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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Let's get back to Friday's blow out payrolls report, reshaping

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Speaker 2: FED expectations for the rest of the year. Torston Slock

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Speaker 2: of Apollo saying there's no need for cuts. Quote the

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Speaker 2: feedtest cutting rates, which is boosting growth and inflation. Further,

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Speaker 2: combined with very easy financial fiscal conditions, the bottom line

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Speaker 2: remains that rates will stay higher for longer. Torston Slock

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Speaker 2: joined just now for more. Torston, good Mornic morning. You

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Speaker 2: quick your breath after the victory lamp around a studio tape.

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Speaker 2: It's good to see, sir. How did you feel on

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Speaker 2: Friday when that number drops?

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Speaker 1: Well, I think it makes sense what's going on. I mean,

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Speaker 1: as you just talked about, it's not clear that the

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Speaker 1: data has been slowing down. GDP last quarter was around

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Speaker 1: three the land of FED GDPN now for this quarter

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Speaker 1: is around three. And if you take this combined with

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Speaker 1: broadly speaking, strong data on consumer and durable goods, it

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Speaker 1: makes sense that the label market is also still hot.

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Speaker 1: It never made sense to say, oh, the economy is good,

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Speaker 1: but the labor market is bad. You can't have it

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Speaker 1: both ways either. It's good in the economy and good

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Speaker 1: in the label market. You can't have that economy is

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Speaker 1: good and the label market is bad. That just never

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Speaker 1: made sense. So that's why, given the economic data coming

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Speaker 1: in the totality of the data, as jfl would say,

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Speaker 1: I still think that it's very obvious that things are

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Speaker 1: still chogging along.

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Speaker 2: Well, let's say on the totality of the data. So

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Speaker 2: these survey data last week, the MS employment components are

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Speaker 2: not fantastic.

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Speaker 1: Well, the service headline was still good.

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Speaker 2: Well, we can get into that in a moment. The

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Speaker 2: Jolts as well. Look at the Jolts job openings were wrap,

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Speaker 2: the hiring was down, the quits rate was down. If

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Speaker 2: things were great, you'd expect the quits rate to still

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Speaker 2: be elevated, if you'd expect hiring to be elevated too.

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Speaker 2: Some people have pointed out that maybe this is inconsistent

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Speaker 2: with the broader data. What do you think back to them.

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Speaker 1: Well, I think that was going on in the job

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Speaker 1: survey is really a normalization because if the job survey,

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Speaker 1: we also have that the layoff rate is still one,

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Speaker 1: the layoff rate has not gone up, meaning it's not

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Speaker 1: the case that companies are firing workers. You know, on

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Speaker 1: the other hand, just seeing a little bit less hiring,

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Speaker 1: so that's just a normalization and coming combined. Of course,

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Speaker 1: we're still steady immigration and at the same time tail

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Speaker 1: wins from defense spending, from AI, from energy transition, and

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Speaker 1: consumers that are not very sensitive to interest rates going

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Speaker 1: up because of locked in low interest rates. We still

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Speaker 1: have some fairly strong tailwinds to the outlook and less

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Speaker 1: sensitivity to what rates are doing. So therefore it still

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Speaker 1: makes sense to believe that over the next several quarters

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Speaker 1: the economy will do just fine. Well.

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Speaker 3: It's that sort of thing that's allowed a lot of

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Speaker 3: critics to look at this decision in light of the

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Speaker 3: jobs ada and say it was a mistake to go fifty.

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Speaker 3: But Torsten is their world where this job support wouldn't

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Speaker 3: have looked as strong if they didn't go fifty. That

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Speaker 3: it helped maintain strength in the labor market and reinvigorate confidence.

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Speaker 1: Well, the key issue, of course, as usual, is what

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Speaker 1: are the long and variable acts. The FED textbook would

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Speaker 1: say that's twelve to eighteen months before anything starts to

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Speaker 1: show up. But as we know very well, this stock

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Speaker 1: market is now becoming a very important indicator for companies

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Speaker 1: in terms of are we doing well, We're not doing well.

