WEBVTT - Surveillance: U.S. Jobs Report With Walsh 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Farrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance and Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.520 dot Com and of course on the Bloomberg Termament. He 0:00:29.640 --> 0:00:32.520 is a former mayor of Boston. He is a Secretary 0:00:32.520 --> 0:00:36.000 of Labor of the United States of America. Marty Walsh 0:00:36.320 --> 0:00:40.600 here with our John Farrell after this interesting jobs report 0:00:40.640 --> 0:00:44.000 again the Dow up a hundred nineteen points, New York. 0:00:44.000 --> 0:00:46.320 I'm place to say, joining us now on TV and 0:00:46.400 --> 0:00:49.360 on Bloomberg Radio on the payrolls report. First reaction from 0:00:49.400 --> 0:00:52.920 the White House with US Labor Secretary Marty Wall. Secretary Walls, 0:00:52.920 --> 0:00:55.279 great to catch up with you, sir, as always, how 0:00:55.400 --> 0:00:57.120 me with this one, because we've all struggled with this 0:00:57.200 --> 0:01:00.080 labor market report this morning. How would you characterize the 0:01:00.160 --> 0:01:02.760 state of the labor market right now? Sexually? Welsh? In 0:01:02.800 --> 0:01:05.720 the United States, I would say, if you look at 0:01:05.760 --> 0:01:08.320 what's happened since President Biden's Tacond office, you dropped two 0:01:08.400 --> 0:01:11.880 points off the unemployment numbers, I'd say we have a strong, strong, 0:01:12.160 --> 0:01:15.080 strong market moving forward. Obviously, we have job openings that 0:01:15.120 --> 0:01:16.920 we have to work on, and we still have people 0:01:16.920 --> 0:01:19.640 out of work. And as you mentioned in in the 0:01:19.720 --> 0:01:22.880 in the words before I came on here, we're still 0:01:22.920 --> 0:01:25.399 dealing with the coronavirus. We're looking at the new variant 0:01:25.400 --> 0:01:27.760 now to see what the impacts that will have. But overall, 0:01:28.200 --> 0:01:30.039 we feel good. I feel good about where we're going 0:01:30.040 --> 0:01:32.920 as an economy here. Obviously you brought out inflation up 0:01:32.920 --> 0:01:34.640 as well. You know, the President made a moves this 0:01:34.680 --> 0:01:37.760 week with with the oil reserves and also you know, 0:01:37.880 --> 0:01:41.240 creating an economic plan. We're seeing people with with more 0:01:41.280 --> 0:01:44.399 opportunities and more more money in their bank accounts than 0:01:44.440 --> 0:01:47.240 this time last year or pre pandemic. I guess I 0:01:47.240 --> 0:01:49.360 should say. So, you know, we still have work to do, 0:01:49.400 --> 0:01:51.120 there's no question about it, but but I feel good 0:01:51.120 --> 0:01:52.880 where we're headed. Let's talk about that work and the 0:01:52.920 --> 0:01:54.440 work we still need to do. As you know, we 0:01:54.520 --> 0:01:56.800 talked a lot about where wages are close to five pc, 0:01:57.360 --> 0:01:59.560 the low ware inflation is currently and going into next 0:01:59.600 --> 0:02:01.280 week up leave a lot of people in this economy, 0:02:01.280 --> 0:02:03.880 in this market on wall straight. Secondly, walls looking for 0:02:03.920 --> 0:02:06.840 something closer to seven on c P I, do you 0:02:06.880 --> 0:02:10.840 still see the benefits of running this economy? Halts? Secondly, well, 0:02:10.919 --> 0:02:14.120 so the benefits to doing that as you see things well, well, 0:02:14.200 --> 0:02:15.639 you know one of the things that's want to talk 0:02:15.919 --> 0:02:17.679 this week, I went out to Los Angeles. I was 0:02:17.720 --> 0:02:20.079 out at the ports in Los Angeles and Long Beach, 0:02:20.240 --> 0:02:22.240 and when you think about the economy, you think about 0:02:22.240 --> 0:02:24.160 people coming back to work. One of the things when 0:02:24.200 --> 0:02:26.079 I was out there, you know we have the long show. 0:02:26.080 --> 0:02:28.800 I'm in working seven, not every day, but but the 0:02:28.840 --> 0:02:31.600 ability to work seven. We're seeing the ships come in 0:02:31.639 --> 0:02:33.840 with seeing the ships unloaded. And there's an issue with 0:02:33.880 --> 0:02:36.040 truck driving. And when you think about when you think 0:02:36.040 --> 0:02:38.519 about this economy and we think about all the different aspects, 0:02:38.720 --> 0:02:40.440 we really we have to be more intentional now and 0:02:40.520 --> 0:02:43.000 focus in certain areas and how do we create better opportunities. 