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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Claudia joins us

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Speaker 2: now from Mark. Claudia, Welcome to the program. Let's just

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Speaker 2: start with that speech on Friday and the decision a

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Speaker 2: month away. Just how finely balanced our things at the moment.

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Speaker 3: The FED is facing a really difficult decision. It's clear

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Speaker 3: from the reason data pri jeally employment data, that we

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Speaker 3: have a dual mandate that is in conflict and that

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Speaker 3: that is the hardest situation for the FED to navigate.

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Speaker 3: It's something that they talk about in their framework. Sure,

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Speaker 3: he'll talk about that on Friday, but it's you know,

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Speaker 3: this is this is tricky, and there's no that's why

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Speaker 3: they need the data. They need each individually as members

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Speaker 3: to think about their outlooks, their forecasts, where does this land.

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Speaker 3: So that's why I think it's appropriate for Power to

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Speaker 3: outline how tricky the decision is, as opposed to like

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Speaker 3: trying to in September it's October, like not get into timing,

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Speaker 3: just lay out what it is that they're trying to

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Speaker 3: deliberate on.

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Speaker 4: So Laudia, let's get into that. The idea of the framework.

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Speaker 4: There's on one hand, the two percent inflation target, which

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Speaker 4: they already have talked about average targeting, and they're going

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Speaker 4: to have to illuminate on that and discuss whether they

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Speaker 4: want to actually increase that target slightly. And then there's

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Speaker 4: a question of how they treat policy when there is

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Speaker 4: a conflict between the dual mandate, So what are you

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Speaker 4: expecting them to come out with and how much could

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Speaker 4: that actually shift market expectations of how much they'll.

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Speaker 3: Cut right, So there's going to be a lot changing

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Speaker 3: in the framework. I think if you're wanting to understand

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Speaker 3: current policy, maybe you can send some of that to

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Speaker 3: the side, because it really assumptions that the pandemic overturned

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Speaker 3: and they're kind of catching up in their strategies and tools.

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Speaker 3: The pieces of the framework that aren't changing on Friday

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Speaker 3: are some of the ones most important right now. So

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Speaker 3: the two percent target, Powell has said repeatedly it was

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Speaker 3: off the table for this framework review, Like, they will

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Speaker 3: affirm the two percent target, and oh, let's all remember

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Speaker 3: we've been above two percent for more than four years, right,

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Speaker 3: So that setting is important. And then the piece that

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Speaker 3: will get a little tweak but probably remain intact is

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Speaker 3: how they deal with when the when the mandate's intention

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Speaker 3: They think about how far do we expect this to

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Speaker 3: get off track and how long is it going to

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Speaker 3: take us to get back to the goal for each

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Speaker 3: the employment and the inflation mandate. And I think again,

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Speaker 3: if you look at the data we have in hand

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Speaker 3: and we think hard about where inflation is and where

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Speaker 3: it's been the last four years, inflation still comes up

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Speaker 3: on top as the primary concern of the Fed and

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Speaker 3: thus calls for the restrictive rate cuts. But it's a

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Speaker 3: very dynamic situation. New data comes down on the labor market,

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Speaker 3: the risks are, you know, things could move pretty fast.

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Speaker 3: But like those two pieces of the framework think are

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Speaker 3: really really important for like thinking about how does the

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Speaker 3: FED go forward as they're learning more about the economy.

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Speaker 4: For people who are listening to this and think that

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Speaker 4: it's an academic exercise and coming up with different puzzles

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Speaker 4: to put things together, it's actually incredibly important to understand

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Speaker 4: whether this is just an inherently dubvish FED, Whether this

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Speaker 4: is a FED that wants to prolong the economic cycle

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Speaker 4: for as long as possible because it takes so long

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Speaker 4: to get jobs back when there is some sort of

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Speaker 4: huge wave of layoffs. Do you expect them to sort

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Speaker 4: of codify that type of approach which has been the

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Speaker 4: assumption right now in markets for a long time, that

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Speaker 4: they are more willing to allow inflation to be higher

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Speaker 4: for longer in order to avoid that type of punitive

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Speaker 4: and long lasting reaction in labor markets.

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Speaker 3: So I'm somewhat concerned that the new framework is going

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Speaker 3: to be read as hawkish, like not, you know, going

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Speaker 3: to bat for the labor market in the same sense,

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Speaker 3: I don't think that's the right interpretation. I think when

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Speaker 3: the change were made of the framework five years ago,

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Speaker 3: we were in you know, the years after the global

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Speaker 3: financial crisis, low inflation, low interest rates, unemployment rate was low,

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Speaker 3: the FED was like trying to find tools to give

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Speaker 3: some more oomph to the economy, to keep us away

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Speaker 3: from the zero lower bound. And so there were changes

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Speaker 3: made tolerating unemployment that gets unusually low because you know,

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Speaker 3: like that that could be good for the labor market

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Speaker 3: going forward, and it didn't cause inflation in the past,

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Speaker 3: and allowing for a period of time modestly above two

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Speaker 3: percent inflation. Again, that was all about giving the economy

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Speaker 3: some extra ooh. The last five years, the problem has

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Speaker 3: not been the extra ooth in the economy, like we

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Speaker 3: had inflation risks that really came back. We had labor

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Speaker 3: shorges for a period of time. So there's going to

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Speaker 3: be changes that reflect some of the challenges the FED

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Speaker 3: is seen in the last five years. But I would

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Speaker 3: not see that as a fundamental Oh we need to,

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Speaker 3: you know, put less emphasis on the labor market. It's

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Speaker 3: just it's realizing that we have some new challenges. I

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Speaker 3: think we'll see some more about like the supply side

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Speaker 3: of the labor market, structural changes that we're seeing that

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Speaker 3: could get mentioned as well.

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Speaker 2: Well.

