Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
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Speaker 1: Alex Steele, I'm.
Speaker 2: Joining us now from Washington, DC. Is Julie Sue, Acting
Speaker 2: US Secretary of Labor Secretary. Pleasure to speak with you.
Speaker 2: Thank you for joining you too. The market sees this
Speaker 2: is a good report. Good news is good news for
Speaker 2: the market. How long can this good news continue? From
Speaker 2: where you sit?
Speaker 3: Right, that's right, that's the right characterization of this.
Speaker 1: Right.
Speaker 3: This is exactly what you'd want to see if you're
Speaker 3: looking for a soft landing. This is the if you
Speaker 3: average the last three months, it's about one hundred and
Speaker 3: fifty thousand jobs each month being created. This is the
Speaker 3: transition from the breakneck speed of the fast recovery we
Speaker 3: saw initially when President Biden first came into office, to
Speaker 3: the consistent steady, stable growth that you want to see
Speaker 3: in a strong economy.
Speaker 2: The one really big acts here, Secretary, is what's happening
Speaker 2: with the unions. You have the Hollywood strike still ongoing,
Speaker 2: the actors strike still ongoing. You have a potential autoworker
Speaker 2: strike that could hit the Big Three. You have trains,
Speaker 2: you have doc workers. There's a lot of union action
Speaker 2: right now is the White House and active conversations with
Speaker 2: these unions.
Speaker 3: Right So, we're continuing to see the effects of a
Speaker 3: tight labor market. Right We continue to have now unemployment
Speaker 3: at less than four percent. This is the longest stretch
Speaker 3: since the nineteen sixties. And in a tight labor market,
Speaker 3: workers have more power. We've seen workers come back to
Speaker 3: the labor market and make choices about what it means
Speaker 3: to have a good job, good family sustaining job, a
Speaker 3: good job where they can, you know, make demands to
Speaker 3: improve their lives and their working conditions. And the unions
Speaker 3: are part of that.
Speaker 4: Now. You mentioned some.
Speaker 3: Unions where you know, through those demands they've resolved issues
Speaker 3: that were long standing, that have raised wages and address
Speaker 3: certain conditions. You mentioned the ports. That's one area you know,
Speaker 3: we saw that with the Teamsters in ups last month.
Speaker 3: We continue to see workers making these demands, and these
Speaker 3: are not just like a a sort of an accident
Speaker 3: in an administration that supports working people. This is really
Speaker 3: part and parcel of workers being able to demand their
Speaker 3: fair share.
Speaker 2: Sure, but when you take a look at the auto workers,
Speaker 2: for example, how does the administration avoid Sean Faine, as
Speaker 2: the head of the United Auto Workers, overplaying his hand.
Speaker 2: The increases in demands that union is asking are tremendous
Speaker 2: forty five percent wage increase, thirty two hour work week,
Speaker 2: things that many say are very unrealistic, and if those
Speaker 2: workers strike, we could be looking at a recession. That's
Speaker 2: what some are saying. How does the President Biden handle that?
Speaker 1: Yeah?
Speaker 3: I mean we have definitely seen wage increases in contracts
Speaker 3: that have been signed. We've seen them wage increases you know,
Speaker 3: over six year periods, right, multiple year periods. I think
Speaker 3: for a president who believes as I do in the
Speaker 3: collective bargaining process, we trust the process.
Speaker 5: Right.
Speaker 3: We allow the parties to stay at the table. They
Speaker 3: are staying at the table. That's a good sign. Party
Speaker 3: sectors stay apart until they're not the secretary.
Speaker 2: If they stay at the table and then eventually they
Speaker 2: strike they don't get what they want, like a one
Speaker 2: hundred and fifty thousand plus people out of work that
Speaker 2: is going to have a tremendous drag.
Speaker 3: Yeah, I mean that's right, and so that's why we're
Speaker 3: we remain hopeful that the parties will resolve their issues.
Speaker 3: We trust their process to do that. Obviously, you know,
Speaker 3: strike is a part of that too, and everybody you know,
Speaker 3: would love to see a path forward where the union
Speaker 3: and the employers do the right thing. You know, these
Speaker 3: are you know, a moment in which union members are
Speaker 3: seeing historic profits coming out from you know, a pandemic.
Speaker 3: So you know, to that point, the parties have to
Speaker 3: remain talking.
Speaker 2: So to that point, do you think that the Big
Speaker 2: three are negotiating in good faith? Jean Fain doesn't think so.
Speaker 3: Do you think so, I'm at the bargaining table, you know,
Speaker 3: I'm not there. I do think that some of the
Speaker 3: you know, what gets said is reflective of what's happening
Speaker 3: at the bargetin table. Some of it is not right.
