1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,000 Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Thinking Shadow of 10 00:00:37,000 --> 00:00:39,160 Speaker 2: Deutsche Bank right in the following, it is clear from 11 00:00:39,159 --> 00:00:42,839 Speaker 2: company comments that tarifs were a sizeable headwind only for some, 12 00:00:43,280 --> 00:00:47,080 Speaker 2: and the hit was modest and significantly lower than previously feared, 13 00:00:47,280 --> 00:00:49,000 Speaker 2: although it is likely to grow. 14 00:00:49,080 --> 00:00:49,280 Speaker 3: Think. 15 00:00:49,320 --> 00:00:51,400 Speaker 2: He joins us now for more thinking and monic. Good morning, 16 00:00:51,520 --> 00:00:52,880 Speaker 2: It's good to see it. How are things going to 17 00:00:52,920 --> 00:00:54,200 Speaker 2: rebalance in the months to come? 18 00:00:55,400 --> 00:00:57,120 Speaker 4: I think you know where we are. 19 00:00:57,360 --> 00:01:00,320 Speaker 5: I think a very simple way of thinking about out 20 00:01:00,400 --> 00:01:03,400 Speaker 5: where the S and P. Five hundred is is that 21 00:01:03,480 --> 00:01:07,559 Speaker 5: we of course had basically the very very robust twenty 22 00:01:07,600 --> 00:01:10,880 Speaker 5: twenty three and twenty twenty four returns, and if you 23 00:01:10,880 --> 00:01:12,679 Speaker 5: look at it, and if you will pardon me for 24 00:01:12,920 --> 00:01:17,480 Speaker 5: using slightly technical expression S and P. Five hundred, you 25 00:01:17,520 --> 00:01:20,200 Speaker 5: know was for those two years and really starting a 26 00:01:20,240 --> 00:01:24,280 Speaker 5: little earlier, in a very very steep trend channel, we 27 00:01:24,280 --> 00:01:27,920 Speaker 5: were in around numbers twenty four percent years. That's you know, 28 00:01:27,959 --> 00:01:30,440 Speaker 5: twenty four percent a year, that's two percent a month. 29 00:01:30,440 --> 00:01:34,080 Speaker 5: It's a very very robust channel. Of course, Liberation Day 30 00:01:34,280 --> 00:01:37,679 Speaker 5: threw us way way out of that channel, and we 31 00:01:37,720 --> 00:01:41,120 Speaker 5: have now recovered basically to the bottom of that channel 32 00:01:41,160 --> 00:01:44,000 Speaker 5: by the first week of July, and really for the 33 00:01:44,080 --> 00:01:48,400 Speaker 5: last six or seven weeks we're crawling along the bottom. So, 34 00:01:49,240 --> 00:01:52,400 Speaker 5: you know, bigger picture, if you think about it, we 35 00:01:52,760 --> 00:01:55,720 Speaker 5: fell because of the tariffs. We had this big sell off, 36 00:01:55,880 --> 00:01:59,640 Speaker 5: and we've now recovered. So the question is, you know, 37 00:02:01,040 --> 00:02:05,400 Speaker 5: is it justified or is it just optimism? But that 38 00:02:05,800 --> 00:02:07,760 Speaker 5: long drawn out of chart that I just drew for 39 00:02:07,840 --> 00:02:10,520 Speaker 5: you is just sort of focused the mind that actually 40 00:02:10,800 --> 00:02:13,919 Speaker 5: what the market's saying is that, you know, we had 41 00:02:13,919 --> 00:02:17,040 Speaker 5: the tariffs. We're all expected them to have, you know, 42 00:02:17,200 --> 00:02:21,760 Speaker 5: pretty big negative impacts. It's not evident in the growth data, 43 00:02:21,919 --> 00:02:25,920 Speaker 5: it's not evident in the inflation data. Aggregate earnings for 44 00:02:25,960 --> 00:02:28,000 Speaker 5: the S and P five hundred in the second quarter, 45 00:02:28,840 --> 00:02:32,680 Speaker 5: growth actually accelerated, So it's got the wrong sign in 46 00:02:32,760 --> 00:02:34,320 Speaker 5: terms of the negative impact. 47 00:02:34,520 --> 00:02:36,800 Speaker 6: So is there a less technical way of saying this, 48 00:02:36,880 --> 00:02:40,200 Speaker 6: which is that in some ways profit margins are normalizing 49 00:02:40,240 --> 00:02:43,200 Speaker 6: what's cut? Essant was saying to John and Memory this 50 00:02:43,320 --> 00:02:46,320 Speaker 6: week that in a sense this is more normal. You 51 00:02:46,400 --> 00:02:48,600 Speaker 6: might not get the twenty four percent returns every year, 52 00:02:49,120 --> 00:02:51,680 Speaker 6: but you'll be able to adjust and adapt to move 53 00:02:51,720 --> 00:02:55,480 Speaker 6: forward with something that's a solid game, but not necessarily. 54 00:02:54,919 --> 00:02:55,520 Speaker 3: Out of the water. 55 00:02:55,800 --> 00:02:56,000 Speaker 1: Yeah. 56 00:02:56,040 --> 00:02:58,239 Speaker 5: So again I would say, you know, in terms of 57 00:02:58,280 --> 00:03:00,880 Speaker 5: the margin issue, I mean, the cost counting way of 58 00:03:00,960 --> 00:03:05,359 Speaker 5: thinking about margins is you know, is fine, but it. 59 00:03:05,280 --> 00:03:07,399 Speaker 4: Doesn't really actually hold up. 60 00:03:07,440 --> 00:03:09,120 Speaker 5: I mean, for the S and P five hundred as 61 00:03:09,160 --> 00:03:12,360 Speaker 5: a whole, margins actually went up and margins are at 62 00:03:12,400 --> 00:03:16,120 Speaker 5: new high. So I mean, I understand the nice intuitive narrative, 63 00:03:16,639 --> 00:03:22,080 Speaker 5: It's just it's not in the facts. 64 00:03:21,320 --> 00:03:23,359 Speaker 2: What the economists are saying at the moment. To sort 65 00:03:23,360 --> 00:03:25,359 Speaker 2: of put that together with what you see. 66 00:03:25,400 --> 00:03:29,000 Speaker 5: In anex I think, you know, the economists position is 67 00:03:29,080 --> 00:03:33,680 Speaker 5: pretty reasonable if you think about basically, you know, their 68 00:03:33,919 --> 00:03:37,360 Speaker 5: calls for inflation take our house view. I mean, we 69 00:03:37,480 --> 00:03:41,560 Speaker 5: see basically, you know, the direct impact of the tariffs 70 00:03:41,760 --> 00:03:46,080 Speaker 5: as about two percentage points on core goods prices, and 71 00:03:46,120 --> 00:03:49,600 Speaker 5: then there's the indirect impact, you know, as everything feeds 72 00:03:49,640 --> 00:03:52,000 Speaker 5: on each other, and that's I would argue the larger 73 00:03:52,120 --> 00:03:54,920 Speaker 5: standard error to try to estimate as an when and 74 00:03:55,040 --> 00:03:55,600 Speaker 5: how much. 75 00:03:56,000 --> 00:03:56,480 Speaker 3: But if you. 76 00:03:56,440 --> 00:03:59,760 Speaker 5: Focus for a second or the direct impacts, I would argue, 77 00:03:59,800 --> 00:04:02,880 Speaker 5: if you look at core goods prices, we already had 78 00:04:03,120 --> 00:04:06,120 Speaker 5: half the pass through that we were looking for. So 79 00:04:06,600 --> 00:04:09,040 Speaker 5: you know, if you're negative and bearish, you can wait 80 00:04:09,080 --> 00:04:11,000 Speaker 5: for the second half is going to tip us over 81 00:04:11,080 --> 00:04:13,080 Speaker 5: into something or the other. But on the face of it, 82 00:04:13,200 --> 00:04:15,640 Speaker 5: why should it be any different than the first half, 83 00:04:15,920 --> 00:04:18,720 Speaker 5: And in fact, it might be even a little bit slower. 