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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz Jay Ley, we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

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Speaker 1: dot Com, and of course, on the Bloomberg terminal. We

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Speaker 1: do this each in every job's day A spirited conversation

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Speaker 1: with the Secretary of Labor. Here is John Farrell u S.

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Speaker 1: Labor Secretary Monty wolf Seconredy wolf St right to catch

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Speaker 1: up with you, sir? Does this make your job a

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Speaker 1: little bit easier going into the long weekend? It's certainly

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Speaker 1: going to Labor Day weekend having fifteen thousand jobs, add

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Speaker 1: the economy and the labor participation for what's number going

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Speaker 1: up as well, So that's that's a good way to

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Speaker 1: enter the Labor Day weekend. I been planning to ask

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Speaker 1: you this question since I went to Jackson Holle and

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Speaker 1: caught up with feedeficials last week. Love your reaction to this.

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Speaker 1: Do you think how our unemployment is a price worth

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Speaker 1: paying to get inflation lower? Say again, sorry, say it

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Speaker 1: one mo time. Do you think higher unemployment is a

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Speaker 1: price worth paying to get inflation lower. Uh No, I

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Speaker 1: don't think so, And I don't think that with the

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Speaker 1: case here. I think that. And again I don't want

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Speaker 1: to contradict what what the folks in the fet are saying.

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Speaker 1: But when you look at the job openings in America

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Speaker 1: right now, I think we're going to be consistently strong

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Speaker 1: as we move forward here. I think when to continue

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Speaker 1: to people be going back to work, having the unemployment,

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Speaker 1: having the labor participation rate getting bigger, I think that's important.

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Speaker 1: I think what's going to reduce the inflation is obviously

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Speaker 1: the inflation Reduction Acts will help us on that. The

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Speaker 1: gas prices continue to come down will help us on that.

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Speaker 1: And and then you know, I think the biggest unknown

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Speaker 1: is going to be what's happening with Russia and Ukraine.

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Speaker 1: This is what Chairman Pal said last week. He said

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Speaker 1: higher interest rates, slower growth, and a softer labor market

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Speaker 1: condition will bring down inflation. They will also bring some

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Speaker 1: pain to households and businesses. He said this a failure

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Speaker 1: to restore price stability would make far greater pain. You

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Speaker 1: say you disagree with that. Secondly, Wolf, so you know

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Speaker 1: I think I think that the Chairman certainly has has

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Speaker 1: has has a lot more knowledge on this than I do.

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Speaker 1: But what I my concern is, what I don't want

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Speaker 1: to see is is people being laid off. I want

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Speaker 1: to see continuou, seeing people go back to work, people

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Speaker 1: being able to earn good wages. I think that you know, overall,

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Speaker 1: and again, we're at a very interesting time when it

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Speaker 1: comes to our economy. Nothing that's been predicted or no

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Speaker 1: indicators that we've talked about in the last two years

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Speaker 1: is like any other time in the history of our country.

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Speaker 1: So I think that you know, as we think about

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Speaker 1: inflation coming down, there's lots of reasons for why inflation

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Speaker 1: went up, and it's not the same old pressures of

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Speaker 1: the past. Well, this is what sentence Warren had to

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Speaker 1: site to see an end over the weekend. Of response

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Speaker 1: to some of this, she said, you know what's worse

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Speaker 1: than high prices and a strong economy, it's high prices

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Speaker 1: and millions of people out of work. I'm very worried

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Speaker 1: that the FED is going to tip the economy into recession.

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Speaker 1: Do you worry about the same thing. No, I think

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Speaker 1: the Feds are going to be very careful and what

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Speaker 1: they're doing. I think they're taking a very uh consistent,

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Speaker 1: unique approach to what's happening here. And I think that,

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Speaker 1: you know, again, as we were already seeing some of

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Speaker 1: the inflationary pressures not come down enough, but we're starting

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Speaker 1: to see those numbers go down in the right direction. Clearly,

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Speaker 1: we have we have a ways to go before before

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Speaker 1: we get to where we want to be in our

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Speaker 1: economy when it comes to inflation and prices. But again,

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Speaker 1: all of this wasn't all of those clouds for different reasons.

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Speaker 1: And I think that, you know, we just need to

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Speaker 1: continue to work on supply chain. We need to continue

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Speaker 1: to get goods and service into our country and lawn term,

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Speaker 1: we need to produce more here in the United States

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Speaker 1: of America. Just for Americans looking down to DAYC at

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Speaker 1: the moment Secredy Walsh, I think they're hearing the Chairman

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Speaker 1: of the FEDS say one thing, and they're hearing another

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Speaker 1: thing from the White House. The Chairman of the Fed

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Speaker 1: is preparing the American people for pain, pain that we

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Speaker 1: have to go through to get inflation lower. And I

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Speaker 1: know other people out there think we can get a

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Speaker 1: soft landing, but I'm not hearing that same concern about

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Speaker 1: the future from from you, sir. Secondly, wish why are

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Speaker 1: you a little bit more optimistic than say this Federal Reserve,

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Speaker 1: because we have a star economy and the President is

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Speaker 1: laid down some really good foundation here for the future

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Speaker 1: of what we're doing here in America. The infrastructure billity,

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Speaker 1: I take a different approach to this as as a former,

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Speaker 1: as a former mayor of the city. I think about

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Speaker 1: how do I grow my city. It's by investing an infrastructure.

