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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz Jaily, we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course, on the Bloomberg terminal. He is one

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Speaker 1: of the most interesting politicians across all of America and

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Speaker 1: certainly his Democrat party. He's a twenty ninth United States

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Speaker 1: Secretary of Labor and always in forever will be the

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Speaker 1: former mayor of Boston. Marty Walsh is served President Biden

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Speaker 1: as they go to election day and as we do

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Speaker 1: on Jobs Day. A conversation John Farrow with Marty Walsh.

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Speaker 1: Let's listen in from New York and place the site

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Speaker 1: that joining us now is a US labor sectary. Marty

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Speaker 1: Walsh on TV and on radio, he joins us in Washington.

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Speaker 1: Mighty fantastic to have you with us on the program sir, First,

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Speaker 1: on this show to respond to this payrolls report, the

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Speaker 1: big question for many of us right now. Secondly, Walsh

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Speaker 1: is how much do you think this labor market needs

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Speaker 1: to cool to help get inflation lower. Well, I think that.

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Speaker 1: I think what we're seeing here is obviously saw good

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Speaker 1: games this month, lower unemployment, and that's really strong. I

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Speaker 1: think what we're sat in to see now is as

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Speaker 1: transition to a slower and steady economy as we move

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Speaker 1: forward here. I mean, we're seeing there's still jobs available

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Speaker 1: out there. We're seeing the wages have gone up a

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Speaker 1: little bit a little less than last month, and what

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Speaker 1: we are seeing gains in the in those sectors that's

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Speaker 1: still a hiring people that need people to work on them.

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Speaker 1: The question many people are asking is whether higher unemployment

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Speaker 1: is a price worth paying to get inflation down. Secondary Walsh,

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Speaker 1: you and I have talked about that. That question has

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Speaker 1: taken on renewed importance this week after some of your

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Speaker 1: Democratic colleagues down in d C have sent a letter

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Speaker 1: to Chairman Pou. Do you think higher unemployment is a

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Speaker 1: price worth pag to get inflation lower? Certainly? I don't

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Speaker 1: want to see high unemployment because I think too many

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Speaker 1: people in this count we need to go to work.

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Speaker 1: Uh the seeing opportunities where where workers across the board

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Speaker 1: average of higher wages right now for four point seven percent.

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Speaker 1: I think this a month. UH. The wages are at

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Speaker 1: UH in the hospitality and they're higher. I think there's

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Speaker 1: an opportunity for us to bring inflation down UH and

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Speaker 1: as well as having employment going on the country. We're

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Speaker 1: living in a very and I've said this many many

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Speaker 1: times now, but in a very different economic times, and

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Speaker 1: I certainly don't want to see our n employment rate

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Speaker 1: go high three point seven percent. We've been averaging between

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Speaker 1: three point five and three point seven percent over the

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Speaker 1: last I think pretty much the last year, and that's

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Speaker 1: a good place to be. What's the mechanism for that

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Speaker 1: to happen? As far as you assume what to get

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Speaker 1: inflation down without unemployment going up? Well, I think you know,

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Speaker 1: the feed is raised. Rates were seeing a little bit

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Speaker 1: of a little bit of steadiness now a little bit

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Speaker 1: of cooling off. We're also seeing opportunities, as I mentioned,

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Speaker 1: we're seeing we're sat in there to see signs of

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Speaker 1: a slow and steady economy. I think we're getting back

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Speaker 1: to UH pre pandemic where we were. We're not going

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Speaker 1: to continue to see these gains of hundreds of dollars

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Speaker 1: of jobs every month in our economy because eventually, you know,

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Speaker 1: we're gonna run out of people to fill those jobs.

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Speaker 1: We're seeing the supply chain. You I didn't see that

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Speaker 1: here your whole segment right before this, But as China

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Speaker 1: opens up, we're gonna start to see more supplies coming

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Speaker 1: across the ocean. We're seeing pressure on gas prices coming

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Speaker 1: down a bit. We need to continue to stay focused

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Speaker 1: on on our on our gas prices and natural gas.

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Speaker 1: We need to continue to bring carts down at the

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Speaker 1: kitchen table every every past of the way we can, uh,

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Speaker 1: and we're just gonna continue to do it month over month.

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Speaker 1: There's not just one quick fix to it, as you know,

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Speaker 1: and you know you guys talk about it all day long.

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Speaker 1: There's lots of different things that have to happen here. Well,

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Speaker 1: the Federals earves talking about causing pain. Chairman Power talked

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Speaker 1: about that in Jackson whole way and Making said well,

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Speaker 1: higher interest rates and slower growth and softer labor market

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Speaker 1: conditions will bring down inflation. They will also bring some

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Speaker 1: pain to households and businesses. These are the unfortunate cost

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Speaker 1: of reducing inflation, but a failure to restore price stability

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Speaker 1: would mean far greater pain. Secondly, well, what would you

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Speaker 1: say to those that may say to you that you're

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Speaker 1: not being up front about the pain that we need

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Speaker 1: to go through to get inflation down, Well, I could

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Speaker 1: say this, people went through a lot of pain in

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Speaker 1: this country in the last two and a half years

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Speaker 1: with the pandemic. People lost their job, people were concerned

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Speaker 1: about what the future is and we're living in a

