Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, financial investment.
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. I placed
Speaker 1: to site the US labor secondary Mally Waltz Joint just
Speaker 1: now from Washington. Now, Marty, did you have to edit
Speaker 1: your notes once you saw that job's number in the
Speaker 1: last twenty four US Well, I looked at my economists
Speaker 1: and I said, you were way off to that. You know.
Speaker 1: It was you know, and I was on a call
Speaker 1: with some folks from the White House earlier and they said,
Speaker 1: what do you think about the jaws of points? It
Speaker 1: was good, straight jaws are pointed. And Jack Berncy made
Speaker 1: a joke, he said, you never change your tone. You know.
Speaker 1: It was a great report. I mean when you look
Speaker 1: at areas of that, I think a really important business grew,
Speaker 1: healthcare grew, education grew, and we saw in strong steady
Speaker 1: growth and construction. I mean, so those are areas that
Speaker 1: obviously you you would know better than I would as
Speaker 1: far as signs for the economy and concerns about economy.
Speaker 1: But right now, certainly I'll take this jobs report for
Speaker 1: any day of the week. Well, Secondly, Wesh, I said
Speaker 1: it to you now two months running. I mean you've
Speaker 1: been right. I've tried to push back, but ultimately we're
Speaker 1: seeing this job's growth without that inflation re impulse, with
Speaker 1: that wage is picking up, We're seeing participation start to climb. Secondly, Welsh,
Speaker 1: what are the dynamics underpending that do you think? Why
Speaker 1: do you think that can continue? I mean, I think
Speaker 1: we're still going to be assessing that and evaluating that
Speaker 1: for years to come. I think what's happening at this
Speaker 1: moment in time is something that economists and folks like
Speaker 1: you and me and all of us will be talking
Speaker 1: about down the road. I don't think there's really an
Speaker 1: answer other than you know, the President did lay out
Speaker 1: an agenda to get people back to work, and then
Speaker 1: he laid out an agenda to tackle inflation. Obviously the
Speaker 1: FED is doing the thing as well, and I just
Speaker 1: I think we're living in a very different time right now,
Speaker 1: economic times, and you know most economists or people who
Speaker 1: are business people won't really kind of might not agree
Speaker 1: with what I'm about to say, But I just think
Speaker 1: that this these are times we've never really experienced in
Speaker 1: this country, and we just literally have to take this
Speaker 1: month a month to see as long as we can
Speaker 1: move forward and and avoid a recession and avoid a
Speaker 1: downtourn the economy and try and create as many opportunities
Speaker 1: both for employers and employees in this country. Well, the
Speaker 1: sitist speaking to that right now, and the President has
Speaker 1: some fresh numbers to put into that side of the
Speaker 1: union address next week. Secly. Well, so now you've got
Speaker 1: to run. So I want to work through a couple
Speaker 1: of issues with you. Here's one. You usually give us
Speaker 1: an update on what's happening on the West coast with
Speaker 1: the dot workers contract. Where are we now? Have they
Speaker 1: asked for your involvement? So? No, I mean I've been
Speaker 1: I've been in city contact this week. I talked to
Speaker 1: all sides. Uh. They were able to to work through
Speaker 1: some some of the more tricky issues out there. Uh,
Speaker 1: they have not asked, per se for me to come
Speaker 1: out and talk to them. I did go out January second,
Speaker 1: h to sit down and talk to the companies and
Speaker 1: some of the union guys out there, union people out there,
Speaker 1: they're moving along certainly. As I said to you a
Speaker 1: long time ago, I wish this negotiation was done, but
Speaker 1: there's a lot of a lot of issues out there
Speaker 1: that they want to go through. But so far, hopefully
Speaker 1: we don't have anything that will will hold this contract up.
Speaker 1: But certainly it's something i'd like to get done sooner,
Speaker 1: Ran and later. You've been pretty calm about it, and
Speaker 1: often ask you when does the red lights start to flash?
Speaker 1: Are we getting closer to that point for you? No,
Speaker 1: it will flash to me if there's an issue that
Speaker 1: I think is going to be one of those make
Speaker 1: up break issues, you know, like in the railroads when
Speaker 1: we talked about right right, you know, the negotiations weren't
Speaker 1: really going on as they're moving forward. When sick time
Speaker 1: came up, paid sick time came up. I kind of
Speaker 1: knew that that was one of those red flashing problems.
