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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business app. Job was flaends this
Speaker 2: morning two twenty five. The estimate two twenty one the
Speaker 2: previous week are revised to nineteen into tomorrow. Payrolls the
Speaker 2: estimate in our survey one fifty the previous month one
Speaker 2: forty two. Mike be Keith, thank you, sir. With us
Speaker 2: now as Lindsay Piegs O Stephel. Lindsay, Let's talk about
Speaker 2: the numbers that just came out. Anything to fear, anything
Speaker 2: to worry about. Looking at the labor market data through
Speaker 2: this week.
Speaker 1: And really not yet. The job was claim see to
Speaker 1: be pretty steady. We have seen a little bit of
Speaker 1: weekly volatility, but nothing to indicate a sizeable directional trend.
Speaker 1: Right now, we continue to see that the labor market
Speaker 1: remains tight ish with some indications of cooling momentum. But
Speaker 1: again that cooling suggests the data is simply moving more
Speaker 1: towards a neutral state as opposed to an indication of
Speaker 1: mounting weakness. As we look further to the end of
Speaker 1: the year and turn that page into twenty twenty five.
Speaker 2: Where do you get any degree of confidence that we'd
Speaker 2: stabilize in this state at this level.
Speaker 1: Well, I don't think we're going to get much confidence
Speaker 1: from jobless claims per se, at least not the weekly
Speaker 1: data that we've stabilized. Big confidence is going to come
Speaker 1: from more improvement or more stabilization in the not farm
Speaker 1: payrolls report. So Friday is going to be a very
Speaker 1: key driver, not only for confidence for investors, but for
Speaker 1: the Fed officials looking to make that determination of what's
Speaker 1: the appropriate next move for November and December. If we
Speaker 1: see more indications of cooling momentum, I think that's going
Speaker 1: to bolster the case for a larger, more aggressive second
Speaker 1: round fifty basis point cut. But if we see more
Speaker 1: steady conditions, if we see more stabilization. That's going to
Speaker 1: make it pretty difficult, coupled with earlier on even inflation
Speaker 1: data from the PCE to justify anything beyond a twenty
Speaker 1: five basis point cut. And should we see the numbers
Speaker 1: come into the upside, I think the FED may be
Speaker 1: willing to sit on the sideline and take a pause
Speaker 1: in November.
Speaker 3: Forgive me, because I've been conditioned my experience, lindsay, But
Speaker 3: every time we're heading into a non farm payrolls everyone
Speaker 3: says this is going to be decisive. It's going to
Speaker 3: tell us where we are in current terms of on
Speaker 3: the brink of some sort of deterioration or some you know,
Speaker 3: steady as he goes type of state. And then it
Speaker 3: comes out and people find fifteen different narratives to justify
Speaker 3: within that same data. Lindsay, why should this be any different?
Speaker 1: Well, I think again, it's not the end all, it's
Speaker 1: not the deciding factor for November, but it is one
Speaker 1: of the key pieces. We have a handful of key
Speaker 1: data points between now and November, and the Fed is
Speaker 1: going to look at them in their entirety. So coupled
Speaker 1: with the idea that the PCE, yes, it's a key
Speaker 1: driver but it was mixed. It was uneven, the headline retreated,
Speaker 1: the core showed further upward momentum. Now we're going to
Speaker 1: turn our focus to the labor market. If the labor
Speaker 1: market comes in very clear to the upside or the downside,
Speaker 1: that's going to be a very key driving factor to
Speaker 1: that decision. But again, if it comes in mixed, the
Speaker 1: FED is likely to say, well, we need more indications.
Speaker 1: We're going to wait for a next round of inflation,
Speaker 1: We're going to wait for the next round of the
Speaker 1: employment data. So it's not that one data point is
Speaker 1: going to make the decision, but each of these data
Speaker 1: points becomes increasingly more important as the picture is not
Speaker 1: yet clear as to what the FED should be doing
Speaker 1: and the size and the momentum of these policy adjustments
Speaker 1: that the market is anticipating.
Speaker 4: Lindsay, how much salt though needs to be thrown on
Speaker 4: the next data point of the non Frompezer report on
Speaker 4: November first.
