Instant Reaction: Jay Powell on the Fed Decision

Summary

Bloomberg Talks: Instant Reaction - Jay Powell on the Fed Decision

Episode Date: March 18, 2026
Host: Bloomberg
Special Guests: John (Bloomberg anchor), Lisa Mateo, Torsten Slok (Apollo), Mike McKay, Jeff Rosenberg (BlackRock)

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Episode Overview

In this breaking-news episode, the Bloomberg team instantly reacts to and analyzes Federal Reserve Chairman Jay Powell’s comments following the latest Fed decision. The conversation spans Powell’s unexpected statements on his future as Chair, the central bank’s handling of economic shocks—particularly energy shocks linked to the Middle East—and the implications for monetary policy, markets, and central bank credibility. The show features key analysis from market experts and dives into the nuanced market reactions to a period of intense uncertainty.

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Key Discussion Points & Insights

1. Jay Powell’s Succession & the DOJ Investigation

• Powell’s Statement: Powell directly addressed his plan regarding the end of his term and ongoing DOJ investigation.
  • Quote: “If my successor is not confirmed by the end of my term as chair, I would serve as Chair pro tem until he is confirmed. I have no intention of leaving the Board until the investigation is well and truly over with transparency and finality.... I have not made that decision yet.” – Jay Powell [02:34]
• Market Interpretation:
  • There was immediate market volatility as Powell confirmed he’d stay until Kevin Warsh could be confirmed. S&P 500 and Nasdaq both dropped.
  • Significant speculation on the meaning of “well and truly over” regarding the DOJ investigation and when (or if) Powell would fully step away.
• Controversy: Legal ambiguity emerges because, by law, the President (not the outgoing Chair) may appoint the chair pro tem, hinting at a possible showdown between the White House and the Fed.
  • Quote: “We could be looking at another big legal fight down the road if they don't get Kevin Warsh in there by May 15th.” – Mike McKay [12:11]

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2. Economic & Geopolitical Shocks: Middle East Crisis & Oil Prices

• Complex Response: Powell downplayed Fed projections due to heightened uncertainty, emphasizing the Middle East crisis as a critical shock.
  • The Fed avoided labeling price surges and inflation risks as “transitory,” though multiple panelists noted that the communication was “transitory in spirit.”
  • Quote: “He said it is too soon to say so many times over again that we lost count.” – Bloomberg Host [05:56]
• Energy Market Instability: Disruptions in the Strait of Hormuz caused a sharp rise in oil (Brent at $109, WTI at $98).
  • Analysts like Torsten Slok noted persistent supply shocks could lead to prolonged high energy prices.
  • Quote: “If it [the supply shock] begins to last, of course, several quarters, then it's a much more serious effect.” – Torsten Slok [11:35]
• Forecasting Uncertainty: The Fed acknowledges past misjudgments and now favors humility and patience rather than aggressive policy moves.
  • Quote: “We’ve been fooled and we’re not going to put ourselves in that position. We're going to sit back and wait so that we don't react wrong because we've been wrong.” – Mike McKay [12:11]

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3. Inflation, Growth, and Policy Path

• No Immediate Rate Cut: The Fed held rates steady; the median DOT plot still implies one cut in 2026, but markets are no longer pricing in a cut until July 2027.
  • Quote: “We have known this is a pretty balanced Fed. They're weighing the risks and clearly the specter of 2022 hangs over his Fed chair.” – Bloomberg Host [04:13]
• Dissents & Committee Dynamics: Only one dissent (expected from Waller), with speculation that global shocks like Iran factored into surprise voting unity.
  • Quote: “This was very Greenspan, everybody on the same page supporting this chairman.” – Lisa Mateo [06:26]
• Inflation Risks: Ongoing wage and energy price pressures complicate the forecast, as core PCE remains higher than desired.
  • Quote: “He’s getting spooked by the direction of core PCE...wage inflation is still running above where it was in the pre-pandemic period.” – Bloomberg Host [07:14]

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4. Market Reaction & Forward-Looking Concerns

