Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. Alongside Samir, we're joined
Speaker 2: by Chrishna Mamani of Lafaette College. Gents, great to catch
Speaker 2: up with you both. Submit it first to you? Is
Speaker 2: bad news just bad news? And could you define for
Speaker 2: us this Friday when we get payrolls what bad news
Speaker 2: looks like.
Speaker 3: Yeah, John, you know, as you know, we've been cautious
Speaker 3: for some time, and a lot of that caution has
Speaker 3: been driven by the fact that the FED raised reads
Speaker 3: so precipitously over the last couple of years. And although
Speaker 3: those kind of low invariable lags might be a little
Speaker 3: bit more long and a little bit more variable this
Speaker 3: time we've thought for some time that the economy will
Speaker 3: slow as far as Friday goes. I mean, the tricky
Speaker 3: part is, you know, there's gonna be some who are
Speaker 3: hoping for rate cuts to come back to the forefront.
Speaker 3: For those folks, they'll clearly want a worse number. I
Speaker 3: think the tricky part for us, though, is we tend
Speaker 3: to be more fundamentally driven, and if you do get
Speaker 3: a worse number, you know at some point you do
Speaker 3: have to deal with the slowdown on the way to
Speaker 3: those rate cuts.
Speaker 2: Chris, Now, let's talk about what bad actually is one
Speaker 2: twenty five over a Bank of America. That's bad news, apparently,
Speaker 2: Stuart Kaiser City, who'll be catching up with Lakes this week,
Speaker 2: headline paid ros below one fifty would be worsome? What
Speaker 2: is bad this Friday?
Speaker 4: Well, so, I don't think one fifty would be such
Speaker 4: a bad number. I think if you kind of put
Speaker 4: one fifty in conjunction with GDP now coming down from
Speaker 4: three percent to one point eight, you can make that case.
Speaker 4: But I think in the sequence of things that we
Speaker 4: have seen and the variability in employment, I don't think
Speaker 4: one fifty is a really bad number. The point I
Speaker 4: would make to kind of counter what Savere was saying was,
Speaker 4: you know, there will be a slowdown, and we have
Speaker 4: been hoping for a slowdown, but there's absolutely nothing in
Speaker 4: the data that indicates that things are actually slowing down
Speaker 4: in any perceptible way. I think the FED would like
Speaker 4: to see that, but there is really no evidence of
Speaker 4: that just yet.
Speaker 1: Hold on a second question. Now, a lot of people
Speaker 1: would disagree with you. Even Neil Dudda is actually getting
Speaker 1: as constructive as he has been in the past, partly
Speaker 1: because what you are seeing under the hood is ism,
Speaker 1: manufacturing coming in lower than expected, the US Economic Surprise
Speaker 1: Index falling to its most negative going back to twenty nineteen.
Speaker 1: Why is that not enough to say that things are slowing.
Speaker 4: I mean, things are certainly slowing from a very rapid pace.
Speaker 4: But I think if you have your growth rate at
Speaker 4: two percent at this point in the cycle, after five
Speaker 4: hundred and fifty basis points of rate increases, I don't
Speaker 4: think that is really would be considered a meaningful slowdown.
Speaker 4: That's the point I'm trying to make. That is, if
Speaker 4: we stay at two percent, which is what Neil says.
Speaker 1: He at two am.
Speaker 4: Last night to kind of confirm that. The fact is,
Speaker 4: if it is at two percent, then that's really not
Speaker 4: a slowdown at this point in the cycle.
Speaker 1: All right, Samir, So what would you say to that,
Speaker 1: given the fact that we've been grappling with this for
Speaker 1: a number of months now, what is slowing but not slow?
Speaker 4: Right?
Speaker 1: What is sort of the normal cooling that is positive
Speaker 1: versus something that is nefarious.
Speaker 3: I mean, first of all, I know I'm not in
Speaker 3: this DM group at two am at night, but you know,
Speaker 3: away from that, I mean, look, I think the tricky
Speaker 3: part is, like I said, those lags have been longer
Speaker 3: and maybe a little bit more variable, but every time
Speaker 3: somebody goes to refinance, they pay a much higher interest
Speaker 3: rate than they did the last year, the last two years,
Speaker 3: last three years. Right, So again that is creeping into
Speaker 3: the economy. You have seeing it on the lower rungs.
