Transcripts For CNBC The 20240706 : comparemela.com

Elizabeth warren will be here in the next 90 minutes to weigh in on the fed, the banks, and the big debt ceiling shutdown. Before that, lets get todays markets with about an hour before that decision. Dominic chu live at the New York Stock Exchange hi. Kelly tish, tyler, i will teu its a tepid market but not unsurprising in the fact we have a major catalyst in the fed Rate Decision for the time being we are seeing general positivity it had been mixed in the session but not much up or down. Generally speaking were kind of tilting towards the highs of the session. The nasdaq up about 1 p the s p 500, 4131, up about 0. 3 the dow up 0. 1 . 33,723 the last trade. One place to keep an eye on, is whats happening with certain parts of the oil market. Demand may be an issue if theres an economic pullback if you take a look at oil prices wti crude is down about 4 on the session. 68. 63 were on a 60ish dollar handle, below 70 right now over the last year weve lost a third of its value keep an eye on oil prices. That economic narrative and slowdown pricing in there. Interest rates a check on those as we head into the Rate Decision right now the six month tbill, 5 , 10year benchmark dropping to 3. 39 and the 30year long bond 3. 69 as well. Kelly nailed it, the regional banks part of the story. Earlier in the premarket session they were all down markedly and theyve rebounded and stabilized nicely on a relative basis pac west up 7 , western alliance up 4 , bank of hawaii and zions, western regional banks in play and the s p 500 etf ticker kre, up 2 right now. Well see if the gains stick as we head towards the fed meeting. Send things back over to you. Thank you very much and with less than an hour to go now, the Market Pricing in a near 90 chance of a quarter point Interest Rate hike, but could investors be getting this one wrong . Steve liesman, just a few miles away at the Federal Reserve with what to expect hey, steve yeah. Maybe people think the fed is getting this wrong the fed expecting to hike for the tenth straight time amid unusual and strong opposition to this move from former fed officials and observers and a lot of concern in markets over regional banks heres what you might call the cause for a pause. A couple exfed Bank President s saying dont hike, the cnbc fed survey, 59 say a hike would be a mistake, banking stocks saying theres trouble ahead and the fed staff and minutes saying theyre looking for a recession because of banking concerns. The case for a hike the economy running hotter than the fed would like, the job market a surprise pause could spook markets thinking the fed sees data showing the situation is worse than the markets believe, even though they think they believe the Bank Situation is bad. A pause by the fed would buy time for banks to get their Balance Sheets back and keep the situation from getting worse and also likely have little impact on inflation because many of those hikes take time to filter in the economy if the fed hikes markets believe this will be the last one. The year end contract, 437 rate on the year end, 75 basis points of cuts built in from where the market thinks the fed will be at the end of today whatever the fed does, the expectation is that its pretty quickly going to turn around and undo it. Let me ask you a question, apart from the banking issues you mentioned there, among those 59 or 57 of people who you said dont believe that an Interest Rate hike is appropriate, is that in part because they feel that the prior rate hikes, the 9 that weve had so far, have done the job in retarding inflation certainly some believe theres quite a bit of tightening by the way the tightening from the past is showing up in part on whats going on in the Banking System, part of it is theyre going to get you already had, by the way, tighter credit standards even before svb failed the expectation in the survey is credit standards are supposed to get tighter from here and theres going to be a big impact on main street the big banks and companies in the s p are not going to have trouble getting loans. Small, medium sized bus, if the regional banks cut back on credit they will get hurt. Great point thank you very much. First lets get to our i should sayl lets get to our first panel. One says no hike necessary, one says a quarter point is warranted and one says a half point. Jamie cox, harris financial groupss managing parter, also societal general rate strategy and bill lee, welcome all of you. Jamie, which camp . Do not hike. Really . Do not terrorize the Banking System anymore were on the precipes of maybe getting into the meat of many of the regional banks, so the fed has the ability to kind of fix the problem it has created if you think about it, the overnight reverse repo facility takes in 2. 2 trillion thats actually more than the gdp of south korea and that could be fixed very easily by the fed reducing the rate it pays on the reverse repos from 10 basis points to 25, restore deposits that are actually running out of the Banking System and restore some stability. At the same time, they could also cut stop cutting rates they need to or were going to be in trouble with regional banks. Let me ask you, did the fed cause the banks problems or the bankers . I think the fed is directly responsible. It wasnt the fed that caused those bankers to load up on longterm treasuries, and it wasnt the fed that was engineering that or keeping deposit rates low. If you go back to 2019, when joe m Jerome Powell pivoted, we flooded the banks with reserves and they invested in treasuries, highquality asset and then they did it again with persistent, persistent through the pandemic, persistent reserve increases all right. Now they raise rates really, really fast and basically bury the banks and made them technically insolvent. Its a problem the fed started its a problem the fed has now created a big mess with. Its a problem the fed can fix they need to do it before it becomes an even bigger problem than it is. One more point before we move on the regional banks are green today. Problem solved what do you make of this trading behavior where yesterday we saw declines and today started out that way and the tone changes into a fed decision no less . For the past, i dont know, probably three to four weeks youve seen this back and forth, you know, multihigh percentage point gains and losses day by day. Thats not normal in banks thats not normal in any i kwaulgts asset that tells me that theres a big problem that needs to be fixed i think we need to deal with it before it becomes a problem. One last thing, 500 billion of banking, you know, problems, its bigger than the Global Financial crisis we had three banks represent a bigger hole in the Financial System than we had during the financial crisis that is only going to get worse. Bigger than 2008 . Exactly. Bill lee, give the rejoineder to jamie, on the other end of the spectrum and think the fed will do 25 basis points or a quarter point, but you think they should do 50. Why . We dont have a banking crisis the supervisors have allowed badly managed banks to continue when they should have shut them down lets remember, banks account for only 11 of total corporate financing. Yes banks are important for Small Businesses and thats where we think the channels are going to hit the fed is worried too strong of an economy because consumption is too strong. Investments have turned down, real estate, but kunl summion is not. The Unemployment Rate 3. 