WEBVTT - Bloomberg Surveillance TV: August 20th, 2026 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordert. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.480 Terminal and the Bloomberg Business App. Heading into Jackson Hole 0:00:37.840 --> 0:00:40.199 in about a week's time, and an important speech just 0:00:40.240 --> 0:00:42.680 around the corner from a so far tight lip fed 0:00:42.720 --> 0:00:45.840 share Kevin Warsh will hear from him in a week's time. 0:00:46.159 --> 0:00:49.160 Joining us now to extend the conversation on the Federal Reserve. 0:00:49.240 --> 0:00:52.159 The San Francisco President Mary Daily joined us for more. 0:00:52.240 --> 0:00:54.120 President Day, always good to hear from you, So thanks 0:00:54.160 --> 0:00:56.840 for making some time for Bloomberg surveilor I want to 0:00:56.840 --> 0:00:59.240 bring up the bond market, and I'm sure you anticipated 0:00:59.240 --> 0:01:01.640 I would go there first, the long bond and the 0:01:01.760 --> 0:01:04.880 rise we're seeing in yields. President Day, from your standpoint, 0:01:04.920 --> 0:01:07.119 what signal, if any do you take from the sal 0:01:07.240 --> 0:01:09.319 for the long end, Well. 0:01:09.200 --> 0:01:10.800 You know, when you look at the long end, it 0:01:10.840 --> 0:01:16.520 is typically driven by structural factors like fiscal sustainability, geopolitical rebalancing, 0:01:16.840 --> 0:01:22.240 the massive AI investment for this industrial renaissance which people 0:01:22.240 --> 0:01:24.840 are very excited about, and those factors are driving this. 0:01:25.240 --> 0:01:27.280 The thing that I look at specifically is this is 0:01:27.280 --> 0:01:28.480 happening across the globe. 0:01:28.520 --> 0:01:30.200 It's not just a US phenomena. 0:01:30.240 --> 0:01:33.000 It's a global phenomena, and it doesn't give us a 0:01:33.000 --> 0:01:35.319 lot of signal about what we should do in the 0:01:35.360 --> 0:01:38.920 policy adjustments or the policy calibration for the Fed. And 0:01:39.000 --> 0:01:41.200 there we look at the short end more than the 0:01:41.240 --> 0:01:44.479 longer end, paying attention to the longer end, but really 0:01:44.520 --> 0:01:47.720 focusing on the job number one, which is restoring price stability. 0:01:47.800 --> 0:01:50.160 Right now, do you think President Daily that the long 0:01:50.280 --> 0:01:52.000 end of the yield curve is doing some of the 0:01:52.040 --> 0:01:55.600 work for the Federal Reserve by tightening monetary conditions in 0:01:55.640 --> 0:01:56.800 a more significant way. 0:01:57.800 --> 0:01:59.760 You know, I always hesitate to say that the markets 0:01:59.800 --> 0:02:03.120 do our work, but what I will say is it 0:02:03.480 --> 0:02:05.760 begs the question, what problem are we trying to solve 0:02:05.880 --> 0:02:09.600 by adjusting policy preemptively. You know, there's a lot of 0:02:09.639 --> 0:02:13.239 discussion about our credibility there. I don't see our credibility 0:02:13.280 --> 0:02:16.320 at risk. I also hear a lot about should we 0:02:16.400 --> 0:02:19.440 be making preemptive cuts or hikes rather, and I don't 0:02:19.440 --> 0:02:21.680 see a lot of evidence that that's an urgent problem 0:02:21.760 --> 0:02:25.079 to solve. So really this is about watching the inputs 0:02:25.160 --> 0:02:27.600 from the financial markets, looking at the thirty, the ten, 0:02:28.120 --> 0:02:31.080 and the two, and asking are we getting mixed signals 0:02:31.120 --> 0:02:32.079 or different signals? 