Warranted in order to shore up Inflation Expectations and a couple participants james bullard, one of them, wanted to acut rates to allay concerns about inflation the minutes show officials felt the increase in uncertainty was a relatively recent phenomenon and there had been staff discussion about the sensitivity of markets to the trade fights with mexico and several officials felt they wanted to wait for more information on the trajectory of the economy before reaching a final conclusion. However, the minutes also show that the fed realizes that markets have baked in a rate cut relatively soon. The minutes state the reason Financial Conditions have remained supportive of growth is because they were premised on the expectation of easier Monetary Policy. Guys, back to you. Elon, medicatiothanks lets bring in Steve Liesman with reaction to what has been a very, very busy fed day and now the minutes on top of that. It fits together, kelly you had a fed chairman that all but guaranteed that there was going to be a rate cut the end of this month. What we learn now the june meeting, maybe more so than we thought, a large number the key thing that elon said, many thought additional accommodation was needed there was a preponderance of members on the board one headline im looking at off the dow jones, uncertainty in economic risk increased significantly. Didnt say that after the meeting there. But this idea that there was significant risk, but did want to give time to play out as for fed chairman jerome powell, he was very clear today about what the Federal Reserve was going to do. He emphasized Global Economic weakness and low inflation as the more important factors beyond the Strong Economy or the economy being a good place in fact, he was asked specifically if these factors would lead to lower Interest Rates. Now, listen to this very carefully, what he says. Because the congressman says, will these things lead to lower Interest Rates, and now give a listen yes, as i mentioned, we think that uncertainty around trade policy and also Global Growth, its not all down to trade policy theres something going on with growth around the world, particularly around manufacturing and investment and trade. And so that uncertainty is, we think, weighing on the domestic economy. Okay. Lets look at the probabilities now. 100 chance of a rate cut in the fed fund futures market. 22 chance of a 50 basis point cut. Only a 37 chance of another cut in october, but that rises to 57 by december with a 20 chance of a 50 the question now, i dont think its if the fed is going to cut in july. Its how many cuts it might provide thereafter well be watching that. Steve, stick around. Were going to be joined by david kelley, chief global strategist with Jpmorgan Funds and tom pore selly, economist with Rbc Capital Markets welcome, all three of you. Tom, you were in the camp that there is not a justification to cut rates in july. Why do you feel that way, and what do you think chairman powell and the other fed people see that you dont well, lets be clear. After today, its hard to hold that view. So we have changed our call, obviously, given what he has said today so we are now looking for a 25 basispoint cut. But what you said still holds true we dont necessarily think that the economy needs a cut at this point. But, you know, were were not going to make some moral stand. The chairman wants to cut. He was quite clear on that what i thought was interesting about how the press conference started with him was, he basically said nothing changed since the june meeting and i would say a number of things did change. You know, we have at least a tiny bit of clarity on trade post g20 we moved sort of a step in the right direction. We now know that the payroll report from the previous month was, you know, sort of a oneoff, thanks to the most recent payroll report. So the fact that he didnt give any weight to any of these factors i think really drives home that they are obviously very worried about where we are from a trade perspective globally and, you know, but i think this all begs the question, what is a 25 basis point cut or 50 basis point cut going to do from a mitigation perspective as it relates to trade and we would say the impact there is going to be incredibly momentous. To the overall sort of zit guide at play here, wouldnt improve the matter of trade tangles. What do you think the chairman and his brethren there and sisters there see that some who are more hesitant dont . They seem obsessed with the inflation idea i thought it was really interesting that the chairman said that he wanted to fight for inflation at 2 keep it up to 2 they dont want to find themselves in these situations and they cant push it up. Also, it was interesting he said, you know, we want 2 dont want 1. 7 or 1. 8, we want 2. So clearly hes saying this is not about a weakening economy, this is about inflation. Theyre saying that, the problem with that, thats a slippery slope. We may not get to 2 inflation does that justify october, december you could go down to zero on the federal funds rate and not get to 2 inflation. I tend to agree with tom, it wont stimulate the economy. But at the moment the fed seems determined to acquiesce, i guess, to the political demands, to what the market seems to expect so david willing to acquiesce, given lower rates. Just to be clear, you think theyre going to cut not because you think they should, but just because you think they will . Yes i think so i think theyre fundamentally making a mistake here. I think, you know, chairman powell admits that if there is any possibility of stimulating the economy, not by the way you need to stimulate an economy when youve got a 3. 