WEBVTT - Micron’s Capital Spending Growth Overshadows Booming Sales

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<v Speaker 2>One of the socks we've been talking about today, Micron

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<v Speaker 2>Technology sales numbers really impressive. I think some folks are

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<v Speaker 2>concerned about some of the spending that Micron was talking

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<v Speaker 2>about on their earnings conference call. So let's get right

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<v Speaker 2>to it. The stock is down three percent today, but

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<v Speaker 2>it is just been a really strong performer over the

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<v Speaker 2>last periods. Let's check in with somebody who does this

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<v Speaker 2>stuff for a living. Jake Silverman, Bloomberg Intelligence Semiconductor analyst. Jake,

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<v Speaker 2>what was your takeaway from Micron's earnings?

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<v Speaker 3>Yeah? Thanks, I would say that I actually think it's

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<v Speaker 3>not really the spending that is concerning investors. I think

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<v Speaker 3>really what's going on with Micron is more so focus

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<v Speaker 3>on where the cycle is at. We've seen now a

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<v Speaker 3>couple of quarters of very aggressive price increases. For the

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<v Speaker 3>May quartermanded quarter, We're going to see continued very strong

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<v Speaker 3>double digit price and growth. And so what I really

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<v Speaker 3>think is on the top of investors' minds is when

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<v Speaker 3>does this cycle and how sustainable are these margins Because

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<v Speaker 3>if I think about capex, just because capex is increasing,

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<v Speaker 3>they need to increase capex in order to meet the

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<v Speaker 3>high levels of demand because there's still a very strong

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<v Speaker 3>supply and demand imbalance that we're seeing. So AI is

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<v Speaker 3>really the major driver for that. It's the major tail

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<v Speaker 3>and if they're unable to match spending, then they're not

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<v Speaker 3>going to be able to meet the demand of their customers.

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<v Speaker 4>Has the company shed any light on how high they

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<v Speaker 4>think memory chip prices will go or at least stay,

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<v Speaker 4>because this has huge group percussions for manufacturers of laptops

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<v Speaker 4>and everything else that needs memory chips because all the

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<v Speaker 4>memory chip makers are to is he putting together a

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<v Speaker 4>high bandwid memory chips.

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<v Speaker 3>Yeah, they don't really give a lot of details in

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<v Speaker 3>terms of what their view on pricing is. Ultimately, our

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<v Speaker 3>take is more so that we're probably going to see

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<v Speaker 3>the peak of the pricing increases on a quarter to

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<v Speaker 3>quarter basis. That doesn't mean that pricing won't continue to

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<v Speaker 3>increase at a somewhat more modest rate. But going back

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<v Speaker 3>to actually what I was talking about earlier with capital spending,

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<v Speaker 3>the ability to actually increase supply is going to be

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<v Speaker 3>a really important factor here, both in terms of actually

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<v Speaker 3>how pricing moves around right higher or lower. But because

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<v Speaker 3>there's actually a constraint in the ability to put up

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<v Speaker 3>additional clean room space, new fab space, there's not going

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<v Speaker 3>to be a lot of additional supply in the next

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<v Speaker 3>twelve to fifteen months or until the next twelve to

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<v Speaker 3>fifteen months. So as a result, we think pricing still

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<v Speaker 3>has a few more legs to go again, it's really

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<v Speaker 3>just more and so that we think pricing on a

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<v Speaker 3>sequential basis, on a monthly basis, quarterly basis, will be

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<v Speaker 3>a lot more modest in terms of the increases than

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<v Speaker 3>what we've seen before.

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<v Speaker 2>Jake, who does Micron really compete against day to day

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<v Speaker 2>today and then in a couple of years going forward.

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<v Speaker 2>Is it the in videos of the world. Who do

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<v Speaker 2>they really compete against?

