WEBVTT - Bloomberg Surveillance TV: February 12, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.360 Bloomberg Terminal and the Bloomberg Business App. Lisa Chanlett joins 0:00:37.440 --> 0:00:39.520 us now of Morgan Stantley, joining us around the table. Lisa, 0:00:39.520 --> 0:00:41.120 it's good see you, as always great to see you. 0:00:41.240 --> 0:00:44.200 Is anxiety about tariff distracting from fundamentals? It's a point 0:00:44.200 --> 0:00:45.599 you've made recently. Do you think it is. 0:00:46.120 --> 0:00:48.800 I think it absolutely is, And I think tariff's are 0:00:48.800 --> 0:00:51.400 probably the single biggest thing that are just that is 0:00:51.479 --> 0:00:56.240 distracting everybody. But I think the pace and the chaotic 0:00:56.440 --> 0:01:00.800 nature right of the announcements are distracting to everyone. And look, 0:01:00.880 --> 0:01:04.880 we know markets love certainty, they love predictability. We don't 0:01:04.880 --> 0:01:05.760 have that at the minute. 0:01:05.840 --> 0:01:08.600 Is it a justified distraction and other fundamental is good 0:01:08.680 --> 0:01:10.400 enough to stay commits it and stay the course and 0:01:10.440 --> 0:01:12.080 stay bullish US equities. 0:01:12.520 --> 0:01:12.960 I think. 0:01:13.040 --> 0:01:16.399 So, you know, our perspective has been to pick and 0:01:16.480 --> 0:01:21.960 choose your spots, and that expectations are key here, you know, 0:01:22.120 --> 0:01:25.520 our preferences to go where you know, we think companies 0:01:25.560 --> 0:01:28.559 can beat expectations, and one of the expectations haven't gotten 0:01:28.600 --> 0:01:29.880 to ahead of themselves. 0:01:29.880 --> 0:01:32.399 And to you know, Frawdy, you made a point that 0:01:32.440 --> 0:01:33.480 I thought was fascinating. 0:01:33.520 --> 0:01:35.360 We talked about the long and variable lags when it 0:01:35.400 --> 0:01:38.480 came to the FED hiking benchmark rates. We don't talk 0:01:38.480 --> 0:01:40.760 about the long and variable lags of them cutting by 0:01:40.760 --> 0:01:44.679 one hundred basis points starting in September of last year. 0:01:44.959 --> 0:01:48.040 Just how much is that driving some of the optimism 0:01:48.120 --> 0:01:50.880 and the deal making and the activity that everyone's expecting 0:01:50.880 --> 0:01:52.080 from corporate America this year. 0:01:52.120 --> 0:01:54.960 Well, you know, one of the things that's interesting is 0:01:55.200 --> 0:01:58.360 I think, you know, the rate cuts are certainly driving 0:01:58.400 --> 0:02:02.760 the animal spirits. Actually haven't seen a year to date 0:02:02.880 --> 0:02:05.040 the level of deal making that I think a lot 0:02:05.080 --> 0:02:09.079 of people were hoping for, and that's still a bit 0:02:09.200 --> 0:02:12.400 on the come. And so you know, I think that 0:02:12.680 --> 0:02:16.760 certainly the hundred basis points helps. It's getting you know, 0:02:17.760 --> 0:02:22.359 sentiment juiced. Right. So, we saw small business optimism right 0:02:22.639 --> 0:02:26.400 sore following the election, and I think part of that was, Hey, 0:02:26.560 --> 0:02:28.280 I'm going to get some rate cuts and I'm going 0:02:28.360 --> 0:02:31.480 to get you know, some pro growth policy out of Washington. 0:02:32.120 --> 0:02:34.240 But it remains to be seen, and I think, you know, 0:02:34.320 --> 0:02:37.320 to Jonathan's point, some of the chaos and the headlines 0:02:37.840 --> 0:02:39.200 is starting to cool. 0:02:39.080 --> 0:02:40.480 Some of those expectations. 0:02:40.520 --> 0:02:43.440 We saw, you know, that small business optimism come off 0:02:43.440 --> 0:02:46.680 the boil a little bit yesterday. We've seen some of 0:02:46.680 --> 0:02:50.520 the CEOs, including the Ford CEO, say, you know, whoa whoa, whoa. 0:02:51.040 --> 0:02:53.880 You know, let's let's let's you know, cool our debts, folks. 