Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
Speaker 2: are live on Bloomberg Television weekday mornings from six to
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify
Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business app. In stately of
Speaker 2: JP Morgan assen management rights, we believe the Fed will
Speaker 2: be able to respond with more aggressive rate cuts if
Speaker 2: the labor market falters, even with inflation still above target.
Speaker 2: In joins us now for more in Welcome to New York.
Speaker 2: It's going to see you.
Speaker 3: Thanks having much.
Speaker 2: I think you've now the most important point for financial
Speaker 2: markets right now. Are they constrained? Can they respond if
Speaker 2: the labor market data weekends over the next several months?
Speaker 2: What gives you the confidence that they can?
Speaker 4: I think if you take a take a step back
Speaker 4: and think what happened back in twenty eighteen. The response
Speaker 4: was that they waited a little bit, and they probably
Speaker 4: waited a bit a little bit too long, but ultimately
Speaker 4: they then reacted and during Power was absolutely right. That
Speaker 4: was a period where inflation was transitory, where it didn't
Speaker 4: have a huge impact, and actually it was a growth
Speaker 4: and the laid market that was more critical to them.
Speaker 4: And I think that will be the case this time.
Speaker 4: And I look at it from the way if you
Speaker 4: think about what they did yesterday, growth forecast revised down
Speaker 4: both years, inflation forecasts revised up one year next year,
Speaker 4: they don't actually see much of an impact. So I
Speaker 4: do think they're going to look through it, and if
Speaker 4: they start to see really weak payrolls, that's when they're
Speaker 4: going to react.
Speaker 5: I'm with Stuart Kaiser.
Speaker 6: I found yesterday deeply confusing and deeply contradictory, because on
Speaker 6: one hand they were talking about how they're downgrading growth
Speaker 6: and they're going to look through inflation.
Speaker 5: On the other hand, he seemed to Vetcher J.
Speaker 6: Powell seemed to dismiss some of the soft data that
Speaker 6: indicates weakening, which suggests that they'll be late. How much
Speaker 6: do you have confidence that they could adjust that stance?
Speaker 5: Should some of the SAFT data.
Speaker 6: Start maybe being a little bit more consistent or bleeding
Speaker 6: into on the margin certain hard data points.
Speaker 4: I think the weather way I looked at it was
Speaker 4: that they I saw this as a FED chair who
Speaker 4: actually is concerned about the economy the way like reading
Speaker 4: between the lines. I thought, they've concerned about a bit
Speaker 4: of weakness going on, but they haven't got the evidence
Speaker 4: yet on the hard data to react to it. And
Speaker 4: I think what actually is quite clear is they just
Speaker 4: don't know, and none of us actually know exactly what's
Speaker 4: going to happen. They're in a really tough spot at
Speaker 4: the moment. And you think back to twenty twenty three,
Speaker 4: we had the headfake of the soft data there showing
Speaker 4: signs of weaknesses. It never never fed through, So they're
Speaker 4: probably a bit mindful of that. But ultimately, if you
Speaker 4: do start to see how data roll over, and it
Speaker 4: does typically take a few months, I do think they're
Speaker 4: going to react. So it's probably going to be more
Speaker 4: later later this year that will be happening.
Speaker 6: I understand why the front end of the yield curve rallied.
Speaker 6: I understand where people started to believe that maybe this
Speaker 6: FED would respond to weakness in the economy. Why did
Speaker 6: that triggle into the long end of the yield curve?
Speaker 6: Why did people buy the idea that not only is
Speaker 6: this transitory, but the entire international story that we've been
Speaker 6: talking about of a relevering in Germany and in China
Speaker 6: wouldn't suddenly be relevant anymore because the Fed's cutting rates.
Speaker 6: Why is that sort of the logical conclusion, right?
Speaker 4: But I think humane it pretty clear he was they
Speaker 4: were going to focus on the growth aspect of thing.
Speaker 4: He sort of dismissed all the questions around inflation. And
Speaker 4: if they were concerned around inflation, maybe that's the back
Speaker 4: end gets you know, it has to move a little
Speaker 4: bit higher. But if he's going to look through all
Speaker 4: of that and then you've got the asymmetry where he
Speaker 4: talked about we're either on hold or we're cutting, that
Speaker 4: probably gives confidence to the bond market.
