WEBVTT - Surveillance: Jobs Figures with Hollenhorst 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.319 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.560 the Bloomberg Terminal, and the Bloomberg Business app. Right now, 0:00:30.600 --> 0:00:33.520 he was an outlier, He's not anymore. Andrew hollen Horst 0:00:33.560 --> 0:00:37.080 has led it's City Group. He's our chief US economist 0:00:37.159 --> 0:00:39.559 on one two right AX, all of a sudden with 0:00:39.600 --> 0:00:43.839 a number today, Andrew, I'm intersted in September twentieth, and 0:00:44.120 --> 0:00:49.600 I just I'm absolutely my head is spinning over restrictive? 0:00:50.040 --> 0:00:55.400 Are we close to restrictive in our complex mathematics of 0:00:55.440 --> 0:00:56.200 this economy? 0:00:56.480 --> 0:00:57.800 I mean, I don't know that you need to go 0:00:57.840 --> 0:01:00.960 into the complex mathematics. We can, and that's important, But 0:01:01.040 --> 0:01:02.920 if you just step back and you look at this 0:01:03.040 --> 0:01:07.240 labor market data in particular, we've surprised month after month 0:01:07.280 --> 0:01:10.279 to the upside. We continue to see these jobs numbers 0:01:10.280 --> 0:01:11.840 coming in stronger, and I think Mike g have all 0:01:11.840 --> 0:01:14.920 the right caveats around ADP employment. There's a lot of 0:01:14.920 --> 0:01:17.920 reasons that that can differ from the official payrolls reading, 0:01:17.920 --> 0:01:20.440 and we have some big seasonal adjustment issues. All of 0:01:20.440 --> 0:01:22.640 that I think is right, but just take a step 0:01:22.640 --> 0:01:25.880 back look at these jobs numbers. Hundreds of thousands of 0:01:25.920 --> 0:01:29.800 additional jobs relative to expectations that have been created. That's 0:01:29.840 --> 0:01:33.320 a signal that maybe we're not at appropriately restrictive rates. 0:01:33.480 --> 0:01:36.360 Is that an appropriate signal? Is that a lagging indicator? 0:01:36.400 --> 0:01:39.319 Andrew, That's the big issue is the FED is making 0:01:39.360 --> 0:01:42.400 policy now looking at data that is going to depend 0:01:42.480 --> 0:01:46.600 on their lagged policy making. And I think the bank issue, 0:01:46.600 --> 0:01:48.840 the credit tightening, that's something that probably still is going 0:01:48.880 --> 0:01:51.400 to be working its way through the economy, slowing things down. 0:01:52.080 --> 0:01:55.800 The concern though, is that some areas have already been 0:01:55.840 --> 0:01:58.040 worked through. If you look at the housing sector, we 0:01:58.200 --> 0:02:01.440 bottomed in housing, we've come off that bottom, and we 0:02:01.480 --> 0:02:04.440 didn't lose construction jobs. And that's a great thing for 0:02:04.760 --> 0:02:07.120 construction worker is a good thing for the economy. But 0:02:07.200 --> 0:02:09.480 if the FED is looking to loosen the labor market, 0:02:09.480 --> 0:02:11.080 we're just really not seeing that in the data. 0:02:11.080 --> 0:02:12.359 Can you hap me with that That's been a key 0:02:12.400 --> 0:02:13.959 question for me in the last twenty four hours, and 0:02:14.000 --> 0:02:16.480 I'll keep digging into this too with other guests later 0:02:16.520 --> 0:02:19.600 on Bloomberg TV and on Bloomberg Radio. When you look 0:02:19.600 --> 0:02:23.360 at the surprise indicators, that index is the highest been 0:02:23.400 --> 0:02:26.040 since twenty twenty one. So that's the incoming information relative 0:02:26.080 --> 0:02:30.080 to the estimates before that economic data. Is that because 0:02:30.080 --> 0:02:32.320 things are better than expected or are things getting better? 0:02:32.520 --> 0:02:33.520 Are they actually improving? 