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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Mike Wilson of

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Speaker 2: Morgan Stanley is bullish, writing we're bullish into twenty six

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Speaker 2: through the near term setup is not without risks. These

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Speaker 2: include tariff related inflation. Mike joins us now for more. Mike,

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Speaker 2: good morning, Good to see you. You list a lot

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Speaker 2: of reasons to be constructive here, just go through those

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Speaker 2: leasons for us this morning.

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Speaker 3: Yeah. I mean the reasons really haven't changed.

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Speaker 4: We've been very constructive since May when we did our

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Speaker 4: mid year update, and I think the main thing that

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Speaker 4: take away from our outlook that's maybe different than others.

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Speaker 4: I think we came into the year feeling the first

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Speaker 4: half would be tricky, second half would be better, and

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Speaker 4: that was all function of the sequencing of the policy, right.

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Speaker 4: So the policy sequencing was what we said the kitchen

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Speaker 4: sink the first quarter. It took data, the growth negative

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Speaker 4: stuff first, and then it flipped very quickly in April.

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Speaker 4: So the main reason we're bullish, okay, is that the

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Speaker 4: Ernie's revision breath and we show this every week in

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Speaker 4: our note and it goes up every week, has exploded

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Speaker 4: higher off of what was a deep cyclical low that

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Speaker 4: basically priced in a recession for the most part, So

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Speaker 4: that revision breath is guiding us to the performance that

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Speaker 4: we've seen this. This is just to put it in context, Okay,

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Speaker 4: This increase or V shaped recovery and earnings revision breath

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Speaker 4: is as significant as we've seen since COVID, the COVID recovery,

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Speaker 4: and that was the last time that we were this

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Speaker 4: far out of consensus being bullish, and it was right

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Speaker 4: because of this.

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Speaker 3: It's the data. We're data dependent, So that's the main reason.

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Speaker 4: So this is not just me saying, oh, momentum stocks

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Speaker 4: and price momentum, etc.

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Speaker 3: That's part of it too.

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Speaker 4: So what's driving that earnings revision breath. Well, first, it's

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Speaker 4: the reflexivity just on people getting too bearish on the

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Speaker 4: growth negative stuff.

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Speaker 3: And let's not.

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Speaker 4: Forget the AI camp X cycle, which we came into

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Speaker 4: the ear feeling negative.

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Speaker 3: About, also bottomed in April. Okay, So those are two

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Speaker 3: big drivers.

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Speaker 4: The second one is a weaker dollar Okay, weeker dollars

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Speaker 4: a big tail wind for multinational companies.

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Speaker 3: Okay.

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Speaker 4: The third one now is we're starting to see operating

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Speaker 4: leverage in more companies across the S and P five hundred.

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Speaker 4: And this is a very unique view that we've had. So,

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Speaker 4: you know, the rolling recession call that we've kind of

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Speaker 4: been talking about, Well, now it looks to us like

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Speaker 4: we're having a rolling recovery and that will be further

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Speaker 4: spurred by the FED cutting rates at some point in

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Speaker 4: the next year. And we don't know exactly when they're

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Speaker 4: going to start, but I think it's fair to say

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Speaker 4: that they're not going to be raising rates. So this

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Speaker 4: three year what I would call soft recession that we've

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Speaker 4: been living through, now we're sort of coming through that

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Speaker 4: and we're getting more visibility and that that's why we're

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Speaker 4: more constructive on the next year now in the next

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Speaker 4: three months, I do think that some of the things

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Speaker 4: that people have been worried about could start to play

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Speaker 4: through earnings. For example, we see cost of goods sold

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Speaker 4: increase because of the tariff. You know, the inventory now

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Speaker 4: is flowing through the costing of goods sold. We could

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Speaker 4: see the back end of the treasury markets start to

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Speaker 4: back up again because of the supply that.

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Speaker 3: We know is coming.

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Speaker 4: And then of course we still have to deal with

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Speaker 4: just this sort of concern around inflation and how does

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Speaker 4: that play through, how does the Fed respond to that?

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Speaker 4: So there are risks out there. We're not saying there's

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Speaker 4: no risks. And remember the market trade six months in advance.

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Speaker 4: So that's what's happened. The market has figured this out,

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Speaker 4: it's gotten ahead of it, and we've priced a lot

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Speaker 4: of good news.

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Speaker 5: How much is this entirely tech driven versus a broad

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Speaker 5: based kind of revisions increase and recovery. Given some of

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Speaker 5: the mixed guidance that we're getting this morning from a

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Speaker 5: number of companies, particularly those that are consumer facing, that's right.

