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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. But that FED decision is mimachay.
No change in rates, no change in dots, one descent, but some big changes in inflation expectations. FED official see one cut still in two thousand and six. At some point, even though their statement notes that uncertainty about the economic outlook remains elevated, three members who favored no cuts in
this year moved their dots down to one. The statement goes on to say the implication of developments in the Middle East for the US economy are uncertain, and the committee remains attentive to risks to both sides of their mandate. They still see one more cut in twenty twenty seven. Stephen Myyron the only dissenter. He wanted a quarter point cut this time, and from the dots we discerned that he still wants one hundred basis points at some point
this year. The language about future moves remains the same. They still talk about the extent and timing of additional adjustments to the target range. It's the Summary of Economic Projections, in which we see a lot of changes.
PCEE inflation this.
Year is forecast at two point seven percent, up from two point four percent in December. Core is also seen at two point seven percent, up from two point five. Both dropped to two point two percent next year, up from two point four percent in the December SEP. Core is seen at two point seven percent this year. Both drop back, as I mentioned next year, to two percent
in twenty and twenty eight. GDP marked up a tenth in both years both of the next two years to two point four percent this year and two point three percent next year. The ployment forecast remains four point four percent in twenty twenty six, dropping to four point three percent next year. That's up from four point two percent in December, and the longer run estimate for FED fund seen as the proxy for the neutral rate, rises a tick to three point one percent.
Guys, Ma, Mick Key, thank you sir. We'll catch up with you a little bit later. Let's start with the price section. We'll got equities, then bonds. We'll have a sneak peak of what's happening in the commodity market because we're tracking that throughout the day here at Bloomberg Equity Markets, looking at the S and P five hundred off session
lows were still negative by point five percent. In the bond market, yields slightly higher on a two year by two basis points, basically as you were at three seventy on twos on ten to about four to twenty one, which is basically where we were going into this decision. So this is what we're doing. You go into the projections. We'll ignore the statement just for a while. We'll go into the statement and we'll look at the projections and compare what they were projecting back in December and have
a look at what they're projecting now. So let's just go through twenty twenty six. For GDP revise slightly. That's some good news. Twenty seven as well, same thing, by the way, So the revised GENP higher, that revise, inflation higher, and they've kept the projection implied projection for interest rates exactly where it was for December. Those kind of moves should be music to the ears of bullish market participants.
This is an incredibly dubvish hold, just by virtue of the fact that only one person dissented and it was Governor Myron that alone. But these projections highlighting a tolerance for higher inflation and still the belief that it will come down by twenty twenty seven to that two percent level without hiking rates and continuing with rate cuts gives you a sense of where this spreed's mind is at.
This seems like more of a consensus than I expected, than a lot of people expected, and it is more to looking through any kind of oil price shop.
In honor of Allen Greenspan's hundredth birthday, it was a green Span decision. Everybody got on board with the chairman. That's all there is to it.
And the out years the good news on the inflation front, you decide whether this is good. The Fedishville basically forecasting the same inflation glide path as they were before, even with this lift to twenty twenty six.
How do you say transitory without saying transitatory.
It's in there in the forecast, and that's.
The reason why you're seeing the yield curve steep in and on the margins you're seeing tenure yields higher on this because ultimately this is a bed that is willing to stay on hold and look through an oil price shock, look through the fact that even core PC has been higher than expected and is expected to stay that way.
Because ultimately, they do think the labor market is showing signs of cracks, even though they don't necessarily see unemployment rate ticking up, and they do want to air on the side of being more accommodated.
Especial I'd like to speak to you, just briefly. Get him on the phone, Governor Waller. I was about to say, Chris, no dissent. He said it was a coin flip. Who would come down to the labor market report, and that labor market report was overwhelmingly soft. So what does he see in the ALEC for inflation that's kept him on the sidelines?
Severn Or Waller, please join us if you want to call, it will take you. I mean, ultimately, that is one of the key players because he is a pillar of the swing vote, if you will, and a lot of people are looking to him for some sort of guidance about what exactly is driving us to do.
