WEBVTT - Surveillance: Inflation Concerns with Deese 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple podcast, sun Cloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.880 and of course on the Bloomberg terminal. Let's get right 0:00:29.920 --> 0:00:33.440 to it. Uh this morning here with an important conversation 0:00:33.720 --> 0:00:36.200 with the White House. And what's so important here, John 0:00:36.200 --> 0:00:39.080 and Lisa is we all know they're people that finessed 0:00:39.120 --> 0:00:42.800 their way into sixteen under Pennsylvania Avenue, and there's others 0:00:42.800 --> 0:00:46.200 that lean over the desk and just grind out work. 0:00:46.320 --> 0:00:49.360 That's been the path of Brian Deese, director of National 0:00:49.400 --> 0:00:53.559 Economic Council and most importantly of Middlebury and Yale. And 0:00:53.600 --> 0:00:56.760 then he went to work John and actually went from 0:00:56.840 --> 0:01:00.040 task to task to task as he went up a 0:01:00.120 --> 0:01:02.680 Democratic Party food chain. It's very place to say that. 0:01:02.720 --> 0:01:06.120 Brant Days of the National Economic Council joins us right now. Brian, 0:01:06.160 --> 0:01:07.920 you've seen the polls. You know where the focus is. 0:01:07.959 --> 0:01:11.280 The CPS poll in the last week say the administration 0:01:11.360 --> 0:01:14.680 is not focused enough on inflation. Brian so let's start there. 0:01:14.920 --> 0:01:16.840 The degree to which you think you can do anything 0:01:16.880 --> 0:01:22.120 about it, well, I think we've got a pretty straightforward 0:01:22.120 --> 0:01:24.240 and clear I plan to do so. It starts with 0:01:24.280 --> 0:01:28.160 the context, as you were just noting historic economic growth 0:01:28.360 --> 0:01:32.000 strongest in forty years, historic job growth more than six 0:01:32.040 --> 0:01:34.800 million jobs last year, and the unemployment rate the biggest 0:01:34.840 --> 0:01:37.720 dropping unemployment on record in this country, down to three 0:01:37.720 --> 0:01:40.720 point So we have a lot of strength in the 0:01:40.760 --> 0:01:45.280 economic recovery and the uniquely strong economic recovery that positions 0:01:45.400 --> 0:01:47.320 us to go at the issue of price increases. And 0:01:47.360 --> 0:01:49.560 you heard the Present yesterday with a pretty straightforward plan. 0:01:49.720 --> 0:01:52.480 Number one, the FED needs to operate with the independence 0:01:52.560 --> 0:01:56.320 that it has. He's nominated five very quality individuals to 0:01:56.720 --> 0:01:59.160 the FED. They need to be confirmed without delay. And 0:01:59.200 --> 0:02:02.720 from his pers active his approaches about expanding the productive 0:02:02.760 --> 0:02:05.520 capacity the economy, making it easier for us to make 0:02:05.560 --> 0:02:09.680 more goods, provide more services. That's about unsticking supply chains. 0:02:10.000 --> 0:02:15.320 It's about make a boosting competition, making our economy more competitive, 0:02:15.560 --> 0:02:18.320 and it's about lowering kitchen table costs, going right at 0:02:18.360 --> 0:02:21.560 those costs that most directly impact families. So he's got 0:02:21.560 --> 0:02:24.080 a straightforward plan here, it's the right plan for the 0:02:24.120 --> 0:02:26.400 country and we're gonna stick at it. Brian just standing 0:02:26.440 --> 0:02:28.920 with the Federal Reserve. So let's go there briefly. Muhammad 0:02:28.919 --> 0:02:31.720 al Arian of bloom Bug Opinion and of course the 0:02:31.720 --> 0:02:34.160 president of Queen's College, Cambridge said in the last few 0:02:34.200 --> 0:02:36.440 weeks on our network, this was one of the worst 0:02:36.520 --> 0:02:40.160 FED calls in the history of the Federal Reserve. Yet 0:02:40.200 --> 0:02:42.079 Chairman pal got a second term. And you were part 0:02:42.080 --> 0:02:44.560 of that interview process. What did you hear in that 0:02:44.639 --> 0:02:47.720 interview process that convinced you that this is the right 0:02:47.800 --> 0:02:52.880 person to lead this FED through this current environment. President 0:02:52.960 --> 0:02:55.880 was pretty clear about his criteria for nominees to the 0:02:55.880 --> 0:03:01.560 Federals or Board of Governors expertise, judgment and independence, and 0:03:01.639 --> 0:03:05.880 he saw in Chairman Powell, but also Layo Brainerd incredible 0:03:06.320 --> 0:03:10.239 expertise and judgment as well as experience, and he thinks 0:03:10.320 --> 0:03:12.520 these are the right people to lead are the Fed's 0:03:12.560 --> 0:03:16.040 effort and has now added on with three additional nominees. 