1
00:00:00,040 --> 00:00:02,920
Speaker 1: Bruce Knsman, chief economist and head of Global economic Research

2
00:00:02,920 --> 00:00:05,400
Speaker 1: at JP Morgan joins us Now for more. Bryce, let's

3
00:00:05,440 --> 00:00:08,600
Speaker 1: talk about this the FED decision today, with expectations high,

4
00:00:08,600 --> 00:00:11,160
Speaker 1: we get some kind of guidance about maybe a March

5
00:00:11,240 --> 00:00:13,800
Speaker 1: rateca At the same time, on Friday, we're looking for

6
00:00:13,840 --> 00:00:17,200
Speaker 1: payrolls growth still close to two hundred k. How do

7
00:00:17,239 --> 00:00:19,080
Speaker 1: you reconcile those two things, Bruce.

8
00:00:20,239 --> 00:00:21,840
Speaker 2: Well, I think what the Fed is going to do

9
00:00:21,880 --> 00:00:24,239
Speaker 2: today is open a door, but basically tell us it

10
00:00:24,280 --> 00:00:26,600
Speaker 2: hasn't decided when it's going to walk through it. And

11
00:00:26,720 --> 00:00:29,960
Speaker 2: I think there's a story here about inflation coming down

12
00:00:30,080 --> 00:00:32,920
Speaker 2: that's encouraging them. But there's also a story about the

13
00:00:32,960 --> 00:00:36,480
Speaker 2: economy looking pretty strong here, which is raising questions about

14
00:00:36,520 --> 00:00:39,159
Speaker 2: how restrictive actually the five and a half percent policy

15
00:00:39,200 --> 00:00:41,839
Speaker 2: stances they're going to grapple with that. I think for

16
00:00:41,880 --> 00:00:44,240
Speaker 2: a while, I think the data is going to tell

17
00:00:44,280 --> 00:00:48,199
Speaker 2: the tale. We've got this two CPI reports before the

18
00:00:48,200 --> 00:00:50,080
Speaker 2: March meeting, we got two payroll reports.

19
00:00:50,280 --> 00:00:52,400
Speaker 3: We're looking for a strong payroll report on Friday.

20
00:00:52,680 --> 00:00:56,480
Speaker 2: I think most likely the strength of growth and I

21
00:00:56,520 --> 00:01:00,280
Speaker 2: think some firming in goods price inflation. We're expecting is

22
00:01:00,280 --> 00:01:02,360
Speaker 2: going to slow the FED down and have them wait

23
00:01:02,480 --> 00:01:03,240
Speaker 2: in March.

24
00:01:03,200 --> 00:01:05,119
Speaker 1: Bruce, We've got plenty of questions around the table about

25
00:01:05,120 --> 00:01:06,959
Speaker 1: the labor markets, so let's talk about it a little

26
00:01:07,000 --> 00:01:08,959
Speaker 1: bit more. You're looking for north of two hundred can

27
00:01:09,000 --> 00:01:11,039
Speaker 1: I think on Friday the meet and estimate in our survey.

28
00:01:11,040 --> 00:01:14,920
Speaker 1: At the moment it's one eighty five unemployments below four percent.

29
00:01:15,040 --> 00:01:17,840
Speaker 1: I think you've raised the right question. What evidence is

30
00:01:17,880 --> 00:01:21,600
Speaker 1: there that we ask quote sufficiently restrictive given what we're

31
00:01:21,600 --> 00:01:23,240
Speaker 1: seeing in the labor market.

32
00:01:24,880 --> 00:01:26,880
Speaker 3: Well, I think an interesting question.

33
00:01:26,959 --> 00:01:29,000
Speaker 2: I think they will use that language and the statement

34
00:01:29,040 --> 00:01:33,600
Speaker 2: today sufficiently restrictive. Many FMC members have been basically emphasizing

35
00:01:33,840 --> 00:01:36,240
Speaker 2: that policy is at a restrictive stance and should.

36
00:01:36,040 --> 00:01:36,920
Speaker 3: Start to come down.

