WEBVTT - Bloomberg Surveillance TV: August 25th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Ameri Hordert. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.919 Terminal and the Bloomberg Business app. This Thomas as so far, 0:00:38.000 --> 0:00:40.680 writing it would take a lot to not get account 0:00:40.760 --> 0:00:43.320 in September. The FED is more focused on labor in 0:00:43.400 --> 0:00:46.159 the near term, but over the next few meetings, I 0:00:46.200 --> 0:00:49.159 suspect the focus will shift to inflation. 0:00:49.680 --> 0:00:50.320 Litz joins us. 0:00:50.320 --> 0:00:52.239 Now for more, let's welcome, let's build on some of that, 0:00:52.400 --> 0:00:53.559 the shift back to inflation. 0:00:53.640 --> 0:00:54.720 What's going to bring that about? 0:00:56.080 --> 0:00:58.280 Well, when you think about where we are right now, 0:00:58.320 --> 0:01:00.400 First of all, the message that we receive from the 0:01:00.440 --> 0:01:03.720 FED on Friday was that the labor market had cooled. 0:01:03.760 --> 0:01:07.160 There's this average of thirty five thousand jobs added per 0:01:07.200 --> 0:01:10.039 month over the prior three months, which is a number 0:01:10.080 --> 0:01:12.120 that at least concerns them and they want to make 0:01:12.120 --> 0:01:13.000 sure that they don't. 0:01:13.000 --> 0:01:14.080 Lose track of that. 0:01:14.800 --> 0:01:17.440 But I think what will happen as time goes on 0:01:18.120 --> 0:01:21.800 is us knowing and the realization in markets that there's 0:01:21.800 --> 0:01:24.200 no room to hike rates. There's a little bit of 0:01:24.280 --> 0:01:27.600 room for the labor market to cool before the FED 0:01:27.680 --> 0:01:30.520 and before really the economy is going to look like 0:01:30.600 --> 0:01:32.880 it's in a lot of pain. We've got an unemployment 0:01:32.920 --> 0:01:35.399 rate still at four point two percent, and the expectation 0:01:35.520 --> 0:01:37.839 as of now is that it'll stay at four point 0:01:37.880 --> 0:01:40.000 two percent, So there's a little bit of room there 0:01:40.000 --> 0:01:41.120 for the labor market. 0:01:40.959 --> 0:01:42.040 Still to cool off. 0:01:42.440 --> 0:01:45.080 There's definitely not room to go back and have to 0:01:45.160 --> 0:01:47.960 hike rates if we lose control of inflation. But the 0:01:48.000 --> 0:01:50.320 other message that I think was very clear from the 0:01:50.360 --> 0:01:53.800 FED on Friday was that yes, we expect some effect 0:01:53.840 --> 0:01:56.320 from tariffs on inflation, but we're not going to see 0:01:56.360 --> 0:01:58.800 it immediately, and we're not sure if it's going to 0:01:58.840 --> 0:02:01.080 be just a one time or if it's going to 0:02:01.120 --> 0:02:03.040 take a little bit longer. So that's why I say 0:02:03.120 --> 0:02:06.080 over the next few meetings, I think that the focus 0:02:06.120 --> 0:02:09.040 will shift back to inflation as some of that data 0:02:09.080 --> 0:02:12.239 comes through, and if they can get confirmation that tariffs 0:02:12.240 --> 0:02:14.080 were just a one time shock. 0:02:14.320 --> 0:02:16.359 Liz, do you still see it though, in the same 0:02:16.400 --> 0:02:18.880 way the market is so on Friday that the chairman's 0:02:18.919 --> 0:02:23.640 current reaction function, the policy bias, is a pro risk one. 0:02:24.680 --> 0:02:28.120 Well, on Friday, what happened I think that surprised markets 0:02:28.200 --> 0:02:30.680 was that he pretty much confirmed as long as things 0:02:30.760 --> 0:02:33.640 continue in this fashion, we're getting a cut in September. 0:02:33.680 --> 0:02:36.919 He didn't say that explicitly, but that was the interpretation. 