Instant Reaction: The Fed Decides

Summary

Podcast Summary: Bloomberg Intelligence — "Instant Reaction: The Fed Decides"

Date: July 29, 2026
Hosts: Paul Sweeney & Scarlet Fu (with key analysts and guests: Jonathan Ferro, Michael McKee, Lisa Abramowicz, John Authers, Bob Michele, Jim Bianco, Diane Swonk, Victoria Fernandez)

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Episode Overview

This episode delivers immediate, in-depth analysis of the Federal Reserve’s latest policy announcement. The main focus is on the Fed's decision to leave rates unchanged (9–3 vote), the emergence of multiple dissenters, market reactions, and the economic and policy backdrop driving these events. The panel discusses implications for future monetary policy, market dynamics, inflation risks, and how the central bank is navigating an era of persistent price pressures.

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Key Discussion Points & Insights

1. The Fed Decision: No Change, but Notable Dissent

• Fed leaves rates unchanged:
  • 9 in favor, 3 dissents (Logan, Hammack, Kashkari) [01:49]
• Statement essentially unchanged from June; no hints on future moves or policy direction [01:49; 07:17]
• Dissenters all previously vocal on inflation risks; their opposition was anticipated but adds weight to the hawkish camp
• Jonathan Ferro: "You could point to the dissenters, but they've all said something about inflation and the fact that we might have to raise interest rates in the future." [01:49]
• No "significant change" in labor market or unemployment; inflation remains above target, described as persistent due to supply shocks

2. Market Reaction & Economic Backdrop

• Markets largely expected the outcome, with some relief as a hike did not occur;
  • S&P 500 off lows but still slightly negative, tech trade resilient, NASDAQ down slightly [02:59]
  • Yields on the front end of the curve dip; relief rally in 2-year treasuries [02:59]
• Surprise was in the number of dissenters rather than the decision itself
• Lisa Abramowicz: "There truly was about a 30% chance of a Fed rate hike at this meeting, and that chance was not necessarily fulfilled. It is notable though that there were three dissents and that I think is the news from this particular statement..." [03:48]
• Apple reaches record valuation ($5T) after announcement—interpreted as market voting on lack of near-term policy tightening and restrained capex [04:35]

3. Significance and Implications of the Three Dissents

• Seen as a turning point in Fed’s policymaking—a potential migration toward tightening bias
• Bob Michele (JP Morgan Asset Mgmt): "I think the three dissents are more important than that last statement. I think that it shows that they're starting to migrate towards tightening policy." [07:58]
• Vote tallying becomes crucial: market participants watching closely for how many join the hawkish camp ahead of September [15:47]
• Jim Bianco: "They want to be independent and they've decided that independence is 12 independent voters… we're going to get 1/12 of the opinion of the Fed." [08:56]
• Dissents came from regional presidents, not governors—seen as less disruptive for leadership, but suggest internal debate continuing [09:47]

4. The Era of Higher Rates and ‘Normal’ Monetary Policy

• Debate about whether the U.S. is returning to a pre-GFC (Global Financial Crisis) environment of higher, more "normal" rates (3-5%)
• Bob Michele: “There's demand for capital, there's a productive use of it…you're not going back to zero to 2% rates.” [10:47]
• Lisa Abramowicz: "Is it a policy error if Fed chair Kevin Warsh allows the move to stick that we're seeing right now in markets…to keep the message that they are prepared to [hike rates]?" [12:48]

5. The Challenge for Fed Communication

• Fed Chair Kevin Warsh criticized for opacity, especially lack of ‘reaction function’ clarity and forward guidance
• Jonathan Ferro: "[Warsh] would rather have you speculating, markets speculating than give you a hint." [06:31]
• Panelists expect the coming weeks to be a "vote-tallying" exercise—bingo card mentality [15:47]
• Emphasis on the market filling information vacuums—Fed members’ speeches and statements under intense scrutiny

6. Inflation, Data, and Policy Risks

• Persistent, sticky inflation—compounded over years, becoming built into expectations
• September PCE (Personal Consumption Expenditure) data expected at 3.3% core, 3.7% “supercore” [16:26]
• Diane Swonk: “We've had five years of inflation...It's becoming the norm instead of the anomaly...there is no reason not to do it [hike]…” [16:26–18:04]
• Jim Bianco: "The market is trying to tell you…the direction of travel is going to be higher. It's more worried about inflation." [13:16]

