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00:00AT THE UNIVERSITY OF OR GONE. TIM, MY FIRST QUESTION, DO YOU THINK THE FED PROVIDED THE CLARITY THAT THE MARKETS REALLY NEEDED HERE? TIM: I THINK THE ANSWER IS NO. THE MARKET NEEDED MORE RECOGNITION THAT THERE IS DOWNSIDE RISK. THEY DIDN ' T REALLY GET ENOUGH OF THAT OUT OF THE FED STATEMENT. ALL THE STATEMENT AND ANCILLARY MATERIALS TALKED ABOUT GROWTH WAS SLOWING, BUT IT ' S REALLY ONLY AGGRAVATED THE ANXIETY OF WALL STREET BECAUSE YOU HAVE GROWTH SLOWING AND CONTINUED INTEREST RATE HIKES. THAT WAS NOT THE MESSAGE THAT WALL STREET NEEDED TO HEAR THIS WEEK. JOE: WHEN CHAIRMAN POWELL TALKED ABOUT 2019, HE SAID MAYBE THE ECONOMY WILL NOT BE AS KIND AS THE FORECAST. HE SAID THEY WILL DO WHAT IT TAKES TO KEEP THE LABOR MARKET ROBUST. HE TALKED ABOUT 2016 AND HOW THEY EXPECTED TO HIKE SEVERAL TIMES, AND ONLY HIKED ONE TIME. DO WE EMPHASIZE THE SIGNIFICANT DEGREE OF FLEXIBILITY IN DATA DEPENDENCY? YOU WOULD THINK THAT WAS THE TYPE OF THING THE MARKET WOULD WANT TO HEAR, BUT WHY DO YOU THINK THAT ' S MESSAGE DID NOT COME THROUGH? TIM: I THINK IT WAS A HARD MESSAGE TO DELIVER IN THE CONTEXT OF BOTH THE WAY THE STATEMENT WAS WRITTEN, WHICH DID NOT GIVE ENOUGH I THINK, UNCERTAINTY ABOUT THE FORECAST. THEN, THE FORECAST, WHICH WAS DOWNGRADED A LITTLE MORE AGGRESSIVELY THAN THE DOCUMENTS WERE DOWNGRADED, -- DOTS WERE DOWNGRADED. THE TOTAL MESSAGE DID NOT COME THROUGH THE WAY THE CHAIR MIGHT HAVE WANTED TO. CAROLINE: TO THAT NOTE, WE SPOKE WITH WILLIAM DUDLEY OF THE FEDERAL RESERVE IN THE BANK OF NEW YORK EARLIER, AND HE SAID THE FED IS NOT THERE TO TAKE AWAY THE MARKET PAIN. SHOULD THE FED CARE WHAT THEY ARE SAYING WITH A EXACTLY WHAT THE MARKET WANTS TO HEAR? TIM: THE FED DOES NOT EXIST TO TAKE AWAY THE MARKET ' S PAIN, BUT THIS DOWNTURN WE HAVE SEEN AN EQUITY MARKETS HAS BEEN DEEP ENOUGH AND GONE ON LONG ENOUGH THAT FROM A MISMANAGEMENT PERSPECTIVE -- A RISK MANAGEMENT PERSPECTIVE, IT SHOULD RAISE QUESTIONS FOR THE FED AND THE POSSIBILITY OF DOWNSIDE RISKS. WE DON ' T KNOW VERY MUCH ABOUT THEM. I THINK THERE WAS A REALLY GOOD OPPORTUNITY HERE. AN OPPORTUNITY FOR THE FED TO SAY LET ' S PASS ON DECEMBER, NOT WORRY ABOUT THE MODELS SO MUCH, AND BE A MORE RISK MANAGEMENT MODE RIGHT NOW. WE CAN ALWAYS PICK THIS UP IN JANUARY. THAT IS -- THAT WOULD HAVE BEEN A BETTER APPROACH TO THIS. IT WOULD NOT HAVE NEEDED THE MARKETS IN SOME SENSE, BUT IT WOULD RECOGNIZE THERE IS SOMETHING GOING ON THAT MAYBE WE DON ' T COPPER MEANT -- COPPERHEAD AT THIS POINT. JOE: WHEN PEOPLE WERE TRYING TO FIGURE OUT WHAT THE