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Speaker 1: It's about creating more housing. The housing obviously is a

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Speaker 1: little slow right now in the United States being built,

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Speaker 1: but I think there's different reasons for that. Uh and

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Speaker 1: and companies are still looking for people we have. You know,

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Speaker 1: we had a meeting a couple of weeks ago at

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Speaker 1: the White House that people were looking at for seven

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Speaker 1: hundred thousand people working in SAP security. We have an

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Speaker 1: ability to hire more nurses, We need more teachers. We

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Speaker 1: have lots of jobs in our country that we need

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Speaker 1: for the future of our country to stay open. So

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Speaker 1: so I think that when we think about bringing down

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Speaker 1: inflationary pressures, I think it's going to be looked very

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Speaker 1: different than it has in the past. I think a

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Speaker 1: lot of people that you're right, and some other people

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Speaker 1: are round on that front. Secondly, Welsh, thank you sir.

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Speaker 1: As always, we appreciate your time, especially ahead of a

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Speaker 1: long weekend. Thank you very much. John Farrell was the

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Speaker 1: Secretary of Labor there talking about it better than good

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Speaker 1: Jobs report Randall Crossner. He's a former governor of the

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Speaker 1: Federal Reserve System math from Brown and at Booth School,

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Speaker 1: economics professor at the University of Chicago. Randy, I want

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Speaker 1: to talk here about America's labor economy is being a

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Speaker 1: homogeneous where we talk about an all in say three

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Speaker 1: point unemployment rate, or is it about the halves doing

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Speaker 1: well and a good part of America flat on their back.

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Speaker 1: There is a lot of diversity in the and the

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Speaker 1: labor market outcomes. I think you're exactly right, So this

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Speaker 1: is not something that's even but as you were describing,

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Speaker 1: this is really what the FIT is hoping for. More

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Speaker 1: people are coming back into the labor market. That helps

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Speaker 1: to reduce the tightness of that market. And you saw

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Speaker 1: that manifest in slightly lower wage growth, which is exactly

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Speaker 1: what the FIT is hoping for. That more people will

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Speaker 1: come in leave some of the pressures in the market

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Speaker 1: and take some of the pressure off some of the

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Speaker 1: wage increases, so that will make it easier for the

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Speaker 1: head to to try to bring inflation down to its

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Speaker 1: two percent goal without pushing the economy too far too

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Speaker 1: far down. Brandy, we've got at the participation rate to

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Speaker 1: that point at sixty two point four percent, then how

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Speaker 1: high can the Fed hope and wish and will that

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Speaker 1: number to get? Well, they'd like to get a lot higher.

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Speaker 1: Maybe we'll get a little bit higher. I think it's

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Speaker 1: it's surprising how much it hopped up. My guess is that, um,

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Speaker 1: it may not stay that high, or it might come

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Speaker 1: down a little bit, but it's going in the right direction,

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Speaker 1: which is exactly what we what we want to see

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Speaker 1: see happening to reduce some of the labor shortages, to

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Speaker 1: reduce some of the pressures of the labor market. Because

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Speaker 1: it's been a bit surprising, given how strong the labor

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Speaker 1: market is, that a lot of people haven't been bothering

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Speaker 1: to even look Randy Crowsner, based on some of the takeaways,

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Speaker 1: I think you're going to hear that word goldilocks a

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Speaker 1: lot this morning. Would you push back against that characterization

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Speaker 1: of this report given what you're expecting in the months

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Speaker 1: to come. Well, it's just one number, so we wouldn't

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Speaker 1: want to go go too far. But I think it's

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Speaker 1: it's consistent with with with the FED wants to go.

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Speaker 1: I think it has made the market says somewhat happy

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Speaker 1: that because I think they were worried that there could

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Speaker 1: have been a blowout report here. And unfortunately, good news

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Speaker 1: in the labor market can be bad news because the

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Speaker 1: FED will have to respond more. And so I think

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Speaker 1: it's it's on a good path, but the FED is

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Speaker 1: still going to be debating fifty or seventy five basis points,

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Speaker 1: and I think it would end up but you know,

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Speaker 1: very close to four by the end of the year,

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Speaker 1: if not at four, and then be you know, hold

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Speaker 1: with a four handle through much of Randy, Thank you,

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Speaker 1: Randy Chryston there at the University Chicago, whether gloom or optimism.

