Instant Reaction: Jay Powell on the Fed Decision

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This is a FED.

He's a lot more certainty ahead, but not yet enough to make any moves. While Powell said that peak uncertainty happened in April and we are getting some clarity, there's still a lot to learn until the data becomes clear. They're on hold and are in a good place.

Take a listen.

We feel like the right thing to do is to be where we are, where our policy stance is, and just learn more. In particular, we feel like we're going to learn a great deal more over the summer on tariffs. We hadn't expected them to show up much by now, and they haven't. And we will see whether to the extent to which they do overcoming months, and I think that's going to inform our thinking.

Trompewell also asked about the situation in the White House, dismissing questions around the future for him on FED to reserve.

I need to ask, assuming you are not reappointed, would you stay on as governor when you're term as chair?

And I'm not thinking about that. I'm thinking about this.

Is a retlacement of some of the earlier moves we are seeing. Bond yields actually climbed back to basically where they were, and then some from before the press conference tom It seemed like this was a FED chair saying that we are past peak uncertainty, but we probably will get more information leaders to stop at It's.

Sure the press conference looking at the correlation of equities, bonds, currencies, commodities, so.

Sort of up and downy and up and downy.

I didn't get any real conviction out of it. The one tone I saw from him that I hear in some conversations is what if we're underestimating the power of this American economy. There's a gloomy call that GDP numbers come down, inflation's up, Woe is me? But and that butt was just there for a bit where he said, on what it is a resilient economy?

You have said the phrase that I think about all the time, which is that companies adapt and adjust. And we hear that from so many companies that are doubling down on some of their forecasts. Your own tariffs, yes, exactly, because they have to look past that and they can handle some of these tariffs. What I thought was interesting was that this was a FED chair that actually said if we were backward looking at the data, we probably

You don't see this, folks, but Lisa during the press conference, she's got one of those little clicker things like in a movie theater, and every time they say uncertainty, you're moving your thumb around, and it.

Was drinking one hundred and fifty.

Well, it's surveying on his beverage time. The issue here, Lisa, is the uncertainty issue was given to them. They didn't invent it. The president's comments today outrageous comments. Do you see what he did to McKee? He slammed Michael McKee after those rude McKee like questions tarriffs, Bob Michael saying do we know what tariffs will raise? We have no clue what they will raise, which.

Is the reason why they aren't necessarily going to make any big moves right now. Joining us now is Stephanie Roth of Wolf Research. So pleased to say that you're here in studio. Stephanie, what was your take on a press conference with this FED chair so that he had more certainty.

But there'll be more later on.

I think the single most important line that he said is rates aren't very high, and when we're thinking about the next couple of months, what we're going to learn is more information about the reconciliation bill, So then they're going to incorporate that fully into SEP, in which case that's going.

To look a lot more hawkish.

So our base case is this year they're not cutting, and the two cuts are going to eventually get get sort of rolled away. At this point, they were very close on the edge of between one and two, and they're probably going to eventually not end up cutting this year because the economy will be resilient and fine and inflation's elevated.

On the core GDP equation is there, where's your Do you have any conviction at all? And c IG or NX, I mean, I don't know how you do it. I don't know how you come up with a real GDP statistic.

Yeah, we're looking for one point four percent GDP this year, so not that different from the FED. But I think the important thing to focus on is for twenty twenty six, we're my forecasts are a lot higher than what the FED has. I'm looking for something that's close to two percent, if not a bit above our forecast. Is that reconciliation bill could boost the economy by but forty basis points, So that could be a notable acceleration versus where we

Is Lisa helped me. Is a reconciliation build a big, beautiful thing.

It's one basic, beautiful bee, It's one big.

One three B. Yes, we can cary gotten more uncertainty. Well, that's the problem.

