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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 Amerie Hordernt. Join us each day

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

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

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

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

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

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Speaker 2: Terminal and the Bloomberg Business app. The optimism over a

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Speaker 2: US China trade deal pushing bond your tire. The move

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Speaker 2: comes as investors price in another rate cut Later this week,

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Speaker 2: Gray Pilisipgian fixed income right in the following near term

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Speaker 2: dynamics remain challenging, policy sensitive and under fiscal stress, which

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Speaker 2: may add pressure on ras. Great joins us now for more.

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Speaker 2: Greig welcome back. Do you think supplier shoes might reassert

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Speaker 2: themselves as a problem in the coming months.

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Speaker 3: I don't think supply is so much a problem in

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Speaker 3: the coming months, but I think next year is a

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Speaker 3: very different supply story. But I think the bigger issue

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Speaker 3: is you know you saw it in the CPI release,

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Speaker 3: is that you are seeing inflation pressures away from rents

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Speaker 3: and oer right, and I expect that to continue into

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Speaker 3: next year. And what I really worry about is that

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Speaker 3: investors are very much of the mind the Fed's going

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Speaker 3: to continue to cut inflation is you know, a twenty

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Speaker 3: twenty one story largely contented with and I think the

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Speaker 3: risk is you're cutting into a higher growth, higher inflation environment,

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Speaker 3: and the question is what does the bond market think

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Speaker 3: about that?

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Speaker 2: Ultimately, So, Greg, your point is interesting because this market

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Speaker 2: took comfort from what was happening with shelter, but you're

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Speaker 2: taking anxiety from what happens everybody else, everywhere else. Great,

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Speaker 2: do you think the market's going to come round to

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Speaker 2: your point of view?

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Speaker 4: And why?

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Speaker 5: Well?

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Speaker 3: So, I think the shelter component has been an incredible

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Speaker 3: disinflationary driver this year, and that's actually given kind of

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Speaker 3: the broad CPI or disinflation numbers cover right. But as

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Speaker 3: we go into next year, you'll have continued pressure around

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Speaker 3: those goods, particularly those you know affected by Karras. And

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Speaker 3: you know this is a story that's leaking out over time.

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Speaker 3: This is not a one shot type of idea, and

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Speaker 3: so next year you have shelter either flattening out or

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Speaker 3: even maybe moving higher. And that just changes the game,

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Speaker 3: I think, and I think that is underappreciated.

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Speaker 6: Right now, I'm looking at break even rates that are

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Speaker 6: at the lowest levels going back to earlier this year.

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Speaker 6: I'm looking at inflation expectations over the longer term. It's

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Speaker 6: just falling significantly over the past couple of months.

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Speaker 4: Why do you think that is?

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Speaker 6: I mean, why do you think the market so profoundly

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Speaker 6: disagrees with this higher inflation, higher growth view, at least

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Speaker 6: based on market measurements.

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Speaker 5: I don't know. That is something that really confounds me.

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Speaker 3: Honestly when I think about you know, next year, you know,

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Speaker 3: that is the most central.

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Speaker 5: Figure that I look at. So what has a twofold effect?

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Speaker 5: Number one?

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Speaker 3: Obviously it's a market measure around longer term inflation. But also,

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Speaker 3: you know, there's lots of talk around the Fed. You know,

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Speaker 3: what happens with the Lisa cookcase, what happens with the

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Speaker 3: new FED shair, you know what happens to the kind

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Speaker 3: of the path of rates. Are we really moving to

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Speaker 3: this really easy type of environment? And if the market

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Speaker 3: starts to get spooked around that that's going to manifest

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Speaker 3: itself not only in the US dollar, but in five

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Speaker 3: or five year break even. So I look at that

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Speaker 3: and I do scratch my head, and you know, for

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Speaker 3: my money, that is something that I'm kind of looking

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Speaker 3: the other way.

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Speaker 5: What I think it should be higher, not lower?

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Speaker 6: How much are you actually betting against some of these

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Speaker 6: longer data bonds? I mean, right now we're looking at

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Speaker 6: a corporate sector that's in pretty good shape. You can

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Speaker 6: make the argument that you should get sprighter, tighter spreads.

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Speaker 6: And at the same time, when you look at the

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Speaker 6: government bond market, there's a sort of mystery wrapped in

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Speaker 6: an enigma, and why is it being priced in more?

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Speaker 6: How actively aggressively are you betting against where things are now?

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Speaker 5: Well, we'll mix it.

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Speaker 3: Incredibly tricky is just the the uncertainty component around not

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Speaker 3: only caraffs. Right, we have a Supreme Case Court court

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Speaker 3: case that's coming to you know what happens you know

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Speaker 3: after that? Well, and then there's lots of worries I

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Speaker 3: guess around changes and issuance changes and you know, buybacks,

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Speaker 3: and so investors are a little leary to you know,

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Speaker 3: lean too much into the curve steepner in the back

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Speaker 3: end of the curve in particular, just because you can

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Speaker 3: see that change in dynamics that could kind.

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Speaker 5: Of catch investors by surprise.

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Speaker 3: So I think there's a tentative nature around it, so

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Speaker 3: I see it more.

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Speaker 5: Cleanly, you know, from twoes tens in that part of

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Speaker 5: the curve.

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Speaker 3: As you go further out, you're you're more exposed to,

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Speaker 3: you know, these certain vagaries.

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Speaker 2: Greg that's the treasury market. We've touched on the supply there,

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Speaker 2: we'll get suns this week. Let's talk about the corporate supply.

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Speaker 2: This is coming this week as well. And what is financing?

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Speaker 2: Is this market still wide open for this kind of

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Speaker 2: debt issuance to finance the campex stories that we've been

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Speaker 2: talking about the media every single day.

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Speaker 3: It is for now. So there's just a tremendous amount

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Speaker 3: you know. I started to scratch my head, you know,

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Speaker 3: as you go out the curve, particularly on the unsecured side.