0:02:54.000 --> 0:02:57.120 There's a tension here between whether there needs to be 0:02:57.240 --> 0:03:00.320 some rate cuts, additional rate cuts for the broaden out 0:03:00.320 --> 0:03:02.959 story to really make sense, or whether the one hundred 0:03:02.960 --> 0:03:05.680 basis points that we got late last year actually was 0:03:05.760 --> 0:03:08.160 plenty to get this sector driving. 0:03:08.560 --> 0:03:09.120 Which is it? 0:03:09.600 --> 0:03:12.320 So I think it's I think it's interesting. You know, 0:03:12.400 --> 0:03:15.080 our thesis has been that we're in a bifurcated economy 0:03:15.919 --> 0:03:18.840 for the most part the large cap universe, the megacap 0:03:18.960 --> 0:03:22.520 universe hasn't needed any rate cuts, right because they've locked 0:03:22.520 --> 0:03:26.000 and loaded their cost to capital, you know, back in 0:03:26.040 --> 0:03:30.520 twenty twenty one. I fundamentally believe that the mid cap, 0:03:30.600 --> 0:03:35.840 smaller cap companies, the lower end the venture capital, some 0:03:35.880 --> 0:03:39.720 of the private equity portfolio companies do need more than 0:03:39.720 --> 0:03:42.119 one hundred basis points. So we're going to see, We're 0:03:42.120 --> 0:03:44.760 going to see where this goes. 0:03:45.080 --> 0:03:47.640 I know you're watching for a rotation of stock in disease, 0:03:47.680 --> 0:03:50.840 and you like the idea of cyclicals, energy, domestic manufacturers, 0:03:51.320 --> 0:03:53.760 But what about the fact that that uncertainty of tariff's 0:03:53.800 --> 0:03:55.800 just still lingers. Aren't those the ones that are going 0:03:55.880 --> 0:03:57.200 to be the most hurt. 0:03:57.880 --> 0:04:00.760 So it's interesting the megacap and large caps are so 0:04:00.880 --> 0:04:05.000 much more exposed to the tariff conversation. I mean, this 0:04:05.160 --> 0:04:07.640 is where you know, the mid caps and the small 0:04:07.680 --> 0:04:12.080 caps actually can get life if in fact the rate cuts, 0:04:12.160 --> 0:04:15.000 do you know, flow back to them, If in fact 0:04:15.080 --> 0:04:18.960 we get bank lending in more the regional banking system 0:04:19.080 --> 0:04:24.839 to accelerate to those pools of companies, I think that 0:04:24.920 --> 0:04:28.039 they can actually, you know, kind of have a better 0:04:28.200 --> 0:04:31.599 year relative to mega and large cap companies who are 0:04:31.640 --> 0:04:34.680 going to have to struggle with their China exposure, with 0:04:34.720 --> 0:04:38.040 their exposure to global trade, and to dealing with some 0:04:38.080 --> 0:04:42.080 of the constraints of tariffs and the costs of restructuring 0:04:42.080 --> 0:04:44.560 supply chains. If it comes to that, something else, you like, 0:04:44.640 --> 0:04:46.400 right now, a lot of people are hiding out even 0:04:46.440 --> 0:04:47.440 central bank's gold. 0:04:47.480 --> 0:04:48.679 Are you adding to that position? 0:04:48.760 --> 0:04:50.680 We are adding to gold, you know. 0:04:50.760 --> 0:04:54.039 Our Our perspective is that what's going on with gold 0:04:54.200 --> 0:04:58.080 very much has to do with folks around the world 0:04:58.240 --> 0:05:03.040 questioning the primacy of the United States dollar, right, and 0:05:03.120 --> 0:05:05.400 I think central banks around the world have begun to 0:05:05.440 --> 0:05:10.839 diversify their reserves. I think that's been one element. I 0:05:10.880 --> 0:05:13.440 think a lot of the enthusiasm, believe it or not, 0:05:13.680 --> 0:05:18.960 around cryptocurrencies is also, uh, you know, made people think about, well, 0:05:19.120 --> 0:05:21.920 you know, what is you know, if this is digital gold, 0:05:22.000 --> 0:05:25.200 what is you know, hard gold? And maybe I need 0:05:25.200 --> 0:05:29.520 some of that too. So, you know, our perspective is that, 0:05:30.160 --> 0:05:32.400 you know, given where we are with debts and deficits, 0:05:32.640 --> 0:05:39.440 given the extreme bifurcation of global FX markets, UH, that 