Closing Bell - Rollercoaster Ride & Fed-Fueled Fall 12/14/22

Episode Date: December 14, 2022

Stocks swinging by nearly 600 points after the Federal Reserve raised interest rates by an expected 50 basis points, but the central bank said it sees rates higher for longer. Former National Economic Council Director Gary Cohn explains why he thinks the Fed is getting closer to a rate hike pause and the possibility the Fed could even cut rates by the end of next year. Current National Economic Council Director Brian Deese says the White House still sees signs of a resilient consumer and labor market, but that more work needs to be done to see inflation come down. And Jefferies Chief Market Strategist David Zervos

You're listening to Closing Bell in Progress. That is the Fed chair, Jay Powell, wrapping up his news conference after hiking interest rates by half a percentage point, 50 basis point. That was what the market expected and signaling that there's still a ways to go when it comes to interest rate hikes. And he wants to see more evidence that inflation is coming down in a sustainable way. Look at the market reaction. So we took a dip right when that statement came out around 230 and the projections, the SEP he kept referring to, that's the dot plot, came out showing they expect higher inflation, showing that 17 out of 19 of those Fed members expect the peak Fed funds rate to get 5 percent or higher. That's higher than

the market expectations. That's the higher for longer side of the story. The market dropped on that news, but it's come all the way back. At the low of the day, the Dow was down 404 points. We're positive now three points. Also want to show you what's happened intraday with the U.S. dollar. This is always the best way to gauge the reaction, the litmus test really for the Fed and for the market reaction. The dollar initially rose. That was the hawkish view that we got on the higher for longer interest rate projections. But then it fell as Powell continued to talk. Falling dollar perhaps helped take stocks up with us. Joining us now is former National Economic Council Director Gary Cohn. He is also the vice chairman now of IBM and the former president of Goldman Sachs, back with us for his Fed tradition. It's good to have you.

Great to be here, Sarah. A lot to unpack here. What did the Fed chair just say to you? So I think we got a little bit of everything from the Fed chair. He came out and he talked about the full effects have not yet been felt. So again, that was a little bit of what we heard last. The lags. The lags, the cumulative effects. So we got the cumulative effects statement. And then he talked about the dot plot. And the dot plot, I think, was the one surprising fact that we got here, where you just mentioned 17 out of 19

over 5%, about 5.10. But I remind you, that's 60 basis points away from the four and a half percent, which is the top of the range where we're at now. That's one increase at 75 basis points. So we're not that far away. We're with 60 basis points over the top end of the range right now. So we're in striking distance. And then during the conversation, he got to ask a couple of questions about the restrictive rate. Are we restrictive? He said we are getting into restrictive territory. And that allows me to slow down potentially. Paul talked about potentially 25 basis points in February being on the table, which would make sense. If you're 60 basis points away from your terminal rate and your terminal rate sometime in the middle of next year, you know, 25 basis points would clearly be on the table.

So is that your expectation out of this for February, which is the next meeting? I think today as I sit here, that would be my expectation. You'd sort of have February, March. He definitely seemed open to 25 basis points, which is a step down from the 50 we got today. If you do 25 in February, March, you're at 5%. You're basically at your dot plots by the end of Q1 of next year. But he talked a lot about how while it was welcome, he used the word welcome to see the inflation rate come down, which we saw in the past two months. He mentioned services, inflation, which does remain high and climbing.

He mentioned wages, which also remain high. And he said the labor market continues to be extremely tight. Why is this a problem for the Fed? Well, Sarah, I'll point something out here. This cycle started last March. It started 10 months ago. So that's what would be interesting if we get to the end of the first quarter next year, we'd go on a one-year trip. When we started 10 months ago, you and I were sitting here talking about the price of lumber. We were talking about the price of gasoline. We were talking about the price of oil. We were talking about the price of shipping containers. And that was all transitory. That was what was

driving inflation. All of that is gone. In fact, I think oil hit a 52 week low last week. The commodity markets are the input side of the equation is basically unchanged year over year at this point. Now, look, we're not feeling that yet in the stores and we're not feeling that as consumers yet because there's a lag that has to work its way through. But at the spot market today, we're basically back to unchanged input prices. And there's an increase and there's evidence that rents are starting to roll over, even though it wasn't in the CPI. He mentioned as such, but he's worried about the historical record suggesting premature loosening of policy while inflation is still high.