DEFINITION OF A DOVISH HIKE WAS, I DIDN ' T SEE ANYONE FORECAST THAT THERE WOULD BE SOME MESSAGE ABOUT THE CHANGE TO THE BALANCE SHEET RUNOFF, YET, IF YOU LOOK AT THE MARKET REACTION YESTERDAY AND THE LOTS OF THE COMMENTARY TODAY, YOU SEE DISAPPOINTMENT THAT CHAIRMAN POWELL WAS NOT MORE FLEXIBLE WITH THE RUN-UP. COULD YOU EXPLAIN WHAT IT WAS ABOUT THE MESSAGE THAT SEEMED TO UNNERVE PEOPLE BECAUSE IT DONE -- DID NOT SEEM LIKE THIS WOULD EVER BE IN PLAY? PROF. DUY: I THINK THERE WAS A HOPE THAT IF THE FED KEPT A HAWKISH INTEREST RATE PATH, THEY COULD COMPENSATE FOR THAT WITH CHANGING THE PACE OF THE BALANCE SHEET. OBVIOUSLY, THERE IS CONCERN ABOUT HOW THE BALANCE SHEET RUNOFF AND LIQUIDITY ON WALL STREET -- THERE IS AN UNDERLYING SENSE THAT MAYBE THIS WAS A WAY OUT FOR THE FED, AND THE FED DID NOT CHOOSE TO TAKE IT. ROMAINE: WHEN WE LOOK AT SOME OF THE MARKET SIGNALS WE ARE GETTING, IT SEEMS THE MARKET SEEMS TO BE SUGGESTING MAYBE THE DATA THE FED IS LOOKING AT IS TELLING A DIFFERENT STORY. I WONDER WHETHER WE GET TO A POINT WHERE THE MARKET COULD PROVE THE FED WRONG. IS THE FED MAKING A POLICY ERROR HERE OR IS IT THE MARKET MAKING THE ERROR? PROF. DUY: I WOULD SAY IT IS MORE LIKELY THE FED MAKING THE POLICY ERROR THAN THE MARKETS. IF YOU LOOK AT THE FED ' S POSITION, THE UNDERLYING DATA IS STRONG, BUT WE ALSO THINK THE UNDERLYING DATA IS IN TRANSITION FROM A FASTER TO SLOW GROWTH ECONOMY. THERE SHOULD BE SOME RISK THAT MAYBE IT SLOWS DOWN MORE AGGRESSIVELY THAN WE THOUGHT. WE HAVE POSTED A LONG SIGNIFICANT DOWNTREND IN THE EQUITY MARKETS, AND STRESS ANOTHER MARKET. WE HAVE A LOT OF UNCERTAINTY COMING OUT OF WALL STREET -- EXCUSE ME, AT THE WASHINGTON DC RIGHT NOW WITH TRUMP AND UNCERTAINTY. I THINK YOU PUT ALL OF THAT TOGETHER, AND TO TOP IT OFF, YOU DON ' T HAVE ANY SIGNIFICANT INFLATION AT TIMES. AT THIS POINT IN TIME, THERE IS A REAL GOOD REASON THE FED IS NOT TAKING A PATH THAT THIS MEETING, LET ' S SWITCH THE RISK MANAGEMENT MODE. THEY DIDN ' T TAKE THAT OPPORTUNITY. I WOULD SAY IT IS MORE LIKELY MISTAKE IN THE MARKET HAVING SOMETHING WRONG AT THIS POINT. CAROLINE: UNIVERSITY OF OREGON

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Fed Didn't Provide the Clarity the Market Needed, Univ. of Oregon's Duy Says

Timothy Duy, University of Oregon professor of practice, discusses the market reaction to the Federal Reserve's decision to raise interest rates. He speaks with Bloomberg's Romaine Bostick, Joe Weisenthal and Caroline Hyde on "Bloomberg Markets: What'd You Miss?" (Source: Bloomberg)

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