1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Ameri Hordert. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,919 Speaker 2: Terminal and the Bloomberg Business app. This Thomas as so far, 10 00:00:38,000 --> 00:00:40,680 Speaker 2: writing it would take a lot to not get account 11 00:00:40,760 --> 00:00:43,320 Speaker 2: in September. The FED is more focused on labor in 12 00:00:43,400 --> 00:00:46,159 Speaker 2: the near term, but over the next few meetings, I 13 00:00:46,200 --> 00:00:49,159 Speaker 2: suspect the focus will shift to inflation. 14 00:00:49,680 --> 00:00:50,320 Speaker 3: Litz joins us. 15 00:00:50,320 --> 00:00:52,239 Speaker 2: Now for more, let's welcome, let's build on some of that, 16 00:00:52,400 --> 00:00:53,559 Speaker 2: the shift back to inflation. 17 00:00:53,640 --> 00:00:54,720 Speaker 3: What's going to bring that about? 18 00:00:56,080 --> 00:00:58,280 Speaker 4: Well, when you think about where we are right now, 19 00:00:58,320 --> 00:01:00,400 Speaker 4: First of all, the message that we receive from the 20 00:01:00,440 --> 00:01:03,720 Speaker 4: FED on Friday was that the labor market had cooled. 21 00:01:03,760 --> 00:01:07,160 Speaker 4: There's this average of thirty five thousand jobs added per 22 00:01:07,200 --> 00:01:10,039 Speaker 4: month over the prior three months, which is a number 23 00:01:10,080 --> 00:01:12,120 Speaker 4: that at least concerns them and they want to make 24 00:01:12,120 --> 00:01:13,000 Speaker 4: sure that they don't. 25 00:01:13,000 --> 00:01:14,080 Speaker 5: Lose track of that. 26 00:01:14,800 --> 00:01:17,440 Speaker 4: But I think what will happen as time goes on 27 00:01:18,120 --> 00:01:21,800 Speaker 4: is us knowing and the realization in markets that there's 28 00:01:21,800 --> 00:01:24,200 Speaker 4: no room to hike rates. There's a little bit of 29 00:01:24,280 --> 00:01:27,600 Speaker 4: room for the labor market to cool before the FED 30 00:01:27,680 --> 00:01:30,520 Speaker 4: and before really the economy is going to look like 31 00:01:30,600 --> 00:01:32,880 Speaker 4: it's in a lot of pain. We've got an unemployment 32 00:01:32,920 --> 00:01:35,399 Speaker 4: rate still at four point two percent, and the expectation 33 00:01:35,520 --> 00:01:37,839 Speaker 4: as of now is that it'll stay at four point 34 00:01:37,880 --> 00:01:40,000 Speaker 4: two percent, So there's a little bit of room there 35 00:01:40,000 --> 00:01:41,120 Speaker 4: for the labor market. 36 00:01:40,959 --> 00:01:42,040 Speaker 5: Still to cool off. 37 00:01:42,440 --> 00:01:45,080 Speaker 4: There's definitely not room to go back and have to 38 00:01:45,160 --> 00:01:47,960 Speaker 4: hike rates if we lose control of inflation. But the 39 00:01:48,000 --> 00:01:50,320 Speaker 4: other message that I think was very clear from the 40 00:01:50,360 --> 00:01:53,800 Speaker 4: FED on Friday was that yes, we expect some effect 41 00:01:53,840 --> 00:01:56,320 Speaker 4: from tariffs on inflation, but we're not going to see 42 00:01:56,360 --> 00:01:58,800 Speaker 4: it immediately, and we're not sure if it's going to 43 00:01:58,840 --> 00:02:01,080 Speaker 4: be just a one time or if it's going to 44 00:02:01,120 --> 00:02:03,040 Speaker 4: take a little bit longer. So that's why I say 45 00:02:03,120 --> 00:02:06,080 Speaker 4: over the next few meetings, I think that the focus 46 00:02:06,120 --> 00:02:09,040 Speaker 4: will shift back to inflation as some of that data 47 00:02:09,080 --> 00:02:12,239 Speaker 4: comes through, and if they can get confirmation that tariffs 48 00:02:12,240 --> 00:02:14,080 Speaker 4: were just a one time shock. 49 00:02:14,320 --> 00:02:16,359 Speaker 2: Liz, do you still see it though, in the same 50 00:02:16,400 --> 00:02:18,880 Speaker 2: way the market is so on Friday that the chairman's 51 00:02:18,919 --> 00:02:23,640 Speaker 2: current reaction function, the policy bias, is a pro risk one. 52 00:02:24,680 --> 00:02:28,120 Speaker 4: Well, on Friday, what happened I think that surprised markets 53 00:02:28,200 --> 00:02:30,680 Speaker 4: was that he pretty much confirmed as long as things 54 00:02:30,760 --> 00:02:33,640 Speaker 4: continue in this fashion, we're getting a cut in September. 55 00:02:33,680 --> 00:02:36,919 Speaker 4: He didn't say that explicitly, but that was the interpretation. 56 00:02:37,880 --> 00:02:39,920 Speaker 4: The other thing that happened on Friday that I think 57 00:02:40,080 --> 00:02:42,720 Speaker 4: is a little bit lost in the huge rally is 58 00:02:42,760 --> 00:02:46,280 Speaker 4: that before that speech occurred, markets had gotten down to 59 00:02:46,400 --> 00:02:49,400 Speaker 4: less than seventy percent chance of a cut. So a 60 00:02:49,400 --> 00:02:52,600 Speaker 4: lot of that was just repricing back up to I 61 00:02:52,639 --> 00:02:55,640 Speaker 4: believe it hit a high on Friday of maybe ninety 62 00:02:55,639 --> 00:02:58,120 Speaker 4: one percent ninety three percent chance of a cut, So 63 00:02:58,160 --> 00:03:02,480 Speaker 4: the repricing from sixty five ish percent back up to 64 00:03:03,000 --> 00:03:06,720 Speaker 4: the low ninety percent was a lot of that rally. 65 00:03:07,360 --> 00:03:11,440 Speaker 4: So just sort of a rejiggering of our expectations. Again, 66 00:03:12,560 --> 00:03:15,240 Speaker 4: is this a sentiment shift to back to risk on? 67 00:03:15,880 --> 00:03:18,720 Speaker 4: It was risk on already. I think where we're at now, 68 00:03:18,840 --> 00:03:21,520 Speaker 4: as we're back to having priced in this first cut 69 00:03:21,560 --> 00:03:24,119 Speaker 4: and really wondering does that mean that there's another one 70 00:03:24,160 --> 00:03:27,200 Speaker 4: to come? Is this the beginning of a cutting cycle, 71 00:03:27,560 --> 00:03:30,760 Speaker 4: and how aggressive will this cutting cycle be. I still 72 00:03:30,800 --> 00:03:33,440 Speaker 4: think that the job's data next Friday is going to 73 00:03:33,520 --> 00:03:36,960 Speaker 4: decide for sure whether or not we're getting that first cut. 74 00:03:37,120 --> 00:03:41,160 Speaker 4: If it comes in at expectations even slightly weak, that 75 00:03:41,320 --> 00:03:44,280 Speaker 4: cut will be all but baked in. We're actually below 76 00:03:44,360 --> 00:03:47,120 Speaker 4: ninety percent chance right now, but that cut would get 77 00:03:47,120 --> 00:03:50,240 Speaker 4: all but baked in, maybe even another sniff of fifty 78 00:03:50,240 --> 00:03:53,080 Speaker 4: basis points, which I don't think is likely. But in 79 00:03:53,120 --> 00:03:56,360 Speaker 4: the near term, yes, this is positive for risk assets. 80 00:03:56,480 --> 00:03:59,360 Speaker 4: At some point, if this is the beginning of a 81 00:03:59,400 --> 00:04:01,960 Speaker 4: cutting site, and if it starts to be in response 82 00:04:02,000 --> 00:04:04,960 Speaker 4: to weak data, the market will have to digest the 83 00:04:05,000 --> 00:04:07,680 Speaker 4: fact that, Okay, the economy is now cooling quite a bit. 84 00:04:08,040 --> 00:04:11,320 Speaker 4: We were cutting because we could, Now we're cutting because 85 00:04:11,320 --> 00:04:13,280 Speaker 4: we're trying to prevent further weakness. 