5 and people are not worried about their jobs if we have small regional banks start to contract their loans that will hit Small Businesses the most and that will hit the labor market and finally get inflation to start slowing down by slowing down consumption. The channels are going exactly the right way, if we allow the banks to contract on their loans. To get rid of inflation we need more tightening to get people to stop spending so much. So if you look at reference rules, theyre calling for 6 . For me to say another 50 basis points is warranted is really somewhere between where the market is pricing and where the rules are pricing. Back to the point on banks, do you think we have a problem with regulators or regulation . In other words, are the rules wrong or is the application of the rules insufficient bingo we have a crisis in supervision. We have a lot of rules and the rules are designed to look at the banks that are the most systemically important ones and look at them carefully the ones that are smaller, they pay less attention to. The banks that failed put a hole in the Banking System in crypto currency areas, in Silicon Valley venture capitalists and rich people at First Republic. These are very, very narrow focused banking models regional banks that help Small Businesses, Community Banks that help minority businesses, theyre still doing very well. What is a shame is the Federal Reserve didnt say our supervisors fell on the job and were going to fix that and make sure that every bank out there is doing the job well and if theyre not were going to shut management down. We think we would calm the markets. Lets talk about inflation for a minute because thats the argument the people in the bill lee are making, if the fed backs off theyre making an inflationary mistake is that true the break even and other measures, Inflation Expectations look contained, oil collapsing, Consumer Credit taking a while to work through here, what do you think we might see pce or cpi or pce in a couple months time yeah. I think that both jamie and bill make very, very good points, and highlight the difficulty that fed is facing on Monetary Policy on the one hand. We have very hot inflation and what it is about is raise aggressively and to put a lid on inflation. On the other hand you have the Regional Banking Crisis and Financial Stability concerns thats why we think a 25 basis points rate hike which is what the market is priced in for, makes a lot of sense the trajectory for inflation is that you should see inflation gradually decline, if the fed doesnt act aggressively on the rate hike and they pause, they might not be able to achieve their inflation goals. In some respects the fed has to hike in order to keep a lid on inflation. The broader for pc, for the upcoming months and the end of the year is the disinflationary path we end the year still around 3. 5 thats still pretty high and pretty much higher than i dont know. But is that i mean 2. 5 , is that worth risking the kind of credit crunch were worried about here youre talking about the quarter point rate hike . If inflation is going to be 2. 5 on the core number by the end of the year cant they kind of back off here and say maybe Financial Stability thats what former fed members have been saying all week long, maybe Financial Stability needs to take more precedence here. But you dont have anything in the data that shows we are on a path to disinflation if anything the cpi prints have been in line with consensus. Shelter costs are running high, inflation is still pretty strong and the labor markets are strong as long as people are employed, inflation is going to continue to come under pressure and the only way to put a lid on that if they continue to raise rates thats going to have an impact on the Financial Assets within the regional banking sector. The rate of inflation has come down dramatically, right . It has, but not anywhere near what the fed would be comfortable with what they want to achieve is get to the 2 inflation target they dont have pc getting below or at 2 even at 2025 theyre expecting a gradual path of disinflation over the next couple years any turmoil in the markets you could see erratic behavior you need to see the Unemployment Rate, unfortunately go up for inflation to start to moderate. All right jamie, back to you, final it thought. If im the fed i would rather be blamed for supervision failure than be blamed for bringing down the Banking System, so to me, i think that the fed is lucky if they get blamed for supervision problems. Is this a richmond thing . Its bad in richmond, jamie, that much worse than other parts of the country where other guests are. Things are fine in richmond i worry about Middle America i work with ordinary people and Small Businesses and they are going to suffer the theyre going to take the brunt. Are they feeling it already. I dont think its happened yet, but i think its going to and people are not ready for what will happen and i think thats the problem normal ordinary people will pay the price for the bad decisions of, you know, people who run these large corporations everyone agrees the goal is to help them but the fed would say thats why were fighting inflation. I dont find myself on the same side of Elizabeth Warren on all things, but i find myself with her on the need we will tell you you are on her side when she arrives in an hours time. Perfect. Thank you very much suebatra and bill lee. Thank you. Just Getting Started on the fed decision. What higher rates mean for main street and your money as the fed fight against flation continues. Elizabeth warren and john kennedy will join us in studio to discuss the fed decision, debt ceiling debate and Regional Banking Crisis and Stock Ownership by members of congress, all of that coming up in the show. As we head ahead to break, your markets into the fed decision about 45 minutes away the dow up 42, the s p up, the nasdaq up half a percent the russell 338 on the 10year, 44 minutes to go were back after this. Whats the next chapter . Thats the real question. With fidelity income planning, a dedicated advisor can help you grow and protect your wealth, even when youre not working. Theyll look at your full financial picture and help you create a flexible strategy designed to balance Growth Potential and guaranteed income. So you can stop worrying about the future and enjoy the life youve created. Thats the planning effect. From fidelity. What if you could make analyzing a big banks data. No big deal . Go on. Well, what if you partner with ibm and red hat, use a hybrid Cloud Solution to connect data across multiple systems globally, then analyze all that data with watson. Okay, but this needs to meet our. Security standards . Yup. Compliance standards . Mmhmm. So they get the insights they need. Yup. In real time. Check. To make quick decisions . Check. Aaaand check. Thats the hybrid Cloud Solution ibm and a global bank created. What will you create . Ibm. Lets create. Welcome back to our special edition of the exchange. About 40 minutes away from the decision on Interest Rates where the fed largely expected to make its tenth increase since march of last year the consumer already feeling the impact, and from what you pay for your mortgage, car, rate on your credit card, personal loons, lines of credit, has gotten expensive as Household Debt rises and savings decline for more on the implications of Consumer Spending in the economy were joined by davids weal, senior fellow in economic studies at the Brookings Institute and chief analyst greg p mcbride. Its easy to look at Interest Rate levels and hikes in an abstract way, but they are real. They translate into real dollars on peoples budgets. Take us through some of the numbers with respect to, for example, home equity lines of credit, mortgages, lines of credit, credit cards and whats happens happened we start with Mortgage Rate Mortgage Rates last year the increase for would be buyers of