WEBVTT - Bloomberg Surveillance TV: April 10, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.800 Terminal and the Bloomberg Business App. Now with us around 0:00:36.800 --> 0:00:39.480 the table to break this down. Missoo Steve rashutto JP 0:00:39.600 --> 0:00:42.160 Morgan's David Kelly. Steve's been talking about the FED wanting 0:00:42.200 --> 0:00:44.920 to cut, but the data is not cooperating. David Kelly, 0:00:45.000 --> 0:00:46.519 is this data cooperating? 0:00:46.960 --> 0:00:47.240 Nope. 0:00:47.400 --> 0:00:47.440 No. 0:00:47.600 --> 0:00:49.080 The sound that you heard there was the door of 0:00:49.120 --> 0:00:51.600 slamming on the June Reid cut. That's gone. 0:00:52.240 --> 0:00:55.680 I think the problem is the Federal Reserve and JP 0:00:55.720 --> 0:00:59.800 Howell wants to achieve consensus. He's only had eight meetings 0:00:59.840 --> 0:01:02.600 at fifty one meetings in which there's even being a descent, 0:01:03.200 --> 0:01:05.080 and so he's going to try and convince the committee, 0:01:05.120 --> 0:01:06.640 but he can't convince the committee of something that the 0:01:06.680 --> 0:01:10.680 committee doesn't on average want to believe. And so so 0:01:10.720 --> 0:01:12.440 he's not going to be able to get consensus around 0:01:12.440 --> 0:01:14.479 at June rate cause I don't you know if he'd 0:01:14.560 --> 0:01:17.000 even want to push one at this stage. So unless 0:01:17.000 --> 0:01:18.800 there's something very weird in these data, I'd love to 0:01:18.840 --> 0:01:21.360 see what exactly is pushing this, because there's some you know, 0:01:21.360 --> 0:01:23.480 there may be things like tobacco price or something pushing this. 0:01:23.520 --> 0:01:23.880 I don't know. 0:01:24.040 --> 0:01:27.400 It sounds pretty high, but it's it's definitely more inflation 0:01:27.400 --> 0:01:29.320 than FED once. I still think that they ought to 0:01:29.319 --> 0:01:32.640 normalize rates over time. I'd be happy enough if they 0:01:32.680 --> 0:01:35.119 start start to cut rates in June, but I think 0:01:35.120 --> 0:01:36.320 this means that they won't. 0:01:36.319 --> 0:01:38.520 The words of Chairman Powell, it's too soon to say 0:01:38.520 --> 0:01:40.839 whether the recent ratings represent more than just a bump 0:01:40.920 --> 0:01:43.240 chairman power in the last few weeks stave domined to 0:01:43.319 --> 0:01:44.639 change that assessment of this stinks. 0:01:45.319 --> 0:01:48.080 I think they they're you know, creating a problem for 0:01:48.160 --> 0:01:51.280 themselves in terms of the promises of right cuts. The 0:01:51.320 --> 0:01:54.520 inability to actually execute on him their fell would guidance 0:01:54.560 --> 0:01:56.960 has lock them into something because they want to do 0:01:57.080 --> 0:01:59.000 something that the data is not allowing them to do. 0:01:59.440 --> 0:02:02.080 I think they ought to change it. Whether they will 0:02:02.160 --> 0:02:05.840 or not becomes an interesting question. I think there's enough 0:02:05.920 --> 0:02:08.480 doves on the committee that that will be a difficult 0:02:08.520 --> 0:02:11.760 thing to sell. I think, as you know, Mike mentioned, 0:02:11.760 --> 0:02:14.880 they're more likely to hold status quo and just you know, 0:02:14.919 --> 0:02:17.840 allow the markets to do the effective adjustment for them 0:02:17.840 --> 0:02:19.760 and wait till they get to the June meeting to 0:02:19.840 --> 0:02:20.680 make any changes. 0:02:20.800 --> 0:02:23.000 I'm struck by the fact that core inflation came in 0:02:23.080 --> 0:02:26.080 harder than expected, as well as everything else, at a 0:02:26.120 --> 0:02:28.400 time when we're seeing oil prices, when we're seeing more 0:02:28.400 --> 0:02:32.880 broad commodities increase, craises question of how much more could 0:02:32.960 --> 0:02:37.360 inflation rise. I'm wondering, from your per perspective, Steve, do 0:02:37.440 --> 0:02:40.440 you think that this data raises the proposition of a 0:02:40.480 --> 0:02:43.080 hard landing because it forces the FED to stay high 0:02:43.120 --> 0:02:46.320 even if you see some weakening on the margins. 