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Speaker 1: Broadcasting live to New York, Bloomberg to Washington, d C.

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Speaker 1: Bloomberg to Boston, Bluemberg, twelve hundreds to San Francisco, Bluemberg

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Speaker 1: to the country, US Journal one and around the globe

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Speaker 1: the Bloomberg Radio plus a Bloomberg dot Com. This is

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Speaker 1: Bloomberg Surveillance. Good morning everyone at seven thirty on Wall Street.

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Speaker 1: Him Michael McKee along with Tom Keane or two hours

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Speaker 1: away from the start of trading. A kind of quiet

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Speaker 1: day on the screens today. Not a whole lot of news.

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Speaker 1: This in from Deer just a few moments ago. Uh.

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Speaker 1: They're lowering their fiscal full year profit outlook, reduced sales

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Speaker 1: of tractors and combines. They say full year net income

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Speaker 1: will be about one point two billion. That's uh, down

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Speaker 1: from one point three billion in forecasting in February, Yahoo

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Speaker 1: Wall Street Journal reporting that bids may fall short of

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Speaker 1: the four to eight billion dollar expected range. They cite

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Speaker 1: people familiar there with the matter. Verizon and others are

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Speaker 1: expected to bid two to three billion in the auction

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Speaker 1: for Yahoo's core business. A visitor to do the first

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Speaker 1: week of June. One m and a story today and

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Speaker 1: it's from overseas, but in the oil business, Total and

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Speaker 1: oil Search will divide the Papua New Guinea assets of

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Speaker 1: inter Oil a two step deal oil Search by of

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Speaker 1: inter Oil to point two billion dollars and then sells

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Speaker 1: the majority of the gas and exploration assets to to

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Speaker 1: tal for about one point to billion. Now, let's check

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Speaker 1: out with Michael bar get the latest world in national headline.

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Speaker 1: Like Mike Tom, thank you very much. Egypt's president is

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Speaker 1: expressing deep sadness and extreme regrets over the depths of

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Speaker 1: the sixty six people aboard egypt Air Flight eight oh

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Speaker 1: four plunged into the Mediterranean early yesterday. The Egyptian Army

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Speaker 1: found the plane's wreckage and personal belongings this morning, about

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Speaker 1: a hundred eighty miles north of Alexandria. One point one

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Speaker 1: billion dollar plan to combat the Zeke virus has cleared

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Speaker 1: the Senate with bipartisan support. It is less than the

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Speaker 1: one point nine billions sought by President Obama. The White

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Speaker 1: House says the President is set to veto a House

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Speaker 1: version which totals six D twenty two million. Rescuers in

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Speaker 1: central Sri Lanka have confirmed that at least a hundred

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Speaker 1: thirty two villagers are feared buried by landslides this week.

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Speaker 1: Authorities say the death toll is at sixty three and

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Speaker 1: it will rise. Hillary Clinton says Donald Trump is not

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Speaker 1: qualified to be president at the comments during a CNN interview.

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Speaker 1: Global News twenty four hours a day, powered by our

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Speaker 1: four hundred journalists more than a hundred fifty news bureaus

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Speaker 1: around the world. On Michael Bar Mike Tom, thank you, Michael.

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Speaker 1: Time now for the land over Precipitate Bloomberg NBC Sports Update.

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Speaker 1: Here's Rum Bush, mort and Mike Solid starting pitching. That

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Speaker 1: was the key for the Yankees the past two games

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Speaker 1: on the road. New York opened up a four game

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Speaker 1: weekend set in Oakland with a four one win. It

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Speaker 1: also helps when you play some long ball peas swing

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Speaker 1: on vel hot ball is high, head is far head US.

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Speaker 1: That's two run home run over the right Stu Fill scoreboard.

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Speaker 1: So belt drum belts Land series continues tonight at nine

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Speaker 1: That Yankees Radio on the Call, c C. Sabathia meets

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Speaker 1: Sonny Gray, Mets fan. They're waiting for the real dark

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Speaker 1: Night to return. Is once untouchable. Matt Harvey was roughed

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Speaker 1: up by the Nationals at City Field in a nine

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Speaker 1: one loss. Harvey didn't get out of the third inning.

