Chapter 1: What did Jay Powell say about the Fed's latest policy decision?
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Instant reaction and analysis from our 3,000 journalists and analysts around the world. The beginning of a walk into the sunset for the chairman of the Federal Reserve. Jay Powell only has two more of these meetings on the calendar as the chairman. of the world's most important central bank. For the equity market on the S&P 500, still close to all-time highs on the S&P.
On the Nasdaq 100, up by 0.5. In the bond market, on twos, tens and thirties, we look like this. Yields just about unchanged. Your 10-year, 425. Your two-year, 358. Journalists did their best to make this one interesting. Chairman Powell was determined to make it boring. Take a listen to what the chairman had to say.
Chapter 2: Why did some Fed governors dissent regarding interest rate cuts?
Some people did want to cut and dissented, but committee pretty broadly for holding today. We still have some tension between employment and inflation, but it's less than it was. I think that the upside risks to inflation and the downside risks are probably both diminished a bit. So, you know, we'll be looking at that.
There are different views on the committee and, you know, we'll find our way forward as the data evolve.
TK, just my takeaway, just my observation. Towards the end, it felt like a man who was looking forward to retiring and stepping down.
You know, there was a gold question. It's great. He doesn't have Krugerrands in the drawer. He's got the Jerry Garcia commemorative gold coins in the drawer. So way looser. There's no question about that. But it was really interesting to see the nuances of the market away from the things we usually quote.
folks to look at what seriously what sterling was doing the way euro was vibrating in that and i would suggest they can go back and say you know we got through that in one piece he's got some advice for the next fed chair stay out of politics stephanie roth of wolf research joins us now for more stephanie the questions loaded with politics he was not engaging he was not playing what was the takeaway for you
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Chapter 3: How is the US economy performing according to the Fed Chair?
Yeah, I think it's a Fed that is comfortable with the backdrop of data, which I think is the right call. The data seemed to be improving from here. We actually think that it will continue to get better, in which case this will certainly be the last cut under Chair Powell. There's no more cuts under Chair Powell. He's done. And I think that's right.
He's fading into the sunset and just wants to avoid all of the questions that he didn't really want to answer.
Unfair question, but I can save it for your morning note at Wolf Research. Maybe it'll help. You think Mark Carney at Davos talking about the new geometry of middle countries. You look at the president, neomercantilism, the president, weak dollar.
Did the secretary of treasury save this press conference by coming out hours before and sounding like James Baker from another time and place on strong dollar?
Yeah, I mean, last night it was getting to be a little bit concerning when Trump made the comments regarding his comfort around the sharp drop in the dollar that we've seen. That could also have reverberations throughout the rest of the market. So I think that is fair to some extent.
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Chapter 4: What role do tax refunds play in consumer spending?
Powell clearly don't want to comment on the dollar regardless. But there was the legitimate risk, and there still is, that there could become reverberations as the carry trade unwinds. But it seems that Besant is very well aware of the aftermath of that.
Can I ask economic questions? Please, go for it.
This is the appropriate forum.
Anna Wong has been great on this, as you have as well, Stephanie Roth, where the idea of the vector in goods we take for granted is disinflation. That's turned around. Now we've got goods moving up. We've got gold, copper and all the other stuff John's talking about.
Do you just assume out there somewhere after stimulus that goods roll over again into some form of disinflation, even if service sector stays with an inflationary tone?
Yeah, we're probably going to see a backdrop where we're likely to have some firm goods prices in the next couple of months in the sense that, one, you tend to have, there's some seasonal issues in some of the data. You have consumer stimulus that's going to hit goods prices for the next quarter or so.
And then beyond that, you're going to move to an environment where goods are running at roughly 0% year-over-year, and then it's back to an environment where it's all about the service sector.
Away from the politics of Washington, one of the takeaways from that particular news conference that I have is something I've heard repeatedly from a lot of Wall Street participants, market participants, is that the data is going to be better.
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Chapter 5: Why is there a tension between employment and inflation?
It will improve. The chairman's saying overall it's a stronger forecast than in December. The data since the last meeting show clear growth improvement. And a lot of people think that's going to continue because of the tax refunds. How important are these tax refunds going to be? Do you think people are overly optimistic about the impact this might have?
i think they will be positive for the consumer but this is a consumer that is already doing fairly well spending was has been fairly solid in the fourth quarter and everyone's rise up their gdp numbers in in the fourth quarter q one should be equally pretty solid i think the the main takeaway is that yeah maybe even you do get a bit of a bump in consumer spending people will spend the stimulus checks that come to them that is the american consumer but then beyond that this is an environment where you have positive momentum in the economy so
I think it will be important. That's entirely fair.
But it's also an economy that's performing a lot better than many expected towards the back part of the year last year when everyone was concerned about the health of the consumer, which was a journalist in the news conference asked the question, why wouldn't that lead to higher inflation, given how in some parts of this economy we are supply constrained?
