1 00:00:00,840 --> 00:00:02,560 Speaker 1: Welcome to the Bloomberg Markets Podcast. 2 00:00:02,720 --> 00:00:05,240 Speaker 2: I'm Paul Sweeney. Alongside my co host Matt Miller. 3 00:00:05,640 --> 00:00:09,600 Speaker 1: Every business day we bring you interviews from CEOs, market pros, 4 00:00:09,720 --> 00:00:14,400 Speaker 1: and Bloomberg experts, along with essential market moven News. Find 5 00:00:14,400 --> 00:00:17,479 Speaker 1: the Bloomberg Markets podcast called Apple Podcasts or wherever you 6 00:00:17,520 --> 00:00:20,520 Speaker 1: listen to podcasts, and at Bloomberg dot com slash podcast. 7 00:00:20,880 --> 00:00:24,360 Speaker 1: Let's bring in Liz McCormick. She is our chief correspondent 8 00:00:24,720 --> 00:00:28,640 Speaker 1: for Global macro markets over at Bloomberg News and Joe 9 00:00:28,640 --> 00:00:31,000 Speaker 1: Wisenthal host You know him as the host of the 10 00:00:31,040 --> 00:00:34,080 Speaker 1: Odd Lots podcast. I know I'm as the host of 11 00:00:34,120 --> 00:00:37,640 Speaker 1: What You Miss. It's a show I deeply miss. That's 12 00:00:37,680 --> 00:00:42,479 Speaker 1: what I miss is that show. In any case, I 13 00:00:42,479 --> 00:00:45,080 Speaker 1: want to get the take of both of you. Liz, 14 00:00:45,120 --> 00:00:47,760 Speaker 1: I'll ask you first because I couldn't sleep last night. 15 00:00:47,840 --> 00:00:50,000 Speaker 1: I woke up, like in the middle of the night 16 00:00:50,080 --> 00:00:53,960 Speaker 1: and I read your fantastic story on the increasing and 17 00:00:53,960 --> 00:00:57,480 Speaker 1: increasingly scary government deficits and interest payments. 18 00:00:57,680 --> 00:00:59,520 Speaker 2: What do you think about Powell speech? 19 00:01:00,440 --> 00:01:02,680 Speaker 3: Well, I think pal, like you guys were saying, I 20 00:01:02,720 --> 00:01:04,399 Speaker 3: think he did what he wanted. He wants to leave 21 00:01:04,440 --> 00:01:08,399 Speaker 3: himself like Muhammad al Arian said full optionality. He's not 22 00:01:08,480 --> 00:01:11,559 Speaker 3: boxing himself into a corner. He didn't give at all 23 00:01:11,600 --> 00:01:13,360 Speaker 3: on you know, they're going to give up on the 24 00:01:13,400 --> 00:01:16,440 Speaker 3: two percent target. The job isn't done. He noted a 25 00:01:16,480 --> 00:01:19,440 Speaker 3: few good things, you know where inflations come down. But 26 00:01:19,520 --> 00:01:22,480 Speaker 3: I think he just he doesn't want to give any signal, 27 00:01:22,600 --> 00:01:25,000 Speaker 3: you know, like markets pricing. He's not going to do 28 00:01:25,040 --> 00:01:28,320 Speaker 3: anything in September, him and his folks, but that there 29 00:01:28,480 --> 00:01:30,480 Speaker 3: could be more. And I think him saying, you know, 30 00:01:30,720 --> 00:01:33,480 Speaker 3: if the if things remain resilient, we could do more. 31 00:01:33,920 --> 00:01:35,800 Speaker 3: It just kind of goes in line with I just 32 00:01:36,160 --> 00:01:39,520 Speaker 3: all these predictions. I think, you know, we will see 33 00:01:39,520 --> 00:01:41,760 Speaker 3: what happens. And it's all about the data, right. If 34 00:01:41,800 --> 00:01:45,240 Speaker 3: the data comes out stronger, inflation picks up, they could 35 00:01:45,240 --> 00:01:47,440 Speaker 3: do more. Like Craig Torus always tells me, they'll do 36 00:01:47,480 --> 00:01:48,200 Speaker 3: whatever they want. 37 00:01:48,400 --> 00:01:50,960 Speaker 4: You know, Well, I want to talk there was We 38 00:01:51,040 --> 00:01:55,520 Speaker 4: had a story out from our Ruth Carson about the 39 00:01:55,880 --> 00:01:59,640 Speaker 4: the r start, the theoretical level at which rate schnyder 40 00:01:59,720 --> 00:02:04,120 Speaker 4: st emulate nor restrict and economy and j Pell did 41 00:02:04,160 --> 00:02:07,240 Speaker 4: have something tiny to say about that. He said, we 42 00:02:07,280 --> 00:02:11,440 Speaker 4: cannot identify the certainty, with certainty the neutral rate of 43 00:02:11,600 --> 00:02:13,320 Speaker 4: interest And. 44 00:02:13,280 --> 00:02:15,399 Speaker 2: We've never been able to write never. 45 00:02:15,600 --> 00:02:16,840 Speaker 1: It's an abstract number. 46 00:02:16,840 --> 00:02:18,639 Speaker 2: It's theoretical, it's ephemeral. 47 00:02:18,800 --> 00:02:21,240 Speaker 1: I mean, all of a sudden, people are acting like 48 00:02:21,360 --> 00:02:22,920 Speaker 1: our star is calculable. 49 00:02:23,480 --> 00:02:25,480 Speaker 2: Well, I didn't understand what this debate. 50 00:02:25,520 --> 00:02:28,680 Speaker 1: Where has this debate coming from? Well, Joe, that's why 51 00:02:28,680 --> 00:02:29,440 Speaker 1: I want to bring you in. 52 00:02:29,880 --> 00:02:31,960 Speaker 4: Get what what is the what is the rate of 53 00:02:32,240 --> 00:02:32,959 Speaker 4: the neutral? 54 00:02:33,040 --> 00:02:33,440 Speaker 5: Right here? 55 00:02:34,880 --> 00:02:36,320 Speaker 6: Are you ready for my big number? 56 00:02:36,320 --> 00:02:37,160 Speaker 1: I'm gonna reveal. 57 00:02:37,440 --> 00:02:39,239 Speaker 6: I'm going to reveal the news I heard it was 58 00:02:39,280 --> 00:02:41,160 Speaker 6: two point five I think it may be two point 59 00:02:41,280 --> 00:02:42,120 Speaker 6: five five percent. 60 00:02:42,240 --> 00:02:43,520 Speaker 2: Now, no, I have no idea. 61 00:02:43,760 --> 00:02:46,000 Speaker 6: But you know what's interesting to me is that it's 62 00:02:46,040 --> 00:02:48,160 Speaker 6: prior to the speech. You know, everyone's like, well, what's 63 00:02:48,160 --> 00:02:50,120 Speaker 6: the buzzers in checkson hole? What do people talk about? 64 00:02:50,320 --> 00:02:51,639 Speaker 6: And people are like, oh, is he going to give 65 00:02:51,639 --> 00:02:55,120 Speaker 6: a speech about like where our star is now and 66 00:02:55,200 --> 00:02:58,880 Speaker 6: some thing theoretical and or is he going to maybe 67 00:02:58,919 --> 00:03:01,120 Speaker 6: talk about productivity game? And it's like, you know, this 68 00:03:01,160 --> 00:03:05,040 Speaker 6: is an academic conference in theory. Last year he sort 69 00:03:05,040 --> 00:03:08,440 Speaker 6: of pollow speech was like almost infamously short, like eight minutes, 70 00:03:08,480 --> 00:03:10,440 Speaker 6: and he's just like we're not here to make friends. 71 00:03:10,480 --> 00:03:12,800 Speaker 6: We're just here to you know, get inflation down. And 72 00:03:12,840 --> 00:03:15,919 Speaker 6: so this year was like basically the same thing, and 73 00:03:15,919 --> 00:03:18,880 Speaker 6: it's once again he's sort of passed on the opportunity 74 00:03:19,040 --> 00:03:23,280 Speaker 6: to deliver some like theoretical academic monetary policy speech and 75 00:03:23,320 --> 00:03:26,560 Speaker 6: he basically said, this time in a few more words, 76 00:03:26,880 --> 00:03:29,480 Speaker 6: but not, you know, we're still just our job is 77 00:03:29,520 --> 00:03:32,639 Speaker 6: to get inflation down. And you know, there's some progress 78 00:03:32,680 --> 00:03:34,800 Speaker 6: and there's some signs of encouragement, but it's still too 79 00:03:34,840 --> 00:03:36,760 Speaker 6: high and there's still more work to do. So I 80 00:03:36,760 --> 00:03:39,200 Speaker 6: do think it's interesting that while people have these discussions 81 00:03:39,240 --> 00:03:40,880 Speaker 6: about what is our star and can we know it 82 00:03:40,880 --> 00:03:43,920 Speaker 6: in real time? And is this a useful guide, that 83 00:03:44,440 --> 00:03:47,080 Speaker 6: he did not come here to address that question. And 84 00:03:47,120 --> 00:03:49,120 Speaker 6: to the extent he did talk about stars, he's like, well, 85 00:03:49,120 --> 00:03:50,880 Speaker 6: it's a cloudy sky, so we probably can't see the 86 00:03:50,920 --> 00:03:51,560 Speaker 6: stars anyway. 