86 00:04:13,680 --> 00:04:15,560 Speaker 6: If this is the start of a cutting cycle, though, 87 00:04:15,560 --> 00:04:17,600 Speaker 6: how could it be when the chairman himself said the 88 00:04:17,720 --> 00:04:22,000 Speaker 6: tariff effects will be accumulating overcoming months with high uncertainty 89 00:04:22,000 --> 00:04:23,520 Speaker 6: be about timing and amounts. 90 00:04:24,880 --> 00:04:26,640 Speaker 4: Well, that's what I think the market's going to have 91 00:04:26,680 --> 00:04:28,960 Speaker 4: to figure out. Right now, we're acting as if it 92 00:04:29,000 --> 00:04:30,839 Speaker 4: is the beginning of a cutting cycle, and this is 93 00:04:30,880 --> 00:04:34,799 Speaker 4: going to be a slow message to keep going down 94 00:04:34,839 --> 00:04:37,080 Speaker 4: further and further as the year goes on. We're pricing 95 00:04:37,080 --> 00:04:39,640 Speaker 4: in a little bit more than two cuts right now 96 00:04:39,960 --> 00:04:43,159 Speaker 4: before the end of the year. If you look at 97 00:04:43,320 --> 00:04:46,360 Speaker 4: the time period when it might take tariffs to actually 98 00:04:46,360 --> 00:04:48,200 Speaker 4: work their way into the data. And when I say 99 00:04:48,240 --> 00:04:52,359 Speaker 4: the data, we've already seen some effective tariffs in PPI data. 100 00:04:52,640 --> 00:04:56,039 Speaker 4: We're looking for it in consumer price data, so CPI 101 00:04:56,200 --> 00:04:59,000 Speaker 4: and PCE, and it'll take a little bit longer to 102 00:04:59,120 --> 00:05:02,320 Speaker 4: get there because if the companies are not passing it 103 00:05:02,360 --> 00:05:05,120 Speaker 4: through on the PPI side, on the wholesale side, it's 104 00:05:05,120 --> 00:05:06,960 Speaker 4: going to take a little while to see that in 105 00:05:07,000 --> 00:05:11,160 Speaker 4: the consumer side to the end result. So usually, let's 106 00:05:11,160 --> 00:05:13,200 Speaker 4: say it takes four to six months for that to 107 00:05:13,320 --> 00:05:15,400 Speaker 4: actually work its way all the way through the system. 108 00:05:15,560 --> 00:05:18,320 Speaker 4: The FED knows that, so they're buying themselves some time 109 00:05:18,680 --> 00:05:21,600 Speaker 4: to say, okay, let's watch and see what happens over 110 00:05:21,640 --> 00:05:24,360 Speaker 4: the next few months of inflation reports on the consumer 111 00:05:24,480 --> 00:05:29,560 Speaker 4: side before we signal anything, promise anything to markets that 112 00:05:29,640 --> 00:05:31,880 Speaker 4: this is going to be a slow cutting cycle that 113 00:05:31,920 --> 00:05:32,800 Speaker 4: will continue. 114 00:05:32,960 --> 00:05:33,600 Speaker 3: Liz, what are you. 115 00:05:33,520 --> 00:05:35,320 Speaker 6: Looking for in terms of the data we have yet 116 00:05:35,320 --> 00:05:37,400 Speaker 6: to see when it comes to the August payrolls and 117 00:05:37,480 --> 00:05:41,799 Speaker 6: CPI report that could maybe make j Powell walk back 118 00:05:42,160 --> 00:05:44,280 Speaker 6: this idea of a cut in September. 119 00:05:45,640 --> 00:05:47,520 Speaker 4: Well, one of the things that I had been saying 120 00:05:47,520 --> 00:05:51,080 Speaker 4: even before Jackson Hole was we're getting really excited about 121 00:05:51,080 --> 00:05:52,880 Speaker 4: a cut in September when we've got a lot of 122 00:05:52,960 --> 00:05:55,719 Speaker 4: data still to come. So we know that the CPI 123 00:05:55,800 --> 00:05:58,880 Speaker 4: and the PPI data was a little conflicting. CPI came 124 00:05:58,920 --> 00:06:02,640 Speaker 4: in okay, if not slightly weak. PPI came in really hot, 125 00:06:02,680 --> 00:06:06,760 Speaker 4: So there is already some conflicting message coming from the data. 126 00:06:07,120 --> 00:06:10,440 Speaker 4: We've got another CPI report, We've got the jobs report obviously, 127 00:06:10,520 --> 00:06:13,640 Speaker 4: which everybody will be watching with baited breath. We've got 128 00:06:13,640 --> 00:06:16,600 Speaker 4: a PCE report, so there's still a lot to come. 129 00:06:16,839 --> 00:06:21,040 Speaker 4: If some of those come in hot, especially hot, then 130 00:06:21,080 --> 00:06:23,440 Speaker 4: I think we're going to see a lot more uncertainty 131 00:06:23,560 --> 00:06:25,719 Speaker 4: before that meeting. But I do believe that it would 132 00:06:25,760 --> 00:06:27,520 Speaker 4: have to be a series of hot data, So it 133 00:06:27,560 --> 00:06:31,080 Speaker 4: wouldn't just be a one time pop in CPI, a 134 00:06:31,160 --> 00:06:34,599 Speaker 4: one time pop in PCEE, because they've already messaged to 135 00:06:34,640 --> 00:06:36,279 Speaker 4: us that that might happen anyway. 136 00:06:36,680 --> 00:06:38,360 Speaker 5: So I think unless. 137 00:06:38,040 --> 00:06:41,760 Speaker 4: This job's report comes in really, really hot, I think 138 00:06:41,800 --> 00:06:42,679 Speaker 4: we're getting that cut. 139 00:06:42,960 --> 00:06:45,320 Speaker 2: The jobs report is what I want to talk about, Liz. 140 00:06:45,520 --> 00:06:48,240 Speaker 2: The prospect of an activity rebound. Can we just get 141 00:06:48,279 --> 00:06:50,400 Speaker 2: into that a little bit more. I've seen that from 142 00:06:50,400 --> 00:06:54,240 Speaker 2: Bank for America on Friday, heard Mazoo talk about it too. 143 00:06:54,279 --> 00:06:56,600 Speaker 2: Jordan Rochester said, it's hard to get too duvish if 144 00:06:56,680 --> 00:07:00,400 Speaker 2: US growth momentum from PMIS is real. How do you 145 00:07:00,400 --> 00:07:02,919 Speaker 2: think about the prospect of a growth rebound as we 146 00:07:02,960 --> 00:07:05,400 Speaker 2: work our way through September into year end. 147 00:07:06,960 --> 00:07:08,680 Speaker 4: Well, I think that's part of what the market is 148 00:07:08,720 --> 00:07:11,520 Speaker 4: coning on with this broadening out trade that it started 149 00:07:11,560 --> 00:07:13,880 Speaker 4: to do over the last couple of weeks. You're seeing 150 00:07:13,920 --> 00:07:16,640 Speaker 4: some strength out of smaller cap names. You're seeing strength 151 00:07:16,680 --> 00:07:20,200 Speaker 4: out of other sectors besides communications and tech, and even 152 00:07:20,360 --> 00:07:22,800 Speaker 4: outside of industrials, which has been one of the top 153 00:07:22,840 --> 00:07:27,040 Speaker 4: sectors this year. So the broadening out trade is enthusiasm 154 00:07:27,160 --> 00:07:30,080 Speaker 4: that we will have some sort of growth rebound. Activity 155 00:07:30,120 --> 00:07:33,640 Speaker 4: rebound that's durable and can reach into other parts of 156 00:07:33,680 --> 00:07:37,280 Speaker 4: the economy. I think it's possible, but it's too early 157 00:07:37,360 --> 00:07:39,520 Speaker 4: to say, Okay, this is a growth rebound that's going 158 