Edward. Reporter Federal Reserve has left rates unchanged. This is the sixth pause in a row for this. Now with the first line of the statement has a word thats been added to it. It says the Economic Activity continued to expand at a solid pace. Now the statement says that the fed sees job gains remaining strong. The fed also sees inflation easing over the past year but remaining elevated. The Committee Also changed the statement to say that employment and inflation goals have moved into better balance over the past year. The fed leaves one sentence in. Its a very key sentence, saying it needs to gain greater confidence that inflation will move sustainably to 2 . Again a very key phrase in the statement. One big announcement of the fed statement is going to make, the fed is reducing runoff of the Balance Sheet. Starting in june the fed will go from 60 billion of runoff in treasurys, rolling off 25 billion. Going down to 25 billion in treasurys, rolling off starting in june, amount of mortgagebacked securities will remain the same for the roleoff at 35 billion for the timebeing. Any principle payments above that would be rolled into and reinvested into treasurys. Again this is a unanimous decision. So the fed saying that theyre going to remain, pause on the rates for the sixth time in a row but they want greater confidence still that inflation is moving sustainably to their 2 target. Charles . Charles there is a lot there. Edward, thanks so much my friend. In 1956, a new gameday beaud on television. It was called to tell the truth. It had a heck of a run. One or five or six shows one episode in the last six decades. On todays show we decided well have a concept of that because we wanted the truth. What is the view state of the economy and what jay powell and company do . Can they accept whatever the truth is. There have been a lot of assumptions made and a lot of things with respect, these higher rates have had a major impact social, economically. I want to bring in first and foremost with the economy, i want to bring in Yardeni Research president , ed yardeni. Ed, yesterday we get the eci report. It put the market in a tailspin. I looked under the hood and the private sector part of this, it came down a lot. The private sector part was really, came down tremendously so. We saw in march, from this year from last Year Compensation was 4. 1 percent from 4. 8 . Wages 4. 3 from 5. 1 . Benefits, benefits came down from 4. 3 to 3. 6 . So that part of the eci worked out pretty well and so im just, im just wondering because, it feels like this one wild card to all of this is government, right . Its the government. We saw it in the jolts report today. We saw it in the eci report. So what is the state of the economy particularly when you have the federal Government Printing and pumping in money at breakneck speed . Well, the economy continues to do remarkably well in the fails of lots of government meddling as you point out. Weve had all sorts of regulations put on business. Weve had certainly a lot more spending on infrastructure and the like which probably also helped the economy actually in terms of Economic Growth but the economy is always surprises me how well it does despite washington, that is kind of the my spin on it. And on the inflation front i tend to focus on yearoveryear percent changes and i dont get too deep into the weeds. You can always find some problem not weeds. The reality cant control things how much is costs to repair a car or Motor Vehicle insurance. It has to focus on the overall number and the overall number continues to, to disinflate. So i think moderation is still very much the trend in inflation, certainly in goods and i think soon well see increasingly in rents. Charles lets talk about manufacturing for a moment because weve had a whole bunch of Regional Manufacturing numbers. So far they have been disappointing, dallas has been disappointing for the last two years. What is the intriguing thing, manufacturing pmi. It was down. Wall street thought it would be up. Now were contracting. If you look at the overall economy, we are growing slowly the last 48 months and were contracting in manufacturing. This is what worries me, as manufacturing contracts, pricing flowedded, erupted. For four months moving higher. Isnt this the exact opposite what were looking for, stronger manufacturing with lower prices . Absolutely, thats what we want and look the reality is on a shortterm basis we have seen Energy Prices going up, particularly oil prices, gasoline prices and i think thats what the purchasing managers survey reflected. So im not particularly concerned about that, especially now weve seen not withstanding the insane geopolitical problems in the middle east, were still seeing the price of oil actually moderate of late. So Global Demand remains relatively weak, the supply is still there, not withstanding the geopolitical situation. Charles right. On the economic front, manufacturing has been in sort of a growth recession for a while here and looks like thats still the case. Charles ed, before i let you go, the odds have gone from 2 at the beginning of may, april, rather, to now 27 chance, no rate cuts this year. Could the rally, could the stock market rally be sustained without any rate cuts . I think so. I think the twoyear is probably going up to 5. 