8 Burst results for "Nick Timur"
The Breakdown
"nick timur" Discussed on The Breakdown
"Biology srinivasan tweeted 500 billion plus in bank failures in two months, that's just the appetizer. Remember wamu only failed on September 25th, 2008. After Lehman failed on September 15th, 2008. And after it was acknowledged that a crisis was on. A Powell is still talking about soft landings, so people are still in denial. What happens when it's finally admitted that the fed has caused yet another historical crisis? To sum up, the hawkish pause narrative was big leading into the FOMC meeting in the presser, and that's kind of how most people are interpreting Powell's speech. All of the fed's language seems to be about pausing and waiting for things to catch up rather than pausing in anticipation of cuts. The fed isn't giving any indication yet that there's room to move to cuts until inflation comes down dramatically. Interestingly, Nick Timur was from The Wall Street Journal points out. The FOMC statement used language broadly similar to how officials concluded their interest rate increases in 2006, with no explicit promise of a pause by retaining a bias to tighten. Now, one more thing to watch for with all of this is the treasury and the debt ceiling. When asked to speak to the rapidly approaching debt ceiling showdown, Powell again pointed out that it isn't his place to discuss fiscal policy. He reiterated his view that, quote, it is essential that the debt ceiling be raised in a timely way so that the U.S. government can pay all of its bills when they're due. He noted that a failure to do so would be profoundly uncertain and detrimental to the U.S. economy. To make matters perfectly clear Powell emphasized that, quote, no one should assume that the fed can protect the economy from the potential short and long-term effects of a failure to pay our bills on time. When the topic was brought up a second time later in the press conference Powell simply said, we shouldn't even be talking about a world in which the U.S. doesn't pay its bills.
Bloomberg Radio New York
"nick timur" Discussed on Bloomberg Radio New York
"How confident is the committee that the recent stress that we've seen and you've alluded to is contained at this point and that deposit flight among mid sized lenders in particular has ceased. Thanks. So I guess our view is that the banking system is sound and it's resilient. It's got strong capital and liquidity. We took powerful actions with treasury and the FDIC, which demonstrate that all depositors savings are safe and that the banking system is safe. Deposit flows in the banking system have stabilized over the last week. And the last thing I'll say is that we've undertaken we're undertaking a thorough internal review that will identify where we can strengthen supervision and regulation. Okay, just a quick follow-up. I mean, given all of the stress and the uncertainty that you've also alluded to in the statement, how seriously it was a pause considered for this meeting. So we considered we did consider that in the days running up to the meeting. And you see the decision that we made, which I'll say a couple things about. First, it was supported by a very strong consensus and I'll be happy to explain why. And really it is that the intermediate data on inflation and the labor market came in stronger than expected and really before the recent events, we were clearly on track to continue with ongoing rate hikes. In fact, as of a couple of weeks ago, it looked like we'd need to raise rates over the course of the year more than we'd expect at the time of the SCP in December. The time of December meeting. We are committed to restoring price stability and all of the evidence says that the public has confidence that we will do so that will bring inflation down to 2% over time. It is important that we sustain that confidence with our actions as well as our words. So we also assess, as I mentioned, that the events of the last two weeks are likely to result in some tightening credit conditions for households and businesses and thereby weigh on demand on the labor market. And on inflation. Such a tightening in financial conditions would work in the same direction as rate tightening. In principle, as a matter of fact, you can think of it as being the equivalent of a rate hike or perhaps more than that. Of course, it's not possible to make that assessment assessment today with any precision whatsoever. So our decision was to move ahead with a 25 basis point hike. And to change our guidance, as I mentioned from ongoing hikes to some additional hikes maybe some policy affirming may be appropriate. So going forward, as I mentioned, in assessing the need for further hikes, we'll be focused as always on the incoming data and the evolving outlook. And in particular, on our assessment of the actual and expected effects of credit tightening. Miss cherry, can you explain the difference between ongoing rate increases and firming does firming imply a rate increase per se or could policy firm without you increasing rates? No, I think it's meant to refer to our policy rate. Really, I would focus on the words May and some as opposed to ongoing. Ongoing. So we clearly were what we were doing there was taking on board the un trying to reflect the uncertainty about Financial stability tools in particular are lending facilities. The debt, sorry, the