WEBVTT - Bloomberg Surveillance TV: August 5th, 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 --> 0:00:35.840 Bloomberg Terminal and the Bloomberg Business app. 0:00:36.920 --> 0:00:39.639 We begin this hour wiz stocks rising after having their 0:00:39.640 --> 0:00:41.839 best day since my on solid corporate earnings and a 0:00:41.880 --> 0:00:45.720 renewed rate cut bed. Meanwhile, Jack Haffrey of JP Morgan, 0:00:45.760 --> 0:00:48.519 writing with the weakness, we have gone from a market 0:00:48.560 --> 0:00:52.720 with distinct cyclical and secular underpinning bias to a more 0:00:53.040 --> 0:00:55.440 unique setup. Jack Noud joins us. 0:00:55.480 --> 0:00:56.960 Now, Jack, the unique. 0:00:56.600 --> 0:00:58.960 Setup has a lot to do with AI and the 0:00:58.960 --> 0:01:01.840 fact that that seems to overwhelm all concerns is that 0:01:01.920 --> 0:01:02.600 how you see. 0:01:02.400 --> 0:01:05.280 It, Certainly, when you look through the market continues to 0:01:05.319 --> 0:01:08.520 be dominated by the Magnificent seven and then to a 0:01:08.560 --> 0:01:12.679 lot much lesser extent the forgotten for ninety three and 0:01:12.760 --> 0:01:15.640 as we've worked our way through earning season, to some extent, 0:01:15.720 --> 0:01:18.240 your biggest and best news has been less about the 0:01:18.240 --> 0:01:21.240 earnings and more about the capital spending boosts that so 0:01:21.360 --> 0:01:23.880 many of these companies have been talking about in order 0:01:23.920 --> 0:01:26.160 to try to make the AI of the reality, and 0:01:26.200 --> 0:01:28.840 then ultimately turning to how do we start incorporating how 0:01:28.920 --> 0:01:31.959 AI is actually improving the quality of our business? Good 0:01:32.120 --> 0:01:34.480 good That remains sort of, if you will, the trillion 0:01:34.520 --> 0:01:37.600 dollar question in the markets of how this spending will 0:01:37.680 --> 0:01:42.280 ultimately turn into higher margins, better growth rates, and ultimately 0:01:42.480 --> 0:01:43.680 returns to shareholders. 0:01:43.760 --> 0:01:46.480 We knew this so on Friday, we knew this on Thursday. 0:01:46.760 --> 0:01:49.760 Suddenly on Monday yesterday there was a renewed sense of 0:01:49.840 --> 0:01:52.920 vigor and excitement. How much of this is coming from 0:01:52.920 --> 0:01:56.320 the expectation of rate cut bets and hopes that maybe 0:01:56.440 --> 0:01:58.639 the economic data wasn't as bad as it looked. 0:01:59.360 --> 0:02:02.280 Well, I think ultimately, in a world of the earnings 0:02:02.320 --> 0:02:04.639 are in the future, the fact that you can start 0:02:04.880 --> 0:02:07.720 trying to come up with a scenario of lower discount 0:02:07.800 --> 0:02:10.840 rates for those future earnings makes them somewhat more valuable. 0:02:11.840 --> 0:02:15.400 Why that'll happened yesterday morning? I wish I could come 0:02:15.480 --> 0:02:19.000 up with a better answer than it was Monday. And 0:02:19.000 --> 0:02:21.200 maybe there was a merger and someone had a really 0:02:21.240 --> 0:02:24.120 good bit of earnings news for animal health early in 0:02:24.160 --> 0:02:26.560 the morning, and so their stock up thirty percent, So 0:02:26.880 --> 0:02:29.799 we should buy AI in response. You know, day to 0:02:29.880 --> 0:02:33.919 day trying to figure out why markets moved is challenging, 0:02:34.040 --> 0:02:36.320 even after thirty plus years of trying to do this. 0:02:37.200 --> 0:02:39.919 Talk about eighteen twelve, eighteen twenty four months. I think 0:02:39.919 --> 0:02:41.280 I have a better sense of what's going to be 0:02:41.360 --> 0:02:44.960 driving things. And then I'll come back to the earning 0:02:45.000 --> 0:02:47.120 story has gotten better. Two weeks ago, I would have 0:02:47.200 --> 0:02:50.000 told you we're expecting earnings growth of five percent this year, 0:02:50.040 --> 0:02:52.440 and now it looks like consuming closer to seven. Seven 0:02:52.480 --> 0:02:54.560 turns to