WEBVTT - Surveillance: Julie Su on US Hiring Surge 0:00:00.080 --> 0:00:02.840 We bring you news and analysis every day on the 0:00:02.880 --> 0:00:06.840 Bloomberg Surveillance Podcast. But now you can get the latest 0:00:06.880 --> 0:00:11.639 news on demand whenever you want. Subscribe to Bloomberg News 0:00:11.640 --> 0:00:14.400 Now to get the latest headlines at the click of 0:00:14.440 --> 0:00:18.880 a button. Get informed on your schedule. You can listen 0:00:18.960 --> 0:00:22.720 and subscribe to Bloomberg News Now on the Bloomberg Business App, 0:00:22.760 --> 0:00:27.720 Bloomberg dot Com plus Apple, Spotify, and anywhere else you 0:00:27.800 --> 0:00:35.479 get your podcasts. Search Bloomberg News Now and subscribe today. 0:00:37.760 --> 0:00:41.080 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:41.120 --> 0:00:44.960 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:45.000 --> 0:00:49.480 for insight from the best and economics, geopolitics, finance and investment. 0:00:49.880 --> 0:00:54.720 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:54.920 --> 0:00:59.200 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:59.240 --> 0:01:02.920 the Bloomberg Criminal and the Bloomberg Business App. There are 0:01:03.040 --> 0:01:06.880 strikes across land. There is kaiser on the West Coast. 0:01:07.520 --> 0:01:11.200 They're nurses and others, radiologists, I believe in others. There 0:01:11.240 --> 0:01:15.000 are auto workers in Detroit and Sundry others. Within this 0:01:15.120 --> 0:01:18.399 labor report an important time to speak to the acting 0:01:18.520 --> 0:01:21.120 Labor Secretary. Here is John Ferroh. 0:01:21.200 --> 0:01:24.040 Joining us now from Washington is JUDYSU, the acting US 0:01:24.120 --> 0:01:27.280 Secretary of Labor. Judys wonderfully catch up with you. A 0:01:27.280 --> 0:01:29.959 hot labor market report at a time where the unions 0:01:29.959 --> 0:01:31.560 seem to have a lot of leverage. So let's go 0:01:31.600 --> 0:01:35.440 straight there. What's your latest read on the UAW negotiations. 0:01:36.840 --> 0:01:39.640 Well, the parties are at the table. They continue to negotiate. 0:01:40.520 --> 0:01:43.680 The President has made very clear something I believe in too, 0:01:43.880 --> 0:01:46.520 that when there are record corporate profits, there should be 0:01:47.000 --> 0:01:51.080 record contracts for working people. And that's what workers are 0:01:51.080 --> 0:01:55.200 fighting for. So the negotiations continue and I believe that 0:01:55.240 --> 0:01:56.280 the parties will get there. 0:01:56.400 --> 0:01:59.400 Are you getting access to both parties to have negotiated settlement? 0:02:00.320 --> 0:02:01.880 Yeah, we're talking to both parties. 0:02:01.920 --> 0:02:05.040 I mean again, the collective bargaining process is about the 0:02:05.080 --> 0:02:10.079 parties themselves coming together, working through their issues, finding common 0:02:10.080 --> 0:02:13.680 ground and win win solutions. We support that in every 0:02:13.720 --> 0:02:16.040 way that we can, and we are continuing to talk 0:02:16.080 --> 0:02:18.520 to the parties in that particular situation. 0:02:18.520 --> 0:02:21.120 What have you heard recently about current demands from UAW. 0:02:21.320 --> 0:02:23.600 We understand that wage de balands have come down from 0:02:23.639 --> 0:02:26.520 forty closer to thirty is that you'll read on things. 0:02:27.560 --> 0:02:30.120 I mean, and the negotiation is always about movement on 0:02:30.240 --> 0:02:33.960 both sides at this point. You know, I think it's 0:02:34.000 --> 0:02:36.440 always hard to know exactly where something will land. I 0:02:36.440 --> 0:02:39.320 think as long as they're talking to each other, that 0:02:39.480 --> 0:02:42.040 is positive, and that is what is happening. 0:02:42.160 --> 0:02:44.920 You're sensing the gap is closing, the spread is narrowed. 