discount window and also the new facility. Nick? Nick Timur rosa The Wall Street Journal. Chair Powell and your testimony two weeks ago, you had indicated you thought the terminal rate would be higher, obviously that was before the stress in the making sector. And I realized there's a lot of uncertainty, but can you explain it all to what extent your forecasts or those of your colleagues or those of the board staff incorporated today a material tightening and credit availability because of the stress in the baking sector or are you waiting to see it in the data before you incorporate that potential tightening into your forecasts. So we've just come from an FOMC meeting and the people who write the minutes will be very carefully counting. But I'll tell you what I heard. What I heard was significant number of people saying that they anticipated there would be some tightening of credit conditions and that would really have the same effects as our policy to do. And that therefore they were including that in their assessment and that if that turned out not to be the case in principle you'd need more rate hikes. So some people did reflect that in their films in their SEP forecasts. I think there may also just have been remember, this is 12 days ago. We're trying to assess something that just is so recent. And it's people, it's very difficult. There's so much uncertainty. So December was a good place to start and we wound up with, we wound up with very similar outcomes for December. And in a way, the data in the first part, the first 5 weeks of the intermediate period pointed to stronger inflation and stronger labor markets. So that pointed to higher rates. And then this latter part of the possibility of credit conditions tightening really, really offset that effectively. To follow up, have you consider it all whether your primary tool, the funds rate, is going to be enough to sustain the kind of tighter financial conditions that you believe will be necessary without doing significant damage to the banking sector. Have you, for example, considered changing reserve requirements selling assets out of the system open market account as a way to bedroom achieve tire financial conditions that don't accelerate deposit erosion, for example, from banks. We know that we have other tools in effect, but now we think our monetary policy tool works and we think many, many banks are rate hikes were well telegraphed to the market in many banks have managed to handle them. Victoria. Hi, Victoria Guido with Politico. I wanted to ask, you, along with the FDIC and the treasury, the fed board decided to invoke the systemic risk exception to allow uninsured depositors to be
CoinDesk Podcast Network
"nick timur" Discussed on CoinDesk Podcast Network
"The link in the show notes. Now, as I said, there is a third possible explanation as well. Which is that there was a broader shift back to risk on and which Bitcoin was just out ahead of the risk on pack. I mentioned remember that stocks were in the green as well. So what might the explanation here be? Pretty simply it's the same phenomenon that we've seen over and over again since the beginning of this tightening cycle, which is the market convincing themselves that some broader force is going to force the fed back into a more accommodative dovish stance. This is the much fabled fed pivot. Every other time markets have convinced themselves of this and rallied on the basis of it, some combination of fed official comments and new economic data have squashed the optimism. But this time, the reasoning is on a somewhat stronger footing. Fed whisperer Nick timorous wrote a piece for The Wall Street Journal called collapse of Silicon Valley bank, signature bank calls interest rate path into question. He tweeted the article adding, there is a saying that the Federal Reserve raises interest rates until something breaks. A big surprise over the past year had been that nothing broke. No more. In the piece he lays out the incredibly difficult position the fed is in. On the one hand, they have to address a financial stability issue, but on the other they have to continue to fight inflation. As Nick writes, quote, the situation could force fed chair Jerome Powell and his colleagues into choosing what problem demands the Central Bank's top focus. Diane swank chief economist at KPMG says we've always said the one thing that could derail the fed's tightening would be a financial crisis. It's not clear whether a crisis has been averted yet. And indeed, that is one of the big questions. It's clear that as much as politicians make about one cause or another, the fed understands that its own tightening cycle has exacerbated if not caused this problem. When though we've got you announcement came down on Sunday, it was not just an announcement that SPV depositors would be made whole. It was also announcement that the fed was creating a new lending facility to hopefully stop the same impairment problems from banks being forced to sell underwater assets. I've got much more in depth on this on other episodes. So I won't spend too much time on it here, but long story short, one of the key realities of bank balance sheets around the country right now is a duration mismatch between their on-call deposits and the long duration bonds they bought during the zero interest rate period days. This will be fine as long as there aren't bank