Bloomberg Surveillance TV: October 29th, 2026

0:00James Bullard: If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the Flipside wherever you get your podcasts. When you're a business owner interested in expanding to new markets, there's a lot to consider and countless questions to answer before making the call.

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1:38Gargi Chaudhuri: 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.

2:12Gargi Chaudhuri: Lisa, when the Fed says the economy is strong, those numbers are strong.

2:16James Bullard: 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.

2:36Gargi Chaudhuri: I know I keep repeating it, but look how much money we're raising. Yeah. Microsoft, SpaceX, Anthropic, Meta. this week alone, hundreds and hundreds of billions of dollars that are going into the U.S. economy.

2:47James Bullard: 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.

3:07Gargi Chaudhuri: We've got Mike Firoli with us around the table from J.P. Morgan. Mike, Good morning. Good to see you. Morning. Good to see you. Is policy restrictive?

3:13Mike Feroli: 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.

3:24Gargi Chaudhuri: So, I keep being snarky, so forgive me, but what do you think they see when they look out the window of the Federal Reserve?

3:30Mike Feroli: Hopefully, they're not looking at the White House. But I think the data, you know, as I said, I think this morning's data came in close expectations. Strong economy, strong consumer, still high inflation. You did see consumer spending tail off a little bit toward the end of the quarter, right? So I think that may raise, again, some questions about 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 percent annualized.

4:08Mike Feroli: 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.

4:16James Bullard: Do you think that it was a mistake for the Fed not to hike rates 25 basis points yesterday?

4:20Mike Feroli: 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, you know, there's also a case I like, 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? And we, you know, and there is a good case, but he just I don't think the chair made it yesterday.

4:55Mike Feroli: today.

4:55James Bullard: 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?

5:15Mike Feroli: I'd 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.

5:57James Bullard: If you were to hit 2%, how painful would it be?

6:00Mike Feroli: 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.

6:24James Bullard: Do you think any of this was political, skipping this meeting, and also the fact that Governor Cook decided to dissent?

6:32Mike Feroli: 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. uh the cook dissent was quite surprising right i think as most of your viewers know uh the president has been the white house has been trying to remove her there is a hearing set for december uh and a dissent in favor of a hike certainly isn't going to you know curry any any further favor at the white house so it is um it's it's certainly eye-opening particularly no i don't think most people thought she was one of the more hawkish people not at all committee

7:14James Bullard: So it was obvious, but what's that with hammock? It was obvious. Yeah.

7:20Mike Feroli: With hammock, it was obvious. If it were Logan or Kashkari or one of the traditional hawks, I think.

7:25Gargi Chaudhuri: Well, maybe Barr on the board, maybe Barr, but Cook was a surprise to us all. It 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 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?

7:43Mike Feroli: 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.

8:18Mike Feroli: 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 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.

8:40James Bullard: So 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.

9:13Mike Feroli: 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.

9:29Gargi Chaudhuri: Stay with us. More Bloomberg surveillance coming up after this.

9:37James Bullard: If you invest or lead a business, one-sided views aren't enough. Join me, Brad Rogoff, and my team at Barclays Research as we debate what's driving markets on the Flipside podcast. Find the Flipside wherever you get your podcasts. With Jatchy BT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decision. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask Chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team.

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10:34Gargi Chaudhuri: Gaghi Chantry of BlackRock, joined us some 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+. What did it get? Lower than an A+. Okay. 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.

11:10James Bullard: And part of the narrative was the market moves and we did see the financial conditions. So how a lot of people took this is risk on, because if that little wobble and core weave is 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?

11:29Gargi Chaudhuri: 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 threes at this juncture, at this point in the economy, still having nominal GDP over six and a half percent. This is a strong economy.

12:04Gargi Chaudhuri: 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 last here.

12:19James Bullard: 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 detracted for you when it comes to bonds?

12:37Gargi Chaudhuri: Why do you disagree with your outcome?

12:38James Bullard: With my very good friend Kate, who I'm seeing this evening. Excuse me, I'm not. No, I mean. No. You said a guest.

12:46Gargi Chaudhuri: To be clear, we still like equities, and especially when we see this earning 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 fields, call it over 5 % on the 10-year point, You have so much cushion built in.

13:21Gargi Chaudhuri: 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.

13:48James Bullard: 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?

13:57Gargi Chaudhuri: 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 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.

14:33Gargi Chaudhuri: 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.

14:59James Bullard: With JATGPT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatGPT.com.

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16:34Gargi Chaudhuri: 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.

17:08Gargi Chaudhuri: 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.

17:18James Bullard: 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.

17:24Gargi Chaudhuri: 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. Wondering what you've walked into, aren't you? Yes. Good to see 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 you had to go that often.

18:05Gargi Chaudhuri: 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. I think 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.

18:42James Bullard: Instead, he made reference to the widening and 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?

19:03Gargi Chaudhuri: 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 many red flags that have been waving here about this. Where's the revenue going to come from, how fast this buildup 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, not a frenzy like we have now.

19:44James Bullard: Do you think that it is good that the market doesn't have a sense of Kevin Warsh's reaction function?

19:51Gargi Chaudhuri: 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.

20:06James Bullard: Last time you were on, you talked about two hikes and hope for the Federal Reserve. Is that still what you're hoping for?

20:13Gargi Chaudhuri: I think maybe a little better wording would be two hikes and review. so they get I think I said two hugs that's my summary of what Jim said so I think it just felt when they're doing their dot plot for September they just felt like well I don't have to put in like something for 2027 so I'll just why don't we just wait till we get to December I'll see where we are and then we'll go from there Jim it's 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.

20:50Gargi Chaudhuri: What do you think the endgame 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 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.

21:30Gargi Chaudhuri: 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?

21:44Gargi Chaudhuri: he hearkens back a little bit to Greenspan which I can appreciate because I like I like 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 6 a.m. 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.

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