WEBVTT - Bloomberg Surveillance Television: March 14, 2024 0:00:00.120 --> 0:00:06.800 Boom, Bloomberg Audio Studios, podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.160 Terminal and the Bloomberg Business app. Let's turn to Credit. 0:00:37.240 --> 0:00:39.800 A runny in corporate debck gaining momentum despite fears of 0:00:39.800 --> 0:00:42.879 sticky inflation, spreads on US high yield bonds falling to 0:00:42.880 --> 0:00:45.960 their lowest since January twenty twenty two, even with markets 0:00:45.960 --> 0:00:48.720 pushing bank rate cut expectations. Blue Out is one of 0:00:48.720 --> 0:00:51.239 the beneficiaries of the credit boom, seeing good shares saw 0:00:51.320 --> 0:00:54.000 more than seventy percent over the last year. Mark Libscholtz, 0:00:54.040 --> 0:00:56.160 the co CEO of blue Out, joins us now for 0:00:56.200 --> 0:00:58.560 more market. Morning to here, Good morning, great to be here. 0:00:58.640 --> 0:01:00.520 Let's talk about what's happening in the world credit. So 0:01:00.560 --> 0:01:02.840 we have the right shout. Last year lasted about five 0:01:02.880 --> 0:01:05.679 minutes and banks failed. We moved on really quickly this year. 0:01:05.680 --> 0:01:08.360 If I think in about Commissioner Ray to state Cira, Cira, 0:01:08.520 --> 0:01:09.760 who's going to be next? And we're going to have 0:01:09.800 --> 0:01:12.720 this credit stress of the three hundred and fifty portfolio 0:01:12.760 --> 0:01:18.119 companies that you'll across any distress whatsoevera right now, the. 0:01:18.080 --> 0:01:22.639 Portfolio is straw. The economy read through, our portfolio looks 0:01:22.720 --> 0:01:26.560 quite positive. Certainly, wind back a year and I imagine 0:01:26.600 --> 0:01:28.480 if we were all sitting here I had the privilege 0:01:28.480 --> 0:01:30.760 of having this conversation with you a year ago, I 0:01:30.800 --> 0:01:32.959 think we'd probably all be talking about what type of 0:01:33.000 --> 0:01:35.600 recession will do we be in right about now? And 0:01:35.760 --> 0:01:37.880 we're not. You know, I look across those three hundred 0:01:37.880 --> 0:01:41.640 and fifty companies and you look last quarter, our companies 0:01:41.680 --> 0:01:46.200 on average grew fifteen percent. They're EBA dah. So that 0:01:46.360 --> 0:01:48.920 is no, these are very selected. Obviously, our job is 0:01:49.040 --> 0:01:52.000 finding great companies and to make loans to really strong 0:01:52.040 --> 0:01:54.400 businesses that have a lot of potential, a lot of growth, 0:01:55.040 --> 0:01:56.880 and where we can therefore of a lot of cushion 0:01:56.920 --> 0:01:59.720 in our loans. But nonetheless, if our portfolio is growing 0:01:59.720 --> 0:02:02.360 fifty fteen percent. We are not in a recession nor 0:02:02.440 --> 0:02:04.440 on the edge of it, and we don't see the 0:02:04.480 --> 0:02:08.560 normal indicators yet that would suggest a meaningfully weakening economy. 0:02:08.760 --> 0:02:12.360 Do you find that your portfolio companies can handle paying 0:02:12.400 --> 0:02:17.040 ten twelve, fourteen percent interest rates and survive and thrive? 0:02:17.280 --> 0:02:20.559 Are the higher yields that we're talking about, not restrictive 0:02:20.800 --> 0:02:22.959 based on the growth that they're projecting. 0:02:23.200 --> 0:02:26.679 Cutting through it all, they're doing fine in that context. 