Speaker 1: Bloomberg Audio Studios, podcasts, radio news. So here's why I'm
Speaker 1: so confused right now. Like, if someone said to me,
Speaker 1: just one reason, if someone said to me, look, you know,
Speaker 1: the economy is slowing down, clearly, job creation is in
Speaker 1: the tank, is decelerating, housing is in the tank, et cetera.
Speaker 1: There's a bunch of sectors that are soft.
Speaker 2: When you'd rate.
Speaker 1: Cuts, okay, that sounds good. Inflation has come down quite
Speaker 1: a bit from where it was, but it's still elevated.
Speaker 1: And then if someone said, look, the stock workers record
Speaker 1: high PPI just came in super hot, Inflation is still
Speaker 1: above levels, et cetera. Are you insane to even be
Speaker 1: talking about rate cuts, I'd be like, oh, yeah, okay,
Speaker 1: that makes sense too. Like I find many kinds of
Speaker 1: arguments to be very persuasive right here. I don't have
Speaker 1: strong views.
Speaker 3: I'm not one for hyperbole. I try not to be right.
Speaker 3: I try to be a good journalist in that sense.
Speaker 3: But I would honestly say, like, this is one of
Speaker 3: the most difficult macro environments to call in probably my
Speaker 3: professional career, which is longer than I would necessarily like
Speaker 3: it to be at this point. But as you said,
Speaker 3: if you look at the stock market, which feeds into
Speaker 3: financial conditions, right, look at financial conditions, like financial conditions
Speaker 3: do not look that restrictive at the moment, and yet
Speaker 3: you do have people who say that, actually we are
Speaker 3: still in restrictive territory and the labor market is weakening,
Speaker 3: as you said, and so we need a rate cut.
Speaker 3: So we have this one body of people who are
Speaker 3: talking about a potential FED policy there, and then we
Speaker 3: have another body of people, including people from the Trump administration,
Speaker 3: who are talking about the need to do a different
Speaker 3: the basis point, Yeah.
Speaker 1: It's all totally. You could make the argument that the
Speaker 1: FED is either committing a policy or now are contemplating
Speaker 1: a policy. Then there's this whole dynamic with the fact
Speaker 1: that we know that there's this one incredible thing going on,
Speaker 1: which is all the AI spending, and how that actually
Speaker 1: intersects with macro is very confusing. So we have Jackson
Speaker 1: Hole next week, which we're going to be.
Speaker 3: Ad I'm excited about jackson Hole. So the scuttle butt
Speaker 3: for journalists going to Jackson Hole is that apparently, like
Speaker 3: the room are even higher depend than normal because behind
Speaker 3: all the macro debate, which we just laid out. There's
Speaker 3: also the question of FED independence. Right, so interest in
Speaker 3: jackson Hole is like higher than it's ever been.
Speaker 1: It's going to be a big Jackson Hole. Whatever the
Speaker 1: formal theme of the conference is going to be. You know,
Speaker 1: there's going to be some academic theme coming up. Whatever
Speaker 1: that is, that's not going to be the theme. The
Speaker 1: theme is going to be all of the talk about
Speaker 1: FED independence. I did a deadlist.
Speaker 2: I'm both the.
Speaker 3: Most popular trader and most successful trader.
Speaker 2: At Citadel FEDA is going viral.
Speaker 4: Uh barches.
Speaker 1: This isn't after school Special, except.
Speaker 3: I've decided I'm going to base my entire personality going
Speaker 3: forward on campaigning for a strategic pork reserve in the US.
Speaker 1: Black goals.
Speaker 3: These are the important questions that robots taking over the world.
Speaker 1: No, I think that like in a couple of years,
Speaker 1: the AI will do a really good job of making
Speaker 1: the odd Launch podcast. One day that person will have
Speaker 1: the mandate of heaven.
Speaker 4: How do I get more popular and successful?
Speaker 2: We do have.
Speaker 3: You're listening to lots More, where we catch up with
Speaker 3: friends about what's going on right now, because.
Speaker 1: Even when the Odd Lots is over, there's always lots more.
Speaker 3: And we really do have the perfect Guest'skanda.
Speaker 1: And I used to have you here in.
Speaker 4: Our when Joe's confused, you're the guy we turned to.
Speaker 1: Yeah, that's right. Let's start actually just quick take. We're
Speaker 1: recorded this nine oh four August fourteen, about thirty minutes
Speaker 1: ago we got that really hot PPI report. But also
Speaker 1: I don't know what that means, Like, is a big deal.
Speaker 1: What does it say? What's going on there?
Speaker 5: Is it?
Speaker 1: What does it mean for PCE? Is it means that
Speaker 1: margins are going to be crimped? What's going on there?