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Speaker 3: So there's been some deals in the marketplace that really

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Speaker 3: don't make a lot of sense to me necessarily, you know,

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Speaker 3: but this is a tremendous build out.

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Speaker 5: There's a tremendous amount of circularity around it.

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Speaker 3: So this is, you know, something that I think makes

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Speaker 3: sense today. But as we go through this cycle, I

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Speaker 3: worry about the refinancing aspect and ultimately the AI you know,

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Speaker 3: adoption and the return on investment that these companies need

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Speaker 3: in order to make sense. And that's what starts to

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Speaker 3: worry with me. But as of right now, Jonathan, the

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Speaker 3: markets are open. Everyone's all in on the AI trade,

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Speaker 3: both sides of the debt and equity aisle. But at

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Speaker 3: some point there has to be a return on that

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Speaker 3: invested capital, and you know, we shall see.

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Speaker 2: Well, Greg, with that in mind, how closely does someone

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Speaker 2: like you watch the earnings as they come in on

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Speaker 2: Wednesday on Thursday?

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Speaker 3: Yeah, So I think earnings are incredibly important here. Uh,

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Speaker 3: you know, we have these long term structural issues that

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Speaker 3: we worry about, but honestly, from an investor standpoint, right

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Speaker 3: you worry about the cash flows and the earnings in

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Speaker 3: the here and now. So I think it's crucial to

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Speaker 3: kind of keep this market afloat, you know, as long

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Speaker 3: as you see you know, a pretty reasonably strong corporate

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Speaker 3: environment and backdrop, I don't really see this full market changing,

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Speaker 3: you know, anytime soon. So it's about the near term

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Speaker 3: data that's allowing investors to kind of look past maybe

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Speaker 3: some of the longer term structural issues that we talked about,

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Speaker 3: namely fed independence and you know some other areas.

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Speaker 2: Stay with us mobile impeck Savanda's coming up off to this.

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Speaker 2: I got to talk about this market and the amount

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Speaker 2: of M and A activity we've seen over the summer

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Speaker 2: and into the end of the year. Over nine hundred

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Speaker 2: billion dollars in deals completed so far this year, with

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Speaker 2: another one point one trillion in the works, on pace

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Speaker 2: for a fifty nine percent rise from a year ago.

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Speaker 2: Vitas Paduto of RBC Capital Markets US writing the market

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Speaker 2: tone has shifted from waiting for an optimal window to

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Speaker 2: moving into execution mode. More discussions of large deals, more preparation,

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Speaker 2: mo momentum, Vita joint just now for more vitok.

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Speaker 4: And morning, good morning.

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Speaker 7: Good to be here.

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Speaker 4: But we spoke honey recently. Things picking up even more.

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Speaker 7: Yes, I mean, I just think about the past.

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Speaker 8: I was here at the beginning of the month and

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Speaker 8: just the tone has just talked about has clearly shifted.

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Speaker 8: We've gone from trying to time the right window, and

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Speaker 8: we always talk to clients about the importance of being

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Speaker 8: prepared to execute on your strategic initiatives and being prepared

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Speaker 8: to access the window when it opens. Well, the window

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Speaker 8: feels open, and I think we're into full execution mode

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Speaker 8: of many of our clients.

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Speaker 6: Could you have this a sense of how much it's accelerating, I.

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Speaker 7: Mean, just to give you a sense.

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Speaker 8: In this past couple of weeks, the volume year to date,

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Speaker 8: both from a global perspective and from a US perspective,

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Speaker 8: has exceeded full year last year. So just to kind

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Speaker 8: of you know, and we've also seen where total volume

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Speaker 8: was up about twenty eight to thirty.

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Speaker 7: Percent globally and US wise at the.

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Speaker 8: End of the third quarter, we're now talking about up

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Speaker 8: thirty five to thirty eight percent. We've seen some larger

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Speaker 8: deals announced, especially across the technology space the healthcare space,

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Speaker 8: but more importantly, we've also seen the tone of the

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Speaker 8: dialogue out there has become more active. Clearly there's some

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Speaker 8: larger companies talking about divestitures strategic initiatives, publicly announcing that

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Speaker 8: they're considering alternatives, and so those are all, you know,

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Speaker 8: big signs. At the same time, I would still label

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Speaker 8: it as a cautious environment. I'm not seeing clients cut corners.

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Speaker 8: I'm not seeing them rush into something. I think boards

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Speaker 8: are certainly checking, dotting every I, crossing every te They're

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Speaker 8: making sure they've done their full diligence.

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Speaker 7: They're making sure that.

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Speaker 8: The financing they're going to use is buttoned up, especially

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Speaker 8: as we're heading into an environment where maybe there's some

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Speaker 8: concerns about some of the financial structures that have been

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Speaker 8: used historically.

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Speaker 6: So this, to me is fascinating, the idea that you're

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Speaker 6: seeing something and it speaks to what people talk about

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Speaker 6: with AI. It looks frothy, but it's not a bubble yet.

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Speaker 4: I'm gona.

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Speaker 6: It looks like it's getting really heated, but it's not

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Speaker 6: a bubble yet. It's not really problematic, And I just

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Speaker 6: wonder what's the motivation behind this. Is it because you

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Speaker 6: are seeing the expectation for FEDERI cuts. Is it because

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Speaker 6: there's more policy certainties?

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Speaker 4: It's just catch up?

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Speaker 8: Yeah, I think it's a clearer environment in terms of

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Speaker 8: being able to execute your strategical initiatives. From a government perspective,

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Speaker 8: a regulatory review perspective, We're seeing clients consider transactions that

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Speaker 8: maybe nine twelve months ago they would not have stepped

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Speaker 8: into because they were concerned about would the government approved

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Speaker 8: this transaction. And so I think there's been a more

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Speaker 8: constructive tone out of the agencies. We've seen them certainly

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Speaker 8: accept remedies much more so in terms of you go

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Speaker 8: into a transaction you say, well, this might be an issue,

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Speaker 8: but I'll consider these divestitures to satiate the regulators. And

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Speaker 8: I think that's become an environment where you can think

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Speaker 8: about how to constructively do something.

