Lots More: Did the Fed Just Make a Policy Mistake?

Viktor Shvets (0:30)

Very relaxed.

Joe Weisenthal (0:30)

I'm not shaving until the fence starts cutting red.

Viktor Shvets (0:34)

Okay, that's coming, so that's good.

Joe Weisenthal (0:39)

I did a deadlift. One, two, three.

Tracy Alloway (0:41)

Hegemony. Okay, go. Hegemony. Barges.

Joe Weisenthal (0:46)

This is an after-school special, except.

Tracy Alloway (0:48)

I've decided I'm gonna base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Joe Weisenthal (0:54)

Where's the best squid ink pasta?

Tracy Alloway (0:56)

These are the important questions. Is it robots taking over the world?

Joe Weisenthal (0:59)

No, I think that, like, in a couple of years, the AI will do a really good job of making the Odd Lots podcast. And people will think, I don't really need to listen to Joe and Tracy anymore. We do have.

Tracy Alloway (1:10)

Cha-ching. The perfect guest. You're listening to Lots More, where we catch up with friends about what's going on right now.

Joe Weisenthal (1:18)

Because even when the Odd Lots is over, there's always Lots More.

Tracy Alloway (1:22)

And we really do have the perfect guest. It is kind of crazy. So the market is pricing in, what is it? A little over 70 basis points of cuts right now, which means like the Fed would need to cut every meeting through the end of this year, assuming it doesn't do a 50 basis point cut, which seems a little extreme.

Viktor Shvets (1:46)

Yeah, I think it does. But remember, federal Reserve has no visibility. They have no trust in their models. That is why they're so data dependent. So when people say, well, we can rule out 50 bips, why could you rule out? If you think of the governors, so the former governors, only two, three months ago, they were higher for longer. suddenly they've changed their mind. It's no longer higher for longer. So that's sort of volatility, almost inevitable outcome of highly volatile neutral rates. So prima facie, if you just look at it, 70 bips looks high.

But on the other hand, I don't think you can necessarily rule it out. And if you start looking slightly longer term, let's say look at December 2025, January 2026, the market is still looking at somewhere around four as a policy rates. Now, for the policy rates to me is too high. I think the number should be somewhere closer to three and a half, maybe even less than that. So to answer your question, it looks like it's high, but FED has no confidence in their methodology, in their models or visibility what happens, and therefore it is possible that you might end up with them.

Tracy Alloway (2:57)

So we are speaking with Viktor Shvets, Macquarie strategist and one of our repeat odd lots guests. It is of course the week that we have just seen a meeting from the federal Reserve where they opted to hold rates as expected, but they definitely telegraphed that that rate cut was coming, Joe.

Joe Weisenthal (3:15)

So I didn't watch the press conference because I was on a train and I had an appointment. I had to take the day off of work, but it was nice because then I read the transcript this morning without the distraction of Twitter and all the commentary. I hadn't read any of the various commentary from the strategist. But when I read the transcript, I thought of our last conversation with Viktor specifically because it was so clear. To your point, they just want to see more numbers. The models that suggest, okay, unemployment is rising and the Fed is restrictive and therefore inflation should come down, etc. All of these theoretical ideas, I don't get the impression they have any confidence. They just want to see more numbers.

Viktor Shvets (3:56)

That's it. That's absolutely right. And there is a reason for that. And the reason is that we live in the world of abundance. We have too much of everything. We have too much of capital. We have too much of most of the products. Technology keeps reducing marginal cost. There was a perception for a period of time that certain areas are in deficit or constrained, such as some of the metals or labor. But even that is proving to be not true. So if you live in a world of abundance rather than scarcity, economic models do not work because all economic models and investment model are predicated on constrained outcomes, that you're choosing the best possible outcome out of variety.

If there is abundance, prices don't work, prices don't signal the same impact, neither do they have the same impact on underlying economy.

Tracy Alloway (4:47)