0:02:32.080 --> 0:02:33.720 And you know, right now, on the. 0:02:33.720 --> 0:02:36.400 Shorter end of the yield curve, markets seem to have 0:02:36.480 --> 0:02:39.480 priced in a little bit more tightening, but they're reacting 0:02:39.480 --> 0:02:41.520 to the data just like we would expect them to. 0:02:41.880 --> 0:02:44.840 Inflation prints a little softer than they expect, the labor 0:02:44.880 --> 0:02:47.639 market a little softer than they expect, They push out 0:02:47.720 --> 0:02:50.720 rate hikes that they had priced in, and adjust as 0:02:50.720 --> 0:02:52.720 the data comes. So I think they seem to be 0:02:53.000 --> 0:02:56.720 signaling to us that they understand our reaction function. And importantly, 0:02:57.000 --> 0:03:01.080 I'm looking at inflation compensation and inflation expectations and you 0:03:01.120 --> 0:03:05.200 don't see any you know, worrisome swings in those pieces 0:03:05.240 --> 0:03:06.040 of data either. 0:03:06.200 --> 0:03:08.040 So I think policy is in a good place. 0:03:08.080 --> 0:03:11.040 But watching this ten and thirty to see what we 0:03:11.520 --> 0:03:14.720 need to think about what are the structural factors. It's 0:03:14.720 --> 0:03:17.040 giving us a signal about something, and I think one 0:03:17.040 --> 0:03:19.800 of the big signals is the AI demand. 0:03:20.200 --> 0:03:22.359 President Dala, We'll get into AI demand. But I am 0:03:22.440 --> 0:03:25.760 curious about the reaction function. You said that the market 0:03:25.800 --> 0:03:28.920 seems to be understanding the Fed's reaction function. What is 0:03:28.960 --> 0:03:32.640 your reaction function in terms of incoming information that would 0:03:32.680 --> 0:03:36.360 make you think that an adjustment higher for rates would 0:03:36.400 --> 0:03:37.080 be required. 0:03:38.120 --> 0:03:40.280 Well, you know, last week I gave a speech where 0:03:40.320 --> 0:03:43.400 I talked about really there's you know, there's many scenarios 0:03:43.400 --> 0:03:46.640 that could occur, but two seem very important for me 0:03:47.040 --> 0:03:48.800 at this point. One is the one that I would 0:03:48.800 --> 0:03:51.840 suggest is the modal outlook. My modal outlook is that 0:03:52.120 --> 0:03:53.920 you know, and also you saw in the minutes, it's 0:03:54.160 --> 0:03:58.080 it's a majority of the participant modal outlook that inflation 0:03:58.440 --> 0:04:01.200 is being driven up by a series of shocks, and 0:04:01.280 --> 0:04:04.600 those shocks will roll up, they'll roll down, they'll roll through, 0:04:05.000 --> 0:04:08.080 and as that dissipates, that inflation will we turned to 0:04:08.240 --> 0:04:11.240 target in part because we have policy at a very 0:04:11.280 --> 0:04:12.600 slightly restrictive level. 0:04:13.000 --> 0:04:14.720 So there's that dynamic. 0:04:14.760 --> 0:04:17.560 But then there's the dynamic of maybe the fact that 0:04:17.640 --> 0:04:20.560 we have so many shocks coming at once and they're overlapping, 0:04:20.960 --> 0:04:24.360 they can have an independent compounding effect that means that 0:04:24.400 --> 0:04:27.320 the total effect is greater than the sum of its parts. 0:04:27.320 --> 0:04:30.640 The conventional dynamics of shocks just aren't working like they were. 0:04:30.880 --> 0:04:33.320 I'm not seeing evidence of that right now, but I 0:04:33.360 --> 0:04:36.320 definitely think we should keep that in mind and watching. 0:04:36.440 --> 0:04:38.479 If that happens, we would have to we'd have an 0:04:38.520 --> 0:04:42.560 inflation problem that we would want to treat with tighter policy. 0:04:42.640 --> 0:04:44.880 In the meantime, I was very supportive of the July 0:04:45.080 --> 0:04:48.119 hold and continue to look at the information that comes 0:04:48.160 --> 0:04:51.520 between now and the next meeting about whether any signs 0:04:51.520 --> 0:04:54.960 of that worrisome dynamic would be forming. And I haven't 0:04:54.960 --> 0:04:58.080 seen them yet, And the recent prints on both inflation 0:04:58.160 --> 0:05:01.080 and the labor market didn't really change that picture for me. 0:05:01.160 --> 0:05:01.719 At this point. 