1 00:00:13,800 --> 00:00:17,239 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:17,400 --> 00:00:19,560 Speaker 1: My name is Mike Regan, I'm a senior editor. 3 00:00:19,360 --> 00:00:22,960 Speaker 2: At Bloomberg, and I'm Aldana Hayrick, Across Acid reporter with Bloomberg. 4 00:00:23,280 --> 00:00:26,279 Speaker 1: This week on the show, Well, the Federal Reserve did 5 00:00:26,320 --> 00:00:28,800 Speaker 1: not raise interest rates at their meeting this week, but 6 00:00:28,920 --> 00:00:32,960 Speaker 1: nonetheless the markets freaked out a little bit, probably because 7 00:00:33,080 --> 00:00:37,000 Speaker 1: policymakers released projections showing that they don't expect to cut 8 00:00:37,080 --> 00:00:42,680 Speaker 1: rates as aggressively as previously expected next year. Stock sold off, 9 00:00:42,720 --> 00:00:44,960 Speaker 1: and so did the bond market, especially on the long 10 00:00:45,080 --> 00:00:47,800 Speaker 1: end of the curve, with the ten year treasury yield 11 00:00:47,840 --> 00:00:50,960 Speaker 1: reaching the highest level since two thousand and seven and 12 00:00:51,040 --> 00:00:54,120 Speaker 1: the thirty year yield reaching the highest since two thousand 13 00:00:54,120 --> 00:00:57,400 Speaker 1: and eleven. While the latest update from the Fed makes 14 00:00:57,440 --> 00:00:59,640 Speaker 1: it look more and more like they're expecting a soft 15 00:00:59,720 --> 00:01:02,400 Speaker 1: land for the economy, well, the markets are taking it 16 00:01:02,440 --> 00:01:05,240 Speaker 1: pretty hard. We'll get into it with the chief US 17 00:01:05,240 --> 00:01:09,639 Speaker 1: economist at a major Wall Street bank, but they'll dona first. 18 00:01:09,959 --> 00:01:11,720 Speaker 1: I have to say it's been a while since we 19 00:01:11,880 --> 00:01:15,440 Speaker 1: bugged our listeners to go and rate and review the 20 00:01:15,440 --> 00:01:17,880 Speaker 1: show on Apple Podcasts. I think we need a new 21 00:01:17,920 --> 00:01:19,080 Speaker 1: gimmick to entice them. 22 00:01:19,200 --> 00:01:20,280 Speaker 2: Do you have one in mind? 23 00:01:21,680 --> 00:01:22,920 Speaker 1: Funny you should ask I do? 24 00:01:23,040 --> 00:01:24,360 Speaker 2: What is it? Bo? 25 00:01:24,360 --> 00:01:28,120 Speaker 1: I'm thinking since you're a Buffalo Bills fan, you could 26 00:01:28,200 --> 00:01:31,440 Speaker 1: do like the Bills fans do at the tailgates and 27 00:01:31,480 --> 00:01:33,679 Speaker 1: like smash a card table. 28 00:01:34,040 --> 00:01:35,920 Speaker 2: Yeah, you have to jump. You have to jump through 29 00:01:35,959 --> 00:01:36,840 Speaker 2: the table. 30 00:01:37,160 --> 00:01:38,000 Speaker 1: Jump through the table. 31 00:01:38,080 --> 00:01:38,319 Speaker 3: Yeah. 32 00:01:38,440 --> 00:01:40,000 Speaker 1: How about would you think you could say we get 33 00:01:40,000 --> 00:01:42,319 Speaker 1: one hundred more reviews? You could how. 34 00:01:42,240 --> 00:01:46,240 Speaker 2: About things one hundred more reviews and they make it 35 00:01:46,280 --> 00:01:47,080 Speaker 2: to the super Bowl? 36 00:01:48,600 --> 00:01:49,120 Speaker 1: Both of those? 37 00:01:49,280 --> 00:01:51,040 Speaker 2: Yeah, to those I don't know to be too much. 38 00:01:51,160 --> 00:01:52,920 Speaker 1: Then you'll you'll jump on a card tabe. 39 00:01:53,000 --> 00:01:55,160 Speaker 2: Yeah all right, but the one hundred. 40 00:01:54,920 --> 00:01:58,640 Speaker 1: Reviews being the first first order of business, it'll be 41 00:01:58,680 --> 00:02:02,400 Speaker 1: a weird expense account item. Smashed the card tape? Okay, 42 00:02:02,840 --> 00:02:03,560 Speaker 1: I think I. 43 00:02:03,480 --> 00:02:06,559 Speaker 2: Can expense it to Bloomberg. I was just I would 44 00:02:06,560 --> 00:02:08,800 Speaker 2: do it just for fun. I don't know if our 45 00:02:09,200 --> 00:02:12,480 Speaker 2: guest is a football fan at all, but we have 46 00:02:12,600 --> 00:02:16,600 Speaker 2: Ellen Zenner, chief US economist at Morgan Stanley, on this weekend. Ellen, 47 00:02:16,680 --> 00:02:18,639 Speaker 2: I'm so happy to have you on the podcast. Thank 48 00:02:18,680 --> 00:02:19,720 Speaker 2: you so much for joining us. 49 00:02:20,120 --> 00:02:22,000 Speaker 3: Hi, guys, I love it. Thanks for asking me. 50 00:02:23,080 --> 00:02:25,840 Speaker 2: Are you a Buffalo Bills fan. A secret Buffalo Bills 51 00:02:25,840 --> 00:02:26,960 Speaker 2: fan by any chance. 52 00:02:27,160 --> 00:02:31,079 Speaker 3: No, not even secret. I was quite into college ball 53 00:02:31,160 --> 00:02:34,000 Speaker 3: growing up in Texas. That was really the Texas thing, 54 00:02:34,120 --> 00:02:38,040 Speaker 3: high school and college ball, and never been a big 55 00:02:38,080 --> 00:02:41,480 Speaker 3: fan of the NFL, although my dad was a big 56 00:02:42,600 --> 00:02:44,480 Speaker 3: Saints fan, New Orleans fan. 57 00:02:44,840 --> 00:02:47,400 Speaker 1: What if I remember correctly, you went to Colorado? You 58 00:02:47,400 --> 00:02:48,200 Speaker 1: have coach Prime. 59 00:02:48,240 --> 00:02:52,720 Speaker 3: Now, I did go to Colorado, but you know, I'm 60 00:02:52,720 --> 00:02:56,200 Speaker 3: a walking paradigm. I started at University of Texas and 61 00:02:56,360 --> 00:02:58,360 Speaker 3: never stopped being a Longhorns fan. 62 00:02:59,200 --> 00:03:01,960 Speaker 2: Like I am loyal to the Bills. But Ellen, we 63 00:03:02,000 --> 00:03:04,280 Speaker 2: had this big week, which is why I'm so thankful 64 00:03:04,320 --> 00:03:07,799 Speaker 2: you were able to join us this week because, as 65 00:03:07,840 --> 00:03:11,399 Speaker 2: Mike mentioned, markets sort of had a little freak out 66 00:03:11,480 --> 00:03:13,720 Speaker 2: post the FED meeting. So just to start, can you 67 00:03:13,760 --> 00:03:16,760 Speaker 2: give us your big takeaways from the FED meeting. 68 00:03:17,880 --> 00:03:21,640 Speaker 3: Yeah. Look, I think it's undeniable that the statement was 69 00:03:21,680 --> 00:03:26,240 Speaker 3: more hawkish than we expected. I think for me, you know, 70 00:03:26,520 --> 00:03:29,560 Speaker 3: in the current conditions paragraph, which is how the FED 71 00:03:29,680 --> 00:03:32,679 Speaker 3: describes sort of what's going on or what's happened since 72 00:03:32,680 --> 00:03:35,880 Speaker 3: their last meeting, they you know, it is a fact 73 00:03:36,280 --> 00:03:39,240 Speaker 3: that jobs have slowed, but remained strong, and they noted 74 00:03:39,280 --> 00:03:42,280 Speaker 3: that it is also a fact that inflation has come 75 00:03:42,320 --> 00:03:45,640 Speaker 3: down quite a bit but remains robust, and they did 76 00:03:45,680 --> 00:03:49,360 Speaker 3: not note that. And sometimes what they leave out can 77 00:03:49,360 --> 00:03:51,960 Speaker 3: be just as important as what they put in. I mean, 78 00:03:52,040 --> 00:03:56,760 Speaker 3: Chairpal did note it in the press conference several times 79 00:03:56,840 --> 00:04:00,960 Speaker 3: that core inflation has come down significantly. Well, why didn't 80 00:04:00,960 --> 00:04:03,720 Speaker 3: they just note that fact in the statement. It's because 81 00:04:03,920 --> 00:04:07,680 Speaker 3: you're far from declaring victory. God forbid that the market 82 00:04:07,720 --> 00:04:12,480 Speaker 3: thinks that you're declaring victory over inflation and you get 83 00:04:12,560 --> 00:04:16,800 Speaker 3: some easing and financial conditions you hadn't planned on when 84 00:04:17,160 --> 00:04:20,120 Speaker 3: type financial conditions is really what they need to sustain 85 00:04:20,360 --> 00:04:22,960 Speaker 3: to be sure that the economy is going to continue 86 00:04:23,000 --> 00:04:26,280 Speaker 3: to slow. It's been growing much too quickly this year. 87 00:04:26,880 --> 00:04:29,600 Speaker 1: For I'd like to sort of just step back and 88 00:04:29,760 --> 00:04:33,920 Speaker 1: talk about say the last three or four years, you know, 89 00:04:34,000 --> 00:04:39,560 Speaker 1: I feel like for the art or science of economics, 90 00:04:39,640 --> 00:04:43,680 Speaker 1: however you view it, it's been a really weird few years. 