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Speaker 1: We speak with Jeffrey Rosenberg and black Rock portfolio manager

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Speaker 1: for their systematic multi strategy fund thrilled he can join

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Speaker 1: us each job day. Jeff, we need to recalibrate in

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Speaker 1: the next year, or as John Farrell mentions, we need

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Speaker 1: more data. But this seems to be one side relief

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Speaker 1: equities up. How does the bond market have a sigh

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Speaker 1: of relief, Well, it's a sigh of relief, Tom, because

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Speaker 1: you had a lot of expectations really following the Jackson

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Speaker 1: Hole presentations, speeches both by Powell and Schnabel that were

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Speaker 1: very hawkish with regards to central banks, definitively stating that

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Speaker 1: they were focused on inflation. And so the setup going

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Speaker 1: into today was a little bit skewed to the downside

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Speaker 1: that if it was a stronger report, that would have

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Speaker 1: only solidified expectations for the seventy basis points in September,

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Speaker 1: And if it was a significantly weak report, then the

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Speaker 1: market might have looked through that as opposed to what

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Speaker 1: we've seen, you know, in the last couple of payroll reports,

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Speaker 1: particularly over this summer rally. Uh, it had been a

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Speaker 1: market that, hey, if we got bad news, bad news

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Speaker 1: is good news, and it may no longer be the

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Speaker 1: case that bad economic news and slowdown is really going

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Speaker 1: to push the Fed off of its tightening cycle, because

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Speaker 1: they've been so clear to tell us it's really about inflation.

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Speaker 1: So I think the look through for today, Tom, is

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Speaker 1: really about what does the report signal about any kind

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Speaker 1: of inflation look through, and I think the labor force

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Speaker 1: participation rate number is really the key, uh takeaway? That

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Speaker 1: is the most interesting pieces as you discussed a minute

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Speaker 1: ago and Randy, which is you know, a little bit

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Speaker 1: better than expected news. They're a little bit weaker than

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Speaker 1: expected on the wage front, you know, modestly that's good

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Speaker 1: news from the bond market perspective of not having to

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Speaker 1: see the FED really react to inflation maybe as a

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Speaker 1: strong again one data point, we're not going to overread that.

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Speaker 1: But that's the one takeaway I would have from this

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Speaker 1: report that I think is important is the look through

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Speaker 1: to inflation. Okay, so I'll be in danger of over

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Speaker 1: interpting one day to point then, Jeff, with that participation right,

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Speaker 1: we've seen FED sports showing a pairing of bets on

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Speaker 1: rate increases. Does it make sense then to expect less

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Speaker 1: hiking from the Fed? And in what in what sense?

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Speaker 1: Less hiking in the natum or less hiking overall, less

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Speaker 1: less hiking next year? What do we think? Yeah, it's

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Speaker 1: it's definitely about the near term trajectory. I think what

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Speaker 1: you're seeing in the markets today is is about you know,

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Speaker 1: the seventy five versus fifty debate. Today's number, you know,

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Speaker 1: maybe pushes back a bit, and that's why you're seeing

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Speaker 1: the rally in the front end of interest rates. But

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Speaker 1: that's not over interpret again one data point, Um, this

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Speaker 1: isn't really going to significantly change the trajectory of the FED,

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Speaker 1: and the terminal rate debate is still very much unsettled,

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Speaker 1: and today's labor market report isn't really going to settle

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Speaker 1: that debate. We're going to focus a lot more on

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Speaker 1: the inflation and the inflation trajectory. You know, a minute

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Speaker 1: ago Mike McKee mentioned the you know, some of the

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Speaker 1: housing numbers. Um, you know, this is one of the

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Speaker 1: big challenges here that we're seeing is a huge transition

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Speaker 1: from homeownership to home renting, and and you know that

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Speaker 1: rental prices is a huge component of that inflation outlook.

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Speaker 1: So those things are not really being addressed here on

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Speaker 1: this labor market report, and that still faces the market

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Speaker 1: still faces, John Farrell, what's so important here, and you

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Speaker 1: brought this up before, it's a key insight is what

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Speaker 1: do we really learn about where the terminal rate is

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Speaker 1: for the Fed? The answers this doesn't help us well, look,

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Speaker 1: at the end of the day, I think if it's

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Speaker 1: been pretty clear they want time to financial conditions and

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Speaker 1: to some degree that's going to cap the upside over

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Speaker 1: the next few months. Tim if they're not satisfied, and

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Speaker 1: ultimately the FEDS in control. And we've said it a

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Speaker 1: million times over the last week, we've gone from a

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Speaker 1: FED put to a FED call the good news. I

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Speaker 1: think for a lot of people, just for now, if

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Speaker 1: you publish the secondary market, this is a relief. When

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Speaker 1: it's sticked. By the end of the day, we'll sit

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Speaker 1: features robbing overage just a little bit positive, behalf of

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Speaker 1: one percent. I'll continue this conversation with Jeff's colleague Rick

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Speaker 1: Reader will do that at the top of the looking

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Speaker 1: forward to that conversation. Also catching up with Victoria Finanti's

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Speaker 1: a cross mark, Michael Capin of Bank America, Jim Bianco,

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Speaker 1: Pianco Research too, and Secondary Welsh at the White House,

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Speaker 1: Tom All coming up Secondary Welsh about Eastern time. Very good.