twelve next year, and it's August, and I 0:02:54.680 --> 0:02:57.440 start turning not only to what you've done for me recently, 0:02:57.480 --> 0:02:59.560 but what can you do for me next year? And 0:02:59.600 --> 0:03:02.240 I think getting to this idea of trying to find 0:03:02.280 --> 0:03:05.880 their way to policy clarity becomes really important. You know, 0:03:06.080 --> 0:03:08.760 all right, we've gone from a mass of cone of 0:03:08.800 --> 0:03:11.760 uncertainty for tariffs. Now we have a much better sense 0:03:11.800 --> 0:03:14.280 of what they look like. For major and trading partners, 0:03:14.639 --> 0:03:18.160 we have tax since clarity on what taxes look like, 0:03:18.400 --> 0:03:21.520 where can I spend, how I benefit from that? And 0:03:21.560 --> 0:03:23.880 so I think ultimately companies will do the right thing. 0:03:24.120 --> 0:03:27.640 They're really good at managing their margins over the long term, 0:03:28.400 --> 0:03:30.280 and I think that sets us up for where people 0:03:30.280 --> 0:03:32.440 are starting to look for where's the good news coming 0:03:32.480 --> 0:03:32.880 from next? 0:03:32.919 --> 0:03:34.760 When it comes to policy, we have an outline of 0:03:34.800 --> 0:03:36.320 what the policy is, but now it's going to take 0:03:36.320 --> 0:03:39.600 effect last year this time last year, we had a 0:03:39.680 --> 0:03:41.920 teriff rate of two point five percent on average. Now 0:03:41.920 --> 0:03:44.080 it's going to be about twenty percent. How is that 0:03:44.120 --> 0:03:46.160 going to hit the earnings and the companies you're watching, 0:03:46.240 --> 0:03:49.000 especially the four ninety three, not the seven in the 0:03:49.080 --> 0:03:49.320 S and P. 0:03:49.400 --> 0:03:49.880 Five hundred. 0:03:50.000 --> 0:03:53.960 Well, I think let's start with the US economy is 0:03:54.000 --> 0:03:57.800 really a consumption economy, and so ultimately we have to 0:03:57.920 --> 0:04:01.080 figure out how much of that tariff boost that twenty 0:04:01.080 --> 0:04:06.040 percent is shared between the consumer companies reducing their margins, 0:04:06.120 --> 0:04:08.760 or will the exporters actually decide, you know what, I'm 0:04:08.760 --> 0:04:11.960 going to give the US a discount. And I do 0:04:12.040 --> 0:04:15.920 think that we have ongoing academic debate on whether tariffs 0:04:15.960 --> 0:04:19.200 are won and done from an inflation perspective, the fact that, 0:04:20.000 --> 0:04:22.719 as you pointed out five minutes ago, that what we 0:04:22.880 --> 0:04:26.040 think is certainty is actually not certainty because this this 0:04:26.160 --> 0:04:29.560 hammer in the toolbox seems to be deployed frequently, and 0:04:29.640 --> 0:04:34.040 so will you have consistent impacts on inflation rates coming 0:04:34.080 --> 0:04:39.120 through the variability of policy, you know, And that's where 0:04:39.120 --> 0:04:42.040 I think today's data should really you know, my issue 0:04:42.040 --> 0:04:44.440 is what does the ism services come back to, because again, 0:04:44.480 --> 0:04:48.080 this is this consumer led economy tariff' Ultimately, if you 0:04:48.080 --> 0:04:51.240 thought that they were designed to try to encourage reindustrial 0:04:51.760 --> 0:04:56.120 reindustrialization of the United States, policy which is both desired 0:04:56.120 --> 0:04:59.279 by Democrats and Republicans, you know, runs into we already 0:04:59.279 --> 0:05:02.520 have six hundred as an empty manufacturing jobs trying to hire. 0:05:02.920 --> 0:05:05.520 How do you actually convince people to take those jobs 0:05:05.520 --> 0:05:07.880 without paying them more? And last time I checked, that 0:05:08.200 --> 0:05:10.479 was a potential supply shock to inflation. 