JPMorgan Trading Desk Warns Fed Rate Cut Risks Tanking Stocks

22:24Carol Massar:I keep thinking about my father who had a pension and VA benefits and investments, and not a lot of people are doing pensions, right, or anything anymore. And so I am curious about how employers are thinking about this. That struck me. Yeah. So it's so interesting because you raise such a good point. So employers used to have pension plans. Right. And then the conversion to defined contribution. Well, we're now seeing pensionization of defined contribution. Think about private assets have been available in pensions for decades. Well, now they'll be available in 401k plans, retirement plans. Same thing with guaranteed income.

22:58Carol Massar:That's what the benefit of a pension was, but there's no flexibility around that. So BlackRock has created a solution. It's a target date fund solution. It's called LifePath Paycheck. And what it does is it actually delivers you the option, the choice to have guaranteed income. You can choose to take that or not, but it's giving savers and employers the option to have their employees have more security, have more simplicity, have more confidence in their retirement income. One of the things I'll just add is that I found so interesting in our survey. When you look at retirees, 27 % of retirees, only 27 % are confident in their ability to live through retirement on their savings.

23:39Carol Massar:Well, that's discouraging. It's discouraging. So what's the implication of that, just in the last minute that we have with you? Because that has implications beyond our own portfolios. That has real societal implications. It has societal implications in that there's going to be this whole group of Americans who are trying to live through retirement. Maybe they do another job. Maybe they spend differently. That shouldn't be the case. Longer lives should be a blessing. They shouldn't be a challenge. And that's where guaranteed income comes in. That's where the modernization of 401k plans to include private assets comes in.

24:06Carol Massar:And that's where more advice comes in, which is why we are here at Future Proof Festival. Advisors play a massive role in this. All right. And you're going to be part of a panel a little bit later on today that's all about the state of investment management, where we're headed next. There's a lot of things I know that you guys are going to roll into that. Jamie, thank you so much. Thank you. It was great being here. It's great having you. Jamie Majira, Managing Director, Head of U.S. Wealth Advisory and Head of Retirement at BlackRock, joining us here at Future Proof. This is the Bloomberg Business Week Daily Podcast.

24:32Carol Massar:Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. Treasury is seeing some mild gains today. Two-year yields remaining at the lowest since 2022. The U.S. yield curve further to steepen should the Fed unleash aggressive interest rate cuts. That coming from Double Line Capital's Bill Campbell. There's a lot of conversation and narrative around what the Fed's going to do and the impact. Let's see what Misra has to say.

25:07Carol Massar:She's Core Plus Bond ETF Portfolio Manager over at JPMorgan, joining us here at Future Proof. Good to have you here. Just a little bit of stuff going on. Curious how you are looking at the path of rates for the U.S. economy. What are you thinking around this? Thanks for having me. You're right. There's a lot going on. If you think about everything we've had to deal with this year, tariffs, Fed independence, the deficit, and then you look at equities at their highs and now bonds doing well. So what's going on? So our view is everything's actually consistent with a soft landing. What I actually think equity people call soft landing and bond people call soft landing.

25:45Yeah, the growth in the one to two percent range. Inflation is a problem. It's not a two percent, but it's not as high as people feared when we first heard tariffs. So it's allowing the Fed to start to cut rates. And then you've had this slowdown in the labor market. I think the hope is it stops right here. There's low fire, low hire. We don't quite make it to the high fire world that the Fed can cut just enough in terms of time, as well as how much they cut to get the economy to stay in the soft landing mode. I think that's the hope. Why are you so confident that the tariff induced inflation that we've seen has not been as prominent as people initially thought it would be?

26:26We just had Barry Rudolph on. He said, But, hey, a lot of people pulled forward. A lot of companies pulled forward. So the tariffs haven't hit them yet. Right. And so I think that is the risk scenario. But I'll get to your question. So it hasn't happened yet. Now, again, we're looking at the future. And maybe it can happen because I was using inventory. And now when I'm paying more as a company, I can pass it on. Here's the issue. Companies are realizing that consumers are cost conscious. and passing on price increases entirely runs the risk of consumers stopping buying or reducing the amount that they're buying.

27:00So I think that's why companies might be taking some of the tariffs in their margins. Margins are high. So they can afford to take some of the cost in the margins. Some of it, the currencies work. Some of it, maybe the foreign producer is taking some of that hit. So I think that through the value chain is being absorbed at different spots. But the other part is look at the rest of inflation. So maybe goods inflation does pick up because companies have to pass on at least some of it. And Governor Waller thinks about half of it will be passed. Some people argue one third. Some part is going to be.

