1 00:00:05,120 --> 00:00:07,119 Speaker 1: This is the Bloomberg Surveillance Podcast. 2 00:00:07,160 --> 00:00:11,039 Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 3 00:00:11,280 --> 00:00:15,760 Speaker 2: Join us each day for insight from the best and economics, geopolitics, 4 00:00:15,760 --> 00:00:20,720 Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 5 00:00:20,960 --> 00:00:25,400 Speaker 2: Spotify and anywhere you get your podcasts, and always on 6 00:00:25,520 --> 00:00:29,840 Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 7 00:00:30,120 --> 00:00:33,480 Speaker 3: Randy Kreisner, former FED comfnor, now professor of economics at 8 00:00:33,479 --> 00:00:36,239 Speaker 3: the University of Chicago, let's talk about it. Randy, your 9 00:00:36,240 --> 00:00:37,440 Speaker 3: first reaction to this one. 10 00:00:39,040 --> 00:00:40,760 Speaker 4: So, as we were saying before, I think the FED 11 00:00:40,800 --> 00:00:44,200 Speaker 4: focuses a lot on wage growth, and we've seen wage 12 00:00:44,240 --> 00:00:47,239 Speaker 4: growth above expectations. I think it's really clear that the 13 00:00:47,240 --> 00:00:49,839 Speaker 4: Fed is going to be waiting a while before it 14 00:00:49,840 --> 00:00:54,760 Speaker 4: starts cutting rates because the labor market is still quite strong, 15 00:00:55,000 --> 00:00:58,920 Speaker 4: the wage growth is still quite strong, and we just 16 00:00:59,080 --> 00:01:02,080 Speaker 4: the key thing that then feed into services as well 17 00:01:02,120 --> 00:01:05,280 Speaker 4: as manufacturing inflation, not. 18 00:01:05,319 --> 00:01:08,080 Speaker 2: The simple arithmetic of a real way, but almost as 19 00:01:08,160 --> 00:01:10,400 Speaker 2: a cultural and societal note. 20 00:01:10,800 --> 00:01:12,880 Speaker 1: Do you see here wage. 21 00:01:12,640 --> 00:01:16,720 Speaker 2: Growth being beneficial across America and that people will have 22 00:01:16,840 --> 00:01:20,000 Speaker 2: more inflation adjusted cash in their pockets. 23 00:01:21,520 --> 00:01:23,959 Speaker 4: Oh, it's super great to have real wage growth. Finally, 24 00:01:24,080 --> 00:01:27,160 Speaker 4: I mean we had even though nominal wages were growing 25 00:01:27,280 --> 00:01:30,119 Speaker 4: very rapidly, they weren't growing as fast as inflation, and 26 00:01:30,240 --> 00:01:34,280 Speaker 4: so people were feeling left behind. And they were left 27 00:01:34,280 --> 00:01:36,480 Speaker 4: behind because they wanted to put food on the table 28 00:01:36,520 --> 00:01:39,200 Speaker 4: for their families, and the food was a heck of 29 00:01:39,200 --> 00:01:42,880 Speaker 4: a lot more expensive than it was before. Now they 30 00:01:42,959 --> 00:01:45,959 Speaker 4: started to earn a bit more than inflation, which is 31 00:01:46,000 --> 00:01:46,640 Speaker 4: great for them. 32 00:01:47,000 --> 00:01:48,800 Speaker 5: But I think what that's going to mean over. 33 00:01:48,680 --> 00:01:50,960 Speaker 4: Time is that, well, when it was great to be 34 00:01:51,040 --> 00:01:55,440 Speaker 4: hiring people, when labor was relatively cheap in real terms, 35 00:01:55,920 --> 00:01:58,560 Speaker 4: Now I think you're going to start to see a 36 00:01:58,600 --> 00:02:00,760 Speaker 4: little bit of softening the labor market because it's just 37 00:02:00,800 --> 00:02:01,240 Speaker 4: not going. 38 00:02:01,080 --> 00:02:03,440 Speaker 5: To be as. 39 00:02:04,280 --> 00:02:07,960 Speaker 4: Worthwhile for firms to be hiring when workers are more 40 00:02:08,160 --> 00:02:09,519 Speaker 4: we're relatively more expensive. 41 00:02:09,840 --> 00:02:12,400 Speaker 6: Randy, Why is it that we've seen so many downward 42 00:02:12,440 --> 00:02:14,960 Speaker 6: revisions of the prior months. Does that mean that we 43 00:02:15,000 --> 00:02:18,639 Speaker 6: can expect a significant downward revision of this upside surprise 44 00:02:19,080 --> 00:02:21,320 Speaker 6: come the data that we get in February. 45 00:02:22,639 --> 00:02:24,919 Speaker 4: Well, this gets back to what Tom was talking about before. 46 00:02:25,040 --> 00:02:28,079 Speaker 4: The Saner deviation has gotten wider, so there's a lot 47 00:02:28,120 --> 00:02:30,079 Speaker 4: more noise that's in there. I don't think you can 48 00:02:30,280 --> 00:02:33,240 Speaker 4: take something specific out that it's always going to be 49 00:02:33,280 --> 00:02:35,440 Speaker 4: downwardly revised. I think we just know that they're going 50 00:02:35,480 --> 00:02:37,440 Speaker 4: to be some substantial revisions. 51 00:02:37,639 --> 00:02:40,440 Speaker 3: Hey, Randy, appreciate the update. Some revisions some forecast as 52 00:02:40,440 --> 00:02:42,840 Speaker 3: well for rake cuts maybe after this one, for anyone 53 00:02:42,880 --> 00:02:45,040 Speaker 3: penciling in March. I think there's a rethink following that, 54 00:02:45,400 --> 00:02:47,440 Speaker 3: especially if we get another one of these for this 55 00:02:47,480 --> 00:02:54,280 Speaker 3: month next month. Really place to say that joining us 56 00:02:54,280 --> 00:02:56,480 Speaker 3: now is built down to late Bloomberg opinion columnist and 57 00:02:56,560 --> 00:02:59,480 Speaker 3: former New York FED president. But you've had the benefit 58 00:02:59,480 --> 00:03:02,040 Speaker 3: of about set seventeen minutes to go over some of this. 59 00:03:02,320 --> 00:03:03,440 Speaker 3: What's your reaction to it? 60 00:03:04,840 --> 00:03:06,839 Speaker 7: I think it just reinforces the notion that the FED 61 00:03:06,919 --> 00:03:08,800 Speaker 7: is not going to be in a rush to cut rates. 62 00:03:09,040 --> 00:03:10,760 Speaker 7: So the last couple of weeks there's been a sort 63 00:03:10,760 --> 00:03:12,839 Speaker 7: of change of view that the FED great cuts might 64 00:03:13,200 --> 00:03:16,040 Speaker 7: materialize a little bit more slowly with less force. 65 00:03:16,120 --> 00:03:18,840 Speaker 5: And I think that this just reinforces that Kami's still 66 00:03:18,880 --> 00:03:19,680 Speaker 5: doing pretty well. 67 00:03:20,160 --> 00:03:21,440 Speaker 7: It looks like we're going to have growth in the 68 00:03:21,560 --> 00:03:25,960 Speaker 7: fourth quarter of two percent plus financial conditions have eased 69 00:03:25,960 --> 00:03:28,880 Speaker 7: a lot over the last couple of months, So I 70 00:03:28,919 --> 00:03:31,280 Speaker 7: think that risks are that the Fed's going to keep 71 00:03:31,320 --> 00:03:32,240 Speaker 7: rates higher for longer. 72 00:03:32,560 --> 00:03:36,520 Speaker 2: Bill an unfair question. Why is the economy doing well? 73 00:03:36,680 --> 00:03:40,760 Speaker 2: Is productivity? Is it a follow on a pandemic stimulus? 74 00:03:41,040 --> 00:03:42,960 Speaker 2: What's the why of what we saw in Q three? 