Speaker 3: I think you know, typically it tends to go up
Speaker 3: from the lower rungs to the upper rungs, and I
Speaker 3: think you're seeing that. I think you're also seeing, you know,
Speaker 3: whether it's all in yields on long corporates and high
Speaker 3: yield also creep up. I know spreads are low, but
Speaker 3: the amount of the companies are paying has gone up.
Speaker 3: So I think from that standpoint, what we see is
Speaker 3: a little bit of a saucer in terms of things
Speaker 3: come down, they settle into kind of a new normal,
Speaker 3: and then eventually, you know, you reaccelerate once kind of
Speaker 3: savings have been rebuilt and people have kind of worked
Speaker 3: off some of the.
Speaker 2: Excesses, and you're looking for that recovery in twenty twenty five,
Speaker 2: a recovery to a slow down that Christmas says hasn't
Speaker 2: happened yet. So may can you have to understand the
Speaker 2: next twelve months and how you think this place out.
Speaker 3: So I think for markets anyways, you know, I think
Speaker 3: probably the next few months are gonna be very choppy.
Speaker 3: I don't anticipate new highs in twenty twenty four until
Speaker 3: maybe after the elections. And again I think that's depending
Speaker 3: on when we finally get kind of clarity around the elections,
Speaker 3: which you know, possibly could push into late twenty four
Speaker 3: early twenty five. I think once we get that clarity,
Speaker 3: then I think the markets can kind of figure out,
Speaker 3: all right, you know, which set of socks will do
Speaker 3: well kind of in this administration, whoever that might be.
Speaker 3: And then I think, you know, we do make new
Speaker 3: highs probably in twenty twenty five alongside that economic recovery.
Speaker 4: To share that view, well, I think the overall trend
Speaker 4: in for acid prices is probably higher. I don't think
Speaker 4: it happen in early twenty twenty five, and a lot
Speaker 4: of the policies that will be implemented after the election,
Speaker 4: I think if there's a driver on the upside, it's
Speaker 4: probably going to be driven by that far more than
Speaker 4: the election results themselves, because there'll be some amount of uncertainty.
Speaker 4: But having said that, though I think from an economic perspective,
Speaker 4: things started at a good place, the real question is
Speaker 4: how do you kind of incorporate that okay economic news
Speaker 4: in the context of valuations and likelihood that inflation remains
Speaker 4: somewhat elevated relative to what the FED would.
Speaker 1: Like it to be.
Speaker 2: I love this right.
Speaker 1: You guys have different kind of economic outlooks, perhaps, but
Speaker 1: you might have the same actual investment thesis. You're still
Speaker 1: just saying t bill's.
Speaker 4: And chill, Well, bills and chill, because I think the
Speaker 4: summer is basically lost, like the second quarter was lost.
Speaker 4: In the things started not slowing down in February. It
Speaker 4: became quite clear that we are going to be in
Speaker 4: this range bound market for quite some time, and that
Speaker 4: has how exactly it has panned out. It doesn't mean
Speaker 4: that things cannot go up. It's just that we have
Speaker 4: to catch up to evaluations. Let the economy, the economic
Speaker 4: growth run and let's see if inflation slows.
Speaker 5: Down, Samir, are you tbils and chill as well?
Speaker 3: You know, we don't mind the short end of the curve,
Speaker 3: but I think as we kind of approach the upper
Speaker 3: fours on the tenure, I think we would like to
Speaker 3: lead the duration. I mean, you know, I don't know
Speaker 3: if it takes six months or twelve months for the
Speaker 3: FED probably cuts and at that point probably you will
Speaker 3: see people start extend duration. We want to be a
Speaker 3: little bit ahead of that. I think, you know, from
Speaker 3: a from a market standpoint, from investing standpoint, I think
Speaker 3: the nice part for investors, and we've been on the
Speaker 3: right side of this is if you're in large caps,
Speaker 3: you get better profitability, better quality, better performance. That doesn't
Speaker 3: happen very often. So right now you can fade em,
Speaker 3: you can fade small caps and kind of concentrate more
Speaker 3: on the larger cap side. Be okay, and I think
Speaker 3: that's kind of the way to approach the next few months.
Speaker 2: Krishna.
