WEBVTT - Surveillance: US Payrolls Post Big Beat 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz Jaily. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple podcast, sun Cloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.400 and of course on the Bloomberg terminal. I'm placed to 0:00:30.440 --> 0:00:32.640 say that joining us now is a Labor Secretary Marty 0:00:32.720 --> 0:00:36.440 Welsh off the back of this Stella jobs report. Secondly, Walsh, 0:00:36.479 --> 0:00:39.360 the floor is yours set your thoughts on this one. No, 0:00:39.520 --> 0:00:41.880 thank you very much. This certainly is a great jobs report. 0:00:41.920 --> 0:00:44.159 When you look at the different sectors. Uh, most of 0:00:44.200 --> 0:00:47.640 the economy is recovered. The jobs that were that companies 0:00:47.680 --> 0:00:50.839 had pre pandemic or all returned. So it shows good gains. 0:00:51.240 --> 0:00:54.360 We've showed some good wage growth, We've shown good good areas. 0:00:54.360 --> 0:00:57.160 Manufacturing is one of those areas that certainly we've seen 0:00:57.200 --> 0:00:59.400 come back, not just come back to pre pandemic levels. 0:00:59.400 --> 0:01:01.840 About going beyond that. I think with the Chips bill 0:01:02.040 --> 0:01:04.200 that was passed and signed is gonna be signed until 0:01:04.280 --> 0:01:07.320 next week, we can do more manufacturing United States of America, 0:01:07.360 --> 0:01:09.120 which in the long term will help us with some 0:01:09.120 --> 0:01:13.560 of the inflationary pressures such as semiconductors and and more microchips. Secondly, well, 0:01:13.800 --> 0:01:16.600 what a turnaround this has been since the pandemic. Can 0:01:16.640 --> 0:01:18.160 we just take a moment to think about that, how 0:01:18.200 --> 0:01:20.280 much we've recovered over the last couple of years, and 0:01:20.440 --> 0:01:22.319 can you talk to me about how sustainable you think 0:01:22.319 --> 0:01:25.800 these jobs gains might be. I'll tell you, Uh, pandemic 0:01:25.880 --> 0:01:28.320 March of I was the mirror Boston and we were 0:01:28.319 --> 0:01:32.840 shutting businesses down. We're shutting h restaurants down. Uh, we 0:01:32.840 --> 0:01:35.280 didn't really know what the economy held, and thinking about 0:01:35.319 --> 0:01:37.520 where we are today was really incredible. And I think 0:01:37.520 --> 0:01:40.680 that this will, in my opinion, will be sustainable moving forward. 0:01:40.720 --> 0:01:42.760 I think companies are understanding. I think we're gonna have 0:01:42.760 --> 0:01:44.800 a new type of economy. I think we're still obviously 0:01:45.080 --> 0:01:47.400 dealing with the inflationary pressures. You talked about it right 0:01:47.400 --> 0:01:49.800 before we got on the air here. I heard you talking, 0:01:49.840 --> 0:01:51.640 and I think that you know, we're going to adapt 0:01:51.680 --> 0:01:53.560 and adjust and we're gonna move forward. I think that 0:01:53.720 --> 0:01:56.040 the infrastructure law that was was signed into law, we're 0:01:56.040 --> 0:01:58.800 going to see more investments all across American roads, and bridges. 0:01:59.040 --> 0:02:01.200 I think with the chips all that was passed and 0:02:01.200 --> 0:02:04.720 move forward, we're going to see more investment in manufacturing. Hopefully, 0:02:05.160 --> 0:02:06.880 the bill that's being worked on now in front of 0:02:06.880 --> 0:02:09.119 the Senate is going to be working on prescription drug 0:02:09.200 --> 0:02:12.600 costs and environmental climate change in some other areas is 0:02:12.639 --> 0:02:14.679 going to help when you really think about a lot 0:02:14.720 --> 0:02:17.400 of what's happened here under the Biden administration is something 0:02:17.400 --> 0:02:19.639 that we've talked about for the last decade or so. 0:02:20.320 --> 0:02:22.120 And these are all going to be good bills and 0:02:22.160 --> 0:02:24.920 good investments to move our economy and quite honestly, move 0:02:24.960 --> 0:02:26.840 America forward. And you've got a lot of people to 0:02:26.880 --> 0:02:28.200 talk to this morning. I did want to talk to 0:02:28.240 --> 0:02:30.720 you about the negotiations on the West Coast with the ports. 