Markets gone wild

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Katie Martin (0:36)

Thank Pushkin.

What the heck just happened? Since the Fed meeting last week, markets have gone bananas. We've already busted through a lot of targets that investors and analysts had for 2024 because stocks and bonds are going to the moon. What on earth is going on? We're going to help you figure it out, hopefully.

This is Unhedged, the markets and finance podcast from the FT and Pushkin. I'm Katie Martin, the markets editor in London, and I'm inexplicably not joined by Ethan Wu, who has been allowed to go on holiday or something.

Rob Armstrong (1:12)

We do let the young people out of the office once in a while.

Katie Martin (1:15)

What the... Who's going to do all the work?

Rob Armstrong (1:19)

We are kind and beneficent overlords.

Katie Martin (1:21)

Rob Armstrong over there in New York, you are indeed kind and generous in New York, writing your Unhedged newsletter, but you're not as kind and generous as Jay Powell, Chair of the US Federal Reserve. What has he done?

Rob Armstrong (1:35)

I think of Jay as a very restrained and even tempered fellow. But I think in that press conference last week, he came very close, and this is a good New York word, to cavelling about the state of the economy.

Katie Martin (1:55)

I'm sorry.

Rob Armstrong (1:56)

Bristling. I think that's a Yiddish word, I'm not sure, but when you cavell, you kind of bristle with pride. It's like the parent at the kids' sporting event after the kids' score is a goal.

They cavell. He was as prideful. He got opportunities to be his usual dour self. A reporter says, well, if you do cut rates as many times as you expect next year, as much as the committee expects this year, is that because the economy is slowing?

No. Basically was the answer. It's because inflation is coming under control.

Katie Martin (2:32)

Let's just rewind a tiny bit though. So the Fed left rates on hold.

Rob Armstrong (2:35)

Yes.

Katie Martin (2:36)

Still, you know, 5% and change, but there was some new stuff that came to light.

Rob Armstrong (2:41)

The dots.

Katie Martin (2:41)

Which includes the dots. Everyone loves the dots. So for those who are not familiar, Fed rate setters put little dots on a chart to show where they think rates can or should be at certain points in the future.

And you can get a little bit kind of horoscopy about the dots, honestly. But the dots are the best kind of guide we have as to what the Fed is going to do next. And those pretty little dots.

Rob Armstrong (3:08)

Those dots moved. They moved a lot. So in the last set of dots, which came in September, there were still a couple of members of the Fed's Open Market Committee, the rate setting committee, who were way out saying rates are going to have to be, in 2024, there were a few of them still stamping their foot and saying rates are going to have to be higher still in 2024

And the group as a whole thought, we were going to be in that 5% range into 2024 And then all those outlier hawks have been shot out of the sky and everybody moved down to the 4% range, right? So there was like this big change in the outlook.

Katie Martin (3:50)

And as you say, Jay Powell, he's not one to pass up an opportunity to be a bit miserable, but instead he was saying, first of all, victory lap. All those bozos who said we were heading into a recession were wrong.

And there was just kind of quite a sort of, nah, nah, nah, you messed this one up.

Rob Armstrong (4:09)

He did nod to the fact that things can still go wrong, but it was, as I said, by his standards, quite demonstrative.

Katie Martin (4:18)

But he was also saying, okay, sure, inflation is still above target, but we don't have to wait for it to hit 2% before we start cutting.

Rob Armstrong (4:26)

And in fact, he cautioned against waiting until everything was exactly at the 2% target before they started to ease policy.

Katie Martin (4:34)