Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with the Jonathan Ferrill and Lisa Brownwitz Jay Lee. We
Speaker 1: bring you insight from the best and economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance and Apple Podcast, SoundCloud,
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Speaker 1: in New York City. I'm placed to say, on Bloomberg
Speaker 1: TV and on Bloomberg Radio. We're joined now by the
Speaker 1: US Labor Secretary, Mighty Wold secondly Welsh. First of all, sir,
Speaker 1: I know you've been on one of the last couple
Speaker 1: of days. Can you tell us if you're okay. I'm
Speaker 1: doing all right, Yeah, if I feel a lot better.
Speaker 1: It's a it's a thank goud and vax and boosted
Speaker 1: because this thing it text share your immune system. But
Speaker 1: I feel good, So thank you for that. We're a
Speaker 1: good man for giving us some of your time. I've
Speaker 1: agreed to shorten up the interview just so you don't
Speaker 1: have to do much today. So let's start with this
Speaker 1: one here. The Jobs Report, your assessments, the view from
Speaker 1: the White House at the moment. Certainly it's a good
Speaker 1: jobs report, three ninety thousand jobs. We're seeing good games there.
Speaker 1: One thing that we looked at from when the president
Speaker 1: took over. We are ten million people out of work
Speaker 1: in America. It's down a four and fifty five thousand.
Speaker 1: That's a good number. We're seeing steady and stable growth
Speaker 1: here in the job reports. But we know, as they
Speaker 1: say every month, we have more works to do. This, this, this,
Speaker 1: uh what outpaced what the expectations were. But certainly we
Speaker 1: know this work to do. We know we're still dealing
Speaker 1: with inflation. We know we're still dealing with an economy
Speaker 1: that people are concerned about, and the presidents laid out
Speaker 1: a plan for it. You know the numbers, well, one
Speaker 1: point nine jobs for every unemployed person in America right now,
Speaker 1: the quits rate is elevated. That's a sign of confidence.
Speaker 1: The unemployment rate didn't move over today, but still a
Speaker 1: decent level of three point six percent. The worker, most
Speaker 1: people are concluding, has a fair bit of bargaining power here.
Speaker 1: So secondly, Welsh, with that in mind, what kind of
Speaker 1: approach would you like to see. In the talks with
Speaker 1: unions representing the workers on the ports on the West Coast,
Speaker 1: we talked about this a few times over the last
Speaker 1: few months. Watch your view now. Yeah, I think that
Speaker 1: those conversations are going steady. I've been staying in contact
Speaker 1: with the with the folks out on the West coast.
Speaker 1: Right now, I think it's it's on a good pace
Speaker 1: and they just need to continue to have those negotiations. Obviously,
Speaker 1: anytime you have a negotiations like the ports, whether it's
Speaker 1: on the west and East coast, but in this case
Speaker 1: on the West coast, we want to keep a close
Speaker 1: side because we know the impacts that that if if
Speaker 1: it doesn't go well, what what will have? But I
Speaker 1: feel pretty good about I feel confident where they're headed
Speaker 1: on those conversations. Can you give us some idea of
Speaker 1: why you're confident based on the conversations of the last month,
Speaker 1: what the developments actually are specifically. Yeah, I think I've
Speaker 1: spoken to both the companies and the unions and neither
Speaker 1: one I've really said that that that there's any obstacles
Speaker 1: that they're really concerned about right now. What they're doing
Speaker 1: is they're having the negotiations that they have every few years,
Speaker 1: and uh, you know, and certainly I think they've all
Speaker 1: of the all the parties know what what with what
Speaker 1: the American people have gone through over the last couple
Speaker 1: of years with supply chain issues and what's happened in
Speaker 1: the ports. So I think they also understand the importance
Speaker 1: of getting a contract done. Secondly, wells just finally, because
Speaker 1: I know you have to run. We've had some things
Speaker 1: this week from some big players. Jamie Diamond talked about
Speaker 1: a hurricane coming to the economy. We heard from Elon
Speaker 1: mask of Tesla Royster's reporting that he sent an internal
Speaker 1: email pausing hiring potentially cunning temper cent of the workforce.