enough affordability into a 30 increase in home prices even though Mortgage Rates have been stable lines of credit, after that run up in home prices americans are sitting on more home equity than theyve had before, but its no longer a low cost proposition with the cume lasive impacts of these rate hikes, the 5 equity line you had is now going to hit double digits and in terms of your servicing that debt the minimum payment is now 200 a month more than it would be before the fed started to raise rates. Perhaps the most important headlines as well is going to be the deposit rate, right. When all the water cooler talk is about hey, guess what you can get on the new apple savings account or what you can get on t bills f that gets worse, the bill ackman warning, if the fed hikes again and people get tantalized by money market funds or yields outside the Banking System and moving their money, you kind of, i dont know, keep the deposit flight going thats ban problem. I think thats risk for the banks and theyve been slow to raise Interest Rates they have a lot of reserve at the fed so if they need to pull them out they can. The bottom line here is, this is what the fed thing was designed to do, not to unsettle the New York Stock Exchange<\/a> hi. Kelly tish, tyler, i will teu its a tepid market but not unsurprising in the fact we have a major catalyst in the fed Rate Decision<\/a> for the time being we are seeing general positivity it had been mixed in the session but not much up or down. Generally speaking were kind of tilting towards the highs of the session. The nasdaq up about 1 p the s p 500, 4131, up about 0. 3 the dow up 0. 1 . 33,723 the last trade. One place to keep an eye on, is whats happening with certain parts of the oil market. Demand may be an issue if theres an economic pullback if you take a look at oil prices wti crude is down about 4 on the session. 68. 63 were on a 60ish dollar handle, below 70 right now over the last year weve lost a third of its value keep an eye on oil prices. That economic narrative and slowdown pricing in there. Interest rates a check on those as we head into the Rate Decision<\/a> right now the six month tbill, 5 , 10year benchmark dropping to 3. 39 and the 30year long bond 3. 69 as well. Kelly nailed it, the regional banks part of the story. Earlier in the premarket session they were all down markedly and theyve rebounded and stabilized nicely on a relative basis pac west up 7 , western alliance up 4 , bank of hawaii and zions, western regional banks in play and the s p 500 etf ticker kre, up 2 right now. Well see if the gains stick as we head towards the fed meeting. Send things back over to you. Thank you very much and with less than an hour to go now, the Market Pricing<\/a> in a near 90 chance of a quarter point Interest Rate<\/a> hike, but could investors be getting this one wrong . Steve liesman, just a few miles away at the Federal Reserve<\/a> with what to expect hey, steve yeah. Maybe people think the fed is getting this wrong the fed expecting to hike for the tenth straight time amid unusual and strong opposition to this move from former fed officials and observers and a lot of concern in markets over regional banks heres what you might call the cause for a pause. A couple exfed Bank President<\/a> s saying dont hike, the cnbc fed survey, 59 say a hike would be a mistake, banking stocks saying theres trouble ahead and the fed staff and minutes saying theyre looking for a recession because of banking concerns. The case for a hike the economy running hotter than the fed would like, the job market a surprise pause could spook markets thinking the fed sees data showing the situation is worse than the markets believe, even though they think they believe the Bank Situation<\/a> is bad. A pause by the fed would buy time for banks to get their Balance Sheets<\/a> back and keep the situation from getting worse and also likely have little impact on inflation because many of those hikes take time to filter in the economy if the fed hikes markets believe this will be the last one. The year end contract, 437 rate on the year end, 75 basis points of cuts built in from where the market thinks the fed will be at the end of today whatever the fed does, the expectation is that its pretty quickly going to turn around and undo it. Let me ask you a question, apart from the banking issues you mentioned there, among those 59 or 57 of people who you said dont believe that an Interest Rate<\/a> hike is appropriate, is that in part because they feel that the prior rate hikes, the 9 that weve had so far, have done the job in retarding inflation certainly some believe theres quite a bit of tightening by the way the tightening from the past is showing up in part on whats going on in the Banking System<\/a>, part of it is theyre going to get you already had, by the way, tighter credit standards even before svb failed the expectation in the survey is credit standards are supposed to get tighter from here and theres going to be a big impact on main street the big banks and companies in the s p are not going to have trouble getting loans. Small, medium sized bus, if the regional banks cut back on credit they will get hurt. Great point thank you very much. First lets get to our i should sayl lets get to our first panel. One says no hike necessary, one says a quarter point is warranted and one says a half point. Jamie cox, harris financial groupss managing parter, also societal general rate strategy and bill lee, welcome all of you. Jamie, which camp . Do not hike. Really . Do not terrorize the Banking System<\/a> anymore were on the precipes of maybe getting into the meat of many of the regional banks, so the fed has the ability to kind of fix the problem it has created if you think about it, the overnight reverse repo facility takes in 2. 2 trillion thats actually more than the gdp of south korea and that could be fixed very easily by the fed reducing the rate it pays on the reverse repos from 10 basis points to 25, restore deposits that are actually running out of the Banking System<\/a> and restore some stability. At the same time, they could also cut stop cutting rates they need to or were going to be in trouble with regional banks. Let me ask you, did the fed cause the banks problems or the bankers . I think the fed is directly responsible. It wasnt the fed that caused those bankers to load up on longterm treasuries, and it wasnt the fed that was engineering that or keeping deposit rates low. If you go back to 2019, when joe m Jerome Powell<\/a> pivoted, we flooded the banks with reserves and they invested in treasuries, highquality asset and then they did it again with persistent, persistent through the pandemic, persistent reserve increases all right. Now they raise rates really, really fast and basically bury the banks and made them technically insolvent. Its a problem the fed started its a problem the fed has now created a big mess with. Its a problem the fed can fix they need to do it before it becomes an even bigger problem than it is. One more point before we move on the regional banks are green today. Problem solved what do you make of this trading behavior where yesterday we saw declines and today started out that way and the tone changes into a fed decision no less . For the past, i dont know, probably three to four weeks youve seen this back and forth, you know, multihigh percentage point gains and losses day by day. Thats not normal in banks thats not normal in any i kwaulgts asset that tells me that theres a big problem that needs to be fixed i think we need to deal with it before it becomes a problem. One last thing, 500 billion of banking, you know, problems, its bigger than the Global Financial<\/a> crisis we had three banks represent a bigger hole in the Financial System<\/a> than we had during the financial crisis that is only going to get worse. Bigger than 2008 . Exactly. Bill lee, give the rejoineder to jamie, on the other end of the spectrum and think the fed will do 25 basis points or a quarter point, but you think they should do 50. Why . We dont have a banking crisis the supervisors have allowed badly managed banks to continue when they should have shut them down lets remember, banks account for only 11 of total corporate financing. Yes banks are important for Small Businesses<\/a> and thats where we think the channels are going to hit the fed is worried too strong of an economy because consumption is too strong. Investments have turned down, real estate, but kunl summion is not. The Unemployment Rate<\/a> 3. 