WEBVTT - Bloomberg Surveillance TV: March 25, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.360 Terminal and the Bloomberg Business app. Equity Market's coming off 0:00:37.360 --> 0:00:39.320 the last week of the year, the best week of 0:00:39.360 --> 0:00:42.240 the year investors looking ahead to Friday when fed Share 0:00:42.320 --> 0:00:46.080 Jaypowe speaks and we get the core PCU deflator Ediardenny 0:00:46.240 --> 0:00:49.480 of Yourdenny Research writing this and the Financial Times at 0:00:49.479 --> 0:00:52.280 this nirvana level, all is right with the US economy 0:00:52.360 --> 0:00:55.520 because it is growing while inflation remains moderate. If the 0:00:55.560 --> 0:00:58.440 economy is doing well with the current level of interest rates, 0:00:58.720 --> 0:01:02.000 why lower them? At your Danny on places say, joined 0:01:02.000 --> 0:01:04.160 this now for more at fantastic piece in the FT. 0:01:04.520 --> 0:01:05.960 Enjoyed reading over for him when it came out a 0:01:06.000 --> 0:01:08.880 little bit earlier. This morning, you say, why mess with success? 0:01:09.120 --> 0:01:10.600 Can I get you a base case? Do you think 0:01:10.640 --> 0:01:12.360 they will mess with success? 0:01:14.080 --> 0:01:17.920 Well, based on what I heard coming in the press 0:01:18.280 --> 0:01:21.720 at the press conference that Ja Powell had, it seems 0:01:21.720 --> 0:01:26.039 as though he at least is continuing to. 0:01:27.640 --> 0:01:28.919 Tell us all that they. 0:01:28.880 --> 0:01:32.560 Probably are going to lower interest rates, and that kind 0:01:32.560 --> 0:01:36.720 of again raises the question exactly why is that. I mean, 0:01:36.840 --> 0:01:41.360 we had a hot CPI and PPI a few days 0:01:41.360 --> 0:01:45.640 before his press conference, and yet notwithstanding that, he expressed 0:01:45.640 --> 0:01:50.200 confidence all as well, and he's right about the economy. 0:01:50.240 --> 0:01:54.160 The economy is doing absolutely fine. I think there's some 0:01:54.240 --> 0:01:57.680 Fed officials who believe in the concept of real interest 0:01:57.760 --> 0:02:01.680 rates that if inflation continue used to come down, then 0:02:01.760 --> 0:02:04.160 real rate real rates will be restrictive and that might 0:02:04.160 --> 0:02:07.600 cause a recession. So I'm concluding that the Fed put 0:02:07.680 --> 0:02:08.760 might actually be back. 0:02:09.200 --> 0:02:11.400 So if they do go forward a mess with success, 0:02:11.440 --> 0:02:13.240 Given that you believed the Fed put is back, does 0:02:13.280 --> 0:02:16.160 it really matter? Is it equities up and up and 0:02:16.240 --> 0:02:16.960 up and why. 0:02:17.760 --> 0:02:21.560 No, it's fine for the economy. I think inflation is 0:02:21.600 --> 0:02:24.800 still going to moderate though. I think they're taking a chance. 0:02:24.840 --> 0:02:28.519 Here's with all prices going up the way they have. 0:02:29.280 --> 0:02:31.920 That's not an area that can always spill over to 0:02:31.960 --> 0:02:33.040 the rest of the economy. 0:02:33.120 --> 0:02:36.400 So I don't think they want to get. 0:02:36.040 --> 0:02:40.080 Everybody thinking about the possibility of inflation coming back. But yeah, 0:02:40.120 --> 0:02:44.600 I think this is starting to possibly be reminiscent of 0:02:44.680 --> 0:02:46.800 the nineteen nineties. And if you ask me where we 0:02:46.840 --> 0:02:50.639 are in the nineteen nineties, I think we're at December fifth, 0:02:50.760 --> 0:02:54.840 nineteen ninety six, where Alan Greenspan asked, how do we 0:02:54.880 --> 0:02:58.760 know if it's the irrational exuberance? And I'm concerned that 0:02:58.840 --> 0:03:02.640 the market go up too fast. I mean, it's great 0:03:02.680 --> 0:03:06.280 on the way up. Melt up so wonderful, but by 0:03:06.320 --> 0:03:10.280 definition they can lead to meltdowns, and so that's where 0:03:10.320 --> 0:03:13.320 my concern