Speaker 4: I think the point Samir is making is a really
Speaker 4: good one, which is, if you look at the markets
Speaker 4: and you kind of see which market has a higher
Speaker 4: potential of running away from you in a hurt, I
Speaker 4: don't think that's equity market, and I don't think that's
Speaker 4: bond markets on the negative side. I think if it is,
Speaker 4: it's bond markets on.
Speaker 2: The positive side, so yields, tropic.
Speaker 4: Yields, dropping bonds doing much better. I think if you
Speaker 4: wanted to take a punt on the risky side, that's
Speaker 4: the punt I would take rather than the other way.
Speaker 2: You mentioned the politics, samre Let's talk about that. This
Speaker 2: is what paid chairs basically said. Both candidates are troublesome
Speaker 2: for bombs and we'll get more and more clarity on
Speaker 2: that as the a C grows older. So may what
Speaker 2: would you sind back to that? For somebody's looking for
Speaker 2: that recovery in twenty five, there are others who are
Speaker 2: pointing to the bond market. It's troublesome, maybe the recipe
Speaker 2: for a problem in equities because of what may or
Speaker 2: may not happen come November.
Speaker 3: Yeah, look, I think with bonds you have to be
Speaker 3: very disciplined because again you do have kind of this
Speaker 3: fiscal proficacy in Washington. So I think again, if you
Speaker 3: push north of you know, again four to seventy five,
Speaker 3: I think there's some val you and fix comes, especially
Speaker 3: if there is some disappointment on the economic side. Right,
Speaker 3: you've got to kind of traverse this path of bad
Speaker 3: news to those fed cuts. So I think at four
Speaker 3: seventy five that probably makes some sense, But then you
Speaker 3: fall back down into the low fours, high threes. I
Speaker 3: think you have to reconsider and possibly close out some
Speaker 3: of those tactical long so I think at least for Treasury,
Speaker 3: especially on the longer end, I think you have to
Speaker 3: be very nimble. But I think there will be opportunities.
Speaker 2: Still ready ety dies, it's early June. Is it too
Speaker 2: early to talk about November?
Speaker 4: Oh, yes, very much so. I think there's a great
Speaker 4: deal of un just start to consider it.
Speaker 3: Well.
Speaker 4: I think when the picture gets slightly clearer, which is
Speaker 4: never the point is right now in terms of political developments,
Speaker 4: it's still very early and very uncertain. I think within
Speaker 4: a few months things will start crystallizing a bit more
Speaker 4: as to who's getting more.
Speaker 1: Traction that' said, what's the bigger risk right now? Because
Speaker 1: we've had numbers of guests come on and say, the
Speaker 1: bigger risk is that the Fed customer rates now, and
Speaker 1: then whoever wins in November is going to announce something
Speaker 1: fiscal package including prolonged tax cuts, including potentially tariffs, and
Speaker 1: that could send inflation higher and push shields higher.
Speaker 2: Do you buy that?
Speaker 4: I think that is certainly a risk. I don't buy
Speaker 4: that because I don't think the Fed is cutting rates
Speaker 4: anytime soon. Because I think for the Fed to cut
Speaker 4: rates anytime soon, especially ahead of the election, things have
Speaker 4: to slow down in a more pronounced way than they
Speaker 4: have done so far.
Speaker 1: Samir, this is actually an interesting debate that's percolating, and honestly,
Speaker 1: I don't get a good sense of where the majority
Speaker 1: of people stand. What is the balance of risks right
Speaker 1: now for the Federal Reserve that they're too tight or
Speaker 1: too loose. I mean, honestly, we still don't know.
Speaker 3: We don't And again, look, it's a bifurcated economy, and
Speaker 3: so you've got people who can make really good, solid,
Speaker 3: well reasoned arguments probably on both sides, which is why.
Speaker 3: I think there's you know, these opportunities that are kind
Speaker 3: of being underappreciated by markets. So I guess what we've
Speaker 3: done is maybe taken a step back and looked for
Speaker 3: you know, secular trends, right, things that will probably do
Speaker 3: regardless of whether the Fed cuts or doesn't cut, regardless
Speaker 3: of who wins them White House. So I would go
Speaker 3: back to energy industrials, materials all are involved with AI
Speaker 3: and you know, decarbonization in some ancillary ways, and then healthcare. Right,
Speaker 3: all those areas can grow earnings, they trade at reasonable valuations.
Speaker 3: Maybe you don't fully outperform, but you at least participate
Speaker 3: without having to lean into probably the most crowded trades.