So that leaves you with wage inflation. So everything we're seeing is wage driven. I even think that's what you're seeing in the grocery store. If the commodity prices are unchanged but you're seeing much higher groceries, it's because of all of the wages that are involved in getting those groceries to the store, all of the warehousing, all of the truck drivers, the people in the grocery stores, they're all getting paid more money. So we really have to look at the wage component of the situation. And so we're in this sort of vicious circle. And I think we're at the end of this cycle right now. We're in this cycle. We're in the pandemic. The government initially paid people not to work. The government gave you money to stay home. That was under the Trump administration. It was also under the Biden administration. I'll remind you it was under both administrations. I think you have to be honest and say it was under both administrations. There was a large stimulus package under both.

And the government has continued to give you relief, whether it's student loan payment relief or enhanced child care credits. The government has continued to give people stimulus. A lot of that stimulus was pent-up demand. Initially, it was pent-up demand for goods. Then it became wildly pent-up demand for services. And services pent-up demand for goods. Then it became wildly pent-up demand for services. And services, people wanted to go travel. They wanted to go see their family. They wanted to go on vacation. They wanted to go out to dinner. They wanted to have a good time. We are starting to see some of that disposable income coming out of the system. We're now starting to see credit build in people's account. We're starting to see default rates build.

So we're starting to see a much more normalization. I think we're in this three-year normalization cycle. If people are getting back to normal, it means they're going to have to go back to work. They can't just go spend money and have a good time. They're going to have to go back to work. If they come back to work and we renormalize this cycle, that will help us with the wage side of inflation. So I do think we're at this interesting point of inflection here as we get into next year. So the Fed slowing down and the Fed looking at 25 basis point increase

will make some sense to me. Yeah, well, we have to see that labor force participation rate move. Stay with us because we want to bring in senior economics reporter Steve Leisman. He was in the room for Chair Powell's news conference. And Gary and I were talking. We thought you asked a really interesting question about basically whether the Fed chair minded that the stock market is up a lot since the last meeting as he's trying to tighten policy. I'm not sure if you were satisfied with the answer. Never satisfied with the answer, but very satisfied that both you and Gary thought it was a good question. Look, here's the thing. The stock market, I think, is the least of Powell's problems. I think the bigger problem are the interest rates that I enumerated there earlier. Not to mention, I'm looking right now, Sarah, that the January 24, in other words,

the end of the year for next year, is now trading in that 436 area right now, which is, remember, the Fed is at 5.15 for a year in. So there's a big gap there. There's going to be some kind of conflict. But let's hear how Powell answered the question about whether or not this loosening of financial conditions represents a problem for him. I would say it's our judgment today that we're not at a sufficiently restrictive policy stance yet which is why we say that we would expect that ongoing hikes would be appropriate and I would point you to the SCP again for our current assessment of what of what that peak level will be as

you as you will have seen 19 people filled out the SEP this time, and 17 of those 19 wrote down a peak rate of 5% or more in the fives. So he pointed us to the SEP. Let's go to the SEP and let's look at that 2023 outlook there. right there, 17 folks are above 5%. Five are at 5.4 and two are at 5.63, which, by the way, echoes along there. One of them is out there at 5.63 for a very long time. I'm sorry, maybe that is inaccurate there. It's just two at 5.63, not 12. In any event, the issue is that the Fed is, at least in their thinking, much more hawkish than the market. And maybe Gary or maybe you, Sarah, can explain to me how those twain meet. Well, doesn't usually the market tell the Fed where to go on that front, Gary? I don't know. You know, look, it's an interesting debate, but the market's been more right over the recent years or so.

I could also point out the obvious. We could look at where the dot plot was a year ago as we sat here, and we could look at where the market was. The dot plot wasn't anywhere close to right a year ago as we sat here. So if you ask me where I think we're going to be, I think the markets looks much more accurate as I think we're going to get people back into the labor force. People are going to be forced back into the labor force and we're going to get wages to settle down to some degree. So Gary, Gary, you see rate cuts next year? I'm not sure I see rate cuts at the

end of the year. That's what has to happen. Yep. It's possible that we could get rate cuts at the end of the year. It is possible if we get workforce participation back to where I think we may see it. We'll get participation back. And unfortunately, we'll get participation back at a time when we'd get jobs slowing down as well, which means we will get higher and higher unemployment, which would then lead you to a rate cut towards the end of the year. Steve Leisman. Steve, thank you very much.