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Speaker 1: He gave up nine runs, including a two run homer

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Speaker 1: the former teammate Daniel Murphy. Harvey falls to three and

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Speaker 1: six on the year homestand continues tonight versus Milwaukee, Willie

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Speaker 1: Peralta faces Stephen Matt's Giants win their eighth in a row.

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Speaker 1: They went seven and oh on that road trip NBA

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Speaker 1: Playoffs Eastern Conference Finals. The well rested Cavaliers ten and

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Speaker 1: oh in the postseason as they beat Toronto and San

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Speaker 1: Jose took down St. Louis on the ice at your

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Speaker 1: NBC Bloomberg Sports Up, Dave, I'm well, Mike, thank you

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Speaker 1: very much. Rub of course I've probably called him different

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Speaker 1: Davis too. We are looking at markets catching their breath

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Speaker 1: after the last two days of FED induced hysteria. S

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Speaker 1: and P futures are up by two tents as our

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Speaker 1: Dow futures, and in Europe the stock six is up

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Speaker 1: eight tenths, just about three points this morning. This is

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Speaker 1: SPLUMMERK Surveillance. I Michael McKee along with Tom Keane the

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Speaker 1: FED front and center for everybody, and we'll talk with

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Speaker 1: Dean Mackie about that in just a moment ten youre

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Speaker 1: note yield is up to one point eight six the

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Speaker 1: two years at eighty nine basis points. This morning, in

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Speaker 1: time for the Bloomberg n j I T STEM Report,

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Speaker 1: brought to you by New Jersey Institute of Technology, investing

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Speaker 1: more than a hundred and ten million dollars a year

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Speaker 1: and applied research to solve problems and improve life. Learn

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Speaker 1: more at Stories of Innovation dot m j I T

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Speaker 1: dot E DU Here is good morning, I'm bob your mind. Yes,

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Speaker 1: here's what's making news science, technology, engineering. Long dawn are

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Speaker 1: the days when there used to be a feel good

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Speaker 1: ride from outing the Wonders of Science at Disneyland, sponsored

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Speaker 1: by Monsanto. In recent times, the Saint Louis based company

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Speaker 1: has been characterized as sinister and evil by activists objecting

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Speaker 1: to its genetically modified crops. It's been accused of contributing

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Speaker 1: to the decline of the monarch butterfly, and surveys rank

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Speaker 1: it among the most hated companies in America. Now the

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Speaker 1: Bear wants to buy it, there may be some work

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Speaker 1: to do to separate its work from its reputation. In

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Speaker 1: the event of a deal, public relations consultant Eric Schiffer

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Speaker 1: thinks Bear would probably drop the men Montsanto name. Tomorrow,

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Speaker 1: Activists in locations around the world will participate in the

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Speaker 1: March against Monsanto. According to the organizers, they're calling for

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Speaker 1: further research on the health effects of what they brand

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Speaker 1: as Franken foods. That's frontier in the battle between the

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Speaker 1: FBI and technology companies over encrypted communications will be more

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Speaker 1: legally complicated and messy than trying to get into the

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Speaker 1: iPhone of a dead terrorist. Messaging tools like Facebook's WhatsApp

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Speaker 1: and internet services that automatically encrypt the contents of texts,

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Speaker 1: phone calls, and other data while they're being scent are

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Speaker 1: increasingly becoming a problem for national security and criminal investigations.

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Speaker 1: According to the Federal Bureau of Investigation, Electronic privacy advocates

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Speaker 1: are waiting for the first big test case, and that

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Speaker 1: is this morning's Bloomberg and j I T Step report. Mike,

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Speaker 1: all right, thank you, Fred. Tom Keene's with me, and

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Speaker 1: we've got Dean Mackie at the phone with us. He's

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Speaker 1: the chief economist at Point seventy two and he's been

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Speaker 1: following the FED for almost as many years as Tom

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Speaker 1: and I uh and uh. It's interesting, Dean, that all

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Speaker 1: of a sudden, the FED seems to have decided that

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Speaker 1: they are tired of being led around by the nose

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Speaker 1: by the markets, and they're gonna start telling investors what

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Speaker 1: to do instead of the other way around. Yeah, they

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Speaker 1: certainly suddenly did seem to object to market pricing. Um,

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Speaker 1: you know, I think, to be fair, the market pricing

