Power Lunch - Fed Sees ‘Lack of Further Progress’ On Inflation 5/1/24

Episode Date: May 1, 2024

The Federal Reserve held its ground on interest rates, keeping its benchmark short-term borrowing rate between 5.25%-5.50% as stubborn inflation persists.The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.With its decision to hold the line, the committee in its post-meeting statement noted a “lack of further progress” in getting inflation back down to its 2% target.We’ll break down exactly what that means for markets and your money, right up until Fed Chair Powell’s press conference. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. On a Fed Day, everybody. I'm Tyler Matheson. We are just four minutes away now until the Fed's decision on interest rates. And let's get a check meantime on where the market stand as we head into it. Some big reactions on earnings, among other things. There you see the industrials, the loan index that is markedly higher by 113 points. But the S&P 500 and the NASDAQ composite are roughly flat, let's call it. Starbucks meantime, falling to a two-year low, Super Micro, losing more than $100,000. share. We've been talking a lot about that one. On the upside, however, is Pinterest up nearly 18% at 3935? Meantime, let's get right to our All-Star panel with the Fed's decision just minutes away. Joining us are David Kelly of J.P. Morgan Asset Management, Kristen Biddley of City Wealth and Jim Karen of Morgan Stanley Investment Management. Let's talk a little bit. Welcome first to all of you. David, let me begin with you and just sort of get your thoughts as we head into this meeting. I know that you are sort of in the camp that says there ain't nothing coming, but we've got to listen to what gets said. Well, yeah. I mean, when it comes to interest rate cuts, I think the Fed's basically ready, set weight. And so we're just going to have to wait a while here because inflation, the last few inflation reports on CPI, just a little hot, the ECI number a little hot.

So I think the message is going to be, look, we're not about it. We don't think we're going to have to raise rates again, but we're going to take our time about cutting rates. And they want to give that sort of generally hoaxe message that they just don't have any tolerance for CECD. sticky inflation and therefore there are no mood to cut right now. Kristen, so what could be the worst thing the Fed could say in its statement or in the press conference that would spook the stock and bond markets? What would be the danger word? I think the danger would.

It actually would be two things. One is that inflation is more entrenched and two, Chair Powell is going to be asked about whether a rate hike is on the table. And so anything that would allude to that, I think would, you know, you would see a market sell-off. That being said, I don't think he's going to do that. I think exactly as David mentioned, this is going to be, we're data dependent. We still see the trends overall going in the right direction. We didn't have the data that we needed within Q1. So we need a more disinflationary trend to begin our rate cutting cycle. But I don't think there's going to be

too many surprises. So let's talk a little bit if we might about Jim, the idea of slow. slowing down the runoff of the balance sheet. Do you expect there to be much commentary on that? And how important is that if we do here? I think there will be a question on that. And that always comes up. It is important. But I think it's also very forecastable. I don't think there's going to be any surprises on that. I think really the surprise factors are going to come in in terms of like what I call a crisis of confidence at the Fed, meaning that there's a crisis of inflation confidence in terms of what this bumpy path means towards lower inflation. How long are they willing to give it or do they have to reset the inflation clock now

and need to see three months in a row at least of low inflation prints in order for them to regain that confidence? So I think the balance sheet runoff is going to be important, but I don't think that's going to carry the day today. I think that's going to be just well baked into the news. So, David, let me come back to you very, very quickly with the same question I asked, Chris in there, which is what would be the, scary words that could come out of this.

A hike. I mean, if the Federal Reserve were to say that they're thinking about hiking rates, then that would say not only that we could have higher rates, but also the Fed would be admitting that they somehow got it wrong. I don't think they're going to do that. I think they would desperately want to stay where they are for a while and then cut rates this year. So the worst thing they could say, though, I think for markets would be that they're actually contemplating a hike. All right, we're going to come back to the panel in just a moment. Meantime, let's go to Steve Leesman for the decision.

The Federal Reserve leaving rates on hold in the range of five and a quarter to five and a half percent. It does note a lack of further progress on inflation in recent months. The prior statement had noted that there had been progress. It says the risk to achieving the dual mandate have moved towards better balance in the past year. Note that they had said before we're moving, so that's another kind of reference to stalled progress on inflation. It repeats that it does not expect the cut until it is confident inflation is moving towards that 2% target. It reduced the quantitative tightening runoff to 25 billion from 60 billion, pretty aggressive reduction there.