91 00:04:43,720 --> 00:04:43,880 Speaker 2: You know. 92 00:04:43,920 --> 00:04:47,559 Speaker 1: We've had this massive shutdown of the economy like nothing 93 00:04:47,600 --> 00:04:51,320 Speaker 1: we've ever seen, then this massive stimulus to bring it 94 00:04:51,360 --> 00:04:55,840 Speaker 1: back to life, followed on by you know, a major 95 00:04:55,920 --> 00:04:59,120 Speaker 1: war in Europe, what's it been like to be a 96 00:04:59,120 --> 00:05:03,000 Speaker 1: really high level, very closely watched economists during all this? 97 00:05:03,320 --> 00:05:06,520 Speaker 1: You know, are there lessons to be learned? Because I 98 00:05:06,520 --> 00:05:09,600 Speaker 1: feel like it was so hard to predict and forecast 99 00:05:09,720 --> 00:05:13,360 Speaker 1: anything throughout all of this. What's it been like during 100 00:05:13,400 --> 00:05:15,200 Speaker 1: this whole last few years. 101 00:05:15,560 --> 00:05:19,120 Speaker 3: Gosh, well, it's it's been exciting, to say the least. 102 00:05:19,279 --> 00:05:22,440 Speaker 3: I think, you know, the word humble comes to mind. 103 00:05:23,720 --> 00:05:29,120 Speaker 3: You know, it's been a humbling experience, and it's taught 104 00:05:29,200 --> 00:05:32,240 Speaker 3: me and my team to be very creative in our 105 00:05:32,279 --> 00:05:37,440 Speaker 3: approach to thinking about the outlook. And frankly, I've been 106 00:05:37,480 --> 00:05:40,279 Speaker 3: looking forward to, you know, sort of the period that 107 00:05:40,320 --> 00:05:43,560 Speaker 3: we're going through now and next year, where you know, 108 00:05:43,600 --> 00:05:47,599 Speaker 3: it's a period of normalization as we get COVID further 109 00:05:47,680 --> 00:05:51,000 Speaker 3: into the rear view mirror. I think, you know, what 110 00:05:51,040 --> 00:05:53,440 Speaker 3: I'm starting to realize was some of the incoming data 111 00:05:53,520 --> 00:05:56,080 Speaker 3: is that it seems like we go through these big 112 00:05:56,160 --> 00:05:59,440 Speaker 3: crises and there's a lot of never will we ever 113 00:05:59,640 --> 00:06:02,160 Speaker 3: and this after two thousand and eight as well, never 114 00:06:02,240 --> 00:06:04,960 Speaker 3: will we ever take on debt again, never will we 115 00:06:05,040 --> 00:06:10,560 Speaker 3: ever buy homes again? And guess what we do? We 116 00:06:10,600 --> 00:06:14,400 Speaker 3: do all those things again? But you just have to 117 00:06:14,440 --> 00:06:17,640 Speaker 3: get the crisis further into the rearview mirror. Folks were saying, 118 00:06:17,640 --> 00:06:20,000 Speaker 3: we'll never go see a movie again, We're never going 119 00:06:20,040 --> 00:06:24,920 Speaker 3: to the theater ever again. And you know, I'm pretty sure 120 00:06:24,960 --> 00:06:28,120 Speaker 3: that Barben Hibern brought in a billion dollars through the 121 00:06:28,160 --> 00:06:32,000 Speaker 3: box office. So I'm looking forward to more of the 122 00:06:32,080 --> 00:06:35,680 Speaker 3: datas that folds to just see a normalization of the economy. 123 00:06:35,760 --> 00:06:39,359 Speaker 3: I don't think a whole lot has changed in the 124 00:06:39,400 --> 00:06:41,920 Speaker 3: way we go about our business. I think we just 125 00:06:42,000 --> 00:06:45,400 Speaker 3: have to get a lot of these big distortions that 126 00:06:45,480 --> 00:06:47,440 Speaker 3: are now unwinding out of the way. 127 00:06:48,520 --> 00:06:51,800 Speaker 2: So you say you've been very creative in your approach, 128 00:06:52,320 --> 00:06:54,719 Speaker 2: what does that entail? Because I remember during the pandemic 129 00:06:54,760 --> 00:06:56,360 Speaker 2: a lot of people were looking at these sort of 130 00:06:56,440 --> 00:07:02,880 Speaker 2: alternative data, looking at off occupancy rates, as you mentioned, 131 00:07:02,920 --> 00:07:06,880 Speaker 2: movie theater going, you know, foot different foot traffic. All 132 00:07:06,960 --> 00:07:10,640 Speaker 2: kinds of different measures had come about during the pandemic. 133 00:07:10,960 --> 00:07:13,880 Speaker 2: They've sort of fallen off to the wayside more recently. 134 00:07:13,920 --> 00:07:16,760 Speaker 2: But so what types of things does your team look 135 00:07:16,800 --> 00:07:17,200 Speaker 2: at now? 136 00:07:17,960 --> 00:07:20,720 Speaker 3: Yeah, Well, I think to me, what was really lucky 137 00:07:20,800 --> 00:07:25,160 Speaker 3: is that even before the pandemic hit, you know, technology 138 00:07:25,240 --> 00:07:27,400 Speaker 3: was advancing in a way that we were getting more 139 00:07:27,440 --> 00:07:31,720 Speaker 3: and more private data sources and high frequency data forge sources, 140 00:07:31,840 --> 00:07:37,560 Speaker 3: daily data that was becoming more prevalent, so that we 141 00:07:37,560 --> 00:07:40,680 Speaker 3: were starting to find new ways to track the economy. 142 00:07:41,160 --> 00:07:46,480 Speaker 3: The need for that during COVID really escalated and so 143 00:07:46,840 --> 00:07:48,960 Speaker 3: you know, this is where we were using Google Earth 144 00:07:49,120 --> 00:07:52,160 Speaker 3: to look at ships that were parked offshore that were 145 00:07:52,160 --> 00:07:55,560 Speaker 3: not able to be unloaded, and more robust use of 146 00:07:55,640 --> 00:07:59,480 Speaker 3: things like Google Maps and Open table to figure out 147 00:07:59,640 --> 00:08:02,400 Speaker 3: a people were starting to move and shake again and 148 00:08:02,440 --> 00:08:06,680 Speaker 3: going out to dine and that sort of thing, and 149 00:08:06,840 --> 00:08:11,160 Speaker 3: that kind of data. Those data sets proliferated, and hey, 150 00:08:11,200 --> 00:08:15,080 Speaker 3: for a time they were free. Now those data sets 151 00:08:15,600 --> 00:08:20,960 Speaker 3: have become more and more expensive. But using those data 152 00:08:21,000 --> 00:08:24,040 Speaker 3: sets instead of just you know, the traditional or in 153 00:08:24,080 --> 00:08:28,160 Speaker 3: addition to the traditional government and other private sources that 154 00:08:28,200 --> 00:08:32,400 Speaker 3: were already prevailing before COVID really helped us stay more 155 00:08:32,400 --> 00:08:36,520 Speaker 3: abreast of exactly what was going on on the ground. 156 00:08:36,920 --> 00:08:39,280 Speaker 3: And I tell you what, the fact that all of 157 00:08:39,320 --> 00:08:43,320 Speaker 3: that's been introduced and used more robustly now means that 158 00:08:43,640 --> 00:08:48,480 Speaker 3: also we have an even more and even larger portfolio 159 00:08:48,520 --> 00:08:51,439 Speaker 3: of data to rely on during government shutdowns when the 160 00:08:51,480 --> 00:08:55,400 Speaker 3: government data is not available. We used to fly blind 161 00:08:55,720 --> 00:08:58,400 Speaker 3: during government shutdowns. And I say this because we're facing 162 00:08:58,480 --> 00:09:04,920 Speaker 3: a possible government shutdown on September thirtieth, and depending on 163 00:09:05,240 --> 00:09:08,240 Speaker 3: the breadth and the length of that, we might start 164 00:09:08,240 --> 00:09:12,960 Speaker 3: to miss data points. And luckily we've got private sources 165 00:09:12,960 --> 00:09:16,160 Speaker 3: and other high frequency data where we can have some 166 00:09:16,240 --> 00:09:19,200 Speaker 3: sort of idea of what the economy is doing even 167 00:09:19,280 --> 00:09:22,760 Speaker 3: if we're not getting the official government