WEBVTT - Surveillance: Skip vs. Pause with Dudley 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.120 --> 0:00:32.240 I take a four week moving average, try to smooth 0:00:32.240 --> 0:00:33.919 it out a little bit, but the other fraud thing 0:00:34.000 --> 0:00:37.479 hangs over it. Just more data of what is somewhat 0:00:37.600 --> 0:00:41.120 a fully employed America. Writing about that has been William Dudley, 0:00:41.440 --> 0:00:44.160 former New York Fed President, Bloomberg Opinion columnists. 0:00:44.200 --> 0:00:44.720 He has been. 0:00:44.920 --> 0:00:49.760 Absolutely one hundred percent on of a central bank looking 0:00:49.800 --> 0:00:52.880 for higher interest rates. Bill Dudley, thank you for joining 0:00:52.960 --> 0:00:55.640 us off your essay with Bloomberg Opinion. You quote the 0:00:55.640 --> 0:00:59.200 Clashy channel back to London calling guess what the echoes 0:00:59.240 --> 0:01:02.960 building is. Do they have to wait for the data 0:01:03.240 --> 0:01:04.720 or can they get out front? 0:01:06.680 --> 0:01:08.880 Oh, they're going to take a pause because they believe 0:01:09.000 --> 0:01:11.679 that their long and verbal legs and manitary policy and 0:01:11.720 --> 0:01:14.240 so they want to see the effects of prior actions, 0:01:15.040 --> 0:01:18.520 but they've characterized it as a skip because they think 0:01:18.560 --> 0:01:20.279 that they'll probably have to do a little bit more, 0:01:20.640 --> 0:01:23.120 and we'll probably see that in the summary of economic projections, 0:01:23.120 --> 0:01:26.040 we'll probably see a couple one or two additional rate 0:01:26.120 --> 0:01:30.520 hikes PET penciled in for twenty twenty three. The economy 0:01:30.560 --> 0:01:32.560 really hasn't slowed much at all. If you look at 0:01:32.560 --> 0:01:35.640 the Atlanta Fed to GDP now forecasts for the second quarter, 0:01:35.760 --> 0:01:38.800 it's one point nine percent. And as we were just 0:01:38.840 --> 0:01:41.920 talking about, the leader market still still very long, but 0:01:42.440 --> 0:01:44.120 hasn't played accomplished much yet. 0:01:44.240 --> 0:01:48.000 Bullet of Saint Louis and Indiana University uses his economics 0:01:48.000 --> 0:01:51.400 to say, we can do this exercise and avoid some 0:01:51.640 --> 0:01:53.840 form of NBR recession. 0:01:53.920 --> 0:01:54.760 Do you agree. 0:01:56.480 --> 0:01:58.880 I think it's made very hard to avoid a recession 0:01:59.080 --> 0:02:00.920 if you believe that the FED has to push the 0:02:01.040 --> 0:02:03.480 unemployer rate up by a meaningful amount. If you look 0:02:03.480 --> 0:02:05.560 at the FED Zone forecast, they think the unemployer rate's 0:02:05.560 --> 0:02:07.720 going to have to rise by at least one percentage point. 0:02:08.000 --> 0:02:11.640 Every time it's risen by one percentage point. Since World 0:02:11.639 --> 0:02:14.360 War Two, we've had a recession twelve out of twelve, 0:02:14.400 --> 0:02:18.080 So I'm betting against a soft lining this time as well. 0:02:18.400 --> 0:02:21.079 Build the implication here that the FED hasn't really accomplished 0:02:21.160 --> 0:02:23.120 much and that they should go further with respect to 0:02:23.200 --> 0:02:25.880 hiking rates, that perhaps a pause or skipping or whatever 0:02:25.880 --> 0:02:29.120 you want to call it is perhaps not the right approach. 0:02:29.560 --> 0:02:30.840 What's the consequence to that? 0:02:31.040 --> 0:02:34.040 Do you expect this to actually accelerate inflation or keep 0:02:34.040 --> 0:02:36.519 it higher for longer in a way that people aren't 0:02:36.639 --> 0:02:37.440 really expecting. 0:02:38.840 --> 0:02:42.400 It doesn't really matter if they hike in June versus July, 0:02:42.600 --> 0:02:46.000 as long as they keep financial conditions from easing significantly. 