Speaker 1: Welcome to the Bloomberg Surveillance Podcast home toom Keene. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Lee, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast, SoundCloud, Bloomberg
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Speaker 1: audience worldwide and pleased to say on Bloomberg TV and
Speaker 1: on Bloomberg Radio. Joining us now is the U S
Speaker 1: Secretary of Labor Money Walsh, Secretary wild always greater cash
Speaker 1: up with you, sir, demanding this economy. Just had this
Speaker 1: conversation on this program through the morning on Bloomberg TV
Speaker 1: and radio. Demand seems to be pretty good. Still, it's
Speaker 1: labor supply that's been out back by what Secretary Walsh,
Speaker 1: in your mind and from the view of the administration
Speaker 1: say that one. I'm sorry I missed that question. What's
Speaker 1: something labor supply, Secretary Walsh? What it is holding back
Speaker 1: labor apply? Well, I think what's happening here, and I
Speaker 1: listened to you the previous panelists, and you know, I
Speaker 1: pretty much agree with almost everything that was said. One
Speaker 1: of the things that we're still dealing. What's particularly in
Speaker 1: the month of August was the delta variant. Granted, we've
Speaker 1: seen a level leveling off of the delta variant. UH,
Speaker 1: this in the last couple of days here, the last
Speaker 1: couple of weeks, But in the in the beginning of
Speaker 1: at the end of July, early August, we saw increase
Speaker 1: in delta variant. If you look at these job numbers
Speaker 1: and you look at just look at take the hospitality number,
Speaker 1: in the restaurant number, we had almost zero game this
Speaker 1: month in that area. Meanwhile, the last three job report
Speaker 1: that was leading the way. So I think that that's
Speaker 1: part of what's going on here, and it is a
Speaker 1: long game. We're looking at the long game here. You know,
Speaker 1: we've added four point five million jobs since President Biden
Speaker 1: has taken office. UH. This job report, the one thing
Speaker 1: that I would highlight is we had strong growth in
Speaker 1: the private sector, and I think we've seen growth in
Speaker 1: the public sector and previous reports so and we've seen
Speaker 1: some growth in manufacturing and auto related uses. So again,
Speaker 1: this is a long game. There is some other tools
Speaker 1: that we have to use here. We do have to
Speaker 1: it is the legislation right now that we're moving through
Speaker 1: infrastructure bills that we need to get through. But but
Speaker 1: this is the long game right now, coming out of
Speaker 1: a worldwide pandemic. Well, let's talk about those bills right now.
Speaker 1: Secondary worlds. This from Senator Mansion and the Will Street
Speaker 1: Journal yesterday placing a strategic pause on this budgetary proposal
Speaker 1: by significantly reducing the size of any possible reconciliation bill
Speaker 1: to only what America can afford and needs to spend
Speaker 1: Seconty wh what's the response of the administration to that?
Speaker 1: Our pad from Senator Mansion, I think America needs investment.
Speaker 1: American people need investment. American people need the investment in
Speaker 1: job training. Uh. The American people need the investment in
Speaker 1: the care's economy. We saw again uh in nursing, home care,
Speaker 1: and del care loss of jobs. Again this is a
Speaker 1: second consecutive month. We need investment in childcare, we need
Speaker 1: investment in schools. Uh. These are good investments moving forward.
Speaker 1: And this will just continue to move our economy forward
Speaker 1: and continue to prepare us for the future of America.
Speaker 1: And I would ask you know, I would hope that
Speaker 1: we'll be able to they'll be able to work their
Speaker 1: differences out in Congress and move these two legislation A one.
Speaker 1: Do we need taxes on excess CEO pay to pay
Speaker 1: for that? Yeah, that's one of the one of the
Speaker 1: plans that the President's been talking about, a plan to
Speaker 1: pay for this. He's made it very clear that that
Speaker 1: anyone who earns under for over founder under founder thousand
Speaker 1: excuse me food dollars a year will not be paying
Speaker 1: any additional taxes. And we're looking at adjusting some some
Speaker 1: some of the tax policy in this country and then
Speaker 1: using money and spent money from the American Rescue plans.
Speaker 1: So that's that's what the President's plan. As far as
Speaker 1: paying this with something but directed specifically a corporate executive
Speaker 1: sexty wolves, that's a story we have out at the
Speaker 1: moment that Democrats are discussing that. Have you been discussing that. No,
Speaker 1: I mean, that's a conversation that that's that's above what
Speaker 1: I'm doing right now. I know that this this conversation
Speaker 1: is happening in the halls of Congress, It's happening with
Speaker 1: the leadership, and that that's they will ultimately make decisions
Speaker 1: on on how to pay for the spell. Marty, have
Speaker 1: you spoken to Senator Mansion and talked about your thoughts
Speaker 1: on this labor market and what this economy needs. Do
Speaker 1: you pick up all those conversations with him? Yeah, it's
Speaker 1: actually with the senator a couple of weeks ago and
Speaker 1: we went to a coal mine in West Virginia and
Speaker 1: we had a great day and a great chat, and
Speaker 1: we talked a lot about a lot. You know, in
Speaker 1: the offously center has his ideas and and and in
Speaker 1: recommendations and opinions, and we just need to continue to
Speaker 1: have dialogue. I think the beauty about all this is
Speaker 1: that we continue to have these open conversations as long
Speaker 1: as both do you have two sides willing to have conversations.