0:02:46.280 --> 0:02:48.160 I'll say it this way. You know, I've seen this 0:02:48.240 --> 0:02:48.720 a lot. 0:02:48.840 --> 0:02:51.000 I think that the parties always seem like they're far 0:02:51.040 --> 0:02:53.520 apart until they're not. So that does require it always 0:02:53.560 --> 0:02:57.600 requires movement, and I think the continued engagement is a 0:02:57.639 --> 0:03:01.519 positive thing, and it's part of the reflection of President 0:03:01.600 --> 0:03:04.639 Biden and this administration's commitment to workers getting their fair 0:03:04.680 --> 0:03:06.960 share in an economy that is doing really well. 0:03:07.040 --> 0:03:09.480 We also have haalthcast strikes as well. I understand you've 0:03:09.480 --> 0:03:13.480 met leadership from both sides. Jenny, How different is that 0:03:13.520 --> 0:03:15.880 particular strike? What do you think is going on there? 0:03:17.200 --> 0:03:20.400 I mean, every strike has its unique issues, right every 0:03:20.840 --> 0:03:25.440 you know, the industries are different, the specific demands are different. 0:03:25.800 --> 0:03:28.959 But I think at the bottom line is that we are. 0:03:28.880 --> 0:03:34.920 Seeing a resurgence in worker power in support for unions 0:03:34.960 --> 0:03:39.160 in the economy and for working people demanding their fair share, 0:03:39.280 --> 0:03:44.080 saying you know enough of the disparities between what frontline 0:03:44.120 --> 0:03:47.640 workers make and what CEOs make, making sure that there 0:03:47.760 --> 0:03:50.280 is an opportunity for workers to. 0:03:51.880 --> 0:03:56.280 Improve their working conditions and live stable lives. 0:03:56.480 --> 0:03:59.520 Is this is not just an accident in a Biden 0:03:59.560 --> 0:04:02.720 Harris administration. It is very much a deliberate part of 0:04:02.760 --> 0:04:05.600 how we think a strong economy and a strong country. 0:04:05.280 --> 0:04:08.240 Works, Madam Secretary, as you rightly said, we are seeing 0:04:08.280 --> 0:04:12.440 a shift back in bargaining power towards labor after decades 0:04:12.560 --> 0:04:15.720 where it went the other way. That's being reflected in 0:04:15.760 --> 0:04:20.960 the spike higher in number of days of strikes throughout 0:04:21.000 --> 0:04:24.560 the economy. Should we expect that number to go even higher? 0:04:26.360 --> 0:04:32.120 I think it also reflects really a record contract results. Right, 0:04:32.160 --> 0:04:36.000 So we've seen from the ports on the West Coast 0:04:36.920 --> 0:04:42.040 to the teamsters and ups, really results that demonstrate workers 0:04:42.080 --> 0:04:47.159 getting more in wages and being forced over time, dealing 0:04:47.200 --> 0:04:52.120 with other specific issues within certain industries or automation and 0:04:52.160 --> 0:04:57.200 the like, addressing conditions like heat and other kinds of 0:04:57.240 --> 0:05:00.240 health and safety issues. So I think those are are 0:05:00.360 --> 0:05:03.000 the big results, and some of them we're talking about. 0:05:03.040 --> 0:05:04.680 You know, we don't talk about them as much, but 0:05:04.720 --> 0:05:08.120 there are you know, graduate workers who have gone on 0:05:08.160 --> 0:05:08.960 strike for brief. 0:05:08.800 --> 0:05:10.840 Periods and gotten contracts that they want. 0:05:10.960 --> 0:05:13.520 So I don't know what the average number of days is, 0:05:13.560 --> 0:05:16.320 but I do know that workers. 0:05:16.040 --> 0:05:18.479 Coming to the table, being able to have the right to. 0:05:20.160 --> 0:05:22.719 Demand their fair share is something that has been positive 0:05:22.760 --> 0:05:25.240 for workers and is very much part of the strong 0:05:25.360 --> 0:05:26.840 economy that we've been talking about. 0:05:27.040 --> 0:05:29.599 And the jobs report reflects this, and yet. 0:05:29.400 --> 0:05:32.520 We have not seen that in the numbers on earnings. 0:05:32.680 --> 0:05:34.880 So is it just a lag effect. Are we going 0:05:34.960 --> 0:05:37.159 to see it going forward, or is that something else 0:05:37.200 --> 0:05:41.240 going on in the economy that's offsetting those gains that 0:05:41.240 --> 0:05:42.479 you talked about for workers. 