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Speaker 1: very interesting time coming out of a pandemic. UH, and

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Speaker 1: I think that people are feeling pain. They feeling pain

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Speaker 1: at the kitchen table, and we have to do everything

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Speaker 1: we can as an administration. The President's passed legislation UH

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Speaker 1: Inflation Reduction Act that long term will help us bring

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Speaker 1: down inflationary pressures. We're working on supply chain issues to

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Speaker 1: bring down to play story pressures. UH. The FED doing

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Speaker 1: what they have to do to bring down pressures, and

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Speaker 1: we have to continue to work an all government approach,

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Speaker 1: if you will, UH and do everything we can to

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Speaker 1: bring those pressures down at the kitchen table, I think

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Speaker 1: by having having unemployment rates around seven percent, that that's

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Speaker 1: a lot a lot of unnecessary pain that people in

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Speaker 1: America don't need right now, and working people that are

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Speaker 1: working won't need that pain either. You can see that

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Speaker 1: has to go higher. Though no I'm not there yet.

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Speaker 1: I'm one of the people that that hold out saying

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Speaker 1: that I would like to see the unemployment rate continue

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Speaker 1: to to stay where we are, even go lower if

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Speaker 1: we can uh and and work out the ways through

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Speaker 1: this inflationary pressures that people are failing. I've got to

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Speaker 1: put you on the spot their second Welsh how does

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Speaker 1: unemployment got lower and inflation comes down to? How do

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Speaker 1: you think that happens over the next twelve months. I

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Speaker 1: think that people are trying to compare this economy to

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Speaker 1: what we've had previous economies, and we've heard people talk

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Speaker 1: about on on shows all across America and people in

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Speaker 1: boardrooms talking about recessions and comparing this time moment in

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Speaker 1: time to pass times where we had recessions. It's very different.

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Speaker 1: It's a very different period of time. And we've never

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Speaker 1: seen inflation at such a high rate and unemployment at

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Speaker 1: such a low rate in the history of our country.

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Speaker 1: So we have to just continue to do everything we

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Speaker 1: can use all the all the all the tools, all

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Speaker 1: the mechanism we have to bring those costs down a lot.

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Speaker 1: Some of this was due cause because of a pandemic,

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Speaker 1: because the supply chain issues in the very beginning. Part

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Speaker 1: of this is because of gas prices. You know, this

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Speaker 1: is a worldwide crisis that that people are failing with

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Speaker 1: inflation and and things that we're doing here in the

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Speaker 1: United States we are bringing you know, I think we're

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Speaker 1: being a little more successful here in the United States

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Speaker 1: and other parts of the world. You talked about the mechanism.

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Speaker 1: Forgive me for calling that a lot of words sounded

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Speaker 1: because it felt that way on my side of it

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Speaker 1: listening to its. Secondly, Welsh, you talked about the mechanism

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Speaker 1: for this to happen. Yes, unemployment is very low and

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Speaker 1: inflation is very high, and that's why most people assume

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Speaker 1: the unemployment will have to go up for inflation to

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Speaker 1: come down. You still haven't really told me how you

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Speaker 1: think that's going to happen. What are you to make

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Speaker 1: that happen? Because understand that's the world you want, that's

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Speaker 1: not the world we have. How's that going to work?

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Speaker 1: I'm not I'm not an economist, number one, and I

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Speaker 1: think that it has to be very clear. And number two,

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Speaker 1: when you think about where we are at this moment

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Speaker 1: in time, what I'm gonna do as my job as

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Speaker 1: Secretary of Labors were an iken is to make sure

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Speaker 1: that Americans have opportunities to do good paying jobs, whether

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Speaker 1: it's to workforce development, apprentice programs, working with states and

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Speaker 1: cities all across America. That's my role and responsibility right now.

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Speaker 1: My role and responsibility when it comes to inflation was

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Speaker 1: making sure the supply chains and moving forward, making sure

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Speaker 1: we didn't have seven hundred ships off the coast of

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Speaker 1: California in Seattle and Portland and in the West US

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Speaker 1: where we did have it, making sure that those those

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Speaker 1: goods and services came into our country, making sure that

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Speaker 1: we don't have disruption in our supply chain, whether it's

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Speaker 1: through negotiations and ports or negotiations on rails. Those are

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Speaker 1: things that I'm focused on right now forward looking to

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Speaker 1: make sure that we're doing everything we can that we

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Speaker 1: don't add to the inflationary pressures that people are filling

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Speaker 1: in America. Other folks are working. Secretary Yelling, Secretary Mundo,

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Speaker 1: and the Chairman Chairman, all those folks are also working

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Speaker 1: collectively on making sure of bringing down inflationary pressures. You've

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Speaker 1: been pound of the negotiations with the rail union. She

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Speaker 1: mentioned that just there why haven't I signed the agreement.

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Speaker 1: We have six of the twelve agreed upon. We have

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Speaker 1: four contracts still out, and we have two contracts that

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Speaker 1: were voted down by the members that we're currently I'm

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Speaker 1: encouraging both sides, the rail and the companies to stay

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Speaker 1: at the table and get another opportunity to get another

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Speaker 1: vote on before we hit our deadline in November and December.