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<v Speaker 3>No, in videos they're one of their biggest customers, but

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<v Speaker 3>I think it was their biggest customer last quarter, and

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<v Speaker 3>a lot of that for as you mentioned high bandwidth memory,

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<v Speaker 3>really their competition is Samsung. It's s k Heinex, and

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<v Speaker 3>then some extent sand Disc, Although DRAM is becoming an

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<v Speaker 3>increasingly large portion of their business, of sand Disc really

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<v Speaker 3>only competes with about twenty percent of their business.

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<v Speaker 4>So in that regard, Micron has a lot of pricing power.

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<v Speaker 4>What advantages does Micron offer over a Samsung or an

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<v Speaker 4>s k Heinex.

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<v Speaker 3>Well, I'd say that advantages are tough because they build

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<v Speaker 3>to spec for the jed X standard. Micron they do

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<v Speaker 3>also build to in video specs for high bandwidth memory.

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<v Speaker 3>One of the things though, to keep in mind is

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<v Speaker 3>that the memory market, as I was talking about the

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<v Speaker 3>cycle before, it's very cyclical. So really the key here

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<v Speaker 3>is how much cost can they what's the better cost

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<v Speaker 3>profile that they can drive relative to their competition, while

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<v Speaker 3>also maintaining that R and D spend to keep up

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<v Speaker 3>with the increasing demand of their customers, in Nvidia being

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<v Speaker 3>one of them, but also a lot of other hyperscalers

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<v Speaker 3>who need high bandwidth memory HBM three E but now

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<v Speaker 3>we're moving to HBM force. Those standards keep going up,

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<v Speaker 3>so their ability to compete on cost, their ability to

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<v Speaker 3>compete on things like pin speed that help with bandwidth,

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<v Speaker 3>their ability to compete with lower power consumption for their products.

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<v Speaker 3>Those are really the keys. But again it is somewhat

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<v Speaker 3>commodity like market for the products that aren't high bandwidth memory,

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<v Speaker 3>so it really is competing on costs and the economics

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<v Speaker 3>of their business.

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<v Speaker 2>Hey, Jake, about thirty seconds left here. I'm just looking

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<v Speaker 2>at your research and note customer agreements are now extending

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<v Speaker 2>out up to five years in some cases. That seems

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<v Speaker 2>really long.

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<v Speaker 3>Talk to us about that, Yeah, very unprecedent. The company

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<v Speaker 3>hasn't given us a lot of details. There's not really

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<v Speaker 3>a lot to say unfortunately right now. But it does

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<v Speaker 3>seem like these agreements are different than the ltas we

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<v Speaker 3>saw just a few years ago during the last downturn

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<v Speaker 3>or upcycle that ended up in the downturn. As things

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<v Speaker 3>tend to go with Micron. So really, what I would

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<v Speaker 3>say is that this may be something that could produce

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<v Speaker 3>some of the cyclicality going forward. We don't expect all

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<v Speaker 3>agreements to go out five years. Some might go one year,

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<v Speaker 3>two year, three years. It's going to vary a lot

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<v Speaker 3>by the customers to volume what the products they're requiring are.

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<v Speaker 3>Stay with us.

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<v Speaker 4>More from Bloomberg Intelligence coming up after.

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<v Speaker 1>This you're listening to the Bloomberg Intelligence Podcast. Catch us

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<v Speaker 2>We still got a lot of companies reporting here. Now

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<v Speaker 2>we're starting to hear from a lot of the restaurant companies.

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<v Speaker 2>Dardan's coming up here, so we want to check out

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<v Speaker 2>with Michael Halen. Michael Halen, he covers all the restaurant

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<v Speaker 2>companies for Bloomberg Intelligency space down there in Princeton. One

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<v Speaker 2>of the big ones darted, I think, is about the

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<v Speaker 2>report here, mister Haylein's what are you looking for there?

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<v Speaker 4>Mike?

