WEBVTT - Bloomberg Surveillance: Dana Peterson

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Lots of FED speak today and into next week. Bauman barking,

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<v Speaker 2>Kashgari speaking on Monday. Then you get data next week

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<v Speaker 2>as well. USCPI on Tuesday, PPI next Friday. Bloomberg survey

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<v Speaker 2>expecting core CPI year over year to tick down to

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<v Speaker 2>three point seven percent from three point nine data. Peterson

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<v Speaker 2>of the Conference Board, seeing risk to those numbers. Evidence

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<v Speaker 2>of sustained disinflation is needed for comfort. Then return to

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<v Speaker 2>target and staying there is possible risks of a pickup

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<v Speaker 2>in inflation are present, especially from a tight labor market

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<v Speaker 2>and elevated wages. Then one please to say, join us

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<v Speaker 2>now for more. Can we go straight to those revisions

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<v Speaker 2>or lack thereof your response to the in the last

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<v Speaker 2>couple of minutes.

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<v Speaker 3>Sure, I agree, it certainly is a nothing burger, and

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<v Speaker 3>that is good news. But again, as Mike McKee mentioned,

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<v Speaker 3>the FED is focused on PCE inflation, and it's good

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<v Speaker 3>to know that we don't have lingering concerns about whether

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<v Speaker 3>the CPI is breaking away from what we've seen in

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<v Speaker 3>the PCE and certainly when we look at the PCEE deflator,

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<v Speaker 3>it's flowing. It's above two percent target, but it's headed

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<v Speaker 3>in the right direction.

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<v Speaker 2>As you know, the Federal Reserve wants more confidence. They

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<v Speaker 2>want more data, not better data, just maybe more of

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<v Speaker 2>the same. Now, Danna, I wonder from your perspective, the

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<v Speaker 2>risk of stabilizing above target on inflation? Is that a

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<v Speaker 2>concern that you share? Sorry our last audio, can you

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<v Speaker 2>hear us now or we've still got a problem. I

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<v Speaker 2>think we've lost audio there with Dani Peterson of the

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<v Speaker 2>conference board. If we can re establish that, we'll come

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<v Speaker 2>back to her. We can go back to those concerns.

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<v Speaker 2>On Wednesday, you heard it in the news conference. The

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<v Speaker 2>chairman just not quite comfortable yet to say that he's

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<v Speaker 2>got complete confidence that this is going to be the

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<v Speaker 2>trend through the rest of this year. What are the

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<v Speaker 2>one off factors that we've seen that have led to

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<v Speaker 2>this disinflationary trend that has emerged over the last twelve months.

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<v Speaker 2>What are they exactly?

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<v Speaker 4>Well, the things that they're worried about. They still don't

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<v Speaker 4>understand why house prices or the home price index part

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<v Speaker 4>of all of this is not going down fast than

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<v Speaker 4>it has. They're watching use cars because they've been very

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<v Speaker 4>volatile airfares, hotel hotel costs. Those are the things that

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<v Speaker 4>have been bouncing around a lot, so they're waiting for

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<v Speaker 4>them to sort of steady out and we get I

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<v Speaker 4>think the term that was used was a broad drop

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<v Speaker 4>in the inflation data. One of the things that they

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<v Speaker 4>can't control, obviously is energy, and they have to worry

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<v Speaker 4>about what's going to happen with the Middle East, but

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<v Speaker 4>they'll look beyond that. They're looking for these other internal

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<v Speaker 4>things to continue going down enough that they feel that

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<v Speaker 4>it's not going to be something that will turn the

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<v Speaker 4>whole thing over.

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<v Speaker 1>There is concern about the Atlanta Fed wagechecker. It's something

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<v Speaker 1>that I've seen in a host of notes coming out. Yes,

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<v Speaker 1>it's come down dramatically, but it's still as well above

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<v Speaker 1>what you would expect to get back to two percent.

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<v Speaker 1>What do they need to see there, given that it's

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<v Speaker 1>running about five percent or north of five percent, still

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<v Speaker 1>above pre pandemic norms.

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<v Speaker 4>Well, that's one indicator on way pages, and in general,

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<v Speaker 4>we're seeing wages rise at a faster pace than the

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<v Speaker 4>Fed is looking for. We saw wages in the ECI

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<v Speaker 4>going up at about half a percent, and that is

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<v Speaker 4>a concern. If it continues. They want to see it

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<v Speaker 4>come down. They think three and a half percent, three

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<v Speaker 4>to three and a half percent is consistent with stable inflation.

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<v Speaker 4>So we've still got a ways to go with wages.

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<v Speaker 4>But they don't seem to think at this point that

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<v Speaker 4>the Fed has got a problem because CEOs are telling

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<v Speaker 4>them they're slowing the rate of pay increases.

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<v Speaker 1>Now, Dana Peterson, I believe we've reestablished our audio.

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<v Speaker 2>We apologize for.

