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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business App. Dan joins us now
Speaker 2: for more, Dan, It's good to see you, greed b.
Speaker 2: Let's start with that cloud revenue number, so that disappointed,
Speaker 2: and then we started to hear a little bit more
Speaker 2: the contribution from AI's picking up. We're going to see
Speaker 2: that softness continue in the current quarter, but then reaccelerate.
Speaker 2: Things start to pick up again in the back half
Speaker 2: of fiscal twenty twenty five. Can you just frame the
Speaker 2: second piece of this for us? What do you think
Speaker 2: that is so much more important than what we're seeing
Speaker 2: play out this morning?
Speaker 3: The words heard around the world and I think around
Speaker 3: the street when Nadella and Amy talked about the acceleration
Speaker 3: for a Zure in the second half and that AI
Speaker 3: monitorization that actually starts for real in January. And that's
Speaker 3: look ultimate. You go back to last week the knee
Speaker 3: jerk in terms of the white knuckle moment. Alphabet Street
Speaker 3: needed to hear about validation monization for AI. They heard
Speaker 3: it from the Deella on that call, bullish, not just
Speaker 3: from Microsoft for the broader tack socket.
Speaker 2: And you find it out that the sucks down this morning.
Speaker 3: Oh, I mean, in my opinion, and we were tall
Speaker 3: last night. I mean, I think there's stock that goes
Speaker 3: green in terms of I can't say today, but this
Speaker 3: isn't stick to I be shocked if it sticks because
Speaker 3: anyone that heard that conference call, you come out more
Speaker 3: bullish on Microsoft rather than any sort of skepticism because
Speaker 3: of the acceleration for Azure, because of monization, because of
Speaker 3: commercial booking, Sean and I expect. And that's how it
Speaker 3: looks knee jerk. The haters come out. They've been negative
Speaker 3: on Microsoft the last one hundred and fifty points. It
Speaker 3: all is about the AI revolution, AI monization, validation.
Speaker 2: Why did you sound to Lisa than talking about he like.
Speaker 1: He's like the haters over here who have been talking
Speaker 1: down this story forever, Lisa, now listen this. I don't
Speaker 1: think it sounded like people were the haters who were
Speaker 1: actually skeptical of these numbers. They weren't coming out and
Speaker 1: saying AI is bogus and then everything is wrong and
Speaker 1: they're going to tank. It was that they weren't surprised
Speaker 1: dramatically to the upside, and the actual gains that we've
Speaker 1: seen on the stock imply significant profit gains going forward.
Speaker 1: Here's one investor. It was really about the cloud services number.
Speaker 1: It needed to just be a little higher. What do
Speaker 1: you make of that? Just sort of how people have
Speaker 1: priced in the forward growth rate and whether they've gotten
Speaker 1: over their skis in terms of the pace.
Speaker 3: Look, it's a great point, and that's why the most
Speaker 3: important thing here is show that monization's coming. Show that
Speaker 3: you're now going to have growth rates on cloud in
Speaker 3: the thirty percent. Ultimately, if you trajector it out in
Speaker 3: incremental fifteen to twenty billion for Microsoft, you're not going
Speaker 3: to see that right away. What Bates in the Dell
Speaker 3: in Microsoft showed this is coming and we're going to
Speaker 3: guide to it. So I think that was the most
Speaker 3: important thing for the call, despite in terms of the
Speaker 3: actual quarter being strong but not a wow pop the
Speaker 3: Champagne quarter.
Speaker 1: There's also this issue of who's going to benefit the
Speaker 1: most as some of the big the big tech names
Speaker 1: build out their cloud provisions and build out some of
Speaker 1: their AI capacities.
Speaker 2: Were both really.
Speaker 1: Struck by AMD overnight actually seeming to gaining share. Do
Speaker 1: you think this is a game changer in terms of
Speaker 1: how much they could compete with in video?
Speaker 3: When Lisa Sue talks, everyone listens, and I think this
Speaker 3: just shows it's not just about the godfather of AI,
Speaker 3: Jensen and Nvidia AMD. They're getting into that AI party.