0:05:39.440 --> 0:05:42.640 that gold will continue to outperform into. 0:05:42.400 --> 0:05:43.039 A third year. 0:05:43.160 --> 0:05:46.520 You're even wearing something to represent the strong filing goal, 0:05:46.880 --> 0:05:50.040 my goal, the gold blazer. I am curious about whether 0:05:50.080 --> 0:05:52.080 you see that sort of questioning of the primacy of 0:05:52.120 --> 0:05:55.440 the dollar shifting into some of the overweight that you 0:05:55.520 --> 0:05:58.159 might see we have seen over the beginning of this 0:05:58.240 --> 0:06:01.239 year anyway, in European equi ease as well as Chinese 0:06:01.240 --> 0:06:03.080 equities actually, which have really peaked up. 0:06:03.320 --> 0:06:05.000 Are you leaning into that or learning against it? 0:06:05.440 --> 0:06:09.000 We are one hundred percent leaning into this, you know, 0:06:09.120 --> 0:06:10.400 mean reversion trade. 0:06:11.000 --> 0:06:11.080 Uh. 0:06:11.279 --> 0:06:17.400 The massive underperformance of non US uh equities we believe 0:06:17.440 --> 0:06:21.640 has has reached extremes. Uh. Our best gas is that 0:06:22.600 --> 0:06:27.400 you know, the the current administration isn't helping, right, you know, 0:06:27.560 --> 0:06:30.800 in many ways. While it's great to pursue in America 0:06:30.839 --> 0:06:34.960 first policy, if you're in America, if you're not in America, Uh, 0:06:35.000 --> 0:06:36.720 there's all kinds of incentives to. 0:06:36.880 --> 0:06:39.960 Find ways to uh protect yourself. 0:06:40.080 --> 0:06:43.520 And that mean may mean uh, you know, creating you 0:06:43.560 --> 0:06:47.120 know trade arrangements with other countries and each other, uh, 0:06:47.440 --> 0:06:52.480 where America gets locked out. So you know, our perspective 0:06:52.560 --> 0:06:54.760 is that, you know, this is a time when not 0:06:54.839 --> 0:07:00.240 only the combination of valuation extraordinarily low expectations for or 0:07:00.480 --> 0:07:05.839 you know, regions like Europe potentially, like China, the potential 0:07:05.880 --> 0:07:09.040 to surprise on the upside, and the potential for some 0:07:09.120 --> 0:07:13.120 of these countries to actually stimulate, to have more proactive 0:07:13.720 --> 0:07:16.760 uh central banks. I mean you you know, Lisa, you 0:07:16.800 --> 0:07:19.240 talked about the fact that the Fed may only cut 0:07:19.480 --> 0:07:22.760 one or two times this year. It's highly likely that 0:07:22.880 --> 0:07:26.040 the ECB goes more frequently than that. It's possible that 0:07:26.120 --> 0:07:30.400 some of the central banks in you know, Latin America, uh, 0:07:30.480 --> 0:07:32.760 you know, where inflation had run hot, are going to 0:07:32.840 --> 0:07:35.840 go more more often than that. And those are the 0:07:35.960 --> 0:07:38.480 kinds of things that kind of create this relative catch 0:07:38.520 --> 0:07:39.240 up trade we. 0:07:39.200 --> 0:07:41.200 Told about this last week. It might push these countries 0:07:41.240 --> 0:07:43.360 to do things that might be good for them. Let's 0:07:43.360 --> 0:07:45.440 see if that happens. Lisa Shanon to Mokeen standy, Lisa, 0:07:45.480 --> 0:07:58.120 thank you. West tends to phone exchange foming New York 0:07:58.120 --> 0:08:00.840 Fed President Bill Duntley making the for king dollar in 0:08:00.880 --> 0:08:03.920 its latest Bloomberg opinion piece right in the following, America 0:08:04.080 --> 0:08:07.280 derives immense benefits from the dollars dominance, a position the 0:08:07.360 --> 0:08:10.360 countries such as China and Russia are seeking to contest 0:08:10.400 --> 0:08:13.520 by addressing the problem of cross border payments. The US 0:08:13.560 --> 0:08:16.520 could boost the global economy and cement its central role 0:08:16.920 --> 0:08:19.160 therein Bill joined US Now for more, but welcome to 0:08:19.200 --> 0:08:21.800 the program. Lots of topics to count. Let's kick off 0:08:21.840 --> 