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: Fence Jackson Hole Economic Symposium, kicking off today in Wyoming,
Speaker 2: Kansas City. FED President Jeffrey Smith sang officials will be
Speaker 2: closely watching inflation data ahead of next month's interest rate decision.
Speaker 2: He spoke with Bloomberg's My McKee just yesterday.
Speaker 3: This is, you know, kind of an interesting month because
Speaker 3: we've got Jackson Hole and then we've got quite a
Speaker 3: few weeks of data to kind of pull in. So
Speaker 3: I'm really I think everybody's quite interested in some of
Speaker 3: the maybe the prints that happened in the last couple
Speaker 3: of months and kind of where they go from here.
Speaker 4: So I'm like everybody.
Speaker 3: I think there was some fascinating conversations at the last FMC.
Speaker 3: As you know, there were a couple of cents. I
Speaker 3: think my interpretation of what's happening, especially in the labor market,
Speaker 3: is that the first couple quarters, a lot of business
Speaker 3: people were just saying, there's uncertainty enough, and I think
Speaker 3: they kind of cooled a little bit on the higher side.
Speaker 3: But the most recent couple of weeks that we've been
Speaker 3: talking to businesses in the district, there seems to be
Speaker 3: a burgeoning optimism again that they've kind of digested and
Speaker 3: they've been agile enough to try to work their way
Speaker 3: through some of the new policies from the administration, and
Speaker 3: maybe going forward, maybe we'll see a little bit uptick.
Speaker 3: That said, I still believe there's that the that the
Speaker 3: inflation number is trending closer to three than two.
Speaker 5: Well, we saw that in the minutes that in general
Speaker 5: the Open Market Committee felt that inflation was a bigger
Speaker 5: danger at this point.
Speaker 4: Would you say that's your view now? It would be
Speaker 4: my view now.
Speaker 3: I think with an understanding that what may have happened
Speaker 3: in the first couple quarters on the labor side, which
Speaker 3: I think concerned several people on the committee and me included.
Speaker 3: But I think this PPI was interesting, that print was interesting.
Speaker 3: But I really believe that when we talked to a
Speaker 3: lot of a lot of folks in our district, is
Speaker 3: that if you had to kind of lean or have
Speaker 3: a bias toward, it would be on the inflation side.
Speaker 5: Maybe you've moved toward the middle in terms of whether
Speaker 5: you should hold rates or cut rates.
Speaker 3: You know, it's really fascinating you think about and you
Speaker 3: have great experience in this when you get to the
Speaker 3: policy table, when you're talking about it, everything's connected to
Speaker 3: to the dual mandate, right, and when inflation is really
Speaker 3: ramping up, you have a blunt instrument and you act,
Speaker 3: which is what we did. Now, as you get closer
Speaker 3: to the optimum dual mandate numbers, it actually becomes more
Speaker 3: difficult to make decisions on the margin relative to where
Speaker 3: that policy rate should go. And so I think that's
Speaker 3: where you're seeing a lot of the debate now is
Speaker 3: you know where's your lean is it? Where do you
Speaker 3: believe things are too restrictive on the policy rate side
Speaker 3: or not. I think they're modestly restrictive. I'm still trying
Speaker 3: to find ways of what's being inhibited in the economy
Speaker 3: from where our policy rate is today. But I think
Speaker 3: we're on a good path.
Speaker 5: So at this point, it probably would be a mistake
Speaker 5: for Parenbau on Friday to say definitely we're going to
Speaker 5: cut as he did last year.
Speaker 3: Yeah, yeah, I always can't wait for that speech. I
Speaker 3: think he keeps it close fast. I wouldn't front round
Speaker 3: him even if I knew. But I think that we've
Speaker 3: been doing so much work this year around the framework,
Speaker 3: around around really getting into where how we get this
Speaker 3: soft landing to two percent without breaking anything. So I
Speaker 3: think he has a lot of different directions to go,
Speaker 3: and I think it'll be a very anticipated discussion.
Speaker 5: Well, how do you think you should communicate going forward?
Speaker 5: Because there are some people who are candidates for to
Speaker 5: be the next chair who say the FED talks too much.
Speaker 3: Yeah, wow, Well you hear both sides of that coin
Speaker 3: all the time, right, One, do we keep too much
Speaker 3: to our best?
Speaker 4: Two?
Speaker 3: Why aren't we doing more kind of transmitting future crystal
Speaker 3: ball or how are we interpreting the numbers to a
Speaker 3: future event? You know, the SEP and the dot plot
Speaker 3: is maybe some of that, but I don't hear a
Speaker 3: lot that we don't talk enough or express ourselves enough.
