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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App. Russ Coaster
Speaker 2: Rich a global head of app investment Strategy at black
Speaker 2: Rock Scientific Active Equities. Hey, Russ, we've heard, I guess
Speaker 2: you know for a while now about the economic exceptionalism
Speaker 2: of the US economy visa the other parts of the world.
Speaker 2: Does that carry over for you in terms of where
Speaker 2: you look for active equity opportunities US versus rest of
Speaker 2: the world. How do you guys break that down?
Speaker 3: Thanks? Paul, You know it does, and it actually has
Speaker 3: an influence both bottom up and top down. Just to clarify, actually,
Speaker 3: I think bio might belittle data. I actually co manage
Speaker 3: the Global Allocation Fund Brick readers, so we have a
Speaker 3: global mandate and it does make a difference. And the
Speaker 3: reason is there are two ways to look at this.
Speaker 3: First of all, as you say, you know, the US exceptionalism,
Speaker 3: the strength of the economy, the fact that our labor
Speaker 3: market's been remarkably resilient, the consumer has been resilient. You
Speaker 3: think about the difference we're seen right now between the
Speaker 3: US consumer and the Chinese consumer. There are lots of
Speaker 3: reasons to focus on the US. But you know, there's
Speaker 3: another one that's not really captured just by the economic data,
Speaker 3: and that is when you look for companies that have
Speaker 3: the type of characteristics I think you want in this environment,
Speaker 3: revenue growth, profitability, stable margins, you just find more of
Speaker 3: them in the United States, where they're talking about technology, communication, healthcare,
Speaker 3: than anywhere else in the world. So I do think
Speaker 3: that the US exceptionalism, particularly in terms of the types
Speaker 3: of companies we find here, has given us a reason
Speaker 3: to stay overweight the United States.
Speaker 4: Hey Russ, it's been a while. It's really good to
Speaker 4: chat with you. So based on that, what do you
Speaker 4: think is happening with the dollar like the carry trade
Speaker 4: online from dollar yen that we saw, But then the
Speaker 4: dollar has been hit. I appreciate it's up today, but
Speaker 4: it doesn't feel like the downside to the dollar is
Speaker 4: over summer talking that you can do sort of a
Speaker 4: short term short how does that play into your allocation thesis.
Speaker 3: You know, we don't have a huge dollar position right now.
Speaker 3: I think we have seen weakness in the dollar. That
Speaker 3: probably says more about the fact that there's been a
Speaker 3: little bit well not a little bit, but a fair
Speaker 3: amount of data in the last few months that signals
Speaker 3: that the FED is finally going to start to be
Speaker 3: able to cut rates and alex as you know. You know,
Speaker 3: we started the year expecting not weep, but the market
Speaker 3: expecting seven race cuts and now we're going to get
Speaker 3: our first one in September. So this is giving a
Speaker 3: little bit an excuse for investors to sell the dollar.
Speaker 3: That said, I think one of the things that's happened
Speaker 3: that also is affecting the dollar is one thing the
Speaker 3: dollars did a good job of in twenty twenty two.
Speaker 3: In twenty twenty three, it was hedging your equity risk.
Speaker 3: In other words, when the market was going down, the
Speaker 3: dollar was going up, and in that way, it was
Speaker 3: serving a role that bonds used to play. Is the
Speaker 3: dollar's been weaker lately, you know, we're not seeing as
Speaker 3: much of a role for the dollar as a head,
Speaker 3: so we've really been keeping our currency exposure pretty close
Speaker 3: to home. Russ.
Speaker 2: I'm just looking at the vics here, we're you know,
Speaker 2: sixteen right here. But boy, two weeks ago Monday, this
Speaker 2: thing exploded out to north of sixty. Well what do
Speaker 2: you make over the last two two and a half
Speaker 2: weeks of this market volatility?
Speaker 3: Yeah, Paul, that that was incredible. And really, you know,
Speaker 3: if someone sent me a great chart on that, it
Speaker 3: looked at the previous spikes in the vics, you know,
Speaker 3: two thousand and eight during the financial crisis, twenty twenty
Speaker 3: during the pandemic. I mean, these were world change, gene
Speaker 3: events that had significant downside to them, and then you
Speaker 3: had this spike in the vicks. All of what we're
Speaker 3: looking back in hindsight two somewhat weak economic prints. So
Speaker 3: I think the short answer is it was way overdone
Speaker 3: and it said much more about the position of the market,
Speaker 3: a crowding and a number of trades or alliance on
Speaker 3: the end carry trade for a number of investors then
Speaker 3: set about that the macro environment. I think the reality is, yes,
Speaker 3: the economy is slowing. We had some evidence of that
Speaker 3: yesterday we had a revision to the non farm payroll numbers.
