Instant Reaction: The Fed Decides

Summary

Bloomberg Businessweek - "Instant Reaction: The Fed Decides"

Date: March 18, 2026
Hosts: Carol Massar & Tim Stenovec
Featured Guests: Mike McKay, Richard Clarida (Former Fed Vice Chair), Bob Michael (JP Morgan Asset Management), Stephanie Roth (Wolf Research), Diane Swonk (KPMG), Bloomberg Market Analysts and contributors

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Episode Overview

This episode delivers real-time analysis and reactions to the latest Federal Reserve (Fed) policy decision. Amid heightened geopolitical tension (specifically, developments in the Middle East) and stubborn inflation, the Fed holds interest rates steady. The conversation explores the implications of unchanged policy, evolving economic projections, the Fed’s reaction function, credibility, and the challenges of managing monetary policy in a world rife with shocks outside their control.

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Key Discussion Points & Insights

1. Fed Policy Decision Breakdown

• No change in interest rates and only one dissenting vote (Governor Stephen Myron calling for a quarter-point cut and favoring 100bps of easing this year).
  • Mike McKay: “No change in rates, no change in dots. One dissent, but some big changes in inflation expectations.” (01:53)
• Summary of Economic Projections:
  • Inflation (PCE and Core PCE) revised higher for 2026 (to 2.7%, up from 2.4% in December)
  • GDP growth revised slightly higher (to 2.4% for 2026)
  • Unemployment forecast steady, slight uptick to 4.4% for 2026.
  • Long-run neutral rate now at 3.1%, ticking up from prior projection.

2. Market Reaction and Tone

• Equities down modestly (-0.5% S&P 500), bond yields steady to slightly higher, muted overall market moves.
• Bloomberg Reporter: “The only takeaway for me is there is nothing this institution can do to drive this market in the face of the shock elsewhere… This Fed decision…I would say is fairly dovish…no big moves in financial markets. I think that's notable.” (09:32)
• Consensus: Dovish Hold
  • The Fed displays a willingness to look through near-term inflation shocks, betting on eventual normalization even as some data worsens.

3. The Persistence of "Transitory"—Without Saying the Word

• Transitory inflation concept returns, implicitly.
  • Richard Clarida: “Well, it certainly screams we need, we need a synonym for it. Temporary, not long lived…But the short answer is nobody, including the Fed knows. This is very elevated geopolitical risk…But the baseline I agree with your, your panel is dovish, constructive.” (07:30)
• Yield curve reaction: Steepening as markets see long-term easing despite near-term inflation bumps.

4. External Shocks: Middle East Conflict and Commodities

• The Fed emphasizes external factors are beyond its control.
  • Oil and energy price shocks, tied to Mideast conflict, figure prominently.
  • Richard Clarida: “You cannot print barrels. This market is still at the mercy of what happens in the commodity market and the Fed is not the circuit breaker anymore.” (09:32)
• Demand destruction risks: Higher energy prices pinch real incomes, threaten aggregate demand.
  • Clarida: “Demand destruction comes from the fact not only oil prices but energy prices and goods…will go up and that will tend to reduce the real incomes for millions…There is no doubt…this is going to squeeze real aggregate demand the longer the oil shock persists.” (09:05)

5. Discussions on the Labor Market and Growth

• Labor market now softening but not broken; remains central to policy outlook.
  • Stephanie Roth: “You look at 2022 the unemployment rate was 37 heading to 3 5. Today it's 44... Today there are somewhere between 0 and 50,000 [jobs gains] on average. The inflation backdrop was different. At core inflation was five and a half, today it's three.” (17:45)
• Fed’s projections appear optimistic: GDP lifted despite external drags, puzzling many analysts:
  • Bob Michael: "They're basically saying all of this going on in the Middle east is a speed bump...but the economy will accelerate, unemployment will stay stable and it's off to the races. I just don't see that." (19:13)

6. AI Productivity Boom and Economic Resilience

• Fed and market voices highlight AI as a new growth driver.
  • Bloomberg Analyst: "How much this is a Fed that is basing their entire assumption on a productivity boom tied to artificial intelligence..." (07:56)
  • Clarida: “AI is, is a support to demand in the economy...probably going to offset some of what the drag would be from the oil price increases.” (08:13)

7. Fed Credibility, Communication, and Forward Guidance

• Forward guidance seen as dead or hamstrung.
  • Bloomberg Analyst: “Is this the Fed meeting where forward guidance just died?” (24:58)
  • Diane Swonk: “Absolutely. We didn't have a lot of forward guidance to begin with, but absolutely.” (25:03)
• Fed’s influence on markets is diminished: "The Fed is playing dodgeball without the ball." (10:29)

8. Leadership Transition and Institutional Independence

• Powell’s future uncertain due to pending DOJ investigation and delays in nominating his successor (Warsh).
  • Richard Clarida: "I think Jay Powell will move on once Warsh is in place to his future life. But his real focus is on maintaining the independence of the institution." (14:19)
• The unusual, unsmooth transition worries observers over credibility and continuity.

