WEBVTT - Bloomberg Surveillance TV: September 23, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.360 Terminal and the Bloomberg Business app. Donald Trump and Carbala 0:00:37.400 --> 0:00:41.080 Harris planning dueling economic addresses. Trump speaking at Georgia tomorrow 0:00:41.320 --> 0:00:43.879 offering his plan to lower taxes for business owners, and 0:00:43.920 --> 0:00:46.680 Harris sanks you'll deliver a speech this week outlining her 0:00:46.720 --> 0:00:49.199 economic vision we get Lucky. This morning, we're joined by 0:00:49.280 --> 0:00:52.159 Jason Furman, the professor at the Harvard Kennedy School and 0:00:52.240 --> 0:00:54.960 former chair of the Council of Economic Advisors under President 0:00:55.000 --> 0:00:57.600 Barack Obama. Jason, welcome back to the program sir. It's 0:00:57.600 --> 0:00:59.639 been far too long before we get to the election race. 0:00:59.720 --> 0:01:01.720 Let's just talk about the states of the economy. So 0:01:01.720 --> 0:01:03.320 a lot of people are still talking about whether we 0:01:03.360 --> 0:01:05.720 can achieve a SELT lending. Do you think it has 0:01:05.800 --> 0:01:07.160 been achieved already? 0:01:08.600 --> 0:01:12.320 I think we're close. But the next core PCE reading 0:01:12.360 --> 0:01:14.800 on a twelve month basis is going to be probably 0:01:14.840 --> 0:01:18.919 two point seven percent, So inflation isn't all the way there, 0:01:19.400 --> 0:01:22.880 but labor markets are loose enough. I think inflation is 0:01:22.920 --> 0:01:27.440 coming down, but there's still narrow perils on either side 0:01:27.920 --> 0:01:31.760 of reinflation and reception, but a broad path to a 0:01:31.840 --> 0:01:33.240 self lending in between those. 0:01:33.520 --> 0:01:35.320 Paul takes one of the big risks, at least according 0:01:35.360 --> 0:01:38.000 to Ardie Ardenny, who is just on with us. You 0:01:38.040 --> 0:01:40.360 wrote this terrific, I bet in the Wall Street Journal, 0:01:40.520 --> 0:01:43.800 terrific writing. I want to start with just the lead sentence. 0:01:44.040 --> 0:01:47.320 The first modern presidential race between two candidates with undergraduate 0:01:47.360 --> 0:01:50.280 degrees and economics hasn't thrilled economists. 0:01:50.440 --> 0:01:51.320 Why not, Jason? 0:01:52.920 --> 0:01:55.640 You know, campaigns are never the place where you're going 0:01:55.680 --> 0:01:59.640 to completely thrill economists. But I think an awful lot 0:01:59.680 --> 0:02:03.320 is the odors want to hear incredibly simple solutions to things. 0:02:04.120 --> 0:02:09.360 Price gouging, stop Japanese investment in US steel mills, a 0:02:09.360 --> 0:02:12.960 whole new areas that are in tact like tips, and 0:02:13.160 --> 0:02:15.960 you know, none of these are ones that any economist 0:02:16.040 --> 0:02:20.040 would recommend, but you know, there's just quite a lot 0:02:20.080 --> 0:02:21.120 of pandering out there. 0:02:21.360 --> 0:02:24.160 Well, but at this point some people would say, we 0:02:24.280 --> 0:02:26.520 always get this to some degree, right, I mean, we 0:02:26.560 --> 0:02:29.400 get pandering, we get promises that don't get fulfilled. You've 0:02:29.440 --> 0:02:32.359 been in the political sphere before. How different is this time? 0:02:33.560 --> 0:02:33.760 You know? 0:02:33.800 --> 0:02:36.280 It feels a bit different. There's things I like in 0:02:36.320 --> 0:02:39.320 these campaigns too, especially an awful lot I like in 0:02:39.360 --> 0:02:40.840 the Harris campaign. So I don't want to say it's 0:02:40.840 --> 0:02:44.360 all negative. It feels like more because there's more things 0:02:44.480 --> 0:02:48.760 around limiting trade and controlling prices. A certain type of 0:02:48.760 --> 0:02:53.560 government intervention as opposed to the standard you promising lots 0:02:53.600 --> 0:02:56.720 of tax cuts or spending increases is more than normal thing. 