75 00:03:43,000 --> 00:03:45,240 Speaker 1: What Atlanta GDP says about. 76 00:03:45,120 --> 00:03:48,680 Speaker 2: Q four, and maybe a few people optimistic about the 77 00:03:48,680 --> 00:03:51,720 Speaker 2: first half of two thousand and four twenty twenty four. 78 00:03:52,680 --> 00:03:54,480 Speaker 7: Well, I think the biggest thing is that there were 79 00:03:54,560 --> 00:03:57,960 Speaker 7: such large fiscal transfers that occurred during the pandemic that 80 00:03:58,000 --> 00:04:01,520 Speaker 7: households and businesses are actually in pretty good financial shape 81 00:04:01,640 --> 00:04:04,480 Speaker 7: for this late and economic cycle, and so people have 82 00:04:04,560 --> 00:04:06,120 Speaker 7: the ability to continue to spend. 83 00:04:06,880 --> 00:04:09,240 Speaker 5: This is unusual. I Typically what happens is people get. 84 00:04:09,120 --> 00:04:12,360 Speaker 7: Over their skis, they're overextended, FED tightens and that actually 85 00:04:12,400 --> 00:04:15,040 Speaker 7: bites quite a bit on economic activity. This time, I 86 00:04:15,040 --> 00:04:18,080 Speaker 7: don't think people are as overextended, and so the FED 87 00:04:18,160 --> 00:04:21,359 Speaker 7: rate hikes have it had less restraint on the economy. 88 00:04:21,839 --> 00:04:23,919 Speaker 6: Given that Bill, and especially since you said the Fed's 89 00:04:23,920 --> 00:04:25,359 Speaker 6: not going to be in a rush to cut rates, 90 00:04:25,680 --> 00:04:27,720 Speaker 6: do you think that the market is still pricing in 91 00:04:27,720 --> 00:04:30,040 Speaker 6: too great of a chance of March rate cuts. If 92 00:04:30,040 --> 00:04:33,560 Speaker 6: they're talking about a fifty percent chance right now, Yeah. 93 00:04:33,400 --> 00:04:35,440 Speaker 5: I do, I do. I think, I mean, I think 94 00:04:35,480 --> 00:04:36,320 Speaker 5: May is more likely. 95 00:04:36,320 --> 00:04:38,159 Speaker 7: I mean, if the Fed wants to cut rates, I mean, 96 00:04:38,279 --> 00:04:40,600 Speaker 7: they've made it pretty clear that they knew that as 97 00:04:40,680 --> 00:04:44,000 Speaker 7: inflation falls Maitrey, policy is being tightened, and so that 98 00:04:44,320 --> 00:04:47,280 Speaker 7: they need to follow inflation down. But to do that, 99 00:04:47,320 --> 00:04:49,320 Speaker 7: they also have to get some signs that the economy 100 00:04:49,400 --> 00:04:51,839 Speaker 7: is slowing sufficiently so that there's enough slack in the 101 00:04:51,839 --> 00:04:53,760 Speaker 7: economy to bring inflation all the way down to two 102 00:04:53,800 --> 00:04:56,640 Speaker 7: percent and keep it there. You know, the wage trend, 103 00:04:56,760 --> 00:04:59,800 Speaker 7: obviously is something that's going to concern them. If wages 104 00:04:59,800 --> 00:05:02,920 Speaker 7: are rising faster than four percent a year, that's probably 105 00:05:02,920 --> 00:05:05,760 Speaker 7: not considering percent inflation in the medium term. 106 00:05:06,279 --> 00:05:08,600 Speaker 6: Given that, and given the fact that we are seeing 107 00:05:09,000 --> 00:05:11,480 Speaker 6: the rate cuts being priced into the market more than 108 00:05:11,520 --> 00:05:13,680 Speaker 6: you think is warranted by the Federal Reserve, how. 109 00:05:13,640 --> 00:05:15,000 Speaker 1: Much do you think it set them back? 110 00:05:15,240 --> 00:05:17,880 Speaker 6: The Fed officials that the markets did rally as much 111 00:05:17,920 --> 00:05:19,920 Speaker 6: as they did into year end, how much do you 112 00:05:19,920 --> 00:05:21,200 Speaker 6: think that I'm going to ask you the same question 113 00:05:21,240 --> 00:05:22,640 Speaker 6: I asked Alan Ruskin, how many. How much do you 114 00:05:22,680 --> 00:05:25,080 Speaker 6: think that turbo charged the US economy. 115 00:05:26,360 --> 00:05:28,760 Speaker 5: I don't think it turbo charged US economy that much. 116 00:05:28,800 --> 00:05:31,479 Speaker 7: I mean, the easier financial conditions just haven't been in 117 00:05:31,520 --> 00:05:32,440 Speaker 7: place for that long. 118 00:05:32,440 --> 00:05:34,000 Speaker 5: It's really only been a couple of months. 119 00:05:34,279 --> 00:05:36,360 Speaker 7: But I do think the FED is a little frustrated 120 00:05:36,400 --> 00:05:38,679 Speaker 7: by the fact that the market always must be more 121 00:05:39,200 --> 00:05:42,120 Speaker 7: dubbish than the FED wants, because that makes the Fed's 122 00:05:42,160 --> 00:05:45,200 Speaker 7: job more or more difficult. Because as the market rallies, 123 00:05:45,240 --> 00:05:48,160 Speaker 7: that eases financial conditions, that adds impetus to the economy, 124 00:05:48,480 --> 00:05:50,760 Speaker 7: which means that then that there's more for the FED to. 125 00:05:50,720 --> 00:05:52,840 Speaker 5: Do rather than less. So I think they're a little 126 00:05:52,839 --> 00:05:53,560 Speaker 5: bit frustrated. 127 00:05:53,880 --> 00:05:56,440 Speaker 7: Powell was asked about this in his press last Breast conference, 128 00:05:56,440 --> 00:05:58,200 Speaker 7: and he basically said yes, at the end of the day, 129 00:05:58,200 --> 00:05:59,880 Speaker 7: though that you know, these things have to come to. 130 00:06:00,560 --> 00:06:03,320 Speaker 5: What the FED does ultimately determines where the FED markets 131 00:06:03,320 --> 00:06:05,160 Speaker 5: are going to end up. And so the FED does 132 00:06:05,240 --> 00:06:07,120 Speaker 5: hold the whipping and they'll get their way. 133 00:06:07,320 --> 00:06:08,760 Speaker 7: And I think the way they get their way is 134 00:06:08,760 --> 00:06:10,640 Speaker 7: they'll just be slower than what the market expects. 135 00:06:10,800 --> 00:06:14,120 Speaker 2: Bill Dudley, I've got to do an acclaimed surveillance audible, 136 00:06:14,400 --> 00:06:16,680 Speaker 2: and look at the celebration by you and the New 137 00:06:16,760 --> 00:06:21,679 Speaker 2: York Fed over doctor Masellam joining the Saint Louis FED. 138 00:06:21,839 --> 00:06:24,320 Speaker 1: Bullard was always with great respect. 139 00:06:23,960 --> 00:06:28,120 Speaker 2: To the gentleman from Indiana University, an outlier. His doc 140 00:06:28,240 --> 00:06:31,440 Speaker 2: plot was always unique. What kind of dot plot are 141 00:06:31,440 --> 00:06:35,560 Speaker 2: we going to generate with Alberto Mussolam taking over at 142 00:06:35,600 --> 00:06:37,119 Speaker 2: the venerable Saint Louis FED. 143 00:06:38,600 --> 00:06:40,680 Speaker 5: I don't have a really strong view that Alberto it's 144 00:06:40,680 --> 00:06:42,840 Speaker 5: going to, you know, be dubbish or hawkish. 