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Speaker 1: had moved to that lower level in terms of probability

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Speaker 1: of June and July rate hikes because the Fed wasn't

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Speaker 1: really willing to say much in their statement in April

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Speaker 1: UH to flag future rate hikes. They didn't bring in

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Speaker 1: a balance of risk assessment like they had in October

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Speaker 1: before before hiking rates. And so you know, I think

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Speaker 1: investors just took from that that the said really wasn't

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Speaker 1: yet in a position to raise rates. And we also

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Speaker 1: had the phenomenon going into April where some of the

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Speaker 1: Reserve Bank presidents were talking about an April hike, and

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Speaker 1: then we had Chair Yelling come up with one of

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Speaker 1: the most dubblish uh speeches I've I've heard from a

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Speaker 1: said chair. And so that let investors say, Okay, we

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Speaker 1: we just need to listen to chair yelling and not

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Speaker 1: all the Reserve Bank presidents who are talking rate hikes.

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Speaker 1: So I think that's that's really what's what's happened here.

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Speaker 1: And the said just decided enough enough and and that's

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Speaker 1: what this verbal communication assault is all about. Well, we

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Speaker 1: haven't heard from chair yelling, We've only heard from Reserve

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Speaker 1: Bank unnamed people in a minute. So whom are you

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Speaker 1: listening to? Well, I mean I do think we we

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Speaker 1: we do need to listen to all of them. Um,

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Speaker 1: you know, I think that that, you know, what what's

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Speaker 1: happened now is a consistency and a across speakers and

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Speaker 1: an urgency that's not been there before. And I think,

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Speaker 1: you know, the minutes reinforced that point and gave a

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Speaker 1: quite different interpretation to the April meeting than the statement

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Speaker 1: alone did. So I think there's been a lot of

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Speaker 1: moving parts that have shifted around within the last week

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Speaker 1: or so. Do they have a model that they're working

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Speaker 1: off of or they flying by the season pants? It

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Speaker 1: seems a lot more like they're they're kind of making

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Speaker 1: it up as they go along. Um, you know, I

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Speaker 1: think it's it's very difficult for I think one of

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Speaker 1: the things investors had trouble with was why, with some

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Speaker 1: market volatility in the first quarter of the FED shifted

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Speaker 1: from four hikes to two for the year UM. That

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Speaker 1: seems like a quite an abrupt shift, especially when markets

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Speaker 1: already had recovered by the time of the March meeting

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Speaker 1: when they made that shift in their projected rate hikes

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Speaker 1: for for this year UM. So it seems like the

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Speaker 1: feed is quite sensitive to market fluctuations. They also seem

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Speaker 1: quite sensitive to the ups and downs of quarterly GDP

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Speaker 1: data UM. So it does seem like it's quite easy

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Speaker 1: to stop them and had much harder for them to

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Speaker 1: go ahead with rate heights. What's your run rate on

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Speaker 1: GDP now after a miserable first quarter? Like what's all

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Speaker 1: in GDP for calendar year two thousand sixteen. My aspect

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Speaker 1: is it it comes out a little under two percents

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Speaker 1: and like, one, Wow, I'm really, really, really really do

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Speaker 1: you're still there? Yes? Yes, Now Q two is going

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Speaker 1: to be strong, how I think you two will be

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Speaker 1: three percent? But when you combine that with half a

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Speaker 1: percent in the first quarter, you still get a pretty

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Speaker 1: low underlying run rate. But to be clear, here we

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Speaker 1: end up twelve thirty one two thousand sixteen looking back

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Speaker 1: at sub DP, that's right. Look what's potential. I think

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Speaker 1: potential is between one and one and a half. So

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Speaker 1: we're as as as much as it makes you shake

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Speaker 1: your head to say one, we're still running faster than

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Speaker 1: potential exactly. So the labor market, in my view, will

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Speaker 1: keep tightening, unemployment rate keeps following. Growth continues at a

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Speaker 1: pretty healthy rate. Um, it just means that growth is

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Speaker 1: not all that strong and the labor force is not

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Speaker 1: growing all that quickly. That's right where we want to go.