0:02:37.880 --> 0:02:39.920 The other thing that happened on Friday that I think 0:02:40.080 --> 0:02:42.720 is a little bit lost in the huge rally is 0:02:42.760 --> 0:02:46.280 that before that speech occurred, markets had gotten down to 0:02:46.400 --> 0:02:49.400 less than seventy percent chance of a cut. So a 0:02:49.400 --> 0:02:52.600 lot of that was just repricing back up to I 0:02:52.639 --> 0:02:55.640 believe it hit a high on Friday of maybe ninety 0:02:55.639 --> 0:02:58.120 one percent ninety three percent chance of a cut, So 0:02:58.160 --> 0:03:02.480 the repricing from sixty five ish percent back up to 0:03:03.000 --> 0:03:06.720 the low ninety percent was a lot of that rally. 0:03:07.360 --> 0:03:11.440 So just sort of a rejiggering of our expectations. Again, 0:03:12.560 --> 0:03:15.240 is this a sentiment shift to back to risk on? 0:03:15.880 --> 0:03:18.720 It was risk on already. I think where we're at now, 0:03:18.840 --> 0:03:21.520 as we're back to having priced in this first cut 0:03:21.560 --> 0:03:24.119 and really wondering does that mean that there's another one 0:03:24.160 --> 0:03:27.200 to come? Is this the beginning of a cutting cycle, 0:03:27.560 --> 0:03:30.760 and how aggressive will this cutting cycle be. I still 0:03:30.800 --> 0:03:33.440 think that the job's data next Friday is going to 0:03:33.520 --> 0:03:36.960 decide for sure whether or not we're getting that first cut. 0:03:37.120 --> 0:03:41.160 If it comes in at expectations even slightly weak, that 0:03:41.320 --> 0:03:44.280 cut will be all but baked in. We're actually below 0:03:44.360 --> 0:03:47.120 ninety percent chance right now, but that cut would get 0:03:47.120 --> 0:03:50.240 all but baked in, maybe even another sniff of fifty 0:03:50.240 --> 0:03:53.080 basis points, which I don't think is likely. But in 0:03:53.120 --> 0:03:56.360 the near term, yes, this is positive for risk assets. 0:03:56.480 --> 0:03:59.360 At some point, if this is the beginning of a 0:03:59.400 --> 0:04:01.960 cutting site, and if it starts to be in response 0:04:02.000 --> 0:04:04.960 to weak data, the market will have to digest the 0:04:05.000 --> 0:04:07.680 fact that, Okay, the economy is now cooling quite a bit. 0:04:08.040 --> 0:04:11.320 We were cutting because we could, Now we're cutting because 0:04:11.320 --> 0:04:13.280 we're trying to prevent further weakness. 0:04:13.680 --> 0:04:15.560 If this is the start of a cutting cycle, though, 0:04:15.560 --> 0:04:17.600 how could it be when the chairman himself said the 0:04:17.720 --> 0:04:22.000 tariff effects will be accumulating overcoming months with high uncertainty 0:04:22.000 --> 0:04:23.520 be about timing and amounts. 0:04:24.880 --> 0:04:26.640 Well, that's what I think the market's going to have 0:04:26.680 --> 0:04:28.960 to figure out. Right now, we're acting as if it 0:04:29.000 --> 0:04:30.839 is the beginning of a cutting cycle, and this is 0:04:30.880 --> 0:04:34.799 going to be a slow message to keep going down 0:04:34.839 --> 0:04:37.080 further and further as the year goes on. We're pricing 0:04:37.080 --> 0:04:39.640 in a little bit more than two cuts right now 0:04:39.960 --> 0:04:43.159 before the end of the year. If you look at 0:04:43.320 --> 0:04:46.360 the time period when it might take tariffs to actually 0:04:46.360 --> 0:04:48.200 work their way into the data. And when I say 0:04:48.240 --> 0:04:52.359 the data, we've already seen some effective tariffs in PPI data. 0:04:52.640 --> 0:04:56.039 We're looking for it in consumer price data, so CPI 0:04:56.200 --> 0:04:59.000 and PCE, and it'll take a little bit longer to 0:04:59.120 --> 0:05:02.320 get there because if the companies are not passing it 0:05:02.360 --> 0:05:05.120 through on the PPI side, on the wholesale side, it's 0:05:05.120 --> 0:05:06.960 going to take a little while to see that in 0:05:07.000 --> 0:05:11.160 the consumer side to the end result. So usually, let's 0:05:11.160 --> 0:05:13.200 say it takes four to six months for that to 0:05:13.320 --> 0:05:15.400 actually work its way all the way through the system. 