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Speaker 1: This is Bloomberg surveillance. Some we have is we have

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Speaker 1: to address what happened if there is the Brexit, and

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Speaker 1: that is always the spelling weakness and downside. And it's

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Speaker 1: not until I start raising rates that you're gonna see

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Speaker 1: the your dollar curve. Excepting more of the fifth kids.

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Speaker 1: The Fed, I think has made clear that we should

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Speaker 1: expect a couple of interest rate increases this year, and

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Speaker 1: I don't think it's going to affect the real economy

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Speaker 1: very much at the stage. Bloomberg Surveillance your link to

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Speaker 1: the world of economics, finance, and investment on Bloomberg Radio

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Speaker 1: Burning everyone, Michael McKee and Tom Kinge. We welcome all

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Speaker 1: of you worldwide in coast to coast Bloomberg Surveillance on radio.

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Speaker 1: Good Morning, Bloomberg twelve Boston, Bloomberger LEVENSREO in New York,

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Speaker 1: FM Washington and Baltimore. Good very early morning out in

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Speaker 1: San Francisco, and of course all of you and serious

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Speaker 1: the next M Channel one nineteen across the nation, across Canada.

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Speaker 1: A remarkable day as a president closed out a Japan trip.

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Speaker 1: He is to Anchorage and then to Washington late tonight.

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Speaker 1: I believe about the ten o'clock hour, he will get

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Speaker 1: back to UH Andrews Air Force Base. We've got a

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Speaker 1: lot to talk about in economics, finance, international relations, first

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Speaker 1: of Bloomberg Surveillance. This morning brought you by Investco. Investco

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Speaker 1: believes it's time to say goodbye to the traditional sixty

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Speaker 1: four the stock bond allocation. Say hello to alternatives is

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Speaker 1: a core part of modern portfolios. Learn more at investco

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Speaker 1: dot com. Slash allts ten year yield one three percent.

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Speaker 1: A churn to the market in every way. Oil pulling

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Speaker 1: back a little bit. Brent crude forty nine barrel away

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Speaker 1: from the fifty dollar level. But that's what you see

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Speaker 1: within a churn on a Friday before a three day weekend.

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Speaker 1: We've been recalibrating through the morning with James Sweeney of

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Speaker 1: Credit Sweets, and he joins us UH to continue the

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Speaker 1: discussion right now. Share Yelling will speak at Harvard. It's

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Speaker 1: an odd conversation with Greg me and Q. I guess

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Speaker 1: it's gonna be nostalgic. Can talk about her economics. Remind

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Speaker 1: me what Janet Yelling economics is. Um. I think Janet

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Speaker 1: Yelling economics is a focus on the labor market and

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Speaker 1: I think it's it's the it's the orthodox monetary policy

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Speaker 1: of inflation targeting. But but I think the core thing

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Speaker 1: in her history and her work is a deep understanding

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Speaker 1: of the labor market, and she has a sense of

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Speaker 1: the distribution of of jobs and income and what's great

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Speaker 1: about it. When she talks labor James Sweeney, she switches

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Speaker 1: to her Brooklyn accent, and you really here that Brooklyn

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Speaker 1: when Shary Jones speaks, I'm slacking the economy of that

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Speaker 1: his She had to amend her economics from a one

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Speaker 1: America labor analysis to at least a bimodal inequality of

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Speaker 1: income and wealth analysis. Yeah, I think she had well, amn,

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Speaker 1: I don't know, Maybe that's a strong word. I'm not

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Speaker 1: sure that hasn't been there all along um in her work.

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Speaker 1: I think if she's amended her work, it's it's uh

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Speaker 1: as FED chair and central banker to the world and

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Speaker 1: to the financial markets. It's understanding the interplay of the

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Speaker 1: global risks and the US labor market dynamics, which which

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Speaker 1: are still quite fluid. Made a lot of progress, but

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Speaker 1: you know, these distribution issues really matter. Dean Mackie has

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Speaker 1: got a vector of unemployment to four point zero percent.

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Speaker 1: Do you have a vector of unemployment down to a

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Speaker 1: level we can't imagine. I think it's been following by

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Speaker 1: eighty five basis points a year since two thousand nine.

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Speaker 1: So at five percent, now, I think that I think

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Speaker 1: it's gonna slow. I I think I think that the

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Speaker 1: rate of decline is gonna slow. So we see it

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Speaker 1: kind of two years from now in the in the

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Speaker 1: four and a half kind of fourth. Why are we

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Speaker 1: so miserable with the sub five percent unemployment rate? Considered

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Speaker 1: it because we have slow productivity growth, and we have

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Speaker 1: um and and and we have this this income distribution issue,

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Speaker 1: and the income distribution issue is is interesting because now

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Speaker 1: we have wages rising, and wages have been rising at

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Speaker 1: the bottom end in sectors like retail and leisure and hospitals.

