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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with the Jonathan Ferrill and Lisa Brownwitz Jay Lee. We

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Speaker 1: bring you insight from the best and economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance and Apple Podcast, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course on the Bloomberg Terminal

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Speaker 1: in New York City. I'm placed to say, on Bloomberg

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Speaker 1: TV and on Bloomberg Radio. We're joined now by the

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Speaker 1: US Labor Secretary, Mighty Wold secondly Welsh. First of all, sir,

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Speaker 1: I know you've been on one of the last couple

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Speaker 1: of days. Can you tell us if you're okay. I'm

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Speaker 1: doing all right, Yeah, if I feel a lot better.

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Speaker 1: It's a it's a thank goud and vax and boosted

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Speaker 1: because this thing it text share your immune system. But

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Speaker 1: I feel good, So thank you for that. We're a

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Speaker 1: good man for giving us some of your time. I've

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Speaker 1: agreed to shorten up the interview just so you don't

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Speaker 1: have to do much today. So let's start with this

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Speaker 1: one here. The Jobs Report, your assessments, the view from

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Speaker 1: the White House at the moment. Certainly it's a good

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Speaker 1: jobs report, three ninety thousand jobs. We're seeing good games there.

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Speaker 1: One thing that we looked at from when the president

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Speaker 1: took over. We are ten million people out of work

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Speaker 1: in America. It's down a four and fifty five thousand.

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Speaker 1: That's a good number. We're seeing steady and stable growth

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Speaker 1: here in the job reports. But we know, as they

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Speaker 1: say every month, we have more works to do. This, this, this,

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Speaker 1: uh what outpaced what the expectations were. But certainly we

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Speaker 1: know this work to do. We know we're still dealing

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Speaker 1: with inflation. We know we're still dealing with an economy

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Speaker 1: that people are concerned about, and the presidents laid out

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Speaker 1: a plan for it. You know the numbers, well, one

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Speaker 1: point nine jobs for every unemployed person in America right now,

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Speaker 1: the quits rate is elevated. That's a sign of confidence.

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Speaker 1: The unemployment rate didn't move over today, but still a

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Speaker 1: decent level of three point six percent. The worker, most

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Speaker 1: people are concluding, has a fair bit of bargaining power here.

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Speaker 1: So secondly, Welsh, with that in mind, what kind of

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Speaker 1: approach would you like to see. In the talks with

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Speaker 1: unions representing the workers on the ports on the West Coast,

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Speaker 1: we talked about this a few times over the last

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Speaker 1: few months. Watch your view now. Yeah, I think that

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Speaker 1: those conversations are going steady. I've been staying in contact

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Speaker 1: with the with the folks out on the West coast.

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Speaker 1: Right now, I think it's it's on a good pace

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Speaker 1: and they just need to continue to have those negotiations. Obviously,

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Speaker 1: anytime you have a negotiations like the ports, whether it's

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Speaker 1: on the west and East coast, but in this case

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Speaker 1: on the West coast, we want to keep a close

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Speaker 1: side because we know the impacts that that if if

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Speaker 1: it doesn't go well, what what will have? But I

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Speaker 1: feel pretty good about I feel confident where they're headed

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Speaker 1: on those conversations. Can you give us some idea of

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Speaker 1: why you're confident based on the conversations of the last month,

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Speaker 1: what the developments actually are specifically. Yeah, I think I've

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Speaker 1: spoken to both the companies and the unions and neither

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Speaker 1: one I've really said that that that there's any obstacles

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Speaker 1: that they're really concerned about right now. What they're doing

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Speaker 1: is they're having the negotiations that they have every few years,

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Speaker 1: and uh, you know, and certainly I think they've all

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Speaker 1: of the all the parties know what what with what

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Speaker 1: the American people have gone through over the last couple

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Speaker 1: of years with supply chain issues and what's happened in

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Speaker 1: the ports. So I think they also understand the importance

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Speaker 1: of getting a contract done. Secondly, wells just finally, because

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Speaker 1: I know you have to run. We've had some things

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Speaker 1: this week from some big players. Jamie Diamond talked about

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Speaker 1: a hurricane coming to the economy. We heard from Elon

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Speaker 1: mask of Tesla Royster's reporting that he sent an internal

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Speaker 1: email pausing hiring potentially cunning temper cent of the workforce.