We appreciate it. It sounds like, Gary, you are leaning more into the pause camp. I guess you would call it a pause. I've always been in the soft landing camp. Soft landing, back to back. You been in the soft landing camp. Soft landing back to back. You still see a soft landing, not recession? You know, I think it's soft landing. I, you know, there could be a negative growth quarter in there. There's a difference between a soft landing and

a shallow recession, isn't there? I think we're now in these worlds of technicalities. You know, yes, there's a big difference between a soft landing and a recession. Absolutely. I do not think we're going into recession. Do not think we're going into recession. Do not think we're going into recession. I think what we thought would happen as we renormalize over this three-year cycle feels to me like it's more and more practically happening. The one piece is people coming back to the labor force. Will we get people back to the labor force?

And look, there's always a risk. There's a risk that in the new government omnibus package, we do more governance stimulus. There's a risk that we do eliminate student loans and that people take that newfound income and say, look, I can stay out of the labor force longer and longer. I'd like to renormalize as much as we can. And the more that we renormalize and the less that we create stimulus, the more we'll get people back into a normal employment cycle. So the reaction here is bonds are catching a bid now. So we're reversing the early reaction. And the 10-year is down below 3.5. Stocks, Dow's back lower by 147 points or so.'ve been wavering and the dollar is. Weaker doesn't it is

that is it ultimately bad for risk bad for stocks if the Fed and the market are on different pages about how high rates are going to get. I think ultimately the Fed is going to get to where the market is. I you know that they can only diverge so

long. And at the end of the day the Fed controls the front end as you and I have talked about. They've got some immediate reaction into some financial impact into the consumer. But at the end of the day, the market's going to control what's going on because corporate debt and other borrowings are going to be driven by where markets price securities. Can I tell you another very interesting part that I thought that I wrote down borrowings are going to be driven by where markets price securities. Can I tell you another very interesting part that I thought that I wrote down was when he got asked by one of the reporters if they would consider revising their inflation

target, their goal higher. And he said like five different ways. Nope, not even thinking about it. It's not something we would consider under no circumstance. And then he said there might be a longer run project about looking at the 2% inflation target. What do we make of that? Because it is going to be hard to get back to 2%, isn't it? They don't expect it till, I don't know, 2025 or whatever the plot says. Yeah, look, I agree it's a long run project to get back to 2%. I think it's going to be very difficult for them to get back to 2%. But I also agree with the way the chairman answered it. I don't think in the Powell Fed, we will see any deviation off the 2% target rate.

For credibility's sake, he has to stay there. For credibility's sake. And for the Fed to move their target, that's something they have to take very seriously. They would have to talk about it for a long period of time. They would have to study it. And it's not something they could do very often. If they started moving their targets for inflation around, they would lose credibility very quickly with the market. We're going to adjust our inflation target based on what we see going on in the economy. That would really inhibit the credibility of what the Fed does. The Fed needs to have a stated set of objectives and they need to live with them

through thick and thin. So ultimately what it sounds like to me, your reaction, and this is what I think I heard today too, is that he was less hawkish than he was last time, right? A little bit. Definitely less hawkish than last time. Yeah. Definitely less hawkish than last time. So if he's less hawkish and they're nearing the end of the hiking and you think there's a soft landing, do you buy stocks? Again, overall, I think I do. But I think, as I say many times, I think you have to look at companies and companies specific. I do agree that this sort of spending spree that has been going on for the last couple of years with people having stimulus money and people being able to spend, that's going to come out of the economy. So some companies that have been affected by that are clearly going to have

different earnings potential going forward. So I think you have to analyze the companies, analyze their competitive situation, and how they're going to be affected by what I would call a more normalized economic picture in the United States. There are an increasing number of folks in our world, economists, financial market participants, that think that the Fed is oversteering here. Jeremy Siegel, Professor Borton, hasn't been shy on this network about that. You know, the fact that there's so much tightening done in such a little period of time and that there is a lagged effect, what is that ultimately going to mean for next year?

Why don't they just pause now and see how it shakes out? Well, look, I do believe there's a little bit of truth in that. I believe I've said numerous times that the Fed was late to this game. and see how it shakes out. Well, look, I do believe there's a little bit of truth in that. I believe I've said numerous times that the Fed was late to this game. If you're late to the game, staying longer doesn't necessarily fix the problem. I think they need to take a real, you know, objective view of where we are. You know, even in the statement, I pointed out that it talks about higher food and energy prices. We do not have higher food and energy prices on the spot market. We do at the retail level.