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Speaker 4: Well, it still remains mixed because we're still in this

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Speaker 4: rolling recovery, right, So it's not everything at once. Tech

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Speaker 4: and the MAX seven are leading, but we're seeing also

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Speaker 4: other groups industrials, financials, Okay software which has been in

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Speaker 4: a software session for the last couple of years. We're

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Speaker 4: seeing we are seeing a broadening out for the MAXs seven.

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Speaker 4: So it's not where we need to be to see say, oh,

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Speaker 4: we're going to move into small cap stocks, We're going

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Speaker 4: to move into the low quality parts of the market.

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Speaker 4: We're still staying up that curve. However, it's starting to progress.

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Speaker 4: Just like the rolling recession saw a degradation that was

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Speaker 4: cutting out all at once, but kind of more piecemeal.

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Speaker 5: So during the rolling recession we saw gains of about

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Speaker 5: twenty percent on the S and P five hundred first.

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Speaker 2: Couple of consecutive years.

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Speaker 5: Could you see gains of twenty percent or more during

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Speaker 5: a rolling recovery? Does it matter if you're in a

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Speaker 5: rolling recession or really recovery in terms of the returns.

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Speaker 4: What I would hope is that we would see areas

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Speaker 4: that have been lagging start to participate more. And that's

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Speaker 4: sort of our view on twenty six right, and that's

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Speaker 4: sort of starting to happen now. Industrials has been the

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Speaker 4: best performing sector here today, it's been our top pick

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Speaker 4: for the right reasons, for the reasons that we've been citing,

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Speaker 4: which is earning's there starting to look better. Let's not

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Speaker 4: forget the tax bill, which I didn't even mentioned earlier.

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Speaker 4: This is a massive, okay, tailwind for cash earnings for

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Speaker 4: US companies.

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Speaker 3: I mean to the tune of five to.

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Speaker 4: Ten percent increase, So that's real money going into pockets

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Speaker 4: of companies. They're now allocating capital, not the government, and

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Speaker 4: I think everybody would agree that's probably a better outcome.

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Speaker 2: Do you think US exceptionalism is back? Is everyone else

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Speaker 2: signing up to that?

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Speaker 4: Well, what I would say is that maybe US exceptionalism

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Speaker 4: has been missing. Okay, So now, I mean, no one

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Speaker 4: wants to admit this, but the direction we're going in now,

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Speaker 4: it looks like we are going to see better participation

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Speaker 4: across the economy.

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Speaker 3: We've been waiting for this. We've been waiting for this

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Speaker 3: for two or three years.

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Speaker 4: You know, We've been kind of back and forth, sometimes

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Speaker 4: bullet sometimes bears, trying to pick stocks. And this is

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Speaker 4: the first time I can say that I can now

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Speaker 4: see the path of this transition. We're actually starting to

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Speaker 4: rotate into more of an early cycle recovery.

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Speaker 2: Let me could be some more space to do this,

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Speaker 2: because it's important the strategy of the White House and

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Speaker 2: the rebalancing that you envision a year out, two years out,

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Speaker 2: three years out. What is it you see?

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Speaker 4: Well, the rebalancing is both global and domestic. So the

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Speaker 4: global rebalancing is obvious. Are trying to reduce our current

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Speaker 4: account deficit? You know, get the trade negotiations are along

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Speaker 4: those lines, and I think that's rising. That's a good

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Speaker 4: strategy getting more manufacturing potentially in house or domestically. In

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Speaker 4: the domestic rebalancing, it's really instead of just having the

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Speaker 4: one percent right is you know, main stream over Wall Street.

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Speaker 4: I mean, people say, well, that doesn't sound like that's

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Speaker 4: working right now. But the idea here is you get

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Speaker 4: lending through the regional banking sector, you get lending smaller banks,

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Speaker 4: lending to small businesses, to individuals, get.

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Speaker 3: Rates down at the back end.

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Speaker 4: Okay, that is that will liberate actually the domestic the

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Speaker 4: sort of the middle part of the economy.

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Speaker 5: Where do you then place this idea that tariffs are

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Speaker 5: pretty regressive, this idea that lower income individuals bear the

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Speaker 5: brunt of it. BECs is essentially a sales tax on them,

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Speaker 5: and you're already seeing companies really grapple with what that

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Speaker 5: means for demand, particularly in the travel and leisure space.

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Speaker 3: How do you square that.

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Speaker 5: With a sort of broad based dynamism that you're talking about.

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Speaker 4: So I think it's very simple in the sense that

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Speaker 4: you have to think, Okay, what do you have to

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Speaker 4: think about?

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Speaker 3: What are the tears trying to achieve.

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Speaker 4: My view has always been that this is going to

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Speaker 4: end up being an import tax. Now I would have said,

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Speaker 4: you know, two weeks ago, this is a ten percent

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Speaker 4: It's going to end up a ten percent import tax

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Speaker 4: that's going to be shared between exporter, importer, and consumer,

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Speaker 4: and the market will determine, okay.