7. Neutral Rate Debate

• Is policy already at or below neutral? If inflation persists at these levels, shouldn’t rates be higher?
• Discussion of historical median Fed funds rates (real plus inflation targets ~4.25%) [22:06]
• Expectation that next decade’s “normal” may be rates higher than recent norms

8. Sector & Energy Market Dynamics

• Oil sector booming but expected to be volatile; companies becoming cautious about future investment given geopolitical risks and price swings [25:25]
• Bond market’s focus has shifted from oil shocks to fundamental inflation and deficit concerns [27:18]

9. Key Quotes & Memorable Moments

• Michael McKee (on the Fed’s challenge): “If you speak less, we just put more weight on the people that do speak and that's what we'll be doing in the coming weeks.” [15:15]
• Beth Hammack (via LinkedIn, quoted): "There is no conflict in our mandate. Inflation is too high. The labor market is right around my level of maximum employment. For the first time in my tenure. I'm hearing from businesses who say they think we need to take action to curb inflation." [20:04]
• Jim Bianco (on market and Fed panic): "Bond traders can relax or stop panicking when the Fed starts panicking." [14:17]
• Diane Swonk: "Compounding inflation has risen the level of prices to be too high for too many. And that being front and center is not the definition of price stability. And that is what the Federal Reserve is charged to do." [18:04]
• Lisa Abramowicz: "We're going to have a bingo card and it's going to be a lot of fun." [15:47]

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Timestamps for Key Segments

• [01:49] — Immediate reaction and summary of the Fed decision
• [02:59] — Market action and interpretation post-announcement
• [03:48] — Lisa on the significance of three dissenters
• [07:58] — Bob Michele: Importance of dissent and potential September outlook
• [08:56] — Jim Bianco: Fed independence and internal dynamics
• [10:47] — Debate over higher “normal” rates
• [13:16] — Jim Bianco on rapidly rising long yields despite rate cuts
• [14:17] — Bianco/Adage: Fed panic and bond market relief
• [16:26] — Diane Swonk’s take on inflation's persistence and policy path
• [18:04] — Swonk compares persistent inflation to compounding returns
• [20:04] — Hammack’s striking dissent statement (LinkedIn)
• [22:06] — Neutral rate historical context and expectations
• [25:25] — Victoria Fernandez: Oil sector impacts and company caution
• [27:18] — Fernandez on bond market’s focus beyond oil price swings

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Final Thoughts & Takeaways

• Fed faces credibility and communication challenges: Multiple dissents signal shifting winds but consensus still prevails for now.
• Markets will scrutinize every data release and every speech: Future policy remains highly conditional.
• Inflation and structural factors mean rate cuts are not imminent: The era of “higher for longer” could be the new normal.
• September meeting looms large: Panel consensus is leaning toward a likely rate hike if inflation data stays elevated and more hawks join the tally.
• "Vote-tallying" dominates the narrative: Every FOMC member’s stance moves markets as forward guidance wanes.

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For Listeners:
Stay tuned for every utterance from Fed officials, as the era of tight-lipped central banking meets persistent inflation, rising yields, and new policymaking norms. The road to price stability will be hotly debated—by the Fed, the markets, and this podcast’s expert voices.

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Transcript

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[Diane Swonk]

Bloomberg

[Lisa Abramowicz]

Audio Studios podcasts Radio News

[Jonathan Ferro]

this is

[Michael McKee]

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

[Jonathan Ferro]

The news is sparse. No change in rates. Nine in favor, three dissents, Logan Hammock and Kashkari. Other than that, there is not a word of difference between the June statement and this one. Economic activity is expanding at a solid pace. It says uncertainty is elevated in part because of the Middle East. Productivity growth and capital investment are strong, job gains have kept pace with the workforce, and unemployment has changed little. Inflation remains elevated relative to the 2% goal, in part reflecting supply shocks that have driven price shocks. The statement again concludes by saying the committee will deliver price stability. I think this is the shortest summary I have ever given you and I've padded it out a little bit just to make it a little longer and feel like I've done something. There's no real surprise in here. You could point to the dissenters, but they've all said something about inflation and the fact that we might have to raise interest rates in the future. So it doesn't really give you a clue about what's going on and there's no hint in the statement about what might happen in the future. So if Kev Wash once the spotlight definitely on him today.

