WEBVTT - A Breakdown of CPI and Outlook for Rates 0:00:00.080 --> 0:00:07.400 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen, and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:47.400 the Bloomberg Terminal, and the Bloomberg Business App and inflation 0:00:47.600 --> 0:00:50.800 Report coming to you right now from across America. I'm 0:00:50.800 --> 0:00:54.560 waiting for the data, particularly on that critical three tenths 0:00:54.560 --> 0:00:58.120 of a percent data, and it comes in a little 0:00:58.200 --> 0:01:01.280 elevated away from the free lunch people were talking about. 0:01:01.680 --> 0:01:06.080 Instead of zero point three, it's zero point four year 0:01:06.160 --> 0:01:09.720 over year, not three point four. It's a lofty three 0:01:09.760 --> 0:01:13.000 point five. And the big one, the wildser to meet 0:01:13.040 --> 0:01:17.160 Paul Sweeney, is three point seven. Core year over year 0:01:17.959 --> 0:01:21.920 comes out at three point eight with a spirited real 0:01:22.080 --> 0:01:26.759 average hourly earnings, The markets react. 0:01:26.880 --> 0:01:29.560 S and p five hundred just ticks down pretty solidy 0:01:29.600 --> 0:01:31.920 down seven tens to one percent. The nastac off about 0:01:31.959 --> 0:01:33.920 nine tens a one percent rate on this data. Go 0:01:34.000 --> 0:01:36.480 to the yield space, Tom. The two year treasury, the 0:01:36.480 --> 0:01:39.639 one that's really tied to short term rates, up eleven 0:01:39.680 --> 0:01:42.080 basis points, just in a couple of ticks. Here, the 0:01:42.160 --> 0:01:44.240 ten years up nine basis points four point four in. 0:01:44.280 --> 0:01:47.680 The real yield explodes out ten basis points a higher 0:01:47.800 --> 0:01:51.800 inflation adjusting yield two point zero nine percent. I'm taking 0:01:51.840 --> 0:01:55.400 some time here, folks, so I reckon digest this market 0:01:55.440 --> 0:02:00.200 moving data curve spread a little bit of disinversion, but 0:02:00.640 --> 0:02:04.520 the real dynamic is just simply in level. I'm not 0:02:04.560 --> 0:02:06.440 going to mince words. I said this on Monday. I 0:02:06.480 --> 0:02:09.160 was just guessing. Now I'm not guessing. We are on 0:02:09.200 --> 0:02:12.920 the five percent watch for the US full faith and 0:02:12.960 --> 0:02:17.040 credit two year yield four point eighty seven percent rounded 0:02:17.120 --> 0:02:20.280 up twelve full bas points of movement a ten year 0:02:20.360 --> 0:02:23.720 four point four to six. There's prosaic ideas, like what 0:02:23.760 --> 0:02:27.000 does this do to a thirty year mortgage? Is one idea? 0:02:27.400 --> 0:02:30.840 What does this do to money market funds? Paul? What 0:02:30.919 --> 0:02:33.880 do we start doing? Is it another half a trillion 0:02:33.960 --> 0:02:36.160 dollars this week and the money mark. 0:02:36.280 --> 0:02:36.960 It's interesting time. 0:02:37.000 --> 0:02:39.720 I'm just looking at the top live on the reporting 0:02:39.760 --> 0:02:42.440 on the Bloomberg terminal, Chris Ancy, senior editor for Bloomberg, 0:02:42.639 --> 0:02:46.160 who says, this is going to really question the feasibility 0:02:46.200 --> 0:02:48.639 of a June FED great cut, that's the bottom line. 0:02:48.680 --> 0:02:51.320 He's had time to look at his studios in Princeton 0:02:51.360 --> 0:02:54.720 with Bloomberg Intelligence Ira Jersey and will have Neil Dudda 0:02:54.760 --> 0:02:56.960 with us in moments as they both digest the data. 0:02:57.400 --> 0:02:58.960 I right, I guess I got to go to the 0:02:58.960 --> 0:03:02.280 FED chit chat. This is about as no June cut 0:03:02.320 --> 0:03:03.240 as we've ever seen. 0:03:04.200 --> 0:03:06.800 Uh, no June cutting. We're gonna start pricing out July 0:03:06.919 --> 0:03:09.440 in a hurry as well here Tom, So you know 0:03:09.520 --> 0:03:12.920 it very likely when you keep on this was not 0:03:13.000 --> 0:03:14.920 the worst