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Speaker 1: Let's clarify, that's the Economic Policy Institute. They've been rising

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Speaker 1: at the bottom end and for the x percent at

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Speaker 1: the top end. Yeah, well, I mean I'm talking about

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Speaker 1: within the sector by sector data, not cross the income

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Speaker 1: distribution necessarily. So if you look by sector retail, leisure,

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Speaker 1: most hotels, restaurants, there's fifteen hour jobs, and you you've

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Speaker 1: had some okay wage gains, and you have lots of

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Speaker 1: anecdotes that firms are having having a little bit of

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Speaker 1: trouble hiring for the first time in a while, higher

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Speaker 1: higher income jobs when you're looking at the whole economy,

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Speaker 1: not focusing on the one percent, things like healthcare, things

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Speaker 1: like finance, even manufacturing, and that that's actually been a

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Speaker 1: little bit shoppier recently. So there's always, you know, there's

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Speaker 1: always churn in that, even within this secular thing of

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Speaker 1: high income growth at the very top and very staggering

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Speaker 1: income at the very bottom cycle and it's a long

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Speaker 1: term turn. Every listener globally, every listener crosses nation goes

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Speaker 1: into a three day Memorial weekend in awe of our

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Speaker 1: political process. Everybody can agree that that interesting discourse is

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Speaker 1: outrage over politics and outrage over it's the economy stupid.

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Speaker 1: Will that outrage continue to November and frankly beyond beyond,

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Speaker 1: I mean, how could it not? I think it definitely will.

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Speaker 1: But um but what I find interesting is how the

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Speaker 1: politics often lag the underlying economic forces. And in my view,

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Speaker 1: the the distribution shock, where you know, maybe the bottom

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Speaker 1: portion of the of the income distribution was was not

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Speaker 1: really growing as well. As the overall pie um that's

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Speaker 1: actually now starting to shift. But if you're getting a

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Speaker 1: small wage increase when you have a low level of

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Speaker 1: income while other people have much higher incomes, you're still

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Speaker 1: gonna be angry. So actually the problem is is slowly

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Speaker 1: getting better. Um, but I think people are still quite

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Speaker 1: upset because of the extent that's gotten. To Bloomberg Savannas

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Speaker 1: on a Friday, James Sweeney with Credit Sweets, a lot

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Speaker 1: of other good guests coming up, sort of a we're

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Speaker 1: to slide into the weekend with some thought and bigger

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Speaker 1: thought on where we are. Let's revisit the inflation called

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Speaker 1: Cleveland cp I, which is my favor, always shows a

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Speaker 1: more elevated inflation. The FED looks at pc E. What's

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Speaker 1: the divide between modern inflation series like Dallas or Cleveland

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Speaker 1: and something who's orthodox is the PC inflation measurement? Well,

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Speaker 1: I mean there's trimmed means, there's medians, um, there's you

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Speaker 1: know PC which which has a little bit of greater

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Speaker 1: UH influence from different different categories healthcare in particular, but

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Speaker 1: basically they're all at two percent. I mean I I

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Speaker 1: regard this as two percent inflation core C p I

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Speaker 1: a little bit above to the trimmed me and median

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Speaker 1: measures are kind of two to two and a half.

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Speaker 1: Core PC is at one point six one point seven.

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Speaker 1: This is two percent inflation. It's fine, it's it's on trend.

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Speaker 1: And where are you and Neil Sauce and your team

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Speaker 1: on the idea that if we overshoot inflation? All of

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Speaker 1: us would suggest if we goose price change, does any

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Speaker 1: of that benefit fall over to real economic growth um,

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Speaker 1: particularly in a modern open economy, A lot of other adjustments,

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Speaker 1: and not necessarily I think, in in a short term perspective, perhaps,

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Speaker 1: But if you think that overshooting inflation later leads to

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Speaker 1: tighter policy, I think the risk is that after this

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Speaker 1: search for yield trade and really market searching for any

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Speaker 1: yields you can get, and and such complacency and markets

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Speaker 1: in terms of where interest rates can go, the risk

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Speaker 1: is that if you run inflation higher than two percent

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Speaker 1: for a while and then it starts shooting up, then

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Speaker 1: you have to start saying, well, maybe we need a

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Speaker 1: three percent, four percent, five percent interest rate. And that's

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Speaker 1: the kind of shock that ironically could really send the

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Speaker 1: economy back into a tailspan. So I think it's better

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Speaker 1: to just be steady and to keep it it too.