[Michael McKee]

And Michael come back to you in just a second. Let's work through the price action. So as expected, widely expected, no change on this decision. Some dissent, not one, not two, but three dissenting voices from regional Fed presidents from the obvious places. The move in the market is interesting though. Equities off the lows on the s and P500 just to raising some of the losses so far this afternoon on The S&P 500 still negative but not as low as we want to with the S and p negative just 0.3% and we're getting some confidence in the tech trade. The NASDAQ down by point two in the bond market, let's just say the front end of the yield curve 2 year yields were higher by basis point or 2 now down 4 to 425. So often talk about this paramount the difference between economists expectations and the risk that the market was pricing it. And clearly just a little bit of a gap there. Even with that descent, some relief at the front end of the curve. A rally on two.

[Lisa Abramowicz]

There truly was about a 30% chance of a Fed rate hike at this meeting and that chance was not necessarily fulfilled. It is notable though that there were three dissents and that I think is the news from this particular statement given the fact that Neel Kashkari also joined Laurie Logan and Beth Hammack. I was on a panel with him and he was talking about this with a bunch of CEOs and saying this is a problem and it is more pernicious for the average consumer in this country right now that inflation is so high then potentially the labor market is softening because it's not. And I think that is something that you are hearing in the minority on the Fed.

[Michael McKee]

The good news here for the leadership of Kevin Walsh. Early days quick reaction. The dissent came from the regional Fed presidents and not from the board because if it came from one of the board members this afternoon, I think we'd be having a very different conversation. TK to the one we're about to

[John Authers]

have is the market voting Apple $5.053 trillion just out to a new record high 344 is a market voting here

[Michael McKee]

on their new I think Apple's voting on a lack of capex and I think that's been a story on oh

[John Authers]

yeah, I know that. I mean I get that run but I mean right here within the, the minutes after this announcement with the aspects popping up is. Well, I mean, they certainly like what they saw.

[Michael McKee]

Well, let's take a step back and think about what's been happening in asset classes. We've had this massive move higher in energy and lots of volatility in between. Volatility in between. Over the previous five months you've seen that ripple through interest rates. We've priced out cuts and in many places priced in hikes and in some places actually engineered rate hikes. What we haven't seen is a growth scare. The backdrop for growth is still pretty good consensus for GDP still around 2. Unemployment's been falling closer to 4 and away from 5. That's good news. Now you've got a Federal Reserve that doesn't still see a reason. Even with that as your backdrop, they don't see a reason to hike interest rates right now today. Some do, but not the committee as a whole. If you're looking at that from a risk asset standpoint, some that's risk positive. Without a doubt it is.

[John Authers]

I mean, I mean they're moving forward. And to me, the key thing after Jackson Hole is to get to that next meeting. All of a sudden Jackson Hole may be interesting.

[Lisa Abramowicz]

Oh, I definitely think it's going to be interesting. We need to hear about insights from task forces. That said, right now I do think,

[John Authers]

you know how much I love.

[Lisa Abramowicz]

I think that they're going to be important to me. This is actually a fascinating statement. Does he set up a September rate hike with the idea that there are three descents and potentially there is another API print that will be potentially hotter

[Michael McKee]

than no data, random act or always early to publish. He says the following. I think the dissents tell you the direction of travel. It will be very tough for Walsh to hold the line into September. I hope Mike McKee's holding the line just before he goes into that news conference in about 25 minutes time. Mike, given the lack of new information here beyond just the descent, what's your approach to the news conference at 230 Eastern Time?

[Jonathan Ferro]

Well, I think we have to ask very direct questions of the chair. We can't ask him broad questions like what is your reaction function or something like that because then he's going to just lead those questions and we won't get good answers. So we'll have to pick out some things like where we are with rates. Are those sufficient at this point? Something to try to get him to give us some specifics on how he's thinking. But I think what you guys have Just gone through is what he's looking for. He'd rather have you speculating, markets speculating than give you a hint. And nature abhors a vacuum. So the markets are going to fill it with what they think might happen. But it's going to be hard for anybody to really know unless Wash wants to start tipping his hand, which it'll be a battle between us and him, I guess.

[Michael McKee]

Looking forward to it, Mike. Thank you, buddy. Get inside that news conference. Mike McKay will come into that news conference for us. It will begin at about 25 minutes time. If you just joining the program. Welcome to the program so unchanged to the Federal Reserve, but the vote is different. It's 9 to 3 and the dissenting voices are as follows. Bottom of the statement, Beth Hammock, Neel Kashkari, Laurie Logan. Dissent coming from the obvious places. All three of those voting for an interest rate hike at the bottom of the statement, that line sticks. The committee will deliver price stability. We've got Bob Michael, the JP Morgan Asset Management alongside us. Bob, is that line in the statement enough for us not to question their commitment to price stability? With inflation running above target for as long as it has been running above

[Bob Michele]

target, I think the three dissents are more important than that last statement. I think that it shows that they're starting to migrate towards tightening policy. You know, there's still 75% of the voting members that were in favor of no change. So you're only at 25% but I think it's important. If I were at the press conference, I'd ask about quantitative tightening. Are they talking about that? Is that something they could start up again and help snug the liquidity that's in the system.

