WEBVTT - Bloomberg Surveillance TV: August 22nd, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amerie Hordert. Join us each day 0:00:18.760 --> 0:00:22.320 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.720 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.360 Terminal and the Bloomberg Business app. Bruce Casman of JP 0:00:37.479 --> 0:00:40.519 Morgan writes in the following Elevated inflation suggests that the 0:00:40.560 --> 0:00:43.600 removal of downside growth risks would make it unlikely that 0:00:43.640 --> 0:00:47.159 the Fed will deliver the substantial easing expected through the 0:00:47.320 --> 0:00:50.080 end of next year. Bruce joins us now for more. 0:00:50.200 --> 0:00:52.600 Bruce has been too long, my friend, Welcome to the program. 0:00:52.800 --> 0:00:55.760 July thirtieth was the last time we heard from Chairman Power. 0:00:55.800 --> 0:00:57.920 It was in the news conference in Washington, d C. 0:00:58.440 --> 0:01:00.360 How dated do you think they're his views? 0:01:02.320 --> 0:01:05.399 It's clearly dated because we've had important information both on 0:01:05.520 --> 0:01:09.800 growth with the weak labor report and also on inflation. However, 0:01:09.840 --> 0:01:11.959 I think it's important to look at what we got 0:01:12.000 --> 0:01:14.960 from that meeting, both in terms of Palell's description of 0:01:15.000 --> 0:01:17.720 the labor market is solid, as well as the committee 0:01:17.760 --> 0:01:21.119 minutes that showed that a majority of members still thought 0:01:21.120 --> 0:01:24.600 inflation risks were more important than growth US at that time. 0:01:24.680 --> 0:01:26.960 So we're starting with a committee that I think has 0:01:27.000 --> 0:01:30.560 a somewhat hawkish bias around easing. I don't think from 0:01:30.600 --> 0:01:33.240 what you've heard so far from members that there's a 0:01:33.280 --> 0:01:36.000 consensus to ease. And I think whatever we get from 0:01:36.040 --> 0:01:39.160 Powell today, he clearly can't tell us what the September 0:01:39.200 --> 0:01:41.959 meeting is going to do. Having said that, I do 0:01:42.040 --> 0:01:46.040 think the weak labor market report is important. 0:01:46.080 --> 0:01:48.000 It does send a stall speed signal. 0:01:48.280 --> 0:01:51.760 I think the Fed traditionally has an asymmetric bias to 0:01:51.800 --> 0:01:54.440 being sensitive to recession risk. And I think he is 0:01:54.480 --> 0:01:57.280 going to tilt somewhat here in the direction and moving 0:01:57.320 --> 0:01:59.680 away from his description of the labor market is solid 0:02:00.080 --> 0:02:02.600 to tell us that the door is open for and 0:02:02.720 --> 0:02:05.240 easing that hasn't been decided at the September meeting. 0:02:05.680 --> 0:02:08.480 So Bruce, he opens the door, But to what degree 0:02:08.560 --> 0:02:12.320 do you think he would introduce that two way risk, 0:02:12.400 --> 0:02:14.960 that two sided risk, and try to maybe coax the 0:02:15.000 --> 0:02:18.480 market away from leading as heavily as it is now 0:02:18.639 --> 0:02:20.000 to a rate cut in September. 0:02:21.200 --> 0:02:25.360 I think right now the market is decided that there's 0:02:25.400 --> 0:02:27.480 almost certainly going to be a rate cut. I think 0:02:27.520 --> 0:02:29.880 by opening the door but not saying we're going to 0:02:29.919 --> 0:02:33.079 walk through it, that does reflect the two sided risks. 0:02:33.080 --> 0:02:34.880 So this is not a chair that's going to do 0:02:34.960 --> 0:02:37.320 what he did last year and basically promise a rate 0:02:37.360 --> 0:02:40.239 cut at the September meeting. But I think he has 0:02:40.360 --> 0:02:43.880 to reflect the rising risk. He has to reflect the 0:02:43.919 --> 0:02:46.760 shift in his own thinking. He has to tell us 0:02:46.800 --> 0:02:49.320 that September is alive meeting. If he does that, I 0:02:49.400 --> 0:02:51.480 think the market will pretty much stay where it is 0:02:52.040 --> 0:02:53.440 on the September call, Bruce. 