0:02:46.360 --> 0:02:48.200 And I think that's why they're using the language of 0:02:48.720 --> 0:02:51.760 skip rather than pause. They don't want the markets to 0:02:51.800 --> 0:02:54.360 think that they're finished, because they don't want this stock 0:02:54.400 --> 0:02:56.920 market to rally a lot Banias to fault. If that 0:02:56.960 --> 0:02:59.280 were to happen, that would make Madria policy, of the 0:02:59.320 --> 0:03:01.959 impulse of launtra policy more stimulative and would be kind 0:03:01.960 --> 0:03:04.200 of productive to what they're trying to accomplish, which is 0:03:04.240 --> 0:03:05.639 to cool off the labor market. 0:03:06.360 --> 0:03:07.520 The data has been really confusing. 0:03:07.560 --> 0:03:09.560 We've been talking about that all day, whether it's earnings 0:03:09.600 --> 0:03:12.760 or whether it's just the macroeconomic inputs that we normally 0:03:12.800 --> 0:03:15.560 have used. What are you looking at to really highlight 0:03:15.560 --> 0:03:18.000 that there's still a lot of strength that frankly, the 0:03:18.080 --> 0:03:19.519 lag effects are not going to take. 0:03:19.400 --> 0:03:22.480 Care of well. I think the layer market is the 0:03:22.520 --> 0:03:25.400 key thing to focus on. What's happening to payroll and 0:03:25.480 --> 0:03:28.520 ployment growth, what's happening to the tightness of the labor market. 0:03:28.600 --> 0:03:31.360 As for example, the Joeltry port yesterday showed an increase 0:03:31.440 --> 0:03:34.560 in the number of unfilled jobs relative to unemployed workers. 0:03:34.760 --> 0:03:37.040 We're back to one point eight unfilled jobs for every 0:03:37.120 --> 0:03:40.040 unemployed worker. Chair Pol in the past is said we 0:03:40.080 --> 0:03:42.160 need that rach to be down in round one to one. 0:03:42.840 --> 0:03:46.280 And also what's having to Wagesoul in this last press 0:03:46.280 --> 0:03:49.480 conference with very clearity thinks wage inflation needs to be 0:03:49.560 --> 0:03:53.320 three percent, not forward to six percent to be consistent 0:03:53.320 --> 0:03:55.840 with two percent inflation. So the layer market and wages 0:03:55.880 --> 0:03:57.840 I think are going to be the key drivers of 0:03:57.880 --> 0:04:01.760 the FED feeling more comfortable that the attracted two percent inflation. 0:04:02.080 --> 0:04:04.360 So people will say, well, we are seeing disinflation and 0:04:04.440 --> 0:04:07.120 it actually will happen much more rapidly heading into your 0:04:07.320 --> 0:04:10.520 end from your vantage point. The longer that it takes. 0:04:10.840 --> 0:04:14.520 Does that create a stickiness that people are underappreciating or 0:04:14.560 --> 0:04:16.440 do you think that this is just simply they need 0:04:16.480 --> 0:04:18.200 to get back down to their goal. They want to 0:04:18.200 --> 0:04:20.440 get there sooner than later, just simply to remove that 0:04:20.640 --> 0:04:23.280 tax from lower and individuals in particular. 0:04:24.760 --> 0:04:26.920 They think it's going to be a pretty drawn out process. 0:04:27.240 --> 0:04:29.280 We really don't get back to two percent inflation for 0:04:29.720 --> 0:04:32.280 a couple of years on the FED Zone forecast. I 0:04:32.320 --> 0:04:34.720 think they're not concerned about how long it takes, as 0:04:34.800 --> 0:04:39.000 long as inslation expectations stay well anchored. The risk, of course, 0:04:39.040 --> 0:04:42.760 if inflation stays higher for longer, inflation expectations could become 0:04:42.839 --> 0:04:44.800 unanchored and that will make the FED job more difficult. 0:04:44.800 --> 0:04:46.760 So they want to keep a close eye on infulation 0:04:46.880 --> 0:04:48.080 expected bill. 0:04:48.120 --> 0:04:49.880 We're not thinking too hard today. I don't need it 0:04:49.920 --> 0:04:52.760 to two or three decimal points. But I'm fascinated what 0:04:52.960 --> 0:04:57.719 your math is on a slower China and their machinations 0:04:58.560 --> 0:05:03.760 exporting disinflation or outright deflation. You and I have seen 0:05:03.839 --> 0:05:07.000 this over thirty forty years as a theme. Are they 0:05:07.080 --> 0:05:11.880 going to adjust our lives because they're exporting price decline? 