Another Rate Cut from the FED? LIVE Fund Manager Reaction

Testing, test, test. Tell me about the day the world went blue. It was terrifying. I All right, y'all. Welcome in. Welcome in. We've got Jerome Powell going live here in just a few minutes. We're gonna actually live stream it into this call. So wait for just a few minutes there. Wow! We're pulling that up. If you can share my screen, actually, the Federal Reserve just dropped their press release a few minutes ago. We'll read this right now. Looking like a If you can see my screen, is it pulling up? It's got it. Okay. I'll make this full screen for you. So available indicators suggest that economic activity has expanded at a moderate pace. Job gains have slowed this year and unemployment rate has edged up but remains low through August. Now, what's interesting, we're going to come to this in a second. They do not have up-to-date economic data because of the government shutdown. I was actually just looking at this on Bloomberg here. Their blackout deepens during this shutdown because people have been furloughed or laid off. So a lot of the decisions that are being made, if they weren't bad enough, there's been a lot of conversation in the last bit around the accuracy of jobs reports. So I believe, and don't quote me on this, but of the last, I think, 11, 10 or 11 jobs reports, 8 or 9 of them have been revised down. Meaning they were overstating how good the economy was, the job gains, and then they come back and revise those numbers down. So the this you know blackout data is getting even worse right now here. But let me come back to the press release. So the committee seeks to achieve a maximum employment inflation rate of two percent over the longer run, which is anyways also funny. We'll see some questions hopefully today around this. They they've said this for years. You know, we're trying to have a maximum employment inflation rate of 2%. Inflation has been well above 2% over the last number of years. If you're really trying to get a 2% inflation rate over the longer run, you can't always be over 2%. You know, we're at 2.5%, we're at 2.8%, we're at 3.2%. We've had these huge inflation prints. They're trying to pull inflation down. But if you're going to really try to maximize for 2%, you would have some inflation prints that are maybe 1.2% or 1.5% or— and then some that are 2.5%, and you'd have an average of around 2%. Well, over the last decade, pretty much it's just been over 2% over and over and over again. They keep telling us they want it to be 2%, but I digress. We'll see. Some economists will say just adjust the target and just tell us it's 3%. 3% would be much more accurate because we have some inflation prints that are below 3%. We've had some that are above 3%. 3% would be much more accurate, but that might really shift, shift things. They try to keep this thing steady in support of its goals. In light of the shift in balance of risks, the committee decided to lower the target range for the federal funds rate by a 4th percentage point. So we got a 0.25% rate cut, which was as expected. Nothing shocking there. Down here. Now we're gonna in a few minutes we're gonna have Jerome Powell dial in and we're gonna hear from from you know Supreme Leader Powell on why they cut rates, what happened, and should be an interesting Q&A. Furthermore, later today we have earnings from Alphabet, Meta, and I believe Amazon are giving earnings just after this call. So it should be quite a big day. Furthermore, this week we have the government shutdown in place right now. November first, a number of major things happen November first. November first, I actually got a phone call from my local church saying, "Hey, we have a number of people November first that will no longer have food stamps. They will no longer have access to." And you can put me full screen. They have no longer access to some of these things. Can you guys help support or pay? And you know, we're trying to now figure things out November first if no agreement is made between Democrats and Republicans that. Seemingly, obviously, a lot of fighting. Republicans are blaming Democrats, and I'm sure Democrats are blaming Republicans right now. But Republicans are voting to open the government. Democrats are voting to close or at least continue to push push this along. So we'll see what happens maybe this week. We're coming down to another deadline here by Friday, which is Halloween. The other thing that's going on this week is Xi Jinping and President Trump. And both China and the U.S. seemingly have a lot of good news coming out on a trade deal. Now, a few weeks ago, I don't know all the specifics, but Trump tweet after hearing that they were going to do this major export control on rare earth minerals and other exports. Trump then 24 hours later then tweeted, we're going to do a huge tariff on China starting November 1st in response to this. Idiotic, you know, news from China. It was very interesting. It was kind of a non-news event for about 24 hours. China announced that they were going to do this export controls 24 hours earlier. The Trump administration picked it up and then tweeted about it, and that's when you saw that huge crash in the market. Crypto market saw the largest liquidation event in history in a single day, and I'm a crypto investor, and we thankfully we had no leverage, but a lot of firms that we knew by got completely obliterated. Just a few weeks ago, I mean, if you had any leverage, even a small amount of leverage, my understanding is every single levered long got liquidated on that Friday just two weeks ago, which is unheard of. I mean, that is really wild. And that was all from this you know thing that was supposed to go down November first. Well, it looks like China and Russia have been talking. Excuse me, China and the U.S. have been working things out of the weekend. Scott Bessinett. Posted a number of things, had a very promising interview. This was Saturday, Sunday night, and Monday of this week, and markets have responded extremely well today. We just hit a few all-time highs last night. Nvidia is the first company to cross $5 trillion as of today. So a lot of good news on all of this. Now, in just a few minutes, we're gonna hear from Jerome Powell on rate cuts. Now I'm gonna come back. Let me pull this back up one more thing here. So a lot going on this week, as you can tell. We got a trade war, we got rate cuts that just happened, a 4th percentage point rate cut. Now what's interesting down below, so they want to have this 2% objective. We already mentioned that and why that shouldn't be 2% in my opinion. So down below, these are the voting members. Now Stephen, I, I think it's Mirren or Myron, he actually voted to have a half percentage point Cut. And then Jeffrey Schmidt actually preferred no change, which is very interesting. Throughout the history of the Fed, and I don't have a chart in front of me, there's only been a number of times where you've had dissenting votes from the Fed governors. Typically, they all vote right in line with each other. Over the last 30 years, I believe there was only once, and the second time just happened in the last few months where there was 2 dissenting votes on a single decision. Um, Stephen I. Miron, who was just appointed by Trump to come in here and might be, you know, we'll see if they, they're going to looking to replace Jerome Powell here in the next few months, um, as again, just as a dissenting vote. And then Jeffrey Schmidt was, you know, wanted to keep it the same, which has been very interesting. We might, they might have some questions on that in a few minutes on some internal battles that are going on within the Fed governors, uh, From Jerome Powell. So one other thing I want to mention today, maybe hide my screen because I'm going to pull this up. I don't want to share confidential information because it was in a— it was actually texted me in a chat. So I'm going to pull this up. So, and I wish I had a bigger, uh, a bigger version. Let me open this up in preview for a second. Here we go. All right, share my screen again. So this, I'm going to zoom in on this. So the Federal Reserve, um, October 28th, so just yesterday actually has started some what people are calling stealth QE. So this would be a big conversation today is, are they going to do quantitative easing after doing quantitative tightening for so long? Now, let me explain these 2 things in conjunction with the Fed. So the Fed can cut rates. Yes. But there's a few other things the Fed does and they move from periods of quantitative tightening to quantitative easing or QT or QE. During COVID we went to a period of quantitative easing. Now that we cut rates, that was a piece of it. What was— what's going on? What was that? Do you see that? Is that live on here? No, no one can see that. Okay. We're on the Fed page right now and their press conference, like a crane just came by. I guess it is a live feed because some crane just came by on the screen. It looked like a spaceship was coming down. I don't know if we could go back and see that. That was pretty funny. All right. Quantitative easing, quantitative tightening. So we went into a period of quantitative easing where the Fed was actually buying securities. The Fed was buying its own bonds, which is putting money into the market. They were buying equities. The Fed was buying Google shares, Meta shares. And when you have a net buyer like the Fed, those shares tend to go up as a market price. So quantitative easing is where the Fed is injecting liquidity or money into the market. We then transitioned to a period of quantitative tightening. That's where the Fed is now taking money out of the system, tightening things up, and selling those assets on their balance sheet. So they're selling bonds, they're selling equities, and they become a net seller, which pulls asset prices down. Well, as of last night, again, if they can see my screen here, Treasury news, it looks like the Treasury here bought $2 billion. I'm sorry, it's a little, it's a little, you can see $2 billion of its own debt buy. So the Fed bought $2 billion of its own, of its own treasuries here, which is pretty interesting, which would be a quantitative easing measure. I'm sure they're gonna ask a number of questions about this. And hey, let's, let's dial in. We got Jerome Powell here coming up. So here he is.

