Fedsplaining with Ira Jersey

It's a shame. Politics ruins everything. But basically, some people are out saying inflation is zero percent, which in a way it is if you look month over month, but it's also eight point five percent if you look over I was gonna say it's not zero. Yeah, So actually pulled people, I said, what would you say? Us inflation is in July zero or eight point five, like two massively different numbers, and it was almost fifty fifty. So I think it depends on you know, I had. It's

probably depends on where you fall politically. It also probably depends on whether you're a fan of the FED or you hate the Fed. There's a lot of things that go into people presenting this number. There are some people middle of the road who do explain all that. They say, well, it's good that it didn't grow, but it's still a problem. Overall, and I think that's sort of the route I like to see or I like to take. But this number,

the importance of this number isn't just the elections. It's also what the FED will do so and what the FED does just determines everything. Again, the Feds like God, and we all have to live under this God. So we need to know what God is up to to help us make sense of of what God is up to. You, you came up with a person on Bloomberg Intelligence named Ira Jersey for us to speak to. He's got a direct line to God, direct line to God. He's the

US interest rate strategist in Bloomberg Intelligence. So so why do we want to talk to Ira today? I have found him to be the smartest person on this topic. He also worked as an actual asset manager, so he's had to put money to work. Now he writes about it, but I like that he had to have skin in the game for many years, and so he he really is great in interpreting the FED and how they will interpret different numbers their balance sheet. There's a lot of

things that go into quote, just what's the FED gonna do? Um? And he's that's all He writes about So I thought he'd be good to give his take on where we're going to go from here and sort of fed splain all of the numbers that are coming out, namely the inflation. Okay, so joining us is going to be Ira Jersey of bloom Brig Intelligence. He's also one of the hosts of

the Thick Focus podcast by bloom Brig Intelligence. So if you like what he has to say this time, please go check out that podcast as well, this time on Trilliance, fed splaining AI, Right, welcome to Trilliance, Thanks very much for having me. Okay, so we've got these inflation numbers. Maybe a little bit surprising because after you know, the numbers have just been on a tear. Maybe he's plateau ing. Now,

how does that change the Fed's next move? Well, first, it was not completely unexpected that we'd have somewhat slower inflation in July than we had in June. Um, we were always expecting June to kind of be the peak in a year on year inflation in particular. Um. So for the FED, they're gonna look past some of these numbers for for one thing, it's only one number, right, So so we need a string of better numbers for the FED reserve not to remain relatively hawkish on hike

interest rates. That's number one and number two. Um, when when you look into the details, right, So why was headline inflation zero month on month? Primarily because gas prices

are down a lot. And then when you look under the hood and you look at a lot of the details of the numbers, so what we call call core inflation, so that's x looting food and energy that was still up pretty hefty and looks like you know, on on a on an annualized basis still up almost four percent, so and and on a year on year basis still up almost six percent. So you're still looking at inflation trends in for most goods and services that are still

rising very significantly. And um, and the Fed is still not going to like that. And I think that you're going to have to hear that from a lot of FED speakers over the next six weeks or so before the next meeting. So, um, you know I have heard again, um correctly if I'm wrong, that the Fed is would like to get two what is the two percent the year over year? Like what what? What? What? What number

is two percent? And how would they get there? Yeah, so, so the goal of the Federal Reserve is two percent year on year inflation for the headline number. Now, you know, if they hit two point three or you know, if if it's within the range and then they see core inflation that that X food and energy is kind of at two percent, they that would make them pretty happy. Um. So that's their goal and that's their state objective. The problem is is that it's quite frankly, it's gonna take

years for them to get there. So the question is do they remain um in this inflation fighting mode until they get to two percent? Or if you see this massive downtrend and inflation, will that make them you know, stop hiking interest rates and maybe do some more dovish activity, especially if the rest of the economy looks like it's

falling apart. So if you see unemployment going up and you see um retail sales for example, start to plummet very significantly again excluding gas, right because get you know, retail sales with gas in it is going to be down anyway, just because we're paying less at the pump. Um. So so I that really is that number, Eric, that that you have to focus on when you're thinking about what is the federal reserves next move, is that um is going to be the trend in that headline number,

