Market seems confident about a Fed rate cut as an insurance measure, with economy expected to pick up early next year. How do you see things?
Host (Mike)
David Bianco
Beware what you wish for. Markets expect a Fed cut this week, but many think this could be a mistake. The 10-year TIPS yield indicates R-star is well above 1.75%.
The Fed sees a softening labor market. How far are we from the neutral rate (R-star)?
Host (Mike)
David Bianco
We might be at neutral, maybe a little more room downward. After 5 years of inflation above target, the Fed's inflation target covenant with bond investors shows a little default.
10-year yields up, but there's plenty of Treasury demand and we've seen bigger moves down than up.
Host (Steve)
David Bianco
If the goal is to stimulate housing and consumer durables, cutting Fed funds won't help much. Lower rates might accelerate AI transition from labor.
David Bianco
Pick your spots. AI plays had a great year and will stay magnificent, but advise diversification into financials, healthcare, electric utilities.
Next year has urgent capex spending, AI, and tax policy tailwinds - a 'run-it-hot' economy. Implications for earnings?
Host (Mike)
David Bianco
Run-it-hot policies raise questions about who benefits. Long-term bond investors aren't interested. Need 10-year yield falling rather than sticky when Fed signals cuts.