145 00:06:42,880 --> 00:06:44,440 Speaker 7: I think he's going to take the information as he 146 00:06:44,520 --> 00:06:47,560 Speaker 7: sees it and respond accordingly. I think what he brings 147 00:06:47,600 --> 00:06:49,400 Speaker 7: to the Federal Reserve though, is the fact that he 148 00:06:49,800 --> 00:06:51,719 Speaker 7: not only is he a really good economist, but he 149 00:06:51,760 --> 00:06:55,599 Speaker 7: also understands markets really deeply. Uh So, that combination of 150 00:06:55,640 --> 00:06:58,880 Speaker 7: macroeconomic knowledge and also market experience. I think it's you know, 151 00:06:58,960 --> 00:07:02,159 Speaker 7: pretty rare in the Federal Reserve system. So he brings 152 00:07:02,400 --> 00:07:04,560 Speaker 7: really a good, great tool set to the FED. 153 00:07:05,720 --> 00:07:08,240 Speaker 2: I look Bill Dudley also, just within the crush of 154 00:07:08,240 --> 00:07:10,480 Speaker 2: the jobs report, we have to look at your really 155 00:07:10,520 --> 00:07:15,000 Speaker 2: spirited essay, not the fragility of our banking system, but 156 00:07:15,160 --> 00:07:19,640 Speaker 2: just the idea of where we're going in twenty twenty 157 00:07:19,640 --> 00:07:23,640 Speaker 2: four and shoring up the supervision of our banks. Are 158 00:07:23,640 --> 00:07:27,040 Speaker 2: you optimistic we could get that important job done. 159 00:07:28,160 --> 00:07:28,320 Speaker 5: Well. 160 00:07:28,320 --> 00:07:30,440 Speaker 7: I think that is pretty clear based on events that 161 00:07:30,480 --> 00:07:34,679 Speaker 7: happened last last March, that their supervision needs to do better. 162 00:07:34,920 --> 00:07:37,320 Speaker 7: They need to be more forceful in forcing banks to 163 00:07:37,400 --> 00:07:41,520 Speaker 7: remedy problems more quickly. But one way I think that 164 00:07:41,560 --> 00:07:43,400 Speaker 7: to do that, though, is to actually release some of 165 00:07:43,440 --> 00:07:45,200 Speaker 7: these supervisory findings. 166 00:07:44,760 --> 00:07:46,080 Speaker 5: That currently are secret. 167 00:07:46,800 --> 00:07:50,120 Speaker 7: If you knew that the supervirus advisory finers were going 168 00:07:50,160 --> 00:07:52,000 Speaker 7: to come out with a lag of say sponsors, so 169 00:07:52,480 --> 00:07:55,840 Speaker 7: that creates huge incentives on bank managements and banks boards 170 00:07:55,840 --> 00:07:58,520 Speaker 7: to get going to remedy the problems. Right now, a 171 00:07:58,560 --> 00:08:01,400 Speaker 7: lot of these problems are not known people in the marketplace, 172 00:08:02,080 --> 00:08:04,440 Speaker 7: and I think that makes it easier for the banks 173 00:08:04,440 --> 00:08:08,040 Speaker 7: to sort of delay and not proceed as quickly as 174 00:08:08,040 --> 00:08:10,120 Speaker 7: they need to do to remedy their problems. 175 00:08:10,240 --> 00:08:13,400 Speaker 3: Bill, fantastic column they came out from you earlier this week. 176 00:08:13,440 --> 00:08:13,960 Speaker 3: Appreciate it. 177 00:08:14,000 --> 00:08:14,160 Speaker 7: Bill. 178 00:08:14,200 --> 00:08:16,360 Speaker 3: I just wanted to squeeze one further question in if 179 00:08:16,400 --> 00:08:18,760 Speaker 3: I can, But we've been ahead of the curve big 180 00:08:18,800 --> 00:08:20,880 Speaker 3: time on how far this FED would have to go. 181 00:08:21,360 --> 00:08:22,840 Speaker 3: Do you think there is still a risk that they 182 00:08:22,880 --> 00:08:24,920 Speaker 3: have to move again, that another height could be in 183 00:08:24,920 --> 00:08:25,480 Speaker 3: our future. 184 00:08:27,280 --> 00:08:28,680 Speaker 5: I think it's pretty unlikely. 185 00:08:28,880 --> 00:08:31,720 Speaker 7: I think that the bard to raising rates again would be, 186 00:08:32,160 --> 00:08:34,520 Speaker 7: you know, they have to totally reevaluate. 187 00:08:33,880 --> 00:08:34,800 Speaker 5: Their whole framework. 188 00:08:35,080 --> 00:08:37,720 Speaker 7: I think more likely the story is that if things 189 00:08:37,720 --> 00:08:40,439 Speaker 7: turn out to be stronger, they'll just keep rates higher. 190 00:08:40,200 --> 00:08:42,520 Speaker 5: For longer before they actually start to reduce stream. So 191 00:08:42,559 --> 00:08:44,600 Speaker 5: I think the barer raising rates again is pretty high 192 00:08:44,600 --> 00:08:45,120 Speaker 5: at this point. 193 00:08:45,160 --> 00:08:47,600 Speaker 3: Bill Dudley, thank you, sir, appreciate it, and Happy New Year. 194 00:08:47,720 --> 00:08:50,200 Speaker 3: The brilliant built out Lee former New York Fed President 195 00:09:00,000 --> 00:09:03,360 Speaker 3: Annam Ruskin's world. The dollar is stronger, the euro is weaker. 196 00:09:03,360 --> 00:09:06,200 Speaker 3: We've broken one O nine. Want to wait ninety six? 197 00:09:06,240 --> 00:09:08,760 Speaker 3: Anam Ruskin at Deutsche Bank joined us. Now, Ana, good morning, 198 00:09:08,800 --> 00:09:11,200 Speaker 3: Happy New Year morning, let's get straight into it. What 199 00:09:11,240 --> 00:09:12,160 Speaker 3: do you think of that one? 200 00:09:12,760 --> 00:09:17,280 Speaker 8: Yeah, well, certainly good news as far as growth is concerned. 201 00:09:17,320 --> 00:09:19,920 Speaker 8: A little bit more worrying as far as the underlying 202 00:09:20,080 --> 00:09:24,680 Speaker 8: inflation picture, with wage inflation in particular. I think one 203 00:09:24,679 --> 00:09:27,800 Speaker 8: thing the market should take into consideration is that the 204 00:09:27,880 --> 00:09:33,040 Speaker 8: state of the economy in December was reflecting tightening financial 205 00:09:33,080 --> 00:09:37,480 Speaker 8: conditions from months earlier, probably more reflective of a bond 206 00:09:37,520 --> 00:09:41,400 Speaker 8: market at said tenure to five percent healed than a 207 00:09:41,440 --> 00:09:44,880 Speaker 8: four percent held. So there's a lot of stimulation that's 208 00:09:44,920 --> 00:09:47,480 Speaker 8: still going to come through that's going to be supportive 209 00:09:47,520 --> 00:09:51,079 Speaker 8: for the employment reports coming forward. In Q one and 210 00:09:51,160 --> 00:09:51,760 Speaker 8: Q two. 211 00:09:51,960 --> 00:09:56,480 Speaker 2: We're misguessing GDP third quarter was a shock five maybe 212 00:09:56,480 --> 00:09:59,760 Speaker 2: now revised under four point x percent. We're hearing that 213 00:09:59,800 --> 00:10:04,040 Speaker 2: for quarter maybe the same, We're diminished, but still the same. 214 00:10:04,800 --> 00:10:07,360 Speaker 2: Are we just miss guessing the strength of the American 215 00:10:07,400 --> 00:10:10,920 Speaker 2: economy office jobs report? Is it just simply better than 216 00:10:10,960 --> 00:10:11,839 Speaker 2: we expect? 