37
00:01:37,240 --> 00:01:39,120
Speaker 2: But the economy did very well at the end of

38
00:01:39,200 --> 00:01:42,680
Speaker 2: last year. It's carrying continued strength into the start of

39
00:01:42,720 --> 00:01:45,520
Speaker 2: the year. I think the labor market is showing some

40
00:01:46,920 --> 00:01:50,080
Speaker 2: reduction in churning, some reduction in labor demand, but there

41
00:01:50,120 --> 00:01:52,200
Speaker 2: is demand starting to pick up in some sectors of

42
00:01:52,240 --> 00:01:54,280
Speaker 2: the economy, and I think job growth is going to

43
00:01:54,280 --> 00:01:56,160
Speaker 2: stay strong here. I think the unemployer rate's going to

44
00:01:56,160 --> 00:01:58,600
Speaker 2: stay below four percent. So I think they've got a

45
00:01:58,680 --> 00:02:01,560
Speaker 2: tough balancing act here. How they talk to us about

46
00:02:01,560 --> 00:02:05,800
Speaker 2: that balancing act between inflation progress, strength of growth, and importantly,

47
00:02:05,840 --> 00:02:10,760
Speaker 2: how they interpret financial conditions becomes really the color we're

48
00:02:10,760 --> 00:02:12,600
Speaker 2: going to get today in terms of thinking about where

49
00:02:12,639 --> 00:02:13,079
Speaker 2: they stand.

50
00:02:13,400 --> 00:02:15,720
Speaker 4: I find this labor market incredibly confusing right now, and

51
00:02:15,760 --> 00:02:17,680
Speaker 4: I'd love your help to try to understand it, because

52
00:02:17,720 --> 00:02:20,880
Speaker 4: you see it as stronger than the average person on

53
00:02:20,919 --> 00:02:24,720
Speaker 4: Wall Street. We've heard about those slew of layoffs ups PayPal, Google,

54
00:02:24,760 --> 00:02:27,440
Speaker 4: Amazon City, Macy's, you can go on and on. Yesterday

55
00:02:27,480 --> 00:02:29,480
Speaker 4: we got the jolt state of the job openings data,

56
00:02:29,520 --> 00:02:31,320
Speaker 4: and when you look beneath the hood, you can see

57
00:02:31,320 --> 00:02:34,560
Speaker 4: the level of quits. People actually quitting fell to the

58
00:02:34,639 --> 00:02:38,080
Speaker 4: lowest the rate going back to twenty twenty. At what

59
00:02:38,160 --> 00:02:41,600
Speaker 4: point are we seeing real time weakening that just isn't

60
00:02:41,639 --> 00:02:44,680
Speaker 4: making its way into the overall headline data.

61
00:02:45,680 --> 00:02:48,600
Speaker 2: So I think we have to distinguish between a normalization

62
00:02:48,680 --> 00:02:49,240
Speaker 2: and weakening.

63
00:02:49,280 --> 00:02:50,960
Speaker 3: And remember the labor market was.

64
00:02:51,480 --> 00:02:55,280
Speaker 2: Unusual over twenty twenty one through early twenty twenty three,

65
00:02:55,560 --> 00:02:59,200
Speaker 2: as we were really normalizing back after a COVID shock

66
00:02:59,200 --> 00:03:02,000
Speaker 2: that was quite perfect. So what I think we're seeing

67
00:03:02,040 --> 00:03:05,040
Speaker 2: now is pace of job growth slow. I think we're

68
00:03:05,040 --> 00:03:08,919
Speaker 2: seeing less people leave jobs. I think we're seeing wage

69
00:03:08,919 --> 00:03:10,200
Speaker 2: inflation come off at.

70
00:03:10,160 --> 00:03:10,960
Speaker 3: Very high levels.