Speaker 1: Are you seeing much more of that in the conversations
Speaker 1: you say you have with corporations week to week, day
Speaker 1: to day. No, I have really never really brought that
Speaker 1: up to me, but I'll tell you you know, the
Speaker 1: President has been very, very focused on making sure that
Speaker 1: we continue to to to tackle all the inflationary challenges
Speaker 1: and the challenge of the economy. I mean, this is
Speaker 1: a in all hands on deck approach that includes government
Speaker 1: incorporations working collectively together. I think that we're kind of
Speaker 1: like we're in a marathon here. This isn't a friend,
Speaker 1: that's a marathon, and we have to just continue to
Speaker 1: move forward. One day at a time. Secondly, Walsh, we
Speaker 1: appreciate your time and I hope you get better soon
Speaker 1: and we'll get your back in person hopefully. Thank you, sir,
Speaker 1: thank you very much. Secondly, Money Welsh there random crosser
Speaker 1: with it for some observations here of course with the
Speaker 1: both schools Chicago, the former FED governor Ready, I want
Speaker 1: to talk about what the FED actually does around the
Speaker 1: table at the Echoes Building with this report. Do they
Speaker 1: value an analysis of the inflation adjusted wage? Does the
Speaker 1: real wage matter? S It does, because they're looking both
Speaker 1: at the inflation to see where expectations are, what what
Speaker 1: has happened in the labor market, and then they look
Speaker 1: at adjusting for inflation. Um, are real wages exploding? They're
Speaker 1: certainly not exploding. We've got inflation that's much higher than
Speaker 1: than the the five roughly five and a half percent
Speaker 1: growth of wages. And so I think, as you were saying,
Speaker 1: the FED is going to take this as this is
Speaker 1: kind of what we were anticipating, uh, that we're not
Speaker 1: seeing an explosion on the wage side. We're not seeing
Speaker 1: a collapse of the economy either. I mean, these are
Speaker 1: still very strong numbers. The unemployment rate, at three point
Speaker 1: six percent is still an extremely strong number. Is very
Speaker 1: rare that the the US economy has a sustained unemployment
Speaker 1: rate below four percent UM, and so I think it's
Speaker 1: very much consistent with the fed's forecasts. And so that
Speaker 1: means there's nothing that's going to stop them from continuing
Speaker 1: this march of fifty basis point increases. And as my
Speaker 1: my former colleague from from graduate school, Lele Brainard said,
Speaker 1: they're going to be marching through at least September in
Speaker 1: those fifty phases point rate increases. So that's exactly where
Speaker 1: I wanted to go. Randy, does this job report give
Speaker 1: credence to the idea that they could go fifty basis
Speaker 1: points three meetings in a row and then follow it
Speaker 1: on with another fifty basis point rate hike, even though
Speaker 1: last week some including Raphael Bostick, we're talking about a pause.
Speaker 1: So I mean, um, you know, as they always say,
Speaker 1: their data dependent, you know, we have to see how
Speaker 1: the data did to come. But if you get reports
Speaker 1: like this, it's going to give FED the confidence that
Speaker 1: they are doing the right thing, that they're starting to
Speaker 1: have a little bit of an impact on inflation, and
Speaker 1: hopefully once they get in the two and a half
Speaker 1: three percent range, they'll have more of an impact. Inflation
Speaker 1: expectations have not gotten out of control. Um. The short
Speaker 1: term expectations are super high, but that that makes a
Speaker 1: lot of sense, But the intermediate to longer run expectations
Speaker 1: are really not much out of the range where they've
Speaker 1: been over the last decade. And this is why the
Speaker 1: FED needs to act now. And this is why I
Speaker 1: think Lale was out there saying, you know, we're gonna
Speaker 1: be be tough on inflation because they have an opportunity.
Speaker 1: The opportunity is to raise those rates now when the
Speaker 1: uemployment rate is low without inflation expectations getting out of control.
Speaker 1: As long as they stay well anchored, um, they can
Speaker 1: move into let's say around three percent or so that
Speaker 1: and then hopefully we'll start to see some of the
Speaker 1: the inflations start to come down, and then they'll be
Speaker 1: be sitting pretty because they won't have to raise rates
Speaker 1: those double digit levels, which is where we were forty
Speaker 1: years ago when inflation was this high. Trying to catch
Speaker 1: out and Randy, get your thoughts on this running cross
Speaker 1: in the University Chicago bas School. The conclusion for him
Speaker 1: the work has the FETE has got more work to do.
