Danielle DiMartino Booth Appears on Schwab’s Network ‘Opening Bell’ To Discuss the Fed Rate Hike

Give it up for Danielle Di Martino. [music] >> Danielle Di Martino >> Danielle Di Martino Booth >> Welcome back to Opening Bell, getting you ready for the trading day. We're trying to make light of yesterday's big Fed meeting. Joining me right now Danielle Di Martino Booth, CEO and chief strategist at QI Intelligence. Thank you so much. Great to see you. Um look, the vote was unanimous yesterday. What were your takeaways from that Fed meeting? >> Well, there weren't too many to take away. Um you know, when we originally saw the statement, it seemed like it was maybe a dovish hike, and the dot plot um implied there's only going to be one more rate hike this year and none in 2027. And the odds of an October rate hike declined south of 40% at that point. And then Wurst took to the podium and boy did did the mood change. Um of course he didn't provide his own dot on the dot plot, but he revealed it in saying that uh that he he'd only seen uh Fed policy makers as having taken away a dose of accommodation. And that's when we saw the futures markets price in more than a 53% chance of a rate hike on October the 28th, 6 days before the midterms. Highly unusual to see the Fed be that political. So we'll have to wait and see how the data come out between now and then, but it would be crazy to see a rate hike 6 days before the midterms. >> Right. And that's that was sort of the thinking that they had to hike now because they don't really like to do stuff right ahead of the midterms, but I don't know whether or not they have to. I wrote down that dose, taking away the dose of accommodation, removing a dose of accommodation. I thought that was an interesting statement. I also think he tried to pad things a bit, but he really gave us a glimpse into an economy that was looking pretty good. >> That that's >> so? And do you think that can continue? >> That was his complete takeaway. It really was. Um there was a little bit >> though, because if you looked at yesterday morning's retail sales figures, for example, and you adjusted it for inflation, there's not much going on. You're actually seeing retail sales fall. So, what you're seeing is retail sales are are reported nominally. So, you're seeing prices paid, but on on a unit basis, yesterday we saw United Airlines, American Airlines both announce that they're going to be taking capacity out of the system because unit sales, the number of people buying airplane tickets are down. So, there's a lot of cross currents and I I would especially note that even though Wurst brought up the topic of geopolitics, that's not Wurst is not something that monetary policy can handle. >> Right. And and really the rate hikes don't bring oil down. >> No, of course not. >> it does is tries to, I guess, smooth out the things that high oil prices create. Trickle down to >> And prices >> Wurst said that, too. >> transportation >> and airlines and things like that. Um, and so he he seemed very committed, we'll deliver that price stability, thought it was the best for the people in the lowest um, economic brackets. He said for the the least well-off, we gain the most stable prices. That it'll help them the most. >> In theory, yes. >> credit card rates have just gone up. Um, you have 57% of Americans who took cash out refinancings in the second quarter >> Right. >> except at higher mortgage rates. Those are variable rate lines of credit. Those are going to see higher carrying costs um, for Americans who need um, access to cash more than anybody else. So, I I I think for small businesses, for households, I don't feel like yesterday was um, was helpful. >> Why are we hearing so much about the PCE? Is there going to be some sort of change in the next print >> There is. >> that maybe we didn't Yeah, because I think that's really important. >> It is. So, what we've had in the PCE is a quirk called portfolio management fees. In other words, it's not a reflection of demand just because you have higher assets under management, just because the stock market is going up. That doesn't reflect consumption or an increase in demand. So, the Bureau of Economic Analysis is going to tamp that input down. And we'll we're also going to see some downside with computers and peripherals because we've seen those prices falling. And on the flip side, because the consumer price index does not reflect um legal fees very well, that's going to feed through from the producer price index going forward. That will give us a little bit of upside to the PCE, because we've seen bankruptcy attorney fees go through the roof. Of course, bankruptcies are up year-over-year. Small business bankruptcies are up 64% year-over-year. Somebody's always going to make money in these environments, and right now it's bankruptcy lawyers. >> So, yeah, and that's not great. I mean, I don't love to hear that. So, what will be the takeaway after the next few prints? Are we going to say about inflation? >> Well, and that's the question, right? We saw some very strange seasonal adjustments in the payrolls data. We've got three payroll prints between now and the December FOMC meeting, and we will have to see. We've gone from about 4.7% to about three and change on the core PCE. It's humming in the right direction. And to Warsh's specific what he's watching, he wants to see a smaller percentage of prices going up by north of 3%. That's what he got in the latest PCE reading. It dipped below 50% compared to what he was concerned with when he was at Jackson Hole. >> So often you come on and and look, you're never too optimistic because you're cautious by nature. You had a role in the Fed in your >> I'm I'm ready to be not cautious. I'm I'm ready to be as optimistic as humanly possibly be. I want the private sector to take off. I've got four kids in college. We