Speaker 6: So this is basically the market believe in him. This
Speaker 6: is the market getting back on team transitory. The market
Speaker 6: is getting back in the trans team transitory band.
Speaker 5: Is that what you're saying?
Speaker 4: And I think that's right because that's what happened in
Speaker 4: twenty eighteen. The last time we did transittory was the pandemic,
Speaker 4: and yes, that was wrong, But if you think about
Speaker 4: what the pandemic, the difference there is we had positive growth,
Speaker 4: and that and positive inflation. If you're having an environment
Speaker 4: of negative growth or a slowing in growth, then the
Speaker 4: inflation we should be looking through that, particularly it's a
Speaker 4: one hit from taris and particularly we start seeing weakness
Speaker 4: in the late market, because that ultimately will bring inflation down.
Speaker 7: Howell referred to the teriff yesterday as being tariff inflation
Speaker 7: different from regular inflation. How do you decipher from between
Speaker 7: the two.
Speaker 4: I think it's difficult, and I think he actually said
Speaker 4: it's going to be difficult for us to exactly calculate
Speaker 4: what is tariff and what is what is just regular.
Speaker 4: And the problem and the slight nuance that we've got
Speaker 4: relative to twenty eighteen. We obviously went into twenty eighteen
Speaker 4: and inflation was below target. It's not at the moment.
Speaker 4: So again that's something they just have to be mindful
Speaker 4: of over over the coming months as they think about
Speaker 4: what they're going to be doing, because inflation was just
Speaker 4: at a worse place to start with.
Speaker 2: Just to pick up on Lisa's line of questioning, let's
Speaker 2: sit on the markets a little bit more perfectly intuitive,
Speaker 2: FED cuts rates, see a rally at the front end,
Speaker 2: got that you're stru up. That's what happened yesterday. How
Speaker 2: me understand what happens to risk if the FED is
Speaker 2: cut in because growth is deteriorating but inflation is still
Speaker 2: above target. How does high your credit trade in that world?
Speaker 4: Soros? Obviously it's widening a little bit because of the grossience.
Speaker 4: I think it depends how deeply we think these growth
Speaker 4: impacts are going to be. And again that goes back
Speaker 4: to the problem that we've got that your impower's got
Speaker 4: is we just don't know. We don't know what's going
Speaker 4: to happen exactly on April the second, We don't know
Speaker 4: how long this is all going on for. It's a
Speaker 4: very difficult argument. I think what we can say though,
Speaker 4: is going into this, corporates were in really good position,
Speaker 4: very healthy. Fundamentally looks very sad, and I think that's
Speaker 4: what you have to step back and think about. And yes,
Speaker 4: if you see a real deterioration in growth, of course
Speaker 4: we're going to see some widening credit spreads. But I
Speaker 4: still think there's this all in yield argument that we've
Speaker 4: talked about a lot people like seven and a half percent.
Speaker 4: There's no question about that.
Speaker 2: So that throughout the end of last year as well
Speaker 2: coming into twenty twenty five. Let's just finish on this
Speaker 2: economic data later this morning, Hey thirty easton time we
Speaker 2: get us jobless claims. This feeling yesterday that the Federal
Speaker 2: Reserve and Shairman power reduce the importance of the soft data.
Speaker 2: I wouldn't say dismissed it, but we've said repeatedly through
Speaker 2: this hour, perhaps downplayed it. How important is the hard
Speaker 2: data going to be? Do we put additional weight on
Speaker 2: things like jobless claims? How do we trade on that information?
Speaker 4: I think the hard data is really important, and I
Speaker 4: think actually the jobs market is probably the thing we
Speaker 4: really need to need to focus on, because if you
Speaker 4: do start to see weakness there, it's going to filter
Speaker 4: through to the rest of the economy. So hard data,
Speaker 4: jobs market, that's what we really need to.
Speaker 2: Mord hard data. A little bit later this morning, in
Speaker 2: steady of JP Morgane and thank you, sir, My Pile
Speaker 2: of black Rock writing well, negative stock bond correlation has
Speaker 2: re emerged. We do not believe it will persist with
Speaker 2: sticky inflation, tariffs and significant US fiscal deficits. The FED
Speaker 2: faces challenges, and term premium will come under pressure. Mike
Speaker 2: joins us now. He's also the former economic advisor to
Speaker 2: President Joe Biden. It's going to see him Mike as always.
