WEBVTT - Surveillance: US CPI with Bryson 0:00:00.080 --> 0:00:02.840 We bring you news and analysis every day on the 0:00:02.840 --> 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. 0:00:37.720 --> 0:00:40.880 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:40.960 --> 0:00:44.279 Bramwods, along with Tom Keane and Jonathan Ferrow join us 0:00:44.320 --> 0:00:47.920 each day for insight from the best in economics, geopolitics, 0:00:47.960 --> 0:00:49.040 finance and investment. 0:00:49.400 --> 0:00:51.440 Subscribe to Bloomberg Surveillance. 0:00:50.960 --> 0:00:54.440 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:54.760 --> 0:00:57.800 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:57.840 --> 0:01:01.000 the Bloomberg Business App. There is quite of whether this 0:01:01.240 --> 0:01:05.320 is enough of a disinflationary effect to really give people 0:01:05.400 --> 0:01:08.720 confidence that inflation and the disinflation that we're seeing now 0:01:08.880 --> 0:01:11.320 is more than just transitory. J. Brice and Over at 0:01:11.319 --> 0:01:14.280 Wells Fargo chief economists there joining us. Now, what's your 0:01:14.280 --> 0:01:17.160 thought just now to start with Jay on what we 0:01:17.280 --> 0:01:19.080 just saw in the CPI print that did come in 0:01:19.240 --> 0:01:20.440 just a bit hotter than expected. 0:01:21.680 --> 0:01:23.720 Yeah, Lisa, I mean, I'll use a phrase here, and 0:01:23.720 --> 0:01:25.640 I think John is probably familiar with it. You know, 0:01:25.680 --> 0:01:28.840 this was kind of a damp squib. It's kind of right. 0:01:28.880 --> 0:01:30.800 I mean, I don't think it's going to change anybody's 0:01:30.880 --> 0:01:32.920 view of what's going on in the economy. I don't 0:01:32.920 --> 0:01:35.480 think it changes anyone's view, you know, at the Federal 0:01:35.480 --> 0:01:39.160 Reserve about this. I think it you know, maybe in general, 0:01:39.200 --> 0:01:41.399 it kind of keeps them in play. It keeps the 0:01:41.640 --> 0:01:45.440 possibility of another rate hike, probably not at November, maybe 0:01:45.480 --> 0:01:48.680 December live, but in general, it's it's kind of what 0:01:49.040 --> 0:01:51.040 I think most of us kind of assumed was going 0:01:51.080 --> 0:01:51.480 to happen. 0:01:52.000 --> 0:01:53.720 Damn squid. I actually had to look it up. 0:01:53.800 --> 0:01:55.560 It means an event that is not as exciting or 0:01:55.600 --> 0:01:58.240 popular as people thought it would be. I'm curious, though, Jay, 0:01:58.280 --> 0:02:01.120 the fact that we got an upside surprise PPI yesterday 0:02:01.120 --> 0:02:04.640 and the smallest of upside surprises on CPI. Now, are 0:02:04.640 --> 0:02:07.320 you surprised we're not seeing more of a reaction in markets? 0:02:07.320 --> 0:02:10.480 That if I'm responding to winds blowing in another room 0:02:10.680 --> 0:02:11.880 over the past couple of days. 0:02:13.040 --> 0:02:15.480 Well, you know, as you know, and we had just 0:02:15.520 --> 0:02:18.680 a tremendous backup in yields over the last few weeks here, 0:02:18.919 --> 0:02:21.480 and so you know, I think the market is just 0:02:21.520 --> 0:02:24.440 trying to find this sequilibrium right now. And you know, again, 0:02:24.480 --> 0:02:27.240 I don't think this was big enough to really change 0:02:27.280 --> 0:02:30.520 sentiment all that much. If we would have printed you know, 0:02:30.560 --> 0:02:33.360 another point six on the headline and a point four 0:02:33.440 --> 0:02:35.519 on the core, then I could see much more of 0:02:35.880 --> 0:02:38.960 a market reaction here. But just given all the price 0:02:39.000 --> 0:02:42.000 action we've seen over the last two weeks, in some sense, 0:02:42.000 --> 0:02:43.839 it's not all that surprising to me. We haven't seen 0:02:43.840 --> 0:02:46.160 a bigger reaction this morning to this data. 0:02:46.240 --> 0:02:48.440 What it does highlight, though, is something that you and 0:02:48.680 --> 0:02:51.280 Sarah House have been speaking about for quite a while, 0:02:51.320 --> 0:02:53.720 which is the final mile and how difficult it is 0:02:53.720 --> 0:02:56.400 to get inflation back down to two percent. How much 0:02:56.440 --> 0:02:59.640 does this edify just how difficult that battle is, given 0:02:59.639 --> 0:03:03.120 the fact that we're seeing signs that goods inflation is 0:03:03.160 --> 0:03:04.120 starting to reignite. 