00:07:39,560 --> 00:07:42,240 Speaker 4: to look like early parts of a cycle, because if 159 00:07:42,240 --> 00:07:47,080 Speaker 4: we're just embarking on a cutting cycle again during this period, 160 00:07:47,440 --> 00:07:50,360 Speaker 4: we have to really wait for confirmation of some of 161 00:07:50,400 --> 00:07:53,040 Speaker 4: that activity. And the reality is that the data had 162 00:07:53,040 --> 00:07:56,119 Speaker 4: been moving in the opposite direction coming into this, hadn't 163 00:07:56,160 --> 00:07:59,520 Speaker 4: been moving in a terrible direction, but things were cooling off. 164 00:08:00,080 --> 00:08:01,480 Speaker 3: He was cooling off. 165 00:08:01,320 --> 00:08:01,800 Speaker 5: A little bit. 166 00:08:01,840 --> 00:08:04,680 Speaker 4: The labor market has really been stagnant, a in a 167 00:08:04,760 --> 00:08:08,640 Speaker 4: solid place, stagnant in a place of strength, but stagnant 168 00:08:08,640 --> 00:08:11,400 Speaker 4: for a long time. So there would it would take 169 00:08:11,520 --> 00:08:16,080 Speaker 4: some really exciting news or some shift in economic developments 170 00:08:16,360 --> 00:08:19,040 Speaker 4: to I think broaden out the growth in a durable way. 171 00:08:19,120 --> 00:08:23,200 Speaker 2: Right now, stay with us, mul Bloomberg surveillance coming up 172 00:08:23,520 --> 00:08:24,120 Speaker 2: after this. 173 00:08:33,280 --> 00:08:33,520 Speaker 3: Step. 174 00:08:33,559 --> 00:08:36,160 Speaker 2: A shooter of Missoula isn't convinced it's needed right in 175 00:08:36,200 --> 00:08:38,840 Speaker 2: the following should the Feedi's policy, as the Markets Expect 176 00:08:39,120 --> 00:08:42,200 Speaker 2: analysis suggests, the primary risk of the economy is a 177 00:08:42,280 --> 00:08:45,160 Speaker 2: backup in long term interest rate. Steve joined us now 178 00:08:45,160 --> 00:08:47,320 Speaker 2: for more, Steve, good morning, Good morning. Just tell us 179 00:08:47,360 --> 00:08:48,120 Speaker 2: what do you think is brewing? 180 00:08:48,160 --> 00:08:49,360 Speaker 1: Care Well, I. 181 00:08:49,320 --> 00:08:53,319 Speaker 7: Think there's a bit of political pressure building. I think 182 00:08:53,360 --> 00:08:56,280 Speaker 7: there's a bit of dovishness within this committee that has 183 00:08:56,360 --> 00:09:01,040 Speaker 7: been brewing over years, and I think when you combine 184 00:09:01,080 --> 00:09:05,840 Speaker 7: it with a misperception as to how restrictive monetary policy is, 185 00:09:06,400 --> 00:09:08,880 Speaker 7: you wind up in a situation where you get a 186 00:09:08,960 --> 00:09:11,720 Speaker 7: chairman making a statement like this, leaving a door open 187 00:09:12,080 --> 00:09:14,160 Speaker 7: to a rate cut when he himself and his own 188 00:09:14,200 --> 00:09:17,160 Speaker 7: balance of risks is completely balanced. The risk to the 189 00:09:17,280 --> 00:09:20,400 Speaker 7: upside on inflation, The risk of inflation is to the upside. 190 00:09:20,440 --> 00:09:22,960 Speaker 7: The risk to employment is to the downside. Well, okay, 191 00:09:23,000 --> 00:09:23,800 Speaker 7: what are you supposed to do? 192 00:09:24,080 --> 00:09:24,240 Speaker 8: Well? 193 00:09:24,240 --> 00:09:26,400 Speaker 7: The answer is, if I think it's restrictive, maybe I 194 00:09:26,480 --> 00:09:29,280 Speaker 7: can cut rates. If I don't think it's restrictive, then 195 00:09:29,280 --> 00:09:32,280 Speaker 7: I should be doing nothing. How do we define restrictive? 196 00:09:32,400 --> 00:09:34,600 Speaker 7: That becomes the problem are they thinking at the moment? 197 00:09:34,679 --> 00:09:37,400 Speaker 2: Appears to be that, yes, we're facing upside risk to 198 00:09:37,440 --> 00:09:40,400 Speaker 2: inflation and downside risk to employment. But the downside risk 199 00:09:40,400 --> 00:09:43,400 Speaker 2: to employment are more important because the upside risk to 200 00:09:43,440 --> 00:09:45,560 Speaker 2: inflation won't be as pervasive When we won't see the 201 00:09:45,559 --> 00:09:48,400 Speaker 2: second round effects because of the downside risk to employment. 202 00:09:48,760 --> 00:09:52,280 Speaker 2: How do you think about that, assue, you have to show. 203 00:09:52,160 --> 00:09:54,800 Speaker 1: Me that's the case historically. 204 00:09:55,080 --> 00:09:58,640 Speaker 7: Yes, there are important transitions that take place in terms 205 00:09:58,679 --> 00:10:00,800 Speaker 7: of the labor market that happened more quickly than on 206 00:10:00,800 --> 00:10:03,439 Speaker 7: the inflation side of the equation. Don't argue with that. 207 00:10:03,679 --> 00:10:06,280 Speaker 7: Is this one of those conditions. The answer is no. 208 00:10:07,040 --> 00:10:09,360 Speaker 7: You have an economy that is fundamentally healthy. You've got 209 00:10:09,360 --> 00:10:12,280 Speaker 7: an economy that accelerated or rebounded right and I very 210 00:10:12,320 --> 00:10:15,200 Speaker 7: very sharply after the second quarter GDP. You've got an 211 00:10:15,200 --> 00:10:18,600 Speaker 7: economy that's showing you have healthy consumer demand. You have 212 00:10:18,640 --> 00:10:21,679 Speaker 7: an economy that is going to be above trend economic 213 00:10:21,760 --> 00:10:26,360 Speaker 7: growth in the current quarter against the backdrop of a 214 00:10:26,400 --> 00:10:29,880 Speaker 7: consensus forecast of zero point nine percent growth. And so 215 00:10:30,040 --> 00:10:33,800 Speaker 7: therefore there's a disconnect between the reality and the perceptions, 216 00:10:34,040 --> 00:10:35,520 Speaker 7: and I think that's part of the problem. 217 00:10:35,559 --> 00:10:36,720 Speaker 1: The other thing, I think when you're. 218 00:10:36,559 --> 00:10:39,400 Speaker 7: Looking at the coverage of this, everyone's focused in on 219 00:10:39,440 --> 00:10:41,840 Speaker 7: the opening up the door to a rate cut. 220 00:10:42,760 --> 00:10:44,079 Speaker 1: The Chairman has said a couple of things. 221 00:10:44,120 --> 00:10:47,760 Speaker 7: One was that basically that he didn't think policy was 222 00:10:47,800 --> 00:10:51,280 Speaker 7: that restrictive. Yet the market has five rate cuts price day. 223 00:10:51,559 --> 00:10:52,480 Speaker 1: That's number one. 224 00:10:53,120 --> 00:10:57,200 Speaker 7: Number two, if you look at the framework changes, everything 225 00:10:57,240 --> 00:11:00,840 Speaker 7: they did in twenty twenty, which was adopting a style 226 00:11:00,880 --> 00:11:05,560 Speaker 7: of monetary policy is gone, and they've readopted a tailor 227 00:11:05,640 --> 00:11:09,400 Speaker 7: rule approach to monetary policy, which is a symmetric monetary 228 00:11:09,440 --> 00:11:11,920 Speaker 7: policy guide frame. And when you look at the tailor 229 00:11:12,040 --> 00:11:15,320 Speaker 7: rule type models, monetary policy is not restrictive. 230 00:11:15,760 --> 00:11:18,240 Speaker 6: So you mentioned though at the start, because one of 231 00:11:18,240 --> 00:11:21,400 Speaker 6: them dimension happening here, you said it is a little political. 