5 and people are not worried about their jobs if we have small regional banks start to contract their loans that will hit Small Businesses<\/a> the most and that will hit the labor market and finally get inflation to start slowing down by slowing down consumption. The channels are going exactly the right way, if we allow the banks to contract on their loans. To get rid of inflation we need more tightening to get people to stop spending so much. So if you look at reference rules, theyre calling for 6 . For me to say another 50 basis points is warranted is really somewhere between where the market is pricing and where the rules are pricing. Back to the point on banks, do you think we have a problem with regulators or regulation . In other words, are the rules wrong or is the application of the rules insufficient bingo we have a crisis in supervision. We have a lot of rules and the rules are designed to look at the banks that are the most systemically important ones and look at them carefully the ones that are smaller, they pay less attention to. The banks that failed put a hole in the Banking System<\/a> in crypto currency areas, in Silicon Valley<\/a> venture capitalists and rich people at First Republic<\/a>. These are very, very narrow focused banking models regional banks that help Small Businesses<\/a>, Community Banks<\/a> that help minority businesses, theyre still doing very well. What is a shame is the Federal Reserve<\/a> didnt say our supervisors fell on the job and were going to fix that and make sure that every bank out there is doing the job well and if theyre not were going to shut management down. We think we would calm the markets. Lets talk about inflation for a minute because thats the argument the people in the bill lee are making, if the fed backs off theyre making an inflationary mistake is that true the break even and other measures, Inflation Expectations<\/a> look contained, oil collapsing, Consumer Credit<\/a> taking a while to work through here, what do you think we might see pce or cpi or pce in a couple months time yeah. I think that both jamie and bill make very, very good points, and highlight the difficulty that fed is facing on Monetary Policy<\/a> on the one hand. We have very hot inflation and what it is about is raise aggressively and to put a lid on inflation. On the other hand you have the Regional Banking Crisis<\/a> and Financial Stability<\/a> concerns thats why we think a 25 basis points rate hike which is what the market is priced in for, makes a lot of sense the trajectory for inflation is that you should see inflation gradually decline, if the fed doesnt act aggressively on the rate hike and they pause, they might not be able to achieve their inflation goals. In some respects the fed has to hike in order to keep a lid on inflation. The broader for pc, for the upcoming months and the end of the year is the disinflationary path we end the year still around 3. 5 thats still pretty high and pretty much higher than i dont know. But is that i mean 2. 5 , is that worth risking the kind of credit crunch were worried about here youre talking about the quarter point rate hike . If inflation is going to be 2. 5 on the core number by the end of the year cant they kind of back off here and say maybe Financial Stability<\/a> thats what former fed members have been saying all week long, maybe Financial Stability<\/a> needs to take more precedence here. But you dont have anything in the data that shows we are on a path to disinflation if anything the cpi prints have been in line with consensus. Shelter costs are running high, inflation is still pretty strong and the labor markets are strong as long as people are employed, inflation is going to continue to come under pressure and the only way to put a lid on that if they continue to raise rates thats going to have an impact on the Financial Assets<\/a> within the regional banking sector. The rate of inflation has come down dramatically, right . It has, but not anywhere near what the fed would be comfortable with what they want to achieve is get to the 2 inflation target they dont have pc getting below or at 2 even at 2025 theyre expecting a gradual path of disinflation over the next couple years any turmoil in the markets you could see erratic behavior you need to see the Unemployment Rate<\/a>, unfortunately go up for inflation to start to moderate. All right jamie, back to you, final it thought. If im the fed i would rather be blamed for supervision failure than be blamed for bringing down the Banking System<\/a>, so to me, i think that the fed is lucky if they get blamed for supervision problems. Is this a richmond thing . Its bad in richmond, jamie, that much worse than other parts of the country where other guests are. Things are fine in richmond i worry about Middle America<\/a> i work with ordinary people and Small Businesses<\/a> and they are going to suffer the theyre going to take the brunt. Are they feeling it already. I dont think its happened yet, but i think its going to and people are not ready for what will happen and i think thats the problem normal ordinary people will pay the price for the bad decisions of, you know, people who run these large corporations everyone agrees the goal is to help them but the fed would say thats why were fighting inflation. I dont find myself on the same side of Elizabeth Warren<\/a> on all things, but i find myself with her on the need we will tell you you are on her side when she arrives in an hours time. Perfect. Thank you very much suebatra and bill lee. Thank you. Just Getting Started<\/a> on the fed decision. What higher rates mean for main street and your money as the fed fight against flation continues. Elizabeth warren and john kennedy will join us in studio to discuss the fed decision, debt ceiling debate and Regional Banking Crisis<\/a> and Stock Ownership<\/a> by members of congress, all of that coming up in the show. As we head ahead to break, your markets into the fed decision about 45 minutes away the dow up 42, the s p up, the nasdaq up half a percent the russell 338 on the 10year, 44 minutes to go were back after this. Whats the next chapter . Thats the real question. With fidelity income planning, a dedicated advisor can help you grow and protect your wealth, even when youre not working. Theyll look at your full financial picture and help you create a flexible strategy designed to balance Growth Potential<\/a> and guaranteed income. So you can stop worrying about the future and enjoy the life youve created. Thats the planning effect. From fidelity. What if you could make analyzing a big banks data. No big deal . Go on. Well, what if you partner with ibm and red hat, use a hybrid Cloud Solution<\/a> to connect data across multiple systems globally, then analyze all that data with watson. Okay, but this needs to meet our. Security standards . Yup. Compliance standards . Mmhmm. So they get the insights they need. Yup. In