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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business app. Let's turn to retail.
Speaker 2: Lululemon up in its full year outlook thanks to strong
Speaker 2: sales in international markets. The company seeing flat sales in
Speaker 2: the United States last quarter, but a thirty nine percent
Speaker 2: rise in China. Sigurary to Gatalia Forrester, saying, athletic gear
Speaker 2: still seems to be strong. The affluent, fitness focus consumer
Speaker 2: is still spending sigury to join us now for more
Speaker 2: Sigurary to welcome to the program. What is Lulu get
Speaker 2: him right this time?
Speaker 3: Well, I think a lot of this is just the
Speaker 3: entire sector is doing really, really well. When you look
Speaker 3: at the numbers for other companies that are selling similar products,
Speaker 3: whether it's on running or you're looking at Dick's boarding goods,
Speaker 3: they are doing incredibly well as well. So the shopper
Speaker 3: is just spending in this category. Lulu has been performing
Speaker 3: incredibly well for years, and this year it was more
Speaker 3: just because of some lower guidance that some of the
Speaker 3: numbers are soft and it's been underperforming the market. But
Speaker 3: the story is that their overall top line has been
Speaker 3: strong and some of these international sales, as you point out,
Speaker 3: have been a big driver in its success, which is
Speaker 3: interesting because that is perhaps one of the areas where
Speaker 3: it may have some softness in the future if tariff's
Speaker 3: actually become more prevalent.
Speaker 2: Well situated to It's interesting also because so many have
Speaker 2: struggled in international markets, particularly in China. What undepends success
Speaker 2: that that have a.
Speaker 3: Yeah, it could a lot of it is likely just
Speaker 3: newness to the Chinese consumer. Chinese consumers, like many consumers
Speaker 3: around the world, are often interested in purchasing whatever is
Speaker 3: on trend, whatever is new there is influenced by social
Speaker 3: media as consumers anywhere in the world, and I think
Speaker 3: that Lulu has had a strong formula for success and
Speaker 3: that is that that has been an enormous driver in
Speaker 3: the US. Some of it's interesting that some of these
Speaker 3: numbers were softer in Q three, but I expect in
Speaker 3: the next quarter, particularly as that will be the holiday numbers,
Speaker 3: it should be even stronger.
Speaker 1: We'll see treated I might be revealing too much about
Speaker 1: my social media habits, but all over TikTok Instagram, I
Speaker 1: see all these influencers saying, hey, these pair of sweatpants
Speaker 1: from Lululemon, you can get the exact same thing on
Speaker 1: Amazon for a third of the costs. What is the
Speaker 1: bigger threat to Lulu? Is it the Alo Yoga, the Viory's,
Speaker 1: the high ends of the world, or is it Amazon
Speaker 1: in fast fashion?
Speaker 4: Well, that's a.
Speaker 3: Great question, because the biggest threat to Lulu is likely
Speaker 3: that competition where they could be become the new middle
Speaker 3: and that's absolutely where they don't want to be. They
Speaker 3: need to continue preserving their premium positioning. They need to
Speaker 3: be very very careful about promotions and discounting, because you're
Speaker 3: absolutely right, they're competitive threats that are at the high
Speaker 3: end and they're absolutely the knockoffs at the low end,
Speaker 3: and you don't want to be either. You need to
Speaker 3: make sure that every part of the brand, the logo,
Speaker 3: all of those elements are preserved and protected, and that
Speaker 3: discounting doesn't become too prevalent in its business model.
Speaker 1: How are they on that front on inventories and fighting
Speaker 1: off discounting suit tread Are they doing a good job
Speaker 1: there to fend off falling into the middle.
Speaker 3: It seems at the moment that they are fairly strong.
Speaker 3: This is a company that seems to have pricing power
Speaker 3: and seems to be able to get away with minimal discounting.
Speaker 3: You don't necessarily see the huge, huge Cyber Week and
Speaker 3: Black Friday promotions that other brands and the deep discounts
Speaker 3: that other brands are forced to reckon with. They did
Speaker 3: have an inventory situation earlier in the year, it seems
Speaker 3: like it has stabilized a bit, so it appears to
Speaker 3: have some They seem to be in a better position
Speaker 3: going in to Q four and I expect that that
Speaker 3: will also carry through twenty twenty five.