0:02:57.320 --> 0:03:00.560 This feels to me, the more interventionists, more getting in 0:03:00.560 --> 0:03:03.320 the way of markets right after they've actually been really 0:03:03.400 --> 0:03:04.280 quite successful. 0:03:04.600 --> 0:03:06.480 And Jason, aren't they both doing this? I mean, Kamala 0:03:06.480 --> 0:03:09.000 Harris was talking about price gouging on the federal level, 0:03:09.240 --> 0:03:11.000 and then you have Donald Trump over the weekend talking 0:03:11.000 --> 0:03:15.480 about capping credit card interest rates. Aren't these both proposals 0:03:15.720 --> 0:03:18.800 price controls in the US economy. 0:03:18.880 --> 0:03:20.880 Yeah, I mean Donald Trump doesn't seem to be the 0:03:20.880 --> 0:03:25.359 type of person that respects free markets, competition, and all 0:03:25.440 --> 0:03:29.000 the things that go into it. He believes very much 0:03:29.600 --> 0:03:32.320 in a strong government. When he was president the first time, 0:03:32.360 --> 0:03:35.920 he tried to direct investment this way and that. So yeah, 0:03:35.960 --> 0:03:39.400 I don't think he's a particularly free market gun. 0:03:40.160 --> 0:03:42.640 Can you give us a sense of how you view 0:03:42.680 --> 0:03:45.520 if Donald Trump's not a free market guy, who is 0:03:45.640 --> 0:03:46.440 Kamala Harris? 0:03:48.120 --> 0:03:50.160 You know, I'm looking forward to that speech of this week. 0:03:50.160 --> 0:03:54.080 I think we'll hear more about how she defines herself economically. 0:03:54.480 --> 0:03:58.000 To a first approximation, you could expect a continuation of 0:03:58.040 --> 0:04:01.200 the types of policies we saw in the bidenministration, but 0:04:01.240 --> 0:04:04.560 remember a very very different context. I thought the initial 0:04:04.640 --> 0:04:08.480 stimulus was too large, but that's not going to repeat itself. 0:04:08.480 --> 0:04:11.320 We're not going to have, hopefully knock on wood, another 0:04:11.400 --> 0:04:15.880 massive global pandemic that will create the conditions for something 0:04:15.960 --> 0:04:19.039 like that. So, you know, there have been some some 0:04:19.520 --> 0:04:23.239 whispers about being more pro business. She spent more time 0:04:23.279 --> 0:04:27.440 with CEOs than President Biden. Did you know, pro business 0:04:27.440 --> 0:04:30.320 has his pros and cons, But on balance, I think 0:04:30.400 --> 0:04:32.600 wouldn't be a bad direction to move just a little 0:04:32.600 --> 0:04:33.839 bit in the way of right. 0:04:33.640 --> 0:04:37.400 Now, how different would we see a Kamala Harris as 0:04:37.400 --> 0:04:41.080 a president if we get a sweep versus gridlock in Washington. 0:04:42.360 --> 0:04:45.440 You know, I'm not sure about the whole theory that 0:04:45.520 --> 0:04:49.960 gridlock is the most fiscally responsible outcome here. You know, 0:04:50.040 --> 0:04:52.760 with gridlock you're going to be able to extend an 0:04:52.800 --> 0:04:55.200 awful lot of the tax cuts. It's going to make 0:04:55.240 --> 0:04:58.600 it hard to enact deficit reduction. In the past, you've 0:04:58.640 --> 0:05:02.119 seen the parties make deals where one party gets extra 0:05:02.200 --> 0:05:05.359 defense spending in exchange for the other getting non defense spending. 0:05:05.440 --> 0:05:09.320 So the whole gridlock is good for the deficit thesis, 0:05:09.600 --> 0:05:12.520 I'm really not sure. I believe if you had a 0:05:12.560 --> 0:05:15.800 certain number of Democrats there the taxes you could raise 0:05:15.839 --> 0:05:18.960 that you couldn't raise in divided government, and that might 0:05:19.040 --> 0:05:22.760 result in a lower deficit than you'd otherwise have. 0:05:23.120 --> 0:05:25.640 Jason, I want to finish where we begin. You begin 0:05:25.680 --> 0:05:29.440 by saying that economists don't like the kind of tariffs 0:05:29.440 --> 0:05:32.200 that either side are proposing, the kind of limits to 0:05:32.279 --> 0:05:35.640 trade that we're seeing proposed, and yet we've seen increasing 0:05:35.720 --> 0:05:39.159 