real time. Check. To make quick decisions . Check. Aaaand check. Thats the hybrid Cloud Solution<\/a> ibm and a global bank created. What will you create . Ibm. Lets create. Welcome back to our special edition of the exchange. About 40 minutes away from the decision on Interest Rate<\/a>s where the fed largely expected to make its tenth increase since march of last year the consumer already feeling the impact, and from what you pay for your mortgage, car, rate on your credit card, personal loons, lines of credit, has gotten expensive as Household Debt<\/a> rises and savings decline for more on the implications of Consumer Spending<\/a> in the economy were joined by davids weal, senior fellow in economic studies at the Brookings Institute<\/a> and chief analyst greg p mcbride. Its easy to look at Interest Rate<\/a> levels and hikes in an abstract way, but they are real. They translate into real dollars on peoples budgets. Take us through some of the numbers with respect to, for example, home equity lines of credit, mortgages, lines of credit, credit cards and whats happens happened we start with Mortgage Rate<\/a> Mortgage Rate<\/a>s last year the increase for would be buyers of enough affordability into a 30 increase in home prices even though Mortgage Rate<\/a>s have been stable lines of credit, after that run up in home prices americans are sitting on more home equity than theyve had before, but its no longer a low cost proposition with the cume lasive impacts of these rate hikes, the 5 equity line you had is now going to hit double digits and in terms of your servicing that debt the minimum payment is now 200 a month more than it would be before the fed started to raise rates. Perhaps the most important headlines as well is going to be the deposit rate, right. When all the water cooler talk is about hey, guess what you can get on the new apple savings account or what you can get on t bills f that gets worse, the bill ackman warning, if the fed hikes again and people get tantalized by money market funds or yields outside the Banking System<\/a> and moving their money, you kind of, i dont know, keep the deposit flight going thats ban problem. I think thats risk for the banks and theyve been slow to raise Interest Rate<\/a>s they have a lot of reserve at the fed so if they need to pull them out they can. The bottom line here is, this is what the fed thing was designed to do, not to unsettle the Banking System<\/a> but make borrowing more expensive to people spend less. In a sense its not an accident that this is happening and its surprising, actually, as you made a point earlier, tyler, so many of the bankers seem to be blindsided by this. Are you seeing as you do your studies in the economy consumers spending less . Not much. Thats one of the things keeping the fed on the rate rising track, is that so far, Consumer Spending<\/a> has been surprisingly strong, in part perhaps because the job market has been strong. Responsible for the job openings and excess openings, huge surge in new business formation during the pandemic, they hire a lot, where higher loan rates are felt, 9, 10 changes the equation for them. Thats the problem for the regional banks and Smaller Banks<\/a> where Small Businesses<\/a> are more likely to get their money. What i expect is, weve already seen job Openings Begin<\/a> to come down and i expect thats some of what you said, that Small Businesses<\/a> are getting unable or reluctant to hire. Are you seeing consumers slowing their spending and whats happening, for example, with credit card balances . Credit card balances have continued to go up theyve gone up along with Interest Rate<\/a>s going up. Thats pretty volatile mix more people carrying larger balances at ever higher Interest Rate<\/a>s and in terms of the spending, you know, the Consumer Spending<\/a> has been strong, as david noted. The Unemployment Rate<\/a> low where people have paychecks they spend money. When you look at some of the things like retail sales and you adjust that for inflation, it becomes apparent that people arent spending more, theyre spending more to get the same amount adjusted for inflation, theyre not spending any more than they had been theyre not buying more stuff. Theyve had to fork over more to get the same things they used to get a year ago. Household Balance Sheets<\/a> are still in pretty good shape this is not like some previous periods where the households had run up huge amounts of debt relative to their assets thats a plus. Their savings rate had gone up. Some of this is still residue from the aid that the government gave during the pandemic or peoples inability or conservativeness in spending. And then, craig, the same question to both of you, could the banks have saved themselves a lot of pain if they had raised deposit rates commensurate with the raising of Interest Rate<\/a>s . David . Well, obviously, they have less run off. They would have less flight. The banks made two mistakes they had too much money in uninsured deposits and too much money in low rate loans or securities and thats the basic problem i dont agree that the fed somehow caused this. Yes, if Interest Rate<\/a>s hadnt gone up so much the banks would be in better shape, but its very strange to me that banks were so blindsided by this. Real quickly before we turn to you, i did think it was striking that on february 14th the fed board got the presentation by staffers that said this is the problem the Banking System<\/a> faces, slide 7 lays out how svb is the biggest problem child. They had a month or so to prepare for what could have been coming should they have been more prepared . Absolutely. I think, you know, the michael barr report, vice chair michael barr, somewhat selfcritical, they moved too slowly and they wont make that mistake again. Greg, do you think that bankers if they raised deposit rates would have saved a fair amount of pain here, whether the regulators, the supervisors were lacks or asleep at the switch . The case of the isolated instances where banks have failed, yeah, maybe that would have again, it erodes their business model. Look at First Republic<\/a>, a lot of their Loan Movement<\/a> in fixed rate mortgages at 3 , you cant make money borrowing at 5 and lending at 3 the big banks, they havent raised deposit rates and doing just fine, thank you very much so again, i think this is really a very individual bank type circumstance particularly with those that have high level of uninsured deposits they were prone to that. Greg, thank you very much greg mcbride and davids weal, thank you. Looking for advice on how your business can handle inflation and navigate an uncertain economy, not too arthritis sign up for cnbcs Small Business<\/a> playbook event. Scan the qr code on the screen im going to stretch this, kelly, so people can get out their phones and scan the qr code or go to cnbc events. Com. To Bertha Coombs<\/a> for an update. Heres your cnbc news update at this hour waiting on it there, there we go they are proposing a blanket prohibition on meta that would prevent the company from profiting on data it collects on users under the age of 18. Meta has 30 days to respond. The ftc says the move comes after meta failed to comply with a 2020 privacy order aimed at protecting user data and for misleading parents about its messenger kids app meta calls the move a political stunt saying the ftc is trying to usurp the authority of congress that sets industry wide standards. Eli lillys alzheimers treatment showed the ability to slow disease progression in patients in a late stage trial almost half of the patients taking the treatment showed no clinical progression of memory loss after one year. Lilys ceo says the company will file for fda approval by the end of june. Well see what happens with that approval. The stock is up 6 . Theyre headed towards a 400 billion market cap promising drugs in alzheimers weight loss, the two hottest areas of the market. You can see shares of lily thank you. Meantime a programming note, dont miss Berkshire Hathaways<\/a> Shareholder Meeting<\/a> saturday may 6, catch it live on cnbc and drns. Com. From the fed decision a debt ceiling shutdown, not a slowdown, showdown on capitol hill, john kennedy from louisiana is near studio to weigh in on all of that and more on a busy day inside the beltway. We are about 33 minutes away from the fed decision. Welbeacafr isl bk teth next to no interest, the fees. It was just take, take, take. So i broke up with bad banking and moved to sofi checking and savings. Now i get higher interest, pay no account fees, and get my paycheck two days early. Get up to 4. 