WEBVTT - Surveillance: Labor Balance with Luzzetti 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.600 the Bloomberg Terminal, and the Bloomberg Business app. Let's get 0:00:30.680 --> 0:00:31.920 right to it. We have to do that with the 0:00:31.960 --> 0:00:34.680 important economic data coming up as well, and we're thrilled 0:00:34.720 --> 0:00:36.600 to bring you from our studios in New York on 0:00:36.720 --> 0:00:41.360 radio and television worldwide. Matthew Lozette, Chief US economist at 0:00:41.360 --> 0:00:43.760 Deutsche Bank. Matt, thank you so much for joining us 0:00:43.760 --> 0:00:47.680 in studio with his data coming out is well. You 0:00:47.840 --> 0:00:51.559 nailed the win of it. Absolutely nailed not only the 0:00:51.640 --> 0:00:53.959 vector of the call and this on GDP and recession 0:00:54.000 --> 0:00:57.000 and not nbeer recession, but the idea of a slowdown. 0:00:57.640 --> 0:01:02.279 But you nailed where everybody got wrong, the immediacy of recession. 0:01:02.320 --> 0:01:05.160 And you said, no, do you stick with that? Now? 0:01:05.240 --> 0:01:08.280 When is the win of any kind of slowdown that 0:01:08.360 --> 0:01:10.680 we see? Yeah? I think the recent data we've seen 0:01:10.720 --> 0:01:13.839 over the past several months. If anything, I think gives 0:01:13.840 --> 0:01:16.840 you greater confidence in that kind of timeline. Certainly the 0:01:16.840 --> 0:01:20.480 economy has momentum. Now. What we've seen from the jobs reports, 0:01:20.560 --> 0:01:23.480 or retail sales or some of the survey data bottoming 0:01:23.600 --> 0:01:25.840 and picking back up all tells you. I think that 0:01:25.920 --> 0:01:28.800 Q one growth should be solid. It's certainly above trend, 0:01:28.880 --> 0:01:31.600 we think. I think that the ongoing narrative that we 0:01:31.800 --> 0:01:34.039 hear from the FED about this kind of gradual slowdown 0:01:34.040 --> 0:01:36.560 and growth over the coming quarters doesn't really seem to 0:01:36.560 --> 0:01:37.920 fit with the data that we have. I think that 0:01:37.920 --> 0:01:40.720 that narrative likely has to change. But at the same time, 0:01:40.840 --> 0:01:42.840 we've seen from an inflation perspective, is a lot less 0:01:42.840 --> 0:01:45.759 disinflation than we thought late last year. We see core 0:01:45.800 --> 0:01:48.480 inflation picking back up over the coming months. We think 0:01:48.480 --> 0:01:50.080 that leads the FED to be more aggressive. We have 0:01:50.080 --> 0:01:52.120 a five point six percent terminal rate, which I think 0:01:52.160 --> 0:01:54.280 then builds into the hard landing wrestles later. Well, let's 0:01:54.280 --> 0:01:56.280 talk about the hand landing risks. Where do you have 0:01:56.320 --> 0:01:58.560 to downturn on the Canada? Difficult to do, but just 0:01:58.640 --> 0:02:01.360 to set up the conversation, no doubt, it's difficult to do. 0:02:01.400 --> 0:02:03.440 We currently have it in Q four. We've gone Q 0:02:03.560 --> 0:02:05.200 three Q four. It's but always been a second half 0:02:05.320 --> 0:02:08.040 story for us. I think it's a few things. One, 0:02:08.240 --> 0:02:10.000 you know, we do expect the FED to be more aggressive. 0:02:10.040 --> 0:02:12.440 The market has repriced the terminal rate a lot, but 0:02:12.520 --> 0:02:14.800 I think not enough yet. I think we would probably 0:02:14.800 --> 0:02:17.799 see the market repriced at higher on upcoming inflation data. 0:02:17.880 --> 0:02:19.120 And then you have a number of things in the 0:02:19.160 --> 0:02:21.440 second half of the year. Households lose their excess savings. 