0:03:16.320 --> 0:03:18.880 If you look at this group of five, you see 0:03:19.120 --> 0:03:23.800 ideological diversity, You see differences in academic style and temperament, 0:03:24.040 --> 0:03:27.760 but overall you see extraordinary breadth of experience, across the board. 0:03:28.120 --> 0:03:30.600 This is a very solid group of five people to 0:03:30.680 --> 0:03:33.800 get get to work on this effort. So we're confident 0:03:34.000 --> 0:03:36.360 that these are the right individuals, and importantly, what you 0:03:36.400 --> 0:03:39.320 heard from the President yesterday, we're confident in putting our 0:03:39.320 --> 0:03:42.600 faith in the institution. Unlike our predecessor, the President is 0:03:42.600 --> 0:03:46.160 trying to reinforce that having the independence of the Federal 0:03:46.240 --> 0:03:50.840 Reserve to make difficult decisions in this environment is incredibly important. 0:03:50.840 --> 0:03:53.119 It's important for the economy, it's important for our democracy. 0:03:53.120 --> 0:03:54.960 You got to make some difficult decisions now to break 0:03:55.040 --> 0:03:56.880 up build my bat to the President implied that that 0:03:56.960 --> 0:03:59.360 was the direction of travel. Now, the things that you 0:03:59.360 --> 0:04:01.040 can do after we fold into the trap of just 0:04:01.080 --> 0:04:03.600 talking about numbers, let's talk about substance. What are the 0:04:03.640 --> 0:04:06.400 pieces of that that you think you can pass and 0:04:06.480 --> 0:04:09.720 can alleviate some of the price pressure in the medium term. 0:04:11.040 --> 0:04:13.840 We'll start with the biggest costs that a typical family 0:04:13.880 --> 0:04:19.640 faces on a monthly basis, healthcare, prescription drugs, childcare. Those 0:04:19.680 --> 0:04:22.360 are the biggest costs, and this bill has elements that 0:04:22.400 --> 0:04:24.760 would go directly at it and provide relief in very 0:04:24.800 --> 0:04:29.240 practical ways, meaning no American family middle class family pays 0:04:29.240 --> 0:04:31.640 more than seven percent of their income and childcare that 0:04:31.720 --> 0:04:34.839 prides economic security. It also will help get more people 0:04:34.880 --> 0:04:38.320 back to work because parents, particularly women, will have more 0:04:38.360 --> 0:04:43.599 support healthcare. We have seen five million more Americans this 0:04:43.680 --> 0:04:47.159 year get healthcare because we made it cheaper and easier 0:04:47.200 --> 0:04:50.560 for them to get access. Continuing that support, extending that 0:04:50.640 --> 0:04:54.919 support common sense lowers costs for families. Same with prescription 0:04:55.000 --> 0:04:57.120 drugs as well. Those are the kinds of things that 0:04:57.160 --> 0:05:00.160 I think speak to the economic challenges that family as 0:05:00.160 --> 0:05:03.200 they're facing, and are also practical and have broad support, 0:05:03.200 --> 0:05:06.719 broad support among economists but also the American people. But Brian, 0:05:06.800 --> 0:05:10.280 last night, President Biden conceded that some of those exact 0:05:10.360 --> 0:05:12.480 programs are going to be very hard to pass, in 0:05:12.520 --> 0:05:16.080 particular the child tax credit. So given the fact that 0:05:16.120 --> 0:05:19.159 renewable energy is basically one of the most important areas, 0:05:19.200 --> 0:05:22.760 that seems like there is bipartisan support for what are 0:05:22.880 --> 0:05:25.280 some of the provisions that are passible right now that 0:05:25.400 --> 0:05:29.680 could lower prices? Well, I just be very clear, the 0:05:29.960 --> 0:05:32.560 clean energy provisions in this bill will not only make 0:05:32.600 --> 0:05:35.760 it easier and cheaper to deploy cheen clean energy and 0:05:35.800 --> 