0:02:43.000 --> 0:02:44.920 So truck driving is one of those areas that we 0:02:44.960 --> 0:02:47.240 have to create better pathways to bring more people back 0:02:47.280 --> 0:02:50.280 to work. When you look at this report, you see manufacturing, uh, 0:02:50.320 --> 0:02:52.720 the numbers are high. You look at transportation, the numbers high. 0:02:52.919 --> 0:02:55.480 You look at hospital care and healthcare, the numbers on 0:02:55.560 --> 0:02:57.400 as high. So we have to we have to start 0:02:57.440 --> 0:03:00.680 the focus now intentionally in different different actors of the 0:03:00.720 --> 0:03:02.799 economy to make sure we get we get people trained 0:03:02.840 --> 0:03:04.400 out and get people back to work. So this is 0:03:04.400 --> 0:03:06.320 not about a broad based effort to run an economy. 0:03:06.360 --> 0:03:09.160 Hall you think this is about specifically targeting certain sectors. 0:03:09.360 --> 0:03:11.400 Is that right? Right? Well, I think we have to 0:03:11.440 --> 0:03:13.600 target certain sectors now to bring those sectors back. I mean, 0:03:13.639 --> 0:03:17.240 we look at some of these numbers hospitality this month. Uh, 0:03:17.280 --> 0:03:19.239 the numbers are kind of when I don't want to 0:03:19.280 --> 0:03:22.080 say flat, but we didn't see growth on hospitality. We 0:03:22.120 --> 0:03:24.800 didn't see growth in construction. We saw growth in construction 0:03:24.800 --> 0:03:27.120 in the sector. We didn't see any growth actually job 0:03:27.160 --> 0:03:29.359 loss in the government sector. So we really have to 0:03:29.360 --> 0:03:31.280 start looking at these different sectors and see what the 0:03:31.280 --> 0:03:33.680 supports they need. And that's quite honestly why in the 0:03:33.720 --> 0:03:36.920 Build Back Better Reconciliation plan the President has put out there, 0:03:37.120 --> 0:03:39.520 there's twenty there's a couple of I think almost twenty 0:03:39.520 --> 0:03:43.040 billion dollars in job training, workforce development money that will 0:03:43.080 --> 0:03:45.120 allow us the opportunity here at the Department Labor to 0:03:45.160 --> 0:03:48.000 kind of focus on other sectors to help create and 0:03:48.200 --> 0:03:50.080 build them up. The reason I asked this question is 0:03:50.120 --> 0:03:52.240 because there was a big effort to get us back 0:03:52.280 --> 0:03:54.400 to where we were before the pandemic. And one measure 0:03:54.400 --> 0:03:57.280 of that one metric was the employment of population ratio, 0:03:57.320 --> 0:04:00.000 which is back to about fifty nine before the pandemic, 0:04:00.040 --> 0:04:02.360 make it was at about sixty one. And secondly, what 0:04:02.520 --> 0:04:04.880 was the federal reserve? The administration has talked about getting 0:04:04.880 --> 0:04:07.720 back to where we were. Do you think that's achievable? 0:04:08.120 --> 0:04:10.320 How dependent do you think this really is on just 0:04:10.400 --> 0:04:12.960 the virus? Is there's something else going on here in 0:04:12.960 --> 0:04:15.800 this labor market? Well? Yeah, I think we have to. 0:04:16.000 --> 0:04:17.960 I think we have to be realistic about the labor 0:04:18.000 --> 0:04:20.160 market and look at what is the future going to 0:04:20.240 --> 0:04:23.560 look like. I think that the pandemic has changed the way, 0:04:23.720 --> 0:04:27.040 or at least had conversations about the way the office 0:04:27.080 --> 0:04:30.520 looks people working, teller working. We've seen thirty percent I 0:04:30.520 --> 0:04:33.120 think last month if I get the number correctly, increase 0:04:33.200 --> 0:04:36.840 in entrepreneurship in this country. So you know there is 0:04:36.880 --> 0:04:39.120 an evolution and a change going on to some degree, 0:04:39.440 --> 0:04:42.360 I think that measuring measuring the way we do our 0:04:42.400 --> 0:04:46.320 economy back to February of I don't know what if 0:04:46.360 --> 0:04:48.880 they look like that when we get beyond the virus. 