But at Washington State he was expert and game theory, and when there's a war, there's a different game theory.
This is a major shock. We're working through Bob Michael at Jpmorkan Asset Management, still with us around the table. Bob's already thoughts off the back of this one.
I do. They're telling us, don't worry about it. There's a little bit of a year term inflation shot. They added a tenth more than we did, but it's fine. The economy is going to use that to accelerate. So they increase GDP that I don't get, and they left unemployment where it is. And it also doesn't sync with the dots. I heard Mike McKee say that three members who previously voted for no cut changed their view so and went to a cut.
The median dot three four December projection the median dot three point four joining us now to discuss as the former FEDVIZ chair Richard Clarendon now, rich I know the word transitory is banned and they can't use it anymore, particularly in the news conference. But is this screen transitory, Well, it.
Certainly screams we need a synonym for it, temporary not long lived. You know, they could justify it, perhaps by looking at the oil futures, which still show this as dissipating over time. But the short answer is nobody, including the FED, knows this is very elevated geopolitical risk, and there are risk on both sides. But the baseline, I agree with your panel is dubvish constructive.
Rich. I'm just wondering how much this is just AI written all over it. How much this is a FED that is basing their entire assumption on a productivity boom tied to artificial intelligence and the deployment of it through the economy and frankly disinflation on its heels.
I think there's an element of that, perhaps more so with the incoming share than some other members. I think it's also a statement, however, that AI is a support to demand in the economy that to some extent, along with those big beauty full bill tax cuts, is probably going to offset some of what the drag would be from the oil price increases. But again, this is a modal or a baseline, and I think certainly internally we'll hear that there was a discussion of the risk cases as well.
Professor Clarina, when you were at Columbia herding cats, Xavier Salah Martin taught the acclaimed Principles of Economics, talk to us about the risk of a demand destruction here. To me, it's extraordinary. Whether it's war short term or a more permanent demand destruction, should that be a legitimate concern of the Fed.
Well.
The demand destruction comes simply from the fact that not only oil prices, but energy prices and goods that are intensive in oil and energy will go up, and that will tend to reduce the real incomes for millions and tens of millions of households. Now, on the other side of that you have the AI boon, but there is no doubt that this is going to squeeze real act or get a demand the longer the oil shock persists.
Check out the price action. Let's go to equities. We're still down by zero point six percent, unmoved by one. The surface of things looks like a duvish decision from the central bank. Check out the bond market. Similar story. No big moves off the back of this. The only
takeaway this can change. But the only takeaway for me is there is nothing this institution can do to drive this market in the face of the shock housewhere Jeff Curry of Carlisle said it really well early this morning on Bloombog TV when Jeff turned around and said, there's nothing the Central Bank can do about this. You cannot print barrels. This market is still at the mercy of what happens in the commodity market, and the FED is
not the circuit breaker anymore. Because this FED decision, I would sit here and argue is fairly duvish, with the exception of the absence of a descent coming from Governor Waller, is fairly duvish to come out and say the outlook for growth is better, We've revised higher, the outlook for inflation and the median dot is exactly the same. Screams dubvish. And yet here we are no big moves in financial markets. I think that's noticeable.
The FED is playing dodgeball without the ball. They're not the pitcher in a game. And right now what they're dealing with is shock after shock without necessarily historic precedent, yes, or historic precedents for oil shocks, but not for the AI shock and what that does to the overall economy.
So they might remain on hold, and that might be bullish, but not in this moment, because right now, if another oil or natural gas plant gets bombed, people are gonna be watching that much more than anything coming out of J.
Powell.
Vice Chairman CLARIEDA The thing I would point out here, Damien Sasawer at Bloomberg is very cautious on EM suddenly here in this meeting and in this press conference more than ever. Is this the central banker to the world.
Well, sure it is, and I think that the Fed FED is aware of that. And I think one thing this episode is reminding of folks. We've seen it in the in the dollar obviously, is you know, since the Iran hostilities commenced, you know, the price of go old is down, the price of the dollar is up. So I think there is that element as well. But you know, broadly, the FED is reacting to events. I think Lisa said said it well first and foremost, this is a major
geopolitical and economic shock. The Dodgeball analogy, I think is a good one. So I think, yes, the FED is the central banker to the world, but it's not the main attraction right now.
