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00:00But I want to get to the broader markets and we have a Fed meeting next week and there's a lot
00:05going on in rates as well. So let's bring in Rick Reeder. We have a ton of economic data coming out
00:12at the top of the hour, Rick, and normally we would have also jobs day to day. That's going to be
00:17pushed forward a couple of weeks or back a couple of weeks, I should say. And this leads me to my
00:24my main question. Why would the Fed meet next week if they're not going to get the big jobs
00:31number out until after their meeting? Why not delay your Fed meeting, you know, break up your
00:38precious schedule, get a little closer to Christmas? I get it. Everyone wants to be home for the
00:43holidays. But isn't the U.S. economy important enough for them to do that? It's a great question,
00:48Matt. I mean, listen, I would say one thing. I think there's not a lot of ambiguity about the
00:53velocity of hiring in the United States today. I mean, you see, obviously, we got the ADP data,
00:58the claims data we got yesterday, but that's pretty ambiguous because of the timing around
01:02the holiday. But boy, you see it in firms of where companies are going. I mean, literally every day.
01:07And you see, by the way, on the backside of M&A. I mean, to me, it's pretty clear that we don't have
01:13any hiring velocity today and that the Fed, I think that it's a pretty clear, you got to get that
01:20funds rate closer to 3 percent, if not at 3 percent. And so I think you've got enough data
01:25to do that. And you don't have enough data that suggests that inflation, certainly over the
01:30intermediate term, is accelerating. So I don't have any issue with the media. I mean, I think
01:35they can move closer to 3 percent sooner. So and I think you've got enough data to allow you to do
01:41that. All right. So you think it's a lock and it doesn't really matter. They might as well cut
01:44now if they're going to cut. By the way. Yeah. By the way, I actually don't think it's a lock.
01:49I actually think, you know, when you look at we're going to have probably have some dissents,
01:53you probably have a disagreement. I think it should be a lock. Listen, I think the fact that
01:58we haven't heard anything otherwise that they're probably going to go. But I definitely don't think
02:03it's it's 100 percent that they're going to go. All right. That's interesting. So you think we're
02:08going to see more dissents. Does that continue, Rick? Or do you think, you know, once Jay Powell
02:14is done and the president puts in whomever his pick is for Fed next year, that we're going to see
02:21less dissent? Or is this a new feature of the Federal Reserve? So I don't, you know, personally,
02:28I don't think it's a crisis that you have some disagreement. You have some independent voters.
02:33You have some independent people on that Fed that are interpreting the data differently than others.
02:37So I'm not sure that it's a structural problem. Listen, I think that to me, the data is very clear.
02:44That inflation is a bit elevated today, but productivity and innovation will deal with
02:49that. And that is that is so clear to me. And then and then the flip side of that productivity
02:54and innovation are creating an incredible lack of hiring for ordinary jobs, lower skilled jobs,
03:02et cetera. And so, you know, how people interpret the data in the near term, I don't think it's a
03:07structural issue that you have those dissents. I just think going forward that, you know, we're going
03:13through what I think is the most extraordinary industrial revolution we've seen maybe in a
03:17generation. And I think the offtake of that is pretty clear in terms of what it means for jobs
03:23and inflation. Let's talk about the the next Fed chair. I mean, reports suggest that Kevin Hassett
03:30has has won this contest. And I wonder, as someone who runs one of the most important rates businesses
03:36in the world, what do you think about Kevin Hassett as a pair of hands to run this Federal Reserve?
03:43You know, I will say that I'm not going to comment on any individual. You know, the thing
03:48the thing I will say is, I think I think this Fed will, you know, continues to be one that will
03:54analyze the data. I think the data will be is clear today in terms of where it's going. You know,
03:59I think the thing that we've got to do is market participants is think about not just what are they
04:03going to do with the front end of the yield curve. But what do you do out further on the yield curve?
04:08You know, there's a bunch, you know, including with the with the name you mentioned, how people
04:12think about how does the 10 year react? How does the back end react to that? You know, one of I think
04:16one of the great expressions of the market today is I actually don't think that rates are going to be
04:19that volatile out the curve going forward. And so, you know, one of the great expressions of the
04:24market today is selling volatility in the rates market, which is which has been pretty,
04:28a pretty good trade. And I think will continue to be mortgages, agency mortgages also being an
04:33evolution of that mortgage rates and consumer borrowing costs are still high by recent standards.
04:38That's part of the reason I guess you want to get the terminal rate at 3%. But companies are telling
04:44us every day that tariff tariffs and policy uncertainty are more important than the Fed funds
04:52rate to their business. And we talked to economists like Diane Swank, who say that especially consumers
04:57at the lower end are not going to be helped by a rate cut. Anybody in the subprime
05:02borrowing area, which is massive, by the way, is like the bottom two quintiles of the country.
05:08Are we in a world where rate cuts just don't pack the same punch as they once did?
05:14That is a long and complex question. So I will say the answer is yes. The short term,
05:20the overnight funding rate is not nearly as effective a tool at moving monetary, at moving the economy as
05:27it used to be. For so many reasons we've chronicled before, service oriented economy, people borrow out
05:32the yield curve. CapEx is not driven by the interest rate today, it's driven by hyperscaler spend or by
05:38CapEx spend on AI, etc. However, long end interest rates do matter. And how you fund out in the five to 10
05:45year part of the curve particularly do matter quite a bit. It's part of why I believe that stability out
05:49the curve is so profoundly important. To say, though, the comment about getting the rate down
05:55doesn't help low income people is not true. The truth is there is a transmission mechanism
06:01that even if you move the front end of the curve down, as long as the curve doesn't steepen that
06:05much and there are ways to manage that, what you do is you create velocity of mortgages. You get
06:11the mortgage rate down, you create velocity of housing. It allows people to unlock value of their
06:15house. It allows labor mobility because people can move. There are so many. And by the way, whether
06:20it's credit card financing, whether it's auto loan financing, to say that it doesn't help to get that
06:27rate down, I think, is for particularly the place that it does help. Housing, low income, small business,
06:32and that's what needs the help today. Mortgage rates have come down. I mean, the 10 year is at 4.1%.
