WEBVTT - Steven Englander Talks August Payrolls, Potential Fed Cut

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Bloomberg Surveillance is about conversation. That's the way we do it.

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<v Speaker 2>Right now, joining us with our question or interview of

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<v Speaker 2>the day. Steven Englander with Earn Credit the standard Charter bank,

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<v Speaker 2>definitive at City Group for years on cross rates, absolutely

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<v Speaker 2>known globally for the relationships and currency show. I want

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<v Speaker 2>to cut to the chase and go back to Yale. Okay,

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<v Speaker 2>you at Bob Evanson is your faculty advisor at Yale.

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<v Speaker 2>Did you ever go to the Yale Harvard tailgate games

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<v Speaker 2>that were legendary with Evanson?

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<v Speaker 3>No, but he did send me to the Pesol Fundeau

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<v Speaker 3>in Brazil to look at their agricultural experiment stations and

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<v Speaker 3>see what they were doing.

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<v Speaker 2>His was granular data, which is the way Steve Englander rolls.

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<v Speaker 4>What take the Yale.

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<v Speaker 2>Granular study that Colls commissioned, Schill Earn all that and

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<v Speaker 2>bring it over to how you make a call of

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<v Speaker 2>fifty basis points September.

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<v Speaker 3>I think the trick is to try and understand everything

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<v Speaker 3>that's in the market and ask, you know, why does

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<v Speaker 3>the market think what it's thinking? What is the market logic?

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<v Speaker 3>And then say, do I have a right to disagree

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<v Speaker 3>with it? Do I think that there's something I know

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<v Speaker 3>that the market doesn't know? And how comfortable am I

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<v Speaker 3>with it?

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<v Speaker 2>Let's start on the dual mandate of inflation. Let's go

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<v Speaker 2>back to Evanson, giant of Minnesota and teaching it Yale

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<v Speaker 2>iconic and that's the American farmer. The images this weekend

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<v Speaker 2>of farmers in Arkansas flat on their back, how pernicious,

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<v Speaker 2>Stephen Englander is the inflation now in America?

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<v Speaker 3>I think the perception is quite strong, and there is

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<v Speaker 3>a justification. I'd say this that the if you look

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<v Speaker 3>at some of the adjustments for technological progress, our computers

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<v Speaker 3>are much better, but we don't use that much of

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<v Speaker 3>their capacity. So you know, some of the softness that

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<v Speaker 3>we sometimes see in inflation is sort of added on

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<v Speaker 3>by the bl It's completely legitimate, but it's not what

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<v Speaker 3>the price of coffee is. What you know Arkansas farmers

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<v Speaker 3>or inputs from Markansas farmers.

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<v Speaker 2>Steven Anglander, where there's the standard charter bank, we are

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<v Speaker 2>commercial trees through the market opening and well into this

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<v Speaker 2>nine o'clock hour.

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<v Speaker 4>David Gurray in for Paul Sweeney.

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<v Speaker 5>David, you mentioned that you're sort of looking at all

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<v Speaker 5>of these market factors as you come up with that forecaster.

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<v Speaker 5>What was it that led you to make this call?

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<v Speaker 5>Was it the simple variable of just the jobs numbers

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<v Speaker 5>that we got, or were there was there some other

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<v Speaker 5>mechanism or variable that made you feel confident in that.

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<v Speaker 3>Well, you also have to try and read the mind

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<v Speaker 3>of the FED and the in sentence in the market

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<v Speaker 3>and so on, and they think, you know, yeah.

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<v Speaker 1>You know, I actually think it's the right thing to do.

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<v Speaker 3>And one question I asked myself is, say they had

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<v Speaker 3>known the data for the last four months, nonfarm pay

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<v Speaker 3>rolls last four months as averaged twenty seven thousand, and

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<v Speaker 3>because of the bias that you get from the birth

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<v Speaker 3>death adjustment, we think even that's overstated. Would they have cut?

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<v Speaker 3>And you know the answer is yeah, entire mind that

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<v Speaker 3>they would have cut. And so we think that they're

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<v Speaker 3>not going to commit themselves to making a series of cuts,

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<v Speaker 3>but they're going to say, look, you know, the numbers

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<v Speaker 3>are softer than we expected. We're reading the numbers and

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<v Speaker 3>they justify cutting, but also a bit of catchup.