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Speaker 3: Who can absorb those terrors.

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Speaker 4: Exporter will decide, hey, we got a discount because we're

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Speaker 4: gonna lose volume.

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Speaker 3: Importer will say we can't pass it on.

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Speaker 4: We're going to eat some of that, and the companies

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Speaker 4: that have pricing power will pass it through.

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Speaker 3: Okay.

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Speaker 4: Now, we believe that the consumer areas have less pricing power,

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Speaker 4: So I would argue that the pricing power is going

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Speaker 4: to be more, probably in the industrial space, probably more

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Speaker 4: in the you know, sort of the value added supply chain.

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Speaker 4: So then what do they do on the other side, Oh,

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Speaker 4: they do a tax cut for the companies. So it's

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Speaker 4: just it's just basically saying we're going to tax this

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Speaker 4: chain here, which is gonna be a shared tax, but

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Speaker 4: then we're gonna actually give that away to corporations who

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Speaker 4: could then reinvest and actually get.

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Speaker 3: The economy moving. It's I mean, it is a capitalist

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Speaker 3: type of approach.

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Speaker 4: Now, I don't know if it's gonna work perfectly, but

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Speaker 4: I'd like the direction of it from a from an

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Speaker 4: investors standpoint.

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Speaker 3: I love this.

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Speaker 2: Kevin Golden and chow Swab has a view inelogably the

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Speaker 2: biggest economic data week of the year. It all comes

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Speaker 2: down to labor. Solid labor data will matter most for markets.

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Speaker 2: Kevin joins us now for more. Kevin, good morning, Yeah,

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Speaker 2: nice to see. Difficult morning, Yeah, without a doubt, but

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Speaker 2: we'll make some space to talk about financial markets. Let's

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Speaker 2: talk about why the data for you is so important

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Speaker 2: this week when we've got some of the earnings nolsewhere Yeah,

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Speaker 2: well I.

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Speaker 1: Think I would I would wrap earnings in with the

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Speaker 1: broader economic data, especially on the labor front, because you know,

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Speaker 1: the real mechanism that we're looking for and trying to

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Speaker 1: see and assess with trade and tariffs, is if any

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Speaker 1: of that starts to take.

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Speaker 3: A big bite out of hiring.

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Speaker 1: When you think about company's largest cost being labor, if

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Speaker 1: that's where they turn to, if they face a significant

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Speaker 1: increase in constant if that's ultimately what brings the broader

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Speaker 1: labor market.

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Speaker 3: To a weaker spot. So far, you know not the case.

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Speaker 1: And I think even with you know, the June jobs report,

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Speaker 1: even if you get a reversal in some of those

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Speaker 1: i'll call them blips that were in there in terms

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Speaker 1: of what accounted for most of the hiring at the

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Speaker 1: state and local level, at the education level, the fact

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Speaker 1: that the unemployment rate went down because you had the

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Speaker 1: significant drop in the labor force. Even if some of

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Speaker 1: that unlines a little bit, you can still be in

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Speaker 1: a pretty solid spot for July. So really it turns

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Speaker 1: to that back half of the year where you start

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Speaker 1: to see if at all, if there are impacts from tariffs,

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Speaker 1: if they're going to start fighting, that's where you really

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Speaker 1: start to see it.

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Speaker 5: One of the reasons why I've been more excited for

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Speaker 5: earnings than I have been for the economic data is

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Speaker 5: because every time an economic data point comes out, I

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Speaker 5: get fifteen different interpretations and people point to different aspects

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Speaker 5: of the numbers to justify why they have those opinions.

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Speaker 5: Why do you feel like we're getting better data from

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Speaker 5: the overall government issued numbers rather than mark laying off

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Speaker 5: workers today because of efficiencies, a number of big corporations

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Speaker 5: not hiring entry level staff because they can just get

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Speaker 5: AI to do it.

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Speaker 3: Well.

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Speaker 1: You know, it's interesting in some ways we've sort of

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Speaker 1: seen this movie before, where at least in the post

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Speaker 1: pandemic cycle, and I was thinking back to, you know,

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Speaker 1: the conversation you guys had with Mike Wilson in the

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Speaker 1: last hour talking about how we have the same view

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Speaker 1: around world recessions being in certain pockets of the economy,

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Speaker 1: especially manufacturing.

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Speaker 3: Versus services over the past several years.

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Speaker 1: Embedded in that were a lot of these sort of

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Speaker 1: idiosyncratic company specific stories where there were significant layoffs or

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Speaker 1: there were significant cuts to guidance, but that didn't filter

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Speaker 1: through to the broader economy. It didn't really rise up.