Speaker 1: That's a good process and moving things along. Do you
Speaker 1: see it's two sides though, considering you are part of
Speaker 1: the same party, and the reason I asked you this,
Speaker 1: Secretary Walsh, there is a narrative in the meter as
Speaker 1: you know that the administration and your administrations that gender
Speaker 1: has been held hostage by a single senator may be accountable.
Speaker 1: To be kind, it is that how do you characterize
Speaker 1: the situation? No, I mean, listen, I'm a former legislator
Speaker 1: from Massachusetts and there's often times where I was debating
Speaker 1: a bill in the in the Massachu's House representives with
Speaker 1: the other side being my Democratic colleagues. And and you know,
Speaker 1: as long as you have the dialogue, you can move forward.
Speaker 1: I mean, listen, lots of people's have lots of concerns
Speaker 1: and opinions on what we need to do moving forward. Uh.
Speaker 1: And I'm supporting President Biden's plan and President biden as
Speaker 1: American rescue plan. And what that resulted in was over
Speaker 1: two hundred million vaccination shots. With that resulted in was
Speaker 1: investment into childcare. With with that resulted in is moving
Speaker 1: our economy forward four point family and jobs. You know,
Speaker 1: the President has a plan. The plan is working. Uh,
Speaker 1: and we're going to continue to move down down the
Speaker 1: road on that plan. What did Senator Mansion say to you, Marty?
Speaker 1: What was your take on Secondy Walsh, We didn't get
Speaker 1: too much into the We didn't get too much into
Speaker 1: the conversation about about the particulars of these bills. But again,
Speaker 1: I know, I know, send the Mansion cares for his
Speaker 1: constituents and cares for American people. And again, we just
Speaker 1: need to continue to have dialogued to to move these
Speaker 1: bills forward. So you think that that is not a
Speaker 1: hard now a red line from Senator Mansion. Secondary Walsh
Speaker 1: in your opinion, Well, I'm not going to speak for
Speaker 1: sender Mansion. I mean, he certainly is his own person.
Speaker 1: So we'll see as we move forward here over the
Speaker 1: next couple of days, and imagine you devoid that question
Speaker 1: as well. Secondly, well, so allow me to put it
Speaker 1: in different words for you your interpretation of his stance. Currently,
Speaker 1: for some people, they might interpret his words yesterday in
Speaker 1: the Wall Street Journal as a red line hard no.
Speaker 1: Was that your view? I know I wouldn't say it's
Speaker 1: a hot no, But what I would say is that
Speaker 1: we just have to continue to have conversation. Listen, lots
Speaker 1: of people have different ideas on how we move forward
Speaker 1: on these infrastructure bills. Some people think that these investments
Speaker 1: are expenses and we shouldn't be paying this money. All
Speaker 1: I know is that the investments that that in these
Speaker 1: two infrastructure bills, particularly the Kids Economy Bill, are very
Speaker 1: important about moving moving our economy forward. We've seen now
Speaker 1: here in America we're talking about people that are not
Speaker 1: returning to the workforce, and part of that is lack
Speaker 1: of opportunity, lack of experience for different paying jobs. People
Speaker 1: want to get good paying jobs. We need to assist
Speaker 1: them by making the investment there. It's just like building
Speaker 1: a brand new bridge in the city or town in America.
Speaker 1: You build that bridge to get people connected to other
Speaker 1: other locations. We need to continue to build that bridge
Speaker 1: by investing in job training and other important cares. Economy
Speaker 1: issues these secretary flame but Marti well, secretly, well, you
Speaker 1: can't with your times. Thanks for joining us this morning,
Speaker 1: right now victory lab in, folks, in the game of economics,
Speaker 1: it's awfully tough to do this. We suggested surveillance at
Speaker 1: three hundred sixty nine thousand to thirty five plus a
Speaker 1: revision that is the new four hundred thousand. Mezra absolutely
Speaker 1: nailed the call. Today it's seven and fifty jobs per
Speaker 1: month over the last ninety days. How will that affect
Speaker 1: the Powell calculus night, Tom, Thanks for having me back.
Speaker 1: So yes, it's a weaker report, but if you look
Speaker 1: at the three month moving average or look at the
Speaker 1: other data, you know it's it's suggesting that the recovery
Speaker 1: is continue. It's going to be in fits and starts.
