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Terminal and the Bloomberg Business app. We begin this out with stocks at record highs and the dollar at multi year lows. Heading into the Fed's meeting, Prayer Misra of JP Morgan writing, expect POW to focus on the FEDS manday rather than the politics. Despite all the Fed shair drama, we have a divided FED with different views on risk the manday, and the chair has only one vote. Prayer
joins us now for more pre good Monarch morning. Is this a different FED because that one vote used to count for quite a lot.
I think you know the FED chairs job is to sort of build consensus, but look at I mean, what you've been talking about there are so many cross currents here. You know, with this highly concentrated GDP, the case shape recovery, the low higher low fire economy, they risk to the mandate are sort of two sided, and that's why we have a divided committee. So can any feed chair sort of build consensus. I think Chepau did a lot, but
they've already reached the sort of realm of neutral. So I think any feed check coming in is going to have to contend with the fact that you're close to neutral. It's between three and four. They're right there, so they're going to have to wait for the data.
So, you know, I think, you know.
The pushback around from the FED, the pushback from the market around FED independence. I actually think the fact that everybody wants an independent FED, the bond market, the president, I think that's actually the FED is pushing back. I think this is all good news. The feed chair is
extremely important. We'll have to listen to the you know, we'll have to sort of listen to the entire committee, but it is just one vote, and we'll have to listen to everybody at the field, all twelve voting members and the non voting members.
Was Champa's last rite cut the last.
Mate given the data right now, yes, I mean he's around till May. There's a lot of data between now and May, so can he cut you know, in March. So we're going to be watching both inflation and the labor market. The labor market does seem to have stabilized. We were getting those really high layoff announcements, and then you know, initial claims is not showing a pickup.
So I would say base case this.
You know, we might have seen the last rate cut, but I don't think you're going to get any confirmation of that. The inflation data has been weak, but it's.
So shut down impacted.
So we're going to have to see between the tax refunds on one side, and do we get this shutdown impacted data showing inflation some heat in inflation. I think for now they might not do anything. The market's not pricing in any rate cuts in the first half of THEAY, I think rightfully, so, but we're going to watch all all of the data. I hope there's no shutdown because that's going to you know, we're just getting.
Somewhat clean data.
I would really hope that we continue to get that clean data. The FED is otherwise likely to stay on hold, But I think rate cuts second half of the year is our base case. I think, you know, if inflation continues in its current downward trajectory, I think there's a few more rate cuts this year.
Isn't there a chance that Jay Powell might be there for those rate cuts given the fact that Senator Tillis is basically saying, I'm not moving ahead with the peck until the DOJA investigation is wrapped up.
How are you thinking about the politics?
Do you think it will seep into the monetary policy decisions?
No, I don't think politics will drive and I think the Fed does what they've always done. They look at the data, they assess risk to the outlook, and then they take an action. I think it's actually excellent that Jair Powell pushed back as strongly as he did, and that I think provided cover to Senator Tillis and others to push back as well. Where the politics can come in is the doj will need to wrap up pretty quickly,
otherwise we're not getting another FED chair. I think the likelihood to your point, maybe Chefowell is more likely to stay on as a governor, so you know it remains just one additional vote that or you know, one person that potentially could be political. So I think that's where it can come in the makeup of the FED. But I think the FED is still going to say, let's look at the data.
There are very.
Vocal hawks out there who are concerned about the inflation risks.
When it comes to the body.
What you're talking about, if he stays on as a governorship, it's a deliberative body. So isn't this working against what the president wants?
If FED Chair J.
Powell is only going to stay on now because he feels like the institution's under threat.
But you know, but I would say Chepoul is extremely credible. I think the administration wants rate cuts, but in a credible fashion because we've seen if the market gets nervous that the FED is losing its grip on inflation, you know, long term inflation expectations, the long end is going to get unanchored.
The President's focus on the tenure.
The bond every time the bond market speaks becomes yippie.
We see some reaction from the administration.
So I don't think the President or the administration would want to put somebody who's not credible. Jep Owl is extremely credible, and he's gone out on a limb, I think, very deliberately to say that he cares about FED independence. I think that's actually good for the institution. It's good for the bond market, and I think that's why the bond market. I mean, doesn't this feel like the longest month of the gate has just begun? But we've had a decade, right, We've had so much thrown at the market.
The ten years At four and a quarter, I think that tells you the market is saying, let's put everything together.
We have a credible fad.
We have a lot of cross currents, but we're instill in a soft landing and inflation's heading lower, so those rate cuts can happen just maybe.
A little bit.
