Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz Jaily, we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg terminal. He is one
Speaker 1: of the most interesting politicians across all of America and
Speaker 1: certainly his Democrat party. He's a twenty ninth United States
Speaker 1: Secretary of Labor and always in forever will be the
Speaker 1: former mayor of Boston. Marty Walsh is served President Biden
Speaker 1: as they go to election day and as we do
Speaker 1: on Jobs Day. A conversation John Farrow with Marty Walsh.
Speaker 1: Let's listen in from New York and place the site
Speaker 1: that joining us now is a US labor sectary. Marty
Speaker 1: Walsh on TV and on radio, he joins us in Washington.
Speaker 1: Mighty fantastic to have you with us on the program sir, First,
Speaker 1: on this show to respond to this payrolls report, the
Speaker 1: big question for many of us right now. Secondly, Walsh
Speaker 1: is how much do you think this labor market needs
Speaker 1: to cool to help get inflation lower. Well, I think that.
Speaker 1: I think what we're seeing here is obviously saw good
Speaker 1: games this month, lower unemployment, and that's really strong. I
Speaker 1: think what we're sat in to see now is as
Speaker 1: transition to a slower and steady economy as we move
Speaker 1: forward here. I mean, we're seeing there's still jobs available
Speaker 1: out there. We're seeing the wages have gone up a
Speaker 1: little bit a little less than last month, and what
Speaker 1: we are seeing gains in the in those sectors that's
Speaker 1: still a hiring people that need people to work on them.
Speaker 1: The question many people are asking is whether higher unemployment
Speaker 1: is a price worth paying to get inflation down. Secondary Walsh,
Speaker 1: you and I have talked about that. That question has
Speaker 1: taken on renewed importance this week after some of your
Speaker 1: Democratic colleagues down in d C have sent a letter
Speaker 1: to Chairman Pou. Do you think higher unemployment is a
Speaker 1: price worth pag to get inflation lower? Certainly? I don't
Speaker 1: want to see high unemployment because I think too many
Speaker 1: people in this count we need to go to work.
Speaker 1: Uh the seeing opportunities where where workers across the board
Speaker 1: average of higher wages right now for four point seven percent.
Speaker 1: I think this a month. UH. The wages are at
Speaker 1: UH in the hospitality and they're higher. I think there's
Speaker 1: an opportunity for us to bring inflation down UH and
Speaker 1: as well as having employment going on the country. We're
Speaker 1: living in a very and I've said this many many
Speaker 1: times now, but in a very different economic times, and
Speaker 1: I certainly don't want to see our n employment rate
Speaker 1: go high three point seven percent. We've been averaging between
Speaker 1: three point five and three point seven percent over the
Speaker 1: last I think pretty much the last year, and that's
Speaker 1: a good place to be. What's the mechanism for that
Speaker 1: to happen? As far as you assume what to get
Speaker 1: inflation down without unemployment going up? Well, I think you know,
Speaker 1: the feed is raised. Rates were seeing a little bit
Speaker 1: of a little bit of steadiness now a little bit
Speaker 1: of cooling off. We're also seeing opportunities, as I mentioned,
Speaker 1: we're seeing we're sat in there to see signs of
Speaker 1: a slow and steady economy. I think we're getting back
Speaker 1: to UH pre pandemic where we were. We're not going
Speaker 1: to continue to see these gains of hundreds of dollars
Speaker 1: of jobs every month in our economy because eventually, you know,
Speaker 1: we're gonna run out of people to fill those jobs.
Speaker 1: We're seeing the supply chain. You I didn't see that
Speaker 1: here your whole segment right before this, But as China
Speaker 1: opens up, we're gonna start to see more supplies coming
Speaker 1: across the ocean. We're seeing pressure on gas prices coming
Speaker 1: down a bit. We need to continue to stay focused
Speaker 1: on on our on our gas prices and natural gas.
Speaker 1: We need to continue to bring carts down at the
Speaker 1: kitchen table every every past of the way we can, uh,
Speaker 1: and we're just gonna continue to do it month over month.
Speaker 1: There's not just one quick fix to it, as you know,
Speaker 1: and you know you guys talk about it all day long.
