FED, Jerome Powell, Powell discussed on Bloomberg Radio New York Show


There's not much of a surprise with respect to what the fed is going to do. So I have 75 or a hundred They had the opportunity several weeks ago to go the hundred basis point option, but they quickly swatted that one away. 75 basis point hike is more than priced. If I take chair Powell seriously, the fed clearly has to fight inflation. Whatever it takes to bring inflation down. Some of this is messaging. Whether they like it or not, whether markets like it or not. Jerome Powell has made that very clear. What is going to be far more interesting is what the fed, what Powell says about what the future path of rates looks like. Key focus, I think, is going to be on the signaling for the upcoming meetings, less board guidance or more uncertainty. We're not expecting big forward guidance from the fed. We are 15 minutes away from that fed decision. And here is your price section of the equity market. Good afternoon to you. The S&P 500 positive by 1.3%, the NASDAQ 100 positive by 2.6%, the bottom for the year intraday, the day after on the NASDAQ after the last fed meeting. Just think about that. The day after the last fed meeting in the bond market, the highs on twos and tens, the day before the last fed meeting. So since then, we've been talking about peak fed hawkishness. We've been fading a lot of that story and we've been buying into this equity market. It was on a ten year now, two 76 48. The higher the year very close to three 50, the higher the year on a two year three 45, we've come all the way back in just north of 3%. But we've done much more work on the ten year. So you've got that inversion led by that drop in a ten year yield. That's now negative 30 basis points. And our guest in just a moment is looking for maybe negative 40 and a whole lot more. I wanted to check in on Euro dollar. The wide pretty clear, because the last time the ECB met, they threw in the towel on forward guidance. You wrote a dollar one O one 29 and I wondered someone that means for the forward guidance from this fed today as they set us up for September. Jonathan outside baseball, but dollar yen I want to notice weaker across the morning across the arc of the day as well. Yen gave way about three hours ago. It's 8 K the cameraman has walked away from me. So I'm going to walk away from you as well. Okay, well, that happens because you don't see afternoon in the morning and we're like, you know, we're doing a fed meeting here with some terrific guests. I'm not going to go into the logarithm right now of how you do this chart, but all you need to know is the chart of the year, it is the first and second derivative of curve inversion Priya. We've seen it once, maybe twice in 30 years. Let's start with the why. Why are we seeing the rapidity of curve inversion in 2022? You know, thanks for having me. I think it's because the market is pricing in slowing of growth and the fed that's indicating that inflation is much too high and they have a single mandate right now. And so I think that front end is just going to struggle to price in a lot of cuts. There's a different threshold for the fed to stop hiking to start cutting. And so I think that even if we start pricing in the end of the hiking cycle, three 75 or 4% is as we believe. It's hard to think that the fed is going to turn on and cut right away. But the long end, that's the safest part out there, because I think growth is going to slow down those rail rates are very high. And that's where I think investors are flocking because we're seeing growth slowing down and this fed. I think is responding to realized inflation. And I think that's the issue right now. We'll keep keep in voting in our view. What does a mister curve inversion of negative 42 basis points mean to the Toronto dominion bank to the JPMorgan Michael for alles JPMorgan? What does that magnitude of inversion mean to our banks? So I'm not a bank analyst, but normally inversions are a signal of slowing economic activity in the long end. Over time, it's a function that fed policy might be too restrictive and that can slow things down. So I mean, I think it has broader economic implications, certainly negative four financials, because does it mean that the consumer starts to struggle? I think that's what it's reflecting. But the fed has no choice really, because inflation is much too high. And they've decided to be not forecast dependent. So they can't actually talk about lags, because I think they can't control large parts of inflation. And there are lags in terms of what they do today and when it impacts inflation. But they're responding to realized inflation and that's why they're going to keep going. And that code keeps inverting. And I think that means it's a dire economic outlook next year. Priya is forward guidance instead when it comes to the fed as well. I think, so I think we're so used to it. I think the fed can't help themselves either. I wish they would just acknowledge that there is no forward guidance. There's an inherent contradiction between being data dependent and giving forward guidance. So I think they should stop giving it. And just explain the reaction function. And then let the data do the work, let the market move based on data. You know, everyone's asking us, will the fed pivot today? Let the data pivot for the fed. When inflation starts to decelerate on a month of a month basis, I think the fed can slow down. They've reached neutral. So I do think they're going to start to slow down. But I don't think the end of the hiking cycle is near because those inflation readings are still much too high. I wish they wouldn't talk about September because whatever they say that there's a lot of data between now and September. And I think it's kind of pointless to give us that bike. But perhaps that's the case. But they might want to push back against some of the market expectations because it's actually ending up with an easing kind of quality on markets. And I do wonder about all the prognosticators now talking about the fed. Stopping the balance sheet roll off and actually sticking with the $9 trillion on their books as soon as next year, early next year as a way to sort of temper some of the rate hiking. Do you agree? No. So I think this is where that threshold question of the reaction function becomes important. They can stop hiking at 4%. We think close to year end, they stop the hiking cycle. And then they wait for inflation to get much closer to 2%, which we only think happens in the second half before they can respond by easing policy. When they do start to cut rates, I think they're going to stop QT. Because it's very hard to be tightening through one tool. The balance sheet and easing through the other tool. But that's not early next year. I really struggled with the market that's pricing and hikes until December and cuts from February. I mean, that assumes that inflation decelerates or the fed gives up on inflation. I think there's serious about both sides of the mandate also inflation right now. Pretty miserable and Michael Farley with us on radio and television worldwide. A most important indeed historic fed meeting 9 minutes away make it 8 minutes away here in a bit

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