232 00:11:21,440 --> 00:11:23,160 Speaker 6: Do you think his speech Friday was political? 233 00:11:24,160 --> 00:11:26,200 Speaker 7: Well, I think they may get into a situation where 234 00:11:26,200 --> 00:11:28,600 Speaker 7: the Chairman said, Okay, I'm going to open the door 235 00:11:28,600 --> 00:11:31,000 Speaker 7: to wait, let's see what the committee does. Because there 236 00:11:31,000 --> 00:11:34,280 Speaker 7: seems to be this perception inside the White House, inside 237 00:11:34,280 --> 00:11:38,360 Speaker 7: the Treasury that the Chairman can determine where monetary policy goes. 238 00:11:38,640 --> 00:11:40,760 Speaker 7: So if the Chairman opens the door to a rate 239 00:11:40,800 --> 00:11:43,559 Speaker 7: cut and the committee votes and doesn't vote for a 240 00:11:43,640 --> 00:11:47,480 Speaker 7: rate cut, then guess what, it's not just one vote. 241 00:11:47,600 --> 00:11:49,920 Speaker 6: Bob Elliott was saying that he potentially was doing this 242 00:11:49,960 --> 00:11:52,640 Speaker 6: to protect the FED as an institution, but it sounds 243 00:11:52,679 --> 00:11:54,560 Speaker 6: like what you're saying, he's protecting himself. 244 00:11:55,000 --> 00:11:58,240 Speaker 7: Well, I again, protecting the FED as an institution. 245 00:11:58,760 --> 00:12:00,720 Speaker 1: Yes, the institutions. 246 00:12:00,080 --> 00:12:03,080 Speaker 7: Seems to be under attacked, but it's always historically been 247 00:12:03,160 --> 00:12:06,480 Speaker 7: under attacked. We went through a very very calm period 248 00:12:07,640 --> 00:12:10,320 Speaker 7: where we did not attack the FED. From basically Paul 249 00:12:10,400 --> 00:12:14,199 Speaker 7: Volker on, We're now back in the more political environment 250 00:12:14,280 --> 00:12:17,360 Speaker 7: of these things, and we've historically faced these dilemmas. I 251 00:12:17,400 --> 00:12:20,680 Speaker 7: think the real real issue for the FED in here 252 00:12:20,880 --> 00:12:24,800 Speaker 7: is not just maintaining its independence, but maintaining its credibility. 253 00:12:25,360 --> 00:12:27,280 Speaker 1: Okay, what is your framework? 254 00:12:27,400 --> 00:12:29,600 Speaker 7: Is your framework a symmetrical monetary policy? 255 00:12:29,960 --> 00:12:30,240 Speaker 3: Okay? 256 00:12:30,240 --> 00:12:33,040 Speaker 7: If it's a symmetrical monetary policy, then live up to 257 00:12:33,080 --> 00:12:36,280 Speaker 7: the symmetrical monetary policy. If it is still a policy 258 00:12:36,320 --> 00:12:39,200 Speaker 7: skew towards the labor market issues, i e. It is 259 00:12:39,280 --> 00:12:43,240 Speaker 7: the more equal of too equal framework our guidelines, then 260 00:12:43,520 --> 00:12:47,400 Speaker 7: be clear about that. And this I think opens up 261 00:12:47,440 --> 00:12:49,839 Speaker 7: the of the dilemma for what we're dealing with today. 262 00:12:49,920 --> 00:12:51,200 Speaker 2: And do you think we could see a repay of 263 00:12:51,240 --> 00:12:53,160 Speaker 2: last year they dropp rights to the front end. 264 00:12:53,200 --> 00:12:54,920 Speaker 3: I mean, it's not saying problems for the long end. 265 00:12:55,240 --> 00:12:58,480 Speaker 7: I think that's really the underlying risk that they face now. Again, 266 00:12:58,840 --> 00:13:02,640 Speaker 7: could that be that a message to people on Capitol 267 00:13:02,720 --> 00:13:05,280 Speaker 7: Hill that believe, well, mint, if you lower short term 268 00:13:05,320 --> 00:13:08,280 Speaker 7: interest rates, long term interistrates to automatically come down. The 269 00:13:08,360 --> 00:13:10,880 Speaker 7: answer is yes that maybe you know what has to 270 00:13:10,920 --> 00:13:11,920 Speaker 7: happen to get it done. 271 00:13:12,240 --> 00:13:14,920 Speaker 1: Is twenty five basis points going to matter one way 272 00:13:15,000 --> 00:13:15,480 Speaker 1: or the other? 273 00:13:15,720 --> 00:13:15,880 Speaker 8: No? 274 00:13:16,280 --> 00:13:20,079 Speaker 7: Well, one hundred and twenty five basis points matter, yes, And. 275 00:13:19,960 --> 00:13:22,440 Speaker 1: That's really really the difference here. 276 00:13:22,679 --> 00:13:24,360 Speaker 7: I don't really care if they cut rags twenty five 277 00:13:24,400 --> 00:13:25,559 Speaker 7: basis points in September. 278 00:13:25,679 --> 00:13:27,520 Speaker 1: I care about what they do with the dots. 279 00:13:27,840 --> 00:13:32,080 Speaker 7: Do they now look at their different framework and say, okay, 280 00:13:32,160 --> 00:13:35,559 Speaker 7: we've back to the pre twenty twenty framework, Well, what 281 00:13:35,640 --> 00:13:39,000 Speaker 7: should the dots then be going forward? Should the dots 282 00:13:39,040 --> 00:13:41,960 Speaker 7: still be for the number of rate cuts we envision 283 00:13:42,040 --> 00:13:45,240 Speaker 7: against an environment where we have an economy that's going 284 00:13:45,320 --> 00:13:47,679 Speaker 7: to continue to grow, and we have inflation in our 285 00:13:47,720 --> 00:13:50,120 Speaker 7: forecast that's one hundred basis points above. 286 00:13:49,920 --> 00:13:51,360 Speaker 3: Our target state. This is really important. 287 00:13:51,400 --> 00:13:53,760 Speaker 2: What I hear from your analysis as a clear distinction 288 00:13:53,840 --> 00:13:56,560 Speaker 2: between whatever they do on September and then the rest, 289 00:13:56,679 --> 00:13:59,000 Speaker 2: and the rest is far more important. Do you see 290 00:13:59,000 --> 00:14:01,960 Speaker 2: scope then for Holkers on a seventeenth Well. 291 00:14:01,840 --> 00:14:04,840 Speaker 7: The problem is the dots because the dots aren't set 292 00:14:04,920 --> 00:14:08,120 Speaker 7: as part of policy. They go into the meeting having 293 00:14:08,200 --> 00:14:11,440 Speaker 7: delivered their dots and their sep and therefore it's just 294 00:14:11,480 --> 00:14:15,440 Speaker 7: a calculation. And unfortunately the market only pays attention to 295 00:14:15,800 --> 00:14:20,680 Speaker 7: the dots. It is the intellectual gravity. Well, okay, once 296 00:14:20,760 --> 00:14:23,520 Speaker 7: you put that dot out there, all thought process in 297 00:14:23,560 --> 00:14:26,960 Speaker 7: the market goes to explaining that dot and forecasting what's 298 00:14:27,000 --> 00:14:29,640 Speaker 7: going to get that dot to happen. Nobody thinks of 299 00:14:29,680 --> 00:14:33,600 Speaker 7: anything else outside of how does that dot get validated? 300 00:14:33,840 --> 00:14:34,960 Speaker 1: And that's where the market is. 301 00:14:35,000 --> 00:14:37,440 Speaker 7: So as long as those dots run the risk of 302 00:14:37,480 --> 00:14:39,800 Speaker 7: being there, I think you might wind up with a 303 00:14:39,840 --> 00:14:44,000 Speaker 7: more graded divergence in the dots in September, and that 304 00:14:44,080 --> 00:14:45,520 Speaker 7: may be the thing that matters. 