Good afternoon. My colleagues and I remain squarely focused on achieving our dual-mandate goals of maximum employment and stable prices for the benefit of the American people. Although some important federal government data have been delayed due to the shutdown, the public and private sector data that have remained available suggest that the outlook for employment and inflation has not changed much since our meeting in September. Conditions in the labor market appear to be gradually cooling, and inflation remains somewhat elevated. In support of our goals and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by a quarter percentage point. We also decided to conclude the reduction of our aggregate securities holdings as of December 1. I will have more to say about monetary policy after briefly reviewing economic developments. Available indicators suggest that economic activity has been expanding at a moderate pace. GDP rose at a 1.6% pace in the first half of the year, down from 2.4% last year. Data available prior to the shutdown show that growth in economic activity may be on a somewhat firmer trajectory than expected, primarily reflecting stronger consumer spending. Business investment Investment in equipment and intangibles has continued to expand, while activity in the housing sector remains weak. The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends. In the labor market, the unemployment rate remained relatively low through August. Job gains have slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well. Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2% longer-run goal. Estimates based on the Consumer Price Index suggest that total PCE prices rose 2.8% over the 12 months ending at September, and that excluding the volatile food and energy categories, core PCE prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs, as reflected in both market- and survey-based measures. Beyond the next year or two— or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the Committee decided to lower the target range for the federal funds rate by a quarter percentage point to 3¾ to 4%. Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level.

Short-lived, you hear that?

But it is also possible that the inflationary effects could instead be more persistent. And that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside— a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. Goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted. Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. We continue to face two-sided risks. In the Committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course. At today's meeting, the Committee also decided to conclude the reduction of our aggregate securities holdings as of December 1. Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard. In money markets, repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates, along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease Over the 3.5 years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion.

So if they go— if they go—

As a share of nominal GDP, our balance sheet has fallen from 35% to about 21%. In December, we'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time while reserve balances continue to move gradually lower as other nonreserve liabilities such as currency keep growing. We will continue to allow agency securities to run off our balance sheet and will reinvest the proceeds from those securities in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities. Thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned—

So just to summarize in one second, it sounds like as of December 1st, they want to be neutral. They don't want to be a net buyer or a net seller. They want to sit between quantitative tightening and quantitative easing and just keep the balance sheet steady. He also mentioned, since rates are relatively high and balance sheet will kind of be neutral, we have an essentially loaded gun If there are big economic developments, a big crash in the market, there's a huge tariff war or a physical war that takes off, they can respond very promptly. Like he said, cutting rates and doing things to help ease the market. What we have right now is a spot where the Fed can respond quickly versus back in COVID when rates were already zero. There was not much more they can do besides just stimulus from the government. So if you got that, keep going.

And 2 goals for monetary policy. Maximum employment and stable prices. We remain committed to supporting max— our maximum employment, bringing our inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.

So another comment, I'll pause for one second. He mentioned, you know, the December meeting might be— we have some very differing opinions. I don't think I've heard him say that before. He's kind of referencing to the dissenting vote from Stephen Mirren on the last 2 meetings. And then another Fed governor actually wanted to keep rates neutral. So he said we plan to, you know, drop 0.25%. He referenced a lot of economic data from the private sector, but again, public data is not available because of the government shutdown. Furthermore, the public data really hasn't been that helpful because they keep revising it after the fact. It's it's you could just throw a dart at a board and probably get better economic data than what they're getting. This has been a big criticism of the Federal Reserve for quite a long time, especially this year with the Trump administration. They've been I mean they've been pushing on the Fed of why is your economic data so wrong? Why is it we always are revising it? It's never quite accurate. We're making decisions on economic policy for the entire country, if not the entire world, off of what looks like pretty flawed data. And now it's even more flawed with the government shutdown. So he mentioned both those things. Uh, we'll see what some questions coming here. Hopefully there's some good, uh, some good questions on policy. Let's get into it. Nick Timmermans of the Wall Street Journal.

Chair Powell, are you—

Nick, I love Nick, by the way. This guy's Has assumed a rate cut is a foregone conclusion at your next meeting? Well, he's not going to answer that. He's going to say it's no preset course.

A further reduction in the policy rate at the December meeting is not a foregone conclusion, as I've just said.

So he just answered your question, Nick. It was a bad first question.

I would say that that needs to be taken on board. We had, you know, I would just say this: 19 participants on the Committee. Everyone works very hard at this and takes their obligations to serve We take the views of the American people very seriously. And at a time when we have tension between our 2 goals, we have, you know, strong views across the Committee. And, as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December. And, you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that.

Some of your colleagues have framed last month, and maybe today— I won't put words in your mouth— as a risk-management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook, or could this unfold along the lines of last year, where you made a sequence of adjustments and then waited to gather more information?

Well, look, the way we have been thinking— the way I've been thinking about it is, the risks to the 2 goals— for a very long time, the risk was clearly of higher inflation. And then that has changed now. And as we saw the— particularly after we saw— after the July meeting, we saw the downward revisions in job creation. We saw a very different picture of the labor market, and it suggested that there were higher downside risks risks to the labor market than we had thought. And that suggested that policy, which we had been holding at a— I would say modestly, other people would say moderately restrictive level— needed to move more in the direction over time of neutral. If the 2 goals are sort of equally at risk, then you ought to be at neutral, because one of them is calling for you to hike and one of them is calling for you to cut. So if that got back into balance, then you'd want to be Roughly at neutral. So in that sense, it was a risk management.