0:02:26.680 --> 0:02:29.280 I think what we now know from we didn't know 0:02:29.320 --> 0:02:32.560 a year ago, is this speculative question of with rates 0:02:32.639 --> 0:02:36.400 rising to levels of course and seen in many people's 0:02:36.440 --> 0:02:39.520 working lives, they hadn't even experienced interest rates, they had 0:02:39.520 --> 0:02:42.200 like a positive number to them. But in any case, 0:02:43.000 --> 0:02:44.280 at the end of the day, what we now know 0:02:44.440 --> 0:02:46.240 is we have a full year of those rates have 0:02:46.400 --> 0:02:48.760 run through the p and ls of these companies, And 0:02:48.800 --> 0:02:50.840 I mean, of course, by definition there's going to be 0:02:50.840 --> 0:02:54.320 an incremental company that will struggle more in a higher 0:02:54.400 --> 0:02:58.080 rate environment, but writ large that has been absorbed by 0:02:58.120 --> 0:03:02.079 the system and quite successfully. We're not seeing these waves 0:03:02.080 --> 0:03:05.320 of changes or even the precursors to them, like asking 0:03:05.360 --> 0:03:09.080 for lots of amendments or meaningful changes in hey, can 0:03:09.160 --> 0:03:12.240 I pay in more debt? Can I pick my interest 0:03:12.320 --> 0:03:15.320 instead of pain in cash? So the indicators that are 0:03:15.560 --> 0:03:18.680 not even just what we would suggest an issue kind 0:03:18.720 --> 0:03:21.680 of have to predate an issue just aren't there in 0:03:21.720 --> 0:03:23.280 any meaningful degree yet, which. 0:03:23.080 --> 0:03:25.480 Is fascinating to me because we talk about is it restrictive? 0:03:25.520 --> 0:03:27.840 And then have companies actually felt this. You're talking about 0:03:27.840 --> 0:03:30.040 floating rate note loans, so you're talking about companies that 0:03:30.120 --> 0:03:34.600 actually are handling higher benchmark rates now not necessarily waiting 0:03:34.600 --> 0:03:38.480 to refinance. How has it affected the demand given the 0:03:38.520 --> 0:03:41.520 fact that companies have seemed reluctant to borrow to fuel 0:03:41.560 --> 0:03:43.120 growth given the higher rates. 0:03:43.600 --> 0:03:48.040 So indeed, look, our specialty is senior secured floating right debt. 0:03:48.160 --> 0:03:50.440 So to your point, you know, this environment has been 0:03:50.640 --> 0:03:53.600 very good for us, good for our investors. It's raised 0:03:53.920 --> 0:03:57.320 on a quite quick basis the returns people are and 0:03:57.320 --> 0:03:59.800 of course that's the point to be inflation protected in 0:03:59.800 --> 0:04:05.000 our kind of product. So companies have absorbed that pretty successfully. 0:04:05.280 --> 0:04:07.400 People are borrowing capital, you know, at the end of 0:04:07.440 --> 0:04:09.840 the day again of course supplying demand. We all know 0:04:09.920 --> 0:04:13.040 more expensive capital means people are going to use, perhaps 0:04:13.120 --> 0:04:15.680 less of it, but in the world of private equity, 0:04:15.720 --> 0:04:18.520 in particular in buying a company. And I started in 0:04:18.560 --> 0:04:21.360 private equity myself back in nineteen ninety five. Wasn't even 0:04:21.400 --> 0:04:24.520 called private equity then. And at the end of the day, 0:04:24.760 --> 0:04:27.560 that cost to capital it's a bit of a calculation, right, 0:04:27.560 --> 0:04:30.240 It's how much you can pay for that company. Of course, 0:04:30.279 --> 0:04:32.719 it reduces the value you can pay for an enterprise, 0:04:33.120 --> 0:04:36.320 but it really isn't prohibitive to conducting activity. Which you 0:04:36.400 --> 0:04:39.360 really need is an environment where people have a common 0:04:39.400 --> 0:04:42.440 set of expectations. It's really more about the gap between 0:04:42.440 --> 0:04:45.400 buyer and seller in terms of their expectations than it 0:04:45.440 --> 0:04:46.679 is the absolute numbers. 0:04:47.000 --> 0:04:48.400 Was it aasy back in the nineties? 0:04:48.440 --> 0:04:48.920 Competitive? 