Speaker 1: The reopening we knew is not going to be in
Speaker 1: a straight line. So we think tapering is still very
Speaker 1: much on the table, but we're calling for a December taper,
Speaker 1: not a September taper. I mean November as possible if
Speaker 1: the next couple of reports are very strong, but later
Speaker 1: this year they taper and then we see inflation next year.
Speaker 1: We don't think they're hiking well until the end of
Speaker 1: two thousand three, So that's why I think the curve
Speaker 1: is stupid. Just to be clear, period, are you actually
Speaker 1: pushing back your expectation for the startup taper to December
Speaker 1: today based on this report? Now we've we've been calling
Speaker 1: for December because we were looking for a week report today.
Speaker 1: So just looking forward, Preyer, what are you going to
Speaker 1: be looking for to get a sense of just how
Speaker 1: quickly they could potentially readjust their expectations. I mean, we
Speaker 1: know that wages are somewhat skewed by compositional issues, but
Speaker 1: are there other aspects that have you concerned, like the
Speaker 1: labor participation right exactly. So, I think labor participation is
Speaker 1: a key one, particularly for the next couple of reports,
Speaker 1: because we know the supplemental unemployment insurance is running out.
Speaker 1: We know that schools are reopening. So we're really hopeful
Speaker 1: that people re enter the labor force. And that's gonna
Speaker 1: tell the FED, particularly the doves on the FED, I think,
Speaker 1: will feel vindicated that there is a lot of slack
Speaker 1: in the labor market. And until wage inflation properly picks up,
Speaker 1: you know, not because of composition effects, which is what
Speaker 1: we think held the number up, um, you know, or
Speaker 1: or has been for the last few months. Um. You know,
Speaker 1: When it's true underlying reage inflation picks up, that's when
Speaker 1: I think some of that transitory narrative falls off. So
Speaker 1: that's really going to be key the next few months.
Speaker 1: We need to give a very careful shout out to
Speaker 1: James O'Sullivan as well. Jim Sullivan, working with Priam, is
Speaker 1: doing all the heavy lifting here. When you talk to
Speaker 1: Jim O Sullivan about Q four, what do you argue about?
Speaker 1: So we argue a lot about the pace of deceleration.
Speaker 1: Jim's are a great call, great call on the number today.
Speaker 1: You know, I'll be decelerating from a seven percent first
Speaker 1: half GDP to a you know, three or four percent.
Speaker 1: And what's the next step? Are we going down to
Speaker 1: one percent or two percent? And you know Jim is
Speaker 1: in the camp that things are decelerating. Reopening is feeding some,
Speaker 1: the fiscal stimulus impact is feeding. But growth is still
Speaker 1: solid and well well above potential, which will allow the
Speaker 1: fact to exit. It's just the inflation question where Jim
Speaker 1: has a slower or slow down in an inflation So
Speaker 1: that's that's the keep out of extent of deceleration and
Speaker 1: what's the longer term impact on inflation question. Link your
Speaker 1: bond world, your full faith and credit world to the
Speaker 1: equity markets. We don't do that. We do that clumsily.
Speaker 1: I would say within the media. Does the yield mystery
Speaker 1: now support equities or create greater uncertainty for equities? I
Speaker 1: think so I do. I don't think there's such a
Speaker 1: big disconnect between the two. I think the FED is
Speaker 1: telling us they're tatering, but very slowly. The end point
Speaker 1: of the hiking cycle, the market has taken down that
Speaker 1: number significantly. If the fans only hiking to one and
Speaker 1: a half percent, that's a very bullish environment for risk asses.
Speaker 1: So I'm less concerned about the fat aspect. I'm more
Speaker 1: concerned if global growth slows down, then that is something
Speaker 1: that the bond market is somewhat priced for, but the
Speaker 1: equity markets not. I seem more as a growth concerned
Speaker 1: rather than a fat concern. One final question, tell me
Speaker 1: about the X access duration here of all these moves
Speaker 1: that we're going to see. I mean, I know we
Speaker 1: go out to December on taper, but do you begin
Speaker 1: to really extend out yield angst if I can to
Speaker 1: the middle of two thousand twenty, if not later. In
Speaker 1: terms of when we think rates will rise, yeah, when
Speaker 1: price down rates up right? Um, So I think it
Speaker 1: also depends on the fiscal site. Do we get a
Speaker 1: three and a half or two trillion or if send
Speaker 1: a mansion saying nothing without an offset, how much of
Speaker 1: the offsets are we going to get? I think that's
Speaker 1: a that's a key comportant as well. But if the
Speaker 1: FED starts to taper, there's a lot of supply that
Speaker 1: the market is to take down. So I think a
Speaker 1: gradual rate right in, you know, starting at the end
Speaker 1: of the year continuing next year. I can see that
Speaker 1: consistent with tapering. To you and Jim O'Sullivan, congratulations on
Speaker 1: just simply doing market economics. We greatly appreciate your return
Speaker 1: this morning. Standing to see things change at the long
Speaker 1: end of the curve though, tom So, let's have a
Speaker 1: look at that and push through that two thirty five,
Speaker 1: that big down side surprise on a payrolls report against
Speaker 1: an estimate of seven thirty three yield tire on thirties
Speaker 1: now by about three basis points on tens by two. However,
Speaker 1: way you chop this up right now, there is a
Speaker 1: view on the September twenty two meeting that that number
Speaker 1: will just anchor the hawks a little bit and stop
Speaker 1: them flying away and causing too much stock for chairman Power.