[Michael McKee]

Best guess for September, limited additional information, but best guess for September. What would you call now they do

[Bob Michele]

nothing but maybe there are four dissents.

[Michael McKee]

But Michael is going to stick with us going into that news conference 25 minutes away. Joining us now is Jim Bianco of Bianco Research. Jim, welcome to the program. It's a whole new world, a new era for this central bank. You've been writing about it extensively. Just first of all, your reaction to this decision this afternoon.

[Jim Bianco]

Not surprised by the decision that the Fed did not raise rates. I still would defer what Bob, and think that they are going to raise rates in September. I think the dissents are the most important thing because one of the things I've been emphasizing is after Trump attacking this Fed for two years, they want to be independent and they've decided that independence is 12 independent voters. So what we're going to get at the press conference is 1/12 of the opinion of the Fed is we're going to get Wash or maybe we won't get it at all if he doesn't express it. Now, he's got a lot of power. He could probably, you know, twist some arms to get them over the line whichever way he wants to go. I suspect that if they were all voting their true conscience, we might have had a few more dissents. Maybe not enough to raise rates, but a few deferred because he didn't want to do it would be my guess.

[Lisa Abramowicz]

Jim, do you think it's significant that none of the governors joined with the dissenters, even though there were some reports of some pretty interesting family fights over dinner last month?

[Jim Bianco]

Mildly. I was expecting that maybe Chris Waller was going to be a dissenter. He still might be a voter for a rate hike in September, maybe a couple of others. But I do want to emphasize again, we're going to parse every word that Wash wants to say. I think that the Fed is more of a vote tailing exercise right now. You know, you got to look at all 12 people and say which columns are they in? High, colder cut and seven is a majority in which column has seven? And that's what the Fed's going to do. That's how they work now.

[John Authers]

Bob, Michael, the young Ripper Snapper. Jim Bianco a couple of years ago had an arch call calling for higher interest rates when no one was looking for it. The other day, Ed Yarden, he said these are normal rates. We have to get used to rates. Being Here again is Dr. Yardani and Jim Bianca, correct. We just got to get used to these higher rates.

[Bob Michele]

Yeah. I think what we're seeing more broadly across the economy is a need for Capex. There's demand for capital, there's a productive use of it. There's going to be competition and a cost of it. That's pre GFC kind of macro environment. You're not going back to zero to 2% rates. Do I think there's enough cause for them to hike in September as opposed to next year? I don't think inflation is going to change that much.

[John Authers]

I can't remember, John, if you're on your offer, but you said this 20 minutes ago. What percentage of people on the street actually remember pre gfc?

[Michael McKee]

We were very live and I remember what I said. I talked about the average age on the trading floor, which is probably mid-30s right now. So the world that they used to is not the world that Kevin Walsh wants to take us back to. It's also not the world that we've experienced in financial markets either. To your point, we had these anchors across fixed income for the last 10, 15 years. Lisa and I have talked about them daily, how they're disappearing. Germany had fiscal prudence for decades. It's disappearing. Japan had disinflation, deflation for decades. It's changed. And in America, the biggest companies on the planet were buying themselves, not issuing stock, not issuing debt. That's changed as well. The price of that bot, what is the price of that? And what part of this market is most vulnerable to that competition for capital?

[Bob Michele]

It feels like it's the sovereign market. I don't know. A sovereign which isn't interested in investing in energy security, in investing in the defense of its borders, in investing in AI and technology more broadly. They don't have the budgets to do it. They're going to have to go out and borrow. That's going to create more competition for the capital. That's okay. That's a normal capitalist environment. We're okay with that. But it doesn't mean 0 to 2% central bank rates and treasury government bond yields is the right level. It means probably neutral rates for the fed are around 3 to 5% and you're looking at a 10 year treasury that, who knows, could be 4 to

[Lisa Abramowicz]

6% in this world where suddenly you have to battle for capital. And Jim, I'd love your take on this. Is it a policy error if Fed chair Kevin Warsh allows the move to stick that we're seeing right now in markets now? There is not a full rate hike being baked into September and frankly the initial move has given back, at least at the long end of the yield curve. Do you think that it is important for this Fed, whether it intends to hike or not, to keep the message that they are prepared to do so to tame inflation?

