Closing Bell - Closing Bell: 5/7/25

Episode Date: May 7, 2025

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business. 

You're listening to Closing Bell in progress. Yeah, a guess here today as to what it would be. Again, what I would say is that we think our policy rate is in a good place. We think it leaves us well positioned to respond in a timely way to potential developments. That's where we are. And that depending on the way things play out, that could include rate hikes, sorry, rate cuts. You know, it could include rate cuts.

It could include us holding where we are. We just are going to need to see how things play out before we make those decisions. Great. And just to follow up on that, when you address the issue of how the Fed would handle both rising unemployment and rising inflation, how are you thinking about the fact that addressing one could exacerbate the other? So a rate cut to reduce unemployment could worsen inflation and vice versa. How does that, how do you handle those challenges?

Well, you just captured the, this is the issue with the two goals being attention. It's a very challenging question. Now, there can be a case in which one goal is very far. One variable is very far from its goal, much farther than the other. And if so, you concentrate on that one. And frankly, that was the case. Well, it wasn't a case where they were really in tension. But if you go back to 2022, it was very clear that we needed to focus on inflation. The labor market was also super tight, so it wasn't really a tradeoff.

I think you know what our framework document says. It says we'll look at how far each variable is from its goal, and also we'll factor in the time it would take to get there. That's going to be potentially a very difficult judgment. But the data could break in a way that it's not. You know, I just don't think we know that. The data could easily favor one or the other. And right now, there's no way to, no need to make a choice and no real basis for doing so. Victoria. basis for doing so. Victoria. Hi, Victoria Guida with Politico. I wanted to ask, Congress is currently debating spending cuts alongside extending the tax cuts and I know you've talked many times

about how the path of the debt is unsustainable but given that we're also talking right now about the economy slowing, potentially even recession, I was just wondering is there a danger that spending cuts now could slow growth a lot more? You know, we don't give Congress fiscal advice. They're going to do, we take what they do as a given and we put it in our models and in our assessment of the economy. So I wouldn't want to speculate on that. I mean, I think we do know that the debt is on an unsustainable level, on an unsustainable path, not at an unsustainable level, but an unsustainable path. And it's up, it's on Congress to figure out how to get us back on a sustainable path. And it's not up to us to give them advice.

Well, do you think that they should take macroeconomic conditions into account as they look at this? I think they don't need my advice and our advice on how to do fiscal policy any more than we need their advice on monetary policy. Andrew. Thanks, Mr. Chairman. Andrew Ackerman with the Washington Post. In your Jackson Hole comments last year, you said you would not welcome further cooling in labor market conditions. The unemployment rate then was 4.2 percent, which is what it is now. Forecasters, many forecasters now predict a higher jobless rate. How has your tolerance for weakening labor market conditions changed

compared to a year ago? So it was quite a different situation. What was happening last year is that over the space of six, eight, seven months, the unemployment rate went up by almost a full percentage point, and it was click, click, click, click, click each month and and you know, everywhere people were talking about downside risks to the labor market. At the same time, payroll job numbers were getting softer and softer. So there was a really obvious concern about downside risk to the labor market. And so at Jackson Hole and then in September, we wanted to address that forthrightly.

We wanted to show that we were there for the, I mean, we'd been there for inflation for a couple of years, and we wanted to show also that we're there for the labor market. And it was important that we send that signal. Fortunately, since then, the labor market has really, and the unemployment rate have really been moving sideways at a level that is, you know, well in the range of mainstream estimates of maximum employment. So that concern has gotten a lot less. So you know, you're at 4.2 percent unemployment. I think

we were in a very different situation. Now we have a situation where, you know, the risks to higher inflation and higher unemployment have both gone up, as we noted in our statement, and we've got to monitor both of those. We actually have a potential situation where there may be a tradeoff or tension between the two two, potentially. We don't have it yet. And we may not have it, but that's what we have, and that's why I think it's a very different situation. I mean, I guess I want to follow up by asking how much of a rise in the javel's rate you could tolerate it.

I can't give you a, you know, I'm not going to try to give you a specific number. I'll just say we have to now be looking at both variables, and which of them is, you know, demanding. If one of them is demanding our focus more than the other, that would tell us what to do with policy. If they're more or less, you know, equally distant and equally or not distant, then we don't have to make that assessment. You know, the assessment is you wait.

So I'm not going to try to be really specific about what we need to see in terms of a number, but if, look, if we did see, you know, significant deterioration in the labor market, of course that's one of our two variables, and we would look to be able to support that. You'd hope that it wasn't also coming at a time when inflation was getting very bad. And again, we're speculating here. We don't know this. We don't know any of these things. It's very hypothetical.

We're just gonna have to wait and see how it plays out. Thanks. Great. Claire Jones, Financial Times. In terms of getting some clarity, we've got some talks at the weekend in Geneva between the US and China. A lot of economists are attaching an awful lot of importance to what we hear from those talks. How much importance are you attaching to them in terms of judging what will happen to the US economy going forward. And just in a similar vein, some economists are saying

it's days, not weeks, that we have until we start to put the US economy at risk of seeing the sort of pandemic era shortages and higher prices if we don't kind of soothe relations between the US and China. So it'd be good to have your view on that too. So these are not talks that we're in any way involved in, so I really can't comment directly on them.

