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>> [music]

>> Bloomberg Audio Studios. Podcasts,

radio, news.

This [music] is a breaking news update

from Bloomberg.

Instant reaction and analysis from our

3,000 [music] journalists and analysts

around the world. The chairman of the

Federal Reserve, if that was a good

meeting to scrap the forecast, then this

one was probably it. The chairman

deemphasizing the projections,

reemphasizing 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. In session lows

right now, down 1% on the S&P 500,

likewise on the NASDAQ. In the bond

market, twos, 10s, and 30s, yields

higher, particularly at the front end of

the yield curve, up by seven basis

points on a two-year 3.75.

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.

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.

Three points from the chairman of the

Federal Reserve. Let's go through them

individually. Point one, I will stay on

as 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.

>> 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 Warsh is in the seat.

There's this question of what as 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.

>> 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 wanted to bring

up, 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 on the margins,

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. Per 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 chairmanship.

>> go out to the you'll go out to the

specter of the new forward. I like what

Liz Ann Saunders at 3:30 and Claudia

Sahm. Finally, Powell throws the SCP

under the bus. Skip it. Thank you, Dr.

Sahm,

for that. My observation, John, is it's

10:21 p.m. in Doha,

and I'm looking at the headlines while

the chairman's speaking, and I get the

Warsh view forward and 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 Iran the Iran

headlines that we get out of Tel Aviv,

and we're getting out of Dubai right now

from Bloomberg.

>> is what 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

the Yes. 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.

>> 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 crept

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 well.

>> to me, John, I know we got to get to Dr.

Slock, but the headline to me was a lack

of dissent. I mean, this was very

Greenspanian, everybody on the same page

supporting this chairman.

>> 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 Miron.

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 governor's 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 in the

Middle East, and that's more than

notable. 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. Wage

inflation is still running above where

it was in the pre-pandemic period.

>> And John, I was 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 market. 145%.

Same number. 80%, 145.

>> It's the point that Jeff Currie of

Goldman Sachs 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.

>> 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

to play out.

>> 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. Torsten Slock 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, please. Well, I think one

interesting thing here is that if we

begin to describe everything as another

shock, there's another shock, there'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 have 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 Waller suddenly change

his mind? Because it must be that he did

put more weight on the Middle Eastern

and the Iranian shock than what the

average committee member did here. Do

you think that you can infer anything

from the price action as John was laying

out? The idea that two-year yields and

10-year yields inflected upward as Fed

chair Jay Powell said that he planned to

stay on should there not be another Fed

chair nominated and in the seat by the

time his term expired.

>> 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 that Steven Miron 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.

>> got hawkish? Why is he considered

hawkish? Well, he's hawkish relative to

the alternative of a more dovish member

coming along. You were winded Deutsche

Bank under focus land out with Adam

Siminski and Paul Sankey. 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

at Apollo when you look at the American

economy? Well, it's very clear when you

think about demand and supply and 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

course 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 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. It's also fuel prices of

course that are of course going to jet

fuel. It's 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.

>> 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 2 weeks into this

and now we hear if it's weeks and not

months, it's okay. When is it not okay?

Well, the next one will probably be what

people are saying if it's months and not

quarters, then we will also have a

change. So, you're absolutely right. The

fear is of course that if this 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. Mike

McKee 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?

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, he was a 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 he he 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 uh 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. Uh he did

acknowledge what his lawyers told the

the Department of Justice in the 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 Warsh in there by May 15th. Yeah,

Mike, this is where the problems arise.

With the chairman really engaging in

this topic this afternoon, does it

provide consistency or just introduce

even more controversy?

>> [clears throat]

>> 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 uh or some sort of way to push

back on the pressure he's been getting,

we don't really know. But uh at this

point, uh 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

uh confirmed. It's staying as chair of

the Open Market Committee that would

really bother the president because

Torst as Torsten was just saying, leaves

somebody who's more hawkish, more likely

to vote for a hold on the board. Mike

McKee with the lights as 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? Well, it would definitely

be a lot cleaner if you have a Fed chair

and then that Fed chair walks out and a

new Fed chair sits down and then we

continue with a new Fed chair. That's

how it usually works.

>> That's how it normally is. That's how it

was under Greenspan, under Janet Yellen,

under Ben Bernanke. But now that you

suddenly have this issue that the

existing Fed chair, either he may stay

on the committee which is also a huge

issue or we may not have Kevin Warsh in

the seat and as Mike was just saying,

that will raise all these other legal

issues around whether 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. 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 credibility

as a result of some of the increasing

political rhetoric around this

institution?