0:05:43.320 --> 0:05:45.279 Yeah, so earnings are up a bit. 0:05:46.360 --> 0:05:51.400 You know, we definitely especially see that among lower wage workers. 0:05:51.200 --> 0:05:54.360 Which is part of this idea that you know, the. 0:05:54.120 --> 0:05:56.279 President has said, We're going to build an economy that 0:05:56.400 --> 0:05:58.800 leaves no one behind, that starts by looking at who's 0:05:58.839 --> 0:06:00.200 been left behind in the past. 0:06:00.560 --> 0:06:03.160 And to the extent that those lower wage. 0:06:02.800 --> 0:06:07.239 Workers are seeing average gains that are growing and also 0:06:07.320 --> 0:06:10.520 that are higher than inflation, means that workers have more 0:06:10.560 --> 0:06:13.360 money in their pockets more to spend in their local economies. 0:06:13.440 --> 0:06:16.440 That's also partly fueling the other effects of the jobs report, 0:06:16.480 --> 0:06:20.520 which is more job growth in leision, hospitality, for example. 0:06:20.880 --> 0:06:23.880 All of these taken together, along with a historically low 0:06:23.920 --> 0:06:26.880 unemployment rate still under four percent for over a year 0:06:26.920 --> 0:06:29.520 and a half, the longest stretch of the nineteen sixties, 0:06:29.880 --> 0:06:33.360 all signs of this economy is a place you know, yeah, 0:06:33.839 --> 0:06:37.040 is doing well because of good economic policies and workers 0:06:37.040 --> 0:06:37.920 having a seat at the table. 0:06:38.000 --> 0:06:40.920 Let's talk about those policies. There is something really peculiar 0:06:40.920 --> 0:06:42.640 going on at the moment. If you think about what's 0:06:42.640 --> 0:06:45.400 happening in the picket line. They have serious concerns about 0:06:45.400 --> 0:06:48.680 the ev transition and their participation in it. A transition 0:06:48.720 --> 0:06:52.000 that you are subsidizing. Something really odd from my perspective, 0:06:52.000 --> 0:06:54.200 and I'd love some clarity from you on it. Why 0:06:54.240 --> 0:06:58.320 is the government offering rich people credits to buy expensive cars. 0:07:00.160 --> 0:07:00.960 A couple of things. 0:07:02.040 --> 0:07:06.560 There is widespread support in the country for tax credits 0:07:06.560 --> 0:07:09.720 that will help to bring manufacturing jobs to the United States. 0:07:10.240 --> 0:07:12.160 That's part of what we're trying to do. The other 0:07:12.400 --> 0:07:14.600 is that we do have a climate crisis. Right We 0:07:14.680 --> 0:07:18.400 saw record heat across the entire country. 0:07:18.080 --> 0:07:18.640 Without a doubt. 0:07:18.720 --> 0:07:20.440 Can I just jump in without a doubt? I totally 0:07:20.480 --> 0:07:23.280 agree with you, But I just think we're conflating solving 0:07:23.280 --> 0:07:27.680 a climate crisis with driving really heavy SUVs that run 0:07:27.680 --> 0:07:31.040 on electricity. Those two things part of the same story, 0:07:31.080 --> 0:07:34.040 because I don't get it. If I'm driving an electrified 0:07:34.480 --> 0:07:36.720 f one point fifty, am I really safe in the planet? 0:07:37.880 --> 0:07:38.160 Right? 0:07:38.200 --> 0:07:41.680 Well, so we could probably have a conversation out about 0:07:41.800 --> 0:07:43.520 personal choices relating to cars. 0:07:43.560 --> 0:07:46.520 I do think as a policy matter, the. 0:07:46.360 --> 0:07:52.160 More that we can invest in industries, in manufacturing, including 0:07:52.200 --> 0:07:56.800 in transportation, that transitions us to a place where we're 0:07:56.880 --> 0:07:59.679 not you know, we're not continue to pollute the planet. 0:07:59.760 --> 0:08:00.000 Right. 0:08:00.760 --> 0:08:05.679 We have a method by which we can both bring 0:08:05.760 --> 0:08:07.360 down emissions. 