0:05:13.360 --> 0:05:14.840 I think what's going to happen in China is we're 0:05:14.839 --> 0:05:17.320 going to see more stimulus the end of the day 0:05:17.400 --> 0:05:19.800 that they're going to want to have growth because growth 0:05:19.920 --> 0:05:24.280 generates jobs, and jobs generate political stability in China. So 0:05:24.400 --> 0:05:26.440 I think what we'll see is more stimulus out of China. 0:05:26.680 --> 0:05:29.400 I do not expect the Chinese impulse back to the 0:05:29.520 --> 0:05:33.000 US to be significant. We already are having goods disinflation. 0:05:33.440 --> 0:05:35.680 The problem in the US is really in the services sector. 0:05:36.360 --> 0:05:38.680 China might add a little bit to that good disinflation, 0:05:38.839 --> 0:05:41.760 but I don't think it's meaningful in terms of changing 0:05:41.800 --> 0:05:42.880 the inflation outlook. 0:05:43.040 --> 0:05:45.640 Do you have any kind of vector of disinflation with 0:05:45.800 --> 0:05:48.000 services at this time or do you just simply need 0:05:48.080 --> 0:05:48.920 more data points. 0:05:50.120 --> 0:05:51.560 Well, the one thing that we know is coming is 0:05:51.600 --> 0:05:54.200 we're going to start to see declines in shelter prices, 0:05:54.360 --> 0:05:57.800 is measured by in the personal consumption expension deflator. We 0:05:58.320 --> 0:05:59.880 know that that was going to happen with a lag, 0:06:00.000 --> 0:06:03.240 and that lag is about to arrive. The problem is, 0:06:03.440 --> 0:06:08.000 sure Paul is indicated, is services inflation excluding shelter that's 0:06:08.040 --> 0:06:10.200 still very very high. And as we've seen in the 0:06:10.279 --> 0:06:12.320 core PC of interflators that we've gotten over the last 0:06:12.320 --> 0:06:14.800 six months, we're stuck in this channel between four point 0:06:14.839 --> 0:06:18.760 six percent and four year overs. It's not falling, it's 0:06:18.960 --> 0:06:20.039 it's basically been flat. 0:06:20.560 --> 0:06:21.920 I think that's called sticky, John. 0:06:22.600 --> 0:06:26.240 I think doctor Dudley there identified the range bound necessariness 0:06:26.600 --> 0:06:27.360 of the word sticky. 0:06:27.400 --> 0:06:29.000 I've got some good news for some people. I'm not 0:06:29.040 --> 0:06:30.760 sure what your positioning is like at home, but for 0:06:30.800 --> 0:06:34.360 those of you long European vacations, the euro another break 0:06:34.400 --> 0:06:35.040 of one oh seven. 0:06:36.040 --> 0:06:37.920 You're looking at that to five diods, yes, aren't you. 0:06:38.200 --> 0:06:42.000 Yeah, for many reasons, the dollars stronger, the euro weaker. 0:06:42.279 --> 0:06:44.920 Off the mack of this pretty robust data in America, 0:06:45.279 --> 0:06:47.680 you will tire by let's call it three basis points 0:06:47.839 --> 0:06:50.640 at the front end, four forty four equit easily. So 0:06:50.760 --> 0:06:54.480 just rolling over, just briefly now, unchanged on the session. 0:06:54.320 --> 0:06:57.200 Which might come partly on the ADP report that nobody 0:06:57.279 --> 0:06:59.120 trades until they do, and this idea that if you 0:06:59.200 --> 0:07:03.000 have a stronger than a expected employment reaction, that that 0:07:03.040 --> 0:07:06.160 will actually create more pressure for the Fed bill. 0:07:06.240 --> 0:07:08.080 I want to just finish up with you on that point. 0:07:08.520 --> 0:07:11.080 Do you think that it is a foregone conclusion that 0:07:11.200 --> 0:07:13.720 regardless of what the data is, regardless of the jobs 0:07:13.760 --> 0:07:15.680 for what we get tomorrow, they are not going to 0:07:15.760 --> 0:07:17.800 high grates this month. They're going to try to signal 0:07:17.800 --> 0:07:20.040 It doesn't mean that they're done, but basically they are 0:07:20.120 --> 0:07:22.240 not data dependent for this particular meeting. 