0:02:21.560 --> 0:02:23.960 I think that leads to household fragility. You obviously have 0:02:23.960 --> 0:02:26.320 a debt ceiling, which could lead to financial condition tightening 0:02:26.960 --> 0:02:29.760 and weaker government spending. So there's a lot of risks 0:02:29.760 --> 0:02:31.280 as we look out into Q three. You're at five 0:02:31.320 --> 0:02:33.160 to sixty now, right we are. So I'm gonna write, 0:02:33.960 --> 0:02:36.959 do you find this upside risk to that view? Look 0:02:37.080 --> 0:02:39.400 with the data as it is today, I do think 0:02:39.400 --> 0:02:42.040 that there's upside risks that view. If you look at 0:02:42.080 --> 0:02:44.240 the labor market, and I think it's really important. It's 0:02:44.240 --> 0:02:46.520 not just the latest data points, because we should take 0:02:46.639 --> 0:02:49.000 the January data with some grain of salt. Given weather, 0:02:49.320 --> 0:02:53.000 seasonal adjustment factors. We had meaningful upward revisions to household 0:02:53.000 --> 0:02:56.119 income in the Q four of last year. You've had 0:02:56.240 --> 0:02:59.560 inflation data which was revised up meaningfully in Q four. 0:03:00.120 --> 0:03:01.799 So I think as you look at the FED, I 0:03:01.840 --> 0:03:03.440 don't think that they will really have any evidence of 0:03:03.480 --> 0:03:07.440 disinflation by the May meeting. They may only have a 0:03:07.480 --> 0:03:09.919 month or two by the July meeting, and really it's 0:03:09.960 --> 0:03:12.440 a question of, you know, ken they tighten financial conditions enough. 0:03:12.440 --> 0:03:14.520 I think we heard concerns about that in the minutes yesterday. 0:03:14.800 --> 0:03:16.200 I want to take into that a little bit more 0:03:16.280 --> 0:03:20.200 upside surprise to five point six percent. Is that because 0:03:20.520 --> 0:03:23.040 long and variable lags isn't a thing, and it like 0:03:23.120 --> 0:03:25.520 we're already seeing basically the effect of the tightness, and 0:03:25.560 --> 0:03:28.040 that just isn't tight enough at a five percent or 0:03:28.080 --> 0:03:30.760 a five point five percent, Or is this that this 0:03:30.840 --> 0:03:33.520 is a less interest rate sensitive economy that needs to 0:03:33.560 --> 0:03:36.000 have a much bigger shock. Yeah. I think there's two 0:03:36.040 --> 0:03:38.240 lags that we probably want to talk about. There's what 0:03:38.320 --> 0:03:40.200 the FED does and what happens with monetary policy to 0:03:40.200 --> 0:03:43.040 financial conditions. I think that lag has been very quick 0:03:43.080 --> 0:03:46.120 and tight. We saw it reflected in mortgage rates. Financial 0:03:46.120 --> 0:03:49.080 conditions actually tightened very quickly, and then there's the lag 0:03:49.080 --> 0:03:51.440 of that financial condition tightening onto the economy. I think 0:03:51.480 --> 0:03:53.840 that's where you know, we are probably seeing economy that's 0:03:53.880 --> 0:03:56.080 more resilient. You have the excess savings, we still think 0:03:56.080 --> 0:03:58.480 it's one trillion dollars. You've had state in local governments 0:03:58.480 --> 0:04:00.280 that we're sending out checks, so there's been this latent 0:04:00.320 --> 0:04:02.800 stimulus in the system. At the same time, you have 0:04:02.840 --> 0:04:05.400 a labor market that's undersupplied, which I think is making 0:04:05.400 --> 0:04:07.680 it very resilient to the tightening so far. So I 0:04:07.680 --> 0:04:10.760 think those two lags have different lag structures, but the 0:04:10.760 --> 0:04:12.760 one where it hits the economy that's taking longer than 0:04:12.760 --> 0:04:14.400 I think we've seen in the past. Is there a 0:04:14.440 --> 0:04:17.800 sense that there is a level at which the economy 0:04:17.800 --> 0:04:21.000 would break or that could really put a major halt 0:04:21.400 --> 0:04:24.680 on an economic trajectory that still seems to have momentum. Look, 0:04:24.839 --> 0:04:26.479 I'll be quite honest, I think we don't know what 0:04:26.600 --> 0:04:28.600 level that is. And I think that's in part the 0:04:29.120 --> 0:04:31.719 idea that there's upside risks to the terminal rate. You know, 0:04:31.800 --> 0:04:34.280 going back a year ago, if you would have said 0:04:34.279 --> 0:04:36.560 that we'd have a five percent handle on the Fed 0:04:36.600 --> 0:04:38.600 funds rate, and we'd be contemplating whether or not the 0:04:38.680 --> 0:04:40.680 economy being in a recession. I think that'd be almost 0:04:40.720 --> 0:04:44.440 preposterous conversation to be having. As we continue to price 0:04:44.520 --> 0:04:48.120 