Speaker 5: I mean, I think for PPI today should be seen
Speaker 5: as at least showing the inflationary side of the story
Speaker 5: is still there. Okay, not just in terms of like
Speaker 5: some of the aggregates may be distorted for a lot
Speaker 5: of reasons, but what matters for the FEDS inflation gauges
Speaker 5: got moved up a bit. Okay, So what you're going
Speaker 5: to be tracking for inflation for July, PIPPI both matter,
Speaker 5: and so that's going to be moved.
Speaker 2: Up a bit.
Speaker 5: So we're gonna be running it roughly two point nine
Speaker 5: percent on core PCE. Substantially, we are higher now than
Speaker 5: we were last year. It is like it's starting to
Speaker 5: look like the progress is starting to turn the other direction.
Speaker 5: Now there may be some reasons why it is transitory
Speaker 5: this time, that it is temporary, and yet it doesn't
Speaker 5: really feel great, and I imagine for Chair Powell there's
Speaker 5: a feeling of wait. I remember in twenty twenty one
Speaker 5: in August that was pretty confident that it's just going
Speaker 5: to be short term, and then we saw some increases
Speaker 5: and I said, well, we got to focus on in
Speaker 5: the labor market back first, and then people kind of
Speaker 5: have held that against him accordingly, But now we have
Speaker 5: inflation picking up, and yeah, we also see a lot
Speaker 5: of job market maybe employment levels look fine. Yeah, the
Speaker 5: momentum the job growth that we're seeing in the latest
Speaker 5: release is understandably spooky too.
Speaker 3: I asked Mary Daily this question before. But do starting
Speaker 3: points matter here? Because if you look at the labor market,
Speaker 3: the labor market as it's been really really strong in
Speaker 3: recent years, like certainly much stronger than people had expected.
Speaker 3: And so, okay, there are some signs of softening now
Speaker 3: it does seem to be losing momentum, but we are
Speaker 3: still starting from a place of strength. Does that mean
Speaker 3: potentially the FED can you know, maybe let that one
Speaker 3: go and look more at the inflation risk.
Speaker 5: To your point, I think it certainly matters, It's not
Speaker 5: the only thing that matter. I think momentum and starting
Speaker 5: point both matter, and the starting point is better. The
Speaker 5: momentum is some of the weakest we've seen outside of
Speaker 5: recession in a while now. Some of them might be
Speaker 5: due to immigration, some of that might be due to
Speaker 5: tariff uncertainty.
Speaker 2: Some of that might be due to.
Speaker 5: Interest rates are higher, and that matters for some sectors more,
Speaker 5: even if the financial conditions you just talked about are
Speaker 5: still pretty accommodative if your time about capital markets. So
Speaker 5: these are all kind of confusing in terms of what
Speaker 5: is the actual, like labor market trajectory that's permissible. I
Speaker 5: think the FED is right now inclined to cut in September,
Speaker 5: given what we've seen in the labor market data. But
Speaker 5: I will just warn just as the data got revised
Speaker 5: before it could get revised again. It may be the
Speaker 5: case that May and June were the weakest months for
Speaker 5: job growth and that we see some local acceleration just
Speaker 5: because there's a little bit more certainty on trade policy
Speaker 5: than there was before. So there's still another job support
Speaker 5: before the September meeting, and there's another bat to inflation
Speaker 5: data that's also going to come out, and I think
Speaker 5: that will actually probably matter in the sense that typically
Speaker 5: you see price changes that are more volatile as you
Speaker 5: get into back to school season, holiday season, the turn
Speaker 5: of the calendar year. What we've seen thus far is
Speaker 5: typically the more benign months, you typically don't see prices
Speaker 5: change that much. So there's still a lot to play
Speaker 5: for in terms of going into the September meeting.
Speaker 1: So here's the thing I've been thinking about, trying to
Speaker 1: conceptualize what's going on. And you know, as Tracy mentioned,
Speaker 1: we talked to Mary Daily last week in Alaska and
Speaker 1: she's kind of the view right now or she says
Speaker 1: that she does not think that the tariffs will be
Speaker 1: particularly inflationary ors inflationary on a sustained basis, And you know,
Speaker 1: there's certainly an argument tariffs are tax increases, and tax
Speaker 1: increases we don't think of as inflationary. We think of
Speaker 1: them as disinflationary if anything. On the other hand, they
Speaker 1: throw a wrench into supply chains. They have very different
Speaker 1: effects across different like they sort of strike me as
Speaker 1: like a bit of just like throwing sand into gears.
