WEBVTT - Bank Earnings Breakdown and China Growth 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.119 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.480 can also watch the show live on YouTube. Visit the 0:00:26.480 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.320 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.880 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.280 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:47.520 --> 0:00:48.200 This is a joy. 0:00:48.200 --> 0:00:49.840 We're gonna get this out of the way right now. 0:00:49.880 --> 0:00:52.560 That's a seasonal traditionary. We go to David blench Flower. 0:00:52.640 --> 0:00:55.920 He is in Hannover, New Hampshire, or he's in Florida, 0:00:56.120 --> 0:00:58.800 or he's in where he's traveling in Wales or that 0:01:00.520 --> 0:01:03.760 David Danny blenched Flower described as we get to the 0:01:03.800 --> 0:01:09.000 job economy, describe the black full season in Handover, New Hampshire. 0:01:09.160 --> 0:01:12.840 It's like worse than the planet, isn't it it is? 0:01:13.080 --> 0:01:18.800 We we're now in mud season and we've had frozen 0:01:18.840 --> 0:01:20.039 ground for a very long time. 0:01:20.360 --> 0:01:21.640 I came back it from Florida. 0:01:21.640 --> 0:01:25.360 We've had two snowstorms since, and then what happens eventually 0:01:25.560 --> 0:01:30.200 is the frozen stuff in the ground eventually melts and 0:01:31.120 --> 0:01:34.360 water flows down and the black flies appear. So this 0:01:34.480 --> 0:01:37.520 is this is not the greatest month to be in Hannovany, Hampshire, 0:01:37.520 --> 0:01:39.760 but it's great to be with the students and it's 0:01:39.800 --> 0:01:42.360 been great. And when it stops snowing, it's been raining 0:01:42.400 --> 0:01:44.720 every day. So it makes you yearn for Florida and 0:01:44.760 --> 0:01:47.600 yearn for New York City. But you know, you do 0:01:47.720 --> 0:01:48.440 what you do. 0:01:48.560 --> 0:01:49.440 Right, David. 0:01:49.720 --> 0:01:51.720 I want to go back to the wage curve, and 0:01:51.760 --> 0:01:55.520 you're a correct study of the agony the pain of 0:01:55.600 --> 0:01:59.960 wage dynamics in the labor economy. The biggest single debate 0:02:00.320 --> 0:02:03.400 that I get in mail is people with bow tie 0:02:03.480 --> 0:02:07.919 saying the economy is pretty good, And thousands of people 0:02:07.920 --> 0:02:11.120 are telling me, Tom, you don't know what you're talking about. 0:02:11.160 --> 0:02:12.120 In three zip codes in. 0:02:12.160 --> 0:02:17.200 Manhattan, the labor economy is really weak, Professor Blanche Flower, 0:02:17.480 --> 0:02:18.080 Which is it? 0:02:19.600 --> 0:02:24.040 Well, obviously there's kind of two worlds, but I think 0:02:24.120 --> 0:02:26.600 the story actually, if you'd go back to the wage 0:02:26.639 --> 0:02:30.560 curve and subsequent stuff. The unemployment rate actually no longer 0:02:30.680 --> 0:02:33.720 tells you much of anything about the economy. Just to 0:02:33.760 --> 0:02:37.880 put it technically, it's unrelated to wages. So I think 0:02:37.919 --> 0:02:41.119 people give you the wrong steer from that. The right 0:02:41.160 --> 0:02:44.960 thing to look at is basically employment, and the US 0:02:44.960 --> 0:02:46.320 has a really big puzzle. 0:02:46.400 --> 0:02:47.560 Unlike every other. 0:02:47.440 --> 0:02:50.440 Country in the world, in the employment rate in the 0:02:50.520 --> 0:02:52.799 US today is below what it was in two thousand 0:02:52.840 --> 0:02:55.240 and eight and below what it was in two thousand, 0:02:55.800 --> 0:02:58.840 So that's an element of weakness. The other thing to 0:02:58.880 --> 0:03:01.440 say in that bas to back the conversation that you 0:03:01.600 --> 0:03:04.000 just had, if you look at what's happened on the 0:03:04.080 --> 0:03:08.120 employment on the household account, the decline in jobs in 0:03:08.160 --> 0:03:11.240 the last eight months or so is greater than it 0:03:11.440 --> 0:03:15.040 was in the months from February two thousand and eight 0:03:15.080 --> 0:03:19.359 through two thousand and seven. So there's conflicting evidence. Some 0:03:19.440 --> 0:03:23.280 people are really feeling weakness, other people are seeing strength. 