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00:00This week, we'll get a detailed look into the thinking of the Federal Reserve when it comes to its latest
00:04interest rate decision.
00:05The minutes from last month's FOMC meeting will be released, Carol, on Wednesday.
00:09Yeah, a lot of questions coming off of the press conferences, right, with the Fed chair.
00:13Hey, last month's decision not to raise rates saw a rare descent from three regional bank presidents.
00:19Well, joining us right now to make some sense out of it all is Jennifer Lee.
00:22She's senior economist at BMO Capital Markets.
00:25Jennifer, good to have you here with us.
00:27This is a focal point in this new era of the U.S. central bank.
00:33What are you watching out for when it comes to the FOMC minutes?
00:37Well, good morning, and thanks for having me on.
00:39You know, it'll be very interesting to see how much of a, I'm going to use my air quotes here,
00:43but the good family fight really took place behind the scenes.
00:47I would love to be a fly on the wall on that front.
00:50And this will be the interesting one because, you know, this is like the second meeting that Fed chair Larsha
00:56chaired over.
00:57The first one, everyone was unanimously behind him, supporting him on the decision to stay the course.
01:03And then the second one, boom, three dissenters.
01:05So it'll be very interesting to see what kind of discussion went on behind the scenes.
01:09And then, of course, how much of it will heat up in the coming months as well, just given all
01:13the mixed data that we've seen of late.
01:14We've seen a big move in interest rates, and there was quite the freakout in the markets following the most
01:20recent meeting that we'll be reading into in these minutes.
01:25Jennifer, when's the 10-year going to hit 5%?
01:29Oh, that's a great question.
01:31I wouldn't be surprised if it's, you know, sooner rather than later, just given the upward pressure.
01:35Yeah, just given the upward pressure that we've seen overall and worldwide as well, just, you know, more demand, I
01:42think, for just to spend more as well.
01:44So anyway, we're going to have to see how that fares, see what other banks around the world are doing
01:49as well in terms of what their holdings or treasuries are.
01:51You know, China's been ramping them down or ramping them lower, I guess.
01:56You know, so, I mean, again, it's all going to depend on how, you know, what other central banks are
02:01doing, what other economies are doing, and what inflation expectations are doing around the world as well.
02:06So, you know, the thing that has kind of freaked out investors, freaked out everybody who watches the Fed, is
02:11that we're not getting that, you know, forward guidance, right?
02:14So-called forward guidance when it comes to interest rates.
02:17So what do you look at specifically to get an idea of where rates are headed?
02:21It's going to have to be back to the data.
02:23And it's interesting, you know, when you're mentioning the forward guidance, because, you know, a lot of the central bankers
02:26now are very loathe to release any of their thinking too much.
02:31But then you've got other, you know, policymakers on those committees that are quite happily, you know, speaking to everybody
02:37that would want to listen about what they're thinking of.
02:39And so it's very confusing.
02:40So I can totally see some of the efforts to clamp down on those communications.
02:45But it's going to be all back down to the data.
02:48And it can't be just one piece of data, one data release, like the non-farm payrolls report, because we
02:53know that the surveys, the respondents, they're a lot less than what they used to be.
02:57You know, you have to be like 90 percent response rate.
02:59Now we're like 70 percent or so.
03:00So you have to look at the whole gamut of data releases to make sure that they're all telling the
03:05same story.
03:06And of course, it can't be just one month because we know that one month doesn't make a trend.
03:09And it's got to be like at least two, ideally three months before we can see some sort of idea
03:14or have some sort of a sense of which way, you know, policy is going to be leaning.
03:18Jennifer, what do you think the Fed needs to do when it comes to interest rates?
03:21And take us out through the meetings for the rest of the year and maybe into early next year.
03:27So we have investors.
03:30Investors want to be forward looking, like not backward looking.
03:33We know what you did already, right?
03:34That's a year.
03:35So we, even within BMO, you know, we have a lot of debate within, you know, all the economists and
03:43the strategists as well, as opposed to which way rates should be leaning.
03:46And, you know, officially we are calling for the Fed to do absolutely nothing for at least the next stretch
03:52because there's so much noise going on.
03:54And I think they can afford to be patient.
03:55So we don't look for any moves until probably the last quarter of 2027 and that we're leaning towards a
04:02cut at that point.
04:03Wow.
04:03We are open to interpretation.
04:05We're open to changing our minds because as the data change, you know, we're not going to be, we're not
04:09married to this, right?
04:10So the next move by the Fed is not even an increase.
04:13It's a cut later.
04:14Right, but not for another, like, whoa, one year out.
04:18Because the economic cycle is coming and down?
04:22Like, are you using more recession at all?
04:24I think rates are still in a more restrictive level right now so they can see some easing coming in.
04:29And, of course, you know, there is something to that AI story that's going to, you know, decrease inflation, maybe
04:35not right away, but eventually will put lower pressure on inflation as well.
04:39So, again, very patient, long ways out.