Speaker 1: Let's bring in Jeff Rosenberg on that of black Rock
Speaker 1: black Rocks portfolio manager. Jeff, I want to start straight there,
Speaker 1: so with a down side surprise and your first interpretation,
Speaker 1: your first read, Yeah, the first read is definitely this
Speaker 1: has some delta variant on it. The mix shift here
Speaker 1: is retails lower leisure and hospitality, which had been contributing
Speaker 1: you know, four hundred five hundred thousand, doesn't show up
Speaker 1: at all. The wage increase that you guys were talking about.
Speaker 1: That really looks like a mixed shift here. And the
Speaker 1: disappointment is in those two sectors, in particularly leisure and hospitality,
Speaker 1: which speaks to you know, potentially this delta variant impact now,
Speaker 1: because that's the fingerprints, that's a temporary impact. And John,
Speaker 1: as you just highlighted, you know, the initial bond market
Speaker 1: reaction was lower yields, but now you're starting to kind
Speaker 1: of push higher in the back end. To me, that
Speaker 1: says the market's looking through this and seeing, hey, this
Speaker 1: is temporary. You know, we talked about transitory inflation. We're
Speaker 1: gonna talk about transitory uh, delta variant impact here at
Speaker 1: least with regards to the market reaction. Uh. And you
Speaker 1: know a little bit of disappointment as well in terms
Speaker 1: of the labor force participation rate not budging again. You know,
Speaker 1: I think that's more of a temporary factor related to
Speaker 1: the delta variant. So I think you know, you know,
Speaker 1: the market was already you know, pushing back in terms
Speaker 1: of expectations of when the tapering announcement would happen. This
Speaker 1: solidifies that in terms of the folks who were expecting
Speaker 1: something sooner or the hawk ish viewpoint, you know, we'll
Speaker 1: at another month. Everyone will look for that, look for
Speaker 1: the delta variant hopefully you know, to come out of
Speaker 1: the September and even the October reports as we wait
Speaker 1: into later this year. For the Governor Bryant has been
Speaker 1: on the money here for many people waite for the
Speaker 1: September night, to waite to see if the supply side
Speaker 1: of this economy will hail. Do you think they have
Speaker 1: the luxury of time on this side to waite for that.
Speaker 1: You know they do in the sense that you know
Speaker 1: they're really going to be focused on the longer term implications.
Speaker 1: And you know they have talked over and over about
Speaker 1: the necessity you know, particularly Powell speech last week, Uh,
Speaker 1: you know, the need not to react and overreact to
Speaker 1: short term developments. And so you know, from that vantage point,
Speaker 1: they don't need to rush into it. And the most
Speaker 1: important thing not to lose sight of here is the
Speaker 1: emphasis that that tapering is not tightening. And and once
Speaker 1: we get past this tapering announcement and they go on
Speaker 1: kind of an autopilot of each monthly reduction, you know,
Speaker 1: then we're going to shift this conversation and it's going
Speaker 1: to be about, well, what is this due to the
Speaker 1: path of future tightening. But that path of future tightening
Speaker 1: doesn't begin until maybe late in two so they've got
Speaker 1: a lot of time here before we get to that
Speaker 1: how important is the revision upward for the prior month,
Speaker 1: the idea that was revised from two more than a million,
Speaker 1: the idea that there was momentum and that perhaps this
Speaker 1: blip really is just a pause due to the delta variant.
Speaker 1: It's a It's a good point, Lisa, And that's another
Speaker 1: part of this report is it reinforces how strong the
Speaker 1: labor market was going into this delta variant impact. And
Speaker 1: I think you know that maybe what the market is
Speaker 1: looking through you know that this is this is a
Speaker 1: one off slow down and not the beginning of a
Speaker 1: new trend, and that the strength in the in the
Speaker 1: labor markets will re emerge as the reopening re ours
Speaker 1: equity features. Just finding a little bit here. Someone changed
Speaker 1: on the SMP five hundred, basically unchanged the negative on
Speaker 1: the nastack. Now I'll be catching up with Rick read
Speaker 1: at Jeff's colleague at the Tompany alongside Anastasia Amarosa and
Speaker 1: Mike Collins. Will do that on the Open so in
Speaker 1: about twenty minutes time. Sounds good. Lots to talk about
Speaker 1: there as well. I just did the three months moving
Speaker 1: average of where we are with the double revisions, and
Speaker 1: I think away from the gloom of the moment, folks,
Speaker 1: this is a pleasant survived. Jeff Rosenberg to five zero
Speaker 1: jobs over ninety days and that comes out to seven
Speaker 1: hundred and fifty thousand exactly per month. I'm sorry, Jeff Rosenberg.