27:31Look at the U.S. consumer basket is really 75 percent services. So we're looking at service inflation, wages, rent inflation, ex-rent core services. It's not coming down, but it's not going back up. In fact, wages, we're seeing signs that wages are starting to slow down. So our thought is even if you get the goods-related price increases, services will likely offset it. And that's why Chair Powell, something he said in Jackson Hole, which I thought was the first time I've heard it in a while, that it could be short-lived, meaning that they can look through any tariff-related increases. Now, it has to be tariff-related.

28:08So let's see. We get a CPI report later this week. Our view is services is going to not be as troublesome. Goods might look troublesome, but they can put it down as one-off.

28:17Carol Massar:It sounds like if things aren't so bad in terms of inflationary pressures, and if you, as you kind of laid out in terms of the jobs report, maybe it was just that one month, you know, that we're not going to continue to see losses. Why do we need to cut rates? Is it just an, I keep hearing, no, I shouldn't say keep, but the idea of an insurance cut just in case. Is that what this is all about? So I think the starting point is where I focus on the starting point. We're in restrictive territory. If we were at neutral level of Fed funds. Even though financial conditions are really loose? Yeah, but interest-sensitive sectors.

28:51Look at housing. Look at consumer durables. So sectors of the economy that are sort of levered to interest rates are in a weak spot. So that's why that restrictive level of interest rates matter. And if the Fed sees.

29:04Carol Massar:But it's not the Fed mandate, right? Like I think about when I think about interest rates to help the housing market, all I can think about is the financial crisis. And I realize there are a lot of things going on at that point, Priya. But I do wonder, is that what the Fed needs to be concerned about? So I think they've got other tools for it, whether it's regulation or making sure that, you know, banks are not lending. Do you remember the ninja loans back then? The no income, no job. Right. Or assets. That was what the A was for and people were getting loans. So I think there's other ways to ensure that there's not excesses.

29:33But when you look at the one tool that they have, interest rates, we're in restrictive territory. Inflation is slowly heading down, which is impressive given the extent of tariffs. The average effective tariff rate is 15%, and yet inflation is not accelerating, and the job market is slowing. I think why Chair Powell was a little maybe hesitant in July was he wasn't sure is it demand or supply. And both factors are impacting the labor market. But there's clear evidence, I think, that the demand side is there. Demand is slowing. You're seeing it in college age, the unemployment rate for young people.

30:07You're seeing it in hiring plans. That was pretty stark on Friday. We talked about that. The numbers that we got for young people. I mean, anybody can speak anecdotally about this who has young graduates from college or young people in their household. It's not pretty out there. And that's why it's hard to put that on immigration. There's absolutely an immigration impact on the labor market, but not when you look at the young people who are not getting jobs straight out of college. So I think there's a demand aspect. Now, is it AI? Is it tariffs? Is it uncertainty? Hard to disentangle what's driving it.

30:41But there is a demand aspect. And so I think the Fed is looking at that and saying, well, let's reduce some of that restrictiveness. I think talk of 50 basis points cut next week, that might be a little aggressive. Because I think that is in case you see signs that layoffs have really picked up. We do have an initial claims report, one report. That really spikes. I think we can talk back about 50. They don't have to get aggressive. But just start that process and remain data dependent.

31:06Carol Massar:What do you think the revisions on the labor data tomorrow? I mean, we've been so focused on that. What do you think that's going to show? It's going to be between 800 ,000 and a million. So it's going to be a big number down. I don't think it should be a big surprise. The labor market was the outperformer when we looked at everything else. So I think the fact that these revisions will actually bring the labor market in line with GDP, in line with consumer spending. And so, you know, and is it, I don't think it's political. I think it's just data collection has been an issue really since the pandemic and globally.

31:37You look at response rates globally. It's something we should all think about. How do we get more accurate data? And I think this is, maybe revisions is the way to do it.

31:46Carol Massar:Well, Mike McKee was talking about this, and he says, you know, people are responding. They're just, the responses are slower. And so that the revisions finally take all of that into account. So how do we get people to respond more quickly, right, so that the data is more relevant in a timely manner? Yeah, maybe you're supposed to spend more money, figure out some modern way of asking people questions. Well, think of technology, maybe. Hey, speaking of that, I'm curious about the immigration side of things and the way you're looking at immigration from your perspective. As somebody who invests in fixed income, recommends fixed income, and thinks about strategy.

32:20Because we're seeing a real crackdown, obviously, here in the U.S., and that has implications for labor to market. It also has implications for demand. And Augusta Sarraiva, who writes for our economy team, had this really interesting piece out over the weekend about Hispanic consumers hitting the brakes as U.S. firms warn of a pullback. So now we're starting to hear U.S. firms talk about this segment of the population spending less as a result of an immigration crackdown. How are you looking at that? Yeah, it was a great article. I read it and it sort of hit a nerve because a lot has been talked about immigration and the impact on the labor market.