Speaker 1: And if you combine throwing sand into gears with really
Speaker 1: big deficits, and now that I'm middle age, I talk
Speaker 1: about deficits. We've got a pretty big July deficit number.
Speaker 1: It was ten percent higher than the year before. This
Speaker 1: is despite the tariff revenue. If you're throwing sand into
Speaker 1: gears of industry, making commerce less efficient by creating all
Speaker 1: these frictions, and you're pushing in all this money by
Speaker 1: expanding deficits, that strikes me as a potentially inflationary cocktail.
Speaker 2: I would agree.
Speaker 5: I think that's possibly have both right, that there is
Speaker 5: some what I would call stackflation light right that it's
Speaker 5: obviously unemployment rates are still low. That's pretty distinct from
Speaker 5: the stackflation of the seventies. But the momentum in the
Speaker 5: labor market seems weaker because I think there probably is
Speaker 5: for any sort of trade sensitive sector, think about construction, manufacturing, retail, trade, wholesale, trade, warehousing.
Speaker 5: These are all showing weakness and job growth more recently,
Speaker 5: and so we're seeing that side of the equation that
Speaker 5: should be disinflation area at the margin, because less labor
Speaker 5: income should mean less consumer spending and at the same
Speaker 5: time you're putting in costs adding to the business cost
Speaker 5: structure in ways that businesses can't stomach bey on a
Speaker 5: certain point, right, So some businesses are probably roll positioned
Speaker 5: to absorbit the hit to margin, but there's a limit
Speaker 5: to that as well.
Speaker 2: I think the issue with sort of.
Speaker 5: The tariff flesh trade shock, the modeling of it is
Speaker 5: if you have costs be pushed through to consumers over
Speaker 5: time that can still be consistent with just real incomes
Speaker 5: sort of declining even if nominal income growth is onstead
Speaker 5: of your footing. And so that would be a very
Speaker 5: tricky backdrop for the fit to navigate.
Speaker 3: Just going back to inflation for a second, can you
Speaker 3: walk us through what's going on with energy prices at
Speaker 3: the moment, because on the one hand, oil still pretty low,
Speaker 3: as we talked a lot about in Alasta that or yeah,
Speaker 3: people really care about the price of oil in Alaska,
Speaker 3: not necessarily the way that most car driving Americans do.
Speaker 1: So it's funny like in America on oil to quote
Speaker 1: lower forty eight, which is a term I'd never used
Speaker 1: as much than in the last week. It's like an
Speaker 1: oil crisis is when it's really high there, it's the
Speaker 1: exact opposite and right, keep going.
Speaker 3: That's right, Okay, so oil prices are low, but at
Speaker 3: the same time we're seeing some electricity prices rise, possibly
Speaker 3: a sort of crowding out effect from all the data
Speaker 3: center demand and AI enthusiasm and things like that.
Speaker 5: Yeah, so I think that there's a bifurcation and energy prices. Right,
Speaker 5: So we have your standard commodity prices, specifically for oil,
Speaker 5: have stayed at the lower end of the range. Right,
Speaker 5: we're still diffinitely speaking in the maybe low sixties, right
Speaker 5: and WTI.
Speaker 2: So these are prices that.
Speaker 5: Should be not painful for the consumer. Yet we also
Speaker 5: have electricity price increases. And the electricity price increases that
Speaker 5: we've seen, some part of that is due to natural
Speaker 5: gas price volatility, although natural gas prices more recently have
Speaker 5: come down, but there's also an there are a lot
Speaker 5: of things that go into electricity prices that are independent
Speaker 5: of that. So in a lot of regions of the
Speaker 5: country we're seeing capacity looks to be short for the
Speaker 5: longest time. A lot of these a lot of what
Speaker 5: you call thermal sources of electricity generation are typically not
Speaker 5: very economical. Right, We're economical as short runs since because
Speaker 5: we have more capacity than we need, so the ability
Speaker 5: to be paid for that capacity is not great. So
Speaker 5: that's why we retire coal plants, we retire nuclear plants.
Speaker 5: Now you're seeing the other side of that, right, and
Speaker 5: it takes a long time to build that stuff, and
Speaker 5: so the retirements have are coming to a pause. For Hey,
Speaker 5: actually we might be short on capacity if the data
Speaker 5: centerler demands are there, and building new capacity is very expensive,
Speaker 5: very time intensive, and that seems to be an issue.
Speaker 2: And at least a.
Speaker 5: Number of major regions there's like the mid Atlantic region PJM.
Speaker 5: You're hearing this also show up though in terms of
Speaker 5: rates are increasing in Georgia. And New England has its
Speaker 5: own set of problems because it burns a lot of
Speaker 5: natural gas electricity but also doesn't have the requisite pipeline capacity.