Speaker 3: But the economy is not collapsing. We still have decent
Speaker 3: retail sales. And I think that movement into vics a
Speaker 3: few weeks ago it was just way overdone.
Speaker 4: Right, And it's a whole idea that we're slowing. We're
Speaker 4: not slumping, we're normalizing. We're not falling off a cliff,
Speaker 4: and like squaring that is going to be It seems
Speaker 4: to be tricky for the markets talking about bonds. What's
Speaker 4: the best allocation here?
Speaker 3: So we've been bringing up our bond allocation. We've been
Speaker 3: underweight by for a very long time, mostly based on inflation,
Speaker 3: also based on supply. We're still a little bit underweight
Speaker 3: at the long end, which really reflects more supply concerns
Speaker 3: than concerns about inflation. But we have been buying back
Speaker 3: bonds mostly in the belly of the curve. So talking
Speaker 3: about that five year range, we also have a lot
Speaker 3: of bonds on our portfolio that we bought back in
Speaker 3: twenty one and twenty two. On the corporate side, high
Speaker 3: yield investment grade when spreads were wider. We're not really
Speaker 3: changing that much, but we're happy to keep clipping those
Speaker 3: coupons because in an environment, as you say, where the
Speaker 3: economy is slowly not collapsing, we're not very worried about
Speaker 3: the default rate, and for the first time in years,
Speaker 3: you can build a bond portfolio that's going to give
Speaker 3: you a six to seven percent yield without taking too
Speaker 3: much duration risk.
Speaker 2: Russ, how about this earning season We've just kind of
Speaker 2: wrapped up. Ernie's got a couple more retailers coming up here.
Speaker 2: What's your takeaway here, anything that kind of changed your
Speaker 2: outlook for these markets?
Speaker 3: It's funny. I think the earning season was actually pretty decent,
Speaker 3: and we came into expecting about nine percent year over
Speaker 3: year growth. We're probably going to do closer to thirteen percent,
Speaker 3: so earnings are solid. I think one of the things
Speaker 3: you did see, though, and this explains a lot of
Speaker 3: the weakness we saw in tech, at least the relative
Speaker 3: weakness back in late July and early August, was that
Speaker 3: the crossbar for many of these companies has been raised
Speaker 3: and just given the exceptional run we've had in software, semiconductors,
Speaker 3: many parts of technology during the first half of the year,
Speaker 3: what it took to satisfy investors, the level of beat
Speaker 3: you had to generate. There's certainly some evidence that that
Speaker 3: became higher. I think that's one of the reasons that
Speaker 3: you tech wobbled a little bit in early August and
Speaker 3: late July.
Speaker 4: What about money market funds? So you talk about like
Speaker 4: clipping a coupon, Like, why not? Okay, we have like
Speaker 4: six point two two trillion dollars in money market funds
Speaker 4: still sitting in a record. That thesis was that was
Speaker 4: going to go somewhere? Is it actually going to go somewhere?
Speaker 4: And I guess the question is how many rate cuts
Speaker 4: do we have to see for it to actually go somewhere.
Speaker 3: Well, I think it already is. You know, again, we
Speaker 3: were down about ten percent belows back on August fifth.
Speaker 3: We're now one and a half percent from the hive.
Speaker 3: So I do think you've seen that money provide a
Speaker 3: cushion to the market. And I do believe that as
Speaker 3: we start to get into this rate cutting cycle and
Speaker 3: people are looking at their statements and seeing that five
Speaker 3: and a quarter has gone down to four and a
Speaker 3: half or maybe closer to four next year. That's one
Speaker 3: of the factors that we think still allows the equity
Speaker 3: market to go higher into the back half of the year.
Speaker 2: Hey, Russ, thanks so much for joining us. Really appreciate
Speaker 2: getting a few minutes of your time. Is Russ Coaster
Speaker 2: Rich he's over there at Black Rocket. Julia Pollock joins us.