Speaker 1: Right now, joining us Jeffrey Rosenberg with black Rock and
Speaker 1: Jeff perfect time to talk to you. I want to
Speaker 1: know how the bond market responds to one of the
Speaker 1: themes we've seen and maybe we see in this job's report,
Speaker 1: which is we're gonna move from eight percent to five
Speaker 1: percent inflation or four percent inflation and then there's a
Speaker 1: massive Then what how do you position in bonds given
Speaker 1: a by part move in in inflation and presumably in yield. Yeah,
Speaker 1: and you know, a week from now we're gonna have
Speaker 1: that conversation again with maybe a little bit more relevant
Speaker 1: information focused on you know, the CPI report, but the
Speaker 1: inflationary data that we get out of today, as you
Speaker 1: guys have covered, it's a little bit of you know,
Speaker 1: avoiding the worst case scenario. You get a little bit
Speaker 1: of improvement on the labor force participation rate. I would
Speaker 1: agree with whoever said that earlier. That's probably you know,
Speaker 1: for the inflation story. The biggest important number that we
Speaker 1: get out of the payroll report. Obviously there's an average
Speaker 1: howity of the earnings as well, and and that you know,
Speaker 1: avoided a negative disappointment in terms of you know, fast print.
Speaker 1: You know that I think the market this morning is
Speaker 1: maybe reacting on the headline. You know, there's a pretty
Speaker 1: big drag to that headline number from retail. Uh. You know,
Speaker 1: so if you if you if you discount that this
Speaker 1: was actually a little bit stronger report, you know, perhaps
Speaker 1: that's what we're seeing in terms of the market. And
Speaker 1: as Randy just said, you know, take a step backand
Speaker 1: this is this is still a very very strong and
Speaker 1: too strong labor markets. So we need to see that
Speaker 1: slow and you know that's in the expectations and you're
Speaker 1: getting a little bit of that, maybe a little bit
Speaker 1: of disappointment in terms of the slowing. I would read
Speaker 1: too much into it. And to your question, Tom, you
Speaker 1: know that the jury is still out in terms of
Speaker 1: the inflationary tragic actory. We're we're projecting it. We have
Speaker 1: expectations that we're going to see that decline. But you
Speaker 1: can't get the FED really out of the business of
Speaker 1: focusing on the number one priority, which is getting inflation down,
Speaker 1: until you start to really see definitively that show up.
Speaker 1: And until that happens, it's going to be a very
Speaker 1: tough time to be thinking about you know, bonds in
Speaker 1: the portfolio as a as a as an equity hedge
Speaker 1: bonds as you know, stable source so of income and
Speaker 1: preservation of principle, because they've got to adjust. Now. The
Speaker 1: good news is there's been a lot of adjustments, so
Speaker 1: I think the pain that we've seen in the first
Speaker 1: quarter unlikely to be repeated. But too early here on
Speaker 1: this report to to say it's all clear. As trade
Speaker 1: has passed through the numbers, you are seeing a bit
Speaker 1: more of a lift to yields priced down on bonds
Speaker 1: to your point, Jeff, And you're also seeing stocks get
Speaker 1: hit a little bit more, perhaps because it is still
Speaker 1: too hot for the FED. I wonder though, how much, Jeff,
Speaker 1: this market continues to be faith based in terms of
Speaker 1: pick your data point, pick your narrative, confirm it and
Speaker 1: move on. How much is that sort of what you're
Speaker 1: feeling right now? Yeah, I mean, look, we all are
Speaker 1: going to have various interpretations on the data, and so
Speaker 1: will the so will the FED. But eventually the data
Speaker 1: will show up and it's not just one data point
Speaker 1: or two from which we extrapolate, and we have to
Speaker 1: be a little bit of patient. We have to be
Speaker 1: a little bit patient to see that trajectory play out.
Speaker 1: The market may not be patient, you know, one comment
Speaker 1: from from Bostick, and everybody says, oh, it's it's okay,
Speaker 1: you know, they're gonna pause, and then brainerd you know,
Speaker 1: tries to put that back in the bottle. So really
Speaker 1: we got to focus not on you know, being sort
Speaker 1: of yanked around by various comments, but understand that the
Speaker 1: priority here is inflation and that means a consecutive set
Speaker 1: of inflation prints monthly, you know, So we've we've got
Speaker 1: to really follow this over the course of the summer
Speaker 1: into the fall. But where we can really, uh, definitively
Speaker 1: claim that the projections, the faith based projections, and the
Speaker 1: consensus expectations are actually being realized. Jeff, it's a chart
Speaker 1: that we have tattooed to our brains, and certainly you
Speaker 1: do with all your work at Carnegie mellon the tenure
Speaker 1: real yield, the inflation adjusted tenure yield, however you want
Speaker 1: to measure it. We're nowhere near back to normal our way.
