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Speaker 1: Well, I guess now. Stephen Blitz is chief US economist

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Speaker 1: Attis Lombard joining us from New York. So we saw

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Speaker 1: the August US jobs report have some hints of this

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Speaker 1: long awaited increase in labor supply. If we do see

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Speaker 1: that trend continue, does that bolster the case for slower

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Speaker 1: tightening from the fit No, not at all. Uh. In fact,

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Speaker 1: when you look at the data underneath, you see um

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Speaker 1: really a sense of firms having to continue to pay

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Speaker 1: up to pull supply. So no, I don't you know,

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Speaker 1: it's not so much about the growth and unemployment. And listen,

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Speaker 1: a hundred thousands is neutrals, so you're any hundred three

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Speaker 1: hundred thousand, you're still in the top in terms of

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Speaker 1: UH numbers into adding and you're well into the cycle

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Speaker 1: at this point. So now labor demand is still very strong.

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Speaker 1: And on top of that, on a broader macro sense,

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Speaker 1: you've got falling energy prices here in the US in

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Speaker 1: terms of castle prices and we'll see upcoming CPI, but

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Speaker 1: you're getting some weekending prices, still strong nominal wage growth,

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Speaker 1: still strong job growth, and that's going to reset this

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Speaker 1: expansion after the deceleration in the first half of the

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Speaker 1: year to re accelerate. So what does it mean then

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Speaker 1: in terms of what we see from the FED and

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Speaker 1: of course the ongoing pain that we're seeing in the

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Speaker 1: bond market. Well, I think that I don't think that

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Speaker 1: particularly concerned about the pain in the bond market or

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Speaker 1: the stock market at this point, and I think they

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Speaker 1: are ready to inflict pain on the broad economy, and

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Speaker 1: that means they're going to keep raising race. I think

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Speaker 1: they'll do sent basis points in September. Obviously we'll see

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Speaker 1: what happens, you know, for the next two meetings to

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Speaker 1: follow before the year is over. But I'm still thinking

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Speaker 1: about four or four and a quarter by a year end.

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Speaker 1: And I think, by the way, that it's that will

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Speaker 1: be enough in conjunction, which with the negative impact on

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Speaker 1: the equity market, to get a recession going sometime in

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Speaker 1: the fourth quarter or perhaps the first quarter of next year.

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Speaker 1: And how deep do you think that recession could be, Well,

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Speaker 1: I don't think. I mean, look, it's it's deep if

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Speaker 1: you're the one that's unemployed, right, and so we always

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Speaker 1: have to keep that part in mind. I think the

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Speaker 1: unemployment rate gets around five and a half six percent.

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Speaker 1: I think that people are gonna be surprised how high

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Speaker 1: it gets and how quickly. But I think more than

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Speaker 1: that is the FEDS promised to keep real interest rates

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Speaker 1: restrictive to h so that the rebound in So it's

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Speaker 1: not so much the recession that will be weak, but

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Speaker 1: the rebound from the UH From the recession, that recovery

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Speaker 1: will be weak and unemployment will stay high. And that's

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Speaker 1: where the political pressure really starts to come in. Um,

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Speaker 1: this is the game that they're talking. I think they'll

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Speaker 1: bail when they start seeing that and seeing that pain

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Speaker 1: to get back to a number of two percent, which honestly,

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Speaker 1: nobody really knows whether the two percent is the right number,

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Speaker 1: and there's nothing in the Fed mandate that says it

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Speaker 1: just says stable inflation. UH So is three percent the

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Speaker 1: better number? If that means that there's more people working

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Speaker 1: in all? That could very well be. But for the moment,

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Speaker 1: we'll have to take this bettered its work. Stephen, you

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Speaker 1: make some really interesting points in the notes that you

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Speaker 1: supplied to us about age in in the workforce and

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Speaker 1: the difference in terms of what we're seeing with regards

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Speaker 1: to generations. What if we kind of learned from COVID

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Speaker 1: and the work from home mentality, the quiet quitting people

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Speaker 1: not wanting to come back, all those that indeed do

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Speaker 1: want to be back in the office. Yeah. I mean, look,

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Speaker 1: it has absolutely disrupted the um the supply of labor

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Speaker 1: in the United States. We went into COVID with the

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Speaker 1: destruction and the supply because of the whole H one

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Speaker 1: B visa and the ability to bring workers for firms

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Speaker 1: to import workers and profreshimal jobs in the United States,