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<v Speaker 5>Yeah. Darden reported this morning. It was it was a

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<v Speaker 5>strong quarter on the top line. So despite all of

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<v Speaker 5>the fold weather and snow they had mentioned, you know,

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<v Speaker 5>fort of their stores had been closed at some point

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<v Speaker 5>during the quarter. Despite all that, they still were able

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<v Speaker 5>to put up four percent seamstre sales comp The problem

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<v Speaker 5>with the with the report was that they missed on

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<v Speaker 5>the bottom line. So despite all of you know, the

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<v Speaker 5>traffic they were able to drive into their stores. You know,

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<v Speaker 5>they didn't really see the operational leverage from it. Right,

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<v Speaker 5>Beef prices were a big headwind obviously in the quarter

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<v Speaker 5>for Longhorn, which is which is their second largest chain.

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<v Speaker 4>So how is the company planning to tackle that? Because

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<v Speaker 4>I'm not sure that beef prices are going to come

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<v Speaker 4>down anytime soon. This is going to be a assistant

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<v Speaker 4>costs headwind for them.

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<v Speaker 5>Well, you know, the entire commodity complex is starting to

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<v Speaker 5>become a real concern for these restaurant chains, and that's

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<v Speaker 5>why we've seen them kind of reverse their strong gains

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<v Speaker 5>of the previous three months. But yeah, so what they're

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<v Speaker 5>going to do is raise prices. And they feel that

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<v Speaker 5>they can because they have not raised prices much over

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<v Speaker 5>the you know, post pandemic period, right, so they've underpriced competitors,

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<v Speaker 5>they've underpriced you know, food away from home inflation, right,

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<v Speaker 5>So they think they have some room. But you know,

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<v Speaker 5>if we continue to see you know, elevated gasoline prices,

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<v Speaker 5>if we see a prolonged conflict in the Middle East,

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<v Speaker 5>you know, it's really going to weigh on restaurants spending.

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<v Speaker 5>So you know, we think they're going to have to

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<v Speaker 5>be careful raising prices. But It's it's an interesting time

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<v Speaker 5>right now. There's a lot of crosswinds, right, Like, you know,

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<v Speaker 5>they are seeing people spend more when they get their

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<v Speaker 5>refund checks. Refund checks are ten to eleven percent higher,

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<v Speaker 5>right But unfortunately the spike and gas lean prices up

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<v Speaker 5>thirty percent plus now in just a few weeks is

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<v Speaker 5>going to eat into some of that spending, you know,

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<v Speaker 5>excuse the pun, you know, and then just overall inflation

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<v Speaker 5>is going to cause prices to go higher, which is

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<v Speaker 5>not a good situation for you know, stacklation is not

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<v Speaker 5>a good situation for restaurant consumers. We saw that in

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<v Speaker 5>the stocks performances last year. Right When people's budgets get pinched,

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<v Speaker 5>they spend less at restaurants, margins get squeezed for the restaurants.

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<v Speaker 5>It's it's just a tough climate to operate.

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<v Speaker 2>In, Mike. What are your companies telling me about labor,

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<v Speaker 2>labor availability, sustainability, How's how's the labor side of the

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<v Speaker 2>creation because that's a big part of their calls structure

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<v Speaker 2>as well.

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<v Speaker 5>Yeah, labor's been okay. There's a lot of the companies

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<v Speaker 5>we cover are seeing a lot less turnover. Wage inflation's

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<v Speaker 5>been you know, it looks like about three for some

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<v Speaker 5>of the companies that have reported recently versus you know

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<v Speaker 5>this four percent to five percent range that we've seen

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<v Speaker 5>since about twenty twenty. So the labor piece of the

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<v Speaker 5>equation has definitely improved a bit for the companies in

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<v Speaker 5>our sector.

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<v Speaker 4>What will you be listening for from the other restaurants

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<v Speaker 4>that report? Are we going to see similar themes play

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<v Speaker 4>out for them?