0:03:05.080 --> 0:03:07.200 Yeah, So, I mean, you know, for us, it's you know, 0:03:07.200 --> 0:03:10.440 it boils down to services. Right, services represent more than 0:03:10.600 --> 0:03:13.359 sixty percent of the overall CPI. I mean, I don't 0:03:13.400 --> 0:03:15.920 know what, you know, the so called super core was 0:03:16.000 --> 0:03:19.480 this is services x housing. But that's been running, you know, 0:03:19.720 --> 0:03:21.920 we've been getting point four sort of numbers on that, 0:03:22.160 --> 0:03:24.639 and so that last mile to get us back down 0:03:24.720 --> 0:03:27.639 to two percent on a sustained basis, you know, that's 0:03:27.880 --> 0:03:30.120 that's tough, and that's why the FED is probably going 0:03:30.160 --> 0:03:33.400 to remain restrictive, you know, for quite some time to 0:03:33.440 --> 0:03:35.840 make sure that that does come down. And so what 0:03:35.880 --> 0:03:37.400 you have to do is you have to have and 0:03:37.560 --> 0:03:40.200 they said this in the minutes of the FMC minutes 0:03:40.200 --> 0:03:43.560 the other day, you have to have subtrend growth for 0:03:43.680 --> 0:03:46.760 a while to bring that down to two percent. And 0:03:46.880 --> 0:03:48.720 I'm afraid that's what we're going to be looking at 0:03:48.760 --> 0:03:51.960 over the next few quarters, is kind of subtrend economic growth. 0:03:52.520 --> 0:03:54.880 The report also talks about the increase in the gasoline 0:03:54.920 --> 0:03:58.200 index as a major contributor to the rise. How difficult 0:03:58.240 --> 0:04:02.320 does the current geopolitical environment make the fact that this 0:04:02.520 --> 0:04:06.080 gasoline index potentially has potential to continue to rise to 0:04:06.200 --> 0:04:08.120 make this two percent even that much harder? 0:04:09.080 --> 0:04:10.839 Yeah, I mean, it's interesting and if you look at 0:04:10.920 --> 0:04:13.120 you know, if you look what's happened since let's call 0:04:13.160 --> 0:04:16.240 it late September, so gasoline prices have actually come down 0:04:16.440 --> 0:04:19.559 pretty significantly, like in the you know, fifteen twenty cents 0:04:19.560 --> 0:04:21.360 a gallon or something like that. You know, what's going 0:04:21.400 --> 0:04:24.040 on right now in the Middle East will probably stop 0:04:24.160 --> 0:04:28.200 that decline right there. And if things obviously heat up 0:04:28.279 --> 0:04:30.600 over in the Middle East and you start talking about 0:04:30.839 --> 0:04:34.240 you know, potentially a ran going offline in terms of 0:04:34.440 --> 0:04:36.719 you know, pumping three million or so barrels a day, 0:04:37.040 --> 0:04:40.400 then that's obviously going to put upward pressure on oil prices, 0:04:40.480 --> 0:04:43.279 and that would arrest that downward trend that we've seen 0:04:43.320 --> 0:04:45.200 at least in the last two weeks in terms of 0:04:45.240 --> 0:04:46.159 gasoline prices. 