0:05:01.839 --> 0:05:04.560 There's been kind of a paradox forming right now where 0:05:04.560 --> 0:05:07.599 you've seen inflation above target for more than five years 0:05:07.640 --> 0:05:10.159 at the same time that the labor market seems to 0:05:10.200 --> 0:05:12.440 be kind of meth I mean, it's okay, but people 0:05:12.480 --> 0:05:15.880 keep talking about low higher, low fire and that that 0:05:15.960 --> 0:05:18.919 kind of dynamic with real wages not keeping pace for 0:05:18.960 --> 0:05:20.560 the past five years, we'll. 0:05:20.520 --> 0:05:23.560 Lead inflation to go lower. Why hasn't it right? 0:05:23.600 --> 0:05:26.400 I mean, when does that relationship reassert itself. 0:05:27.800 --> 0:05:29.880 Well, one of the things that is true is that 0:05:30.160 --> 0:05:32.919 we've had many periods in our history with you know, essentially, 0:05:32.920 --> 0:05:35.040 if you're thinking in economics terms, with the Philip curve 0:05:35.160 --> 0:05:37.560 is very flat, and you just don't see the relationship 0:05:37.600 --> 0:05:41.080 between the labor market and price inflation. And it also 0:05:41.400 --> 0:05:44.320 kind of illustrates why the shocks have been a big 0:05:44.360 --> 0:05:47.320 component of overall inflation. You know, the tariff shock, the 0:05:47.360 --> 0:05:50.760 oil price shock, and now the AI investment boom shock. 0:05:51.040 --> 0:05:53.120 And in all of those you have to ask what 0:05:53.240 --> 0:05:56.960 is the expectation of their duration? Are they spreading to 0:05:57.160 --> 0:06:00.280 other sectors than the ones that they directly affect, and 0:06:00.480 --> 0:06:03.120 what do we think they will do if they, you know, 0:06:03.200 --> 0:06:05.320 compound with each other. Will that make a difference or 0:06:05.360 --> 0:06:07.719 will it not? So I think that's what's really driving it. 0:06:07.760 --> 0:06:10.440 I wouldn't look to the labor market. You don't see 0:06:10.480 --> 0:06:13.600 any signs that the labor market is contributing to inflation. 0:06:13.960 --> 0:06:15.919 And I really think at this point you have to 0:06:15.960 --> 0:06:20.320 look at these other factors because that link between you know, 0:06:20.839 --> 0:06:25.080 wages and price stability is often weak. We came off 0:06:25.120 --> 0:06:27.560 a period where it was very strong because we saw 0:06:27.560 --> 0:06:30.320 a very frothy labor market, very strong labor market, and 0:06:30.360 --> 0:06:33.320 people were saying that they were worried about wage price spiral. 0:06:33.360 --> 0:06:35.560 I think I've talked to you both about that, but 0:06:36.160 --> 0:06:38.520 we're way past that, and now we have to look 0:06:38.520 --> 0:06:42.159 at these other factors driving inflation. And so I'd say 0:06:42.160 --> 0:06:44.960 the main contributor to why inflation is persistent for so 0:06:45.080 --> 0:06:48.800 long under even when we've had restrictive policy, is because 0:06:49.360 --> 0:06:52.560 they have these shocks, and then of course service price 0:06:52.600 --> 0:06:54.560 inflation is just sticky or it takes a while to 0:06:54.600 --> 0:06:55.040 come down. 0:06:55.240 --> 0:06:56.920 President Deanning, I'm just going to keep our audience on 0:06:56.960 --> 0:06:58.480 top of the moves with saying at the bomb market 0:06:58.480 --> 0:07:00.440 at the long end of the curve up close to 0:07:00.440 --> 0:07:02.720 seven basis points thirties at the moment if you bring 0:07:02.800 --> 0:07:06.800 up the board around five twenty six yield hire through 0:07:06.800 --> 0:07:09.720 the levels. This is important. We've taken back much of 0:07:09.800 --> 0:07:12.040 the rally, in fact, all of it since we had 0:07:12.040 --> 0:07:14.960 that Treasury announcement this time yesterday at eight thirty Eastern 0:07:15.000 --> 0:07:17.040 time off the back of this move in the bottom market, 0:07:17.040 --> 0:07:19.680 equality futures lower yzero point six percent on the S 0:07:19.720 --> 0:07:22.520 and P five hundred, President Daily, I can imagine you'd 0:07:22.560 --> 0:07:25.440 love to avoid all the conversation about Treasury, the department 0:07:25.440 --> 0:07:27.440 and issuance, but forgive me, I have to go there. 