0:05:10.680 --> 0:05:12.680 You said you're looking forward to the data that comes 0:05:12.680 --> 0:05:15.920 out today. Where do you where you thinking in terms 0:05:15.960 --> 0:05:17.920 of the credibility of a data given the fact of 0:05:18.000 --> 0:05:20.479 the President last week didn't like the jobs number and 0:05:20.520 --> 0:05:22.360 then fire the head of the BLS. 0:05:22.600 --> 0:05:24.640 You know, I think US economic data is the envy 0:05:24.680 --> 0:05:26.880 of the world in general, but we do know that 0:05:26.880 --> 0:05:29.719 there are some issues. You've been having stories for at 0:05:29.800 --> 0:05:32.640 least a year now about falling response rates, and the 0:05:32.680 --> 0:05:35.960 reality is, you know, we haven't completely used AI to 0:05:36.000 --> 0:05:40.039 get all the economic data in real time. Certainly, the 0:05:40.080 --> 0:05:42.159 one thing I have certainty end in life is economic 0:05:42.240 --> 0:05:45.800 data will be revised. And when I sit back and 0:05:45.880 --> 0:05:48.640 think what we were hearing, you know, a week and 0:05:48.680 --> 0:05:51.440 a half ago at this probably sitting in the seat 0:05:51.480 --> 0:05:54.159 someone talking about I'm seeing real weakness in the goods 0:05:54.160 --> 0:05:57.320 producing sector of the economy. And yet then when we 0:05:57.360 --> 0:06:00.560 got the data on Friday, the weakness was actually the visions, 0:06:00.640 --> 0:06:03.440 and that weakness in the revisions was primarily in government. 0:06:03.920 --> 0:06:06.480 So to some extent, we knew when you've been talking 0:06:06.520 --> 0:06:09.560 about the scale of job reductions in the federal government, 0:06:10.200 --> 0:06:11.839 at some point that was going to work its way 0:06:11.839 --> 0:06:14.120 into either initial claims, it would work its way into 0:06:14.160 --> 0:06:18.080 job elimination. So you're left with we didn't know timing, 0:06:18.120 --> 0:06:20.839 but we knew that we knew that was something that 0:06:20.920 --> 0:06:23.479 was going to work its way into the system. Unfortunately, 0:06:23.520 --> 0:06:25.240 it managed to work its way into the system the 0:06:25.320 --> 0:06:28.279 same day that the actual job creation numbers on the 0:06:28.279 --> 0:06:32.400 weaker side. I'm not sure that eliminating a job because 0:06:32.400 --> 0:06:35.520 you don't like the answer. It feels kind of very 0:06:35.600 --> 0:06:39.040 ancient Roman in terms of how you respond. 0:06:39.240 --> 0:06:41.520 Sure, at the same time, some people are saying this 0:06:41.560 --> 0:06:43.560 actually gives a FED. Actually most people are saying this 0:06:43.600 --> 0:06:45.240 gives it FED a lot of ammunition to cut race. 0:06:45.240 --> 0:06:47.680 And you're seeing a ninety one percent chance priced into 0:06:47.720 --> 0:06:48.680 FED funds futures. 0:06:48.880 --> 0:06:49.960 How much do you see. 0:06:49.800 --> 0:06:53.240 This really mandating a cut in September and mandating at 0:06:53.320 --> 0:06:55.240 least two cuts this year, and that actually being a 0:06:55.320 --> 0:06:58.240 positive for equity is given the fact that the underlying 0:06:58.240 --> 0:07:01.640 weakness might not be as great is maybe the revisions 0:07:01.680 --> 0:07:02.760 might suggest. 0:07:02.480 --> 0:07:04.760 I mean, consensus has been I think for two cuts 0:07:04.839 --> 0:07:06.760 this year. The question was really was it going to 0:07:06.760 --> 0:07:09.680 be July? Was it going to be August? By the way, 0:07:09.880 --> 0:07:12.680 Jackson Hole coming up in a few weeks tends to 0:07:12.720 --> 0:07:15.280 have add it sort of an above average policy impact 0:07:15.400 --> 0:07:18.200 ever since the global financial crisis. So I do think 0:07:18.240 --> 0:07:21.000 that we certainly have a nice big window for the 0:07:21.040 --> 0:07:24.160 FED to consider look at the data. I think, you know, 0:07:24.280 --> 0:07:29.400 coming back to this idea, of the direction is lower rates. 