Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's get these uh
Speaker 1: some handle, get a handle on these markets, which they
Speaker 1: continue to rip. The SMP five up about one point
Speaker 1: five percent, NASDAC even stronger, up point one point nine
Speaker 1: per cents on the back of that better than expected
Speaker 1: inflation data. Let's check in with Vince Signarolla, global macro
Speaker 1: strategist with Bloomberg News. Vince, I mean, you know, we
Speaker 1: had really good jobs numbers last week. We got better
Speaker 1: than expected inflation here. The White House is rightfully so
Speaker 1: taking victory lapse here. What do you make of it
Speaker 1: and what do you make of the markets response? Well,
Speaker 1: I think the market response is somewhat appropriate. We're seeing
Speaker 1: a couple of things. We're always been seeing a bit
Speaker 1: of risk with seeing energy prices coming off as inflation
Speaker 1: balls over. Interesting thing is I'm talking to some traders
Speaker 1: this morning. They're a little confused about the treasury market
Speaker 1: move is selling in the in the back end. But
Speaker 1: what that represents is there's been such a big trade
Speaker 1: on inflation being sort of just here for the next
Speaker 1: six maybe twelve months, and so there's been a lot
Speaker 1: of selling in the front end um buying in the
Speaker 1: back end. The traders now reversing that trade, and so
Speaker 1: we're seeing some widening, uh narrowing of the inversion in
Speaker 1: the two tents. And that's what's driving that I would
Speaker 1: like to point out, and you know, I've been beating
Speaker 1: this room for a while now about how the FITS
Speaker 1: forecasts been terrible and that this is a transient situation
Speaker 1: and they're just just rushing into something and not giving
Speaker 1: the economy a chance to catch up from the pandemic
Speaker 1: confusion of a huge amount of money and keeping weights
Speaker 1: basically far too well for too long with a higher
Speaker 1: balance sheet. The ft is actually operating. If you look
Speaker 1: at this situation eight to this to the Fed being
Speaker 1: like a Fortune five hundred company. They're trying to match
Speaker 1: quarterly estimates to what the market is expecting and they
Speaker 1: keep missing the mark. And for the Fed, it's an
Speaker 1: even worst case basis, because they're being held accountable for
Speaker 1: monthly numbers, and so we keep hearing from them. Don't
Speaker 1: watch monthly numbers. Don't watch monthly numbers. We've got a
Speaker 1: high jobs report. What do they do? Oh, we have
Speaker 1: to say higher for longer because of higher jobs. They
Speaker 1: they're just not incredible. I I honestly just don't know
Speaker 1: why people keep trying to trade what the FED says
Speaker 1: and losing money by by that. For for example, when
Speaker 1: it's it's insane. I mean, there are academics who've never
Speaker 1: said the word done but bence. So you don't expect
Speaker 1: the FED to stick to a vulcal like um rate
Speaker 1: rise regime. You think at some point this Fed is
Speaker 1: going to turn around and start cutting rates. I don't
Speaker 1: know that they're going to cut rates per se, because
Speaker 1: we still have inflation a long long way away from
Speaker 1: where they want to see it, so there's no real
Speaker 1: reason to cut rates. But they really need to stop
Speaker 1: and give the monetary policy a chance to work its
Speaker 1: way through the system. Monetary policy. But we're only at
Speaker 1: two and a half percent, like that's still still nothing,
Speaker 1: of course, But why is everybody in such a hurry
Speaker 1: to get rates to five percent. Monetary policy doesn't react
Speaker 1: on a daily basis. I saw a tweet from someone
Speaker 1: today who said, oh, my cup of coffee went down
Speaker 1: for me. I mean prices to come I mean to
Speaker 1: expect prices to come down. Paul checks the gas prices
Speaker 1: every single day, plus he checks regular and we all
Speaker 1: know that he tanks premium. So yeah, like see that's
Speaker 1: I feel sorry for those out there on the premium scale.
Speaker 1: But but but but so so that we've heard a
Speaker 1: lot of FED speakers talk about the importance of front loading.
Speaker 1: I don't personally know what it is why they want to,
Speaker 1: but because they think that inflation is going to go
Speaker 1: to and stay there, they could not be more dead along.
Speaker 1: And I'll tell you exactly why and why this isn't
Speaker 1: the seventies. And if I hear at one boy thought,
Speaker 1: I'm gonna throw a textbook at so much. If you
Speaker 1: have wage games that are not above capital letters above
Speaker 1: the inflation rate, you cannot have sustaining inflation. The consumer
Speaker 1: will pull back. They have absolutely no choice. I can't
Speaker 1: spend what you don't have. Savings of creator disposable income
Speaker 1: is creator wages are to keep your place with inflation revolving.