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Speaker 1: She were hired, she were not hire. And given the

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Speaker 1: significant tail into risky assets, credit spreads are very tight,

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Speaker 1: both on it high yielded loans and also when it

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Speaker 1: comes to the equities going up. All that made actually

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Speaker 1: exactly imply that we have had faster transmission of Marnin

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Speaker 1: Sarry policy because the signaling, the forward guidance has been

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Speaker 1: coming through much quicker than what the textbook would have predicted.

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Speaker 3: Does that suggest then fifty was a mistake.

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Speaker 1: Well, Jay Powell said at the press conference ten times

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Speaker 1: that they did this to recalibrate monetary policy, So there

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Speaker 1: was a lot of this time. Of course, the discussion

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Speaker 1: as of course also you guys had a lot of

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Speaker 1: hear about why did they do this? What's recalibration as

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Speaker 1: an excuse, And of course the excuse was inflation has

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Speaker 1: now come down, but given that the economic data is

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Speaker 1: still strong, it really is goldilocks with inflation back close

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Speaker 1: to two percent and the economic data just continues to

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Speaker 1: power along. So that's why the Fed is now stuck

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Speaker 1: at a situation where they need to say, well, should

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Speaker 1: we look at the economic data as you just said before, Danny,

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Speaker 1: or should we turn to inflation and say maybe inflation

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Speaker 1: is a risk of moving up again. Well, look at the.

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Speaker 4: Totality of data, and Jonathan pointed out that some of

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Speaker 4: these actually are going in the wrong direction. Besides this

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Speaker 4: one unemployment point that was a blowout. Do you think

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Speaker 4: the Fed will air on the side of cutting too

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Speaker 4: much rather than cutting too little?

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Speaker 1: Well, the Fed has definitely had a tendency that the

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Speaker 1: risk to the unemployment rate for the last five years

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Speaker 1: has always been in their view that it would go higher.

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Speaker 1: So that's why very important discussion on that is, of

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Speaker 1: course the world where do they put the emphasis do

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Speaker 1: they put the emphasis now on? That is not really

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Speaker 1: only the Joel's data that's weakened. It's also a number

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Speaker 1: of other indicators that have shown slight weakness when it

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Speaker 1: comes to some specific small areas. But the vast majority

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Speaker 1: of the data that comes in consumers. In the daily data,

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Speaker 1: you're still seeing restaurant data very good, TSA data for

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Speaker 1: travel still very good. You also have the depit cand

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Speaker 1: data from my Bloomberg screen and spending on the daily

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Speaker 1: data is also very good. So you have across the

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Speaker 1: board a lot of indicators and still continue to be

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Speaker 1: really moving along quite nicely. There is just no slowdown.

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Speaker 1: It's very clear that the Joe's data stands out on

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Speaker 1: its own as a very special story.

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Speaker 4: So November seven, what do you think the FEDS should

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Speaker 4: do and what do you think they will do?

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Speaker 1: Well? The problem for them now is that they have

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Speaker 1: pre committed themselves too much to our star and to

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Speaker 1: rates going lower. So that's why I do think that

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Speaker 1: they will cut twenty five basis points. But the key

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Speaker 1: issue here is that all the incoming data being so strong,

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Speaker 1: is telling us that maybe US star. Why it's not

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Speaker 1: three percent, which is where the FED is saying it

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Speaker 1: is at the moment, maybe this is more like four

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Speaker 1: and a half percent, which we do in our own

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Speaker 1: command fielders are estimating where it should be. So that's

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Speaker 1: why we think that we are not too far away

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Speaker 1: from the monetary policy stands currently being.

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Speaker 3: Close to neutral.

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Speaker 1: So if that's the case, we don't need a dramatic

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Speaker 1: amount of fat cuts, which has been even also put

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Speaker 1: into the dot plot by their INFORMC members themselves.

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Speaker 2: Do you sound vindicated? Do you think Government Bowman is

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Speaker 2: as well? On the FMCRE she got any company.