87 00:03:51,960 --> 00:03:54,080 Speaker 1: But Joe, we know what we don't know, right, We 88 00:03:54,120 --> 00:03:57,440 Speaker 1: know we can't know our star in real time. Everyone like, 89 00:03:58,480 --> 00:04:01,600 Speaker 1: I've never thought of this as an number someone could pinpoint. 90 00:04:01,680 --> 00:04:07,840 Speaker 1: Even he's not a theoretical academic j Powell, So especially 91 00:04:07,920 --> 00:04:09,320 Speaker 1: he doesn't know what it is. 92 00:04:09,680 --> 00:04:11,000 Speaker 3: Well, you know, bond investors. 93 00:04:11,040 --> 00:04:11,760 Speaker 2: That's what they do. 94 00:04:11,880 --> 00:04:13,600 Speaker 3: They would say, Hey, we're trying to figure out our 95 00:04:13,640 --> 00:04:16,440 Speaker 3: bond math, you know, you know, this is what we 96 00:04:16,520 --> 00:04:19,040 Speaker 3: price off of, is our biz, you know, so we're 97 00:04:19,080 --> 00:04:21,640 Speaker 3: going to make an estimate people are watching. I think 98 00:04:21,720 --> 00:04:23,080 Speaker 3: Joe has talked about this before. 99 00:04:23,440 --> 00:04:24,240 Speaker 2: You know, the dots. 100 00:04:24,320 --> 00:04:26,160 Speaker 3: You know, we know the median has stayed at two 101 00:04:26,200 --> 00:04:29,120 Speaker 3: and a half and that's the nominal neutral rate, but 102 00:04:29,240 --> 00:04:30,600 Speaker 3: the average is moving up. 103 00:04:30,800 --> 00:04:33,480 Speaker 1: So that's what bond people do. Right, there's supposed to 104 00:04:33,520 --> 00:04:34,160 Speaker 1: be ahead of the game. 105 00:04:34,200 --> 00:04:34,920 Speaker 2: But I think you're right. 106 00:04:34,960 --> 00:04:37,839 Speaker 3: I mean I come from a math background. Things like 107 00:04:37,880 --> 00:04:40,880 Speaker 3: even term premium is a residual stuff. That's you know 108 00:04:41,200 --> 00:04:44,360 Speaker 3: that you can't point put pinpoint estimate. But the bond people, 109 00:04:44,400 --> 00:04:47,679 Speaker 3: that's what they're about, kind of speculating and doing their 110 00:04:47,720 --> 00:04:48,719 Speaker 3: models and whatnot. 111 00:04:48,920 --> 00:04:52,159 Speaker 4: Yeah, was there any sign that like the long term 112 00:04:52,240 --> 00:04:55,480 Speaker 4: dot plot has changed at all in this speech? 113 00:04:55,640 --> 00:04:58,120 Speaker 3: Well no, not in this speech, but I will say, 114 00:04:58,120 --> 00:05:02,240 Speaker 3: you know, the quarterly the economic figures they put out 115 00:05:02,279 --> 00:05:05,480 Speaker 3: with the dot plot, people have looked at you know, 116 00:05:05,680 --> 00:05:08,520 Speaker 3: we always flash the median is two and a half, 117 00:05:08,560 --> 00:05:10,240 Speaker 3: has stayed there for a bit now, but. 118 00:05:10,279 --> 00:05:12,320 Speaker 2: That the average if you take the average. 119 00:05:12,360 --> 00:05:14,760 Speaker 3: There's a few more policy makers that have bumped it 120 00:05:14,839 --> 00:05:17,120 Speaker 3: up a little, like Joe saying two point five to five. 121 00:05:17,360 --> 00:05:19,480 Speaker 1: You know, so it's but you're taking what the median 122 00:05:19,560 --> 00:05:21,280 Speaker 1: dot and then taking out inflation. 123 00:05:22,200 --> 00:05:24,159 Speaker 3: Well, yeah, so if you take the median dot, which 124 00:05:24,200 --> 00:05:25,960 Speaker 3: is a nominal rate in two and a. 125 00:05:25,960 --> 00:05:28,800 Speaker 2: Half, which usually and you say the fits to your end. 126 00:05:28,960 --> 00:05:31,040 Speaker 3: Yeah, but if you say the fits two percent inflation, 127 00:05:31,200 --> 00:05:34,680 Speaker 3: that's like a neutral real rate of about fifty basis 128 00:05:34,680 --> 00:05:37,240 Speaker 3: points right, that's kind of the going rate. So bond 129 00:05:37,279 --> 00:05:39,359 Speaker 3: people are saying, maybe it's gonna tick up a little 130 00:05:39,440 --> 00:05:41,760 Speaker 3: higher with the long run dot to show us maybe 131 00:05:41,760 --> 00:05:45,279 Speaker 3: they think neutral is higher. Who knows, but I think 132 00:05:45,400 --> 00:05:47,920 Speaker 3: you know, I said, we have to talk about this 133 00:05:48,040 --> 00:05:51,479 Speaker 3: because nothing against stock people, but everybody and their brother 134 00:05:51,640 --> 00:05:54,280 Speaker 3: stock people, you name it, are talking about our star. 135 00:05:54,480 --> 00:05:56,800 Speaker 1: Like you said it something like no one gave a 136 00:05:56,839 --> 00:05:59,520 Speaker 1: hoot about it. I always try and guess on the 137 00:05:59,520 --> 00:06:02,920 Speaker 1: Bloomber terminal. We have a great tailor rule function and 138 00:06:03,000 --> 00:06:06,559 Speaker 1: you have to put in your neutral real rate guestimate there, 139 00:06:06,720 --> 00:06:08,800 Speaker 1: which is part of the fun of it and also 140 00:06:09,000 --> 00:06:11,920 Speaker 1: mos most the most infuriating part of it. I think 141 00:06:12,040 --> 00:06:14,920 Speaker 1: the nehru too, Like it's another one of those numbers 142 00:06:14,960 --> 00:06:16,960 Speaker 1: that we just don't really know, right Joe. 143 00:06:17,560 --> 00:06:20,960 Speaker 6: But yeah, I mean, look, you will not get any 144 00:06:21,040 --> 00:06:25,200 Speaker 6: real disagreement anyone's like, oh, like, no one. You'd be 145 00:06:25,240 --> 00:06:27,240 Speaker 6: hard pressed to find someone who could like really say, oh, 146 00:06:27,279 --> 00:06:28,960 Speaker 6: this is the number and we know it in real time, etc. 147 00:06:29,440 --> 00:06:31,360 Speaker 6: But in the defense, if I were gonna like mount 148 00:06:31,440 --> 00:06:34,080 Speaker 6: some sort of defense of the concept, it's like, well, 149 00:06:34,120 --> 00:06:37,320 Speaker 6: the economy feels different today in twenty twenty three than 150 00:06:37,320 --> 00:06:41,360 Speaker 6: it did in twenty thirteen, and what are some reasons. Well, 151 00:06:41,400 --> 00:06:44,880 Speaker 6: we did get this like really different fiscal response to 152 00:06:44,960 --> 00:06:48,719 Speaker 6: the crisis that we saw, you know, of COVID versus 153 00:06:48,760 --> 00:06:51,120 Speaker 6: the fiscal response that we got to the Great Financial 154 00:06:51,160 --> 00:06:54,760 Speaker 6: Crisis and so forth. So there are some structural differences. 