0:02:34.040 --> 0:02:36.040 I think it is better than expected, And this is 0:02:36.080 --> 0:02:38.960 really theory versus data, and the theory would tell you 0:02:39.320 --> 0:02:42.240 interest rates are higher, real interest rates are higher, that 0:02:42.360 --> 0:02:46.000 tailwind from lagged fiscal stimulus should be coming off. All 0:02:46.080 --> 0:02:48.200 of those things should be slowing the economy, and we 0:02:48.200 --> 0:02:50.440 think we see some signs that some of that slowing 0:02:50.480 --> 0:02:53.359 is happening. But job growth has slowed down. It used 0:02:53.360 --> 0:02:55.120 to be running a million a month, and it was 0:02:55.200 --> 0:02:57.360 running five hundred thousand a month, but it slowed to 0:02:57.400 --> 0:02:59.440 somewhere around three hundred thousand a month, and that's just 0:02:59.480 --> 0:03:01.760 a lot fat than anyone would have expected at this point. 0:03:02.600 --> 0:03:06.680 The arch issue here is Edheiman looks at a very 0:03:07.000 --> 0:03:10.680 very weak economy and yet we've got service sector doing 0:03:10.680 --> 0:03:13.120 this and that does City Group look at this as 0:03:13.120 --> 0:03:16.040 a weak economy after two percent GDP AD justin in 0:03:16.120 --> 0:03:16.840 the first quarter. 0:03:17.160 --> 0:03:20.240 I think this cycle is just so different that some 0:03:20.320 --> 0:03:23.800 of the standard indicators of weakness are not working the 0:03:23.800 --> 0:03:27.360 way that they have historically. One example, John was talking 0:03:27.360 --> 0:03:31.960 about before manufacturing manufacturing ism showing contraction. That's usually a 0:03:31.960 --> 0:03:36.120 good leading indicator of recession. The housing sector being in contraction, 0:03:36.240 --> 0:03:38.800 that's usually a good leading indicator of recession. But this 0:03:38.840 --> 0:03:41.440 cycle is different. We have this transference to services fact 0:03:41.560 --> 0:03:42.440 and the continuum. 0:03:42.480 --> 0:03:46.160 Here are we, as constant just mentioned from Azuo, Are 0:03:46.200 --> 0:03:50.000 we where it's a pandemic supply side analysis or is 0:03:50.080 --> 0:03:53.280 it a demand side demand driven analysis? For the FED? 0:03:53.600 --> 0:03:55.440 I think you have to do them together. And I 0:03:55.440 --> 0:03:58.440 think that it's a commonly made statement now that well 0:03:58.640 --> 0:04:00.720 central bank should be focused on the demand side, not 0:04:00.800 --> 0:04:03.200 the supply side. You have to focus on where is 0:04:03.240 --> 0:04:06.640 the demand side relative to the supply side. And unless 0:04:06.680 --> 0:04:09.280 you think the shock to supply is some very transitory 0:04:09.320 --> 0:04:11.680 issue and a lot of the issues that we have 0:04:11.720 --> 0:04:14.000 on the supply side now are structural and we'll be 0:04:14.040 --> 0:04:16.600 with us for some time. Central banks need to recognize 0:04:16.640 --> 0:04:18.719 that supply side and then adjust demand accordingly. 0:04:18.839 --> 0:04:22.520 I'm looking forward to bookmark in the address from Chairman 0:04:22.600 --> 0:04:26.159 Pound and Jackson Hole next month with the address from 0:04:26.600 --> 0:04:29.440 last year and comparing where unemployment was down and where 0:04:29.440 --> 0:04:31.880 it is now, because i was looking for that to 0:04:31.880 --> 0:04:33.880 come into three point six percent, which is basically where 0:04:33.920 --> 0:04:36.560 it was where he was dressed in the public talking 0:04:36.560 --> 0:04:39.960 about course in pain and potentially pain in the labor market. 0:04:40.120 --> 0:04:43.600 I'm in the camp alocentra that this isn't in the textbooks, 0:04:43.600 --> 0:04:47.680 as Andrew alludes to post pandemic. It's both sides, supply 0:04:47.720 --> 0:04:50.000 and demand, and we're we're just making it up as 0:04:50.000 --> 0:04:52.640 we go. Michael McKee, we're waiting for claims. How to 0:04:52.680 --> 0:04:56.040 claims Michael McKee dovetail into the ADP report. 0:04:56.720 --> 0:04:58.720 Well, I can tell you they come in a little 0:04:58.720 --> 0:05:02.000 bit higher than anticipated, to two hundred and forty eight thousand. 