0:04:48.920 --> 0:04:51.839 But I definitely think that with the President and the 0:04:51.839 --> 0:04:56.200 administration staying focused on creating opportunities, five point almost six 0:04:56.240 --> 0:04:59.279 million jobs created since president by the Tacond Office. Four 0:04:59.320 --> 0:05:01.799 point two percent unemployment rate today, which is a good number. 0:05:01.960 --> 0:05:04.240 We obviously wanted to continue that number of going down. 0:05:04.720 --> 0:05:08.080 We've seen better participation in the black unemployment rate drop 0:05:08.279 --> 0:05:11.480 the whole percent women put unemployment rate four percent. We're 0:05:11.480 --> 0:05:13.640 starting to see some games here now, we do we 0:05:13.720 --> 0:05:15.960 still I think we have to continue to acknowledge his 0:05:16.040 --> 0:05:18.800 work to be done. Do you personally have more work 0:05:18.839 --> 0:05:21.200 to do in the seat you're in right now, Secretary Walsh, 0:05:22.040 --> 0:05:23.520 No question about it. I mean we have a lot 0:05:23.520 --> 0:05:25.800 of work to do. We have to work on making 0:05:25.839 --> 0:05:29.800 sure that we implement the unemployment insurance UM work that 0:05:29.839 --> 0:05:33.440 we're doing and kind of reorganizing unemployment insurance two million, 0:05:33.480 --> 0:05:36.400 two billion dollars. We have an office created job Force 0:05:36.440 --> 0:05:39.000 workforce development training money. I really want to look at 0:05:39.160 --> 0:05:41.880 changing the way we train workers. I think we want 0:05:41.880 --> 0:05:43.520 to make sure we're training workers not just for the 0:05:43.600 --> 0:05:45.640 jobs of today, but the jobs of the future, and 0:05:45.720 --> 0:05:48.440 thinking about more creating more pre apprentice programs. We have 0:05:48.520 --> 0:05:50.039 a lot of work to do here at the Department 0:05:50.080 --> 0:05:52.159 Labor the reason, so it's not a personal attack. There 0:05:52.240 --> 0:05:54.280 was just some news this week that maybe you might 0:05:54.320 --> 0:05:56.320 be interested in the seat that Charlie Baker might leave 0:05:56.320 --> 0:05:59.080 empty in the coming here. Do you want to respond? 0:05:59.560 --> 0:06:02.320 Do you want to sponsored? You'll put that right over 0:06:02.480 --> 0:06:04.880 right head. I wasn't even paying attention as I said, 0:06:04.880 --> 0:06:06.000 I have a lot of work to do here at 0:06:06.000 --> 0:06:08.880 the devironment of latter, Lady Kelly says, you're weighing the run. 0:06:09.680 --> 0:06:12.640 Is that true or false? Well, listen to the governor 0:06:12.760 --> 0:06:15.279 myself have a great relationship. You know, we were partners 0:06:15.279 --> 0:06:18.080 for seven years, six years in Boston. I was one 0:06:18.160 --> 0:06:20.279 year of Governor Patrick. We did a lot of work. 0:06:20.360 --> 0:06:23.719 We we what we started the pandemic together. We've got 0:06:23.760 --> 0:06:26.320 the city of Boston, the Carmalton, Massachusetts at least through 0:06:26.320 --> 0:06:28.800 the beginning days of the pandemic. And for the last 0:06:28.839 --> 0:06:30.960 week I've been I've been out in l a long beach, 0:06:31.400 --> 0:06:34.120 all over the country here in Washington today. So I'll 0:06:34.160 --> 0:06:35.920 leave it at that. Should I take a signal from 0:06:35.960 --> 0:06:40.160 your refusal to answer that direct question? There's no signal. 0:06:40.200 --> 0:06:42.760 I love my job here. Secondary Welsh will let you go, sir, 0:06:42.839 --> 0:06:44.600 I know you've got a busy morning. Thank you, thanks 0:06:44.600 --> 0:06:47.240 for being with us. The US Labor Market Secretary Marty 0:06:47.320 --> 0:06:55.360 Welsh that it's not much here to steer the feed 0:06:55.440 --> 0:06:58.080 away from what they've discussed all week. When they get 0:06:58.120 --> 0:07:00.760 together on December fifty and this real you have sizes 0:07:00.760 --> 0:07:02.600 of me, John, They're just gonna wait for more data. 0:07:02.680 --> 0:07:07.080 With two different reports there and a lot of people partists, 0:07:07.080 --> 0:07:12.400 including Jeffrey Rosenberg, portfolio manager of Systematic Multi Strategy Fund 0:07:12.680 --> 0:07:16.520 at black Rock. Jeffrey, when you get ambiguity like this, 0:07:16.920 --> 0:07:20.960 what do you do well, it's a really interesting report. 