Speaker 3: There's there's lots of things that happen during the process
Speaker 3: of a negotiation. I think it's important for us to
Speaker 3: allow the parties to do what they what they need
Speaker 3: to do, and that's you know, yeah, that's what we're
Speaker 3: doing here.
Speaker 2: I totally get it, and there is a process. But
Speaker 2: if President Biden is facing something like three big auto
Speaker 2: strike working so one hundred and fifty thousand people maybe
Speaker 2: out of jobs, plus or forty five percent increase in wages,
Speaker 2: both of those are difficult. On the one hand, you
Speaker 2: have a recession fear. On the other hand, that's going
Speaker 2: to lead to higher inflation with wages. Which side are
Speaker 2: you going to come down on?
Speaker 3: Well, I think overall right, as we talked about with
Speaker 3: the jobs numbers, we are seeing really solid job growth
Speaker 3: and a solid strong economic picture. I think it's important
Speaker 3: not to make too much of any one one part
Speaker 3: of that. And I know each time there's been a
Speaker 3: contract that is about to expire, there's been a whole
Speaker 3: lot of handing over what's going to happen. I think
Speaker 3: it's prettymature. I think the contract is not yet expired.
Speaker 3: It's important to allow the parties to do what they
Speaker 3: want to do. But I will say, you know this, President,
Speaker 3: one of the pillars of Bidenomics is to believe it
Speaker 3: that workers empowered workforce is a good thing for working people,
Speaker 3: and that is something that he's been unwavering about.
Speaker 2: So that really does feel like support the wage gains,
Speaker 2: even if it might come at the expense short term
Speaker 2: of the economy. Is that a fair characterization.
Speaker 3: Well, it's really about supporting the parties, negotiating in good
Speaker 3: faith to grapple with heart issues and arrive at a
Speaker 3: place where, you know, the President often says, when workers
Speaker 3: do well, employers profit, and the economy is stronger, that's
Speaker 3: what we'd like to see.
Speaker 2: But before I let you go, and I'm saying this
Speaker 2: and Jess, but I actually mean it, Taylor Swift has
Speaker 2: truly driven economy in many ways. Just look at AMC
Speaker 2: and I'm wondering, do you talk to Taylor Swift like
Speaker 2: when she stops going on tour, are you actually going
Speaker 2: to be looking at like a weakening labor market and
Speaker 2: a weakening economy. I'm joking, but I'm also kind of serious.
Speaker 3: Right, So I'll respond with, you know, women are powering
Speaker 3: this economic recovery. You know, women are at the highest
Speaker 3: levels of you know, percent of women in jobs for
Speaker 3: the fifth month straight, record breaking. And remember during the pandemic,
Speaker 3: women were really devastated by you know, the lack of
Speaker 3: pay leave and the lack of care. We've seen women
Speaker 3: come back in really high numbers and get jobs, and
Speaker 3: we need to continue with that trend, make sure that
Speaker 3: women get to participate fully in the economy and the
Speaker 3: good jobs that are being created.
Speaker 2: Yeah, don't think Taylor Swift had a problem with that.
Speaker 2: I don't think her roadies though.
Speaker 4: Are women.
Speaker 2: But okay, thank you very much, Secretary, appreciate. Julie Shoe,
Speaker 2: acting us the Secretary of Labor.
Speaker 1: Alex Steele with the acting director Julie Sue of Labor
Speaker 1: Randall Kraser with with perspective here and we've better forget
Speaker 1: about the economic mambo jumbo and go to the FED.
Speaker 1: Professor Krasler, can you glean here a FED that will
Speaker 1: change its attitude towards the November meeting?
Speaker 6: So I think, as we're talking about before, this is
Speaker 6: kind of, you know, roughly what the FED was expecting.
Speaker 6: You've seen a little bit less wage pressure, which is
Speaker 6: good from the Fed's perspective. We've seen greater labor force participation,
Speaker 6: which the FED also also likes. That's likely what is
Speaker 6: accounting for the increase in the in the unemployment rate.
Speaker 6: So you're seeing the kind of goldilock scenario that the
Speaker 6: FED wants that the liber market is gradually softening but
Speaker 6: not cratering. It's taking some of the pressure off, and
Speaker 6: so that'll take the pressure off the FED from raising rates.
Speaker 6: I think it'd be really unlikely that they're going to
Speaker 6: move in at the next meeting, And obviously there's going
Speaker 6: to be a lot more data that they'll come out
Speaker 6: between now and then, but unless there's some major surprise,
Speaker 6: they're probably likely going to hold through the rest of
Speaker 6: the year.