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Speaker 1: John Ferrell with the Secretary of Labor. We will look

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Speaker 1: for that on radio and television. Joining us now excuse me,

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Speaker 1: Jeff Rosenberg still with us as well. We've got a

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Speaker 1: great team lined up here to get you out over

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Speaker 1: the next seventeen minutes of this jobs report. Jeff, what

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Speaker 1: are you seeing in flows? What's the fear level out there?

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Speaker 1: I don't want to know inside black Rock baseball, But

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Speaker 1: are are people selling bonds as money flowing out of debt? Yeah? Tom,

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Speaker 1: as you can imagine. You know, the flows are highly

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Speaker 1: reactive to the returns. And this has been a historic

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Speaker 1: UH negative return year for all categories that fixed income

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Speaker 1: and and we've seen that in the past week as

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Speaker 1: well in terms of acceleration in terms of rates, higher, spreads, wider.

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Speaker 1: This is a very challenging and ironment for fixed income

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Speaker 1: because we've come we came into this year really pricing

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Speaker 1: the old inflationary regime, and obviously the inflationary regime has

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Speaker 1: surprised the Fed, it's surprised the bond market, uh and

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Speaker 1: and we continue to see those surprises. And so until

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Speaker 1: we get a sufficient inflation risk premium priced into the

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Speaker 1: bond market, returns are are going to be challenged. Now,

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Speaker 1: the good news is you're starting to get more of

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Speaker 1: that priced in, more of it priced into the front

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Speaker 1: end of the curve. You talked a minute ago about

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Speaker 1: the terminal rate. It's the back end of the curve

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Speaker 1: where you still see a lot of confidence in the

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Speaker 1: bond market that inflation will fall back through the two

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Speaker 1: UH target. And so this is this is a bond

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Speaker 1: market that gives the Fed an incredible amount of credibility

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Speaker 1: uh that remains uh you know, to be seen, and

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Speaker 1: that's a vulnerability to future fixed income returns. Jeff Rosenberg,

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Speaker 1: thank you so much, Really appreciate the O your time

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Speaker 1: here on jobs day before a holiday weekend. Michael Purvis

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Speaker 1: joins us from Todd Back and Capital, always writing really

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Speaker 1: intelligent notes. Michael, let me cut to the chase. What

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Speaker 1: is the why and the how we get the standard

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Speaker 1: of pores. Well, Tom, you know one thing that's been um,

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Speaker 1: kind of working in the market's favorite broadly, you know,

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Speaker 1: putting aside positioning and relief rallies and and so forth,

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Speaker 1: is that, you know, the corporate earnings machine has been

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Speaker 1: really performing here. UM. Now, obviously there's a lot of

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Speaker 1: questions about how whether that trajectory can be maintained into

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Speaker 1: the end of the year, and in particular to teth

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Speaker 1: has in twenty three UM. But look, you know, nominal

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Speaker 1: GDP is very high it's the components of nominal GDP

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Speaker 1: in terms of the waitings of inflation versus real growth

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Speaker 1: are not what we want them to be. But we're

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Speaker 1: still seeing seeing you know, nominal high nominal GDP drive

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Speaker 1: drives nominal earnings right there, and so we were we

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Speaker 1: are seeing you know, continued strength. If you look at

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Speaker 1: Q two s reports they came in the surprise levels

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Speaker 1: were better than they were in a Q on there um.

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Speaker 1: And on the other side, on the valuation side, look,

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Speaker 1: you know we have had, you know, you go through

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Speaker 1: this massive FED pivot over the last twelve months. It's

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Speaker 1: been pretty remarkable, but it's also really well priced, and

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Speaker 1: PE multiples are and the equity risk premium by by

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Speaker 1: my measures, have really calibrated appropriately here. So look, if

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Speaker 1: we wake up and you know, next week the ten

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Speaker 1: years had four percent, which which is which I won't

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Speaker 1: be but but you know, if A were to do that,

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Speaker 1: then obviously we're probably going to see some further the

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Speaker 1: contraction and so forth there. But I think right now

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Speaker 1: the markets are going along and so I think, you know,

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Speaker 1: we need to get through this uh September FED meeting.

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Speaker 1: We need to get through some uh you know, look,

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Speaker 1: economic data is good. UM. Unemployment data, UM, you know

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Speaker 1: it's still really Rebut the I s M. We just

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Speaker 1: got maybe and maybe, Michael. What we're seeing here is

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Speaker 1: markets responding or coming around to that view because US

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Speaker 1: ten year yields, thirty year yields resume their rise. Ten

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Speaker 1: year yields up to three points to seven percent. Right now.

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Speaker 1: You talk quite positively about stalks and about the earnings story,

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Speaker 1: but others say that the earnings need to catch up

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Speaker 1: with reality, and that means that we need to see

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Speaker 1: cuts to expectations around corporate profits. Why do you not

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Speaker 1: see that? Well, look, I think part of this is

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Speaker 1: simply comes back to nominal GDP being being high this

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Speaker 1: year and probably pretty high next year as well. My

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Speaker 1: biggest risk to earnings next year. I mean, of course,

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Speaker 1: if we get a big recession, yes that's gonna there's

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Speaker 1: no question that will be a big hit to earnings here.