84 00:04:20,400 --> 00:04:22,240 Speaker 5: And we think it might be a little bit slower 85 00:04:22,279 --> 00:04:25,560 Speaker 5: because if you listen to companies, I mean, raising pricing 86 00:04:25,920 --> 00:04:29,080 Speaker 5: is basically the last resort, so to speak. 87 00:04:29,320 --> 00:04:30,360 Speaker 4: Number one, Number two. 88 00:04:31,080 --> 00:04:34,760 Speaker 5: You know, the directly impacted companies are about seventeen percent 89 00:04:34,880 --> 00:04:37,919 Speaker 5: less than twenty percent of S and P five hundred earnings. 90 00:04:38,440 --> 00:04:41,560 Speaker 5: Five percentage points of that is Apple, And they did 91 00:04:41,680 --> 00:04:45,080 Speaker 5: talk about tariffs, but there's lots of other things going on, 92 00:04:46,080 --> 00:04:48,880 Speaker 5: they just dominated basically the impact. 93 00:04:49,000 --> 00:04:50,880 Speaker 2: So sim this is another way saying the economy is 94 00:04:50,920 --> 00:04:53,560 Speaker 2: not the S and P. Five hundred fair enough. 95 00:04:53,600 --> 00:04:55,359 Speaker 6: I think a lot of people have said that again again, 96 00:04:55,400 --> 00:04:57,440 Speaker 6: but I think that that's the conclusion that we have 97 00:04:57,520 --> 00:04:57,880 Speaker 6: to choge. 98 00:04:57,880 --> 00:05:00,760 Speaker 2: Another reminder this morning from Binkie Chadwotoutsche Binkie's going to 99 00:05:00,760 --> 00:05:02,720 Speaker 2: see you. I know you take it two weeks off 100 00:05:02,800 --> 00:05:05,400 Speaker 2: your birthday too, so happy birthday, your. 101 00:05:05,200 --> 00:05:06,680 Speaker 4: Vacation, congratulations. 102 00:05:06,839 --> 00:05:09,760 Speaker 2: Nothing ever happens in August, and then things happen in August. 103 00:05:09,839 --> 00:05:20,919 Speaker 4: I know repeatedly, Eddie. 104 00:05:20,720 --> 00:05:23,880 Speaker 2: Fisherman at Columbia University, writing the following quote, even small 105 00:05:23,960 --> 00:05:27,720 Speaker 2: symbolic concessions from Trump could undermine the broader campaign and 106 00:05:27,760 --> 00:05:31,320 Speaker 2: fracture Allies unity, a scenario that Europe fears. 107 00:05:31,600 --> 00:05:33,400 Speaker 4: Eddie joins to surround the table. EDDI, good morning, get 108 00:05:33,440 --> 00:05:33,800 Speaker 4: to see you. 109 00:05:33,800 --> 00:05:34,440 Speaker 3: Great to see you too. 110 00:05:34,480 --> 00:05:36,120 Speaker 2: I want to try the question at you that Lisha 111 00:05:36,120 --> 00:05:37,599 Speaker 2: and I were discussed in just months ago. How do 112 00:05:37,640 --> 00:05:40,239 Speaker 2: we sufficiently incentivize President Putin this weekend? 113 00:05:40,880 --> 00:05:44,200 Speaker 7: I think Putin needs to understand that Trump is actually 114 00:05:44,240 --> 00:05:46,640 Speaker 7: serious when he says he wants peace, because I think 115 00:05:46,720 --> 00:05:48,960 Speaker 7: right now. Putin believes that time is on his side, 116 00:05:49,000 --> 00:05:51,320 Speaker 7: so he actually sees these negotiations now does an end 117 00:05:51,360 --> 00:05:54,239 Speaker 7: to peace, but actually as a means to allow himself 118 00:05:54,400 --> 00:05:57,800 Speaker 7: to continue the war without facing significant pressure. There was 119 00:05:57,920 --> 00:06:01,719 Speaker 7: momentum building in Washington last week four more sanctions on Russia. 120 00:06:01,880 --> 00:06:03,480 Speaker 7: Trump himself said that there were going to be very 121 00:06:03,520 --> 00:06:06,200 Speaker 7: severe sanctions if Putin didn't agree to a ceasefire about 122 00:06:06,200 --> 00:06:08,520 Speaker 7: by last Friday. That date came and went. So Putin 123 00:06:08,560 --> 00:06:10,840 Speaker 7: already has kind of gotten a victory by delaying that. 124 00:06:11,040 --> 00:06:13,520 Speaker 7: There's also a mentum to provide some more military assistants 125 00:06:13,520 --> 00:06:15,799 Speaker 7: in Ukraine. So I think Putin just by getting Trump 126 00:06:15,800 --> 00:06:18,160 Speaker 7: in the room, by sort of convincing him that he's serious, 127 00:06:18,440 --> 00:06:20,920 Speaker 7: he knows that Trump wants that Nobel Peace prize and 128 00:06:20,960 --> 00:06:23,880 Speaker 7: will stay in that negotiation, and by prevent real pressure 129 00:06:23,880 --> 00:06:24,479 Speaker 7: from coming down up. 130 00:06:24,640 --> 00:06:26,280 Speaker 2: I'd love to know what you think about this framing, 131 00:06:26,279 --> 00:06:28,640 Speaker 2: because I hear this a lot. President Putin is driven 132 00:06:28,680 --> 00:06:32,760 Speaker 2: by territorial ambition, not economic prosperity. He does not respond 133 00:06:32,760 --> 00:06:35,120 Speaker 2: to economic sanctions. How do you change that? 134 00:06:35,400 --> 00:06:35,599 Speaker 1: See? 135 00:06:35,640 --> 00:06:40,360 Speaker 7: I disagree with that fundamentally, he clearly wants to achieve 136 00:06:40,360 --> 00:06:43,240 Speaker 7: his maximalist objectives, which is to truly annex these four 137 00:06:43,320 --> 00:06:46,320 Speaker 7: territories of Ukraine that he's formally annexed but doesn't yet control. 138 00:06:46,839 --> 00:06:48,920 Speaker 7: But what happens if the Russian economy is in a 139 00:06:49,000 --> 00:06:51,720 Speaker 7: massive crisis right even this year, just as we are 140 00:06:51,800 --> 00:06:54,000 Speaker 7: right now, the Russian economies in stagflation. They're going to 141 00:06:54,040 --> 00:06:56,279 Speaker 7: grow at probably at most by one percent this year, 142 00:06:56,360 --> 00:06:59,040 Speaker 7: and they've got inflation well above ten percent. So the 143 00:06:59,160 --> 00:07:00,800 Speaker 7: question is what if you could get them into a 144 00:07:00,800 --> 00:07:03,480 Speaker 7: significant recession, and if you had inflation at twenty percent, 145 00:07:03,640 --> 00:07:05,520 Speaker 7: which you know we saw in the lead up to 146 00:07:05,839 --> 00:07:08,280 Speaker 7: the nuclear deal with Iran, US anctions can do this 147 00:07:08,360 --> 00:07:10,400 Speaker 7: if we actually are willing to go for the jugular, 148 00:07:10,480 --> 00:07:12,320 Speaker 7: which in the case of Russia is its oil sales. 