What he's referencing here is, like I mentioned a few minutes ago, that you can pause for a sec, is the revision to the jobs reports. We talked about this. The economic data from the jobs report has been all over the map. We've had a number of them revised drastically, not just a little bit, drastic job revisions in one way or the other. And so what he's referencing here is the job market isn't as strong as we thought it was. That's why we're cutting now. Which maybe is just nice verbiage because the jobs reports have not been very accurate. Jerome Powell was kind of pushed into a corner last— early this spring where Trump was pushing hard on Jerome Powell to cut rates. He said, we're not cutting rates because we think tariffs are going to be very high. And then Trump came out and said, we're going to fire you, Jerome Powell. Do I— he asked the Supreme Court if he had authority to fire Jerome Powell. There was a huge kerfuffle around does the president have oversight over the Fed or not? Is the Fed independent? I believe Scott Bessenit, Secretary of the Treasury, bless his soul. This guy's amazing, dude. This Scott Bessenit is one of the smartest individuals I think the world has ever seen in the world of finance. I think cooled this down and said, Trump, you can't fire Jerome Powell because it'll, it'll show that the Fed is no longer independent. Even if you could do it, you shouldn't do it. And since then, he hasn't done it. But Trump has sent a lot of mean tweets towards Jerome Powell. I'm going to fire you. He's pushing out Fed governors. So what that does is make Jerome Powell has to dig his feet even more. And the way he dug his feet in was around tariffs. He said, well, tariffs are going to cause inflation, so we're going to keep rates higher. Oh, and by the way, I'm not going to bow to a president who wants me to cut rates, which is— if Trump would've just used a little How to Win Friends and Influence People, we would've had rates cut all through this year. But he forced Jerome Powell into a corner where he's like, well, I have to show that the Fed is independent. So because Trump wants me to cut, I'm not going to cut. And that's what's happened throughout the, you know, through the summer. They kept referencing tariffs and then finally they came out in July, August and said, well, tariffs really haven't been that bad. It didn't really make inflation much. We had a jobs report that was revised and the jobs look really bad. So that's why we're going to cut. And then they've cut now twice. And that's still what they're leaning on right now as well. We got to balance jobs. And he still did mention tariffs might have inflation, they might not, but they're really backing away from that rhetoric that they had earlier this year. And so that's kind of where the picture is painted. Now, Trump is apparently actively interviewing people to replace Jerome Powell at the end of this year, early next year, still pushing the Fed into this corner. And so I think he kind of has to do this. He's like, yeah, we're just cutting 0.25, 0.25. We don't have a lot of economic data because of the government shutdown. I bet they cut 0.25 at the next meeting. And that's just how it's going to go for the end of Jerome Powell's term as things adjust because of what Trump has cornered him into doing here. So to reference a lot of stuff from that last question, let's keep going, and we can even skip forward a little bit. I think he's not going to answer this question.

So the same logic, but as I mentioned, going forward is a different thing. Claire.

All right, next question here. I'm Claire Jones, Financial Times. Thank you for taking this question. You know, we've just heard from you that the discussion in December, and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any concern? Answer that question at all. This is a terrible question. First 2 questions were horrible. We're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom.

Thank you. You know, I wouldn't say that's a— that's, that's a factor. In everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think, for anybody. You know, I guess I would say it this way. Once again, I would just point out that we have the situation where the risks are to the upside for inflation and to the downside for employment. We have one tool. It can't do both of those. It can't address both those at once. You've got a very different situation. So you have some people— people have different forecasts, right? So they'll, they'll They'll feel— they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And, you know, people— some will be more averse to inflation overruns, and some will be more averse to underruns of employment. And so you put that together, and, as you can see from the SEP and from the public discussion that goes on between the meetings when, you know, participants go out and talk, there are very disparate views. And they were reflected in strongly differing views in today's meeting, as I pointed out in my remarks. And that's what leads me to say that, you know, that we haven't made a decision about December. You know, I always say that. It's a fact that we don't make decisions in advance. But this is— I'm saying something in addition here, is that it's not to be seen as a foregone conclusion. In fact, far from it.

Can I just keep reflecting on QT? How much of the fund impressions we've seen in money markets are related to the U.S. Treasury issuing more short-term debt?

That could be one of the factors. But the reality is, we've seen— you know, the things that we've seen, higher repo rates and federal funds rate moving up, these are the very things that we've seen, that we look for. We actually have a framework for looking at, you know, the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample, that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as nonreserve liabilities grow. So this happened— some of it, some things have been happening for some time now showing a gradual tightening in money market conditions, really in the last, call it, 3 weeks or so, you've seen more significant tightening. And I think a clear assessment that, that we're at that place. The other thing is, you know, we're— the balance sheet is shrinking at a very, very slow pace now. We've reduced it by half twice. And so there's not a lot of benefit to be, you know, to be holding on for— to get the last few dollars because, you know, again, the balance sheet Reserves are going to continue to shrink as non-reserves grow. So, there was support on the committee as we thought about it to go ahead with this and announce effective December 1st that we will be freezing the size of the balance sheet. And the December 1st date gives the markets a little bit of time to adapt.

So, pause for a second. If you can share my screen, this is the total assets on the Fed's balance sheet. If I believe I'm looking at the right chart, yeah. Board of Governors. So you can see this. Yeah. So you'll see they've said, hey, we've already cut it in half. We they hit a peak right here. I think this is eight point nine trillion. If I if I got my numbers correct here, you can see how much the Fed's balance sheet has inflated, and they always have said we're going to come back. So during the Great Financial Crisis, they jumped a lot. They were doing bailouts, buying equities to prop the market. They said, hey, we'll bring it back. It never came back. And it just slowly got bigger and bigger. Before COVID they started to shrink the balance sheet, and then COVID hit. Boom! Look at this balance sheet. I mean, look at this gain up to $6 trillion, and then it just continued on all the way to a peak here about April of 2022 at almost $9 trillion, just under $9 trillion here. And they've slowly kind of— they spiked again. It's slowly come off, but still, look at— we're at $6.5 trillion. That's still right above COVID. You know, when people are like, oh, we're going to bring inflation down, we are at a new plateau. This is a new plateau. The Fed is never coming back to these levels. It's never coming back to these levels. We are in a world where the Fed is, I mean, a much more larger player. This has been since 2008. We are not going back. They have a lot of assets on their balance sheet. I could go on and on about this, but I won't. That's— I think it's an interesting chart to look at. And he just said we're about bottomed out. We're probably not going to sell anymore, which means what are they going to do? They can buy. So this is kind of the bottom here is what he just mentioned. We're kind of sitting here. This— yeah, he feels like this is a bottom. I mean, look at that compared to 2019 or back to 2007. I mean, what a difference. You can keep going here. Next question.

Thank you.

Colby Smith with The New York Times.

So much of the rationale for cutting interest rates, even as inflation moves away from the 2% target, seems to be You know that there are these mounting downside risks to the labor market, but if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second-round effects from tariffs? Yeah, I mean, in principle, if if you were to see data that suggested. That the labor market is strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So— and we do have— you know, we get some data. The labor market is a place where we get— for example, we get the state-level data on initial claims, which are sending sort of a signal of more of the same. We also get job openings, and we'll get lots of survey data. We'll get the Beige Book and things like that. So we'll have a picture of what's going on. On in the labor market. And, you know, the fact that we're not seeing an uptick in claims or a downtick, really, in openings suggests that you're seeing maybe, maybe continued very gradual cooling, but nothing more than that. So that does give you some comfort.

But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the Committee's ability to assess the state of the labor market and make the right policy decisions?

And, and also, how much is that factoring into the debate about December?

Yeah. So, you know, the question should be, how are you going to collect data differently in the future?

Like I mentioned, what we get in the labor area, we get some data in inflation, some data in economic activity, and we'll get— we'll have a picture of what's going on. We also will have the Beige Book again. I would say we're not going to be able to have the, you know, the detailed feel of things. But I think if there were a significant or material change in the economy one way or another, I think we'd— I think we'd pick that up through this. So in terms of how it might affect December, it's really hard to say. December is, you know, this— the meeting is, I guess, 6 weeks away. We just don't know what we're going to get. If there is a very high level of uncertainty, then, you know, That could be an argument in favor of caution about moving, but we'll have to see how it unfolds.

Steve. Steve, I like this guy.