Speaker 1: What is your measurement of normal given these uncertain times
Speaker 1: that the real yield has to get back to. Yeah,
Speaker 1: it's a it's a great question Tom, because it really
Speaker 1: is kind of the north star for thinking about FED policy.
Speaker 1: You know, the FED wants to get back to neutral.
Speaker 1: You know what is neutral? What? Well, first of all,
Speaker 1: neutral in real terms is a lot closer to zero,
Speaker 1: probably between zero and a half a percent. But to
Speaker 1: get there you need, you know, both an increase in
Speaker 1: in nominal yields and a decrease in inflation. And if
Speaker 1: in lation doesn't do its part to decrease, then you
Speaker 1: need more increases in nominal yields. So when when people
Speaker 1: kind of think about the three percent that the Fed
Speaker 1: is going to very quickly get to, you know, by
Speaker 1: the end of this year early part of next year,
Speaker 1: the presumption there is that the inflation is also going
Speaker 1: to decline and do its part, and that's gonna bring
Speaker 1: real yields back to something that's closer to neutral. So
Speaker 1: if you don't get that contribution from inflation, then you
Speaker 1: are gonna need to see more on the nominal rate
Speaker 1: hikes to to get closer to neutral. So there's two
Speaker 1: parts to that nominal rate forecast that's kind of embedded
Speaker 1: in bond prices, and a big part of that is
Speaker 1: a is a steady decline in the inflation rate, Jeff.
Speaker 1: In about two hours, President Biden is going to come
Speaker 1: out and talk about how the strength of this labor
Speaker 1: market is going to allow the nation to navigate through
Speaker 1: a difficult period of time. You will talk about how
Speaker 1: it's one of the strongest labor markets in history. How
Speaker 1: do you look at that and then confirm the sort
Speaker 1: of barish tilt of the market that's looking to recession,
Speaker 1: that's looking to a slowdown, and looking to an increase
Speaker 1: in the unemployment rate. Well, it's about kind of setting expectations.
Speaker 1: I think some of the things we've seen from the
Speaker 1: administration is trying to get out ahead of labor market
Speaker 1: slow down, but but also slow down here is a
Speaker 1: good thing. And that's a little bit tricky of a
Speaker 1: message for them to say, because it's all been about
Speaker 1: these great job numbers and how good that is. Now
Speaker 1: they've got a pivot to talk about the sustainability of
Speaker 1: the economy and that too much of a good thing
Speaker 1: is actually a bad thing because of its impact on inflation.
Speaker 1: And so seeing the steady decline in payroll figures is
Speaker 1: actually something that we should look forward to and would
Speaker 1: be a good outcome. So I think it's it's kind
Speaker 1: of turning their narrative. It's what the market is looking
Speaker 1: for as well. Uh and and and that's where this
Speaker 1: kind of good bad news is good news in some sense,
Speaker 1: is in the market expectations. Jeff Frozenberg, thank you so
Speaker 1: much with black Rocket. Jerome Schneider, most patient man on
Speaker 1: the planet joins us now with PIMCO. Jerome seriously, thank
Speaker 1: you with your valuable time for staying with us here
Speaker 1: to the end of this hour. Does the yield market
Speaker 1: game the FED? Or is the FED watching the Jerome
Speaker 1: Schneider's space. Yeah, the FED is watching both spaces, quite honestly,
Speaker 1: eyes firmly fixated on both ends of the spectrum, quite honestly.