0:02:46.600 --> 0:02:48.720 Well, I think the answer to your question is very simple. 0:02:48.760 --> 0:02:51.440 I defined it as a hot landing, an environment in 0:02:51.440 --> 0:02:55.160 which the economy slows back towards you know, two point 0:02:55.200 --> 0:02:57.720 three two in a quarter type environment which is still 0:02:57.760 --> 0:02:59.160 above the revised CBO trend. 0:02:59.200 --> 0:03:00.360 They don't know if anybody knows that. 0:03:00.639 --> 0:03:01.800 But CBO raised its. 0:03:01.720 --> 0:03:03.800 Underlying trend growth really growth from the economy from one 0:03:03.840 --> 0:03:05.120 than three quarters to two percent. 0:03:05.360 --> 0:03:06.080 So my two and a. 0:03:06.120 --> 0:03:08.960 Quarter two thirty lumber is still above trend. That gives 0:03:09.000 --> 0:03:11.600 you a tight labor market environment. And it certainly suggests 0:03:11.600 --> 0:03:13.560 it's going to be very hard to get inflation to 0:03:13.600 --> 0:03:16.680 the two percent level. So could inflation wind up settling 0:03:16.720 --> 0:03:19.520 somewhere around three as opposed to two, Yes, so that 0:03:19.600 --> 0:03:21.799 to me would be a hot landing, not a hard landing, 0:03:21.960 --> 0:03:24.480 But it still keeps the inflation percolating. 0:03:24.680 --> 0:03:27.560 Check out this market move. Let's start with equity's equity futures, 0:03:27.600 --> 0:03:31.080 the Russell getting absolutely slammed down by more than three percent, 0:03:31.320 --> 0:03:32.840 or I gues s and P five hundred down by 0:03:32.880 --> 0:03:35.320 more than one percent David Kelly just months ago, the 0:03:35.360 --> 0:03:38.720 sound of the door slamming shut on a June rate cut. 0:03:38.720 --> 0:03:40.680 If you're just joining us right now, zero point four 0:03:40.680 --> 0:03:43.640 percent is the number. The estimate with zero point three 0:03:43.800 --> 0:03:45.800 might be key down in Washington, d C. Might I 0:03:45.800 --> 0:03:47.480 find a bit of time to chew over these numbers? 0:03:47.680 --> 0:03:49.240 What it's underpinning this one? 0:03:49.240 --> 0:03:49.720 This morning. 0:03:51.240 --> 0:03:53.720 Well, the interesting thing is that there isn't any huge 0:03:53.840 --> 0:03:57.160 jump in any category except motor vehicle insurance up two 0:03:57.200 --> 0:03:59.560 point eight percent. It doesn't have a huge wig, but 0:03:59.600 --> 0:04:02.040 it does figure into core services and that's pushed the 0:04:02.120 --> 0:04:05.840 numbers up. What you're seeing is a lot of slight 0:04:06.000 --> 0:04:10.160 increases in a lot of different areas. Rent up five 0:04:10.240 --> 0:04:14.560 tenths after four tenths last month. They were the owners 0:04:14.600 --> 0:04:18.320 you could rent the housing component unchanged at four tenths, 0:04:18.520 --> 0:04:22.560 so that's still an upward weight on the overall numbers. 0:04:22.920 --> 0:04:25.240 And we're seeing the same sorts of things throughout this 0:04:25.680 --> 0:04:29.280 seven tenths gained for apparel, you know, things that go 0:04:29.360 --> 0:04:33.040 over one percent, very little, but a lot of things 0:04:33.360 --> 0:04:35.599 moved up a tenth or two during the month, and 0:04:35.640 --> 0:04:39.760 that seems to be what's pushing this higher, and that 0:04:39.839 --> 0:04:43.520 would make the Fed concern because it suggests a broader 0:04:43.640 --> 0:04:47.920 base for inflation than just a few outliers like we've 0:04:47.920 --> 0:04:48.719 seen in the past. 0:04:49.080 --> 0:04:51.120 Mike, thank you so much. And I'm looking right now 0:04:51.200 --> 0:04:54.720 at supercore. Someone noting that it's at four point eight 