149 00:07:12,440 --> 00:07:15,120 Speaker 6: There's also this question of Russia's leverage, and that has 150 00:07:15,160 --> 00:07:17,280 Speaker 6: to do with also a nuclear deal that I know 151 00:07:17,360 --> 00:07:19,400 Speaker 6: has been in the works with the United States, and 152 00:07:19,440 --> 00:07:21,760 Speaker 6: a question of what happens with their weapons and what 153 00:07:21,880 --> 00:07:25,280 Speaker 6: happens on an ongoing basis. Do you think that somehow 154 00:07:25,320 --> 00:07:28,840 Speaker 6: Vladimer Putin has gotten more leverage than people had expected 155 00:07:28,880 --> 00:07:29,800 Speaker 6: heading into this meeting. 156 00:07:29,920 --> 00:07:32,000 Speaker 7: Yeah, I think something that can play very close attention 157 00:07:32,080 --> 00:07:35,200 Speaker 7: to is that Putin and the Russian media have come 158 00:07:35,200 --> 00:07:37,520 Speaker 7: into this meeting saying that it's not just about Ukraine. 159 00:07:37,560 --> 00:07:38,320 Speaker 4: They're also going to. 160 00:07:38,240 --> 00:07:39,720 Speaker 7: Talk about cooperation in the Arctic. 161 00:07:39,880 --> 00:07:40,520 Speaker 4: They may talk. 162 00:07:40,400 --> 00:07:43,680 Speaker 7: About restarting the New Start Treaty which you know Russia 163 00:07:43,720 --> 00:07:45,920 Speaker 7: stopped participating in in twenty twenty three, which is this 164 00:07:46,040 --> 00:07:48,720 Speaker 7: arms control treaty, And of course they've been talking about 165 00:07:48,720 --> 00:07:51,400 Speaker 7: these potential economic deals. To me, something that raised my 166 00:07:51,440 --> 00:07:53,600 Speaker 7: eyebrows is that Scott Besen apparently is going to be 167 00:07:53,600 --> 00:07:55,920 Speaker 7: part of the delegation as well as the Russian finance minister. 168 00:07:56,120 --> 00:07:58,360 Speaker 7: That's kind of unusual if you're thinking about this as 169 00:07:58,400 --> 00:08:02,600 Speaker 7: a ceasefire negotiation. And so what Putin seeks to gain 170 00:08:02,680 --> 00:08:05,360 Speaker 7: there is to really kind of shift the discussion away 171 00:08:05,360 --> 00:08:08,120 Speaker 7: from Ukraine and persuade Trump is that there's a bigger 172 00:08:08,120 --> 00:08:11,040 Speaker 7: picture here and then he should actually normalize US Russian 173 00:08:11,040 --> 00:08:13,440 Speaker 7: relations irrespective of what happens in Ukraine. 174 00:08:13,480 --> 00:08:16,560 Speaker 6: If Trump entertains this idea, how much of a wedge 175 00:08:16,560 --> 00:08:18,720 Speaker 6: does that put between the United States and Europe? 176 00:08:18,880 --> 00:08:19,640 Speaker 1: A huge wedge. 177 00:08:19,640 --> 00:08:21,600 Speaker 7: And look, I just got back last night from Helsinkia. 178 00:08:21,600 --> 00:08:23,320 Speaker 7: I was there for the past week meeting with various 179 00:08:23,680 --> 00:08:27,640 Speaker 7: European officials, European diplomats, and they're petrified of this because 180 00:08:27,680 --> 00:08:30,520 Speaker 7: they know that as soon as there's even a small 181 00:08:30,560 --> 00:08:33,000 Speaker 7: sign that the US is backing off. Let's say Trump 182 00:08:33,000 --> 00:08:36,520 Speaker 7: agrees to some symbolic sanctions using Putin himself is sanctioned, 183 00:08:36,520 --> 00:08:39,040 Speaker 7: and actually, just a couple of days ago, Treasury had 184 00:08:39,080 --> 00:08:42,960 Speaker 7: to issue a license to allow Putin to travel to Alaska. 185 00:08:43,559 --> 00:08:45,240 Speaker 7: Let's say Trump says, Okay, We're going to give you 186 00:08:45,280 --> 00:08:47,640 Speaker 7: a little bit of sanctions using in exchange for some 187 00:08:47,720 --> 00:08:50,680 Speaker 7: perfunctory Russian concessions. The Europeans are going to be panicked, 188 00:08:50,679 --> 00:08:52,720 Speaker 7: and they're going to wonder what can we do to 189 00:08:52,880 --> 00:08:54,960 Speaker 7: prevent sort of the lid from falling off of this 190 00:08:55,000 --> 00:08:57,920 Speaker 7: pressure campaign that we have painstakingly built together over the 191 00:08:58,000 --> 00:08:58,600 Speaker 7: last three years. 192 00:08:58,720 --> 00:09:00,679 Speaker 2: That has been some criticism of the Europeans in their 193 00:09:00,720 --> 00:09:02,239 Speaker 2: approach by this administration. 194 00:09:02,480 --> 00:09:04,800 Speaker 4: Have the Europeans done enough? What have they been doing recently? 195 00:09:05,080 --> 00:09:07,640 Speaker 7: Yeah, So I'm glad you asked this because I heard 196 00:09:07,679 --> 00:09:10,000 Speaker 7: Secretary Besen on the show a couple of days ago 197 00:09:10,000 --> 00:09:12,520 Speaker 7: saying that the Europeans need to step up. Well, just 198 00:09:12,559 --> 00:09:15,520 Speaker 7: a few weeks ago, Europeans did the most dramatic sanctions 199 00:09:15,559 --> 00:09:17,400 Speaker 7: package that I have seen since the beginning of the war. 200 00:09:17,760 --> 00:09:20,679 Speaker 7: They uilaterally lowered the price cap on Russian oil from 201 00:09:20,720 --> 00:09:23,600 Speaker 7: sixty dollars a barrow to forty seven dollars and sixty cents. 202 00:09:23,679 --> 00:09:26,200 Speaker 7: Kind of a strange number. It's fifteen percent below the 203 00:09:26,280 --> 00:09:29,280 Speaker 7: market price. They did that by themselves. This was supposed 204 00:09:29,280 --> 00:09:30,800 Speaker 7: to be a G seven decision, but they went ahead 205 00:09:30,800 --> 00:09:34,439 Speaker 7: and did it themselves. They also imposed secondary sanctions. These 206 00:09:34,440 --> 00:09:37,400 Speaker 7: are not sanctions on Russia, but actually on Russia's trading partners. 207 00:09:37,559 --> 00:09:39,439 Speaker 1: They did two Chinese banks. 208 00:09:39,160 --> 00:09:41,920 Speaker 7: Were sanctioned by the EU, and I think most importantly, 209 00:09:41,920 --> 00:09:44,840 Speaker 7: they actually sanctioned the second biggest oil refinery in India, 210 00:09:45,240 --> 00:09:49,719 Speaker 7: Niara Energy. So they are already directly targeting Chinese and 211 00:09:49,800 --> 00:09:52,560 Speaker 7: Russian businesses that are in bed with Russia. And that's 212 00:09:52,600 --> 00:09:54,679 Speaker 7: not something that the US has been willing to do 213 00:09:54,760 --> 00:09:55,040 Speaker 7: so far. 214 00:09:55,120 --> 00:09:56,920 Speaker 4: What's left what would you like to see happen? 