217 00:10:12,480 --> 00:10:15,360 Speaker 8: I think it's been simply better than we've expected for 218 00:10:15,440 --> 00:10:17,120 Speaker 8: more than a year. I mean, you just look at 219 00:10:17,160 --> 00:10:21,240 Speaker 8: the employment report misses. There are very very few downside 220 00:10:21,280 --> 00:10:24,840 Speaker 8: misses in terms of the forecasting. So there's a pattern 221 00:10:24,920 --> 00:10:29,240 Speaker 8: here of underestimating the strength of the US economy. I 222 00:10:29,240 --> 00:10:32,920 Speaker 8: don't think that this is that different. Really, the now 223 00:10:33,040 --> 00:10:35,959 Speaker 8: cast Q four GDP numbers are close to two and 224 00:10:36,000 --> 00:10:39,000 Speaker 8: a half percent. Certainly, when we're looking at the data, 225 00:10:39,080 --> 00:10:43,000 Speaker 8: we're anticipating that if there's going to be genuine weakness, 226 00:10:43,080 --> 00:10:45,720 Speaker 8: it's got to start showing up in the first half 227 00:10:45,840 --> 00:10:49,720 Speaker 8: of this year, and that's the highest probability in terms 228 00:10:49,720 --> 00:10:50,560 Speaker 8: of negative growth. 229 00:10:50,640 --> 00:10:53,440 Speaker 2: Are we misjudging two week a dollar that seems to 230 00:10:53,440 --> 00:10:55,400 Speaker 2: be the zeitgeist. Now, I know you're pushing. 231 00:10:55,120 --> 00:10:58,600 Speaker 8: Against that, but yeah, yeah, no, I think that's certainly 232 00:10:58,640 --> 00:11:00,560 Speaker 8: true in terms of the short term. Think what we're 233 00:11:00,600 --> 00:11:04,120 Speaker 8: seeing for twenty twenty four so far is this pushback 234 00:11:04,200 --> 00:11:07,840 Speaker 8: in terms of rate cuts for the first half of 235 00:11:07,880 --> 00:11:10,400 Speaker 8: these year, second half of the year as well, and 236 00:11:10,600 --> 00:11:13,320 Speaker 8: the dollar is just a reflection of that, and we're 237 00:11:13,320 --> 00:11:14,720 Speaker 8: seeing some pretty big moves. 238 00:11:14,760 --> 00:11:14,960 Speaker 2: Now. 239 00:11:15,080 --> 00:11:19,120 Speaker 8: I think the biggest question mark is really over dollar yen. 240 00:11:19,240 --> 00:11:21,880 Speaker 8: A lot of people have anticipated in that this is 241 00:11:21,920 --> 00:11:25,160 Speaker 8: the year of the yen. I don't think going to 242 00:11:25,160 --> 00:11:26,560 Speaker 8: be the year of the yen, at least in the 243 00:11:26,559 --> 00:11:27,640 Speaker 8: first half of the year. 244 00:11:27,760 --> 00:11:29,840 Speaker 6: Well, we can talk more about beg of Japan policy 245 00:11:29,880 --> 00:11:34,280 Speaker 6: another time. I am curious though, with respect to rate cuts, 246 00:11:34,640 --> 00:11:36,680 Speaker 6: you were forecasting quite a few in the back half 247 00:11:36,679 --> 00:11:39,520 Speaker 6: of the year, not necessarily starting in March. If this 248 00:11:39,559 --> 00:11:41,360 Speaker 6: continues you said, we have to see weakness in the 249 00:11:41,360 --> 00:11:43,679 Speaker 6: first half of the year, when do you revise your 250 00:11:43,720 --> 00:11:46,240 Speaker 6: call and maybe don't call for as many rate cuts 251 00:11:46,400 --> 00:11:48,880 Speaker 6: and actually get incredibly bullish on the dollar versus the 252 00:11:48,880 --> 00:11:50,760 Speaker 6: euro and a whole host of other currencies. 253 00:11:50,920 --> 00:11:54,840 Speaker 8: Yeah, so, I mean there'd be something that in my colleagues, 254 00:11:55,240 --> 00:12:00,480 Speaker 8: Matt Lazette in particular, would revise in terms of any 255 00:12:00,520 --> 00:12:05,680 Speaker 8: sort of reconsideration. I think if you had the first 256 00:12:05,800 --> 00:12:10,640 Speaker 8: quarter generally put up some solid numbers, these kinds of numbers, 257 00:12:10,880 --> 00:12:13,240 Speaker 8: you'd really have to question whether the economy is slowing 258 00:12:13,280 --> 00:12:17,560 Speaker 8: down materially at all. And I think the Fed's bias 259 00:12:17,640 --> 00:12:20,160 Speaker 8: has still been in the very short term. They could 260 00:12:20,160 --> 00:12:23,600 Speaker 8: store high grates that could still come back on the table. 261 00:12:23,679 --> 00:12:26,840 Speaker 8: I think, you know, that's leaping ahead a long way, 262 00:12:26,920 --> 00:12:32,480 Speaker 8: but certainly taking back rate cuts is a relatively easy core. 263 00:12:32,720 --> 00:12:34,880 Speaker 8: As for what John said in terms of March, I 264 00:12:34,920 --> 00:12:38,439 Speaker 8: think looks you know, that two thirds probability of a 265 00:12:38,520 --> 00:12:42,920 Speaker 8: rate cut that we had effectively before this data looks exaggerated. 266 00:12:42,960 --> 00:12:44,920 Speaker 3: To see you mentioned some of the big moves were saying, 267 00:12:45,040 --> 00:12:47,679 Speaker 3: I just wonder whether we're learning more about market positioning 268 00:12:47,720 --> 00:12:49,920 Speaker 3: than we are the US economy. Which one is it. 269 00:12:51,040 --> 00:12:54,560 Speaker 8: I think a lot of what we saw in November 270 00:12:54,600 --> 00:12:57,720 Speaker 8: and December looked like a real squeeze of positioning in 271 00:12:57,800 --> 00:13:01,559 Speaker 8: an exaggerated move in relatively thin mind. People obviously wanted 272 00:13:01,559 --> 00:13:05,120 Speaker 8: to judge and jump on a what is seen as 273 00:13:05,120 --> 00:13:08,679 Speaker 8: a sea change, you know, move from rates no longer 274 00:13:08,720 --> 00:13:12,200 Speaker 8: going up, and I think that made sense. But then 275 00:13:12,280 --> 00:13:15,160 Speaker 8: the market just got ahead of itself and now we're 276 00:13:15,240 --> 00:13:15,760 Speaker 8: in retreat. 277 00:13:15,920 --> 00:13:17,640 Speaker 3: It can I ask you, and particularly off the back 278 00:13:17,679 --> 00:13:19,400 Speaker 3: of data like this, I think it's worth asking. I 279 00:13:19,400 --> 00:13:22,160 Speaker 3: have no idea where we're going, get absolutely no idea, 280 00:13:22,240 --> 00:13:24,840 Speaker 3: But I think the overwhelming consensus is not just cuts. 281 00:13:25,200 --> 00:13:27,439 Speaker 3: Even the people who don't think you get cuts anytime soon, 282 00:13:27,480 --> 00:13:30,280 Speaker 3: they think this FED is absolutely done. Is there a 283 00:13:30,360 --> 00:13:32,640 Speaker 3: chance they need to hike interest rates again? Based on 284 00:13:32,679 --> 00:13:33,480 Speaker 3: information like this? 285 00:13:35,000 --> 00:13:38,600 Speaker 8: I would say that if you were flatlining consistently and 286 00:13:38,640 --> 00:13:42,960 Speaker 8: you still had wage inflation running at these kinds of levels, 287 00:13:43,400 --> 00:13:46,560 Speaker 8: then the FED would have to think in terms of 288 00:13:46,600 --> 00:13:48,800 Speaker 8: whether they could get inflation all the way down to 289 00:13:48,880 --> 00:13:51,800 Speaker 8: two percent in a reasonable timeframe. But I think we're 290 00:13:51,880 --> 00:13:54,439 Speaker 8: quite a long way away from that sort of reconsideration 291 00:13:54,480 --> 00:13:57,640 Speaker 8: of rate hikes. But it's not totally without you know, 292 00:13:57,679 --> 00:13:59,120 Speaker 8: out of the realms of possibility. 