Speaker 1: I haven't seen that yet in the ports negotiations, and
Speaker 1: I think that you know, the way they work is
Speaker 1: a lot of these the unions work uh and negotiate
Speaker 1: with individual ports, but there is a master contract. I
Speaker 1: don't know if that's the technical name for it, but
Speaker 1: right now I'm not concerned about that yet. I mean, listen,
Speaker 1: you could change on the dime, obviously, but right now
Speaker 1: I feel good. It's likely West. Usually, Tom Kine and
Speaker 1: I like to talk about football, real football, the stuff
Speaker 1: that happens outside at the United States. I'm tell you're
Speaker 1: a massive Bruins fan, is that true? I like the Bruins,
Speaker 1: I like the Patriots, I like the Celtics, and I
Speaker 1: also like me and United. Oh you do as well.
Speaker 1: The reason I bring up the Bruins is because there's
Speaker 1: some interest in perhaps maybe you go into the NHL
Speaker 1: Players Association. Any truth to that. Secondly, Walsh, there was
Speaker 1: a report from Politico this week. I don't have any
Speaker 1: personal news to make today today and focused on a
Speaker 1: job report that that is shown since the present BUYD
Speaker 1: has taken off, as twelve point one million people have
Speaker 1: either gone back to work or job has been at
Speaker 1: the economy. And you know, certainly this is such an
Speaker 1: honor being Labor secretary and being on a daily today.
Speaker 1: I feel even better about it being able to be
Speaker 1: on TV. That sounds like, you've got some news to
Speaker 1: make tomorrow. I live my life a day to time,
Speaker 1: so figure see what happens. Secondly, Marty Welsh, I think
Speaker 1: we can read between the lines there. It's gonna catch up,
Speaker 1: sir as always the Labor Secretary there money Welsh, that
Speaker 1: is a monster upside surprise five D seventeen thousand. The
Speaker 1: only big economist on Wall Street that him anywhere near
Speaker 1: with City and Andrew Holland Horst a little north of
Speaker 1: three hundred k neil data looked for an upside surprise,
Speaker 1: Well here it is. This is what City said earlier
Speaker 1: this week. Pal's hopefulness must now confront the data. The
Speaker 1: devish market reaction to Chairman Pal's relatively neutral comments implicitly
Speaker 1: assumes inflation will continue to call faster than the Fed expects,
Speaker 1: even absent a further tightening of financial conditions. Tom here's
Speaker 1: a question for you. If Chairman Pal had this report
Speaker 1: in hand on Wednesday in the news conference with the
Speaker 1: press conference had been any different, would have been different? Yeah?
Speaker 1: I think so. I think that what what? What what
Speaker 1: I see here? John? It's so important with the men's
Speaker 1: respect all. Mike McKee owns this story is you wonder
Speaker 1: does the rest of the world begin to trust the
Speaker 1: data of so many people are getting this wrong? Have
Speaker 1: we got the person to Jack Welch and his criticisms
Speaker 1: of Washington economic data the late Greek Jack Welch, And
Speaker 1: you just wonder do you trust the data? Why don't
Speaker 1: you bring in the optimist nil to the head of
Speaker 1: US economic research, every nice Lince Macro And now you
Speaker 1: seats it or you're running around the room. I just
Speaker 1: got back to my seat. You look, time, I trust
Speaker 1: a lot a lot of you know, just going to
Speaker 1: Tom's point, you know, I think for for your audience,
Speaker 1: it's not about trusting the data, it's about trusting the
Speaker 1: people interpreting the data, just in the same way political polls, right,
Speaker 1: I mean all the polls are off. No, the polls
Speaker 1: aren't really off. What's off is the people's interpretation of
Speaker 1: those polls. Um, And that's what's going on here. I mean,
Speaker 1: keep an eye on part time employment. Uh, you know,
Speaker 1: on part time employed for economic reasons. Everyone who talks
Speaker 1: about that, it's a it's a t because it went up, Neil,
Speaker 1: just because the time I want to go in this,
Speaker 1: I think it's absolutely historic here I'm gonna I'm gonna fold.