Speaker 1: There's lots of different things that have to happen here. Well,
Speaker 1: the Federals earves talking about causing pain. Chairman Power talked
Speaker 1: about that in Jackson whole way and Making said well,
Speaker 1: higher interest rates and slower growth and softer labor market
Speaker 1: conditions will bring down inflation. They will also bring some
Speaker 1: pain to households and businesses. These are the unfortunate cost
Speaker 1: of reducing inflation, but a failure to restore price stability
Speaker 1: would mean far greater pain. Secondly, well, what would you
Speaker 1: say to those that may say to you that you're
Speaker 1: not being up front about the pain that we need
Speaker 1: to go through to get inflation down, Well, I could
Speaker 1: say this, people went through a lot of pain in
Speaker 1: this country in the last two and a half years
Speaker 1: with the pandemic. People lost their job, people were concerned
Speaker 1: about what the future is and we're living in a
Speaker 1: very interesting time coming out of a pandemic. UH, and
Speaker 1: I think that people are feeling pain. They feeling pain
Speaker 1: at the kitchen table, and we have to do everything
Speaker 1: we can as an administration. The President's passed legislation UH
Speaker 1: Inflation Reduction Act that long term will help us bring
Speaker 1: down inflationary pressures. We're working on supply chain issues to
Speaker 1: bring down to play story pressures. UH. The FED doing
Speaker 1: what they have to do to bring down pressures, and
Speaker 1: we have to continue to work an all government approach,
Speaker 1: if you will, UH and do everything we can to
Speaker 1: bring those pressures down at the kitchen table, I think
Speaker 1: by having having unemployment rates around seven percent, that that's
Speaker 1: a lot a lot of unnecessary pain that people in
Speaker 1: America don't need right now, and working people that are
Speaker 1: working won't need that pain either. You can see that
Speaker 1: has to go higher. Though no I'm not there yet.
Speaker 1: I'm one of the people that that hold out saying
Speaker 1: that I would like to see the unemployment rate continue
Speaker 1: to to stay where we are, even go lower if
Speaker 1: we can uh and and work out the ways through
Speaker 1: this inflationary pressures that people are failing. I've got to
Speaker 1: put you on the spot their second Welsh how does
Speaker 1: unemployment got lower and inflation comes down to? How do
Speaker 1: you think that happens over the next twelve months. I
Speaker 1: think that people are trying to compare this economy to
Speaker 1: what we've had previous economies, and we've heard people talk
Speaker 1: about on on shows all across America and people in
Speaker 1: boardrooms talking about recessions and comparing this time moment in
Speaker 1: time to pass times where we had recessions. It's very different.
Speaker 1: It's a very different period of time. And we've never
Speaker 1: seen inflation at such a high rate and unemployment at
Speaker 1: such a low rate in the history of our country.
Speaker 1: So we have to just continue to do everything we
Speaker 1: can use all the all the all the tools, all
Speaker 1: the mechanism we have to bring those costs down a lot.
Speaker 1: Some of this was due cause because of a pandemic,
Speaker 1: because the supply chain issues in the very beginning. Part
Speaker 1: of this is because of gas prices. You know, this
Speaker 1: is a worldwide crisis that that people are failing with
Speaker 1: inflation and and things that we're doing here in the
Speaker 1: United States we are bringing you know, I think we're
Speaker 1: being a little more successful here in the United States
Speaker 1: and other parts of the world. You talked about the mechanism.
Speaker 1: Forgive me for calling that a lot of words sounded
Speaker 1: because it felt that way on my side of it
Speaker 1: listening to its. Secondly, Welsh, you talked about the mechanism
Speaker 1: for this to happen. Yes, unemployment is very low and
Speaker 1: inflation is very high, and that's why most people assume
Speaker 1: the unemployment will have to go up for inflation to
Speaker 1: come down. You still haven't really told me how you
Speaker 1: think that's going to happen. What are you to make
Speaker 1: that happen? Because understand that's the world you want, that's
Speaker 1: not the world we have. How's that going to work?
Speaker 1: I'm not I'm not an economist, number one, and I
Speaker 1: think that it has to be very clear. And number two,
Speaker 1: when you think about where we are at this moment
Speaker 1: in time, what I'm gonna do as my job as
Speaker 1: Secretary of Labors were an iken is to make sure
Speaker 1: that Americans have opportunities to do good paying jobs, whether
Speaker 1: it's to workforce development, apprentice programs, working with states and
Speaker 1: cities all across America. That's my role and responsibility right now.