Speaker 5: So true to when it comes to the international business
Speaker 5: analyst for noting that it was the legans category that
Speaker 5: was seen as strength for the first time in a while,
Speaker 5: But I thought the Lulu problem was the fact that
Speaker 5: they were leaning too much into tight fitting clothing and
Speaker 5: how to go into a more baggy look. Which one
Speaker 5: is it well.
Speaker 3: A lot of this is also very dependent on regional
Speaker 3: preferences too, So the challenges are that that certainly that
Speaker 3: they're going to have to figure out from their merchandising standpoint,
Speaker 3: from their product development standpoint, what is appropriate in which markets, where,
Speaker 3: which colors, which styles are going to resonate more with shoppers.
Speaker 3: A lot of that is going to be influenced by
Speaker 3: social media, much of it is going to be influenced
Speaker 3: by even store associates in stores, So a lot of
Speaker 3: this is going to fluctuate it. That is one of
Speaker 3: the challenges of being a fashion retailer. But also what
Speaker 3: Lulu has is the ability to actually shape what shoppers
Speaker 3: want by what it has in the store and what
Speaker 3: it's positioning as what is on trend at any given moment.
Speaker 5: When you look at the US and also consumers around
Speaker 5: the world, which do you see right now in terms
Speaker 5: of who is the most picky, where's the pickiest consumer?
Speaker 4: I will, oh, that's.
Speaker 3: A great question, because consumers everywhere are pretty picky, and
Speaker 3: this is one of the things that we are certainly
Speaker 3: seeing is that certainly at the low end, consumers are
Speaker 3: incredibly fickle because they're the most economically distressed. But even
Speaker 3: at the high end, we see a lot of fickleness
Speaker 3: because those consumers, while they're still flush with cash, they
Speaker 3: have so much choice. And we see that in some
Speaker 3: of those US numbers. And that's absolutely an issue that
Speaker 3: that every business that is trying to to attract higher
Speaker 3: end customers has to face.
Speaker 2: To catch jump. As always sat there forrest the research.
Speaker 2: I want to cross to Tom post of page Jim.
Speaker 2: Tom joins us now for more. Tom, your first reaction
Speaker 2: today one what jumps out to you.
Speaker 4: Yeah, it's so good to be with you all.
Speaker 6: Look, I think at the end of the day, you know,
Speaker 6: this report is pretty consistent with what our you has been,
Speaker 6: which is to say, you know, the labor backdrops has
Speaker 6: slowed down quite a bit.
Speaker 4: I think there are some cracks in the.
Speaker 6: Labor backdrop, but if the floor is not falling out
Speaker 6: from beneath this year, I mean, if I look, we
Speaker 6: like to look at something called cyclical hiring, and so
Speaker 6: basically you just take private jobs, you strip out healthcare.
Speaker 4: You know, we we gain one hundred and twenty one
Speaker 4: thousand jobs this month.
Speaker 6: I mean, you know, even if we exclude the prime month,
Speaker 6: which was you know, impacted by all the things that
Speaker 6: we know at this point, Boeing and the hurricane, you're
Speaker 6: averaging about one hundred thousand jobs from a sickle go
Speaker 6: hiring perspective. So again, our view has been that continued
Speaker 6: economic expansion will roll into the coming year, but you know,
Speaker 6: you're going to do it with a labor backdrop that
Speaker 6: that has slowed down, and I think, you know, we'll
Speaker 6: kind of will remain soft.
Speaker 1: Tom. Just to be clear, does this change anything when
Speaker 1: it comes to December to December cuts the rhetoric we've
Speaker 1: heard from FED officials.
Speaker 6: No, Danny, I think I think you're quite right to
Speaker 6: ask this question. No, I don't think it changes anything.