0:04:48.920 --> 0:04:49.080 Now? 0:04:49.480 --> 0:04:51.760 Was that less competition? How different was it? 0:04:52.200 --> 0:04:54.000 What? Was a lot different? That is for sure? And 0:04:54.000 --> 0:04:56.520 there certainly allow less competition. If you look back to 0:04:56.880 --> 0:04:59.680 nineteen ninety five when I was lucky enough to join 0:04:59.760 --> 0:05:03.560 k you know there were two large private equity firms 0:05:04.000 --> 0:05:07.240 LBO firms as called then at the time, Forceman Little 0:05:07.279 --> 0:05:10.640 and KKR. The world. Now we're talking thousands and trillions 0:05:10.680 --> 0:05:11.599 of dollars of count. 0:05:11.480 --> 0:05:13.320 Everyone wants a piece of this and I think it's 0:05:13.320 --> 0:05:15.320 a worry that maybe it just ends up with payple 0:05:15.400 --> 0:05:18.279 chasing the same deals, the sloppy deals, and maybe the 0:05:18.279 --> 0:05:21.040 traditional lends get squeezed out. Is that how you see things? 0:05:21.040 --> 0:05:24.640 So the opportunity by virtue of that evolution of the market, 0:05:24.720 --> 0:05:27.680 trillions of dollars of private equity. What we saw at 0:05:27.680 --> 0:05:30.880 Blue Owl was the opportunity to create the financing source 0:05:30.960 --> 0:05:33.120 to meet that need. Now, this is a very young 0:05:33.160 --> 0:05:36.280 industry comparatively, you know, when we talk about that very point, 0:05:36.400 --> 0:05:39.880 thousands of private equity firms Amongst the folks that focus 0:05:40.040 --> 0:05:43.080 on the large area, we focus on the very largest financings, 0:05:43.200 --> 0:05:45.680 very largest companies. There's just a few of us. So 0:05:45.680 --> 0:05:48.839 it's a very young industry by that measure, and I 0:05:48.880 --> 0:05:50.760 think therefore a lot of opportunities ahead. 0:05:50.920 --> 0:05:53.640 To his point, though, a lot of people would argue 0:05:53.920 --> 0:05:56.080 that we know what's going on with some of the 0:05:56.200 --> 0:06:00.359 public markets because basically you've seen the best and the 0:06:00.360 --> 0:06:02.719 brightest kind of weeded out and the others kind of 0:06:02.720 --> 0:06:04.720 fall out of bed and maybe gone to. 0:06:04.680 --> 0:06:05.640 The private market. 0:06:05.680 --> 0:06:07.919 So sort of this question of is there some behavior 0:06:08.279 --> 0:06:10.640 that could lead to a higher default rates that could 0:06:10.680 --> 0:06:12.800 be somewhat masked for the lack of transparency. 0:06:13.520 --> 0:06:14.320 Do you buy into that? 0:06:14.360 --> 0:06:17.159 Do you see colleagues that are operating with maybe less 0:06:17.480 --> 0:06:19.160 or lower standards than yourself. 0:06:20.200 --> 0:06:24.479 I believe that the private market has fundamentally added a 0:06:24.680 --> 0:06:28.279 stabilizing influence in total. Now, of course, again you're going 0:06:28.320 --> 0:06:30.599 to have a dispersion of different participants, so we'll do 0:06:30.680 --> 0:06:34.120 better than others. We're intensely focused on credit that has 0:06:34.160 --> 0:06:36.240 been where we have lived. You know, we've done about 0:06:36.279 --> 0:06:39.160 ninety billion dollars in loans and our running loss rate 0:06:39.160 --> 0:06:43.200 has been six basis points, So there really is a durability. 0:06:43.240 --> 0:06:46.440 But more important for the markets written large, having a 0:06:46.560 --> 0:06:50.520 steady source of capital through ups and downs. During the pandemic, 0:06:50.560 --> 0:06:53.400 we were still providing capital during the run on the 0:06:53.400 --> 0:06:56.839 regional banks. We were providing capital. When inflation was surging, 0:06:56.960 --> 0:07:00.479 we were still providing capital. So a healthy system is 0:07:00.520 --> 0:07:04.000 not one where private markets take over from the public markets, 0:07:04.120 --> 0:07:06.120 but it is one where we have a large vibrant 0:07:06.279 --> 0:07:10.680 private market alongside a large vibrant public market. That is 0:07:10.720 --> 0:07:12.440 a better economic platform. 0:07:12.720 --> 0:07:15.560 You inked a pretty big deal last fall with Mubadala. 