155 00:06:54,839 --> 00:06:57,880 Speaker 6: It would seem the labor market was really tons of 156 00:06:57,920 --> 00:07:01,320 Speaker 6: slack over the twenty tens. Now about labor marketing tightness, 157 00:07:01,400 --> 00:07:04,839 Speaker 6: maybe some demographic changes, maybe some changes in the nature 158 00:07:04,839 --> 00:07:08,200 Speaker 6: of world trade and whether you know, you know, whether 159 00:07:08,240 --> 00:07:11,560 Speaker 6: there's this sort of ongoing disinflationary trend. So I don't 160 00:07:11,600 --> 00:07:13,760 Speaker 6: think it's many people are going to say, Okay, we 161 00:07:13,920 --> 00:07:18,200 Speaker 6: know this number in real time but is an exercise 162 00:07:18,240 --> 00:07:21,960 Speaker 6: to think, well, could we have structurally higher rates because 163 00:07:21,960 --> 00:07:26,440 Speaker 6: of some fundamental difference in macro, particularly around globalization, particularly 164 00:07:26,480 --> 00:07:29,640 Speaker 6: around fiscal I don't think that's like a crazy conversation 165 00:07:29,840 --> 00:07:33,480 Speaker 6: to have that. And also, furthermore, this idea that maybe, 166 00:07:33,520 --> 00:07:35,320 Speaker 6: like you know, we sort of got anchored to this 167 00:07:35,400 --> 00:07:38,160 Speaker 6: zerup era in our minds where everyone's like, well that 168 00:07:38,240 --> 00:07:39,880 Speaker 6: was the normal and rates are going to come down. 169 00:07:40,200 --> 00:07:42,040 Speaker 6: And of course, you know, like we know the twenty 170 00:07:42,080 --> 00:07:45,000 Speaker 6: tens were sort of a historical aberration. Maybe it could 171 00:07:45,040 --> 00:07:46,520 Speaker 6: be more like the eighties, Maybe it could be more 172 00:07:46,560 --> 00:07:47,760 Speaker 6: like the nineties. 173 00:07:47,800 --> 00:07:48,200 Speaker 2: We don't know. 174 00:07:48,640 --> 00:07:51,960 Speaker 6: So I think maybe there is some value in discussing 175 00:07:52,200 --> 00:07:56,080 Speaker 6: did something structural change about the macron landscape globally or 176 00:07:56,200 --> 00:07:58,160 Speaker 6: in the United States that would say, you know what, 177 00:07:58,160 --> 00:07:59,960 Speaker 6: we are going to have higher rates for longer than 178 00:08:00,040 --> 00:08:02,720 Speaker 6: we would have expected. What are those conditions? And maybe 179 00:08:02,760 --> 00:08:04,360 Speaker 6: that is a fruitful conversation I have. 180 00:08:04,560 --> 00:08:05,760 Speaker 2: Of course that's fair. 181 00:08:05,840 --> 00:08:07,920 Speaker 1: And I think I can't remember the name exactly of 182 00:08:07,920 --> 00:08:10,480 Speaker 1: the Jackson Hole Symposium, but it's like, I think the 183 00:08:10,560 --> 00:08:14,120 Speaker 1: name out, I think structural change, structural And you know, 184 00:08:14,440 --> 00:08:17,960 Speaker 1: we heard Jim Bullard talking to Mike McKee yesterday, and 185 00:08:18,040 --> 00:08:20,160 Speaker 1: he did say he thinks we're in a new and 186 00:08:20,720 --> 00:08:24,320 Speaker 1: a new inflation regime, a new interest rate regime. 187 00:08:24,640 --> 00:08:26,560 Speaker 2: But I think we all agree on that already. 188 00:08:26,640 --> 00:08:30,000 Speaker 1: I thought, you know, yes, our star thing Cloudy Assam 189 00:08:30,160 --> 00:08:32,200 Speaker 1: told Tom Keen a couple of days ago she of 190 00:08:32,240 --> 00:08:35,000 Speaker 1: the psalm rule. I can't remember where she went to 191 00:08:35,000 --> 00:08:37,240 Speaker 1: grad school, but she went to Denise University, which makes 192 00:08:37,280 --> 00:08:37,960 Speaker 1: me pretty proud. 193 00:08:38,200 --> 00:08:39,760 Speaker 2: But she said that was to her. 194 00:08:39,800 --> 00:08:42,920 Speaker 1: The most interesting debate at jacksonvill was where is our start? 195 00:08:42,960 --> 00:08:45,080 Speaker 1: And that's when I started to think things are getting 196 00:08:45,080 --> 00:08:45,920 Speaker 1: a little weird. 197 00:08:46,000 --> 00:08:48,280 Speaker 4: Well, I mean, you talk about a paradigm shift. Though 198 00:08:49,400 --> 00:08:52,920 Speaker 4: I was looking at the thirty year yield and we're 199 00:08:52,920 --> 00:08:57,719 Speaker 4: back close to where we were in twenty eleven. I mean, 200 00:08:57,880 --> 00:09:02,040 Speaker 4: are we just going back like a decade plus but 201 00:09:02,440 --> 00:09:05,720 Speaker 4: not to the nineties or to the eighties, if that's 202 00:09:05,760 --> 00:09:08,520 Speaker 4: where we're talking about where long term yields are. And 203 00:09:08,559 --> 00:09:10,240 Speaker 4: maybe put this in the context. 204 00:09:09,840 --> 00:09:13,000 Speaker 1: Mortgage rates are where they were when was more the 205 00:09:13,080 --> 00:09:14,880 Speaker 1: mortgage rate lasted seven and a half. 206 00:09:15,000 --> 00:09:18,640 Speaker 4: I think that was early two thousands. I forget which year, 207 00:09:18,679 --> 00:09:23,040 Speaker 4: but I mean, is there a prospect that we as 208 00:09:23,080 --> 00:09:28,120 Speaker 4: with as with home buyers, simply a just slowly over 209 00:09:28,200 --> 00:09:32,400 Speaker 4: time to like slightly higher rates. And what does that mean? 210 00:09:32,520 --> 00:09:33,400 Speaker 4: What do you think that means? 211 00:09:33,440 --> 00:09:36,080 Speaker 3: Liz, Yeah, I think I think I was gonna bring 212 00:09:36,120 --> 00:09:38,440 Speaker 3: that up that I think that's the broader picture besides 213 00:09:38,440 --> 00:09:41,960 Speaker 3: this our star gazing is that there's a lot of people, 214 00:09:41,960 --> 00:09:45,439 Speaker 3: like Bill Dudley has written about that feel like overall 215 00:09:45,520 --> 00:09:49,480 Speaker 3: the system is going to have structurally higher rates for longer, 216 00:09:49,600 --> 00:09:51,720 Speaker 3: meaning you know, we're not going to go like so 217 00:09:51,960 --> 00:09:54,600 Speaker 3: we're saying, oh, we're at the highest rates since two 218 00:09:54,640 --> 00:09:57,600 Speaker 3: thousand and seven, and certain tenors and treasuries and whatnot, 219 00:09:57,679 --> 00:10:01,280 Speaker 3: but you know that maybe we're we're supposed to be there, 220 00:10:01,320 --> 00:10:03,200 Speaker 3: that things have changed part of a little bit what 221 00:10:03,280 --> 00:10:06,200 Speaker 3: Joe was saying, that we're you know, maybe inflation is. 222 00:10:06,200 --> 00:10:08,000 Speaker 1: Going to stay sticky. Even in the Fed's. 223 00:10:07,720 --> 00:10:09,840 Speaker 3: Forecast, they don't get to their two percent goal for 224 00:10:10,080 --> 00:10:13,600 Speaker 3: several years, right, So if rates have to stay higher, 225 00:10:13,800 --> 00:10:15,720 Speaker 3: that may be that we all have to get used 226 00:10:15,720 --> 00:10:18,600 Speaker 3: to saying, oh, my home equity line is now at 227 00:10:18,920 --> 00:10:20,280 Speaker 3: seven and three quarters. 228 00:10:20,720 --> 00:10:23,679 Speaker 4: You know it's not seventeen twenty percent were in the 229 00:10:23,960 --> 00:10:25,000 Speaker 4: well that's eighty. 