WEBVTT - ECB Cuts Rates Again, US Producer Prices Pick Up Slightly 0:00:02.400 --> 0:00:09.119 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:09.119 --> 0:00:13.320 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:13.320 --> 0:00:15.800 Eastern on Apple card playing and Broid Auto with the 0:00:15.800 --> 0:00:19.720 Bloomberg Business App. Listen on demand wherever you get your podcasts, 0:00:19.920 --> 0:00:22.280 or watch us live on YouTube. 0:00:23.960 --> 0:00:25.320 Let's get to the other big news of the day, 0:00:25.320 --> 0:00:28.240 which was actually the ECB cut rates by twenty five 0:00:28.280 --> 0:00:31.720 basis points. The future, though really questionable downgrade their broke 0:00:31.760 --> 0:00:35.080 growth forecast through twenty twenty six. Inflation, though, is still 0:00:35.120 --> 0:00:37.840 a very big concern for Europe, particularly when it comes 0:00:37.840 --> 0:00:41.800 to services. Hugh Worthington is Bloomberg Intelligence European rate strategist. 0:00:41.800 --> 0:00:43.920 I'm looking at a two year over in Germany and 0:00:43.960 --> 0:00:46.880 boon yields up by over six basis points. What was 0:00:46.920 --> 0:00:50.680 your take? Was it a dubbish hike a hawkish hike? 0:00:50.760 --> 0:00:53.240 The market is looking like a hawkish hike right now. 0:00:55.440 --> 0:00:56.959 Wells obviously, but. 0:00:58.920 --> 0:01:00.880 I think we're suffering a little bit of a hangover 0:01:01.200 --> 0:01:06.679 possibly the cut that the ECB did in June, which 0:01:06.720 --> 0:01:09.440 they signaled to the market in April, and then I 0:01:09.440 --> 0:01:12.000 think basically decided that they probably shouldn't have signaled it, 0:01:12.720 --> 0:01:14.480 you know, quite so soon. I don't think someone on 0:01:14.480 --> 0:01:17.960 the Governing Council we're clearly probably not really happy about that. 0:01:18.040 --> 0:01:21.520 And right now I think they're they're they're very keen 0:01:21.640 --> 0:01:24.040 not to give too much away as to be pre 0:01:24.080 --> 0:01:26.960 committing themselves to do anything in October or even in December. 0:01:27.440 --> 0:01:31.240 Hence this big focus that the ECB is going to 0:01:31.240 --> 0:01:33.360 be data dependent and they're not. They don't want to 0:01:33.360 --> 0:01:36.800 give a strong signals as to as to what's what 0:01:36.840 --> 0:01:39.280 they're going to do next, the one they will say 0:01:39.319 --> 0:01:39.760 about and some. 0:01:39.880 --> 0:01:42.240 Sort of the move from yields. 0:01:41.840 --> 0:01:44.440 I think it was it was suppose lightly predictable if 0:01:44.440 --> 0:01:46.240 they did go down this route and decide not to 0:01:46.480 --> 0:01:48.440 give us too much of a clue as to what 0:01:48.440 --> 0:01:50.600 a they're going to do next. You know, we had 0:01:50.600 --> 0:01:52.280 a big we had a big rally in rates in 0:01:52.360 --> 0:01:57.240 Europe two yels down around seventy five basis points, you know, 0:01:57.320 --> 0:01:59.480 going into that decision over the last couple of months 0:01:59.600 --> 0:02:04.360 or so summer, and expectations where policy rates are going 0:02:04.440 --> 0:02:07.440 to be in a year's time down around two percent 0:02:07.520 --> 0:02:10.120 now and they were running at around three percent at 0:02:10.160 --> 0:02:11.639 the time of the June meeting. So you know, we've 0:02:11.639 --> 0:02:15.160 had a big, you know, a big expectation from markets 0:02:15.160 --> 0:02:17.360 in particular that the ECB is going to cut quite aggressively. 0:02:18.320 --> 0:02:23.080 Also, we are covering the part portions of Christina the 0:02:23.080 --> 0:02:27.160 Guard's speech here talking about slower growth really for the 0:02:27.240 --> 0:02:30.600 foreseeable future. For your peer give us kind of your 0:02:30.639 --> 0:02:33.160 thoughts and what you're seeing from your marketplace as to 0:02:33.240 --> 0:02:35.680 the growth outlook for the EU. 0:02:36.720 --> 0:02:40.560 Yeah, I mean the growth outlook is it's pretty terrible really, 0:02:40.639 --> 0:02:45.400 particularly in core Europe and in particular in Germany. I 0:02:45.400 --> 0:02:48.239 think the Ones Bank penciled in growth of twenty twenty 0:02:48.400 --> 0:02:50.440 or zero point one percent, if you can call that growth. 