0:04:46.400 --> 0:04:49.839 Do you start to consider that and put that into 0:04:50.040 --> 0:04:53.359 how you were thinking about the next year or so. 0:04:53.360 --> 0:04:55.240 So, I guess what I would the way I would 0:04:55.320 --> 0:04:58.920 characterize that to our inflation forecast is it's an upside risk. 0:04:59.160 --> 0:05:02.160 I mean, at this point, just given out how fluid 0:05:02.200 --> 0:05:04.320 that situation in the Middle East is, I don't know 0:05:04.320 --> 0:05:07.160 if we would necessarily try to factor that in right now, 0:05:07.240 --> 0:05:08.880 and so you know, we would come up with some 0:05:08.880 --> 0:05:11.279 sort of point estimate in terms of our view in 0:05:11.360 --> 0:05:14.599 terms of inflation over the coming year or so, and 0:05:14.640 --> 0:05:16.320 we would say, well, maybe the risk are a little 0:05:16.320 --> 0:05:19.040 bit skewed to the upside here, and so we'll just 0:05:19.120 --> 0:05:21.200 have to keep an eye on what's going on over there. 0:05:21.480 --> 0:05:24.760 But keep in mind that gasoline itself represents a pretty 0:05:24.800 --> 0:05:27.000 small part of the CPI. I think it's only like 0:05:27.240 --> 0:05:30.080 six percent or something like that. It's pretty small, and 0:05:30.120 --> 0:05:32.320 so you'd have to have see, you know, pretty significantly 0:05:32.360 --> 0:05:35.400 increase in gasoline prices that were sustained to have you know, 0:05:35.520 --> 0:05:38.240 a lasting impact on the overall rate of inflation. 0:05:38.520 --> 0:05:40.480 Jay Bryce And and Wells Fargo, thank you so much for 0:05:40.520 --> 0:05:41.080 being with us. 0:05:41.080 --> 0:05:41.320 If we. 0:05:45.839 --> 0:05:47.839 Do want to parse through what the response has been 0:05:47.920 --> 0:05:50.240 to the CPI report, joining us now, David Kelly, chief 0:05:50.240 --> 0:05:52.359 Global strategist at JPMorgan Asset Management. 0:05:52.560 --> 0:05:53.480 I just would love to get your. 0:05:53.400 --> 0:05:57.240 Thoughts, David, on whether the CPI, the PPI coming in 0:05:57.279 --> 0:06:01.200 hotter than expected, moves the needle anywhere on your radar, 0:06:01.320 --> 0:06:02.119 even just a touch. 0:06:04.120 --> 0:06:04.680 Not really. 0:06:04.960 --> 0:06:06.960 First of all, on the CPI, I think it was 0:06:07.120 --> 0:06:10.640 close to being exactly on expectations. The one thing that 0:06:10.720 --> 0:06:14.480 seemed to be stronger than people that expected was hotels. 0:06:14.800 --> 0:06:18.480 Hotel rates had fallen a very sharp three point six 0:06:18.560 --> 0:06:21.279 percent in the prior month, they jumped four point two 0:06:21.279 --> 0:06:23.680 percent this month, and that was one of the things 0:06:23.680 --> 0:06:26.600 to push up shelter costs, And if you take that out, 0:06:26.680 --> 0:06:30.159 there's really not much else going on here. Meanwhile, we're 0:06:30.160 --> 0:06:32.640 looking very closely at the price of gasoline, because what's 0:06:32.680 --> 0:06:35.039 happening is, even though crude oil prices are holding in 0:06:35.040 --> 0:06:39.000 at fairly high levels, we've seen refiner margins come crashing down. 0:06:39.400 --> 0:06:41.000 And so the price of a gallon of gasoline is 0:06:41.000 --> 0:06:43.239 now nineteen cents lower than it was a month ago, 0:06:43.560 --> 0:06:45.760 and so I think that bodes well for a better 0:06:45.839 --> 0:06:48.520 reading for October CPI. So right now, I think we're 0:06:48.560 --> 0:06:51.120 still on track. I think we're on track for CPFF 0:06:51.880 --> 0:06:54.200 year of a year headline CPI being at two percent 0:06:54.320 --> 0:06:56.400 or less in the fourth quart of next year, and 0:06:56.440 --> 0:06:58.960 the consumption to fasier also being a two percent or 0:06:59.080 --> 0:07:01.039 less by the four court of next year, and that's 0:07:01.040 --> 0:07:04.080 one year ahead of the FEDCE target, and that's you know, 0:07:04.120 --> 0:07:06.600 so overall, this report makes me really, you know, I'm 0:07:06.600 --> 0:07:09.760 still very optimistic that inflation is coming down and meanwhile, 0:07:09.800 --> 0:07:11.920 we do have these other issues. We do we have 0:07:12.000 --> 0:07:16.680 this expanding UAW strike. I think the continued sort of 0:07:16.760 --> 0:07:19.720 chaos in Washington makes it quite possible that we'll have 0:07:19.720 --> 0:07:23.360 a government shutdown in November. So I think there are 0:07:23.760 --> 0:07:26.320 you know, there's still plenty of weights on the economy here, 0:07:26.440 --> 0:07:28.240 and certainly when I look at inflation, I still think 0:07:28.280 --> 0:07:28.920 it's coming down. 0:07:29.360 --> 0:07:31.200 When you look at this report, though very much so 0:07:31.360 --> 0:07:34.320 feels like status quo. How much harder is it going 0:07:34.360 --> 0:07:36.000 to be to get to that two percent? 