• Rates Spike and Equities Drop: Bond yields climbed, particularly at the front end; equities suffered as Chair Powell’s remarks were perceived as hawkish.
  • Quote: “Risk assets are going down...because of a pricing in of a more hawkish Fed.” – Jeff Rosenberg [22:29]
• Flight & Fuel Demand Destruction: Analysts discussed real-world demand destruction, with spikes in travel and fuel costs (-60% increase in airfares).
  • Quote: “It's not how high do oil prices go before you hike, but how...long do oil prices get before you cut? And I think that’s the swing there.” – Jeff Rosenberg [23:45]

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5. Fed Independence and Credibility Under Political Pressure

• Independence vs. Politics: Markets and panelists debated whether Powell’s insistence on staying on was about preserving Fed independence or stoking controversy.
  • Foreign asset holders remain steady; no immediate sign of declining confidence.
  • Quote: “The focus will be at the extreme on dissents...we are entering an era of Fed watching where things are getting much more complicated because it has this political dimension...” – Torsten Slok [15:23]
• Historical Parallel: The situation is compared to Mariner Eccles staying on as Chair after his term in 1948, drawing a link to periods of major global change.
  • Quote: “The last person to stay on...was Mariner Eccles...when his term was up he stayed on because he was concerned about the post Bretton Woods order and an economy torn from war...I’m struck by the historical parallel...” – Bloomberg Host [17:17]

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6. Global Dimensions: The Fed’s Role & Foreign Holdings

• Mandate Questions: Hosts and guests debate whether the Fed’s focus should be solely on the US, given the global impact of its policies and the foreign ownership of US assets.
  • Quote: “It's very clear that the trend is...the Fed should really be caring maybe about the US economic outlook.” – Torsten Slok [16:33]
  • Foreign ownership: 20% of Treasuries, 20% of credit, 33% of equities.

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Notable Quotes & Memorable Moments

• “If my successor is not confirmed by the end of my term as chair, I would serve as Chair pro tem until he is confirmed. I have no intention of leaving the Board until the investigation is well and truly over.” – Jay Powell [02:34]

• “He said it is too soon to say so many times over again that we lost count.” – Bloomberg Host [05:56]
  (On Powell's repeated caution about unknown consequences of geopolitical shocks)

• “We’ve been fooled and we’re not going to put ourselves in that position. We're going to sit back and wait so that we don't react wrong because we've been wrong.” – Mike McKay [12:11]

• “If months is not quarters, then we will also have a change...so you're absolutely right, the fear is, of course, that it does continue at the Fed level.” – Torsten Slok [11:35]
  (On market-moving shocks becoming more persistent)

• "Risk assets are going down and I think they're going down because of a pricing in of a more hawkish Fed." – Jeff Rosenberg [22:29]

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Timestamps for Major Segments

• [02:34] Jay Powell addresses succession, DOJ, and status as Chair.
• [04:13] Analysis on the Fed’s balancing act and Powell’s cautious tone.
• [05:22] Middle East supply shock & energy price spike details.
• [06:26] Lack of dissent and policy committee dynamics.
• [07:58] Divergence between physical and paper oil markets.
• [11:35] Duration of Middle East shock & impact on inflation/growth.
• [12:11] Mike McKay discusses Powell's humility, legal issues with succession.
• [16:33] The Fed’s global role and foreign ownership of U.S. assets.
• [17:17] Historical precedent: Mariner Eccles staying beyond term in 1948.
• [22:29] Jeff Rosenberg on implications for risk assets, flight demand, and GDP impact.
• [26:11] Concern over lack of growth impact in Fed’s forecasts.

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Summary Table: Major Takeaways

| Segment | Key Points | Notable Quote / Time | |------------------------------------|-----------------------------------------------------------------------------------|-----------------------------| | Powell's Succession | Will stay as Chair pro tem if no successor; unsure about Governor role | “I would serve as Chair...” [02:34] | | Middle East Shock & Oil Prices | High uncertainty, Fed avoids forecasts, crude prices spike | “Too soon to say…” [05:56] | | Fed Committee Dynamics | Minimal dissents, unity in major uncertainty | “Very Greenspan...” [06:26] | | Market Reaction | Yields higher, equities down, hawkish sentiment prevails | “Risk assets are going down...” [22:29] | | Fed Independence & Politics | Succession process could invite legal, political battles; echoes of 1948 | “Mariner Eccles...” [17:17] | | US-Focused Mandate vs Global Role | Increasing tension: support US only, or global financial system | “The trend... is... the US.” [16:33]| | Demand Destruction & Growth | Oil/energy cost spikes already hitting travel and transport demand | “Airfares up 60%.” [23:23] |

