Speaker 1: This is Bloomberg Surveillance with Tom Keane, Jonathan Perrow, and
Speaker 1: Lisa Abramowitz on Bloomberg Radio.
Speaker 2: This was operation Say Nothing, where you basically repeat data
Speaker 2: dependent over and over again but didn't say which data,
Speaker 2: and then you basically had a little bit for everybody
Speaker 2: basically saying they are concerned about inflation, but recognizing that
Speaker 2: inflation has come in somewhat. This was operation do no
Speaker 2: harm and say nothing and get out of there as
Speaker 2: quickly as possible, which she just did.
Speaker 3: Highly repetitive, sometimes tedious in a bond market, be able
Speaker 3: to well hire going into this decision lower following get
Speaker 3: the two ye yield is down Tom by about three
Speaker 3: or four basis points in a bond market right now
Speaker 3: TK four eighty three natty one.
Speaker 1: Some yield was as good as a Gini smile like
Speaker 1: the New York Times pulling the Barbie movie here to
Speaker 1: give us the spirit of the American economy. January thirty one,
Speaker 1: two thousand and twenty four. Is he going to have
Speaker 1: a leguard like press conference first of the year the
Speaker 1: Fed like tomorrow's laguard press conference if he gets a
Speaker 1: GDP slow down, as we heard Bob Michael and Andrew
Speaker 1: Hollenhorst talk about I'm fascinated about the luxury he has
Speaker 1: right now of a buoyant American economy and if that
Speaker 1: drifts away, I'm not predicting that. But if that drifts away, John,
Speaker 1: is it laguard like in January?
Speaker 4: He is predicting it won't drift away.
Speaker 1: Yes, very much.
Speaker 3: The Fed staff is saying no recession in their forecast.
Speaker 3: Germany is living one currently. On the balance of risk
Speaker 3: around the economy, take a listen to what the Fed
Speaker 3: chairman had to say.
Speaker 5: It's really a question of how do you balance the
Speaker 5: two risks, the risk of doing too much or doing
Speaker 5: too little? And you know, I would say that, you know,
Speaker 5: we're coming to a place where where there really are
Speaker 5: risks on both sides. It's hard to say exactly whether
Speaker 5: whether they're in balance or not. But as our stances
Speaker 5: become more restrictive and inflation moderates, we do increasingly face
Speaker 5: that risk.
Speaker 3: If you ask that question twelve months ago, the answer
Speaker 3: was obvious. What's the biggest risk right now? Doing too much?
Speaker 3: Doing too little? They would have told you straight off
Speaker 3: the bat, The biggest risk right now is doing too little.
Speaker 3: We need to hike, hike fifty, go even more than
Speaker 3: that TK. The further along you get into this journey
Speaker 3: of Chairman Powll and co. The less obvious the answer
Speaker 3: to that he comes. And we're at that point right now.
Speaker 1: We're post pandemic without a theory. And if you're at
Speaker 1: Berkeley taking your PhD, maybe you can figure out a
Speaker 1: theory post pandemic. But I don't see it. William Dudley
Speaker 1: joins us now. He's a former New York Fed president,
Speaker 1: has the immense advantages of years with Ed McKelvey doing
Speaker 1: market economics at Golden Seachs. We're thrilled that doctor Dudley
Speaker 1: could join us this morning. Bill, we got to wake
Speaker 1: everybody up after a summer press conference. You ancient pass Bill,
Speaker 1: This is twenty thirty days ago. The great US Treasury
Speaker 1: bound route is far from over. What I have not
Speaker 1: heard today is a discussion about higher interest rates. What
Speaker 1: is your belief that we could see higher interest rates?
Speaker 6: Well, I think the chair Pole made a very clear
Speaker 6: in the press conference that he doesn't see the need
Speaker 6: to go that much further.
Speaker 7: You know, the very fact that it's sort of meaning
Speaker 7: by meeting now tells you that he.
Speaker 6: Thinks that, you know, maybe there's one more rate hike,
Speaker 6: maybe there's no more rate hikes as we go forward.