Speaker 3: It's nine pm. They're gett onto the dance floor. So
Speaker 3: what you saw from Lisa's sue bullish for AMD, triangulate
Speaker 3: that with Microsoft. With what I believe we're going to
Speaker 3: hear from Amazon, Meta and others, it should monitation starting
Speaker 3: the next phase of AI playing out. That's Bush for
Speaker 3: servers now, Oracle, Dell, Poundteer salesforce now, it's about second, third,
Speaker 3: fourth derivative playing out. That's why I last everyone's focused
Speaker 3: on there's two companies in the world. Everyone's focused on
Speaker 3: Microsoft and video, AMD said, hey, don't forget about us, important.
Speaker 2: Call and video up in the pre market as well.
Speaker 2: Off the back of some of this, there was also
Speaker 2: the story Danny was talking about it the story out
Speaker 2: of routsas that's lifting Tokyo Electron and SML, the report
Speaker 2: that they bind an administration plan to exempt ship equipment
Speaker 2: makers in Japan, the Netherlands and South Korea from upcoming
Speaker 2: export restrictions. How important is that story?
Speaker 3: Very important because what's the one thing that could spoil
Speaker 3: the AI party. It's not fed, it's not value e shit,
Speaker 3: it's about restrictions. It's about basically like what we see
Speaker 3: on tariffs, and ultimately this viewers trying to call tech
Speaker 3: war that's playing out.
Speaker 2: That was a huge move by.
Speaker 3: The Beltway, just keeping that tight group where you want
Speaker 3: to sound tough and obviously in terms of what's playing out,
Speaker 3: very significant for ASML and also it just should you
Speaker 3: cannot disrupt the supply chain as all of this constraint.
Speaker 3: Microsoft talked about it as well as pointing out.
Speaker 2: So we've done the cloud business, We've done the chip makers.
Speaker 2: We need to finish with your thing for it your baby.
Speaker 2: We need to talk about Apple, the Mark German report
Speaker 2: of the last couple of days, you've seen it. The
Speaker 2: chance that the iPhone is released in September without all
Speaker 2: the AI goodies. Now you've had this thesis for a
Speaker 2: long time. They've come out with this phone that'd be
Speaker 2: this monster upgrade cycle. It's one of the biggest pillars
Speaker 2: for your bullish call on the Apple stock. Does it
Speaker 2: change with that report from Mark German?
Speaker 3: No at all. I mean a career report by Germans
Speaker 3: or is But developers got it on time, all the marriages.
Speaker 3: Developers are going to build hundreds of apps on it
Speaker 3: and on iPhone sixteen, even if it's an update October.
Speaker 3: We're talking a few weeks and I go back to
Speaker 3: all of our Asia checks will be in Asia again
Speaker 3: this weekend. It started off as eighty million units for
Speaker 3: iPhone sixteen. Guess what it is now based on our checks,
Speaker 3: ninety million. So the point is it is not going
Speaker 3: from eighty to seventies, going to eighty to ninety.
Speaker 2: What that means is.
Speaker 3: Cooper Tino news Cook sees it where demand is going
Speaker 3: to be in an AI driven supercycle.
Speaker 1: Do we already have a sense of what some of
Speaker 1: the AI applications are consumer facing that are going to
Speaker 1: be sort of game changing because I understand on a
Speaker 1: sort of corporate sphere, but just getting sort of an
Speaker 1: emoji that's personalized isn't necessarily a game changer.
Speaker 3: Yeah, of course, and that's why what's so important. A
Speaker 3: year from now, you're gonna have hundreds of apps on
Speaker 3: this iPhone, on the Apple ecosystem that are AI driven.
Speaker 3: That's why developers, that's the hearts and lungs of this story.
Speaker 3: Apple's given it to them Apple Intelligence. Now the AI
Speaker 3: consumer story runs through Cooper Tina, and it just comes
Speaker 3: down to water. This week, Cook's going to talk about. Obviously,
Speaker 3: June I View is almost a background noise to the
Speaker 3: actual the main event September when this gets launched. What
Speaker 3: I View is really a strong upgrade. Second, very importantly China.
Speaker 3: This will be the last negative quarter China growth stories
Speaker 3: back for Apple.
Speaker 2: Before we get went.
Speaker 1: On air and you were talking about how you've got
Speaker 1: a lot of events to go to and you didn't
Speaker 1: really want to show up.
Speaker 2: Very casual.
Speaker 1: What does casual look like for Dan ives so well?
