FED chairman pal here yet about it? You know, almost a couple hours there. Yeah, he was somewhat more hawkish, which I guess isn't a shock given the path of the recent data and just how strong it's been. You know, he didn't I agree with you, Paul. He didn't say anything completely foreign to what we've heard out of FED speakers in recent weeks.

But but I think importantly is that he didn't make that many dovish statements. You know. One of the big things that has come out of a lot of the FED statements and even some of the speeches, particularly from the chair, is that starting about last October November that they started to have more dovish statements. Still the same hawkishness, but more dovish statements kind of you know, with risk management.

You didn't hear that today, So our models suggest that his sentiment today was somewhat more hawkish than they have been the last couple of months. Well, during those headlines, you saw some pretty interesting market moves, an inversion now in the two tents of a negative one hundred, as well as fifty bases points now being priced in for March.

Is that an overreaction? So, you know, I don't think that the curve in version is a particularly big reaction because I do think with the with the path of the data, and you know, quite frankly, the data surprised us so much that we were changing where we thought

the terminal rate would be. And so it makes sense that if the Fed's going to be going to five and a half five and three quarter percent on the terminal rate, that the yield curve would probably just invert that much more, in part because eventually we're going to see a very dramatic slowdown probably in inflation and growth, and the FED will have to respond to that by

cutting interest rates. So the longer term interest rates, you know, kind of like we've been saying, well, will be more or less hover where they are, But it's the front end that keeps on repricing, and you may have to reprice even more if the FED goes to say six percent, because the data doesn't slow down the way that that, you know, kind of we all hope, all right, So I guess fifty basis points is not only on the table but front and center. Is that your takeaway? Yeah,

so I think fifty fifty odds. I don't think that they want to that that the FED really wants to increase rates fifty basis points. But if you know, if we get data that's kind of in line with what we saw in February, I don't think I think that they'll have the ammunition and the cover in order to do that, because they can just say, like, hey, we need to get in front of this data that's been

significantly stronger. So so it wouldn't be a surprise. I think that the market at least until we get the payrolls data on Friday and then the CPI data next week, that will that the market will probably be fifty fifty, and then you'll see pretty big shifts in there based on how this data comes out. You know, we get a you know, we get one hundred and fifty thousand payroll print, we probably go back to pricing at twenty five.

We get some somewhat significantly higher than that, know, another five hundred print, we're certainly going to be pricing for a fifty. Well, the repricing for a fifty is I think what scares kind of me the most if you're looking at it from a market point of view, simply because the idea of a step up era when I feel like such a big deal was made it from a step down that we were end we were getting closer to the end of this kind of tightening cycle

instead of this reacceleration of one. Why are we not seeing a more dramatic equity reaction and or actually a bond reaction, since you are a bond strategist, a ten year year old. Still it's at three ninety four, Why are we not seeing it spike sustainably above four? Well,

I think, well for two reasons. One is because the idea that the equity market and risk assets aren't going to do well, I think is one of the reasons why you wind up having the long end that you know kind of winds up being relatively stable because it is a flight to quality asset, and if risk assets are selling off, if people are getting out of corporate bond, as people are selling equities to buy fixed income, all of those things benefit um longer duration treasuries, whereas the

front end is much more influenced by the Fed's policy actions. So that's where that deep inversion, and you know, very very significant inversion comes in. Now, keep in mind, the market, like a hundred basis point inversion would be where I would expect us to be. But keep in mind back in the nineteen eighties, you actually we did actually hit negative two hundred basis points at one point, So so there was a time when the two's tense curve inverted

significantly more than we did. Now, now, will will that happen again? Um? It really depends on the path of the data. And you know, the you know, forecasting the data at this point I think has been has been incredibly difficult, not only for myself but for the street at large, in part because you know, the dynamics have shifted so much in terms of spending and the like.