And that begins in June. A way to think about this is if my numbers are right, it's a runoff. It had been going at 720 billion a year of treasuries, by the way, down to 300. It left the runoff of mortgage-backed securities the same at $35 billion. Again, that QT goes from 60 to 25 on treasuries and begins in June. That is a cap on the reduction. On the economy, the Federal Reserve says,

continues to say the economy is increasing at a solid pace. It says job gains have remained strong, repeats that inflation has ease, but again noted that progress has stalled. And I'm going to repeat some statements that they repeated this time around, but maybe now they're perhaps more important. They said the committee strongly is committed to bringing inflation to 2%. They're highly intent to the inflation risk, and they're prepared to adjust policy as appropriate if risks emerged. Those have been in the statement for a long time, and maybe now they're a little bit more important, Tyler. Back to you. a few minutes to dig a little deeper into those words and think about the effect of them.

Let me come back to you, Jim, and we're going to get back to our panel for some reaction. We're also going to welcome in Rick Santelli and Bob Pizzani. Why don't I just go to you, Rick, and get your quick thoughts? You know, there's been some volatility in the two-year, the five-year, the 10-year, the 30-year, and the dollar index. But net, net, out of the volatility, we saw up-yield, down-yield, but we're virtually at the same spot as before Steve read the statement, we're starting to drift a little lower, and I think that speaks volumes.

Interest rates have come down from some of the peak levels earlier today, but they're up on the year very close to some of the highs, and if you go back to the last meeting in March, we're significantly higher when we were then. I think that the salient feature here is simple. We have a stagnationary environment. Growth isn't bad, okay, but it is definitely moving a bit lower,

the glide path seem to be lower, and we know that there's not only sticky inflation, there's pockets of inflation that are going up. Even though we seem to read that so quickly, nobody could hardly hear. But I go back to the same old song and dance, okay? My song and dance is easy. If you look at the last two-year, 69 billion record size, last five-year, 70 billion record size, the first primary auction of tens in February at 42 billion record size. We have, what, $818 billion now to service to debt on its way to a trillion dollars, and worth $34 trillion in debt in the U.S.

We're $312 trillion debt in the globe. To me, the big feature here is sticky inflation is going to meet rising debt levels, and it's going to leave the government very little wherewithal to jockey around discretionary spending. And this all comes at a time where I know we're cutting. back down to $25 billion on runoff and also like in Poultergeist, they're back buybacks are back. That was part of the Treasury announcement today.

So we have QT ramping down, buybacks moving up, even though we're not easing. It's been voiced as a liquidity issue. I'm not sure. Liquidity issue really seems to be synonymous lately with rates going up quickly, but maybe they're going up quickly because spending's

going up quickly. All right, Rick, thanks very much. We'll come back to those thoughts. just a minute. Bob Pazani, let me turn to you with the equity market reaction. Very small. S&P was down 11. Now it's only down five. The key sentence here is in recent months, there's been a lack of further progress toward the committee's 2% inflation objective. There's the higher for longer. And the issue is, are rates sufficiently restrictive to keep bringing down inflation? That's what we're not sure of. The bond market seems to think that there might be higher rates coming. The stock market, I can tell you, is very afraid of that. Remember what

last year when the 10-year moved towards 5% in October, the stock market fell apart. We're at 4-6, heading towards 4-7. If we go to 5, I can tell you the stock market is not positioned for a 5% 10-year yield right now. So that's a great fear. To the extent that they did not put hikes on the table or clearly indicate that, that's a positive read right now. A broader term, the debate down here is the biggest threat to stocks, the fact that disinflation is not occurring fast enough, or is there a slowdown in growth? People are a little spooked by these earnings reports from McDonald's, Starbucks, about a slowing consumer.

My own sense is the low-end consumer is having a hard time. The higher-end consumer is not at all. So right now I'd be much more concerned about the inflation outlook than it would be any slowing with the consumer, guys. So, Kristen, Rick, let's slip the word. I know it was intentional, very intentional, a word that has been in my head for some weeks now, and that is stagflation. Is that where we are right now? I think it's too soon.

I think we have to go back to looking at the second half of 2023 and the data that we had. So when we see the third quarter and the fourth quarter, we have really strong GDP. We also saw disinflationary forces that were really, really strong and better than anticipated. Q1, you saw a little bit of normalization, right?