Speaker 1: What about the bond offset on a long end?
Speaker 3: So again I think if we if we get you know,
Speaker 3: those markets come to us, I think that's a great offset.
Speaker 6: Right.
Speaker 3: You pair kind of some of those cyclical areas that
Speaker 3: are cheaper maybe you know, play well in an okay
Speaker 3: economy with kind of that hedge on the on the
Speaker 3: longer term fixed income side, because again, you know, if
Speaker 3: you if you do see a rough patch, those short
Speaker 3: term yields will melt very quickly.
Speaker 1: Final word, Christia yeah.
Speaker 4: I think the interesting thing about the bond market is
Speaker 4: we can worry as much as we want about fiscal
Speaker 4: profligacy and all of that stuff. But the moment you
Speaker 4: see a sign of a recession arrive, that's it. You know,
Speaker 4: we are rallying mass laws.
Speaker 2: What does that look like? The moment you see a
Speaker 2: sign of a recession arrive. And some people think we
Speaker 2: might have seen that already.
Speaker 4: Well again, it's not in the data. You might have seen.
Speaker 4: It doesn't exist. But the fact of.
Speaker 2: The matter is, I think for that a way for
Speaker 2: a group of economists to look back twelve months and
Speaker 2: say there it was well.
Speaker 4: For that to happen, I think consumption has to slow
Speaker 4: down significantly more, and employment has to The growth has
Speaker 4: to taper off, and you have to start losing jobs.
Speaker 4: There's no sign of that just yet.
Speaker 2: Krishna, Thank you big week of data. Appreciate your time.
Speaker 2: Christian Marley alongside submits amounta of wels Vaga and Laffette
Speaker 2: College respectively. Johnny us Now to look ahead to the
Speaker 2: week ahead is JP Morgan's CALSI Barrow and Bank for
Speaker 2: Americas Aditya Barve. Let's start with you CALCI first, of
Speaker 2: all on that calendar, and we can bring that calendar
Speaker 2: back up hopefully payrolls on Friday, jobless claims on Thursday,
Speaker 2: the ECB, We've got the m services read tomorrow as well.
Speaker 2: Take your pick on this calendar right now, what stands
Speaker 2: out for you? What's the big one for you and
Speaker 2: the team?
Speaker 1: So I think.
Speaker 7: The hard labor market data is really what is important
Speaker 7: to us, because when we look at the Fed's reaction function,
Speaker 7: we think it's becoming more asymmetric, meaning that the FED
Speaker 7: is going to be more sensitive to weaker economic data
Speaker 7: than they are to continued strength. Continued strength is what
Speaker 7: we all expect, right, So it's interesting when you talk
Speaker 7: about something like this is a manufacturing report which apparently
Speaker 7: drove the rally in yields yesterday.
Speaker 2: You say, apparently, well, isn't.
Speaker 7: Manufacturing has been below fifty for sixteen months in a row.
Speaker 7: It popped up above fifty in March and then fill
Speaker 7: back below fifty for the last two months. So essentially,
Speaker 7: the soft data has been telling us that the economy
Speaker 7: stinks for quite a while now, and it's the hard
Speaker 7: data that is actually going to move the needle. So
Speaker 7: you need to be looking at things like claims like
Speaker 7: jolts at ten am, and like the and the unemployment
Speaker 7: rate and job growth on Friday, because that's what's going
Speaker 7: to shift the fed's mindset from fighting inflation to protecting
Speaker 7: the labor market. We're not there yet, that's what we're watching.
Speaker 2: Let's pick up on that distinction. So it's soft Danka
Speaker 2: versus heard data, Adita. Do you think we're being misled
Speaker 2: by the survey data?
Speaker 6: I think we focus on the hard data, as Kelsey said,
Speaker 6: for the jobs report, we're pretty optimistic. We're looking for
Speaker 6: two hundred thousand in job growth, which should be just fine.
Speaker 6: That's trend like that keeps the FED very firmly on hold.
Speaker 6: Our view has been on the Fed that nothing changes
Speaker 6: until something changes. In other words, the data aren't strong
Speaker 6: enough for the FED to worry about hiking, but the
Speaker 6: data aren't weak enough to warrant rate cuts just yet.
Speaker 6: And we're very much sitting in that space very comfortably
Speaker 6: right now. As Kelsey said, focus on the hard data,
Speaker 6: focus on the jobs report. That's really where that's the
Speaker 6: start of this week's show.