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Speaker 1: Help me here, and this goes back to your LC worked.

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Speaker 1: I saw a movie recently and there's Winston Churchill sitting

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Speaker 1: with Clement Atlee. I think it's in the late forties.

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Speaker 1: I can't remember the exact period, but Churchill's completely behind

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Speaker 1: the modern discourse of the United Kingdom at that time.

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Speaker 1: How we we just interview with Stillman his wonderful new movie,

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Speaker 1: Loving Friendship and his relationship with Amazon. There's all this

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Speaker 1: innovation going on around digital media and the computer space.

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Speaker 1: Is a general statement, Are we too pessimistic because we

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Speaker 1: can't catch up with the speed of innovation right now? Well,

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Speaker 1: I think the innovations are creating a lot of change,

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Speaker 1: and that change is leading to insecurity, and it's disrupting businesses,

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Speaker 1: it's disrupting lifestyles, but ultimately, this is how it works.

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Speaker 1: Is it disrupting our read of productivity? Oh? Yeah, I think,

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Speaker 1: But we never had a good We've never had a

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Speaker 1: good rate of productivity. And you know, I mean, I

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Speaker 1: think you know you read Robert Gordon's work. It's it's

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Speaker 1: just obvious that the our living standards were changing at

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Speaker 1: such a rapid rate a hundred years ago, and now

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Speaker 1: they're not changing at such a rapid rate because because

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Speaker 1: the innovations are clustered in a smaller set of technology

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Speaker 1: than pipes and all the things that were we were

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Speaker 1: getting then. But I think innovation now is probably a

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Speaker 1: little more dynamic than it was in the nineties for example.

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Speaker 1: So you know, productivity measures, long run productivity measures I

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Speaker 1: think can be very problematic if we if we're going

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Speaker 1: to use them to tell us how living standards are going,

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Speaker 1: and these things to me, to me, there's almost and

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Speaker 1: a conceptual inflation where we're taking I mean GDP data,

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Speaker 1: we're using GDP data to tell us what living standards, productivity,

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Speaker 1: consumer surplus, utility, you know, all these things. What's the

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Speaker 1: sweet alternatives? Then to measure how we are who is

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Speaker 1: this going to be, Lord Layard? Are we going to

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Speaker 1: go into happiness year? No, we're not. We're but we're

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Speaker 1: gonna do that. But we're gonna we're gonna say a

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Speaker 1: you know, living standards. Well, let's you know, let's let's

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Speaker 1: be a little qualitative. Let's look at people's lives. I mean,

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Speaker 1: I read a book last year, um his History of

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Speaker 1: the of the nineteenth century and had a chapter on

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Speaker 1: labor markets. Uh, you're in oster hammil was was the office,

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Speaker 1: and and it said, well, nineteenth century labor markets. You

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Speaker 1: think they're gonna talk factories in Manchester or something. And

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Speaker 1: he says, well, actually, very few people in the world

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Speaker 1: we're working in factories. And if you happen to get

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Speaker 1: a job in a factory in the nineteenth century, the

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Speaker 1: first thing you noticed was you're the first person male

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Speaker 1: in the history of your family to be in the

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Speaker 1: factory to work inside. You've worked outside for all the history.

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Speaker 1: Now you can work inside. What happens to living standards

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Speaker 1: when you can actually work inside for the Let's come

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Speaker 1: back to James Sweeney of Credent Sweets from New York.

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Speaker 1: Bloomberg's surveillance just our surveillance, brought you by Volvo Cars,

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Speaker 1: White Planes. Visit Volvo Cars, White Planes dot Com. Here's

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Speaker 1: Michael Barr with news headlines. Thank you very much. President

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Speaker 1: Barack Obama says the world has shared the responsibility to

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Speaker 1: ask how to prevent the suffering that took place in

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Speaker 1: Hiroshima seventy years ago from happening again. President Obama spoke today,

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Speaker 1: I had a Roshima Peace Memorial Park in Japan, making

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Speaker 1: him the first US sitting president to visit the city

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Speaker 1: since the US drop the atomic bomb in n The

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Speaker 1: President then spoke briefly with some Hiroshima survivors. The chief

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Speaker 1: investigator in last week's egypt airplane crash says officials have

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Speaker 1: picked up a beacon in the Mediterranean that's believed to

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Speaker 1: be from the aircraft. All sixty six people on board

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Speaker 1: were killed when the plane was close to finishing its

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Speaker 1: flight from Paris to Cairo. Global News twenty four hours

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Speaker 1: a day, powered by our twenty four hundred journalists more

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Speaker 1: than a hundred fifty news bureaus around the world. On

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Speaker 1: Michael bar Like Tom, Thank you, Michael. We're looking at

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Speaker 1: an up day for the stock market, at least the

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Speaker 1: open SMP features up by two points, Dow futures by

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Speaker 1: seven and team. This is Bloomberg Radio Worldwide. Bloomberg Surveillance

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Speaker 1: is brought to you by a Bank of American Maryland.

