Speaker 1:

From the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, welcome Inside the ICE House. Our podcast from Intercontinental Exchange is your go-to for the latest on markets, leadership, vision, and business. For over 230 years the NYSE has been the beating heart of global growth. Each week we bring you inspiring stories of innovators, job creators, and the movers and shakers of capitalism, here at the NYSE and ICE's Exchanges around the world. Now, let's go Inside the ICE House. Here's your host, Lance Glinn.

Lance Glinn:

Last month Opening Bell Daily's Phil Rosen joined me here at The New York Stock Exchange as we kicked off the first conversation of what will be a monthly recurring series focused on markets and the headlines that are moving them. Back in August we spoke to monetary policy, AI spending, investor sentiment among several topics. And today some of those topics are once again on our plate. Phil, thrilled to have you back at the NYSE. Thanks so much for joining me as usual.

Phil Rosen:

Thank you for having me.

Lance Glinn:

The Fed's meeting kicks off today as this episode comes out. And it's one that investors have obviously been watching closely, one that's highly anticipated. With markets widely expecting a rate cut the first time, it would be the first time in a long time after obviously rates have been held steady for a while. Just what are you first and foremost expecting from this meeting? How pivotal just is this moment, and what does it reveal about the Fed's current outlook on the economy?

Phil Rosen:

Yeah, those are great questions, and really what we've been looking at for months now has been a expectation for 25 basis points of cuts today. And my read on the last week of economic data is that the case is building for a 50 basis point cut and markets seem to sort of agree with that. I think we've seen bets for a 50 basis point cut increase to 10% in the last few days. And that comes from weakening labor market data, pretty unconcerned inflation data I would say. And that combination confirms the Jackson Hole speech from Powell a few weeks back when he essentially waved the white flag on inflation and said, "Look, the risks lie in the labor market now, and we're pretty much going to let inflation do whatever inflation does." And he didn't say that in as many words, but that was the messaging or the takeaway that I read in it.

And the big headline last week, we had almost a million jobs wiped out from the BLS revision in the 12 months to March. So, that to me, all the concerns that the labor market was weak, it turns out it was way weaker than anyone even knew or thought. So, all of this is pointing to, I think a bigger cut than we're going to get, but the Fed is probably going to take its time and go forward with a 25 basis point cut.

Lance Glinn:

As Chair Powell steps to the mic, because obviously everyone's anticipating whether it's going to be 25 or 50. But equally as interesting will be what Powell says after the fact once that cut is announced. So as he steps to the mic, what will you be listening for in his press conference that might signal whether this rate cut is the start of a broader shift or just a cautious adjustment? If the Fed does move forward with the cut, which again, is expected, what do you think he might come out and say about what's next?

Phil Rosen:

Yeah, we're going to be looking for whether Powell signals that we're getting a series of cuts, or if it's going to be sort of a hedge and say, "Look, we're going to make a move today and then we will see what happens." And he's very careful with his language always. He always says we're going to remain data dependent and go case by case. We're not projecting out months in advance. Because really the Fed is not meant to be forecasting. So, that was a big criticism of this year, I think of monetary policy. They were trying to project the impact of tariffs on the economy, so they were holding back on cuts because they thought tariffs would be inflationary. And we've seen mixed results on that forecast. But I expect Powell to keep his careful tone, as he always does, and he's probably going to say, "Look, we're not going to talk about the future, but the data today is telling us we're going to make a cut."

And again, my team at Opening Bell Daily, we've been pretty much calling for cuts since March, and the Fed has not done that obviously, and we're going to see a move. But the Fed has been, I think each month of economic data has confirmed that the Fed has been delayed in their reaction. And I think there is some question of Fed credibility these days. Because you have Powell, who's on his way out, and you have the Fed independence question with President Trump, but then really you have this delayed reaction, and the institution itself is a backward looking institution. So, they're structurally limited in what they're able to do, but I do think they've been so late this year that we will have trouble believing them or taking their judgment for better or for worse in the coming months.

Lance Glinn:

And so you said you and your team at Opening Bell Daily have been calling for rate cuts since March. So, if Powell and the Fed are indeed now behind the curve when it comes to cutting rates, what do you think are potential risks or consequences of their delay?