is. Look, I've been forecasting fifty four hundred 0:03:13.840 --> 0:03:16.040 by year end. We can get there by the end 0:03:16.080 --> 0:03:18.200 of the week the way things are going well. 0:03:18.440 --> 0:03:20.240 But just to sort of sit a little bit on 0:03:20.280 --> 0:03:23.080 what you were talking about with respect to commodities or 0:03:23.320 --> 0:03:26.880 oil prices, we've seen a number of strategistical misass coming 0:03:26.880 --> 0:03:29.360 out and seeing the potential for a fifteen percent gain 0:03:29.680 --> 0:03:31.920 in raw materials over the duration of this year, in 0:03:31.960 --> 0:03:34.840 part because the FED is going to allow growth to continue. 0:03:35.080 --> 0:03:38.120 Mike Wilson over at Morgan Stanley also talking up the 0:03:38.200 --> 0:03:43.480 liking likelihood that a commodity oriented cyclical boom really gets ignited. 0:03:43.840 --> 0:03:46.840 At what point does this become a problem for the 0:03:46.880 --> 0:03:49.880 broader market with the idea of inflation coming back. 0:03:51.000 --> 0:03:53.880 Well, I'm not that worried about the inflation story because 0:03:53.920 --> 0:03:56.280 I think, certainly on the good side, China is going 0:03:56.320 --> 0:04:00.760 to continue to export deflation. We cantinue to see that 0:04:00.800 --> 0:04:04.160 their producer price index is negative. We continue to see 0:04:04.520 --> 0:04:09.280 that import prices for the US coming in from China, 0:04:09.880 --> 0:04:13.440 those are negative on a year over year basis. China's 0:04:13.440 --> 0:04:18.120 in a pretty serious recession. They're really in a property depression, 0:04:18.360 --> 0:04:21.039 kind of similar to what happened in Japan a while 0:04:21.120 --> 0:04:23.520 ago and in the United States, and it takes years 0:04:23.800 --> 0:04:25.839 to off set or to come out of that kind 0:04:25.839 --> 0:04:30.800 of deflationary experience. So I'm not particularly worried about price inflation. 0:04:30.960 --> 0:04:33.840 I'm more concerned about asset inflation. You know, it's not 0:04:33.920 --> 0:04:37.159 just the stock market that sanitary, it's also gold that's bitcoin. 0:04:38.320 --> 0:04:41.760 Spread between high yield corporate. 0:04:41.400 --> 0:04:45.400 Bonds and the treasuries is extremely narrow, So that's where 0:04:45.400 --> 0:04:46.880 the Fed's running a risk here. 0:04:47.040 --> 0:04:48.600 I think there should be three mandates. 0:04:48.600 --> 0:04:51.320 If they're going to have a mandate to keep inflation down, 0:04:51.480 --> 0:04:54.800 price inflation down, keep unemployment rate down, they also have 0:04:54.839 --> 0:04:56.600 to be concerned about financial stability. 0:04:57.240 --> 0:04:59.480 And when you look at the take from Mohammad A. 0:04:59.560 --> 0:05:01.560 Lar told us on Friday, it might not be this 0:05:01.760 --> 0:05:04.200 pinpoint when it comes to inflation. Maybe the FED is 0:05:04.240 --> 0:05:06.680 now targeting a range, and he said last week was 0:05:06.720 --> 0:05:10.520 a really good moment where potentially you saw that shift. 0:05:10.960 --> 0:05:11.640 Do you agree. 0:05:11.680 --> 0:05:13.080 Do you think the Fed is now looking at a 0:05:13.200 --> 0:05:14.800 range instead of two percent? 0:05:16.160 --> 0:05:19.279 Well, it seems more like based on what pal said, 0:05:19.360 --> 0:05:21.760 that their target is still two percent. 0:05:21.839 --> 0:05:23.960 They're not putting that in a range. 0:05:24.000 --> 0:05:27.120 It's just Palell kept saying over and over again that 0:05:27.400 --> 0:05:30.360 they're shooting for two percent over time. Two percent over time. 0:05:31.000 --> 0:05:35.719 He said it several times. And that implies that they're 0:05:35.800 --> 0:05:39.080 willing to lower rates before they actually get to two percent, 0:05:39.200 --> 0:05:43.120 whereas the message before seemed to be that they're not 0:05:43.360 --> 0:05:46.360 going to lower rates until they're actually at two percent 0:05:46.520 --> 0:05:49.280 or so close to it and so comfortable that it's 0:05:49.320 --> 0:05:53.080 going to stay there that they can go ahead and ease. 0:05:53.120 --> 0:05:57.120 So I think the message right now is pretty ambiguous. 