I will clearly say at the retail level. We do have them at the retail level. We know that housing, we know that rents in big cities are coming down. You have plenty of the big real estate companies on. You have plenty of the big real estate owners on. They tell you that rent cities are coming down. You have plenty of the big real estate companies on. You have plenty of the big real estate owners on. They tell you that rents are coming down. Just not New York City. Yeah, we tell you that rents are coming down.

We know that rent's a lag in the calculation. So we know that these effects are coming through the economy. So, look, I do think in some respects, in the couple of questions where the chairman was asked today, he gave a mild hint that we are slowing down and we are 60 basis points away from our terminal rate. And we won't meet till February again. In February, it could be 25. And if we've gone from 75, 50, 25, that to me is a pretty dramatic slowdown. And then after that. Done. You know maybe it may be another twenty five maybe not but by

then you will have almost another quarter of that. Right and a lot can change a lot can change I Gary don't go anywhere just want to show everybody what's happening we're taking another leg lower here in the market down more than two

hundred points right now. On the Dow the S. and P. five 500 is down about three quarters of one percent. All the sectors just went negative. Consumer staples and health care were holding up. They just went down on the day. The worst hit group right now are the financials. The banks are getting hit. The materials, real estate, some of the cyclical groups again on this Fed news. Technology is also lower with the Nasdaq down a percent. It's still up about 1.3 percent so far for the week. Up next, we will get the White House's take on the Fed's decision in a first on CNBC interview with National Economic Council Director Brian Deese.

Remember that job? Yes, I remember it well. Also, double lines. Jeffrey Gundlach weighing in on the Fed and the impact on the bond market coming up at the top of the hour on overtime. Stay with us here on CNBC, down 255. Welcome back on a Fed Day afternoon. Here is what the market reaction is. The S&P 500 is down three-quarters of a percent. NASDAQ's falling now one percent. We're starting to move south again.

Again, we've been all over the map. The low of the day was down 400 on the Dow right after that. That statement was released by the Federal Reserve. They raised interest rates 50 basis points as expected. But the signal from the statement and the news conference was higher for longer. There's more work to do when it comes to fighting inflation and more evidence that the Fed needs to see that inflation is really coming down meaningfully. But Chair Powell didn't rule out 25 basis points, another step down in the increase in rates, at the next February meeting. There's a lot there. The result is we're seeing lower Treasury yields, so bonds are getting a bid.

The dollar is a little bit weaker, and stocks are, again, turning lower. NASDAQ now down more than a percent. Joining us now is the National Economic Council Director, Brian Deese, from the White House. It's good to have you, Director Deese. Welcome. It's good to see you. So I know we're going to talk about inflation clearly, and I know you want to keep the Fed a little bit separate, but do you sort of wish that the Fed, I don't know, might take a pause as we see inflation numbers coming down and the impact starting to damage the economy? Well, you're right. I'm going to leave the Fed's decision making and the communication that they

made today alone for the reason that we don't comment directly on their policy. What I would say is if you look at the macroeconomic context over the course of the last couple of months, I think what we're seeing is continued progress and continued resilience toward what the president has been talking about now for months of this transition toward more stable and steady growth. And I think that that's what we all want to see. And we are seeing some meaningful progress on that front, resilient consumer, resilient labor market, and now a couple months in a row of inflation showing positive developments in terms of cooling. There's more to do, but certainly we're seeing progress.

Right. And so the Fed chair himself said that there's a lag to monetary policy, as we all know. What are your expectations as a White House economist about what the lagged impacts are going to be on the economy of these higher interest rates? Well, look, certainly the monetary tightening cycle operates differently across different sectors of the economy. Certainly housing is one place where we have seen a pronounced impact and one of the things that's interesting about the inflation data that we saw come out yesterday is that we're seeing a sort of a peaking of the printed inflation data on housing at very high levels. But what we know in terms of real-time data in the market is that market rents and housing prices have started to turn over.

