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This is the FED decides on Bloomberg Television and radio fetcher J Powell wrapping up his news conference, the last news conference of twenty twenty five. A FED that's divided, but not as divided as it could have been. In a chair Powel that was trying to be somewhat hawkish, but wasn't as hawkish as he could have been. In fact, the market is taking this as more of a dubvish tilt than expected. You could see the markets take off around two forty four pm when he talked about productivity.
You could see the Russell two thousand up almost two percent on the heels of his comments, NASDAC up six tens of percent, s and P up eight tens of percent.
In the bond space.
A huge bid into the front end, A disproportionate bid, especially because this is a federal reserve that's going to forty billion dollars of T bills on Friday.
This is earlier than people expected.
It's a seven seven basis point drop at the front end to three point five to.
Four, much more muted at the long end.
Bigger questions here with a thirty year at four point seven eight percent, and when you bleed it through the currency space, it is a weaker dollar marketly so with the euro almost breaking one seventeen one sixteen ninety two, up about half a percent on those comments, take a listen, fed chair speaking just a moment ago in particular about productivity and its effect on the economy, Take a listen.
The implication is obviously higher productivity, and some of that may be ai. It just also, I think productivity has just been almost structurally higher for several years now, So if you start thinking of it as two percent per year, you can sustain higher growth without more without more job creation. Of course, higher productivity is also what enables incomes to rise over long periods of time, so it's basically a good thing. But that may be. That's certainly the implication.
The idea of productivity underpitting the ability for goldilocks to take hold, where essentially inflation can remain in check while the GDP continues to expand at the level that we've.
Seen so far.
We brought it up earlier, and it came up twice in the press conference. I'm looking at the data and it tells me the bond vigilanties are out this afternoon.
There's no question about that.
So where's the happy happy and the happy is?
Is this American.
Economy different than we used to know and even different than what we perceive right now that the gloom is just unfounded. Is we bet on this productivity down the road?
This is the reason why this is a fad that can increase its GDP expectation. There's some cover unemployment rates relatively low and still cut. Maybe once more next year, maybe once more in twenty twenty seven. Also talking about the potential for some sort of ongoing easing even though they're in the neutral range because of the softness that
they see in the labor market. The other aspect of this press conference, and I do want to highlight that is qi and no one's going to call it QE, certainly not the federal Reserve, but they are going to start buying bills sooner than they expected. Take a listen to what he had to say about that.
Reserve management purchases will amount to forty billion dollars in the first month and may remain elevated for a few months to alleviate expected near term pressures in money markets. Thereafter, we expect the size of reserve management purchases to decline, though the actual pace will depend on market conditions.
Joining in us now to talk about all of this is Stephanie Roth of Wolf Research.
Stephanie would love.
Your take on what the most important part of this news conference was. Was it the emphasis on productivity or is it the emphasis on quey light.
I mean the combination of the two. I think the productivity thing is important. We saw GDP get revised up.
Of course, some of that had to do with government shutdown, but even taking that out, the twenty basis points out for twenty six that stills higher GDP numbers, the median dot looking the same for FED funds, and unemployment rate remaining where it is, in which case we're talking about a productivity boom to some extent, I think he was trying to say that perhaps we're going to get a job less pick up and growth next year, which could at the margin be a little bit more dumbast And
then of course the market is reacting to the surprise in terms of the FED buying bills, which was a notable in terms of timing, and then notable in terms of email. So it was overall, even though it was supposed to be a hawkist cut base in many expectations, but it ended up being fairly Dovas.
Cross currents here of a non snooze fest. And I think the summary here for everyone, including the President of the United States is.
The mandate is two percent. This goes back ages.
Are we really jaw boning our way to a new mandate which is two point x percent?
Or dare I say three point zero percent?
I don't think so.
I mean in their projections they have lower inflation numbers.
I think that's right.
I think we're going to be in an environment where inflation is gradually moving lower. If you were to ask most forecasters by this point, would inflation actually be running just around three percent?
I think no.