230 00:10:24,880 --> 00:10:26,400 Speaker 3: Right, that's what I mean, you're just going to just 231 00:10:26,480 --> 00:10:28,959 Speaker 3: and say maybe I'll do these three things in my house, 232 00:10:28,960 --> 00:10:32,319 Speaker 3: but not that one. But you know, some people are 233 00:10:32,400 --> 00:10:34,280 Speaker 3: you know, it depends on where you are. Some people 234 00:10:34,320 --> 00:10:37,880 Speaker 3: are having trouble keeping up with things, of course, you know, Joe. 235 00:10:37,920 --> 00:10:41,120 Speaker 1: What I think is most interesting is a debate about 236 00:10:41,120 --> 00:10:41,520 Speaker 1: what the. 237 00:10:43,040 --> 00:10:44,560 Speaker 2: Inflation target should be. 238 00:10:45,120 --> 00:10:47,880 Speaker 1: And I'm not saying I think it should change because 239 00:10:48,679 --> 00:10:51,720 Speaker 1: or or that it's really a special number at two percent. 240 00:10:51,800 --> 00:10:53,679 Speaker 1: I just think it's interesting when people talk about it. 241 00:10:54,200 --> 00:10:56,920 Speaker 1: I think, uh, you know, I don't like inflation. I 242 00:10:56,920 --> 00:11:00,720 Speaker 1: think it's a regressive tax. But that's just my opinion. 243 00:11:01,120 --> 00:11:02,760 Speaker 1: It could be any any target. 244 00:11:02,800 --> 00:11:03,640 Speaker 2: What do you think. 245 00:11:05,240 --> 00:11:07,280 Speaker 6: Yeah, I think it's a really interesting question. I mean, 246 00:11:07,320 --> 00:11:09,920 Speaker 6: Powell is sort of adamant today that he's like, we're 247 00:11:10,000 --> 00:11:12,800 Speaker 6: not changing the inflation target, probably because of buzz of 248 00:11:12,840 --> 00:11:15,439 Speaker 6: people in the media. You know, there's adjacent Ferman columni. 249 00:11:15,440 --> 00:11:18,400 Speaker 6: It's like, maybe we should go to three percent. It 250 00:11:18,559 --> 00:11:21,640 Speaker 6: feels kind of academic, and I think they're in terms 251 00:11:21,640 --> 00:11:23,920 Speaker 6: of like, look, the way I think about it is 252 00:11:23,960 --> 00:11:27,040 Speaker 6: this three years ago at Jackson Hall. It was virtual 253 00:11:27,120 --> 00:11:29,280 Speaker 6: that year in twenty twenty, but three years ago at 254 00:11:29,360 --> 00:11:31,600 Speaker 6: Jackson Hall, the FED laid out it's a new framework, 255 00:11:31,720 --> 00:11:36,280 Speaker 6: flexible average inflation targeting, which essentially said that we're willing 256 00:11:36,280 --> 00:11:38,440 Speaker 6: to accept some trade off. We're willing to accept some 257 00:11:38,520 --> 00:11:41,800 Speaker 6: higher inflation in exchange for a more rapid pace of 258 00:11:41,920 --> 00:11:45,000 Speaker 6: labor market healing. That's basically what it was. And so 259 00:11:45,080 --> 00:11:47,680 Speaker 6: I think when you see these conversations about a higher 260 00:11:47,800 --> 00:11:50,559 Speaker 6: inflation target and whether the FED should tolerate three percent 261 00:11:50,640 --> 00:11:53,280 Speaker 6: or two and a half percent, etcetera, it's essentially asking 262 00:11:53,320 --> 00:11:55,559 Speaker 6: the same question, which is, we have a good labor 263 00:11:55,559 --> 00:11:58,079 Speaker 6: market right now. We have it's great three and a 264 00:11:58,080 --> 00:12:01,880 Speaker 6: half percent unemployment, that's really encouraging. The spread between black 265 00:12:01,920 --> 00:12:05,560 Speaker 6: and white employment. Unemployment has narrowed quite a bit. Wages 266 00:12:05,600 --> 00:12:08,280 Speaker 6: at the low end of the income scale are growing 267 00:12:08,320 --> 00:12:10,840 Speaker 6: faster than high high end. These are all things that 268 00:12:10,880 --> 00:12:13,040 Speaker 6: I think people generally wanted to see for a while. 269 00:12:13,320 --> 00:12:15,800 Speaker 6: So when I when the conversation happens about should we 270 00:12:15,800 --> 00:12:19,080 Speaker 6: tolerate higher inflation, to me, the real question is like 271 00:12:19,400 --> 00:12:22,800 Speaker 6: how much are we willing to sacrifice on the inflation 272 00:12:22,920 --> 00:12:25,360 Speaker 6: side in order to keep the good news on the 273 00:12:25,360 --> 00:12:27,680 Speaker 6: employment side. And so I think that is sort of 274 00:12:27,720 --> 00:12:30,360 Speaker 6: what this question is about. It's like two percent isn't 275 00:12:30,440 --> 00:12:33,280 Speaker 6: fixed in stone, it's ex sense of like what low 276 00:12:33,320 --> 00:12:37,000 Speaker 6: and stable inflation looks like. But given where we are unemployment, 277 00:12:37,400 --> 00:12:40,600 Speaker 6: should we tolerate how stressed should we be about some 278 00:12:40,640 --> 00:12:42,280 Speaker 6: periods where we're a little bit above that or three 279 00:12:42,320 --> 00:12:44,640 Speaker 6: percent three and a half percent? Do we want to 280 00:12:44,679 --> 00:12:47,120 Speaker 6: preserve what we have in the labor market? And this, 281 00:12:47,200 --> 00:12:49,360 Speaker 6: I think is the sort of real question. How much 282 00:12:49,440 --> 00:12:51,200 Speaker 6: do we how much are we willing to sacrifice of 283 00:12:51,240 --> 00:12:54,280 Speaker 6: what we've achieved on the labor market side to get 284 00:12:54,280 --> 00:12:56,680 Speaker 6: back to two percent? Is like, to me, the question 285 00:12:56,880 --> 00:12:59,479 Speaker 6: that really we're trying, we're really that we're really discussing 286 00:12:59,559 --> 00:13:01,480 Speaker 6: when we talk talk about raising the inflation target. 287 00:13:01,640 --> 00:13:03,719 Speaker 1: Joe, great talking to you, Thanks so much for joining us. 288 00:13:04,000 --> 00:13:07,280 Speaker 1: Joe Wisenthal, who co hosts odd Lots of Course with 289 00:13:07,360 --> 00:13:10,320 Speaker 1: Tracy Alloy Liz McCormick. Always a pleasure to have you 290 00:13:10,320 --> 00:13:10,840 Speaker 1: in the studio. 291 00:13:11,880 --> 00:13:15,280 Speaker 7: You're listening to the team. Ken's a live program Bloomberg 292 00:13:15,320 --> 00:13:18,640 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com, 293 00:13:18,760 --> 00:13:21,920 Speaker 7: the iHeartRadio app, and the Bloomberg Business app, or listen 294 00:13:22,000 --> 00:13:24,600 Speaker 7: on demand wherever you get your podcast. 295 00:13:25,840 --> 00:13:28,600 Speaker 1: Let's bring in someone who does this for a living. RJ. Gallo, 296 00:13:28,720 --> 00:13:32,200 Speaker 1: senior portfolio manager at Federated Hermes, joins us am I 297 00:13:32,240 --> 00:13:37,120 Speaker 1: being too glib, Rj. Because it doesn't seem like Powell 298 00:13:37,160 --> 00:13:41,640 Speaker 1: moved markets much. And he, I mean, my opinion of 299 00:13:41,679 --> 00:13:44,040 Speaker 1: what the Fed is going to do, my guess, my 300 00:13:44,120 --> 00:13:46,880 Speaker 1: forecast is just the same today as it was yesterday. 301 00:13:49,080 --> 00:13:51,600 Speaker 8: I think that the anticipation for the speech was that 302 00:13:51,720 --> 00:13:55,920 Speaker 8: it wouldn't necessarily be a seminal message like it was 303 00:13:56,280 --> 00:14:00,480 Speaker 8: a year ago, which was a really aggressive and powerful 304 00:14:00,520 --> 00:14:02,760 Speaker 8: message to the markets that we're tightening, and we're tightening 305 00:14:02,800 --> 00:14:06,959 Speaker 8: a lot that was a year ago intended to rebuild 306 00:14:06,960 --> 00:14:09,079 Speaker 8: their credibility as an inflation fighter, and I think that 307 00:14:09,440 --> 00:14:11,960 Speaker 8: has worked. Here we are in August of twenty twenty three. 