Speaker 2: Should we start there? How does it feel? So it
Speaker 2: feel good? If he's shaking the Washington d C off,
Speaker 2: Do you feel better about it?
Speaker 8: Got using my step. Happy to be back in New
Speaker 8: York and happy to do you with you.
Speaker 2: We can get into the markets in just a moment.
Speaker 2: I'd love your assessment of where the economy is and
Speaker 2: how these policy changes might influence where the economy goes
Speaker 2: in the coming quarters.
Speaker 8: Yeah, I mean, certainly. I think we're in the midst
Speaker 8: of a pretty significant set of shocks. So obviously trade
Speaker 8: policy uncertainly, both the magnitude of it and the uncertainty
Speaker 8: around it. Certainly, I think some some slowdowns more broadly
Speaker 8: in the data.
Speaker 2: You know.
Speaker 8: The flip side is, you know, the United States is
Speaker 8: a very dynamic, very resilient economy, and I think what
Speaker 8: you heard from the Fed yesterday is while these shocks
Speaker 8: are significant, while growth is likely to come down, wall
Speaker 8: of inflation in the short term is elite is likely to
Speaker 8: move higher. You know, still there's a kind of underlying
Speaker 8: strength there that's going to see growth through.
Speaker 5: When it comes to tariff you know all the players.
Speaker 7: Obviously you weren't not in the Trump administration, but you
Speaker 7: know who they're dealing with on the other side. Do
Speaker 7: you think we get to a place where it's methodical reciprocity.
Speaker 8: So I think what we've seen from other countries is
Speaker 8: you know a likelihood that you know, this negotiation is
Speaker 8: going to play out in the backdrop of not just
Speaker 8: not just tarif announcements from the United States, but threats
Speaker 8: of retaliation from others, And I think that, you know,
Speaker 8: I think one of the big questions as we roll
Speaker 8: the clock forward over the next three, four, five, six
Speaker 8: months is you know, not just where do US tariff
Speaker 8: levels end up, but where do other countries end up
Speaker 8: with their tariff levels? You know, to the extent that
Speaker 8: you know, deals are possible, negotiations can reach some kind
Speaker 8: of resolution that ends up with tariffs perhaps lower than
Speaker 8: what gets announced in April. Second on both sides, I
Speaker 8: think that's going to be ultimately a world that's healthier
Speaker 8: for growth and inflation. Globally. I also think at a minimum,
Speaker 8: you know, as we roll the clock forward, we're going
Speaker 8: to get more certainty and that's going to take some
Speaker 8: of that uncertainty discount off of economic forecast as well
Speaker 8: as markets.
Speaker 7: But if there's this reciprocal tariffs and then there's the
Speaker 7: hit back, the tit for tet, do you think there's
Speaker 7: a chance you can tip the United States into a recession?
Speaker 7: Powell said, it's moved up, but it's off the table
Speaker 7: for now.
Speaker 3: Yeah.
Speaker 8: Like I said, I would just echo, you know, share Palel.
Speaker 8: The shocks that we've seen are significant. We're going to
Speaker 8: see significant shocks. That's going to lower growth, that's going
Speaker 8: to mean, at least in the short term, higher inflation.
Speaker 8: But you know that the underlying momentum, the underlying dynamos,
Speaker 8: and the lying strength of the US economy is you know,
Speaker 8: quite significant, and that's hard to you know, turn around.
Speaker 5: You might agree with the Fed on that front.
Speaker 6: I get the sense you're not exactly joining the band
Speaker 6: yet of transitory.
Speaker 5: You're kind of on the sideline saying.
Speaker 6: I'm not sure that that's actually the case. And you
Speaker 6: made a point about you're not totally buying the long
Speaker 6: end rally that we're seeing in treasuries.
Speaker 5: Can you talk a little bit about.
Speaker 6: What you're seeing that makes you disagree with the fees
Speaker 6: assessment that we can resurrect this word transitory.
Speaker 8: Yeah, so I think that you know that when you
Speaker 8: look at the long end of the US curve. I mean, yes,
Speaker 8: we've seen a rally over the past couple of weeks
Speaker 8: as these growth scares have worked their way into the market.