0:08:07.000 --> 0:08:10.080 And also create good jobs. And the President has always 0:08:10.200 --> 0:08:12.960 said this solve your climate crisis. When he looks at that, 0:08:13.280 --> 0:08:16.200 it's also about creating good jobs, and good union jobs 0:08:16.240 --> 0:08:17.600 in communities that need them the most. 0:08:17.640 --> 0:08:20.000 And we are really focused on making sure that that 0:08:20.040 --> 0:08:23.000 transition does not leave workers behind, and that what's good 0:08:23.000 --> 0:08:24.160 for the climate can be good for. 0:08:24.120 --> 0:08:24.760 Workers as well. 0:08:24.880 --> 0:08:28.200 Jenny appreciate the update. Jenny Say, Acting US Secretary of life. 0:08:38.480 --> 0:08:41.640 This is our interview of this bond carnage. There's no 0:08:41.760 --> 0:08:43.520 question about it. I've said for years at out of 0:08:43.520 --> 0:08:48.520 Brown University, the gentleman from Chicago is our definitive financial economist. 0:08:48.559 --> 0:08:51.160 And that's saying something at Boost School with Lars Hanson, 0:08:51.200 --> 0:08:54.559 Austin Golesby, and Raga Rogen Darkening at the door. He's 0:08:54.559 --> 0:08:56.640 a former Fed governor on this job. Today, we're going 0:08:56.679 --> 0:08:59.880 to rip up the script with Randall Krasner. I am 0:09:00.200 --> 0:09:03.719 so honored you are here with us today. Randy, I'm 0:09:03.720 --> 0:09:06.440 going to go from a nolttle real rate analysis. Let's 0:09:06.480 --> 0:09:09.199 go back to first principles. I never framed a two 0:09:09.280 --> 0:09:12.720 point five zero ten year real yield. Why does the 0:09:12.840 --> 0:09:17.240 real yield matter? And how will that new high real 0:09:17.320 --> 0:09:20.160 yield change our listeners and viewers' lives? 0:09:20.640 --> 0:09:23.320 This, ultimately, it is the inflation adjusted rate. It's the 0:09:23.360 --> 0:09:27.240 real rate you said that matters for thinking about what 0:09:27.280 --> 0:09:29.920 investments firms are going to be willing to make, because 0:09:29.920 --> 0:09:35.200 if prices are going up, then they can and input 0:09:35.200 --> 0:09:39.000 prices are going up, that's one thing. But if you 0:09:39.040 --> 0:09:42.400 adjust for the inflation, so you take out that that 0:09:42.520 --> 0:09:45.520 changes in cost and changes and prices on both sides. 0:09:45.760 --> 0:09:47.680 You've got the real yield, and if that's going up 0:09:47.760 --> 0:09:50.280 very significantly, that means that firms are going to be 0:09:50.320 --> 0:09:52.839 less willing to invest, are they less willing to hire. 0:09:53.559 --> 0:09:56.360 We've also started to see real wages grow, which is 0:09:56.400 --> 0:09:59.200 great for workers, but that's probably at some point going 0:09:59.240 --> 0:10:01.920 to mean a little bit less demand. Obviously not right now. 0:10:02.040 --> 0:10:03.320 Well, that's where I wanted to go. 0:10:03.679 --> 0:10:06.400 What's your reaction as a former FED governor to this 0:10:06.480 --> 0:10:09.720 report that is not only a massive upside surprise almost 0:10:09.760 --> 0:10:12.880 twice as much as what the expectation was, but also 0:10:12.920 --> 0:10:15.840 with an upside revision to the prior month. What would 0:10:15.960 --> 0:10:18.319 you if you were still in the FED do with this? 0:10:19.040 --> 0:10:20.680 So I think look at two pieces. 0:10:20.720 --> 0:10:24.200 One obviously the incredible strength of the labor market continuing 0:10:24.240 --> 0:10:28.000 to be there. But the silver lining is that we 0:10:28.080 --> 0:10:31.400 didn't see a lot of kickup in wages. So I'd 0:10:31.400 --> 0:10:33.000 wanted to get into that a little bit more detail, 0:10:33.160 --> 0:10:36.880 because that's really ultimately what is going to affect costs 0:10:36.960 --> 0:10:40.559 and what's going to drive drive inflation. Maybe I was 0:10:40.600 --> 0:10:42.600 being too harsh and saying there'd be a hardish landing. 