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Speaker 1: So to some extent, you're seeing that again now. And

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Speaker 1: I would argue, actually, one of the reasons that we've.

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Speaker 3: Seen such a.

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Speaker 1: Sort of incredible recovery in the market is because what's

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Speaker 1: been leading have been industries, not.

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Speaker 3: Necessarily at the eleven sector level.

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Speaker 1: If you look at the twenty five industry level, industries

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Speaker 1: with the strongest margins have been leading. So those are

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Speaker 1: the ones that can probably withstand that tariff shock a

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Speaker 1: lot more, or they're further away from the epicenter of

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Speaker 1: the tariff. So you think the banks are almost the

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Speaker 1: perfect example of that in this earning season. I would

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Speaker 1: almost put the banks in the autos on opposite sides

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Speaker 1: of the spectrum looking at.

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Speaker 3: Where the tariff pressure is shown up.

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Speaker 1: You're not really seeing it at all in financials because

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Speaker 1: you probably won't given its services dominated, but you're definitely

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Speaker 1: seeing it an area like autos, but that's a small

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Speaker 1: share of the market.

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Speaker 5: You send a lot more skeptical than Mike Wilson of

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Speaker 5: Morgan Stanley, who came on and said, we had been

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Speaker 5: dealing with a rolling recession for three years, and now

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Speaker 5: we seem to be dealing with a rolling recovery, a

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Speaker 5: rolling bull market. Why why are you not convinced?

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Speaker 1: Well, it's not as much that I'm not convinced. I

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Speaker 1: just think that when you listen to what companies have

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Speaker 1: been saying around pricing and what their response is going

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Speaker 1: to be to tariffs in particular, and the capex slowdown

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Speaker 1: that we have seen, at least in capex intentions, even

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Speaker 1: though some of the regional FED surveys, which is sort

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Speaker 1: of the best gauge that we have right now in

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Speaker 1: terms of where confidence you know, can be turning on

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Speaker 1: a dime because they come out before the ISM headlined

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Speaker 1: indexes have been improving, but those underlying CAPEX components haven't

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Speaker 1: been improving as sharply, and in some cases they've actually

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Speaker 1: been turning lower. And in some ways, this all really

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Speaker 1: comes down to is what happens at in the business

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Speaker 1: investment channel, because that tends to drive you know, employment gains,

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Speaker 1: which tends to drive consumer spending, that drives overall productivity.

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Speaker 1: So that's really what we've become most focused on. So

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Speaker 1: it's not that I think that the recovery is completely

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Speaker 1: stunted because our view from a tariff standpoint, and we

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Speaker 1: have to remember that pre April second, we were not

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Speaker 1: in a zero tariff world. I mean, the market was

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Speaker 1: still digesting that we were going to get tariffs going

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Speaker 1: up relatively you know significantly, so if we're going to

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Speaker 1: go into a tariff world, and what we've been hearing

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Speaker 1: from our clients who are facing this in terms of

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Speaker 1: having small businesses is just tell us what the raid

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Speaker 1: is and don't change it, you know, tell us what

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Speaker 1: the rules of the game are, and then we'll be

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Speaker 1: able to play. So if you can get past that,

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Speaker 1: which arguably we're coming to that point, whether it's this

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Speaker 1: Friday or not, or August twelfth or not, you're getting

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Speaker 1: closer to that point, which I think is a pretty

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Speaker 1: important needle mover for the market and for the economy.

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Speaker 2: We're in the middle of that process right now. What

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Speaker 2: started before April. Second though, is this allocation abroad to

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Speaker 2: international equities? Is that just a moment in time or

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Speaker 2: an ongoing story. How do you feel about European stocks

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Speaker 2: right now following the agreement over the weekend.

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Speaker 1: I mean, we're relatively constructive because I think, well, first

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Speaker 1: of all, from our perspective, from our clients, you know,

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Speaker 1: nearly forty million people who for many many years have

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Speaker 1: become very accustomed to just the US dominant trend really

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Speaker 1: being rulis trend for a good reason.

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Speaker 3: But I think that.

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Speaker 1: When the international versus US or you know, US versus

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Speaker 1: x US argument has often talked about or discussed. It's

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Speaker 1: framed in this context of all or nothing, and it's

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Speaker 1: you know, just dump US at the expense of everything else,

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Speaker 1: And of course you know that's never how this works

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Speaker 1: for any kind of balanced portfolio. So it's really a

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Speaker 1: matter of looking at what has become maybe a little

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Speaker 1: bit of an improved opportunity set relative to what was.

