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Speaker 3: The Chairman of the Federal Reserve System, I'm truly in
Speaker 3: historic day. As or Michael McKee said with some emotion
Speaker 3: at two pm, made super hawkish. Fred I saw a
Speaker 3: couple of research notes saying hawkish hawkish. I don't know
Speaker 3: what hawkish means. I certainly don't know what hawkish squared
Speaker 3: means as well, but there you have some piercing questions there,
Speaker 3: and we've got some of the video to playback. That
Speaker 3: did move the market, Lisa, what I would suggest here
Speaker 3: with markets sort of a sigh of relief. We went
Speaker 3: down off the statement, we came back with a nice
Speaker 3: Nasdaq one hundred turn, Apple breaking out to new highs.
Speaker 3: We may have time to get to that, but it
Speaker 3: was in the two year yield a twenty eight basis
Speaker 3: point swing to a much higher two year yield, resetting
Speaker 3: to the new hawkish hawkish, and then we came in,
Speaker 3: is he calm the markets?
Speaker 2: My takeaway is j Powell wants to sound hawkish. He
Speaker 2: wanted to double down on super hawkishness, and he failed
Speaker 2: because basically the real key moment was that when you
Speaker 2: couldn't commit to any July rate hike. To me, this
Speaker 2: stood out in response to a question about what the
Speaker 2: change in the statement of economic projections to shift upward
Speaker 2: fifty basis points of further rate hikes, what that meant
Speaker 2: about July.
Speaker 1: Take a listen.
Speaker 4: We didn't make a decision about July. I mean, of
Speaker 4: course it came up in the meeting from time to time,
Speaker 4: but really the focus was on what to do today.
Speaker 4: I would say about about July two things. One decision
Speaker 4: hasn't been made to I do expect that it will
Speaker 4: be a live meeting.
Speaker 2: The live meeting was not the same as we have
Speaker 2: an indication that we are going to raise rates, and
Speaker 2: at that point you start to see the shift in markets,
Speaker 2: with equity starting to lift and getting it at one
Speaker 2: point up as much as a half a percent on
Speaker 2: the Nasdaq, and you can see a real retracement of
Speaker 2: those bond yields. Basically, if you're not going to commit
Speaker 2: to a July rate hike, why should we believe the
Speaker 2: average of a statement of economic projections by committee members?
Speaker 3: We chat Aaron a moment. We've got some very important
Speaker 3: stuff from some of the great academics across the nation.
Speaker 3: I'm going to feature Jason Furman here in a bit.
Speaker 3: If you're just joining us, we welcome you on radio,
Speaker 3: on television at Worldwide. Tom Keen and Lisa Bramwis. Jonathan
Speaker 3: Ferrell on assignment on one of three islands in Italy.
Speaker 3: I'm not sure which one is, Like you know, I
Speaker 3: think Capri.
Speaker 1: How do you call vacation assignment? I don't understand.
Speaker 3: Because I'm American. We don't go on vacation. Little faraoh
Speaker 3: goes in holiday, which is a good and beautiful thing.
Speaker 3: We're gonna have some great conversation coming up here and
Speaker 3: in moments, Talia, do we have the Furman tweet here?
Speaker 3: I think this is too important. It's in a good
Speaker 3: SAGIWI and the Jeffrey Rosenberg here in a moment, did
Speaker 3: we get that this is Jason Furman of Harvard. Of course,
Speaker 3: with his public service to the nation and teaching, I
Speaker 3: should say x ten at Harvard, which gives him great
Speaker 3: credit as well. The FOMC is signaling a baby step
Speaker 3: away from a belief in low equilibrium interest rates. The
Speaker 3: median long run FFR was unchanged, two and a half
Speaker 3: of the central tenantcy shifted up, and then all three
Speaker 3: of the lowest long run dots shifted up. Expect more
Speaker 3: of this shift over time, Professor Furman of Harvard University.
Speaker 3: Joining us on Jeffrey Rosenberg, portfolio manager of Systemic Multi
Speaker 3: Strategy Fund at Blackrock.