About Michael with us, with JP Morgan And so what is the with the tentacles of JP Morgan around the world. How is EM doing? I see Philippine pay so almost at the sixties saw Australia raising rates and.
Oh well, well, well we called in Australia. Am no, I'm not calling Australia, get you in trouble tating.
You know.
I am watching oz EM though, which is of its own Sydney watching. Well yeah, early morning, deeply, deeply unhappy with that.
But I read all the level shoot in town Like Alice, I want to know h as a central banker of the world, the sensitivities he faces, what is jp more we're going to see, and the reaction in the currency markets, the reaction and fixed income of EM is the chairman speaks.
I think there are a couple of things. One we felt going through this that the dollar would be the safe haven bid, and we're seeing a lot of that. We also felt, for those who wanted to diversify away from dollar, emerging market FX was the place to go. The central banks in those regions seem to be on top of things, and you had a split between those who are energy importers and those are energy exporters, those that are sitting on rare earth minerals and other minerals,
and those who aren't. And I think we're seeing all of that play out. But I will tell you our client base still feels under allocated to emerging markets, both equity and fixed income. We're seeing those allocations continue to come in. I think there's a good tal in there.
We just went along Australia.
They you go back to back high cudy imagine markets, Central Bank cover the BA. See that. Honestly some offending people down under right now.
I'm not wearing it on this one, but I will say I will say that tomorrow will be really interesting at the BOE and the ECB.
There you go, you tellon Bromo. All right, Rich Cloud is still with us. Rich, I want to come to you on an important topic to wrap things up, a really serious one, the future for Chairman Powell. This is not how usually these things play out. Typically, how this plays out, the chairman knows when his term finishes, he gets a great send off, he walks away and he does a one million dollar speech in about twelve months time and has a happy retirement. This feels so different, Rich,
Kevin Walsh is ultimately being nominated. We have no idea when the confirmation hearing is going to be. Bob Michael sat here a little bit earlier and said he thinks the Chairman J. Powell is still going to be there by the time you get to the midterms, Rich, how do you think this process is going to play out in the next several months.
Well, you're absolutely correct. This is unprecedented, unusual that the handoff is usually pretty smooth and very well telegraphed. And the difference, of course now is several fold. One of course, is the you know, the d o J investigation of Pal that the FED is pushing back on. In addition, of course, the even worsh getting a hearing is now up up in the air. You know, I certainly do expect J. J. Powell will will will stay on and
perhaps a meeting or two after Warsh finally arrives. You know, whether or not that's after the mid terms, I'm not sure. I think Jay Powell will move on once Warsh is in place, uh to to his his future life. But his real focus is on maintaining the the independence of the of the Institution, and I think he will be in place until Warsh is confirmed and perhaps the meeting or two thereafter.
Rich, appreciate you're insight on the topic. Thank you, sir, Rich Cloud of that the former FED Vice chair on this FED decision and the chairman's future. If you are just joining us on the program, welcome to the show. So unchanged the policy rate of the Federal Reserve about fifteen minutes ago, some descent eleven to one. That descent came from an obvious place, Governor Meyron voting for an interest rate reduction. For the projections, big focus on what
was happening with inflation. They've lifted their outlook for inflation for this year at least, but left the median dot ultimately uncased, implying one rate cup from this feeder reserve for twenty twenty six.
To me, the most interesting takeaway is what you said, which is this market doesn't seem to care. Even though this is very much a Dubvish hold, this actually is news in Fedland, and yet the market doesn't pay attention because there's another game in town and it's everything else
in the world. And some people might say, oh no, the adults can't control this, they can't step in and save us, and the other people will say, we haven't had a free market in a long time, and this is what it looks like, and guess what it's a welcome, welcome exercise. And so those two sides of the debate are playing.
Out market and we've got a free market.
Well, I mean that's the whole thing.
Ultimately, it's too exciting.
