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00:00 Speaker A
There’s some talk here about what some people are calling a hawkish cut. What do we mean when we say hawkish cut and what would that look like?
00:10 Speaker B
Yeah, that’s essentially financial speak for the Fed’s going to cut, but then they’re going to signal that we may not be doing many cuts going forward. So therefore the hawkish part. Hawkish means the Fed is looking to hold rates or raise rates. Dovish means cut rates. And frankly, I do expect Chair Powell to to come out swinging hawkish in the press conference tomorrow because he’s going to say, look, this is the third rate cut that we’ve done this year.
00:37 Speaker B
We’re now what three and a half to three and a quarter, three and three quarters on the Fed funds rate that much closer to neutral. and so we’ve done all the insurance cuts that we need to do at this point. If we’re going to need to do more cuts, it’s because we see a massive deterioration in the labor market. So, I think that, you know, investors need to sort of sit tight here as we go into 2026.
00:59 Speaker A
Yeah, it feels that it feels that way maybe on the Fed front. I want to ask Mark about that too. Like what’s your expecting from the Fed? Hawkish cut, and then what are the implications for the markets if we get the We know everybody’s expecting a cut. Is the market expecting a hawkish uh a hawkish cut?
01:15 Speaker C
Yes, I believe so. I mean, the market is definitely expecting a cut. Let’s get that out of the way. The market is addicted to this uh having this cut at this point. So it’s definitely factored in. Uh but in terms of um what the Fed is going to say about next year, I expect they’re definitely going to temper uh our sentiments on that because it’s in their best interest to do so. However, you know, we’re going to need to uh and investors are going to need to read between the lines.
01:36 Speaker C
What is Powell going to say about the labor market? Uh because clearly the labor market’s showing some signs of weakness. How is he going to respond to the questions that I’m sure he’s going to get from the press about, you know, what are your thoughts? How are you going to deal with a labor market that’s crumbling here? And I think that’s what people are going to be watching and that is what is going to sort of set the sentiment of what people are expecting next year. I mean, we’re expecting a couple of cuts next year.
01:55 Speaker C
No telling when they’re going to hit. Uh, but they are getting closer to neutral, whatever that level is. And so, you know, they have they it’s in their best interest to also temper, uh, investor sentiment a little bit.
02:06 Speaker A
And just quickly, Mark, are you changing anything investment strategy wise based on what we might hear from the Fed? Are you waiting for them to say something in particular that could change things for you?
02:12 Speaker C
No, at this point, no. You know, to be clear, you know, a 25 basis point cut is important for investor sentiment, not necessarily for many of the companies that we invest in. This 25 basis points is not going to make or break a lot of these companies. I mean, it is important that the Fed is showing that they’re concerned about the labor market, right? It’s good for the consumer to know that the Fed’s got their backs. If people are worried about their jobs, or maybe they’re going to pull back on on spending after the holiday season.
02:36 Speaker C
Maybe it’s good to know that the Fed has got their backs and that could sort of help, you know, ease the economy forward in the first quarter of next year. So I’m already thinking ahead.
02:43 Speaker A
Yeah. Jen Jen, I got to ask you about the personnel question as well. And through the lens of the Supreme Court decision that we got yesterday, which we haven’t talked that much about, but which seems important because of its potential implications for the the staffing at the Fed.
02:54 Speaker B
Yeah, there there’s two things that we need to talk about here, Julie. One is that we already know we’re going to get a new Fed chair come May. Seems like the favorite favorite is going to be Kevin Hasset. We know that the president is leaning towards someone who favors lower rates, but given so much division on the committee right now about who is more concerned about inflation and who is more concerned about the job side of the dual mandate. It’s going to be difficult for whoever that Fed chair is to maybe force through more cuts
03:19 Speaker B
at this point, given more of a hawkish contingent that we expect on the committee next year. Now, that said, to your point, the Supreme Court heard a case yesterday in which it seemed like the majority of uh the court was in favor of giving more presidential power to Donald Trump when it comes to removing personnel from independent agencies. So, that was sort of a hat tip to, well, is that how they may rule with the court case with Lisa Cook,
03:47 Speaker B
Fed governor who uh Trump fired and who has sued in return. And if he is able to remove her, then that means that we’re going to see a a a dovish person put in that position of Lisa Cook, who has voted typically along with the Fed chair. So, that could sort of tilt the the Fed more dovish next year, but I think there are a lot of question marks that are are even bigger than the Fed’s decision, you know, when it comes to policy next year, which is Fed independence and the
04:12 Speaker B
president’s ability to pack the Federal Reserve and remove members of the Fed based on policy disagreements.
04:18 Speaker A
Right. So there’s still a lot for investors to consider beyond just the simple question of are they cutting or are they not cutting.