0:07:15.840 --> 0:07:17.600 Do you see more interest from some of these sovereign 0:07:17.680 --> 0:07:19.640 wealth firms, particularly in the Middle East. 0:07:19.760 --> 0:07:23.040 We do you know the private lending. Direct lending was 0:07:23.080 --> 0:07:28.240 adopted a generally speaking earlier by US institutions, and part 0:07:28.240 --> 0:07:30.800 of that, I think is just the maturation to a 0:07:30.880 --> 0:07:35.520 degree from really ten years ago this flavor of direct lending, 0:07:35.560 --> 0:07:38.120 the lender of first choice as opposed to lender of 0:07:38.160 --> 0:07:41.080 last resort really didn't exist. So this is kind of 0:07:41.120 --> 0:07:45.400 a ten year industry in that regard, and now we're 0:07:45.400 --> 0:07:49.040 seeing an interest increasing interest with non US investors. Part 0:07:49.080 --> 0:07:53.080 of it, I think is now appreciating the durability, so 0:07:53.120 --> 0:07:55.160 to speak, a safe haven. Where do you want to 0:07:55.200 --> 0:07:57.160 be when times are uncertain? We just talked, you talked 0:07:57.200 --> 0:07:59.720 earlier about the dispersion of views. I think where you 0:07:59.720 --> 0:08:03.400 want to be is senior secured floating rate. So I 0:08:03.400 --> 0:08:06.320 think that the non US investors are appreciating that being 0:08:06.560 --> 0:08:08.840 a core holding. And at the same time, just look 0:08:08.880 --> 0:08:12.400 the absolute returns. When you can generate double digit returns 0:08:12.960 --> 0:08:16.880 taking that very senior position, that very moderated risk, that 0:08:16.960 --> 0:08:21.119 absolute level of return starts to really resonate for people 0:08:21.160 --> 0:08:22.440 in non US markets as well. 0:08:22.480 --> 0:08:26.600 Can I finish with a terrible question, is the evidence whatsoever? 0:08:26.760 --> 0:08:29.560 And it's so that this FED is sufficiently restrictive based 0:08:29.600 --> 0:08:31.440 on what you see, and you'll will specifically. 0:08:32.520 --> 0:08:35.240 So here's what we see in our world. Inflation's a 0:08:35.280 --> 0:08:38.240 sticky animal. We saw it starting a year ago, and 0:08:38.280 --> 0:08:41.480 there's plenty of things. We're not macro prognosticators, but so 0:08:42.160 --> 0:08:45.560 three hundred and fifty companies looking bottom up, we continue 0:08:45.559 --> 0:08:48.680 to see inflation be sticky. There are offsets, for sure. Look, 0:08:48.720 --> 0:08:51.880 shipping costs come down dramatically. We have a consumer products 0:08:51.880 --> 0:08:55.000 company that was paying twenty thousand dollars a container, now 0:08:55.040 --> 0:08:58.840 they're paying thirty five hundred. But wages are sticky. Wages 0:08:58.880 --> 0:09:02.319 are still rising. So we are not through the teeth 0:09:02.320 --> 0:09:04.640 of this inflationary challenge. We're through the worst of it, 0:09:05.040 --> 0:09:05.880 or are not done with it. 0:09:05.960 --> 0:09:08.040 This was probably better to get your answer than ask 0:09:08.080 --> 0:09:10.800 another economist this morning. Mark's going to see you. Thank you, sir, 0:09:10.960 --> 0:09:13.960 mar Lifscheltz there of Blue Out Capital. I think the answer, Bramo, 0:09:14.040 --> 0:09:15.200 I think you heard the same one, right. 0:09:15.280 --> 0:09:18.320 I mean basically no, because if we're looking at companies 0:09:18.320 --> 0:09:20.440 that can handle higher borrowing costs and are still hiring 0:09:20.480 --> 0:09:23.520 and it's still expanding, where's the restrictiveness. 0:09:22.880 --> 0:09:23.800 It's pretty revealing. 