0:07:23.760 --> 0:07:25.400 I think the data would have to be very, very 0:07:25.480 --> 0:07:28.720 strong to convince them to move at the June meeting. 0:07:29.680 --> 0:07:32.160 They basically are concerned about the long legs of madrate 0:07:32.240 --> 0:07:36.000 policy and should that belief should not be influenced by 0:07:36.120 --> 0:07:38.480 the strength of the data. So I'd be very surprised 0:07:38.520 --> 0:07:43.040 at this point, especially given Philip Jefferson's remarks yesterday, that 0:07:43.640 --> 0:07:45.800 they would actually go ahead and tighten at the Dream meetings. 0:07:46.040 --> 0:07:48.760 But July seems almost likely at this point. 0:07:48.880 --> 0:07:51.400 That found like a ralliant cry yesterday, didn't it from 0:07:51.480 --> 0:07:54.760 the presumed Fed yest. Yeah, it really did, Bill, Thank 0:07:54.800 --> 0:07:57.800 you both, Dudley, their former New York Fed president. Bloomberg 0:07:58.160 --> 0:07:59.640 opinion columnist. 0:08:09.400 --> 0:08:12.880 Heidi Crabo red occurs with a senior fellow, Consolin Foreign Relations, 0:08:13.000 --> 0:08:16.200 really writing as much as you can on what we're 0:08:16.280 --> 0:08:20.200 talking about yesterday and continue today with Rika Rinmanbi, and 0:08:20.320 --> 0:08:21.040 that is China. 0:08:21.280 --> 0:08:23.920 Heidi, thank you so much. For joining, is it China 0:08:24.000 --> 0:08:24.920 slowdown for real? 0:08:26.720 --> 0:08:28.680 So I think, you know, you have a lag in 0:08:28.800 --> 0:08:31.520 data and some revisions, and I don't know if we 0:08:31.640 --> 0:08:36.240 really understand if the data coming out of China is accurate, 0:08:36.640 --> 0:08:39.480 in part because they're coming out of a very you know, 0:08:39.600 --> 0:08:42.280 significant COVID lockdown. So just think back to when we 0:08:42.800 --> 0:08:46.640 were publishing our data and revising it after after COVID. 0:08:47.720 --> 0:08:49.599 It's just I think it's it's it's too hard to 0:08:49.679 --> 0:08:53.360 focus on just one number. I actually focus more on 0:08:53.800 --> 0:08:57.520 the youth unemployment number as being a serious concern for me. 0:08:57.880 --> 0:08:58.839 Yeah, we'll go to that. 0:08:59.320 --> 0:09:02.760 You have a great trans atlantic and frankly trans world 0:09:02.840 --> 0:09:05.360 I'd almost call it linkage between Europe and China. 0:09:05.960 --> 0:09:09.040 And you say evs to the rescue for China and 0:09:09.120 --> 0:09:09.400 that a. 0:09:09.440 --> 0:09:13.199 Lot of the doubt about China will be solved by 0:09:13.480 --> 0:09:18.839 electric vehicles in their growth, discuss that export might were 0:09:18.920 --> 0:09:19.760 not factoring in. 0:09:20.920 --> 0:09:23.959 So I just got back from from Europe, and you know, 0:09:24.080 --> 0:09:28.480 China was a key part of all the conversations because 0:09:28.520 --> 0:09:34.040 of the US EU Trading Technology Council. We had, you know, UH, 0:09:34.679 --> 0:09:39.920 we had Secretaries Blincoln and uh and Ramundo. There US 0:09:40.000 --> 0:09:45.760 t R Taie. We we saw kind of a focus 0:09:46.080 --> 0:09:50.360 just on the main bonus contention, which is that the 0:09:50.400 --> 0:09:54.360 subsidies for EV's in the US are are are you know, 0:09:54.559 --> 0:09:57.880 not not offered to EU auto makers because of the 0:09:58.000 --> 0:10:02.280 China the China components to the vehicles. But I think 0:10:02.679 --> 0:10:05.599 that you have this muscle memory of trade negotiators of 0:10:05.679 --> 0:10:08.559 going after you know, what's happening between the US and 0:10:08.600 --> 0:10:11.640 the EU. And at the same time you have China 0:10:11.760 --> 0:10:17.240 exporting more electric vehicles, more autos or Chinese autos. Right, 0:10:17.720 --> 0:10:23.880 just a striking, striking uptick in particularly eviase, Lisa. 0:10:23.640 --> 0:10:27.160 There's the analysis, and the further analysis is whoever's out 0:10:27.200 --> 0:10:30.640 on Twitter trying to figure out when mister Musk's airplane 0:10:30.720 --> 0:10:31.319 leave Shanghai? 