0:07:37.040 --> 0:07:38.400 Well, I don't think it's going to be that hard. 0:07:38.400 --> 0:07:39.920 I mean, it's a lot of this has to do 0:07:40.000 --> 0:07:42.960 with year over year changes and basis. So if you 0:07:43.000 --> 0:07:45.920 look at the core CPI, it came down from four 0:07:45.920 --> 0:07:48.320 point four percent year over year to four point one percent, 0:07:48.520 --> 0:07:50.520 and actually Core is going to keep on coming down 0:07:51.120 --> 0:07:54.160 over the next next few months. And then you know, 0:07:54.200 --> 0:07:56.880 as I said, I think the energy story is gradually 0:07:56.880 --> 0:07:59.920 getting better. I think the economy will grow more slowly 0:08:00.160 --> 0:08:03.720 in the fourth quarter and next year. So and then 0:08:03.760 --> 0:08:06.080 the last thing is shelter. We know that that owners 0:08:06.080 --> 0:08:10.240 equivalent to rent actual rents. As the government reports some 0:08:10.440 --> 0:08:14.400 lag reality on the ground when it comes to negotiated rents, 0:08:14.720 --> 0:08:17.200 and we're not seeing any increase going on in the 0:08:17.240 --> 0:08:19.560 actual rental market. We're not seeing any increase going on 0:08:19.640 --> 0:08:23.480 in actual new car prices since the start of this year. 0:08:23.560 --> 0:08:25.920 So we think that that will all tend to push 0:08:25.920 --> 0:08:29.600 away at transportation or cutaway at transportation services and at 0:08:29.640 --> 0:08:32.480 shelter costs. And that's really where our forecast of two 0:08:32.520 --> 0:08:34.560 percent inflation by the end of next year is coming from. 0:08:34.679 --> 0:08:37.280 Does that make you bullish or bearish? 0:08:38.160 --> 0:08:40.160 Siting BULLETSH I think I think you have to pick 0:08:40.160 --> 0:08:43.520 and choose here. The overall US equity market's not cheap, 0:08:44.360 --> 0:08:48.000 but it's very bifurcated between those top ten stocks, a 0:08:48.040 --> 0:08:50.520 top seven stocks, and everything else. The rest of the 0:08:50.559 --> 0:08:53.080 market is looking like pretty good value here. I would 0:08:53.080 --> 0:08:55.319 also say the bond market's pretty good value here. I mean, 0:08:55.400 --> 0:08:58.680 if I'm right, then inflation gets down to two percent, 0:08:59.320 --> 0:09:01.280 then a ten your treasury at about four and a 0:09:01.320 --> 0:09:03.719 half percent sounds about right, and we actually could get 0:09:03.720 --> 0:09:06.599 a little bit of a capital gain when inevitably we 0:09:06.720 --> 0:09:08.840 trip into recession at some stage in the next year 0:09:08.920 --> 0:09:09.200 or two. 0:09:09.360 --> 0:09:11.679 We've been trying to wrapperhead around some of the whipsaw 0:09:11.720 --> 0:09:13.800 action that we've seen in ten year treasure yields and 0:09:13.840 --> 0:09:17.360 thirty year treasure yields. We've had softer than expected auctions 0:09:17.440 --> 0:09:19.240 yesterday the ten year, today we have one of the 0:09:19.280 --> 0:09:21.920 thirty year. There's been a question of how much is 0:09:22.000 --> 0:09:25.160 technical and how much is a larger lack of certainty 0:09:25.200 --> 0:09:27.920 about what the ultimate inflation paradigm is going to look like. 0:09:28.000 --> 0:09:30.880 Not to mention fiscal from your vantage point, does this 0:09:30.960 --> 0:09:34.640 volatility make this market less investible or more investible? 