Speaker 3: I think it's more important where the American public is concerned.
Speaker 3: As they understand, we do a better job on helping
Speaker 3: them understand.
Speaker 4: What we're doing and why we're doing it.
Speaker 3: And the dual mandate and the christness of those two
Speaker 3: mandates help us help us.
Speaker 4: A lot in the role we have.
Speaker 5: I have to ask you about the latest presidential tweets
Speaker 5: and the attack on Lisa Cook, Governor Cook. I know
Speaker 5: that FED officials will always say, we don't let politics
Speaker 5: come into the boardroom. We do just what we think
Speaker 5: we should do. On the ECCONUOM, we don't even talk
Speaker 5: about it. But you've got to be getting sick of this.
Speaker 3: Well, Look, I'm a little philosophical about the whole conversation
Speaker 3: of FED independence and where our role is in the
Speaker 3: American economy. We're almost two hundred and fifty years old
Speaker 3: as a nation. I think there's something to be said.
Speaker 3: We were built on words, and we continue to debate
Speaker 3: those words legislatively and judicially, whatever friction we might have
Speaker 3: with other branches of the government. I think great steels
Speaker 3: tested by fire so what we can always be better.
Speaker 3: We can always do this better. But I think the
Speaker 3: nature of independence and I think, don't believe me, believe
Speaker 3: other nations that have central banks and don't it seems
Speaker 3: to work. But I'm always open for the conversation of
Speaker 3: how do we make it better?
Speaker 5: Well, do you think the FED has suffered to hit
Speaker 5: to credibility by the constant attacks from Washington?
Speaker 3: So I think the credibility issue is more in are
Speaker 3: we fulfilling our responsibility and role around the actions of
Speaker 3: monetary policy and monetary operations? And I think the work
Speaker 3: we do on behalf of the American people is very
Speaker 3: important to their lifestyle and their living and I want
Speaker 3: to make sure that our reputations stay strong around the
Speaker 3: things that we're mandated to do by Congress. Other than that,
Speaker 3: there's a lot of noise outside of that dual mandate.
Speaker 3: And look, you take this chair, you do this job,
Speaker 3: and people are going to have opinions, and I'm fine
Speaker 3: with that.
Speaker 5: Then when you talk to people, do they understand why
Speaker 5: you're not lowering interest rates?
Speaker 3: Actually, it's interesting. So we're going to have two sets
Speaker 3: of folks that we would talk to. One are going
Speaker 3: to be business people and finance people that really they
Speaker 3: understand because they have to. I mean, I'm a former banker.
Speaker 3: You have to risk manage the cycles of rates to
Speaker 3: run your bank well and profitably. It's the general public
Speaker 3: that we continue to try to reach to give them
Speaker 3: some sense of what this do mandate means to them.
Speaker 3: And I think there's a little bit of perfection in
Speaker 3: the healthy friction between full employment and stable prices. And
Speaker 3: I actually like that friction, and it allows us to
Speaker 3: kind of balance and rebalance what we're doing on their behalf.
Speaker 3: And it's one hundred percent on their behalf. If you
Speaker 3: reach full employment and if you keep prices stable, people
Speaker 3: can work and thrive. And I think that's an important
Speaker 3: piece of what FED does.
Speaker 2: I was in Kansas City, FED President Jeffrey Smith sitting
Speaker 2: down with Bloomberg's my McKee. It is five point thirty
Speaker 2: am at Jackson Homeway. I make sunrise at about forty
Speaker 2: five minutes or so. My McKee's safely and comfortable in
Speaker 2: his hotel room. I believe, Mike, good morning. He's a
Speaker 2: fantastic exchange. As always, this line stood out for us
Speaker 2: all if you had to lean or have a bus
Speaker 2: towards it would be on the inflation side. Will Chairman
Speaker 2: Powell be in the same boat tomorrow.
Speaker 5: He's probably in the same boat. The issue is whether
Speaker 5: he will talk about it at length enough for us
Speaker 5: to know where he lands. And I think he's going
Speaker 5: to try to avoid that because at this point they
Speaker 5: don't know what the next data are going to show.
Speaker 1: It was interesting I thought that Schmid, who has.
Speaker 5: Been one of the most hawkish members on the FED
Speaker 5: and has pushed against rate cuts anytime soon, is now
Speaker 5: saying he's open to it if the data show that
Speaker 5: they need to do that. So if we get a
Speaker 5: bad employment report and a reasonably moderate inflation number, then
Speaker 5: you might see more people on the Fed than Waller
Speaker 5: and Bowman who are willing to vote for a rate
Speaker 5: cut in September.