data. And so 168 00:09:23,360 --> 00:09:26,080 Speaker 3: I think even in the field of economics, we've seen 169 00:09:26,120 --> 00:09:29,680 Speaker 3: a good deal of transformation of technology and how we 170 00:09:29,800 --> 00:09:30,160 Speaker 3: use it. 171 00:09:31,080 --> 00:09:33,000 Speaker 1: You read my mind, Allan, because I wanted to ask 172 00:09:33,040 --> 00:09:38,040 Speaker 1: you about that looming government shutdown potential government shutdown, and 173 00:09:38,200 --> 00:09:41,480 Speaker 1: reading one of your recent notes, you seem to think 174 00:09:41,559 --> 00:09:45,960 Speaker 1: that it could be a sort of catalyst for the 175 00:09:46,000 --> 00:09:49,880 Speaker 1: FED to pause again in November. But walk us through 176 00:09:49,880 --> 00:09:52,160 Speaker 1: exactly how you're thinking about it. Is it the lack 177 00:09:52,400 --> 00:09:55,560 Speaker 1: of available data for the FED that would cause that, 178 00:09:55,720 --> 00:09:58,800 Speaker 1: or is it the potential damage to the economy that 179 00:09:58,840 --> 00:10:01,120 Speaker 1: could be done from a shutdown? Little of both. What's 180 00:10:01,160 --> 00:10:04,040 Speaker 1: sort of the implications for us for this one more 181 00:10:04,160 --> 00:10:06,840 Speaker 1: curveball to be thrown at the economy at this point 182 00:10:06,840 --> 00:10:07,360 Speaker 1: in the cycle. 183 00:10:08,080 --> 00:10:10,559 Speaker 3: A good economist always says it's a little bit of both, 184 00:10:12,200 --> 00:10:16,000 Speaker 3: and economists right to added economists, but it really is. 185 00:10:16,120 --> 00:10:22,840 Speaker 3: So in monetary policy making, uncertainty tends to lead to 186 00:10:22,960 --> 00:10:28,160 Speaker 3: policy paralysis. And so certainly when you have a government 187 00:10:28,200 --> 00:10:33,080 Speaker 3: shut down, and the breadth of it matters, right, if 188 00:10:33,120 --> 00:10:36,040 Speaker 3: it's a partial shutdown, there are some agencies that will 189 00:10:36,080 --> 00:10:38,600 Speaker 3: continue to operate, and we can continue to get things 190 00:10:38,679 --> 00:10:41,520 Speaker 3: like hey, roll data, even if we don't get Census 191 00:10:41,520 --> 00:10:45,720 Speaker 3: Bureau data and the like. If it's a full government 192 00:10:45,760 --> 00:10:50,120 Speaker 3: shut down, then you really don't get any of the 193 00:10:50,160 --> 00:10:56,880 Speaker 3: government data. And so if we're lacking data that the 194 00:10:56,920 --> 00:11:02,079 Speaker 3: FED can officially think its teeth into, right, then that's 195 00:11:02,120 --> 00:11:05,679 Speaker 3: going to lead to an inability to make a decision 196 00:11:06,280 --> 00:11:09,640 Speaker 3: about the path for rates, And so that's sort of 197 00:11:09,679 --> 00:11:14,120 Speaker 3: through the lens of the FED becomes foggy. The damage 198 00:11:14,160 --> 00:11:17,360 Speaker 3: to the economy comes from, say a full government shutdown 199 00:11:17,440 --> 00:11:22,800 Speaker 3: where all non essential workers are furloughed. And our estimate 200 00:11:22,880 --> 00:11:25,839 Speaker 3: is that for every week of shutdown, it shaves off 201 00:11:25,840 --> 00:11:29,440 Speaker 3: abouto point two percentage points from GDP growth, And so 202 00:11:29,480 --> 00:11:31,560 Speaker 3: that's where you're actually getting to the meat of it 203 00:11:31,920 --> 00:11:36,920 Speaker 3: that you have an impact on the outlook. Now, we 204 00:11:36,960 --> 00:11:39,120 Speaker 3: can go back and look at past government shutdowns and 205 00:11:39,120 --> 00:11:42,480 Speaker 3: see that, Okay, in hindsight, they were sort of a 206 00:11:42,480 --> 00:11:46,880 Speaker 3: blip in the economic outlook. Because the government opens back up, 207 00:11:47,200 --> 00:11:50,600 Speaker 3: you do have some permanent loss of activity. Workers that 208 00:11:50,679 --> 00:11:56,719 Speaker 3: weren't buying lunch around the agencies, you know, those restaurants, 209 00:11:56,720 --> 00:11:58,920 Speaker 3: coffee vendors, others are not going to make up for that. 210 00:11:59,520 --> 00:12:02,360 Speaker 3: But you know, workers go back to work. Congress has 211 00:12:02,480 --> 00:12:05,560 Speaker 3: always approved back pay for those furled workers, and so 212 00:12:05,679 --> 00:12:10,840 Speaker 3: especially for income, it ends up being a blip for 213 00:12:10,920 --> 00:12:14,160 Speaker 3: the time being. It's something that stays the Fed's hand. 214 00:12:14,240 --> 00:12:17,400 Speaker 3: Now in this case, right, they've got a lot of 215 00:12:17,440 --> 00:12:19,440 Speaker 3: time on their hands. They've got until the end of 216 00:12:19,440 --> 00:12:21,480 Speaker 3: the year to decide if they're going to hike further, 217 00:12:21,679 --> 00:12:24,440 Speaker 3: and they've left the door open tike further if needed. 218 00:12:24,920 --> 00:12:27,280 Speaker 3: I have a strong view that they're done here, but 219 00:12:27,360 --> 00:12:31,240 Speaker 3: they have left the door open. And so this is 220 00:12:31,320 --> 00:12:35,280 Speaker 3: just something that you know, the incoming data that we've 221 00:12:35,320 --> 00:12:38,959 Speaker 3: got over the next several weeks, say a month, tells 222 00:12:39,000 --> 00:12:42,400 Speaker 3: me that it is highly unlikely they hike in November, 223 00:12:42,400 --> 00:12:45,839 Speaker 3: but they still have the December meeting to consider after that. 224 00:12:52,600 --> 00:12:56,360 Speaker 2: What potentially might make them hike in November or December. 225 00:12:56,360 --> 00:12:59,360 Speaker 2: And if they are done here, can you lay out 226 00:12:59,440 --> 00:13:02,320 Speaker 2: your views for what you expect in twenty twenty four, 227 00:13:02,320 --> 00:13:06,200 Speaker 2: because I think you are projecting cuts starting in March. 228 00:13:06,880 --> 00:13:09,560 Speaker 3: Yeah, yeah, that's right. So I think for them to 229 00:13:09,679 --> 00:13:13,240 Speaker 3: hike in November and December, you know, two things have 230 00:13:13,320 --> 00:13:17,679 Speaker 3: to happen. One, they're pleased. Let these seem with increased 231 00:13:17,679 --> 00:13:20,240 Speaker 3: slack in the labor market and the slowdown in job gains. 232 00:13:20,280 --> 00:13:23,199 Speaker 3: They noted that in the statement three month moving averages 233 00:13:23,240 --> 00:13:27,600 Speaker 3: around one hundred and fifty thousand for payrolls. Now, let's 234 00:13:27,640 --> 00:13:32,160 Speaker 3: say that that starts to re accelerate again, and so 235 00:13:32,200 --> 00:13:35,000 Speaker 3: it doesn't look like that slow down in job gains 236 00:13:35,080 --> 00:13:39,840 Speaker 3: is durable. And then you pair that with, say, core services, 237 00:13:40,240 --> 00:13:43,040 Speaker 3: I'm going to strip out durable goods prices because they've 238 00:13:43,080 --> 00:13:46,840 Speaker 3: been in deflation, and that's only twenty five percent of 239 00:13:46,880 --> 00:13:50,000 Speaker 3: the core inflation bucket. And so it's services that really 240 00:13:50,040 --> 00:13:54,960 Speaker 3: matter here. And let's say that core services also reaccelerate, 241 00:13:55,080 --> 00:13:58,560 Speaker 3: and for that to happen, you really need core services 242 00:13:59,320 --> 00:14:02,960 Speaker 3: to pop upward to a round point six percent month 243 00:14:02,960 --> 00:14:05,800 Speaker 3: over month, which would be quite a deviation from the 244 00:14:05,880 --> 00:14:10,480 Speaker 3: current trend. But those things together you could see putting 245 00:14:10,480 --> 00:14:13,960 Speaker 3: a November hike back on the table, putting a hike 246 00:14:14,000 --> 00:14:18,120 Speaker 3: in December solidly on the table. And so you know, 247 