Speaker 1: And there's other names as well, folks. Neil Data along
Speaker 1: with the great Jim Glassman at JP Morgan with his
Speaker 1: decades of decades of study how the labor economy, he
Speaker 1: owned the study of teenage employment years ago. And John
Speaker 1: just mentions Neil Holland Horst overt City Group who came
Speaker 1: within the vicinity here. What are we getting wrong about
Speaker 1: the fabric of American labor when it's staring us in
Speaker 1: the face, with large parts of America with two and
Speaker 1: three point zero percent unemployment? Why are we getting us
Speaker 1: so wrong? Well, I think it starts with, you know,
Speaker 1: the underlying economic momentum in the country, which is picking up.
Speaker 1: I mean it could well be that, you know, conditions
Speaker 1: are picking up. Employers had positioned for an alternative outcome
Speaker 1: for things to be slowing down. Now they find themselves
Speaker 1: having to play catch up to that stronger economic growth.
Speaker 1: I mean, look, the underlying rate of employment is not
Speaker 1: five I mean that is true, but it's probably higher
Speaker 1: than where where where the consensus believes. UM. And you know,
Speaker 1: given what we know about their trajectory going forward, UM,
Speaker 1: you know there's risk that employment will remain strong. And
Speaker 1: if you're talking about two thousand, let's say it's half
Speaker 1: the rate. Let's say that's the real number, half the
Speaker 1: rate of what we got today. So it's two. That's
Speaker 1: more than enough to continue pushing the unemployment rate down
Speaker 1: over time. UM. And so you know, look, I mean,
Speaker 1: I I've said this, the onus is on the economic bears. Um. Frankly,
Speaker 1: I don't I don't think the this is going to
Speaker 1: really change the FEDS calculus. I mean, guys, it's not
Speaker 1: like they're gonna come out and say, oh, we gotta
Speaker 1: go back to fifty. You know. All they can do
Speaker 1: at this point is just sort of extend out. Um.
Speaker 1: But Neil, how much were we looking at people who
Speaker 1: are getting multiple jobs because they're trying to deal with inflation.
Speaker 1: How are we looking at one person accounting for three
Speaker 1: of these jobs that have been created? I mean, I
Speaker 1: have to look at the multiple job holders as a
Speaker 1: share of employment that's in the household data. I haven't
Speaker 1: looked at that yet. Um. But it doesn't look to
Speaker 1: be abnormal. UM. And Look, I mean, if you don't
Speaker 1: believe the BLS, what about consumers? Look at what consumers
Speaker 1: are telling you about the jobs market. Okay, the labor
Speaker 1: differential from the concert sport also a January data point
Speaker 1: that was out earlier this week, I believe it rose
Speaker 1: to a three month high. And it's at a very
Speaker 1: very strong level, certainly, you know, more or less word
Speaker 1: was before the pandemic, if not a little higher again. Uh,
Speaker 1: consumers are telling you that things are okay in the
Speaker 1: labor market. And consumers uh, and this is drawing on
Speaker 1: research from the New York FED. Consumers have a habit
Speaker 1: of spotting changes in their own local economies before the
Speaker 1: data because they know the places that are, you know,
Speaker 1: putting up help wanted signs, They know the places that
Speaker 1: are handing out pink slips, and they see it before. Uh.
Speaker 1: You know, the survey collectors of the BLS do and
Speaker 1: so um. You know, consumers are telling you that the
Speaker 1: labor markets are fine, um and that, and that unemployment
Speaker 1: is low. So if you don't want to take the
Speaker 1: BLSS word for it, maybe we can just take the
Speaker 1: American consumers word for it and get on the phone
Speaker 1: and tell some pay Plata side no doubt to that.
Speaker 1: Every Nissons Macro Fantastic to catch up with Neil Jeffrey
Speaker 1: Rosenberg joins us right now. He's portfolio manager Systematic Multi
Speaker 1: Strategy at black Rock. Jeff Rozenberg does this adjust a
Speaker 1: fixed in CONFUW of black Rock. Yeah, that you have
Speaker 1: to understand this is a big pushback to the to
Speaker 1: the slowing and it's a reminder of what Powell tried
Speaker 1: to say to the market, though the market wasn't listening
Speaker 1: that their main concern is they're not yet seeing, uh,
Speaker 1: the impact of their tightening in the labor markets. And
Speaker 1: so this is a very clear message and and a
Speaker 1: really kind of important warning that perhaps the interest rate
Speaker 1: sensitivity put housing to the side, put the interest rate
Speaker 1: sensitivity of the economy to the FEDS tightening. To date,
Speaker 1: yes there are long and variable lags, but we haven't
Speaker 1: really seen that degree of tightening. And when you take
Speaker 1: the financial conditions easing, the combined is perhaps what we're
Speaker 1: seeing here is the inability of the Fed to really
Speaker 1: get to its goal, which is to rain in the
Speaker 1: inflation pressures from a market palace. Set it again on Wednesday,
Speaker 1: it's still a labor market that is too hot, given
Speaker 1: that we're not seeing wages Jeff increased to the degree
Speaker 1: that some people might expect. It's such a headline blowout number.