0:05:15.560 --> 0:05:18.320 The FED knows that, so they're buying themselves some time 0:05:18.680 --> 0:05:21.600 to say, okay, let's watch and see what happens over 0:05:21.640 --> 0:05:24.360 the next few months of inflation reports on the consumer 0:05:24.480 --> 0:05:29.560 side before we signal anything, promise anything to markets that 0:05:29.640 --> 0:05:31.880 this is going to be a slow cutting cycle that 0:05:31.920 --> 0:05:32.800 will continue. 0:05:32.960 --> 0:05:33.600 Liz, what are you. 0:05:33.520 --> 0:05:35.320 Looking for in terms of the data we have yet 0:05:35.320 --> 0:05:37.400 to see when it comes to the August payrolls and 0:05:37.480 --> 0:05:41.799 CPI report that could maybe make j Powell walk back 0:05:42.160 --> 0:05:44.280 this idea of a cut in September. 0:05:45.640 --> 0:05:47.520 Well, one of the things that I had been saying 0:05:47.520 --> 0:05:51.080 even before Jackson Hole was we're getting really excited about 0:05:51.080 --> 0:05:52.880 a cut in September when we've got a lot of 0:05:52.960 --> 0:05:55.719 data still to come. So we know that the CPI 0:05:55.800 --> 0:05:58.880 and the PPI data was a little conflicting. CPI came 0:05:58.920 --> 0:06:02.640 in okay, if not slightly weak. PPI came in really hot, 0:06:02.680 --> 0:06:06.760 So there is already some conflicting message coming from the data. 0:06:07.120 --> 0:06:10.440 We've got another CPI report, We've got the jobs report obviously, 0:06:10.520 --> 0:06:13.640 which everybody will be watching with baited breath. We've got 0:06:13.640 --> 0:06:16.600 a PCE report, so there's still a lot to come. 0:06:16.839 --> 0:06:21.040 If some of those come in hot, especially hot, then 0:06:21.080 --> 0:06:23.440 I think we're going to see a lot more uncertainty 0:06:23.560 --> 0:06:25.719 before that meeting. But I do believe that it would 0:06:25.760 --> 0:06:27.520 have to be a series of hot data, So it 0:06:27.560 --> 0:06:31.080 wouldn't just be a one time pop in CPI, a 0:06:31.160 --> 0:06:34.599 one time pop in PCEE, because they've already messaged to 0:06:34.640 --> 0:06:36.279 us that that might happen anyway. 0:06:36.680 --> 0:06:38.360 So I think unless. 0:06:38.040 --> 0:06:41.760 This job's report comes in really, really hot, I think 0:06:41.800 --> 0:06:42.679 we're getting that cut. 0:06:42.960 --> 0:06:45.320 The jobs report is what I want to talk about, Liz. 0:06:45.520 --> 0:06:48.240 The prospect of an activity rebound. Can we just get 0:06:48.279 --> 0:06:50.400 into that a little bit more. I've seen that from 0:06:50.400 --> 0:06:54.240 Bank for America on Friday, heard Mazoo talk about it too. 0:06:54.279 --> 0:06:56.600 Jordan Rochester said, it's hard to get too duvish if 0:06:56.680 --> 0:07:00.400 US growth momentum from PMIS is real. How do you 0:07:00.400 --> 0:07:02.919 think about the prospect of a growth rebound as we 0:07:02.960 --> 0:07:05.400 work our way through September into year end. 0:07:06.960 --> 0:07:08.680 Well, I think that's part of what the market is 0:07:08.720 --> 0:07:11.520 coning on with this broadening out trade that it started 0:07:11.560 --> 0:07:13.880 to do over the last couple of weeks. You're seeing 0:07:13.920 --> 0:07:16.640 some strength out of smaller cap names. You're seeing strength 0:07:16.680 --> 0:07:20.200 out of other sectors besides communications and tech, and even 0:07:20.360 --> 0:07:22.800 outside of industrials, which has been one of the top 0:07:22.840 --> 0:07:27.040 sectors this year. So the broadening out trade is enthusiasm 0:07:27.160 --> 0:07:30.080 that we will have some sort of growth rebound. Activity 0:07:30.120 --> 0:07:33.640 rebound that's durable and can reach into other parts of 0:07:33.680 --> 0:07:37.280 the economy. I think it's possible, but it's too early 0:07:37.360 --> 0:07:39.520 to say, Okay, this is a growth rebound that's going 0:07:39.560 --> 0:07:42.240 to look like early parts of a cycle, because if 0:07:42.240 --> 0:07:47.080 we're just embarking on a cutting cycle again during this period, 0:07:47.440 --> 0:07:50.360 we have to really wait for confirmation of some of 0:07:50.400 --> 0:07:53.040 that activity. And the reality is that the data had 0:07:53.040 --> 0:07:56.119 been moving in the opposite direction coming into this, hadn't 0:07:56.160 --> 0:07:59.520 been moving in a terrible direction, but things were cooling off. 0:08:00.080 --> 0:08:01.480 He was cooling off. 0:08:01.320 --> 0:08:01.800 A little bit. 0:08:01.840 --> 0:08:04.680 The labor market has really been stagnant, a in a 0:08:04.760 --> 0:08:08.640 solid place, stagnant in a place of strength, but stagnant 0:08:08.640 --> 0:08:11.400 for a long time. So there would it would take 0:08:11.520 --> 0:08:16.080 some really exciting news or some shift in economic developments 0:08:16.360 --> 0:08:19.040 to I think broaden out the growth in a durable way. 0:08:19.120 --> 0:08:23.200 Right now, stay with us, mul Bloomberg surveillance coming up 0:08:23.520 --> 0:08:24.120 after this. 0:08:33.280 --> 0:08:33.520 Step. 0:08:33.559 --> 0:08:36.160 A shooter of Missoula isn't convinced it's needed right in 0:08:36.200 --> 0:08:38.840 the following should the Feedi's policy, as the Markets Expect 0:08:39.120 --> 0:08:42.200 analysis suggests, the primary risk of the economy is a 0:08:42.280 --> 0:08:45.160 backup in long term interest rate. Steve joined us now 0:08:45.160 --> 0:08:47.320 for more, Steve, good morning, Good morning. Just tell us 0:08:47.360 --> 0:08:48.120 what do you think is brewing? 0:08:48.160 --> 0:08:49.360 Care Well, I. 0:08:49.320 --> 0:08:53.319 Think there's a bit of political pressure building. I think 0:08:53.360 --> 0:08:56.280 there's a bit of dovishness within this committee that has 0:08:56.360 --> 0:09:01.040 been brewing over years, and I think when you combine 0:09:01.080 --> 0:09:05.840 it with a misperception as to how restrictive monetary policy is, 0:09:06.400 --> 0:09:08.880 you wind up in a situation where you get a 0:09:08.960 --> 0:09:11.720 chairman making a statement like this, leaving a door open 0:09:12.080 --> 0:09:14.160 to a rate cut when he himself and his own 0:09:14.200 --> 0:09:17.160 balance of risks is completely balanced. The risk to the 0:09:17.280 --> 0:09:20.400 upside on inflation, The risk of inflation is to the upside. 0:09:20.440 --> 0:09:22.960 The risk to employment is to the downside. Well, okay, 0:09:23.000 --> 0:09:23.800 what are you supposed to do? 0:09:24.080 --> 0:09:24.240 Well? 0:09:24.240 --> 0:09:26.400 The answer is, if I think it's restrictive, maybe I 0:09:26.480 --> 0:09:29.280 can cut rates. If I don't think it's restrictive, then 0:09:29.280 --> 0:09:32.280 I should be doing nothing. How do we define restrictive? 0:09:32.400 --> 0:09:34.600 That becomes the problem are they thinking at the moment? 0:09:34.679 --> 0:09:37.400 Appears to be that, yes, we're facing upside risk to 0:09:37.440 --> 0:09:40.400 inflation and downside risk to employment. But the downside risk 0:09:40.400 --> 0:09:43.400 to employment are more important because the upside risk to 0:09:43.440 --> 0:09:45.560 inflation won't be as pervasive When we won't see the 0:09:45.559 --> 0:09:48.400 second round effects because of the downside risk to employment. 0:09:48.760 --> 0:09:52.280 How do you think about that, assue, you have to show. 0:09:52.160 --> 0:09:54.800 Me that's the case historically. 