0:05:39.080 address the climate crisis, it will reduce energy costs. The 0:05:39.200 --> 0:05:42.760 child care provisions in this package will not only reduce 0:05:42.839 --> 0:05:46.000 child care costs for families, but help people get to work. 0:05:46.080 --> 0:05:50.160 The healthcare provisions will make improve health for our families 0:05:50.160 --> 0:05:53.279 but also lower costs. Those are all things that I 0:05:53.279 --> 0:05:56.680 think are practical, would address costs and are doable in 0:05:56.680 --> 0:06:00.320 this content. Brian earlier in the inflation are out look, 0:06:00.440 --> 0:06:04.359 we saw a lot of outsized gains for the lowest 0:06:04.400 --> 0:06:06.479 income earners that they actually were seeing some of the 0:06:06.480 --> 0:06:09.440 biggest wage gains. We've seen that shift recently, and the 0:06:09.520 --> 0:06:13.440 latest bank earning show a increase for bank or pay 0:06:13.480 --> 0:06:16.480 over the past year. The expectation is it will continue 0:06:16.480 --> 0:06:19.200 to increase from here. At what point do you start 0:06:19.240 --> 0:06:23.480 to get concerned about a wage price spiral. One of 0:06:23.520 --> 0:06:27.719 the things that's remarkable about is the fact that the 0:06:27.760 --> 0:06:31.159 wage increases were skewed to the bottom end of the distribution, 0:06:31.200 --> 0:06:34.520 so the bottom of earners, and in fact earners in 0:06:35.240 --> 0:06:39.040 we in sectors like leisure and hospitality saw historic record 0:06:39.120 --> 0:06:43.400 wage gains. That's the kind of progress that we want 0:06:43.440 --> 0:06:46.039 to see. And also not only because those are people 0:06:46.120 --> 0:06:49.320 that need wage increases the most, but also it is 0:06:49.320 --> 0:06:52.960 that it creates the least concern about wages and prices 0:06:53.480 --> 0:06:57.080 interacting with each other. I think that what you heard 0:06:57.080 --> 0:07:01.440 from Joe Biden yesterday is people seeing their wages go up. 0:07:01.720 --> 0:07:04.520 That's a good thing. That's part of an economy that 0:07:04.640 --> 0:07:06.800 is progressing and growing in a different way than it 0:07:06.839 --> 0:07:09.359 has in the past. And so what we want to 0:07:09.400 --> 0:07:12.520 do is we want to keep that economic momentum going 0:07:12.880 --> 0:07:17.160 while taking steps to have prices normalized. That's what most 0:07:17.160 --> 0:07:21.320 projections suggest will happen. But we need to stay on target. 0:07:21.360 --> 0:07:24.000 And that's why the President is being very clear about 0:07:24.000 --> 0:07:27.040 the plan that he's got moving forward, and also clear 0:07:27.080 --> 0:07:31.880 about where he needs Congress to confirm uh qualified nominees 0:07:31.920 --> 0:07:34.760 for the Federals or to work on practical elements of 0:07:34.800 --> 0:07:37.120 build back better that would speak to the cost of families. 0:07:37.120 --> 0:07:39.240 And this is where the hope is right now, and 0:07:39.280 --> 0:07:42.160 I think we all agree. We all hope you'll be successful. 0:07:42.240 --> 0:07:44.000 We will want the best for this country. At the moment, 0:07:44.040 --> 0:07:46.600 though people don't feel this. You say way it's growth. 0:07:46.600 --> 0:07:49.200 People say seven percent inflation. You say things are getting better. 0:07:49.240 --> 0:07:51.160 They say things are getting more expensive at the pump. 0:07:51.600 --> 0:07:54.000 The President yesterday said you could see what we did 0:07:54.320 --> 0:07:56.160 when we came out and worked with other countries to 0:07:56.200 --> 0:07:59.080 do something about crude supplies. We saw what happened. Crude 0:07:59.120 --> 0:08:01.400 came down and straight back cup. Right now it's eight 0:08:01.600 --> 0:08:03.720 six just sath of eighty seven dollars of Battle Brian. 0:08:03.800 --> 0:08:06.720 Within the address yesterday, the President said we can do 0:08:06.840 --> 0:08:12.520 more to increase oil supplies brand specifically, specifically, what can 0:08:12.560 --> 0:08:17.920 he do to increase crude supplies? Well, we can. We 0:08:17.920 --> 0:08:21.400 can work to accelerate the release of strategic reserves that 0:08:21.520 --> 0:08:24.120 is currently underway in the United States, and we can 0:08:24.200 --> 0:08:29.240 working with other oil consuming nations accelerate supplies onto the market. 