Speaker 6: But that's a very different story than what does that
Speaker 6: mean for the bond market. Because bonnios are low relative
Speaker 6: to short term interest rates, I think there's a number
Speaker 6: of reasons why bonios could move higher. Number one, inflation
Speaker 6: is probably not going to average two percent over the
Speaker 6: next ten years. It's probably going to average a bit
Speaker 6: higher because the Fed has an asymmetric regime where when
Speaker 6: they miss inflation to the downside, they try to offset
Speaker 6: that with missions of the upside, but not the.
Speaker 7: Other way around.
Speaker 6: Also, if you look at the savings investment balance, it's
Speaker 6: not as favorable now as it was before because we
Speaker 6: have a lot more investment programs motivated by Biden administration policies,
Speaker 6: and the savings is also affected by the very large
Speaker 6: fiscal imbalances that the US is likely to run for many,
Speaker 6: many many years. So that implies that perhaps the neutral
Speaker 6: Fenel fund rate consistent with neutral montrepoles a little bit
Speaker 6: higher than in the past. And then lastly, the risks
Speaker 6: are two sided now for the bomb mark. Before it's
Speaker 6: all about I could homeole Pole bonds and if we
Speaker 6: ended up in a recession and the fat got stuck
Speaker 6: at the zero lore bound, the bond marker would protect me.
Speaker 6: But now we're a long way from the lower bound.
Speaker 6: So the risk of getting stuck at the zero lower
Speaker 6: bound seemed very diminished at this point, and the rest
Speaker 6: of inflation being sticky, I think is you know, remains
Speaker 6: a very relevant to the botmb linker.
Speaker 7: Bill.
Speaker 1: We had an article at Bloomberg this week, folks, John
Speaker 1: Authors and Isabelle Lee reported on the Strategy World and
Speaker 1: how absolutely it's brutal has been for Wall Street strategist
Speaker 1: Bill Dudley lived this at gulb and six years ago.
Speaker 1: How clear is the Dudley crystal ball right now? Bill?
Speaker 1: How how what's the vision you've got? Are you making
Speaker 1: it up as you go?
Speaker 6: Well, I'm a lot less clear now than I was,
Speaker 6: say a year or a year and a half ago.
Speaker 6: I mean, at that point, it is very clear that
Speaker 6: the said was way behind it in terms of the
Speaker 6: need to type monitary policy. They were going to have
Speaker 6: to go to restrictive and they're going to have to
Speaker 6: move fast to get there to keep inflation from getting
Speaker 6: control totally out of control. Now they're at a restrictive setting,
Speaker 6: and so the question is, you know, how how high
Speaker 6: do they have to go to be sufficiently restrictive and
Speaker 6: how long do they.
Speaker 7: Have to stay there?
Speaker 6: And I think, you know, they've been the kind of
Speaker 6: news has been breaking in a favorable direction in the
Speaker 6: sense that they're getting quite a bit of disinflation without
Speaker 6: actually affecting the growth rate very much or without actually
Speaker 6: putting a lot of people out of work. I mean,
Speaker 6: the fact that inflation has come down and the uniplying
Speaker 6: rates still three point six percent is really good news
Speaker 6: from the face perspective.
Speaker 7: But my own view is, you know, I'm still where
Speaker 7: I was before.
Speaker 6: I think the Fed's going to have to be you know,
Speaker 6: tighter for longer, and I think they're going to probably
Speaker 6: emphasize the longer piece. If you look at their you know,
Speaker 6: their forecast, they don't see inflation getting back to two
Speaker 6: percent until twenty twenty five, so they think the process
Speaker 6: still has a long way to go.
Speaker 7: And I agree with them.
Speaker 2: Bill, How important do you think it is that essentially
Speaker 2: this is a FED no longer are giving forward guidance.
Speaker 6: Well, I think that's sort of appropriate, you know, if
Speaker 6: you've gotten in the vicinity of where you think you
Speaker 6: need to be and you're uncertain about what's next because.
Speaker 7: You don't know if you've done enough.