Speaker 1: You see, as Kelsey said, But Kelsey also said the
Speaker 1: economy stinks has been sticking for quite a while.
Speaker 6: Do you agree, Well, she said, the soft data are
Speaker 6: telling you that the economy stinks. GDP growth was more
Speaker 6: than three.
Speaker 2: Percent last established laces plass not castles.
Speaker 6: GDP growth was more than three percent last year. In
Speaker 6: that entire period, the manufacturingism was under fifty. So if
Speaker 6: it pops about fifty very narrowly for a month and
Speaker 6: then goes back down below fifty, you know you take
Speaker 6: that with a grain of salt. The US is not
Speaker 6: a fundamentally a manufacturing economy, right, It's a service's economy.
Speaker 6: It's a consumer driven economy, and the consumer for now
Speaker 6: looks just fine. I mean, you talked about air travel
Speaker 6: over Memorial Day. For that week, we had more people
Speaker 6: flying than in any week last year.
Speaker 4: Right.
Speaker 6: We set a record above the summer peaks, above the
Speaker 6: Thanksgiving peak, the Christmas peak, So you're probably going to
Speaker 6: see even stronger summer travel this year. And personally, I'm
Speaker 6: not flying the summer for that reason.
Speaker 1: Really, well, I know that some people on this said
Speaker 1: did actually travel on a more labor moral day weekend
Speaker 1: and had fun experiences from what I can gather. I'm wondering, though, Kelsey,
Speaker 1: not to mischaracter or characterize what you're saying, but you
Speaker 1: do see enough weakness to validate the idea of FED
Speaker 1: rate cuts later this year.
Speaker 6: So I guess what gives you that.
Speaker 1: Confidence if the soft data has been thinking for quite
Speaker 1: a while, not necessarily the hard data, but you know,
Speaker 1: it's kind of left people in this level of uncertainty
Speaker 1: debating whether the FED is hot, too hot, too cold?
Speaker 1: You know basically what their biggest mistake could be.
Speaker 7: So if I think about how we've been positioned so
Speaker 7: far this year, the first five months this year, our
Speaker 7: game plan was to embrace the soft landing, to lean
Speaker 7: into credit, to lean into high yield, and to put
Speaker 7: less of our risk budget on duration. Now, there was
Speaker 7: a reason we still like duration, and that was because
Speaker 7: of valuations and the skew the skill, meaning the Fed's
Speaker 7: done hiking. We think the bar to restarting hiking is
Speaker 7: very high, and there is a ton of policy space
Speaker 7: for the FED to respond if things start to weaken.
Speaker 7: And I think there's a limit to the painless labor
Speaker 7: market rebalancing that we've experienced. So for example, job openings
Speaker 7: have come down, the unemployment rate hasn't gone up, the
Speaker 7: quicks rate has come down, the unemployment rate hasn't gone up. Now,
Speaker 7: that can persist for a period of time, but I
Speaker 7: don't think it can persist forever. So again, we're watching
Speaker 7: that labor market rebalancing. But I think the next move
Speaker 7: that the FED is going to make is ultimately going
Speaker 7: to be one that protects the strength of the labor
Speaker 7: market rather than one that in which they need to
Speaker 7: be fighting inflation. We do think that inflation generally is
Speaker 7: under control. The majority of the inflation overshoot we think
Speaker 7: is lagged, compositional, it's generally related to housing, and secondarily
Speaker 7: for CPI, it's auto insurance.
Speaker 2: Is that preemptive? Is that policy protection preemptive? Do they
Speaker 2: do that before they see weakness in the labor market
Speaker 2: or do they have to wait to actually see it.
Speaker 7: So when we look back at history, pretty much every
Speaker 7: rate cut is initially considered preemptive until it's not. So,
Speaker 7: I mean, if you look at what the market prices
Speaker 7: when the FED is doing their first cut, they always
Speaker 7: underestimate the amount of cuts that are actually delivered, And
Speaker 7: so yeah, I think it probably will be viewed as
Speaker 7: preentup initially, but then we'll have to see if it
Speaker 7: will be enough.
Speaker 2: I did cha, Do you agree?
Speaker 6: I'd say on the FED, you know, not so fast.