0:02:31.160 --> 0:02:33.120 This was gonna bring out. I know you are because 0:02:33.120 --> 0:02:34.760 this was your quote last time we spoke. You said, 0:02:34.800 --> 0:02:36.200 next month, I'll come on the If I come on 0:02:36.240 --> 0:02:38.240 this show. If we don't have a contract, and we're 0:02:38.280 --> 0:02:40.040 not close to a contract, then you and I might 0:02:40.040 --> 0:02:42.280 be having a very different conversation. So I guess that 0:02:42.360 --> 0:02:44.079 we have one to be close to one, or we 0:02:44.160 --> 0:02:47.280 have a very different conversations. No, we're not well, I 0:02:47.280 --> 0:02:49.080 don't know how close we had to get into contract. 0:02:49.080 --> 0:02:51.079 But one thing that that has happened and since we've 0:02:51.080 --> 0:02:53.920 spoken and both sides have agreed is the healthcare And 0:02:53.919 --> 0:02:55.880 that was a big sticking point. That's usually a big 0:02:55.880 --> 0:02:58.480 sticking point, the costs around healthcare and who's gonna pay 0:02:58.520 --> 0:03:01.079 for healthcare, and and that was an aociated and solved 0:03:01.120 --> 0:03:03.320 about ten days ago. So I'm very pleased with that. 0:03:03.440 --> 0:03:06.400 Now they're onto the next phase of negotiation. UH. And 0:03:06.480 --> 0:03:09.639 usually when you think about contracts negotiations, the biggest sticking 0:03:09.639 --> 0:03:12.600 point is around healthcare, pensions, things like that, and those 0:03:12.600 --> 0:03:15.080 are in the rearview Marna. Now now they're moving forward 0:03:15.200 --> 0:03:16.760 on some of the other issues they want to tackle. 0:03:16.840 --> 0:03:19.680 So I feel good where we are. If I said that, 0:03:19.800 --> 0:03:21.520 I probably should have used my words a little better 0:03:21.600 --> 0:03:23.200 if you don't have a contract by next month, but 0:03:23.240 --> 0:03:26.000 I certainly I am very confident where we are in 0:03:26.040 --> 0:03:29.040 the negotiation right now. I am not concerned. Uh. And 0:03:29.120 --> 0:03:32.720 I say in very close contact with both the longshoreman 0:03:32.880 --> 0:03:35.760 union in the companies on the ports to offer any 0:03:35.760 --> 0:03:37.640 type of support we need. But every time I talk 0:03:37.720 --> 0:03:39.720 to them, they said, we're moving forward. A secondly, well, 0:03:40.000 --> 0:03:42.760 for some people who might not be that confident as 0:03:42.760 --> 0:03:44.680 you are, they might not be familiar with how this 0:03:44.760 --> 0:03:47.680 works with this particular set of negotiations. Have you said before, 0:03:48.120 --> 0:03:49.840 this particularly one is a little bit different because it 0:03:49.920 --> 0:03:52.840 only starts six weeks before expliration. Can you help us 0:03:52.880 --> 0:03:54.840 understand things a little bit better by comparing it to 0:03:55.800 --> 0:03:57.760 where we were then at this stage and where we 0:03:57.800 --> 0:04:00.640 are now. Well, I think we're further along than we 0:04:00.640 --> 0:04:03.280 were if I remember that took an awful long time 0:04:03.320 --> 0:04:05.040 to get done. But just for people that don't quit 0:04:05.120 --> 0:04:09.080 quite understand collective boggating or negotiations, usually you can start 0:04:09.160 --> 0:04:11.280 months ahead of time to lay down the foundation for 0:04:11.320 --> 0:04:14.080 a contract. In this particular case, it's six weeks before 0:04:14.080 --> 0:04:16.760 the termination of the contract, which means it always runs 0:04:16.800 --> 0:04:19.360 over the expiration day. I don't think they've ever had 0:04:19.400 --> 0:04:22.359 a contract done on the expiration date itself. Normally you 0:04:22.400 --> 0:04:24.599 want to shoot to get a contract by expiration day. 0:04:24.760 --> 0:04:26.359 But what both sides have agreed to do in this 0:04:26.440 --> 0:04:28.960 case have continued to agree to keep the current collective 0:04:28.960 --> 0:04:32.320 bargaining agreement in place while they negotiate moving forward. There's 0:04:32.320 --> 0:04:35.520 