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Speaker 1: So if you're just looking at Europe, for example, relative

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Speaker 1: to what was, yeah, clearly things have improved. Even the

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Speaker 1: internals of the DACKS, those have been much stronger this

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Speaker 1: year relative to the S and P. At one point

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Speaker 1: you got to a third of almost a third of

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Speaker 1: members in that index, making a new fifty two week high.

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Speaker 3: We have not gotten there on the.

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Speaker 1: S and P five hundred, So there are still relatively

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Speaker 1: healthy internals when you compare it to the US. But

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Speaker 1: I wouldn't look at it at all as some sort

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Speaker 1: of all or nothing trade.

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Speaker 2: It to be fitz people who have been long exclusive

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Speaker 2: in the US for the last decade. There have been many,

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Speaker 2: many good reasons to have that trade on. I think

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Speaker 2: they still face the same question when i'm buy America,

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Speaker 2: I know what I'm buying. When I'm buy Europe, what

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Speaker 2: do I own? What am I buying?

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Speaker 1: Well, yeah, the sector bias I think is really important

340
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Speaker 1: there because, yeah, when you're in the US, I mean

341
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Speaker 1: the tech centric nature of this market now not just

342
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Speaker 1: tech the sector, but tech and tech adjacent parts of it.

343
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Speaker 1: I mean you're getting to half and in some cases

344
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Speaker 1: more than half of the index, plus tech has become

345
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Speaker 1: more of this cyclical beast in addition to being a

346
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Speaker 1: growth beast as well. So I think that that's a

347
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Speaker 1: really important certainly has been an important driver about performance

348
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Speaker 1: over the past several years. But when you compare that

349
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Speaker 1: to Europe, if it's a little bit more financial centric

350
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Speaker 1: in certain countries, or if it's a little bit more

351
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Speaker 1: you know, auto and manufacturing centric, if you don't get

352
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Speaker 1: that important cyclical upswing, then it's going to be really

353
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Speaker 1: tough to outperform what.

354
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Speaker 2: You always say, luxury and weight loss.

355
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Speaker 5: That's right, and right now weight loss is kind of,

356
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Speaker 5: you know, on the back foot evidently with Novo so

357
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Speaker 5: to exactly. So there you go. Although it's different between

358
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Speaker 5: OURMES and LVMH, it seems like a totally different situation

359
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Speaker 5: going wrong with luxury.

360
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Speaker 3: Yeah, you would know.

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Speaker 1: Well, it is bifurcated. I mean, I'm not a luxury analyst,

362
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Speaker 1: but you know it's a way.

363
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Speaker 3: Yeah, I think that. You know, maybe I'll just leave

364
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Speaker 3: it at that. I don't know.

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Speaker 2: Thank you, Thank you, sir, Kevin Gordon.

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Speaker 5: There shout.

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Speaker 2: We get some more dasis for the week. The big

368
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Speaker 2: one on Friday. Payrolls Friday, just around the corner. Check

369
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Speaker 2: this out. It's not a typo. This is what the

370
00:15:19,120 --> 00:15:22,400
Speaker 2: graphic is meant to look like. Stephen Stanley of Santander

371
00:15:22,760 --> 00:15:25,640
Speaker 2: with a bearish forecast for Friday. He is looking for

372
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Speaker 2: zero jobs to be added, citing a quote, a reversal

373
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Speaker 2: of the outside increase in government education jobs in June,

374
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Speaker 2: as well as tariff related uncertainty and a soft market

375
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Speaker 2: for college graduates and students. Stephen joins us now for more. Stephen,

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Speaker 2: good morning, good morning. If you could flip this week

377
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Speaker 2: and pay ross Friday was Wednesday and the Fed was Friday,

378
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Speaker 2: if they had that information and it was zero, would

379
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Speaker 2: they becoming.

380
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Speaker 6: Probably not this week, but I think it would certainly

381
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Speaker 6: nudge them in that direction. You know, as I mentioned,

382
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Speaker 6: the biggest piece of The weakness for me is in

383
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Speaker 6: the government sector, and I think that's a thing the

384
00:16:00,240 --> 00:16:01,840
Speaker 6: FED would probably want to look through. I me And

385
00:16:01,840 --> 00:16:05,360
Speaker 6: remember government employment was up over seventy thousand in June.

386
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Speaker 3: So this is just kind of a reversal of that.

387
00:16:07,920 --> 00:16:11,120
Speaker 6: But private sector, you know, we were in the seventies

388
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Speaker 6: in June.

389
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Speaker 3: I have it at fifty five in July. If you

390
00:16:14,320 --> 00:16:15,359
Speaker 3: go back to last.

391
00:16:15,160 --> 00:16:19,480
Speaker 6: Year, we had had fourteen consecutive months of payrolls being

392
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Speaker 6: up at least one hundred and eighteen thousand through May,

393
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Speaker 6: and then June, July, and August we're all double digits.