0:09:55.080 --> 0:09:58.640 Yes, there are important transitions that take place in terms 0:09:58.679 --> 0:10:00.800 of the labor market that happened more quickly than on 0:10:00.800 --> 0:10:03.439 the inflation side of the equation. Don't argue with that. 0:10:03.679 --> 0:10:06.280 Is this one of those conditions. The answer is no. 0:10:07.040 --> 0:10:09.360 You have an economy that is fundamentally healthy. You've got 0:10:09.360 --> 0:10:12.280 an economy that accelerated or rebounded right and I very 0:10:12.320 --> 0:10:15.200 very sharply after the second quarter GDP. You've got an 0:10:15.200 --> 0:10:18.600 economy that's showing you have healthy consumer demand. You have 0:10:18.640 --> 0:10:21.679 an economy that is going to be above trend economic 0:10:21.760 --> 0:10:26.360 growth in the current quarter against the backdrop of a 0:10:26.400 --> 0:10:29.880 consensus forecast of zero point nine percent growth. And so 0:10:30.040 --> 0:10:33.800 therefore there's a disconnect between the reality and the perceptions, 0:10:34.040 --> 0:10:35.520 and I think that's part of the problem. 0:10:35.559 --> 0:10:36.720 The other thing, I think when you're. 0:10:36.559 --> 0:10:39.400 Looking at the coverage of this, everyone's focused in on 0:10:39.440 --> 0:10:41.840 the opening up the door to a rate cut. 0:10:42.760 --> 0:10:44.079 The Chairman has said a couple of things. 0:10:44.120 --> 0:10:47.760 One was that basically that he didn't think policy was 0:10:47.800 --> 0:10:51.280 that restrictive. Yet the market has five rate cuts price day. 0:10:51.559 --> 0:10:52.480 That's number one. 0:10:53.120 --> 0:10:57.200 Number two, if you look at the framework changes, everything 0:10:57.240 --> 0:11:00.840 they did in twenty twenty, which was adopting a style 0:11:00.880 --> 0:11:05.560 of monetary policy is gone, and they've readopted a tailor 0:11:05.640 --> 0:11:09.400 rule approach to monetary policy, which is a symmetric monetary 0:11:09.440 --> 0:11:11.920 policy guide frame. And when you look at the tailor 0:11:12.040 --> 0:11:15.320 rule type models, monetary policy is not restrictive. 0:11:15.760 --> 0:11:18.240 So you mentioned though at the start, because one of 0:11:18.240 --> 0:11:21.400 them dimension happening here, you said it is a little political. 0:11:21.440 --> 0:11:23.160 Do you think his speech Friday was political? 0:11:24.160 --> 0:11:26.200 Well, I think they may get into a situation where 0:11:26.200 --> 0:11:28.600 the Chairman said, Okay, I'm going to open the door 0:11:28.600 --> 0:11:31.000 to wait, let's see what the committee does. Because there 0:11:31.000 --> 0:11:34.280 seems to be this perception inside the White House, inside 0:11:34.280 --> 0:11:38.360 the Treasury that the Chairman can determine where monetary policy goes. 0:11:38.640 --> 0:11:40.760 So if the Chairman opens the door to a rate 0:11:40.800 --> 0:11:43.559 cut and the committee votes and doesn't vote for a 0:11:43.640 --> 0:11:47.480 rate cut, then guess what, it's not just one vote. 0:11:47.600 --> 0:11:49.920 Bob Elliott was saying that he potentially was doing this 0:11:49.960 --> 0:11:52.640 to protect the FED as an institution, but it sounds 0:11:52.679 --> 0:11:54.560 like what you're saying, he's protecting himself. 0:11:55.000 --> 0:11:58.240 Well, I again, protecting the FED as an institution. 0:11:58.760 --> 0:12:00.720 Yes, the institutions. 0:12:00.080 --> 0:12:03.080 Seems to be under attacked, but it's always historically been 0:12:03.160 --> 0:12:06.480 under attacked. We went through a very very calm period 0:12:07.640 --> 0:12:10.320 where we did not attack the FED. From basically Paul 0:12:10.400 --> 0:12:14.199 Volker on, We're now back in the more political environment 0:12:14.280 --> 0:12:17.360 of these things, and we've historically faced these dilemmas. I 0:12:17.400 --> 0:12:20.680 think the real real issue for the FED in here 0:12:20.880 --> 0:12:24.800 is not just maintaining its independence, but maintaining its credibility. 0:12:25.360 --> 0:12:27.280 Okay, what is your framework? 