9. Stagflation Fears, Structural Labor Market Issues, and Policy Dilemmas

• Stagflation risk acknowledged but not base case:
  • Diane Swonk: “If you cut rates further, you're risking a more persistent bout of inflation or worse, a stagflationary scenario...” (22:51)
• Debate over job market interventions: Concern that rate cuts aren’t generating jobs, and labor market wounds may be structural.

10. Other Notable Economic Signals & Real-world Impact

• Consumer finances under pressure despite tax refunds and fiscal stimulus.
  • Bob Michael: “We’re seeing…deposit balances start to go up…now paying that out again at the pump...businesses and households already paying a higher tax because of tariffs on prices. And now energy prices are going to create yet another tax…” (29:10)
• Business class airfare, energy bills—cost of living up sharply.

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Notable Quotes & Memorable Moments

• "How do you say transitory without saying transitory?"
  • Bloomberg Market Analyst (05:31)
• "The Fed is playing dodgeball without the ball."
  • Bloomberg Market Analyst (10:29)
• "You cannot print barrels. This market is still at the mercy of what happens in the commodity market and the Fed is not the circuit breaker anymore."
  • Bloomberg Reporter/Anchor quoting Jeff Curry, Carlyle (09:32)
• "I'm just wondering how much this is just AI written all over it…"
  • Bloomberg Market Analyst (07:56)
• "Forward guidance just died."
  • Diane Swonk, KPMG (25:03)
• "I just don't see that. I think there is a real impact to inflation and ultimately to the economy and the labor."
  • Bob Michael, JP Morgan Asset Management (19:13)
• "I think the emphasis is going to be on uncertainty and wait and see and that will just sort of be where they are right now."
  • Diane Swonk (27:26)

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Timestamps for Important Segments

• [01:47] - Immediate breakdown of Fed decision (Mike McKay: projections, dissent, statement language)
• [04:45] - Initial market reaction and "dovish hold" discussion
• [07:30] - Richard Clarida on "transitory" and AI's role in the Fed’s outlook
• [09:05] - Clarida on demand destruction and energy prices
• [10:29] - “Fed is playing dodgeball without the ball” and global central banking context
• [12:36] - Bob Michael details emerging markets’ and currency reactions
• [14:19] - Richard Clarida on Powell’s uncertain succession
• [17:45] - Stephanie Roth on differences from 2022, risk of a repeat inflation spiral
• [19:13] - Bob Michael questions the Fed's economic projections in light of energy shocks
• [22:51] - Diane Swonk on the Fed's dual/dueling mandate and the risk of persistent inflation
• [24:58] - Forward guidance's demise
• [27:26] - Swonk on the expected emphasis of Powell’s upcoming press conference
• [29:10] - Bob Michael on consumer spending, energy’s "tax", and fiscal relief limitations

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Conclusion

This rapid-fire, insightful episode underscores a historic moment for monetary policy: the Fed is essentially on hold, “watching like the rest of us,” with its formerly dominant influence on markets seriously diminished by external shocks. Rising energy prices, geopolitical risk, and mixed economic data all cloud the outlook. While the projection for growth is higher and AI is touted as a new engine, uncertainty reigns. As several panelists make clear—the era of forward guidance may be over, and the Fed must now navigate deeper risks to both their credibility and the economy’s path forward.

Transcript

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[Bloomberg Market Analyst]

Bloomberg

[Bloomberg Host/Anchor]

Audio Studios Podcasts Radio News

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this is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.