305 00:14:47,280 --> 00:14:47,920 Speaker 3: Stay with us. 306 00:14:48,240 --> 00:15:00,440 Speaker 2: Mulblemberg Savannah's coming up off to this. So here's the 307 00:15:00,520 --> 00:15:03,640 Speaker 2: latest this morning. Bon yields plunging on Friday after fed 308 00:15:03,680 --> 00:15:06,520 Speaker 2: cha jypouse sick nor day, possible rate count in September, 309 00:15:06,720 --> 00:15:09,920 Speaker 2: ending an eight month pause. Robert Tip of PGM writing 310 00:15:10,000 --> 00:15:12,040 Speaker 2: the attention to the growth side of the fed's equation 311 00:15:12,240 --> 00:15:15,280 Speaker 2: is also a welcome development, suggesting the FED is a 312 00:15:15,360 --> 00:15:18,920 Speaker 2: tune to downside economic risk. Robert joins us now for more, Robert, 313 00:15:18,920 --> 00:15:21,120 Speaker 2: welcome to the program, sir. Let's just reflect on what 314 00:15:21,160 --> 00:15:23,160 Speaker 2: we heard from Chair and Powell. What is he setting 315 00:15:23,200 --> 00:15:24,960 Speaker 2: us up for going into year end. 316 00:15:26,560 --> 00:15:28,720 Speaker 9: I think he set us up for doing whatever the 317 00:15:28,800 --> 00:15:32,000 Speaker 9: data told him to do. You know, he opened up 318 00:15:32,080 --> 00:15:36,360 Speaker 9: to rate cuts with one sentence. You know, before that 319 00:15:36,480 --> 00:15:40,920 Speaker 9: sentence he was talking about inflation and the concerns on 320 00:15:40,960 --> 00:15:45,040 Speaker 9: the inflation side, which are very real, frankly, and you know, 321 00:15:45,120 --> 00:15:47,000 Speaker 9: he got it wrong on the data, and he really 322 00:15:47,040 --> 00:15:52,120 Speaker 9: pounded the table at his last press conference about how 323 00:15:52,160 --> 00:15:54,640 Speaker 9: decent the labor market was and they weren't cutting. 324 00:15:55,480 --> 00:15:56,800 Speaker 5: And then he got, you. 325 00:15:56,760 --> 00:15:58,960 Speaker 9: Know, three months worth of bad data in one go 326 00:15:59,160 --> 00:15:59,920 Speaker 9: on that Friday. 327 00:16:00,360 --> 00:16:02,280 Speaker 5: So he opened the door to the rate cuts. 328 00:16:02,600 --> 00:16:05,560 Speaker 9: If they got another ratification of the weak data, he's 329 00:16:05,640 --> 00:16:08,200 Speaker 9: opened the door. They can cut rates. He can work 330 00:16:08,240 --> 00:16:12,040 Speaker 9: with his committee. But he bought time, and he bought 331 00:16:12,040 --> 00:16:14,800 Speaker 9: the ability to act independently, because this bet is not 332 00:16:14,920 --> 00:16:17,880 Speaker 9: independent and they have to be very careful, Robert. 333 00:16:17,880 --> 00:16:21,200 Speaker 2: He also redefined what weak data actually was. We'll get 334 00:16:21,240 --> 00:16:23,680 Speaker 2: to central bank independence in a moment. I want to 335 00:16:23,680 --> 00:16:26,240 Speaker 2: sit on the labor market last time around in the 336 00:16:26,240 --> 00:16:28,720 Speaker 2: news conference, he talked about the labor market being solid 337 00:16:28,880 --> 00:16:32,120 Speaker 2: and ank at that view around the unemployment rate almost 338 00:16:32,120 --> 00:16:34,280 Speaker 2: that data point alone, and now he's looking at a 339 00:16:34,280 --> 00:16:36,800 Speaker 2: simultaneous step down in the supply side of the labor 340 00:16:36,840 --> 00:16:39,400 Speaker 2: market and the demand side and putting more weight on 341 00:16:39,400 --> 00:16:42,080 Speaker 2: one versus the other. And I'm just wondering, Robert, why 342 00:16:42,120 --> 00:16:45,520 Speaker 2: you think that's come from. 343 00:16:45,600 --> 00:16:49,720 Speaker 9: Yeah, you know, I think that that data is incredibly 344 00:16:50,040 --> 00:16:53,760 Speaker 9: light in terms of sampling. I'm not a statistician, I'm 345 00:16:53,760 --> 00:16:57,120 Speaker 9: not an economist, but it's not that many households, it's 346 00:16:57,160 --> 00:17:00,880 Speaker 9: not that many businesses, and so you need a couple 347 00:17:00,880 --> 00:17:03,560 Speaker 9: of years before that data begins to settle down with 348 00:17:03,600 --> 00:17:06,639 Speaker 9: all the revisions. And so if you add subtract and 349 00:17:06,680 --> 00:17:10,280 Speaker 9: god forbid, start dividing those numbers and getting unemployment rates, 350 00:17:10,640 --> 00:17:13,320 Speaker 9: you have a tremendous amount of risk in interpreting those. 351 00:17:13,400 --> 00:17:17,879 Speaker 9: So you know, you know, I think the economy is 352 00:17:17,880 --> 00:17:22,560 Speaker 9: doing reasonably well. But to his point, when you get 353 00:17:22,600 --> 00:17:26,800 Speaker 9: downward revisions, they tend to have positive serial correlation. 354 00:17:26,760 --> 00:17:28,240 Speaker 5: You tend to keep seeing them. 355 00:17:29,480 --> 00:17:32,480 Speaker 9: Some research says, you know, that doesn't correlate with recessions. 356 00:17:32,480 --> 00:17:33,800 Speaker 5: Some shows that it does. 357 00:17:34,440 --> 00:17:37,679 Speaker 9: And I think you, and I know that often with recessions, 358 00:17:37,680 --> 00:17:39,920 Speaker 9: you look back, they say, oh, yes, six months ago. 359 00:17:39,800 --> 00:17:42,440 Speaker 5: We were actually in the recession. We didn't know it. 360 00:17:42,840 --> 00:17:46,840 Speaker 9: He's feeling that risk, so he's adjusting. Nobody knows what 361 00:17:46,960 --> 00:17:50,359 Speaker 9: to look at in terms of the data. But I 362 00:17:50,359 --> 00:17:53,960 Speaker 9: think that's why he's struggling and everybody's grappling with that information. 363 00:17:54,440 --> 00:17:56,639 Speaker 6: After this speech, is he's setting up the market to 364 00:17:56,680 --> 00:17:59,159 Speaker 6: pay more attention though to the labor market report that 365 00:17:59,280 --> 00:17:59,879 Speaker 6: comes out. 366 00:18:01,240 --> 00:18:04,399 Speaker 9: I think the market always thought the labor market was 367 00:18:04,440 --> 00:18:06,879 Speaker 9: more important. And in fact, if you just look at 368 00:18:06,920 --> 00:18:09,880 Speaker 9: the COVID experience, as long as they were concerned about 369 00:18:09,920 --> 00:18:13,359 Speaker 9: the labor market, they weren't hiking interest rates until they're 370 00:18:13,400 --> 00:18:17,200 Speaker 9: absolutely sure. Yet labor market's probably okay. And wow, inflation 371 00:18:17,320 --> 00:18:20,440 Speaker 9: is way, way, way too high. So this is a 372 00:18:20,520 --> 00:18:23,280 Speaker 9: FED that has been trained. This is the third FED 373 00:18:23,440 --> 00:18:30,040 Speaker 9: of the United States. And you know, the most public 374 00:18:31,280 --> 00:18:34,800 Speaker 9: strongest opposition to FED independence was probably right in the 375 00:18:34,840 --> 00:18:40,760 Speaker 9: fifties before their independence with Truman, you know, Humphrey Hawkins, 376 00:18:40,960 --> 00:18:43,639 Speaker 9: after a very brief reception in sixty nine. In the 377 00:18:43,720 --> 00:18:48,600 Speaker 9: seventies they wrote this, you know, dual mandate, which actually 378 00:18:48,680 --> 00:18:53,080 Speaker 9: has more parts to it. It's a very employment heavy mandate. 