0:04:54.760 --> 0:04:57.279 percent not exactly what this Federal Reserve wants to see. 0:04:57.320 --> 0:04:59.640 David Kelly, I know that You've been really big on 0:04:59.760 --> 0:05:03.120 the inflation, the immaculatus inflation, this idea that we were 0:05:03.160 --> 0:05:04.680 going to get a landing and that it was just 0:05:04.720 --> 0:05:07.120 sort of this natural base effects that would take hold. 0:05:07.360 --> 0:05:08.640 Do you question some of that now? 0:05:09.160 --> 0:05:11.159 Well, actually, what Michael was just saying makes me feel 0:05:11.200 --> 0:05:13.360 a little bit better about the situation. That two point 0:05:13.400 --> 0:05:15.280 eight percent in auto insurance, that's probably not. 0:05:15.279 --> 0:05:16.040 A real number. 0:05:16.440 --> 0:05:18.520 I mean, I mean the day last month they were 0:05:18.520 --> 0:05:20.800 saying that auto insurance rates were up twenty point six 0:05:20.839 --> 0:05:21.760 percent a year over year. 0:05:21.880 --> 0:05:22.880 Now I know they're up. 0:05:23.240 --> 0:05:26.720 I don't believe the negotiated auto insurance rates on a 0:05:27.040 --> 0:05:29.560 month's month basis are actually that going up that much 0:05:29.560 --> 0:05:31.760 at this stage. I also don't believe that a year 0:05:31.760 --> 0:05:34.400 from now we'd be seeing also twenty point six percent 0:05:34.600 --> 0:05:36.440 on auto insurance. We must have gone up some more. 0:05:36.640 --> 0:05:39.560 And then also, if you know rents are up, then 0:05:39.600 --> 0:05:42.000 the owner's equipment brand is up also, So that it 0:05:42.040 --> 0:05:44.560 sounds like it's still the same problem of you know, 0:05:45.040 --> 0:05:47.120 over eighty percent of the year over year inflation that 0:05:47.160 --> 0:05:50.880 we're seeing is coming from auto insurance and the government's 0:05:50.920 --> 0:05:54.400 measure of shelter costs, and both of those are very smooth, 0:05:54.520 --> 0:05:58.799 badly measured issue in things which should come down over time. 0:05:59.080 --> 0:06:01.119 I will admit that if has come you know, if 0:06:01.360 --> 0:06:03.720 this is this is too much for the FED, and 0:06:03.720 --> 0:06:06.160 they're good, they don't want to They won't want to 0:06:06.240 --> 0:06:10.000 look into more details to find a reason to custom. 0:06:12.680 --> 0:06:14.120 The long n place that's coming down. 0:06:18.680 --> 0:06:21.039 Is a lot of these components aren't even seasonally adjusted 0:06:21.320 --> 0:06:23.800 at the atyl micro level and the macro level. They're 0:06:23.839 --> 0:06:26.840 aggregated so we can get proper seasonal adjustment behind it. 0:06:27.080 --> 0:06:29.520 There's lots of components in the CPI, the fact that 0:06:29.560 --> 0:06:31.880 some components go one way, some components go the other way. 0:06:32.080 --> 0:06:34.479 That's why we have an index. So I don't really 0:06:34.520 --> 0:06:36.839 look into the details. I'll look at the major aggregates 0:06:36.839 --> 0:06:39.080 and the components, and what they're telling me it's inflation 0:06:39.160 --> 0:06:41.120 is not doing what they wanted on average, and this 0:06:41.240 --> 0:06:43.280 is a problem for them. You know, they've laid out 0:06:43.279 --> 0:06:45.479 a scenario and they actually lowered the bar at the 0:06:45.480 --> 0:06:48.240 March meeting to cutting rates, and the reality is the 0:06:48.279 --> 0:06:52.080 economy isn't even meeting that lower bar for them. So 0:06:52.279 --> 0:06:55.880 this becomes an ongoing quandary for them because they've created 0:06:55.920 --> 0:06:59.800 a financial market environment that's much too accommodative for what 0:07:00.040 --> 0:07:03.160 their macro scenario is and what their desire to cut 0:07:03.240 --> 0:07:06.760 rates are. And therefore they've created a problem for themselves 0:07:07.000 --> 0:07:10.600 because their forward guidance is keeping the labor market tighter 0:07:10.960 --> 0:07:13.480 than it would normally have been if they didn't have 0:07:13.560 --> 0:07:17.880 this degree of forward guidance. The dots are a bad concept. 