Jobless Claims Fall to Three-Year Low Ahead of Pivotal December Fed Meeting

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00:00Talk to us about the data backdrop, how traders are reading it, and what it means for rates.

00:05Well, I think first, I want to go on what Stuart just mentioned, and you just asked about, Carol,

00:10about the job market. So my son just finished a seasonal job at Six Flags. He went into an

00:16interview yesterday at 8 a.m. At 9 a.m., he was working. And this is a manual labor kind of job,

00:22and he's 18 years old, high school graduate, you know, he's kind of taking a gap year. So,

00:26I mean, there's jobs out there if you're willing to, you know, do these manual jobs. But anyway.

00:32Congratulations, Dad. No, but this is good. You're right. It shows that there are the jobs out there.

00:37Yeah. I mean, it's very anecdotal, right? But at the same time, you know, I think it tells a little

00:42bit of the story. But, you know, that being said, you know, the market is certainly priced for a cut

00:47next week. But what's interesting is that we're then not priced for another cut for sure until next May,

00:52right? So it's like, is this one and done? Is this one and then options? I suspect that the Fed is

00:59going to continue to worry about the labor market. And as soon as we start to see more labor market

01:03data, if that labor market's not particularly good, then they'll continue to be easy, right?

01:10And maybe not cut every meeting, but at the same time, be on the more cautious, easier side.

01:15And then the second thing is your discussion about the Beige Book was really interesting because we...

01:18I love the Beige Book.

01:19Yes. And a lot of people do. And the Fed does, right?

01:22Yeah. We know that the Fed overweights. Powell certainly does.

01:24This is a much more granular look at what's going on as opposed to some of the other data

01:27that we get. Yeah. But it is survey based, right? It is like, you know, comments that are

01:32made by different people that members of the different Fed banks speak with regularly. But it's

01:37important to the Fed. And one of the things that we do is we parse it using a natural language

01:41processing model that we have. And what that showed is that it's in the last reading is

01:48that it was much more dovish than it was the previous two meetings. So it was overall pretty

01:55weak. And I think that because of that, you know, that's one reason to think that the Fed

01:58is going to hike next week. And if you continue to see that weakness, I think that they'll cut

02:02even more in the first half. And that might be a little bit different than what other people are thinking.

02:06I love that you said dovish because I want to get to someone who has kind of a more hawkish perspective.

02:12Greg Peters, Co-Chief Investment Officer at PGM Fixed Income, member of the Treasury Borrowing Advisory Committee.

02:18He spoke to our Bloomberg colleagues in Asia overnight about what he expects from the Fed.

02:22He also talked about the expectations of maybe a Kevin Hassett Fed.

02:25First up, though, he addressed next week's meeting. Listen up, everybody.

02:28We will have a hawkish cut, you know, coming up. But I'm not sure there's a lot of information coming out of that meeting.

02:35Right. I think the markets are focused on what happens next and what happens next is the new Fed share,

02:41the new composition and quite candidly, the meddling of the administration in Fed affairs.

02:47The market has reacted since since the betting markets have raised the probability last week.

02:53The bond market has performed quite poorly. So the bond market is telling you that there are some concerns there.

02:59But on one hand, you have the Fed independence question, you know, with Hassett as, you know, basically tied to the administration.

03:07But on the other, does he have the credibility within the committee to drive consensus?

03:13And so we don't know that answer. I don't think he has that credibility.

03:17I think that's what the bond market is telling you.

03:20Ah, the narratives that are out there.

03:21Hey, Greg Peters, Co-Chief Investment Officer at Pigeon Fixed Income.

03:24I want to just ask as we wrap up here and first to you, Ira.

03:27I mean, what's more important next week?

03:29Is it the Fed under Jay Powell, what he says and does next week,

03:32or our expectations around what a Fed could be with Kevin Hassett as Fed chair?

03:37Well, I think next week it's the summary of economic projections, right?

03:41Because you're going to cut.

03:42I forgot we get that.

03:43Yeah, the summary of economic projections and the dot plot will probably be what moves my market.

03:47Two-year yields in particular, I think if you see any decline in the median dot,

03:51that you're going to wind up seeing two-year yields probably rally even as much as 15 basis points in a hurry.

03:56All right, good stuff. Stuart, your last thought on that.

03:58What do you think is more important?

04:00Dot plot matters way more.

04:02So neither of my choices.

04:04Oops.

04:05Dot plot matters way more.

04:07And I'm actually really worried about the distribution of dots showing to emerging camps.

04:13You're going to have some folks, again, looking to guard against the labor market.

04:16But we also know that next year's slate of voters from the regional Federal Reserve banks

04:20are going to be quite a bit more hawkish than this year's regional Fed.

04:23Is inflation still back there, guys, as a backdrop?

04:25I agree.

04:26Right?

04:27It's still there.

04:28It's inflationary pressures that are out there.

04:29That's right.

04:30I mean, look, we still have inflationary pressures.

04:32Just tomorrow we're going to get the much delayed September personal income and outlays report with PCE inflation.

04:37The annual pace of PCE inflation, core PCE inflation, is still going to be running 2.9%.

04:42Right.

04:43It's not the sort of thing that's going to keep...

04:45That's not the sort of thing that's going to alleviate concerns around inflation pressures.

04:49I think that the thing that probably matters more is that services inflation pressure is softening.

04:53And again, that just, again, focuses the Fed back on the labor market.

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