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Speaker 2: Deutsche Bank right in the following, it is clear from
Speaker 2: company comments that tarifs were a sizeable headwind only for some,
Speaker 2: and the hit was modest and significantly lower than previously feared,
Speaker 2: although it is likely to grow.
Speaker 3: Think.
Speaker 2: He joins us now for more thinking and monic. Good morning,
Speaker 2: It's good to see it. How are things going to
Speaker 2: rebalance in the months to come?
Speaker 4: I think you know where we are.
Speaker 5: I think a very simple way of thinking about out
Speaker 5: where the S and P. Five hundred is is that
Speaker 5: we of course had basically the very very robust twenty
Speaker 5: twenty three and twenty twenty four returns, and if you
Speaker 5: look at it, and if you will pardon me for
Speaker 5: using slightly technical expression S and P. Five hundred, you
Speaker 5: know was for those two years and really starting a
Speaker 5: little earlier, in a very very steep trend channel, we
Speaker 5: were in around numbers twenty four percent years. That's you know,
Speaker 5: twenty four percent a year, that's two percent a month.
Speaker 5: It's a very very robust channel. Of course, Liberation Day
Speaker 5: threw us way way out of that channel, and we
Speaker 5: have now recovered basically to the bottom of that channel
Speaker 5: by the first week of July, and really for the
Speaker 5: last six or seven weeks we're crawling along the bottom. So,
Speaker 5: you know, bigger picture, if you think about it, we
Speaker 5: fell because of the tariffs. We had this big sell off,
Speaker 5: and we've now recovered. So the question is, you know,
Speaker 5: is it justified or is it just optimism? But that
Speaker 5: long drawn out of chart that I just drew for
Speaker 5: you is just sort of focused the mind that actually
Speaker 5: what the market's saying is that, you know, we had
Speaker 5: the tariffs. We're all expected them to have, you know,
Speaker 5: pretty big negative impacts. It's not evident in the growth data,
Speaker 5: it's not evident in the inflation data. Aggregate earnings for
Speaker 5: the S and P five hundred in the second quarter,
Speaker 5: growth actually accelerated, So it's got the wrong sign in
Speaker 5: terms of the negative impact.
Speaker 6: So is there a less technical way of saying this,
Speaker 6: which is that in some ways profit margins are normalizing
Speaker 6: what's cut? Essant was saying to John and Memory this
Speaker 6: week that in a sense this is more normal. You
Speaker 6: might not get the twenty four percent returns every year,
Speaker 6: but you'll be able to adjust and adapt to move
Speaker 6: forward with something that's a solid game, but not necessarily.
Speaker 3: Out of the water.
Speaker 1: Yeah.
Speaker 5: So again I would say, you know, in terms of
Speaker 5: the margin issue, I mean, the cost counting way of
Speaker 5: thinking about margins is you know, is fine, but it.
Speaker 4: Doesn't really actually hold up.
Speaker 5: I mean, for the S and P five hundred as
Speaker 5: a whole, margins actually went up and margins are at
Speaker 5: new high. So I mean, I understand the nice intuitive narrative,
Speaker 5: It's just it's not in the facts.
Speaker 2: What the economists are saying at the moment. To sort
Speaker 2: of put that together with what you see.
Speaker 5: In anex I think, you know, the economists position is
Speaker 5: pretty reasonable if you think about basically, you know, their
Speaker 5: calls for inflation take our house view. I mean, we
Speaker 5: see basically, you know, the direct impact of the tariffs
Speaker 5: as about two percentage points on core goods prices, and
Speaker 5: then there's the indirect impact, you know, as everything feeds
Speaker 5: on each other, and that's I would argue the larger
Speaker 5: standard error to try to estimate as an when and
Speaker 5: how much.
Speaker 3: But if you.
Speaker 5: Focus for a second or the direct impacts, I would argue,
Speaker 5: if you look at core goods prices, we already had
Speaker 5: half the pass through that we were looking for. So
Speaker 5: you know, if you're negative and bearish, you can wait
Speaker 5: for the second half is going to tip us over
Speaker 5: into something or the other. But on the face of it,
Speaker 5: why should it be any different than the first half,
Speaker 5: And in fact, it might be even a little bit slower.
