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This is a breaking news update from Bloomberg, Instant reaction and analysis from our three thousand journalists and analysts around the world. Welcome to the program. Equities recovering. There was a drop off as soon as Chairman Power started to speak.
We're back to about negative zero point two percent on the S and P, the bigger losses on the Russell, the small camps down by zero point eight in the bond market off the back of these comments from Chairman pow Bonyota at the front end of the curve by nine to ten basis points, a twenty five basis point reduction from the Federal Reserve two way descent, the limited ability to guide from here and these comments from the Chairman of the Federal Reserve take a listen.
A further reduction to policy. Read of December meeting is not a foregone conclusion yet a time when we have tension between our two goals. We have, you know, strong views across us the committee, and as I mentioned, there were strongly different views today and the takeaway from that is that we haven't made a decision about December, and you know we're going to be looking at the data that we have how that affects the outlook and the balance of risks. And I'll just say.
That a December rite cut is far from a folk on conclusion. That was a prepared remark. It was scripted TK. It was heavy with intense.
I love when they looked down at the script. I mean you wonder what percentage of the press conferences.
Thanks, It gave you extra menic that would be intent to come into this room and sound everybody, including wool Street. We're not making a cool come down.
We're way down. And when we get the tourists this lock, I want to really dive into that. I need to frame this, Johnathan. It's so important. We've had this spectacular move lower in the ten year yield down to three point nine whatever. Oh mg, we've come back four point zero five percent at seven eight beeps move. It's only center tendency on two standard deviations were by no means price. Rather, price has not cratered in the last twenty minutes.
Low endered arrange for years still type with you. Bond market's been super well behaved. When the FED last mat back in September twos we're near three fifty tens to were near four percent right now, TK twos near three sixty tens near four percent.
There's gonna be a lot of hyperventilation about this tomorrow. I'm also looking at the currency market, which I think is extraordinary into the Trump g meeting, and you know, it's a side story. I get it. It's not the Fed decides, it's maybe the president's decides on trade. But it's a backstory to this. It will be interesting in the next couple days.
Got a strength this afternoon euro dollar one fifteen eighty two, euro dollar down by zero point six percent. TK mentioned it Tilston's block of Apollo with us around the table, Tilston, good afternoon, going to see you. What's the big takeaway for you from that, Well.
That they do have clarity on the CPI on the infliction side, but there was a lot of questions about the level market. And it was very clear that he came into this saying the legal market is still chugging along, moving sideways, slightly cooling, and he didn't mention any of the private sector indicators. So he did basically say, we don't quite know exactly what's happening in label market, but we still feel quite good about it. So that's why he came to the conclusion inflation is too high. The
label market is still okay. Therefore, there is no foregone conclusion about December.
How difficult is it to carry on kind of interest rates?
It is very.
Difficult because the label market does have a number of indicators that are very important for this discussion. There is of course ADP, which we just got and thankfully now it's weekly. If you just think about the number fourteen thousand was the average weekly number for the last four weeks. If you multiply that by FOAR, you get some estimate of what that means on a monthly basis. That means that monthly job growth at the moment is in round
numbers around fifty thousand. We just got a FED paper a few weeks ago saying that the new equilibrium rate for nonfound pay roads is thirty thousand. So by that measure, the label market is actually strong. You know, the words job growth is stronger than what the FED itself thinks that it should be in the long run, because fifty
is higher than thirty. And the conclusion therefore, now you suddenly have that both the label marget is actually doing a little bit better than expected, and inflation is still a three, which of course makes it very difficult for them to begin cutting again in December.
You let me follow up on that though. Is that politically acceptable to have a mid one hundred thousand number thirty forty fifty thousand. There's no way that plays in Washington.
Well, at least the Dallas Fed who produced the number had some very good arguments for that. There were two reasons why they Equilibri and RADA gone down from two hundred thousand last year to only thirty thousand today, which was immigration has been slowing down significantly and the demographic hit wins also weighing on the road.
This is so important with your heritage. I think it really works out. What is the level or the new new of their ex post right now? To me, they're almost redefining away. Did you hear forward guidance in the press conference? I don't think what, God, I'll take that. Maybe backward guidance is the new phrase. Paint the character doctor slock of our X post nature now.
Well, the challenge also is not only did they not only mention forward guidance, but also he didn't talk about data dependent because there is not much data. And if you say data dependent, that means that they're putting a lot of data on the private sector data. And he didn't mention some of the private sector data. That asking is very important for the label market, not only ADP. That's also the of course challenge are great and Christmas
job cut announcements. There's also a new data from macro itch that also.