20 apy, pay no account fees, and up to 2m in fdic insurance. Download the sofi app and earn up to 250 when you set up direct deposit. 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Learn more and view Important Safety Information<\/a> at inspiresleep. Com. Welcome back to our special coverage of the fed decision live from washington another quarter point hike widely expected despite the collapse of First Republic<\/a> bank earlier this week the second largest in u. S. History. A few days that happened not to mention a potential u. S. Debt default, leading Economic Indicators<\/a> flashing signs of a slowdown joining us, senator john kennedy of louisiana the Senate Banking<\/a> and Appropriations Committee<\/a> and judiciary committee, you are a busy fella in about a half hours time Elizabeth Warren<\/a> is going to sit in that and chair and say, i suspect, the fed got it wrong by raising Interest Rate<\/a>s by a quarter point, would you agree or disagree . I would disagree. Look, elizabeths whip smart, but we dont agree on the economics. Forget the politics. We dont agree on the economics of this. To tame inflation, were going to have to raise Interest Rate<\/a>s. We would not have to raise them as high, as ive explained or tried to explain to elizabeth, if congress would reduce the rate of growth of spending and debt accumulation. Thats not just kennedy saying that thats history since 1950 weve had ten periods of disinflation where it was too high, we got it down, we never succeeded without attacking the problem on both the monetary side or and the fiscal side so in effect, what im saying is, that if you vote against reducing the rate of growth of spending and debt accumulation, you are voting for higher Interest Rate<\/a>s powells going to have to raise rates much higher than he normally would have if congress would slow the stimulus of spending. But there is little appetite, apart on the gop side theres appetite for cutting spending, but they talk a good game, but they talk a good game. For a lot of my republican colleagues, you know, its like going to heaven. They all want to go, but they dont want to take the trip. Right now. They want to wait a while. Theres a lot of hypocrisy you cant have it both ways. Look, powells going to get inflation down he may have to raise rates as high as 8 to 10 i wont take the time now, but i can explain to you why thats realistic. But the more we can do on the spending side to help powell on his side, the less hes going to have to raise Interest Rate<\/a>s keep in mind, this is not just a sterile statistic. Were talking about putting people out of work. Sure. This is this is flesh and bones here. Its great point, especially go back to look at 2021, when you had both fiscal and monetary full blast and get to 9 cpi. We lose sight of that. I dont want to ask you this but i have to. Ask me anything. The debt ceiling, even if you want to force people to restrain spending, is the debt ceiling shutdown what economy needs right now . I hope we can avoid it. Im not going to vote ultimately not to pay americas debt. Look, i didnt vote for a lot of this debt, but it was it was incurred lawfully, and im not going to vote to default but you can have that position and at the same time, understand the way that the debt ceiling and inflation are inextricably linked through spending, and im going to i mean, President Biden<\/a> you dont have to be material to figure this out. President biden said the republicans dont have a plan. Now we have a plan now its time for him to sit down with mccarthy and have an adult discussion about how you allocate scarce resources and reduce inflation and i dont think you can do it without reduce the spending and debt. The speaker and the president will meet next and presumably begin this conversation. How would you break the logjam around the idea that democrats want a socalled clean debt ceiling release or change, tied to nothing in terms of spending cuts how do you break that . Let me say first, nothing is going to happen in the senate. Theyre not 60 votes either way. Were waiting to see the house, whats going to happen with the house and the president. I think its clear that the house is going have to give some, but the president has to give some. If he thinks mccarthy and the republicans in the house are just going to agree to raise the debt ceiling without slowing the growth of spending hes in la la land. What are the hints we need to be watching for that some progress is made what language on both sides tells us they talked about this and that means theres negotiation talk i dont know the hint i think mccarthy will be pretty candid hes already told me and others hes not going to negotiate this deal in the press, but i think kevin will be very, very frank the president will have his economic advisors around him i just dont know, maybe President Biden<\/a> thinks the house will blink. His job is in the balance here if he alienates, what i guess you call improvident deal making, in front of the base of his party theyll kick him out. I was impressed with the job the speaker did. We all watched the his election, went through 16, 17 ballots, i was impressed he got anything through. Are you having any banks in louisiana or those who feel like they have your ear, are they calling and saying hashgs, its really bad here, and you got to get them to, you know, back what or other constituents . We had the cfo counsel here at cnbc, the cfos were told you tell your senators, congressmen the slowdown is coming, tell them youre worried about it and what fed or, you know, Congress Needs<\/a> to do . What are you hearing from your constituents about it . I understand what youre saying about inflation but the banking problems there and imminent signs of a slowdown . Let me tell you about the banking problem in my opinion, i sit on the Banking Committee<\/a>, take Silicon Valley<\/a> bank and First Republic<\/a> i dont know whether it was the stupidity of management or the agreed greed of management or hue hubris of management, 75, maybe 85, 90 of that problem was one or all three okay that they made a bet, without hedging the bet. You didnt have to be at the time you didnt have to be einsteins cousin to see the Federal Reserve<\/a> was going to raise Interest Rate<\/a>s duh. They not only did it in increments, but they said they were going to do it. These two banks were sitting on assets, in one case long bonds, and in another case, cheap by the bank standards loans, that were going to go down in value. Let me point out there were 31 banks that had negative tangible equity as of the Third Quarter<\/a> of last year. Youre right. Theres about 600 billion out there in long bonds that are under water that are held by banks. But banks also Pay Attention<\/a> to the sources of funding and theyre deposit base. Thats in motion now. How do we undue