0:02:53.440 --> 0:02:55.679 If we also get some discussion about the frame work, 0:02:55.720 --> 0:02:58.920 which we are expecting to and you hear Powell talk 0:02:58.960 --> 0:03:03.679 about turning away from flexible average inflation targeting, if you 0:03:03.800 --> 0:03:06.920 sort of emphasize that, is there any signal in that 0:03:07.040 --> 0:03:10.360 alone or is that more just details that matter not 0:03:10.440 --> 0:03:12.400 from your term policy but policy down. 0:03:12.200 --> 0:03:16.360 The road, I think the reality is the effects flexible 0:03:16.400 --> 0:03:20.399 inflation targeting regime never really took off, and I think 0:03:20.440 --> 0:03:23.600 there are some problems with the way it was described 0:03:23.600 --> 0:03:27.000 in the last framework review. I think Powell will basically 0:03:27.040 --> 0:03:29.080 tell us we're moving back, but I don't think it 0:03:29.160 --> 0:03:31.720 has any implications for how the FED is going to 0:03:31.720 --> 0:03:35.440 set policy, not in September and not going forward from there. 0:03:35.480 --> 0:03:37.880 It'll be interesting color, but not impactful. 0:03:38.560 --> 0:03:41.480 Their understanding of the labor market will be impactful. I 0:03:41.560 --> 0:03:43.920 want your understanding of the labor market first, and then 0:03:43.960 --> 0:03:46.480 we can talk about whether there's any dayline between how 0:03:46.480 --> 0:03:48.720 you think the FED reach things. What do you think 0:03:48.800 --> 0:03:50.840 is going on here? So we've obviously had a step 0:03:50.880 --> 0:03:53.040 down in payrolls growth, and let's just run with the 0:03:53.080 --> 0:03:55.040 numbers we've got so far, because they might change. I've 0:03:55.040 --> 0:03:56.840 got no idea, and I imagine you don't either, But 0:03:56.960 --> 0:03:59.320 let's just run with these numbers. We've seen a step 0:03:59.320 --> 0:04:02.000 down in payroll growth. Bruce, can you put more emphasis 0:04:02.000 --> 0:04:04.480 on the demands side or supply side, a cyclical turn 0:04:04.640 --> 0:04:05.600 or a structural shift? 0:04:06.920 --> 0:04:07.119 Oh? 0:04:07.160 --> 0:04:09.600 I think labor demand is the key issue here, and 0:04:09.680 --> 0:04:12.280 I think in an economy that has slowed sharply in 0:04:12.320 --> 0:04:14.480 the first half of the year, what we're also seeing 0:04:14.760 --> 0:04:18.359 is a family, substantial downshift within the breath and the 0:04:18.400 --> 0:04:21.880 magnitude of labor demand. I am concerned that when we 0:04:21.920 --> 0:04:24.919 see private barrel slow to the pace we've seen in 0:04:24.920 --> 0:04:27.320 the last few months, that that's a warning signal. 0:04:27.360 --> 0:04:28.960 I call it a stall speed alert. 0:04:29.279 --> 0:04:32.239 But at the same time, we haven't seen businesses start 0:04:32.240 --> 0:04:35.960 to retrench. There's nothing suggesting layoffs have picked up. And 0:04:36.000 --> 0:04:39.520 there's also, I think importantly, no signs that the slowing 0:04:39.560 --> 0:04:42.680 and labor demand has really hit labor income, as wages 0:04:42.720 --> 0:04:44.680 have picked up somewhat in the last few months and 0:04:44.760 --> 0:04:47.400 hours have held up. So we have an economy that 0:04:47.480 --> 0:04:50.600 is downshifted. It's sending a risk signal, but it's not 0:04:50.839 --> 0:04:52.880 by any means breaking, And of course we do have 0:04:52.920 --> 0:04:56.080 the flip side on inflation to worry about. I think 0:04:56.120 --> 0:04:58.960 you have to look at the FED as responding to 0:04:59.000 --> 0:05:02.880 these asymmetric the recession risk when it starts to pick up, 0:05:03.160 --> 0:05:06.039 becomes a dominant factor in their thinking. And as I said, 0:05:06.120 --> 0:05:08.160 I think it's enough to get you a couple of eases, 0:05:08.240 --> 0:05:10.760 maybe three, it's not enough to get you one hundred 0:05:10.800 --> 0:05:13.520 and thirty basis points. So the market's pricing in over 0:05:13.560 --> 0:05:15.000 the next eighteen months. 