Speaker 2: What was interesting there is that we did get about
Speaker 2: employment report and he hasn't changed his views. So when
Speaker 2: you look at the Federal Reserve min it's from yesterday,
Speaker 2: and everyone turns around and says the super stale that dated,
Speaker 2: ignore them. I just wonder how many people have maintained
Speaker 2: those views from that Federal Reserve meetings even with the
Speaker 2: payrolls report, Because two days later.
Speaker 5: You probably have most of the board retaining those views
Speaker 5: because basically it was seventeen, well sixteen against eighteen, since
Speaker 5: Coogler didn't vote, saying that inflation was the bigger risk,
Speaker 5: and so there's a bias going into September that they
Speaker 5: shouldn't move, which is not at all what the markets think.
Speaker 5: And they're going to want to see the data, and
Speaker 5: again it's going to come down to a question of
Speaker 5: how bad the employment report is and how bad the
Speaker 5: inflation report is. If inflation shows signs of really picking up,
Speaker 5: then probably September seventeenth is going to be a tough
Speaker 5: sell for a raid cut.
Speaker 2: Mike, just quickly. The increased scrutiny of this institution, an
Speaker 2: institution that you've covered for a long long time. It's
Speaker 2: kind of the elephant in the room in Jackson hallw Wyoming. Now,
Speaker 2: the pressure that's coming from the White House and elsewhere
Speaker 2: in Washington, d C. They clearly want to change this institution.
Speaker 2: They're clearly pursuing that objective in different ways. Mike, I
Speaker 2: just wonder what the reaction's been on the ground in
Speaker 2: the last few days while you've been there.
Speaker 5: Well, basically everybody agrees that something needs to change in
Speaker 5: the Fed's framework, which Jay Powell is expected to outline
Speaker 5: on Friday, because they put a lot more weight on
Speaker 5: employment in the last framework, and obviously inflation is now
Speaker 5: a bigger issue for most of them. And then the
Speaker 5: question becomes, what's the new leader going to do? What's
Speaker 5: he going to pursue in terms of FED policy. Some
Speaker 5: have said, as we were discussing in the interview with
Speaker 5: Jeff Schmidt, that the FED talks too much. They should
Speaker 5: dial back on their community individual communications and try to
Speaker 5: explain more about what they're doing. But does that really
Speaker 5: make a difference in the sense of American people paying
Speaker 5: attention to this? Wall Street pays attention minute to minute,
Speaker 5: But do the American people pay attention to it other
Speaker 5: than basically when they go to the grocery store.
Speaker 2: Stay with us? Multiple implex savanas coming up off to this.
Speaker 2: The Federal Reserve heading into Jackson hold facing down upside
Speaker 2: risk to inflation and downside risk to employment. The minutes
Speaker 2: from the Fed's last meeting indicating quote, a majority of
Speaker 2: participants judge the upside risk to inflation as the greater
Speaker 2: of these two risks. The former FED governor Bessie Jude
Speaker 2: joined us now for more. Bessie, welcome back to the program.
Speaker 2: It's good to lean on your experience. As always, Let's
Speaker 2: just start with the premise of the issue. Do you
Speaker 2: believe that we do see as your mandate in conflict.
Speaker 6: I'm not sure it's quite in conflict.
Speaker 1: Yet.
Speaker 7: When you look at the unemployment numbers and you go
Speaker 7: back to the last projections that the FED did, the
Speaker 7: median participant thought that the long term rate of unemployment
Speaker 7: would be a four point two, which is exactly where
Speaker 7: we are. So I'm not sure that the number of
Speaker 7: jobs created because of supply side issues, as you were discussing,
Speaker 7: is enough to consider that out of whack.
Speaker 2: So Betsy, going into the speech from Chairman Powell, wonder
Speaker 2: how much has actually changed for him since we got
Speaker 2: that payroll report a few fridays ago.
Speaker 6: I don't think a lot has changed.
Speaker 7: The payroll numbers are the most unreliable indicator that you
Speaker 7: get because they're so frequently revised, and the revisions, I
Speaker 7: think the average revision is one hundred thousand jobs, so
Speaker 7: that is huge. I'll tell you one story when I
Speaker 7: was at the FED with Jay and we were discussing
Speaker 7: launching QE three, and there was a lot of concern
Speaker 7: amongst Jay, myself and Jeremy.
Speaker 6: About launching Q three, and we got a bad payroll number.
Speaker 6: We launched Q three a.
Speaker 7: Year later, when you look at how that number had
Speaker 7: been adjusted, it would not have justified launching Q three
Speaker 7: at all.