runs, but if these banks are forced to sell those bonds, they're going to do so at a loss because they're worth less, now that the fed is giving risk free money away in the form of treasuries at 4.5%. It is not just signature in Silicon Valley bank that have this problem. Over $600 billion of unrealized losses currently sit on bank balance sheets, and the fed is hoping through this new lending facility to allow banks that need liquidity to be able to borrow against those loans from the fed instead of having to sell those loans and realize the losses. Now, there are tons of questions that surround this lending facility. First is it enough second will it be exploited? I've seen lots of folks talk about the new trade opportunities that the lending facility opens up. But still, when it comes to fed policy, it seems like one possible reason that they wanted to set up this facility so early in the crisis process is that they wanted to be able to continue to hike rates without further breaking things. Here's again how Nick Timur was put it. Quote, fed officials have at times over the past year, acknowledged the risk of being forced to simultaneously fight two problems. Financial stability fallout and inflation. Several have said they would use emergency lending tools along the lines of the bank funding facility of the fed unveiled Sunday to fight the former so they could continue to raise interest rates or hold rates at higher levels to fight the latter. Fed governor Christopher Waller said in a speech last October, quote, I believe we have the tools in place to address any financial stability concerns and should not be looking to monetary policy for this purpose. The focus of monetary policy needs to be fighting inflation. Now, markets have been pretty volatile when it comes to predicting what the fed would do next. A few days ago, following an appearance from Jerome Powell at congressional hearings, the markets were in the process of fully pricing in a 50 basis point hike at next week's FOMC meeting. The sentiment has now sharply reversed, with markets now forecasting a 25 basis point hike with a 69% probability and attaching a 31% chance that the fed will take a pause. Note this was this morning before the CPI numbers. The most probable path now is for the fed to hit a terminal rate of 5% this month before beginning to cut rates in September. That's again, according to traders. Bond markets are sending an even more dramatic message. On Monday, the interest rate on two year treasuries plunged by more than 60 basis points, touching a low of 3.8% before correcting back to 4%. That's a move 31 standard deviations away from average volatility. Last week, the two year was firmly priced at 5% indicating a market acceptance that the fed would pursue a higher terminal rate in the face of economic data pointing towards reaccelerating inflation. Still, a lot of the trial fi world is sort of of the mind that when the dust settles and we move away from the shrieking all caps venture capitalists on Twitter, and SVB depositors are protected and the new lighting facility is up and running, that these bank failures will be seen as a warning shot, but not an existential threat, and the fed will continue on its way. Former trader at Goldman Sachs, Michael cow says, don't conflate deposit a ring fencing with a return to the liquidity lottery. Consider yourself forewarned. Dear fed pivots when you zoom out and look at the big picture. Does this look like the picture of financial stress that derails with the fed has been trying to do for the last 15 months? It's as if people have completely forgotten the 2007 2008 period. This is nowhere close. Writer and Nathan tank has points out that stock market volatility does not actually a crisis make. He writes, does anyone have any other data points on what's going on with midsize banks? Doesn't seem like they've had very much deposit outflow. The main sign of distress seems to have been the stock prices, but that was an obvious trade to lock in Sunday regardless of fed and FDIC action. Stock traders are not bond traders who are not bank balance sheet analysts. The conventions among one group doesn't necessarily travel to the others, and seems to me the stock market behavior is segmented from the financial situation in this case. Yet still, there's no doubt that the fed is in a tough place. Half the cofounder of pair protocol writes, fed is stuck between a rock and a hard place. If they continue hell bent on raising rates to tame inflation, the same assets on these balance sheets will cause an even bigger hole. Hence why I think 50 basis points hike is off the table. At the same time, if they pause or cut, it undermines fed credibility. The one thing they can not afford to lose if they want to run a low inflation mandate. So do we have any evidence that we can glean from the pass in terms of what Powell has said that might suggest where they're going to come out in this particular question. I think the biggest thing are repeated comments from Powell to the effect that it doesn't ultimately really matter, how fast the fed gets to the terminal rate. It's far more important to get there in a manner that allows the fed to maintain higher rate for longer. To me, that might suggest for a moderate path, certainly 25 basis points over 50 basis points, and even perhaps an argument for a pause to take a breath.