0:03:23.320 --> 0:03:25.919 And I was just looking to think about that question, Tom. 0:03:26.280 --> 0:03:28.640 Obviously you look at the non van pails and it 0:03:28.680 --> 0:03:32.760 looks really good, and obviously the economy has been pretty resilient. 0:03:33.000 --> 0:03:34.640 But I was just looking at it in front of 0:03:34.639 --> 0:03:39.520 me as the conference Board, consumer confidence surveys, the Expectations Index, 0:03:39.560 --> 0:03:44.080 which basically predicts recession, is essentially saying we're in recession 0:03:44.080 --> 0:03:46.440 and been in recession for quite a long time. So 0:03:46.480 --> 0:03:48.920 there's this conflict, and obviously part of it is a 0:03:48.960 --> 0:03:53.160 political conflict. Republicans say the economy is doing pretty badly, 0:03:53.200 --> 0:03:55.840 and the Democrats say is doing pretty well. So it's 0:03:55.880 --> 0:03:59.960 a really pretty confusing picture. I think the answer is 0:04:00.000 --> 0:04:02.280 the economy has been more resilient, but we've had to 0:04:02.320 --> 0:04:04.440 put up with with an inflation shop. So it's a 0:04:04.520 --> 0:04:07.640 kind of poised answer. But I think, and I have 0:04:07.680 --> 0:04:09.400 a new paper that people can go and see in 0:04:09.480 --> 0:04:13.200 Economica where Phillips published his original paper, showing you that 0:04:13.400 --> 0:04:15.920 there's much more weakness here than you would have thought 0:04:15.920 --> 0:04:17.279 for the strength of the economy. 0:04:17.400 --> 0:04:20.600 Professor blanche are casting shade on the household survey Tom. 0:04:20.640 --> 0:04:23.440 I mean, it's clear he's an establishment survey kind of guy, but. 0:04:23.400 --> 0:04:25.480 No cruel and unusual. 0:04:26.360 --> 0:04:29.240 The big question facing markets, Professor Blanchard, for me anyway, 0:04:29.279 --> 0:04:31.080 isn't you know whether the Fed will cut reads? 0:04:31.240 --> 0:04:33.040 But why talk to us a little. 0:04:32.800 --> 0:04:35.520 Bit about whether or not you feel below target inflation 0:04:35.760 --> 0:04:37.919 is enough of a case for the FED to justify 0:04:38.000 --> 0:04:40.680 rate cuts this year, Well. 0:04:40.560 --> 0:04:41.800 It's probably not enough. 0:04:41.839 --> 0:04:42.839 I mean the analogy I. 0:04:42.839 --> 0:04:45.000 Always like to give is go back to think where 0:04:45.000 --> 0:04:47.520 you were in the say eightpril May June July two 0:04:47.520 --> 0:04:50.920 thousand and eight, and the discussion was much like this one, saying, 0:04:51.040 --> 0:04:54.039 you know our rate the cuts coming inflation is five percent, 0:04:54.600 --> 0:04:56.240 you know where it's going to be eight percent in 0:04:56.279 --> 0:05:01.080 the future. Well that story was clearly wrong. So the 0:05:01.160 --> 0:05:03.880 answer is, well, what is the FED going to do? 0:05:04.000 --> 0:05:06.159 I mean, I think the answer is we're waiting for 0:05:06.240 --> 0:05:09.840 some data. I mean I think the really important data 0:05:10.080 --> 0:05:13.760 is spent. Despite the consumer confidence there I've just talked about, 0:05:14.200 --> 0:05:18.159 people have continued to spend on services they coause, continue 0:05:18.200 --> 0:05:20.840 to go to the Broadway shows, the question is is 0:05:20.880 --> 0:05:24.640 there anything that's going to prevent that. The other thing 0:05:24.640 --> 0:05:28.320 I would say Damian to Tom And is that it 0:05:28.320 --> 0:05:30.560 always strikes me as kind of funny. I mean, I 0:05:30.600 --> 0:05:33.080 always thought when you said interest rates, your job was 0:05:33.120 --> 0:05:35.719 to think about what inflation was going to be in 