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Speaker 6: Other particular industries that you're saying, we're both activities. It's

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Speaker 6: the banking industry. Is this the tech sector in particular?

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Speaker 6: What are the deregulatory areas that are getting produced by

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Speaker 6: the current laws.

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Speaker 8: I mean, as we talked about last time, it's always

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Speaker 8: a technology and healthcare. And you look at the Aligned

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Speaker 8: Data Center's deal on ho Logic in the past month

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Speaker 8: or a few weeks as two of the largest deals

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Speaker 8: announced here today, and they highlight those two sectors that

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Speaker 8: are always leading the pace. We're seeing some around energy.

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Speaker 8: I think we're seeing a fair bit around financial services.

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Speaker 8: We certainly saw a significant bank deal announced this morning.

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Speaker 8: I think there's more being talked about there and I

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Speaker 8: think that's an area where if you look at what

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Speaker 8: the regulators from that perspective are considering.

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Speaker 7: They're allowing more of those to come together.

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Speaker 9: When it comes to the government shutdown, has it been

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Speaker 9: a pediment yet?

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Speaker 7: Not yet.

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Speaker 8: I think it's noise that's being monitored. On November fifth,

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Speaker 8: it'll become the longest shutdown in history.

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Speaker 7: I think the we talked about it.

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Speaker 8: Last time, the poly markets now are you know, are betting.

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Speaker 8: I think it's fifty two percent it's going to be

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Speaker 8: November sixteenth or beyond. I think the vacuum of data

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Speaker 8: is starting to cause some concerns because I think it's

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Speaker 8: becoming more about expectation and estimates as we're seeing you.

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Speaker 7: Know, what's going on there. You know that we're going

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Speaker 7: to hear a.

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Speaker 8: FED decision later this week, likely to be a rate

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Speaker 8: cut again. And so I think part of it the

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Speaker 8: longer it goes on, as soon as we start seeing

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Speaker 8: you know, we joked earlier about you know, how many

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Speaker 8: flights people are on and the fact that you're starting

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Speaker 8: to see some delays, whether it's over the weekend and

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Speaker 8: a lot of the business travel going on. You know,

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Speaker 8: government employees are starting to miss paychecks. I think more

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Speaker 8: and more of that happening, you're going to see it

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Speaker 8: impact things. And certainly, you know when you start getting longer,

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Speaker 8: you're start impacting GDP going forward. Now there's always an

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Speaker 8: argument that you recapture it at some point, but you

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Speaker 8: know that starts to become a concern.

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Speaker 2: You mentioned the feder reserve. How relevant are those right

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Speaker 2: reductions to the broadest story. I think acceleration that you've articulated, Yeah.

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Speaker 7: We talked about it last time. I mean, I think

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Speaker 7: it's helpful.

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Speaker 8: I think it's a good signal, but I also think

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Speaker 8: when you look at the overall environment and what people

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Speaker 8: are thinking about. You know, there was a CEO confidence

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Speaker 8: survey that just came out a couple of weeks ago

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Speaker 8: from the Conference Board, and it was basically flat to

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Speaker 8: the third quarter. It's sort there's a strong view going forward,

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Speaker 8: but it's certainly cautious, and it's right at the mid

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Speaker 8: planet about forty eight, where fifty is kind of a

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Speaker 8: neutral level. But when you look at what CEOs identified

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Speaker 8: as their number one concerns, it's geopolitical instability at the

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Speaker 8: top of the list.

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Speaker 7: Trade and tariffs was up there and it dropped to fifth.

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Speaker 8: The other ones that they are concerned about is the

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Speaker 8: uptick and sort of innovations.

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Speaker 7: Around AI and how they impact their businesses. And so

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Speaker 7: when you look at what.

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Speaker 8: CEOs are thinking about, even though they might not be

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Speaker 8: impacted by geopolitical issues somewhere else, they're still thinking about it.

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Speaker 7: It's that noise externally.

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Speaker 2: The financial conditions just is not the complaint. Right now,

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Speaker 2: credit spreads the signatent equity markets we've been talking about

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Speaker 2: at omnig sky high.

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Speaker 6: Yeah, right now it seems like there's a window that's

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Speaker 6: open even though you've got benchmark yields above four percent.

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Speaker 6: If you look at the tenure, I mean, it just

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Speaker 6: sort of goes to this question of what is it

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Speaker 6: that could potentially style me some of this activity and

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Speaker 6: does it suggest that maybe this is closer to neutral

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Speaker 6: than anything else because companies are able to.

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Speaker 4: Adapt to this well.

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Speaker 8: I think the other thing is if start noticing what's

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Speaker 8: the commentary is when earnings announcements are being made, you

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Speaker 8: hear mention of the shutdown that you're not hearing about

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Speaker 8: the significant impact on their businesses. I think you're hearing

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Speaker 8: some caution and saying, well, maybe you know, quote unquote,

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Speaker 8: are we in a bubble? Or you know, should we

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Speaker 8: be careful what we're taking on. But they're still proceeding,

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Speaker 8: so they're thinking about it. And I think everybody has

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Speaker 8: a lot of history here and doesn't want to be

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Speaker 8: caught as the party that's jumping in at the last

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Speaker 8: minute when things are going in a difficult direction.

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Speaker 2: Have you seen the leftage cycle start yet? Have you

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Speaker 2: started to see that come into some of these days.

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Speaker 7: A little bit?