0:07:21.000 --> 0:07:24.160 I think you guys have broken it down well that 0:07:24.480 --> 0:07:27.160 it may not be so ambiguous when you when you 0:07:27.280 --> 0:07:31.200 look behind the headline. The headline is the disappointment on 0:07:31.280 --> 0:07:33.760 to ten. But as Mike McKee just went through, a 0:07:33.840 --> 0:07:37.000 lot of that looks like seasonality and the impact of 0:07:37.040 --> 0:07:40.320 seasonal flows coming in lower than what the seasonal factors 0:07:40.360 --> 0:07:43.920 would otherwise expect, and so you get some disappointment on 0:07:43.960 --> 0:07:47.400 the headline. As Jonathan just went through, the initial market 0:07:47.440 --> 0:07:51.560 reaction is all the machines looking at that headline number, 0:07:52.160 --> 0:07:54.560 give it a minute and you look at what Lisa 0:07:54.640 --> 0:07:57.960 talked about, which I think is the much stronger message here, 0:07:58.200 --> 0:08:03.040 that decline in these unemployment rates, the impact of labor 0:08:03.080 --> 0:08:07.240 force participation finally coming back. This is the strength of 0:08:07.360 --> 0:08:10.040 the underlying labor market that is speaking here. And I 0:08:10.040 --> 0:08:12.560 think when you look at the market reaction kind of fading, 0:08:12.560 --> 0:08:16.640 that initial disappointment is spot on, and that's really the 0:08:16.640 --> 0:08:19.320 bigger message. And Tom to your last point, I don't 0:08:19.320 --> 0:08:22.400 think this report really changes anything from the from the 0:08:22.400 --> 0:08:25.440 FED with regards to the labor market, but it is 0:08:25.720 --> 0:08:29.640 obviously the cross currents between the headline and the underlying components. 0:08:29.680 --> 0:08:32.160 I think the underlying components here are much stronger. Jeff, 0:08:32.160 --> 0:08:33.640 we got to talk about the FED when they get 0:08:33.640 --> 0:08:35.600 together on the fifth. It's not just about the type 0:08:35.640 --> 0:08:39.719 of conversation. Let's discuss their fullecast year and next year 0:08:39.760 --> 0:08:42.679 they've got unemployment at three point eight percent. Jeff, were 0:08:42.679 --> 0:08:45.440 almost there at full point to how much of an 0:08:45.440 --> 0:08:48.960 adjustment do we need to see in a couple of weeks. Yeah, 0:08:49.000 --> 0:08:52.040 we could certainly see the adjustments come down. Uh, you know, 0:08:52.080 --> 0:08:55.720 as they keep pace with how rapidly the labor market 0:08:55.840 --> 0:08:59.720 is is improving. I think they're closer on the on 0:08:59.760 --> 0:09:02.160 the jobs front than the other forecast, which is of 0:09:02.480 --> 0:09:05.520 course the big topic, which is their their inflation forecast, 0:09:05.760 --> 0:09:08.959 and I think that's going to be the driver into 0:09:09.000 --> 0:09:12.120 December fifte And of course, you know the other big story, 0:09:12.200 --> 0:09:14.199 the elephant in the room here is that this report, 0:09:14.640 --> 0:09:16.720 you know, doesn't have any of the COVID, any of 0:09:16.760 --> 0:09:20.160 the O Macron issues that we still have in front 0:09:20.200 --> 0:09:21.960 of us. So over the next ten days we're going 0:09:22.040 --> 0:09:24.360 to find out a lot more. That's going to drive 0:09:24.520 --> 0:09:28.200 that debate into the FED meeting on the fifteen. Jeff, 0:09:28.200 --> 0:09:30.280 I would agree with you that the underlying components are 0:09:30.360 --> 0:09:33.960 much more interesting and point to a very strong report. 0:09:34.000 --> 0:09:37.880 Aside from that headline, Miss I am though confused by 0:09:38.040 --> 0:09:41.160 average hourly earnings and how much we're seeing wages increase. 