0:08:24.600 with this one right here. You start it with a premise, 0:08:24.640 --> 0:08:27.080 so let's talk about it. The immense benefits from the 0:08:27.120 --> 0:08:30.200 dollars dominance. Let's start there. But what are they? 0:08:31.840 --> 0:08:35.240 I think the dollar is a glunchpin of global financial markets, 0:08:35.520 --> 0:08:38.280 so we get what's called the exorbitant privilege of people 0:08:38.320 --> 0:08:41.920 wanting to hold dollar denominated assets. So that makes the 0:08:41.960 --> 0:08:44.040 cost of funding in the United States less than if 0:08:44.080 --> 0:08:46.800 the dollar was not viewed as the key currency in 0:08:46.840 --> 0:08:51.240 the global economy. But that's not necessarily for dain forever, 0:08:51.320 --> 0:08:53.120 and there are steps we can do to make that 0:08:53.960 --> 0:08:56.080 more more likely to be sustained in the future. And 0:08:56.120 --> 0:09:00.000 one thing is to make some progress on cross border payments. 0:09:00.040 --> 0:09:04.120 Across border are extremely expensive, especially for small retail payments 0:09:04.160 --> 0:09:06.880 like remittances. They cost maybe as much as six to 0:09:06.920 --> 0:09:11.160 seven percent. This could be called we could be brought 0:09:11.200 --> 0:09:15.199 down tremendously if we had if we developed instant payment 0:09:15.240 --> 0:09:18.520 systems nationally and then link them together. A number of 0:09:18.559 --> 0:09:22.200 countries have good instant payment systems Brazil, India, for example, 0:09:22.440 --> 0:09:24.960 The US is basically lower. We have two systems, but 0:09:25.000 --> 0:09:29.199 nobody uses them. Everybody uses cards and debit cards, benbo 0:09:29.400 --> 0:09:32.760 or PayPal. So we need to do something to revigorate 0:09:32.760 --> 0:09:35.160 the US instant payment systems, and then once we have that, 0:09:35.400 --> 0:09:37.679 we need to start to take steps to link it 0:09:37.760 --> 0:09:40.480 together with other instant payment systems around the world. If 0:09:40.520 --> 0:09:42.000 we do that, we can actually lower the cost of 0:09:42.040 --> 0:09:46.440 payments dramatically and cement the dollar as a key reserve currency. 0:09:46.559 --> 0:09:48.400 Do you see the FED actually getting on this in 0:09:48.440 --> 0:09:50.640 any capacity in the near term, considering that they have 0:09:50.679 --> 0:09:52.880 their hands full with their mandate and a lot of 0:09:52.880 --> 0:09:53.880 controversy around it. 0:09:55.080 --> 0:09:57.720 Well, I think you need some support from the administration 0:09:57.800 --> 0:10:00.400 in Congress. The countries that have been successfu well in this 0:10:00.679 --> 0:10:03.320 have basically had mandates. They basically said, you need to 0:10:03.440 --> 0:10:06.480 actually offer this service to your banking customers. In the 0:10:06.600 --> 0:10:10.200 United States, it's completely voluntary. And since it's completely voluntary, 0:10:10.240 --> 0:10:12.800 the two instant payment systems we have FED now and 0:10:14.280 --> 0:10:18.760 Artichs are basically not used by virtually anybody. 0:10:19.280 --> 0:10:21.560 So they exist. But if they're not used, then. 0:10:21.400 --> 0:10:24.000 How can you how can that be advantageous to link 0:10:24.040 --> 0:10:25.440 that into an international regime. 0:10:25.520 --> 0:10:27.400 Well, well, hopefully we can continue to catch up on 0:10:27.480 --> 0:10:31.560 this as it progresses, if it does progress this year. 0:10:31.600 --> 0:10:34.400 In the meantime, they focus very much on inflation and 0:10:34.480 --> 0:10:36.520 just how the Fed's going to be responding at a 0:10:36.520 --> 0:10:39.160 time where we're going to get CPI potentially at zero 0:10:39.200 --> 0:10:41.680 point three percent month over month, which would be the 0:10:41.800 --> 0:10:44.920 fifth out of the six latest readings at zero point. 