0:07:27.960 --> 0:07:30.360 There are many people who believe we'll see a continuation 0:07:30.440 --> 0:07:34.800 of this Treasury Department under Scott Besson of the policies 0:07:34.800 --> 0:07:37.200 that we saw under Janney Yellen, and that will see 0:07:37.280 --> 0:07:40.120 less issuance of the long end and more supply at 0:07:40.160 --> 0:07:43.440 the front end. If T bill issuance continues to climb 0:07:43.440 --> 0:07:45.440 and account for more and more of the issuance coming 0:07:45.480 --> 0:07:48.320 from the Treasury. President Day, how does that view, How 0:07:48.320 --> 0:07:50.000 does that change your view on what to do and 0:07:50.000 --> 0:07:51.760 what not to do with policy? What does it mean 0:07:52.240 --> 0:07:54.920 for the everyday workings of the Federal Reserve, who is 0:07:55.000 --> 0:07:57.320 very focused on managing short term rates. 0:07:58.360 --> 0:08:00.480 Well, I'd say these are early days, and I wouldn't 0:08:00.520 --> 0:08:03.120 want to be preemptive and sort of discussing those types 0:08:03.160 --> 0:08:05.120 of things until we've had a chance to think through 0:08:05.160 --> 0:08:09.880 those issues. But the Treasury Secretary is different than the Fed. 0:08:09.960 --> 0:08:12.680 The Fed is talking about price stability and full employment. 0:08:12.840 --> 0:08:15.320 And what I do know, and we've historically been able 0:08:15.360 --> 0:08:18.600 to do this, is that we have a goal and 0:08:18.640 --> 0:08:22.080 we can achieve those goals through our policy implementation, and 0:08:22.120 --> 0:08:24.120 we will find a way to do the job that 0:08:24.160 --> 0:08:27.640 Congress gave us, which is restore inflation to two percent 0:08:27.880 --> 0:08:30.720 as our goal as we define it, and do that 0:08:30.760 --> 0:08:33.199 price stability. So I think we don't want to worry 0:08:33.240 --> 0:08:35.200 about the mechanics of how to do that as much 0:08:35.200 --> 0:08:37.600 as the commitment to achieve it. 0:08:38.200 --> 0:08:40.320 Forgive me for going there, but it's in conflict with 0:08:40.360 --> 0:08:42.520 what you're trying to achieve when. 0:08:42.400 --> 0:08:45.439 You see the treasure rates at this point. I ultimately 0:08:45.760 --> 0:08:47.959 I think this is really important, but it's the Treasury 0:08:48.000 --> 0:08:51.880 Secretary's job, not the federal reserves job, and we have 0:08:52.040 --> 0:08:54.720 our own job which is very important. But also we're 0:08:54.880 --> 0:08:56.839 not quite there yet, So I'm going to focus there. 0:08:57.000 --> 0:08:59.080 The Treasury Secretary at the moment, and you'll forgive me 0:08:59.120 --> 0:09:03.600 for pushing, is actually trying to influence financial conditions. You 0:09:03.600 --> 0:09:06.240 could see that yesterday yields came in. You could see 0:09:06.240 --> 0:09:09.120 the dollar weaken as well. Given the moves happening Gauseware 0:09:09.160 --> 0:09:12.600 and financial markets particularly and crude. You do have to wonder, President, 0:09:12.720 --> 0:09:14.840 and if that's an increasing challenge for the Federal Reserve 0:09:15.080 --> 0:09:16.280 that they might have to confront. 0:09:18.040 --> 0:09:20.120 It sounds like that's something you're interested in. 0:09:20.160 --> 0:09:22.320 But again, I really am in the work for the 0:09:22.320 --> 0:09:25.840 Federal Reserve, and I think importantly, you know what, and 0:09:25.880 --> 0:09:28.880 I'm pushing back in this, the important thing the American 0:09:28.880 --> 0:09:31.240 people need to know is that the Federal Reserve cares 0:09:31.280 --> 0:09:34.680 about its independence and its credibility and sticks to its remit. 0:09:34.960 --> 0:09:37.319 You know, we take in all the information, we look 0:09:37.400 --> 0:09:40.520 at everything, because those are important inputs, but we know 0:09:40.600 --> 0:09:42.600 what our job is and we focus. 