So you saw inflation not coming down. CPI certainly not where we wanted it to be for Q1. But I would call that more normalization. even the GDP print that we saw that came in below expectations. When you factor out imports and you factor out inventories, all of a sudden it looks like a pretty solid GDP print. So I think this Q1 was about normalization and the data in Q2 really matters for the Fed's trajectory from here and the overall economic backdrop.

Jim Carin, the fall off or the runoff from 60 billion a month to 25 billion may have been a little bigger than some people expected, react to that. And what in a practical sense does that? sense does that mean to the markets and to consumers and the general public? Well, look, I mean, you know, I think Rick summed it up. There isn't much of a move in the rates market right now, and I think that's exactly what we should be focusing on. We're anticipating that the Fed's balance sheet is going to adjust.

And I also think that a big balance sheet is a form of easy policy. So I think this does need to adjust over time. But Tyler, let me go back to what I said before, which is that this is really about resetting the clock for the Fed. when do they start to get confidence that they can actually start to cut rates. And this is the debate that's in the market at this point. So the debate is whether or not they, you know, if you go by market pricing is the first cut in December, where many forecasters still think July.

And I think the fly in the ointment is going to be the labor report. If the labor markets start to weaken, I think that advances the time scale for the Fed to start to cut earlier. But if the labor market stays strong, I think that they're going to stay on hold probably until December. All right. Steve Leesman, let me just get any further thoughts that you might have having a little more time to read the statement and pull your thoughts together. Well, I mean, I have a hard time seeing this as stagflation or in any way, shape, or form. Stagflation is high unemployment. It's high inflation. It's no growth. We are so far from any one of those three. Not that it couldn't happen, but stagflation assumes something is sort of broken in the price mechanism, in the, in the

the economy. And what would be broken there would be that if you do have weaker growth, prices would not adjust downward. We don't know if that's the case. I just think we're a very long way from stagnation. As for the Fed, I would say this. This statement reads to me like a plane that's circling. They're waiting for time. They've acknowledged there are a few, a little bit of turbulence in the air there. They perhaps see some fog on the runway. So they're not quite ready to land yet, but I do think they want to land this plane. I think they're still on course to try and land the plane, Tyler. It says that this is a holding pattern, this statement here, before the data either breaks towards weaker growth and lower prices and or you get a move higher

in inflation, which would engender a different kind of response from the Federal Reserve. But what the Fed is doing here is essentially holding. David Kelly, let me get you to react to what Steve just said. Are we far away from stagflation? Are we nearer to it than might be comfortable for the Fed? What do you think, or is that really just not even on the table? No, I think I completely agree with Steve. We're very far away from it. And we've got unemployment below four. We've got consumption deflation below three.

Three plus four is seven, but three plus four is also good. These are good numbers for the U.S. economy. Growth is slowing, but it's slowly at a modest pace. So really, the economy is fine here. There's nothing wrong with the economy. It's just all a little too hot for financial markets who are banking on big rate cuts from the Federal Reserve this year. But even the statement, I think the one thing that strikes me is they could have cut the Treasury runoff from 60 to 30. The fact that they went that extra $5 billion, it probably doesn't sound like a lot, but it does say that they're trying to send a message here that they're not going to be too hawkish here.

So if anything, I would regard this statement as being slightly on the Dovish side, and it gives me more confidence that they won't hike again, but they will eventually cut rates this year. I'm going to come back to all of you or several of you on a terminal question here about the terminal rate of interest rates. but Rick, let me just turn back to you for any reactions you have. You know, to me, it's not that my sources or many people I have confidence in to gauge the future of the economy are saying stagflations here. What they're saying is it's a rate of change argument. It's impossible to look at the GDP report and not say that growth is slowing. The rate of change is slower.

So, yes, the economy's fine, but it's much less fine than they thought it would be. It's much less fine than the previous quarter. And if you looked at the pricing components in the last GDP report, inflation, the rate of change is moving back up. So it isn't that stagflations here. It's that you can't put your head in the sand. We had guidance from a Dovish Fed that was very wrong, okay? Didn't hear much grumbling about that. But to have forward-looking notions regarding the glide path and rate of change the economy that may point to stagflation,

that to me makes sense. And I don't think we should ignore our eyes. our eyes aren't lying. Things are slowing but still growing and inflation stop going down. You could call it anything you want, but what you can't call it is a reason to ease. How about what Rick just said? Who would like to react to that? Well, I'll say something. Just briefly, just from the stock market's point of view, I cover the stock market here. The reason the S&P was down 4% in September was not because people were concerned that earnings or the economy were falling apart. The concern was higher for longer.

interest rates would bring down the multiple. So instead of 21 times forward earnings, we went down to 19 and change because higher for longer, of course, impacts future stream of earnings or the perception of the future stream of earnings. Now, if there is some kind of slowdown in the economy, which we don't see yet, or the job market slows down, then the earnings numbers themselves are going to start coming down. And that's a whole other scenario. Yeah, but Rick says we are seeing the slowdown in the economy. Rick says, said you've got to look at the numbers. they are slower. The job's numbers, which is what matter.

