Well,

I think what will happen is once they start to cut, they'll probably keep going. Once they start to do the first rate cut, they basically decide that we've accomplished our mission in terms of inflation and unemployment. Policy is restricted so we now have to go back to neutral. Neutral is not 25 basis points away. So if you have a rate cut in September, it's probably going to be followed by rate cuts, at least one or two more rate cuts later this year. Bill,

it seems like this was a setup for Jackson Hole. We've been talking about that. It seems like there will be some sort of policy regime shift that we will observe in August. What do you think it will be? I

don't think that Paul really needs to say much more than what he said today, frankly. I think the changes in the statement and the press conference today basically tell you that September is going to happen unless the economic outlook changes materially. Now, that's possible. You could get a whole string of bad inflation numbers, or a economy could come in hot. But I think in the next six weeks or seven weeks, is the outlook going to change materially? I doubt it. So I think regardless of what happens in Jackson Hole, I think the Fed's going to cut in September. I think Paul will sort of check in at the Jackson Hole and basically, you know, probably confirm that we're still on track for this result for rate cut in September. But I don't think it's, you know, I don't think he has to use it for that.

Well, although it's not just about September, it's not just about whether they're going to move again one more time this year. It's about what the destination is. It's about the pace. It's about what the goal is in terms of just the view of where the economy is. Bill, do you expect there to be any discussion about the terminal rate, about what it means to be neutral at a time, or this is a very different economy than pre-pandemic?

Well, I would assume that once you get inflation, you know, you're highly confident inflation is going back to 2 percent, and you think the labor market's in balance, then presumably you want to go back to a neutral monetary policy. And the question is, what's neutral? And that comes down to that whole question of what is the level of our star, the neutral federal fund rate. I think that neutral is clearly, you know, lower than where we are today, but is it 100 basis points lower or 200 basis points lower? That remains to be seen? So the feds can be sort of feeling its way now Obviously if we fall into recession then the whole whole story changes because in a recession environment the Fed doesn't want to go to a Neutral monetary policy they want to go to a stimulative monetary policy So if we actually if the if it turns out with the benefit of hindsight that the Fed is late and we've had a mild recession Then the feds gonna cut rates much more dramatically. Bill, I've never said this. I've got Dudley, Krugman, and Blinder

on the same page. Never did I think I'd say that. The money paragraph from your good friend, Alan Blinder. Any such early cut should be accompanied by a warning not to expect a steady stream of rate cuts, he alludes to the ECB. Do we need some ECB religion at the Eccles building?

No, I think that the Fed will probably cut more than one because once you start to cut, you're basically saying I think it's time to remove monetary restraint and monetary restraint is not going to be removed with just 125 base point rate cut.

Bill, great to get your thoughts. Appreciate it. Bill, don't be there. The former New York thank you, President Wang Yin on this Federal Reserve decision, as you got a lot of people talking over the last week about the need to move in July at the meeting that's just past. I want to bring you a headline. It comes from the New York Times and it reads as follows. Iran's Supreme Leader ordering a retaliatory attack on Israel. The New York Times citing three Iranian officials briefed on the order. This is what I can tell you about crude. Crude's been rallying all day and the price of crude looks like this at the moment. Brent Crude by four percentage points. TK you would often say overtaken by events. The last thing this Fed needs over the next month or so is an energy price shock.

I'm so glad you brought this up, Jan. We let off the show this morning with Ethan Bronner, our Tel Aviv News Bureau Chief, encyclopedic on the region. And he says the position here now is unprecedented. And he made clear there's going to be immediate news following both from the North to Lebanon and the news that you just have from Tehran as

well. As we get those updates, we'll bring them to you. I just want to reset. If you are joining us, we've just had a Federal Reserve decision in the last couple of hours, interest rates unchanged, incremental changes to the statement. There was a sense that in September, the Federal Reserve Chair would set us up for a rate cut in September. He took a baby step towards doing so, and the market picked up on things accordingly. Big rally across equities on the NASDAQ on ES&P on a Russell. It looks like this right now. It fades just a touch, but we're still higher by 1.4% on ES&P. Bear in mind the NASDAQ was poised for the worst month of the year. And at one point in the last couple of hours was on course for its best day of 2024. That fades with back down to about 2.7% higher on the session on the NASDAQ. We referenced this stat a little bit earlier on today a few times. We are now on course for the seventh consecutive Fed decision day rally on a two-year bond. Lisa, that yield is lower by six basis points.

How much is this just that Jerome Powell tends to skew dovish and how much is this that the market still has a probability or a possibility baked into what the yield is that the Fed could maybe surprise in a hawkish manner. Either way, this is a market that likes to hear Fed chair Powell speak and today was no different.

Mike McKee was in the room with the Federal Reserve Chair down in Washington, D.C. He joined us from the nation's capital now. Mike, you've just got outside. Walk us through your biggest take away from that news conference this afternoon.

I think what you walk away with is what Bill Dudley was talking about. If the economy doesn't do something weird, change positions, change directions, then the Fed is going to be cutting in September. But there are a lot of potential twists and turns between now and then. Friday is event risk with the jobs report. And of course you just mentioned the situation with Iran. I don't think the Fed was taking those things into consideration today as reasons not to move today. But they they do have to worry about them and and what might happen. So they will at this point be on a cutting course unless something significantly changes. And I think that was the message that Powell wanted to deliver. And I think Bill put it well when he talked about how the statement was skewed to the doves a little bit, and the news conference maybe to the Hawks, and that both sides get something out of it.