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Speaker 8: And I think the larger deals are are set up

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Speaker 8: in an appropriate fashion because the largest players in the credits,

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Speaker 8: in the credit cycle or the credit environment are participating

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Speaker 8: in those transactions. I think when you're hearing some noise

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Speaker 8: in places that have had issues from a financing structure perspective,

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Speaker 8: it's really been some ancillary players that have been in

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Speaker 8: those transactions and so it's been less of a concern.

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Speaker 8: But you know, Jonathan, I think the we're sitting here

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Speaker 8: with corporate it's probably the healthiest that.

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Speaker 7: I've seen them in decades.

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Speaker 8: And again, you go through the financial crisis, you go

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Speaker 8: through COVID. COVID demonstrated there was a resilience in balance

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Speaker 8: sheets and also a resilience in business models. You learn

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Speaker 8: to pivot quickly you learn not to just take one

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Speaker 8: path going forward. You thought about multiple paths, and you

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Speaker 8: were able to make decisions and move your business. You

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Speaker 8: think about earlier this year and how quickly a lot

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Speaker 8: of companies shifted and brought business, you know, back on shore.

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Speaker 7: And you don't hear of that that tone as much anymore.

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Speaker 2: Stay with us, Multilemberg, Savannah's coming up off to this,

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Speaker 2: Terry Hines Sepanche Policy, John just Nafam, Terry Week four.

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Speaker 2: What's the day circled on your Accountada? When this gets real?

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Speaker 10: Oh?

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Speaker 1: I think sometime right before Thanksgiving.

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Speaker 11: And I imagine you know I've been saying since before

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Speaker 11: the shutdown start, that you know not only was this

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Speaker 11: politically generated, but that Democrats had the ability to decide

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Speaker 11: when it was when it was finished by merely by

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Speaker 11: agreeing to continue to negotiate on the Obamacare subsidy temporary increase.

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Speaker 11: And so they can do that, And meanwhile, the pain

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Speaker 11: will continue to mount, as you all have talked about,

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Speaker 11: and neither side ultimately is going to want to be

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Speaker 11: the primary blamed for all this. So I think you

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Speaker 11: probably have a truce called some time before Thanksgiving, Terry.

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Speaker 9: Something interesting happened last week where you had the two

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Speaker 9: Democratic senators from Georgia decide to vote with the Republicans

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Speaker 9: and also a Senator Fetterman from Pennsylvania in paying essential

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Speaker 9: workers like air traffic controllers. Are we going to see

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Speaker 9: more of that?

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Speaker 5: Yeah?

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Speaker 1: I think so.

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Speaker 11: There's going to be a lot of kind of one

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Speaker 11: shot bills with different constituencies that might not yet be

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Speaker 11: getting paid and all aret all that. But you know,

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Speaker 11: underneath that, what that shows is a kind of growing

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Speaker 11: disquiet on the Democratic side with the shutdown strategy. Generally

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Speaker 11: they're willing to give their leadership to be the benefit

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Speaker 11: of the doubt, but that's also wearing kind of thin.

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Speaker 9: We also have elections up coming November fourth, a big

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Speaker 9: one with the New York City mayor race and also

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Speaker 9: governor elections and Prop fifty in California. Is that going

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Speaker 9: to affect how certain Senators show up to vote? Maybe

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Speaker 9: after the elections take place.

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Speaker 11: Well, I think it affects how the senators make known

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Speaker 11: to their leadership the willingness to continue I've been telling

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Speaker 11: people for a couple of weeks now. This was not

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Speaker 11: a political opportunity Republicans sought, but it's one that they

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Speaker 11: now sees what they want. What they want on next

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Speaker 11: week in November is to be able to say to

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Speaker 11: the public, Look, the Democratic Party is now the party

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Speaker 11: of Mamdani, the new New York City mayor, and you

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Speaker 11: have being report publicans here, you have hokl and Jefferies

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Speaker 11: and schum were all kind of bowing to him, and that,

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Speaker 11: you know, that's the future of the Democratic Party. And

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Speaker 11: then they also want to point out that the balloon

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Speaker 11: likely gets let out of the Democratic Centrists in Virginia

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Speaker 11: and New Jersey. It's a little bit too much for

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Speaker 11: them to hope that the Republicans win in either case.

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Speaker 11: But what they will be able to say is, look,

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Speaker 11: you know the uh these people barely squeak through in

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Speaker 11: years where they should have done much better and they haven't.

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Speaker 1: So you know, the balloon of the ears out of that.

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Speaker 11: Particular balloon, and what you got is kind of the

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Speaker 11: Mom Donnie Party. And I think folks, frankly in midtown

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Speaker 11: Manhattan underestimate just how how powerful a message that is

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Speaker 11: in the broader the broader public.

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Speaker 6: How much does the shutdown really play into local elections

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Speaker 6: like that.

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Speaker 11: Not much at all, really, there is you know, more

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Speaker 11: in Virginia than in New Jersey because you have a

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Speaker 11: contingent in northern Virginia. I mean, the Virginia's turned a

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Speaker 11: purple state, but it has turned into a tale of

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Speaker 11: two states.

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Speaker 1: If you're in northern Virginia.

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Speaker 11: You're in heavy government employee territory, and outside of Northern

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Speaker 11: Virginia you're not. But Northern Virginians are already by and

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Speaker 11: large heavily Democratic and motivated to vote for the Democrat

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Speaker 11: span Burger anyway, So I don't know that it makes

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Speaker 11: a huge difference otherwise, although they're trying to try to

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Speaker 11: pump up less so own New Jersey Terry.

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Speaker 6: I'm wondering what you think of Congress being shut down

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Speaker 6: at the Congress hasn't come back to the table so

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Speaker 6: far for another vote since I believe September nineteenth, And

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Speaker 6: this has been a strategy for Majority House Speaker Mike Johnson,

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Speaker 6: where he said, look, it's up to the Senate. The

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Speaker 6: Senate needs to take action, then Congress can get behind

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Speaker 6: what they do. Do you think that that has been

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Speaker 6: a prudent strategy or one that has really diminished the

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Speaker 6: executive branch of the House of Representatives.