0:08:29.560 --> 0:08:32.560 We can work with oil producing countries around the world 0:08:32.720 --> 0:08:36.600 so that the OPEC plus countries are actually meeting the 0:08:36.640 --> 0:08:38.920 targets that they have set for themselves. Some of the 0:08:38.960 --> 0:08:41.599 tightness and oil markets right now is a function of 0:08:41.640 --> 0:08:44.600 the fact that those target those supply targets have not 0:08:44.679 --> 0:08:48.080 been hit because there's been events in certain countries. We 0:08:48.080 --> 0:08:51.000 can work and engage with those countries and look to 0:08:51.080 --> 0:08:54.680 your broader point these This is work not yet finished, 0:08:54.960 --> 0:08:58.439 and the American people are frustrated, understandably, so this has 0:08:58.480 --> 0:09:01.359 been a tough couple of years. COVID and the uncertainty 0:09:01.400 --> 0:09:04.320 that it creates, and prices create uncertainty. But that's why 0:09:04.360 --> 0:09:07.760 it's important that we have a clear plan and action 0:09:08.120 --> 0:09:11.200 that we can communicate in practical ways too. That will 0:09:11.240 --> 0:09:13.839 impact people's lives. And there's a big publement. What you 0:09:13.960 --> 0:09:16.760 just said, let me to jump in. It's the plus 0:09:16.760 --> 0:09:20.160 in OPEC plus if you don't one hundred opaque right 0:09:20.200 --> 0:09:23.400 now you're dialing Russia. This is where I need some 0:09:23.440 --> 0:09:26.679 input from you. The foreign policy goes of the administration 0:09:26.720 --> 0:09:31.600 now at odds with your economic objectives. Well, we are 0:09:31.720 --> 0:09:36.920 meeting the UH the Russian government and making clear to 0:09:37.520 --> 0:09:42.199 President Putin the stakes and the costs associated with his action. 0:09:42.920 --> 0:09:46.080 That is about that is about making clear to him 0:09:46.640 --> 0:09:48.640 the stakes for him to make the decision. Those are 0:09:48.640 --> 0:09:52.040 decisions that ultimately he has to make. That's not on 0:09:52.120 --> 0:09:54.240 the United States. But we have been very clear that 0:09:54.280 --> 0:09:57.640 we will be prepared for any contingency, not only in 0:09:57.760 --> 0:10:02.000 terms of imposing signalifigate economic costs on the Russians, but 0:10:02.080 --> 0:10:05.960 also working with our partners to mitigate the impact, including 0:10:06.040 --> 0:10:10.480 in energy markets. That's not easy. It requires steady, consistent 0:10:10.520 --> 0:10:15.240 diplomacy with our allies, with other oil producing countries, and 0:10:15.320 --> 0:10:18.080 it is work yet to be completed. But that's the 0:10:18.080 --> 0:10:21.320 focus of this administration in trying to make sure that 0:10:21.520 --> 0:10:25.840 whatever international and geopolitical events we have to manage through, 0:10:26.080 --> 0:10:28.760 we are keeping front and center what we can do 0:10:28.840 --> 0:10:32.280 to help protect and support American consumers and middle class 0:10:32.280 --> 0:10:34.320 families here. And that sounds great, So let's go there. 0:10:34.400 --> 0:10:37.480 Let's get some real detail on this. The President said 0:10:37.960 --> 0:10:40.280 that maybe we can look into alleviating some of the 0:10:40.280 --> 0:10:44.800 precious some of the dependence of Europeans on Russian energy, Brian, 0:10:44.840 --> 0:10:48.160 when you try and work to get crude output up higher. 