Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's get to Bruce Cassman of JP Morgan. Bruce at
Speaker 2: least has been quoting you all morning. That quote is
Speaker 2: the sound that you hear as a narrative cracking. How
Speaker 2: does this data inform that view?
Speaker 3: Well, I think it's pretty supportive of that view on
Speaker 3: a number of fronts. Obviously, the one that people have
Speaker 3: been most focused on today is the inflation news, and
Speaker 3: certainly we got a more distributed outcome of that. Surprise.
Speaker 3: It wasn't all in the March number, but the March
Speaker 3: number at point three one seven on an unrounded core
Speaker 3: is still pretty darn firm. I haven't seen all of
Speaker 3: the details of how that's distributed. I don't think the
Speaker 3: super core services were that were that high, at least
Speaker 3: what I see. But the basic point here is this
Speaker 3: is no longer something you can explain as just the
Speaker 3: beginning of the year pop. But I also emphasized two
Speaker 3: other things. One is, as you look at the data
Speaker 3: on income and spending here, we're getting very strong wage numbers,
Speaker 3: and I think there's probably some pressure here on wage
Speaker 3: inflation as well as there is the strong income numbers.
Speaker 3: We'll see the Employment Cost Index report for the first
Speaker 3: quarter next week. And then the other thing here is
Speaker 3: we did have a squeeze on incomes to some degree,
Speaker 3: both for taxes and higher energy prices in Q one,
Speaker 3: and consumers held up pretty darn well. And one of
Speaker 3: the reasons is the savings rate went down. The saving
Speaker 3: is rerdy is three point two percent in March, and
Speaker 3: I think that's a message that wealth effects are moving here.
Speaker 3: So there's both a story here about the economy holding
Speaker 3: up very well with high interest rates as well as
Speaker 3: inflation fresh as being persistent. And while I don't think
Speaker 3: it's right to talk about this from the point of
Speaker 3: view of FED tightening, I think the case for FED
Speaker 3: easing here is pretty is pretty small anytime soon. We'll
Speaker 3: see what we are six months from now, but certainly
Speaker 3: the Fed's going to have to change its tune about
Speaker 3: its view that there's a fair amount of easing that's
Speaker 3: coming down the road.
Speaker 1: I would just add that real personal spending actually increased
Speaker 1: to zero point five percent from zero point four percent,
Speaker 1: even though it's expected to fall bruce. Given the fact
Speaker 1: that we're seeing or hearing that sound of the narrative cracking.
Speaker 2: What's the new narrative.
Speaker 1: Is it just no rate cuts in your case.
Speaker 3: Well, I think the clear part of the new narrative
Speaker 3: is high for long on rates. The question is where
Speaker 3: does that take us, And we've been actually struggling with that.
Speaker 3: We have kind of two scenarios we think are both reasonable.
Speaker 3: One we've been calling boil the frog, which is high
Speaker 3: interest rates do weigh on performance. They do start to
Speaker 3: create vulnerability on balance sheets, particularly the business sector side,
Speaker 3: and that causes problems for us, not now, but maybe
Speaker 3: six or twelve months from now. The second one is
Speaker 3: we find out that we actually can live with higher
Speaker 3: interest rates, that we've had better supply side performance, the
Speaker 3: economy is in an underlying resilient position, and that actually
Speaker 3: this is a new world and we should understand that
Speaker 3: the economy has higher interest rates and is sustainable. Between
Speaker 3: those two right now, I think there's really support for
Speaker 3: both in some of the things we're seeing, and we're
Speaker 3: not trying to take a strong call on what the
Speaker 3: new narrative is going to be.
Speaker 1: You do, though, think that there is going to be
Speaker 1: a new tone from the Federal Reserve next Wednesday when
Speaker 1: they give press conference. What do you think is the
Speaker 1: right way to weigh the risks right now? How much
Speaker 1: should they shift away from what we saw in December.
Speaker 3: Well, I think you have to remember that the May
Speaker 3: meeting is not a forecast round meeting. The main meeting
Speaker 3: is not one where we got a lot of new
Speaker 3: information since the last one. We really get a lot
Speaker 3: more with two payroll reports to CPI reports up to
Speaker 3: the June meeting, So I think this is a bit
Speaker 3: of a wavestation. I think what Powell is going to
Speaker 3: do is he's going to basically say he's lost a
Speaker 3: lot of confidence in the views in terms of where
Speaker 3: inflation is going, but they haven't really shifted those views
Speaker 3: in a material way. He's going to downplay what the
Speaker 3: SEP in March was telling us we still had three
Speaker 3: cuts for the year, and he's going to look to
Speaker 3: June for the bigger shift in the FED. And obviously
Speaker 3: we'll see that in the light of what we get
Speaker 3: in the next two sets of readings on both CPI
Speaker 3: and payrolls.