Speaker 1: My role and responsibility when it comes to inflation was
Speaker 1: making sure the supply chains and moving forward, making sure
Speaker 1: we didn't have seven hundred ships off the coast of
Speaker 1: California in Seattle and Portland and in the West US
Speaker 1: where we did have it, making sure that those those
Speaker 1: goods and services came into our country, making sure that
Speaker 1: we don't have disruption in our supply chain, whether it's
Speaker 1: through negotiations and ports or negotiations on rails. Those are
Speaker 1: things that I'm focused on right now forward looking to
Speaker 1: make sure that we're doing everything we can that we
Speaker 1: don't add to the inflationary pressures that people are filling
Speaker 1: in America. Other folks are working. Secretary Yelling, Secretary Mundo,
Speaker 1: and the Chairman Chairman, all those folks are also working
Speaker 1: collectively on making sure of bringing down inflationary pressures. You've
Speaker 1: been pound of the negotiations with the rail union. She
Speaker 1: mentioned that just there why haven't I signed the agreement.
Speaker 1: We have six of the twelve agreed upon. We have
Speaker 1: four contracts still out, and we have two contracts that
Speaker 1: were voted down by the members that we're currently I'm
Speaker 1: encouraging both sides, the rail and the companies to stay
Speaker 1: at the table and get another opportunity to get another
Speaker 1: vote on before we hit our deadline in November and December.
Speaker 1: Are you actively involved in the negotiation again, I'm not
Speaker 1: actively involved in persue the negotiation as far as what's
Speaker 1: what's in and out of the contract, but I am
Speaker 1: very active in making sure and talking to I talked
Speaker 1: to the representatives of the companies on a daily basis,
Speaker 1: and I talked to union different unions almost on a
Speaker 1: daily basis well, UH, to make sure, particularly the two
Speaker 1: unions that that didn't ratify the contract. UH. Six unions
Speaker 1: have ratified. There's another one going to come in the
Speaker 1: next couple of days, and then we'll have three left
Speaker 1: out there. So hopefully by by hopefully, by this time
Speaker 1: next week, we will have many of these contracts ratified.
Speaker 1: And we were down to the last two. What if
Speaker 1: we don't get that? What preparations you've done just in
Speaker 1: case this falls apart, Well, there's a process that goes
Speaker 1: in place and the worst case scenario. I'll play worst
Speaker 1: case scenario a minute. If we don't get to an agreement,
Speaker 1: Congress will have to take action, and that is by
Speaker 1: design and the and the Railway Act. Uh. The President
Speaker 1: has the ability authority to put together an emergency board,
Speaker 1: which he did. Uh. They came back at recommendations. The
Speaker 1: unions have to ratify. There's twelve different unions. And if
Speaker 1: the unions don't ratify, if we have two right now
Speaker 1: not ratified, Uh, Congress is the last stop that would
Speaker 1: have to take action. It's likely. Well, thank you, sir
Speaker 1: for your time against We appreciate it. The life of
Speaker 1: Secretary that Monty Walsh. Tiffany Wilding with this with Pimco. Tiffany,
Speaker 1: I want to go back to black and tackle here,
Speaker 1: which is you've got to figure out real g d P,
Speaker 1: inflation in nominal GDP, the animal spirit, current economy, economic growth, etcetera.
Speaker 1: And I don't even know, not to be rude, how
Speaker 1: far out you should go? Can you get out just
Speaker 1: like the end of second quarter two thousand twenty three,
Speaker 1: Dare I say, Tiffany, can you go out to the
Speaker 1: end of next year. Dare I say you can be
Speaker 1: like Governor Bailey in England and call for a two
Speaker 1: year recession. I fell off my chair, Tiffany, when I
Speaker 1: saw that, how far out can you guess? Estimate real
Speaker 1: g d P. I mean, I think you're you're picking
Speaker 1: up on a really important point here. Is just there's
Speaker 1: a lot of uncertainty, um, you know, and we do
Speaker 1: try to model these things right, but models aren't perfect.