higher financial conditions. You know they're tight, they've tightened, but 0:04:48.160 --> 0:04:50.560 I don't think they're tight enough to achieve the fed 0:04:50.680 --> 0:04:52.800 dual mandate objectives. And so I think we have to 0:04:52.839 --> 0:04:55.000 be open minded and humble about where that terminal rate 0:04:55.040 --> 0:04:56.400 is actually going to be. I want to take the 0:04:56.480 --> 0:04:59.520 heritage Deutsche Bank. And this goes back to thirteen years now, 0:04:59.560 --> 0:05:02.760 to raging debate at the time off of Duley, Garber 0:05:02.839 --> 0:05:06.520 and folkirts Land out David leading all of your research effort, 0:05:06.960 --> 0:05:10.599 and there was a titanic debate about China's savings and 0:05:10.720 --> 0:05:13.679 China flow. Paul McCauley was involved in this, Brad sets 0:05:13.680 --> 0:05:15.960 are in others. I want to bring that to the 0:05:16.040 --> 0:05:19.800 domestic right now. Not the unknown with China, but what's 0:05:19.839 --> 0:05:24.760 the unknown for Matt Lozzetti in the American economic experiment 0:05:24.839 --> 0:05:27.839 right now? What's the mystery out there for you three 0:05:27.960 --> 0:05:30.520 four or five years out? So I think three four 0:05:30.560 --> 0:05:33.440 or five years out there's this really interesting conversation about 0:05:33.440 --> 0:05:35.440 what the neutral that funds rate is likely to be. 0:05:35.520 --> 0:05:37.600 It does plan too a little bit about the global 0:05:37.640 --> 0:05:40.400 saving story, and I think it's really about what are 0:05:40.400 --> 0:05:44.440 we seeing today that is simply reflecting unique circumstances around 0:05:44.440 --> 0:05:47.479 the pandemic, or what is it something that is more structural. 0:05:47.560 --> 0:05:48.880 I think some things that we know that might be 0:05:48.920 --> 0:05:51.039 more structural. I think inflation is going to be structurally 0:05:51.080 --> 0:05:53.560 higher going forward. You know, we have all these shifts 0:05:53.600 --> 0:05:58.360 going on, demographic forces, deglobalization, you have climate change policy. 0:05:58.360 --> 0:06:00.280 All these things I think are at the margin least 0:06:00.279 --> 0:06:03.080 are going to be inflationary. I think you also have 0:06:03.279 --> 0:06:06.040 a world where maybe fiscal policy in the US has 0:06:06.080 --> 0:06:08.760 not structurally changed in an easier direction, but I think 0:06:08.800 --> 0:06:11.919 globally we might see that shifting in a more easier direction, 0:06:12.160 --> 0:06:13.920 and I think that does lift the neutral rate for 0:06:14.160 --> 0:06:16.680 the feed as we look at you see that coming 0:06:16.680 --> 0:06:18.640 from Europe, China? Where do you see that coming from? 0:06:18.680 --> 0:06:21.279 So I think we have in Europe, we have defense spending, 0:06:21.279 --> 0:06:23.520 you have climate change policy. In China, you likely have 0:06:23.560 --> 0:06:27.400 a shift away from domestic savings in their economy over time. 0:06:27.800 --> 0:06:29.320 In the US, it's a more up in question. You know, 0:06:29.360 --> 0:06:30.880 we have a debt sailing debate that that's going to 0:06:30.920 --> 0:06:32.599 be happening in the second half of this year. Could 0:06:32.600 --> 0:06:34.640 this lead to fiscal or trenchmen It seems pretty likely 0:06:34.680 --> 0:06:36.680 to put death sentence in there in China savings just 0:06:36.760 --> 0:06:39.040 to keep his job focus. Landau was watching are you 0:06:39.080 --> 0:06:41.640 getting questions on that debt saving debate yet? Or a 0:06:41.680 --> 0:06:43.560 people avoiding it? Is it you trying to talk to 0:06:43.560 --> 0:06:45.479 clients about it or clients trying to talk to you. 0:06:45.720 --> 0:06:47.400 It's clients trying to talk to us at the moment. 0:06:47.440 --> 0:06:50.120 I would say that the past few it was more 0:06:50.560 --> 0:06:52.479 we have to come up against it, you have to 0:06:52.480 --> 0:06:54.560 see it reflected in the bill market, and then everybody 0:06:54.640 --> 0:06:56.520 starts to focus on it. I think this time around 0:06:56.560 --> 0:06:58.560 there's been a lot more focused early on Maybe it's 0:06:58.720 --> 0:07:01.119 you know, what was going on with this speaker leadership votes. 