00:00Kevin Warsh says he wants to get an unfiltered message from markets. He sees the markets as a very good
00:04source of information.
00:05And I'll start with you. What is your interpretation of the message that the market is sending with this bear
00:10steepening of the yield curve?
00:11Yeah, I mean, I think the key takeaway is the Fed delivered a dovish surprise relative to market expectations.
00:18And the market responded by putting in more inflation risk premium into the curve, particularly into the longer part of
00:24the curve.
00:26So, you know, overall, the message is, one, it's a relatively steep learning curve for the for the chair.
00:34There's room to course correct, you know, in the coming quarters.
00:38But it is a little bit of a concerning takeaway because the messaging from the Fed has been extraordinarily muddled.
00:46And maybe some people say that's the way he wants it.
00:49This return to the Alan Greenspan days where you weren't quite sure what you got.
00:53Nicola, how are you thinking about this?
00:55I think you get zero communication, zero forward guidance from the Fed simply because they want the market to start
01:03going its own way.
01:05So don't rely on the Fed.
01:07Rely on your analysis, your modeling, your macro picture, and then try to translate that into yields, into calls on
01:16rates.
01:17Don't expect the Fed to tell you the direction.
01:20Just look at the numbers and make your own assessment as simple as that.
01:25And this makes absolutely sense.
01:27So he's letting the market do the tightening.
01:30If outsourcing everything to the markets is kind of his M.O., Nicola, how far can the market go on
01:37this, the market tightening?
01:38How far does it go?
01:40And what's the fallout from that?
01:41To me, there is a misinterpretation of the macro dynamics by the market at this point in time.
01:47So the market is not always correct about its assumption.
01:51And to me, at this point in time, it's particularly wrong because there is a clear softening of the inflationary
01:58dynamics, despite what is going on on the oil price.
02:02But at the same time, there is also growth dynamics that are very stable, but on the back of meaningful
02:09cap expenditures by firms.
02:11This will not last forever.
02:13So the market now is pricing in on the long end a lot of term premium, a lot of inflation
02:21expectation, growth expectation.
02:23Otherwise, really wouldn't move so high.
02:26But at a point, the market, I think, will have to reassess this because we are coming from two years
02:32in a row with two shocks, the tariffs and the Middle East.
02:35And then both of them will clearly have a less negative impact going forward.
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