Speaker 1: Credit is the highest that's been in two thousand eight,
Speaker 1: and that's credit card. That where does the Fed think
Speaker 1: this money is coming from. It's certainly ain't coming to
Speaker 1: my next pay hike from Bloomberg. Well, I mean, well,
Speaker 1: yesterday we watched the President sign a bill that's going
Speaker 1: to give fifty two billion dollars in subsidies to chip makers.
Speaker 1: Those are private companies, you know, owned by shareholders, not
Speaker 1: government companies. Um, so he's gonna give them the biggest
Speaker 1: subsidy boost we've ever seen the federal government hand out.
Speaker 1: That's one place the money can come from. Two things
Speaker 1: about that build Number One, they've got more chips than
Speaker 1: they know what to do with right now because they
Speaker 1: frontloaded lovely phrase. They're buying from Taiwan because they thought
Speaker 1: there was going to be this indefinite shortage. The US
Speaker 1: companies in the chip industry are are are They still
Speaker 1: get their chips from Taiwan and then they reperp them
Speaker 1: through their customers there, so their end units users are
Speaker 1: still paying hot crisis. The subsidies are going to be
Speaker 1: a future situation, which will of course help curb inflation
Speaker 1: because that will bring prices down. The other part of
Speaker 1: that bill, which I love, which was the e V makers.
Speaker 1: Auto analysts are basically saying, hardly any cars are going
Speaker 1: to meet the standards as the government has put in
Speaker 1: that bill to meet the credit. Well, I don't I
Speaker 1: don't know, Vince. I mean, they're extending a credit or
Speaker 1: giving a broader credit to automakers or two to consumers
Speaker 1: rather um to buy e vs that are already sold
Speaker 1: out with a two year waiting list. So they're just
Speaker 1: pumping so much money into this system. A lot of
Speaker 1: people would argue for no reason, and that's what causes inflation.
Speaker 1: There's a very there's a very good reason. We have
Speaker 1: mid term elections coming up to November. That's the only
Speaker 1: reason for this bill. And it's the only reason why
Speaker 1: all those credits don't show up until because if they
Speaker 1: showed up now and no one could buy those cars
Speaker 1: because they can't either find them or the credit doesn't
Speaker 1: apply to them, it wouldn't do it. Damn things. So
Speaker 1: the whole thing was the whole thing is ridiculous, by
Speaker 1: the way, by the way, you want to hear ridiculous,
Speaker 1: They're gonna so extend the credit. It's a seventy five
Speaker 1: hundred dollar federal credit for electric vehicles like the Ford Lightning.
Speaker 1: Paul and I are big fans of the Ford Lightning.
Speaker 1: It's an awesome car. It's a hundred thousand dollar truck,
Speaker 1: and Ford just raised the price of it by eight
Speaker 1: thousand five d There you go. I saw that yesterday
Speaker 1: exactly so. But you're gonna who's who's that? Who's that
Speaker 1: subsidy for? You know what? The most interesting thing that
Speaker 1: absolutely no one is talking about. It was a few
Speaker 1: days ago the New York said, did their consumer expectation surfeit?
Speaker 1: Do you know of which income group sees the inflation
Speaker 1: moderating the most? Those people who make less than fifty dollars,
Speaker 1: The people most impacted by inflation, who live paycheck to paycheck,
Speaker 1: expect prices to come down. And why because they're beginning
Speaker 1: to see it. They wouldn't expect it otherwise. So where
Speaker 1: is this inflation coming from? You get fed smester saying
Speaker 1: it's not affecting me. Well, thank you very much. Nice
Speaker 1: to be in the one person where you can afford
Speaker 1: she said. She said, I know prices are going up,
Speaker 1: and it doesn't bother me because I have enough money.
Speaker 1: I'll tell you. I'll tell you a truth. When I
Speaker 1: was trading at US Bank, we replaced the global effex
Speaker 1: manager with a lawyer who knew nothing about effects and rates.
Speaker 1: My cousin was training at City Bank to five. I
Speaker 1: told him what was going on. He said, best you
Speaker 1: start looking for a job because anyone who's never said
Speaker 1: the word done is not somebody you want to work
Speaker 1: for in a risk market. So we are trying to
Speaker 1: follow a fet We're the only person who's ever had
Speaker 1: a real job is Powell. And they keep telling us
Speaker 1: what's going to happen to the weights and efex and
Speaker 1: they've never thought a trade in their looks? Why does
Speaker 1: that make me feel good about these people? Why? Why
Speaker 1: are they credible to anybody? So just ten ten seconds?
