1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and a Marie Hortern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,560 Speaker 2: Bloomberg Terminal and the Bloomberg Business app to discuss EDGYR 10 00:00:37,640 --> 00:00:40,159 Speaker 2: Denny of Yard Denny Research joins us now for more 11 00:00:40,200 --> 00:00:42,680 Speaker 2: and welcome to the program Sir. Can this market, as 12 00:00:42,720 --> 00:00:45,280 Speaker 2: we've been discussed in have its cake and eat it too? 13 00:00:46,280 --> 00:00:50,080 Speaker 3: It's doing it right now. For sure. We've had a 14 00:00:50,200 --> 00:00:55,360 Speaker 3: very strong ballmarket really since October of twenty twenty two, 15 00:00:55,480 --> 00:00:59,040 Speaker 3: and really it hasn't stopped. We had a correction at 16 00:00:59,080 --> 00:01:03,960 Speaker 3: the beginning of the year related to uncertainty about Trump's 17 00:01:04,360 --> 00:01:10,800 Speaker 3: employment policies for the government with DOGE, and uncertainty about tariffs, 18 00:01:10,880 --> 00:01:14,440 Speaker 3: and so naturally, if you're an employer, you're going to 19 00:01:14,600 --> 00:01:18,520 Speaker 3: hold off on hiring and not necessarily fire anybody. And 20 00:01:18,560 --> 00:01:20,480 Speaker 3: so I think a lot of the soft patch, which 21 00:01:20,520 --> 00:01:23,600 Speaker 3: is I think what it's been is related to uncertainty. 22 00:01:23,640 --> 00:01:25,760 Speaker 3: And I think the markets are starting to conclude that, 23 00:01:25,840 --> 00:01:28,120 Speaker 3: you know what, uncertainty is going to be with us 24 00:01:28,160 --> 00:01:30,679 Speaker 3: here for a while, let's move on with our businesses. 25 00:01:31,200 --> 00:01:32,720 Speaker 3: And I think the economy is in. 26 00:01:32,680 --> 00:01:36,000 Speaker 2: Good shape at the Enthusiasm is starting to spread. Its 27 00:01:35,959 --> 00:01:39,199 Speaker 2: starting to spread beyond the big text story. Two days 28 00:01:39,480 --> 00:01:42,240 Speaker 2: of really decent days of gains for small caps. Now 29 00:01:42,280 --> 00:01:45,360 Speaker 2: at whenever this market market participants get a sniff of 30 00:01:45,360 --> 00:01:47,720 Speaker 2: out performance on a small caps the excitement starts to 31 00:01:47,720 --> 00:01:50,160 Speaker 2: build again. Is this another headfake called the real deal? 32 00:01:51,240 --> 00:01:53,600 Speaker 3: Well, you know, we've had lots of headshakes in that 33 00:01:53,720 --> 00:01:59,360 Speaker 3: regard really since twenty eighteen. Roughly around then, we did 34 00:01:59,400 --> 00:02:04,960 Speaker 3: see that midcaps consistently underperformed the large caps. The S 35 00:02:05,000 --> 00:02:07,360 Speaker 3: and P five hundred, I'm looking at the S and 36 00:02:07,400 --> 00:02:10,200 Speaker 3: P four hundred mid caps, S and P six hundred 37 00:02:10,240 --> 00:02:14,200 Speaker 3: small caps. They just kept underperforming. Every now and then 38 00:02:14,280 --> 00:02:17,240 Speaker 3: you'd get a head fake. And I won't be surprised 39 00:02:17,240 --> 00:02:19,760 Speaker 3: if this is another head fake. I'm not telling anybody 40 00:02:19,960 --> 00:02:23,200 Speaker 3: that it's not tradable. I think clearly it is tradable, 41 00:02:23,240 --> 00:02:26,080 Speaker 3: as previous head fakes have been, but they don't last 42 00:02:26,160 --> 00:02:29,480 Speaker 3: very long. And the reason is that earnings of this 43 00:02:29,760 --> 00:02:33,560 Speaker 3: small cap MidCap companies just continue to be in a coma. 44 00:02:33,639 --> 00:02:37,640 Speaker 3: They've been flatlining since twenty eighteen, and I think they're 45 00:02:37,680 --> 00:02:41,080 Speaker 3: doing that because the good ones keep getting bought out 46 00:02:42,120 --> 00:02:44,520 Speaker 3: by the large caps. So you never really get a 47 00:02:44,560 --> 00:02:47,640 Speaker 3: situation where you can buy a small cap and have 48 00:02:47,680 --> 00:02:49,760 Speaker 3: it turned into a Microsoft. 49 00:02:50,320 --> 00:02:52,280 Speaker 1: If the FED were to cup by fifty basis points 50 00:02:52,320 --> 00:02:54,359 Speaker 1: next month, would you change your view? Would you see 51 00:02:54,360 --> 00:02:55,760 Speaker 1: this as something other than a headfake? 52 00:02:57,560 --> 00:02:59,840 Speaker 3: Well, I think then I would just say we're in 53 00:02:59,840 --> 00:03:02,280 Speaker 3: a melt up I mean, it feels like a melt 54 00:03:02,360 --> 00:03:06,320 Speaker 3: up already. We've seen the correction at the early at 55 00:03:06,360 --> 00:03:08,880 Speaker 3: the beginning of the year. We've seen multiples go from 56 00:03:09,000 --> 00:03:11,839 Speaker 3: twenty two forward pe for the S and P five 57 00:03:11,919 --> 00:03:14,760 Speaker 3: hundred at the beginning of the year down to eighteen. 58 00:03:14,840 --> 00:03:17,119 Speaker 3: We didn't get down to fifteen. We didn't get down 59 00:03:17,160 --> 00:03:20,120 Speaker 3: to ten. The market figured out and kind of agreed 60 00:03:20,160 --> 00:03:22,240 Speaker 3: with me that the economy was resilient and we're not 61 00:03:22,280 --> 00:03:24,520 Speaker 3: going to have a recession. And when it did that 62 00:03:24,639 --> 00:03:28,680 Speaker 3: suddenly boom, we went right back up to twenty two, 63 00:03:28,720 --> 00:03:31,960 Speaker 3: and so the market ain't cheap. And the reality is 64 00:03:32,040 --> 00:03:34,519 Speaker 3: if the FED cuts when there's still, as you said, 65 00:03:34,520 --> 00:03:37,760 Speaker 3: a lot of ambiguity about whether it really needs a cut, 66 00:03:38,320 --> 00:03:41,880 Speaker 3: it doesn't really need a fifty basis point cutlet a 67 00:03:42,280 --> 00:03:45,600 Speaker 3: twenty five basis point cut. The administration needs interest rates 68 00:03:45,640 --> 00:03:47,480 Speaker 3: to come down because they'd like to see the interest 69 00:03:47,480 --> 00:03:50,240 Speaker 3: costs of the debt come down. But the economy I 70 00:03:50,240 --> 00:03:53,400 Speaker 3: think is going to surprise everybody in the next few months, 71 00:03:53,520 --> 00:03:56,960 Speaker 3: especially the consumer as you also indicated, and show some 72 00:03:57,040 --> 00:04:00,400 Speaker 3: resilience of the consumer part, and capital spend a lot 73 00:04:00,440 --> 00:04:03,000 Speaker 3: of this technology related that's going to continue to go. 74 00:04:03,640 --> 00:04:07,880 Speaker 3: So I think, you know, as the drums beat for 75 00:04:08,960 --> 00:04:11,200 Speaker 3: more rate cuts here, and we're probably now going to 76 00:04:11,240 --> 00:04:15,280 Speaker 3: get one in September, and then there'll be expectations for 77 00:04:15,320 --> 00:04:17,360 Speaker 3: another one after that before the end of the year. 78 00:04:17,800 --> 00:04:20,440 Speaker 3: I think we're in a melt up situation. So you know, 79 00:04:20,520 --> 00:04:22,360 Speaker 3: right now, I'm still kind of sticking to a sixty 80 00:04:22,400 --> 00:04:25,360 Speaker 3: six hundred and the s and P five hundred by 81 00:04:25,480 --> 00:04:27,960 Speaker 3: year end because I think there's still a couple of 82 00:04:28,240 --> 00:04:32,039 Speaker 3: indicators here that might suggest that maybe the FED shouldn't 83 00:04:32,040 --> 00:04:36,320 Speaker 3: be lowering rates, but absent that, we could go right 84 00:04:36,360 --> 00:04:39,120 Speaker 3: back to sixty nine hundred and seven thousand by the 85 00:04:39,200 --> 00:04:41,159 Speaker 3: end of the year in a melt up situation. And 86 00:04:41,480 --> 00:04:43,800 Speaker 3: the problem with melt ups is they're followed by meltdowns. 