Fed

I think the argument for hiking seems to obviously rest on the shoulders of inflation and we would argue that this is not the kind of inflation that the Fed could actually impact. And so in

this many times raising rates is not a costless endeavor. Right

Because at the moment, the market before the employment report was saying the Fed would hike in September. And now, of course, the market is saying, well, we pushed that out a month and now the hike It's likely going to come in October.

learn a possibility of two this time or this year or early next year, because I

And I think it's, I'm a strong supporter for not giving forward guidance.

The biggest risk right now is not necessarily economic growth. It's inflation. And if we're going to have runaway inflation, it's going to be because energy and materials basically prices went too far. And your best defense against that is to have the stocks that benefit from high prices.

Well, that's not impossible in my view. I mean, if inflation continues to move sideways or even get worse from here, then I think we're gonna have to start gradually adjusting interest rates to bring things back down.

I'm not calling for a dramatic increase in interest rates. I'm simply saying, I don't see evidence that monetary policy is marginally restrictive right now, and I think we have more work to do to get inflation back down. And I would rather get going now in small steps than wait till later than we have a really entrenched inflation problem and have to raise rates aggressively then.

I would say that it performs well in sideways markets Remember these income strategies. I mean these premium income strategies that benefit from the volatility in the market So if the market is just a smooth straight line up probably not as good as that jagged return

well, I think they're going to try to use financial repression and That means the Fed is going to come in that would mean if that's true If my guess is true, that would mean an expansion of quantitative easing and that means where the Fed directly purchases government bonds from the market to suppress interest rates

We've got an economy that's pretty strong, right? We had, you know, second quarter growth came in, you know, and the top line number wasn't so awesome, but when you look at investment, you look at the consumer, you know, it looks really strong. You've got a labor market that's stable, and you've got inflation that's too high.

And so I think we need, you know, policy that's mildly restrictive, and I think policy has been mildly restrictive to get underlying inflation back down to 2% in an acceptable time period.

So for me, it was, it was not a close call. I think that, you know, we're, to me, we've, you know, the evidence so far suggests we're in a mildly restrictive stance.

When I look at underlying inflation, when you try to strip out the effects of, of those things, you know, I see it somewhere in the range of two, four, two, eight, maybe there was a little bit of, you know, mild progress over the last several months, but I want to see more progress on that.

When you spend that much capex and then you issue that much debt, they're far more rates sensitive and they're far more sensitive when you think about that negative free cash flow. So it's not the same beast. And because of that, there really is a volatility regime shift and how volatile these stocks will be going forward that was not the same as the past.

You know, I think if we don't see that progress, then we have to be open to recalibrating monetary policy. You know, we need to get to 2%. ... Could be higher rates, could be, you know, same rates for longer

I think the Fed might have to raise rates one time, they're going to desperately try not to raise rates.

I mean, if you look at the spreads between, you know, the 10-year corporate investment grade instrument versus the 10-year, I think if historically it's 150 basis point spread, I think we're under 100 now, which could tell you one or two things. Either corporates are getting a lot more healthy or the government's getting a little less healthy. So I do think there is a race for capital.

So Kevin is saying, look, the market is doing my job. They're making the ability to borrow money out on the curve more and more expensive. It's going to continue to get more expensive.

he's going to have the month of August before the September meeting to come out and deliver a relatively-baked plan in his mind. He's not going to give you the big plan, but he himself will have a highly-baked plan.

No. Again, going back to what we think Trump wants a deal. And therefore we don't expect that to play out and ultimately crude oil prices to come back down. And if that's the case, then I think Warsh has a little bit more leeway. And if we get through this window, which I would say is between, you know, the September meeting till the end of the year, then I think we're we're done. The next move is going to be a cut in twenty twenty seven.

So therefore if they don't hike in September, of course, then the market will just ask even more questions about what is now the plan.

Our view is that inflation comes down to around 3.3 or so by the end of the year and could diminish further in 2027. And if that's right, then we think the Fed can stay on hold for the rest of the year.

think the next move from the Fed will be a series of 50 basis point cuts, and a normal reversion cycle in the stock market, which means recession, but that

So I look at treasury bonds right now as basically a put on the stock market with positive carry and no time decay.

