Trading the Volatility 3/7/25
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I'm Scott Wapner, and you're listening to CNBC's Halftime Report, the podcast, the most profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in.

Hi, Q. Thanks so much. Welcome to the Halftime Report. I'm Scott Wapner, front and center this hour, trading these turbulent and volatile markets. The Investment Committee, as always, here with their best ideas. I should also note, bottom of the hour, Fed Chair Powell speaking here in New York. We will have that speech live, an especially important moment.

to hear from the chairman of the Federal Reserve. Joining me for the hour today from the Investment Committee, Bryn Talkington, Jenny Harrington and Bill Baruch. We are on pace. Stocks are for the worst week since September. We react to every tariff headline, as you know. We continue to worry about a growth slowdown. The jobs report was a miss. Bryn, the unemployment rate ticked up. Yields are down. The S&P, most importantly, is below its 200-day moving average. And we're at session lows.

S&P is below the 200-day. The NASDAQ is below the 200-day. Semis are in their death cross, as we call them. And so what's not to like about this market? I think on top of that, I think everyone hopefully heard Scott Bessent this morning talking about our economy needs a detox from federal spending and we need more private sector.

We had people talking about temporary hardships. And so I think that, like we talked about yesterday, I feel like we have a 2018 2.0, which saw a ton of volatility. I think Besson also said there is no Trump put. There is, though, a Trump call. And if his economic policies and his trade policies are implemented and they are successful, then longer term we will have a very good economy and the stock market will follow.

He's talking my language options. But what I would say is I would not be buying calls right now. I'd be selling calls. So over the next few months, I want to give some more ideas about selling calls because I think it's a bit too early to actually buy calls in the market. So if you are surprised by the pullback in the market, maybe you shouldn't be. Why? Because it feels like those in and around the administration have been telegraphing this turbulence.

as they put their policies in place. We'll show you what we're talking about. October 30th, Elon Musk warns of "temporary hardship" like Bryn was just talking about from the policies, and that was during a virtual town hall. March 4th, that was earlier this week, President Trump said his tariffs and trade war could cause "a little disturbance."

Then there was this morning, as Bryn referenced, the Treasury Secretary on this very network telling SquawkBox, "There's going to be a natural adjustment as we move away from public spending to private spending, that the market has become hooked and addicted to government spending and there's going to be a detox period." It feels like they have, Jenny, been telegraphing the turbulence to some expect.

maybe investors weren't listening. I think they weren't. And I think they weren't because we all believed that we were going to have Trump 1.0 again, where everyone believed that he marked his success to the S&P 500. And so far this year, it doesn't seem like that's

that's true anymore. We did a call for our clients last week on politics and the portfolios, and I was actually going to put that line in there. I was going to say, you know, here's all the craziness going on, but we should play to the judge. And the judge, you know, the judge judges himself or whatever by how the market goes up. And my colleague said to me, no, Jen, you need to be more realistic on that. That's not true anymore. That's broken. So, you know, so let's presume that they care more about their policies, they care more about their agenda, and they're okay.

with the market going down. And you know what? That might be, to Bryn's point, that might be totally healthy and great for the long run. We have been addicted to government spending. I also think that it should be more in the private sector. And so then our job as investors is, how does this flesh out? And does it flesh out by an overall market decline that takes everything with it?

it, or does it flesh out like a rotation? And if it's an overall decline, then you take cash and put it on the sidelines. If it's a rotation, you need to reposition your portfolio. Right now, today, I think it's a rotation. And you can see that in things like the NASDAQ's down 7% year to date.

International stocks, IFA, is up 11% year-to-date. You can see S&P down about 3% today. DVY, one of the dividend stocks, which you can look at as dividend value, is up 1.5%. So if you believe that this manifests in the form of a rotation, you're

portfolio positioning is very different than if you think it manifests in the way of an overall decline. So it's tricky right now. The so-called detox, if you want to use that word. I love that word. Looks like this, really, since the inauguration. The S&P is down 5% since the inauguration. Dow's down 2.5%. But the Nasdaq's down 8.5%.

And the Russell is down 10. Traders are preparing for more pain. Bryn was talking about some of the options activity. Apollo's Torsten Slocke was saying that investors are aggressively buying downside protection because they think it could get worse before it gets better. One of the key questions, Bill, is that we've been sitting here, although investors have come into this year assuming that, well,

At some point, there's going to be too much market pain for the administration to bear. And then they're going to back off a little bit. And I think they're making the case that they're going to get their policies done while they have the chance to do it. And they're not fixated on the stock market. That was the point that Secretary Besant made again this morning on Squawk Box. Barclays is talking about a so-called Trump put. Tom Lee talked about the same thing this week. I'm wondering what we're supposed to do as investors for all of that. And

Uncertainties drive the market. We're seeing these uncertainties take us lower, but it's twofold. We're seeing uncertainties in what's next, but also from a policy standpoint. But it's also impacted uncertainties in survey data. We saw initially when this market really started breaking down two Fridays ago, it was a contraction in services PMI. Well, that's moved back into revised back in expansion territory.

I think today's nonfarm payroll report was solid. I think even though wage growth was revised a little bit lower, you had the headline number hang in, and it was better than ADP. I think we're working through it, but the problem is now you're just seeing positioning taking down. Jenny alluded to the rotation. I think the rotation has already happened. If you're looking to be rotating right now,

I don't think that's going to work out as well. I think we're closer to a bottom than we are in the middle or the early innings of this fallout. The VIX is hitting 26. You cited the puts, the expensives.

the extensive put buying, the bearishness that's taken over surveys like AAII. So I think we're really seeing this taken down right now. And that may last a little bit longer, but I think we're really close. And maybe the bottom is next week into that week three options expiration. I just wonder how you can think that we could put a bottom in in the next week or so when they're telling you the administration is. You still have till April before.

before we get to the reciprocal tariffs part. The tariff news and headlines aren't going away anytime soon. And if that remains the case, how can the market find any level of stability if you're going to still get commentary out of the White House, policy put-ons and put-offs?