And so, you know, what you need to do is balance what the data is showing. But what we try to focus on mostly is what's happening out there in the economy. What are people experiencing? What are businesses experiencing? What are households experiencing? And so certainly you've got to navigate those lags. They operate differently in different contexts. But, you know, one thing I will say practically speaking is that households and businesses over the course of the last eight weeks, ten weeks, have been experiencing significant declines in energy costs. That's true at the pump for households down about a dollar seventy cents a summer. It's also true for businesses we've seen

meaningfully declines in the cost of diesel for example example. And so those are, again, you know, some promising signs, but also things that we know are happening real time in the economy right now. Where does inflation go next year? Well, look, you know, we we're going to be careful about and cautious about trying to predict the future. There's a lot of uncertainty out there, uncertainty globally, and we need to factor that in. And as the president said yesterday, we have more work to do to see inflation come down. But what I would say is that the signs we are seeing now

are promising, promising across goods, promising across services outside of the housing sector. And as I said on housing, there's reason to believe that in the actual market environment, we're seeing progress as well. So I think the outlook right now I think is progress and more optimism, cautious optimism that we are seeing movement in the right direction than we would have seen a couple of months ago. But we have a ways to go here. We have to keep our head down. And on the policy side, we need to continue to focus on things that can help to lower costs for American families,

lower costs for American businesses. The good news on that front is a number of the provisions that we enacted this summer are slated to start on January 1st. So a couple of weeks from now, we're going to see more progress on the policy front in areas like health care and energy. But you can't deny the fact that, you know, the 2023 outlooks are coming out all over Wall Street for the economy and the markets. And it's marked by declining profit growth, deteriorating profit growth and economic activity with many more forecasting recession. Well, look, I mean, if we were having this conversation early in 2022, there were a lot of people that were forecasting that the second half of this year we were going to see we were going to see a step back. Now we're operating with we got two point nine percent GDP growth

last month and we'll see where we end at the end of this year. We are in a transition and this transition is operating over the course of the next couple of quarters. I think if you step back, the biggest economic question for the United States is a longer term question, which is can we come out of this pandemic cycle breaking out of the equilibrium we were in prior to this crisis of low growth, low interest rates, low productivity growth, increasing inequality and really get to a better equilibrium. And the thing that I will say is talking to business leaders across the board, they recognize the short-term challenges, but almost all of them to a T say that they are more optimistic and more interested in investing in the United States over the medium term than they have been in some time. And that's in no small part because of the policy changes we've seen, long-term incentives to invest in things like semiconductors, a commitment to have more secure, stable supply chains, an opportunity to build out clean energy here in the United States over the long term with incentives to do so. Those are the kinds of things that are actually going to drive the longer-term productivity benefits that we need as an economy.

So I think there's reason for real confidence in that perspective over the medium term. Brian, my guest host here for Fed Days is your predecessor Gary Cohn is with me who you know pretty well and I think he wanted to ask you a question. Hey Brian, it's great to see you. Hey Gary. Let me change the topic for a minute. I know you must be working around the clock on the omnibus funding bill. Can you give us a little idea and insight on how that's going and where you think we're going to end up? Well, look, real progress in that the leaders have now announced that there is agreement around a framework. And Gary, as you know, you've been through many of these cycles. The place to start when you're talking about a

funding bill is to start with a top line. What's known as how much are you going to invest in the areas of defense and non-defense spending. And there is alignment, growing alignment around that. And then what you do is you work down into the details. There are a lot of details that need to get worked out. And then other provisions that may be accommodated in that process. But the good news is that we've got an agreement around a framework, and I think a real durable commitment to try to work to get this done. We have many miles to go here over the course of the next several days. But Gary, as you know and you've lived through, the significance of having a secure, long-term funding of the government so that you're not

having to come back in six-week or two-month or three-month increments, create uncertainty across the federal government, and everything that it touches is important economically. And so we're committed to doing what we can as an administration to help facilitate that kind of outcome. And I think there's some reason for optimism here that we can get that done. Gary is going to be very nice because he was in that position. So I'll ask the tough question, Brian, which is how much stimulus is going to be in there? Are you going to push for the extension of the child tax credit, the student loan forgiveness? And these are factors that matter as we're talking about trying to control the inflation problem in this country.