Speaker 8: So, then, Betsy, this time around, if he's having to
Speaker 8: deal with those inputs, but then also having to deal
Speaker 8: with Muslim daily ironically cooked who have all turned more Dubvish,
Speaker 8: does Powell necessarily need to incorporate those views when he speaks.
Speaker 8: Does he need to also have some of that Dubvish
Speaker 8: lean incorporated into his outlook because.
Speaker 1: Some of the rest of the FMC is going there.
Speaker 7: He is always aware of where every member of the
Speaker 7: FOMC is because the job of the Chairman is to lead.
Speaker 7: It's not to set policy and force everybody to agree.
Speaker 6: The job of the chairman is to lead.
Speaker 7: And to know where all of the participants, all the
Speaker 7: members of the FMC are at any given time.
Speaker 8: If his speech, though, also has to do with cementing
Speaker 8: his legacy, Betsy, considering where we go from here, considering
Speaker 8: there will be a new fed governor in twenty twenty six.
Speaker 8: You know the man, Well, what do you expect that
Speaker 8: to look like?
Speaker 1: From Powell?
Speaker 8: What does it sound like to have a FED chair
Speaker 8: who tries to come out and defend independence and have
Speaker 8: that legacy but without provoking the politics of the moment
Speaker 8: and the White House.
Speaker 6: I think J.
Speaker 7: Powell, in terms of his legacy is looking at what
Speaker 7: happens to his mandate, what happens to inflation, what happens
Speaker 7: to employment, and how well does he manage that. It's
Speaker 7: not any single speech, and I would would be shocked
Speaker 7: if he was viewing.
Speaker 4: It that way.
Speaker 2: Event See, do you think there is a bias when
Speaker 2: it comes to handling and targeting inflation over say, the
Speaker 2: prospects for the labor market? Do you have a bias?
Speaker 2: Is there an inherent bias on the committee to prioritize
Speaker 2: one over the other?
Speaker 7: You know, so everybody who comes on the committee ultimately
Speaker 7: gets led as a hawk or a dove. I don't
Speaker 7: think it's that clear cut. I think for myself, I
Speaker 7: probably do have a bit of a bias on inflation,
Speaker 7: because you know, I started my career in the seventies
Speaker 7: and the vulgar years, when.
Speaker 6: When inflation was just out of control.
Speaker 7: But I don't think there's a real bias inside the
Speaker 7: room one way or the other. It's more a matter
Speaker 7: of which one seems the most difficult to manage at
Speaker 7: the time.
Speaker 2: And what do you think is the most difficult to
Speaker 2: manus Right now?
Speaker 6: I still think inflation is much more difficult.
Speaker 2: And do you think it gets harder in the months
Speaker 2: to come? Do you suspect we will see more passed
Speaker 2: through from the tariffs?
Speaker 7: Well, yeah, it's going to be very hard to determine
Speaker 7: once you start getting passed through. Is that passed through
Speaker 7: a one time price change or is it going to
Speaker 7: be persistent? And you really, really, they're going to be
Speaker 7: watching what expectations are. Inflation expectations are going to be
Speaker 7: the key over the next year or two. If inflation
Speaker 7: expectations get out of line, then the that will be
Speaker 7: very concerned.
Speaker 8: But Betty, isn't there an argument to be made which
Speaker 8: Neil Dutta Renaissance Macro makes that it's the direction of
Speaker 8: travel that's troubling. That inflation, for the most part has
Speaker 8: been traveling in the right way, but the labor market
Speaker 8: is traveling in the wrong way.
Speaker 7: Again, I just don't see that. I think inflation has
Speaker 7: been fairly steady. It hasn't been coming down as much
Speaker 7: as I would have expected if the current setting of
Speaker 7: monetary policy was restrictive as some seem to think.
Speaker 8: So, Betsy, just bringing me all back around about what
Speaker 8: we're going to get from the Fed governor tomorrow. Do
Speaker 8: you expect there to be any change for how we
Speaker 8: view where the path of policy is.
Speaker 1: After we hear from Jay Powell?
Speaker 8: Or will tomorrow be inconsequential as far as that goes.
Speaker 7: If where we means where we the media, where we
Speaker 7: investors think policy is going, I think there may be
Speaker 7: a change because I don't see any any chance that
Speaker 7: there's a nod toward a September cut or any promise
Speaker 7: to September cut. I think he's going to first focus
Speaker 7: primarily on the decision framework and not give any indication
Speaker 7: of where he's leaning for sept Chamber.
Speaker 2: Stay with us. Mulblanberg, Savannah's coming up off to this.