and the sort of blowing in the wind policy decisions. Well, if you look at times like August, we had a totally different situation, but we had this massive sell-off in August. The VIX did get to 50. VIX is really pretty contained right now. That was because of the unwind and the carry trade. That was in the first few days of August. But the similarity is when we sold off in August and then we rebounded extensively for a few weeks. Because it was a panic. Because it was a panic.

panic attack. And then we retest it back down. This isn't a panic attack. This is trying to rethink fundamentally what these policies are going to mean in the near term for an economy that appears to be weakening in totally different environments. And I agree with you. Those are the uncertainties that we're seeing priced in from earnings. Walmart was one of the first ones that really hit the market. We had the purchasing managers. We have the

Michigan consumer data. All of this is really showing those uncertainties are flourishing through the market right now. But my comparison to August and September was we had the August move. It was a big rebound off of that. I'm not saying that we're just going to go off to the races all of a sudden, but I think over the next week, we get a nice little bottom, market's able to rally, and then we come back in a little bit and we fish it out. But that could be, to your point, on a bottom, could be a short-term bottom, because I still think

Trump is not just willy-nilly saying April 2nd. On April 1st, they come out with the America's first, America first Trump tariff policy memo that they've been working on since Inauguration Day, that they're going across every country, every policy from currency manipulation to export controls. They have a specific group just for China. That comes out April 1st. Then they will present that April 2nd.

And I think that is gonna be a big clearing event. And I literally think this is an appetizer with Mexico, Canada. We can figure those things out. But China is just starting. And so I think we could easily have a short-term bottom. But if you go back to 2018, we had lots of short-term bottoms.

We rallied and then we fell back again because of tariffs being the tariff pickup again. So I definitely agree on a shorter term. But I think when you have so many areas below the 200 day, that really becomes a ceiling that then you have to move above it to clear out of it. I've got some breaking news that I need to get to at the White House. Megan Casella is going to have that for us. Megan.

President Trump is in the Oval Office right now talking with reporters and signing some executive orders. And he just gave a major timing update on those reciprocal tariffs. These are the ones the White House has been talking about imposing starting on April 2nd and maybe trickling out weeks and months after that. Just now, according to the reporters in the room, Trump told reporters that he may do reciprocal tariffs as early as today. He went on to say maybe we'll do it Monday or Tuesday, but it is what we're going to do. So a big shift

In timing there, just earlier this morning, I was talking with Kevin Hassett, the National Economic Council director. He was saying April 2nd was the date to watch. We've been hearing this all week. Now we have the president saying it could come as early as today or maybe Monday or Tuesday early next week. So we are going to have to wait to hear exactly what the president said to put some more context around this. But a big shift there, and it just shows you the updates just keep coming. Scott.

Yeah. Megan, thanks so much. You keep the headlines coming to us as you get them, please. But we appreciate you on the North Lawn of the White House. Megan Casella for us here. Markets pretty much hanging around the lows of the day. Mentioned the S&P had breached the 200-day moving average. It really happened yesterday for the first time during halftime. We had gotten a little bit above it, but we are decidedly below that now. J.P. Morgan cuts their GDP forecast growth to 1% from 1.5%. We know about the Atlanta Fed GDP now. That tends to be more of an outlier call.

It's really more of a sliding scale sort of deal. Robert Kaplan, former Dallas Fed president, was with me yesterday on Closing Bell. He now at Goldman Sachs says growth is going to be lower. He doesn't think we'll be negative for the quarter. But the points are being made that growth is slowing.

It's uncertain because of tariffs. Now you may get reciprocal tariffs today, Monday, Tuesday, but that's why it makes it so hard for investors to figure out what's going on and what to do. That's exactly right. Everywhere you look, there's uncertainty. And nowhere you look is anything trending in a positive direction. So you see ADP, ISM, Beige Book, Conference Board, University of Michigan, all of that data in the past week skewed negative. You look at

you look at consumer spending, it was still up 5.6% year over year. So you're still at this high. You look at valuations on the S&P 500, even after this 7% decline from the high, it's still at 21.1 times, which is as high as it's been really other than before 2022. And then before that, you go back to 2001. So you have nothing, nothing that's screaming bottom washed out and you have nothing headed in a great direction. And that's why I think, you know, at best,

At best, we kind of can consolidate and plateau. More likely, I think there needs to be more pain ahead. And when we think back to 2018, if we're arguing on that and we put a fundamental overlay on it, I think the market bottomed at about a 16.5 or maybe even lower multiple. It's still at 21 times. There's just nothing out there. Sorry, but there's nothing out there to me that says a bottom's in. There's nothing out there to me either that would suggest at all.

at all that we should have a 10 or 20% upside move from here. Nothing. - Look at sector activity, more of the so-called detox trade. I mean, if you wanna call it that, then let's discuss it as such.

Discretionary, worst week since April of '22. It's the worst sector year to date, which all of you already know. You also know that Tesla's a big part of it, Amazon's a big part of it, but there's a lot of retail, as you would expect. There's travel, which has been hard hit as well. Is Tesla, which is close to a 50, five zero percent drawdown from the high, is that close to a bottom? Down seven straight weeks, that's the longest losing streak ever.

Is it near a bottom? You own the stock. You're a big supporter of it. You continue to believe in it. It's down 13% this week alone. Yeah, I think that right now the technicals, it's so far below the 200-day. So, like, I need to have some technical...

some technical building to be able to add to the position. Right now, I took my, I closed all my calls out, right? Because that's what you do. You sell calls high and then you close them out. And so you want to see some consolidation. Right now, it feels here in free fall. I absolutely believe

you know, Dan Ives' bullish narrative. I think that people are very short-sighted about the refresh cycle with Juniper and the Model 3. Those are coming. Robotics are coming. But just the sentiment and the pounding on Trump, I mean, on Elon, is overbearing the stock. Let's, in fact, hold on one second. Let's go down to the White House and actually listen to the president. But there'll always be some modifications. I mean, if you have a wall in front of you, sometimes you have to go around the wall instead of through it.

