By coinnews 
00:00 Speaker A
It’s time now for today’s strategy session. And the latest sign of economic trouble, weekly jobless claims surged to 241,000. That’s more than expected and pushing bond yields lower. Treasury Secretary Scott Beason saying shorter term treasuries like the two-year are signaling to the Fed that it’s time to cut. Joining us now is Brid Corrana, who is the Wellington Management fixed income portfolio manager. Great to have you here with us in the studio. Okay. So first, let’s just start on the comments from Treasury Secretary Beason because they have been putting a lot of pressure on the Fed to cut rates right now. From what they’re seeing in the two-year, does that from your perspective also signal to the Fed that it’s time to cut?
00:59 Brid Corrana
So, you know, whether or not it’s time to cut or not, I think the Fed is probably going to be very resistant to cutting in the next few meetings. And so the market’s pricing the Fed at about 60% chance of a cut in June. And, you know, I think that’s much too high because this is a Fed that we’ll remember is data dependent. And the data is going to look pretty good over the next few months because we’ve run front run so much spending from tariffs. And I think the second reason is is that, you know, the Fed wants to see the impact that the tariffs are going to have, the immigration policies on growth and inflation. They think it’s going to be lower growth. They think that it’s going to be higher inflation. And Chair Powell said what you’re supposed to do in that situation is focus on where you’re further from target. Well, they’re a lot further from their inflation target than the employment target. And so point being that I think they’re going to actually lean in a more hawkish direction than the market anticipates. Now, to your point, that puts them in conflict with the Trump administration. And I think, you know, maybe an olive branch they could offer to the Treasury is to say, look, we’re going to end quantitative tightening completely. You know, there we have the debt ceiling getting figured out, but once that gets extended, maybe they could even go back to increasing their balance sheets slightly. So, point being that maybe that’s like the an olive branch that they can offer and say, hey, look, you know, yeah, we’re not we’re not cutting rates as much as you want us to, but at least we’re not selling bonds, you know, the way the way we had been.
03:24 Speaker A
I hear you basically saying fed funds rate, whatever, that’s not going to make them cut. Uh, to what extent is there a potential for a policy mistake in there where we do see the economy rolling over?
03:40 Brid Corrana
Yeah. I I mean, I I think the Fed is in a in a very tricky situation because their inflation is still above target and we’re dealing with economic policies which do likely represent a worse growth and inflation trade-off. And so, you know, I do think that it they would rather make a policy mistake by cutting too late, particularly when they feel like they have a lot of room to bring it down compared to cutting too early and then reigniting inflation. And I and I do think, you know, Powell still has a year left. He doesn’t want to be known as, you know, this century’s Arthur Burns, who cut rates too low and didn’t beat inflation in the 70s. And I think there’s other other goal is really to establish Fed independence, uh, at least in his time as Fed chair. And so, you know, I do think that it does set up markets for a contentious relationship between the Fed and uh, in Washington, but um, but you know, I think that’s what we’re going to live for for the next year.
05:03 Speaker A
And so in the meantime, it’s it’s Fed chair J. Powell and the FOMC, as Jalen Hurt would say, keeping the main thing, the main thing. And the main thing for them is this dual mandate of where inflation is at and then and making sure that there’s price stability rather. And then additionally, maximum employment. Employment seems to be one of the areas that remains extremely gray here and and no pun intended, but Challenger Gray and Christmas, uh, today talking about layoffs for the month of April hitting the highest tally for the month in five years and directly pointing out some of the effects of Dodge as well within that. So what should the Fed be looking for in their cues within the employment situation data, especially knowing how much of it is actually self-induced because of the cuts that were rolled forward by Dodge.
06:33 Brid Corrana
Yeah. I I mean, it’s a great point. You know, if we look, we get non-farm payrolls tomorrow, so that’s their most important data point that they look for. But, you know, if we think about where the job gains have come since the end of 2022, basically half of them have come from three sectors, the government, healthcare, and education. All three in some ways are under fire in the administration and and because of Dodge. And so, you know, if we look at private sector job growth, it has not been quite strong. Um, so, you know, I I do think that we have the potential. Now, where when are those cuts likely to materialize? You know, talking to some of our analysts, a lot of the local government spending cuts will take place on the employment side after July. So once again, we’re in this very tricky window where, you know, to your comment, Mason, I think we could be, the Fed could be behind the curve because data is going to be strong. The labor market could look okay for the next few months and inflation could be higher. And so we we’re setting up for an environment where the Fed could be behind the curve and you get this conflict with the administration. So, um, you know, buckle your seat belts.
08:18 Speaker A
Great to see you. Thanks so much for taking the time in the studio.
08:21 Brid Corrana
Thanks so much. Appreciate it. Appreciate it.