0:05:14.800 --> 0:05:17.400 Bruce, Governor wall is in your camp without a doubt. 0:05:17.400 --> 0:05:19.360 But as you pointed out, the counter point to all 0:05:19.400 --> 0:05:22.200 of this is that measures of slack of being quite stable, 0:05:22.240 --> 0:05:25.280 and you pointed to wages, wages are still okay. So 0:05:25.400 --> 0:05:27.040 you might get a few people on the Committee who 0:05:27.120 --> 0:05:30.200 say this is more about labor supply and that we've 0:05:30.240 --> 0:05:32.600 got a real risk care that we might get pushed 0:05:32.640 --> 0:05:35.000 in one direction when perhaps we should be looking in 0:05:35.040 --> 0:05:36.880 the other. Bruce, how do you think that debate is 0:05:36.880 --> 0:05:38.640 going to plan on the Committee in September? 0:05:39.520 --> 0:05:41.799 You could clearly see that in the minutes this week. 0:05:41.839 --> 0:05:45.080 And I am very much win Waller's camp and being 0:05:45.080 --> 0:05:47.839 concerned about labor demand. But I'm not with him, and 0:05:47.880 --> 0:05:50.039 I think most of the Committee is not with him 0:05:50.040 --> 0:05:52.000 in the way he's reading the inflation data. 0:05:52.400 --> 0:05:53.040 And that's the. 0:05:53.040 --> 0:05:56.640 Tough part of this call, because there is inflation pressure building. 0:05:56.680 --> 0:05:59.840 I don't think underlying signals are telling us US score 0:05:59.880 --> 0:06:03.160 and inflation is below three percent at this point. If 0:06:03.160 --> 0:06:05.680 it wasn't for a risk issue, I don't think the 0:06:05.680 --> 0:06:08.039 Fed would have a case for eezing. I do think 0:06:08.080 --> 0:06:10.520 there's a legitimate risk issue, and I do think it's 0:06:10.520 --> 0:06:13.440 appropriate to respond to that with modest easing as we 0:06:13.480 --> 0:06:16.800 go through the next two or three meetings, Bruce, how. 0:06:16.640 --> 0:06:19.320 Important is it where we've come from, the fact that 0:06:19.360 --> 0:06:21.680 this has been four and a half years of inflation 0:06:21.800 --> 0:06:24.960 consistently above target, the fact that you have scars of 0:06:25.000 --> 0:06:28.640 twenty twenty two still really fresh. Does that in itself 0:06:28.720 --> 0:06:31.520 push back against some of the waller thinking that he 0:06:31.680 --> 0:06:34.880 might be right in normal times, but this time around 0:06:35.080 --> 0:06:36.679 the risk of inflation is different. 0:06:38.160 --> 0:06:40.040 I think that's right, And I think if we were 0:06:40.200 --> 0:06:42.320 sitting in a world where you didn't feel there was 0:06:42.360 --> 0:06:45.480 a heightened risk of a labor market break, you're not 0:06:45.520 --> 0:06:49.360 supposed to be easing even as you see growth having slowed. 0:06:49.839 --> 0:06:52.880 But we do know that recessions are quite disruptive. We 0:06:53.560 --> 0:06:57.479 do know they're they're quite disinflationary. We also can see 0:06:57.520 --> 0:07:00.159 that so far the FED hasn't lost its anchor the 0:07:00.160 --> 0:07:03.000 longer end on inflation credibility. So I think in the 0:07:03.040 --> 0:07:07.080 balancing act here, if you are concerned about inflation recession risk, 0:07:07.480 --> 0:07:09.320 you're supposed to respond to it. If I could put 0:07:09.360 --> 0:07:11.760 another point in here, I do think the FED is 0:07:11.800 --> 0:07:14.920 politically vulnerable as an institution here, and I think the 0:07:15.040 --> 0:07:18.320 risk that they fail to respond to a downturn. Taking 0:07:18.360 --> 0:07:21.720 hold here would create a pretty substantial backlash, which I 0:07:21.760 --> 0:07:24.400 think does weigh on their minds in terms of how 0:07:24.400 --> 0:07:26.560 they're going to think about things as they go into 0:07:26.600 --> 0:07:27.520 the September meeting. 