Speaker 8: But looking out over the medium term, you know, inflation
Speaker 8: does look somewhat stickier, and obviously we're going to have
Speaker 8: a shock on that. In the short term, I think
Speaker 8: fiscal deficits are likely to be persistently high, and you know,
Speaker 8: when you face a backdrop like that, I think you
Speaker 8: do see pressure on term premium built up, particularly from
Speaker 8: the starting point we're at today, and that means that
Speaker 8: bonds are going to be less strong as diversifiers kind
Speaker 8: of rolling ahead as they have in the last two
Speaker 8: or three weeks, and as they were, you know during
Speaker 8: the twenty tens. You know, that means that investors are
Speaker 8: going to have to seek diversification in other places, whether
Speaker 8: that's managing fixed income in different ways or seeking uncorrelated
Speaker 8: sources of return that can provide that diversification.
Speaker 2: Where do they find those uncorrelated sources of return? And
Speaker 2: I'm so pleased you've brought up this topic because I've
Speaker 2: lost count of how many times you've asked this question
Speaker 2: over the last few weeks or so, haven't we We've
Speaker 2: gone back and forth on this. Are we seeing reduction
Speaker 2: and risk mitigation characteristics or treasuries over the last few weeks.
Speaker 2: I think slowly you've started to see some evidence of
Speaker 2: that gold.
Speaker 5: I keep thinking gold, Are you just going to gold?
Speaker 6: And is that the reason why you see it keeping
Speaker 6: on rallying?
Speaker 8: Yeah? I mean I think that exactly to your point, John,
Speaker 8: I mean, obviously, at the beginning stages of the pullback,
Speaker 8: you saw really strong reactions from the treasury market. That's
Speaker 8: diminished as we've gotten kind of deeper into this period
Speaker 8: of volatility. I think that's a harbinger of what's to common.
Speaker 8: I mean, black rock, you know, one of the things
Speaker 8: that we would say is you should, you know, seek
Speaker 8: diversification from things like stable long term cash flows that
Speaker 8: are less growth sensitive, that are more inflation sensitive, places
Speaker 8: like infrastructure. You know, the thing that we really look
Speaker 8: at are things like you know, our quantitative multi strategy
Speaker 8: hedge fund, you know, built on the back of forty
Speaker 8: years of innovation and leadership. You know, they've come through
Speaker 8: this period generating solid alpha. And what it proves is
Speaker 8: or show proves out is you know, having a range
Speaker 8: of different strategies arranged different ways of generating alpha. And
Speaker 8: in this environment in particular, what's worked is, you know,
Speaker 8: strategies that are primed in market reversal period, strategies to
Speaker 8: provide liquidity to segments of the market across asset classes,
Speaker 8: that can generate alpha even in the face of market dislocation.
Speaker 8: And that's what investors are looking for.
Speaker 5: John, I I'm nearly as sexy as gold.
Speaker 6: Multi asset diversification, city cash flow, you know, things to.
Speaker 2: Sell here much just go bust. So exactly, private markets
Speaker 2: instructure all of those companies. I'm not frond shite to
Speaker 2: how to respect for the position. The answer used to
Speaker 2: be booms, used to be German bombs, and obviously that's
Speaker 2: not the answer anymore. How have things changed in Europe
Speaker 2: from you perspective?
Speaker 8: Yeah, so, I think it's it's actually a really interesting
Speaker 8: moment in Europe. You know, I think the debate within
Speaker 8: the firm. Is is this a trade or is this
Speaker 8: a more durable investment? You know. On one hand, obviously
Speaker 8: Europe Germany has stepped forward with the set of fiscal
Speaker 8: policy changes that you know, as far back as when
Speaker 8: I was in the Obama administration we were calling for.
Speaker 8: That is really tremendous to see, you know. But I
Speaker 8: think that among the bell weathers that we're looking for
Speaker 8: is is this going to be coupled by changes in
Speaker 8: the regulatory environment. You know. The Drogy Report talked a
Speaker 8: lot about the degree to which Europe remains uncompetitive in
Speaker 8: the technology sector, the types of spaces that really drive
Speaker 8: innovation and growth. You know, if we see a turning
Speaker 8: of the page there, that might be, you know, a
Speaker 8: precursor for a much more durable European trade of the
Speaker 8: long term and take it from just a three months
Speaker 8: six month trade to something much more long lasting.