Speaker 2: She's a chief economist as ZIP recruiter. And if anybody
Speaker 2: has their finger on the pulse of this labor market,
Speaker 2: fucking folks at ZIP Recruiter, Julie, what's your view here
Speaker 2: of this US labor market.
Speaker 5: Well, the momentum is the issue. You know, in twenty
Speaker 5: eighteen twenty nineteen, when unemployment was around this level, it
Speaker 5: was coming down, and of course right before the pandemic
Speaker 5: it was just three point seven percent. So in a
Speaker 5: very short time it has broken that level and continued
Speaker 5: to rise. And the problem with unemployment is when it
Speaker 5: rises a little bit, or at least sufficiently, it tends
Speaker 5: to rise more in the coming months. It sets off
Speaker 5: a little bit of a cycle, and that is what
Speaker 5: we don't want to see right.
Speaker 1: So, clearly monitory policy is too tight.
Speaker 4: Right, So it's like a little bit can eventually go
Speaker 4: a long way in essence when the U three rate
Speaker 4: starts to rise. So what kind of labor do companies want?
Speaker 4: So they call you and they're like, hey, I need
Speaker 4: help finding these workers. What are those workers?
Speaker 5: So when love of employers is saying right now is
Speaker 5: we have lots of openings, we have lots of things
Speaker 5: we want to do, we have lots of growth plans,
Speaker 5: but we think will hire more on the back half
Speaker 5: of the year. And that's go for when interest rates
Speaker 5: come down, Like we're looking at the things we want
Speaker 5: to do and they don't pencil out right now with
Speaker 5: such prohibitively high credit costs. And that's what company has
Speaker 5: been saying for quite a while. I think many of
Speaker 5: them hoped that interest rates would start normalizing sooner. And
Speaker 5: so this is sort of a lost opportunity economy right now.
Speaker 5: So wait and see economy in healthcare, in government. Instead
Speaker 5: of industries that are completely kind of impervious to high
Speaker 5: interest rates that are insuated from them.
Speaker 1: It's still you.
Speaker 5: Know, hiring season, and employers are competing for talent like
Speaker 5: mad you know, healthcare demand for physicians, nurses, nurses, assistants,
Speaker 5: physicians assistants is off.
Speaker 1: The charts and really remains very very high.
Speaker 5: But you know, the economy outside of healthcare and the
Speaker 5: private sector outside of healthcare.
Speaker 1: Has been adding for very very few jobs. It's our
Speaker 1: employment has been growing.
Speaker 5: Unusually slowly there, and that's because everyone's kind of waiting
Speaker 5: to see what the that's going to do.
Speaker 2: So yesterday, Julia, we had the economic data about the
Speaker 2: the BLS data being revised down by I guess about
Speaker 2: eight hundred thousand or so. Right on my thirty five
Speaker 2: years on Wall Street, I never thought that was even
Speaker 2: an issue, but yesterday we made a big deal about it.
Speaker 2: What do you make about it?
Speaker 1: So I think doing statistics is hard.
Speaker 5: You know, we can't survey every employee and every employer
Speaker 5: every month, So we survey a little sample of them,
Speaker 5: and we have models and assumptions, and then once a year,
Speaker 5: when we get more comprehensive data, we test those assumptions.
Speaker 1: And adjust them. This is a normal process.
Speaker 5: I think people are confusing these annual benchmark revisions with
Speaker 5: the monthly revisions that take place that are usually in
Speaker 5: the tens of thousands. So people are thinking, wait, a
Speaker 5: say they usually revise the numbers by five or ten thousand.
Speaker 1: What do you mean eight hundred thousand? This is a conspiracy,
Speaker 1: you know, this is terrible. This is unbelievable. There's no
Speaker 1: your crazy business here, no conspiracy.
Speaker 5: This is something that happens. That's pretty normal in obviously
Speaker 5: in raw numbers. This is the biggest provision ever in
Speaker 5: percentage terms. It's actually, you know, lots so much bigger
Speaker 5: than normal. Under Trunk we had a revision like this
Speaker 5: of over four hundred thousand. So this is a normal
Speaker 5: part of the process. And doing statistics is especially hard
Speaker 5: when the underlying conditions changing right out. The lay market
Speaker 5: is slowing, and it's slowing pretty rapidly.