0:07:01.800 --> 0:07:03.840 It's very clear that I think from both sides that 0:07:03.920 --> 0:07:08.039 they're they're kind of entrenched in their views at this 0:07:08.080 --> 0:07:10.680 point and that it will be an issue, and so 0:07:10.720 --> 0:07:12.080 I think that there has been greater focus on it 0:07:12.160 --> 0:07:13.280 this time around. You think for it not to be 0:07:13.320 --> 0:07:14.880 an issue, it needs to become an issue. And what 0:07:14.960 --> 0:07:16.200 I mean by that they need to push it far 0:07:16.320 --> 0:07:18.120 enough that something happens in markets for them to back 0:07:18.160 --> 0:07:19.520 a white Is that way you see this guy. I 0:07:19.680 --> 0:07:22.040 don't see any way that either side should back down 0:07:22.080 --> 0:07:24.400 from their view unless it becomes an issue where financial 0:07:24.400 --> 0:07:26.360 conditions begins to tighten. The problem we've all got is 0:07:26.400 --> 0:07:28.600 it's an issue for like somewhere else further out, and 0:07:28.560 --> 0:07:31.080 they cant delay selects in the summer sea into the summer. 0:07:31.160 --> 0:07:34.000 It's such a frustrating discussion to have if there is one. 0:07:34.160 --> 0:07:36.320 A group of economists over at Jeffreys put out this 0:07:36.360 --> 0:07:38.760 note basically saying some of the sell off you've seen 0:07:38.800 --> 0:07:40.920 in bills with gilds rising above five percent in the 0:07:40.960 --> 0:07:43.360 short end could be tied to some of this death 0:07:43.440 --> 0:07:45.960 sailing debate. Muhammadalaran came out and he basically was like, no, 0:07:46.000 --> 0:07:47.800 it's not, it's all the fact, but you know this 0:07:47.840 --> 0:07:49.120 is the issue. It's sort of like, how do you 0:07:49.160 --> 0:07:51.760 game that out? Because even the reaction function in markets, 0:07:51.760 --> 0:07:53.440 what is it is it to go into short term 0:07:53.480 --> 0:07:56.320 decks it's safe. I mean the irony around how the 0:07:56.320 --> 0:07:59.160 market would even respond when issue that seems to pay 0:07:59.480 --> 0:08:01.440 the play every single time, We'll say it is different 0:08:01.480 --> 0:08:04.000 this time anyway, core PC a little bit hotter for 0:08:04.040 --> 0:08:06.440 the fourth quarter. Tom, that's another reader that four point 0:08:06.480 --> 0:08:09.520 three percent jobless claims expected to climb higher. They did not. 0:08:09.600 --> 0:08:12.920 They declined to one ninety two from a revised one 0:08:13.240 --> 0:08:15.400 ninety five. What do you make of that GDP price 0:08:15.480 --> 0:08:17.680 index up as well? And just to the amateur take, 0:08:17.760 --> 0:08:21.560 I'd take us to add up GDP annualized plus the 0:08:21.680 --> 0:08:24.640 GDP price index and I got nominal GDP of six 0:08:24.720 --> 0:08:28.240 point six percent, if I Matt Laszoti math is correct. 0:08:28.320 --> 0:08:31.120 And I'm sorry, John, that's a that's that's what keeps 0:08:31.160 --> 0:08:34.120 you going when you've got nominal GDP at that level. Matt, 0:08:34.120 --> 0:08:35.920 we've got to come to you on that. Matt Lasotti 0:08:36.160 --> 0:08:38.319 from Deutsche Bank alongside us, Can we just start with 0:08:38.360 --> 0:08:40.720 that number, one hundred and ninety two thousand, Your thoughts 0:08:40.760 --> 0:08:43.480 on it. I mean, it's remarkable. I mean it's remarkable 0:08:43.520 --> 0:08:45.360 that the FETT tightened as much as they have and 0:08:45.440 --> 0:08:47.960 you don't see a labor market that is really certainly 0:08:48.000 --> 0:08:50.000 not shedding labor. It's not coming into better balance as 0:08:50.000 --> 0:08:53.160 the ft had hoped for. UM. I think the revisions 0:08:53.160 --> 0:08:55.200 to the recent data you've had, plus the latest data 0:08:55.200 --> 0:08:57.960 show really no weakening at all. I would highlight the 0:08:57.960 --> 0:09:00.800 core PC number there as well, uppard revisions. I think 0:09:00.800 --> 0:09:03.400 it likely reflects the seasonal adjustment that we saw in 0:09:03.480 --> 0:09:06.560 the CPI now getting reflected in the core PC data 0:09:06.559 --> 0:09:08.840 as well. You get that if plus a point five 0:09:09.040 --> 0:09:12.440 reading tomorrow, I think we're you know, the ten minutes. 