0:10:31.559 --> 0:10:33.560 Well, yeah, that's for us exactly. 0:10:33.720 --> 0:10:35.120 I just want to I know that we want to 0:10:35.160 --> 0:10:36.959 move on from the debt ceiling, but I kind of 0:10:37.000 --> 0:10:38.959 can't yet, and I have to set a pay into 0:10:39.000 --> 0:10:41.679 the conversation that I'm sure Heidi you are having over 0:10:41.880 --> 0:10:44.319 in Europe, which is what are these subsidies going to 0:10:44.400 --> 0:10:47.880 look like? Particularly when it comes to the recent tech 0:10:48.120 --> 0:10:50.520 driven investments in the US were promising to make. 0:10:51.000 --> 0:10:52.280 Did anything really change? 0:10:52.400 --> 0:10:54.439 Was any of the heft of some of those programs 0:10:54.600 --> 0:10:56.719 removed from this agreement that we got from the debt 0:10:56.800 --> 0:10:58.880 ceiling or was it basically the adjustments that kind of 0:10:58.920 --> 0:11:00.640 came in after the fact and made sure it. 0:11:00.679 --> 0:11:01.120 Was all okay. 0:11:02.040 --> 0:11:04.240 So, you know, one of the great things about being 0:11:04.280 --> 0:11:06.000 overseas is that you really didn't have a lot of 0:11:06.080 --> 0:11:08.760 focus on the debt ceiling as opposed to like living 0:11:08.800 --> 0:11:13.760 at twenty four seven. Here, the focus on US politics 0:11:13.880 --> 0:11:17.920 was much more driven by Trump and looking at the 0:11:18.320 --> 0:11:21.640 numbers and the upcoming election and whatever deals are being 0:11:21.679 --> 0:11:23.920 struck right now between the US and the EU, are 0:11:24.000 --> 0:11:26.880 they up for grabs if Trump were to win the 0:11:26.920 --> 0:11:29.199 presidency in the next go around. So I think, you know, 0:11:29.320 --> 0:11:33.040 that's Trump. Trump played a prominent role and concerns in 0:11:33.480 --> 0:11:35.120 whether or not there was a need for Europe to 0:11:35.200 --> 0:11:38.839 hedge in its negotiations, not for all countries, but for 0:11:38.960 --> 0:11:41.319 some countries. I think that's why we didn't see consensus, 0:11:41.920 --> 0:11:44.599 the same kind of consensus that we saw at the 0:11:44.679 --> 0:11:47.080 G seven and the Quad meetings in the past two weeks. 0:11:47.520 --> 0:11:51.240 When we uh with our you know, with our negotiators 0:11:51.320 --> 0:11:52.400 in Europe this week. 0:11:52.480 --> 0:11:55.240 What does that mean with respect to US European alliance 0:11:55.600 --> 0:11:57.679 with respect to China, with respect to some of these 0:11:57.720 --> 0:12:01.200 bigger issues, if there is sort of a pretty tepid 0:12:01.360 --> 0:12:04.840 receival of the United States with sort of ambiguous leadership. 0:12:06.280 --> 0:12:09.199 So I think the US seems to be very much 0:12:09.240 --> 0:12:11.920 in line in the Biden administrations, in line with the 0:12:12.520 --> 0:12:16.120 EU Commission. It's just that there are twenty seven different 0:12:16.160 --> 0:12:18.440 member countries and all of them are sort of playing 0:12:18.480 --> 0:12:23.600 out how they want to how they perceive weakness versus 0:12:23.640 --> 0:12:26.880 strength and need to hedge. And because you have to 0:12:26.920 --> 0:12:30.600 have unanimity, it was in full display and particularly around 0:12:30.679 --> 0:12:32.160 China this week that you just don't. 0:12:32.000 --> 0:12:33.880 Have it in the EU. 0:12:34.280 --> 0:12:37.079 Where you do, I think really in Asia to a 0:12:37.200 --> 0:12:39.480 larger extent visa of EA China, I'll. 0:12:39.320 --> 0:12:41.240 Be less diplomatic. You have the Commission and then you 0:12:41.280 --> 0:12:43.920 have Macron. And that's why things are confuseding in Europe 0:12:43.960 --> 0:12:45.400 right now. And let's said, that's been the story in 0:12:45.440 --> 0:12:46.400 it for the last couple of months. 