04:43You know, it's sort of hard to sort of defend this call, you know, especially when you're seeing upward pressure
04:48in place in oil still.
04:50Yeah.
04:50You know, not as high as it once was, you know, but, you know, there is a risk.
04:53If there's a risk, it's going to be either staying still for longer or, you know, obviously there's a risk
04:58of rate hikes.
04:58So, right now, I think everything is on the table, but basically the story is that they're going to be
05:03patient.
05:04They're not going to do anything.
05:05And it's still a whole year out before, you know, any moves are made and so much can happen in
05:09that span.
05:09Well, how are you looking at oil, Jennifer?
05:12Have we absorbed $80 to $85 as the new normal?
05:16Or is there a longer term, if this war continues indefinitely, longer term corrosive effect that an eight-handle will
05:23have on the economy?
05:25So, I was actually kind of surprised that it hasn't been higher than that.
05:29You know, and I think some of that can go back to China.
05:31The fact that China hasn't been using as much, you know, they've been drawing on their own reserves.
05:35You know, they bought up a lot of oil when it was still cheaper.
05:37You know, and then they're also, you know, there's, you know, because the economy is slowing over there as well.
05:42So, there's less demand for oil.
05:44At the same time, they're using a lot more other things besides oil.
05:48Like, you know, when they're driving, they're using their EVs.
05:50So, that has certainly helped keep a lid on oil prices.
05:55And, of course, there is still movement going through the start of Hormuz.
05:58It's just a lot slower than it was.
05:59So, if it stays at this level, though, can we continue to absorb this?
06:03I think there are, everyone's going to adapt, right?
06:05I think this is something we should always remember is that even though things are all of a sudden, you
06:09know,
06:10higher than they once were or lower than they once were, the economies, the, you know,
06:14the country, consumers, businesses will adapt to that new normal.
06:18They will shift.
06:19So, I think, you know, we can handle it.
06:20We've got about, you know, $80 or $70, maybe of the high 70s average forecast for the next couple of
06:26years.
06:27You know, higher than it once was.
06:29But at least, you know, we're not seeing over $100 oil.
06:32So, Jennifer, you talked about, you know, we've heard this a lot,
06:34about the family fight within the U.S. Central Bank by Fed Chair Kevin Warsh.
06:38There's nothing like a family fight in cowboy boots and cowboy hats.
06:42So, we're going to get through the minutes, and then we're going to move on to Jackson Hole.
06:46Will we get any kind of clarity or specificity from Fed Chair Kevin Warsh there?
06:51How's he going to use it?
06:52It's his first Jackson Hole.
06:53Well, as Fed Chair.
06:55You know, I have to go to the Fed Chair.
06:57He is a pro at handling all of these, you know, he's only had a few, by the way, public
07:02appearances since he became Chair.
07:03He has had the two meetings.
07:05He had his testimony in front of Congress.
07:08And, of course, he was at the ECB forum in Central Portugal.
07:13But he has managed to say very little about, sorry, very little about which way rates are going.
07:21So, we'll have to see how that goes.
07:23But, again, I don't think he's going to say anything.
07:26He's been very committed to repeating how they're going to be delivering on Fed stability,
07:31on price stability, how he's going to encourage debate, and, of course, the task forces.
07:35Maybe they all need to sit around a campfire and have, like, suburban or something.
07:40And maybe loosen up a little bit.
07:41Michael McKee sort of moderate this thing and get everybody together.
07:43I mean, I guess the family fight will continue.
07:45Yeah.
07:46Which seems to be the new culture inside the Fed.
07:49Are you left wanting, Jennifer, or do you like the fact that we're going to have less Fed speak,
07:54that we are, in fact, focused on the data, as you just said?
07:57Interesting you're asking me this now because normally I would have said, you know,
08:00I would like to know what people are thinking.
08:02But, you know, it's not just the Fed chair.
08:03He's like, one person, one vote.
08:05I would love to know what everyone else is thinking.
08:06At the same time, you know, especially this week, I think he was like, you know,
08:09there are a few Fed speakers coming out and everyone's still speaking hawkishly
08:13except for the New York Fed, Feds Williams.
08:16But, you know, it gets a little confusing, you know, and I will give him that.
08:20And even other central banks, you know, when you look at the ECB, you know,
08:23you've got the central bankers from Germany and from France, you know,
08:28and from Finland all speaking somewhat hawkishly.
08:30And then you have the other ones who are a little bit more dovish,
08:33so it's hard to glean which way they're going.
08:35And especially the Bank of England, that's my big thing, you know,
08:38when you've got three super hawks on that, on the Monitor Policy Committee,
08:42six who are, you know, not as hawkish but leaning toward it.
08:44It gets very confusing as to which way, you know, the central bank is leaning.
08:49But for the Fed, you know, I think everyone should obviously say something,
08:54but, you know, you have to be very careful what you're saying
08:55because you don't want to leave the markets astray.
08:58Yeah, that's for sure, because not like we pick apart every word that they say
09:01and trade off of it perhaps.
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