87 00:04:43,920 --> 00:04:45,400 Speaker 1: Well, that's where I wanted to go at. This is 88 00:04:45,440 --> 00:04:47,680 Speaker 1: something that you talked about a couple of months ago, 89 00:04:47,760 --> 00:04:49,920 Speaker 1: that you're worried if the FED cuts rates too much, 90 00:04:49,960 --> 00:04:51,599 Speaker 1: you could end up with a bubble, and that you 91 00:04:51,600 --> 00:04:54,320 Speaker 1: could end up with late nineteen nineties type scenario that 92 00:04:54,480 --> 00:04:57,640 Speaker 1: leads to the meltdown that you are referring to. How 93 00:04:57,680 --> 00:04:59,520 Speaker 1: close are we to that if we do get the 94 00:04:59,560 --> 00:05:02,120 Speaker 1: series rate cuts that the mark is currently pricing in. 95 00:05:02,960 --> 00:05:05,600 Speaker 3: Well, before we go there, let's also point out. Let 96 00:05:05,640 --> 00:05:08,600 Speaker 3: me also point out that at the end of last year, 97 00:05:09,080 --> 00:05:10,839 Speaker 3: I also felt that there was no need for the 98 00:05:10,880 --> 00:05:13,680 Speaker 3: Fed to lower interest rates, and I said that if 99 00:05:13,680 --> 00:05:16,800 Speaker 3: the Fed did lower interest rates, bondiles would go up. 100 00:05:17,320 --> 00:05:19,240 Speaker 3: Little did I know that the Fed would do one 101 00:05:19,320 --> 00:05:22,480 Speaker 3: hundred basis points all told at the end of last year. 102 00:05:22,520 --> 00:05:25,320 Speaker 3: And guess what the Bondi'll went up one hundred basis 103 00:05:25,360 --> 00:05:28,800 Speaker 3: points and frustrated all those people who want to see 104 00:05:28,839 --> 00:05:32,640 Speaker 3: mortgage rates come down and corporate corporate rates come down. 105 00:05:32,680 --> 00:05:36,760 Speaker 3: So the Fed ease, but the bond vigilantes tightened, and 106 00:05:36,800 --> 00:05:40,640 Speaker 3: we have that possibility again now. So just because the 107 00:05:40,640 --> 00:05:43,280 Speaker 3: Fed eases, let's watch what the bond market does. It 108 00:05:43,320 --> 00:05:47,120 Speaker 3: may not be very happy with the Fed moving to 109 00:05:47,200 --> 00:05:49,159 Speaker 3: lower interest rates when the Fed's been telling us for 110 00:05:49,160 --> 00:05:51,919 Speaker 3: a long time that they need to get their inflation 111 00:05:52,040 --> 00:05:54,599 Speaker 3: rate down to two percent, and right now it's closer 112 00:05:54,600 --> 00:05:58,360 Speaker 3: to three percent than two percent. But yeah, I mean, 113 00:05:58,440 --> 00:06:02,920 Speaker 3: a nineteen ninety style scenario is a possibility. I mean, 114 00:06:03,000 --> 00:06:06,800 Speaker 3: right now, AI looks like it's a much firmer footings 115 00:06:07,000 --> 00:06:10,279 Speaker 3: with earnings than we saw back in the tech wreck 116 00:06:10,360 --> 00:06:13,560 Speaker 3: that occurred in the late nineteen nineties early two thousands. 117 00:06:14,279 --> 00:06:17,320 Speaker 3: But you know, in this market, you never know. I mean, 118 00:06:17,360 --> 00:06:20,920 Speaker 3: deep Seek came out of nowhere in January and created 119 00:06:20,920 --> 00:06:22,480 Speaker 3: a pretty nasty correction. 120 00:06:22,400 --> 00:06:24,520 Speaker 2: Deep hoop, and then we bounced back pretty quickly, didn't 121 00:06:24,520 --> 00:06:26,200 Speaker 2: we had. That's a stock market. I want to tease 122 00:06:26,240 --> 00:06:28,280 Speaker 2: out what you just said about the bond market. Do 123 00:06:28,360 --> 00:06:30,479 Speaker 2: you see then a similar backdrop this time around to 124 00:06:30,520 --> 00:06:33,240 Speaker 2: what we saw take place back in September. 125 00:06:33,680 --> 00:06:37,520 Speaker 3: Unfortunately, I do. I think that the bond market is 126 00:06:37,560 --> 00:06:40,840 Speaker 3: not going to like the FED kind of caving into 127 00:06:41,000 --> 00:06:45,960 Speaker 3: a political pressure and easing I mean, you know, I 128 00:06:45,960 --> 00:06:49,000 Speaker 3: think a lot of FED officials are probably on the fence, 129 00:06:49,040 --> 00:06:52,000 Speaker 3: but they're getting pushed over to the easing side by 130 00:06:52,040 --> 00:06:55,000 Speaker 3: the political pressure. And that being the case, I think 131 00:06:55,040 --> 00:06:57,560 Speaker 3: the bond vigilantes, I mean, that's what the bond vigilantis 132 00:06:57,600 --> 00:06:59,520 Speaker 3: are supposed to do. They're supposed to maintain law and 133 00:06:59,640 --> 00:07:02,880 Speaker 3: order in the credit markets and in the financial markets 134 00:07:02,880 --> 00:07:06,400 Speaker 3: and the economy. If the sheriff decides to go out 135 00:07:06,400 --> 00:07:07,000 Speaker 3: of the saloon. 136 00:07:07,360 --> 00:07:09,840 Speaker 2: Not saying much lower order right now at appreciate your time, 137 00:07:10,920 --> 00:07:23,960 Speaker 2: any reset, The former senior US intelligence official Norman Rule 138 00:07:24,000 --> 00:07:25,920 Speaker 2: joins us now for more No when welcome back to 139 00:07:25,960 --> 00:07:28,840 Speaker 2: the program, Sir. Is the president in a position to 140 00:07:28,920 --> 00:07:31,400 Speaker 2: negotiate on behalf of the Ukrainians? 141 00:07:32,240 --> 00:07:35,360 Speaker 4: Good morning. He is not in position to negotiate on 142 00:07:35,440 --> 00:07:39,280 Speaker 4: behalf the Ukrainians. The Ukrainian President has made that clear, 143 00:07:39,560 --> 00:07:42,800 Speaker 4: and the Europeans have done everything they can to send 144 00:07:42,800 --> 00:07:48,400 Speaker 4: a unified message that Ukrainian territory is not something the 145 00:07:48,440 --> 00:07:52,520 Speaker 4: president can offer in his talks and in fairness, the 146 00:07:52,520 --> 00:07:56,480 Speaker 4: President has stated that he is not going to offer 147 00:07:56,600 --> 00:07:59,760 Speaker 4: Ukrainian territory to the Russians, and indeed, we'll be doing 148 00:07:59,800 --> 00:08:04,680 Speaker 4: what he can to acquire Ukrainian territory that Russia is 149 00:08:04,680 --> 00:08:08,720 Speaker 4: occupied to return back to Ukrainian self. The question is 150 00:08:08,760 --> 00:08:12,119 Speaker 4: how exactly does he do this, And indeed, in terms 151 00:08:12,200 --> 00:08:15,280 Speaker 4: of the severe consequences that he would apply to Russia, 152 00:08:15,600 --> 00:08:19,480 Speaker 4: that in itself requires some caution because to do that 153 00:08:19,680 --> 00:08:24,400 Speaker 4: requires secondary sanctions on China and India, and as Secretary 154 00:08:24,480 --> 00:08:28,880 Speaker 4: Bessent has stated, that would require European cooperation, and Europe 155 00:08:28,920 --> 00:08:33,040 Speaker 4: has not been very enthusiastic about cooperation in that regard 156 00:08:33,120 --> 00:08:33,760 Speaker 4: in the past. 157 00:08:34,160 --> 00:08:36,080 Speaker 1: Norman, there's a lot to unpack there. I want to 158 00:08:36,080 --> 00:08:39,200 Speaker 1: get into the ceasefire agreement the President Trump has talked 159 00:08:39,200 --> 00:08:42,559 Speaker 1: about as a threshold to cross in this meeting tomorrow. 