Speaker 1: Oh, he's not good yet.
Speaker 3: Okay, we'll get to Jeffrey Rosenberg in a moment. Joining
Speaker 3: us now our academic Michael McKee here, which I thought
Speaker 3: what was great, Mic is for the first time in
Speaker 3: age if someone had a ruder question than you, which
Speaker 3: I think was very good. Michael McKee, Jason Furman, I think,
Speaker 3: with summary here of the history that Mike I heard
Speaker 3: in your voice at two o'clock, this is an extraordinary moment, Mike.
Speaker 3: Is this where the FED begins to shift, where we're
Speaker 3: heading up to our former vice chair? Clarity says so
Speaker 3: the Jason Furman alludes to that finally we're beginning to
Speaker 3: find a new level above two percent.
Speaker 5: Well, it may be the issue there is going to
Speaker 5: be how long it takes inflation to come down, which
Speaker 5: is sort of the genesis of the question that I
Speaker 5: asked in terms of whether it's time or data that's
Speaker 5: going to make a difference. I think a lot of
Speaker 5: what went into today's decision was the Reserve Bank of
Speaker 5: Australia and the Bank of Canada took rate moves off
Speaker 5: the table, and the markets were then shocked when they
Speaker 5: had to come back and raise rates again. So they
Speaker 5: don't know if they're going to need to raise rates again.
Speaker 5: They think if nothing changes that they may need to.
Speaker 5: They're giving themselves that flexibility. They don't want markets to
Speaker 5: price in the end of tightening or any of rate
Speaker 5: reductions in the near term. But Pole seemed to indicate
Speaker 5: that while they have these two rate moves priced into
Speaker 5: their dot plot, it doesn't mean they're necessarily going to
Speaker 5: do them. They will see what happens with inflation with
Speaker 5: the economy going forward. So July may be live, as
Speaker 5: he said, but if we don't see a lot of change,
Speaker 5: I think you're going to see a lot of people
Speaker 5: leaning towards the idea of the Fed holding again.
Speaker 2: That I thought was really interesting, and you asked a
Speaker 2: great question which he did not answer. He really just
Speaker 2: kept saying, look at the statement of economic projections, Look
Speaker 2: at the dot plot. How much we witnessing attention between
Speaker 2: j Powell as an individual representative on the FMC versus
Speaker 2: the committee which is significantly more hawkish than he is.
Speaker 5: I think it's going to be very interesting, Lisa, to
Speaker 5: listen to what the Fed officials have to say over
Speaker 5: the coming weeks, Because if you had asked where we
Speaker 5: would get dissents at this meeting, we would have said,
Speaker 5: and I think everybody on Wall Street would have said,
Speaker 5: from the hawkish members. But now it appears that the
Speaker 5: hawks led the way, Powell going in, Jefferson going in,
Speaker 5: and William's going in, essentially leaning towards the pause and
Speaker 5: leaning perhaps more Dubvish than others. So what was it
Speaker 5: that drew them into this idea of an additional two
Speaker 5: rate moves? If they indeed joined in, it's hard to
Speaker 5: imagine Powell not doing it. But there were some dots
Speaker 5: below the new median, but it does seem that the
Speaker 5: group as a whole group more hawkish. So what brought
Speaker 5: that on? And is their division? Was their division or
Speaker 5: did we all kind of misread it. It's it be
Speaker 5: interesting to listen to their speeches in the next couple
Speaker 5: of weeks.
Speaker 2: Agreed, and he even indicated that listen to their speeches
Speaker 2: and they'll tell you what they think. Michael VICKI thank
Speaker 2: you so much as always for your terrific world and
Speaker 2: just sort of saying right now we are seeing that
Speaker 2: lift reignite inequities NASDAC up three times on the percent
Speaker 2: as you really reassess the commitment that this FMC truly
Speaker 2: has trans rates next.
Speaker 3: Month critically, and this is perfect to go to Jeffrey
Speaker 3: Rosenberg on the VICS, which is in the equity space.