00:14:18,200 --> 00:14:21,080 Speaker 3: I've got a strong conviction from the forecast that we 248 00:14:21,160 --> 00:14:24,240 Speaker 3: have for the incoming data that it's not going to 249 00:14:24,320 --> 00:14:27,960 Speaker 3: meet that criteria. But there's there's always a bar, and 250 00:14:28,720 --> 00:14:31,600 Speaker 3: we just think that the bar is higher for them 251 00:14:31,640 --> 00:14:36,240 Speaker 3: to do something further this year in twenty twenty four. 252 00:14:36,320 --> 00:14:39,080 Speaker 3: The cuts that we have there, you know, you mentioned 253 00:14:39,120 --> 00:14:41,280 Speaker 3: that we're expecting them to start in March. We have 254 00:14:41,320 --> 00:14:44,880 Speaker 3: a quarterly paced twenty five basis points a quarter. You know, 255 00:14:44,960 --> 00:14:49,000 Speaker 3: the FED is now expecting two cuts next year, and 256 00:14:49,920 --> 00:14:52,040 Speaker 3: it may be a little tongue in cheek to say, 257 00:14:52,080 --> 00:14:54,640 Speaker 3: but the difference between the Fed's expectation and our own 258 00:14:54,760 --> 00:14:58,000 Speaker 3: is a difference of opinion around the outlook. So we 259 00:14:58,040 --> 00:15:02,480 Speaker 3: have a forecast that this deceller and inflation continues. That 260 00:15:02,640 --> 00:15:06,600 Speaker 3: means that even as the FED holds rates steady at 261 00:15:06,600 --> 00:15:08,680 Speaker 3: between five and a quarter and five and a half percent, 262 00:15:08,720 --> 00:15:13,760 Speaker 3: if inflation is falling, then real rates continue to remain 263 00:15:14,000 --> 00:15:17,360 Speaker 3: very restrictive around that two percent level. In our forecast, 264 00:15:17,360 --> 00:15:22,080 Speaker 3: which is historically quite high. The fed's forecast has real 265 00:15:22,160 --> 00:15:25,760 Speaker 3: rates rising further from around one point nine percent at 266 00:15:25,760 --> 00:15:27,040 Speaker 3: the end of this year to two and a half 267 00:15:27,040 --> 00:15:30,360 Speaker 3: percent next year. You plug that into any macro model, 268 00:15:30,680 --> 00:15:32,840 Speaker 3: and that doesn't look like a FED that's really wanting 269 00:15:32,840 --> 00:15:36,120 Speaker 3: to achieve a soft landing. And I think therein lies 270 00:15:36,320 --> 00:15:43,000 Speaker 3: that the issues that can come about with internal consistency 271 00:15:43,040 --> 00:15:48,520 Speaker 3: when you're forecasting by committee. It's not quite consistent that 272 00:15:49,480 --> 00:15:52,240 Speaker 3: the median forecasts of the FED suggests that real rates 273 00:15:52,240 --> 00:15:56,040 Speaker 3: are going to need to rise six tenths further next year, 274 00:15:56,920 --> 00:16:01,200 Speaker 3: yet they're wanting to achieve a soft lane. There's something 275 00:16:01,240 --> 00:16:01,680 Speaker 3: off there. 276 00:16:02,200 --> 00:16:04,600 Speaker 2: Can you talk about real rates a bit more? Why 277 00:16:04,880 --> 00:16:07,520 Speaker 2: do real rates matter? And can you talk about the 278 00:16:07,600 --> 00:16:10,240 Speaker 2: sort of through line to the real economy. 279 00:16:10,440 --> 00:16:14,400 Speaker 3: Yeah, so real rates matter both from a company perspective 280 00:16:14,400 --> 00:16:19,000 Speaker 3: in terms of profitability, from how restrictive credit is in 281 00:16:19,040 --> 00:16:24,560 Speaker 3: the economy, banking's ability and willingness to lend. And you know, 282 00:16:24,600 --> 00:16:27,040 Speaker 3: if you think about the where the FED thinks the 283 00:16:27,640 --> 00:16:30,960 Speaker 3: neutral rate of interest should be, they think the neutral 284 00:16:31,040 --> 00:16:34,280 Speaker 3: rate of interest is half a percent for the real rate. 285 00:16:35,000 --> 00:16:39,560 Speaker 3: So two percent real rate is really restrictive, really far 286 00:16:39,640 --> 00:16:43,680 Speaker 3: into restrictive territory, and you know, feeding that through into 287 00:16:43,720 --> 00:16:46,920 Speaker 3: macro models would tell you that that's going to have 288 00:16:47,520 --> 00:16:52,520 Speaker 3: a pretty big downward impact on the economy, and I 289 00:16:52,520 --> 00:16:57,080 Speaker 3: think much larger than what the FED thinks is necessary 290 00:16:57,120 --> 00:17:02,640 Speaker 3: in order to flow inflation. I don't think individual policy 291 00:17:02,680 --> 00:17:05,040 Speaker 3: makers are really thinking that we need to have two 292 00:17:05,080 --> 00:17:07,679 Speaker 3: and a half percent real interest rates next year, that 293 00:17:07,720 --> 00:17:11,360 Speaker 3: they need to be two percentage points higher than neutral. 294 00:17:11,680 --> 00:17:13,119 Speaker 3: But that's what it looks like if you were to 295 00:17:13,200 --> 00:17:18,439 Speaker 3: just take their forecasts at face value. The impact to 296 00:17:18,520 --> 00:17:23,520 Speaker 3: the real economy is essentially what we've been seeing, right. 297 00:17:23,600 --> 00:17:26,280 Speaker 3: It's not that the Fed's interest rates have not had 298 00:17:26,280 --> 00:17:30,160 Speaker 3: an impact. You know, we've already gone through a recession 299 00:17:30,200 --> 00:17:33,760 Speaker 3: in housing. We saw the impact on housing first and foremost. 300 00:17:34,400 --> 00:17:37,440 Speaker 3: It's the very interst rate sensitive area of the economy. 301 00:17:38,200 --> 00:17:42,840 Speaker 3: We've seen higher interest rates have the effect of flowing 302 00:17:42,840 --> 00:17:46,960 Speaker 3: demand for credit and credit availability, making credit more expensive. 303 00:17:48,119 --> 00:17:51,639 Speaker 3: We are of the camp that monetary policy works with 304 00:17:51,840 --> 00:17:56,000 Speaker 3: long lags, and that is the biggest disagreement, the outstanding 305 00:17:56,000 --> 00:18:02,440 Speaker 3: disagreement on the FMC. Those that believe monetary policy works 306 00:18:02,440 --> 00:18:04,959 Speaker 3: pretty quickly through the economy and those that believe it 307 00:18:05,000 --> 00:18:08,719 Speaker 3: works with a lag. So while it may look like 308 00:18:08,800 --> 00:18:13,280 Speaker 3: we've escaped unscathed after such a rapid pace of tightening 309 00:18:13,320 --> 00:18:17,520 Speaker 3: and monetary policy, we think that all of the impacts 310 00:18:17,560 --> 00:18:21,840 Speaker 3: have not yet been felt, and that uncertainty alone means 311 00:18:21,920 --> 00:18:26,879 Speaker 3: that there's a good deal of downside risk to the 312 00:18:26,920 --> 00:18:29,359 Speaker 3: economy that we think is out there. 313 00:18:29,760 --> 00:18:33,120 Speaker 1: Obviously, the other big elephant in the room these days 314 00:18:33,320 --> 00:18:37,600 Speaker 1: is the price of oil. West Texas Intermediate is back 315 00:18:37,640 --> 00:18:41,560 Speaker 1: in the ninety dollars a barrel range, mostly a supply 316 00:18:41,800 --> 00:18:45,199 Speaker 1: issue with Russia and some of the OPAC nation in 317 00:18:45,200 --> 00:18:49,040 Speaker 1: Saudi Arabia really limiting production. You do seem out an 318 00:18:49,040 --> 00:18:52,400 Speaker 1: interesting note out on this about a week ago, and 319 00:18:53,080 --> 00:18:54,840 Speaker 1: you know, to summarize and correct me if I'm getting 320 00:18:54,840 --> 00:18:58,240 Speaker 1: this wrong, But basically it seems like you think a 321 00:18:58,240 --> 00:19:00,879 Speaker 1: lot of people are worried about the inflation are aspects 322 00:19:01,080 --> 00:19:04,919 Speaker 1: of oil rising like this, But you point out it 323 00:19:04,920 --> 00:19:07,720 Speaker 1: should take a while for it to feed into the 324 00:19:07,720 --> 00:19:12,720 Speaker 1: core measures of inflation that exclude energy and food, but 325 00:19:12,760 --> 00:19:16,600 Speaker 1: that perhaps that