But I think very little. I think very little. On occasion, if we can do something, we want to help companies. We want to help companies create jobs. So I could have left that and you wouldn't have had a minor change. Instead, I was asked by

the major, the real majors, the big majors, if they could do this. And I said, yeah, I'll do it. I want you to produce a lot of jobs. And numerous of the people, actually all of the people I spoke to have already been, they're very much on the way to already, that's why you have auto jobs increase. And the man, I don't know him, Sean Fain, I don't know him, but

And I did great, as you know, with the autoworkers, with the Teamsters, with unions, I did fantastically well. Best numbers ever by a Republican. But, and I have a lot of respect for those people. But Sean Fain, who I don't know, but wasn't a supporter, although the autoworkers were big supporters, I watched him last night and he said, "Donald Trump is absolutely right on tariffs." He said what he's doing on tariffs is an incredible thing.

And it's about time somebody had the guts to do it because we're going to save auto manufacturing. And I said to people when I was campaigning, you're going to have so many auto jobs, you're not going to believe what's going to happen. We're going to load up Michigan. I won the state of Michigan, as you know. And part of the reason I won it was they got a lot of auto workers that voted for me, Detroit, etc.,

But I think people are going to be very surprised. Yes. Thank you, Mr. President. You mentioned in your remarks chips manufacturing, how a significant percentage is now in Taiwan. You also mentioned it in your address to Congress. And you called on Congress to overturn the Chips Act, which had bipartisan support in the last Congress. Why would you like to see this particular law overturned?

Because it's hundreds of billions of dollars and it's just a waste of money. Now, some people have already taken the money and used it. Actually, it's very hard to qualify because they go by race, they go by gender, they go by all sorts of things. Nobody's ever seen anything like it. You won't be able to find those people. So I don't even think anybody can qualify. They have so many different categories in order to qualify. You have to have so many of a certain race, a certain gender, a certain this, a certain that.

And it's I don't think they can qualify but if they take the money they better qualify because they'll be watching them But it's a tremendous waste of money. I didn't give the great the greatest chip company in the world one of the greatest companies I didn't give him ten cents they came here because of tariffs because they didn't want to pay the tariffs and they also came here because they liked the results of the election because they know that I'm very pro-business and pro jobs I mean I'm pro-business

Not for business sake, I'm pro-business because of jobs, because business is producing the jobs. - Mr. President, on Russia, if I may, President Putin is bombing Ukraine. - Yeah. - Do you still believe him when he tells you that he wants peace? - Yeah, no, I believe him, I believe him. I think we're doing very well with Russia, but right now they're bombing the hell out of Ukraine and Ukraine. I'm finding it more difficult, frankly, to deal with Ukraine.

And they don't have the cards. They don't have the cards. As you know, we're meeting in Saudi Arabia on sometime next week early. And we're talking. I find that in terms of getting a final settlement, it may be easier dealing with Russia, which is surprising because they have all the cards. I mean, and they're bombing the hell out of them right now. And I put a statement in a very strong statement. Can't do that. Can't do that. Mr. President, we're trying to help them.

And Ukraine has to get on the ball and get a job done. Michael, could you come up here? I see Michael back there.

Good. I'm glad. He's traveling all over the world. Missed promotions, botched payroll, surprise resignations. What do these all have in common? They could have been prevented with Lattice. Build a people-powered future with the all-in-one HR platform that maximizes the potential of your people and helps scale your business. No regrets. Visit Lattice.com slash no regrets. That's L-A-T-T-I-C-E dot com slash no regrets.

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All right, we're going to come out from the Oval there, and we'll monitor, obviously, the president's continued remarks, which were live, as we said, commenting. Certainly, we had the report from Megan about reciprocal tariffs. Could come as early as today, maybe early next week. That would be far earlier, though, than anticipated. Called the CHIPS Act.

a waste of money. And then as you heard there on Russia, Ukraine, I'm finding it more difficult to deal with Ukraine, said the president. Maybe easier to deal with Russia. We'll keep our eyes, obviously, on all of that. Stock market continues to be in that place it was when we began the show, pretty much at the lows of the day. I mean, since the president was talking about the CHIPS Act, just to use that as a jump-off spot, NVIDIA's lost a trillion dollars in market cap since its high in early January. That's pretty remarkable.

A trillion dollars in market cap wiped out. While revenues and earnings continue to get stronger and stronger, and that's where, as an investor, you have to say the market doesn't believe the E of NVIDIA because NVIDIA right now is trading at a P.E. below Apple, right? Apple's revenues and earnings are growing in the single digits.

NVIDIA's revenues and earnings are growing in the 70% to 100%. Yet, even though Apple is not growing, the market says, "Well, it's not growing, but I feel comfortable with the E." The market doesn't feel comfortable with the E on NVIDIA. I think there'll be a point here on the chips when you just have to plug your nose and buy them, because I promise if you look at Broadcom, Dell's ISG Group, NVIDIA, Marvell,

The data center trade is not slowing down. The data center trade is great for jobs. Marvell was ugly, right, after earnings. But the earnings were great. Yeah, but it doesn't matter. The stock went down the way it did. Even Broadcom had strong results, and that stock was going to be our chart of the day. Pulled that off because the reaction in the market wasn't as strong as it was. Now it's ramping a little bit further up. But what about this space, chips, which have been weak? It's been difficult, but I mean, I think,

I think the view from here, as you were citing, is the earnings, the multiples, these are getting in value ranges. And I think that's what's really attractive here. And I think that's one of the reasons with the pessimism is that I think we can have a really nice rally out of this. Again, I'm not saying it bottoms in, but Broadcom is one of our larger holdings. 78% year-over-year growth in the AI segment. This is just tremendous stuff, NVIDIA's earnings.

