FED, Danielle, Neil Grossman discussed on Bloomberg Markets


Always, let's get back to it. It is fed day and we've put together an all star panel in studio Neil Grossman former CIO of TK and G capital and Danielle dimartino booth CEO and chief strategist at quill intelligence and joining us on the phone. Priya misra global head of rates strategy, managing director of TD securities. We've got the fed coming out with our statement of 2 p.m. Wall Street time, a little press conference two 30. Michael McKee's down in D.C., he flies. I tell him to take the acela, but he flies down to D.C.. He likes. He likes getting the points, I think, is kind of what we're all about. Wait, you know what? Did Daniel Mark, did you work with Priya? Did you guys wear you freshman together at yeah, I was saying this year in the break Priya that when we were both starting out in the industry when we were teenagers and you were at Bank of America and I was at the fed that you were one of my closest contacts. So it's good to be on with you. I've enjoyed lots of Ed conversations with Danielle. So let me ask you about something that Danielle mentioned during the break, which I wasn't really thinking about. But all of the big hawks on this fed are rotating out and they're gonna be replaced with either doves or cash carri and like who knows which way he's gonna go depending on the politics. But what do you think that means for February 1st? Are we gonna see another 50 basis point hike after this or are they gonna step down to 25? Yeah, and the market I think was about 50% priced for it. I think it's actually fair because we've had two CPI misses. So we get another week CP and other point to a .3. I think they can step down. I do think then they can keep going at 25 for a few more meetings. But it's interesting. I think the divisions at the fed will sound less unified. And whether it's because of the rotating members to your point or the fact that I think inflation and growth will point in different directions next year, much more than this year. This year it was one trade at high inflation. So they were all very unified. But next year is inflation goes down, but not all the way to 2% and growth starts to slow down in the labor market more importantly starts to weaken. I think you'll see the fed sounding a lot more divided. And the voting members won't help either. So yeah, I think it's going to become a lot harder to call the fed next year. When do they stop? When do they ease? What happens to QUT? And the fed will sound, I think, more divided on this. Danielle, we've got a function on a Bloomberg terminal DOTS the whole dot plot thingamajig. I don't know what the heck it means, but it looks like it's going down starting in 23. Does that make sense to you? And again, as you raise the issue of the makeup of the fed, does that make sense to you? Hang on, the dots, median rises in 23. Settings on your oh yeah, after 23, then it goes down to 24 and 25. Right. Yeah, and I think what you could actually see today in the dot plot is that some of those dots might move down in 23. So you might see a shift onto the Devi spectrum in fact, well, I'll be looking for today is maybe the widest disparity that we've ever seen to Prius point. It's going to be much more contentious. I think that Powell is going to be facing multiple descents. One of the things that has been on his side, which has been surprising to me, given John Williams came from the San Francisco fed and has traditionally been a dove, is that John Williams has been so loyal to Powell throughout this, and I think that's going to be critical next year because between bar at bar being one of them, Williams, Powell, and Waller, he's not going to have that many more voters. In his camp, we forget that Powell suffered full blown mutiny in the very end with not a single person until Wayne angel changed his vote back years and years ago, but I think it's going to be a much more contentious fed and I think the dot pots are going to widen out a lot. What do you think, Neil? I'm looking at four 62 right now in the dot plot. So basically four 75 is the upper range. And I'm going to take the other side of that that Danielle. I think they're going to four 8 or 5. Well, I think that's possible, but I think the other interesting question is going to become, again, it lower the ultimate peak rate, the longer I think they're going to end up having to maintain that level because I think again, it's going to become a question of sort of tug of war between the stimulative effects of not doing enough and the potential impact on prices. And their ability to ultimately push prices down low enough. Again, one of the things you might ask yourself is we just went through two years. Well, as of next month, we'll have gone through two years over 7% inflation. So we've already started a process of wave process of pushing the consequences out. And so if it's going to take you, for example, you're hearing people talking, we'll get to 2% at the end of next year. I find that hard to believe. But if it takes 5 years or 8 years to get you to 2%, it's very different than if you can get to 2% say in two and a half years. And keep in mind, mister Volcker, even with 20 some odd percent rates, it functionally took a generation to get to an ambient level. A lot of them. I mean, I put together a Ford F one 50 and I'm looking at $90,000 for an American pickup truck. That's just not, that's the most repossessed vehicle in America, and it's the 21 and 22 models that they're repossessing the most quickly mats. Yeah, because everything has big payments and they are a friend who goes to auction if you're ever interested. Yeah, I'm definitely interested. So I'll tag along. What do you think? I mean, the terminal rate, I guess, is important. And I think Neil brings up a great point. If they don't get higher, quick enough, they're going to have to be stuck at their relatively low late rate for longer. Right. And I do think that next year, despite the market really begging for the fed to ease, I think they're going to sound very resolute and not ease or even push back against some of the market pricing of cuts. And I wonder, I hope Chappelle's asked about that if you can lobby in a question to mister McKee to ask about the rate cuts is a market in the last month has priced in a lot more rate cuts in late 23, 24. And while I think they're going to have to cut in 24 because the unemployment rate will rise a lot, I struggled with the cuts in 23. Now on the dots, I think the media is going to move up for 23. It's a fair point that I wish we had a mid 23 dot because that would be a clear median or to clear estimate of terminal, but we don't have a mid 23. I

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