160 00:08:42,760 --> 00:08:45,760 Speaker 1: What would that look like? Given the previous ceasefire agreements 161 00:08:45,760 --> 00:08:48,000 Speaker 1: that already have been made and broken. 162 00:08:48,679 --> 00:08:53,960 Speaker 4: A ceasefire agreement is unlikely. President Putin has violated most 163 00:08:53,960 --> 00:08:56,560 Speaker 4: of those agreements, and right now we're watching each side 164 00:08:56,600 --> 00:09:00,760 Speaker 4: do what they can to demonstrate strength. The Russia are 165 00:09:00,800 --> 00:09:05,120 Speaker 4: conducting a series of ground operations that are allowing them 166 00:09:05,160 --> 00:09:09,720 Speaker 4: to make short, sharp advances in the Donbas. The Ukrainians 167 00:09:09,760 --> 00:09:15,000 Speaker 4: are conducting drone attacks on Russian energy facilities, which are 168 00:09:15,080 --> 00:09:20,000 Speaker 4: important given that they Russia's economy is contracting further per 169 00:09:20,040 --> 00:09:23,920 Speaker 4: the IMF will have only zero point nine percent GDP 170 00:09:24,080 --> 00:09:29,000 Speaker 4: growth this year. So we're unlikely to see a cease 171 00:09:29,040 --> 00:09:33,240 Speaker 4: fire take place unless each side is convinced that a 172 00:09:33,320 --> 00:09:36,160 Speaker 4: piece steel is likely, and again we have no evidence 173 00:09:36,720 --> 00:09:39,680 Speaker 4: for this in the near term. This said, the President 174 00:09:39,760 --> 00:09:41,800 Speaker 4: is going to be doing his best to achieve that, 175 00:09:42,040 --> 00:09:44,760 Speaker 4: and we're likely to see one in one meetings with 176 00:09:45,120 --> 00:09:48,800 Speaker 4: President Putin and President Trump. The Europeans will be concerned 177 00:09:48,840 --> 00:09:52,360 Speaker 4: about that. They have demonstrated that concern, and the President 178 00:09:53,880 --> 00:09:57,680 Speaker 4: has demonstrated in the past that his relationship with Putin 179 00:09:57,760 --> 00:10:00,680 Speaker 4: is very personal, and he sees that personal relationship is 180 00:10:00,679 --> 00:10:02,920 Speaker 4: where his strength lies in achieving an agreement. 181 00:10:03,520 --> 00:10:06,240 Speaker 1: There's a question, Norman, about whether the president really has 182 00:10:06,280 --> 00:10:08,080 Speaker 1: as much leverage as he could if he's going into 183 00:10:08,120 --> 00:10:11,600 Speaker 1: this without the Europeans agreeing to helping to enforce the 184 00:10:11,640 --> 00:10:14,440 Speaker 1: secondary sanctions. Do you think that this is premature? Do 185 00:10:14,440 --> 00:10:17,160 Speaker 1: you think that this is a good timing on the 186 00:10:17,200 --> 00:10:19,840 Speaker 1: part of President Trump to go at this alone, given 187 00:10:19,880 --> 00:10:22,800 Speaker 1: the lack of cooperation on some of the more punitive parts. 188 00:10:23,520 --> 00:10:26,040 Speaker 4: Well, to be clear, I'm not sure that Europeans are 189 00:10:26,080 --> 00:10:29,720 Speaker 4: ever going to be enthusiastic about supporting secondary sanctions on 190 00:10:29,880 --> 00:10:35,840 Speaker 4: China and India, and at the same time Russia's sanction continue. 191 00:10:35,920 --> 00:10:40,840 Speaker 4: Russia's economy continues to contract. It has contracted. The IMF 192 00:10:40,920 --> 00:10:44,680 Speaker 4: has reduced its projections for GDP from one point five 193 00:10:44,760 --> 00:10:47,960 Speaker 4: percent too point nine percent for this year and next year. 194 00:10:48,280 --> 00:10:52,679 Speaker 4: Forty percent of Russia's economy is now devoted to military spending. 195 00:10:52,720 --> 00:10:55,200 Speaker 4: It's likely to remain that way for the future, and 196 00:10:55,320 --> 00:10:58,880 Speaker 4: Russia is losing a vast amount of personnel every day. 197 00:10:59,200 --> 00:11:04,480 Speaker 4: The presidents I would expect that his private intelligence and 198 00:11:04,520 --> 00:11:08,280 Speaker 4: economic briefings show a dire picture for the Russian economy, 199 00:11:08,320 --> 00:11:12,520 Speaker 4: and he probably sees this as his lever over Vladimir Putin. 200 00:11:12,720 --> 00:11:15,559 Speaker 4: So I though Putin will come in playing a stronghand 201 00:11:15,600 --> 00:11:18,559 Speaker 4: trying to show battlefield gains, trying to show that he's 202 00:11:18,600 --> 00:11:21,120 Speaker 4: going to win this war. I think the President's position 203 00:11:21,240 --> 00:11:23,800 Speaker 4: is going to be, Look, you're a big country, an 204 00:11:23,800 --> 00:11:27,240 Speaker 4: aging population, You've got great resources, you could be doing 205 00:11:27,280 --> 00:11:30,160 Speaker 4: great things in the world. But you're driving your country 206 00:11:30,160 --> 00:11:32,400 Speaker 4: into the ground, and the best way for you to 207 00:11:32,440 --> 00:11:35,480 Speaker 4: save your country's future is to end this conflict. I 208 00:11:35,520 --> 00:11:38,000 Speaker 4: think that's probably going to be the tactic the President 209 00:11:38,040 --> 00:11:39,080 Speaker 4: may consider. 210 00:11:39,440 --> 00:11:41,000 Speaker 2: No do you think that tactic will work? 211 00:11:42,280 --> 00:11:45,640 Speaker 4: I doubt it. I think Vladimir Putin is a map changer. 212 00:11:45,679 --> 00:11:51,440 Speaker 4: He is committed to changing the rule of Russia, to 213 00:11:51,520 --> 00:11:55,600 Speaker 4: restoring the Russian Empire, the Soviet Empire. He doesn't believe 214 00:11:55,679 --> 00:11:58,880 Speaker 4: Ukraine should exist as the country. I think he's committed 215 00:11:58,880 --> 00:12:02,680 Speaker 4: to the maximalist gains. He may offer some sort of 216 00:12:03,040 --> 00:12:08,160 Speaker 4: territorial concessions to restrain sanctions. He may try to delay 217 00:12:08,200 --> 00:12:13,120 Speaker 4: further sanctions. We also have arms talks that the Vladimir 218 00:12:13,160 --> 00:12:15,960 Speaker 4: Putin may hold out, and nuclear talks are something that 219 00:12:15,960 --> 00:12:19,400 Speaker 4: we no longer raise in our discussions, but are too 220 00:12:19,760 --> 00:12:24,640 Speaker 4: tremendously important, And I think Vladimir Putin may hold out arms, 221 00:12:24,720 --> 00:12:29,480 Speaker 4: nuclear talks and Arctic cooperation as some way to continue 222 00:12:29,520 --> 00:12:33,880 Speaker 4: engagement with the US. That may complicate the relationship. And 223 00:12:33,920 --> 00:12:37,120 Speaker 4: again you don't hear nuclear talks and Arctic cooperation is 224 00:12:37,160 --> 00:12:40,320 Speaker 4: something of great importance for Europe, but they are of 225 00:12:40,400 --> 00:12:44,400 Speaker 4: importance to the United States for our national security. 