394
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Speaker 6: And I think part of what's going on there is

395
00:16:29,240 --> 00:16:32,560
Speaker 6: we have a very soft job market for college grads

396
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Speaker 6: and college students looking for summer jobs. The seasonals assume

397
00:16:35,880 --> 00:16:38,840
Speaker 6: a certain amount of hiring in the summer, and we're

398
00:16:38,880 --> 00:16:41,880
Speaker 6: getting less. And so I think we're likely to see

399
00:16:41,880 --> 00:16:45,200
Speaker 6: a repeat of that this year, with a little bit

400
00:16:45,200 --> 00:16:47,720
Speaker 6: of weakness on the private side in the summer and

401
00:16:47,760 --> 00:16:49,720
Speaker 6: then hopefully normalizing again in the fall.

402
00:16:49,800 --> 00:16:52,600
Speaker 2: Can we just stay on government jobs if we're supposedly

403
00:16:52,600 --> 00:16:55,040
Speaker 2: meant to look through the weakness and government jobs, shouldn't

404
00:16:55,040 --> 00:16:57,720
Speaker 2: we have looked through the strength as well.

405
00:16:57,880 --> 00:17:00,400
Speaker 6: Well, that's a good point, and I yes, I would

406
00:17:00,440 --> 00:17:03,359
Speaker 6: say we you know that definitely.

407
00:17:03,000 --> 00:17:06,680
Speaker 2: Would rely for obvious reasons as you know, Yeah, this.

408
00:17:06,680 --> 00:17:10,479
Speaker 6: Pointment was very strong for a long time, and then

409
00:17:10,760 --> 00:17:14,919
Speaker 6: if you remember early this year, everybody was was getting

410
00:17:15,320 --> 00:17:19,399
Speaker 6: very upset about the possibility of huge layoffs and federal

411
00:17:19,400 --> 00:17:22,800
Speaker 6: government jobs, which you know have kind of you know,

412
00:17:22,880 --> 00:17:25,760
Speaker 6: we've had negative numbers there, but it hasn't been enough

413
00:17:25,800 --> 00:17:29,000
Speaker 6: to really move the needle a lot. At the end

414
00:17:29,000 --> 00:17:31,199
Speaker 6: of the day, I think, you know, the FED is

415
00:17:31,240 --> 00:17:34,040
Speaker 6: not ignoring the government sector when it comes to jobs,

416
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Speaker 6: but it certainly gets a lesser way than the private sector.

417
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Speaker 5: There's nothing inflationary in your projection. It doesn't feel like this.

418
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Speaker 5: This labor market is predictive of some sort of inflationary

419
00:17:45,040 --> 00:17:48,520
Speaker 5: spiral on the heels of tariffs. So why shouldn't the

420
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Speaker 5: FED be cutting to potentially provide a little bit more support,

421
00:17:52,400 --> 00:17:54,800
Speaker 5: especially for entry level students.

422
00:17:55,040 --> 00:17:59,040
Speaker 6: Yeah, well, I mean, the inflation concern has nothing to

423
00:17:59,080 --> 00:18:01,880
Speaker 6: do with labor costs for once, right, This is all

424
00:18:01,920 --> 00:18:05,800
Speaker 6: about the possibility from the FED perspective, that you get

425
00:18:05,800 --> 00:18:08,280
Speaker 6: a one off increase in prices from tariffs, and then

426
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Speaker 6: that somehow morphs into a more sustained increase in prices.

427
00:18:13,440 --> 00:18:17,760
Speaker 6: I understand the Fed's reticence to accept the textbook view

428
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Speaker 6: that tariffs are a one off, right, because we had

429
00:18:20,359 --> 00:18:24,320
Speaker 6: twenty twenty one. They said transitory and it wasn't. And

430
00:18:24,640 --> 00:18:27,920
Speaker 6: you can understand there, once burned twice shy on that.

431
00:18:29,000 --> 00:18:32,760
Speaker 6: But I think this is an unusual instance in which

432
00:18:32,880 --> 00:18:34,200
Speaker 6: labor costs are really not.

433
00:18:35,840 --> 00:18:38,160
Speaker 3: A big factor in the inflation story.

434
00:18:38,440 --> 00:18:40,560
Speaker 5: Just to build on that, there is a theory that

435
00:18:40,680 --> 00:18:43,320
Speaker 5: you can't get some sort of inflationary spiral and less

436
00:18:43,320 --> 00:18:46,280
Speaker 5: consumers have the ability to pay for it unless they

437
00:18:46,280 --> 00:18:49,160
Speaker 5: can absorb prices continuing to go up, you are going

438
00:18:49,160 --> 00:18:52,640
Speaker 5: to see a one time price shock. Is that transmission

439
00:18:52,640 --> 00:18:54,000
Speaker 5: mechanism broken this time?