but also that core number. So you really need to look at both. Well, okay, let me okay, if it's year over year and it was nine in June and now eight point five percent in July, I guess my point is we elevated that much in a year. Now are they looking to undo the elevation or just hang on for the next ten months until the elevated number goes up less than two from an already elevated number. Like if we're let's let's put this in weight terms, where we weigh two hundred pounds nick, but Julie did

this on Twitter. I thought it was a good metaphor. We now we weigh two hundred and twenty pounds, uh, and in July we gain no weight. We're still to twenty. Are they Are they going to look to go back down to two hundred or just keep to twenty for the next eight months or ten months? Well, so, so the real goal is to get the growth rate lower.

So it would be the weight example is not quite good because I'd be saying you know, we went from two percent to two or two two hundred pounds to twenty and now in the future we only want to go up. We only want to go up about four pounds a year, right, And so so I'm not sure that analogy is why I don't like that. That sounds that sounds too real, um, which which you know may

be true for some people. But but the real goal is to kind of stop the stop the increase, right, So it's really but in other words, but that that still accepts the fact that it has increased. Prices are up, and that's so in other words, we're okay at this new normal. We just don't want it to grow anymore. Correct. So so the so so the FEDS, the FEDS job here is to um slow the growth, not change the level,

if that makes sense, right. You know, it's okay, you don't want to go from the Fed's not going to go from two to two hundred, right, that would be deflation or disinflation. That would be a whole different problem. We're gonna be in the heavyweight category from now on. I'm going to use this on my wife because I did put on about fifteen pounds during the pandemic, but I haven't gained any weight in about six months. I was gonna do that inflation Jedi mind trick on her

and be like, I haven't gained any weight zero. Good luck with that. She's gonna go, Yes, you have, but I'm like, no, I'm talking about in July. So so if you're the Fed, your j PAL, you're looking at this in your options, what what are you looking for going forward here in these next few weeks before this next right decision that might you know, change the course

of what the next hike or non hike looks like. Well, what's interesting about this cycle is normally you you get six weeks in between Federal Reserve meetings, so you kind of get one and a half month's worth of data before the FED has to make a decision. But this time is unusual because they're gonna have two months. They have eight weeks in between FED meetings, and because of that,

they're actually gonna get two sets of data. So even though we got the July numbers for CPI and we'll get the July retail sales numbers um and you know, before the Jackson Whole symposium where where j PAL will speak and probably make a pretty important policy address. They're gonna get all the August numbers too before or the next meeting, so they're gonna have this whole huge set

of data that they're going to have to consider. So if there's a re acceleration, like you know, oil prices are up a little bit now compared to where they were um when when the when the July number was calculated, so all of these things will probably see um, you know, a a maybe a slightly continued downtrend of of headline inflation, but things like core inflation at five point nine percent, which is by the way, a multi decade high, and we stayed there um from June to July, so it's

at the exact same number on a year on year basis. If that stays at those kind of levels, that's going to lead the FED to say, okay, well we think that inflation is going to be much stickier and at levels we don't like. So so the FED is going to be looking for significant down trends in the economy um. And there are some signs of that of a slowing in the economy, but they haven't rolled over enough I think for the FED Reserve to get dubbish. So they're

gonna keep on reducing their balance sheet. Eric Apply alluded to that not so long ago, UM. And at the other at the other side, they're also going to be UM continuing to hike interest rates, even if it's at a slower pace. Right, the seventy five basis point hikes that they've done the last couple of meetings probably won't be sustained, UM, But if they go fifty basis points in September and then basis points there after, that wouldn't

be a huge surprise to us. And just can you break down what happens when the Fed hikes let's say they hike seventy five basis points, how does that action cause a reaction that helps inflation? Like, can you just take us through that chain of events and where that hike goes. Sure? So, so in the olden days, when we go back to the pre N three you know, when we're on the gold standard, the Federal Reserve tried to slow the economy and increase the economy by changing

the amount of money in the economy. So they used to target monetary aggregates, what they called monetary aggregates. So M three M two UM and and some of these other money supply measures UM and so since that time. But but so since the nineteen seventy three, they instead of targeting any particular stock of money, they basically say we're gonna make borrowing either more or less expensive, and they do that by raising the Federal Funds rate, which is the base rate that banks uh that banks lend