0:10:48.400 --> 0:10:51.360 As you know, a conflict right now is what's happening 0:10:51.360 --> 0:10:53.959 with Russia. Europe's in the middle of that, Germany's in 0:10:53.960 --> 0:10:55.920 the middle of that. United States to some degrees in 0:10:55.920 --> 0:10:57.960 the middle of that right now, to Brian, so what 0:10:58.040 --> 0:10:59.720 on earth can you do? Can you just run me 0:10:59.760 --> 0:11:02.439 through the very specific part of the policy effort that 0:11:02.480 --> 0:11:04.760 you could do to alleviate some of the dependence of 0:11:04.800 --> 0:11:11.000 the Europeans on Russian gas. Well, in the very immediate term, 0:11:11.040 --> 0:11:13.840 the focus is on how we can make sure that 0:11:14.240 --> 0:11:17.760 European countries have sufficient access to natural gas to get 0:11:17.800 --> 0:11:21.720 through the winter months, but also to alleviate pressures in 0:11:21.760 --> 0:11:25.319 the spring. And very specifically, what that means is working 0:11:25.600 --> 0:11:29.480 with our allies and partners, particularly gas producing countries, to 0:11:29.600 --> 0:11:34.199 understand what additional capacity exists and how we could move 0:11:34.320 --> 0:11:37.840 and extend their capacity into the region. That is country 0:11:37.880 --> 0:11:41.400 by country. It's very specific and technical, but we're working 0:11:41.440 --> 0:11:45.280 those plans that we have them in place for any contingents. 0:11:45.400 --> 0:11:47.800 Do we have capacity here at home in the U s. 0:11:47.840 --> 0:11:50.319 Bryan to do more these of course a private companies, 0:11:50.360 --> 0:11:52.560 it's not like the Saudis who can just dial it 0:11:52.600 --> 0:11:55.440 in and increase output. Do we have capacity here and 0:11:55.440 --> 0:11:59.280 what could the administration do to advise them, to encourage them, 0:11:59.320 --> 0:12:03.839 incentivize them to increase that capacity. Well, with respect to 0:12:03.920 --> 0:12:08.280 natural gas, our export capacity is we are at at 0:12:08.320 --> 0:12:12.280 close to maximum export capacity. So what we can principally 0:12:12.320 --> 0:12:16.280 do is work with allies and try to identify and 0:12:16.400 --> 0:12:20.800 arrange ways to move more product in other ways. But 0:12:21.320 --> 0:12:24.880 bigger picture, oil trades as a global commodity on a 0:12:24.920 --> 0:12:28.360 global market, and it is a function of supply and demand, 0:12:28.920 --> 0:12:33.320 and ultimately the most powerful issue right now is working 0:12:33.360 --> 0:12:37.080 to get the stated supply commitments to actually be delivered 0:12:37.120 --> 0:12:39.719 on and that's going to be the most impactful, as 0:12:39.720 --> 0:12:43.200 well as working with allies to put reserves on the table. 0:12:43.600 --> 0:12:45.360 Those are the steps that we're focused on. Bran, I 0:12:45.360 --> 0:12:47.160 know you've got to run. I just wanted to squeeze 0:12:47.200 --> 0:12:49.720 one important question in the president for a lot of 0:12:49.720 --> 0:12:52.640 people yesterday in that news conference really took one for 0:12:52.679 --> 0:12:54.719 the team. He stuck up for all of you when 0:12:54.720 --> 0:12:58.800 people question the leadership around him, specifically on the economy, 0:12:59.120 --> 0:13:03.080 he talked about he underestimated, overestimated. He talked about what 0:13:03.120 --> 0:13:04.960 he needs to do better personally. Brian, I said on 0:13:05.000 --> 0:13:07.680 air last week that we haven't heard enough from you, 0:13:07.720 --> 0:13:09.040 and I want to hear more from you, and it's 0:13:09.080 --> 0:13:11.640 great we're hearing from you today. What do you personally 0:13:11.679 --> 0:13:16.200 need to do more of well? I think that the 0:13:16.240 --> 0:13:18.880 President was very clear eyed, as he always is, about 0:13:18.920 --> 0:13:21.720 both the progress we've made and the challenges that we've faced. 0:13:22.120 --> 0:13:24.520 I think that one of the perennial challenges in these 0:13:24.640 --> 0:13:29.040 jobs is making sure that we are hearing from all corners, 0:13:29.440 --> 0:13:32.320 getting outside of Washington in terms of the perspective and 0:13:32.360 --> 0:13:35.240 the input, and trying to hear from everyone we can 0:13:35.320 --> 0:13:38.040 in terms including constructive criticism. That's gonna be a goal 0:13:38.080 --> 0:13:39.760 for all of us in this White House, starting with 0:13:39.800 --> 0:13:44.199 the President for two and I think that that that helps. 