So so if if we if we do get additional hikes, and we do get some equity weakness therefore, then yeah, you can wind up seeing you know, ten year yields going to stay where they are, and you know, two year yields can go up significantly more another fifty sixty basis points. And if that happens, you know, again, risk assets are probably not going to have a good time of it, at least for a little while. How would

you characterize it? Or maybe when you when you talk to investors out there, traders out there in the marketplace, how did they view the the feder reserve here is is this a FED that's still kind of playing catch up? Is it still on its heels or has it gotten

ahead of the kind of the whole policy debate issue. Yeah, so it's it's interesting because a year ago, when I was talking about the FED hiking to four and a half percent, you had a lot of people saying, like, if the FED hikes to four and a half percent, we're definitely going in recess rights. It's going to be really bad. Yeah, you know, and and you know now that we're definitely going to be hiking above that, right, they've already hiked above where we thought that they would

at the time. The you now have people who are like, you know, they're they're definitely behind the curve. They're so far behind the curve, and then you have others who are like, you know, probably more in our camp, which is they're getting close to the end, but you know, will the end be five and a half percent or will it be five and three quarters? Will it be six? Like like we're kind of tweaking and calibrating where the

Fed's going to get to. Now, the one thing I will note is that when we get the CPI print, we're going to have to consider how is that going to affect the Fed's preferred inflation measure, which is the personal consumption expenditure deflator, the pc deflator that came in at five point four percent year on year when we got the data for January. So if that remains the same, let's just assume that remains the same, then that means

the Feder reserved. If it hikes to five and three quarters, that means that the FED funds rate, the real FED funds rate, will be positive. The FED has always hiked in the post war period. The FED has always hiked

until that measure was positive. So they're not going to stop until we get at least a five and a half probably five and three quarters, And so that's why this next inflation print and the next few inflation prints are going to be really imperative for us to analyze, and those will drive where the Fed's going to go, And therefore what the shapes the curve is probably what

risk assets do as well. Well, you talked about the CBI print, of course, and it feels like the trend thus far has kind of been a one way disinflation. But I were what happens when we get if we get I have no insight, but if we get a super hot jobs report on Friday, is that the bigger news event out of the two? Um? Well, well, so

the distribution of those jobs will be important. But yeah, if we get a hot jobs print, not only the number of jobs, but you look at the wage data and the distribution of that wage data, Um, that'll be very important. So so J Powell even as open opening remarks that they reiterated the idea that they're looking at

what they call core services X housing. So it's basically the service sector excluding energy services, food services, and UH and housing, which which still equates to a very large port like forty percent of of the PC to Flater. So so the and services are driven in very large part by wages. So wages are growing very quickly because there's not enough work people in the workforce. Then yeah, that that number could wind up being you know, crucial to how the market prices for the next FED move.

And I think, again, if that's hot, we're going to price for a fifty No, almost no doubt in my mind. All right, great stuff, Ire Jersey, chief US interest rate strategists for Bloomberg Intelligence giving us a kind of a review of what we heard from Senator I'm sorry, Jay Palfam the Federal Reserve this morning. Meta formerly known as Hey Facebook, thank you very much, layoff some more people. I find it fascinating as these tech companies we see

layoff after layoff after layoff a couple of things. One, the stock usually goes up on the house these layoffs, and two you really need context here. So to get some context, we asked an expert to join his Man Deep sing. He covers all things technology for Bloomberg Intelligence. Man Deep, what's going on at Meta and some of these other tech companies. Is this simply kind of I don't know, pairing some fat that they incurred during the pandemic when they continue to hire aggressively or is this

a reflection of real headwinds in their business. I would say it's more the latter, simply because if we know that the ad businesses are cyclical, and if they saw, you know, this downturn was over in the next three to six months, they wouldn't be announcing a second round of layoff, specially since they've done you know, pretty big lya off almost four months back. So in my mind, this is signaling. Look, top line, it's gonna take a while.