293 00:13:59,200 --> 00:14:01,120 Speaker 6: Well, what John said that I want to pick up 294 00:14:01,120 --> 00:14:03,079 Speaker 6: on this idea that are we learning more about market 295 00:14:03,080 --> 00:14:06,040 Speaker 6: positioning than the economy, especially at a time where every 296 00:14:06,160 --> 00:14:10,320 Speaker 6: month the previous month's data gets revised so significantly, and 297 00:14:10,360 --> 00:14:14,000 Speaker 6: you have seen that sort of gap increase over time. 298 00:14:14,480 --> 00:14:17,559 Speaker 6: Does that make you less confident in these numbers? Do 299 00:14:17,559 --> 00:14:19,320 Speaker 6: you sort of not look at these numbers as much 300 00:14:19,360 --> 00:14:21,360 Speaker 6: as you do the three month rolling average that looks 301 00:14:21,400 --> 00:14:23,560 Speaker 6: perhaps less rosy than this one. 302 00:14:24,040 --> 00:14:25,880 Speaker 8: Yeah, I think you've got to take a very holistic 303 00:14:25,960 --> 00:14:28,840 Speaker 8: view of all the data as such. So it's not 304 00:14:28,840 --> 00:14:31,560 Speaker 8: obviously not just the employment reporter that I would still 305 00:14:31,600 --> 00:14:35,280 Speaker 8: say it's the number one release. Absolutely, look at the 306 00:14:35,400 --> 00:14:38,480 Speaker 8: two month, three month, four month moving averages, Look at 307 00:14:38,520 --> 00:14:41,440 Speaker 8: things like the diffusion index, which has shown that the 308 00:14:41,520 --> 00:14:45,480 Speaker 8: breadth of employment growth is narrowed over time. I would 309 00:14:45,560 --> 00:14:50,280 Speaker 8: still say the labor market is slowing. That all the 310 00:14:50,600 --> 00:14:53,400 Speaker 8: underlying dynamics that we've seen in things like the quick 311 00:14:53,480 --> 00:14:56,880 Speaker 8: rate for example, the opening's data to some degree as well, 312 00:14:57,320 --> 00:15:03,359 Speaker 8: does suggest that the breadth of employment is weakening. 313 00:15:03,800 --> 00:15:05,920 Speaker 6: Just real quick here. Do you think that the accommodation 314 00:15:06,040 --> 00:15:09,000 Speaker 6: that we saw in the market that actually effectively gave 315 00:15:09,240 --> 00:15:11,360 Speaker 6: a rate cut to the market over the past couple 316 00:15:11,360 --> 00:15:13,720 Speaker 6: of months, Do you think that that turbo charged the economy. 317 00:15:13,760 --> 00:15:15,240 Speaker 6: On the margins, I think. 318 00:15:15,040 --> 00:15:17,560 Speaker 8: It's gained to turbo charge the economy, and I would 319 00:15:17,560 --> 00:15:19,800 Speaker 8: say it's much more than one rate cut. You know, 320 00:15:19,840 --> 00:15:22,920 Speaker 8: if you have one hundred basis point reduction in the 321 00:15:23,000 --> 00:15:25,280 Speaker 8: ten uere heel, that's going to equate to one hundred 322 00:15:25,280 --> 00:15:28,160 Speaker 8: and fifty basis points at the outside two hundred basis 323 00:15:28,200 --> 00:15:31,560 Speaker 8: points of Fed funds rate cuts. So there's a lot 324 00:15:31,560 --> 00:15:34,680 Speaker 8: of potential stimulus that's going to kick in and obviously 325 00:15:34,720 --> 00:15:37,600 Speaker 8: spilt over to other financial conditions as well. So the 326 00:15:37,600 --> 00:15:40,760 Speaker 8: equity market is going to keep that wealth effect on 327 00:15:40,800 --> 00:15:44,000 Speaker 8: the consumer side buzzing as well. So there's a lot 328 00:15:44,040 --> 00:15:44,800 Speaker 8: of stimulus there. 329 00:15:44,880 --> 00:15:47,080 Speaker 3: What a start to twenty twenty four. And thank you, thanks, 330 00:15:47,080 --> 00:15:53,520 Speaker 3: pretty good to see you. Anam Roskin of Deutsche Bank. 331 00:15:53,520 --> 00:15:56,840 Speaker 2: Tifferiting wild In to give common sense to a job 332 00:15:56,920 --> 00:15:59,040 Speaker 2: report today. This was green on the screen right now, 333 00:15:59,200 --> 00:16:03,000 Speaker 2: markets of reverse nicely to a more constructed tone off 334 00:16:03,040 --> 00:16:05,600 Speaker 2: of five days of challenges here, three days whatever it 335 00:16:05,640 --> 00:16:11,440 Speaker 2: is of twenty twenty four. Tiffany Allen Ruskin was on 336 00:16:11,520 --> 00:16:14,720 Speaker 2: from Deutsche Bank and he said, you know what, job 337 00:16:14,840 --> 00:16:19,000 Speaker 2: formation is a good thing. Why are we upset if 338 00:16:19,040 --> 00:16:23,280 Speaker 2: we're creating two hundred x x thousand jobs, it just 339 00:16:23,760 --> 00:16:24,840 Speaker 2: doesn't make sense to me. 340 00:16:26,600 --> 00:16:28,680 Speaker 9: No, I agree with you, and thanks for having me on. 341 00:16:28,720 --> 00:16:31,760 Speaker 9: I mean, today's report was a pretty solid report, you know, 342 00:16:31,800 --> 00:16:34,920 Speaker 9: two hundred and sixteen thousand perils per month, and I 343 00:16:34,920 --> 00:16:36,800 Speaker 9: think we're kind of close to that in terms of 344 00:16:36,800 --> 00:16:38,720 Speaker 9: the average for this year. I mean, that's that's a 345 00:16:38,840 --> 00:16:42,280 Speaker 9: very good outcome for the US economy, you know. I 346 00:16:42,600 --> 00:16:44,920 Speaker 9: think what is a little bit more concerning for the 347 00:16:44,960 --> 00:16:47,040 Speaker 9: FED and for monetary policy, though, is that if you 348 00:16:47,080 --> 00:16:51,000 Speaker 9: look at average hourly earnings or wage inflation, you know, 349 00:16:51,040 --> 00:16:54,480 Speaker 9: that does appear, you know, at higher levels, higher than 350 00:16:55,120 --> 00:16:57,720 Speaker 9: levels that would be consistent with their two percent inflation target. 351 00:16:57,720 --> 00:16:59,280 Speaker 9: It doesn't really appear to be moderating. 352 00:16:59,400 --> 00:17:02,720 Speaker 2: So I've been pauling your travels. I mean, the bottom 353 00:17:02,760 --> 00:17:05,240 Speaker 2: line is we're seeing a buoyant America. 354 00:17:05,320 --> 00:17:05,719 Speaker 1: I get it. 355 00:17:05,880 --> 00:17:08,640 Speaker 2: Bankruptcies are terrible, and there's a lot of worry out 356 00:17:08,640 --> 00:17:11,000 Speaker 2: there and restriction and the real rate in that. 357 00:17:11,600 --> 00:17:15,560 Speaker 1: But the answer is it's pretty good GDP. It's pretty full. 358 00:17:15,600 --> 00:17:16,199 Speaker 1: This report. 