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Speaker 1: We're gonna come back with Dean Mackie and talk about

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Speaker 1: something he said the last time he was on with us,

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Speaker 1: which basically has been quoted worldwide. Dr Mackie suggested unemployment

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Speaker 1: and the unemployment rate. I should say, Mike, let me

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Speaker 1: rephrase that employment will increase and the unemployment rate will

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Speaker 1: come down in the vicinity of four point zero percent.

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Speaker 1: That is an outliery call from what I said. That

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Speaker 1: is remarkable. Dean Mackie point seven to on a terrific

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Speaker 1: American labor economy, which maybe speaks to why does so

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Speaker 1: many people feel so miserable. We'll address that as well.

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Speaker 1: Michael McKee and Tom Keane getting you ready for your

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Speaker 1: weekend reading and into next week. This Friday, Bloomberg Surveillance,

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Speaker 1: We're counting down to the opening bell. Brought to you

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Speaker 1: by Bulbo Cars, White Planes. Visit Volvo Cars, White Planes,

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Speaker 1: dot Com Global Business News twenty four hours a day.

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Speaker 1: If Bloomberg dot Com the radio plus mobile last and

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Speaker 1: on your radio. This is a Bloomberg Business Flash And

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Speaker 1: I'm Karen Moscow. Deer and Company now down one point

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Speaker 1: two percent and early trading, the world's biggest farm equipment manufacturer,

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Speaker 1: lowering its fiscal full year profit outlook on projections for

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Speaker 1: reduced sales of tractors and combines as farmers face a

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Speaker 1: decline in income. Financial markets showing signs of stabilizing after

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Speaker 1: being buffeted this week by a certain expectations for a

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Speaker 1: US interest rate increase. Global stocks are rebounding from a

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Speaker 1: six week low. Oil is lower now. We check the

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Speaker 1: markets every fifteen minutes throughout the trading day. All Bloomberg

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Speaker 1: snp emity futures of points at Dowimny futures of forty

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Speaker 1: four nas vacuum in the futures of fifteen that acts

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Speaker 1: in Germany's up eight tenths per cent ten your treasury

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Speaker 1: down to thirty seconds. The yield one point eight five

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Speaker 1: percent yield on the two year point eight nine percent.

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Speaker 1: Nimex screwed oil down three tens per cent or sixteen

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Speaker 1: cents to forty eight dollars of arrel comes. Gold up

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Speaker 1: two tenths per cent or two dollars ninety cents at

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Speaker 1: twelve fifty seven seventy announced the Euro at dollar twelve

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Speaker 1: twenty the end one ten point three nine apply materials

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Speaker 1: that more than eight percent after it forecast third quarter

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Speaker 1: sales that maybeat analysts estimates, lifted by a surgeon demand

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Speaker 1: from ship makers as they upgrade production technology. That's a

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Speaker 1: Bloomberg business flash, Tom and Mike here, thanks so much.

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Speaker 1: A Bloomers surveillance is Friday brought you by interactive brokers.

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Speaker 1: for their strong continued support Bloomberg surveillance as we do

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Speaker 1: Dean McKie as well. Point seven two over the years

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Speaker 1: has given us very very good, uh perspective that Dean,

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Speaker 1: it is remarkable your call for four point zero percent

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Speaker 1: unemployment sixteen years ago we got to three point eight percent.

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Speaker 1: But I'm just going to suggest it's a rare occurrence.

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Speaker 1: How do we get to your rare occurrence of below

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Speaker 1: four point unemployment? Yeah, so I think that we The

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Speaker 1: reason we'll get there is that the participation rate, I'm convinced,

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Speaker 1: is not going to continue to rise as it has

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Speaker 1: the past couple of months. Um, I I believe the

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Speaker 1: participation rate is going to flatten out. And if that,

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Speaker 1: if that view is correct, and then we only need

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Speaker 1: seventy five hundred thousand jobs per month to keep the

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Speaker 1: unemployment right stable. Anything significantly above a hundred thousand per

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Speaker 1: month will keep their We'll push the unemployment rate down

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Speaker 1: over time. And you know, we've averaged more than two

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Speaker 1: hundred thousand a month over the past year, and even

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Speaker 1: the past three months it's been two hundred thousand on average.

