Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Let's turn to the day jobless claims coming in at
Speaker 2: a nice to thirteen against the estimate of two fifteen
Speaker 2: and the previous number of two twelve. Lisa, jobless claims
Speaker 2: and continuing claims speak to the same thing we've been
Speaker 2: talking about for quite a while. Low higher, low fire,
Speaker 2: low fire captured in jobless claims, initial claims being very low,
Speaker 2: low higher captured in some very sticky high continuing claims.
Speaker 3: Yeah, and if you take a look at the initial
Speaker 3: claims four week moving average, it actually has gone lower
Speaker 3: from two hundred and twenty thousand in a week before
Speaker 3: to two hundred and fifteen thousand, essentially with this latest
Speaker 3: data so highlighting that. But you're right, continuing claims you've
Speaker 3: got to pay attention to, because it actually kicked upward
Speaker 3: to eighteen to one point eight six eight million, up
Speaker 3: from one point eight two million. A question here about
Speaker 3: whether that means that people aren't hiring, whether that's the issue,
Speaker 3: whether this is just a staff foo tied to whether
Speaker 3: or some other disrupt or, whether this really does highlight
Speaker 3: that maybe initial job with claims don't really show the
Speaker 3: pain that people experience on under the surface.
Speaker 2: This leib Marca has been frozen for quantu wile and
Speaker 2: this states of this morning speaks to the same thing.
Speaker 2: It's the right kind of downside surprise on initial claims,
Speaker 2: and it's the wrong kind of upside surprise on continuing claims.
Speaker 2: My McKay standing by, he's having to look at the data,
Speaker 2: and he's got a special guest for us as well.
Speaker 4: Come morning, Mike, Good morning, John Well. Claims are not
Speaker 4: the only number out this morning that matters. We're also
Speaker 4: looking at import prices for the month of January on
Speaker 4: a month over a month basis, they're up two tenths
Speaker 4: of eight percent after a decline in the prior month.
Speaker 4: And we're also seeing ex petroleum up four tenths. That
Speaker 4: puts kind of a lie to the idea that foreigners
Speaker 4: are absorbing the tariffs because the prices should go down
Speaker 4: if that's the case. Also, productivity up two point eight percent,
Speaker 4: which sounds good, except it was up by five point
Speaker 4: two percent in the third quarter, so not as great
Speaker 4: a news as perhaps people had hope. Let's get a
Speaker 4: read on how the economy is doing. Now. You mentioned
Speaker 4: a special guest, and indeed we do have one, Tom Barkin,
Speaker 4: president of the Richmond Fed. We're here at the Richmond
Speaker 4: Fed with him. And I know you haven't an attence
Speaker 4: to really look at these numbers, but in general, the
Speaker 4: low fire, low higher economy and the tariff affected economy
Speaker 4: seem to be about what they have been.
Speaker 1: Well, it's always good to come on right after a
Speaker 1: bunch of data comes out, but I wouldn't be as
Speaker 1: negative on the productivity as you just were. Two point
Speaker 1: eight percent on a last ten or twenty or thirty
Speaker 1: year basis is a really good number, and I think
Speaker 1: we are seeing companies invest in productivity and deliver it.
Speaker 1: Some of that technology AI, but I think a lot
Speaker 1: of it is you were caught short workers three years ago.
Speaker 1: You invested in new processes, new staffing models, automation, and
Speaker 1: people are seeing the results.
Speaker 4: Today and that holds down inflation.
Speaker 1: It does hold on inflation, and it allows people to
Speaker 1: maintain margins at times when their input costs might be
Speaker 1: coming up.
Speaker 4: Well, input costs are probably going up for people who
Speaker 4: use petroleum. So I want to start there with Obviously,
Speaker 4: the IRN war just started, but what's your gut feel
Speaker 4: about how that's going to impact prices and the economy.
Speaker 1: Don't have any sense on how long it's going to
Speaker 1: take or what the implications are going to be. Obviously,
Speaker 1: you watch oil prices. While the US is no longer
Speaker 1: in that importer, it's still the case that the price
Speaker 1: at the pump matters a lot in terms of sentiment,
Speaker 1: in terms of crowding out other spending. And so I'm
Speaker 1: just watching prices at the pump. They've jumped up over
Speaker 1: the last week. You can see that when you drive around.