Speaker 4: Is what I tell my daughter when I'm helping her
Speaker 4: with her math. I was like, numbers are hard. Let's
Speaker 4: just because hards are hard. Yeah, So when you talked
Speaker 4: about the areas of the business cycle that are interested
Speaker 4: in hiring, et cetera, do you get a sense that
Speaker 4: there's a delay also because of election uncertainty, either delaying capex,
Speaker 4: delaying hiring just to see what's going to happen in
Speaker 4: terms of say taxes in the next six months.
Speaker 5: So look, you know, in some industries, if I were
Speaker 5: to tell you, hey, why don't you go in on
Speaker 5: with me on an investment in an oil well, you
Speaker 5: might say, hey, let's just see here, where's this election first?
Speaker 1: Maybe we'd rather want to.
Speaker 5: Put our money in a solar field, right, Like, there
Speaker 5: are some industries where it makes sense to pause investments
Speaker 5: now and see who gets into power, But in most
Speaker 5: industries it's not really going to make much of a difference. Frankly, Okay,
Speaker 5: you know, some policies that Democrats like will raise labor
Speaker 5: costs incrementally, and some policies that Republicans like, well, like
Speaker 5: we cut taxes. But overall it's not going to make
Speaker 5: a huge difference to the company's growth plans and strategy.
Speaker 5: So no, I think it causes a small delay in
Speaker 5: certain industries, but not much for.
Speaker 2: Than impact of the Hey, Julie, we're going to hear
Speaker 2: from fitzchairman Jpel tomorrow from Jackson Hole. What do you
Speaker 2: expect to hear?
Speaker 5: I think he's probably going to spend most of his
Speaker 5: time talking about what we now think the terminal interest rate,
Speaker 5: a long term interest rate should be. And you know,
Speaker 5: for a long time the fence projections have at it
Speaker 5: around two point five percent.
Speaker 1: It's been creeping up lately.
Speaker 5: Two point six percent, two point eight percent, and there
Speaker 5: are many economists to think that because the United States
Speaker 5: is just spending, spending like a drunken sailor, that rate has.
Speaker 1: Actually gone up. No one wants to hold our debt.
Speaker 5: A lot of these treasury auctions have been pretty lackluster,
Speaker 5: and we're probably going to have to offer a higher
Speaker 5: interest rate for being.
Speaker 1: Able to hold this stuff going forward because.
Speaker 5: There's just no discipline in DC and no restraint on
Speaker 5: either side, and one side wants to raise spending and
Speaker 5: one side.
Speaker 1: Wants to cut taxes, and there's.
Speaker 5: No one who wants to be a bring our fiscal
Speaker 5: house in order. So cutting Medicare, Medicaid and making adjustments
Speaker 5: is almost sort of off the table these days on
Speaker 5: both sides of the aisle. So the long term rate
Speaker 5: might be higher, probably some economy six three, three, four,
Speaker 5: five percent.
Speaker 4: Yeah, I don't think it's ever been truly on the
Speaker 4: table in a meaningful way. Circling back to the areas
Speaker 4: where you mentioned you still see growth like nursing care,
Speaker 4: elder care, right, are wages coming up to that? Are
Speaker 4: we seeing an increase in wages with the amount of
Speaker 4: job openings that we have, we are.
Speaker 5: And so the pandemic force was an unusual period where
Speaker 5: those wages shot up and there were lots of benefits
Speaker 5: to be had. But there are still many many hospitals
Speaker 5: that are trying to find ways to offer more training, assistance,
Speaker 5: to offer more help with living costs. So I mean
Speaker 5: that's that's the place where yes, we can expect to
Speaker 5: see wages continue to rise to incentivize the investments that
Speaker 5: people need to make in their human capital in order
Speaker 5: to get those jobs.
Speaker 1: And the training is not easy.
Speaker 5: You need to go to a nursing school or get
Speaker 5: licensed to stay out to date.
Speaker 1: So I do definitely need to show people.
Speaker 2: The money as a hard job. Yep, Juey, thank you
Speaker 2: so much for joining us. Really appreciate getting your thoughts
Speaker 2: your Joli Apollo, chief economist at ZIP Recruiter. Jonathan Tomorrow
Speaker 2: joins us. He's a Bloomberg reporter for Bloomberg Government. He
Speaker 2: is in Chicago. Jonathan, what do you expect to hear
Speaker 2: from Vice President Kamala Harris tonight and hear really big,
Speaker 2: big speech.