32:50What about immigration and growth? It's a source of demand. housing, consumption in general, and this idea that R-star. So I'm going to take it down to, I'm a bond PM, so I live in the R-star world. Go there, we love this. But what is neutral interest rate? And there's been this argument that actually neutral rate is maybe it's three and a half, maybe it's four. You know, you didn't ask me, but there are people who tell me we're at neutral. Stock market's high, we're at neutral. Fed doesn't need to cut rates. And then I say, look at the interest-sensitive sectors. They're all kind of frozen, slowing.

33:21So it is restrictive. But what is that neutral rate? I think immigration was a big part of why that neutral rate has gone up. Like in 2010 or 2008 to 2020, we argued the neutral rate was 2, 2.5. Now people are saying maybe it's 3, 3.5. How much of that is immigration? And so if immigration is heading low and this is a structural trend, then I would argue maybe that neutral rate is low. And so where should the 10-year be in equilibrium? 3.5 to 4 seems fine. In a recession, it's going well below 3.5, but we're not pricing in a recession. So I don't see a disconnect between bonds and stocks. They're both or spreads for that matter.

34:03They're all telling you an okay economy, Fed cutting just enough, and hopefully we just stay here. But if things slow down more, well, then the Fed's going to cut a lot more, then that 10-year is getting much lower. So I bring it to whether it's consumption or the labor market, that immigration impacts that neutral rate lower.

34:19Carol Massar:Priya, just got about 30, 40 seconds here. So you add all this up. There's your macro. What does it mean for investors in the fixed income world? Where should they be allocating assets? So fixed income should give you income and diversification. It's giving you both right now. In income, in real terms, the 10-year is giving you 2 % real rates. 30-year is giving you even more. So I would say own fixed income for yield. And then you have to go out the curve. Diversification is where that curve comes in. You need a little bit of duration. I don't know anybody who's long the 10-year. Well, I know myself.

34:48We're along a little bit of the tenure. A lot of people are nervous about the deficit. The deficit is better today because of tariff revenues. So I think it's priced in. You're getting paid to extend. Take a little bit of credit risk. Own some duration. The economy is okay. So you can look at fixed income for that income. And if you've got, what role does fixed income play in a portfolio? If you've got risk assets, you want to hedge those risk assets. Own a little bit of five, ten year duration. Don't have to go further out, but that's where you'll get that diversification benefit.

35:19Carol Massar:All right. Great stuff. And so, Tommy, Priya, thank you so much. Always appreciate time with Priya Misra. She's Core Plus Bond ETF Portfolio Manager over at JPMorgan, joining us here at Future Group. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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38:50Carol Massar:You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. All right, there's so much going on behind us. Five stages, six football fields worth of boardwalk, 5 ,000-plus attendees, financial advisors, wealth management execs, limited partners, about 100 sessions featuring over 200 speakers. There's a lot going on, and it represents about$20 trillion in assets under management. So this is why it's a great place to be. Behind it all, the reason we are here, the reason this exists, is Matt Middleton.

39:27Carol Massar:He is with us, founder and CEO at Future Proof, joining us here on site. I should point out, former Growth Strategy Director at Informa, co-creator of the Financial Advisor Conference, WealthStack, and recently, along with a partner, acquired a majority stake in ETF.com. So you've got a lot going on here. I've been busy. Yeah, you are busy. Tell us about how you think about the financial space and what advisors today really need. Yeah, so I think it's two parts, right? We all grew up, my personal experience into the industry is conformity, right? It's talk this way, walk this way, dress like this, act that way.

40:01if you want to get in that room, this is where you have to be. And really what we're representing here is a shift, right? It's a mindset shift. It's a generational shift. And what we're seeing is that people with real buying power, real influence and assets want to actually break up of the status quo. And this is a representation of that new industry, which is not just casual attire. Obviously, we're here on...

40:24Carol Massar:I know we feel a little dressed up here. I said earlier, I'm the only one here wearing a suit. I know. That's first timer. That's why. That's what I said. You can tell who the first-timers are, yeah. But it is. It's mostly about the experience here and people connecting. And the industry is better when we all connect versus siloing out. And so our hope here is not just to define it as wealth management, not to define it as asset management or fintech. It's to bring everyone together from all job levels across all functions and give them the tools that they have to meet and network to see how to build a better business.

40:55One thing that I noticed about this conference that I've never seen before is for a small fee, you can bring your partner, meaning your husband, your wife, your boyfriend, your girlfriend, your significant other. I've never seen that before. What's the thinking behind this? Well, personally, obviously, I'm an entrepreneur. And I always laugh when I have these conversations. Everyone's like, what's the vision? What do you do this? How do you manage it? You just acquired this business. And it's like my co-founder is my wife. At the end of the day, it's who you have at home, the people that are on that journey with you.