0:09:42.320 --> 0:09:43.600 On doing that and that. 0:09:43.880 --> 0:09:45.800 You know, if you want to talk about inflation, compensation 0:09:45.960 --> 0:09:49.280 and expectations and FED credibility, I'm happy to talk about 0:09:49.280 --> 0:09:51.400 those things with the labor market. But I really do 0:09:51.520 --> 0:09:55.560 think that with our job right in the importance area 0:09:55.640 --> 0:09:58.160 here and we aren't meeting our target yet, we really 0:09:58.160 --> 0:09:59.040 have to focus there. 0:09:59.520 --> 0:10:03.439 President, how would you characterize right now the overall economy? 0:10:03.480 --> 0:10:05.560 And we've talked about how there is this sort of 0:10:05.920 --> 0:10:09.000 heat coming, but right now, do you think that it's solid, 0:10:09.040 --> 0:10:10.840 do you think it's expanding, or do you think that 0:10:10.880 --> 0:10:11.800 it's decelerating. 0:10:12.760 --> 0:10:15.240 You know what I'm really seeing and it's an interesting time. 0:10:15.480 --> 0:10:20.080 You know, I think people say it's confusing, there's contradictory data. 0:10:20.200 --> 0:10:24.439 It is true that the typical historical ways we think 0:10:24.480 --> 0:10:27.400 and measure the economy, the dynamics, and the inter relationships 0:10:27.400 --> 0:10:29.920 don't seem to be squaring up like they would typically do. 0:10:30.280 --> 0:10:32.120 So then what do you think? What do you look 0:10:32.160 --> 0:10:36.080 at when you talk to businesses. They're cautiously optimistic, and 0:10:36.120 --> 0:10:39.720 they're cautiously optimistic beyond the AI sector where they're just 0:10:39.800 --> 0:10:43.360 optimistic and they're optimistic. They think of this, they call 0:10:43.440 --> 0:10:47.560 it an industrial renaissance. We are in the next industrial revolution. 0:10:47.720 --> 0:10:50.319 So they have all that enthusiasm. But what I really 0:10:50.360 --> 0:10:53.000 watch is what are other businesses saying? What are other 0:10:53.080 --> 0:10:56.559 businesses thinking? And they're focused on the fact that consumers 0:10:56.600 --> 0:10:59.120 are trading down and feel a little bit tighter in 0:10:59.160 --> 0:11:00.239 their pocket. 0:11:00.040 --> 0:11:01.000 Books, and they're spending. 0:11:01.200 --> 0:11:03.679 But they're also focused on they keep coming to their business, 0:11:03.720 --> 0:11:07.240 they keep wanting to do things, and importantly, I start 0:11:07.240 --> 0:11:11.040 to see these businesses. I'm seeing these businesses using AI 0:11:11.360 --> 0:11:15.160 really working hard to see how can this technology, which 0:11:15.200 --> 0:11:18.760 is in the development stage, really how can it affect 0:11:18.840 --> 0:11:22.640 their business processes, even the physical world that they work in, 0:11:22.880 --> 0:11:25.280 and what can they do to make things better. So 0:11:25.480 --> 0:11:28.480 I'd say that there's this all this enthusiasm about the 0:11:28.559 --> 0:11:31.840 future and a lot of anxiety about the present, and 0:11:31.880 --> 0:11:34.800 that is a colliding piece. Now, if you talk to 0:11:34.800 --> 0:11:38.720 the consumer, they're still there. They're still spending, although it's 0:11:38.720 --> 0:11:42.240 slowing and they're trading down, but they do feel more precarious. 0:11:42.280 --> 0:11:44.760 You can see that in the sentiment surveys either of 0:11:45.000 --> 0:11:46.720 confidence or workers. 0:11:47.120 --> 0:11:48.120 And I think it's in this. 0:11:48.160 --> 0:11:51.960 Low fire, low higher environment that they feel. It's an 0:11:52.040 --> 0:11:55.880 uncomfortable stability. It's an uncomfortable stability that we're not really 0:11:55.920 --> 0:11:56.640 accustomed to. 0:11:57.160 --> 0:12:00.480 But the policy maker is a policy maker. 0:12:00.480 --> 0:12:03.960 We have to ask, is it sending any weakening signals? 