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Speaker 1: Are you actively involved in the negotiation again, I'm not

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Speaker 1: actively involved in persue the negotiation as far as what's

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Speaker 1: what's in and out of the contract, but I am

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Speaker 1: very active in making sure and talking to I talked

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Speaker 1: to the representatives of the companies on a daily basis,

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Speaker 1: and I talked to union different unions almost on a

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Speaker 1: daily basis well, UH, to make sure, particularly the two

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Speaker 1: unions that that didn't ratify the contract. UH. Six unions

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Speaker 1: have ratified. There's another one going to come in the

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Speaker 1: next couple of days, and then we'll have three left

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Speaker 1: out there. So hopefully by by hopefully, by this time

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Speaker 1: next week, we will have many of these contracts ratified.

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Speaker 1: And we were down to the last two. What if

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Speaker 1: we don't get that? What preparations you've done just in

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Speaker 1: case this falls apart, Well, there's a process that goes

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Speaker 1: in place and the worst case scenario. I'll play worst

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Speaker 1: case scenario a minute. If we don't get to an agreement,

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Speaker 1: Congress will have to take action, and that is by

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Speaker 1: design and the and the Railway Act. Uh. The President

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Speaker 1: has the ability authority to put together an emergency board,

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Speaker 1: which he did. Uh. They came back at recommendations. The

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Speaker 1: unions have to ratify. There's twelve different unions. And if

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Speaker 1: the unions don't ratify, if we have two right now

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Speaker 1: not ratified, Uh, Congress is the last stop that would

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Speaker 1: have to take action. It's likely. Well, thank you, sir

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Speaker 1: for your time against We appreciate it. The life of

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Speaker 1: Secretary that Monty Walsh. Tiffany Wilding with this with Pimco. Tiffany,

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Speaker 1: I want to go back to black and tackle here,

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Speaker 1: which is you've got to figure out real g d P,

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Speaker 1: inflation in nominal GDP, the animal spirit, current economy, economic growth, etcetera.

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Speaker 1: And I don't even know, not to be rude, how

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Speaker 1: far out you should go? Can you get out just

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Speaker 1: like the end of second quarter two thousand twenty three,

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Speaker 1: Dare I say, Tiffany, can you go out to the

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Speaker 1: end of next year. Dare I say you can be

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Speaker 1: like Governor Bailey in England and call for a two

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Speaker 1: year recession. I fell off my chair, Tiffany, when I

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Speaker 1: saw that, how far out can you guess? Estimate real

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Speaker 1: g d P. I mean, I think you're you're picking

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Speaker 1: up on a really important point here. Is just there's

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Speaker 1: a lot of uncertainty, um, you know, and we do

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Speaker 1: try to model these things right, but models aren't perfect.

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Speaker 1: They're stylized, and you know, you have to understand that

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Speaker 1: it's never going to capture everything. And I think there

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Speaker 1: is a lot of uncertainty. I thought that to your

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Speaker 1: point on the Bank of England projections, I don't think

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Speaker 1: that we've ever seen a two year a recession lasting

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Speaker 1: two years. Those are quite dramatic, um, you know, quite

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Speaker 1: dramatic forecast that they that they came out. But of

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Speaker 1: course they're also using market pricing um in order to um,

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Speaker 1: you know, to help bake that forecast. So you know,

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Speaker 1: I think I think overall, you know, we are focused

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Speaker 1: on how the data looks and the economic momentum that

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Speaker 1: we're seeing. You know, we do think the US economy

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Speaker 1: and others across the developed markets will flip into recessions,

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Speaker 1: you know, going in you know to the first quarter,

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Speaker 1: you know, the last into the second um and and

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Speaker 1: the reason for that is is that you were already

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Speaker 1: seeing of you know, what we call final domestic demand,

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Speaker 1: but just real demanding the growth, and that that was

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Speaker 1: already slowing this year. So last year is about five

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Speaker 1: percent on a real basis. This year it was less

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Speaker 1: than one. And on top of that, we've seen you know,

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Speaker 1: pretty dramatic negative shocks to the economy, obviously what the

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Speaker 1: Fed is done with raising interest rates broader financial conditions,

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Speaker 1: you know, but also you have this you know war

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Speaker 1: in Ukraine, which has been basically a global energy supply shock.

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Speaker 1: So the combination of those two things, you know, in

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Speaker 1: our minds will probably you know, what was already kind

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Speaker 1: of a weaker economy in the US, we'll we'll, we'll

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Speaker 1: push it into a recession, you know, in the first

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Speaker 1: part of next year. Tiffany tom is talking about perhaps

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Speaker 1: a two year rise in let's go even longer than that.

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Speaker 1: Is it fair for the Federal Reserve to shoot for

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Speaker 1: a two percent long term inflation target when you were

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Speaker 1: seeing a wage price spiral in the works. Yeah, I mean,

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Speaker 1: I don't know that we are. I wouldn't maybe be

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Speaker 1: as strong as to say a wage price spiral in

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Speaker 1: the works, but I think that there is evidence, certainly, um,

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Speaker 1: when you look at at various things, that there's a

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Speaker 1: very high risk of that happening, and the FED definitely

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Speaker 1: needs to, you know, to rein that in as best

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Speaker 1: as it can using very blunt tools. And when I

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Speaker 1: say evidence of that happening, obviously you're seeing it in

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Speaker 1: the wage data um. You know. Marty Walsh also mentioned

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Speaker 1: the negotiations that are happening, you know, with the rail unions.