data obviously that we could seen right off. 0:03:15.040 --> 0:03:17.760 Zero point five would have been worse, for sure. But 0:03:17.960 --> 0:03:22.160 it just shows you that the the disinflationary environment is 0:03:22.160 --> 0:03:25.560 is is lagging now. So the you know, the the 0:03:25.639 --> 0:03:27.800 idea that we were going to continue to have a 0:03:27.919 --> 0:03:30.680 slow decline of inflation just hasn't happened. And now we're 0:03:30.800 --> 0:03:33.639 we're starting to see a leveling off, and because of that, 0:03:34.200 --> 0:03:35.880 it's going to be harder and harder for the Fed 0:03:36.000 --> 0:03:38.720 Reserve to start cutting interest rates, like even make the 0:03:38.760 --> 0:03:41.800 case that they need to start start cutting interest rates 0:03:42.320 --> 0:03:46.480 and and calibrate their uh, calibrate what they're doing. So 0:03:46.480 --> 0:03:48.560 so it wouldn't surprise me at this point if if 0:03:48.640 --> 0:03:51.480 the majority of the market started the price for the 0:03:51.480 --> 0:03:53.880 first full cut to be in November at some point 0:03:53.960 --> 0:03:56.400 in the next couple of next couple of days, because 0:03:57.280 --> 0:03:59.040 you know, if they don't cut in July, then then 0:03:59.080 --> 0:04:01.320 I think that they would just prefer to wait instead of, 0:04:01.680 --> 0:04:03.800 you know, making a first cut in September. They'll say 0:04:03.800 --> 0:04:07.280 that they would. Every meeting's live. Yeah, quite frankly, they've 0:04:07.400 --> 0:04:09.680 never actually cut within a month of the election, so 0:04:09.880 --> 0:04:12.360 I suspect that they'll they'll skip in September and then 0:04:12.520 --> 0:04:13.520 go to November. 0:04:13.560 --> 0:04:16.200 It's like saying Arsenal list and Villa is a snooze fest. 0:04:16.200 --> 0:04:19.760 It's it's live. The Vicks fifteen point seven zero of 0:04:19.880 --> 0:04:23.280 point seven to two down futures negative three hundred SMP 0:04:23.440 --> 0:04:26.080 futures negative forty six. Paul, let me lay out the 0:04:26.080 --> 0:04:31.159 FED meetings May one June twelve July thirty one, and 0:04:31.200 --> 0:04:33.960 the one I've been watching, which is September eighteenth. Forget 0:04:33.960 --> 0:04:36.680 about the politics, forget about the election. They're going to 0:04:36.760 --> 0:04:39.479 have a lot more data into the Q three. 0:04:39.360 --> 0:04:43.320 Season YEP end of current from a Bloomberg economy saying 0:04:43.480 --> 0:04:46.760 no surprises here. Shelter and gas prices are fingered by 0:04:46.760 --> 0:04:49.880 the BLS as the main culprits here in the higher 0:04:49.880 --> 0:04:53.800 inflation print here. So I mean, IRA is the Fed 0:04:53.920 --> 0:04:56.400 just saying again, we're data dependent. We're seeing a little 0:04:56.440 --> 0:04:58.919 bit of stickiness here, a little bit of a resurgence 0:04:59.040 --> 0:04:59.960 here in core inflation. 0:05:00.760 --> 0:05:01.360 So it's okay. 0:05:01.440 --> 0:05:02.960 Wait, is that kind of how you think they're going 0:05:03.000 --> 0:05:04.279 to message it? 0:05:04.440 --> 0:05:07.560 Yeah, I think they almost have to mention it that way. 0:05:07.720 --> 0:05:09.880 And you know, we get the minutes today and you're 0:05:09.880 --> 0:05:12.400 not going to revise the minutes because of this number. 0:05:12.440 --> 0:05:14.479 But I think as we get into and you hear 0:05:14.520 --> 0:05:16.799 some of the Fed speak going into the quiet period 0:05:16.800 --> 0:05:19.880 before that that may meeting that Tom just mentioned, you know, 0:05:19.920 --> 0:05:21.120 one of the things that you're going to look at 0:05:21.200 --> 0:05:23.920 is the shorter term. Right. You've heard Governor Waller and 0:05:24.000 --> 0:05:26.120 as well as other members of the Federal Reserve talk 0:05:26.160 --> 0:05:29.920 about the kind of the shorter term momentum of inflation. 