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Conclusion

This episode provides a dramatic, real-time look at Federal Reserve communication in a period marked by geopolitical instability, legal ambiguity, and uneasy markets. Powell’s forthrightness on his future and the DOJ’s investigation, dovetailing with a Fed cautious to act but bold in acknowledging uncertainty, created immediate market ripples and reignited pressing questions about the future of monetary policy and central bank independence. The conversation closes amid recognition that both forecasting and policymaking are as much about navigating uncertainty as about offering guidance—a sentiment encapsulated in Powell’s own humility and the markets’ volatile response.

Transcript

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[Bloomberg Host]

Bloomberg Audio

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[Torsten Slok]

this is a

[David Gura]

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

[John]

The Chairman of the Federal Reserve if there was a good meeting to scrap the forecast, then this one was probably at the chairman de emphasizing the projections, re emphasizing the uncertainty, focused on the shock in the Middle East. We had one question. How would they respond to it? Would they look through it? The answer? It's not that simple. Equities in response negative net session lows right now down 1% on the S&P 500. Likewise on the Nasdaq and the bond market Twos, tens and thirties Yields higher, particularly at the front end of the yield curve, up by seven basis points on a two year.375 if you, like me, thought this would be boring. This was not a snooze. The Federal Reserve chair asked about succession. Take a listen to what he had to say.

[Federal Reserve Chairman Jay Powell]

If my successor is not confirmed by the end of my term as chair, I would serve as Chair pro tem until he is confirmed. I have no intention of leaving the Board until the investigation is well and truly over with transparency and finality. On the question of whether I will then continue to serve as a governor after my term ends and after the investigation is over, I have not made that decision yet.

[John]

Three points from the Chairman of the Federal Reserve. Let's go through them individually. Point one, I will stay on his chair until a successor is confirmed. Point two, I have no intention of leaving the Fed while the DOJ investigation is ongoing. And point three, even after that is complete, I haven't made a decision on how long I'll stay on. A big headline in that news conference

[Bloomberg Host]

he actually engaged with the question. We all were wondering whether he would give some sort of clarity and we've got it. He is going to be the Fed Chair until Kevin Wash is in the seat. There is this question of what is well and truly over in terms of the investigation actually mean a lot of people are going to be wondering that and the fact that he hasn't made a decision yet. What is going to tip the scales for him to understand when he can make the decision. Either way, this wasn't a boring news conference in any way, shape or form.

[John]

If we can bring up just an intraday chart, the front end of the yield curve. So bring up the two year intraday and just have a look where things started to pick up. The Fed Chair throughout this news conference was leaning into anchoring inflation expectations. That was notable. But we started to really bounce out to session highs when he started to lean into that question about his future. And I just wonder, Bremer, we can have that conversation with guests over the next 15 minutes or so whether those two things are connected to some extent on the margins.

[Bloomberg Host]

This market seems to be treating a Kevin Warsh Fed as being more dovish simply because we have President Trump tweeting or truth socialing every single day saying too late, Powell needs to lower rates right now. You see there is no full rate cut getting priced into the Fed funds futures until June of next year. So that's how far we've pushed it on. There was a one, two punch. Fed chair Jay Powell also said it's too so soon to know the full economic effects from the Middle East. And then he said he would stay on. And we have known this is a pretty balanced Fed. They're weighing the risks and clearly the specter of 2022 hangs over his Fed chair.

[Lisa Mateo]

You'll go out, you'll go out to the specter of it. And they view for it. I like what Liz Ann Sonders does retreating Claudia Sahm, Finally, Powell throws the ACP under the bus. Skip it. Thank you, Dr. Sam, for that. My observation, John, is it's 10:21pm in Doha and I'm looking at the headlines while the chairman speaking. And I get the wash view forward in the crystal ball gazing out six months. I think we got to gaze out 24 hours right now. That's the tension I see in the ira, the Iran headlines that we get out of Tel Aviv and we're getting out of Dubai right now from Bloomberg.