Speaker 1: What context do you say done as a trader? Done
Speaker 1: as a trader as you actually do a trade. Somebody
Speaker 1: says that you make me a price, you do the
Speaker 1: deal and say done. You know about that? That's traders
Speaker 1: speak there, This is what we Why's why we have
Speaker 1: you on. Vince shot out of a Ken and Vince Cignarella.
Speaker 1: He does all the strategy stuff. He's traded rates, he's
Speaker 1: traded FX. God knows what else he's traded, probably, you know,
Speaker 1: standing in the pitch trading crude oil for all we know.
Speaker 1: But he's a bloomberg at News. He talks to traders
Speaker 1: all the time, and we'd love to get his call
Speaker 1: on these markets, particularly when you got a big, big
Speaker 1: move like we do today. It's bringing Lindsay Piegsa. She
Speaker 1: is the chief economist for stephle Lindsay, you know, I'm
Speaker 1: not an economist, thank goodness, um, but I do know
Speaker 1: a good labor market. Last week, I do see the
Speaker 1: print here on inflation. Today things look pretty good. How
Speaker 1: do you put it all together? Well, I think from
Speaker 1: the standpoint of the labor market. Last friday's job stumpers showed,
Speaker 1: as the Fed has described, the labor market still solid growth,
Speaker 1: keeping the FEDS eye on the inflation ball at this point,
Speaker 1: while we could argue that the recessionary boxes have been
Speaker 1: checked for the consumer, for manufacturing, for housing, the labor
Speaker 1: market has really been that silver lining. But from an
Speaker 1: inflationary standpoint, this morning's number was a little bit mixed.
Speaker 1: It did give the more dubbish a lean as we
Speaker 1: look at some of those numbers. Now the reprieve was
Speaker 1: very minimal, and for the average American households at lower
Speaker 1: gas prices, while welcomed, does not offset the painfully high
Speaker 1: costs on nearly every other component of their monthly expenditures.
Speaker 1: But still it was a step in the right direction.
Speaker 1: So looking at investors bets, we do see that being
Speaker 1: towards a smaller fifty basis point increase as opposed to
Speaker 1: seventy five next month. But why but if you're the Fed, um,
Speaker 1: wouldn't you want to just stay on course regardless of this?
Speaker 1: You know, one data point does not a trend make
Speaker 1: Oh absolutely, So this this is the problem. The market
Speaker 1: is anxious to call a peak in inflation. The market
Speaker 1: is anxious for the Fed to signal there almost done
Speaker 1: fighting inflation, they're going to start to decelerate. But the
Speaker 1: Fed has been very clear that they're keeping their eye
Speaker 1: on the ball. They're going to continue to raise rates
Speaker 1: until they're convinced by several consecutive reports that inflation is
Speaker 1: on a meaningful and sustainable downward trend back towards that
Speaker 1: two inflation targets. So right now the market is questioning
Speaker 1: the Fed's resolved to remain resilient the FED says it will.
Speaker 1: Whichever blinks first is going to determine the directional momentum
Speaker 1: of raps from By the way, lindsay, I also am
Speaker 1: anxious to have seen the peak in inflation, and I'm
Speaker 1: anxious to see the FED slow down its rate hikes.
