Instant Reaction: The Fed Decides

Summary

Bloomberg Talks — "Instant Reaction: The Fed Decides"

Date: March 18, 2026
Host: John (Bloomberg)
Featured Guests: Mike McKee, Damien Sasso, Richard Clarida, Stephanie Roth, Diane Swonk, Bob Michael, and others

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Episode Overview

This breaking news episode centers on the Federal Reserve’s latest policy decision: a hold on rates, updated economic projections, the internal dynamics of the FOMC, and the far-reaching impact of inflation, energy shocks, and geopolitical crises (notably unrest in the Middle East). Bloomberg’s expert panel gives real-time analysis on the statement, the implications for markets, and looks ahead to the future of Fed leadership. The conversation explores macroeconomic uncertainty, market reactions, and whether the Fed still holds sway over outcomes in a world shaped by new and powerful shocks.

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Key Discussion Points & Insights

1. The Fed Decision: No Policy Change, One Dissent, Higher Inflation Expectations

• [01:58] Mike McKee:
  • Policy: No rate change, no change in “dots” (rate projections), one dissent (Stephen Myron urging a cut), but notable upward revisions to inflation forecasts.
  • Projections:
    • PCE inflation 2026: up to 2.7% (from 2.4%)
    • Core inflation: up to 2.7% (from 2.5%)
    • Both expected to drop to 2.2% next year, reaching 2% by 2028.
    • GDP revised upward: 2.4% (this year), 2.3% (next year)
    • Unemployment forecast: 4.4% (this year), 4.3% (next), slightly above prior estimates.
    • Neutral rate estimate rises to 3.1% (up a tick).
• Quote:

  "Fed officials see one cut still in 2026 at some point, even though their statement notes that uncertainty about the economic outlook remains elevated." — Mike McKee (02:04)

Market Snapshot at Announcement

• S&P 500 down 0.5%.
• 2-year yield up slightly; 10-year virtually unmoved.
• Initial impression: Markets view the Fed as dovish but largely unmoved by the decision.

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2. Dovish Hold and Consensus in the FOMC

• [04:50] Damien Sasso:
  • The vote was surprisingly united with only one dissent.
  • The updated projections signal a willingness to tolerate above-target inflation for some time without further rate hikes, reflecting a consensus mentality.
• Quote:

  “This is an incredibly dovish hold... highlighting a tolerance for higher inflation and still the belief that it will come down by 2027... without going hiking rates and continuing with rate cuts gives you a sense of where this Fed's mind is at.”— Damien Sasso (04:50)

Inflation Outlook: "Transitory" Without Saying It

• [05:36] John & Damien:
  • Fed forecasts reflect belief that higher inflation is temporary.
• Quote:

  “How do you say transitory without saying transitory?” — Damien Sasso (05:36)

Reaction to Oil and Geopolitical Shocks

• Willingness to "look through" current oil price spike, betting on future normalization.

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3. Fed's Rationale and Internal Disagreement

• [06:43] Bob Michael:
  • Skeptical about Fed’s optimism: projections are inconsistent (higher GDP and inflation but no unemployment movement and unchanged policy).
• Quote:

  "They're telling us don't worry about it. There's a little bit of a near term inflation shock... But it's fine. The economy is going to use that to accelerate. So they increase GDP that I don't get." — Bob Michael (06:43)

"Transitory" & Productivity Booms

• [07:36] Richard Clarida:
  • Admits the Fed appears to be betting on “temporary, not long-lived” inflation (i.e., transitory, though the word is now banned). Points to AI-driven productivity booms and fiscal policy as growth supports.
• Quote:

  "It certainly screams we need, we need a synonym for [transitory]... But the baseline... is dovish, constructive." — Richard Clarida (07:36)

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4. Balancing Growth, Inflation, and Geopolitical Uncertainty

• [09:11] Richard Clarida:
  • Rising energy prices likely to erode real incomes; eventual drag on demand is a risk.
• Quote:

