Instant Reaction: Fed Holds Rates, Three Officials Dissent

Summary

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Bloomberg This Weekend

Episode: Instant Reaction: Fed Holds Rates, Three Officials Dissent

Date: April 29, 2026

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Episode Overview

This episode delivers an immediate, in-depth analysis of the Federal Reserve’s latest policy decision: to keep interest rates unchanged amid heightened dissent within the committee, with four officials voting against the consensus. The conversation unpacks the implications for monetary policy, market reactions, inflation risks, the Middle East conflict’s economic effects, and the forthcoming transition in Fed leadership. The hosts are joined by expert guests including JP Morgan’s Bob Michael, Wolf Research’s Stephanie Roth, Citi’s Kate Moore, and regular Bloomberg analysts.

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Key Discussion Points & Insights

1. Fed Decision and Unprecedented Dissent

• Decision Recap: The Fed held rates steady, but four FOMC members dissented—the highest level of dissent since October 1992.
• Nature of Dissents: Three wanted the statement to avoid an "easing bias," while one called for a rate cut.
• Historical Context: “It's very, very unusual. Obviously it has been almost 30 years since we've seen anything like this and it is definitely a sign that the Fed is split over this question.” — Lori Logan (04:24)

2. Implications for Future Rate Policy

• Symmetrical Policy: The dissents signal movement towards a more balanced or "symmetrical" policy stance, rather than continued easing.

• Market Interpretation: The dissent is itself a signal to markets, introducing “two-way risk” — markets should now consider the possibility of both hikes and cuts.

  “Haven't they achieved the same thing? You don't need it in the statement. Haven't the dissents achieved the same thing?”
  — Mike McKay (12:54)

• Impact on Cuts: Market expectations for rate cuts this year have evaporated, with futures pricing out any 2026 cuts as well.

3. Market Reactions (Equities, Bonds, Commodities)

• Equities: Modest declines across S&P, with significant underperformance in small caps (Russell 2000 -1%).
• Bonds: Short-term yields rose steeply.

  “With this move at the front end of the curve, as I mentioned, up 10 basis points. 394, let's call it 393.” — Mike McKay (15:00)

• Commodities: Oil (Brent) climbed to $118, up 6%, reflecting ongoing Middle East tensions and supply fears.
• Dollar: Showing strength post-decision, reflecting more hawkish tones.

4. Drivers Behind the Fed's Divide

• Inflation: Inflation described as “elevated” rather than “somewhat elevated” in the Fed statement—indicating greater concern over persistent price pressures.

  “They remove the 'somewhat.' And it's just 'elevated.' So they're telling us they are increasingly concerned about the level of prices, the level of oil...”
  — Bob Michael (08:10)

• Geopolitics: Middle East conflict seen as increasing uncertainty, fueling higher energy prices.
• Economic Outlook: While activity is solid and consumer strength persists, stimulus is still flowing, and huge corporate capex is ongoing.

5. Leadership and Central Bank Independence

• Powell’s Tenure: This may be Chair Jay Powell’s last meeting.

• Transition to Walsh: Incoming Chair Kevin Walsh faces a divided committee and market skepticism about central bank independence.

  “Good luck convincing some of these folks that it's time to cut rates and potentially overhaul the whole system.”
  — Bloomberg Host (07:54)

• Fed Independence: Dissent is framed as a sign of independence, not dysfunction, and possibly helpful for Powell’s departure and Walsh’s arrival.

6. Broader Economic and Political Context

• Stimulus and Capex: Massive fiscal spending (“one big beautiful bill”) still working through the system, supporting growth.
• Consumer Health: Despite survey anxiety, spending and earnings remain strong, especially in tech and among large caps.

  “Despite all these negative surveys, people feeling uncomfortable...they're continuing to operate more ba you.”
  — Kate Moore (21:34)

• Market’s Resilience: Earnings season is robust—tech giants are a ballast to the market.

7. Risks and Open Questions

• Inflation vs Growth: Will the economy absorb higher energy prices and borrowing costs, or will growth falter?
• Rate Hikes on the Table?: Lowered bar for future hikes—a shift from the previous easing bias.
• Inequality Concerns: Questions about whether the current policy mix favors “haves” over “have nots.”
• International Impact: Concerns particularly acute abroad, with geopolitical risks and inflation hitting selected geographies harder.