0:09:41.480 --> 0:09:44.400 That was a disappointment and to me it actually fell 0:09:44.480 --> 0:09:47.520 in terms of the pace of wage rises from month 0:09:47.640 --> 0:09:51.880 to month. What do you make of that? Yeah, it's 0:09:51.960 --> 0:09:55.160 hard exactly to to know what's going on there. A 0:09:55.240 --> 0:09:59.920 lot of the month to month variability, Lisa is confu 0:10:00.160 --> 0:10:04.920 using based on the shift in the underlying mix of 0:10:04.960 --> 0:10:08.040 who's coming in, who's coming out. So when you look 0:10:08.080 --> 0:10:11.400 at average hourly earnings as opposed to other measures like 0:10:11.440 --> 0:10:15.600 employment cost index UH, what you end up seeing is, 0:10:15.720 --> 0:10:19.080 you know, a measurement of two things, what's the change 0:10:19.120 --> 0:10:21.960 in who's coming in and out and what's the change 0:10:21.960 --> 0:10:23.520 and what they're getting paid. And so when you have 0:10:23.920 --> 0:10:29.880 more lower wage workers entering the pool relative to higher 0:10:29.880 --> 0:10:32.480 wage workers, it can push down what you see in 0:10:32.559 --> 0:10:35.640 average hourly earnings. Even if what we think of is 0:10:35.679 --> 0:10:39.480 kind of a fixed pool of workers, wages are going up. 0:10:39.520 --> 0:10:43.600 The message on those fixed pool UH metrics have been 0:10:43.720 --> 0:10:47.280 for a while now clear that we're seeing pricing power 0:10:47.360 --> 0:10:50.960 come back to wages. And I don't think this disappointment 0:10:50.960 --> 0:10:54.079 on average hourly earning should be overly interpreted as as 0:10:54.120 --> 0:10:56.600 kind of challenging that story. I think it's still a 0:10:56.640 --> 0:11:01.680 strong labor market, with strong labor market racing and wage inflation. 0:11:01.880 --> 0:11:03.680 Fifty minutes away from the up and in Bow States 0:11:03.720 --> 0:11:06.120 side features up eighteen up four tents of one percent 0:11:06.160 --> 0:11:08.960 on the NaSTA and NaSTA one hundred features of six 0:11:09.000 --> 0:11:11.080 tenths of one percent. Counting down to the up and 0:11:11.080 --> 0:11:13.600 in Bow will be catching up with Muhammad al Arian 0:11:13.640 --> 0:11:18.040 of Rick Reida, Mike Collins, and Anastasia Amarosso Tom to 0:11:18.160 --> 0:11:20.400 really break down this job to report and get first 0:11:20.400 --> 0:11:22.800 reaction as well from the White House in about fifty 0:11:22.800 --> 0:11:26.000 minutes time. The reaction as well of a market lifting up. 0:11:26.040 --> 0:11:28.839 I note the nas deck one after all this up 0:11:28.880 --> 0:11:30.840 six tenths of a percent, and the VIX is a 0:11:30.920 --> 0:11:34.440 key statistic for me really escaping the thirty and twenty 0:11:34.480 --> 0:11:37.240 eight level in the twenty six point one eight Again, 0:11:37.320 --> 0:11:40.400 Jeffrey Rosenberg with us with black Rock, Jeff, I I 0:11:40.440 --> 0:11:44.200 want to talk about systematic and your responsibilities of black Rock, 0:11:44.720 --> 0:11:46.120 and I don't want to care about I don't care 0:11:46.120 --> 0:11:49.120 about systematic the twelve thirty one or even out in 0:11:49.160 --> 0:11:54.240 the January. How are you managing an allocating capital outter 0:11:54.320 --> 0:11:59.960 the middle of next years, say the July FED meeting. Yeah, 0:12:00.280 --> 0:12:03.000 this is a really good question, Tom, because what we're 0:12:03.080 --> 0:12:06.839 really debating is, you know, the bigger picture away from 0:12:06.880 --> 0:12:11.080 today's report is the FED is talking about accelerating the 0:12:11.120 --> 0:12:14.280 pace of tapering, which is so that they can accelerate 0:12:14.320 --> 0:12:17.280 the pace of tightening. Uh. And you know markets have 0:12:17.360 --> 0:12:20.000 priced that in so so a lot of that changes 0:12:20.080 --> 0:12:22.840 with us. The bigger change that we all have to 0:12:22.920 --> 0:12:26.640 contemplate is the impact on real interest rates. You've had 0:12:26.760 --> 0:12:33.040 a spectacular level of support for acid inflation across all markets, 0:12:33.040 --> 0:12:37.680 whether they be financial markets or otherwise, from exceptionally low 0:12:37.800 --> 0:12:40.400 levels of real interest rates, and