[Jim Bianco]

I think so. If you want to back up, go back to September of 24. That's when the Fed first started cutting rates. The 30 year yield was 4%, was exactly 4%. Right now it's 510. It's gone up 110 basis points while the Fed has been cutting rates. By my measures, I can't find another example of a rate cutting cycle that produced that big a rate increase, a yield increase in the long end since the 1980s. But then again we also had 14% interest rates then and without that never in anything back to the 1950s. So really the Market is trying to tell you that I think the direction of travel is going to be higher. It's more worried about inflation. And if the, you know, go back to that last sentence, if the Fed wants to deliver price stability, I'll throw one other into you. Kevin Wash said that inflation is a choice. They might have to choose to do something about it fairly soon and maybe as early as the September meeting.

[John Authers]

Jim, if they do something about it, do we continue with this robust nominal GDP we've seen?

[Jim Bianco]

I think we can. And I also think if the Fed were to raise rates that that might put the high in yields for the year. I think part of the problem has been that now that we don't have forward guidance the market is pricing what it thinks and I think it thinks it's there's an inflation, let's say issue or worry. I don't want to go full blown problem or crisis. It's not that bad yet. And that's why yields keep going up. And I think it would like to see the old line, the old adage on Wall Street I've been using is that bond traders can relax or stop panicking when the Fed starts panicking. And maybe a little bit of panic from the Fed might go a long way to helping the bond market stop with this yield rise in the long end.

[Michael McKee]

It's a valid point. Jim, appreciate your time buddy, as always. Jim Bianco there of Bianco Research. If you just joining the program, welcome a news conference with Chair wash in about 17 minutes time. The decision 13 minutes ago leaving rates unchanged. A vote of nine to three. Three dissenting voices, three regional Fed presidents, Hammock of Cleveland, Kashkari of Minneapolis and Logan of Dallas. Three voices who have given us a decent state that this is might be the outcome of this meeting, at least for them. Next two weeks might be interesting. I think we're all going to look for that schedule, aren't we? Those speeches, what everyone thinks and this was always the problem for this Fed Chair looking to put communication back in a box back in the bottle and throw it away and bury it. Everybody else still wants to talk and if you speak less, we just put more weight on the people that do speak and that's what we'll be doing in the coming weeks.

[Lisa Abramowicz]

It's going to be a vote telling exercise over the next two weeks with people watching every single press conference, every single speech and wondering who is going to be the additional voice to vote for a rate hike and how close are they. And that is ultimately the calculus that we're going to see. Kevin Warsh could potentially put that back in the bottle if he gives us some sort of quantification or characterization of what the reaction function is. But barring that, we're going to be doing vote tallying and we're going to have a bingo card and it's going to be a lot of fun.

[Michael McKee]

Can we go from 3 to 4 to 5 to 6, etcetera to 7? Diane Swonk of KPMG joins us now for more. Diane, welcome to the program. Do you believe this is the direction of travel? This is the first of many votes that will look for higher interest rates?

[Diane Swonk]

Absolutely. I think the three dissents from the presidents is what exactly we should expect right now. And those dissents were not done in a vacuum. They also are representing presidents who could not vote at this meeting. That is often what is done. And I also think many people on the board are leaning towards a rate hike as well. We've already gotten a lot of indication of that. And so I do think we do get rate hikes in September. I actually think today would have been better. But I expected them to skip today, even though there was a 30% chance out there that they would do it today because we're starting to get weak. This is something that Kevin Wash has said himself. We've had five years of inflation. It's not all the Fed's fault. But at the end of the day it is the Fed's choice, as Jim pointed out, to do something about it. And we need to do something about this inflation and it's been around for too long and created a muscle memory. It's becoming the norm instead of the anomaly. And tomorrow we're going to get that PCE data, which the reason why Beth Hammock sort of threw down the gauntlet and wrote the LinkedIn post hours before the Fed's blackout period letting us know exactly how she felt about rates was because they were tracking the inputs on that number and it will be 3.3% on the core and on the super core, I think 3.7% super core services. That is sticky and hot and hotter than it was at the beginning of the year.

[Lisa Abramowicz]

Bob, Michael had a really good point earlier, said it kind of depends why they hike. Is it going to be that the data shows a reacceleration or is it just that they're running out of patience? And if they're running out of patience and tolerance of high inflation after more than five years, that typically isn't a great place for a central Banker to be. And would you agree with that?