Speaker 1: But um, does it really Is it really a bad
Speaker 1: thing for the economy if the Fed keeps raking rate
Speaker 1: hiking rates so long as inflation continues to come down
Speaker 1: and we have these you know, five thousand job editions, Well,
Speaker 1: I suppose it depends if you want to take your
Speaker 1: medicine now or if you want to kick that down
Speaker 1: the road. If the FED decides to take a more
Speaker 1: benign policy pathway and doesn't root out the inflation dragon,
Speaker 1: then we may run into the scenario of still elevated prices,
Speaker 1: but now we have much more a much more prolonged
Speaker 1: period of very minimal growth, or the conditions lining up
Speaker 1: for stagflation. If, however, the FED is willing to push
Speaker 1: us into maybe a temporarily deeper recessionary position but get
Speaker 1: inflation under control, then we can talk about a more
Speaker 1: robust recovery. On the flip side, lindsay, I'm trying to
Speaker 1: make the case to my boss is that they should
Speaker 1: send me out to Jackson Hole, Wyoming. Um, tell us
Speaker 1: what happens in Jackson Hall, Wyoming in the month of
Speaker 1: August every year, and should we pay attention? Well, Traditionally
Speaker 1: the FED has used the Jackson Hole meeting to give
Speaker 1: an increased assessment or an updated assessment of where policy
Speaker 1: makers are in terms of the longer term view for
Speaker 1: the policy pathway. But this time around it's unlikely to
Speaker 1: warrant much attention, as we've already heard from the Chairman
Speaker 1: that decisions on policy are not being made on a
Speaker 1: longer term, a longer term assessment of the economy, but
Speaker 1: they're being made meeting to meeting. So just like the
Speaker 1: market is overreacting arguably to one data point, so too
Speaker 1: is the FED basing next month's decision on the incoming data,
Speaker 1: the latest incoming data. Alright, So what are your expectations, lindsay,
Speaker 1: for the US economy? Um, do we see in inflation
Speaker 1: cooling back down closer to the two percent level? And
Speaker 1: do we have recession? Well, that's that's those are some
Speaker 1: big questions there. First off, I do think that growth
Speaker 1: remains very minimal, throughout the year, and I do think
Speaker 1: that looking backwards, the NBR will eventually acknowledge a recession
Speaker 1: started either in the first or the second quarter from
Speaker 1: an inflation from unemployment, absolutely, because I think the three
Speaker 1: and a half percent unemployment rate is not necessarily capturing
Speaker 1: the full, the full sense of what's happening in the
Speaker 1: labor market. Remember, the growth that we've seen in job
Speaker 1: creation is less about new jobs being created and more
Speaker 1: about old jobs being replaced. Remember as of July, that's
Speaker 1: when we recaptured the full twenty two million jobs lost
Speaker 1: during the Great Recessions. So over the past eighty months,
Speaker 1: essentially we've just clawed back to where we were. We're
Speaker 1: not talking about new job creation above and beyond the
Speaker 1: one's loss. So I do think when we look at
Speaker 1: the loss of real income, the decline and manufacturing, the
Speaker 1: laws of real spending, top line GDP, and negative territory,
Speaker 1: even though the employment numbers are giving us an artificial
Speaker 1: sense of solidity, I think that we are in processionary condition.
Speaker 1: I don't know my my third of my fourth children
Speaker 1: actually got a real, real job as they call it.
Speaker 1: So to me, that is a wicked strong labor market
Speaker 1: so nz PA, thanks so much for joining US. Chief
Speaker 1: econras managing director at Steve giving us her thoughts here.
Speaker 1: We love talking to Lindsay a nice perspective to the
Speaker 1: market here. We were just talking to Bloomberg's Bevince Signarolla
Speaker 1: just earlier this morning and he was making a comment
Speaker 1: talking about chips, and he sent along some news here.
Speaker 1: Demand for chips is collapsing, just as President Biden signs
Speaker 1: a bill to jump start more US chip making, which
Speaker 1: is very interesting because we've got some very mixed the
Speaker 1: bad numbers coming out of some of these chipmakers over
Speaker 1: the last a few days and kind of just kind
Speaker 1: of goes to this, you know, strategic importance of having
Speaker 1: chip manufacturing in the U. Keith Croc joins us. He's
Speaker 1: a fan of Croc Institute for Tech Diplomacy at Purdue
Speaker 1: University West Lafayette, Indiana. Some really good stuff there. They do.
Speaker 1: It produced some smart engineering geeks that perdue, no question
Speaker 1: about it. Hey, Cai talked to us about this chip
Speaker 1: business because at the beginning of the pandemic, when China
Speaker 1: shut down, we all the whole world shut down. We said,
Speaker 1: oh boy, we need chips for a lot of stuff,
Speaker 1: and we don't really make a lot of chips here.
Speaker 1: So the talk really ramped up of you know, kind
Speaker 1: of on shoring some chip manufacturing capability. And I think
Speaker 1: that's what the Chips Act UH does. How should we
Speaker 1: think about that? Well, I'll tell you what fellas I'm
Speaker 1: here in Washington, d C. I was invited yesterday by
Speaker 1: the White House UH for the for the signing. It
Speaker 1: was a great deal for America, for national security, for
Speaker 1: global economic security, and long term prosperity. You know, when
Speaker 1: you talk about UH these quarterly results for the chip makers,
Speaker 1: I would not be worried about that at all, because
Speaker 1: this chip business is growing so fast. You know, a
Speaker 1: slowdown from that means in on the average, it goes
Speaker 1: from growth down to growth. We're under the capacity now,
Speaker 1: you know. Let me tell you why, UH, this is
Speaker 1: such an important bipartisan you know, two utter an eighty
Speaker 1: billion dollar bill. First of all, it's about securing the
Speaker 1: semiconductor supply chain that is critical for national security. The
Speaker 1: second is this investment, which now is going to result
Speaker 1: in a three fifty billion dollars UH in the in
Speaker 1: in chip manufacturing in the United States and to help
Speaker 1: US maintain that lead as well as a two billion
Speaker 1: dollar investment UH with direct funds in R and D.