0:07:28.040 --> 0:07:30.640 But it's just built on that vulnerable as an institution. 0:07:31.320 --> 0:07:32.240 What does that really mean? 0:07:33.360 --> 0:07:34.960 Well, I think what it means is if you listen 0:07:35.040 --> 0:07:38.160 to Stephen Moran, if you listen to Bessent, there's talk 0:07:38.240 --> 0:07:41.800 about the FED being reevaluated as an institution. This is 0:07:41.800 --> 0:07:44.400 not about who leads the FED. This is not about 0:07:44.480 --> 0:07:48.360 firing members of the board. This is about do we 0:07:48.600 --> 0:07:50.840 have a reevaluation of the Federal Reserve Act? 0:07:50.840 --> 0:07:51.480 At some point? 0:07:51.520 --> 0:07:54.160 Here is the FED as an institution going to be 0:07:54.240 --> 0:07:57.640 changed by this administration. They're certainly pointing in that direction. 0:07:58.000 --> 0:08:01.000 And I think the more the FED behind the curve, 0:08:01.120 --> 0:08:03.240 the more the FED puts itself in a position where 0:08:03.240 --> 0:08:06.120 it's not sensitive to growth rists that are realized, the 0:08:06.120 --> 0:08:09.239 more those risks increase. The FED understands that the FED 0:08:09.440 --> 0:08:12.680 is a political institution, and I think it accommodates when 0:08:12.720 --> 0:08:13.800 it is under pressure. 0:08:14.040 --> 0:08:15.240 It's a marginal issue. 0:08:15.280 --> 0:08:17.520 I think it won't make the FED ease when there's 0:08:17.560 --> 0:08:20.120 not a good case for it, but when decisions are marginal, 0:08:20.200 --> 0:08:22.560 I think it leans in the dubbsh direction. I think 0:08:22.600 --> 0:08:25.400 that's exactly where we're going to sit at the September meeting. 0:08:27.280 --> 0:08:40.240 Stay with us, Mulblinpex Savanna's coming up after this. Jean 0:08:40.280 --> 0:08:42.480 Barvan of Blackcroff with this to say, we would still 0:08:42.559 --> 0:08:45.520 lean against the market pricing of multiple FED rate cuts 0:08:45.960 --> 0:08:48.360 over the next year. Jonas with us in a studio 0:08:48.520 --> 0:08:50.640 Monta John, Good morning. Why would you push back? 0:08:51.360 --> 0:08:54.160 Well, I think the situation is very murky and it 0:08:54.240 --> 0:08:57.040 remains very much so. Yes, the peril number that came 0:08:57.040 --> 0:08:59.600 out the last one was an important one, and we 0:08:59.640 --> 0:09:02.679 are close attention. I think it leads to even more 0:09:02.679 --> 0:09:05.760 of an easy bias. But the inflation story is far 0:09:05.800 --> 0:09:08.600 from clear. We have many more prints. I don't think 0:09:08.600 --> 0:09:10.280 it's even the next too. I mean it's the next 0:09:10.520 --> 0:09:14.000 many before we get a real handle and that situation, 0:09:14.240 --> 0:09:17.040 and you know, you get inflation and row going in 0:09:17.040 --> 0:09:21.200 the opposite direction. How they're going to balance that is 0:09:21.200 --> 0:09:22.160 is far from clear. 0:09:22.200 --> 0:09:23.400 From how do you put it in a speech? 0:09:23.640 --> 0:09:27.320 In one Amazonia, I think I think you're careful to 0:09:27.440 --> 0:09:29.560 guide the market too much, especially since the more the 0:09:29.600 --> 0:09:32.199 market is I think By you don't want to lug 0:09:32.240 --> 0:09:33.600 this in I don't think so. 0:09:34.480 --> 0:09:34.960 I think you. 0:09:35.480 --> 0:09:37.600 I think there's a big story in inflation that needs 0:09:37.640 --> 0:09:41.080 to be spelled out. The labor market is a very 0:09:41.200 --> 0:09:43.600 very unusual dynamic. It's I think it's very interesting that 0:09:43.679 --> 0:09:46.920 the topic of the conference is really about, you know, employment, 0:09:47.040 --> 0:09:50.960 labor market demographics, which are big structural forces that are 0:09:51.280 --> 0:09:54.680 making the labor market very murky. And I think you 0:09:54.679 --> 0:09:58.439 you emphasize that, and I think I think President Goalsby 0:09:58.520 --> 0:10:02.880 is right that the service on inflation is really puzzling. 