Instant Reaction: Fed Holds Rates, Three Officials Dissent

Summary

Bloomberg Intelligence Podcast Summary

Episode: Instant Reaction: Fed Holds Rates, Three Officials Dissent
Date: April 29, 2026
Hosts: Tom Keene, Matt Miller, John Farrell
Guests: Kevin Walsh (Federal Reserve Expert), Bob Michele (JP Morgan Asset Management), Stephanie Roth (Wolf Research), Lisa Shalett (Citi Investment Strategist), Kate Moore (Citi)

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Episode Overview

This episode delivers Bloomberg's instant analysis of the latest Federal Reserve interest rate decision. The Fed left its policy rate unchanged, but the story is the remarkable internal division: four dissenting votes (an 8–4 split), the most since 1992. The panel discusses the implications for monetary policy, market reaction, inflation, Fed independence, and the upcoming transition from Chair Powell to likely successor Kevin Walsh. The conversation delves into how war in the Middle East, economic fundamentals, and market optimism intertwine with the Fed's stance, creating a complex moment for investors and policymakers.

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Key Discussion Points & Insights

1. The Fed’s Decision & Historic Dissent

• Fed leaves rates unchanged.
• Four dissents: Logan, Hammock, Kashkari opposed the “easing bias”; Myron wanted a rate cut (01:49).
• The last time there were four dissents: October 1992.
• Statement still contains a line about “considering the extent and timing of additional adjustments,” signaling openness but not commitment to easing (01:49).

"Four dissents would ordinarily be a sign of discontent with the chair. Since this is likely Powell's last meeting, it may not be anything more than expressions of concern about the toll of the war."
— Kevin Walsh (01:49)

• The Iran war and its inflationary ripple feature prominently in the statement, with energy prices being a concern (01:49).
• The committee is split: some want a more balanced policy, and others cautious about an easing signal.

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2. Market Reaction & Interpretation

• Market moves are muted but telling:
  • Equities slightly lower; S&P 500 down about 0.3%.
  • Yields elevated, especially on the short end; 2-year up 9–10 basis points (~3.93%) (04:10, 14:46).
  • Brent crude high and climbing (above $118, up 6–7%) (03:27, 20:24).
  • USD strengthens vs. euro, signaling market’s tilt toward the Fed’s caution (06:57).

"This isn't the kind of decision that moves around crude. Crude is still higher... This dissent alone has achieved the same thing just by introducing some two-way risk given the level of dissent."
— Tom Keene (03:27)

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3. Committee Dynamics, Policy Biases & Fed Independence

• Debate over "easing bias" vs. symmetrical approach:
  • Some members want to drop the easing bias and signal possible hikes if required.
  • The dissent, in effect, shifts the perceived stance to a more balanced, “symmetrical” posture (07:56).
  • Groupthink criticized; some say this dissent is healthy after years of consensus (06:05, 28:31).
  • Market is now pricing out any rate cuts for 2026 (23:22).

"Clearly it's in the dissents... they're telling us they're increasingly concerned about the level of prices, the level of oil, and the potential pass through to the system."
— Bob Michele (07:56)

• Powell’s departure and legacy:
  • Panel suggests the split allows Powell to leave with the Fed’s independence intact.
  • Handing a “debate-rich” environment to Kevin Walsh is seen as both a challenge and an opportunity (08:33, 28:31).

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4. Inflation, Stimulus, and Economic Outlook

• Inflation called ‘elevated’—no longer ‘somewhat elevated’ (07:56, 09:26).
• Ongoing stimulus from government capex and healthy consumer spending continue to drive the economy (10:49, 21:20).
• Markets react to potential for sustained higher prices; risk is for more volatility if inflation persists (15:04, 24:33).
• Consumer and tech strength, but uneven fundamentals:
  • Panel highlights strong earnings, dispersion across sectors, and the resilience of the K-shaped consumer (18:21).
  • Stock market is up sharply year-over-year, but gains are not equally distributed (17:53, 18:21).
  • Risks and opportunities for active management going forward.

"There's a huge amount of dispersion below the surface in the equity market fundamentals and in macro fundamentals... what's really driving the market higher has been extremely strong earnings and expected free cash flow from the large parts of the market cap."
— Lisa Shalett (18:21)

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5. Geopolitical Overhang: Middle East & Policy Uncertainty

• War in the Middle East creates uncertainty, buoying energy prices and inflation expectations (01:49, 20:24).
• Headlines about uranium, Russia, and Iran are discussed, with the panel noting the markets’ struggle to process geopolitical risk (19:59).