that heres the risk if not for the contagion, what we should have done with Silicon Valley<\/a> and First Republic<\/a>, say to their management, youre like a rock only dumber waecell letu fail the reason we didnt we live in the world of instant contagion. I know were over your time here do we need to raise the fdic limit now either broadly or just for payroll accounts or something to put this now crisis in motion . Thats a good question. I wish i had a good answer i dont know how i feel about it i know the world is different now with technology and the way we can communicate so quickly, and banks exist on the basis of trust. Theyre really just, dont take this the wrong way, sophisticated ponzi schemes, and they work when everybody trusts each other and you get on that iphone and start sending Text Messages<\/a> and you have a you have the herd panic and stampede, anybody can go broke. The speed of transmission is completely its breath taking. Senator kennedy, thank you for being with us. This is fun. You bet it was fun. Unless youre a banker maybe. Yeah. Dumb as a rock. Theyre dumb as a rock. Ponzi schemes. The bankers will be okay. They usually are. Senator kennedy, thank you. Thank you coming up we will hear from another Banking Committee<\/a> mentioned, the aforementioned senator and outspoken powell critic Elizabeth Warren<\/a>. The average Mortgage Rate<\/a> fell last week but didnt translate into an uptick in demand why the alwethy are starting to feel the squeeze thats next. Stay with us that goes as far as it does fast. As sleek as it is spacious. As smart as it is beautiful. Introducing lucid air. Experience the best. Im over 45. I realize im no spring chicken. I know whats right for me. Ive got a plan to which im sticking. My doc wrote me the script. Box came by mail. Showed up on friday. I screened with cologuard and did it my way cologuard is a oneofa kind way to screen for colon cancer thats effective and noninvasive. Its for people 45 plus at average risk, not high risk. False positive and negative results may occur. Ask your provider for cologuard. group i did it my way you got this. Lets go. Gobble gobble. Ive seen bigger legs on a turkey rude. Who are you . Im an investor in a fund that helps advance innovative sports tech like this Smart Fitness<\/a> mirror. Im also mr. Leg day. 1989 anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. I go through a lot of pants. Before investing carefully read and consider Fund Investment<\/a> objectives, risks, charges, expenses and more in prospectus at invesco. Com. Lily welcome to our third barkery. Oh, i can tell business is going through the woof. But seriously we need a reliable way to help keep everyone connected from wherever we go. Well at at t well help you find the right wireless plan for you. So, you can stay connected to all your drivers and stores on americas most reliable 5g network. That sounds just pawfect. Terrieriffic i labradore you round of apaws at t 5g is fast, reliable and secure for your business. At pnc bank, you can find us in big cities and small towns across the us, where our focus is to always support the people who live and work there. Because you call these communities home, and we do too. Pnc bank. Welcome back to this special edition of the Exchange Live<\/a> from washington. Were less than 20 minutes away from the feds decision on Interest Rate<\/a>s mortgage demands continue to be erratic. Rates dipping slightly last week but recent Bank Failures<\/a> are complicating the housing market. Diana olick joins us on set. Thank you for inviting us to washington. Always lovely to have you. My home is your home. Mortgages, demand from home buyers fell last week down 2 for the week and 32 from a year ago despite the fact that average rate on the 30year fixed for conforming fell. The spread between conforming and jumbo rates, jumbo higher balanced mortgages, has been shrinking as banks which hold the loans have had less of an appetite for risk not to mention liquidity issues so the spread 13 basis points last week after as wide as 64 boasis points in november of last year. Whirts Mortgage Rate<\/a>s dont follow the fed funds they are influenced in december of 2021 when powell started talking about raising rates, the average was 3. 25 by the first hike, up to 4. 25 , june 6 and by the end of last october, peaked at 7. 37 all according to mortgage news daily. If you were buying a 400,000 home, around the National Median<\/a> price, 20 down, your Monthly Payment<\/a> went from 1380 in december of 2021 to 2,039 today. Thats a difference of 659 a month. Thats real money and that led to the downturn in home sales and home prices for much of last year. The rates and numbers keep buyers on the sideline and sellers in their houses. Who wants to trade a 3. 5 Mortgage Rate<\/a> for a 6. 5 Mortgage Rate<\/a>. Paying more for the same amount of debt keeping so many potential sellers on the sidelines. Im still obsessed with the spread, right. If we can get the spread between Mortgage Rate<\/a>s and the 10year down, that would go a long way. Unfortunately theres so many other issues, the fed getting out of buying Mortgage Backed<\/a> bonds, the lack of supply in the housing market. All comes back to the fed well see what they will do in 15 minutes thank you. Coming up, we are about 16 minutes from the Rate Decision<\/a> and we could be weeks away from a u. S. Default the latest in the partisan fight to raise the debt ceiling and why an agreement might not be great for the stock market we have that next. Dow up 41. A dedicated advisor plan, can help you grow and protect your wealth, even when youre not working. Theyll look at your full financial picture and help you create a flexible strategy designed to balance Growth Potential<\/a> and guaranteed income. So you can stop worrying about the future and enjoy the life youve created. Thats the planning effect. From fidelity. vo verizon Small Business<\/a> days are back. April 27th through may 3rd. Get a free tech check and special offers. Like a free 5g phone. Get started today with verizon business. Its your business. Its your verizon. Welcome back, everybody. A little over ten minutes now from the feds latest Rate Decision<\/a> and not the only thing looming large in washington. With the debt ceiling debate raging in congress, janet yellen said the u. S. Could default as early as june 1st. Our next guest says for the first time in 35 years, rate hikes are impacting the federal budget, raising Interest Rate<\/a> costs on our debt and raising the ceiling is the first in a period of coming austerity joining us is dan clifton. Welcome. Thanks for having me. Lets talk about the 14 figure thats a good way of thinking about this. You have some good work on this. We went back in time and said whats the debt servicing cost to the u. S. Government and when the debt servicing cost hits 14 of tax revenue we move into a period of austerity. We were there from 1981 all the way to 1994. We have not been there since 1994 we have low inflation, servicing rate, allowed to cut taxes, increase spending an didnt cease any of the burden. Now we have the rising interest cost because we had inflation. The debt ceiling is the opening course for a longer period of austerity. Were at 12 of interest cost to tax revenue and well be at 14 Pippa Stevens<\/a> by the end of the year how do you avoid a default bit start getting our it debt trajectory in a better place to come out of this is austerity. You have the situation where rollover debt is going to be everybody has to pay more so that raises the servicing cost on the debt. How do you then avoid that austerity, or if you have that austerity, what does the austerity look like and what does it mean absolutely. I think were in the first course so what were trying to do is get Economic Growth<\/a> as high as you can. The best way is growing your way out of it. Were not going to be able to do that as we talk about the debt ceiling, were probably going to have a deal that limits discretionary spending, gets rid of the covid funds this is the low hanging fruit of washington whats happened now is that we have two trust funds that are now going to be exhausted in the next tenyear window and hasnt happened since 1981. Youre going to have to have larger reforms in 1981, we saved social security, by making sure that we raised taxes and cut benefits. Thats where were going to have to go we wont go there until after the 2024 election. The bad news about we are not going to be able to cut. We have a double whammy coming double stimulus in 2021. Now were seeing both fed tightening and tax hikes in order to fund these deficits we can wonder whats the cushion or stimulus going to be if the economy worsens. 