Speaker 3: I love that I'm double hedged to New England energy
Speaker 3: prices plus conned in New York. Although although I do
Speaker 3: have solar panels in Connecticut. Now, as we were discussing,
Speaker 3: so sometimes sometimes my bill is actually negative, which is lovely.
Speaker 1: The Texas hedge. This is the thing, which is that
Speaker 1: so I mentioned in the beginning, so much investment happening
Speaker 1: in AI which doesn't seem to like, I mean, doesn't
Speaker 1: seem to be paying off economy wide yet. It's not
Speaker 1: like we've seen some great dissinflationary boom or all these
Speaker 1: companies suddenly getting more efficient. Though maybe there are I'm
Speaker 1: sure you can find pockets. But there's a lot of spending,
Speaker 1: and there's a lot of spending on gear, and there's
Speaker 1: a lot of spending on buildings, and a little bit
Speaker 1: of spending on labor. You know, some people have been
Speaker 1: talking about this crowding out of fact. Jason Furman talked
Speaker 1: about it in a tweet that maybe this just feels
Speaker 1: like a fiscal crowded God, is that fair at this
Speaker 1: point or is it too soon to tell, like whether
Speaker 1: all this expenditures.
Speaker 4: Has been writing about this quite a bit as well.
Speaker 1: Yeah, I'm curious how you characterize.
Speaker 2: It right down.
Speaker 5: I mean, obviously there's some bid for resources that could
Speaker 5: otherwise be deployed elsewhere, and also a bit sort of
Speaker 5: if let's say you're an investor and you're obviously some
Speaker 5: level of capital constraint going on, if you're investing everything
Speaker 5: in AI and basically cutting spending an investment in other
Speaker 5: areas there's some sort of crowding out effect. But I
Speaker 5: would just also caution that's like a secondary effect right there.
Speaker 2: The primary one is still that there's more investment. But
Speaker 2: do us on.
Speaker 1: The electricity front though, is that connected or is that
Speaker 1: still just our manufactors pushing up the electricity cross and
Speaker 1: maybe data stiers are one.
Speaker 5: I think the data center effect is something probably better
Speaker 5: to describe up until this very moment, like we're probably
Speaker 5: hitting something. I'm an inflection point, right, so you are
Speaker 5: like load demand for electricity has stopped sort of having
Speaker 5: the sort of its local stagnation. Okay, but we haven't
Speaker 5: yet seen the pick up. The pickup is probably coming
Speaker 5: very soon, maybe right now, And as that happens and
Speaker 5: it has its pass through into pricing over the coming years,
Speaker 5: I think there will be some sort of so super
Speaker 5: cycle dynamic to this that is likely to weigh on
Speaker 5: costs and investment.
Speaker 1: Just sorry, just a week there, Like those are like
Speaker 1: price increases in Georgia that people are talking about, or
Speaker 1: it's too early to say, oh, that's data centers.
Speaker 5: It's a sort of yes and no question where the
Speaker 5: economously give you both answers because it's like if something
Speaker 5: stops going down and starts flattening out.
Speaker 2: And starts to pick Yeah, yeah, there is a like.
Speaker 5: It may not have started going up in outright terms,
Speaker 5: but the dynamic is, it's part of the dynamic.
Speaker 2: So I think that I think it's it's both.
Speaker 3: As we mentioned, Joe and I are going to Jackson
Speaker 3: Hole next week and the theme doesn't really matter. The
Speaker 3: theme is central bank independence. And if Powell is going
Speaker 3: to do what President and Trump is asking him to do,
Speaker 3: which is cut rates, I'm thinking how to characterize this question,
Speaker 3: How does like the central bank dynamic actually feed into
Speaker 3: the discussion around rates.
Speaker 5: I mean, I think there is on one level of the
Speaker 5: Feder will tell you they're putting the blinders on and
Speaker 5: they don't listen to what Scott Bessen does. One of
Speaker 5: the most actively lobbying for was fifty basis points. And
Speaker 5: yet you can't deny that there is going to be
Speaker 5: some issue of how does the Fed do something in
Speaker 5: a way where it doesn't look politically right. Legitimacy in
Speaker 5: some ways of whatever the Fed does gets undermined.
Speaker 4: There's an optics problem.
Speaker 5: If they don't do what the Treasury says, then they're
Speaker 5: clearly trying to push back against the Treasury in some way,
Speaker 5: and so then there will be one set of stakeholders
Speaker 5: who are upset, and at the same time there are
Speaker 5: others who will be saying, like, if the Fed does
Speaker 5: cut fifty basis points, it's like, Okay, they're just following
Speaker 5: the Treasury, which just listened to Scott Besson now. And
Speaker 5: that is a dilemma for how you really handle the
Speaker 5: optics that Mary Daily talked about this on your episode,
Speaker 5: which was you got to try to just explain your decisions,
Speaker 5: try to be transparent, try to be consistent.