threats to the supply chain we've seen increasing questions about 0:05:39.640 --> 0:05:44.719 national security issues raised by certain fissures, the breakdowns that 0:05:44.760 --> 0:05:47.719 we've seen. If we do get some of these gates, 0:05:47.760 --> 0:05:50.960 some of these tariffs which both sides are proposing, does 0:05:51.000 --> 0:05:53.960 that increase the risk of inflation or reignition of inflation 0:05:54.080 --> 0:05:56.160 a really material way next year. 0:05:57.120 --> 0:05:57.360 Yeah. 0:05:57.400 --> 0:06:00.800 Look on tariffs is a massive difference between these candidates. 0:06:00.960 --> 0:06:04.080 Donald Trump is calling for ten to twenty percent tariffs 0:06:04.120 --> 0:06:07.279 on everything coming into the United States. That's stuff that 0:06:07.320 --> 0:06:10.080 we're just not going to be making here, like ballpoint pens, 0:06:10.400 --> 0:06:14.400 that stuff coming from countries that are close allies like Australia. 0:06:14.839 --> 0:06:18.039 There's just no coherent theory around that, and it's just 0:06:18.120 --> 0:06:22.240 at a scale that dwarfs anything that you've seen done 0:06:22.279 --> 0:06:25.440 in the Biden administration or I think plasantly we'd be 0:06:25.480 --> 0:06:29.360 done in the Harris administration. So absolutely, you follow through 0:06:29.400 --> 0:06:31.560 on the Trump tariffs, you were going to get a 0:06:31.600 --> 0:06:34.839 burst of inflation and a real quandary for the FED 0:06:35.080 --> 0:06:39.080 because it'll both lower economic growth and raise inflation at 0:06:39.080 --> 0:06:39.760 the same time. 0:06:40.080 --> 0:06:41.760 Jason, we've got to leave it there. We'll continue that 0:06:41.839 --> 0:06:44.320 conversation on the FED and the prospect maybe of rethinking 0:06:44.839 --> 0:06:47.120 Ray cuts with ray hikes in twenty twenty five. If 0:06:47.160 --> 0:06:49.560 that is the direction of travel, Jason Furman there at 0:06:49.600 --> 0:07:01.920 the Harvard Kennedy School, Let's turn back to the market. Secondly, 0:07:01.960 --> 0:07:03.839 futures right now up a quarter of one percent on 0:07:03.839 --> 0:07:05.599 then as that one hundred, looking ahead to a busy 0:07:05.640 --> 0:07:08.600 week of data and FED speak purchase ReRAM of Barclay 0:07:08.680 --> 0:07:11.680 saying the following, even the fifty basis point kind appears 0:07:11.680 --> 0:07:13.680 to have been a close call. The outcome bears the 0:07:13.760 --> 0:07:18.120 distinct footprints, imprints of a compromise with hawks, trading the 0:07:18.160 --> 0:07:21.120 fifty basis point cut in favor of hawkish messaging and 0:07:21.240 --> 0:07:23.880 a relatively high bar for the unemployment rate to warrant 0:07:23.920 --> 0:07:27.520 another aggressive cut. Pooja joins us now for more, Pooja, 0:07:27.600 --> 0:07:29.360 I just want to get to your growth outlook, and 0:07:29.400 --> 0:07:31.240 I just want to sit on your GDP outlook. Did 0:07:31.280 --> 0:07:33.560 you raise your GDP out look after getting that surprise 0:07:33.600 --> 0:07:34.760 move from the Fed last week? 0:07:36.040 --> 0:07:36.640 We did. 0:07:36.760 --> 0:07:40.000 We did good morning first of all, you know, and 0:07:41.200 --> 0:07:43.480 we did raise it by about ero point five percent 0:07:43.520 --> 0:07:45.880 ditch points for the end of Q four. So we're 0:07:45.880 --> 0:07:49.280 still penciling in two percent growth for the fourth quarter 0:07:49.320 --> 0:07:51.720 of this year, and then we've got a similar piece 0:07:51.760 --> 0:07:54.960 of growth in fact through the end of next year. 0:07:55.680 --> 0:07:58.160 Some of that was, of course, the easing and financial 0:07:58.200 --> 0:08:01.600 conditions that we've seen over the bar. You know, a 0:08:01.600 --> 0:08:06.679 couple of weeks we track the fed FCIG measure, which 0:08:06.720 --> 0:08:10.800 translates you know, financial conditions into the impulse for growth 0:08:10.880 --> 0:08:14.720 and it does suggest that growth could look better. So, yes, 0:08:14.800 --> 0:08:18.720 to your question, we have raised our GDP forecast modestly 0:08:19.960 --> 0:08:21.040 in the near horizon. 