308 00:14:12,800 --> 00:14:15,720 Speaker 8: I think we expected sort of an agnostic, cautious speech. 309 00:14:15,760 --> 00:14:18,560 Speaker 8: I think that's what we got has a little teeny 310 00:14:18,640 --> 00:14:20,520 Speaker 8: bit of a hawkish tilt to it, and as a result, 311 00:14:20,840 --> 00:14:25,200 Speaker 8: two year yields or a little cheaper treasurey occurs a 312 00:14:25,240 --> 00:14:28,240 Speaker 8: little flatter because of that sort of hawkas message. That 313 00:14:28,280 --> 00:14:30,760 Speaker 8: will tighten again if we need to. But it's a 314 00:14:30,800 --> 00:14:35,120 Speaker 8: cautious message because He also emphasizes the risk of doing 315 00:14:35,160 --> 00:14:37,880 Speaker 8: too much versus the risk of doing too little, repeating 316 00:14:37,960 --> 00:14:40,800 Speaker 8: some other messages that he's said before. As you noted, 317 00:14:41,120 --> 00:14:45,080 Speaker 8: I think that there's some information in the speech, maybe 318 00:14:45,080 --> 00:14:48,560 Speaker 8: most notably the line where he basically says the two 319 00:14:48,560 --> 00:14:52,360 Speaker 8: percent inflation target is the two percent inflation target he's 320 00:14:52,400 --> 00:14:54,600 Speaker 8: trying to push back I think on media speculation and 321 00:14:54,640 --> 00:14:58,240 Speaker 8: market speculation that the FED will want to increase its 322 00:14:58,240 --> 00:15:02,720 Speaker 8: inflation target over time. That was probably a subtle but 323 00:15:02,840 --> 00:15:05,640 Speaker 8: important point that was added here for specific purposes. 324 00:15:05,640 --> 00:15:07,680 Speaker 1: I believe one thing. 325 00:15:07,560 --> 00:15:11,840 Speaker 4: That did change the FED swaps beginning to price out 326 00:15:12,400 --> 00:15:17,680 Speaker 4: the first twenty five basis point rate cut, wopping next June, 327 00:15:18,120 --> 00:15:21,800 Speaker 4: moving to next July. And does that change your positioning 328 00:15:23,080 --> 00:15:25,800 Speaker 4: in treasuries at all? Does that make you any less 329 00:15:26,480 --> 00:15:29,960 Speaker 4: eager to purchase I think medium to long term duration 330 00:15:30,240 --> 00:15:33,360 Speaker 4: or is this sort of just all noise here for you? 331 00:15:35,840 --> 00:15:40,920 Speaker 8: I think were living in a challenging time. Many on 332 00:15:41,000 --> 00:15:44,240 Speaker 8: Wall Street, many investors, have been expecting that the cumulative 333 00:15:44,240 --> 00:15:48,320 Speaker 8: impact of the aggressive FED tightening would have produced a 334 00:15:48,400 --> 00:15:52,760 Speaker 8: sharp growth slowdown, perhaps a recession. By now, that had 335 00:15:52,800 --> 00:15:56,920 Speaker 8: been our internal call within Federate Hermey's fixed income. We 336 00:15:57,080 --> 00:15:59,920 Speaker 8: leave positioned to lean a little bit long duration and 337 00:16:00,120 --> 00:16:03,680 Speaker 8: up in quality, reducing weightings in high yield and investment grade, 338 00:16:03,720 --> 00:16:07,680 Speaker 8: for example, to underweight positions in anticipation of that economic outcome. 339 00:16:07,920 --> 00:16:10,280 Speaker 8: And it has not happened. The economy has not just 340 00:16:10,320 --> 00:16:14,960 Speaker 8: been resilient, it's been strong, supported by the consumer, supported 341 00:16:14,960 --> 00:16:19,160 Speaker 8: by government spending. Inflation fortunately has come down. Otherwise yields 342 00:16:19,160 --> 00:16:20,480 Speaker 8: would be a heck of a lot higher than they 343 00:16:20,480 --> 00:16:23,480 Speaker 8: are today. Imagine what yields would look like if inflation 344 00:16:23,600 --> 00:16:26,360 Speaker 8: was still six, seven or eight percent and the economy 345 00:16:26,440 --> 00:16:29,360 Speaker 8: was plugging along at high rates, relatively high rates of growth. 346 00:16:29,920 --> 00:16:33,280 Speaker 8: So the inflation story has worked, but the recession outcome 347 00:16:33,280 --> 00:16:36,920 Speaker 8: has not. Our vue is ultimately we are going to 348 00:16:36,920 --> 00:16:40,720 Speaker 8: see some diminished growth path. We keep pushing that back. 349 00:16:41,920 --> 00:16:45,360 Speaker 8: Today's news doesn't change our positioning per se, but I 350 00:16:45,480 --> 00:16:48,880 Speaker 8: think it does emphasize the agree to which the Fed 351 00:16:49,040 --> 00:16:51,960 Speaker 8: is very committed to seeing inflation return back close to 352 00:16:51,960 --> 00:16:55,080 Speaker 8: its sup percent target. And that means they're not in 353 00:16:55,080 --> 00:16:58,480 Speaker 8: a hurry to ease. They anticipate there'll be some easing 354 00:16:58,520 --> 00:17:01,640 Speaker 8: and growth. Powell explicitly talked about jolts weakening. In his 355 00:17:01,720 --> 00:17:05,320 Speaker 8: comments today, he also talked about the lower rated non 356 00:17:05,320 --> 00:17:09,560 Speaker 8: farm payroll job creation that we've been seeing recently. Positive, yes, 357 00:17:09,600 --> 00:17:13,600 Speaker 8: but at lower lower pace. And I think on net 358 00:17:14,240 --> 00:17:17,600 Speaker 8: you know this is the news today. Was not hugely 359 00:17:17,680 --> 00:17:20,600 Speaker 8: marketing movement, but it doesn't change our view. We still 360 00:17:20,640 --> 00:17:22,320 Speaker 8: lean a little long. We're still up in quality. We 361 00:17:22,359 --> 00:17:23,720 Speaker 8: think that growth slowdown will come. 362 00:17:24,200 --> 00:17:26,359 Speaker 1: Yeah. A couple of days ago, I was talking to 363 00:17:26,400 --> 00:17:28,480 Speaker 1: Michael Dardo over at MKM and he said we were 364 00:17:28,520 --> 00:17:31,119 Speaker 1: talking about high yield. He said he thinks junk is 365 00:17:32,800 --> 00:17:37,160 Speaker 1: his words, insanely expensive. And when I look at delinquencies 366 00:17:38,000 --> 00:17:41,679 Speaker 1: any chart, or or or you know, credit card usage, 367 00:17:41,760 --> 00:17:44,840 Speaker 1: it just goes up into the right recently. Are you 368 00:17:44,960 --> 00:17:50,320 Speaker 1: expecting to see more default? Shouldn't investors get more risk, sorry, 369 00:17:50,359 --> 00:17:52,120 Speaker 1: more reward for that kind of risk. 370 00:17:53,800 --> 00:17:55,720 Speaker 8: That's part of the reason why we are in fact 371 00:17:55,800 --> 00:17:58,760 Speaker 8: up in quality. We think on the on the macro front, 372 00:17:58,840 --> 00:18:01,520 Speaker 8: the consumer has been spending at a breakneck pace, and 373 00:18:01,560 --> 00:18:06,080 Speaker 8: they're pulling down on the COVID era access savings I 374 00:18:06,080 --> 00:18:08,440 Speaker 8: think we call it these days. Eventually that's going to 375 00:18:08,560 --> 00:18:12,400 Speaker 8: run pretty thin for mid and lower income households. We're 376 00:18:12,400 --> 00:18:14,760 Speaker 8: bringing back the student loan payments. That's going to have 377 00:18:14,840 --> 00:18:17,000 Speaker 8: some impact. So we think the consumer is going to 378 00:18:17,040 --> 00:18:20,600 Speaker 8: fade with respect to high yield. We think the evaluations 379 00:18:21,320 --> 00:18:24,160 Speaker 8: are too tight. We were underweight during the rally. We've 380 00:18:24,200 --> 00:18:26,520 Speaker 8: missed some of that, ad Midley, but we're not going 381 00:18:26,560 --> 00:18:29,400 Speaker 8: to chase it now. We think that because the fundamentals 382 00:18:29,440 --> 00:18:31,320 Speaker 8: should weaken and we think there will be some uptick 383 00:18:31,359 --> 00:18:34,240 Speaker 8: in defaults that we want to see wider spreads before 384 00:18:34,280 --> 00:18:37,160 Speaker 8: we start getting back more constructive on high yield. 