Speaker 5: And we think it might be a little bit slower
Speaker 5: because if you listen to companies, I mean, raising pricing
Speaker 5: is basically the last resort, so to speak.
Speaker 4: Number one, Number two.
Speaker 5: You know, the directly impacted companies are about seventeen percent
Speaker 5: less than twenty percent of S and P five hundred earnings.
Speaker 5: Five percentage points of that is Apple, And they did
Speaker 5: talk about tariffs, but there's lots of other things going on,
Speaker 5: they just dominated basically the impact.
Speaker 2: So sim this is another way saying the economy is
Speaker 2: not the S and P. Five hundred fair enough.
Speaker 6: I think a lot of people have said that again again,
Speaker 6: but I think that that's the conclusion that we have
Speaker 6: to choge.
Speaker 2: Another reminder this morning from Binkie Chadwotoutsche Binkie's going to
Speaker 2: see you. I know you take it two weeks off
Speaker 2: your birthday too, so happy birthday, your.
Speaker 4: Vacation, congratulations.
Speaker 2: Nothing ever happens in August, and then things happen in August.
Speaker 4: I know repeatedly, Eddie.
Speaker 2: Fisherman at Columbia University, writing the following quote, even small
Speaker 2: symbolic concessions from Trump could undermine the broader campaign and
Speaker 2: fracture Allies unity, a scenario that Europe fears.
Speaker 4: Eddie joins to surround the table. EDDI, good morning, get
Speaker 4: to see you.
Speaker 3: Great to see you too.
Speaker 2: I want to try the question at you that Lisha
Speaker 2: and I were discussed in just months ago. How do
Speaker 2: we sufficiently incentivize President Putin this weekend?
Speaker 7: I think Putin needs to understand that Trump is actually
Speaker 7: serious when he says he wants peace, because I think
Speaker 7: right now. Putin believes that time is on his side,
Speaker 7: so he actually sees these negotiations now does an end
Speaker 7: to peace, but actually as a means to allow himself
Speaker 7: to continue the war without facing significant pressure. There was
Speaker 7: momentum building in Washington last week four more sanctions on Russia.
Speaker 7: Trump himself said that there were going to be very
Speaker 7: severe sanctions if Putin didn't agree to a ceasefire about
Speaker 7: by last Friday. That date came and went. So Putin
Speaker 7: already has kind of gotten a victory by delaying that.
Speaker 7: There's also a mentum to provide some more military assistants
Speaker 7: in Ukraine. So I think Putin just by getting Trump
Speaker 7: in the room, by sort of convincing him that he's serious,
Speaker 7: he knows that Trump wants that Nobel Peace prize and
Speaker 7: will stay in that negotiation, and by prevent real pressure
Speaker 7: from coming down up.
Speaker 2: I'd love to know what you think about this framing,
Speaker 2: because I hear this a lot. President Putin is driven
Speaker 2: by territorial ambition, not economic prosperity. He does not respond
Speaker 2: to economic sanctions. How do you change that?
Speaker 1: See?
Speaker 7: I disagree with that fundamentally, he clearly wants to achieve
Speaker 7: his maximalist objectives, which is to truly annex these four
Speaker 7: territories of Ukraine that he's formally annexed but doesn't yet control.
Speaker 7: But what happens if the Russian economy is in a
Speaker 7: massive crisis right even this year, just as we are
Speaker 7: right now, the Russian economies in stagflation. They're going to
Speaker 7: grow at probably at most by one percent this year,
Speaker 7: and they've got inflation well above ten percent. So the
Speaker 7: question is what if you could get them into a
Speaker 7: significant recession, and if you had inflation at twenty percent,
Speaker 7: which you know we saw in the lead up to
Speaker 7: the nuclear deal with Iran, US anctions can do this
Speaker 7: if we actually are willing to go for the jugular,
Speaker 7: which in the case of Russia is its oil sales.