been no no conversation of strikes lockout, slowdowns, none of 0:04:35.520 --> 0:04:37.919 that stuff that hasn't even broached up, brought up and 0:04:37.960 --> 0:04:40.040 talked about. And that's the thing that I don't think 0:04:40.080 --> 0:04:42.760 will happen in this negotiation. And I'm going to continue 0:04:42.800 --> 0:04:44.719 to talk to the sides and where I need to 0:04:44.720 --> 0:04:46.960 pro pressure on them. Certainly, this is a big, big 0:04:46.960 --> 0:04:49.520 issue for the ports and for products coming into the 0:04:49.560 --> 0:04:51.920 United States America and quite honestly for exports out the 0:04:51.960 --> 0:04:54.280 United States of America too, So we want to make 0:04:54.360 --> 0:04:57.240 stay very closely now myself in general, Lions whose liaison 0:04:57.240 --> 0:04:59.560 at the White House has been in constant communication. We 0:04:59.680 --> 0:05:01.600 talked more than we talked a couple of times a week, 0:05:01.600 --> 0:05:03.520 but we have a scheduled call just to go over 0:05:03.520 --> 0:05:05.000 where we are just so we can stay on top 0:05:05.040 --> 0:05:07.720 of these negotiations. Secondly, Welsh and Monster jobs report, it's 0:05:07.720 --> 0:05:10.600 the final question for me for Boston. Do you need 0:05:10.640 --> 0:05:14.799 to see some labor turn over at the Red Sox? Uh? God, 0:05:14.920 --> 0:05:16.680 I get myself in trouble. They I'm not really sure 0:05:16.720 --> 0:05:19.360 what's going on there, although that they seem like they 0:05:19.360 --> 0:05:22.239 didn't make any many changes, so uh, they're going for something, 0:05:22.240 --> 0:05:24.080 So they must be going for that wild card spot. 0:05:24.320 --> 0:05:26.360 That was from Mike McKay and Tom Kane. They were 0:05:26.360 --> 0:05:28.600 pushing me to our secondary wolves. They had to go there. 0:05:28.600 --> 0:05:30.839 It's gonna catch up with you, sir. Thank you, Labor 0:05:30.880 --> 0:05:39.159 Secretary Marty Wolves. There on just the Killer Jobs report again, 0:05:39.279 --> 0:05:43.240 tape negative two, down on negative one, a little bit 0:05:43.279 --> 0:05:46.560 of improvement. We'll see where that goes through This Friday, 0:05:46.560 --> 0:05:50.560 we continue with Tiffany Welding of PIMCO, their chief US economists. 0:05:50.600 --> 0:05:54.680 Tim Tiffany, I want to talk about something that's harder 0:05:54.720 --> 0:05:57.680 than it sounds, which is the physics of inertial force 0:05:58.560 --> 0:06:03.480 and momentum and the idea that a trend gets inertia, 0:06:04.000 --> 0:06:07.360 the trend is going to be higher interest rates. Explain 0:06:07.480 --> 0:06:11.200 how the next rate increase is different than the third 0:06:11.279 --> 0:06:16.760 or fourth rate increase out UM. Well, so I think that, uh, 0:06:17.000 --> 0:06:19.919 you know, it depends on the level of interest rates 0:06:19.960 --> 0:06:23.839 that you start at. So UM. You know, before July, 0:06:24.080 --> 0:06:26.680 the most recent fo MC meeting, for example, you know, 0:06:26.760 --> 0:06:29.279 we would have argued that interest rates, the level of 0:06:29.360 --> 0:06:33.840 interest rates was still providing accommodation to the US economy UM, 0:06:33.880 --> 0:06:38.320 and that was increasingly inconsistent with economic fundamentals, you know, 0:06:38.320 --> 0:06:40.800 which we would even argue before July and before this 0:06:40.839 --> 0:06:45.160 payroll report, we're calling for more restrictive monetary policy. So 0:06:45.200 --> 0:06:48.279 the July increase of seventy basis points from the Federal 0:06:48.320 --> 0:06:51.520 Reserve basically just got them out of accommodative territory into 0:06:51.560 --> 0:06:54.360 something closer to neutral, although I think you could even 0:06:54.440 --> 0:06:57.360 argue that maybe they're not neutral yet. Um. But now 0:06:57.560 --> 0:07:00.440 what the focus is on is really recaliber rating to 0:07:00.520 --> 0:07:03.480 where we need to be, which is in restrictive territory, 0:07:03.560 --> 0:07:05.560 you know. So that's why we think federers are officials 0:07:05.560 --> 0:07:07.880 