226 00:12:44,040 --> 00:12:46,040 Speaker 2: And no on what I hear from you is this 227 00:12:46,160 --> 00:12:50,520 Speaker 2: doesn't end without compromising the integrity of Ukrainian territory. Now, 228 00:12:50,559 --> 00:12:52,720 Speaker 2: I just wonder, with that in mind, nom how you 229 00:12:52,720 --> 00:12:54,920 Speaker 2: think this does end or will it end? And if 230 00:12:54,920 --> 00:12:56,719 Speaker 2: this can just continue for years on end? 231 00:12:57,800 --> 00:13:01,320 Speaker 4: This ends when the Ukrainians did it ends. That's not 232 00:13:01,360 --> 00:13:05,200 Speaker 4: a decision the American American government can make. This ends 233 00:13:05,200 --> 00:13:08,800 Speaker 4: when the Russians decided. Ends. Again, that's not a decision 234 00:13:08,800 --> 00:13:16,360 Speaker 4: the Americans can necessarily make. But at a certain point 235 00:13:16,600 --> 00:13:19,160 Speaker 4: each that any deal that does come about in the 236 00:13:19,240 --> 00:13:21,880 Speaker 4: end is probably going to leave each side unhappy. And 237 00:13:21,960 --> 00:13:25,400 Speaker 4: the US government has communicated on a number of occasions 238 00:13:25,440 --> 00:13:29,000 Speaker 4: that if there are going to be territorial decisions made 239 00:13:29,040 --> 00:13:30,920 Speaker 4: in the end as part of a peace agreement, it 240 00:13:31,000 --> 00:13:34,040 Speaker 4: probably and would involve concessions on each side that will 241 00:13:34,080 --> 00:13:37,120 Speaker 4: leave each side unhappy. That's a tough thing to say, 242 00:13:37,160 --> 00:13:39,880 Speaker 4: and obviously Ukrainians who have given blood are going to 243 00:13:39,880 --> 00:13:42,000 Speaker 4: be unhappy to hear that. But that has been a 244 00:13:42,040 --> 00:13:45,439 Speaker 4: previously stated US position. But again, that's a Ukrainian decision 245 00:13:45,480 --> 00:13:47,760 Speaker 4: to make, and it's not a decision they're going to make. 246 00:13:47,800 --> 00:13:49,960 Speaker 4: It present, and it's a decision they won't make unless 247 00:13:49,960 --> 00:13:50,720 Speaker 4: they're at the table. 248 00:13:50,880 --> 00:13:53,199 Speaker 2: No, thank you, sir. I appreciate your thoughts. The former 249 00:13:53,280 --> 00:13:57,000 Speaker 2: senior US Intelligence official Norman Role with some sobering words 250 00:13:57,040 --> 00:14:09,160 Speaker 2: there on the future of that role joining US natural 251 00:14:09,160 --> 00:14:12,400 Speaker 2: discussed as the former Well Bank president David Malfast. David, 252 00:14:12,760 --> 00:14:14,719 Speaker 2: my good friend. Welcome back to the program, sir. Let's 253 00:14:14,760 --> 00:14:17,200 Speaker 2: talk about the leader of the Federal Reserve and the 254 00:14:17,240 --> 00:14:20,360 Speaker 2: next FED share. What are the characteristics that we're looking 255 00:14:20,360 --> 00:14:22,400 Speaker 2: for here, David in the next FED Share? 256 00:14:24,640 --> 00:14:28,960 Speaker 5: Hi, John and Lisa. I think what is needed is 257 00:14:29,000 --> 00:14:32,000 Speaker 5: a lot of change at the FED. So their characteristics 258 00:14:32,000 --> 00:14:35,480 Speaker 5: are someone that will bring change and really confront the 259 00:14:35,520 --> 00:14:39,320 Speaker 5: PhD economists that have been riding the FED. You heard 260 00:14:39,320 --> 00:14:41,800 Speaker 5: some of that in your previous guests talking about the 261 00:14:41,840 --> 00:14:45,560 Speaker 5: bond market vigilantes and the parent we all need, and 262 00:14:45,920 --> 00:14:48,600 Speaker 5: so I think that getting the FED out of the 263 00:14:48,600 --> 00:14:52,720 Speaker 5: way of the market and creating the rationale for a 264 00:14:52,840 --> 00:14:56,280 Speaker 5: much lower interest rate curve along the curve, I think 265 00:14:56,320 --> 00:14:59,640 Speaker 5: that's what's critical. I was very happy to see Secretary 266 00:14:59,640 --> 00:15:03,400 Speaker 5: Bess yesterday talk about two things. One is the fifty 267 00:15:03,440 --> 00:15:08,160 Speaker 5: basis point cut possibilities and also the need for foundational 268 00:15:08,280 --> 00:15:12,280 Speaker 5: change at the FED. That to me means more loans 269 00:15:12,320 --> 00:15:15,200 Speaker 5: for small businesses. So that's going to be one of 270 00:15:15,240 --> 00:15:19,920 Speaker 5: the opportunities for the US as we change the supply chain. 271 00:15:20,320 --> 00:15:23,040 Speaker 1: You said in some of your previous comments that the 272 00:15:23,040 --> 00:15:27,080 Speaker 1: FED is using old models that are wrong on economics. 273 00:15:27,280 --> 00:15:29,640 Speaker 1: Which models in particular do you think are incorrect? 274 00:15:31,920 --> 00:15:34,280 Speaker 5: There's a long list. How long do you have? The 275 00:15:34,320 --> 00:15:38,080 Speaker 5: Fillips curve doesn't work, The idea of ample reserves doesn't work. 276 00:15:38,240 --> 00:15:43,080 Speaker 5: The idea of inflation targeting using backward looking data doesn't work. 277 00:15:43,280 --> 00:15:46,680 Speaker 5: There's a big opportunity there. If you use forward looking 278 00:15:46,760 --> 00:15:50,520 Speaker 5: price based data, you could get lower interest rates and 279 00:15:50,560 --> 00:15:53,880 Speaker 5: the market would welcome it. That's what we saw yesterday. 280 00:15:53,920 --> 00:15:58,120 Speaker 5: I think when the Secretary said foundational change, there are 281 00:15:58,160 --> 00:16:00,960 Speaker 5: better ways to do this than what the FED has 282 00:16:01,040 --> 00:16:05,880 Speaker 5: been doing. They lean against growth, Lisa, and that's been 283 00:16:06,080 --> 00:16:09,240 Speaker 5: part of the problem that when the economy gets going, 284 00:16:09,480 --> 00:16:13,760 Speaker 5: they say, oh, that's overheating, when actually that's what we want. 285 00:16:13,840 --> 00:16:18,760 Speaker 5: That's the goal of economic policy to have non inflationary growth, David. 286 00:16:19,080 --> 00:16:21,200 Speaker 1: A lot of people would say that when they don't 287 00:16:21,240 --> 00:16:24,400 Speaker 1: tamp down on inflation. It's been acid price inflation. It's 288 00:16:24,440 --> 00:16:26,640 Speaker 1: really run away, and that that has led to a 289 00:16:26,720 --> 00:16:28,720 Speaker 1: number of pretty significant crashes. 