0:12:27.400 --> 0:12:29.600 Is your framework a symmetrical monetary policy? 0:12:29.960 --> 0:12:30.240 Okay? 0:12:30.240 --> 0:12:33.040 If it's a symmetrical monetary policy, then live up to 0:12:33.080 --> 0:12:36.280 the symmetrical monetary policy. If it is still a policy 0:12:36.320 --> 0:12:39.200 skew towards the labor market issues, i e. It is 0:12:39.280 --> 0:12:43.240 the more equal of too equal framework our guidelines, then 0:12:43.520 --> 0:12:47.400 be clear about that. And this I think opens up 0:12:47.440 --> 0:12:49.839 the of the dilemma for what we're dealing with today. 0:12:49.920 --> 0:12:51.200 And do you think we could see a repay of 0:12:51.240 --> 0:12:53.160 last year they dropp rights to the front end. 0:12:53.200 --> 0:12:54.920 I mean, it's not saying problems for the long end. 0:12:55.240 --> 0:12:58.480 I think that's really the underlying risk that they face now. Again, 0:12:58.840 --> 0:13:02.640 could that be that a message to people on Capitol 0:13:02.720 --> 0:13:05.280 Hill that believe, well, mint, if you lower short term 0:13:05.320 --> 0:13:08.280 interest rates, long term interistrates to automatically come down. The 0:13:08.360 --> 0:13:10.880 answer is yes that maybe you know what has to 0:13:10.920 --> 0:13:11.920 happen to get it done. 0:13:12.240 --> 0:13:14.920 Is twenty five basis points going to matter one way 0:13:15.000 --> 0:13:15.480 or the other? 0:13:15.720 --> 0:13:15.880 No? 0:13:16.280 --> 0:13:20.079 Well, one hundred and twenty five basis points matter, yes, And. 0:13:19.960 --> 0:13:22.440 That's really really the difference here. 0:13:22.679 --> 0:13:24.360 I don't really care if they cut rags twenty five 0:13:24.400 --> 0:13:25.559 basis points in September. 0:13:25.679 --> 0:13:27.520 I care about what they do with the dots. 0:13:27.840 --> 0:13:32.080 Do they now look at their different framework and say, okay, 0:13:32.160 --> 0:13:35.559 we've back to the pre twenty twenty framework, Well, what 0:13:35.640 --> 0:13:39.000 should the dots then be going forward? Should the dots 0:13:39.040 --> 0:13:41.960 still be for the number of rate cuts we envision 0:13:42.040 --> 0:13:45.240 against an environment where we have an economy that's going 0:13:45.320 --> 0:13:47.679 to continue to grow, and we have inflation in our 0:13:47.720 --> 0:13:50.120 forecast that's one hundred basis points above. 0:13:49.920 --> 0:13:51.360 Our target state. This is really important. 0:13:51.400 --> 0:13:53.760 What I hear from your analysis as a clear distinction 0:13:53.840 --> 0:13:56.560 between whatever they do on September and then the rest, 0:13:56.679 --> 0:13:59.000 and the rest is far more important. Do you see 0:13:59.000 --> 0:14:01.960 scope then for Holkers on a seventeenth Well. 0:14:01.840 --> 0:14:04.840 The problem is the dots because the dots aren't set 0:14:04.920 --> 0:14:08.120 as part of policy. They go into the meeting having 0:14:08.200 --> 0:14:11.440 delivered their dots and their sep and therefore it's just 0:14:11.480 --> 0:14:15.440 a calculation. And unfortunately the market only pays attention to 0:14:15.800 --> 0:14:20.680 the dots. It is the intellectual gravity. Well, okay, once 0:14:20.760 --> 0:14:23.520 you put that dot out there, all thought process in 0:14:23.560 --> 0:14:26.960 the market goes to explaining that dot and forecasting what's 0:14:27.000 --> 0:14:29.640 going to get that dot to happen. Nobody thinks of 0:14:29.680 --> 0:14:33.600 anything else outside of how does that dot get validated? 0:14:33.840 --> 0:14:34.960 And that's where the market is. 0:14:35.000 --> 0:14:37.440 So as long as those dots run the risk of 0:14:37.480 --> 0:14:39.800 being there, I think you might wind up with a 0:14:39.840 --> 0:14:44.000 more graded divergence in the dots in September, and that 0:14:44.080 --> 0:14:45.520 may be the thing that matters. 