Speaker 6: Yeah, I think she's going to be talking about turning
Speaker 6: the page. And it's an interesting kind of situation in
Speaker 6: this campaign because she is effectively an incumbent, she's part
Speaker 6: of the administration, the number two, but she is presenting
Speaker 6: herself as the change candidate here, a change from both
Speaker 6: Joe Biden and from Donald Trump, even though he's out
Speaker 6: of office, he's kind of dominated the political conversation for
Speaker 6: a long time, and honestly, like a change in in
Speaker 6: the face of America as somebody who is part black,
Speaker 6: part Asian American, a woman, a change from you know,
Speaker 6: two older white men who had been on the ticket
Speaker 6: and who many voters did not like for a long time.
Speaker 4: Now, when we take a look at what's happening outside,
Speaker 4: there was a lot of worries about the protesters and
Speaker 4: there would be any violence, etc. Was this like a
Speaker 4: nineteen sixty eight situation? How has that played out? Like
Speaker 4: what's the mood outside on the ground.
Speaker 6: It's been a lot more tame, I think than people expected,
Speaker 6: certainly far far short of nineteen sixty eight. There are
Speaker 6: certainly people who are protesting, people who are making their
Speaker 6: voices heard, but it has really not filtered into the
Speaker 6: events inside the arena or even really near the arena.
Speaker 6: They're about a half a mile away and walked around
Speaker 6: in kind of where all the main events are. You're
Speaker 6: not really aware of.
Speaker 2: Them, Jonathan, Between now and election day? Is it just
Speaker 2: all about the swing states? Is that where we've come
Speaker 2: to pretty much?
Speaker 6: Pretty much, these elections are gonna come down to six
Speaker 6: or seven states, you know, ten twenty thousand, you know,
Speaker 6: tens of thousands of votes in those seven states or so.
Speaker 6: And so if you live in those states, you know,
Speaker 6: expect a mirage of visits and television ads, and if
Speaker 6: you don't, you know, maybe they'll come through for a fundraiser,
Speaker 6: but you're not going to see a lot of the
Speaker 6: candidates directly.
Speaker 4: Now, you're a Congress supporter, right, So I guess my
Speaker 4: question also becomes regardless of who wins the White House,
Speaker 4: what are we looking at in terms of the makeup
Speaker 4: of Congress.
Speaker 6: So it's going to be closely divided either way. There's
Speaker 6: almost no scenario where one party's going to have like
Speaker 6: a major supermajority in either chamber. The Senate is a
Speaker 6: really tough climb for Democrats. The map just favors Republicans.
Speaker 6: Democrats would be we have to win every tough race
Speaker 6: in order to keep control there. But they say they're optimistic,
Speaker 6: but it's a tough clot in the House is a
Speaker 6: little bit different. Democrats more optimistic there. A lot of
Speaker 6: the key races are in New York and California, which
Speaker 6: obviously are blue states. On a presidential level, they're hoping
Speaker 6: that a big presidential win in those states will get
Speaker 6: them the seats they need to take the majority, but
Speaker 6: like Republicans, they'll probably end up with a pretty small
Speaker 6: majority if they do.
Speaker 2: Vice presidential nominee Tim Walls, how did he do last night?
Speaker 2: Do you think?
Speaker 1: Well?
Speaker 6: I think he was an interesting contrast, not necessarily in
Speaker 6: policy to Kamala Harris, but in personality type where she's
Speaker 6: the kind of hard driving lawyer from the coast, kind
Speaker 6: of a type a personality I think we could all agree. Walls,
Speaker 6: is that more kind of Midwestern dad guy talking about
Speaker 6: coaching football, having his former players and students coming up
Speaker 6: on stage with him. I think he gives more of
Speaker 6: a different And I talked to a delegate here from
Speaker 6: Iowa and she said, yeah, like he just represents the
Speaker 6: middle of the country much more than Harris or even
Speaker 6: some of the other Democratic contenders for vice president.
Speaker 4: Would have when do you think we get more policy?
Speaker 7: Right?
Speaker 4: So today's going to be the end of the theatrical event.
Speaker 4: It's going to be about inspiration, etc. Future change two
Speaker 4: point zero. I guess if you could put it like that,
Speaker 4: when do we get actual policy?