the FED is basically 0:12:40.440 --> 0:12:44.000 saying it's time to change that outlook. So we should 0:12:44.040 --> 0:12:48.240 expect a very different financial market outlook in an environment 0:12:48.320 --> 0:12:54.000 where FED policy is reacting to the exceptionally accommodative UH 0:12:54.040 --> 0:12:57.040 settings of negative real interest rates. And so that challenges 0:12:57.120 --> 0:13:01.760 a lot of investment returns that you've seen investment portfolio 0:13:02.280 --> 0:13:05.559 UH strategies, and so we're looking at, you know, where 0:13:05.559 --> 0:13:08.840 are their vulnerabilities and where are their opportunities in a 0:13:09.000 --> 0:13:12.400 rising real rate environment. I just want to point out 0:13:12.440 --> 0:13:15.360 that as we speak and as traders passed through this report, 0:13:15.640 --> 0:13:18.360 two of your treasure yields have turned positive or turned 0:13:18.360 --> 0:13:21.120 positive on the day. I should say, uh, once again, 0:13:21.240 --> 0:13:26.720 zero point six people assessing the underlying components here and 0:13:26.760 --> 0:13:30.760 seeing a very strong report. Jeff, with respect to FED hiking, 0:13:30.920 --> 0:13:34.560 how many rate hikes can this market withstand and not 0:13:34.640 --> 0:13:40.080 be disrupted from a risk asset performance perspective? Really great question, 0:13:40.120 --> 0:13:42.200 because look at what the bond market is telling you 0:13:42.280 --> 0:13:46.400 with this massive curve flattening, right, So it's a very 0:13:46.400 --> 0:13:50.000 clear message from the bond market that it can't withstand 0:13:50.080 --> 0:13:55.280 that much increases. So what you see priced into bond 0:13:55.320 --> 0:13:58.720 markets is an expectation that the Fed is going to 0:13:58.880 --> 0:14:02.000 do what they're telling you increase the pace of of 0:14:02.160 --> 0:14:05.800 rate increases. We've priced in from one hike in two 0:14:05.840 --> 0:14:08.320 thousand twenty two to two hikes, so it's not a 0:14:08.440 --> 0:14:11.720 super aggressive increase. And when you look further out, you 0:14:11.760 --> 0:14:15.080 see that that pace of pricing in of interest rates 0:14:15.080 --> 0:14:17.880 by the Fed starts to fade relative to the feds 0:14:17.920 --> 0:14:21.240 dot plots, and that is reflective of the expectations that 0:14:21.520 --> 0:14:26.200 the market, financial market conditions tightening, the impact of rising 0:14:26.200 --> 0:14:30.320 real interest rates just can't handle as much of a 0:14:30.400 --> 0:14:34.120 normalization of interest rates as the kind of full trajectory 0:14:34.280 --> 0:14:37.160 of Fed normalization and the dot plots otherwise would say. 0:14:37.280 --> 0:14:39.960 And that flattening of the yield curve, you know, is 0:14:40.000 --> 0:14:42.960 a message that we should pay attention to. It's basically 0:14:43.000 --> 0:14:47.720 saying as you move into an aggressive FED tightening policy, 0:14:47.760 --> 0:14:51.080 that the impact is going to slow the economy, tighten 0:14:51.120 --> 0:14:55.080 financial conditions, and is A is A is a warning 0:14:55.240 --> 0:14:59.640 of a recessionary indicator. Whether the FED goes there will see. 0:15:00.080 --> 0:15:02.120 But that's what the bond market is saying. Okay, I 0:15:02.360 --> 0:15:04.280 agree the bond market is saying that very quickly. Or 0:15:04.320 --> 0:15:07.200 Jeff Rosenberger, as we move on to the equity markets, 0:15:07.240 --> 0:15:10.600 the ambiguity of today's report. Does it change the path 0:15:10.760 --> 0:15:16.040 or the belief the cadence of taper to titan. I 0:15:16.240 --> 0:15:18.400 don't think it. I don't think it does. I think 0:15:18.440 --> 0:15:21.120 that and as Lesa just highlighting, you know, the turnaround 0:15:21.120 --> 0:15:23.240 in the two years. I think the market figuring out 0:15:23.280 --> 0:15:27.200 that this isn't gonna this is not a disappointing a 0:15:27.320 --> 0:15:30.760 playrole report that takes the FED out. So I think 0:15:30.800 --> 0:15:34.000 the pace is as the market the narrative is is 0:15:34.040 --> 0:15:38.800 still the same pricing in the acceleration. Now