At least it's not shaking it off like it did NVIDIA's quite yet. But I think these names, they have a place in your portfolio. We like them. And I think we're going to see them have better days. It all depends on, you know, part of this issue too remains, how long does this so-called detox take? Do you drink a bunch of...

you know, juice generation and then you feel better after a week and you're all good? Or do you need to go to Canyon Ranch for a longer stay and really do a detox before you can feel rejuvenated in this market? I would ask the question a little bit differently. I would say, how long does this uncertainty last? And it is impossible as an investor to make a decision on what the right multiple is to pay on any of those chip stocks or any stocks almost out there when tariffs change on an hour-by-hour

basis. I mean, again, I gave this presentation in Harrisburg yesterday. I had the slides set a year ago, sorry, a week ago. I had to change them on Tuesday. And then I had to change them again yesterday because tariff news changes all the time. When you have the president on TV saying, I hate the chips act, this is terrible, what do you have to work with? And everything's changing. So taxable. You can't trade, but you cannot trade stocks on every headline. But my point is, with this much uncertainty, people

People don't know what multiple to assign the market. When you don't know what multiple to assign the market, you don't know what to assign anything else. It's very hard. So unless-- and this goes back to a little bit of the rotation. So unless things are trading with such a severe margin of safety, right, 8 times, 10 times, and that's why you see money rotating into value, rotating into international, rotating into dividend stocks, unless you have such a severe margin of safety, it is hard to say, I'm willing to pay 21 times. And I want to say one more thing on Nvidia.

One of the things that I wonder about a lot is, I don't think it's the real Nvidia investors who are selling that, who've sold it down 25%. If we think about the work that Bob Pisani did on those crazy single stock ETFs, right? Where, let's say you thought you missed out on Nvidia two months ago, and you got in late, and you bought a two times leverage Nvidia exchange traded fund, and now you're washed out, and then that's compounded. I think the pain in some of these stocks, like Nvidia to Bryn's excellent point, is trading cheaper than Apple,

and still has 70% earnings growth ahead. I don't think the pain is from people making a fundamental decision on that. I think it's from these Yahoo kooky fringes that are now being forced to sell, and then that takes the money out, because I think the vast majority are sitting on those positions. But it's just there is maximum uncertainty right now, and you can't deal with that as an investor. So the momentum trade has been caught up a lot in all of this, and it's one of the reasons why the NASDAQ has--

found it difficult to find stability. We should touch Palantir. You guys, you and Bryn both own it. This week, you know, it's tried to get a little bit of a bounce. But other names like Applovin down 20% this week, Carvana, Constellation, Vistrovertive. What's your take here on the Palantirs of the world?

Two weeks ago, I think it was, maybe three weeks ago, I was on the show here with you, and I did say I had alerts at 90 and alerts below 80 in Palantir. I think 75 to 80 is the real great sweet spot, and I love, I use the word love to see the selling slow here. This is really best in breed. I think

This really highlights a time right now where you want to be picking, if you were to own these volatile names, you want to own the best in the space that they're competing in. Yes, but you want to make sure you own them at the correct price. With that said, my goal as a manager is not to catch every turn in the market, but the

The names that we've owned has provided a significant outperformance over the last two years. So, yeah, maybe we're underperforming here in this moment in time. And I think with the market trading below a 200-day moving average and some of the uncertainties that we've all been talking about, there's time to go to the drawing board and say, is there a bigger change that we need to be ready for? And I'm not ready to say that yet, especially like a name like Palantir, again, coming into that sweet spot. And some of the froth is really coming out. But these names are all hitting.

cash flow to earnings. I mean, everything is cash flow multiples. These names are right in the wheelhouse of where you want to see them. Right in the wheelhouse of where you want to see them? I mean, they're trading. I don't remember. This thing is trading at a significant multiple to sales. I think it's like 70 to sales. Not necessarily Palantir. I'm just talking about the broad. Well, we were talking about Palantir specifically. Let's make sure we're all on the same page. I mean, we're both shareholders, right? So I think with Palantir,

You have the Palantirians that have been long-term, we'll say, hodlers of the stock at 6, 7, 8, which is kudos for them because that was all retail, believing about this company. I think there are a lot of investors that bought this stock north of 81. A hundred percent. And that to me is where

how many people are going to hold on. And so I don't have confidence of where this stops, because I think so much of the investor base was momentum versus the real owners of Palantir that have been long-term believers. And so I think this is going to be a company to own long-term. I'm still personally unclear where I should step into this name, because the

The chart still looks, the 200-day is at $51. It may not go there, but I think there's a lot of people underwater in this. What about financials, which are having their worst week since March of 2023? So it's been a minute. It's been a couple of years. By the way, I should let you all know, about five minutes away from when we expect financials

Fed Chair Powell to start speaking. I can see the room. You all can't, but I can. And people are starting to get seated. So we think that's going to happen reasonably on time. But we'll let you know when it does. And it's an especially important moment to hear from the Fed Chair. I know the banks want to hear from the Fed Chair, don't they?

Week to date, Citi down 14 percent. Bank of America down 11. Morgan Stanley down 13. Goldman's down double digits, as is Wells Fargo. B of A, though, did get upgraded today to outperform. J.P. Morgan got upgraded to neutral. And that's from Baird. What's your take on this space? Because they, private equity stocks and almost any, well, insurance stocks have done well out of the...

financial group, but these haven't. Yeah, I mean, keying off the best in breed comments, Goldman Sachs and JP Morgan are the two that we own. But yes, yields are coming down and the yield curve right now is maybe not becoming attractive as many had planned at the start of the year. So it's creating this

repricing and rebalancing, the slower growth ahead, the forecasting of job losses, and the tighter spending. I mean, overall, it's not going to be, it doesn't look great, but I find this within the same realm that we're talking about. A lot is getting priced in very, very quickly here. I mean, these names being down double digits is quite a bit.