Speaker 6: You don't know much about the long and variable lags
Speaker 6: of Audrey policy, you don't know how financial conditions are
Speaker 6: to react, are going to react.
Speaker 7: To what you say and what you do.
Speaker 6: I think at that point you don't really want to
Speaker 6: get for guys, because the Ford guidance is probably going
Speaker 6: to be misleading as opposed to illuminating. So I think
Speaker 6: it makes sense for them to talk about, you know,
Speaker 6: going meeting to meeting. One thing I was a little
Speaker 6: surprised today was that there wasn't much talk about the
Speaker 6: long and variable lags of Madre policy and the need
Speaker 6: to slow down the tightening the rate of the tightening process.
Speaker 6: Paul very clearly puts the September meeting back on the table,
Speaker 6: and I was a little surprised by that because the
Speaker 6: last meeting was all about the need to slow down
Speaker 6: and go at a slower pace, and now I find
Speaker 6: out today that male September is a lot of meeting.
Speaker 2: Well, and he was actually pretty blunt that someone asked
Speaker 2: him specifically, how does this job with what you said
Speaker 2: at the previous meeting, and he basically was like, that's
Speaker 2: all I'm going to say about that. I'm not going
Speaker 2: to continue. I'm wondering whether you think it's actually more
Speaker 2: confusing that there wasn't dissent at a time where there
Speaker 2: clearly is a range of opinions and we have a
Speaker 2: feed schair just reading the same thing over and over
Speaker 2: again in response to everyone's questions.
Speaker 6: Well, the lack of dissent just means that people are
Speaker 6: pretty comfortable with the general trajectory of where Mantre policy
Speaker 6: is today, and they're happy about the fact that inflation's
Speaker 6: coming down, and they're happy about the fact that's coming
Speaker 6: down without actually having to really, you know, push up
Speaker 6: the unemployer rail a lot. At least at this point.
Speaker 6: I think what's the problem that Paul is great for
Speaker 6: themselves is what do you actually do in September?
Speaker 7: So in September you're going to have a coup couple
Speaker 7: of things.
Speaker 6: If you decide not to hike, what are you going
Speaker 6: to show in the summary of economic projection? Are you
Speaker 6: going to sh show further rate hikes? And if you
Speaker 6: do show fur the rate hikes it's going to raise
Speaker 6: the question why did you do it in September, just
Speaker 6: like what we saw at the last meeting, And if
Speaker 6: you do hike, then the question is, okay, well, why
Speaker 6: are you going so much quicker now? And do you
Speaker 6: show further rate hes in the economic productions after a
Speaker 6: September rate egg. So I think he's made it very
Speaker 6: awkward for himself in terms of tying the projections of
Speaker 6: what's going to have in the future to what they
Speaker 6: actually decided to do in September or decide not to
Speaker 6: do in September. In terms of keeping rates unchange, I
Speaker 6: think they've created a bit of confusion. I think it
Speaker 6: would be better to stick to the story of Madre
Speaker 6: policy long and verable legs. At this point, we're close
Speaker 6: to where we think we need to be. Therefore we're
Speaker 6: going to go most more slowly. But he definitely puts
Speaker 6: September back on the table. I mean, he basically talked
Speaker 6: about the fact that we have two more and Plomber
Speaker 6: reports by until September. We have two more CBI reports
Speaker 6: before September. So he put the September meeting back on
Speaker 6: the table more than I would have thought he would
Speaker 6: have done. Given that he talked about the need to
Speaker 6: go more slowly because of long and variable legs.
Speaker 7: So I found that a little bit confused.
Speaker 3: Some people frustrated about this September conversation. Bill I tried
Speaker 3: to jump in to end it, but we can carry
Speaker 3: on if you want. Barry that wrote it, and he
Speaker 3: said this. Questions about whether they high in September were
Speaker 3: in name. He went on to say, the press conference
Speaker 3: went poorly given no questions about fiscal policy working at
Speaker 3: cross purposes with monetary policy, nor any questions about the
Speaker 3: deep curve inversion of impact on small banks and the
Speaker 3: supply of credit. Bill, can we pick up on the
Speaker 3: first piece just briefly, Where the fiscal policy right now
Speaker 3: is working at cross purposes with monetary policy?