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Speaker 3: So it's a tricky document to read, but I don't

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Speaker 3: think one should come at this and say, oh, the

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Speaker 3: FED is going to leave the labor market behind. I

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Speaker 3: think it's just really balancing the challenges they face with

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Speaker 3: inflation with the challenges they face with the labor.

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Speaker 2: Market, Claudia, before spending a little bit more time in

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Speaker 2: the labor market, can I just ask a perhaps obvious

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Speaker 2: questions for people setting at home, what's the value of

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Speaker 2: a framework review conducted by a lame duck FED? Share?

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Speaker 4: Right?

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Speaker 3: So this is absolutely the right time for the framework review.

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Speaker 3: The FED started this in twenty twelve. They started with

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Speaker 3: a framework. It's about transparency. It's a communication tool. It

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Speaker 3: is to clearly explain. It's a short document. It's pretty dense,

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Speaker 3: but it's a short document to explain their principles, their strategies,

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Speaker 3: big picture, high level, what are they doing. They started

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Speaker 3: doing the five year reviews in twenty twenty. Again, this

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Speaker 3: is about transparency and accountability and having processes that they

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Speaker 3: can be judged against. And it is true, this is

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Speaker 3: in all likelihood Powell's last speech at Jackson Hole as

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Speaker 3: FED Chair. Yet the framework is not the FED chair's framework,

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Speaker 3: it's the committee's framework. It is an agreement that they

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Speaker 3: make together, and it isn't about one person and Also,

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Speaker 3: this has been his tenure in the last five years,

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Speaker 3: so in exercise and accountability in them saying, you know,

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Speaker 3: some of the assumptions we made in twenty twenty, those

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Speaker 3: didn't turn out to be the right assumptions. We've got

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Speaker 3: to make some adjustments. So it's a great time. And

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Speaker 3: above all, they told us five years ago they were

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Speaker 3: going to do this review. There's a lot that's changed.

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Speaker 3: It's not a comfortable environment for the FED to be

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Speaker 3: out in public. Sure they're doing the review, and that

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Speaker 3: is so reassuring that we have a process that's working

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Speaker 3: as planned.

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Speaker 2: We'd love to het your assumptions on a few things,

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Speaker 2: and particularly the labor market, So let's start with that.

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Speaker 2: You know the source of great division on Wall Street

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Speaker 2: at the moment, and that's whether the step down in

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Speaker 2: payrolls growth is a factor because of what we've seen

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Speaker 2: in the economy, a cyclical turn or maybe a structural

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Speaker 2: shift with what we've seen on the supply side of

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Speaker 2: the labor market. Claudia, do you have a biases to

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Speaker 2: which one it is right now?

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Speaker 3: It's almost certainly both. I think there's a lot of

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Speaker 3: supply side in there right now. We can see this

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Speaker 3: at utilization numbers, like the unemployment rate has been basically flat, right,

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Speaker 3: so we're not seeing the unemployment rate climb as of yet.

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Speaker 3: And also wage growth has not really you know, weakened,

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Speaker 3: and those would be signs that it's demand. Now, there

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Speaker 3: are absolutely risk the labor market and they're not hypothetical anymore.

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Speaker 3: We can point to data that's slowing jobs growth is

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Speaker 3: it could be a real issue. And yet there are

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Speaker 3: policies supply policies that are at play too. And when

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Speaker 3: we think about the FED and the way the FED

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Speaker 3: thinks about the labor market, it's important to remember the

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Speaker 3: FED does not fight the trend. It can't fight the

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Speaker 3: labor supply. It's trying to smooth out the sharp movements

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Speaker 3: and demand that you know, can cause you know, a

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Speaker 3: weakening in the labor market. So it's it's a tricky situation,

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Speaker 3: but I think there really are signs that a good

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Speaker 3: bit of this is supply. And it is almost exactly

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Speaker 3: the reverse of what we were trying to sift through

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Speaker 3: last year, and we had the surgeon immigration cly.

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Speaker 2: This mights it really very difficult to communicate anything at

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Speaker 2: the federals. And given the title, if this year has

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Speaker 2: get together? Is a labor market in transition? Do you

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Speaker 2: believe that the chairman has to make a call hit

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Speaker 2: going into September as to the dominant factor he thinks

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Speaker 2: is driving markets the labor market specifically at the moment,

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Speaker 2: I doubt that.

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Speaker 3: He'll give us the full picture. I mean, it's one

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Speaker 3: that's still developing again, you know, I think by widening

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Speaker 3: and not just saying, oh, well, yes, labor market's weakening,

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Speaker 3: that job growth is too low. Like, he's not going

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Speaker 3: to make a definitive statement that things are really you know,

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Speaker 3: you know, the risks are really rising rapidly. I think

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Speaker 3: it'll lay out all the different pieces that they're grappling with.

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Speaker 3: And what better thing for them to spend a weekend

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Speaker 3: grappling with the research and talking to scholars and people

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Speaker 3: near it than structural changes in the labor market or

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Speaker 3: like they need to be as on the cutting edge

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Speaker 3: as they can be as they sift through the data

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Speaker 3: and they decide the policy. But they're not there yet,

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Speaker 3: and he's not going to front run the committee and

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Speaker 3: make the decision for September. What possible good would that do?

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Speaker 3: He can be transparent about the process, be honest about

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Speaker 3: what they see in the data, and you know, we'll

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Speaker 3: see where this goes in terms of a decision. I

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Speaker 3: do expect him to affirm that the next move will

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Speaker 3: probably be a cut.

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Speaker 2: Right.

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Speaker 3: We're talking about timing here, yep, We're not you know,

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Speaker 3: talking about you know, do they raise rates next? So

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Speaker 3: I think, you know, we just keep it all in context.

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Speaker 3: We're not going to get the answer that maybe investors

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Speaker 3: are looking for. But that's because the FED is still deliberating.

