00:00What are you expecting now for Wednesday? Let's start there.
00:02Well, I think the bond market is making it pretty clear that the Fed needs to deliver a 25 basis
00:07point rate hike.
00:08I mean, that's the thing about this Fed, right, is that it is going to take the advice of investors,
00:13it's going to take the advice of primary dealers, of other market participants when they fill out the survey that
00:20they provide to the New York Fed ahead of every FOMC meeting.
00:24And I'm sure that the majority of respondents to that survey told the Fed, you need to raise rates.
00:31Now, that's this meeting, right? I mean, that doesn't mean that the Fed has to raise rates in October or
00:37again in December.
00:38But nevertheless, like the market is speaking very loudly. As are investors, the Fed has to hike rates.
00:45You know the history of monetary policy well. How unusual is it to see just a one-off hike, just
00:4925 basis points, then we're done?
00:50It is very unusual. But gosh, we certainly are in a very unusual time. So don't put anything with a
00:590% probability.
01:01It's certainly a possibility that the Fed is one and done. But that's not what the markets are pricing in
01:07at the moment.
01:08What would happen to 10-year Treasury yields if the Fed didn't hike this week?
01:12Well, I would say they would probably go up a bit. But in the end, it's about why didn't the
01:18Fed hike rates?
01:19What's the explanation? What does the chairman say at the press conference?
01:24It's all a package deal. And it would be very important to understand the narrative. What's going on?
01:31My baseline would be slightly higher 10-year Treasury yields.
01:34But remember, what's really driving 10-year Treasury yields at the moment is the price of energy, which, as we
01:40noted earlier, is up a lot this morning.
01:42Do you think that hiking rates, 75 basis points or even 100 basis points, as the market is implying, would
01:47be a mistake?
01:49Well, gosh, I mean, it's only a mistake if it's not warranted.
01:53And over time, the data will tell us whether or not the hikes were warranted.
01:58That's something that is hard to call at this point.
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