Speaker 1: But of course no one knows whether this is going
Speaker 1: to be short term or long term, and so we'll
Speaker 1: just see where it goes.
Speaker 4: Well, back in the nineteen seventies, we had the oil
Speaker 4: price shock and we had gas lines and people were
Speaker 4: miserable and having to pay all this money, and so
Speaker 4: they've had eased into that that turned out to be
Speaker 4: a mistake. Does this put on hold ideas for the
Speaker 4: time being of continuing to cut rates.
Speaker 1: Well, I think we'll go meeting by meeting and we'll
Speaker 1: see what we see when we get there. Gas prices, obviously,
Speaker 1: if they're up, that is inflationary. Textbook monetary policy would
Speaker 1: be you look through a short term shock, but you
Speaker 1: don't look through a long term shock, and I think
Speaker 1: that's a lot of the assessment people are going to
Speaker 1: have to make.
Speaker 4: The Open Market Committee before the Iran War started. Basically,
Speaker 4: the views seem to be that we're at peak tariffs
Speaker 4: now and inflation will start to come down in the
Speaker 4: latter half of the year. But you throw this into
Speaker 4: the equation, where would you put yourself in terms of
Speaker 4: thinking about the progression of inflation and when you might
Speaker 4: have enough information to decide whether a cut is worthwhile
Speaker 4: or not.
Speaker 1: Well, we'll have to see how it evolves if you
Speaker 1: go back to the fall. The conversations I have with
Speaker 1: businesses suggest to me that they believe their pricing power
Speaker 1: is very limited. Consumers are exhausted by inflation affordability. People
Speaker 1: are pushing back, whether that be not purchasing or private label,
Speaker 1: or trading down to lower price retailers, or repairing rather
Speaker 1: than replacing, and so in the cut conversations you have,
Speaker 1: you do have a sense that we're on the backside
Speaker 1: of this inflationary period, we'll head back to normal, and
Speaker 1: the numbers in the fall apps and the government shut down,
Speaker 1: we're saying much the same thing I will say over
Speaker 1: the last month, and with the PC numbers that we're
Speaker 1: expecting next week, you've got a couple months of relatively
Speaker 1: high inflation. That certainly puts pause to any conclusion that
Speaker 1: we're done, you know, fighting this, But we'll see where
Speaker 1: we go.
Speaker 4: Well slicing the business leaders are telling you a little
Speaker 4: more closely. They know consumers are price sensitive and they're
Speaker 4: worried about that. But are they also in a situation
Speaker 4: where they've had to absorb too much and if we
Speaker 4: see more price increases of inputs, they're going to have
Speaker 4: to raise prices.
Speaker 1: Well, that's when we come back to productivity as being
Speaker 1: so key to this whole story. Because most every business
Speaker 1: I talked to last April that got tariffs was going
Speaker 1: to pass it on. It was just clear, and you know,
Speaker 1: they needed to maintain margins that consumer was going to
Speaker 1: have to take it. And when they experiment with that,
Speaker 1: they got a lot of push back, and so prices
Speaker 1: didn't increase the way that a lot of those folks expected. Now,
Speaker 1: their margins have been very steady, and so corporate margins
Speaker 1: are quite healthy. Earnings were up I think thirteen percent
Speaker 1: fourth quarter a year every year, and that's because productivity
Speaker 1: has allowed people to absorb these hits without you know,
Speaker 1: having effect margins and having to pass it on fully
Speaker 1: in prices. And when you start seeing good productivity numbers
Speaker 1: over and over and over again, that gives you some
Speaker 1: hope that can continue.
Speaker 4: What are you hearing from businesses about the other side
Speaker 4: of your mandate employment? Obviously we're seeing low, low fire continue.
Speaker 3: Yeah.
