00:00How much would a 25 basis point rate hike affect your appetite for risk assets?
00:05You know, you were sort of intimating it a second ago. I don't really think it's a huge issue for
00:12the appetite for risk assets.
00:14Risk assets, you know, whether we're talking about equities or credit, is much more about what's going on, again, on
00:20that earning side or on the credit side, on the credit quality side.
00:23This is exceptionally strong credit markets. It's why spreads are very tight historically.
00:30And 25 basis points isn't going to change that. Now, what is changing that is the inflation outlook, because what's
00:36driving the Fed here to contemplate increases in rates is that their real interest rate is going down as inflation
00:44is going up.
00:44And that's making it worrisome that if they don't do something, that they're actually contributing to not a neutral rate,
00:51but actually a stimulative rate.
00:52And if inflation does go back down, as Waller was sort of intimating, you know, we saw in the last
00:57two reports, and that continues, then the Fed doesn't have to do anything.
01:00So it's about the intersection of the inflation trajectory and the Fed's response here, more than the 25 basis points.
01:07As things stand, Jeff, I know it can change on Friday when we get the CPI print, but as it
01:11stands, best guess right now for you, Jeff, you and your colleagues, hike or hold?
01:14You mean hike or hold for September? I mean, look, it's all conditional on that inflation report, as well as
01:22conditional on kind of what the forward-looking trajectory is coming from energy prices.
01:28So, you know, it really is very, very data-dependent.
01:32And so it's really a call on the inflation.
01:35You know, if the inflation report, you know, is continuing to show some progress, then I think they hold.
01:40And I think that's what we've heard, you know, from numerous speakers, you know, including Warsh at Jackson Hole,
01:47was that if the inflation doesn't, that's the avenue for hiking, and that was the hawkishness that we heard.
01:53So it's really about the inflation reports next week.
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