0:09:35.720 --> 0:09:38.920 Well, it's disconcerting, of course for investors, But if you're 0:09:38.920 --> 0:09:40.680 a long term investor, just look at the prices and 0:09:40.679 --> 0:09:43.840 don't worry about the day to day action because a 0:09:43.840 --> 0:09:45.880 lot of this is whipsaw, as you say, but over 0:09:45.880 --> 0:09:48.640 the course of a year, or two years or ten years, 0:09:49.520 --> 0:09:52.640 it'll diminish. I do think that there is something important 0:09:52.640 --> 0:09:54.280 going on the fiscal side, and we just got the 0:09:54.280 --> 0:09:58.680 Congressional Budget Office numbers on their estimates on the budget 0:09:58.720 --> 0:10:02.520 deficit on Monday even and it looks like this fiscal 0:10:02.600 --> 0:10:05.080 year or last fiscal year came in at one point 0:10:05.120 --> 0:10:08.080 seven trillion dollars. This fiscal year probably about two trillion dollars. 0:10:08.320 --> 0:10:12.360 You add in the fact that the FED is returning 0:10:12.400 --> 0:10:15.240 bonds to the market, and the federal government is having 0:10:15.320 --> 0:10:17.480 to borrow about two and a half to three trillion 0:10:17.520 --> 0:10:20.960 dollars every year from global public capital markets, and that 0:10:21.080 --> 0:10:25.079 is an enormous lift. And that does suggest that when 0:10:25.160 --> 0:10:27.120 long term deals come down, they're not going to come 0:10:27.160 --> 0:10:29.640 down to you know, one percent or two percent. So 0:10:29.679 --> 0:10:32.320 there is a floor to how low long term bonds 0:10:32.360 --> 0:10:33.760 can come down. So what I'd say is, you know, 0:10:33.840 --> 0:10:38.319 buy bonds for income, buy them far to diversify your portfolio, 0:10:38.760 --> 0:10:40.840 but don't expect a big capital gain from bonds, because 0:10:40.880 --> 0:10:42.800 I think there is a limit to how far rates 0:10:42.840 --> 0:10:45.280 could fall given how much the government has to borrow. 0:10:45.640 --> 0:10:47.360 When you look at the fiscal trajectory though of the 0:10:47.400 --> 0:10:49.160 United States, you see a lot of the dysfunction that 0:10:49.200 --> 0:10:52.200 goes on in Washington. The fighting is about a very 0:10:52.240 --> 0:10:55.880 small sliver of the US budget. Is can we ever 0:10:55.920 --> 0:10:58.199 really deal with the fiscal health of the United States 0:10:58.280 --> 0:11:00.720 until we start looking at the defense budget or things 0:11:00.720 --> 0:11:03.480 like entitlements, these mandatory spending measures. 0:11:03.800 --> 0:11:05.600 Well, it's not just on the spending side, it's also 0:11:05.600 --> 0:11:07.840 on the tax side. I mean, the reason we have 0:11:07.880 --> 0:11:11.400 big budget deficits today is because we had two huge 0:11:11.440 --> 0:11:14.320 wars over a very long period. We had two major 0:11:14.400 --> 0:11:17.600 tax cuts, one of them which was extended, and we've 0:11:17.600 --> 0:11:20.560 had and we've had a pandemic and a global financial 0:11:20.600 --> 0:11:22.400 crisis in which the government has poured money at the 0:11:22.400 --> 0:11:24.920 problem and we didn't pay for any of it. The 0:11:25.000 --> 0:11:28.280 reason of the big budget deficits is because politicians treat 0:11:28.360 --> 0:11:33.080 us like children, and we accept it. So I completely 0:11:33.120 --> 0:11:34.800 agree with you that what they're talking about today is 0:11:34.800 --> 0:11:37.800 just complete sideshow. You can't deal with the budget deficit 0:11:37.800 --> 0:11:41.400 without either raising taxes or cutting defense, Medicare and Medicaid 0:11:41.920 --> 0:11:45.480 and social security or both. You simply can't. And we 0:11:45.480 --> 0:11:47.839 need to have these tough discussions, but I don't expect 0:11:47.880 --> 0:11:49.959 that anytime soon. So I think we will be looking 0:11:50.000 --> 