Speaker 2: I'm sitting here smiling. I've done you a while. It's
Speaker 2: nice to hear you talk about markets again. It's been
Speaker 2: too long. It's nice to have you back in the seat.
Speaker 2: I want to finish where we started. How are we
Speaker 2: going to make sure that talented individuals keep going down
Speaker 2: to Washington, d C. To do the kind of work
Speaker 2: that you did, the Deleep Singh did, the Wallyadimo did.
Speaker 2: How are we going to make sure that continues?
Speaker 8: So, you know, I think when I look across you know,
Speaker 8: a number of friends that I've had who've served not
Speaker 8: just in you know, Democratic administrations, but Republican ones. I
Speaker 8: think the folks like, you know, just amusement. She was
Speaker 8: the number two with the Treasury Department and the first
Speaker 8: Trump administration. I look into this one and see, you know,
Speaker 8: really thoughtful, qualified people as well in important pockets of
Speaker 8: that administration. You know, I think that the call to
Speaker 8: service is a strong one, and the call to deliver
Speaker 8: for the country is a strong one, and I expect
Speaker 8: that we're going to continue to see that across administrations
Speaker 8: and both parties.
Speaker 2: I hope that remains the case. Mike is good to
Speaker 2: see my power there of black clop Let's stick with
Speaker 2: retail investors looking ahead to Nike earnings for another read
Speaker 2: on the state of the US consumer, Brookroach of Goma Sex, writing,
Speaker 2: we believe it is still early in Nike's turnaround journey,
Speaker 2: and we have yet to see material signs of brand
Speaker 2: heat environment improvement. She has a buy rating on the
Speaker 2: stock with a ninety dollars price target. Broke Johnsys Now
Speaker 2: for more, Brook, welcome to the program. Let's get into it.
Speaker 2: What are you looking for later on today?
Speaker 3: Good morning, and thank you for having me today.
Speaker 1: We believe that all eyes are on Nike's earnings result
Speaker 1: this afternoon, and as we look.
Speaker 3: To the report, we do believe.
Speaker 1: That focus is centered on signs that the brand turnaround
Speaker 1: is working. New CEO mister Elliott Hill outlines several strategic
Speaker 1: actions taken to improve the brand over the course of
Speaker 1: the past couple of quarters, and we believe that you're
Speaker 1: starting to see signs that those actions are taking root.
Speaker 1: We have seen some refreshers in marketing, We've seen some
Speaker 1: changes in promotional activity, and we've seen some that they're
Speaker 1: looking to reduce discounting on Nike dot Com. As a result,
Speaker 1: all eyes are on any signs that fiscal twenty six
Speaker 1: may be able to return to growth and what the
Speaker 1: impacts of recent changes might have on sales growth and earnings.
Speaker 6: What's the growth market, Brook, Is it going to be
Speaker 6: the United States?
Speaker 5: Is it going to be overseas? At a time where
Speaker 5: there's a.
Speaker 6: Real question about that will be trying to rehitch its
Speaker 6: wagon to the NFL.
Speaker 1: I think one of the big questions is whether or
Speaker 1: not they will be able to return the North America
Speaker 1: market to growth. We believe that the reset in North
Speaker 1: America is very important. We are seeing signs of improved marketing,
Speaker 1: we are seeing signs of improved innovation, and we are
Speaker 1: seeing some signs that the North America consumer is engaging
Speaker 1: with that improved marketing and innovation. Generally in our sector,
Speaker 1: when markets begin to improve in North America for retail brands,
Speaker 1: we start to see signs that that brand heat can
Speaker 1: translate internationally. So we believe investor focus will be very
Speaker 1: centered on North America.
Speaker 6: The big counter argument is on holdings is the potential
Speaker 6: increase in Hokah's is the fact that in all the
Speaker 6: running groups that we all see in the morning in
Speaker 6: Central Park, there isn't necessarily a huge domination of Nike shoes. Instead,
Speaker 6: they're a whole host of other brands. At what point
Speaker 6: does that become a real problem because there are these
Speaker 6: competitors and they're scrappy and they're getting in.