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Speaker 1: Well she was the lone descent, of course, saying well,

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Speaker 1: we should not have cut fifty. I do think that

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Speaker 1: we've got a lot of FED speeches today, including Alberto,

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Speaker 1: a Muslim here at the New York speaking of course.

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Speaker 1: But all that ends up, in my view, being very

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Speaker 1: very important for us to see are they backpedaling now?

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Speaker 1: Are they backtracking from this or we need a lot

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Speaker 1: of cuts. Well, maybe we don't need a lot of

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Speaker 1: cuts because the incoming data continues to just be strong.

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Speaker 2: They say they're not in a rush. Do you believe them?

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Speaker 1: I do believe them, because think about what creates recessions.

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Speaker 1: In twenty twenty, the recession was caused by COVID. Of course,

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Speaker 1: that generated recession Lehman Brothers. Of course that general recession,

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Speaker 1: recession s and P five hundred went down fifty percent.

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Speaker 1: That generated as shallow recession. And prior to that we

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Speaker 1: had the commercial re state crisis and the savings alone

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Speaker 1: crisis in nineteen nineties. Of course, that generative recession. But

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Speaker 1: where is the shock today? Where is the shock that

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Speaker 1: should generate a recession? The only shock is we've had

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Speaker 1: the FED raising rates, but that been countered by now

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Speaker 1: Ai spending, defense spending, fiscal spending. So that's why mars

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Speaker 1: Her Pauls has not been as restrictive as our textbook

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Speaker 1: would have been saying. So that's why our textbook we

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Speaker 1: should probably put that more aside, and that's probably still

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Speaker 1: a good recommendation for the FIT. Let's put this textbook

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Speaker 1: aside and look at the incoming data. And incoming data

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Speaker 1: continue to actually be strong.

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Speaker 3: So if the neutral rate isn't as low, if monetary

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Speaker 3: policy transmission when they're cutting is happening at a quicker speed,

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Speaker 3: what will be the implication of them continuing to cut

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Speaker 3: into strength.

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Speaker 1: Well, the challenge is that we still have the tail

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Speaker 1: we's from very strong spending from the Chips Act, the

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Speaker 1: Inflation Reduction Act, the Infrastructure Act. We also have very

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Speaker 1: strong tales from AI spending. I mean, no one you

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Speaker 1: meet says, oh, I'm not going to invest in AI

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Speaker 1: because the FIT has just raised interest rates twenty five

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Speaker 1: bases points. Everyone still wants to invest in I and

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Speaker 1: in this transition, we also had that as a strong tailwind.

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Speaker 1: And finally, also de globalization, the industrial renaissance, the construction

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Speaker 1: of manufacturing plants in the US is also a strong tailwind.

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Speaker 1: Those are things that the FED can't really control because

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Speaker 1: are the stories that we talk about in markets at

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Speaker 1: the moment. So in that sense, Marcarry Paul's is just

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Speaker 1: unusually weak in terms of having a negative impact when

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Speaker 1: rates went up on the economy coertion.

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Speaker 4: Does the market still also have the tailwind of the

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Speaker 4: fed's first pivot of December twenty twenty.

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Speaker 1: Three, Absolutely, because in December, as we all remember, they

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Speaker 1: clearly said now rates are going down, and before that

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Speaker 1: there was very little activity in IPO, in IT issuance,

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Speaker 1: high issuance, loan markets, everything was relatively weak and portly speaking,

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Speaker 1: at a state. Still after the December pivot, they really

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Speaker 1: have seen a significant opening of financing markets in all directions.

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Speaker 1: And that's also exactly as you're saying, and Marie provided

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Speaker 1: a very strong tailwind in easy financial conditions. And therefore,

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Speaker 1: now if you are a company that want to do

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Speaker 1: something in private credit in private equity, a lot of

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Speaker 1: more things aren't just passis of all relative to what

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Speaker 1: we had earlier.

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Speaker 2: Toston, it's going to see a wonderful to catch up. Congratulations,

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Speaker 2: so far, so good. After Friday, Torston Slock of Apollo