Speaker 4: Do you think it is?
Speaker 7: Well?
Speaker 6: I don't think fiscal policy is stimulative right now in
Speaker 6: the sense of the fiscal impulse. But we have very
Speaker 6: large chronic budget deviicits and those budget deviaits that are
Speaker 6: going to continue as far as the eye can see.
Speaker 6: So the way that plays out is it means that
Speaker 6: the demand and the pool savings is higher because the
Speaker 6: government's taking down so much of the supply of savings.
Speaker 6: Over the next year, we're going to see a lot
Speaker 6: more treasury supply.
Speaker 7: Right now that the debt limit prices behind us.
Speaker 6: The treasures can be ramping up their borrowing needs very substantially,
Speaker 6: and the Federal reserves is going to continue to sell.
Speaker 6: Can can continue at nine hundred billion a year of
Speaker 6: treasuries and Morgan securities throughout. So they've made tremendous amount supply,
Speaker 6: and I think that's weigh on the bond market.
Speaker 7: Bill.
Speaker 1: The hallmark of your work at Gulben secs Ages ago
Speaker 1: was an optimism about the American economics experiment. The most
Speaker 1: memorable moment today was Jennie Smilek of The New York
Speaker 1: Times folding in the Barbie movie into a discussion with
Speaker 1: the Chairman of the Federal Reserve about the resiliency of
Speaker 1: the American economy. The smart guys like you, everybody assembled
Speaker 1: in the room, everybody in the economics racket. Do we
Speaker 1: just get wrong the resiliency of America?
Speaker 6: Well, I think that we have gotten wrong the resiliency
Speaker 6: of the US consernaert. I think what's driving it as
Speaker 6: the fact that during the pandemic there were large fiscal
Speaker 6: transfers from the federal government to the household sector, and
Speaker 6: household sector basically did three.
Speaker 7: Things of it.
Speaker 6: About a third of that was spent, about a third
Speaker 6: of it was used to paid on debt, and about.
Speaker 7: A third of it was saved.
Speaker 6: And so coming out of the pandemic, the household balance
Speaker 6: sheets were in much better shape than they typically are
Speaker 6: late in the cycle, and I think that's why the
Speaker 6: US consumer has been pre resilient. I think the point
Speaker 6: that Gino was making was just that, you know, going
Speaker 6: to Barbie uh in a in a theater is perfect
Speaker 6: example of discretionary mess of you know, discretionary consumption. People
Speaker 6: can decide to do that or not that decided to
Speaker 6: do It's not sort of core necessity.
Speaker 7: And so the fact that the box office.
Speaker 6: For Barbie and Openhearmer were so good was was was
Speaker 6: sort of evidence from from her perspective that the consumers
Speaker 6: still got some life life in them.
Speaker 1: It's a surveillance movie. Ask did he go?
Speaker 3: You gotta ask again, Bill Dentley and I'm bomping. So
Speaker 3: if you want to know, you can find out Bill,
Speaker 3: did you did you watch it over the weekend?
Speaker 1: No?
Speaker 6: I went to the mission possible. I haven't gone to
Speaker 6: Barbie or Openham. That's not the that's on my plans.
Speaker 4: Though one're there that we're doings conference in the next week.
Speaker 3: Kem Bill, Thank you, sir as always both incredibly insightful,
Speaker 3: lived it at the Federal Reserve as the New York
Speaker 3: Fed President. If you are just chuning in, welcome to
Speaker 3: the program this afternoon. Good afternoon to you all. The
Speaker 3: Federal Reserve. Hikin interest rates twenty five basis points the
Speaker 3: Federal Reserve chair saying that he believes monetary policy is restrictive.
Speaker 3: There was a moment in this news conference when Mike McKee,
Speaker 3: our good friend and colleague down in Washington, DC, asked
Speaker 3: about that and pleased to say that Mike McKey joined
Speaker 3: just now, Mike, the evidence that policy is restrictive, can
Speaker 3: you point to it?