0:05:35.760 --> 0:05:39.840 eighteen months time. So what the inflation print was this 0:05:39.920 --> 0:05:42.919 month or next month or the month after was only 0:05:43.000 --> 0:05:45.760 relevant if it was a surprise. So I just find 0:05:45.800 --> 0:05:48.320 it really hard to understand for someone who said interest 0:05:48.400 --> 0:05:51.920 rates thirty six times, why people think that a single 0:05:52.040 --> 0:05:54.640 data point is going to impact what the FED does. 0:05:54.720 --> 0:05:57.200 The FED should be thinking about what inflation is going 0:05:57.240 --> 0:05:58.920 to be in eighteen months, and as far as I 0:05:58.920 --> 0:06:01.400 can tell, all the indication are that it's going to 0:06:01.400 --> 0:06:04.240 be well below the target, which actually says you should 0:06:04.279 --> 0:06:06.720 be doing rate cuts. So that's the really big debate. 0:06:07.080 --> 0:06:11.239 Why does the FED think that a inflation print next 0:06:11.279 --> 0:06:14.280 month is going to severely change their feel about what 0:06:14.440 --> 0:06:15.839 interest rates will be an eighteen months. 0:06:15.880 --> 0:06:17.280 I mean, the reason being. 0:06:17.320 --> 0:06:19.560 That it takes eighteen months for anything for you to 0:06:19.600 --> 0:06:22.400 do to have an impact. So I find this discussion 0:06:22.880 --> 0:06:26.160 wholly disheartening. And in a sense it's like, well, well, 0:06:26.160 --> 0:06:28.839 why do they think changing interest rates will affect inflation 0:06:28.920 --> 0:06:30.800 in a week's time. It doesn't make any sense. 0:06:30.839 --> 0:06:32.640 Then we got to go, don't be a stranger. 0:06:32.680 --> 0:06:34.440 Thank you so much there, But I really wanted to 0:06:34.440 --> 0:06:37.600 get Professor Blanchet around with this huge response to time. 0:06:37.680 --> 0:06:39.000 You don't know what you're talking about. 0:06:50.200 --> 0:06:53.240 We're you're in a really eventful friday, JP Morgan, I'm 0:06:53.240 --> 0:06:56.960 with Alison Miller. I'm looking below you know I'm looking 0:06:56.960 --> 0:07:00.320 below the headline data rich is JP Morgan still down 0:07:00.400 --> 0:07:03.240 like four percent or something? Is it still like you know, 0:07:03.360 --> 0:07:06.760 underperformance City group was up one two as well. 0:07:06.760 --> 0:07:09.280 We'll see it's sort of a stew in futures toteriorate 0:07:09.320 --> 0:07:11.080 negative at thirty four. 0:07:11.400 --> 0:07:14.760 The conversation of the day, if not the week, on 0:07:15.040 --> 0:07:20.240 China Leland Miller is definitive China basebook. He's out of Darden, Charlottesville, 0:07:20.560 --> 0:07:23.520 absolutely a student of the microdata. 0:07:24.040 --> 0:07:27.640 China is Leland. As simple as I can thumb up 0:07:27.800 --> 0:07:32.440 or thumb down on China nominal GDP. 0:07:34.920 --> 0:07:38.640 I think thumbs up. But everything is relative. What are 0:07:38.640 --> 0:07:41.400 we basing this off of. I'd say, look, things are 0:07:41.400 --> 0:07:44.720 going relatively well early in the year, particularly compared to 0:07:45.080 --> 0:07:48.440 some of the disappointing data last year. But remember their 0:07:48.520 --> 0:07:51.880 goal is not to rock at GDP skyward. They're not 0:07:52.000 --> 0:07:55.280 trying to hit some high figure. They probably aren't even 0:07:55.320 --> 0:07:58.040 trying to hit the GDP growth target this year. What 0:07:58.080 --> 0:08:01.880 they're trying to do is establish some stabil some upward momentum, 0:08:02.400 --> 0:08:04.840 bring back a little bit of consumer confidence which has 0:08:04.880 --> 0:08:07.160 been crushed for the last several years. If they can 0:08:07.200 --> 0:08:08.760 do that, then this year will be a success even 0:08:08.800 --> 0:08:10.560 if they missed the GDP growth target. 