Bloomberg Surveillance TV: October 29th, 2026

Bloomberg Audio Studios. Podcasts Radio News. This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen.

And as always, on the Bloomberg Terminal and the Bloomberg Business App. Personal consumption for the third quarter, close to 4%. GDP annualized quarter over quarter. We're looking at something in the mid threes. Lisa, when the Fed says the economy is strong, those numbers are strong.

Yeah, they came in above expectations and really the personal consumption surprised to the upside in a significant way. The idea that you're seeing this across the board and that we don't even mention initial jobless claims anymore because they're sub 200,000 every single time to the degree that people think maybe it's broken gives you a sense. This is not a market that's worried about the labor market. It's a question of how quickly it's accelerating.

I know I keep repeating it, but look how much money we're raising. Microsoft, SpaceX, Anthropic, Meta. This week alone, hundreds and hundreds of billions of dollars that are going into the U.S. economy.

That are going to go into CapEx, that are going to go into component prices, that are going to go into supporting these levels and even pushing inflation higher. That is sort of the offset to this idea of there was a wobble in the markets that the Fed was catering to. It really raises a question of what they're looking at. to really understand what potentially is working in terms of the monetary medicine.

We've got Mike Ferroli with us around the table from J.P.

Morgan.

Mike, good morning. Good to see you.

Morning. Good to see you.

Is policy restrictive?

It doesn't look that way. This morning's numbers wouldn't say it's all that restrictive, would it? When you look at the GDP numbers, the claims numbers. So I think it's a hard case to make that it's really restrictive.

So I keep being snarky, so forgive me. But what do you think they see when they look out the window at the Federal Reserve?

Hopefully they're not looking at the White House, but I think the data, as I said, I think this morning's data came in close to expectations. Strong economy, strong consumer, still high inflation. You did see consumer spending tail off a little bit toward the end of the quarter, so I think that may raise, again, some questions about inflation.

how sustainable this is. I think we've had those questions for most of the year, and yet the consumer keeps going strong. So right now, we're not seeing a whole lot of weakness. Obviously, a lot of this is dependent on the AI story. Just looking at the details here, it looks like equipment beat expectations up almost 20% annualized.

That's where you have a lot of that tech equipment. So the strength is really impressive, but it is also kind of flying on one engine.

Do you think that it was a mistake for the Fed not to hike rates 25 basis points yesterday?

I think the decision to pause was defensible. I don't think we heard a great defense of why they didn't yesterday, but I think it was defensible. I think Williams, others went out there and made the case that the transitory story isn't entirely out the window, that this is supply shock driven. However, I thought there was also a case to hike, particularly given that the data since September... on inflation came in hotter than the data before the September meeting, right? So, if they're data dependent, why are they waiting? You know, and there is a good case, but I don't think the chair made it yesterday.

I'm starting to hear implicit in some of the commentary, particularly investors who still favor equities over bonds, that inflation is not going to get down to 2%, that we are now at sort of a north of 3% type of environment for the foreseeable future, and that the Fed isn't serious about bringing it back down to 2% in the near term.

Would you agree with that?

Say it's stuck north of 3%. I think getting all the way down to 2% or within that vicinity may be challenging. Certainly, I think a lot of the inflation we saw this year given that it is in goods, looks like it's the residual pass-through from both tariffs and higher energy prices. We are not seeing wage inflation pressures challenge the picture. So I do think we can get back to below 3% if these adverse supply shocks stop hitting the economy or if we stop doing it to ourselves in a way. But I think getting all the way to 2%, I think that may be a little challenging given what we're seeing in service inflation still looks a little on the high side.

If you were to hit 2%, how painful would it be?

Well, I mean, we went from five and a half to three without any pain, right, on core PCE. So, if this is really driven primarily by supply shocks, adverse supply shocks, then it doesn't necessarily require a lot of pain. I think that's what we learned in the period from 22 to 24 when we had that at least first two-thirds of an immaculate disinflation story. So, I think there is a case that we could do this without a big rise in unemployment.

Do you think any of this was political, skipping this meeting, and also the fact that Governor Cook decided to dissent?

So we heard the answer from the chair yesterday. And I'm sure when we get the transcripts in five years' time, there's going to be no discussion of the election at that meeting. We don't know what anyone in their heart of hearts went into that meeting thinking. But that's the answer we have, is that it wasn't political. So the Cook dissent was quite surprising, right? I think as most of your viewers know, the president has been, the White House has been trying to remove her. There is a hearing set for December, and a dissent in favor of a hike certainly isn't going to, you know, curry any further favor at the White House. So it is, it's certainly eye-opening, particularly, no, I don't think most people thought

she was one of the more hawkish people on the committee.

Not at all.

That kind of was obvious, but... What's that? With Hammock, it was obvious.

Yeah, with Hammock, it was obvious. If it were Logan or Kashkari or one of the traditional hawks, I think.

