Power Lunch - The Fed Decision 7/26/23

Episode Date: July 26, 2023

The Federal Reserve approved a much-anticipated interest rate hike that takes benchmark borrowing costs to their highest level in more than 22 years.In a move that markets had completely priced in, the FOMC raised its funds rate by a quarter percentage point to a target range of 5.25%-5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001. We’ll discuss what it means for markets, the economy & your money. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. I'm Tyler Matheson, along with Melissa Lee. Welcome. Nice to have you back with us. Minutes away now from the Fed's decision on interest rates. Before we get to our panel of experts, here's a check on the markets, and we're holding pretty steady. We're going to try and make it 13 straight winning days for the Dow's and Dushals. We're just holding on there. S&P 500 is down by a quarter percent ahead of the decision.

The NASAC is off by just about a half a percent. The 10-year note yielding 3.9 even right now. Let's bring in our panel. David Kelly, J.P. Morgan's chief global strategist, Stephanie. Link portfolio manager at Hightower and a CNBC contributor and Morgan Stanley's Jim Karen. David, 25 basis points, a hawkish message. What else are you looking for here? Well, I think first of all, I think they'll change their language about subsequent rate hikes.

So instead of talking about the extent to which they will raise rates further, they'll talk about whether they need to raise them at all. And I don't, you know, I think the only question is will they raise them in November? Also, I think they have to admit that inflation's come down. I mean, yes, inflation may be elevated from their perspective. We've gone from 9.1 to 3.0. When the Fed talks about credibility, they need to at least mention that if this is their number one goal is to bring inflation down.

What about that point, Stephanie? David says that it's time for the Fed to admit that we've made some progress here. Why do they seem reluctant to do so? Well, I've been behind the curve this whole cycle, so it's not surprising. But I think that they should be more measured at the press conference of the press release because, yeah, as David mentioned, CPI 9.1 down to three. Core is still elevated, but it's down from 6.6 to 4.8. The big number this week is going to be core PCE, because that's still around 4, 4.5%.

And that's the number we know that they look at. So they could be more measured today, but that doesn't mean that they're done. And even when they are done, which I think is maybe one or two more meetings, that they still, the rates will remain high. And by the way, watch commodity prices because commodity prices have been going higher. So we might see inflation drift a little bit higher from here. Oil prices are up 14% since the last Fed decision. Green prices are up as well on Russia.

So, Jim, you know, it seems like a free pass for the Fed to be hawkish here, especially because base effects go away. So it's going to be a little bit not as clear that inflation is coming down in the second half of the year. Yeah. Listen, Melissa, I think that's a really good point that's being somewhat overlooked by the markets at this point. So we all talk about headline inflation coming down. And headline inflation did come down at 3%. But a lot of that has been based on very friendly base effects.

Those base effects start to go away for the next six months. So essentially, the easy part was getting inflation, headline inflation down at 3%. Getting it down a 2 and keeping it relatively low near target is going to be the key. The second point to make is that the Fed doesn't really focus on headline inflation. they're going to focus on the core, whether it's core CPI or core PCE, which is their preferred measure. And those core numbers are still somewhat sticky. Those numbers are still likely to come down. It's just a question of will they come down enough and will it be anchored at those low levels?

And I think the Fed is still worried about this. So I'm going to say that, you know, I think it's Stephanie. I think she said it correctly, which is that they're going to be more measured. But I think the door is open for them to be a bit more hawkish and that the markets should be building an additional risk that they could actually go. in September. It's not out of the question. The Fed still has difficult math. Very quickly, Jim, what do you mean when you say base effects? Does that mean the comparables in effect or what? Yeah, exactly right, Tyler. So it's really just a year-over-year measures. So month over-month CPI has been coming in, you know, came in last in 0.2%. We need to see 0.1% numbers. That might be harder to get.

All right. So, David, back to you. Jim says that there are some places in his view, I think, if I heard him correctly, where inflation is sticky. You agree or disagree with that? Not really sticky. I mean, we've got owners equivalent rent. That's beginning to come down. And then there's a lot of stuff in the automotive services area, but we think that's going to come down too. So we really don't see much stickiness here if you can just be a little patient here.