sort of tax on the consumer element 326 00:19:17,040 --> 00:19:21,320 Speaker 1: of oil is a bigger story here. So how big 327 00:19:21,359 --> 00:19:24,920 Speaker 1: of a risk is this oil price shock to both 328 00:19:24,960 --> 00:19:29,199 Speaker 1: sides of the equation, growth and inflation, because I think 329 00:19:29,280 --> 00:19:30,920 Speaker 1: one thing I would point out I think is different 330 00:19:30,960 --> 00:19:32,760 Speaker 1: about this than a lot of oil price shocks. A 331 00:19:32,800 --> 00:19:34,840 Speaker 1: lot of times you get this spike in oil prices 332 00:19:34,920 --> 00:19:37,600 Speaker 1: because of say a hurricane in the Gulf for some 333 00:19:37,840 --> 00:19:43,119 Speaker 1: geopolitical tension that really ratches up the speculation in the market, 334 00:19:43,160 --> 00:19:45,679 Speaker 1: that boosts the price, and all that turns out to 335 00:19:45,680 --> 00:19:49,639 Speaker 1: be ephemeral and short lived. Personally, I'm not sure if 336 00:19:49,640 --> 00:19:53,119 Speaker 1: that's the case this time, with the OPEC producers really 337 00:19:54,720 --> 00:19:58,240 Speaker 1: seeming very happy to keep the price higher for the 338 00:19:58,280 --> 00:20:00,760 Speaker 1: near future. But I'm wondering, how you thinking about it. 339 00:20:00,800 --> 00:20:03,920 Speaker 1: How long do we need to see prices elevated for 340 00:20:04,080 --> 00:20:07,600 Speaker 1: the risk to really become acute, both from an inflationary 341 00:20:08,280 --> 00:20:10,119 Speaker 1: and economic perspective. 342 00:20:10,680 --> 00:20:13,760 Speaker 3: Yeah, so it's great points we like to point to 343 00:20:13,800 --> 00:20:17,120 Speaker 3: weather forecasters and commodity strategist to make us feel better 344 00:20:17,160 --> 00:20:19,760 Speaker 3: as economists when we're trying to get things right in 345 00:20:19,800 --> 00:20:24,000 Speaker 3: the economy. It's a really tough job because there are 346 00:20:24,000 --> 00:20:26,600 Speaker 3: a lot of people that will tell you only geopolitics 347 00:20:26,640 --> 00:20:30,840 Speaker 3: matters for oil prices, and so I have no idea 348 00:20:30,840 --> 00:20:32,879 Speaker 3: where oil prices will go, But I will tell you 349 00:20:32,880 --> 00:20:35,919 Speaker 3: that our commodity stratus do believe, as you noted, that 350 00:20:36,000 --> 00:20:39,920 Speaker 3: this may be more durable, but it is a mixed 351 00:20:39,960 --> 00:20:43,320 Speaker 3: bag for the US economy. When it is a supply 352 00:20:43,480 --> 00:20:47,000 Speaker 3: shock and not a demand shock. Demand shock would be 353 00:20:47,119 --> 00:20:50,919 Speaker 3: that just the strength of the US economy and global 354 00:20:50,960 --> 00:20:54,360 Speaker 3: economy is so great that demand is outstripping supply. That 355 00:20:54,400 --> 00:20:57,520 Speaker 3: tends to have a more muted impact on the economy 356 00:20:57,800 --> 00:21:00,960 Speaker 3: than if it's a supply stock where the amount of 357 00:21:00,960 --> 00:21:06,080 Speaker 3: barrels that were producing globally just drops, And so in 358 00:21:06,119 --> 00:21:11,000 Speaker 3: that case you do get an impact on demand on 359 00:21:11,040 --> 00:21:15,320 Speaker 3: top of the impact on inflation. So we've modeled these changes, 360 00:21:15,400 --> 00:21:19,040 Speaker 3: and a ten percent increase in oil prices does raise 361 00:21:19,080 --> 00:21:23,439 Speaker 3: headline inflation in the US by about thirty five basis 362 00:21:23,480 --> 00:21:27,119 Speaker 3: points on headline over a three month period if you 363 00:21:27,240 --> 00:21:31,879 Speaker 3: just modeled as a one offstock. But the transfer to 364 00:21:32,160 --> 00:21:35,880 Speaker 3: core prices in the US, because really you're only immediately 365 00:21:36,040 --> 00:21:42,200 Speaker 3: impacting transportation prices in core inflation, it's only about two 366 00:21:42,240 --> 00:21:45,760 Speaker 3: to three BIPs, right, two to three basis points on 367 00:21:45,880 --> 00:21:51,680 Speaker 3: core inflation, So a really really small effect. What outweighs that? 368 00:21:51,840 --> 00:21:54,439 Speaker 3: And I think you were getting at this and what 369 00:21:54,480 --> 00:21:57,879 Speaker 3: we addressed in the note is that it acts as 370 00:21:57,880 --> 00:22:01,320 Speaker 3: a tax on households. If you are paying more to 371 00:22:01,400 --> 00:22:03,760 Speaker 3: gas up at the pump, then you are having to 372 00:22:03,880 --> 00:22:09,320 Speaker 3: pull spending from elsewhere, and so it tends to reduce 373 00:22:09,359 --> 00:22:14,520 Speaker 3: consumer buying power and weighs on not just real income growth, 374 00:22:14,520 --> 00:22:18,920 Speaker 3: but real consumer spending, and that is the predominant concern 375 00:22:19,600 --> 00:22:22,960 Speaker 3: of the FED today. So it's really a blessing in disguise. 376 00:22:23,480 --> 00:22:27,320 Speaker 3: If you're the FED and you have been trying to 377 00:22:27,440 --> 00:22:31,520 Speaker 3: slow the economy and the consumer has just been frustratingly resilient. 378 00:22:31,840 --> 00:22:36,159 Speaker 3: If you can get some additional help from higher gas prices, 379 00:22:36,760 --> 00:22:41,560 Speaker 3: then you might welcome that. It becomes problematic only if 380 00:22:41,560 --> 00:22:45,000 Speaker 3: it is sustained over longer periods of time, and then, 381 00:22:45,040 --> 00:22:51,120 Speaker 3: as chair Pal noted at the FED meeting, it then 382 00:22:51,240 --> 00:22:54,480 Speaker 3: becomes something that could pose a risk to inflation expectations, 383 00:22:54,560 --> 00:22:57,560 Speaker 3: raising inflation expectations, but it does have to be sustained 384 00:22:57,600 --> 00:22:58,200 Speaker 3: for some time. 385 00:22:59,160 --> 00:23:03,080 Speaker 2: So, Mike, rising oil prices were another elephant in the room. 386 00:23:03,119 --> 00:23:06,320 Speaker 2: But I can actually name like a bunch more, including 387 00:23:06,359 --> 00:23:10,919 Speaker 2: that consumer loan repayments are restarting. We also had a 388 00:23:10,960 --> 00:23:14,880 Speaker 2: survey that we had done at Bloomberg, where the majority 389 00:23:14,920 --> 00:23:18,199 Speaker 2: of respondents we had asked about consumer spending said that 390 00:23:18,280 --> 00:23:21,280 Speaker 2: personal consumption. They see personal consumption going down in the 391 00:23:21,280 --> 00:23:23,679 Speaker 2: first quarter of twenty twenty four. So how do you 392 00:23:23,920 --> 00:23:26,960 Speaker 2: see all of these factors impacting the consumer? 393 00:23:27,400 --> 00:23:30,159 Speaker 3: Yeah, so I think the student loan, the resumption of 394 00:23:30,160 --> 00:23:34,520 Speaker 3: the student loan debt payments is a great point to note. 395 00:23:34,560 --> 00:23:37,199 Speaker 3: We have tried to use surveys to get at the 396 00:23:37,280 --> 00:23:41,520 Speaker 3: percentage of student loan borrowers that say they are going 397 00:23:41,560 --> 00:23:43,560 Speaker 3: to start paying that back right away because there is 398 00:23:43,600 --> 00:23:45,520 Speaker 3: an option to be able to delay that into the 399 00:23:45,520 --> 00:23:48,879 Speaker 3: second court, sorry, the first quarter of twenty twenty four, 400 00:23:50,080 --> 00:23:54,800 Speaker 3: and I like to think that, you know, as good 401 00:23:54,880 --> 00:23:58,280 Speaker 3: debt holding Americans, we will delay the payment as long 402 00:23:58,320 --> 00:24:01,560 Speaker 3: as we can. Probably does create a drag in the 403 00:24:01,600 --> 00:24:05,560 Speaker 3: fourth quarter and the first quarter. I will note that 404 00:24:05,720 --> 00:24:09,320 Speaker 3: it has been surprising the amount of payments that have 405 00:24:09,400 --> 