00:00Jeff, what's the bull case in the face of what's brewing elsewhere?
00:05Well, you know, you highlighted it well between trying to disconnect what's going on between oil prices and the committee
00:12meeting today and what we heard.
00:14And, you know, I want to highlight, you know, the thing that I found most interesting about Powell's comments were
00:21explaining the I think the second main point and takeaway of the meeting,
00:25which is this this theme of a divided committee that comes out of the eight to four vote.
00:30And he framed it as a natural consequence of the conflict in the Fed's objectives between growth and inflation, which
00:38the hundred twenty dollar oil, you know, is that is that, you know, point.
00:43And he got asked the question about pass through. And this is, I think, what the markets are really struggling
00:48with is he basically made the point.
00:50It's all about the time of which the Straits of Hormuz remains closed. And no one knows what that will
00:57look like.
00:58So Jim just talked about the forward curve, you know, December contract making its new highs.
01:04But it's it's significantly lower than the front end of the curve. So there's an expectation here that at some
01:10point that's opening up.
01:11We don't know what that is. And I think divided committee is likely to be the continuation because of this
01:18point that Powell highlighted,
01:19that when you're faced with the conflict of the dual objectives, that people are going to see that in different
01:25ways.
01:26Some are going to be arguing for the growth impact. Some are going to be arguing for the inflation impact.
01:30And that might be the more expected outcome as as opposed to what we've seen.
01:35And the historical comparisons of this being, you know, very unusual, maybe get used to that being a little bit
01:41more usual.
01:41Jeff, it seems like the conflict of the Middle East isn't necessarily that close to wrapping up.
01:45Maybe it is. And we just all are getting mixed signals.
01:49Do you think this market needs to price in a greater chance of a rate hike as the next move
01:54by the Federal Reserve?
01:56Well, it's already done that. And to this discussion about the easing bias and the language, you know, the market
02:02already took the easing bias out.
02:04It did that at the onset of the oil price impact from the Iran war.
02:09So I don't think that as a catalyst for sort of the next move that's made mostly, you know, the
02:15Fed is a deliberative body getting the right number of people willing.
02:19You heard Powell talk about that. They're slow to move that bias.
02:22The market is not. And it's moved the bias to easing out of the market pricing.
02:28So I don't think that's really the market event. The market event is really the uncertain, unknown question that he
02:34was asked.
02:35What's the pass through from headline inflation to core inflation?
02:39You heard Warsh talk about it in terms of trimmed mean and not looking at core PCE as a measure.
02:46That's a very particular way of looking at the potential for pass through.
02:51Will he get and move the rest of the committee onto that view?
02:55If so, that's a very dovish implication and you bring the bias back in.
03:00But as Powell highlighted, we really just don't know.
03:03So you're going to have to see whether or not those pass through of headline into core shows up,
03:08whether Warsh is more by the dovish interpretation shows up and whether he can push the committee towards his direction.
03:14And that will bring the bias back into market pricing. But right now we're pricing it out.
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