0:10:42.640 --> 0:10:45.720 Maybe we've got something that's perfect goldilocks. I find it 0:10:45.760 --> 0:10:48.600 hard to believe it's possible after being at the FED 0:10:48.640 --> 0:10:51.240 during the global financial crisis. I never say never about anything, 0:10:51.440 --> 0:10:55.520 but we've never seen something so perfectly goldilocks before. But 0:10:55.559 --> 0:10:57.800 if you can have a strong labor market but not 0:10:58.000 --> 0:11:01.840 have real wage growth being too high, that would be 0:11:01.880 --> 0:11:02.559 ideal for the fit. 0:11:02.880 --> 0:11:05.200 One thing that I'm seeing is the underemployment rate coming 0:11:05.200 --> 0:11:08.040 in a little bit seven percent from seven point one percent. 0:11:08.080 --> 0:11:10.920 It goes to the prea misra question, which would lead 0:11:11.080 --> 0:11:14.120 to a higher neutral rate longer term. If we get 0:11:14.120 --> 0:11:17.040 an increase in productivity, if we see some sort of 0:11:17.320 --> 0:11:21.120 just general growth that means a higher inflation, higher growth 0:11:21.200 --> 0:11:24.480 kind of era. Are you hearing anything, seeing anything in 0:11:24.520 --> 0:11:27.719 this data that suggests that has a greater likelihood than 0:11:27.760 --> 0:11:29.200 you previously thought imaginable. 0:11:29.600 --> 0:11:31.680 Well, not the data today, but we have been seeing 0:11:31.720 --> 0:11:35.360 some pretty good numbers related to productivity growth, and ultimately 0:11:35.400 --> 0:11:37.680 that's what we want to see. Higher productivity growth is 0:11:37.720 --> 0:11:41.480 great for economic growth and great for real wage increases 0:11:41.520 --> 0:11:44.600 for workers. Now, whether that's just sort of a one 0:11:44.640 --> 0:11:46.719 off thing, it's going to take a lot more data 0:11:46.760 --> 0:11:47.680 to figure that out. 0:11:48.000 --> 0:11:50.480 Tell me at the bus School is you people own 0:11:50.520 --> 0:11:53.040 the high ground on the analysis of our finance and 0:11:53.040 --> 0:11:56.840 they say one emotional thing commercial real estate. The fact is, 0:11:56.960 --> 0:11:59.680 in the carnage that we're in right now, thirty year bond, 0:12:01.480 --> 0:12:04.560 we're going to have a normal American failure of restructuring, 0:12:04.640 --> 0:12:08.040 failure of businesses. New fresh money will come in and 0:12:08.240 --> 0:12:11.200 you know, at a lower distress price than that. Will 0:12:11.240 --> 0:12:14.760 we just survive this event or can there be lasting 0:12:14.960 --> 0:12:18.200 damage here like there was an seven eight nine? 0:12:18.600 --> 0:12:21.720 So I think we really need to rethink the business 0:12:21.800 --> 0:12:24.000 model of how this is financed because a lot of 0:12:24.000 --> 0:12:26.680 small and medium sized banks have a lot of exposure 0:12:26.679 --> 0:12:28.640 in this area. You know, the chickens are going to 0:12:28.679 --> 0:12:31.400 come home to roost because interest rates are a lot higher, 0:12:31.480 --> 0:12:33.800 so refinancing rates will be higher. There are a lot 0:12:33.840 --> 0:12:36.320 fewer people going into the office, so a lot of 0:12:36.360 --> 0:12:39.760 the commercial real estate values are going down. And I 0:12:39.800 --> 0:12:41.880 think a lot of the small and medium sized banks 0:12:41.920 --> 0:12:43.960 are going to be stepping away from this. So the 0:12:44.040 --> 0:12:45.960 question is going to be who will be financing this 0:12:46.040 --> 0:12:48.160 going forward. The big banks don't seem to have any 0:12:48.160 --> 0:12:50.640 appetite to do that. Maybe it'll be new players like 0:12:50.679 --> 0:12:53.559 private credit coming in, but that's very new. We will 0:12:53.559 --> 0:12:53.960 have to see. 0:12:54.200 --> 0:12:57.320 Kind of the matter is that Professor Krasner is for 0:12:57.400 --> 0:13:00.520 the fossils like me, the collective memory of our of 0:13:00.600 --> 0:13:05.440 Continental Illinois out of nowhere. What are the shadows right 0:13:05.480 --> 0:13:09.760 now that you see of a Continental Illinois of portfolio 0:13:09.840 --> 0:13:13.120 insurance in eighty seven, the leverage of ninety eight. What's 0:13:13.200 --> 0:13:16.040 the Krasner's shadow right now you're most focused on. 0:13:16.480 --> 0:13:18.520 So I do think trying to understand what's going on 0:13:18.559 --> 0:13:20.720 with commercial real estate, how