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Speaker 1: So I think since that is the key call, he

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Speaker 1: is the participation rate going to continue to search the

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Speaker 1: way it has the past couple of months. I don't

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Speaker 1: think it is to our informed audience. They learned in

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Speaker 1: class at one fifty was the runway plus or minus

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Speaker 1: x thousand. D mckie's number of seventy five thousand is

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Speaker 1: shocking to any pro Do you define that old graduate

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Speaker 1: of Stanford in the language of the president of Harvard,

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Speaker 1: Lawrence Summers? I mean, is Larry Summers right about secular stagnation?

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Speaker 1: I don't think he's right in the sense that I

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Speaker 1: don't believe that we're going to be growth. It's going

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Speaker 1: to be so weak that we won't be able to

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Speaker 1: push the unemployment rate down, that we won't be able

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Speaker 1: to generate in nation over time. I don't think that

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Speaker 1: part of the view is correct. I think the part

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Speaker 1: that I do agree with is that growth will be

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Speaker 1: slower going forward and has been slower that will continue

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Speaker 1: with than it was in prior cycles. And it's because

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Speaker 1: of these uh structural forces of baby boomers continuing to retire,

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Speaker 1: productivity growth being on the slower side. It's it's hard

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Speaker 1: to see those two things changing significantly in the in

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Speaker 1: the next few years. Getting to the idea of needing

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Speaker 1: only a hundred thousand jobs or so for the unemployment

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Speaker 1: rate to remain stable. Anything above that probably pushes it lower.

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Speaker 1: Why don't people in financial markets understand that? Well? I

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Speaker 1: think that it's becoming more consensus, even though it's not

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Speaker 1: yet consensus this view, um. But I think what people

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Speaker 1: have just you know, certainly, especially in the first few

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Speaker 1: years of the expansion, people were just used to the

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Speaker 1: old model that you know, you needed the one fifty

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Speaker 1: just to keep things stable. Demographics are slow moving, and

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Speaker 1: people tend not to incorporate them into their world view

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Speaker 1: because they don't seem like they're changing month much month

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Speaker 1: to month um. But these struck big structural shifts like this. Uh,

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Speaker 1: they happen and they're real, even if people aren't really

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Speaker 1: perceiving them. So, uh, we get four point two unemployment.

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Speaker 1: What does that do for wages and inflation? I think

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Speaker 1: that we already are seeing wage inflation picking up. And

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Speaker 1: it's not a not a consensus view, I don't think.

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Speaker 1: But if one looks at something like the Atlanta Fed

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Speaker 1: wage tracker, that's picked up now to three point four

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Speaker 1: percent year on your growth, and that's one of the

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Speaker 1: best measures we have because it actually follows the same

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Speaker 1: workers year to year, so you don't have the compositional

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Speaker 1: shifts of you know, bringing people in from one industry

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Speaker 1: or another, um, younger household substituting for older households. All

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Speaker 1: of those compositional shifts kind of corrupt the message from

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Speaker 1: the average early earnings report, so that the things that

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Speaker 1: are actually following the same people over time are saying

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Speaker 1: wage growth is much stronger at three point four percent already.

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Speaker 1: Well do we But you know, if I tell we

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Speaker 1: get to four uneployment of wages rising already, we can

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Speaker 1: have a real inflation problem unless the FED works well

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Speaker 1: it since they had to say right now that it

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Speaker 1: would be a problem that the FED actually wants. You know,

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Speaker 1: we're in the I mean unusual place historically where the

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Speaker 1: Fed really wants something of a wage price spiral. Now

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Speaker 1: they want higher wages, they want higher prices, and they

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Speaker 1: want those to interact. Um. You know, they only want

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Speaker 1: that to go on for a while. UM. So they

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Speaker 1: want an acceleration in wages. They want inflation up to

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Speaker 1: two percent, and you know some of them are willing

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Speaker 1: to overshoot that. You know, at some point then they

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Speaker 1: they this does continue until the set stops it. So

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Speaker 1: I do think that there there is a point in

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Speaker 1: the coming months where the FED will have to go faster,

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Speaker 1: but we're not close to that point now. Indean, this

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Speaker 1: is where we love to have you on. Did you

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Speaker 1: come up with something that my full disclosure A supposed

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Speaker 1: to know about and I don't get at all, Like

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Speaker 1: the Atlanta wage tracker Dr Mackie that comes out of

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Speaker 1: San Francisco Research Fetters of a Bank of San Francisco,

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Speaker 1: and just as one idea, job stayers reporting the same

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Speaker 1: wage is one year prior. I mean, there's some really

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Speaker 1: interesting dynamics in here when you look at wage growth

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Speaker 1: or anybody does is it a traditional blue collar analysis

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Speaker 1: or does it include all of America? Well, I think

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Speaker 1: some of the measures are tied to one or the

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Speaker 1: other of those things. You know, can we do both? Yeah.