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Speaker 2: Clodia Sam with the latest on the labor market and

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Speaker 2: the Federal serve. Tadia, thank you, Toldia Sam of New

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Speaker 2: Century Advisors, Investors bracing for FED chair Japus speech of

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Speaker 2: the fed's annual symposium, and Jackson Hole Nail Dnswer of

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Speaker 2: Renaissance Macro Research, writing, don't expect a strong signal and

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Speaker 2: they will join us now for more. Neil, welcome to

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Speaker 2: the program. Let's start with the labor market. Is this

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Speaker 2: a labor market in transition?

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Speaker 4: Well?

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Speaker 5: I think so, you know, I think if you look

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Speaker 5: at things like underemployment, you know, discourage workers out of

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Speaker 5: the workforce, college unemployment, black unemployment, I mean, these are

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Speaker 5: you know, there's clearly some weakening in the jobs market,

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Speaker 5: leaving the slowdown impayial growth aside. And to me, what's

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Speaker 5: important about it is that it really undercuts this argument

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Speaker 5: that a lot of Hawks are making that the slowing

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Speaker 5: in the jobs market is largely a supply driven phenomenon.

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Speaker 5: I mean, did we have a bunch of college graduates

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Speaker 5: swarming across the border over the last three years? So

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Speaker 5: I do think that, you know, demand is the principal

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Speaker 5: reason why labor market conditions have slowed, and you know

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Speaker 5: that's something that FED ultimately will need to respond to.

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Speaker 4: Is it problematic for you that stocks are at all

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Speaker 4: time highs and that corporate bond spreads are at the

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Speaker 4: lowest level since nineteen ninety eight at a time where

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Speaker 4: you and others are making the argument that the economy

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Speaker 4: is weakening to a significant A great.

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Speaker 5: If financial conditions are actually this easy, why is it

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Speaker 5: that lending standards in the fed's own Senior Loan Officer

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Speaker 5: Survey continue to tighten? Why is it that housing market

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Speaker 5: conditions are weak? I mean, I think the argument is

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Speaker 5: essentially conflating financial market conditions with financial conditions for the

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Speaker 5: real economy, and the FED needs to respond to what's

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Speaker 5: actually happening in the real economy.

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Speaker 4: Does it complicate though the Fed's messaging at a time

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Speaker 4: where the economic data has been somewhat conflicted, There have

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Speaker 4: been questions about the integrity of it just by virtue

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Speaker 4: of how many people respond to these surveys. And you

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Speaker 4: have a highly politicized environment with the President continuing to

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Speaker 4: job bone the FED to cut rates significantly.

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Speaker 5: No, I mean, there's a lot of noise and uncertainty,

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Speaker 5: but it's also the fed's responsibility to make decisions under

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Speaker 5: these difficult circumstances. And you know, I think that's the

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Speaker 5: tension that the chairman has to deal with. You know,

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Speaker 5: I don't believe that the FED can cut, so it's

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Speaker 5: kind of pointless to even talk about it. You know,

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Speaker 5: you have to basically understand where the other people on

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Speaker 5: the other side of the argument are. I mean, basically,

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Speaker 5: you have a FED at the moment that is split

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Speaker 5: between people that think they should cut twice and not

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Speaker 5: at all. So it's really hard to just move the

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Speaker 5: overton window and be like, yeah, let's go fifty. That's

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Speaker 5: not I don't think that's going to really persuade people.

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Speaker 5: So you have to kind of you know, pick the

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Speaker 5: battles wisely, and that's why I think going twenty five

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Speaker 5: makes sense as an insurance policy essentially. I mean, if

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Speaker 5: the labor market deteriorate further, you know, then the FED

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Speaker 5: can get more aggressive. But if you're calling for fifty

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Speaker 5: right now, I mean, I think what you're basically saying,

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Speaker 5: that's really a call option on another really bad jobs number.

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Speaker 5: So you know, you kind of have to see it

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Speaker 5: before you can kind of commit to it.

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Speaker 6: Yeah, that's what the Treasury secretary is calling for. Does

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Speaker 6: he think the economy is worse than you think it is?

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Speaker 5: No, I think he thinks the FED is more behind

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Speaker 5: than I think they might be.

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Speaker 6: When it comes to Treasury sector. Jim Bianco is putting

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Speaker 6: out this argument that Besson is providing filler names basically,

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Speaker 6: and that maybe his argument potential speculations that Trump's already

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Speaker 6: cut a deal with Besant to take the job for

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Speaker 6: next year. What do you think of that kind of

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Speaker 6: argument as you track who is going to be the

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Speaker 6: new FED chair?

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Speaker 4: I mean, the.

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Speaker 5: Treasury Secretary said repeatedly that he wants that he's in

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Speaker 5: the job that he wants, and that he's been offered

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Speaker 5: the job and said no, So I would take him

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Speaker 5: at his word, you know, in terms of I mean

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Speaker 5: what we are seeing is a flood the zone strategy.

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Speaker 5: I mean, the presidents said very clearly that that you know,

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Speaker 5: as well by three or four people that he's actively considering.

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Speaker 5: And you know, I do think perhaps a lot of

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Speaker 5: these other names are just kind of flooding the zone

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Speaker 5: to advocate for fifty. You know, folks like Laurie Logan

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Speaker 5: you had up on your screen. You know, she's a

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Speaker 5: voter next year. Maybe if you know, if she thinks

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Speaker 5: she might have a chance at the job, maybe she'll

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Speaker 5: start advocating for fifty. I mean, I don't know. I think,

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Speaker 5: you know, most of these people that are up there,

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Speaker 5: they're not going to fall for it, And I don't

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Speaker 5: think the market is either. But I do think it's

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Speaker 5: you know, it's an interesting strategy of getting additional people

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Speaker 5: to kind of come out and support a more aggressive

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Speaker 5: rate cutting path.

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Speaker 2: Up front, No, just before you go, got about a

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Speaker 2: minute left, just time for I think an important question.