I'm kind of excited about this. I mean, that's kind of a nice thing. Not to have the thumb on the scale all the time and same story right over again.
It's a change. It's a change, definitely, Roth of Wolf Research. I can see how excited you are. You're not alive. I've been waiting for that moment for a long long time. Agent moves five percent away from old time highs.
Even a Japanese market.
It's how exciting know they're actually tried to the bench.
There's actually traders.
Definitely, I'm sorry, so definitely. Roth of Wolf Research joins us now for more. Definitely, we need your reaction to the decision and why you expect the emphasis to be in this news conference?
Yeah, I mean the emphasis is going to be on the reaction function provided that energy prices end up staying long or the question is are they going to end up looking through this or do they ultimately end up having to be dubvish as a result, because growth will end up slowing. And our own view is that because the economy is so different today versus twenty twenty two, they'll ultimately have to be more Dubvish as a result
of the war and Iran, rather than the opposite. Otherwise, it tells you a story of productivity and that growth is actually going to be higher in the future years, but then you know, nothing else changes. And the one thing that we didn't talk about, that wasn't talked about yet was was the longer run dot shipping a little bit.
Well, this to me is Sephanie, that I'm really wondering about is how much does a more duvish fed enable something that looks more like nineteen seventies or more like twenty twenty two. And what we saw with inflation and the read through, is that something of a concern for you.
No, because the backdrop is so different today versus twenty twenty two. If you look at twenty twenty two, the unemployment rate was three seven heading to three five today it's four to four. Hero Games was growing at six hundred thousand today they're somewhere between zero and fifty thousand on average. The inflation backdrop was different and core inflation
was five and a half today it's three. So the idea that we're going to have a repeat of twenty twenty two seems like a very low likelihood event, and therefore that's not something I would expect the FED to react in that way because the data probably won't support a reflationary type of environment.
The seventy given a war, given what oil's doing. John mentions it's sixty to basically sixty two hundred or even higher. We're still slaves to the job market. And the answer is the un deployment rate hasn't broken with the war, with the distractions. How ex post is this fed into the summer?
Yeah, I mean, I think they're going to be in an environment over the summer where base cases the unemployment rate is probably steady, but they're going to be looking at this most cools. That's going to be the deciding factor between whether they're able to cut Probably not at Worsh's first meeting, maybe in September or December, right, and it's going to all go down to the unemployment rate. Is it notably above four or five, in which case they have a window to be able.
To ease and if not.
Then it's going to be tough for worse to get the rest of the members on board.
Bob synthesized Michael Feruli's work on this. Then the fact is the labor market has encrect yet they have to wait, don't they.
I think that's part of it. I'm still gop smacked by the Fed's decision. They're basically saying all of this going on in the Middle East is a speed bump that yeah, inflation will tick up, you know, three tenths and two here and there, but the economy will accelerate, unemployment will stay stable, and it's off to the races. I just don't see that. I think there is a real impact to inflation then ultimately to the economy and the laborook.
This is the heart of the matter, John, This is the absolute heart of the matter, and everybody has to recalibrate their access to how long is this going to go on? And then you get to demand destruction.
We mentioned this earlier and I think it's important to keep going over it. We've repriced a lot in this market. We've repriced energy, got a big move from the sixties out to triple digits. We've repriced interest rates, We've taken out a lot of easing for the Federal Reserve, and we've priced in hikes in places like the ECB, two of them I think for this year now. Yet we haven't repriced growth and the Fed hasn't either. And I'm not just talking about where Spot is trading or the
front month on the Future's curve. If you go out to December and look at where December is traded right now, we're close to eighty. So we got from the sixties to close to eighties on the December contract, and the Federal Reserve has lifted the outlook the growth. What's driving that?
I wonder how much momentum they think is in the economy, how much AI and data center spending is going on. Were they surprised by the delta earnings and that you know sales are at a high despite higher energy prices. I think the reality is when you've had close to a fifty percent hike in energy prices, its attacks on businesses and households, and they will respond by cutting back some of their consumption.