I think I saw a headline yesterday, or rather a picture on social Maydia that said something like it's January twenty seven hundred and seventy second. Yeah, I saw that, which is which is what it feels like, right. I think there's a disconnected divide between the way the financial media is talking about what's happnigan markets and what's actually happening in markets. There's a headline that I keep seeing every time we have a Dante for the US doma
just sell America. And then I look at the bond market and it's at twenty four for twenty three, for twenty something. And then I hear headlines and people talking about stories that consider a debasement trade and this is why everyone's parting into gold. And then market based expectations for inflation are still really, really subdued. I was looking at the data for foreign holdings of treasuries at the back end of last year, record highs never been higher.
Is there a divide between the stories you're seeing, the headlines you read, and what's actually happening in markets at the moment.
So you know that famous and saying never let the facts get in the way for good story.
I think there's a little bit of that. There is a good story. Sell America. You know, there's so.
Much chaos, political chaos. You should sell America. Let's look at the facts. You know, we have auctions every other week. Auctions have been going fine. Foreign demand is strong, and I would look at, you know, not just holdings of treasures, look at holdings of corporate bonds. We've had a record corporate issuance month this year, you know or you know this month, we've had signals freaking influence from foreigners. So
why are credit spreads where they are. We're seeing the demand, so the technicals for fixed income, technicals for equities remain strong. So it's hard for me to say sell America when they are still when the rest of the world is still buying American assets. The US is still growing significantly, out performing.
The rest of the world.
We still have the most diversified liquid deep markets.
So I think the.
Dollar is a separate issue. Maybe it's a little overvalued. Our models still suggests the dollars a little overvalued.
You have this whole yen intervention.
I don't know if the intervene or its with verbal intervention, the President saying he's okay with a lower dollar. I think there's a little bit of a valuation with maybe you know, the dollar can weaken. I think it might be a hedge dollar risk rather than sell America. We're not seeing any evidence of a sell America across asset class, so I would say it's not really sell America.
It was interesting last week just listening and reading the way that people were talking of writing about what was developing in financial markets last week. The bigger move was in Japan. Yet we woke up to stories about sell America and I was actually so impressed by how wow the treasury market actually stood up to the convulsion in the JGB market. The fact that we saw moves of twenty to thirty basis points at the long end of the Japanese curve and we were up by one mid
single digits here in the treasury market. I'll take that any day of the week, wouldn't you, given the move we saw in Japan, And.
Which is why most of us are not sleeping a whole lot, because we're watching, you know, the forty year auction last night in Japan was actually okay. You know, I think the Japanese and we're watching the election next week or the week after, so I think, yes, the Japanese long end is what I'm watching. Because you know that global term premiums are highly correlated. So you can have no sell America, but you can have a global term premiums have to be high and therefore all long
end sell off. So let's watch what do the Japanese do around their.
Fiscal side, their fiscal situation.
Is not that bad actually so, but do they cut some.
Of that long end supply? What do we do in the US.
You know, Secretary Besine can cut some long end supply, I would say, market participant, there isn't that much demand for the very long end, so maybe cut the twenty got the thirty year. We have the treasury refunding next week, which we'll be watching for any hints of that. So is there a supply demand mismatch globally in the long in perhaps? And that's where I think you know, there could be some issuance shifts. But you're right, And so
this was a japange. It was a cell GGBIS rather than a celiment.
I should clarify. I don't think you should be ignorant of the risk.
I'm just sort of highlighting it's an observation, not a judgment about where we go, just an observation of last week, just how well the treasury market withstood some of this. I do think there's a warning coming out of Japan that ultimately, at some point, regardless of how big your central bank, how big that role is in your market, at some point the market will push back against the government going too far, and I think that's something you've got to keep on your radar for this year at
a time when we go into the midterms. So we've heard all kinds of suggestions about how we boost this economy in the US. My question, prayer would be, in fact, my number one question would be why is the treasury market so resilient in the face of all these risks? Why is it standing up so wow? Why did it perform so well relative to Japan last week?
I think it's the inflation story.
I mean, I maybe look at fundamentals in the inflation trends broadly speaking are all heading lower, and that's going to allow the Fed to cut. It's going to allow the market to price in these rate cuts. And then we look at further out the curve, you look at term premium. It's actually risen significantly. We're getting paid up much more today than over the last fifteen years to extend out in duration. So investors like us will say, Okay,
we've broken out of the range. Maybe duration risk is attractive, and maybe we should be buying some longer end treasuries, you know, apart from you know, just buying credit. So it's been a credit story at some point it's going to be a duration story. So we saw it as an opportunity to extend out the curve. I think that's why that long end has been contained.