It may not be a bottom here today, but I do think that these have some good value in this area. What do you think? Yeah, I mean, look at Morgan Stanley is just about to touch the 200-day. It's been, I think, brutally beat down. They have a wonderful M&A business, wonderful wealth management business. So, I mean, I think these names are names that got...

too hyped up, kind of like a Tesla after the inauguration, just thought deregulation was coming. But if you listen to Scott Besson today, I would listen to the Treasury Secretary. He's like, we need more deregulation in the banking system so the banks can actually make loans. So I think these are an area, especially like a Morgan Stanley down here, are starting to get interesting. And this is what a sell-off does, is when you find, what does Morgan Stanley have to do with tariffs?

I don't think it has anything to do with it. Well, it has to do with the bull market. The banks have to do with the slowing economy, the trajectory of interest rates for their net interest margin. Certainly, they have a big role to play within the so-called animal spirits trade, looking for more deals to happen. Right. But that's where that is what the market prices are.

are ahead of fundamentals. And then the market, everyone's saying there's a higher probability that we're going into a recession. No one was talking the R word last year. People are starting to talk about that. I don't think that's the case. OK, and so it's like this is where you go in to look at great companies that have been sold off, I think, too much and say, hey, you can start nibbling here on these names. I think one thing, Bryn, though, it's hard to say they've been sold off too much. If you look at them collectively, XLF is still flat on the year, which would make it about

3% and almost 4% ahead of the S&P 500. So, like, what are they sold off from? They're sold off from that ephemeral peak that the market hit on February 19th. And if you look at them collectively, too, okay, fine, they're at 17 times earnings. That's better than the market. But going back to my uncertainty,

Interest rates are so messed up right now. You know, we came off of a year where the Fed cut 100 basis points, yet the 10-year and mortgage rates went up. We're expected now to cut, what, two times, three times? Who knows how those actually move? Nothing's moving as it should. And it's very hard to value a financial stock when you have no idea, really, where interest rates are going. And that, to me, has been the biggest challenge, is that things are moving.

aren't moving in the directions that they should. The banks, though, should be down less than the S&P. The S&P has been dragged down further because of the presence of the mega cap stocks. But my point is to say they've had this big correction. They're flat on the year. They've had a correction from a peak, right? They're all...

We're all kind of still in no man's land. I would argue the S&P-- you know, I'll argue the S&P is essentially flat on the year. We haven't really had a correction. We just had a correction from a month and change ago-- not even a month and change, a month-- less than a month ago-- where we happened to get really saucy and peaky. And I've been looking at the whole year as this battle between is it chaos winning out or is it animal spirits winning out? It was animal spirits winning out up until February 19. Now it's chaos winning out.

But the bottom line is you cannot value a company when you don't know what interest rates are doing, when you don't know what direction they're going, when you don't know what earnings are doing. And we went into this year thinking earnings were going to be up 16 percent. And you see everyone adjusting that down and adjusting that down. So what multiple do you pay on the market? And then how does that trickle down? This is really most acute with small caps, which are set for their sixth negative week. That's the longest streak for the IWM and the IJR.

since 2018. So that is really where the big, the Russell, by the way, is down 11% in a month. Why? Because of concerns about the slowing economy. And on that note, let's get to our senior economics reporter, Steve Leisman. Fed Chair Jay Powell in his speech here at the U.S. Monetary Policy Conference in New York will say that he sees significant policy changes from the administration in trade, immigration, fiscal policy, and in regulation.

He goes on to say the net effect of all of these changes is what will matter for the economy and for monetary policy. He said uncertainty around these policy changes is relatively high, especially when it comes to the issue of trade.

The Fed, he says, is focused on separating, quote, signal from the noise. He says the Fed is well positioned with current monetary policy to wait for greater clarity, suggesting a lot of patience on the part of the Fed here. He says the Fed can hold policy if inflation doesn't move.

And he expects, by the way, a bumpy inflation path to the 2% target to continue. And near-term measures of inflation expectations have moved up, with long-term measures being stable. The Fed can ease, he says, if the labor market weakens unexpectedly. U.S. economy overall, he says, is in a good place, despite elevated levels of uncertainty. And Powell says the labor market is solid, inflation close to the 2% goal. And let's listen to this.

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It turns out we don't actually have a majority of the FOMC here, so we can speak to each other without violating the government of sunshine law. So I have some brief remarks about the economy and the path of policy, and then I look forward to our discussion. Despite elevated levels of uncertainty, the U.S. economy continues to be in a good place. The labor market is solid, and inflation has moved closer to our 2% longer-run goal.

At the Fed, we are intently focused on our dual mandate goals given to us by Congress: maximum employment and stable prices. Turning to the recent data, the economy has been growing at a solid pace. GDP expanded at a 2.3 percent annual rate in the fourth quarter of last year, extending a period of consistent growth that has been supported by resilient consumer spending. Recent indicators point to a possible moderation in consumer spending relative to the rapid growth over the second half of 2024.

Further, recent surveys of households and businesses point to heightened uncertainty about the economic outlook. It remains to be seen how these developments might affect future spending and investment. Sentiment readings have not been a good predictor of consumption growth in recent years. We continue to carefully monitor a variety of indicators of household and business spending. Turning to the labor market,

Many indicators show that the labor market is solid and broadly in balance. The jobs report released this morning showed employers added 151,000 jobs to payrolls in February, and the unemployment rate ticked up 0.1% to 4.1% last month, smoothing over the month-to-month volatility. Since September, employers have added a solid 200,000 jobs a month on average.

The unemployment rate remains low and has held in a narrow range between 3.9% and 4.2% over the past year. The jobs-to-workers gap has narrowed, and the quits rate has moved below pre-pandemic levels. Wages are growing faster than inflation and at a more sustainable pace than earlier in the pandemic recovery. With wage growth moderating and labor supply and demand having moved into better balance, the labor market is not a significant source of inflationary pressure.

For inflation, inflation has come down a long way from its mid-2022 peak above 7%, without a sharp increase in unemployment, a historically unusual and most welcome outcome. While progress in reducing inflation has been broad-based, recent readings remain somewhat above our 2% objective. The path to sustainably returning inflation to our target has been bumpy, and we expect that to continue.