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Speaker 1: so that cut off supply. On top of that, Uh,

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Speaker 1: the gen Z generation, which was born in the mid

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Speaker 1: ninety nineties is just now beginning to enter the workforce,

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Speaker 1: and that's a smaller generation than the millennials. When you

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Speaker 1: go to the long end of the internal or the

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Speaker 1: older end, uh, where you see the real drop off

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Speaker 1: in labor participation is in the fifty five and over,

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Speaker 1: in the sixty five and over group, and they're not

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Speaker 1: coming back. Uh. And then you have this long COVID

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Speaker 1: issue that you're bringing up, and the people who are

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Speaker 1: still sick and they can't come back to work, and

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Speaker 1: also people who between Also I don't want to be

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Speaker 1: more red here, but between people have died as well

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Speaker 1: as people at long COVID, they can't do the child

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Speaker 1: care for people that allow people to go back to work,

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Speaker 1: and we don't really have numbers. And admittedly this is

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Speaker 1: an anecdotal part of it. Everything else I said you

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Speaker 1: before it was not, but this is sort of anecdotal.

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Speaker 1: But how many single single earn a households do we

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Speaker 1: now have because the other family member has to work

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Speaker 1: at home, can't go to the office because that family

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Speaker 1: caretaker as he's unfortunately passed away or is physically unable

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Speaker 1: to do the job. So as you say, the underlying

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Speaker 1: supply demand imbalance. When when we take this back to

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Speaker 1: the FIT and what we're expecting from them, you say

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Speaker 1: four percent funds rate by December, but you also say

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Speaker 1: j Pal is not Paul Folker just explain a little

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Speaker 1: bit more there. Well, yeah, because Paul Ulcer, you know,

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Speaker 1: he raised, he got the funds rate where he needed

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Speaker 1: to get it to and more importantly, he kept it

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Speaker 1: that high. But in the other sense that where he

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Speaker 1: doesn't have he Powell doesn't have the advantages that Balkan

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Speaker 1: has is that you don't have domestically the political will

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Speaker 1: um to sustain high levels of unemployment in order to

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Speaker 1: be back inflation, and that's that's that's that's a problem

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Speaker 1: that Powell is going to face. He doesn't face it

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Speaker 1: at the moment, but once unemployment starts to rise, it

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Speaker 1: is a problem he's going to face. The other thing

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Speaker 1: is that Vulker had as a tail into what he

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Speaker 1: was doing was the liberalization of trade around the world

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Speaker 1: and you had that through the eighties and then into

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Speaker 1: the nineties, and you added in Russia, East in Europe

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Speaker 1: and China, and these were all disinflationary deflationary events. You

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Speaker 1: don't have that now, in fact, the global situations moving

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Speaker 1: in the other direction. So the question is how much

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Speaker 1: are you willing against this backdrop? Are you willing to

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Speaker 1: be able to keep real interest rates that high and

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Speaker 1: the unemployment rate consequently that high. And Powell does not

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Speaker 1: have the ability to push back maybe and perhaps even

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Speaker 1: not the will to push back against the political and

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Speaker 1: social forces that are going to ask him to cut

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Speaker 1: rates and not be quite so traconian. But that's the

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Speaker 1: story seven. Just finally and quickickly I And we're seeing

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Speaker 1: this more than three drop in eurostocks at fifty futures

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Speaker 1: on this energy crisis worsening in Europe. How much of

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Speaker 1: a broad concern. Is this to the global economy? Well,

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Speaker 1: it is, but you know it's it's the thing is

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Speaker 1: for you know, they are a net export of Europe

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Speaker 1: and China is a net exporter. In the United States

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Speaker 1: is a net importer. So it hurts Europe. But it

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Speaker 1: really it's the knockgound impact in the United States. Isn't

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Speaker 1: that great because it's it's worse for Europe if we

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Speaker 1: slow down then if they slowed down, because they're very

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Speaker 1: much dependent upon their surplus around the world. It but

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Speaker 1: having said that, it does have an effect. You know,

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Speaker 1: no countries in island so to speak, and uh, you

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Speaker 1: know that slowed down in Europe and that slowed down

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Speaker 1: in China will ultimately slow the global economy. Not a

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Speaker 1: soft landing in the US, but a slower economy. Alright,

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Speaker 1: great to have you with us. Thank you so much.

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Speaker 1: Stephen Blitz, chief US economist at T. S. Lombard on

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Speaker 1: the line,