Speaker 1: Well, there is going to be some adjustments that have
Speaker 1: to be taken into account. Of course, the port strike,
Speaker 1: of course the hurricane. All of these events are going
Speaker 1: to provide additional volatility, but it's likely that we do
Speaker 1: see most of that volatility not necessarily hit the November report,
Speaker 1: It may take an additional month to come through.
Speaker 5: That.
Speaker 1: Being said, if we did see that type of distraction
Speaker 1: or volatility, the FED can also look through that. So yes,
Speaker 1: there is some amount of we need to look at
Speaker 1: the data point with a grain of salt given the
Speaker 1: underlying factors, these one off effects, But the FED is
Speaker 1: smart enough to look through that. They're going to see
Speaker 1: the underlying directional momentum, and again that's going to help
Speaker 1: decide where the FED policy needs to go from here.
Speaker 2: What's your best guess fit tomorrow?
Speaker 1: I think we are going to see something similar along
Speaker 1: what we saw last month. I think one hundred and
Speaker 1: forty one hundred and fifty thousand is very reasonable, keeping
Speaker 1: us on par with again the pace of job creation,
Speaker 1: raising the three month out very closer to around one
Speaker 1: hundred and thirty thousand, But the unemployment rates still study
Speaker 1: around four point two percent, well below what the FED
Speaker 1: is designated as that full employment range or the sustainable
Speaker 1: level of joblessness. So I think we get a somewhat
Speaker 1: favorable report, still indicating tight ish conditions and still indicating
Speaker 1: the need for a very patient, tempered, controlled reduction of
Speaker 1: rates as again inflation. Their job of reinstating price stability
Speaker 1: has not yet been met.
Speaker 2: Lindsay Pick of Stayful, Lindsay, thank you, Adam Poison of
Speaker 2: the Peterson Institute. With this to say, I stand by
Speaker 2: my col The Fed will stop cunning rates by March
Speaker 2: of twenty five and will be hiking by June of
Speaker 2: twenty five, seeing a forty percent chance if Harris is
Speaker 2: elected eighty five percent plus if Trump is elected. Adam
Speaker 2: joined us now, Adam, welcome back to the program, sir.
Speaker 2: We've got lots of work through here. Let's just start
Speaker 2: at the top. Why is the outlook for you in
Speaker 2: twenty twenty five so election dependent?
Speaker 6: Thanks for having me back, John. I think it's election
Speaker 6: dependent in two reasons. The first is whether it's Harris
Speaker 6: or Trump. I think the commentariat and a lot of
Speaker 6: the market people are overestimating the likelihood that a divided
Speaker 6: Congress will prevent fiscal expansion. You will get some fiscal
Speaker 6: expansion if it's Harris, and you will get outrageous fiscal
Speaker 6: expansion if it's Trump. And Emery and I have talked
Speaker 6: about this on our previous appearance. I think Congress is
Speaker 6: not going to block it either way. The second reason
Speaker 6: is specifically to do with Trump. In a recent analysis
Speaker 6: to Peterson's to put out last week, we go through
Speaker 6: very carefully what his plans for general across the board tariffs,
Speaker 6: particularly migration deportation policy and interference with FED independence would mean.
Speaker 6: And that puts you at an inflation rate of well
Speaker 6: above four percent easily.
Speaker 2: And I mean you've made the argument O said that
Speaker 2: you think the fence should be preparing for two way
Speaker 2: risk and should be preparing market participants and the general
Speaker 2: public for two way risk as well. That reminded me,
Speaker 2: like it reminded you of the situation that Governor Countie
Speaker 2: was in back in twenty sixteen. Why do you believe
Speaker 2: that's the right idea?
Speaker 6: I think, John, thanks for having me back to talk
Speaker 6: about this. And you're right about the parallel with the
Speaker 6: Bank of England facing the Brexit call something very political
Speaker 6: where they don't want to come down politically. But it's
Speaker 6: disingenuous to just sit there and say, well, what will happen?
Speaker 5: What will happen?
Speaker 6: I mean in the end that is what will happen
Speaker 6: if it doesn't affect the politics or are the outcomes.