0:02:51.040 --> 0:02:53.280 You know, France isn't isn't a great deal better either, 0:02:53.760 --> 0:02:58.280 But generally speaking, it's pretty sclerotic the growth outlook going forward, 0:02:58.320 --> 0:03:02.280 and actually it got downgraded slightly you know again today 0:03:02.400 --> 0:03:06.720 from those those what were previously pretty unimpressive figures. 0:03:06.720 --> 0:03:07.520 Anyway, but I. 0:03:07.360 --> 0:03:09.040 Think a lot of the focus this week in Europe 0:03:09.080 --> 0:03:11.200 as well as has been on this Dragi report, which 0:03:11.240 --> 0:03:14.480 is basically focusing on the fact that you know, growth 0:03:14.520 --> 0:03:18.359 in in Europe and in the EU in particular is 0:03:18.480 --> 0:03:20.880 very much underperforming. What's going on around the world particularly, 0:03:20.919 --> 0:03:22.400 but I think underforming a lot of what's going on 0:03:22.440 --> 0:03:24.800 in America and that sort of big reforms are needed 0:03:24.840 --> 0:03:28.000 in that there's this as a structural fundamental issue in 0:03:28.040 --> 0:03:30.839 terms of low growth in Europe, and obviously we're seeing 0:03:30.840 --> 0:03:33.320 the outcome of that at the moment. And it's interesting 0:03:33.360 --> 0:03:35.640 actually obviously the you know, with the ECB saying that 0:03:35.680 --> 0:03:38.080 they that they want to keep rates in restrictive territory 0:03:38.120 --> 0:03:40.480 and focus on inflation more than anything. Well, you know, 0:03:40.480 --> 0:03:42.240 they're not too much to help that because I think, 0:03:42.280 --> 0:03:43.840 you know, one of the main things that it is 0:03:43.920 --> 0:03:47.440 driving that sclerotic growth is very poor internal demand. And 0:03:47.480 --> 0:03:49.240 the one way suppose that they can improve on that 0:03:49.480 --> 0:03:51.320 is the cut rates in prime and pump a bit. 0:03:51.760 --> 0:03:53.640 But they don't seem cam to be to be deliving 0:03:53.640 --> 0:03:54.160 that at the moment. 0:03:54.320 --> 0:03:56.920 So do you think that the UCV is in or 0:03:56.960 --> 0:04:00.560 headed forest tangulation about forty seconds stagflation? 0:04:00.640 --> 0:04:01.200 I suspect not. 0:04:01.320 --> 0:04:04.400 Actually, I think we're probably now really a little bit 0:04:04.440 --> 0:04:08.080 too negative. But on inflation, I think things like oil 0:04:08.120 --> 0:04:10.840 prices are coming down, Signs of other bits of inflation 0:04:10.840 --> 0:04:12.800 are coming down. If I give anything, you know, the 0:04:12.960 --> 0:04:15.560 signs that they may well possibly understoose. On the inflation front, 0:04:16.160 --> 0:04:19.520 what you might get is inflation playing ball. But you know, 0:04:19.560 --> 0:04:21.680 I would say the growth side of things just being 0:04:21.800 --> 0:04:24.800 you know, remaining very unimpressive, very unexciting. 0:04:24.800 --> 0:04:25.200 Indeed. 0:04:25.839 --> 0:04:27.760 All right, Hugh, thanks a lot. We really appreciate it. 0:04:27.760 --> 0:04:31.400 Thank you very much. Hugh Worthington, Bloomberg Intelligence, European rate Strategies. 0:04:31.440 --> 0:04:34.400 I was talking about economists earlier this morning, and basically 0:04:34.440 --> 0:04:38.039 it's like, look, fiscal spend is all all what it's about. Like, 0:04:38.040 --> 0:04:40.359 if you got high fiscal spend, your growth is going 0:04:40.440 --> 0:04:40.840 to be okay. 0:04:40.880 --> 0:04:41.200 You know what. 0:04:41.400 --> 0:04:45.040 Europe doesn't really have the fiscal spend. That's just super capped. 0:04:45.040 --> 0:04:46.760 And that's the problem. They don't have a physical union, 0:04:46.960 --> 0:04:48.119 they have monetary union. 