We have the smartest viewers, and I just want to point that out. A lot of viewers. You wrote in we do and pointed out that among the members, the actual dots might say one thing, but the risk to GDP downside included fourteen members versus eight prior at the December meeting, the risk to the upside with sixteen members for core PCE as well as the unemployment rate that was up from twelve and thirteen members, respectively, So that stagflationary outcome still in the back minds of so many
of these FED members. They just aren't making and it's their base case. So I just I don't understand, Bob, and I guess that this is my question. Is the reaction function essentially they will hold pat even in this scenario, or do you have a sense of what the reaction function is to true saguflation.
Well, the bottom line is the market is just looking through the FED right here and saying doesn't make sense, don't get it, don't know what they were thinking. The projections don't make sense to me. But I know where we are. There's a lot of tension still in the Middle East. It's yet to completely play out. I think where we are now is about fair. It can go either way from here. So it's completely dismissive of the FOMC statement.
Hey, Stephanie, before you go, what's the number one question for Chairman poal into this news conference?
Yeah, I mean the biggest question is going to be provided energy prices are elevated through rough much of the summer, how are you going to think about the balance of risk? Is it's going to be something that you're going to look through and do you expect that growth is going to lower as a result, or is this something that you're worried about more similar to twenty twenty two? And what are the balance of risks in your mind in terms of how this could play out.
Stephanitiely good to see as always, Thanks for jumping on, Stephanie. Rolf There of Wolf Research. To build on the conversation, Dan SWANMK of KPMG, Dan, I'm going to use a quote of yours to ask you the question, a duel mandate or a dueling mandate? What have we got?
A dueling mandate? And I think that's a real problem. I think the FED is this dubvish sort of numbers don't add up. I think I agree with that completely. A duvish pause is not what I would expect. I would have expected some people to actually put in rate hikes in this meeting, and they didn't. And I think there's a real issue about we saw rate cuts in late twenty twenty four to shore up the labor market,
we didn't get any jobs. We saw rate cuts in late twenty twenty five to shore up the labor market. I don't think we're going to get a lot of jobs from those. That brings up the issue is, is the problem in the labor market more structure and systemic, something that rate cuts alone cannot cure and spur the demand for workers on. If that's the case, if you cut rates further, you're risking a more persistent bout of inflation or worse, a stagflationary scenario. And I think the
devil in the detail is in that stagflation scenario. Also important is that they raise their non inflationary rate. That is reflecting yes, productivity growth and the idea that the economy can grow more robustly without having without having inflation. But that also means higher non inflationary rate, which is an important marker to put down before Kevin Warsh takes on as FED chair, since he has argued that productivity
growth should lower that non inflationary rate. That is not what the FED is saying, and I think that's very important. But I am very concerned about five years in. We've got consumer is expecting more inflation than they did in late twenty twenty four, and those expectations are going to rise, especially with salient prices like prices at the pump going up. And there's already a long tail due to the problems in the Middle East. Production idled is not easily brought
back online. It's weeks to months and we're roling supply chains the world over. You create scarcities that go below the destruction and demand that gives you stagflation.
Van Is this the FED meeting where Ford guidance just died?
Absolutely. We didn't have a lot of Ford guidance to begin with, but absolutely. And I think what really will be interesting in the Chairman's comments is what was the debate in terms of growth? What went into these numbers? How does the debate fall out? I think the devil in the details here is that there is a bit of a stag inflationary concern out there, and there should be.
There's a we suffer from three zip code scenario here in New York City you've got a much greater national perspective. I take real issue with a narrow part of America being affected by five dollars a gallon gas. How much of America is going to be flat on their back from some of these shocks.
Well, unfortunately or fortunately, we do have fiscal stimulus right now, and that fiscal stimulus will help absorb the shock instead of going into other kinds of spending, and that will help households. Tax refunds are showing up in consumer bank accounts right now. But the combination of fiscal stimulus with remember, inflation is accelerating right now. We saw PCEE accelerate. We saw the PPI numbers today. The translation of the PPI and the CPI for PCE for the month of February hotter,
especially on course services. That's aside from what's going on in terms of tariff based inflation. That is important right now, and I think that's getting lost in translation. But it does show up in the double and the details of those dots and how the forecasts show up. You could have had one very strong forecast push up the GDP number. Within the group, there are people who believe within the administration that will get five to six percent growth this year.