how far 0:15:39.080 --> 0:15:41.280 the market gets ahead of the Fed, or whether the 0:15:41.320 --> 0:15:44.440 market can push the FED to go even further than that. 0:15:44.640 --> 0:15:46.800 It's kind of the next phase. You know, we've priced 0:15:46.840 --> 0:15:50.280 in basically, you know, two hikes in two accelerating that 0:15:50.360 --> 0:15:53.520 first tike to June or July of next year. You know, 0:15:53.840 --> 0:15:55.880 will will we get more? I think we're gonna have 0:15:55.880 --> 0:15:59.520 to see more data, more worries from the Fed on inflation, 0:15:59.600 --> 0:16:02.800 and a willing this to be more aggressive before we 0:16:02.840 --> 0:16:05.080 get there. Jeff Rozenberg, thank you so much for the 0:16:05.120 --> 0:16:14.200 treatment this morning, on this job's report, right now, on 0:16:14.280 --> 0:16:17.800 this economy digestingness of employment report, and of course markets, 0:16:17.800 --> 0:16:20.920 A Dow up eighty three points, a lift not like 0:16:21.000 --> 0:16:23.280 the futures lift we saw off of a thirty, but 0:16:23.440 --> 0:16:27.200 nevertheless up here the VIX point five five a state 0:16:27.320 --> 0:16:30.720 of the American economy. Tiffany Wilding joins us with Pimco, 0:16:30.760 --> 0:16:36.280 their chief US economist. Tiffany, your excel spreadsheet into twenty two. 0:16:36.640 --> 0:16:40.720 What's the biggest economic plug in on your spreadsheet? What's 0:16:40.720 --> 0:16:45.840 the biggest mystery? Um? Well, with the labor market report today, 0:16:45.880 --> 0:16:47.400 I mean I think I would I would just point 0:16:47.400 --> 0:16:50.720 out the participation rate UM is going to be I think, 0:16:51.080 --> 0:16:54.440 really key UM, and how much labor supply you know, 0:16:54.480 --> 0:16:56.880 we do get back because you know, I think that, 0:16:56.960 --> 0:16:59.680 as Marty Wall sort of hinted at when he was speaking, 0:17:00.120 --> 0:17:02.920 I think the labor market post pandemic, you know, could 0:17:02.920 --> 0:17:06.440 look different in many aspects than it is pre pandemic. UM. 0:17:06.480 --> 0:17:08.320 You know, it's it's obviously been talked about that we 0:17:08.320 --> 0:17:10.840 we've had a lot of retirements as a result of 0:17:11.080 --> 0:17:13.800 this pandemic, and I think those people probably won't be 0:17:13.840 --> 0:17:15.439 as quick to come back to the labor market. But 0:17:15.440 --> 0:17:17.879 in addition to that, I think that there there's more frictions, 0:17:18.480 --> 0:17:21.000 um in this labor market now and and those have 0:17:21.080 --> 0:17:23.280 to do with, um, you know, the types of jobs 0:17:23.320 --> 0:17:26.879 that people prefer are changing and where jobs are are located, 0:17:26.880 --> 0:17:30.080 where they're demanded versus where the labor is supplied. That's 0:17:30.119 --> 0:17:32.440 also changed as a result of telework and people moving 0:17:32.440 --> 0:17:34.359 out of large cities. UM. So it's I think the 0:17:34.440 --> 0:17:36.640 question is how long do these things kind of take 0:17:36.640 --> 0:17:39.080 to resolve themselves. Um. And of course that's gonna that's 0:17:39.080 --> 0:17:41.840 gonna matter for the participation right next year. Yesterday Mark 0:17:41.880 --> 0:17:45.920 Kisel joined alber Intelligence Credit Panel and talked about how 0:17:45.960 --> 0:17:48.600 he was glad to see the FED changing its rhetoric 0:17:48.720 --> 0:17:52.119 and that the Federal Reserve is way behind the curve. Uh. 0:17:52.600 --> 0:17:55.080 Does that represent your view as well, and does this 0:17:55.160 --> 0:17:59.480 labor market really feed into that? Well? I mean, I 0:17:59.560 --> 0:18:02.640 think that are certainly a risk. Uh. You know that 0:18:02.680 --> 0:18:07.520 we have higher and more persistent inflation that than the Fed. Uh. 0:18:07.560 --> 0:18:10.800 You know or or other forecasters are projecting um. But 0:18:10.800 --> 0:18:14.280 but ultimately, though, I do think that the FED is 0:18:14.400 --> 0:18:17.879 managing the risk of of higher inflation by you know, 0:18:18.400 --> 0:18:20.280 by talking about the fact that they're probably you know, 0:18:20.320 --> 0:18:22.720 that they're going to increase the pace of tapering. We 0:18:22.760 --> 0:18:25.360 think they're now going to get the asset purchase programs 0:18:25.400 --> 0:18:28.639 done by March. That gives them more room this year 0:18:28.720 --> 0:18:32.240 to hike rates earlier, um than than we're previously thinking. 