0:07:29.440 --> 0:07:31.400 I think the question is that we get it quickly 0:07:31.520 --> 0:07:34.120 or not. If you look at, you know, the slope 0:07:34.160 --> 0:07:37.560 of the eel curve two tens suggests that that is 0:07:37.600 --> 0:07:40.200 more or less priced in three months, ten years, you 0:07:40.240 --> 0:07:42.360 know that curve is still inverted. So I do think 0:07:42.400 --> 0:07:45.440 you do wind up looking at the bond market is trying, 0:07:45.440 --> 0:07:48.320 if you will, to force the Fed's hand, and the 0:07:48.320 --> 0:07:51.520 FED is left with I've got two mandates I hadn't 0:07:51.520 --> 0:07:55.080 seen until Friday, the employment picture actually cracking or weakening. 0:07:55.880 --> 0:07:58.320 And I've got inflation that's still running two eight, two, 0:07:58.360 --> 0:08:00.800 seven to nine, depending on which survey you look at, 0:08:01.120 --> 0:08:04.960 still comfortably above two you know, lives to and licensed statisticians, 0:08:05.000 --> 0:08:07.440 is that forty percent above trend or eighty basis points? 0:08:07.840 --> 0:08:08.040 You know? 0:08:08.320 --> 0:08:11.000 Yeah, Depending on which channel you listen to, you get 0:08:11.040 --> 0:08:11.880 a different take on it. 0:08:12.240 --> 0:08:14.480 Jack Caffrey of David Morgan Asset Management, thank you so 0:08:14.560 --> 0:08:25.880 much for joining us staking with the FED. Lauren Goodwin 0:08:25.920 --> 0:08:28.720 of New York Life, writing this, we discourage investors from 0:08:28.760 --> 0:08:32.559 assuming a September cut would signal a series of cuts thereafter. 0:08:32.920 --> 0:08:36.880 Our FED cuts checklist still signals risks from all sides, 0:08:37.160 --> 0:08:39.920 Lauren joins us. Now with what is increasingly out of 0:08:40.000 --> 0:08:42.240 consensus view, Lauren, how do you look at what we 0:08:42.280 --> 0:08:44.640 got on Friday and the jet labor market data as 0:08:44.679 --> 0:08:48.840 well as the lack of some sort of sustained inflationary impulse. 0:08:49.200 --> 0:08:51.040 Put that together and so we could even be talking 0:08:51.040 --> 0:08:51.800 about a right hike. 0:08:52.080 --> 0:08:52.360 Yeah. 0:08:52.400 --> 0:08:55.280 Well, so I think what the market is telling us 0:08:55.320 --> 0:08:58.840 after Friday is that the Fed will be leaning more 0:08:58.840 --> 0:09:00.959 towards the demand destruct and we're seeing in the labor 0:09:00.960 --> 0:09:04.600 market than inflation in September, and on balance, I agree, 0:09:04.679 --> 0:09:06.560 I think that we're likely to see a rate cut 0:09:06.600 --> 0:09:08.679 in September, pending the data that we get between now 0:09:08.720 --> 0:09:11.720 and then. Where we caution investors is assuming that a 0:09:11.760 --> 0:09:15.720 cut in September means anything about October or December or 0:09:15.720 --> 0:09:19.120 meetings thereafter. And the reason for that is that as 0:09:19.160 --> 0:09:20.960 we look at the things that the FED cares about 0:09:21.280 --> 0:09:23.800 the labor market, we're seeing some weakness on the demand side, 0:09:23.800 --> 0:09:27.400 but we're also seeing a deterioration in labor supply. And 0:09:27.440 --> 0:09:29.960 this is something that I think the market conversation is 0:09:30.000 --> 0:09:33.760 not paying enough attention to because that deterioration in labor 0:09:33.760 --> 0:09:37.240 market supply might mean that fifteen twenty thousand jobs a 0:09:37.240 --> 0:09:40.360 month is actually a healthy labor market. It might mean 0:09:40.360 --> 0:09:43.000 that the unemployment rate isn't going anywhere, or that wages 0:09:43.040 --> 0:09:48.079 are moving potentially even higher. That's a market reaction function 0:09:48.240 --> 0:09:50.600 that we're not used to as investors and something that 0:09:50.640 --> 0:09:53.440 I think we have to consider as we see more 0:09:53.520 --> 0:09:54.920 data between now and September. 0:09:55.000 --> 0:09:57.240 So are you saying that we could still see one 0:09:57.440 --> 0:10:00.720 rate cut this year or maybe two? Thing more than that? 0:10:00.840 --> 0:10:04.640 Is your argument, essentially that people are overestimating any potential 0:10:04.679 --> 0:10:08.160 weakening in the labor market that could curtail the inflationary 0:10:08.280 --> 0:10:10.440 kind of overlays. 