0:09:33.040 --> 0:09:35.280 It's the latest. This morning, shares of half Hag Lloyd 0:09:35.520 --> 0:09:38.640 lower in Germany after the shipping giant reported a decrease 0:09:38.679 --> 0:09:41.040 in earnings and warned of a further decrease in twenty 0:09:41.080 --> 0:09:44.480 twenty four on a quote volatile and challenging economic and 0:09:44.520 --> 0:09:49.000 political environment, especially in view of the current situation around 0:09:49.040 --> 0:09:52.439 the Red Sea. Rolph Habin Jansen, the CEO of haf 0:09:52.480 --> 0:09:54.679 hag Lloyd, joins us now for more. Rolph great to 0:09:54.720 --> 0:09:56.440 catch up with you, sir. I want to talk about 0:09:56.480 --> 0:09:59.760 freight rates. When freight rates first night picking up earlier 0:09:59.760 --> 0:10:01.640 this shar year on the back of this story, there 0:10:01.679 --> 0:10:03.920 was a sense from some people that maybe that was temporary. 0:10:04.080 --> 0:10:05.520 Do you see that as the new normal now and 0:10:05.600 --> 0:10:07.200 ultimately are they going higher? 0:10:07.280 --> 0:10:09.840 I think we saw an initial reaction, especially sport rates 0:10:09.880 --> 0:10:12.680 went up a lot, because that's a combination of everybody 0:10:12.760 --> 0:10:14.880 then trying to book things quickly. We were running up 0:10:14.880 --> 0:10:17.360 to Chinese New Year and a lot of uncertainty. I 0:10:17.360 --> 0:10:20.679 think right now we see that the services are stabilizing, 0:10:20.720 --> 0:10:23.080 which means also that the market is getting calmer, and 0:10:23.160 --> 0:10:25.160 as a consequence of that, I think we also see 0:10:25.559 --> 0:10:27.120 sports traits in particularly coming. 0:10:26.920 --> 0:10:29.600 Down just how much time an investment has gone into 0:10:29.600 --> 0:10:33.000 finding alternative routes. Are you considering more land routes? Are 0:10:33.000 --> 0:10:35.320 they viable given the increase in race that you've seen. 0:10:36.760 --> 0:10:38.720 I mean, we have opened up a number of new 0:10:39.160 --> 0:10:42.000 land routes, and we've also taken on some additional ships, 0:10:42.000 --> 0:10:43.920 and of course we've also had to buy a lot 0:10:43.920 --> 0:10:48.840 of additional containers because as all the voyages have become longer, 0:10:48.880 --> 0:10:51.680 we in reality also need more boxes to transport the 0:10:51.720 --> 0:10:53.559 same amount of gorgle rolf. 0:10:53.760 --> 0:10:56.240 How easy is it to pass along the extra cost 0:10:56.320 --> 0:10:59.640 associated with this to the shippers, to the consumers, to 0:10:59.679 --> 0:11:01.800 the to the companies that want to ship. 0:11:03.400 --> 0:11:05.960 I think we see by and large that these costs 0:11:06.000 --> 0:11:08.640 are being passed on, and I think that's also reasonable. 0:11:08.679 --> 0:11:11.240 I mean, if you compare the situation now with what 0:11:11.360 --> 0:11:14.680 we had at COVID there, of course rates exploded. Today 0:11:14.720 --> 0:11:17.679 you have a different situation because there was probably some 0:11:17.760 --> 0:11:20.880 spare capacity in the industry when this crisis hit us, 0:11:21.080 --> 0:11:23.360 and that has certainly helped us to keep global supply 0:11:23.480 --> 0:11:26.280 chains going and also to keep the increase in cost 0:11:26.600 --> 0:11:27.240 within reason. 0:11:27.800 --> 0:11:31.319 So if there isn't any pushback why are some of 0:11:31.360 --> 0:11:34.400 the profitabilities coming down just simply because if you can 0:11:34.440 --> 0:11:37.200 pass it along. Are people shipping less? Are they looking 0:11:37.240 --> 0:11:38.560 to different routes that are shorter. 0:11:40.000 --> 0:11:42.320 I think right now you were still looking at the 0:11:42.360 --> 0:11:44.839 results that come out on companies in the fourth quarter, 0:11:45.160 --> 0:11:48.319 where we had exceptionally low rates that were way be 0:11:48.400 --> 0:11:51.840 low cost. That's also why a lot of companies posted losses. 0:11:52.040 --> 0:11:54.200 I think you will see a recovery and freight rates 0:11:54.200 --> 0:11:57.000 when you start looking at the first and second quarter. 