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Speaker 1: But you know what are the other real risk for

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Speaker 1: earnings next year? Simply inflation coming down a lot. If

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Speaker 1: that were to happen, a lot of the earnings will

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Speaker 1: come in and some companies will certainly see some some

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Speaker 1: margin depression there. I want to give you a victory

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Speaker 1: lab Michael Purvis. We had pre amsra on earlier with

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Speaker 1: the call of the summer on curve inversion, and every

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Speaker 1: once in a while Purvis absolutely nails it, folks. A

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Speaker 1: few years ago, Michael, you nailed a d X Y

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Speaker 1: the blended Pacific RIM currency regime X Japan. We now

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Speaker 1: have a yen through a new level moments ago one

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Speaker 1: forty point eight zero on Japanese yen. Many talking one

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Speaker 1: weaker yen. Michael Purvis right now on what it means

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Speaker 1: to see such currency weakness and strong dollar on the

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Speaker 1: Pacific RIM, well, I think it's it's very significant. I mean,

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Speaker 1: the fact is is that the United States dollar relative

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Speaker 1: to so many currencies to Europe, but particularly the yen

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Speaker 1: and and many e M currencies, is sort of effectively

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Speaker 1: a pectrocurrency um certainly on a relative basis here. So

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Speaker 1: you know, if you're talking about the end, you have

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Speaker 1: to consider high threw carbon vulnerabilities, and they're as as

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Speaker 1: painful as oil prices are here, it's a lot less

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Speaker 1: so than it is in places like Japan and the Eurozone.

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Speaker 1: So I think I think there's there's that you know,

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Speaker 1: if you tell me Tom that oil is going to

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Speaker 1: one fifty. I'll you know, I I can't imagine how

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Speaker 1: the end wouldn't get a lot cheaper or the euro

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Speaker 1: get substantially ship re religive to the dollar here. So

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Speaker 1: I think that's one of the weird dynamics. It's that

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Speaker 1: oil is leading, is a key thing that's driving, that's

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Speaker 1: leading currencies around by the notes, Does that lead to

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Speaker 1: a change in bo J policy? Michael, Is that where

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Speaker 1: they well, well, I guess we've all been waiting for

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Speaker 1: that for some time. I think there's a you know,

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Speaker 1: there's certainly an interesting um sort of game of chicken

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Speaker 1: the b o J has been playing here. We'll see

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Speaker 1: at what level of sensitivity they have. But I think there,

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Speaker 1: you know, after like you know, three decades of very

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Speaker 1: very considered deflation disinflation in Japan, you know, maybe that

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Speaker 1: they feel this is what it's sort of needed, kind

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Speaker 1: of wake up um the economy there. But it is

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Speaker 1: a dangerous game I think they're playing at some point.

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Speaker 1: Michael Purvis, thank you so much greatly a previous We're

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Speaker 1: appreciative there right now, Tiffany Wild with this uh PIMCO

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Speaker 1: chief yours economists understanding that Paul Sweeney and I are

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Speaker 1: not prime age, but Tiffany Wilding is prime age good

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Speaker 1: prime ate statistics. Tiffany Wilding and that we're getting back

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Speaker 1: to pre pandemic levels. Describe what prime ages please, morning,

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Speaker 1: Tom and Paul. Yeah, so prime age is and it

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Speaker 1: is exactly what it suggests that, Um, you know, this

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Speaker 1: is the prime working years as defined by I guess

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Speaker 1: the Bureau of Labor Statistics. Now, now keep in mind,

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Speaker 1: though that prior to the pandemic, you're actually seeing people

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Speaker 1: participate in the labor market longer. Um, so you actually

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Speaker 1: did see participation rates for that kind of fifty five

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Speaker 1: to sixty five or even because you have an older increase,

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Speaker 1: but that all changed after the pandemic. We have a

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Speaker 1: large wave of retirement. So now, um, you know, kind

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Speaker 1: of the prime age participation rate is a really key

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Speaker 1: focus here for um, you know, for broader participation rate trends. Well, okay,

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Speaker 1: it's a key focus. Is the prime age. Is the

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Speaker 1: rest of the economy getting back pre pandemic? I mean

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Speaker 1: the compendium of statistics you look at, is that a

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Speaker 1: unique idea or are we really getting back to what

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Speaker 1: Paul January two thousand twenty that level. Well, so I

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Speaker 1: think what's interesting and this came out I think in

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Speaker 1: the various papers that were presented at Jackson Hole. UM.

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Speaker 1: You know that a lot of the statistic it's been

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Speaker 1: a lot of the underlying structural trends in the US economy, uh,

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Speaker 1: you know, like participation rates or um, other you know,

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Speaker 1: labor market trends or or like the productivity reports and

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Speaker 1: things like that. They all actually are kind of behaving

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Speaker 1: in a way that you would expect. So they're getting

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Speaker 1: back to where they were prior to the pandemics. They're

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Speaker 1: kind of normalizing, if you will. What looks to be

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Speaker 1: a more structural change, UM is of course the inflation data. UM.