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<v Speaker 5>Yeah? So Dardens is a little bit Darden's a little

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<v Speaker 5>bit off cycle. So uh, They're are the first ones

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<v Speaker 5>to report, you know, almost into this next cycle, right,

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<v Speaker 5>so because their quarter ended late February, right, so they

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<v Speaker 5>we have they're giving us an early read. So when

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<v Speaker 5>our other names report, right, we've gotten a feel for

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<v Speaker 5>what the first quarter was, and we think it will

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<v Speaker 5>be as like stronger, pretty strong considering all of the

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<v Speaker 5>winter weather, considering the snow, still putting up pretty solid

0:10:01.920 --> 0:10:04.720
<v Speaker 5>same source sales, you know, over four percent here for Darden.

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<v Speaker 5>You know, a month ago, the question was you know,

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<v Speaker 5>really about the top line and how you know and

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<v Speaker 5>how much better things we're looking and how much people

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<v Speaker 5>were going to be spending in their restaurants, how much

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<v Speaker 5>of those tax refund checks, we're going to get spent

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<v Speaker 5>at restaurants. But now I think the questions are going

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<v Speaker 5>to shift more to the margin side. Right, Like this,

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<v Speaker 5>higher guess Lian prices mean commodias are higher for longer. Right,

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<v Speaker 5>Stay with us.

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<v Speaker 4>More from Bloomberg Intelligence coming up after this.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

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<v Speaker 1>weekdays at ten am Eastern on Apple, Cocklay and Android

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<v Speaker 1>Auto with the Bloomberg Business app. Listen on demand wherever

0:10:50.920 --> 0:10:54.040
<v Speaker 1>you get your podcasts, or watch us live on YouTube.

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<v Speaker 4>All right, let's stay with this global theme because FedEx

0:10:58.080 --> 0:11:01.200
<v Speaker 4>reported results and clearly it's not just parometer for the

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<v Speaker 4>US economy, but really for the global economy at large.

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<v Speaker 4>Lee Cosco is our senior transport, logistics and shipping analysts,

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<v Speaker 4>and he is joining us to give us a preview

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<v Speaker 4>of what FedEx is likely to say. So FedEx, Lee,

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<v Speaker 4>when it comes to FedEx, they have their own issues, right,

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<v Speaker 4>They've been trying to turn things around, overhaul the business.

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<v Speaker 4>How much of the results reflect that effort versus what's

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<v Speaker 4>happening globally?

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<v Speaker 6>Yeah, I mean, we all have our own issues, but

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<v Speaker 6>FedEx certainly does have a number of them, and you know,

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<v Speaker 6>they've been busy trying to restructure their European business and

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<v Speaker 6>you know, they're kind of combining their ground and express

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<v Speaker 6>networks and they're kind of going through a transformation right now,

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<v Speaker 6>and they're really hoping that they'll come out of this

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<v Speaker 6>transformation a more nimble parcel provider that can really take

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<v Speaker 6>advantage of some of the strong B to B markets

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<v Speaker 6>that they're going after and higher margin B two C

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<v Speaker 6>business also as well. You know, volume looks like it's

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<v Speaker 6>probably going to grow. During the earnings, We're not really

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<v Speaker 6>expecting that much new news because they just had an

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<v Speaker 6>investor day the other month, but we do expect to

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<v Speaker 6>get a lot more color about what's going on in

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<v Speaker 6>the Middle East and how that's going to impact FedEx

0:12:14.160 --> 0:12:16.920
<v Speaker 6>and it's and it's business going forward. So that's what

0:12:17.000 --> 0:12:19.320
<v Speaker 6>you know, I'm most interested to hear about. You know,

0:12:19.360 --> 0:12:22.640
<v Speaker 6>the company, like I said, does have a large European operation.

0:12:23.720 --> 0:12:27.280
<v Speaker 6>You know, the Middle East has become a huge hub

0:12:27.400 --> 0:12:32.360
<v Speaker 6>for freight between Europe and Asia and that has been dislocated,

0:12:32.760 --> 0:12:36.520
<v Speaker 6>uh and so they're obviously dealing with higher costs associated

0:12:36.520 --> 0:12:38.840
<v Speaker 6>with some of that business. There's lost volumes that will

0:12:38.840 --> 0:12:42.640
<v Speaker 6>be involved because the area is not safe to fly into.