[John]

This is why it makes it so difficult to provide forecasts in a moment like this one. And the chairman quite rightly talked about the need for humility. The duration of this shock. Energy assets are in play in the minds of some people now after the strikes we saw on Iranian energy assets just earlier this morning. Crude at the moment at 109 on Brent WTI around 98. The chairman is well aware that they've missed their inflation target for the previous five years, overwhelmed by a series of shocks. And this is another one. Now, you may still believe ultimately this Federal Reserve will look through this shock, but that wasn't a chairman that wanted to make that point in this specific news conference.

[Bloomberg Host]

He didn't want to say the T word, even though essentially this forecast would suggest transitory. He tried to play the part of an oil expert. He tried to play the part of a generative AI expert, but nonetheless he said it is too soon to say so many times over again that we lost count. They are facing off with a series of shocks with the backward view of what happened in the post pandemic era where you had inflation that creeped up to 9%. He will not want to continue that, especially with core PCE creeping higher in the wrong direction before even getting this out.

[Lisa Mateo]

The headline to me, I know we got to get to Dr. Slack, but the headline to me was a lack of dissent. I mean this was very Greenspan and everybody on the same page supporting this

[John]

chairman stand out here, TK and for our listeners and our audience worldwide just tuning in, the decision dropped about an hour and a half ago. The interest rate remained unchanged. The median DOT still implied one cut for this year. Lots of noise, though. Beneath those headlines. The outlook for growth was better. The outlook for inflation was higher. But that single dissent was Governor Myron and Governor Waller was expected to dissent. He sat around this table only a week, two weeks ago and said it depends on the next jobs report. An hour later, the jobs report came in, way weaker than expected. And we all thought we know what the government is going to do? He's going to vote for an interest rate reduction and then he didn't. And that's off the back of the shock of the Middle east. And that's more than notable.

[Bloomberg Host]

Governor Chris Waller I think is arguably the most interesting person on the Fed right now in terms of what his decision actually was driven by. I'm curious if he comes out and says he is getting spooked by the direction of core pce. He's getting spooked by the component of what oil prices do to that. And we talk about wage inflation. We wage inflation is still running above where it was in the pre pandemic period.

[Lisa Mateo]

John, I was looking at F1 in Japan here and you said do something serious. So I looked at the price of oil here. As you mentioned earlier, Brent crude up 81% from whatever the bottom was. Saudi light, Persian Gulf, the physical 145% same number. This is 80% 145.

[John]

It's the point that Jeff Cary of Carlyle was making a little bit earlier on this morning. There's a big gap right now between the physical market where spot is trading and the paper market. And he thinks it needs to close. He thinks the paper market needs to wake up to the real risk emerging in the Middle East. That's one opinion, one view. Other people aren't as concerned, but ultimately that's his opinion.

[Bloomberg Host]

Every oil strategist that comes on says why is everybody else so complacent? What we're seeing is really a different scenario than we've ever seen before. And a lot of people say yeah, yeah, yeah, you guys always get it wrong. And so ultimately this debate will continue

[John]

to what do we say A few weeks ago if you want to make a fool of someone on Wall street, ask for a crude forecast. That's always been the way. It's the hardest thing to forecast. Horse and slok is not a fool. He joins us from Apollo. Torsten, good afternoon. Good to see you. You've had some time to go through this one, your big reaction place.

[Torsten Slok]

Well, I think one interesting thing here is that if we begin to describe everything as another shock, that's another shock. That's another shock. And we're looking through that. It almost make it sound like, well I don't really have to react to anything because I've identified well now there's just another shock coming along in oil prices. There was another shock from trade war. There was another shock from COVID It makes it sound like that you should never do anything as a central banker. So now we have a shock that is very serious and it's very, very clear that they decided to just basically completely ignore the Middle Eastern shock that we're facing here. So from that perspective, it is quite interesting as Lisa is saying, why was it that Wallace suddenly changed his mind? Because it must be that he did put more weight on the Middle Eastern, on the Iranian shock than what the average committee member did here.