But what I will say is this. Coming out of the March meeting, the public generally had an assessment of where tariffs were going. And then April 2 happened, and it was really substantially larger than anticipated in the forecasts that I had seen and in our forecasts. So now we have a different – we're in a new phase where it seems to be we're entering a new phase where the administration is entering into beginning talks with a number of our

important trading partners, and that has the potential to change the picture materially or not. And so I think it's going to be very important how that shakes out, but we simply have to wait and see how it works out. It certainly could change the picture, and we're mindful of not trying to make conclusive judgments about what will happen at a time when the facts are changing. And just on the the the the fall in shipping volumes from China over these tensions, I mean, do you share that concern that we could start seeing good shortages and higher prices in the coming weeks if this isn't resolved very quickly?

You know, I don't want to get my we're not we shouldn't be involved even verbally in questions about the timing of these things. Yes, we're – of course, we follow all that data. We see the shipping data. We see all that. But ultimately, this is for the administration to do. This is – you know, this is their mandate, not ours. And I know they're – as you can see, they're, again, having – beginning to have talks with many nations and that has the potential to change the picture materially.

So we'll just have to wait and see. Kosuke Takami with Nikkei. Thank you for doing this. The volume of imported goods increased significantly in the first quarter. Do you think that this situation could cause a delay in the impact of a tariff on inflation? And does this mean that it will take longer time

to reduce uncertainty? The decision we made today, which decision? So the future decision. So the volume of the imports, imported goods increase significantly, so the impact of the imported inflation may delay. So what is the impact to your future decision? Okay. So, I mean, I think we think that there was a big spike in imports, right? Very big, historically large, really, and to beat tariffs. And now, that should actually reverse. So, And to beat tariffs. And now that should actually reverse so that it's, you know, it's the difference between its exports minus imports.

So and imports were huge, and so that it conveyed a very negative contribution to U.S. GDP, annualized GDP in the first quarter, as we all know. So that could, in the second quarter, be reversed so that we have, you know, an unusually large contribution to-usually positive. That's very likely as imports drop sharply. You could also have, you know, very likely you'll have restatements of the first quarter. It'll turn out that consumer spending was higher. It'll turn out that inventories were higher.

And so you'll see those data revised up. It may actually go into the third quarter, too. And so I think it's going – this whole process is going to a little bit make it harder to make a clean assessment of U.S. demand. I mentioned private domestic final purchases, which doesn't have inventories government or inventories government or inventories government. Anyway, it's a cleaner read on private demand.

But that, too, probably was flattered a little bit by strong demand for imports to beat tariffs. So that might overstate. It's a really good reading, 3% PDFP in the first quarter. That might actually overstate. So it's not really going to, I don't think it's going to affect our decisions. I will just say though that it's a little confusing and it's probably less confusing to us than it would be to the general public as we try to explain this.

You know, it's complicated and, you know, GDP is sending a signal, PDFP is sending a signal, PDFP is sending a signal. It's a little bit confusing, but I think we understand what's going on. It's not really going to change things for us. Courtney Brown from Axios. I guess, you know, we talked about some of the indications of potential layoffs, price hikes, and economic

slowdown all being evident in the soft data. I'm curious why the Fed needs to wait for that to translate into hard data to make any type of monetary policy decision, especially if the hard data is not as timely or might be warped by tariff-related effects. Are you worried that the soft data might be some sort of false warning? No. I mean, it's – look, the – look at the state of the economies. The labor market is solid, inflation is low.

We can afford to be patient as things unfold. There's no real cost to our waiting at this point. Also, the sense of it is we're not sure what the right thing will be. There should be some increase in inflation. There should be some increase in unemployment. Those call for different responses. And so, until we know, potentially call for different responses. And so, until we know more, we have the ability to wait and see. And it seems to be a pretty clear decision. Everyone on the committee supported waiting. And so that's why we're waiting.

Just a very quick follow-up. There was this sort of vibe session, if you will, where the sentiments expressed in soft data did not translate into the hard economic data. How are you thinking about that when interpreting some of the signs in the softer survey data? You know, I think going back a number of years, the link between sentiment data and consumer spending has been weak. It's not been a strong link at all.

On the other hand, we haven't had a move of this speed and size. So it wouldn't be the case that we're looking at this and just completely dismissing it. But it's another reason to wait and see. You're right that we had a couple of years during the pandemic where people were saying just very downbeat surveys and going out and spending money. So that can happen. And that may happen to some degree here. We just don't know. This is an outsize change in sentiment, though.

And so none of us is looking at this and saying that we're sure one way or the other. We're not. Matt. Thanks, Chair Powell. Matt Egan with CNN. So you mentioned earlier that you're monitoring the shipping data, and we have seen in the shipping data that imports from China into the Port of Los Angeles have plunged, and that has raised concerns about potential shortages. What

tools, if any, does the Fed have to ensure that prices and inflation expectations don't get out of hand if tariffs do cause significant supply chain disruptions? I mean, we don't have, you know, the kind of tools that are good at dealing with supply chain problems. We don't have, you know, the kind of tools that are good at dealing with supply chain problems. We don't have that at all. That's a job for the administration and for the private sector more than anything. You know, what we can do with our interest rate tool is we can support-be more or less supportive of demand.

And that'd be a very inefficient way to try to fix supply chain problems. But you know, we don't see the inflation yet. We're of course reading the same stories and watching the same data as everybody else. And you know, right now we see inflation kind of moving sideways at a fairly low level. If I could follow up on that, President Trump has indicated that he will likely name a replacement for you when your term as chair expires next year. But your position on the board runs through January 2028, I believe. Would you consider remaining on the Fed board even if you're no longer chair?