That's one.
The other one I would say that the president cares about the long end. I mean, if housing affordability is all about the tenure.
We've heard him last year talk.
But the yippie bond market Secretary Vestine was out there, you know, talking to the Japanese officials the yen intervention, you know. I think that tells you that there is focus from the administration. When the bond market speaks, every other market and the administration listen.
This is why I think so many people are so much more comfortable with the dollar trade and pushing it to be weaker. Because if you had total control of the feder Reserve, there's one thing you can control, and that's yields. You can just buy it. You can anchor yields. Japan did that. They've shown us the playbook, and if you're really worried about mortgage rates, you could pin the
long end of the curve down. What you can't control is how the effects market would respond to that, and we know how it would you'd be pushing a much much weaker dollar, and that would be the release valve. And I wonder if that's where the markets come around things. Just thinking about the range of risks and a balance of risk over the next twelve months, that that's the easier trade to make here, just push through foreign exchange compared to other asset classes.
I think relative to what the administration wants. I will push back that the Fed is not going to buy the longen just I'm selling off.
But really there's a supply issue. Maybe the treasure you can issue.
Less, or people like us would say at some point, I'm getting paid up. The curve is steep enough that I'm going to move out the curve. It's a positive carry trade now to be long duration as a hedge.
And that's the other thing.
Right with valuations where they are, I might want a hedge here and the front end was extremely attractive and you were getting five five and a half percent. Now, well that front end is much lower. The Fed's cut traits the tenure is a much better hedge to risk assets. And I think that's why investors like us who are buying credit, who think we're in a soft Landing will say let's just hedge and buy a.
Little bit further out the curve. And even though it's not the.
FED that's pinning, I think that demand starts to pin that way.
Yeah.
No, my base case, we'll get yield curve control. I'll throw that out there. I'm just saying from a market participants perspective, I think right now they feel like there's less resistance in foreign exchange than the resins, say the bomb market trying to push you olds higher.
Just one way of thinking about things.
Stay with us. More Bloomberg Surveillance coming up after this. Coming up tonight, programming note on Bloomberg TV nine pm Eastern Time, the latest episode of The David Rubinstein Show Peer to Peer Conversations. David joined us now for more. Looking forward to this one with any David. Good to see you, sir. The infamous dinner last week we bumped into you at the World Economic Forum in Davos, Switzerland.
You're in the room.
I believe when COMMAS Secretary Howard Latnik delivered that speech, how controversial was it?
Well, it was controversial, ixpect, but he didn't think it was controversial.
It was a dinner. It was the welcoming dinner from.
The host of the or the chair of the word Economic Forum, which is now co shared for at least an interim period of time by two people, Larry Fink and Andre's Hoffman from halfmandlll Roach family. And they had about five speakers who spoke, and Howard Lutnik was the last speaker who spoke, and it was something that got people's attention, I'll put it that way.
Is it curious that he was the launch deliver this message?
The first time I ever met Howard Lutnik was at Davos years.
Ago before he's a Treasury secretary's talking about the global elite. Well, no offense, mister commerce secretary. But isn't he Wasn't he part of one that now he now is saying he.
Just owns.
He is a unique figure, and I think he's gotten a lot of leeway by the President that negotiate a lot of these deals, and I think he's very much enjoying the job. Being my impression, I co hosted a lunch with Dina Pale later in the weekend. He came to that lunch and spoke as well, and his message is pretty consistent. So I think he's not got to change, and you know, he's pretty happy in the job, and I think the President seems.
To be happy with him, So that is a very diplomatic answer overall.
What did you make of this year's Davos, Well, it was.
A transition because Klaus Schwab, who built it more than fifty years ago, it was no longer the chair. He wasn't there, and so they had new leadership. I think there were more CEOs than they've ever had before, they had more foreign leaders. Virtually every European leader showed up. And clearly when the president United State shows up, it tends to dominate the news. And a lot of people stood just watching President Trump's speech for an hour or
so and everybody was waiting for the punchline. And the punchline that people were expecting didn't show up, which was that he was going to use military force. That didn't show up. So that was the big news, and I think people were relieved about that.
Generally.
I welcomed some of the developments in the last week. It just felt like corporate America's shifted away from virtue, say they think, and we're just focused on business now. Is that your sense of a shift as well. Did you witness that last week?
Well after the Greenland thing kind of went away a bit, people are focused on the FED, and though as you pointed out already, the Fed's decision is pretty much as well known for today. And then people are looking at earnings and people are wondering where the deficit is going debt the US and also whether there's going to be a government shutdown. And I think I think both sides and the Republicans Democrats do not want to shut down.