0:04:49.640 --> 0:04:53.559 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:04:53.640 --> 0:04:56.680 weekdays at ten am Eastern on Apple car Play and 0:04:56.680 --> 0:04:59.880 Android Otto with the Bloomberg Business. You can also listen 0:05:00.120 --> 0:05:03.160 live on Amazon Alexa from our flagship New York station 0:05:03.520 --> 0:05:06.279 just say Alexa playing Bloomberg eleven thirty. 0:05:07.600 --> 0:05:09.760 All right, let's get to the eco data. Charl McGill 0:05:09.800 --> 0:05:12.080 god says that's not a movie market, but maybe Michael 0:05:12.120 --> 0:05:15.520 McKee will disagree. International Economics and Policy corresponded. All right, 0:05:15.560 --> 0:05:17.760 so you got the producer prices for August, Mike, Did 0:05:17.760 --> 0:05:18.640 this tell us anything? 0:05:20.080 --> 0:05:20.719 Not a whole lot. 0:05:20.720 --> 0:05:23.200 It tells you that there's still a sort of a 0:05:23.279 --> 0:05:29.280 range bound inflation level in producer prices, some categories up, 0:05:29.320 --> 0:05:34.600 some categories down, But it doesn't suggest any major building 0:05:34.800 --> 0:05:39.919 inflationary pressures, which is what the the FED would be 0:05:40.000 --> 0:05:44.560 worried about. Interesting thing was that trade services rose six 0:05:44.640 --> 0:05:48.560 tens of a percent, a fairly large increase, and that 0:05:48.800 --> 0:05:53.599 is based on retailer and wholesaler margins. So it's good 0:05:53.600 --> 0:05:54.520 news for profits. 0:05:54.560 --> 0:05:57.279 It appears, Oh okay, all right, very good. So you 0:05:57.360 --> 0:06:00.640 take this along with the CPI data. Does this give 0:06:00.680 --> 0:06:03.680 the Fed greater confidence that they in fact have inflation 0:06:03.880 --> 0:06:08.679 under control here and they can start easing interest rates. 0:06:09.360 --> 0:06:11.680 They can certainly start easing interest rates. I think the 0:06:12.320 --> 0:06:15.039 fact that we saw a little bit higher PPI on 0:06:15.080 --> 0:06:17.400 a month over month basis, a little bit higher CPI 0:06:17.520 --> 0:06:19.960 core on a month over month basis tells the Fed 0:06:20.000 --> 0:06:23.279 that they are they have inflation sort of under control, 0:06:23.320 --> 0:06:25.960 but it's not. The victory is not one yet, and 0:06:26.000 --> 0:06:28.039 they still need to be cautious, which puts them on 0:06:28.080 --> 0:06:31.159 the side of twenty five basis points as opposed to fifty. 0:06:31.760 --> 0:06:33.800 Doesn't discourage a cut. 0:06:33.960 --> 0:06:36.599 But I think that's what the markets are pricing now, 0:06:36.720 --> 0:06:39.479 is that the FED has to has to feel like 0:06:39.520 --> 0:06:40.599 it needs to be careful. 0:06:41.080 --> 0:06:43.400 You know, there's been a argument that if they go fifty, 0:06:43.520 --> 0:06:45.560 then it's going to set up you know, what do 0:06:45.600 --> 0:06:49.040 they know that we don't know, et cetera when you're 0:06:49.080 --> 0:06:51.560 talking to people. Is that a real argument or is 0:06:51.560 --> 0:06:53.719 it like, hey, things are actually okay, let's keep it 0:06:53.760 --> 0:06:55.560 that way and not mess about and cut fifty. 0:06:56.240 --> 0:07:02.120 I mean think the latter is correct nowadays, at least 0:07:02.320 --> 0:07:04.320 for people on Wall Street who have Bloomberg's The FED 0:07:04.320 --> 0:07:05.800 doesn't know anything that you don't know. 0:07:07.120 --> 0:07:10.120 I mean, like some inside super cool release the data. 0:07:10.240 --> 0:07:13.360 Well, you know, they release the data they have. Everybody 0:07:13.400 --> 0:07:19.480 else has access to the same economic data, and most 0:07:19.880 --> 0:07:24.320 big banks have analysts who are also talking to CFOs 0:07:24.400 --> 0:07:29.840 and CIOs and talking to people about what's going on 0:07:29.960 --> 0:07:31.920 in the company, So they're getting the same sort of 0:07:31.960 --> 0:07:34.600 read on the economy on a real time basis that 0:07:34.640 --> 0:07:38.080 the FED presidents get by talking to CEOs. 0:07:38.680 --> 0:07:39.200 All the FED. 0:07:39.200 --> 0:07:42.160 Banks do surveys on a regular basis of companies in 0:07:42.200 --> 0:07:46.239 their in their districts, and you know, that's that's. 0:07:46.080 --> 0:07:48.559 What the job of an analyst on Wall Street. 