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6. Forward Guidance and Powell’s Successor

• Expect more debate and less unity under Walsh; next meeting anticipated to be contentious (27:03).
• Bar for Fed rate hikes has been slightly lowered, but no one expects cuts or hikes this year unless the economy softens notably (14:12, 25:03).

"The bar to hikes just got lowered a notch. What does it mean for growth? It means that unless the economy can absorb higher prices from energy and higher cost of funding from where rates are, then you're going to see a real slowdown."
— Bob Michele (25:03)

• Powell expected to depart; Walsh likely to take over, described as a “hard hawk” (29:14).

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7. Notable Quotes & Memorable Moments

• On historic dissent:

  "The last time there were four dissents October 6th of 1992... It's very, very unusual."
  — Kevin Walsh (01:49, 04:10)

• On market perception:

  "You're seeing a strengthening in the dollar versus the euro. And that I think gives you a sense maybe at least of the Fed's question and the fact that this truly is a committee."
  — Matt Miller (06:57)

• On Powell’s legacy:

  "I think he was dealt some shockingly difficult circumstances... and did his best to navigate through them. I think he's done a really good job."
  — Bob Michele (30:23)

• On the current moment:

  "This has been the exercise for us now for the best part of two months. Energy shock, rate shock. What does it mean for growth? That's the question I think is still an open ended question really."
  — Tom Keene (24:43)

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Important Timestamps

• Fed statement, dissents announced: 01:49
• Market reaction unpacked: 03:27–04:10
• Debate on easing bias and independence: 06:05–07:56
• Panel reflects on stimulus, capex, and economic fundamentals: 10:49–11:55, 18:21
• Discussion on Middle East, energy markets: 20:24
• Preview of Fed leadership transition: 28:31–29:52
• Panel closes with Powell's legacy: 30:09–30:54

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Summary Table: Key Takeaways

| Theme | Key Takeaway | |---------------------------|-------------------------------------------------------------------------------------| | Fed Decision | Rate hold, but unprecedented four-way dissent, signaling deep internal division. | | Inflation & War | Elevated inflation, persistent energy price shocks, and war-induced global risk. | | Market Reaction | Modest equity decline, higher yields, strong USD; pricing out Fed cuts in 2026. | | Committee Dynamics | Dissent seen as healthy, breaking years of consensus, raising new policy questions. | | Powell-Walsh Transition | Powell likely to depart; Walsh to face a more openly divided committee. | | Economic Outlook | Consumer, tech, and capex remain strong but undercurrents of dispersion and risk. | | Fed Independence | Institutional independence preserved, with no evidence of political "capture." |

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Conclusion

This episode offers both a granular breakdown and a big-picture lens on an historic day for the Fed. The panel sees the dissents not as dysfunction but rather as overdue debate and an affirmation of the Fed’s independence, all while projecting a challenging road ahead for both the new Chair and investors. Policy signals are less explicit than in prior meetings, and the panel consensus is for volatility and complexity—anchored by inflation, global risk, and divided leadership—through the remainder of 2026.

Transcript

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[Tom Keene (Bloomberg Host)]

Mike McKee as your decision no change

[Kevin Walsh (Federal Reserve Expert)]

in rates, but we have four four dissents Lori Logan, Beth Hammock, Neel Kashkari agreed rates should on hold, but they did not support including an easing bias in the statement. At this time, Stephen Myron wanted a quarter point cut the last time there were four dissents October 6th of 1992. As for that easing bias, the statement still contains the phrase in considering the extent and timing of additional adjustments to the target range, a line meant to suggest that the easing cycle has not necessarily ended. The Iran war figures prominently in the economic overview. Inflation is elevated, in part reflecting the recent increase in global energy prices, the statement says. Developments in the Middle east are contributing to a high level of uncertainty about the economic outlook. The committee remains attentive to the risks on both sides of its dual mandate, it says, even though recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low on average, the statement says, and the unemployment rate has been little changed in recent months. The dissents open up a whole new Line of questioning for Chair Powell. Four dissents would ordinarily be a sign of discontent with the chair. Since this is likely Powell's last meeting as the chair, it may not be anything more than expressions of concern about the toll of the war. At each meeting this year, the number of Open Market Committee members who have worried they might have to raise rates has increased. We shall see when we get a chance to talk to the chairman.

[Tom Keene (Bloomberg Host)]

Mike McKay, stay close. I just want to run through the price action. I've got a big question to come back at you with in just a moment. Equities have stayed slightly lower. No drama here. Down by 0.2% into this decision. Yields were already elevated, particularly at the front end of the curve. They stay somewhat elevated, up 7 basis points at 390. This isn't the kind of decision that moves around crude. Crude is still higher by 67%. 118 on Brent. Mike McKay, I just wonder, coming into this decision, we were talking about the possibility, the potential, this Federal Reserve introduced some symmetrical reaction function. But looking at that kind of dissent, I wonder if the dissent alone has achieved the same thing just by introducing some two way risk given the level of dissent you can see in this afternoon's decision.