0:12:46.559 --> 0:12:49.520 Well, yes, and Amanu Macron is like, hey, we're gonna 0:12:49.600 --> 0:12:51.160 so I could deal with you go China. 0:12:51.400 --> 0:12:53.559 Yeah, Hey, let's go to Beijing and the rest of Europe. 0:12:53.600 --> 0:12:54.480 It's like, what are you doing. 0:12:54.600 --> 0:12:57.160 At the same time, I wonder how much reticence there 0:12:57.280 --> 0:12:59.400 is to really partner with the US in light of 0:12:59.480 --> 0:12:59.720 some of. 0:12:59.720 --> 0:13:03.079 The subsidies, in light of some of the potential holatility. 0:13:03.240 --> 0:13:04.600 You think this is just a Macron issue? 0:13:04.640 --> 0:13:06.920 Are the reports I hear about how well liked Macron 0:13:07.040 --> 0:13:10.320 is at the G seven. It's just kind of you know, well, yeah, 0:13:10.480 --> 0:13:13.599 I was about to say less like he's liked. I 0:13:13.760 --> 0:13:16.520 imagine that's let's me trying to be diplomatic, Heidi, thank you, 0:13:16.640 --> 0:13:19.319 wonderful as always to hear from you, Haidi Kreeber Redeka 0:13:19.679 --> 0:13:22.040 of the Council on Foreign Relations. 0:13:26.280 --> 0:13:26.840 It is our. 0:13:26.760 --> 0:13:30.280 Immense pleasure to speak with Alan Ruskin, chief International strategist 0:13:30.320 --> 0:13:33.640 at Deutsche Bank. His notes are absolutely fabulous. You can 0:13:33.720 --> 0:13:36.439 get them, of course through Deutsche Bank. Alan Ruskin, you 0:13:36.559 --> 0:13:41.719 have an absolutely brilliant paragraph on M two dynamics and 0:13:41.920 --> 0:13:43.040 nominal GDP. 0:13:43.840 --> 0:13:45.760 Is the surprise of the next twelve. 0:13:45.559 --> 0:13:50.679 Months forward that we have sustained nominal GDP because of 0:13:50.800 --> 0:13:51.680 sticky inflation. 0:13:53.559 --> 0:13:55.080 It's a little bit like that, Tom. 0:13:55.120 --> 0:13:58.760 I think we're going to see, for example, data today 0:13:59.040 --> 0:14:03.400 which shows that productivity was extremely weak in Q one, 0:14:03.480 --> 0:14:06.000 but not just Q one on a trend basis, it seems, 0:14:06.559 --> 0:14:11.520 and that weakness in productivity translates to high unit labor costs, 0:14:11.800 --> 0:14:16.599 which is sort of stagflationary, and output we know is 0:14:16.720 --> 0:14:19.080 relatively weak relative to employment. 0:14:19.560 --> 0:14:22.680 That's part of the weak productivity story. 0:14:22.800 --> 0:14:26.080 So it all adds up to nominal GDP doing an 0:14:26.080 --> 0:14:30.080 awful lot better than real GDP at this point. Some 0:14:30.240 --> 0:14:33.600 of this, I think is just this natural overhang from 0:14:34.120 --> 0:14:36.280 the M two growth it had, you know, something like 0:14:36.680 --> 0:14:42.080 thirty percent M two growth above trend a year ago. 0:14:42.200 --> 0:14:46.520 That's down to about twenty percent overhang thanks to weaker 0:14:46.800 --> 0:14:49.120 M two growth that you see more recently. But still 0:14:49.240 --> 0:14:54.840 I think that's really propping up the nominal numbers. But money, 0:14:54.920 --> 0:14:58.920 monetary policy and money supply is avail. It doesn't ultimately 0:14:59.360 --> 0:15:04.040 pay you to print money. It doesn't generate real GDP growth. 0:15:04.480 --> 0:15:08.640 The real GDP growth is the recession game. Your colleagues 0:15:08.680 --> 0:15:11.960 have been brilliant on this. Matt Lozzertti has arguably the 0:15:12.080 --> 0:15:16.680 single best recession delay call of the last eighteen months. 