Speaker 1: They're stylized, and you know, you have to understand that
Speaker 1: it's never going to capture everything. And I think there
Speaker 1: is a lot of uncertainty. I thought that to your
Speaker 1: point on the Bank of England projections, I don't think
Speaker 1: that we've ever seen a two year a recession lasting
Speaker 1: two years. Those are quite dramatic, um, you know, quite
Speaker 1: dramatic forecast that they that they came out. But of
Speaker 1: course they're also using market pricing um in order to um,
Speaker 1: you know, to help bake that forecast. So you know,
Speaker 1: I think I think overall, you know, we are focused
Speaker 1: on how the data looks and the economic momentum that
Speaker 1: we're seeing. You know, we do think the US economy
Speaker 1: and others across the developed markets will flip into recessions,
Speaker 1: you know, going in you know to the first quarter,
Speaker 1: you know, the last into the second um and and
Speaker 1: the reason for that is is that you were already
Speaker 1: seeing of you know, what we call final domestic demand,
Speaker 1: but just real demanding the growth, and that that was
Speaker 1: already slowing this year. So last year is about five
Speaker 1: percent on a real basis. This year it was less
Speaker 1: than one. And on top of that, we've seen you know,
Speaker 1: pretty dramatic negative shocks to the economy, obviously what the
Speaker 1: Fed is done with raising interest rates broader financial conditions,
Speaker 1: you know, but also you have this you know war
Speaker 1: in Ukraine, which has been basically a global energy supply shock.
Speaker 1: So the combination of those two things, you know, in
Speaker 1: our minds will probably you know, what was already kind
Speaker 1: of a weaker economy in the US, we'll we'll, we'll
Speaker 1: push it into a recession, you know, in the first
Speaker 1: part of next year. Tiffany tom is talking about perhaps
Speaker 1: a two year rise in let's go even longer than that.
Speaker 1: Is it fair for the Federal Reserve to shoot for
Speaker 1: a two percent long term inflation target when you were
Speaker 1: seeing a wage price spiral in the works. Yeah, I mean,
Speaker 1: I don't know that we are. I wouldn't maybe be
Speaker 1: as strong as to say a wage price spiral in
Speaker 1: the works, but I think that there is evidence, certainly, um,
Speaker 1: when you look at at various things, that there's a
Speaker 1: very high risk of that happening, and the FED definitely
Speaker 1: needs to, you know, to rein that in as best
Speaker 1: as it can using very blunt tools. And when I
Speaker 1: say evidence of that happening, obviously you're seeing it in
Speaker 1: the wage data um. You know. Marty Walsh also mentioned
Speaker 1: the negotiations that are happening, you know, with the rail unions.
Speaker 1: You clearly have more bargaining power by employer um you know,
Speaker 1: by workers, you know, as a result of just the
Speaker 1: broader you know, the tightness of the labor market you know.
Speaker 1: But you know, the other thing is is that you know,
Speaker 1: it's all it's it's also all about how much UM
Speaker 1: our company is able to defend their margins. That's the
Speaker 1: other key piece of a wage price spiral, you know.
Speaker 1: And I would say there it's not great news either
Speaker 1: because it does look like you're getting some companies are
Speaker 1: able to defend their margins. So there is evidence of it. UM.
Speaker 1: You know, but the FED is doing something about it. Tiffity.
Speaker 1: We're in an extraordinary week, and particularly coming from the
Speaker 1: bizarre FED meeting and press conference in an extraordinary year
Speaker 1: into an election, and folks will be surveillance will be
Speaker 1: in Washington Tuesday and Wednesday mornings for the election, along
Speaker 1: with David Weston's wonderful work Election Night and Tiffany Welding
Speaker 1: the great thrust I get from all the fan mail, emails, tweets.