0:13:44.280 --> 0:13:47.640 It's a you know, working here in this environment is 0:13:48.280 --> 0:13:51.440 seven it's NonStop. That can be difficult to do, but 0:13:51.920 --> 0:13:54.160 we are resolved to make sure that we are hearing 0:13:54.160 --> 0:13:57.160 from everybody. We're listening to everyone and also getting out 0:13:57.240 --> 0:14:00.560 outside of Washington and trying to explain the ways in 0:14:00.600 --> 0:14:03.960 which the steps we are taking are actually impacting people 0:14:03.960 --> 0:14:06.360 and meeting them where they are. Yeah, that's gonna be 0:14:06.440 --> 0:14:08.240 That's gonna be work that we'll try to do more of, 0:14:08.800 --> 0:14:11.480 even as we continue to manage the day to day 0:14:11.480 --> 0:14:13.640 and all the issues we've just discussed. Brian, can I 0:14:13.679 --> 0:14:15.200 say thank you on behalf of the team. Is great 0:14:15.240 --> 0:14:16.440 to catch up and we all hope that we can 0:14:16.480 --> 0:14:18.920 have more exchanges like this one in the nefew Chip 0:14:18.960 --> 0:14:22.960 Bryant taste that the director of the nextional economic cancel 0:14:29.120 --> 0:14:31.480 right now and this is really well time. Peter Cheer 0:14:31.560 --> 0:14:34.960 joins us, head of macro Strategy and Academy UH Securities 0:14:35.000 --> 0:14:37.360 and what's important here is the acuity of his note 0:14:37.400 --> 0:14:41.040 and what's great about Peter Cheer Folks is the immediacy 0:14:41.080 --> 0:14:46.560 of his note. He writes about the zeitgeist. Peter, I love, love, 0:14:46.680 --> 0:14:51.040 love how you're talking about the bet of inflation stasis 0:14:51.120 --> 0:14:55.160 or inflation even rolling over, and how the federal shift 0:14:55.280 --> 0:15:00.280 its rhetoric. How close as Chairman Powell to shock king 0:15:00.320 --> 0:15:03.720 the markets with a dovish tone. I think we're probably 0:15:03.720 --> 0:15:05.000 a few weeks away from that. I think we need 0:15:05.040 --> 0:15:07.240 to see a little bit more bad data or a 0:15:07.240 --> 0:15:10.160 week data. We're starting to see inventory builds. I think 0:15:10.200 --> 0:15:13.360 some of the supply chain issues are going away. We're 0:15:13.360 --> 0:15:16.120 seeing slower retail sales. I think we're gonna get this 0:15:16.320 --> 0:15:19.360 realization that the economy isn't quite as good as we thought. 0:15:19.560 --> 0:15:21.920 And unfortunately, I think the first part of that, if that, 0:15:22.120 --> 0:15:24.120 is going to continue to talk hockey. And that's why 0:15:24.160 --> 0:15:26.040 I see a little bit more downside to this market. 0:15:26.240 --> 0:15:28.960 Let's not do the econo babble, Peter cheer. Let's stay 0:15:28.960 --> 0:15:31.720 within the fixed income market and maybe look at the 0:15:31.800 --> 0:15:37.200 fan distribution of yield. What will yield do if Powell 0:15:37.320 --> 0:15:41.280 yields to a slowing economy and moves from the forest 0:15:41.400 --> 0:15:44.080 parlor game to three rate hikes or even dare I say, 0:15:44.120 --> 0:15:47.560 two rate hikes, how does your world change. I actually 0:15:47.600 --> 0:15:49.440 think we're gonna see lower yields, So I'm actually very 0:15:49.480 --> 0:15:52.600 bullish right now on treasuries seems slightly awkward, and I 0:15:52.600 --> 0:15:54.280 think what we're going to see as a big risk 0:15:54.360 --> 0:15:56.360 off movie. Saw a little bit of it yesterday, Right, 0:15:56.400 --> 0:15:57.600 that was one of the first times in a while 0:15:57.640 --> 0:16:01.960 we've seen yields go lower and stocks down. So give 0:16:02.040 --> 0:16:04.080 us a sense of what the trajectory has to be 0:16:04.120 --> 0:16:06.320 in the data to lead to this sort of devish 0:16:06.400 --> 0:16:08.520 surprise and the idea that perhaps if that is just 0:16:08.600 --> 0:16:12.120 job owning, I think it's gonna be a little bit gradual. Right, 0:16:12.160 --> 0:16:15.200 We're gonna see little signs at the supply chains opening up. 0:16:15.200 --> 0:16:18.200 We're gonna see signs that inventories, buildings, signs that retails 0:16:18.920 --> 0:16:21.600 spending is slowing. So it's going to take a few weeks, 0:16:21.600 --> 0:16:23.160 maybe a month. And part of the issue is going 0:16:23.240 --> 0:16:25.560 to be the politicians keep putting this pressure on. We 0:16:25.600 --> 0:16:28.440 need the politicians to take a step back, look at jobs, 0:16:28.440 --> 0:16:30.320 look at those things. I think we're