WEBVTT - Previewing Jackson Hole 0:00:02.529 --> 0:00:13.790 Bloomberg audio studios, podcasts, radio news. This is the Bloomberg 0:00:13.830 --> 0:00:17.889 surveillance podcast. Catch us live weekdays at 7 a.m. Eastern 0:00:18.290 --> 0:00:21.250 on Apple car play or Android auto with the Bloomberg 0:00:21.300 --> 0:00:24.779 business app. Listen on demand wherever you get your podcasts 0:00:25.239 --> 0:00:26.980 or watch us live on YouTube. 0:00:27.440 --> 0:00:30.700 Global wall street focus is on Jackson hole, Wyoming fed 0:00:30.740 --> 0:00:33.979 chairman Warsh. Um, Kind of disappointed, I would say, the 0:00:34.000 --> 0:00:36.699 global markets were with some of his comments to date 0:00:37.140 --> 0:00:39.919 in terms of disclosure or lack thereof. Maybe a little 0:00:39.940 --> 0:00:42.500 bit of an opportunity to reset here or maybe not. 0:00:42.760 --> 0:00:44.640 Richard Clarity joins us. He knows what's going on. He 0:00:44.700 --> 0:00:48.940 is the global economic advisor at PIMCO, former Federal Reserve 0:00:49.120 --> 0:00:51.240 vice chair joining us here. 0:00:51.940 --> 0:00:53.339 Richard, thanks so much for joining us here. 0:00:53.440 --> 0:00:57.180 If you were advising Fed Chair Warsh as it relates 0:00:57.240 --> 0:00:58.950 to today's speech, what would you tell him? 0:00:59.620 --> 0:01:01.520 Well, thank you for having me on. 0:01:01.680 --> 0:01:06.160 Obviously, the chairman's first speech at Jackson Hole in that capacity. 0:01:07.120 --> 0:01:11.220 At the press conference recently, he said he might talk 0:01:11.250 --> 0:01:14.630 about some big picture questions. You know, we have five 0:01:14.690 --> 0:01:18.610 task forces. We have four big picture questions. But I 0:01:18.650 --> 0:01:21.050 would advise him also to at least spend some time 0:01:21.150 --> 0:01:24.670 giving the audience and giving markets the sense of the 0:01:24.720 --> 0:01:27.660 Kevin Warsh framework for thinking about how we're going to 0:01:27.700 --> 0:01:31.610 get inflation down to You know, he says inflation is 0:01:31.670 --> 0:01:33.050 a choice, and I agree with him. 0:01:33.590 --> 0:01:34.910 Right now it is and has. 0:01:34.750 --> 0:01:37.720 Been above 2% for five years. And so at least 0:01:37.730 --> 0:01:42.500 some insight into his framework for getting to price stability, 0:01:42.540 --> 0:01:43.839 I think, would be valuable. 0:01:44.540 --> 0:01:47.339 Rich, I'm so glad you mentioned that line, inflation is 0:01:47.380 --> 0:01:50.580 a choice. What did Chairman Warsh mean when he said that? 0:01:50.740 --> 0:01:52.770 And how do you interpret it? What do you think 0:01:53.310 --> 0:01:56.110 that means when someone says inflation is a choice? How 0:01:56.170 --> 0:01:59.420 has the government interpreted made the choice of having inflation? 0:02:00.080 --> 0:02:01.680 Well, Scarlett, it actually is. 0:02:01.710 --> 0:02:04.990 A version of something Milton Friedman said a half century 0:02:05.030 --> 0:02:08.310 ago or more, which is, quote, inflation is everywhere and 0:02:08.389 --> 0:02:12.250 always a monetary phenomenon. And so, you know, Kevin, I 0:02:12.310 --> 0:02:15.810 think Chairman Morse was channeling that idea that ultimately over 0:02:15.870 --> 0:02:19.320 some period of time, the rate of inflation in a 0:02:19.360 --> 0:02:24.340 country is determined by its monetary policy. The key element 0:02:24.360 --> 0:02:27.770 of that statement, though, is over some period of And 0:02:27.830 --> 0:02:30.310 I think the chairman is right that five years is 0:02:30.350 --> 0:02:32.750 a long time to be above the target. On the 0:02:32.810 --> 0:02:35.080 other hand, a lot's happened in the last five or 0:02:35.120 --> 0:02:35.600 six years. 