Speaker 1: Whatever is the divide? I mean, someone like you is
Speaker 1: down at No Boo Newport Beach with Bob de Niro
Speaker 1: and you're having some fancy Japanese meals, you know, and
Speaker 1: the rest of them. That's the perception, Tiffany, that it's
Speaker 1: the West Coast and the East Coast booming and everybody
Speaker 1: else is flat on their back. How polarized is the
Speaker 1: American labor economy? Now? Yeah, I mean, well they're clearly,
Speaker 1: you know, they're obviously clearly big political divides. Um. You know,
Speaker 1: in that polarization is not a new thing. Um. You know,
Speaker 1: that's been happening over the you know, over a number
Speaker 1: of decades. You know, obviously, you know, I think in
Speaker 1: terms of you know, how it impacts our outlook, you know,
Speaker 1: That's what I mean. I'm not a political Um, I'm
Speaker 1: not a political analyst. You can be. You got these
Speaker 1: seconds continue. I'm not a political analyst, but I do
Speaker 1: think that, um, you know, in terms of our outlook
Speaker 1: and how growth evolves. I think the big takeaway from
Speaker 1: the likely midterm elections is that you're probably going to
Speaker 1: have a divided government and you're not going to get
Speaker 1: a lot done. You're not going to see fiscal stimulus.
Speaker 1: So even though we're calling for a recession, there's not
Speaker 1: going to be the usual response you know from the
Speaker 1: Fed or from the government, you know, to help and
Speaker 1: so and so. That's going to result in not only
Speaker 1: a recession, but probably when the economy comes out of recession,
Speaker 1: it's going to come to some sluggish growth level that's
Speaker 1: really not that great either until inflation comes down to
Speaker 1: for you next time, you know, but you gotta try
Speaker 1: the whitefish shashimi with dry mesa. It is just to
Speaker 1: die for, you know. Here, silence with that, every well,
Speaker 1: and thank you so much, greatly appreciated. Randall Crasser knows
Speaker 1: these are abrupt moves. He mentioned that earlier. He's at
Speaker 1: the boost school the former FED governor as well. Randy,
Speaker 1: you are a student of economic history. Let's say we
Speaker 1: get a terminal rate of five point x percent. Let's
Speaker 1: say we go back to c D rates of a
Speaker 1: of a time twenty thirty forty years ago. Is it
Speaker 1: the same this time? Are we reverting back to a
Speaker 1: financial structure that we know? Are we in new territory?
Speaker 1: I don't think we're gonna be going back to UH
Speaker 1: interest rates at double digit levels, which is where we
Speaker 1: were with when inflation was this high forty years ago.
Speaker 1: So I don't think the FED is going to need
Speaker 1: to go that high. But I think, as you can
Speaker 1: see with the two year moving up, the markets are saying, hey,
Speaker 1: this is a pretty strong employment report. We're not seeing
Speaker 1: cracks in the labor market yet. And so the FIT
Speaker 1: is going to have to continue on its path and
Speaker 1: will um its terminal rate will be a bit higher
Speaker 1: than we thought. What do corporations do? How do they
Speaker 1: adapt as we see the nominal yield and the real
Speaker 1: yield come up. So that's you know, one of the
Speaker 1: things that the Fed's toolboxes to try to make findacial
Speaker 1: conditions tighter, make it less attractive for firms to hire
Speaker 1: and less attractive to to invest as hurdle rates go up,
Speaker 1: because both real anominal rates would be would be going up,
Speaker 1: and that's their main tool for trying to slow the
Speaker 1: economy down. And tried to take some of the uh,
Speaker 1: the excitement out of demand and and so supply and
Speaker 1: demands can come together without as much price pressure. I said,
Speaker 1: let it breathe, and we have done for a couple
Speaker 1: of minutes, and equities have raised the losses post pay
Speaker 1: roles so S and P five back up Hart by
Speaker 1: eight tensive one percent. That move at the front end
Speaker 1: has faded back to basically where it was going into
Speaker 1: the print at four seventy six. You're time by four
Speaker 1: basis points or so. I don't think this is the
Speaker 1: game change or at all for anyone out there. And
Speaker 1: by the time we get to CPO November tenth next week,
Speaker 1: we won't even be talking about what's just happened here
Speaker 1: in the labor market time. We're still waiting to see
Speaker 1: real cracks in our labor market to get a better
Speaker 1: understanding that the dual man date at the Federal Reserve,
Speaker 1: it's in conflict and right now for the Fed it's not.
Speaker 1: I'm gonna have this conversation with Rick Reader over a
Speaker 1: black rock in just a moment. Anastasia Amarosa vi Capital,
Speaker 1: Mike comins PGIM and we will catch up with secondary market.