Speaker 2: That was really important things.
Speaker 5: It'll matter to a point, and yet I'm sure there'll
Speaker 5: be plenty of cynics that needs.
Speaker 4: To start tweeting in all cats.
Speaker 1: Uh did you see the headline yesterday. I think it
Speaker 1: was attributing CNBC that David Servos is.
Speaker 2: Know you guys laugh. I like David.
Speaker 1: We have never had him on odd launch and which
Speaker 1: is an oversight. I've always liked talking to David though,
Speaker 1: but I feel like, you know, we never got unfortunately,
Speaker 1: Paul McCully, the VET, the long haired iconoclastic guy from industry. Yeah,
Speaker 1: and David Servos is like the next best shot of
Speaker 1: this sort of iconoclassic guy who comes from Wall Street.
Speaker 1: I like David. I like David. I feel like, you know,
Speaker 1: he was like the closest thing to like a contemporary
Speaker 1: kind of a mccaulleyish character.
Speaker 3: I will say, from a sartorial perspective, it would be
Speaker 3: very interesting.
Speaker 1: Yeah, I like I've always loved talking to David.
Speaker 5: I mean, he would certainly be a character, and so
Speaker 5: you probably get livelier press conference.
Speaker 1: Press coverage. Do you have any thoughts on the derby?
Speaker 1: Every day the list of names gets longer. Do you
Speaker 1: have any thoughts on this process.
Speaker 5: I can't take it seriously, right, I think as far
Speaker 5: as the number of names that have been thrown, I
Speaker 5: don't think Yellen is being consideractive.
Speaker 2: These are these are things that seems to very very I.
Speaker 1: Saw that, and yeah, there.
Speaker 2: Are some names, so, I mean, there are some names
Speaker 2: to take seriously. I'm not saying that.
Speaker 5: I do think the length of the list being offered,
Speaker 5: some of them are clearly not serious. Name is being
Speaker 5: put forth, but it may serve some tactical purpose for
Speaker 5: the kind of policies they want. If they're trying to
Speaker 5: broaden the list of people who they're considering. Get those
Speaker 5: people to lobby more actively and publicly for lower rates,
Speaker 5: then that might be something Nick Timrose.
Speaker 1: But the Journal pointed this out in an article, which
Speaker 1: is that if you have one hundred people who all
Speaker 1: think that they're in the running to be Ventcher, that's
Speaker 1: a hundred people going on TV saying now it's a
Speaker 1: great time to cut rates. And then you're sort of like, wait,
Speaker 1: why is it Powell cutting rates? Everyone on TV knows
Speaker 1: now's the time. So yeah, there are some deep brilliance
Speaker 1: going on here.
Speaker 5: I do have asked, though, like all the lobbying for
Speaker 5: lower rates, we have substantial number rate cuts priced in
Speaker 5: over the next twelve months, and yet long.
Speaker 2: Term indust rates haven't really budged that much. Yeah, which
Speaker 2: is if you think about, like.
Speaker 5: Where the pain points in the frustration are with like
Speaker 5: higher interust rates right now or at least if you
Speaker 5: to extendnything. Four point three percent fed funds rate is high,
Speaker 5: and that's part of the reason why tenure yields are
Speaker 5: at four point two four point three percent roughly speaking, like,
Speaker 5: you're not getting much effect from the rate atecuts being
Speaker 5: priced right now. And I do think I kind of
Speaker 5: raise some questions about what is the actual objective here,
Speaker 5: Even if you get the rate cuts you so desperately wish,
Speaker 5: especially if it's coming, if it.
Speaker 4: Doesn't feed into like the thirty year mortgage.
Speaker 5: Rates, Yeah, exactly, like housing was the big pain point
Speaker 5: and you're not really getting that effect. That to me
Speaker 5: suggests like there is some level of a credibility gap
Speaker 5: if you're just saying I'm going to cut rates no matter,
Speaker 5: no matter what the inflation rate is, because I want
Speaker 5: to do it for political motivation. I mean, I want
Speaker 5: investors obviously need to be compensated on some level for risk,
Speaker 5: or also for the risk that maybe some in the
Speaker 5: future rates might go back up. If the people who
Speaker 5: are arguing for lower rates today would argue for higher
Speaker 5: rates under a different political environment, that's not exactly. That
Speaker 5: doesn't lend itself to keeping getting long term interest rates lower.
