00:00Jeff you look at these numbers and the numbers we're anticipating next week as well Jeff. Are we set for
00:05a hawkish turn from this Federal Reserve. Well we are and we have been for some time as the data
00:11is accelerated. You know the first we had the acceleration on the inflation side and really more than the acceleration
00:17it was just the lack of the deceleration on the inflation story. You know this morning and I think you
00:22guys have honed in on the on the key number the three month average printing at 188 the combination of
00:28today's upside surprise
00:29plus the revisions you're changing the narrative on the labor side. So the combination the old story was a weaker
00:37labor market an expectation of falling inflation and we need these insurance cuts. And as you were highlighting Matt Lizetti's
00:46point you know maybe they took out too much insurance. Well that's kind of after the fact because the facts
00:52have changed. So the facts that are changing here is a stronger labor market a fourth supply side shock in
00:58the form of the war.
01:00and its impact on oil inflation. And absolutely we've changed the narrative that's already been in the price. It's going
01:07to continue as you're seeing in the markets here today.
01:10And that hawkish turn as you highlighted you know we're going to validate that you know with the with the
01:15change in the language in the June FOMC. Jeff forgive me but shifting to neutral doesn't really feel hawkish.
01:21Moving to hike and then hike again and hike again feels hawkish. Are we going to get that kind of
01:27action from this Fed? And how high is the bar for that?
01:31Well the bar for June is high in that this Fed you know wants to move slowly typically tends to
01:37move slowly.
01:38And the issue that we're going to have from the Fed perspective is is managing the dispersion within the committee.
01:44So you're not going to get that clear signal.
01:47But the direction of travel is clearly there. The question is will the Fed get out ahead of where markets
01:52are pricing or are markets going to try to push the Fed.
01:56So far it's the latter. The markets are out ahead of the Fed. And really what we're seeing here likely
02:01to see here I should say in the June FOMC is is the Fed playing catch up.
02:06Well and Jeff this is the key point that a lot of people are making is that the Fed's behind
02:09and the market's kind of leading the charge.
02:11And they're looking at the data and they're saying that there is enough labor market tightness to foster inflation going
02:17forward in addition to supply shocks and this existential spend on AI.
02:21Would you bet with the market or would you bet that the Fed has too high of a bar to
02:25actually hike rates based on who's what the composition of the Fed is and frankly what the drivers of inflation
02:31really are.
02:32Yeah you know we're right on the precipice of pricing in a full hike for this year.
02:38So that probably feels about right given where the data is relative to where how lag the Fed is and
02:46not wanting to be in a hurry for many reasons to move towards towards a hike.
02:51And if they can just hang on to the inflation data not aggressively reaccelerating upwards and they're going to need
02:59a little bit of help there and they're getting it from the oil price situation.
03:02You know I don't think they're going to be in a hurry to raise rates and so pricing in more
03:07than that you know unlikely.
03:09Other point here and John Jonathan usually say you know the first reaction is not the last reaction.
03:14There are some kind of one offs in this labor report that is probably overstating that headline.
03:20The market's going to react to the headline but give it some time to look through.
03:23You got a government number in there that looks pretty outsized.
03:26You got a leisure and hospitality number that looks a little outsized.
03:29No doubt this is a strong report but when the dust settles it's really going to be about the gradual
03:37strengthening in the labor market.
03:39And can you see this kind of stabilization and inflation that keeps the Fed from having to move towards a
03:45more aggressive tightening phase.
03:47I think that's where we'll get to. But again it depends on you know particularly that path of inflation.
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