215 00:09:57,120 --> 00:09:57,200 Speaker 1: So? 216 00:09:57,280 --> 00:09:59,760 Speaker 7: I would like to see the US join these sanctions 217 00:09:59,800 --> 00:10:03,199 Speaker 7: with the EU, because ultimately, because of the dollar is 218 00:10:03,240 --> 00:10:06,040 Speaker 7: still the global reserve currency. When the US is on board, 219 00:10:06,040 --> 00:10:08,200 Speaker 7: the sanctions are much more powerful than if it's just 220 00:10:08,240 --> 00:10:10,320 Speaker 7: the EU. But there's more that needs to be done, 221 00:10:10,320 --> 00:10:13,800 Speaker 7: I think sanctioning other Indian refineries, sanctioning Chinese refineries and 222 00:10:13,880 --> 00:10:17,200 Speaker 7: more banks, and ultimately providing a clear roadmap for how 223 00:10:17,280 --> 00:10:20,760 Speaker 7: these purchasers of Russian oil, like China and India can 224 00:10:20,840 --> 00:10:22,800 Speaker 7: gradually bring down their purchases over time. 225 00:10:22,880 --> 00:10:25,320 Speaker 6: You've done an amazing job in your latest book and 226 00:10:25,400 --> 00:10:29,320 Speaker 6: just generally through your research in understanding how much the 227 00:10:29,360 --> 00:10:32,920 Speaker 6: global relationships are changing depending on what happens in this meeting. 228 00:10:33,160 --> 00:10:36,080 Speaker 6: How much does I indicate who is against who, whether 229 00:10:36,120 --> 00:10:37,880 Speaker 6: this is a multipolar world while. 230 00:10:37,679 --> 00:10:39,960 Speaker 3: This is or whether this is everyone go it alone. 231 00:10:40,080 --> 00:10:43,440 Speaker 7: Look, I think that there's also maybe a third option 232 00:10:43,559 --> 00:10:47,400 Speaker 7: here where Trump may be reorienting US relationships toward our 233 00:10:47,520 --> 00:10:51,000 Speaker 7: historical adversaries. We saw just last week Trump agree to 234 00:10:51,160 --> 00:10:55,480 Speaker 7: allow Nvidia and AMD to sell semiconductors to China as 235 00:10:55,520 --> 00:10:57,920 Speaker 7: long as they pay fifteen percent to the US government. 236 00:10:58,080 --> 00:11:01,439 Speaker 7: That's a giant concession to China, and it's a huge 237 00:11:01,480 --> 00:11:04,720 Speaker 7: sort of example of how we are warming our relationship 238 00:11:04,720 --> 00:11:08,000 Speaker 7: with China on this key area of technology competition. If 239 00:11:08,000 --> 00:11:10,320 Speaker 7: we also start seeing some easing of sanctions on Russia, 240 00:11:10,320 --> 00:11:11,880 Speaker 7: which I want to be clear it's not my base 241 00:11:11,960 --> 00:11:14,360 Speaker 7: case scenario, but it's still possible that it happens today. 242 00:11:14,920 --> 00:11:17,520 Speaker 7: Then you could start saying that Trump actually is kind 243 00:11:17,520 --> 00:11:20,200 Speaker 7: of pivoting toward Russia and China and the Europeans are 244 00:11:20,200 --> 00:11:21,040 Speaker 7: out left in the court. 245 00:11:21,280 --> 00:11:23,600 Speaker 4: Eddie, I appreciate your take and your opinion. 246 00:11:23,600 --> 00:11:26,040 Speaker 2: Thank you, sir, Eddie Fishman, there of Columbia University and 247 00:11:26,200 --> 00:11:38,880 Speaker 2: author of choke Points narrowing his choice is to replace 248 00:11:38,880 --> 00:11:40,880 Speaker 2: fed schare J. Powe to three or four names, saying 249 00:11:40,920 --> 00:11:44,199 Speaker 2: he'll announce his nominee a little earlier than initially expected. 250 00:11:44,440 --> 00:11:46,840 Speaker 2: Joining us now is the former economic advisor to President 251 00:11:46,880 --> 00:11:47,320 Speaker 2: George W. 252 00:11:47,400 --> 00:11:48,319 Speaker 4: Bush, Mark Summlin. 253 00:11:48,360 --> 00:11:48,520 Speaker 8: Mark. 254 00:11:48,559 --> 00:11:50,240 Speaker 2: Of course, your name has been in the mix as 255 00:11:50,280 --> 00:11:52,480 Speaker 2: well over the past week or so. Welcome to the program. 256 00:11:52,600 --> 00:11:54,400 Speaker 2: Let's just start with the base case, the case for 257 00:11:55,040 --> 00:11:57,200 Speaker 2: ray reductions. Mark, what do you think the strongest case 258 00:11:57,280 --> 00:11:57,880 Speaker 2: is right now? 259 00:11:58,720 --> 00:11:59,000 Speaker 1: Great? 260 00:11:59,200 --> 00:12:01,120 Speaker 9: I think the strongest First off, thank you very much 261 00:12:01,160 --> 00:12:03,560 Speaker 9: for having me. I think the strongest case is we 262 00:12:03,640 --> 00:12:06,120 Speaker 9: just have to mark to market to the new data 263 00:12:06,160 --> 00:12:10,400 Speaker 9: that we have. The data was revised very strongly to 264 00:12:10,440 --> 00:12:13,360 Speaker 9: the downside on the jobs, and that's the most important 265 00:12:13,440 --> 00:12:16,040 Speaker 9: data that we have. And so it's you know, jobs 266 00:12:16,040 --> 00:12:18,760 Speaker 9: for May and June only came in at thirty three 267 00:12:18,760 --> 00:12:21,680 Speaker 9: thousand combined for those two months, and so had we 268 00:12:21,720 --> 00:12:24,000 Speaker 9: gotten those in real time, it's likely that the SAID 269 00:12:24,040 --> 00:12:28,400 Speaker 9: would have cut probably in June and July. And we 270 00:12:28,440 --> 00:12:31,080 Speaker 9: know that the economy barely grew over one percent in 271 00:12:31,120 --> 00:12:33,160 Speaker 9: the first half of the year, and so a four 272 00:12:33,160 --> 00:12:36,000 Speaker 9: point three three percent SAID funds rate is just too 273 00:12:36,080 --> 00:12:39,160 Speaker 9: high for the economy, the economy that we have right now. 274 00:12:39,720 --> 00:12:41,760 Speaker 2: Mak, can we stay on that payroll data, because there's 275 00:12:41,760 --> 00:12:43,280 Speaker 2: been this great debate on Wall Stream, and I have 276 00:12:43,280 --> 00:12:45,360 Speaker 2: to say it's very divided at the moment. Do you 277 00:12:45,400 --> 00:12:48,319 Speaker 2: think that's stepped down in payroll's growth, and clearly you do. 278 00:12:48,360 --> 00:12:48,800 Speaker 4: You think it. 279 00:12:48,760 --> 00:12:51,480 Speaker 2: Speaks to a cyclical turn and not a structural shift. 280 00:12:51,480 --> 00:12:54,199 Speaker 2: But can you tell us why you believe that's the case? 281 00:12:54,600 --> 00:12:57,040 Speaker 2: What do you distance between one versus the other? 282 00:12:58,320 --> 00:12:59,920 Speaker 1: Absolutely? I do. I do think it's sickle. 283 00:13:00,200 --> 00:13:02,520 Speaker 9: I mean, I think if you step back, like very 284 00:13:02,559 --> 00:13:05,560 Speaker 9: big picture of macro, we have fiscal tightening this year 285 00:13:05,559 --> 00:13:07,760 Speaker 9: from the tariffs. Next year we're going to have some 286 00:13:07,760 --> 00:13:12,360 Speaker 9: fiscal loosening from the tax bill, and behind all of that, 287 00:13:12,400 --> 00:13:16,280 Speaker 9: we have the AI productivity gains starting to take hold 288 00:13:16,320 --> 00:13:19,760 Speaker 9: for the first time, and so the pretty mixed the 289 00:13:19,880 --> 00:13:23,439 Speaker 9: confusing macro picture, but you got to kind of write 290 00:13:23,440 --> 00:13:26,160 Speaker 9: it out in real time. And so we just know, 291 00:13:26,320 --> 00:13:29,679 Speaker 9: like before the data revision there was a disconnect between 292 00:13:29,760 --> 00:13:33,200 Speaker 9: jobs and GDP, and then after the revision there was 293 00:13:33,200 --> 00:13:36,719 Speaker 9: no disconnect. Jobs got revised down to reflect what was 294 00:13:36,760 --> 00:13:40,839 Speaker 9: going on elsewhere in the economy. And it's really important 295 00:13:41,080 --> 00:13:44,320 Speaker 9: to mark to market to where we are and not 296 00:13:44,520 --> 00:13:47,079 Speaker 9: just to say, oh, well, whatever we had. 297 00:13:46,920 --> 00:13:49,280 Speaker 1: Before is still fine for the FED funds. 