Speaker 6: We do have the first cut in December. But you
Speaker 6: have to recognize that over the last four months the
Speaker 6: core PC has been running at four percent annualized right
Speaker 6: March or sorry, the April data that was viewed as
Speaker 6: a big improvement, Well, guess what, we still annualize to
Speaker 6: more than three percent in April. So there's still some
Speaker 6: ways to go for inflation to come down. I agree
Speaker 6: that some of it is housing, but they can't look
Speaker 6: through that right because you just can't cherry pick in
Speaker 6: the situation that the FED is in right now.
Speaker 1: One of the backdrops to this is uncertainty around immigration.
Speaker 1: We were talking earlier to Seve Englander about that and
Speaker 1: how much that has been a supply shock in a
Speaker 1: way for the labor market. The other aspect is just
Speaker 1: fiscal stimulus in general. That aditya I know you've been
Speaker 1: pointing to as still being a tailwind to economic growth.
Speaker 1: How do you factor that in as something that is
Speaker 1: the new normal or continuable or something that isn't going
Speaker 1: to run out right, So.
Speaker 6: It actually does look like the fiscal impulse is fading
Speaker 6: If you look at the first quarter GDP data on
Speaker 6: both public and private investment, you got this very large
Speaker 6: surge in public investment as well as manufacturing structures, which
Speaker 6: was related. The public side was related to the IIJA,
Speaker 6: the private side was related to the Chips act in
Speaker 6: the IRA. Big deceleration across all of those components. Still growing,
Speaker 6: but much slower in the first quarter. So it looks
Speaker 6: like that stimulus has that that impulse to growth has
Speaker 6: run its course, which makes sense, right because at a
Speaker 6: certain level of investment, you can continue growing the capital stock,
Speaker 6: but investment doesn't need to keep growing, and I think
Speaker 6: that's where we are right now. So the fiscal impulse
Speaker 6: seems to be fading. That means that broadly, supply shocks
Speaker 6: are becoming less of a story and it's more of,
Speaker 6: you know, going to accelerate or is it going to
Speaker 6: cool off.
Speaker 2: You've got tons of data on bank balances, what people
Speaker 2: are spending month to month. What's that data telling you
Speaker 2: at the moment, So it still.
Speaker 6: Looks like spendings holding up pretty well. It's a little
Speaker 6: bit difficult to translate the daily data into monthly growth rate,
Speaker 6: so we still don't have a forecast for March retail sales,
Speaker 6: but sorry, may retail sales but may look pretty solid
Speaker 6: from what we've seen in the daily data. We'll see
Speaker 6: what it means.
Speaker 2: Don't want to get JP Morganjellius Chips has got tons
Speaker 2: of data, lots of balances. What do you see happening
Speaker 2: with the consumer?
Speaker 7: Well, we do see the consumer continuing to spend, and
Speaker 7: I think when I when I think about what drives that,
Speaker 7: ultimately it's income growth. So again it all ties back
Speaker 7: to this labor market report. You know, we do see
Speaker 7: consumer sentiment is soft. We do see from consumers that
Speaker 7: they're trading down, that they're a little bit more conservative.
Speaker 7: We see delinquency rates are rising for lower income consumers.
Speaker 7: So there are cracks forming. But ultimately, as long as
Speaker 7: you're employed, you know, you can continue to keep spending,
Speaker 7: and that is ultimately what we're seeing.
Speaker 1: How much do you see immigration and sort of the
Speaker 1: supply shock from that level kind of changing the numbers
Speaker 1: or making it look better than it is on the
Speaker 1: labor front. That's what Steven Glitter was saying earlier.
Speaker 7: I think that is part of the story. The FED
Speaker 7: is acknowledged that's part of the story. It's part of
Speaker 7: the painless rebalancing in the labor market that we just discussed,
Speaker 7: and it's something that we're going to have to continue
Speaker 7: to monitor. But I think probably you know, the bulk
Speaker 7: of that impulse, the surprise associated with immigration and the
Speaker 7: resiliency of the labor market associated with immigration, we've now
Speaker 7: factor that in, so you know, I'm not sure exactly
Speaker 7: how much more we're going to get from that going forward,
Speaker 7: particularly when you know the whole regime could change in November.
Speaker 1: This raises this question of what is normal I mean
Speaker 1: on a lot of levels, and I mean that sort
Speaker 1: of next essential way too, but also this idea of
Speaker 1: what are we going back to? I did you do
Speaker 1: have a sense of that?