[Kevin Walsh (Federal Reserve Expert)]

That's a very good point because of course, if Powell leaves the Fed, that's one less vote that we know would be on the easing side. At this point we're going to have to wait for the minutes, unless the Chairman wants to give us a number, which I doubt he will, of people who think that they should be at least suggesting the idea of raising rates in the future. But it's obviously grown since the last time and feelings have grown more certain, at least among those who think that two way warning should be included in the statement. It's very, very unusual. Obviously it has been almost 30 years since we've seen anything like this and it is definitely a sign that the Fed is split over this question. And one would think that if these people were willing to dissent because they wanted a two way warning, because they did not want an easing bias in the statement, that they probably would have voted for a rate increase had that been on the table.

[Tom Keene (Bloomberg Host)]

Mike, appreciate your time. You get in the news conference, looking forward to your line of questioning. A little bit later. That news conference, 27 minutes away, we have an 8 to 4 vote at the Federal Reserve. That's some level of dissent.

[Matt Miller (Bloomberg Analyst)]

Yeah. And didn't Mike just say that that was the first time we've seen that since October, 6, 1992. This is unusual to me, this really highlights the committee aspect of this and the that Fed Chair Jay Powell for all of the job voting from the president, sits on the more dovish end of this. And I think that that's very notable. So how does he message this given that A, he probably doesn't matter as much, but B, how does he signal that this isn't necessarily a sign of dysfunction ahead of a new Fed chair coming in, but rather how difficult this moment really is?

[John Farrell (UK Financial Expert)]

The expert on this is John Farrell is the gentleman from the United Kingdom where dissent is far more evident. There were two moments of four dissents in the 8992 period in the distinction here, John, is is those dissents were to ease to let up as Greenspan was stricter and this is radically and historically different.

[Tom Keene (Bloomberg Host)]

So I remember a level of dissent, a degree of dissent back at the bank of England coming out of this. What to do right wanted more qe and I remember the governor being voted down on countless occasions on this occasion. I'm looking at this level of dissent and I just wonder if the chairman would welcome it. I think it's probably a good thing right now that there is no group thinking that we're in a situation at the moment that deserves some kind of debate about where policy should be and where is it going and what kind of risks we face in the economy right now. I actually also think that that's the kind of committee that Kevin was should want to inherit group think has been a problem at this institution for the last five years. I wouldn't look at that as a committee that's voted down the chairman in quite the same way that the committee voted down at the bank of England a number of years ago. This feels somewhat different. And if you want to move to some kind of symmetrical reaction function at the Federal Reserve based on that vote, you need it in the statement. I think the dissent already speaks to

[Matt Miller (Bloomberg Analyst)]

it, which I think is why I'm noting the increase in the dollar more than anything in bond yields. You're seeing a strengthening in the dollar versus the euro. And that I think gives you a sense maybe at least of the Fed's question and the fact that this truly is a committee.

[John Farrell (UK Financial Expert)]

But to get out front of the pundits, is this the committee in dissent that President Trump wants?

[Tom Keene (Bloomberg Host)]

That's a different question. This president clearly wants lower interest rates, TK and the kind of thing that we've just seen voted for right now is not for lower interest rates. You've got a committee that's worried about the prospect of a market thinking that always get interest rate cuts, that they don't have to worry about inflation first and foremost. The first rule for any central banker, any real central banker, anchor inflation expectations. This is part of that exercise.

[Lisa Shalett (Citi Investment Strategist)]

Yeah.

[Matt Miller (Bloomberg Analyst)]

As Neil Daddy put it, he messaged, it's clear that Wash has his work cut out for him. Good luck convincing some of these folks that it's time to cut rates and potentially overhaul the whole system.

[Tom Keene (Bloomberg Host)]

Different question entirely, Bob. Michael with us around the table from JP Morgan Asset Management. Bob, you ready? Reflections on this decision?

[Bob Michele (JP Morgan Asset Management)]

Yeah. Clearly it's in the dissents. Clearly they're moving more towards a symmetrical policy. It's confirmed in the first paragraph where they characterize inflation previously as remained somewhat elevated. They remove the somewhat and it's just elevated. So they're telling us they are increasingly concerned about the level of prices, the level of oil and the potential pass through to the system. I think you're right. I think this is less a message about Jay Powell and more a message to the incoming Fed chair that, hey, we could be dissenting. Get prepared for that. I guess he may welcome that.