[Bloomberg Reporter/Anchor]

But that Fed decision. Here's Mike McKay no change in rates,

[Mike McKay (Fed Analyst)]

no change in dots. One descent, but some big changes in inflation expectations. Fed officials see one cut still in 2006 at some point, even though their statement notes that uncertainty about the economic outlook remains elevated. Three members who favored no cuts in this year moved their dots down to one. The statement goes on to say the implication of developments in the Middle east for the US Economy are uncertain and the committee remains attentive to risks to both sides of their mandate. They still see one more cut in 2027. Stephen Myron, the only dissenter. He wanted a quarter point cut this time, and from the dots we discern that he still wants 100 basis points at some point this year. The language about future moves remains the same. They still talk about the extent and timing of additional adjustments to to the target range. It's the summary of economic projections in which we see a lot of changes. PC inflation this year is forecast at 2.7%, up from 2.4% in December, core is also seen at 2.7% up from 2.5. Both dropped to 2.2% next year, up from 2.4% in the December. ACP core is seen at 2.7% this year. Both drop back as I mentioned next year to 2% in 2028. GDP marked up a tenth in both years both of the next two years to 2.4% this year and 2.3% next year. The unemployment forecast remains 4.4% in 2026, dropping to 4.3% next year. That's up from 4.2% in December. And the longer run estimate for fed funds seen as the proxy for the neutral rate rises a tick to 3.1%. Guys.

[Bloomberg Reporter/Anchor]

Mike. Thank you, sir. We'll catch up with you a little bit later. Let's start with the price action. We've got equities, then bonds. We'll have a sneak peek of what's happening in the commodities market because we're tracking that throughout the day here at Bloomberg Equity Markets. Looking at the S&P 500 off session lows, but still negative by 0.5% in the bond market yields slightly higher on a two year by two basis points, basically as you were at 370 on twos on 10 to about 4, 421, which is basically where we were going into this decision. So this is what we're doing. You come into the projections but ignore the statement just for a while. We go into the statement and we'll look at the projections and compare what they were projecting back in December and have a look at what they're projecting now. So let's just go through 2026 for GDP revised slightly higher. That's some good news. 27 as well. Same thing, by the way. So the revised GDP higher, the revised inflation higher, and they've kept the projection, the implied projection for interest rates exactly where it was for December. Those kind of moves should be music to the ears of bullish market participants.

[Bloomberg Market Analyst]

This is an incredibly dovish hold, just by virtue of the fact that only one person dissented and it was Governor Myron. That alone. But these projections highlighting a tolerance for higher inflation and still the belief that it will come down by 2027 to that 2% level without hiking rates and continuing with rate cuts, gives you a sense of where this Fed's mind is at. This seems like more of a consensus than I expected, than a lot of people expected. And it is more to looking through any kind of oil price shock.

[John (Bloomberg Contributor)]

In honor of Alan Greenspan's hundredth birthday. It was a Greenspan decision. Everybody got on board with the chairman. That's all there is to it.

[Bloomberg Reporter/Anchor]

And the out years, the good news on the inflation front, you decide whether this is good. The Fed is still basically forecasting the same inflation glide path as they were before, even with this lift to 2026.

[Bloomberg Market Analyst]

How do you say transitory without saying transitory?

[Bloomberg Reporter/Anchor]

It's in there in the forecast and

[Bloomberg Market Analyst]

that's the reason why you're seeing the yield curve steepen and on the margins you're seeing 10 year yields higher on this because ultimately this is a Fed that is willing to stay on hold and look through an oil price shock, look through the fact that even core PCE has been higher than expected and is expected to stay that way because ultimately they do think the labor market is showing signs of cracks even though they don't necessarily see unemployment rate ticking up. And they do want to err on the side of the of being more accommodating.

[Bloomberg Reporter/Anchor]

Official I'd like to speak to just briefly came on the phone. Governor Waller, I was about to say Chris, no dissent. He said it was a coin flip. It would come down to the labor market report. And that labor market report was overwhelmingly soft. So what does he see in the outlook for inflation that's kept him on the sidelines?

[Bloomberg Market Analyst]

Governor Waller, please join us. If you want to call, we'll take you. I mean ultimately that is one of the key players because he is a pillar of the swing vote, if you will and a lot of people are looking to him for some sort of guidance about what exactly is driving his decision.

[John (Bloomberg Contributor)]

At Washington State he was expert on game theory and when there's a war, there's a different game theory.

[Bloomberg Reporter/Anchor]

This is a major shock we're working through. Bob Michael at JP Morgan Asset Management still with us around the table. Bob, you ready? Thoughts off the back of this one?

[Bob Michael (JP Morgan Asset Management)]

I do. They're telling us don't worry about it. There's a little bit of a near term inflation shock. They added a tenth more than we did. But it's fine. The economy is going to use that to accelerate. So they increase GDP that I don't get. And they left unemployment where it is. And it also doesn't sync with the dots. I heard Mike McKee say that three members who previously voted for no cut changed their view so and went to a cut.

[Bloomberg Reporter/Anchor]

The median dot3.4 December projection. The median dot3.4. Joining us now to discuss is the former Fed Vice chair Richard Clarida. Now Rich, I know the word transitory is banned and they can't use it anymore, particularly in the news conference. But does this scream transitory?