Speaker 6: I don't know how much we're going to get, To
Speaker 6: be honest with you, I think that candidates have realized
Speaker 6: that elections are much more decided on feeling and gut
Speaker 6: and vibes and kind of who do you relate to
Speaker 6: on a personal level more than voters looking at, you know,
Speaker 6: writing down all their policies and checking boxes about who
Speaker 6: fits which policy for them. I think voters tend to
Speaker 6: pick the candidate they like and then suit their policies
Speaker 6: to fit with that candidate is offering. So I don't
Speaker 6: think either party sees a huge upside and going deep
Speaker 6: on policy. It brings a tax, and I don't think
Speaker 6: it actually attracts that any voters, which I think is unfortunate.
Speaker 6: We should know what these folks are planning to do,
Speaker 6: but I think politically they're not going to offer a
Speaker 6: whole lot.
Speaker 2: Jonathan. When you talk to folks in Chicago, how do
Speaker 2: they expect former President Trump will conduct the campaign between
Speaker 2: now and election day.
Speaker 6: Well, it depends who you talk to. Republicans want him
Speaker 6: to focus on policy. They want him to say, look
Speaker 6: at all the liberal positions Kamala Harris took, especially when
Speaker 6: she ran for president in twenty twenty, and some of
Speaker 6: the things she said about Medicare and the Green New
Speaker 6: Deal in policing that they think are very unpopular. Still,
Speaker 6: Trump himself has focused more on personal attacks, questioning her
Speaker 6: racial identity, raising false insinuations about that, questioning her intelligence,
Speaker 6: and Republican consultants don't think that's a winning message. The
Speaker 6: issue is Trump is Trump. He has always kind of
Speaker 6: focused on the personal, and so I think that's where
Speaker 6: the expectation is, unless he maybe sees himself slipping in
Speaker 6: the polls and changes course. But he has not really
Speaker 6: shown a lot of inclination to do that in his
Speaker 6: time on the national stage.
Speaker 4: Yeah, last question here, RFK Junior. Any thoughts on that? Okay, Well,
Speaker 4: you know the producer said it. I'm a sub I
Speaker 4: feel like I need to represent any chatter about who
Speaker 4: he's going to endorse. Anyone care about that.
Speaker 6: I mean, people think he's going to endorse Trump. I
Speaker 6: don't have any personal insight information on that. I don't
Speaker 6: think there's a ton of chatter. I think it's more
Speaker 6: kind of like a sideshow here. Although look, if he
Speaker 6: brings one two percentage points, that could be enough. Pennsylvania
Speaker 6: has been decided by less than one and a half
Speaker 6: percentage points each of the last two elections, So if
Speaker 6: he's able to bring that along, maybe, But he hasn't
Speaker 6: seemed to have a lot of traction. My suspicion is
Speaker 6: that he already probably gets a lot of folks who
Speaker 6: may be vote for Trump anyway, Just.
Speaker 2: Real quick, Jonathan. In terms of speakers, anybody kind of
Speaker 2: surprised to say, oh boy, this person could be the future, Well.
Speaker 6: There's a bunch of folks who are kind of auditioning
Speaker 6: to be that person. One person I think who made
Speaker 6: an impression well, I think obviously Pete Boudah Jedge, He's
Speaker 6: not a surprise person. But some of the younger folks,
Speaker 6: people like Jasmine Crockett, congress woman from Texas, you know,
Speaker 6: kind of made her mark on a viral kind of
Speaker 6: insult fest with Marjorie Taylor Green that got a big
Speaker 6: state moment out here. Congressman Andy came from New Jersey
Speaker 6: also is going to be the next likely the next
Speaker 6: senator from New Jersey. Has a really interesting personal story,
Speaker 6: and with the first Asian American senator from New Jersey,
Speaker 6: it was interesting to see him get a big time
Speaker 6: speaking slot last night as well.
Speaker 2: All right, very good, Jonathan Tomorrow, Thanks so much for
Speaker 2: joining us. Jonathan Tomorrow, he's a reporter for Bloomberg Government.
Speaker 2: He is in Chicago. Well, we now want to head
Speaker 2: out to Jackson Hole for a discussion with the Kansas
Speaker 2: City FED President Jeffrey Schmid, who's he wants to see
Speaker 2: more data before supporting any decision to reduce rates. He
Speaker 2: spoke with our own Michael McKee in Wyoming. Let's go
Speaker 2: to part of that discussion.