Speaker 1: I have to say the businesses I talk to when
Speaker 1: they describe the labor market, they describe it as pretty open,
Speaker 1: maybe even loose, availabilities, high turnovers low. I was with
Speaker 1: a bunch of poultry processors in the Eastern Shore who
Speaker 1: told me that even after losing workers you know, to
Speaker 1: temporary protected status, they've been able to replace them relatively
Speaker 1: relatively easily. And if you can replace poultry workers, I
Speaker 1: think you've got a reasonably open job market. And of course,
Speaker 1: going back to the fall, that's what we saw as
Speaker 1: unemployment was ticking up. I will say the last couple
Speaker 1: months of employment data has been reassuring. As you've seen
Speaker 1: the unemployment rate came down, jobless claims have stayed low,
Speaker 1: and so you still hear a relatively loose labor market.
Speaker 1: You still hear people not hiring but not firing, But
Speaker 1: the numbers are even better than I think.
Speaker 4: What you hear, Well, it sounds like you think at
Speaker 4: this point the risks to inflation and to employment are
Speaker 4: roughly balanced.
Speaker 1: Yeah, if you go back to the fall, I think
Speaker 1: a lot was behind our moves was the sense that
Speaker 1: the risk of the labor market were up while the
Speaker 1: risk of inflation were down. The data that's come in
Speaker 1: over the last couple months, what I think suggest it's
Speaker 1: moved in the other direction.
Speaker 4: Well, you mentioned that you know you're going to get
Speaker 4: probably an elevated PCE reading coming up at this point.
Speaker 4: Is monetary policy set at a place where it can
Speaker 4: help you bring down inflation or is it even too tight?
Speaker 4: Where is it on a scale?
Speaker 1: Well, I expect we're still modestly restrictive and that should
Speaker 1: help as we try to grind out the last mile here.
Speaker 1: But again we'll have to see. I definitely take note
Speaker 1: of the continued strength and demand, and so I don't
Speaker 1: think we're highly restrictive. If you were highly restrictive, you'd
Speaker 1: see a lot more impact on demand, which has stayed
Speaker 1: very healthy. I was reflecting it was four years ago
Speaker 1: that we first started increasing interest rates in March of
Speaker 1: twenty two. And if you had predicted then that we
Speaker 1: would have demand growth of the sort we've had over
Speaker 1: the last four years, you would have been a severe outlier.
Speaker 4: Let's talk about your new boss, who's coming in in
Speaker 4: very I guess Kevin Worsh's nomination's finally gone up to
Speaker 4: Capitol Hill. A lot of people think the FED chair
Speaker 4: can walk in and just change interest rates, but they don't.
Speaker 4: You all have a vote and his basic powers in persuasion.
Speaker 4: How do you think he'll do. How do you think
Speaker 4: the dynamics play out when somebody new comes into the
Speaker 4: building like that?
Speaker 1: Well, it'll be a new experience for me too, since
Speaker 1: Jay was in the building when I started eight years ago.
Speaker 1: I mean, I like and respect Kevin, and I trust
Speaker 1: he'll do a good job, and I'm looking forward to
Speaker 1: working with him. You have a lot of smart, opinionated
Speaker 1: people in the room, and so you'll want to work
Speaker 1: with those folks. I think there's also a lot of
Speaker 1: respect for the chair and what the chair does to
Speaker 1: take a lot of the visible noise that happens from
Speaker 1: markets and the press and others, and so I think, well,
Speaker 1: I look forward to working with him, we'll see where
Speaker 1: we go.
Speaker 4: He makes the case for a number of changes at
Speaker 4: the FED, one of which would be a smaller balance sheet.
Speaker 4: Where do you come down.
Speaker 1: On it, I mean, instinctively, I like the idea of
Speaker 1: the FED having a smaller footprint and financial markets. I think,
Speaker 1: subject to still being able to operate monetary policy and
Speaker 1: control rates well and subject to not having severe adverse
Speaker 1: reactions in the markets. But it's instinctively it's an attractive idea.
Speaker 1: May if we can find a way to make it
Speaker 1: work in the context of the rest of what we're
Speaker 1: trying to do.