Speaker 6: There's also this question of Russia's leverage, and that has
Speaker 6: to do with also a nuclear deal that I know
Speaker 6: has been in the works with the United States, and
Speaker 6: a question of what happens with their weapons and what
Speaker 6: happens on an ongoing basis. Do you think that somehow
Speaker 6: Vladimer Putin has gotten more leverage than people had expected
Speaker 6: heading into this meeting.
Speaker 7: Yeah, I think something that can play very close attention
Speaker 7: to is that Putin and the Russian media have come
Speaker 7: into this meeting saying that it's not just about Ukraine.
Speaker 4: They're also going to.
Speaker 7: Talk about cooperation in the Arctic.
Speaker 4: They may talk.
Speaker 7: About restarting the New Start Treaty which you know Russia
Speaker 7: stopped participating in in twenty twenty three, which is this
Speaker 7: arms control treaty, And of course they've been talking about
Speaker 7: these potential economic deals. To me, something that raised my
Speaker 7: eyebrows is that Scott Besen apparently is going to be
Speaker 7: part of the delegation as well as the Russian finance minister.
Speaker 7: That's kind of unusual if you're thinking about this as
Speaker 7: a ceasefire negotiation. And so what Putin seeks to gain
Speaker 7: there is to really kind of shift the discussion away
Speaker 7: from Ukraine and persuade Trump is that there's a bigger
Speaker 7: picture here and then he should actually normalize US Russian
Speaker 7: relations irrespective of what happens in Ukraine.
Speaker 6: If Trump entertains this idea, how much of a wedge
Speaker 6: does that put between the United States and Europe?
Speaker 1: A huge wedge.
Speaker 7: And look, I just got back last night from Helsinkia.
Speaker 7: I was there for the past week meeting with various
Speaker 7: European officials, European diplomats, and they're petrified of this because
Speaker 7: they know that as soon as there's even a small
Speaker 7: sign that the US is backing off. Let's say Trump
Speaker 7: agrees to some symbolic sanctions using Putin himself is sanctioned,
Speaker 7: and actually, just a couple of days ago, Treasury had
Speaker 7: to issue a license to allow Putin to travel to Alaska.
Speaker 7: Let's say Trump says, Okay, We're going to give you
Speaker 7: a little bit of sanctions using in exchange for some
Speaker 7: perfunctory Russian concessions. The Europeans are going to be panicked,
Speaker 7: and they're going to wonder what can we do to
Speaker 7: prevent sort of the lid from falling off of this
Speaker 7: pressure campaign that we have painstakingly built together over the
Speaker 7: last three years.
Speaker 2: That has been some criticism of the Europeans in their
Speaker 2: approach by this administration.
Speaker 4: Have the Europeans done enough? What have they been doing recently?
Speaker 7: Yeah, So I'm glad you asked this because I heard
Speaker 7: Secretary Besen on the show a couple of days ago
Speaker 7: saying that the Europeans need to step up. Well, just
Speaker 7: a few weeks ago, Europeans did the most dramatic sanctions
Speaker 7: package that I have seen since the beginning of the war.
Speaker 7: They uilaterally lowered the price cap on Russian oil from
Speaker 7: sixty dollars a barrow to forty seven dollars and sixty cents.
Speaker 7: Kind of a strange number. It's fifteen percent below the
Speaker 7: market price. They did that by themselves. This was supposed
Speaker 7: to be a G seven decision, but they went ahead
Speaker 7: and did it themselves. They also imposed secondary sanctions. These
Speaker 7: are not sanctions on Russia, but actually on Russia's trading partners.
Speaker 1: They did two Chinese banks.
Speaker 7: Were sanctioned by the EU, and I think most importantly,
Speaker 7: they actually sanctioned the second biggest oil refinery in India,
Speaker 7: Niara Energy. So they are already directly targeting Chinese and
Speaker 7: Russian businesses that are in bed with Russia. And that's
Speaker 7: not something that the US has been willing to do
Speaker 7: so far.
Speaker 4: What's left what would you like to see happen?
Speaker 1: So?
