Jeffrey Rosenberg's Three Takeaways From the Fed Decision

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00:00Is this risk on? Well, you said one of my three takeaways, which is number three of today's

00:07meeting, which I'll call QE confusion. I'll come back to that. The first takeaway is the pause is

00:12in. We kind of knew that. The second one, which you've already talked about, is why? Because we're

00:18in the realm of neutral. And the third is getting a little bit confused about the QE confusion.

00:24It was a little bit more dovish than maybe expected, as the previous commentators talked

00:28about. But it's not that far off of expectations. The market's at about a 90 percent expectation

00:34for the 25 basis point cut expected for a pause. It'll be data dependent, as you were previously

00:41discussing. If it's 4-7, you know, that's a different set of circumstances. And Tom, as

00:46you said, you know, you can throw the rest of this analysis out the window because the facts

00:51have changed. But we don't know that is happening. So given the trajectory that we have today,

00:56the Fed's on pause because we've gotten to the realm of neutral and the other side of

01:00the debate, inflation, wages, growth, all basically say this isn't been a particularly restrictive

01:08Fed. Even if they think they're on the high end, now they're, you know, in the neutral

01:12end so they can wait. And we'll see how the data evolves. To your point on QE, he only gave

01:18you half the story in terms of expanding the balance sheet because the other part of the balance

01:22sheet is contracting because the mortgages run off. But that technical detail got left

01:26off. I think it was an accidental dovish commentary on the QC. He kind of dismissed and said, hey,

01:33everybody knows this. This is a technical factor. And the preamble ahead of the QE comment was,

01:40please disregard everything I'm about to say in terms of its implications for monetary policy.

01:45Of course, nobody did that. And they hear the Fed's buying treasuries. And so there's the

01:49knee jerk response to that from what we were taught over the post GFC environment. So there's

01:56a little bit of a misread there. But it is what it is. It's a little bit less of a hawkish hold than

02:02the market was expecting. Jeff, 12 minutes ago, I was thinking of Alan Meltzer of your Carnegie

02:07Mellon University. How far are we from a traditional Fed analysis, whether it's Meltzer at Carnegie Mellon,

02:15Clarida at Columbia, John Taylor out at Stanford? How far are we away from conventional theories,

02:24plural? Well, I think the key thing that kept coming back over and over again in this meeting,

02:30and it happened in October, was the difference in Fed policy today. It came up around the questions of

02:37the comparisons to the mid 1990s. The challenges to Fed monetary policy when its dual mandate is in

02:44conflict, right? There is no divine coincidence of monetary policy. There is no environment that

02:51we had over that prior 30 year period of too little inflation. So there is no risk free path. And that's

02:58really the biggest difference here. And they're still navigating that. And I think the discussion

03:02about how everyone on the panel, on the committee agrees to the facts, but we disagree on how to

03:08deal with the risks. And that's getting to the heart of inflation versus growth. And which way do you

03:13emphasize? I'd add the piece that's missing to this conversation, however, is that if you're,

03:20is financial conditions. And that if your goals are conflicting, and it's sort of a tie,

03:27then I think you break the tie with financial conditions. But they're just not discussing

03:32that at all anymore, which I think, you know, could come back to haunt them. But I think that's

03:36the piece of the conversation. Mike McKee, maybe next press conference would be interesting to ask

03:42that question, because they used to talk about it all the time. The whole point of the balance sheet

03:47was portfolio rebalance. The impact of the K-shaped recovery, they've had a lot to do with that in

03:53terms of the wealth effect is supported by the balance sheet and the Fed's activities. They absolve

03:58themselves of any of that. I think there's more there to unpack.