359 00:17:16,240 --> 00:17:18,719 Speaker 10: It seems like pretty good GDP. I mean, it's so, 360 00:17:19,160 --> 00:17:21,840 Speaker 10: I guess, Tiffany, the issue is when you look out 361 00:17:21,880 --> 00:17:24,480 Speaker 10: at twenty twenty four, how do you think this economy 362 00:17:24,520 --> 00:17:25,360 Speaker 10: is going to unfold? 363 00:17:25,400 --> 00:17:25,600 Speaker 2: Here? 364 00:17:25,640 --> 00:17:28,480 Speaker 10: I mean, I think the consensus building in that, you know, 365 00:17:28,520 --> 00:17:31,240 Speaker 10: the last ten weeks of last year was what soft 366 00:17:31,320 --> 00:17:33,000 Speaker 10: landing looks like? The smart bet here? 367 00:17:33,280 --> 00:17:34,320 Speaker 1: Does that ring true to you? 368 00:17:35,680 --> 00:17:38,280 Speaker 9: Yeah, I mean, I definitely think the odds of a 369 00:17:38,320 --> 00:17:41,520 Speaker 9: soft landing have increased more recently, you know, just because 370 00:17:41,560 --> 00:17:44,840 Speaker 9: you've seen the subtle reserve that is, I guess now 371 00:17:44,880 --> 00:17:49,120 Speaker 9: more clearly communicating you know that that cuts could come 372 00:17:49,640 --> 00:17:52,880 Speaker 9: because inflation has moderated so much, you know, and one 373 00:17:52,920 --> 00:17:54,679 Speaker 9: of the I think the main reasons why the markets 374 00:17:54,680 --> 00:17:57,040 Speaker 9: were so you know, we're more worried about a hard 375 00:17:57,119 --> 00:17:59,760 Speaker 9: landing risk was because you had a central bank that 376 00:17:59,800 --> 00:18:03,000 Speaker 9: was very focused on inflation, you know, and there was 377 00:18:03,040 --> 00:18:07,120 Speaker 9: potentially maybe willing to, you know, to sacrifice the economy 378 00:18:07,160 --> 00:18:09,199 Speaker 9: in order to get inflation down. So now that that 379 00:18:09,280 --> 00:18:11,560 Speaker 9: rhetoric has changed, I definitely think the soft landing odds 380 00:18:11,560 --> 00:18:13,680 Speaker 9: have gone up, you know. But nevertheless, we're not out 381 00:18:13,680 --> 00:18:16,280 Speaker 9: of the woods yet. You know, the Fed still has 382 00:18:16,320 --> 00:18:18,520 Speaker 9: to balance the fact that the economy is strong. You 383 00:18:18,560 --> 00:18:21,520 Speaker 9: could get inflation that reaccelerates you know, obviously again some 384 00:18:21,560 --> 00:18:24,919 Speaker 9: of the downside risks that monetary policy lags, you know, 385 00:18:25,000 --> 00:18:27,960 Speaker 9: start to kick in more meaningfully next year. 386 00:18:28,840 --> 00:18:31,919 Speaker 10: I mean, it feels like for a lot of folks 387 00:18:32,119 --> 00:18:34,679 Speaker 10: the inflation rate is coming down, but the reality is, 388 00:18:34,680 --> 00:18:37,200 Speaker 10: for I guess, if we talked to the folks out there, 389 00:18:37,480 --> 00:18:39,560 Speaker 10: I'm paying a lot more for a lot of things 390 00:18:39,600 --> 00:18:41,879 Speaker 10: than I did two or three years ago, and that 391 00:18:42,040 --> 00:18:45,080 Speaker 10: still hurts. But I mean, I guess the issue is 392 00:18:45,160 --> 00:18:47,400 Speaker 10: the inflation rate is in fact coming down, so that's 393 00:18:47,480 --> 00:18:49,680 Speaker 10: all the FED can really work towards. 394 00:18:49,720 --> 00:18:53,200 Speaker 9: I guess, yeah, And I mean I think I think 395 00:18:53,200 --> 00:18:54,920 Speaker 9: that's the issue. You know, that's kind of the issue 396 00:18:54,960 --> 00:18:58,439 Speaker 9: with why wage inflation is still so appears to be 397 00:18:58,480 --> 00:19:02,280 Speaker 9: so sticky here, although price inflation is coming down, and 398 00:19:02,320 --> 00:19:05,800 Speaker 9: the reason is because you know, wages haven't fully caught 399 00:19:05,880 --> 00:19:08,560 Speaker 9: up the wage level, you know, with the price level 400 00:19:08,560 --> 00:19:10,840 Speaker 9: adjustment that we've see. So although prices are high, you know, 401 00:19:10,880 --> 00:19:13,679 Speaker 9: inflation is coming down, but prices are still higher than 402 00:19:13,720 --> 00:19:15,200 Speaker 9: the one where they were a couple of years ago. 403 00:19:15,320 --> 00:19:17,640 Speaker 9: You know, in wages, the wage level adjustment that we've 404 00:19:17,640 --> 00:19:19,679 Speaker 9: seen hasn't really caught up with that, you know, So 405 00:19:20,000 --> 00:19:21,840 Speaker 9: you know, Our view has been that wage inflation is 406 00:19:21,880 --> 00:19:23,960 Speaker 9: probably going to continue to be sticky because people can 407 00:19:24,080 --> 00:19:25,480 Speaker 9: catch up, labor markets are tight. 408 00:19:26,000 --> 00:19:27,280 Speaker 1: Is the fed restrictive? 409 00:19:27,320 --> 00:19:27,480 Speaker 11: Now? 410 00:19:27,520 --> 00:19:29,320 Speaker 2: I have had a number of indews matsu Cline with 411 00:19:29,359 --> 00:19:34,320 Speaker 2: a real sharp tweet out really wonderful economists, matsu Cline saying, look, 412 00:19:34,359 --> 00:19:36,520 Speaker 2: at the end of the day, we're restrictive now off 413 00:19:36,520 --> 00:19:38,520 Speaker 2: the two year real rate, are we? 414 00:19:40,280 --> 00:19:40,479 Speaker 8: You know? 415 00:19:40,560 --> 00:19:43,040 Speaker 9: So I think it's obviously this is something that the 416 00:19:43,040 --> 00:19:46,080 Speaker 9: federerserve has to probe for. It gets to this idea 417 00:19:46,160 --> 00:19:48,680 Speaker 9: of there being some neutral rate in the economy, a 418 00:19:48,760 --> 00:19:50,720 Speaker 9: level of interest rates that the economy can kind of 419 00:19:50,720 --> 00:19:53,840 Speaker 9: handle and is neither accelerating or decelerating, and where that is, 420 00:19:53,880 --> 00:19:55,280 Speaker 9: and obviously that's very uncertain. 421 00:19:55,359 --> 00:19:55,520 Speaker 4: You know. 422 00:19:55,560 --> 00:19:59,199 Speaker 9: We think the economy is or the monetary policy is restrictive. 423 00:20:00,160 --> 00:20:02,359 Speaker 9: And one of the reasons why you haven't seen that 424 00:20:02,520 --> 00:20:05,399 Speaker 9: so clearly is just because of the amazing amount of 425 00:20:05,480 --> 00:20:09,560 Speaker 9: fiscal policy stimulus that we got after the pandemic, and 426 00:20:09,600 --> 00:20:12,359 Speaker 9: you had that fiscal policy that was still sloshing around 427 00:20:12,359 --> 00:20:15,360 Speaker 9: in the economy. You know, consumers still have elevated savings, 428 00:20:15,600 --> 00:20:18,360 Speaker 9: you know, but eventually all of that will normalize, and 429 00:20:18,440 --> 00:20:20,919 Speaker 9: once it does, once people spin down that savings, what 430 00:20:20,920 --> 00:20:23,240 Speaker 9: you're going to be left with is tight monetary policy, 431 00:20:23,359 --> 00:20:25,440 Speaker 9: you know, and we think that that becomes more obvious 432 00:20:25,480 --> 00:20:27,800 Speaker 9: in twenty twenty four in terms of the growth drags, 433 00:20:28,400 --> 00:20:30,800 Speaker 9: you know, assuming you know, the Futteral Reserve doesn't aggressively 434 00:20:30,800 --> 00:20:33,920 Speaker 9: cut rates, which which we don't think that they necessarily will. 435 00:20:34,080 --> 00:20:37,480 Speaker 1: What's the number one question the bond managers of Pimpco. 