Speaker 1: Do you take comfort from that or do you disregard
Speaker 1: that as a compositional effect of what jobs are getting
Speaker 1: created right now? Yeah, it's you know, the a h
Speaker 1: G number in terms of giving us a read on
Speaker 1: wage inflation, is probably the most distorted because of the
Speaker 1: mixed shift earlier this week. We've got e c I,
Speaker 1: you've got a DP, and you've got probably the best
Speaker 1: measure of the Atlanta Fed wage tracker. At least those
Speaker 1: latter two are still pointing to an elevated level of
Speaker 1: wages and sorry, wage inflation that I think is still
Speaker 1: very concerning to the Fed. Again, Powell was explicit when
Speaker 1: he said that earlier this week the market wasn't listening.
Speaker 1: This report is a reminder that the hot, tight labor
Speaker 1: market is still going to be an issue for the
Speaker 1: inflation outlook and for the FED outlook. How would you
Speaker 1: play this then, Jeff, if you really trust the headline
Speaker 1: number more than you trust the wage number, why would
Speaker 1: you buy ten year treasuries where they are if you
Speaker 1: believe that this Fed could be that far behind the
Speaker 1: curve maybe later in the year before it's apparent. Well,
Speaker 1: you're you're it's a good question, Lisa, and you asked
Speaker 1: about ten year treasuries, and I think you have to
Speaker 1: be a bit cautious here on the degree to which
Speaker 1: we've seen the rally in back end yields uh and
Speaker 1: and and you know you don't have to buy those
Speaker 1: yields here. You can buy the shorter end of the market.
Speaker 1: The curve is at a historic level of inversion. Uh
Speaker 1: And I think there's more vulnerability as a result of
Speaker 1: that and today's report and what we're seeing not just
Speaker 1: from today but for a long time in the data.
Speaker 1: The degree of tightness in the labor market may really
Speaker 1: challenge the ability that fed to to deliver that pivot
Speaker 1: at the bond markets pricing into the second half of year. Jeff,
Speaker 1: it's a little bit off your remap, but I'm gonna
Speaker 1: go there because I know Ellen Meltzer and Marvin Goodfriend
Speaker 1: beat it into you at Carnegie Mellon. And that is
Speaker 1: I wanted you to link in here the shock of
Speaker 1: five seventeen thousand and the forty eight other numbers that
Speaker 1: indicate this job boom that some few have called for,
Speaker 1: and the Biden stimulus, it just seems are we underestimating
Speaker 1: Jeff trunche I. Maybe this is for Glenn Hubbard's coming
Speaker 1: up as well. Are we underestimating Jeff Rosenberg? Trunch one,
Speaker 1: Trunch two, and Trunch three, Which can be summed up,
Speaker 1: as Blanchard says of the Biden stimulus, is that what
Speaker 1: we're getting wrong. Well, what we're getting wrong and where
Speaker 1: the confusion is at is a tremendous dish portion in
Speaker 1: the economy from COVID, both the COVID impact and the
Speaker 1: COVID stimulus. And so we're seeing the backside of that.
Speaker 1: And really what you take out of today's report is
Speaker 1: really the strength and services and this is the handoff
Speaker 1: from the goods economy to the services economy. But we're
Speaker 1: also seeing those distortions in our read of inflation. The
Speaker 1: deflation that we're seeing from the good side is pushing
Speaker 1: down the headline and the core measures of inflation. It's
Speaker 1: making it look like we've made a lot better progress. Again.
Speaker 1: Pell talked about this on Wednesday when he pushed back
Speaker 1: against the market inflation forecast to highlight that we shouldn't
Speaker 1: expect that goods deflation to persist, and you're gonna start
Speaker 1: to see some of that come out. So this confusion
Speaker 1: from COVID and the fiscal stimulus is part of that.