0:07:18.200 --> 0:07:21.080 They shouldn't be there. They lead the market in a 0:07:21.160 --> 0:07:23.760 direction that they should not go. This has been a 0:07:23.800 --> 0:07:26.760 mistake since it was created by Janney Yellen. Nobody at 0:07:26.760 --> 0:07:29.320 the Fed is backed away from it the realities. I 0:07:29.360 --> 0:07:31.320 hope when they sit down and review it next year 0:07:31.600 --> 0:07:33.800 they realize this is a dumb thing and they walk 0:07:33.840 --> 0:07:34.400 away from it. 0:07:34.480 --> 0:07:36.960 David, do you agree, Do the dots just create this, 0:07:37.680 --> 0:07:39.760 you know, problems within the financial markets? 0:07:40.560 --> 0:07:42.880 No, I don't really. I don't have a problem with 0:07:42.880 --> 0:07:45.080 with their transparency. I do have a problem with over 0:07:45.120 --> 0:07:47.760 the active monetary policy. I think that we assume, you know, 0:07:47.760 --> 0:07:50.760 I mean, Steve, you were talking about how their monetary 0:07:50.800 --> 0:07:55.240 policy has kept the other forward guidance has kept unemployment tight. 0:07:55.360 --> 0:07:58.000 I don't think that there's their forward guidance and rates 0:07:58.120 --> 0:08:01.080 is having that much of an impact on actual macroeconomic 0:08:01.560 --> 0:08:04.120 GDP growth, because if that were the case, the fact 0:08:04.160 --> 0:08:05.920 that they've raised rates so much over the last two 0:08:05.960 --> 0:08:09.200 years autosow GDP growth down, and it didn't. So I 0:08:09.200 --> 0:08:10.880 don't think I think the FED has a big effect 0:08:10.880 --> 0:08:13.040 on financial markets. You can see that today. I don't 0:08:13.040 --> 0:08:16.160 think they're having a huge effect on the economy. I 0:08:16.160 --> 0:08:18.120 do think that some of the ways that the Labor Department, 0:08:18.200 --> 0:08:19.920 despite the fact that it's and index the way they 0:08:20.160 --> 0:08:24.120 measure inflation, is adding some bumps to the bumpiness here. 0:08:24.400 --> 0:08:26.400 These are manufactured bumps. It's kind of like you know, 0:08:26.480 --> 0:08:28.840 roadworks in New York City. It's not just podles, it's 0:08:28.840 --> 0:08:31.880 actually roadworks that's creating these bumps. So I think the 0:08:31.880 --> 0:08:35.360 Bureau of Labor Statistics themselves are responsible for some of 0:08:35.360 --> 0:08:37.600 the bumps here. I do, though, think this is a 0:08:37.640 --> 0:08:41.600 fundamentally disinflationary economy. Inflation is coming down slowly, and I 0:08:41.720 --> 0:08:44.160 just worry about an overactive monetary policy, which you've had 0:08:44.160 --> 0:08:47.360 for many years, which basically distorts financial markets for no 0:08:47.400 --> 0:08:48.440 good economic purpose. 0:08:48.520 --> 0:08:50.520 And you talk about running a marathon, you have to 0:08:50.600 --> 0:08:53.760 fuel yourself before you break down. So if June is 0:08:53.960 --> 0:08:56.880 slamming the door. You think you slam the door against June. 0:08:56.760 --> 0:08:59.199 When do you think the FED should. 0:08:58.880 --> 0:08:59.520 Have to slip in? 0:08:59.760 --> 0:09:02.520 Well, I mean I personally, I think i'd rather them 0:09:02.600 --> 0:09:05.000 get going slowly and sort of send the message. So 0:09:05.600 --> 0:09:07.760 please pay no attention to this. We're just bringing, We're 0:09:07.800 --> 0:09:09.800 not easing, we're just normalizing. 