0:12:04.000 --> 0:12:07.240 Do we see any sense that things are fragile? And 0:12:07.280 --> 0:12:09.280 I just don't see that yet. And you saw that 0:12:09.320 --> 0:12:12.120 in the claims data today. You just don't see signs 0:12:12.120 --> 0:12:15.320 that the labor market is faltering. You simply see signs 0:12:15.360 --> 0:12:17.800 that it's running around at. 0:12:17.720 --> 0:12:18.880 A very low level. 0:12:19.240 --> 0:12:22.439 And the most important question I'm asking CEOs right now 0:12:22.840 --> 0:12:27.880 about the labor market is where are your cutting back plans? 0:12:28.280 --> 0:12:30.520 You're in a low hiring, low firing. But do you 0:12:30.600 --> 0:12:32.560 have those plans moved to the front of your desk 0:12:32.600 --> 0:12:35.200 and are you watching them carefully? And right now they're there, 0:12:35.559 --> 0:12:37.880 They know what they would do, but they still see 0:12:37.920 --> 0:12:39.400 that cautious optimism of. 0:12:39.280 --> 0:12:41.359 Trying to meet output growth. 0:12:41.120 --> 0:12:43.640 Where it is and be not the last in line 0:12:43.679 --> 0:12:45.160 to do that, the first in line. 0:12:44.920 --> 0:12:45.400 To do that. 0:12:45.520 --> 0:12:48.120 President Daily, you mentioned artificial intelligence and the idea that 0:12:48.160 --> 0:12:50.600 a lot of these companies are trying to deploy AI 0:12:50.679 --> 0:12:52.280 tools and lots of creative. 0:12:51.920 --> 0:12:53.120 Ways right now. 0:12:53.320 --> 0:12:56.920 Is it still more inflationary that it is disinflationary in 0:12:57.000 --> 0:13:00.800 terms of productivity? Is that something that the FED needs 0:13:00.800 --> 0:13:03.720 to combat or address or is that something that the 0:13:03.760 --> 0:13:06.440 FED can look through with the hopes that there will 0:13:06.440 --> 0:13:08.359 be more productivity on the other side. 0:13:09.040 --> 0:13:11.000 This will all come down to something that we have 0:13:11.080 --> 0:13:13.560 to watch, which is is this a relative demand chock? 0:13:13.679 --> 0:13:16.600 Is it changing the relative price of technology goods or 0:13:16.640 --> 0:13:20.479 is it spreading more generally into think of data center buildouts. 0:13:20.720 --> 0:13:23.480 Is that pushing up the price of construction workers everywhere 0:13:23.960 --> 0:13:27.600 or is it simply you know you're getting specifically trained 0:13:27.600 --> 0:13:30.240 people or people are coming to do those things. Right now, 0:13:30.280 --> 0:13:33.880 I'm not seeing a broad spill over in the broader 0:13:33.920 --> 0:13:37.040 inflation measures. I am seeing a rise in software and 0:13:37.080 --> 0:13:40.000 technology goods. Those are pushing up, but that's a relatively 0:13:40.040 --> 0:13:43.520 small sector of the overall price indices, and so I 0:13:43.559 --> 0:13:45.600 haven't seen evidence of that, but that's what we would 0:13:45.679 --> 0:13:48.520 have to watch. And so the investment growth is very 0:13:48.600 --> 0:13:51.920 very strong, and that's affecting interest rates as you see 0:13:52.040 --> 0:13:55.680 long data yields, but you don't see that pushing itself 0:13:55.720 --> 0:13:58.640 into price inflation writ large, although you definitely see it. 0:13:58.640 --> 0:14:01.600 If you're trying to buya high and technology good you. 0:14:01.600 --> 0:14:02.800 See some effect there. 0:14:02.840 --> 0:14:07.360 So we'll watch that whether that spills over into consumer prices, 0:14:07.400 --> 0:14:10.480 consumer goods and services. So far haven't seen a lot 0:14:10.480 --> 0:14:13.560 of that, but we will. That's definitely if you if 0:14:13.559 --> 0:14:16.200 your coffee maker starts rising in price because the chips 0:14:16.200 --> 0:14:17.680 that go in, and if you buy one of those 0:14:17.679 --> 0:14:20.560 new fancy ones, then if that starts going up, that's 0:14:20.600 --> 0:14:23.560 a sign of broader based problems or audible biles. 