  “...there is no doubt that this is going to squeeze real aggregate demand the longer the oil shock persists.” — Richard Clarida (09:11)

The Fed as "Central Banker to the World"

• [11:17] Richard Clarida:
  • The Fed remains critical to global finance, but its immediate influence is constrained by shocks it cannot control (e.g., oil supply).
• Quote:

  “Yes, the Fed is the central banker to the world but... it's not the main attraction right now.” — Richard Clarida (11:17)

Market View: The Fed as a Bystander

• [10:34] Damien Sasso:
  • "The Fed is playing dodgeball without the ball."
  • Markets and global events (e.g., Middle East conflict) are overshadowing the Fed.

Emerging Markets Perspective

• [12:41] Bob Michael:
  • US dollar remains a safe haven; split within EMs between exporters/importers and mineral-rich/import-poor. Underallocation to EMs remains; tailwinds possible for EM assets.

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5. Succession Uncertainty: The Future of Fed Leadership

• [14:24] Richard Clarida:
  • Unprecedented uncertainty over succession, DOJ investigation of Chair Powell, and pending confirmation of Kevin Warsh.
• Quote:

  “I think Jay Powell will move on once Warsh is in place to, to his, his future life. But his real focus is on maintaining the independence of the institution. And I think he will be in place until war is confirmed and perhaps a meeting or two thereafter.” — Richard Clarida (14:24)

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6. Panel Analysis: Is the Fed Losing its Grip?

• Market Reaction:
  • Despite (or because of) the dovish tone, markets barely respond; the real action is elsewhere.
• Debate:
  • Some lament the Fed’s diminished ability to “save” markets; others celebrate the return of “free markets” with less intervention.
• [16:28] Damien Sasso:
  • “I mean that's kind of a nice thing not to have the thumb on the scale all the time.”

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7. Comparison to the 1970s and 2022: Does the Past Repeat?

• [17:50] Stephanie Roth:
  • Dismisses a direct repeat of 2022 or the 1970s, noting the fundamentals (unemployment, inflation, hiring) are very different now.
• Quote:

  “So the idea that we're going to have a repeat of 2022 seems like a very low likelihood event... the data probably won't support a reflationary type of environment.” — Stephanie Roth (17:50)

• Labor Market Focus:
  • Unemployment remains pivotal for any rate cut scenarios (“they're going to be in an environment where base case is the unemployment rate is probably steady”—Stephanie Roth, 18:43).

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8. Stagflation Fears and Internal FOMC Division

• [21:03] Damien Sasso:
  • Internal FOMC division persists: more members than before see downside GDP risk and upside inflation risk. The threat of stagflation is present but not the Fed’s base case.
• [21:47] Bob Michael:
  • Market is "just looking through the Fed"; market actors do not believe the projections.

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9. Structural Problems and Forward Guidance

• [22:56] Diane Swonk:
  • The US could be facing a "dueling mandate," with the risk that rate cuts might not cure deeper, structural labor market problems and could instead entrench inflation or bring stagflation.
• Quote:

  “A dovish pause is not what I would expect... the problem in the labor market [may be] more structural and systemic, something that rate cuts alone cannot cure... you risk a more persistent bout of inflation or worse, a stagflationary scenario.” — Diane Swonk (22:56)

Forward Guidance Called Into Question

• [25:03] Damien Sasso & Diane Swonk:
  • Fed’s forward guidance has “died”; the central bank is embracing uncertainty and a “wait and see” approach.

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10. Consumer Pain, Fiscal Stimulus, and the Real Economy

• [29:15] Bob Michael & Panel:
  • While fiscal stimulus like tax refunds is helping, rising energy prices (and previously tariffs) act as a tax on households’ disposable income. The “squeeze is real,” especially for lower-income consumers.

Real-World Example

• [30:23] John & Guest(s):
  • Even premium air travel costs are rising instantly—reflects how input cost inflation (like oil) percolates everywhere.

What to Watch:

• [31:04] Bob Michael:
  • Wants clarity from the Fed on:
    • How they are weighing war/geopolitical risks in their mandate.
    • The internal logic behind optimistic growth projections despite macro headwinds.

