00:00 Josh Lipton
As stocks rally today, one member of the Fed continues to pour cold water on the idea of any near-term rate cuts. Yahoo Finance’s Jennifer Schonberger joins us now with more, Jen.
00:13 Jennifer Schonberger
Good afternoon, Josh. Lots changing here quickly as you guys just showed on our air ahead of the president’s 90-day pause on a swath of tariffs. Fed officials continuing to take a cautious approach with many seemingly more worried about the prospect of higher inflation from the president’s now potential tariffs and less concerned perhaps about lower growth. Minneapolis Fed President, Neil Kashkari, this morning, poured cold water on the notion of any near-term rate cuts. He wrote in an essay that, quote, “In my view, the hurdle to change the federal funds rate one way or the other has increased due to tariffs. Given the paramount importance of keeping long-run inflation expectations anchored and the likely boost to near-term inflation from tariffs, the bar for cutting rates even in the face of a weakening economy and potentially increased unemployment is higher.” End quote. Elsewhere, Richmond Fed President told reporters in Washington that he sees a scenario where Fed officials could hold rates at current levels for the remainder of this year. Meanwhile, we did also get Fed minutes from the policy meeting three weeks ago, and even though Fed Chair Powell said in his press conference that the base case is that he sees higher inflation from tariffs proving more transitory at that time, several thought that inflation could prove more persistent and that, quote, “A majority of officials noted inflation stemming from various factors could prove more persistent than projected.” And even as officials saw upside risks to inflation, they saw downside risks to growth and employment, acknowledging that could pave the path for some hard trade-offs later this year, guys.
03:00 Josh Lipton
Yeah, Jen. Obviously, a lot of moving parts for the Fed and the rest of us to continue today. Um and, Ali, Canal is here is still here with us as well. And I know, you know, we’ve all been watching the bond market. Are are we hearing the Fed sort of address what we’ve been seeing in the bond market at all?
03:25 Ali Canal
You know, it’s so funny because I was just with Tom Barkin this afternoon from the Richmond Fed, and he just wouldn’t touch it, saying that he hasn’t been following the latest movements and he didn’t want to get ahead of what was happening. And you know, hindsight’s 2020, makes sense now because the president pulling back after the bond market seemed to be ripping higher, and there were questions about whether investors were losing faith investing in US treasuries. There were questions about is China selling US treasuries. And Ali delved into a little bit of that as well, just moments ago on the show. I do think, though, that at this point, the Fed would not have stepped in with the Fed put to bail out the markets. I think that we would have needed to see, uh, even stronger reactions in the markets that would have affected the real economy for them to begin moving.
04:52 Josh Lipton
And Jen, any talk with your sources when it comes to the Fed reducing its balance sheet and the impact that could have on longer-term yields?
05:04 Jennifer Schonberger
You know, Ali, the Fed’s looking kind of smart right now, right? Because when they said they’re going to slow down the balance sheet runoff at the last meeting, we all kind of scratched our heads and thought, well, why now? And you know, maybe that’s helped cut down on some of, um, what could have been even more potential volatility. However, in the Fed minutes, we saw that there were several Fed officials who actually disagreed with that notion. Of course, if we see, um, any activity in money market funds, any volatility that that upsets, um, what we’ve been seeing even further, then I think the Fed may revisit it. But at this point, they are content to sit back and sort of observe things right now.