So I don't have anything for you on that. My whole focus is on, and my colleagues' focus is all on, you know, trying to navigate this tricky passage we're in right now, trying to make the right decisions. We want to make the best decisions for the people that we serve. That's what we think about day and night. And this is a challenging situation,

and that's 100% of our focus right now. Let's go to Jennifer for the last question. Thank you so much, Chair Powell. Jennifer Schoenberger with Yahoo Finance. Public records of your schedule so far this year show no meetings with President Trump. Past presidents Obama, Bush, and Clinton have all met with Fed chairs. And you met with Trump during his first term. Why haven't you asked for a meeting yet with the president?

I've never asked for a meeting with any president, and I never will. It's not, I wouldn't do that. There's never a reason for me to ask for a meeting. It's always been the other way. So would you want to meet with him, if given the opportunity to get more information? It's never an initiative that I take. It's always an initiative. You know, I don't think it's up to a Fed chair to seek a meeting with the president, although

maybe some have done so. I've never done so, and I can't imagine myself doing that. I think it always comes the other way. A president wants to meet with you, but that hasn't happened. And if I could just ask one question on monetary policy. When it is time to cut rates, how will you determine how far down rates will have to come to try to keep a balance on the inflation mandate as employment weakens? You know, I think once you have a direction, a clear direction, you can make a judgment

about how fast to move and that kind of thing. So it's really the harder question is the timing, I think, and when will that become clear. And fortunately, as I mentioned, we have our policy in a good place, the economy is in a good place, and it's really appropriate, we think, for us to be patient and wait for things to unfold as we get more clarity about what we should do. Thanks very much. That was Chair Powell following the Fed's decision today to do nothing at the meeting. The expectation, of of course it was all

about the commentary and the Q&A which as you see has just ended. Chair Powell talking about the risks of higher inflation and higher unemployment that they've risen describing really stiflation without saying that word explicitly. Stocks going into the meeting well and the statement they were pretty positive they're mixed now but the NasDAQ being negative is really an alphabet problem today. There was an issue momentarily, at least for a little bit, with a comment that the president made about not being open to reducing the 145 percent tariffs on China. We moved a little bit beyond that as we now know that talks will begin. Welcome to Closing Bell everybody. I'm Scott Wapner live from Post9 at the New York Stock Exchange

as always. Joining me today in the house here on Wall Street is Jeffrey Gunlock. He's the CEO, CIO and founder of Double Line Capital. It's nice to have you in our house for a change. Welcome. It's good to be here again. I haven't been to the Stock Exchange in 12. I was here yesterday for a client meeting, but it's been years. Well, it's good to have you here. Your reaction first and foremost to what we just heard, I think the headline really is obvious today,

and it is this tension that may exist between the two mandates that the Fed has. Yeah, and we've talked about that last couple of times that we've met on Fed Day. I think the word of the day in the press conference is uncertainty. I mean, he said, it's too early to know, don't think we know, phrases like that all the time. So I can't really blame him. I mean, we are in sort of uncharted waters with we don't know what the tariffs are going

to do with inflation. There is pressure a little bit on rising unemployment rate, which I'll talk about in a little bit. But I really felt he did everything but invoke the Hippocratic oath regarding the Fed funds rate. Above all, do no harm, right? Because he says we're in a good place over and over again. Over and over. He said that multiple times in exactly those words or versions of. Yeah, but he refuses to answer answer and I can't blame for this either questions of what would the unemployment have to go to which one's going to be a problem first and so forth so he says wait and see we're in a good place we can wait and see but I think that it's a little bit of uncertainty I'm surprised the market didn't act worse on the stock

market because I because it sounds to me like we're back in Mr. Maguland where we're in the car driving around and he admits that there's risks, higher inflation, higher unemployment rate. But he says, I'm not gonna, I can't explain to you what we need to see to get concerned about one side of the mandate or the other so we're just going to wait and see which tree we bump into. So I

feel like we're going to bump into either a tariff inflation tree, we're going to bump into a rising unemployment tree and that will affect what happens to the Fed funds right down the line but the unemployment rate is rising. I mean it's above its 36-month moving average, and that goes along with recession. It's also, the unemployment rate is also above its 12-month moving average, and the 12-month moving average is important too.

But also, the two's tens, the yield curve, which was inverted for so long, and now it's de-inverted, which usually puts us on watch for economic problems, but the 12-month moving average of the 2s 10s is now positive, which has never happened without recession after a period of inversion going back to 1980. So we're watching that very, very carefully to see what happens in an employment picture. But the game plan is still largely the same for us. We've been in a trading range for interest rates across the yield curve for quite a while now. I mean, Powell himself said the 10 years where it was two and a half years ago and it's true that the long end of the curve is performing unusually for what's been something of a Fed easing cycle. You know, we've had hundred basis points of cuts and yet long rates are up. That doesn't happen

typically and this I think continues to feed into my thesis that as the economy weakens long-term interest rates could very well be going up and that's very different from most people's experience even if you have 40 years of experience like I do most people say when there's a recession the dollar goes up and interest rates go down but actually the opposite has happened this time and I don't think that that's I don't think that that's just a coincidence or a one-off I think that's going to continue because the interest expense on the debt which we always talk about is just horrifically bad and it's going to four billion dollars a day and I don't know what we're going to do to handle that other than maybe we're going to talk