Looks like you love ism.
There is also the ism data that it still says that the label market is okay. There's also link up job openings. There's also indeed job openings. There's also paychecks which is also looking at employment. All these indicators combined still tell a story of the label market actually still hanging in there. So it's not the case that the label market is falling out of bed. It's still the
case that the label market is okay. And combined with inflation at three, remember the FETs target is two, so inflation is still way above the FET target, there is just not room to cut rates more. In particular, not as he also talked about, if you begin to worry about if inflation expectations begin to become interan.
Tell us them what you're saying, begs an obvious question. What I'm hearing from you is we've seen a step down in payrolls growth. We haven't seen an increase in labor market slack. Inflation is running at three unemployment still close to four GDPs tracking around three percent at the moment in this country. If that's the case, why did they just cut interest rates?
Well, his argument was also very very carefully articulated, namely that we are trying to get closer to our star. So it's back to this excuse me, peculiar interest in that there is some very academic calman field that you can do and figure out whereas the level of interest rates where we should be, and say this was recalibrating monetary policy to that level. It really is a very excuse me, unwaving academic discussion relative to what the actual
data that you just listed. And if you add also the Elena FLGDP now almost four percent for the last quarter, where are we in terms of thinking about this slowdown? There is just not much sign of a slowdown when it comes to the real.
Please forgive the snark, but the way they talk about things like neutral in our star, do these lights start flashing off in the FMC room and the order him at the federal surf. You've hit it. Well done, guys, stop right there. What are they actually looking at to guide that decision?
Well, I do think that there is an intellectual camaraderie around our styles saying yeah, I know what you mean when you talk about our style, and of course we've got to get down to our style. But the interesting thing of bottles with also this is that if you really are saying at the Dallas fit that there is now a thirty thousand non found payroll level, that actually means that USTA it's actually low.
One j Greg Hip has been wonderful about this. We're in God's name. Is the output gap right now with meta here in twenty five thirty five minutes at Google? What we see tomorrow with Apple? Microsoft? The speech that in video gave the other day, Are you kidding me? We have no clue for the American output gap?
Well, and that's why from a monetary policy perspective, it is really interesting because if you look at the Magnificent seven, they all finance by equity prices being high. They're not sensitive to the fitfunds rate, whereas the S and P four ninety three is very sensitive to the fitfunds rate is a.
Poll of globle management. Part of the magnificence of it.
They should be, they should be. Mike McKay was in the room. He was in the news conference, and Mike McKay, thank you for asking about financial conditions and financial markets. Mike McKay, what was the takeaway for you? Set?
I think the absolute takeaway is that the FED is probably going to pause in December unless there's some data that forces them to do another cut. There was a sort of almost Freudian slipped by the chairman close to the end of the news conference when he said if we cut again, and then he quickly.
Backcrapped and said we will at some point.
But I think that the mood of the committee now is we've done enough. Let's sit back and see what happens, especially without any data, and given the fact that inflation is still rising. You know that at the beginning when he was giving us the rundown of the economy, he said, extrapolating the CPI into PCEE suggests that it rose at
two point eight percent. Well, it was two point seven percent in the prior reading, so it just showed you that inflation is still rising at a time when he had a hard time making a case that unemployment is a real problem. So I think the takeaway is don't expect much from the Fed in December unless the government gets back to work and we get some data that changed their mind.
Michael McKay, you have covered the Federals for decades. Volka through green Span, Bananke, Yellen, the likes of Cham and Pow Mike is the era of almighty Fed, Chad dominance and power on the committze. Has it come to a close?
Well, I think that's another way of saying that I'm old John, But I don't think it's come to a close. It's just changed a lot. When you had Paul Vulker, he was very firm in what he wanted to do, but he came in during a crisis, so he was able to marshal the troops to do that, and then they rebelled against him. Green Span did it differently.
He ran the FED as.
If it were his own and they did what basically he wanted them to do. But starting with Ben Bernanki and following with Jennet Yell and j Pollo, it's become much more collegial, and the chair now is more in a situation where they are taking the temperature of everyone there and trying to figure out what the best consensus move would be. And I suspect that that's what members of the Board and the Open Market Committee would like
to see happen going forward. Don't know, given the names of various people who are among the finalists to replace J. Powell, whether we would have an attempt to go back to this strong chairman view or whether we would still continue with consensus.