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Speaker 2: You've called this economy really quite well. You've talked about

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Speaker 2: a slowdown that actually started at the end of last

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Speaker 2: year and continued into this year. With regards to the

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Speaker 2: labor market, the chairman has anchored his view around the

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Speaker 2: headline unemployment rate. You've raised questions about that. How are

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Speaker 2: you anchoring your view? What are you focused on?

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Speaker 5: Well, I'm focused on a number of factors. Might talk

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Speaker 5: to them. I highlighted them, but you know, I mean,

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Speaker 5: I think it's important to look at a wide body

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Speaker 5: of indicators. And you know, the Conference for Labor Differential

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Speaker 5: as an example. So what are consumers telling you about

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Speaker 5: labor market conditions. They're telling you they're getting worse at

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Speaker 5: the margin, that jobs are getting harder to get, jobs

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Speaker 5: aren't plentiful. Historically, this has had a strong relationship to

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Speaker 5: what actually happens with the unemployment rate. That's not surprising

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Speaker 5: because people tend to see things in their own local

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Speaker 5: economies before the data actually picks up on it. Or

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Speaker 5: small businesses. I mean, there was a lot of enthusiasm

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Speaker 5: around small business sentiment rising, but look at what small

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Speaker 5: businesses they're telling you about sales, that they're citing that

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Speaker 5: as one of their single biggest problems, weak sales. And

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Speaker 5: so historically, again, when that happens, you start to see

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Speaker 5: unemployment going up. And then looking at the employment data itself.

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Speaker 5: I mean, look, we can talk about lower break even

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Speaker 5: rates all you want, but I don't think a lot

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Speaker 5: of people had like sub fifty on jobs on their

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Speaker 5: bingo card in the second quarter. Okay, And that's kind

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Speaker 5: of where we are right now, and you have to

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Speaker 5: ask yours where are we going? And I do think

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Speaker 5: it's probably weaker from here, particularly with respect to housing

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Speaker 5: related industries.

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Speaker 2: Nala appreciate your time, as always. No answer of Renmac

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Speaker 2: the slow down he sees in the economy. Bernardi Goldberg

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Speaker 2: of TV Security, saying, assuming the next round of inflation

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Speaker 2: and payroll data largely behaves, we believe the path phase

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Speaker 2: September rate cut by the fat has been cleared. Gannadi

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Speaker 2: joins us snaw for more good monitor. Thanks very welcome

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Speaker 2: to the program. How high is the bar to deround

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Speaker 2: that rate cut expectation for September?

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Speaker 1: I mean, all he has to do is really not

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Speaker 1: say a ton. I think if he just kind of

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Speaker 1: clears the way and says, look, we're you know, we're

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Speaker 1: definitely looking at the data. But if all goes well,

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Speaker 1: you know, the market pricing is the market pricing. I

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Speaker 1: think that blessing alone would be fine. I think the

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Speaker 1: big risk for market if he is If he sounds

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Speaker 1: very noncommittal, that's when in the October and the December

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Speaker 1: pricing there's about thirty five basis POINTSPLI between those two.

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Speaker 1: That's when that starts to move around. If he sounds

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Speaker 1: like a noncommittal.

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Speaker 2: Tritter, what's the incentive to Sam commits it to anything

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Speaker 2: on Friday?

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Speaker 1: Tie. I think that's the the you mean. I'd say

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Speaker 1: the bar is pretty high at this point. The data

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Speaker 1: has been all over the place. You've seen the bigger

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Speaker 1: vision to payrolls. I think they've seen enough to start

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Speaker 1: to move. I think that's the key here. You know

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Speaker 1: we're looking for a cut in September, October, December. I

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Speaker 1: think they've seen enough to start moving. But you're right,

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Speaker 1: in order to commit to October December, they need to

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Speaker 1: really know that things are slowing down. I don't think

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Speaker 1: that's the case. So I don't think these calls for

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Speaker 1: fifty bases point rate cuts in September are justified, at

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Speaker 1: least not yet. But they're going to keep that or

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Speaker 1: open everything. I think the bigger problem is if he

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Speaker 1: comes in and pushes back on this market pricing and

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Speaker 1: he says, you know, why do we need to cut

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Speaker 1: it all? That's really when markets will start to get upset,

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Speaker 1: because right now markets are trading as though that cut

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Speaker 1: is secured.

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Speaker 4: Do you think that it's awkward that they're talking about

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Speaker 4: cutting rates in twenty five basis points sequential moves for

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Speaker 4: the rest of this year, at a time when investment

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Speaker 4: grade credits for RIZ or the Titus is nineteen ninety eight.

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Speaker 1: I think that the issue is things are okay on

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Speaker 1: the surface level. If you dig down into certain parts

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Speaker 1: of the economy, if you look at housing, for example,

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Speaker 1: if you look at certain portions of the US consumer,

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Speaker 1: there are some stresses, but overall, if you do kind

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Speaker 1: of a top down analysis, there's really two problems. One

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Speaker 1: is that inflation is a little bit uncomfortably high, and

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Speaker 1: we don't quite know the pass through yet. We know

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Speaker 1: it's kind of getting through there, but it's not as

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Speaker 1: terrible as predicted. And the other one is that, yes,

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Speaker 1: consumers are moderating, they're purchasing, so do they need a

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Speaker 1: little bit of help? Does housing need a little bit

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Speaker 1: of help? I think twenty five basis when increments makes sense,

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Speaker 1: you kind of start the process and you know, to

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Speaker 1: John's point, you don't commit to anything. You just make

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Speaker 1: sure that you kind of react to the data as

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Speaker 1: it comes in, you know.

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Speaker 4: I'm just I keep thinking about a conversation that we

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Speaker 4: were having last week about can you have your cake

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Speaker 4: and eat it too? Can you essentially have a really

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Speaker 4: good economy and a labor market that continues to be

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Speaker 4: robust at a time where inflation continues to go down,

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Speaker 4: even though right now you still have it at a

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Speaker 4: relatively sticky pace, can you? Or is that a fantasy?

