00:00Ghanit Dhingra and the team at BNP Paribas are now calling for the Federal Reserve to hike,
00:04writing, we expect the Fed to reverse 2025 insurance cuts at sequential meetings beginning
00:10in December. There can be no guarantee it would stop at three. Ghanit joins us now for more. Ghanit,
00:16good morning. Good to see you. Good to see you as well. You put out a note recently on fixed
00:19income
00:19on 30-year yields as well. I'm going to save some time for that. Let's just start with the Fed
00:22call.
00:23It's fresh. What changed your mind at BNP? Yeah, so I think we've been arguing that the Fed call
00:27depends on a couple of reasons. The budding inflation risks are visible in a couple of data
00:32points. Number one, the labor market. We just got the report. That was the trigger for making this
00:37change. We now think the unemployment rate is headed towards 4%, and we also think there's a risk to
00:43inflation expectations continuously getting de-anchored. I think this is one of the biggest
00:48blind spots I notice right now is every Fed official and investors talk about the break-even market
00:55as somehow signaling that inflation expectations long-term are in a good place. We strongly disagree.
01:02I think the issue is the break-even market is probably underpricing the true inflation risk by 20, 30 basis
01:09points,
01:09and that's because if you think about the risk-on, risk-off characteristics of the market,
01:14it tends to underperform in a world of high risk. So what happens now is every Fed official,
01:20every investor thinks the market's giving the Fed a thumbs up on inflation expectations, but I would
01:27think of the break-even market as a faulty fire alarm. It's a malfunctioning fire alarm. You rely on
01:33it to get that signal, but you're not getting it, and I feel like inflation expectations, a tight labor
01:39market, both are signaling cause for concern. We need to see the Fed remove the easing bias and
01:45ultimately remove the insurance cut from last year. That leads us to three hikes starting in December.
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