298 00:13:49,320 --> 00:13:52,560 Speaker 6: Right, So let's do some scenario analysis. Let's say you 299 00:13:52,640 --> 00:13:55,400 Speaker 6: become the next FED share congratulations, And let's say in 300 00:13:55,440 --> 00:13:58,840 Speaker 6: September you cut by fifty basis points on the heels 301 00:13:58,920 --> 00:14:01,120 Speaker 6: of some of this jobs data, and then you see 302 00:14:01,400 --> 00:14:04,360 Speaker 6: tenure yields shoot higher kin to what we saw last 303 00:14:04,440 --> 00:14:06,360 Speaker 6: year when the FED cut significantly. 304 00:14:06,400 --> 00:14:06,880 Speaker 3: What do you do? 305 00:14:07,679 --> 00:14:11,760 Speaker 9: Yeah, then I mean, then you stop. And so one 306 00:14:11,760 --> 00:14:13,880 Speaker 9: of the reasons that I support the fifty basis point 307 00:14:13,880 --> 00:14:16,640 Speaker 9: cut right now is that you have the inversion in 308 00:14:16,679 --> 00:14:19,640 Speaker 9: the front end of the curve that's something like sixty 309 00:14:19,680 --> 00:14:22,760 Speaker 9: basis points last time I looked, And so you know 310 00:14:22,840 --> 00:14:25,560 Speaker 9: that you can cut by that amount without really upsetting things. 311 00:14:26,240 --> 00:14:29,400 Speaker 9: But the weakest part of the market or the economy 312 00:14:29,440 --> 00:14:32,400 Speaker 9: right now is housing, and so you can't have the 313 00:14:32,400 --> 00:14:34,520 Speaker 9: long end go up, and that's your constream right now, 314 00:14:34,560 --> 00:14:37,600 Speaker 9: and so the long end starts to go up on you, 315 00:14:37,600 --> 00:14:38,760 Speaker 9: you have to stop cutting. 316 00:14:39,520 --> 00:14:40,880 Speaker 1: You know, it's that simple. 317 00:14:41,320 --> 00:14:44,040 Speaker 6: You can make the argument that if the market, if 318 00:14:44,160 --> 00:14:48,120 Speaker 6: sort of this collective decision making body truly believe that 319 00:14:48,160 --> 00:14:52,640 Speaker 6: the economy was significantly weakening, the tenure would be significantly lower. 320 00:14:53,080 --> 00:14:55,480 Speaker 6: Doesn't that sort of indicate that there is enough strength 321 00:14:55,640 --> 00:14:58,560 Speaker 6: to continue at this sort of pace with these rates? 322 00:14:58,560 --> 00:15:00,840 Speaker 6: I mean, isn't that some sort of signal in and 323 00:15:00,880 --> 00:15:01,400 Speaker 6: of itself? 324 00:15:03,160 --> 00:15:05,240 Speaker 9: I mean, I think we go back to January, a 325 00:15:05,240 --> 00:15:07,280 Speaker 9: lot of people, a lot of the best bond traders 326 00:15:07,280 --> 00:15:09,440 Speaker 9: on the planet, thought the tenure was going to be 327 00:15:09,440 --> 00:15:12,360 Speaker 9: at five or over, and so the fact that we're 328 00:15:12,360 --> 00:15:14,160 Speaker 9: at four twenty nine and set of five is a 329 00:15:14,240 --> 00:15:17,000 Speaker 9: reflection of the weaker economy in my mind. 330 00:15:18,520 --> 00:15:20,960 Speaker 1: So, you know, these things are always judgment calls. 331 00:15:21,800 --> 00:15:24,560 Speaker 9: But I think right now you have the scope to 332 00:15:24,560 --> 00:15:28,160 Speaker 9: cut by fifty basis points, and then after there that 333 00:15:28,200 --> 00:15:29,560 Speaker 9: you'd have to look at the data and you'd have 334 00:15:29,560 --> 00:15:31,200 Speaker 9: to look at the markets, and you have to look 335 00:15:31,200 --> 00:15:32,880 Speaker 9: at what's going on in the real economy and put 336 00:15:32,920 --> 00:15:33,480 Speaker 9: it all together. 337 00:15:33,720 --> 00:15:35,000 Speaker 2: Mark, I'd love to know if you can share with 338 00:15:35,080 --> 00:15:37,000 Speaker 2: us what your approach would be if you had the 339 00:15:37,040 --> 00:15:39,760 Speaker 2: honor of taking over the top job at the Federal Reserve. 340 00:15:40,080 --> 00:15:42,200 Speaker 2: We heard from the Treasury Secretary was sitting around the 341 00:15:42,200 --> 00:15:44,520 Speaker 2: table with It's just a few days ago on this program, 342 00:15:44,600 --> 00:15:46,800 Speaker 2: and he talked about the need for foundational change of 343 00:15:46,840 --> 00:15:47,480 Speaker 2: the institution. 344 00:15:47,680 --> 00:15:49,400 Speaker 4: Yeah, what do you think needs to change? 345 00:15:50,400 --> 00:15:52,400 Speaker 9: Yeah, I mean, first of all, I think that the 346 00:15:52,520 --> 00:15:56,960 Speaker 9: staff is all set up wrong. We you know, to 347 00:15:57,000 --> 00:15:59,840 Speaker 9: do the job correctly, you have to understand three things. 348 00:16:00,280 --> 00:16:03,920 Speaker 9: There's the data, and there's the economic modeling side, and 349 00:16:04,400 --> 00:16:06,960 Speaker 9: all of the staff basically that's what they do. And 350 00:16:07,000 --> 00:16:09,800 Speaker 9: then you have financial markets. You need to understand what's 351 00:16:09,800 --> 00:16:12,680 Speaker 9: going on in high yield spreads, what's going on in 352 00:16:12,720 --> 00:16:16,840 Speaker 9: oil markets, what's going on in bond markets. And then 353 00:16:16,880 --> 00:16:19,720 Speaker 9: you have what's happening in companies, and especially right now 354 00:16:20,520 --> 00:16:22,640 Speaker 9: at a time of so much change, you really need 355 00:16:22,680 --> 00:16:26,640 Speaker 9: to understand what's going on with AI and productivity gains 356 00:16:26,680 --> 00:16:29,280 Speaker 9: in companies. And so I would like to have the 357 00:16:29,320 --> 00:16:33,560 Speaker 9: staff completely change where you know, a third of it 358 00:16:33,640 --> 00:16:37,960 Speaker 9: is doing economic modeling type of stuff and then a 359 00:16:38,040 --> 00:16:40,760 Speaker 9: third of it is real sectral experts. I mean, the 360 00:16:40,760 --> 00:16:43,520 Speaker 9: FED chairman should have someone who is an expert in autos, 361 00:16:43,640 --> 00:16:46,640 Speaker 9: an expert in retail sales, an expert in every single 362 00:16:46,680 --> 00:16:49,360 Speaker 9: thing in the house, so that you really have the 363 00:16:50,120 --> 00:16:53,480 Speaker 9: pace and the field of the economy going on, as 364 00:16:53,520 --> 00:16:58,120 Speaker 9: well as more market people there that understand, okay, high yields, 365 00:16:58,360 --> 00:17:00,440 Speaker 9: spreads are blowing out, and this is why we need 366 00:17:00,480 --> 00:17:02,600 Speaker 9: to worry, why we don't need to worry. And so 367 00:17:02,680 --> 00:17:06,160 Speaker 9: for me, it's less of a you know. 368 00:17:06,119 --> 00:17:07,600 Speaker 1: I don't have a problem with the size of the 369 00:17:07,600 --> 00:17:09,560 Speaker 1: staff because I think, you know, the FED is so 370 00:17:09,640 --> 00:17:11,159 Speaker 1: mission critical to the whole world. 