money to each other. So when the Fed Funds rate goes up, that means that that bank borrowing costs go up that and they pass that along to the consumer, and it just generally makes it more expensive, um for for people to buy things on credit and UM and and because it's it's more difficult to buy things on credit, because it's just more expensive to do so, UM, that tends to slow economic activity. And that's that's certainly worked

pretty pretty effectively over the last forty years or so. UM. Paul Vulker, you know, UH famously raised interest rates to during the nineteen uh the early nineteen eighties, and that had a significant effect on credit growth in the econom

of me. UM. What's important now, and this is something that that we've noted in some of our recent research, is the the challenge I think for policymakers is that not only is inflation very high, but one of the reasons inflation is very high is because is that wages are going up. So so now you have a situation where the FED is going to be hiking short term interest rates to try and slow the economy, but in

an environment where companies are willing to pay employees more money. Um. And and that's something that you haven't seen since the nineteen seventies. And I think that that's an important shift from the last forty years versus say the nineteen seventies, when people had were unions and they had automatic wage increases when CPI was um what what went up? They automatically had their wages increased. So you have this big

wage spiral. You're seeing some similar activity today, um, which is which is very unusual, particularly in a non unionized workforce. Speaking of sort of historical precedents, one of the things that's interesting here, I saw a reference I think in John Author's recent column about what the FED got wrong in the seventies and sort of what what vocal Vulgar ended up having to correct, and that was sort of

on on the Burns watch, I think, right. And so one of the things I guess I would ask you just to make that to bring it forward to now is what what could the Fed potentially get wrong here

that J. Powell will be mindful of. Yeah. So I think that the big danger here is that the FED decides, because we're having a mid cycle slow down and the economy slows a little bit, that they stop hiking interest rates, and in doing so, the economy then re accelerates and you wind up with more persistent inflation, more persistent inflation expectations, and that forces the FED Reserve to hike even more later. Um.

So I think that that's a real danger. And when you in all the work that that we've done, and that even that our colleagues at Bloomberg Economics with that and I'm Wrong's team in the US is has done, we all think that the Fed Reserve is probably going to have to hike more than what the market is

currently pricing. So the markets pricing you know, round numbers three and a half to three and a half percent, So another hundred basis points one percent increase in in the FED funds rate over the over the next six months or so, and then the market has has the Fed stopping. Um. But we think that the Fed is going to have to keep going into three up to I think more like four and a quarter percent. The Bloomberg Economics things five percent, but but still significantly more

than what the market is pricing. And in part because if they don't do that, then if if if in fact we're in the midst of a mid cycle slowdown, which is not unusual after very large pickups in the economy, UM, then you wind up getting more entrenched inflation expectations, and that forces employees to ask for more money. UH. Wages go up, profits get crimped on the on the corporate UH side, which you know, we've already priced some of

that into the stock market for sure. But the you wind up getting getting inflation that has to be crimped down even harder and more. Um. So, so the worry is that you wind up with a you know, an Arthur Byurne situation where you stop hiking after a little while and then you have to hike even more later um. And so so we need a Vulcar. And I thought

it was interesting a couple of meetings ago. J. Powell actually mentioned Vulcan and said that you know, they were very that that the Federal Reserve was very keen and appreciated what Volker had to do back in the nineteen eighties. And and I took that to mean that, like, they recognize what happened back then and they don't want to repeat the same mistakes. Let's talk about the hiking and

the impact on on bonds first. Um. So, obviously, if the Fed hikes rates, interest rates go up, it basically means all the bonds that people hold are just worthless because you can now get bonds at a higher rate. Right, So what we've seen is just a bond e t F s and bond mutual funds are down. I mean basically everyone's down over the last twelve months. And in the mutual fund space there's been a ton of outflows too. It's just pretty bad. We have seen a lot of

flows in the treasury ETFs all year. They basically about double their normal inflow takage. Then sometimes you'll see people shift down the curve, um, but then they'll go back to short term what's going on there? Um As a money manager, what's your interpretation of all the flows into treasury e t f this year? Yeah, I think part of that is just taking advantage of of higher yields.