Speaker 1: And what that's gonna drive is jobs, jobs, jobs, and
Speaker 1: not just any kind of jobs, highly skilled jobs. And
Speaker 1: I think I think you fellas understand that. You know,
Speaker 1: our adversaries pay an a four dimensional game of diplomatic, economic, military,
Speaker 1: and cultural chess. That's john and they're playing well. And
Speaker 1: they they're doing it the same way we are. Right
Speaker 1: they had this centrally controlled economy. They're just passing out
Speaker 1: money to companies and deciding who are winners and losers.
Speaker 1: I don't understand this. I don't get why. And you
Speaker 1: got your mba Harvard, so you probably know better than
Speaker 1: I do. Know. He recently got a pH d and
Speaker 1: some engineering stuff. So why on the economic side, why
Speaker 1: don't we let the market, the free market decide, or
Speaker 1: if it's such a national security issue, why don't we
Speaker 1: take over this industry? Like why are we halfway here
Speaker 1: between like um state controlled socialism and free market capitalism?
Speaker 1: What are we doing Keith? These companies already make a
Speaker 1: lot of money, These shareholders have already gotten very rich.
Speaker 1: Why are we giving them, you know, billions tens and
Speaker 1: ten of billions of dollars in government subsidies. Right, I'll
Speaker 1: tell you exactly why. So my last role was under
Speaker 1: Secretary of State for Economic Growth, Energy and the Environment.
Speaker 1: Before that, I ran three public companies. I've been in
Speaker 1: Silicon Valley most of my of my career. And here's
Speaker 1: was happen. We invented the semi conductor business. Here's what happened. Countries,
Speaker 1: particularly Asian countries, realized how strategic it is, and they
Speaker 1: subsidized the semiconductors. So they literally pulled it off our shores.
Speaker 1: And the investment that goes into these manufacturing facilities is humongous.
Speaker 1: We did the largest onshore in history when I was
Speaker 1: under Secretary of State, twelve billion dollars for one of
Speaker 1: the most sophisticated chip plants ever. And by the way,
Speaker 1: that has fifteen hundred workers on the production plot and
Speaker 1: sit super said of them are either master's degrees or PhDs.
Speaker 1: And we lost that talent alright, So give us a
Speaker 1: sense of just how strategic you think ensuring some of
Speaker 1: this capability is. Because again it became acutely aware even
Speaker 1: to lay people like myself that uh, you know when
Speaker 1: China shuts down, Taiwan shuts down for whatever reason. That's
Speaker 1: a problem. Matt Miller can't get his well for other
Speaker 1: industries should we be doing exactly It's taking me so
Speaker 1: long to get this truck from Chevrolet. I'm very excited.
Speaker 1: It's apparently coming up this month and I cannot wait.
Speaker 1: It's the z R two UM, which I'm so pumped about.
Speaker 1: But you know, if we're doing this for chips, why
Speaker 1: aren't we doing it for planes or trains or automobiles. Well,
Speaker 1: this is first of all, semiconductors is the most important
Speaker 1: industry in the world because it lays the foundation not
Speaker 1: only for everything in the tech area, but as you
Speaker 1: guys say, in the in the automotive field, in the
Speaker 1: energy field, you know, in the aerospace UH field. So
Speaker 1: the important thing is to secure uh this supply line.
Speaker 1: You guys saw what happened during during the pandemic, so
Speaker 1: uh And and the other thing that is is absolutely
Speaker 1: killed key is this skill set um you know, UH
Speaker 1: we lost We've lost it uh here in the United States,
Speaker 1: and now this is gonna bring it back. One other
Speaker 1: great thing about this UH Chips and Science Act, it
Speaker 1: also is funding UH research in critical national security sectors
Speaker 1: like quantum computing, like six G, like biotech, and this
Speaker 1: is this is in the area where you know, the
Speaker 1: United States used to be number one in R and D.
Speaker 1: We were down a number nine. And one last thing
Speaker 1: is that when we presented we are when we architected
Speaker 1: this bill, we presented the Senator Schumer and Senator Young
Speaker 1: and what we showed them is with this level of investment,
Speaker 1: you're gonna get it three times uh three, full additional
Speaker 1: investment from the private sector. Keith, let me quickly ask you.