We see ongoing progress in categories that remain elevated, such as housing services and the market-based components of non-housing services. Inflation can be volatile month to month, and we do not overreact to one or two readings that are higher or lower than anticipated. Data released last week show that total PCE prices rose 2.5% over the 12 months ending in January, and that core PCE rose 2.6%.

We pay close attention to a broad range of measures of inflation expectations, and some near-term measures have recently moved up. We see this in both market and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain stable and consistent with our 2% inflation goal.

Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high.

As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry and we are well positioned to wait for greater clarity. Policy is not on a preset course. If the economy remains strong but inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer.

If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our mandate. Before I conclude, I'll note that at our last FOMC meeting, we began our second five-year review of our monetary policy framework. We will consider changes to our consensus statement and to our communications as part of this review.

The consensus statement articulates our framework for the conduct of monetary policy in pursuit of our statutory goals. We will consider the lessons of the past five years and adapt our approach where appropriate to best serve the American people to whom we are accountable. The 2% longer run inflation goal will be retained and is not a focus of the review. This public review will be familiar to those who followed our process five years ago.

We will hold outreach events around the country involving a range of parties, including FedListens events. We're open to new ideas and critical feedback. We will host a research conference in Washington in May. Our intent is to wrap up the review by late summer. Thank you very much. I look forward to your questions. All right. Thanks for that. Before we get into the current conjuncture,

Is there anything more you can share about where you think the framework is going to land? It was nice to hear the parameters that you laid out, but is there anything more that you can say beyond what you just... Sure. So I said there are two things. Really, there's changes to the consensus statement and they're looking at really our post-meeting communications. We're going to look at those two things a lot.

And as it relates to the consensus statement, which is also known as the statement on longer run goals and monetary policy, therefore it needed a shorter name. We are going to be looking a lot at the changes that we made in 2020. So if you go back to 2020, what we had was we'd been at the effective lower bound for seven years. We never got rates above 2%.

We were at 1.5% when the pandemic hit. And the feeling very much was that if even a mild downturn came, we'd be back to the effective lower bound maybe again for years on end. So we were looking for ways to try to minimize the likelihood of that. And a pretty standard result in the research was a kind of a makeup strategy. So that's what that was.

So the framework changes that we made were very focused on the importance of the effective lower bound problem, which was thought to be the big problem at the time. And those were the changes that we made. And we thought that those things, that those issues would be persistent, but the universe had other ideas.

And the pandemic arrived just a few months after we implemented the framework and really changed the whole mixture. And effectively, the idea of an overshoot

of a modest overshoot or moderate overshoot of inflation really became irrelevant and we were back to the regular framework and we did what we did and you have the results today. So I think we'll be looking at, for example, the focus in a consensus statement, we'll be looking at the focus that we had on the effective lower bound. It's probably not the base case anymore, but it's probably still relevant.

We'll be looking at shortfalls, which is an interesting idea, but then there are different ways to express that. And we'll be certainly will also be looking at the idea of having a moderate overshoot of inflation over the 2% target following periods when inflation has been low. We're looking at all of those things. And again, I expect to be done by the end of the summer.

On the communications, you know, particularly our post-meeting communications, we're going to take a close look at the SEP and also compare ourselves to what other central banks around the world do. And this will be a couple of weeks from now. We'll have our second meeting and we'll be I think we'll be done in time for sort of the end of the summer.

Okay, that's great. Let me pick up on this question about the level of prices versus the inflation rate. Economists spend a lot of time making the distinction between the rate of change and the level. I'm not sure that the public fully understands this.

because you see these surveys about how frustrated people are with inflation. Inflation now is not that different than your target. It's above, but not meaningfully so. But do you think that price stability needs to take into account how far you were away from the objective? And if you've had a big run-up,

and the level remains high even if the inflation rate is back to normal, is that something we need to reconsider?

What the public experiences is the prices of things. And the prices of things went up a lot in 2021 and 22 and to some extent in 23. And when we talk about inflation, we're obviously talking about the rate of change now. But the public's not wrong. They are experiencing high prices. And obviously, people, you can have a great labor market.

But if people are really struggling because of high prices, that's what they're really going to feel. So they're right about what they're saying. You know, in terms of, I don't think there's any need to redefine price stability. I think you can always go back to the way Alan Greenspan said it. I won't get the exact words, but everyone here knows it's the idea is if you're making, if businesses and households are making their economic decisions without having to consider the possibility of high inflation, that's price stability.

I don't think we need to rethink inflation the way we deal with it. I don't think we need to reinvent price stability. Okay, the elephant in the room. Economists normally assume that a tariff is passed into domestic prices. And as the Secretary of Treasury said yesterday, that would change the level of prices once, but wouldn't mean anything for inflation a year later.

If we're looking at what happens over the next year, how would we know if the conventional view is not correct and that it's leaked into something more troubling? So I think that start with the general thought is that if there's a spike in prices that's a one-time thing that is going to go through the economy, then it's not appropriate to react to it because our policy, by

by design will reduce employment and activity, and it would not have really been needed to be done. So you look through those things if you can. So if you put that in the context of tariffs, you know, I think if you look at where forecasts are, look at the blue chip, look where everybody is forecasting some inflation effect from tariffs. So it's very likely that

that you know the that if tariffs are imposed and we let's remember we really don't know what's what's happening yet we're at a stage where we're still very uncertain about what will be tariffed for how long at what level we're going to have to wait to see all of that but the likelihood is that some of that will find its way you know it'll hit the exporters the importers the retailers and to some extent the consumers and we'll see what that is

And in a simple case where we know it's a one-time thing, you know, the textbook would say look through it. But I think the situation, you would want to also be sure of a couple things. One just is that

if it turns into a series of things and it's more than that, and if the increases are larger, that would matter. And what really would matter is what's happening with longer-term inflation expectations and how persistent are the inflationary effects. You want to look at all of those things. And you'd want to remember the current context, which is we came off of very high inflation and we haven't fully returned to 2% on a sustainable basis. So you've got to put all that in the mix as you make this decision. I would

I would point people back to 2019, you know, when we had the Tax Cuts and Jobs Act, we had lower immigration, and we had, you know, regulatory policy under President Trump in the first regime. And, you know, we wound up cutting three times because growth weakened so much. So there are many effects of tariffs.