0:05:02.240 --> 0:05:05.520 That is higher than the initial report of two thirty 0:05:05.600 --> 0:05:08.960 nine last week, but it is also higher than the 0:05:09.040 --> 0:05:11.720 anticipated two forty five, so a bit of a rebuild 0:05:11.960 --> 0:05:14.840 in claims. Now, this is a tough time of year 0:05:15.320 --> 0:05:17.680 to get claims right because you have a couple of 0:05:17.720 --> 0:05:20.560 things going on. We had a juneteenth holiday that was 0:05:20.560 --> 0:05:23.200 in the last report, which is now revised down to 0:05:23.200 --> 0:05:26.080 two thirty six, and that's a new holiday, so hard to. 0:05:26.080 --> 0:05:27.160 Seasonally adjust for that. 0:05:27.320 --> 0:05:30.200 And then you've got the auto industry shutdowns that come 0:05:30.200 --> 0:05:35.440 around every summer. So I wouldn't put too much on 0:05:35.560 --> 0:05:39.719 the actual number, but the level change is a little 0:05:39.720 --> 0:05:42.680 bit stronger, but it's still nowhere near telling you that 0:05:42.760 --> 0:05:46.279 we have a big layoff problem going on. One million, 0:05:46.360 --> 0:05:51.160 seven hundred and twenty thousand continuing claims. That's down from 0:05:51.520 --> 0:05:54.440 one seven thirty three the week before. 0:05:54.560 --> 0:05:56.200 So the people who. 0:05:56.080 --> 0:05:59.919 Are getting benefits has fallen back, which tells you so 0:06:00.120 --> 0:06:02.400 thing as well. So that's two out of the three 0:06:02.600 --> 0:06:04.280 or two out of the four. Today, we'll get jobs, 0:06:04.880 --> 0:06:07.839 the Jolts numbers, and we'll get the services employment numbers 0:06:07.880 --> 0:06:11.279 coming up, and then watch that two twenty five survey 0:06:11.400 --> 0:06:13.040 for payrolls tomorrow. 0:06:13.080 --> 0:06:16.719 That may change. The survey may change before the jobs. 0:06:16.480 --> 0:06:19.920 Before the jobs report, because if we get all this strength, 0:06:20.160 --> 0:06:22.200 people might start to build some of that into their 0:06:22.279 --> 0:06:23.520 anticipated numbers. 0:06:23.600 --> 0:06:26.000 Futures to tier eight negative thirty three on the sp 0:06:26.160 --> 0:06:28.360 Futures were at a stick on the VICS fifteen point 0:06:28.440 --> 0:06:31.320 two at nine the two year yield's got a life 0:06:31.320 --> 0:06:33.880 of its own, up thirteen basis points five point zero 0:06:34.560 --> 0:06:38.040 seven percent. Think with that money market funded City Group 0:06:38.480 --> 0:06:40.880 is going to do. We have the honor of continuing 0:06:40.920 --> 0:06:42.920 from City Group, where he is a seven point two 0:06:43.000 --> 0:06:46.200 percent six month CD Andrew Holland Horst is with us, 0:06:46.440 --> 0:06:49.680 they're chief US economist. I want to go to what 0:06:49.880 --> 0:06:52.919 matters in the textbooks, which is not the yield of 0:06:52.960 --> 0:06:56.440 the ten year four point zero two percent up nine 0:06:56.480 --> 0:07:00.920 basis points, but a ten year inflation adjusted yield measurement 0:07:01.560 --> 0:07:05.599 of one point seven seven percent, Given the hollend Horse 0:07:05.920 --> 0:07:10.240 rate structure, given the Bill Dudley rate structure, given the 0:07:10.320 --> 0:07:15.240 Mohammed Alarian rate structure, where's a comfortable real yield that 0:07:15.280 --> 0:07:16.040 we can live with. 0:07:16.400 --> 0:07:18.520 I think you're going to the right place, Tom, which 0:07:18.600 --> 0:07:21.720 is that ten year inflation adjusted yield that's going to 0:07:21.800 --> 0:07:24.960 control the level of activity in the economy. And what 0:07:25.000 --> 0:07:28.560 we've seen historically is those level of real yields need 0:07:28.600 --> 0:07:32.280 to get up above one percent, maybe even above two percent, 0:07:32.360 --> 0:07:34.680 to really slow the economy. So that's the first thing 0:07:34.720 --> 0:07:36.800 to keep in mind on the real yield story. The 0:07:36.880 --> 0:07:40.720 second thing is what is the inflation number that you're subtracting. 