00:00The long bond and the rise we're seeing in yields.
00:02President Daley, from your standpoint, what signal, if any, do you take from the sell-off at the long end?
00:08Well, you know, when you look at the long end, it is typically driven by structural factors like fiscal sustainability,
00:14geopolitical rebalancing,
00:16the massive AI investment for this industrial renaissance, which people are very excited about.
00:22And those factors are driving this.
00:24The thing that I look at specifically is this is happening across the globe.
00:27It's not just a U.S. phenomenon. It's a global phenomenon.
00:31And it doesn't give us a lot of signal about what we should do in the policy adjustments or the
00:36policy calibration for the Fed.
00:38And there, if we look at the short end more than the longer end, paying attention to the longer end,
00:43but really focusing on the job number one, which is restoring price stability right now.
00:48Do you think, President Daley, that the long end of the yield curve is doing some of the work for
00:52the Federal Reserve
00:52by tightening monetary conditions in a more significant way?
00:56You know, I always hesitate to say that the market's doing our work.
01:00But what I will say is it begs the question, what problem are we trying to solve by adjusting policy
01:06preemptively?
01:07You know, there's a lot of discussion about our credibility.
01:10There, I don't see our credibility at risk.
01:13I also hear a lot about, should we be making preemptive cuts or hikes, rather?
01:18And I don't see a lot of evidence that that's an urgent problem to solve.
01:21So, really, this is about watching the inputs from the financial markets, looking at the 30, the 10, and the
01:282,
01:28and asking, are we getting mixed signals or different signals?
01:31And, you know, right now, on the shorter end of the yield curve, markets seem to have priced in a
01:36little bit more tightening.
01:37But they're reacting to the data just like we would expect them to.
01:41Inflation prints a little softer than they expect.
01:43The labor market a little softer than they expect.
01:46They push out rate hikes that they had priced in and adjust as the data comes.
01:50So, I think they seem to be signaling to us that they understand our reaction function.
01:55And, importantly, I'm looking at inflation compensation and inflation expectations.
02:00And you don't see any, you know, worrisome swings in those pieces of data either.
02:05So, I think policy is in a good place.
02:07But watching this 10 in 30 to see what we need to think about, what are the structural factors,
02:14it's giving us a signal about something.
02:15And I think one of the big signals is the AI demand.
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