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Notable Quotes & Memorable Moments

• On Committee Division:
  “This really highlights the committee aspect of this and that Fed Chair Jay Powell, for all of the job voting from the president, sits on the more dovish end of this.”
  — Bloomberg Host (05:32)

• On Groupthink and Dissent:
  “Group think has been a problem at this institution for the last five years. I wouldn't look at that as a committee that's voted down the chairman... This feels somewhat different.”
  — John Farrell (06:18)

• On Messaging to the Incoming Chair:
  “This is less a message about Jay Powell and more a message to the incoming Fed chair. Hey, we could be dissenting. Get prepared for that.”
  — Bob Michael (08:10)

• On Market Impact:
  “It's not outright hawkish, but it's more hawkish than where they've been.”
  — Bob Michael (13:55)

• On Fed’s Mission:
  “The first rule for any central banker, any real central banker, anchor inflation expectations. This is part of that exercise.”
  — Mike McKay (07:30)

• On Transition:
  “I think they are genuinely as a body trying to get their arms around that. And there are a group of people who are courageous enough to step forward and do something different than what's been done in the past.”
  — Bob Michael (26:49)

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Key Segment Timestamps

• Fed Decision & Dissent Announced: 02:01–03:40
• Market Reaction & Symmetry Debate: 03:40–08:47
• Dissent as Fed Independence: 08:47–10:09
• Prospects for Policy & Market Dynamics: 10:45–15:18
• Tech Earnings & Broader Markets: 16:03–18:35
• Middle East Headlines & Economic Fallout: 19:31–21:06
• Consumer Data vs Sentiment: 21:34–22:29
• Fed Cuts Priced Out—Future Outlook: 23:36–26:01
• Have/Have-Not Debate, Next Meeting Preview: 26:32–28:00
• Perspective on Powell’s Tenure and Legacy: 30:22–31:08

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Tone and Style

The discussion is direct, fast-paced, and insightful, blending financial technicalities with candid banter. The analysts weigh historical context, real-time market moves, and the complex interplay between economics and politics—often with an undercurrent of wry skepticism about Washington’s intrigues and market expectations.

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Summary Takeaways

• The Fed’s static policy belies a historic, very public split over future direction, mainly about messaging rather than immediate action.
• Market participants perceive a hawkish shift, with higher-for-longer rates and no more 2026 cuts expected.
• The atmosphere is one of uncertainty: inflation remains a top concern, geopolitical risks are front and center, and economic policymakers are navigating without consensus.
• Incoming leadership faces a challenging environment—dissent is both a risk and a signal of renewed intellectual rigor at the Fed.

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This episode is essential listening for anyone wanting to understand the current crossroads in U.S. monetary policy, market psychology, and the real-world effects of geopolitical uncertainty on economic strategy.

Transcript

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[Bloomberg Host]

Radio News

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this is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000

[Mike McKay]

journalists and analysts around the world. Mike McKay as your decision.

[Lori Logan]

No change in rates, but we have four four dissents. Lori Logan, Beth Hammock Neel Kashkari agreed rates should stay on hold, but they did not support including an easing bias in the statement at this time. Stephen Myron wanted a quarter point cut the last there were four dissents October 6th of 1992. As for that easing bias, the statement still contains the phrase in considering the extent and timing of additional adjustments to the target range, a line meant to suggest that the easing cycle has not necessarily ended. The Iran war figures prominently in the economic overview. Inflation is elevated, in part reflecting the recent increase in global energy prices, the statement says. Developments in the Middle east are contributing to a high level of uncertainty about the economic outlook. The committee remains attentive to the risks on both sides of its dual mandate, it says, even though recent indicators suggest that economic Activity has been expanding at a solid pace. Job gains have remained low on average, the statement says, and the unemployment rate has been little changed in recent months. The dissents open up a whole new line of questioning for Chair Powell. Four dissents would ordinarily be a sign of discontent with the chair. Since this is likely Powell's last meeting as the chair, it may not be anything more than expressions of concern about the toll of the war. At each meeting this year, the number of Open Market Committee members who have worried they might have to raise rates has increased. We shall see when we get a chance to talk to the chairman.