0:07:40.760 --> 0:07:45.040 That's really the key question. If you're subtracting two percent inflation, 0:07:45.280 --> 0:07:48.640 then an approximately four percent your treasure yield is going 0:07:48.680 --> 0:07:50.440 to be a two hundred basis point real yield. If 0:07:50.480 --> 0:07:55.440 you're subtracting four percent inflation, then we're at zero real yield. 0:07:55.480 --> 0:07:57.119 So that that's really the question. I think the question 0:07:57.280 --> 0:07:59.120 is where is inflation going to run strong? 0:07:59.160 --> 0:08:01.360 And you see one there what you got from Holland 0:08:01.400 --> 0:08:03.880 or she's got three statistics, she got the nominal yield. 0:08:03.960 --> 0:08:07.160 Take away the inflation, right, that's movable, and that gets 0:08:07.160 --> 0:08:10.040 you to a real yield of the residual off the 0:08:10.040 --> 0:08:12.800 back end. One of the themes we're hearing going to show 0:08:12.840 --> 0:08:16.560 from smart people is the stickiness of our disinflation. What 0:08:16.760 --> 0:08:20.400 is your call on disinflation? Do we get to three 0:08:20.440 --> 0:08:23.520 percent whereas Jim Bianco states, we could actually reverse or 0:08:23.640 --> 0:08:25.920 stay there for a good amount of time, what's your 0:08:25.960 --> 0:08:26.800 call on inflation? 0:08:27.080 --> 0:08:29.520 Yeah, so we have some positive dynamics over the next 0:08:29.560 --> 0:08:31.720 few weeks actually in the inflation data, where you should 0:08:31.720 --> 0:08:35.200 see used car prices coming down, shelter prices should be slowing. 0:08:35.200 --> 0:08:37.040 So there are reasons to think we're going to slow 0:08:37.320 --> 0:08:39.640 into the end of the year, probably get down to 0:08:39.679 --> 0:08:44.040 something like a four percent underlying core PCE pace, maybe 0:08:44.040 --> 0:08:46.960 into the high threes. That's all good news for the FED. 0:08:47.160 --> 0:08:50.720 The issue is looking further into twenty twenty four. Now, 0:08:51.040 --> 0:08:54.280 if this housing rebound continues, if house prices continue to rise, 0:08:54.360 --> 0:08:57.280 if the labor market stays tight, then it's really hard 0:08:57.320 --> 0:09:01.319 to tell the story where inflation is disflace further and 0:09:01.400 --> 0:09:04.120 you have risk that inflation actually increases. So that's not 0:09:04.160 --> 0:09:06.640 our base case outlook, but I think those risks are 0:09:06.640 --> 0:09:07.920 becoming a lot more material. 0:09:08.080 --> 0:09:11.600 There's July twenty six, and then there's Jackson Hole. Does 0:09:11.640 --> 0:09:15.000 all this chick might change what you believe you'll perceive 0:09:15.080 --> 0:09:16.880 at Jackson Hole? Not so far. 0:09:17.040 --> 0:09:19.880 I mean, I think a lot of depend on tomorrow 0:09:20.200 --> 0:09:22.000 in the sense that if we get something like half 0:09:22.040 --> 0:09:24.880 a million jobs created, they're going to raise rates. They're 0:09:24.880 --> 0:09:27.760 probably going to raise rates in September, and Jay Powell 0:09:27.800 --> 0:09:29.800 will explain it to us all in Jackson Hole. But 0:09:29.840 --> 0:09:32.040 if it comes in more like the two twenty five 0:09:32.040 --> 0:09:35.960 that's anticipated, then you've got open questions about September. So 0:09:36.520 --> 0:09:40.520 let me throw that out to Andrew here when you 0:09:40.559 --> 0:09:43.200 start to model out what happens over the next six months. 0:09:43.240 --> 0:09:45.320 Let's just get to the end of twenty twenty three. 0:09:45.920 --> 0:09:49.440 Do they go to or do they just go one 0:09:49.520 --> 0:09:52.640 in hold? Are they on every other month? How should 0:09:52.720 --> 0:09:54.920 people anticipate what the Fed's going to be doing. 