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Speaker 1: And it's not just you know, the prices data obviously,

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Speaker 1: but the wages data. All the wages came in maybe

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Speaker 1: a little softer than expected this month. Overall, wages have

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Speaker 1: been really strong and price have been really strong. So

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Speaker 1: that you know, in terms of thinking about the scars

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Speaker 1: post pandemic, it's really the inflation and data that looks

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Speaker 1: the most changed at this point. How do you think

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Speaker 1: the Federal Reserve will look at this labor market given

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Speaker 1: the data point that we had just today, Yeah, I mean,

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Speaker 1: so I think I think clearly the question that markets

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Speaker 1: will be grappling with is are they going to move

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Speaker 1: fifty or seventy five basis points at this upcoming fl

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Speaker 1: MC meeting. You know, I think I think today's report

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Speaker 1: probably didn't change people's views tremendously on that, and it's

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Speaker 1: really going to come down to the inflation report, the

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Speaker 1: CPI report, which will get next week. UM. You know,

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Speaker 1: I think overall the data, you know, would UM, the

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Speaker 1: data that we've seen since the last UM fl MC meeting,

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Speaker 1: in particular the inflation expectations data. The FED cares a

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Speaker 1: lot about a Philadelphia Fed survey of professional forecasters because

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Speaker 1: they tend to be less moved by energy and food prices,

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Speaker 1: which can be volatile, that they have moved up their

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Speaker 1: longer term inflation expectations. UM, I think, more materially, and

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Speaker 1: so that's important for the Fed. UM, you know. And

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Speaker 1: I think overall this employment report, you know, even though

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Speaker 1: you know, maybe there was UM, it's it's I think

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Speaker 1: it's it's consistent with an economy that's still quite resilient

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Speaker 1: and in a labor market that's still quite resilient and

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Speaker 1: not clearly slowing. So I mean that's something that the

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Speaker 1: Federal Reserve is going to be focused on. Not to

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00:22:59,520 --> 00:23:04,200
Speaker 1: give away at Vatican secrets, but Tiffany at PIMCO, surrounded

430
00:23:04,200 --> 00:23:09,600
Speaker 1: by bond people, bond animals, I'm fascinated if you are

431
00:23:09,680 --> 00:23:15,480
Speaker 1: advising them on an inflation function that gets their bond

432
00:23:15,520 --> 00:23:18,480
Speaker 1: market back to seven percent or five percent or four

433
00:23:18,600 --> 00:23:23,000
Speaker 1: percent or three point six away from the two percent

434
00:23:23,640 --> 00:23:29,280
Speaker 1: required mantra of Fed officials. Are they modeling towards something

435
00:23:29,520 --> 00:23:33,240
Speaker 1: higher than two? Well, I mean, I think you bring

436
00:23:33,320 --> 00:23:35,200
Speaker 1: up a really good point, and that's if you look

437
00:23:35,240 --> 00:23:38,680
Speaker 1: at you know, Taylor rules, which is, you know, kind

438
00:23:38,720 --> 00:23:41,480
Speaker 1: of where the Fed funds rate you know, should be

439
00:23:41,680 --> 00:23:44,040
Speaker 1: kind of a normative rule given on you know, given

440
00:23:44,040 --> 00:23:48,160
Speaker 1: the inflation that we're seeing, given the unemployment trends, etcetera. Um,

441
00:23:48,200 --> 00:23:50,359
Speaker 1: then the Fed funds rate should be much higher, you

442
00:23:50,359 --> 00:23:52,560
Speaker 1: know than it is right now. You know. Now. Of course,

443
00:23:52,600 --> 00:23:56,240
Speaker 1: explaining that difference is the fact that you do still

444
00:23:56,320 --> 00:24:00,000
Speaker 1: have I think pandemic related thing, a pandemic related issue

445
00:24:00,080 --> 00:24:03,720
Speaker 1: is that are impacting inflation. Um, and those things will uh,

446
00:24:03,760 --> 00:24:06,880
Speaker 1: you know moderate so um, you know, the we've seen

447
00:24:06,880 --> 00:24:11,560
Speaker 1: a moderation in logistics and shipping costs for example. Um,

448
00:24:11,640 --> 00:24:14,440
Speaker 1: things from a global supply chain perspective look like they're

449
00:24:14,440 --> 00:24:17,080
Speaker 1: getting back to normal. Of course, demand for goods was

450
00:24:17,080 --> 00:24:19,480
Speaker 1: was really outside as results of pandemic et cetera. Those

451
00:24:19,520 --> 00:24:22,480
Speaker 1: things should calm down. Um. But ultimately, if you kind

452
00:24:22,480 --> 00:24:25,480
Speaker 1: of look past those things, underlying inflation, uh, and the

453
00:24:25,520 --> 00:24:28,439
Speaker 1: underlying trend, and inflation looks like it's it's increasing higher.