gonna run to 0:16:30.360 --> 0:16:31.800 a much bigger problem at the end of the year 0:16:31.840 --> 0:16:34.240 where we're headed, and it's not gonna be inflation. That's 0:16:34.240 --> 0:16:36.440 going to be about jobs. And if the administration thinks 0:16:36.480 --> 0:16:38.720 people care about inflation, wait till they see how much 0:16:38.720 --> 0:16:40.400 they care if we don't have jobs because they cut 0:16:40.400 --> 0:16:42.640 growth too quick. Okay, So you think that we're actually 0:16:42.680 --> 0:16:46.360 closer to a looser labor market than a tighter one 0:16:46.400 --> 0:16:49.360 that we're seeing in the wage increases. Is that correct? Yes, 0:16:49.440 --> 0:16:52.080 I think we're gonna start seeing some pressure from all 0:16:52.080 --> 0:16:54.400 this hiking that we're gonna see the economy slow down 0:16:54.440 --> 0:16:57.120 a little bit and the job growth slow down. Okay, 0:16:57.120 --> 0:16:59.200 so going forward, I'm curious if you're going into big 0:16:59.240 --> 0:17:03.120 tech right now. No, I'm still shedding that one thing. 0:17:03.360 --> 0:17:05.000 So I've been very nervous about big tech. I think 0:17:05.000 --> 0:17:07.000 when we start our year outlooks we are very nervous 0:17:07.040 --> 0:17:10.320 about big tech. That's worked out very well. I'm starting 0:17:10.359 --> 0:17:12.160 to get a little bit nervous that we're seeing this creep. 0:17:12.200 --> 0:17:14.840 It went from the archetype stocks to the Nazac one 0:17:14.920 --> 0:17:17.320 hundred to the Nazac composite, and I think if we 0:17:17.359 --> 0:17:19.240 get another lake lower, it's actually gonna be led by 0:17:19.240 --> 0:17:21.600 the SEP five d is. People start selling the socks 0:17:21.600 --> 0:17:23.720 that haven't gone down as much so That's where I 0:17:23.720 --> 0:17:26.359 think the next lake comes down, is this further shift 0:17:26.400 --> 0:17:28.320 to the SEP. I'm not quite ready to buy yet, 0:17:28.520 --> 0:17:30.480 but I am starting to look at that and I 0:17:30.520 --> 0:17:33.840 probably will start buying with some of the most needed upsectors. First, 0:17:34.000 --> 0:17:35.840 good to catch up set as always paid a chief 0:17:35.840 --> 0:17:43.680 of Academy Securities. We are thrilled now to bringing Nila Richardson. 0:17:43.840 --> 0:17:47.199 She is a different chief economist. She is at the 0:17:47.359 --> 0:17:50.800 automatic data processing Company a d P. Yes, they do 0:17:50.880 --> 0:17:54.240 unemployment report of some note, but far more they have 0:17:54.720 --> 0:17:59.240 massive granularity on the American labor economy. Nila, You've got 0:17:59.240 --> 0:18:03.639 a quote on jobs of fifty employees or under and 0:18:03.680 --> 0:18:06.560 it's exploded out from a hundred thirty two thousand out 0:18:06.560 --> 0:18:10.320 to two hundred something thousand. Is well, I want you 0:18:10.400 --> 0:18:15.520 to discuss what your shop knows about the competition of Amazon, 0:18:15.680 --> 0:18:21.320 Target and those warehouses with small business America. Well, first 0:18:21.320 --> 0:18:24.160 of all, small businesses are holding their own UH. They 0:18:24.200 --> 0:18:28.159 were the first to recover from the pandemic UH and 0:18:28.320 --> 0:18:31.360 to start adding headcount even though they were the hardest 0:18:31.440 --> 0:18:37.000 hit by those widespread closures in early But they've had 0:18:37.080 --> 0:18:40.560 some challenges in competition with these larger firms, they're not 0:18:40.640 --> 0:18:43.639 able to recruit in the same way. They can't pay 0:18:43.760 --> 0:18:47.040 and retain in their compensation packages in the same way 0:18:47.080 --> 0:18:49.879 as the bigger companies. So we've seen them continue to 0:18:49.920 --> 0:18:53.320 power head but the competition has gotten stronger and more 0:18:53.359 --> 0:18:56.879 active at the same time, and when you talk about granularity, 0:18:56.960 --> 0:18:59.240 it's really showing up in the wage games. And we 0:18:59.240 --> 0:19:02.320 can talk about at but we're seeing some wage pressures 0:19:02.320 --> 0:19:04.640 at the end of the year. Uh, they're stronger than 0:19:04.680 --> 0:19:08.480 they were in earlier parts of NEILA. Let's build on that, 0:19:08.640 --> 0:19:11.719 especially in light of the software than expected jobless claims. 