0:09:55.120 --> 0:09:57.720 Yeah, I don't think there's a strong presumption towards every 0:09:57.720 --> 0:10:00.240 other month. We saw in the minutes as well in 0:10:00.280 --> 0:10:03.559 comments from Chair Powell that they want to moderate the pace, 0:10:03.640 --> 0:10:06.000 but they're not really telling us that that's necessarily every 0:10:06.040 --> 0:10:08.280 other meeting, and they want to keep this kind of 0:10:08.360 --> 0:10:10.320 very data dependent approach. So I think it's exactly what 0:10:10.320 --> 0:10:12.040 you said. They're going to look at the labor market data, 0:10:12.240 --> 0:10:15.120 They're going to look at the inflation data, Like I said, 0:10:15.160 --> 0:10:17.680 core inflation. The next couple prints maybe are going to 0:10:17.679 --> 0:10:20.080 be a little bit softer, So that should be somewhat 0:10:20.160 --> 0:10:23.720 encouraging for FED officials. On the other hand, this research 0:10:23.760 --> 0:10:27.040 and activity story and this two percent growth that is 0:10:27.160 --> 0:10:31.280 continuing longer than expected, job growth that stays stronger than expected, 0:10:31.440 --> 0:10:33.679 that might end up being pivotal for whether they make 0:10:33.720 --> 0:10:35.480 that September hike or not. I agree with you. If 0:10:35.480 --> 0:10:37.719 we see anything approaching what we saw in ADP and 0:10:37.760 --> 0:10:40.640 the NFP reading, then that's probably a strong signal that 0:10:40.679 --> 0:10:42.079 they will go ahead in September. 0:10:42.800 --> 0:10:45.160 I'll get Tom all excited here because he loves to 0:10:45.200 --> 0:10:49.200 talk about our star. But part of the calculation going forward, 0:10:49.200 --> 0:10:51.160 you mentioned the two percent growth that goes on longer 0:10:51.160 --> 0:10:54.000 than expected. Do you think that the neutral rate is 0:10:54.120 --> 0:10:58.000 higher and will stay higher than it has been or 0:10:58.040 --> 0:11:00.559 are you in the John Williams fed camp says we're 0:11:00.559 --> 0:11:03.160 going to go back down to two percent and rates 0:11:03.200 --> 0:11:04.920 can fall down as well. 0:11:05.320 --> 0:11:06.800 I mean, I guess maybe you could say I'm in 0:11:06.840 --> 0:11:09.840 the Louboch John Williams camp, which is a paper that 0:11:09.880 --> 0:11:12.640 the two co authors wrote that suggests that you should 0:11:12.640 --> 0:11:15.440 have this kind of very slow moving update to where 0:11:15.440 --> 0:11:17.560 that our start is because we really don't observe it. 0:11:17.760 --> 0:11:20.640 What we do observe is where's inflation, where's growth? And 0:11:20.679 --> 0:11:22.840 if inflation and growth are coming in stronger than expected, 0:11:22.840 --> 0:11:25.320 then you should start revising that up. So I am 0:11:25.400 --> 0:11:28.640 kind of slowly starting to adjust higher where that our 0:11:28.720 --> 0:11:31.040 star might be. I don't think we've come a long 0:11:31.080 --> 0:11:32.680 way there yet. We have to see more data to 0:11:32.679 --> 0:11:34.440 really know where we end up. If you look at 0:11:34.440 --> 0:11:37.480 the FED stots. Remember that long run our star in 0:11:37.559 --> 0:11:40.800 their dot plot came down significantly over the last decade 0:11:40.800 --> 0:11:43.200 that they had the dot plot. We're starting to see 0:11:43.240 --> 0:11:44.679 some of those dots move high, and I think that's 0:11:44.760 --> 0:11:46.000 just appropriate given the data that we. 0:11:46.040 --> 0:11:49.880 Say, just joining us, it is twenty three hours of chaos. 0:11:50.080 --> 0:11:51.880 That's all on the way to put it. Michael McKee 0:11:51.920 --> 0:11:54.200 is focused on the Jolt survey tomorrow will bring you 0:11:54.240 --> 0:11:58.040 the unemployment data tomorrow, the job the two jobs reports. 0:11:58.120 --> 0:12:00.840 This off the shock of ADP in a market on 0:12:00.880 --> 0:12:03.520 the move, the equity space down thirty two points on 0:12:03.559 --> 0:12:07.240 the SMB futures, the vic's out a stick fifteen point 0:12:07.360 --> 0:12:09.840 two eight and the yields. I'm not going to take 0:12:09.880 --> 0:12:12.120 a lot of time here, but I'm out nine basis 0:12:12.120 --> 0:12:16.160 points higher ten year real yield. The two year yield 0:12:16.200 --> 0:12:20.240 is a five point zero eight percent, really remarkable, and 0:12:20.360 --> 0:12:24.640 to Hollanoards. I just brought up the City Group mortgage 0:12:24.720 --> 0:12:27.600 rate and it's something like a published seven point zero 0:12:27.880 --> 0:12:32.360 seven percent. What do these yield moves do to housing? 