0:10:10.480 --> 0:10:12.760 That's my view today. Now, if we think about the 0:10:12.800 --> 0:10:14.520 things that the FED cares about, We've talked a little 0:10:14.520 --> 0:10:18.640 bit about the labor market inflationary pressures. I tend to 0:10:18.720 --> 0:10:20.800 agree with the market that we're unlikely to see a 0:10:20.960 --> 0:10:24.079 major reacceleration of inflation, certainly nothing like we saw a 0:10:24.120 --> 0:10:26.560 couple of years ago. But we are probably going to 0:10:26.720 --> 0:10:30.559 be seeing prices move core PCE inflation move back above 0:10:30.600 --> 0:10:33.240 three percent over the next few months. That's a tricky 0:10:33.280 --> 0:10:35.640 situation for the FED. And if you add that financial 0:10:35.679 --> 0:10:39.040 market conditions have been very loose. Equity valuations look great, 0:10:39.040 --> 0:10:41.440 credit spreads are tight, the availability of credit is good. 0:10:41.640 --> 0:10:44.800 Chairpal pointed to this last week. That's a balance of 0:10:44.880 --> 0:10:48.320 data that doesn't call for an enormous amount of cuts. Now, 0:10:48.360 --> 0:10:50.400 I do think that what we saw on Friday, in 0:10:50.480 --> 0:10:52.640 terms of the demand side of the labor market, that 0:10:52.800 --> 0:10:55.680 does concern me. But that balance of data is not 0:10:55.760 --> 0:10:57.840 only tricky, but a lot of the things that are 0:10:57.840 --> 0:11:01.080 impacting the data are supply factors, things that the FED 0:11:01.080 --> 0:11:02.240 can't control when. 0:11:02.120 --> 0:11:04.360 It comes to the demand side of the labor market 0:11:04.360 --> 0:11:07.520 and the supply side are you looking at. Potentially there's 0:11:07.559 --> 0:11:11.040 less participation because of immigration policy out of Washington or 0:11:11.040 --> 0:11:14.080 what we're seeing in terms of the Ai revolution. 0:11:14.480 --> 0:11:18.120 At this moment, it's more related to immigration policy. So 0:11:18.160 --> 0:11:21.040 we're seeing, and this was confirmed in the numbers on Friday, 0:11:21.240 --> 0:11:24.200 fewer people participating in the labor force. Frankly, just less 0:11:24.240 --> 0:11:28.679 labor supply, less labor availability. We're also seeing that companies 0:11:28.720 --> 0:11:31.560 are hesitant on hiring, and that has more to do 0:11:31.640 --> 0:11:34.600 with trade policy and let's call it general uncertainty. And 0:11:34.640 --> 0:11:37.320 so that balance of factors is one where there's not 0:11:37.440 --> 0:11:40.079 a lot of new jobs created that's not the end 0:11:40.080 --> 0:11:41.960 of the world. But where I think it's tricky for 0:11:42.000 --> 0:11:44.079 the FED is when you have not a whole lot 0:11:44.080 --> 0:11:47.280 of new jobs created while still having an unemployment rate 0:11:47.320 --> 0:11:50.320 that isn't going anywhere. That makes the again the reaction 0:11:50.400 --> 0:11:55.200 function for the market looking at a weaker payrolls payrolls 0:11:55.240 --> 0:11:57.680 gain as something that actually isn't negative. 0:11:58.120 --> 0:11:59.719 When you say that, in the next few months you 0:11:59.760 --> 0:12:02.079 see inflation ticking up, is it all tariff induced? 0:12:02.360 --> 0:12:05.240 It's mostly tariff induced, So we see some stickiness in 0:12:05.280 --> 0:12:08.400 the housing market related to rates. Other than that, services 0:12:08.440 --> 0:12:11.160 disinflation has been pretty well pronounced, and it's one of 0:12:11.200 --> 0:12:12.839 the reasons why we do think that the FED will 0:12:12.840 --> 0:12:14.920 be able to look through some of the goods related 0:12:14.920 --> 0:12:17.840 inflation we're seeing and move towards a cut in September. 