Speaker 1: Marty Walsh, Tom of the Labor Department at this administration,
Speaker 1: looking forward to that a little bit later in the
Speaker 1: next hour. Very good. We'll continue the features up thirty
Speaker 1: the VIX. The VIX comes in twenty four point nine eight.
Speaker 1: Lisa gets my attention of a more buoyant market. Yeah,
Speaker 1: and also the Fed funds rate was now praising in
Speaker 1: a peak of perhaps five point to five in June
Speaker 1: of next year, although that's fading a little bit as
Speaker 1: we start to go on. Randy Krasner, I'm looking at
Speaker 1: some of the details here, and this is actually a
Speaker 1: very confusing report to me. The unemployment rate now getting
Speaker 1: people's attention, perhaps, but the wage picture very confusing to
Speaker 1: me as well. What can you glean from the composition
Speaker 1: of jobs that perhaps are getting added or cut and
Speaker 1: how that might be affecting the wage dynamic more than
Speaker 1: per se an entire inflation picture that the Fed can
Speaker 1: take away. True, there's always one of the issues that
Speaker 1: you have to be careful about is exactly what you're
Speaker 1: pointing out, the so called composition effect. What what areas
Speaker 1: are seeing job increases more than others. Are those in
Speaker 1: general high wage or low wage low wage areas. I
Speaker 1: haven't had a chance to dig into the details of
Speaker 1: the report, but that's obviously something one needs to look at.
Speaker 1: The FED will be heartened that the that we're not
Speaker 1: seeing in an acceleration in the UH in the wage
Speaker 1: in wage growth, that it's still around four point seven
Speaker 1: percent where it had been, but it is hoping that
Speaker 1: that that is not going to rise, and it's hoping
Speaker 1: that it may come down a bit as they try
Speaker 1: to bring inflation down. Yeah, I look at this, Mike McKee.
Speaker 1: I wanted to jump in here if you would right
Speaker 1: now you I'm watching, Mike. Folks look at the real report,
Speaker 1: which is ten pages law. I've given another number there
Speaker 1: for us in Professor Krassner. What matters to you, well,
Speaker 1: unemployment is what's been the interesting number today because it
Speaker 1: went up and it's largely because of what we in
Speaker 1: the past would have said is bad news, but uh,
Speaker 1: this time it is kind of what the FED wants
Speaker 1: to see in the household survey, the number of people
Speaker 1: employed falls by three hundred and twenty eight thousand, while
Speaker 1: the number of people unemployed rises by three hundred and
Speaker 1: six thousands, So a real difference between that and the
Speaker 1: Establishment survey, which is not unusual, but it does tell
Speaker 1: you why the unemployment rate went up. We also had
Speaker 1: uh two thousand people leave the labor force after fifty
Speaker 1: seven thousand left the labor force the month prior, and
Speaker 1: so it's kind of interesting. It maybe because kids have
Speaker 1: gone back to school and mothers have decided to stay
Speaker 1: home or something like that, but we're not seeing people
Speaker 1: drawn back in by the fact that they so many
Speaker 1: jobs available. Well, and Randy, that's where I wanted to
Speaker 1: really finish up here and just get your impression of
Speaker 1: why the participation rate is going down, why it is
Speaker 1: moving in the opposite direction despite the wage gains and
Speaker 1: despite the the job openings that we see in the
Speaker 1: Jewels survey. This is one of the great front frustrations
Speaker 1: that the FED has and j Pal has been talking
Speaker 1: about this for a long time of trying to get
Speaker 1: you know, why aren't we seeing more people come back
Speaker 1: into the labor market. And I think it's it's a
Speaker 1: variety of factors. Um, there are many of the older
Speaker 1: workers and more experienced workers are saying, hey, I know
Speaker 1: a lot of people who didn't make it through Corona.