379 00:18:53,720 --> 00:18:57,720 Speaker 9: So I think that the markets already realized the FED 380 00:18:57,760 --> 00:19:00,679 Speaker 9: would lean on that because the Fed's independents can be 381 00:19:00,720 --> 00:19:04,160 Speaker 9: shaken by Congress, and the board itself can be attacked 382 00:19:04,160 --> 00:19:04,600 Speaker 9: as well. 383 00:19:05,040 --> 00:19:08,880 Speaker 6: You said earlier the FED is not independent, do you mean? 384 00:19:08,880 --> 00:19:12,560 Speaker 6: Because their mandate is back to someplace, and that's Congress, 385 00:19:12,560 --> 00:19:13,480 Speaker 6: that's the lawmakers. 386 00:19:14,280 --> 00:19:17,800 Speaker 9: Not only is it made by the lawmakers, they set 387 00:19:17,800 --> 00:19:22,320 Speaker 9: the targets. But this is a president that can legislate effectively. 388 00:19:22,400 --> 00:19:25,040 Speaker 9: I mean we saw this with the budget where he 389 00:19:25,200 --> 00:19:30,560 Speaker 9: pushed something through that touched entitlements in fast, you know, 390 00:19:31,280 --> 00:19:36,480 Speaker 9: lightning speed and vent the budget rules right. And maybe 391 00:19:36,520 --> 00:19:38,400 Speaker 9: I'm not saying whether this is right or wrong. I'm 392 00:19:38,440 --> 00:19:41,600 Speaker 9: just trying to adjust to reality here. What's possible in 393 00:19:41,600 --> 00:19:46,520 Speaker 9: this environment. These people that are voting on the rates 394 00:19:46,600 --> 00:19:49,560 Speaker 9: are under tremendous pressure. They can come under attack from 395 00:19:49,560 --> 00:19:55,320 Speaker 9: the Justice Department. But at its very fundamental basis, the 396 00:19:55,359 --> 00:19:58,920 Speaker 9: Fed's mandate is set by Congress that will reserve Act 397 00:19:59,359 --> 00:20:02,040 Speaker 9: Humphrey Hawk and it can be changed at any time. 398 00:20:02,760 --> 00:20:05,239 Speaker 9: So I thought he was very artful. It wasn't like 399 00:20:05,320 --> 00:20:07,280 Speaker 9: twenty eighteen or a little bit earlier in this cycle 400 00:20:07,320 --> 00:20:11,400 Speaker 9: where he fought on the interest rates, laid out the situation, 401 00:20:12,080 --> 00:20:14,159 Speaker 9: you know, said things that are falling out on the 402 00:20:14,200 --> 00:20:15,720 Speaker 9: size of the side of the ease here. 403 00:20:16,400 --> 00:20:19,760 Speaker 5: And that's the best way to remain maintain the. 404 00:20:19,680 --> 00:20:22,719 Speaker 9: Ability to act independently is to not fight it, go 405 00:20:22,800 --> 00:20:25,600 Speaker 9: with the data, do the right thing in the eyes 406 00:20:25,640 --> 00:20:27,280 Speaker 9: of the CURRENTSIE. 407 00:20:26,840 --> 00:20:28,840 Speaker 2: Guyst Well, Robert, let's talk about what the White House 408 00:20:29,000 --> 00:20:32,080 Speaker 2: ultimately wants. And it's not just about lower interest rates 409 00:20:32,080 --> 00:20:35,480 Speaker 2: to the feder Reserve. It's lower boring costs and lower 410 00:20:35,520 --> 00:20:38,720 Speaker 2: mortgage rates. Robert, If they drop rates of the FMC, 411 00:20:39,320 --> 00:20:42,080 Speaker 2: are they going to get lower borrowing costs and lower 412 00:20:42,080 --> 00:20:42,800 Speaker 2: mortgage rates. 413 00:20:43,960 --> 00:20:45,680 Speaker 9: Well, they had a lot of tools I left that 414 00:20:45,800 --> 00:20:50,280 Speaker 9: actually the shadow tournament of the Fed running the treasury. 415 00:20:52,240 --> 00:20:55,440 Speaker 9: You know, they're pulling in the issuance towards bills, their 416 00:20:55,480 --> 00:20:59,960 Speaker 9: buying back bonds, right, so they can they signal they're 417 00:21:00,080 --> 00:21:02,360 Speaker 9: said in issuing more long term securities. 418 00:21:03,080 --> 00:21:04,840 Speaker 5: They're interested in issuing more team bills. 419 00:21:04,880 --> 00:21:07,960 Speaker 9: So if they can get a lower short term interest 420 00:21:08,040 --> 00:21:11,639 Speaker 9: rate rightly or wrongly and issue more bills, you're not 421 00:21:11,680 --> 00:21:14,119 Speaker 9: going to have a runaway cost of issuance. 422 00:21:14,480 --> 00:21:16,640 Speaker 5: You know over the next three and a half years. 423 00:21:16,440 --> 00:21:18,800 Speaker 2: Are you, as an investor less concerned than about what 424 00:21:18,880 --> 00:21:20,840 Speaker 2: happens at the longer end of a curve. 425 00:21:24,320 --> 00:21:26,800 Speaker 5: I think that if yes. 426 00:21:26,960 --> 00:21:30,800 Speaker 9: I think that if they in fact, you know, run 427 00:21:30,880 --> 00:21:34,840 Speaker 9: policy that's reasonable, which I think they will. As you 428 00:21:34,920 --> 00:21:38,080 Speaker 9: pointed out, there's there's a wide range of people that 429 00:21:38,119 --> 00:21:40,919 Speaker 9: are going to be appointed, have to be confirmed for 430 00:21:40,920 --> 00:21:41,240 Speaker 9: a point. 431 00:21:41,280 --> 00:21:43,200 Speaker 5: In all of that, you're. 432 00:21:43,000 --> 00:21:44,840 Speaker 9: Going to get a reasonable outcome in the back end 433 00:21:44,840 --> 00:21:46,479 Speaker 9: of the curve. I don't think you're going to get 434 00:21:46,520 --> 00:21:48,240 Speaker 9: a drop in long term rates, but you know what, 435 00:21:48,440 --> 00:21:51,520 Speaker 9: you haven't gotten a drop in long term rates. We 436 00:21:51,640 --> 00:21:55,520 Speaker 9: got to foreign a quarter basically three years ago and 437 00:21:55,680 --> 00:21:56,880 Speaker 9: we're still at foreign a quarter. 438 00:21:56,920 --> 00:21:58,040 Speaker 5: We've been plus minus. 439 00:21:58,080 --> 00:21:59,879 Speaker 9: You're going to get a lot of variability in the data, 440 00:22:00,280 --> 00:22:02,119 Speaker 9: but you will get lower short term rates. This is 441 00:22:02,200 --> 00:22:07,879 Speaker 9: very positive for markets. You know, in terms of corporations, 442 00:22:07,920 --> 00:22:10,040 Speaker 9: they can deal with a little bit higher inflation with 443 00:22:10,119 --> 00:22:12,640 Speaker 9: the tariffs, We're going to get a little bit higher inflation. 444 00:22:13,600 --> 00:22:16,880 Speaker 9: But the Fed and the market overall is not going 445 00:22:16,920 --> 00:22:19,800 Speaker 9: to demand higher real rates across the curve because private 446 00:22:19,800 --> 00:22:20,880 Speaker 9: sector conomy. 447 00:22:20,560 --> 00:22:24,280 Speaker 5: Can't pay it. And that's that's what you're seeing. 448 00:22:24,320 --> 00:22:27,200 Speaker 9: I think that's why you had, you know, excess reserves 449 00:22:27,200 --> 00:22:30,359 Speaker 9: piling up, is because nobody wants that money at that rate, 450 00:22:31,119 --> 00:22:33,240 Speaker 9: and that will kind of cap. 451 00:22:33,280 --> 00:22:34,560 Speaker 5: Private sector yields. 