0:12:18.440 --> 0:12:20.960 But the challenge is that we've only just started to 0:12:21.000 --> 0:12:25.480 see that goods related inflation hasn't included things like holiday 0:12:25.480 --> 0:12:29.120 bar buying that are just starting now, and so we 0:12:29.160 --> 0:12:31.040 do anticipate that prices are going to be moving in 0:12:31.080 --> 0:12:32.319 the wrong direction later this year. 0:12:32.400 --> 0:12:34.000 It's hard to figure out what's going on. It's even 0:12:34.040 --> 0:12:36.920 harder when you've got accusations of political interference. You've got 0:12:37.040 --> 0:12:40.640 questions about just how accurate the data to collection is 0:12:40.679 --> 0:12:43.800 given the low response rates. You have a really interesting 0:12:43.840 --> 0:12:46.720 take on this, Lauren. The political interference with the FED 0:12:46.920 --> 0:12:50.280 or the Bureau of Labor Statistics will push long rates higher, 0:12:50.480 --> 0:12:53.600 not lower. Why is the market not coming to that 0:12:53.640 --> 0:12:54.720 conclusion right now? 0:12:55.600 --> 0:12:57.320 My read on this, and I've thought a lot about 0:12:57.360 --> 0:12:59.800 this over the weekend, but my read on this is 0:12:59.840 --> 0:13:04.679 that the market isn't seeing evidence of actual interference. 0:13:04.760 --> 0:13:05.000 Yet. 0:13:05.120 --> 0:13:07.600 We don't know whose take is stepping into FED or 0:13:07.640 --> 0:13:10.760 BLS seats. We don't have really in any indication that 0:13:10.760 --> 0:13:15.240 there is interference with these important independent functions. I think 0:13:15.240 --> 0:13:19.040 that calculus would change if the market does see that evidence, 0:13:19.120 --> 0:13:22.200 does see that data or FED decision making is being 0:13:22.240 --> 0:13:24.840 tampered with. And the reason that we think that's important 0:13:24.880 --> 0:13:28.559 is that, especially in monetary policy making, credibility is one 0:13:28.600 --> 0:13:32.000 of the most important policy tools. And though there are 0:13:32.640 --> 0:13:35.320 an increasing amount of evidence that the FED could be 0:13:35.400 --> 0:13:38.720 cutting rates slowly, stably over the next let's call it 0:13:38.760 --> 0:13:42.120 six to twelve months, some of the conversations I have 0:13:42.200 --> 0:13:44.160 with investors are, Oh, if we have a new FED 0:13:44.160 --> 0:13:46.320 share and we get two hundred basis points of cuts. 0:13:46.520 --> 0:13:49.120 You know right away that type of activity, though I 0:13:49.160 --> 0:13:54.880 think incredibly unlikely, is going to derail inflation expectations. In 0:13:54.920 --> 0:13:58.920 anticipation that there were even let's call it modest political interference, 0:13:58.920 --> 0:14:01.400 I think would mean that market interest rates like the 0:14:01.440 --> 0:14:04.080 ten year yield would be moving higher even if the 0:14:04.080 --> 0:14:05.280 policy rate removing lower. 0:14:05.559 --> 0:14:07.800 One thing that a number of analysts have said is 0:14:08.160 --> 0:14:12.320 private data points cannot replace the gold standard, cannot replace 0:14:12.360 --> 0:14:15.120 the Bureau of Labor Statistics, and even some of the 0:14:15.160 --> 0:14:19.920 peripheral surveys don't really don't really serve as a counterpoint 0:14:20.000 --> 0:14:23.760 for the labor market report, given the potential for the 0:14:23.800 --> 0:14:26.880 market to not being tracking, not to not be tracking 0:14:26.920 --> 0:14:29.400 the actual economy in real time. The way that they thought, 0:14:29.720 --> 0:14:33.280 are there certain gauges that you're watching for a better sense? 