Speaker 8: Now, I think it made sense, or it makes sense
Speaker 8: for me to really look at some of the data
Speaker 8: that comes in the next few weeks, and and I
Speaker 8: think this mandate on the inflation side's really important. I
Speaker 8: think we seem to be getting some really good movement
Speaker 8: that direction. But before we act, at least before I
Speaker 8: act or recommend acting, I think we need to see
Speaker 8: a little bit more.
Speaker 7: Well, we essentially on the path to it In other words,
Speaker 7: if we get as predicted inflation numbers, jobs numbers in
Speaker 7: the next month, would you agree it's time?
Speaker 8: You know, I like the word path and I also
Speaker 8: believe that there we've seen some cooling in the labor
Speaker 8: market that also kind of works in tandem a little bit.
Speaker 8: With that, not exactly sure I would go there just yet.
Speaker 8: I think it kind of is an nature of what
Speaker 8: happened with the inflation numbers, and how much of those
Speaker 8: inflation numbers were kind of supply driven they got cured,
Speaker 8: And then how much is the policy restrictive? And I
Speaker 8: think while it's restrictive, I don't know if it's overly restrictive.
Speaker 8: So you know, for me, policy implies patients, and I
Speaker 8: would say, let's be patient.
Speaker 7: Well, what are you worried about? What would be the
Speaker 7: scenario that would drive inflation back up again?
Speaker 8: So if we get any kind of spark and demand,
Speaker 8: I mean, I go around the tenth district quite a bit.
Speaker 8: We still have employment numbers, unemployment numbers in the two
Speaker 8: and a half three and a half percent range. I
Speaker 8: think a lot of people are looking at how do
Speaker 8: we hire skilled labor over the next twelve months. So
Speaker 8: I still think we could see a little bit of
Speaker 8: demand pick up if we're not careful with the decisioning,
Speaker 8: at least from the tenth district standpoint. I'm a big
Speaker 8: fan of the Beige Book. I try to understand what's
Speaker 8: happening in tenth district and then try to see what's
Speaker 8: happening regionally with the other eleven banks, and I think
Speaker 8: there's from a trend standpoint, things look pretty good. But
Speaker 8: I still think we have some time.
Speaker 7: I'll let you tell me what you thought of the
Speaker 7: report that the Bureau of Labor Statistics put out at
Speaker 7: eight hundred and eighteen thousand fewer jobs over the twelve
Speaker 7: months to the first quarter of this year.
Speaker 6: Yeah.
Speaker 8: So the first thing that comes to mind is why
Speaker 8: are we getting the data wrong in that regard. The
Speaker 8: second is, if you look at it seems like a
Speaker 8: large number until you put it in perspective of the
Speaker 8: twelve months, and so you know, while it's a big number,
Speaker 8: it doesn't really change the path of the way I
Speaker 8: think of things. When I think about monetary policy and
Speaker 8: the effect of the labor force and what's going on.
Speaker 8: I'm actually really interested in the dynamics of the labor force,
Speaker 8: really coming out of the pandemic. You know, the behaviors,
Speaker 8: the compensation structures, the demographics. I think studying those relative
Speaker 8: to the future perforce, maybe thinking a little bit about
Speaker 8: what AI generated AI does to things like productivity. I
Speaker 8: think those are important things to look at. Now we
Speaker 8: have to look at some of the data relative to
Speaker 8: what we do with policy in the labor force. But
Speaker 8: the recent print here isn't a big concern for me.
Speaker 7: So you wouldn't agree with the argument that some make
Speaker 7: on Wall Street that the FED is behind the curve.
Speaker 8: No, I don't really agree with that. I mean here
Speaker 8: here again. I think we've got to get as a
Speaker 8: FED better at the data sets that we're using. I'm
Speaker 8: a new central banker. I'd like to see us move
Speaker 8: toward a more real time data set versus there still
Speaker 8: seems to be some lags, some serious lags in some
Speaker 8: of the data that we get. So using new technologies,
Speaker 8: maybe some of the AI technologies, maybe we get better
Speaker 8: data as we move forward. But we've got to focus
Speaker 8: on that with our economists and our analysts about you know,
Speaker 8: where's the data coming from and can we rely on it?