I think we'll hit 2% inflation by the PCE deflator by next April. What about that core inflation data that do seem to be hanging in there a little more than the top line? But I think that really is about shelter and about the way they measure things like auto insurance and auto repairs. You know, people talk about wage costs, but the truth is these wage gains are really compensation for past inflation. I don't think they're really pushing inflation up. They're slowing the pace of which inflation comes down, but I still think we're headed right back down to two. I think the Fed should have some, should have some confidence in that. Less than a minute to go, Stephanie.

We have the S&P 500 up 5% since the last Fed decision. What's the first thing on your screen that you take a look at when that decision crosses? Well, the overall reaction, but I don't want to get too caught up in the short term because we've got to hear what he has to say. And then we usually have to digest for, you know, 24 hours, sometimes 48 hours in terms of what exactly they said. But I don't really think that there's going to be big surprises on this one. I think it's well telegraphed. 25, it's all introduced. But it's just a matter of the tone at the press conference, which, again, I don't think it's going to be very hawkish.

Yeah, well, it doesn't sound like there's too much suspense hanging in the air right now. I guess the suspense is whether the Dow finishes with yet another day in the green. It is on the cusp right now. Let's get to Steve Leesman with the result. of the Fed's decision. Steve. Three, two, one, go. The Federal Reserve raising interest rates by one quarter of a percentage point in the unanimous vote that brings the new range to five and a quarter to five and a half percent, the highest

Fed funds rate in 22 years, and the Fed continues to signal the possibility of future rate hikes. It says it's going to be looking at, quote, the extent of additional policy forming that may be appropriate. That's the kind of language that used in June, which kind of told us that July was on. the table. It says in doing so as it did say in June, it will take account of the cumulative and lagged effects of prior hikes. Economic growth was raised just a little bit. They're saying it was moderate economic growth compared to modest in the prior record. I guess a modest upgrade you could

call it. Job gains were robust. The unemployment rate remains low and inflation remains elevated. Concerns remain, remain in the statement about tighter credit conditions from banks, but those effects were seen as uncertain. Very much a carbon copy of the prior statement, guys. The only difference here is they took out holding to raising. They raised by a quarter point. And now they're back into this mode here of determining the extent of additional policy firming that may be appropriate. So there's your guidance line.

Have at it. The language there, David, on extent, it's clear that they did not say whether additional policy affirming is. Yeah, I think, unfortunately, I think we want to see that. in Chairman Powell's press conference, too, where I'd be interested to see last time I already talked about further rate hikes. The committee was in favor of further rate hikes, plural. I think that's still an open question. Will they talk about additional policy firming? Well, that could be one or two. But still they're leaving out there. They're still trying to sound hawkish. And as you noticed, I mean, Steve didn't mention anything about them saying, hey, we made some progress in inflation.

So I'd like to hear that from them. So I heard an important word there, and that is, unfortunately, I think we're going to hear the same thing in the... Why do you think that's unfortunate? And then I'll get the reaction from our panel. Because they're playing this game of monetary jenga, where we don't know what's going to knock the economy into recession. But if we're headed, you know, if we're 3% inflation, what's the big deal?

I'm sorry, but there's, you know, if we were 8% inflation and it was runaway, that's fine. You know, that we need to deal with it. But if it's 3% falling down to 2, it's not worth threatening the economy with recession. And to be honest, we don't know what moving from 0% rates, to 5.5% rates over a short period of time. We don't know what that will do to financial assets to the whole economy after 15 years of zero rates

or close to zero rates. So I think they're just, I think they're playing with fire and they don't need to. And that's why it's unfortunate. What is so surprising, I mean, what is so surprising, though, is that we really haven't seen too much of an impact so far, at least when you measure it by the stock market

and asset prices, right? I mean, the fact that we haven't seen those lag effects. Well, yes, because, because, you know, we had a great recession back. 2008. If we have a recession, it's going to be baby recession. So we're looking at baby recession if we have one and also low inflation eventually. And of course, if they do overshoot, we'll end up with even lower inflation down the road. So I think the stock market's able to look past this business cycle. I just don't think we need to have a business cycle to get there.

All right. Our panel still with us, Bopasani and Rick Santelli also joins us now. Rick, I'll go to you here. Not too much reaction in the rates, but what's your reaction to the statement? Yeah, no, not much reaction to rates. And with respect to the statement, I don't feel I'm walking away any smarter. To me, the issue is hot or hold, guns hot or hold? Do they skip? Do they go passive? Do they let the markets work? More active approach?