[Bloomberg Host]

Do you think that you can infer anything from the price action as John was laying out the idea that 2 year yields and 10 year inflected upward as Fed Chair Jay Powell said that he planned to stay on should there not be another Fed chair nominated in in the seat by the time his term expired?

[Torsten Slok]

Absolutely. Let's just talk about it the way it is. At the last meeting there were 10 people voting for interest rates to stay unchanged. At this meeting there were now 11 people voting for interest rates to stay unchanged. It's very clear. Steve Iran at both meetings voted for rates being lower. But at this instance when he suddenly now says I may be staying on until this is well and truly investigated and complete, the risk is beginning to rise that well, maybe we'll have another hawkish member sitting for a longer period. And assuming therefore that Trump will appoint a more dovish member that does of course lean more towards that, we will have a more hawkish fit if he does stay on for a longer period.

[Bloomberg Host]

Hawkish? Why is he considered hawkish?

[Torsten Slok]

Well, he's hawkish relative to the alternative of a more dovish member coming along.

[Lisa Mateo]

You were weaned at Deutsche bank under Focus Landau with Adam Szaminski and Poland Paul Sanke. Their back of the report Excel spreadsheet was absolutely definitive about the supply and demand of hydrocarbons. Take that experience now and how do you apply that Apollo when you look at the American economy?

[Torsten Slok]

Well, it's very clear when you think about demand and supply in oil that the supply equation just changed quite dramatically now that we suddenly have much less supply because of the Strait of Hormuz being closed and of because all the cascade of effects that are likely to come along if this does continue for a longer period. So on the supply side we will likely continue to have the very important question, namely how long time is it going to last before we get supply up to the levels where demand is. And if that's going to take a longer time, then the risk is that energy prices and oil prices are going to stay more elevated. Is also fuel prices, of course that of course going to jet Fuel is also, of course, fuel prices that are marine fuel. All these parts of energy complex are absolutely seeing some upward lift. And the longer the shock lasts, the more we will see energy prices stay more elevated.

[John]

When does this get real for you? At the start of this crisis, and we can call it that. People came on Bloomberg surveillance on Bloomberg TV and made the point that if it's days, not weeks, it's okay. And here we are more than two weeks into this and now we hear if it's weeks and not months, it's okay. When is it not okay?

[Torsten Slok]

Well, the next one will probably people saying if months is not quarters, then we will also have a change. So you're absolutely right. The fear is, of course, that it does continue at the Fed level. If you put this into purpose, the Fed's model of the US Economy, it has to last at least one quarter because that's the only way you can get a real serious shock to begin to feed through. If it begins to last, of course, several quarters, then it's a much more serious effect. But it is ultimately about that duration question and that's what the market is trying to figure out. And the Fed very clearly told you today that they do not think that this is going to last a long time.

[John]

Mike McKay in the news conference. He's run back out for us. Mike, welcome back to the program. Some key headlines in that news conference. What jumped out for you?

[Mike McKay]

Well, I think two things, John. One, there was a sort of more humble aspect to what Jay Powell was saying when it came to tariff price inflation. Knee was conceding that it wasn't doing what they thought it would do, lasting longer than they had anticipated and now layer on top of that inflation that will come into the energy markets and perhaps others because of oil. And so he was less saying the idea that, well, we're prepared to go either way depending on what happens with the economy. As he was saying, we've been fooled and we're not going to put ourselves in that position. We're going to sit back and wait so that we don't react wrong because we've been wrong. The other thing, of course, was what Powell said about whether he's staying on or not because he's refused to talk about that so far. He did acknowledge what his lawyers told the Department of Justice in their deposition. But the most interesting thing was he said he's staying as chairman pro tem and that's the law. Well, there's a presidential counsel's office memorandum that says no, it's the president who can appoint somebody as the chair pro tem. So we could be looking at another big legal fight down the road if they don't get Kevin Wash in there by May 15th.

[John]

Yeah, Mike, this is where the problems arise with the chairman really engaging in this topic this afternoon. Does it provide consistent consistency or just introduce even more controversy?