0:11:54.200 at rising deficits or rising debt and very high deficits 0:11:54.200 --> 0:11:55.040 for many years to come. 0:11:55.360 --> 0:11:57.840 David Kelly of JP Morgan Asse Management, thank you so much. 0:12:08.440 --> 0:12:11.280 There is this question of whether this is enough of 0:12:11.320 --> 0:12:16.040 a disinflationary effect to really give people confidence that inflation 0:12:16.240 --> 0:12:18.439 and the disinflation that we're seeing now is more than 0:12:18.480 --> 0:12:21.280 just transitory. J. Brice and over at Wells Fargo chief 0:12:21.280 --> 0:12:24.400 economists there joining us. Now, what's your thought just now 0:12:24.440 --> 0:12:26.720 to start with Jay on what we just saw in 0:12:26.760 --> 0:12:28.640 the CPI print that did come in just a bit 0:12:28.679 --> 0:12:29.520 hotter than expected. 0:12:30.800 --> 0:12:32.800 Yeah, Lisa, I mean, I'll use a phrase here, and 0:12:32.840 --> 0:12:34.760 I think John is probably familiar with it. You know, 0:12:34.800 --> 0:12:37.920 this was kind of a damp squib. It's kind of right. 0:12:38.000 --> 0:12:39.920 I mean, I don't think it's going to change anybody's 0:12:40.000 --> 0:12:42.000 view of what's going on in the economy. I don't 0:12:42.040 --> 0:12:44.600 think it changes anyone's view, you know, at the Federal 0:12:44.600 --> 0:12:48.320 Reserve about this. I think it you know, maybe in general, 0:12:48.320 --> 0:12:50.720 it kind of keeps them in play. It keeps the 0:12:50.760 --> 0:12:54.559 possibility of another rate hike, probably not at November, maybe 0:12:54.600 --> 0:12:57.760 December alive. But in general, it's it's kind of what 0:12:58.120 --> 0:13:00.000 I think most of us kind of assumed was going 0:13:00.200 --> 0:13:00.559 to happen. 0:13:01.120 --> 0:13:02.800 Damn squid. I actually had to look it up. 0:13:02.920 --> 0:13:04.679 It means an event that is not as exciting or 0:13:04.720 --> 0:13:07.360 popular as people thought it would be. I'm curious, though, Jay, 0:13:07.360 --> 0:13:09.600 the fact that we got an upside surprise with PPI 0:13:09.760 --> 0:13:13.560 yesterday and the smallest of upside surprises on CPI, now, 0:13:13.600 --> 0:13:15.880 are you surprised we're not seeing more of a reaction 0:13:15.960 --> 0:13:18.880 in markets that if I'm responding to winds blowing in 0:13:18.960 --> 0:13:20.720 another room over the past couple. 0:13:20.559 --> 0:13:24.200 Of days, well, you know, as you know, and we 0:13:24.280 --> 0:13:26.680 had just a tremendous backup in yields so over the 0:13:26.760 --> 0:13:29.880 last few weeks here, and so you know, I think 0:13:29.920 --> 0:13:32.640 the market is just trying to find a sequilibrium right now. 0:13:32.720 --> 0:13:34.600 And you know, again, I don't think this was big 0:13:34.720 --> 0:13:37.760 enough to really change sentiment all that much. You know, 0:13:38.200 --> 0:13:40.679 if we would have printed you know, another point six 0:13:40.760 --> 0:13:43.400 on the headline and a point four on the core, 0:13:43.520 --> 0:13:46.640 then I could see much more of a market reaction here. 0:13:46.640 --> 0:13:49.000 But just given all the price action we've seen over 0:13:49.040 --> 0:13:51.600 the last two weeks, in some sense, it's not all 0:13:51.600 --> 0:13:53.680 that surprising to me. We haven't seen a bigger reaction 0:13:53.760 --> 0:13:55.280 this morning to this data. 0:13:55.360 --> 0:13:57.559 What it does highlight, though, is something that you and 0:13:57.800 --> 0:14:00.400 Sarah House have been speaking about for quite a while, 0:14:00.440 --> 0:14:02.800 which is the final mile and how difficult it is 0:14:02.840 --> 0:14:05.520 to get inflation back down to two percent. How much 0:14:05.559 --> 0:14:08.800 does this edify just how difficult that battle is, given 0:14:08.800 --> 0:14:12.240 the fact that we're seeing signs that goods inflation is 0:14:12.280 --> 0:14:13.920 starting to reignite. 