Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: Terminal and the Bloomberg Business App. To extend the conversation.
Speaker 2: Joining us now is Jordan Rochester of Mazoo. Jordan, Welcome
Speaker 2: to the program, sir. Let's get into this. This could
Speaker 2: be a big moment, and I think the market's trying
Speaker 2: to work out what kind of moment. Is this an
Speaker 2: r Bay like type moment for the FX market or
Speaker 2: dare I say a trust like moment for the bond market?
Speaker 3: Which one it's not trus but it could be. Is
Speaker 3: what the market's saying. This is sanaomics, This is the
Speaker 3: new Verde of arbonomics, is what the market's thinking. But
Speaker 3: I think John, we need to have some level of
Speaker 3: caution's what politicians say, and there's what they do. And
Speaker 3: what she can do with this current setup is pretty
Speaker 3: difficult because the Arbe Nomics faction, the Arbe faction of
Speaker 3: the LDP is much weaker after a lot of election
Speaker 3: defeats in their seats, so roughly half the size of
Speaker 3: what they were a year ago. So the message we've
Speaker 3: been giving clients just now, this morning and over the
Speaker 3: weekend is that Takeichi whilst she stands for a lot
Speaker 3: of the policies that Arbinomics had, so that would lead
Speaker 3: to looser monetary policy for sure than what should be
Speaker 3: the case, and that would lead to a WEEKI yin
Speaker 3: It's not really clear cut to me, because in order
Speaker 3: to win the LDP election, she needed other factions to
Speaker 3: help her get over the line, and a key part
Speaker 3: of that was the Asso faction, who are more fiscally prudent,
Speaker 3: and the intervention from the former Prime Minister Asso himself
Speaker 3: to arguing to respect of the party member vote where
Speaker 3: Takeichi overwhelmingly.
Speaker 4: Won, is the key reason why she won this weekend.
Speaker 3: But it also means that she'll probably have to point
Speaker 3: appoint a finance minister who might actually see the market
Speaker 3: move the of way, John, we might see the end
Speaker 3: sell off and the sort of long end sell off
Speaker 3: in Jdb's relax a bit once we know who the
Speaker 3: finance minister is, if they are fiscally prudent and a
Speaker 3: sort of continuation candidate for that role from the previous administration.
Speaker 5: Jordan, how high is your conviction level that what she
Speaker 5: does is somewhat different from what she says? Meaning are
Speaker 5: you recommending the clients that they buy the yend here
Speaker 5: with the dollar at one point fifty, surpassing that one
Speaker 5: to fifty level versus the Japanese currency.
Speaker 3: I'd say it depends on the timeline, so medium to high.
Speaker 3: I'd say high conviction that with the current setup in
Speaker 3: the Parliament, the LDP don't have a mandate, they don't
Speaker 3: have a majority, They rely on a coalition part to
Speaker 3: comito that doesn't even get them over the line. So
Speaker 3: they're entering into coalition talks. So I've got a pretty
Speaker 3: high conviction she can't suddenly do very large, bold policies
Speaker 3: because she might lose members of her own party or
Speaker 3: make those code talks quite difficult. For example, the consumption
Speaker 3: tax cut, which is all the talk last time around,
Speaker 3: in the elections last year. When it comes to take
Speaker 3: Eachi's own beyond that watered down significantly. So I don't
Speaker 3: think we're going to have a big fiscal agenda, that is,
Speaker 3: until we see her polling.
Speaker 4: Once we see the polling.
Speaker 3: If the LDP shoots up to something of a forty
Speaker 3: to fifty handle, if you see her own personal ratings improve,
Speaker 3: then we can't rule out elections. And once she if
Speaker 3: that happens, Lisa, if we get an election this time
Speaker 3: or early next year, let's say, then I can't rule
Speaker 3: that out.
Speaker 5: It feels so much different though, even than a Liz
Speaker 5: Trust moment Jordan, or potentially what could become a Liz
Speaker 5: Trust moment, because this is global, this is Japan, this
Speaker 5: is France, this is the United States. For the government
Speaker 5: to shut down, where a lot of governments are showing
Speaker 5: a real reluctance to climb down on deficits that have
Speaker 5: been climbing.