Speaker 1: Randy, we've got to run. But one more quick question,
Speaker 1: if I may. It's a dual mandate. Is it really
Speaker 1: a dual mandate for this federal reserve system?
Speaker 6: Well, this is the big pivot that came last year
Speaker 6: at Jackson Hole when j Powell said there's one thing
Speaker 6: that we're going to do, and he said that eight times,
Speaker 6: that we're going to fight inflation. So he basically said, sure,
Speaker 6: we have a dual mandate, but the inflation part is
Speaker 6: the most important. This year was kind of more back
Speaker 6: to normal that we have to worry about both the
Speaker 6: part as well as the employment part. And so that's
Speaker 6: where the fed's looking so carefully at data to make
Speaker 6: sure that they don't raise rates so much that they
Speaker 6: bring the unemployment rate zooming up. It's hard to get
Speaker 6: that perfect. A lot of people think, oh, the FIT
Speaker 6: can engine perfectly engineer this soft landing, that they have
Speaker 6: so much control that they can move the unemployment rate
Speaker 6: up just one or two percent, a tens of a
Speaker 6: percent and leave it there. It's not so easy, is that.
Speaker 6: There are a lot of other factors that come in.
Speaker 1: Governor Krausner, thank you so much for joining us today.
Speaker 1: Professor Krausner at the Boot School in the Chicago Katie,
Speaker 1: Why don't you bring in Jeffrey Rosenberg here? It's a
Speaker 1: bond market shifting, Well, let's do it.
Speaker 7: Jeff Rosenberg. He is portfolio manager of the Systematic Multi
Speaker 7: Strategy Fund over at Blackrock. Jeff, it's great to talk
Speaker 7: to you. You look at the first blush in the markets.
Speaker 7: You have short end yields absolutely plunging, you of futures
Speaker 7: getting a bit of a bid when you go through
Speaker 7: these numbers. Is that the correct reaction?
Speaker 5: I think it is, and I think this was the
Speaker 5: report that the market was looking for. You might have
Speaker 5: had a bigger reaction if it was a stronger than
Speaker 5: expected report. But this is the reaction of pricing out
Speaker 5: the last hype that the Fed suggested they might have
Speaker 5: to deliver, you know, And so I think that market
Speaker 5: reaction makes a lot of sense. The front end of
Speaker 5: the curve, both in reels and nominals, is where you're
Speaker 5: seeing the biggest reaction, and that prices in the near term.
Speaker 4: Expectations for Fed policy.
Speaker 5: So the labor markets are normalizing, and that's the main
Speaker 5: message from today's payroll report.
Speaker 4: Wages are softening a little.
Speaker 5: Bit on the margin, not really much movement in the
Speaker 5: three month averages.
Speaker 4: The point two. It just missed rounding up to point three.
Speaker 4: It's a point two. So you're seeing still the slowness
Speaker 4: in the last piece of the puzzle here, which is
Speaker 4: the slowdown in the wages. And so the Fed's going
Speaker 4: to still talk about that. But when you look at
Speaker 4: labor force participation, that's a big change.
Speaker 5: That's what the FED wants to see, as Randy said,
Speaker 5: that's the reason for the increase in the unemployment rate.
Speaker 5: But as we saw earlier in the JOLT data, this
Speaker 5: is exactly what the FED is looking for in terms
Speaker 5: of getting the normalization in the labor market, seeing that
Speaker 5: reduction in the vacancies to unemployment coming through the vacancies
Speaker 5: less from the pain in the unemployment, and that's a
Speaker 5: good outlook for the market. And that's why you see
Speaker 5: the equity and the risky side also positively responding here.
Speaker 4: So pretty much a very nice number for everyone to
Speaker 4: go into their last holiday weekend.
Speaker 5: Yes, and if you.
Speaker 7: Talk about the labor market normalizing here, extrapolate this into
Speaker 7: Fed policy because at a certain point the Fed is
Speaker 7: going to have to cut interest rates just to bring
Speaker 7: rates back to more normal neutral levels. Does this report
Speaker 7: push those rates further into the future or does it
Speaker 7: bring them forward?
Speaker 5: Well, you know, it's a really important point which you
Speaker 5: just highlighted about the need to be cutting interest rates,
Speaker 5: not necessarily to bring them to more normal levels. But
Speaker 5: go back to Powell speech last week. It's about restrictive
Speaker 5: policy for longer, not higher for longer, and so as
Speaker 5: inflation falls, and that's really about the wage inflation picture.