Oh, look, I don't think this is a stimulus conversation. I think this is about a certainty for government operations and a certainty for the businesses and investors that rely on certain elements of a functional government. So we're talking about can we actually continue to operate our defense and homeland security functions without having to go in very short increments. The care that we provide for veterans, for education, so people can plan out, particularly important as we deal with the ongoing health challenges that we face. So, you know, look, I think that there is a focus on providing that certainty and stability. That's what folks are talking about. That's what folks are trying to agree on. And I think that ultimately that's the package that we'll end up with. And I'm

confident that we can get there. Don't think that was enough. Brian Deese, thank you very much. Appreciate your time today on the topic du jour, which is, of course, the inflation and the economy on this Fed Day from the White House. Didn't rule out the extra spending that you were worried about when it comes to sparking more inflation. I don't think they will roll it out. I would be somewhat surprised if it's not in the package. It's actually one of my concerns. One of my concerns is the extension of child tax credits. You know, it's a great program, but unfortunately in this period of time, we need to normalize the economy.

We need to normalize people back to work. We need to get rid of some of the excessive stimulus programs. You know, I'm worried about student loans. We really need to get people back into the labor force. We can see it. It's the one piece of inflation that we have not been able to tackle. And it's really where we are right now. And hopefully we will normalize this. And the Fed can't control the labor force participation.

We cannot. Yeah. Gary Cohn, it's so good to have you here, as always. Sarah, always a pleasure. Thanks for playing football with Brian Deese. Up next on the show, Jeffries Chief Market Strategist David Zervos on a Fed day as well on how investors should position their portfolios following the latest rate hike. When we take you inside the market zone, we're off the lows, down 146 or so on the Dow. Be right back. 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, as always.

And, Mike, the Fed market reaction feels very indecisive to me. We're down. We're up. We're actually climbing again here. We're down 113 on the Dow, and you've got three sectors that have gone positive in the S&P. They're health care utilities and staples, so they're the defensive recessionary type stocks, which jives with the fact that you're seeing bonds catch a bid. Yields are a little bit below 3.5% on the 10-year. And the dollar is weak. What's your take on the reaction? It is always a hazard to infer any clear message from the market's reaction to the Fed.

And I would say today's S&P moves, for as as jerky as they've been have been entirely within the range of the last two days so there was not some kind of big change in overall outlook if you look at the I think the net change in the committee's outlook for growth for inflation for where rates go next year for

employment it all seems like a lower chance of a soft landing it seems like higher unemployment slower growth greater inflation even with that they'll have to have rates higher now the market is not just taking that on face

value the market seems to have greater faith that inflation has downside momentum and therefore the Fed will either go very slowly toward its target about five percent on the Fed funds rate or maybe won't get there maybe a cut

thereafter so you know in the comments Powell really did. Make it clear that it wouldn't be weird for them to step down to 25 basis points in February. And maybe that's all they do for a while. Let's talk about one part of the market that is certainly very sensitive to these interest rate increases. The homebuilders, Lennar and Pulte, are outperforming after Barclays upgraded both of those stocks to overweight from equal weight. The analyst there expects interest rates to peak next year, believes Lennar and Pulte are well-positioned to benefit from a possible housing market trough. Meanwhile, Lennar is set to report earnings after the bell today. Those stocks are actually up a little bit as we see yields move lower. Diana

Olick here to break down the key numbers to watch for Diana. And of course, the commentary will be key. Oh, absolutely, Sarah. That's all we're looking at, really. Lennar is expected to show an increase in revenues despite the slowdown in home sales. But we'll be watching prices closely. And as you said, any commentary on incentives like buying down the mortgage rate. We heard that recently from Toll Brothers in its latest release. Now, mortgage rates did make a big move during Lenar's Q4, hitting a high of 7.37% in October, but then dropping nearly a full percentage point by the end of November. And that may have helped pull some buyers in the door.

But did they sign the contracts is the bigger question, Sarah. Absolutely. Diana, thank you very much. Let's get more market reaction after that Fed decision. David Zervos joins us, as he does on Fed Days, Chief Market Strategist at Jefferies. So it wasn't it wasn't

the beatdown that the market got, say, in Jackson Hole or in even the last Fed meeting. But there was a message from Powell that there's more work to do on inflation. What's your take? Well, Sarah, I think the take is that that we're coming down in these rate moves. We've gone from 75 to 50. We're nearing the end. There's another 75 left, according to the SEP. And it's very hard for Jay to remain at peak hawkishness, which is really where he's been for most of the year, when you're kind of bringing the – you're taking your foot off that break a little bit. It was very hard for me to see why people would think you could get more

hawkish messaging than usual from Jay into a meeting like this. I think that's really the story. It's a message that is still very consistent with everything he said all year, that they're vigilant, they're not going to make the mistake of the

70s. He referenced that again. You talked about it earlier in your program. So he's not giving you anything to dovish to bite on. But, you know, we were already, I think, very close to peacockishness. So it just didn't make sense to go in short. And I think the market's kind of telling you that. So the market's telling you that bonds are getting bought right now. Yields are lower in the 10 years below 3.5. So we are well off the highs that we were seeing a few months ago. Do you think that's it? Have we seen the highs? You know, the market is pricing in a lot of credibility for the Fed. A lot of people like

to talk about this inversion as the recession indicator. And it is. There's an indicator that we have a risk of recession and it's a material risk it's not guaranteed by anything some people think we already had one last year with two consecutive quarters of negative real growth and didn't feel that bad but nevertheless i i think the yield curve and the tenure in particular is really telling you sarah that just the market has an incredible amount of faith in the credibility of the fed right now and it's a bit it's desire to anchor long run inflation expectations, which they've done pretty, pretty well in the face of two back to back seven handle years on inflation. So what do you do as an investor now? We've been waiting for progress on inflation. We got that two months in a row yet yesterday. it looked like we were going to get a giant rally and then it basically evaporated, which suggests that

there's a lot of hope and optimism already built in around moderating inflation numbers. So what do you do? Are we targeting jobs reports? What sort of signals do you have to wait for to know whether it's a good time to buy? I mean, honestly, Sarah, I think next year there's just a lot more interesting opportunities, at least from my perspective, in the credit markets than the equity markets. The big difference between this year and last year is not the inflation rate. The inflation rate is exactly the same as it was a year ago. And in fact, the unemployment rate is only two tenths away from where it was in the beginning of this year at three point nine down to three point seven. The big difference is that yields are a bunch higher, particularly in the beginning of this year at 3.9 down to 3.7. The big difference is that yields are a

bunch higher, particularly in the belly of the curve, and spreads are a lot wider. So to me, you've got an opportunity in some of the more beaten up areas of the credit market or leveraging in the higher end of the credit markets that can give you equity-like returns, even double-digit yield returns, without having to take equity risks. And I think that's going to be the interesting trade next year. I'm not sure that the Fed is going to want to see big rallies in the equity market. And they're going to kind of Jackson Hole you every time we rally up because they can and they want to get that inflation number down faster. They want their report card to look better.

And right now, their report card in the last two years has a couple of F's on it. And especially now, and there's a little bit of a gap in where the Fed thinks the peak rate is going to be in the market. We've got to leave it there. Out of time, David Zervas, thank you for your initial take from Jeffries. We've got two minutes to go in the trading day. Mike, I just want to point out Tesla, if I could, as you go into the internals, because it is hitting a new 52-week low. In fact, lowest level since, what, early 2020? Yeah. And also continuing to lag, broader market and also technology. Yeah, it's both part of a bigger dynamic, which is the unwind of the

crowded, expensive kind of favorite growth stocks, but also obviously idiosyncratic with what's going on with Twitter and the loss of faith in shareholders that, in fact, there's leadership at Tesla that's trying to sort things out as demand weakens in China. So you're going back to that very heralded stock split in late 2020 in terms of going through those levels from the upside. What else do you see in the internals? Pretty soft. Nothing too dramatic. I mean, the market has really been just kind of twitching within a range here but definitely more. Downside of volume then upside here's the two year note yield- this

did actually. Pop higher. For time during Powell's press conference but then he's back we're higher on the day but. You know this this is bottom three times this month right above four point two. So the market feels as if there's

really not a lot of lift. On sustainable left. In short term rates even if we do get to five percent the volatility index. Has come in as would be expected we passed the big as if there's really not a lot of lift, sustainable lift in short-term rates, even if we do get to 5%. The volatility index has come in, as would be expected. We passed the big catalyst. We're down below 22 in the stock market. The indexes remain in their range for the week, Sarah. As we head into the close, boy, what a choppy post-Fed reaction that we've seen in the market.

We were higher to start the day, lower on the Fed decision and announcement, interpreted as higher rates for longer, even though we got that half a percentage point increase in rates as expected. And then we've come back a little bit. There's the S&P. It's down half a percent into the close. Healthcare, the only sector going to go out positive. Banks are the hardest hit, perhaps on those lower yields you are seeing. Weaker dollar as well. The Nasdaq down off the lows about three quarters of one percent. Apple is a big lag on the Nasdaq. That's it for me. I'm closing bell. See you tomorrow, everyone.