Speaker 1: They want to still lean on that deficit lever.
Speaker 5: Which is the reason why you see bond yields creeping higher,
Speaker 5: particularly in the thirty year denomination. At what point does
Speaker 5: the collective story taken on a life of its own.
Speaker 3: It already is I think it is happening right now.
Speaker 3: So as you mentioned, the US with its own fiscal issuance,
Speaker 3: Germany with its own fiscal issuance, and now France of
Speaker 3: course has been with the largest death sit in the
Speaker 3: euro area or flagging that point. So the only one
Speaker 3: that stands out as not actually joining in with the
Speaker 3: party is the UK because of the fiscal rules that
Speaker 3: the chance has thrown on themselves. But Japan is very
Speaker 3: acutely aware of this problem. The Ministry of Finance has
Speaker 3: been reducing the auction sizes in the long end to
Speaker 3: try and deal with that. But what's changed in the
Speaker 3: sort of functioning of the Japanese JGB market is the
Speaker 3: demand from life insurance insurers for long end jgbs has
Speaker 3: collapsed versus what it used to be. And actually the
Speaker 3: majority of the trading volumes in jgbs from the ten
Speaker 3: year onwards is from foreigners, and so this means that
Speaker 3: you get these sort of big moves as you've seen
Speaker 3: today thanks to foreigners being the overwhelmingly large share of
Speaker 3: trading volume in ultra long end jgb's, but also around
Speaker 3: the tenure bucket onwards as well. So all in all,
Speaker 3: when everyone's suing at the same time, something will break.
Speaker 3: I'm not sure how when politicians will take note, but
Speaker 3: I think they are already, and I think that's why
Speaker 3: the LDP's fiscal prudence wing has played a large influence
Speaker 3: in Takhi's changed in her opinions Jordan.
Speaker 2: In addition to that, the role of the central bank,
Speaker 2: I think there's a big question up in the air
Speaker 2: about that, so let's discuss it. Traditionally, if this was
Speaker 2: the United States, we'd be talking about a pro fiscal
Speaker 2: stimulus party or leader. We'd be talking about title monetary
Speaker 2: policy to offset some of dan. That wasn't a conversation
Speaker 2: in Japan overnight. In fact, the pricing of rate hikes
Speaker 2: in the future actually came in now Jord And I wonder,
Speaker 2: is this really a unique independent central bank? What is
Speaker 2: going on with a central bank story in the relationship
Speaker 2: between the government and the BOJ.
Speaker 3: All these independent central banks all they are, for example,
Speaker 3: the FED, they answer to Congress, so there is a
Speaker 3: political sort of influence on all of them.
Speaker 4: A Bank of England, ECB, etc.
Speaker 3: When it comes to the BOJ, there is a pretty
Speaker 3: strong level of political cooperation. It's written into the bank
Speaker 3: Coajapan's charter. Now this we've seen this before. Arbenomics is
Speaker 3: a clear case of this, where most people assume that
Speaker 3: Arbenomics was both fiscal easing and monetary Sure, it was,
Speaker 3: but Arbenenomics actually leaned heavily on the monetary policy side
Speaker 3: of that story, and we saw the Bank Japan expand
Speaker 3: the QE and so forth, eventually going negative rates too.
Speaker 3: So there is the potential for Takeiachi to play a
Speaker 3: large role. If you think back to last year, Prime
Speaker 3: Minister sheba this history behind this. John one day after
Speaker 3: becoming Prime minister, he said now is probably not the
Speaker 3: right time for the BOJA to raise rates, and they
Speaker 3: delayed that rate hike from October through to January.
Speaker 4: So tak Each you might say the same thing.
Speaker 3: We've only had one tweet from her and one victory
Speaker 3: speech so far, and so we haven't got enough information.
Speaker 3: But what I will say is it's very different to Arbonomics.
Speaker 3: When inflation was that near zero. Inflation has been above
Speaker 3: two for the past two to three years in Japan,
Speaker 3: and the aim of this government is to try and
Speaker 3: bring inflation down. You don't really achieve that by stopping
Speaker 3: the Bank Japan from raising rates, So John, I think
Speaker 3: they still raise rates.
Speaker 4: October is clearly.