They're still pretty robust. I'm going to let Steve jump in and then Jim. Steve, go ahead. I'll keep it quick. The idea of stagged, that means stagnant. It means we're not growing. A slowing in the pace of growth is what we all have wanted. It is the soft landing scenario.

So it would seem a little bit extreme to me to jump from, we got the slowdown we wanted, to the idea that the plane is stalling and about the crash land. I think Rick is right. You got to factor that into your possibilities. I just don't think it's the most probable outcome because of what you expect to happen with prices in that scenario. In a scenario of stag, you get D, not flation. Well said. Jim, I want to get your final thought, and then I'll go one more time to you, Kristen, and David. Jim? So look, yeah, I think it's premature to talk about stagflation, but there's a lot of noise out there, so let's focus on the signal. Tyler, you're

to talk about the long-term terminal rate. I call that the forecastable horizon of Fed policy rates. What the market has been very stable on is that the market still believes that the Fed policy rate is going to 3.5 to 3.75 percent sometime by 2026. How we get there, how quickly we get there in 2024 and in 2025, there's going to be a lot of debate about that and there's going to be a lot of noise. But what keeps the market stable, equities and fixed income, is if that longer-term forecastable rate stays stable. And right, right, right now it's staying stable despite all the confusion in the markets. And that is actually a blessing for asset prices at this point.

If that rate moves higher, that could actually spell problems. So that's where I wanted to end things. And that, Christian, why don't I turn to you about that long-term terminal rate for interest rates? Jim just said three and a half, three point seven five by 2026. That's a little higher than we've been accustomed to over the past decade and a half, but Maybe it's just not too hot, not too cold. Exactly.

I think it's higher than what we've experienced, certainly, and it's higher than what expectations are. I think since we've seen resilient growth, and I'm going to go back to something that Steve said, where it was, we are seeing a decline in the growth, right? We're not seeing a contraction. We're seeing a slowdown in growth, which is exactly what the Fed wants to see, whether that's the data that we've seen in GDP, whether that's the data that we saw in Jolts this morning. And so finding exactly what is that neutral rate and what is that balance is something that I think that Fed is going to take its time. And it's going to do it gradually in terms of the rate cuts that we'll see in 25 basis point increments that if we get the data from an employment standpoint, we get the data from a disinflationary standpoint, we'll still see maybe even up to three cuts this year.

Mr. Kelly, you get the final word. Okay, I do think the terminal rate ought to be higher because I think that 2.6% is too low for financial markets. But on the state of the economy, you know, I mean, I know the number of the number. are getting a little worse on inflation temporarily. But that's kind of like saying, you know, a teenager gets older every day, doesn't make them old. And so this economy is really much more like a teenager than an 80-year-old right now. It's an economy which is showing plenty of potential for growth. Inflation, I think, is still sticky but probably trending down.

Unemployment is very low. This is actually a pretty good economy for Main Street, not quite as good for Wall Street, if you really want short-term rates to come down to 2.5 percent. But frankly, I think this is a good economy. I think this is a glass, you know, not just half full. This is a glass about 80% full here. All right, that wraps our conversation. Thanks to our panel.

Lively conversation. We stirred the pot a little bit there. Thanks so much to all of you for your participation today. Really appreciate it. All right, coming up, we will get more reaction to the Fed leaving rates unchanged. We're going to get reaction to the Fed doing nothing. No, that's just a flippant way of saying it. We're minutes away from Jerome Powell's press conference.

There, you will get a real chance to hear the thinking behind the Fed. actions today or non-actions. We'll take you live, but first a quick break. All right, welcome back. Let's get a little more reaction to the Fed. Rick Santelli is back. I feel a little guilty, Rick, for maybe putting words in your mouth on stagflation, but the essential thought was really whether we're at stagflation now or not. Your thought was, and I want you to elaborate, was the idea that you've got growth slowing at the same time that the decline in inflation is abating and maybe moving back up. And so it's, it may be a low probability that we get to stagflation, but you can't dismiss it out of hand.