Speaker 3: This is the volatility measurement around the standard of course
Speaker 3: five hundred bursts down to a constructive thirteen point nine.
Speaker 3: A boy, we taken volatility out of the equity markets here,
Speaker 3: and of course Jeff Rosenberg that's part of his view
Speaker 3: as the systemic multi strategy fund manager for black Rock.
Speaker 3: He's been so wonderful to be with surveillance here for
Speaker 3: a good amount of time. Jeff, I'm going to go
Speaker 3: to the history right now. We'll get to the vix
Speaker 3: in a moment and what it means for the yield space.
Speaker 3: Professor Furman at Harvard says, today's a sea change. And
Speaker 3: finally we're getting the verbiage from our central bank to
Speaker 3: get away from what you know. I'm going to associate
Speaker 3: this with John Taylor, where we had a run rate
Speaker 3: under two percent one point eight one point seven percent.
Speaker 3: We use two percent as a language, and finally we're
Speaker 3: going to start admitting we're going to come down to
Speaker 3: something above two percent. Is that what hawkish hawkish meant today?
Speaker 6: You know, it could be part of that Tom That's a.
Speaker 7: That's a that's a huge deal long run, because it
Speaker 7: implies that lot or space for the FED to reach
Speaker 7: its terminal rate because the real neutral rate is higher
Speaker 7: than anticipated. I'm not sure that's so clear. I think
Speaker 7: that's an interesting read. I think what's really clear here
Speaker 7: in the market reaction is the FED, you know, mark
Speaker 7: to market and upgrade.
Speaker 6: It's upgraded its assessment.
Speaker 7: Of the economy, and you know that's good news in
Speaker 7: some sense. This is about you know, really pushing back
Speaker 7: hard against the recession. Consensus, the recession expectations from consensus
Speaker 7: in terms of economics, and consistent refrain all year long
Speaker 7: that it's just around the corner. It's just around the corner,
Speaker 7: not around the corner. And yes, you've got the FED
Speaker 7: who's got to push back against that. But for the
Speaker 7: kind of back in and forth in financial markets is
Speaker 7: a little bit about, hey, this economy is a little
Speaker 7: bit more resilient, and Powell admitted it, it's been much
Speaker 7: more resilient to the five hundred basis points than they expect,
Speaker 7: than anyone expected, both in terms of the economy.
Speaker 3: Jeff, to me, this is a foundational moment, and your
Speaker 3: colleague Waylee nailed this a couple of days ago, and
Speaker 3: that there just seems to be a resilience here that
Speaker 3: deserves a higher interest rate structure. Did we get wrong
Speaker 3: the recession idea in the sense that for whatever reason, technology, demographics,
Speaker 3: the other factors. Blenchard talks about that this is just
Speaker 3: simply a much more resilient American economy that we have
Speaker 3: to deal with in finance.
Speaker 7: Yeah, and resilient to what resilient to interest rate sensitivity?
Speaker 8: Right?
Speaker 7: I got done talking about housing interest rate sensitive sectors
Speaker 7: they're the most, they're the fastest to respond.
Speaker 6: Yes, we've seen that. What we haven't seen is the
Speaker 6: rest of the economy. And so what that might.
Speaker 7: Imply is a lot less interest rate sensitivity to tightening,
Speaker 7: and higher interest rate than is expected. And so either
Speaker 7: you need a lot more and what's really missing here
Speaker 7: is the admission that you need to do a lot
Speaker 7: more damage to the labor markets to really reign in
Speaker 7: that inflation.
Speaker 6: Otherwise you're going.
Speaker 7: To be living with a lot longer, more persistent inflation
Speaker 7: than a lot of the forecasts, including the FED, and
Speaker 7: these updated SAP are implying.
Speaker 2: Jeff, do you believe Fed Chair J Powell that this
Speaker 2: FED is going to go twice more?
Speaker 7: I think twice more is not too high of a bar.
Speaker 7: I think the market had one more. A little bit
Speaker 7: of the surprise in the sep here is that you've
Speaker 7: got two more. I don't really think that's the surprise.