385 00:18:38,119 --> 00:18:41,959 Speaker 4: You know, we were talking with our chief economics correspondent 386 00:18:42,080 --> 00:18:44,879 Speaker 4: or I think that's her title, Liz McCormick, just a 387 00:18:44,880 --> 00:18:46,960 Speaker 4: few minutes ago, and she had a great piece out 388 00:18:47,000 --> 00:18:51,640 Speaker 4: about how US budget deficits exploding no end in sight, 389 00:18:51,680 --> 00:18:56,280 Speaker 4: and there are economists very worried about the potential for 390 00:18:56,400 --> 00:19:00,800 Speaker 4: that to drive up treasure yields in the long term. 391 00:19:00,840 --> 00:19:02,879 Speaker 4: But there's sort of this interplay right around what the 392 00:19:02,920 --> 00:19:06,800 Speaker 4: Fed wants to do versus the US fiscal health. I mean, 393 00:19:06,800 --> 00:19:10,920 Speaker 4: do you see that having any impact when you think 394 00:19:10,920 --> 00:19:13,920 Speaker 4: about the kinds of risk you're taking in the long term? 395 00:19:15,480 --> 00:19:15,959 Speaker 1: Yeah, I know. 396 00:19:16,000 --> 00:19:18,960 Speaker 8: We when we develop our duration Callum, the head of 397 00:19:19,000 --> 00:19:22,240 Speaker 8: our Duration Committee, and our duration call expressed as a 398 00:19:22,280 --> 00:19:26,800 Speaker 8: percentage of index long or short, is predicated clearly on 399 00:19:26,840 --> 00:19:29,560 Speaker 8: our monetary policy outlook. But fiscal policy is another key 400 00:19:29,680 --> 00:19:33,959 Speaker 8: ingredient in the discussions about how we're going to manage duration. 401 00:19:34,160 --> 00:19:37,440 Speaker 8: And on the fiscal front, you know, bottom line is 402 00:19:37,480 --> 00:19:40,920 Speaker 8: the US government is spending quite a bit more money 403 00:19:40,960 --> 00:19:42,760 Speaker 8: than it takes in. That's been the case now for 404 00:19:42,840 --> 00:19:45,280 Speaker 8: quite a while. That was true before the pandemic, it 405 00:19:45,320 --> 00:19:49,480 Speaker 8: remains true after the pandemic. Neither party seems to really 406 00:19:49,480 --> 00:19:52,320 Speaker 8: believe in fiscal discipline when they actually have the control 407 00:19:52,359 --> 00:19:55,679 Speaker 8: of Washington. We saw that when the Republicans had complete 408 00:19:55,720 --> 00:19:58,639 Speaker 8: control during the Trump early Trump years, they just spent 409 00:19:58,680 --> 00:20:02,760 Speaker 8: more in tax less episode went up. Eventually, this is 410 00:20:02,800 --> 00:20:05,120 Speaker 8: going to have to turn, But for now, I think 411 00:20:05,160 --> 00:20:07,680 Speaker 8: there is a difficult challenge where the FED is trying 412 00:20:07,680 --> 00:20:11,720 Speaker 8: to restrain the economy and bring down inflation with a policy. 413 00:20:12,320 --> 00:20:16,400 Speaker 8: Aggressive policy stands for shrinking the balance sheet raising rates. Meanwhile, 414 00:20:16,400 --> 00:20:20,400 Speaker 8: fiscal policy, on the other hand, is net stimulative through 415 00:20:20,440 --> 00:20:24,040 Speaker 8: the tax credits linked to the green energy spend that 416 00:20:24,080 --> 00:20:26,400 Speaker 8: was part of the Inflation Reduction Act, as well as 417 00:20:26,400 --> 00:20:30,280 Speaker 8: the Infrastructure Bill, which was very bipartisan. So the federal 418 00:20:30,359 --> 00:20:32,760 Speaker 8: government is doing some things that arguably they probably need 419 00:20:32,760 --> 00:20:34,879 Speaker 8: to do. If we're going to do some transition to 420 00:20:34,960 --> 00:20:37,960 Speaker 8: how we become a more green economy, that's going to 421 00:20:38,000 --> 00:20:41,320 Speaker 8: cost money. If we're going to have rebuild and expanded 422 00:20:41,320 --> 00:20:43,400 Speaker 8: infrastructure in a country that needs some of that, that's 423 00:20:43,440 --> 00:20:45,800 Speaker 8: going to cost money. But of course it's coming at 424 00:20:45,800 --> 00:20:47,680 Speaker 8: a time and the economy is already running pretty hot, 425 00:20:48,000 --> 00:20:50,359 Speaker 8: and so it is working across purposes with the FED 426 00:20:50,400 --> 00:20:53,119 Speaker 8: to some degree. And that's why our duration long. You know, 427 00:20:53,160 --> 00:20:55,680 Speaker 8: we're not max long, We're not even a quartermax long. 428 00:20:55,840 --> 00:20:58,240 Speaker 8: We're leaning long because we think that fixed income is 429 00:20:58,240 --> 00:21:01,040 Speaker 8: repriced to the point now where it creates you to investors, 430 00:21:01,200 --> 00:21:04,000 Speaker 8: as income is real in a real sense net of 431 00:21:04,040 --> 00:21:07,639 Speaker 8: inflation expectations. And we think ultimately some some slow down 432 00:21:07,680 --> 00:21:10,240 Speaker 8: in the economy will occur, but the fiscal stance is 433 00:21:10,280 --> 00:21:13,000 Speaker 8: going to support the economy while the monetary stance is 434 00:21:13,000 --> 00:21:14,399 Speaker 8: trying to restrain it. 435 00:21:14,520 --> 00:21:16,439 Speaker 1: How slow, how bad do you think it'll be? 436 00:21:16,600 --> 00:21:16,960 Speaker 2: R Jy. 437 00:21:18,560 --> 00:21:20,680 Speaker 8: We had previously thought that, you know, there were some 438 00:21:20,720 --> 00:21:22,879 Speaker 8: in our you know, we we we were a team, 439 00:21:22,960 --> 00:21:25,159 Speaker 8: and there's some members of the team who felt that 440 00:21:25,200 --> 00:21:27,720 Speaker 8: we were going to have a potentially deeper session. Especially 441 00:21:27,800 --> 00:21:31,159 Speaker 8: last springing when SVB was blowing up, it felt like 442 00:21:31,280 --> 00:21:36,359 Speaker 8: the early, the early signs of a true crisis brewing. 