YouSaid · the spoken record

Bob Elliot

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2024-11-08
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2024-11-08
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  1. “Situation is an interesting one because you know, I don't know about you, but I was quite surprised to see like zero questions about quantitative tightening and that path there. Feels like that was sort of a layup to ask at that situation because, you know, the smart folks I really dig deep on Fed plumbing were felt like roughly like Q1 of 2025 is when we might see that end. So it felt like especially with the context of surging long bond yields, they might signal something about that ending, but there were zero questions about it and zero comment from himself as well. Did that surprise you? Because I don't know. It just feels like, do you think it's like just being complacent about what's going on with the long bond yields? Or what do you think is going on there?”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  2. “Years in terms of the level of the 10 year bond, you know, we've been in this range between 375 and 5, 4.4 doesn't look particularly extreme. What that highlights is that bonnules could rise, you know,”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  3. “Many investors. And you typically see yields rise and a curve steepening. And like, you know, pretty much that's what we got. Now, I think that was, I describe it as that was sort of enhanced by the fact that we had some positive growth surprises on top of the implementation of the monetary policy and a little bit probably from the election dynamics, though it's probably like modest relative to the other factors at play. And so, you know, I think from the Fed's perspective, the long rate rising is not, it has not risen sufficiently to raise concerns for them. I think it was pretty clear about that because, and I think that that's part of it's actually a pretty reasonable take because like, look, growth's stronger than expected in the current level of yields is about, you know, is 4.4, which is basically where we've been for the last couple of years.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  4. “I think in terms of the rise in Baniels, just the day after the Fed made their policy announcement in September basically said this is over easy monetary policy, right? You're easing into a relatively strong economy and the Fed is comfortable with easing into a relatively strong economy. And that sort of choice is it's a bit unusual. Typically, central banks don't behave that way. Typically, they only agree ease aggressively in an environment of falling growth. But easing into a reasonably strong economy is something that does come up. You know, you see it in a lot of times in emerging economies. And the sort of dynamics that you typically see during that are pretty clear, which is that stocks and gold outperform in that country's currency and that, you know, bonds are eschewed by”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  5. “And that implication of, yeah, what you've been calling this over easy monetary policy is really interesting because there's a few questions that were pose at him about what's been going on in the long bond there and the surging yields. So, you know, obviously, like if you just look at the price action since the first cut, what the long bond yield has been doing in the last month is it's absolutely absurd in terms of the increase. And obviously that's notable. He tried to basically swat that away any sort of like concern about that. You know, obviously he was saying that he was trying to decompose what were the actual price drivers of that move because, you know, there's a few things happening at the same time there. But what was your reaction to just him not really caring about what's going on with the long bond there and just in the long bond in general? Like what has been the key driver for you? Has it been that 50 bits cut? Has it been the economy just being better than expected? Is it a Trump thing? What are you seeing there?”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  6. “Like literally, like what information would Term Apollo have to have in order for him to change his mind that interest rates are very restrictive at these levels and that inflation is beat? And my sense is like nothing would change his mind. And so, and in particular, it was interesting. He even acknowledged at the beginning of the presser in the first couple questions like, yep, growth is strong and stronger than we expected and inflation is elevated and higher than we expected. But cuts are coming anyway, basically in line with the SCP that we outlined in September. And that's, you know, that's that right there is the perfect instantiation of what over easy monetary policy really is all about, which is regardless of the data, regardless of the risks to inflation. You keep cutting, and that's the path we're on.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  7. “The press conference basically confirmed my suspicion that Chairman Powell endorses a continuation of cuts despite the fact that he even recognizes that the economy is in pretty good shape. And the reason why that is because he believes that inflation is beat. And one of the most sort of torturous parts of that whole conversation was having to listen to him rationalize why inflation is absolutely no matter what definitely 2%. And don't you ask any more questions about it? Because I will torture every piece of information that is available to confirm my bias that inflation is basically 2%. And I won't take any other information in that would raise a question about it. And so I think for me, what that does is it raises the question.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  8. “I mean, this is a good swag way into some of the key points that I saw in the press conference where to your point, they're cutting into what feels like a pretty darn good economy. But when you hear what he's talking about, you know, in his dual mandate, first off on inflation, he mentioned that he was looking at mostly like three month and six-month annualized core PCE, and he mentioned that at like 2.3%. And he's like, well, you know, we see that consuming it to 2%. I don't know. We're not worried about that. And then he mentioned pretty off the cuff that he felt like the current labor market is somewhat cooler than it was in 2019, which was interesting to me. So with that, you know, framing in mind, I just want to hear like what are some of the main takeaways you had from that press conference and what does that entail into how they're thinking about the economy versus what you're saying, which is that it seems like, and I agree with it, is that we're at a pretty good spot, you know, in terms of economic strength.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  9. “The cuts are coming, and they're not going to be aggressive, but they're also not going to be, you know, holding rates at current levels for an extended period of time. And so, you know, you basically get roughly a cut, you know, somewhere between every, you know, roughly every other meeting, maybe a little faster than that. That seems about what I'd expect given the reaction function that they're outlining. Now, whether that is prudent policy, that's a whole different story. Important story from a person who's trading asset markets, right? You know, cutting into an economy that still has unemployment, you know, basically just off multi-decade lows. Growth is still running at 2% to 3%. Inflation is above their mandate. Like all of those things would suggest hesitance to cut further, but the cuts are coming.