25 . Were around 5 right now. I think it will do that in the next few weeks. Once thats the case i think the market that will be a signal the market has basically given up on any rate cuts over the next 12 months. I think as long as the outlook is that rates are going to stay here, and by the way theyre normal, they have been normalized. I think the economy can live with it. The stock market can live with it as well. I see a pause in the market. Resumption of the rally going into the late summer, early fall. All right. Ed yardeni, thank you so much, folks. You heard from ed, here to stay, thats the theme. One thing for sure inflation has been stubborn and it has been defiant. It means everything as far as the fed is concerned there will have to be some reassessment. Bring in qi research, of course the chief strategist there Danielle Dimartino booth. Danielle, this, this new paradigm and its focused on the supercore, right . So important to the Federal Reserve, the pendulum has swung. Ed talked about the things the fed cant control. Things contributing to supercore, health care, financial services, insurance, transportation, these things have not gone in the other direction. Is this a new reality in life . They will not come down on their own, are they . Not so much they will not come down on their own. Whats pertinent to the members of the fomc is whether or not they can effect change in these elements. 50 of the increase in the supercore last month, 50 , came from the, cost to repair a car and auto insurance. These things two years in the making to get through the regulatory entities to push hikes through in the case of insurance. The fed has no control over them. Charles im saying they cant control it. The average car is 14 years old. The average car is 14 years old but were seeing prices coming down. The car insurance, those rates are sticky on the way down. The fed cannot control this. But theyre staying higher for longer which will hurt discretionary extending more than otherwise it would, that is what the fed can affect, discretionary inflation. Charles the april meeting, Rachel Siegel, jay powell, talked about navigating by the stars. We needed a mood. Charles his answer was vigorously defending the fed, saying all economists blew it. Take a listen to that for the audience to remind them. I think forecasters generally, if you go back a year were very broadly forecasting a recession for this year, for 2023, the very high proportion of forecasters, very weak growth or recession. Not only did that not happen, we actually had a very strong year. Charles in other words we werent the only ones, everyone got it wrong. You know, when i hear that from the chairman of the fed, 400 phds, everyone got it wrong but this not supposed to get it wrong this consistently. Im worried about the credibility of the powell fed . I know you defended jay powell but not a matter of defending jay powell. It is a matter of defending those who are creating the data. We now know they were not wrong. There was a loss of 192,000 jobs in the Third Quarter and september 30th, 2023. I charles this stuff was revised months later. Of course that was revised but that does not erase the reality where we were last year with job losses as of september the 30th. Charles how do we get around that . On friday, if he put out this is the jobs report, it is not real, ignore it, six months from now it may be 1000 different . That is not how market react. Markets always pin on the initial print and you will see jay powell at the podium doing the same. He will talk about the initial print on the economy that appeared to be so robust. Give it a little bit of time. He is talking about a false reality. Charles of these things which will be more prominent, fed rate cuts push them out, keep them in play. Defend the rate cuts as the Unemployment Rate continue to do tick up after every meeting. He has two employment reports before the fed meets if june. Charles do you want to see any adjustments, major or minor . We had a major adjustment to quantitative tightening. We did get that. He should be very careful in his verbage. Charles the fed will start buying some more treasurys . They are starting roll off fewer treasuries. Charles role off fewer treasurys. And allow mortgaged backed securities to continue roll off at its pace. That is really critical. Theyre maintaining tightening in the certain sector of the economy. People should pay heed for that. Charles danielle, stick around. I will need you a little later, to decipher what the heck jay powell is saying. I will be here. Charles the stock market finally hit a speed bump last month. We know there will be periods when the market goes up and down. Admit it we this tweet from bespoke says it all. Only time the s p 500 was 10 year to date in the First Quarter, fell 3 in april. How spoiled are we . Last time it happened was 1936 they say look at the bright side, since then the market is up average 11 , may, 5 , for the rest of the year 25 . Lets hope theyre right. Mellon head of Investment Advisory solutions. Lisa, if we get one more title we cant even do the show. I know, lets start with this whole thing. I know you were pretty optimistic relatively bullish. This makes me feel a little better. History is on our side. Usually april is a very positive month. Not this year. Charles right. But it is following the election, the Election Year which tends to being strong out of the gate, weak in the next few months. Then you finish the year strong and so we still think fundamentally you know the economy is strong enough, the Unemployment Rate is good. As long as the fed doesnt pivot from the pivot, meaning the pivot was in december towards cutting, cutting. As long they dont say were hiking then i think the market is fine. Charles how do they acknowledge higher inflation, like, okay, january it was because it got cold. Always cone fuses me. Economists dont know it gets cold in january. February was some other excuse. I think easter came early, whatever. Three or four months in row you cant keep excusing it or looking the other way. How do you acknowledge higher inflation but dont bring up hiking because someone will ask during the q a. Someone will ask what the threshold is. What is your threshold for a hike . The answer here is to really thread the needle on the way down that last mile is sticky. This is consistent with sticky. It doesnt mean it is reversing. And there is a difference between those two things. Ultimately part of the problem on inflation is that oil prices moved higher. That is feeding into Producer Prices and feeding into some goods prices as well. That is the sticky area that the fed cant role. Charles your firm was three, now youre at one rate cut. You were 30 chance of recession. 