0:08:10.880 --> 0:08:13.840 Leland all of Yon sold off this week. It's rallied 0:08:13.880 --> 0:08:15.640 a bit, but I mean it's now down one point 0:08:15.640 --> 0:08:17.520 seven percent this year, I think twelve point nine percent 0:08:17.520 --> 0:08:18.480 since twenty twenty one. 0:08:18.640 --> 0:08:21.360 It's been down in each of the last two years. 0:08:21.760 --> 0:08:25.000 We have claims of outright fraud at China Evergrand now 0:08:25.160 --> 0:08:28.800 you know, I think China Bank communicator, they're trying to 0:08:28.920 --> 0:08:32.320 go after Chimeo. You know, talk to us about the 0:08:32.320 --> 0:08:35.160 property sector, talk to us about Chinese deflation, what is 0:08:35.200 --> 0:08:37.320 going on there and how can investors take advantage? 0:08:38.520 --> 0:08:42.720 Well, first point is deflation. Everyone's been talking about Chinese deflation. 0:08:43.000 --> 0:08:45.800 China is not in broad deflation. You know, there's there 0:08:45.800 --> 0:08:48.360 have been you know, there has been a close calls 0:08:48.360 --> 0:08:51.240 at the end of last year. There is deflationary pressure, 0:08:51.760 --> 0:08:54.680 but there's not broad deflation in China. You're still seeing 0:08:54.880 --> 0:08:58.120 gains even though they've been much much slower than everywhere 0:08:58.120 --> 0:09:00.640 else in the world. So you know, that's reflection the 0:09:00.640 --> 0:09:03.520 fact that Chinese economy hasn't been doing particularly well. So 0:09:03.760 --> 0:09:06.520 you've got problems there, but you don't yet have this 0:09:06.800 --> 0:09:09.360 you know, deflationary way that's being exported out, like a 0:09:09.400 --> 0:09:11.840 lot of people are claiming. You know, property is interesting 0:09:11.880 --> 0:09:15.640 because it was an disaster last year. It's it's not 0:09:15.679 --> 0:09:17.439 going to be great at any time soon, but they 0:09:17.480 --> 0:09:19.360 have stabilized it in the first quarter. And I think 0:09:19.400 --> 0:09:21.959 the most important thing to take into consideration when you're 0:09:21.960 --> 0:09:24.600 talking about property is this is not a one year, 0:09:24.720 --> 0:09:27.240 two year, three year battle. This is a decade plus 0:09:27.280 --> 0:09:30.120 long battle. And what they need to do is essentially 0:09:30.240 --> 0:09:34.480 make sure that they're you know, lessening the impact of 0:09:34.760 --> 0:09:36.480 property as a growth driver. They want to take it 0:09:36.520 --> 0:09:38.680 down from twenty five percent of the economy or so 0:09:39.000 --> 0:09:41.120 down to much much lower, but at the same time 0:09:41.440 --> 0:09:44.040 not do it so precipitously that they shock the rest 0:09:44.080 --> 0:09:45.680 of the economy that they send it to a doom 0:09:45.679 --> 0:09:48.520 loop of confidence. This is really really tough to do. 0:09:48.679 --> 0:09:51.000 So they're being you know, they're tightening, they're tightening, they're 0:09:51.000 --> 0:09:54.040 tightening credit, and then when things get bad and cash 0:09:54.040 --> 0:09:57.240 flow freezes up, contagionous, threatened, then they step in and 0:09:57.280 --> 0:09:59.600 ease conditions a little bit, then they start over. So 0:09:59.720 --> 0:10:02.120 this is a long cycle and it's a really difficult one. 0:10:02.200 --> 0:10:05.360 Leland President, she hosted Business execs out of the US 0:10:05.440 --> 0:10:08.199 C suite executives just last week, trying to entice them, 0:10:08.320 --> 0:10:10.840 tell them, hey, China is open for business. Then just 0:10:10.880 --> 0:10:13.840 today China's telling telco carriers to phase out the use 0:10:13.880 --> 0:10:17.040 of foreign chips. Intel A MD. You know, what should 0:10:17.040 --> 0:10:19.080 we believe here? I mean, it's China really open for 0:10:19.120 --> 0:10:21.160 business from the perspective of a foreign investor. 