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  10. “Yeah, right now we're seeing roughly another 75-ish basis points for the next six months or the remainder of the six months, 100 basis points, including of total cuts, including today, and 150 basis points since September seems about right. Like it seems about right in the sense of seems like a plausible, even money view on what the Fed is likely to do over the course of the next six months. I don't see a lot of screaming value on one side or the other when I look at that trade. Certainly if I compare it to other times like when there were seven cuts price in for 2024 to begin the year or things like that, this is much more aligned. And I think basically, Chairman Powell confirmed roughly no matter what.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  11. “With that context, obviously, you know, there's some hints of what they'll do in December. I just quickly looked at the curve and it was, I don't know, maybe like 75% odds of another cut in December. And then obviously there's discussion of how many more rate cuts occur 2025 onwards. For me personally, it was insightful to see that there was no dissent this meeting as opposed to last meeting where Bowman dissented. So everybody was on board with the cut at this juncture. But when you compare to their SEP from September where it was pretty divided on whether we would see today we got the 25s, but then it's like it wasn't certain whether they expected to see another 25 by year end. Within that context.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  12. “Profit growth. And if you think about it in that context, the current level of interest rates is looks much less elevated in the context of, say, income growth, household income growth running at 5% or 6% on an annualized basis or revenue growth running at a 5% or 6% basis on a 5 or 6% growth rate basis. And so when you think about it that way, the idea of being very restrictive kind of falls away. And frankly, those measures are more in line with the empirical evidence of how restrictive those rates have actually been than looking at sort of a real rate perspective.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  13. “Yeah, I think it's probably the worst way to think about this. And from a Fed's perspective, now, of course, do real interest rates matter just sort of in a general sense, of course, like the difference between 10% interest rates when inflation is 10% and 10% interest rates when inflation is 2%. Those are obviously very different paths, but that's not what we're talking about here. What we're talking about is the current level of interest rates, you know, relative to inflation around two to three percent. And I think in a lot of ways, you don't really want to think about interest rates when you're thinking about how stimulative they are or restrictive. You don't really want to think about them relative to CPI because CPI isn't a great indication of the ability to pay. A much better indication of an ability to pay is to think about interest rates relative to, for instance, income growth or revenue growth or”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  14. “I feel like one of the big debates is looking at whether you believe to look at interest rates from a nominal or a real perspective. And so a lot of the idea of restrictiveness is hung up on this idea that, oh, if you look at like real Fed funds, right? It's highly elevated from a cyclical perspective. Do you think that idea is flawed of looking at it in terms of like real Fed funds?”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  15. “Evidence would suggest that the rates around five are neutral because they are the level of rates that leads to a stable set of economic conditions for an extended period of time. Chairman Powell doesn't see it that way. I'll remind you that Chairman Powell said that interest rates above 2% were restrictive in 2022 when he was when he was starting the process of hiking. And so I don't think he has a lot of credibility in terms of determining what the neutral rate is, but nonetheless it's guiding his policy and his policy is predominantly based upon the unfounded belief that interest rates are meaningfully restrictive at current levels.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  16. “When you think about a neutral interest rate, I think there's basically two different ways that you can approach it. You can approach it from a theoretical model-based perspective, which is mostly how the Fed approaches this problem when they're thinking about what RSTAR is. Or you can look at it from an empirical perspective, which is, I think, basically the way that most macro investors look at this. And when you look at it from an empirical perspective, here's the basic picture, which is that we've had interest rates at roughly this level or higher for the course of the last two plus years on both the short end and the long end. And we've seen real GDP growth be two to three percent during that entire time and nominal GDP growth be 5 to 6 percent pretty stable. And so if you look at that and you consider that like the empirical...”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  17. “Really seeing that way. So, you know, it feels like one of the main points of contention right now on this rate cutting path is whether you believe we are in restrictive territory or not. Something you mentioned in the press conference was that he still felt like they were restrictive by the way at least he perceives it. But I know yourself and many others potentially see it in different ways. And I feel like that has a lot of implications on how much into this rate cutting path that they get and also what are the impacts from it. So, you know, it sounds like, as I said, he really reiterated that he still and FMC still view it as above neutral, i.e. restrictive. Do you agree with that or do you disagree with it? And what does that say for the implications of, say, a December meeting and, you know, as far as like early 2025 in terms of the overall return in neutral and where that actually is?”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  18. “Yeah, I think mostly the statement and the 25 basis point guide was largely in line. I think I read the statement. There's some tweaks here and there and you could maybe try and infer like a little bit more hawkishness from the statement than the statement six weeks prior. But the big picture story is that it was basically a confirmation of the Fed continuing down the path that they laid out, and particularly Chairman Powell laid out six weeks ago in terms of a shift in policy. And that was a continuation of what when he said the direction of travel for rates is clear at Jackson Hole. And it looks like they're continuing down that path, data or prudence be damned.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  19. “Yeah, yeah, there's no shortage of things to talk about, that's for sure. We're going to fill this hour up pretty quick here. Well, let's start off with the top line from the FOMC. We'll start with the FOMC, then we'll get into election and impacts from that, et cetera, et cetera. So obviously we got the 25 bits cut that was entirely expected by the markets. But just want to get your high level view of some of the main takeaways, at least from the initial statement and the rate change decision. And then we can get into some of the specifics on the press conference after.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT

  20. “Yeah, for sure. Thanks so much for having me. Congrats on taking this over. And I think given a new flavor of the pod. And so I'm happy to be here for my first time and probably couldn't be a more consequential after a more consequential couple of days than the last few days.”

    2024-11-08 · Forward Guidance · Biggest Takeaways From The Fed Interest Rate Decision | Bob Elliot · IDENTIFIED FROM THE TRANSCRIPT