Or maybe Barr on the board. Maybe Barr. But Cook was a surprise to us all. He was notable. Let's put it that way.

Yes.

More than notable. I want to talk to you about the guidance we're receiving from the Federal Reserve.

Mm-hmm.

And the consequences as well. Reduced meetings. Can we talk about the reduced meetings and what that's going to look like? Is that even material to you?

It's material to the markets, right? And when they're thinking about pricing the path for next year. And so some clarity on which meeting will be the off meeting, I think, would be helpful. I do think one of the issues here is if they stick with the current schedule, just take one meeting off. then you're going to have a gap of 12 to 13 weeks between on meetings, right?

And I think that adds a lot of importance to that meeting. You know, the rationale here, I didn't find all that convincing. Certainly, we've had framework review conferences in years where they continue to have eight meetings per year, and they were able to do the framework. So if that's the rationale, I didn't find that all that convincing.

So I didn't see an urgent need here to change things. And I do find it interesting that. You know, Chair Warsh at one point advised the BOE as an outside advisor, and he told them to go from 12 meetings to eight meetings because eight meetings would align them with the international standard of going eight times a year.

It does seem like there is a greater degree of uncertainty around this Federal Reserve about the reaction function, about the number of meetings, about a whole host of issues. And as a result, the uncertainty premium has gone up. And this has been one theory about why the risk premia have been increasing on long-term bond yields. How punitive is that when it comes to, say, the U.S.

Deficit?

The idea that we have this massive debt to GDP and you see an added uncertainty premia that is just a result of us not understanding what the Fed's reaction function is.

Yeah. I think if you look at most measures of term premia, they haven't jumped materially higher, but they are higher certainly than we were five months ago. But, you know, when you have a debt of $ 30 trillion, every basis point is going to matter, right?

Stay with us. More Bloomberg surveillance coming up after this. Gaghi Chandra of BlackRock joined us for more. Gaghi, good morning.

Hi.

Did you get through it?

I did.

It wasn't one of my favorites. In my team, we give them ranks. This was not an A +. I will say that.

What did it get? Lower than an A +.

But having said that, I think we learned some interesting things. I think that he could have made a better argument, but he did tell us why he was pausing at this stage, despite the economic growth moving to a strong category. So, you know, there was some narrative there around we could have gone but didn't.

Yeah, and part of the narrative was the market moves, and we did see that sort of— The financial conditions.

Right, the financial conditions.

So, how a lot of people took this is risk on, because if that little wobble and core weave was enough to put the Fed on hold, well, this isn't a Fed that's going to look to bring down financial valuations. Do you endorse that view? Does this make you more bullish on risk?

So I think that that itself wasn't the only reason to be bullish on risk. I think this happened at a time when there's a lot of other positive information out there. So obviously the earnings season, where it was coming into the season, and obviously some of these tremendous beats, which I would say have not been rewarded so far, to be clear. But the earnings season, 30% earnings growth, that's certainly another reason. And then, as we saw this morning, GDP in the mid-3s, at this juncture, at this point in the economy, still having nominal GDP over 6.5%. This is a strong economy. And then frankly, on top of that, with bond yields having risen so much, it's a really incredible opportunity where we get to tell clients, equities are great,

bonds are greater. And I think that's the really interesting change that has happened since.

I was a here.

So this is different than what Kate Moore of Citi was talking about earlier this morning. She was saying that stocks look great, bonds look less great because perhaps inflation is going to be a little bit hotter for longer.

Why do you not take that view?

Why is inflation not potentially a detractor for you when it comes to bonds?

Why do you disagree with your own question?

With my very good friend Kate, who I'm seeing this evening.

You said a guest.

To be clear, we still like equities and especially when we see this earnings season and we see the strength in certain parts of the equity market where we're thinking investors should go to is the quality part of the market. So what do we mean by quality? That high return on earnings, very importantly in a higher for longer environment, the free cash flow dynamic is really important. Having said that, If we look at the fixed income market today, especially in the front end and the belly of the curve, that's where the flows are going. Investors are telling us that at these level of yields, call it over 5% on the 10-year point, you have so much cushion built in.

And what I mean by cushion is that rates can go up in the next, call it 12 months, by 100 basis points. And if you're in that belly, you don't lose as much money. But if rates go down, you've obviously had that positive convexity. So I think that's something clients are picking up on. Strongest month, October, of inflows for fixed income ETFs ever. So there is that massive demand coming in, and our clients are telling us that what they want is the intermediate part of the curve.

You have a note about the midterms and how potentially clients may have this feeling that they need to make portfolio change because of what's going on. What are you telling them?

Yeah, so we tell them K-pop, which is keep politics outside of your portfolio. And it's very tempting. It's very tempting to look at headlines. And of course, there'll be volatility. There has been already, and there might be next week and going forward. And it's very tempting to readjust and go risk off K-pop. based on the outcome of elections.