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Speaker 1: You clearly have more bargaining power by employer um you know,

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Speaker 1: by workers, you know, as a result of just the

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Speaker 1: broader you know, the tightness of the labor market you know.

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Speaker 1: But you know, the other thing is is that you know,

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Speaker 1: it's all it's it's also all about how much UM

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Speaker 1: our company is able to defend their margins. That's the

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Speaker 1: other key piece of a wage price spiral, you know.

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Speaker 1: And I would say there it's not great news either

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Speaker 1: because it does look like you're getting some companies are

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Speaker 1: able to defend their margins. So there is evidence of it. UM.

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Speaker 1: You know, but the FED is doing something about it. Tiffity.

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Speaker 1: We're in an extraordinary week, and particularly coming from the

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Speaker 1: bizarre FED meeting and press conference in an extraordinary year

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Speaker 1: into an election, and folks will be surveillance will be

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Speaker 1: in Washington Tuesday and Wednesday mornings for the election, along

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Speaker 1: with David Weston's wonderful work Election Night and Tiffany Welding

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Speaker 1: the great thrust I get from all the fan mail, emails, tweets.

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Speaker 1: Whatever is the divide? I mean, someone like you is

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Speaker 1: down at No Boo Newport Beach with Bob de Niro

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Speaker 1: and you're having some fancy Japanese meals, you know, and

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Speaker 1: the rest of them. That's the perception, Tiffany, that it's

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Speaker 1: the West Coast and the East Coast booming and everybody

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Speaker 1: else is flat on their back. How polarized is the

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Speaker 1: American labor economy? Now? Yeah, I mean, well they're clearly,

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Speaker 1: you know, they're obviously clearly big political divides. Um. You know,

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Speaker 1: in that polarization is not a new thing. Um. You know,

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Speaker 1: that's been happening over the you know, over a number

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Speaker 1: of decades. You know, obviously, you know, I think in

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Speaker 1: terms of you know, how it impacts our outlook, you know,

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Speaker 1: That's what I mean. I'm not a political Um, I'm

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Speaker 1: not a political analyst. You can be. You got these

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Speaker 1: seconds continue. I'm not a political analyst, but I do

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Speaker 1: think that, um, you know, in terms of our outlook

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Speaker 1: and how growth evolves. I think the big takeaway from

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Speaker 1: the likely midterm elections is that you're probably going to

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Speaker 1: have a divided government and you're not going to get

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Speaker 1: a lot done. You're not going to see fiscal stimulus.

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Speaker 1: So even though we're calling for a recession, there's not

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Speaker 1: going to be the usual response you know from the

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Speaker 1: Fed or from the government, you know, to help and

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Speaker 1: so and so. That's going to result in not only

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Speaker 1: a recession, but probably when the economy comes out of recession,

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Speaker 1: it's going to come to some sluggish growth level that's

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Speaker 1: really not that great either until inflation comes down to

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Speaker 1: for you next time, you know, but you gotta try

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Speaker 1: the whitefish shashimi with dry mesa. It is just to

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Speaker 1: die for, you know. Here, silence with that, every well,

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Speaker 1: and thank you so much, greatly appreciated. Randall Crasser knows

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Speaker 1: these are abrupt moves. He mentioned that earlier. He's at

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Speaker 1: the boost school the former FED governor as well. Randy,

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Speaker 1: you are a student of economic history. Let's say we

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Speaker 1: get a terminal rate of five point x percent. Let's

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Speaker 1: say we go back to c D rates of a

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Speaker 1: of a time twenty thirty forty years ago. Is it

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Speaker 1: the same this time? Are we reverting back to a

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Speaker 1: financial structure that we know? Are we in new territory?

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Speaker 1: I don't think we're gonna be going back to UH

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Speaker 1: interest rates at double digit levels, which is where we

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Speaker 1: were with when inflation was this high forty years ago.

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Speaker 1: So I don't think the FED is going to need

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Speaker 1: to go that high. But I think, as you can

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Speaker 1: see with the two year moving up, the markets are saying, hey,

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Speaker 1: this is a pretty strong employment report. We're not seeing

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Speaker 1: cracks in the labor market yet. And so the FIT

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Speaker 1: is going to have to continue on its path and

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Speaker 1: will um its terminal rate will be a bit higher

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Speaker 1: than we thought. What do corporations do? How do they

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Speaker 1: adapt as we see the nominal yield and the real

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Speaker 1: yield come up. So that's you know, one of the

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Speaker 1: things that the Fed's toolboxes to try to make findacial

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Speaker 1: conditions tighter, make it less attractive for firms to hire

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Speaker 1: and less attractive to to invest as hurdle rates go up,

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Speaker 1: because both real anominal rates would be would be going up,

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Speaker 1: and that's their main tool for trying to slow the

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Speaker 1: economy down. And tried to take some of the uh,

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Speaker 1: the excitement out of demand and and so supply and

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Speaker 1: demands can come together without as much price pressure. I said,

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Speaker 1: let it breathe, and we have done for a couple

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Speaker 1: of minutes, and equities have raised the losses post pay

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Speaker 1: roles so S and P five back up Hart by

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Speaker 1: eight tensive one percent. That move at the front end

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Speaker 1: has faded back to basically where it was going into

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Speaker 1: the print at four seventy six. You're time by four

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Speaker 1: basis points or so. I don't think this is the

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Speaker 1: game change or at all for anyone out there. And

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Speaker 1: by the time we get to CPO November tenth next week,

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Speaker 1: we won't even be talking about what's just happened here

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Speaker 1: in the labor market time. We're still waiting to see

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Speaker 1: real cracks in our labor market to get a better

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Speaker 1: understanding that the dual man date at the Federal Reserve,

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Speaker 1: it's in conflict and right now for the Fed it's not.