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Speaker 1: Oh, it's a very prudent strategy.

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Speaker 11: You know, I know, I'm aware of the New York

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Speaker 11: Times thinks it's not, but by and large it is.

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Speaker 11: You know, he's you know, he's got to herd cats

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Speaker 11: every day Johnson does. And you know, giving the cats

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Speaker 11: a playpen in Washington well, with a lot of microphones

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Speaker 11: and cameras around him is an opportunity for mischief. So

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Speaker 11: it's much better that he keep them out. It's also

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Speaker 11: much better frankly for him that he defends kind of

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Speaker 11: the institution of the House and what the House did

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Speaker 11: on shutdown and frankly say it's up to the Senate

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Speaker 11: to figure it out. You know, it makes it easier

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Speaker 11: for him on those two levels. So I think it's

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Speaker 11: probably a good, good idea.

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Speaker 2: It's Harry, what is the future of the Democratic Party?

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Speaker 2: Can we just finish on that? Governor Hooko gets booed

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Speaker 2: everywhere she goes establishment leaders down in Washington.

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Speaker 10: D C.

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Speaker 2: Reluctant to endorse the guys leading at the polls here

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Speaker 2: in New York City. What's the future of this party?

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Speaker 11: They're going to have to have a you know, they're

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Speaker 11: going to have to have a I'm just going to

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Speaker 11: say cleansing, and that's obviously a bad thought. But the

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Speaker 11: idea is that they've they've got to come through both

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Speaker 11: generationally and in terms of ideas. They've got to reconnect

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Speaker 11: with people and not just pretend to. They've got to

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Speaker 11: try to figure out how to move people forward. We've

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Speaker 11: had a generation here. I've indiciting both parties by saying, so,

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Speaker 11: we've had a generation here where people have decided to

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Speaker 11: play politics instead of solving problems. The party that gets

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Speaker 11: back to solving problems first and best wins. There's a

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Speaker 11: high perception that the Democratic Party now is the party

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Speaker 11: of rich people and has completely disconnected from its working roots.

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Speaker 1: And the Republicans have run in and have come into

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Speaker 1: that whole.

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Speaker 11: Democrats have got to get back to the get back

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Speaker 11: to that and get back to figuring out how things

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Speaker 11: ought to run and what they are actually for. Or

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Speaker 11: you know, kind of all the ball of Hollywood, this

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Speaker 11: or that or the other isn't going to make a difference.

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Speaker 2: Stay with us more Bloomberg Surveillance coming up after this.

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Speaker 2: The White House naming five finalists to replace Fetchair Japound,

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Speaker 2: including Gamuna Chris Waller, with the FED widely expected account

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Speaker 2: rates at Wednesday's meeting. Joining us now to discuss is Veronica,

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Speaker 2: clark A City, Veronica and Mornick. Good morning, Ray Cut.

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Speaker 2: Noil done for Wednesday. Caun't seem to find anyone who

441
00:22:26,880 --> 00:22:30,920
Speaker 2: disagrees with that hash guidance? Can they provide beyond Wednesday's meeting?

442
00:22:31,000 --> 00:22:34,000
Speaker 10: Yeah, probably not a whole lot. We haven't had any data,

443
00:22:34,080 --> 00:22:36,480
Speaker 10: of course. I think if anything in the day that

444
00:22:36,520 --> 00:22:39,320
Speaker 10: we have had obviously CPI on Friday, should give them

445
00:22:39,320 --> 00:22:42,760
Speaker 10: a bit more confidence. Yeah, inflation is slowing, labor market

446
00:22:42,800 --> 00:22:44,600
Speaker 10: is weakening, but they probably can't give us a whole

447
00:22:44,600 --> 00:22:46,120
Speaker 10: lot of guidance right now, we have no data.

448
00:22:46,280 --> 00:22:48,680
Speaker 2: How comfortable should we be with the data we have got,

449
00:22:48,760 --> 00:22:50,679
Speaker 2: which is inflation at three percent?

450
00:22:51,000 --> 00:22:51,240
Speaker 5: Yeah?

451
00:22:51,440 --> 00:22:53,480
Speaker 10: Yeah, I mean it's not where the Fed obviously wants

452
00:22:53,520 --> 00:22:56,240
Speaker 10: to be. But I do think they'll they'll find some

453
00:22:56,400 --> 00:22:58,600
Speaker 10: encouraging details in that data that we got on Friday.

454
00:22:58,600 --> 00:23:01,440
Speaker 10: We had particularly soft alter inflation. I think that will

455
00:23:01,480 --> 00:23:05,199
Speaker 10: be an encouraging development. We haven't seen a ton of

456
00:23:05,200 --> 00:23:07,600
Speaker 10: the terror related inflation. Maybe more of that is still coming,

457
00:23:07,680 --> 00:23:10,760
Speaker 10: but I think this is slower details than you know,

458
00:23:10,800 --> 00:23:11,919
Speaker 10: they should be comfortable with.

459
00:23:12,000 --> 00:23:15,199
Speaker 6: Yeah, I thought also the owner's equivalent rent was really interesting,

460
00:23:15,200 --> 00:23:16,920
Speaker 6: the fact that it came down to the lowest going

461
00:23:16,960 --> 00:23:19,920
Speaker 6: back to twenty twenty one. I was looking at this thinking, Okay,

462
00:23:20,000 --> 00:23:22,520
Speaker 6: well I can buy this story, and then a couple

463
00:23:22,600 --> 00:23:24,880
Speaker 6: of people message me and say, all right, you numskull.