Bloomberg Radio New York
"nick timur" Discussed on Bloomberg Radio New York
"Howard sir, with Reuters and thanks as usual. So I just wanted to connect a couple of dots here. The statements made a number of changes that seem to be saying things are getting better. You're saying inflation disease has eased that's new. You've taken out references to the war in Ukraine. It's causing price increases. You've taken out references to the pandemic. You've eliminated all the reasons that you said prices were being driven higher. Yet that's not mapping to any change in how you describe policy. We still have ongoing increases to come. So I'm wondering, why is that the case? And does it have more to do with uncertainty around the outlook or more to do with you not wanting to give a very overeager market a reason to get ahead of itself in overreact? So I guess I would say it this way. We can now say, I think, for the first time, that the disinflationary process has started. We can see that. And we see it really in goods prices so far. Good prices is a big sector. This is what we thought would happen since the very beginning and now here it is actually happening. And for the reasons we thought, it's supply chains that shortages and its demand revolving. Back toward services. So this is a good thing. This is a good thing. But that's around a quarter of the PCE price index. Core PCE price index. So the second sector is housing services. And that's driven by very different things. And as I mentioned, with housing services, we expect and other forecasters expect that measured inflation will continue moving up for several months. But we'll then come down. Assuming that new leases continue to be soft. And we do assume that. So we think that that's sort of in the pipeline. And we actually see this inflation in the goods sector, and we see it in the pipeline for two sectors that amount to a little less than half. So this is good. And we note that when we say inflation is coming down, this is good. We expect to see that disinflation process will be seen, we hope soon in the core goods ex housing. Sorry, the core services ex housing sector that I talked about. We don't see it yet. It's 7 or 8 different kinds of services, not all of them are the same. And we have a sense of what's going on in each of those different subsections. Probably the biggest part of it probably 60% of that is research which show is sensitive to slack in the economy. And so the labor market will probably be important. Some of the other ones, it's illegal markets not going to be important. Many other factors will drive it. In any case, we don't see this inflation in that sector yet. And I think we need to see that. It's the majority of the core PCE index, which is the thing that we think is the best predictor of headline PCE, which is our mandate. So it's not that we're not either optimistic or pessimistic. We're just telling you that we don't see inflation moving down yet in that large sector. I think we will, fairly soon, but we don't see it yet. Until we do, I think we see ourselves, we've got to be honest with ourselves, we see ourselves as having perhaps more persistent we'll see more persistent inflation in that sector, which will take longer to get down. And we're just going to have to have to complete the job. I mean, that's what we're here for. Nick Timur rosa Wall Street Journal. Chair Powell, you observed several years ago that we learned we can have a low unemployment rate
Bloomberg Radio New York
"nick timur" Discussed on Bloomberg Radio New York
"Bloomberg. Welcome to Bloomberg opinion I'm Bonnie Quinn. This week. Even though it's sort of a dead heat in terms of what the polls say. We still could have 53 Republicans. We could still have 52 Democrats 53 Democrats even. Jonathan Bernstein, on the midterms and the final furlong, and later, Stephen mem on what political slants have discovered about the correlation between midterm voting patterns and economic conditions. But first we still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected. The fed chair Jerome Powell there. Bloomberg opinions Jonathan aven joins to discuss a possible fed tilts this week. Jonathan two of the statements that jumped out to most analysts were the fact that the chair sings the path to a soft landing is narrowing, and that the terminal rate may be higher than we previously thought. Well, I think it's a done deal. It will be higher than we previously thought. I think Paul's task here was to thread the needle. He needed to prepare markets for the fact that he was going to slow the pace of rate increases, potentially at the next meeting in December, but almost certainly by the time the first meeting rolls around in 2023 without letting financial conditions loosen. And so the key to all of that was a stroke of communications genius. He did that at the same time that he said that we are probably taking the terminal rate higher. Maybe we're talking about 5%, 5 and a quarter percent instead of four 75. But as a tool for communicating, I really thought that it was a stroke of genius pairing the higher end point with the ratcheting down of the pace. Well, it's redundant to point this out, but we'll have November and December and January data before the January 3rd, very February 1st meeting. Will that data be enough to show activity reacting to the fed's increases? Possibly. So I think the fed's reaction function at this point becomes a combination of things. They have left some room in the language where they say we are conscious of the long and variable lags, but we are also reacting to the data as it comes in. So that allows them to say a higher inflation print, for instance, does not automatically lock in 75 basis points. And vice versa, a lower inflation print should not lead the market to interpret this idea that maybe they're going to do nothing or they'll