Speaker 1: We only got thirty seconds here, but what do you
Speaker 1: think about the e V credits? Is that subsidy also
Speaker 1: important for American jobs and carmakers? Well, I can, I can,
Speaker 1: I can tell you what I think being you know,
Speaker 1: former CEO Docum signed and the REBA is that these
Speaker 1: guys are on the ninety days shot clock, right, and
Speaker 1: so to be this enables you to look long term,
Speaker 1: and that's key. And by the way, for the for
Speaker 1: the e V credits is long is that technology is
Speaker 1: developed in the US. Because Shina owns solar panels, so
Speaker 1: we've got to do something about that, all right, Keith,
Speaker 1: great stuff really appreciate getting your perspective. Keith Croc, founder
Speaker 1: of the Croc Institute for Tech Diplomacy at Perdue UH.
Speaker 1: He was also the former US Under Secretary of State
Speaker 1: for Economic Growth, Energy, and the Environment. Million jobs, million degrees.
Speaker 1: The guy used to be a VP at General Motors
Speaker 1: as well. I know, I've got to get him back on.
Speaker 1: He's done everything you gotta get. We'll get him back on.
Speaker 1: We'll get him next time he's in a sign, We'll
Speaker 1: get him here in the studio again. Some good economic
Speaker 1: data for the past few days. Let's check in with
Speaker 1: Jeff Cleveland. He does this for a living. He's a
Speaker 1: director in chief economist for Peyton and Regal. Hey, Jeff,
Speaker 1: you put today's CPI data together with you know, a
Speaker 1: really strong jobs report last week. I don't know what
Speaker 1: do you take away from that? Well, you know, it's
Speaker 1: interesting the month to month reading on core cp I,
Speaker 1: which slowed to point three. It could be just a
Speaker 1: fake out. We had a similar slow down back in
Speaker 1: the I guess was the March data that we got
Speaker 1: in April, so and then we saw core cp I
Speaker 1: re accelerate. So for my money, I think it's too
Speaker 1: soon to claim victory mission accomplished on on core inflation
Speaker 1: could be still moving higher and point three months of
Speaker 1: months isn't. Then I don't think that's enough to change
Speaker 1: the FEDS view here and then as it regards to
Speaker 1: you think the FEDS still gonna go seventy five at
Speaker 1: the next meeting. Yeah, we're gonna get another CPI report,
Speaker 1: We're gonna get another jobs report. So as of now,
Speaker 1: we're sticking with the seventy The reason being, I think
Speaker 1: you have to put on your central banker hat and
Speaker 1: you have to think, Okay, how do they think that
Speaker 1: policy effects inflation? And the way they look at it
Speaker 1: is that they need to get interest rates up enough
Speaker 1: to push up the unemployment rate. That's their goal. Once
Speaker 1: the unemployment rate starts a rise, then wage pressure comes off,
Speaker 1: and then inflation core inflation slows. We haven't had that
Speaker 1: happen yet. We had a really strong jobs report, the
Speaker 1: unemployment rate moved to cycle low. So if you're a
Speaker 1: central banker, you I think you're still keeping your your
Speaker 1: foot on the break in terms of monetary policy, not
Speaker 1: slowing down it and definitely not on a a welcome
Speaker 1: But it could just be one month of soft CPI data.
Speaker 1: Isn't it enough if they just keep wage increases below
Speaker 1: the level of inflation? Or do they really have to
Speaker 1: do we really have to see jobs losses? Well, I
Speaker 1: think they're gonna be really unhappy with five and a
Speaker 1: half percent UH average hourly earnings, frauductivity at zero or
Speaker 1: even falling. UM that situation and the implication for unit
Speaker 1: labor costs we saw yesterday, I think that's a really
Speaker 1: really bad mix. Is going to be very unhappy with that.
Speaker 1: So I do I do think they want they don't
Speaker 1: want to admit it in public, but they want to
Speaker 1: see the unemployment rate right that. They want to see
Speaker 1: wage growth slow back down somewhere. Maybe. I think closer
Speaker 1: to two to three percent is a good ballpark. Damn.
Speaker 1: I want a raise that that's equal to or greater
Speaker 1: than headline cp I. Yeah, you didn't get that. You know, well,
Speaker 1: I still have the request in and I feel like
Speaker 1: American workers are gonna want that too. I'm always sending
Speaker 1: that requested. It keeps getting rejected. So I I hear you.
Speaker 1: I think that's the that's the that's the correct thinking.
Speaker 1: I just, um, I don't know how realistic that is
Speaker 1: for me or for you? All right, Jeff, again, I
Speaker 1: asked our guests here, should we expect anything from jackson Hole? Uh?