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Speaker 1: Are you seeing much more of that in the conversations

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Speaker 1: you say you have with corporations week to week, day

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Speaker 1: to day. No, I have really never really brought that

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Speaker 1: up to me, but I'll tell you you know, the

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Speaker 1: President has been very, very focused on making sure that

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Speaker 1: we continue to to to tackle all the inflationary challenges

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Speaker 1: and the challenge of the economy. I mean, this is

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Speaker 1: a in all hands on deck approach that includes government

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Speaker 1: incorporations working collectively together. I think that we're kind of

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Speaker 1: like we're in a marathon here. This isn't a friend,

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Speaker 1: that's a marathon, and we have to just continue to

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Speaker 1: move forward. One day at a time. Secondly, Walsh, we

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Speaker 1: appreciate your time and I hope you get better soon

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Speaker 1: and we'll get your back in person hopefully. Thank you, sir,

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Speaker 1: thank you very much. Secondly, Money Welsh there random crosser

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Speaker 1: with it for some observations here of course with the

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Speaker 1: both schools Chicago, the former FED governor Ready, I want

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Speaker 1: to talk about what the FED actually does around the

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Speaker 1: table at the Echoes Building with this report. Do they

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Speaker 1: value an analysis of the inflation adjusted wage? Does the

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Speaker 1: real wage matter? S It does, because they're looking both

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Speaker 1: at the inflation to see where expectations are, what what

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Speaker 1: has happened in the labor market, and then they look

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Speaker 1: at adjusting for inflation. Um, are real wages exploding? They're

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Speaker 1: certainly not exploding. We've got inflation that's much higher than

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Speaker 1: than the the five roughly five and a half percent

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Speaker 1: growth of wages. And so I think, as you were saying,

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Speaker 1: the FED is going to take this as this is

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Speaker 1: kind of what we were anticipating, uh, that we're not

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Speaker 1: seeing an explosion on the wage side. We're not seeing

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Speaker 1: a collapse of the economy either. I mean, these are

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Speaker 1: still very strong numbers. The unemployment rate, at three point

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Speaker 1: six percent is still an extremely strong number. Is very

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Speaker 1: rare that the the US economy has a sustained unemployment

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Speaker 1: rate below four percent UM, and so I think it's

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Speaker 1: very much consistent with the fed's forecasts. And so that

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Speaker 1: means there's nothing that's going to stop them from continuing

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Speaker 1: this march of fifty basis point increases. And as my

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Speaker 1: my former colleague from from graduate school, Lele Brainard said,

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Speaker 1: they're going to be marching through at least September in

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Speaker 1: those fifty phases point rate increases. So that's exactly where

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Speaker 1: I wanted to go. Randy, does this job report give

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Speaker 1: credence to the idea that they could go fifty basis

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Speaker 1: points three meetings in a row and then follow it

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Speaker 1: on with another fifty basis point rate hike, even though

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Speaker 1: last week some including Raphael Bostick, we're talking about a pause.

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Speaker 1: So I mean, um, you know, as they always say,

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Speaker 1: their data dependent, you know, we have to see how

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Speaker 1: the data did to come. But if you get reports

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Speaker 1: like this, it's going to give FED the confidence that

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Speaker 1: they are doing the right thing, that they're starting to

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Speaker 1: have a little bit of an impact on inflation, and

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Speaker 1: hopefully once they get in the two and a half

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Speaker 1: three percent range, they'll have more of an impact. Inflation

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Speaker 1: expectations have not gotten out of control. Um. The short

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Speaker 1: term expectations are super high, but that that makes a

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Speaker 1: lot of sense, But the intermediate to longer run expectations

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Speaker 1: are really not much out of the range where they've

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Speaker 1: been over the last decade. And this is why the

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Speaker 1: FED needs to act now. And this is why I

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Speaker 1: think Lale was out there saying, you know, we're gonna

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Speaker 1: be be tough on inflation because they have an opportunity.

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Speaker 1: The opportunity is to raise those rates now when the

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Speaker 1: uemployment rate is low without inflation expectations getting out of control.

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Speaker 1: As long as they stay well anchored, um, they can

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Speaker 1: move into let's say around three percent or so that

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Speaker 1: and then hopefully we'll start to see some of the

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Speaker 1: the inflations start to come down, and then they'll be

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Speaker 1: be sitting pretty because they won't have to raise rates

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Speaker 1: those double digit levels, which is where we were forty

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Speaker 1: years ago when inflation was this high. Trying to catch

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Speaker 1: out and Randy, get your thoughts on this running cross

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Speaker 1: in the University Chicago bas School. The conclusion for him

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Speaker 1: the work has the FETE has got more work to do.