0:10:22.400 --> 0:10:25.160 No, of course, not always watch what they do, not 0:10:25.200 --> 0:10:26.959 what they say. You know, we joke about that. On 0:10:27.000 --> 0:10:29.240 the stimulus front. They talk about stimulus every day of 0:10:29.240 --> 0:10:31.120 the week, but they're not stimulating in a big. 0:10:31.000 --> 0:10:31.640 Way, you know. 0:10:31.720 --> 0:10:33.480 So this, you know, it's the same thing applies to 0:10:33.480 --> 0:10:36.560 foreign investment. Twenty twenty three was the year of foreign 0:10:36.559 --> 0:10:39.240 investment in China, and how did they celebrate it by 0:10:39.280 --> 0:10:42.720 cracking down on foreign businesses, by shutting down external data sources, 0:10:42.720 --> 0:10:45.679 by shutting down internal data sources. Now, this is this 0:10:45.760 --> 0:10:49.280 is the incoherence that that characterizes China policy these days. 0:10:49.559 --> 0:10:49.839 Lela. 0:10:49.960 --> 0:10:51.880 You know, Damie and I really like to talk. We 0:10:51.960 --> 0:10:54.720 went to China. We're experts on China. We go to 0:10:54.760 --> 0:10:57.400 the Mandarin in Hong Kong, we go to the Piece 0:10:57.400 --> 0:11:02.000 Hotel in Shanghai. You know's sometimes it's Saint Regis in 0:11:02.040 --> 0:11:05.920 Beijing and we say we went deep into China. Leland Miller, 0:11:05.960 --> 0:11:10.680 what's China's consumer like right now, away from the madness 0:11:10.760 --> 0:11:13.320 of Global Wall Street, going to three zip codes in 0:11:13.400 --> 0:11:14.199 mainland China. 0:11:16.080 --> 0:11:20.040 That's exactly the right way to characterize it. Cyclically, March, 0:11:20.360 --> 0:11:23.120 the first quarter looked better than it has been for 0:11:23.160 --> 0:11:25.800 a while. We were seeing retail pickup services pick up, 0:11:26.120 --> 0:11:30.640 So cyclically speaking, you know, the consumer was better off 0:11:30.760 --> 0:11:33.400 in the first quarter. You know, spent more than they 0:11:33.400 --> 0:11:35.600 had in a long time. So that's it's it's it's 0:11:35.600 --> 0:11:38.880 bullish cyclically, but the most important backdrop is always the 0:11:38.920 --> 0:11:42.280 structural backdrop consumpt There is no consumer wave, there is 0:11:42.320 --> 0:11:45.079 no consumption push. There is no shift from investment to 0:11:45.120 --> 0:11:50.360 consumption happening in China because the Chinese economic model disincentivizes households, 0:11:50.360 --> 0:11:54.439 it disincentivizes consumer spending. So you're not going to see 0:11:54.480 --> 0:11:58.760 any big time shift. Structurally speaking, China is slowing down massively. 0:11:58.800 --> 0:12:03.079 There's enormous pressure on consumption. But look sickly speaking, we 0:12:03.400 --> 0:12:05.480 had a nice month in March and we had a 0:12:05.520 --> 0:12:06.319 solid first quarter. 0:12:06.480 --> 0:12:08.720 Leel, I've got some pretty weak data on the trade 0:12:08.720 --> 0:12:11.240 front overnight, but I'm looking ahead to Tuesday of next week. 0:12:11.320 --> 0:12:14.280 Property prices, activity data, retail sales IP, you get your 0:12:14.280 --> 0:12:15.120 GDP print. 0:12:15.480 --> 0:12:17.640 What are you looking for there? What data point is 0:12:17.640 --> 0:12:18.320 most important to you? 0:12:19.920 --> 0:12:22.880 Well, most of these things were ignoring the trade for instance. 0:12:22.880 --> 0:12:24.400 You know the numbers are weak, but it's off a 0:12:24.440 --> 0:12:27.600 pretty high base from last year. This makes it somewhat difficult. 0:12:27.880 --> 0:12:30.400 I think the most important thing to keep in mind 0:12:30.480 --> 0:12:33.680 is how are retail and services doing. How's the consumption 0:12:33.800 --> 0:12:36.640 side of the economy doing compared to last year. The 0:12:36.679 --> 0:12:39.720 answer is it's doing better so far. Has property stabilized? 0:12:40.160 --> 0:12:44.280 Property is stabilized so far this year. How's manufacturing doing. 