0:12:42.960 --> 0:12:47.120
<v Speaker 6>So we expect to get an update on how the

0:12:47.200 --> 0:12:49.200
<v Speaker 6>you know, the conflict the Middle East will unfold for

0:12:49.480 --> 0:12:50.960
<v Speaker 6>carriers like a FedEx.

0:12:51.720 --> 0:12:56.640
<v Speaker 2>So what's FedEx saying today about just the their business

0:12:56.640 --> 0:12:58.800
<v Speaker 2>in general in terms of volumes and things like that.

0:12:58.920 --> 0:13:02.000
<v Speaker 2>I mean, because it's such a bell weather for many

0:13:02.040 --> 0:13:04.280
<v Speaker 2>parts of the economy, as you well know what a

0:13:04.400 --> 0:13:06.960
<v Speaker 2>saying just about core fundamental business trends.

0:13:07.920 --> 0:13:10.840
<v Speaker 6>Yeah, so you know, FedEx has two main businesses. The

0:13:10.880 --> 0:13:13.120
<v Speaker 6>business that we all probably know when you get something

0:13:13.160 --> 0:13:17.600
<v Speaker 6>at your doorstep, you know, letters going to lawyer's offices,

0:13:17.640 --> 0:13:20.480
<v Speaker 6>and they also have a less than truckload business. They're

0:13:20.520 --> 0:13:23.160
<v Speaker 6>the largest LTL carrier in the United States. They're actually

0:13:23.160 --> 0:13:26.880
<v Speaker 6>planning to spin that business. I would spin that out there.

0:13:27.080 --> 0:13:29.560
<v Speaker 6>They are spinning that out. We're they're doing an analyst

0:13:29.679 --> 0:13:32.480
<v Speaker 6>day next month. We're excited to attend that and find

0:13:32.480 --> 0:13:35.240
<v Speaker 6>out more. But you know, that business has been suffering

0:13:35.280 --> 0:13:39.000
<v Speaker 6>significantly because of the weak industrial economy. I don't need

0:13:39.040 --> 0:13:42.320
<v Speaker 6>to tell you the ism has been a contraction territory

0:13:42.320 --> 0:13:44.640
<v Speaker 6>a lot more than an expansion territory over the last

0:13:44.640 --> 0:13:47.400
<v Speaker 6>two and a half years, and that's really weighing on

0:13:47.440 --> 0:13:50.400
<v Speaker 6>that business. But you know, looking pivoting towards you know,

0:13:50.400 --> 0:13:53.560
<v Speaker 6>they're a larger business, their parcel business. That business has

0:13:53.640 --> 0:13:57.040
<v Speaker 6>been okay, it's growing, Volumes are growing by load of

0:13:57.080 --> 0:13:59.520
<v Speaker 6>mid single digits. They're getting pricing and load of mid

0:13:59.520 --> 0:14:03.040
<v Speaker 6>single digits. The problem that they're facing right now is costs,

0:14:03.080 --> 0:14:05.960
<v Speaker 6>and they're trying to you know, kind of if you will,

0:14:06.040 --> 0:14:09.920
<v Speaker 6>reduce their overall cost curve to help, you know, drive

0:14:10.000 --> 0:14:12.520
<v Speaker 6>better margins going forward. And some of the things that

0:14:12.559 --> 0:14:14.560
<v Speaker 6>you know I kind of alluded to earlier, you know,

0:14:14.600 --> 0:14:18.320
<v Speaker 6>whether it's restructuring their air network, whether it's combining their

0:14:18.360 --> 0:14:21.840
<v Speaker 6>ground and air network, these things will benefit the company

0:14:22.880 --> 0:14:26.960
<v Speaker 6>a in a better demand environment globally, and B it's

0:14:27.000 --> 0:14:30.840
<v Speaker 6>going to take time for those benefits to come down

0:14:30.880 --> 0:14:31.800
<v Speaker 6>to the bottom line.