0:05:57.440 --> 0:06:00.200 Quite honestly, it does kind of make me wonder, what 0:06:00.320 --> 0:06:03.080 do they know that I don't know what's the worst 0:06:03.120 --> 0:06:03.800 to lower rates. 0:06:04.200 --> 0:06:06.360 The answer to that is maybe nothing, as you know, 0:06:06.839 --> 0:06:09.160 because they're often surprised by many things. And I just 0:06:09.200 --> 0:06:11.120 want to know, given everything you've said in the last 0:06:11.120 --> 0:06:14.280 five minutes or so, what are you advocating for in 0:06:14.400 --> 0:06:17.360 equity markets? What are you ratificating for now from here 0:06:17.800 --> 0:06:18.400 to year? Rent? 0:06:20.000 --> 0:06:22.120 Well, I'm still going to use fifty four hundred. 0:06:22.279 --> 0:06:26.480 I mean, obviously we were only you know what, two 0:06:26.560 --> 0:06:30.160 three percent away from that, But I'm I think it's 0:06:30.160 --> 0:06:33.640 still a bullmarket. I think next year we'll be looking 0:06:33.680 --> 0:06:36.560 at six thousand, maybe sixty five hundred by the year 0:06:36.640 --> 0:06:37.000 after that. 0:06:37.240 --> 0:06:39.480 So I think we're still in a bull market. I 0:06:39.520 --> 0:06:41.039 think you're stay invested, and. 0:06:41.120 --> 0:06:44.040 If we get them melt up, well we'll have to 0:06:44.160 --> 0:06:47.440 discuss whether it's time to take some profits before I 0:06:47.560 --> 0:06:48.000 melt down. 0:06:48.040 --> 0:06:50.520 But that's that's a risk scenario right now. It's not 0:06:50.640 --> 0:06:51.640 the most likely scenario. 0:06:51.960 --> 0:06:54.640 So where does the financial stability point come into play? 0:06:54.920 --> 0:06:56.080 How concerned are you about that? 0:06:57.680 --> 0:07:01.599 Well, I think it's kind of like the nineteen nineties 0:07:01.640 --> 0:07:04.400 in that regard, but it's not nineteen ninety nine. 0:07:04.880 --> 0:07:09.280 It's more like nineteen ninety six. So we maybe early 0:07:09.400 --> 0:07:10.440 on in the. 0:07:10.600 --> 0:07:14.200 Financial instability issue here, But things move pretty quickly these days, 0:07:14.720 --> 0:07:17.240 and everybody knows the history of the stock market. 0:07:17.320 --> 0:07:19.480 They knows what happened in the nineteen nineties. 0:07:20.160 --> 0:07:23.480 And if the FED really, you know, gives us a 0:07:23.600 --> 0:07:27.120 rate cut before we're expecting it, I think you'll see 0:07:27.160 --> 0:07:27.640 the market. 0:07:27.520 --> 0:07:28.280 Moving a lot higher. 0:07:29.000 --> 0:07:31.320 How much are you concerned about bonds waking up to 0:07:31.400 --> 0:07:34.160 the idea of something of a range of the idea 0:07:34.200 --> 0:07:36.280 of stick your inflation right. 0:07:37.000 --> 0:07:40.600 Well, I think the bottom market is happy to see 0:07:40.640 --> 0:07:45.360 the inflation coming down, and I think the bottom market 0:07:45.360 --> 0:07:47.600 is struggling the way all of us are with the 0:07:47.680 --> 0:07:49.920 Fed's message. What do they really want to do here? 0:07:50.880 --> 0:07:53.720 You know, the foc statement, It made it sound like 0:07:54.640 --> 0:07:56.920 we're going to wait until we have the data that 0:07:56.960 --> 0:08:00.760 gives us confidence that inflation's coming down. And how modified 0:08:00.840 --> 0:08:04.120 that statement by saying that you know, things probably are 0:08:04.160 --> 0:08:05.400 going to work out in that direction. 