0:09:10.120 --> 0:09:13.520 I'd like them to get to sort of message that way. 0:09:14.120 --> 0:09:15.840 But yes, I do think that they also tried to 0:09:15.840 --> 0:09:19.360 get to normal before they need to, because someday we're 0:09:19.360 --> 0:09:21.920 going to be sitting around this table and the FED 0:09:22.040 --> 0:09:23.880 is going to be at a high level and suddenly 0:09:24.400 --> 0:09:27.000 the floor has fallen out for some shock or something, 0:09:27.120 --> 0:09:30.000 and so we're facing the possibility recession. Then the FED says, oh, 0:09:30.040 --> 0:09:31.920 we've got lots of ammunition, we can get rates fast. 0:09:32.080 --> 0:09:34.280 But I have never seen that one work out well. 0:09:34.480 --> 0:09:37.040 If the FED has to cut rates a lot in 0:09:37.080 --> 0:09:40.160 an inn aggressive responsive way, it always hurts the economies. 0:09:40.160 --> 0:09:42.679 I'd rather they just gradually get back to a normal place. 0:09:42.720 --> 0:09:44.800 But obviously this morning's data doesn't help them do that. 0:09:45.000 --> 0:09:46.880 I keep watching the markets right now, and after we 0:09:46.920 --> 0:09:49.080 got this out of an expected print across the board, 0:09:49.160 --> 0:09:52.600 yields continuing to climb almost really pushing up toward that 0:09:52.640 --> 0:09:55.320 five percent level, four point ninety three percent the highs 0:09:55.360 --> 0:09:57.679 of twenty twenty four. I'm also watching the Rustle two 0:09:57.720 --> 0:09:59.800 thousand and Steve, I love your idea of this. You say, 0:10:00.040 --> 0:10:02.480 a hot landing, and this raises a question of what 0:10:02.520 --> 0:10:04.360 this landing is going to look like if you do 0:10:04.480 --> 0:10:07.200 see some of the smaller companies continuing to be pressured 0:10:07.520 --> 0:10:09.679 given the fact that the FED really just lost their 0:10:10.000 --> 0:10:12.640 excuse to cut in June. As we heard from David, 0:10:12.880 --> 0:10:14.800 that was a sound of the door slamming shot on 0:10:14.800 --> 0:10:15.640 a June rate cut. 0:10:15.920 --> 0:10:18.440 Yeah, again, this is the problem the Fed's created. So 0:10:18.480 --> 0:10:21.280 the reality is smaller companies get squeezed because they don't 0:10:21.280 --> 0:10:23.640 have the pricing power, but they're getting cost in the 0:10:23.640 --> 0:10:26.840 wage cost environment, and that's squeezing the profitability. And this 0:10:26.920 --> 0:10:29.000 is something I think the FED really thinks they're attempting 0:10:29.040 --> 0:10:31.640 to do. They're attempting to create an environment where, you know, 0:10:31.720 --> 0:10:33.040 David kind of I'm in the camptend. 0:10:33.200 --> 0:10:34.000 Longer term, there. 0:10:33.880 --> 0:10:36.480 Are global deflationary stories. The problem is there are a 0:10:36.480 --> 0:10:39.960 lot of domestic cyclical inflationary stories, and it's a battle 0:10:39.960 --> 0:10:43.040 between the global deflation versus the domestic cyclical, and this 0:10:43.120 --> 0:10:45.000 is a battle that's been going on, and the currency 0:10:45.000 --> 0:10:47.760 has been somewhat of equilibrated between the two of them. 0:10:48.000 --> 0:10:51.040 But the reality of the situation is the domestic cyclical 0:10:51.080 --> 0:10:54.480 dominates more than the global deflationary over time. And the 0:10:54.520 --> 0:10:56.480 other thing is the FED keeps on missing the importance 0:10:56.520 --> 0:10:59.720 of fiscal policy in this equation. It's not only monetary 0:10:59.720 --> 0:11:02.560 poles see that continues to stimulate the economy, it's fiscal 0:11:02.600 --> 0:11:05.560 policy that continues to stimulate the economy. And therefore, the 0:11:05.559 --> 0:11:08.400 federal reserves concept of what their neutral rate is the 0:11:08.520 --> 0:11:11.280 natural rate that they're looking for are stored, I think 0:11:11.400 --> 0:11:14.560 is incorrect. I think our start is substantially higher. I 0:11:14.559 --> 0:11:16.840 think the level of rates that needs to be in 0:11:16.960 --> 0:11:20.400 environment in order to bring inflation down is substantially higher 0:11:20.480 --> 0:11:22.720 than the Fed is assuming. And I do believe the 0:11:22.760 --> 0:11:26.040 market prices the dots, and that's a problem. The market 0:11:26.040 --> 0:11:27.680 takes a look at the dots and says, the dots 0:11:27.679 --> 0:11:29.640 are this, and this is what we price in as 0:11:29.640 --> 0:11:32.000 soon as it happens. So the forward structure of rates 0:11:32.080 --> 0:11:34.760 anticipates the dots, and that's a problem, which is why 0:11:34.800 --> 0:11:35.640 they should be eliminated. 