Speaker 7: I think the surprise is what I was just sort
Speaker 7: of implying that, if indeed you don't see inflation.
Speaker 6: Respond more aggressively.
Speaker 7: And to Tom's first question, if indeed the real neutral
Speaker 7: rate is much higher than what Williams was just highlighting
Speaker 7: in a recent speech. Yes, and what people think is,
Speaker 7: you know, no change from the pre COVID environment, then
Speaker 7: that terminal rate is much higher. Not fifty basis points,
Speaker 7: but hundreds of basis points, and that would end up
Speaker 7: being a big surprise. I'm not saying that's where we're going.
Speaker 7: But the longer that you don't see the response in
Speaker 7: labor markets in inflation, the more the data is telling
Speaker 7: you that you're not tight in terms of policy, and
Speaker 7: to get tight you got to go a much higher.
Speaker 2: If that's the case, then why are equity markets up
Speaker 2: right now? Why is the Nasdaq actually gaining stability and
Speaker 2: then some even on the heels of projected further tightening.
Speaker 7: So I think, you know, there's a big story around
Speaker 7: the Nasdaq and some concentration issues around spots.
Speaker 6: Tech is back as sort of the safe haven and
Speaker 6: the safe.
Speaker 7: Place to go, so you have a little bit of
Speaker 7: that issue. It's not a high breadth market move.
Speaker 2: You well, one a second, but Jeff, I'm sorry to interrupt,
Speaker 2: and I realized this is difficult, but this is important
Speaker 2: because it's not just what it has been doing. It
Speaker 2: is in response to what we saw today that as
Speaker 2: j Powell started to talk, and as he was basically
Speaker 2: saying they have no committed to a July rate hike,
Speaker 2: you saw a real enthusiasm kind of percolate up. Doesn't
Speaker 2: that tell you something more than just simply AI hype.
Speaker 6: Well, it is more than that.
Speaker 7: And what I was going to extend that is it's
Speaker 7: back to what is the safe haven for equity investors.
Speaker 7: The safe haven is large cap tech and so you've
Speaker 7: added a few new semiconductor companies in that list. We
Speaker 7: got new funny acronyms to describe that new equity market concentration.
Speaker 7: But it's about where do I go when I'm uncertain.
Speaker 7: I go into these large cap companies because that's what's say.
Speaker 7: If you want to see the broader economic impact, then
Speaker 7: you got to look at Russell two thousand. You got
Speaker 7: to look at small caps and you see a big
Speaker 7: gap in that performance today. I think that's where you
Speaker 7: search more about the economic sensitivity and where the vulnerabilities.
Speaker 6: Thank you very much for pulling that up.
Speaker 7: And that's where you see the disconnected and that's where
Speaker 7: I think you can square somewhat of the Oh that's
Speaker 7: got to do more, that's not so good for the economy.
Speaker 6: Okay, so that's not so.
Speaker 7: Good for the movement into economic sensitive stuff. If you
Speaker 7: if you run this back a little bit further from
Speaker 7: the beginning of the month, from the end of May payrolls,
Speaker 7: you see Russell was actually leading the stock markets.
Speaker 6: And so this kind of rotation is.
Speaker 7: About uh oh, all right, I go back to my
Speaker 7: safe haven. It's just my safe haven in this new
Speaker 7: world is large cap tech. It's not the two The
Speaker 7: Fed's raising rates, and so this is where you see
Speaker 7: market dynamics going.
Speaker 6: I think it's all very consistent.
Speaker 3: Jeff Rosenberg, thank you so much today with black Rock
Speaker 3: on a busy, busy afternoon. You want to get Michael
Speaker 3: McKeon here for one more question before we get to
Speaker 3: doctor Carpenter as well. Mike, I'm going to assume the
Speaker 3: dots of twenty twenty three, I was twenty five sprawl
Speaker 3: from Bullard to Goulesby. What are we going to hear
Speaker 3: in the next FED speak Derby? How do all these
Speaker 3: speakers deal with a hawkish hawkish statement?