443 00:21:36,680 --> 00:21:40,080 Speaker 8: Maybe not as bad as a Lehman Brothers global financial crisis, 444 00:21:40,080 --> 00:21:41,760 Speaker 8: but something that was going to be very stressful and 445 00:21:41,840 --> 00:21:44,320 Speaker 8: lead to a deeper downturn. I think when you look 446 00:21:44,359 --> 00:21:47,720 Speaker 8: at it now, consumers are strong, jobs are plentiful. We 447 00:21:47,760 --> 00:21:50,440 Speaker 8: think it's going to be a modest recession. I wouldn't 448 00:21:50,440 --> 00:21:53,240 Speaker 8: be surprised if we get, you know, the traditional two 449 00:21:53,400 --> 00:21:57,720 Speaker 8: periods two quarters of GDP contraction, but the NV er 450 00:21:57,880 --> 00:22:03,240 Speaker 8: to see jobs, jobs and retail sales, all the components 451 00:22:03,280 --> 00:22:06,640 Speaker 8: that they look at to officially call a recession sufficiently 452 00:22:07,520 --> 00:22:09,920 Speaker 8: tip over to the point where we have a mild 453 00:22:09,960 --> 00:22:12,760 Speaker 8: recession that's not long lasting. In a world like that, 454 00:22:13,000 --> 00:22:14,879 Speaker 8: we're not expecting the Fed to go back to the 455 00:22:14,960 --> 00:22:17,840 Speaker 8: zero lower bound. We're not expecting the tenure Treasury to 456 00:22:17,840 --> 00:22:20,159 Speaker 8: have a two handle. Again, I wouldn't mind it if 457 00:22:20,160 --> 00:22:23,280 Speaker 8: it by a three handle. But it's a cyclical downturn, 458 00:22:23,480 --> 00:22:26,320 Speaker 8: not a big seminal event like a financial crisis. 459 00:22:26,680 --> 00:22:30,080 Speaker 1: RJ great having in the program. Thanks so much, we 460 00:22:30,160 --> 00:22:31,200 Speaker 1: really appreciate your insight. 461 00:22:31,320 --> 00:22:31,480 Speaker 2: RJ. 462 00:22:31,560 --> 00:22:33,720 Speaker 1: Gallo there from Federated Hermes. 463 00:22:34,000 --> 00:22:37,119 Speaker 7: You're listening to the tape. Cat's are live program Bloomberg 464 00:22:37,160 --> 00:22:40,760 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the 465 00:22:40,840 --> 00:22:44,040 Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 466 00:22:44,080 --> 00:22:46,920 Speaker 7: You can also listen live on Amazon Alexa from our 467 00:22:46,920 --> 00:22:51,960 Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty. 468 00:22:52,480 --> 00:22:56,080 Speaker 1: Let's ask a professional investor. Caterita Seminetti joins us right now. 469 00:22:56,080 --> 00:22:58,560 Speaker 1: She is a senior vice president private wealth advisor over 470 00:22:58,600 --> 00:23:02,120 Speaker 1: at Morgan Stanley and Kat, I mean, the one thing 471 00:23:02,200 --> 00:23:06,959 Speaker 1: that I look to that's a little confusing is the 472 00:23:07,000 --> 00:23:09,080 Speaker 1: dot plot. And I know it's not supposed to be 473 00:23:09,119 --> 00:23:12,960 Speaker 1: a forecast, but these are you know, essentially the FED 474 00:23:13,240 --> 00:23:18,919 Speaker 1: participants on individual forecasts, and they call for fore cuts 475 00:23:18,960 --> 00:23:22,960 Speaker 1: next year if we get another hike. On the other hand, 476 00:23:23,160 --> 00:23:25,399 Speaker 1: Powell has said rates are going to stay this high 477 00:23:25,440 --> 00:23:29,200 Speaker 1: for years, and everybody seems to know that unless something breaks, 478 00:23:29,359 --> 00:23:30,280 Speaker 1: they're not going to cut. 479 00:23:30,320 --> 00:23:33,440 Speaker 5: What do you think, Well, Matt, thank you for having 480 00:23:33,480 --> 00:23:36,240 Speaker 5: me on the show. You know, it's a challenging time 481 00:23:36,320 --> 00:23:39,000 Speaker 5: and you're right, he hasn't really said anything new. You know, 482 00:23:39,040 --> 00:23:43,320 Speaker 5: we see inflation coming down, and you know that means 483 00:23:43,400 --> 00:23:45,760 Speaker 5: that the FED is nearing the rate hike cycle, but 484 00:23:45,960 --> 00:23:49,960 Speaker 5: does it actually mean that. It justifies the valuations that 485 00:23:50,119 --> 00:23:51,960 Speaker 5: we have seen and the growth that we have seen 486 00:23:52,040 --> 00:23:55,160 Speaker 5: earlier this year, and whether they're going to continue really 487 00:23:55,160 --> 00:23:58,000 Speaker 5: depends on the data. But investors seems to be a 488 00:23:58,040 --> 00:24:01,520 Speaker 5: little bit distrustful of the messaging because it took FED 489 00:24:01,640 --> 00:24:04,159 Speaker 5: such a long time to react to inflation and that 490 00:24:04,240 --> 00:24:07,600 Speaker 5: transitory message that you know, we all heard so much about, 491 00:24:07,920 --> 00:24:09,879 Speaker 5: you know, But eventually they're going to be done. The 492 00:24:09,960 --> 00:24:12,600 Speaker 5: question is are they going to pause first or you know, 493 00:24:12,640 --> 00:24:15,760 Speaker 5: actually continue to raise rates for a little while longer. 494 00:24:16,040 --> 00:24:18,160 Speaker 5: You know, But when we look at the yield curve 495 00:24:18,320 --> 00:24:21,720 Speaker 5: and we see higher rates and the longer side of 496 00:24:21,760 --> 00:24:24,560 Speaker 5: the yield curve, that does point out that the rates 497 00:24:24,680 --> 00:24:29,240 Speaker 5: might be staying longer for you know, for higher for longer. 498 00:24:29,400 --> 00:24:29,560 Speaker 1: You know. 499 00:24:29,680 --> 00:24:33,280 Speaker 5: That plus the treasury over issuance that that we're seeing 500 00:24:33,320 --> 00:24:36,199 Speaker 5: so far, so we have to incorporate that into our 501 00:24:36,200 --> 00:24:39,040 Speaker 5: reality and translated into market expectations. 502 00:24:39,600 --> 00:24:41,560 Speaker 4: Well, we've got a couple of weeks before our next 503 00:24:41,640 --> 00:24:44,840 Speaker 4: FED meeting there is you know, when you look at 504 00:24:44,880 --> 00:24:47,840 Speaker 4: swaps market, it is personally going a twenty one percent 505 00:24:47,960 --> 00:24:52,400 Speaker 4: chance that we could see a second hike here November 506 00:24:52,480 --> 00:24:53,520 Speaker 4: is a little bit higher. 507 00:24:54,480 --> 00:24:55,639 Speaker 1: What's your take, What would we. 508 00:24:55,640 --> 00:24:58,520 Speaker 4: Need to see to actually change those expectations make that 509 00:24:58,560 --> 00:24:59,080 Speaker 4: a real thing. 510 00:25:00,280 --> 00:25:03,200 Speaker 5: Well, the earnings are slowing and you know that's good thing, 511 00:25:03,240 --> 00:25:05,440 Speaker 5: and inflation is coming down, so FED is seeing a 512 00:25:05,520 --> 00:25:07,960 Speaker 5: lot of the data that they're hoping to see, you know, 513 00:25:08,000 --> 00:25:10,359 Speaker 5: but at three percent, they're really not close to the 514 00:25:10,480 --> 00:25:13,160 Speaker 5: target number, you know, so there is a possibility that 515 00:25:13,200 --> 00:25:16,240 Speaker 5: they might continue, you know, to high grades, but you know, 516 00:25:16,280 --> 00:25:18,080 Speaker 5: whether they do or not, you know, if we take 517 00:25:18,080 --> 00:25:22,359 Speaker 5: the larger picture into consideration, they're nearing the end sooner 518 00:25:22,480 --> 00:25:24,600 Speaker 5: rather than later, they're going to be done, you know, 519 00:25:24,640 --> 00:25:26,119 Speaker 5: and eventually they're going to pause. 