0:10:44.679 --> 0:10:47.480 Three percent or above. How concerned are. 0:10:47.360 --> 0:10:49.880 You about this stickiness and does it surprise you that 0:10:49.920 --> 0:10:52.960 we're still not seeing the disinflation that so many people 0:10:52.960 --> 0:10:53.679 were expecting. 0:10:55.440 --> 0:10:57.360 I think it's very clear that the last mile is 0:10:57.920 --> 0:11:00.680 pretty sticky. And one reason is sticky is because we're 0:11:00.720 --> 0:11:03.400 operating at full employment. You know, there's gonna be a 0:11:03.440 --> 0:11:06.480 lot of downward pressure on inflation when economy is operating 0:11:06.480 --> 0:11:09.000 at a very high level of resource utilization, which is 0:11:09.040 --> 0:11:11.120 where we are today. I think the other thing is 0:11:11.160 --> 0:11:13.640 something that to Cheer Polty touched on yesterday. It looks 0:11:13.679 --> 0:11:16.040 like Maentre policy is a lot closer to neutral than 0:11:16.520 --> 0:11:17.360 what a lot of people. 0:11:17.240 --> 0:11:18.200 Thought a few months ago. 0:11:19.000 --> 0:11:21.080 You know, the fact that the economy continues to grow 0:11:21.160 --> 0:11:25.240 at a trend growth rate at a time where the 0:11:25.920 --> 0:11:29.480 federal funds rates you know, higher than four percent, tells 0:11:29.520 --> 0:11:32.560 you that maybe mandre policy doesn't really you know, isn't 0:11:32.640 --> 0:11:35.760 actually very restrictive at all. And so I think the 0:11:35.800 --> 0:11:39.839 prospect for further rate cuts has diminished considerably for the. 0:11:39.760 --> 0:11:43.360 Rest of the year, potentially, especially given the political uncertainty. 0:11:44.160 --> 0:11:45.040 Well potentially, I mean. 0:11:45.040 --> 0:11:47.199 The other issue we have, obviously is we have a 0:11:47.240 --> 0:11:50.440 lot of you know, uncertainty about policy. We have uncertainty 0:11:50.440 --> 0:11:52.319 about what's going to happen to terrorists, we have uncertainty 0:11:52.320 --> 0:11:55.480 about deportations, we have uncertainty about fiscal policy. And so 0:11:55.559 --> 0:11:57.800 the FED is also going to be reluctant to take 0:11:57.840 --> 0:12:00.000 big steps when they don't really know what the policy. 0:12:00.120 --> 0:12:02.480 See a mix is going going to be in the 0:12:02.480 --> 0:12:04.959 second half of the year and into twenty twenty six. 0:12:05.200 --> 0:12:07.160 But we might not know what the policy is going 0:12:07.200 --> 0:12:09.320 to be the entire year. It might be like this 0:12:09.360 --> 0:12:11.080 for four years. So what does the FED do just 0:12:11.120 --> 0:12:12.480 stay on pause forever? 0:12:13.400 --> 0:12:15.960 Well poll basically said that the that the FED would 0:12:16.000 --> 0:12:18.480 cut if either if the ecmomy slowed sharply or if 0:12:18.520 --> 0:12:21.440 inflation came down. I think I think it may not 0:12:21.520 --> 0:12:23.960 be quite that simple. It may be that you only 0:12:24.000 --> 0:12:26.959 cut if the economy slows down. You know, I could 0:12:27.000 --> 0:12:29.559 see inflation moderating further, the e commedy is staying strong. 0:12:29.600 --> 0:12:32.640 And in that situation, what's the what's the motivation for 0:12:32.679 --> 0:12:34.960 cutting rates at that point? So I think this, you know, 0:12:35.160 --> 0:12:37.280 one or the other might turn out to be that 0:12:37.320 --> 0:12:40.599 you actually need not just a following inflation, but you 0:12:40.640 --> 0:12:42.880 also need a substantial slowing of the economy. 0:12:43.000 --> 0:12:44.960 Well, I'm also curious about the X axis. At a 0:12:45.000 --> 0:12:48.000 time we're talking about inflation expectations over the next two 0:12:48.000 --> 0:12:51.719 and five years creeping higher, even though inflation expectations over 0:12:51.720 --> 0:12:54.679 the next ten years are actually going down. This idea 0:12:54.679 --> 0:12:56.880 that of the longer term it will suppress growth. 