Speaker 8: Well, he's point of the fact that inflation has come down,
Speaker 8: in that the Fed funds rate is now above the
Speaker 8: CPI in all cases, in both core and headline, and
Speaker 8: that real interest rates are starting to rise above zero.
Speaker 8: So they do see some restriction on the economy. But
Speaker 8: I think one of the key things he said was
Speaker 8: in his answer to me when he said policy has
Speaker 8: not been restrictive enough long enough. He doesn't want to
Speaker 8: put a time frame or a actual number on what
Speaker 8: restrictive is, but clearly they could be there. They just
Speaker 8: have to leave it there longer. This was a man
Speaker 8: who wanted to basically keep his options open and not
Speaker 8: get tied down to anything at this point.
Speaker 1: Mike, what does this twenty five basis point move due
Speaker 1: to our listeners and viewers I get and what this
Speaker 1: was alluded to by a number of our guests, big
Speaker 1: impact a year ago, two years ago. What's the impact
Speaker 1: today of this lift for housing, for food, for the
Speaker 1: day to day life that we have.
Speaker 8: Well, it's probably not going to have much of an
Speaker 8: impact overall in a twenty five basis point, since it's
Speaker 8: the cumulative amount of tightening that's been done. That's what
Speaker 8: Jay Powell has been referring to over the last year
Speaker 8: and a half, where they've gone five hundred and fifty
Speaker 8: basis points.
Speaker 4: Now, what you're.
Speaker 8: Looking at is decisions made on interest rates for a
Speaker 8: period of time. You don't buy a house every day,
Speaker 8: you don't buy a car every day, you don't spend
Speaker 8: money investing in a new factory every day, So it
Speaker 8: does take time for that to work its way into
Speaker 8: the economy. They don't know how restrictive they have to be. Clearly,
Speaker 8: they haven't been restrictive enough in the housing sense because
Speaker 8: home prices have still been rising. But overall they're getting
Speaker 8: close to that area.
Speaker 1: And I don't think that.
Speaker 8: The average American is going to notice really anything different
Speaker 8: about this twenty five basis point move Mike.
Speaker 2: Every time the FED has a meeting, you sit there,
Speaker 2: you listen to the tenor the potential staffoos, the way
Speaker 2: that people ask questions. Today you heard a very repetitive,
Speaker 2: very stick to the script J Powell. There was no
Speaker 2: forward guidance. When was the last time this Federal Reserve
Speaker 2: gave no forward guidance about what they were planning to
Speaker 2: do or how they even more thinking about the data
Speaker 2: that's coming in.
Speaker 8: Well, it's been quite some time. The idea today, and
Speaker 8: I said this before the meeting, was that come in,
Speaker 8: do make as little news as possible. They were locked
Speaker 8: into raising rates because the market had decided that's what
Speaker 8: they were going to do, and so the Fed went
Speaker 8: ahead and did that, and beyond that, they tried basically
Speaker 8: to leave their options open. Jay Powell was very scripted
Speaker 8: as you heard he did sound more relaxed than he
Speaker 8: did at the last meeting or the last couple of meetings.
Speaker 8: So from that sendpoint, Lisa, you could say maybe the
Speaker 8: vibe was they're getting close to the end, and I'm
Speaker 8: not sure at this point that they would raise rates again,
Speaker 8: but they don't want the markets to walk away from
Speaker 8: this thinking that they're going to do one thing or another,
Speaker 8: so they tried not to really give any guidance.
Speaker 3: We're covering vibes of news conferences now with Mike McKay. Mike,
Speaker 3: Thank you, Sir Dan in Washington, d C. Appreciate it
Speaker 3: as always. Here's the runway the Canada for you. September twentieth,
Speaker 3: the next Federal Reserve decision Jackson Holl of course, in
Speaker 3: between this meeting and the next mating for the data
Speaker 3: August fourth for Payrowsugust tenth for CPI, September first for payrolls,
Speaker 3: September thirteenth for CPI. So TK two of each CPI
Speaker 3: and payrolls. It's fed meeting and you can take away
Speaker 3: from this meeting, this news conference whatever you want. That
Speaker 3: conversation can change very quickly based on two prints of
Speaker 3: CPI and two prints from payroll.