Speaker 1: We are seeing a lot of signs that Nike is
Speaker 1: refocusing on innovation across each of their core sport categories.
Speaker 1: The new CEO is focused on returning the brand to
Speaker 1: focus on sport and to engage with those core running
Speaker 1: communities and those core sport communities. As a result, we've
Speaker 1: seen better innovation with more new product. We've seen the
Speaker 1: launch of the Pegasus Premium and the Boomuro eighteen, and
Speaker 1: the company is refocusing on engaging with those local communities
Speaker 1: and with specialty retail running. So we believe that they
Speaker 1: are starting to make the steps that are necessary to
Speaker 1: return to competitive market share positioning in each those core categories.
Speaker 5: Even if they have a better product.
Speaker 7: What's to say people are buying Dick's sporting goods, they
Speaker 7: expect a sales slow down at the same time that
Speaker 7: surveys continue to say that consumers are worried about the
Speaker 7: uncertainty that's coming from policy in Washington and the tariffs.
Speaker 1: Overall, we have seen signs of some consumer slow down
Speaker 1: and macro choppiness over the course at the last few weeks.
Speaker 1: At first, there was some focus on the potential that
Speaker 1: this was a function of weather, but overall we have
Speaker 1: seen some more comments about slowing overall. I think as
Speaker 1: we look at Nike's turnaround story. Investors are much more
Speaker 1: focused on what will happen in fiscal twenty six, which
Speaker 1: will be beginning in June of this year, and what
Speaker 1: Nike can do on a relative competitive positioning to improve
Speaker 1: the brand heat so that they can gain back that
Speaker 1: market share regardless of the macro backdrop.
Speaker 7: So basically what you're saying is twenty twenty five is
Speaker 7: going to be really a period of transition for Nike
Speaker 7: to them potentially nail it in twenty twenty six.
Speaker 1: We believe that the company will be returning to growth
Speaker 1: in the back half of their fiscal twenty six and
Speaker 1: that many of the actions that have already been outlined
Speaker 1: by management are going to drive lower sales and lower
Speaker 1: margins in the first half of twenty of fiscal twenty
Speaker 1: six and.
Speaker 3: Thus calendar twenty five.
Speaker 2: There's a challenge still to come. Brooke, appreciate your time
Speaker 2: to break this down for us. As always, Brookroach there
Speaker 2: of gone at Sachs on Nike, Louke Tilly of Wilmington
Speaker 2: Trust Wang in on that decision right in the following
Speaker 2: We continue to think the labor market and inflation data
Speaker 2: would justify a rate cut of the main meeting, but
Speaker 2: given Fedschair Jaypow's response, we are moving our first expected
Speaker 2: cut to the June meeting. Luke joins us now for more,
Speaker 2: Lok welcome to the program. I want to build on
Speaker 2: what we heard just yesterday from Chairman Power with you
Speaker 2: in just a moment. I want to start with the forecast.
Speaker 2: What was your initial reaction to the adjustment in the
Speaker 2: SEP that we saw relative to December.
Speaker 9: Yeah, well, the big change obviously is to the GDP
Speaker 9: forecast and that coming down, and I think that incorporates
Speaker 9: what we had been expecting, is that the strength of
Speaker 9: the consumer at the end of last year was not
Speaker 9: really strength in the sense that the consumer keep powering
Speaker 9: the economy ahead. What we saw was really strong spending
Speaker 9: on durable goods in November and December that was coming
Speaker 9: a lot from replacement purchases from the storms, and then
Speaker 9: also people getting ahead of tariffs. So there's a lot
Speaker 9: of people at the end of last year that thought
Speaker 9: the economy was just up, up, and a way, you know,
Speaker 9: in this sort of almost like a no landing scenario
Speaker 9: that was going to generate inflation. And of course we've
Speaker 9: seen consumer spending come back down in January, retail sales
Speaker 9: down in January and February, and really the more accurate
Speaker 9: picture is a consumer that is, you know, it's doing okay,
Speaker 9: it's pretty solid, but it's going to accelerate. And that's
Speaker 9: why I would expect GDP to come down. We've had
Speaker 9: a one point eight percent forecast for twenty twenty five
Speaker 9: for a while, so the Fed now is very close
Speaker 9: to that with their one point seven.