Speaker 2: John Stelfhis of w Oppenheimer, the biggest bull on Wall
Speaker 2: Street writing some profit taking without fomo to be expected
Speaker 2: with Pounds address on Friday, a catalyst capable of moving
Speaker 2: the direction of the market. John joins a staff and
Speaker 2: more junk of mornic. Good morning, John, How are you
Speaker 2: explaining the last few days to clients?
Speaker 9: Well, I would say very simply, it is to be
Speaker 9: expected that after a tremendous run up from the lows
Speaker 9: on April eighth that were tested and then all of
Speaker 9: a sudden, we came back very powerfully over the course
Speaker 9: of I guess the last three weeks or so. You
Speaker 9: can't go up every day, and we've got a great
Speaker 9: catalyst for bears, skeptics and nervous investors to take profits
Speaker 9: without FOMO right now or fear of missing out myths.
Speaker 9: What's likely a secular ball market because you have the
Speaker 9: FED on Friday at Jackson Hole. Then beyond that, everybody's
Speaker 9: looking for the first week in September where you get
Speaker 9: the jobs number. What's the story going to be or
Speaker 9: we're going to get another set of worrisome revisions.
Speaker 1: Is it going to be a big miss.
Speaker 9: In terms of expectations and all that really in the
Speaker 9: process of some really heavy duty transitions related to technology
Speaker 9: and innovation related to AI, as well as an administration
Speaker 9: that really, you know, for all the criticism it gets
Speaker 9: in some ways is dealing with cans that have been
Speaker 9: kicked down the proverbial road for decades by both sides
Speaker 9: of the aisle. And so with that kind of uncertainty,
Speaker 9: what happens is you get some turbulence in the market,
Speaker 9: but we say, don't just buy. You don't want to
Speaker 9: buy the dips just blindly. You want to look for
Speaker 9: babies that get thrown out with the bath water. For
Speaker 9: intermediate long term investors, very interesting time, I think to
Speaker 9: see things like that. And for traders in any turbulence,
Speaker 9: that's where they make their money.
Speaker 2: And so John, some paksibodies. You make two big points,
Speaker 2: one of the fat the other onnce Tex stocks. Let's
Speaker 2: deal with them individually. Want to start with the Federal serve. Okay,
Speaker 2: the minute yesterday showed just how oftside this committee was
Speaker 2: gone into the payroll report two days after the meet. Think, well,
Speaker 2: we're all trying to gage. It's just how much that
Speaker 2: payroll support has changed things on this committee. If so,
Speaker 2: by how much and how much will that change this
Speaker 2: address that we get from Sham and Pounds tomorrow.
Speaker 9: I don't think a heck of a lot really, because
Speaker 9: the FED is one thing it's shown since March of
Speaker 9: twenty twenty two, incredible sensitivity that is related to its
Speaker 9: dual mandate. So there'll be some kind of a balance
Speaker 9: here because the idea the dual mandate is relatively simple
Speaker 9: in concept, difficult to implement and practice, but essentially provide
Speaker 9: an an interest rate regime that is conducive to sustainable
Speaker 9: growth without untoward levels of inflation, and on the other
Speaker 9: side of that, without overturning the apple card for the
Speaker 9: jobs market. So I think, you know, we still expect
Speaker 9: a twenty five BIPs cut in September.
Speaker 4: We could even see a pair of or.
Speaker 9: A pair of cuts this year, with something in December
Speaker 9: another twenty five. I don't think they're going to cut
Speaker 9: a lot, but I think they make another down payment
Speaker 9: for both Wall Street and Main Street to show that
Speaker 9: indeed the FED hike cycle is beginning to end, if
Speaker 9: not at the same pace everybody wants and the independence
Speaker 9: of the Fed, John I think is an imperative. I
Speaker 9: think Powell has done an excellent job. He missed it
Speaker 9: before before March of twenty twenty two, then he got
Speaker 9: on the case. They've raised rates eleven times, been on
Speaker 9: pause I think for something like fourteen times or so
Speaker 9: in terms of the FOMC meetings and no recession yet extraordinary,
Speaker 9: and now it's going to be you know, it's he's
Speaker 9: walking the type rope like Leon Russell might have said.
Speaker 8: By the way, apparently there's a Wall Street Journal that
Speaker 8: story that said Powell swims three times a week and
Speaker 8: has a personal trainer to try to relieve some of
Speaker 8: this stress. So I guess it's working to your point.
Speaker 8: But John, if we get a Powell who doesn't enforce
Speaker 8: a twenty five basis point cut, if odds of a
Speaker 8: cut go to something like fifty percent from eighty percent
Speaker 8: right now, is that for so you'd get a short
Speaker 8: term you're going to get volatility.