I think the latter is the route they're going to end up taking. And everybody's been bringing up data. I like to look at all the percentages. It really makes us somewhat easy. Non-farm jobs from the first half of this year, the last half of last, year are down 21%. Private payrolls in that same period are down 32%. We were talking about CPI earlier. Yeah, 9.1 down to 3. That means a 67% drop. If you look at core, it's a 27% drop. These are real numbers, and it's hard to argue with. I agree with David, we have no idea for sure where

inflation goes, but it certainly seems as though it is going to continue to come down. And when we look at some of the year-over-year numbers. I understand there's some nervousness there, but I also see a definite move in the month-over-month numbers, especially on the inflation side. People point to confidence as one of the strengths. I understand that, but that's skewed. Confidence always seems to follow the stock market. So that's what we're left with. The stock market, why are investors fighting the Fed? Are they? And if they were, it makes it a whole lot easier to fight it now, because they're definitely in the seventh, eighth, or ninth inning, and it's going to be that much easier for investors to now think, hey, money markets look pretty good.

But are they going to continue to look good? Have we missed the boat? FOMO with regard to missing the stock march up higher? Could be the 13th day today. I think that the central bank is buying itself time. And whether they actually start hiking again next year, I can't tell you. But I'll put another bet out there. I lost because they hike this time.

But I say they're done for the rest of the year. Bobazzani, as they used to say on the exams in college, react and discuss. Yeah. What's interesting here is we're not getting any knee-jerk reaction. Normally we move 10, 15 points on the S&P 500. I know we were down 11. When we started, we're down 8, 9, essentially the same. I think the important thing is everybody understands Powell's not going to close the door on rate hikes.

But I'm not sure one rate hike in November or any time is going to make much of a difference. I think what matters is keeping inflation moving in the right direction. And Stephanie, as always, has got her eye on the right thing. That PC on Friday. That's what everybody's talking about down here. So we've got the headline on Friday of 3%. If you get a two print on there, that it's going to get a lot of press. If you, on the core, it's 4.2% is the estimate. If we hit in the three, anything with the three in front of it, that's going to get a lot of news. So moving in the right direction. I think the risk at the press conference is Powell does not endorse the market's viewpoint. The market's viewpoint is the soft landing and rate hikes are

essentially near ending. If he pushes back against that scenario, that could be a little bit of a problem. Look what the markets do. We're coming in hot on stocks. We've got a record run on the Dow. S&P is at a new high. Valuations are high. And we're entering a seasonally week time of the year. It's a little bit of a problem for the stock market. So the risk here for the market on the press conference is definitely to the downside. One final point. There's a whole school evolving down here that's arguing that disinflation in the third quarter is going to be the biggest problem for the stock market. Companies are already saying they're having problems raising prices and they're cutting costs to deal with the fact that their margins are getting

squeezed a little bit. That's sort of a disinflation story and that's a potential real tailway, excuse me, headwind for stocks there is sort of the opposite of the worry that we had just a couple of months ago. Maybe they're having a hard time raising prices because they've already raised them so much. I mean, thank you. $17 for a jug of detergent at the grocery store. That's pretty high inflation, folks. Jim, Karen, let me turn to you. I mean, David mentioned the idea that if there's a recession,

it's going to be a little baby one. I'm thinking of inventing Anna, the Anna Delvey story with Julia Garner. It hurts your little baby feelings. Are we going to have a little baby recession or not? What do you say, Jim? Yeah, look, I'm in the camp that if we do have a recession, it's a smaller recession. And look, I'd like to see the recession come quicker.

I'd like to see it start in the fourth quarter because as sooner we have a recession, the more mild it's going to be. The longer it takes to have one, the more excesses that are going to be built up and it could be more devastating. So look, I do think it's a more mild recession. But now we have to think about how the Fed is looking at this, right? If we have an inflation problem, if that's the view that we're in right now, that that's the baseline, then, okay, the cut rates and then we research with inflation, then I start to look at the yield curve and I say it's very, very inverted right now. Do we have to then restore and rebuild term premium in that? And do those back-end rates have to come up and we disinvert or start to steepen the curve?

So I'm not sure that the back end of the market might be hearing the soft landing scenario. The back end of the market still seems priced more for a harder landing. And I think there's some disconnect there in the markets. Steve Leesman, let's go back to you. We are not too long away from the Fed's press conference at this point. What's your number one question? Well, before I get there, Melissa, I want to make a comment about the idea that a quarter point doesn't matter. I think people need to be aware of the kind of fine-tune engineering that Powell's trying to do here.