0:08:21.120 --> 0:08:22.920 Yeah, how does that line up with your view on 0:08:23.080 --> 0:08:25.400 the Fed's next move and the moves through twenty twenty five. 0:08:26.840 --> 0:08:28.000 Yeah, that's a good question. 0:08:28.120 --> 0:08:30.920 So look, our own baseline is for two twenty five 0:08:30.960 --> 0:08:33.720 basis points cuts this year, so that's you know, broadly 0:08:33.720 --> 0:08:36.640 in line with the medium projection for twenty twenty four. 0:08:37.160 --> 0:08:41.160 For twenty twenty five, we've got three twenty five basis 0:08:41.160 --> 0:08:44.480 points cuts, so that's a total of seventy five as 0:08:44.480 --> 0:08:47.400 opposed to one hundred basis points cut that the FOMC 0:08:47.600 --> 0:08:51.240 medium has And that's really predicated on the view that 0:08:51.480 --> 0:08:54.200 you know, the economy is going to look pretty decent. 0:08:55.080 --> 0:08:57.920 We don't have the unemployment rates staying you know, at 0:08:57.920 --> 0:09:00.199 four point four percent, which is what the FOI s 0:09:00.400 --> 0:09:02.840 has We in fact do see it taking lower. So 0:09:02.880 --> 0:09:05.240 we do think that, you know, they could afford to 0:09:05.280 --> 0:09:09.160 slow the pace of rate cuts going into twenty twenty five. 0:09:09.640 --> 0:09:11.960 Put you wrote something in your recent report that I 0:09:11.960 --> 0:09:15.079 thought was fascinating. Whatever was gained by the feds fifty 0:09:15.080 --> 0:09:18.200 basis point rate cut may have come at a significant cost. 0:09:18.240 --> 0:09:20.400 And you go on to say that it seems quite 0:09:20.480 --> 0:09:22.880 likely similar Wall Street Channel articles again to what we 0:09:22.880 --> 0:09:26.480 saw ahead of this latest fifty basis point rightcut during 0:09:26.480 --> 0:09:29.600 that blackout period coming up. Any blackout period will be 0:09:29.640 --> 0:09:33.520 interpreted as legitimate signals leading to unnecessary noise. This cost 0:09:33.679 --> 0:09:36.800 may well exceed whatever benefit the FED achieved by front 0:09:36.800 --> 0:09:39.719 loading one cut in our view, Can you just elaborate 0:09:40.080 --> 0:09:44.480 on how much this adds to potential uncertainty for you? 0:09:45.720 --> 0:09:47.040 Yeah, I think that's a great point. 0:09:47.160 --> 0:09:49.280 So, you know, just to take a step back and 0:09:49.320 --> 0:09:53.000 to recap what happened. You know, before the FED went 0:09:53.040 --> 0:09:55.840 into the blackout period, we had a bunch of data 0:09:55.960 --> 0:09:56.440 in hand. 0:09:57.320 --> 0:09:59.080 I think the last print we had. 0:09:59.120 --> 0:10:02.840 Was you know, the the non vampairo we heard from 0:10:02.960 --> 0:10:08.760 FMC officials, namely you know Waller FMC member Williams. And 0:10:09.360 --> 0:10:12.400 you know, the markets were essentially quite content to price 0:10:12.440 --> 0:10:15.720 in a twenty five basis points ratecut. That was our 0:10:15.720 --> 0:10:18.720 baseline as well. Everything looked good and then you know, 0:10:19.120 --> 0:10:21.520 as you mentioned, we've got a bunch of these articles 0:10:21.600 --> 0:10:25.360 and suddenly it raised the question and you know, put 0:10:25.400 --> 0:10:28.240 the possibility that the FED could perhaps you know, go 0:10:28.640 --> 0:10:32.320 a little more aggressive and go fifty basis points, and 0:10:32.360 --> 0:10:36.280 then you know, the pricing moved, and surprisingly, the FED 0:10:36.360 --> 0:10:41.040 actually ratified that movement market pricing. And we found that 0:10:41.240 --> 0:10:45.440 quite you know, quite surprising, to be honest, because it 0:10:45.520 --> 0:10:48.120 did not come on the back of data and in 0:10:48.160 --> 0:10:50.559 fact came on the back of a bunch of articles. 