Speaker 7: I would like to see the US join these sanctions
Speaker 7: with the EU, because ultimately, because of the dollar is
Speaker 7: still the global reserve currency. When the US is on board,
Speaker 7: the sanctions are much more powerful than if it's just
Speaker 7: the EU. But there's more that needs to be done,
Speaker 7: I think sanctioning other Indian refineries, sanctioning Chinese refineries and
Speaker 7: more banks, and ultimately providing a clear roadmap for how
Speaker 7: these purchasers of Russian oil, like China and India can
Speaker 7: gradually bring down their purchases over time.
Speaker 6: You've done an amazing job in your latest book and
Speaker 6: just generally through your research in understanding how much the
Speaker 6: global relationships are changing depending on what happens in this meeting.
Speaker 6: How much does I indicate who is against who, whether
Speaker 6: this is a multipolar world while.
Speaker 3: This is or whether this is everyone go it alone.
Speaker 7: Look, I think that there's also maybe a third option
Speaker 7: here where Trump may be reorienting US relationships toward our
Speaker 7: historical adversaries. We saw just last week Trump agree to
Speaker 7: allow Nvidia and AMD to sell semiconductors to China as
Speaker 7: long as they pay fifteen percent to the US government.
Speaker 7: That's a giant concession to China, and it's a huge
Speaker 7: sort of example of how we are warming our relationship
Speaker 7: with China on this key area of technology competition. If
Speaker 7: we also start seeing some easing of sanctions on Russia,
Speaker 7: which I want to be clear it's not my base
Speaker 7: case scenario, but it's still possible that it happens today.
Speaker 7: Then you could start saying that Trump actually is kind
Speaker 7: of pivoting toward Russia and China and the Europeans are
Speaker 7: out left in the court.
Speaker 4: Eddie, I appreciate your take and your opinion.
Speaker 2: Thank you, sir, Eddie Fishman, there of Columbia University and
Speaker 2: author of choke Points narrowing his choice is to replace
Speaker 2: fed schare J. Powe to three or four names, saying
Speaker 2: he'll announce his nominee a little earlier than initially expected.
Speaker 2: Joining us now is the former economic advisor to President
Speaker 2: George W.
Speaker 4: Bush, Mark Summlin.
Speaker 8: Mark.
Speaker 2: Of course, your name has been in the mix as
Speaker 2: well over the past week or so. Welcome to the program.
Speaker 2: Let's just start with the base case, the case for
Speaker 2: ray reductions. Mark, what do you think the strongest case
Speaker 2: is right now?
Speaker 1: Great?
Speaker 9: I think the strongest First off, thank you very much
Speaker 9: for having me. I think the strongest case is we
Speaker 9: just have to mark to market to the new data
Speaker 9: that we have. The data was revised very strongly to
Speaker 9: the downside on the jobs, and that's the most important
Speaker 9: data that we have. And so it's you know, jobs
Speaker 9: for May and June only came in at thirty three
Speaker 9: thousand combined for those two months, and so had we
Speaker 9: gotten those in real time, it's likely that the SAID
Speaker 9: would have cut probably in June and July. And we
Speaker 9: know that the economy barely grew over one percent in
Speaker 9: the first half of the year, and so a four
Speaker 9: point three three percent SAID funds rate is just too
Speaker 9: high for the economy, the economy that we have right now.
Speaker 2: Mak, can we stay on that payroll data, because there's
Speaker 2: been this great debate on Wall Stream, and I have
Speaker 2: to say it's very divided at the moment. Do you
Speaker 2: think that's stepped down in payroll's growth, and clearly you do.
Speaker 4: You think it.
Speaker 2: Speaks to a cyclical turn and not a structural shift.
Speaker 2: But can you tell us why you believe that's the case?
Speaker 2: What do you distance between one versus the other?
Speaker 1: Absolutely? I do. I do think it's sickle.