Speaker 3: Much less likely now because the BOJ might want to
Speaker 3: wait and see what the budget will be. So that
Speaker 3: makes December or January still live meetings. But if you're
Speaker 3: to ask me, John, I'd be paid the October meeting.
Speaker 3: I think the risk reward is still there. The Bank
Speaker 3: Japan has lined up loads of speeches this month. We'll
Speaker 3: hear from Governor you Wade to himself later this week
Speaker 3: as well. The data is strong in Japan. It all
Speaker 3: adds up to a rate hike. John, Apart from the
Speaker 3: politics and the uncertainty.
Speaker 1: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Another week of
Speaker 2: economic data at risk as the government shut down enters
Speaker 2: it's sixth day. Paul Donovan of UBS Global Wealth Management
Speaker 2: right in the following. The problem is that alternatives like
Speaker 2: sentiment surveys are even worse, and that's all the markets
Speaker 2: will be left to work with. Paul joined us now
Speaker 2: for more. Paul, you're one of our favorites. It's great
Speaker 2: to finally catch up with you after a period of time. Paul,
Speaker 2: I wanted to get your opinion on this. I've heard
Speaker 2: a lot of people's say, we're flying blind without the data.
Speaker 2: Were we flying blind already?
Speaker 6: We were flying blind, we were perhaps flying quite a
Speaker 6: thick fog. So for about fifteen years, economists have been
Speaker 6: complaining about the deteriorating quality of economic data. Nobody fills
Speaker 6: in surveys anymore. Structural change means that we're missing parts
Speaker 6: of the economy. You know, where in the employment report
Speaker 6: is the TikTok content creator and parties and bias. The
Speaker 6: political bias in the States is getting extreme, and people
Speaker 6: are answering according to their political views, not according to
Speaker 6: what's happening actually happening in their lives. So we've had
Speaker 6: this problem for some time. But the official data did
Speaker 6: the best of a bad job. It did the best
Speaker 6: that it could in order to filter out some of
Speaker 6: this noise and give us an idea about where the
Speaker 6: economy was performing in real time.
Speaker 1: So how does it.
Speaker 5: Change going forward that we don't even have that right
Speaker 5: that we end up in the realm of speculation and
Speaker 5: rumor at a time where people just take all of that,
Speaker 5: put it together and say, well, stocks have to just
Speaker 5: keep going up.
Speaker 6: So this is where I think things do start to
Speaker 6: get tricky. Pads a little bit less for the equity
Speaker 6: market than for the bond market. Because of course, corporate data,
Speaker 6: as long as companies are honest, is going to be
Speaker 6: still reliable. So the earnings reports that come out, the
Speaker 6: corporate announcements that are legally obliged the companies are legally
Speaker 6: obliged to put out, that should all be okay. But
Speaker 6: the bigger macro picture is getting more confused, and some
Speaker 6: of it is reliant on what we're seeing elsewhere in
Speaker 6: the world. You know, how do we judge US trade data? Well,
Speaker 6: let's see what other countries are saying when they're talking
Speaker 6: about exports to the States, for example, we're having to
Speaker 6: back out data some of the time.
Speaker 5: You made a really good point, Paul in your recent
Speaker 5: notes that right now the market is treating the shutdown
Speaker 5: it's going on in Washington, DC as negligible, something that
Speaker 5: will maybe cause a loss of economic activity.
Speaker 4: It will just be hooped.
Speaker 5: Potentially in a couple weeks, in months time. Why do
Speaker 5: you think this time really could be different?
Speaker 6: So as a baseline, I don't think it is going
Speaker 6: to be different. We get this with every shutdown, you
Speaker 6: get a period where data economic activity is suppressed and
Speaker 6: then you get a period where you rebound, the back
Speaker 6: pay is paid back, that kind of thing. The only
Speaker 6: real difference this time is that US President Trump has
Speaker 6: talked about possibly firing some more government employees.
Speaker 1: Now that is.
Speaker 6: Different because then, of course you're not getting the rebound
Speaker 6: from those employees. You are also potentially creating some fear
Speaker 6: of unemployment amongst people both in and outside the government sector.