0:08:05.960 --> 0:08:08.680 And this just sounds like extended cycle, which raises the 0:08:08.760 --> 0:08:10.640 question about the cycle that I'd like to rimput on. 0:08:11.440 --> 0:08:11.560 Here. 0:08:11.600 --> 0:08:12.880 Are a lot of people come on this program and 0:08:12.960 --> 0:08:15.120 say we're late, Psycho. I think Lisa's asked the question 0:08:15.160 --> 0:08:17.000 a few times, just how late are we actually, I've 0:08:17.000 --> 0:08:17.760 given the conversation. 0:08:18.160 --> 0:08:18.640 We have it. 0:08:20.680 --> 0:08:20.880 Well. 0:08:21.080 --> 0:08:24.360 I think we've discovered over the past couple of years 0:08:24.480 --> 0:08:27.920 that history doesn't always repeat itself, but it does rhyme, 0:08:28.040 --> 0:08:32.240 and you know, we are I think just somewhere in 0:08:32.280 --> 0:08:33.280 the middle of the cycle. 0:08:33.360 --> 0:08:35.280 I don't think we're late. 0:08:35.480 --> 0:08:39.400 I think the economy is still showing plenty of signs 0:08:39.440 --> 0:08:41.319 of infation, is coming down. But you know, you have 0:08:41.400 --> 0:08:43.880 to put everything in a global context. It's not just 0:08:44.960 --> 0:08:47.719 the same old US business cycle. It's you have to 0:08:47.760 --> 0:08:49.600 put it in the context of what's going on in China, 0:08:49.640 --> 0:08:54.040 what's going on in Europe, what's going on in the geopolitics, if. 0:08:53.960 --> 0:08:56.000 You had any research. And thank you sir, giving us 0:08:56.080 --> 0:08:57.119 lots to think about. 0:09:06.800 --> 0:09:07.120 Stocks. 0:09:07.160 --> 0:09:09.080 Pausing on the back of another record week, we love 0:09:09.120 --> 0:09:11.520 doing shows for you. Fueled by the Fed's latest confirmation 0:09:11.640 --> 0:09:14.280 we really do it will cut sometime this year with 0:09:14.440 --> 0:09:16.960 the market on track for its fifth consecutive month of games. 0:09:17.000 --> 0:09:19.640 I'm speaking to management, not the audience. Neil Dutta, we 0:09:19.720 --> 0:09:21.680 love doing it for you too. Here's the quote, Neil, 0:09:22.040 --> 0:09:24.720 the market's rightly viewed the FED decision as duvish, hence 0:09:24.760 --> 0:09:27.280 the rallying stocks and bonds. The risk is that January 0:09:27.280 --> 0:09:30.440 and February's inflation data represent a series of higher than 0:09:30.480 --> 0:09:34.280 expecting inflation prints. Ultimately power ses. The stance of monetary 0:09:34.320 --> 0:09:37.400 policy is very restrictive. As a result, he's more an 0:09:37.400 --> 0:09:40.720 alert for downside surprises to growth than he is upside 0:09:40.800 --> 0:09:44.360 surprises to inflation. Neil, I'm pleased to say, joined us 0:09:44.400 --> 0:09:46.320 now for more So, Neil, let's get into your framework. 0:09:46.360 --> 0:09:48.120 I remember a line of yours at the end of 0:09:48.200 --> 0:09:50.280 last year. I remember you sent me a message and 0:09:50.320 --> 0:09:52.720 you said, the labor market is no longer a reason 0:09:52.880 --> 0:09:55.480 to be hawkish. And I thought it was really important 0:09:55.480 --> 0:09:57.319 at the time, because it wasn't just that the labor 0:09:57.360 --> 0:10:00.680 market was somehow weakening or deteriorating. It was that even 0:10:00.720 --> 0:10:03.679 with labor market strength, even with economic growth, that was 0:10:03.760 --> 0:10:06.560 no longer a reason per se to be hawkish. Now, 0:10:06.640 --> 0:10:08.600 can you just walk us through how you thinking about 0:10:08.600 --> 0:10:09.720 the economy with that in mind? 0:10:10.880 --> 0:10:11.080 Yeah? 0:10:11.120 --> 0:10:13.199 Sure, thanks John for having me on. Well, you know, 0:10:13.320 --> 0:10:19.120 compensation growth equals inflation plus productivity. Okay, and we know 0:10:19.400 --> 0:10:21.800 that compensation growth is moderating. You know, there's a lot 0:10:21.840 --> 0:10:25.280 of focus, of course on wages because that's the monthly data. 0:10:25.480 --> 0:10:27.880 But you know, remember that benefits are slowing a lot 0:10:27.960 --> 0:10:32.400 