41:25that kind of wear all of that. And so part of that view was, one, we're in this beautiful setting, right? It should feel like a destination and a vacation to some sorts. But also it's allowed to get your spouses to experience what the industry is like, meet your clients, meet your partners. And again, I think if they are more exposed to it, they'll understand it more. And that's a representation of what we're trying to do here, which is if we could get this event to a large enough scale and get national attention with the help of you all, well, maybe some people on the general public will start to look at it and say, oh, what is this, right?

41:55They'll scroll through Instagram and it's like, oh, I see Coachella and my friends and this is very, it's a cultural movement. And then the next scroll, they're scrolling and they're seeing future proof. Like, oh, this is great. What is a wealth management conference? This is interesting. What is wealth management? And we could expose them to more of it. And so it's a little bit of one, we want to make it family oriented. And the other side of it is we want to change the narrative and the optics of our industry.

42:15Carol Massar:But do you also think about, I thought I read somewhere too, that you want to kind of cap how many people are here? Because we've certainly been to lots of conferences where it just goes like thousands and thousands and thousands of people and tons and tons of booths, and it's almost overwhelming, and I'm not quite sure what the takeaway is. Yeah, so it's two parts, right? One is, yes, that is true. When you get a large crowd, the word that always comes out is boondoggle, right? And you have no mission, people get lost, you're drinking from a fire hose. We use proprietary event technology, so Breakthrough, what you see this big tent here, to allow people to connect in meaningful ways.

42:45And the goal there is you go into the event, so three weeks before the event, you basically are making connections and guaranteeing certain meetings. So you have one-to-one meetings, you have roundtable discussions, you have all these different booth activities. These are all pre-scheduled. So it's not serendipity happens. So you could create a large-scale experience, multi-thousand person experience, and create a unique agenda and a unique networking plan for one specific role or person. And that's the benefit of what we do. The second side to that is we do want to cap this because there's a magic size here.

43:15And we believe that's around 5 ,000 people. One, we're in four hotels in Huntington Beach. We have 10 hotels in Newport Beach. people staying in Irvine, there's people staying 40 minutes away. So at some point, even if we can't control it, their experience is going to be different than everyone here. And so we decided that there's a limit to what we want to do here. I did see this idea of growth and bringing people. I did notice that pretty much everything is branded. There are sponsors everywhere. From the perspective of this as a business, in terms of revenue, is your biggest revenue source still tickets or is it sponsorships now?

43:48it's always sponsorships how much bigger is that than tickets? it's probably 70-30 ratio we also monetize all these different connection points so again, using the technology a lot of these meetings that you see some are peer-to-peer others are buyer-seller and so there's different ways to monetize events that we've kind of broken one, it's a different format two, it's the technology allows us to do things differently than most other events But yeah, the idea here is like events should be about the community and shouldn't just treat the attendees as a product, which is unfortunately how it typically happens when you have these booths and everyone's trying to pitch and wheel.

44:27And so you see people that you see a lot of the big brands that you see at other events, but they're showing up differently here. And it's meaningful. They get better ROI and the attendees have better experiences.

44:36Carol Massar:So I've been doing this a few years post-pandemic. I remember last year, Matt, that such a big theme was the U.S., the upcoming U.S. election. Well, they've come and gone. We've got a president in the White House that definitely markets and investors are focusing on. We are, certainly, because what he says and what he does certainly impacts the investment environment. What is top of mind for the folks as you are moving around talking to folks? And are people more optimistic this year than they were last year? Any takeaway so far? I think people are, one, I think people are optimistic, but I also think people are not sure of what the future is.

45:11And that's for a whole host of reasons. like AI being the biggest narrative in this year's event.

45:15Carol Massar:Which is a big theme, right? Of course, it's a big event. And you could look at it from all different sides, right? From an investment side, right? You have to understand what is going to be affected into the future, right? Not just what it is today, but what is AI going to do? And not just to tech companies, what is it going to do to various different sectors, right? The other side is the operational side, the industry side, right? It's a rewiring of our entire industry, and it's going to be a new operating model for wealth management specifically. And most people here are trying to figure that out, right?

45:40Most RIAs, which are a large majority of the audience here, they're small business operators. And so at the board level, they're having these discussions. How much do we need to invest in AI? How do we understand it? How do we use it? What's our audience going to look like into the future? Are we going to serve clients directly? There's so many different questions. And the truth is, even the AI experts today, no one knows because it's changing so rapidly. Every six months, it's a new shift.

46:05Carol Massar:Yeah. And at the same time, so much money is being invested to the infrastructure build out and just overall. Matt, thank you so much. Absolutely. Thanks for inviting us. Really appreciate it. Matt Middleton, he's the founder and CEO of Future Proof, joining us here in Huntington Beach. This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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