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<v Speaker 5>We're in this moment where the integrity of government data

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<v Speaker 5>is being cast into question more than it has been,

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<v Speaker 5>certainly by personnel movements, but also as you listen to

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<v Speaker 5>the present's economic advisors suggesting that they're not capturing the

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<v Speaker 5>labor economy in a holistic sense. How does that complicate

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<v Speaker 5>your job as a private sector economist who's looking at

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<v Speaker 5>the economy. Does it raise doubts in your mind?

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<v Speaker 2>How?

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<v Speaker 5>How does it sort of change the work that you're

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<v Speaker 5>doing if that's coming about.

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<v Speaker 3>Well, we actually spend a lot of time looking at

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<v Speaker 3>the data and trying to understand if they're legitimate or not.

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<v Speaker 3>Like last year, one of our big papers, and I

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<v Speaker 3>think we were one of the first, was sort of

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<v Speaker 3>integrating undocumented immigrants and kind of saying, there's a reason

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<v Speaker 3>the pyerials are so strong because they're getting work permits

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<v Speaker 3>and getting picked up by NFP.

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<v Speaker 4>I want to take a little bit of theory here.

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<v Speaker 2>The Yale a Budget Lab at Yale has been absolutely

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<v Speaker 2>brilliant in teaching us about this legislation and about tariffs

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<v Speaker 2>as well. I personally saw terriffs this weekend in Canna paint.

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<v Speaker 2>When I'm fifteen percent out of the blue, Steve Englander,

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<v Speaker 2>I'm in the camp. David Kelly, I want to say

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<v Speaker 2>at Putnam at JP Morgan David Kelly writing about the

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<v Speaker 2>income effect as well, we're all focused on substituting. Lisa's

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<v Speaker 2>going to go to Costco. She's not gonna buy coffee,

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<v Speaker 2>She's going to buy Sanka Blogony to me right now,

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<v Speaker 2>what's going on as a major income effect affected by

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<v Speaker 2>purchasing power? This goes back to a guy named Hicks, folks,

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<v Speaker 2>a guy named Slutsky. But the answer is we're being

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<v Speaker 2>a hit with a new purchasing power that's evaporating.

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<v Speaker 3>I think that's correct, and you know a lot of

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<v Speaker 3>people understand it. You know, in terms of oil prices,

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<v Speaker 3>right you know you were paying forty to fill up

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<v Speaker 3>your tank.

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<v Speaker 1>Now you pay eighty.

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<v Speaker 3>It means one, let's trip with the kids to McDonald

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<v Speaker 3>in the week. With tariffs and import prices, it's more

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<v Speaker 3>spread out and less dramatic, but it's the same kind

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<v Speaker 3>of impact. All of a sudden, everything you see is

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<v Speaker 3>a little bit more expensive and you have to make

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<v Speaker 3>decisions and prioritize your spending.

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<v Speaker 2>Feel the dreams will fifty basis points ease our pain ultimately?

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<v Speaker 3>I think yes, And let me be clear, because we

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<v Speaker 3>think that they do fifty and then they pause because

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<v Speaker 3>GDP numbers aren't bad. Productivity looks like it's actually pretty good.

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<v Speaker 4>You sure Sharma said that in the Ft today and the.

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<v Speaker 3>You know, you look at the labor numbers, as you know,

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<v Speaker 3>they're really mediocre. Its sluggish, softish. But you know, as

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<v Speaker 3>you know, I was at Lehman's in two thousand and eight,

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<v Speaker 3>this is not a two thousand and eight type of

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<v Speaker 3>labor market. That's not a twenty April twenty twenty labor market.

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<v Speaker 3>It's a mediocre, sluggish, poor labor market where you know

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<v Speaker 3>you probably should get closer to neutral, but nothing is

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<v Speaker 3>falling off.