Speaker 1: Is also what we're seeing in the makeup. The surprise
Speaker 1: numbers that Mike McKee highlighted is all from the services
Speaker 1: side of the economy, highlighting the transition and the strength
Speaker 1: that we'll continue to see their Jeff Frozenberg, thank you
Speaker 1: so much. Particularly thank you through this Historically Glenn Hubbard,
Speaker 1: director of Columbia's Chasen Institute for Global Business, and steeped
Speaker 1: in the underestimation that we have of the American economic experiment. Hubbard,
Speaker 1: I want you to speak of the micro cosm, the initiative,
Speaker 1: the way we go out on a micro basis and
Speaker 1: find growth in America that pushes against traditional caution, traditional gloom.
Speaker 1: You've owned the high ground on that for decades. Are
Speaker 1: we underestimating the American business spirit spirit? Well, I think
Speaker 1: we are to. And importantly, as we said before, we're
Speaker 1: underestimating how hard it is to forecast in the recovery
Speaker 1: from COVID as we change in the mix of consuming
Speaker 1: goods and services, how firms suggests, how industries. Sudjust I
Speaker 1: thought we would see an upside surprise and nothing like this,
Speaker 1: I confess, but it tells me the jobs market is
Speaker 1: much more robust than markets had bought uh and certainly
Speaker 1: a worry for the federal Reserve. I look, Glenna, at
Speaker 1: the fiscal stimulus of this, and let's go to your
Speaker 1: public service for the nation. Typically with those of the
Speaker 1: Republican persuasion Olivia Blanchard, who you and I agree, knows
Speaker 1: the math. Olivia Blanchard calls this the Biden stimulus. Are
Speaker 1: we still witnessing stimulus effect that leads to these shock numbers?
Speaker 1: I think we're witnessing two things. One is the hangover
Speaker 1: from excessive aggregate demands stimulus, so I agree with that.
Speaker 1: But we're also seeing a lot of adjustment as the
Speaker 1: economy comes out of the COVID pandemic, the goods boom,
Speaker 1: and now our recovery and services which are very labor intensive.
Speaker 1: So I think when people forecast jobs, they have to
Speaker 1: do so at a more micro level given both of
Speaker 1: those factors, and I think the job market is likely
Speaker 1: to remain hot, posing a real challenge for the beet.
Speaker 1: Remember the j Old stata we're pointing in the same day.
Speaker 1: I'm just keep thinking about what Alan Ruskin Over at
Speaker 1: Deutsche Bank said in response to this Job's number, saying,
Speaker 1: more broadly, one has to think in terms of higher
Speaker 1: equilibrium rates in this cycle, given very unique labor market
Speaker 1: resilience and therefore less expenditure sensitivity to rates. Glenn, how
Speaker 1: high do neutral rates have to go if this labor
Speaker 1: market is as strong as it seems. Well, keep in mind,
Speaker 1: while the FED has adjusted, one could hardly describe monetary
Speaker 1: policy as overly restrictive given where inflation is. So I
Speaker 1: think there are two challenges for the FED. One is
Speaker 1: figuring out how high. And I agree that FED is
Speaker 1: not likely to revert to very large rating increases, so
Speaker 1: more gradual rating creatures, but probably into the fives. But
Speaker 1: they may have to hold it for longer than market
Speaker 1: participants think. The fan, of course, has been signaling that,
Speaker 1: but the market doesn't believe it. Do you think that
Speaker 1: this kind of strong data makes the the idea of
Speaker 1: a soft landing more likely or less likely because of
Speaker 1: how long the FED will have to hold rates high.
Speaker 1: I'm gonna give you the classic economist answer both. Uh,
Speaker 1: it could make it more likely in the sense that
Speaker 1: we obviously have a very robust underlying economy, giving the
Speaker 1: FED some room to move. On the other hand, the
Speaker 1: possibility of a policy error here is quite significant, So
Speaker 1: I think this is a tough going moment for the FED.
Speaker 1: It's not easy for the FED, and markets by occasionally
Speaker 1: loosening financial conditions make it even more challenging. F Good, Glenn.
Speaker 1: I look at the path forward here and I think
Speaker 1: one of the surprises underreported in the three tumultuous days
Speaker 1: we've had is productivity lifted unit labor costs came down.