0:10:03.480 --> 0:10:05.640 And I think, you know, it's important to remember that 0:10:06.000 --> 0:10:09.679 going into this year, if we hadn't had this kind 0:10:09.679 --> 0:10:14.320 of surprise weakness in service inflation would be more like 0:10:14.520 --> 0:10:17.240 three percent inflation right now. And there's not a real 0:10:17.280 --> 0:10:21.199 explanation for this weakness in service inflation because it doesn't 0:10:21.200 --> 0:10:23.360 really line up with the labor market and wage dynamic 0:10:23.440 --> 0:10:25.760 that we're saying. So so I think the jury is 0:10:25.840 --> 0:10:29.360 very much held on inflation. And unless you get convinced 0:10:29.400 --> 0:10:31.959 that recession risk is very real, then it's going to 0:10:32.000 --> 0:10:33.240 be tough to deliver those cuts. 0:10:33.400 --> 0:10:37.200 So is this, then, Powell that introduces two way risk 0:10:37.360 --> 0:10:39.240 into this market in his speech today? 0:10:39.720 --> 0:10:41.680 Yeah, I think this is this is very hard to do, 0:10:43.400 --> 0:10:46.280 but I think by emphasizing some of the inflation story 0:10:46.280 --> 0:10:50.880 that is not resolve and recession. It's one data point 0:10:50.880 --> 0:10:52.680 on the payroll, right, I mean we could get like, 0:10:53.080 --> 0:10:55.960 you know, a pretty strong one next one. We believe 0:10:56.040 --> 0:11:00.080 that you know, sixty forty to sixty thousand job is 0:11:00.160 --> 0:11:03.920 kind of what we need to keep inflation stable. So 0:11:04.800 --> 0:11:07.920 that's easy to achieve in the next payroll numbers, and 0:11:07.960 --> 0:11:09.560 that would not be screaming recession. 0:11:09.640 --> 0:11:11.640 So I don't know, making those. 0:11:11.559 --> 0:11:13.880 Kinds of points I think pushes a bit against one 0:11:13.920 --> 0:11:15.760 hundred percent price and cut. 0:11:16.200 --> 0:11:17.160 And Look, you're not. 0:11:17.080 --> 0:11:18.480 The only one to say this. I think a lot 0:11:18.480 --> 0:11:20.640 of people have come around this table this week have 0:11:20.760 --> 0:11:24.840 said that before four right, maybe for the past month 0:11:24.880 --> 0:11:27.120 two months, we can go back further saying that they're 0:11:27.160 --> 0:11:28.320 stuck between a hard place. 0:11:28.360 --> 0:11:29.840 It's not a market that's saying. 0:11:29.640 --> 0:11:32.280 That, though, John, So, how vulnerable are we at this 0:11:32.360 --> 0:11:34.880 moment to having a FED that will push back and 0:11:34.960 --> 0:11:37.800 a powel that will push back against current market pricing. 0:11:38.320 --> 0:11:41.839 I think this is an environment that is very as 0:11:41.840 --> 0:11:44.640 a result, very volatile. We keep telling clients and you 0:11:44.640 --> 0:11:48.480 know investors that this is an environment where we have 0:11:49.320 --> 0:11:52.080 more scenarios that are possible in the table than usual. 0:11:52.559 --> 0:11:55.559 You cannot bank on one being one hundred percent. Things 0:11:55.600 --> 0:11:58.120 are not binary, and as a result, we think that 0:11:58.160 --> 0:12:01.520 creates a lot of alpha or you know, investment opportunities. 0:12:02.280 --> 0:12:04.120 The fact that it's price one hundred percent and there 0:12:04.200 --> 0:12:06.880 might be room for some surprise will create some you know, 0:12:06.960 --> 0:12:10.000 near term opportunities, and I think that creates a pretty 0:12:10.040 --> 0:12:11.040 interesting trading. 