0:09:12.760 --> 0:09:15.719 The sentence that I focused on the most was you know, 0:09:15.760 --> 0:09:18.079 there's concern if they don't tighten sufficiently that progress on 0:09:18.120 --> 0:09:21.360 inflation could halt. I think that with the revisions to 0:09:21.400 --> 0:09:24.280 the data, with the incoming data that we're seeing, there 0:09:24.320 --> 0:09:25.760 has to be a question about whether or not they 0:09:25.800 --> 0:09:27.720 are tightened sufficiently, and whether or not, with the market 0:09:27.800 --> 0:09:30.320 is pricing right now, is tightening sufficiently. After pay Rose, 0:09:30.400 --> 0:09:31.880 I spoke to a lot of people that said that 0:09:31.960 --> 0:09:35.040 was more noise than signal in the January data. Based 0:09:35.040 --> 0:09:36.800 on the data we've had in the last couple of weeks, 0:09:37.000 --> 0:09:39.199 do you think it was most signal the noise. Look, 0:09:39.240 --> 0:09:40.760 I don't think we're going to print five hundred thousand 0:09:40.840 --> 0:09:43.920 jobs per month on average, so there's there's no doubt 0:09:43.920 --> 0:09:47.079 the headline, there's no doubt a lot of noise there. 0:09:47.280 --> 0:09:49.000 But when you look at the broad labor market data. 0:09:49.000 --> 0:09:50.400 If you looked at the Jolts data, you know a 0:09:50.440 --> 0:09:53.040 few days before that job opening is picking up initial 0:09:53.120 --> 0:09:55.280 jobless claims. Everything is telling you the labor market that 0:09:55.320 --> 0:09:59.520 has momentum and that is tight. I look at just 0:09:59.559 --> 0:10:04.640 the equation, why we'll see plus I plus G plus nx. 0:10:05.040 --> 0:10:09.000 Can we guestimate any of those factors? Given we're coming 0:10:09.000 --> 0:10:11.959 out of a pandemic with a Biden stimulus. I am 0:10:12.000 --> 0:10:15.560 so fortunate I'm not doing what Peter Hooper's told you 0:10:15.640 --> 0:10:19.240 to do, which is actually try to guestimate this. What's 0:10:19.240 --> 0:10:24.199 your confidence in guestimating forward? Look, it's it's always difficult. 0:10:24.200 --> 0:10:26.400 I think it's it's even more difficult in the current environment. 0:10:26.520 --> 0:10:29.800 As I look at those Q four GDP numbers, the 0:10:29.840 --> 0:10:33.640 downgraded consumption is meaningful. We were actually close to zero 0:10:33.720 --> 0:10:36.320 growth in private domestic demand already, meaning if you were 0:10:36.320 --> 0:10:39.440 to look at housing consumption and capex and so, it 0:10:39.480 --> 0:10:41.520 does look like from those numbers you had even probably 0:10:41.520 --> 0:10:44.040 a sharper slowdown in domestic demand growth in Q four. 0:10:44.880 --> 0:10:46.640 But I think the data we've had since then is 0:10:46.640 --> 0:10:49.480 suggestive that was a temporary blip. It was around the 0:10:49.480 --> 0:10:51.920 period where we think financial conditions were hitting the economy 0:10:52.160 --> 0:10:55.400 probably most significantly, and if the Fed does not continue 0:10:55.440 --> 0:10:58.320 to engineer conditions that are tight enough, you have an 0:10:58.320 --> 0:11:00.640 economy that I think is likely to pick back up 0:11:00.679 --> 0:11:02.880 and a labor market that is unlikely to listen. Does 0:11:02.920 --> 0:11:05.199 that mean that there's another fifty basis point on the table. 