00:24:13,920 Speaker 3: been resumed already in anticipation of that. But you can 406 00:24:14,000 --> 00:24:19,320 Speaker 3: imagine that that folks that have decided to start repayments 407 00:24:19,359 --> 00:24:23,199 Speaker 3: already are those that want the balance to be lower 408 00:24:23,320 --> 00:24:26,639 Speaker 3: when the interest rate is again applied, and of course 409 00:24:26,720 --> 00:24:30,040 Speaker 3: those that have paid it down already or already restarted 410 00:24:30,080 --> 00:24:35,359 Speaker 3: that are obviously not the lower income student borrowers. Really 411 00:24:35,600 --> 00:24:37,720 Speaker 3: those are going to be the ones that are delaying 412 00:24:37,720 --> 00:24:42,040 Speaker 3: the payments the most. But we have taken into account 413 00:24:42,160 --> 00:24:45,000 Speaker 3: not just sort of the payback from as I mentioned, 414 00:24:45,280 --> 00:24:48,560 Speaker 3: you know, Barbenheimer hitting in the third quarter, Taylor Swift 415 00:24:48,560 --> 00:24:51,679 Speaker 3: and Beyonce Tours peaking in the third quarter. You're going 416 00:24:51,760 --> 00:24:53,520 Speaker 3: to have some payback in the fourth quarter from that 417 00:24:53,680 --> 00:24:58,199 Speaker 3: plus the start of the student loan repayments. And so 418 00:24:58,600 --> 00:25:03,320 Speaker 3: we already have forecast that consumer spending is in decline 419 00:25:03,560 --> 00:25:05,720 Speaker 3: in the fourth quarter. Now, some of that are just 420 00:25:05,760 --> 00:25:10,240 Speaker 3: those one off impacts fading, but I think further weight 421 00:25:10,400 --> 00:25:15,760 Speaker 3: on consumer spending in the first quarter is likely as well. Now, 422 00:25:15,880 --> 00:25:19,320 Speaker 3: is the consumer falling off a cliff? No, we think 423 00:25:19,359 --> 00:25:21,439 Speaker 3: that in the grand scheme of things, when you smooth 424 00:25:21,520 --> 00:25:24,840 Speaker 3: through these impacts, it really shows that consumer spending is 425 00:25:24,920 --> 00:25:29,760 Speaker 3: just continuing to slow. And there is sort of a 426 00:25:29,800 --> 00:25:34,000 Speaker 3: little spoken about silver lining here, and that is in 427 00:25:34,080 --> 00:25:38,520 Speaker 3: the second quarter, wage growth among lower income households started 428 00:25:38,560 --> 00:25:42,800 Speaker 3: to turn positive on an inflation adjusted basis because inflation 429 00:25:42,960 --> 00:25:45,600 Speaker 3: has come down. Now higher gas prices can throw a 430 00:25:45,600 --> 00:25:49,199 Speaker 3: monkey wrench in that temporarily, but that means that we 431 00:25:49,280 --> 00:25:53,000 Speaker 3: have started to get some modicum of buying power back 432 00:25:53,040 --> 00:25:57,399 Speaker 3: for lower income household So I think there's plenty here 433 00:25:57,440 --> 00:26:00,000 Speaker 3: that tells me that the consumer should not fall off 434 00:26:00,119 --> 00:26:04,679 Speaker 3: a cliff, but the consumer spending will be slowing, and 435 00:26:04,760 --> 00:26:06,960 Speaker 3: I think that will You know, seventy percent of the 436 00:26:07,000 --> 00:26:11,439 Speaker 3: economy is consumer spending, and so that's critical to the 437 00:26:11,520 --> 00:26:17,920 Speaker 3: said who's looking to further depressed inflation going forward. 438 00:26:33,960 --> 00:26:37,560 Speaker 1: Now, Ellen, one more final elephant in the room for 439 00:26:37,640 --> 00:26:39,600 Speaker 1: this economy. Maybe it's not an elephant, I don't know, 440 00:26:39,640 --> 00:26:43,160 Speaker 1: Maybe it's a baby elephant or something smaller. I don't know, 441 00:26:43,720 --> 00:26:47,520 Speaker 1: a donkey or something. But the United Auto Workers strike. 442 00:26:48,640 --> 00:26:50,720 Speaker 1: And I'm not sure if your team have done any 443 00:26:50,760 --> 00:26:53,720 Speaker 1: work on this, but it's again one of those things 444 00:26:53,720 --> 00:26:55,440 Speaker 1: where I think there's a little bit of a risk 445 00:26:55,480 --> 00:26:58,000 Speaker 1: to inflation and a little bit of a risk to growth. 446 00:26:58,400 --> 00:27:02,399 Speaker 1: You know. Obviously, however this has resolved, it's going to 447 00:27:02,440 --> 00:27:07,159 Speaker 1: be a significant wage increase for a very influential union 448 00:27:07,320 --> 00:27:12,119 Speaker 1: that may inspire other unions, other workers, or other labor 449 00:27:12,160 --> 00:27:15,600 Speaker 1: groups to see khier wages. Also could cause the price 450 00:27:15,640 --> 00:27:18,159 Speaker 1: of cars to go up again. That was a pretty 451 00:27:19,000 --> 00:27:23,520 Speaker 1: big part of the CPI numbers for certain months used cars, 452 00:27:24,560 --> 00:27:27,640 Speaker 1: and obviously if there's a lot of lost production, there's 453 00:27:27,680 --> 00:27:29,960 Speaker 1: going to be a drag on growth. But how big 454 00:27:29,960 --> 00:27:32,960 Speaker 1: of a deal is it if it lingers on if 455 00:27:32,960 --> 00:27:35,840 Speaker 1: the strike expands to other plants. You know, is it 456 00:27:37,840 --> 00:27:41,760 Speaker 1: a risk to the headline numbers in either CPI and 457 00:27:41,880 --> 00:27:44,119 Speaker 1: GDP or is it Does it not rise to that level? 458 00:27:44,760 --> 00:27:48,480 Speaker 3: Yeah, I think that. You know, autos are a major 459 00:27:48,560 --> 00:27:51,359 Speaker 3: sector in the US, and right now the strike has 460 00:27:51,400 --> 00:27:57,080 Speaker 3: started off small. It's not impacting a good deal of workers, 461 00:27:57,160 --> 00:27:58,879 Speaker 3: right so it's not been as big of a drag 462 00:27:58,920 --> 00:28:04,520 Speaker 3: as we initially on say the employment report. But let's 463 00:28:04,560 --> 00:28:07,760 Speaker 3: say it extends for some time more and broadens out 464 00:28:07,760 --> 00:28:11,679 Speaker 3: to capture more workers. So, first and foremost, if it 465 00:28:11,760 --> 00:28:15,160 Speaker 3: extends through mid October and starts to capture the survey 466 00:28:15,200 --> 00:28:19,360 Speaker 3: week in which we survey employers for their level of payrolls, 467 00:28:19,400 --> 00:28:24,600 Speaker 3: when you could get something like a negative payroll print 468 00:28:25,000 --> 00:28:27,080 Speaker 3: in the month of October, which would be reported in 469 00:28:27,440 --> 00:28:30,720 Speaker 3: early November. So again go back to the additional fog 470 00:28:30,800 --> 00:28:35,159 Speaker 3: this creates on the data front for the said in 471 00:28:35,240 --> 00:28:38,320 Speaker 3: terms of GDP, you know, it's interesting there there seemed 472 00:28:38,360 --> 00:28:42,120 Speaker 3: to be some evidence that automakers were ramping up production 473 00:28:42,880 --> 00:28:47,600 Speaker 3: ahead of the planned strike, But it does interrupt production 474 00:28:47,760 --> 00:28:51,040 Speaker 3: for the time being during the strike, and then that resume, 475 00:28:51,240 --> 00:28:55,320 Speaker 3: so you would have further weight on fourth quarter industrial 476 00:28:55,360 --> 00:28:59,240 Speaker 3: production and GDP if the strike goes on for a while. 