464
00:23:25,000 --> 00:23:27,199
Speaker 6: This is backward looking data that was done over the

465
00:23:27,240 --> 00:23:30,800
Speaker 6: past year and is completely lagging, and when you look

466
00:23:30,800 --> 00:23:33,080
Speaker 6: at current indicators they show something different.

467
00:23:33,600 --> 00:23:36,000
Speaker 10: What's your response, Yeah, I don't actually think the current

468
00:23:36,040 --> 00:23:38,760
Speaker 10: indicators show anything that different. You know, it is a

469
00:23:38,840 --> 00:23:41,720
Speaker 10: very lagging indicator, of course, But when you look at

470
00:23:41,760 --> 00:23:44,600
Speaker 10: all the forward leading measures, you know Zillow New Rents,

471
00:23:44,840 --> 00:23:46,960
Speaker 10: home prices, home prices has been falling for a lot

472
00:23:46,960 --> 00:23:49,320
Speaker 10: of this year. It seems like that kind of trend

473
00:23:49,359 --> 00:23:50,040
Speaker 10: can continue.

474
00:23:50,320 --> 00:23:53,080
Speaker 6: At the same time, you are seeing other points spike upward.

475
00:23:53,320 --> 00:23:55,399
Speaker 6: In particular are some of the good sectors, and you

476
00:23:55,480 --> 00:23:57,320
Speaker 6: see a lot of companies saying that they're still going

477
00:23:57,359 --> 00:24:00,159
Speaker 6: to pass long additional price hikes. At what point do

478
00:24:00,200 --> 00:24:01,719
Speaker 6: you start to look at this and say, it's not

479
00:24:01,760 --> 00:24:04,400
Speaker 6: so clean. Even though we already knew it wasn't so clean,

480
00:24:04,440 --> 00:24:06,679
Speaker 6: it's even more difficult to really discern what's going on.

481
00:24:06,800 --> 00:24:09,359
Speaker 10: Yeah, I mean relative to how we were forecasting the

482
00:24:09,400 --> 00:24:11,960
Speaker 10: tariff pass through maybe six months ago, though I think

483
00:24:11,960 --> 00:24:14,920
Speaker 10: for most people we have been surprised that we haven't

484
00:24:14,920 --> 00:24:18,040
Speaker 10: seen more pass through it at this point. I think that, unfortunately,

485
00:24:18,080 --> 00:24:21,240
Speaker 10: does speak to consumers just can't handle these big, one

486
00:24:21,320 --> 00:24:23,639
Speaker 10: time kind of price increases. It has to be spread

487
00:24:23,640 --> 00:24:26,680
Speaker 10: out over many months, which could give the appearance that, yeah,

488
00:24:26,720 --> 00:24:29,679
Speaker 10: inflation is maybe a bit sticky, but it's still that

489
00:24:29,760 --> 00:24:32,400
Speaker 10: softer demand backdrop that means you can't pass on these

490
00:24:32,400 --> 00:24:33,760
Speaker 10: big price increases.

491
00:24:33,320 --> 00:24:33,720
Speaker 7: All at once.

492
00:24:33,880 --> 00:24:37,240
Speaker 9: Doesn't It also mean that corporate America has been resilient

493
00:24:37,240 --> 00:24:40,399
Speaker 9: in terms of mitigating some of the price hikes.

494
00:24:40,680 --> 00:24:42,280
Speaker 7: Yeah, so what does it mean for next year?

495
00:24:42,320 --> 00:24:44,360
Speaker 9: Do they start to maybe have to lay people off?

496
00:24:44,480 --> 00:24:44,760
Speaker 5: Yeah?

497
00:24:44,840 --> 00:24:46,960
Speaker 10: I do worry that, you know, the more you can't

498
00:24:47,000 --> 00:24:50,119
Speaker 10: pass on the price increase to consumers, that is eating

499
00:24:50,119 --> 00:24:53,600
Speaker 10: at profit margins for longer. We already know that businesses

500
00:24:53,600 --> 00:24:55,680
Speaker 10: are trying to cut labor costs, and they've been doing that.

501
00:24:55,960 --> 00:24:58,919
Speaker 10: They're not hiring anyone, But I would worry that you

502
00:24:58,960 --> 00:25:01,399
Speaker 10: can only not hire people for so long before the

503
00:25:01,440 --> 00:25:03,720
Speaker 10: next step is layoffs. We don't see the signs of

504
00:25:03,760 --> 00:25:05,440
Speaker 10: that yet, but that is I think still a risk.

505
00:25:05,800 --> 00:25:08,040
Speaker 9: We're in this data desert with the twenty seventh day

506
00:25:08,040 --> 00:25:10,399
Speaker 9: of a government shutdown. We had the inflation on Friday,

507
00:25:10,440 --> 00:25:12,399
Speaker 9: but that was one and done according to the White House.

508
00:25:12,720 --> 00:25:15,760
Speaker 9: How long could the FED continuously cut rates if we

509
00:25:15,800 --> 00:25:18,119
Speaker 9: remain in a government shutdown and don't have data.

510
00:25:18,320 --> 00:25:21,840
Speaker 10: Yeah, it's getting tricky obviously, because you know there is

511
00:25:21,840 --> 00:25:24,080
Speaker 10: the division among FED officials, a group of people who

512
00:25:24,119 --> 00:25:26,480
Speaker 10: maybe don't want to cut anymore at all, and people

513
00:25:26,480 --> 00:25:28,440
Speaker 10: who want to cut each meeting this year.

514
00:25:29,320 --> 00:25:30,280
Speaker 7: It is hard.

515
00:25:30,280 --> 00:25:32,159
Speaker 10: But I think the shutdown itself, if it really is

516
00:25:32,240 --> 00:25:36,800
Speaker 10: lasting that long, that is a drag on growth in itself, except.

