Did you have any sense that this was a muddled
message? Do you think it's pretty clear? Hi
, Kathleen. Happy to be with all of you
. Um, so I, I thought it was
the message was muddled even prior to this meeting frankly
. Um, you know, were we going to
get a pause, a skip or a jump and
, and, and it's not exactly clear right now
, but I think it's getting a little bit better
but still confusing. I, I would say what
Chairman Powell tried to explain is that the, um
, looks like, as you said, two more
rate hikes is what the majority are looking for.
And what he's saying is just because we skipped this
meeting doesn't mean we won't go again. We're trying
to now further slow the pace of rate hikes if
needed. And one way to do that is not
to raise rates each meeting. So I think that's
the key takeaway. And then I look at the
forecast revisions upward for GDP downward for unemployment a little
bit higher on poor PCE inflation. And to me
, the fed has effectively removed its implicit recession forecast
. It was a mild recession, but to me
, it now seems like they will go ahead and
raise rates in July. That was not our forecast
prior to today. So how high do you think
rates are going to have to go? This seems
to me, Jay Powell stressed so much in that
press conference. We missed our forecast. We keep
forecasting. It's going to go down. It doesn't
core inflation is still too high. He sounded so
definite on the concern about inflation and the need to
do enough to get it down. Yes, it
definitely was a hawkish message. And I think there's
also some uncertainty about the path of growth and inflation
just very much to the point that they have underestimated
both. Really, they're not alone in that,
but the resiliency of the labor market is fed into
consumer spending and that's helped keep inflation higher than they
would like to see. It's only gradually slowing.
And as Chairman Powell noted and we saw yesterday,
the core consumer price index on an annualized basis last
three months is kind of held in steady around 5%
. That's still well above the 2% target. So
Kathy Dave, they're telling David here, they're telling
us they'll move by two. Do you think they'll
be able to move by two? So David,
we still see a moderate recession and we see that
unfolding in the fourth quarter of this year, if
we're correct in that, we would see only one
more rate hike. So there we go in July
, we're not going to have enough data between now
and then to really dissuade fed officials that maybe they're
too optimistic on, on growth prospects now. But
I think, and as soon as they go in
July, they skip September, which seems to be
the new path and then, then it's really the
next live meeting, maybe the October November meeting.
And I think by then we'll have enough data that
suggests that, hey, there's cracks forming and that
they don't necessarily need to raise rates again. And
Kay pricing when it comes to fed cuts. Now
, that's basically been priced out this year, given
what Powell said that they may not be seeing rate
cuts until maybe 2024. I mean, how soon
can we go from a pause, a hike to
actually cuts now? Well, I think, you
know, what's interesting is at the last meeting,
Chairman Powell was asked in the Q and A about
the disconnect between the markets, the markets wanted to
keep pricing and cuts for later this year. And
he said, well, let's see, let's see
, who's right. I think effectively the fed has
won on that call. They are not going to
be cutting rates. In fact, Chairman Powell indicated
that they wouldn't be cutting rates in a meaningful way
for a couple of years. That doesn't mean they
won't cut rates in 2024. That's when we think
they do cut rates, but it will be a
very gradual process. So, Kathy, it seems
to me in March, not in March, I
should say this is June. So at the May
meeting in April, I mean, it seemed the
financials was what they were concerned about in banks and
if they paused, it was because of that,
there was so little mention of that from Powell questions
at the press conference, you know, in anything
. Are they hiding the fact that they are concerned
about this heating up again? And that's one reason
to pause or do you think it's died down that
much that they don't have to be concerned? Now
, that's a great question, Kathleen. They did
mention it in the policy statement. They said that
the banking system is, you know, very secure
and in good shape. But and Powell did mention
it a bit in the press conference and he did
say we want to see how credit conditions evolve going
forward. And part of that is how much will
the banks be cutting back on credit availability? It's
not so much. We think, you know,
he thinks another crisis is brewing and more failures,
although those naturally happen throughout the year, but it's
really about the credit availability and that's what we are
concerned as well. We do think the increased regulation
and the concerns about lending and deposits flight, you
know, think about the money market rates are going
to go up even higher, that's going to put
more pressure on banks.