Speaker 5: From today's report, the Fed has to cut rates to
Speaker 5: avoid the real interest rate from increasing. And that's really
Speaker 5: what the bond market has priced in for next year.
Speaker 5: The gradual decline and inflation leading the FED to have
Speaker 5: to cut rates, not because it's a hard landing or
Speaker 5: because they're cutting rates because they're overly tight, but they're
Speaker 5: cutting rates to avoid becoming overly late tight, to maintain restrictiveness.
Speaker 5: And I think today's report just feeds into that market
Speaker 5: consensus and that market expectation.
Speaker 1: Jeff, I find this absolutely extraordinary, which is we had
Speaker 1: a failure of transitory and then dare I say, and
Speaker 1: granted there's an ambiguity here, folks, if we actually get
Speaker 1: price up, yield down, but we're almost back to a
Speaker 1: successful victory lap for the FED. Do you agree that
Speaker 1: this is a FED on the edge of a victory lap.
Speaker 5: Well, I think one thing we have to be a
Speaker 5: bit careful about, Tom, is that we've certainly seen the
Speaker 5: victory from these very aggressive, very historically distorted levels of
Speaker 5: inflation due to the COVID supply side shock. Yeah, that's
Speaker 5: very different than claiming victory that the damage that had
Speaker 5: occurred as a result of those policies, as a result
Speaker 5: of the fiscal and monetary policy over stimulus, has completely
Speaker 5: been wrung out. And so that's about the victory from
Speaker 5: three percent to two percent you remember from last week
Speaker 5: Powell one of the main takeaways. Two main takeaways where
Speaker 5: data dependence, yes, but the other big one was we
Speaker 5: are not abandoning the FED said Powell said, we are
Speaker 5: not abandoning the two percent inflation target.
Speaker 4: A lot of.
Speaker 5: Discussion around, Hey, just accept three percent, It'll be okay.
Speaker 5: So I think before you can claim victory and do
Speaker 5: the victory lab right, we really are going to be
Speaker 5: talking about what does it take to get.
Speaker 4: You from three to two?
Speaker 5: What's the cost versus the benefit of just leaving it
Speaker 5: at a higher lady.
Speaker 1: And now pre labor day, pre labor day Carnegie Melon math.
Speaker 1: We're going to do this is Jeffrey Rosenberg, Come on,
Speaker 1: Jason Furman's out doing this correctly. Jeff talking about the
Speaker 1: ecumenical PCE index. And you know, Jeff Rosenberg, it's how
Speaker 1: you pick your duration of the vector. Are you looking
Speaker 1: at a one year annualized or a six month annualized
Speaker 1: or what I do, which is a ninety day annualized,
Speaker 1: three month annualized vector for inflation. What is the rapidity
Speaker 1: of the decline and inflation right now?
Speaker 5: So on the headline and in even on the core,
Speaker 5: you're seeing good progress, and to the part of the question,
Speaker 5: it's much more relevant to look at kind of the
Speaker 5: near term numbers annualizing what is that pace of decline.
Speaker 5: But it's really about this core core measure that Powell
Speaker 5: talks about in terms of services less housing, that really
Speaker 5: gets to again the wage inflation picture that feeds into
Speaker 5: the more durable aspects of inflation outside of the commodity
Speaker 5: and good sector, which is deflating because of the supply
Speaker 5: side improvement. What has been very supportive over the last
Speaker 5: three months is that that three month level of core
Speaker 5: core inflation has been declining, and so it's feeding into
Speaker 5: this soft landing landing on inflation narrative. It's still a
Speaker 5: slow pace, and I think that's what you see in
Speaker 5: today's wage number, but it is going in the right direction.
Speaker 5: You've brought up the equity market. That's positive for the
Speaker 5: equity market. So everything is looking like it's moving in
Speaker 5: the right directions. It's still a bit slow, but certainly
Speaker 5: the labor market normalization story got a boost from today's report.
Speaker 7: I want to bring this conversations more firmly to the markets.
Speaker 7: Ian Lincoln was on surveillance a couple of days ago
Speaker 7: of VMO calling the ten year treasury a screaming buy.
Speaker 7: I think that made multiple headlines. When you look at
Speaker 7: this report and the totality of data that we've gotten
Speaker 7: in the past couple of months, do you think now
Speaker 7: is the time to really step force fully into duration.
Speaker 5: Well, you know, when we talk about duration, it's not
Speaker 5: so much how much duration you hold, but where in
Speaker 5: terms of the maturity spectrum you hold that duration. So
Speaker 5: I think that the screaming buy is the two year.