0:14:23.720 --> 0:14:25.920 But yet we haven't. We haven't seen that of yet. 0:14:26.240 --> 0:14:29.720 President Daily, You've mentioned that policy is in a fairly 0:14:29.760 --> 0:14:32.480 good place right now as all of the members look 0:14:32.520 --> 0:14:36.040 at the incoming data Is there anything that's transpired that 0:14:36.160 --> 0:14:38.000 makes you question that, or has the data been more 0:14:38.000 --> 0:14:40.400 of the same to indicate that the FED is in 0:14:40.480 --> 0:14:43.240 a good place to keep watching the data for a 0:14:43.280 --> 0:14:43.960 while longer. 0:14:45.000 --> 0:14:46.680 I'm on the latter point you made. 0:14:46.720 --> 0:14:48.320 I think we're still in a good place to keep 0:14:48.360 --> 0:14:50.880 watching the data. As I mentioned, you know, the two 0:14:50.920 --> 0:14:53.080 prints that have come out on inflation and the labor 0:14:53.080 --> 0:14:55.840 market didn't make didn't really clear much up for me. 0:14:56.160 --> 0:14:57.840 You know, I'm not going to get on the bandwagon 0:14:57.880 --> 0:15:00.720 of c we had a softer inflation print, we should 0:15:00.720 --> 0:15:03.000 stop worrying about the risks of higher inflation. I don't 0:15:03.000 --> 0:15:05.600 think that's right, and I don't think the labor market 0:15:05.640 --> 0:15:10.400 print suggest that that there's any impending weakness there. But 0:15:10.440 --> 0:15:13.120 we have to continue to watch these things, and importantly, 0:15:13.240 --> 0:15:15.800 I think with inflation, elevate it for as long as 0:15:15.800 --> 0:15:19.520 it has been, we have to constantly discipline ourselves to 0:15:19.600 --> 0:15:24.560 watch what's happening to inflation expectations, what's happening to producer 0:15:25.360 --> 0:15:27.120 instinct to raise prices? 0:15:27.160 --> 0:15:29.440 Are they able to right now? They say they're not. 0:15:29.640 --> 0:15:33.240 They're really not pushing all their input cost increases through 0:15:33.320 --> 0:15:36.800 to prices. Consumer prices So those are the dynamics to 0:15:36.840 --> 0:15:40.240 watch and continue to watch the labor market. But if 0:15:40.280 --> 0:15:42.560 I look at the two we are missing on our 0:15:42.560 --> 0:15:45.680 inflation goal quite a bit, and the labor market is 0:15:45.760 --> 0:15:49.120 relatively stable. So a lot of my attention is on 0:15:49.160 --> 0:15:51.920 that inflation miss and how to get this back down 0:15:51.960 --> 0:15:54.200 to two percent? And when do I have a sufficient 0:15:54.200 --> 0:15:57.440 amount of confidence to say we're on our way right now? 0:15:58.040 --> 0:16:00.240 I think that's the motive view, but I don't think 0:16:00.280 --> 0:16:03.960 it's so modal. There's the probability isn't so large on 0:16:04.000 --> 0:16:05.880 that front, and you can't watch these risks. 0:16:05.920 --> 0:16:08.120 I mind the penalty books now, I feel like I 0:16:08.200 --> 0:16:08.680 might be you. 0:16:08.640 --> 0:16:14.000 Could ask her, so you're not in the penalty box. 0:16:14.040 --> 0:16:16.560 You always try it. I'll always try. Mary is good 0:16:16.560 --> 0:16:19.160 to see. Thank you, the San Francisco to marry Daddy. 0:16:19.200 --> 0:16:21.000 Thank you. 0:16:21.040 --> 0:16:24.520 Stay with us. More Bloomberg surveillance coming up after this. 0:16:33.680 --> 0:16:36.920 Nidia Richardson of ADP listening to that conversation, she joins 0:16:36.960 --> 0:16:39.680 us now in anticipation of Jackson hawaiiming and the annual 0:16:39.720 --> 0:16:42.000 FED get together next week, Nida, welcome to the program. 0:16:42.080 --> 0:16:44.760 How much pressure is on this institution heading into next 0:16:44.800 --> 0:16:45.560 week's get together. 0:16:46.760 --> 0:16:49.160 I think they're under a lot of pressure because it's 0:16:49.200 --> 0:16:52.280 coming from all directions, and some of the pressure is solvable, 0:16:52.280 --> 0:16:55.120 and some of it, frankly isn't. Tensions in the Middle 0:16:55.160 --> 0:16:59.520 East not solvable by the Federal Reserve. But what's going 0:16:59.520 --> 0:17:02.120 on get to the two and a half percent target. 