about some really exotic policies might have to be brought in if long-term interest rates do not drop or even rise in the face of economic weakness we might have to do yield curve control, which we did in the 1940s and early 50s. They did it in Japan for a very long, long time. We'll see what happens. But we continue to be, and I think, when I talk to our big clients,

they say everyone says what you're saying, that we wanna be more liquid, we wanna be up in credit, we don't wanna be in the long end, we think the curve's going to steepen. And usually when you have that kind of a consensus, you're at a turning point, but it's not happening. These trades continue to work. Up in quality is certainly working. Lower quality junk bonds, the triple Cs, are now up very significantly in yield, and the

yield spread between double B, the highest quality of high yield and triple C is above its 200 day moving average, which is a really bad sign. You said the last time that we spoke that I believe this is correct, that you had more cash than you've had in a long time, if not ever at double line and that it was too early to deploy it. Now we were going through a pretty rough market period when we last spoke in early April. Here we find ourselves in a different scenario today.

So how does that sit? I feel like we're in a risk off market on an intermediate term basis. And I think what's really interesting is through all the volatility that you had in risk assets and some parts of the bond market as well, the one thing that hasn't had much volatility is gold. Gold broke out above 2000 and went to 3000 and now it's like 3400. It hit a new high yesterday, it's down today. But I think that's telling us something. I think

that's telling us that we're in a regime where gold is no longer a speculation for short-term traders or for survivalists as a long-term hold. I think people are viewing gold as an asset class out of fear of the turmoil that's going on geopolitically with the tariffs and everything else and just the amount of debt that exists that people wonder how we're going to deal with it so gold is sort of the true monetary asset so I find it very interesting I still think that gold is headed to 4,000 I think I said that back in April I think you asked me is it going to 3,000 I think it was just below it and I said

that's not much of a forecast I think're almost there. It's going to probably go to 4,000. So I think that you're going to get a breakdown. When we spoke in April, I was targeting a support band for the S&P at 4,500. I still think we're going to get there or maybe a little bit higher, maybe 4,600 or something like that. That's where I would really start to think about deploying money for a little bit longer term period. We don't invest at all for one month, obviously.

We invest typically for about 18 months to two years is what we sort of think about as investment horizon, particularly for fixed income, where we don't really trade as much as a lot of our competitors. We think you have a better chance of seeing things, looking out 18 months to two years. If you look out longer than that, you can have more certainty. The problem is we're managing other people's money, and if it takes too long, you can't underperform for five years and keep your clients.

You have to deliver them something reasonably good over an 18-month, two-year period, and that's what we're trying to do. The thing that I feel is starting to get talked about, and I think might be significant in the next market problem, is this illiquidity issue that is developed, and it's getting some play on the news wires with with Harvard and some other elite universities where they don't have any

money. They're like asset rich but they're cash poor. So Harvard has a 53 plus billion dollar endowment and they've tapped the bond market now twice for basically operating cash and the reason is and I'm just using Harvard as a placeholder because this has been in the news and reported with statistics, they report 40% of their assets of their endowment in private equity. And I suspect that another big slug of it is in private credit, which has been a booming asset class. And we're starting to see stories of some of the faster moving university endowments

saying we might want to exit some of our commitments, we know we're gonna have to take a haircut, but your first loss is your best loss when you're in the illiquid market. I think this is going to be an issue. And I believe that the probabilities of this is increasing because of that spread between double B and triple C. That signals to me that a lot

of the junky stuff is starting to feel stress and a lot of the really junky stuff went to private credit. So now we're even seeing the bell being rung almost with some people championing let's raise a fund to buy private credit interest or private equity interest and beyond that let's make this available to the public. That's when you have to worry you know it's when you take something that's viewed to be an esoteric thing only for professionals you say this is such a great deal we want to give it to

Main Street investors and we're going to co-mingle a fund. That's a real problem when you make when you take illiquid investments and put them into vehicles that can require liquidity. The biggest names in that business since we're on that topic you know most of them were just out at the Milken conference in you know out now out in LA and are still defending private credit obviously and almost scoffing at the notion that there's a budding problem, that it was a bubble. People like John Gray and others continue to make that case. You told me last September when we were at Future Proof discussing this that you thought

there was a top at that point in private credit. You seem to date... I think private credit is underperforming public credit since that time period. I think it's underperformed for a short while. But when people defend private credit, they use three arguments, all three of which I think have flaws. The first is they use a sharp ratio argument. That yes, it's illiqu but you know it's really less

volatile than public credit which doesn't make any sense to me at all. What happens is you just don't market to market as frequently so if the S&P 500 goes from 100 to 50 private credit might get marked down to 80 and then they both recover to 100 and they say look at this fantastic risk adjusted return. It's the same as the S&P 500 with less than half of the volatility, so it's a sharp ratio argument. I just don't think that they're being accurately marked all the time.

We have clients that use a lot of private credit and some of them have many, many managers in it. And the private credit world is a clubby area. It's people that they get together with their competitors actually and they make a group that does a deal. So there's a five billion dollar deal and they get ten firms to go do five hundred million each.