0:10:50.600 --> 0:10:53.800 And what this means is, if you know, something like 0:10:53.840 --> 0:10:57.439 if there's a precedent for this, now, it's quite possible 0:10:57.480 --> 0:10:58.839 that there's going to be a lot of noise and 0:10:58.920 --> 0:11:02.800 volatility around around the blackout period if we get more 0:11:03.480 --> 0:11:05.720 news information this way. 0:11:05.960 --> 0:11:07.559 And in terms of the fact. 0:11:07.400 --> 0:11:10.000 That the FED did not gain much is you know, 0:11:10.040 --> 0:11:13.200 the markets are still pricing in about the same amount 0:11:13.200 --> 0:11:15.600 of rate cuts as they work before the. 0:11:15.480 --> 0:11:18.080 News articles came out. So it's not very clear. 0:11:17.840 --> 0:11:21.640 To us what the FED achieved by by ratifying market 0:11:21.679 --> 0:11:23.800 expectations going this route. 0:11:24.280 --> 0:11:27.240 This might sound like a dumb question, but what is 0:11:27.280 --> 0:11:29.439 the actual economic cost of of a little bit more 0:11:29.480 --> 0:11:31.160 volatility around the blackout period? 0:11:32.600 --> 0:11:33.480 Well, I think it can. 0:11:33.679 --> 0:11:35.920 It can get you know, markets to run away with 0:11:36.120 --> 0:11:39.480 the with the expectations. It's you know, you would think 0:11:39.559 --> 0:11:43.600 that the data, hard data on economic activity. 0:11:43.400 --> 0:11:45.120 What you're officially hearing from. 0:11:44.920 --> 0:11:47.679 The f O and C guides market expectations. But if 0:11:47.679 --> 0:11:50.480 you have you know, something like this, it can lead. 0:11:50.320 --> 0:11:51.400 To a lot of volatility. 0:11:51.520 --> 0:11:54.680 Market pricing could go different ways, and then if the 0:11:54.760 --> 0:11:57.880 FED outcome looks very different to how the markets have moved, 0:11:58.200 --> 0:11:59.920 it can create financial market volletin. 0:12:00.400 --> 0:12:02.199 So I think that was the point that we were 0:12:02.200 --> 0:12:03.040 trying to make. 0:12:02.920 --> 0:12:08.040 That it creates unnecessary noise, especially after an error where 0:12:08.080 --> 0:12:11.360 FED communication has been really on point and they've really 0:12:11.360 --> 0:12:13.840 made an effort to do this so. 0:12:13.800 --> 0:12:16.120 Well, given this, do you think the FED now has 0:12:16.160 --> 0:12:19.040 a credibility problem? 0:12:19.200 --> 0:12:22.160 That doesn't seem like it. When we think of monetary 0:12:22.160 --> 0:12:26.160 policy credibility, we do tend to look at inflation expectations, right. 0:12:26.640 --> 0:12:29.840 The credibility comes from the fact that how committed are 0:12:29.880 --> 0:12:33.040 they towards their dual mandate and right now, there's no 0:12:33.320 --> 0:12:37.040 question that they're very committed. You know, it does seem 0:12:37.080 --> 0:12:38.920 like the focus is a little bit more on the 0:12:39.000 --> 0:12:42.120 labor markets than it is on inflation, as it should 0:12:42.160 --> 0:12:44.920 be given the inflation outcomes are pretty good. 0:12:45.240 --> 0:12:46.800 So I think it's too early. 0:12:46.559 --> 0:12:49.720 To start questioning any of that, but it does create 0:12:49.760 --> 0:12:53.040 a bit of a kink in the communication policy PJ. 0:12:53.160 --> 0:12:54.559 We've got to leave it there a free share to 0:12:54.640 --> 0:12:55.280 catch up. 0:13:05.040 --> 0:13:05.079 With. 0:13:05.160 --> 0:13:07.280 It's around of time. But to continue the conversation. Bob 0:13:07.280 --> 0:13:10.079 At of Unlimited bub good morning, and welcome to the program. 0:13:10.120 --> 0:13:10.600 Good morning. 0:13:10.720 --> 0:13:12.679 What did we achieve with the fifty paces point right 0:13:12.720 --> 0:13:14.360 cut last week at the Federal Reserve? 