0:11:57.200 --> 0:11:59.240 The question is, of course, what's going to happen once 0:11:59.280 --> 0:12:01.840 the situation around to the Red Sea normalizes. 0:12:02.040 --> 0:12:04.880 I want to talk about the situation in the Red Sea. 0:12:04.960 --> 0:12:07.760 The United States seems to be in a cycle of defense, 0:12:08.400 --> 0:12:11.400 not deterrence when it comes to their posture. Are you 0:12:11.480 --> 0:12:14.160 seeing any signs of deterrence from the United States, through 0:12:14.160 --> 0:12:16.120 the UK or others when it comes to the Hooties. 0:12:17.360 --> 0:12:18.880 Well, first of all, let me say that we really 0:12:18.880 --> 0:12:20.840 welcome all the efforts that are being undertaken by the 0:12:20.960 --> 0:12:24.000 US and their allies to try and stabilize that situation. 0:12:24.320 --> 0:12:27.040 But of course it's very difficult because it's a fairly 0:12:27.160 --> 0:12:30.400 large area that you need to defend. And then so 0:12:30.480 --> 0:12:33.440 far we have seen that the attacks of the hooties continue, 0:12:33.480 --> 0:12:36.520 and it also means that we will then decide we 0:12:36.600 --> 0:12:38.880 have no other choice than to keep our people safe, 0:12:39.280 --> 0:12:41.959 even if that means that some of the supply chains 0:12:42.000 --> 0:12:43.720 are then seven or ten days longer. 0:12:43.880 --> 0:12:46.160 Well, what are governments telling you about securing the Red Sea? 0:12:46.240 --> 0:12:47.920 Do you have a timeline of when you think you 0:12:47.920 --> 0:12:49.559 could start using that route again? 0:12:50.920 --> 0:12:53.120 I think there are many different opinions on when that 0:12:53.320 --> 0:12:55.480 is going to happen. I think we hope that we're 0:12:55.480 --> 0:12:58.200 going to be able to go back through in a 0:12:58.240 --> 0:13:00.959 couple of months, but I know there are also people 0:13:01.000 --> 0:13:02.920 that think that it may last quite a little longer. 0:13:03.000 --> 0:13:05.160 Ralph, thank you Sef for the update. We appreciate it. 0:13:05.160 --> 0:13:07.440 It's an important story has been for the last few months. 0:13:07.600 --> 0:13:20.319 Ralph happened, Yensen there the happek Lloyd CEO, Ja Brice 0:13:20.360 --> 0:13:22.800 and Chafe economists of wels FAGA joined us. Now for more, Hey, j, 0:13:22.960 --> 0:13:27.080 let's get into that CPI upside surprise PPI upside surprise 0:13:27.320 --> 0:13:29.960 going into next week. Jay, what kind of changes, if any, 0:13:30.200 --> 0:13:32.760 would you expect from the outlook from this Federal reserve? 0:13:33.000 --> 0:13:38.520 So, John, in terms of the macroeconomic projections of the Fed. 0:13:38.760 --> 0:13:41.440 I'm not expecting a lot in the summary of economic 0:13:41.559 --> 0:13:44.040 projections there. You know you were noting earlier in terms 0:13:44.080 --> 0:13:45.760 of the dots. I mean, it would only take two 0:13:46.280 --> 0:13:49.439 members to switch from three rate cuts to two, so 0:13:49.760 --> 0:13:52.600 the median could potentially change next next week. And I 0:13:52.600 --> 0:13:54.720 guess you know, if there's an upside risk here to 0:13:54.920 --> 0:13:57.080 the projections for next week, it would be to a 0:13:57.080 --> 0:14:00.640 little bit higher inflation, and you know, maybe the dots 0:14:00.679 --> 0:14:03.000 shifting up as well. But you know, in general, I 0:14:03.000 --> 0:14:06.960 wouldn't expect huge changes from the statement next week or 0:14:07.000 --> 0:14:09.800 from what share pals as in his press conference relative 0:14:09.840 --> 0:14:11.160 to what they've been saying recently. 