477 00:28:59,440 --> 00:29:03,720 Speaker 3: Average our earnings is interesting because it's not just the 478 00:29:03,800 --> 00:29:06,840 Speaker 3: fact that you know, if you count the UAW strike alone, 479 00:29:07,440 --> 00:29:10,680 Speaker 3: it's not that big of an aggregate wage bill to 480 00:29:10,840 --> 00:29:15,239 Speaker 3: really move the needle nationwide. But as you say, what 481 00:29:15,280 --> 00:29:18,040 Speaker 3: if there are spillovers, what if other unions take the 482 00:29:18,160 --> 00:29:23,040 Speaker 3: example of UPS and UAW and start to follow suit, 483 00:29:24,000 --> 00:29:27,479 Speaker 3: you start to get a notable impact. If say, you're 484 00:29:27,600 --> 00:29:32,719 Speaker 3: pulling in the majority of all union workers in the US. 485 00:29:32,760 --> 00:29:38,000 Speaker 3: So it does take a significant wave capturing almost all 486 00:29:38,120 --> 00:29:41,680 Speaker 3: union workers to really show up on average hourly earnings 487 00:29:42,080 --> 00:29:45,240 Speaker 3: in a meaningful way. But I think that I would 488 00:29:45,320 --> 00:29:50,400 Speaker 3: just take it at the at its least, it adds 489 00:29:50,440 --> 00:29:53,040 Speaker 3: to all of that data fog we've been talking about 490 00:29:53,080 --> 00:29:55,840 Speaker 3: that it will make it very difficult for the FED 491 00:29:56,680 --> 00:29:58,400 Speaker 3: to hike rates further this year. 492 00:29:59,320 --> 00:30:01,280 Speaker 2: Ellen, I have them millien more questions for you, So 493 00:30:01,440 --> 00:30:04,600 Speaker 2: I'll just I'm going to combine two of them very quickly, 494 00:30:04,600 --> 00:30:06,800 Speaker 2: because I think this is important to bring up. One 495 00:30:06,920 --> 00:30:10,760 Speaker 2: is about your track record, which you've been spot on 496 00:30:10,920 --> 00:30:14,280 Speaker 2: about the soft landing narrative. I think you've been calling 497 00:30:14,280 --> 00:30:16,320 Speaker 2: for a soft landing for quite a while, so I 498 00:30:16,320 --> 00:30:18,320 Speaker 2: wanted to ask you about that. But I also want 499 00:30:18,360 --> 00:30:20,840 Speaker 2: to ask you about I don't know if ironic is 500 00:30:20,880 --> 00:30:24,120 Speaker 2: the right word or word we can use, but is 501 00:30:24,160 --> 00:30:27,760 Speaker 2: it around ironic that recession odds have gone up just 502 00:30:28,000 --> 00:30:31,240 Speaker 2: as people have priced out a recession. 503 00:30:32,400 --> 00:30:32,640 Speaker 1: Yes. 504 00:30:32,760 --> 00:30:35,920 Speaker 3: I think those are great questions, and it gives me 505 00:30:35,960 --> 00:30:38,800 Speaker 3: a chance to pat myself on the back, which economists 506 00:30:39,160 --> 00:30:42,640 Speaker 3: to have a rare opportunity to do. And we have 507 00:30:42,720 --> 00:30:45,640 Speaker 3: been calling for a soft landing since February of last year, 508 00:30:46,880 --> 00:30:49,360 Speaker 3: and we could do a whole other podcast on just 509 00:30:49,440 --> 00:30:52,960 Speaker 3: why that is. But you know, I think what I 510 00:30:53,000 --> 00:30:56,680 Speaker 3: would like to impart is that even as I've had 511 00:30:56,720 --> 00:31:00,560 Speaker 3: that long soft landing narrative and others have finally grabbed 512 00:31:00,600 --> 00:31:06,560 Speaker 3: onto that, I have not reduced my recession probability. First 513 00:31:06,600 --> 00:31:08,720 Speaker 3: of all, let me just say any economist that says 514 00:31:08,760 --> 00:31:11,360 Speaker 3: they're accurate more than two quarters out is just lying. 515 00:31:12,640 --> 00:31:14,560 Speaker 3: You can get the narrative right. You almost always get 516 00:31:14,560 --> 00:31:19,640 Speaker 3: the numbers wrong. And so with that being said, I'm 517 00:31:19,800 --> 00:31:23,560 Speaker 3: very confident that we have enough momentum in the economy 518 00:31:23,880 --> 00:31:27,280 Speaker 3: to get us through the next six months, and so 519 00:31:27,800 --> 00:31:30,880 Speaker 3: I think for the next six months the odds of 520 00:31:30,920 --> 00:31:34,120 Speaker 3: recession should be lower. I think when you go out 521 00:31:34,120 --> 00:31:36,600 Speaker 3: of full twelve months, which when we talk about recession probabilities, 522 00:31:36,640 --> 00:31:39,920 Speaker 3: it's always over a twelve month horizon. The six months 523 00:31:39,920 --> 00:31:43,560 Speaker 3: beyond that I am not so certain about. I think 524 00:31:43,600 --> 00:31:46,239 Speaker 3: there's been so much monetary policy tightening that I do 525 00:31:46,320 --> 00:31:48,880 Speaker 3: believe has not all come through. I think a lot 526 00:31:48,960 --> 00:31:51,360 Speaker 3: can go wrong with the economy the further you go 527 00:31:51,400 --> 00:31:54,440 Speaker 3: out on the horizon, and so I have not reduced 528 00:31:54,480 --> 00:31:58,480 Speaker 3: my recession probability that within the next twelve months there's 529 00:31:58,520 --> 00:32:02,120 Speaker 3: a forty percent chance we have a downturn. I'm confident 530 00:32:02,200 --> 00:32:06,120 Speaker 3: it will be mild, but I do think that we 531 00:32:06,200 --> 00:32:09,840 Speaker 3: have to be realistic and not reduce the probability of 532 00:32:09,840 --> 00:32:15,200 Speaker 3: recession too much, just because today growth remains very resilient. 533 00:32:16,200 --> 00:32:20,360 Speaker 1: Well Ellen Zendner, chief US economist at Morgan Stanley, thank 534 00:32:20,400 --> 00:32:23,600 Speaker 1: you so much for joining us today and sharing your thoughts. 535 00:32:24,160 --> 00:32:27,400 Speaker 1: A lot to think about. Can't let you go quite 536 00:32:27,480 --> 00:32:30,600 Speaker 1: yet though, however, we do have attrition on the show, 537 00:32:30,640 --> 00:32:33,480 Speaker 1: where we must share the craziest things we saw in 538 00:32:33,560 --> 00:32:35,960 Speaker 1: markets this week. I'm going to go first. Mine's a 539 00:32:35,960 --> 00:32:38,800 Speaker 1: little stale. It's almost two weeks old, so forgive me 540 00:32:38,880 --> 00:32:44,200 Speaker 1: wil Donna. All Right, Wall Street Journal story about California 541 00:32:44,240 --> 00:32:48,320 Speaker 1: real estate, particularly the Brady Bunch House. Did you watch 542 00:32:48,320 --> 00:32:50,840 Speaker 1: The Brady Bunch as a kid, fil Dona, I did not. 543 00:32:51,480 --> 00:32:53,320 Speaker 3: You know, she might be a little bit younger than us. 544 00:32:55,520 --> 00:32:59,120 Speaker 1: I'm dating myself here, Ellen to some degree. But the 545 00:32:59,120 --> 00:33:01,240 Speaker 1: famous house you see the picture of it at the 546 00:33:01,280 --> 00:33:04,880 Speaker 1: beginning of every show and every commercial break. It recently 547 00:33:04,880 --> 00:33:08,960 Speaker 1: went on sale, and so it's time to play the 548 00:33:08,960 --> 00:33:11,720 Speaker 1: prices precise and you guys have to guess what the 549 00:33:11,760 --> 00:33:14,920 Speaker 1: sale price was for the Brady Bunch House. I'll give 550 00:33:14,920 --> 00:33:17,160 Speaker 1: you a little more details. It was previously bought by 551 00:33:18,160 --> 00:33:22,600 Speaker 1: HGTV and they did a whole show about remodeling the 552 00:33:22,600 --> 00:33:26,280 Speaker 1: inside of it to make it look like the house 553 00:33:26,320 --> 00:33:29,680 Speaker 1: on the show, which I'm not sure boosted its value 554 00:33:29,680 --> 00:33:33,360 Speaker 1: because it's all dated seventies appliances and furniture, and I'm 555 00:33:33,400 --> 00:33:36,000 Speaker 1: not sure that's what your average La house hunter is 556 00:33:36,000 --> 00:33:40,160 Speaker 1: looking for. But it did sell. So the question is 557 00:33:40,640 --> 00:33:43,800 Speaker 1: what do you think the Brady Bunch House just sold for? 558 00:33:44,120 --> 00:33:48,320 Speaker 2: So it's in LA, it's in Los Angeles. How many rooms? 559 00:33:49,680 --> 00:33:53,920 Speaker 1: It's huge? Actually five bedrooms. Total square footage approximately five 560 00:33:54,000 --> 00:34:00,160 Speaker 1: thousand wow. With they added bedrooms and a second floor 561 00:34:00,160 --> 00:34:03,600 Speaker 1: when they did this whole remodel to I guess recreate 562 00:34:03,640 --> 00:34:07,280 Speaker 1: the kids rooms and everything. So five bedroom, five thousand 563 00:34:07,720 --> 00:34:12,000 Speaker 1: square foot house in LA not cheap. They don't tell 564 00:34:12,000 --> 00:34:14,160 Speaker 1: you this straight doesn't tell you what neighborhood in LA, which. 