0:18:32.280 --> 0:18:34.520 We you know, we now think they probably hike in June. 0:18:34.880 --> 0:18:37.640 So I think the FED is is moving towards met 0:18:37.800 --> 0:18:41.879 or has moved towards managing these upside inflation risks, you know. 0:18:41.880 --> 0:18:45.800 And and ultimately, although inflation has proven to be more persistent, um, 0:18:45.840 --> 0:18:47.159 you know, we have to remember that we had the 0:18:47.200 --> 0:18:49.640 delta variant and the the COVID cases that have been 0:18:50.040 --> 0:18:53.040 more elevated, I think for longer than many expected as well, 0:18:53.080 --> 0:18:55.800 and that had you know, implications for not only US 0:18:55.880 --> 0:18:58.399 inflation but also global inflation. So our you know, our 0:18:58.440 --> 0:19:01.560 own view is still that inflation does moderate next year, 0:19:02.119 --> 0:19:03.600 you know, And that and that the FED really isn't 0:19:03.760 --> 0:19:05.639 behind the curve. But I think there's certainly a growing 0:19:05.760 --> 0:19:07.400 risk of that and a risk that the FED has 0:19:07.400 --> 0:19:09.800 to manage. There's also a growing risk that the FED 0:19:09.920 --> 0:19:11.879 is going to have to tighten conditions to deal with 0:19:11.920 --> 0:19:16.159 inflationary impulses that do not relate to monetary policy. The 0:19:16.200 --> 0:19:19.200 idea that Ellen Zentner raised of Morgan Stanley this morning 0:19:19.200 --> 0:19:22.240 that perhaps the Fed's response to omicron is to actually 0:19:22.480 --> 0:19:26.280 tighten sooner rather than later, simply because you see some 0:19:26.320 --> 0:19:30.640 of the supply chain disruptions persist. What's your view on that, well, 0:19:30.680 --> 0:19:33.520 I think one of the reasons, one of the things 0:19:33.520 --> 0:19:36.199 that have contributed to the elevated inflationary princes is the 0:19:36.200 --> 0:19:39.600 fact that we've have seen people substitute away from services 0:19:39.680 --> 0:19:43.119 towards goods um and that overall, you know, obviously the 0:19:43.640 --> 0:19:46.639 um you know, the post pandemic stimulus that we've gotten, 0:19:46.800 --> 0:19:51.240 you know, has boosted consumption of goods and in the capacity, 0:19:51.280 --> 0:19:54.239 and that's run up against a clear capacity constraints. So 0:19:54.280 --> 0:19:56.800 if you know, if if if a macron, uh, you know, 0:19:57.160 --> 0:20:02.160 you know, basically prolongs this very high, high high pace 0:20:02.280 --> 0:20:05.360 of of goods demand that we've seen over the last year, 0:20:05.680 --> 0:20:08.359 We're still going to have these sorts of capacity constraints. 0:20:08.520 --> 0:20:10.439 That we're running up against because it does seem like 0:20:10.440 --> 0:20:13.680 on the supply side, it's much less inelastic. In other words, 0:20:13.720 --> 0:20:16.040 it expands much less than we had fought, you know. 0:20:16.080 --> 0:20:18.960 So I think I think that there is room for 0:20:19.000 --> 0:20:22.119 the Fed to try to alleviate some of that demand 0:20:22.160 --> 0:20:25.080 a little bit until the supply can catch up. Um. 0:20:25.119 --> 0:20:27.040 But but you also have to remember here that it's 0:20:27.040 --> 0:20:30.920 tricky because monetary policy works through long and variable legs, 0:20:31.000 --> 0:20:33.320 and so the tightening that the Fed does today, you know, 0:20:33.400 --> 0:20:35.919 that really starts to uh, you know, filter through the 0:20:35.920 --> 0:20:37.760 economy in a more meaningful way, you know, a year 0:20:37.840 --> 0:20:40.080 to maybe even two years out. So um, you know, 0:20:40.080 --> 0:20:41.960 they have to be a little bit careful here. Is 0:20:42.000 --> 0:20:45.200 inflation going to come down by itself without the moving um, 0:20:45.240 --> 0:20:46.880