that's going to affect well 0:13:20.920 --> 0:13:24.080 medium sized banks is very important. And then also looking 0:13:24.120 --> 0:13:26.880 through well, trying to look through into the areas we 0:13:26.880 --> 0:13:28.320 don't know about. This gets back to what we were 0:13:28.320 --> 0:13:31.160 talking about before, into the non bank financial sector. So 0:13:31.200 --> 0:13:34.360 we've got a lot of data about banks, but just 0:13:34.400 --> 0:13:36.280 as I was describing, there a lot of non banks 0:13:36.280 --> 0:13:38.920 who are doing traditional bank functions. We don't have as 0:13:39.000 --> 0:13:41.400 much insight into that. So that's something that we know, 0:13:41.559 --> 0:13:43.319 we don't know, and we have to find out a 0:13:43.360 --> 0:13:43.960 lot more information. 0:13:44.040 --> 0:13:47.120 It's another one hour conversation with Professor Krasner will do 0:13:47.160 --> 0:13:49.120 that at another time. We are honored your with us 0:13:49.120 --> 0:13:51.600 today for all of us at Bloomberg. Thank you so much, 0:13:51.760 --> 0:13:59.559 Randall Krasner of the Boost School Chicago. We're also honored 0:13:59.559 --> 0:14:01.880 the Jeffrey Rosenberg dart and the door he was just 0:14:01.920 --> 0:14:05.319 looking at his Bloomberg terminal. Jeff Rosenberg, let's take this 0:14:05.800 --> 0:14:08.920 all in nonfarm payrolls. They have the number your four 0:14:08.960 --> 0:14:13.120 hundred and fifty five thousand with revision. Take that shock 0:14:13.320 --> 0:14:16.000 into your shock of working at Blackrock this week in 0:14:16.080 --> 0:14:18.480 fixed income, how do you dovetail the two? 0:14:19.160 --> 0:14:22.200 Well, you know, I think I'm gonna talk about something 0:14:22.400 --> 0:14:25.400 that we usually don't talk about on a payroll Friday, 0:14:25.600 --> 0:14:28.800 and that's third quarter earnings, which begin to kick off. 0:14:28.840 --> 0:14:32.400 And what this payroll report really, I think starts to 0:14:32.480 --> 0:14:36.840 reconcile is a disconnect that we've been hearing between kind 0:14:36.880 --> 0:14:41.920 of the bond market consensus soft landing, inflation, slowing labor markets, 0:14:42.200 --> 0:14:45.800 and at the same time a very positive corporate profits 0:14:46.040 --> 0:14:49.160 margins holding up. And here's the problem with that those 0:14:49.200 --> 0:14:51.840 two stories is that how do you get the slowing 0:14:51.880 --> 0:14:55.280 in labor how do you get layoffs if corporations are 0:14:55.280 --> 0:14:58.320 doing just fine with pass through and with margins. And 0:14:58.360 --> 0:15:03.000 so the reconciliation of those two inconsistencies is on display 0:15:03.480 --> 0:15:06.320 right now this is a much stronger labor market. Clearly, 0:15:06.680 --> 0:15:08.840 that's what we see in the report today. 0:15:08.760 --> 0:15:09.800 Across the board. 0:15:11.120 --> 0:15:15.200 And so the challenge is, and what you were relating 0:15:15.240 --> 0:15:18.040 to with Randy Krasner, is that this is an environment 0:15:18.120 --> 0:15:21.680 where rates are going to have to stay higher for longer, 0:15:21.880 --> 0:15:23.520 potentially even go higher. 0:15:23.560 --> 0:15:24.520 And the longer that. 0:15:24.480 --> 0:15:28.240 Occurs, the more those cracks and that vulnerability has time 0:15:28.280 --> 0:15:30.920 to eventually show up. But this is really telling you 0:15:31.080 --> 0:15:33.360 something that the equity markets have been telling you. That 0:15:33.640 --> 0:15:37.800 it's good for corporations, good profit margins, good earnings, isn't 0:15:37.840 --> 0:15:41.960 a good story for labor market normalization and for the inflations. 0:15:42.240 --> 0:15:45.520 Jeff Rozenberg, mister Fink's office called me this morning as 0:15:45.600 --> 0:15:47.840 us coming in and they said, don't ask Jeff Rozenberg 0:15:47.960 --> 0:15:51.720 anything about inside baseball Blackrock. I will not, but I 0:15:51.800 --> 0:15:55.520 will ask you about the functioning of our fixed income 0:15:55.640 --> 0:16:00.880 market off this shock report. Are there instabilities visible outside 0:16:00.920 --> 0:16:05.040 of Blackrock that you see? Can we get transactions done 0:16:05.520 --> 0:16:07.440 as we get ever higher yields? 