[Richard Clarida (Former Fed Vice Chair)]

Well, it certainly screams we need, we need a synonym for it. Temporary, not long lived. You know, they could justify it perhaps by looking at the oil futures which still show this is dissipating over time. But the short answer is nobody, including the Fed knows this is very elevated geopolitical risk and, and there are risk on both sides. But the baseline I agree with your, your panel is is dovish, constructive.

[Bloomberg Host/Anchor]

Rich.

[Bloomberg Market Analyst]

I'm just wondering how much this is just AI written all over it, how much this is a Fed that is basing their entire assumption on a productivity boom tied to artificial intelligence and the deployment of it through the economy and frankly disinflation on its heels.

[Richard Clarida (Former Fed Vice Chair)]

I think there's an element of that, perhaps more so with the incoming chair than some other members. I think it's also a statement however that AI is, is a support to demand in the economy. That to some ext along with those big beautiful bill tax cuts is probably going to offset some of what the drag would be from the oil price increases. But, but again this is a modal or a baseline and I think certainly internally we'll, we'll hear that there was a discussion of the risk cases as well.

[John (Bloomberg Contributor)]

Professor Claire, when you were at Columbia herding cats, Xavier Saleh Martin taught the acclaimed principles of economics. Talk to us about the risk of a demand destruction here. To me it's extraordinary. Whether it's war short term or a more permanent demand destruction, should that be a legitimate concern of the Fed?

[Richard Clarida (Former Fed Vice Chair)]

Well, the demand destruction comes simply from the fact that not only oil prices but energy prices and goods that are intensive in oil and energy will go up and that will tend to reduce the real incomes for millions and tens of millions of, of households. Now on the other side of that you have the AI boom. But there is no doubt that this is going to squeeze real aggregate demand the longer the oil shock persists.

[Bloomberg Reporter/Anchor]

Check out the price action. Let's go to equities. We're still down by 0.6%. Unmoved by 1. The surface of things looks like a dovish decision from the central bank. Check out the bond market. Similar story. No big moves off the back of this. The only takeaway this can change. But the only takeaway for me is there is nothing this institution can do to drive this market in the face of the shock elsewhere. Jeff Curry of Carlyle said it really well this morning on Bloomberg TV when Jeff turned around and said there's nothing the central bank can do about this. You cannot print barrels. This market is still at the mercy of what happens in the commodity market and the Fed is not the circuit breaker anymore. Because this Fed decision I would sit here and argue is fairly dovish with the exception of the absence of a dissent coming from Governor Waller is fairly dovish to come out and say the outlook for growth is better, we've revised higher the outlook for inflation and the median dot is exactly the same. Screams dovish and yet here we are. No big moves in financial markets. I think that's notable.

[Bloomberg Market Analyst]

The Fed is playing dodgeball without the ball. They're not the pitcher in a game and right now what they're dealing with is shock after shock without necessarily historic precedent. Yes, there are historic precedents for oil shocks but not for the shock and what that does to the overall economy. So they might remain on hold and that might be bullish but not in this moment because right now if another oil or natural gas plant gets bombed, people are going to be watching that much more than anything coming out of

[John (Bloomberg Contributor)]

Jay Powell Vice Chairman Claire the thing I would point out here in Damien Sasso at Bloomberg is very cautious on him suddenly here in this meeting and in this press conference more than ever Is this the central banker to the world?

[Richard Clarida (Former Fed Vice Chair)]

Well sure it is and and I think that the Fed Fed is aware of that. I think one thing this episode is reminding folks we've seen it in the in the dollar obviously is you know since since the Iran hostilities commence, you know the price of gold is down, the price of the dollar is up. So I think there is that element as well but you know broadly the Fed is reacting to events. I think Lisa said it well first and foremost this is a major political and economic shock. The dodgeball analogy I think is a good one. So I think yes the Fed is the central banker to the world but but it's not the main attraction right

[John (Bloomberg Contributor)]

now Bob Michael with us with JP Morgan as well. What is the with the tentacles of JP Morgan around the world. How is em doing? I see Philippine peso Almost out to 60 you saw Australia raising rates oh

[Bloomberg Reporter/Anchor]

well well well we call in Australia am no I'm not Australia get you

[John (Bloomberg Contributor)]

in trouble you know it's I'm watching Aussie yeah though which is life of

[Bloomberg Reporter/Anchor]

its own Sydney watching well was this was it early morning Deeply deeply unhappy

[John (Bloomberg Contributor)]

with that but I read all the Neville shoot including Town like Alice I want to know as a central banker to the world the sensitivities he faces. What does JP Morgan see on the reaction in the currency markets? The reaction in fixed income of em is the chairman speaks.