436 00:20:37,280 --> 00:20:41,760 Speaker 9: Ask you, Well, you know, I mean, I think understanding 437 00:20:41,920 --> 00:20:45,760 Speaker 9: how fast essentral banks have cut rates historically, even in 438 00:20:45,840 --> 00:20:49,160 Speaker 9: non recessionary cutting cycles, you know, has been an important 439 00:20:49,480 --> 00:20:52,280 Speaker 9: you know, sort of historical benchmark to think about market pricing. 440 00:20:52,480 --> 00:20:55,000 Speaker 9: And when we do that analysis, we look across fourteen 441 00:20:55,040 --> 00:20:58,400 Speaker 9: developed markets. You know, it's about two hundred basis points 442 00:20:58,760 --> 00:21:01,919 Speaker 9: on average in the first year after cuts that central 443 00:21:01,960 --> 00:21:04,160 Speaker 9: banks tend to cut. Now that's a pretty fast pace. 444 00:21:04,280 --> 00:21:07,280 Speaker 9: That's twice that that's baked into the Federal Reserve forecat. 445 00:21:07,640 --> 00:21:10,480 Speaker 9: But nevertheless, the markets are kind of there, you know, 446 00:21:10,520 --> 00:21:12,840 Speaker 9: the front end is actually getting kind of close to that, 447 00:21:12,880 --> 00:21:14,960 Speaker 9: you know, so when we look at you know, value, 448 00:21:15,359 --> 00:21:16,680 Speaker 9: at least in the front end of the you know, 449 00:21:16,760 --> 00:21:19,560 Speaker 9: the bond market, the short short interest rates. You know, 450 00:21:19,560 --> 00:21:21,960 Speaker 9: we don't see as much value there now, you know, 451 00:21:21,960 --> 00:21:24,000 Speaker 9: just because the market's already pricing in a pretty decent 452 00:21:24,040 --> 00:21:26,719 Speaker 9: cutting cycle. That would be more consistent with what we've 453 00:21:26,760 --> 00:21:27,480 Speaker 9: seen in the past. 454 00:21:28,560 --> 00:21:32,080 Speaker 10: So, Tiffany, I'm looking at the w I RP function, 455 00:21:32,240 --> 00:21:35,280 Speaker 10: the interest rate forecast function on the Bloomberg terminal BLOY, 456 00:21:35,359 --> 00:21:37,560 Speaker 10: the bond market, the Fed's fund the FED funds market 457 00:21:38,080 --> 00:21:40,480 Speaker 10: really aggressive talking about it. I don't know, five maybe 458 00:21:40,560 --> 00:21:44,040 Speaker 10: six rate cuts this year? Is that even? Is that 459 00:21:44,119 --> 00:21:45,520 Speaker 10: something that Fed has ever done before? 460 00:21:46,840 --> 00:21:50,000 Speaker 9: Yeah, I mean so so certainly in there. You know, 461 00:21:50,200 --> 00:21:54,800 Speaker 9: usually central banks they usually cut when they are pretty 462 00:21:54,840 --> 00:21:57,719 Speaker 9: certain that we're in recession. In other words, usually they 463 00:21:57,720 --> 00:22:00,640 Speaker 9: don't have the foresight monetary policy work through lags, right, 464 00:22:00,800 --> 00:22:02,840 Speaker 9: They usually don't have the foresight to see the weakness 465 00:22:02,840 --> 00:22:04,920 Speaker 9: ahead of time, So they're usually late in cutting, and 466 00:22:04,960 --> 00:22:08,159 Speaker 9: they're cutting when they're pretty sure that we're in recession. Nevertheless, 467 00:22:08,160 --> 00:22:11,040 Speaker 9: there's a handful of cycles historically where they've cut and 468 00:22:11,080 --> 00:22:13,080 Speaker 9: we haven't had a recession, you know, And I think 469 00:22:13,119 --> 00:22:16,440 Speaker 9: if you if you think recession risks have receded more recently, 470 00:22:16,680 --> 00:22:18,240 Speaker 9: you know, I think those are the cutting cycles that 471 00:22:18,280 --> 00:22:20,639 Speaker 9: are more interesting here. And even in those cycles, the 472 00:22:20,680 --> 00:22:23,840 Speaker 9: Central Bank has cut about two hundred basis points in 473 00:22:23,880 --> 00:22:25,880 Speaker 9: the first year that they started cutting. But again that's 474 00:22:25,960 --> 00:22:28,439 Speaker 9: kind of close. We're kind of there in terms of 475 00:22:28,480 --> 00:22:33,320 Speaker 9: market pricing. So I think you really need data to 476 00:22:33,680 --> 00:22:37,119 Speaker 9: suggest that recession risks are higher at this point, you know, 477 00:22:37,160 --> 00:22:39,119 Speaker 9: to get the markets to price in more, you know, 478 00:22:39,119 --> 00:22:42,400 Speaker 9: and I think the risks to inflation accelerating are there 479 00:22:42,400 --> 00:22:46,280 Speaker 9: as well. So you know, in terms of the front 480 00:22:46,359 --> 00:22:48,320 Speaker 9: end pricing, you know, it seems pretty fair to us. 481 00:22:48,400 --> 00:22:50,760 Speaker 1: So you do it. Giving me a Newport Beach GDP. 482 00:22:50,920 --> 00:22:54,800 Speaker 2: Now statistic like Atlanta that we've got solid two percent 483 00:22:54,880 --> 00:22:57,320 Speaker 2: economic growth and we're distant from a recession. 484 00:22:59,240 --> 00:23:02,320 Speaker 9: I mean, the labor market data today, you know, the 485 00:23:02,400 --> 00:23:05,760 Speaker 9: data that we've seen, the kind of current activity indicators 486 00:23:05,760 --> 00:23:07,679 Speaker 9: that we look at would suggest we're still kind of 487 00:23:07,680 --> 00:23:10,240 Speaker 9: at two percent. So we're really not seeing the real 488 00:23:10,840 --> 00:23:14,760 Speaker 9: you know, real activity. We're not seeing it decelerate like 489 00:23:14,800 --> 00:23:16,919 Speaker 9: many people thought it would into the year end. 490 00:23:17,080 --> 00:23:19,880 Speaker 2: Tiffany, Thank you so much, Tiffany. Well to the pymicle there. 491 00:23:31,040 --> 00:23:34,480 Speaker 2: Ellen Walld is definitive with her one volume on Saudi 492 00:23:34,720 --> 00:23:37,520 Speaker 2: and on Saudi Arabia and the Soud family. 493 00:23:37,600 --> 00:23:39,080 Speaker 1: We're thrilled that she could join us. 494 00:23:39,760 --> 00:23:42,879 Speaker 2: Right now, Senior fellow at the Atlantic Council, Ellen, just 495 00:23:42,920 --> 00:23:44,880 Speaker 2: let me begin with a blunt instrument. 496 00:23:45,000 --> 00:23:47,440 Speaker 1: Why hasn't the price of oil really moved? 