Phil Rosen:

The biggest risk, and Powell has essentially said this himself, is the labor market. So, we have jobs are not growing as we thought they were, and we also had way fewer jobs last year than we thought we did. So, that has given the Fed their reasoning to let inflation do whatever inflation does. So, that signal in Jackson Hole saying, "We are fully focused on the labor market, the balance of risks has shifted." That to me is spot-on, and the Fed knows it, everyone knows it. If you ask any of your friends that are hiring managers in engineering or AI or tech, no one can get jobs, no one's hiring. And that to me is not something that is so easily fixable, let's say. And if inflation does run hot, I think the Fed can always pause or adjust interest rates, right? Fixing a broken labor market or one that has slowed so severely, that is a much harder task.

Lance Glinn:

You mentioned the labor market, and earlier in our conversation you talked about the almost one million jobs, that downward revision. I think the number exactly was, I think 911,000 for the 12 months ending in March 2025. Now, we've seen up until that obviously that big one, we've seen several job revisions recently, none obviously as dramatic as that 911,000. Yet, despite these negative adjustments, markets really haven't flinched all too much. Why do you think investors are largely sort of shrugging off this data?

Phil Rosen:

Part of it, I think it's in line with expectations that the Fed is going to be lowering interest rates. So, a massive jobs' revision doesn't change that narrative whatsoever. It's the Fed is going to move forward, we're going to get lower borrowing costs and asset prices can go higher maybe because of that alone. However, we have also had in recent weeks, analysts are already raising their fourth quarter estimates for earnings. So, earnings are driving this market in a very positive way. And you still have the AI momentum, which is going so between the rate cut expectations, which are getting essentially even more deeply confirmed with the job data. And then you have strong earnings and rising expectations for those earnings. The momentum is very clear, and I think the lower interest rates, that should help small caps, tech, housing. So, all these things are going to loosen up in theory in the coming weeks and months.

Lance Glinn:

We talked about earlier how the long time expectation was that it would be sort of a 25 basis point cut. Now, with these numbers coming out it seems like it could possibly go to 50, obviously we'll wait and see what Chair Powell has to say, but 50 is sort of not-

Phil Rosen:

The best case.

Lance Glinn:

Off the table. Yeah, it's not off the table, so to speak. And if we keep seeing these big job revisions, these big downward job revisions, if we keep seeing layoffs continue to rise in the coming months, do you think that puts more pressure on Powell and the Fed as a whole to in meetings to come have deeper and more aggressive rate cuts than maybe expected before all these downward revisions?

Phil Rosen:

I would say the pressure has been very high on Powell already politically, but also from the data, right? So, you have pressure from the White House that the Fed should have been cutting and you've had economists calling for the Fed to be cutting, and then you have the data, I think screaming for Fed cuts, but none of that is probably going to accelerate the pace of cuts based on what ... They're going to be a slow moving incremental institution. And that is just what they do.

So, I don't expect all this external pressure to really, let's say increase the pace of cuts. And even Jerome Powell's successor, I don't think he's going to come in and cut interest rates by 300 basis points in one go. That's just not what the job is. And even if President Trump is calling for very deep rate cuts, it's still going to take incremental sequence of events. So, I wouldn't say that all of this combines to a faster pace of cuts as much as maybe the president or even some people looking for jobs, as much as they may want that, I don't think we're going to see that.

Lance Glinn:

So Phil, in the short term a rate cut will offer some relief, but what about longer term implications? Do you see this move sort of paving the way for more sustainable economic growth, or could it risk reigniting those inflation pressures that the Fed has spent now years really trying to contain?

Phil Rosen:

Yeah, inflation is certainly a risk, I would say. And again, the job market is the bigger risk, and I think you could say it's a near term and a long-term risk. Because if unemployment starts rising, it can be really hard to get out of that rut. And inflation, look, it's been rising dramatically for the last five years. That is something that I don't think we can say the Fed has been successful at taming anyway. So, if we say suddenly, "Okay, they're going to focus on inflation and trying to get it under control while we've lost 30% of our purchasing power in the past five years." So, this to me is a little bit of, too little, too late.

And the risk now is in the job market. And the Fed sees that as well. So, I'm not alone in saying that that's where the risk is. Inflation, unfortunately, I think that it's part of the present economy, and I don't know how we can really shake out of it. We also don't know the long-term effects of tariffs, so that's another variable that we're just not sure what's going to happen. So, there's a lot of unknowns right now, but the "balance of risk." As Powell says, is certainly with jobs.

Lance Glinn:

Well, Phil, I appreciate you always joining me here at the NYC. I look forward to our conversation next month and in the months to come.

Phil Rosen:

Thank you for having me.

Speaker 1:

That's our conversation for this week. Remember to rate, review and subscribe wherever you listen, and follow us on X, @icehousepodcast. From the New York Stock Exchange, we'll talk to you again next week Inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.