0:15:16.760 --> 0:15:17.360 Reframe that. 0:15:17.560 --> 0:15:17.680 Now. 0:15:17.680 --> 0:15:21.360 I'm not saying agree with young Lozertti, but at least 0:15:21.440 --> 0:15:23.840 frame out the Ruskin recession to come. 0:15:24.920 --> 0:15:25.120 Yeah. 0:15:25.240 --> 0:15:28.560 You know, I've always been of opinion that given the 0:15:28.800 --> 0:15:32.280 overshoot on inflation, even if we have a mild recession, 0:15:32.560 --> 0:15:35.760 I would still cast that as potentially a soft landing 0:15:35.800 --> 0:15:39.320 sort of scenario. I know that's semantics in a sense, 0:15:39.360 --> 0:15:41.920 but I think we're still pretty much on track. But 0:15:42.040 --> 0:15:44.280 we do need to see some weakening in the labor market, 0:15:44.360 --> 0:15:46.960 and of course, everything we saw from the openings data 0:15:47.120 --> 0:15:51.800 yesterday suggests that employment will remain relatively resilient. So you've 0:15:51.840 --> 0:15:55.880 got this weird dynamic again whereby employment is relatively strong 0:15:56.200 --> 0:15:59.480 compared to output, and particularly I think we're seeing weakness 0:15:59.520 --> 0:16:02.400 in the Manu factoring sect of worldwide, so there's a 0:16:02.520 --> 0:16:03.080 you know, there's. 0:16:02.920 --> 0:16:04.440 Another story there as well. 0:16:04.560 --> 0:16:08.480 But I would say that we're still on track for 0:16:08.960 --> 0:16:13.240 something which skirts recession slash shallow recession. But it's not 0:16:13.480 --> 0:16:16.920 looking like a deep recession unless we get some sort 0:16:16.960 --> 0:16:21.000 of nonlinear event like the banking sector crisis sort of 0:16:21.120 --> 0:16:24.120 really taking hold in a proper credit crunch, which you 0:16:24.160 --> 0:16:25.560 have not actually seen as yet. 0:16:25.720 --> 0:16:28.000 You mentioned manufacturing GWN, and that distinction I think is 0:16:28.080 --> 0:16:34.040 so important. Manufacturing pmis worldwide, Europe, China Satha fifty contractionary 0:16:34.080 --> 0:16:36.760 throw in the United States pretty ugly there. It screams 0:16:37.360 --> 0:16:39.800 rate cuts in some places. Then you look at services 0:16:39.800 --> 0:16:41.800 and which make up the bulk of some of these economies, 0:16:42.120 --> 0:16:44.240 still pretty robust, and in the surprise of the last 0:16:44.320 --> 0:16:46.760 month or so has just been the breakdown in another 0:16:47.080 --> 0:16:51.240 consensus trade dollar weakness to dollar strength. And as you 0:16:51.320 --> 0:16:53.760 look at things right now, have we broken that trend? 0:16:54.280 --> 0:16:56.640 Is this something new? And if it isn't, where does 0:16:56.720 --> 0:16:59.600 that new engine of dollar weakness come from. 0:17:00.720 --> 0:17:04.200 I think it's deferred dollar weakness. You know, the whole 0:17:04.320 --> 0:17:07.600 idea of a divergence trade that worked against the dollar, 0:17:07.640 --> 0:17:11.080 whereby you know, Europe, if not outperforming, at least the 0:17:11.160 --> 0:17:14.159 ECB was hiking whilst the FED was on hold, and 0:17:15.119 --> 0:17:18.240 China was obviously you know, sort of reopening and strength 0:17:19.000 --> 0:17:21.960 that we would expect there, or we did expect there. 0:17:22.280 --> 0:17:24.960 You know, a lot of that just hasn't materialized. In fact, 0:17:25.160 --> 0:17:28.960 if anything, the US has been more resilient than anticipated. 0:17:29.200 --> 0:17:33.560 And you know, consequently, I think what you're seeing on 0:17:33.720 --> 0:17:36.680 the exchange rate is very much reflective what you've seen 0:17:36.760 --> 0:17:39.919 on interest rates spreads. So the interest rates spread story 0:17:39.960 --> 0:17:42.960 is just taking its que from this relative growth story. 0:17:44.480 --> 0:17:48.800 I think right now it depends on where the FED goes. 0:17:48.920 --> 0:17:52.600 For example, you know, if they hike in June, it 0:17:52.720 --> 0:17:55.600 seems less likely after yesterday's FED comments. But if they're 0:17:55.640 --> 0:17:58.520 hiked in June, I think we'd be down at one 0:17:58.600 --> 0:18:00.840 oh five on you're a dollar. If they don't hike 0:18:00.880 --> 0:18:02.639 in June, we can trade here in the sort of 0:18:02.680 --> 0:18:04.280 one oh seven sort of their area for. 0:18:04.359 --> 0:18:06.680 The time being. As far as you were a dollars concerned. 