0:14:33.360 --> 0:14:36.080 Is im service? Is that much more important? Is CPI? 0:14:36.720 --> 0:14:39.040 What sort of the gold standard? Increasingly for you. 0:14:39.640 --> 0:14:42.680 I have to say that the labor market statistics have 0:14:42.760 --> 0:14:45.800 had trouble now for more than a year, more than 0:14:45.840 --> 0:14:48.120 actually more than a couple of years, as response rates 0:14:48.120 --> 0:14:51.480 have declined in response to the pandemic. The BLS is 0:14:51.520 --> 0:14:54.200 still the gold standard. Of course, there's this mattering of 0:14:54.800 --> 0:14:58.280 data and evidence that we look at regardless of what 0:14:58.360 --> 0:15:00.040 phase of the cycle that we're in. But when it 0:15:00.040 --> 0:15:03.480 comes to the labor market, it is about the BLS statistics. Now, 0:15:03.640 --> 0:15:07.360 what do we do to acknowledge that revisions are becoming larger, 0:15:07.440 --> 0:15:12.560 more likely, etc. Goes back to essentially economic fundamentals. One 0:15:12.680 --> 0:15:15.120 data point does not make a trend. I think what 0:15:15.280 --> 0:15:19.280 was really important about Friday's data point is that it 0:15:19.560 --> 0:15:22.720 showed that some of the early signs of cracks in 0:15:22.760 --> 0:15:25.800 the labor market actually did make a trend with the 0:15:25.840 --> 0:15:26.880 revisions that we saw. 0:15:27.000 --> 0:15:28.960 Lauren Goodwin, thank you so much for being here. Lauren 0:15:29.000 --> 0:15:41.720 Goodwin of New York Life. Amanda linam a Blackrock joins 0:15:41.720 --> 0:15:44.080 this now. Amanda, wonderful to see you. Thank you for 0:15:44.120 --> 0:15:47.320 being here. How much are we looking at the FED 0:15:47.440 --> 0:15:51.680 rescuing markets from weakness before the weakness happens? 0:15:51.760 --> 0:15:54.160 Good morning, Thank you for having me. I think that's 0:15:54.320 --> 0:15:57.480 exactly the point. The reason for the rate cuts, in 0:15:57.520 --> 0:16:00.680 my view, is more important than the timing. So our 0:16:00.760 --> 0:16:03.200 expectation is that the rate cut is most likely in 0:16:03.240 --> 0:16:05.920 the fourth quarter. Yes, the risks are skewed till September, 0:16:06.240 --> 0:16:08.800 but why are they cutting. Are they cutting because the 0:16:08.840 --> 0:16:11.680 growth backdrop is deteriorating, or are they cutting because inflation 0:16:11.800 --> 0:16:14.480 is cooperating. It's looking more and more like they would 0:16:14.480 --> 0:16:17.120 be cutting because the growth backdrop is deteriorating. I'm not 0:16:17.160 --> 0:16:20.040 sure that's a great outcome for risk assets. It does 0:16:20.080 --> 0:16:22.440 feel like the market is preempting this a bit. In 0:16:22.480 --> 0:16:25.600 our world of corporate credits, spreads are still resilient. There's 0:16:25.600 --> 0:16:28.800 some differentiation under the surface. But I actually think the 0:16:28.800 --> 0:16:30.840 market is looking through this a bit. And the reason 0:16:30.840 --> 0:16:33.000 I say that is you've had folks like Beth Hammock 0:16:33.080 --> 0:16:35.920 last week talking about how we're not that far from neutral. 0:16:36.200 --> 0:16:39.120 So leaving aside the timing of the cutting, and if 0:16:39.120 --> 0:16:41.760 we focus on the reason and actually the scope for 0:16:41.880 --> 0:16:43.920 the depth of the rate cutting cycle, I'm not sure 0:16:43.960 --> 0:16:46.760 that there's that much relief in train absent a sharp 0:16:46.760 --> 0:16:47.600 downturn and growth. 0:16:47.720 --> 0:16:51.080 Why did people shrug off the labor market report on 0:16:51.120 --> 0:16:54.280 Friday and there revisions that were incredibly negative and caused 0:16:54.600 --> 0:16:56.600 the firing of the BLS chief. 0:16:56.840 --> 0:16:59.640 What I think it is is that Chair Pal almost 0:16:59.680 --> 0:17:02.080 went out of his way in the press conference to 0:17:02.160 --> 0:17:05.840 talk about how he's emphasizing the unemployment rate over the 0:17:06.040 --> 0:17:09.520 number of payrolls gained in any month, because, as he noted, 0:17:09.680 --> 0:17:12.200 the break even rate of payrolls growth is slowing because 0:17:12.200 --> 0:17:14.679 immigration is coming down. So if you look at we 0:17:14.680 --> 0:17:17.280 are at four point one percent as of the July FMC, 0:17:17.680 --> 0:17:20.400 we're now four point two, edging up on four point three. 