Speaker 9: But the trend is fairly is fairly clear of where
Speaker 9: we're headed. I mean, when you consider that what it
Speaker 9: was in twenty twenty one, we had nine point seven
Speaker 9: percent inflation versus one point four percent inflation. Based on
Speaker 9: what BLS was saying, you know, it's remarkable. We're now
Speaker 9: around somewhere. But depending what gauge, the FED uses somewhere
Speaker 9: around two point eight to three percent inflation. Whether you
Speaker 9: take x CPI core you tell or you take it
Speaker 9: on the headline remarkably done. And he's a tough guy,
Speaker 9: he's an attorney, he's a former a private equity guy.
Speaker 1: This is not this is.
Speaker 9: Not a shrinking, violent and a good match for the administration.
Speaker 9: And the administration is used to high leverage. It's based on,
Speaker 9: you know, real estate and making the art of the deal.
Speaker 9: And what we like to say is when we look
Speaker 9: at a ten or treasury, around four percent from a
Speaker 9: historical perspective, going all the way back probably to the Venetians,
Speaker 9: four percent for borrowing for a ten year period makes
Speaker 9: a lot of sense.
Speaker 8: I guess this is part of the thing of what
Speaker 8: we've been seeing the past couple of days. Though some
Speaker 8: people have looked at tech selling off and gotten excited
Speaker 8: that it might mean finally a rotation is happening, that
Speaker 8: unloved parts of the market. To your point, the babies
Speaker 8: with the bathwater can finally be bought. But how necessary
Speaker 8: is it to get cuts in force, not just twenty
Speaker 8: five and twenty five and then pausing, but real cuts
Speaker 8: to bring us something to neutral or below neutral to
Speaker 8: see that broadening out?
Speaker 1: Well, I think we've already seen the broadening out, Danny.
Speaker 9: If you consider I'm just looking at the spxl one
Speaker 9: on GRR on a Bloomberg. You know, a communications services
Speaker 9: that's about eighty percent tech tech because it's got the
Speaker 9: watcher McCall, it's the search engines, and it's got the
Speaker 9: social media, and it's got the streamers in it. But
Speaker 9: then next, the second best performing is communication service up
Speaker 9: fourteen point six percent year to date. But the second
Speaker 9: best performer is industrials. That's a broadening fourteen and a
Speaker 9: half percent year to date.
Speaker 1: It's just a nine bits.
Speaker 4: Short of where tech is.
Speaker 9: Third best performer year to date is utilities, the utes,
Speaker 9: up thirteen point three percent. You're going to tell me
Speaker 9: that it hasn't broadened. The fourth best performing is info
Speaker 9: tech up twelve and a half. Financials are up nine
Speaker 9: point one seven. That's a value sector. Materials are up eight.
Speaker 9: Consumer staples that's coke, smokes, and soaps, as we used
Speaker 9: to say in the old days, up seven.
Speaker 4: Point three six.
Speaker 9: Real estate, all kinds of real estate up two and
Speaker 9: a half.
Speaker 1: So, I mean that's pretty humble.
Speaker 9: Healthcare is negative about a little bit less than a
Speaker 9: quarter of a percentage point. Consumer discretionary, the consumer remarkably resilient,
Speaker 9: the sector still being somewhat brutalized down four around zero
Speaker 9: point three six percent. And energy you think we didn't
Speaker 9: use gasoline, but we are a wash in oil ten
Speaker 9: of a percent down, so I think it has broadened.
Speaker 2: So what extent is some of that just derivative of
Speaker 2: the same story you mentioned utilities aps connected to the
Speaker 2: AI theme. Are we all in one theme or there's
Speaker 2: several things playing cast simultaneously.
Speaker 1: It's both in.
Speaker 9: Several themes playing out simultaneously.
Speaker 4: Right now.
Speaker 9: With a belief within the market for more than just
Speaker 9: a few corners that the FED is in the process
Speaker 9: of lightening up on the tightening cycle, utes are less
Speaker 9: exposed being considered a bond market proxy, a bond proxy,
Speaker 9: so the yield to look more attractive as rates come
Speaker 9: down at the FED short end of the curves their
Speaker 9: competition a lot of the time. Then for industrials, we're
Speaker 9: just about to build all these factories and all these fabs, vocalists,
Speaker 9: fabs and stuff with that, you're going to need a
Speaker 9: lot of industrial equipment. Whenever I travel anywhere in the
Speaker 9: United States, every road is clogged with construction vehicles, you know.