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<v Speaker 1>Any technical difficulties data your take on just what you're

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<v Speaker 1>looking for to understand whether the inflation geniees truly been

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<v Speaker 1>slater the inflation dragon. I assume people don't want to

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<v Speaker 1>slay genies, but how much are you seeing this actually

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<v Speaker 1>as a done deal versus still concerned about a couple areas.

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<v Speaker 3>I think much of the FED speak in terms of

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<v Speaker 3>wanting to see sustained disinflation in order to get back

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<v Speaker 3>to the two percent target. Sustainably is important when we

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<v Speaker 3>look at some of the details of inflation. Yes, home

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<v Speaker 3>prices have ease, and that's showing up in rents and

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<v Speaker 3>the shelter costs. But when you look further out, they

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<v Speaker 3>picked up, and so that poses some risk later this

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<v Speaker 3>year and even into next year. But more importantly, wages

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<v Speaker 3>are still elevated. We're seeing them rise, especially in those

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<v Speaker 3>sectors like manufactory construction where there's a lot of demand

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<v Speaker 3>and you have to show up for work. So I

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<v Speaker 3>think wages are continued will continue to be upward pressure

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<v Speaker 3>that the Fed's going to have to watch. So it's

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<v Speaker 3>important to have more readings and maybe getting into the

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<v Speaker 3>springtime to feel confident such that the FED can start

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<v Speaker 3>cutting rates maybe around June.

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<v Speaker 1>Can you give us a sentence based on the increasing

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<v Speaker 1>confidence that you track, given the fact among consumers, given

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<v Speaker 1>the fact that you are concerned about some of these

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<v Speaker 1>areas that are still elevated in terms of inflation, how

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<v Speaker 1>many times you think the FED could cut rates this

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<v Speaker 1>year versus where the markets at.

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<v Speaker 3>Sure, we think the FED could probably cut rates four

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<v Speaker 3>or five times this year. That's roughly one hundred and

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<v Speaker 3>twenty five basis points, and that would be reasonable, especially

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<v Speaker 3>given the fact that the economy is doing better than expected.

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<v Speaker 3>We still think there could be somewhat of a lull,

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<v Speaker 3>maybe not a recession, but inflation should probably continue to slow.

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<v Speaker 3>But again, we have a number of risks out there,

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<v Speaker 3>both to the upside and the downside, but I think

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<v Speaker 3>that's certainly one hundred and twenty five basis points this

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<v Speaker 3>year is possible.

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<v Speaker 1>Is that basically the idea that the neutral is back

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<v Speaker 1>to two percent or something like that, the neutral rate,

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<v Speaker 1>I mean, what is that based on. If you do

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<v Speaker 1>see these risks to the upside for inflation still present

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<v Speaker 1>in the market.

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<v Speaker 3>Well, I think that the neutral rate is probably higher

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<v Speaker 3>now than it was before the pandemic. Here's why we've

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<v Speaker 3>had a major structural change in terms of the labor market.

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<v Speaker 3>We're losing workers, We're experiencing severe labor shorages, and that's

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<v Speaker 3>putting upward pressure on wages. We also have a number

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<v Speaker 3>of outside factors such as globalization, and also the fact

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<v Speaker 3>that you have a number of geopolitical risks that are

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<v Speaker 3>disrupting supply chains that can continue to put some upward

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<v Speaker 3>pressure on inflation. But those are all in the risk category.

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<v Speaker 3>Our base case is still that we're going to see

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<v Speaker 3>inflation get back to two percent and remain there, but

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<v Speaker 3>that the Fed's going to have to keep rates higher

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<v Speaker 3>than expected and not see as much in terms of

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<v Speaker 3>cutting as the market probably is pricing in right now.

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<v Speaker 2>Daniel, I'd love your views on the pickup and consumer

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<v Speaker 2>confidence we've seen more recently. Likewise for CEO confidence as well,

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<v Speaker 2>how do you read that at the moment you read

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<v Speaker 2>that as temporary, Could that be the trend and ultimately

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<v Speaker 2>what does that mean for the forward look the outlook

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<v Speaker 2>for the rest of this year.

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<v Speaker 3>I think they're both positive frends. But to res back

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<v Speaker 3>to consumer confidence, we've seen a few months of improvements.

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<v Speaker 3>Consumers are complaining a little less about inflation. They still

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<v Speaker 3>think prices are high, but they're not rising as quit quickly.

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<v Speaker 3>They're looking forward to interest rates being lower, and they

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<v Speaker 3>think the stock market is going to continue to rise.

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<v Speaker 3>They also feel that they're going to continue to work,

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<v Speaker 3>and certainly that's showing up in our CEO confidence measure,

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<v Speaker 3>where CEOs are still worried about labor and they want

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<v Speaker 3>to hold on to their workers. So if you're a consumer,

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<v Speaker 3>you're working, you have a credit card you can spend,

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<v Speaker 3>then you're probably going to feel better about life.

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<v Speaker 2>Interesting, Dennis, Thank you. Danni Pitterson, the of the Conference Board,