Instant Reaction: The Fed Decides

**SPEAKER_1** (0:02)
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**SPEAKER_2** (0:09)
This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.

**Michael McKee** (0:19)
The news is sparse, no change in rates, nine in favor, three dissents, Logan, Hammack, and Kashkari.
Other than that, there is not a word of difference between the June statement and this one. Economic activity is expanding at a solid pace. It says uncertainty is elevated in part because of the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce and unemployment has changed little. Inflation remains elevated relative to the 2 percent goal, in part reflecting supply shocks that have driven price shocks. The statement again concludes by saying the committee will deliver price stability.
I think this is the shortest summary I have ever given you, and I've padded it out a little bit just to make it a little longer and feel like I've done something. There's no real surprise in here. You could point to the dissenters, but they've all said something about inflation and the fact that we might have to raise interest rates in the future. So it doesn't really give you a clue about what's going on, and there's no hint in the statement about what might happen in the future. So if Kevin Warsh wants a spotlight, definitely on him today.

**Jon Ferro** (1:29)
Hey, Michael, come back to you in just a second. Let's whip through the price action. So as expected, widely expected, no change on this decision. Some dissent, not one, not two, but three dissenting voices from regional Fed presidents from the obvious places. The move in the market is interesting, though. Equity is off the lows on the S&P 500 Just erasing some of the losses so far this afternoon on the S&P 500
Still negative, but not as low as we want to wear with the S&P negative just 0.3%. And we're getting some confidence in the tech trade, the Nasdaq down by 0.2. In the bond market, let's just sit at the front end of the yield curve. Two-year yields were higher by basis 0.2, now down 4 to 425 So we often talk about this, Abramowicz, the difference between economist expectations and the risk that the market was pricing in. And clearly just a little bit of a gap there. Even with that descent, some relief at the front end of the curve, a rally on twos.

**Lisa Abramowicz** (2:18)
There truly was about a 30% chance of a Fed rate hike at this meeting, and that chance was not necessarily fulfilled. It is notable, though, that there were three descents, and that, I think, is the news from this particular statement, given the fact that Neel Kashkari also joined Lorie Logan and Beth Hammack. I was on a panel with him, and he was talking about this with a bunch of CEOs and saying, this is a problem and it is more pernicious for the average consumer in this country right now, that inflation is so high, that potentially the labor market is softening, because it's not. And I think that is something that you are hearing in the minority on the Fed.

**Jon Ferro** (2:50)
The good news here for the leadership of Kevin Walsh, early days, quick reaction. The dissent came from the regional Fed presidents and not from the board. Because if it came from one of the board members this afternoon, I think we'd be having a very different conversation, TK, to the one we're about to have.

**Tom Keene** (3:04)
Is the market voting Apple $5.053 trillion just out to a new record high, $344 trillion? Is the market voting here on their new Fed chairman?

**Jon Ferro** (3:13)
I think Apple is voting on a lack of capex, and I think that's been a story on Apple.

**Tom Keene** (3:17)
I get that run, but right here within the minutes after this announcement with the SPX popping up is well, I mean, they certainly like what they saw.

**Jon Ferro** (3:27)
Well, let's take a step back and think about what's been happening in asset classes. We've had this massive move higher in energy and lots of volatility in between over the previous five months. You've seen that ripple through interest rates. We've priced out cuts and in many places priced in hikes, and in some places actually engineered rate hikes. One thing we haven't seen is a growth scare. The backdrop for growth is still pretty good. Consensus for GDP is still around 2 Unemployment has been falling closer to 4 and away from 5 That's good news. Now you've got a Federal Reserve that doesn't still see a reason, even with that as your backdrop.