And as I pointed out, it's really the effect of all of these policies that matter for our policy. It's not simply what's happening with tariffs. It's what's happening with growth and all the other things as a result of these broad changes in economic policy, not just tariffs.

Okay, just just to put a point on this. I think I know what you're gonna say but The usual rule that economists hold is that when an uncertainty is high we're gradualist and I I'm wondering whether you view that as the the right benchmark or anchor to think about I

I view it as the right benchmark or anchor for right now. And that's because of the costs of being cautious are very, very low. You know, we're, the economy's fine. It doesn't need us to do anything really. And so we can wait and we should wait. I think there are cases where uncertainty is high, where that would not be the case, where the costs of going slow might be high. And those would be, for example,

you know if inflation expectations were clearly under pressure or if you're at the beginning of the pandemic and uncertainty is unquestionably elevated but you nonetheless act very aggressively because of the of the costs potential cost of not doing so okay that's that's that's interesting um i'll ask a couple more uh conjunctural questions but there's a lot of people in the room here that are very curious about what you want to say about the basel 3 end game so that's inside baseball but

People's wallets depend on this. So you want to say anything about that? Sure. Absolutely. So our view at the Fed is we very much intend to complete the Basel III endgame. And we think that's very important. We think that the Basel Accords really are important to set sort of minimum standards for international banking around the world.

and we expect that we will. We're kind of on hold until the U.S. banking agencies are really back up and running with new leadership. But once they are, we fully expect to get back to that work and complete the Basel III endgame. And I have good reason to think that we'll be able to do that. That's good news. Another little bit of inside baseball, but

But there's been a lot of discussion in the last few weeks about changing some of the statistics that are emphasized about the economy. And the Congress Department recently disbanded the Federal Economic Statistics Advisory Committee.

And I know during COVID you felt like there were many indicators of the economy that were kind of broken or not so helpful. So do we need to worry about whether the Fed's ability to do its job might come into question because of deficiencies in the statistics?

And are you already, let's do that and I'll ask a follow-up. Yeah, so it's two different things. I think it needs to be said that the government data we get from government gathered data we get from the Bureau of Economic Analysis and the Bureau of Labor Statistics is

incredibly important and really the gold standard for data. Being able to track what's going on in the economy is very, very important and it's something that the United States has led in for a long, long time and something we need to continue to lead in. It's true that survey responses have gone down and that some of the data have become more volatile. That just means we need to, it's something we need to keep doing and invest in. So I think

I think that's important. On the pandemic data, that's a different thing. You needed to measure things like...

you know, how many people are going to restaurants, how many, you could look at open table data and things like that. So there were lots and lots of pieces of data we were getting about that showed people coming, how many people are coming back to work, riding the subway and that kind of thing. And that was important. It turns out all that data is not, you know, isn't super relevant except in an emergency.

The other thing is, though, you know, at the Fed, we've always, for some time now, we've been, you know, trying to work with these very large data sets that are available in real time now, for example, from credit card companies and things like that. And, you know, trying to use these new and vast data collections in a real-time way, you know, is something that's really helpful. Okay. I was going to ask you about whether or not there's some favorite data

private sector statistics that you think everybody should be looking at, but it sounds like you've just given us a hint on that. Let me ask a couple longer-term questions. I know you're not in the job of reflecting yet, but when we look back at the rise of inflation and then its decline, what do you think the lesson's going to be about what we've just lived through?

Yeah, so I think it's actually still early to say. I think we'll be doing the question of what happened and why and what, you know, what all this all those questions around that the events of the pandemic and the inflation and the efforts to bring inflation down. Economists are going to be battling over that for long after all of us are gone.

But I would say a couple of things. One thing is just that the tails are fatter than you think. However fat you think the tails are, they're fatter than you think. And human nature is, we always talk about uncertainty and how we understand everything's highly uncertain. We say it all the time. The tails are fatter than we think. So nobody saw the pandemic coming, obviously. It wasn't reflected in our framework.

When it came, we just went back to the old framework and dealt with it. But it was, you know, there's always possibility. That's one thing. Secondly, I think if you look, and I talked about this at Jackson Hole last year. I look back and it looks to me like what you had was a global burst of inflation everywhere at the same time. And it largely, you've got to look at global factors here.

and it amounted to very strong demand, stronger than we thought. I don't think we had, you know, the forecast error was two parts. Part one was demand was just stronger than we thought. It really was, you know, we had in mind, you know, the recovery from the global financial crisis, and instead we got this really high-powered response expansion.

recovery. So the other side is the supply side. You know, the supply side was constrained. We lost 8 million workers and it took a long time to get them back. And it was also all of the supply stuff that was happening that took longer than we thought to unsnaggle. And, you know, we'd never seen it before. We knew in real time that it was going to be really hard to get that right. But so those two things created inflation globally and central banks stepped in and pretty broadly

We're back to close to mandate inflation and employment close to the natural rate, not just in the United States, but everywhere. So in a way, the framework worked, but I think we learned some of those lessons and we'll still be learning them. Okay. One other question in this direction. The U.S. has actually had the fastest recovery of all the major economies. And

Do we understand why that is? And does that... There was a question in the last panel about why star and potential growth. Do you think that we are learning something now about what the speed limit for the economy is? Or is this just happenstance? I would put down the...

I would put down the US's outperformance to three things. And the first is just one would be structural characteristics. And that's more flexible labor market, highly developed capital markets, culture of innovation, rule of law, all the things that make this. And we have a venture capital industry. Other countries are trying to do early stage financing out of banks. That's not going to work.