Speaker 1: This month? Should I make my book my trip out there? Well?
Speaker 1: Sometimes jackson Hole is sort of s O Terek Rite
Speaker 1: some fringe kind of topics, maybe not really mainline monetary
Speaker 1: policy topics. But I feel like this year, maybe this
Speaker 1: year is different. Maybe this year is is surrounding the
Speaker 1: question that we're going to talk about here, which is
Speaker 1: how much does the unemployment rate need to rise to
Speaker 1: get to get inflation back down? Sort of I don't
Speaker 1: know bread and butter monetary policy questions, so it might
Speaker 1: actually be more more central to markets then maybe it
Speaker 1: has been in the last couple of years. So this
Speaker 1: FED seems less esoteric. I mean they seem to care
Speaker 1: about headline inflation, not just core PC right, um, at
Speaker 1: least it seems important to to to Powell, well, headline
Speaker 1: is tied to gas prices, and gas prices are tied
Speaker 1: to consumer inflation expectations, So that's I think they're right
Speaker 1: to care about that. They care about inflation of expectations.
Speaker 1: The question for me is still Okay, where is inflation?
Speaker 1: Where is the underlying trend of inflation, and I still
Speaker 1: think looking at headline month to month does not help
Speaker 1: you with that. You gotta look um later this morning,
Speaker 1: look at media and CPI from the Sleeveland Fed. Look
Speaker 1: at the trim mean, look at the underlying sticky measures,
Speaker 1: and you're still seeing pretty strong. I look at gasoline
Speaker 1: and that is it. I'm an equity He's gotta keep
Speaker 1: it nice and simple and coming down. So that's good stuff.
Speaker 1: Jeff Cleveland, Director and chief Economists at paid In in
Speaker 1: the Regal joining us right now in our Bloomberg Interactive
Speaker 1: Broker studios. Rob Barnett, he's the senior anals. He leads
Speaker 1: our energy coverage in Europe. He's based in London, but
Speaker 1: we got him here in New York. He's with Bloomberg Intelligence. Uh. Rob,
Speaker 1: a story that I think it just fascinates me because
Speaker 1: I think it's gonna get really, really bad. So I'd
Speaker 1: love to get your perspective. We talk a lot about
Speaker 1: global energy and we know that in Europe, primarily due
Speaker 1: to the war in Ukraine, Europeans and folks in the UK,
Speaker 1: you guys are preparing for a really tough winter. Give
Speaker 1: just framed that out for us. Yeah, so for anyone
Speaker 1: who's not following the gas market, gas in Europe is
Speaker 1: over sixty dollars per mmbtu right now, and where does
Speaker 1: it typically trade? Fractions of that? I mean, and the
Speaker 1: US is at around eight dollars per mm btu, so
Speaker 1: we're eight x where the US is at the moment today.
Speaker 1: A this is going to be a very challenging winter. Now,
Speaker 1: tariffs are actually regulated by the government, so consumers haven't
Speaker 1: really had to mark to market what they're paying yet,
Speaker 1: so it's going to be tough as the government's phase
Speaker 1: in those higher prices. And yeah, I'm stocking up on sweaters,
Speaker 1: just getting ready for colder showers, sweaters, everything that we
Speaker 1: can do to Uh, you're in England, right, I mean
Speaker 1: you're You're in London, so it's not gonna get that
Speaker 1: bad for you. In Berlin, which is basically in Poland,
Speaker 1: it's going to be really really cold this winter. And
Speaker 1: the Germans, I'm gonna ask you why decided to put
Speaker 1: all of their eggs in Vladimir Putin's basket? Why did
Speaker 1: angel A miracle Um make her nations so reliant on
Speaker 1: this Russian dictator? Well, I think as as many of
Speaker 1: you may know, Germany has had a long history with
Speaker 1: nuclear power, and they've actually phased most of their nuclear
Speaker 1: power plan out at this point. Despite Angela Merkel's history.