0:12:57.200 --> 0:12:58.480 How does the FED respond to. 0:12:58.440 --> 0:13:01.120 That, given that they have been patient with the idea 0:13:01.120 --> 0:13:03.360 of inflation taking a longer time to get to that 0:13:03.440 --> 0:13:05.880 two percent, But at a certain point, a long time 0:13:05.920 --> 0:13:06.680 becomes forever. 0:13:08.080 --> 0:13:09.000 Well, you're absolutely right. 0:13:09.040 --> 0:13:11.400 I mean, every year you spend above two percent, there's 0:13:11.440 --> 0:13:14.360 more risks that inflation expectations, which have been well behaved 0:13:14.440 --> 0:13:16.240 up to now, finally start to become an anchor. And 0:13:16.240 --> 0:13:18.439 I think when the FED looks at the effects on 0:13:18.600 --> 0:13:20.520 terrifts on the economy. They are going to be very 0:13:20.520 --> 0:13:24.199 focused on whether those higher prices caused by higher terroriffs 0:13:24.320 --> 0:13:27.760 are actually feeding into inflation expectations. If they do, they'll 0:13:27.760 --> 0:13:28.920 make the FED more cautious. 0:13:29.160 --> 0:13:31.559 If they don't, the FED will be focused on the. 0:13:31.400 --> 0:13:34.760 Growth impacts of higher terrifts slowing down the economy. So 0:13:34.800 --> 0:13:37.280 I think whether the FACT can look through the tariff 0:13:37.320 --> 0:13:40.760 increases in terms of their effect on prices will depend 0:13:40.880 --> 0:13:43.400 very importantly on what happens to inflation expectations over the 0:13:43.480 --> 0:13:43.960 next year. 0:13:44.200 --> 0:13:46.480 Hi, Bill, thanks for your time this morning. Looking forward 0:13:46.480 --> 0:13:48.160 to that second dance hastimately a little bit like to 0:13:48.160 --> 0:13:50.160 this morning as well. Be former New York FED President 0:13:50.200 --> 0:14:04.240 built up on the night, saystem with this surrounded table. 0:14:04.360 --> 0:14:06.760 Bebe Kelly at JP Morgan Asset Management. David, you've had 0:14:06.840 --> 0:14:08.280 five minutes. What jumps out for you. 0:14:09.160 --> 0:14:11.720 It's not as bad as it looks at first glance, 0:14:11.800 --> 0:14:14.240 because the things that the things that bumped higher are 0:14:14.480 --> 0:14:18.000 three of the flakiest numbers in the CPI. One of 0:14:18.040 --> 0:14:20.440 them was that shelter increased at four tenser percent. We 0:14:20.560 --> 0:14:22.960 saw a lodging of one point four percent. If you 0:14:23.000 --> 0:14:24.800 actually look at only's equivalent rent and rent they were 0:14:24.840 --> 0:14:26.600 up three tens, so it was a big increase in 0:14:26.680 --> 0:14:28.280 lodging one. That's not a big deal in April, but 0:14:28.480 --> 0:14:31.040 it just bounces a lot. If you look at airline affairs, 0:14:31.080 --> 0:14:33.200 they were up I think it was one point four percent. 0:14:33.760 --> 0:14:37.520 That's part of the core CPI issue. And then our 0:14:37.560 --> 0:14:41.720 old favorite auto insurance suddenly jumps two percent. And those 0:14:41.840 --> 0:14:44.400 three numbers are very bald. The government does not measure 0:14:44.440 --> 0:14:46.440 them very well. So I don't think that changes the 0:14:46.520 --> 0:14:49.480 overall thesis that inflation is basically under control. But I 0:14:49.560 --> 0:14:51.600 certainly agree with the analysis that this is no reason 0:14:51.640 --> 0:14:54.000 for the Fed to move an interest rate. It says 0:14:54.040 --> 0:14:55.720 nothing in this report which says we need to have 0:14:55.800 --> 0:14:56.480 lower interest rates. 0:14:56.520 --> 0:14:58.240 Just cham and have the luxury of making the same 0:14:58.360 --> 0:15:01.920 argument in about ninety minutes time on Capitol Hell, he should. 0:15:02.160 --> 0:15:05.600 You know, you should stand your ground for honest analysis. 