were just talking about that before. And these kids want to work, and they've got a an incredibly strong work ethic. I want to see the private sector reengage and hire more of them. >> You want to be optimistic, but often you come on and you tell me how households should be saving money and you're worried about a few things. You sound a little more optimistic than some of our prior interviews. Is that right? >> I want to be, Nicole. I really want to be. >> I want to >> [laughter] >> What I didn't want to see this morning was single family permits go down again. >> Yeah. >> You know, I want for there to be more construction, more single family homes that smaller families can get into as opposed to the McMansions that they really don't need with 1.2 children. Um so not all of us have that many kids. >> What about um when you think about the big picture and the folks that are taking that money out? You talked about 67% of Americans sort of re- what do you call it? >> refinancing with higher mortgage rates in the second quarter. That was data that hit last week. >> And we think about mortgage rates above 7%. So um how do you sort of fix that problem? Because you have credit card rates, auto loans, delinquencies, people taking out money. >> Again, you've got to have a a fatter financial cushion. >> But a lot of America is >> do if you can't make ends meet, if if you're spending so much at the gas pump and the grocery store. >> We think about um you know, and and couple of us alluded to this about what people are in the stock market and what people aren't. Um for those with 401(k)s and IRAs, which is a lot of our viewing audience, >> um do you expect that earnings can still be good? How will their portfolios fare on the current economy and the way businesses are running? There's still a lot of cap ex-spending. Talked about capital flows, particularly in the defense >> defense spending go through the roof as we saw I mean, the Philadelphia Fed is a hub of defense contractors and we saw major upside there because we are producing munitions and what have you. Business is good. >> is the thought for those uh more business-minded and maybe with some investments? >> think we should be very careful. The Financial Times has been doing some great analysis about how the hyperscalers are pumping up their earnings because every time OpenAI or Anthropic gets a new round of funding, that goes straight to the bottom line. So, I think investors should be careful about whether or not this AI trade, and we've seen we've seen since buybacks ended, we've seen the mag seven trick trick trick down down down. So, be as hedged as you feel like you need to be knowing that the stock market is is of course and has always been the the place to be over the long term, but be cognizant of the fact that this AI trade is very long in the tooth and we're beginning to see the revenue news, the cost of the tokens. We're we're beginning to see price declines there, and that's what's holding up this market. >> In addition to defense and oil. >> You know, when you say long in the tooth, it sounds like they're really get We always talked about return on investment and people want to see now. They really want show me the money type of thing. >> but right now they need to be I want to I want to be sure I get my return on capital. >> So, at this point now, and a lot of folks who come on say, "Look, we're only in the third inning of AI." Um you're here saying long in the tooth in that maybe that's the part of the AI, the return on capital part. >> It's not It's not the development of AI. I know we have the fear of, you know, how quickly we're doing it. But in the development of AI, do you see that going for a long time? >> Well, the thing is we we ran an analysis last week. Um my friend Anna Wong over at Bloomberg, she was able to demonstrate that not 50% of GDP growth, but 100% of GDP growth is coming from the AI trade. And we did a little bit bit of back checking on that and indeed indeed AI right now is more than 100% of US GDP growth. And typically when you get to that really high level, you have to start looking for turning points and we have indeed seen the the the growth rates begin to come down, Nicole. >> That That's not a that, you know, you don't want all your eggs in one basket. I mean, you know that. >> Diversify, diversify, diversify. And look at how much everything the manufacturing numbers is days. Look at how much cash is paying you these days, especially after yesterday. You can get 5% for just sitting on the sidelines and keeping your money in a really great money market fund in addition to what oil producers Look at Chevron hasn't cut its dividend in how many years? Decades? So, there are a lot of places that I think investors can be while diversifying and hedging away from this peaking AI trade. But, there are lots of places to go. >> So, there are when you comb through the numbers, you know, retail sales, they're not really um >> Adjusted for inflation. >> Adjusted for inflation. You know, your concerns about housing, you have the single-family homes not so great. Uh but, you want to be optimistic. It's It's just tough. I mean, Kevin Warsh is starting out in his role. Do you think he does anything in October, the final thought? Or maybe he he has the platform to say, "Let's wait and see how these take hold and let's you know >> Well, and he's talking about trends, trends, trends. A trend for an economist is 3 months in a row. So, if we see a continued decline in the core PCE, then I think he might establish that as having been a trend, but Uh he will keep all investors on their toes because he's making investors be the ones who follow the data, not investors following what the Fed how the Fed reacts to it. >> Okay. Well, it's great to see you, Danielle DiMartino Booth, Quill Intelligence. Thank you so much for being with us. After