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Speaker 1: I'm gonna have this conversation with Rick Reader over a

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Speaker 1: black rock in just a moment. Anastasia Amarosa vi Capital,

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Speaker 1: Mike comins PGIM and we will catch up with secondary market.

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Speaker 1: Marty Walsh, Tom of the Labor Department at this administration,

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Speaker 1: looking forward to that a little bit later in the

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Speaker 1: next hour. Very good. We'll continue the features up thirty

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Speaker 1: the VIX. The VIX comes in twenty four point nine eight.

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Speaker 1: Lisa gets my attention of a more buoyant market. Yeah,

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Speaker 1: and also the Fed funds rate was now praising in

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Speaker 1: a peak of perhaps five point to five in June

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Speaker 1: of next year, although that's fading a little bit as

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Speaker 1: we start to go on. Randy Krasner, I'm looking at

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Speaker 1: some of the details here, and this is actually a

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Speaker 1: very confusing report to me. The unemployment rate now getting

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Speaker 1: people's attention, perhaps, but the wage picture very confusing to

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Speaker 1: me as well. What can you glean from the composition

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Speaker 1: of jobs that perhaps are getting added or cut and

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Speaker 1: how that might be affecting the wage dynamic more than

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Speaker 1: per se an entire inflation picture that the Fed can

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Speaker 1: take away. True, there's always one of the issues that

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Speaker 1: you have to be careful about is exactly what you're

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Speaker 1: pointing out, the so called composition effect. What what areas

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Speaker 1: are seeing job increases more than others. Are those in

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Speaker 1: general high wage or low wage low wage areas. I

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Speaker 1: haven't had a chance to dig into the details of

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Speaker 1: the report, but that's obviously something one needs to look at.

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Speaker 1: The FED will be heartened that the that we're not

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Speaker 1: seeing in an acceleration in the UH in the wage

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Speaker 1: in wage growth, that it's still around four point seven

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Speaker 1: percent where it had been, but it is hoping that

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Speaker 1: that that is not going to rise, and it's hoping

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Speaker 1: that it may come down a bit as they try

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Speaker 1: to bring inflation down. Yeah, I look at this, Mike McKee.

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Speaker 1: I wanted to jump in here if you would right

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Speaker 1: now you I'm watching, Mike. Folks look at the real report,

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Speaker 1: which is ten pages law. I've given another number there

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Speaker 1: for us in Professor Krassner. What matters to you, well,

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Speaker 1: unemployment is what's been the interesting number today because it

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Speaker 1: went up and it's largely because of what we in

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Speaker 1: the past would have said is bad news, but uh,

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Speaker 1: this time it is kind of what the FED wants

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Speaker 1: to see in the household survey, the number of people

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Speaker 1: employed falls by three hundred and twenty eight thousand, while

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Speaker 1: the number of people unemployed rises by three hundred and

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Speaker 1: six thousands, So a real difference between that and the

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Speaker 1: Establishment survey, which is not unusual, but it does tell

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Speaker 1: you why the unemployment rate went up. We also had

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Speaker 1: uh two thousand people leave the labor force after fifty

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Speaker 1: seven thousand left the labor force the month prior, and

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Speaker 1: so it's kind of interesting. It maybe because kids have

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Speaker 1: gone back to school and mothers have decided to stay

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Speaker 1: home or something like that, but we're not seeing people

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Speaker 1: drawn back in by the fact that they so many

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Speaker 1: jobs available. Well, and Randy, that's where I wanted to

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Speaker 1: really finish up here and just get your impression of

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Speaker 1: why the participation rate is going down, why it is

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Speaker 1: moving in the opposite direction despite the wage gains and

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Speaker 1: despite the the job openings that we see in the

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Speaker 1: Jewels survey. This is one of the great front frustrations

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Speaker 1: that the FED has and j Pal has been talking

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Speaker 1: about this for a long time of trying to get

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Speaker 1: you know, why aren't we seeing more people come back

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Speaker 1: into the labor market. And I think it's it's a

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Speaker 1: variety of factors. Um, there are many of the older

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Speaker 1: workers and more experienced workers are saying, hey, I know

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Speaker 1: a lot of people who didn't make it through Corona.