Speaker 5: Thank you for bringing it up, because I think there
Speaker 5: you have the best combination of yield and the exposure
Speaker 5: as we're seeing in today's market reaction changes in this
Speaker 5: kind of normalization, That is the part of the yield
Speaker 5: curve where I think you're going to have the best
Speaker 5: risk reward in terms of owning duration. When you start
Speaker 5: talking about the long end, now you've got to start
Speaker 5: considering whether or not the term premium, the long term
Speaker 5: inflation premium, whether the long term real interest rate is
Speaker 5: really priced appropriately. And I think there's a lot of
Speaker 5: questions about whether this post COVID, post normalization yield curve
Speaker 5: at historic levels of inversion is really where you want
Speaker 5: to be concentrating your duration in the long end exposure.
Speaker 5: I think there's much more vulnerability in the long end
Speaker 5: given that degree of inversion the lat which basically says
Speaker 5: you're not getting paid in terms of the yield for
Speaker 5: those fundamental fouls, which all could be increasing in this
Speaker 5: post COVID environment.
Speaker 1: Jeff, thank you. Jeff Rosenberger's with the black Rock. Sarah
Speaker 1: Hunt joins as chief market strategist Alpine Saxon Woods. Sarah,
Speaker 1: It's real simple. I've got an eleven point eight percent
Speaker 1: standard impoor's five hundred return over the last decade. I
Speaker 1: got a lineup of people with fear. How do you
Speaker 1: push away the fear into September into the fourth quarter
Speaker 1: given this economic data and a successful FED soft landing.
Speaker 8: Well, good morning time and thank you for having me.
Speaker 8: I think this is really an interesting report, especially since
Speaker 8: we revised last month negative, and I think that this
Speaker 8: is I mean, I feel like Ira Jersey stole my
Speaker 8: Goldilocks moment. I was going to say, that's a Goldilocks
Speaker 8: number because you've got all the components working in the
Speaker 8: direction that the FED wanted to go. Remember, we were
Speaker 8: looking for on some of the Summary of Economic projections
Speaker 8: four point five percent unemployment by the end of the year,
Speaker 8: and it's been staying so steady that that number looked unachievable.
Speaker 8: Three point eight is not four point five, but directionally
Speaker 8: that's what that's what the FED was looking for. I
Speaker 8: also think that the softening in wage gains is also
Speaker 8: something that the FED was looking for. The interesting thing
Speaker 8: is about the number of people who have come back
Speaker 8: into the labor force, and you have to wonder if
Speaker 8: some combination of the fact that that pandemic surplus is
Speaker 8: being spent down student loans are coming back may be
Speaker 8: part of what is shifting the labor force, because the
Speaker 8: question has been whether or not as structural to have
Speaker 8: so many viewer workers, or it's possible that so many
Speaker 8: people didn't have to go look for a job, and
Speaker 8: all of a sudden they're staring down what is not
Speaker 8: as rosy an economic picture without as much of a
Speaker 8: savings backdrop.
Speaker 7: And Sarah, like you said, this is good news for
Speaker 7: the FED. That seems to be the narrative in markets
Speaker 7: right now. But how noisy is this data. You look
Speaker 7: at some of the specifics from the BLS film industry,
Speaker 7: payrolls fell by seventeen thousand, then you take a look
Speaker 7: at trucking payrolls fell by thirty seven and how much
Speaker 7: of a piece of the conversation will some of those
Speaker 7: nuances be.
Speaker 4: Well.
Speaker 8: I think this also goes to one of your earlier
Speaker 8: guests this morning was talking about the fact that the
Speaker 8: economy is rolling in cycles and nothing is moving at
Speaker 8: the same time. Historically, in a recession, everything goes down
Speaker 8: and then everything comes back at once. And we've been
Speaker 8: through such an odd period of time during this pandemic
Speaker 8: where you've had rolling recessions in some sectors and not
Speaker 8: in others. And I think that those labor numbers just
Speaker 8: speak to that that you've got different places where you're
Speaker 8: experiencing either a boom and labor or a slowdown. And
Speaker 8: I think that the labor hoarding that's going on is
Speaker 8: probably slowing down as companies are getting a little bit harder.
Speaker 8: It's harder for them to put price a little bit
Speaker 8: in this environment. So I think that that's where you're
Speaker 8: going to start to see movement where you've pretty much
Speaker 8: have not seen a lot of it here today.
Speaker 1: Sarah Hunt in the market. Subscribe to the Bloomberg Surveillance
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Speaker 1: Tom Keen, and this is Bloomberg