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Speaker 1: Seeing what others have seen, but uncovering what others may not.

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Speaker 1: Dock Index futures are a little changed to hire this

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Speaker 1: morning as investors away to speech by Federal Reserve Chair

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Speaker 1: Janet Yellen SNP, even the future is up almost two

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Speaker 1: points and Dow we made a futures up seventeen. NASA

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Speaker 1: documity futures up eight that acts in Germany's up almost

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Speaker 1: two tenths per cent. Ten Your treasury little change held

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Speaker 1: one three percent. Ni Max screwed oil down nine tenths

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Speaker 1: per cent, or forty three cents to forty nine oh

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Speaker 1: five of barrel call mix s gool down a tenth

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Speaker 1: of upper cent or a dollar ten to twelve sixty,

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Speaker 1: announced the euro a dollar eleven seventy seven the end

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Speaker 1: one oh nine point six three as a Bloomberg business flash,

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Speaker 1: Tom and Mike caon Moscow, thank you very much. We're

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Speaker 1: talking with Paul Sweeney, the chief economistic critics see Securities

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Speaker 1: and Thomas asking about your view of inflation. Basically two

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Speaker 1: you were saying before the break, I'm just curious about, um,

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Speaker 1: are we seeing any pricing power as part of that?

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Speaker 1: For companies? We get the first look at corporate profits.

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Speaker 1: They're not expected to be great. They were terrible in

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Speaker 1: the fourth quarter in the GDP report today. And you

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Speaker 1: gotta wonder if companies. You mentioned earlier on Blueberg Surveillance

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Speaker 1: television that a lot of it is because the labor

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Speaker 1: share is rising, but our companies will be able to

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Speaker 1: make any of that up by passing along some of

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Speaker 1: their costs. Yeah, that's right, um, And we we have

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Speaker 1: we have seen margins come down, UM, which means so

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Speaker 1: far the evidence is that firms have not passed along

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Speaker 1: these the rising labor costs and you know, aggregate inflation.

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Speaker 1: As I said, it's been pretty steady really overall UM.

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Speaker 1: I think going forward, if we continue to see wage

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Speaker 1: growth acceleration, so we get average hourly wage growth up

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Speaker 1: kind of three or three and a half percent, I

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Speaker 1: think at that point in certain sectors like the restaurant sector,

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Speaker 1: will probably see a little bit faster inflation and a

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Speaker 1: little bit more passed through. But but so far, UM

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Speaker 1: not not a whole lot of that. It's it's eating

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Speaker 1: into margins. And and the thing you have to know

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Speaker 1: is is that margins and that profit share you know,

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Speaker 1: have been actually pretty strong for a while. So we

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Speaker 1: have high corporate offits so UM and and some of

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Speaker 1: that high corporate profits is related to at five seven

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Speaker 1: year period where labor is really cheap, interest rates are

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Speaker 1: really low, the mix of growth specifically was good for profits.

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Speaker 1: So there's a bunch of factors that have kept margins

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Speaker 1: a little bit wide. And I think now some of

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Speaker 1: those factors are going into reverse. They're coming in and

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Speaker 1: you know, pricing power would come along if you have

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Speaker 1: a lot of credit growth, you have a lot of

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Speaker 1: nominal income growth in the economy, UM, and you actually

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Speaker 1: have an inflation problem. My view is that the FED

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Speaker 1: will be hiking interest rates as I see an economy

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Speaker 1: move into these type of full employment dynamics, and that

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Speaker 1: that will ultimately arrest any kind of upward um significant

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Speaker 1: upward drift in inflation beyond their at their two percent target. Well,

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Speaker 1: the big debate in economics is whether or not the

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Speaker 1: Phillips curve still holds. As unemployment against tighter, are we

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Speaker 1: going to see the inflation rise or is there a

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Speaker 1: new normal inning inflation. Has the Walmart we used to

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Speaker 1: call wal martization of the economy where the pressure is

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Speaker 1: always on the lower prices, always and everywhere, has that

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Speaker 1: become the new normal in economics? Well? I think I