[Mike McKay]

Well, he's trying to provide consistency, I suppose, by saying not much is going to change until my successor gets here. But whether or not that's a shot at the President or some sort of way to push back on the pressure he's been getting, we don't really know. But at this point, you have to think the White House is going to disagree with that interpretation of who's chairman pro tem. Now, it's important to realize too that the chairman pro tem of the Board of Governors is largely irrelevant for a short period of time until they get Kevin Warsh confirmed. It's staying as chair of the Open Market Committee that would really bother the President because as Torsten was just saying, leaves somebody who's more hawkish, more likely to vote for a hold on the board.

[John]

Mike McKay with the latest. Thank you, sir. Appreciate it. Great job as always, Mike there at the Federal Reserve down in Washington, D.C. torsten, can you answer that question? We've touched on it briefly with you. Just expand on it. Does it provide consistency or introduce controversy?

[Torsten Slok]

Well, it would definitely be a lot cleaner if you have a fit chair and then that fit chair walks out and a new fit chair sits down and then we continue with the new fit chair.

[John]

That's how it usually works.

[Torsten Slok]

That's how it normally is. That's how we want a Greenspan. I want you on a Yellen under Ben. And now that you suddenly have this issue that the existing fit chair, either he may stay on the committee, which is also a huge issue, or we may not have Kevin Walsh in the seat. And as Mike was just saying, that will raise all these other legal issues around. Well, is this something that you can do or not do? And that of course begins to just raise a lot more uncertainty about Fed independence and what is the institution making of decisions.

[Bloomberg Host]

Do you think that it's leading market participants to not take into account some of the forward guidance or some of the discussions on the Fed that there is less concern credibility as a result of some of the increasing political rhetoric around this institution?

[Torsten Slok]

Well, I think that we are moving towards a Fed where the focus will be at the extreme on dissents. Today we had 11 versus one that was very clear but going forward we are likely going to have especially over the next several quarters as other FOMC members might be leaving, we will have much more scrutiny of what are the existing members saying? What's the difference in the speeches, what's the differences in footnotes between someone who was dovish, someone was hawkish? We are entering an era of Fed watching where things are getting much more complicated because it has this political dimension of why is this person saying this? Is this person staying on the committee for political reasons? It just opens up a whole different dimension to Fed watching than what we've been used to for a long time.

[Lisa Mateo]

Parlor game but you're expert at this on a global basis. The central banker to the world, to borrow from Bill Rhodes, Jerome Powell has to look at the varying energy intensities with Brent crude at nearly 110 a gallon. We've gone 106 to 109 here right now off headlines on the Bloomberg. When you look at the way M is crushed by these prices, food, energy and the rest that you're expert at, Torsten, does the dialog just shift from the conventional parlor game?

[Torsten Slok]

Well, there's been discussion about the swap lines. There's been discussion about in the broader context of things, what is the Fed's mandate and is the Fed's mandate to take care of the US economy and the people who live within the US 50 states? Or is this someone who is supposed to take care of the global economy? And it's very clear that the trend of travel here is certainly seems to be that we're moving towards that the Fed should really be caring maybe about the US economic outlook.

[Lisa Mateo]

Is it expressive currency? Is that what we're not seeing in the Q2?

[Torsten Slok]

Well, given that foreigners own roughly around 20% of treasuries, 20% of credit and roughly the third of course also of equities, we still have a situation where foreigners do play a very important role in US Financial markets. So that key issue of what is the goal of the Fed becomes very, very important.

[Bloomberg Host]

I'm just struck by how historic this is. The last person to stay on at the at the Federal Reserve as Fed chair after his term was Mariner Eccles. This was in 1948 when his term was up and he stayed on because the he was concerned about the post Bretton woods order and an economy that was torn from the war that we had just seen and he wanted that consistency. That was the last time this happened. And I'm struck by the historical parallel at a time when we are Questioning geopolitical alliances when we're questioning how exactly some of these monetary policies are going to work in an inflationary world at a time of increased government debt. It is interesting that we're dealing with the same discussions and I think it can't be forgotten these sort of echoes that we feel from 1948.

