Podcast Summary

This episode delves into the Federal Reserve’s recent meeting, the release of the inflation report, and the implications of these for future policy decisions. The podcast also discusses the role of governors and bank presidents in the Federal Reserve, the impact of undocumented migrants on employment numbers, and the potential for a higher inflation world. The episode concludes with a discussion on actively managed bond ETFs and their performance.

Key Takeaways

Federal Reserve’s Hawkish Stance

  • Dot Plot Indications: The Federal Reserve’s dot plot indicated fewer rate cuts than the market expected, suggesting a more hawkish stance. The wide range of dots for 2025 shows varying predictions, with one member predicting no rate cuts and another predicting 10 rate cuts in the next 18 months.
  • Inflation Report Impact: The morning inflation report came in lower than expected at 3.3% on the CPI, which lowered yields and sent the stock market soaring. However, Fed Chair, Jay Powell, did not directly address whether the weak inflation reading influenced the dots or his comments.

Employment Data and Surveys

  • Household vs Establishment Survey: The household survey, which asks individuals about their employment status, may show more weakness than the establishment survey, which asks employers. This could be due to the inclusion of undocumented migrants in the household survey, who are more likely to be unemployed.
  • Impact of Undocumented Migrants: The influx of undocumented migrants in recent years will likely impact the accuracy of these employment numbers, as there is no specific survey for this population.

Inflation and the Federal Reserve’s Target

  • Higher Inflation World: The speaker believes that the inflation rate is not going back to 2% and that we are in a higher inflation world. They argue that the 2% inflation world ended in 2020 and that we are not going back unless there is a recession or serious economic slowdown.
  • Federal Reserve’s Goal: The Federal Reserve’s goal is to get the inflation rate to 2%, but the speaker points out that a range of 2.6-2.7% is significantly higher than 2% and suggests a higher inflation world.

Actively Managed Bond ETFs

  • Performance: Actively managed bond ETFs tend to outperform bond indexes more often than actively managed equity funds outperform the S&P 500. The guest manages the VanEck Morningstar Wide MOAT ETF (MOAT), an actively managed bond ETF.
  • Strategy: The strategy is to implement a macro view by overweighting and underweighting sectors based on the committee’s decisions.

Sentiment Analysis

  • Bullish: The podcast presents a bullish sentiment towards the stock market, as indicated by the soaring stock market following the release of the inflation report. The discussion on actively managed bond ETFs also suggests a positive outlook on their performance.
  • Bearish: A bearish sentiment is expressed towards the Federal Reserve’s inflation target, with the speaker arguing that we are in a higher inflation world and not going back to a 2% inflation rate unless there is a recession or serious economic slowdown.
  • Neutral: The podcast maintains a neutral stance on the impact of undocumented migrants on employment numbers, acknowledging the potential for these numbers to be skewed but not making any definitive predictions.

Related Research