Well this one client of ours had eight managers that actually owned the same position. They were in part of that club together for that deal. And they were kind of shocked that at one year end, I think it was just recently, the last year end, or maybe it was the end of March, they said one of the managers had the position marked at 95 and one of them had it marked at 8. It's the same thing. So that might be a very extreme example, but that gets to the notion that I'm talking about. The next argument that's used is a true argument, but I'm not sure, as they say, past performance

may not be indicative of future results. It's that the trailing numbers for private credit are fantastic. They're way better than public credit. That's what draws all the money in, but it hasn't been lately, and so I worry about projecting the past into the future as there's a booming market that's really kind of untested. And the last argument is the worst of all. I was at a conference speaking, and the person before me was promoting private credit.

That was the focus of this person's firm. And she said, the beautiful thing about private credit is when the markets get volatile, and this was fairly recently, so people were thinking about beautiful thing about private credit is when the markets get volatile, and this was fairly recently, some people were thinking about volatility, owning private credit lets you ride through the storm of the volatility in your public credit. Again, it's a volatility argument that I just think doesn't really hold up. So this reminds me a little bit of, oh, it's only subprime, it's small, it's contained, and there's no issue.

And then all of a sudden you realize that there's tremendous knock-on effects to other areas. But you have some really, really smart and successful investors I'm talking about. The Rowans, the Arrogettis, as I said, the John Grays. In June of 2007, I gave the keynote at the Morningstar annual conference, and I said Subprime is a total unmitigated disaster and it's going to get worse. And it raised a lot of eyebrows, and speakers that followed me who were very smart, very accomplished, kind of in the category

of the names that you're speaking of, said I was dead wrong and there's absolutely nothing to worry about and that kind of made my reputation because I was one of the very few people that saw that. I'm not saying this has to happen. I'm saying that it's an issue that is on my radar screen. It's something to watch for. Some people do suggest that this is the first real test

of private credit because the economy weakening, the trade war, and everything else in this environment is going to be a potential test. Look at these university endowments that have to tap the bond market to get operating cash because with Harvard's case over $53 billion, they couldn't get $1.6 billion out of $53.8 billion endowment. I just look for my job, particularly as a kind of a dower bond guy, my job is to find

10 problems for every three that exist because that's really the essence of risk management. And we started on upgrading credit and raising cash and so forth a couple of years ago and it's working very well. In our leverage funds, like our closed end funds that we run, we have our lowest leverage of all time and that's because we want dry powder and we can also the yield curve is so flat that leveraging doesn't really work as well as in a steep yield curve but we believe in dry powder for another leg down on risk assets. The biggest question I think from today, we got the headline and Steve Leesman's made his way out of the

room, is Steve which way will the Fed lean first? You tried your best and J-PAL just doesn't know. He said I don't think we know and then he later said it's a complicated and challenging judgment that will have to be made if unemployment rises and inflation at minimum stays where it is. What do they do? They don't know. The answer is which way to the question Scott which way they lean first the answer is yes that's the correct answer they they don't know look Scott I can take this whole 45-minute press conference, wrap it up in a single question, which I said, which way do you lean first? And here's Powell's

answer. I don't think we can say, you know, which way this will shake out. I think there's a great deal of uncertainty about, for example, where tariff policies are going to settle out. And also, when they to settle out, and also when they do settle out, what will be the implications for the economy, for growth, and for employment. I think it's too early to know that. So ultimately, we think our policy rate is in a good place to stay as we await further clarity on tariffs.

That literally, Scott, is the entire press conference. The rest, as they say, is just commentary. And the only salient thing here from the statement was that the Fed's saying the risks have risen on both sides of the mandate. There's an equal amount of risk for higher unemployment and for higher inflation, and that's what the Fed has to deal with and is just waiting to shake it out. And it's not, according to the last question which is worth summarizing here Scott not going to make a call on the sentiment data or the soft

data it's going to wait till it shows up in the hard data and I'll just add this idea of yes the Fed is going to be behind the curve but as Jason Furman said in a New York Times piece that alleviates the risk of getting in front of the wrong curve. Interesting. That's right that's that Hippocratic Oath thing again. Yeah Steve thank you good points of course I'm going to ask Jeffrey about it now Steve Leesman who asked really the question of the moment today. I thought it was in that meeting. I thought it was great that he got the first question because Steve's exactly right that that question was asked by him directly. The answer was obviously, as Steve said, just that's all you need to know on the entire

press conference. And there had to be half a dozen others that tried that same question and got basically the variations of the same answer. And basically they say, we don't know, there's too much uncertainty, that word was used a lot. We can't even tell you what we're looking for, but we'll know it when we see it. And know it when we see it means it has to be eye-opening enough that you've bumped into a tree.

Are you suggesting that they should cut rates now because of the employment data that you think is telling a bad story? I think that our inflation model, which should be relaxing because it incorporates energy prices pretty meaningfully, energy prices are very low, WTI down below $60, and yet when we make our best guess, and this is tricky as Jay Powell says, to figure out the tariff effect. You know, you make some assumptions based upon what's said and then you have to make them again because something else is said. But we believe

now that the base case is the CPI headline, based on conditions today, which of course it's a fluid situation, will probably end the year with a four handle. And a four handle doesn't sound like two. And Jay Powell is a little disingenuous when he says, he said something like, surveys or market data says that- Yeah, the soft data. No, I'm talking about inflation expectations.

He says, he used the soft data and he said, it's actually beyond one year, for periods beyond the first year, it's not really higher than 2% contained. But that's not true at all. The University of Michigan they do an expected inflation survey and the 12 month inflation expectation in that survey is most recent reading is in the mid sixes for 12 months. They also do a five-year guess by these people and it's up to four, up into the mid-fours, per annum for five years.