Speaker 1: On one side, they're probably a little bit relieved this
Speaker 1: morning that early signs of economic you know, transition or
Speaker 1: perhaps that even inflection is coming along um and they
Speaker 1: they're sort of seeing that, you know, the market is
Speaker 1: becoming a little bit the jobs market, the labor market
Speaker 1: is becoming a little bit more tentative. And and maybe
Speaker 1: there's some you know, if on hand one the other
Speaker 1: meaning retail numbers were down, as you noted, uh, pret viously,
Speaker 1: and hospitality was higher, so some of that is the
Speaker 1: pivot from goods to you know, goods to services, and
Speaker 1: that probably is a good thing in the fed's mind
Speaker 1: and the FEDS construct so they're probably continuing and will
Speaker 1: continue to be fixated on those longer term inflation expectations
Speaker 1: and that they look at where the data is today
Speaker 1: and more importantly, the next three jobs reports that we
Speaker 1: have before the September jobs report. You know, that's actually
Speaker 1: pretty data dependent. It makes them a little bit data dependent,
Speaker 1: but it actually goes into the calculus that perhaps this
Speaker 1: this this inflection point does give them a little bit
Speaker 1: of ability to be less hawkish potentially. And again it's
Speaker 1: all in the data. And so I sort of point
Speaker 1: to that because you know, inevitably the next meetings in
Speaker 1: June and July or fifty and and you probably have
Speaker 1: Jackson Hole and then you have September. It get does
Speaker 1: give me a little bit of time to at least
Speaker 1: be uh be be putting some bets on the optionality
Speaker 1: that they ever so love well Jackson Ho. I'm glad
Speaker 1: you reminded me that I have to put in a
Speaker 1: request for the surveillance jet to get out the Jackson Hole.
Speaker 1: But Jerale we've got the balance sheet, the FED beginning
Speaker 1: to roll off this you know, close to nine you know,
Speaker 1: trillion dollar balance sheet. What does that mean for the
Speaker 1: short term end of the market. What should we be
Speaker 1: looking for? Yeah, as I said previously, I think that
Speaker 1: there's two things. One is that you know, this cycle's
Speaker 1: runoff is going to be substantively larger and ramp up
Speaker 1: faster than the previous one. So the this tool, which
Speaker 1: obviously mini fed UM governors don't want to readily admit to,
Speaker 1: but this tool is one which actually has a little
Speaker 1: bit less precision, and so we might be able to
Speaker 1: deduct what's going on from the previous time we tried
Speaker 1: to tighten the balance sheet to this one. But it's
Speaker 1: not going to be the exact same science at all.
Speaker 1: It's going to be very much an art And so
Speaker 1: while we were ramping up here pretty quickly over the
Speaker 1: next three months to that arrogant number UM, the reality
Speaker 1: is that it's going to be a pretty defensive situation
Speaker 1: whereby access reserves are drained pretty quickly. Now that's one
Speaker 1: aspect of it. The second aspect is we still have
Speaker 1: a tremendous amount of excess reserves, so the inflection point
Speaker 1: again to be thinking in use that term um further
Speaker 1: out for liquidity may not necessarily be anything in the
Speaker 1: near term over the next three months or so, but
Speaker 1: it's going to be longer term as those excess reserves
Speaker 1: get depleted and more importantly get placed in the proper
Speaker 1: locations away from the reversary fo facility that has two
Speaker 1: troyon in it. So for investors, and what does that mean?
Speaker 1: It ultimately means focus on liquidity conditions. These are reasons
Speaker 1: probably still to be defensive and PIMCO parlance, you know,
Speaker 1: our view of the anti Goldilocks outcome, which relies upon
Speaker 1: higher liquidity conditions and being a little bit more defensive
Speaker 1: with risk and credit assets at least at least a
Speaker 1: nearer term is something that probably still holds fast. One
Speaker 1: final question, Joe, we got to go to some breaking news.
Speaker 1: Does this mean that we just extend the X axis.
Speaker 1: Does this mean in our in our media analysis, if
Speaker 1: we want everything to be short term and everything is
Speaker 1: going to be stretched out longer, Well, I think it's
Speaker 1: the other way around, actually, Tom, I think the reality is,
Speaker 1: has we spent years making X access. I think that
Speaker 1: it's shorter than it really was bringing forward expectations of earnings,
Speaker 1: funding revisions, things like that, and so all we're doing
Speaker 1: is reverting to an x access which is normalized, meaning
Speaker 1: that where we need to be thinking about how things
Speaker 1: can evolve over the next year, which can be pretty
Speaker 1: drastic different than they were in the past. The assumptions
Speaker 1: for long term assumptions are frankly what what people can't
Speaker 1: be relying upon as they were in the past. JOm Schneider,
Speaker 1: thank you so much again Yeoman's duty here helping us
Speaker 1: before and after the conversation with Secretary Wassh. Mr Schneider
Speaker 1: with Pimple, This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
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Speaker 1: the terminal. I'm Tom Keene and this is Bloomer