0:14:47.280 --> 0:14:47.920 Stay with us. 0:14:48.240 --> 0:15:00.440 Mulblemberg Savannah's coming up off to this. So here's the 0:15:00.520 --> 0:15:03.640 latest this morning. Bon yields plunging on Friday after fed 0:15:03.680 --> 0:15:06.520 cha jypouse sick nor day, possible rate count in September, 0:15:06.720 --> 0:15:09.920 ending an eight month pause. Robert Tip of PGM writing 0:15:10.000 --> 0:15:12.040 the attention to the growth side of the fed's equation 0:15:12.240 --> 0:15:15.280 is also a welcome development, suggesting the FED is a 0:15:15.360 --> 0:15:18.920 tune to downside economic risk. Robert joins us now for more, Robert, 0:15:18.920 --> 0:15:21.120 welcome to the program, sir. Let's just reflect on what 0:15:21.160 --> 0:15:23.160 we heard from Chair and Powell. What is he setting 0:15:23.200 --> 0:15:24.960 us up for going into year end. 0:15:26.560 --> 0:15:28.720 I think he set us up for doing whatever the 0:15:28.800 --> 0:15:32.000 data told him to do. You know, he opened up 0:15:32.080 --> 0:15:36.360 to rate cuts with one sentence. You know, before that 0:15:36.480 --> 0:15:40.920 sentence he was talking about inflation and the concerns on 0:15:40.960 --> 0:15:45.040 the inflation side, which are very real, frankly, and you know, 0:15:45.120 --> 0:15:47.000 he got it wrong on the data, and he really 0:15:47.040 --> 0:15:52.120 pounded the table at his last press conference about how 0:15:52.160 --> 0:15:54.640 decent the labor market was and they weren't cutting. 0:15:55.480 --> 0:15:56.800 And then he got, you. 0:15:56.760 --> 0:15:58.960 Know, three months worth of bad data in one go 0:15:59.160 --> 0:15:59.920 on that Friday. 0:16:00.360 --> 0:16:02.280 So he opened the door to the rate cuts. 0:16:02.600 --> 0:16:05.560 If they got another ratification of the weak data, he's 0:16:05.640 --> 0:16:08.200 opened the door. They can cut rates. He can work 0:16:08.240 --> 0:16:12.040 with his committee. But he bought time, and he bought 0:16:12.040 --> 0:16:14.800 the ability to act independently, because this bet is not 0:16:14.920 --> 0:16:17.880 independent and they have to be very careful, Robert. 0:16:17.880 --> 0:16:21.200 He also redefined what weak data actually was. We'll get 0:16:21.240 --> 0:16:23.680 to central bank independence in a moment. I want to 0:16:23.680 --> 0:16:26.240 sit on the labor market last time around in the 0:16:26.240 --> 0:16:28.720 news conference, he talked about the labor market being solid 0:16:28.880 --> 0:16:32.120 and ank at that view around the unemployment rate almost 0:16:32.120 --> 0:16:34.280 that data point alone, and now he's looking at a 0:16:34.280 --> 0:16:36.800 simultaneous step down in the supply side of the labor 0:16:36.840 --> 0:16:39.400 market and the demand side and putting more weight on 0:16:39.400 --> 0:16:42.080 one versus the other. And I'm just wondering, Robert, why 0:16:42.120 --> 0:16:45.520 you think that's come from. 0:16:45.600 --> 0:16:49.720 Yeah, you know, I think that that data is incredibly 0:16:50.040 --> 0:16:53.760 light in terms of sampling. I'm not a statistician, I'm 0:16:53.760 --> 0:16:57.120 not an economist, but it's not that many households, it's 0:16:57.160 --> 0:17:00.880 not that many businesses, and so you need a couple 0:17:00.880 --> 0:17:03.560 of years before that data begins to settle down with 0:17:03.600 --> 0:17:06.639 all the revisions. And so if you add subtract and 0:17:06.680 --> 0:17:10.280 god forbid, start dividing those numbers and getting unemployment rates, 0:17:10.640 --> 0:17:13.320 you have a tremendous amount of risk in interpreting those. 0:17:13.400 --> 0:17:17.879 So you know, you know, I think the economy is 0:17:17.880 --> 0:17:22.560 doing reasonably well. But to his point, when you get 0:17:22.600 --> 0:17:26.800 downward revisions, they tend to have positive serial correlation. 