Steve Liesman, CNBC. Mr. Chairman, can you characterize the meeting in terms of— you said strongly differing views. Was this a close call, this cut, or was it a close call maybe the other way because you had dissents on both sides? Thanks.

He had 2 dissenting votes if you're just hopping in.

About— to the extent it's related to December, you saw we had, we had 2 dissents, one for 50 and one for no cut. So, um, you know, that was a strong, solid vote in favor of this cut. This— the strongly, uh, differing views were really about, about the future. What does that look like? And I think people are saying, you know, they're, they're noticing stronger economic activity. You know, forecasters generally Broadly have raised their economic growth forecasts for this year and next year, in some cases quite materially. In the meantime, we see you know a labor market that's kind of I don't want to say stable, but it's it's it's not clearly in motion. It's not clearly declining quickly. In any case, it may be just continuing to gradually cool. And again, people have different they have different forecasts and expectations about the economy and different. Different risk tolerances. And so there's a— you know, you read the SEP, you read the speeches, you know, there are differing views on the Committee. And to the point where I— where I said what I said. And just to follow up on the balance sheet, if you stop it, the runoff now, does that mean you have to go back to actually adding assets sometime next year so that the balance sheet doesn't shrink as a percent of GDP and become a tightening factor? So you're right. The place we'll be on December 1st is that the size of the balance sheet is frozen. And as mortgage-backed securities mature, we'll reinvest those in Treasury bills, which will foster both a more Treasury balance sheet and also a shorter duration. So that's what— in the meantime, if you freeze the size of the balance sheet, the nonreserve liabilities— currency, for example— they're going to continue to grow organically. And because of the size of the balance sheet, sheet is frozen, you have further shrinkage in reserves. And reserves is the thing that we're managing that has to be ample. So that'll happen for a time, but not a tremendously long time. We don't know exactly how long. But at a certain point, you'll want to start— you want to start reserves to start gradually growing to keep up with, you know, the size of the banking system and the size of the economy. So we'll be adding reserves at a certain point. And that's the— that's the last point. Even then, we'll be— we'll be— we didn't make decisions about this today, but we did talk today about the composition of the balance sheet. And there's a desire that the— that the balance sheet be— right now, we're— it's got a lot more duration than the outstanding universe of Treasury securities. And we want to move to a place where we're closer to that duration. That'll take some time. We haven't made a decision about that. I don't think we've got the ultimate endpoint, but we all agree that we want to move more in the direction of a balance sheet that more closely reflects the outstanding Treasuries, and that means a shorter-duration balance sheet. Now, this is something that's going to be— take a long time and move very, very gradually. I don't think you'll notice it in market conditions, but that's the direction of things.

So, to recap on that, if you pause, he essentially explained, December 1st, we're freezing the balance sheet, but that does set precedent for us to do quantitative easing going into next year, which is where the Fed starts buying things again to work with that. But he gave himself the option. A lot of these questions, the reason I say he's not going to answer that, because he always wants optionality. They're never going to say we have a preset course. He's not going to say, oh yeah, we know what we're going to do next February. He's always going to say we have options. But what he hinted at was the option at hand would be to add or increase the Fed's balance sheet, just like we talked about a few minutes ago. Which would be a net buyer, which would be more quantitative easing in the market. We'll keep going here. See other questions they have.

Janelle Marte with Bloomberg.

How are officials interpreting the latest CPI report? So some components came in lower than expected, but core inflation was still at 3%. So at this moment, are— what are you learning about the drivers? And also, where do you view that the risks are greater that the Fed makes a mistake on employment or inflation?

So okay, so the September CPI report—we didn't get PPI after that—which is which is important for translation into what we look at, which is PCE inflation. But we can still make a pretty good assessment of what that will be when we get PPI. There might be some adjustments, but so directionally. You know, it was a little softer than expected, and we always break it down into the three components. So basically, you've seen goods prices increasing, and that's really due to tariffs, and that's due that's compared to a longer run trend of very very mild deflation in goods. So that's moving inflation up. On the other side of that, good news that housing services inflation has has been coming down as. Is expected to continue to come down. So if you remember a year, a couple years ago, that's the one that just— we kept expecting it to, to do that. Now it's doing— it's been doing that for some time, and we expect to continue that. That leaves the biggest category, is services other than housing services, and that's kind of been moving sideways, uh, over the last few months. But a significant part of that is non-market services, and we don't take a lot of of signal about the tightness of the economy from that. So if you add all that up, a couple things to say. One is that inflation away from tariffs is actually not so far from our 2% goal. We, we estimate— people have different estimates of what that is, but it might be, you know, 5 or 6 tenths. And so that, you know, if it's 2.8, then, you know, core PCE not including tariffs might be 2.3 or 2.4 in that range, something like that. So that's not so far from your goal. So that— we look at that. And the thing about tariff inflation is, the base case is that it will come, and it probably will increase further, but it is that it will be a one-time increase. And, you know, we've been very focused for all of this year at making making sure that that's the case and thinking carefully about what are the— what are the pathways through which it could become something else, troublesome inflation. One of those would be, you know, a really tight labor market. We don't see that. Another could be inflation expectations moving. We don't see that. So I think, you know, we've— we're— we're watching this very carefully. I think it's— it's not the case that we're just assuming that it's going to be one-time inflation. We understand fully that this is a risk we to monitor and ultimately manage. With the stubborn services inflation, what are some of the things that the Fed could do to address that?

And especially when we're seeing potentially labor supply challenges? Sorry, say the first—

the stubborn services inflation that you mentioned. Service inflation. Yeah. Well, again, the part of services inflation that is— that isn't coming down as we would like it to, is the nonmarket part of nonhousing services. And, you know, overall, that's just something that we expect will come down. The nonhousing— the nonmarket part of it should come down. It largely reflects higher stock prices, and, I mean, financial services that are imputed rather than actually paid is a big part of that. But also, just, you know, we think policy is still modestly restrictive in my telling. So that's the kind of thing that should lead to a gradually cooling economy.

He mentioned tariffs about being, you know, 1/10 or maybe 2/10 of inflation. 6 months ago, the conversation was tariffs are going to end the world. This is going to be the worst thing. It's— inflation is going to run rampant. To hear him say, yeah, it's, it's maybe a 10th or 2/10. Maybe we're going to look at it further is a huge difference from 6 months ago. I mean, you heard Jerome Powell and a lot of other antagonists towards tariffs, especially around Trump, was that it was going to be the worst thing ever. And so far it hasn't. It doesn't seem that way. The other thing, the other conversation was corporate price gouging. These corporations are just putting prices higher on purpose because they can and they can just gouge customers because the customers You know, because it's a self-fulfilling prophecy around inflation. That has also come out to not really be true. A lot of corporations actually showed their supply chain and their breakdown. Now, there's probably one or two cases, but in a free market capitalist society, competitors then undercut whoever is price gouging. Competitors come and undercut those things and gain more customers and gain more market share. It's really interesting to look at these in tandem now where he's saying today, yeah, it's maybe 0.1 or 0.2% of core inflation is of tariffs, maybe. And then to have no language around corporate price gouging or corporate price, which was a huge conversation amongst Jerome Powell and frankly, a lot of Democrats on the left that were antagonistic towards Trump around this inflation. It was just pretty interesting to contrast that with what he's saying now. Now he's talking about financial services, things like that, which I guess we can finish up this question here, maybe skip to the next question. If we can, but we'll keep going here.

