00:00It's very clear that bond yields at 19-year high.
00:02Send us something.
00:03It's a warning signal for Kevin Warsh at the Fed.
00:06Does that challenge his expectations?
00:10So I think it was a real surprise.
00:13I think a lot of people were expecting him to come out
00:16and give a strong performance at the press conference.
00:19And, you know, fairly or unfairly,
00:22the market has sort of judged this as, you know,
00:25a weaker press conference than expected.
00:27And I think principally because there was an air gap
00:29between the rhetoric around commitment to price stability
00:33and, you know, an awareness that inflation has been away
00:37from the 2% target in the U.S. for really quite a long time,
00:41five years, and yet not taking it looking like
00:45there was no appetite to surprise markets
00:48with what is, you know, not a very dramatic 25 basis point hike.
00:53Now, a charitable view of that would be, you know,
00:57that perhaps he's finding his feet a little bit like President Lagarde
01:02in the early days, you may recall.
01:04And now, you know, she's seen as quite a credible central banker.
01:07So I think, you know, clearly all is not lost.
01:10That perhaps he's falling more in the footsteps
01:12of an incremental approach, despite, you know,
01:15what he was talking about at the press conference.
01:18And I think for us, the view is still that that hawkish tilt
01:23is going to come in September with three sequential hikes.
01:27But clearly there is a big risk here
01:29because it's got a whiff of discretionary monetary policy,
01:32which we know doesn't work.
01:34And he, the market could sort of bully him
01:37into doing, you know, perhaps even a 50 basis point hike.
01:41So I think that is the real risk here.
01:43Because, Catherine, there's no doubt in your mind
01:45that he needs, I mean, that the Fed should deliver something faster.
01:50From a pure, you know, economics perspective,
01:53I think it is a complete no-brainer
01:55that rates need to be higher in the U.S.
01:58And that is not something that is new this month in July.
02:01It's, the writing has been on the wall for quite some time.
02:04I mean, the ECB, with a much weaker economy,
02:09with inflation at the target,
02:11and inflation now really not that far above the target,
02:16they're already hiking.
02:18And markets have a very clear view
02:21around the ECB's reaction function.
02:24And because of the resurgence in, you know,
02:28these tensions in the Middle East,
02:29you know, gave what, you know,
02:31had a, you know, quite a hawkish tone at their meeting.
02:34So we kind of know what to expect.
02:36And it does seem at odds a little bit
02:39with the messaging that we've had at the Fed
02:41that I think people were expecting that
02:44to get put right, you know, yesterday.
Comments