Speaker 6: But if you're choosing to just every meeting just tack
Speaker 6: back and forth and update people's expectations, you leave a
Speaker 6: lot of room for volatility, and arguably you're going to
Speaker 6: cause more harm to the economy. Sometimes you have to
Speaker 6: be honest and just say, look, we are not going
Speaker 6: to pretend we the FED have a view on Trump
Speaker 6: versus Harris, but we think there's a high risk of
Speaker 6: fiscal expansion and a high risk of additional tariffs, and
Speaker 6: a high risk of disruption the labor markets either way,
Speaker 6: and all of that is inflationary or stagflationary. So therefore
Speaker 6: we should not be encouraging the idea that there's either
Speaker 6: a further path of rate cuts in twenty twenty five
Speaker 6: or encouraging the idea that all the risks are to
Speaker 6: the downside. This is different than the clip you just
Speaker 6: showed a Beyonco. My concerns are about the policy changes,
Speaker 6: and also, as I've written about and we've talked about,
Speaker 6: that the FED is not as tight now as they
Speaker 6: think they are. It's not about that there's this persistent
Speaker 6: inflation no landing. It's that new shocks are coming and
Speaker 6: policy is not as tight as they think.
Speaker 3: There're two things here, Adam. One is they're not as
Speaker 3: tight as they think they are, a question around neutral,
Speaker 3: which is something that a lot of people.
Speaker 1: In markets debate.
Speaker 3: Another thing is how much FED try to get ahead
Speaker 3: of possible policy changes that could expand the deficit. How
Speaker 3: much would the FED be exposing it to itself to
Speaker 3: incredible political risk if it weighed in, I mean, if
Speaker 3: it didn't pingpong around what the data is actually showing
Speaker 3: right now and try to make a statement on whose
Speaker 3: programs would potentially be more inflationary at a time where
Speaker 3: the arguments on both sides contradict some of what you've
Speaker 3: been talking about.
Speaker 6: Well, the arguments claimed Lisa may contradict, but the facts don't,
Speaker 6: and the Fed's job is to follow the facts and
Speaker 6: the basic economics. I think it is a risk either way.
Speaker 6: And obviously Chair Pale and the leadership of the FED
Speaker 6: has decided the way they're going to manage the risk
Speaker 6: is they're only going to talk about the next three
Speaker 6: months and they're just going to focus on that. And
Speaker 6: that was very clear from the Chair.
Speaker 5: Speech at Jackson Hall.
Speaker 6: And so my push has bit at a minimum, admit
Speaker 6: that that's all you're doing, and don't let people get
Speaker 6: notions about twenty twenty five and beyond. But the second
Speaker 6: point is we're seeing major erosion of politics and norms
Speaker 6: and stability in the US. And if you look around
Speaker 6: the world where there are countries where you have that,
Speaker 6: generally the central bank ends up having to be more outspoken,
Speaker 6: more principled, and more courageous. This is like in South Africa,
Speaker 6: this is like in India, This is like it used
Speaker 6: to be in Italy before the Euro that the central
Speaker 6: bank has to stand up. And the FED situation isn't
Speaker 6: quite as delicate, Lisa as I think they think it is.
Speaker 6: And you just said it could be portrayed because both
Speaker 6: Harris and Trump are going to lead to expansions of
Speaker 6: fiscal policy. Both Harris and Trump are not going to
Speaker 6: roll back to Harris and are going to increase them somewhat.
Speaker 6: The FED doesn't have to say what we in a
Speaker 6: non partisan place can say. They don't have to say
Speaker 6: Trump is worse than Harris. They can just say the
Speaker 6: risks to inflationary policy are higher from both.
Speaker 3: Adam, what would you say about the fact that even
Speaker 3: though people keep talking about the jaffas, the bond market
Speaker 3: hasn't woken up to it, and a lot of people
Speaker 3: think it's never going to simply because it has it
Speaker 3: in the past.
Speaker 6: It's a fair concern. I mean, I don't have anything
Speaker 6: great to say about that, because this is the dynamic
Speaker 6: you get. The US is the global reserve currency. China
Speaker 6: is a mess, Europe is a partial mess.