I think the pass through on inflation has been a lot less than many had anticipated. Marges have been kind of okay, It's gone a lot better than most part we had have saw it.
One of my interviews of the year was Nancy Lazar.
We had Nancy Lazarre at the beginning of the show, and she nailed it when she said, there's all this FED mumbo jumble, but it's just a cyclical slow down. Do you bet at Wolf Research in a cyclical recovery?
Here is Ana Wong alluded to today.
Yeah, I think that's right, and I think we're starting to see signs of it. Of course, it's mixed at this jolts opening starting to pick up, You're seeing temp hiring start to look a little bit better. It seems to be just a cyclical slowdown apart driven by tariff related uncertainty. As that uncertainty starts to fade, you're likely
to see an improvement and growth. The Fed's probably not going to cut through the first half of next year, and it's going to be an environment where the Emmy's running fairly firm.
Something that you noted is that this had a sort of dubvish tilt to it.
I think it's really important to note that that's certainly the response that we're seeing in markets across the board. They talked about weakness in the labor market. J Powell was talking about forty thousand jobs getting created each month.
Say you can downgrade that by about sixty thousand Yeah, looking back, thank you for bringing this all of a sudden.
You're looking at implied weakness that they're sort of bringing forward from the report that we're going to get next week. How credible do you see that, especially given the guidance that he kept emphasizing that they hear from the regional fed districts.
I mean, I was surprised by his estimates on QCW, the assumptions that it's going to be a sixty thousand downard revision. My estimate is about.
Half of that.
So that was a that was a pretty duvish statement.
That was the sort of the higher end of what it could have been, suggesting that at least his view on the labor market is we've been running minus twenty thousand non farm payrolls for quite some time.
That's pretty dubbish.
I think what will surprise most folks is in the next couple of months you'll probably see a bit of a bounce back.
Into You were on the phone talking to your children about Alonzo from the Mets to the Orioles, and you missed when he talked about the job adjustment.
The market moved.
Yeah, I mean, the fact is the market, the bond vigilant. He's walked away, and they got to price up yield down at that moment.
Yeah. I mean my son actually messaged me, could I please have money for more food to cope with Alonzo signing with the Orioles, And I.
Gave them two dollars because.
In true o big spender, two dollars is.
All that that's worth to me.
So anyway, we're looking though, at essentially a message from the Fed that you can have your cake and eat it too. That this inflation from the most part was driven maybe by the tariffs, but that is transitory, for lack of a better word, and going forward there is going to be this productivity boom that's going to help
support things. How much does this really line up with two more rate cuts in twenty twenty six twenty twenty seven, and how much does this line up to either more rate cuts or potentially a rate hike.
I certainly don't think there'll be a hike, and it seems like Powell dismiss that too. I think you could see some more rate cuts in the back part of next year, because what you'll likely see is the first part you might elevate. Inflation should still be a little bit elevated. You're going to see that sickle goal pickup. In the back part of next year, you might start to see the economy cool down a little bit, and then inflation's likely to slow back down because that's where
you're passing that peak of teriff related inflation. And that could be an environment where they could cut a couple more times, albeit slowly. And that's because you're going to see this sort of a fairly sluggish job trajectory, and if they're chopping off an extra sixty thousand off fat, they're going to be even more cautious on the labor market than the payroll's number would suggest.
As we speak, Lee, so the two ten vanilla spread goes out to a new steeper yield curve.
Yeah, the bond market's speaking.
Here in space speaking that frankly, this is a FED that's going to lower the front end as much as they can, but on the long end yield there is less control over that. Let's bring back Bloomberg's Michael McKee, who is in that room asking questions, Mike. Potentially the last press conference with a rate cut from FED Chair J Powell a notable one for its somewhat dubbish tilt.
Well, I'm not sure it was a dubbish tilt. I think the chair tried to keep his option as open as possible. You noted that he suggested that there may be some data accuracy problems with the numbers for the Jobs Report and the CPI that we're going to get next week and.
Into January, the catch up from the.