[Bob Michael (JP Morgan Asset Management)]

I think there are a couple of things. One, we felt going through this that the dollar would be the safe haven bid and we're seeing a lot of that. We also felt for those who wanted to diversify away from emerging market affects was the place to go. The central banks in those regions seem to be on top of things. And you you had a split between those who are energy importers and those are energy exporters, those that are sitting on rare earth minerals and other minerals and those who aren't. And I think we're seeing all of that play out. But I will tell you our client base still feels under allocated to emerging markets, both equity and fixed income. We're seeing those allocations continue to come in. I think there's a good talent there.

[John (Bloomberg Contributor)]

You just went along Australia.

[Bloomberg Reporter/Anchor]

You go back to back hikes at the emerging markets central bank over the rba see that some offended people down

[Bloomberg Market Analyst]

under right now I'm not wearing it on this one but I will say, I will say that to be moral will be really interesting at the BOE and the ecb.

[Bloomberg Reporter/Anchor]

There you go. You tell them Bramma. All right, Rich Cloud is still with us. Rich, I want to come to you on an important topic to wrap things up, a really serious one. The future for Chairman Powell. This is not how usually these things play out. Typically how this plays out, the Chairman knows when his term finishes, he gets a great send off, he walks away and he does a $1 million speech in about 12 months time and has a happy retirement. This feels so different Rich. Kevin Walsh has ultimately been nominated. We have no idea when the confirmation hearing is going to be. Bob, Michael sat here a little bit earlier and said he thinks the chairman Jay Powell is still going to be there by the time you get to the midterms. Rich, how do you think this process is going to play out in the next several months?

[Richard Clarida (Former Fed Vice Chair)]

Well, you're absolutely correct. This is unprecedented, unusual that the handoff is usually pretty smooth and very well telegraphed. And the difference of course now is several fold. One of course is the, you know, the DOJ investigation of Powell that the Fed is pushing back on. In addition, of course even worsh getting a hearing is now up, up in the air. You know I certainly do expect Jay Powell will stay on and perhaps a meeting or two after Warsh finally arrives to you know whether or not that's after the midterms. I'm not sure. I think Jay Powell will move on once Warsh is in place to, to his, his future life. But his, his real focus is on maintaining the independence of the, of the institution. And I think he will be in place until Warsh is confirmed and perhaps a meeting or two thereafter.

[Bloomberg Reporter/Anchor]

Rich, appreciate your insight on the topic. Thank you, sir. Rich, clarity that the former Fed vice chair on this Fed decision and the chairman's future. If you are just joining us on the program, welcome to the show. So unchanged the policy rate of the Federal Reserve about 15 minutes ago, some dissent, the vote 11 to 1. That dissent came from an obvious place, Governor Myron voting for an interest rate reduction for the projections. Big focus on what was happening with inflation. They've lifted their outlook for inflation for this year at least, but left the median dollar ultimately implying one rate cut from this Federal Reserve for 2026.

[Bloomberg Market Analyst]

To me the most interesting takeaway is what you said, which is this market doesn't seem to care. Even though this is very much a dovish hold. This actually is news in Fed land and yet the market doesn't pay attention because there's another game in town and it's everything else in the world. And some people might say, oh no, the adults can't control this. They can't step in and save us. And the other people will say we haven't had a free market in a long time and this is what it looks like. And guess what, it's a welcome, welcome exercise. And so those two sides of the debate are playing out a free market. Well, I mean that's the whole thing ultimately.

[Bloomberg Reporter/Anchor]

It's exciting.

[Bloomberg Market Analyst]

I'm kind of excited about this. I mean that's kind of a nice thing not to have the thumb on the scale all the time. And same story over and over again.

[Bloomberg Reporter/Anchor]

The change. All right, it's a change.

[Bloomberg Market Analyst]

I'll get off.

[Bloomberg Reporter/Anchor]

Stephanie Roth of Wolf Research, I can see how excited you are. You're not alone. I've been waiting for that moment for a long, long time. Major moves, 5% away from all time highs.

[Bloomberg Market Analyst]

Even the Japanese market. It's now exciting.

[Bloomberg Reporter/Anchor]

They're actually trade in the benchmark trading.

[Bloomberg Market Analyst]

There's actually traders.