They are really trying hard to avoid a shutdown. I suspect they will avoid it.
Some we don't want to shut down.
We've seen all the headlines about South America in financial markets, but then I listen to the CEOs in America and the global CEOs as well, who are investing in America. Do you sense a disconnect between the headlines and where the money's going at the moment.
Well, there's no doubt that people are a little more nervous about investing in America than maybe people would like who are trying to get them to invest in America because there is some concern about the dollar going down. You know, if you invest in the United States and the dollar goes down, the value of your investment.
Obviously is not as good as you thought.
But it's not been the major cause of concern for foreign investors. They're just worried about where the US government is going. It's very hard to predict where the US government is going. For a lot of foreign investors. People want usit. People predictability. Tell me what the rules are, and I will follow the rules, and sometimes the rules
are unpredictable or they change a lot. So to the extent that there's consistency, I think more and more people will invest in the US, But the extent that there's inconsistency, people will pull back back a bit. And particularly the dollar is an issue as well.
But that's that's Trump and a nutshell, uncertainty is a feature of him. That is what he does. And now it's an election year. So what kind of unpredictability can we see this year alone?
Well, I can't predict the unpredictability of the leadership of the government, but I would say there are a lot of issues that people are worried about. And right now, I would say the US economy seems to be doing pretty well. I think growth is pretty good. Inflation's pretty much under control relatively speak. It's not going to be a two percent, and unemployment is at a tolerable level.
It's not as low as we might.
Want, but generally the economy is in pretty good shape. And whatever people might say about Jay Pow, and I'm a big supporter of his, we haven't had a recession under j Poal's leadership. Normally, fed shares get often get blamed for recessions. Other people get blamed too, But he's had to increase interest rates a deal with high inflation, and he's had to lower them when when inflation came back. And normally when you increase and you decrease, you get
some kind of recession along the way. We haven't had a recession. So he's done a pretty good job neving.
Known the man.
Do you think he's going to entertain any questions stay regarding will he stay on after his chairmanship or the more sort of stance he's taken against the White House.
I don't want to pretend to speak for him, but I would be surprised if he said anything other than here's what we did today.
Boring.
But it's actually interesting because when you had previous fed shares. They didn't tell you what they were going to do in advance, and they didn't explain it thirty minutes later.
He doesn't. In English, you can.
Understand, So I think to his credit, he actually explains what he's doing and people can understand it. Many times, the Fed never actually had press conferences before, so I think he's done a pretty good job, and I suspect in the end he will announce at the appropriate time what he's going to do.
He has no green span, that's for sure. It's a very different communications now, without a doubt.
It's different than Alan green Spanner or Paul Bolker. They were more, I would say, difficult to understand.
David tons of vult acidity around this institution. I've been surprised by how it hasn't really been consequential at two in financial markets. I struggled to find a read through from the volatility around the institution and how it's rippling through financial markets. In fact, the treasury market has been very resilient in the face of a lot of risk. As a market participant like yourself, what's your conclusion as you see that play out?
Well, I think people are unclear where the government policy is in some areas, and therefore they are hesitant about making some long term commitments. But on the whole, the business community is more or less supportive of what the federal government is doing. I mean, most of the CEOs are more or less in line. I mean they don't agree with everything the administration is doing, but they recognize
that there's less regulation than there was before. It's easier to get a decision about mergers or acquisitions than it might have been before. So I think some business people are pleased with it. But some business people are basically doing what they need to do to help their company, but they may not personally believe in everything that the president is doing.
Stay with us more Bloomberg surveillance coming up after this. So if you're sitting here thinking the president could announce this morning, and let's say he did, when you start thinking about the confirmation process, the senator from North Carolina is telling you he's not going to get up and open the door and let people through anytime soon.
No, which is why if you're the president of the United States and you heard our interview with Senator Tom Tillis, you're thinking, why would I make an announcement?
So soon.
You want to potentially wait till you know the DOJ investigation to Powell is going to be wrapped up, because Tillis is not moving until that moment.
Tober Marcus of Wolf Research has this to say, Rick Reader is now viewed as the odds on fed chair favorite. We're unconvinced. We think both Kevins are still strong possibilities. Topin joins us Now for more, Tobin, I want your view on what is just holding things up here? Why is the President dragging his feet when he's told us for quite a while he knows who it is.