Mike, you've been doing this for a few years. Back to MacChesney Martin. We almost printed a 406 10-year moments ago. Can the bond market tell the Fed what to do? Probably

not and one of the things that you have to keep in mind is that we have all this international news going on and the bond US bond market is the haven market. So a certain amount of what's going on today is probably in reaction to Israel and Iran. And a certain amount of it is the politics going on in this country. And then on top of that, what the Fed is considering and what the economic data are showing. But I suspect today's less about the Fed and the data than it is about other things because the market had pretty much priced for a September rate cut. They didn't get any surprises out of the Fed today.

Mike, you're referring of course to the news that John broke about Iranian supreme leader ordering an attack on Israel for the two assassinations that Israel carried out. Right now we're seeing crude markedly higher, particularly Brent crude. Mike, I wonder how this relates to what Fed Chair Powell has been talking about, that this is actually better inflation data today than it was say late last year, earlier this year, simply because it is not being driven by goods. It is being driven by the employment market. It is being driven by services. How much do you believe based on those comments, this is a Fed that is willing to look through good side inflation and focus much more on something else? Well,

I think they are, especially if oil prices go up only temporarily. The problem is if oil prices go up for quite some time, then that feeds through into the real economy, particularly on the services side. see surcharges by delivery companies, airline fares might go up, that sort of thing. So they're going to have to keep an eye on that, but their general instinct would be to look past any kind of energy price change that comes about that they think might be temporary. And at this point, we have been waiting for a major shift in energy prices since October 7th, when the first attack on Israel came. So we haven't seen it yet. Let's see whether this holds or not and then the Fed would have to take it into account if it's still going up. 5% rally in crude today. Might be key. Great work as always, sir.

Appreciate it. We'll catch up with you a little bit later. This week's not over. Still got some work to do. The Fed decision behind us tomorrow. We'll get jobless claims. On Friday, we'll get a payroll report and we'll be catching up with Jeff Rosenberg of BlackRock. We can do that now. Jeff, at 8.31 on Friday, will this decision today to do nothing, will that look like the right one?

Well, you know, it might look like the right one, but I think the point you're also getting to is that Friday, and we'll see on Friday as well, is going to be much more consequential. But I think the important point about how it's going to be more consequential is what we've heard from everybody so far, what we've heard from the chairman, and in the statement is this is very much setting the table for September, and the bond market had already priced that outcome. And so what you look at into Friday and the payroll is, you're setting up the bond market, perhaps broader markets, for a very asymmetric outcome. If the data is much, much stronger, then you're gonna have some disappointment. If the data comes in along lines of what Chairman Powell was talking about in terms of gradual normalization or even a little bit weaker than that, the market will continue to price in this path of a cut in September, a cut in December and even more into 2025. So I think Friday the risk is really on the upside that you get a surprisingly strong payroll report and that has to call into question whether or not policy is really as tight as it is. And that's really the issue. Everyone's kind of saying, hey, this is right, the feds got it right, the feds saying we've got the soft landing, we want to secure the benefits of soft landing, but he kept report repeating PDF P at 2.6 percent you look at the GDP number that just came out you look at Atlanta Fed GDP now forecast for third quarter We are well above in growth terms anything associated with long-term sustainable growth and so yes We've seen some signs of of restrictedness, but how much of that? I would have, Jeff, because you're totally against the grain, totally against the grain. And I think you know you

are. Most of the people coming on this show right now, if they're going against the Federal Reserve, they're saying it's because they think this fat is too tight, not restrictive enough. You're making the point here, Jeff, that maybe they're not as tight as they think they are. Now, that really goes against the grain, Jeff. Is that the point you're trying to make? That is the point exactly that I just made. No one's really

talking about it because the Fed's not talking about it. But the data is what your question was about. What happens on Friday and how does that make this moment look? Well, if the data comes in continually stronger, then we're going to have to start to talk about that. Now, I'm not saying that that's where we're going. Where we have been, and what we tend to do is to extrapolate where we just had been. So we're extrapolating out the benefits of the gradual slowdown in labor markets, the normalization, ECIs, another great data point. There's nothing in the crystal ball that says that that won't happen. But your question was, what if it does? Then you start to think about these things. And my point is, everyone is so one-sided on this point that the asymmetry to the market reaction is much greater to the upside surprise and strength on Friday than it is to coming in online or even being weaker.

So let's put a call around that Jeff. Are you basically selling to your notes right now trying to lock in because you think that this could be the highs given that they are not recognizing the risk of an upside surprise to the job support? No

I wouldn't say I'd go that far but what I would say is it tempers some of the enthusiasm for adding to two years at this point when it's all in the price and even more so relative to what the Fed is saying that you're going to get. So the bar is a little bit higher to what do I do with this information in my portfolio when you look at, well, you know, the bond market's really quite priced a lot of that in. So it makes it a little bit more tricky than just saying, oh, the Fed's gonna cut rates and I should back up the truck and buy a whole bunch of duration. Well, a lot of that trade has happened in the last month. So if you're just talking about maintenance cuts and the degree of maintenance cuts that are required, it's what you were talking about with Bill Dudley a minute ago, we don't really know where that neutral is. So how do we know where neutral is? You know it when you see it, meaning you know it when you see it in the data. So if the economy doesn't slow and that unemployment rate doesn't continue to rise, and it says you're not so restrictive as you think you are. And I think, you know, we just kind of have a pile up on one side of the debate here when the data is still saying 2.6% PDFP. He said it twice during the press conference. He also said the other thing that has been supportive of restrictiveness, interest rate sensitive sectors and the slowdown in the labor market. But it's a more balanced view around this debate, around how restrictive we are, than where the market is kind of lining up. And that sets up an asymmetry to the outcomes.

Jeff, you're a great student of history. And if we have the headlines that John Farrow was talking about there of Tehran and Israel, and for that matter up to Lebanon as well, how far out the full faith and credit curve does politics, does war, do our fears play in? Is it short term? Is it out to the two year pinch? Or is it out even further to the 10 year note?