0:12:10.840 --> 0:12:13.680 Environment for for investors. What you like right now? 0:12:14.520 --> 0:12:18.480 We we we like UH risk in general because I mean, 0:12:18.720 --> 0:12:21.600 no matter what happens with the communication today, and even 0:12:21.640 --> 0:12:24.720 if there was like a surprise, how kishness coming out 0:12:24.800 --> 0:12:27.400 and the market work to react. Adversely, we think there's 0:12:27.480 --> 0:12:30.560 pretty strong under need uh, you know, support for risk assets. 0:12:30.559 --> 0:12:32.680 So we like we like equities, We like US equities 0:12:32.679 --> 0:12:36.360 in particular. We would be you know, a bit more 0:12:36.440 --> 0:12:38.840 careful on on on the rate side of things and 0:12:38.840 --> 0:12:42.360 fix income for like what we're just discussing here, and 0:12:42.800 --> 0:12:45.280 in the context where the dollar has been you know, 0:12:45.840 --> 0:12:48.120 behaving the way it has this year, Uh, there are 0:12:48.160 --> 0:12:50.920 pockets of interest in emerging market that continues to be 0:12:51.000 --> 0:12:53.800 to be there for us and ai UH is UH 0:12:54.160 --> 0:12:57.360 is certainly something that despite the ongoing debate and so on, 0:12:58.520 --> 0:13:00.000 you know, we think it's a pretty powerful force. 0:13:00.200 --> 0:13:01.000 Let's just sit on that. 0:13:01.440 --> 0:13:03.200 You've talked about this as a team, the lack of 0:13:03.280 --> 0:13:06.760 macro anchors right now to focus on other things. Can 0:13:06.800 --> 0:13:08.760 you build out that just a little bit more? 0:13:09.400 --> 0:13:13.520 Yeah, I think you know, there's this environment since twenty twenty. 0:13:13.520 --> 0:13:16.280 It's ironic they're going to be reviewing their framework now 0:13:17.080 --> 0:13:19.840 five years and that five years was exactly for us 0:13:20.080 --> 0:13:23.439 where we moved to a completely different regime. It used 0:13:23.480 --> 0:13:27.439 to be all about demand and risk of inflation, under 0:13:27.480 --> 0:13:30.160 shooting and targets. Now we think it's all shaped by supply. 0:13:30.480 --> 0:13:34.040 It's a transformation, it's a real transformation. There's a lot 0:13:34.040 --> 0:13:36.960 of mega forces that play AI is one in particular, 0:13:37.400 --> 0:13:39.920 and that means that you know where we're going to 0:13:39.960 --> 0:13:41.480 be ending up in. 0:13:41.360 --> 0:13:42.480 Two, three, five years. 0:13:42.520 --> 0:13:44.600 I think it's a lot more clear than any point 0:13:44.640 --> 0:13:47.200 in the four years prior to twenty twenty. Are we 0:13:47.240 --> 0:13:48.920 going to get three percent growth? Are we going to 0:13:48.920 --> 0:13:51.120 get like on a sustained basis, which would be like, 0:13:51.600 --> 0:13:54.280 you know, a speed up or would we be the 0:13:54.320 --> 0:13:57.720 one percent world? These are very different world, very likely 0:13:57.800 --> 0:13:59.600 that we could be in both, but we just don't 0:13:59.640 --> 0:14:02.920 know so to be ready for that. And then inflation, 0:14:03.440 --> 0:14:06.479 we are debating the near term, but we have big deficits. 0:14:06.520 --> 0:14:08.160 We have, you know, big debts. 0:14:08.960 --> 0:14:11.160 How this is going to play out, How these trade 0:14:11.200 --> 0:14:13.320 off will be navigator of the next five years is 0:14:13.440 --> 0:14:16.000 very unclear, And as a result, I think it's very 0:14:16.000 --> 0:14:19.000 difficult to build out a scenario five years out for 0:14:19.080 --> 0:14:21.640 strategic asset allocation and say this is like a reasonable 0:14:21.680 --> 0:14:24.840 basis where I can navigate around. Instead, I think you 0:14:24.880 --> 0:14:27.560 need to be a lot more tactical and instead of 0:14:27.560 --> 0:14:29.400 looking at this macro anchor, I think we want to 0:14:29.400 --> 0:14:33.360 look to these megapce anchor and AI. There are many 0:14:33.400 --> 0:14:35.920 macro scenaris, but we think AI will power through many 0:14:35.960 --> 0:14:37.880 of them, and as a result, is a better way 0:14:37.920 --> 0:14:39.120 to kind of shape portfolios. 