Speaker 1: Are you an optimist that out of this horrific pandemic,
Speaker 1: all the shocks, all the once in a lifetime events
Speaker 1: we've add, that we can find a new productivity Well,
Speaker 1: let let me start longer terms. That's always safer for economists.
Speaker 1: I am an optimist about productivity growth future in the US,
Speaker 1: given techno logical advance and now it's penetrating through. I'm
Speaker 1: also optimistic that the recovery from COVID is leading to
Speaker 1: some reallocations that may raise productivity. That's said, of course,
Speaker 1: we've seen a lot of productivity fluctuations positive and negative
Speaker 1: in recent years, and one swallow does in a spring
Speaker 1: make Glenn, We're talking a lot about trying to understand
Speaker 1: a very uncertain economic moment as the world recovers from
Speaker 1: a pandemic. There's a larger question that the FED has
Speaker 1: to deal with as well, which is what is the
Speaker 1: implication of looser financial conditions and getting them further away
Speaker 1: from their goal of an ongoing disinflation. We've heard from
Speaker 1: a number of wonderful economists this morning saying it doesn't
Speaker 1: really matter at this point because of all the tightening
Speaker 1: from last year. Do you agree, well, again, I'm gonna
Speaker 1: have to prodgate and standard econ way Milton Friedman taught
Speaker 1: us years ago about long and variable lags of monetary policy.
Speaker 1: So there is reason to be cautious. Is that you suggest?
Speaker 1: That's said, there's a lot of momentum in the economy,
Speaker 1: and the way to tighten financial conditions is to tighten
Speaker 1: financial conditions, And so I think the FEDS still has
Speaker 1: more work to do than the markets. Thing. Do you
Speaker 1: still think that this federal reserve should go above five?
Speaker 1: And decidedly so? I do so, I do think so? Uh,
Speaker 1: And thoughts before this report on one final question are
Speaker 1: We've got just a stream of news this morning, and
Speaker 1: and I just wanted you to talk to me about
Speaker 1: the return of the risk free rate. You've got the
Speaker 1: truck on your hand, like Professor Joseph Cohen up at
Speaker 1: Columbia Business School, and you gotta like a lot of
Speaker 1: bright young people that have never known actual cost of money.
Speaker 1: What do you tell them about this new world that's
Speaker 1: the old world us, you and I and Abby used
Speaker 1: to know. Well, I think it's a matter of reminding
Speaker 1: people of basic discounted cash flow math. It's whip sawing
Speaker 1: technology prices, stock prices, whip sawing prices of other goods
Speaker 1: producing sectors as well, and then also that higher returns
Speaker 1: for savers can be a good thing. Uh on the
Speaker 1: other side. So I think we're learning the risk free
Speaker 1: rates and equilibrium an zero in an economy that's rowed.
Speaker 1: Very good, Glenn Hubert, thank you so much, Glen Hubbard
Speaker 1: with Columbia right now. Pre Miser, Global head of Race
Speaker 1: Strategy at TV Securities Prayer, You've had three calls and
Speaker 1: thanks for being with us. And the three calls went
Speaker 1: as follows. It was raised, three yield curve inverted all year,
Speaker 1: and recession in the back half of the year. And
Speaker 1: those three calls still the three calls. We still have
Speaker 1: that call. Yes, Um, you know, I think the FED
Speaker 1: is telling that. I think the reaction function of the
Speaker 1: FED has actually changed a little bit. The urgency to hike,
Speaker 1: the urgency to take rates more restrictive. I think that's
Speaker 1: a lot less. They are more convinced for soft landing.
Speaker 1: We're actually not. You know, the data strong h the
Speaker 1: labor market data is always lagged. I think it's going
Speaker 1: to be more lagged right now. You know, the service
Speaker 1: sector is slowing, but in our view is going to
Speaker 1: slow a lot more in the second half of the year.
Speaker 1: So you know, we're still looking for a recession. I
Speaker 1: think the FED right now is is saying, we don't know.