290 00:16:29,200 --> 00:16:29,720 Speaker 3: What are you. 291 00:16:29,720 --> 00:16:33,640 Speaker 1: Pointing to in particular in terms of practical consequences that 292 00:16:34,200 --> 00:16:37,040 Speaker 1: point to some of those policies. I mean, would what 293 00:16:37,040 --> 00:16:38,480 Speaker 1: do you think the growth rate should be in the 294 00:16:38,560 --> 00:16:41,720 Speaker 1: United States right now? If the Fed were using the 295 00:16:41,760 --> 00:16:43,440 Speaker 1: models that you would. 296 00:16:43,200 --> 00:16:47,760 Speaker 5: Like to use, I think the growth rate can be 297 00:16:47,880 --> 00:16:52,680 Speaker 5: comfortably three percent real GDP growth, maybe four percent. The 298 00:16:52,720 --> 00:16:57,240 Speaker 5: Fed has a potential GDP speed limit they just published 299 00:16:57,240 --> 00:16:59,560 Speaker 5: on June eighteenth, the idea that it should be one 300 00:16:59,560 --> 00:17:03,400 Speaker 5: point eight five percent per year. So that's that just 301 00:17:03,560 --> 00:17:08,240 Speaker 5: doesn't make sense given the possibilities of regulatory change, the 302 00:17:08,320 --> 00:17:13,479 Speaker 5: recent tax stabilization. So they took the tax cut that 303 00:17:13,680 --> 00:17:17,080 Speaker 5: excuse me, the tax increased that Biden was planning and 304 00:17:17,119 --> 00:17:20,199 Speaker 5: Biden Harris were planning, and took it off the table. 305 00:17:20,440 --> 00:17:27,520 Speaker 5: So that's that allows businesses to begin investing for the future. Lisa, 306 00:17:28,040 --> 00:17:31,399 Speaker 5: You know, the FED has perpetuated this idea ever since 307 00:17:31,440 --> 00:17:35,000 Speaker 5: Paul Volker that high rates are the way to bring 308 00:17:35,080 --> 00:17:39,360 Speaker 5: down inflation. The reality is more production is the way 309 00:17:39,400 --> 00:17:42,680 Speaker 5: to bring down inflation, and Trump's doing that with all 310 00:17:42,680 --> 00:17:44,679 Speaker 5: the changes going on in the economy. 311 00:17:45,080 --> 00:17:47,520 Speaker 2: David, I'm happy for people to make the accusation that 312 00:17:47,520 --> 00:17:50,080 Speaker 2: perhaps this FED share has been reckless with monetary policy, 313 00:17:50,320 --> 00:17:52,199 Speaker 2: but I'm far more sympathetic to the idea that he's 314 00:17:52,240 --> 00:17:55,080 Speaker 2: been recklessly dubvish. This is an individual that letter FED 315 00:17:55,080 --> 00:17:58,480 Speaker 2: that let inflation absolutely rip. This is an individual that 316 00:17:58,560 --> 00:18:01,680 Speaker 2: saw markets doing okay, equally still close to all time 317 00:18:01,760 --> 00:18:05,239 Speaker 2: highs and interest rates one hundred basis points. David, Can 318 00:18:05,280 --> 00:18:11,360 Speaker 2: we really make the argument they've been recklessly hawkish? 319 00:18:11,440 --> 00:18:14,439 Speaker 5: Yes, they're hawkey is right now, and look at the 320 00:18:14,480 --> 00:18:17,919 Speaker 5: difference in the environment they were cutting into. It was 321 00:18:17,960 --> 00:18:24,160 Speaker 5: politicized in twenty twenty four, there were heavy regulation stopping business, 322 00:18:25,080 --> 00:18:29,000 Speaker 5: there was no investment going on, and yet they were 323 00:18:29,400 --> 00:18:33,840 Speaker 5: cutting thinking that inflation was transitory. What we have now 324 00:18:33,960 --> 00:18:36,640 Speaker 5: is a big change going on in the economy, and 325 00:18:36,920 --> 00:18:41,359 Speaker 5: I think the opportunity for capital to flow into the US. 326 00:18:41,520 --> 00:18:44,520 Speaker 5: As you make the economy stronger, you're going to get 327 00:18:44,560 --> 00:18:48,600 Speaker 5: support for the dollar. And again we have to look 328 00:18:48,600 --> 00:18:54,199 Speaker 5: at how the markets reacted yesterday favorably, whereas when the 329 00:18:54,240 --> 00:18:59,200 Speaker 5: FED was cutting during twenty twenty four, markets reacted unfavorably. 330 00:18:59,280 --> 00:19:01,440 Speaker 5: So there's a huge look at. 331 00:19:01,400 --> 00:19:03,880 Speaker 2: The difference between the market right now though, and what 332 00:19:03,920 --> 00:19:07,280 Speaker 2: the federal Reserve is ultimately projecting. David, I don't think 333 00:19:07,280 --> 00:19:09,359 Speaker 2: there's too much dayline. This is a market in a 334 00:19:09,359 --> 00:19:11,520 Speaker 2: federal reserve that seems to be on course. Toccount interest 335 00:19:11,560 --> 00:19:14,080 Speaker 2: rates somewhere between one hundred and one hundred and fifty 336 00:19:14,119 --> 00:19:16,240 Speaker 2: basis points. What we heard from the Secretary of the 337 00:19:16,240 --> 00:19:19,040 Speaker 2: Treasury yesterday was they need to come from one fifty 338 00:19:19,119 --> 00:19:21,919 Speaker 2: to one seventy five. David, understand there should be a 339 00:19:21,920 --> 00:19:24,560 Speaker 2: healthy debate, but is there really that much controversy between 340 00:19:24,600 --> 00:19:27,320 Speaker 2: what the administration would like to see and what's ultimately 341 00:19:27,359 --> 00:19:29,639 Speaker 2: being projected by both markets and a federal reserve alike 342 00:19:29,640 --> 00:19:33,080 Speaker 2: over the next eighteen months. 343 00:19:33,800 --> 00:19:37,760 Speaker 5: I think that's useful. The markets are are looking at 344 00:19:37,760 --> 00:19:40,960 Speaker 5: what's going on in the economy and realizing that there 345 00:19:41,000 --> 00:19:44,159 Speaker 5: can be a lower interest rate environment for the United 346 00:19:44,200 --> 00:19:47,680 Speaker 5: States across the whole yield curve. I think that's important 347 00:19:47,760 --> 00:19:51,960 Speaker 5: and that adds to growth. Look, the goal here is 348 00:19:52,000 --> 00:19:56,240 Speaker 5: a virtuous circle where capital flows in, where growth goes 349 00:19:56,320 --> 00:20:00,639 Speaker 5: up and production goes up, and that brings down prices, 350 00:20:00,800 --> 00:20:03,399 Speaker 5: so then you can keep doing interest rate cuts. You 351 00:20:03,440 --> 00:20:07,600 Speaker 5: get a virtuous circle. I think that's possible. It's going 352 00:20:07,680 --> 00:20:11,240 Speaker 5: to be really important for the FED and PhD economists 353 00:20:11,280 --> 00:20:15,040 Speaker 5: to get to realize that their models haven't been working 354 00:20:15,080 --> 00:20:18,719 Speaker 5: over the years. We've had these wide swings and inflation 355 00:20:19,160 --> 00:20:23,560 Speaker 5: and deflation and interest rates because the Fed's looking backwards. 356 00:20:23,840 --> 00:20:27,200 Speaker 5: So we need new models, sweeping change in the models. 357 00:20:27,240 --> 00:20:30,400 Speaker 5: That's been what I've pointed out, and it will benefit 358 00:20:30,480 --> 00:20:31,560 Speaker 5: small businesses. 