0:07:48.880 --> 0:07:51.400 So I think everybody kind of has the same information, 0:07:51.520 --> 0:07:55.440 but they have different motivations. The markets are looking for 0:07:55.520 --> 0:07:57.080 ways to make more money. 0:07:57.160 --> 0:07:59.160 Well, the FED is looking at. 0:07:59.680 --> 0:08:02.720 Was looking at inflation alone and now they're looking at 0:08:02.800 --> 0:08:03.920 both sides of their mandate. 0:08:04.200 --> 0:08:07.200 Right, So I mean again, if you step back, here 0:08:07.320 --> 0:08:09.679 is there when you talk to people, Michael, your sources, 0:08:09.840 --> 0:08:13.600 where are we in just the recession talk that gee, 0:08:13.640 --> 0:08:16.520 maybe the Fed's too late, and in fact, you got 0:08:16.560 --> 0:08:19.320 to pull this recession talk back onto the table. It's 0:08:19.320 --> 0:08:21.239 been kind of off the table for a while. 0:08:21.320 --> 0:08:21.480 Now. 0:08:21.720 --> 0:08:23.760 Where are we in terms of timing of the FED 0:08:23.840 --> 0:08:25.680 and what it means for the US economy. 0:08:26.080 --> 0:08:29.400 Almost everybody's cut back their recession forecasts. There are some 0:08:29.480 --> 0:08:32.600 people out there who well, there's always the. 0:08:32.640 --> 0:08:33.760 Stopped clock, folks. 0:08:33.840 --> 0:08:36.400 You know, at some point we're going to have a recession. 0:08:36.800 --> 0:08:39.559 And then there are people who think that we are 0:08:39.600 --> 0:08:45.360 going to we might have a recession because of previous 0:08:45.400 --> 0:08:48.160 recession indicators that don't seem to be working. This time, 0:08:48.400 --> 0:08:52.200 and chief among those is the inverted yield curve story. 0:08:52.640 --> 0:08:55.880 So when you look at the rest of the numbers, 0:08:55.920 --> 0:08:59.000 and things have definitely slowed, but they haven't gone into recession. Now, 0:08:59.040 --> 0:09:02.120 the biggest thing about recess is it's a confidence matter. 0:09:03.240 --> 0:09:04.840 You don't have a recession. 0:09:06.800 --> 0:09:09.760 When you go to recession, people stop spending and companies 0:09:09.760 --> 0:09:13.720 stop spending because they have lost confidence in their ability 0:09:14.160 --> 0:09:17.120 to be able to pay for things going forward. And 0:09:17.960 --> 0:09:22.360 at this point that doesn't seem to be on anybody's mind. 0:09:22.720 --> 0:09:26.480 We'll fly out tomorrow what the latest Michigan confidence numbers are. 0:09:26.559 --> 0:09:30.079 But while those have been down some, they're not down 0:09:30.160 --> 0:09:35.319 in recessionary territory. And businesses aren't saying we're going into recession. 0:09:36.080 --> 0:09:39.920 So at this point it might take some external factor, 0:09:40.480 --> 0:09:43.559 some geopolitical thing could destroy confidence. 0:09:43.960 --> 0:09:45.440 After nine to eleven yesterday, I. 0:09:45.480 --> 0:09:51.480 Remember what happened then, but people don't really see it 0:09:51.480 --> 0:09:53.200 and the FED doesn't see it happening. 0:09:53.240 --> 0:09:56.080 Here's my recession data point that I sent to Tom 0:09:56.160 --> 0:09:59.720 Kinyesus yesterday afternoon around lunchtime, walking from the Bloomberg headquarters 0:09:59.720 --> 0:10:02.520 and le Avenue over to the park. Beautiful day walk 0:10:02.520 --> 0:10:06.280 around Central Park, sixtieth Street, a bunch of swanky restaurants 0:10:06.320 --> 0:10:10.920 with outdoor seating packed I mean overflowing pack for lunch. 0:10:11.760 --> 0:10:13.920 So I'm like a guy sent Tom a message. I'm like, 0:10:14.320 --> 0:10:16.480 I don't see a sload on here on thest. Sixtieth Street. 