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Notable Quotes & Moments by Timestamp

| Timestamp | Speaker | Quote / Notable Moment | |------------|------------------|-----------------------------------------------------------------------------------------------------------------------| | 02:04 | Mike McKee | "Fed officials see one cut still in 2026...even though uncertainty remains elevated." | | 04:50 | Damien Sasso | “This is an incredibly dovish hold... highlighting a tolerance for higher inflation…” | | 05:36 | Damien Sasso | “How do you say transitory without saying transitory?” | | 06:43 | Bob Michael | "They're telling us don't worry about it. There's a little bit of a near term inflation shock... But it's fine..." | | 07:36 | Richard Clarida | "It certainly screams we need, we need a synonym for [transitory]... But the baseline... is dovish, constructive." | | 09:11 | Richard Clarida | "...this is going to squeeze real aggregate demand the longer the oil shock persists." | | 10:34 | Damien Sasso | "The Fed is playing dodgeball without the ball..." | | 11:17 | Richard Clarida | "Yes, the Fed is the central banker to the world but... it's not the main attraction right now." | | 14:24 | Richard Clarida | "I think Jay Powell will move on once Warsh is in place... his real focus is on maintaining the independence…" | | 16:28 | Damien Sasso | "I mean that's kind of a nice thing not to have the thumb on the scale all the time." | | 17:50 | Stephanie Roth | “So the idea that we're going to have a repeat of 2022 seems like a very low likelihood event…” | | 22:56 | Diane Swonk | “A dovish pause is not what I would expect... the problem in the labor market more structural and systemic…” | | 25:08 | Diane Swonk | "Absolutely [forward guidance just died]... the devil in the details here is there's a stagflation concern... " | | 29:15 | Bob Michael | “The uncomfortable truth is they're now paying that out again at the pump... energy prices are going to create yet another tax on their disposable income.” | | 31:04 | Bob Michael | “I want to understand how they're thinking about the war and the elevated risk to both sides of their mandate…” |

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Key Takeaways

• The Fed delivered a 'dovish hold': Rates unchanged, projections mark up inflation and GDP, but no additional cuts indicated for 2026—except for one dissenter pressing for a cut.
• Markets shrugged: Despite a more accommodative tone, financial markets had little immediate reaction. Real economic and geopolitical shocks (especially energy) are now viewed as the dominant drivers.
• Fed's internal consistency is questioned: Skepticism emerges regarding the Fed’s analytic optimism: can inflation and GDP rise, but unemployment and policy remain unchanged?
• Geopolitical crisis overshadows central banking: The Middle East conflict, spiking oil, and their real-economy consequences are setting the agenda—more than Fed policy.
• Leadership in flux: The impending Chair transition (with Powell under DOJ investigation, Warsh awaiting confirmation) creates extra uncertainty at a critical moment.
• Forward guidance is dead: Panelists agree the Fed is embracing "wait and see" in the face of unpredictable shocks and questionable efficacy of monetary policy.
• Rising costs hitting real people: Tax refunds and fiscal stimulus provide some buffer, but households and businesses face a rising cost squeeze, especially energy-driven.
• Structural labor market woes: Concerns rise that rate cuts can’t fix deeper systemic or structural weaknesses in employment markets.
• Stagflation remains a background risk: Not the base case for the Fed, but an increasing number of members are acknowledging it as a plausible scenario.

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For Listeners: What to Watch Next

• The Fed’s press conference: how Chair Powell frames the “dueling mandate,” labor market fragility, and geopolitical risk.
• Whether market participants continue to “look through” Fed decisions as shocks dominate.
• The evolution of the energy market and its impact on growth and inflation forecasts.
• The confirmation process and timetable for Kevin Warsh—how Fed leadership continuity and credibility fare in coming months.

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Summary prepared for those who want the key takeaways, decisions, and analysis from Bloomberg’s special episode on the March 2026 Fed decision, without ad breaks or off-topic banter.