And I really was struck by the idea that Fetcher Powell brought to the four, which is in response to Nick tim moros As the Wallstreet Journal's question, why aren't you looking at some of the weakening trend that we're seeing in inflation and say, you know what, we're actually quite restrictive. Why are you saying that this is actually an appropriate n And the FED chair said, well, the reason why is because we have to look forward and

I think it's fair for them to be in wait and see. They know that the tariffs will be inflationary. He very much emphasize someone's going to be paying the cost and eventually they're going to try to get it to the consumer, and I think that's the right way to think about it. It's going to eventually flow through some portion of it to the consumer. Our numbers are similar to the fed's forecast that inflation should be close to three percent at the end of this year, and

Just fine, which is essentially what they were saying, albeit at a slower pace.

Right now, we're so.

Lucky to have Torston's Slock of Apollo joining us. Tourston, thank you so much for being here. What was your take on the press conference on the FED stance and frankly, the market taking this based in stride saying that they're getting much new information here.

I think the banner hanging over this entire press conference and the forecast is stackflation. They've revised down GDP growth to one point four and they revised up inflation to three percent. That's telling you that they are beginning to worry about the things that are hitting the US economy. And is no longer just trade and teriffs. That's stackflationary. All prices are also stackflationary, meaning higher inflation, lower GDP growth,

So the conclusion is.

It is not surprising that the fittest beginning to worry about their mandate being torn in the opposite direction because inflation higher says that you'd be hiking GDP growth lower says that should be cutting.

So that's why at the moment the stay put and.

The conclusion therefore is that he didn't really give much other than say we will likely be cutting. And that's what's in the dot plot but the conclusion is this is a very difficult situation for them when there's both, as he said, meaningful expectations of upward pressure on inflation and at the same time ever vision down on GDP growth.

Turstan he alluded to their data capture which is perhaps showing a more resilient GDP, a better stronger America. Steve Shuta Mizuo is heated about this that we could see GDP better. Is that in any probability for you?

Well, I think that when it comes to a particular trait. Forgive the picture here, but the pig is coming through the python. Someone needs to pay for the tax increase on impulse. Tariffs have gone up, and if companies are not passing this on to consumers.

Let's say that inflation does not go off as much as we would have expected.

Then the conclusion is, well, then earnings will simply be going down more because this tax increase beats because that it will begin to see some downward pressure on GDP and potentially some more downward pressure on earnings.

So that's another way of saying.

We saw effective tarry frates go up from three percent in January to now eighteen percent today and that effect will still be playing out, and he said very clearly he does expect a meaningful increase in inflation over the coming months. So combining that with he said, we could

And he expects to see some data on that front in the upcoming months. Right now, let's bring back in Bloomberg's Michael McKee, if you are just joining us. We did just conclude the FEDS press conference for Mike. You put him on the spot there with the political question. I don't know that he loved answering it. We were all glad that you asked it. What was your takeaway from the press conference in terms of what you felt was the most new information that we gleaned.

Well, I think the takeaway is fairly obvious here, and I'm not sure that my economist's friends all agree with me, But I think the line that you want to look at is how many time Jay Powell said nobody on the committee has a lot of conviction about these forecasts. In other words, this is all going to change and we had to write down something, so we did. So don't take us seriously in terms of the number of rate cuts. Don't take us seriously in terms of the forecast.

Michael McKee, thank you so much for being with us, and Stephanie. We were kind of laughing around the table when he said We just kind of turned to each other and say, what did you write down?

You know, I don't know. I'm kind of throwing a dart at the dartboard.

But it does feel like they are trying to message something to markets. And do you think that this is saying, ultimately, we understand our dual mandate and we are going to respond potentially to a weaker jobs picture.

I think it's saying there are risks to both sides of our mandate. We don't know if it's going to be on the inflation or the growth side. We're in wait and see mode. I think the ultimate destination will be that the economy holds up. Okay, inflation does pick up. I totally agree with Torson's comments. If it doesn't pick up, that's almost a bad sign because that's going to come

Your core ability is the math and the dynamics of our math. The toughest math is productivity. Is productivity still in play? Is there a total factor productivity right now that we underestimate?

Yeah.

I think that's certainly the case, and hopefully it's the case, especially given that our labor supply is shrinking, so we kind of need that to some extent. And our base case is that the productivity should be fairly solid throughout the course of this year into next year. It is hard to estimate, but I do think AI is going to slowly have that impact over the course of the next couple of years.

With productivity gains.