Speaker 1: At Lisa Naillen. She said, it's this completely data dependent.
Speaker 1: I'm going back to I don't think there's any theory
Speaker 1: involved here. I don't think there's any textbooks. That conversation
Speaker 1: we had before the press conference was just absolutely brilliant
Speaker 1: on the ambiguities of the moment right now with clarity.
Speaker 1: Because he has to manage money, Jeffrey Rosenberg joins this
Speaker 1: portfolio manager of black Rocks Systematic Multi Strategy Fund. Jeff,
Speaker 1: my deepest sympathies. You have to have a conviction, a
Speaker 1: belief forward. What is your conviction now? Given the ambiguities
Speaker 1: we witness today, I think we have a little bit
Speaker 1: of silence here.
Speaker 4: A tennis takes there. I don't you know, Jeff put
Speaker 4: it on me.
Speaker 1: But the ambiguities here, you know, the the ambiguities here
Speaker 1: are important.
Speaker 3: And John, I know that you're in the team meeting
Speaker 3: and Lisa starts throwing stuff at the screen. It's like Brown,
Speaker 3: You're I'm going away to.
Speaker 1: I'm going away tomorrow, and you guys are running the show.
Speaker 1: I'm going I'm going deep to the Northeast. I'm just
Speaker 1: going it's just going to be I'm going away for months.
Speaker 1: It's going to be like a Sabbatan.
Speaker 4: You're taking a month off.
Speaker 1: Taking a month off, and and you guys have the
Speaker 1: former vice chairman of the FED and the arch question
Speaker 1: to Vice Chairman Claid I believe scheduled tomorrow in Bloomberg
Speaker 1: Savants in the morning. Check it out, folks, And I'm John, John,
Speaker 1: I'm sorry. The arch question here is Claire To saying
Speaker 1: we're not going back to We're not going back to
Speaker 1: two percent. Nobody Powell's not talking about. I don't think
Speaker 1: anybody else really is Claire To out front of.
Speaker 4: I'm with you.
Speaker 3: The standout call from former Vice chair Rich Clarider, together
Speaker 3: with Pimco, came out in the Secular Outlook a couple
Speaker 3: of months ago, and ultimately it's this underlying belief that
Speaker 3: they will tolerate higher above target inflation of two points something.
Speaker 3: You've got some indication of that, just a hint of it.
Speaker 3: When he talks about we're not going to hike until
Speaker 3: we get to two percent, that's ridiculous. And also, by
Speaker 3: the way, we don't think we're going to get to
Speaker 3: two percent until twenty twenty five. And within that I
Speaker 3: think there is a message ramo that they are willing
Speaker 3: to tolerate two points something because they're willing to tolerate above
Speaker 3: target inflation from here all the way out to twenty
Speaker 3: twenty five.
Speaker 4: If the Fed chairs correct.
Speaker 2: You know, you pick up a really interesting point because
Speaker 2: it highlights the uncertainty around long and variable lags. He's
Speaker 2: saying that if we wait until inflation gets down to
Speaker 2: two percent, we will have necessarily gone too far. Okay, well,
Speaker 2: then how long do you have to wait before you
Speaker 2: understand what the ramifications of what you height? Is this
Speaker 2: a concession that you're willing to go to two and
Speaker 2: a half percent?
Speaker 4: And that is.
Speaker 2: Really what people are trying to purs you. Basically people
Speaker 2: are shrugging off, viewing this as a non meeting.
Speaker 3: That's my view. We haven't talked about this enough though,
Speaker 3: and I think Jean Balvan of Blackrock congratulations by the way,
Speaker 3: for bringing this up repeatedly. What's the appropriate time horizon,
Speaker 3: the appropriate period to bring inflation back towards two percent?
Speaker 4: What is it?
Speaker 3: So one man's tolerance of above target inflation is another
Speaker 3: man saying, well, actually, we just need longer. And if
Speaker 3: he says twenty twenty five. Isn't that just him saying like,
Speaker 3: this is going to take a while, and I don't
Speaker 3: want to crush the economy to get there sooner.