Well, you know, I think he's still trying to find the best option among a set of options, none of whom off exactly what he wants. Reader, the current perceived favorite, has a lot to recommend him, but he certainly is not a Trump loyalized by any stretch. As Tyler was just discussing, there's this issue about his political donations. With him now sort of in the spotlight for the first time, I think you're going to see knives come out for him a little bit. Larry Cobo yesterday published an op
ed essentially saying don't pick him. Pick one of the Kevins, And you know, I think in a similar way to how when Hassett was the perceived front runner, that's when the White House started to get pushed back about the potential bond market concerns. You could see there, So you know, I think he's cycling through his options and doesn't see anything that he's completely compelled by.
I loved your note readering the tea leaves when it comes to the tea leaves. So the discussion Jonathan and I just had about Senator Tom tillis, do you think that is why this administration doesn't feel.
Any urgency right now to have their pick.
I think Trump is mostly I think the biggest hold up is the decision making process itself. And I do think that Trump is still trying to and you know, the best person, with none of them being perfect. You know that being said, I till us completely at face value that the pro by DCUs Attorney Puro is going to need to be wrapped up and resolved definitively before he's going to be willing to let any of these people through.
I think the view that.
Reader has some confirmation edge is basically wrong. I think once you get tillissatisfied about that probe, and to Powell, none of these individuals are going to have any trouble getting through the Senate Republican caucus. Hasset's the person that markets have is concerned about. But he's been working in Republican politics for decades. He has very strong positive relationships
across the Senate Republican Caucus. So, you know, the notion that you could get reader through but not some alternative I think is fairly wrongheaded.
You're pointing to something I read this morning the Wall Street Journal about the fact the president is looking for something maybe he won't ever find. You're talking about this perfect candidate, this unicorn. What does that entail? Can you define for us who that would be in front of this president's eyes?
Yeah?
I mean he just last week at Davos was very very forward and very explicit about wanting loyalty. He specifically complained about disloyalty in those words. He talked about, all these people seem great until you nominate them, and then they start making decisions that you don't like. They start cut,
you know, hiking rinks when he thinks it's inappropriate. That's the exact criticism He's leveled at Powell, who also came in with sort of recommendations from Trump's economic staff, but without that personal personal relationship, and he of course has
regretted that decision. So I think you want someone who you can rely on in that way and who's going to listen to his views as he continues to articulate them, but also someone who brings, you know, bond marketr credibility and doesn't raise acute concerns about FED independence and those the there's a deep tension.
Between this toom Saba, and we've got to keep around the geopolitics as well. This from the President just moments ago on social media or statement from him, A massive armado is heading to Iran. It is moving quickly with great power, enthusiasm, and purpose. It is a larger fleet headed by the great aircraft carrier Abraham Lincoln. Then that sense of Venezuela. Like with Venezuela, it is ready willing and able to rapidly fulfill its mission and with speed
and violence if necessary. Hopefully Iron will quickly come to the table and negotiate a fair and equitable deal, no nickel weapons, one that is good for all parties.
Time it's running down. It is truly of the essence.
So the President is saying he wants Iron to make a deal. He then also continues to talk about the fact that they didn't make a deal and there was quote Operation Midnight Hammer, which we saw last year. The President right now is setting almost a red line, come to the table or I am prepared and I have my toys out there in the sea ready to go, and I am prepared to strike if Tehran does not feel willing to engage.
It's open.
How likely is it that we take on another kind of military front in Iran?
I think fairly likely.
The President sure seemed like he was leaning towards intervening when the protests were at their apex a couple of weeks ago.
At the time, I think the.
Lack of military assets in the region was one of the obstacles to doing that, along with some concerns from regional allies, along with I think some real questions about
what efficacious targets look like. Unlike in Midnight Hammer, where it was very obviously we were targeting the nuclear facilities, if you're trying to degrade their abilities to oppress the domestic political opposition, what are you strike police barracks, Like, I don't think anyone really believes that it's a capitation strike against Comanity if they can even find him, would result in regime change. I think ultimately is what the president wants here. So you know, he sure seems to
be wanting to strike. I think at a minimum, he's very focused on creating that optionality and leverage to be able to pursue a range of options. That it does seem like some kind of strikes eventually.
Or likely tobn to that point.
Even if the United States were to get rid of Hamoni, doesn't the regime still continue?
Yeah.
I think the only way that you see actual regime change it's kind of cascading defections among the security elite, and we've seen no sign of that whatsoever. Generally, that happens when they're asked to fire on protesters, like if they refuse to do so, that's when you can start to see elite defections. And of course they just massacred thousands of civilians who were protesting in the street. So I think if we were going to see it, we would have seen it. Replacing one person at the head
of the regime. I just don't think there's any plausible scenario by which that would result in the entire regime turning over.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.