So all of those things make us account for 40 years of productivity that's double Europe's productivity increases. So that's thing one. Thing two is just population. We had a big population increase in '22 and '23. And that doesn't help with per capita, but that moves top line.

And what was the third thing? Oh, productivity. Productivity. So we had a really significant burst in productivity and from a range of factors, you can never tell exactly where it's coming from, some of those factors suggest, this gets to your last question, suggest that productivity will be kind of a one-time event. So, you know, people wound up automating a lot of functions in retail.

because people didn't want to work in retail anymore. But that may just be a one-time thing.

Technological developments, on the other hand, might give us years and years of productivity. So there are a whole bunch of other things. And so we don't really know how long this burst in productivity will be sustained. But I think I never expected to see productivity this high for this long. And I mean, our staff is marking up their estimates of potential growth for now and taking some signal about the future.

You won't have that population thing going forward, but productivity has been really strong. I think it does actually raise, at least for the relatively near term, the level of potential output. Okay, that's good. Okay, 30 years of teaching Booth students, I've learned you have to end these things with a fun question. So, who's your favorite central banker? And I'll give you a hall pass on anybody who was on the board while you've been there. Define favorite central banker. Living?

Okay, you can constrain to living or you can specify dead. Well, I mean, I would have to... Open-ended question. I'll take the easy route and say Paul Volcker, whom I did know over time, and, you know, pretty obviously, you know, the...

In central banking, nobody wants to be working in a central bank when inflation is really high. But everybody who works in a central bank knows what they have to do when inflation is high. And he set the gold standard for that. That is the thing. Most of the time for 40 years, we haven't had to do that. It's just kind of demand management through a regular cycle. But when you have very high inflation and you have to do this, this is why we're independent. It's not for the good times. It's for the times when we're doing something which may be unpopular. That is our assignment.

And I think Paul Volcker kind of established that. That was really not...

quite so clearly established at the time. So I'm going to go with Paul Volcker. Okay. I'm going to out you on a private conversation, but I don't think you're going to mind too much, which is the Cork Center that hosts this event has a bunch of experts panels of economists where you can go ahead and answer a bunch of questions. They'll tell you who your favorite economist is. And Jay Powell's favorite economist is Anil Kashyap. Okay.

Let me tell you, this is a true story, and that was not a happy day. Learn that, you know. Anyway, well, thank you, and we're so glad that you were able to be here and share your thoughts. Great. Thanks very much. Thank you.

Okay, that's Fed Chairman Jay Powell wrapping up his remarks here in New York City. Remarks I might add if we show you a live picture of the market. In fact, we should show you an intraday of the S&P 500 because the market definitely came off of its lowest levels.

As the Fed chair really projected some confidence, he said they can wait and see on what the result of all of these policy changes of the administration is going to be. He did say the economy is growing at a solid pace. There is heightened uncertainty, he acknowledged. He does also acknowledge the policy changes that he expects to come.

saying he does expect a, quote, bumpy inflation path to 2%. In terms of the tariffs, he said, well, if the spikes cause a one-time thing, then it's not appropriate to react to that. I think it was along the lines of that commentary from the Fed chair, as our Steve Leisman joins us now, that really gave the market a bit of soothing, if you will, Steve, that they can wait and see that they're not going to react to anything now.

I think that's a good way to put it, Scott. The Fed is in no hurry. The Fed doesn't feel as if weak economic growth, soft jobs numbers are nipping at its heels, forcing it to do anything. It doesn't see the inflation right now. It has a, what's the right word, the option to look through tariff-induced inflation, at least for a while.

I do think it cuts both ways, Scott. And if you look at the Fed Fund futures, which I am looking at, little change, even a touchdown, not really worth talking about. But the market's pretty aggressive in its pricing for rate cuts coming in June, the first one, September, the second one, December, the third one.

That patience is going to cut both ways, which is the Fed is going to wait until it sees the whites of the eyes. There are people, though, Scott, I will say, that think the Fed will be much more sensitive to weaker economic growth than it will be to a bit of inflation on the upside if it happens that way. So that's a judgment that people are making about

the Fed. If you think about it symmetrically, then you might think, you know, the Fed is in no particular hurry. But if these jobs numbers weaken, he did talk about, by the way, it's worth pointing out, the possibility of reduced consumer spending. So that's something to monitor, but not necessarily to panic about right now. That feels like a really good read through to me, Steve, that he's essentially telling you just that, that if

there is an initial move up in prices they're not going to be so reactive to it

because it could very well be a one-time thing where he made the distinction. It's really about the longer term inflation expectations, he said. But of course, if the labor market starts to weaken, if the economy starts to weaken a bit, and by the way, he almost looked through their recent sentiment reads too from the consumer where he said it's not a great predictor of spending, but that they would be more reactive to your point about any weakening on that side of the ledger rather than any strengthening on the other.

Yeah, this is an interesting read, Scott, of the difference between markets and the way economists look at these things. Markets are kind of attuned to these sentiment numbers. Economists, less so, because they've seen times when sentiment is really negative and spending can be high. And, of course, the reverse. So less concern, I think, overall.

at the Fed with soft data than they have with hard data, which they'll be watching more closely, the spending numbers, watching the business investment numbers. And I think it's also really important to take Powell at his word when he says, look, I see these four things that the administration is changing, regulatory policy, immigration, trade, and fiscal policy, and say, I am taking them as a whole, Scott, not one by one.

Gotcha, Steve. We'll keep watching the market, obviously, which is going to continue to be pushed and pulled from some of the policy coming out. And frankly, the remarks coming out of the Oval today that Megan Casella had brought to us earlier, where we're expecting those reciprocal tariffs at the very early part of April. Well, maybe could come as early as today, the president said, perhaps Monday or Tuesday. Just wanted to wrap that up for you. I'll see you on the closing bell. You'll see Steve again. We'll see what the markets do. And I'll send it now to the exchange.

You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern, only on CNBC.

Thank you.

Thank you.

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