0:05:30.360 --> 0:05:33.040 And when you look at the three month annualized core 0:05:33.080 --> 0:05:36.039 inflation rate right now, it's at four point five percent. 0:05:37.000 --> 0:05:40.400 It was at four percent back in January, So that's accelerating, right, 0:05:40.480 --> 0:05:42.720 So that's a that's not a good sign. 0:05:42.760 --> 0:05:42.880 Now. 0:05:43.040 --> 0:05:45.520 Granted, seasonally this tends to be a time when inflation's 0:05:45.520 --> 0:05:46.960 a little bit higher anyway, so you have to get 0:05:47.240 --> 0:05:48.800 with a little bit of a grain of salt. But 0:05:48.839 --> 0:05:51.039 it's still moving in the wrong direction, right, And I 0:05:51.040 --> 0:05:52.760 think that that's one of the keys that you can 0:05:52.800 --> 0:05:55.320 take away from this report is that yes, people will 0:05:55.400 --> 0:05:58.479 nuance this and say, oh, well, it's housing lagging. There's 0:05:58.480 --> 0:06:02.840 all these other indicators. Prices obviously, you know, feed into 0:06:02.839 --> 0:06:06.520 at least some of this report today. But nonetheless, like 0:06:06.600 --> 0:06:09.839 in aggregate, you're still looking at an economy that doesn't 0:06:09.880 --> 0:06:11.880 have stable inflation quite yet. 0:06:11.960 --> 0:06:14.080 We're we're gonna rep up the script here. We're with 0:06:14.120 --> 0:06:16.480 Ira Jersey. He will continue with us, and Neil Dutta 0:06:16.520 --> 0:06:18.560 will join us in a moment commercial free to you 0:06:18.600 --> 0:06:23.040 across America until the nine zero zero hour with the 0:06:23.080 --> 0:06:25.640 support of Commonwealth. We thank them for their work with 0:06:25.680 --> 0:06:30.040 our Economics Commonwealth, supporting more than two thousand independent financial 0:06:30.080 --> 0:06:34.279 advisors with the solutions they need to grow a thriving business. 0:06:34.720 --> 0:06:38.120 Commonwealth go where you grow. Visit Commonwealth dot com to 0:06:38.279 --> 0:06:42.080 learn more. We're thrilled. Also tell you schedule Tracy Alloway 0:06:42.120 --> 0:06:44.360 and Joe Wisenthal will rip up the script there as 0:06:44.360 --> 0:06:47.960 well and talk to mister Wisenthal and miss Alloway about 0:06:47.960 --> 0:06:53.040 this important inflation report. Down negative three point fifty SPX 0:06:53.080 --> 0:06:55.920 futures at negative fifty five to VIX out at fifteen 0:06:55.960 --> 0:06:59.400 point eighty seven. As Paul mentioned, the two year yield 0:06:59.560 --> 0:07:03.880 four point eight nine percent now a fifteen basis point 0:07:04.040 --> 0:07:08.800 higher yield, lower price on the two year yield. Ivery Jersey, 0:07:08.839 --> 0:07:11.640 please please stay with us if you can. Neil Dudda 0:07:11.760 --> 0:07:16.080 joins now from Renaissance Macro. Neil. This goes right to 0:07:16.120 --> 0:07:19.680 the ambiguity, which you think is constructive. If we have 0:07:19.800 --> 0:07:23.120 a little inflation, I guess we're gonna get a little 0:07:23.160 --> 0:07:28.280 bit of nominal GDP. Does inflation adjusted GDP get crushed? 0:07:28.560 --> 0:07:31.040 Are you in like some two percent doom and gloom 0:07:31.080 --> 0:07:32.640 crew with real GDP? 0:07:34.760 --> 0:07:38.320 Well, well I'm not dooming gloom on on real growth. 0:07:38.560 --> 0:07:41.440 But you know, I think I agree with Ira that 0:07:42.600 --> 0:07:45.160 you know, today's inflation number does push out the timing, 0:07:45.200 --> 0:07:48.280 and I think you know, what's important for I think 0:07:48.480 --> 0:07:50.800 investors to kind of think about here is just how 0:07:50.880 --> 0:07:55.000 path dependent is that first cut. I mean, you know, 0:07:55.200 --> 0:07:57.600 if it's not July, then are they are they not 0:07:57.640 --> 0:07:59.760 going to ease right before the election? I mean, how 0:07:59.840 --> 0:08:02.520 much of that to enter their thinking. It's something to 