0:16:08.000 --> 0:16:12.160 You know, it's been a remarkably orderly move higher in 0:16:12.240 --> 0:16:16.440 terms of market functioning, agreed in terms of liquidity. I 0:16:16.480 --> 0:16:19.160 think the issue that you again just went through with 0:16:19.560 --> 0:16:22.239 Randy about where are the cracks, where are the vulnerabilities? 0:16:22.360 --> 0:16:25.960 Randy highlighted, you know, the change in intermediation. 0:16:26.400 --> 0:16:30.440 The financial system is much more disintermediated today and in 0:16:30.560 --> 0:16:34.240 different ways that we haven't seen before. And so the 0:16:34.280 --> 0:16:37.000 story and the history is that as you have these 0:16:37.000 --> 0:16:38.640 shocks in terms of interest rates. 0:16:38.440 --> 0:16:39.720 There are vulnerabilities. 0:16:40.040 --> 0:16:43.440 The challenge is this time will be different in terms 0:16:43.480 --> 0:16:46.680 of where those vulnerabilities show up, and that will be surprising. 0:16:47.040 --> 0:16:50.080 I think the key here is that coming off of 0:16:50.240 --> 0:16:53.680 over a decade of zero interest rates, we established a 0:16:53.720 --> 0:16:56.920 lot of expectation for the persistence of low interest rates. 0:16:57.080 --> 0:16:59.760 And yes, there's a lot of liquidity still left over 0:17:00.120 --> 0:17:04.520 private credit dry powder. The issue isn't the liquidity, it's 0:17:04.600 --> 0:17:07.400 now the cost of that liquidity and whether or not 0:17:07.720 --> 0:17:09.239 you can afford. 0:17:09.040 --> 0:17:10.600 Those much higher interest rates. 0:17:10.640 --> 0:17:12.879 I think the thing to be aware of, however, is 0:17:12.920 --> 0:17:15.879 that in the private credit market environment, you don't have 0:17:15.960 --> 0:17:18.840 the same kind of liquidity triggers that you have in 0:17:18.880 --> 0:17:21.760 the banking sector. You mentioned Continental Illinois. You don't have 0:17:21.840 --> 0:17:25.080 deposit runs, so you have a lot more flexibility to 0:17:25.240 --> 0:17:29.040 extend the time period, a lot more flexibility to limit 0:17:29.160 --> 0:17:32.040 any kind of spillover chakrisk, So it functions in a 0:17:32.040 --> 0:17:34.480 different way, but it doesn't mean that there isn't still 0:17:34.800 --> 0:17:38.000 eventually the cost to be paid for a much higher 0:17:38.000 --> 0:17:39.040 interest rate environment. 0:17:39.240 --> 0:17:43.000 Jeff Rosenberg of Blackrock, I am curious from your vantage point, 0:17:43.040 --> 0:17:45.560 why you would buy bonds here if you see this 0:17:45.680 --> 0:17:48.120 kind of strength in the labor market persisting. 0:17:48.480 --> 0:17:50.600 Well, I think when you say why would you buy bonds, 0:17:50.640 --> 0:17:52.440 I think one of the key things about the fixeding 0:17:52.480 --> 0:17:57.080 of markets is there's a very different level of opportunities 0:17:57.400 --> 0:18:00.760 opportunity set across the yield curve. So the front end 0:18:00.800 --> 0:18:03.680 of the yield curve is really pricing in a lot 0:18:03.680 --> 0:18:06.960 of the forward path the movement today basically pricing in 0:18:07.000 --> 0:18:10.600 now one hundred percent of the final increase in interest rates. 0:18:10.760 --> 0:18:13.560 You know, if inflation and the kind of one silver 0:18:13.640 --> 0:18:16.359 lining in today's report is average hourly earnings, you know, 0:18:16.359 --> 0:18:19.280 if that picture still maintains and the Fed can hold 0:18:19.400 --> 0:18:21.520 rates at high levels, but it doesn't necessarily have to 0:18:21.560 --> 0:18:24.080 go further. That's already in the price And when you 0:18:24.080 --> 0:18:26.400 look at the back end of the curve, yes there's 0:18:26.480 --> 0:18:29.920 more vulnerability. Yes, we still think there's more term premium 0:18:30.000 --> 0:18:33.919 steepening to go. But you're starting now just finally to 0:18:33.960 --> 0:18:37.679 get to levels where you're getting back to normal, and 0:18:37.720 --> 0:18:41.080 that movement from abnormal to normal. 