Can they wrestle control from that committee? Thank you so fantastic work. You know. Oh you're brilliant, Mike McKay that in Washington, d C appreciate it. You're brilliant too.
TK.
You know this love come on, this is far enough love to go. But yes, it might be a little bit more than me. Tilston, you're still with us Tauson's luck of Apollo. By the way, if you're just joining guest Tustin, Bob Michael of JP. Malcolm is on the program with me and TK earlier on this Southternoon and he made the case after this decision dropped and we saw the two way descent that the Chairlesing Grip of this committee. What's your tak on that, Well, it.
Is a very unusual situation to have someone in the committee the things that raids should have been on hold, meaning that could other direction than other members here in this case Deve Miran who thought that she should have been cutting. So it is a very challenging environment. Of course, Well whoever is the FET chair and whoever walks in to be the next FET chair to try to get
a consensus on the committee. There is so much work that goes into from the chair whoever it is, to try to get a decision that is unanimous and that is a common ground and saying this is the way we're walking, and this is the direction we're traveling. Now
that there's more uncertainty about this. One reason why raids are going up is also because well maybe now Smith is not the only dest and maybe there are others that come around next time and say, well maybe we shouldn't be cutting, or maybe there might maybe someone said maybe we should be hiking. So that's why I do think there was already a dot in the dot pat last time that said that Rich should be going higher in December. I think that now We know that that
was Smid from the Kansas City Fed. So yes, it is getting becoming a much more challenging exercise. Normally we just talk about inflation unemployment, but this is no longer just about invasions.
The heart of this we're gonna get the Rosenberg. But the heart of this, John is he's lane duck. That's all there is to it. Great, it's it's October. He's supposed to begin to be lame duck.
So let's fast forward to December. Just think about for a moment, how much honey message put out forecasts probably know who the new FED chair is? How much past chair and power? Can I have a December meeting knowing who is replacement is potentially once we come around to May, I agree.
And of course, as we've said three or four times today, you know, not me, but others are saying the Secretary of Treasury could be involved as well.
Jeff Rosenberg of Black Rocks Running, Jeff, welcome to the program. I won't mention Rick, We'll leave that to one side. We'll keep you in you know a company. Why not keep you out of trouble? What about it? No, Jeff, seriously, Jeff Rosenberg number one take away from that decision this afternoon and that news conference too.
Yeah, I mean the number one takeaway is the is the comments on December, the comment on slow down when you're driving in the fog. You know, you know, it's interesting you guys were picking up on him reading in the notes and whether that was very much pre planned. I think what you see here is a repricing of market pricing to December. You know, going into this meeting, it was basically a foregone conclusion. It was one hundred percent.
When you come out of the meeting and you see the descents on both sides and you recall the division within the committee, you could say that that is an appropriate repricing to the really realization that there's more two sided risks to the Fed's decision than the market was pricing in it. And perhaps that comment was engineered to
kind of push that forward. Maybe it wasn't, but the reality is that's what the market reaction is, and you can see that that's, you know, a very reasonable reaction to what we saw from the committee today.
Owned an audible here, we got Tourston Slock and Jeffrey Rosenberg with us, and that is good and wonderful with their financial and economic Now it's Turston. You have a blistering sentence in your note of your concerns over private credit. I would suggest for Global Wall Street into the next FED meeting and beyond, there's going to be further challenges here about the opaqueness in private credit. With you, with
all of your resources that apollow global management. How blind are we to where we're heading in the pricing of private credit?
That discussion is totally misguided. In public markets, I can get something that's safe, I can get something that's risky. In private markets, I can get something that's safe, I can get something that's risky. So there is no difference. It really is all about do you want a risky investment? Do you want a safe investment? Something in the public market is investment grade, something that private market is investment great.
So this discussion around what's happening in the last few weeks, yes, there might be a few cockroaches in the sense that there have certainly been some things that have been going on, but interestingly enough, those were basically all broad the syndicated loans, meaning this were things that we're trading tick by tick, minute by minute in the public market. So why is the discussion about what's happening in private credit relevant for this?
These were cockroach in the public market that showed up in public maalge Jeff Rosenberg.
Will this effect the Fed? I mean it's just as simple as that. If we have Wall Street instability and fear about this with all your work at Carnegie Mellon, can they ignore those cockroaches?
Well, it gets back to some of the earlier comments about you know, the questions that he got on financial conditions, and you know, to what extent does financial conditions sort of factor into the Fed's decision? And I think what we see as an asymmetry here that financial conditions aren't really factoring into their decisions to cut rates here financial conditions.