565 00:34:14,000 --> 00:34:16,040 Speaker 2: Might Oh, that was gonna be my next question. Okay, 566 00:34:16,120 --> 00:34:19,440 Speaker 2: I'm gonna go with three point five million dollars. 567 00:34:19,719 --> 00:34:23,200 Speaker 1: Three point five million dollars, Ellen, what's your bid for 568 00:34:23,239 --> 00:34:29,040 Speaker 1: the Brady Bunch House, completely remodeled to match interior and experts? 569 00:34:29,239 --> 00:34:30,440 Speaker 3: Can I prices right? 570 00:34:32,840 --> 00:34:33,080 Speaker 1: Say? 571 00:34:33,360 --> 00:34:36,160 Speaker 3: Three three and a half and one dollar? No, I'll 572 00:34:36,200 --> 00:34:39,160 Speaker 3: say I don't know. If I think about the square footage, 573 00:34:39,280 --> 00:34:42,000 Speaker 3: the cost for square footage in LA, even though we 574 00:34:42,040 --> 00:34:45,960 Speaker 3: don't know the neighborhood, I think I would say closer 575 00:34:46,080 --> 00:34:47,720 Speaker 3: to nine million. 576 00:34:48,520 --> 00:34:48,840 Speaker 2: Wow. 577 00:34:49,080 --> 00:34:52,120 Speaker 1: I would have guessed somewhere in that vicinity. I'll be honest. 578 00:34:52,239 --> 00:34:56,560 Speaker 1: A five thousand square foot house in LA five bedrooms, 579 00:34:56,920 --> 00:34:59,200 Speaker 1: but as the buyer points out, it actually sold for 580 00:34:59,320 --> 00:35:03,920 Speaker 1: less than what HDTV bought it for because the buyer 581 00:35:04,000 --> 00:35:05,840 Speaker 1: thinks no one wants to live in a house with 582 00:35:05,920 --> 00:35:10,640 Speaker 1: these seventies of liots is a shy carpet, and so 583 00:35:10,840 --> 00:35:12,359 Speaker 1: three point two million. 584 00:35:12,120 --> 00:35:16,200 Speaker 3: Dollars, Oh my gosh, wow, we all overget. 585 00:35:15,840 --> 00:35:17,959 Speaker 1: Even if you told me a five thousand square foot 586 00:35:18,000 --> 00:35:20,879 Speaker 1: house in LA with five bedrooms, I would have gone 587 00:35:20,920 --> 00:35:22,000 Speaker 1: over three point two. 588 00:35:22,320 --> 00:35:26,239 Speaker 3: I mean buy it and got it, although that might 589 00:35:26,280 --> 00:35:29,759 Speaker 3: not be allowed now if there's a historical landmark designation 590 00:35:29,880 --> 00:35:32,440 Speaker 3: on it, as you know, that's going to reduce the value. 591 00:35:33,080 --> 00:35:34,160 Speaker 1: That's right, that's right. 592 00:35:34,360 --> 00:35:34,600 Speaker 3: Yeah. 593 00:35:34,600 --> 00:35:39,480 Speaker 1: I don't know if a recreation of the historical interior accounts, 594 00:35:39,480 --> 00:35:40,560 Speaker 1: but maybe I don't know. 595 00:35:41,160 --> 00:35:43,399 Speaker 2: That's all I got. I have a good one. It's 596 00:35:43,440 --> 00:35:47,000 Speaker 2: also a Wall Street Journal story. The headline is A 597 00:35:47,080 --> 00:35:49,919 Speaker 2: Mother's Love a bargain at four hundred and fifty dollars 598 00:35:50,000 --> 00:35:54,799 Speaker 2: a year plus applicable fees. It's about parents hiring concierge 599 00:35:54,920 --> 00:35:58,600 Speaker 2: services for their college students. So you send your you 600 00:35:58,640 --> 00:36:02,320 Speaker 2: send your kid off to college, then you hire somebody 601 00:36:02,719 --> 00:36:07,360 Speaker 2: to be their mom. The mom can hug bring you 602 00:36:07,760 --> 00:36:13,360 Speaker 2: soup when you're sick, pick up your medicines. Furniture assembly 603 00:36:13,400 --> 00:36:15,719 Speaker 2: is one of the things for some reason they give you. 604 00:36:15,800 --> 00:36:18,640 Speaker 2: They give students rides to and from the airport. 605 00:36:19,120 --> 00:36:20,440 Speaker 1: Just a furniture assembly. 606 00:36:20,600 --> 00:36:26,279 Speaker 2: I know. They go to doctor's appointments with people. It's just, yeah, you. 607 00:36:27,040 --> 00:36:28,880 Speaker 1: Can I hire one of these for myself. 608 00:36:29,760 --> 00:36:33,040 Speaker 2: Surely is a stressor? 609 00:36:33,680 --> 00:36:35,880 Speaker 3: Yes it is. It really is a real stressor. 610 00:36:36,400 --> 00:36:38,600 Speaker 1: That alone is worth the four hundred and fifty bucks. 611 00:36:38,680 --> 00:36:41,480 Speaker 1: That's pretty good. Don't let my daughter at the University 612 00:36:41,480 --> 00:36:44,160 Speaker 1: of Maryland find out about this. I've got enough expenses 613 00:36:44,200 --> 00:36:50,319 Speaker 1: for lated education. That's pretty good. How about you, Ellen, 614 00:36:50,400 --> 00:36:52,120 Speaker 1: Have you seen anything crazy lately? 615 00:36:52,680 --> 00:36:55,000 Speaker 3: I'm going to still go back to, you know, sort 616 00:36:55,040 --> 00:36:58,640 Speaker 3: of all the wrap up reports after the said meeting, 617 00:36:59,560 --> 00:37:04,520 Speaker 3: where it just seemed, you know, why, why does the 618 00:37:04,560 --> 00:37:07,359 Speaker 3: market take the FED at face value and suddenly all 619 00:37:07,360 --> 00:37:10,200 Speaker 3: of a sudden decide that the Fed are perfect forecasters 620 00:37:10,200 --> 00:37:12,920 Speaker 3: and know exactly what's going to happen even out to 621 00:37:13,000 --> 00:37:18,640 Speaker 3: twenty twenty six. Why and so that always astounds me. 622 00:37:19,520 --> 00:37:22,319 Speaker 1: Yeah, yeah, that dot plot was a blessing and a curse. 623 00:37:22,360 --> 00:37:24,400 Speaker 1: I guess I wonder I sometimes wonder if they regret 624 00:37:24,480 --> 00:37:28,000 Speaker 1: introducing that, that maybe it causes more confusion than it 625 00:37:28,200 --> 00:37:30,759 Speaker 1: than clarity that they hope it would cause. 626 00:37:30,880 --> 00:37:33,680 Speaker 3: Yeah, there are definitely those on the SAED that regret it. 627 00:37:33,719 --> 00:37:36,040 Speaker 3: But you know, once the Fed introduces something, it's near 628 00:37:36,080 --> 00:37:39,240 Speaker 3: impossible to take it away. So so chair pal, even 629 00:37:39,280 --> 00:37:43,480 Speaker 3: with chair Pal saying basically ignore the dot plot, it's 630 00:37:43,520 --> 00:37:47,360 Speaker 3: just sort of a fun exercise for nineteen participants to 631 00:37:47,400 --> 00:37:52,240 Speaker 3: air their dirty laundry about what they think about the outlook. Nevertheless, 632 00:37:52,560 --> 00:37:55,680 Speaker 3: markets take it at face value as though that is 633 00:37:55,719 --> 00:37:59,040 Speaker 3: exactly the path that the Fed will follows. 634 00:37:59,160 --> 00:38:02,280 Speaker 1: That's etched in stone, not in you know, light colored pensil. 635 00:38:02,360 --> 00:38:04,160 Speaker 1: That could be a raise at the next meeting, right, 636 00:38:04,600 --> 00:38:07,960 Speaker 1: Alan Zendner, Chief US Economists at Morgan Stanley, thank you 637 00:38:08,040 --> 00:38:08,960 Speaker 1: so much for joining us. 638 00:38:09,080 --> 00:38:19,960 Speaker 3: Good bet, Thank you Ellen. 639 00:38:18,560 --> 00:38:20,880 Speaker 1: What goes up. We'll be back next week. Until then, 640 00:38:20,880 --> 00:38:23,160 Speaker 1: you can find us on the Bloomberg Terminal website and 641 00:38:23,320 --> 00:38:26,560 Speaker 1: app or wherever you get your podcast. We'd love it 642 00:38:26,560 --> 00:38:28,360 Speaker 1: if you took the time to rate and review the 643 00:38:28,400 --> 00:38:31,359 Speaker 1: show on Apple Podcasts so more listeners can find us. 644 00:38:31,920 --> 00:38:34,080 Speaker 1: And you can find us on Twitter. Follow me at 645 00:38:34,160 --> 00:38:38,719 Speaker 1: freak Anonymous Wildna Hirich is at Goildona hira. You can 646 00:38:38,760 --> 00:38:43,400 Speaker 1: also follow Bloomberg Podcasts at Podcasts. What Goes Up is 647 00:38:43,440 --> 00:38:46,600 Speaker 1: produced by Stacy Wong. Thanks for listening, See you next time.