Speaker 4: He's also said he'd like to have a little bit
Speaker 4: less conversation from FED officials and maybe more coordinated interactions
Speaker 4: with the public. What do you think about that? Maybe
Speaker 4: asking you not to speak.
Speaker 1: As much, Well, that would give you some more time,
Speaker 1: So I'd be happy with that.
Speaker 2: Now.
Speaker 1: What I try to do in my outreach is very,
Speaker 1: very district oriented, and so I was in Martinsburg, West
Speaker 1: Virginia yesterday. I was in DC. The day before, I
Speaker 1: was in Hartford County, Maryland. Last Thursday, I was in
Speaker 1: Northern Virginia. On Tuesday, I was at Baltimore on Wednesday,
Speaker 1: and in each of those places, I'm actually not talking
Speaker 1: to you. I'm talking to chambers of commerce and rotary
Speaker 1: clubs and people who are interested in what's happened in
Speaker 1: the economy. And I think there's real value to being
Speaker 1: in front of these folks and putting a face on
Speaker 1: the FED. The design of the FED was a regional
Speaker 1: design from the start, and I think part of it
Speaker 1: was people wanted to trust and understand the people who
Speaker 1: are making these important decisions, and also to feel listened to.
Speaker 1: And I take a lot of pride in how much
Speaker 1: interaction and engagement I have across my five states and
Speaker 1: district of Columbia, and I hope to continue doing that.
Speaker 1: But to me, it's not and you know this because
Speaker 1: we've talked a lot before. I'm not trying to talk
Speaker 1: about how many rate cuts I have in my SEP
Speaker 1: for the next nine months. I'm trying to talk about
Speaker 1: here so I see the economy and ask them how
Speaker 1: are you seeing the economy? I think I get valuable
Speaker 1: insight that way.
Speaker 4: Well, last question, would you like to see Jay Powell
Speaker 4: stay on as a FED governor after his term as
Speaker 4: chair is up?
Speaker 1: I like Jay A. Ton I think he's done a
Speaker 1: spectacular job, and I want Jay to do absolutely the
Speaker 1: best thing for Jay.
Speaker 4: Okay, Tom Barkin, thank you very much. The President of
Speaker 4: the Richmond Fed will send it back to you.
Speaker 2: McKay, Thank you, sir. And that's a top tip for
Speaker 2: anyone that gets aunced that by Mike mckaanny time soon.
Speaker 2: Just repeat what Tom bak and just said. I want
Speaker 2: what's best for Jack.
Speaker 3: So not going to answer, but I think it was
Speaker 3: a great answer. Frankly, honestly, what he said was actually
Speaker 3: parsing through the vagaries that the FED is dealing with
Speaker 3: quite well, talking about how he still sees modestly restrictive policy,
Speaker 3: not exactly accommodative or neutral. And they did say that
Speaker 3: companies were having trouble passing along pricing, but that the
Speaker 3: recent inflationary data does give them pause. So sort of
Speaker 3: the dual mandate kind of balanced right now. He seems
Speaker 3: like he's kind of wanted to be waiting on the
Speaker 3: sidelines for more on inflation.
Speaker 2: On the energy shock, it keeps coming back to the
Speaker 2: same thing, the calendar. It depends how long this goes
Speaker 2: on for If it's a short term shock, the textbook
Speaker 2: says his words, look through it. If it's longer, the
Speaker 2: textbook says something else, how much longer is it going
Speaker 2: to be?
Speaker 3: Yeah, and this we don't know, And that I think
Speaker 3: is going to be a really important driver, and frankly,
Speaker 3: not just for the feder Reserve, for the entire market
Speaker 3: to reassess exactly what that impact is notable to me
Speaker 3: that President Barkin, Richard Fed. President Barkin was talking about
Speaker 3: how it really matters how much oil prices are for sentiment,
Speaker 3: for consumer sentiment, and that that will be potentially a
Speaker 3: disinflationary force in terms of their ability to keep on
Speaker 3: going out and buying things.
Speaker 2: Michael, making you catching up with the Richmond FED President
Speaker 2: Tom bulk in there just moments ago.