0:08:02.560 --> 0:08:05.000 think about. The one thing I would say is that 0:08:05.080 --> 0:08:07.800 you know, much of the upside surprise and in the 0:08:07.840 --> 0:08:10.600 core CPI number this morning was driven by medical care 0:08:10.640 --> 0:08:13.040 services inflation, and it's important to keep in mind that, 0:08:13.920 --> 0:08:16.680 you know, there are differences of scope between the CPI 0:08:16.840 --> 0:08:19.920 data and the pc data, and the CPI data is running, 0:08:20.400 --> 0:08:23.000 you know, over a full percentage point higher than PCEE. 0:08:23.280 --> 0:08:26.720 That's about twice almost three times what's normal, and so 0:08:26.920 --> 0:08:30.080 you know, in some respects, I do think the margin 0:08:30.200 --> 0:08:33.200 might be for stating how important CPI is for the 0:08:33.200 --> 0:08:36.520 FEDS reaction function. But you know, it's a bad number 0:08:37.600 --> 0:08:40.640 and at the margin that pushes the timing out. 0:08:40.840 --> 0:08:43.200 Pausing to jump in here, Marcus to tier eight negative 0:08:43.240 --> 0:08:47.400 seventy on SPX futures down features negative four fifty. 0:08:47.280 --> 0:08:50.480 And Tom just on the currency front, dollar yen breaches 0:08:50.559 --> 0:08:57.040 one fifty two, you're yeah, one six four spot three seven, 0:08:57.200 --> 0:09:01.520 So a little bit of weakness there. So, Neil, where's 0:09:01.559 --> 0:09:02.640 inflation coming from? 0:09:02.679 --> 0:09:04.240 I mean, I don't know. 0:09:04.800 --> 0:09:07.120 I guess we always thought that this, you know, last 0:09:07.240 --> 0:09:10.080 hundred basis points or so of reducing inflation would probably 0:09:10.080 --> 0:09:10.760 be the toughest. 0:09:11.200 --> 0:09:12.760 Where are we seeing inflation these days? 0:09:14.559 --> 0:09:16.960 Well, you're seeing it. I mean you're seeing it in 0:09:16.960 --> 0:09:20.120 motor vehicle insurance. That was a big driver for inflation 0:09:20.760 --> 0:09:23.800 last month. You also saw it in apparel, so a 0:09:23.880 --> 0:09:28.559 parallel prices rose quite sharply. You know. Keep in mind, though, 0:09:28.600 --> 0:09:30.880 I mean what I would just say is that you 0:09:30.880 --> 0:09:33.640 look at apparel prices, they rose I think seven tenths 0:09:33.679 --> 0:09:36.000 of one percent in March, and that's following a big 0:09:36.040 --> 0:09:40.160 increase in February. But taking a step back, people are 0:09:40.320 --> 0:09:43.839 already making a trade off, right, So if you look 0:09:43.840 --> 0:09:48.120 at real consumption of clothing, it's already declining. So in 0:09:48.160 --> 0:09:51.080 some respects, that is not the kind of inflation that 0:09:51.280 --> 0:09:53.599 should be worried about. I mean, that's not demander of 0:09:53.640 --> 0:09:55.800 an inflation. If people are cutting back in the areas 0:09:55.800 --> 0:10:00.240 that are going up in prices. That suggests that people 0:10:00.280 --> 0:10:03.040 are making a trade off already and there's somewhat resistance 0:10:03.080 --> 0:10:05.600 to higher prices, which then raises the question about how 0:10:05.640 --> 0:10:10.320 long those price increases can stick. You know, motor vehicle insurance, 0:10:10.920 --> 0:10:12.840 you know, it was going in the right direction. It 0:10:12.880 --> 0:10:14.640 was still very elevated, but it was going in the 0:10:14.720 --> 0:10:16.760 right direction for the last few months, and now it's 0:10:17.080 --> 0:10:20.120 right reversing, you know, but we did see things like 0:10:20.200 --> 0:10:22.360 car prices come down, so I'm not really sure what 0:10:22.400 --> 0:10:24.800 to make that. And ultimately, if the underlying value of 0:10:24.840 --> 0:10:28.120 the asset itself, which is cars, right's going under price, 0:10:28.200 --> 0:10:30.680 you'd expect, you know, the insurance cars. 0:10:30.679 --> 0:10:32.440 Okay, I want to go to Ira right now, and 