0:17:20.840 --> 0:17:23.520 Chair Pale characterized that four point one as being close 0:17:23.560 --> 0:17:27.160 to maximum employment. So, yes, the revisions were very large, 0:17:27.200 --> 0:17:30.280 not unprecedented, but large. But actually, if you look at 0:17:30.320 --> 0:17:33.920 the unemployment rate with inflation still above target, I still 0:17:33.960 --> 0:17:36.639 think there's actually some tension in that dual mandate. And 0:17:36.680 --> 0:17:41.000 so it's not for me a base case or very 0:17:41.040 --> 0:17:44.399 clear cut that they will cut in September, because I 0:17:44.400 --> 0:17:47.280 think if you look back to the July FMC, Chair 0:17:47.359 --> 0:17:49.480 Palm made a point to emphasize that unemployment rate, and 0:17:49.520 --> 0:17:51.440 I think that's part of that undercurrent. When the market 0:17:51.480 --> 0:17:54.400 had a bit of time to digest it, focusing on that, 0:17:54.640 --> 0:17:56.600 I think you could come up with a different path. 0:17:56.760 --> 0:17:58.800 But I think, to be clear, the direction of travel 0:17:59.359 --> 0:18:01.359 is very clear. Rates are coming down. It's almost a 0:18:01.359 --> 0:18:03.560 moot point. Is it September or October? Not sure it 0:18:03.640 --> 0:18:04.240 quite matters. 0:18:04.480 --> 0:18:06.880 Well, the market's pricing a ninety percent chance, and now 0:18:06.920 --> 0:18:09.080 of September, what would it take you to say it 0:18:09.160 --> 0:18:09.800 is September. 0:18:09.880 --> 0:18:13.000 I think if you started to see some cooperation and inflation, 0:18:13.119 --> 0:18:15.800 I think that could get you there. That actually that 0:18:15.920 --> 0:18:18.320 tension on that price stability side of the mandate could 0:18:18.320 --> 0:18:19.760 ease up a bit. And then, of course we do 0:18:19.840 --> 0:18:21.479 have some more data between now and then, so if 0:18:21.480 --> 0:18:24.240 you start to see some real continued weakening in the 0:18:24.280 --> 0:18:27.040 labor market, We've already seen weakening, but if that is persistent, 0:18:27.560 --> 0:18:29.600 I think that could really push them. There's a lot of. 0:18:29.600 --> 0:18:32.240 Politics surrounding right now, the data and the FED, and 0:18:32.280 --> 0:18:34.080 the President is going to have a chance to now 0:18:34.119 --> 0:18:35.320 he's going to put a new name in for the 0:18:35.320 --> 0:18:38.959 BLS commissioner, which he fired, and Adriana Kugler, the FED governors, 0:18:38.960 --> 0:18:41.960 will step down in January. She resigned early. Are you 0:18:42.080 --> 0:18:44.560 concerned that all this is getting politicized and there's no 0:18:44.800 --> 0:18:46.120 independent credibility. 0:18:46.640 --> 0:18:50.159 Our conversations with investors are very much focused on the fundamentals, 0:18:50.240 --> 0:18:52.000 so I think there is a lot of noise in 0:18:52.040 --> 0:18:55.320 the background, but actually top of mind in our conversation 0:18:55.480 --> 0:18:58.639 is how are companies navigating this and what are the 0:18:58.760 --> 0:19:02.040 levers that companies can going forward if the growth inflation 0:19:02.160 --> 0:19:04.680 mix becomes more challenging as we expect. What I find 0:19:04.680 --> 0:19:07.320 striking is that second quarter earnings have given us some 0:19:07.400 --> 0:19:10.840 data points that companies in some instances are lowering their 0:19:10.960 --> 0:19:13.879 estimated impact of tariffs relative to what they communicated in 0:19:13.920 --> 0:19:16.480 the first quarter. Certainly not every company. There's a lot 0:19:16.520 --> 0:19:19.359 of dispersion, but if you look at the myriad of 0:19:19.400 --> 0:19:22.479 operational levers that are available to companies to navigate this, 0:19:22.720 --> 0:19:26.200 that could include things like changing product mix, accelerating cost 0:19:26.200 --> 0:19:29.399 cutting in other areas, there's actually a fair amount of levers. 0:19:29.440 --> 0:19:31.520 It kind of reminds me of twenty twenty two, when 0:19:31.560 --> 0:19:33.720