Speaker 3: And Oh, what's your take on why long term interest
Speaker 3: rates haven't gone lower?
Speaker 5: I think there's probably two things here that stick out
Speaker 5: to me. One is, well, inflation still seems like it's there, right,
Speaker 5: We're haven't gone things back to two percent, and so
Speaker 5: there's just a risk of the Feds being caught off
Speaker 5: sides here, if the FED starts to cut more aggressively
Speaker 5: at a time when inflation might pick up, you can say, well,
Speaker 5: this time inflation is transitory, but it's like we're dealing
Speaker 5: with potentially big macro adjustments. They might be costly, and
Speaker 5: if nominal incomes labor income growth is reasonably solid, the
Speaker 5: cost might get pushed through right to the consumer because
Speaker 5: the consumer can pay. And that's a that markets have
Speaker 5: to be sensitive too. So there's a level of well,
Speaker 5: you're actually adding more inflation risk, and so that needs
Speaker 5: to be compensated for.
Speaker 1: There's also I.
Speaker 5: Think a level of political manipulation risk, right if you
Speaker 5: actually did lower rates for reasons that aren't really grounded
Speaker 5: in data. I mean, Kevin Worre said, I don't care
Speaker 5: about data dependence. You're not doing things for like relatively
Speaker 5: neutral reasons, and you're doing things for political convenience.
Speaker 2: One.
Speaker 5: The political convenience can cut the other way at at
Speaker 5: another point in time. Let's say there are people who
Speaker 5: are doing things for partisan reasons today and maybe it's
Speaker 5: a different person in the White House in the future.
Speaker 5: And then there's also just the issue of well, there's
Speaker 5: just more instability.
Speaker 2: I want more compensation for that risk.
Speaker 5: And I do think like we're seeing if you look
Speaker 5: at the slope between five years and five year notes
Speaker 5: and ten year notes normally high, even considering that rate
Speaker 5: cuts have been priced in. I know that Joe is
Speaker 5: a little term premium skeptic, and I, to some extent
Speaker 5: am too, But I do think that there's more suggestive
Speaker 5: evidence now that you are seeing more demands for compensation
Speaker 5: for risk, and that again kind of speaks to undermining
Speaker 5: independence if you think that this process of setting interest
Speaker 5: rates is not really being guided by something relatively neutral politically,
Speaker 5: something that's more focused on the data, but it's really
Speaker 5: just about pleasing certain presidential preferences and whims on a
Speaker 5: short term basis. As a long term investor, I might
Speaker 5: want more.
Speaker 2: Compensation for that. There's some some merit to that argument.
Speaker 3: At least, don't worry at Jackson Hole. Joe and I
Speaker 3: are going to sit around a campfire and meditate on
Speaker 3: the of the term premium.
Speaker 1: Yeah, that's right, we're going to get it figured out. Actually,
Speaker 1: don't these clowns in Washington, d C. Need to stop
Speaker 1: their addiction to borrowing money. I'm entering my AM radio.
Speaker 4: This is this is back to your middle age.
Speaker 1: I want to be a yaccur on a radio. Don't
Speaker 1: these clouds of DC you need to stop spending. But
Speaker 1: deficits are very large, like you know, setting aside politics,
Speaker 1: they're very big, especially given the low level of unemployment
Speaker 1: rate four point two percent. Like, we're spending a lot
Speaker 1: of money, and that's a lot of money, big pushed
Speaker 1: into the economy, much of it going to low productivity
Speaker 1: areas because of the growth of like healthcare, et cetera.
Speaker 1: Don't we need to have some good old fashioned fiscal
Speaker 1: consolidation With inflation still at these elevated levels.
Speaker 2: There're certainly an ard for it.
Speaker 5: If you wanted to try and get demand down, then
Speaker 5: you could possibly do that, right, So if you think
Speaker 5: demand is a problem, right, then you probably wouldn't be
Speaker 5: so worried about the labor market, right.
Speaker 2: So that's one part of it.
Speaker 5: I also like folks that have been saying this, the
Speaker 5: tariffs are a big revenue raiser, right, One part of
Speaker 5: it is, Yeah, we're still seeing like either the fact
Speaker 5: is like it's just doesn't matter in the context of
Speaker 5: the deficit. Yeah, in which case it's not a big
Speaker 5: revenue Raser. It's one argument you can make if you
Speaker 5: think it's actually still a lot of money being raised
Speaker 5: and yet we're still seeing ten year yield dynamics as
Speaker 5: they are. Maybe it's something else. I mean, I think
Speaker 5: the problem always with the story is about deficits and
Speaker 5: how they interest rates tend to always be there's like
Speaker 5: a missing link there, or at least there's not a
Speaker 5: lot of robust correlation here between the scale of the
Speaker 5: deficit and what interest rates.