440
00:18:54,359 --> 00:18:57,320
Speaker 6: Well, I think that's the biggest difference between twenty twenty

441
00:18:57,359 --> 00:18:58,600
Speaker 6: one and twenty twenty five.

442
00:18:58,720 --> 00:19:00,000
Speaker 3: I mean, in twenty twenty.

443
00:18:59,760 --> 00:19:03,000
Speaker 6: One and households were flushed from all the money that

444
00:19:03,040 --> 00:19:06,119
Speaker 6: had been distributed by the government during COVID, and I

445
00:19:06,200 --> 00:19:09,240
Speaker 6: think that helped to kind of perpetuate that inflationary cycle.

446
00:19:10,520 --> 00:19:11,880
Speaker 3: We don't have that this time around.

447
00:19:12,359 --> 00:19:15,240
Speaker 6: A teriff increase to the extent that it gets passed

448
00:19:15,240 --> 00:19:18,240
Speaker 6: through to consumer prices is a loss of purchasing power

449
00:19:18,520 --> 00:19:22,880
Speaker 6: for households. So I do think we'll see relatively soft

450
00:19:22,960 --> 00:19:27,000
Speaker 6: consumer spending as those price increases filter through.

451
00:19:27,119 --> 00:19:29,080
Speaker 2: What do you expect to hear from Cham and Pound tomorrow.

452
00:19:30,000 --> 00:19:33,359
Speaker 6: Well, I think it's a really interesting juncture for the

453
00:19:33,359 --> 00:19:36,320
Speaker 6: FED because I think early in the year the tariff

454
00:19:36,359 --> 00:19:39,920
Speaker 6: thing hit and the story at the FED was we're

455
00:19:39,920 --> 00:19:44,920
Speaker 6: gonna just We're going to sit back and let's watch

456
00:19:45,000 --> 00:19:47,000
Speaker 6: this play out. We're not going to do anything, We're

457
00:19:47,000 --> 00:19:51,359
Speaker 6: not going to engage. The problem is that the original

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00:19:51,560 --> 00:19:54,919
Speaker 6: this was certainly my original thought, that the price increases

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00:19:55,040 --> 00:19:58,439
Speaker 6: and the economic impacts would cycle through within three or

460
00:19:58,520 --> 00:20:00,560
Speaker 6: four months and the FED would be able to re engage.

461
00:20:01,040 --> 00:20:02,879
Speaker 6: Now it looks like it's going to drag on for

462
00:20:02,920 --> 00:20:04,879
Speaker 6: a long time. You've got Bostic and others at the

463
00:20:04,880 --> 00:20:07,639
Speaker 6: FED now saying these price increases aren't going to be

464
00:20:07,680 --> 00:20:11,320
Speaker 6: fully in place until sometime next year. So the game

465
00:20:11,359 --> 00:20:15,439
Speaker 6: plan is changing, and I think I'm very interested to

466
00:20:15,480 --> 00:20:19,199
Speaker 6: hear exactly what the FED is thinking in terms of

467
00:20:19,240 --> 00:20:21,960
Speaker 6: what do they need to see, because if they're just

468
00:20:22,040 --> 00:20:25,480
Speaker 6: waiting for the tariff effects to be totally through.

469
00:20:25,480 --> 00:20:27,120
Speaker 3: They're gonna be sitting on their hands for a year.

470
00:20:27,160 --> 00:20:30,040
Speaker 6: They can't do that, right, So I think it'll be

471
00:20:30,200 --> 00:20:32,440
Speaker 6: even though they're not going to move tomorrow or tomorrow,

472
00:20:32,480 --> 00:20:33,880
Speaker 6: it's gonna be a very interesting meeting.

473
00:20:33,960 --> 00:20:36,520
Speaker 2: How divided is this you're going to be by the

474
00:20:36,520 --> 00:20:38,119
Speaker 2: time we get September.

475
00:20:38,760 --> 00:20:40,320
Speaker 3: It could be very divided. I mean, look at the

476
00:20:40,400 --> 00:20:40,960
Speaker 3: June dots.

477
00:20:41,080 --> 00:20:46,879
Speaker 6: We had nine FMC participants who wanted to go twice

478
00:20:46,920 --> 00:20:49,360
Speaker 6: this year and seven who wanted to go not at all,

479
00:20:49,560 --> 00:20:51,560
Speaker 6: and a few you know, kind of in the middle.

480
00:20:51,640 --> 00:20:53,360
Speaker 3: So that's pretty divided.