Speaker 2: So growth comes down, inflation goes up, and it's that
Speaker 2: piece of it that's interesting. So from a market perspective
Speaker 2: for investors right now, they want to know if this
Speaker 2: Feder reserve is in a position to respond to deteriorating data.
Speaker 2: If we do get that weaker economic data, are the
Speaker 2: constraints somehow by higher inflation prints? What would you say
Speaker 2: to invest us.
Speaker 9: This morning, Well, we've had the same story for a
Speaker 9: while now, and it's that the consumer was not strong
Speaker 9: enough to keep pushing inflation higher. Nor was the consumer
Speaker 9: strong enough to take on increased prices of imports and
Speaker 9: drive inflation higher. We thought that basically, if you raise
Speaker 9: the prices on imports, that they would start spending less
Speaker 9: on domestic services like going to the movies or haircuts
Speaker 9: or restaurants or anything like that. So we really didn't
Speaker 9: perceive that there was an inflation problem. We've been messaging
Speaker 9: that for quite some time now. I think the FED,
Speaker 9: in a good way, was talking very differently about tariff's
Speaker 9: yesterday than seven weeks before, acknowledging that the increase, you know,
Speaker 9: a tariff increases the price of a good, but that's
Speaker 9: not necessarily inflation. It's only inflation if consumers can handle
Speaker 9: it and they're ready willing and able to keep paying
Speaker 9: those higher prices and keep spending elsewhere. And that's sort
Speaker 9: of what it sounded like at the end of January,
Speaker 9: the previous FOMC meeting. But of course the messaging yesterday's
Speaker 9: you've pointed out earlier in the program very different. Basically
Speaker 9: a step level, one time increase in prices of those
Speaker 9: imported goods, but we wouldn't expect it to generate inflation
Speaker 9: that would go on.
Speaker 6: Okay, So Luke, it seems like you're actually on board
Speaker 6: with that, And yet you think that the FED took
Speaker 6: may off the table in terms of cutting rates in
Speaker 6: part because they are looking at the hard data. Do
Speaker 6: you think that actually this increases a chance they're going
Speaker 6: to be behind the curve if you do think that
Speaker 6: the soft data is indicating a much faster pace of
Speaker 6: deceleration economically.
Speaker 9: It feels a little bit like last year. I think
Speaker 9: we were probably the last people to take July or
Speaker 9: off the table last year and say, well, they're not
Speaker 9: even really leaving the door open, and then when they
Speaker 9: got to September, of course they cut by fifty basis
Speaker 9: points and they had to play some catch up. I
Speaker 9: think yesterday it was in response to a direct question
Speaker 9: about May, and Chair Pal said, we're not in a rush,
Speaker 9: you know, And so that's about as clear as a
Speaker 9: FED chair is ever going to get about. We're not
Speaker 9: going to cut rates at the next meeting. So that's
Speaker 9: why we have to push our first cut out one
Speaker 9: more meeting. I also don't think it's hugely important. The
Speaker 9: economy is not going to hinge on twenty five basis
Speaker 9: points over the course of seven weeks. But as I said,
Speaker 9: and as you read in the quote at the beginning,
Speaker 9: I do think that the economic data will justify a
Speaker 9: cut by May. We're going to keep seeing slower job growth,
Speaker 9: We're going to see slower consumer spending. I think the
Speaker 9: inflation data will keep slowing down, so it'll justify that.
Speaker 9: But that'll be fine as long as they're talking about
Speaker 9: it at the main meeting. That should the ease financial conditions.
Speaker 6: We have this near term data, and John was talking
Speaker 6: about the delta earnings and the call about how much
Speaker 6: demand has been dropping off. We've heard that same thing
Speaker 6: from other companies that to consumers and raises this question
Speaker 6: how far behind is the hard data. We don't see
Speaker 6: it in the jobless claims, we don't see it in
Speaker 6: a lot of other data points that have been coming
Speaker 6: out from the government. At what point do you expect
Speaker 6: to start seeing this in the data or can you
Speaker 6: dismiss this as watch what they do, not what they say,
Speaker 6: and those two things can be very different.