0:12:33.080 --> 0:12:35.920 And it's to me, we're right on the edge of 0:12:35.960 --> 0:12:39.840 a jump condition in the cost of money to affect 0:12:39.880 --> 0:12:40.480 real estate. 0:12:40.600 --> 0:12:43.280 Right, Higher mortgage rates are going to slow the housing market, 0:12:43.280 --> 0:12:45.720 and we've seen that over the past few quarters. But 0:12:45.760 --> 0:12:49.839 that mortgage rate actually peaked back in September October of 0:12:49.920 --> 0:12:51.920 last year when ten year yields peak. Now we're getting 0:12:51.960 --> 0:12:54.559 back to those levels again, so you can see those 0:12:54.559 --> 0:12:57.400 same kind of mortgage rates. The issue that you've had 0:12:57.480 --> 0:13:00.560 is that reduced demand for housing, but it also now 0:13:00.640 --> 0:13:03.960 has reduced the supply of housing in the sense that 0:13:04.040 --> 0:13:06.120 if you have an existing home, you don't want to 0:13:06.120 --> 0:13:07.480 put that home on the market. You don't want to 0:13:07.520 --> 0:13:10.240 lose that three percent mortgage rate. So we're seeing the 0:13:10.240 --> 0:13:13.280 housing data is a really interesting development where we're actually 0:13:13.440 --> 0:13:16.680 getting more activity in new housing starts. You're getting prices 0:13:16.679 --> 0:13:18.800 that are moving higher because demand is lower, but like 0:13:18.800 --> 0:13:21.319 we were talking about before, the supply is also lower, 0:13:21.320 --> 0:13:23.440 and as that market adjust to that, you're actually starting 0:13:23.440 --> 0:13:25.040 to see some renewed price pressure. 0:13:25.040 --> 0:13:28.199 As a general statement, if businesses live in the nominal 0:13:28.320 --> 0:13:31.440 space the top line space, sook's not the inflation adjusted 0:13:32.080 --> 0:13:35.640 space I'm looking. I'm sorry, it's a jump condition and 0:13:36.080 --> 0:13:38.920 fourteen basis points in the two year yield five point 0:13:39.040 --> 0:13:43.319 zero nine percent. How does the business appetite change with 0:13:43.440 --> 0:13:46.120 a shock of this Thursday morning? 0:13:46.240 --> 0:13:49.000 Yeah, we definitely will see this feeding through to broader 0:13:49.040 --> 0:13:51.480 credit conditions. You see that in the Senior Loan Officers 0:13:51.480 --> 0:13:53.760 survey will be interesting. We'll get another look at that soon. 0:13:54.400 --> 0:13:57.600 And you see lending conditions broadly that are tightening. This 0:13:57.720 --> 0:13:59.200 is just going to take time to go through the 0:13:59.200 --> 0:14:00.600 banking system and the credit system. 0:14:00.640 --> 0:14:02.480 We had a viewer question, but I never get the 0:14:02.559 --> 0:14:05.760 viewer questions. McKee's the only one that gets the viewer questions. 0:14:05.880 --> 0:14:08.240 View you're getting is this from which governor? Is this 0:14:08.320 --> 0:14:10.840 start going? You get all the questions, is this crossing 0:14:11.040 --> 0:14:11.640 emailing it? 0:14:12.760 --> 0:14:15.760 Well, it's a pretty simple question, and it's probably something 0:14:15.800 --> 0:14:17.720 I should have thought of to ask you as well. 0:14:17.960 --> 0:14:22.200 You guys are at one seventy for tomorrow, and that's 0:14:22.280 --> 0:14:25.720 below the consensus. Do you change based on any of 0:14:25.720 --> 0:14:27.560 this data? How are you going to put it together? 0:14:27.640 --> 0:14:27.840 Yeah? 0:14:27.840 --> 0:14:29.840 I don't think we'll change based on this. And the 0:14:30.040 --> 0:14:32.080 issue there is what you mentioned, Mike, which is the 0:14:32.120 --> 0:14:35.560 seasonal adjustment issues. The reason we're lower on tomorrow's number 0:14:35.880 --> 0:14:38.720 is because this data is so difficult to seasonally adjust, 0:14:39.160 --> 0:14:42.720 and that seasonal adjustment tends to differ between ADP and NFP, 0:14:42.800 --> 0:14:44.360 So when we go back and look at this data, 0:14:44.400 --> 0:14:46.640 I think we probably will end up being weaker on 0:14:46.760 --> 0:14:49.320 NFP than we were on ADP, and we'll end up 0:14:49.920 --> 0:14:52.080 attributing that to seasonal adjustment issues. 