Speaker 5: The world is.
Speaker 6: Unsecured in geoeconomic terms. So in relative terms, people are
Speaker 6: going to keep investing in the US. You were saying
Speaker 6: a little bit ago on the program about the increased
Speaker 6: interest in gold and Costco selling platinum to go with
Speaker 6: its meal kits. You know this is bitcoin. All these
Speaker 6: things are signs of people having trying to seek alternatives
Speaker 6: to the dollar when there's no good state level, no
Speaker 6: good alternative currency. And I think all these investments will
Speaker 6: ultimately end in tiers. But the fact is that temporarily
Speaker 6: gives the US board room to run its fiscal policy,
Speaker 6: run its de and that's part of why my forecast
Speaker 6: is that the deficits are only going to increase. It's
Speaker 6: not because I think that's good, it's not because I
Speaker 6: think it does no harm, but it is likely for
Speaker 6: the next.
Speaker 4: Few years, given all that you think about the direction
Speaker 4: of the FED and what they're doing now. Yesterday, Mark
Speaker 4: Rowan told Jonathan of Apollo that this was the most
Speaker 4: expensive insurance cut that we've seen from the FED in history.
Speaker 1: Would you agree with him?
Speaker 5: I guess so.
Speaker 6: I wouldn't put it as negative a spin on it.
Speaker 6: I guess I'm Marie as that sounds because insurance cuts
Speaker 6: are been rare in history, and I think insurance is good.
Speaker 6: You just have to be prepared once you've paid the
Speaker 6: insurance premium to write it off as a sunk costs.
Speaker 5: And that's all I've been saying.
Speaker 6: I mean, I bound the record saying the FED should
Speaker 6: have been cutting maybe not fifty, but should have been
Speaker 6: cutting this fall because given where the short term inflation
Speaker 6: outlooked is, which is down, and the risks of a
Speaker 6: potential recession, it's fine for them to take on a chart.
Speaker 6: So as I view that as good, but again, insurance
Speaker 6: is a some costs. My only point is warn people
Speaker 6: just because you're taking out insurance doesn't mean that you're
Speaker 6: going to keep going in that direction. In fact, just
Speaker 6: because you're hitting own insurance, you may make it less
Speaker 6: likely that you're going to keep cutting.
Speaker 1: Adam ahead of the election.
Speaker 4: You also have some thoughts on inflation, how it's central
Speaker 4: to voters, given the fact that we've had low inflation
Speaker 4: before this latest bout for forty years. Who's messaging that
Speaker 4: the best? Are voters basically blaming Kamala Harris because of
Speaker 4: Bidenomics and they put the blame on Biden Or is
Speaker 4: she doing a good job and explaining that terroriffs may
Speaker 4: be inflationary.
Speaker 6: I think it's more of the latter than the farmer
Speaker 6: hen Mary, thank you for engaging with Adam. I'm not
Speaker 6: a polster, but I can see that basic fact that
Speaker 6: inflation has become a dominant topic going into this election.
Speaker 6: All the polling data makes that very clear. People do
Speaker 6: feel in As we look through the data as best
Speaker 6: we can, they're noticed price level shifts, right, So eggs
Speaker 6: went up a lot in prices, it's not that they're
Speaker 6: continuing to rise.
Speaker 5: In fact, some of it is they're falling.
Speaker 6: But people still feel the relative price shift they've already seen,
Speaker 6: and we know that they always feel even if wages
Speaker 6: are going up, that stuff they deserve, and if prices
Speaker 6: go up, that's stuff that's unfair. So they don't see
Speaker 6: the balance very clearly they're allowed to see whatever they want,
Speaker 6: but that's how people see it in this context. I
Speaker 6: think the Harris campaign is doing a good job building
Speaker 6: on some things that the Biden administration finally said in
Speaker 6: the last six months or a year, which is that
Speaker 6: terrorifts are attacks, and there are particularly attacks on working
Speaker 6: people because the stuff people buy, their food, their choice,
Speaker 6: they're closed, they're inexpensive, furniture, they're electronics are infinitely cheaper
Speaker 6: because we allow inputs and we allow competition and we
Speaker 6: allow choice. And so I think that message from Harris
Speaker 6: campaign that they would not put on a general across
Speaker 6: the board tariff the way the Trump people and the
Speaker 6: president form. President Trump keeps saying he will is getting home.