0:10:32.480 --> 0:10:34.760 then Neil Dudda with the same question. We're going to 0:10:34.800 --> 0:10:37.120 go Mafi here because Duda won't come on unless we 0:10:37.200 --> 0:10:40.320 go mathe Ira. It's real simple. The ten year reel 0:10:40.400 --> 0:10:44.760 yield is now out over two standard deviations up to 0:10:44.840 --> 0:10:48.239 two point zero nine percent. It did it in February 0:10:48.320 --> 0:10:50.880 Valentine's Day when we all had to buy Lisa chocolate 0:10:51.200 --> 0:10:54.240 killed us. And then from December it's been a lift 0:10:54.240 --> 0:10:57.640 from one point seven zero up to two point zero 0:10:57.720 --> 0:11:00.559 nine Ira Jersey Are we had a critic a point 0:11:00.600 --> 0:11:01.959 for the real yield. 0:11:03.000 --> 0:11:05.800 I don't think so. You know, the real yield is 0:11:06.880 --> 0:11:08.240 so to the way that we look at the real 0:11:08.320 --> 0:11:12.480 yield that basically two components describe most of why we're 0:11:12.480 --> 0:11:16.000 pricing where we are two percentage for ten year really yields. 0:11:16.000 --> 0:11:18.040 So first is just volatility in the market, right, so 0:11:18.320 --> 0:11:20.760 you're going to do when when the market volatility is high, 0:11:20.760 --> 0:11:22.839 you're going to demand a higher really yield and number one. 0:11:22.840 --> 0:11:25.520 And then secondly, and I think that this is important 0:11:25.520 --> 0:11:27.160 and one of the reasons you're seeing the big sell 0:11:27.160 --> 0:11:30.640 off today there, and that's monetary policy. So so you know, 0:11:30.679 --> 0:11:33.840 if if if the difference between the Fed Fund rate 0:11:33.880 --> 0:11:37.679 and uh and and CPI or PC whatever inflation measure 0:11:37.720 --> 0:11:41.720 you have you want to use, is relatively high, and then certainly, 0:11:42.080 --> 0:11:43.720 you know tips yields, you have to price that in 0:11:43.800 --> 0:11:46.480 as well. So so so those two factors tend to 0:11:46.760 --> 0:11:48.840 tend to drive this. And the fact that now that 0:11:48.880 --> 0:11:51.200 the market's starting to price out some of the early 0:11:51.240 --> 0:11:53.720 cuts and starting to price out some you know, that 0:11:53.840 --> 0:11:56.640 terminal floor that we were talking about earlier now the 0:11:56.720 --> 0:11:59.800 terminal rate floor is moving up as well. You'd expect 0:11:59.800 --> 0:12:02.559 this see somewhat higher real yield, and you're seeing that now. 0:12:02.720 --> 0:12:03.440 No, it's not. 0:12:03.679 --> 0:12:05.760 I mean, it's not unattractive quite frankly, Tom, you know, 0:12:05.800 --> 0:12:11.280 two percent plus inflation is an interesting I think is 0:12:11.520 --> 0:12:15.320 our interesting levels to think about for for tips versus 0:12:15.600 --> 0:12:17.160 versus nominal treasury done. 0:12:17.200 --> 0:12:19.920 I look at the five year inflation adjusted yield and 0:12:19.960 --> 0:12:24.560 we're back to a November almost pre Thanksgiving pricing here 0:12:24.720 --> 0:12:28.160 four point five three percent. What does a four point 0:12:28.200 --> 0:12:31.200 five to three percent five year real yield due to 0:12:31.280 --> 0:12:32.520 American business? 0:12:33.559 --> 0:12:35.480 I mean, I think at the margin it you know, 0:12:35.480 --> 0:12:37.880 I mean, obviously it raises the cost of financing. I 0:12:37.880 --> 0:12:40.520 think what it does, I think it you know, frankly, 0:12:40.559 --> 0:12:43.160 what it makes look more ridiculous is the FEDS longer 0:12:43.240 --> 0:12:46.160 run expectations for where neutral rates are. I mean, clearly, 0:12:47.000 --> 0:12:48.839 you know this is an economy that can still work 0:12:48.880 --> 0:12:52.439 at high rates at these rates. I mean I think 0:12:52.480 --> 0:12:56.080 that much is clear. But you know, I think what 0:12:56.160 --> 0:13:00.319 it does suggests is that you know, the FEDS expectations 