0:14:14.200 --> 0:14:16.320 Yeah, So, I mean, you know, for us, it's you know, 0:14:16.320 --> 0:14:19.560 it boils down to services, right, services represent more than 0:14:19.720 --> 0:14:22.480 sixty percent of the overall CPI. I mean, I don't 0:14:22.480 --> 0:14:25.040 know what, you know, the so called super core was 0:14:25.080 --> 0:14:28.600 this is service's x housing. But that's been running, you know, 0:14:28.640 --> 0:14:31.080 we've been getting point four sort of numbers on that. 0:14:31.280 --> 0:14:33.760 And so that last mile to get us back down 0:14:33.840 --> 0:14:36.760 to two percent on a sustained basis, you know, that's 0:14:37.000 --> 0:14:39.240 that's tough, and that's why the FED is probably going 0:14:39.280 --> 0:14:42.520 to remain restrictive, you know, for quite some time to 0:14:42.560 --> 0:14:44.920 make sure that that does come down. And so what 0:14:45.000 --> 0:14:46.480 you have to do is you have to have and 0:14:46.680 --> 0:14:49.320 they said this in the minutes of the FMC minutes 0:14:49.320 --> 0:14:52.680 the other day, you have to have subtrend growth for 0:14:52.800 --> 0:14:55.880 a while to bring that down to two percent. And 0:14:55.960 --> 0:14:57.880 I'm afraid that's what we're going to be looking at 0:14:57.880 --> 0:15:00.160 over the next few quarters is kind of subtrend and 0:15:00.200 --> 0:15:01.080 economic growth. 0:15:01.600 --> 0:15:03.960 The report also talks about the increase in the gasoline 0:15:04.040 --> 0:15:07.320 index as a major contributor to the rise. How difficult 0:15:07.360 --> 0:15:11.440 does the current geopolitical environment make the fact that this 0:15:11.600 --> 0:15:15.200 gasoline index potentially has potential to continue to rise to 0:15:15.320 --> 0:15:17.200 make this two percent even that much harder? 0:15:18.200 --> 0:15:19.920 Yeah, I mean it's interesting and if you look at 0:15:20.040 --> 0:15:22.240 you know, if you look what's happened since let's call 0:15:22.280 --> 0:15:25.320 it late September, so gasoline prices have actually come down 0:15:25.560 --> 0:15:28.720 pretty significantly, like in you know, fifteen twenty cents a 0:15:28.800 --> 0:15:30.640 gallon or something like that. You know, what's going on 0:15:30.760 --> 0:15:33.320 right now in the Middle East will probably stop that 0:15:34.640 --> 0:15:37.560 decline right there. And if things obviously heat up over 0:15:37.560 --> 0:15:40.160 in the Middle East and you start talking about you know, 0:15:40.240 --> 0:15:43.720 potentially a ran going offline in terms of you know, 0:15:43.760 --> 0:15:46.520 pumping three million or so barrels a day, then that's 0:15:46.560 --> 0:15:49.680 obviously going to put upward pressure on oil prices, and 0:15:49.720 --> 0:15:52.520 that would arrest that downward trend that we've seen at 0:15:52.600 --> 0:15:55.280 least in the last two weeks in terms of gasoline prices. 0:15:55.520 --> 0:15:58.960 Do you start to consider that and put that into 0:15:59.160 --> 0:16:02.480 how you were thinking about out the next year or so. 0:16:02.480 --> 0:16:04.360 So I guess what I would the way I would 0:16:04.400 --> 0:16:08.040 characterize that to our inflation forecast is it's an upside risk. 0:16:08.280 --> 0:16:11.280 I mean at this point, just given out how fluid 0:16:11.280 --> 0:16:13.400 that situation in the Middle East is, I don't know 0:16:13.440 --> 0:16:16.280 if we would necessarily try to factor that in right now. 0:16:16.360 --> 0:16:17.960 And so you know, we would come up with some 0:16:18.000 --> 0:16:20.360 sort of point estimate in terms of our view in 0:16:20.440 --> 0:16:22.840 terms of inflation over the coming you know, year or so, 0:16:23.520 --> 0:16:25.200 and we would say, well, maybe the risk are a 0:16:25.240 --> 0:16:28.120 little bit skewed to the upside here, and