0:12:44.880 --> 0:12:47.000 Manufacturing did well in March, it didn't do well in 0:12:47.080 --> 0:12:49.800 January February, but everyone thought it was collapsing last year, 0:12:49.800 --> 0:12:51.120 and I think we were the only people in the 0:12:51.120 --> 0:12:53.640 world saying no, it's actually doing fine, and it is 0:12:53.720 --> 0:12:56.719 doing fine. So the economy's up from last year, and 0:12:56.760 --> 0:12:58.760 I think that's positive, but you just have to have 0:12:58.920 --> 0:13:01.680 mild expectations in terms of where that's going. 0:13:01.840 --> 0:13:03.880 Leland, thank you so much. Never enough time. 0:13:03.880 --> 0:13:05.480 We've got to get you on for three hours at 0:13:05.480 --> 0:13:12.720 some point the Leland Miller Show. She was at Harvard 0:13:13.080 --> 0:13:17.400 and went downstreamed the Massachusetts Institute of Technology, one of 0:13:17.440 --> 0:13:22.040 the most prestigious professorships in economics, the gramlk Professor of 0:13:22.160 --> 0:13:25.840 Public Policy at Michigan and now holding court at the 0:13:25.880 --> 0:13:29.840 Boston Fed. It is a perfect time for Susan Collins 0:13:29.880 --> 0:13:31.960 to speak to our Michael McKee. 0:13:32.080 --> 0:13:35.520 Let's listen, let's start with the elephant in the room. 0:13:35.600 --> 0:13:40.000 CPI came in hotter than expected this past month, and 0:13:40.200 --> 0:13:44.160 now you have yourself and others suggesting we're not in 0:13:44.200 --> 0:13:47.480 any hurry to cut interest rates. Market seemed to be 0:13:47.559 --> 0:13:50.640 taking this as a policy turning point, is it? 0:13:51.520 --> 0:13:54.400 I wouldn't characterize it as a turning point. So let 0:13:54.440 --> 0:13:58.320 me you're absolutely right that the inflation numbers that came 0:13:58.360 --> 0:14:01.079 in this week were on what I would call a 0:14:01.200 --> 0:14:03.839 high end of what was expected, and if you look 0:14:03.880 --> 0:14:08.559 at the first quarter, certainly inflation is elevated compared to 0:14:08.559 --> 0:14:11.679 where it was as we ended twenty twenty three. At 0:14:11.679 --> 0:14:15.360 the same time, it doesn't change my baseline outlook that 0:14:15.800 --> 0:14:20.120 inflation will continue to come down with a healthy labor market. 0:14:20.320 --> 0:14:23.840 I just think it will take more time, and it's 0:14:23.880 --> 0:14:27.720 premature to tell whether the elevated numbers that we just 0:14:27.760 --> 0:14:31.359 saw are a bump along that path or something more concerning. 0:14:31.440 --> 0:14:34.080 So I don't see it as a significant turn, but 0:14:34.160 --> 0:14:38.120 important to continue to look at the data holistically and 0:14:38.200 --> 0:14:40.480 let the data tell us what's really going on. 0:14:41.160 --> 0:14:43.840 The markets to go back to them have priced out 0:14:43.880 --> 0:14:46.400 everything except maybe one and a half rate cuts by 0:14:46.440 --> 0:14:50.000 the end of the year. Is it fair to say that, 0:14:50.160 --> 0:14:52.760 unlike them, you really don't know what. 0:14:52.680 --> 0:14:54.320 You're going to do well. 0:14:54.520 --> 0:14:57.680 Policy is not on a preset path, and I think 0:14:57.720 --> 0:15:00.840 that's important. I think there's a maybe understand and desire 0:15:00.920 --> 0:15:03.160 to have us map out exactly what's going to happen. 0:15:03.440 --> 0:15:07.400 But in the current environment, what's really called for is 0:15:07.600 --> 0:15:12.840 patients being very methodical and looking at the whole constellation 0:15:13.000 --> 0:15:16.440 of information, not just focusing on one data reading or 0:15:16.600 --> 0:15:20.640 another one. And so what I would say is that 0:15:21.080 --> 0:15:25.400 we're continuing to form our outlook, recognizing that there are 0:15:25.440 --> 0:15:27.640 lots there are uncertainties in their risks. So I call 0:15:27.680 --> 0:15:31.040 myself a realistic optimist in that sense, realistic about those 0:15:31.120 --> 0:15:35.040 risks and uncertainties, but still for lots of reasons, very 0:15:35.040 --> 0:15:39.680 optimistic that we will see inflation come back down and 0:15:39.720 --> 0:15:41.440 that labor markets will remain healthy. 