immediately switch to 25 basis points. So what would happen in that scenario if the NBER came out somewhere in all of this and said the economy is in recession. It seems like Jay Powell is preparing us for this idea that they're going to keep pushing ahead. I thought it was interesting. He talked again about how they think about risk management. And he sounded much more concerned about this idea that they may take their foot off the brakes of the economy here and then inflation shoots back up and then you're in a bad position inflation expectations may have become unanchored at that point and it becomes a lot more difficult to get inflation back where it needs to be. On the other hand, he said we have the tools to address a market downturn if we go there. He seems to be suggesting that his tools work a lot better for an overshoot on the upside with the policy rate than an undershoot that is doing too little. While he acknowledged the fed could be done with hikes before inflation hits 2%, what data points do you think would allow them the leeway to be done? I think a key thing Nick Timur is over at The Wall Street Journal brought this up. A very simple way to think about Taylor rules is just is the policy rate above some forward looking measure of inflation expectations. So when you see the policy rate sort of comfortably above where we think inflation is heading, then the fed will probably think that it has the dial set just right. How concerning was that the fed chair thinks the path to a soft landing is narrowing. I mean, you got to think that that's just an acknowledgment of reality, right? So the median expectation among economists surveyed by Bloomberg is that there's something like a 60% chance that the economy goes into a recession in the next 12 months. I think that economists generally get slack for their miss rate and predicting recessions, but I'd like to remind people there are usually wrong insofar as they fail to predict recessions. They very, very rarely call a recession that does not occur. Oh, chilling, Jonathan chilling. Sufficiently restrictive, are we definitely talking about something with a 5 handle now? Yes, I think that's clearly the case. And I think that that's pretty consistent with the framework that we talked about earlier whereby in a very base understanding of how Taylor rules work. You want to see the policy rate above inflation. I think a slightly more elegant way of thinking about the same thing is to say, again, not where is inflation right now, but where is inflation heading and are you going to see that policy rate cross that path of inflation at some point? That's obviously moving target, but the fed is hoping to hit it. It was interesting to see the market reaction because clearly not everything the fed chair said was priced in. We did see a subtle inequities. We also saw yields on the two year rising, what are the market not priced in? For the two year, it's fairly understandable right. We're now pricing
Bloomberg Radio New York
"nick timur" Discussed on Bloomberg Radio New York
"Air and on Bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. I'm susannah Palmer. This is Bloomberg Welcome to Bloomberg opinion. I'm Bonnie Quinn. This week. Even though it's sort of a dead heat in terms of what the polls say. We still could have 53 Republicans. We could still have 52 Democrats, 53 Democrats even. Jonathan Bernstein, on the midterms and the final furlong, and later, Stephen mem on what political scientists have discovered about the correlation between midterm voting patterns and economic conditions. But first we still have some ways to go. And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected. The fed chair Jerome Powell there. Bloomberg opinions Jonathan aven joins to discuss a possible fed tilts this week. Jonathan two of the statements that jumped out to most analysts were the fact that the chair sings the path to a soft landing is narrowing, and that the terminal rate may be higher than we previously thought. Well, I think it's a done deal. It will be higher than we previously thought. I think policy task here was to thread the needle. He needed to prepare markets for the fact that he was going to slow the pace of rate increases. Potentially at the next meeting in December, but almost certainly by the time the first meeting rolls around in 2023 without letting financial conditions loosen. And so the key to all of that was a stroke of communications genius. He did that at the same time that he said that we are probably taking the terminal rate higher. Maybe we're talking about 5%, 5 and a quarter percent instead of four 75. But as a tool for communicating, I really thought that it was a stroke of genius pairing the higher endpoint with the ratcheting down of the pace. Well, it's redundant to point this out, but we'll have November and December and January data before the January 31st, February 1st, meeting. Will that data be enough to show activity reacting to the fed's increases? Possibly. So I think the fed's reaction function at this point becomes a combination of things. They have left some room in the language where they say we are conscious of the long and variable lags, but we are also reacting to the data as it comes in. So that allows them to say a higher inflation print, for instance, does not automatically lock in 75 basis points. And vice versa, a lower inflation print should not lead the market to interpret this idea that maybe they're going to do nothing or they'll immediately switch to 25 basis points. So what would happen in that scenario if the NBER came out somewhere in all of this and said the economy is in recession. It seems like Jay Powell is preparing us for this idea that they're going to keep pushing ahead. I thought it was interesting. He talked again about how they think about risk management. And he sounded much more concerned