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Speaker 1: I think it's you know, that would be a fantastic

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Speaker 1: end to chair Powace career, where you know you've got

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Speaker 1: inflation basically back at two percent, the labor market at

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Speaker 1: full employment, and you could just sail out into the sunset.

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Speaker 1: That would be fantastic. Reality is often different, But of

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Speaker 1: course reality is often a little bit different. I think

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Speaker 1: if it can make sure to keep inflation under control,

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Speaker 1: I think that's really what's keeping them from cutting rates here.

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Speaker 1: And if you look at the labor market, the labor

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Speaker 1: market's starting to soften up a little bit. You are

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Speaker 1: starting to see a little bit of a drift higher

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Speaker 1: in the unemployment rate. We expect more of that in

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Speaker 1: the second half of the year, a little bit less

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Speaker 1: in consumption, a little bit less in hiring. It's not

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Speaker 1: a very dynamic labor market. It's low higher low fire.

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Speaker 4: Right.

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Speaker 1: The problem with that is when you fly that close

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Speaker 1: to the ground, it doesn't take much to upset the

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Speaker 1: apple cart.

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Speaker 6: When you said, data is all over the place, do

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Speaker 6: you trust the data?

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Speaker 1: I trust the data in as much as I've always

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Speaker 1: trusted in, right, And there's a hierarchy of data right.

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Speaker 1: First and foremost, you get the anecdotal data you dismiss

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Speaker 1: I would say ninety five percent of that or more

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Speaker 1: because that doesn't tend to drive things. Then you get

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Speaker 1: survey data, then hard data, and then really you get

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Speaker 1: you know, I would say, kind of stretches of data.

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Speaker 1: And you look at averages. So you look at the

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Speaker 1: three month of sixtemlooming averages, something like a payroll report

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Speaker 1: that those recent revisions really push those averages a lot lower.

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Speaker 1: That's what the Fed's looking at for direction. It's not

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Speaker 1: necessarily the next is m print. It's really the trend

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Speaker 1: in you know, the labor market, the trend in inflation,

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Speaker 1: and from what they're seeing right now, I think there's

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Speaker 1: enough to start the process of cuts, but not necessarily

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Speaker 1: enough to commit to, you know, one hundred and fifty

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Speaker 1: base points of rate cuts, let's say.

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Speaker 6: But going forward with a highly polarizing what someone say,

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Speaker 6: bias economists leading the BLS, would you continue to trust

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Speaker 6: the data or the gold standard out the window.

436
00:20:40,640 --> 00:20:42,919
Speaker 1: I think we'll have to see if you know exactly

437
00:20:42,960 --> 00:20:44,840
Speaker 1: who gets confirmed. First of all, I think there's a

438
00:20:44,880 --> 00:20:47,439
Speaker 1: confirmation process where I do suspect there's going to be

439
00:20:47,440 --> 00:20:50,560
Speaker 1: some pushback, especially if the views are seen as over

440
00:20:50,560 --> 00:20:53,840
Speaker 1: the bias. The BLS is also has several thousand people employed.

441
00:20:54,359 --> 00:20:57,080
Speaker 1: There are rule books and manuals. If we start to

442
00:20:57,080 --> 00:20:59,160
Speaker 1: see that being broken down, then of course I think

443
00:20:59,200 --> 00:21:01,520
Speaker 1: the data will be so pet But there are private

444
00:21:01,520 --> 00:21:04,119
Speaker 1: sector serviys, you know ADP. Then suddenly becomes much more

445
00:21:04,160 --> 00:21:07,440
Speaker 1: important for the for the labor market. The issue is

446
00:21:07,480 --> 00:21:10,159
Speaker 1: really not a comprehensive data set for inflation. That's the

447
00:21:10,160 --> 00:21:14,040
Speaker 1: big problem, because everything feeds into the PCE report, which

448
00:21:14,040 --> 00:21:16,960
Speaker 1: then the FED uses, So it's not just you know,

449
00:21:17,000 --> 00:21:17,720
Speaker 1: it's not that simple.

450
00:21:17,720 --> 00:21:19,119
Speaker 2: I would say, let's talk about the top of the

451
00:21:19,160 --> 00:21:21,720
Speaker 2: Federal Reserve. We spoke to a FED chair candidate Mark Summerlin.

452
00:21:21,920 --> 00:21:23,960
Speaker 2: You heard a piece of that sound that interview coming

453
00:21:24,000 --> 00:21:27,280
Speaker 2: into this conversation. Lisa asked him a fantastic question about

454
00:21:27,280 --> 00:21:29,520
Speaker 2: what he would do if long end rates started to

455
00:21:29,600 --> 00:21:32,040
Speaker 2: rise as type cutting interest rates, and he was very blunt.

456
00:21:32,160 --> 00:21:34,840
Speaker 2: He just said, you stop, you stop, because that's not

457
00:21:34,880 --> 00:21:37,040
Speaker 2: what you want to see happening. That is what happened

458
00:21:37,520 --> 00:21:40,400
Speaker 2: last year from September onwards. Do you see a risk

459
00:21:40,440 --> 00:21:42,119
Speaker 2: of that repaytink all over again.

460
00:21:42,280 --> 00:21:44,600
Speaker 1: I think if you view the inflation as not being

461
00:21:44,640 --> 00:21:47,720
Speaker 1: under controlled, then absolutely. And I think the issue right

462
00:21:47,800 --> 00:21:50,440
Speaker 1: now is the Fed's cut is very delicate balancing act.