Speaker 9: I mean, I think if you step back, like very
Speaker 9: big picture of macro, we have fiscal tightening this year
Speaker 9: from the tariffs. Next year we're going to have some
Speaker 9: fiscal loosening from the tax bill, and behind all of that,
Speaker 9: we have the AI productivity gains starting to take hold
Speaker 9: for the first time, and so the pretty mixed the
Speaker 9: confusing macro picture, but you got to kind of write
Speaker 9: it out in real time. And so we just know,
Speaker 9: like before the data revision there was a disconnect between
Speaker 9: jobs and GDP, and then after the revision there was
Speaker 9: no disconnect. Jobs got revised down to reflect what was
Speaker 9: going on elsewhere in the economy. And it's really important
Speaker 9: to mark to market to where we are and not
Speaker 9: just to say, oh, well, whatever we had.
Speaker 1: Before is still fine for the FED funds.
Speaker 6: Right, So let's do some scenario analysis. Let's say you
Speaker 6: become the next FED share congratulations, And let's say in
Speaker 6: September you cut by fifty basis points on the heels
Speaker 6: of some of this jobs data, and then you see
Speaker 6: tenure yields shoot higher kin to what we saw last
Speaker 6: year when the FED cut significantly.
Speaker 3: What do you do?
Speaker 9: Yeah, then I mean, then you stop. And so one
Speaker 9: of the reasons that I support the fifty basis point
Speaker 9: cut right now is that you have the inversion in
Speaker 9: the front end of the curve that's something like sixty
Speaker 9: basis points last time I looked, And so you know
Speaker 9: that you can cut by that amount without really upsetting things.
Speaker 9: But the weakest part of the market or the economy
Speaker 9: right now is housing, and so you can't have the
Speaker 9: long end go up, and that's your constream right now,
Speaker 9: and so the long end starts to go up on you,
Speaker 9: you have to stop cutting.
Speaker 1: You know, it's that simple.
Speaker 6: You can make the argument that if the market, if
Speaker 6: sort of this collective decision making body truly believe that
Speaker 6: the economy was significantly weakening, the tenure would be significantly lower.
Speaker 6: Doesn't that sort of indicate that there is enough strength
Speaker 6: to continue at this sort of pace with these rates?
Speaker 6: I mean, isn't that some sort of signal in and
Speaker 6: of itself?
Speaker 9: I mean, I think we go back to January, a
Speaker 9: lot of people, a lot of the best bond traders
Speaker 9: on the planet, thought the tenure was going to be
Speaker 9: at five or over, and so the fact that we're
Speaker 9: at four twenty nine and set of five is a
Speaker 9: reflection of the weaker economy in my mind.
Speaker 1: So, you know, these things are always judgment calls.
Speaker 9: But I think right now you have the scope to
Speaker 9: cut by fifty basis points, and then after there that
Speaker 9: you'd have to look at the data and you'd have
Speaker 9: to look at the markets, and you have to look
Speaker 9: at what's going on in the real economy and put
Speaker 9: it all together.
Speaker 2: Mark, I'd love to know if you can share with
Speaker 2: us what your approach would be if you had the
Speaker 2: honor of taking over the top job at the Federal Reserve.
Speaker 2: We heard from the Treasury Secretary was sitting around the
Speaker 2: table with It's just a few days ago on this program,
Speaker 2: and he talked about the need for foundational change of
Speaker 2: the institution.
Speaker 4: Yeah, what do you think needs to change?
Speaker 9: Yeah, I mean, first of all, I think that the
Speaker 9: staff is all set up wrong. We you know, to
Speaker 9: do the job correctly, you have to understand three things.
Speaker 9: There's the data, and there's the economic modeling side, and
Speaker 9: all of the staff basically that's what they do. And
Speaker 9: then you have financial markets. You need to understand what's
Speaker 9: going on in high yield spreads, what's going on in
Speaker 9: oil markets, what's going on in bond markets. And then
Speaker 9: you have what's happening in companies, and especially right now
Speaker 9: at a time of so much change, you really need
Speaker 9: to understand what's going on with AI and productivity gains
Speaker 9: in companies. And so I would like to have the
Speaker 9: staff completely change where you know, a third of it
Speaker 9: is doing economic modeling type of stuff and then a
Speaker 9: third of it is real sectral experts. I mean, the
Speaker 9: FED chairman should have someone who is an expert in autos,
Speaker 9: an expert in retail sales, an expert in every single
Speaker 9: thing in the house, so that you really have the
Speaker 9: pace and the field of the economy going on, as
Speaker 9: well as more market people there that understand, okay, high yields,
Speaker 9: spreads are blowing out, and this is why we need
Speaker 9: to worry, why we don't need to worry. And so
Speaker 9: for me, it's less of a you know.