0:02:36.680 --> 0:02:38.739 You know, Anna Wong from Bloomberg Economics is out with 0:02:38.780 --> 0:02:42.019 a great note today saying what she would like to 0:02:42.080 --> 0:02:45.880 hear and what she believes the market would like to hear. OK, 0:02:45.900 --> 0:02:47.120 you don't want to provide guidance. 0:02:47.460 --> 0:02:47.800 Fine. 0:02:48.669 --> 0:02:50.010 But give us a sense of kind of how the 0:02:50.050 --> 0:02:52.850 market should react to certain data. Richard Clarida, Global Economic 0:02:52.889 --> 0:02:57.769 Advisor at PIMCO and former Fed Vice Chair. Richard, one 0:02:57.790 --> 0:03:00.060 of the things Anna Wong from Bloomberg Economics is out 0:03:00.080 --> 0:03:02.960 with a wonderful note today, and one of her points is, 0:03:03.419 --> 0:03:06.300 and it's shared by the marketplace, I think, is, okay, 0:03:06.320 --> 0:03:07.880 you don't want to provide us guidance. You don't want 0:03:07.900 --> 0:03:10.239 to spoon feed us guidance, but give us a sense 0:03:10.280 --> 0:03:13.669 of your reaction, how you react to certain data points, 0:03:13.970 --> 0:03:18.020 how you're going to maybe view markets data and your 0:03:18.060 --> 0:03:21.120 ability to get inflation down. So those reaction functions, is 0:03:21.139 --> 0:03:22.399 that something he should delve into? 0:03:23.120 --> 0:03:25.910 Well, right now, I think here's the issue for the Fed. 0:03:25.990 --> 0:03:28.650 Many of his colleagues on the committee are telling us 0:03:28.710 --> 0:03:32.030 about their reaction functions. You know, Lori Logan, Beth Hammack, 0:03:32.070 --> 0:03:35.490 Neil Kashkari, to name just three of the folks who 0:03:35.530 --> 0:03:39.610 have dissented. And so even though the committee speaking as 0:03:39.670 --> 0:03:43.070 a committee right now is not offering a lot of guidance, 0:03:43.890 --> 0:03:46.020 I think the view is that since we're hearing from 0:03:46.080 --> 0:03:49.360 Hammock and Logan and Kashkari, it would be useful at 0:03:49.400 --> 0:03:53.520 least to some extent to get the chairman's perspective. So 0:03:53.580 --> 0:03:55.060 I think that's where we are right now. 0:03:56.990 --> 0:04:00.430 The backdrop for Kevin Warsh's speech is an interesting one, right? 0:04:00.490 --> 0:04:06.050 Because you have this decline in treasury prices, yields have 0:04:06.090 --> 0:04:09.650 been elevated, and of course that prompted Treasury Secretary Scott 0:04:09.670 --> 0:04:12.350 Besson to intervene. A lot of people are talking about 0:04:12.370 --> 0:04:15.250 a revival of the debasement trade, this idea that people 0:04:15.270 --> 0:04:18.930 want to get out of U.S. dollar denominated assets. If 0:04:19.110 --> 0:04:22.270 Chair Warsh doesn't deliver what a lot of investors are 0:04:22.310 --> 0:04:25.590 looking for, do you see a sharp revival of that 0:04:25.670 --> 0:04:26.350 debasement trade? 0:04:28.470 --> 0:04:29.860 Scarlett, I really don't. 0:04:30.040 --> 0:04:33.920 Obviously, things can change. But right now, we're seeing really 0:04:33.940 --> 0:04:38.950 a global sell-off in yields. So there are global factors 0:04:39.050 --> 0:04:43.090 at play, not just the Fed. In fact, if anything, really, 0:04:43.450 --> 0:04:46.750 since Liberation Day now 15, 16 months ago, the dollar 0:04:46.779 --> 0:04:49.900 has been flat or even in the last several months 0:04:50.040 --> 0:04:52.940 after hostilities in the Middle East going up. So I'm 0:04:52.980 --> 0:04:54.960 certainly not in the debasement trade. 0:04:54.990 --> 0:04:58.869 That was Richard Clarity, Global Economic Advisor at Pimcom, former 0:04:58.910 --> 0:05:01.870 Fed Vice Chair, giving us his thoughts here. 0:05:03.810 --> 0:05:07.960 Stay with us. More from Bloomberg Surveillance coming up after this. 0:05:15.200 --> 0:05:18.800 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:05:18.880 --> 0:05:20.960 weekday afternoons from 7 to 10 a.m. 0:05:21.000 --> 0:05:21.400 Eastern. 0:05:21.500 --> 0:05:24.800 Listen on Apple CarPlay and Android Auto with the Bloomberg 0:05:24.820 --> 0:05:26.360 Business app or watch. 