0:10:17.360 --> 0:10:18.520 That's just that, and that's. 0:10:18.360 --> 0:10:21.280 Also tourists and also businesses. That's definitely a combo. Hey, Mike, 0:10:21.320 --> 0:10:22.560 thanks lot, really appreciate it. 0:10:23.920 --> 0:10:27.800 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:27.880 --> 0:10:30.599 weekdays at ten am Eastern on Apple car Playing and 0:10:30.720 --> 0:10:33.560 broud Otto with the Bloomberg Business app. Listen on demand 0:10:33.640 --> 0:10:37.280 wherever you get your podcasts, or watch us live on YouTube. 0:10:39.160 --> 0:10:41.280 Alex Deal Paul Sweeney live here in our Bloomberg Dinner 0:10:41.280 --> 0:10:44.000 at a broker studio. We're streaming live on YouTube as well, 0:10:44.120 --> 0:10:46.520 So check us out there search Bloomberg Podcast and that's 0:10:46.559 --> 0:10:48.800 where you will find us. One of the questions I 0:10:48.840 --> 0:10:51.920 think a lot of investors have, Okay, the economy is slowing. 0:10:52.000 --> 0:10:54.640 I get that, is that kind of a normalized slowing 0:10:54.760 --> 0:10:56.520 or is it something more than that? So let's check 0:10:56.559 --> 0:10:58.560 in with somebody who has some of these who thinks 0:10:58.559 --> 0:11:00.520 about some of the same things. I believe is rep 0:11:00.720 --> 0:11:03.760 fixed income portfolio manager for JP Morgan Asset Management, joining 0:11:03.840 --> 0:11:06.640 us via zoom from the Big Apple of New York City. 0:11:06.720 --> 0:11:08.800 So when you look at some of the economic data here, 0:11:09.679 --> 0:11:11.599 is it concerning to you the rate at which the 0:11:11.640 --> 0:11:14.160 economy is slowing or is it seemed something more normalized 0:11:14.200 --> 0:11:14.319 to you? 0:11:15.480 --> 0:11:18.280 Hi, Paul, Thanks for having me. So that's the key question. 0:11:19.040 --> 0:11:22.000 And as we're contemplating FED easies, I think it becomes 0:11:22.040 --> 0:11:25.240 important what level of interest rates would be contingent or 0:11:25.280 --> 0:11:27.880 would be consistent with the soft landing. You know, I 0:11:27.920 --> 0:11:30.760 think that the base of deceleration does concern me a 0:11:30.840 --> 0:11:33.680 little bit. Now, if the FED can aggressively take greates 0:11:33.840 --> 0:11:38.160 to neutral or accommodative territory, maybe that pace of deceleration 0:11:38.280 --> 0:11:40.960 can slow down. But I still think the data mixed. 0:11:41.080 --> 0:11:42.959 You look at the layoff numbers, they are still low, 0:11:43.000 --> 0:11:45.440 they're not consistent with the recession. But then I look 0:11:45.480 --> 0:11:48.040 at other things. I look at, you know, the quits rate, 0:11:48.679 --> 0:11:51.679 the fact that the hiring rate has slowed down on 0:11:52.280 --> 0:11:55.839 the small business. You know, intent to hire has been 0:11:55.920 --> 0:11:58.840 slowing now for a while. The housing market's a little frozen, 0:11:59.240 --> 0:12:03.160 and this bace of decline that you talked about. I 0:12:03.240 --> 0:12:05.760 think you could argue it was normalization six months ago. 0:12:06.280 --> 0:12:08.160 Now it's making me a little bit more nervous that 0:12:08.240 --> 0:12:10.319 this might be something more. But I don't want to 0:12:10.320 --> 0:12:12.120 say that this is a recession. I think we're iner 0:12:12.280 --> 0:12:15.080 soft landing right now. The question is how long can 0:12:15.200 --> 0:12:18.200 it stay and can the FED cut rates quickly enough 0:12:18.440 --> 0:12:20.360 to allow that soft landing to continue. 0:12:20.440 --> 0:12:22.520 So that's sort of what I was asking Mike about, 0:12:22.559 --> 0:12:24.280 right because there is a school thought that they cut 0:12:24.320 --> 0:12:26.600 fifty next week, it's going to mean things are really bad, 0:12:27.120 --> 0:12:28.719 or it could also mean that they don't want it 0:12:28.800 --> 0:12:30.520 to get really bad and that that was sort of 0:12:30.600 --> 0:12:31.240 pre emptied. 