7 unemployment rate, but i think the fed is i think theyre worried about independence i think theyre worried about getting but if theyre worried about independence, and david i take your point and thank you for clarifying that let me bring steven in on this, as well. If theyre worried about independence, then why do a rate cut everybody seems to be saying, well, the market kind of wants it, and i guess we could take it. But the president is calling for tyler used the term zeitgeitz. Lets fit in Monetary Policy listening to this hearing. The democrats want the fed to cut. The republicans want the fed to cut. The precedent wants the fed to cut. The markets want the fed to cut. If thats not a zit and a geist all together, i dont know what to do with it. And poor old tom pore chely, my intelligent colleagues on this panel. Wouldnt you say theres a lot of people on wall street who also think the fed is going to cut as opposed to just thinking, oh, they definitely should and thats definitely the right thing to do . And doesnt the justification matter i mean, the idea theyre going to cut by saying, because its a slow down and theres Global Growth concerns and, okay, well, what about the u. S. Economy . And if its not slowing, can you just why cant they just say, yeah, were going to cut, the economy is strong, but productivity the messaging is completely mutddled as far as i can tell. I could not agree more with that, kelly. And i would say, you know, this this may come as a surprise to some of your viewers, but, you know, we speak with a lot of very significant investors at some of the biggest organizations, as im sure david does too and i can tell you, i was in meetings yesterday ive been in more meetings this year than ive been in any other year in my career. And in recent meetings, no one is clamoring for the fed to cut rates. I want to be really clear on that point and, again, these are some highly sophisticated investors and no one seems to think that this economy needs a cut yet here we are with the fed about to cut rates. But there is one constituent who is clamoring for a cut in rates. I want to underscore that we have not heard anybody say, and i think this is what tom was talking about. Forget the investment side of things nobody is saying, but for a quarter point on the interest rate, id be building a car plant. Exactly. Or i would be doing this. And then i think it was david david kelleys point is interesting in what would the quarter point do for the trade which is very little now, i hate to say this. But if the fed can buy itself a little political piece with a quarter point rate cut and have the i was going to say hounds probably the wrong word have the critics back off a little bit, and they give him a little piece of red meat give an inch. Then maybe they can buy themselves some time and flexibility to figure out the right narrative here i agree with what youre saying, kelly. That the narrative is a little confused right now. So im going to go to elon moy for the last word. It doesnt have to be an either or as the reason for the cut. What the minutes showed, its an insurance cut, theres an argument to make for that, as well as cutting in order to support inflation. So the fed is looking at both arguments and both seem to be gaining some traction amongst both participants and amongst members. And i will also say that the discussion of Financial Condition was interesting, because it also shows that the fed recognizes that if it doesnt move in july, you talk about being hamstrung by markets, if it doesnt move in july its going to end up tightening Financial Conditions inadvertently. Thats something the fed understands and is considering as it looks to what its going to actually do when it makes its final decision in july. Elon, thank you very much you want to jump in ill give ow im going over here. Im sorry, and elon is so brilliant. But i would just ask, at 3000 on the s p, 183 on the twoyear, how much looser should Financial Conditions be . Well, im going to tie it off, david, and tom. Its not going to be looser, its just they dont want them to tighten. But theyre one standard deviation easy right now, guys theyre one standard deviation easy from a Financial Conditions perspective. And prior to the whole trade thing happening, you are half a standard deviation easy. So if we made some modest positive progress from a trade perspective, then how much lower can they possibly go i mean, look, make no mistake. Im totally sympathetic to the idea of if Financial Conditions did tighten, then, yes, i think that that is something that would weigh on the process if you take a rational step back, youre already a full standard deviation easy. And i dont think theres a lot of room for it to fall. Weve got zeitgeist and standard deviations. Im going to tie it off with an homage to James Carville right now its not the data, stupid thats not why the fed is doing what its doing. I dont see it in the data gentlemen, lady, thank you very much. Lets ponder that and get some Market Reaction to the feds headlines. Bob pisani, tracking all this action from the floor of the nyse and certainties have increased. Thats the magic word. Pushed over 3000 right after the open but sold right into it. I think everybody agrees down here with steve and everyone else 25point insurance cut is baked in at this point. I think what would really surprise the market right now would be, number one, no rate cut. Or number two, a 50 basis point cut. I think both would be surprises. So consensus is built in i thought the minutes were interesting. A couple officials favored a rate cut in june increased uncertainty has been relatively recent. And i think thats why all of a sudden we all agree right now that its going to happen. That 25 basis point cut. As far as what was moving today, same big tech names recently with micron, nvidia, cisco systems, microsoft oil, over 60. We had interesting inventory numbers out there. We were just 56, 57, a few days ago and over 60 now. Look at chevron, marathon, moving to the up side. Elsewhere, banks, 1. 