Speaker 1: We don't know if this immaculate disinflation, which is what
Speaker 1: we're calling it, will continue. You know, there has been
Speaker 1: some disinflation clearly in our view, for that to get
Speaker 1: for inflation to get to two percent, you're going to
Speaker 1: need that pain in the labor market. And I think
Speaker 1: that's what the FED is saying, we don't know. You know,
Speaker 1: they're gonna hike twenty five We think they're going to
Speaker 1: literally live meeting by meeting. We're looking for another twenty
Speaker 1: five in March, then another one in May. I would
Speaker 1: say there's risk of another one in June. If inflation
Speaker 1: doesn't continue to decline at the same pace, there's risk
Speaker 1: of them going up to five and a quarter and
Speaker 1: then staying there all year, because they really need that
Speaker 1: inflation to get back to two percent. The really you know,
Speaker 1: UH don't want to let inflation expectations get unanchored and
Speaker 1: the economy is going to slow down. So you know,
Speaker 1: we're looking for that recession still. But I have to
Speaker 1: say the the case of a soft landing is high today,
Speaker 1: and I think the FED is sort of banking on that.
Speaker 1: And the vanilla two tents spread the difference in year
Speaker 1: between the two year and the ten years, the ten years,
Speaker 1: the benchmarkts, what the media watches, What is your two
Speaker 1: years study? What will be the dynamic of the important
Speaker 1: two year yield? I think the two years largely about
Speaker 1: that terminal rate, and then what happens afterwards. It's all
Speaker 1: going to come down to inflation. You know, I have
Speaker 1: clients saying, why would the fact that this year, well,
Speaker 1: if inflation continues to decline, if inflation is at two percent,
Speaker 1: the FED is likely to cut this year. Now Our
Speaker 1: view is no, inflation is going to get really sticky.
Speaker 1: I mean, it's easy to get that first couple of
Speaker 1: percentage point decline. You really for inflation to get to
Speaker 1: two percent, we need pages around three percent. So if
Speaker 1: if inflation is going to be sticky, I think the
Speaker 1: FED is really going to struggle to cut trade so
Speaker 1: that two years has not only the end point of
Speaker 1: the hiking cycle, but all the cuts that are priced,
Speaker 1: and we're pricing in two D basis points of cuts
Speaker 1: between the middle of this year and and you know,
Speaker 1: essentially two years out there's that. What happens to that,
Speaker 1: I think it's to be a function of inflation. Our views,
Speaker 1: the FED is going to hold still. You know, they're
Speaker 1: not going to cut rates until they see wages close
Speaker 1: to three percent, until they see PCE close to two percent.
Speaker 1: You know, the exhaustion everybody's voice today after this week
Speaker 1: is notable, it's palpable. And you said that this is
Speaker 1: the most confused FED end markets that possibly you have
Speaker 1: ever seen. Where do you get conviction in any trade
Speaker 1: at a moment like this, It's hard. I think you
Speaker 1: have to keep you know, risk positions light. Um. You know,
Speaker 1: I think the FED has stepped down clearly, so volatility
Speaker 1: will be a little bit lower. But where is that endpoint?
Speaker 1: What do they do after that? All that is is
Speaker 1: up in the air. I think we're going to have
Speaker 1: to go back to models, and a lot of people
Speaker 1: have less including the FED, I think, have less faith
Speaker 1: in models. You know, the Phillips curve? Does it exist?
Speaker 1: Why has inflation declined? So I think we're actually looking
Speaker 1: more at our models. We're looking at how do you
Speaker 1: get service inflation down with wages staying high? How do
Speaker 1: you get wages to come down? Can they does the
Speaker 1: unemployment rates stay here? So we're actually going back to
Speaker 1: chon one on one. But I can see for the
Speaker 1: market that's been used to forward guidance from the FED
Speaker 1: and the ECB, we're getting no forward guidance. So they
Speaker 1: think the market is going to be whippy. You have
Speaker 1: to have these strategic trades, perhaps like being long duration
Speaker 1: for example, but have to be you know, have to
Speaker 1: be nimble around it. I think interest rates in the
Speaker 1: near term can rise because you talked about I s
Speaker 1: M services that goes above fifty. The consumer is still strong,
Speaker 1: you know, consumption of services is still strong. Then interest
Speaker 1: rates look too low, So I think you know, we're
Speaker 1: trading it more tactically in the near term and having
Speaker 1: an eye on that strategic recession. Does the FED cut rates,
Speaker 1: I think you sort of have to plate it. You
Speaker 1: have to be nimble because the FED is number I
Speaker 1: prayer wanderful to get your fear. As always, prayer mused
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Speaker 1: I'm Tom Keene, and this is Bloomberg