Speaker 5: Well, I think first of all, you throw out the
Speaker 5: twenty twenty five dots because those are just sort of
Speaker 5: darts on a board.
Speaker 8: They don't have Yes, you may.
Speaker 5: They don't have any idea where we're going to be
Speaker 5: in twenty twenty five. They don't know about twenty twenty four.
Speaker 5: As Powell admitted today, the economy has surprised with its
Speaker 5: strength this year, and we got these surprising move in
Speaker 5: the dot plot this time. So I wouldn't look that
Speaker 5: far out. But I think what you do want to
Speaker 5: say is that we're going to see who can define
Speaker 5: what it would take for them to move again. Obviously
Speaker 5: Austin Golesby probably doesn't want to do very much. But
Speaker 5: if the Fed is going to move, if Jim Bullard
Speaker 5: is going to move, is it going to be that
Speaker 5: time question, the fact that inflation doesn't come down, or
Speaker 5: is it going to be the fact that inflation goes
Speaker 5: back up again.
Speaker 8: That's what they need to find out.
Speaker 2: Based on this question that Tom is rightly asking. Are
Speaker 2: you seeing this shift as evidenced by some of these
Speaker 2: projections and even what we heard from j Powell? Are
Speaker 2: they moving the terminal rate higher than what we've I'm
Speaker 2: accustomed to.
Speaker 8: Well, yes, I think they are.
Speaker 5: They do think that we could go to as much
Speaker 5: as five and three quarters percent.
Speaker 8: Or six percent.
Speaker 5: The issue is if they start to get that high,
Speaker 5: what second round effects are there, and so they're going
Speaker 5: to be reluctant to move, but they want to leave
Speaker 5: that possibility open because the economy has been so strong
Speaker 5: and they don't think that it is going to react
Speaker 5: as it has in the past. And one interesting thing
Speaker 5: today is by moving up to one percent for a
Speaker 5: GDP growth figure this year, they're.
Speaker 8: Implicitly pricing out a recession.
Speaker 5: So while pal says the risks are still onto the
Speaker 5: upside for inflation, they're not to the downside anymore, at
Speaker 5: least as far as the Fed is concerned, it seems,
Speaker 5: with going too far, tightening too much and sending the
Speaker 5: economy into contraction.
Speaker 3: Michael McKeith, thank you so much, really really exceptional. They're
Speaker 3: reporting us out at two o'clock and how original this
Speaker 3: statement was today, mister McKee in charge of all of
Speaker 3: our economic coverage, we finished strong. Lisa with the or ghost.
Speaker 2: With someone who has extensive experience at the Federal Reserve
Speaker 2: and beyond in government making some of these decisions and
Speaker 2: seeing the mechanics of it. Someone who currently heads the
Speaker 2: economics team as global chief Economist at Morgan Stanley, Seth
Speaker 2: Carpenter joining us now, and I am curious your reaction.
Speaker 2: Why are markets up if the FED is shifting upward
Speaker 2: its expectation of terminal rates.
Speaker 9: Yeah, I think there was a lot to impact there.
Speaker 9: I think Lisa was listening to the show earlier and
Speaker 9: you pointed out that Powell was unwilling to commit to July,
Speaker 9: called it a live meeting, which I think makes sense,
Speaker 9: but he didn't want to lock himself in. And I
Speaker 9: think the equity market might be saying, gosh, maybe we
Speaker 9: got off easy. There could have been an even more
Speaker 9: hawkish outcome. Look what happened with the dots, and now
Speaker 9: Powell is saying, Okay, that's not baked in the cake.
Speaker 8: So I think your analysis earlier was pretty.
Speaker 1: Spot on at this point.
Speaker 2: Was that a failure at a time when inflation has
Speaker 2: been sticky or is it FED seeing something that perhaps
Speaker 2: others are overlooking in terms of how quickly this economy
Speaker 2: is seeing justinflation.