Speaker 6: That would be a more troubling situation because you would
Speaker 6: get the slowdown, but the rebound that we normally would
Speaker 6: see would be a lot more muted. I would regard
Speaker 6: that very much as the risk case, not as the
Speaker 6: base case. The base case, I think is this is
Speaker 6: going to be like every other shutdown, you know, down
Speaker 6: in week one, up in week two, that kind of thing.
Speaker 6: But there is that risk if some employees are going
Speaker 6: to lose their jobs permanently as a result of the shutdown.
Speaker 2: Paul, I think we all hope you're absolutely right and
Speaker 2: we do bounce back and just get back to work,
Speaker 2: get back to business, and this economy grows. The other
Speaker 2: thing we wanted to talk to you about was inflation,
Speaker 2: market based expectations of inflation, how the FED measures things,
Speaker 2: and ultimately how consumers experience it. Paul, I've heard you
Speaker 2: in the past talk about frequency bias. Could you explain
Speaker 2: that as a concept in economics and why that's important
Speaker 2: to the difference between how consumers feel and what the
Speaker 2: FED is tracking.
Speaker 1: So this is a very important point.
Speaker 6: Everybody is guilty of frequency bias. That is to say,
Speaker 6: you know, you remember the price is the Snickers bar
Speaker 6: you buy every day. You do not remember the price
Speaker 6: of a television you buy every three, four or five years.
Speaker 6: And so as a result, when prices change in high
Speaker 6: frequency purchases, it sort of sticks in your mind. And
Speaker 6: every time I go to the vending machine at work,
Speaker 6: I think, oh, that price has gone up. I remember
Speaker 6: when it used to cost seventy pence and now it's
Speaker 6: costing me ninety pence, And it sticks in your mind,
Speaker 6: and that then colors the view of inflation that you have.
Speaker 6: The fact that the television is twenty percent cheaper than
Speaker 6: the last one you bought seven years ago, you don't
Speaker 6: remember that because you can't remember what you paid in
Speaker 6: the past.
Speaker 1: So the problem that.
Speaker 6: We have is that when you see basically rising food
Speaker 6: and rising fuel prices, those are prices that consumers will
Speaker 6: remember and that will create a sense of dissatisfaction when
Speaker 6: you have food and fuel inflation. If you have an
Speaker 6: overall fairly benign inflation environment and there's something weird going
Speaker 6: on with food supply, that can create a peculiar situation
Speaker 6: where the central banker is saying, no, inflation isn't a
Speaker 6: problem at all, and the consumer saying, no, the cost
Speaker 6: of living goes up. Look how much I had to
Speaker 6: pay the supermarket this week. So that's really the issue.
Speaker 2: Paul, is that the situation now is that how you
Speaker 2: describe things and does it shape consumer behavior?
Speaker 6: Well, what we've got at the moment, it's quite interesting.
Speaker 6: It's sort of a reverse of what happened under the
Speaker 6: last administration. So in the last administration, inflation was coming down,
Speaker 6: nobody really believed it because food price inflation was very high.
Speaker 6: There was an episode of profit led inflation from food retail.
Speaker 6: What has been happening this year until recently, his fuel
Speaker 6: prices have been subdued. Food prices until recently have not
Speaker 6: been a particularly big problem, but durable goods prices have
Speaker 6: gone from falling to rising. And so you've got the
Speaker 6: reverse problem there that you've got inflation that people are
Speaker 6: not necessarily.
Speaker 1: So aware of.
Speaker 6: But what we've been seeing more recently in the States
Speaker 6: is food price inflation has been ticking up. Things like
Speaker 6: the price of beef, for example, has gone up very
Speaker 6: very dramatically. Coffee prices are soaring, and that is going
Speaker 6: to be more visible. So I think the noise from
Speaker 6: consumers about inflation, the political anxiety about inflation is likely
Speaker 6: to be ramping up as we see these higher food
Speaker 6: prices starting to emerge.
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this.
Speaker 1: Sick in wit tech.
Speaker 2: Jake Goldberg of Seaport calling the recent moves in AI
Speaker 2: bubble like behavior. Jake Goldberg joins us now for more. Jay,
Speaker 2: Welcome to the program, sir. You've got a rare soar
Speaker 2: rating on Nvidia. Let's just talk about that line bubble
Speaker 2: like behavior. Does the announcement from AMD and open Ai
Speaker 2: speak to some of that for you?