are probably also going to do another seventy five basis 0:07:07.880 --> 0:07:11.520 point rate hike at the at the September meeting, you know. 0:07:11.560 --> 0:07:15.160 But ultimately eventually they will slow the pace of those 0:07:15.680 --> 0:07:19.080 adjustments down. Um, but as they get closer to kind 0:07:19.080 --> 0:07:21.040 of where they think they need to be on on 0:07:21.120 --> 0:07:24.960 the restrictive side. Tiffany, I'm looking at the two year 0:07:25.240 --> 0:07:27.720 and the ten year treasury yields. I see a forty 0:07:27.760 --> 0:07:31.360 basis point inversion. Do I need to pay attention to that? 0:07:31.400 --> 0:07:35.400 I'm just an equity analyst wanted to pay attention to that. Yeah, 0:07:35.720 --> 0:07:37.960 I mean so historically, you know, what we call the 0:07:38.040 --> 0:07:40.560 yield curve you just mentioned has been one of the 0:07:40.600 --> 0:07:44.800 best leading indicators of inflation UM and then obviously today 0:07:44.800 --> 0:07:47.760 in reaction to the data that was released the employment 0:07:47.760 --> 0:07:50.080 report you saw, I think even more inversion in the 0:07:50.160 --> 0:07:52.680 yield curve. So maybe the markets pricing in more of 0:07:52.760 --> 0:07:56.200 a recessionary outcome or higher probability of that event. I 0:07:56.240 --> 0:07:59.520 think that's right in terms of market reaction. So although 0:07:59.560 --> 0:08:02.560 this for a court confirmed that the economy was not 0:08:02.680 --> 0:08:05.880 in recession in July UM, it also suggests that the 0:08:05.920 --> 0:08:08.280 FED needs to do more to tame inflation, and that 0:08:08.320 --> 0:08:12.320 means tighter financial conditions, putting more pressure on the economy, 0:08:12.560 --> 0:08:15.320 which just raises the risk of you know, of a 0:08:15.360 --> 0:08:18.880 recession call it twelve to eighteen months out. So um. 0:08:18.880 --> 0:08:21.520 You know, I think that there's a growing concern, certainly 0:08:21.560 --> 0:08:23.480 from US and probably from others, that the Fed will 0:08:23.520 --> 0:08:26.840 have to do more than just um produce below trend 0:08:26.880 --> 0:08:29.480 growth to get the economy to cool down. You know, 0:08:29.520 --> 0:08:32.600 if you look at you know, historical precedents, you know, 0:08:32.600 --> 0:08:34.760 in the seventies and eighties for this, the FED actually 0:08:34.760 --> 0:08:37.679 had to engineer a recession, or at least recessions did 0:08:37.720 --> 0:08:40.520 follow these kinds of high inflationary episodes. You know, so 0:08:40.559 --> 0:08:42.599 it's certainly possible that you know, the FED was to 0:08:42.640 --> 0:08:44.920 bring down inflation and quite quickly they might have to 0:08:45.080 --> 0:08:49.440 do more. Uh. But back then, and I spent a 0:08:49.440 --> 0:08:52.640 lot of time looking at log proportional change of the 0:08:52.840 --> 0:08:55.920 curving versions, Tiffany, and we're not going to go there 0:08:55.920 --> 0:09:00.760 on August Friday, but Tiffany welding when we we're doing that. 0:09:00.880 --> 0:09:07.400 In the seventies, the ten year yield was what Paul whatever, 0:09:08.160 --> 0:09:11.720 I I don't see the equivalency to the Voker period. 0:09:12.040 --> 0:09:14.880 Do you see that? Well? I think what you have 0:09:15.000 --> 0:09:17.679 to do is, you know, you have to adjust for 0:09:17.720 --> 0:09:20.440 the fact that you know, what we call the real 0:09:20.480 --> 0:09:22.360 neutral interest rate in the economy, so kind of the 0:09:22.360 --> 0:09:25.880 interest rate, uh, that the economy can handle right where 0:09:25.880 --> 0:09:31.439 where is uh monetary policy accommodative or restrictionary, and that 0:09:31.440 --> 0:09:34.760 that level has declined over the years. Um. So it 0:09:34.800 --> 0:09:38.120 was much higher in the seventies and eighties. Uh. You know, 0:09:38.160 --> 0:09:40.360 the model suggests we kit observed this in the market, 0:09:40.440 --> 0:09:42.000 so we have to try to estimate it. It was 0:09:42.080 --> 0:09:43.760 much higher than that it is now. So you do 0:09:43.840 --> 0:09:45.480 have to adjust