Speaker 3: First of the biggest insult for a college football fan
Speaker 3: or if someone calls you a casual that's to me,
Speaker 3: that is the most insulting you could ever get as
Speaker 3: a sports fan. Someone says you're a casual. Now, obviously
Speaker 3: Farah being a huge F one fan, he is along
Speaker 3: with the Netflix epic got me into F one. I
Speaker 3: will be going to my first F one race in
Speaker 3: Vegas wear my Ferrari gear.
Speaker 2: Well done. You're not a casual, A cashl I would
Speaker 2: say it's a Red Bull fan and I've not been
Speaker 2: involved in a spoil very long.
Speaker 3: The casual the biggest insult.
Speaker 2: For any sports fan, without a doubt. Dan, It's good
Speaker 2: to see you. Dan, I's of webbush A dropped by
Speaker 2: the green room this morning. Dan was talking to Juning
Speaker 2: the Manuell about what was happening in the equity market.
Speaker 2: Dan said he was this close to dressing in black
Speaker 2: for this morning's appearance. When the Microsoft numbers first dropped
Speaker 2: Harris with some real momentum. The latest looks like this
Speaker 2: a new Bloomberg and Morning Console poll showing Kamala Harris
Speaker 2: closing in on Donald Trump's lead across all seven swing states,
Speaker 2: the biggest gains coming in Michigan and Arizona. Henry thetres
Speaker 2: of Vader partners writing this, Kamala Harris's entrance into the
Speaker 2: race has brought the Democratic ticket to high has not
Speaker 2: seen all year and leveled out the twenty four election.
Speaker 2: Our forecast still anticipates that Donald Trump will win the
Speaker 2: election with sixty percent odds to Harris's forty. Henrietta joined
Speaker 2: us now for more. Henryett, I want to get into
Speaker 2: something Lisa and I have been talking about out for
Speaker 2: the last two weeks, or at least the last week.
Speaker 2: This has felt like what we would call inequity markets,
Speaker 2: a position squeeze that the old CEO is left and
Speaker 2: the short positions on the Democratic stock have come off.
Speaker 2: I want to understand if it's more than just that.
Speaker 2: Are we starting to see some real momentum that could
Speaker 2: last as we go through Q three and into Q four.
Speaker 4: I think there's a lot of reason to anticipate that
Speaker 4: this is momentum that has not peaked yet.
Speaker 5: I'll give you a number of reasons why.
Speaker 4: First of all, there was an actual election in Arizona
Speaker 4: last night.
Speaker 5: We've been tracking it for the last.
Speaker 4: Two months, but it's a primary election that Carrie Lake,
Speaker 4: the Republican candidate on the Senate ticket, against Reuben Galeo,
Speaker 4: a more progressive Democrat, think kirston Cinema who is retiring
Speaker 4: this year. Kerry Lake is very close to Donald Trump,
Speaker 4: tours with them, regularly, goes tomorrow, Lago, goes to the
Speaker 4: White House, et cetera. And she only got fifty three,
Speaker 4: I think percent of the vote, which means that amongst Republicans,
Speaker 4: seven percent of Republican voters voted.
Speaker 5: Against her last night.
Speaker 4: That is a trajectory shift in a critical swing state
Speaker 4: that your polls as well laid it on and pointed
Speaker 4: to hard confirmable actual elections as opposed to even just
Speaker 4: polling data, which is the best we can do right now,
Speaker 4: suggesting that independent voters and moderate voters are trending away
Speaker 4: from Donald Trump. And that's something that you showed up
Speaker 4: in swing states across your polling last night, and others
Speaker 4: did as well, including in Pennsylvania, another critical swing state. Effectively,
Speaker 4: everywhere that Trump was ahead, he is now declining in
Speaker 4: and Harris is on the surge.
Speaker 2: Upward the opening that you just described in places like Arizona.
Speaker 2: Do you think those kind of developments influenced the VP
Speaker 2: pick in the coming week.
Speaker 4: Well, it's if my pet belief that Mark Kelly will
Speaker 4: be the vice presidential Canada. I don't have any special
Speaker 4: insight there, but to me, you are not going to
Speaker 4: get a tremendous move from the VP pick in either direction.
Speaker 4: Jade Vince maybe an example of how we could be
Speaker 4: wrong there. His negatives have increased pretty substantially.