463
00:21:50,480 --> 00:21:52,600
Speaker 1: They want to start to ease, They want to start

464
00:21:52,640 --> 00:21:54,359
Speaker 1: to help the economy because they are worried about the

465
00:21:54,400 --> 00:21:57,919
Speaker 1: labor market. But if that inflationary pressure continues to build,

466
00:21:58,440 --> 00:22:01,560
Speaker 1: I think the problem becomes they actually have to stop

467
00:22:02,040 --> 00:22:03,919
Speaker 1: or you know, I've seen, I've heard floated, you know,

468
00:22:04,160 --> 00:22:07,920
Speaker 1: yield curve control as a possible alternative. I don't think

469
00:22:07,920 --> 00:22:10,520
Speaker 1: we're there yet. I think the Treasury is already starting

470
00:22:10,560 --> 00:22:12,480
Speaker 1: to worry about it by shifting some of the issuance

471
00:22:12,520 --> 00:22:15,199
Speaker 1: to the front end and buying back more longer day

472
00:22:15,240 --> 00:22:18,240
Speaker 1: to debt right, So the worries are already there. It's

473
00:22:18,280 --> 00:22:20,760
Speaker 1: just a function of does the FED keep moving. If

474
00:22:20,760 --> 00:22:23,360
Speaker 1: that continues to happen, we expect the curve to keep stepening.

475
00:22:23,359 --> 00:22:25,960
Speaker 4: By the way, just quickly, what's your highest conviction trade

476
00:22:26,000 --> 00:22:28,480
Speaker 4: given all of this, that seems very very certain.

477
00:22:28,240 --> 00:22:30,800
Speaker 1: Here, I want to I think it makes sense to

478
00:22:30,840 --> 00:22:35,200
Speaker 1: start legging insideration. You know, we are whether it's September

479
00:22:35,280 --> 00:22:38,760
Speaker 1: or October, we are seeing the FED looking to restart

480
00:22:38,760 --> 00:22:41,240
Speaker 1: the cutting cycle. You know, all kind of signs point

481
00:22:41,240 --> 00:22:43,760
Speaker 1: in that direction. I think the seven to ten year

482
00:22:43,800 --> 00:22:46,560
Speaker 1: parts of the curve look especially attractive. The five year

483
00:22:46,600 --> 00:22:49,000
Speaker 1: and under is where everyone's kind of hiding out and parked.

484
00:22:49,160 --> 00:22:51,040
Speaker 1: So if you can extend out to sevens and tens

485
00:22:51,440 --> 00:22:53,560
Speaker 1: as rates start to drift lower, I think that makes

486
00:22:53,560 --> 00:22:54,280
Speaker 1: a lot of sense here.

487
00:22:54,440 --> 00:22:57,080
Speaker 2: Knati appreciate you son, Thank you, sir. Cannot help back

488
00:22:57,480 --> 00:23:10,680
Speaker 2: t dy securities. Kelly great coach of the Stimpson sense

489
00:23:10,680 --> 00:23:13,640
Speaker 2: of writing. The following Today's meeting will test Zelenski's ability

490
00:23:13,880 --> 00:23:16,280
Speaker 2: to hold the line and to keep Ukraine's fate from

491
00:23:16,320 --> 00:23:19,359
Speaker 2: being decided without him. Kelly joins us nap and more. Kelly,

492
00:23:19,359 --> 00:23:21,840
Speaker 2: welcome to the program. How do we avoid a late

493
00:23:21,880 --> 00:23:24,560
Speaker 2: February scenario? How do we avoid a repeat of that?

494
00:23:26,000 --> 00:23:28,040
Speaker 7: Yes, I mean this has to be one of Zelenski

495
00:23:28,080 --> 00:23:30,080
Speaker 7: and the Europe's main concerns is that we'll see a

496
00:23:30,119 --> 00:23:32,879
Speaker 7: repeat of this what happened in February. You know, I

497
00:23:32,920 --> 00:23:35,760
Speaker 7: think we're in a different place than we were in February.

498
00:23:35,840 --> 00:23:39,240
Speaker 7: I think Zelenski is much smarter to not fall into

499
00:23:39,280 --> 00:23:41,000
Speaker 7: sort of the traps that he did in February. And

500
00:23:41,080 --> 00:23:42,960
Speaker 7: course the Europeans are going to be there to act

501
00:23:43,000 --> 00:23:43,720
Speaker 7: as a buffer.

502
00:23:44,200 --> 00:23:46,560
Speaker 6: Kelly, what do you know about this security guarantee? They're

503
00:23:46,600 --> 00:23:50,639
Speaker 6: discussing the NATO Article five like guarantee, but not NATO.

504
00:23:51,880 --> 00:23:54,119
Speaker 7: Yeah, you know, this is very vague. That's one of

505
00:23:54,160 --> 00:23:55,919
Speaker 7: the things I would say about this summit. It was

506
00:23:56,240 --> 00:23:58,439
Speaker 7: ended in sort of a cloud of uncertainty. And I

507
00:23:58,480 --> 00:24:02,840
Speaker 7: see two possibilities for these Article five guarantees. One is

508
00:24:02,840 --> 00:24:07,000
Speaker 7: that Putin has actually accepted that Europe and the United

509
00:24:07,000 --> 00:24:10,959
Speaker 7: States can provide some kind of Article five guarantee that

510
00:24:11,040 --> 00:24:13,560
Speaker 7: if Russia were to attack again, that they would be

511
00:24:13,640 --> 00:24:18,720
Speaker 7: obliged to respond, including militarily, to an invasion. I think

512
00:24:18,760 --> 00:24:22,560
Speaker 7: that's unlikely, but The second possibility would be that it's

513
00:24:22,600 --> 00:24:26,359
Speaker 7: actually something more like there were negotiations in Eastanbul shortly

514
00:24:26,400 --> 00:24:29,359
Speaker 7: after the war started, and there was an Article five

515
00:24:29,440 --> 00:24:33,960
Speaker 7: type guarantee as part of those negotiations that Russia had accepted,

516
00:24:34,320 --> 00:24:37,320
Speaker 7: and essentially all of the parties in the United States,

517
00:24:37,440 --> 00:24:42,240
Speaker 7: the Europeans, in Russia itself would guarantee Ukraine's security. If

518
00:24:42,280 --> 00:24:45,600
Speaker 7: one of them attacked, the others would respond. And I

519
00:24:45,640 --> 00:24:48,399
Speaker 7: think that maybe that we're returning to the East of

520
00:24:48,440 --> 00:24:50,760
Speaker 7: Bulfo formula. Of course we don't really.