for that, you know. So we don't 0:09:45.520 --> 0:09:47.480 think interest rates are going back to where they were 0:09:47.880 --> 0:09:50.880 back then. Um, but nevertheless, we think the FED will 0:09:50.920 --> 0:09:53.960 have to be restrictive at this lower level of interest 0:09:54.040 --> 0:09:59.079 rates now. So tiffany five wage increase that sounds pretty 0:09:59.120 --> 0:10:02.440 good to me? Is that's something that you think is sustainable, 0:10:02.520 --> 0:10:05.640 sticky healthy. How do you think about the wage environment 0:10:05.640 --> 0:10:08.240 out there? Well, you know, the you know, I think 0:10:08.280 --> 0:10:11.559 the bottom line from that is that although wages wage 0:10:11.559 --> 0:10:14.559 inflation has started to accelerate, you know, of course, it's 0:10:14.600 --> 0:10:18.560 still below uh price level inflation. So people are are 0:10:18.600 --> 0:10:21.280 still getting squeezed. If you look at you know, the 0:10:21.320 --> 0:10:24.360 kind of data and aggregate what we see or interpret 0:10:24.480 --> 0:10:26.840 is that, um, you know, more people are getting jobs, 0:10:26.840 --> 0:10:30.280 so overall, aggregate incomes are still growing, um, you know, 0:10:30.320 --> 0:10:32.400 and they're growing much more in line with with h 0:10:32.520 --> 0:10:36.120 inflation prices, price inflation, um, you know, so maybe people 0:10:36.160 --> 0:10:38.920 are getting two jobs to deal with uh, you know, 0:10:39.000 --> 0:10:41.360 to get some extra income to deal with these types 0:10:41.400 --> 0:10:44.200 of price increases that they're seeing in the grocery store, etcetera. 0:10:44.520 --> 0:10:46.559 You know, but I think overall you're asking if if 0:10:46.600 --> 0:10:49.120 the wage the wage numbers, is that is that normal? 0:10:49.160 --> 0:10:50.880 I mean, I think the concerns still that we have 0:10:51.040 --> 0:10:53.840 is that as you get more price increases, people negotiate 0:10:53.920 --> 0:10:57.200 higher wages. The wage inflation broadens out, you know, and 0:10:57.240 --> 0:10:59.840 then you get even more you get higher prices as 0:11:00.200 --> 0:11:02.480 companies pass on those additional costs, so you get in 0:11:02.480 --> 0:11:05.000 this kind of trial situation. We don't think we're there yet, 0:11:05.040 --> 0:11:07.720 but certainly that's something that we want to avoid. Tiffany, 0:11:07.760 --> 0:11:15.840 thank you so much. PIMCO. Let us get a briefing 0:11:15.920 --> 0:11:18.600 from someone who's sat at the desk in the Echoes building. 0:11:18.679 --> 0:11:22.320 Randall Krosner continues, where there's a former FED governor at 0:11:22.320 --> 0:11:26.560 Both School Chicago. Randy, how does this change the calculus 0:11:27.000 --> 0:11:31.360 for the Federal Open Market Committee? I think it's really 0:11:31.400 --> 0:11:33.720 clear that they are in a path to continue to 0:11:33.800 --> 0:11:37.440 raise those rates UM. Certainly seventy five basis points will 0:11:37.440 --> 0:11:41.880 be on the table for the UH for the next meeting. UH. 0:11:42.000 --> 0:11:44.680 The thing, it's not only the strength of the labor market, 0:11:44.720 --> 0:11:49.680 but it is also the UH the significant increase in wages, 0:11:50.320 --> 0:11:54.920 higher than expected upward revisions. UM. The FED really worries 0:11:54.920 --> 0:11:58.760 about inflation expectation becoming entrenched. They're really hoping that inflation 0:11:58.800 --> 0:12:02.280 is gonna be coming down low five percent fairly soon. 0:12:02.480 --> 0:12:05.600 But if people are still demanding five percent wage increases, 0:12:05.920 --> 0:12:08.160 that gets them into a lot of difficulty, and so 0:12:08.200 --> 0:12:10.560 that's why they're going to continue to move. I think 0:12:10.559 --> 0:12:13.280 this means that they'll will certainly be in the fours 0:12:13.360 --> 0:12:15.960 by early next year. And I said I said before, 0:12:16.080 --> 0:12:17.559 I think it's going to be there for a while. 