So when when interest rates or at zero, and they were at zero obviously for more than more than a year, you didn't have a lot of room to actually lose any money. Right, So, if you were buying, say a bond mutual fund, where when the tenure yield was at one percent or under one percent, then if you if interest rates only went up a couple of basis points, you'd start to lose money because the price of that

bond would go down own um. There's something we call duration and um where where it's basically the relationship between the price and yield of a bond. Where um and and durations were very high, meaning that if you get just a one or two basis point increase in in bond yields, you'd wind up with a large decrease in the price of the bond. And that's exactly what's happened

over the course of this year in particular. But now that we've reached you know, upwards of three percent on the ten year yield um, it makes it a little bit more attractive because you can actually get a coupon, you actually get interest payments of some you know, some amount I mean not the three percent is particularly high in historical standards for the last forty years, but it's still significantly more than you know, the seventy five basis

points where um, where bonds were at the beginning of one right. So um, So, so you wind up with with an environment where it's maybe a little bit more attractive to buy bonds today than it has been recently. So I read this being an e t F podcast, Just let's stick with, uh what your outlook and how that informs E t fs. And you know, Eric specifically

mentioned bonds. They're curious, um, you know, even on the equity side, like where do you when you think about this on a bigger macro level, what do people in the E t F world? What should they be mindful of here? Yeah? So, so I think firstly, if if we are right and the Federal Reserve hikes a little bit more um than the market is currently pricing, that you could still see negative returns for bonds over the

next uh six six to twelve months. Um. But but I don't think it's gonna compare anything like we had over the previous six months. So um. You know, the first half of has been absolutely abysmal forum for treasury securities and and bonds in general. UM. So it's it's what to look out for in particular is when the Fed stops right, So, when the Federal Reserve stops hiking interest rates, it's very likely that UM that shorter term

securities going to do a bit better than longer term securities. Now, if you're you're if you're buying any t F typically they don't wait securities by their risk profile, by the

duration that I talked about earlier. But what they do what so so in total return terms UM is short end securities could still maybe underperform longer term securities on a price basis, but but you could wind up with an environment like we have today where short term securities offer more yield, more interest UM over over the near term. So it really depends on what your risk profile is

why you're buying bonds UM. If you're buying bonds and you're buying a bond fund you know t LT for example, or one of those types of ETFs that that is long only and tends to be longer term securities, they at this point might be more of a hedge to your equity portfolio than they were when um uh, when interest rates were basically at zero, and and they didn't offer very much protection because even if the stock market went down ten percent, the tenure yield wasn't going to

go down so much that you were going to be able to make up for that um that that that downturn in your risk ask set portfolio. So so so I think at this point we're going to have start to have more and more of a normal relationship where you know, equities go up, you know, bond prices go down, and then vice versa, where where you can actually use bonds as a hedge again, which you couldn't do for a couple of years. Yeah. No, that was a big deal,

is that the sixty and the forty were down. Although I was trying to explain to people that both went up for many years. I think part of the reason they both went up was the Fed was very accommodative. So stands to reason if the Fed good does a one eight uh, they would both go down for at

least a little bit um, which has happened already this year. Actually, are right, So so you you have seen both stocks and bonds prices go down and have negative returns and like you said, sixty was terrible and and that's the that's the quantitative tightening trade right there. So well when when you and let me just jump in on that quantitative tightening. So we just talked about the rates. Just let's just hand like deal with the other side of this. The Fed also has a balance sheet, right and do

you hear words like run off. In the past, they were buying bonds, which was called quantitative easing. Now we're doing cute quantitative tightning. You just explain where we're at with that. Sure, So in in August of two, the Federal Reserve is running off its balance sheet by allowing maturing bonds not to um not get reinvested into their portfolio. So that has the effect of shrinking the Fed's asset pool in their balance sheets. So both mortgage backed securities

and trosury securities are running off. Starting in September of this year, that will go up significantly where they're going to run off up to billion dollars a month of their portfolio. Now I don't never reach uh, primarily because mortgage backed securities run off at different um at different speeds based on how many people prepaid mortgages and and with interest rates as high as they are, not as many people are pre paying their mortgages as they used