0:14:11.320 --> 0:14:13.800 Have you changed your view, though, Jay, about the idea 0:14:13.840 --> 0:14:16.400 of how sticky inflation is and how long it's going 0:14:16.440 --> 0:14:19.200 to remain high in the face of a labor market 0:14:19.280 --> 0:14:21.080 that really doesn't show signs of cracking. 0:14:22.400 --> 0:14:24.960 So, so, to answer your first question therely, so, yeah, 0:14:24.960 --> 0:14:27.560 we have pushed back. Are we initially thought that the 0:14:27.560 --> 0:14:29.080 first freight cut we come in May? I mean, I 0:14:29.080 --> 0:14:30.960 think that's kind of off the table more or less 0:14:31.160 --> 0:14:33.320 at this point. We've pushed that back to June. And 0:14:33.480 --> 0:14:34.800 you know, I guess what I would say is I 0:14:34.800 --> 0:14:37.640 think the risk to our forecast would be skewed towards later. 0:14:37.760 --> 0:14:40.240 That is, I would say the probability of July is 0:14:40.320 --> 0:14:44.200 higher than you may at this point. But in general, 0:14:44.480 --> 0:14:46.640 you know, we really haven't really changed our views all 0:14:46.640 --> 0:14:48.920 that much. And in terms of the labor market, I mean, 0:14:49.120 --> 0:14:52.040 so we saw these initial jobless claims today. Now I 0:14:52.080 --> 0:14:54.640 wouldn't make a lot of just one week sort of 0:14:54.640 --> 0:14:56.440 of data if you step back and you take a 0:14:56.440 --> 0:14:58.360 look at it, what we are seeing in terms of 0:14:58.360 --> 0:15:01.320 the labor market is the its rate has coming down 0:15:01.520 --> 0:15:04.840 really quickly. You know, the job openings is also coming 0:15:05.520 --> 0:15:07.480 is coming down as well. And then if you look 0:15:07.480 --> 0:15:10.080 at the unemployment rate, that is starting to move higher here, 0:15:10.080 --> 0:15:11.760 and you know, obviously it's at a very very low 0:15:11.840 --> 0:15:14.480 level still. So what we are seeing is we're seeing 0:15:14.520 --> 0:15:16.680 some softening in the labor market. It's not like it's 0:15:16.720 --> 0:15:19.960 falling apart or anything, but that should, as we go forward, 0:15:20.040 --> 0:15:22.800 continue to bring the employment cost indecks lower. 0:15:23.000 --> 0:15:24.640 How long are we going to remain in this limbo? 0:15:24.880 --> 0:15:26.920 We're trying to understand what the trend is, and you've 0:15:26.960 --> 0:15:30.000 got people who are saying the sky is falling, inflation's reaccelerating. 0:15:30.000 --> 0:15:32.280 Take a look at three months and six month trailing averages, 0:15:32.480 --> 0:15:34.440 and other people say, cut it out, it's. 0:15:34.280 --> 0:15:35.200 On a downward trend. 0:15:35.240 --> 0:15:37.640 You're being over dramatic. How long before we have a 0:15:37.680 --> 0:15:40.360 conclusive decision on those two narratives? 0:15:41.080 --> 0:15:41.240 You know? 0:15:41.600 --> 0:15:43.600 I wish I could answer that question. I just think 0:15:43.920 --> 0:15:46.320 we're going to be in this choppiness though for a 0:15:46.800 --> 0:15:50.000 while here, and so I think we're just we're just 0:15:50.000 --> 0:15:51.640 going to have to live with that. And I think 0:15:51.640 --> 0:15:53.120 what you need to do is, you know, we need 0:15:53.160 --> 0:15:55.240 to step back and we need to say, Okay, we 0:15:55.280 --> 0:15:57.000 all look at this data today, and what does this 0:15:57.040 --> 0:15:58.720 mean for the FED next week? What does this mean 0:15:58.760 --> 0:16:00.760 for the Fed in may? You know, the Fed doesn't 0:16:00.800 --> 0:16:03.640 at this point, it doesn't really know either. It's taking 0:16:03.720 --> 0:16:07.680 these data in its entirety as they come in and it'll 0:16:07.640 --> 0:16:10.160 make its decisions as we go forward. And unfortunately, I 0:16:10.160 --> 0:16:12.240 think we're going to be in this choppiness, you know, 0:16:12.280 --> 0:16:12.880 for a while. 