[Diane Swonk]

I do agree with that to some extent, although I think we still got a little more inflation out there as well. But the problem is that it's just been too persistent. This is too long for too much for too long. And it's compounded, much like I've argued, you know, compounding stock returns have raised the level of wealth. Compounding inflation has risen the level of prices to be too high for too many. And that being front and center is not the definition of price stability. And that is what the Federal Reserve is charged to do. And with the labor market in a stronger position, there's no reason not to do it.

[John Authers]

Now, Michael, I'm not going to go to the one with sterling academics at Michigan and Economics. I'm going to go to the classics major from Pennsylvania. Is it a small matter that the three dissenters are an aerospace engineer educated, a public policy Lori Logan educated, and Beth Hammack at 21, was on the desk at Goldman Sachs. Is this almost a dissent rebellion against traditional monetary economics?

[Bob Michele]

It may be more common sense than anything else. I think, as Diane pointed out, you've been a long way away from the 2% target for a long period of time. There could be a little bit of disinflation in the system. I wonder what happens if the next couple prints on core PCE, you go from 34 to 33231 and you see you're still above 2%. But what about on core CPI? You go from 26 to 25 to 2 3, you're still above 2%. I think dissents reflect that. Hey, we're not at our target. If this swings around the other way, we're poised to move. But you don't move yet. If you're starting to see some disinflation.

[Michael McKee]

You talk about Goldman the Death Star in front of JP Morgan. Can we do that?

[John Authers]

No, but years old on the desk and I just. Nobody. Nobody dissenting. John did. The usual economic path.

[Michael McKee]

Let's go to that.

[John Authers]

Remarkable.

[Michael McKee]

Let's go to the quote of hers in the LinkedIn statement going into the quiet period, the lead up to this dissent. There is no conflict in our mandate. Inflation is too high. The labor market is right around my level of maximum employment. For the first time in my tenure. I'm hearing from businesses who say they think we need to take action to curb inflation. That's pretty punchy stuff. And when you said that dissent might be on the behalf of others on the committee who don't get a vote. How many Regional Fed presidents are hearing the same thing from their districts across this country.

[Diane Swonk]

I think they all are. And I think that's the important, you know, sort of what we're seeing out there. We are seeing many people across the country showing up in the beige book as well. It's showing up out there that firms still have some pipeline even on last year's tariffs. So the new tariffs, they're reinstating old tariffs. That will add a lot of extra tariffs out there. But we also have Russia sanctions which allow up to 100% tariffs on some of our trading partners at the discretion of the President. So those are coming, going through Congress right now. All of that is more choke points, more shocks at the same time that we still have this persistent underlying inflation that's just not going away. And to think that it's going to go away on its own when we're seeing things like in the wages in the leisure and hospitality sector, which shed jobs last month, wages actually accelerated, that's something to watch. That's the service sector. That is where we're seeing that buoying sort of effect of wages. Also the costs holding up that inflation, that is something the Federal Reserve is very concerned about. You want low wage workers to get more pay, but only if they get more pay that's above and beyond the level of inflation.

[Lisa Abramowicz]

Bob, I'm struck by the neutral rate. We haven't talked about it once, but given the sort of competition for capital that seems to be going on globally, is it possible just that the real rate has to be a whole lot higher than people previously expected? And frankly we're seeing that in the lack of any kind of erosion from demand.

[Bob Michele]

Remember when the Fed first started doing the dots in 2012 because they didn't think we in the markets were smart enough to know what normal look like again, so they were going to help us out. And you go to that long term median dot, which was perfect Texas book, it was four and a quarter percent. How did they get there? Over the hundred odd year history of the Fed, the real fed funds rate had been two and a quarter percent. What were they targeting? Two percent. You put the two together, there's your fancy algorithm. Four and a quarter percent. Wouldn't it be funny if that proves to be correct over the next decade

[John Authers]

I Look John, where we are with this and I just again, we got to get to the next decade meeting this press conference, to me, I mean to Bob, it's gone out on Twitter what Bob said about what are we going to see? We have no clue what we're going to see here.

[Michael McKee]

00. It's totally up to him.

[John Authers]

Will he be on time?

