贝莱德首席：通胀降温但2%目标仍难达，核心PCE年末料2.8%

We start with the bond market caught between fears of inflation and long term fiscal risks. Rick Rieder is BlackRock's chief investment officer of global fixed income and head of the global allocation investment team. Rick, we got CPI numbers this week and there was good news in the fact that they're not going up. On the other hand, it's not 2.0 the way we've been promised. So which is more important, the good news or the bad news? -Well, I will say markets have been more nervous about this number and I would think there was a collective industry-wide sigh of relief when this number came out because it wasn't, you know, this is one of those numbers if it comes in high, then all of a sudden now you put the Fed in clear hiking mode and you're starting to see consistent numbers, so if you go back into the last 10 numbers that we've gotten in core CPI, 8 of the 10 have been .2 rounded or below that.

So it's still a bit elevated relative to where the Fed's long term objective is. But I think the markets felt pretty good about "We got through it and it wasn't that high." And then if you go through the component parts, although it was a number pretty close to expectations in almost every regard, you are seeing still things like lodging away from home, hotel, airlines, you're seeing in leisure experiences, think about the World Cup effect and otherwise, you're still seeing some pricing pressure around that.

But, overall, I would say it was an OK number. But, yeah, we're not, certainly not at target yet. Westin: So pull back a little bit and give us a longer term view over the years of how it's bounced around and where we are today compared to where we've been. -So, I mean, the big deal for me is the Fed's mandate is price stability. It's not 2. But you'd like to get it. There is real efficacy around 2 percent is a normalized equilibrium for what an economy should run at.

So you want to get to that number. We haven't gotten there in a long time. By the way, you could take the two decades before it's pretty hard to get it as high as 2. You're in the ballpark today. And, you know, when you were running, and certainly post-COVID, you're running at numbers 5, 6, that was scary. But if you look at inflation expectations and anything about where we've come from, it's pretty stable particularly when you've got an economy that's running with a lot of debt on it that the thing you really can't have happen, you can't have a deflating dynamic because it enhances the true cost of the debt.

Today I would argue it's a number we'd like to see a little bit lower, but it's certainly not daunting by any stretch relative to anything we've seen in history. Westin: So take COVID out of it for a moment. Go back to, like, 2024, for example. Where are we in core? What's the trend line? -Yeah. So, you know, the thing I find interesting is Chairman Warsh is focused on the left side of the decimal place in the right.

And I think you have to take that to heart. Meaning if you're in and around the twos, you're OK. But when you actually zoom in closer where the markets tend to focus on, there's this been this maniacal focus on that right side. And, you know, since, you know, certainly over the last year or so, the trend is pretty good and that it's coming down, but it moves around. And, you know, the markets tend to focus on the 10ths of a percent in terms of these movements.

By the way, I always get a kick out of the first thing I saw this morning while Chairman Warsh talked about the left side of the decimal place and the number was it printed at .2, 1, 5, 4. And people talk about the rounding, you think about, for a broad economy like this, does anybody really care about the point? Other than the market participants do. So, you know, part of whether when you zoom out and you say, "OK, that's a pretty good, we're in a pretty good place, would like to see a trend lower."

For me, I actually think we are trending a bit lower. We think Core PCE by the end of the year is around 2.8. Next year we think it gets to 2.5. And Core CPI is running lower than that. Core CPI is running at 1.6. The last six months, 2.4. When you strip shelter out, it's actually running at about half that. So not bad. I'm pretty relaxed about where we are. There are other things I worry about. But, you know, I don't think that's going to be the thing that disrupts the markets.

Westin: And in fairness to some of the commentators and analysts, I understand Chair Warsh has said we care about what's left of it. He also has said we're not done yet. I mean, if he really is just happy with the left side and given the numbers you just gave us, he would say, mission accomplished, job done. -So I think there's a real nuance to that. I think the Fed, what the Fed needs to accomplish is get to that 2 percent number, but that 2 percent doesn't have to happen today.

It doesn't have to happen next week. It's that is a long run number. And I think, quite frankly, if you are any head of any monetary policy authority, you have to be committed to that 2 number. The long end of the yield curve every tick of it is dependent on how you articulate that thesis in terms of where you're trying to get to. It doesn't mean you have to raise rates to get there. And I think why these task forces are a very elegant way to get there.

These are complex issues. When people ask, are you restrictive or not? Well, in housing you're not. You're clearly restrictive. You have a dormant housing market. But then you look at the amount of spend on CapEx, like, that's, you were not restricted that. But you think about what would you have to move rates for the big hyperscalers not to spend on A.I. You'd have to raise hundreds of base points to get your IRR to a level that didn't make sense.

So I think he is committed to it. I think he's going to think about the tools. You have the balance sheet. You have the money supply. You have a lot of things, a lot of tools at your disposal. Raising the overnight funds rate, in my mind, is not terribly effective way to bring that number down. And I think, I think if you really think about a sophisticated way, which I think they will, what are the tools and how do we get there, and what's the time frame to try and achieve it.

Westin: So you say the long end of the curve really needs to believe the Fed monetary authorities. If you look at what happened with the 30 year yield during and after that news conference, they were not buying it. It went up to the highest limits it's been, what? Since 2007 or something. -So I think it's a, you're dead right. I think there are a couple of things to think about there. One, you know, he didn't say hike.

And I think the markets, the back end of the curve was, like, we could get a hike here which would obviously show maybe a stronger near term commitment to inflation. So there was a little bit of that. Second thing that I think proved it to be a bit untethered was this idea of gosh, we didn't hear a lot of the metrics. Markets want to hear the reaction function. And how are you going to interpret data and then how will you react to it.

I don't think you need more forward guidance. I think, actually, pulling back on forward guidance is a good idea. I don't agree with the ethos that people put out there that less forward guidance means more volatility. Actually, if you go back to '21, '22, there was a lot of forward guidance. It wasn't right. As long as markets understand and can interpret, here are the metrics you're looking at. Here's what your reaction function is going to be to the data.

And I think it's quite sincere when that when Chair Warsh says let the markets determine where should you be and then they can react. And that's a good piece of data for the Fed. So I think that's really important going forward. But I think the long end of the yield curve is a very important thing, how you manage that. And, you know, oftentimes I think you need to use the balance sheet to