Probably it's a twenty twenty fourth thing. And with Meta, we know they are going aggressively in terms of spending on the Meta Worse and still I mean, look, Mark Zuckerberg fields very strongly about his Meta Worse investment, so they're not carrying back on that. They're really trying to drive efficiencies out of the core business. And that's why you see you know, another round of cuts in terms of how they can improve the free cash flow from the core business. Oh man, theory for our name there

for a second, Oh my god, complete mind. Like before I ask the Meta, I have a question for you. Do you actually you cover so much social media out there? Pinterest, snap for our listeners Facebook of course, or Meta obviously, do actually have an account with all of these social media companies, just out of curiosity, say that again, do I have a do you? Do you have accounts? Do

you have like a Pinchest account, a Snapchat account? I do, yes, But I mean obviously I use you know, Meta a lot more than I use Pinterest or snaps, and I do try to play around with the tabs in each of the apps. To me, that just goes to show you know, what is it. I mean, every tab is different, and you have to equate it to a super app, you know in China where what these companies are trying to do is to really pack everything inside that app.

And I think in the case of Instagram and core Blue app, even though the engagement is declining, they do have a lot of functionality, which is why when you look at the time spent on these apps average time spent, it's still north of thirty forty minutes per daily active user, and for a user like me, it's probably on the lower side, so the average gets you know, it's it's much higher. But I do spend time on these apps. And look, that's why social media is so powerful, right

because we all spend time on these apps totally. So men deep talk to us about kind of the bigger picture there from a revenue perspective, is, you know, the digital advertising space. Talk to us about a the secular story has that changed, ie taking share from traditional media growth, growth, growth, and then maybe even the shorter term story here over the next several quarters as we face maybe you know,

recessionary headwinds. I mean, there's no doubt in my mind that digital advertising is still more targeted, higher ROI and you compare it to traditional ad spend and the power of AI. Whether you know you believe in what chat bots or a large language models could do, but essentially it's aimed at leveraging more data to show things that are more relevant for you. And and so I do think the trend is still intact. Now what is keith

for me is who has the most engagement. So right now, think of you know, the mobile operating systems as the gatekeepers, you know, the walled gardens, Apple and Google Android operating system they control the apps. And and so even though Facebook and TikTok, all these apps have engagement, any change that Apple makes has a bearing on you know, their entire business models, which is what we saw last year. And that's why as long as Facebook Instagram can keep

that engagement, I think advertising revenues will rebound. Ad pricing will come back. Although what Apple has done is really something structural in terms of, you know, giving less signal to these companies. So that's why we've seen that ad pricing headman. But really it's an engagement game at the end of the day. As long as you maintain that engagement, the ad pricing will come back and the ad revenues

will follow, because that is a secular theme. So Mandy, let's come full circle done to the meta story when it comes to these thousands of jobs are being cut, which by the way, are on the heels of the thirteen percent workforce reduction in November. I believe Mark Zuckerberg is a twenty twenty three was going to be the year of efficiency. How much more efficient do they have to get? Well, they can cut a lot on the

reality lab side. Remember they talked about, you know, the loss is getting worse in reality labs, which loss about ten billion dollars last year. This year they were talking about you know, thirteen fourteen billion dollars loss on the reality lab side, So really they curt Kurt Hill expenses,

and I'm talking about Opex here. They could also curtail Capex, which no one wants to cut right now given all the interest and you four year around large language models and Meta is a big player when it comes to, you know, just investments in that area. So I would say there is room to lord Opex on the reality lab side, and if if things get worse, that is where you're going to see some more cuts. I don't know, Mandeve. If I were an investor here, I'd be like, you're

spending what how much money on? What is it? Again? And you know that's kind of the problem here, I think for a lot of investors. So yeah, well, I mean I was at the Mobible Congress and oh you with the Barcelona Yes, yes, And look, Meta worse was still a big team over there, a lot of demos so but everyone kind of agreed on one thing that you're not going to be able to monetize it until the end of the decade, so it's still investment time. And yeah, good stuff. I can't believe I authorized your

trip to Barcelona. What was I thinking? Man deep sing, Thanks so much. We appreciated. Man Deep Singh is a senior technology analyst for Bloomberg Intelligence, covering all stuff there. We appreciate getting his comments on meta. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three and on Fall Sweeney I'm on Twitter at

pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio