Power Lunch - Fed Holds Rates Unchanged 3/18/26

Episode Date: March 18, 2026

Fed keeps rates unchanged. We dive in to what it means for your money with our Fed panel. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch. I'm Kelly Evans, alongside Dom Chu this afternoon, who is in for Brian Sullivan, as we are just about four minutes away from the Federal Reserve's decision. Its next move on interest rates, the odds of a rate cut are less than 1%. The market is basically expecting no action this meeting, but the path of future cuts will certainly be in focus. And it's Chair Powell's penultimate Dom Press Conference as head of the Fed. ahead of it. Here's how your money and markets are setting up. Scores on the doors, maybe they would call this. The Dow is down 442. The S&P is down 42. The NASDAX down 138 and the small caps are down 15. Bond yields. The last check was about 422 on the 10 year and 371 down on the two year. All right. Of course, the big mover, Kelly, these days has to be in the oil markets right now. U.S. benchmark West Texas Intermediate WTI prices. You can see $96.52. It's up one third of 1% by the way, and that is way off the session highs at this point right now. World benchmark Brent Crude went as high as $109.95 on pace for its highest settle since July of

2022. Both are up roughly 50% since the conflict in Iran begun. So keep an eye on those oil prices. The U.S. dollar, by the way, up fractionally today, just about one quarter of 1% trading just below that psychologically important 100 level, the greenback strengthening against major currency pairs up 2% in the month of March. And the latest read on the AI trade, by the way. Let's go microeconomic here. Micron reports quarterly results after the closing bell. Shears hit a record intraday high just today. They've soared more than 350% in the last year as a supply shortage pushes memory prices higher. So this is where we begin. The micron out, if you had to go only micron or only fat, a micron would be up there.

It would be because it would set the narrow. We kind of know what to not expect or what to expect around Iran. Yeah. We do not yet know if that AI trade still has legs. And if Micron tells that tale, it could be big. Well, let's get right to the all-star panel we have assembled. As we, as Kelly points out, are just minutes away from that Fed decision. Joining us now, David Kelly of JP Morgan, Jim Karen of Morgan Stanley, Tim Rabanowitz,

of Innovator Capital, ETFs. And Sarah Malick of Nuveen, thank you all for being here right now. I'll start with a bigger question right now first for David, because I'm staring right across the table at shoe. The Fed is not expected to do anything. Should it do something? No. I think rates are at an appropriate level for where we are right now. I think there's a lot of uncertainty. I think what Jay Powell is going to talk about is uncertainty of both sides of their mandate. The thing that I'm going to be looking at mostly is what do they think inflation is going to be like this year? Because they're going to have to put some number down there. We're going to

get their economic forecasts. So will they actually raise that from 2.4% of the end of the year, which is what they thought back in December, given. what's going on with oil prices. Jim, the commentary is key. So many people have already said it on our air today. People all over Wall Street are saying it. What kind of commentary would you be looking for? So for me, I'm going to focus on their growth outlook, right? So inflation, we know it could be a transitory shock. We have a temporary, potentially temporary spike in oil. Ultimately, what is this, when does this, where is the tipping point? Does this tip into, from an inflation shock, into a growth shock? I want to hear what the Fed has to say about that.

So I'm going to be really focused on what their growth numbers are and how they're actually interpreting this. And Sarah, the risks out there are fairly evident with regard to the geopolitical ones. But some of the other ones around the macroeconomic story in the U.S. here are nuanced because of the many factors affecting it right now. What's going to be the most important thing that the Fed has to watch for in your mind vis-a-vis all of those externalities being brought to bear? Well, we're going to be watching the developments from geopolitical issues. with the war going on. In their summary of economic projections, I'll be watching for whether they're going to upgrade their view on inflation, downgrade their view on the economy, given that fourth quarter GDP came in sub 1%. And what are their views on the employment markets?

Now, the Bulls and the Dombish members on the Fed are going to say inflation's here today, but slower economic growth is here tomorrow. We can still get one or two rate cuts into the books later this year. Markets are currently predicting only 86% chance of one rate cut in December 2026. Of course, the hawks on the Fed are going to say that inflation is now here and it's chronic and we can't cut rates or maybe even raise rates sometime this year. I don't know if we can show this in the next five seconds. CalShe's odds for the next Fed hike 60% before 2028, 37, Steve. Steve Leesman has the decision. Hi, Steve. Unchanged, Federal Reserve leaving interest rates unchanged at a range of three and a half to three 75. It was an 11 to one vote with Fed Governor

Steve Myron, again dissenting, preferring to cut rates by one-quarter point. The Fed's saying they're very up high in its statement today that the implications of developments in the Middle East for the U.S. economy are uncertain. But other than that, pretty robust or actually positive economic outlook. It continues to say, as he did last time, that the economy or the economic activity is moving at a solid pace. Say job gains have been low, but the unemployment rate is little changed. Now, as for the outlook, still one cut built in this year for the median Fed official, bringing the rates down at 3.4, and one cut for next year, another additional cut for next year, at 3.1%. The long run, something that's been ticking up over time. The long run neutral rate is now see a 3.1, that is up a 10th. On inflation, the median Fed official now looking for 2.7 on headline inflation. That's from 2.4 in the December forecast. going back down to 2.2% in 2027. On core, looking for 27 up from 2.5, so two tents added there.

Interestingly, GDP actually taking a tick up to 24 from 23 and 23 from 2% in 2027. So not seeing much of a GDP hit from the higher inflation forecast that is now part of the outlook. As for the dots, seven officials want to hold, 12 want to cut, at least one cut or more. five of those want two cuts or more. The old range guys was a funds rate from, you take all 19, the bottom was 2-1, the top was 3-9. It's coming in a little tighter. Now it's 2-6 to 3-6.

So a little bit of give on the double side, a little bit of give on the hawkish side, and now you have a little bit more centered around this 2-6-3-6 area. But again, the Federal Reserve emphasizing uncertainty. Interestingly, I would point out the idea that they up there and, inflation forecast, but also they up their GDP forecast. So that's kind of telling you perhaps where the center of the board is on the ultimate impact of the oil price shock. All right, Steve, stick around here, please, because we have markets that are relatively stable right now, maybe not unexpected.

We're all waiting for the press conference. Let's get out to Chicago for the reaction in the bond markets right now. Rick Santelli has that story, Rick. Yes, Dom. If we look at all the intraday moves to's tens of dollar index, what jumps out at me right off the bad is, is that the fixed income markets, twos, tens, the whole curve, we started to see yields drop

even before anything was read at straight up 2 o'clock Eastern. So investors were buying treasuries in front of the statement and after the statement it had just a minor follow-through. We were at 370 in a 2-year before anything was red.

We're at 269. Now we're at 421 in a 10-year exactly the same. So you're correct. Not a lot of movement in the markets. But let's do put a face. on this. If we look at where we've been, on the 12th of this month, we saw two-year yields at 3.74, the high-yield close going back to August of 25. And if you looked at tens on the 13th,

they had 428, a high-yield close for the move post-conflict, but they couldn't even take out their 429 high-yield close earlier in the year in January. So really what we're seeing here is the two-year yields seem most sensitive to the notion that we're not going to potentially get any more rate cuts. That didn't change today. That's been the way it's been moving, flattening the yield curve, which, by the way, hasn't really moved much in the last couple of hours. And ultimately, the dollar index, well, the dollar index is up on the day.

It was up on the day. It gave up a few ticks, but hardly at all. We've had a couple of bouts over 100, which is very unusual. We hit 100.36 on the 13th. That was a high watermark all the way to May 25. So to summarize, listen, the conflict is an awful thing from a. humanity standpoint, from the market standpoint, especially treasuries. It's been mostly well-behaved, obviously higher interest rates, but maybe the poster

child for how it's dealt with this is that the tenure couldn't even get a higher yield closed than pre-conflict. And, of course, the dollar index, I'm not sure it's a flight to safety. I think it's more a function of the ECB. We're talking about our central bank. ECB tomorrow, most likely they're going to be looking at aggressive tightening because the energy situation outside of the U.S., whether Europe or Asia, is changing all the dynamics on potential inflation and central bank activity. Back to you.

Thank you. Rick. I just want to turn to the panel here, David, for some reaction. It's amazing. This is almost the most unchanged I've seen a pair of statements. The January to March 1 had virtually no change whatsoever, despite saying the situation in the Middle East is uncertain. Well, yeah, because the uncertainty is on both sides. I mean, they've changed their growth forecast, they've changed their inflation forecast. I don't, I'm not surprised about what they've done here, but I do think are two things.

One, I think both numbers are now too high. I actually think that if we get some sort of stabilization in Iran, I think we're going to have to in the course of a few weeks, then oil flows, and then I think inflation by the end of this year will be below 2-7. But I also

think that it is ambitious to say that we're going to be over 2% growth next year. If we don't know any further fiscal stimulus, and you've got this very tight labor market with the working-age population is actually falling. You need to believe in a huge amount of AI productivity if you're going to get over 2% growth next year. So my guess is that eventually they pull both those numbers down

and that doesn't change rates outlook that much for this year. But maybe next year we do get some rate cuts if we go into next year with both growth and inflation falling below 2%. You know, all the... I look at the price index. It's almost like, why do I bother looking? Does it matter? I'll let you jump in here, Jim.

But you have a PCE that has gone from like 2-2 to 28 over the past 18 months while the Fed's been lowering rates. We're looking at 3% plus for CPI. We were at 3.1 for Core PCE last month. Does it matter? I mean, I'm sort of like if we're just ignoring all of this because there are downside risks to the economy, I'm struggling to kind of bring this all together. So the way I look at this is what's the read-through to asset prices? So the question I asked before the meeting was, what's the Fed's view on an inflation shock versus a growth shock. The Fed just upgraded their view on growth. So what they're telling

you is that this is a price shock right now, but it doesn't necessarily translate into a valuation shock because growth is still based on what they're saying. And now why did they say that? Is it because we had relatively strong momentum coming in and now we're in the middle of some type of a speed bump? And then do we get back on course? And I think that's my look through in this. As I think about what the Fed has just said and what they've done with their upgrading in growth is that they're telling you that valuations are going to be okay as long as growth stays relatively stable. That tells me as an investor that as we see a potential drawdown in markets, this might be an opportunity to buy once we get through this. Providing the fed's

correct. Now, nobody knows how this whole thing's going to end, but it's really the difference between a price shock temporary versus a valuation shock, which has more permanence. Even Waller, who had given that speech a few weeks ago where he said, this is a one-off, the oil price shock that we're talking about. He did not, he did not. He did not. not dissent today. In other words, only Myron dissented for lower rates. Waller had dissented in January, but didn't do that anymore. So, like, if you were to say to the public, who understands, you don't want to send the economy into recession, obviously, but if you were to say, hey, when are we going to get back to 2% inflation? Like, is it, you're saying, if we're lucky,

it's 2.7. There are special factors that are causing inflation to be high right now, but what I think the Fed learned from 2022 is it was actually transitory. 9% inflation didn't hang around, and this inflation won't hang around either after. you get past oil and fiscal stimulus. If you could divide a government next year, you're not going to get fiscal stimulus. So they need some confidence in that, but eventually they're not that scared of inflation. The 9% inflation was in June of 22, which is the month they started hiking by 75. You don't think that kind of...

Throttled it back. No, because it didn't sow the economy. The transmission mechanism for rates, there's only one way they can kill inflation. That's by killing the economy. If they didn't kill the economy, then inflation failed or fell, but they have the perfect alibi. It wasn't us because we didn't kill the economy. All right. So speaking of transmission mechanisms, I just want to bring one thing in here because the asset prices Jim talked about. It's something, Tim, I know you watch it because Innovator

manages these funds and ETFs. Tim, I want to bring you into discussion here. Has there been anything surprising with regard to what's been happening in your mind, geopolitically, in the markets vis-a-vis oil, vis-a-vis rates, the Fed, the market seems to be taking it all in stride in a very orderly fashion, even if there has been a move lower from the record highs. Well, Dom, I think we need to be cautious here of higher rates and how we're managing our portfolios. If you look across markets, you look at the oil futures curve, it's very clear the market is pricing this conflict in as temporary. We think that is our base case as well, but we also want to be careful because the reality of it is the longer oil prices stay at these elevated levels, the more of a chance we have where inflation becomes sticky. And that's not what we want to see.

So we really want to be cautious about how we're managing portfolios right now, making sure we're preparing them for that threat of higher interest rates. The typical defensive playbook, whether you look at long duration bonds, defensive sectors. We don't think that works in this environment. So you have to be looking at other things. We think shorten in duration on the bond allocation makes a lot of sense shifting up in quality with our equity allocation. And then looking to more reliable alternatives like dual directional ETFs that give us the ability to generate a positive total return, even if the market continues to sell off. We're seeing a lot of advisors implement that trade right now.

We think it makes a lot of sense at this point. Steve Leasman, standing by down at the Fed. Steve, you want to jump in here? Yeah, I want to tell you a story, Kelly, and I want to see if you believe this story. According to the futures market, Powell's going to leave his last meeting in April, 98% chance, no cut.

You get to June, ostensibly Kevin Warsh is the chair, 84% chance, no cut. A little bit of the summer goes by. You get to the end of July. July, 69% chance, no cut. Get to September, you come back from Jackson Hole, 54% chance, no cut. It's not until you get to October and December of next year that you start getting an odds-on bet of a rate cut.

That's the story the futures market's telling. I'm not sure I'm buying it. I think I guess it was David Kelly talking about the idea that maybe the market is little too hawkish on the Fed. I think that might be right. If everything remains the same, I don't think it happens. even if you get this possible surge in oil prices, I think somewhere along the way the market is a little bit too hawkish on the outlook for the Fed. I'm not buying that story.

Okay, so I got a question then for Sarah about that. I would like to know, given what Steve just said, Sarah, in your thoughts, how much of that futures market pricing, that mechanism, the trading action that's going on there, is reflecting a handicapping of just how long the conflict in Iran goes for and what the lingering effects are. there has to be some kind of, at least, influence of what that's going to do to the rate picture over the course of the next two, three, five, six months. Well, that's the key question for the markets, because the longer that the war continues and the higher that oil prices stay, the more chronic inflation will become. What we've already seen with today's PPI numbers and recent inflation numbers is that disinflation had stalled. So we're not in an environment where disinflation is continuing.

And now we have to worry about is current oil generated inflation going to be a one-time bump to markets or is it going to cause a serious economic slowdown? Now, our view is still that you can maybe get two cuts later this year because the economy will slow. If the war ends in a reasonably timely manner, an oil, does it stay above something like $120 a barrel for an extended period of time? Inflation will move behind us. So I think you can still get maybe two cuts this year and early cuts in 2027. I want the good cuts, you know, the kind where inflation comes down. Not the bad cuts because we're losing, you know, 92,000 jobs and so forth. Mike Santoli is down or over with the NASDAQ, I should say. Mike, market response. And you heard what Steve just said there. He thinks this market may just be a little bit too hawkish about what goes on here with Fed policy for the rest of the year. Yeah, obviously the market is going to get repriced according to where it thinks, you know, headline PCE is likely to trend in the near term. I think that, you know, the fact that we came in to,

this period, even before the oil spike, with a kind of wait-and-see Fed. And so the market had absorbed this idea, we weren't looking for a quick inflection. I work under the premise in general that a Fed on hold is all else being equal, a positive thing, because it means they're not responding to any particular emergency. Fed has cut 175 basis points in a year and a half. Maybe some of that still is acting as insulation. And if you look at the projections, look, the stock market can live with 5% nominal GDP, growth, if that's what we're going to get. I mean, if that's your, you're kind of working assumption, I think the question, maybe this will come out in the press conferences, the market probably doesn't have full confidence that these projections by the committee

are kind of fully stress tested for all the different scenarios, as we know them right now. They might seem a little bit based on a stale set of assumptions and inputs, because, by the way, economic surprise index has been fine. A lot of the forward-looking indicators of growth look okay. And so, you know, we're able to look past. the one negative job month that we just got. So all of that mixed together, market doesn't see a lot to react to in the immediate term. I do think the market has to root for pretty good economic numbers because if you're going to be pinned in place if you're the Fed by these higher inflation readings, you don't want that to happen with things deteriorating. And you have to have

a theory of the case as to why the labor market is the way it is. Right? You have to sort of know or think you know what the normal sort of maintenance level of job creation is in order to decide if we're falling short or not. Jim, you're nodding and kind of looking at the same time to some of the comments we've heard. That implies if you kind of put Mike's kind of comments in context, that means that we want to be in a regime where good news is good news and bad news and bad news and not that good news is bad news and bad news is good news, if that makes any sense. It does. And I think we have to take a step back. and we have to look at the pricing here.

So what do we know? If we believe the Fed Fund's futures curve, rates are just going to be a little bit higher than what we thought that they were going to be in the past. What does that mean? It means that when you discount your future cash flows, you're going to get a different present value.

You're going to get a lower present value. So effectively, what we're saying today is we're just having a repricing. I'm not seeing default risks meaningfully tick up in the credit markets. I'm not seeing earnings growth rates necessarily fall dramatically. Earnings growth rates are still pretty good, earning surprises are still expected to be good. So it's really a question of, again, how long

does this oil shock last and what does it do to the growth outlook, which then how does that impact valuations? There's not a really clear picture right now in terms of how it impacts valuations for asset classes. So what the signal to the market is, is that if we get through this, I don't know if it's a week, two, three weeks, four weeks, whatever it is, this may be an opportunity to start to think about buying things on the cheap. The problem is they really haven't cheapened all that much. And maybe that's a signal too. David, jump in here.

Yeah, I think, I think first of all, on the inflation issue, I mean, 21st century inflation is made out of Teflon. It won't stick. And it's going to... So everything's transitory in this new regime. Well, yeah, but it's transitory back to sort of a tourist kind of economy, which I think we'll see next year. I think we'll avoid recession this year.

avoid a recession next year, but it's going to be slow growth with inflation coming back down. I think the Fed will have an excuse to be allowed to cut because of low inflation rather than about any particular growth scare. I do recognize these job numbers are really weak, but the Fed should care about tightness, not strength. And this is a tight job market, it's just not a strong job market. It seems there's a striking difference to me between this decade and the 2010s, where right now we have this huge cap-back cycle, do we not? AI layered into and on top of that one big beauty.

Bill, look at the scramble for physical resources everywhere. Look at the energy stocks. Look at materials. Look at the price of metals, the price of commodities. I feel like Iran is just on top of that, but that was already taking place. I'm just curious, if you're right, where do all those pipeline pressures go? Two places. One productivity and two lack of labor costs.

So I really think that American workers and indeed workers around the world just can't get a break and can't get a race. That's the first thing. And the second thing is we are seeing significant productivity gains. And we don't know if that's AI or not, but American businesses are getting people to work more efficiently one way or the other, and that does, that is an antidote to inflation. You would say if we have, let's just call it 5% PPI. Let's just call it that for the year, just to pick a number.

You say if we have 5% productivity as well, then ultimately inflation will settle out to something in the, you know, I'm trying to put the math problem together here. Absolutely. And a Fed can say, you know, we match high for high. Yeah, productivity is what allows you to have strong real growth without inflation. Yeah. All right, Steve, let's get back to you. What else we have now do we know?

Well, I disagree a little bit with David. I agree on the AI part. I think, though, that he's talking about a pre-2016 world in the sense that it's in that world that you could have a lot of global supply coming in and offsetting internal or domestic price pressures. But in a world of tariffs, there's less flexibility for global supply to address whatever deficits we may have on the good side and address inflation. I would say this, though. I think that what the key to me is, is whether or not Fed officials are seeing this oil price impulse as a negative thing for growth or for inflation. And if it's on the growth side, then it matters what happens to jobs, most importantly. If it's on the inflation side, it matters what happens to core and inflation expectations, as well as trying to think of how they address it. There was a little bit on a hike before this statement came out. That bid is gone, and we'll see if that maintains, it remains the case after Fed Chair Powell speaks. Hey, oh, go ahead, I was going to say, Sarah, Sarah, I was going to go to you anyway.

One of the things that Jim brought up was we haven't seen a massive or significant revaluation of certain types of assets out there. But one place we have seen a relative amount of revaluation has been in places like private credit, like places like high yield debt, where we have seen prices come significantly lower over the course of the past two to three weeks, vis-a-vis what happened in certain equity parts of the market. should we be worried that maybe that high yield, collateralized loan obligation, private credit market is telling us something that the equity markets just aren't caught up to yet? Well, it's something to watch. Now, first of all, in the private credit markets, that industry has evolved from fewer players to a whole lot of new players coming in.

So this is part of the life cycle of an asset class over time. As more players have come in, they've had to go for, you know, lower deals, get into areas like software. So you do need to be aware and know what you own in private credit. if you own, if you're invested in areas where there's healthy exposure to software given the AI risks, you could run into issues with that. But that's not a, I don't think it's a painted brush across all of private credit because when you look at the sector as a whole, it's still fairly stable and high quality. Now, second turning to equities, why have equities actually

performed so well or not as bad as we thought they would during this geopolitical crisis? What we've seen is the typical buying the dip. So many flows over $100 billion about a week ago coming in the to the market from retail, target date, and foreign buyers. And why are they doing that? Two reasons. One, cash on the sideline to the tune of trillions of dollars. But two, markets always assume that the federal come in and save the day with those rate cuts later this year if the economy slows. What do you guys think, Jim? Look, I mean, I think we have a pretty broad spectrum here. So one of the things that we were looking at coming into this whole Iran event was the market was broadening. It was a cyclical

broadening. So there's a lot more things to start to look at. It's not just about the MAG 7. However, MAG 7's actually done reasonably well over the past few days. So now we're starting to see some semblance of, well, if you were underweight, you know, those MAG 7s, then, you know, you didn't do so well over the past year, but you did, you know, more recently. Now the cyclical broadening says that there are other things to buy. There are other quality places to go. So yes, you can be in investment-grade credit. You can be in high-quality bonds. You can also look for opportunities abroad outside of the U.S. into the European markets. There's a lot of different things that are going on, but I still think that's the

the U.S. is going to come out of this the strongest, which is a little bit of a reversal, because Europe did really well versus, yeah, versus at least a medium term, yes, sure. Because of oil, right? Because the U.S. now exports oil. So effectively, when I think about the ECB, you want to talk about probability of a rate hike. They have two now that they're talking about. They have two, exactly. And we're debating whether or not they cut one or two times. But people say this could be a huge error, a huge strategic error, just like they've made in 2008. Of course it would be. They, they're, The only way you can kill inflation is by killing growth if you're the central bank. Why would the European central bank, it's not like they've got this dynamic booming economy.

But wait, David, can I just ask you a question? If the only way the central bank can kill inflation is by killing, like why do we even have them? In other words, isn't the purpose of the central bank on some level price stability and isn't their tool interest rates? So if they see prices rising, shouldn't they raise interest rates as well? No, because it doesn't really work in terms of slowing inflation. No, the central bank should focus on keeping interest rates that are fairly stable, sensible long-term level, they should deal with financial crises, and they should not try and micromanage an economy that they are clearly not capable of micromanaging.

Single versus dual mandates, by the way, also. In Europe, absolutely. So they have to respond to that, the energy prices, but I can only imagine if they said, you know what, but we don't want them to make the mistake. They've been making. Look how well their markets have been doing, but you think it's over. Well, you know, I don't think it's over necessarily, but I do think that on a relative basis, the U.S. can actually catch up pretty well because it exports energy.

and rates are probably going to stay lower or more likely lower in the U.S. And I just think that the U.S. has a more competitive or comparative, maybe comparative advantage is the right way to say it relative to Europe. And everybody's kind of gone the other way. So I think it might be an interesting opportunity. All right. Thank you all. Really, really, really appreciate it.

Rick Santelli, Mike Santoli, Jim Caron, Sarah Malick. We're going to keep a couple of you guys around. We're just a few moments away from Chair Powell's press conference. That begins at 2.30 Eastern Time. Before that happens, a quick break and some final thoughts going into it. Welcome back to Power Lunch as we count down to the Fed Chair Powell's press conference, starting in just a couple of minutes time. We have David Kelly here on set with us from JPMorgan, Tim Rbanowitz of Innovator Capital. And we have a market guys near session lows.

Don't want to make too much of it, David. But sometimes the first move is to tell sometimes it's not a lot of people are bracing for more hawkish commentary from the Fed Chair. Do you think we're going to get that? I think probably we will. In the sense, I think he's going to say, look, the economy really looks pretty good. all the indicators, no matter how low confidence is, the actual indicators of the movement of the economy, it looks pretty good.

But I'll be really interested to see what he says about the tariff outlook, because they have to have some assumption here. And I think as you go from IEPA tariffs, which are high, to now some sort of replacement tariffs, it's not even clear how much they're being implemented, something else down the road. It does look like the tariff fever is setting here. And if tariffs come down,

that does improve the inflation outlook for next year. You know, Tim, what do you see from your side with regard to fund flows, regard to investor sentiment where people are actually investing their money. That tells you the markets either have it pretty right or pretty wrong. Well, Don, we had, prior to the war, we had this big capital rotation that was taking place. You had a shift into small caps, the S&P 500, equal weight, international. Those were all areas that were doing very well. And I think a lot of that had to do with the growth backdrop we saw and the idea that we were going to get fed cuts in

the back half of this year. Now, a lot of those have been priced out. That trade has been put on hold. We need those cuts to be priced back in to see that trade start working again. You think that's true that they're there, that one for one? Because that's exactly what Jim, Karen, was just talking about, that he would now lean towards U.S. instead of, you know, Europe or international. Well, I think there's two ways to think about it. One way we're looking at this is if you continue to see the market pull back, where we start to see small cap selling off, equal weight index selling off, five, 10 percent, that's an area we want to step in and start nibbling, start adding some more of that. Because the reality of it is, if this conflict does wrap up and it wrap up, and it wrap,

up quickly, we start to see oil prices coming down. That backdrop is still very, very nice for stocks, and particularly those pockets of the market. I mean, how did Trump put it? They'll drop like a rock. Didn't he say that yesterday? Yeah, from the White House. We did have this one dissent from Governor Myron, and David Heath has talked a lot about how this just, to use your word, transitory or one-offs, like he talks with the portfolio management fees. That's right, but there's nothing wrong with an interest rate of, you know, 350 to 375. I mean, it's a myth to say that long-term interest rates or short-term interest rates are too high. The real problem we've got home prices through the roof

is because rates were too low for too long. The Fed needs to set rates at an appropriate level. They're actually at an appropriate level. Leave them there, rather than cause another artificial asset bubble and home prices by pushing rates down to zero again. We heard this yesterday, this argument, that they can't cut rates because it's just going to push up home prices. But what if the economies, what if we are losing 92,000 jobs a month like we are now?

We're losing 20,000 people out of the working-age population every month just because of demographics. So if we change the immigration policy, we suddenly have millions of more immigrants coming in, then, yeah, I'd be really worried about that. But right now it's still a tight labor market. I don't think it's going to get any looser, given the lack of labor supply.

All right, Tim, we've got maybe just 30 seconds before we have to go, right? So your final thoughts here, what does the economy need to get for it to kick back up into real growth again? Well, I think we want to start seeing those cuts price back in. And I think it is going to be a hawkish pause today, but I think the market's going to look through that a little bit because they know we're getting Kevin Warsh here in July, and the tone's going to be much different.

All right, here we go. This is FedShare Jerome Powell taking the podium.