481
00:20:53,800 --> 00:20:56,639
Speaker 2: And again messia too, because by the time we get September,

482
00:20:57,000 --> 00:20:59,240
Speaker 2: we might have a decent idea of who the FED

483
00:20:59,320 --> 00:21:01,359
Speaker 2: chat is going to be as well. So you face

484
00:21:01,359 --> 00:21:03,840
Speaker 2: this odd situation where you have division on the committee

485
00:21:04,200 --> 00:21:07,280
Speaker 2: and maybe the forward guidance the CHAM and Poalse starts

486
00:21:07,280 --> 00:21:09,240
Speaker 2: to offer for twenty twenty six kind of becomes a

487
00:21:09,320 --> 00:21:12,199
Speaker 2: relevant because you start focusing on a different character. What

488
00:21:12,240 --> 00:21:14,760
Speaker 2: does that mean for market pricing and who do listen to,

489
00:21:14,880 --> 00:21:16,920
Speaker 2: who to ignore, and how we're going to be guided

490
00:21:17,000 --> 00:21:17,720
Speaker 2: into twenty six.

491
00:21:17,920 --> 00:21:19,560
Speaker 6: Well, it's just as you say, it's just a lot

492
00:21:19,560 --> 00:21:24,360
Speaker 6: of uncertainty, right. So the longer the process drags out,

493
00:21:25,320 --> 00:21:28,120
Speaker 6: and the closer we get to May of next year,

494
00:21:28,280 --> 00:21:31,120
Speaker 6: I suspect to the extent that we don't know who

495
00:21:31,160 --> 00:21:32,240
Speaker 6: the next FED chair.

496
00:21:32,080 --> 00:21:32,520
Speaker 3: Is going to be.

497
00:21:32,960 --> 00:21:35,360
Speaker 6: The markets are going to be speculating and going back

498
00:21:35,400 --> 00:21:38,000
Speaker 6: and forth depending on who you know, the latest leak

499
00:21:38,119 --> 00:21:41,080
Speaker 6: of who's in the running or whatever. If we get

500
00:21:41,280 --> 00:21:45,720
Speaker 6: if we get a name early and the markets conclude, Okay,

501
00:21:45,720 --> 00:21:48,840
Speaker 6: this person is going to get passed through the Senate

502
00:21:48,840 --> 00:21:49,320
Speaker 6: and everything.

503
00:21:49,320 --> 00:21:51,920
Speaker 3: This is going to be the person, then it.

504
00:21:51,960 --> 00:21:55,240
Speaker 6: Yeah, it does create a little bit of uncertainty around

505
00:21:55,640 --> 00:21:58,720
Speaker 6: as you say this forward guidance from the current f

506
00:21:58,880 --> 00:22:01,560
Speaker 6: MC matter. I mean, you know, you've got nineteen people

507
00:22:01,600 --> 00:22:05,840
Speaker 6: on the committee. You're only talking about necessarily replacing one.

508
00:22:06,119 --> 00:22:09,560
Speaker 6: So maybe the committee, the nature of the debate changes,

509
00:22:09,560 --> 00:22:10,240
Speaker 6: maybe it doesn't.

510
00:22:10,400 --> 00:22:12,440
Speaker 2: Just before you go, how much pushback have you had

511
00:22:12,920 --> 00:22:13,879
Speaker 2: over the zero.

512
00:22:14,320 --> 00:22:15,440
Speaker 3: A lot of curiosity.

513
00:22:15,560 --> 00:22:16,920
Speaker 6: I don't know that I would say there's been a

514
00:22:16,920 --> 00:22:19,159
Speaker 6: lot of pushback, but as you can imagine, a lot

515
00:22:19,240 --> 00:22:22,080
Speaker 6: of a lot of clients are very interested in getting

516
00:22:22,119 --> 00:22:23,200
Speaker 6: some idea of the reasoning.

517
00:22:23,280 --> 00:22:25,159
Speaker 2: When the number drops at eight thirty on Friday, I

518
00:22:25,160 --> 00:22:28,280
Speaker 2: think we'll all be thinking of you Steven Stanley's we

519
00:22:28,359 --> 00:22:32,720
Speaker 2: hope you're right, We'll see. This is the Bloomberg Sevenance podcast,

520
00:22:32,840 --> 00:22:36,760
Speaker 2: bringing you the best in markets, economics, antient politics. You

521
00:22:36,760 --> 00:22:39,560
Speaker 2: can watch the show live on Bloomberg TV weekday mornings

522
00:22:39,560 --> 00:22:42,520
Speaker 2: from six am to nine am Eastern. Subscribe to the

523
00:22:42,520 --> 00:22:46,040
Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and

524
00:22:46,080 --> 00:22:48,960
Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business

525
00:22:48,960 --> 00:22:49,160
Speaker 2: Amp