Speaker 6: I think at the end of the day, I think
Speaker 6: that this is a kind of number that will support
Speaker 6: the FED cutting rates in December. I think that you know,
Speaker 6: looking for you know, two or three more cuts in
Speaker 6: the coming year. I think is completely reasonable. But again,
Speaker 6: I think it's interesting, right because people were really looking for,
Speaker 6: you know, sort of that are hopeful that this report
Speaker 6: will really bounced back in a more notable way than
Speaker 6: what we've seen, and it didn't. And I think that
Speaker 6: really drives home that when you look at all this
Speaker 6: other labor market data, all those other labor data really
Speaker 6: have really slowed down quite a bit. I mean, if
Speaker 6: you're waiting for the payroll report to crack, it's too late.
Speaker 4: I mean, this is one of the most lagging of.
Speaker 6: Economic indicators, and as I think we all appreciate now,
Speaker 6: is revised relentlessly. So I think when we look at
Speaker 6: some of the leading metrics, it does seem like things
Speaker 6: are slowing down.
Speaker 1: Does that mean that the bigger risk for volatility in
Speaker 1: this market, for volatility of policy is next week CPI
Speaker 1: PPI import prices.
Speaker 6: Yeah, Danie, And that's again one of the sort of
Speaker 6: the unfortunate realities, right. I mean, when you think about
Speaker 6: the things that really drive monetary policy decisions, a lot
Speaker 6: of them are lagging indicators like the payroll report, like CPI.
Speaker 4: So I think you're again, I think you're right.
Speaker 6: I think that we're probably going to be swung around
Speaker 6: by some of this data because while this report at
Speaker 6: twenty seven and it's pretty reasonable, I mean, you can't
Speaker 6: discount that next month you're gonna have a low one handle.
Speaker 6: I mean, that's how the data have been rolling. And
Speaker 6: then of course you then build.
Speaker 4: In the revisions. It's like you're not just looking at
Speaker 4: the current month anymore.
Speaker 6: You have to look at what the prior month did
Speaker 6: from a revisions perspective.
Speaker 4: So yeah, I do. I think that things actually might
Speaker 4: have been pretty bolts on that regard.
Speaker 2: If you are just joining us, welcome to the program.
Speaker 2: You just missed out on the job's number two twenty
Speaker 2: seven a small upside surprise. The media estimate was two
Speaker 2: twenty unemployment came at four point two percent. That is
Speaker 2: the wrong kind of upside surprise. We were looking for
Speaker 2: four point one percent. Way, just come again, just a
Speaker 2: little bit hotter than expected, in line with the previous
Speaker 2: month at zero zero point four percent. Joining us now,
Speaker 2: Muhammad al Erman a, Queen's College, Chambridge, Mohammed, You've had
Speaker 2: about seven eight minutes to choose over these numbers. What
Speaker 2: stands out to you, sir?
Speaker 7: Thank you? John. As Jim Bianco pointed out, the challenge
Speaker 7: for the market and for policy would have been a
Speaker 7: consistently strong report. This is a somewhat strong report, but
Speaker 7: not consistently strong. So it is strong on the earning side.
Speaker 7: It is is strong on the labor participation coming downside,
Speaker 7: let's supply, and is also strong on a small beat unemployment.
Speaker 7: But the fact that the unemployment weight went up means
Speaker 7: that the FED will be comfortable cutting by twenty five
Speaker 7: basis points means that the market will increase the probability
Speaker 7: of this happening. So on the policy front, this did
Speaker 7: not complicate what would have been in messy situations for
Speaker 7: the reasons that Jim pointed out. On the economy side,
Speaker 7: join just a confirmation that the labor market remains solid
Speaker 7: and that US exceptionalism is set to continue.
Speaker 2: But it makes a decision easy to cut twenty five.
Speaker 2: Maybe still got to wait for CPI next Wednesday. I wonder, though,
Speaker 2: if it's still just as hard to signal anything for
Speaker 2: twenty twenty five in the news conference, what is that
Speaker 2: exercise going to look like in two weeks time?
Speaker 7: So it would be hard for this FED because this
Speaker 7: FED is so reactive, is so data dependent, that it
Speaker 7: will simply tell us that it will remain la data dependent.