“Kevin Worsch said and did exactly what he's been telegraphing for several months that he was going to do”

“I don't think he's going to go there unless the data pushes him. The market is trying to push him”

“I'm concerned that the Fed is going to make a mistake and tighten, do some type of tightening in September”

“a 25 or even 50 basis point rate hike is not going to get inflation down to 2%”

“I don't. I think that's too hard an assessment, too early at least”

“the data right now are taking the pressure off the Fed. And I think that the markets will get around to seeing that”

“The silence of wars was really quite deafening and the financial markets basically said thumbs down”

“the 30-year yield went up, the 10-year yield went up and two-year yields dropped really was a sign that there was a loss of credibility”

“this is a really own goal on Kevin Worsch's part”

“increases the pressure on the Fed to act in September. If it's a jump ball in September, you almost need to tighten now”

“I don't think we would get to that. I think at that point, Warsh would throw in the towel and vote with the majority”

“Markets don't price to what the Fed should do. They price to what they think the Fed will do”

“there's two things I've changed my mind about in the last five years. One is drug legalization, and the other is monetary policy transparency.”

“an inflation targeting central bank needs to be clear about what it is it's is targeting”

“the central bank looks at the market. The market looks at the central bank it gets circular”

“chairs have used Jackson Hole as sort of a sneak preview of coming attractions at the September November and December meetings”

“If you're not going to do forward guidance then it's incumbent for the markets to have a broad understanding of how the central bank will react to data”

“Worsch is maybe closer to the hawks than most believe”

“Kevin Worsch, I think, was a lot more hawkish than everybody heard”

“If you look at the data, there was no reason to hike at this rate, at this time”

“the market is nervous that its training wheels are being taken off”

“The dissents were the most important”

“the Fed really just needs to worry about the one side of its mandate right now, which is inflation”

“maybe it's going to actually need to move rates more aggressively”

“going into deficit on the credibility bank”

“once you get over three, I think you're beginning to really tilt on who's controlling the Fed”

going to get this under control," the market right now is telling me they're not buying it

“I asked for a good family fight and I got one.”

“it didn't sound quite as hawkish in my ears”

“the words will start to sound a little hollow”

“Will the real Walsh stand up here?”

“the dissents all came from regional Fed presidents not from the actual governors”

“it was all perform ative, that it was all pre-approved”

“if you pivot in June from easing to tightening as a stance, then I think by July you have to deliver”

“Market participants are learning to play the ball not the referee and market prices will continue to respond in the direction and magnitude they see fit.”

“It was a real family fight. That's the better way to get policy right. That's our North Star.”

“You've got to learn from the past. You have to interpret the present. You have to forecast the future. At the moment the chair is refusing to do all three.”

“There's the danger of kind of creating a Hall and Mirrors effect.”

“Don't expect the Fed to tell you the direction. Just look at the numbers and make your own assessment as simple as that.”

“We don't need to hike rates now to cut them in nine months time time.”

“I think people are reading too much into it this time.”

“we've never seen the market price less than a 60% probability”

“it's been 62 months, five years since the Fed last hit its inflation target”

“the path of least resistance just from a descent perspective would indicate a hike at this meeting, not a hold”

“only one matters today and that is the new chair, Kevin Warsh”

“The history of new Fed chairs is that they tend to raise rates very quickly after taking office”

“I don't see a need for the Fed to rush into either a hike or a cut”

“There is no soft inflation target. There is no soft implicit target, not on this committee's watch.”

“This Fed will not waver.”

“Market participants are learning to play the ball, not the referee”

“the suggestion that we're going to be able to do it with our magic wand is one I want to dis abuse you and everyone else of”

“have tightened financial conditions in this intra-meeting period”

“Warsh was a little bit more dumbish than people expected which is why you're seeing a rally on the two year”

“The market wants hikes. The market wants fighting of inflation.”

“the market's saying we don't believe that the Fed is necessarily going to be hiking in September”

“rather than doing watchful thinking, he's really doing wishful thinking”

“Hike. Hike now, hike tomorrow.”

“the Fed has missed its inflation target going on six years”

“I think a good case can be made for a quarter point high. Hike.”

“I think you may very well see diss ents after this meeting”

“the Fed should stay on hold based on this”

“Eighty-seven of the 88 economists who participate in our Bloomberg survey say the Fed is going to leave rates on hold”

“our expectation is not that we're gonna get a hike this week”

“I don't think there's going to be any rate increase at all on Wednesday”

“I'm expecting them to do absolutely nothing”

“the most likely next move from the Fed is a hike”

“I wouldn't expect them to raise rates.”

“it's like you're squeezing their head in a vice”

“I wouldn't be hiking here.”

“you don't hike into a supply induced spike”

“doing nothing would be probably the best thing to do”