Speaker 9: I wouldn't call it a failure, and I don't know
Speaker 9: that they're seeing something that other people are. And I
Speaker 9: think one way you can interpret the rates market reaction,
Speaker 9: which is say, not solely pricing in what dot plot says,
Speaker 9: is the market understands that the FED decisions will be
Speaker 9: dependent on the incoming data, and I don't think the
Speaker 9: market shares the view that inflation is going to be
Speaker 9: nearly as high as what the Fed's written down.
Speaker 8: Their forecast for core.
Speaker 9: PCE inflation at the end of this year went up
Speaker 9: by a sizeable amount. Looking at my colleague Ellen Zenner
Speaker 9: and her team's forecast for CPI inflation, just the next
Speaker 9: print that we get next month, it's going to be really,
Speaker 9: really hard to get anywhere close to the Fed's core
Speaker 9: inflation forecast for this year. And so if we're right,
Speaker 9: and if the market's right on where inflation is going
Speaker 9: to go for the next print, boyd, the committee probably
Speaker 9: will be seeing a different tune.
Speaker 8: I think that's part of what's going on.
Speaker 9: That will actually, I think did a reasonably good job
Speaker 9: keeping that hawkish option there while not having a hike
Speaker 9: at this meeting.
Speaker 3: It's original territory to say the least focus is not
Speaker 3: a cliche. This is not something Seth. Carpenter was taught
Speaker 3: at Princeton by a guy named Bernanki and Alan Blinder
Speaker 3: and other greats of a Princeidon. Doctor Carpenter, I look
Speaker 3: at where we are, and if I can state it
Speaker 3: is original territory, it's in some form original economics. Do
Speaker 3: we just simply have to really start thinking of a
Speaker 3: higher our start is Jeff Rosenberg said, maybe away from
Speaker 3: what John Williams codified a few weeks ago.
Speaker 9: I'm not convinced that we have enough information yet to
Speaker 9: get there. And in fact, any estimation that gets done
Speaker 9: of our star just takes so many years of data
Speaker 9: to get any sort of precision on it.
Speaker 8: And the committee really.
Speaker 9: Has to make decisions at a meeting by meeting basis.
Speaker 9: So they're going to do in practice what all of
Speaker 9: those fancy statistical techniques do, which is look at the
Speaker 9: data and ask the question, given where the industrate is now,
Speaker 9: is inflation rising or falling? Is the economy slowing or
Speaker 9: speeding up? And if the answer is inflation's coming down
Speaker 9: a bit and the economy is slowing down a bit,
Speaker 9: then you just conclude we're above are star. It's literally
Speaker 9: as simple as that, and in real time, it is
Speaker 9: the best that they can do.
Speaker 3: I first met ellen Zettner in a true expertise of
Speaker 3: measuring the American consumer. I believe it saw a FED
Speaker 3: today walk greatly away from a recession call. Maybe we'll
Speaker 3: see contractions slow down in some form of stag nation.
Speaker 3: Who knows, but doctor Carpenter. If I look at Alan
Speaker 3: Zettner's study of the American consumer, the great miscall of
Speaker 3: the last six months is this is a good economy.
Speaker 3: We are buoyant, we are spending money. Do you see
Speaker 3: any amendment of that today? I mean, can we believe
Speaker 3: in that forward that it's a better than good econom.
Speaker 9: So good is in the eye of the beholder a bit.
Speaker 9: I mean, the unemployment rate is quite low. We've had
Speaker 9: spending hold up. But I would just stress we have
Speaker 9: had here at Morgan Stanley since the beginning of this
Speaker 9: rate hiking cycle, a call that we would get as
Speaker 9: soft landing. We think inflation is coming down, we think
Speaker 9: inflation will continue to come down. But we have never
Speaker 9: had as a baseline forecast of the US economy we
Speaker 9: would go into recession. And I feel really comfortable that
Speaker 9: we had that view before that we're sticking to that
Speaker 9: view now.