Speaker 1: I don't have a problem with the size of the
Speaker 1: staff because I think, you know, the FED is so
Speaker 1: mission critical to the whole world.
Speaker 9: I just think they are doing there's just so much
Speaker 9: redundancy and right now it basically functions as like a
Speaker 9: university research department, and I don't know why that's the case.
Speaker 3: Mark.
Speaker 6: This actually raises a point that John's been talking about significantly,
Speaker 6: which is how much does that mean a more active
Speaker 6: FED when it comes to balance sheet management? And it's
Speaker 6: not just quantitative easing, but also just the denominations of
Speaker 6: where you buy I mean, if you treat this more
Speaker 6: like a market's operations and a university, how much more
Speaker 6: active does that balance sheet become?
Speaker 9: Yeah, you know, that's a good question. And I look,
Speaker 9: I think that the balance sheet is an important tool
Speaker 9: when you need it, you know, so definitely in crisis.
Speaker 9: You you know, it's something that's in the toolbox, and
Speaker 9: it works. I don't think it works that well or
Speaker 9: needs to be continued after after the crisis is over.
Speaker 1: And so you know, if we were.
Speaker 9: Coming out of the pandemic or something, I would have
Speaker 9: definitely ended the QI sooner rather than later. But they're
Speaker 9: you know, they're important questions right now when we have
Speaker 9: very high mortgage spreads about why are we still selling
Speaker 9: off nbs when we have you know, one hundred and
Speaker 9: fifty basis points spreads that are you know, that are.
Speaker 1: Hitting the housing market right now.
Speaker 9: So I think you have to, I mean, you just
Speaker 9: have to look at it very objectively about what is
Speaker 9: it what's the impact of the balance sheet in the
Speaker 9: real time. And you know, there's some people who would
Speaker 9: love to go back to the old days when there
Speaker 9: was no balance sheet, and I think that's a fine argument.
Speaker 9: If we could rewind time back to nineteen ninety five.
Speaker 9: It's just very hard to go from where we are
Speaker 9: now to that type of that type of operation.
Speaker 2: Mark, this was a very thoughtful conversation and hopefully we
Speaker 2: can continue it over the next few months.
Speaker 4: Thank you, sir Mark.
Speaker 2: Someone in there the former economic advice at A President,
Speaker 2: George W.
Speaker 1: Bush.
Speaker 2: Veronica Clark of City writing, we expect limited signs of
Speaker 2: persistent inflation and a weakening labor market. Will have fed
Speaker 2: officials cutting by twenty five basis points in September at
Speaker 2: each meeting after to get to three percent.
Speaker 4: Veronica joins us. Now for more.
Speaker 2: Veronica and Mornick, good morning. It's good to see you.
Speaker 2: That kind of echoes what we heard from Secretary Bess.
Speaker 2: And let's get down one fifty. What is it about
Speaker 2: the inflation data that you think won't derail this effort?
Speaker 8: Yeah, I mean the July inflation data was interesting. We
Speaker 8: finally got some firmer data, not downside surprises, and when
Speaker 8: you dug into the details, yeah, it wasn't actually in
Speaker 8: goods prices, which obviously people were looking for the signs
Speaker 8: of that teariff pass through. It was in services, which
Speaker 8: sounds concerning, but then you dig at a level deeper,
Speaker 8: and in both CPI and PPI it's just one off
Speaker 8: services that are particularly strong dental services and CPI PPI
Speaker 8: yesterday was portfolio management fees.
Speaker 3: We know that moves with asset.
Speaker 8: So I don't think there is any sign yet of
Speaker 8: the broad based kind of concerning inflation for them the.