Speaker 5: I think he's negative fifteen right now. That might be
Speaker 5: a drag on the ticket, particularly with female voters.
Speaker 4: But for Mark Kelly, I mean you really don't need
Speaker 4: to read too far into it. As my colleague Spencer
Speaker 4: Proma likes to say, I mean they're talking about a
Speaker 4: naval fighter, an ass or not, you know, gun violence
Speaker 4: survivor with his wife Gabby Giffords. It's pretty much a
Speaker 4: no brainer. But even voters in Arizona will say that
Speaker 4: it's not going to move the needle for them.
Speaker 2: I will leave.
Speaker 4: The polling is at sixty percent of people in Arizona
Speaker 4: say picking Mark Kelly won't move the needle.
Speaker 5: I think it's a more broad.
Speaker 4: National approach, specifically on immigration that leads me to think
Speaker 4: that Kelly is the candidet that Kamala Harrison choose.
Speaker 1: And I think it just gave a lot of reasons
Speaker 1: for why this kind of has been a changed race.
Speaker 1: Why do you see the outcome being the same.
Speaker 4: Because I don't have enough data yet. It's really very fresh.
Speaker 4: The Bloomberg Morning Console data is the best and the
Speaker 4: latest and the only data that we have across all
Speaker 4: swing states since Kamala Harris joined the ticket. So it's
Speaker 4: going to take a lot more of that to convince me.
Speaker 4: And as my clients know, I have a very aggressive
Speaker 4: incumbency bias for our purposes. Now, I believe that the
Speaker 4: incumbent in this race is Donald Trump, and I need
Speaker 4: to see the Democratic candidate, particularly in the electoral College,
Speaker 4: pull ahead two to four points in all of those
Speaker 4: states consistently in order for me to change any of
Speaker 4: the races. So I'm looking very closely at Nevada, at Georgia,
Speaker 4: obviously at Pennsylvania, but I think Arizona is moving in
Speaker 4: the direction that Kamala.
Speaker 5: Harris wants to see.
Speaker 4: Donald Trump's best luck is on Pennsylvania and North Carolina.
Speaker 1: Right now, John, I love that Donald Trump is the incumbent,
Speaker 1: and basically Kamala Harris is not being considered as Joe
Speaker 1: Biden's kind of surrogate and any kind of well.
Speaker 2: She make of that, because I remember when Joe Biden
Speaker 2: stepped down. We did, especially in the evening, and the
Speaker 2: first question we all asked about Kamala Harris is how
Speaker 2: much distance she could put between herself and Joe Biden.
Speaker 1: Well, that's exactly the question, Henriette. I mean, how much
Speaker 1: distance is there? Isn't it fair to say that she's
Speaker 1: essentially the incumbent policy president or does she really represent
Speaker 1: an independent voice from Joe Biden.
Speaker 5: Yeah, No, she's definitely a different candidate.
Speaker 4: And I would love if this race were about policy, but.
Speaker 5: We haven't gotten there yet. I mean, whenever we get
Speaker 5: to tax policy, I'll be thrilled.
Speaker 4: But at this point, it's really the change is in
Speaker 4: Democratic activation, specifically, with double digit gains for the Democratic ticket,
Speaker 4: plus twenty five with Black voters, plus twenty four with
Speaker 4: Latino voters, huge gains with female voters, double digit gains
Speaker 4: with youth voters.
Speaker 5: It's a new ticket and she's.
Speaker 4: Not the incumbent because it's brought a brand new basket
Speaker 4: of voters.
Speaker 5: To the field.
Speaker 4: There was a slight uptick in Democratic voter registration in
Speaker 4: North Carolina in the last week, for example, so it's
Speaker 4: not that there is a policy shift, it's that this
Speaker 4: is a fresh face for the ticket. You can see
Speaker 4: it in her approval ratings, which have changed faster than
Speaker 4: any candidate I've ever seen.
Speaker 2: You know, the most ridiculous thing about all of this, Henritta,
Speaker 2: This was the object all along to have the early debate,
Speaker 2: to engage the population, to drum up the enthusiasm, to
Speaker 2: get people engaged early. This is just not how we
Speaker 2: thought things would turn out. It was the objective of
Speaker 2: the Democratic ticket, of course, but we thought on the
Speaker 2: ticket at the top would be Joe Biden and of
Speaker 2: course Lisa. The debate went in a different direction and
Speaker 2: ultimately the outcome has been the same, but with a
Speaker 2: different name on the ticket. It's amazing, isn't it.