0:11:35.720 --> 0:11:37.720 Let's talk about the price of fiscal policy right now. 0:11:37.760 --> 0:11:39.400 Can we bring up the bond board. This move at 0:11:39.440 --> 0:11:41.280 the front end of the yield curve. We're talking about 0:11:41.280 --> 0:11:44.200 a twenty basis point move on a two year yield. 0:11:44.400 --> 0:11:46.880 We took out four rights, we took out four ninety. 0:11:47.000 --> 0:11:49.600 We're at four ninety three forty nine. We're up fourteen 0:11:49.720 --> 0:11:52.440 on a ten year ares year round number four fifty 0:11:52.640 --> 0:11:55.600 on a US tenure this morning, four fifty twenty nine 0:11:55.760 --> 0:11:57.920 past that three to foreign exchange, the dollar is stronger 0:11:57.920 --> 0:12:00.680 against absolutely everything. Dolly m took out one fifty two. 0:12:01.040 --> 0:12:04.280 The europe broke lower to about one oh seven eighty five. 0:12:04.280 --> 0:12:06.360 We're negative zero point seven percent there. And if you 0:12:06.400 --> 0:12:08.199 are just joining guess we said earlier this morning, it's 0:12:08.280 --> 0:12:11.160 quite now wait until late thirty. This one's allowed, David, 0:12:11.200 --> 0:12:12.800 let's talk about it. This is an email I got 0:12:12.800 --> 0:12:15.000 just moments ago. Of course, CPI month of a month 0:12:15.080 --> 0:12:17.520 was point three five nine, which gets rounded up to 0:12:17.520 --> 0:12:19.120 two point four. Yeah, you know, you come in a 0:12:19.160 --> 0:12:20.880 little bit lower. You get rounded down to point three. 0:12:20.880 --> 0:12:22.480 Does that make a difference to you? Does that change 0:12:22.480 --> 0:12:24.680 the conversation in any way, shape or form. 0:12:25.600 --> 0:12:29.199 No, no, But I think the other thing is in 0:12:29.240 --> 0:12:34.160 any inflationary between two and three percent, I on the 0:12:34.200 --> 0:12:37.000 consumption stage, I regard as basically okay. I mean that 0:12:37.080 --> 0:12:39.080 I think the fad is a little too focused on 0:12:39.160 --> 0:12:41.720 getting too precisely two percent, just as I think they 0:12:41.720 --> 0:12:43.200 were in the last deck in trying to raise rate 0:12:43.200 --> 0:12:45.640 it's up to two percent. I think, trying to you know, 0:12:45.679 --> 0:12:49.200 manipulate monetary policy, get rate inflation right down to two percent. 0:12:49.800 --> 0:12:52.319 I think they're a little too forceful in that. So no, 0:12:52.559 --> 0:12:54.400 I don't I don't worry about it too much. What 0:12:54.520 --> 0:12:58.120 I look at two things. One, yes, we've got a 0:12:58.120 --> 0:13:00.720 lot of demand, but we've got tremendous labor supply. 0:13:01.160 --> 0:13:02.640 I mean, we've seen increases. 0:13:02.920 --> 0:13:05.319 We're a fifteen years high on the day before's participation 0:13:05.400 --> 0:13:08.480 rate for the working age population. We've got massive immigration, 0:13:09.559 --> 0:13:10.920 which is generating labor supply. 0:13:11.240 --> 0:13:13.199 Year of year. Wage growth at the slowest level since 0:13:13.280 --> 0:13:14.359 June twenty twenty. 