Speaker 4: Kid with yet yet. Why wuldn't that change in the
Speaker 4: months to come?
Speaker 8: Yeah, I think the biggest test of the tariff pass
Speaker 8: through dynamics is really going to be August and September data.
Speaker 8: You know, based on what we know about when teriff
Speaker 8: raid started to rise, based on you know, there was
Speaker 8: in the import price data some producers maybe lowered their
Speaker 8: prices temporarily. We see that in goods like apparel. That's
Speaker 8: kind of ended though, as people draw down inventories. Maybe
Speaker 8: it's August September is that timeframe when okay, maybe you
Speaker 8: do have to start raising prices. You've held off as
Speaker 8: long as you can. We know that's when some prices
Speaker 8: for things like clothing start to rise for a new season.
Speaker 8: If we still don't see it in those months, if
Speaker 8: it is more limited, I wonder if that tells us
Speaker 8: that the consumer really just can't handle these big price
Speaker 8: increases right now, That is not the persistent inflation.
Speaker 6: I have Steve Rashudo I from Mizuho in my mind,
Speaker 6: stop taking this out and this out to create the
Speaker 6: number of that you actually want, because ultimately, if it
Speaker 6: comes in hot, if it barks like a dog, it
Speaker 6: acts like a dog at wags, it's tail like a
Speaker 6: dog as a dog. So how much can you really
Speaker 6: say portfolio management costs ignore that as the prices don't
Speaker 6: matter when the wealth effect is real, when you've got
Speaker 6: retail sales that are expected to come in hot. I mean,
Speaker 6: how long can you keep being cute about the components?
Speaker 3: No, and we don't want to pick and choose.
Speaker 8: And of course portfolio management fees were weaker earlier in
Speaker 8: the year when we had equities falling, But I mean,
Speaker 8: I think it is it does speak to we're not
Speaker 8: seeing the big, broad based kind of price pressures yet,
Speaker 8: and I think this is just a very different fundamental
Speaker 8: demand backdrop than the kind of inflation we saw a
Speaker 8: couple of years ago. So yeah, it's not the ideal number,
Speaker 8: of course, but there's nothing really blaring red that would
Speaker 8: stay persistent in this data.
Speaker 3: Do you expect any.
Speaker 6: Kind of messaging at Jackson Hole that could really indicate
Speaker 6: how the FED is going to deal with both the
Speaker 6: political pressure but also this data that is open to interpretation.
Speaker 8: Yeah, I think we've heard still enough division among Fed officials.
Speaker 8: There are still even this week, some officials who are
Speaker 8: describing the labor market as solid, you know, worried about
Speaker 8: some of these more persistent inflation risks. So I think
Speaker 8: Powell does kind of have to walk a line here.
Speaker 8: You can't be so dubvish that we've heard from officials
Speaker 8: like Waller and whatnot.
Speaker 3: But I think it's they have enough information.
Speaker 8: If they had had those revisions, you know, to the July,
Speaker 8: with the July employment report ahead of the July meeting,
Speaker 8: I think they probably would have been cutting at that meeting.
Speaker 8: So he'll probably feel a little bit more comfortable guiding
Speaker 8: towards Yeah, we are still expecting cuts and that could
Speaker 8: be on the table for the fall.
Speaker 4: Is there sufficient two way risk?
Speaker 2: And the upcoming information CPI early next month payrolls the
Speaker 2: first week is September.
Speaker 3: Yeah, Yeah, we'll learn a lot more.
Speaker 8: Is that August inflation print that we're going to get
Speaker 8: before the September meeting. I wonder if we could see
Speaker 8: more inflation impact there. It is I think the August
Speaker 8: employment report that matters the most, though.
Speaker 2: The team seem to be putting a lot of emphasis
Speaker 2: on employment, and that's signed that your mandates.
Speaker 4: So let's sit on this topic a little bit more.