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<v Speaker 5>The Chairman has talked about the oddness of that and

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<v Speaker 5>the challenge of having a market like you describe. How

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<v Speaker 5>much closer are we to figuring out why it is

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<v Speaker 5>that way and why it continues to be Is it's

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<v Speaker 5>just the simple sense of ambiguity about policies and their effects,

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<v Speaker 5>Is it? As you hear from Scott Bessant or Kevin Hassett,

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<v Speaker 5>You know, things will take time to equilibrate or work

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<v Speaker 5>themselves out. What do you make of the labor market

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<v Speaker 5>the state in which it's in right now?

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<v Speaker 3>Well, look if I want to criticize the fad, I'd

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<v Speaker 3>say that they spend ninety percent of their time worrying

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<v Speaker 3>about the man shocks. And here we are talking about

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<v Speaker 3>productivity shocks, talking about labor market shocks, and there's a

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<v Speaker 3>lot of ambiguity in terms of how you interpret numbers

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<v Speaker 3>when they come in because you don't know if they're moving,

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<v Speaker 3>you know what shock is moving them. So I think

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<v Speaker 3>that that's the big issue that leaves things uncertain, and

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<v Speaker 3>you know, uncertain about how bad things are. So I

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<v Speaker 3>think that you know, in some ways, it argues that

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<v Speaker 3>you know, you kind of know the direction, so you

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<v Speaker 3>make a move, but you'd be very cautious. I mean,

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<v Speaker 3>what if we're in nineteen ninety seven.

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<v Speaker 5>Is stagflation a word that is bandied about in the

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<v Speaker 5>standard charted offices? Is it something that you were thinking

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<v Speaker 5>about or worried about at this moment.

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<v Speaker 1>It's always a worry.

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<v Speaker 3>But you know, with labor markets so soft, you know,

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<v Speaker 3>and spending going to be soft, I don't think labor

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<v Speaker 3>is going to be able to push wages up, you know.

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<v Speaker 1>So I think that you know, irrespected.

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<v Speaker 3>In the sixties, he's so Yale, irrespectful, irrespected of the

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<v Speaker 3>productivity story.

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<v Speaker 1>I think that the you know, uh yeah, Dart.

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<v Speaker 2>With a brilliant essay this weekend, and he goes back

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<v Speaker 2>to nominal GDP, and I get it. It's a conundrum.

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<v Speaker 2>Do we have terrible economic growth but still buoying inflation?

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<v Speaker 2>Stagflation is doctor Ger talks about here, Stephen Englander. Is

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<v Speaker 2>the real risk here that we get this wrong and

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<v Speaker 2>we have dampen growth and quiescent inflation where nominal GDP

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<v Speaker 2>dips below five percent, ginormous number dips below Dare I

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<v Speaker 2>say four percent or worse? Er?

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<v Speaker 4>Is that in one of your probabilities? You know?

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<v Speaker 3>I think that you know, we all talk about AI

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<v Speaker 3>all day long, and I think that that's going to

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<v Speaker 3>be the real decisor for how the economy breaks that

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<v Speaker 3>if it turns out that we're, you know, partly because

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<v Speaker 3>of AI or other factors, that productivity growth is strong, right,

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<v Speaker 3>everything's going to be fun.

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<v Speaker 4>But the FED doesn't have that luxury.

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<v Speaker 2>We can talk about it, we can go yeah, yeah,

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<v Speaker 2>bring in Simon Johnson up at MIT. Rogueoff was on

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<v Speaker 2>the other day. It's a bunch of bow type of stuff.

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<v Speaker 2>The FED doesn't have that luxury. Do they to ponder

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<v Speaker 2>AI in productivity?

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<v Speaker 1>Well, A, they should, But I know.

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<v Speaker 4>Schoomberg prescriptive of should. I thought Crewman was.

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<v Speaker 2>On once and I couldn't get him to say the

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<v Speaker 2>dreaded s word should Englanders doing it?

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<v Speaker 4>What should got to do with it?