0:15:05.920 --> 0:15:07.280 I know it's easy to come up with a bumper 0:15:07.320 --> 0:15:12.400 sicuret that inflation is high, but good economists, good central banking, 0:15:12.520 --> 0:15:14.360 requires you to analyze the numbers. And when he does 0:15:14.440 --> 0:15:16.680 look at this, he'll say, look, there are some special 0:15:16.720 --> 0:15:19.080 factors here, and I you know, don't throw things at me. 0:15:19.120 --> 0:15:20.920 There are some special factors which bumped up the number 0:15:21.000 --> 0:15:23.800 this month and a few months times, maybe even next month. 0:15:23.840 --> 0:15:26.160 You'll get a flip on the airlines and the hotels, 0:15:26.200 --> 0:15:28.080 and suddenly you get a better than expected number. They 0:15:28.120 --> 0:15:30.440 shouldn't overreact to this. But at the same time, you say, 0:15:30.440 --> 0:15:32.560 there's nothing here which says it inflation is cooling. 0:15:32.680 --> 0:15:34.960 I hepe thinking about Steve Rashudo and how he talks 0:15:35.000 --> 0:15:36.960 about how you can exclude this and exclude that. 0:15:37.160 --> 0:15:38.840 You guys tend to fight over this, but. 0:15:38.880 --> 0:15:40.720 At the end of the day, it really is a 0:15:40.840 --> 0:15:44.000 rate that has been very sticky. Are you saying it's 0:15:44.040 --> 0:15:45.720 okay for it to be a little bit sticky if 0:15:45.760 --> 0:15:48.200 it's at three percent not nine percent, and it's okay 0:15:48.320 --> 0:15:52.000 to just sort of accept a somewhat higher benchmark inflation rate. 0:15:52.280 --> 0:15:54.280 Yes, because if you look at it at the shelter 0:15:54.400 --> 0:15:56.960 issue really is very important. The owner's equivalent grant your 0:15:57.000 --> 0:15:59.200 shelter is still I'm not sure it's only this one. 0:15:59.360 --> 0:16:01.720 It's a four point four percent. Your review was four 0:16:01.760 --> 0:16:05.040 point six and so it's coming down, but it's coming 0:16:05.120 --> 0:16:07.280 down so slowly, but we know it's going to keep 0:16:07.320 --> 0:16:10.600 coming down. So always we know it's eventually, this is 0:16:10.640 --> 0:16:12.320 the core of the inflation rates eventually going to come 0:16:12.320 --> 0:16:14.080 down from three percent to two percent. We know that's 0:16:14.080 --> 0:16:16.600 going to happen. Didn't happen this month, and there's no 0:16:16.720 --> 0:16:20.320 reason for the Fed to to move quickly, particularly given 0:16:20.360 --> 0:16:21.600 all the policy uncertainty. 0:16:21.920 --> 0:16:24.160 David, appreciate your time as always. David Kenlly, the of 0:16:24.240 --> 0:16:27.320 JP Morgan Asset Management, joining us now to extend the conversation. 0:16:27.520 --> 0:16:30.560 Mohammed al Aaron of Queen's College, Cambridge on the latest 0:16:30.600 --> 0:16:34.120 inflation data with Equity's lower and bond yo hire Muhammed. 0:16:34.160 --> 0:16:36.160 First question to use, sir, just how high is the 0:16:36.280 --> 0:16:39.280 hurdle to hike interest rates at the federal serve? And 0:16:39.360 --> 0:16:42.240 does this conversation get started after a print like that? 0:16:43.800 --> 0:16:46.280 So I think it will get started in certain segments 0:16:46.280 --> 0:16:49.440 of the market, it will not get started within the Fed. 0:16:50.640 --> 0:16:52.400 And you know what, You've heard me say this over 0:16:52.400 --> 0:16:56.120 and over again, John, if their inflation target is truly 0:16:56.200 --> 0:16:59.480 two percent, then we would be talking about hikes. We 0:16:59.480 --> 0:17:03.000 wouldn't be talking about postponing cuts. No, there's three things 0:17:03.040 --> 0:17:05.720 that are very clear from these numbers. Taking that face value, 0:17:05.760 --> 0:17:08.280 I'm going to come back to the face value qualification. 0:17:09.480 --> 0:17:13.200 One day, are hotter than what the FED seems to 0:17:13.840 --> 0:17:19.159 expect giving it signals, and they're getting hotter second, and 0:17:19.280 --> 0:17:21.280 this is where I differ with David a little bit. 0:17:21.520 --> 0:17:24.480 They are consistent with the whole host of other data points. 