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Speaker 1: Right now, joining us Jeffrey Rosenberg with black Rock and

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Speaker 1: Jeff perfect time to talk to you. I want to

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Speaker 1: know how the bond market responds to one of the

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Speaker 1: themes we've seen and maybe we see in this job's report,

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Speaker 1: which is we're gonna move from eight percent to five

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Speaker 1: percent inflation or four percent inflation and then there's a

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Speaker 1: massive Then what how do you position in bonds given

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Speaker 1: a by part move in in inflation and presumably in yield. Yeah,

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Speaker 1: and you know, a week from now we're gonna have

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Speaker 1: that conversation again with maybe a little bit more relevant

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Speaker 1: information focused on you know, the CPI report, but the

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Speaker 1: inflationary data that we get out of today, as you

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Speaker 1: guys have covered, it's a little bit of you know,

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Speaker 1: avoiding the worst case scenario. You get a little bit

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Speaker 1: of improvement on the labor force participation rate. I would

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Speaker 1: agree with whoever said that earlier. That's probably you know,

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Speaker 1: for the inflation story. The biggest important number that we

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Speaker 1: get out of the payroll report. Obviously there's an average

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Speaker 1: howity of the earnings as well, and and that you know,

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Speaker 1: avoided a negative disappointment in terms of you know, fast print.

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Speaker 1: You know that I think the market this morning is

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Speaker 1: maybe reacting on the headline. You know, there's a pretty

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Speaker 1: big drag to that headline number from retail. Uh. You know,

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Speaker 1: so if you if you if you discount that this

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Speaker 1: was actually a little bit stronger report, you know, perhaps

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Speaker 1: that's what we're seeing in terms of the market. And

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Speaker 1: as Randy just said, you know, take a step backand

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Speaker 1: this is this is still a very very strong and

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Speaker 1: too strong labor markets. So we need to see that

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Speaker 1: slow and you know that's in the expectations and you're

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Speaker 1: getting a little bit of that, maybe a little bit

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Speaker 1: of disappointment in terms of the slowing. I would read

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Speaker 1: too much into it. And to your question, Tom, you

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Speaker 1: know that the jury is still out in terms of

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Speaker 1: the inflationary tragic actory. We're we're projecting it. We have

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Speaker 1: expectations that we're going to see that decline. But you

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Speaker 1: can't get the FED really out of the business of

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Speaker 1: focusing on the number one priority, which is getting inflation down,

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Speaker 1: until you start to really see definitively that show up.

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Speaker 1: And until that happens, it's going to be a very

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Speaker 1: tough time to be thinking about you know, bonds in

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Speaker 1: the portfolio as a as a as an equity hedge

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Speaker 1: bonds as you know, stable source so of income and

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Speaker 1: preservation of principle, because they've got to adjust. Now. The

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Speaker 1: good news is there's been a lot of adjustments, so

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Speaker 1: I think the pain that we've seen in the first

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Speaker 1: quarter unlikely to be repeated. But too early here on

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Speaker 1: this report to to say it's all clear. As trade

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Speaker 1: has passed through the numbers, you are seeing a bit

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Speaker 1: more of a lift to yields priced down on bonds

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Speaker 1: to your point, Jeff, And you're also seeing stocks get

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Speaker 1: hit a little bit more, perhaps because it is still

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Speaker 1: too hot for the FED. I wonder though, how much, Jeff,

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Speaker 1: this market continues to be faith based in terms of

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Speaker 1: pick your data point, pick your narrative, confirm it and

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Speaker 1: move on. How much is that sort of what you're

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Speaker 1: feeling right now? Yeah, I mean, look, we all are

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Speaker 1: going to have various interpretations on the data, and so

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Speaker 1: will the so will the FED. But eventually the data

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Speaker 1: will show up and it's not just one data point

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Speaker 1: or two from which we extrapolate, and we have to

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Speaker 1: be a little bit of patient. We have to be

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Speaker 1: a little bit patient to see that trajectory play out.

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Speaker 1: The market may not be patient, you know, one comment

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Speaker 1: from from Bostick, and everybody says, oh, it's it's okay,

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Speaker 1: you know, they're gonna pause, and then brainerd you know,

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Speaker 1: tries to put that back in the bottle. So really

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Speaker 1: we got to focus not on you know, being sort

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Speaker 1: of yanked around by various comments, but understand that the

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Speaker 1: priority here is inflation and that means a consecutive set

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Speaker 1: of inflation prints monthly, you know, So we've we've got

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Speaker 1: to really follow this over the course of the summer

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Speaker 1: into the fall. But where we can really, uh, definitively

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Speaker 1: claim that the projections, the faith based projections, and the

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Speaker 1: consensus expectations are actually being realized. Jeff, it's a chart

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Speaker 1: that we have tattooed to our brains, and certainly you

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Speaker 1: do with all your work at Carnegie mellon the tenure

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Speaker 1: real yield, the inflation adjusted tenure yield, however you want

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Speaker 1: to measure it. We're nowhere near back to normal our way.