That's one of the reasons you see a gradually cooling labor market is because you know Fed policy is modestly restrictive. So that that should also help get that. I want to say though, we're absolutely committed to returning inflation to two percent. If you look at longer term surveys or market pricing, you will see that that that's a credible commitment, and there should be no question. that that's, that that's where we're going.

See, I was questioning that earlier. I would say they should go to 3% because that's where it's been. Great. Thank you. Chris Rugaber, Associated Press. So there's a big investment boom in AI infrastructure right now, as you know, and wondering if the existence of such a boom would indicate that rates are not that restrictive after all. And could further rate cuts at this point perhaps fuel an excess level of investment? There or market bubbles? How is the Fed thinking about that? That's a good question.

So I don't think that the— you're right, there's a lot of data centers being built and other investments being made around the country and around the world. And big U.S. companies are just investing Investing a lot of resources in thinking about how AI, which will be based on those data centers, run through those data centers, is going to affect their businesses. So it's a big deal. I don't think that the spending that happens to build data centers all over the country is especially interest sensitive. It's based on longer run. It's you know longer run assessments that this is an area where there's going to be. A lot of investment, and that's going to drive higher productivity and that sort of thing. I don't know how those investments will work out, but I don't think they're particularly interest-sensitive compared to some of the other sectors.

And then just a quick follow-up. You mentioned that you do have data that you're looking at for inflation and growth in the absence of government data. Could you give us a sense— I think we know a lot about the jobs data that's out there. Can you give us a sense of what— Pause for a second. Before the next one, I would think it's— very interest rate sensitive, but maybe not. You have these companies with a lot of cash flow and a lot of large balance sheets that are investing into data centers. But many of these data centers are also privately funded or co-funded with other sponsors. I know an individual right now, they're looking to build a massive data center and they're bringing in lots of debt partners. And it's just like most construction projects have a huge slug of debt and those debt are interest rate sensitive. And so it is a lot harder to construct a building or a data center When you have a— most of them have a slug of debt from a large bank at a high interest rate. I would think they are. I mean, construction is very interest rate sensitive. I would say especially data centers. But, you know, if you're looking just at Amazon, I guess Amazon does have a lot of cash. They don't— maybe they're not as interest rate sensitive, but I would still imagine they would still use debt on these data centers. So interesting comment from Jerome Powell, but maybe I'm the one that's an idiot on those ones. But I would say construction in general, real estate in general, Very interest rate sensitive, but we'll see his next question here. You have to track inflation in the absence of government data. He's asking about government data.

So it's a lot of things, and it doesn't replace government data. But you know, you know all of these. It's you know, it's I'll just mention some of the many, many names: PriceStats, Adobe, and others. And and for wage inflation, there's ADP data. On spending, you're going to ask about spending at some point. You know, there are lots of other things that we look at, but it's— again, it's many, many different sources, and, again, including what we get out of the Beige Book, which will be sort of— come out midcycle, as always. And it doesn't replace the government data, but it gives us a picture. Again, I think if something material were happening, if there were material developments, I think we would I don't think we'll be able to have the very granular understanding of the economy while this data is not available. Howard. Howard Schneider with Reuters. Thank you. I just wanted you to elaborate a little bit on what you said a moment ago about the lack— the continued shutdown making it more difficult to make a move in December.

And that may make you more cautious.

To the degree you are relying on private data that isn't the gold standard, or that you're relying on your own surveys or the Beige Book, do you worry at some point you're going to have to start making policy by anecdote? You know, this is a temporary state of affairs. And, you know, we're going to do our jobs. We're going to collect every scrap of data we can find, evaluate it, and think carefully about it, and that's our jobs. That's what we're going to do. If you ask me, could it affect the, you know, the December meeting, I'm not saying it's going to, but, yeah, you could imagine that, you know, what do you do if— what do you do if you're driving in the fog? You slow down. So that could or could not. I don't know how that's going to play into things. We may get— the data may come back, but there's a possibility that it would make sense to be more cautious about moving. I'm not committing to that. I'm just saying it's certainly a possibility that you would say, we really can't see, so let's slow down.

As a follow-up— pause for a second. The Beige Book they keep talking about is economic data summarized, usually comes out at each FOMC. This one, they didn't have one. Usually comes out about a week before FOMC. So anyways, we'll see what he says here, but keep going.

In the debate in this meeting, we saw recently some pretty big layoff announcements coming from Amazon and others.

Yes, great question.

I'm wondering if that figured into the discussion at all, that you're starting to see the turn— this tension between growth and employment starting to be resolved, you know, to the detriment of employment. And secondly, some of the stress is starting to appear in the bottom spur of the K, as they call it, household debt. health premiums that are going to possibly be going up quite substantially, things like that. Has that started to become a factor in your policy discussions?

So those are— this is huge news over the last few weeks. Amazon announced, I believe, 30,000 employees being laid off. Other big tech companies announcing large layoffs over the last 12 months while they are in a period of immense growth. So you're juxtaposing Big tech is growing rapidly right now, especially with AI, and they're laying off workers. And so a lot of people have said, is it automation? Is AI replacing jobs already? Are these factory robots already replacing jobs? I think we will see in the coming weeks or months on exactly where those job displacements are, or maybe it's just a trimming. You know, a lot of large companies do trim 5% to 8% of their workforce every year, but these are layoffs that they are making. So they are reduction in jobs from Amazon, who is growing seemingly pretty well. We actually should get their earnings reports here after this call. So we'll have Meta, Alphabet, and Amazon, I believe, all giving earning reports later today, which is huge. I think it's $9.1 trillion of market cap is giving earning reports today after this meeting, which is pretty cool. This is a good question of, you know, with job displacement from AI and robots, what are you guys thinking? So we'll hear what Jerome Powell has to say about that.

Things you know that we're watching very, very, very carefully. To start with the layoffs, you're right. You see a significant number of companies either announcing that they are not going to be doing much hiring or actually doing layoffs, and much of the time they're talking about AI and what it can do. So we're watching that very carefully, and you know. Yes, it could absolutely have implications for job creation. We don't really see it in the initial claims data yet. Now, it's not a surprise that we don't. It takes some time for it to get in there, but we're watching that really carefully. But, again, don't see it yet in the initial claims data. On the K-shaped economy thing, I would say the same thing, or similar. Thing. We are— if you listen to the earnings calls or the reports of, you know, big public consumer-facing companies, many, many of them are saying that there's a bifurcated economy there and that consumers at the lower end are struggling and buying less and shifting to lower-cost products, but that at the top, people are spending at the higher income and wealth And so much, much anecdotal data on that. And so we think there's something there.