Bureau of Labor Statistics and the Bureau of Economic Analysis as they get out the data that we missed during the government shutdown. And so I think they don't want to put themselves in a position of saying that we're leaning one way or another. And by doing that, because they've cut so many times in a row, it sounds a bit like they're still dubbaged. But I don't think
that's the case anymore. And you do have some people, and I noticed what Stephanie just said, but you do have some members of the committee, the overall committee, who suggested we might see rate increases next year.
The thing I think.
Maybe out of all of this that you want to pull out is Poal's emphasis when he was answering my question about we need to see wage increases, and wage increases are going to depend on the status of the labor market. If wages are going up, then people are less concerned about inflation. If wages are not going up, then that's a problem for the American public, and it also is a problem for the overall economy.
Michael McKee, thank you so much, as always for all your work at the FED Press conference and before. Right now, we are getting comments from President Trump who's speaking at a round table in the White House.
He's talking about his.
Ongoing criticism of Jerome Powell, saying we should be able to do more than three percent or four percent GDP. He has said repeatedly too late Powell has talked about that guy. He's not doing a very good job, and they would have fired him. And ultimately this just sort of reiterates the split screen of Jerome Powell on one hand and President Trump on the other. Really highlights the political pressures coming down the pike in twenty twenty six.
We've got a great headline team. Here's the headline.
The President don't see why we can't have twenty percent to twenty five percent GDP growth. I think all of the adults, whatever their belief descent here descent there are dealing with the president, who's got a very vociferous cacophony of opinions on the economy. You don't plan on Donald Trump's economic vision.
That's all there is to us.
He's a dead guy. He's a developer.
Of course, he wants rates to be lower here and the met interust rates could have been doubled in terms of the amount of cuts. I'm just wondering, as Stephanie, from your perspective, if you had gotten fifty basis points of rate cuts, how much would that have turbocharge twenty twenty six.
It would have, but then I'd be afraid that the long end of the bond market would have backed up even more than it has been most recently. That would be not a great outcome because that's an environment where we're truly turbocharging sort of the economy from rape perspective, but then you have long ends backing up. That's not good for markets. We're not in an environment where we
need to be a fifty basis point cuts. It's a question whether they should have been cutting twenty five basis points today, let alone should they be cutting even more than that?
Joining us now to join the conversation, Aditya Bjave of Banks America Aditya just before we get started, kind of a dubvish tilt. Certainly, that's the way it's being received by markets.
Do you think that this is the right call? As the Fed accelerates the.
Timeline for Bill's purchases and talks about the ongoing to ceration and the labor market.
Good afternoon, Thanks for having me.
So.
We were skeptical going into the meeting about whether Chair Powell would really be able to deliver a hawkish cut given how much data we're getting between now and the January meeting, and indeed he didn't. They kind of nudged in the direction of, Okay, we should probably stay on hold, or our base case for January is a hold, but they can't close the door on January. We thought the one arrow in Powell's quiver that he hadn't fired at his hawkish press conferences at July and October, which by
the way, didn't change the policy path at all. The one thing he had left to say was policies at neutral, and he got very close to saying that. He said, we're within the plausible range of estimates of neutral. But then when he gave his own opinion. He said we're probably at the higher end of that range, so I think he still left the door open for January. But they really want to tell us that the base case is a hold for January.
Then if we're at that tip point, which will matter more an analysis of inflation or an analysis of the job market.
I think there's still more focused on the label market, A simple way to think about it, which maybe he muddied the waters a little bit by talking about the measurement issues with the unemployment rate. But we're going to get not only the November unemployment rate but also the
December unemployment rate before the January meeting. If that December unemployment rate is up to four point seven percent, I think they're going in January four point five or lore they're going to stay on hold, and four point six is going to be a close Cain really well said.
But then what's so important here within this? And let's look at the Bank of America now GDP report? I got Atlanta at three point five. Where is the economy right now? Just say, in terms of nominal GDP it's a boom economy.
Isn't it? Yep? It is.
We have around five percent nominal GDP growth for next year, and that's well above consensus. We were very happy to see that the FED is coming very close to our view.