0:12:31.600 --> 0:12:34.480 What do you think. I think it's how they message 0:12:34.480 --> 0:12:36.320 a fifty. If they do fifty, I think they might 0:12:36.360 --> 0:12:38.920 go twenty five. But if they do go fifty, I 0:12:39.000 --> 0:12:42.560 think suggesting that this is risk management front loading. Governor 0:12:42.600 --> 0:12:45.600 Waller last week brought up front loading for the first 0:12:45.679 --> 0:12:47.719 time any FED official has brought it up. On the 0:12:47.880 --> 0:12:50.160 easing side, I think it makes a lot of sense. 0:12:50.640 --> 0:12:54.439 The risks are clearly skewed to the downside. Six months ago, 0:12:54.520 --> 0:12:57.160 we were saying, well, risks are balanced, inflation might be high, 0:12:57.640 --> 0:13:01.400 inflation's not a concern anymore road based decline in inflation, 0:13:01.520 --> 0:13:05.160 notwithstanding monthly volatility. It's the growth side, is the labor 0:13:05.240 --> 0:13:07.880 side that's concerning. So if the Fed spins a fifty 0:13:07.960 --> 0:13:10.880 basis point, thud as being front loading. We're trying to 0:13:10.960 --> 0:13:14.240 get to neutral faster. And look at the starting point, 0:13:14.320 --> 0:13:16.600 we're at five and a half on the fund's rate 0:13:16.800 --> 0:13:19.080 or real rates, given inflation is running about two percent, 0:13:19.400 --> 0:13:22.240 that's a very restrictive level of policy. So it's how 0:13:22.280 --> 0:13:24.280 they spin it. I don't think a fifty will be 0:13:24.400 --> 0:13:27.319 viewed negatively if the Fed says we're just trying to 0:13:27.400 --> 0:13:30.080 get ahead of the curve or not be behind the curve. 0:13:30.559 --> 0:13:32.760 But on the same bend, I think if they go 0:13:32.920 --> 0:13:35.079 twenty five and we get the dot lot, and the 0:13:35.160 --> 0:13:38.880 dot lot suggests that they'll get to neutral sometime next year, 0:13:39.440 --> 0:13:41.760 I think they can finish the message and say, look, 0:13:41.800 --> 0:13:45.680 we've seen the market, we've seen the economy. We're responding quickly. 0:13:45.840 --> 0:13:47.760 We just think we can start at twenty five, but 0:13:48.400 --> 0:13:50.439 if things slow down faster, we can go fifty. I 0:13:50.480 --> 0:13:53.240 think that message the market will need to hear. Otherwise, 0:13:53.320 --> 0:13:55.720 get ready for a lot of tightening in financial conditions. 0:13:56.360 --> 0:13:59.439 So how does one structure or portfolio given kind of 0:13:59.480 --> 0:13:59.959 that background. 0:14:01.880 --> 0:14:03.440 You know, I would say fixed incer makes a lot 0:14:03.480 --> 0:14:05.920 of sense. We've been talking now for a year. When 0:14:05.960 --> 0:14:07.839 does the FED start to cut rates. They've told you 0:14:07.880 --> 0:14:10.080 they're going to cut rates next week. We're debating twenty 0:14:10.120 --> 0:14:14.320 five or fifty, but it's starting. Lock in yields. I mean, 0:14:14.360 --> 0:14:16.360 I think the front end look very attractive, and the 0:14:16.400 --> 0:14:20.120 FED might have hiked you're getting five percent in cash. Well, 0:14:20.120 --> 0:14:22.080 now if you're getting six percent in a five year 0:14:22.120 --> 0:14:25.560 bond or seven percent if you move into high quality, 0:14:25.640 --> 0:14:29.240 high yield, I would say lock in yields, and I 0:14:29.360 --> 0:14:32.440 would argue for your end of cycle. We can debate 0:14:32.520 --> 0:14:35.640 how long that end can last, but active management makes sense. 0:14:35.840 --> 0:14:37.960 So one of the things we're doing, we're still buying 0:14:38.320 --> 0:14:41.280 high quality spread product. We think fundamentals are strong in 0:14:41.400 --> 0:14:44.640 many sectors, so not just concentrated in any one sector. 0:14:44.840 --> 0:14:47.760 But we're also buying duration. We're buying ten year treasuries, 0:14:47.760 --> 0:14:50.560 We're putting on steepness. What if the economy does slow 0:14:50.600 --> 0:14:53.400 down faster and the FED lags. You know, the FED 0:14:53.480 --> 0:14:55.280 can cut rates, but it takes a while for that 0:14:55.400 --> 0:14:59.000 to show up in the economy, interstrates will be a hedge. 