0:18:40.880 --> 0:18:41.840 Is very painful. 0:18:42.000 --> 0:18:44.359 But where you're getting closer, and that's interest rates, that 0:18:44.440 --> 0:18:47.960 approximate nominal GDP, that's the history of where the long 0:18:48.040 --> 0:18:50.680 term interest rates should be, and you're getting closer to that. 0:18:50.800 --> 0:18:53.480 You may overshoot and you may have more term premium 0:18:53.560 --> 0:18:56.480 risk because of the deficits and QT. So we're a 0:18:56.520 --> 0:18:58.600 little bit cautious on the back end, but why would 0:18:58.600 --> 0:19:00.560 you buy bombs? You may not want to buy like 0:19:00.680 --> 0:19:02.680 thirty year bonds, But the front end of the curve 0:19:02.760 --> 0:19:05.120 is really starting to get to levels that are much 0:19:05.160 --> 0:19:06.600 more attractive for two. 0:19:06.480 --> 0:19:08.600 Thousand and seven and on. This is one of the 0:19:08.680 --> 0:19:11.439 historic days we've had on Bloomberg Surveillance. We welcome all 0:19:11.520 --> 0:19:14.399 of you commercial free here through the hour. Michael McKee 0:19:14.440 --> 0:19:16.200 with us, Jeffrey Rosenberg of Blackrock. 0:19:16.280 --> 0:19:18.680 Jeff Rosenberg of black Rock. From your vantage point, is 0:19:18.720 --> 0:19:21.840 this the one hedge that has worked in this period 0:19:21.880 --> 0:19:23.480 of turmoil by the dollar. 0:19:23.760 --> 0:19:27.200 Yeah, it's been pretty much rate driven, and I think 0:19:27.320 --> 0:19:30.679 as you're highlighting this morning that rate move is reflective 0:19:31.119 --> 0:19:33.639 of the I'm sorry, the move and the dollar is 0:19:33.680 --> 0:19:36.400 reflective of that rate move. I want to go back 0:19:36.440 --> 0:19:39.320 to what Mike McKee was just saying in terms of 0:19:39.359 --> 0:19:41.320 the FED, and I think that is what you're seeing 0:19:41.359 --> 0:19:45.320 in terms of pricing in the last hike. And I 0:19:45.320 --> 0:19:48.480 think also as well, they will recognize that the market 0:19:48.520 --> 0:19:50.720 is doing a lot of the work for them and 0:19:50.760 --> 0:19:53.760 we're going to get the tightening and financial conditions, and 0:19:53.800 --> 0:19:56.400 they were hoping to avoid an easing. 0:19:56.040 --> 0:19:58.280 Of financial conditions, which is what they've gotten here. 0:19:58.320 --> 0:20:00.840 So I think that helps to kind of move us 0:20:00.960 --> 0:20:03.359 off of the FED tightening path. The real issue in 0:20:03.440 --> 0:20:05.960 terms of the bond market pricing into next year is 0:20:06.160 --> 0:20:11.080 we've priced out about half after the FMC half of 0:20:11.119 --> 0:20:13.159 the cuts that were priced into next year. And I 0:20:13.200 --> 0:20:15.440 think that's the next move that you can start to 0:20:15.440 --> 0:20:17.480 see is really pricing out the cuts as you get 0:20:17.560 --> 0:20:21.800 more of this higher restrictive for longer kind of perspective. 0:20:21.880 --> 0:20:24.520 And we did see that thirty year treasure yield across 0:20:24.560 --> 0:20:27.840 that five percent marked as briefly but flirting once again 0:20:27.960 --> 0:20:31.120 with that level. Jeff, how much is this a sustainable rate? 0:20:31.320 --> 0:20:34.280 You said, pricing out cuts going beyond twenty twenty four. 0:20:34.720 --> 0:20:38.639 Is it sustainable economically and from a risk acid perspective. 0:20:39.920 --> 0:20:42.800 Well, A lot of that depends on this projection in 0:20:42.880 --> 0:20:46.040 terms of the inflation trajectory. Right, So the reason for 0:20:46.200 --> 0:20:48.560 the cuts priced in, one of the reasons for the 0:20:48.560 --> 0:20:51.320 cuts priced in by the bond market is the expectation 0:20:51.440 --> 0:20:55.000 that interest, sorry, inflation starts to fall and the Fed 0:20:55.040 --> 0:20:57.200