0:14:39.840 --> 0:14:43.320 Stay with US multile impact surveillance coming up after this. 0:14:52.720 --> 0:14:55.680 The former us A Labor Department Chief economist Betsy Stevenson, 0:14:55.760 --> 0:14:58.320 writing in The New York Times, the following the fact 0:14:58.440 --> 0:15:01.160 is looking at job numbers without a real understanding of 0:15:01.200 --> 0:15:04.640 what our current steady state job growth should be. Betsy 0:15:04.760 --> 0:15:06.520 joined us now for more, Betsy, thanks for giving us 0:15:06.520 --> 0:15:07.880 some time. I want to give you some space just 0:15:07.880 --> 0:15:10.720 to explain that. What's your understanding of the current situation? 0:15:11.720 --> 0:15:15.040 Yeah, thank you for giving me a chance to give 0:15:15.080 --> 0:15:17.160 the context, because the context is important there. 0:15:17.200 --> 0:15:20.000 Why do we not really know what the steady state 0:15:20.040 --> 0:15:20.440 should be? 0:15:20.800 --> 0:15:23.360 And the reason is that when we're looking at those 0:15:23.440 --> 0:15:26.280 job numbers, what we're trying to think about is how 0:15:26.320 --> 0:15:27.200 many workers. 0:15:26.880 --> 0:15:28.240 Are employers trying to hire. 0:15:28.600 --> 0:15:30.360 But on the other side of that is how many 0:15:30.360 --> 0:15:34.800 workers are there available for them to hire, and how 0:15:34.880 --> 0:15:38.760 much hiring does it take to keep our employment steady 0:15:39.040 --> 0:15:40.440 so that we're at full employment. 0:15:40.840 --> 0:15:42.120 What we have right now is. 0:15:42.080 --> 0:15:45.920 A big decline in immigration, and that is clouding these 0:15:46.000 --> 0:15:51.240 numbers because with people exiting, that's labor supply contracting. We 0:15:51.400 --> 0:15:55.680 definitely need fewer jobs being added each month, but the 0:15:55.800 --> 0:15:58.560 question is how many fewer? What's that steady state rate 0:15:58.600 --> 0:16:01.880 of growth On the flip side, you know, in twenty 0:16:01.920 --> 0:16:05.120 twenty four, twenty twenty three, a lot of people were 0:16:05.160 --> 0:16:07.840 worried that the economy was overheating because they were adding 0:16:07.880 --> 0:16:10.440 so many jobs per month. And it felt like where 0:16:10.480 --> 0:16:13.440 could they be getting these workers while we were seeing 0:16:13.600 --> 0:16:17.720 a resurgence of immigration as we now know, and that 0:16:17.880 --> 0:16:23.479 resurgence of immigration was giving the labor's supply that employers 0:16:23.560 --> 0:16:26.120 needed to be able to keep hiring at that very 0:16:26.240 --> 0:16:27.000 rapid clip. 0:16:27.360 --> 0:16:30.080 Well to that point, Betsy, the most recent reporting from 0:16:30.120 --> 0:16:32.480 the Journal does suggest that there will be a change 0:16:32.520 --> 0:16:35.040 from j. Powell when he speaks today about the framework 0:16:35.240 --> 0:16:38.400 about not just inflation but employment as well, and how 0:16:38.440 --> 0:16:41.200 they view this labor market. Given what you're talking about 0:16:41.400 --> 0:16:44.600 and really the clouds and the unknowingness of how exactly 0:16:44.640 --> 0:16:47.520 this labor market is forming, how should the framework change, 0:16:47.520 --> 0:16:49.800 how should they be approaching this labor market? 