to do, is not refinancings. People aren't moving as frequently as they used to, so so that that's running more like twenty billion dollars instead of the thirty five billion dollar cap that the Federal Reserve um has put on. But they will run off sixty billion dollars of treasury securities. Now, some people think that because they're running off sixty billion of treasury securities that means that bond yields should be going higher. Well, just because you have extra supply in

the market. Um I would say there's two parts to that. One is that the markets already anticipated that, because we've known this now for six months, so the markets already adjusted for this additional supply. This number one. Number two, you have another interesting dynamic which has nothing to do with the FED. It has to do with wages as growing as strongly as they are. Tax receipts into the federal government have been much larger than most of us anticipated.

And because of that those higher tax receipts the government, the government deficit much lower than we thought it was going to be. So even though the FED is running off the treasury portfolio, Um, they don't have to uh sell those bonds to the market or more bonds to the market. So you've actually had a situation where, um, where where the supply dynamics and the treasury market have been more more even than you might have expected with

with the runoff of the Fed's portfolio. So, UM, there'll be a little bit of a bump when we get to when we get to September and October, but it's not going to be very significant. In fact, we just got information, um at the beginning of August that the Treasury Department cut the amount of Treasury bonds that are going to be issued every single month, and and they're they're likely to cut it just a little bit more over the next few months too, even with this extra

supply coming from the from the federal reserves runnel. That is good to know. UM. And I think let's just let's pivot here, and UM, I think we did. We've covered the FED. I think hopefully everybody has a better handle on what's going on and where the FEDS point of views is going to be. I wanna do like a rapid fire with you uh, and just throw out some different type of bond ETFs and get your take on them. Um. Again, I've always enjoyed talking to you and hearing your take when a new e t F

comes out, usually it's interesting. Um, I want to start with tips. Um. You you you're not a fan of tip e t fs, but you are a fan of tips. Explain why? Sure? Well? So so tips are treasury inflation protected securities. These are these are bonds that UM if you if you were to buy an individual bond and hold it to maturity, you would get whatever the yield was plus inflation. The problem is is that when you buy it an e t F form UM, you're you you don't hold to maturity and you take a lot

of interest rate risks. So if you're looking for an inflation hedge, UM, you're not going to get it because as interest rates go up, the price of a bond goes down. That's true for tips as well. UM, So as an inflation hedge, it's tips are not very good now as an alternative to say, if you were to go out and buy a TIP fund instead of say t lt UM, it makes a lot of sense during a time when inflation is going up and very high, because then you have UM because your tip fund will

probably outperform the bond fund UM. But but that's not true. It's not a true inflation head. So if you buy tips as an inflation hedge, really what you have to do is head your interest rate exposure. And there's not too many funds that actually do that. UM. So there's one fund called r I n F that actually buys tips and then hedges your interest rate exposure, so you do capture most of the UH, most of the inflation increase.

So that so that's one way that if you are worried that inflation is going to remain very high for the longer term, that's a fund that you might consider. UM. But but but you know, buying tips tip fund outright, thinking it's an inflation hedge is just absolutely false and and and and that's why I don't love tips funds unless you want to buy them as an alternative to another bond fund in your portfolio UM, and you have a good reason to do that. What about single bond

exchange traded funds. This is a relatively new phenomenon UH and they hold UH ten year, two year, three year treasury bonds right and bills. So that is like brand new and I'm curious how that's going to play out. UM and these tickers, Eric, uh, correct me if I'm wrong. They've got uh U t E, n U t WO and then T BUILD T B I L. So what's your what's your outlook for those? Yeah? So so again like it's it's they're more trading instruments then I think that they would be in terms of buying hold um.

But but there is certain advantage to them because if you you can you know, hone in on a particular part of the yield curve. So when when we talk about managing money, you know, you have two choices, right, you can buy a bond, or you can buy the market. Right, so you can buy an index like you can buy the Bloomberg Treasury Index for example. And then obviously there's mutual funds out there that that do that, and there's ettfs out there that um that that have that mandate.