more rapidly than wages and salaries, and in theory, workers 0:10:32.559 --> 0:10:35.760 bargain over their entire compensation package. And when you look 0:10:35.760 --> 0:10:39.079 at quits, quits are basically below where they were just 0:10:39.200 --> 0:10:42.880 before the pandemic, and it suggests that broad measures of 0:10:42.960 --> 0:10:46.640 compensation growth like the employment cost Index will be you know, 0:10:46.760 --> 0:10:49.160 somewhere in the vicinity of three percent by the end 0:10:49.240 --> 0:10:52.280 of the first quarter. Now, if you have three percent 0:10:52.400 --> 0:10:56.040 compensation growth, and we know that productivity is normalizing to 0:10:56.120 --> 0:10:59.360 around one and a half percent, where's the inflation coming from. 0:10:59.559 --> 0:11:02.959 So compensation is three maybe three and a half, and 0:11:03.080 --> 0:11:06.480 productivities around one and a half, then you're at the 0:11:06.559 --> 0:11:08.240 fed's underlying inflation. 0:11:08.000 --> 0:11:08.760 Objective of two. 0:11:09.280 --> 0:11:11.200 So there's a lot of focus right now on things 0:11:11.280 --> 0:11:15.080 like goods prices, producer prices. You know, as I mentioned 0:11:15.120 --> 0:11:16.959 the last time I was on the program, Lisa is 0:11:17.080 --> 0:11:22.920 very focused on chocolate prices. But but there's limited paths 0:11:23.000 --> 0:11:27.599 through from those things into core consumer prices. And I 0:11:27.679 --> 0:11:30.920 do think that the normalization of labor market conditions will 0:11:30.920 --> 0:11:33.520 take a lot of the pressure off of services which 0:11:33.559 --> 0:11:37.000 are running, you know, well above what they normally run 0:11:37.040 --> 0:11:38.680 above with respect to goods prices. 0:11:38.800 --> 0:11:41.000 Now, one take that we heard last week repeatedly, I 0:11:41.080 --> 0:11:43.079 think across the street, including from yourself, was that the 0:11:43.160 --> 0:11:46.200 FED was embracing this supply site narrative. Could you briefly 0:11:46.280 --> 0:11:48.480 describe that a little bit more broadly and help me 0:11:48.600 --> 0:11:51.360 understand how do you set monetary policy when it's the 0:11:51.400 --> 0:11:52.720 supply site doing all the work? 0:11:55.280 --> 0:11:58.360 Well, I mean, I think first it's important to understand 0:11:58.440 --> 0:12:03.160 why the supply side looks better. I think that's primarily 0:12:03.280 --> 0:12:08.599 a function of normalization dynamics following the pandemic. So you know, 0:12:08.720 --> 0:12:12.199 this time last year, labor productivity growth was deeply negative, 0:12:13.000 --> 0:12:18.000 and now it's normalizing that. That's that essentially raises the 0:12:18.120 --> 0:12:21.960 speed limit for the economy. So if you have stronger 0:12:22.040 --> 0:12:24.400 economic growth, as Powell mentioned, I mean, you could have 0:12:24.480 --> 0:12:28.360 stronger employment and economic growth without necessarily pushing inflation higher. 0:12:28.800 --> 0:12:30.880 And I think that's why it's important. Gives the FED 0:12:31.040 --> 0:12:35.520 room to kind of recalibrate policy. But you know, I mean, 0:12:35.880 --> 0:12:39.320 and that's why it's important, you know. So productivity is up, 0:12:40.480 --> 0:12:43.040 that gives the Fed a little bit more more space 0:12:43.760 --> 0:12:47.600 to ease, you know, modestly, if inflation's slowing more quickly. 