Powell walked back all expectations of easing this year, says Marathon Asset Management CEO Richards

Our next guest believes Powell will succumb to political pressure, still cut rates one to two times later this year. Joining us is Marathon Asset Management CEO Bruce Richards. Marathon has $22 billion under management. What? What do you expect to happen from here for the Fed? Well, Powell pivoted yesterday. Actually, it wasn’t quite a pivot. It was a Michael Jackson moonwalk. He’d like walk back all expectations of easing this year. And so it’s going to be higher for longer. And in terms of my expectations, June’s off the table, July’s off the table. First possible cut September and now we’re getting close to the elections and two days after the elections is another Fed meeting. So November 5th is election, November 7th is the following meeting and then there’s a meeting in December. So will there be one cut? Probably. Might there be two? Not so sure. And that’s what the markets are telling us now. Fed would say it doesn’t matter when the election is. They don’t base it on politics, they don’t, they don’t pay attention to that sort of stuff. Well, the data dependent and the data is saying don’t cut because inflation is just too high, employment gains are too strong, as is the GDP. And so Powell was saying and he wanted to he’s like begging to cut rates irrespective of that, waiting for a sniff of good news which he’s not getting. And so now yesterday he had to moonwalk it back and so right now we’re thinking we’re going to retest the old highs of on 10 year notes and get back to 5% which we will do that again which we will see again I think before these next few months we listen we have too much treasury supply not to see you. We have about 8 to 9 trillion rolling off this year, another 10 to 11 trillion being issued because there are these big deficits that we’re running and you know at some point I think we’ll probably be back at 5%. We’re two year notes were yesterday, yes, probability of a hike is getting up into the 2% range. Is the bar to hike still higher than the bar to cut? Yeah, the bar to hike is much higher than the bar to cut. I think that’s probably a very low probability case, which a very high probability case that this year they’re going to cut. And so I’m not expecting the Fed to increase rates, but they probably should based upon the data, based upon where inflation is coming in. But will they know, do those political pressures? They won’t, Do you think, you think real rates are restrictive right here, real rates are where they should be. I believe the market is where it should be and that real rates are where they should be. And we were in this for decades in financial repression, this subdued real rate environment. And I think real rates are back to this what’s above 2, but back to this 2% kind of you know neighborhood which it really should be. You should be getting a premium to where you know inflation is when you’re an investor in the markets. But the 5% just staying with me on the 10 year yield when the next move is a cut. We know right from the Fed that you said it’s a very high probability event. I mean that wouldn’t that have an economic ramification as to make it more likely that the Fed will cut more A, they’ll cut more because it’s not just one and done here when you talk about the next two or three years. But I think that 5% with 3% inflation is the right number. And I think that even at 5% if Fed funds which are five and a quarter now were 3%, then two and A should be 3 1/2 and 10, 1/2 can be 4, 1/2 to 5. So what would that mean for the equity market? Well, I think the equity market is the equity market which is hugely positive. You have an economy that’s growing. You have, you know gross GDP at 6%, net GDP around 2 1/2 percent or 2%. And so the the at higher rates of inflation you should have higher multiples at strong growth rates, you should have a strong equity market. So, but the equity market is bifurcated, right. So it’s the big banks right now versus the small regional banks and how they will perform. It’s the real estate markets, you know versus say you know, big profitable, you know tech there. The marketplace is fine. I think the equity market, I think the equity market can sustain these level of rates. It’s shown it all year long and there’s nothing that can hold back a very strong economy, the United States for America and their every markets.

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