Speaker 1: That's not a bad number, not not bad at all.
Speaker 1: And you're reinforcing the broader point, which is, if you
Speaker 1: look through the noise, this is a very strong labor market,
Speaker 1: good recovery. You know, is there more room to go? Sure,
Speaker 1: you know, And that's what some of the points, uh,
Speaker 1: many of the more devilish members have been highlighting. Uh.
Speaker 1: And that's I think the broader takeaway is that the
Speaker 1: reopening is happening, that the recovery in the economy, you know,
Speaker 1: the thing that that this isn't talking about, and that
Speaker 1: the Fed is is also going to be concerned about it.
Speaker 1: And I think our focus will shift towards is the
Speaker 1: impact of fiscal policy. You know, we're going to have
Speaker 1: a fiscal tightening, even with a three and a half
Speaker 1: trillion dollar stimulus plan. You know, that is not the
Speaker 1: same kind of stimulus as the stimulus that is rolling off.
Speaker 1: That's long term stimulus over ten year period and so
Speaker 1: the FED is going to be concerned about the impact
Speaker 1: on economic growth of that fiscal tightening. Are you managing
Speaker 1: then twelve months forward, twenty four months forward to a
Speaker 1: three percent American economy or something. You know, we're getting
Speaker 1: back to where potential g d P is is that
Speaker 1: is that your overlay here as you manage bond money.
Speaker 1: That that is tom and and and it's it's in
Speaker 1: most of the longer run forecast. You know, we've had
Speaker 1: an an incredibly uh impactful impact on short term growth
Speaker 1: from the combination of reopening and historic amounts of fiscal stimulus.
Speaker 1: That's going to roll off. And so what is really
Speaker 1: the underlying debate is is or the overriding debate is
Speaker 1: what's the underlying capacity of the economy and the strength
Speaker 1: of the economy and its ability to deliver. And most
Speaker 1: of the consensus views have you going back to that level.
Speaker 1: And the concerns on the downside is that you'll you'll
Speaker 1: you'll press even lower. And that's the argument against moving
Speaker 1: too quickly and overreacting to what might be transitory impacts
Speaker 1: on inflation. Now, of course, the other side of the
Speaker 1: argument is that we've done some serious structural damage to inflation,
Speaker 1: inflation expectations the supply chain. The fet is admitted, you know,
Speaker 1: they've underestimated the degree and length of how long the
Speaker 1: restart economics would impact on the supply side and so
Speaker 1: all that. You know, that's the growth side, but it's
Speaker 1: also the inflation. Some interpretation, here's markets reverse nastac one
Speaker 1: with a spike up earlier comes right back around to
Speaker 1: a modestly negative statistic. The vix out to a sixteen
Speaker 1: point five three lesa three the ten year yield excuse
Speaker 1: me higher now one point three. Yeah, it seems like
Speaker 1: people are looking past the huge headline mess and to
Speaker 1: really reiterate what Jeff was saying, they're looking more at
Speaker 1: the upward revisions. They're looking more at the momentum heading
Speaker 1: into what was a delta poked month that really saw
Speaker 1: zero net jobs in the travel, leisure and hospitality sectors,
Speaker 1: which is really shocking given where we are in the reopening.
Speaker 1: But Jeff, this really goes to the question is the
Speaker 1: FED getting this right and does this data confirm that
Speaker 1: that basically there is a lot of slack in the market,
Speaker 1: or are we starting to get some concern with respect
Speaker 1: the wage data. Albeit you have to pass through it.
Speaker 1: You know, honestly, it's it's too early to know. Um.
Speaker 1: You know, there's a lot of critique on both sides
Speaker 1: of the debate as to whether the FED is is
Speaker 1: making mistakes or not. You know what, what obvious concern is,
Speaker 1: there is a tremendous amount of inflation, but it's not
Speaker 1: in goods and services prices. It's in assets, and you
Speaker 1: see it everywhere, and it's the acid inflation and the
Speaker 1: financial stability concerns, it's in the minutes. There are folks
Speaker 1: who are concerned about it. You know, if that ultimately
Speaker 1: shows up in a negative way, then you know the
Speaker 1: argument will be the FED ministic. But you know, given
Speaker 1: what we know today, it's it's hard to argue that
Speaker 1: is the case right now. And so the Fed's focused
Speaker 1: on what's right in front of them, which is they
Speaker 1: don't feel the need to move preemptively, and that's the
Speaker 1: change in flexible average inflation targeting. So they're going to
Speaker 1: be reactive and that's the kind of FED response function
Speaker 1: that we now live with. Jeffrey Rosenberg, thank you so
Speaker 1: much for black Rock. Market economics will interpret this and
Speaker 1: they will make their tweaks. Of course, big news yesterday
Speaker 1: with ellen zetn are bringing in Q three to two
Speaker 1: point nine percent. Pretty prescient. There is well and then
Speaker 1: there's a wide market economics disparity. If you're on the
Speaker 1: by side managing money, you have economists to take a
Speaker 1: different tack. That's a good thing always to speak to,
Speaker 1: and that would be Tiffany Welding joining us from PIMCO
Speaker 1: the bondom at least, this is the Pacific Investment Managing Company.