521
00:24:50,560 --> 00:24:51,200
Speaker 1: Know, Kellyen.

522
00:24:51,240 --> 00:24:53,600
Speaker 6: Didn't they already make this agreement in nineteen ninety four.

523
00:24:53,680 --> 00:24:56,400
Speaker 6: What's so different from this than the Budapest memorandum.

524
00:24:57,280 --> 00:25:00,199
Speaker 7: Yes, so it is different from nineteen ninety four or

525
00:25:00,200 --> 00:25:05,000
Speaker 7: when that was a security assurance. The States assured Ukraine

526
00:25:05,560 --> 00:25:08,119
Speaker 7: the parties to it, including Russia, that they would not attack.

527
00:25:08,200 --> 00:25:10,120
Speaker 3: Of course, Russia is not.

528
00:25:10,840 --> 00:25:14,679
Speaker 7: Abided by those terms, but there was no obligation in

529
00:25:14,720 --> 00:25:16,840
Speaker 7: any of the language to say that if Ukraine was

530
00:25:16,880 --> 00:25:20,640
Speaker 7: in fact attack, others needed to provide assistance to support

531
00:25:20,680 --> 00:25:24,679
Speaker 7: their defense, and a security guarantee does that. It actually

532
00:25:24,680 --> 00:25:27,080
Speaker 7: says that there will be assistance provided in the event

533
00:25:27,119 --> 00:25:27,679
Speaker 7: of an attack.

534
00:25:27,960 --> 00:25:31,520
Speaker 4: The perception after the meeting in Alaska between Vladimir Putin

535
00:25:31,720 --> 00:25:35,360
Speaker 4: and President Trump was that this was a PR victory

536
00:25:35,600 --> 00:25:38,199
Speaker 4: for Vladimir Putin. Do you think that there is anything

537
00:25:38,200 --> 00:25:41,080
Speaker 4: that could happen today in this meeting with European leaders

538
00:25:41,080 --> 00:25:44,359
Speaker 4: in Vladimir's Lensky that could reverse that, that could change

539
00:25:44,359 --> 00:25:47,160
Speaker 4: that perception and put a new spin on exactly how

540
00:25:47,200 --> 00:25:50,720
Speaker 4: this carries out over the remaining weeks and months ahead.

541
00:25:51,680 --> 00:25:53,879
Speaker 7: Yes, I mean, it's certainly true that for Putin this

542
00:25:54,080 --> 00:25:57,359
Speaker 7: was a PR victory before the talks even started, just

543
00:25:57,400 --> 00:25:59,960
Speaker 7: being able to arrive on you a soil, no longer

544
00:26:00,359 --> 00:26:03,960
Speaker 7: being you know, this isolated pariah, but sort of returning

545
00:26:03,960 --> 00:26:06,960
Speaker 7: to being a statesman. I will say, though, today I

546
00:26:06,960 --> 00:26:09,960
Speaker 7: think the stakes for Zelenski and Europe are much higher

547
00:26:10,000 --> 00:26:13,439
Speaker 7: than even you know, propaganda victories and PR victories. You know,

548
00:26:13,440 --> 00:26:15,879
Speaker 7: if I'm Zelenski, I'm arriving in DC not for this

549
00:26:15,960 --> 00:26:17,760
Speaker 7: photo op, but because I want to be able to

550
00:26:17,760 --> 00:26:20,359
Speaker 7: shake the actual peace process. I think we're now in

551
00:26:20,400 --> 00:26:23,480
Speaker 7: the stage where this is really shuttle diplomacy, and so

552
00:26:23,840 --> 00:26:26,639
Speaker 7: he's really up to Zelenski to really walk that needle

553
00:26:26,760 --> 00:26:31,040
Speaker 7: up being able to assert and protect Ukrainian interests, but

554
00:26:31,200 --> 00:26:34,880
Speaker 7: also making sure that he's able to keep Trump aligned

555
00:26:34,920 --> 00:26:39,040
Speaker 7: with him, to be able to represent Ukrainian interest with Russia.

556
00:26:39,119 --> 00:26:41,800
Speaker 4: How much of a sense do you have about Europeans

557
00:26:42,240 --> 00:26:45,720
Speaker 4: willingness to really commit, whether it's money, whether it's troops,

558
00:26:45,760 --> 00:26:49,040
Speaker 4: whether it's their own guarantees behind any kind of peace

559
00:26:49,080 --> 00:26:52,880
Speaker 4: agreement between Ukraine and Russia, because that's been something that's

560
00:26:52,880 --> 00:26:56,879
Speaker 4: been sort of contentious and contended between the US and Europe.

561
00:26:57,520 --> 00:26:59,399
Speaker 7: Yes, and so glad you brought that up, because I

562
00:26:59,400 --> 00:27:03,240
Speaker 7: think this is something that is often overlooked, which is

563
00:27:03,240 --> 00:27:06,119
Speaker 7: that Europe talks a lot about wanting to provide some

564
00:27:06,200 --> 00:27:09,960
Speaker 7: kind of security guarantee, but they're sparse on the details

565
00:27:09,960 --> 00:27:12,480
Speaker 7: of what they're actually willing to provide in very concrete

566
00:27:12,600 --> 00:27:14,440
Speaker 7: terms and how they're going to make that credible.

567
00:27:15,040 --> 00:27:17,320
Speaker 3: And they face two challenges in this regard.