Speaker 7: Absolutely, It's quite an interesting thing to wake up to
Speaker 7: this morning. We have a company that's giving away ten
Speaker 7: percent of its start to to a startup that doesn't
Speaker 7: have positive free cash flow to buy tens.
Speaker 1: Of billions of dollars of their products.
Speaker 7: Somewhere down the line, and that company's stock is up
Speaker 7: thirty percent. You know, on the face of it, I
Speaker 7: haven't had time to parse it, but it looks like
Speaker 7: a great, good deal for AMD over the long term.
Speaker 7: But it just, you know, the market reaction seems to
Speaker 7: be looking at only the positives and applying a zero
Speaker 7: percent discount rate to future events, not looking through the
Speaker 7: whole deal.
Speaker 5: At the same time, Jay, in the past, we've seen
Speaker 5: earnings outperform again and again and again from these companies,
Speaker 5: and a lot of people will come on and say,
Speaker 5: if you look at the price to the actual income level,
Speaker 5: you've seen multiples come down, not go up, even with
Speaker 5: prices going up significantly. What about that story doesn't work
Speaker 5: for you in the same way that it did, say
Speaker 5: three years ago.
Speaker 7: So I think, Look, I'm not a bear on AI
Speaker 7: and general. I think AI has the potential to be
Speaker 7: very important. But no technology gets adopted in a straight line.
Speaker 7: They're always going to be fits and starts. We saw
Speaker 7: that with the Internet, we saw that with with mobile.
Speaker 7: These things go up and down, they don't just keep
Speaker 7: running forever. And I think just assuming drawing straight lines,
Speaker 7: extrapolating from where we are today into some sort of
Speaker 7: never ending future.
Speaker 1: That's not how things are going to work.
Speaker 7: And I think we need just a little degree of
Speaker 7: caution around some of this stuff, where a lot of
Speaker 7: these things are getting very extended, just based on what
Speaker 7: the actual deployments are looking like and returns that the
Speaker 7: hyperscalers are getting on their investments.
Speaker 5: What do you think is the most speculative at this point, Jay,
Speaker 5: I know that your call is on in Video, which
Speaker 5: is notable given all of the buy ratings that we
Speaker 5: see on it, But beyond that is in Vidia the
Speaker 5: biggest defender right now in your mind?
Speaker 1: Well, I think the whole thing.
Speaker 7: We have this sort of massive AI spend taking place
Speaker 7: right now, but if you boil it all down, it's
Speaker 7: really six companies that are driving all of that. Microsoft, Amazon, Google, Meta,
Speaker 7: open Ai, Microsoft, and.
Speaker 1: I understand that their.
Speaker 7: Imperatives and why they're doing this, but I think it
Speaker 7: is worth reflecting on that it's just six companies and
Speaker 7: none of them actually have a very clear return on
Speaker 7: their investment even in the works. They're sort of spending
Speaker 7: it because everyone else is spending. And then you have
Speaker 7: open Ai, who who is an incredibly capable company coming
Speaker 7: with great models, but at the same time, you know
Speaker 7: they're free, casual, and negative. So I think that sort
Speaker 7: of calls in the question the sustainability of all this.
Speaker 2: And J's bringing in multiple sectors. It's energy, it's the
Speaker 2: capital providers, it's tech. I know based on some of
Speaker 2: your writing that you think this could exacerbate problems further
Speaker 2: down the road. Could you build on that just a
Speaker 2: little bit, that the concentration exacerbates the downside risk.
Speaker 1: I think that's that's absolutely the case.
Speaker 7: Where you know, when I hear my colleagues on the
Speaker 7: morning call talk about energy and pipelines and materials, you know,
Speaker 7: and they all talk about the AI element to their
Speaker 7: stocks growth, that just makes me pause. Like I've been
Speaker 7: covering semiconductors for over twenty years now, and I've always
Speaker 7: had good relationships with my peers, but we usually never
Speaker 7: talk about each other's stocks. There's never been a lot
Speaker 7: of overlap, and here we have everybody talking about the
Speaker 7: same themes.
Speaker 1: It makes me wonder, Jane.