Speaker 1: And we're talking instead not about policy, in fact, that's
Speaker 1: kind of lost the stage, or instead talking about weird and.
Speaker 2: It's fair enough, and retch can I jump in just quickly,
Speaker 2: just quickly, when will we talk about policy? We've seen
Speaker 2: a massive change in this election race, and Kamala Harris
Speaker 2: has gone on some scripted rallies, which I get it,
Speaker 2: drumming up loads of enthusiasm, But when do we start
Speaker 2: to hear about actual policy.
Speaker 5: Never I imagine it won't get around to that.
Speaker 4: I mean, at the best case, we could say after
Speaker 4: Labor Day, when people come back from vacation, we'll start
Speaker 4: to tune in. But the immigration and maybe fentanyl are
Speaker 4: areas where I think Trump has a really good chance
Speaker 4: slamming Kamala Harris and taking away some of her early
Speaker 4: and hopefully for him not locked in gains. But I
Speaker 4: don't see a race between Kamala Harris and Donald Trump
Speaker 4: talking about you know, capital gains, tax rates or a
Speaker 4: corporate tax rate.
Speaker 5: I really just don't see that happening.
Speaker 4: I think it's more about the top of the message,
Speaker 4: and the gender divide is probably the biggest indicator of that.
Speaker 4: The largest divide in the electorate right now is between.
Speaker 5: Men and women.
Speaker 2: Interesting, Henretta, thank you, Henrita. Trace their avader partners. Let's
Speaker 2: talk to a man who's been in the actual room
Speaker 2: making the decision many times before over the years. Joining
Speaker 2: us now is Jim Bullat, the dean of the Mitchell E.
Speaker 2: Daniels Junior School of Business at Purdue University and the
Speaker 2: former Saint Louis fed President. Jim, It's wonderful to catch
Speaker 2: up with you, sir, once again, a timely conversation. You
Speaker 2: have lived this repeatedly, and you've experienced the calls coming
Speaker 2: from outside the building, beyond the FMC to do something.
Speaker 2: And we've heard plenty of those calls. You've seen them too,
Speaker 2: from the likes of Alan Blinder, from the likes of
Speaker 2: Bill Dudley, from Muhammad al Arians saying this Federal Reserve
Speaker 2: needs to get a move on. I want to pick
Speaker 2: up on the last one, Muhammad Aller, And the point
Speaker 2: that he's made is a similar one that you've made, Jim,
Speaker 2: is that this Federal Reserve seems to have become more
Speaker 2: data point dependent and not data dependent. Can you just
Speaker 2: explain the distinction and the importance between the two.
Speaker 6: Yeah. I think if you say you're waiting to the
Speaker 6: next meeting because you want to see some data between
Speaker 6: now and the next meeting, that makes markets wonder, Okay,
Speaker 6: well what is it that could derail a red cut
Speaker 6: between now and the next meeting? If you do react
Speaker 6: to that data, then that's kind of data point dependence.
Speaker 6: And I think that's what Muhammad al Arian has been
Speaker 6: talking about. One thing that I did, I'd often say
Speaker 6: when I was on the committee was that you know,
Speaker 6: if you know you're going to do something with one
Speaker 6: hundred percent probability at the next meeting, why aren't you
Speaker 6: doing it at this meeting? And I think that gets
Speaker 6: often gets the committee into a little bit of hot
Speaker 6: water because sometimes the data don't cooperate between this meeting
Speaker 6: and the next meeting, so it can be managed, but
Speaker 6: it's it's kind of a committee dynamic that's been on
Speaker 6: and off over the last decade or more.
Speaker 1: This is the reason why many people, including Muhammad Larry
Speaker 1: and say the FED probably is not going to cut
Speaker 1: rates today by twenty five basis points, even if there
Speaker 1: is a consensus that they are going to in September,
Speaker 1: because they haven't telegraphed it. In New disrupt markets saying
Speaker 1: what do they now think that they didn't think at
Speaker 1: the last meeting. However, Liz Young, we were talking to
Speaker 1: we were also talking to James Camp of Ego Asset Management.