[Bloomberg Reporter/Anchor]

Stephanie. I'm sorry. Stephanie Rather, Wolf Research joins us now for more. Stephanie, we need your reaction to the decision and where you expect the emphasis to be in this news conference.

[Stephanie Roth (Wolf Research)]

Yeah, I mean the emphasis is going to be on the reaction function provided that energy prices end up staying longer. The question is are they going to end up looking through this or do they ultimately end up having to be dovish as a result because growth will end up slowing. And our own view is that because the economy is so different today versus 2022, they'll ultimately have to be more dovish as a result of the war in Iran rather than the opposite. Otherwise it tells you a story of productivity and that growth is actually going to be higher in the, in the future years. But then, you know, nothing else changes. And the one thing that we didn't talk about or that wasn't talked about yet was, was the longer run dot shifting up a little bit.

[Bloomberg Market Analyst]

Well this to me Stephanie, that I'm really wondering about is how much does a more dovish Fed enable something that looks more like 1970s or more like 2022 and what we saw with inflation and the read through, is that something of a concern for you?

[Stephanie Roth (Wolf Research)]

No, because the backdrop is so different today versus say 2022. You look at 2022 the unemployment rate was 37 heading to 3 5. Today it's 44 hero gains is growing at 600,000. Today there are somewhere between 0 and 50,000 on average. The inflation backdrop was different. At core inflation was five and a half, today it's three. So the idea that we're going to have a repeat of 2022 seems like a very low likelihood event and therefore that's not something I would expect the Fed to react in that way because the data probably won't support a reflationary type of environment.

[John (Bloomberg Contributor)]

Stephanie, given a war, given what oil's doing, John mentions it's 62, basically 60200 or even higher. We're still slaves to the job market. And the answer is the unemployment rate hasn't broken. With the war, with the distractions, how exposed is this Fed into the the summer?

[Stephanie Roth (Wolf Research)]

Yeah, I mean I think they're going to be in an environment over the summer where base cases the unemployment rate is probably steady but they're going to be looking at this most closely. That's going to be the deciding factor between whether they are able to cut probably not at Worcester's first meeting, maybe in September or December.

[Richard Clarida (Former Fed Vice Chair)]

Right.

[Stephanie Roth (Wolf Research)]

And it's going to come down to the unemployment rate. Is it notably above 4 or 5, in which case they have a window to be able to ease and if, if not, then it's going to be tough for worse to get the rest of the members on board.

[John (Bloomberg Contributor)]

Bob synthesized Michael Feroli's work on this Then the fact is the labor market hasn't cracked yet. They have to wait, don't they?

[Bob Michael (JP Morgan Asset Management)]

I think that's part of it. I'm still gobsmacked by the Fed's decision. They're basically saying all of this going on in the Middle east is a speed bump, that yeah, inflation will tick up, you know, 310 and 210 here and there, but the economy will accelerate, unemployment will stay stable and it's off to the races. I just don't see that. I think there is a real impact to inflation and ultimately to the economy and the labor.

[John (Bloomberg Contributor)]

This is the heart of the matter, John. This is the absolute heart of the matter. And everybody has to recalibrate their X axis to how long is this going to go on? And then you get to demand destruction.

[Bloomberg Reporter/Anchor]

We mentioned this earlier and I think it's important to keep going over it. We've repriced a lot in this market. We've repriced energy, but a big move from the 60s out to triple digits. We've repriced interest rates, we've taken out a lot of easing for the Federal Reserve and we've priced in hikes in places like the ecb. Two of them I think for this year now yet we haven't repriced growth and the Fed hasn't either. And I'm not just talking about where spot is trading or the front month on the futures curve. If you go out to December and look at where December is trading right now we're close to 80, so we come from the 60s to close to 80s on the December contract and the Federal Reserve has lifted the outlook for growth. What's driving that?

[Bob Michael (JP Morgan Asset Management)]

I wonder how much momentum they think is in the economy, how much AI and data center spending is going on. Were they surprised by the Delta earnings and that, you know, sales are at a high despite higher energy prices? I think the reality is when you've had close to a 50% hike in energy prices in it's a tax on businesses and households and they will respond by cutting back some of their consumption.

[Bloomberg Market Analyst]

We have the smartest viewers and I just want to point that out. One of the viewers just wrote in we do and pointed out that among the members the actual dots might say one thing but the risk to GDP downside included 14 members versus 8 prior. At the December meeting the risk to the upside was 16 members for Core PCE as well as the unemployment rate that was up 4 from 12 and 13 members respectively. So that stagflationary outcome still in the back minds of so many of these Fed members, they just aren't making this their base case. So I just I don't understand, Bob, and I guess this is my question. Is the reaction function essentially they will hold pat even in this scenario, or do you have a sense of what the reaction function is to true stagflation?