Yeah. Interesting. Pause for a second. He's mentioned a bifurcated economy on consumer spending because consumer spending is still high. But what he's pointing to is some data suggests that the spending is coming from top income earners. Middle or bottom income earners are spending way less. There's a funny joke going around right now, like it's quote, even the one percenters are hurting a lot right now, and they're tightening their budgets. And you hear this across the board. Even the top one percenters are still everyone's tightening their budgets. That's why I think the anecdotal question was interesting. As an aside, we'll come back to the next question. By the way, next week, so a week from tomorrow, we if you can share my screen, we're doing our biggest event of the year. If you guys want to come register, it's funlaunch.com/register. This is a free event. On the call, we're giving away $2,500 of prizes, 2 full fund legal setups, and I think it's right here. We are attempting to give away over a million dollars of credits towards Black Card on this call. It's one of the biggest things we do all year. I'm inviting 3 very sharp fund managers to come live and talk about how they're adjusting their portfolios going into 2026. Again, you have to be live to get all the top tier stuff. I believe we're not doing a replay of this call. You have to be live on the call to see all of it. We did one last year. It was one of the most. Highly supported and like best feedback we got for the full year was this call. It is happening next week. It's on Zoom. It's going to be a private link. If you want to register, right here is the registration button. It's funlaunch.com/register. Hopefully, you can see that on your screen right there. Go check it out. It should be a really fun call. And people, you have to be live to win. And we're going to be giving away tons of stuff live for answering questions. It's actually really fun. We do it. I would not miss it. We've done this now multiple years in a row. People love this call and we learn a lot and we give away a lot of prizes and we're trying to give away over $1 million of credits to Black Card for our big Black Friday bluff. We only do this once a year, so go check it out. We'll see you there. All right. Let's go back to— let's go back to the meeting here. Thank you. Edward Lawrence with Fox Business. So, Mr. Chairman, I want to take another crack at the— at the further reduction in rates is not a foregone conclusion. So in December, you said Far from it. So if a cut might not be on the table for December because of lack of data, what does the other concerns then stem from? So if it's not lack of data as the reason December is not a foregone conclusion, what other things could be the concern then?

Well, the perspectives of people on the Committee that, you know, we've now moved 150 basis points and that we're down into a So, you know, you're into that range between 3 and 4 where most estimates of— many estimates of the neutral rate live in that 3 to 4% area. You're there now. You're above the median number for the Committee, but I think there are people on the Committee who have higher estimates of the neutral rate. And that's a— you know, you can argue these positions since it can't be directly observed, the neutral rate. So, you know, I think for— So for some part of the Committee, you know, it's time to maybe take a step back and see whether there really are downside risks to the labor market or see whether, in fact, the growth— that the stronger growth that we're seeing is real. Ordinarily, the labor market is a better indicator of the momentum of the economy than the spending That's the lore. In this case, that gives a more downbeat read. So people just have— you know, there— again, we've cut 50 more basis points in the last 2 meetings, and there was a sense like, let's— from some, let's pause here kind of thing, and a sense from others wanting to go ahead. But that's why I say differing views, strongly differing views. So on that division, then you're talking about going forward.

So what's more important in this division? Is it inflation risks? Is it employment risk? Or is there a deeper philosophy division among the board?

I look, everybody on the committee is deeply committed to doing the right thing to achieve our goals: maximum employment and stable prices. You have differences on how to do that, and as I mentioned, some of that. There's different forecasts, but a lot of it is also different risk aversions to the different to do different variables, which is common through you know through all federal reserves. There there people just have different risk tolerances, let's say. So that leads you to people with disparate views. You will know that from the speeches you've been listening to from my colleagues, and and so we're at a place now where we have in fact cut two more times. And, uh, you know, pause for a second.

This is interesting. He's, he's not gonna answer this question. Um, so we'll just keep going. This is— if you share my screen, uh, this is the Fed funds rate. So going back to, I think, uh, the mid-'80s, '85 here. So they— and I actually somewhat agree with what they're doing— they're trying to move to more neutral policy. Some people online, like, let's cut rates, it'll boost the economy like crazy. Well, throughout history, every time they have cut rates We have seen a recession. These gray bars represent a recession. I'll zoom in for a second. So this is early '90s recession, right? Where they cut during a recession. 2000, 2001, they started cutting before the recession. 2007, 2008, they started cutting before the recession. COVID, they started cutting before COVID which is kind of weird. Like, how do they know COVID was coming? And then they went to zero. Right now we are cutting With no recession. Now, they are trying to thread a needle. The only time that I, at least in recent history, is the mid-'90s. So if you look right here, they cut rates. Bill Clinton was president. We had a surplus for the first time in a long time in U.S. history. There's a lot of talk right now that we could have a surplus with Trump and the tariffs. And we did not have a recession. And this was also while an emerging technology, the internet, was coming out. So if you look right here, we are cutting rates. Internet was coming out. We had a surplus, and they actually did an incredible job. This is during the '90s, during the internet boom. Now what happened in 2001? We had a dot-com bubble. It popped, but still the internet has changed the entire globe, and trillions of dollars have been created since the dot-com bubble. Many people are sitting here going, "Wait, are we going to be in a recession after cutting rates, or can the Fed thread the needle?" And cut rates without— not causing, but being a precursor for a recession. I personally actually agree with more of a neutral policy, which it seems like they're trying to get to. They're saying, we don't want to do quantitative tightening or easing. We have lowered rates to more of a neutral stance. We could lower a little bit further, but we have an economic boom on paper. We have stock markets hitting all-time highs, gold hitting all-time highs. We seemingly a pretty healthy economy right now. Why are we cutting rates? Now, I get the reasons why they're cutting rates because there's certain sectors of the economy that have been obliterated. I mean, take housing and mortgage companies, all the stuff around real estate and other sectors of the economy on the low end of the market. Inflation has squeezed a lot of people out of consumer products and housing and other things. So I think there is precedent to cut rates right now. But it's an interesting moment. Like he keeps mentioning this balancing point of if they cut too hard, why would you do that? Everything's at all-time highs. You usually cut rates during a recession or during a very economic crisis, which maybe they could have done earlier this year during the whole tariff war that was going on. They decided not to because I believe Trump had pushed them into a corner. But you have a big tariff war that happened like in April. Remember all the markets were all over the place? That's a time that you would maybe cut rates to ease the economy. And so what he said at the beginning of the meeting is, is we are well positioned to respond to something major. If there was a war that broke out or another pandemic or something major, the Fed can cut rates on an emergency meeting and inject a lot of liquidity into the markets. And so they're holding that I guess bullet in their gun for later. And actually, I somewhat agree with a more neutral stance here while things are going on. Now, the other part of me, like, I, I love— I've run a crypto investment fund. I love, you know, I love equities. I also am very bullish on the growth in America right now of AI, blockchain, robotics, uh, quantum computing. I mean, there's a huge— we have this convergence of technologies going on. And if you cut rates, it will supercharge an economy that's going through a full another industrial revolution right now with not just one, not just two, but something like 5 emerging technologies that are converging all at once. We've never seen that in history. If I go back, the last time we saw this was the internet. The time before that was the turn of the 19th century. We had the electricity. We had the telephone and the combustion engine come out all at the beginning of the 1900s, give or take, and all of them converged and helped one another. And average GDP growth went from about 0.5% to about 3% after that move. We could see a similar thing here in the 2020s. And if we want to win an AI race, I see why the Trump administration is saying we need rates lower to supercharge all of these emerging technologies, allow investors to have more Risk on investment stance, but the other side you see the you know the Federal Reserve saying whoa let's be more neutral here, which I think is a decent way to take policy. So there's my long-winded approach on why actually I think this more neutral policy might if I was in that chair I would probably make the same decision. So let's keep going here.

And fifty basis points closer to neutral wherever that may be than we were a year ago, and so there's there's a growing chorus now of. So it's just a matter of feeling like maybe this is where we should at least wait a cycle, something like that? That's what it is. It's just what you think it would be. It's— and, again, you've seen it in the September Summary of Economic Projections. You've seen this in the public remarks of FOMC participants. And now I'm telling you that's what— that's what you can expect in the minutes. And I'm just telling you that's what happened in the meeting.