[Michael McKee]

I mentioned Mike. I hope he will be. I mentioned to Mike earlier on this morning when we were on Bloomberg surveillance and I said to Mike, as a journalist you have to change your questions because no one wants to be the journalist in the news conference that gets a two word response and it involves task force. No one wants to be that guy. So what the kind of questions you need to ask Kevin Walsh that maybe wouldn't have thought of asking Chairman Powell yet.

[Lisa Abramowicz]

Well, and what Mike said was you've got to be very specific. And I liked his question about specifically how are you thinking about oil? Because right now you could say a lot of the inputs to inflation are supply shocks. How do you consider supply shocks when they are repeated supply shocks again and again and aren't likely to stop being shocks considering the fact that this conflict isn't going away anytime soon.

[Michael McKee]

Dan, you're great at this final question. Question, what's your question for the Fed chair? You've talked about a new chair, an old guard. What's your question for this guy?

[Diane Swonk]

I guess my question is really on that neutral rate exactly as Bob outlined. I think we're actually lower than the neutral rate right now and I think many on the Fed believe that we're lower than the neutral rate or at least at the neutral rate, which is not where we should be if inflation is at this level.

[Michael McKee]

Dan, appreciate it. Dan Swonk there at KPMG is such a good point. There's a phrase that you heard a lot, I think over the previous year or two when they were cutting rates, they talk about being sufficiently restrictive. How many times have you heard that in the last six months being sufficiently restrictive? I haven't heard it at all from a single Fed member because guess what,

[Lisa Abramowicz]

the evidence doesn't back that up that they're sufficiently restrictive because inflation moved in the wrong direction. And increasingly people are saying that the three insurance cuts last year were a mistake and that actually fueled some of the incredible run up in some of the memory chips names.

[Michael McKee]

Victoria Fernandez across. Mark joins us now for more. Victoria, welcome to the program. Is it time to take back some of the insurance we took out last year with three cuts and the year before with interest rate cuts then too?

[Victoria Fernandez]

You know Jonathan, I actually thought that's why we might actually see a rate hike today and that was going to be the explanation for it. Not that they were concerned about longer term inflation. They were going to be Looking through the Middle east, through oil, all of that, I think that the concern was going to say or the explanation was going to be we're just taking off some of that accommodation from last year. That wasn't really necessary. I wouldn't be surprised if that's part of the explanation they use at the September meeting, if they decide to hike then. But I definitely think it's part of that story. It's part of where is neutral rate. It's part of the concept that maybe we are not as restrictive as a lot of people think we are. All of that goes together to tell us we probably have a rate hike coming.

[Lisa Abramowicz]

Victoria, you're in the heart of oil land in the United States here in Houston and there's a huge boom going on. Looking at the earnings is coming from the oil sector and they're doing wonderfully. It's been both, yes, penalization for some consumers. But on the flip side, it's only adding to some of the robustness that oil prices have gone up to such a degree. How much do you agree with what we've heard from some regional Fed presidents, which is that companies are asking for action as they see both the momentum increase in tandem with prices?

[Victoria Fernandez]

Yeah. You know, Lisa, it's an interesting topic because you always have people when oil prices come down, they want to know why they're not, you know, moving fast enough to bring oil prices down. And yet at the same time, they want to know why these oil companies aren't investing more cash, why aren't they drilling more, why aren't they doing more things and they have to have the free cash flow to do that. And I know their balance sheets are really strong right now. Energy is the best performing sector that we've seen so far this year. So I think there's an element here that the energy companies are really kind of sitting on their hands a little bit because they know that when the Middle east conflict is resolved, they're going to see that drop in prices. Look how quickly we saw prices come down, almost what, 25, $30 a barrel for Brent and WTI when we had the memorandum of understanding and we've seen it go back up in the last few days. I do think there's going to be a lot of volatility here. Earnings are actually expected to come down the rest of the year when you're looking at the energy sector. So I would be careful here. They're doing really well right now. I think it's a great long term holding to have in your portfolio. But I do think the companies are going to be a little bit cautious here, Victoria?

[Michael McKee]

Look how limited the rally was in bonds when we had that correction in crude. It tells me that the outlook for rates is not that dependent on the path for oil. Is that a fair assumption, a fair conclusion?

[Victoria Fernandez]

I think it's a pretty fair assumption, Jonathan, because actually I think what the bond market is looking at is saying wait a minute, yes, we have this oil component and it's making the headline numbers come down quite negatively when we're looking at inflation reports. But the core and the super correlation core where it's not included, we're actually seeing some still moves higher and those elements. So to me that's the key question to this Fed. How are we going to measure how much some of these shocks that you want to look through are actually seeping down into the economy as a whole? They say the economy is expanding at a solid pace, but how long if we keep seeing pressures come in at that point? So I think the bond market is more concerned around that, more concerned around deficit spending, around money supply, not so much around oil price changes.