517
00:25:36,600 --> 00:25:38,960
Speaker 2: We won't see the data. That's where the risk management

518
00:25:39,040 --> 00:25:41,560
Speaker 2: argument loses some oxygen. I think in the next meeting

519
00:25:42,000 --> 00:25:44,679
Speaker 2: in December, if you don't have the data to convert

520
00:25:44,680 --> 00:25:46,800
Speaker 2: the hawks on the committee, yeah, how are they going

521
00:25:46,840 --> 00:25:47,480
Speaker 2: to vote?

522
00:25:47,600 --> 00:25:49,080
Speaker 4: They're going to forecast it to next year.

523
00:25:49,520 --> 00:25:51,240
Speaker 10: I mean, we'll have to deal with the data that

524
00:25:51,240 --> 00:25:54,040
Speaker 10: we do have. Obviously, we'll have the surveys. Isms probably

525
00:25:54,080 --> 00:25:56,800
Speaker 10: get more important. The FED will probably put more weight

526
00:25:56,880 --> 00:25:59,640
Speaker 10: maybe than I would on something like ADP employment.

527
00:26:01,080 --> 00:26:02,800
Speaker 7: But Yeah, it is tricky.

528
00:26:02,880 --> 00:26:05,400
Speaker 2: Are you seeing sufficient deterioration and the other indicators.

529
00:26:06,040 --> 00:26:10,440
Speaker 10: It doesn't seem like we're getting that break yet. We fortunately,

530
00:26:10,600 --> 00:26:12,439
Speaker 10: probably one of the best data points to have. We

531
00:26:12,480 --> 00:26:14,880
Speaker 10: are getting claims. We are getting the weekly job as

532
00:26:14,880 --> 00:26:17,600
Speaker 10: claims data. We just have to aggregate it ourselves. From

533
00:26:17,640 --> 00:26:20,920
Speaker 10: the states. We have seen continuing claims starting to tick

534
00:26:21,000 --> 00:26:23,879
Speaker 10: up again. Initial claims are still low, but that's going

535
00:26:23,920 --> 00:26:24,600
Speaker 10: to be an important one.

536
00:26:24,720 --> 00:26:26,760
Speaker 2: Let us say on initial claims, do just thank gif

537
00:26:26,800 --> 00:26:29,000
Speaker 2: you in the team pause that maybe the labor market

538
00:26:29,080 --> 00:26:30,320
Speaker 2: is not as bad as you and some of the

539
00:26:30,400 --> 00:26:31,560
Speaker 2: tubs on the committee thinks it is.

540
00:26:31,720 --> 00:26:33,080
Speaker 7: Yeah, it is tricky.

541
00:26:33,080 --> 00:26:35,160
Speaker 10: We're getting into the time of year which this happened

542
00:26:35,240 --> 00:26:38,439
Speaker 10: last year. Also where there is this residual seasonality pattern

543
00:26:38,480 --> 00:26:40,919
Speaker 10: in the data, where we had the weakness in summer

544
00:26:40,960 --> 00:26:43,879
Speaker 10: twenty twenty four and then things seem to stabilize. I

545
00:26:43,880 --> 00:26:46,480
Speaker 10: think that seasonal pattern comes from this lack of hiring.

546
00:26:46,800 --> 00:26:48,320
Speaker 10: This is a time of year when you're not usually

547
00:26:48,359 --> 00:26:50,080
Speaker 10: hiring a bunch of people, but you're not laying anyone

548
00:26:50,240 --> 00:26:53,240
Speaker 10: off either. The issue is when we saw that happen

549
00:26:53,320 --> 00:26:55,760
Speaker 10: last year, it never got better, right, We just repeated

550
00:26:55,800 --> 00:26:56,560
Speaker 10: it this summer.

551
00:26:57,200 --> 00:26:59,960
Speaker 6: How much does the QT plan really matter the balance sheet?

552
00:27:00,080 --> 00:27:01,879
Speaker 6: And there was some flirting with that in some of

553
00:27:01,880 --> 00:27:04,840
Speaker 6: the recent speaks, as speeches from Fed shir Jpwell that

554
00:27:04,840 --> 00:27:08,159
Speaker 6: they were planning on stopping some of the shrinking of

555
00:27:08,200 --> 00:27:11,439
Speaker 6: their balance sheet. Is that important to understand what the

556
00:27:11,440 --> 00:27:14,400
Speaker 6: directionality is for them in terms of policy?

557
00:27:14,520 --> 00:27:14,760
Speaker 2: Yeah?

558
00:27:15,000 --> 00:27:17,480
Speaker 10: I think maybe my takeaway from it is just a

559
00:27:17,560 --> 00:27:20,560
Speaker 10: lesson that the FED is extra cautious right when we

560
00:27:20,640 --> 00:27:23,760
Speaker 10: started to maybe get to the point where maybe reserves

561
00:27:23,760 --> 00:27:26,720
Speaker 10: are not so abundant, maybe they're just ample they're maybe

562
00:27:26,800 --> 00:27:28,840
Speaker 10: talking about ending it earlier. I don't think they'll announce

563
00:27:28,840 --> 00:27:30,800
Speaker 10: anything this week. It's maybe you end of this year

564
00:27:30,840 --> 00:27:33,840
Speaker 10: into Q one, but they are extra cautious when it

565
00:27:33,840 --> 00:27:35,040
Speaker 10: comes to everything.

566
00:27:35,400 --> 00:27:37,639
Speaker 6: What's the takeaway from you and Andrew That you've had

567
00:27:37,680 --> 00:27:40,200
Speaker 6: an ultra dubvish FED for a long time, You've had

568
00:27:40,200 --> 00:27:44,080
Speaker 6: inflationary shocks, you have an ongoing inflationary shock, and that

569
00:27:44,160 --> 00:27:47,560
Speaker 6: the knee jerk response is to risk managed the downside

570
00:27:47,600 --> 00:27:49,920
Speaker 6: in the labor market, regardless of which I was talking

571
00:27:49,960 --> 00:27:50,720
Speaker 6: about that three.

