00:00What forum do you think this press conference is going to come in?
00:03Do you think that it will be the typical display and explanation of the deliberations,
00:08or will it feel different in a new Warsh era?
00:12I'm not sure it's necessarily going to feel different, per se.
00:15I mean, Warsh has to really focus on the power of persuasion.
00:18But I think in this meeting, you have sort of that emphasis on most, if not all,
00:24committee members believe this is a, you know, they're going to remove the easing bias.
00:29We're obviously not going to cut.
00:30They're going to keep the higher for longer.
00:32And even those that are more hawkish members like Hammock, I don't think no one's going to say,
00:36okay, we should be hiking right now.
00:38So that hawkish outlook is really just because they're going to remove the easing bias.
00:42We're probably going to take out the 2026 cut.
00:46But our expectation is, is that the next move is still a cut and not a hike.
00:50We're just pushing that out into 2027.
00:52Leslie, do you think that the drop in oil prices and the potential truce between Iran and the U.S.
00:58will materially lift the desire for markets to see a hawkish tilt from this Federal Reserve?
01:04Well, you know, what's interesting about that, Lisa, is that if you look at even prior to this agreement, right,
01:08we had oil falling, inflation expectations were coming down, both in the long end and in the short end.
01:13But even as oil fell, two-year yields were still rising.
01:16And they were still rising because the market was pricing in that almost 100% chance of a hike in
01:21December 2026.
01:23Now, what's happening now is oil prices are coming down, but the market is moving those hikes now.
01:27And because of that, the two-year yield is coming down.
01:30So we can't say with certainty, you know, what's going to happen with this agreement because we don't have enough
01:34details yet.
01:35But one thing that the market is pricing in today is that it's taking out those hikes.
01:41And because that yields are coming down more than even what you're seeing in the decline in oil,
01:45because, again, those inflation expectations were coming down prior to the agreement.
01:49So based on what we hear from the White House and Iran and also what the market is telling you,
01:53do you just think they're on hold for this year?
01:57I do.
01:58I do think they're on hold for this year.
01:59I mean, unless there's some, you know, fatal event that we're not seeing.
02:02But, you know, we just don't see that.
02:04I mean, growth is obviously, you know, much stronger than what people expected.
02:08I've never heard the words resilient and uncertainty so many times in the same sentence as we have these past
02:13three months.
02:14But, listen, growth has been resilient.
02:16And so has the consumer.
02:17You're looking at 2.6% real for the second quarter.
02:20We have retail sales this week, which is supposed to be above consensus.
02:23So that growth component, you know, is hanging in there.
02:26But the issue is, is how that labor market really starts to play out.
02:30And, yes, we saw a strong number, but you can't take one number with complete certainty.
02:34So I do think they're just going to sit back, you know, exercise that option that they have
02:38and just sort of wait and see and have the data come in before they shift, you know,
02:41probably in the first to second quarter of 2027.
02:45Do you think Kevin Warsh just sits back and doesn't decide to play connect the dots
02:49and decides to not put a dot on the plot?
02:52Yeah, that's a great question.
02:53And, actually, I'm not sure because there's two things to that.
02:55One, it wouldn't be unprecedented, you know, if he didn't.
02:58And if he didn't, he's sort of standing by his conviction that he doesn't believe in forward guidance.
03:03But, again, at your first meeting, to not sort of, you know, show your opinion in those dots,
03:08I mean, what Warsh has to worry about is a power of persuasion, right?
03:11So to not put a dot in there I don't think would necessarily be the best move.
03:15So, honestly, I don't know.
03:17I think that he does.
03:18But unless he really wants to stick to his conviction regarding forward guidance or the lack of forward guidance he
03:24wants to see going forward,
03:25and he simply steps back.
03:26I love it.
03:27To dot or not to dot and the idea of will he put his dot on that plot?
03:32Well, it would be a little scandalous, almost to Leslie's point.
03:34He'll be making a real statement his first meeting, deciding to not put a dot there.
03:39And then what does that say to the rest of the committee when he's trying to persuade them towards how
03:43he thinks about the world and the economy right now?
03:45You know, Leslie, we were talking about how it's not just the Federal Reserve.
03:47We're getting meetings from the Reserve Bank of Australia.
03:50We're getting the Bank of Japan meeting, potentially to hike rates.
03:53That's what the market is expecting.
03:55You have the Bank of England.
03:56You have the Rix Bank.
03:57You have a whole host of different other central bankers that have to make a decision.
04:01How much does Kevin Warsh set the tone for them?
04:04Well, listen, I think that we've obviously seen, you know, divergence come to convergence, right?
04:09Because, you know, if we go back to February for the U.S., we were actually on more of a
04:13cutting cycle.
04:14Everyone is still sort of like in that hiking path, given that they focus, especially in Europe, on that one
04:19mandate, which is price stability.
04:21But now you're seeing a bit more convergence into how people are thinking.
04:24I think it's expected that they, as you mentioned, that the BOJ, you know, hike, same with the BOE.
04:29I think going forward, what's going to be interesting is to see how much, you know, pass through these supply
04:35shocks actually have.
04:37You know, if these are not demand-driven, so we really need to see what the input will be.
04:42And if, in fact, inflation does stay that much higher for longer, even though it's not expected and it's just
04:47supposed to pass through.
04:48Does it concern you how strong you've seen capital markets in the face of higher interest rates, higher oil prices,
04:54and a lot of uncertainty?
04:55You know, it's incredible how little the spreads have moved in both high-quality, say, you know, agency MBS or
05:02IG, and even in high-yield.
05:04You know, you still have a lot of dispersion in the high-yield market, but they have really stayed in
05:09a very tight range.
05:10Now, granted, you know, we have that.
05:12We talk about that wealth effect and that compounding wealth effect that we've seen since 2022.
05:16We have over $8 trillion of cash on the sidelines.
05:19And the yields are very, very high, right?
05:21This is a yield-driven investment type of environment.
05:24This is not a risk-premium type of drive.
05:26So I'm surprised how well that they have stayed sort of contained, but financial conditions remain loose.
05:32The capital markets remain open.
05:33We're still seeing, you know, growth do well as well as earnings.
05:37But I do get concerned a little bit given the fact that right now people are really investing for the
05:41yield and not necessarily what they're being compensated for.
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