That was their forecast going in. If Steve Moran wrote down a number like that, that would have raised the overall growth figure, when in fact the rest of the committee is seeing a more stag inflationary scenario. I do think it's a dubbsh pause that is a bit disappointing right now given where we're at. Even though I'm very worried about the labor market, I just don't think the Fed can cure what ails it.
So, Diane, what do you think the emphasis Why do you think the emphasis will be in this news conference with Chaman Pound in about five minutes time.
I think the emphasis is going to be uncertainty and wait and see, and that will just sort of be where they are right now and that they don't know where the next rate move is actually going to be. And I think that's the right way to play it.
Van Swank, Dan always going to catch up with you. Thanks for being with us, Dan Swank. They're breaking down the FED decision. If you are just joining us, welcome to the program. The news conference about four minutes away with the Chairman of the Federal Reserve down in Washington, DC, in any other time, at any other moment, we'd be talking about the penultimate meeting of the Federal Reserve Chair.
But we have not spoken to a single person today who thinks this is the penultimate meeting of the Federal Reserve Chair. And most believe Chairman Powell, including the former Fed Vice Chair, is going to be sticking around for at least a few more months.
Lightly because we don't know when the confirmation of the next FETI chair is going to be, And that ultimately lies with the man from North Carolina, Tom Tillis. Ultimately that there is this question about credibility for the Fed continuity. I just wonder if he gets up there and he says what we do doesn't matter right now, as long as we don't hike, and as long as we don't cut that much. Not in the driver's seat. I mean, ultimately, this is their past to say, this is an economy
that's moved on from us. We are not in control. We are watching it just like you.
Unspoken John will be the idea of the recent election results, including yesterday in Illinois. And I also point out a set of allies saying no to the President on this war. And then mister Powell representing the institution will stay around more so than the last meeting.
A big pace of this bull case for this economy, for this market has been tax refunds. We hear that phrase get banded around all the time on this program, tax refunds, tax refunds. How big are these tax refunds actually going to be? And how our attitudes towards the economy changing Given the shock of the past few weeks. What about that money actually got well?
We're seeing it now when we look at Chase deposit accounts. We're seeing, particularly the bottom couple quintiles of earners, see their deposit balances start to go up a bit. But the uncomfortable truth is they're now paying that out again at the pump. And we can't forget that businesses and households were already paying a higher tax because of tariffs on prices, and now energy prices are going to create yet another tax on their disposable income.
Brow by the squeeze. Israel, the energy bill is a severe and they were high already and now they.
Get in high delta and American we're perfect examples of how the economy is doing pretty well and people are still spending. The difference is that the cost are getting that much higher, and so the room that people have and that companies have to do okay is getting narrower and narrower. In the FEDS watching this, and they don't have the silver bullet to really make this a better situation.
I did scientific surveillance research today and we wr to Charles de Gaull was popping the two of us. You could easily do it for seven thousand dollars, and you're enjoying it this morning just under eleven thousand dollars.
Are you're pretending you don't flap business over three? It's that way you did.
No, it's not premier. We're not doing the first class thing, but business class. I'm going to suggest us up at least twenty percent doing.
Is that Polaris? Is that United? Business class? Is that the front of the plane?
I actually don't even know. Yes, that's yes, Actually I do. I remember going to something a demonstration about it. Not actually.
For everybody to know, for everybody out in the world. Johan and I are in steerage and you're on the golf.
That is such a load of nice ones.
Hey, Bob, before you go just to find a word about a minute away from this news conference. What are you looking for?
I'm looking for a couple of things. I want to understand how they're thinking about the war and the elevated risk to both sides of their mandate. And then secondly, I want to know how they got to their forecast numbers. I think Diane's right, there needs to be some explanation there, and the explanation could be quite simple. Could be, well, one member put in a six percent exact growth rate. Okay, well let us know that
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