0:14:52.440 --> 0:14:54.800 I look at it, my head spinning. You're going to 0:14:54.880 --> 0:14:56.760 go back to the office today, do you guys rip 0:14:56.840 --> 0:14:58.400 it up? Or do you just have to wait to 0:14:58.440 --> 0:14:59.840 see what eight thirty tomorrow is? 0:15:00.040 --> 0:15:02.320 You know, every day it's like we're starting over again. 0:15:02.480 --> 0:15:04.160 I mean, the cycle has just been so different than 0:15:04.200 --> 0:15:06.000 anything we've seen. So we take the data as we 0:15:06.000 --> 0:15:06.520 get it. 0:15:07.040 --> 0:15:09.400 And that I'm going to suggest describe as the central 0:15:09.440 --> 0:15:12.160 Bank of the United States right now. To me, they're 0:15:12.320 --> 0:15:16.160 wildly ex post as I've never defined in my mind before. 0:15:16.480 --> 0:15:18.560 Yeah, I think that's right, a very reactionary, and. 0:15:18.520 --> 0:15:20.360 I saw that at CenTra. I think all four people 0:15:20.360 --> 0:15:22.760 they were all struggling to come up with theory. There's 0:15:22.800 --> 0:15:23.520 no theory here. 0:15:23.680 --> 0:15:25.440 Yeah, there is a sense in which the data have 0:15:25.560 --> 0:15:28.200 just diverged so much from the theory that everyone has 0:15:28.200 --> 0:15:31.280 become more empirical and more reactionary to the data. 0:15:31.800 --> 0:15:33.560 Thank you so much for joining us. Can we see 0:15:33.560 --> 0:15:35.080 you the Marday thirty. If we get a bang up 0:15:35.160 --> 0:15:38.040 number like this, we get six hundred thousand non farm payrolls. Yeah, 0:15:38.320 --> 0:15:42.120 pick up the phone. Andrew Hollinhurst with this was City Group, 0:15:47.640 --> 0:15:50.720 long ago and far away. I was in Tokyo and 0:15:50.720 --> 0:15:53.320 a gentleman from Credit Sweez came up to me and said, 0:15:53.360 --> 0:15:55.920 thank you so much for telling people about our world 0:15:56.000 --> 0:15:58.920 class literature. We say this now, of course, with the 0:15:58.960 --> 0:16:02.440 death of credits and all of that effort was led 0:16:02.480 --> 0:16:06.120 by Neil Sauce, who got me really really help jumpstart 0:16:06.200 --> 0:16:09.200 everything I do here. And under Neil saus was a 0:16:09.240 --> 0:16:13.080 guy named Dominic Constant. He and Ira Jersey led a 0:16:13.200 --> 0:16:17.600 world class team synthesizing all of this mumble jumble together, 0:16:18.040 --> 0:16:20.440 which you are joined by doctor Constam now at Missoula, 0:16:20.560 --> 0:16:24.080 America's Dominic. Coming to cut to the chase you invented 0:16:24.200 --> 0:16:29.840 super restrictive. Does Jerown Powell want to become super super restrictive? 0:16:31.960 --> 0:16:36.360 Well, I think he He's obviously already super restrictive, and 0:16:36.440 --> 0:16:39.440 I think the only reason why they would be willing 0:16:39.480 --> 0:16:42.920 to unwind that will be either if you get a 0:16:42.920 --> 0:16:45.920 faster fall in inflation or you see the labor market 0:16:46.680 --> 0:16:50.840 beginning to loosen up materially, which you know, the combination 0:16:50.880 --> 0:16:53.400 of both we think will happen. I think the panic, 0:16:53.440 --> 0:16:57.240 if you like, back in March going into of April May, 0:16:57.320 --> 0:17:01.160 when rates were very low, the curve steepening. People are 0:17:01.160 --> 0:17:04.920 focused on the banking crisis. That panic has obviously subsided, 0:17:05.000 --> 0:17:08.880 thanks a lot to what the policymakers did, But there's 0:17:08.920 --> 0:17:11.640 still a scar on the economy that I think you're 0:17:11.640 --> 0:17:12.920 going to see coming through. 