[Michael McKee]

Victoria, it's good to see you. Appreciate your time as always. Victoria Fernandez there of Cross Mark weighing in on this Fed decision. Equities this afternoon still negative by 0.5 on the S&P 500 in the bond market, 2/10 and 30 shaping up as follows. Twos yields down just a single basis point right now, twos around 428. Framing matters. These three dissents, what are the character, what is the character of each individual dissent? What will they say in the coming weeks in their statements? Is this about taking back the insurance they took out last year and the year before, or is it more than just that?

[Lisa Abramowicz]

Well, they have all indicated about taking back the insurance from last year and they've all talked about the price pressure that consumers are feeling that they're hearing even from companies. That said, my question is about the others and who's going to potentially join them at a time of incredibly volatile inflation? And is the volatility in inflation enough to actually get them more concerned that they need to make a move and

[John Authers]

take a step in defense of Chairman Marsh. We're all going to be waiting on the data now. I mean the data is incredibly important. Through Jackson Hole onto the next curious

[Michael McKee]

case of this particular meeting, TK is that we looked at the data and it was softer than expected on CPI and ppe and it was a feeling that we would move on. And we sat around this table at the time when the data Dropped on Bloomberg surveillance on Bloomberg TV on that very morning sat there with you and we both said the same thing. It removes the urgency to hike. It won't kill the story. The debate continues and the debate does continue even this afternoon and now we're talking about September and maybe September's the day and this is the direction of travel story just won't go away.

[Victoria Fernandez]

Take a look at earnings.

[Lisa Abramowicz]

Earnings have been on fire and it's not just in the tech sector. It's across the board the equal weights outperforming also because of a fundamental kind of bleed up and regional bank banks

[Michael McKee]

in this country I mean really 20%

[Lisa Abramowicz]

more significant so sufficiently restrictive if you're looking to crimp growth in any capacity or looking for a slowdown. That's not happening.

[Michael McKee]

But I was going to say final word but you might be sticking around. I have no idea how long this news conference will be but give us a final thought on what you'll be looking for through what is not a sleepy summer.

[Bob Michele]

I think the Fed got it right today so far. We'll see if there's a press conference and what gets up or not. Particularly glad with the fact that they've listed the three dissenters. Let's assume that the vote had been 75 in favor of a rate hike. By listing the five dissenters we would know the seven people who voted for a rate hike and we'd sit there and go we got two or three. Where did the other four or five come from? What were they looking at? They didn't say any of this two weeks ago. What changed their mind? Is it all emotion in and I think that's a great regulator to a central bank and prevents them from just

[Michael McKee]

acting on emotion of Michael J.P. morgan Asset Management Bob, thank you. Might be back with you in five or ten minutes time. This news conference is about to begin. In about 60 seconds from now a newly minted Fed chair Kevin Walsh will appear for his second press conference. Widely criticized last time around not for his refusal to offer forward guidance that's gone. We've moved on. But his refusal to articulate his son called reaction function. I think three dissenters at the Fed have been pretty clear about how they think about the incoming data and where they think policy should be.

[Lisa Abramowicz]

I think Mike's question earlier is a really important one. How do you consider oil and how potentially does the increase in prices affect your view considering it does tend to be a one time shock but when you have rolling shocks there is another type of dynamic that takes hold and that is what we've seen.

[Michael McKee]

I'm not a big gambler. In fact, I'm against betting. But I will ask this question. How many trading floors right now do you think are taking bets about how long this news conference will be with Kevin Walsh?

[Lisa Abramowicz]

I think that's the question. I think we're taking bets right now because we're trying to figure out, for programming reasons, we're going to have to book out.

[Michael McKee]

What's your number?

[Lisa Abramowicz]

I think it's going to be. I think it's going to be 45 minutes and seconds.

[Michael McKee]

From 45 and how many seconds?

[Lisa Abramowicz]

45 and 32 seconds.

[Michael McKee]

Take how you plan this game.

[John Authers]

I'm not playing this game. Kelsey Barrow at JP Morgan with K here. They're all around the terminals, you know, betting here.

[Michael McKee]

They're probably one of Cassie's house. He's running the book at J.P. morgan.

[John Authers]

Yeah, I think she's running the book. They're probably in a bar over at their new skyscraper.

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