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Speaker 1: I want to make sure to have I'm with my kids,

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Speaker 1: my my grandkids. So you've seen a much lower labor

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Speaker 1: force participation by older workers, and a lot of younger

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Speaker 1: workers are sent. You know, unless I can get a

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Speaker 1: job where I can sit at home and kind of

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Speaker 1: picked the hours that I want, I'm not about to

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Speaker 1: come in and so, um, it's hard and despite all

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Speaker 1: these openings, it's not enough so far to be able

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Speaker 1: to draw people. In. Part of that is because even

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Speaker 1: the wages have been growing nominally fast that they have

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Speaker 1: in the past, the real wages, the inflation of justice

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Speaker 1: wages haven't been growing that strongly. Randy Crosser, thank you

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Speaker 1: so much for joining us. It's just a joy to

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Speaker 1: have you with us on jobs that he is at

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Speaker 1: Booth School London and now back at Chicago as well.

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Speaker 1: Right now we go to Jeff Rosenberg, who was just

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Speaker 1: wonderful line fed day, giving us the dynamics of a

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00:21:34,320 --> 00:21:37,720
Speaker 1: dynamic press conference as well. Maybe Jeff with black Rock

432
00:21:37,840 --> 00:21:41,720
Speaker 1: maybe not as exciting as that press conference, but nevertheless,

433
00:21:41,760 --> 00:21:46,560
Speaker 1: a job report of the fully employed America. From where

434
00:21:46,600 --> 00:21:50,359
Speaker 1: you and your team sit, is this job's report old news,

435
00:21:50,840 --> 00:21:56,680
Speaker 1: present news, or indicative buoyant future? Yeah? Great, great question, Toma.

436
00:21:56,720 --> 00:21:59,439
Speaker 1: You know, I think it invalidates what we think we

437
00:21:59,520 --> 00:22:02,240
Speaker 1: know about out this labor market, and that is is

438
00:22:02,280 --> 00:22:06,920
Speaker 1: that it is very very slowly starting to show some

439
00:22:07,000 --> 00:22:11,040
Speaker 1: effects of an economic slowdown of the FEDS tightening. But

440
00:22:11,080 --> 00:22:15,200
Speaker 1: go back to our conversation on the post Fed day,

441
00:22:15,240 --> 00:22:18,560
Speaker 1: it's all about the long and variable lags here, and

442
00:22:18,640 --> 00:22:22,919
Speaker 1: so we're seeing, you know, just the glimmers of what

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00:22:23,000 --> 00:22:26,719
Speaker 1: the Fed hopes to see in terms of the impact

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00:22:27,080 --> 00:22:31,600
Speaker 1: of their tightening this year. But it's it's gonna take

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00:22:31,680 --> 00:22:34,840
Speaker 1: some time and and and going back to what Lisa

446
00:22:35,119 --> 00:22:38,080
Speaker 1: ended with Randy on you know, the most salient point

447
00:22:38,119 --> 00:22:41,600
Speaker 1: I think here and Powell mentioned it in the press

448
00:22:41,640 --> 00:22:46,720
Speaker 1: conference is the lack of labor force participation responding to

449
00:22:46,840 --> 00:22:52,080
Speaker 1: this historic levels and openings. That's a huge disappointment. That's

450
00:22:52,080 --> 00:22:56,119
Speaker 1: a problem because the economy is not responding to the

451
00:22:56,160 --> 00:22:59,399
Speaker 1: FEDS tightening, and so they've got a lot more work

452
00:22:59,440 --> 00:23:03,160
Speaker 1: to do. They're gonna slow that pace. Fine, but we

453
00:23:03,200 --> 00:23:08,080
Speaker 1: really are not seeing the economic slowdown that's necessary for

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00:23:08,200 --> 00:23:11,159
Speaker 1: the Fed to get to that inflation slow down. So

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00:23:11,200 --> 00:23:13,240
Speaker 1: this is a real challenge for the Fed and for

456
00:23:13,280 --> 00:23:15,480
Speaker 1: the market. Jeff, since you walked up to your TV

457
00:23:15,600 --> 00:23:18,320
Speaker 1: set a black rocket, we say good morning on Bloomberg

458
00:23:18,400 --> 00:23:20,879
Speaker 1: Radio as well, the two year yield gave us a

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00:23:20,960 --> 00:23:24,280
Speaker 1: rounded up four point seven six percent. How does a

460
00:23:24,359 --> 00:23:29,200
Speaker 1: grizzled pro like you adapt to yield nominal yield real

461
00:23:29,840 --> 00:23:34,960
Speaker 1: moving so fast and furious? Yeah, you know, you take

462
00:23:35,000 --> 00:23:37,760
Speaker 1: what the market gives you. And and in this market,

463
00:23:37,960 --> 00:23:44,000
Speaker 1: it's been a dramatic increase and restoration of yield for

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00:23:44,119 --> 00:23:47,640
Speaker 1: safe assets. You think back to the zero interest rate

465
00:23:47,720 --> 00:23:52,639
Speaker 1: policy environment, the negative interest rate policy environment that gave us, Tina,

466
00:23:52,720 --> 00:23:56,000
Speaker 1: there is no alternative. Now there is an alternative, and

467
00:23:56,080 --> 00:24:00,000
Speaker 1: so it's adjusting to where the opportunities are. The opportunity

468
00:24:00,040 --> 00:24:01,960
Speaker 1: these are in the very front end of the yield

469
00:24:02,040 --> 00:24:05,440
Speaker 1: curve where we're pricing in is Lisa talked about a

