00:00We've seen this sort of global hint towards inflation concerns yesterday. It was the ECB last week. It was Japan.
00:06Today, the RBA talking a little about inflation. A previous guest on this program was not worried much about certainly U.S. inflation.
00:13How concerned are you around the inflation theme and the higher yield theme that seems to be building?
00:18Yeah, I mean, certainly the higher yield theme, I think, is something to take seriously.
00:23This is actually pretty normal behavior for markets.
00:25So what you see is that the market looks for the hiking cycle that's coming next, well before the end of the cutting cycle.
00:31And that becomes easier because there's a shorter lag between the cutting cycle and the hiking cycle that comes next when there isn't this great economic damage, which we haven't seen.
00:41And you're also talking about inflationary pressures, particularly in the U.S.
00:43I think there's different concerns everywhere, but I think certainly in the U.S. you need to be worried about inflation heading into next year.
00:50And so you're looking for the hiking cycle before you get to the end of the cutting cycle.
00:54And even when you have that firmed up and when you expect the first hike, you'll start to rise from nine months before that.
01:00So I think certainly heading into next year, as you're talking about inflation potentially being higher in the U.S.,
01:05maybe you get some kind of fiscal bill heading into midterms.
01:08You need to be talking about it and you'll likely see that continued pressure upward on yields.
01:13Is the Fed going to give us a clue today as to when that happens?
01:15I'm wondering what the Fed can say today and tomorrow.
01:18Yeah.
01:19And what Powell, he sits down today and he goes, right, OK, guys, we have no data.
01:24So what decisions are we going to be making here?
01:26So is this a is this a redundant meeting from the FOMC?
01:30I know everybody's very excited about whether it's hawkish or dovish or whatever, but but I'm wondering how useful it is in terms of what it's going to tell us about what comes next.
01:37I think it's useful because we're now moving to a type of FOMC where you're looking at what the individual members think and care about.
01:44So the meeting tomorrow, I think certainly because pricing is skewed so dovishly, you're up on the hawkish side.
01:51And what you're looking for there is how many dissenters are there.
01:54You're likely having one dovish dissent, but I would expect at least two hawkish dissents for a hold.
01:58And you're also looking at the dot.
02:00So next year is there still only one cut expected.
02:03So that gives you some kind of guidance on what to think.
02:06But I think certainly what you've also seen from the last five FOMCs is that Powell has corrected the market hawkishly in the press conference.
02:14So what you tend to see is the dollar sells off because the market wants to be dovish on the immediate reaction.
02:19But that ends up higher three, six hours later because Powell's more hawkish.
02:24How do you think, Skylar, people should think about dissents at the Fed?
02:27We talked about this, you know, quite a bit of a newer phenomenon.
02:30Other central banks, there's more history of dissent.
02:34We, you know, many in the market don't want to see a lack of independence at the Fed.
02:38So how should we think about dissent?
02:39I think it's certainly a positive signal for independence because it means that you're not all coalescing around a Fed share that maybe isn't as independent as you would hope for.
02:48And I think it means that you have more volatility next year, right, because every meeting people are taking individual views on how that economic data is coming in.
02:56And it means that you have more likelihood that you'll get kind of pinged around.
03:00And we certainly see it in the Bank of England that a decision comes and what the dissenters are does impact how hawkishly it's taken and you get more volatility as a result of that.
03:09Bank of England is just becoming impossible to call at the moment.
03:11You do wonder whether the Fed's going to end up in a similar situation very, very soon.
03:14Skylar, nice to see you. Thank you very much indeed.
Be the first to comment