0:13:14.400 --> 0:13:16.599 Well, I think the biggest thing that the Fed highlighted 0:13:16.920 --> 0:13:19.679 was that they were trying to paint the picture of 0:13:19.720 --> 0:13:23.680 a strong economy and sufficient disinflation that they can deliver 0:13:23.880 --> 0:13:27.959 big cuts relatively quickly into that scenario. Now you can 0:13:28.080 --> 0:13:30.079 argue whether you actually believe that that's true, but I 0:13:30.080 --> 0:13:33.080 think the path that they're laying out they're committed to, 0:13:33.120 --> 0:13:35.760 and they believe it's data driven because they believe that 0:13:35.800 --> 0:13:37.880 the inflation numbers are going to get back to their 0:13:37.920 --> 0:13:40.480 two percent mandate, and that's very interesting for markets. It 0:13:40.559 --> 0:13:43.559 might be too easy into a hot economy which got 0:13:43.559 --> 0:13:45.640 a lot of effects, second and third order effects that 0:13:45.679 --> 0:13:50.440 they might not expect. You believe in disinflation, No, probably not. 0:13:50.559 --> 0:13:54.760 I think the thing that's interesting you inflation is still 0:13:54.800 --> 0:13:57.040 running above the FEDS band aid. We have to remember 0:13:57.080 --> 0:14:00.360 that no matter how you slice it, and easy into 0:14:00.400 --> 0:14:03.520 that environment when you have a hot economy means that 0:14:04.000 --> 0:14:07.400 we're probably more likely to get acceleration rather than deceleration 0:14:07.520 --> 0:14:09.840 head The thing that's interesting about that is that the 0:14:09.880 --> 0:14:13.280 FED probably won't see that data come out until they've 0:14:13.320 --> 0:14:16.680 cut a few hundred basis points, and only then will 0:14:16.679 --> 0:14:20.000 they be held accountable for the fact that the disinflation 0:14:20.200 --> 0:14:22.320 might have reversed. And so I think it's a tricky 0:14:22.360 --> 0:14:25.240 period over the course of the next fifteen eighteen months 0:14:25.640 --> 0:14:28.040 when the FED isn't going to get the feedback loop 0:14:28.080 --> 0:14:29.440 that their policy is too easy. 0:14:29.800 --> 0:14:31.720 Just to put a bow on that, are you saying 0:14:31.800 --> 0:14:35.440 that right now the risk of a reinflationary kind of 0:14:35.560 --> 0:14:39.320 moment is greater or less priced into a market and 0:14:39.360 --> 0:14:43.280 more real than say a downdraft and gross Well, certainly. 0:14:42.920 --> 0:14:45.080 It's less priced into markets. When you look at long 0:14:45.160 --> 0:14:49.040 term inflation expectations, the expectation is for you for inflation 0:14:49.120 --> 0:14:52.640 to be at two percent or below two percent essentially forever. 0:14:53.440 --> 0:14:57.120 And given the geopolitical dynamics, given the FEDS easing into 0:14:57.200 --> 0:15:00.840 a relatively strong economy, given the fact that you start 0:15:00.920 --> 0:15:03.400 you still see a lot of sticky dynamics and inflation, 0:15:03.480 --> 0:15:07.600 particularly related to wages, which are showing some signs of reaccelerating. 0:15:07.960 --> 0:15:11.040 That whole picture doesn't really align with the probabilities of 0:15:11.680 --> 0:15:14.840 a certainty around two percent inflation and much more likely 0:15:14.960 --> 0:15:17.240 that we have higher inflation ahead rather than lower inflation. 0:15:17.360 --> 0:15:19.440 Normally, somebody with that kind of view would be bullish, 0:15:19.520 --> 0:15:22.000 because if you believe in this sort of strong economy 0:15:22.280 --> 0:15:25.720 that could foster some reignition of inflation that would be 0:15:25.760 --> 0:15:28.520 probably positive for equity valuations. But you wrote the stock 0:15:28.560 --> 0:15:31.320 market is priced perfection, and so far this quarter is 0:15:31.360 --> 0:15:34.600 providing plenty of data points that the perfection is unlikely 0:15:34.640 --> 0:15:36.320 to be achieved in reality. 0:15:36.360 --> 0:15:39.120 Why well, I think when you're trading markets, you got 0:15:39.120 --> 0:15:41.640 to trade against what the price and expectations are, and 0:15:41.640 --> 0:15:44.920 we're at pees that are almost as high as they 0:15:44.920 --> 0:15:48.640 were during the tech boom. We have forward earnings growth 0:15:48.680 --> 0:15:52.040 expectations in the mid teens. That's a pretty strong scenario 0:15:52.840 --> 0:15:54.240 already priced into the markets. 