If you go back and look at what's happened to the two-year since June, remember, the Fed held in June, did not raise rates. What happened to the two-year, it gradually lifted higher? What happened today? The two years down, oh, a couple bips, maybe not at all. What's going on here is that the chairman is trying to kind of tweak or fine-tune the funds rate not without at least in the two-year space being a huge decline in rates that would be stimulant to the economy. So that's why those other 25s or the additional 25s and the possibilities, that's why it matters. I think it's a bit like a balloon.

You get up there and you put the burner off a little bit, you maintain your altitude level. that's what he's trying to do. He's not had as much success in the stock market, which may indeed, Melissa, be one of my questions is how much concern the chairman has about the loosening of financial conditions as evidence in the run of the stock market. But at least when it comes to the area that he directly or more directly controls, which is the short end to the yield curve, what I think he's trying to do is to keep those yields high while backing off and not letting the market begin to price those rate cuts in. That would really create stimulus from the stock market as well as from the bond market. I mean, since the June meeting, the two-year yield has gone up 40 basis points, and the S&P 500 has gone up five percentage points. Stephanie, Link, how do you think that factors into the Fed's thinking? I mean, in a way, markets are telling us that the worst is behind us, and the things are all on.

You know, the risk has been to the upside for the markets. The pain trade has been to the upside for much of this year. People didn't want to believe that things. we're going to be a soft landing, that we're going to have a soft landing, and yet now everybody's coming around to that thought. So how does that set us up for the back half, given the, you know, the possibility that the Fed could be on the sideline for the rest of the year? Well, we'll see if they're going to be on the sidelines, but they're definitely at the latter stages in terms of hiking, hiking rates. That being said, they're not going to ease any time soon,

Melissa. They didn't just work this hard for the last year just to turn around and pivot. So we're not talking about that between now and the end of the year. year. And the reason the market is going up is because earnings have stayed pretty good, not great, but pretty good. They haven't collapsed. And that was the call from many people that earnings would collapse. And that's because there's so much underlying momentum in the economy from all of the stimulus that was put into the economy. And we just had the infrastructure bill go through. So that's kind of offsetting what the Fed is doing to some degree. I think in the press conference, I'm going to be interested to hear what he says about where we are with financial.

conditions because that'll be interesting to see how he answers that. But overall, I think the statement was exactly in line. The economy is doing fine at 2.4% in GDP. Jobs are strong, wages still, and inflation still remain too elevated. And so we'll have to see what they say. But I think they stated the obvious in the press release. Rick Santelli, we've gone around the horn. Why don't we come back to you if you're still there with some reaction? You still have an inverted yield curve. You still have some concerns out there about a slowing economy. Wrap it up for us. Well, I think we are not up 40 base points, by the way, since the June, meaning we're up half that.

We're up 20. They're basically at 469. We're at 489. I think if I had to wrap this up, the inverted yield curve is sticky, and I do exactly agree that we need to steepen it, de-inverted. But my feeling is the de-inversion is going to mostly be by short rates moving lower. Consider this. Yes, we move 20 basis points roughly in two since last meeting, about 10 bases points. intends, but the stock market has zoomed rather aggressively since then.

And if you look at just how much the stock market has moved, really, since the June meeting, and compare that to money market rates, it certainly looks as though you have a tough choice to remain on the money market side. Having said that, there is a risk, of course, that stocks may start to move a bit lower. But all things considered, I think that the Fed, the Fed models and the relationship with the labor market are most likely a bit distorted. a bit distorted, and I will continue to say that the first half of this year looks significantly different than the last half of last year by all the important metrics of the Fed from the labor markets to inflation. What would your question to the Fed be, Bob?

Well, I asked the same question on the stock market. You brought up a great point, Melissa. You're a good market watcher. The pain trade all year has been market goes higher because people have bet against the soft landing. Now this is all starting to change. The pain trade is for the market to drop rates to go up. So I think the logical question here is what issues does he see that concerns him right now? And he's got to say the stock market in some way because to them, that's a wealth indicator.

And that, of course, pushes up perceptions that everything is okay and does not help the idea of a slowing economy. He does want a sloth landing. he said that, but he said he is willing to go through some pain to make sure that inflation gets down to that 2% target. I can't help but think that a record streak on the Dow, S&P at new highs, 20 times forward earning valuations in expansion range for the economy helps the idea that the market's going to slow down. So I would agree the question is about the stock market. All right, Stephanie, gentlemen, thank you very much for a very informative panel. We appreciate your time today. Coming up, now we are waiting to hear from the Fed chairman himself about the rate decision.