Speaker 2: Just got a note some reaction this from Inflation Insight.
Speaker 2: The title of the note is just core pcee few.
Speaker 2: I think a lot of people feel that way based
Speaker 2: on the information we got yesterday. There was a risk
Speaker 2: a big upside surprise this morning, which is why we're
Speaker 2: basically saying that inline feels like a downside surprise relative
Speaker 2: to where expectations went to that shift. Tirre and yields
Speaker 2: yesterdayknew heights for twenty twenty four this morning pulling back,
Speaker 2: particularly on a tenure, by four basis points about four
Speaker 2: to sixty six this morning. Bruce, I'm thinking, who else
Speaker 2: is saying few this morning. It's officials in the Ministry
Speaker 2: of Finance over in Japan. If they're looking at dolly
Speaker 2: En staying up at one fifty six't eighty seven and
Speaker 2: approaching one fifty seven, the last thing they needed was
Speaker 2: an upside surprise. Bruce, Can we take this global? What
Speaker 2: are global central banks finance ministries around the world staring
Speaker 2: down the barrel of this resilient strong dollar. What are
Speaker 2: they going to do well?
Speaker 3: First point to make here, which I think is really important,
Speaker 3: is we're seeing a world in which growth is broadening
Speaker 3: its base, and I think it is starting to take
Speaker 3: some of the weak links, including Japan and Western Europe,
Speaker 3: into a better position. I think in terms of what
Speaker 3: central banks are doing, there is more differentiation. We think
Speaker 3: the European inflation pictures looking a lot better better than
Speaker 3: the US, so I think there is some room for easing.
Speaker 3: As you noted, Minister Finance is probably breathing a sigh
Speaker 3: of release. I'm not sure they're that happy with the
Speaker 3: way the BOJ talked to US overnight. They were considerably
Speaker 3: more dubbish than we expect it in terms of their guidance.
Speaker 3: But I think the basic message here is you're going
Speaker 3: to get some easing in Western Europe. I think the
Speaker 3: BOJ is going to be patient here, but as you say,
Speaker 3: the end is going to continue to be under downward
Speaker 3: pressure relative to the dollar. I think the pressure will build.
Speaker 3: I think ultimately Japan is going to do more and
Speaker 3: the economy is going to do better than people expect.
Speaker 3: And i'd say that more broadly about the global economy,
Speaker 3: that they'll do less on easing, the BOJ is tightening
Speaker 3: and we'll get better global growth, and people anticipate at
Speaker 3: this point.
Speaker 1: I know this is a difficult question and everyone has
Speaker 1: a slightly different answer, and some people say it's not
Speaker 1: relevant at all, But where are we in this cycle
Speaker 1: in the economic cycle. If you're talking about a broadening
Speaker 1: out and affirming of Europe of Japan at a time
Speaker 1: when a lot of other people are talking about US
Speaker 1: exceptionalism and the potential for late cycle types of behavior.
Speaker 3: So I think we can come back to this tension
Speaker 3: on high for long, And I think what's embedded in
Speaker 3: the high for long is an inflation dynamic, even once
Speaker 3: we've taken out the highs that we had in twenty
Speaker 3: one and twenty two, and a position in terms of
Speaker 3: monetary policy labor markets that screams late cycle. But I
Speaker 3: think what the pandemic has done is it's both created
Speaker 3: that dynamic as well as a far more positive dynamic
Speaker 3: in terms of where the positioning in terms of leverage,
Speaker 3: durable spending, profit margins, things like that that are normally
Speaker 3: late cycle signals that type monetary policy is going to
Speaker 3: do damage. So I think we're in a kind of
Speaker 3: a weird new world of late cycle inflation in central
Speaker 3: banks and early mid cycle private sector behavior. How that
Speaker 3: plays out, I'm not feeling very confident right now. As
Speaker 3: I said, I think there's this possibility of the boil
Speaker 3: the frog and we gradually grind to a problem. But
Speaker 3: there is a possibility we can sustain this for a
Speaker 3: while longer while being a.
Speaker 2: Few years interesting. Bruce, Thank you, Sir Bruce Cassman. There
Speaker 2: of JP Morgan