0:05:26.180 --> 0:05:27.340 Us live on YouTube. 0:05:27.980 --> 0:05:32.550 Our next guest, undergraduate degree electrical engineering at MIT. That's 0:05:32.610 --> 0:05:35.270 bad enough. And then you double down and get a Ph.D. 0:05:35.290 --> 0:05:37.670 in operations research at MIT. I mean, what do you 0:05:37.830 --> 0:05:41.050 do with that? You go trade stocks, bonds, commodities, and 0:05:41.080 --> 0:05:45.730 that's what Katie Kaminski does, Chief Research Strategist at Alpha Simplex. Katie, 0:05:45.790 --> 0:05:48.529 what looks good to you guys these days? I know 0:05:48.550 --> 0:05:52.250 you guys like to follow trends, try to identify trends 0:05:52.310 --> 0:05:53.710 in stocks, bonds, commodities. 0:05:54.270 --> 0:05:56.090 What's screening well for you guys these days? 0:05:57.310 --> 0:06:00.210 Well, I'm actually going to talk about something unrelated, which is- 0:06:01.200 --> 0:06:04.760 Sugar and wheat and agricultural commodities. 0:06:04.839 --> 0:06:05.940 I know we're talking. 0:06:05.660 --> 0:06:09.320 About Jackson Hole, but those are actually things that we consume. 0:06:09.339 --> 0:06:13.960 And the biggest trends this month outside of the normal 0:06:14.020 --> 0:06:17.700 asset classes have actually been sugar and wheat. So that 0:06:17.740 --> 0:06:20.080 could be something to think about if you're thinking about 0:06:20.140 --> 0:06:20.900 CPI and. 0:06:20.779 --> 0:06:21.919 You're thinking about inflation. 0:06:22.800 --> 0:06:25.160 This has to do with supply concerns and the fact 0:06:25.220 --> 0:06:29.900 that there's some disruptions and concerns for disruption continued around 0:06:29.920 --> 0:06:33.240 the Black Sea and also issues in Brazil. So I 0:06:33.300 --> 0:06:37.240 think talking about something uncorrelated but still correlated in the 0:06:37.279 --> 0:06:41.549 sense that we worry about inflation, we see agricultural commodities 0:06:41.670 --> 0:06:42.700 up a lot this month. 0:06:43.120 --> 0:06:46.230 So if you want to take a bet on sugar 0:06:46.310 --> 0:06:47.650 on wheat, how do you do that? How do you 0:06:47.690 --> 0:06:51.510 express that? Is it through ETFs? Is it through certain countries, 0:06:51.550 --> 0:06:52.260 certain companies? 0:06:53.600 --> 0:06:56.620 So usually I would suggest futures contracts. 0:06:56.700 --> 0:07:00.310 So anything that takes a direct exposure to the price 0:07:00.610 --> 0:07:04.510 of sugar or wheat. And you can actually trade those 0:07:04.589 --> 0:07:07.870 on places like the CME. And that's where you can 0:07:07.910 --> 0:07:11.230 actually track those type of commodities. You can also look 0:07:11.270 --> 0:07:15.510 at ETFs that actively change positions or trade in things 0:07:15.550 --> 0:07:18.930 like trend following that will be following those trends in 0:07:18.970 --> 0:07:19.630 futures markets. 0:07:20.240 --> 0:07:23.180 And of course, the Bloomberg has you completely covered here 0:07:23.440 --> 0:07:28.340 on the commodity space. GLCO gives you all the commodity 0:07:28.500 --> 0:07:32.160 space and energy, metals, agriculture. And if you're interested in 0:07:32.320 --> 0:07:34.520 ags like Katie and her team are, you click on 0:07:34.550 --> 0:07:37.210 the agriculture and boom, it gives you just about everything. 0:07:37.230 --> 0:07:39.980 The grains, the sauce, the livestock. I'm big on the 0:07:40.010 --> 0:07:44.580 lean hogs, pork belly myself. But what's moving? So it's 0:07:44.600 --> 0:07:47.520 kind of just supply and demand. How liquid are these markets, Katie, 0:07:47.680 --> 0:07:50.620 for you guys that want to really take some big 0:07:50.660 --> 0:07:51.060 bets here? 0:07:52.340 --> 0:07:53.200 So actually, the. 0:07:53.180 --> 0:07:56.780 Agricultural futures markets are quite liquid, and they allow you 0:07:56.820 --> 0:07:59.760 to sort of trade dynamically in a wide range of 0:07:59.820 --> 0:08:02.830 different commodities. So it can also be things like silver. 