0:15:54.280 --> 0:15:54.400 Now. 0:15:54.400 --> 0:15:57.760 The FED is helping that along, and that's probably a positive. 0:15:57.920 --> 0:16:00.280 But I think the story is much more around being 0:16:00.320 --> 0:16:04.280 long stocks relative to bonds, because that's the scenario, you know, 0:16:04.440 --> 0:16:07.920 of the growth reacceleration that probably isn't fully priced into 0:16:07.920 --> 0:16:08.240 the market. 0:16:08.360 --> 0:16:12.920 Let's introduce China into the conversation. They're now exploiting disinflation, 0:16:13.000 --> 0:16:15.800 perhaps even deflation. How do the factor into your world 0:16:15.840 --> 0:16:16.520 view right now? 0:16:16.640 --> 0:16:21.560 Well, China's experiencing debt de leveraging, you know, akin to 0:16:21.600 --> 0:16:24.920 what happened in Japan, and akin to classic balance sheet recession, 0:16:24.920 --> 0:16:28.440 a classic balance sheet recession, and the policymakers there are 0:16:28.920 --> 0:16:33.200 maybe driven by motivations that are not related to macroeconomic policy, 0:16:33.440 --> 0:16:37.000 more like political motivations. And so for whatever reason, they're 0:16:37.080 --> 0:16:40.760 choosing not to respond to the situation. And so China's 0:16:40.760 --> 0:16:45.680 probably in this malaise for the foreseeable future. I think 0:16:45.840 --> 0:16:49.120 the effects on the West are actually relatively limited. And 0:16:49.160 --> 0:16:52.520 the reason why that is is, you know, China's deflationary 0:16:52.840 --> 0:16:54.880 impulse has been basically the same for the last couple 0:16:54.920 --> 0:16:57.720 of years. Probably China is not going to accelerate in 0:16:57.800 --> 0:17:01.120 terms of getting a deeper and deeper or a worse 0:17:01.360 --> 0:17:03.640 rate of deflation going on in the economy. And if anything, 0:17:03.680 --> 0:17:05.640 you've seen it tick up. And so the big picture 0:17:05.720 --> 0:17:07.840 is it's not it's probably not the main story that's 0:17:07.840 --> 0:17:10.520 going on. When you're looking at US inflation, Western inflation 0:17:10.600 --> 0:17:12.960 in general. What really matters. It's the labor markets. It's 0:17:12.960 --> 0:17:16.240 all about the labor markets. It's all about that wage data. 0:17:16.840 --> 0:17:19.359 If you look at the Atlanta Fed wage tracker data, 0:17:19.680 --> 0:17:22.159 we're one to two points above where we were pre COVID, 0:17:22.720 --> 0:17:26.640 And unless you believe productivity has matched that increase, that's 0:17:26.640 --> 0:17:29.400 an underlying inflationary pressure that remains in the economy. 0:17:29.560 --> 0:17:32.760 But Bob, isn't the deflationary pressure coming from China has 0:17:32.760 --> 0:17:34.960 everything to do with the commodities market. Isn't that helping 0:17:35.080 --> 0:17:36.000 Western economies? 0:17:36.440 --> 0:17:39.119 Yeah, it certainly is an effect on the commodities markets. 0:17:39.119 --> 0:17:43.120 And if you're trading you know, copper or other direct 0:17:43.200 --> 0:17:46.840 commodities that China has a meaningful share of, that's going 0:17:46.880 --> 0:17:49.359 to be an influence, a meaningful influence on that supply demand. 0:17:49.520 --> 0:17:52.720 But the flow through of that to the to the 0:17:52.840 --> 0:17:57.920 US inflation picture, it's pretty tiny compared to rents, labor, 0:17:57.960 --> 0:18:00.400 the other sort of imported you know, the other sort 0:18:00.400 --> 0:18:04.199 of important goods costs that you know, cars, new cars, 0:18:04.560 --> 0:18:06.960 used cars, all of those things represent a much bigger 0:18:07.000 --> 0:18:09.760 impact on US inflation and US policy. 0:18:10.080 --> 0:18:11.639 Liz Young Thomas or guess at the top of the 0:18:11.680 --> 0:18:16.040 hours talking about one risk would be reacceleration of commodity prices. 