568
00:27:17,640 --> 00:27:21,080
Speaker 7: One is that the decades of low defense spending mean

569
00:27:21,119 --> 00:27:24,840
Speaker 7: that their military capabilities are more limited, particularly to be

570
00:27:24,840 --> 00:27:27,600
Speaker 7: able to provide for their own security as well as

571
00:27:27,640 --> 00:27:29,000
Speaker 7: potentially for Ukraine's.

572
00:27:29,280 --> 00:27:29,720
Speaker 3: And then the.

573
00:27:29,720 --> 00:27:31,840
Speaker 7: Second is that this war's gone on for three and

574
00:27:31,880 --> 00:27:34,040
Speaker 7: a half years and the Europeans have not been willing

575
00:27:34,119 --> 00:27:37,040
Speaker 7: to intervene directly because they don't believe that they have

576
00:27:37,560 --> 00:27:41,280
Speaker 7: sufficient interests to justify that level of commitment. So how

577
00:27:41,320 --> 00:27:44,840
Speaker 7: do you make a commitment to potentially enter a new

578
00:27:44,880 --> 00:27:48,679
Speaker 7: war should Russia attack credible when you've already demonstrated that

579
00:27:48,720 --> 00:27:51,600
Speaker 7: you weren't willing to fight a war over Ukraine. Those

580
00:27:51,680 --> 00:27:54,199
Speaker 7: are both really big challenges for Europe.

581
00:27:54,280 --> 00:27:56,679
Speaker 6: Kelly state Wikoff said that important discussion will need to

582
00:27:56,680 --> 00:28:00,639
Speaker 6: be had regarding Don Yesk. What can Zelenski ex today?

583
00:28:01,840 --> 00:28:03,920
Speaker 7: Yes, So this is you know, this is the area

584
00:28:03,960 --> 00:28:05,840
Speaker 7: where it's going to be the hardest for Ukraine. I

585
00:28:05,840 --> 00:28:08,800
Speaker 7: think these Article five guarantees are meant to be a sweetener,

586
00:28:09,400 --> 00:28:11,320
Speaker 7: and the reality is that there's going to be have

587
00:28:11,400 --> 00:28:13,879
Speaker 7: to be some level of territorial concessions if we're going

588
00:28:13,920 --> 00:28:16,399
Speaker 7: to get to a piece stale. And it's clear that

589
00:28:16,400 --> 00:28:21,280
Speaker 7: Putin is focused on Donesque in particular, you know, to

590
00:28:21,280 --> 00:28:24,880
Speaker 7: try to capture the rest of donbos Lahansk in Dunesque

591
00:28:24,960 --> 00:28:28,320
Speaker 7: makeup Donbass. He has Lahonsk under Russian control at the

592
00:28:28,320 --> 00:28:31,960
Speaker 7: moment or occupation, and he has about eighty seven percent

593
00:28:32,440 --> 00:28:35,520
Speaker 7: of a Dunboss is under Russian occupation.

594
00:28:35,600 --> 00:28:36,720
Speaker 3: And he wants the rest of it.

595
00:28:37,160 --> 00:28:39,960
Speaker 7: And so I think, you know, part of for for

596
00:28:40,720 --> 00:28:42,800
Speaker 7: Zelensky is he has to decide, you know, is it

597
00:28:42,840 --> 00:28:45,479
Speaker 7: better to do this at a negotiating table or to

598
00:28:45,520 --> 00:28:47,720
Speaker 7: continue to fight. And it looks like if they continue

599
00:28:47,720 --> 00:28:51,200
Speaker 7: to fight, the Russians will slowly and painfully be able

600
00:28:51,200 --> 00:28:53,760
Speaker 7: to capture the rest of Dunesque, And so is it

601
00:28:53,800 --> 00:28:56,240
Speaker 7: better to have options at the negotiating table so you

602
00:28:56,240 --> 00:28:58,960
Speaker 7: can get some other kinds of concessions, whether it's other

603
00:28:59,120 --> 00:29:02,520
Speaker 7: Ukrainian territory or also these kinds of security guarantees.

604
00:29:02,680 --> 00:29:04,640
Speaker 2: Kelly, just quickly, it might sound like a silly question,

605
00:29:04,720 --> 00:29:07,400
Speaker 2: but why are we okay with Article five style guarantees

606
00:29:07,400 --> 00:29:09,040
Speaker 2: but not NATO membership?

607
00:29:10,320 --> 00:29:12,880
Speaker 7: Yes, I mean it's clear that NATO membership is a

608
00:29:12,920 --> 00:29:14,800
Speaker 7: redline for the Russians.

609
00:29:15,280 --> 00:29:16,840
Speaker 3: They do not want NEEDO membership.

610
00:29:17,000 --> 00:29:19,400
Speaker 7: But this is also why I'm skeptical that the Russians

611
00:29:19,400 --> 00:29:22,360
Speaker 7: are going to be acceptable with some idea of American

612
00:29:22,520 --> 00:29:26,840
Speaker 7: or European forces, even in limited numbers on Ukrainian soil,

613
00:29:27,040 --> 00:29:29,840
Speaker 7: to try to make that kind of Article five guarantee credible.

614
00:29:30,120 --> 00:29:32,640
Speaker 2: Kelly, I appreciate your reaction to things. Thank you, Kelly

615
00:29:32,640 --> 00:29:37,160
Speaker 2: greco of The Stimpsons Scent. This is the Bloomberg Surveillance Podcast,

616
00:29:37,280 --> 00:29:41,200
Speaker 2: bringing you the best in markets, economics, a geopolitics. You

617
00:29:41,200 --> 00:29:44,000
Speaker 2: can watch the show live on Bloomberg TV weekday mornings

618
00:29:44,000 --> 00:29:46,920
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619
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Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and,

620
00:29:50,520 --> 00:29:53,400
Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business

621
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Speaker 2: Amp