Tors And I'd love you to wait on this because you've been really good on this, We're not necessarily going to get recession. A lot of people say that's not their base case, but we are going to get slow down at a time of increasing inflation.

People seem to think.

If there's a recession, that's really bad. If there's not a recession, that's really good. What is that breaking point where you have growth slowing enough that it becomes really terrible for companies in terms of where inflation is and growth just not keeping up.

The chocol world is at the moment, Namy, we do have a number of things that are weighing on growth, as we're talking about here in naming higher oil prices, higher terriffs were now also have restrictions on immigration, meaning removing labor. All those things would argue for GDP growth slowing down as the consensus expects over the coming quarters. But at the other end of the robe, in this talk of wall, we have definitely the productivity increases that

Seeing given that backdrop towurstin, do you think that, based on what this FED said, they are just moderately restrictive. Do you think they're more restrictive than that, or do you think that this really is closer to neutral than many people think.

Well, that's why this discussion, Lisa around, as we have all talked about for so many years now, our style and where are we related to that? Note how he didn't bring that up today. This conversation about where are we related to neutral has almost become a back seat issue us now there are some cyclical issues that are

But the issue is still here is they are battling.

The major issue is that, as you said, they expect to see meaningful upside pressure on inflation, and that makes sense not only headline inflation because of all the prices, but also because of terriffs and again because of the emerging pressure we're seeing on wages. So the short answer to your question is, I think that this discussion of restrictive or not restrictive is taking a little bit of a back seat because we now have some cyclical forces pushing inflation up over the coming months.

Torson Slock of Apollo, thank you so much for being with us and for those comments.

Joining us now as Sebadro or Jappa SoC Gen.

Just curious to Bodra what you make of this idea that rates are not very high, that policy is monestily restrictive, but not necessarily causing the restraint that many people would expect.

Do you think that this was an appropriate fat.

Meeting, You know, let's call a spade a spade. I must say I didn't get a lot of new information out of this meeting. I think Mike McKey summed it up. There's a lot of uncertainty. The first half of the year, the economy has been extraordinarily resilient. There's a chance that we get higher inflation in the second half.

There's a chance.

That the growth could slow down as well. But that doesn't really give us a lot of information or exactly what they're going to do on the policy front. Yes, the dots are showing two cuts for this year, but there's a good chance that they don't cut at all this year, or they have to cut as early as the September meeting is the data deteriorates, So for me,

So for me, this is status quo.

The market pricing hasn't really changed. The market really has reacted much. So it's it's it's we need more information.

So padre, is the.

Information going to come in the yield curve? A really informed question come in about the vanilla twos ten spread or all you pick the spread that matters. Are we going to go back to yield curve steepness as we saw many years ago?

Yeah, the five to thirties part of the yell curve has been steepening.

The FED.

You know, the front end is pegged to policies of the two years is kind of stuck between three seventy five and four percent, and the five thirties part of the yell curve has the potential to steepen. But again, a lot depends on what we get out of that big beautiful bill. If it is actually more deficit inducing than what we are anticipating, then there's a potential that

Stephanie, where are you on the fiscal space? I mean, I think this is about Michael brought it up in others before, but this is a huge mystery that's unspoken. We don't have a clue where our debt and deficit is doing. We have no clue.

We have one clue, and that's not good. So it's not heading in a very good direction. We all know that, but I think the bond market has largely internalized it.

So what we're.

Talking with clients about is, at this point, once they actually passed the reconciliation bill base cases, there's not a big sort of.

Bond market riot as a result.

It's a risk, but I think maybe over the summer, the bigger news is going to be the inflation prints, which could be a headwind for equities, and the employment data which might seasonally surprise, plus the downward sort of projection on immigration that could be sort of the bigger news over the summer. I don want to anticipate it's going to be surprised on the deficit front, because we largely know what's going to be in the and they're

All I can say is this feels a little bit.

I keep saying this like when you put too many commands into a computer and it says I'm buffering, I'm buffering, and it just kind of we have no idea what the headlines they are going to be in a couple of months. To baj Or Jappovsacchen, thank you so much for joining us and for really being honest, which is we didn't really learn all that much joining us now is Jeff Rosenberg of Black Rock.