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Speaker 1: What is your measurement of normal given these uncertain times

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Speaker 1: that the real yield has to get back to. Yeah,

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Speaker 1: it's a it's a great question Tom, because it really

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Speaker 1: is kind of the north star for thinking about FED policy.

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Speaker 1: You know, the FED wants to get back to neutral.

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Speaker 1: You know what is neutral? What? Well, first of all,

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Speaker 1: neutral in real terms is a lot closer to zero,

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Speaker 1: probably between zero and a half a percent. But to

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Speaker 1: get there you need, you know, both an increase in

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Speaker 1: in nominal yields and a decrease in inflation. And if

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Speaker 1: in lation doesn't do its part to decrease, then you

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Speaker 1: need more increases in nominal yields. So when when people

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Speaker 1: kind of think about the three percent that the Fed

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Speaker 1: is going to very quickly get to, you know, by

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Speaker 1: the end of this year early part of next year,

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Speaker 1: the presumption there is that the inflation is also going

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Speaker 1: to decline and do its part, and that's gonna bring

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Speaker 1: real yields back to something that's closer to neutral. So

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Speaker 1: if you don't get that contribution from inflation, then you

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Speaker 1: are gonna need to see more on the nominal rate

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Speaker 1: hikes to to get closer to neutral. So there's two

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Speaker 1: parts to that nominal rate forecast that's kind of embedded

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Speaker 1: in bond prices, and a big part of that is

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Speaker 1: a is a steady decline in the inflation rate, Jeff.

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Speaker 1: In about two hours, President Biden is going to come

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Speaker 1: out and talk about how the strength of this labor

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Speaker 1: market is going to allow the nation to navigate through

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Speaker 1: a difficult period of time. You will talk about how

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Speaker 1: it's one of the strongest labor markets in history. How

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Speaker 1: do you look at that and then confirm the sort

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Speaker 1: of barish tilt of the market that's looking to recession,

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Speaker 1: that's looking to a slowdown, and looking to an increase

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Speaker 1: in the unemployment rate. Well, it's about kind of setting expectations.

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Speaker 1: I think some of the things we've seen from the

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Speaker 1: administration is trying to get out ahead of labor market

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Speaker 1: slow down, but but also slow down here is a

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Speaker 1: good thing. And that's a little bit tricky of a

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Speaker 1: message for them to say, because it's all been about

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Speaker 1: these great job numbers and how good that is. Now

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Speaker 1: they've got a pivot to talk about the sustainability of

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Speaker 1: the economy and that too much of a good thing

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Speaker 1: is actually a bad thing because of its impact on inflation.

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Speaker 1: And so seeing the steady decline in payroll figures is

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Speaker 1: actually something that we should look forward to and would

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Speaker 1: be a good outcome. So I think it's it's kind

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Speaker 1: of turning their narrative. It's what the market is looking

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Speaker 1: for as well. Uh and and and that's where this

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Speaker 1: kind of good bad news is good news in some sense,

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Speaker 1: is in the market expectations. Jeff Frozenberg, thank you so

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Speaker 1: much with black Rocket. Jerome Schneider, most patient man on

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Speaker 1: the planet joins us now with PIMCO. Jerome seriously, thank

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Speaker 1: you with your valuable time for staying with us here

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Speaker 1: to the end of this hour. Does the yield market

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Speaker 1: game the FED? Or is the FED watching the Jerome

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Speaker 1: Schneider's space. Yeah, the FED is watching both spaces, quite honestly,

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Speaker 1: eyes firmly fixated on both ends of the spectrum, quite honestly.

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Speaker 1: On one side, they're probably a little bit relieved this

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Speaker 1: morning that early signs of economic you know, transition or

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Speaker 1: perhaps that even inflection is coming along um and they

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Speaker 1: they're sort of seeing that, you know, the market is

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Speaker 1: becoming a little bit the jobs market, the labor market

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Speaker 1: is becoming a little bit more tentative. And and maybe

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Speaker 1: there's some you know, if on hand one the other

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Speaker 1: meaning retail numbers were down, as you noted, uh, pret viously,

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Speaker 1: and hospitality was higher, so some of that is the

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Speaker 1: pivot from goods to you know, goods to services, and

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Speaker 1: that probably is a good thing in the fed's mind

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Speaker 1: and the FEDS construct so they're probably continuing and will

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Speaker 1: continue to be fixated on those longer term inflation expectations

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Speaker 1: and that they look at where the data is today