Speaker 9: Yeah, I'm definitely a fan of watch what they do
Speaker 9: and not what they say. And I don't really think
Speaker 9: we're looking for a deterioration in the hard data signaling
Speaker 9: recession or anything like that. If you just look at
Speaker 9: year over year retail sales, year over year consumer spending,
Speaker 9: it's at pretty mundane normal levels that we had in
Speaker 9: twenty eighteen twenty nineteen, when inflation was not a problem,
Speaker 9: and I think that that hard data speaks directly to
Speaker 9: that the labor market's going to be a lot more interesting.
Speaker 9: You know, we think that the job openings are going
Speaker 9: to continue to decline and jobs are going to slow down.
Speaker 9: One of the interesting things here is that because of
Speaker 9: the uncertainty of the tariffs, we do expect firms to
Speaker 9: maybe hold off on hiring, and that dynamic, it wouldn't
Speaker 9: actually show them cutting their open positions, just sort of
Speaker 9: you know, hey, you know, hr, let's wait a little
Speaker 9: bit and see how these things turn off and not
Speaker 9: pull the trigger on actually hiring somebody. And that's where
Speaker 9: you would see it come through. So it's not going
Speaker 9: to show up in the jolt stata right away. But
Speaker 9: one thing that we have seen, even though the job
Speaker 9: growth is okay, you're not seeing unemployment claims, we're seeing
Speaker 9: shorter work weeks. It's two months in a row now
Speaker 9: that the average work week is really low. And when
Speaker 9: you combine that with slowing job growth and slowing wage
Speaker 9: growth and you look at just total wages paid, that's
Speaker 9: at the slowest growth rate that it's been since the pandemic.
Speaker 9: So it's really starting to slow down. But it's like
Speaker 9: seeping in kind of, kind of sneakily, because it's just
Speaker 9: basically lower wages being pointed out. You've got reduced overtime
Speaker 9: hours in that reduced work week, So in some ways
Speaker 9: it is coming through in the hard data. It's not
Speaker 9: pointing to recession, but it is a slow down and
Speaker 9: I don't think generates any inflation pressure.
Speaker 7: Look, you have a recession probability of thirty five percent
Speaker 7: and GDP of one point eight percent. What I find
Speaker 7: so interesting about your call is it it's the call
Speaker 7: you had around the time of the election next year. Meanwhile,
Speaker 7: everyone has really revised what they're thinking about growth and
Speaker 7: also potential recession because of the tariff story. What did
Speaker 7: you see in November that people are starting to catch
Speaker 7: up now.
Speaker 9: Slowing labor There is slowing labor demand all of last year.
Speaker 9: It's going to slow down the hiring. We're looking at
Speaker 9: job growth that is coming in around one point fifty
Speaker 9: and you've also had a significant contribution from government jobs
Speaker 9: last year. So when you look at private payroll growth,
Speaker 9: it was slowing down already through the second half of
Speaker 9: last year. There were some strong consumer spending numbers, but
Speaker 9: like I said, a few minutes ago. I think that
Speaker 9: those are a little bit of a head fake. And
Speaker 9: if you just if you think about what's going to
Speaker 9: end up driving consumer spending, it's not savings. There's not
Speaker 9: many savings left. It's going to be job growth and
Speaker 9: wage growth. And when those things are slowing down, you're
Speaker 9: going to have a slower economy. It's going to call
Speaker 9: fall down below two percent this year. That's how you
Speaker 9: don't end up with any inflation pressure. So I will
Speaker 9: say next year at the end of the year. It
Speaker 9: was incredibly hard to read through some of the impacts.
Speaker 9: There are multiple hurricane events, storm events, the election, people
Speaker 9: getting ahead of tariffs, so you really have to be
Speaker 9: looking at longer term trends and not hinging on anywhere
Speaker 9: one particular data point. But this is that slowing is
Speaker 9: what we've been seeing for quite some time, and Mary.
Speaker 2: A lot of people are catching up with you. Look
Speaker 2: appreciate it, Luke Telly there of Wilmington Trusts. This is
Speaker 2: the Bloomberg Savants podcast, bringing you the best in markets, economics,
Speaker 2: an gio politics. You can watch the show live on
Speaker 2: Bloomberg TV weekday mornings from six am to nine am Eastern.
Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else
Speaker 2: you listen, and as always, on the Bloomberg Terminal and
Speaker 2: the Bloomberg Business app.