0:15:41.760 --> 0:15:45.000 Well, how unconvinced are you that inflation is not going 0:15:45.040 --> 0:15:47.400 to come down as rapidly as you might have thought. 0:15:48.440 --> 0:15:50.680 So I do think that we're going to have to 0:15:50.720 --> 0:15:53.080 be patient and it may take more time. That is 0:15:53.160 --> 0:15:55.880 one of my takeaways from some of the data that 0:15:55.920 --> 0:15:58.200 we've seen. You know, at the same time, the data 0:15:58.200 --> 0:16:02.640 are mixed, Mike. So, yes, the most recent inflation numbers 0:16:02.640 --> 0:16:05.320 have been elevated compared to what I might have hoped for. 0:16:05.560 --> 0:16:07.360 But at the same time, if you look at things 0:16:07.480 --> 0:16:10.320 like wage rates, so wage growth has been faster than 0:16:10.360 --> 0:16:14.840 it was pre pandemic, But once you factor in the 0:16:14.920 --> 0:16:19.560 past price increases and importantly the productivity gains we've seen, 0:16:20.080 --> 0:16:24.360 the wage growth that we're seeing is consistent with that 0:16:24.440 --> 0:16:28.880 trajectory back down to two percent inflation, and I think 0:16:28.920 --> 0:16:32.040 that's good news for workers as well. But my point 0:16:32.200 --> 0:16:34.360 is that you need to look at the range of 0:16:34.480 --> 0:16:38.040 data and not focus too much on one piece and 0:16:38.160 --> 0:16:42.240 take the time to really see what the takeaways should be. 0:16:42.560 --> 0:16:45.440 Well, you said yesterday that the danger of overtightening is 0:16:45.520 --> 0:16:48.120 kind of moved out of the picture at this point. 0:16:48.520 --> 0:16:53.040 Growth is strong, unemployment remains low, inflation is at least sticky. 0:16:53.080 --> 0:16:55.640 If nothing else, why cut rates at all. 0:16:56.240 --> 0:17:00.360 So I wouldn't say that that there is no risk 0:17:01.080 --> 0:17:04.920 of us, you know, waiting too long. I do think 0:17:05.040 --> 0:17:09.640 that it's two sided. But to your point, I certainly 0:17:09.680 --> 0:17:14.719 do see more reason to focus on making sure that 0:17:14.840 --> 0:17:17.360 we don't start easing too quickly. 0:17:17.560 --> 0:17:18.359 We're resolute. 0:17:18.480 --> 0:17:21.680 I'm certainly resolute about that commitment to bring inflation back 0:17:21.720 --> 0:17:24.280 down to two percent. You know, I do see policy 0:17:24.359 --> 0:17:27.440 as being moderately restrictive at this point, and in my. 0:17:27.520 --> 0:17:29.000 View, will be appropriate. 0:17:29.560 --> 0:17:34.199 As we get closer to that trajectory, it will be 0:17:34.280 --> 0:17:38.080 appropriate to begin easing. But we're not there yet, so 0:17:38.359 --> 0:17:41.040 I don't think that we would definitely certainly want to 0:17:41.359 --> 0:17:45.320 stay where we are. My baseline would still have us 0:17:45.320 --> 0:17:48.520 starting to ease later this year. But when I see 0:17:48.600 --> 0:17:52.520 as likely to be later than I had been previously thinking, I. 0:17:52.480 --> 0:17:55.000 Have to ask, because everybody's going to bring up the 0:17:55.080 --> 0:17:59.359 question is does the election interfere with. 0:18:01.240 --> 0:18:06.360 Absolutely not? You know, as I've said a number of times, 0:18:07.119 --> 0:18:11.600 focusing holistically on the data is really what determines appropriate policy, 0:18:11.640 --> 0:18:12.920 and I have to say there's enough of that to 0:18:13.000 --> 0:18:16.280 keep us very busy. So that is my focus and 0:18:16.320 --> 0:18:17.840 that's the focus of the committee. 