Speaker 2: Well, I think that that's a great point. I think
Speaker 2: the Fed said that that they're willing to be patient
Speaker 2: but persistent at that point at what the issue is.
Speaker 2: Will it become a self fulfilling prophecy at some point
Speaker 2: exact inflation.
Speaker 4: Becomes Is there a window that's what you're getting out?
Speaker 2: Yes, thank you, I appreciate that. That's helpful.
Speaker 4: Well, it's a long day, I feel the way.
Speaker 3: You know, you can film my sensitors, you can film
Speaker 3: my sentences as well. I need it sometimes too, Bramar,
Speaker 3: Is there a window where they need to address this
Speaker 3: before it becomes embedded? Right, You've seen what happened with
Speaker 3: ups and what almost happened with teamsters and the strikes.
Speaker 3: What are we talking about here? Five percent wage shikes?
Speaker 3: They're not going to be alone.
Speaker 2: No, And we're already seeing that pretty much across the board.
Speaker 2: And people talk about the tight labor market. But that
Speaker 2: changes the scenario in this profound way. This is the
Speaker 2: issue that a lot of people are looking at, and
Speaker 2: yet you're seeing that divide, whether it's Bob Michael or
Speaker 2: whether it's Jimbianco.
Speaker 1: You see the divide and the wage thing is critical
Speaker 1: because a lot of people they don't parse out unemployment, right,
Speaker 1: they don't parse out this, that and the other thing.
Speaker 1: They are only in singularly looking at wage inflation. Through
Speaker 1: all this debate of if folks say, what's this meeting
Speaker 1: like versus the other ten meetings we had, and I'm
Speaker 1: going to go to the great observation of Neil Datta
Speaker 1: that we finally have a legitimate real wage in this country,
Speaker 1: and that changes the emotion the behavior of people, like
Speaker 1: the bombshell from Drew Matis earlier this week, really pushing
Speaker 1: against the gloom we heard from our guests where he says,
Speaker 1: you got a legitimate real GDP forward. Part of that,
Speaker 1: John is a legitimate wage growth, which I don't think
Speaker 1: is within the debate right now. Inflation worry.
Speaker 4: We're worried inflation worry.
Speaker 3: Read, I'm not worried of I'm getting a payridet.
Speaker 4: No, we worry about that.
Speaker 3: I think you know, I've always find it weird when
Speaker 3: the economists say, you know, this is uncomfortable, wages are
Speaker 3: too high, and like everyone else is just like, there's
Speaker 3: nothing uncomfortable about this.
Speaker 4: You know, that's what I want to happen a year end.
Speaker 4: I want to pay rice.
Speaker 2: And we heard JJ Powell really speak to that. He
Speaker 2: basically said, you know, we want this. It's a good
Speaker 2: thing that wages are going up faster than inflation. And
Speaker 2: yet is it if that's the goal to get down
Speaker 2: to two percent? This is the conundrum. And he tried
Speaker 2: to parse it through by actually saying nothing.
Speaker 3: At least you and I will try and say something tomorrow, Monic,
Speaker 3: we'll be here alone with our TK. I think tomorrow
Speaker 3: there's going to be a conversation about something. Might the
Speaker 3: key talked about in the news conference. What's restrictive and
Speaker 3: what evidence is there that we are restrictive right now?
Speaker 3: This is what the chairman said. The FMC believes monetary
Speaker 3: policy is restrictive. He did acknowledge that it's not restrictive
Speaker 3: enough for long enough, so they need to hold it
Speaker 3: here for some time. But ultimately, if you look at
Speaker 3: the real Fed funds rate, it's at a meaningfully positive level. Okay, well,
Speaker 3: let's look around what evidence is there off that right now?