No, listen, Tyler, there was a lot of ifs and maybes that our guests put forth. Okay, maybe this will happen. I'm a numbers guy, okay? I look at the numbers, the hard data. GDP in the first quarter was 1.6. in the fourth quarter last year, it was 3.4. That is much slower. And if our guests say, well, wow, 3.4 was too strong, I understand that.

But what was the consensus call? 2.5%. We got 1.6. I'm a numbers guy. That's slowing. And if we look at the GDP price index, it was 3.1. Okay? Last look, it was 1.6.

And the core was 3.7 versus 2%. There is no denying the hard numbers. Now, we could question whether the numbers the government puts forth are accurate, and many who look at the labor markets don't think it is. But I will go with the numbers. I don't like changing midstream. So it could be a consensus call that stagflation is a low probability, but it's a significantly higher probability than it was a month ago and much more significantly higher than it was a year ago. And once again, the guidance from the Fed has been very wrong. people want to blame the markets.

You could say dot plots, you can point to anything you want. But even the Fed Chief Powell has had a lien towards movement. They still have a lien. The question isn't whether they're going to ease. It's that they're going to ease. Well, what if inflation goes to 4.5%. So I'm a hard numbers guy, and the numbers do not back up most of the conversations I hear. Well, he will certainly be asked, won't he, in a few minutes time, in about 8.5 minutes time.

He will certainly be asked whether there is a possibility that inflation resurges and he has to raise rates. Yeah, you know, that's not my base case. And to be frank, my base case isn't necessarily stagflation. But I think that if you have a runway long enough right now to consider all the moving parts, I cannot dismiss how debt is a growth killer. And it's not only domestic, it's global. And it's only going to get worse. Even the IMF's numbers have some global growth kicking up a little bit, potentially in the next 12 months.

But if you look at their longer term prognosis, debt is going to dwarf growth. And it's going to be like an anvil on top of the shoulders of growth. Well, yeah, I worry, too, about the volume of debt that we've added to the economy. And now, at higher interest rates, how much more we're having to pay to surface that debt. Let me come back, though, to the stagflation discussion that we had in the prior block. If I discerned from sort of that panel's discussion, it was that, well, yes, the economy is slowing. Inflation may be sort of plateauing, but this is the soft land. This may be the soft landing that everybody was hoping for.

How do you react to that? You know, I just think it's too early to tell. I can't tell if we're going to have a soft landing. If we get a CPI that moves up significantly, soft landing could go out the window. And it isn't only about the soft landing, just your discussion about what the terminal rate needs to be. There's no way to really tell what the terminal rate needs to be. There's no way to tell what it will be. So some of these variables that are so intricate in plugging into the Fed's models are just assumptions.

And we really don't know. and anybody who's looked at how many variables. The Wall Street Journal did a report on this. I forget how many variables are in the econometric model that the Fed uses. But there's a boatload. And I'm not saying that it isn't the best model on the planet. I'm just saying that we don't know how much air we're going to have and a little bit of air in the marketplace has a huge distortion

when you move two, three, four, five quarters down the road. Tell me I'm crazy, Rick, which many people are more than willing to do. but about this sort of assertion. Neither the Fed nor the Fed futures market have been particularly good about predicting what's going to happen. The Fed was talking about transient inflation for a long time before they took the word transient

out of the conversation. Now the Fed basically is saying, well, we're going to be ready to cut rates, but now maybe not so soon, not so fast. The market, similarly, last fall, thought there would be a lot more rate cuts coming this year than the market says today. So who's the good predictor here of either what the Fed is going to do, what inflation is going to do, what the economy is going to do? You know, Tyler, if I tell you that the Chicago Cubs are going to have three pitchers that are going to win 30 games this year, you'd probably raise the chances of them going farther down the season and doing better potential.