Speaker 6: So if you the challenge doing that is that any
Speaker 6: of these macro models that you run to kind of
Speaker 6: get trend growth our star, they all tend to be
Speaker 6: a bit backward looking, so you're not going to capture
Speaker 6: structural changes until it's too late. Instead, I think you
Speaker 6: have to think about, you know, what factors might have
Speaker 6: driven structural changes and then just make sort of qualitative
Speaker 6: judgments on how long they can last. So on the
Speaker 6: fiscal impulse, on the labor supply shok, we think that's
Speaker 6: probably not going to last because with labor force participation,
Speaker 6: ultimately demographics will win. With immigration. Even if you maintain
Speaker 6: current levels, it's difficult to keep growing at these rates.
Speaker 6: So the labor supply shock has probably run its course.
Speaker 6: It could last for another six months as these new entrants,
Speaker 6: you know, take time to get jobs. And then on
Speaker 6: the investment side as well, the impulse has probably run
Speaker 6: its cosed. So at least in growth terms, we probably
Speaker 6: go back to roughly two percent growth.
Speaker 2: The DASA this week send the stage for the federateserve
Speaker 2: next Wednesday. Let's talk about that briefly, three part act statement, forecast, news, calm, diference.
Speaker 2: Walk us through where we are on the dot plot
Speaker 2: at the moment, how you and the same Cassie expect
Speaker 2: that to sort of evolve in the next way co site.
Speaker 7: So the market always moves ahead of the Fed. And
Speaker 7: just to go back to this conversation on the neutral rate,
Speaker 7: you know, we can all hypothesize what the neutral rate
Speaker 7: will be, but what are the markets saying. The markets
Speaker 7: are saying the neutral rate is higher. I don't know
Speaker 7: if it's as high as the trough that is currently
Speaker 7: being priced. The terminal rate right now is around three
Speaker 7: seventy five four percent is what the market's pricing. I
Speaker 7: think it may not be that high because that would
Speaker 7: imply a two or two and a half percent real rate,
Speaker 7: But that being said, the market is sending you a
Speaker 7: signal and I think we do need to listen to that. Similarly,
Speaker 7: when we think about the FED next week and the
Speaker 7: dot plot, you know, the market has adjusted to anticipate
Speaker 7: a dot plot that is going to show less cuts
Speaker 7: this year, and so you know, my expectation would be
Speaker 7: that you show instead of three cuts, it's going to
Speaker 7: show two. I don't think it could go to one,
Speaker 7: but it could. And then I think we are on
Speaker 7: a journey for the long run dot to continue to
Speaker 7: move higher. So we saw that first move from two
Speaker 7: point five to two point six, and to be honest,
Speaker 7: it's actually been going on for a while now. So
Speaker 7: if you look at the minimum and the maximum submissions,
Speaker 7: those had been drifting for really a year before the
Speaker 7: long term dot actually started to move. So we're in
Speaker 7: a transition there. But you know that happens way after
Speaker 7: the market sniffs it out.
Speaker 2: You're looking for complic counts this year, you're looking for one.
Speaker 2: Do you see the federals that have coming down to
Speaker 2: your view of the world Next Wednesday.
Speaker 6: It's going to be a close call between two and
Speaker 6: one cut and the dot plot this year. The question is,
Speaker 6: on the one hand, do you want to take that
Speaker 6: optionality out for September or do you want to leave
Speaker 6: it in or And on the other hand, are you
Speaker 6: concerned about sounding too dubbish and kind of moving incrementally
Speaker 6: knowing that you'll have to move again. Right, So it'll
Speaker 6: be a close call between two and one. But I
Speaker 6: think more importantly, there's going to be a lot of
Speaker 6: focus on the dots, but they're not going to matter
Speaker 6: that much because the FED is so data so it's
Speaker 6: all about the data. The dots will potentially cause some
Speaker 6: knee jerk reaction in the markets, but ultimately we just
Speaker 6: don't think they matter.
Speaker 2: Vulnerable from one data point to the next, and you
Speaker 2: can tell us if that date's point actually matters when
Speaker 2: we catch up next time. Cassie Barrow, JP Morgan, Cassie,
Speaker 2: thank you. Bank for America is at Echo bave a teacher,
Speaker 2: Thank you. This is the Bloomberg Surveillance Podcast, bringing you
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