Speaker 3: And I would go one step further. What evidence is
Speaker 3: there that disinflation we have seen so far is a
Speaker 3: consequence of the tightening they've delivered if they believe there
Speaker 3: are these exceptionally long and veriable lags. And I would
Speaker 3: go to what Neil Data said at Renmac during this
Speaker 3: news conference, and I'll redoubt what he sent to me
Speaker 3: private Lybert He's happy for me to share it with
Speaker 3: you all. He said, the FED remains wedded to the
Speaker 3: long and verlable lags hypothesis. After eighteen months, we've seen
Speaker 3: home prices accelerate, stock prices accelerate, auto sales accelerate, and
Speaker 3: lay off sync. Long and vailable lags is a concept
Speaker 3: that might be outliving its usefulness now for the same
Speaker 3: people looking at the same evidence. You can have one
Speaker 3: individual brander that turns around to you and says, I
Speaker 3: think the long and vailable lags are a whole lot longer.
Speaker 3: And someone else can make the same a different case
Speaker 3: with the same data and say, you know what, I
Speaker 3: think they're a whole lot shorter. They just haven't had
Speaker 3: any effects yet.
Speaker 2: And anyone who's looking to the FED for guidance forget
Speaker 2: about it, because they're not going to give you any
Speaker 2: and you know, basically what I heard was a chair
Speaker 2: moving the goalpost saying, Okay, it might be restrictive, but
Speaker 2: it hasn't been restricted for long enough. So is this
Speaker 2: a new criteria that it has to be long enough
Speaker 2: that you put that X axis long enough and then
Speaker 2: that will take place. They don't know, So how do
Speaker 2: they communicate?
Speaker 8: We don't know.
Speaker 1: We're experiment. I think out of this conversation and this
Speaker 1: is Ed Haim and Evercore is SI and I thought
Speaker 1: Michael Dart of Roth MKM was just brilliant today on this.
Speaker 1: There's an entire monetary or money side to this, including
Speaker 1: something no one talks about it anymore, which is M two.
Speaker 1: I mean, if I was down there with Paull asked
Speaker 1: me a question, I'd say to Chairman, your PhDs tell
Speaker 1: you at the FED that M two doesn't matter anymore.
Speaker 1: Velocity doesn't matter. Europe just announced a crater in loan
Speaker 1: demand with a slowdown. There is well, what's the viscosity
Speaker 1: right now of the American system? Bob Michael's here. I
Speaker 1: saw him. He's on his phone doing commercial real estate
Speaker 1: workouts for Jamie Diamond while he's sitting on setting commercial
Speaker 1: good boardy Bob.
Speaker 4: Thanks for be it was fantastic.
Speaker 3: By the way, You've taed up Europe quite nice because
Speaker 3: I'm trying we shift away.
Speaker 1: Trip to cover the ECSS sabbatical, but Madame Leguard would
Speaker 1: like me to be here.
Speaker 3: The European Central Bank decision is tomorrow, and it's worth
Speaker 3: repeating that Germany is in recession. The data is absolutely dreadful,
Speaker 3: and inflation Lisa is still sticky.
Speaker 2: And this is the fear. What happens if this ends
Speaker 2: up being a similar story in the US, if inflation
Speaker 2: reaccelerates and growth slows down. We didn't hear that from
Speaker 2: Fred jo J. Powell. His base cases we avoid a
Speaker 2: recession and we end up bringing down inflation to two
Speaker 2: percent the goldilocks. He's leaning into that, and yet.
Speaker 1: Yes, I don't think he's I don't think he's leading
Speaker 1: in the goldie locks. I think he's worried about Bill
Speaker 1: Dudley's outlook, right, you know, he's just just they don't
Speaker 1: want to make a mistake on the upside. They do
Speaker 1: not want to cut before they're certain. That's the emotion
Speaker 1: of the discussion.
Speaker 3: I asked the question Tom earlier whether the biggest risk
Speaker 3: right now is cutting too soon or holding too long?
Speaker 4: And I think I'm with you at the biggest risk.
Speaker 1: If I missed the damn golf stream at titoborough never month.
Speaker 4: I thank you for the news comfort.
Speaker 2: I was checking the trade schedule at the same time.
Speaker 4: You want it out to sell.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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Speaker 1: I'm Tom Keen, and this is Bloomberg