71
00:03:11,320 --> 00:03:13,399
Speaker 2: But I think we're also seeing in the high frequency

72
00:03:13,480 --> 00:03:16,520
Speaker 2: data a sense that things are starting to stabilize, and

73
00:03:16,520 --> 00:03:19,799
Speaker 2: stabilize at a reasonably strong pace, consistent with the fact

74
00:03:19,800 --> 00:03:22,360
Speaker 2: that the unemployment rates below four percent, consistent with the

75
00:03:22,360 --> 00:03:24,639
Speaker 2: fact that the economy is growing at a three percent

76
00:03:24,720 --> 00:03:26,320
Speaker 2: pace here. So I think we have to be a

77
00:03:26,360 --> 00:03:29,280
Speaker 2: little careful not to get carried away by momentum that's

78
00:03:29,360 --> 00:03:33,320
Speaker 2: reflecting the normalization after outsized strength in the labor market

79
00:03:33,360 --> 00:03:34,440
Speaker 2: over the last two years.

80
00:03:34,880 --> 00:03:37,080
Speaker 4: How do we know that we've really killed the potential

81
00:03:37,120 --> 00:03:39,240
Speaker 4: for a wage price viral if we do see this

82
00:03:39,360 --> 00:03:44,200
Speaker 4: ongoing strength underpinning Yes, i'lbe at some kind of peripheral layoffs,

83
00:03:44,240 --> 00:03:46,880
Speaker 4: but otherwise, as you say, a very strong labor market.

84
00:03:48,000 --> 00:03:50,640
Speaker 2: I think the term wage price file is too extreme

85
00:03:50,680 --> 00:03:52,760
Speaker 2: in terms of what the debate is right now. I

86
00:03:52,800 --> 00:03:56,040
Speaker 2: think we've seen that the shocks that pushed wage inflation up,

87
00:03:56,080 --> 00:03:58,880
Speaker 2: that pushed inflation up, many of them have gone from

88
00:03:58,920 --> 00:04:01,760
Speaker 2: the scene, and we're not with a threat that inflation

89
00:04:01,880 --> 00:04:03,760
Speaker 2: is going to be four or five percent. I think

90
00:04:03,760 --> 00:04:06,920
Speaker 2: we're debating within a range of is inflation settling back

91
00:04:07,120 --> 00:04:10,080
Speaker 2: towards the fed's targeted two or are we getting stuck

92
00:04:10,120 --> 00:04:13,440
Speaker 2: somewhere around three? And there's a story there which we're

93
00:04:13,480 --> 00:04:16,080
Speaker 2: seeing with wage inflation, which looks like it's still running

94
00:04:16,080 --> 00:04:18,440
Speaker 2: above four percent, and you're asking, well, how well is

95
00:04:18,440 --> 00:04:22,320
Speaker 2: productivity doing, how much pricing power do companies have, Whether

96
00:04:22,360 --> 00:04:24,560
Speaker 2: the big drops and goods pricing we've seen in the

97
00:04:24,640 --> 00:04:27,120
Speaker 2: last few months is a bit of a temporary phenomenon,

98
00:04:27,320 --> 00:04:29,479
Speaker 2: and how much further progress are we going to see

99
00:04:29,480 --> 00:04:32,760
Speaker 2: on shelter cost service price inflation. And these are all

100
00:04:33,040 --> 00:04:35,640
Speaker 2: questions which we haven't answered yet, but we're debating with

101
00:04:36,279 --> 00:04:39,040
Speaker 2: the point about is inflation coming all the way back

102
00:04:39,080 --> 00:04:41,440
Speaker 2: to the low twos or is it getting stuck somewhere

103
00:04:41,440 --> 00:04:44,599
Speaker 2: around three? And neither of those is a wage price spiral.

104
00:04:44,720 --> 00:04:48,159
Speaker 2: That's not really the dynamic of this economy right now.

105
00:04:48,640 --> 00:04:50,720
Speaker 2: But three percent inflation is too high for the FED,

106
00:04:50,760 --> 00:04:54,240
Speaker 2: and we'll certainly slow them down, if not stop them,

107
00:04:54,320 --> 00:04:56,280
Speaker 2: if that's what the data starts to show.