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Speaker 1: One of my favorite measures is the compensation per hour

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Speaker 1: that comes out in the Productivity Report. It's a very

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Speaker 1: simple concept. They basically take all compensation divided by all

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Speaker 1: hours work. It doesn't matter what the form of compensation

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Speaker 1: is or or how it's paid. And that that is

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Speaker 1: also showing a stronger wage growth right now at two

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Speaker 1: point eight percent. Than say the Averagari learnings number. Um.

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Speaker 1: So that's capturing the fact that some of the white

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Speaker 1: color pay growth is running faster than perhaps the hourly earnings.

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Speaker 1: But what's great about that chart US compensation per hour

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Speaker 1: non farm business is folks, two point eight percent is

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Speaker 1: Dr mackew mentions Mike McKee it was ten in on

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Speaker 1: a nominal basis in the time of vulgar Are we

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Speaker 1: feeling a real wage growth or is it or is

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Speaker 1: it an a fiction after inflation? Well, that's one I

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Speaker 1: think misperception out there is real wages have been growing

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Speaker 1: quite briskly over the past few years because of the

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Speaker 1: decline in gasoline prices, so inflation has been extremely low

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Speaker 1: overall inflation, So real wage growth has been has been

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Speaker 1: quite strong, and that's been matched by real consumption growth

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Speaker 1: also being uh you know at times here on your

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Speaker 1: consumption with was three and a half percent, uh say

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Speaker 1: a year ago. Um. So I think there there are

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Speaker 1: misperceptions that consumption and income is quite quite weak. In

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Speaker 1: real terms, they've both been pretty strong. Where do you

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Speaker 1: think uh, real rates are and should go? I mean,

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Speaker 1: I think that the real said funds rate does need

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Speaker 1: to get up eventually into the one and a half

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Speaker 1: to two percent range. I think right now we're still

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Speaker 1: in you know, real rates are are are still in

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Speaker 1: negative territory um and so I think that we we

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Speaker 1: will have to see those rates move significantly higher over time.

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Speaker 1: G mackew, thank you so much. Point seven two economics

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Speaker 1: with a really like I'm gonna call it a headline

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Speaker 1: call a low four percent yeah, unemployment. That would get

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Speaker 1: people's attention. And there's a lot of the people, well,

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Speaker 1: you know, the market station, to the to the March

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Speaker 1: jobs report, the April job support. The thought was terrible.

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Speaker 1: We had a good week, folks. Michael McKee and I

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Speaker 1: tried to emphasize to all Advice Chairman Fisher possibly would

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Speaker 1: say something about monetary policy and comments to Michael Woodford

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Speaker 1: at Columbia University and pleased to remote port Mike. We

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Speaker 1: got it totally wrong. Instead, the vice chairman delivered a

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Speaker 1: spectacular brief, fairly non Matthew paper on interest rates, prices

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Speaker 1: and Michael Woodford and this strange thing called money. You're

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Speaker 1: the only person in America disappointed that there was not enough.

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Speaker 1: A lot of it was. It is was superb. I've

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Speaker 1: put it out on social I can't say enough about

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Speaker 1: the public service of Vice Chairman Fisher and explaining where

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Speaker 1: we were, where we were in our ute and where

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Speaker 1: we are right now due to the good work of

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Speaker 1: Michael Woodford. It is a spectacular We can read Stan Fisher,

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Speaker 1: Michael Woodford, have you read the book? Interested in Prices?

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Speaker 1: I carry it around. I care exactly. I'm glad you

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Speaker 1: carry it around. It's holding up a window on the

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Speaker 1: east wing of the house. Uh, guess what another hour

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Speaker 1: of math free Bloomberg surveillance