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Fed Might Have to Cut Rates Before May, JPM's Michele Says

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Bloomberg Apr 7 03:44 · 38.8k Views

Bob Michele, global head of fixed income at JPMorgan Asset Management, says the Federal Reserve may have to cut interest rates before the next meeting in May. He's on a special edition of "Bloomberg Surveillance."

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Transcript

  • 00:00 Bob Michael, the global head of fixed income at JP Morgan Asset Management writing this.
  • 00:04 Both the administration and Federal Reserve are behaving as though the market moves our business as usual.
  • 00:09 We cannot believe that the Fed will wait until something breaks before responding.
  • 00:14 Bob joins us now for more.
  • 00:15 Bob, good evening.
  • 00:16 Happy to be here.
  • 00:17 gfc.com,
  • 00:18 the pandemic frame this moment.
  • 00:20 What is this for you and the team?
  • 00:22 Well, I was reading Larry Summers earlier who pointed out that Thursday and Friday
  • 00:27 were back-to-back the worst market drops except in three other instances,
  • 00:31 the 87 stock market crash,
  • 00:33 2008 the financial crisis,
  • 00:36 and then 2020 COVID.
  • 00:38 So this is a historic period and as you point out, we're down another 5%.
  • 00:43 I would tell you
  • 00:44 in the other three instances, the Fed stepped in immediately and cut rates sizably.
  • 00:50 So I think for now, if you go back to Friday, the Fed can talk tough.
  • 00:55 They have to be looking at this.
  • 00:57 I don't know if they can even make it to the main meeting before they start bringing rates down.
  • 01:01 At the same time, nothing seems to have broken yet.
  • 01:06 It doesn't seem like things have gotten disordered clearly yet, despite the margin calls, and there is a real concern about inflation picking back up.
  • 01:14 How much can you really reject what Jay Powell said on Friday?
  • 01:19 Well, you have to reject something he said over the last few years.
  • 01:23 Remember, they talked about the long and variable lags.
  • 01:25 So now they're saying they're going to wait for the accident before they respond and then wait for the long and variable lags
  • 01:32 to take hold.
  • 01:33 I don't think so.
  • 01:34 I think if you step back and look at the totality of what's going on, you cannot believe that there's nothing under the surface that's going to break.
  • 01:43 We already know that business is
  • 01:45 in the lower rated end of the quality spectrum have been struggling.
  • 01:50 When you look at private credit and look at the percentage of amend and extends, it's very high.
  • 01:55 What happens when their cost of funding just ratcheted up
  • 01:58 another couple percent and they're going to see top line growth come down as well as their input costs go up.
  • 02:05 I think this is a serious moment.
  • 02:07 I do not think the Fed can just sit on the side.

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