0:13:00.360 --> 0:13:05.000 for where neutral well be is just frankly too low. 0:13:05.640 --> 0:13:07.880 And I think, you know, every month that goes by 0:13:07.920 --> 0:13:10.840 where you get a combination of strong jobs growth and 0:13:10.920 --> 0:13:13.120 higher inflation. I mean, I think that that kind of 0:13:13.240 --> 0:13:14.720 basically cements that case. 0:13:15.160 --> 0:13:17.240 Boy, I'm looking at just a couple of categories here, Tom. 0:13:17.280 --> 0:13:20.640 Car insurance was up twenty two from a year ago. 0:13:20.320 --> 0:13:21.400 That's so much. 0:13:21.320 --> 0:13:23.520 Show you what's going on the show right now. I mean, 0:13:23.559 --> 0:13:27.800 I'm sorry, this is a fixed cost? Can I say that? 0:13:27.880 --> 0:13:28.200 I think? 0:13:28.200 --> 0:13:28.280 So? 0:13:28.400 --> 0:13:31.000 Yeah, I got to pay it every every month. I mean, 0:13:31.040 --> 0:13:32.760 I know, you know, you know, you've got the Bentley 0:13:32.800 --> 0:13:35.720 and everything. But for those of us, I mean you. 0:13:35.640 --> 0:13:38.800 Say car insurance, except that's like breathing air. You have 0:13:38.880 --> 0:13:42.880 to pay car insurance, right, you have. 0:13:42.840 --> 0:13:44.679 To pay it. I mean, but as I say, I mean, 0:13:44.720 --> 0:13:47.760 it's it's it's interesting because it's it's interesting because it 0:13:47.800 --> 0:13:50.480 hasn't moderated yet when you look. I mean, ultimately, these 0:13:50.480 --> 0:13:53.600 things should follow the underlying value. I mean, what are 0:13:53.640 --> 0:13:56.240 you ensuring? Right, you're insuring a car? What do we 0:13:56.280 --> 0:13:58.160 know about the price of cars? The price of cars 0:13:58.160 --> 0:14:00.560 is actually going down. That's why poor commandit a CPI 0:14:00.960 --> 0:14:03.720 in this number was you know on the software side, 0:14:04.520 --> 0:14:08.040 so you know there is you know, there is some 0:14:08.080 --> 0:14:09.760 of that going on. I mean, could just be timing, 0:14:10.600 --> 0:14:12.439 but you know, you have to take these numbers as 0:14:12.480 --> 0:14:14.760 they come to you. Given the uncertainty that Fed's been 0:14:14.800 --> 0:14:17.800 talking about, and I think, you know, at the margin 0:14:17.840 --> 0:14:19.760 that kind of it should push them to err on 0:14:19.800 --> 0:14:20.600 the side of waiting. 0:14:21.200 --> 0:14:23.320 Hey, Ira, you know, looking at the ten year treasury here, 0:14:23.320 --> 0:14:26.920 we're almost fourteen basis points pushing up four point five zero. 0:14:27.560 --> 0:14:29.800 You know, I have I know nothing about the bond market, 0:14:29.800 --> 0:14:32.920 and I say that proudly four to four and a 0:14:32.960 --> 0:14:35.080 half percent was kind of my range for the ten year. 0:14:35.120 --> 0:14:36.000 Do I have to rethink that. 0:14:37.080 --> 0:14:39.720 Well, four fifty one is a very important technical level 0:14:40.040 --> 0:14:42.040 on the charts. We've been highlighting that level now for 0:14:42.480 --> 0:14:45.920 about ten days. You break there and we can certainly 0:14:45.960 --> 0:14:49.960 get back toward four point seven percent pretty quickly. I 0:14:49.960 --> 0:14:52.680 would like to say something that you just comment on, 0:14:52.720 --> 0:14:55.600 something that Neil just said, and that's that higher terminal, 0:14:56.080 --> 0:14:58.280 the terminal floor. Right, So the idea that you know 0:14:58.320 --> 0:15:00.360 two and a half percent is no longer or the 0:15:01.200 --> 0:15:03.080 kind of the base case. I think there's there's a 0:15:03.120 --> 0:15:06.040 recency bias that a lot of investors have, and certainly 0:15:06.080 --> 0:15:07.840 members of the Federal Reserve and the FED staff have 0:15:07.920 --> 0:15:10.480 and that's that you know, we we've come down and 0:15:10.840 --> 0:15:14.120 that the that terminal rates, that that the that our 0:15:14.240 --> 