470
00:24:05,480 --> 00:24:08,760
Speaker 1: minute ago, you know, five five point to five cent

471
00:24:09,680 --> 00:24:12,600
Speaker 1: peak FED funds rate. Whether or not that turns out

472
00:24:12,640 --> 00:24:16,640
Speaker 1: to be the peak depends on inflation. But the Fed

473
00:24:16,800 --> 00:24:20,160
Speaker 1: signaled earlier this week to expect an increase in that

474
00:24:20,280 --> 00:24:23,760
Speaker 1: terminal rate. The markets already there, so there's not a

475
00:24:23,840 --> 00:24:25,959
Speaker 1: huge surprise when we get to the SEP. There may

476
00:24:25,960 --> 00:24:28,480
Speaker 1: be more of a surprise on the inflation next week,

477
00:24:28,720 --> 00:24:30,920
Speaker 1: but there's a lot of opportunity there because we've done

478
00:24:30,920 --> 00:24:35,800
Speaker 1: a tremendous amount of work pricing in the normalization, the tightening,

479
00:24:35,840 --> 00:24:39,199
Speaker 1: the movement to restrictive policy that the Fed wants to

480
00:24:39,240 --> 00:24:41,640
Speaker 1: be at and are getting much closer to being at.

481
00:24:41,800 --> 00:24:43,920
Speaker 1: Do you think that the balance of likely outcomes, Jeff,

482
00:24:44,080 --> 00:24:45,840
Speaker 1: is more likely they were going to see a higher

483
00:24:45,840 --> 00:24:48,840
Speaker 1: than five and a quarter percent Fed funds rate versus

484
00:24:48,880 --> 00:24:50,840
Speaker 1: one that is below that in terms of where we

485
00:24:51,000 --> 00:24:54,960
Speaker 1: end up at the peak. You know, Lisa, it's it's

486
00:24:55,040 --> 00:24:57,760
Speaker 1: very tough to make that call because it's dependent on

487
00:24:57,840 --> 00:25:00,840
Speaker 1: the inflation call, and what do we oh so far

488
00:25:01,080 --> 00:25:05,080
Speaker 1: about the inflation call. Everybody's gotten it wrong. Every time

489
00:25:05,160 --> 00:25:07,679
Speaker 1: we get a surprise to the upside to the cp I,

490
00:25:07,840 --> 00:25:11,159
Speaker 1: what happens to the inflation peak expectation and therefore the

491
00:25:11,200 --> 00:25:14,800
Speaker 1: peak of the Fed funds expectation? We continually move it out,

492
00:25:14,920 --> 00:25:18,359
Speaker 1: so very hard to see whether or not that's the peak.

493
00:25:18,560 --> 00:25:22,360
Speaker 1: If the inflation forecast finally show up. If we get

494
00:25:22,400 --> 00:25:25,879
Speaker 1: that point three in course cp I next week, you know,

495
00:25:25,920 --> 00:25:28,040
Speaker 1: then I think five five and a quarter will be

496
00:25:28,080 --> 00:25:31,120
Speaker 1: the peak. But there is a possibility here, and you're

497
00:25:31,200 --> 00:25:33,640
Speaker 1: seeing it a little bit in the data. The lack

498
00:25:33,720 --> 00:25:37,160
Speaker 1: of the data today in in in in the payroll report,

499
00:25:37,200 --> 00:25:41,240
Speaker 1: the lack of an expanding labor force, very strong wages.

500
00:25:41,920 --> 00:25:44,440
Speaker 1: Is the risk of this alternative view that we are

501
00:25:44,520 --> 00:25:47,439
Speaker 1: already in a wage price spiral. And if that's the case,

502
00:25:47,720 --> 00:25:49,960
Speaker 1: and the Fed may have to do actually much more

503
00:25:50,320 --> 00:25:52,639
Speaker 1: than that five five and a quarter that's currently priced

504
00:25:52,640 --> 00:25:54,280
Speaker 1: in the market, What does that do to risk assets?

505
00:25:54,320 --> 00:25:58,640
Speaker 1: Jeff Well, I think it's a challenging environment for risk assets.

506
00:25:58,680 --> 00:26:00,879
Speaker 1: We saw this in the in the in the post

507
00:26:00,880 --> 00:26:05,440
Speaker 1: press conference equity market reaction that the Fed doesn't want

508
00:26:05,440 --> 00:26:12,040
Speaker 1: to see financial conditions easing prematurely. They need financial conditions. Remember,

509
00:26:12,080 --> 00:26:16,440
Speaker 1: the transmission mechanism is tighten financial conditions, then it affects

510
00:26:16,440 --> 00:26:19,280
Speaker 1: the real economy, slows the real economy, and then the

511
00:26:19,400 --> 00:26:22,719
Speaker 1: slowdown in the real economy slows down inflation. If the

512
00:26:22,760 --> 00:26:26,760
Speaker 1: equity market gets ahead of that and eases financial conditions

513
00:26:26,800 --> 00:26:29,560
Speaker 1: before the economy has a time to slow down, and

514
00:26:29,560 --> 00:26:32,800
Speaker 1: slow down inflation. Then the Fed has to do even more.

515
00:26:32,840 --> 00:26:36,680
Speaker 1: And that's why he pushed so aggressively back against that.