Speaker 7: And I suspect that while their range is going to
Speaker 7: compress a little bit, he's still going to have quite
Speaker 7: a wide range in terms of the terminal rate. You know,
Speaker 7: the FAT always has two options. The option it took
Speaker 7: in twenty twenty one and got completely wrong, which is
Speaker 7: to look forward, And now it's shied away from that
Speaker 7: and went to the option of being excessively data dependent.
Speaker 7: And I suspect they'll stay excessively data dependent. So we're
Speaker 7: not going to get any strong signals other than we
Speaker 7: will remain data dependent.
Speaker 1: Tom, can I get your opinion on this? What it
Speaker 1: looks like in December with the summary of economic projections,
Speaker 1: looks like what they can project forward if at all?
Speaker 6: Yeah, Look, I think Muhammad is quite right. I think,
Speaker 6: you know, prudence, I think is demanded right now. You know,
Speaker 6: Powell's in a he's in a slightly tricky spot, and
Speaker 6: I think he's laid the groundwork for that, right Like
Speaker 6: you think about his speech at the Deal Book the
Speaker 6: other day, you know, I think what he laid out
Speaker 6: there to me, I think made a lot of sort
Speaker 6: of practical sense. You know, they're just going to continue
Speaker 6: to wait and see how the data unfold from here.
Speaker 4: They're not going to pre commit.
Speaker 6: Him, and he's already sort of put He's already laid
Speaker 6: the groundwork for you know, sort of a skip after
Speaker 6: the December meeting. I mean he's been pretty clear and
Speaker 6: that not just that that the Deal Book meeting, but
Speaker 6: during the last press or two so so I think,
Speaker 6: you know, when I think about the sort of the
Speaker 6: step at large, I mean, look, I don't know that
Speaker 6: they have to make any wholesale changes here. I mean,
Speaker 6: you know, the economy is more or less evolving in
Speaker 6: a similar fashion to what they have there for.
Speaker 4: Twenty twenty five.
Speaker 6: So again, I think it would be in their best
Speaker 6: interest to not really make any wholesale changes.
Speaker 4: This is a nipping and tucking outcome.
Speaker 5: I think, Well, when it comes to the data, and
Speaker 5: we're still waiting on CPI next week, Muhammad, last time
Speaker 5: you were on for the job Suport, you said inflation
Speaker 5: is not dead. What kind of number could we see
Speaker 5: that could potentially change the fence of thinking at this
Speaker 5: upcoming meeting, Denry, and you.
Speaker 7: Heard from from the chair saying that inflation has been
Speaker 7: more stubborn than he extended he and the FED expected. Look,
Speaker 7: we're going to see inflation stuck in the two and
Speaker 7: a half to three percent range for the Fed's preferred measure.
Speaker 7: The core measure, and the FED is going to have
Speaker 7: to make a decision. My gut feeling is that it
Speaker 7: will run with this number there, promising us two percent
Speaker 7: down the road, and I suspect we'll see seventy five
Speaker 7: basis points of cut still, but they're going to be
Speaker 7: spread out like like you just heard. It's going to
Speaker 7: be cut, pause or skip and then cut, and then
Speaker 7: we're going to have a huge conversation. Was this a
Speaker 7: Hawkish skip? Was it a Dubs skip? So we're going
Speaker 7: to we're going to go to the third differential now
Speaker 7: because we don't we lack proper policy guidance.
Speaker 2: Maham as you went there, So what kind of skip
Speaker 2: or cut? Are you expecting? A Davish cut, a Hawkish cut?
Speaker 2: What are you looking for?
Speaker 7: Look, no one is going to predict this when when
Speaker 7: you know that the reaction function of the FED is
Speaker 7: backward looking because it will depend on the latest number.
Speaker 2: Unfortunately, and CPI drops next Wednesday. Bon yolds right now
Speaker 2: are lower by about four basis points on a tenure,
Speaker 2: We're down by about two basis points. Equity futures still
Speaker 2: higher on a session on the S and P five
Speaker 2: hundred by close to two tens of one percent. The
Speaker 2: numbers topped about twelve minutes ago. I want to cross
Speaker 2: back over to Mi McKee for a little bit more.