Thank you so much. Liza Schulze with ABC News. What is your explanation for why the job market is weakening right now, and what will this rate cut do to improve the job market?

So, good question. I think the— there are 2 things affecting the job market, and one of them is just a dramatic reduction in the supply of new workers. So, and that's 2 things. That's declining labor force participation, which is a cyclical thing. And then there's declining immigration, which is just a big policy change that actually began.

Those things should help the job. Did I just understand him correctly? He said we have restricted immigration and we have, you know, less market participation, meaning People, there's, there's less supply and demand. There's less people trying to apply for jobs because they can't immigrate to the country or they got deported, or people just aren't participating. Hence, there should be more job openings. It should be easier to get a job. Am I understanding that correctly? Am I crazy? He's— anyways, let's hear what he says though. Let's keep going.

In the last administration, and it has been accelerated now. So a big part of the whole story is that, that supply side story. Okay. In addition, labor demand has declined. And, you know, so the labor— the unemployment rate has gone down, meaning that demand for workers has gone down a little more than supply. So that's what's going on. And— but it is mostly a supply function. You know, it's mostly a function of the change in supply, I think, and many people think. So the question then is, what does the— you know, our tool do, which supports demand? And, you know, so— and I would just say, when you're in a situation where job creation, if you adjust for likely overcounting in the way that BLS does its work, is pretty close to zero— so maximum employment doesn't— on a sustainable basis doesn't— if you're making— creating zero jobs, if it's in equilibrium, if it's in balance, it's a pretty— as I said before, a pretty curious balance. So, you know, I thought, and many of my colleagues thought— in fact, you've seen the last 2 meetings— that it was appropriate for us to react by supporting demand with our rates. And we've done that. We've reduced so that rates are looser. I wouldn't say that they're accommodative right now, but they're meaningfully less tight than they were. And that should help so that at least the labor market doesn't, doesn't get worse. So it's a complicated situation. And some people argue that, that this is supply and we really can't affect it much with our tools. But others argue, as I do, that, that there is an effect from demand and that we should use our tools to support it.

If I'm thinking about this logically, that means demand is really bad. Let's talk about tariffs for a second. That means demand is horrible. Because you have less workers. They've, they've made H-1Bs, H-1V visas hard, H-1V, H-1B visas harder to obtain. They've deported a lot of people. They've closed borders. Hence, there should be more job openings in America and that Americans can fill, and there shouldn't be so much joblessness on the supply side. But what he's saying is it's supply and demand, meaning the demand has weakened a lot. Because if demand was the same and all that supply had changed, we should have a great job market. But supply— demand has weakened so much that in conjunction with the supply, I mean, we're in a much worse situation than we thought. Maybe they'll ask follow-up questions or maybe I'm the idiot. Am I just not understanding this correctly? I'm— when you have less workers, Why would that be the problem for the job market? That's— anyways, let's continue on. Let's see what she says here. One-time price increase. Should American households, consumers expect that inflation will continue to go up this year because of those tariffs?

So the basic expectation is that there will be some additional increase in inflation because it takes a while for tariffs to work their way through the, through the production chain and finally get to consumers. And we see this now from the, from the tariffs that were put in place now many months ago. We see those effects. But if you put tariffs in effect, and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring. These are not big increases. Though. These are a tenth or so on inflation. They may be big increases on a particular product that's been tariffed, but overall these are fairly modest. I think, you know, some projections go we're at 2.8% inflation. You might get 2 or 3 more tenths or 4 more tenths maybe. But then, as, as all the tariffs are in, they stop generating inflation. You've had a one-time price increase. As long as you're not— at least this is, this is the theory, this is how we Believe and hope that it will work out. Once the once the last tariff is is put on something, at that point it becomes it becomes a higher price level, but it stops going up. If you will, prices stop going up; they'll just be at that level, and then measured inflation will come back down to non-tariff inflation. As I mentioned, non-tariff inflation is not so far from two percent now. Now consumers don't. Interesting. Ready to pause for a second?

So. So, just so everyone's aware, when they measure inflation, it's a trailing 12-month period. So, when they're like, yeah, inflation's coming down, as of the last 12 months. Overall, if you take a net since COVID everything is up. Low estimates are 20%. High estimates is 30%. And that's not going away. Like you mentioned, it's a new plateau. When they say we're getting inflation down, we're getting it down on a trailing 12-month basis. We're just flattening to a plateau. If the plateau was really flat, it would be 0% inflation of their report. That's what zero would be. What the 2.8% means is it's 2.8% above October of last year, which is crazy. Okay, that's how much money has been created and printed and not come down since COVID We're at a new plateau, a new plane of what is the, you know, normal. We're in this new normal. Someone say, all right, keep going.

Story, their, their, their prices are higher. More than that, the reason they're so unhappy about inflation is the inflation that we had in 2021, '22, and '23. Because, you know, you can say that prices aren't going up as much, but that doesn't mean people aren't feeling those higher prices from the inflation we had 2 or 3 years ago. They are. And that's, I think, a large part of why the public views People, inflation is still very much making people quite unhappy. Even you know, and it's nice that you know that that prices are are not going up as fast as they were, but they're still much higher than they were, and it'll take some time for that effect to wear off as real incomes rise. It will feel better over time, but that's going to take time. Michael McKee from Bloomberg. Television and radio. Do you have any concerns that equity markets are or are close to being overvalued at this point? You know, we don't look at any one asset price and say, "Hey, that's wrong." You know, it's not our job to do that. We look at the overall financial system, and we ask whether it's stable, whether it could withstand shocks. Right. So, you know, banks are well capitalized. While some households are clearly under stress, in the aggregate, you know, households are in good shape financially, relatively, you know, relatively manageable levels of debt. At the lower income spectrum, you are seeing rising defaults, particularly around subprime auto, but nonetheless, in the aggregate, pretty good. And you don't see— so you don't see too much leverage in the banking sector. System or the financial system. It's a mixed picture, but it's not an overly troubling picture. And again, I'm not— you know, I— it's not appropriate. We don't set asset prices. Markets do that. Well, are you— you must be well aware that by lowering interest rates, you're contributing to additional asset price increases. And I wonder how you balance the idea that lowering rates would help the labor market with the reality that it seems more likely to be stimulating increased investment in AI, which is the rationale for thousands of job cuts that have been announced in the last few weeks.

It's an impossible situation. You can't lower rates.

I think interest rates are an important part of the AI, of the data center story. I think, you know, people think there are great economics in building these data centers and they're making a lot of money building them and they think they have very high present value and all that sort of thing. It's not— it's not really about— it's not like— it's not, you know, about 25 basis points here or there. You know, we use our tools to support the labor market and to create price stability. That's what we do. That's our 2 jobs. Right. So we're here to— by lowering rates at the margin, that will support demand and that will support more hiring. And that's why we do it. Now, no 25 basis point or even 50 basis point hike is going to be a dispositive thing, but ultimately, you know, lower rates will support more demand, and that'll support hiring over time. And, of course, we also have to be careful about this, which is what we've been doing, because we know where inflation is, and we know that— you know, I've told you the story. It's a complicated story, but this is the best assessment that we can make. And, and it— but, you know, because there's uncertainty around, around inflation and the path ahead for inflation, that's why we're going— that's why we— the pace we're going has been a careful one.

Can't do one thing without the other.