15 chance of recession. Sounds like youre in still a soft landing camp . Were still in soft landing camp. Were not saying higher, we dont think the fed will hike from here it will slowly squeeze parts of economy credit. Commercial real estate, using credit to spend. You will see further pain there. On the corporate side Smaller Companies that have to borrow to grow will be in for a long time. Theyre 25 below their alltime high, the russell. Charles mastercard said the first few days in the month of april, 28 days were sort of slowing down. Before we go then, areas to be invested in the stock market. Mag7 still . Despite the volatility . So, fast growth but they win in either scenario. They win in a high rate scenario and they win in a low rate scenario. They have moats. They have free cash flow. You have to invest in flow cash flowing companies. Charles companies that have the cash, dont need to go to market. Or borrow. Charles reshoring . We love reshoring. There is industrial policy, you have to go where the money is going, it is going towards manufacturing and the chip sector. We think reshoring, the largest trading partner for the u. S. Is mex cuoco. It is not china. Depending who is elected the trend will continue. This is decade long trend that we think investors should be exposed to. Charles small caps have struggled, they have struggled. They have struggled. I would say for small caps they are 25 below the low. You dont want to sell at the low. May want to start nibbling in case were wrong about inflation being sticky. Because the markets now pricing in sticky inflation and barry one cut this year. Charles right. If it goes the other way small caps will rally. Charles great to see you, lisa, appreciate it. When we come back, inflation take aig bite out of regular folks. Alicia talked about it. Not just alicia, mcdonalds, coke, starbucks, they are all saying what youve been saying for a long time and now weve got even more proof. Well be rightfi back. That you and your family need. I promise to put your longterm Financial Wellbeing above any short term transaction. Everyone has a big picture. My job is to help you invest in yours. [announcer] Charles Schwab is proud to support the independent Financial Advisors who are passionately dedicated to helping people achieve their financial goals. Visit findyourindependentadvisor. Com charles all right, folks, lets face it real people are in real trouble. When i was growing up in harlem, max max was a periodic treat. For low income households it is becoming that way again. Federal reserve doesnt know about it, maybe though dont really care. Economists use aggragated data, they put everybody in a pot, were too strong. Stands to reason if mickey ds is hurting, starbucks is hurting maybe were in a lot of trouble. Take a look at starbucks. This is what is intriguing for me. Samestore sales down 7 . Transactions down 3 . They raised prices but it was not enough. This is the a problem, if you did go there barely making it stuff costs more. Remember yesterday the Consumer Confidence number all of this feeds into this. I have to bring this up again, this is the expectations. It is falling off a cliff. Look how far back you have to go. We havent felt this worried in a whole long time lets bring in heritage economist peter st. Onge. There are two americas, right . The one is getting pounded while the other one is getting richer. Why doesnt the fed factor that into its Decision Making . Youre absolutely right. They work with aggregated numbers. Looking at the economy overall. This is the essence of Central Planning and once you dig into the numbers that is always where the tragedies are. So as you mentioned the poor are cutting back on coke and mcdonalds. Moulson coors, they came out said things are going great. They have a lot of growth in price ier beers as consumers help themselves. You have a kshaped economy. People at taupe have tons of money. Tiktok videos, people sitting on the beach in bali enjoying it. Then you have a lot of pain for the rest of the people struggling just to keep up with inflation, really. Charles it is ironic because these folks who have the money, in part because they have assets that make more money at higher rates are spending it. That adds to the inflation equation. Yeah, hotels are doing phenomenal, casinos are doing phenomenal. We know that. Yeah. Charles how did you get inflation down, when inflation reared its ugly head initially everyone said it cures itself. Higher prices was the cure for inflation. That was four or five years ago. At least three years ago. Yeah it has been a long transitory inflation, it has been a couple years. In fact it looks like it is reaccelerating. That is a bit concerning. We had stagflationary read a few weeks ago. We have slower economy, inflation taking off again. The problem there the way that inflation enters the economy the fed does not have helicopters that it dumps money out of. The way it brings money into the economy is pumping into the Financial Markets. They hope it trickles down. That takes a long time. The people who first get the month any, stocks soar, corporate valuations soar, housing soarses of course. Then years later, right. You had some numbers on wages finally starting to catch up. Years later it trickles down to everybody else. Meantime they have been dealing with the inflation. Charles right. So really the way to fix this, the way to fix a lot of problems in our economy right now, is to get down the Government Spending. Biden is proposing 7. 3 trillion now, that would be almost three trillion up prowhat putting out there precovid. That is three trillion in what, about five years there . Not only is that bringing in all these new taxes. Were talking about 45 rate on capital gains. Theyre floating this unrealized capitalgains tax which would be absolutely insane. Beyond that, that is what is keeping the inflation going