0:14:59.320 --> 0:15:02.720 So I would say that hedged portfolio ownspread, product, lock 0:15:02.800 --> 0:15:05.480 and yield, buy some duration or or put on gas 0:15:05.520 --> 0:15:08.200 stepnas to try and hedge that downside scenario. 0:15:08.720 --> 0:15:10.200 Just some breaking news. We want to bring it to 0:15:10.400 --> 0:15:15.400 our listeners. US sanctions Venezuela Court chief and election officials. 0:15:15.680 --> 0:15:19.520 This is over that July twenty eighth presidential election that 0:15:19.760 --> 0:15:23.000 is questioning that many like the US, are questioning the 0:15:23.080 --> 0:15:28.360 legitimacy of that election that elevated Maduro again to the 0:15:28.640 --> 0:15:34.760 head seat there. Just earlier today, Spain voted to recognize 0:15:34.800 --> 0:15:40.720 the opposition leader a Mundo Gonzalez, challenging Nicholas's Maduro's election 0:15:40.960 --> 0:15:44.040 in July, and Venezuela was not happy about that either, 0:15:44.200 --> 0:15:49.520 so US sanctioning Venezuelan Court chief and election officials. Prio, 0:15:49.720 --> 0:15:52.680 what's the question? How do you look at neutral? So 0:15:52.800 --> 0:15:55.160 like we can obsess over next week for sure, what 0:15:55.280 --> 0:15:58.560 to do short term, but what do you do longer 0:15:58.680 --> 0:16:00.640 term if we don't know what is going to be? 0:16:00.720 --> 0:16:03.320 What if it's four, is it two or four? That's 0:16:03.360 --> 0:16:05.400 a huge difference it. 0:16:05.560 --> 0:16:07.520 Is now you're at five and a half right now, 0:16:07.880 --> 0:16:10.000 So I think we have time to figure out neutral. 0:16:11.200 --> 0:16:14.520 You know, and the fact that growth is slowing despite 0:16:14.600 --> 0:16:17.960 all the fiscal easing, despite the fact that financial conditions 0:16:18.000 --> 0:16:21.160 are easy, tells you that monetary policy is restrictive. So 0:16:21.440 --> 0:16:23.480 if I go back to basics and I look at 0:16:23.560 --> 0:16:27.040 our star estimates, they're all over the place, somewhere between 0:16:27.200 --> 0:16:30.400 zero and one percent, inflation close to two percent, so 0:16:30.920 --> 0:16:33.440 I come down to around three percent with a wide 0:16:33.560 --> 0:16:35.680 error band, maybe it's two and a half to three 0:16:35.720 --> 0:16:38.080 and a half. But I think this is why the 0:16:38.200 --> 0:16:41.840 FED might have the luxury near term. They can cut 0:16:41.840 --> 0:16:44.200 about one hundred basis points and see how the economy 0:16:44.280 --> 0:16:47.000 is responding. And it's not just neutral rate. It's also 0:16:47.080 --> 0:16:50.720 availability of credit, it's financial conditions, it's everything else that 0:16:50.880 --> 0:16:54.160 go into conditions that help the economy, and then they 0:16:54.240 --> 0:16:56.640 can decide are we're getting close to neutral. So I 0:16:56.720 --> 0:16:59.800 think they can finish that neutral. It's unobservable to your point, 0:17:00.000 --> 0:17:02.640 it's extremely important and we can't observe it, but we 0:17:02.760 --> 0:17:05.960 can look at data and see how it's responding to 0:17:06.520 --> 0:17:09.000 interest rates. But I would say somewhere in that three percent. 0:17:09.160 --> 0:17:11.800 But I think what's fascinating is the market's not pricing 0:17:11.840 --> 0:17:15.119 and accommodative despite the fact that the recession talk is 0:17:15.200 --> 0:17:18.600 in the air. The end point after all the rate cuts, 0:17:18.680 --> 0:17:21.240 So look at the totality of rate cuts is around 0:17:21.280 --> 0:17:24.240 three percent. So the market's essentially telling you the Fed's 0:17:24.280 --> 0:17:25.800 going to get too neutral and that's going to be 0:17:25.960 --> 0:17:28.800 enough to keep the soft landing going. I have a 0:17:28.840 --> 0:17:30.880 bit of a question there. If the lags are long, 0:17:31.119 --> 0:17:33.320 or the FED is slow, or the economy is actually 0:17:33.359 --> 0:17:37.400 decelerating faster in terms of underlying maybe the FED will 0:17:37.440 --> 0:17:40.080 have to go into accommodative territory, so below three percent. 