Speaker 1: You looked off into the distance and I thought maybe
Speaker 1: you could kind of see it's like a religious experience
Speaker 1: to talk about PIMCO, what they've done over the decades
Speaker 1: as well, Tiffany, if we're off a boom economy, what
Speaker 1: kind of economy is it now? Well, I mean, we
Speaker 1: look at this and we think this is more of
Speaker 1: a soft patch instead of you know, the beginning where
Speaker 1: there's a phrase from a long time ago. Are you
Speaker 1: it's just the new transitory that well, I mean, so
Speaker 1: I think on the on the you know, kind of
Speaker 1: on the more worrying side, it does look like the
Speaker 1: slowdown that we're seeing as a result of the increase
Speaker 1: in cases the coronavirus as and and as a result
Speaker 1: of some of these um supply chain bottlenecks, which appear
Speaker 1: to have also intensified. It does look like the slowdown
Speaker 1: that we're seeing an activity is a bit more pronounced.
Speaker 1: Having said that, though, um, you know, it still looks
Speaker 1: less than what we got, you know, at the end
Speaker 1: of last year when we had uh, you know, the
Speaker 1: kind of the rising new cases and of course, um,
Speaker 1: you know, in March and April of of last year,
Speaker 1: at the beginning of the pandemic. So it does look
Speaker 1: like the economic um hit from this kind of thing
Speaker 1: is is becoming less and and and we think that that,
Speaker 1: you know, is going to create a slow patch instead
Speaker 1: of the beginnings of a of a bigger downturn. When
Speaker 1: is a soft patch or a slow patch become a
Speaker 1: bigger and longer problem for an economy that faces a
Speaker 1: number of pressures. Yeah, I mean, so I think that
Speaker 1: on the on the at least on the on the
Speaker 1: COVID side, I think, I do think what you have
Speaker 1: to worry about a little bit is that you know,
Speaker 1: you have the longer that you have this pandemic, that's
Speaker 1: kind of at top of mind for people. The more
Speaker 1: are solidified their new behaviors become um and that obviously
Speaker 1: creates you know, economic reallocation that could create slower growth
Speaker 1: as people want to just save more. You know, I
Speaker 1: think there's a whole host of potential issues that we
Speaker 1: have to we'll have to deal with if that, if
Speaker 1: that happens. Um. You know, I think again, you know,
Speaker 1: we're relatively optimistic still, um, you know, because you are
Speaker 1: still seeing uh people getting vaccinated. You know, of course
Speaker 1: we're gonna be talking about about boosters here relatively soon
Speaker 1: in terms of people actually getting them. So you know,
Speaker 1: all of that again makes us think that, you know,
Speaker 1: this is something that we're we're still going to get over.
Speaker 1: But of course we have to deal with that that
Speaker 1: risk and and of course think about it. So we're
Speaker 1: talking about Ellen Zentner. Morgan STANLEYO joined us earlier, and
Speaker 1: another point that she made was that she expects two
Speaker 1: thirds of all the jobs lost from the pandemic to
Speaker 1: come back, and that means one third will not Where
Speaker 1: are those jobs? Well, I think you have to be
Speaker 1: a little bit careful about that because I think it's
Speaker 1: very easy to kind of look at jobs and maybe
Speaker 1: look at some of the technology and some of the
Speaker 1: innovations that we've started to see, um folks implement and
Speaker 1: you can say those jobs don't come back. But I
Speaker 1: think what's more difficult is to sort of open your
Speaker 1: mind and say these are the new jobs that that
Speaker 1: all of this is going to create. And I think
Speaker 1: that's much more difficult, um, you know, and I think
Speaker 1: you know, we're very open minded, um you know, in
Speaker 1: terms of of kind of the new jobs and the
Speaker 1: new innovations that this is going to create. I think
Speaker 1: where we get a little bit worried is about a
Speaker 1: skills mismatch, you know, and how does the economy sort
Speaker 1: of manage a transition um that were ultimately going to
Speaker 1: you know, have to face and that we are currently facing,
Speaker 1: um you know, and we hope that that transition is smooth.