0:13:14.120 --> 0:13:16.760 One, so we don't really have a problem there. And 0:13:16.800 --> 0:13:21.880 then in the longer term, in the quality competition, just 0:13:21.920 --> 0:13:25.320 the and the lack of you know who've had virtually 0:13:25.320 --> 0:13:27.120 no strike so far this year, the lack of any 0:13:27.679 --> 0:13:29.880 union pressure to push up wages. All that suggests to 0:13:29.920 --> 0:13:32.720 me this is fundamentally disinflationary economy. I tend to agree 0:13:32.720 --> 0:13:35.280 with Steve that there are cyclical forces which are making 0:13:35.360 --> 0:13:37.960 it just a little sower coming down. But I know 0:13:38.320 --> 0:13:40.640 I'm fine with the idea that inflation is going to 0:13:40.640 --> 0:13:42.079 be drifting down and there's going to be a time 0:13:42.160 --> 0:13:44.000 when we're all sitting around this table wondering what the 0:13:44.040 --> 0:13:45.199 Fed's going to do to push it up. 0:13:45.559 --> 0:13:48.680 You've said a few times that this disinflationary trend, which 0:13:48.679 --> 0:13:50.480 has hit some bumps in a route over the last 0:13:50.520 --> 0:13:52.600 few months, had nothing to do with the Federal reserve. 0:13:52.920 --> 0:13:54.640 When you just talked about the labor market, you talked 0:13:54.679 --> 0:13:56.800 about forces that had nothing to do with the federal reserve. 0:13:57.160 --> 0:13:59.520 Why doesn't that play into what Governor Water is saying, 0:13:59.520 --> 0:14:00.920 which is based I mean, why do any think it's 0:14:00.920 --> 0:14:03.760 all what Kashgari is saying it white cup rights this year? 0:14:03.760 --> 0:14:05.920 Why doesn't that just plan to that idea. 0:14:05.559 --> 0:14:06.880 Because you're starting the wrong place. 0:14:07.080 --> 0:14:09.760 If the federal reserve was at a neutral level, I 0:14:09.760 --> 0:14:11.480 think the neutral level of federal fund rate is a 0:14:11.520 --> 0:14:13.920 lot higher than two point six percent, But if they 0:14:13.920 --> 0:14:16.600 were at say four, then yeah, they should just focus 0:14:16.640 --> 0:14:19.560 on their golfkin. They do not have as much impact 0:14:19.600 --> 0:14:20.760 on the economy. 0:14:20.320 --> 0:14:21.280 Day to day as they think. 0:14:21.480 --> 0:14:24.520 They spent a decade try to speed the economy up, failed, 0:14:24.720 --> 0:14:27.280 then they now they've been trying to sew the economy 0:14:27.320 --> 0:14:30.560 down failed. It's clear that they're in a very rough 0:14:30.560 --> 0:14:32.960 stream with a very tiny paddle, and they are really 0:14:33.000 --> 0:14:35.200 not moving the boat at all. And so what they 0:14:35.240 --> 0:14:37.320 can do though, with a lot of this active monetary 0:14:37.320 --> 0:14:41.560 policy is just rough. Financial markets miss priced assets last decade. 0:14:41.440 --> 0:14:44.800 We miss priced housing terribly, and now a large chunk 0:14:44.800 --> 0:14:47.280 of younger Americans can never buy a house because home 0:14:47.320 --> 0:14:48.440 prices are just too high. 0:14:48.440 --> 0:14:49.800 But we've got normal mortgage rates. 0:14:49.920 --> 0:14:52.960 We've mispriced a lot of speculative assets, you know, meme 0:14:53.040 --> 0:14:57.640 stocks and megacap stocks of some kinds, and you know, 0:14:58.240 --> 0:15:01.880 and cryptocurrencies all were you know, these things were funded 0:15:01.920 --> 0:15:04.280 because the carrying cost of crazy it was zero. So 0:15:04.560 --> 0:15:06.520 I wish the Federal Reserve would pay more attention to 0:15:06.560 --> 0:15:10.280 what they do to financial markets with their manipulation of 0:15:10.280 --> 0:15:12.480 interest rates, and let's worry too much about what they're 0:15:12.480 --> 0:15:13.160 doing to the economy. 