0:08:03.770 --> 0:08:09.730 Silver is up also a lot this month. Silver, palladium, platinum, U.S. wheat, 0:08:10.610 --> 0:08:15.140 Kansas wheat. You can also find prices and futures positions 0:08:15.380 --> 0:08:17.460 on those type of contracts. So it's kind of an 0:08:17.520 --> 0:08:23.920 interesting way to have a very– different and non-equity focused investment. 0:08:24.440 --> 0:08:25.960 And I like what you said earlier about how it's 0:08:26.080 --> 0:08:29.520 uncorrelated to the other asset classes, which have really started 0:08:29.540 --> 0:08:30.920 to move in lockstep with one another. 0:08:31.780 --> 0:08:32.280 What does the. 0:08:32.300 --> 0:08:36.439 Dollars movement mean for these commodities? Because they're so priced 0:08:36.500 --> 0:08:41.450 in dollars. And with so much concern around the national 0:08:41.500 --> 0:08:44.270 debt here in the US, the rising bond yields, I 0:08:44.330 --> 0:08:47.890 wonder if the debasement trade has, or the advent of 0:08:47.929 --> 0:08:51.250 the debasement trade has any impact on these kinds of commodities? 0:08:52.490 --> 0:08:53.550 Oh, it has a huge impact. 0:08:53.590 --> 0:08:56.490 And actually, we saw, if you remember in June, the 0:08:56.530 --> 0:08:59.970 dollar was strengthening quite a bit. That has a very 0:09:00.050 --> 0:09:03.730 negative impact on commodity prices because as the dollar strengthens, 0:09:03.770 --> 0:09:07.030 you see that the price relative of these commodities goes 0:09:07.210 --> 0:09:11.290 up and makes it you know, more disadvantageous for people 0:09:11.330 --> 0:09:13.950 to buy them. So it's also very important for the 0:09:13.990 --> 0:09:15.360 price of oil as well. 0:09:15.500 --> 0:09:16.760 So if you. 0:09:16.650 --> 0:09:20.160 Imagine how affordable oil is, it's also linked to our 0:09:20.220 --> 0:09:23.319 currency because oil is priced in dollars as well as 0:09:23.360 --> 0:09:26.840 many of these agricultural commodities. So in June, we saw 0:09:26.880 --> 0:09:30.599 the dollar strong. That caused a sell-off in many commodities. 0:09:31.300 --> 0:09:35.500 As the dollar weakens, it actually makes those commodities more attractive. 0:09:35.520 --> 0:09:36.960 So you might even see more demand. 0:09:38.559 --> 0:09:40.360 What I learned very early in my career is I 0:09:40.400 --> 0:09:43.500 have no idea how to trade oil. That thing is 0:09:43.700 --> 0:09:45.880 all over the place. I think it's going to go up. 0:09:45.960 --> 0:09:46.559 It goes down. 0:09:46.679 --> 0:09:47.540 But now you have ETFs. 0:09:47.570 --> 0:09:48.300 That's what you can do. 0:09:48.380 --> 0:09:49.350 I guess. I don't know. 0:09:49.429 --> 0:09:53.570 But I mean, so in terms of just global energy here, Katie, 0:09:53.910 --> 0:09:55.650 do you just try to ignore what's happening in the 0:09:55.670 --> 0:09:57.870 Strait of Hormuz? 0:09:58.210 --> 0:09:59.450 Or does geopolitics just. 0:10:00.030 --> 0:10:02.090 kind of keep you guys on the sidelines here? 0:10:03.450 --> 0:10:06.089 So the way that we think about oil is not 0:10:06.130 --> 0:10:08.460 sort of you don't go all in in oil and 0:10:08.500 --> 0:10:09.880 take 100% position. 0:10:09.910 --> 0:10:12.860 You take a small position and you manage. 0:10:12.540 --> 0:10:15.179 The size of that position as a function of the volatility. 0:10:15.580 --> 0:10:18.240 So you can imagine that you need a small position 0:10:18.280 --> 0:10:21.960 in oil to get a reasonable return because oil has 0:10:22.020 --> 0:10:24.000 moved so much and it has very high volatility. 