But if you do that, you're buying the entire market from you know, the from one year treasuries all the way out the thirty year treasuries. So this allows you to say, okay, well we think that that ten year securities are going to do better than two year security, So I want to buy just the ten year part of the curve. UM and and so a single um, a single bond ETF would allow you to do that. Um, you know, is it Is it going to be something

that's going to be used by most investors. I'm not sure that they make sense for most investors, who if you're going to buy a certain part of the curve, you'd be better off buying, say this a seven to ten year fund. And there's plenty of ETFs out there that are like intermediate term bond funds or short term bond funds, and I think those might make a little more sense than buying a single bond ETF for for

a vast majority of investors. But for traders, if you have a specific reason to buy a particular part of the curve, then than a single bond ETF could make a lot of sense. Okay, what about a new bond blocks is a new sort of upstart bond ETF company with some people who used to work at black Rock, and they're very smart people there. Um we actually lost

Bloomberg person went to work there as well. Um x C C C. This is um all triple C bonds in an e t F. This is to me interesting because up until now the most triple cs you can get in a junk bond ETF was about it held maybe was triple C. This is a hundred, so it's going from to a hundred and h y G and J and K only hold about eight. So this is very very huge, big step forward into the junkier side of junk. And I want to get your take on that.

So there's a couple of things. I mean, high yield in general and and the lower rated you get, so like going down to triple C, which is very close to default ratings. So these are very low rated bonds and not actually the sector that I curve currently, although I haven't in the in the distant past, it was part of my job. Um, they tend not to be very interest rate sensitive, right, so so they tend to

trade more on price as opposed to yield. Um. You know, if that if the five year treasury or ten year treasury moves a lot, you might not see any movement in triple C bonds because they trade much more like equities. So buying a triple C bond is basically saying, I don't think that the majority of companies within this UM, within this portfolio, we're going to default, right, are gonna

stop paying their their interest and principal payments. So so triple cs are very low rated, tend to be very sensitive to two movements in the equity market and in the underlying stocks of the companies that are UM that are in that portfolio. So if you're going to buy that, just know that you're you're not really buying interest rates, You're you're more buying credit risk if you're if you're going to buy anyt F like that, Okay, I want to ask you about another one. This is one of

the fastest growing bond ETFs on the market. It's called I U s B and it's the I shares Core Total US Bond Market et F. Traditionally everybody has gone into b n D and a g G, which tracked the quote AG. The Aggregate Bond Index, which is a Bloomberg index used to be Barkley's easily the most popular. Right, a lot of fixed income managers have easily beaten the EGG to a higher rate than equity managers can beat the SNP, and thus they have staved off the move

to passive much better. But the agg IS holds a lot of treasuries and doesn't hold any high yielded international And many of these managers go out and they buy high yield international. An I U s B holds dose of high yield and international and it's more bonds. And when you compare the fixed income managers to that, their beat rate gets more in line with the equity side. Thoughts on that as being your chords that of a g g UM I have to admit I'm not as familiar with with a USB at all, but it seems

to me like it. Again, it would depend on what your um what your goal was. I mean, I mean anytime you hold a broad based fixed income index, your your primary returns are going to come from rates um particularly investment grade indices, which which is what you're talking about here. So if you own a g g like, your return is going to come from what goes on

in mind market. The rest of it is going to come from credit risk or what's gone on in the mortgage market, where mortgage spreads might widen or tighten a little bit because of supplying demand dynamics and the like. UM so any time that that you own these I think, you know, it's things like cost that are gonna matter, you know, for for sure um. And then also how

much credit exposure do you want? Because I think that that you know, there's a lot of people who in a period where say they think that risk assets are going to do better, they might want more credit exposure. So you want to look at how muchy corporate bonds and how much high yield is in any particular portfolio, you know, whether it's whether it's an et F or or a mutual fund. And you know, so I think you really want to make sure that that your risk

profile also isn't um isn't commingled right. So so if you were, if you're an investor who you know, you have a lot of stocks, and you have a lot of you know, say small cap stocks for example, you might not want necessarily a whole lot of high yield exposure because now you have two asset classes that are very collinear um and and that will move very similarly. So you you know, a lot of times you buy bonds, like why do you buy bonds? If you buy bonds