371 00:17:11,680 --> 00:17:14,000 Speaker 9: I just think they are doing there's just so much 372 00:17:14,040 --> 00:17:17,800 Speaker 9: redundancy and right now it basically functions as like a 373 00:17:17,920 --> 00:17:20,920 Speaker 9: university research department, and I don't know why that's the case. 374 00:17:21,320 --> 00:17:21,520 Speaker 3: Mark. 375 00:17:21,600 --> 00:17:25,280 Speaker 6: This actually raises a point that John's been talking about significantly, 376 00:17:25,560 --> 00:17:29,040 Speaker 6: which is how much does that mean a more active 377 00:17:29,119 --> 00:17:31,960 Speaker 6: FED when it comes to balance sheet management? And it's 378 00:17:32,000 --> 00:17:35,359 Speaker 6: not just quantitative easing, but also just the denominations of 379 00:17:35,359 --> 00:17:37,480 Speaker 6: where you buy I mean, if you treat this more 380 00:17:37,640 --> 00:17:41,440 Speaker 6: like a market's operations and a university, how much more 381 00:17:41,520 --> 00:17:43,520 Speaker 6: active does that balance sheet become? 382 00:17:44,840 --> 00:17:48,720 Speaker 9: Yeah, you know, that's a good question. And I look, 383 00:17:48,760 --> 00:17:51,040 Speaker 9: I think that the balance sheet is an important tool 384 00:17:51,160 --> 00:17:54,600 Speaker 9: when you need it, you know, so definitely in crisis. 385 00:17:55,480 --> 00:17:58,320 Speaker 9: You you know, it's something that's in the toolbox, and 386 00:17:58,359 --> 00:18:01,399 Speaker 9: it works. I don't think it works that well or 387 00:18:01,480 --> 00:18:04,800 Speaker 9: needs to be continued after after the crisis is over. 388 00:18:05,480 --> 00:18:06,800 Speaker 1: And so you know, if we were. 389 00:18:06,680 --> 00:18:08,480 Speaker 9: Coming out of the pandemic or something, I would have 390 00:18:08,520 --> 00:18:12,760 Speaker 9: definitely ended the QI sooner rather than later. But they're 391 00:18:12,800 --> 00:18:14,919 Speaker 9: you know, they're important questions right now when we have 392 00:18:15,119 --> 00:18:17,840 Speaker 9: very high mortgage spreads about why are we still selling 393 00:18:17,880 --> 00:18:20,720 Speaker 9: off nbs when we have you know, one hundred and 394 00:18:20,760 --> 00:18:23,240 Speaker 9: fifty basis points spreads that are you know, that are. 395 00:18:23,400 --> 00:18:25,280 Speaker 1: Hitting the housing market right now. 396 00:18:26,560 --> 00:18:28,480 Speaker 9: So I think you have to, I mean, you just 397 00:18:28,520 --> 00:18:31,000 Speaker 9: have to look at it very objectively about what is 398 00:18:31,000 --> 00:18:32,919 Speaker 9: it what's the impact of the balance sheet in the 399 00:18:32,920 --> 00:18:38,440 Speaker 9: real time. And you know, there's some people who would 400 00:18:38,520 --> 00:18:40,120 Speaker 9: love to go back to the old days when there 401 00:18:40,200 --> 00:18:43,160 Speaker 9: was no balance sheet, and I think that's a fine argument. 402 00:18:43,200 --> 00:18:45,480 Speaker 9: If we could rewind time back to nineteen ninety five. 403 00:18:45,920 --> 00:18:47,680 Speaker 9: It's just very hard to go from where we are 404 00:18:47,720 --> 00:18:50,320 Speaker 9: now to that type of that type of operation. 405 00:18:50,760 --> 00:18:53,320 Speaker 2: Mark, this was a very thoughtful conversation and hopefully we 406 00:18:53,320 --> 00:18:55,080 Speaker 2: can continue it over the next few months. 407 00:18:55,080 --> 00:18:55,720 Speaker 4: Thank you, sir Mark. 408 00:18:55,760 --> 00:18:58,200 Speaker 2: Someone in there the former economic advice at A President, 409 00:18:58,200 --> 00:18:59,119 Speaker 2: George W. 410 00:18:59,240 --> 00:18:59,480 Speaker 1: Bush. 411 00:19:09,359 --> 00:19:12,080 Speaker 2: Veronica Clark of City writing, we expect limited signs of 412 00:19:12,080 --> 00:19:15,400 Speaker 2: persistent inflation and a weakening labor market. Will have fed 413 00:19:15,440 --> 00:19:19,359 Speaker 2: officials cutting by twenty five basis points in September at 414 00:19:19,400 --> 00:19:21,760 Speaker 2: each meeting after to get to three percent. 415 00:19:22,040 --> 00:19:23,159 Speaker 4: Veronica joins us. Now for more. 416 00:19:23,240 --> 00:19:25,159 Speaker 2: Veronica and Mornick, good morning. It's good to see you. 417 00:19:25,200 --> 00:19:26,960 Speaker 2: That kind of echoes what we heard from Secretary Bess. 418 00:19:26,960 --> 00:19:29,440 Speaker 2: And let's get down one fifty. What is it about 419 00:19:29,440 --> 00:19:32,320 Speaker 2: the inflation data that you think won't derail this effort? 420 00:19:32,480 --> 00:19:34,639 Speaker 8: Yeah, I mean the July inflation data was interesting. We 421 00:19:34,680 --> 00:19:38,440 Speaker 8: finally got some firmer data, not downside surprises, and when 422 00:19:38,440 --> 00:19:40,480 Speaker 8: you dug into the details, yeah, it wasn't actually in 423 00:19:40,520 --> 00:19:43,040 Speaker 8: goods prices, which obviously people were looking for the signs 424 00:19:43,080 --> 00:19:46,480 Speaker 8: of that teariff pass through. It was in services, which 425 00:19:46,520 --> 00:19:48,800 Speaker 8: sounds concerning, but then you dig at a level deeper, 426 00:19:49,560 --> 00:19:52,320 Speaker 8: and in both CPI and PPI it's just one off 427 00:19:52,359 --> 00:19:56,879 Speaker 8: services that are particularly strong dental services and CPI PPI 428 00:19:56,960 --> 00:19:58,800 Speaker 8: yesterday was portfolio management fees. 429 00:19:58,840 --> 00:19:59,919 Speaker 3: We know that moves with asset. 