2025, all the trump tax cuts expire income tax rates, estate tax, state and local tax comes back in so theres a catalyst built into the system and that will be the big market issue for 2025. Were going to hobble along until we get to the election, get the debt ceiling out of the way then maybe well do a little bit on the Child Tax Credit<\/a> just to make families feel better ahead of the election. Once we get into 2025, i dont know who would want to be president because these are challenges we havent faced in 40 years and were going to have to deal with these challenges. Plus, a debt ceiling raise or suspending, does that happen before the ex date i think before the end of the deadline we may two two parts a spending framework, raise the debt ceiling then fill in by the end of the year. I think the big one for markets will be this first one the president s dug in the speakers dug in is there a way to engineer it so President Biden<\/a>, i dont want it tied to spending cuts is there a way to make it happen i think the twostep process does that. Theres a wink deal we agree were going to do some cuts here, but its going to be separate i dont care how we get there. Just want to get there policy is kind of simple once you get into the arena what do you think is going to happen with deposit insurance . If you remember in 2008, sheila bayer was able to exempt it at the banks. Dodd frank now says congress has to even for payroll . Because on monday morning, washington thought the banking issues were involved what were learning is that its not. As these issues continue to grow and theres risk to employers on their payroll i think youll start to see more stream gradually lifting. What were doing today, having large banks buy regionals is not exactly a sustainable strategy dan, thanks for joining us. Appreciate it. Minutes away from the feds decision our special vegecora from d. C. Continues on the other side of this break well be right back. Like a free 5g phone. Get started today with verizon business. Its your business. Its your verizon. Your shipping manager left to find themself. leaving you lost. You need to hire. I need indeed. Indeed you do. Indeed instant match instantly delivers quality candidates matching your job description. Visit indeed. Com hire welcome now to power lunch as our special fed coverage continues. Were a few minutes away now, about five, from the release of the feds statement. Heres where markets are. Dows up 31 points nasdaq up 56 with a half percent gain today s p up 11. Markets not really leaning into the fed here. Lets bring in our Panel Christian<\/a> bitterly welcome. And david kelly, jpmorgan chief global strategist and jim charn, mo mo Morgan Stanleys<\/a> co ceo. Jim, you put a stake in the ground and say the fed will raise rate, but that will be it. Why do you believe that . I think we all know what the issues are now in the economy. Obviously some of the small banks and we are starting to see slowing. So i think its time for a pause. The question though for me is that the markets right now are priced as if the fed is making a mistake. Theres going to be cuts immediately after that the way i see it is that the fed is going to have a hawkish pause. So the key is to listen to the press conference see how the fedex p explains ths david, your reaction. I still remember what you said when we began this seek l and history tells you that the fed usually goes too fast, too far, for too long is that whats happening here and what do you think will happen today yes, and to jims point, i think theyre going to stay too tight for too long before they have to cut rates aggressively in 2024. I agree theyre going to be 25 basis points today i think theyll change the Forward Guidance<\/a> in a Statement Last<\/a> month or march suggested they were likely to see a further increase. I think theyll assess to see whether they should make any further adjustments, but i think theyll make it clear they could be done. I think theyll also try to make clear that they have no intention of cutting rates between now and the end of the year thats their plan. I think theyll change it when they see negative payroll later on this year, which i think is quite possible i think theyll stick to it for too long and have to cut more aggressively next year kristen, where do you come down on this debate . We see a 25 basis point hike today and were very hopeful thats the last. We believe they should pause i believe chair powell is going to keep his options open our biggest challenge in this and why weve been defensively positioned is when you look at the leading indicators, they have declined by eight percentage point which is in any other cycle, would have been a signal to the fed to pause this is something that leading versus lagging indicators, what are their benchmarks, north stars . I think one thing hell reference is tightening Credit Conditions<\/a> we expect commentary about the reg regional banks david mentioned the labor market we got news earlier this week that job openings declined sharply. Is that kind of to use the cliche, a canary in the coal mine that some of the effects of higher rate rs really beginning to dig into the economy . Undoubtedly look, were supposed to have a slowdown when the fed hikes rates. Thats what were seeing the thing thats been keeping the market somewhat afloat is that the labor market has been strong socompany earnings have been holding up okay its only a matter of time before that starts to deteriorate. The question is how long and how deep thats going to gauge what kind of recession we may have thats really the key point here i think powells going to really balance the tight labor market conditions, sticky inflation but also the need to say theres enough hikes in the pipeline that it will do the job. And we should remind everybody we wont get the projections today so a little less information than in other meetings that said, its always the statement, the language in the statement then the press conference with chair powell david, i guess theres questions about whether theyll use the word yet in their statement to indicate flexibility about rate hikes or not hear. And well come back to you in a moment because Steve Liesman<\/a> has the fed decision here in just a couple of seconds time will it be the quarter point raising by one quarter point bringing the funds rate up to five and quarter percent the Federal Reserve<\/a> offering i guess i would call it strange somewhat hawkish Forward Guidance<\/a> less than the last time. The fed saying it is determining whether additional policy firming may be appropriate thats a change from the prior move it removed where it said it anticipated firmer policy. 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