516
00:26:37,000 --> 00:26:38,720
Speaker 1: You know, oh, the market is up. What do you

517
00:26:38,760 --> 00:26:41,639
Speaker 1: think about that? And then he gave you the greatest

518
00:26:41,680 --> 00:26:44,280
Speaker 1: hawk ish hits to push back down the market. So

519
00:26:44,359 --> 00:26:47,040
Speaker 1: in that environment, it's going to be challenging for risk assets.

520
00:26:47,240 --> 00:26:50,679
Speaker 1: Jeff Ian Lincoln just publishes a bemo capital Markets always

521
00:26:50,680 --> 00:26:53,159
Speaker 1: wonderful and fixed income, and he makes clear that this

522
00:26:53,359 --> 00:26:57,439
Speaker 1: report gives Chairman Powell room to wait. He can now

523
00:26:57,600 --> 00:27:01,480
Speaker 1: comfortably wait for these inflation reports that we see before

524
00:27:02,080 --> 00:27:05,679
Speaker 1: the December meeting. Do you agree that it's not that

525
00:27:05,720 --> 00:27:08,520
Speaker 1: it gives him degrees of freedom, but that this report

526
00:27:08,680 --> 00:27:14,240
Speaker 1: gives him the room to really wait and analyze price change. Yeah,

527
00:27:14,240 --> 00:27:18,200
Speaker 1: I would agree that this report is not changing anything

528
00:27:18,240 --> 00:27:21,200
Speaker 1: that we already have in the expectations for the Fed

529
00:27:21,280 --> 00:27:25,800
Speaker 1: to begin a step down in the pace of the increases,

530
00:27:26,119 --> 00:27:31,560
Speaker 1: but not necessarily um ending that pace of increase until

531
00:27:31,720 --> 00:27:36,320
Speaker 1: they start to see the development in inflation of a slowdown,

532
00:27:36,480 --> 00:27:38,639
Speaker 1: so they can slow the pace because they want to

533
00:27:38,680 --> 00:27:42,920
Speaker 1: incorporate the Brainerd perspective long and variable lags. That important

534
00:27:43,320 --> 00:27:45,800
Speaker 1: change to the statement that we got earlier this week.

535
00:27:46,119 --> 00:27:49,359
Speaker 1: That's about the FED acknowledging. We don't want to go

536
00:27:49,400 --> 00:27:52,639
Speaker 1: at seventy five forever. We don't want to overdo it.

537
00:27:52,880 --> 00:27:55,080
Speaker 1: We want to give time for the data to show up.

538
00:27:55,080 --> 00:27:57,679
Speaker 1: And I think today's report is in line with that

539
00:27:57,800 --> 00:28:01,000
Speaker 1: market expectation doesn't really change it ramatically. Are we going

540
00:28:01,040 --> 00:28:03,120
Speaker 1: to go back to an era that was familiar over

541
00:28:03,160 --> 00:28:06,720
Speaker 1: the past decade or so where we finally grind through

542
00:28:06,800 --> 00:28:10,120
Speaker 1: whatever this post pandemic reality is an inflation gets back

543
00:28:10,160 --> 00:28:12,879
Speaker 1: down to around two percent or even below that, and

544
00:28:12,920 --> 00:28:16,560
Speaker 1: then we struggle with the same types of disinflationary forces.

545
00:28:16,720 --> 00:28:20,880
Speaker 1: Or is this a materially different decade coming up. Well,

546
00:28:20,880 --> 00:28:23,480
Speaker 1: this is the premise of your question, is do we

547
00:28:23,560 --> 00:28:26,840
Speaker 1: go back to the pre COVID secular stagnation environment. And

548
00:28:26,880 --> 00:28:30,639
Speaker 1: if you look at market consensus expectations for interest rates,

549
00:28:30,680 --> 00:28:35,800
Speaker 1: for inflation rates, there is that expectation built into market consensus.

550
00:28:36,080 --> 00:28:40,920
Speaker 1: We would be highly skeptical of that outcome. We get

551
00:28:40,920 --> 00:28:44,840
Speaker 1: at frozen there on Jeffrey Rosenberg, I guess we'll exit there.

552
00:28:44,840 --> 00:28:47,200
Speaker 1: We're gonna exit thirty seconds later, and we'll do it now.

553
00:28:47,840 --> 00:28:50,400
Speaker 1: Thank you for that. In a Frosannical Moment with Jeffrey

554
00:28:50,480 --> 00:28:54,520
Speaker 1: Rosenberg Glack. It's a Frosennical moment. This is the Bloomberg

555
00:28:54,600 --> 00:28:58,960
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from

556
00:28:58,960 --> 00:29:02,360
Speaker 1: seven to ten am Eastern on Bloomberg Radio and on

557
00:29:02,440 --> 00:29:06,720
Speaker 1: Bloomberg Television each day from six to nine am for

558
00:29:06,960 --> 00:29:11,880
Speaker 1: insight from the best in economics, finance, investment, and international relations.

559
00:29:12,360 --> 00:29:17,040
Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

560
00:29:17,200 --> 00:29:20,800
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

561
00:29:20,840 --> 00:29:23,480
Speaker 1: Tom Keene, and this is Bloomberg