Speaker 6: There's still a legacy that, you know, when you're president,
Speaker 6: you get the blame, just like the Fed, whatever happens
Speaker 6: on your watch.
Speaker 5: So there's still a legacy.
Speaker 6: Of Biden that inflation occurred on his watch. On whether
Speaker 6: or not it was his all that that doesn't matter.
Speaker 6: That's still a track.
Speaker 2: Adam poson Adam appreciate elsewhere on the Federal Reserve. The
Speaker 2: former New York Fed President Bill Dudley, in a new
Speaker 2: Bloomberg opinion column. Writing this, I've been too pessimistic about
Speaker 2: the risk of a so called hard landing for the
Speaker 2: US economy over the past few years. Although most of
Speaker 2: my conclusions that led to that view were correct, such
Speaker 2: an outcome remains very much in doubt. Bill joins us
Speaker 2: now for more. Bill, Welcome back to the program, sir.
Speaker 2: It's been quite a journey for you, an intellectual journey
Speaker 2: over the year so far. I want to go through
Speaker 2: a couple of headlines and you help me understand why
Speaker 2: you've as you think in somewhat. It was only back
Speaker 2: earlier this summer where you said I changed my mind
Speaker 2: the FED needs to cut rights now. Before the Federal
Speaker 2: Reserve meeting last time around, you said they need to
Speaker 2: go big. Now I think they will. They did this morning.
Speaker 2: My hard landing forecast turned out to be wrong. They'll
Speaker 2: just walk us through how you're thinking about things currently
Speaker 2: and what kind of policy this backdrop needs.
Speaker 7: Well, my original view was that FED would be late
Speaker 7: to tighten maitre policy. Check as a consequence, inflation go
Speaker 7: up and the labor market would get very tight check.
Speaker 7: Then the Federal Reserve would have to tighten maitre policy
Speaker 7: a lot check and the unplayer would have to go
Speaker 7: up at least they have a percentage point trigger the
Speaker 7: sam rule check, but the sham roll trigger. That doesn't
Speaker 7: seem like it's leading to recession. If you look at
Speaker 7: what that the GDP numbers, they've have been very firmly lately.
Speaker 7: Second quarter three percent, third quarters tracking two and a
Speaker 7: half percent. So even though I had the story right,
Speaker 7: it doesn't look like the conclusion is going to pan out. Yeah,
Speaker 7: it's just starting to say for sure. That's why the
Speaker 7: market has so much attention focused on it. And I
Speaker 7: thought I was interesting the summary of economic projections at
Speaker 7: the last FMC meeting. They actually in their summary of
Speaker 7: economic projections, they actually think that the downside risks to
Speaker 7: the labor market are actually greater now than the upside
Speaker 7: risk of the inflation. So they're worried about the exact
Speaker 7: same thing. And that's why tomorrow's labor market report is
Speaker 7: so important. If the labor market really starts to deteriorate,
Speaker 7: then I think the soft landing story will start to
Speaker 7: come into question. And that's why thefect cut fifty basis
Speaker 7: points a couple of weeks ago.
Speaker 3: I think a lot of people bill share your journey
Speaker 3: in terms of changing views and not understanding which models
Speaker 3: are actually accurate this time around. What in your analysis
Speaker 3: makes you think that this time is different and that
Speaker 3: some of the classic indicators that traditionally have foretold recession
Speaker 3: no longer work.
Speaker 5: I think two things are different.
Speaker 7: Number one, you had all these fiscal transfers during the
Speaker 7: pandemic to businesses and households, So business and household boundce
Speaker 7: sheets are in better shape than they typically are late
Speaker 7: in the business cycle. You know, for example, look at
Speaker 7: debt service calls for the household sector is still pretty
Speaker 7: low because people locked in very low mortgage rates during
Speaker 7: the servant during the pandemic. The second thing I think
Speaker 7: is different is that financial conditions have eased a lot,
Speaker 7: even before the federies.