0:16:13.160 --> 0:16:14.880 So right now, as we take a look at the 0:16:14.920 --> 0:16:18.160 way that the market's responding, we see stocks really shrugging 0:16:18.200 --> 0:16:20.840 off pretty much everything. We see bonds reacting, but in 0:16:20.880 --> 0:16:25.080 a controlled sense, what is the threshold for financial conditions 0:16:25.080 --> 0:16:28.200 and the easing of financial conditions to create a problem 0:16:28.200 --> 0:16:29.120 for the Federal Reserve. 0:16:30.440 --> 0:16:34.400 So you know, that's if we continue to trend in 0:16:34.440 --> 0:16:37.120 this direction, stock price is going higher, if we continue 0:16:37.160 --> 0:16:40.480 to see bond spreads coming in in financial conditions and 0:16:40.520 --> 0:16:43.720 that juices the economy even more, I mean, that would 0:16:43.720 --> 0:16:47.200 be I guess you know, it's somewhat of a problem 0:16:47.200 --> 0:16:49.880 for the Fed in terms of its easing path going forward. 0:16:49.920 --> 0:16:53.480 Now they're not targeting stock prices, they're not targeting bond spreads. 0:16:53.560 --> 0:16:56.200 I mean, what they are looking at is the effects 0:16:56.240 --> 0:16:59.720 of these financial conditions on the overall the overall markets 0:16:59.880 --> 0:17:02.760 or the overall economy in general. People make a big 0:17:02.800 --> 0:17:05.560 deal out of stock prices. It does have a wealth 0:17:05.560 --> 0:17:07.879 effect on people, but those wealth effects tend to be 0:17:07.920 --> 0:17:11.000 pretty small. So the point here is you need to 0:17:11.000 --> 0:17:14.720 have a lot of financial conditions loosening here for it 0:17:14.760 --> 0:17:16.680 to really start to have an effect on the FED 0:17:17.320 --> 0:17:19.600 decisions going forward. And I don't think we're quite at 0:17:19.600 --> 0:17:20.480 that point just yet. 0:17:20.600 --> 0:17:22.960 When it comes to JPW, he continuously says at some 0:17:23.040 --> 0:17:25.639 point this year will be cutting. Does that change to 0:17:26.280 --> 0:17:28.960 later this year? Does this timeline just get pushed back. 0:17:30.040 --> 0:17:32.239 I think I think it does, Lisa, you know, I mean, 0:17:32.240 --> 0:17:34.840 because what we're seeing is, yes, the inflation rate is 0:17:34.920 --> 0:17:37.520 trending lower. Now, it's not coming down as much as 0:17:37.960 --> 0:17:40.359 I guess people would like it to be. But what's 0:17:40.359 --> 0:17:43.119 happening is that that inflation rate continues to come down 0:17:43.440 --> 0:17:46.520 and the Fed remaining on hold, the real Fed funds 0:17:46.600 --> 0:17:50.160 rate is passively going higher, and that's acting then as 0:17:50.200 --> 0:17:54.439 a passive tightening on the overall economy. And so in 0:17:54.480 --> 0:17:57.000 some sense they need to be cutting rates. Maybe not 0:17:57.200 --> 0:17:59.320 in May, maybe not in June or July, but they 0:17:59.320 --> 0:18:01.639 probably need to be cutting rates later this year or 0:18:01.640 --> 0:18:05.200 you're going to have a passive tightening of monetary policy, 0:18:05.359 --> 0:18:08.400 which then can potentially slow things a lot more than 0:18:08.480 --> 0:18:09.800 people are expecting right now. 0:18:10.040 --> 0:18:12.600 JA appreciate your views, your opinion, your reaction to this 0:18:12.600 --> 0:18:14.679 this morning. Thank you, sir J Brice and there of 0:18:14.760 --> 0:18:19.119 wels Fargo. This is the Bloomberg Survenllants podcast, bringing you 0:18:19.480 --> 0:18:22.639 the best in markets, economics, an gio politics. You can 0:18:22.680 --> 0:18:25.440 watch the show live on Bloomberg TV weekday mornings from 0:18:25.480 --> 0:18:28.760 six am to nine am Eastern. Subscribe to the podcast 0:18:28.800 --> 0:18:32.320 on Apple Spotify or anywhere else you listen, and as always, 0:18:32.359 --> 0:18:34.920 on the Bloomberg terminal and the Bloomberg Business app.