0:18:16.160 --> 0:18:18.600 Do you see that where China is right now? 0:18:18.840 --> 0:18:21.760 Commodity prices have basically been trading, you know, and particularly 0:18:21.760 --> 0:18:23.639 oil prices, which is really the thing that matters, have 0:18:23.680 --> 0:18:26.000 been trading in a tight range over the last couple 0:18:26.040 --> 0:18:30.000 of years. After the move down eighteen months ago. You know, 0:18:30.200 --> 0:18:33.199 I don't see meaningful pressures on the upside or the downside. 0:18:33.440 --> 0:18:36.159 On the downside, on the downside, you've got a natural 0:18:36.200 --> 0:18:40.440 cap in terms of you know, suppliers taking barrels off 0:18:40.480 --> 0:18:43.160 the market if oil prices start to fall a little 0:18:43.160 --> 0:18:45.440 too much. And on the upside, there's still a lot 0:18:45.560 --> 0:18:48.960 of incremental production. You know, US production is near all 0:18:49.000 --> 0:18:51.040 time highs. A lot of production that can come into 0:18:51.080 --> 0:18:53.520 the market to put a cap on it. So that's 0:18:53.600 --> 0:18:56.200 probably not the big story here. It's much more about 0:18:56.200 --> 0:18:59.440 the sticky inflationary pressures in the economy. On the forward 0:18:59.480 --> 0:19:00.280 looking basis. 0:19:00.200 --> 0:19:02.360 How much would longer term yields have to rise to 0:19:02.359 --> 0:19:03.159 make you a buyer. 0:19:04.440 --> 0:19:06.520 Well, I think at this point you know you've got 0:19:06.520 --> 0:19:10.159 to see inflation expectations move up considerably here, So I 0:19:10.160 --> 0:19:13.080 think you know easily into the into the mid forest 0:19:13.160 --> 0:19:16.000 before you start to have a real conversation that that's 0:19:16.040 --> 0:19:20.840 a that's an attractive bid, particularly relative to stocks in 0:19:21.000 --> 0:19:22.680 a stronger growth environment. 0:19:22.720 --> 0:19:26.200 When you say inflation expectations, you're talking about markets based pricing. 0:19:26.240 --> 0:19:29.160 Are you talking about consumer surveys the likes we see 0:19:29.160 --> 0:19:30.840 from you, Mitch every other Friday. 0:19:30.840 --> 0:19:32.960 But what you're looking for, mostly mostly in terms of 0:19:32.960 --> 0:19:34.760 trading the bond market, it's all about price and break 0:19:34.760 --> 0:19:37.239 even inflation. And so that that's the thing that if 0:19:37.520 --> 0:19:39.679 you look at the market's basically priced to be, you know, 0:19:39.800 --> 0:19:43.440 at two percent or below essentially forever or inflation swaps, 0:19:43.480 --> 0:19:46.320 that's what you're trading. And those are the those are 0:19:46.359 --> 0:19:48.720 the areas of the market that look particularly under price. 0:19:48.760 --> 0:19:50.159 And the reality is if you're going to trade, if 0:19:50.160 --> 0:19:52.720 you're gonna get exposure to duration right now, buy the 0:19:52.760 --> 0:19:55.760 tips all right. You're you're seeing real yields that are 0:19:55.800 --> 0:19:59.920 still pretty good on any long term perspective. You know, 0:20:00.280 --> 0:20:02.520 around one and a half to two percent. That's a 0:20:02.520 --> 0:20:04.840 pretty good real yield if you can lock it in 0:20:04.920 --> 0:20:07.480 for twenty or thirty years without any rest. 0:20:07.640 --> 0:20:09.440 Bob, it's good to see you. Let's do it again soon. 0:20:09.520 --> 0:20:11.879 Thank you, sir, Bob Elliot. There are unlimited on this 0:20:11.960 --> 0:20:16.280 fun market. This is the Bloomberg Surveillance Podcast, bringing you 0:20:16.560 --> 0:20:19.960 the best in markets, economics, angio politics. You can watch 0:20:20.000 --> 0:20:22.760 the show live on Bloomberg TV weekday mornings from six 0:20:22.800 --> 0:20:27.160 am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 0:20:27.320 --> 0:20:29.560 or anywhere else you listen, and as always, on the 0:20:29.560 --> 0:20:32.000 Bloomberg Terminal and the Bloomberg Business App.