The Fed Is Hiking Into A Growth Slowdown | Weekly Roundup

Vincent Deluard (0:00)

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Felix (0:02)

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All right, everybody, welcome back to another Roundup edition of Forward Guidance. And we are recording right after a major week. Finally, the most important Fed meeting of our lifetime until the next one, of course, but excited to be joined this week. We pulled in Vincent Deluard from StoneX to join us for the trio this week on the Roundup. So, yeah, first off, Vincent, just wanted to say welcome to the Roundup. It's great to have you.

Vincent Deluard (1:23)

Super happy to be here.

Felix (1:25)

Quinn, what's going on? How's your weekend? Trading well?

Quinn (1:28)

Feels like it should be Friday.

So much activity. So I'm looking forward to the weekend.

Felix (1:34)

Yeah, I love it. Vincent, I think the last time you were actually on Forward Guidance, we recorded like a day after a Fed meeting. And we basically spent the first half of the episode saying how pointless the whole thing was to watch it and how stupid it all was. So it feels like a good moment to have you back on. Since then, we obviously have a new Fed chair, Kevin Warsh. And looks like we finally kicked off a hiking cycle. At least we got the first one this week.

And I think the most surprising thing for me was how unanimous it was. Everybody voted for the hike, which was quite surprising to me. Vincent, what was your expectations going into the meeting and how did it actually pan out? If you've even watched the thing.

Vincent Deluard (2:15)

Thank you. Let me start with a bit of public humiliation and say that I expected a dovish hike and I expected Kevin Walsh to fumble the press conference. And the truth is I was wrong on both counts. I think it certainly looked hawkish. Now we can discuss how truly hawkish they can be. But it certainly sounded and looked hawkish. And I thought, you know, give credit to the man. I mean, his performance improved. I think his comment of the room was pretty good.

His answers were the right mix of a bit more spontaneity than, you know, what we got in the LN with all the econ talk, but without going into the Walshism, you know, like play the ball, not the referee or, you know. So I think he upped his game and, you know, the market outcome is pretty good from his perspective.

Quinn (3:15)

Yeah, I'd agree. I think I was a bit surprised at how consensus formed around the path. And I probably would say there's not enough appreciation yet in the market for the kind of appreciation of the committee for a hiking cycle. Because really, I think October is probably under price right now, just given what the inflation outlook is going to do. And then you have a gap in the meeting before December, which might make them want to front load the restriction. And then into next year's dot plot, you had basically a toss up between a third hike or just stopping at two. So I was a bit surprised that there wasn't more dispersion across the dot plots of the committee. It seems like he was able to get pretty good consensus around there. But I also question how restrictive is just two cuts?

The market's currently at...

Felix (4:17)

Two hikes.

Quinn (4:18)

Yeah, two hikes. Sorry, two hikes. The market's currently at roughly four by mid next year.

So there's still a fair bit of gap between what you're seeing, the interest rate market price and what their guidance is. So we've had quite a bit of de-risking and dollar up, rates up across the board into this. Wouldn't surprise me if we get the full frontal assault from the admin of fake Iran news, positive China trade news and get some relief here. But bigger picture, I can't help but think with a meeting that had some of the most unanimity around unconcerned about growth and unemployment rate, that they're turning most hawkish into peak growth and what could be a slowdown behind this.