[Tom Keene (Bloomberg Host)]

TK Asked the question about the President, what the President would like to. This is another exercise is quite important. Everyone's been worried about the future of the Federal Reserve Central bank independence. Will the chairman stay on? That degree of dissent makes the life of, I think, Chairman Powell easy to walk away from this institution. There's no capture of this institution. This institution is still independent. Inflation expectations are still anchored. And that is not dependent on Fed Chair Jay Powell staying on as a governor on this board for the next two years.

[Matt Miller (Bloomberg Analyst)]

I see what you did there. So maybe they agreed. Four people dissent, although one of them is perhaps in a different direction.

[Tom Keene (Bloomberg Host)]

I'm not suggesting this was choreographed or

[Matt Miller (Bloomberg Analyst)]

to Jerome Powell coming out and saying, I'm gone. Good luck for you. Go ahead, Kevin.

[Tom Keene (Bloomberg Host)]

I'm not suggesting there was any choreography here, just that there are some, some benefits to that level of dissent. Stephanie Roth of Wolf Research has been going through the statement, reacting to all of this and looking at the price action. Stephanie, you ready take place?

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Yeah.

[Stephanie Roth (Wolf Research Analyst)]

I mean, I think when it tells us that the committee is certainly divided and they're not going to be a committee that's willing to just cut rates because warts want them to do so. And it's also interesting because in the, in the hearing last week, Wash noted that he wants debate in the room, but he wants a more unified statement. And that's certainly not what we got today. So the Odds of cuts later this year certainly should go down on the back of what we're seeing today. It's just a committee that certainly doesn't even want to have an easing bias, let alone easing in the near term.

[Matt Miller (Bloomberg Analyst)]

Stephanie, does it surprise you that more members of the Federal Reserve didn't get on board with moving to a more symmetrical type of approach

[Stephanie Roth (Wolf Research Analyst)]

a little bit? I mean it certainly sounds like it was a fairly divided group and perhaps there was. There were others that were even more on the fence that didn't officially dissent. There was. This is a big question for the meeting today. There was actually two big questions. One was were they going to maintain the easing bias in the statement? And many thought that they would actually remove it. So that was, you know, perhaps a bit of a surprise to some extent. And then of course the other question is how is Powell going to answer the questions about what his plans are once Bush is actually confirmed?

[John Farrell (UK Financial Expert)]

Bob Michael, what is our overall stimulus right now? I know we had timing for tax season where everybody got a check in the mail and all that, but what's is all of this discussion about an historic post Covid stimulus that is starting to make the wheels come off the wagon?

[Bob Michele (JP Morgan Asset Management)]

Yeah. Well, when I was listening to Matt and Subhadra earlier going into this, I was thinking the Fed would be nuts not to move to a symmetrical posture because we know we have higher price. And what I heard from them is the economy is doing just fine. They're right. You've got the stimulus from the one big beautiful bill that's not finished. We know there's a tremendous amount of capex. When I talk to our clients, they're just getting started on the journey. There's a lot more spending to come. And we also know there's a lot of money sloshing around the system. You look at any measure of money, M2 deposits, you know, money market funds, they're still going vertical.

[John Farrell (UK Financial Expert)]

Can I do an audible?

[Tom Keene (Bloomberg Host)]

Yeah, you're about to do an article

[John Farrell (UK Financial Expert)]

here to get to 4pm and 4:15pm you're the bond pro. What's the so what of $30 billion from one of these mag sevens? They're going to put the money out. They're going to call Bob Michael, it's all going to go to J.P. morgan. And when they do that, what does it mean for the dynamics of their balance sheet? What does it mean for the dynamics of the American fixed income market?

[Bob Michele (JP Morgan Asset Management)]

Well, the guys reporting today, if they were to issue 30 billion, you'd hardly notice it. That's how Big they are. That's how little leverage they've carried. And in our conversations with a lot of big borrowers, we want to know, do they see the demand? These guys have the demand. They'll show you the demand. And they can't monetize it until they put in place the capacity. So there is a big bill to go and I think these guys are right to borrow and get that bill going.

[Tom Keene (Bloomberg Host)]

Can I sell you some twos at 393 up 10 basis points off the back of this?

[Bob Michele (JP Morgan Asset Management)]

You know, you asked me what if the Fed did this. And we never really thought they were going to do this. It's a very artistic way to do it. No, I wouldn't touch it to that

[Tom Keene (Bloomberg Host)]

point, to that framing. That's really important. Haven't they achieved the same thing? You don't need it in the statement. Haven't the dissents achieved the same thing?