0:12:47.840 --> 0:12:49.480 Neil, I'm having a hard time, and I'm having a 0:12:49.520 --> 0:12:51.400 hard time for a number of reasons, partly because it's 0:12:51.520 --> 0:12:54.040 very hard to find people who can really pose and 0:12:54.080 --> 0:12:56.640 sort of negative case. But there is one to be 0:12:56.720 --> 0:12:59.480 made with the data that is coming in hotter than 0:12:59.520 --> 0:13:01.920 expected in certain areas. You talk about the fact that 0:13:02.280 --> 0:13:04.880 wage inflation seems to be nowhere. The New York Fed 0:13:05.160 --> 0:13:07.600 has a new measure of trend wage inflation that Torst's 0:13:07.600 --> 0:13:10.160 slock put out this morning, saying that it's currently running 0:13:10.160 --> 0:13:12.959 at five percent, looking pretty sticky. Other measures showing that 0:13:13.080 --> 0:13:16.559 inflation is reaccelerating, with Jim Bianco is saying this no 0:13:16.679 --> 0:13:19.000 landing is going to pose a real problem for bond markets. 0:13:19.800 --> 0:13:22.439 How do you dismiss those things out of turn and 0:13:22.760 --> 0:13:24.959 retain faith in the disinflation story. 0:13:25.600 --> 0:13:27.640 Well, you have to go to first principles. I mean, 0:13:28.160 --> 0:13:30.720 I'm not a big believer in indicator macro. I don't 0:13:30.840 --> 0:13:33.800 like going and saying look at this indicator. See you 0:13:33.880 --> 0:13:36.319 know it's up well, I mean that's again, as I 0:13:36.400 --> 0:13:39.040 mentioned before, I mean, looking at the wage number, that's 0:13:39.080 --> 0:13:43.240 one thing, But people bargain over their entire compensation, right, 0:13:43.320 --> 0:13:45.319 I mean, that's just to me, that's a red herring 0:13:45.480 --> 0:13:49.360 to distract people from the best measure of compensation growth, 0:13:49.400 --> 0:13:54.360 which is the employment cost index. Okay, and you know 0:13:54.440 --> 0:14:00.480 there's minimal pass through from goods into into core consumer prices. 0:14:00.679 --> 0:14:04.920 But as I mentioned first principles, where is the acceleration 0:14:05.080 --> 0:14:08.319 in household and corporate measures of inflation expectations? Where is 0:14:08.400 --> 0:14:12.720 this showing up in earnings calls? Where I mean Costco 0:14:12.840 --> 0:14:16.840 is talking about basically holding the line on prices, Walmart's 0:14:16.840 --> 0:14:22.520 talking about bringing their roleback back. So I mean, if 0:14:22.600 --> 0:14:27.280 households expect inflation to basically be you know, I mean 0:14:28.000 --> 0:14:30.840 those expectations have been coming down in the last few months, 0:14:31.640 --> 0:14:35.320 it would suggest that, you know, the inflation upside surprises 0:14:35.360 --> 0:14:37.560 that we've seen in the realized data will be fleeting. 0:14:38.280 --> 0:14:40.960 I'd also point out I'd also point out Lisa, that 0:14:41.760 --> 0:14:45.480 inflation data has been generally on the weaker side of 0:14:45.520 --> 0:14:51.400 the consensus overseas interesting it would support the idea that 0:14:51.520 --> 0:14:53.200 I think the FED is putting a lot of currency 0:14:53.240 --> 0:14:57.320 into I think rightly that residual seasonality is a big 0:14:57.400 --> 0:14:59.560 driver of why the inflation numbers looked a little bit 0:14:59.600 --> 0:15:00.920 worse anywhere in February. 0:15:01.080 --> 0:15:03.440 Then, Neil, if that's the case, do you reject this 0:15:03.560 --> 0:15:06.000 idea of a reacceleration of the economy in some sort 0:15:06.000 --> 0:15:08.640 of material way of broadening out around the world and 0:15:08.720 --> 0:15:11.720 see that that's premature because there is more weakness under 0:15:11.760 --> 0:15:14.840 the hood and frankly challenges to certain businesses that don't 0:15:14.880 --> 0:15:17.320 have the pricing power that would suggest that the FED 0:15:17.440 --> 0:15:20.320 was justified and cutting now, I. 0:15:20.400 --> 0:15:23.600 Think to me, the strength of the economy, that's a 0:15:23.760 --> 0:15:28.000 reason to expect a ceiling on how many cuts the 0:15:28.040 --> 0:15:30.120 FED can deliver. It's not a reason for the FED 0:15:30.240 --> 0:15:32.480 not to cut at all. I think part of this 0:15:32.720 --> 0:15:36.600 is we're all very used to the FED cutting a 0:15:36.720 --> 0:15:39.720 lot or not at all, because primarily it's you