108
00:04:56,440 --> 00:04:58,400
Speaker 1: Bryce. I just wanted to hand relevant the FEDER reserve

109
00:04:58,400 --> 00:05:01,320
Speaker 1: actually is to this conversaying, we've talked about them so

110
00:05:01,440 --> 00:05:03,800
Speaker 1: much over the last two years. It's interesting, isn't it

111
00:05:03,880 --> 00:05:06,520
Speaker 1: just how race sensitive is this economy? If high rates

112
00:05:06,520 --> 00:05:09,359
Speaker 1: then slow it down, will lower rates speed it up? Bruce,

113
00:05:09,480 --> 00:05:11,159
Speaker 1: I don't know the answer to that. How relevant is

114
00:05:11,160 --> 00:05:11,520
Speaker 1: the FED?

115
00:05:12,279 --> 00:05:14,440
Speaker 2: I think that's a really important question, and I would

116
00:05:14,520 --> 00:05:16,520
Speaker 2: just say two things here. First of all, I think

117
00:05:16,640 --> 00:05:20,000
Speaker 2: last year we had a very significant drag coming from

118
00:05:20,120 --> 00:05:24,440
Speaker 2: higher interest rates on housing other durable spending. Monetary policy

119
00:05:24,480 --> 00:05:27,680
Speaker 2: did do damage, but it was offset by fiscal stimulus,

120
00:05:27,760 --> 00:05:30,719
Speaker 2: It was offset by sharp falls and energy prices, and

121
00:05:30,760 --> 00:05:34,080
Speaker 2: it was offset by still benefits of COVID normalization. I

122
00:05:34,120 --> 00:05:37,520
Speaker 2: think now we're in a really interesting position because monetary

123
00:05:37,560 --> 00:05:40,719
Speaker 2: conditions are still tight, borrowing rates are still high, bank

124
00:05:40,839 --> 00:05:44,520
Speaker 2: lending standards have tightened, but financial conditions have eased a lot.

125
00:05:44,640 --> 00:05:49,360
Speaker 2: And that juxtaposition of tight monetary conditions and easing financial

126
00:05:49,360 --> 00:05:52,599
Speaker 2: conditions is really unprecedented, and how it plays out in

127
00:05:52,680 --> 00:05:55,599
Speaker 2: economic performance is uncertain. So I think in that regard,

128
00:05:55,680 --> 00:05:58,839
Speaker 2: your question is really spot on. This is a really

129
00:05:58,279 --> 00:06:01,760
Speaker 2: tough tough economy to get your hands around in terms

130
00:06:01,800 --> 00:06:03,640
Speaker 2: of what the fed's transmission is doing.

131
00:06:03,760 --> 00:06:05,120
Speaker 3: As we look to twenty twenty four.

132
00:06:05,200 --> 00:06:07,120
Speaker 1: I'm so pleased you brought that out because I'd introduced

133
00:06:07,160 --> 00:06:10,560
Speaker 1: another dynamic as well. This conversation today about higher real

134
00:06:10,560 --> 00:06:14,000
Speaker 1: interest rates, the FED sort of allowing passive tightniggas inflation

135
00:06:14,080 --> 00:06:16,640
Speaker 1: comes down and keeps nominal rates steady. Bruce, is that

136
00:06:16,760 --> 00:06:19,880
Speaker 1: offset my bets a real incomes in America?

137
00:06:21,120 --> 00:06:23,080
Speaker 2: Well, first of all, I think it's wrong to say

138
00:06:23,080 --> 00:06:26,799
Speaker 2: that there's a mechanical link between inflation and real interest rates.

139
00:06:26,839 --> 00:06:29,719
Speaker 2: That depends on how people think about the forward path

140
00:06:29,760 --> 00:06:33,160
Speaker 2: of inflation. It depends on how interest rate markets, as

141
00:06:33,160 --> 00:06:36,000
Speaker 2: we discussed a minute ago, of feeding through the financial conditions.

142
00:06:36,279 --> 00:06:38,840
Speaker 2: But I do think the point you're making is important.

143
00:06:38,839 --> 00:06:39,039
Speaker 3: One.