so we'll 0:16:28.120 --> 0:16:29.600 just have to keep an eye on what's going on 0:16:29.720 --> 0:16:33.480 over there. But keep in mind that gasoline itself represents 0:16:33.520 --> 0:16:35.280 a pretty small part of the of the CPI. I 0:16:35.280 --> 0:16:38.040 think it's only like six percent or something like that. 0:16:38.080 --> 0:16:40.160 It's pretty small, and so you'd have to have see, 0:16:40.280 --> 0:16:43.040 you know, pretty significant increase in gasoline prices that were 0:16:43.040 --> 0:16:45.880 sustained to have you know, a lasting impact on the 0:16:45.960 --> 0:16:47.360 overall rate of inflation. 0:16:47.640 --> 0:16:49.600 Jay Bryce and Wells Fargo, thank you so much for 0:16:49.640 --> 0:16:50.400 being with us. 0:16:54.320 --> 0:16:56.400 With this around the table. And please to say Michael Shaw, 0:16:56.560 --> 0:17:00.040 CEO of market Field Asset Management. Morning, Michael, morning. And 0:17:00.080 --> 0:17:01.720 to go back to this Gympianco question I asked in 0:17:01.720 --> 0:17:03.480 the last Now, I think it's worth asking a view 0:17:03.520 --> 0:17:05.119 because I know your answer to it, so we can 0:17:05.160 --> 0:17:06.280 have a broader conversation about it. 0:17:06.320 --> 0:17:07.320 That's someone knows the answer. 0:17:07.440 --> 0:17:10.439 The disinflation we've seen over the last few months is 0:17:10.480 --> 0:17:11.200 that transitory? 0:17:11.680 --> 0:17:14.600 I think so? Yes, Why well, because I think you 0:17:14.680 --> 0:17:17.440 had this big, shocking COVID of excess demand and cons 0:17:18.240 --> 0:17:22.399 constricted supply, and that created a lot of took a 0:17:22.400 --> 0:17:24.679 long time, but it was transitory inflation. And now you 0:17:24.720 --> 0:17:27.080 have a sort of transitory deflation. And what you see 0:17:27.200 --> 0:17:29.800 is that end demand is still there for physical goods, 0:17:30.480 --> 0:17:33.200 and you've seen PPI start to spin around back into 0:17:33.240 --> 0:17:36.160 positive territory, and I think CPI will follow course. Now, 0:17:36.560 --> 0:17:38.280 I would stress it's not going to be a wave 0:17:38.480 --> 0:17:42.159 anything like as powerful as what we saw in twenty 0:17:42.200 --> 0:17:44.600 one twenty two, but I think it is going to 0:17:44.640 --> 0:17:47.399 stop CPI getting back into the twos and staying there. 0:17:47.440 --> 0:17:48.560 CPI is going to be sticky. 0:17:48.760 --> 0:17:50.320 Is it a mistake to sound like you might be 0:17:50.320 --> 0:17:51.679 done then at a further reserve? 0:17:53.640 --> 0:17:55.760 Well, I mean my view, I said it last time 0:17:55.800 --> 0:17:57.320 I was on it's really about the long end of 0:17:57.320 --> 0:17:59.040 the curve, not the short end of the curve. Now, 0:17:59.119 --> 0:18:01.359 the Father's sort of box itself into a corner. I 0:18:01.359 --> 0:18:03.560 don't really care if it stops at five fifty or 0:18:03.600 --> 0:18:06.520 five seventy five, because if you look at the range 0:18:06.560 --> 0:18:08.760 of long term yields, I mean, the tenure was at 0:18:08.760 --> 0:18:10.800 three point fifty in May and was knocking on five 0:18:10.840 --> 0:18:12.720 percent a couple of weeks ago, And you know, I 0:18:12.720 --> 0:18:15.760 think that that's really the question. I think the Feder's 0:18:15.840 --> 0:18:18.240 done what it's going to do in this monetary cycle. 0:18:18.840 --> 0:18:21.240 I think it's going to step away. I'm of a 0:18:21.320 --> 0:18:23.720 view that at some point in time we're not there yet, 0:18:23.800 --> 0:18:25.680 that you're going to see some form of yield curve 0:18:25.720 --> 0:18:30.080 control brought in to stabilize the bond market. But that's 0:18:30.359 --> 0:18:31.880 you know, that's not this week, that's not this. 0:18:31.840 --> 0:18:34.119 Weak hold on a second yield curve control in the 0:18:34.240 --> 0:18:36.879