Now.
The GDP upgrades were quite significant, but honestly, it's not that hard to get into the low to mid twes next year. As Powell mentioned, you'll get about two tenths, maybe even three tenths just from the shutdown. You're going to get another three to four tenths from the big beautiful Bill.
So the hurdle for the rest of GDP growth.
Is only about one point seven one point nine percent, which frankly is what we did this year, even with all the trade disruptions. So we should be in the twos next year.
In my view, Stephanie, it strikes me that there's a new psychology taking hold of a FED, and it has been for the past six months. And it goes to Tom's point about productivity, this idea that at times of transition, it pays to run the economy hot to avoid some of the job's losses that do come into effect in
these huge technological shifts that take hold. Do you think that that is what's going on, That this is a FED that is to running the economy hotter than otherwise would because there are job losses during times like this, and those job losses are hard to replace even as productivity comes back.
Yeah, I think that's exactly what's happening. And that's kind of what Powell alluded to today, that this is productivity enhancing backdrop that we're seeing. They're certainly coming across, as you know, more dubvish than generally expected to, and they're going to take a haircut off the job numbers that
we're getting. And whether or not sixty thousand is the right number, so any numbers that we get from a job perspective, you have to, in your mind take that down even lower, which then is at the margin going to make them more dubvish and running the economy hotter than one otherise be the case.
The sum totally here, Lisa, is what the gentleman from Bank of America said. You get a four point seven percent unemployment rate. None of the cement analysis matters into midterm elections. Four point seven is getting up there, and I can't imagine four point nine or five zero.
Which is the reason why Aditya to bring you back in. You're talking about the chance of a potential rate come January, should we get that kind of employment stress, what are you seeing? Were you surprised, just to pick up the conversation we were having with Stephanie, were you surprised at how negative Jerome Powell was in his interpretation of the labor market and the job losses that we've seen over the past few months.
That was definitely a dubbish surprise to talk about. You know, we're going to mock down forty thousand a month by sixty thousand per months and now you're looking at negative twenty. And then at the same time he says that he doesn't expect the unemployment rate to go up a lot further from here, So what is his read on break even? He had previously told us his read on break even was between zero and fifty thousand, So a little bit
of inconsistency there in our view. If they stick with the view that break evens between zero and fifty and we're only growing at negative twenty, then either you need to see payrolls bounce back or they're going to continue to worry about downside risk to the unemployment rate.
And again it's not.
Our base case that they're going to keep cutting rates, but they might well be inclined to do so.
Aditi Bijave, thank you so much for being with us this morning. Joining us now is Jeff Rosenberg of Blackrock.
Jeff always great to speak with.
You want to get your take about whether what we have just heard in that press conference makes you incredibly more risk on in terms of going out double fisting it. QI light is coming back, they're buying bills. They're also potentially looking to weakness in the labor market.
Is this risk on?
Well, you said one of my three takeaways, which is number three of today's meeting, which i'll call QWI confusion. I'll come back to that. The first takeaway is the pause is in. We kind of knew that. The second one, which you've already talked about, is why because we're in the realm of neutral. And the third is getting a little bit of confused about the QWI confusion. It was a little bit more dubbish than maybe expected, as the previous commentators talked about, but it's not that far off
of expectations. The markets at about a ninety percent expectation for the twenty five basis point cut expected for Pause. It'll be data dependent, as you were previously discussing. If it's four to seven, you know that's a different set of circumstances. And tom as you said, you know you can throw the rest of this analysis out the window because the facts have changed, but we don't know that
is happening. So given the trajectory that we have today, the Fed's on pause because we've gotten to the realm of neutral and the other side of the debate inflation, wages, growth all basically say, this hasn't been a particularly restrictive FED. Even if they think they're on the high end. Now they're you know, in the neutral ends, so they can
wait and we'll see how the data evolves. To your point on QI, he only gave you half the story in terms of expanding the balance sheet because the other part of the balance sheet is contracting because the mortgages run off. But that technical detail got left off. I think it was an accidental, dubbish commentary.