0:17:02.160 --> 0:17:05.000 They're making good progress, and that's good news. But I 0:17:05.000 --> 0:17:08.800 want to draw a sharp distinction between what's good news 0:17:08.840 --> 0:17:11.159 for the markets and what's good news for the worker, 0:17:11.480 --> 0:17:14.760 because that has been growing in the gap. We have 0:17:14.840 --> 0:17:17.679 a new paper out just this week showing that. So 0:17:17.760 --> 0:17:20.600 I think the Fed has a lot of different pressures, 0:17:20.600 --> 0:17:22.400 and not all of them they're going to be able 0:17:22.440 --> 0:17:23.000 to resolve. 0:17:23.640 --> 0:17:26.000 Neila, One thing that the paper that you're talking about 0:17:26.000 --> 0:17:28.520 pointed to is this idea that wages really have not 0:17:28.640 --> 0:17:32.000 kept up for a significant proportion of overall US workers 0:17:32.280 --> 0:17:34.719 with the pace of inflation over the past five years. 0:17:34.760 --> 0:17:38.240 I just wonder whether that can continue without a downturn 0:17:38.240 --> 0:17:41.880 and consumer spending. Can you see an absorption of additional 0:17:41.920 --> 0:17:45.320 price increases if you don't have wages keeping pace. 0:17:46.440 --> 0:17:46.640 Yeah. 0:17:46.720 --> 0:17:50.440 My colleague Lee Wang and professors Eric Hers and Christina 0:17:50.480 --> 0:17:55.119 Patterson looked into sixteen million workers between twenty twenty one 0:17:55.200 --> 0:17:58.760 and twenty twenty four. To answer just that question, you know, 0:17:58.880 --> 0:18:03.560 when wages sore pay did not keep pace. And that's 0:18:03.600 --> 0:18:07.439 because employers, so those very employers that the FED is 0:18:07.560 --> 0:18:13.639 listening to, tend to have structural permanence in their wage increases. 0:18:13.880 --> 0:18:16.359 They all tend to give about the same amount of 0:18:16.400 --> 0:18:19.440 wages to the same amount of people. It's usually about 0:18:19.440 --> 0:18:22.760 three percent. It's usually whole numbers. And when inflation is 0:18:23.040 --> 0:18:27.480 sourced to seven percent, workers lose ground. And when those 0:18:27.480 --> 0:18:32.720 inflation shocks are unexpected, that loss approaching seeing power can 0:18:32.840 --> 0:18:37.439 persist for years. Fast forward to just last week, we 0:18:37.480 --> 0:18:41.720 saw consumer sentiment fall by twelve point four percent, and 0:18:42.040 --> 0:18:46.439 where was it The largest older workers who are least 0:18:46.600 --> 0:18:49.560 able to keep up with inflation increases for a variety 0:18:49.560 --> 0:18:51.959 of reasons. And so when you circle back to the 0:18:52.000 --> 0:18:55.879 FED and what really the inflation backdrop means for the 0:18:55.920 --> 0:18:59.879 consumer and the household, you have consumers whose wages are 0:19:00.200 --> 0:19:04.359 just not keeping up from past inflation, let alone current 0:19:04.440 --> 0:19:06.360 bouts of inflation that we're seeing right now. 0:19:06.560 --> 0:19:08.520 You know what happens when you include people who change 0:19:08.560 --> 0:19:10.000 jobs and maybe got a pay increase. 0:19:11.359 --> 0:19:13.080 That's the power of the worker. 0:19:13.119 --> 0:19:16.600 That's the only way really that workers can really use 0:19:16.760 --> 0:19:20.520 their leverage in the workplace to outrun inflation. We saw them, 0:19:20.560 --> 0:19:23.119 we called it the Great Resignation, and we saw that 0:19:23.160 --> 0:19:26.160 workers were switching jobs. But guess what, these were low 0:19:26.200 --> 0:19:29.040 wage workers mostly that were able to take advantage of it. 0:19:29.680 --> 0:19:33.480 They were The advantage didn't last long because once you 0:19:33.520 --> 0:19:36.200 switch a job, you're still stuck in that permanent, sticky 0:19:36.240 --> 0:19:40.080