0:10:24.940 --> 0:10:27.780 And so what you'll see is as oil expands and 0:10:27.840 --> 0:10:28.179 sort of. 0:10:28.110 --> 0:10:32.290 The trend develops, your positions will change. And then you 0:10:32.330 --> 0:10:36.170 want to adjust as volatility expands and reduce your position 0:10:36.210 --> 0:10:38.050 to manage the risk of oil. So it is a 0:10:38.070 --> 0:10:40.660 tricky business. It's not something if you just hold it 0:10:41.179 --> 0:10:41.740 as oil. 0:10:41.840 --> 0:10:45.160 The price is quite volatile. Katie, how are you thinking 0:10:45.200 --> 0:10:45.860 about gold? 0:10:46.280 --> 0:10:49.030 Gold had a moment, a big moment at the start 0:10:49.050 --> 0:10:50.929 of the year when it started to trade like a 0:10:50.990 --> 0:10:55.350 meme stock, spiking above 5,500, obviously has come down since then. 0:10:55.390 --> 0:10:59.550 But we've seen this rally since mid-July that has at 0:10:59.580 --> 0:11:02.420 least for now peaked, but very much feels like with 0:11:02.460 --> 0:11:06.200 that debasement trade back in the headlines again, gold benefits. 0:11:07.480 --> 0:11:08.340 Yeah, I agree. 0:11:08.400 --> 0:11:11.939 We've seen a shift in gold. Gold was the big 0:11:11.980 --> 0:11:14.420 thing we talked about a year or so ago. Then 0:11:14.540 --> 0:11:16.620 it has been on sort of a downward trend. And 0:11:16.679 --> 0:11:19.800 then things have changed this summer. You're starting to see 0:11:20.100 --> 0:11:24.160 more positive flow, positive returns in gold over the last 0:11:24.200 --> 0:11:26.319 few months. And I would say that it looks like 0:11:26.340 --> 0:11:28.780 it has a possibility to break out into a new trend. 0:11:29.780 --> 0:11:33.420 From my perspective, you had an extreme trend in gold. 0:11:33.860 --> 0:11:37.540 Last year, it had to kind of reconsolidate And the 0:11:37.580 --> 0:11:41.450 fundamental themes which support gold were kind of exhausted. 0:11:41.610 --> 0:11:43.550 And now we're starting to see that coming back. 0:11:43.929 --> 0:11:46.670 So I think it could be a potential buying opportunity 0:11:46.710 --> 0:11:48.950 for gold still if that continues. 0:11:49.770 --> 0:11:53.640 So just we'll finish up here, Katie, on equities here. 0:11:53.980 --> 0:11:57.740 We keep hitting, I don't know, all-time highs almost daily, 0:11:57.780 --> 0:12:00.340 John Tucker keeps reporting. And if I look at outside 0:12:00.360 --> 0:12:02.680 the U.S., I've got really strong performance in Europe and 0:12:02.880 --> 0:12:04.520 lots of Asian markets as well. That seems to be 0:12:05.000 --> 0:12:07.059 globally pretty constructive for equities. 0:12:08.620 --> 0:12:08.860 Yes. 0:12:08.940 --> 0:12:11.700 I mean, and it's always challenging because, you know, there's 0:12:11.800 --> 0:12:13.420 nothing standing in the way right now. 0:12:13.480 --> 0:12:14.080 There's no. 0:12:15.240 --> 0:12:19.010 And the equity markets have also discounted geopolitical risk. 0:12:19.190 --> 0:12:21.450 So I think that's something that's interesting. 0:12:22.210 --> 0:12:24.970 But, you know, there's nothing in the data that suggests 0:12:25.070 --> 0:12:28.420 that we shouldn't be doing well in equity markets, giving 0:12:28.500 --> 0:12:31.160 earnings and growth. But, you know, it always makes you 0:12:31.200 --> 0:12:35.699 nervous to hit new highs because... you start wondering, you know, 0:12:35.860 --> 0:12:38.460 it's so difficult to tell when a trend is over 0:12:39.160 --> 0:12:41.290 and when you've hit the top. So I think that's 0:12:41.350 --> 0:12:43.689 what keeps people a little on their toes. And it 0:12:43.730 --> 0:12:46.290 definitely keeps us on our toes in the equity markets. 0:12:46.890 --> 0:12:49.630 Katie, thanks so much. Always appreciate chatting with you. Katie Kaminski, 0:12:49.650 --> 0:12:51.650 Chief Research Strategist at Alpha Simplex. 0:12:53.570 --> 0:12:57.700 Stay with us. More from Bloomberg Surveillance coming up after this. 0:13:04.970 --> 0:13:08.550 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:13:08.650 --> 0:13:11.170 weekday afternoons from 7 to 10 a.m. Eastern. 