On the QC.
You kind of dismissed and said, hey, everybody knows this, this is a technical factor. And the preamble ahead of the Huey comment was, please disregard everything I'm about to say in terms of its implications for monetary policy. Of course nobody did that, and they hear the Fed's buying treasuries and so there's the meee jerk response to that from what we were taught over the POSTGFC environment. So there's a little bit of a misread there, but it
is what it is. It's a little bit less of a hawkish hold than the market was expecting.
Here, Jeff, twelve minutes ago, I was thinking of Alan Meltzer of your Carnegie Mellon University. How far are we from a traditional FED analysis, whether it's Meltzer at Carnegie Mellon, Clarida at Columbia, John Taylor out at Stanford, how far are we away from conventional theories plural.
Well, I think the key thing that kept coming back over and over again in this meeting, and it happened in October, was the difference in FED policy today. It came up around the questions of the comparisons the mid nineteen nineties, the challenges to FED monetary policy when its dual mandate is in conflict. Right, there is no divine
coincidence of monetary policy. There is no environment that we had over that prior thirty year period of too little inflation, so there is no risk free path and that's really the biggest difference here, and they're still navigating that. And I think the discussion about how everyone on the panel, on the committee agrees to the facts, but we disagree on how to deal with the risks, and that's getting to the heart of inflation versus growth and which way
do you emphasize. I'd add the piece that's missing to this conversation, however, is that is financial conditions, and that if your goals are conflicting and it's sort of a tie, then I think you break the tie with financial conditions. But they're just not discussing that at all anymore, which I think, you know, could come back to haunt them. But I think that's the piece of the conversation.
McGee.
Maybe next press conference would be interesting to ask that question. Because they used to talk about all the time. The whole point of the balance sheet was portfolio rebalance, the impact of the K shaped recovery. They've had a lot to do with that in terms of the wealth effect is supported by the balance sheet and the FEDS activities, they absolve themselves of any of that. I think there's more there to unpack Jeff Rosenberg.
Indeed, especially as we see markets climb close to all time highs once again, Jeff Rosenberg of Black Rock, thank you so much as always for being with us, Stephanie to that point. Right now, we're seeing a surge in futures equities. Excuse me, I'm used to early shifts as well as a decline in bond yields. At what point is this a liability for the Federal Reserve that will keep consumption elevated and fuel any mason inflationary pressures.
I mean, it's hard to be worried about the consumer and then concerned that they're going to consumer's going to be too strong. At the same time, I think we're in an environment where the consumer has slowed down a lot, so an easy and financial conditions isn't necessarily the worst thing we're worried about the cake consumer. Of course, the bottom of the k doesn't necessarily benefit from a lot of this, but the middle of the consumer has also
slowed down. So if we see a bit of a pick up on the back of this, plus next year, we're going to get a decent amount of fiscal stimulus coming around tax season. That's a reason why we're probably going to see a bit of a pickup in growth for next year. So not necessarily the worst thing, just given we have seen a pretty big slowdown, but to the extent this continues to remain for quite some time, then you might get concerned.
On the other side, just real quick, does this press conference and this meeting make you upgrade your inflation forecasts longer term.
At the well at the margin.
Plus the combination of you know, we know we're going to get a more dubvish chair, it's likely going to be hascid, in which case, you know, that sort of adds that argument.
Stephanie Roth, wonderful to see you as always. Thank you so much for being with us here. Stephanie Roth.
There.
Honestly, this was a fascinating meeting. This was snooze fast. We just saw the best forms FMC day.
When you look at market performance going back to March and the most ascent is going back to two thousand and five.
Can I use my Peter Fisher hands that mine here?
Three months thirty year bond, it's steeper, it's about fifty one basis point since October sixteenth, and we're buttressed right up at new wides on the broad yield curve is given us that steeper and that always creates attention within the.
Economy from Tom Keem and myself from New York, for our TV and radio audience worldwide, that does it.
From us, this was the feticides. This is Bloomberg.