know, 0:15:40.120 --> 0:15:43.720 they're cutting aggressively to stop a recession from gaining hold, 0:15:43.840 --> 0:15:45.880 or they're already too late, and that's why you're in 0:15:45.880 --> 0:15:48.120 a recesion. You have to cut a lot. What I'm 0:15:48.200 --> 0:15:52.520 talking about is just a recalibration of policy. It's difficult 0:15:52.520 --> 0:15:55.920 to see the FED cutting six seven times, because, as 0:15:55.960 --> 0:15:59.360 you mentioned, the economy strong, but if inflation is falling, 0:16:00.480 --> 0:16:02.960 they can at least adjust policy a little bit to 0:16:03.120 --> 0:16:07.120 kind of reset the economy. This isn't an outright easing. 0:16:07.200 --> 0:16:11.800 It's just simply taking policy from significantly restrictive to maybe 0:16:11.880 --> 0:16:13.880 a little bit less restrictive. That's all I mean. This 0:16:14.040 --> 0:16:16.520 isn't like a broad wholesale change. I think that's kind 0:16:16.520 --> 0:16:20.840 of the sort of thing that people are getting. I think, 0:16:20.880 --> 0:16:23.160 in my view confused by this isn't a wholesale change 0:16:23.160 --> 0:16:26.720 of policy. It's simply a recalibration of monetary conditions. 0:16:26.800 --> 0:16:28.280 Now, I'd like to finish there, because I think those 0:16:28.280 --> 0:16:31.440 words are really important, just how bullish the reaction function 0:16:31.520 --> 0:16:33.440 of the Federal Reserve actually is, because many people run 0:16:33.480 --> 0:16:35.800 away with the idea that it was super, super bullish. No, 0:16:35.960 --> 0:16:37.880 I just wonder how close we actually were to having 0:16:37.920 --> 0:16:41.160 a very different conversation if that median dot had shifted 0:16:41.240 --> 0:16:43.360 from three cuts to two, and it was very close 0:16:43.400 --> 0:16:45.360 to doing so. Do you think the conversation would have 0:16:45.440 --> 0:16:47.680 been very different after the FED meeting? 0:16:47.760 --> 0:16:51.400 Onestake, not really, because what would have happened My sense 0:16:51.520 --> 0:16:53.640 is that the bond market I mean, the markets probably 0:16:53.680 --> 0:16:56.480 would have sold off a little bit. I mean, certainly 0:16:56.560 --> 0:16:59.680 the expectation going into that meeting John was that, you know, 0:16:59.760 --> 0:17:01.800 we were kind of gravitating. The risk was for for 0:17:01.960 --> 0:17:05.520 two cuts instead of three, and maybe if they penciled 0:17:05.520 --> 0:17:08.560 into the markets would have taken that and and sold 0:17:08.600 --> 0:17:10.040 off a little bit. You would have seen a modest 0:17:10.040 --> 0:17:13.160 tightening of financial conditions. But then guess what, Cheri Powel 0:17:13.160 --> 0:17:15.280 would have come out, struck the same dubbish tone, and 0:17:15.359 --> 0:17:16.320 then markets would have rout. 0:17:16.560 --> 0:17:18.119 So I you know, I don't know. 0:17:18.240 --> 0:17:20.240 I mean, I think I think the big story is 0:17:21.320 --> 0:17:24.119 they're cutting, they're just not cutting as aggressively. And the 0:17:24.200 --> 0:17:27.280 strong growth in the economy puts a floor or sorry 0:17:27.320 --> 0:17:29.080 a ceiling under how many cuts they can do. And 0:17:29.160 --> 0:17:31.080 that's also in the dots. That's the that's in the 0:17:31.119 --> 0:17:32.720 outlook for twenty five and twenty six. 0:17:33.040 --> 0:17:34.879 Got it, Neil, cry to catch up, Got to do 0:17:34.920 --> 0:17:37.280 it again soon, no doubt to the redmac on the 0:17:37.359 --> 0:17:39.600 latest in the economy on the Federals of have Aswell 0:17:39.640 --> 0:17:52.320 PRAMO following a series of dubbish Central Bank matings, Jim 0:17:52.400 --> 0:17:55.560 Bianco of Bianco Research saying this the Fed cannot randomly 0:17:55.640 --> 0:17:58.280 pick some day and cut rights if they do, and 0:17:58.359 --> 0:18:01.000 the market thinks it is not serious about inflation, soal 0:18:01.119 --> 0:18:04.520 bombs FED dubbishness only works if the market is convinced 0:18:04.560 --> 0:18:08.320 inflation is not a problem. Right now, it's unsure. Jim 0:18:08.400 --> 0:18:10.840 joins us now for more, Jim, are you unsure? 