Speaker 1: But as we've seen in the past, you know what
Speaker 1: economists called the you know, the China shock of course,
Speaker 1: where US manufacturing came down. There's a whole coort of
Speaker 1: people that were really left behind. And you know, of
Speaker 1: course that's really what we we want to avoid. You know.
Speaker 1: The FED uh you know, only has blunt tools to
Speaker 1: do that. Um you know. Of course that you know
Speaker 1: obviously is is fiscal policy that has to really step
Speaker 1: in and try to uh to you know, uh may
Speaker 1: image that transition and help it along. Tiffany, one of
Speaker 1: the great things here is the partition of the labor
Speaker 1: economy that we talk about each and every day. And
Speaker 1: it does go back to John Edwards in two America's
Speaker 1: can a central bank affect policy to help people that
Speaker 1: aren't part of the modern labor economy? Or is this
Speaker 1: all going to be about public policy and private investment? Well,
Speaker 1: I mean, I think, you know, I'm pretty I'm so
Speaker 1: optimistic that you know, this whole idea of you know,
Speaker 1: running the economy hot to fed, being patient. You know,
Speaker 1: a tailor rule right now would actually suggest that the
Speaker 1: said funds rate should be over two percent. Obviously it's well, okay,
Speaker 1: I looked at that the other day. You're dead on.
Speaker 1: Thank you so much. Folks on the Bloomberg terminal. You
Speaker 1: can go to t A. Y L To see Tiffany
Speaker 1: Wilding's geniuses. Okay, discuss John Taylor Stanford's rule. Well, I mean, so,
Speaker 1: I don't I don't want to get too much into
Speaker 1: the tailor rule, but it does suggest that that should
Speaker 1: be raising rates as a result of the inflation that
Speaker 1: we're seeing, but they're not, you know, and they're again
Speaker 1: the reason why that we're they're not is because they
Speaker 1: do want to run the economy a little bit hot,
Speaker 1: because they do think that there are there are gains
Speaker 1: to that their benefits um, you know, and those benefits
Speaker 1: can be people starting to come back to the labor market. Now,
Speaker 1: your question was, even if people are coming back to
Speaker 1: the labor market here your skills atrophied, are they ready
Speaker 1: to come into the new jobs that the economy needs?
Speaker 1: You know? And I think what you saw. The interesting
Speaker 1: thing is is what you saw in sen and nineteen
Speaker 1: when we're also running a hot labor market and a
Speaker 1: hot economy. Well you saw us folks were recoming. We're
Speaker 1: coming back to the labor market. Not only that, but
Speaker 1: you're actually getting some of the employers retraining and reskilling them.
Speaker 1: So they're hiring people that maybe skills of atrigat but
Speaker 1: they're but they're making them better. So I do think
Speaker 1: the private sector can do this, um you know, of course, uh,
Speaker 1: you know, fund government educating government fund um investment in education,
Speaker 1: care's economy issues type that you know, that can also help.
Speaker 1: But to the tailor rule in a rule is based architecture.
Speaker 1: Jeff Lacker joining us, the former president of the Richmond
Speaker 1: FED a couple of days ago. If we haven't had inflation,
Speaker 1: have we simply taken the price change architecture of a
Speaker 1: higher tailor rule clearly evident and moved it over to
Speaker 1: assets with the booming stocks and bond prices up. Yeah,
Speaker 1: I mean so certainly, you know, lower interest rates UM
Speaker 1: in a more accommodative FED certainly does impact a wide
Speaker 1: range of asset prices, you know. And ultimately that's how
Speaker 1: monetary policy works, um, you know. And and you know
Speaker 1: on the in terms of the effects of that, um
Speaker 1: you know. Of course, the FED has models you know
Speaker 1: that that that that think about this and put it
Speaker 1: into context. But you know, we do think that that
Speaker 1: does translate into growth, you know, and inflation quite frankly,
Speaker 1: and that's ultimately why the FED does these policies, right,
Speaker 1: you know. I think there's another question here about you know,
Speaker 1: because thus the Fed's tools are very blunt. How is
Speaker 1: the sort of distribution of of of prosperity, if you will,
Speaker 1: How how is that sort of distributed around the economy? Um,
Speaker 1: you know, And I think that's where fifthfical policy can
Speaker 1: come in and help the FED because it is such
Speaker 1: a funt tool to make sure that it's sort of
Speaker 1: directed at, you know, the areas in particular that needs
Speaker 1: to help. Lisa Apples Trading, Old Graham, Dott and Coddle.
Speaker 1: It's thirty nine times price to book, seven times priced
Speaker 1: to sales, and it's slidely and rounded up to times
Speaker 1: price to cash flow. Yeah, this is what we have
Speaker 1: seen consistently, asked, prices go up regardless of the economy.