144
00:06:39,360 --> 00:06:42,680
Speaker 2: The rise the fallen inflation is a reduction of a

145
00:06:42,680 --> 00:06:45,560
Speaker 2: set of supply shocks that hit us. As that's happening,

146
00:06:45,880 --> 00:06:49,040
Speaker 2: that's a boost to household purchasing power, and we can

147
00:06:49,080 --> 00:06:51,680
Speaker 2: see the consumer respond to that. The good news is

148
00:06:51,680 --> 00:06:54,839
Speaker 2: that income is also being generated by the corporate sector

149
00:06:54,880 --> 00:06:57,880
Speaker 2: right now. It's not a move away from corporate profits.

150
00:06:57,880 --> 00:07:01,440
Speaker 2: As we're generating strong demand overall, and as we're generating

151
00:07:01,440 --> 00:07:04,880
Speaker 2: what has been pretty good productivity outcomes, we're looking for

152
00:07:04,920 --> 00:07:07,880
Speaker 2: a three percent quarterly gain in the fourth quarter productivity

153
00:07:07,880 --> 00:07:09,520
Speaker 2: print tomorrow, which would be pretty impressive.

154
00:07:10,240 --> 00:07:12,800
Speaker 4: Just quickly, Bruce, to wrap this up, economics tries to

155
00:07:12,800 --> 00:07:14,960
Speaker 4: be agnostic when it comes to politics, and it tries

156
00:07:15,000 --> 00:07:19,640
Speaker 4: to look at these very specific issues and calibrations of

157
00:07:19,640 --> 00:07:22,600
Speaker 4: inflation and labor markets, but it's hard to avoid the politics.

158
00:07:22,600 --> 00:07:24,560
Speaker 4: This year, a lot of people saying the FED is

159
00:07:24,600 --> 00:07:27,080
Speaker 4: going to try to get an earlier start to avoid

160
00:07:27,520 --> 00:07:30,800
Speaker 4: cutting rates more aggressively right into the election. We're also, though,

161
00:07:30,840 --> 00:07:33,960
Speaker 4: hearing from congress members sure at Brown the latest in

162
00:07:34,000 --> 00:07:37,120
Speaker 4: the Senate saying, I urge the Federal Reserve to cut rates.

163
00:07:37,560 --> 00:07:40,640
Speaker 4: How difficult does that make the situation for the FED?

164
00:07:40,680 --> 00:07:42,960
Speaker 4: How does that factor into your considerations?

165
00:07:43,560 --> 00:07:46,240
Speaker 2: So I think we should not consider the FED as

166
00:07:46,280 --> 00:07:50,000
Speaker 2: having an explicit political lens in terms of their policy setting,

167
00:07:50,240 --> 00:07:53,600
Speaker 2: But the FED is operating in a political environment, and

168
00:07:53,640 --> 00:07:56,600
Speaker 2: I think there is a sensitivity there that if the

169
00:07:56,640 --> 00:07:59,720
Speaker 2: FED was slow in lowering rates and the economy did

170
00:07:59,720 --> 00:08:04,280
Speaker 2: fall as we moved into the election campaign season, that

171
00:08:04,360 --> 00:08:06,600
Speaker 2: they'd be politically vulnerable. So I do think there's a

172
00:08:06,600 --> 00:08:08,760
Speaker 2: bit of a bias here that if they think they're

173
00:08:08,800 --> 00:08:11,120
Speaker 2: going to ease that they probably started a little earlier.

174
00:08:11,680 --> 00:08:14,680
Speaker 2: That does weigh on our thinking. It hasn't pushed us

175
00:08:14,680 --> 00:08:16,760
Speaker 2: to think they'll go all the way in March, but

176
00:08:16,960 --> 00:08:19,360
Speaker 2: I do think that's a consideration we should have in

177
00:08:19,400 --> 00:08:19,920
Speaker 2: our minds.

178
00:08:20,080 --> 00:08:21,920
Speaker 1: Hy Bruce is trying to catch up to get your thoughts,

179
00:08:21,960 --> 00:08:23,800
Speaker 1: Bruce Kaslan, the of JP. Morgan