0:18:12.320 --> 0:18:12.800 Yeah? I am. 0:18:12.960 --> 0:18:14.720 I mean if you look at the markets, we've got 0:18:14.800 --> 0:18:17.800 the so called everything rally, except one thing has not 0:18:17.960 --> 0:18:20.119 been rallying with the everything rally, and that's been the 0:18:20.160 --> 0:18:24.120 bond market. It has been kind of meandering unchanged, especially 0:18:24.160 --> 0:18:26.240 if you go back to before the FED meeting. 0:18:26.960 --> 0:18:29.639 It here's the Fed wants to cut rates. It looks 0:18:29.680 --> 0:18:30.320 at the data. 0:18:30.800 --> 0:18:34.600 It sees stronger data, higher inflation expectations. It also sees 0:18:34.640 --> 0:18:39.440 the FED upgrading its inflation and economic growth forecasts. And 0:18:39.560 --> 0:18:42.639 I think it's wondering is this a good idea for 0:18:42.720 --> 0:18:45.679 the Fed to be cutting rates? Because if they're not careful, 0:18:45.720 --> 0:18:48.880 they could cut rates, and if the bond market's thinking 0:18:49.000 --> 0:18:52.080 that they're unsious about inflation, we could wind up with 0:18:52.160 --> 0:18:54.600 higher yields, not lower yields. I think that's what we 0:18:54.720 --> 0:18:58.560 saw last summer when the FED stopped raising rates on 0:18:58.720 --> 0:19:02.360 July twenty sixth, the market was worried, it was unseerious 0:19:02.400 --> 0:19:04.760 about inflation. We were at three ninety on the ten 0:19:04.800 --> 0:19:07.679 year note. Ninety days later we were over five percent 0:19:08.160 --> 0:19:10.760 before it started to really believe that the inflation numbers 0:19:10.800 --> 0:19:11.360 were coming down. 0:19:11.600 --> 0:19:14.840 You said last year that disinflation was transit three. Jim. 0:19:14.920 --> 0:19:15.320 You said that. 0:19:15.440 --> 0:19:18.280 You came out very early on and said it. I wondered, Jim, 0:19:18.359 --> 0:19:20.160 what you saw at the time that led you to believe. 0:19:20.240 --> 0:19:23.239 So just looking at the data, you're right. 0:19:23.359 --> 0:19:26.600 I mean I was looking at headline CPI and it 0:19:26.760 --> 0:19:29.879 has bottomed June of twenty twenty three to three percent. 0:19:30.400 --> 0:19:32.720 And if you look at the data going forward from here, 0:19:33.000 --> 0:19:36.840 especially the March data should be very strong, and you're 0:19:36.880 --> 0:19:39.280 probably not going to be below three percent. 0:19:39.200 --> 0:19:41.399 Until the fall, if not the earliest. 0:19:41.520 --> 0:19:45.000 Unless price ACCRUDEIL collapses down to fifty dollars, then you'll 0:19:45.000 --> 0:19:46.240 get there, But short. 0:19:46.080 --> 0:19:48.000 Of that, you're not going to be below three percent. 0:19:48.359 --> 0:19:51.400 And what I saw was just that the housing data 0:19:51.560 --> 0:19:54.080 was staying stickier than everybody thought, the wage data was 0:19:54.080 --> 0:19:58.320 staying stickier than everybody thought, and in oil and energy prices, 0:19:58.359 --> 0:20:02.680 which matters for headline CP was also not really declining 0:20:02.720 --> 0:20:05.160 to the extreme that everybody wants, and I think that's 0:20:05.160 --> 0:20:07.200 still the case as we move forward. 0:20:07.560 --> 0:20:09.280 When is it going to be something that the bond 0:20:09.359 --> 0:20:11.600 market wakes up to, because right now it hasn't been 0:20:11.680 --> 0:20:14.760 material sell off, and frankly, bonds have handled this pretty well. 0:20:16.160 --> 0:20:19.040 Yeah, they've handed it well, you know over the last 0:20:19.080 --> 0:20:21.160 couple of weeks, which I've said, it's been on sure, 0:20:21.280 --> 0:20:23.639