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Want to welcome in now Threadneedle Ventures founder Anne Berry, as well as Greg Daco EY Chief economist. Welcome to you both, Greg. I'll start with you. All right, so the Fed just go with the supersized route, half a point. Was that your expectation, Greg?

It was not my expectation. I was expecting gradualism would win the day, but the Fed decided to go big or go home. I think that shows that Fed chair Powell was the leader in terms of this openness to larger rate cut managed to convince his colleagues, who up until very recently were talking about a methodical approach to easing monetary policy. I think that is the right decision though, even though that's not what I was expecting. I think going larger with a 50 basis point rate cut allows the Fed to catch up to where it should have been in terms of placing monetary policy in a much better strategic position approaching the slowdown that we're starting to see in the labor market.

What do you think, Anne? Do you agree that 50 makes sense?

50, whether it is this time round or two 25s in my mind, it doesn't make any difference. I think it's about the 100 basis point reduction over the longer term. But this does raise a question for me. Historically, 50 basis points came before a recession or fears of a recession. So this voice over, is this the time where that is no longer the indicator it used to be or do we do we hear from Fed J. Powell that things are weaker than we thought?

Greg is the resident economist here. When you look at the economy right now, do you see cooling or do you see something more ominous on the horizon?

I see something of a softening in terms of economic momentum, not a retrenchment. The key reason, and we've talked about this in the past, is because the labor market is not showing any signs of retrenchment. You're still seeing employers valuing the value of talent, you're not seeing any broad-based layoffs. That's still supportive of steady growth in terms of employment, which in turn is supporting income and in turn consumer spending. But when we think about the economy, the Fed has to be a bit forward-looking. So what it's doing right now is catching up to today's economic conditions because I think it was behind the curve focusing too much on old data and the fear of inflation reigniting. And now adjusting its policy setting to be able to more strategically respond to any further slowdown in economic activity. I'm a little bit surprised, to be honest, that it's only showing that dot plot is only showing 100 basis points of rate cuts since they went with 50 at this meeting because that means only two 25 basis point rate cuts. How is the Fed going to communicate this intent to go back to 50 to 25 basis point rate cut increments at the November and December meeting?

And do you think when we talk about the rotation that certainly has started to take place, and we talked about the inflows especially over the last couple weeks into more of the defensive plays, when you talk about real estate, consumer staples, utilities, a cut like this with 50 basis points, we're seeing the Russell 2000 spike just a little bit here. Is that going to then add a little bit more juice to that rotation that we've already seen take place?

I think it really depends on what the voice over is. Is this 50 basis points because J. Powell made made the judgment that the consumer needed the help or was it 50 basis points because the assumption was the consumers really resilient, actually, the economy is doing a little better than we thought and inflation is under control. So let's give it the juice while we can. Until we get clarity on which way the argument falls, they think it's very hard to know how this rotation's going to play out.

Do you think are there risk, Greg, to going 50 that you can see? You've you've laid out kind of the positive case. Would there would there be risks that you think investors need to consider?

I don't believe in the risk that the Fed is signaling anything that we don't know about. If anything, the Fed has been extremely That was one that was one question where investors would say they would do 50 and people saying yikes. J. Powell must see something. They're panicking. Yep. They're not panicking. I think Fed chair Powell is very much aware of the situation in terms of the economy cooling, not falling off a cliff. And this type of rate cut is really a catch-up effect of realizing that both sides of the mandate are now as important, that was in the statement, equal weight to both sides of the mandate and that we have to pay a little bit more attention to the slowdown in the labor market. So I don't think this is a signal of any reason to panic, but I do think it's very important that the Fed and Fed chair Powell during the press conference focus on a forward-looking framework. Data dependency is done. We should get rid of that and now focus on a forward-looking perspective and have Fed chair Powell communicate where they believe neutral monetary policy is, not in four years, which is in the dot plot, but today and how do we get there.

Greg, what is your assessment of the labor market because when you take a look at these projections, they're now seeing unemployment at 4.4% compared to just 4.2% today. Not significance, significantly more weakness, but but but is this something that investors at economists are a bit worried about?

I do I do think it's something to be concerned about. I mean, we have rarely seen, and Anne, you mentioned that, we have rarely seen an environment where the unemployment rate just rises gently and then stops and then comes back down. Generally speaking, there is momentum in a rise in the unemployment rate. That's why we have the Sahm rule, that's a good indicator of historical downside risks to the economy. Um, and I think we have to keep in mind that while the value of talent has increased, and while employers are being very cautious with who they hire, how they hire, and how much they lay off, there is still the potential for more pronounced slowdown in economic activity and a more rapid turn up in the unemployment rate. And I think one key highlight in the the latest projections is the fact that the unemployment rate was revised up by four-tenths. That's a massive upside risk in terms of the forecast.

And there there was one school of thought out there by some market watchers, which said J. Powell was going to cut 50 because the financial markets expected 50. And J. Powell didn't want to wake up tomorrow morning, have a cup of coffee, open the paper and say, and the headline is, you know, J cut by 25, disappointed stocks plunge. What do you make of that?

I think J. Powell's being pretty immune to that sort of pressure to play to the market's expectations. It's water off a rock. He doesn't feel it. And I think that's his super power. I think that's been his strength. And I think there's, you know, two forms of pressure. There's the pressure of Wall Street expectations, the pressure of accusations around jumbo cuts before the election. Right, that's another pressure we haven't talked about. I think what he's done there Do you expect political blowback on that?

I do think there's going to be some discourse around it for sure. Again, let's see what he says in the presser because he may be able to take the edge off it, but I I see it a little differently. By doing 50 now, I think he's bought a little bit of time, right? Imagine he'd done 25, the data came in saying things aren't looking so great and then he had to do 50 later, he'd have the same criticism as he had, right? On on the way up here. So I think the fact he's one and done, I think he's one and done for a minute right now, I think helps him.

And and he also mentioned that at the Jackson Hole meeting a few weeks ago. Let's not forget that his speech was very open in terms of the trajectory of monetary policy, very different than his colleagues, who are talking about, we're going to go methodically, we're going to go gradually. He did not mention I gave Greg a high grade to their communication strategy because some economists not such big fans.

No, I don't think the communication strategy has been good at all. If anything, I think up until this weekend where everybody was pricing in a 25 basis point rate cut, then you had a couple of news articles that started floating some speculation as to a 50 basis point rate cut. I think that is a sign of poor communication. I think there needs to be much better communication of, as I said earlier, the monetary policy framework, which needs to be forward-looking and not data point dependent, which it still is. And two, communicate the intent of where we're going in terms of monetary policy from a policy neutralization perspective and how rapidly we'll get there.

All right, Greg and Anne, great to talk talk to you both and have you both here to weigh in on this historic cut that we have been waiting for again, a 50 basis point cut here from the Fed. The markets taking in stride, and we're seeing all three, the major averages move to the upside. Guys will be hearing more from both of you after J. Powell's at press conference here in just about 17 minutes.