[Bob Michele (JP Morgan Asset Management)]

Well, it's kind of in the statement. It's the last line of the statement. It's. And you talked about was this choreographed or not? I absolutely think it was. Every single word in the statement is choreographed. They sit there and they debate it. I think this very nicely opens the door for Jay to peacefully deposit, depart from the Fed.

[Matt Miller (Bloomberg Analyst)]

So this is their, their sort of offering to him, their farewell gift to him as here you go, and that ultimately we're going to give Kevin Wash a hard time.

[Bob Michele (JP Morgan Asset Management)]

I don't. Well, okay, I didn't say that. I think what they're indicating is like, we recognize inflation is a problem. We're not going to sit there and keep advocating for more monetary ease. We're going to be more balanced. Don't worry about the independence of the Fed. J. Go off into retirement.

[Tom Keene (Bloomberg Host)]

You said you wouldn't buy it. Why wouldn't you buy it?

[Bob Michele (JP Morgan Asset Management)]

Because I think the Fed has flipped the tables on the markets right now.

[Tom Keene (Bloomberg Host)]

And what does that mean?

[Bob Michele (JP Morgan Asset Management)]

I think they've now shifted to something. It's not outright hawkish, but it's more hawkish than where they've been. And then you step back and go, there is still stimulus out there and we're in the middle of the Middle east conflict. Those things have yet to be settled. Let's just get out of the way of this and see where the market.

[Tom Keene (Bloomberg Host)]

So let's build on that. Let's extend the conversation a little bit more. Tens are at 441 right now. What kind of numbers are you thinking about?

[Bob Michele (JP Morgan Asset Management)]

Well, we, we're breaking through to new highs. I don't think you get to 5%. But do you get to something like 4 and 5, 8? Probably. Then I'd get interested. Then you're starting to. You're putting a percent on the fed funds rate. And I think it's one thing to switch to a symmetrical bias. It's another thing to actually come in and start hiking rates. And I did say I don't expect any changes in rates this year. That's cuts or hikes.

[John Farrell (UK Financial Expert)]

John. 5, 8 is how we used to quote paper. 30 seconds in the next hour.

[Tom Keene (Bloomberg Host)]

I'm aware tens right now at 441 with this move at the front end of the curve, as I mentioned, up 10 basis points. 394, let's call it 393. Equities start to break down just a little bit. Don't make too much of this. We're down by 0.3% on the S&P 500. You will notice Bramma, the underperformance in a Russell down by 1% plus.

[Matt Miller (Bloomberg Analyst)]

These are the companies that are most vulnerable to rates going higher. I really am struck by what Bob's talking about because this is a market shift and really it does highlight how much this war has changed the dynamic fundamentally for people who believed that rates would just gradually go lower. And if they don't, how much does that change Some of the expectations about the equal weight market which we've seen being baked in and frankly about the broadening out trade and adding to to that, how much steam can there be behind some of the tech trades that are somewhat dependent on some of the consumer aspects? I'm thinking for example, Metta Advertising or Amazon, your cleaning supplies, your children's costumes, whatever.

[Tom Keene (Bloomberg Host)]

Children's costumes.

[Matt Miller (Bloomberg Analyst)]

I had to buy a lot of

[Tom Keene (Bloomberg Host)]

those ahead of Halloween.

[Matt Miller (Bloomberg Analyst)]

She's going to the discount and also senior parties.

[Tom Keene (Bloomberg Host)]

Okay. All right, important stuff. Hey, Stephanie, good to hear from you this afternoon. Thanks for your time. Stephanie Roth of Wolf Research to talk about the equity market. Kate Moore of Citi joins us now for more to start to move higher. Getting a squeeze over in crude Brent out to close to 120equities. Somewhat softer, but not really looking at this as a dramatic event. How would you frame things?

[Lisa Shalett (Citi Investment Strategist)]

Yeah, I don't think today's event with the Fed is the big event for equities right now. This is also like a massive lollapalooza when it comes to earnings this week, which you know quite well. And I think the equity market attention is much more there. And so far everything that we got yesterday, expectations for after the close today and tomor tomorrow are for actually quite strong numbers reiterating not just the tech story but also actually a very solid US consumer. So I think that is really where kind of equity risk is focused right now, less so on this. What is what I would argue is also a very interesting set of dissents in the fomcate.

[Matt Miller (Bloomberg Analyst)]

That said, is there a level or is there some sort of rate of change that gets you concerned as an equity investor about what's going on in the bond market share should this Fed suddenly move to put rate hikes squarely on the table?