83 where are we on the tenyear look, these are big losers by the way, guys, took us five years to get to s p 3,000, 50 increase from 2,000 to 3,000 all of these banks generally have been notable underperformers. Guys, back to you. Thank you very much bob at this sanny. Bond Market Reaction now from Rick Santelli at the cme. Tells you the whole story at 8 30 eastern when the tech was released, you see the way it dropped, basically right back there again. The further out the curve you go, the more different complexion you get regarding reading the markets. Ten years, down a basis point. 30year bonds up a basis point but if you look at the dollar index, its also hovering at the lows of the day. And i think thats the biggest tell listen, whether you wear a dove hat, a hawk hat or a dunce hat, it is very difficult to look at these markets, listen to jay powell and think that theres definitely an ease coming. There was no pushback. But i will push back just a little and that last segment, tom says, how low can they go . Ill show you something. You know what zero percent is . Thats what the coupon was on the auction of boons that went off eight hours ago. Zero second time, last time was during the credit crisis we are succumbing to the pressures of this global plush of Interest Rates. And all those questions, but all those smart congressmen and women, how much did you hear about europe, how much did jay powell talk about the inversion as a negative signal but not talk about how could it not invert, considering there are negative rates from every corner of the globe back to you. Rick, on that point i mean, the bond levels in europe are insane right now. I read the czech republic, poland, peripheral Eastern European countries, european corporate junk debt were start being to see negative yields. Yeah, maybe some of these economy metric models that call for a recession, im not saying there isnt one coming at the end of the day, they need to take into account how the cooties of low and negative Interest Rates are completely changing the type of water in our well, our liquidity. There is nothing i dont care how much they cut theyre not going to fix what is being exported, thats broken overseas i think these are conditions that need to be discussed. But it certainly seemed like libor versus lever, much more popular questions. Rick santelli, thank you so much. Coming up, the dow hitting a new alltime high on the heels of this today. The s p crossed 3000 for the first time well talk more about what signals that really sends. The dow transports still in correction, after all. The small cap russell 2000 off its high what doeit mn ens eawh you put it together . Well get into that when power well get into that when power lunch comes right back. Well get into that when power lunch comes right back. [ sniffing ] come on. This summer, add a new member to the family. Hurry into the mercedesbenz summer event today for exceptional offers. Lease the glc 300 suv for just 419 a month at the mercedesbenz summer event. Going on now. Welcome back to power lunch, everybody. And those levels you just saw there, more important than ever for the major averages well tell you why in a minute hitting new highs, the s p hitting 3000 for the first time in the session today but theres the dow transports, ask theyre still in correction territory. Down more than 10 from their september highs. Goldman out with a bullish call, initiating coverage and buy ratings on fedex, u. P. S. And job hunt lets talk to the principle and managing partner of broughtan capital. They should be participating in the rally, right do we write this off as, hey, theyve got unique issues to the sector, or are we supposed to read as a warning sign about the economy . I see it as a warning sign. I see it as a warning sign you know, kelly, they have a wellearned reputation, as youre well aware, of, you know, theory of predicting the economy. But that comes from the underlying goods flow. And the bottom line is, starting really in december of last year, we began to see signals first in International Air freight, saw the warning out of fedex in december of 18 and the shipments index. And we have seen that increase since then the goods flow is negative, especially in europe, accelerating negative and asia and its getting weaker here so it sounded lower volumes suggest the fed is not only right to be getting rates, but late to the party. Sure, and youre kind of the missing link in this whole discussion wiere having, but i would ask, when you talk about it slowling, how much are we talking about . A lot of the folks seem to be in the mindset, donald, as youre well aware, every slow down goes back to 2007, 2008 can we take a hit in terms of activity and have it look look at 2016 we saw the soft patches in the economy before right, absolutely right you have to put it in context. The slow down is important to look at. In some areas of the economy most areas of the economy, were seeing down Single Digits, mid Single Digits in the domestic economy. But there are some areas that are just quite alarming. Were seeing over 15 down in the air freight volumes going into shanghai. You say why is that a problem . Thats all the parts and pieces to get assembled and shipped out. Thats what asia pacific is going to be. When i see those numbers, i get really nervous domestically, you know, lumber shipping, chemicals shipping, autos and auto parts shipping all suggest slower times if i look at volumes and realtime on a platform like you get out of s. O. N. A. R. Or d. O. T. , realtime whats happening and a little bit better, but june ought to be better ought to be the strongest freight month for trucking seasonally and, you know, its still down Second Quarter volumes were still down on a yeartoyear basis. I dont want to let you go without getting a couple recommendations here maybe the fed is looking at these data, and thats behind what they plan to do you like fedex i know a number of them do. I bet they do why wouldnt they . Fedex and xpo, two picks you like long. But you say the best pick for the second half in transports would be short the truckers. Why . Well, we like xpo and fedex, because one, their valuations reflect what were talking about. They were and they were early to warn everyone about it. They deliver ecommer