Markets Could Say 'No More' to Fed Cuts, Says New York Life Investment's Goodwin

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Watch Markets Could Say 'No More' to Fed Cuts, Says New York Life Investment's Goodwin - Bloomberg on Dailymotion

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00:00I think we're all happy that we're getting to the end of this year, which has been a wild one.

00:04And we just had our last Fed meeting of the year. Did it play out as you expected?

00:09Yes, with an important exception, which is I just really was not expecting Chair Powell to say,

00:16we've reached a range of neutral estimates, so your guess is as good as mine. And I think that's

00:20super reasonable. Yeah. It's like Jay Powell gets real, right? Yeah. And in many ways,

00:27it isn't that what he said is unreasonable or super surprising or weird. There's nothing like

00:34that. But the willingness to just open that conversation around, OK, we are in this range

00:40of estimates for the neutral rate is so important because the quibbles that myself and my team have

00:47had with the market pricing of the Fed funds rate recently, looking ahead to 2026 has been really

00:53it's on the margin. It's like, look, if if we expect pretty good growth and sticky ish,

00:59but nothing problematic on the inflation front, then like if I say one or two more cuts and you

01:05say two or three, like, is that really the difference maker? Probably not. But opening

01:10this conversation about like, OK, we're in the range of neutral does raise what I think is a

01:15really important question, which is as we get as rates move lower, if we get to that three ish

01:22percent range where it's more or less the lower bound of what most people think could be neutral

01:27for the Fed funds rate, then that's when I think we start to see the market say no more.

01:34And actually that Fed cuts become a problem for the long end. How do the markets say no more?

01:38By the 10 year moving higher, essentially a curve steepening. OK, you know, that is such a good

01:45question. I you know, in the sort of 410, 420 range that we've been, I think we I think if as we move

01:51below three, we get 10 or 20 basis points pretty quickly. And if the Fed is not sort of signaling,

01:58let's say, any cuts beyond that being on the hawkish side, then we could actually go higher.

02:02So like, well, this is something we talked about with Katie Kaminsky of Alpha Simplex,

02:06like trying to get an idea of what's the upper rate. Like we have quite a range in terms of

02:11movements that we've seen, I feel like over the last year or so. So five percent, I think.

02:17Or is that extreme? I think that's that that's that would be pretty bad news. I think it's not

02:22it's not extreme in the sense that if I look at the economic backdrop of strong growth, a strong

02:27pretty heavy deficit and still pretty supportive fiscal backdrop next year. Yeah. And a geopolitical

02:34backdrop, that's very uncertain. Like I can come up with 10 or 15 ways that we could get for five

02:39get to five percent. But that's not really the scenario I'm talking about. And the reason is,

02:44I think that regardless of who sits in the Fed chair seat next year, second half of next year,

02:50they don't want that. The president doesn't want that. And so I'm actually not as worried about

02:56Fed independence as maybe I would otherwise be as a macro person, because I just think the market's

03:01going to matter. So we agree. Something that I've been thinking about is if you weren't paying

03:07attention to any of the data or alternative data that we've gotten over the last three months,

03:12you had been taking a long nap, for example. That sounds great. You woke up just to see

03:18the press conference yesterday. What was the impression and what is the impression of the

03:24economy that you got from Jay Powell? Everything's fine. Nothing to see here. And I got to be honest

03:34with you. He sounded more optimistic. Yeah. Than I thought. Well, you said, you know, we keep seeing

03:40people letting workers go. I hear anecdotes about this low hire, low fire environment and people

03:45being not getting headhunted at all. And like that's slowing down so much. College graduates not

03:51getting jobs. Like, so we're trying to kind of square that. And it seemed like he was like,

03:54everything's kind of fine. So here's the thing. I want to come back to the college graduates and

04:00the low fire, no higher, because I think it's really, really important. And we have been in a

04:03soft patch. I believe that we have been in a soft patch this quarter, not helped by the government

04:07shutdown, but we've been in a soft patch. Right. When you have earnings growth, like we have seen,

04:14you cannot have a massive wave of layoffs. You could with sort of the technological developments

04:21and AI, et cetera, but that's not what's happening right now. And I don't think that's what's going

04:25to happen in 2026 either. It is just, look, coming back then to the no hire, no fire. If

04:31the market has recovered beautifully this year, but if you're a business of any kind,

04:39you are either saying, looking at the Supreme court decision on tariffs and sort of the business

04:45backdrop ahead. And you're saying like, things actually look pretty good, but I don't know.

04:49I'm maybe not leaning into hire or add 10 people to my team. Or you're saying things look pretty

04:54good, but maybe I'll wait to see what happens in the first half of the year before hiring. Cause

04:58this AI thing, maybe we get some synergies. So I don't think it's a, what I'm not seeing from

05:03the labor market is like a big bearish concern. I'm seeing a, a wait and see. And that's again,

05:09that's a backdrop where if we see, and I do expect that we will, the benefits of the one

05:14big beautiful bill act for both businesses and consumers pulling us out of this soft patch in

05:19the first half, that's probably not a super negative labor market backdrop. But is it

05:24inflationary? I think so. Yeah. I think so badly, or is it manageable? Does it mess up the fed and

05:29its strategy? So my, based on what I heard yesterday, I think our base case is actually

05:35pretty aligned with the feds, which is so boring. You love to have, uh, you love to have real fights.

05:38Very good company though. But I think, you know, look, inflation's gone nowhere this year where

05:43we've been sitting around 3% for 12 months. Um, and the answer to your question is I don't actually

05:49expect the inflationary backdrop to be incredibly problematic, but we saw these sort of shadow

05:55descents yesterday that are suggesting, look, if things go pretty well next year, that is a potential

06:00staying where we are, or maybe even seeing a hike by the end of next year for the fed.

06:05That's a good economy. That's a, that's, that's, that's a reasonable backdrop.

06:10Right. Um, it's responsible in terms of what the fed or, or, or certain members of the fed being

06:15concerned, right? Exactly. Now, if you look at, um, and we did a deep dive on this, gosh,

06:20I guess a year ago, but if you look at the instances of real double peaks in inflation in

06:25U S history, and we have a couple ones after world war two ones in the seventies, eighties,

06:29there's some ingredients that they have and all of them are possible in 2026. So one of the

06:36ingredients you have is you have sort of just got about 30, 35 seconds, double dip in, uh, goods and

06:42labor supply, demand and balance. Tariffs could be providing that for inflation. We don't know.

06:47You have a super accommodative fiscal policy and artificially low fed funds rate. Those are not

06:53worrisome conditions right now, but they, that that's an outside risk, but the conditions are there.

06:58participation of the biggest issues there.

06:58er.

07:00Right.

07:01right.

07:02Right.

07:02right.

07:03Right.

07:04Right.

07:05Right.

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