Speaker 2: Mikey went through what was behind that uptick in unemployment,
Speaker 2: the snap back that we didn't really get. I think
Speaker 2: a lot of people in the market were looking for
Speaker 2: a big snapback in payrolls. Where did we get some
Speaker 2: growth and where did we miss out?
Speaker 8: Well, what's really interesting is we saw a decline in
Speaker 8: retail sales hiring minus twenty eight thousand in the month
Speaker 8: of November, when people are usually staffing up, which leads
Speaker 8: you to believe that there may be some seasonal effects
Speaker 8: to this. The seasonal adjustment factors may be holding down
Speaker 8: the number of jobs created a little bit. Trade and
Speaker 8: transportation jobs also down twenty three thousand, and that's usually
Speaker 8: when we're seeing the additional ups and X drivers and
Speaker 8: that sort of thing, So a little bit of a
Speaker 8: surprise there. We did see manufacturing rebound with thirty four
Speaker 8: thousand jobs, so good news there. Construction only ten thousand,
Speaker 8: and we're looking at the government hiring is one of
Speaker 8: the highest at thirty three thousand, but almost all that
Speaker 8: was state in local federal government lost two thousand jobs,
Speaker 8: and our old friend leisure in hospitality did rebound fifty
Speaker 8: three thousand jobs totally. About twenty eight thousand of those
Speaker 8: were in the restaurant business, so people getting jobs there.
Speaker 8: And then I do want to point out the three
Speaker 8: digit unemployment rates four point two four to six for November,
Speaker 8: so basically just below a four point three percent reading
Speaker 8: would have gotten the Fed's attention if not worried them.
Speaker 8: Remember they forecast in September four point four percent by
Speaker 8: the end of the year.
Speaker 2: Good catch, MI, because we can't get down to the
Speaker 2: open and bound in about forty six minutes time. You'll
Speaker 2: see the outperformance on a small caps the Rustle by
Speaker 2: something like eight tens of one percent at the moment
Speaker 2: on the screen, by point eighty one off the back
Speaker 2: of this move lower at the front end of the
Speaker 2: yield curve, with yields down something like four basis points.
Speaker 2: Jeff Rosenberg of Black Rock joins US now to get
Speaker 2: his input on the program. Jeff, Welcome to the program.
Speaker 2: The panel is so far suggesting the door is still
Speaker 2: pretty much wide open for twenty five basis point reduction.
Speaker 2: It's not your sense of thing as well for two
Speaker 2: weeks time.
Speaker 9: Yeah, I think that's the read. This is clearly just
Speaker 9: reiterating a gradual slowing in the labor markets. As Mike
Speaker 9: just pointed out to three digits that unemployment rate kind
Speaker 9: of helps the FED come in December to cut. The
Speaker 9: market was already pricing seventy percent of an outlook for that,
Speaker 9: and I think the bond market reaction, the initial reaction,
Speaker 9: is just kind of increasing that on the kind of
Speaker 9: gradual labor market slow down. So I think that's very
Speaker 9: much the read. And as the panel was just discussing,
Speaker 9: we're going to pay to this, you know, pause skip
Speaker 9: debate and what kind of message that means. But the
Speaker 9: big debate is over the degree to which cuts have
Speaker 9: to take place in twenty twenty five, and the disconnect
Speaker 9: between financial conditions which are going to be easier after today,
Speaker 9: and the degree of restrictiveness that you still see some
Speaker 9: of the committee members believe justifies that that number of
Speaker 9: cuts that they're forecasting into twenty twenty five.
Speaker 1: Jeff, are you arguing then that you need to have
Speaker 1: a FED who starts paying attention more to these financial conditions.
Speaker 1: That conversation is kind of gone by the wayside. Are
Speaker 1: they going to have to rethink cuts because of what
Speaker 1: this market is doing?
Speaker 4: You know, it's gone by the wayside.