359 00:20:31,640 --> 00:20:34,719 Speaker 1: That's the key, David, looking forward and using your models. 360 00:20:34,760 --> 00:20:35,960 Speaker 1: What do you think the neutral rate is? 361 00:20:38,359 --> 00:20:41,600 Speaker 5: I think the neutral rate is lower and the lower 362 00:20:41,640 --> 00:20:44,119 Speaker 5: than where we are now. You know, the FED keeps 363 00:20:44,119 --> 00:20:47,320 Speaker 5: saying that the interest rates are appropriate right now at 364 00:20:47,359 --> 00:20:50,960 Speaker 5: four point four percent. How do they know that they're 365 00:20:51,000 --> 00:20:54,920 Speaker 5: the ones setting that rate and paying banks a lot 366 00:20:54,960 --> 00:20:58,240 Speaker 5: of them international banks. Forty percent of the money payout 367 00:20:58,280 --> 00:21:00,800 Speaker 5: by the FED is going to internet actual banks, and 368 00:21:00,800 --> 00:21:05,160 Speaker 5: they've paid one point three trillion dollars since they started 369 00:21:05,160 --> 00:21:09,480 Speaker 5: paying interest to banks. So they're affecting the markets and 370 00:21:09,920 --> 00:21:12,639 Speaker 5: they don't know what the neutral rate or what the 371 00:21:13,600 --> 00:21:14,639 Speaker 5: bearable rate is. 372 00:21:15,440 --> 00:21:17,919 Speaker 2: They do that it's taking a step at it. They 373 00:21:18,000 --> 00:21:20,359 Speaker 2: think the longer term rates something close to three. So 374 00:21:20,440 --> 00:21:21,919 Speaker 2: what do you think it is close to three, is 375 00:21:21,920 --> 00:21:23,760 Speaker 2: like one fifty cent of where we are at the moment. 376 00:21:23,840 --> 00:21:25,679 Speaker 2: What do you think it is? How much lower than 377 00:21:25,680 --> 00:21:26,199 Speaker 2: that could it be? 378 00:21:26,480 --> 00:21:31,240 Speaker 5: I think the strength of the US economy justifies lower 379 00:21:31,320 --> 00:21:35,199 Speaker 5: rates across the curve, substantially lower, and the market is 380 00:21:35,240 --> 00:21:39,359 Speaker 5: looking at that and already beginning to price that in, 381 00:21:39,720 --> 00:21:43,200 Speaker 5: and it's part of the favorable environment being created. 382 00:21:46,680 --> 00:21:48,720 Speaker 2: I think we've lost the connection with David Malpass. I 383 00:21:48,760 --> 00:21:50,679 Speaker 2: was quite enjoying that, and I've done David. It was 384 00:21:50,680 --> 00:21:53,480 Speaker 2: too a spirited conversation with the former World Bank President 385 00:21:53,800 --> 00:22:06,360 Speaker 2: David Moultpass. If we're just surround the table, Nata Richardson 386 00:22:06,520 --> 00:22:09,280 Speaker 2: of IDP, just a breakdown where we are on the economy, Nata, 387 00:22:09,359 --> 00:22:11,439 Speaker 2: let's start with not just the data this morning, but 388 00:22:11,480 --> 00:22:14,200 Speaker 2: the setup at the moment. As you look across your dashboard, 389 00:22:14,359 --> 00:22:15,240 Speaker 2: what do you see. 390 00:22:15,880 --> 00:22:19,159 Speaker 6: Well, what we're seeing is an economy that continues to 391 00:22:19,240 --> 00:22:23,080 Speaker 6: chuggle on hiring. A momentum is slowed. I think that's clear. 392 00:22:24,000 --> 00:22:27,879 Speaker 6: There's been some stasis in the labor market. But overall, 393 00:22:27,960 --> 00:22:30,439 Speaker 6: when you look at the things that I look at, like, 394 00:22:30,960 --> 00:22:37,479 Speaker 6: are companies cutting hours? No, our wages plummeting? No, Actually 395 00:22:37,560 --> 00:22:42,080 Speaker 6: they're staying pretty well formed and really really steady. And 396 00:22:42,160 --> 00:22:45,480 Speaker 6: so even though we're seeing a slowdown in the momentum, 397 00:22:46,080 --> 00:22:49,920 Speaker 6: the underpinning of the labor market continues to be solid 398 00:22:50,240 --> 00:22:53,080 Speaker 6: enough to support consumer spending. Now we'll get retail sales 399 00:22:53,160 --> 00:22:55,720 Speaker 6: out in a bet, we'll get some confidence data out 400 00:22:55,760 --> 00:22:58,840 Speaker 6: in the bet. This inflation surprises something that should be 401 00:22:58,920 --> 00:23:01,760 Speaker 6: considered with a whole bunch of other data that was 402 00:23:01,840 --> 00:23:05,480 Speaker 6: leading up to this point showing no smoking gun when 403 00:23:05,480 --> 00:23:09,000 Speaker 6: it came to tariffs and inflation. So the big picture 404 00:23:09,080 --> 00:23:12,879 Speaker 6: is it's an economy that continues to perform. It's just 405 00:23:13,040 --> 00:23:15,480 Speaker 6: not as dynamic as we're used to seeing. 406 00:23:15,560 --> 00:23:18,040 Speaker 2: Ira Jersey of Bloomberg Intelligence is just working through the 407 00:23:18,080 --> 00:23:20,120 Speaker 2: details of that PPI report. I'm going to cross over 408 00:23:20,160 --> 00:23:21,879 Speaker 2: to him in just the moment, just to come to 409 00:23:21,960 --> 00:23:25,040 Speaker 2: you just quickly on what we're seeing with inflation. Is 410 00:23:25,080 --> 00:23:27,520 Speaker 2: it too early to draw conclusions here based on the 411 00:23:27,600 --> 00:23:29,359 Speaker 2: data we've had so far, and will it be too 412 00:23:29,440 --> 00:23:32,760 Speaker 2: early at Jackson Holle too early at the next fan matic. 413 00:23:33,440 --> 00:23:35,760 Speaker 6: Some conclusions are going to have to be drawn because 414 00:23:35,800 --> 00:23:38,240 Speaker 6: decisions have to be made. But it's really going to 415 00:23:38,280 --> 00:23:41,480 Speaker 6: be a matter of perspective So those components, as Lisa mentioned, 416 00:23:41,480 --> 00:23:44,520 Speaker 6: of the PPI, are going to be so important because 417 00:23:44,600 --> 00:23:47,920 Speaker 6: when we look at the CPI, the inflation triggers were 418 00:23:47,960 --> 00:23:50,679 Speaker 6: all in the services. It wasn't like the goods sector 419 00:23:50,840 --> 00:23:54,639 Speaker 6: was screaming inflation. Those final goods aren't showing it yet 420 00:23:54,760 --> 00:23:58,360 Speaker 6: at least yet, those intermediate goods, the wholeso of goods, 421 00:23:58,520 --> 00:24:01,600 Speaker 6: that's where a terrifle could bite. And the you know, 422 00:24:01,760 --> 00:24:04,199 Speaker 6: as the goods are being built and informed, and we 423 00:24:04,280 --> 00:24:07,000 Speaker 6: might see that in the wholesale prices and the producer 424 00:24:07,040 --> 00:24:10,119 Speaker 6: price is an increase. So maybe this is the first time, 425 00:24:10,280 --> 00:24:11,640 Speaker 6: maybe it's just a one off. 426 00:24:11,920 --> 00:24:12,600 Speaker 2: We won't know. 427 00:24:12,760 --> 00:24:15,720 Speaker 6: But we have to look at the complete complexion of 428 00:24:15,760 --> 00:24:18,040 Speaker 6: the economy, at least some people do, in order to 429 00:24:18,080 --> 00:24:19,480 Speaker 6: make those rate decisions. 