430 00:20:00,400 --> 00:20:03,159 Speaker 8: So I don't think there is any sign yet of 431 00:20:03,200 --> 00:20:05,359 Speaker 8: the broad based kind of concerning inflation for them the. 432 00:20:05,359 --> 00:20:07,840 Speaker 4: Kid with yet yet. Why wuldn't that change in the 433 00:20:07,840 --> 00:20:08,360 Speaker 4: months to come? 434 00:20:08,520 --> 00:20:11,280 Speaker 8: Yeah, I think the biggest test of the tariff pass 435 00:20:11,359 --> 00:20:14,080 Speaker 8: through dynamics is really going to be August and September data. 436 00:20:14,720 --> 00:20:16,639 Speaker 8: You know, based on what we know about when teriff 437 00:20:16,680 --> 00:20:19,239 Speaker 8: raid started to rise, based on you know, there was 438 00:20:19,280 --> 00:20:22,240 Speaker 8: in the import price data some producers maybe lowered their 439 00:20:22,280 --> 00:20:25,440 Speaker 8: prices temporarily. We see that in goods like apparel. That's 440 00:20:25,520 --> 00:20:29,080 Speaker 8: kind of ended though, as people draw down inventories. Maybe 441 00:20:29,119 --> 00:20:31,840 Speaker 8: it's August September is that timeframe when okay, maybe you 442 00:20:31,880 --> 00:20:34,439 Speaker 8: do have to start raising prices. You've held off as 443 00:20:34,520 --> 00:20:37,200 Speaker 8: long as you can. We know that's when some prices 444 00:20:37,240 --> 00:20:39,879 Speaker 8: for things like clothing start to rise for a new season. 445 00:20:40,600 --> 00:20:42,479 Speaker 8: If we still don't see it in those months, if 446 00:20:42,520 --> 00:20:45,040 Speaker 8: it is more limited, I wonder if that tells us 447 00:20:45,080 --> 00:20:47,200 Speaker 8: that the consumer really just can't handle these big price 448 00:20:47,240 --> 00:20:50,000 Speaker 8: increases right now, That is not the persistent inflation. 449 00:20:50,320 --> 00:20:52,600 Speaker 6: I have Steve Rashudo I from Mizuho in my mind, 450 00:20:52,880 --> 00:20:55,280 Speaker 6: stop taking this out and this out to create the 451 00:20:55,359 --> 00:20:57,840 Speaker 6: number of that you actually want, because ultimately, if it 452 00:20:57,880 --> 00:21:00,119 Speaker 6: comes in hot, if it barks like a dog, it 453 00:21:00,160 --> 00:21:01,679 Speaker 6: acts like a dog at wags, it's tail like a 454 00:21:01,680 --> 00:21:03,400 Speaker 6: dog as a dog. So how much can you really 455 00:21:03,440 --> 00:21:06,920 Speaker 6: say portfolio management costs ignore that as the prices don't 456 00:21:06,920 --> 00:21:08,719 Speaker 6: matter when the wealth effect is real, when you've got 457 00:21:08,760 --> 00:21:11,120 Speaker 6: retail sales that are expected to come in hot. I mean, 458 00:21:11,160 --> 00:21:14,159 Speaker 6: how long can you keep being cute about the components? 459 00:21:14,280 --> 00:21:15,640 Speaker 3: No, and we don't want to pick and choose. 460 00:21:15,680 --> 00:21:18,000 Speaker 8: And of course portfolio management fees were weaker earlier in 461 00:21:18,040 --> 00:21:20,679 Speaker 8: the year when we had equities falling, But I mean, 462 00:21:20,720 --> 00:21:22,840 Speaker 8: I think it is it does speak to we're not 463 00:21:22,920 --> 00:21:25,640 Speaker 8: seeing the big, broad based kind of price pressures yet, 464 00:21:26,240 --> 00:21:29,040 Speaker 8: and I think this is just a very different fundamental 465 00:21:29,080 --> 00:21:31,359 Speaker 8: demand backdrop than the kind of inflation we saw a 466 00:21:31,400 --> 00:21:34,679 Speaker 8: couple of years ago. So yeah, it's not the ideal number, 467 00:21:34,720 --> 00:21:37,919 Speaker 8: of course, but there's nothing really blaring red that would 468 00:21:38,200 --> 00:21:39,680 Speaker 8: stay persistent in this data. 469 00:21:39,880 --> 00:21:40,800 Speaker 3: Do you expect any. 470 00:21:40,720 --> 00:21:43,160 Speaker 6: Kind of messaging at Jackson Hole that could really indicate 471 00:21:43,240 --> 00:21:44,800 Speaker 6: how the FED is going to deal with both the 472 00:21:44,840 --> 00:21:49,280 Speaker 6: political pressure but also this data that is open to interpretation. 473 00:21:49,520 --> 00:21:52,880 Speaker 8: Yeah, I think we've heard still enough division among Fed officials. 474 00:21:52,880 --> 00:21:55,480 Speaker 8: There are still even this week, some officials who are 475 00:21:55,480 --> 00:21:57,920 Speaker 8: describing the labor market as solid, you know, worried about 476 00:21:57,960 --> 00:22:00,720 Speaker 8: some of these more persistent inflation risks. So I think 477 00:22:00,720 --> 00:22:02,600 Speaker 8: Powell does kind of have to walk a line here. 478 00:22:02,720 --> 00:22:06,160 Speaker 8: You can't be so dubvish that we've heard from officials 479 00:22:06,160 --> 00:22:07,400 Speaker 8: like Waller and whatnot. 480 00:22:07,960 --> 00:22:09,880 Speaker 3: But I think it's they have enough information. 481 00:22:09,960 --> 00:22:13,119 Speaker 8: If they had had those revisions, you know, to the July, 482 00:22:13,400 --> 00:22:16,080 Speaker 8: with the July employment report ahead of the July meeting, 483 00:22:16,119 --> 00:22:18,159 Speaker 8: I think they probably would have been cutting at that meeting. 484 00:22:18,720 --> 00:22:20,879 Speaker 8: So he'll probably feel a little bit more comfortable guiding 485 00:22:20,960 --> 00:22:23,640 Speaker 8: towards Yeah, we are still expecting cuts and that could 486 00:22:23,640 --> 00:22:24,920 Speaker 8: be on the table for the fall. 487 00:22:25,160 --> 00:22:26,520 Speaker 4: Is there sufficient two way risk? 488 00:22:26,560 --> 00:22:30,919 Speaker 2: And the upcoming information CPI early next month payrolls the 489 00:22:30,920 --> 00:22:32,040 Speaker 2: first week is September. 490 00:22:32,480 --> 00:22:34,240 Speaker 3: Yeah, Yeah, we'll learn a lot more. 491 00:22:34,800 --> 00:22:37,080 Speaker 8: Is that August inflation print that we're going to get 492 00:22:37,080 --> 00:22:38,960 Speaker 8: before the September meeting. I wonder if we could see 493 00:22:39,000 --> 00:22:42,119 Speaker 8: more inflation impact there. It is I think the August 494 00:22:42,200 --> 00:22:44,240 Speaker 8: employment report that matters the most, though. 495 00:22:44,680 --> 00:22:46,440 Speaker 2: The team seem to be putting a lot of emphasis 496 00:22:46,520 --> 00:22:48,280 Speaker 2: on employment, and that's signed that your mandates. 497 00:22:48,280 --> 00:22:49,920 Speaker 4: So let's sit on this topic a little bit more. 498 00:22:50,280 --> 00:22:52,440 Speaker 2: We had Bank for America sat in you'll see yesterday 499 00:22:52,760 --> 00:22:55,280 Speaker 2: and then making the case that ultimately what you're seeing 500 00:22:55,320 --> 00:22:57,840 Speaker 2: right now, it's not a cyclical turn. It's a structural shift, 501 00:22:58,160 --> 00:23:00,400 Speaker 2: and you can have a step down in payrolls without 502 00:23:00,440 --> 00:23:02,920 Speaker 2: an increase in slack. You and a team, it's taking 503 00:23:02,960 --> 00:23:05,119 Speaker 2: completely the other side of the debate, So please explain 504 00:23:05,119 --> 00:23:05,520 Speaker 2: to sow much. 505 00:23:05,560 --> 00:23:08,280 Speaker 8: Yeah, yeah, I think the main debate among everyone watching 506 00:23:08,280 --> 00:23:10,879 Speaker 8: the labor market data right now is is this, you know, 507 00:23:11,000 --> 00:23:13,600 Speaker 8: some weakening demand underlying this or is this just an 508 00:23:13,640 --> 00:23:16,879 Speaker 8: immigration story. We've had a slowing in population growth and 509 00:23:16,920 --> 00:23:19,760 Speaker 8: that break even pace of payroll job growth is lower. 