0:16:51.680 --> 0:16:53.640 Well, I think what they need to be right now 0:16:53.720 --> 0:16:56.680 is just incredibly data driven. And that's going to mean 0:16:56.720 --> 0:16:59.720 looking at lots of sources of data, because they're trying 0:16:59.720 --> 0:17:02.600 to at not just how many jobs are added, what's 0:17:02.640 --> 0:17:06.879 the unemployment rate, but what is the pressure in the 0:17:06.960 --> 0:17:10.639 labor market that could spark inflation? And so that's going 0:17:10.720 --> 0:17:15.439 to mean digging in and looking more granularly at unemployment 0:17:15.520 --> 0:17:18.439 rates for different groups of people. But remember they have 0:17:18.480 --> 0:17:20.960 a dual mandate. They do want to keep employment at 0:17:21.040 --> 0:17:23.400 full employment, but they've also got to try to get 0:17:23.400 --> 0:17:26.919 that inflation back to their target of two percent. You know, 0:17:26.960 --> 0:17:29.560 we had hit it and then it's sort of bounced 0:17:29.640 --> 0:17:31.760 up a little bit, and we might not think that 0:17:31.800 --> 0:17:35.280 inflations it's not out of control, but it's certainly not 0:17:35.359 --> 0:17:38.040 where they want it to be. And it looks like 0:17:38.119 --> 0:17:39.360 inflation might be about to. 0:17:39.320 --> 0:17:41.720 Tick up even further. So what they're going to be. 0:17:41.640 --> 0:17:45.600 Looking at is what's happening to inflation expectations. 0:17:45.920 --> 0:17:47.400 How tough do they have to. 0:17:47.359 --> 0:17:51.800 Be to keep that inflationary pressure down? And then they 0:17:51.880 --> 0:17:56.720 got to balance that with you know, is this slow 0:17:56.760 --> 0:17:59.760 down in the labor market we're seeing is this driven 0:17:59.800 --> 0:18:05.440 by employers just you know, not having enough oom? Are 0:18:05.480 --> 0:18:08.359 we starting to see a recession where we're going to 0:18:08.440 --> 0:18:11.840 have a bunch of resources, which are workers and people, 0:18:12.040 --> 0:18:15.600 but also capital equipment that's just laying around and doing nothing. 0:18:16.000 --> 0:18:18.160 That's what a recession is all about. We don't want a. 0:18:18.119 --> 0:18:21.320 Recession, but we also don't want to see us demanding 0:18:21.640 --> 0:18:26.560 more than we can supply, and particularly with reducing our 0:18:26.600 --> 0:18:30.399 supply channels from overseas, that means that they're going to 0:18:30.440 --> 0:18:32.439 have to be a little bit careful to try to 0:18:32.440 --> 0:18:35.359 make sure that those reductions and supply don't lead. 0:18:35.240 --> 0:18:36.160 To higher prices. 0:18:36.400 --> 0:18:38.520 I think this is the toughest position the FED is 0:18:38.560 --> 0:18:41.640 basically you know I've ever been in in my lifetime 0:18:41.680 --> 0:18:42.320 at least. 0:18:42.119 --> 0:18:45.119 Well Bessie just describing you describing the state of things. 0:18:45.160 --> 0:18:49.880 It seems like labor market unknown, signals unclear. But what 0:18:50.080 --> 0:18:53.520 is known is that inflation is still with us. In fact, 0:18:53.800 --> 0:18:56.680 it's higher than it was this time last year at 0:18:56.800 --> 0:18:59.640 Jackson Hole. How can the FED be cutting that next month? 0:19:01.760 --> 0:19:03.520 I think that's a big question. 0:19:03.600 --> 0:19:06.919 I think that's why you're hearing a lot from members 0:19:06.920 --> 0:19:10.480 of the Board of Governors and you know, the FOMC 0:19:11.080 --> 0:19:14.320 that you know it's not clear that they should cut. 0:19:14.600 --> 0:19:17.440 They're really really going to have to be data dependent. 0:19:17.480 --> 0:19:19.959 What does that mean? That means that they shouldn't have 0:19:19.960 --> 0:19:22.199 made up their minds right now what they're going to 0:19:22.240 --> 0:19:24.800 do in September. There's data that's going to come in 0:19:24.800 --> 0:19:26.800 between now and then, and they're going to have to 0:19:26.840 --> 0:19:29.320 react to it. I will say, keep in mind that 0:19:29.400 --> 0:19:33.960 we want the FED to react before we. 0:19:33.840 --> 0:19:35.200 See a big problem. 0:19:35.440 --> 0:19:39.240 The FED does the best think about coming into COVID. 0:19:39.680 --> 0:19:41.320