Speaker 2: Jeff Rosenberg had an interesting comment when he was looking
Speaker 2: at the performance of the Nasdaq as per usual these days,
Speaker 2: seeing gaines on both the S and P and the
Speaker 2: Nasdaq and then looking at nearly a percent loss on
Speaker 2: the Russell two thousand and basically this goes into the
Speaker 2: haven stocks. The haven assets are the big companies and
Speaker 2: the smaller ones are being increasingly left behind. Even if
Speaker 2: we do get a soft landing, how is that dynamic
Speaker 2: going to rejigger the haves emma have nots in corporate America.
Speaker 9: I think there's just a whole set of cross currents
Speaker 9: going on here. And as we often like to say,
Speaker 9: the economy is not the market. In the market is
Speaker 9: not the economy. We do think there's still more slowing
Speaker 9: to happen. There's probably going to be a little bit
Speaker 9: more slowing going on in some of the good sectors
Speaker 9: than in the services sector, and so that's going to
Speaker 9: change a bit who the winners and the losers are.
Speaker 9: We do think Europe is going to be slow as well,
Speaker 9: and so those companies that are exposed to the rest
Speaker 9: of the world through exports are probably going to fare
Speaker 9: a bit differently than those that are just domestically focused.
Speaker 9: So I think it is a very very tricky time
Speaker 9: now for investors to try to parse out just from
Speaker 9: the headline macro numbers, what is going to.
Speaker 8: Mean for the individual components of the equity market.
Speaker 2: Are you seeing signs set of material disinflation on the
Speaker 2: wage front at a time when Jay Powell did talk
Speaker 2: about the fact that there was some sort of right
Speaker 2: sizing or in the balance between supply and demand for labor,
Speaker 2: are you seeing signs that there is going to be
Speaker 2: a significant drop bar resistant area that remains.
Speaker 1: Sticky even as you see disinflation in goods.
Speaker 9: So two critical points that I would make here. One
Speaker 9: is we have been just pounding the table for quite
Speaker 9: some time that the labor market is tight, but it's
Speaker 9: tight in the sense that they're actually there's a bit
Speaker 9: of a shortage of workers relative to the amount of
Speaker 9: economic activity. So we can get the economy to slow
Speaker 9: down without there having to be a whole wave of layoffs.
Speaker 9: And that's part of our thesis for a soft landing.
Speaker 9: And I think Powell sort of nodded in that direction
Speaker 9: by pointing out that vacancies are coming down, hirings are
Speaker 9: coming down, but firings are not really going.
Speaker 8: Up a lot.
Speaker 9: So I think that's the first point. The second point
Speaker 9: that I think is very much worth emphasizing. However, and
Speaker 9: Jay Powell was asked about this.
Speaker 8: A little bit.
Speaker 9: He referred to the Bernanki and Blanchard paper. But we
Speaker 9: have been saying now from several quarters in a row.
Speaker 9: People overestimate how critical wage inflation is for the resulting
Speaker 9: consumer price inflation. They are clearly correlated. But most of
Speaker 9: the direct action of caudality is from consumer prices to wages.
Speaker 9: I am not worried about the current setting of wage
Speaker 9: inflation being the thing that drives inflation higher.
Speaker 3: So the carpenter, I've got two and a half minutes left.
Speaker 3: Let's look at the heritage of Morgan Stanley economics. Steve
Speaker 3: Roach invented it. You followed on with great international economics.
Speaker 8: You come down the.
Speaker 3: Ramp at the Hong Kong Airport and there are the
Speaker 3: two billboards. It's Morgan Stanley, Greet you to China, Greet
Speaker 3: you to Hong Kong. And certainly it changed Hong Kong.
Speaker 3: Now our Secretary of State will visit China. That is
Speaker 3: in the news today. And the great mystery is the
Speaker 3: strength of the Chinese economy and what it means for America.
Speaker 3: What is the reporting of Morgan Stanley on the strength
Speaker 3: of the Chinese economy.