[Lisa Shalett (Citi Investment Strategist)]

It seems unlikely in our view that the Fed is going to put rate hikes on the table. Lisa I would say that is not in our kind of any of our distribution for the back half of this year stability even as inflation is warm and even as the Fed is going to wait and see and more dissent happens across the fomc. But we of course will watch what happens because the relationship between equities and bonds has broken down a number of times over the last couple of years. The correlations are not exact what they had been historically and bonds have not been the safe haven asset that some people had become used to in their early days of asset allocation. So across our multiasset portfolios we've been more tactical. We've continued to be short duration. I heard Bob a moment ago say he wouldn't be buying two years at this point. I tend to agree with that and we tend to like to take most of our risk on the equity side and think about other diversifiers outside of the fixed income space.

[John Farrell (UK Financial Expert)]

I look at where we are in the market and John, I brought this up today because frankly I have misplaced this. The Dow up 22 20% one year trailing. Aspects up 28% one year trailing. All in NASDAQ up 41% one year trailing. Kate is completely separated from the nation's angst. What do you see as an indication that that keeps going and how can the Fed and assist with that?

[Lisa Shalett (Citi Investment Strategist)]

Yeah, one of the things we've been focusing on and something our investment committee was talking about earlier today is the massive dispersion in terms of sectoral earnings not just this quarter but through the balance of 2026. And this is also kind of what we're seeing in the overall economy. We've gotten tired, I think, of talking about the K shaped consumer because even the bottom part of the case seems to be holding up relatively well with decent real wages. But there is a huge amount of dispersion below the surface in the equity market fundamentals and in macro fundamentals. And that can make people uncomfortable. But unfortunately, what's really driving the market higher has been extremely strong earnings and expected free cash flow from the large parts of the market cap. And we continue to stay kind of anchored to the equity risk and loving us large caps, even as we recognize it is going to be a very uneven experience and perhaps a better opportunity for some more active management as we go through this year.

[Tom Keene (Bloomberg Host)]

Unfortunately, part of the dance right now monitoring equity markets, bond markets and commodity markets, more importantly is following these headlines regarding the Middle East. And we've got more from the president this time. Some comments on the Russian leader, Vladimir Putin. They've had a conversation. The Russian leader said he'd like to help with the Iranian enrichment. There has been some suspicion for a while that maybe that enriched uranium would be moved to a third party and perhaps that would be Russia. And some headlines I have to say, looking at this, that alludes to that, Lisa, at least this afternoon. Now, as we said on countless occasions over the last two months, one headline that speaks to one story will last about five minutes and things can quickly change. All I can do with you is share with you the current headlines and that the headlines that dropped just moments ago.

[Matt Miller (Bloomberg Analyst)]

Yeah. And they include the idea of potentially having a cease fire with Ukraine and Russia and then uranium moving from Iran over to Russia. I mean, a lot of things that are a lot of questions what you do with this. I think people have shrugged it off and moved on because they don't know what to do with it because it's just a headline. So they look at things like, oh, the placating idea of rates going down. You start removing some of these pillars. That's when suddenly some of the angst starts to percolate up a little bit more.

[Tom Keene (Bloomberg Host)]

Initially, I think this market took comfort from the intent they commit to de escalation, the commitment to de escalation and not returning to hostilities. But the fact of the matter is that over this entire period, crude's not been moving. Energy has not been flowing sufficiently. And every day over the last eight sessions, crude keeps grinding higher. What's intriguing about this, every time we get a bit of opium, some headlines and reports here, there and everywhere, crude has really stopped responding to it in the same way. Brent is still elevated here, Tk118 and up on the session by 6%.

[John Farrell (UK Financial Expert)]

I really agree with that. You see the angst in Southeast Asia and other selected geographies, and it's way more tangible than anything we have. The sum of this is real GDP and the inflation piled on top of it. Kate Moore, if you're still with us, I'm absolutely fascinated how you feel nominal GDP will affect our listeners and viewers. It's still going to be buoyant, I guess, but it's a different nominal gdp, isn't it?

[Lisa Shalett (Citi Investment Strategist)]

Yeah, it is. And look, I think some of this, Tom, is getting reflected in the consumer confidence data and the surveys that have come out where consumers are talking about their discomfort. It's not just high gasoline prices. Maybe it's they don't like the direction of the country. They don't feel as confident as they have in the past. Yet they the thing that I keep anchoring on is actually what's happening in their behavior. And we've been looking at all this high frequency consumer data data, whether it's around dining outside the home or traveling and spending. And we got some good reports from a couple of early consumer companies this quarter and all of it is showing that despite all these negative surveys, people feeling uncomfortable with the path of the economy that they're continuing to operate more by you. So Tom, this is a little bit of a friction I think we have, which is maybe we don't get a massive acceleration that benefits all parts of the economy. But as, as both the consumer and the tech space continue to fire, you know, we feel like you can't be on the sidelines for risk assets.