0:15:13.800 --> 0:15:15.480 That effect, we played the ship game. Can we play 0:15:15.480 --> 0:15:16.960 the will gang? What do you think they will do? 0:15:17.760 --> 0:15:19.920 I think they'll I think they'll skip. I think they'll 0:15:20.120 --> 0:15:20.720 skip in June. 0:15:20.720 --> 0:15:23.280 I think they will set that up and then probably 0:15:24.760 --> 0:15:26.440 at the moment, I think they probably set up for 0:15:26.680 --> 0:15:28.880 September and December two rate cuts this year. 0:15:29.040 --> 0:15:30.560 Can I just jump in there because I think I 0:15:30.640 --> 0:15:32.760 totally disagree with David just said a minute ago in 0:15:32.800 --> 0:15:35.640 terms of what's driving this thing and about monetary policy 0:15:35.840 --> 0:15:38.400 returning to some natural rate or neutral rate, and what 0:15:38.440 --> 0:15:41.200 that neutral rate should be. The reality is the Federal 0:15:41.160 --> 0:15:43.320 Reserve was trying to stimulate the economy when there was 0:15:43.320 --> 0:15:46.240 a dead overhang. The dead overhang was weighing heavily on 0:15:46.280 --> 0:15:47.920 the economy, and Federal Reserve is doing what it was 0:15:47.920 --> 0:15:50.400 supposed to do off setting that dead overhang with very 0:15:50.480 --> 0:15:53.840 very low subsidy levels of interest rates. COVID cleaned out 0:15:53.840 --> 0:15:56.640 that dead overhang. Now there is no dead overhang. Balance 0:15:56.680 --> 0:16:00.479 sheets are exceptionally healthy. The economy has back its animals, 0:16:00.640 --> 0:16:03.320 and therefore the Federal Reserve needs to be taming back 0:16:03.360 --> 0:16:06.120 on those animal spirits by keeping the level of short 0:16:06.200 --> 0:16:09.480 term interest rates high enough not to allow the economy 0:16:09.480 --> 0:16:12.280 to get too excessive in its growth rate to create 0:16:12.320 --> 0:16:15.520 a substantially higher rate of inflation that then gets embedded 0:16:15.520 --> 0:16:17.680 in the system. This is the mistake the Federal Reserve 0:16:17.760 --> 0:16:20.160 made in the sixties that created the seventies. And I 0:16:20.160 --> 0:16:22.280 think they've learned from that, and hopefully they've learned from 0:16:22.280 --> 0:16:24.840 that and realized not to succumb to the idea that 0:16:24.880 --> 0:16:27.320 there is some natural rate or some neutral rate that 0:16:27.320 --> 0:16:29.360 we have to get back to, where if monetary policy 0:16:29.400 --> 0:16:31.600 just gets back to some lower level, we're all fine. 0:16:31.760 --> 0:16:34.280 The reality is they have to fight against the animal 0:16:34.280 --> 0:16:36.920 spirits that are created from an economy that has very 0:16:37.000 --> 0:16:40.840 healthy balance sheets, low corporate debt servicing burdens, low household 0:16:40.840 --> 0:16:43.840 debt servicing burdens, and a tight labor market that's feeding 0:16:44.000 --> 0:16:45.640 the engine of the consumer economy. 0:16:45.760 --> 0:16:48.880 David, I think you're talking about Wall Street animals and 0:16:49.080 --> 0:16:49.960 mainStreet animals. 0:16:50.200 --> 0:16:51.840 I mean, I think that think it is main Street. 0:16:51.840 --> 0:16:53.120 I hate to tell you a lot of it has 0:16:53.160 --> 0:16:56.160 the same effect. The companies drive their share prices, they 0:16:56.280 --> 0:16:59.200 keep their employees. All those things matter. What happens in 0:16:59.240 --> 0:17:02.120 terms of the start hat matters. What happens in terms 0:17:02.160 --> 0:17:02.680 of Main Street. 0:17:04.440 --> 0:17:05.120 We just disagree. 0:17:05.119 --> 0:17:07.159 I don't think the monetary policy is as effective on 0:17:07.200 --> 0:17:08.400 the economy as I But. 0:17:08.600 --> 0:17:11.240 Let's talk about where Wall Street meets Main Street, right 0:17:11.280 --> 0:17:12.760 they we're going to have a real Wall Street response 0:17:12.800 --> 0:17:14.720 to this. We already are seeing it right now, and 0:17:14.760 --> 0:17:16.320 there's going to be a one two punch because we 0:17:16.400 --> 0:17:18.120 see the price action right now, and then at one 0:17:18.160 --> 0:17:20.600 pm we're going to get an auction of ten year notes. 0:17:20.640 --> 0:17:22.440 It's really going to test the appetite of a market 0:17:22.440 --> 0:17:25.719 that's looking very skittish. Steve, how vulnerable is this market 0:17:25.800 --> 0:17:29.480