0:13:11.270 --> 0:13:14.550 Listen on Apple CarPlay and Android Auto with the Bloomberg 0:13:14.590 --> 0:13:17.100 Business app or watch us live on YouTube. 0:13:17.120 --> 0:13:19.160 Let's head across the pond to Freya Bhima. She's a 0:13:19.220 --> 0:13:22.780 chief economist out of macro research at TS Lombard. Freya, 0:13:22.800 --> 0:13:24.460 thanks so much for joining us here. Hey, when you 0:13:24.500 --> 0:13:29.280 talk to your institutional investor clients, what do they want 0:13:29.300 --> 0:13:30.480 to hear from the U.S. 0:13:30.780 --> 0:13:33.589 Federal Reserve? I don't know, maybe today out in Jackson Hole. 0:13:37.090 --> 0:13:40.150 We don't need a huge amount of forward guidance or anything. 0:13:40.170 --> 0:13:43.050 It would just be nice to know what's the reaction function. 0:13:43.090 --> 0:13:46.620 I think that there's a difference between those two things. 0:13:46.670 --> 0:13:51.319 What's the reaction function? And then in this particular circumstance, 0:13:51.440 --> 0:13:55.059 given the announcements and the rhetoric coming out of the 0:13:55.120 --> 0:13:57.100 Treasury and Secretary Besson. 0:13:58.620 --> 0:14:00.520 It would be good to have. 0:14:00.370 --> 0:14:04.250 A clear signal that the Fed... frankly, is going to 0:14:04.270 --> 0:14:07.270 do its job. And I think that will help the 0:14:07.309 --> 0:14:09.290 long end of the curve. One of our big calls 0:14:09.330 --> 0:14:15.250 has been that if Walsh does not sound sufficiently hawkish, 0:14:16.000 --> 0:14:17.720 then the long end of the curve is going to 0:14:17.840 --> 0:14:22.880 ask for compensation. And there have been now moments when 0:14:22.900 --> 0:14:26.470 it appears that the Treasury is not going to be 0:14:26.730 --> 0:14:29.550 happy with that market signal, despite the fact that that's 0:14:29.590 --> 0:14:33.810 exactly what Walsh has asked for, to hear the signals 0:14:33.850 --> 0:14:37.940 from the market he's asked for. And when we see 0:14:38.560 --> 0:14:42.040 that kind of signaling it's not so much the numbers 0:14:42.080 --> 0:14:44.180 are exactly what they're doing at this moment in time 0:14:44.460 --> 0:14:47.000 but that kind of of signaling is just sort of 0:14:47.140 --> 0:14:50.640 not helpful we see that increase in yields and decline 0:14:50.660 --> 0:14:53.130 in the dollar that we we don't really we don't 0:14:53.150 --> 0:14:56.030 really like um and and we would like to hear 0:14:56.090 --> 0:14:57.710 from the you know i would like to hear from 0:14:57.730 --> 0:14:59.850 the federal institutional investors would like to hear from the 0:14:59.890 --> 0:15:03.630 fed is it gonna is it gonna perform according to 0:15:03.770 --> 0:15:05.050 to its mandate. 0:15:06.000 --> 0:15:08.910 For Warsh, sounding hawkish may not be the problem. I mean, 0:15:08.950 --> 0:15:11.990 he sounded pretty hawkish ever since he took the reins 0:15:12.090 --> 0:15:12.610 as Fed chair. 0:15:12.630 --> 0:15:15.230 It's the lack of clarity on how the. 0:15:15.170 --> 0:15:18.820 Fed would move forward if inflation does not come down. 0:15:18.860 --> 0:15:22.520 That seems to be what investors really want some kind 0:15:22.540 --> 0:15:26.040 of insight into. And his reluctance to share that, is 0:15:26.080 --> 0:15:28.460 that something that investors will just need to get used to, 0:15:28.840 --> 0:15:32.650 even with the Treasury market perhaps not sending clear signals 0:15:32.690 --> 0:15:34.510 because of intervention from Besson? 