[John]

I think it's easy to introduce one's opinion into this situation. So I'll just allow the markets guide us. Clearly the chairman is concerned about a threat to independence. Is he right to be? Look at inflation expectations right now. Market based inflation expectations have remained really well anchored throughout all of this. So whether you're concerned about the Chairman's attack on the institution or not, let's just focus on the markets. Markets have decided it's not a credible threat. So does the Chairman actually have a role here that he needs to play? Is this a card he needs to hand to hold? I don't really understand that. I'm struggling with that. That's something I'm wrestling with. My opinion doesn't really matter. The market's telling me there isn't a concern with central bank independence. The market is telling me there isn't a concern with inflation expectations. And the data is telling me that the rest of the world's not worried either. Because when I look at foreign ownership of US assets, they are rock solid. And for Treasuries I think there are all time highs at the last data point I saw Torsten. So is there a problem here that the Chairman even needs to address?

[Torsten Slok]

Well, that's why the key question becomes what does confidence mean? Is it confidence by Jay Powell? Is confidence by foreigners? Is it confidence by markets? It does become a very important debate. That's why this discussion around who would be the next fair chair now we know it's Kevin Walsh. That was around that time. Also a lot of discussion around it could have been someone else who might not have been perceived as credible as Kevin is. So for that reason I completely agree. Who is the judge ultimately of what Fed credibility is and where do we look and where does the market look for evidence whether Fed credibility is being threatened?

[John]

And look how many establishment figures came out when Kevin Walsh was nominated by the President. How many establishment figures? And forgive me if you're insulted by being establishment. Gita Copenhagen, formerly of the imf. I don't think it gets more establishment than that endorsing Kevin Walsh and saying he'd make a great Fed chair. Mark Carney of Canada, the former governor of the bank of England and now Prime Minister, endorsing Kevin Walsh as a future Fed chair. What exactly is the chairman defending care when it is standard protocol to leave once your time is up?

[Bloomberg Host]

Well, I think that that's a fair question and ultimately my personal opinion doesn't matter. Frankly, I don't know what my personal opinion is. I just think that there is a sense right now in markets to the point that Fed Chair Jay Powell made, that even on Congress's level, they have confidence and they would like to see Fed independence continue. And that's you see in Thom Tillis his move. So what would make him stay on? I guess that that's one of the questions. What would change his mind to actually remain on as governor past his term as Fed chair, if Kevin Marsh were in the seat, that would make him feel like he needed to uphold this Fed independence.

[John]

Jeff Rosenberg of Blackrock joins us now for more. Jeff, I imagine you want to avoid this topic altogether, so I'll ask you about the substance of the news conference, the shock from the Middle east and whether it threatens to upend the outlook for this economy.

[Jeff Rosenberg]

Yeah, I mean, look, the conclusion here on the, on the substance really pivoted on that moment. I would argue, though, that the pivot was less about the conversation about whether he was staying on. And that part of the conversation and really his answer to the question that occurred right before that, that was the question about, hey, aren't you more worried about the employment outlook? And, and he definitively said no to that and then pivoted to the challenge on inflation. And from my reckoning in the meeting, that was the point at which the meeting turned hawkish, because the majority of the discussion around the meeting is around inflation, whether it was the tariff inflation not coming down as much as expected, the unknown impact of energy prices on future inflation. So you have this kind of backdrop, backdrop of forces that are pushing up inflation and disappointing the expectations for inflation to decline in the backdrop of stable unemployment rates. And so that really, I think, pivoted the market reaction to, oh, this Fed is much more hawkish, the front end flattening, the equity markets responding. And that was the moment in the meeting where this moved from what had started out as a kind of dovish statement interpretation, holding the Waller descent to the side for a second into a definitively hawkish press conference.

[Bloomberg Host]

Jeff, I'm looking right now and we've completely priced out a rate cut for 2026. The first rate cut now isn't priced in until July of 2027. Does that matter for risk assets? Does that matter in any way, shape or form or is the Fed been totally sidelined by other events?