0:12:17.800 --> 0:12:20.720 And exactly as Jonathan had said, when the Fed moves 0:12:20.760 --> 0:12:22.679 the rates up, it's not that they just pivot and 0:12:22.720 --> 0:12:25.199 pull them back down. They typically keep them up for 0:12:25.240 --> 0:12:27.440 a while because they really want to stamp inflation, inflation 0:12:27.480 --> 0:12:29.760 expectations out of the system. Randy, someone's going to ask 0:12:29.800 --> 0:12:32.640 this question, does this pass the smell test for you? 0:12:32.800 --> 0:12:36.640 A number this big? I mean, there can be always revisions. 0:12:36.679 --> 0:12:38.640 You never want to put too much emphasis on any 0:12:38.679 --> 0:12:41.440 one month. But you've got an upward revision last month, 0:12:41.720 --> 0:12:44.480 you have a strong number this month. UM. The Fed 0:12:44.559 --> 0:12:47.000 is not going to overreact to any one number, but 0:12:47.440 --> 0:12:51.040 you know the upward revisions to UM that that came 0:12:51.120 --> 0:12:55.080 last month with this will certainly embolden them to to 0:12:55.280 --> 0:12:59.240 move expeditiously as they have said. And I think they're 0:12:59.240 --> 0:13:02.040 gonna get least I think it's going to be very 0:13:02.080 --> 0:13:03.880 close to four by the end of the year. By 0:13:03.920 --> 0:13:05.760 the end of the year, Randy, can you talk a 0:13:05.760 --> 0:13:08.040 little bit about the path you did mention earlier that 0:13:08.080 --> 0:13:09.880 you expect them to go to four percent for the 0:13:09.880 --> 0:13:12.720 Fed funds rate and stay there for a while. How 0:13:12.760 --> 0:13:15.480 long is that while and what will determine that length? 0:13:16.640 --> 0:13:19.800 So it's gonna depend a lot on these these statistics 0:13:19.840 --> 0:13:22.280 that we're that we're getting. What's gonna be happening labor market, 0:13:22.280 --> 0:13:25.560 what's gonna be happening to two wages? And Um, you know, 0:13:25.679 --> 0:13:28.560 right now we're not seeing the economy going over cliff 0:13:28.920 --> 0:13:31.160 and this is exactly the time that the Fed needs 0:13:31.200 --> 0:13:35.400 to be moving quickly. Um, the the economy hasn't sputtered yet, 0:13:35.480 --> 0:13:38.400 so they need to move. But also they haven't gotten 0:13:38.400 --> 0:13:41.480 the political pressure on them yet because the unemployed rate 0:13:41.640 --> 0:13:44.480 is at near record lows. So this is the time 0:13:44.640 --> 0:13:47.520 to be raising races to try to stamp the inflation 0:13:47.559 --> 0:13:49.800 expectations and inflation out of the system. Brandy, you're gonna 0:13:49.880 --> 0:13:51.600 throw me out of the classroom, but I'm gonna ask 0:13:51.600 --> 0:13:54.400 the question. I'm gonna raise my snarky arm and say, 0:13:54.440 --> 0:13:57.960 Professor Krasner, where's the neutral rate? And I say that 0:13:58.040 --> 0:14:01.400 with great respect because is within all the back and 0:14:01.480 --> 0:14:04.680 forth of all our guests, and that it's when does 0:14:04.679 --> 0:14:08.920 this become painful, which means through the neutral rate? Where's 0:14:08.960 --> 0:14:12.559 the neutral rate? Professor? I always knew you were the 0:14:12.600 --> 0:14:15.559 troublemaker in the back of the class. Um, and uh, 0:14:15.600 --> 0:14:18.920 and you continue to be. That's exactly. That's a very 0:14:18.920 --> 0:14:23.800 important question, and one where Um, the consensus of the Fed, 0:14:24.320 --> 0:14:26.360 what they say is around two and a half, so 0:14:26.480 --> 0:14:29.040 roughly where they are. But that's two and a half 0:14:29.640 --> 0:14:33.000 when they think of inflation being down at two percent 0:14:33.240 --> 0:14:36.160 in the long run. In the short run, when inflation 0:14:36.240 --> 0:14:39.720 is still very very high, Um, you're still the very 0:14:39.880 --> 0:14:43.680 dramatically negative inflation adjusted rate. So two and a half 0:14:43.760 --> 0:14:45.360 is not neutral right now. In the long run it 0:14:45.440 --> 0:14:48.120 might be neutral, but it's still quite expansionary when inflation 0:14:48.240 --> 0:14:51.280 is depending on are you are? Are you giving up 0:14:51.320 --> 0:14:54.080 the Chicago school and joining adam posing with a three 0:14:54.160 --> 0:14:57.640 