Speaker 1: And John Gallup of Credit suitez this morning discussing how
Speaker 1: there makes this you know, bifurcation between the economy and
Speaker 1: the stock market. The stock market is not the economy.
Speaker 1: This is blam meer surveillance. We are speaking with Tiffany Wilding,
Speaker 1: PIMCO chief US economist, post this job's report. We are
Speaker 1: seeing red on the screen. Tiffany, you talked about wages
Speaker 1: and this to me is one of the biggest questions.
Speaker 1: And I feel like I've been just hammering this again
Speaker 1: and again, like it, you know, hammering a dead horse.
Speaker 1: What's the expression, um and Friday, you don't care what
Speaker 1: the expressions are. Good. I'm so glad, Tiffany. I'm wondering
Speaker 1: how much bifurcation there is in the wage scale, how
Speaker 1: the averages don't capture some of the differentials on for example,
Speaker 1: the warehouse staffing picture and the retail workers that are
Speaker 1: getting pretty big wage increases. Are they disproportionately large in
Speaker 1: a good way for the economy on the lower end? Yeah,
Speaker 1: I mean I think they are. So We've seen research, um,
Speaker 1: you know, from economists from the Atlanta Fed. Of course,
Speaker 1: they have their Atlanta Fed Wage Tracker as well, which
Speaker 1: you know, tries to get out some of these compositional
Speaker 1: effects that are impacting measures like average e really earnings.
Speaker 1: But the research that they've done basically suggests that the
Speaker 1: lower lower end of the wage spectrum, those jobs are
Speaker 1: the jobs that are seeing the highest wage gains these days. UM.
Speaker 1: And I agree that is ultimately a good thing. Um.
Speaker 1: You know, we want to see measures broader measures um
Speaker 1: within you know the economy, UM, labor share of profits. Um.
Speaker 1: Of course, profits can be broken down into the kind
Speaker 1: of capital share, the stockholder share in the labor share,
Speaker 1: and ultimately you want to see that labor share UM,
Speaker 1: you know, start to rise again. Of course, it's been
Speaker 1: on a very secular decline. So you know, these these
Speaker 1: kinds of um, you know, wage increases certainly are I
Speaker 1: think a good thing. Um. You know, of course, Congress
Speaker 1: has has sort of talked about raising the minimum wage,
Speaker 1: which you know has been uh, you know, underperforming inflation
Speaker 1: for quite some time. Um. You know, ultimately we don't
Speaker 1: think that will happen, but you know, of course states
Speaker 1: are are doing this. But I do think that that
Speaker 1: would also be be a good thing. Um. You know,
Speaker 1: so all of these policies are are quite good now.
Speaker 1: But in terms of the FED and what this means
Speaker 1: for the FED, you know, I think there it's really
Speaker 1: a question of how broad based the wage inflationary pressures
Speaker 1: are because what the FED doesn't want to happen is
Speaker 1: for us to get in this sort of wage price
Speaker 1: spiral where you have inflation that's sort of accelerating higher.
Speaker 1: And we don't think that we're there yet because again
Speaker 1: we're seeing it concentrated in the very lower end of
Speaker 1: the wage spectrum, which is a good thing, but we
Speaker 1: haven't seen it be more persistent across the wage spectrum yet,
Speaker 1: which would suggest that inflation expectations are still relatively anchored.
Speaker 1: You know, But of course this is something that we're
Speaker 1: watching me and I think the FED is watching Sorr
Speaker 1: Tiffany just real quick here, I'm wondering if you think
Speaker 1: that the increases that we're seeing on the lower end
Speaker 1: get it done, to quote Tom Keene from earlier this morning,
Speaker 1: whether they're enough or whether there will be more persistent
Speaker 1: increases as we try to bridge the gap and missing employees. Well,
Speaker 1: I mean, you know that your question of is it
Speaker 1: enough is a big one, right, So, I mean, for
Speaker 1: the last you know, over thirty years, we've seen you know,
Speaker 1: what it called labor share of of total economic profits
Speaker 1: in this country decline, um. And and that's the result
Speaker 1: of structural issues that have that won't change overnight. So
Speaker 1: you know, of course we've had lower unionization transfward, lower
Speaker 1: unionization as a result of right to work laws across
Speaker 1: this country. So these are sort of solidified. Even this
Speaker 1: lower labor bargaining power is solidified you know, in the
Speaker 1: kind of law and in many states within the country.
Speaker 1: So it's not going to be an overnight fix unfortunately. Um,
Speaker 1: you know, to get you know, kind of these the
Speaker 1: labor versus capital, you know, to get that more in balance.
Speaker 1: So I don't think, you know, is it enough? You know?
Speaker 1: I think we can always you know, do more, um,
Speaker 1: you know, and ultimately I think that kind of prosperity
Speaker 1: for everybody will be good for the broader economy. Tiffany,
Speaker 1: thank you so much. Tiffany Welding with Pimco. This is
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live
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