What's the answer to that?
The answer is that you'll see some sticky inflation through the first part of the year, in which case the next Fed chair is going to be in an environment where inflation is running roughly 3%, the economy is fairly firm, and they're going to be trying to cut interest rates and they're probably going to have trouble at first.
It's going to be later in the year when inflation starts to cool again, you lose a little bit of that momentum where it becomes a little bit easier of a conversation.
I haven't asked anyone this question. I think it's fair to ask now after this press conference.
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Chapter 6: What are the implications of AI on the labor market?
We talked about it, and the president with great negativity would talk about the Biden stimulus. What does the Trump stimulus actually look like into the midterm elections?
Well, certainly you'll see that better consumer for the first part of the year. It will fade into the election period of time, in which case then the focus is going to continue to be on affordability. So that's the opposite of stimulus from a sentiment perspective.
And this is going to be the biggest challenge for the administration they're going to be dealing with all year, and they're going to have a lot of trouble. They've been throwing a lot of different things at the wall to see what will stick. And there is not that much they can do to change.
There's nothing sticking right now, but any given central bank, whether it's Chairman Waller, Chairman Mirren, whoever, Chairman Farrow, whatever we see with the central bank, they've got to figure out what will stick with half of America flat on their back. What's the Wolf Research plan for that, besides a check in the mail?
There is not that much can be done. The one positive is not about anything the administration can do. It is just a cyclical pickup in the economy that will help at the margin for a lot of the bottom end of the K who has been left out. They've been left out for a whole lot of reasons.
This is what Orszag and Posen are saying, is, you know, you get a pickup in the economy, you get productivity, and it pulls out people.
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Chapter 7: How do current economic indicators affect Fed policy?
I mean, that's the reigning theory here, John, into Labor Day and into the end of the year.
Just on the next Fed chair, this from the Treasury Secretary in the last hour or so, speaking to Yahoo, saying the pick may come in a week or so. It just feels like a rolling week at the moment. We're waiting another week to get that Fed chair pick. If you're just joining us, we're live on Bloomberg TV and on Bloomberg Radio.
A Fed rate decision behind us, a decision to keep rates unchanged after cutting at three consecutive meetings. We did get some dissent. from two Fed governors, one being Governor Waller, the other being Governor Myron, looking for a 25 basis point reduction. Let's get to Michael McKee, who was in that news conference with Chairman Powell. Mike, welcome back.
I give you an A for trying, a big A for trying. What was your takeaway from the chairman moments ago?
Well, I think we got the answer to whether Jay Powell would talk politics or policy. He focused on policy, tried to stay away as much as possible from politics. When I asked him and Nick Timmeros from The Wall Street Journal asked him and then he was asked about the dollar.
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Chapter 8: What challenges does the next Fed Chair face?
All three of us got sort of the Seinfeld answer. No soup for you. He's not going to talk about that issue right now. In terms of policy, however, he seemed to be a little bit stronger on the outlook for the economy than his feelings about what rates would be doing.
He didn't give us any indication that rates would be going down, but he didn't give us any indication that they think they're at neutral. He suggested we're at the high end of it, which would leave you open to a rate cut if you were able to. In other words, if inflation is going down and unemployment calls for it. But as Stephanie was saying, inflation is going to stay elevated for a while.
So it's going to be hard in the remainder of Powell's term to have any rate cuts. And it'd be hard for somebody new coming in to get rate cuts right in the beginning, even if, as Powell says, they think that inflation X tariffs is running just about 2% or a little above.
On the committee, Mike, there is still a push for an interest rate reduction from both Governor Myron and Governor Waller. Mike, for the people that missed your coverage a little bit earlier, immediately following the decision, what's the rationale for that push from those two governors on this FOMC?
Well, we know Myron has sort of been ordered to dissent. It's interesting that he only dissented for 25 basis points this time instead of for 50. Either he thinks they've gone far enough or he didn't need to do 50 to keep the president's favor. For Chris Waller...
The initial reaction I've seen from just about everybody who has written about it is that he's trying to keep his place in line for a possible promotion to Fed chair, replacing Powell.
But I would imagine also that Waller, knowing him and knowing his reputation, will probably come out on Friday when the blackout lifts and give us some sort of statement on the economic reasons why he thinks a cut is important at this time. It's a little bit different situation now because the unemployment rate has gone down.
Inflation is, according to the Fed's calculations, which Powell talked about, going to, for the core PCE, hit 3%. So it's harder to make the case for a cut at the moment. So it'll be interesting to see what Waller has to say.
Mike McKee, thank you, sir. Stay close. We'll come back to you a little bit later in the program. We talked about this in the immediate aftermath of the decision, that dissent from Governor Waller for a 25 basis point reduction.
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