454
00:24:28,560 --> 00:24:30,680
Speaker 1: So I do think that, you know, we're getting to

455
00:24:30,720 --> 00:24:32,280
Speaker 1: a point, and the FED has said this as well,

456
00:24:32,320 --> 00:24:35,200
Speaker 1: we do need to be restrictive. So that means rates

457
00:24:35,240 --> 00:24:37,760
Speaker 1: above probably the terminal level that we were that we

458
00:24:37,800 --> 00:24:40,359
Speaker 1: saw in the last rate hiking cycle. Um, you know,

459
00:24:40,400 --> 00:24:43,320
Speaker 1: and then those restrictive levels probably need to stay in place.

460
00:24:43,359 --> 00:24:45,840
Speaker 1: And of course that's what the FED officials really kind

461
00:24:45,840 --> 00:24:48,680
Speaker 1: of tried to hammer home at Jackson Hole, Um, that

462
00:24:48,760 --> 00:24:51,639
Speaker 1: they're not going to be quick to sort of turn around. Um,

463
00:24:51,680 --> 00:24:53,520
Speaker 1: you know, they're gonna they want to keep things restrictive

464
00:24:53,520 --> 00:24:55,280
Speaker 1: to make sure inflation gets back to where they want

465
00:24:55,320 --> 00:24:57,280
Speaker 1: to be. Tiffany, I try and get my head around

466
00:24:57,320 --> 00:24:59,960
Speaker 1: this recession call. I mean, Tom and I tried to

467
00:25:00,000 --> 00:25:02,520
Speaker 1: go out for cocktail after work yesterday, but we could

468
00:25:02,560 --> 00:25:06,160
Speaker 1: not find an empty barstool anywhere in midtown. People are

469
00:25:06,240 --> 00:25:09,960
Speaker 1: out and they're for the ending sunning. It is stunning

470
00:25:10,160 --> 00:25:12,720
Speaker 1: to coast. What do you make of the consumer? What

471
00:25:12,720 --> 00:25:15,679
Speaker 1: do you make of the consumer's ability to maybe stave

472
00:25:15,720 --> 00:25:18,639
Speaker 1: off a recession? Yeah, I mean, I think over all,

473
00:25:18,680 --> 00:25:21,800
Speaker 1: the consumer looks really strong right now. UM. I think

474
00:25:21,880 --> 00:25:24,760
Speaker 1: the areas that that don't look as strong are the

475
00:25:24,800 --> 00:25:29,560
Speaker 1: productivity statistics. Were basically our productivity recession. Usually you think

476
00:25:29,560 --> 00:25:34,520
Speaker 1: about productivity is being very much linked to corporate profitability um.

477
00:25:34,520 --> 00:25:37,080
Speaker 1: And there the data at least that the government provides

478
00:25:37,119 --> 00:25:39,320
Speaker 1: has been maybe a little bit more mixed on that.

479
00:25:39,600 --> 00:25:41,640
Speaker 1: So I think, you know what what we're looking for

480
00:25:41,720 --> 00:25:44,960
Speaker 1: here in terms of a recession, UM, is that you

481
00:25:45,040 --> 00:25:47,840
Speaker 1: have increasing costs of which can't be passed on to

482
00:25:47,960 --> 00:25:50,760
Speaker 1: consumers as easily anymore. So you get a you know,

483
00:25:50,840 --> 00:25:55,639
Speaker 1: kind of more of a profits decline and that results

484
00:25:55,680 --> 00:25:58,760
Speaker 1: in uh, you know, in in some labor uh you know,

485
00:25:59,200 --> 00:26:01,600
Speaker 1: changes in labor and maybe even some firing that we're

486
00:26:01,600 --> 00:26:03,960
Speaker 1: starting to see in some sectors like the tech sector

487
00:26:04,040 --> 00:26:07,720
Speaker 1: for example, um, you know, and others maybe real estate

488
00:26:07,720 --> 00:26:10,639
Speaker 1: type of sectors. Um. I mean, so we are starting

489
00:26:10,680 --> 00:26:13,080
Speaker 1: to see that so, but I think overall the consumers

490
00:26:13,119 --> 00:26:15,600
Speaker 1: still strong. But that's because the labor market is so strong.

491
00:26:15,640 --> 00:26:18,879
Speaker 1: Aggregate incomes are strong, um, but the labor market lags.