[Bob Michael (JP Morgan Asset Management)]

Well, the bottom line is the market is just looking through the Fed right here and saying doesn't make sense, don't get it, don't know what they were thinking. The projections don't make sense to me. But I know where we are. There's a lot of tension still in the Middle East. It's yet to completely play out. I think where we are now is about fair. It can go either way from here. So it's completely dismissive of the fomc. FOMC statement.

[Bloomberg Reporter/Anchor]

Stephanie, before you go, what's the number one question for Chairman Powell into this news conference?

[Stephanie Roth (Wolf Research)]

Yeah, I mean, the biggest question is going to be provided energy prices are elevated through much of the summer, how are you going to think about the balance of risk? Is this going to be something that you're going to look through and do you expect that growth is going to be lower as a result, or is this something that you're worried about more similar to 2022 and what are the balance of risks in your mind in terms of how this could play out?

[Bloomberg Reporter/Anchor]

Stephanie, good to see you as always. Thanks for jumping on. Stephanie Roth there of Wolf Research. To build on the conversation, Dan Swonk of kpmg. Diane, I'm going to use a quote of yours to ask you the question, a dual mandate or a dueling mandate, what have we got?

[Bloomberg Host/Anchor]

A dueling mandate. And I think that's a real problem. I think the Fed is this dovish sort of numbers don't add up. I think I agree with that completely. A dovish pause is not what I would expect. I would have expected some people to actually put in rate hikes in this meeting and they didn't. And I think there is a real issue about we saw rate cuts in late 2024 to shore up the labor market. We didn't get any jobs. We saw rate cuts in late 2025 to shore up the labor market. I don't think we're going to get a lot of jobs from those. That brings up the issue is, is the problem in the labor market more structural and systemic, something that rate cuts alone cannot cure and spur the demand for workers on? If that's the case, if, if you cut rates further, you're risking a more persistent bout of inflation or worse, a stagflationary scenario. And I think the devil in the detail is in that stagflation scenario. Also important is that they raise their non inflationary rate. That is reflecting yes, productivity growth and the idea that the economy can grow more robustly without having in with without having inflation. But that also means higher non inflationary rate which is an important marker to put down before Kevin Warsh takes on as Fed chair since he has argued that productivity growth should lower that non inflationary rate. That is not what the Fed is saying and I think that's very important. But I am very concerned about we five years in we've got consumers expecting more inflation than they did in late 2024 and those expectations are going to rise especially with salient prices like prices at the pump going up and there's already a long tail due to the problems in the Middle East. Production idled is not easily brought back online. It's weeks to months and we're rolling supply chains the world over. You create scarcities that go below the destruction in demand that gives you stagflation.

[Bloomberg Market Analyst]

Dan, is this the Fed meeting where forward guidance just died?

[Bloomberg Host/Anchor]

Absolutely. We didn't have a lot of forward guidance to begin with, but absolutely. And I think, you know what really will be interesting in the Chairman's comments is what was the debate in terms of growth? What went into these numbers? How did the debate fall out? I think the devil in the details here is that there is a bit of a stagflationary concern out there and there should be.

[John (Bloomberg Contributor)]

Diane. There's, you know we, we suffer from three zip code scenario here in New York City. You've got a much greater national perspective. I take real issue with a narrow part of America being affected by $5 a gallon gas. How much of America is going to be flat on their back from some of these shocks?

[Bloomberg Host/Anchor]

Well, unfortunately or fortunately we do have fiscal stimulus right now and that fiscal stimulus will help absorb the shock instead of going into other kinds of spending. And that will help households tax refunds are showing up in consumer bank accounts right now. But the combination of fiscal stimulus with remember inflation is accelerating right now. We saw PC accelerate. We saw the pie numbers today, the translation of the PPI and the CPI for PCE for the month of February hotter, especially on core services. That's aside from what's going on in terms of tariff based inflation. That is important right now. And I think that's getting lost in translation but it does show up in the devil in the details of those dots and how the forecasts show up. You could have had one very strong forecast, push up the GDP number within the group. There are people who believe within the administration that we'll get 5 to 6% growth this year. That was their forecast going in. If Steve Moran wrote down a number like that, that would have raised the overall growth figure when in fact the rest of the committee has seen a more stagflationary scenario. I do think it's a dovish pause that is a bit disappointing right now given where we're at. Even though I'm very worried about the labor market, I just don't think the Fed can cure what ails it.