0:17:12.800 --> 0:17:15.240 John, and they are opening. You mentioned this the idea 0:17:15.359 --> 0:17:19.280 of March and we forget the bank trauma. While you 0:17:19.359 --> 0:17:22.400 were gone, we had stress tests, and you'd think we'd 0:17:22.440 --> 0:17:24.560 move beyond trauma. I'm not so sure. 0:17:24.760 --> 0:17:27.960 Drink sure, that's our new drinking game while you were gone. 0:17:28.440 --> 0:17:30.560 Yeah, but it's Jenny Cremel. That's what we're using. 0:17:30.680 --> 0:17:33.280 Okay, nothing too hard because you're mentioning it so much. 0:17:33.800 --> 0:17:36.479 Just to build on that. You said the scars are 0:17:36.520 --> 0:17:39.240 there and they're going to start to come through. That 0:17:39.320 --> 0:17:42.359 indicates that you believe a process did begin back in March. 0:17:42.400 --> 0:17:43.800 Could you shine a light on that a little bit 0:17:43.800 --> 0:17:45.640 more done? What are you seeing that it's taking place 0:17:45.640 --> 0:17:47.400 at a moment you think will come to the surface. 0:17:48.400 --> 0:17:51.520 Well, we know that credit conditions have tightened a lot 0:17:51.560 --> 0:17:54.159 in the survey data, and that anyway works through to 0:17:54.240 --> 0:17:57.680 a lag in terms of a lending growth itself slowing down, 0:17:57.880 --> 0:18:00.000 and you can see in the weekly data lending growth 0:18:00.280 --> 0:18:02.760 doesn't look particularly good, particularly for the larger banks. So 0:18:02.800 --> 0:18:05.720 that's sort of one issue that's already in place. The 0:18:05.760 --> 0:18:08.919 other issue is really the net interest margin story that 0:18:09.040 --> 0:18:10.960 so you're going to start getting the bank earnings and 0:18:11.080 --> 0:18:14.400 nims are going to get released, and you can model nims, 0:18:14.440 --> 0:18:16.960 you know, relatively straightforward, and they're going to deteriorate. They're 0:18:17.000 --> 0:18:20.119 clearly going to deteriorate. The curve is a very inverted 0:18:20.720 --> 0:18:23.960 NIM compression, i would argue, is very much in place. Again, 0:18:24.000 --> 0:18:27.080 it takes a few quarters to properly see through, but 0:18:27.119 --> 0:18:29.480 we're talking about a swing of a few hundred billion 0:18:29.520 --> 0:18:32.000 dollars potentially as much as that in terms of what 0:18:32.080 --> 0:18:35.120 could be taken out of bank earnings essentially, and that's 0:18:35.160 --> 0:18:39.280 just from the sort of top down macro view. And 0:18:39.320 --> 0:18:41.880 then of course the issue is how that's distributed across 0:18:41.880 --> 0:18:43.920 the banks. You know, some banks are going to be 0:18:44.000 --> 0:18:46.159 much better place than other banks to deal with this. 0:18:46.440 --> 0:18:48.399 The ones that really had to fight for deposits, if 0:18:48.440 --> 0:18:50.000 you like, are going to be the ones that will 0:18:50.040 --> 0:18:53.120 come back into focus. So the policymakers have done a lot, 0:18:53.240 --> 0:18:56.760 I think, to put you to ring fence the crisis 0:18:56.760 --> 0:19:00.360 in terms of sort of a banking systematics or a problem. 0:19:00.440 --> 0:19:02.719 But that's all going to sort of feed through still 0:19:02.920 --> 0:19:07.720 into weaker lending growth, and that collides with what we 0:19:07.760 --> 0:19:09.000 think is going to be a loosening up for the 0:19:09.080 --> 0:19:12.720 labor market because people are kind of there's too much 0:19:12.800 --> 0:19:16.919 labor hoarding going on, not yet enough labor shedding going on. 0:19:17.240 --> 0:19:19.520 But that transition I think will take place in the fall. 0:19:19.880 --> 0:19:22.240 So we've had obviously a bit of a round trip 0:19:22.280 --> 0:19:26.440 in markets, but I think the fundamentals behind the outlook 0:19:26.480 --> 0:19:28.760 for the economy are still a little bit you know, 0:19:29.080 --> 0:19:32.200 very much concerning if we can get a soft landing, fantastic, 0:19:32.680 --> 0:19:35.760 but a hard landing is very much still on the radar. 0:19:35.880 --> 0:19:37.520