0:11:06.000 --> 0:11:08.240 I think you know it's not the optimal choice from 0:11:08.280 --> 0:11:11.080 their perspective. If they ratch it up to fifty basis points, 0:11:11.080 --> 0:11:13.000 we get back into this process of how do you 0:11:13.040 --> 0:11:15.679 get back down from fifty to twenty five? And if 0:11:15.679 --> 0:11:18.880 you only want to go one or two, it's going 0:11:18.920 --> 0:11:20.400 to be very difficult to do that by the mayor 0:11:20.480 --> 0:11:22.760 June meetings. I could think for the March meeting, if 0:11:22.760 --> 0:11:26.000 they need to deliver a hawker's surprise, you always kind 0:11:26.000 --> 0:11:27.480 of have that free card of the dot plot. The 0:11:27.559 --> 0:11:29.920 dot plot is able to signal their intentions. They could 0:11:30.240 --> 0:11:33.040 show a FED funds terminal rate that's higher than what 0:11:33.080 --> 0:11:36.040 the market has priced in holding it for longer. And 0:11:36.120 --> 0:11:38.040 the messaging I think is really important here. If they 0:11:38.040 --> 0:11:40.360 were simply to talk down financial conditions, as as the 0:11:40.360 --> 0:11:42.680 minutes did a little bit, I think that that would happen. 0:11:42.600 --> 0:11:46.439 It is critical, this is original. Since when does a 0:11:46.600 --> 0:11:51.000 central bank quote unquote talk down financial conditions? I actually 0:11:51.000 --> 0:11:53.240 looked at that than us and them literally bore the 0:11:53.280 --> 0:11:59.559 pass back just talken about talking about it. And the 0:11:59.640 --> 0:12:02.880 Schwartz didn't talk about it, The Georgia School didn't talk 0:12:02.920 --> 0:12:05.839 about it. You Cela didn't talk about it. How do 0:12:05.920 --> 0:12:09.640 they quote unquote talk down financial conditions? Look, I think 0:12:09.640 --> 0:12:12.160 we're in a in a Obviously, the past decade decond 0:12:12.160 --> 0:12:14.679 and a half is a new period of communications from 0:12:14.679 --> 0:12:17.840 central banks. It is guiding towards their expectations of what 0:12:17.880 --> 0:12:20.319 they want to do in order to bring about financial 0:12:20.320 --> 0:12:22.480 conditions that will achieve their objectives. And so they always 0:12:22.480 --> 0:12:25.720 should be asking the question, is the market interpreting our 0:12:25.760 --> 0:12:28.160 signals as we want them to be interpreting them? And 0:12:28.320 --> 0:12:32.360 are we achieving financial conditions that will achieve our Doctor Phil, 0:12:32.400 --> 0:12:35.000 except it's doctor Matt. But the interesting thing is is 0:12:35.040 --> 0:12:37.680 that actually this fed has less power than it has 0:12:37.760 --> 0:12:40.120 for a long time, simply because the data is what 0:12:40.160 --> 0:12:42.680 the data is, and they have to respond accordingly, and 0:12:42.679 --> 0:12:44.640 the market is trading off the data, it's not necessarily 0:12:44.679 --> 0:12:47.160 trading off the rhetoric that we're hearing from the Federal Reserve. So, Matt, 0:12:47.200 --> 0:12:49.400 when you take a look at what we're seeing, especially 0:12:49.400 --> 0:12:53.480 at the upside revision to the core PC, is there 0:12:53.520 --> 0:12:55.600 a sense that we could end the year with even 0:12:55.640 --> 0:12:58.560 a four handle on inflation or a five handle on 0:12:58.600 --> 0:13:03.680 the overall headline, something significantly above where people are projecting. Look, 0:13:03.679 --> 0:13:05.480 you don't have too much confidence in an inflation has 0:13:05.480 --> 0:13:07.680 been very difficult to forecasts. I think it's just unlikely 0:13:07.720 --> 0:13:09.440 given what we know what's going to happen with rent 0:13:09.440 --> 0:13:11.920 and oere. We know that in the back half of 0:13:11.920 --> 0:13:14.719 this year, those two really important components are going to 0:13:14.760 --> 0:13:17.440 be trending down. That said, you know we have a 0:13:17.480 --> 0:13:20.040 three three COREPC forecast for the end of the year. 0:13:20.320 --> 0:13:22.080 The Fed's forecasts of three and a half, which was 0:13:22.640 --> 0:13:24.800 laughed out, I think a few months ago, looks a 0:13:24.800 --> 0:13:27.959 lot more plausible given the data that we're seeing, and 0:13:28.080 --> 0:13:30.760 you're an environment where you don't want to discount upside 0:13:30.840 --> 0:13:33.520 risks to inflation, particularly if the labor market is not 0:13:33.520 --> 0:13:35.760 going to be listening. Matt. Communication from the Fed over 0:13:35.760 --> 0:13:38.200 the last ten