0:15:16.560 star is basically much lower than it was, say in 0:15:16.560 --> 0:15:19.480 the nineteen nineties or nineteen eighties or seventies. You know, 0:15:19.520 --> 0:15:21.240 I don't think we're going back to the nineteen seventies 0:15:21.320 --> 0:15:24.720 or eighties, but certainly, you know, our star the real 0:15:24.760 --> 0:15:27.080 funds rates, so the real neutral rate has to be 0:15:27.200 --> 0:15:31.240 higher than it was, you know, prior to prior to 0:15:31.240 --> 0:15:34.240 to COVID, because because there's a lot of there's a 0:15:34.280 --> 0:15:38.280 lot of structural issues that have shifted pretty significantly since COVID. 0:15:38.320 --> 0:15:40.640 We've talked about all of them, right, whether it's immigration, 0:15:40.800 --> 0:15:42.720 work from home, like, there's a whole bunch of things 0:15:43.160 --> 0:15:46.000 to think about that way. But the idea that that 0:15:46.080 --> 0:15:48.440 our star and that the real rate is higher, I 0:15:48.440 --> 0:15:52.160 think is something that's that's underappreciated by a lot of 0:15:52.160 --> 0:15:53.960 policy makers, and I think that that that's going to 0:15:54.000 --> 0:15:56.640 take some time for them to get it into their psychology. 0:15:56.680 --> 0:15:58.960 That yes, you know, maybe three percent is the new 0:15:59.040 --> 0:15:59.600 two percent. 0:16:00.080 --> 0:16:01.800 One final question, you guys, you've got to go to 0:16:01.800 --> 0:16:04.480 our other esteem guests here. Neil dot As simple as 0:16:04.480 --> 0:16:08.360 I can, is America oppressed by inflation? Now? 0:16:09.360 --> 0:16:12.480 I wouldn't say that America is oppressed by inflation. I 0:16:12.480 --> 0:16:17.280 mean if you ask, if you ask consumers about their 0:16:17.440 --> 0:16:21.000 short run inflation expectations, they've actually been going down, even 0:16:21.080 --> 0:16:25.520 though we've been seeing these upside surprises on inflation. And 0:16:26.400 --> 0:16:28.880 you know, I mean so I think that to me, 0:16:29.000 --> 0:16:31.880 that disconnect, frankly, is quite interesting. The fact that inflation 0:16:32.000 --> 0:16:34.320 expectations have been moderating. I mean, we just saw that 0:16:34.400 --> 0:16:37.720 this week with the New York Fred Right consumer expectations data. 0:16:38.360 --> 0:16:40.840 I think that, to me is one reason why I'm 0:16:40.880 --> 0:16:43.000 a little bit skeptical that what we're seeing so far 0:16:43.040 --> 0:16:45.080 this year is kind of the underlying trend for where 0:16:45.080 --> 0:16:48.040 inflation is. But the data are with the data are 0:16:48.080 --> 0:16:49.560 as I mentioned. But you always have to kind of 0:16:49.560 --> 0:16:54.440 go back to first principles, Tom, I mean, ultimately, unit 0:16:54.520 --> 0:16:57.680 labor costs are are are we? I mean, where's the 0:16:57.720 --> 0:17:00.280 inflation really, you know, coming from? You have to start 0:17:00.280 --> 0:17:02.680 worrying about it. You know, at some point soon if 0:17:02.720 --> 0:17:05.399 inflation continues to surprise in this fashion, you have to 0:17:05.440 --> 0:17:08.480 worry a little bit about, you know, declines in real 0:17:08.520 --> 0:17:11.240 wage growth weighing on consumer spending at some point later. 0:17:11.320 --> 0:17:13.160 So I do think that that's something that should begin 0:17:13.240 --> 0:17:16.800 to enter the conversation if this continues. 