452 00:22:34,960 --> 00:22:37,359 Speaker 9: Treasure yields will push up against that a bit, but 453 00:22:37,440 --> 00:22:40,760 Speaker 9: overall that's an environment where higher yielding fixed income product 454 00:22:40,760 --> 00:22:43,520 Speaker 9: continues to outperforms. 455 00:22:43,640 --> 00:22:44,760 Speaker 5: Are going to get away from us. 456 00:22:44,920 --> 00:22:49,280 Speaker 2: Yeah, stay with US molblindex savannas coming up off to this, 457 00:22:58,640 --> 00:23:00,480 Speaker 2: Let's stick with inflation and the poss forward for the 458 00:23:00,480 --> 00:23:02,960 Speaker 2: Federal Reserve for Onica clock of City righting, the worst 459 00:23:02,960 --> 00:23:06,159 Speaker 2: case scenario for tariff related inflation has been avoided. The 460 00:23:06,240 --> 00:23:08,920 Speaker 2: biggest test of tariff passed through dynamics will likely be 461 00:23:09,040 --> 00:23:12,480 Speaker 2: data from August through October for on Anica joint just 462 00:23:12,480 --> 00:23:14,399 Speaker 2: now for more for Ononica Cood morning, good morning. You 463 00:23:14,480 --> 00:23:17,960 Speaker 2: notice the same line of inflation is transitory back at 464 00:23:17,960 --> 00:23:19,520 Speaker 2: the Federal Reserve, that. 465 00:23:19,560 --> 00:23:22,280 Speaker 8: Word specifically probably not. But yeah, this is a FED 466 00:23:22,280 --> 00:23:24,560 Speaker 8: that's setting up to look through maybe multiple months of 467 00:23:24,640 --> 00:23:27,680 Speaker 8: some stronger inflation data. Obviously, it's going to depend on 468 00:23:27,720 --> 00:23:31,119 Speaker 8: the details. Do we see services inflation slowing, our inflation 469 00:23:31,200 --> 00:23:33,760 Speaker 8: expectations anchored, But yeah, that was a pretty dubvish comment 470 00:23:33,800 --> 00:23:34,440 Speaker 8: from Tripong. 471 00:23:34,560 --> 00:23:37,200 Speaker 6: If they're saying look through it, then basically the market 472 00:23:37,400 --> 00:23:39,679 Speaker 6: is only going to be focused on what the labor market. 473 00:23:39,760 --> 00:23:42,520 Speaker 8: I think that's the most important, and there definitely, you know, 474 00:23:42,600 --> 00:23:45,879 Speaker 8: can be some stronger inflation scenarios. We don't know exactly 475 00:23:45,960 --> 00:23:48,080 Speaker 8: how this will all play out, but I do think 476 00:23:48,080 --> 00:23:50,879 Speaker 8: it's probably the case that demand is soft enough so 477 00:23:50,920 --> 00:23:54,000 Speaker 8: you're not really getting these big price increases all at once. 478 00:23:54,600 --> 00:23:56,960 Speaker 8: This could be somewhat drawn out, and that comes down 479 00:23:57,000 --> 00:23:59,520 Speaker 8: to the demand backdrop, which is the labor market. If 480 00:23:59,520 --> 00:24:01,239 Speaker 8: the labor market is slow, and that's what they're going 481 00:24:01,280 --> 00:24:02,439 Speaker 8: to be much more focused on. 482 00:24:02,520 --> 00:24:04,720 Speaker 6: Based off all of this. In pal speech on Friday, 483 00:24:05,200 --> 00:24:07,919 Speaker 6: is the FED basically accepting that they'll never hit a 484 00:24:07,920 --> 00:24:10,280 Speaker 6: two percent inflation target. Again, I don't leave in the 485 00:24:10,320 --> 00:24:12,480 Speaker 6: foreseable future, yeah, I don't think so. 486 00:24:13,440 --> 00:24:15,080 Speaker 8: I mean, I think at some point, you know, if 487 00:24:15,119 --> 00:24:17,520 Speaker 8: we really are sticky at something like three percent, that 488 00:24:17,560 --> 00:24:20,120 Speaker 8: they won't be comfortable with that. But we will have 489 00:24:20,400 --> 00:24:23,800 Speaker 8: this multiple month period of some stronger data, but it 490 00:24:23,800 --> 00:24:26,840 Speaker 8: won't necessarily be the true persistent kind of inflation that 491 00:24:26,840 --> 00:24:28,920 Speaker 8: would get them concerned. And then maybe a year or 492 00:24:28,960 --> 00:24:30,760 Speaker 8: so from now we're back towards two percent. 493 00:24:30,920 --> 00:24:34,320 Speaker 2: I find the analysis of the labor market slightly more controversial. 494 00:24:34,520 --> 00:24:36,560 Speaker 2: This was an individual the sound of the news conference 495 00:24:36,600 --> 00:24:39,199 Speaker 2: a number of weeks ago pre day CENTFP. Sure, but 496 00:24:39,280 --> 00:24:41,280 Speaker 2: think about what he said of the news conference. Labor 497 00:24:41,320 --> 00:24:44,800 Speaker 2: markets solid anchored the view around the unemployment rate. A 498 00:24:44,840 --> 00:24:48,120 Speaker 2: few days later, what did unemployment do? Not a lot 499 00:24:48,359 --> 00:24:51,240 Speaker 2: compared to the massive negative revisions we saw in payrolls. Now, 500 00:24:51,680 --> 00:24:53,600 Speaker 2: I'll span out basically what he told us on Friday 501 00:24:53,640 --> 00:24:56,000 Speaker 2: and you can give me your analysis of things. Essentially, 502 00:24:56,000 --> 00:24:57,920 Speaker 2: the chairman is saying that, yes, we've had a step 503 00:24:57,960 --> 00:25:00,480 Speaker 2: down and supply and a step down in demand, which 504 00:25:00,480 --> 00:25:03,800 Speaker 2: has kept the unemployment rate pretty stable given everything that's 505 00:25:03,800 --> 00:25:05,480 Speaker 2: been going on. But I'm going to put more weight 506 00:25:05,520 --> 00:25:07,400 Speaker 2: on the step down in demand. Yeah, now that's your 507 00:25:07,440 --> 00:25:09,879 Speaker 2: camp I understand that. But surely for the feeder reserve, 508 00:25:10,080 --> 00:25:12,679 Speaker 2: shouldn't they be focused on measures of slack. Shouldn't they 509 00:25:12,720 --> 00:25:14,800 Speaker 2: be able to sit there and say, yes, demound's seen 510 00:25:14,840 --> 00:25:17,000 Speaker 2: a step down, but measures of slack have remained stable, 511 00:25:17,280 --> 00:25:18,920 Speaker 2: so we can remain on count for inflation. 512 00:25:19,160 --> 00:25:21,280 Speaker 8: Yeah, I think if we don't see the unemployment rate 513 00:25:21,320 --> 00:25:24,200 Speaker 8: moving higher yet will be hard maybe to get certainly bigger, 514 00:25:24,320 --> 00:25:26,520 Speaker 8: you know, cuts all at once. We're not expecting fifties. 515 00:25:27,119 --> 00:25:29,359 Speaker 8: But I think the issue, and Powell did still talk about, 516 00:25:29,400 --> 00:25:31,840 Speaker 8: you know, the labor market this way in July, is 517 00:25:32,160 --> 00:25:33,320 Speaker 8: why is demand weakening? 518 00:25:33,560 --> 00:25:34,479 Speaker 3: What's going to stop that? 519 00:25:34,560 --> 00:25:37,919 Speaker 8: If rates are restrictive, rates are probably not where they 520 00:25:37,920 --> 00:25:38,920 Speaker 8: should be, then. 521 00:25:39,240 --> 00:25:41,040 Speaker 3: That's a fair comment. Just how restrictive are we? 522 00:25:41,080 --> 00:25:41,240 Speaker 4: Then? 523 00:25:41,440 --> 00:25:44,520 Speaker 8: I think rates are restrictive. You know, obviously we look 524 00:25:44,520 --> 00:25:46,600 Speaker 8: at the long run dot you know, like markets, we're 525 00:25:46,600 --> 00:25:49,480 Speaker 8: pricing you that five five more cuts or so. But 526 00:25:49,520 --> 00:25:51,840 Speaker 8: I think if you look at something like housing, that's 527 00:25:51,880 --> 00:25:54,560 Speaker 8: a really good example of you don't even necessarily need 528 00:25:54,640 --> 00:25:56,520 Speaker 8: rates to go higher. You just leave them at restrictive 529 00:25:56,560 --> 00:25:58,240 Speaker 8: levels and you've gotten that contraction. Again. 