0:14:32.960 --> 0:14:36.480
<v Speaker 4>So Lee, we have FedEx reporting and then UPS will

0:14:36.520 --> 0:14:39.880
<v Speaker 4>report probably in about another five weeks or so. How

0:14:40.000 --> 0:14:42.920
<v Speaker 4>much of what FedEx tells us, especially when it relates

0:14:42.960 --> 0:14:47.120
<v Speaker 4>to global trends, can be applied to UPS, I.

0:14:47.000 --> 0:14:50.280
<v Speaker 6>Think a lot. You know, they're both very very similar,

0:14:50.280 --> 0:14:53.240
<v Speaker 6>they're both going after similar growth businesses. They both want

0:14:53.280 --> 0:14:56.360
<v Speaker 6>to get more into healthcare logistics, which just tends to

0:14:56.400 --> 0:15:00.680
<v Speaker 6>be more profitable. They obviously have their fa anger on

0:15:00.720 --> 0:15:05.360
<v Speaker 6>the pulse of the consumer. UPS is tied to a

0:15:05.400 --> 0:15:08.480
<v Speaker 6>little more to companies like Amazon. You know, they are

0:15:08.560 --> 0:15:11.200
<v Speaker 6>trying to wind down that business, but you know they're

0:15:11.240 --> 0:15:13.440
<v Speaker 6>more tied to it. There are some differences, but I

0:15:13.480 --> 0:15:16.320
<v Speaker 6>think there's more similarities than there are differences about you know,

0:15:16.320 --> 0:15:18.560
<v Speaker 6>what it's going to tell us about the overall economy.

0:15:18.680 --> 0:15:19.280
<v Speaker 1>Stay with us.

0:15:19.440 --> 0:15:21.800
<v Speaker 2>More from Bloomberg Intelligence coming up after this.

0:15:25.680 --> 0:15:29.400
<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

0:15:29.480 --> 0:15:32.560
<v Speaker 1>weekdays at ten am Eastern on Apple, Cocklay and Android

0:15:32.560 --> 0:15:35.880
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0:15:35.920 --> 0:15:39.040
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0:15:40.000 --> 0:15:41.960
<v Speaker 4>We had a fad day yesterday.

0:15:42.040 --> 0:15:42.360
<v Speaker 7>We did.

0:15:42.520 --> 0:15:44.560
<v Speaker 2>Yeah, I mean, in all the news flow, it kind

0:15:44.560 --> 0:15:45.360
<v Speaker 2>of gets dround out.

0:15:45.240 --> 0:15:47.160
<v Speaker 4>A little bit. Yeah, And you know, coming into this,

0:15:47.200 --> 0:15:48.840
<v Speaker 4>I was just talking with Michael McKee. He was saying

0:15:48.840 --> 0:15:50.120
<v Speaker 4>that for the most part he didn't think it would

0:15:50.160 --> 0:15:51.920
<v Speaker 4>be anything big, you know, a couple of weeks ago.

0:15:52.000 --> 0:15:53.680
<v Speaker 4>Certainly we didn't think it would be anything big, but

0:15:54.600 --> 0:15:58.040
<v Speaker 4>some news was made. Certainly j Pal making clear that

0:15:58.120 --> 0:16:00.280
<v Speaker 4>he is in no rush or the committee and no

0:16:00.400 --> 0:16:03.120
<v Speaker 4>rush to cut interest rates. Ira Jersey is our Bloomberg

0:16:03.120 --> 0:16:06.720
<v Speaker 4>Intelligence Chief US interest rate Strategies. He talks to us

0:16:06.720 --> 0:16:09.360
<v Speaker 4>about the FED, about the economy, about rates and where

0:16:09.400 --> 0:16:13.080
<v Speaker 4>they're headed. What surprised you the most from yesterday's news conference.