[Bloomberg Reporter/Anchor]

So Diane, what do you think the emphasis, where do you think the emphasis will be in this news conference with Chairman Powell in about five minutes time?

[Bloomberg Host/Anchor]

I think the emphasis is going to be on uncertainty and wait and see and that will just sort of be where they are right now and that they don't know where the next rate move is actually going to be. And I think that's the right way to play it.

[Bloomberg Reporter/Anchor]

Diane swung. Dan, always good to catch up with you. Thanks for being with us. Dan Swank, that breaking down the Fed decision. If you are just joining us, welcome to the program. The news conference about four minutes away with the chairman of the Fed reserve down in Washington D.C. in any other time, at any other moment, we'd be talking about the penultimate meeting of the Federal Reserve chair. But we have not spoken to a single person today who thinks this is the penultimate meeting of the Federal Reserve chair. And most believe Chairman Powell, including the former Fed vice chair, is going to be sticking around for at least a

[Bloomberg Market Analyst]

few more months, partly because we don't know when the confirmation of the next Fed chair is going to be. And that ultimately lies with the man from North Carolina, Thom Tillis. Ultimately though, there is this question about credibility for the Fed continuity. I just wonder if he gets up there and he says what we do doesn't matter right now as long as we don't hike and as long as we don't cut that much, we're not in the driver's seat. I mean ultimately this is their past to say this is an economy that's moved on from us. We are not in control. We are watching it just like you.

[John (Bloomberg Contributor)]

Unspoken, John, will be the idea of the recent election results, including yesterday in Illinois. And I also point out a set of allies saying no to the president on this war and that Mr. Powell representing the institution will stay around more so than the last meeting.

[Bloomberg Reporter/Anchor]

A big piece of this bull case for this economy, for this market has Been tax refunds. We hear that phrase get banded around all the time on this program. Tax refunds, tax refunds. How big are these tax refunds actually going to be? And how are attitudes towards the economy changing? Given the shock of the past few weeks, where would that money actually go?

[Bob Michael (JP Morgan Asset Management)]

Well, we're seeing it now when we look at Chase deposit accounts. We're seeing seeing particularly the bottom couple quintiles of earners, see their deposit balances start to go up a bit, but the uncomfortable truth is they're now paying that out again at the pump. And we can't forget that businesses and households were already paying a higher tax because of tariffs on prices. And now energy prices are going to create yet another tax on their disposable income.

[Bloomberg Reporter/Anchor]

Grandma, the squeeze is real. The energy bills are severe and they were high already and now they're getting higher.

[Bloomberg Market Analyst]

Delta and American were perfect examples of how the economy is doing pretty well and people are still spending. The difference is that the costs are getting that much higher. And so the room that people have and that companies have to do okay is getting narrower and narrower. And the Fed's watching this and they don't have the silver bullet to really make this a better situation.

[John (Bloomberg Contributor)]

I did scientific surveillance research, research today and we got you are to Charles de Gaulle was popping the two of us. You could easily do it for $7,000 and you're enjoying it this morning, just under $11,000.

[Bloomberg Reporter/Anchor]

You're pretending you don't fly business over three.

[John (Bloomberg Contributor)]

That's about.

[Bloomberg Reporter/Anchor]

Is that what you're doing?

[John (Bloomberg Contributor)]

It's not Premier, we're not doing the first class thing. But business class I'm going to suggest is up at least 20% instantly.

[Bloomberg Reporter/Anchor]

Is that Polaris? Is that United business class? Is that the front of the plane?

[Bloomberg Market Analyst]

I actually don't even know. Yes, yes, actually I do. I remember going to something, a demonstration about it, not actually experiencing it.

[CME Group Representative]

For everybody to know.

[Bloomberg Reporter/Anchor]

We live in different worlds.

[John (Bloomberg Contributor)]

For everybody to know out in the world. John and I are in steerage and you're on the Gulf Stream.

[Bloomberg Market Analyst]

That is such a load of Nice one.

[Bloomberg Reporter/Anchor]

Hey, Bob, before you go, just a final word. About a minute away from this news conference. What are you looking for?

[Bob Michael (JP Morgan Asset Management)]

I'm looking for a couple of things. I want to understand how they're thinking about the war and the elevated risk to both sides of their mandate. And then secondly, I want to know how they got to their forecast numbers. I think Diane's right. There needs to be some explanation there. And the explanation could be quite simple. It could be. Well, one member put in a 6% exactly growth rate. Okay, well let us know that Foreign.

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[Bloomberg Reporter/Anchor]

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[CME Group Representative]

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