percent inflation level? Is that really what we're talking about here, 0:14:57.960 --> 0:15:01.960 is we need to adjust a neutral rate higher? No, no, no, 0:15:02.000 --> 0:15:03.960 I'm not saying that that the goal should change from 0:15:04.000 --> 0:15:07.160 from two percent and I'm not saying that that in 0:15:07.240 --> 0:15:10.000 the long run they're not. I think they're right about 0:15:10.080 --> 0:15:12.480 the or it seems reasonable that they are in a 0:15:12.560 --> 0:15:14.960 reasonable range for the for the long run. But in 0:15:14.960 --> 0:15:17.360 the short run you can't say that two and a 0:15:17.400 --> 0:15:21.960 half percent is neutral when inflation is eight percent and 0:15:22.240 --> 0:15:24.720 so you have a you know, very significantly negative real rate. 0:15:25.120 --> 0:15:26.800 So it's there's a bit of a long run versus 0:15:26.800 --> 0:15:29.840 short run kind of thing. To catch up Randy Crossing 0:15:29.880 --> 0:15:38.960 at that to make sense of this stunning report, Jeffrey 0:15:39.040 --> 0:15:44.400 Rosenberg joins US portfolio manager of the Systematic Multi Strategy 0:15:44.480 --> 0:15:47.240 Fund at black Rock. Jeff Rosenberg, let me cut to 0:15:47.280 --> 0:15:50.560 the chase, how do you do? Multi strategy? Was such 0:15:50.560 --> 0:15:55.440 a shock? It is a bit of a surprise. Clearly, 0:15:55.480 --> 0:15:58.320 you guys have hit it on the head with you know, 0:15:58.400 --> 0:16:01.560 good news being being bad is and and it's surprising. 0:16:02.040 --> 0:16:04.360 We strong, and it's a reminder of just you know, 0:16:04.480 --> 0:16:08.320 how strong the economy is. We're expecting an eventual slow down, 0:16:08.840 --> 0:16:11.400 but it's not here yet. And Lisa and I we're 0:16:11.440 --> 0:16:14.000 talking about this ahead of time. You know, what does 0:16:14.040 --> 0:16:17.920 the market do on a on a big upside surprise? 0:16:18.000 --> 0:16:21.360 And the narrative going in here from the fm C 0:16:21.680 --> 0:16:25.160 was the Powell pivot, and this is the payroll pushback, 0:16:25.720 --> 0:16:28.280 and the pushback is they're not going to be able 0:16:28.320 --> 0:16:32.920 to pivot as aggressively as the market was expecting post 0:16:32.960 --> 0:16:35.560 that FOMC. And that's what you're seeing with that yield 0:16:35.560 --> 0:16:37.720 curve flattening and the big increase in the front end 0:16:37.760 --> 0:16:39.800 of the race and then on risky assets and equities. 0:16:40.040 --> 0:16:41.960 You know, they don't like that because they like, you know, 0:16:42.000 --> 0:16:44.160 the end of the FED tightening, and as Randy Krassner 0:16:44.280 --> 0:16:46.880 was was talking about, if inflation doesn't come down, we 0:16:46.920 --> 0:16:50.520 are nowhere near neutral and so you've got a lot 0:16:50.600 --> 0:16:54.280 more FED hikes if you don't have that inflation coming down. Jeff, 0:16:54.320 --> 0:16:57.200 I've got a bunch of Doeby Bond questions for you, 0:16:57.240 --> 0:16:59.880 but I think it's important. And a lot large pop 0:17:00.000 --> 0:17:04.800 relation of our radio and TV audience worldwide don't have 0:17:04.920 --> 0:17:10.320 fancy financial degrees, and they're asking what's wrong with generating 0:17:10.440 --> 0:17:16.560 five fifties six thousand jobs with the revision? Why is 0:17:16.920 --> 0:17:21.159 so much good jobs reformation a bad thing? I just 0:17:21.200 --> 0:17:25.919 don't get that. Yeah, Well, it's it's about it's about 0:17:25.960 --> 0:17:29.840 overheating and it's about inflation. And one of the challenges 0:17:29.920 --> 0:17:33.840 that you have is in this report you see a 0:17:33.880 --> 0:17:37.560 lot of signs of that wage inflation and the wage 0:17:37.560 --> 0:17:41.160 price spiral. Uh. That is is really the bigger risk 0:17:41.240 --> 0:17:46.480 here that you you transition from COVID supply side disruptions 0:17:46.520 --> 0:17:50.600 transitory to something that's much more persistent. And the risk 0:17:50.760 --> 0:17:55.879 is that inflation hurts everyone and if you don't snub 0:17:55.920 --> 0:17:59.359 it out early, the pain that