Speaker 4: That was Kansas City FED President Jeffrey Schmid joining Michael
Speaker 4: McKee in Wyoming at Jackson Hole, and Mike McKee joins us. Now, Okay, Michael,
Speaker 4: I have a couple of really pressing questions for you.
Speaker 4: One did you bring your cowboy hat? And what color
Speaker 4: is it? Two? Did you go to the million dollar
Speaker 4: Cowboy bar?
Speaker 2: Yet?
Speaker 7: Yes to both questions, and I can tell you that
Speaker 7: the hat is is white this year. That doesn't mean
Speaker 7: we've just elected a pope. It's just the color I
Speaker 7: chose this year to go with it. But we did
Speaker 7: stop buy the Cowboy.
Speaker 4: I gotta go there. I love that, Like the seeds.
Speaker 7: Yep.
Speaker 4: Has Tom Kean been there yet? We were wondering if
Speaker 4: he was going to ride on the mechanical Bowl, But
Speaker 4: we don't need.
Speaker 3: To see that.
Speaker 7: He's only just arrived.
Speaker 4: Okay, so there is time. There is time. Okay, back
Speaker 4: to the seriousness. So it does seem though that Jeffrey
Speaker 4: was more worried about the inflation part than the labor
Speaker 4: part and the economy part. Is that a fair interpretation?
Speaker 7: Yeah, So this is a district that historically has focused
Speaker 7: on inflation more than growth and jobs. Jeff Smith's predecessor,
Speaker 7: Esther George and before her Tom Honig. They were known
Speaker 7: as the hawks on the Fed because they felt inflation
Speaker 7: was a bigger danger and they always warned about inflation
Speaker 7: when other people weren't seeing it. And that may be
Speaker 7: the case right now, but Schmid is taking it very carefully.
Speaker 7: The interesting thing in our discussion was his talk about
Speaker 7: what he's hearing from his district that people in the
Speaker 7: tenth district are still seeing growing demand even though in
Speaker 7: interest rates are higher, and so that gives him pause
Speaker 7: about whether or not inflation the inflation dragon has been slayed,
Speaker 7: and he'd like to see a little more data. I
Speaker 7: think he'll vote with them to lower rates in September,
Speaker 7: but he wants to be convinced.
Speaker 2: Michael, is there any scott about out there in Jackson
Speaker 2: Hole about how aggressive the Fed may be in September
Speaker 2: as it relates to twenty five bases points versus perhaps
Speaker 2: fifty points.
Speaker 7: No, A lot of people are looking to see what
Speaker 7: Chairman Powell has to say about that tomorrow morning and
Speaker 7: whether he would even get into that. The feeling is
Speaker 7: the Fed would much rather do twenty five basis points
Speaker 7: and see how that works, and you'd have to have
Speaker 7: some really bad data in September to get them to
Speaker 7: go fifty. But there is an argument to be made
Speaker 7: for it if you think the economy is slowing faster
Speaker 7: than anticipated, and that argument got a little bit of
Speaker 7: a boost with yesterday's jobs revisions. So we'll see if
Speaker 7: the Chairman wants to take that on in his speech.
Speaker 4: Yeah, and also through the minutes too. I know that
Speaker 4: some are pointing out that the quote the vast majority
Speaker 4: observed that if the data continue to come in about
Speaker 4: as expected, it would likely be appropriate to ease policy
Speaker 4: at the next meeting, and then also talking more about
Speaker 4: the job's data and how they're worried about a faster deterioration.
Speaker 4: How do you think that Powell will leave the optionality.
Speaker 7: I think he'll basically stick to the formulation that he's
Speaker 7: used that we are making progress, we have more confidence
Speaker 7: now after the data that we've seen, and it will
Speaker 7: soon be appropriate to lower interest rates. I don't think
Speaker 7: he will say we're going to do it. He doesn't
Speaker 7: want to lock himself in, especially with the jobs and
Speaker 7: CPI report between now and the time they meet on
Speaker 7: September eighteenth, So he'll use the kind of FED language
Speaker 7: FED speak to get around that all right.
Speaker 2: Michael McKee, thank you so much. We appreciate that. Michael McKee,
Speaker 2: He's economics editor from Bloomberg TV and Radio. This is
Speaker 2: the Bloomberg Surveillance Podcast, bringing you the best in economics, geopolitics, finance,
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