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Speaker 1: and more importantly, the next three jobs reports that we

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Speaker 1: have before the September jobs report. You know, that's actually

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Speaker 1: pretty data dependent. It makes them a little bit data dependent,

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Speaker 1: but it actually goes into the calculus that perhaps this

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Speaker 1: this this inflection point does give them a little bit

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Speaker 1: of ability to be less hawkish potentially. And again it's

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Speaker 1: all in the data. And so I sort of point

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Speaker 1: to that because you know, inevitably the next meetings in

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Speaker 1: June and July or fifty and and you probably have

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Speaker 1: Jackson Hole and then you have September. It get does

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Speaker 1: give me a little bit of time to at least

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Speaker 1: be uh be be putting some bets on the optionality

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Speaker 1: that they ever so love well Jackson Ho. I'm glad

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Speaker 1: you reminded me that I have to put in a

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Speaker 1: request for the surveillance jet to get out the Jackson Hole.

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Speaker 1: But Jerale we've got the balance sheet, the FED beginning

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Speaker 1: to roll off this you know, close to nine you know,

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Speaker 1: trillion dollar balance sheet. What does that mean for the

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Speaker 1: short term end of the market. What should we be

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Speaker 1: looking for? Yeah, as I said previously, I think that

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Speaker 1: there's two things. One is that you know, this cycle's

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Speaker 1: runoff is going to be substantively larger and ramp up

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Speaker 1: faster than the previous one. So the this tool, which

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Speaker 1: obviously mini fed UM governors don't want to readily admit to,

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Speaker 1: but this tool is one which actually has a little

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Speaker 1: bit less precision, and so we might be able to

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Speaker 1: deduct what's going on from the previous time we tried

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Speaker 1: to tighten the balance sheet to this one. But it's

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Speaker 1: not going to be the exact same science at all.

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Speaker 1: It's going to be very much an art And so

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Speaker 1: while we were ramping up here pretty quickly over the

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Speaker 1: next three months to that arrogant number UM, the reality

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Speaker 1: is that it's going to be a pretty defensive situation

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Speaker 1: whereby access reserves are drained pretty quickly. Now that's one

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Speaker 1: aspect of it. The second aspect is we still have

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Speaker 1: a tremendous amount of excess reserves, so the inflection point

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Speaker 1: again to be thinking in use that term um further

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Speaker 1: out for liquidity may not necessarily be anything in the

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Speaker 1: near term over the next three months or so, but

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Speaker 1: it's going to be longer term as those excess reserves

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Speaker 1: get depleted and more importantly get placed in the proper

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Speaker 1: locations away from the reversary fo facility that has two

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Speaker 1: troyon in it. So for investors, and what does that mean?

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Speaker 1: It ultimately means focus on liquidity conditions. These are reasons

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Speaker 1: probably still to be defensive and PIMCO parlance, you know,

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Speaker 1: our view of the anti Goldilocks outcome, which relies upon

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Speaker 1: higher liquidity conditions and being a little bit more defensive

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Speaker 1: with risk and credit assets at least at least a

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Speaker 1: nearer term is something that probably still holds fast. One

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Speaker 1: final question, Joe, we got to go to some breaking news.

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Speaker 1: Does this mean that we just extend the X axis.

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Speaker 1: Does this mean in our in our media analysis, if

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Speaker 1: we want everything to be short term and everything is

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Speaker 1: going to be stretched out longer, Well, I think it's

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Speaker 1: the other way around, actually, Tom, I think the reality is,

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Speaker 1: has we spent years making X access. I think that

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Speaker 1: it's shorter than it really was bringing forward expectations of earnings,

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Speaker 1: funding revisions, things like that, and so all we're doing

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Speaker 1: is reverting to an x access which is normalized, meaning

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Speaker 1: that where we need to be thinking about how things

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Speaker 1: can evolve over the next year, which can be pretty

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Speaker 1: drastic different than they were in the past. The assumptions

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Speaker 1: for long term assumptions are frankly what what people can't

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Speaker 1: be relying upon as they were in the past. JOm Schneider,

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Speaker 1: thank you so much again Yeoman's duty here helping us

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Speaker 1: before and after the conversation with Secretary Wassh. Mr Schneider

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Speaker 1: with Pimple, This is the Bloomberg Surveillance Podcast. Thanks for listening.

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Speaker 1: Join us live weekdays from seven to ten am Eastern

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Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

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Speaker 1: six to nine am for insight from the best in economics, finance, investment,

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Speaker 1: and international relations. And subscribe to the Surveillance podcast on

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Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

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Speaker 1: the terminal. I'm Tom Keene and this is Bloomer