Transcript

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[Bob Michael]

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[Damien Sasso]

Bloomberg Audio

[Dan Swonk]

Studios Podcasts Radio News

[John]

this is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world. But that Fed decision. Here's my Nikkei no change in rates,

[Mike McKee]

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

[John]

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

[Damien Sasso]

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

[Guest Commentator]

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

[John]

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

[Damien Sasso]

How do you say transitory without saying transitory?

[John]

It's in there in the forecast and

[Damien Sasso]

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

[John]

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

[Damien Sasso]

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

[Guest Commentator]

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

[John]

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

[Bob Michael]

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

[John]

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

[Richard Clarida]

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

[Damien Sasso]

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

[Richard Clarida]

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

[Guest Commentator]

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

[Richard Clarida]

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

[John]

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

[Damien Sasso]

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

[Guest Commentator]

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

[Richard Clarida]

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

[Guest Commentator]

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

[John]

Oh well well well we call in Australia am no I'm not calling Australia get you in trouble.

[Guest Commentator]

You know I it's watching as again

[John]

though which is life of its own Sydney watching. Well was this was it early morning? Deeply deeply unhappy with that but I

[Guest Commentator]

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

[Bob Michael]

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

[Guest Commentator]

They just went along.

[John]

Australia, you go back to back hikes at the emerging markets central bank over the RBA see that. Honestly some offended people down under right now.

[Damien Sasso]

I'm not wearing in on this one but I will say, I will say that tomorrow will be really interesting at the BOE and the ecb.

[John]

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

[Richard Clarida]

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

[John]

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

[Damien Sasso]

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

[John]

It's exciting.

[Damien Sasso]

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

[John]

The change. All right, it's a change I'll get off. Stephanie Roth of Wolf Research, I can see how excited you are. You're not alive. Been waiting for that moment for a long, long time. Major moves, 5% away from all time highs.

[Damien Sasso]

Even the Japanese market. It's now exciting.

[John]

They're actually trade in the benchmark in Japan trading.

[Damien Sasso]

There's actually traders.

[John]

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

[Stephanie Roth]

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

[Damien Sasso]

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

[Stephanie Roth]

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

[Guest Commentator]

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

[Stephanie Roth]

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

[Richard Clarida]

Right.

[Stephanie Roth]

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

[Guest Commentator]

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

[Bob Michael]

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

[Guest Commentator]

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

[John]

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

[Bob Michael]

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

[Damien Sasso]

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

[Bob Michael]

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

[John]

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

[Stephanie Roth]

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

[John]

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

[Dan Swonk]

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

[Damien Sasso]

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

[Dan Swonk]

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

[Guest Commentator]

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

[Dan Swonk]

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

[John]

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

[Dan Swonk]

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

[John]

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

[Damien Sasso]

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

[Guest Commentator]

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

[John]

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

[Bob Michael]

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

[John]

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

[Damien Sasso]

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

[Guest Commentator]

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

[John]

You're pretending you don't fly business class. That's not what you do.

[Guest Commentator]

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

[John]

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

[Damien Sasso]

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

[Richard Clarida]

experiencing it for everybody to know.

[John]

We live in different worlds.

[Guest Commentator]

Everybody out in the world world. John and I are in steerage and you're on the Gulf Stream.

[Damien Sasso]

That is such a load of nice.

[John]

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

[Bob Michael]

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

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[Damien Sasso]

Has the news been getting you down? I'm Megan McCardell and I'm here to help. I'm the host of a new show from Washington Post Opinion called Reasonably Optimistic and it's an antidote to the pessimism

[Richard Clarida]

that's riddling America right now.

[Damien Sasso]

Every Wednesday I'm going to talk to people who see a path forward.

[Bob Michael]

It does seem to me that there

[John]

is some awakening of a desire to act together to solve problems where they are. You know, I am a believer in America and that's worth fighting for.

[Damien Sasso]

Join me Wednesdays on YouTube or wherever you get your podcasts.