Speaker 1: I want to make sure to have I'm with my kids,
Speaker 1: my my grandkids. So you've seen a much lower labor
Speaker 1: force participation by older workers, and a lot of younger
Speaker 1: workers are sent. You know, unless I can get a
Speaker 1: job where I can sit at home and kind of
Speaker 1: picked the hours that I want, I'm not about to
Speaker 1: come in and so, um, it's hard and despite all
Speaker 1: these openings, it's not enough so far to be able
Speaker 1: to draw people. In. Part of that is because even
Speaker 1: the wages have been growing nominally fast that they have
Speaker 1: in the past, the real wages, the inflation of justice
Speaker 1: wages haven't been growing that strongly. Randy Crosser, thank you
Speaker 1: so much for joining us. It's just a joy to
Speaker 1: have you with us on jobs that he is at
Speaker 1: Booth School London and now back at Chicago as well.
Speaker 1: Right now we go to Jeff Rosenberg, who was just
Speaker 1: wonderful line fed day, giving us the dynamics of a
Speaker 1: dynamic press conference as well. Maybe Jeff with black Rock
Speaker 1: maybe not as exciting as that press conference, but nevertheless,
Speaker 1: a job report of the fully employed America. From where
Speaker 1: you and your team sit, is this job's report old news,
Speaker 1: present news, or indicative buoyant future? Yeah? Great, great question, Toma.
Speaker 1: You know, I think it invalidates what we think we
Speaker 1: know about out this labor market, and that is is
Speaker 1: that it is very very slowly starting to show some
Speaker 1: effects of an economic slowdown of the FEDS tightening. But
Speaker 1: go back to our conversation on the post Fed day,
Speaker 1: it's all about the long and variable lags here, and
Speaker 1: so we're seeing, you know, just the glimmers of what
Speaker 1: the Fed hopes to see in terms of the impact
Speaker 1: of their tightening this year. But it's it's gonna take
Speaker 1: some time and and and going back to what Lisa
Speaker 1: ended with Randy on you know, the most salient point
Speaker 1: I think here and Powell mentioned it in the press
Speaker 1: conference is the lack of labor force participation responding to
Speaker 1: this historic levels and openings. That's a huge disappointment. That's
Speaker 1: a problem because the economy is not responding to the
Speaker 1: FEDS tightening, and so they've got a lot more work
Speaker 1: to do. They're gonna slow that pace. Fine, but we
Speaker 1: really are not seeing the economic slowdown that's necessary for
Speaker 1: the Fed to get to that inflation slow down. So
Speaker 1: this is a real challenge for the Fed and for
Speaker 1: the market. Jeff, since you walked up to your TV
Speaker 1: set a black rocket, we say good morning on Bloomberg
Speaker 1: Radio as well, the two year yield gave us a
Speaker 1: rounded up four point seven six percent. How does a
Speaker 1: grizzled pro like you adapt to yield nominal yield real
Speaker 1: moving so fast and furious? Yeah, you know, you take
Speaker 1: what the market gives you. And and in this market,
Speaker 1: it's been a dramatic increase and restoration of yield for
Speaker 1: safe assets. You think back to the zero interest rate
Speaker 1: policy environment, the negative interest rate policy environment that gave us, Tina,
Speaker 1: there is no alternative. Now there is an alternative, and
Speaker 1: so it's adjusting to where the opportunities are. The opportunity
Speaker 1: these are in the very front end of the yield
Speaker 1: curve where we're pricing in is Lisa talked about a
Speaker 1: minute ago, you know, five five point to five cent
Speaker 1: peak FED funds rate. Whether or not that turns out
Speaker 1: to be the peak depends on inflation. But the Fed
Speaker 1: signaled earlier this week to expect an increase in that
Speaker 1: terminal rate. The markets already there, so there's not a
Speaker 1: huge surprise when we get to the SEP. There may
Speaker 1: be more of a surprise on the inflation next week,
Speaker 1: but there's a lot of opportunity there because we've done
Speaker 1: a tremendous amount of work pricing in the normalization, the tightening,
Speaker 1: the movement to restrictive policy that the Fed wants to
Speaker 1: be at and are getting much closer to being at.
Speaker 1: Do you think that the balance of likely outcomes, Jeff,
Speaker 1: is more likely they were going to see a higher
Speaker 1: than five and a quarter percent Fed funds rate versus
Speaker 1: one that is below that in terms of where we
Speaker 1: end up at the peak. You know, Lisa, it's it's
Speaker 1: very tough to make that call because it's dependent on
Speaker 1: the inflation call, and what do we oh so far
Speaker 1: about the inflation call. Everybody's gotten it wrong. Every time
Speaker 1: we get a surprise to the upside to the cp I,
Speaker 1: what happens to the inflation peak expectation and therefore the
Speaker 1: peak of the Fed funds expectation? We continually move it out,
Speaker 1: so very hard to see whether or not that's the peak.