Speaker 9: But then there was a little bit of acknowledgment of
Speaker 9: it in Powell, kind of acknowledging, yeah, we cut fifty
Speaker 9: and then the data revised. You know, the whole issue
Speaker 9: is really about the strength of the economy. And as
Speaker 9: Muhammad rightly points out, this is a very very data
Speaker 9: dependent and reactive fed and the data that's key here
Speaker 9: on how restrictive policy is is really economic growth. And
Speaker 9: you don't see economic growth well below potential. You see
Speaker 9: economic growth above potential, and that's telling you that monetary
Speaker 9: policy is not as restrictive as they think it is. Now,
Speaker 9: there's a little bit of a disconnect between whether you're
Speaker 9: looking at the growth measures, whether you're looking at the
Speaker 9: labor market. Take out about one hundred thousand from today's
Speaker 9: payroll print, that's hurricane and strike payback. The labor markets
Speaker 9: are moderating, that's the best evidence of the restrictiveness. But
Speaker 9: outside of that, you really see the impact of financial conditions.
Speaker 9: Animal spirits is a very supportive financial conditions environment, and
Speaker 9: that's how monetary policy transmits so maybe you don't need
Speaker 9: to keep pushing into financial conditions easing by this degree
Speaker 9: of cuts that they've been signaling.
Speaker 5: Well, Mohammad mentioned it earlier about now in the third degree,
Speaker 5: if the door's open for this cut and there's going
Speaker 5: to be a bias to twenty five basis points, then
Speaker 5: what is the tone and the rhetoric around that. Is
Speaker 5: it going to be a hawkish cut because they're going
Speaker 5: into twenty twenty five and there's going to be a
Speaker 5: lot of change of fiscal policy in Washington.
Speaker 9: Well, it's hawkish in this relative to expectations. Right, So
Speaker 9: two weeks ago, four weeks ago, the market was expecting,
Speaker 9: you know, a very aggressive pace of FED cuts. Now
Speaker 9: we've priced that out from the markets, and so there's
Speaker 9: a little bit less of a disconnect between the Fed
Speaker 9: moderating the pace of cuts into twenty twenty five in
Speaker 9: market expectations. So that may read hawkish, but if it
Speaker 9: confirms market expectations, not so problematic. If there's a even
Speaker 9: greater acknowledgment of that, I think that would be surprising
Speaker 9: and that would read hawkish.
Speaker 4: I think when you get.
Speaker 9: Into twenty twenty five, it is going to be about
Speaker 9: understanding this pace of cuts has to slow because the
Speaker 9: economy and the data doesn't support the amount of restrictiveness
Speaker 9: that the FED thinks.
Speaker 2: They currently have another round of FED speed coming up today,
Speaker 2: and then obviously we're going get into the quid period.
Speaker 2: I think they've been quite consistent for the weeks so far.
Speaker 2: We've mentioned this quote from Governor Waller in a speech
Speaker 2: from him earlier this week, cuts or skip, this is
Speaker 2: what he has to sound the neutral rate. There is
Speaker 2: still some distance to go in reducing the policy rate
Speaker 2: to neutral, to post sudy over a PHM. I just
Speaker 2: want to give you a final word, just quickly, on
Speaker 2: the neutral rate. They think they're a long way away
Speaker 2: from neutral. They think they've got space here, which means
Speaker 2: they can carry on cunning interest rates. How much distance
Speaker 2: do you think there is between where we are and
Speaker 2: where neutral might be.
Speaker 4: It depends which Fed officially you ask, right. I mean,
Speaker 4: think about the dispersion.
Speaker 6: In the estimates of what neutral is. I mean the
Speaker 6: low end is two and a quarter and the upper
Speaker 6: end is three seventy five.
Speaker 4: Right per thelong term dot obviously nominal we're talking.
Speaker 6: Here, there's one hundred and fifty basis points have spread,
Speaker 6: so depending that you ask it, could you could be
Speaker 6: really far away from it. I think, what's going to
Speaker 6: wind up happening, John, is this so if you look
Speaker 6: at the feeds twenty five dot, the.
Speaker 4: Meeting is three point four percent.
Speaker 6: I think what's going to wind up happening is that's
Speaker 6: going to shifre higher, right And I think, and I
Speaker 6: think to Jeff for a point, I think I think
Speaker 6: it'll wind up shifting higher to where the where the
Speaker 6: market is right. The market is percing here, I think
Speaker 6: three seventy right now by the end of the year.