Speaker 1: They're suggesting the FED could set up a fifty basis
Speaker 1: point rate cut in September. Are you sympathetic with that.
Speaker 6: Now? I think that's too much. What I do think
Speaker 6: could happen is that they'll get going in September, but
Speaker 6: the discussion will turn to what about November, what about December?
Speaker 6: What will the pace be? Shaf Powell said that this
Speaker 6: first rate cut is consequential because it starts a process.
Speaker 6: What is that process? And if the data continue to
Speaker 6: confirm disinflationary trends, I think you could bring November onto
Speaker 6: the table and then you could have a sequence of
Speaker 6: rake cuts into the first part of next year, and
Speaker 6: then the committee could assess at that point where they
Speaker 6: are and how they want to play it from that point.
Speaker 1: Do you feel like they've backed themselves into a corner
Speaker 1: in some ways by being so data dependent, by just
Speaker 1: repeating that sort of de facto to every question.
Speaker 6: I don't know. This is a pretty successful policy here.
Speaker 6: You know, output growing, you know, between two and two
Speaker 6: and a half percent on a rate that's very close
Speaker 6: to the potential growth rate for the US economy, Unemployment
Speaker 6: coming up ever so slightly as they predicted, inflation coming
Speaker 6: down as they predicted. There's a lot to like about this.
Speaker 6: And the last piece of the soft landing would be
Speaker 6: to get the short end of the curve down and
Speaker 6: get rid of the inversion of the yield curve. So
Speaker 6: to do that in an organized way without signaling that
Speaker 6: you're worried about the economy, because I don't think they
Speaker 6: are worried about the economy right now.
Speaker 1: Is really the trick here.
Speaker 2: Jim, Do you think they should be worried about the
Speaker 2: economy right now?
Speaker 6: You know, I think it's still to me, it looks
Speaker 6: like an economy that's in a soft landing is growing
Speaker 6: at a trend pace pretty good. Of course, there's always
Speaker 6: risks out there. There's always the possibility that some big
Speaker 6: shock would occur, or one of the geopolitical events wood
Speaker 6: would sort of roll back onto the global macroeconomy. But
Speaker 6: you just sitting here with this data, this looks awfully good.
Speaker 6: And so if they can get the last piece of
Speaker 6: the puzzle in place, I think they'll be in great shape.
Speaker 2: I said earlier this morning that the Federal Reserve is
Speaker 2: not in the crystal wall business. It's in the risk
Speaker 2: management business, and Jim, you know that better than most.
Speaker 2: And I just wonder, when you think about the balance
Speaker 2: of risk right now, if the risk for higher unemployment
Speaker 2: is greater than the risk for higher inflation, do they
Speaker 2: need to formalize that somehow in the statement that comes
Speaker 2: out a little bit later on this afternoon.
Speaker 6: Yeah, I would say they probably think it's more balanced
Speaker 6: than it was. You had this overheated labor market, which
Speaker 6: is now much closer to the pre pandemic labor market,
Speaker 6: but that labor market is considered pretty strong, and now
Speaker 6: you've got inflation not being nearly the still elevated, moderately elevated,
Speaker 6: but not nearly the concern that it would have been
Speaker 6: a year ago or teen or sixteen months ago, and
Speaker 6: it was up closer to five percent on the preferred
Speaker 6: measures of the committee.
Speaker 5: So I think.
Speaker 6: Things are relatively balanced now they can begin to lower
Speaker 6: the policy rate. There is a risk though that you know,
Speaker 6: when outputs growing a trend and unemployments at the right
Speaker 6: level and everything's going good, well, the policy rate should
Speaker 6: be at its neutral level as well. And that's the
Speaker 6: part of the soft landing that isn't there. So the
Speaker 6: you know, comments by Alan Blinder and Muhammad al Area
Speaker 6: and Bill Dudley are reflecting that I think is that
Speaker 6: they couldn't find a moment earlier this year to get
Speaker 6: started on this downward descent, and they're hoping that September
Speaker 6: will be that moment.
Speaker 1: The problem with going back to neutral is that there
Speaker 1: is a huge debate raging in markets, and I'm sure
Speaker 1: at the foot as well, and what neutral looks like
Speaker 1: and whether we truly are in a higher inflation type
Speaker 1: of regime or whether we're going back to something familiar
Speaker 1: to pre pandemic. It seems like about six months ago
Speaker 1: everyone was saying we're in a new higher inflation regime,
Speaker 1: and increasingly it just seems like there's some doubt entering
Speaker 1: in that maybe we're reverting back to what we knew,
Speaker 1: say five six years ago.