years changed, and we've talked about that. 0:13:38.240 --> 0:13:40.720 They started to manage financial conditions in a much more direct, 0:13:40.720 --> 0:13:43.240 transparent way. But that's uncle because the nature of the 0:13:43.280 --> 0:13:45.920 economy changed over the last several decades. It became much 0:13:45.960 --> 0:13:49.800 more financialized. Because of the financialization of the economy, we 0:13:49.920 --> 0:13:52.760 also thought that when they started to raise interest rates 0:13:52.800 --> 0:13:54.760 to your point earlier on, that it would hit the 0:13:54.800 --> 0:13:58.520 economy much faster. The communications changed, the nature of transmission 0:13:58.520 --> 0:14:01.120 has changed through to financial market. It's everything tightens up. 0:14:01.640 --> 0:14:03.160 I just think I have to sit here and sit 0:14:03.200 --> 0:14:05.840 here now and say, there's so much we don't know. 0:14:06.360 --> 0:14:09.320 Because to your point, if you told me twelve months ago, 0:14:09.679 --> 0:14:13.400 told anyone five hand or FED funds guess where unemployment is, 0:14:13.400 --> 0:14:15.640 they would not have said three point four percent. They 0:14:15.640 --> 0:14:18.240 wouldn't have said claims at two hundred thousand. So do 0:14:18.280 --> 0:14:19.520 you think we need to be a little bit more 0:14:19.640 --> 0:14:21.680 and not you because we get along. This is not 0:14:21.680 --> 0:14:23.200 directed at you. Do you think we need to be 0:14:23.200 --> 0:14:25.160 a little bit more humble about what we don't know 0:14:25.520 --> 0:14:27.280 about what's happening with the FED here? And do you 0:14:27.280 --> 0:14:30.840 think they need to be as well? Absolutely? I mean 0:14:30.840 --> 0:14:34.760 we're in an environment of significant uncertainty about the outlook 0:14:34.960 --> 0:14:38.000 of a lot of data, volatility of mixed signals from 0:14:38.040 --> 0:14:41.760 the typically very reliable leaning indicators that we would look at. 0:14:42.640 --> 0:14:45.160 You have an unprecedented environment, and where you have households 0:14:45.200 --> 0:14:48.040 which are still sitting on a substantial amount of excess savings, 0:14:48.080 --> 0:14:51.840 where a labor market seems to be structurally undersupplied. You know, 0:14:51.880 --> 0:14:54.040 how all those things work out, and how the lick 0:14:54.120 --> 0:14:56.760 structure of monetary policy to the economy works out is 0:14:56.800 --> 0:14:59.480 all key sources of uncertainty. I think for the FED 0:15:00.120 --> 0:15:02.000 view is that it means they need to see evidence 0:15:02.000 --> 0:15:03.480 that things are moving in the right direction to be 0:15:03.560 --> 0:15:05.680 able to back off. We just don't have that evidence 0:15:05.680 --> 0:15:08.320 at the moment. Is there anything stimulative about being able 0:15:08.400 --> 0:15:12.280 to earn money from your cash? Look that if you 0:15:12.360 --> 0:15:14.240 looked at it just within that margin, I think you 0:15:14.280 --> 0:15:17.080 would say yes. The bigger picture is, as the FED 0:15:17.080 --> 0:15:19.880 titans monetary policy. We've seen what happens to mortgage rates, 0:15:19.920 --> 0:15:22.200 We've seen what's happened to the housing market. We see 0:15:22.680 --> 0:15:26.040 rising delinquencies on autos. So I don't think raising rates 0:15:26.080 --> 0:15:29.080 is stimulative. I think that component of it could be. 0:15:29.320 --> 0:15:31.920 But the bigger pictures is certainly that a titan's financial 0:15:31.920 --> 0:15:34.600 condition that's straight at the School of Dramatis did he 0:15:34.680 --> 0:15:37.080 message you. That's exactly the kind of thing in dream 0:15:37.080 --> 0:15:39.120 mattis tost about. But you have to think, if suddenly 0:15:39.160 --> 0:15:41.920 you can make five percent on your cash, then it's 0:15:42.000 --> 0:15:43.640 you know, free money. You can play with it, you 0:15:43.680 --> 0:15:46.119 can do things, etc. And then is there something stimulative, 0:15:46.200 --> 0:15:48.080 especially if you're not seeing the weakness, if you've got 0:15:48.080 --> 0:15:50.120 locked in mortgage rates, if you've got a lot of 0:15:50.120 --> 0:15:52.400 these other costs that have already been immunized. I'm just 0:15:52.480 --> 0:15:55.400 wondering reverse argum as an argument people might when we 0:15:55.440 --> 0:15:58.160 have negative interest rates exactly. Yeah, but that's what I'm saying. 