Speaker 4: So you take out.
Speaker 6: One of those one of those four cuts that they
Speaker 6: have priced in for next year. I think it falls
Speaker 6: in line with what the market is thinking. And I
Speaker 6: don't think that has to be terribly disruptive.
Speaker 2: Tom Post Sally pagm Tom, I appreciate your time, sir.
Speaker 2: Thank you, Muhammad. I want to come back to you
Speaker 2: on the same question. I think this is an important debate.
Speaker 2: How we reconcile our differences here between whether the market
Speaker 2: might believe neutral is and what this Federal Reserve is signaling.
Speaker 2: How do you think we close that gap?
Speaker 7: I think we close it by fudging. A very key
Speaker 7: variable to all this is what is the inflation target? John.
Speaker 7: If your inflation target is two percent, then you should
Speaker 7: not cut in December. If your inflation target is somewhere
Speaker 7: between two and a half and three, which is justified
Speaker 7: by all the changes, all the structural long term changes
Speaker 7: going on the economy, then you cut and we are
Speaker 7: fudging this. No one wants to talk about this. I
Speaker 7: don't know if you saw if your Fridays ago in
Speaker 7: the afternoon the feed put out what it's discussion of
Speaker 7: the monitored framework coming up and set explicitly we will
Speaker 7: not discuss the inflation target. But critical to all this
Speaker 7: is what the facto inflation target. What they run with
Speaker 7: my own gut feeling, as I said, John, they're going
Speaker 7: to run with slightly higher and that means that ultimately
Speaker 7: they'll end up somewhere between three and three quarters and four.
Speaker 1: Mohammad, what about the argument that they can't abandon what
Speaker 1: they have now is their inflation target, because it's important
Speaker 1: in setting expectations. It's important not to have people run
Speaker 1: away and think that we're going to have higher sustained
Speaker 1: inflation and therefore change consumer habits. Is there any credence
Speaker 1: to that argument.
Speaker 7: I think there is, and I think you can. There's
Speaker 7: many ways to do it, and people have come up
Speaker 7: with different ways.
Speaker 4: My concern is.
Speaker 7: If they truly believe that two percent is somehow given
Speaker 7: to them, It's not an arbortuary number, and if they
Speaker 7: try to get there and stick to that inflation target,
Speaker 7: they will sacrifice the American exceptionalism. That's what I'm worried about.
Speaker 7: But then at the end of the day, I think
Speaker 7: they're going to fudge it by saying two percent down
Speaker 7: the road and it's just going to be a very
Speaker 7: long road.
Speaker 5: Jeff, do you agree with Mohammad that two percent down
Speaker 5: the road is going to be very long?
Speaker 4: You know?
Speaker 9: I do, And I think this is a really important debate,
Speaker 9: and the VET has had this debate, and I agree
Speaker 9: with Mohammad. They're not going to announce a change to
Speaker 9: the inflation target. They're going to stick to the target,
Speaker 9: d Any, for the reasons you point out.
Speaker 4: They agree as well.
Speaker 9: It's very important to expectations, but there's a lot of
Speaker 9: room for interpretation. And so two two and a half,
Speaker 9: two point six, two point seven, and I agree with
Speaker 9: Mohammad that the cut in twenty in December of twenty
Speaker 9: five basis points is kind of telling you where they
Speaker 9: lean on inflation versus growth. I think there are some
Speaker 9: long term consequences for that, because if the bond market
Speaker 9: wakes up to the fact that there's a tolerance for inflation,
Speaker 9: and the real test is as long as inflation is
Speaker 9: gradually moving lower, and even if it's moving sideways, they
Speaker 9: can kind of play this fudget game. The real test
Speaker 9: is what happens if the acceleration and growth, the impact
Speaker 9: on financial conditions starts to press on inflation. And the
Speaker 9: one thing we didn't talk a lot about and you know,
Speaker 9: it's hard to see here whether the wage number today
Speaker 9: and the slight uptick is just a mix shift or not.
Speaker 9: But you haven't really seen the wage numbers kind of
Speaker 9: conforming two depends on productivity, the two percent inflation target.