about this idea that they may take their foot off the brakes of the economy here and then inflation shoots back up and then you're in a bad position inflation expectations may have become unanchored at that point and it becomes a lot more difficult to get inflation back where it needs to be. On the other hand, he said, we have the tools to address a market downturn. If we go there, he seems to be suggesting that his tools work a lot better for an overshoot on the upside with the policy rate than an undershoot that is doing too little. Well, he acknowledged the fed could be done with hikes before inflation hits 2%. What data points do you think would allow them the leeway to be done? I think the key thing Nick Timur was over at The Wall Street Journal brought this. So a very simple way to think about Taylor rules is just is the policy rate above some forward looking measure of inflation expectations. So when you see the policy rate sort of comfortably above where we think inflation is heading, then the tab will probably think that it has the dial set just to write. How concerning was that the fed chair thinks the path to a soft landing is narrowing. Yeah, I mean, you've got to think that that's just an acknowledgment of reality, right? So the median expectation among economists surveyed by Bloomberg is that there's something like a 60% chance that the economy goes into a recession in the next 12 months. I think that economists generally get slack for their miss rate and predicting recessions, but I'd like to remind people there are usually wrong insofar as they fail to predict recessions. They very, very rarely call a recession that does not occur. Oh, chilling, Jonathan chilling. Sufficiently restrictive, are we definitely talking about something with a 5 handle now? Yes, I think that's clearly the case. And I think that that's pretty consistent with the framework that we talked about earlier whereby in a very base understanding of how Taylor rules work. You want to see the policy rate above inflation. I think slightly more elegant way of thinking about the same thing is to say, again, not where is inflation right now, but where is inflation heading and are you going to see that policy rate cross that path of inflation at some point? That's obviously moving target, but the fed is hoping to hit it. It was interesting to see the market reaction because clearly not everything the fed chair said was priced in. We did see a settle inequities. We also saw yields on the two year rising, what are the market not priced in? For the two year, it's fairly understandable right. We're now pricing
Bloomberg Radio New York
"nick timur" Discussed on Bloomberg Radio New York
"Week. Even though it's sort of a dead heat in terms of what the polls say. We still could have 53 Republicans. We could still have 52 Democrats, 53 Democrats even. Jonathan Bernstein, on the midterms and the final furlong. And later, Stephen M on what political scientists have discovered about the correlation between midterm voting patterns and economic conditions. But first we still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected. The fed chair Jerome Powell there, Bloomberg opinions, Jonathan Levin joins to discuss a possible fed tilts this week. Jonathan two of the statements that jumped out to most analysts were the fact that the chair sings the path to a soft landing is narrowing, and that the terminal rate may be higher than we previously thought. Well, I think it's a done deal. It will be higher than we previously thought. I think post task here was to thread the needle. He needed to prepare markets for the fact that he was going to slow the pace of rate increases, potentially at the next meeting in December, but almost certainly by the time the first meeting rolls around in 2023 without letting financial conditions loosen. And so the key to all of that was a stroke of communications genius. He did that at the same time that he said that we are probably taking the terminal rate higher. Maybe we're talking about 5%, 5 and a quarter percent instead of four 75. But as a tool for communicating, I really thought that it was a stroke of genius pairing the higher endpoint with the ratcheting down of the pace. Well, it's redundant to point this out, but we'll have November December and January data before the January 31st, February 1st, meeting. Will that data be enough to show activity reacting to the fed's increases? Possibly. So I think the fed's reaction function at this point becomes a combination of things. They have left some room in the language where they say we are conscious of the long and variable lags, but we are also reacting to the data as it comes in. So that allows them to say a higher inflation print, for instance, does not automatically lock in 75 basis points. And vice versa, a lower inflation print should not lead the market to interpret this idea that maybe they're going to do nothing or they'll immediately switch to 25 basis points. So what would happen in that scenario if the NBER came out somewhere in all of this and said the economy is in recession. It seems like Jay Powell is preparing us for this idea that they're going to keep pushing ahead. I thought it was interesting. He talked again about how they think about risk management. And he sounded much more concerned about this idea that they may take their foot off the brakes of the economy here and then inflation shoots back up and then you're in a bad position in inflation expectations may have become unanchored at that point and it becomes a lot more difficult to get inflation back where it needs to be. On the other hand, he said we have the tools to address a market downturn. If we go there, he seems to be suggesting that his tools work a lot better for an overshoot on the upside with the policy rate than an undershoot that is doing too little. Well, he