[Tom Keene (Bloomberg Host)]

Okay, it's good to see you. It's great to catch up. As always, Kate, more of Citi breaking down this equity market and reflecting on this decision from the Federal Reserve about 20 minutes ago. If you just tune again, welcome to the program. At about 10 minutes time we'll hear from the chairman of the Federal Reserve, Chairman Jay Powell in what could be should be his final meeting at the Federal Reserve just moments ago. 20 minutes ago we had a decision from the Federal Reserve to leave interest rates unchanged. What stood out was the degree of dissent 8 to 4, 8 4. And that 84 vote marking the first time since October 1992 that four officials have dissented against an FOMC decision. So something we haven't seen a number of decades. All of this in anticipation of earnings after the closing bell from some of the biggest companies on the planet, including Microsoft, Amazon, Mehta, Alphabet, all of that still to come which has supported the Nasdaq. The NASDAQ is still positive by a quarter of 1%. But if you want to look at the small caps right now, the Russell down by 1%. Allow me to give you the why this move at the front end of the yield curve on a 2 year up 9 basis points to 393 off the back of this move in the commodity market, Lisa, Brent crude 118 and up 6%.

[Matt Miller (Bloomberg Analyst)]

Fed funds futures have now priced out completely any rate cuts this year. We are now pricing out interest rate cuts, cuts by the Federal Reserve for 2026. Whether we shift to people starting to price in rate hikes like we did a couple of weeks ago, that remains to be seen. It also is unclear exactly how much the press conference can really do to that. It will be political intrigue and drama with Jerome Powell's future. Nonetheless, this market is moving, it's responding. And the idea that the strength in the US economy can continue is the reason why this is viewed as more inflationary right now than maybe disinflation or outright deflationary later on the cross asset

[Tom Keene (Bloomberg Host)]

moves are particularly spectacular. We've come back to where we were about a month ago. About a month ago when the equity market was about 13 percentage points south of where it is right now in the S&P 500. Yields are back through the highs on some maturities. I'm looking more at the long end of the curve. The long bond on 30s and crude has made new highs as well. And what's more important I think away from the front month of the futures curve is what's happening on longer dated prices as well. You've talked about this throughout the week on Bloomberg Surveillance Brammer, where December is trailing, where the latter months are the back end of the futures curve that's making new highs as well. This is a market that's pricing high for longer, not just for interest rates but for energy as well.

[Matt Miller (Bloomberg Analyst)]

Yeah, and that's why we always have been talking about boiling the frog, because it's getting hotter and hotter and hotter. And at what point do capital markets start to slow down as a result of benchmark rates going higher and inflationary pressures being there?

[Tom Keene (Bloomberg Host)]

This has been the exercise for us now for the best part of two months. Energy shock, rate shock. What does it mean for growth? But that's the question I think is still an open ended question really. We've seen it in commodities, we've seen it in energy. And I'm asking this question with America in mind before we get to the international backdrop where it's much harder. What does it mean for US growth, if anything at all?

[Bob Michele (JP Morgan Asset Management)]

Well, I think we have to acknowledge that the three dissents weren't in favor of hikes. They were in favor of a More symmetrical policy which leaves three quarters of the Fed still biased towards ease. So let's accept that. That said, the bar to hikes just got lowered a notch. What does it mean for growth? It means that unless the economy can absorb higher prices from energy and higher cost of funding from where rates are, then you're going to see a real slowdown.

[Matt Miller (Bloomberg Analyst)]

At what point do higher yields start to crimp the capital markets activity? I'm talking about all the bond sales. I'm talking about beyond that mergers and acquis that have been absolutely flying recently.

[Bob Michele (JP Morgan Asset Management)]

I don't think we're there yet. I think really you'd have to get the 10 year above 5% to create any kind of damage. And let's also remember that most of corporate America finances itself with floating rate. We should know that from private credit and direct lending now. So unless the Fed is going to start hiking rates which we're not calling for this year, then the cost of funding for most of corporate America is going to remain roughly the same.

[John Farrell (UK Financial Expert)]

Is the Fed doing policy for the haves? It's just as simple as that. The dichotomy here between the haves of the have nots. We witness the tension of Ford sense. How does the new chairman address the have nots, the people flat on their back?