But when we look from 1970s to now, what we have found, and I'm sure you guys have done this research as well, is coming out of midterms, that last quarter, November, December, you've obviously, in the past, we've seen that markets have rallied. History is no predictor. But at the same time, look at what earnings season is telling us. This is a good time to own certain parts of the equity market.

And at the same time, this is a great time to own the intermediate part of.

The bond market. Bonds are back.

And most importantly, it's back for income and more recently back for ballast as well.

Stay with us. More Bloomberg Surveillance coming up after this. Let's talk about monetary policy, the Fed and his window view.

My colleagues and I assess the economy by looking out the window. It's what we call interrogating reality. Take stock of where we are, evaluate what we're seeing out the window. When consumers interrogate reality, they look outside their window, too.

They go to the gas station, too. I am not going to be.

The guy who says that oil prices haven't gone up, and when they fill up their tank, they don't see it.

It's going to take time. You know, it took me time to get used to the cadence and the rhythm of Janet Yellen when she started to run these news conferences. I always found it easier to read the speeches than listen to them. It's the same with Walsh, you know. There's a rhythm problem to it. It's just the cadence, the style. It's a tough listen, even for 30 minutes.

I think part of it is, too, just there isn't a clear sense of what he would like to communicate, other than not.

A whole lot.

Yeah, I'm not sure if I'd learn more just reading the transcripts either. And listening to the other speeches. Unlike Yellen. Joining us around the table, I'm pleased to say, is the former St. Louis Fed President, Jim Bullard. Jim, good morning.

Good morning.

You're wondering what you've walked into, aren't you? What's your review of what you heard yesterday?

I think it was a good decision by the committee, and I think this decision was essentially made in the September meeting. I think the committee implicitly had a quarterly pace in mind. I think that when we heard from New York Fed President John Williams, He laid out his own view, but a view that I think is popular on the committee, which is that he didn't think he had to go that often. He thought they could wait and see, wait until December. And then for 2027, they'll have another SEP coming up in December. And at that point, they'll be able to decide what to do. For this meeting, for the press conference, I think Chair Warsh could have just said, look, we just moved at the last meeting, and there was a lot of market movement around that meeting.

And there was.

The two-year was up 40 basis points or so. And the committee wanted to wait and see what the effect of that would be before making another decision. So, we'll see you back in December and we'll see what we do then.

Instead, he made reference to the widening in spreads, essentially, that we saw in credit markets, a sense of some of the wobbles that people had speculated was part of the reason why they were inclined to hold rates.

What do you make of that?

Do you get the sense that they want to see these risk assets continue to perform to allow the AI bet to continue?

Well, I don't know.

I don't think we know. But having hung around the committee, I think they would probably welcome some tempering in the AI boom. I think there are, you know, many red flags that have been waving here about this. You know, where's the revenue going to come from? How fast is build-up going to occur? What about all this borrowing going on?

So I think markets, it is starting to crack a little bit, and markets are definitely trying to calibrate where this boom is going to go. But something, you know, the Fed always likes things to be smooth. They're more tempered, you know, more not a frenzy like we have now.

Do you think that it is good that the market doesn't have a sense of Kevin Warsh's reaction function?

No, they should have a good sense of how the committee will behave at various junctures in the future. I think they still have that to some degree, but obviously with a new chair, there's always some learning going on.

Last time you were on, you talked about two hikes and hope for the Federal Reserve.

Is that still what you're hoping for?

I think maybe a little better wording would be two hikes and review. I think I said two hikes and review.

That was my summary of what Jim said.

So I think it just felt, when they were doing their dot plot for September, they just felt like, well, I don't have to put in something for 2027, so why don't we just wait until we get to December? I'll see where we are, and then we'll go from there.

Jim, it's so awkward. The whole thing is right now. Clearly, he doesn't want a dot plot. So he doesn't offer a dot, but others do. Clearly, he doesn't want a news conference, but he's got one and doesn't know what to say in them. And obviously, he wants to win forward guidance, but no one else does. So they keep offering speeches. What do you think the end game looks like in the next 12 months? Because I can't take much more of it.

Well, the dot plot is something I complain about sometimes. The dot plot, maybe it will go away. But I think members will just, you know, you expect outreach from the members, especially the presidents. They've got their districts and, you know, you expect them to go. and speak on the economy, and some of them will say, here's what I think about where this is going. So I don't think you can put that back in the bag. I think the transparency revolution occurred really under Bernanke, and that's where it is.

I think it's good.

You want the market to understand where the committee is and what the committee is thinking, because you'll get more accurate pricing in financial markets.

Does the chairman say it the same way? He he he.

Harkens back a little bit to Greenspan which I can appreciate because I like I like Alan Greenspan but a little bit more market and a little bit less committee I think is basically what he's trying to do.

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.

Bloomberg Surveillance TV: October 29th, 2026

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