Yeah. Hi, Victoria Guida from Politico. On AI, I'm just wondering, you know, it seems like a lot of the economic growth that we've been seeing is fed by investment in AI. So how worried are you about what a sudden contraction in tech investment would mean for the overall economy? Is there enough strength in other sectors? And specifically, are there any lessons that you take from the 1990s in how you might approach what's happening right now?

Hey, that's kind of positive. We just referenced the 1990s. There we go, on our same wavelength. There was a report that came out too that of all, I think it was, I'm gonna say rough numbers here, if you take out data centers, and AI infrastructure, the GDP only grew 0.5%, not the, you know, over 2 or right under 2, you know, about 1.5% of all GDP growth came just from data centers this year, which is a crazy report. I'm not sure if it's accurate or not, but she's kind of referencing this on the tech sector ballooning above. An answer I would give, I'm curious what Jerome Powell will give. The interesting point about AI though, it is the last machine or invention humanity ever needs to create. Which is quite scary. When you say this is the last invention we need to create as humans is AGI, what's the cost? Well, whatever you need. Sam Altman just mentioned they estimate anywhere from $8 to about $15 trillion. I was going to say billion, trillion with a T dollars to build out their entire plan of what they want to do just with OpenAI. So what will it cost? Quite an immense amount. But if you win, it's the last invention humanity ever needs to create. Furthermore, if you lose the AI race to China, or let's just use China for now, you're— everyone's speaking Chinese in the United States in a few years. So I think that it is warranted. It's needed to happen. There's no other options. If you take what are our options at hand, you have to do this. As a country, doesn't matter if it's a Democrat or Republican, you have to make this work. Otherwise, your adversaries will make it work, and it'll be pretty interesting. So let's hear what his answer is though.

This is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that. So if you go back to the '90s and the dot-com, they were— these were ideas rather than companies. And, you know, we're— so there's a a clear bubble there, whereas the— you know, I won't go into particular names, but they actually have earnings and, you know, it looks like they have business models and profits and that kind of thing. So it's really a different thing. You know, the investment we're getting in equipment and all those things that go into creating data centers and feeding the AI, it's clearly really one of the big sources of growth in the economy. Consumer spending also, though, has been— you know, is much bigger than that and has been growing and has defied a lot of, you know, negative forecasts, continuing to do so this year. Consumers are still spending. Now, it is— it may be mostly higher-end consumers or maybe skewed that way, but the consumer is spending, and that's a big, big chunk of what's going on in the economy. Bigger than substantially bigger than AI. You could point to the growth. I mean, actually, you may have growth as opposed to—

Let me share my screen. Everyone, he's mentioning consumer spending. This is exactly right. He's saying everyone was worried about consumer spending. If you see my chart here, this is all time. I'll go 10 years and then I'll go 5 years. I mean, nothing is more steady than personal consumption expenditures in billions for the US economy. I mean, even COVID dropped and went right back to this trend line. Not even a blip here of consumer spending. So he's mentioning it could be high-end people, could be whatever, but either way, people are spending money. I mean, it is happening. So meaning companies have revenue. There's actual real earnings going on in these companies. Now you could argue the PE ratio, price-to-earnings ratio is off. He might have just was going to mention Nvidia. So Nvidia just hit $5 trillion market cap today. What's crazy is their price-to-earnings ratio is better At their current share price than it was at $200 a share. So it's not like at $200 a share it was more speculative than it is at. Let's see what their share price is right now. They're at. Let me go back up. I'll pull it up in a minute. Are you sharing my screen? 207. Because they do a— they did a stock split. I'm trying to think, it was pre-stock split anyways, because it's right at $207. But I— the guy was referencing, it was like a couple years ago at $200, um, before the stock split. So anyways, well, that's kind of cool. Look, cool little live ticker. That's kind of fun. Um, but you see Nvidia here, like their price-to-earning ratio is better today than it was— I can't remember the date, whenever it was back here. So we'll see. But anyways, could be a bubble, could be not. Let's hear what DronePals has to add to that.

But consumer spending is a much bigger part of the economy. And why do you think that the labor market is slowing so much even though consumer spending is strong? Why has it slowed so much? Well, what's happened is—

I already asked this question.

Is that the supply of workers has dropped very, very sharply due to mainly immigration, but also lower labor force participation. So—

That should help the job market.

And that means there's less need for new jobs. Because there's, there's, there isn't this flow into the, into the pool of labor that, you know, where people need jobs because there aren't those people now. So there's not a supply of workers showing up for jobs. In addition, demand is also—

Am I crazy? Tell me if I'm crazy. That does not make sense. Why is the job market weakening? Well, we have less workers. That should mean the job market, if I'm someone looking for work, is way better. Am I wrong? Now he's going to say, well, the demand side, which I think is true, less companies are hiring. But saying there's a supply problem, I don't think is accurate. Maybe I'm just, maybe I'm an idiot and they're all smart over, but I'm trying to compute the ones and twos in my brain over here, the ones and zeros. It does not make sense. You have a, you know, you slowed immigration. Okay? And you have less people participating in the labor force. Okay. That would mean you have a healthier— that means I don't— anyways, let's hear what he says here. And she's looking very skeptical. Let's see if she follows this question up. I think she's already asked her a second question. We'll see if they can follow up this. But maybe I'm just not understanding correctly. Maybe I didn't— maybe I skipped my economics class in college or something. Let's go ahead. Let's see what he says.

So gone down. And so has labor force participation has declined, which is more of a sign in this case of, of demand as well as trend. So I think you're seeing some softening. You know, the economy is growing at a slower rate than it was, 2.4% last year. We think around 1.6% this year. It could have been a couple of tenths higher if not for the shutdown. And of course, that that will reverse. But, you know, you've still got the economy growing at a moderate pace.

Andrew.

Hey there.

Andrew Ackerman with the Washington Post. I wanted to ask if you could elaborate on how you think about policy in the context of the data drought. Does it make you inclined to stick with your plans as set out in September in the absence of the data that might change your mind? Or does it make more sense to do that? He's already answered this question. It's going to be short-term. All right, let's go. Let's do something. Pull up my screen for a second. He's already answered this question. We're kind of getting repeat questions here. So, um, next week, by the way, we are doing our biggest event of the year. If you guys want to show up, this will be incredibly fun. You have to be live to hear from the 3 fund managers. We're giving away $2,500 in prizes live, 2 full fund legal setups, and we're trying to give away $1 million of credits to Black Card. On the call live, it should be pretty darn fun. So go check it out. We have a some pretty awesome fund managers coming on here. We're going to talk about what's going on in 2026, how these fund managers are adjusting their portfolios going into 2026. So again, you can go here. You can just claim your free ticket. Put your name and email in there, and you'll be on the list. You have to be on our private Zoom link to be live for there because we have to. We we're going to do polls. We're going to play a fun game. You win stuff live. Everyone that attends will get a free gift as well that shows up. So it should be pretty fun. With that, I think we're hitting a lot of repeat questions here from Mr. Jerome Powell. We've been on for a while. So 25% rate cut today, lack of economic data because of the government shutdown. And we'll see on the December meeting what they do there. We had 2 dissenting votes, one higher, one lower. And he mentioned a lot of controversy within the Fed. So thank you all for coming on today. We'll see you next week on Thursday. We're going to be live. It's our biggest event of the year. We only do this once a year. It's not like this happens all the time. We did it one time last year. It was our favorite event of the year. From our people, so hit that link. Make sure to join, and we'll see y'all next week. And bye bye.