Speaker 2: The energy piece of it is interesting. There has been
Speaker 2: a broader conversation people acknowledge the potential for constraints. Do
Speaker 2: you think that's going to be the first constraint the
Speaker 2: thing that shakes this up quickly.
Speaker 7: Absolutely right, I mean, and I look at in video
Speaker 7: like I'm cautious on in video. I think if my
Speaker 7: rating here is more of an underperformed than a cell,
Speaker 7: I wouldn't short in video. But the issue is at
Speaker 7: this point in videos is kind of all the good
Speaker 7: news is priced into in video and none of the
Speaker 7: potential downside is priced in. There are a lot of
Speaker 7: things that can go go wrong that are beyond their control,
Speaker 7: and you know top of that list is electricity.
Speaker 1: Right.
Speaker 7: We don't know to the extent to which Open Aye
Speaker 7: is going to be able to deliver on all these
Speaker 7: all these electricity numbers they put out there, and like
Speaker 7: in just the last week they've talked about adding sixteen
Speaker 7: gigawatts of compute capacity. I don't think anyone knows exactly
Speaker 7: where all that power is going to come from. They
Speaker 7: have maybe some rough ideas, but I don't think all
Speaker 7: those are are a lock and that that's a real
Speaker 7: that's a real problem. I think it's going to pause
Speaker 7: things somewhere down the road, Jay, how far are.
Speaker 5: We from some sort of energy related constraint on how
Speaker 5: much the promises of expansion can really meet reality.
Speaker 7: I think it's a little a little beyond my my scope,
Speaker 7: like I'm just a humble semiconductor analyst, But I do
Speaker 7: think we start to see more concerned about that in
Speaker 7: next year.
Speaker 5: At what point do you see this also being a
Speaker 5: question of the US versus China, especially given deep seek
Speaker 5: I mean, do you think that that kind of issue
Speaker 5: is going to come to the four that there could
Speaker 5: be some new innovation that renders some of the big
Speaker 5: tech companies more obsolete in short order?
Speaker 1: Well, I think that is.
Speaker 7: It's this weird dichotomy we have where the US has
Speaker 7: chips but not all of electricity. China has all the
Speaker 7: electricity they need but not enough chips. So both sides
Speaker 7: face their own constraints. But I do think there are
Speaker 7: going to be some pretty significant I don't want to
Speaker 7: say breakthroughs, but sort of advances in China as companies
Speaker 7: like Huawei find new ways to build their own domestic
Speaker 7: supply chain that gets.
Speaker 1: Them out from under these US restrictions.
Speaker 7: They probably won't be as good as the best at
Speaker 7: Nvidia and amb have to offer, but they may be
Speaker 7: good enough for them to push ahead. There's a lot
Speaker 7: of an immense amount of AI talent in China.
Speaker 1: I don't want to overstate it.
Speaker 7: I think the US still has a pretty big lead
Speaker 7: in terms of just sort of fundamental foundational models, but
Speaker 7: there's an incredible amount of talent in China, and I
Speaker 7: think they're not as constrained as the US government might think.
Speaker 2: Jay, just to finish on that, when you frame it
Speaker 2: in the following terms, when you say that China has
Speaker 2: the electricity, not the chips, that the US has the
Speaker 2: chips but maybe has the energy constraints, which problem is
Speaker 2: easier to fix?
Speaker 7: I think it's going to be China getting around US
Speaker 7: sanctions one way or another, probably by building their own
Speaker 7: supply chain.
Speaker 1: Stay with US.
Speaker 2: More Bloomberg Surveillance coming up after this. Lindsay px RA
Speaker 2: stif will joined US now for more Lindsay, we didn't
Speaker 2: get payrolls. We're still waiting for that. We might not
Speaker 2: get CPI. We will get a FED meeting at the
Speaker 2: end of the month. I'm told they're essential. If they meet,
Speaker 2: Lindsay and they don't have CPI and they don't have payrolls,
Speaker 2: do they make the decision to cut interest rates?
Speaker 8: Well, I think even without an updated look at the data.