Speaker 2: We had Bank for America sat in you'll see yesterday
Speaker 2: and then making the case that ultimately what you're seeing
Speaker 2: right now, it's not a cyclical turn. It's a structural shift,
Speaker 2: and you can have a step down in payrolls without
Speaker 2: an increase in slack. You and a team, it's taking
Speaker 2: completely the other side of the debate, So please explain
Speaker 2: to sow much.
Speaker 8: Yeah, yeah, I think the main debate among everyone watching
Speaker 8: the labor market data right now is is this, you know,
Speaker 8: some weakening demand underlying this or is this just an
Speaker 8: immigration story. We've had a slowing in population growth and
Speaker 8: that break even pace of payroll job growth is lower.
Speaker 8: I'm sure, but I think in the details of the
Speaker 8: data there are a lot of worrying things that this
Speaker 8: is more than just immigration. This is a weak demand story,
Speaker 8: and I would look to you know, a lot of
Speaker 8: the decline and.
Speaker 3: Participation has been discouraged.
Speaker 8: Workers you give up looking for work because you're not
Speaker 8: finding a job, that's probably not immigration. A big increase
Speaker 8: in unemployment has come from college educated workers. Those are
Speaker 8: probably people not being crowded out by recent immigrants. And
Speaker 8: then in July the big increase in unemployment, which you
Speaker 8: know it stayed at that four point two percent, but
Speaker 8: it was new labor market entrants. That's probably not new immigrants. Now,
Speaker 8: that's probably students looking for work and not finding jobs.
Speaker 8: So there are enough signs that regardless of immigration, there
Speaker 8: is weakening happening.
Speaker 6: You know, I'm just trying to wrap my head around
Speaker 6: the idea of pegging some sort of FED move to
Speaker 6: data that has been undermined in terms of the integrity
Speaker 6: of it by the US government, where the head of
Speaker 6: the BLS has just been fired, and there have been
Speaker 6: such massive revisions that you have a growing number of
Speaker 6: economists saying that if those numbers had come out in
Speaker 6: June and July, this FED would have already been cutting rates.
Speaker 3: How do you sort of square that circle?
Speaker 8: Yeah, I mean, there is of course a lot of
Speaker 8: attention and rightfully so, on the official data, but the
Speaker 8: revisions I think made a lot of sense to a
Speaker 8: lot of people, me included. We had seen a lot
Speaker 8: of evidence of weakening labor market before those revisions, and
Speaker 8: it was payrolls. It was the outlier. So it does
Speaker 8: make you know, some sense. I think I do trust
Speaker 8: the official data, of course, just as much as I
Speaker 8: did a couple months ago, which admittedly is maybe a
Speaker 8: bit less than six years ago. I think the pandemic
Speaker 8: is still just skewing a lot of this, you know,
Speaker 8: the data of the seasonal adjustment, some of the collections.
Speaker 8: It was just a weird data event that happened, and
Speaker 8: it's going to be weird for a WHI but I
Speaker 8: do trust the official data that we're getting. But you
Speaker 8: do have to take all the data and form your
Speaker 8: view on all the data that we have available to
Speaker 8: So let's get to the data.
Speaker 3: That we're going to get ninety minutes time.
Speaker 6: How where do you place retail sales?
Speaker 3: Yeah, it is an important one.
Speaker 8: We've seen this dynamic this year in good spending where
Speaker 8: maybe there was some front loading that was boosting sales temporarily.
Speaker 8: Services spending in the quarterly data and the monthly data
Speaker 8: have been much softer. Retail sales, I think a couple
Speaker 8: important things to note. You know, if it is a
Speaker 8: soft demand story that is limiting the ability of companies
Speaker 8: to raise prices, maybe we see that in softer spending.
Speaker 8: But retail sales are nominal also, so it's important to
Speaker 8: keep in mind as we're getting into the fall, we
Speaker 8: could have some bigger price increases and that could make
Speaker 8: nominal retail sales when they come out look stronger. But
Speaker 8: what we really care about, of course, is real spending.
Speaker 8: I think this number today will be fine, a healthy
Speaker 8: enough number.
Speaker 2: It's good to see you as always, thanks for dropping back.
Speaker 2: Thank you very much for a a clock there of city.
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