0:17:40.440 --> 0:17:42.120 But I think we're going to figure that out as 0:17:42.240 --> 0:17:42.840 time goes on. 0:17:43.160 --> 0:17:44.679 All right, Prea, thank you so much for joining us. 0:17:44.720 --> 0:17:45.280 Really appreciate it. 0:17:45.320 --> 0:17:48.760 Pre Israe Fixed Income portfolio Manager, JP Morgan Asset Management 0:17:48.840 --> 0:17:50.120 in New York City. 0:17:51.760 --> 0:17:55.600 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:17:55.720 --> 0:17:58.639 weekdays at ten am Eastern on Apple car Play and 0:17:58.800 --> 0:18:02.000 Android Auto with them Blomberg Business. You can also listen 0:18:02.160 --> 0:18:05.240 live on Amazon Alexa from our flagship New York station 0:18:05.640 --> 0:18:08.359 Just Say Alexa playing Bloomberg eleven thirty. 0:18:10.040 --> 0:18:12.000 Well, some of the news on the Bloomberg News wire 0:18:12.040 --> 0:18:16.240 that's getting a lot of readership today is about two 0:18:16.480 --> 0:18:19.240 of Wall Street's largest investment banks were rolling out measures 0:18:19.280 --> 0:18:23.040 that may ease junior bankers workloads amid complaints across the 0:18:23.119 --> 0:18:27.000 industry that weekly hours are increasingly creeping past one hundred 0:18:27.119 --> 0:18:30.000 hours per week. Shreadanata Rogen joins us. He covers all 0:18:30.000 --> 0:18:32.320 the big investment banks. He's a senior financial reporter for 0:18:32.400 --> 0:18:34.840 Bloomberg News. He joins us here in our studio, shre So, 0:18:35.600 --> 0:18:38.399 I guess bankers they've always been known, particularly the junior bankers, 0:18:38.480 --> 0:18:41.600 for working long hours. And I know that kind of 0:18:42.280 --> 0:18:45.880 during the financial I mean, you know, during the pandemic, 0:18:46.000 --> 0:18:49.359 that became a recurring issue of concern. Where are we 0:18:49.440 --> 0:18:51.800 today in terms of having to try to ease some 0:18:51.880 --> 0:18:53.520 of the workload from some of those junior bankers. 0:18:53.720 --> 0:18:55.680 I mean, what you're saying is dejvo all over again. 0:18:55.800 --> 0:18:55.879 Right. 0:18:56.359 --> 0:18:58.560 It just feels like we come back to the same 0:18:58.640 --> 0:19:01.640 topic every few years. Not a surprise that it's often 0:19:01.720 --> 0:19:03.760 tied to the time than we are starting to see 0:19:03.800 --> 0:19:06.600 an upswinging deals. The last time this did become a 0:19:06.640 --> 0:19:09.320 big issue was back during the pandemic. Remember the phase 0:19:09.880 --> 0:19:12.720 probably a few months after the pandemic, when companies suddenly 0:19:12.840 --> 0:19:16.080 needed this massive funding needs. All the investment banking firms 0:19:16.119 --> 0:19:20.200 were working overtime on that. That turned into deal making opportunities. 0:19:20.240 --> 0:19:22.200 And then you had the twenty twenty one s backpoom 0:19:22.240 --> 0:19:26.679 and whatnot, and that viral presentation out out of Golden 0:19:26.760 --> 0:19:29.200 Sacks and those junior bankers that really caused the stir 0:19:29.280 --> 0:19:33.040 in the industry. What happened back then you had pay 0:19:33.160 --> 0:19:35.160 rises across. 0:19:35.480 --> 0:19:36.399 All of Wall Street. 0:19:36.440 --> 0:19:38.600 All the firms were raising their base salary for their 0:19:38.680 --> 0:19:41.879 junior bankers. And these are kids right out of college 0:19:41.920 --> 0:19:44.159 who in their first, second, third year are standing to 0:19:44.200 --> 0:19:46.359 make two hundred, three hundred thousand dollars at these firms. 0:19:47.359 --> 0:19:51.320 It's become part of the conversation again a because there 0:19:51.359 --> 0:19:53.320 has been an uptakeing deal after a bit of a 0:19:53.400 --> 0:19:56.159