0:15:36.310 --> 0:15:39.050 Right. So we need to know what the reaction function is. 0:15:39.130 --> 0:15:41.170 It's exactly as you say, we need to know what 0:15:41.210 --> 0:15:46.350 the reaction function is. I think what I'm worried about is, 0:15:46.910 --> 0:15:49.670 you know, if Besant is trying to send a signal 0:15:49.730 --> 0:15:53.030 to bond markets and then we don't get this clarity 0:15:53.120 --> 0:15:56.300 from the Fed, you know, not necessarily today, but over 0:15:56.340 --> 0:15:59.000 a period of time and particularly as the labor market 0:15:59.040 --> 0:16:02.500 reaccelerates on the back of this kind of broadening out 0:16:02.600 --> 0:16:05.560 of profits and It may be that there's a soft 0:16:05.620 --> 0:16:08.600 patch in the short term, but eventually this is an 0:16:08.660 --> 0:16:11.520 economy that is going to see a reacceleration in the 0:16:11.560 --> 0:16:15.280 labor market that will provide clear evidence that rates are 0:16:15.300 --> 0:16:18.500 in fact not restrictive. And we need to know that 0:16:18.520 --> 0:16:21.000 there is a Fed there with a reaction function that 0:16:21.080 --> 0:16:23.300 is the same as the one that we're all used to. 0:16:23.900 --> 0:16:27.730 And that will sort of tighten if those things happen. 0:16:28.030 --> 0:16:31.090 And if we don't hear that kind of a signal, 0:16:32.190 --> 0:16:35.050 particularly if the labor market starts to reaccelerate, then I 0:16:35.110 --> 0:16:36.830 think there is going to be a battle at the 0:16:36.870 --> 0:16:39.950 long end of the curve. And that's just not something 0:16:40.030 --> 0:16:41.890 that's really good for anyone. 0:16:42.870 --> 0:16:45.590 Well, I think maybe, you know, Fed Chairman Warsh, she's 0:16:45.630 --> 0:16:49.050 kind of saying, hey, you know, the market's full of adults. 0:16:49.080 --> 0:16:50.640 You guys can figure it all out. We don't have 0:16:50.660 --> 0:16:51.660 to hold you by the hand. 0:16:52.100 --> 0:16:53.900 And maybe that's kind of what we're seeing here, because 0:16:53.920 --> 0:16:57.500 we've got the 10-year rate at almost. 0:16:56.520 --> 0:16:59.580 470, the 30-year at 520. The market's kind of telling 0:16:59.600 --> 0:17:02.140 the Fed, we got this. Is that enough? 0:17:04.440 --> 0:17:07.560 Yeah, as long as the rest of the administration is 0:17:07.600 --> 0:17:12.040 prepared to hear the signal. Personally, I think that the 0:17:12.060 --> 0:17:17.409 10-year has not yet fully priced this new macroeconomic regime. 0:17:17.750 --> 0:17:19.610 In terms of the signals that are coming out from 0:17:19.650 --> 0:17:23.170 the Treasury, I would be much more interested in sort 0:17:23.190 --> 0:17:27.520 of pro-cyclicality of fiscal policy than I am in any 0:17:27.600 --> 0:17:31.219 kind of liquidity, so-called liquidity interventions at the long end 0:17:31.260 --> 0:17:33.440 of the curve, which in my mind, can only really 0:17:33.619 --> 0:17:38.780 cause temporary effects. I'm much more interested in procyclicality of 0:17:39.020 --> 0:17:41.659 fiscal policy, the extent to which it might be contributing 0:17:41.740 --> 0:17:46.580 to inflation being above target, and the greater likelihood of 0:17:46.640 --> 0:17:49.510 these negative supply shocks, such as the Strait of Hormuz, 0:17:49.550 --> 0:17:53.850 such as um, tariff shocks, uh, which destroy the, the, 0:17:53.930 --> 0:17:57.270 the hedging or reduce the hedging capacity of bonds for equities, 0:17:57.330 --> 0:18:00.969 turn that, that correlation positive and, and therefore term premium 0:18:01.010 --> 0:18:04.229 should be higher. So 4.7 on a trend basis for 0:18:04.270 --> 0:18:06.010 me is, is, is not yet high enough. 0:18:06.910 --> 0:18:07.350 Interesting. 0:18:07.730 --> 0:18:11.610 Well, this feels like the high water event for this week. 0:18:11.650 --> 0:18:14.149 We had Nvidia earnings, um, which kind of pointed to 0:18:14.210 --> 0:18:17.650 inflation given what Nvidia said about, um, the supply chain 0:18:17.770 --> 0:18:19.250 issues that it faces, the log jams. 0:18:19.609 --> 0:18:21.230 And then you have Kevin Warsh's speech. 