Speaker 2: End up looking like. And I do think like institutional.
Speaker 5: Descriptions of what's going on kind of have a little
Speaker 5: more merit, Like we are doing some things at the
Speaker 5: Central Bank and in ways that can undermine investor confidence.
Speaker 5: I think that strikes me as more compelling. But at
Speaker 5: the margin, if you wanted to address the deficit for
Speaker 5: whatever reason, yeah, there's probably a lot of room to
Speaker 5: do that when we've just did a pretty big sort
Speaker 5: of consolidation of corporate tax cuts and at the same time,
Speaker 5: like there's obviously an aging population that does have more
Speaker 5: demands for the major social insurance programs.
Speaker 2: Thank you, Joe.
Speaker 1: Yeah, I've become a crazy It's just like we need
Speaker 1: to I'm not gonna I don't give policy advice. By
Speaker 1: the way, Tracy were telling us Konda Amornath, executive director
Speaker 1: of employeeent Oh yeah, we should just twenty minutes, and
Speaker 1: probably should have said that.
Speaker 3: Okay, so we're going to Jackson Hall. One of the
Speaker 3: nice things about Jackson Hole is that you can run
Speaker 3: into people well, you know, just if you're hiking outside
Speaker 3: of the lodge the hotel over there. If we were
Speaker 3: to run into Jerome Powell, what's the one question we
Speaker 3: should ask.
Speaker 5: Well, the one question I selfishly am interested in is
Speaker 5: what are they going to do with the framework here?
Speaker 3: Right?
Speaker 5: So the framework review that was there was much fanfair
Speaker 5: about it in.
Speaker 4: The whole fate thing.
Speaker 2: This was the fate thing.
Speaker 5: This was when they cited flexible average inflation targeting, that
Speaker 5: high employment wasn't inherently a bad thing or inherently inflationary thing.
Speaker 5: They made some tweaks to their framework. There are people
Speaker 5: who blame those tweaks for the reason why the FED
Speaker 5: allowed all this inflation to happen. I think they kind
Speaker 5: of messed around some counterfactuals. But they are doing the
Speaker 5: same exercise now but just much more low profile. And
Speaker 5: maybe that makes sense because this is sort of a
Speaker 5: time of leadership flux where there is going to be
Speaker 5: someone else who's FED chair in a year, and maybe
Speaker 5: that person will want to have more of a say
Speaker 5: and doesn't want to be thomped on. But they have
Speaker 5: said that they want to do some of these changes
Speaker 5: to their framework and then do a review of their communication.
Speaker 5: And especially at a moment when you have these conflicting
Speaker 5: forces where there are things that are pushing up inflation
Speaker 5: at the same time there are signs that labor markets
Speaker 5: are slowing, it just feels.
Speaker 2: Like what the FED is going to communicate is going
Speaker 2: to be confusing.
Speaker 5: I want a good example of this from your episode
Speaker 5: with Mary Daily was basically saying, well, we have goods
Speaker 5: inflation that might be tariffs, but like services x housing
Speaker 5: looks to be like not inflationary. And the FED basically
Speaker 5: said the same story in twenty twenty one. And then
Speaker 5: it's spread, and it's spread because for some people say, well,
Speaker 5: it's because the lad Marcus is too strong. They kind
Speaker 5: of missed that goods prices matter to service prices. So
Speaker 5: think about insurance, think about the.
Speaker 2: Cost of goods matters there.
Speaker 5: If you think about leasing rental, airfares matter are affected
Speaker 5: by energy prices, food services prices are affected by food prices,
Speaker 5: and so the FED could easily be caught off sides again.
Speaker 5: And I think that's something that I worry about. Independent
Speaker 5: of whoever is the leader, where it's Chris Waller, whether
Speaker 5: it's Kevin Warsh, whether it's David Servos, David Zervos.
Speaker 4: This is something that I think is really unappreciated.
Speaker 3: You know, we've seen car insurers saying that they're going
Speaker 3: to raise rates because the cost of parts is expected
Speaker 3: to go up under terraffs. And there are all these
Speaker 3: sort of hidden connections in the economy, as we've learned
Speaker 3: on our trip to Alaska once again, where you could
Speaker 3: see terraf inflations start to show up. So one example is,
Speaker 3: you know, you think you're buying Alaskan salmon made in Alaska,
Speaker 3: caught in Alaska, but it turns out a bunch of
Speaker 3: that salmon gets sent to China for processing and so
Speaker 3: it gets reimported into the US. And so even something
Speaker 3: like Alaskan salmon, you would see a teriff impact.