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<v Speaker 3>But I think you know, in practice, given the absence

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<v Speaker 3>of knowledge, it just means that you you sort of

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<v Speaker 3>go slowly in the direction that you think that data

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<v Speaker 3>are telling you. I mean, there's no straw here with

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<v Speaker 3>which to make bricks, and you know you can critique

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<v Speaker 3>the productivity data very easily as well. So I think

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<v Speaker 3>that they sort of you know, you take a step,

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<v Speaker 3>you see what happens, Take another step, see what happens.

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<v Speaker 3>If something bad happens, you stop, or you step back

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<v Speaker 3>a little bit. If it looks good, you keep going.

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<v Speaker 2>I want you to jump in here and finish out

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<v Speaker 2>the interview. We're having so much funnier folks with the

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<v Speaker 2>academics of doctor England or I really want to emphasize

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<v Speaker 2>some of this stuff is incredible dynamics moving parts. David

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<v Speaker 2>Off of that is this dreaded word ambiguity, which is

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<v Speaker 2>we really don't know where we are or what's going

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<v Speaker 2>to happen?

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<v Speaker 5>Continue will I will ask you to indulge me and

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<v Speaker 5>do a little work for us here as we look

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<v Speaker 5>ahead to this week of data. So we have these revisions,

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<v Speaker 5>I'm curious how you're thinking about them, But also we

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<v Speaker 5>had priceding goals beyond Friday, saying he wants to see

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<v Speaker 5>the inflation data this week. That matters to him. We've

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<v Speaker 5>got to look at the inflation side too, He says,

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<v Speaker 5>how important is that to you? So how should be

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<v Speaker 5>thinking or framing the data releases that we're going to

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<v Speaker 5>get this week.

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<v Speaker 3>I think the important thing about the benchmark revisions is

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<v Speaker 3>we think they're going to be significant, maybe seven hundred

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<v Speaker 3>and fifty to one million down. And the important things

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<v Speaker 3>there is there's no reason to think that things have

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<v Speaker 3>gotten better since the March of twenty twenty five as

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<v Speaker 3>far as inflation goes, I think the real issue you know, yeah,

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<v Speaker 3>so you know my shirt price went up because there's

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<v Speaker 3>a tariff on shirts.

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<v Speaker 1>I mean, you don't know how to gauge it.

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<v Speaker 3>If it turns out that you know, say, services inflation

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<v Speaker 3>is heating up, stuff that you know is not related

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<v Speaker 3>to tariffs is heating up, then there's a problem.

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<v Speaker 2>What happens to the animal spirit? You mentioned seven fifty

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<v Speaker 2>to one million, most people are below that. I'd say

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<v Speaker 2>four hundred and five. I mean Steve Englander's out in

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<v Speaker 2>a linear folks, with what we're gonna see tomorrow.

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<v Speaker 4>We'll have complete.

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<v Speaker 2>Coverage of this and Steven Angler, what does it mean

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<v Speaker 2>for people's retirement plans? Slash the stock market? If we

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<v Speaker 2>get Anglander rate cuts? Is that good or bad for equities?

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<v Speaker 3>You know, a little bit of bad news is probably

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<v Speaker 3>pretty good for equities because it calms the market down

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<v Speaker 3>and it sort of says, look, if if you get

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<v Speaker 3>your company right, cost the capital isn't going to be

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<v Speaker 3>an issue for you. I think if things are really

0:11:39.600 --> 0:11:42.560
<v Speaker 3>falling apart, like you know twenty twenty or two thousand

0:11:42.600 --> 0:11:46.120
<v Speaker 3>and eight, then you know, bad news is really bad news.

0:11:46.160 --> 0:11:49.040
<v Speaker 3>But in many circumstances, a little bit of bad news

0:11:49.160 --> 0:11:53.599
<v Speaker 3>is actually good news for equities. And I'd say this

0:11:53.679 --> 0:11:55.760
<v Speaker 3>is that the equity you know, you sort of say

0:11:55.760 --> 0:11:58.760
<v Speaker 3>wire equity is so strong when when everybody thinks things

0:11:58.800 --> 0:12:01.240
<v Speaker 3>are a mush, it sort of makes you look at

0:12:01.240 --> 0:12:04.720
<v Speaker 3>the productivity element again, kind of saying, well, wages aren't

0:12:04.720 --> 0:12:07.280
<v Speaker 3>going up, but it looks like GDP is fairly strong.