in making playoffs. Well, what if the pitchers don't win 30 games? See, here's the issue with those predictions. The market is listening to the Fed. The whole premise of Fed guidance is to guide the market by the nose, okay? And when you still have a huge balance sheet, when you're still tinkering with rates, how can the market actually rise to the occasion and accurately price risk? In my opinion, four weeks ago, you did not see an even. in today's Fed meeting. That's what the Fed contract is good for. And anybody who thinks that looking today is going to give you an accurate picture of July Sept Nover D's and Fed Fund futures, I think they're misguided. It really is for the

next meeting and only when you get within four or six weeks. And if you look at that as the criteria, the contract's almost infallible. What we are looking for that contract to tell us is impossible. Okay. And just because traders are putting their money there. It isn't that it's wrong. So the Fed is positioned them that way. And in addition, the Fed Fund futures contract and options in large part may be a hedge. And the hedge doesn't necessarily give you the entire picture. So what I'm hearing you say there is that the market, the market, in its predictive value, is kind of like a long-range weather forecast. It's going to be a hell of a lot more accurate predicting what's going to happen tomorrow or a week from today

rather than what's going to happen a month or eight months from today, correct? Bingo, you nailed it. That's it. On that, if I get an A from Professor Santelli on anything, I'm going to, I'm going to appreciate it. All right, Rick, thanks, my friend. All right, let's get some final thoughts as we count down to Fed Chair Powell's press conference. Mike Santoli joins us as well as David Kelly. David, why don't you kick it off? I don't know whether you heard the last part of that conversation. I asked Rick fundamentally, who's the better predictor here of what rates you're going to do, what the Fed is likely to do, the Fed or what inflation is going to do, the Fed or the markets, are they both equally wrong, equal amounts of time? Well, I think you're both spot on that it's like predicting the weather, you know, 10 weeks out.

But investors should invest based on the climate, not the weather. And we generally have got a good economic climate here. We've got a climate which seems to allow steady economic growth. I do think that inflation will gradually moderate as it did for many decades before the pandemic. And the unemployment rate seems to be pretty low. And workers don't seem to be demanding huge wage increases. So the climate's pretty good. The weather's going to bounce around.

But long-term investors shouldn't play the trading game here. They should invest based on that climate, which, as I said, I think is pretty positive. Good wisdom there. Mike Santoli, your reactions to the Fed decision and what we might expect to hear from Chair Powell. Yeah, clearly the market is taking it as the Fed electing not to turn more explicitly hawkish. There was perhaps some idea that it might do that. It just acknowledged the data that's happened in the six weeks since the last meeting. And of course, in those six weeks since the last Fed meeting, you know, two-year yields, 10-year yields are both up 40 basis points or so. So there's been some market, you know, tightening a financial condition.

the market, the Fed wants to preserve optionality, keep its options open as it usually does, and that does mean being data dependent. So I think that that's sort of better than we could have feared, perhaps, from the market perspective, the issue to me is the bond market has implicitly been testing the economy's tolerance for higher yields, as the Fed has been testing the economy's tolerance for higher short-term rates. So far it's been okay, but we're searching for this new equilibrium out there. And I do think that in the press conference, what the market would like to hear is that Powell still thinks you can have inflation continuance decline without undercutting economic growth. That was the main premise of the December pivot. And if he sort of goes back on that

and starts saying, well, maybe the services sector really does have to be restrained more to get wage growth down. And I don't think the market wants to hear that there's going to be that economic cost for a resumption of disinflation. I also think they want to hear him point out, that PCE inflation is not terribly far from where the Fed thought it was going to be by the end of this year at the latest reading. Remember, there's no dot plot in this meeting, so there's none of that, but he has to kind of dance around in his response. Quick final thought, Mike, the Dow, maybe peculiar to the Dow, seems to be reacting in a rather sprightly way. It's up 200 and some points right now. Yes. Go ahead. I was just going to say

all the indexes did actually get a lift on the statement, of course. dead day reactions sometimes can really be very much a quicksilver type of thing. You don't know if the first move is the right move. But I do think that's because there was an absence of incremental hawkishness. Plus you had that further declining quantitative tightening, perhaps beyond what people were projecting. Yeah. And, of course, David, I asked him what the trigger word would be here. And he said, hike, anything having to do with hike.

And so, David, you were right there. That word has not come into play yet. It will be interesting to see, however, how the chair handles questions about. whether an interest rate hike was even discussed in their meetings. Yeah, he's going to have to play that one very carefully. I think he wants to make, he'll have to admit, it's always possible to raise interest rates, but their base case is still just about the timing of rate cuts,

not the option of hiking rates. And your base case, sir, just once more for the record. At the moment, one or two rate cuts, nothing before September, maybe nothing before December, but some cut this year. Let's go to the chairman of the Federal Reserve, Jay, Jerome Powell. Thank you.