Speaker 1: I know we should do we didn't do a fish episode,
Speaker 1: but that was really I didn't had not realized how
Speaker 1: much American fish is processed in China that reimported the
Speaker 1: miracle of shipping. I have one last, one last question.
Speaker 1: Things are like, so stocks are doing fine, He's like, oh,
Speaker 1: it's doom and all this stuff and polit up politics
Speaker 1: and the deficit and interest rate, et cetera. Like stocks
Speaker 1: are like super or looking is it one hundred percent? Yeah,
Speaker 1: But that's because it's all this like tech money and
Speaker 1: AI spending. It doesn't totally satisfy me. There's other parts
Speaker 1: the finance in doing are like, what's going on there
Speaker 1: that does not seem like a market that is worried
Speaker 1: about all these things that we talk about.
Speaker 5: Yeah, it does seem like there's more growth optimism in
Speaker 5: CAV markets. And I think tech is part of the
Speaker 5: story right now that seem to five hundred kind of
Speaker 5: adjust for reclassification is about half tech, right, So it's
Speaker 5: clearly growing in terms of its relevance. And at the
Speaker 5: same time, all this tech spending is probably keeping the
Speaker 5: business cycle afloat on some level, at least more so
Speaker 5: than would otherwise be the case.
Speaker 2: But if you look at stuff.
Speaker 5: Like even in equal weight to SMPU, you look at
Speaker 5: other sort of measures that may be more neutral to
Speaker 5: the tech dynamic. They've also shown these amount of optimism, right,
Speaker 5: so those that are also telling you there's a lot
Speaker 5: of confidence, that confidence might be misplaced, but over at
Speaker 5: least of the short run, like there's some wisdom in it,
Speaker 5: and that to me is like a reason to probably
Speaker 5: shade against taking the bleakest view right now. And I
Speaker 5: think even if you look at the jobs report that
Speaker 5: everyone I think right fully said has a lot of
Speaker 5: weakness in it, look at total hours growth among rank
Speaker 5: and file employees, if you look at total income.
Speaker 2: Growth among those workers, it's.
Speaker 5: Pretty fine, much fine. It was that was actually okay,
Speaker 5: And so we might have gotten the worst job support already.
Speaker 5: If we don't, then obviously the FED can probably have
Speaker 5: more confidence cutting. But if it's actually the case that,
Speaker 5: like there's actually was a we had a Liberation Day shock,
Speaker 5: but it didn't break things, especially because things got reversed
Speaker 5: to a large degree, then you might be left a
Speaker 5: situation where it's just slowing growth in real terms, and
Speaker 5: maybe the nominal trajectory of the economy that total dollars spend,
Speaker 5: total dollars earned aren't as adversely affected, and that might
Speaker 5: not be a world in which you expect both high
Speaker 5: rate cuts or anything that's sort of deeply recessionary, at
Speaker 5: least in the short run trade.
Speaker 1: So you know, I did run into Jerome Paul, you know,
Speaker 1: Jackson Hall, just like serendipitously, I forgot about Yeah. No,
Speaker 1: it was like it was you hadn't come yet and
Speaker 1: it was just in the lodge and you were sitting
Speaker 1: there with a couple of people.
Speaker 4: I think, did you say hi?
Speaker 1: Yeah? And I froze, like I did. I froze because
Speaker 1: I couldn't write. Think it didn't seem like the right
Speaker 1: time to like actually like to shop in retrospect. I
Speaker 1: should have liked said something about the dead and like,
Speaker 1: you know, because I had seen Dednco that year, and
Speaker 1: I should that would have been a good thing.
Speaker 2: But I said, so.
Speaker 1: It's really beautiful here, injected litle. I've never been like
Speaker 1: I sounded really stupid.
Speaker 3: I yelled at one of his secret service people without
Speaker 3: knowing it was one of his secret service people. He
Speaker 3: was like, he was stuffing a bag into the airplane, oh,
Speaker 3: in a really violent way. That was crushing my own
Speaker 3: bag that had something kind of breakable in it. And
Speaker 3: so I was like excuse me, stop doing that, and
Speaker 3: then he got really angry.
Speaker 2: Yeah.
Speaker 1: Well, lots More is produced by Carmen Rodriguez and dash
Speaker 1: Ol Bennett, with help from Moses Ondam and Kill Brooks.
Speaker 3: Our sound engineer is Blake Maples. Sage Bauman is the
Speaker 3: head of Bloomberg Podcasts.
Speaker 1: Please rate, review, and subscribe to Odd, Lots and lots
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Speaker 3: for listening, Joe, you do a worryingly good impression of
Speaker 3: a crank.