So it's not true that inflation expectations beyond one year are anchored. And also market pricing for one year is a 3% for the next 12 months. Neither of these sound anything like two. So I just don't think they should be cutting rates against this backdrop. If they cut rates and inflation rises, I think you're going to have a real problem at the long end. This is the trade that almost everybody seems to have on. It's working. The curve has gone from 2s 10s from negative 108, you know, to positive a significant amount. And this trade has been

working and I think it will continue to work, but my fear is if the rates get uncomfortably high, that there will be some sort of exogenous shock from the government, from the Treasury Department or the Fed, that they might do yield curve control, they might talk about other things. And this is gonna be really hard, because this trade has been working and it's always easy to play another day when the trade's working.

But you've got to, the hardest thing in the investment business, Judge, is to change your portfolio in some significant way after you've been right. Because being right is very satisfying economically, psychologically, your clients are happy, but at some point you have to pivot and I think this curve steepening trade based upon supply fears in the bond market will get to a point where causes a reaction and you're going to get a rally at that point in long bonds and it could be quite sharp. You know when you get some of these announcements you get these V shaped things in markets that have been on an extended trend and I spend a lot of time thinking about this because I, like everybody else, have a steepener

trade-on. We put it on a very good time, it's working, we don't really like the long end and we continue to be focused in higher credit, like double B, single A, maybe some single B. We're trying to stay out of anything that starts with a C and we've been upgrading that systematically so we have very low risk positions at the bottom of the capital structure, the long end in particular, and it's been working well. We just can't get complacent about it. Do you think they're gonna cut this year? Our last time we spoke I said I think they'll cut twice. The market has been pricing in much more than that almost all the way through this year. We've had times where there were five cuts priced in. I think now it's at two and a half and over the next, you know,

we've only got a little more than half a year going here, not that many more meetings. I do think they'll cut rates, but I don't think it's going to be because of much better inflation data, because I don't think it's going to get much better. I doubt it's the unemployment rate is going to be a shocker in the near term like in the next few months but I do think they'll cut rates because of some illiquidity problems may come up. So I do think they'll probably cut rates by year-end and I still think it's probably less than the market thinks,

but I'm closer to the market now, because I've stayed at two, and the market has gone from five or six down to two and a half. But you sort of are answering the question at the moment as well, one that J-PAL can't really answer, doesn't want to now.

When you talk about the unemployment rate getting worse, that that is the side of the mandate that the Fed is going to lean to first. Yeah that would be my guess that they're likely to get worried about the unemployment rate more than worried about the inflation rate although Jay Paul did say something really interesting that I don't know if anybody heard him say because he only said it once once. He said, we'll have to see if an inflation increase is a one-time increase, which to me makes it sound like

he thinks that's possible from the tariffs. What else would he be talking about? He's talking about that because he's made that case before. Their sort of base assumption is you get these one-time increases, but we're not talking about something that just goes on forever as a result of these tariffs. These tariffs policy could be rolled back in anybody's guess. We haven't even seen what it is yet, let alone what to be rolled back.

It keeps changing all the time. But he's going to put tariffs on, and I think he's going to be... I don't think he's going to get worried about the market that much. I think Trump cares much more about taking whatever pain he needs to take now rather than seven or eight months from now when it's staring down the barrel of the midterms where economic fallout could have really serious consequences for the Republican Party. It's kind of like when Reagan came in. I don't know if Reagan really did anything but Volcker did it to him and you know the inflation rate was so high and the economy went into that recession that really lasted about three years. It's officially two recessions. They claimed there was a respite in the early

80s but it's really what I lived through. It was really one recession. Reagan took took the pain. People thought he had no chance of winning Re-election and then he won in a massive landslide Come come the next one now Trump doesn't have that two extra years because he can't run again but he needs to he needs the Congress to be Tilting Republican forget anything done in the second half of his term. What do you make of the questioning of the so-called American exceptionalism trade, which really came to the forefront

as we went through that episode where bond yields had backed up dramatically in a really short period of time, and a notion that what was to be the safe haven place to be for money and investors here, but globally maybe not so much and the dollar plays into that story too. What's your take? I think the so-called American exceptionalism trade is really nothing more than a momentum

trade observing that money has poured into the United States from overseas over the past, say, 18 years. The net investment position in the United States was negative $3 trillion 18 years ago. It means that foreigners had $3 trillion more invested in the U.S. than we had invested in them. That number has grown up to, by one measure, $28 trillion. So it's increased by $25 trillion in 18 years. That's a trillion, almost a trillion and a half per year. And given the tensions that are going on now, and given that Europe is outperforming, which I've talked about as being a really good trade that's doing great for dollar-based investors

this year, I think that the momentum trade may start to unwind. And money may come out of the United States and go into Europe who has to think about their own defense now, has to re-industrialize in Germany, maybe South Korea, other people that we put tariffs on. I think the money, it's quite possible that say, I don't know, let's just pick a number. Five trillion, eight trillion, 10 trillion could go out of the United States.

They might be repatriated to other countries. That's a huge selling. One of the reasons the US has outperformed, this has been a momentum trade, but Europe has now outperformed the US since we bought Europe selling the S&P back in 2022. Europe's outperformed for the last three years for dollar-based investors.