430 00:24:19,119 --> 00:24:21,440 Speaker 2: Which trying next month. We trying to do that right now. 431 00:24:21,440 --> 00:24:23,880 Speaker 2: We can do that with our Jersey of Bloomberg Intelligence. Ara, 432 00:24:23,960 --> 00:24:26,440 Speaker 2: You've been looking through the details. So what stands out 433 00:24:26,440 --> 00:24:28,800 Speaker 2: to you. What's behind this big upside surprise this morning. 434 00:24:29,359 --> 00:24:33,480 Speaker 7: Yeah, so's it's not necessarily goods sector that's driving a 435 00:24:33,520 --> 00:24:35,520 Speaker 7: lot of this. So you saw a big increase in 436 00:24:36,200 --> 00:24:40,359 Speaker 7: the services PPI here with a one point one percent 437 00:24:40,400 --> 00:24:43,359 Speaker 7: increase month on month that was negative a little bit 438 00:24:43,440 --> 00:24:47,200 Speaker 7: last month, So you had this big shift toward towards 439 00:24:47,240 --> 00:24:51,040 Speaker 7: services increasing in particular trade. So some of that could 440 00:24:51,040 --> 00:24:53,760 Speaker 7: be from you know, import prices. If you think about 441 00:24:53,840 --> 00:24:57,320 Speaker 7: the pass through from from you know, shipping and things 442 00:24:57,359 --> 00:25:00,080 Speaker 7: like that, that are going to be goods that are 443 00:25:00,080 --> 00:25:03,000 Speaker 7: going to be tariffed. So maybe this is suggesting that 444 00:25:03,000 --> 00:25:05,400 Speaker 7: there might be a little bit of margin contraction. And 445 00:25:06,480 --> 00:25:08,440 Speaker 7: like you mentioned, not a huge move in the front 446 00:25:08,520 --> 00:25:11,240 Speaker 7: end of the bond market, but it's still five basis 447 00:25:11,240 --> 00:25:14,720 Speaker 7: points from where we were right before the right before 448 00:25:14,760 --> 00:25:17,960 Speaker 7: we receive the number. I think retail sales tomorrow will 449 00:25:17,960 --> 00:25:20,800 Speaker 7: wind up probably being even a little bit more important 450 00:25:20,800 --> 00:25:24,440 Speaker 7: to the bond market than this particular number. But certainly, 451 00:25:24,520 --> 00:25:26,760 Speaker 7: you know, fifty bases point move in September might be 452 00:25:26,800 --> 00:25:31,320 Speaker 7: taken off the table with worries about inflation taking up 453 00:25:31,359 --> 00:25:31,760 Speaker 7: a little bit. 454 00:25:31,760 --> 00:25:33,879 Speaker 1: Here, it's not just that, Ira, and I'm glad that 455 00:25:33,920 --> 00:25:36,320 Speaker 1: you broke it down and understood to see that it's 456 00:25:36,359 --> 00:25:39,159 Speaker 1: coming from services kind of mimics what we saw in 457 00:25:39,359 --> 00:25:40,080 Speaker 1: the CPI. 458 00:25:40,440 --> 00:25:41,200 Speaker 6: It's also the. 459 00:25:41,160 --> 00:25:43,720 Speaker 1: Initial javas claims coming in at the some two hundred 460 00:25:43,720 --> 00:25:47,320 Speaker 1: and twenty four thousand, even continuing claims came in a touch. 461 00:25:47,640 --> 00:25:51,240 Speaker 1: These are the people who keep receiving unemployment benefits. Where 462 00:25:51,400 --> 00:25:54,280 Speaker 1: is the impetus for the Federal Reserve to need some 463 00:25:54,320 --> 00:25:57,160 Speaker 1: sort of emergency rate cut given the fact that this 464 00:25:57,200 --> 00:25:59,879 Speaker 1: doesn't seem to point to any kind of massive dislocation 465 00:26:00,080 --> 00:26:00,800 Speaker 1: the labor market. 466 00:26:01,560 --> 00:26:05,080 Speaker 7: Yeah, keep in mind, the claims numbers have been relatively 467 00:26:05,119 --> 00:26:09,320 Speaker 7: steady for years now, and so remember that's only one 468 00:26:09,320 --> 00:26:11,679 Speaker 7: side of the equation, right, that's the firing side. So 469 00:26:12,000 --> 00:26:14,800 Speaker 7: it's really how many new people are entering the workforce 470 00:26:14,840 --> 00:26:18,040 Speaker 7: and are going to be then hired by firms too, 471 00:26:18,160 --> 00:26:20,520 Speaker 7: because at this kind of pace, you'd wind up with, 472 00:26:20,880 --> 00:26:24,680 Speaker 7: you know, pretty massive layoffs actually if there's not someone 473 00:26:24,760 --> 00:26:27,800 Speaker 7: hired on the other side of those of those initial 474 00:26:27,840 --> 00:26:31,080 Speaker 7: jobless claims. So and you have seen a slowing in that. 475 00:26:31,119 --> 00:26:33,119 Speaker 7: So it has to be the job market, right the 476 00:26:33,160 --> 00:26:35,560 Speaker 7: FED to cut, certainly, to cut more than twenty five 477 00:26:35,560 --> 00:26:39,320 Speaker 7: basis points in September would require a really disastrous kind 478 00:26:39,320 --> 00:26:42,680 Speaker 7: of nonfarm payroll number, I think now that being said, 479 00:26:42,880 --> 00:26:47,360 Speaker 7: just the slowdown in the hiring process without consumer prices 480 00:26:47,400 --> 00:26:50,880 Speaker 7: taking up quite a lot, you know, that could mean that, hey, 481 00:26:50,920 --> 00:26:54,080 Speaker 7: the Fed could ease just a little bit to kind 482 00:26:54,080 --> 00:26:56,960 Speaker 7: of placate the market, make sure that the job market 483 00:26:56,960 --> 00:26:59,879 Speaker 7: doesn't completely fall out of bed. And I suspect that 484 00:27:00,040 --> 00:27:03,000 Speaker 7: that's the thinking of those members like you know, Governor 485 00:27:03,040 --> 00:27:06,639 Speaker 7: Wallers and Bowman, who have seen this slowing in the 486 00:27:06,720 --> 00:27:09,080 Speaker 7: job market and are concerned that it could get worse. 487 00:27:09,400 --> 00:27:11,399 Speaker 7: So let's be a little bit proactive here. Now that 488 00:27:11,400 --> 00:27:13,560 Speaker 7: being said, do they have to do that? I don't 489 00:27:13,560 --> 00:27:16,320 Speaker 7: think so. Like we had already always had penciled in 490 00:27:16,359 --> 00:27:19,639 Speaker 7: based on our forecast and October as the first rate cut, 491 00:27:19,760 --> 00:27:22,600 Speaker 7: but realistically September versus October, it's not going to matter 492 00:27:22,640 --> 00:27:25,920 Speaker 7: that much to you know, ten year treasury yields. Quite frankly, just. 493 00:27:25,840 --> 00:27:27,760 Speaker 2: Before you go, I've just got a brief question, and 494 00:27:27,760 --> 00:27:29,240 Speaker 2: it's to build on what Least and I were talking 495 00:27:29,240 --> 00:27:31,320 Speaker 2: about the front end of the curve. Why is this 496 00:27:31,400 --> 00:27:34,879 Speaker 2: market looking through firmer services inflation both in CPI and 497 00:27:34,920 --> 00:27:37,520 Speaker 2: PPI this morning. Why we only out by a basis 498 00:27:37,520 --> 00:27:39,240 Speaker 2: point of two. If you told me these numbers earlier 499 00:27:39,240 --> 00:27:40,960 Speaker 2: on this morning, I might have guessed, you know, what 500 00:27:41,080 --> 00:27:43,960 Speaker 2: might be up double figures, double figure basis points off 501 00:27:43,960 --> 00:27:45,919 Speaker 2: this maybe up ten basis points eleven, I don't know, 502 00:27:46,000 --> 00:27:47,840 Speaker 2: but not a single basis point. 