[Bob Michele (JP Morgan Asset Management)]

I don't think it's a question of have or have nots. And I think you go back to the 2022 to experience. I think they're scarred from that they were late to react. Inflation was painful and it hit all levels of the economy, both the haves and the have nots. And I think they are genuinely as a body trying to get their arms around that. And there are a group of people who were courageous enough to step forward and do something different than what's been done in the past.

[John Farrell (UK Financial Expert)]

What will the next meeting look like for you? You if you guess right now what the next meeting will look like, I

[Bob Michele (JP Morgan Asset Management)]

think there will be a lot more to a debate on whether they should be hiking rates.

[John Farrell (UK Financial Expert)]

Right.

[Bob Michele (JP Morgan Asset Management)]

Will they have to cut rates down the road or though will they.

[John Farrell (UK Financial Expert)]

Larry Meyer wrote that monograph years ago about Alan Greenspan and there were some real. John, there was some real back and forth going on way back. Is that what we're up for now is a Lawrence Meyer, Alan Greenspan Fed with Chairman Walsh?

[Bob Michele (JP Morgan Asset Management)]

It probably. It doesn't feel like the Middle east is in the rearview mirror or will be six weeks from now.

[Tom Keene (Bloomberg Host)]

I've got a personnel question when the next mate should be Chairman Walsh. Is Powell there or Not.

[Bob Michele (JP Morgan Asset Management)]

I don't think he will be.

[Tom Keene (Bloomberg Host)]

You think he steps away?

[Bob Michele (JP Morgan Asset Management)]

I think the Fed is in good hands with Wash. I think you've had a group of people say, don't worry, we're still independent. And I think you've just got to pass the reins on and let somebody else try things that may be a little bit more innovative, a little bit different from what you've done.

[Matt Miller (Bloomberg Analyst)]

Is there a market liability if he doesn't do that? Is there a market reaction?

[Bob Michele (JP Morgan Asset Management)]

I don't think so. I think there will be a lot of concern that it's too much of a political decision and I think the door is wide open to exit Grace usefully.

[John Farrell (UK Financial Expert)]

John. 17th. I guess I got to cancel my plans. I was supposed to be in Cheltenham, but Instead I'll be June 17th. I'll be here.

[Tom Keene (Bloomberg Host)]

Two things. One, Cheltenham and. And two, for the record, I won't be here. I will be away. I won't be a Cheltenham, though. I'll be missing that one. Does this make the life of Kevin Walsh just that little bit easier? Entering the Federal Reserve? This might sound somewhat counterintuitive, but entering the Federal Reserve under a little bit of a dark cloud where some people are concerned, particularly the Fed watchers, about the future of this institution and central bank independence. I think not only if these dissenters done Chairman Powell a favor, I do think they've done Kevin Walsh a favor as well. Yes, he doesn't want this playing out in public, but one of the criticisms of this institution, particularly under Chairman Powell, is the group think. I think it's refreshing to see the dissent. We've been asking for it for ages. You can't complain about it once you've got it.

[Matt Miller (Bloomberg Analyst)]

Not only that, but arguably the inner Kevin Wash is a hard hawk, is somebody who wants to say inflation is a choice. He didn't mention employment once. We didn't talk about the labor market in those hearings. He wasn't talking about the average American flat on their back. He talked about inflation and how important it was to the credibility of the Fed to get it under control. So what's the risk that he comes in is actually incredibly hawkish and joins those three other dissenters in case of a more symmetric risk. What does the market do with that?

[Tom Keene (Bloomberg Host)]

This is the secret source of central bank independence. He wants to make it easier to cut rates markets convince the market you're willing to hike. And we have gone some way through that exercise this afternoon with this degree of dissent.

[Matt Miller (Bloomberg Analyst)]

What's interesting is what Bob said, is that levels here are not going to necessarily hijack any of the capital markets activity. It's not going to slow the M and A, it's not going to slow the huge tech trade that's really been the ballast to this market. So what exactly is it going to do to actually slow the economy and actually achieve what the Fed is looking to do?

[Tom Keene (Bloomberg Host)]

But Michael, in just about 90 seconds time, the chairman of the Federal Reserve, Jay Powell, walks into that room and steps up behind that podium for probably likely the final time. Just a reflection on this man and his tenure at this institution.

[Bob Michele (JP Morgan Asset Management)]

I think he was dealt some shockingly difficult circumstances and I think he did his best to navigate through them. We did get through Covid, we got through the regional banking crisis, we've gotten through different rounds of tariffs and we're looking at an economy that's actually doing pretty well considering. I think he's done a really good job. And Wash isn't an outsider, he's an insider. He was at the Fed before. He'll do a good job.

[Tom Keene (Bloomberg Host)]

But Michael, appreciate your time, sir. Thank you, Bob. Michael there of JP Morgan,

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