So I think, I keep recommending that investors think about the dollar, in my opinion, will go down as the economy weakens. Everyone says that's nuts because they have experience. They say when there's a recession, the dollar goes up and bond yield goes down. That's not happening now. The Fed was encouraged to ease interest rates because for whatever reason, by 100 basis

points, I think the two-year was yelling at them that they were too high, but yet the dollar is down since then. Bond yields are up since then. I think the dollar is going to be under pressure in the next recession, and that's going to be a real reason for investors to think about more diversified investing. I've talked about having much less weight in the United States than in Europe, and of course I always like India as a very long-term hold for my own money, but I think that's going to be a trend that lasts because the trend for the dollar momentum lasted so long,

so powerful. The valuation, if you look at US S&P, US stocks and all the rest of the world, ex-US, so the whole rest of the world stock market, just compared to the US, there were two periods that were considered to be absurdly overvalued in the United States. The highest period was in the early 70s called the Nifty 50 and it was that it had gone up about a hundred percent versus the rest of the world. The second one was in the dot-com situation in 1999 which wasn't as egregious as the Nifty 50 but now the valuation that after this long move of so-called US exceptionalism, this valuation is double what the Nifty 50 was

versus, as overvalued as people thought, this is nuts that the Nifty 50 market was so high versus the rest of the world, were twice as high and already rolled over. So this is an interesting time period for people to pull the trigger on some of these longer term themes that are starting to actually

reveal themselves in real time. Do you agree with those who, like Ken Griffin, who by the way is coming up in the next hour with Sarah Eisen and Mark Rowan, I mentioned his name as it relates to the private credit conversation, who suggest brand damage has been done to the United States as a result of some of President Trump's policies. Do you agree with that? It's almost like you're painting that sort of picture when it comes to capital flight. Not really. I think brand damage is contained in the, to the ideas of entrenched powerful elite people who like the way the system has been

running. When people are the beneficiary of a long-standing system that is starting to get creaky because of wealth inequality and other financial issues and the like, the people that are benefiting from all that don't want it to change. That's why nobody wants Doge to cut anything because it's their waste corruption that might be cut. People like cutting in the abstract. Waste sounds bad, so let's get rid of it. But when you identify it, they say, wait a minute, you're cutting me. You're cutting you. No, don't cut you, don't cut me, cut the guy behind the tree. That's just a theoretical construct. So I think the elites don't cut you, don't cut me, cut the guy behind the tree. That's just a theoretical construct.

So I think the elites don't want the United States to get its trade deficit down, because they benefit from it. I think a lot of people don't want the budget to be cut at all because they're benefiting from it. I mean, what was it? The light rail to nowhere that was planned in California was supposed to cost 33 billion dollars be in place by 2020 and run a high-speed light rail between San Francisco and Los Angeles.

Today it's it's now already cost 128 billion so 33 billion not one inch of track has been laid. It's it's now down to 177 miles instead of 780 miles. How did it go from 33 billion to 128 billion by building almost nothing? Somebody greatly underestimated the cost or there's a little cushion built in for, I don't know, overcharges. So you agree with what the administration is trying to do, and what do you think the ultimate outcome's gonna be? I think it's not going to come to enough

in the way of cutting. In the first half of fiscal 2025, which ended March 31st, we had a deficit of $1.3 trillion. So that's the annual rate of $2.6 trillion. That's about 9% of GDP. The CBO is using an estimate of like five or six for fiscal 2025.

We're already on a track to nine. We really can't get down to this 3-3-3 concept. It's not coherent to me. We're not gonna get the deficit down to three and a 3% real growth. That change in the deficit is part of the economic weight, the GDP equation. If you go from nine to three over a three year period, you're cutting out two basis points per year, two percent per year. How

are we going to go from like two-ish real to three real when we're facing a tractor pull of two the other way. I just don't see how it's going to work. So I think it's well-meaning but I feel like we've gone on for too long with this scheme. I've talked about this and we're going to have to do something fairly radical. Either yield curve control, which is precedent in the United States and much greater precedent in Japan or who knows I did hear there was a paper that was put out last fall and Scott Besson actually referenced it in later a few weeks after it he said maybe we should tell foreigners that their treasury bonds are being extended to some longer maturity he didn't

specify but I'm sure it's not a one year extension and will cut their interest rate that we pay them. Well that would be a riot of course if that happened but the fact that that's even being discussed by the Secretary of Treasury means something like that actually could be in our future. We'll leave it there. It's great having you here with us Jeffrey. Thank you once again and we will see you after the next Fed meeting. All right as always good luck everybody out there. It's great having you here with us, Jeffrey. Thank you once again. And we will see you after the next Fed meeting. All right. As always, good luck, everybody out there. It's going to be an interesting second half. It is indeed. Jeffrey, thanks. That's Jeffrey Gundlach here with us at Post9. We are now in the closing bell market zone. CNBC Senior Markets

Commentator. Mike Santoli is here to break down these crucial moments of the trading day, plus Alphabet now tracking for its worst day since October of 2023. Deirdre Bosa has those details. Mike, I'll go with you. We're digesting what J-PAL said, and then I see a headline here at the bottom of our screen of what the president is saying, that he's going to rescind global chip curbs amid the AI restrictions debate, which is a very interesting outcome here. Yeah, so we're still waiting, I guess, to get some details filled in there, get it confirmed.