Speaker 1: If the inflation forecast finally show up. If we get
Speaker 1: that point three in course cp I next week, you know,
Speaker 1: then I think five five and a quarter will be
Speaker 1: the peak. But there is a possibility here, and you're
Speaker 1: seeing it a little bit in the data. The lack
Speaker 1: of the data today in in in in the payroll report,
Speaker 1: the lack of an expanding labor force, very strong wages.
Speaker 1: Is the risk of this alternative view that we are
Speaker 1: already in a wage price spiral. And if that's the case,
Speaker 1: and the Fed may have to do actually much more
Speaker 1: than that five five and a quarter that's currently priced
Speaker 1: in the market, What does that do to risk assets?
Speaker 1: Jeff Well, I think it's a challenging environment for risk assets.
Speaker 1: We saw this in the in the in the post
Speaker 1: press conference equity market reaction that the Fed doesn't want
Speaker 1: to see financial conditions easing prematurely. They need financial conditions. Remember,
Speaker 1: the transmission mechanism is tighten financial conditions, then it affects
Speaker 1: the real economy, slows the real economy, and then the
Speaker 1: slowdown in the real economy slows down inflation. If the
Speaker 1: equity market gets ahead of that and eases financial conditions
Speaker 1: before the economy has a time to slow down, and
Speaker 1: slow down inflation. Then the Fed has to do even more.
Speaker 1: And that's why he pushed so aggressively back against that.
Speaker 1: You know, oh, the market is up. What do you
Speaker 1: think about that? And then he gave you the greatest
Speaker 1: hawk ish hits to push back down the market. So
Speaker 1: in that environment, it's going to be challenging for risk assets.
Speaker 1: Jeff Ian Lincoln just publishes a bemo capital Markets always
Speaker 1: wonderful and fixed income, and he makes clear that this
Speaker 1: report gives Chairman Powell room to wait. He can now
Speaker 1: comfortably wait for these inflation reports that we see before
Speaker 1: the December meeting. Do you agree that it's not that
Speaker 1: it gives him degrees of freedom, but that this report
Speaker 1: gives him the room to really wait and analyze price change. Yeah,
Speaker 1: I would agree that this report is not changing anything
Speaker 1: that we already have in the expectations for the Fed
Speaker 1: to begin a step down in the pace of the increases,
Speaker 1: but not necessarily um ending that pace of increase until
Speaker 1: they start to see the development in inflation of a slowdown,
Speaker 1: so they can slow the pace because they want to
Speaker 1: incorporate the Brainerd perspective long and variable lags. That important
Speaker 1: change to the statement that we got earlier this week.
Speaker 1: That's about the FED acknowledging. We don't want to go
Speaker 1: at seventy five forever. We don't want to overdo it.
Speaker 1: We want to give time for the data to show up.
Speaker 1: And I think today's report is in line with that
Speaker 1: market expectation doesn't really change it ramatically. Are we going
Speaker 1: to go back to an era that was familiar over
Speaker 1: the past decade or so where we finally grind through
Speaker 1: whatever this post pandemic reality is an inflation gets back
Speaker 1: down to around two percent or even below that, and
Speaker 1: then we struggle with the same types of disinflationary forces.
Speaker 1: Or is this a materially different decade coming up. Well,
Speaker 1: this is the premise of your question, is do we
Speaker 1: go back to the pre COVID secular stagnation environment. And
Speaker 1: if you look at market consensus expectations for interest rates,
Speaker 1: for inflation rates, there is that expectation built into market consensus.
Speaker 1: We would be highly skeptical of that outcome. We get
Speaker 1: at frozen there on Jeffrey Rosenberg, I guess we'll exit there.
Speaker 1: We're gonna exit thirty seconds later, and we'll do it now.
Speaker 1: Thank you for that. In a Frosannical Moment with Jeffrey
Speaker 1: Rosenberg Glack. It's a Frosennical moment. This is the Bloomberg
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