503 00:27:48,440 --> 00:27:48,640 Speaker 5: Yeah. 504 00:27:48,680 --> 00:27:52,960 Speaker 7: Well, I think that the CPI report wasn't wasn't nearly 505 00:27:53,000 --> 00:27:56,000 Speaker 7: as bad as I think the market thought. And the 506 00:27:56,040 --> 00:28:00,439 Speaker 7: market is certainly pricing in for a you know, modest 507 00:28:00,440 --> 00:28:03,240 Speaker 7: easing of monetary policy over the next couple of over 508 00:28:03,240 --> 00:28:06,200 Speaker 7: the next couple of quarters, and you know, and again 509 00:28:06,280 --> 00:28:09,080 Speaker 7: like as long as you wind up having a slow 510 00:28:09,119 --> 00:28:11,159 Speaker 7: down in the economy, that the FED is going to 511 00:28:11,200 --> 00:28:14,000 Speaker 7: try to right size things. And there is this idea 512 00:28:14,080 --> 00:28:16,280 Speaker 7: that within the market, and I've talked to a lot 513 00:28:16,320 --> 00:28:19,000 Speaker 7: of market participants about this, where is neutral right? I 514 00:28:19,080 --> 00:28:21,320 Speaker 7: actually think we're pretty close to the neutral rate, But 515 00:28:21,520 --> 00:28:23,679 Speaker 7: a lot of people disagree with me and believe that 516 00:28:23,720 --> 00:28:25,760 Speaker 7: the neutral rate is closer to two or two and 517 00:28:25,800 --> 00:28:28,480 Speaker 7: a half, which is where headline inflation more or less 518 00:28:28,560 --> 00:28:31,960 Speaker 7: is right now on a CPI basis. So people do 519 00:28:32,040 --> 00:28:35,399 Speaker 7: think that rates are still restrictive. Again, I'm not as 520 00:28:35,480 --> 00:28:37,240 Speaker 7: convinced of that, but that's where the market is, and 521 00:28:37,280 --> 00:28:39,239 Speaker 7: that's why the market thinks that the FED is going 522 00:28:39,280 --> 00:28:41,400 Speaker 7: to be cutting rates in the very near future. 523 00:28:41,480 --> 00:28:43,800 Speaker 2: Don't fight the market, so always the lesson A thank you, 524 00:28:43,880 --> 00:28:46,400 Speaker 2: sir Rich Jersey there of Bloomberg Intelligence breaking this down 525 00:28:46,720 --> 00:28:49,680 Speaker 2: Laser services again again FIRMA. 526 00:28:49,880 --> 00:28:52,200 Speaker 1: This isn't necessarily a good thing for the Federal Reserve 527 00:28:52,240 --> 00:28:55,440 Speaker 1: because typically services is something that's more discretionary and tends 528 00:28:55,480 --> 00:28:59,320 Speaker 1: to be more fungible. It raises this question about where 529 00:28:59,360 --> 00:29:02,280 Speaker 1: the weakness coming from. Neila, I have to say the 530 00:29:02,280 --> 00:29:05,760 Speaker 1: ADP report's taken on a lot more important recently, especially 531 00:29:05,800 --> 00:29:07,920 Speaker 1: with some of the questions around the BLS, and I 532 00:29:08,000 --> 00:29:10,360 Speaker 1: just wonder what kind of hiring you see in services 533 00:29:11,000 --> 00:29:14,760 Speaker 1: and wage increases to edify the sense that that's an 534 00:29:14,760 --> 00:29:16,720 Speaker 1: area that's actually been benefiting of late. 535 00:29:17,480 --> 00:29:20,200 Speaker 6: You know, I think the issue with the labor market 536 00:29:20,360 --> 00:29:22,680 Speaker 6: is that the structural and the cyclical are kind of 537 00:29:22,720 --> 00:29:26,440 Speaker 6: colliding in this moment because we are still in a 538 00:29:26,520 --> 00:29:29,760 Speaker 6: labor market that's being impacted by the pandemic. We are 539 00:29:29,800 --> 00:29:33,840 Speaker 6: being impacted by an aging workforce. We're still being impacted 540 00:29:33,840 --> 00:29:37,720 Speaker 6: by the great resignation, which means the turnover that dynamism 541 00:29:37,800 --> 00:29:40,360 Speaker 6: is missing in today's labor market. So when you look 542 00:29:40,400 --> 00:29:42,840 Speaker 6: at something like services, what are you seeing? Well, first 543 00:29:42,880 --> 00:29:47,360 Speaker 6: of all, you're seeing certain pockets of services slow down tremendously. 544 00:29:47,400 --> 00:29:51,680 Speaker 6: We saw a dip over the summer. It's rebounded according 545 00:29:51,680 --> 00:29:54,840 Speaker 6: to our data in the last month. It's new entrance 546 00:29:54,920 --> 00:29:57,600 Speaker 6: into this market is very so if you talk to 547 00:29:57,680 --> 00:30:00,840 Speaker 6: any parent of a college a student, it is my 548 00:30:01,000 --> 00:30:03,360 Speaker 6: student is still looking for a job even though they 549 00:30:03,440 --> 00:30:06,040 Speaker 6: just graduated. If you look at ADP data, if you 550 00:30:06,040 --> 00:30:07,840 Speaker 6: don't like the anecdotal, you want to look at the 551 00:30:07,880 --> 00:30:10,680 Speaker 6: hard data. We pay over twenty five million workers in 552 00:30:10,720 --> 00:30:12,840 Speaker 6: the United States, and what we're seeing is that new 553 00:30:12,960 --> 00:30:17,200 Speaker 6: highre pet hasn't budge from eighteen dollars an hour for 554 00:30:17,280 --> 00:30:21,040 Speaker 6: the media in more than thirteen months. So there is 555 00:30:21,400 --> 00:30:25,120 Speaker 6: a stagnant part of this labor market when it comes 556 00:30:25,160 --> 00:30:29,880 Speaker 6: to bringing onboarding new people. That's going to be reflected 557 00:30:29,880 --> 00:30:33,040 Speaker 6: in productivity numbers, and it really is going to impact 558 00:30:33,160 --> 00:30:36,920 Speaker 6: services more than goods. Good sector that talent tends to 559 00:30:36,960 --> 00:30:41,440 Speaker 6: be more specialized, fewer new hires, less affected by the 560 00:30:41,920 --> 00:30:45,440 Speaker 6: people dynamics that underpin the later labor market. 561 00:30:45,520 --> 00:30:48,040 Speaker 2: Can I ask you a provocative question, is the new 562 00:30:48,080 --> 00:30:50,600 Speaker 2: BLS chief good for business? Which I think is what 563 00:30:50,680 --> 00:30:52,840 Speaker 2: Lisa was trying to losk, Is the new BLS chief 564 00:30:52,840 --> 00:30:54,320 Speaker 2: good for business? Over IDP. 565 00:30:56,200 --> 00:31:01,480 Speaker 6: Is well. Until they're confirmed, we won't know. But what 566 00:31:01,560 --> 00:31:04,280 Speaker 6: I can tell you what's good for business is good data. 567 00:31:05,320 --> 00:31:07,520 Speaker 2: Lady Richardson of ABP very different ABOUTIC. 568 00:31:07,600 --> 00:31:07,880 Speaker 3: Thank you. 569 00:31:08,720 --> 00:31:12,280 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 570 00:31:12,280 --> 00:31:15,600 Speaker 2: in markets, economics, and geopolitics. You can watch the show 571 00:31:15,680 --> 00:31:18,600 Speaker 2: live on Bloomberg TV weekday mornings from six am to 572 00:31:18,760 --> 00:31:22,520 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 573 00:31:22,640 --> 00:31:24,880 Speaker 2: or anywhere else you listen, and as always, on the 574 00:31:24,880 --> 00:31:27,320 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.