572
00:27:50,560 --> 00:27:52,160
Speaker 4: Percent inflation rate.

573
00:27:52,560 --> 00:27:54,800
Speaker 6: How do you understand why the market isn't pricing at

574
00:27:54,800 --> 00:27:56,639
Speaker 6: a greater degree of inflation longer term.

575
00:27:56,760 --> 00:28:01,040
Speaker 10: Yeah, I mean maybe speaks to some confidence in the FED. Right,

576
00:28:01,040 --> 00:28:03,959
Speaker 10: we haven't seen the long run inflation expectations going higher.

577
00:28:04,520 --> 00:28:06,879
Speaker 10: If we did see that, obviously that's a game changer.

578
00:28:07,400 --> 00:28:09,840
Speaker 10: But I think the market is taking what we see

579
00:28:09,840 --> 00:28:12,320
Speaker 10: in the labor market data, and that is not a

580
00:28:12,520 --> 00:28:15,680
Speaker 10: scenario that creates inflation, right, a weaker labor market.

581
00:28:15,600 --> 00:28:18,919
Speaker 2: And a huge freecount about the erosion of institutional credibility.

582
00:28:18,960 --> 00:28:21,320
Speaker 2: It's just when you look at market based indicators don't

583
00:28:21,359 --> 00:28:22,320
Speaker 2: quite see the same.

584
00:28:22,160 --> 00:28:23,000
Speaker 4: Thing at all.

585
00:28:23,080 --> 00:28:24,399
Speaker 6: I mean, if you take a look at long term

586
00:28:24,440 --> 00:28:26,639
Speaker 6: inflation expectations, they've come down in the ten years. The

587
00:28:26,680 --> 00:28:29,000
Speaker 6: cleanest read on that, I just thought it was notable.

588
00:28:29,160 --> 00:28:31,240
Speaker 6: In an interview in the Financial Times over the weekend,

589
00:28:31,280 --> 00:28:34,359
Speaker 6: Scott Bessett talked about his strategy. What he said is

590
00:28:34,400 --> 00:28:37,080
Speaker 6: we want the most America first policies that are possible

591
00:28:37,359 --> 00:28:40,720
Speaker 6: without incurring market wrath. And he was saying, unlike most

592
00:28:40,720 --> 00:28:43,920
Speaker 6: of my predecessors, have a very healthy skepticism of elite institutions,

593
00:28:44,560 --> 00:28:46,880
Speaker 6: but I have a healthy regard for the market and

594
00:28:46,920 --> 00:28:48,640
Speaker 6: that is very much a focus of us.

595
00:28:48,800 --> 00:28:51,320
Speaker 4: As he goes through crafting policy, and.

596
00:28:51,240 --> 00:28:54,280
Speaker 9: He almost felt vindicated in that interview. Who's talking about

597
00:28:54,320 --> 00:28:56,280
Speaker 9: where the hell is the market risk? He's looking at

598
00:28:56,320 --> 00:28:58,440
Speaker 9: basically all time highs when it comes to the S

599
00:28:58,520 --> 00:29:00,920
Speaker 9: and P. Five hundred. It's interesting when it comes to

600
00:29:01,000 --> 00:29:02,800
Speaker 9: the Fed. The President told us we're getting a Christmas

601
00:29:02,800 --> 00:29:04,880
Speaker 9: gift end of the year. We will have a name

602
00:29:05,280 --> 00:29:07,440
Speaker 9: by the end of the year of what next year

603
00:29:07,560 --> 00:29:10,520
Speaker 9: potentially policy path forward will look like.

604
00:29:10,720 --> 00:29:12,640
Speaker 2: Think the Treasury Secretary's done a good job of mind

605
00:29:12,720 --> 00:29:15,880
Speaker 2: time on that issue, just stretching things out the land,

606
00:29:15,920 --> 00:29:17,959
Speaker 2: things into your end. There was a feeling at one

607
00:29:18,000 --> 00:29:20,520
Speaker 2: point in the summer you'd gain that decision maybe around

608
00:29:20,560 --> 00:29:21,320
Speaker 2: September time.

609
00:29:21,400 --> 00:29:23,040
Speaker 4: It's been pushed down a number of months.

610
00:29:23,240 --> 00:29:26,440
Speaker 9: Remember that's when they were jaw boning mister tooleate J.

611
00:29:26,640 --> 00:29:29,200
Speaker 9: Powell and the President had called him. Now that the

612
00:29:29,200 --> 00:29:32,160
Speaker 9: Fed is cutting I think it's the FED that gave

613
00:29:32,200 --> 00:29:36,120
Speaker 9: the Treasury time to make this process a little bit

614
00:29:36,160 --> 00:29:37,280
Speaker 9: longer than they were expecting.

615
00:29:37,360 --> 00:29:39,720
Speaker 2: Just quickly, Veronica, of the names on the screen, you

616
00:29:39,800 --> 00:29:42,240
Speaker 2: and a team's got to pick yet, No, don't want

617
00:29:42,240 --> 00:29:43,280
Speaker 2: to go there, opinions.

618
00:29:43,440 --> 00:29:44,200
Speaker 7: Yeah, soon.

619
00:29:45,600 --> 00:29:49,160
Speaker 2: This is the Bloomberg sevens podcast, bringing you the best

620
00:29:49,160 --> 00:29:52,720
Speaker 2: in markets, economics, angiopolitics. You can watch the show live

621
00:29:52,840 --> 00:29:55,800
Speaker 2: on Bloomberg TV weekday mornings from six am to nine

622
00:29:55,880 --> 00:29:59,560
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or

623
00:29:59,600 --> 00:30:02,240
Speaker 2: anywhere else you listen, and as always, on the Bloomberg

624
00:30:02,320 --> 00:30:08,720
Speaker 2: Terminal and the Bloomberg Business app. Mm hmm