00:00 Speaker A
There’s some discussion here about what some are calling a hawkish rate cut. What do we mean when we say hawkish cuts? What would that look like?
00:10 Speaker B
Yes, it’s essentially financial rhetoric that the Fed is going to cut rates, but then they’re going to signal that we probably won’t have many rate cuts in the future. Hence the hawk part. Hawkish means the Fed is looking to maintain interest rates or raise them. Dovish means lower interest rates. Frankly, I do expect Chairman Powell to be hawkish in his press conference tomorrow because he’s going to say, look, this is our third rate cut this year.
00:37 Speaker B
We now have the federal funds rate at three and a half to three and a quarter, three and four quarters, closer to neutral. So we’ve done all the insurance reductions that we need to do right now. If we need further cuts, it will be because we are seeing a significant deterioration in the labor market. So I think investors need to stay on the sidelines as we move into 2026.
00:59 Speaker A
Yes, it feels like the same may be true of the Fed. I want to ask Mark this question too. What do you expect from the Fed? Hawks cut rates, if we get a rate cut, what impact will it have on the market? We know everyone is expecting a rate cut. Is the market expecting a hawkish interest rate cut?
01:15 Speaker C
Yes, I believe so. I mean, the market is definitely expecting a rate cut. Let’s solve this problem. The market is addicted to rate cuts at this moment. So that’s definitely taken into consideration. Um, but in terms of what the Fed is going to say next year, I expect they will certainly moderate our view on this because it’s in their best interest to do so. However, you know, we need uh, investors need to read between the lines.
01:36 Speaker C
What does Powell say about the labor market? Well, because the labor market is clearly showing some signs of softening. How is he going to answer questions from the media, you know, what are your thoughts? How will you respond to the collapsing labor market here? I think that’s what people are going to be looking at and that’s going to kind of determine what people can expect next year. I mean, we’re expecting several cuts next year.
01:55 Speaker C
No telling when they will hit. Um, but whatever that level is, they’re getting closer to neutral. So, you know, they think it’s also in their best interest to calm investor sentiment a little bit.
02:06 Speaker A
Mark, are you going to change any smart investing strategies based on what we might hear from the Fed? Are you waiting for them to say something special that will make a difference for you?
02:12 Speaker C
No, at this point, no. You know, just to be clear, you know, a 25 basis point rate cut is important for investor sentiment, but not necessarily for many of the companies in which we invest. Those 25 basis points won’t make or break many of these companies. I mean, it’s important for the Fed to show they’re concerned about the labor market, right? It’s good for consumers to know the Fed has their backs. If people are worried about their jobs, or they may spend less after the holidays.
02:36 Speaker C
Maybe it’s good to know that the Fed has their support, which might help, you know, ease economic growth in the first quarter of next year. So I’m already thinking ahead.
02:43 Speaker A
Yes. Jen Jen, I also want to ask you about personnel. From the perspective of the Supreme Court decision that we got yesterday, we haven’t talked much about that decision, but it seems important because of its potential impact on Fed staffing.
02:54 Speaker B
Yes, Julie, there are two things we need to discuss here. One is that we already know there will be a new Fed chair in May. It looks like the favorite will be Kevin Hassett. We know the president tends to favor lower rates, but consider that the committee is currently so divided on who cares more about inflation and who cares more about jobs in the dual mandate. No matter who the Fed chair is, it will be difficult to force more rate cuts
03:19 Speaker B
At this point, consider that we expect to have more hawks on the committee next year. Now, having said that, to your point, the Supreme Court heard a case yesterday in which a majority of the Supreme Court seemed to favor giving Donald Trump more presidential power in terms of removing people from independent agencies. So, this is kind of a reminder of, okay, how they’re going to rule on Lisa Cook’s court case,
03:47 Speaker B
Trump fired a Fed governor and in turn sued him. If he is able to remove her, then that means we will see a dove in Lisa Cook’s position, who typically votes with the Fed chair. So that could lead to the Fed becoming more dovish next year, but I think there are a lot of bigger question marks than the Fed’s decisions, you know, when it comes to policy next year, which is the Fed’s independence and
04:12 Speaker B
The president’s ability to reorganize the Fed and remove Fed members based on policy disagreements.
04:18 Speaker A
Correct. So investors have a lot more to consider than just the simple question of whether they cut production.