0:18:18.119 --> 0:18:22.239 You mentioned policy is moderately restrictive. What tells you that 0:18:22.520 --> 0:18:26.360 and how do you know what level of restrictiveness you need? 0:18:27.440 --> 0:18:30.800 So in terms of the last piece, that's where watching 0:18:30.840 --> 0:18:34.159 the data comes from. Are we seeing the balance of 0:18:34.280 --> 0:18:39.040 performance that we're looking for over time? You know, certainly 0:18:39.080 --> 0:18:44.440 there's evidence of some restriction. We've seen housing market reactions, 0:18:44.560 --> 0:18:49.560 We've seen some increase in delinquencies, We've seen some declines 0:18:49.760 --> 0:18:53.439 in capital spending, and so there clearly is evidence in 0:18:53.480 --> 0:18:56.400 a variety of places labor markets are coming into better balance, 0:18:56.440 --> 0:18:59.280 and that's a really important one. At the same time, 0:18:59.359 --> 0:19:05.520 consumption and demand have remained perhaps surprisingly strong given where 0:19:05.560 --> 0:19:08.439 interest rates are and what we might have thought based 0:19:08.480 --> 0:19:11.639 on history. But you know, we've seen in a lot 0:19:11.720 --> 0:19:15.280 of contexts the ways that the current context is somewhat different. 0:19:15.560 --> 0:19:18.399 So I would characterize where we are as policy is 0:19:18.480 --> 0:19:20.960 having a restrictive effect, which is what we want, but 0:19:21.359 --> 0:19:25.840 it's perhaps moderately restrictive, and that calls again for patients 0:19:25.960 --> 0:19:29.920 and being methodical as we look at all of the data. 0:19:30.000 --> 0:19:34.879 We've now got pricing basically for a December right cut 0:19:35.480 --> 0:19:39.879 as markets move back and forth. But my nerdy economist 0:19:39.960 --> 0:19:42.119 friends have spent the last two days putting PPI and 0:19:42.160 --> 0:19:45.640 CPI into the PCE calculations, and everybody is saying PCE 0:19:45.840 --> 0:19:49.040 is going to come in much milder than both of those. 0:19:49.680 --> 0:19:54.080 If that's the case, can we say June might be 0:19:54.160 --> 0:19:54.960 back on the table. 0:19:55.440 --> 0:19:57.639 So I don't want to speculate again, you know, not 0:19:57.720 --> 0:19:59.760 a preset path, and I think we have to wait 0:19:59.800 --> 0:20:02.679 to se see what the data tell us. But to 0:20:02.800 --> 0:20:06.560 my earlier point, the data have been mixed, and CPI 0:20:06.840 --> 0:20:10.360 and PCE don't always move in lockstep. They certainly are 0:20:10.880 --> 0:20:13.080 very closely related, and so I think we have to 0:20:13.119 --> 0:20:17.159 wait and let the data tell us what's happening. And again, 0:20:17.880 --> 0:20:20.240 it's not just the PCE, although that is certainly the 0:20:20.320 --> 0:20:24.440 preferred measure that we are focusing on when we look 0:20:24.480 --> 0:20:27.479 at our two percent target, it's all of it and 0:20:27.480 --> 0:20:31.359 how it comes together collectively. So wage data will be important. 0:20:31.960 --> 0:20:34.120 When I look at the price data, I also want 0:20:34.160 --> 0:20:37.160 to disaggregate and look at what's happening to the different components, 0:20:37.200 --> 0:20:40.320 because the dynamics there are different, and that's informative for 0:20:40.440 --> 0:20:43.000 trying to understand where we might be going, not just 0:20:43.040 --> 0:20:46.240 where we've been. Key question is where are we going 0:20:46.440 --> 0:20:50.600 and what's that outlook like, and trying to get to 0:20:50.680 --> 0:20:54.760 greater confidence before we change the policy stance for Saint Lewis. 0:20:54.760 --> 0:20:58.240 FED President Jim Bullard once said, during the aftermath of 0:20:58.280 --> 0:21:00.840 the financial crisis, whatever you think the right rate for 0:21:00.880 --> 0:21:05.919 the country is, this isn't it. Are you anxious to cut? 0:21:06.000 --> 0:21:08.760 Do you want to cut? Do we need a cut? 0:21:09.040 --> 0:21:11.240 Or can we live with rates at this level? 0:21:11.960 --> 0:21:16.000 Well, in the near term, I don't see urgency. I 0:21:16.200 --> 0:21:20.359 had been a bit concerned earlier in the year, very 0:21:20.400 --> 0:21:22.320 early in the year, that there might be some signs 0:21:22.320 --> 0:21:26.640 of labor market fragility. I'm seeing much less reason for concern. 0:21:26.720 --> 0:21:28.720 But that again is why I see the risks as 0:21:28.760 --> 0:21:31.560