Speaker 1: Bulldozers, back hos, all kinds of s.
Speaker 9: There's always agriculture, you know, and commercial aerospace defense. I mean,
Speaker 9: there's a lot of stuff happening, and financials should do
Speaker 9: better as the year yield curve can it steepens to
Speaker 9: a more traditional sense.
Speaker 2: What's more traditional? What do you expecting?
Speaker 9: Well, I mean you'd probably expect you expected right now.
Speaker 9: I think we're pretty close to it with the thirty
Speaker 9: year almost at five. It should probably be at five,
Speaker 9: and the four probably vacillating depending upon the given month,
Speaker 9: somewhere between three and a half and four point eight.
Speaker 9: Just to put the scare into people.
Speaker 2: What did the METII she's at Florence pay for ten
Speaker 2: year money? What did the Metichi's at Florence pay for
Speaker 2: ten year money? I mentioned the Venetians.
Speaker 9: Obviously I looked at the Venetians. It depends what we read.
Speaker 9: I'll have to think about the Vedicians. You're going to
Speaker 9: send me back. I'll have to talk to Tom Keane
Speaker 9: about TK. Probably nice, Probably, I'm probably nice.
Speaker 2: Stay with us. Multilintex Savana is coming up. After this
Speaker 2: upside surprise on jobless claims and continuing claims, equity is
Speaker 2: just about unchanged. The bonyards still start to make a move.
Speaker 2: We were up a basis port of two across the
Speaker 2: curve just about unchanged now at the front end on twos.
Speaker 2: The two year, ten year, and thirty year look like this,
Speaker 2: so we can switch at the board. Could take a
Speaker 2: look at bon yards right now, yields unchanged on a
Speaker 2: two year at three seventy four fifty five. With us
Speaker 2: around the table, Claudio Irigoza of Bank for America joins us.
Speaker 2: Now for more, Claudia goomonic. It's going to see it
Speaker 2: going into that payrolls report lifetime around. Based on the
Speaker 2: minutes that we've all seen, this federal reserve sounds tremendously
Speaker 2: offside labor markets solid. Only two people on the committee
Speaker 2: seem to be worried about it. They are putting all
Speaker 2: the emphasis on inflation. How much changed with that one
Speaker 2: report and all those revisions.
Speaker 10: I think the most important thing to the thinking about
Speaker 10: the labor market is thinking in terms of unemployment rate
Speaker 10: and vacancy rachis because you're having also a supply shock,
Speaker 10: which is the tighten of immigration. That makes the reason
Speaker 10: of payroll a little bit tricky because you can have
Speaker 10: a supply driven reduction in payrolls that doesn't increase unemployment rate,
Speaker 10: and therefore DEFEC should not overreact to that revision. It's
Speaker 10: going to be interesting how Power frame it tomorrow. I
Speaker 10: think Power tomorrow probably will tell the market that September
Speaker 10: is not a done deal because business taflational environment. It's
Speaker 10: going to be probly lower activity, probably higher inflation, and
Speaker 10: the fair will have a tough job deciding which one
Speaker 10: to sort of not ignore, but which want to pay
Speaker 10: more attention to.
Speaker 1: Clarly, you though say no cuts.
Speaker 8: You make the case for no cuts this year, but
Speaker 8: there are plenty of people who look at this labor
Speaker 8: market and say, sure, supply is playing a role, but
Speaker 8: still you're finding companies who are not hiring people. Just
Speaker 8: look at the continuing claims that the trend is one
Speaker 8: of weakening and that in itself necessitates cuts before it's
Speaker 8: too late.
Speaker 1: What do you say to that?
Speaker 10: I would say that companies are facing a lot of uncertainty,
Speaker 10: and when you face uncertainty, you are more careful about hiring,
Speaker 10: You're more careful about fighting, and you are more careful
Speaker 10: about increasing prices because you don't want to lose market share.
Speaker 10: So we're going to see tardis on inflation. We are
Speaker 10: starting to see that, and we're going to see it
Speaker 10: more over the time.
Speaker 1: The way Tramp negotiated.
Speaker 10: With countries like fifty percent, if and you have ninety
Speaker 10: days to come up with a plan, Gibbs companies a
Speaker 10: lot of incentives to front run imports, bill cushions, and
Speaker 10: therefore you're going to have probably not a spiking inflation,
Speaker 10: but a lot of persistence.
Speaker 1: Towards the end of the year.
Speaker 2: The runway is longer. Yes, Does that make the job
Speaker 2: easier for the fat.
Speaker 10: No, much more difficult because the problem they might have.