has to happen later 0:17:59.760 --> 0:18:02.480 is much much greater. And so that's why good news 0:18:02.600 --> 0:18:05.199 is bad news because for financial markets it means the 0:18:05.240 --> 0:18:07.640 FED is going to have to do a lot more, 0:18:07.680 --> 0:18:09.880 and it's going to have to do that sooner, tightening 0:18:09.880 --> 0:18:13.919 financial conditions to rain in the demand side. It's the 0:18:13.960 --> 0:18:17.560 only tool they have to address this inflation concern. So, Jeff, 0:18:17.600 --> 0:18:19.720 we were talking before we got these numbers that the 0:18:19.720 --> 0:18:22.080 Powell pivot would turn into the payroll push back, which 0:18:22.080 --> 0:18:24.240 is exactly what we're seeing. And that was your expectation 0:18:24.720 --> 0:18:28.040 just based on how lopside of the markets have gotten 0:18:28.119 --> 0:18:31.399 in their belief of the pivot. How much have we 0:18:31.560 --> 0:18:34.159 unwound of that? How much more do we have to go? 0:18:34.280 --> 0:18:36.439 And I say this as we look, yes at NAZDAC 0:18:36.520 --> 0:18:39.720 futures out about a percent and going lower but still 0:18:39.720 --> 0:18:45.240 well off the lows after surging over the past few weeks. Well, 0:18:45.280 --> 0:18:48.399 there's a there's a narrow reaction to today, and then 0:18:48.440 --> 0:18:51.600 there's a longer run issue. The narrow reaction is, as 0:18:51.640 --> 0:18:54.119 I looked at it last about seventeen basis points. You know, 0:18:54.200 --> 0:18:56.600 you're you're taking back you know, a little bit less 0:18:56.640 --> 0:19:00.280 than twenty five that you priced out follow going the 0:19:00.359 --> 0:19:03.240 FO and C in the Powell pivot. But the bigger 0:19:03.280 --> 0:19:05.639 issue is really what Randy is talking about and what 0:19:05.720 --> 0:19:08.560 Somers is talking about that you know, to say that 0:19:08.560 --> 0:19:11.600 that we're at neutral, we're at two and a half 0:19:11.760 --> 0:19:16.200 percent is the conflation. It's the difference between the long 0:19:16.280 --> 0:19:18.359 run neutral, which was really what he was talking about, 0:19:18.600 --> 0:19:21.040 and the issue of the short run And and this 0:19:21.119 --> 0:19:23.359 is the issue we're gonna be talking about for the 0:19:23.400 --> 0:19:27.360 next six to nine months, which is we're past peak inflation. 0:19:27.920 --> 0:19:31.760 We're going to see inflation decline. But to what level? 0:19:32.119 --> 0:19:34.840 Because the forecast in the FED. To say that they're 0:19:34.880 --> 0:19:37.280 at neutral is Randy was just saying, is that's a 0:19:37.320 --> 0:19:40.240 two percent inflation rate. If you don't get to that 0:19:40.280 --> 0:19:42.879 two percent inflation rates. Say you get to a higher 0:19:42.920 --> 0:19:46.359 inflation rate of say three percent, well, what it means 0:19:46.480 --> 0:19:49.639 is that you're nowhere near your long term neutral, and 0:19:49.680 --> 0:19:53.040 the whole bond market expectations in terms of where rates 0:19:53.080 --> 0:19:56.440 settle in have to reprice, because what we're pricing right 0:19:56.480 --> 0:19:59.359 now is a two percent inflation two and a half 0:19:59.359 --> 0:20:03.359 percent long term neutral, and that's all conditional on the 0:20:03.480 --> 0:20:06.800 realization that two percent inflation. Right, Jeff, this is a 0:20:06.880 --> 0:20:09.399 sea of uncertainty, and we're getting a little nodes that 0:20:09.480 --> 0:20:12.160 might point to a direction of travel. Where is your 0:20:12.160 --> 0:20:15.359 conviction right now as you tweak your portfolio, as you 0:20:15.400 --> 0:20:21.760 try to understand where the risks are miss priced in markets? Yeah, 0:20:21.520 --> 0:20:25.159 you know, we're a little bit uh skeptical of the 0:20:25.280 --> 0:20:28.760 of the rally that we've seen in risky assets. We're 0:20:28.840 --> 0:20:33.040 still concerned that you have uh, both a shock in 0:20:33.160 --> 0:20:35.879 terms of inflation what we're talking about here today in 0:20:35.960 --> 0:20:38.080 terms of what the Fed has to do in front 0:20:38.119 --> 0:20:43.040