06:38This administration has been steadily moving it lower. Where do you think we see the 10 year,
06:46say, at the end of 2026, since the market believes that the Fed will cut rates to 3% or even a little
06:52bit more? So, man, I think the key is, so the answer is, I think it's going three and a half to
06:57four. And I think the key will be maintaining stability in and around three and a half to four,
07:02because if you get to three and a half to four, you get the mortgage rate into the mid to high fives.
07:07If you get the mortgage rate down to the mid to high fives, you see it today. Why is existing
07:11home sales picking up? Why are you seeing, you know, we see it in prepayment speeds in the
07:15mortgage market. You see high coupon mortgages that are widening relative to low coupon.
07:21As a result of the fact, you are starting to see some velocity around housing, existing home sales
07:27particularly. So if you get the 10 year, which I think can happen in three and a half to four,
07:33you get the mortgage rate in the mid to high fives. And by the way, I don't think it has to go
07:36much lower than that. That's where you get, you know, what I think is a much more effective
07:40operating ecosystem in the economy. How do you control or how does the Fed, as you said,
07:47focus on rates out the curve? We have a viewer writing in who wants to know what's the mechanism
07:52to do that? Many. So, you know, if you are the Federal Reserve today, you have, you know,
08:01when people say they have one tool, the Fed funds rate, I find that incredibly superficial,
08:05the handbook at the Fed has much more complexity to it. You can use the balance sheet. You can use
08:10their parts and use your voice. A lot of what Mario Draghi has done in the past, where you think about
08:15things like, gosh, if the amplitude of the curve is at a certain level, if the yield is at a certain
08:19level, you know, you think about the size of the balance sheet relative to the duration.
08:24And you think about how you can be effective about using the long end of the curve. There's not that
08:28much, there's actually not that much, you know, to get too technical duration, DVO1 out the yield
08:34curve, that you can be pretty effective at managing that relative to the front end. To your question,
08:38your point earlier, front end, the overnight funds rate is interesting, but it doesn't, moving at 25
08:43base points every six weeks, doesn't do a hill of beans for really until you move it to where it needs
08:49to get to. Unless you're moving it quickly, it doesn't really do that much. But managing further
08:54out the curve, where corporate finance takes place, mortgage finance takes place,
08:58structured finance takes place, that has real efficacy to it.
09:02I got to ask about Bink. You've outperformed the market universally 1.6 percent, sorry,
09:081.6 times the return, 1.8 times the return of the ag. So I'm just looking at the ETF that you run here.
09:16How have you got Bink set up for the Fed cuts, the path that you expect? And I wonder how the,
09:26you know, massive investment in AI, the huge borrowing that these hyperscalers are doing to
09:32build out this global network, how does that touch Bink?
09:35So, yeah, that's a great question. Thanks for asking. So I'll say a couple of things. My job
09:41literally is, you know, I'll say there's something, I was looking at it the other day. Do you know in
09:44fixed income, there's 1.4 million unique securities? So you think about all the tranching
09:49of the publics, privates, et cetera. My whole job and what I'm trying to do with, oftentimes what I find
09:54a lack of wisdom is I, all I'm trying to do is figure out like, what is the best value across the
09:59markets globally? Where do you take interest rate risk? Where do you take yield risk? Where do you take
10:03convexity risk? You know, so all we're doing and trying to do for people, because fixed income is
10:08pretty complex, is use our teams around the world. So today, you know, do you reduce a little bit of
10:13investment grade credit? Because to your point, there's going to be a lot of AI financing that
10:18will come. We've seen that in the last couple of weeks, few weeks. Do we need to own as much
10:22investment grade credit at tight spreads? Not really. It's not that exciting. Agency mortgages are more
10:27interesting. European high yield, European investment grade, we're not seeing as much of that AI and the
10:32growth is moderate, and you get a cross currency benefit. That's exciting. You know, having some
10:37interest rate exposure in places like Asia or in parts of the emerging markets. So I know the idea
10:42being just try and move around dynamically to where the best relative value is around the world.
10:47Today, credit is just okay. We still own, you know, we still like high yield. We've reduced some US
10:52just because it spreads have come in a bunch. But, you know, we're just trying to create,
10:57if we can create six and a quarter yield for people, stability. You know, the thing I'm most proud
11:02about is we keep our volatility down. Like that's fixed income. If you can get six, six and a quarter
11:07and then take the risk and equities to your point about AI and spend, pretty spectacular returns. So
11:13if you get it right around where the equity opportunities are. Well, it has been. I'll tell
11:16you, I'll tell you what, Rick, I put the Bloomberg data on your ETF on bank into chat GPT. And it
11:22came back with this. It says bank has outperformed broad benchmarks by a wide margin while taking notably
11:27less risk. It's delivered equity like returns versus the ag with roughly half the volatility and
11:33it's captured most of high yields upside with much smaller drawdowns. So high praise. Thanks for
11:38saying it. High praise from chat GPT 5.1. BlackRock's Rick Reader. That's just one of the many reasons we
11:44have him on this program. Really appreciate your time.
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