Speaker 1: She she was a nuclear engineer by training, right, So
Speaker 1: it's interesting choice he made. But the decisions all got
Speaker 1: made post Fukushima. Everyone got scared about nuclear a little
Speaker 1: over a decade ago, and that really drove a lot
Speaker 1: of the decision making around the reliance on gas because
Speaker 1: Europe's got a very strong green angle, particularly in Germany,
Speaker 1: so they wanted to get off coal. They were concerned
Speaker 1: about nuclear, and they hitched themselves to gas, and it's
Speaker 1: turning around. It's going to bite them hard, even though
Speaker 1: you know, the problem in Fukushima was an earthquake, yes,
Speaker 1: what do you call that? Giant waves tsunami right, which
Speaker 1: is so unlikely from the Bowden's a right, if that's
Speaker 1: not going to happen in Germany. And yet they ran
Speaker 1: straight to Moscow for all of their energy needs. I
Speaker 1: used to talk to Dan Burriette a lot when he
Speaker 1: was Energy Secretary, and he would come to Berlin every
Speaker 1: time he was there trying to pedal um l en
Speaker 1: G terminals because he wanted to sell more US gas
Speaker 1: and they turned him away, and and they are trying
Speaker 1: to make amends for that. Now. Germany and other parts
Speaker 1: of Europe are sprinting to get l en G import
Speaker 1: terminals built, but those things take a while. So this
Speaker 1: is a multi year process with no easy solutions in
Speaker 1: the next twelve to twenty four months, right, and in
Speaker 1: which time period we could see the Rhine River completely
Speaker 1: dry up. We were told that um the level on
Speaker 1: the Rhine could drop to sixteen inches by Friday, making
Speaker 1: it virtually impassable for the big coal and diesel barges
Speaker 1: that need to normally deliver energy through those roots. What's
Speaker 1: gonna happen, Yes, so there's stockpiles for a little bit
Speaker 1: of short duration disruption, but if we see this continue,
Speaker 1: it's just one more factor that's really putting pressure on
Speaker 1: that gas price that we talked about at the beginning here,
Speaker 1: and there really aren't easy alternatives in the near term.
Speaker 1: So you know, how bad does it get? I mean
Speaker 1: the reasonable there there's terminology they're they're talking about. The
Speaker 1: reasonable worst case scenario includes mandated power outages and things
Speaker 1: like that in many of the economies, So we'll see
Speaker 1: cities go dark already seeing that? Are you already seeing that?
Speaker 1: In Germany? Oh? Yeah, I mean Berlin was pretty much
Speaker 1: dark at night to begin with because they don't have
Speaker 1: enough money to pay for power before the surge in prices.
Speaker 1: Now they've got the big boom in prices. Plus all
Speaker 1: the rivers are drying up, those that are cooling nuclear
Speaker 1: plants are are too hot to do, so, I mean
Speaker 1: they've just got hit by it like a triple whammy, right,
Speaker 1: And we've just taken all of this for granted. I
Speaker 1: think in the West, we've just always been able to
Speaker 1: flip the switch and assume that the power is going
Speaker 1: to work. I think a lot of folks in society
Speaker 1: clearly took their eye off the ball. And it's gonna
Speaker 1: take a lot of time to figure this out. And
Speaker 1: renewables are great. I'm I'm very pro renewable energy. It's
Speaker 1: gonna but this stuff is a multidecade kind of solutions,
Speaker 1: and they're obviously intermittent. You've got to figure out hydrogen
Speaker 1: and battery storage and all of these things that we
Speaker 1: know are on the horizon, but none of them are
Speaker 1: kind of really here for prime time today. So the
Speaker 1: reality is today you've got to have some gas supply solutions,
Speaker 1: you've got to have coal in the mix. And you know,
Speaker 1: for better or worse, Germany should be doing everything it
Speaker 1: can to keep the nukes that they still have remaining running.
Speaker 1: They still have the potential to uh, they have some
Speaker 1: plants I think three that are running and they have
Speaker 1: the possibility of stretching it out. They're supposed to face
Speaker 1: them out by the end of the year, and the question, well,
Speaker 1: I don't think they can. By the way, Rob, have
Speaker 1: you seen there's a Norwegian drama called Occupied, which is
Speaker 1: really fantastic. It's about like, the premise is that Norway
Speaker 1: decides to stop exporting gas and oil, and so the
Speaker 1: EU allows Russia to occupy Norway, which sounds crazy, but
Speaker 1: or it did at the time. Now it sounds so
Speaker 1: realistic that you politics of energy in Europe are just
Speaker 1: absolutely fascinating, and you're right to point out Norway is
Speaker 1: so important to the gas equation. One of our analysts
Speaker 1: who covers Equinore, he had a focus idea in them
Speaker 1: earlier this year because they were really poised to benefit
Speaker 1: because of being the number two gas supplier into Europe.
Speaker 1: And you've got all these high prices, so some people
Speaker 1: are actually printing money because of where we are today,
Speaker 1: Larry putin up into all right, Rob, thanks so much
Speaker 1: for joining. Rob Barnett senior analysts covering energy out of
Speaker 1: our London office. He joins us live here on our
Speaker 1: Bloomberg Interactive Broker studio. He's a Bloomberg Intelligence. Thanks for
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
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