510 00:23:19,800 --> 00:23:22,680 Speaker 8: I'm sure, but I think in the details of the 511 00:23:22,760 --> 00:23:24,960 Speaker 8: data there are a lot of worrying things that this 512 00:23:25,040 --> 00:23:27,639 Speaker 8: is more than just immigration. This is a weak demand story, 513 00:23:27,680 --> 00:23:29,520 Speaker 8: and I would look to you know, a lot of 514 00:23:29,520 --> 00:23:30,080 Speaker 8: the decline and. 515 00:23:30,080 --> 00:23:31,679 Speaker 3: Participation has been discouraged. 516 00:23:31,680 --> 00:23:34,000 Speaker 8: Workers you give up looking for work because you're not 517 00:23:34,040 --> 00:23:38,080 Speaker 8: finding a job, that's probably not immigration. A big increase 518 00:23:38,200 --> 00:23:41,040 Speaker 8: in unemployment has come from college educated workers. Those are 519 00:23:41,080 --> 00:23:45,159 Speaker 8: probably people not being crowded out by recent immigrants. And 520 00:23:45,200 --> 00:23:48,080 Speaker 8: then in July the big increase in unemployment, which you 521 00:23:48,080 --> 00:23:50,960 Speaker 8: know it stayed at that four point two percent, but 522 00:23:51,000 --> 00:23:54,200 Speaker 8: it was new labor market entrants. That's probably not new immigrants. Now, 523 00:23:54,200 --> 00:23:57,280 Speaker 8: that's probably students looking for work and not finding jobs. 524 00:23:57,840 --> 00:24:00,719 Speaker 8: So there are enough signs that regardless of immigration, there 525 00:24:00,800 --> 00:24:01,760 Speaker 8: is weakening happening. 526 00:24:01,880 --> 00:24:03,600 Speaker 6: You know, I'm just trying to wrap my head around 527 00:24:03,640 --> 00:24:06,879 Speaker 6: the idea of pegging some sort of FED move to 528 00:24:07,000 --> 00:24:09,800 Speaker 6: data that has been undermined in terms of the integrity 529 00:24:09,840 --> 00:24:12,159 Speaker 6: of it by the US government, where the head of 530 00:24:12,160 --> 00:24:14,320 Speaker 6: the BLS has just been fired, and there have been 531 00:24:14,359 --> 00:24:16,560 Speaker 6: such massive revisions that you have a growing number of 532 00:24:16,560 --> 00:24:19,080 Speaker 6: economists saying that if those numbers had come out in 533 00:24:19,160 --> 00:24:22,280 Speaker 6: June and July, this FED would have already been cutting rates. 534 00:24:22,440 --> 00:24:24,040 Speaker 3: How do you sort of square that circle? 535 00:24:24,240 --> 00:24:26,040 Speaker 8: Yeah, I mean, there is of course a lot of 536 00:24:26,160 --> 00:24:29,119 Speaker 8: attention and rightfully so, on the official data, but the 537 00:24:29,160 --> 00:24:30,920 Speaker 8: revisions I think made a lot of sense to a 538 00:24:30,960 --> 00:24:33,840 Speaker 8: lot of people, me included. We had seen a lot 539 00:24:33,840 --> 00:24:37,000 Speaker 8: of evidence of weakening labor market before those revisions, and 540 00:24:37,080 --> 00:24:39,720 Speaker 8: it was payrolls. It was the outlier. So it does 541 00:24:39,800 --> 00:24:42,480 Speaker 8: make you know, some sense. I think I do trust 542 00:24:42,480 --> 00:24:45,240 Speaker 8: the official data, of course, just as much as I 543 00:24:45,280 --> 00:24:48,480 Speaker 8: did a couple months ago, which admittedly is maybe a 544 00:24:48,520 --> 00:24:50,960 Speaker 8: bit less than six years ago. I think the pandemic 545 00:24:51,040 --> 00:24:53,280 Speaker 8: is still just skewing a lot of this, you know, 546 00:24:53,359 --> 00:24:55,719 Speaker 8: the data of the seasonal adjustment, some of the collections. 547 00:24:56,600 --> 00:24:58,639 Speaker 8: It was just a weird data event that happened, and 548 00:24:58,680 --> 00:25:01,159 Speaker 8: it's going to be weird for a WHI but I 549 00:25:01,240 --> 00:25:03,679 Speaker 8: do trust the official data that we're getting. But you 550 00:25:03,720 --> 00:25:06,720 Speaker 8: do have to take all the data and form your 551 00:25:06,800 --> 00:25:08,600 Speaker 8: view on all the data that we have available to 552 00:25:08,640 --> 00:25:09,600 Speaker 8: So let's get to the data. 553 00:25:09,480 --> 00:25:10,920 Speaker 3: That we're going to get ninety minutes time. 554 00:25:11,240 --> 00:25:12,760 Speaker 6: How where do you place retail sales? 555 00:25:13,040 --> 00:25:14,440 Speaker 3: Yeah, it is an important one. 556 00:25:15,160 --> 00:25:17,800 Speaker 8: We've seen this dynamic this year in good spending where 557 00:25:17,840 --> 00:25:20,719 Speaker 8: maybe there was some front loading that was boosting sales temporarily. 558 00:25:21,359 --> 00:25:23,960 Speaker 8: Services spending in the quarterly data and the monthly data 559 00:25:23,960 --> 00:25:27,040 Speaker 8: have been much softer. Retail sales, I think a couple 560 00:25:27,080 --> 00:25:29,359 Speaker 8: important things to note. You know, if it is a 561 00:25:29,359 --> 00:25:32,760 Speaker 8: soft demand story that is limiting the ability of companies 562 00:25:32,760 --> 00:25:35,080 Speaker 8: to raise prices, maybe we see that in softer spending. 563 00:25:36,160 --> 00:25:38,920 Speaker 8: But retail sales are nominal also, so it's important to 564 00:25:38,960 --> 00:25:40,800 Speaker 8: keep in mind as we're getting into the fall, we 565 00:25:40,840 --> 00:25:43,080 Speaker 8: could have some bigger price increases and that could make 566 00:25:43,320 --> 00:25:46,240 Speaker 8: nominal retail sales when they come out look stronger. But 567 00:25:46,320 --> 00:25:48,520 Speaker 8: what we really care about, of course, is real spending. 568 00:25:49,000 --> 00:25:51,240 Speaker 8: I think this number today will be fine, a healthy 569 00:25:51,320 --> 00:25:51,840 Speaker 8: enough number. 570 00:25:52,040 --> 00:25:54,080 Speaker 2: It's good to see you as always, thanks for dropping back. 571 00:25:54,080 --> 00:25:56,159 Speaker 2: Thank you very much for a a clock there of city. 572 00:25:57,040 --> 00:26:00,600 Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best 573 00:26:00,600 --> 00:26:03,920 Speaker 2: in markets, economics, and geopolitics. You can watch the show 574 00:26:03,960 --> 00:26:06,919 Speaker 2: live on Bloomberg TV weekday mornings from six am to 575 00:26:07,040 --> 00:26:10,800 Speaker 2: nine am Eastern. 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