We'll talk to former Fed Vice Chair, Richard Clareda, about what to expect. And a quick programming notice we had to break. We have a huge list of executives on power lunch over the next two days. Tomorrow, we'll speak to the CEOs of Crocs and the Travel and Leisure Company. Friday, the CEOs of Valley Bank, Union Square Hospitality Group, and that's not the half of the folks. Same goes to the exchange, the CEOs of Royal Caribbean, Frost. Bank, Golden Corral, and more. We'll be back after this.

Welcome back to Power Lunch, everybody. The Fed raising rates by 25 basis points or a quarter of one percentage point. Interest rates now at the highest level in some 22 years. Let's get some reaction perspective from Richard Clarita, former Fed Vice Chairman and Global Economic Advisor at

Pimco. Richard, welcome. It's good to have you with us as always. I think in the statement, the key word here or phrase maybe is that the the chair and the committee referred to the extent of policy firming that may be indicated, not whether more policy firming is indicated. Exactly. You know, that language was introduced in the June statement, and I think at the time

was viewed maybe a touch, a doveish. And then, of course, in the June meeting, we had the skip, but we had the more hawkish elevation of the dots. No dots today. But I think when you look at statements, there is a decision to leave wording unchanged. And I think, I take that as the chair wants to leave all of his option open for the rest of this year. And I'm sure we'll hear something on that in the press conference. One of our panelists a few moments ago referred to the idea that the Fed was sort of behind the curve. Do you agree with that or not? Or have they gotten out from that? The Fed is not behind the curve. They have moved rates at a very brisk pace in the last 15 months.

into what they and we think is a restrictive territory. They've pushed back on the idea that they're on the verge of cutting. I think the Fed is close to where they're going to need to be to put inflation on a path down towards 2%. But again, the chair, I think, will leave his options open to go at the September meeting, to skip the September meeting, to go later in the year. In the statement, Rich, the Fed repeated that tighter credit is likely

to weigh on activity. We haven't seen too much of that between the last meeting and today. And I'm wondering, in terms of the long and variable lag effects, what you think the number one concern, the number one effect is in your mind. Is it tighter credit? And is that mainly from the banking crisis, or is it from the rate hikes? I think it's a combination. I think tighter credit historically, there is a lag. You are actually seeing data that the number of loan applications being turned down has moved up. Loan growth is basically stalled. I would expect some of the additional regulatory measures

that the Fed's going to put in place after SVB are going to tighten credit conditions. And if you look at other measures, including the SLOC, loan officers survey, that's also showing it. So these things do take time, but I do think we will start to see additional slowdown in the economy from these conditions.

Knowing that the Fed is in the FDIC will meet on Thursday to vote for an initial round on the new bank regulations, Rich. Do you think that that is in mind when the Fed is going to, you know, when Jerome Powell takes that podium and talks to reporters and talks to the world about what their intentions are, will that factor in knowing that there are those new capital requirements to come and that will be an additional tightening on credit? Here I would distinguish between two related but distinct measures. There's the so-called Basel three measures that they will be talking about, and those would be phased in and there would be a comment period. I think more front and center this calendar year will be after the SVB and related disruption in the spring. We heard commentary from Vice Chair Barr and other Fed officials that they're going to take a second look, an additional look, at capital and liquidity standards for banks in that 100 billion plus category. And they can do that without, you know, an extensive

comment period, as they will with Basel 3. They can do that under existing statutory authority. And we would expect that to happen as well. Where would you expect inflation and specifically core inflation to be, let's say, a year from now? Well, here, I think I'm going to say both what I expect and what I hope. I do think a year from now that the Fed's preferred measure core PCE inflation will be in the twos. I think there's uncertainty about, you know, the path there. We here at PIMCO are really optimistic that we're going to start seeing some real improvements in the inflation data because, in particular, housing and rental inflation has slowed down. And I think there is good reason to believe that we will have core inflation, you know, in July of next year, somewhere in the twos.

Probably north of two and a half, I would imagine, somewhere between two and a half and three. And of course, the Fed, in its June projections, did have core inflation falling to 2.6 percent by the end of next year. So I think that's in line with their assessment as well. Rich, you've been inside the room. Does it irk the Fed? Do you think that the stock market has been rallying all year and is up 5% since the June meeting alone? I don't know if I'd use the word, Eric. I think the chair has been asking, perhaps even by Steve Leesman at recent press conferences.