Speaker 10: I mean, I think power things in terms of Okay,
Speaker 10: let's suppose I make a mistake, which one is more
Speaker 10: costly cutting rates and then inflation peaks in December or
Speaker 10: January a three point two three point three core pc
Speaker 10: or staying on wold, and then that employment rate gods up,
Speaker 10: and I think creability wise, the first one is a
Speaker 10: bigger cost the first mistake.
Speaker 8: So would you also say, then, looking at the revisions
Speaker 8: we had, capture that uncertainty, does that mean that the
Speaker 8: next payroll report could look stronger? And if it doesn't
Speaker 8: look stronger, does that mean it's something more than just uncertainty.
Speaker 8: Now that we have more of the tariffs, more of
Speaker 8: the rates, more certainty under our belt could be.
Speaker 10: We estimate that equilibrium payrolls, which is the number of
Speaker 10: jobs that you need to create to keep an employment
Speaker 10: rate constant, when from probably one ten, one hundred and
Speaker 10: twenty when you had the immigration boonm to something like
Speaker 10: seventy and we estimate payols towards towards fifty k towards
Speaker 10: the end of the year. So you're on to have
Speaker 10: some demand destruction, but the big chain is going to
Speaker 10: be supplied. So as long as an employment rate that
Speaker 10: does not shut up, the fair will never react, will
Speaker 10: not overreact to those number.
Speaker 2: What you're saying is really important, So let's get through.
Speaker 2: I want to give you some more time. What you're
Speaker 2: essentially saying is you can have a massive step down
Speaker 2: in payrolls growth, but not an increase in slack. Yes,
Speaker 2: and labor market slack should ultimately be the focus of
Speaker 2: this Federal Reserve.
Speaker 4: Yes.
Speaker 2: Can the Chairman articulate that tomorrow and a speech without
Speaker 2: sending this market nuts.
Speaker 10: I think the Chairman will will say two things, will
Speaker 10: say sort of what he said in the press conference,
Speaker 10: and you can transpire from THEFORMC minutes yesterday, and he
Speaker 10: would say, look, there is a tremendous amount of uncertainty.
Speaker 10: We have two more patron numbers because we have one
Speaker 10: revision and one payroll, we have one inflation print, and
Speaker 10: we need to balance the risks. And I think he
Speaker 10: will talk a lot about risks. And I think probably
Speaker 10: given that is the last speech as a chairman, assume
Speaker 10: that this is the last peech as a channel. I
Speaker 10: don't think it's going to be relected but reappointed. But
Speaker 10: as the last speech, he will probably put a lot
Speaker 10: of focus on the importance of preserving press stability.
Speaker 8: So if you put a lot of focus on that,
Speaker 8: that would be writing off a lot of the other
Speaker 8: changing views at the FET You've had cook daily Muslim,
Speaker 8: a lot of the more kind of maybe hawkish leaning
Speaker 8: ones start to sound more dubbsh and saying that that
Speaker 8: last Job's report did change their mind.
Speaker 1: Does how need to reflect any of that.
Speaker 10: Look, I think there is still consensus that inflation is
Speaker 10: still the biggest risk.
Speaker 4: That's why I.
Speaker 10: Said before, I think going to be important how Powell
Speaker 10: conveys the message of the revisions. I mean, is that
Speaker 10: important or not. We haven't seen yet an increasing unemployment rate.
Speaker 10: An employment rate today's four point two percent. A year
Speaker 10: ago employment was four point two percent. And the path
Speaker 10: for tariffs at the path for inflation as at look great.
Speaker 10: You're going to be probably at the end of the
Speaker 10: year one percentage point above the target. So ironically you
Speaker 10: are further away on your inflation target. You have a
Speaker 10: more deviation from your inflation target than from your employment target.
Speaker 8: So if you do have a feedough that decides to cut,
Speaker 8: and they're cutting because of labor market weakness, that to
Speaker 8: what you're saying, is more due to the supply side,
Speaker 8: that cuts don't actually help what happens at that point?
Speaker 8: How big of a policy mistake would it be to
Speaker 8: cut in this environment?
Speaker 10: We want to see right away, two months later what
Speaker 10: happen to inflation and to a labor market. But I
Speaker 10: asked this, I'm a company.
Speaker 4: I have a lot of uncertainty.
Speaker 10: I don't know how the rules of the game are
Speaker 10: going to look like six months from now. I'm not
Speaker 10: going best because interest rates are seventy five percent basis
Speaker 10: point lower, probably not.
Speaker 1: So you risk.
Speaker 10: The dynamics of inflation expectations and you're not going to
Speaker 10: gain much in terms of employment, setting, politics, aciety.
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