0:17:26.760 --> 0:17:28.240 You tend to keep seeing them. 0:17:29.480 --> 0:17:32.480 Some research says, you know, that doesn't correlate with recessions. 0:17:32.480 --> 0:17:33.800 Some shows that it does. 0:17:34.440 --> 0:17:37.679 And I think you, and I know that often with recessions, 0:17:37.680 --> 0:17:39.920 you look back, they say, oh, yes, six months ago. 0:17:39.800 --> 0:17:42.440 We were actually in the recession. We didn't know it. 0:17:42.840 --> 0:17:46.840 He's feeling that risk, so he's adjusting. Nobody knows what 0:17:46.960 --> 0:17:50.359 to look at in terms of the data. But I 0:17:50.359 --> 0:17:53.960 think that's why he's struggling and everybody's grappling with that information. 0:17:54.440 --> 0:17:56.639 After this speech, is he's setting up the market to 0:17:56.680 --> 0:17:59.159 pay more attention though to the labor market report that 0:17:59.280 --> 0:17:59.879 comes out. 0:18:01.240 --> 0:18:04.399 I think the market always thought the labor market was 0:18:04.440 --> 0:18:06.879 more important. And in fact, if you just look at 0:18:06.920 --> 0:18:09.880 the COVID experience, as long as they were concerned about 0:18:09.920 --> 0:18:13.359 the labor market, they weren't hiking interest rates until they're 0:18:13.400 --> 0:18:17.200 absolutely sure. Yet labor market's probably okay. And wow, inflation 0:18:17.320 --> 0:18:20.440 is way, way, way too high. So this is a 0:18:20.520 --> 0:18:23.280 FED that has been trained. This is the third FED 0:18:23.440 --> 0:18:30.040 of the United States. And you know, the most public 0:18:31.280 --> 0:18:34.800 strongest opposition to FED independence was probably right in the 0:18:34.840 --> 0:18:40.760 fifties before their independence with Truman, you know, Humphrey Hawkins, 0:18:40.960 --> 0:18:43.639 after a very brief reception in sixty nine. In the 0:18:43.720 --> 0:18:48.600 seventies they wrote this, you know, dual mandate, which actually 0:18:48.680 --> 0:18:53.080 has more parts to it. It's a very employment heavy mandate. 0:18:53.720 --> 0:18:57.720 So I think that the markets already realized the FED 0:18:57.760 --> 0:19:00.679 would lean on that because the Fed's independents can be 0:19:00.720 --> 0:19:04.160 shaken by Congress, and the board itself can be attacked 0:19:04.160 --> 0:19:04.600 as well. 0:19:05.040 --> 0:19:08.880 You said earlier the FED is not independent, do you mean? 0:19:08.880 --> 0:19:12.560 Because their mandate is back to someplace, and that's Congress, 0:19:12.560 --> 0:19:13.480 that's the lawmakers. 0:19:14.280 --> 0:19:17.800 Not only is it made by the lawmakers, they set 0:19:17.800 --> 0:19:22.320 the targets. But this is a president that can legislate effectively. 0:19:22.400 --> 0:19:25.040 I mean we saw this with the budget where he 0:19:25.200 --> 0:19:30.560 pushed something through that touched entitlements in fast, you know, 0:19:31.280 --> 0:19:36.480 lightning speed and vent the budget rules right. And maybe 0:19:36.520 --> 0:19:38.400 I'm not saying whether this is right or wrong. I'm 0:19:38.440 --> 0:19:41.600 just trying to adjust to reality here. What's possible in 0:19:41.600 --> 0:19:46.520 this environment. These people that are voting on the rates 0:19:46.600 --> 0:19:49.560 are under tremendous pressure. They can come under attack from 0:19:49.560 --> 0:19:55.320 the Justice Department. But at its very fundamental basis, the 0:19:55.359 --> 0:19:58.920 Fed's mandate is set by Congress that will reserve Act 0:19:59.359 --> 0:20:02.040 Humphrey Hawk and it can be changed at any time. 0:20:02.760 --> 0:20:05.239 So I thought he was very artful. It wasn't like 0:20:05.320 --> 0:20:07.280 twenty eighteen or a little bit earlier in this cycle 0:20:07.320 --> 0:20:11.400 where he fought on the interest rates, laid out the situation, 0:20:12.080 --> 0:20:14.159