The one thing that did stand out.

Was this idea that this is not a FED that feels urgency to cut rates, even though you have a president basically jaw owning them and you have people in the market saying we are seeing cracks.

What was your take, Jeff from this meeting. Yeah, you know, there's.

Something we're not talking about which could have been you know, the headline, which is this is the first statement of economic projections posts the tariff uncertainty, and mostly he got away with not really talking about that. Torsten just highlighted a second ago it's stagflationary. I don't think anybody raised that once that word ever came up, So we really kind of pivoted away from what might have been kind of an interesting storyline to the storyline that we're hearing,

I think that's kind.

Of an interesting takeaway.

I think, as your previous guests just highlighted, that is the takeaway that the markets are, you know, having from today. And when you listen to the opening press conferences, I do. I pull up last month's press conference and you can follow along. It's almost verbatim with the exception of the insertion of the SEP changes, which you downplayed, and maybe the introduction of, you know, waiting for more information as

And Jeff Rozenberg, when you look at what the president said in the lawn today, we're benumbed by presidential criticism of your own Powell, is this a fad as we're all half asleep in a snoozefest representing the haves in the financial industry, or are they actually representing a good part of America that does not agree with this dialogue and says they're flat on their backs right now?

There are There are a lot of questions in there, Tom for me to avoid answering, So I don't do my best imitation of Powell to pivot to answering it the way he answered Mike McKee's question and basically restating what you know he wanted to answer, which is they believe they're they're following, you know, the right path, they are answering the right questions, they're pursuing the policy for the benefit of the economy overall that benefits the most of Americans.

And I think kind of he.

Answered that question the way I am answering that question, the way Power Answeredi's question.

Absolutely gorgeous, Jeff, very well done. I will answer this.

I will ask it.

Oh, it's compliance from Black Lives.

You're doing great, So, Jeff, you passed that compliance test. I guess another way to ask the question a little bit more directly is, to your point, this was not a FED who is challenged a Fetschhair who is challenged on this diyflation point, who said, when your dual mandate really comes called into question, would you tolerate higher inflation for longer in order to protect a labor market that has left a lot of people to Tom's point out, and that has left people behind in a participation rate

Yeah, and it's going to be the more interesting conversation. I feel like this is the period where we're kind of between two environments where the kind of pre tariff environment and he got asked the question. You know, hey,

Expected tariff policy.

What we're waiting for is it to show up in the data now. When he got pushed back from one of the questions of well, are you data dependent? Sounds like you're forecast dependent. Why are you now saying you're forecast dependent when you always tell us your data dependent, And he gave the answer on what we have to be forward looking, not necessarily forecast dependent. And so we're going to get to this period where the inflation does

Jeff Rosenberg of Black Rock, thank you so much as always for being with us. Stephanie Roth of Well Research still with us, and I'm curious for the final word, how you see this dual mandate as playing out. And you had a great question for the FED chair that was not asked, especially at a time of such confusing frankly data, Yeah.

And I think The question we want to know over the summer is when we start to see payroll gains slow down, potentially below one hundred thousand, with the unemployment rate remaining largely steady, how does the FED react to that and our base cases at this point and could certainly after today there seemed to be very much in wait and see mode and they're probably going to do nothing, which then means that two cuts are going to have to fade to no cuts.

Is a four point two percent unemployment rate now the same as a four point two percent unemployment rate thirty years ago. I'm not sure it is. There's a lot of noise in there. I'm not sure it is.

Yeah, that's that's totally fair.

And of course they're going to think about the directionality here and they're expecting it go to four five. I'm worried it goes down to closer to four percent with the impact of it might go the other way. And I think that's the thing that is going to be a really interesting dynamic for the FED to potentially watch here.

This is a real tightening of the labor market.

You have the cross currents with the slowing economy and then the real tightening of labor supply. We had five hundred and thirty thousand people from Cuba haiting Nicaragua Venezuela.

The visas are expectively expired overnight.

Stephanie Rotha Fullf Research looking forward to continuing this conversation on Friday, su