0:15:58.200 --> 0:16:00.160 But it wasn't Spring geekin all my kitivity. But he 0:16:00.280 --> 0:16:01.760 was sparing some people to double down to try and 0:16:01.800 --> 0:16:04.320 save more, exactly. So why couldn't you make the argument 0:16:04.320 --> 0:16:06.360 potentially that it could have the opposite effect. I don't know. 0:16:06.400 --> 0:16:08.400 It's just something to throw out there, something to talk about, 0:16:08.440 --> 0:16:10.160 something to think about, because I just don't think we've 0:16:10.160 --> 0:16:12.040 got a cliff. I think that that's correct any of this. 0:16:12.240 --> 0:16:14.080 I wonder if the federal zev's even got the toes 0:16:14.360 --> 0:16:18.200 to bring inflation dat towards target without just absolutely smashing 0:16:18.200 --> 0:16:20.880 this economy to paces, which is what Mohammed's talking about. 0:16:21.000 --> 0:16:22.480 I think that a lot of people are wondering what 0:16:22.480 --> 0:16:24.080 it looks like when you cross them. I mentioned three 0:16:24.120 --> 0:16:28.240 percent inflation of Matte Lozetti tomorrow PCE deflator top line 0:16:28.400 --> 0:16:32.640 point four point one point one. I do a quick 0:16:32.680 --> 0:16:35.280 three month annualized, you get a two point four zero percent. 0:16:35.360 --> 0:16:37.560 That's how you get what's the value right now of 0:16:37.600 --> 0:16:41.600 a three month annualized review by guys like you, when 0:16:41.600 --> 0:16:44.080 you're wedded in the chairman's wedded to month month year 0:16:44.120 --> 0:16:46.560 over year. Is there a value to looking at ninety 0:16:46.640 --> 0:16:49.680 days annualized? Absolutely? I think you know, we know a 0:16:49.720 --> 0:16:51.200 lot of the year over year is being inflated by 0:16:51.280 --> 0:16:53.080 very strong prince that we had last year. You want 0:16:53.080 --> 0:16:55.840 to be looking at the shorter term trends to see gospel, 0:16:55.960 --> 0:16:57.880 to see what to see what they're showing. And that's 0:16:57.880 --> 0:17:00.360 where I really think the revisions were important. So at 0:17:00.360 --> 0:17:02.920 the February meeting, the Fed core CPI was three point 0:17:02.920 --> 0:17:05.520 one percent annualized, they found out it was actually four 0:17:05.520 --> 0:17:07.600 point two four point three percent annualized. And you're getting 0:17:07.600 --> 0:17:09.959 a pickup in inflation on top of that, and so 0:17:10.040 --> 0:17:11.960 I think you've completely changed the trajectory of what it 0:17:11.960 --> 0:17:13.280 looked like at the end of last year. That's such 0:17:13.280 --> 0:17:15.840 a strong point, Matt, thanks for that, Mattless Eddie Attebank, 0:17:25.880 --> 0:17:27.920 a wise man said to us a number of weeks ago, 0:17:27.960 --> 0:17:30.480 if you're not paying attention, if you're not confused, you're 0:17:30.520 --> 0:17:33.400 not paying attention. That was dune In Emmanuel of Ever, 0:17:33.520 --> 0:17:35.240 Corny joins us around the table. We're going to catch 0:17:35.320 --> 0:17:37.000 up with him in just a moment. Features up by 0:17:37.000 --> 0:17:38.920 about a half of one percent on the SMP Tom 0:17:38.920 --> 0:17:40.520 coming off a four day losing streak and trying to 0:17:40.560 --> 0:17:44.119 bounce exactly, trying to bounce Nastac one hundred up nine 0:17:44.200 --> 0:17:46.960 tenths of a percent, trying to bounce Vis comes in 0:17:47.040 --> 0:17:49.680 twenty three to twenty one, breaches twenty two, twenty one 0:17:49.680 --> 0:17:52.080 point eighty six. But I think it's right. Trying is 0:17:52.680 --> 0:17:54.800 the right equity energy this morning, and keep him one 0:17:54.840 --> 0:17:57.720 eye on the bond market, maybe two, maybe two one morning. 0:17:57.800 --> 0:18:00.240