492
00:26:19,000 --> 00:26:21,520
Speaker 1: Keep in mind, so when you have, you know, these

493
00:26:21,520 --> 00:26:23,840
Speaker 1: shocks of the corporate sector, you know, that will filter

494
00:26:23,920 --> 00:26:26,280
Speaker 1: through to labor markets and then to consumption with a

495
00:26:26,280 --> 00:26:29,159
Speaker 1: little bit of a lag. Is this is this the

496
00:26:29,280 --> 00:26:34,320
Speaker 1: Roaring twenties? My grandmother was that the ten twelve twelve

497
00:26:34,400 --> 00:26:38,280
Speaker 1: years old in the pandemic of night and she would

498
00:26:38,400 --> 00:26:40,399
Speaker 1: always talk and we laughed at her. Of course she

499
00:26:40,440 --> 00:26:44,679
Speaker 1: was nuts boom right, a lot of people died, but

500
00:26:44,800 --> 00:26:49,320
Speaker 1: she talked Tiffany about the rebound before the depression crept

501
00:26:49,359 --> 00:26:53,520
Speaker 1: in of the Roaring twenties. Is that the behavior you

502
00:26:53,680 --> 00:26:59,200
Speaker 1: witness now in the consumer Paul Sweeney just described, Well,

503
00:26:59,240 --> 00:27:01,720
Speaker 1: I mean, I think, you know, overall consumption is kind

504
00:27:01,720 --> 00:27:05,080
Speaker 1: of back to levels that we saw pre pandemic. Um.

505
00:27:05,119 --> 00:27:07,280
Speaker 1: You know, I guess I wouldn't you know, think of

506
00:27:07,400 --> 00:27:09,960
Speaker 1: consumption right now. Is is anywhere close to like kind

507
00:27:09,960 --> 00:27:12,320
Speaker 1: of an irrational exuberance, you know? And I do think

508
00:27:12,359 --> 00:27:16,480
Speaker 1: there are indicators that, um, you know, some consumers are

509
00:27:16,520 --> 00:27:20,280
Speaker 1: actually struggling quite a bit here under the increases in

510
00:27:20,600 --> 00:27:23,800
Speaker 1: prices that they've seen, so low income consumers, we've seen

511
00:27:23,840 --> 00:27:27,320
Speaker 1: savings rates on those fault, increases in credit card debt

512
00:27:27,440 --> 00:27:30,280
Speaker 1: and things like that. UM. So those consumers are struggling,

513
00:27:30,400 --> 00:27:33,480
Speaker 1: you know, quite a bit here. But I think overall

514
00:27:33,800 --> 00:27:38,160
Speaker 1: the consumer they're they're pretty pretty strong, um coming into

515
00:27:38,200 --> 00:27:40,879
Speaker 1: this and pretty strong balance. She's coming in this as

516
00:27:40,880 --> 00:27:43,400
Speaker 1: a result of the fiscal stimulus that we saw, um

517
00:27:43,400 --> 00:27:45,320
Speaker 1: and they're still pretty strong. So it really comes down

518
00:27:45,359 --> 00:27:46,960
Speaker 1: to the labor market here, I think. And if you

519
00:27:47,000 --> 00:27:49,600
Speaker 1: see a deterioration, now keep in mind, how does the

520
00:27:49,600 --> 00:27:54,120
Speaker 1: futtle reserves slow down the economy and slow down inflation. Well,

521
00:27:54,160 --> 00:27:56,959
Speaker 1: they have to put enough pressure, um, you know on

522
00:27:57,000 --> 00:27:59,080
Speaker 1: the broader corporate sector that you do start to see

523
00:27:59,119 --> 00:28:01,560
Speaker 1: some labor market week is um. So that's really the

524
00:28:01,640 --> 00:28:04,200
Speaker 1: key here, I think to the recession call. It's that

525
00:28:04,320 --> 00:28:05,960
Speaker 1: you know, you have the FED that you know is

526
00:28:06,000 --> 00:28:08,280
Speaker 1: going to restrict the economy. You know, it doesn't kind

527
00:28:08,280 --> 00:28:09,840
Speaker 1: of get away from them, you know, And I think

528
00:28:09,920 --> 00:28:12,480
Speaker 1: history sort of suggests that when they do restrict the

529
00:28:12,520 --> 00:28:14,919
Speaker 1: economy that you know, it's hard to start, you know,

530
00:28:14,920 --> 00:28:17,639
Speaker 1: it's hard to control that and fine tune it um

531
00:28:17,680 --> 00:28:20,120
Speaker 1: and what can you know, what can be a period

532
00:28:20,160 --> 00:28:23,159
Speaker 1: of below trend growth can turn into a recession, you know,

533
00:28:23,200 --> 00:28:25,560
Speaker 1: kind of stall speed, if you will, can start to

534
00:28:25,600 --> 00:28:29,480
Speaker 1: contract very easily. So I think that's what the concern is. Tiffany,

535
00:28:29,760 --> 00:28:32,560
Speaker 1: Thank you so much. Tiffany. Welcome with him Cooke. This

536
00:28:32,640 --> 00:28:36,399
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us

537
00:28:36,480 --> 00:28:40,240
Speaker 1: live weekdays from seven to ten am Eastern on Bloomberg

538
00:28:40,320 --> 00:28:44,160
Speaker 1: Radio and on Bloomberg Television each day from six to

539
00:28:44,280 --> 00:28:48,920
Speaker 1: nine am for insight from the best in economics, finance, investment,

540
00:28:49,080 --> 00:28:54,080
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

541
00:28:54,200 --> 00:28:58,000
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

542
00:28:58,120 --> 00:29:02,160
Speaker 1: the terminal. I'm Tom Key even This is Bloomer