00:00What's the big takeaway for you and the team? You've had about an hour to digest it,
00:03an hour and 30 minutes. You've had about 30 minutes to digest the news conference.
00:06What stands out for you? What gives you that guide for what they're going to do next?
00:10Yeah, I mean, this is a credibility meeting for Warsh. And Tom mentioned the real yields. It's
00:17the two-year real yield that is the shocker here. That's telling you the market is repricing
00:22Fed expectations in terms of the policy path. There's a disconnect here between Warsh and the
00:27committee, and Mike McKee's question kind of revealed that. The committee's only showing one
00:32hike, the market's pricing in three. And I think that's how the market is taking this as a much
00:39more credible Fed chair, signaling his determination to deal with this persistence above inflation. I
00:46think that's the number one takeaway. Jeff, we were talking to Neil Dutta of
00:51RunMac, and he said, ultimately, this can't be good for equities. He does think that this will
00:54inject pain in the economy and slow it down. Do you agree, or do you think that, ultimately,
00:59this is just removing accommodation the way Fed chair Kevin Warsh framed it?
01:04Well, you know, Jonathan's been mentioning, you know, kind of the yield curve flattening,
01:08and you got the back end down. And, you know, certainly that's maybe the immediate takeaway from
01:13that. I think it's less about the back end slowing and showing you something about the impact on
01:20economic growth and more about the front end repricing the determination of the Fed chair
01:25around inflation. Now, I think the growth picture is just much more complicated because this is really
01:31an AI story. And 25, 50, 75 basis points is not going to change the calculus of the tremendous amount
01:40of capital investment plans that are already in train. It's not really about the cost of capital.
01:47It's about the availability of capital. And you're going to need much, much bigger financial conditions
01:52tightening to derail that train. And I think that's the train that's powering, or that's the engine that's
01:57powering the economic train here. That's not really going to change from this story. So I don't really think
02:05we're going to have the growth story until we start talking about something that's much more centered
02:10around the AI story than 25 basis points.
02:13But the heart of this—
02:16Mellon, can we do this? Can we pull those off? John Farrell mentions the banks having a poor
02:21afternoon of this. Can we do this with smoothness, with gradation, or do we have jump conditions and
02:29some real stress ahead of us if that two-year real yield continues to advance?
02:35Well, I think the smoothness is that the Fed's not going to be hiking as aggressively as,
02:42you know, that jump in the two-year real yield. That's repricing the path, the forward path,
02:48which is already incorporating a pause ahead of the election, one hike in December, and really
02:53pushing up into its expectations the hikes into 2027. So I think that kind of avoids that kind of
03:02worry that the Fed is going to have to be much more accelerated in terms of its hiking.
03:08With regards to the concerns around inflation. The other thing we have to acknowledge here is just
03:14how much all of this conversation is conditional on those two other factors that the chair talked
03:22about in terms of the impact on long-term yields, which is the growth picture and the geopolitics and
03:27the oil picture. So this is all coming in an environment where oil is accelerating to the upside and putting
03:33a lot of fear about the second-order effects. But that, too, can change. We've seen it change rapidly.
03:38If it does change two or three months from now, we're going to be having a very different conversation.
03:42From where you sit, away from the economics of it, Jeff Rosenberg, and I go back to Constum again at
03:47Mzoa on
03:48this, in that there's basically a belief by Walsh as a vector in place. It's going to be disinflation, and
03:53sometime we're all going to catch up with it. Do you see any elements of disinflation
03:58out there that would be a gift for the chairman? Yeah. You know, there is this bit of immaculate
04:05disinflation. Neil talked about the disconnect in the SEP forecast. That's nothing new. We've had that
04:12disconnect for a very long time. And it's implicitly acknowledging the supply-side impact on the inflation
04:19trajectory, which is still with us. And I think Stephanie just mentioned it in terms of the rates of change.
04:24You've got to see tariffs continuing to go up. That's not happening. So that effect comes off.
04:29You've got to see oil prices continuing to go up. Okay, to be seen on that.
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