Speaker 9: Well, we remain reasonably upbeat about the outlook for Chinese
Speaker 9: economic growth this year, and it has been such a
Speaker 9: roller coaster over time. We were bullish on China a
Speaker 9: bit before the market was, and then the market got
Speaker 9: way over at SKI when the first quarter data came
Speaker 9: out and the opening.
Speaker 8: Up process started happening.
Speaker 9: Now I see lots of people getting super bullish on China,
Speaker 9: and our view is and has been, it will be
Speaker 9: domestic spending leading the way. It will be domestic spending
Speaker 9: on services, that's the biggest part of it. And if
Speaker 9: and when the rest of the economy starts to weaken
Speaker 9: as we have started to see for some Q two data,
Speaker 9: there's going to be some policy support coming out to
Speaker 9: keep the housing market from collapsing again, to keep infrastructure
Speaker 9: from being a drag on the economy. But no two
Speaker 9: ways about it, we think China's going to have far
Speaker 9: exceed its official five percent growth rate target this year.
Speaker 2: Seth Carpenter, thank you so much for taking the time
Speaker 2: as always, and we look forward to catching up with
Speaker 2: you throughout the weeks ahead as we continue to contemplate
Speaker 2: the pace of disinflation and the nexcess of China, which
Speaker 2: is actually really interesting, this idea that any stimulus could
Speaker 2: then reignite some of the growth that people have been
Speaker 2: looking for.
Speaker 3: And it goes right over to the ramifications of thees
Speaker 3: ESB easier, good afternoon, folks here for fifteen hours. And
Speaker 3: what it goes over to, Lisa, here is the ECB
Speaker 3: and how they react to a hawkish hawkish fed.
Speaker 2: Right, the idea of a hawkish skip, a super hawkish
Speaker 2: skip over to you, Christine Legard. Tomorrow we will hear
Speaker 2: from our here's the score in markets, an ASTAC still
Speaker 2: maintaining a gain app and tens of percent on the
Speaker 2: S and P down about a tenth of a percent.
Speaker 2: But I keep going back to what Jeff Rosenberg had
Speaker 2: to say about the Russell two thousand. There you're seeing
Speaker 2: a material decline, regardless of any potential optimism about perhaps
Speaker 2: fewer rate hikes or a temperate fed. That is where
Speaker 2: you're seeing it sell off almost a percent. As people
Speaker 2: take a look at smaller companies and how much they're
Speaker 2: going to struggle.
Speaker 3: Or they take a look at big companies, as we
Speaker 3: showed Apple earlier, buttressed ride up against those recent highs,
Speaker 3: a little bit away from being a three trillion dollar company,
Speaker 3: and to me, it's again I go back to my
Speaker 3: arch theme to Americas that have and they have nots
Speaker 3: and of course Chairman Paul trying to speak to both
Speaker 3: parts of our economy. Let's be honest, there's a huge
Speaker 3: part of America flat in.
Speaker 2: Their back, which really is perhaps the reason why he
Speaker 2: started with saying our dual mandates, they want to support employment,
Speaker 2: they want to bring inflation down. That was a nod
Speaker 2: perhaps to some of the political pressures.
Speaker 3: We're looking at the Marcus now the down negative two
Speaker 3: sixty six. If the vix is really cinteresting with a
Speaker 3: thirteen handle here fourteen point zero one on the Vicks
Speaker 3: and market close here will be very very interesting A
Speaker 3: good minutes away, fifteen minutes away from that, what we're
Speaker 3: going to give you a course is more reaction to
Speaker 3: the FED decision what it means for the American economy.
Speaker 3: Torsten Slock has been absolutely on fire at Apollo. He
Speaker 3: will join Jay Barry, co Head of US Rates Strategies
Speaker 3: at JP Morgan and we're thrilled to close out with
Speaker 3: our team here on a FED Decide's Day with Ethan Harris,
Speaker 3: Bank of America, Head of Global Economic Research. When you'd
Speaker 3: say thank you to all of you, and particularly John
Speaker 3: Ferrell on assignment. We'll see in July the Fed decize.
Speaker 3: Good morning.
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Speaker 2: and this is Bloomberg