>> think that we are moving towards a Fed

where the focus will be at the extreme

on dissents. At 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 differences in 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.

>> game, but in your 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 at right now on headlines on

the Bloomberg. When you look at the the

way EM is crushed by these prices, food

energy and the and the rest that you're

expert at, Torsten, does the dialogue

just shift from the conventional parlor

game? Well, there's been discussion you

know 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

in 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 mainly about the US economy also.

Is it expressive currency? Is that what

we're not seeing in the Q2? Well, given

that foreigners own roughly around 20%

of treasuries, 20% of credit and roughly

a 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. 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 Marriner Eccles. This

was in 1948 when his term was up and he

stayed on because 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 just I'm struck by the

historical parallel at a time when we

are questioning geopolitical alliances,

when we're questioning how exactly uh

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.

>> 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're rock solid and for treasuries, I

think they're at all-time highs at the

last data point I saw, Torsten. So, is

there a problem here that the chairman

even needs to address? Well, that's why

the key question becomes what does

confidence mean? Is it confidence by Jay

Powell? Is it confidence by foreigners?

Is it confidence by markets? It does

become a very important debate. That's

why this discussion around who will be

the next Fed chair. Now we know it's

Kevin Warsh. There was a round that time

also a lot 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?

>> And look how many establishment figures

came out when Kevin Warsh was nominated

by the president. How many establishment

figures and and forgive me if you're

insulted by being establishment. Gita

Gopinath, formerly at the IMF. I don't

think it gets more establishment than

that endorsing Kevin Warsh and saying

he'd make a great Fed chair. Mark Carney

of Canada,

the former governor of the of England

and now Prime Minister endorsing Kevin

Warsh as a future Fed chair. What

exactly is the chairman defending care

when it is standard protocol to leave

once your term is up?

>> Well, I think that that's a fair

question. And ultimately,

my personal opinion doesn't matter. And

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 Tom Tillis's 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

his governor past his term as Fed chair?

If Kevin Warsh were in the seat, that

would make him feel like he needed to

uphold this Fed independence.

>> 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.

Yeah, I mean, look, the the conclusion

here on the on the substance really

pivoted on that moment. I I I would

argue though that the pivot was was less

about the conversation about whether he

was staying on and and 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 he definitively

said no

to that and and then pivoted to the

challenge on inflation. And from my

reckoning in the meeting, that was the

point at which the the meeting turned

hawkish because the 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 of forces that are

pushing up inflation and disappointing

the expectations for inflation to

decline in in the backdrop of stable

unemployment rates. And so, that really

I think pivoted the market reaction to a

uh-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 this

moved from what had started out as a

kind of dovish statement interpretation

holding the Waller dissent to the side

for a second into a definitively hawkish

press conference. 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 has the Fed been totally

sidelined by other events?

Well, I think it does matter because

that's what you're seeing in the

markets, right? Risk assets are going

down and 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 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 and price

and quantity has supported and will have

the outlook continuing to support risky

assets.

>> Jeff, John and I were going back and

forth during the press conference about

what the flood demands is going to be

the first week of September. It's

already up 60%. It's moved 60% in the

Milan You want an F1 race already as

well. up 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?

Well, well, it's interesting because the

the last question in the press

conference, the premise was, if you

remember it, how high does do energy's

prices have to go before you'll consider

hiking rates? And 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 and

really 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 high how high and for how long do

oil prices get before you cut?

And I think that's the the the the swing

there. Jeff, that's that's exactly where

I am is that this is a GDP story of

constructing GDP under massive price

stress. 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

airfares 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 this slowing down,

this should begin to be more worrying.

Jeff, Jeff, 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's aware of this,

frankly, but the zeitgeist is not

talking about the GDP demand

>> to get me in so much trouble with

regards to the UK. They've got a problem

over there and his name's Ed Miliband.

I'm going to leave it there. And you can

sort that out yourselves cuz I don't

live there anymore. I'm going to talk

about the shock with COVID and the

inverse, the mirror image of what we're

seeing now, which is something Jeff

Currie of Carlyle 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 whole mess 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 and the

futures curve going out to December, the

price is something in the high 70s, is

sufficient enough to do that at the

moment.

>> Well, that's why what's interesting

about also what Tom is saying, if you

look at the SCP, 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 destruction whatsoever. 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 SCP today. 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?

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 I

don't think we want to take too much

away from that because if you look at

page 16 of the SCP,

uh 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 of the

committee. And that is basically and 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 [music]

oil price shock.

>> Hi Jeff, it's good to see you. It's

great to catch up. Jeff Rosenberg there

at BlackRock.

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