And I think his answer is, look, you know, the market may be assessing a different probability than the Fed does of economic slowdown and the like. And so within range, look, I think they correctly, certainly when I was there, we really focused on broader, financial conditions, lending standards, how much does it take to take out a car loan and the like? And those have clearly tightened. So I don't think they're going to get too caught up in the stock market here. All right. Rich, thank you. Thank you. Rich Clarita. We are just minutes away from Fed Chair, Jay Powell's press conference. We'll take you there live as soon as it begins. But first, final thoughts from J.P. Morgan's David Kelly. That's next. Welcome back. We're just moments away now from Fed.

Chair Powell's press conference. Let's get some final thoughts from JPMorgan's David Kelly. David, hire for longer. Is this a market that has accepted that, do you think, or does it need that messaging from the Fed today? Well, I don't think the Fed can really give that messaging with any certainty because, you know, people talk about a soft landing, but the truth is the economy never lands. I mean, you've always got another quarter. And sooner or later, you know, winter is coming. We don't know when winter is going to arrive, but it will eventually arrive. Eventually will have a recession. Eventually, we'll have a month or two where payroll gains are negative. And at that point, the Fed's going to have to cut rates.

So we think probably get through 2023, but sometime in 2024, that could well happen. And then the Fed has to cut. And by the way, when the Fed has to cut, the first cut will do nothing to help the situation. What we're always seen is that when the Fed raises rates, it's kind of like going up an escalator. And when the cut rates, it's like going down an elevator. And so the Fed, their own projections say they'll be able to bring rates back down to their neutral rate very slowly. Never happened. So I think the market may be looking at that.

They realize the Fed's being very aggressive right now, but they won't be very aggressive forever because a landing won't stay soft forever. What is the, as you look at where stocks are today and where they've come, as most points out, five percentage points higher than at the last meeting. What do you think the path for stocks is over the next six months? Well, I look at valuations a lot. And I do worry about the mega-cap stocks that have really led this charge. But overall, I think it could be pretty good because the key point is, eventually inflation is going to get back down to where we were

in the last decade. It's going to get back down to 2%. Eventually, the Fed's going to have to react to a recession and cut rates back down again. And so you get back into a slow growth, low inflation environment in which companies are very good at maintaining margins. I mean, that's the other message from the earnings reports that we've seen so far this month.

There's a problem on revenues, but they're doing a great job in maintaining margins. I think U.S. companies could do well in a cold climate. And I think that's, I think the stock market's taking some comfort from that. Do you want to continue

to be in the parts of the market that had not participated in the first half of the year that have just shown signs of life recently? Yeah, I do. Because if you run into a bump in the market, a problem, the very things that got the most air under them

are going to fall the most. So I'd rather look at valuations very carefully right now because at some stage we're going to have some turbulence and I wouldn't want to be in the overpriced stocks at that time. But the tech stocks, the large-cap tech stocks

have been viewed as defensive. When SVB happened, money went into the large-cap tech stocks. That's no longer the case, you think? Well, it's admittedly the problem this time around will be a worry about recession rather than about inflation. But I still worry about valuations, because if you have a market correction, a significant market correction, people are worried,

they'll start looking at valuations. And so I still keep an eye on valuations, both here and abroad where valuations are much cheaper. So the choice sectors of the market from where you sit are? Well, I'd be a little overweight international. I think industrials can do reasonably well here. I like financials if you can get through this cycle, because eventually you're going to have this upward-soaping yield curve.

Right now, a prolonged downward-soaping yield curve is not good for financials, but eventually this thing is going to flip because, as I say, soft landings don't last forever. That's not pound the table, though. I mean, do treasuries factor in in your view? I mean, it seems like the risk reward for treasuries is much better. Well, I wouldn't say, I wouldn't quite put it that way, because, you know, you're still talking about less than 4%. that's not a great return in the long run.

But I will say that for right now, high-quality fixed income looks better priced than it has been for many, many years. So this is the one year in which I probably wouldn't be underweight bonds. Very, very, very interesting. So what do you think about the economy? Forgive me if you answered this.

Oh, here's Powell, Jay Powell, right now. Sorry we did. We'll get you next time, yeah. Okay, sounds good.