'New' Fed to Cut to 3% Next Year No Matter What, Says Newedge's Dawson

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00:00So next week we've got the earnings, we've got the talks with China, we've also got a Fed decision next Wednesday.

00:05And it just seems to me that the Federal Reserve and the leadership there, particularly Chairman Powell,

00:09has essentially set up this market to ignore inflation tomorrow morning and ignore any tariff pass-through for the remainder of the year.

00:15Yeah, I think that the Fed is going to cut almost regardless of what inflation print that we get tomorrow

00:20simply because they'll be able to do some kind of gymnastics to explain it away.

00:24I think the only thing that could be a challenge is if you start to see the non-tariff-related inflation,

00:29that super core, core services, ex-shelters start to kick up.

00:33And we did see that last month, and that could suggest that maybe there's more of inflationary impulse.

00:37But we think at the end of the day, the new Fed, the Fed that comes in next year, is going to cut to 3% no matter what.

00:44And they're going to ignore the inflation line of things.

00:47They'll focus on employment.

00:48And if employment is weaker, it will give them room to move very fast to get to 3% or even lower,

00:54suggesting that they would say we want to go even below neutral if you see employment weakness.

00:59So no matter what, now the what is important for financial markets.

01:02If they're going to cut to 3%, even with inflation, CPI closer to 3% than it is to 2%,

01:07you've got a bond market that's rallying into that.

01:10Can you explain to me why long-end yields are lower this time compared to what happened last year the same time around?

01:15Well, I think a very important point, last year when we were seeing interest rate cuts,

01:19you had economic surprises shifting extraordinarily higher.

01:23So you had this rally in economic data or move higher in economic data, which caused long-end yields to move higher.

01:29Now we don't have any economic data.

01:31So you're seeing this divergence with economic surprises and the 10-year yield.

01:35Maybe there is some pricing out of an expectation of the start of QE.

01:39Isn't that interesting that they're talking about ending QT,

01:42but maybe the Fed in its captured state potentially in 2026 will start to pursue QE.

01:47I think the biggest question we have is,

01:50is the 10-year telling us something about the growth outlook that we should be concerned with?

01:54Is it telling us that equity and credit are being way too complacent given what 10-year is potentially reflecting?

02:02It could be the fact that people can't hedge with other things anymore.

02:05Gold has gone up too much.

02:06It's too volatile.

02:07And so you're looking for an outlet somewhere, but that is the one thing that makes us raise an eyebrow is,

02:12if everything's so awesome, why is the 10-year below 4%?

02:15And I'll see you in another one.

02:20And I'll see you in some other questions.

02:20Because of the confusion is,

02:20we're not going to be able to answer,

02:21or ajust for wanting more comfort in your answer.

02:22We're just going to open it now.

02:23Bye-bye.

02:24алы,

02:25how do you have a possibility?

02:26We've made a survey available here,

02:27how do you think about the answer to 1526?

02:28So the idea that durch said,

02:29there's only one thing that causes a lot of information,

02:31the audience and that remedy that may be стен Gogha

02:32and the public answered.

02:33So to remind you only understand,

02:34that if you get into a period of 10-year below 1-year and average homes,

02:35and if you don't have a complication of capital,

02:41we'll drop you something below 524 is a history of the bias,

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