Speaker 5: A cut rates.
Speaker 7: So financial conditions are We're at the most tightest about
Speaker 7: about a year ago, and since then it beads a lot,
Speaker 7: stock market up, bodils down, credit spreads tighter, and so
Speaker 7: even though manentrey policy is tighten, when you look at
Speaker 7: the level of short term rates, financial conditions have eased
Speaker 7: a lot, and that's supporting economic activity.
Speaker 1: What's to say we're landing at all?
Speaker 5: Bill Well that's a good question.
Speaker 7: I mean, I think you know the fact would like
Speaker 7: to economy to grow. You know, two to two and
Speaker 7: a half percent keeps the unemploying rate right where it is,
Speaker 7: and the third quarter looks like it's shaping up that way.
Speaker 5: But keeping on that very you know, that.
Speaker 7: Nice edge growth not strong enough to cause the researchers
Speaker 7: of inflation, not weak enough to lead to the kind
Speaker 7: of deterioration and labor market that would lead to recession.
Speaker 5: That's gonna be tough to keep on.
Speaker 4: That nice edge, Bill, What are you expecting for tomorrow?
Speaker 7: I think it'll be a decent payroll employer report. I mean,
Speaker 7: I think the estimates are around one hundred and forty thousand.
Speaker 7: That seems like a reagionable estiment.
Speaker 8: We have to remember, though, the payroll employment has a
Speaker 8: big standard era around those estimates, So you could get
Speaker 8: something like eighty thousand, or you get something like two
Speaker 8: hundred thousand, and it really wouldn't to tell you for
Speaker 8: sure that the economy has actually changed momentum, Bill.
Speaker 2: How difficult is that in the November seventh meeting going
Speaker 2: to be considering how messy the data might be, considering
Speaker 2: we might not have an outcome from the election. Can
Speaker 2: you think of a time like this one that they're
Speaker 2: going into in the next month.
Speaker 7: Well, the particular awkwardness is that there will be another
Speaker 7: payroll employer report during the blackout period right before.
Speaker 5: The fo C meeting. Look, I think that most.
Speaker 7: Of the momentum is for twenty five basis points at
Speaker 7: this point. Powell basically for shared that in a speech,
Speaker 7: the fact that you had all these people in the
Speaker 7: summer that projections that only had one more rate cut
Speaker 7: in their forecast after the last meeting also tells you
Speaker 7: that it's probably not going to be fifty. So I
Speaker 7: think the basic stories still intact, risks to the labor
Speaker 7: market are greater than the risk of inflation Madre policies tight.
Speaker 7: We're still quite ways from neutral, So twenty five basis
Speaker 7: points is for the most likely scenario in my view
Speaker 7: at this point.
Speaker 3: Bill we had Adam posted on earlier from the Peterson
Speaker 3: Institute who said that the FED should be vocal about
Speaker 3: the fact that they're considering the deficit and potential tariffs
Speaker 3: as a potential inflationary pressure heading into twenty twenty five
Speaker 3: and a reason to cut less. What do you make
Speaker 3: of that, not necessarily the FED weighing in on that
Speaker 3: particular issue, but being more cautious ahead of next year
Speaker 3: because of it.
Speaker 7: In my experience, the FED doesn't make set policy today
Speaker 7: on things that might or might not happen in the future.
Speaker 5: I think they wait to those things either materialized or not.
Speaker 7: And so I think that the idea that the FED
Speaker 7: wouldn't ease because they're worried that an election could result
Speaker 7: in a certain outcome that would lead to higher terrorists
Speaker 7: and higher inflation.
Speaker 5: I don't think the federal hold off because of that.
Speaker 2: Bill Dudley appreciate it, sir. As always. The former New
Speaker 2: York Fed President Bill Dudley down its latest piece, how
Speaker 2: my hard landing forecast turned out to be wrong. You
Speaker 2: can find that on Bloomberg Opinion. This is the Bloomberg
Speaker 2: Surveillance podcast, bringing you the best in markets, economics, and geopolitics.
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