You saw him parry the questions around interest rates and AI basically you know, brushing them aside, saying AI financing has nothing to do with rates, which is true on a first order effect, but not necessarily on the second order effect, to the extent that interest rates broadly are creating very easy financial conditions, and they're contributing to the increase in financial conditions easing especially that we saw since
the FED. It did you know, to the labor market slow down that took us from you know, measurements that were sort of more optimistic to measurements that were kind of more on the euphoria side. But I think the asymmetry here is that the FED will respond to tightening financial conditions after they're realized to the earlier you know, interchange on you know, X post and data dependence. This
is a FED that will be reactive. And I think what's very clear is the Fed's not really paying a lot of attentions to financial conditions going into this cycle, but they will, as they have been, you know, ever since the GSC GF GF GFC, that they'll be very responsive financial conditions for things that have nothing to do with the FED end up tightening, the FED will react into that with with with a massive cut in interest rates or restoration of zero interest rates, the forward guidance
that you just talked about, balance sheet, all the tools that you know were once thought as kind of you know, not normal are part of the normal playbook. But they'll be in reaction to something that is outside the Fed's control here in a tightening.
Of financial condition Jeff, is that still a green light then a bright green light just a state lung risk, state lung aquacies.
Well, it's a light that says you can't really predict that on a directional basis. The FED is supportive here.
That's part of.
Again what we saw and kind of the movement in the metrics from optimism to euphoria around August September, and the Fed's continuing to send that signal with market pricing coming down a bit, but basically pricing to normalization of three percent and the expectation that under any circumstance where the FED is faced with an outsize and you heard in that last question right at the end, you know the Fed talking about the impact on consumption. This is understated.
I mean he said it in a very small way, but a large shock downward has a significant effect on consumption. And what was a little bit understated here is that the large increase in the wealth effect has been the support for consumption. It is why we're surprisingly strong in addition to the lagged implementation and tariff inflation not being as worrisome. It was really the surge in the wealth effect and consumption that's leading to the upside surprise. But
that has a double edged sword. To a larger decline, and that's I think the concern around financial conditions tightening.
Jeff, before you go, I promised I wouldn't mentioned Rick, but I think it's worth it. You know, I've known Rick a long time, You've worked with him a long time. Can we just spend a second or something just how cool is it that Rick Reader's name is associated with the Fetchamp position.
It is very good for you to talk about that, and I look forward to hearing more from you on that subject.
Jonathan Okay, Jeff Rosenberg of Black Rook, you avoid it, Jeff, you avoid it. I think it's fantastic to have someone like that. Absolutely just makes the process all the more credible, which I imagine was the objective of the Treasury Secretary.
Mister Reader brings an entrepreneurial sense here that you don't get from grizzled economists.
Understand, this president needs to be.
Hugely lauded for that with the secretary. Can I point out in the time we've got left something back to the late July meeting, So Google, who we're going to hear from in forty five minutes is up forty two. You have to remember, you know, I'm talking about the food lines in Chicago with Diane Swank. The roulette wheel is in full spin right now.
We've got about sixty seconds left. Programs like these traditionally obsessed over what can go wrong? Toss and Slot, can we finish on what can go right? You put out a fantastic note in the last month about the economics profession needing to take a long, hard look in the mirror and just think about where we are compared to where they thought we would be, which is a much worse place.
Absolutely, So the key issue was that Liberation Day is now seven months ago and we are still having a fitchair that talks about delib market is actually doing quite well, and we still have inflation above the target. I think that we have all been surprised, and of course the market has been surprised, and the economics profession has definitely been very surprised that the textbook would have predicted a much more staflictionary shock, much more upside pressure on inflation,
much more downside pressure on GDP. We have not seen that, and some would say yet, but this is the discussion, namely, do we still have that, as you just said, as a lack of effect in front of us, or is this it? And then things are only getting availble for here. And this is why what the Fed was doing today was exactly to say, so far we have not seen that staclationary shock that we expected in April after debriation TK.
We've been saying yet it's not happened yet for a long time now, a number of years.
We're going to get to shut down finished so we can get the data because we're all blind.
That's the number one thing right now. We're waiting for earnings. An interesting mating in the last hour or so Toilston's slock of Apollo Taston, thank you sir. The Federal Reserve producing interest rates by twenty five bases points descent to both sides, and a very very limited ability to guide beyond this meeting into December. Equities attempted to turn around the opening bow behind us, the closing bow fifteen minutes away at a ton of earning still to come. From
New York City. Good afternoon,