0:12:08.000 --> 0:12:11.800
<v Speaker 3>What's left. It's not going into Texas. There's only profits.

0:12:12.120 --> 0:12:15.360
<v Speaker 2>Bill from London emails in, he's with a standard charter

0:12:15.480 --> 0:12:18.320
<v Speaker 2>bank and says, ask Steven what it means for the

0:12:18.360 --> 0:12:19.200
<v Speaker 2>rest of the world.

0:12:19.400 --> 0:12:21.320
<v Speaker 4>How about a standard charter.

0:12:21.480 --> 0:12:24.520
<v Speaker 2>Question this morning for Bill Winters? What does all this

0:12:24.640 --> 0:12:29.000
<v Speaker 2>Anglander talk mean for Singapore, for London and the rest

0:12:29.000 --> 0:12:30.720
<v Speaker 2>of the standard charter world?

0:12:31.120 --> 0:12:34.120
<v Speaker 1>In some ways it's actually okay. I mean there are

0:12:34.120 --> 0:12:34.800
<v Speaker 1>two elements.

0:12:34.840 --> 0:12:37.200
<v Speaker 3>One is that if you look at the AI game,

0:12:37.240 --> 0:12:40.000
<v Speaker 3>if that's the game, you sort of say, okay, US

0:12:40.040 --> 0:12:42.600
<v Speaker 3>seems to be on the game. China might be in

0:12:42.679 --> 0:12:45.640
<v Speaker 3>the game. A bunch of other countries trying to get

0:12:45.679 --> 0:12:47.280
<v Speaker 3>in Europe, you know.

0:12:47.559 --> 0:12:49.520
<v Speaker 1>Right not there having some conferences.

0:12:49.640 --> 0:12:54.120
<v Speaker 3>On the other hand, you know, the say US GDP

0:12:55.240 --> 0:12:58.760
<v Speaker 3>or say the FED cuts by the fifty basis points.

0:12:59.120 --> 0:13:00.200
<v Speaker 1>That's everybody else.

0:13:00.280 --> 0:13:03.560
<v Speaker 3>His interest rates go down by thirty to fifty bases points,

0:13:04.080 --> 0:13:08.480
<v Speaker 3>and that's far more important to them than sort of saying, well, oh,

0:13:09.040 --> 0:13:12.319
<v Speaker 3>you know, if Englander's right, you know, they're forty your jobs,

0:13:12.320 --> 0:13:15.040
<v Speaker 3>so they're not going to buy a Singapore export. The

0:13:15.040 --> 0:13:17.160
<v Speaker 3>fact that they can get their cost of capital and

0:13:17.160 --> 0:13:18.199
<v Speaker 3>the risk premium is down.

0:13:18.240 --> 0:13:19.800
<v Speaker 1>They think is more important to the rest of them.

0:13:19.800 --> 0:13:22.679
<v Speaker 2>Does Bill Winters know that Standard Charter Bank is up

0:13:22.720 --> 0:13:26.040
<v Speaker 2>eighty nine points sixty seven percent in the past twelve

0:13:26.080 --> 0:13:27.600
<v Speaker 2>months because of Steve Englander.

0:13:28.640 --> 0:13:31.000
<v Speaker 3>Well, I think he can add like four or five

0:13:31.040 --> 0:13:36.560
<v Speaker 3>decimal points, but I'm not From from your mouth to

0:13:36.720 --> 0:13:37.760
<v Speaker 3>his ears, honored.

0:13:37.800 --> 0:13:39.560
<v Speaker 2>We'd love to get a phone call with you tomorrow

0:13:39.559 --> 0:13:42.600
<v Speaker 2>on your busy day, Steve Englander when we get this data.

0:13:42.880 --> 0:13:46.600
<v Speaker 2>Doctor Englander is with a Standard Charter Bank and they're

0:13:46.640 --> 0:13:49.800
<v Speaker 2>just thrilled to give you extended conversations there. That's what

0:13:49.840 --> 0:13:53.280
<v Speaker 2>Bloomberg likes to do for Global at Wall Street