[Jeff Rosenberg]

Well, I think it does matter because that's what you're seeing in the markets, right? Risk assets are going down and I think they're going down because of a pricing in of a more hawkish Fed. This is a risk asset market that has benefited for a very long time from a highly accommodative Fed both in terms of price and quantity when you think about the impact of the balance sheet. So as we debate what the future Fed looks like, there's both a price and quantity uncertainty there. But both of those in the past have been highly supportive. When you challenge that, that immediately reprices, you know, the Fed's near term expectations which you're talking about, but also the degree to which that liquidity in price and quantity is supported and will have the outlook continuing to support risky assets.

[Lisa Mateo]

John and I were going back and forth during a press conference about what the flight demand is going to be the first week of September. It's already up 60%. It's moved 60%.

[John]

You want to Milan, you want an

[Lisa Mateo]

F1 already as well as well. Where are we going to be? To both of you, let me start with Jeff Rosenberg here. Demand destruction to me is tangible. When you see a given fancy plane ticket go up 60% or a gallon of gas. What does BlackRock say about demand destruction?

[Jeff Rosenberg]

Well, it's interesting because the last question in the press conference, the premise was if you remember it, how high does it do energy prices have to go before you'll consider are hiking rates? And that just misses this whole point about demand destruction because the scenario where this goes on longer and is more disruptive to oil prices is a scenario where you shift the focus from inflation, which is today's and the last couple of weeks story, to a growth story. And it's not how high do oil prices go before you hike, but how, how high and for how long do oil prices get before, before you cut? And I think that's the swing there.

[Lisa Mateo]

The choice, and that's exactly where I am, is that this is a GDP story of constructing GDP under massive price stress.

[Torsten Slok]

Absolutely. Because now we'll begin to watch on the weekly data, on the monthly data, we have data for how many miles are driven in the US we have data for how much money is spent on gas at the pump. We also have data for fares and how much people are spending on buying airline tickets. So for that reason, if those things begin to come out, especially even the anecdotal evidence of the slowing down. This should begin to be more worrying.

[Lisa Mateo]

Close the loop with you. Utility prices in the United Kingdom, it's the same thing. We're not, I mean I think Jerome Powell is aware of this, frankly, but the zeitgeist is not talking about the GDP demand.

[John]

You're going to get me in so much trouble with regards to the uk They've got a problem over there and his name's at Miliband, I believe it there. And you can sort that out, you see sounds because I live there anymore. I'm going to talk about the shock with COVID and the inverse, the mirror image of what we see now, which is something Jeff Curry of Carlisle was talking about earlier on this morning on Bloomberg tv. In Covid, we had a massive demand shock and it took negative prices to rebalance the market. The Homer's crisis is the complete inverse of that. So you've got a massive supply shock that requires much, much higher prices to rebalance the market. So to your point, the question is whether $100 in the paper market and futures right now, the futures curve going out to December, the prices are, is something in the high 70s is sufficient enough to do that at the moment?

[Torsten Slok]

Well, that's why what's interesting about also what Tom is saying, if you look at the acp, they revised inflation up, let's just agree that makes total sense. But they also revised GDP up, telling you that they're not assuming any demand. So. Well, the textbook would certainly tell you that an oil price shock is stagflation. You get higher prices and lower gdp. And there was no evidence of that in the ACP today.

[John]

Jeff, that's a big question. I think it's an important one. Where's the hit to growth from the higher inflation, from the higher outlook for energy prices?

[Jeff Rosenberg]

Well, it's certainly not in their forecasts and that's, that's the clear kind of takeaway is that the forecasts are basically talking about a temporary transitory, to use that word, impact. So that's not in the forecast. I don't think we want to take too much away from that because if you look at page 16 of the ACP, it talks about the uncertainty in the forecast. The uncertainty in these forecasts is greater than the mean. And so that really tells you there's not a huge amount of forecast accuracy here. So let's kind of put aside that these are actual forecasts of where we're going to go for. What is really important here is it kind of tells us about the tone and the consideration of the committee and that is basically, and Powell talked about this, a little bit of upgrading, the longer term upgrade to growth I think is the message. The little bit of the longer term upgrade to the Fed funds terminal rate going up and it's a little bit of a productivity story, but that is ignoring any kind of short term impact becoming bigger issue for 2026 in the economic outlook from the oil price shock.

[John]

HF it's good to see you. It's great to catch up. Jeff Rosenberg, BlackRock.

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