0:19:11.800 --> 0:19:14.600 Some people might say, as John was indicating earlier, this 0:19:14.680 --> 0:19:17.560 is an indication of a softening and perhaps a less 0:19:17.600 --> 0:19:20.720 tight labor market than many people have thought based on 0:19:20.800 --> 0:19:23.600 the granularity that you've just been talking about. Is that 0:19:23.640 --> 0:19:27.680 consistent with your observations? Now? You know, when we ask 0:19:27.760 --> 0:19:30.479 our our clients at a DP, what is the biggest 0:19:30.560 --> 0:19:34.280 challenge that you're facing, and especially for small firms, it's 0:19:34.400 --> 0:19:39.280 finding people. It's the number one challenge from businesses from 0:19:39.320 --> 0:19:42.520 one employee to five hundred, it's the number one challenge 0:19:42.520 --> 0:19:47.280 and that has been consistent through It is consistent as 0:19:47.280 --> 0:19:49.600 we turn the page on a new year, but we 0:19:49.680 --> 0:19:53.400 are seeing that show up in wage pressures. We're seeing 0:19:53.520 --> 0:19:57.479 that uh industries that had a talent shortage before the 0:19:57.520 --> 0:20:00.359 pandemic or where we're seeing the job gains. It's not 0:20:00.400 --> 0:20:03.920 the industries that have been hardest hit, like leisure and hospitality. 0:20:04.280 --> 0:20:08.600 It's professional business services, finance, information tech. That's where you're 0:20:08.680 --> 0:20:11.920 seeing some double digit wage gains from a year ago 0:20:12.280 --> 0:20:15.960 as of December. And what's also notable, we're we're also 0:20:16.000 --> 0:20:19.719 seeing wage pressure is not for older workers, but for 0:20:19.880 --> 0:20:23.000 younger Gen V We're seeing them those who have kept 0:20:23.040 --> 0:20:25.600 their jobs for a year or more are seeing the 0:20:25.640 --> 0:20:29.040 strongest gains of anybody. So this is a lop sided 0:20:29.160 --> 0:20:33.359 market with some industries outperforming and some sectors out performing. 0:20:33.359 --> 0:20:35.880 And that's all creating a lot of noise in terms 0:20:35.880 --> 0:20:38.480 of wages. And we've seen the shift also where initially 0:20:38.560 --> 0:20:40.720 it was the lowest income earners who are seeing the 0:20:40.720 --> 0:20:43.080 biggest wage pop and now we're seeing it shift to 0:20:43.119 --> 0:20:46.399 a broader number of sectors. Can you gauge out, can 0:20:46.440 --> 0:20:49.000 you game out based on your experience how sticky some 0:20:49.119 --> 0:20:50.760 of these gains are? I mean, is is a one 0:20:50.800 --> 0:20:53.120 time kind of payment or are we going to see 0:20:53.440 --> 0:20:58.960 commensurate types of increases next year the year after, You're 0:20:59.040 --> 0:21:02.119 not going to see ages be the push to inflation 0:21:02.160 --> 0:21:05.320 if it continues. Uh. If you look at some of 0:21:05.359 --> 0:21:08.400 these firms, especially those in the service sector, the margins 0:21:08.400 --> 0:21:10.560 are thin. And I know you all talk about corporate 0:21:10.560 --> 0:21:13.399 profits and margins all the time. There is only so 0:21:13.560 --> 0:21:16.400 much wiggle room on wages. So yes, you might see 0:21:16.440 --> 0:21:20.040 an increase or a pop to get workers in into 0:21:20.080 --> 0:21:23.320 the door for these service sector firms, especially in leisure, 0:21:23.320 --> 0:21:27.520 in hospitality and restaurants and bars. But the continuation of 0:21:27.640 --> 0:21:30.760 year over year wage bins at the case that we're 0:21:30.800 --> 0:21:34.200 seeing them is not likely and not likely to drive inflation. 0:21:34.640 --> 0:21:37.280 We've got a dispersion here, we always have that. That's 0:21:37.320 --> 0:21:41.919 not news. Nebraska under two percent unemployment rate, Ohio four statistic, 0:21:42.280 --> 0:21:45.440 even Texas four or five is statistic as well. When 0:21:45.520 --> 0:21:50.440 you calibrate a fully employed America, what's the unemployment rate 0:21:50.520 --> 0:21:54.119 you have in your head? Obviously below four percent, but 0:21:54.320 --> 0:21:57.720