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What is next after the Fed announcement, market repricing, messaging, portfolio strategy and playbooks? There's a lot to consider. We're joined now by Kelsey Barrow, JP Morgan Asset Management. Welcome, Kelsey, to the show.

Let's start on the Fed. What did you make of what you heard today?

Well, maybe we should look at the bond market reaction as an indicator of what we heard, and I think the fact that you are seeing very muted reactions, so, you know, maybe the front end up a couple basis points, the long end down a couple basis points, but really broadly unchanged, and I could say the same about stocks, maybe before the the chips announcement at the end of the day. Um, I think this is exactly what Chair Powell was hoping for, which is not to shake things up. Um, there is still a ton of uncertainty out there, and he wanted to present a message which says, yeah, we're here, we're ready, we're watching things. We're well positioned, but we don't need to do anything right now. And the fact that the market didn't move very much is I think an indication that he did a pretty good job communicating the uncertain path and comforting markets that, yeah, we're here, we're watching.

I guess the risk is the next time we get an economic data point that is not, that is negative, you know, may there is a risk potentially that the Fed then looks behind the curve, maybe? I don't know.

Mhm. I think that's fair, and in a way, he indicated that that is a growing risk because they don't have the luxury of being preemptive. They don't have the luxury of being preemptive because inflation is still above their target. But I think he was very clear in indicating while the data itself hasn't rolled over outside of surveys, the risk to the downside have increased materially. And this is still an a Fed with a dual mandate of inflation and unemployment. And ultimately, I think that when if they see the downside risk to growth, those will out outweigh the upside risk to inflation. Um, while I don't think he's going to be as definitive in terms of his comments around that, that's the way that we ultimately think this is going to play out because tariffs are a tax on the consumer, they destroy demand, and the bond market is telling you that beyond the next 12 to 24 months, inflation expectations have been flat, very stable, or falling, which is an indication that while he doesn't want to use the word transitory, this still may be more of a one-time price level reset that ultimately the Fed can look through.

Those smart economists you work with at Kelsey JP Morgan, how many cuts are they calling for in 2025?

So, I think in our view, we still expect rate cuts this year. So, it's really a question of when, not if, and the when is dependent on how fast we start to see the downside risk, the heightened uncertainty translate into the economic data, particularly the labor market data. Now, everything that we're hearing is indicating that at minimum, job growth should be slowing, if not a little more materially, because companies, you know, maybe they're holding on to labor, but many of them are freezing hiring. So, we should start to see that. But until the Fed sees that, they can't act. And so you are at risk for that next cut not to be in June, maybe not even until July, because it's all a question of how soon do we see these disruptions show up in the hard data. Now, once the Fed starts cutting, if we are seeing recessionary data, I think the Fed has shown us historically that they are willing to move quickly. And so the market is going to have to price in a pretty wide range of outcomes. You know, I think that realistically, you could see a scenario where the Fed is on hold at any given meeting, or the Fed could be cutting 50 at any given meeting, you know, if you, if you really start to see the deterioration in the labor market. But right now, the story is actually still pretty clear for them, which is they don't have the urgency to do anything.

Well, and ahead of that, if indeed the price hike from tariffs is a temporary or one-time situation, and if the concern is more with growth, won't rates come down anyway ahead of the Fed potentially cutting? So doing some of the work for the Fed, you could say.

Right. Yeah. So, in terms of our view on on Treasury yields, I would view them as fairly asymmetric to the downside. Um, so we have a range.

Yeah. Which means, in other words, you think they're more likely to fall than to rise.

Exactly. Exactly. And we've been thinking about it in terms of a range of 375 to 450 on the 10 year. And you're not at the very top of that range, but you're certainly in the upper half of that range, which means that we do believe that high-quality duration and treasuries are going to serve as a pretty good hedge if we start to see the data roll over. Essentially meaning, if we start to see the weak data, we do expect yields to fall, bond prices to rise. And although there's been a lot of uncertainty about the diversification benefits of bonds and if they're really working this year, I think if you take a step back and you look at what we've seen so far this year, you've seen the stock market, S&P 500, maybe down four or five percent at this point, year to date. And you have bonds up a couple percent. That's exactly what we want to be seeing. And earlier today, you saw a little, a little taste of that when the statement first came out, and Powell indicated within the statement higher risks for higher unemployment and higher inflation. You saw stocks start to trade off a little bit, and you saw bonds start to catch a little bit of a bid.