520 00:25:26,359 --> 00:25:26,600 Speaker 7: You know. 521 00:25:26,680 --> 00:25:30,160 Speaker 5: What I like personally is that we kind of stopped 522 00:25:30,200 --> 00:25:33,560 Speaker 5: talking on some level about the rate cuts because we 523 00:25:33,640 --> 00:25:35,840 Speaker 5: need to concentrate on here and now we still have 524 00:25:35,920 --> 00:25:37,679 Speaker 5: to get through the end of the year. You know, 525 00:25:37,720 --> 00:25:39,920 Speaker 5: in market, you know, to us, it's going to look 526 00:25:39,960 --> 00:25:42,280 Speaker 5: slightly different in the second half that it did in 527 00:25:42,320 --> 00:25:44,760 Speaker 5: the first half, you know, because again you know, don't 528 00:25:44,760 --> 00:25:47,840 Speaker 5: do are the evaluations that we have seen, the growth 529 00:25:47,840 --> 00:25:50,239 Speaker 5: that we have seen only in select areas and in 530 00:25:50,280 --> 00:25:54,320 Speaker 5: these very select names. Was it actually justified or perhaps 531 00:25:54,320 --> 00:25:56,600 Speaker 5: it was overly optimistic, which is the way it seems 532 00:25:56,640 --> 00:25:56,960 Speaker 5: to us. 533 00:25:58,600 --> 00:26:04,560 Speaker 1: You know, we heard some interesting statements yesterday from Nikki Haley, 534 00:26:05,200 --> 00:26:08,640 Speaker 1: former governor of South Carolina, she's running for president, concerning 535 00:26:08,720 --> 00:26:12,080 Speaker 1: the retirement age, and I wonder what you take from 536 00:26:12,520 --> 00:26:16,400 Speaker 1: those statements. I mean, it's going to be a drastic change, 537 00:26:16,680 --> 00:26:22,200 Speaker 1: though not necessarily unexpected or difficult to understand, if we 538 00:26:22,359 --> 00:26:25,040 Speaker 1: raise the retirement age here in the US. What does 539 00:26:25,080 --> 00:26:26,360 Speaker 1: that mean for some of your clients. 540 00:26:27,600 --> 00:26:30,680 Speaker 5: Well, our clients are concerned because you know, on one side, 541 00:26:30,760 --> 00:26:33,000 Speaker 5: you know, of course, nobody likes that notion of kicking 542 00:26:33,000 --> 00:26:35,960 Speaker 5: the can down the road and taking the responsibility of 543 00:26:36,040 --> 00:26:39,719 Speaker 5: funding the retirement benefits for our retirees, you know, to 544 00:26:39,800 --> 00:26:41,919 Speaker 5: the next generation. But at the same time, we have 545 00:26:42,000 --> 00:26:44,640 Speaker 5: to be responsible and we have to take a close look, 546 00:26:44,760 --> 00:26:46,880 Speaker 5: you know, at the numbers. You know, because on our 547 00:26:47,040 --> 00:26:50,119 Speaker 5: side we see investors, you know, on one side, really 548 00:26:50,119 --> 00:26:53,879 Speaker 5: hoping for the short lending, for the soft lending. I apologize, 549 00:26:53,920 --> 00:26:57,480 Speaker 5: but you know, but also being very cautious of the 550 00:26:57,560 --> 00:27:00,480 Speaker 5: market because so much of the retirement income has to 551 00:27:00,520 --> 00:27:03,560 Speaker 5: come from personal savings. Now good news, of course that 552 00:27:03,720 --> 00:27:06,320 Speaker 5: we are in the high interest rate environment, and then 553 00:27:06,640 --> 00:27:09,000 Speaker 5: investors right now can get higher yields, you know, in 554 00:27:09,040 --> 00:27:12,520 Speaker 5: anything from money market to any area of fixed income. 555 00:27:12,760 --> 00:27:15,159 Speaker 5: You know, but retirement age is a big subject and 556 00:27:15,200 --> 00:27:17,280 Speaker 5: it should be addressed sooner rather than later. 557 00:27:17,440 --> 00:27:20,040 Speaker 1: What do you think is appropriate for a retirement age? 558 00:27:20,800 --> 00:27:22,800 Speaker 1: I ask this because I see you listened as the 559 00:27:22,800 --> 00:27:24,760 Speaker 1: corporate Retirement director at Morgan Stanley. 560 00:27:24,800 --> 00:27:26,680 Speaker 5: Well, of course, I mean, you know, if the calculation 561 00:27:26,800 --> 00:27:29,159 Speaker 5: is based on the actual areial assumptions, you know, in 562 00:27:29,160 --> 00:27:32,000 Speaker 5: the way that the Social Security is funded. So it's 563 00:27:32,040 --> 00:27:35,679 Speaker 5: not an easy question to answer, you know. But on 564 00:27:35,720 --> 00:27:38,880 Speaker 5: my side, as financial plan and letter, we will plan 565 00:27:39,000 --> 00:27:42,280 Speaker 5: for any age. We just need to and to understand 566 00:27:42,560 --> 00:27:45,680 Speaker 5: what retirees you know, should be preparing for. But it's 567 00:27:45,720 --> 00:27:48,960 Speaker 5: a really larger conversation in the big complicated calculation. 568 00:27:49,240 --> 00:27:51,840 Speaker 1: I'm planning to retire when I'm about Let's see, I'm 569 00:27:51,880 --> 00:27:54,920 Speaker 1: having a kid in November. I'll be fifty, so she'll 570 00:27:54,920 --> 00:27:56,680 Speaker 1: be down to college when she's twenty. So I think 571 00:27:56,680 --> 00:27:59,119 Speaker 1: I'll retire around seventy two. That makes sense to me. 572 00:28:00,000 --> 00:28:04,080 Speaker 4: He's the best significant hike from from where the expectation is. 573 00:28:04,119 --> 00:28:05,359 Speaker 1: I think he's seventy five. 574 00:28:05,480 --> 00:28:06,919 Speaker 2: I may have to work a little bit longer. 575 00:28:06,960 --> 00:28:09,760 Speaker 1: Actually, now they think about it college costs, you know. 576 00:28:10,640 --> 00:28:11,400 Speaker 4: Yeah, it's tough. 577 00:28:11,480 --> 00:28:13,679 Speaker 1: I mean, so give us the quickly. 578 00:28:13,680 --> 00:28:16,960 Speaker 4: I think we only have about thirty seconds here. Where 579 00:28:16,960 --> 00:28:19,000 Speaker 4: are you putting your marginal dollar for your clients at 580 00:28:19,040 --> 00:28:19,679 Speaker 4: the moment. 581 00:28:20,160 --> 00:28:23,640 Speaker 5: Simon, We tell investors to be defensive, to stay with quality, 582 00:28:23,800 --> 00:28:26,480 Speaker 5: you know, with large gap in the areas like you know, 583 00:28:26,560 --> 00:28:31,360 Speaker 5: industrials and financial, healthcare materials, to look at dividend income, 584 00:28:31,640 --> 00:28:34,199 Speaker 5: and you know, to flight to safety. It's not a 585 00:28:34,200 --> 00:28:36,439 Speaker 5: bad thing when interest rates are this high, you know. 586 00:28:36,560 --> 00:28:41,920 Speaker 5: So we are cautioning our clients to be defensive until 587 00:28:42,080 --> 00:28:44,360 Speaker 5: you know, things normalize a little bit, until at least 588 00:28:44,360 --> 00:28:45,240 Speaker 5: through the end of the year. 589 00:28:46,040 --> 00:28:48,320 Speaker 1: All right, Katherine, great to get your take. Thanks so 590 00:28:48,400 --> 00:28:51,680 Speaker 1: much for joining us on this the all important Jackson 591 00:28:51,720 --> 00:28:55,360 Speaker 1: Hoole speech day. Katerina Seminetti there. She is senior vice 592 00:28:55,400 --> 00:28:59,880 Speaker 1: president and a senior portfolio member as well as Corporate 593 00:29:00,040 --> 00:29:04,080 Speaker 1: Vironment Director over at Morgan Stanley. Thanks for listening to 594 00:29:04,120 --> 00:29:07,640 Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to 595 00:29:07,680 --> 00:29:11,840 Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer. 596 00:29:12,200 --> 00:29:15,479 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 597 00:29:15,560 --> 00:29:16,200 Speaker 1: seventy three. 598 00:29:16,640 --> 00:29:19,000 Speaker 2: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney. 599 00:29:19,160 --> 00:29:21,800 Speaker 1: Before the podcast, you can always catch us worldwide at 600 00:29:21,840 --> 00:29:23,560 Speaker 1: Bloomberg Radio