530 00:25:58,520 --> 00:26:00,840 Speaker 6: John's been bring up the point though, when the Fed 531 00:26:00,840 --> 00:26:03,320 Speaker 6: cut last year, it actually didn't help the housing market 532 00:26:03,359 --> 00:26:06,800 Speaker 6: because mortgage rates actually went up. Yeah, how concerned you 533 00:26:06,880 --> 00:26:07,880 Speaker 6: this is going to happen this time? 534 00:26:07,920 --> 00:26:08,040 Speaker 8: Right? 535 00:26:08,160 --> 00:26:08,360 Speaker 9: Yeah? 536 00:26:08,400 --> 00:26:10,840 Speaker 8: I don't think we're really concerned that, you know, ten 537 00:26:10,880 --> 00:26:12,520 Speaker 8: year yields are going to go too much higher if 538 00:26:12,520 --> 00:26:15,679 Speaker 8: the Fed is really cutting. We saw that on Friday, 539 00:26:15,680 --> 00:26:18,600 Speaker 8: A Duvish chair means means tenure rates lower to. 540 00:26:19,040 --> 00:26:21,879 Speaker 6: You also said we don't expect fifties, meaning do you 541 00:26:22,040 --> 00:26:23,560 Speaker 6: expect a cycle of cuts? 542 00:26:23,680 --> 00:26:25,920 Speaker 8: Yeah, we do. I think it is harder to get 543 00:26:25,920 --> 00:26:29,159 Speaker 8: those big cuts at this stage, at least starting with that. 544 00:26:29,200 --> 00:26:31,240 Speaker 8: You know, obviously rates were at a higher level last year. 545 00:26:31,280 --> 00:26:33,440 Speaker 8: You weren't as concerned on the inflation side of things. 546 00:26:33,920 --> 00:26:35,240 Speaker 8: But I think this is a FED that's going to 547 00:26:35,320 --> 00:26:36,600 Speaker 8: proceed with a series of cuts. 548 00:26:37,080 --> 00:26:39,399 Speaker 2: What do you expect in full twenty twenty six? And 549 00:26:39,440 --> 00:26:42,120 Speaker 2: it's sort a dividing line between what happens before May 550 00:26:42,359 --> 00:26:44,160 Speaker 2: and what happens to Mate. 551 00:26:44,280 --> 00:26:46,879 Speaker 8: Yeah, we are still expecting that this is going to 552 00:26:46,920 --> 00:26:49,520 Speaker 8: be a FED that is data dependent. Obviously they have 553 00:26:49,600 --> 00:26:52,080 Speaker 8: to you know, majority vote to you know, have a 554 00:26:52,119 --> 00:26:56,000 Speaker 8: policy reached. We still think it's it's a consecutive five. 555 00:26:56,359 --> 00:26:58,600 Speaker 2: A consecutive five. So you don't think a whole lot 556 00:26:58,720 --> 00:26:59,880 Speaker 2: changes when we get that new fetch. 557 00:27:00,280 --> 00:27:01,920 Speaker 8: I don't think necessarily, Yeah. 558 00:27:01,800 --> 00:27:03,920 Speaker 3: We'll obviously it can come from. 559 00:27:04,000 --> 00:27:06,600 Speaker 8: I mean, there is obviously a lot of a lot 560 00:27:06,640 --> 00:27:09,760 Speaker 8: of pressure on them, but I think it depends obviously 561 00:27:09,760 --> 00:27:11,480 Speaker 8: on who the chair will be. If it is someone 562 00:27:11,560 --> 00:27:14,040 Speaker 8: like Governor Waller, you know Market's very familiar with him. 563 00:27:14,680 --> 00:27:16,400 Speaker 8: We know exactly how he thinks. 564 00:27:16,440 --> 00:27:18,840 Speaker 2: The Governor Waller would be a super comfortable choice for 565 00:27:18,840 --> 00:27:19,280 Speaker 2: wall Street. 566 00:27:19,359 --> 00:27:20,360 Speaker 3: I think at this point. 567 00:27:20,240 --> 00:27:23,480 Speaker 6: Absolutely he's someone that wall Street really admires and backs 568 00:27:23,520 --> 00:27:25,600 Speaker 6: at this moment, even if they don't agree with his view, 569 00:27:25,680 --> 00:27:27,879 Speaker 6: they think he's credible and he thinks they think he 570 00:27:27,920 --> 00:27:30,439 Speaker 6: can represent an independent FED and not something that's just 571 00:27:30,480 --> 00:27:33,440 Speaker 6: doing White House bidding, like maybe the President's on any 572 00:27:33,440 --> 00:27:34,040 Speaker 6: c director. 573 00:27:34,200 --> 00:27:36,760 Speaker 2: Can we just finish on the Banach shape? What do 574 00:27:36,760 --> 00:27:38,600 Speaker 2: you think the approach of the new FED chair will 575 00:27:38,640 --> 00:27:39,960 Speaker 2: be to the balance shape? 576 00:27:40,119 --> 00:27:42,399 Speaker 8: Yeah, it's really not gotten a lot of attention it is. 577 00:27:42,560 --> 00:27:44,560 Speaker 8: It could be interesting if it's someone like Governor Waller, 578 00:27:44,560 --> 00:27:46,280 Speaker 8: he's been a bit more hawkish on the balance sheet, 579 00:27:46,320 --> 00:27:49,560 Speaker 8: allowing it to run off for longer. But I imagine 580 00:27:49,560 --> 00:27:51,159 Speaker 8: for now it's just as is. 581 00:27:51,720 --> 00:27:53,960 Speaker 2: I've picked up on the same dynamic. I've been very 582 00:27:54,000 --> 00:27:57,280 Speaker 2: surprised sat here that there hasn't been more attention on 583 00:27:57,320 --> 00:27:59,520 Speaker 2: the bannaed sheet. If you listen to what the White 584 00:27:59,520 --> 00:28:03,200 Speaker 2: House wants, it's not just lower rates, it's lower borrowing costs, 585 00:28:03,280 --> 00:28:06,400 Speaker 2: it's lower mortgage rates, which begs the question if you're 586 00:28:06,400 --> 00:28:08,520 Speaker 2: not going to get it through ad justin short term rates, 587 00:28:08,600 --> 00:28:09,680 Speaker 2: you have to get it through. 588 00:28:09,480 --> 00:28:10,600 Speaker 3: Other meats, right right. 589 00:28:11,200 --> 00:28:13,280 Speaker 8: There's really not a lot to talk about that right now, 590 00:28:13,440 --> 00:28:15,920 Speaker 8: but they are very focused on on cuts, especially because 591 00:28:16,200 --> 00:28:18,000 Speaker 8: they are issuing so much in the short end. So 592 00:28:18,040 --> 00:28:20,280 Speaker 8: that really does depend on what the Fed rate itself 593 00:28:20,359 --> 00:28:23,720 Speaker 8: is doing. Obviously, for consumers, you know, ten year mortgage rates, 594 00:28:23,840 --> 00:28:27,720 Speaker 8: all that matters more, but for now, if it's federal 595 00:28:27,760 --> 00:28:29,880 Speaker 8: borrowing costs, that depends on what the Fed's doing. 596 00:28:30,840 --> 00:28:34,400 Speaker 2: This is the Bloomberg Survendans podcast, bringing you the best 597 00:28:34,440 --> 00:28:37,720 Speaker 2: in markets, economics, ancient politics. You can watch the show 598 00:28:37,800 --> 00:28:40,760 Speaker 2: live on Bloomberg TV weekday mornings from six am to 599 00:28:40,880 --> 00:28:44,640 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 600 00:28:44,760 --> 00:28:47,000 Speaker 2: or anywhere else you listen, and as always on the 601 00:28:47,040 --> 00:28:49,440 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.