A new story from Bloomberg Businessweek


So we talk a lot about inflation, Jess. We know that, right? It's kind of almost like a ping Pong game. Don't you feel like 'cause there's people who have some really strong thoughts about it and where it's going. All right, whether it's not gonna come dramatically down to that 2% target for the fed or the sticky word, everybody likes to keep mentioning Derek. All right, so let's get to it into a most read story on the Bloomberg, a team of Bloomberg reporters covering how trillions of dollars are at stake as Wall Street is super split over the path of inflation with us is Bloomberg news chief correspondent for global macro markets, a favorite here at Bloomberg, Liz McCormick. She's with us via Zoom in New York City. Hey Liz, so good to have you here with Jess and myself. Love this story. It is so a story of our times. It isn't unusual, though I feel like that there's disagreement between economists or market strategists on Wall Street and yet this is a pretty big one. Walk us through it. Yeah, true. We always kind of have a lot of disagreement but what I think Carol gets to why this is even more important now this like just as is it sticky is inflation going to keep coming down is we're seemingly getting at a pivotal point with the fed because supposedly they're getting close to done. Let's say we can't call when, but maybe they hike next week. They might hike in June, but nonetheless, they're close. So after that, what happens in a lot of that depends on inflation, right? So I think what the divide is and the views on inflation is kind of even more important now because we're close to the end and that means there's the fed stay there or do they ease like you guys have talked the market is pricing that. So I think, you know, like I said, there's lots of big investors here in this story, like I said, there's a swath of us reporters and they don't all agree. But I think it's kind of compelling. There's that strong views by several of them that say, you know, inflation has come down pretty fast, but it's going to be slow moving from here. The fed is not going to be able to pivot to easing, even if the economy falters a little bit because they're just enemy number one remains inflation. And there's the other side that just says, hey, it's going to go on and the economy is going to create our fed has to ease. So there you go. That in a nutshell. Hey Liz, break it down as far as when it comes to these specific firms because you have double line thinking that inflation is still going to be sticky, but then you have alliance. You have TC W in a different type of camp who's on which sort of team at this point. Yeah, right. So like it's funny like TC do you always spoke to Steve Kane, and he was saying, you know, and it's funny because in pals, one of his pressers, someone was saying, how many times it said he said disinflation or whatever. It's the new drinking game. There should be. Anyway, go ahead. Yeah, but Steve gay was saying we're seeing a lot of disinflationary forces already. And that that's going to carry momentum plus like, you know, bearing in mind that there is this thing still to come of all the fed tightening they've already done, which we know there's those long and variable lags we've started to see like people say the fed started to break some things like you were talking about what the issues in the regional banks and that they feel like this is just going to kind of keep coming in force that I don't know if you was just mentioning Carol that about the consumer like when the consumer people have had a job so they're doing okay but you see I saw a consumer confidence go on when the consumer really says I'm not going to spend more and my prices aren't down that much. You know that maybe then the momentum on inflation keeps coming. And I think that's like TC W is saying it's going to build, you know. I do think about as a consumer. If I look at prices still staying high, I'm going to start making choices about where I'm going to have to, like in terms of where I spend my money. I want to go back for a second. When it comes to fed policy Liz, what is the lag officially? Is it a year? Like when do we really feel the punch from this past year of fed heightening and raising of rates? Well, that's another one economists all have their different particular views, but let's say they are saying, usually it's 12 months. I remember in the beginning of there were some saying the lag would be less this time around and but I don't think it was. So I mean, the fed started in March of 2022, the last year, right? It was over about a little over a year from there, and they went faster than they've ever gone, at least in my ear of watching fed. So I think you're going to start continuing to feel it more. I think we've talked about this before. You say, ah, did I want to fix my deck? Maybe not because my heloc is at 7% now, right? You know what I mean? So I think margin people are going to start saying things like that more and more. Like you can choose. I don't really need this new thing even though I want it because it's more expensive. There's no free money anymore. Unfortunately, right? Liz, what is the bond market telling us because we did see record short net short position when it came to hedge funds against the ten year treasury so does that mean the bond market isn't positioned correctly for a potential pause this year? Well, that's a great question, Jess, because you know my colleague Garfield Reynolds had written a story about that. And what's interesting is you have this kind of hot hedge fund money that's leaning very hard into being short. But so that's in some of the CFTC data we can look at. They're like the leveraged funds. And then I'm kind of like a little surprised because they got a bit burned in March when the banking crisis broke and yields tumbled, but I think they have a strong conviction. But on the other side, because you can look at it in the other parts of the data, there's some of the kind of call it asset managers kind of regular money. They're still long. So there's a bit of a divide there. There's also some kind of arb trading you can do, but I do think the kind of the trend followers, the quants, are still leaning to short. And that means like you're right. It depends what happens. They kind of think inflation is going to stay around. Fed's going to stay, you know, at least even if they stop tightening. But if this stuff unravels and there's so many uncertainties, I hate to even bring up the debt ceiling because

Coming up next