0:17:16.920 --> 0:17:19.480 Somebody just sent it in a lovech YouTube. What am 0:17:19.520 --> 0:17:20.879 I going to be looking at? I'm going to look 0:17:20.920 --> 0:17:23.880 at Jason Firman up at Harvard who does a wonderful 0:17:24.040 --> 0:17:27.520 annualized inflation series. I'm sure I'll get that out on 0:17:27.560 --> 0:17:30.520 Twitter here in a moment. Future is negative sixty four 0:17:30.560 --> 0:17:34.040 down features at negative four hundred. Thank you Ira Jersey 0:17:34.080 --> 0:17:38.119 of Bloomberg Intelligence. Thank you Neil Dudda of Renaissance Macro 0:17:38.520 --> 0:17:52.520 with a real market moving that report today. We are 0:17:52.640 --> 0:17:55.000 fortunate and that we're going to talk about their show 0:17:55.080 --> 0:17:58.800 Oddlines is just genormous Apple podcasts where you see it, 0:17:59.480 --> 0:18:02.119 you know, you look, you got a charitable you know, 0:18:02.280 --> 0:18:05.639 and there's a Joe and Tracy the Tracy and Joe Show. 0:18:05.400 --> 0:18:06.440 And yeah, all that. 0:18:06.600 --> 0:18:08.639 We'll talk about Oddlets, but we're going to open up 0:18:08.640 --> 0:18:14.040 the conversation with Tracy Alloway and Joseph Weisenthal here just 0:18:14.280 --> 0:18:18.440 about inflation. Tracy, where are you seeing inflation? We've been 0:18:18.480 --> 0:18:21.240 making jokes about it, except it's not funny. 0:18:21.440 --> 0:18:24.480 Well, my personal basket of inflation is all mayonnaise, so 0:18:24.520 --> 0:18:26.560 that's how I measure it. I haven't looked at up 0:18:26.600 --> 0:18:30.080 the component change in the in the Mayo index just 0:18:30.160 --> 0:18:33.040 yet this morning, but I plan to right after this interview. Look, 0:18:33.119 --> 0:18:35.800 I think most of the unexpected rise seems to have 0:18:35.800 --> 0:18:38.880 come out of shelter costs and gasoline, or at least 0:18:38.880 --> 0:18:41.400 that's what the BLS said. I think the really interesting 0:18:41.440 --> 0:18:45.359 thing here is, and Neil and Ira, we're kind of 0:18:45.359 --> 0:18:47.320 touching on this. You know, we can talk about the 0:18:47.359 --> 0:18:50.440 neutral rate, our star, the natural rate of interest all 0:18:50.480 --> 0:18:53.879 we want, but the inflation data doesn't seem to be 0:18:53.880 --> 0:18:57.120 bearing out that entire thesis. And in fact, I thought 0:18:57.119 --> 0:18:59.080 it was really interesting last week it kind of flew 0:18:59.119 --> 0:19:02.360 under the radar, but the Bank for International Settlements published 0:19:02.400 --> 0:19:05.680 a paper where they basically said, like, our star is 0:19:05.800 --> 0:19:08.640 kind of useless and we should probably just be looking 0:19:08.720 --> 0:19:13.200 at observed inflation instead of trying to observe this unknowable 0:19:13.400 --> 0:19:14.320 neutral world that's. 0:19:14.200 --> 0:19:16.600 Called the gospel. According to Tom King, Joe, what's your 0:19:16.640 --> 0:19:21.720 insight here right now? Inflation's oppressive. I just quoted Argentina 0:19:22.040 --> 0:19:26.040 with two hundred and seventy six percent annual inflation that's oppressive, 0:19:26.160 --> 0:19:27.320 that's oppressed crust. 0:19:27.760 --> 0:19:31.520 Well, we still have real wage growth, as Neil was 0:19:31.560 --> 0:19:36.520 talking about. As Neil mentioned, even consumer's own expectations for 0:19:36.560 --> 0:19:40.800 inflations via various surveys have come down. So I think 0:19:40.840 --> 0:19:43.760 there's an argument that we're not being pressed oppressed by inflation. 0:19:44.280 --> 0:19:45.359 It's still bad. 0:19:45.760 --> 0:19:45.960 You know. 0:19:46.040 --> 0:19:48.280 There's two things that I'm thinking about, which is that 0:19:48.920 --> 0:19:52.160 there is this view among many, the sort of Powell 0:19:52.640 --> 0:19:57.240 Waller Bullard camp I would say that policy is tight 0:19:57.359 --> 0:19:59.680 right now and on some level you and this goes 0:19:59.680 --> 0:20:02.679 to tree point about the unknowability of neutral. It's like, 0:20:02.920 --> 0:20:06.240 if inflation keeps surprising to the upside and maybe accelerating 0:20:06.280 --> 0:20:08.040 a little bit since the last year, what are these 0:20:08.040 --> 0:20:12.520 words tight even mean in the context of the observed 0:20:12.560 --> 0:20:15.159 reality that inflation is drifting up. The other thing I 0:20:15.240 --> 0:20:18.280