0:16:13.240 --> 0:16:16.360
<v Speaker 7>That it was probably the least important of the seventeenth

0:16:16.400 --> 0:16:20.960
<v Speaker 7>central bank meetings this week. That's you know, the Bank

0:16:21.000 --> 0:16:24.080
<v Speaker 7>of England meeting obviously is what's really royal the rates

0:16:24.080 --> 0:16:27.800
<v Speaker 7>market today. Yeah, So I don't know if it was surprising,

0:16:27.880 --> 0:16:30.600
<v Speaker 7>but I think the clarity that you know, Jay Powell

0:16:30.600 --> 0:16:33.640
<v Speaker 7>said that he intends on staying on until Kevin Moorsh

0:16:33.720 --> 0:16:36.480
<v Speaker 7>is confirmed by the Senate. I think that that was

0:16:36.520 --> 0:16:39.600
<v Speaker 7>something that you know, most people we had speculated about,

0:16:39.680 --> 0:16:41.320
<v Speaker 7>but he can. You know, the fact that he confirmed

0:16:41.320 --> 0:16:44.520
<v Speaker 7>that I think is important. Will that have an effect

0:16:44.600 --> 0:16:48.560
<v Speaker 7>on you know, President Trump and how what's his reaction

0:16:48.720 --> 0:16:51.840
<v Speaker 7>going to be to that? I think is a an

0:16:51.880 --> 0:16:54.280
<v Speaker 7>open question and clearly there's going to be a lot

0:16:54.320 --> 0:16:57.080
<v Speaker 7>of debate about it. And then the other is his

0:16:57.280 --> 0:16:59.840
<v Speaker 7>comment and which really is what to set the markets?

0:16:59.840 --> 0:17:03.280
<v Speaker 7>So saying that basically oil was going to determine whether

0:17:03.360 --> 0:17:05.520
<v Speaker 7>or not they cut interest rates again, right, if oil

0:17:05.560 --> 0:17:09.000
<v Speaker 7>prices continued to go higher, that they probably wouldn't wouldn't

0:17:09.040 --> 0:17:12.000
<v Speaker 7>cut again. And that's that's where you saw the bear

0:17:12.000 --> 0:17:14.159
<v Speaker 7>steepening the yield curve, so two year yields going up

0:17:14.240 --> 0:17:16.440
<v Speaker 7>much faster than longer maturity debt.

0:17:16.600 --> 0:17:18.840
<v Speaker 2>You mentioned the Bank of England is the call there

0:17:18.920 --> 0:17:22.360
<v Speaker 2>ire that they held rates the same, but they said, hey,

0:17:22.400 --> 0:17:24.240
<v Speaker 2>we'll raise them if inflation gets warrant.

0:17:24.680 --> 0:17:27.560
<v Speaker 7>Well, they basically implied fifty bases points of interest rate hikes,

0:17:27.600 --> 0:17:30.119
<v Speaker 7>which you know, the market was pricing in for some

0:17:30.280 --> 0:17:32.520
<v Speaker 7>chance of n interest rate hike over the next twelve

0:17:32.560 --> 0:17:35.600
<v Speaker 7>months or so, but two really set the market off.

0:17:35.880 --> 0:17:40.240
<v Speaker 7>That's why you know, currently the two year two year

0:17:40.520 --> 0:17:44.560
<v Speaker 7>guilt so two year GBP bonds are hired by about

0:17:44.560 --> 0:17:46.639
<v Speaker 7>thirty bases points, like twenty nine basis points. I think

0:17:46.640 --> 0:17:50.119
<v Speaker 7>at the moment they were a little bit higher earlier today.

0:17:50.480 --> 0:17:53.920
<v Speaker 7>And that's really is what's royal the entire US market.