0:17:25.040 --> 0:17:28.040 This is not some outlayer. They are consistent with what 0:17:28.119 --> 0:17:33.160 we've seen in other places. And also they are consistent 0:17:33.440 --> 0:17:39.320 with the hypothesis that companies and other segments of the 0:17:39.359 --> 0:17:43.960 population are much more sensitive now to actual and expect. 0:17:43.640 --> 0:17:44.639 The cost increases. 0:17:44.880 --> 0:17:47.440 This is not a repeat of twenty twenty one, where 0:17:47.480 --> 0:17:51.080 you have an unanticipated inflation and people don't adjust quickly. 0:17:51.640 --> 0:17:52.960 This is a different economy. 0:17:53.359 --> 0:17:56.600 So Mohammedan, you're suggesting that this economy is more inflation 0:17:56.800 --> 0:18:01.080 prone now than it was several years ago, more. 0:18:01.040 --> 0:18:03.760 Inflation sensitive now than it was before. 0:18:04.480 --> 0:18:07.800 But well, agree with David, And this is a conversation 0:18:08.119 --> 0:18:11.840 that the FED doesn't want to have, is that it's 0:18:11.920 --> 0:18:15.280 okay to have slightly higher inflation for now. You don't 0:18:15.320 --> 0:18:19.320 want to pull their work from under us exceptionalism. There's 0:18:19.320 --> 0:18:23.720 already a lot of uncertainty in the environment. Finally, John, 0:18:23.840 --> 0:18:27.080 the face value qualification was important because not only, as 0:18:27.200 --> 0:18:31.399 Mike pointed out, do we have the annual updates to 0:18:31.480 --> 0:18:33.800 all sorts of measuring things, but we also have the 0:18:33.840 --> 0:18:37.720 impact of the wildfire, and we simply don't know what 0:18:38.240 --> 0:18:41.600 the net net effect is. But at face value, this 0:18:41.800 --> 0:18:43.879 is certainly not good use for the Fed and the 0:18:43.960 --> 0:18:44.679 bond market, and. 0:18:44.640 --> 0:18:46.800 The equity market is reacting accordingly. 0:18:47.240 --> 0:18:49.040 Mohammed, there are two aspects to this. 0:18:49.240 --> 0:18:51.760 On one hand, you can say this truly is a 0:18:51.880 --> 0:18:56.520 more inflation prone market, and especially with companies more able 0:18:56.600 --> 0:18:59.440 and willing like Coca Cola to pass along price increases, 0:18:59.480 --> 0:19:02.359 you could see a spike upward, so you should respond 0:19:02.400 --> 0:19:03.439 as a federal reserve to. 0:19:03.480 --> 0:19:05.080 Tamp down that inflationary pressure. 0:19:05.160 --> 0:19:08.000 On the other hand, you're saying that the Fed should 0:19:08.000 --> 0:19:11.840 be patient because three percent inflation might be okay as 0:19:11.880 --> 0:19:13.440 long as it keeps going downward. 0:19:13.880 --> 0:19:16.400 Which is it? What is it appropriate to respond? 0:19:18.200 --> 0:19:23.000 So it goes back to two issues, one that Powell 0:19:23.200 --> 0:19:26.200 is finally willing to talk about and the second one 0:19:26.440 --> 0:19:27.680 that he doesn't want to talk about. 0:19:28.359 --> 0:19:31.119 The first one is what is the neutral rate? And 0:19:31.240 --> 0:19:35.000 he said yesterday that the neutral rate had meaningfully moved higher. 0:19:35.880 --> 0:19:38.560 The other one is what is the right inflation target, 0:19:39.160 --> 0:19:40.760 and that's the one he doesn't want to talk about. 0:19:40.760 --> 0:19:43.760 You know, my hope is that this FED will understand 0:19:44.760 --> 0:19:47.320 that if it could, and I understand why it couldn't, 0:19:47.800 --> 0:19:49.919 if we could talk about what is the right inflation 0:19:50.000 --> 0:19:53.960 target for an economy going to massive structural change, it 0:19:54.040 --> 0:19:55.879 would not be so obsessed with two percent. 0:19:56.520 --> 0:20:01.280 It would be flexible, It would target a range. Look, Lisa, 0:20:01.440 --> 0:20:02.160 it can be both. 0:20:02.880 --> 0:20:08.880 It can be that you should tolerate slightly hotter inflation prints, 0:20:09.480 --> 0:20:15.600