0:18:06.400 --> 0:18:08.879 Alan, you had this really interesting point in your latest 0:18:09.000 --> 0:18:11.120 note where you basically were saying, there's a little risk 0:18:11.200 --> 0:18:14.320 of overtightening. It does not seem to be the theme 0:18:14.359 --> 0:18:16.560 that we're hearing in the fedspeak that's been coming. 0:18:16.440 --> 0:18:19.200 Out every day, day after day. Can you explain that 0:18:19.440 --> 0:18:20.679 what that means as to. 0:18:20.680 --> 0:18:23.520 Where policies should be, where it will likely be, and 0:18:23.640 --> 0:18:25.440 what that means for longer term inflation? 0:18:26.800 --> 0:18:28.800 Yeah, I mean, I think just look at your financial 0:18:29.080 --> 0:18:32.119 you know, conditions indicators. We all have our own numbers, 0:18:32.200 --> 0:18:34.200 but if you look at the Bloomberg numbers, for example, 0:18:34.280 --> 0:18:37.200 you look at say six month financial conditions, twelve month 0:18:37.280 --> 0:18:41.040 financial conditions, if anything, they've eased rather than Titan, which 0:18:41.119 --> 0:18:44.720 is truly extraordinary. So the tightening needs to come from 0:18:44.840 --> 0:18:49.159 something like the credit side. You're not seeing it in 0:18:49.320 --> 0:18:53.160 terms of credit prices particularly maybe you know issues markets 0:18:53.680 --> 0:18:58.159 are tightened and closing up, but in general, you're not 0:18:58.840 --> 0:19:02.240 seeing a the It's kind of nonlinear event that I 0:19:02.320 --> 0:19:06.440 think would have tightened financial conditions sufficiency to rarely risk 0:19:06.560 --> 0:19:10.639 over tightening. Now maybe the Federal Reserve, which has you know, 0:19:12.000 --> 0:19:15.880 some distinct advantages in the sphere and knows a little 0:19:15.880 --> 0:19:18.159 bit more. On the banking sector side, it's clear that 0:19:18.280 --> 0:19:21.560 you do need additional consolidation over the longer term, but 0:19:21.640 --> 0:19:24.280 I think that holds the key as to whether financial 0:19:24.320 --> 0:19:26.520 conditions tighten materially. 0:19:26.800 --> 0:19:31.359 It looked like they were tightening sharply, you know, a 0:19:31.400 --> 0:19:34.080 couple of months ago, and now much less so. 0:19:34.440 --> 0:19:36.879 Alan wonderful to get your view, as always an I'm 0:19:36.920 --> 0:19:38.800 rusking there of Deutsche Bank. Thank you, sir. 0:19:49.480 --> 0:19:53.120 Chuck Graham, senior retail analyst at Gordon Hauskuld love having 0:19:53.160 --> 0:19:55.639 him on. And it is about this posing here of 0:19:55.720 --> 0:19:59.919 a hold to a buy Chuck, real simple, this deserve 0:20:00.080 --> 0:20:02.280 to a set of headlines and Macy's you nailed it 0:20:02.600 --> 0:20:05.760 with a tep at hold does Macy's become a cell. 0:20:08.280 --> 0:20:10.560 I think Macy's is still doing a really good job 0:20:10.760 --> 0:20:13.280 on a lot of fronts, and I think that's exemplified 0:20:13.359 --> 0:20:16.040 on the balance sheet, where inventory levels are still really lean. 0:20:17.080 --> 0:20:19.679 You know, Macy's is a victim of the circumstance right now, 0:20:19.880 --> 0:20:23.200 and you alluded to it. People are preferring travel, and 0:20:23.320 --> 0:20:27.600 with inflationary pressures out there, budgets are constrained. So I 0:20:27.680 --> 0:20:30.320 don't personally think Macy's is a cell. We downgraded the 0:20:30.359 --> 0:20:33.480 stock back in late March at eighteen dollars to a hold. 0:20:33.560 --> 0:20:36.080 We sensed that the guide for the year, that the 0:20:36.160 --> 0:20:39.800 outline was too optimistic, and today we're seeing that to 0:20:39.920 --> 0:20:42.080 a degree. But Macy's is still doing a lot of 0:20:42.119 --> 0:20:42.480