Speaker 9: The real challenge is going to be what do they
Speaker 9: do if inflation starts to go back up. Not predicting that,
Speaker 9: but that's where you kind of are going to put
Speaker 9: this two versus fudging to two and a half really
Speaker 9: to task.
Speaker 2: That's the risk of twenty twenty five. Jeff Rosenberg of
Speaker 2: Blank Rock, Jeff thank you, sir, if you want just
Speaker 2: joining us once again, welcome to twenty seven is the number.
Speaker 2: It's an upside surprise against a two twenty estimate. Unemployment
Speaker 2: just creeping a little bit higher four point two and
Speaker 2: very close to four point three. The estimate was four
Speaker 2: point one percent. The takeaway for a lot of people
Speaker 2: in this market. It leaves the door wide open for
Speaker 2: an interest rate reduction on December eighteenth, still one more
Speaker 2: data point still to go CPI next Wednesday. Muhammadal arians
Speaker 2: still with us for some final thoughts. Muhammad, we all
Speaker 2: notice that you published the ft column ahead of this
Speaker 2: conversation this time, and I noticed the content of that
Speaker 2: piece as well. It's not about whether the US will outperform.
Speaker 2: It will, it's the extent to which it will diverge
Speaker 2: from the rest of the world you noted earlier this week,
Speaker 2: and I think it's a perfect time just to finish
Speaker 2: and think about the rest of the global economy as
Speaker 2: we get two twenty seven in America and start to
Speaker 2: complain about whether that's good enough. The rest of the
Speaker 2: world is struggling. You noted China and a potential japanification
Speaker 2: of China's economy. We've noted Europe's inability to govern it
Speaker 2: south for the whole week so far in a tripolar world, Muhammad,
Speaker 2: what does twenty twenty five look like?
Speaker 7: It's a world of dispurgon.
Speaker 4: John.
Speaker 7: You know I've been saying with you for the last
Speaker 7: few months, the good, the bad, and the ugly of
Speaker 7: the of the global economy or the follow The good
Speaker 7: is the US, the bad is China, the ugly is Europe.
Speaker 7: And we've had confirmation of that over the last few weeks.
Speaker 7: It is a world where there's going to be significant
Speaker 7: differences in the three systemically important economies, and that's going
Speaker 7: to play out in the currency market first and foremost.
Speaker 7: It's also is going to play out in yields, but
Speaker 7: it will continue to suck capital into the US. And
Speaker 7: that's the good news for US markets that if you
Speaker 7: think of Tina, there is no alternative. There is right
Speaker 7: now no alternative to American exceptionalism in relative.
Speaker 1: Terms, Muhammad. Just just to hang on the point of Europe.
Speaker 1: Robin Brooks of Brookings wrote a column yesterday basically saying
Speaker 1: Europe desperately needs a weaker euro and now should be
Speaker 1: the moment where the ECBD couples from the FED where
Speaker 1: they cut, and they cut aggressively because they need some
Speaker 1: sort of stimulus that's not coming through governments in Europe.
Speaker 1: Would you agree with that.
Speaker 7: A weaker euro will be like pushing on a string.
Speaker 7: What Europe needs is fundamental structural reforms. The Drug Report
Speaker 7: sets out the fundamental problem they have with productivity, with competitiveness.
Speaker 7: A weaker euro stimulus doesn't address.
Speaker 4: Or structural issues.
Speaker 7: So, Danny, I think it's much deeper than that, and
Speaker 7: I think that Europe has to understand that unless it
Speaker 7: takes serious steps, it will fall further behind. Unfortunately, diminished
Speaker 7: is a further step. You need political leadership, and we
Speaker 7: know what the situation is like in France, we know
Speaker 7: what it's like in Germany, and there is no European
Speaker 7: policy without France and Germany leading right now.
Speaker 2: There is very little leadership, that's for sure. Mohammed, We're
Speaker 2: lucky to get some time with you.
Speaker 4: I'm apreciate it.
Speaker 2: Mohammed el aerin there of Queen's Collors, Cambridge. This is
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Speaker 7: HM