[Mike McKay]

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

[Lori Logan]

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

[Mike McKay]

Mama K, appreciate your time. You get in the news conference. Looking forward to your line of questioning a little bit later. That news conference, 27 minutes away. We have an 8 to 4 vote at the Federal Reserve. That's some level of dissent. Yeah.

[Bloomberg Host]

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

[John Farrell]

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

[Mike McKay]

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

[Bloomberg Host]

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

[John Farrell]

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

[Mike McKay]

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

[Bloomberg Host]

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

[Mike McKay]

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

[Bob Michael]

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

[Mike McKay]

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

[Bloomberg Host]

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

[Mike McKay]

I'm not suggesting this was choreographed or

[Bloomberg Host]

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

[Mike McKay]

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

[Stephanie Roth]

Yeah, I mean, I think 1. It tells us that the committee is certainly divided and they're not going to be a committee that's willing to just cut rates because Warts wants them to do so. And it's also interesting because in the, in the hearing last week, Wash noted that he wants debate in the room, but he wants a more unified statement. And that's certainly not what we got today. So the odds of cuts later this year certainly should go down on the back of what we're seeing today. It's just a committee that certainly doesn't even want to have an easing bias, let alone easing in the near term.

[Bloomberg Host]

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

[Stephanie Roth]

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

[John Farrell]

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

[Bob Michael]

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

[John Farrell]

Can I do an audible?

[Mike McKay]

Yeah, you're about to do an article

[John Farrell]

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

[Bob Michael]

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

[Mike McKay]

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

[Bob Michael]

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

[Mike McKay]

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

[Bob Michael]

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

[Bloomberg Host]

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

[Bob Michael]

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

[Mike McKay]

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

[Bob Michael]

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

[Mike McKay]

And what does that mean?

[Bob Michael]

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

[Mike McKay]

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

[Bob Michael]

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

[John Farrell]

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

[Lori Logan]

I'm aware.

[Mike McKay]

Tends right now at441 with this move at the front end of the curve, as I mentioned, up 10 basis points. 394, let's call it 393. Equities start to break down just a little bit. Don't make too much of this. We're down by 0.3% on the S&P 500. You will notice Brown, the underperformance in a Russell down by 1% plus.

[Bloomberg Host]

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

[Mike McKay]

Children's costumes.

[Bloomberg Host]

I had to buy a lot of

[Mike McKay]

those ahead of Halloween.

[Bloomberg Host]

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

[Mike McKay]

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

[Kate Moore]

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

[Bloomberg Host]

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

[Kate Moore]

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

[John Farrell]

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

[Kate Moore]

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

[Mike McKay]

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

[Bloomberg Host]

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

[Mike McKay]

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

[John Farrell]

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

[Kate Moore]

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

[Mike McKay]

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

[Bloomberg Host]

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

[Mike McKay]

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

[Bloomberg Host]

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

[Mike McKay]

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

[Bob Michael]

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

[Bloomberg Host]

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

[Bob Michael]

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

[John Farrell]

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

[Bob Michael]

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

[John Farrell]

What will the next meeting look like for you? If you guess right now what the

[Bob Michael]

next meeting will look like, I think there will be a lot more two way debate on whether they should be hiking rates.

[John Farrell]

Right.

[Bob Michael]

Will they have to cut rates down the road or they'll. Will they?

[John Farrell]

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

[Bob Michael]

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

[Mike McKay]

I got a personnel question when the next mate should be Chairman Walsh. Is Powell there or not?

[Bob Michael]

I don't think he will be.

[Mike McKay]

You think he steps away?

[Bob Michael]

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

[Bloomberg Host]

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

[Bob Michael]

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

[John Farrell]

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

[Mike McKay]

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

[Bloomberg Host]

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

[Kate Moore]

Risk.

[Bloomberg Host]

What does the market do with that?

[Mike McKay]

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

[Bloomberg Host]

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

[Mike McKay]

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

[Bob Michael]

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

[Mike McKay]

But Michael, appreciate your time, sir. Thank you, Bob. Michael there of J.P. morgan.

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