Pimco CIO Dan Ivascyn on the Biggest Fed Decision in Years

Joe Weisenthal (0:02)

Bloomberg Audio Studios.

Tracy Alloway (0:04)

Podcasts, radio, news. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:23)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, we are here on the West Coast. Right now, we're in Newport Beach. It's so nice.

Joe Weisenthal (0:28)

I love it down here so much. This is what probably might be tied. Anyway, yes. I will look for any excuse to come down to this part of the country.

Tracy Alloway (0:37)

We can just listen to Joe Wax lyrical about California, but we are here for work, in theory. We're here for the Future Proof Conference, which I think honestly all financial conferences should be like this. They should all take place on a beach with food trucks, and we should just hang out outside and talk to each other about markets.

Joe Weisenthal (0:55)

Sounds good, but we're not on the beach right now.

Tracy Alloway (0:57)

No, we are not. Well, let me just say, no trip to the West Coast would be complete in terms of an Odd Lots episode without hitting up Pimco and stopping by.

Joe Weisenthal (1:07)

That's right. The icon of Southern California investing in markets.

Tracy Alloway (1:12)

What a great time to be doing it because of course, we're recording this on Monday and on Wednesday, we have the big Fed decision.

Joe Weisenthal (1:21)

That's right. It's a huge, the almost virtually locked that we're going to see the start of the rate cut cycle. But there's still a lot of debate about 25 or 50, what they signal for the rest of the year, how significant is it, whether they choose one or the other. Definitely one of the most exciting anticipated ones in years. As of the time that we're recording this on Monday morning, there are still significant ambiguity. And who knows by the time you're listening to this, maybe there will be some leak in the media, everyone will have settled on 50 or 25 or something. But at least as of right now, we don't really know what's going to happen.

Tracy Alloway (1:54)

You mentioned ambiguity, and this is really the remarkable thing about this moment in time, which is everyone figures they're going to cut, but we don't know 25 or 50 bits. And the crazy thing is, if you look at the Swaps market right now, we're basically evenly split.

Joe Weisenthal (2:08)

Yeah, true excitement.

Tracy Alloway (2:10)

Yes. All right. So without further adieu, I'm just going to emphasize, we do in fact have the perfect guest to be talking about all of this. We're going to be speaking with Dan Ivascyn. He is of course the Pimco Group CIO and a Managing Director here in Newport. Dan, thank you so much for coming back on Odd Lots.

Dan Ivascyn (2:26)

Thanks. It's really exciting to do this and do it in person this time.

Tracy Alloway (2:30)

Yeah, absolutely. And perfect timing, really. So I'm just going to jump into the big question.

Joe Weisenthal (2:34)

The big question.

Tracy Alloway (2:35)

25 or 50, what will it be?

Dan Ivascyn (2:37)

Sure, let me real fast. I don't think it will matter that much unless you're betting on that front-end contract. And we think it's going to be a close call. The guess based on the news flow this weekend is they may actually go 50 But I think the key point will be that this will either be a very dovish 25 basis point cut or more balanced 50 basis point cut. We think the Fed wants to get rates down. They believe they're in restrictive territory. And I think the key point is this is the beginning of a cutting cycle and we haven't had one in quite some time.

Joe Weisenthal (3:07)

I've heard people say that if they go 25, that they could do it in a dovish way and perhaps signal via the dots that there will be more aggressive rate cuts for the rest of the year to balance that out. And that the question then would arise, well, if you're already saying that, why not just go 50? Just from your perspective, you know, how does the Fed think through this question? Maybe it doesn't matter that much. And in the long sweep of history, maybe it doesn't. But how do you think the Fed is thinking through these options?

Dan Ivascyn (3:37)

Yeah, well, I think the first point to note is that the market's already done a lot of work for the Fed. You've seen the pricing of some pretty significant cuts going into year end. In fact, we now have well over 100 basis points of cuts priced in, and another 125 to 150 the following year. So a combination of the data and some statements by Fed officials thus far has already eased conditions. And I think what the Fed is concerned with is the fact that inflation isn't yet at target. We've made some progress, but every time they speak at a dovish tone, you see stocks do pretty well, and credit spreads are near very, very tight levels or near the tights of this cycle. So they'll be walking a tight rope a bit in trying to ease conditions without easing too much, without letting the markets get ahead of them, and without letting some of these positive wealth effects potentially drive inflation higher. And again, through the combination of action, signaling via the dots and the tone at the press conference in future, correspondence with markets, they likely have enough tools at their disposal where, even if they get something wrong in a narrow sense, that they can course correct to get the market back on track as necessary.