0:18:21.410 --> 0:18:23.820 Next week, at least in the U.S., it's the final 0:18:23.859 --> 0:18:26.380 week before a three-day weekend, and it feels very much 0:18:26.440 --> 0:18:28.879 like there's going to be an absence of participants in 0:18:28.900 --> 0:18:31.180 the market. I mean, we get some big data points, 0:18:31.240 --> 0:18:33.010 but who's going to be around to respond to it? 0:18:33.390 --> 0:18:35.810 What are you looking for next week that could really 0:18:35.890 --> 0:18:38.030 move things along and give us some more direction on 0:18:38.050 --> 0:18:39.850 the state of the economy? Is it just all going 0:18:39.869 --> 0:18:40.750 to be about the jobs report? 0:18:42.660 --> 0:18:45.590 The jobs report is always important, but there's so much 0:18:45.670 --> 0:18:47.730 noise in these data. I think there was a lot 0:18:47.950 --> 0:18:52.149 of upside noise, probably both in inflation and jobs data 0:18:52.290 --> 0:18:54.470 early in the year. There may be some kind of 0:18:54.550 --> 0:18:58.170 strange seasonal pattern that's kind of coming into that. Then 0:18:58.210 --> 0:19:02.390 there's been a bunch of probably downside noise to correct that. 0:19:02.410 --> 0:19:05.730 But the trend for us is upwards. And the point 0:19:05.820 --> 0:19:09.260 about NVIDIA and these earnings. 0:19:10.310 --> 0:19:11.310 We are seeing. 0:19:11.090 --> 0:19:14.520 That the effects of AI are much more coming through 0:19:14.540 --> 0:19:18.340 on the demand side and the inflationary side so far 0:19:18.380 --> 0:19:20.400 than on the diffusion side, which is not to say 0:19:20.440 --> 0:19:22.720 that they won't come through on the supply side and 0:19:22.740 --> 0:19:25.840 the diffusion side. But right now, it is much more 0:19:25.900 --> 0:19:31.170 an inflationary effect, both through the direct demand and through 0:19:31.210 --> 0:19:34.050 the spillovers that that is creating, in my mind, positive 0:19:34.090 --> 0:19:36.590 spillovers to the rest of the economy and broadening out 0:19:36.650 --> 0:19:40.639 of earnings. which is a forward signal for a re-acceleration 0:19:40.800 --> 0:19:43.260 in the labour market. But then the question is, you know, 0:19:43.300 --> 0:19:46.990 what else is the administration doing with regards to the 0:19:47.030 --> 0:19:49.220 supply of labor and the ability of the rest of 0:19:49.260 --> 0:19:52.980 the economy to keep up with that demand pressure, particularly 0:19:53.100 --> 0:19:55.629 if the equity market is performing well and that creates 0:19:55.670 --> 0:19:58.270 positive wealth effects at the same time, which, again, is 0:19:58.310 --> 0:20:01.629 a more sort of diffuse form of demand creation. So 0:20:01.650 --> 0:20:03.730 we've got a lot of demand creation happening. And not 0:20:03.770 --> 0:20:06.760 so much ability of this labor market to respond to 0:20:06.800 --> 0:20:08.679 that supply. I think what we're going to see is 0:20:08.720 --> 0:20:11.820 a pickup in unit labor cost growth and probably also 0:20:11.859 --> 0:20:14.680 a pickup in the markup from unit labor cost growth 0:20:15.160 --> 0:20:19.510 to CPI and core services inflation in the U.S. going 0:20:19.570 --> 0:20:23.610 back to a sort of a pre-globalization, pre-deleveraging scenario. um 0:20:23.710 --> 0:20:26.590 type of a relationship there um and that's very much 0:20:26.609 --> 0:20:28.550 sort of all to come so i'm focused on the 0:20:28.570 --> 0:20:32.369 earnings i'm less focused on sort of one data point 0:20:32.530 --> 0:20:35.760 of of um of kind of inflation or or the 0:20:35.800 --> 0:20:39.020 jobs market um and i think that is the the 0:20:39.100 --> 0:20:41.679 the trajectory for a lot of the the fomc members 0:20:41.720 --> 0:20:42.240 as well. 0:20:42.700 --> 0:20:44.080 For you thank you so much for joining us we 0:20:44.119 --> 0:20:45.920 really appreciate getting a few minutes of your time free 0:20:45.940 --> 0:20:48.240 beamish she's the chief economist and head. 0:20:48.140 --> 0:20:52.629