acknowledged the fed could be done with hikes before inflation hits 2%. What data points do you think would allow them the leeway to be done? I think a key thing Nick Timur was over at The Wall Street Journal brought this. So a very simple way to think about Taylor rules is just is the policy rate above some forward looking measure of inflation expectations. So when you see the policy rate sort of comfortably above where we think inflation is heading, then the fed will probably think that it has the dial set just to run. How concerning was that the fed chair thinks the path to a soft landing is narrowing? Yeah, I mean, you got to think that that's just an acknowledgment of reality, right? So the median expectation among economists surveyed by Bloomberg is that there's something like a 60% chance that the economy goes into a recession in the next 12 months. I think that economists generally get slack for their miss rate and predicting recessions, but I'd like to remind people there are usually wrong insofar as they fail to predict recessions. They very, very rarely call a recession that does not occur. Oh, chilling, Jonathan chilling. The sufficiently restrictive are we definitely talking about something with a 5 handle now? Yes, I think that's clearly the case. And I think that that's pretty consistent with the framework that we talked about earlier whereby in a very base understanding of how Taylor rules work. You want to see the policy rate above inflation. I think slightly more elegant way of thinking about the same thing is to say, again, not where is inflation right now, but where is inflation heading and are you going to see that policy rate cross that path of inflation at some point? That's obviously moving target, but the fed is hoping to hit it. It was interesting to see the market reaction because clearly not everything the fed chair said was priced in. We did see a subtle inequities. We also saw yields on the two year rising, what are the market not priced in? For the two year, it's fairly understandable, right? We're now pricing in something perhaps a lot closer to 5%, maybe 5 and a quarter, maybe even a little higher than there. But it's not a huge change in expectations. On the other hand, I think it's really hard to make the argument that stocks were well priced heading into this. I think a lot of people could have made a reasonable argument that bonds were maybe not cheap but fairly priced. Stocks, on the other hand, I mean, man, you've really seen equity risk premiums come in quite a bit in this little rally recently. And as we get past earnings season, which in sort of a strange way has been a little bit of a tailwind for equity, it really seems like you're going to see some of that deflate again. You've actually written about the path to a soft landing running through earnings, so I guess you have that to look forward to. Yeah. Yes, indeed. So the point of my recent column is that C suite executives seem to be doing a rather elegant job. Not unlike J pal himself in slowly slowly guiding expectations down into a sort of recessionary mine frame. And in a sense, if you're Jay Powell, that's exactly what you want to see. You're really, really trying to avoid this cascade of negative sentiment that could itself catalyze a recession in this environment. You want to see asset prices slowly come down, but you really want to avoid that financial accident. Bloomberg opinions Jonathan Levin. Stay tuned, Jonathan Bernstein next on what to consider pre
Bloomberg Radio New York
"nick timur" Discussed on Bloomberg Radio New York
"The fed's policy actions have been guided by our mandate to promote maximum employment and stable prices for the American people along with our responsibilities to promote the stability of the financial system Our asset purchases have been a critical tool They helped preserve financial stability early in a pandemic And since then have helped foster smooth market functioning and accommodative financial conditions to support the economy Last September sorry December the committee stated its intention to continue asset purchases at a pace of at least a $120 billion per month until substantial substantial further progress has been made toward our maximum employment and price stability goals At today's meeting the committee judged that the economy has met this test And decided to begin reducing the pace of its asset purchases Beginning later this month we will reduce the monthly pace of our net asset purchases by $10 billion for treasury securities and $5 billion for agency mortgage backed securities We also announced another reduction of this size in the monthly purchase pace starting in mid December since that month's purchase schedule will be released by the Federal Reserve bank of New York prior to our December FOMC meeting If the economy evolves broadly as expected we judge that similar reductions into pace of net asset purchases will likely be appropriate each month Implying that increases in our securities holdings would cease by the middle of next year That said we are prepared to adjust the pace of purchases if warranted by changes in the economic outlook And even after our balance sheet stops expanding our holdings of security securities will continue to support accommodative financial conditions Our decision today to begin our tapering our asset purchases does not imply any direct signal regarding our interest rate policy We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate To conclude we understand that our actions affect communities families and businesses across the country Everything we do is in service to our public mission we at the fed will do everything we can to complete the recovery and employment and achieve our price stability goal Thank you I look forward to your questions Thank you We'll go to Nick at The Wall Street Journal Hi Nick Timur of so.