Speaker 8: I think the conversation is going to be very fierce
Speaker 8: in the sense that we do have this growing number
Speaker 8: of FED officials that is increasingly concerned about the lingering
Speaker 8: level of inflation, that elevated level of inflation, and those
Speaker 8: that are focused more on the weakness of employment. So
Speaker 8: even without a new data point, I think this conversation
Speaker 8: is going to intensify and complicate the ability for the
Speaker 8: FED to justify any further movement, and the lack of data,
Speaker 8: I think is going to reinforce the need for a
Speaker 8: more patient, cautious approach to policy from here.
Speaker 5: What date are you watching right now, lindsay, given that
Speaker 5: the gold standard data, which is flawed, yes, but also
Speaker 5: is probably the best that we've got, what are you
Speaker 5: focusing on instead?
Speaker 8: Well, I think right now, again, we still have a
Speaker 8: lot of information on the price side. We're still waiting
Speaker 8: to see whether or not we see an updated CPI
Speaker 8: and PPI report, but we have a lot of information
Speaker 8: coming down the pipeline to suggest that inflation is not
Speaker 8: necessarily headed back to that two percent price level. We
Speaker 8: see some of the Fed's preferred measures of inflation, the
Speaker 8: piece the core PC still up near three percent, with
Speaker 8: the most recent reports suggesting some upward momentum in the pipeline.
Speaker 8: So again, I think it's very important that the FED
Speaker 8: stays focused on that mandate for price stability, even with
Speaker 8: early signs of a cooling in top line hiring. The
Speaker 8: FED should not completely abandon that price stability component, which
Speaker 8: it's failed to reinstate years now post the pandemic.
Speaker 5: At the same time, we did see that job openings
Speaker 5: per unemployed people that ratio felt to the lowest in
Speaker 5: twenty twenty one in the recent JOLT survey. We did
Speaker 5: see the non farm payrolls in August that was highly
Speaker 5: concerning to some people, and we did see pretty significant
Speaker 5: download re visions to the overall payrolls figures for the
Speaker 5: year ended in March. At what point do you give
Speaker 5: credence to the idea that there really is a significant
Speaker 5: shift in the labor market that does also warrant attention
Speaker 5: by the Fed.
Speaker 8: Well, we also see that jobless claims, while volatile, are
Speaker 8: still in a very low tight range. We also see
Speaker 8: the unemployment rate is still stubbornly down near four percent.
Speaker 8: So I think at the very least, the labor market
Speaker 8: data are not all pointing in the same direction, which
Speaker 8: isn't to say we ignore the data points that are
Speaker 8: on the weaker side, but it's to say it's not
Speaker 8: an alarm bell quite yet. It's something to watch, it's
Speaker 8: something to be aware of. That being said, this is
Speaker 8: a very aged recovery, and I would expect, particularly given
Speaker 8: the reduction in international flows, that the need for top
Speaker 8: lying hiring to slow. As we heard from Chair Powell,
Speaker 8: he previously noted that full employment was roughly around one
Speaker 8: hundred and twenty five one hundred and fifty thousand in
Speaker 8: terms of payrolls. Well, he has significantly rised that lower,
Speaker 8: and I think that's a more reasonable expectation for top
Speaker 8: line growth, not necessarily an expanding labor market, but certainly
Speaker 8: enough to keep stability in place in today's labor market.
Speaker 2: Lindsay, can we pay that view with what's happening in
Speaker 2: stock markets and more broadly financial conditions. Do you think
Speaker 2: the feeder reserve is risking misplacing its anchor around the
Speaker 2: labor market, around the step down in payrolls, and ultimately
Speaker 2: fueling financial accesses and pockets of let's call it exuberance
Speaker 2: right now? Is that a financial stability concern that needs consider.
Speaker 8: It really is, and this is something that we've seen before.
Speaker 8: We look at investors and they seem to be trading
Speaker 8: up on good data. That means the economy is relatively solid,
Speaker 8: trading up on bad data as well. Because this is
Speaker 8: that FED put the expectation that the FED will jump
Speaker 8: in and provide monetary policy support with additional policy easing,
Speaker 8: even at the expense of maintaining still elevated inflation. And
Speaker 8: so I do think that the market has become complacent
Speaker 8: that the FED will continue to support the economy regardless
Speaker 8: of the balance in terms of the risks on both
Speaker 8: sides of the mandate tilting to one side or the other.
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Speaker 3: Mm hmm.