But I do think the market responded to it, at least in a quick flash higher for those affected stocks. And I think it kind of tells you where we are. Yesterday, we had this kind of phantom pop when there was talk of progress on China talks. Today, we had a pullback when the president said he's in no mood to change the 145% tariff level on China. So this is the world we're in. I do think that Powell succeeded in making almost no incremental news

and essentially saying, we want to wait and see, we're going to wait and see, we're manning both fronts, nothing to see here. And I think the market was mostly there. And, you know, given what's happening with Alphabet and Apple, I would argue the tape is hanging in there

pretty well, breath is positive, you've rotated toward other stuff away from those stocks that are getting hit so much. Yeah. What'd you make of what you got from the Fed today? Is it meaningful to you in any way about how investors should think about the market at the near term? I mean, it's meaningful in accentuating this unusual spot we're in with two-sided risk.

I do think there was a world in which he could have been much more hawkish and said look we expect the stated inflation numbers to be higher if these tariffs go in and then foreclose on the idea of cuts. He didn't say that at all. In fact directly to a question about do you see the room for cuts at some point, he said sure under certain conditions. So I think, you know, if you stacked up the main challenges to this economy and stock market, the fact that the Fed funds rate is at, you know, four and three-eighths is not top of the list. So I feel like we can hang out here for a while. I think you could argue that he's overstating

the strength of the economy in the first half, but not to any net detriment to the immediate outlook for stocks. I want to go to Eamon Javers now in Washington on these headlines that I brought you here about the president rescinding global chip curbs. Eamon, what do we know? Well, Scott, this is Bloomberg reporting and what they're reporting based on people familiar with the matter is that the Trump administration plans to rescind Biden-era AI chip curbs as part of a broader effort to reverse semiconductor trade restrictions

from the Biden era. Now remember, the Biden administration was concerned about AI usable chips getting to China, and so they constricted AI sales to countries around the world with the idea that these could be jumping off points for sales than to third party buyers in China. So very much restricted the flow of those AI chips.

That obviously not great for chip makers here in the United States who have been squawking about the need for expanded sales. Now we see this report from Bloomberg and they've got a statement here from the Commerce Department's Bureau of Industry and Security saying, The Biden AI rule is overly complex, overly bureaucratic, and would stymie American innovation. We will be replacing it with a much simpler rule that unleashes American innovation and ensures American AI dominance. So the question here, Scott, is going to be, obviously, what are the details of that rule?

And as you see, AMD and some of the others trading on this news, the question is, how exactly will it play out for those companies? We don't know those details yet, but obviously a big pivot here for the Trump administration, Scott. Of course, the devil in the details, though, as you suggest. Let me just ask you real quick as well, because we didn't get a chance to get into it much. This idea of the president saying that he will not lower those tariffs on China from 145 percent. What do we know about that? Yeah, I thought that was a fascinating moment earlier today at the White House. The president

digging in, right, saying he's not willing to lower tariffs to get the Chinese to the table. Now, we know these meetings are going to happen between the U.S. delegation and the Chinese side in Switzerland over the weekend. We don't know what actually is to the table. Now we know these meetings are going to happen between the US delegation and the Chinese side in Switzerland over the weekend. We don't know what actually is on the on the table in terms of negotiations in the in that meeting, whether this is just a handshake or whether there's going to be serious conversations there. So we'll watch for that. But I also thought that the president's comment was notable when he said that ultimately he thinks we're just fine with what is effectively a trade embargo with the Chinese right now, he said well that's okay because

we're not losing money. The president sees a trade deficit in his view is the United States losing money and if there's an embargo and trade stops between the United States and China he sees that he said as okay because effectively it's a tie. And the United States is not losing out on the trade deficit side of the equation. Now, there's a lot of people in the import business who would tell you that's a huge loss for them. The president sees that as just fine because, in his view, the United States is no longer

losing out to the Chinese in terms of a trade deficit, Scott. Yeah, busy late afternoon in D.C. Eamon, thanks for covering all that for us. Dear, Jock, go to you. Thoughts on the chip curves, but also this day that has shaped up to be pretty nasty for Alphabet. There is a lot going on today in tech. Let me first get to that headline that just came across the wires, and that is potential

curves to the chip restrictions. I think it's really important to note that we don't know what is going to take its place yet. So at issue is the so-called AI diffusion rule that takes effect on May 15th. That was a Biden era rule that would have hit Nvidia hard outside of China. Basically splits trading partners into tiers. You have your friends that you can sell to and you have your adversaries like a China that you don't sell chips to. Week ago or maybe a little more, there was talk that maybe the administration would replace that with a country by country deal. That was seen as largely bearish for the likes of Nvidia and AMD because you'd be bringing

chips into these trade negotiations, might be more complicated. We don't know right now if that is still the plan. I'm reading from this Bloomberg report and it says that Trump officials are actively working towards a new rule that would strengthen the control of chips abroad. That might imply that sort of a country by country negotiation is still on the table. And again, that would not be great for Nvidia and AMD because it would just add more friction. Instead of just selling to your friends, they would have to negotiate one by one.

All right, D. Thank you very much. That's Georgia Bo. Let's just throw up shares of Alphabet here as the bell's about to ring because it's been one of the workspace for that stock in a number of years. And that story earlier today in those comments from Apple's Eddie Hugh about search decline for the first time in the world. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business.

And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I think that's a great way to get to the bottom of the business. And I story earlier today in those comments from Apple's Eddie Hugh about search decline for the first time in April took that stock down off the worst levels. But nonetheless, a terrible day.

It shows it off to bet. We're green across the board here as we go out. Following the Fed meeting, Morgan and John picking up an OT. And I'll see you tomorrow.