Speaker 2: Where are you in this.
Speaker 6: On that, I would say that the Committee should guard
Speaker 6: against inflation dipping below the inflation target, because I think
Speaker 6: if that happens, then you will get this discussion about, Okay,
Speaker 6: we're going back to the regime that was in place
Speaker 6: between twenty nine and twenty nineteen, exceptionally low inflation, exceptionally
Speaker 6: low nominal interest rates, even negative nominal interest rates in
Speaker 6: many parts of the world, they'd be worried about that.
Speaker 6: So I don't think you want to do that. You
Speaker 6: want to approach the inflation target asymptotically from above. We're
Speaker 6: at about two and a half percent inflation right now, PCE,
Speaker 6: you'd like that to gently come down to two percent.
Speaker 6: Even when they lower the policy rate will still be
Speaker 6: a restricted policy. They will still be putting down pressure
Speaker 6: on inflation, but you don't want to put too much
Speaker 6: pressure on now because you want a glide path into
Speaker 6: the two percent target.
Speaker 1: Based on what you just said earlier, said that the
Speaker 1: balance of risks is basically pretty equally balanced, measured at
Speaker 1: a time where inflation is coming down but still present
Speaker 1: and employment still looks like it's fairly strong.
Speaker 2: Based on the fact that you.
Speaker 1: Think that there is a greater risk of inflation undershooting
Speaker 1: than overshooting, that that is the bigger risk that the
Speaker 1: FED needs to counter. What would be the argument for
Speaker 1: them not to say that the.
Speaker 6: Power of risks so far as a risk that hasn't
Speaker 6: even been talked about. But now it's time to start
Speaker 6: thinking about that as you try to get this last
Speaker 6: leg of the soft landing in place. And so you
Speaker 6: know you're coming off you know, five percent core, you
Speaker 6: know core PC inflation, you're kind of it's traumatizing for
Speaker 6: a central banker. So right now they've just been focused
Speaker 6: on let's let's make sure inflation is not going back
Speaker 6: up and that that was the story certainly in the
Speaker 6: first quarter of this year. But now that you've got
Speaker 6: better inflation reports, now you have to think about, you know,
Speaker 6: how do we play the end game here, declare victory,
Speaker 6: get into the soft landing, and then then see what's
Speaker 6: around the corner.
Speaker 1: So why wouldn't they just put an emphasis on the
Speaker 1: employment market and say, if they're clear signs that it's softening,
Speaker 1: they're clear signs that it's normalizing, and we aren't sure
Speaker 1: where it's heading right now, we're going to focus more
Speaker 1: on that than inflation.
Speaker 6: I think they've been gently, you know, gently saying that there.
Speaker 6: But but really the normal the labor market has been
Speaker 6: normalizing from a very hot market. You had two job
Speaker 6: openings for every unemployed worker, you know, just astoundingly high.
Speaker 6: Now you still have one point two openings per unemployed
Speaker 6: worker or so that that's the pre pandemic number that
Speaker 6: was always that was also a good labor market. So
Speaker 6: it's not that the labor market is deteriorating in a
Speaker 6: way that causes alarm or would cause the committee to move.
Speaker 6: But you have to ask if in Austin gools view,
Speaker 6: the Chicago Fed has asked, you know, if you thought
Speaker 6: five and three eighths was the right policy rate last
Speaker 6: summer when inflation was much higher, why do you think
Speaker 6: five and three ates is the same. Uh, you know,
Speaker 6: it's also the right policy rate today with a little
Speaker 6: bit higher unemployment and much lower inflation. So you do
Speaker 6: have to react to the data in the big in
Speaker 6: the big picture, and I think that's you know, the
Speaker 6: committee is looking for the right way to do that,
Speaker 6: in the right moment to do that, and it looks
Speaker 6: like September is going to be that moment.
Speaker 2: Hi, Jim, border up, I'm not doing it right. I
Speaker 2: think I'm doing it right. Thomas and Lewis fed President
Speaker 2: Jim Filler out of patunity. Now appreciate it. Thank you
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