0:17:54.000 --> 0:17:55.240
<v Speaker 7>When I came in and I sat down in my

0:17:55.320 --> 0:17:57.959
<v Speaker 7>terminal this morning, two year yields were off US two

0:17:58.000 --> 0:18:00.400
<v Speaker 7>year yields were off seventeen basis points. You know, now

0:18:00.400 --> 0:18:03.320
<v Speaker 7>we're only off you know, four and this happens pretty

0:18:03.359 --> 0:18:06.560
<v Speaker 7>regularly right where you'll see that effectively the tail wagging

0:18:06.560 --> 0:18:09.280
<v Speaker 7>the dog. Right. Obviously, US treasuries are the global benchmark

0:18:09.359 --> 0:18:12.280
<v Speaker 7>for interest rates. That's still the case. But when you

0:18:12.320 --> 0:18:14.399
<v Speaker 7>have something that happens in Japan or something that happens

0:18:14.400 --> 0:18:18.200
<v Speaker 7>in the UK that really sets off the developed market

0:18:18.680 --> 0:18:22.520
<v Speaker 7>interest rate complex that filters into US treasuries overnight because

0:18:22.560 --> 0:18:25.240
<v Speaker 7>people just sell risk and sell whatever's liquid and they

0:18:25.240 --> 0:18:28.520
<v Speaker 7>can sell. But then once you get into US trading hours,

0:18:28.560 --> 0:18:30.680
<v Speaker 7>then you know, I don't want to say cooler heads,

0:18:30.680 --> 0:18:33.960
<v Speaker 7>but kind of more rational heads prevail at that point.

0:18:34.160 --> 0:18:37.400
<v Speaker 4>So how are you rethinking everything now? Given what Palace said,

0:18:37.400 --> 0:18:40.240
<v Speaker 4>given what we heard from the BOE, the ECB h

0:18:40.560 --> 0:18:41.400
<v Speaker 4>this morning as well.

0:18:41.560 --> 0:18:44.320
<v Speaker 7>Yeah, you know, we had thought that the FED would

0:18:44.359 --> 0:18:47.000
<v Speaker 7>probably cut interest rates to just below three percent. Just

0:18:47.040 --> 0:18:48.960
<v Speaker 7>the way that we were thinking about it was, you know,

0:18:49.040 --> 0:18:52.719
<v Speaker 7>real yields. The FED things that the real funds rate

0:18:52.720 --> 0:18:54.840
<v Speaker 7>should be about one hundred bases points plus or mind

0:18:54.880 --> 0:18:56.879
<v Speaker 7>us a little bit. So if inflation is going to

0:18:56.880 --> 0:18:58.880
<v Speaker 7>be two two and a quarter, which is what we

0:18:58.880 --> 0:19:01.600
<v Speaker 7>were implying for the pe to flator for your end,

0:19:01.680 --> 0:19:03.239
<v Speaker 7>that they would be able to cut interest rates down

0:19:03.280 --> 0:19:06.480
<v Speaker 7>to three percent more or less. Well, guess what. The

0:19:06.560 --> 0:19:09.840
<v Speaker 7>inflation situation's far different now than it was before. I

0:19:09.840 --> 0:19:11.840
<v Speaker 7>don't think they're going to hike because they don't want

0:19:11.880 --> 0:19:15.639
<v Speaker 7>to necessarily be the impetus for a major recession. But

0:19:15.720 --> 0:19:17.920
<v Speaker 7>I think that they're going to be much much more

0:19:17.960 --> 0:19:22.080
<v Speaker 7>cautious now in their easing campaign. And if they ease,

0:19:22.640 --> 0:19:24.240
<v Speaker 7>what would cause them to ease At this point it

0:19:24.280 --> 0:19:25.760
<v Speaker 7>has to be the job market, right. You have to

0:19:25.800 --> 0:19:28.600
<v Speaker 7>see like negative one hundred thousand job prints for two

0:19:28.680 --> 0:19:31.400
<v Speaker 7>or three months. That would certainly scare them and make

0:19:31.440 --> 0:19:36.120
<v Speaker 7>them probably rethink about a cut again. But when inflation

0:19:36.200 --> 0:19:39.440
<v Speaker 7>expectations arising as dramatically as they have the last three weeks,

0:19:39.720 --> 0:19:41.800
<v Speaker 7>that's going to let them take their foot off the

0:19:41.840 --> 0:19:42.760
<v Speaker 7>gases a little bit.

0:19:43.080 --> 0:19:47.760
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