because it's a hedge for your stock portfolio. Then you know, you don't want a whole lot of um, a whole lot of credit exposure compared to say treasuries or mortgages, which tend to have less correlation in terms of in terms of excess returns compared to the equity market. So um, you know. So, so I would say in general that that's what you have to look at, is just you know what, what kind of risk profiles both of those portfolios are going to have, regardless of of of which

broduct there. Okay Ira. At the top of this episode, Eric likened the FED to God. So does God exist well as one of the as one of the priests, I have to say, yes, okay, So alright, I was expecting that answer. Yeah. I don't know if am I going to get in trouble from the real God for that? Let me just say to the real God, it's just the figure of speech, but I will say when it comes to markets, Um, I'm just so blown away. Over the last fifteen years, in particular, almost everything is related

to how the FED will react. So bad news can be good and good news can be bad. And it's just really interesting of how much power this one service and the one person particularly whoever is the FED chair has over the markets. I mean the whole thing. It's like the sun. Maybe that's a better metaphor, but um, it's just it's just something else. It's just really um more than I thought when I was in like college and stuff. I just didn't think the FED was this

this omnipotent. They always have been eric and you know, the Federal Reserve when we go back to you know, and I started my career in the early nineteen nineties, and we were worried, and we were very worried about the Federal Reserve, um, you know, hiking interest rates back then. And and you know, one point, they hiked interest rate basis points at one point, just like they did the Less couple of meetings, and that was a bit of a surprise because people thought that they were only gonna

hike fifty right. So, so you had this significant You've always had the Federal Reserve and and the markets anticipating

what will the Federal Reserve do? And then what effect will that then have on the economy and therefore the markets and and so so the analysis of financial markets in general almost has to start with the macroeconomy and then how the Federal Reserve is going to react to that, and then everything else stems from there and kind uh you know, spokes off the wheel that you know, if the if the Federal reserves that kind of in the

middle of the of that wheel. Think about all the spokes that that come off from that and uh, and how that affects the different parts of the economy and the different markets. Okay, So last question, Ira, We've got this Jackson Hole uh FED annual meeting happening soon. You mentioned earlier that you would expect a big sort of policy presence or or statement from from Pal. Pretend you're j Pal and you have this forum. What what are

you going to put forward? Yeah, so Jackson Hole, I think J. Powell will um, uh what will probably basically stay the course and say, look, even though the CPI data is better, and and we're encouraged by the fact that we had you know, zero percent inflation court month over month, um, we're still very concerned about core inflation measures.

We still think the employment the employment situation is very hot and wages arising very quickly, and all of these things still point to us needing to be vigilant over inflation, which once he uses language like that that's suggesting that they're still going to be in hiking mode. And I think that J. Powell is likely to take the opportunity to continue to say that, and I would agree with

him in that regard um. But but again, like I think that he might even need to be And if I were him, I would be even more forceful and say, like, look, the market has it wrong. Just say it. The market thinks that we're only going to hike to three and a half percent, We're going more than that. And you've already had a lot of speakers since the July meeting say we've already you know, we we think we're gonna hike to three point seven five to four percent by

year end. Well, you know the market is still not pricing for that. So and and and this would be his big opportunity for I think the FED chair to be very explicit about the expectations of the Committee as a whole and him in particular as to how how much they're going to hike for the rest of the year and in twenty me through it. I have a last question for you. Do you have a favorite et F ticker? Uh? You mean the actual ticker or the fund. Well let's start with ticker, but you can tick. You

can if if you prefer fun that's okay too. Uh yeah, well it's funny now that since my parents live in North Carolina, I was I was thinking what Eric just said with you all, um, but the yeah, probably probably tip.

I think that that's a great, great ticker, like just in general, because it could actually have meant a lot of things, Like I was actually surprised that, you know, someone else didn't have some kind of e t F that automatically, um, you know, did things off of you know, tips that that uh you know, maybe maybe equity analysts had or something like that. Um, but uh yeah, tip is a great ticker, I think. Ira Gersy, thanks so much for joining us on Trillions. Thank you for having me,

Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show. He's at Eric Baltunas. This episode of Trillions was produced by Magnus Hendrickson spipe