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Speaker 1: think what the data show, what the literature show, is

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Speaker 1: that there is still Phillips curve. Um, it's just not

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Speaker 1: very steep. Which what does that mean? In English? It

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Speaker 1: means um, for a given fall in the unemployment rate,

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Speaker 1: you don't expect a very significant rise in inflation. And

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Speaker 1: in fact, um, the the old Phillips curve was about

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Speaker 1: the change in inflation versus the unemployment rate. It's it's

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Speaker 1: nowadays it's really more the level of inflation versus the

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Speaker 1: unemployment rate. UM. So you know, if if we keep

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Speaker 1: if we see unemployment continue to fall five, maybe we

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Speaker 1: have core inflation move a bit higher, but then policy

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Speaker 1: can adjust. And you know, it's all it's all just

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Speaker 1: part of the same thing. But you sneak in there

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Speaker 1: and I understand it's a geometry free Friday. But this

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Speaker 1: is critical. The percentage change, your first derivative movement of

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Speaker 1: price versus the level of price. Explain, particularly to Americans,

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Speaker 1: this is a very European centric idea. Why does the

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Speaker 1: level of inflation matter versus year over year? Well, because

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Speaker 1: the level is the is the target is the anchor

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Speaker 1: that monetary policy UH makers use to judge their interest

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Speaker 1: rate decisions. So they say a two percent inflation roughly

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Speaker 1: is is what they target, and it happens we're close

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Speaker 1: to that now. They also say that something like a

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Speaker 1: five percent unemployment rate is their is their target. Um,

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Speaker 1: so we're just about there now. Um. Janet Yellen has

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Speaker 1: said that the current you know, time varying neutral UH

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Speaker 1: policy rate, real policy rate is zero percent. That means

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Speaker 1: that nominal rate is one and a half two percent,

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Speaker 1: and in normal conditions, normal conditions, five percent unemployment, two

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Speaker 1: percent inflation, that's that's where we are. So that means

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Speaker 1: Johnny Yellen has told us through the lines that they

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Speaker 1: have about a hundred and fifty basis points of hikes

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Speaker 1: to do. Um if the economy is normal, and the

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Speaker 1: economy does actually seem normal, but there are these bigger

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Speaker 1: risks from the global Excuse me, then what are we

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Speaker 1: waiting for? Well, that's why they're talking about June and

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Speaker 1: July and and you know, the bond market has been

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Speaker 1: very reluctant to take on that orthodox monetary policy perspective. UM.

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Speaker 1: But you know, I can tell you in talking to

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Speaker 1: investors in the last six months, but I've talked to

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Speaker 1: someone who trades foreign exchange or interest rates, and and

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Speaker 1: they're really, really skeptical that you're gonna have a hiking cycle.

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Speaker 1: I talked to equity people and it was all here.

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Speaker 1: It was why not April? Why not? Why not June? Um,

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Speaker 1: we're gonna have high inflation. Right. So it's very different

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Speaker 1: perspectives depending on which market you you look at. But

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Speaker 1: I think people that focus on yields and focus on

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Speaker 1: exchange rates have watched the behavior of central banks lower

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Speaker 1: and lower and lower for so long that there's almost disbelief. Well,

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Speaker 1: you wonder how many of them remember a normal environments.

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Speaker 1: I mean, that's that's in itself an important point. That's true.

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Speaker 1: You okay over there, Michael, I'm let's just I'm listening

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Speaker 1: and learning and I I just you really wonder whatever

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Speaker 1: the and we you know, we don't have an opinion.

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Speaker 1: We just talked to smart people like James Sweeney, but

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Speaker 1: I wonder what the ramifications are of can they do it? Well?

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Speaker 1: We gotta we gotta run here. We gotta get you

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Speaker 1: back on whether it's a one or done. And you

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Speaker 1: can jaw bone. We're just going up once or by

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Speaker 1: any movement you imply a measured vector higher, which would

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Speaker 1: be two different market Reactually, James Sweeney, thank you so

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Speaker 1: much with credit Sweez greatly appreciate it. Uh this morning,

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Speaker 1: be careful with the you know the math today it's Friday,

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Speaker 1: but it's Friday holiday, you know. Agree, I got halfway

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Speaker 1: through the third period last night. Bloomberg Surveillance, your Stanley

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Speaker 1: cup network, West Texas Intermediate forty nine, oh a, Brent

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Speaker 1: crude forty nine. Even where does oil go from here?

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Speaker 1: And what does it mean for the economy? Daniel Jurgen

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Speaker 1: I h S coming up on surveyor