497 00:23:48,520 --> 00:23:48,680 Speaker 2: Well? 498 00:23:48,680 --> 00:23:50,560 Speaker 11: That that is a very good question, and I think 499 00:23:50,600 --> 00:23:55,200 Speaker 11: that the answer is mostly US production is very very high, 500 00:23:55,400 --> 00:23:58,720 Speaker 11: has been very very high, and we're not seeing any 501 00:23:58,840 --> 00:24:03,919 Speaker 11: kind of significant disruption in terms of supply getting to 502 00:24:03,920 --> 00:24:08,040 Speaker 11: where it has to go because the the oil can 503 00:24:08,080 --> 00:24:11,720 Speaker 11: be transported on these very large crude carriers which actually 504 00:24:11,760 --> 00:24:14,560 Speaker 11: can't even go through the Suez Canal. So I think 505 00:24:14,600 --> 00:24:18,879 Speaker 11: we're we've definitely got disruption or potential disruption to the 506 00:24:18,920 --> 00:24:22,359 Speaker 11: oil trade, but it's it's not as bad, I think 507 00:24:22,480 --> 00:24:26,679 Speaker 11: as people might have hoped. However, I do think that 508 00:24:26,760 --> 00:24:32,000 Speaker 11: the potential for risk to oil supplies is growing basically 509 00:24:32,080 --> 00:24:33,159 Speaker 11: every day. 510 00:24:33,200 --> 00:24:35,679 Speaker 2: If we can shut down the Red Sea, let's go, 511 00:24:35,800 --> 00:24:38,320 Speaker 2: I believe it's east. Can we shut down the Arabian 512 00:24:38,400 --> 00:24:39,200 Speaker 2: or Persian Gulf. 513 00:24:40,440 --> 00:24:42,920 Speaker 11: I'm not sure that that would be quite as easy, 514 00:24:43,000 --> 00:24:47,040 Speaker 11: but we can definitely threaten threaten the safety of shipping 515 00:24:47,119 --> 00:24:50,040 Speaker 11: in that area. And so I do think that this 516 00:24:50,200 --> 00:24:55,360 Speaker 11: is almost a case study or a very important inflection 517 00:24:55,520 --> 00:24:59,639 Speaker 11: point to see what is the international community which depends 518 00:24:59,800 --> 00:25:02,960 Speaker 11: on on safety in the waters. I mean, we're talking 519 00:25:03,000 --> 00:25:07,240 Speaker 11: about global international shipping. We're not just talking about what 520 00:25:07,359 --> 00:25:10,399 Speaker 11: goes through the Red Sea, what goes through the US Canal. 521 00:25:10,480 --> 00:25:13,680 Speaker 11: But these actions that the Huthis are taking are having 522 00:25:13,720 --> 00:25:16,760 Speaker 11: reverberations all around international shipping. 523 00:25:16,760 --> 00:25:17,800 Speaker 5: I mean, rates are up. 524 00:25:17,720 --> 00:25:22,640 Speaker 11: Eighty eight percent pre pandemic simply because of what we're 525 00:25:22,680 --> 00:25:25,879 Speaker 11: seeing in the Red Sea. So this isn't just a 526 00:25:25,920 --> 00:25:30,639 Speaker 11: local or isolated issue. This is having large scale reverberations. 527 00:25:30,760 --> 00:25:33,040 Speaker 6: I saw your comments on this, Ellen earlier this morning 528 00:25:33,080 --> 00:25:35,000 Speaker 6: on Twitter or x however you want to call it, 529 00:25:35,080 --> 00:25:36,960 Speaker 6: or basically you're saying freedom of the seas is a 530 00:25:36,960 --> 00:25:39,679 Speaker 6: global issue and that the who the these actions are 531 00:25:39,760 --> 00:25:43,639 Speaker 6: going to have pretty broad based ramifications. Given that, Ellen, 532 00:25:43,840 --> 00:25:47,199 Speaker 6: why aren't we seeing Saudi Arabia cutter get on board 533 00:25:47,320 --> 00:25:50,600 Speaker 6: with the United States to try to prevent these Houthia attacks. 534 00:25:51,880 --> 00:25:55,160 Speaker 11: The short answer is it's complicated, and the relationship between 535 00:25:55,240 --> 00:25:57,680 Speaker 11: Saudi Arabia and Huthis and the UAE and who these 536 00:25:57,840 --> 00:26:01,640 Speaker 11: is very complicated and is much deeper, and I think 537 00:26:01,640 --> 00:26:04,479 Speaker 11: we haven't heard a lot about it unless you're really 538 00:26:04,920 --> 00:26:07,520 Speaker 11: zooming in on the Middle East. I mean, the conflict 539 00:26:07,520 --> 00:26:10,080 Speaker 11: between Saudi Arabia and Yuei and the Houthis has been 540 00:26:10,119 --> 00:26:11,959 Speaker 11: going on for a very long time. I mean there 541 00:26:11,960 --> 00:26:15,800 Speaker 11: were troops involved. Yue and Saudi were sending troops into 542 00:26:15,920 --> 00:26:18,440 Speaker 11: Yemen for quite some time. There were missiles that the 543 00:26:18,480 --> 00:26:22,960 Speaker 11: Houthis were shooting at Riod and that we're finding locations there. 544 00:26:22,960 --> 00:26:27,560 Speaker 11: We had RIOD using some of the missile systems from 545 00:26:27,560 --> 00:26:31,680 Speaker 11: the US to counteract these missiles, and then eventually they 546 00:26:31,760 --> 00:26:33,600 Speaker 11: kind of reached a I don't know if you call 547 00:26:33,640 --> 00:26:36,480 Speaker 11: it maybe a daytont where everything kind of cooled down, 548 00:26:36,640 --> 00:26:39,320 Speaker 11: and I think that the Saudis and the Amoradis are 549 00:26:39,400 --> 00:26:42,920 Speaker 11: really loath to re engage in that conflict. Now, if 550 00:26:42,920 --> 00:26:46,239 Speaker 11: the Houthis do threaten any kind of Saudi shipping or 551 00:26:46,320 --> 00:26:49,399 Speaker 11: Amoradi shipping in the area, then I think the pressure 552 00:26:49,480 --> 00:26:52,000 Speaker 11: would be on them to get involved. And Saudi Arabia 553 00:26:52,080 --> 00:26:55,679 Speaker 11: is particularly at risk because they have ports in the 554 00:26:55,720 --> 00:26:59,919 Speaker 11: Red Sea between where the Houthis are and the Suez Canal, 555 00:27:00,280 --> 00:27:04,840 Speaker 11: and those are pretty important ports and pretty important areas 556 00:27:04,840 --> 00:27:07,320 Speaker 11: for them. So if the houthis are able to threaten 557 00:27:07,440 --> 00:27:11,040 Speaker 11: those ports, then I think that we would see them 558 00:27:11,520 --> 00:27:13,879 Speaker 11: get involved on the side of the United States. But 559 00:27:13,920 --> 00:27:17,640 Speaker 11: I think until that happens, they're pretty strong reasons keeping 560 00:27:17,720 --> 00:27:19,560 Speaker 11: them out of this conflict. 561 00:27:19,200 --> 00:27:21,840 Speaker 6: Given all of these complications, which are dizzying to think 562 00:27:21,840 --> 00:27:24,159 Speaker 6: about when you zoom out, how do you put this 563 00:27:24,280 --> 00:27:26,960 Speaker 6: genie back in the bottle? And if you can't, doesn't 564 00:27:26,960 --> 00:27:30,399 Speaker 6: that mean that even with US production, hydrocarbon costs have 565 00:27:30,440 --> 00:27:33,840 Speaker 6: to go up really materially if not only shipping is interrupted, 566 00:27:33,840 --> 00:27:36,240 Speaker 6: but also the shipping of those hydrocarbons. 567 00:27:37,359 --> 00:27:38,080 Speaker 7: Yeah, exactly. 568 00:27:38,119 --> 00:27:40,720 Speaker 11: And we're not just talking about hydrocarbons that go through 569 00:27:40,720 --> 00:27:43,640 Speaker 11: the Suez. We're also talking about hydrocarbons that go through 570 00:27:43,680 --> 00:27:47,119 Speaker 11: the Siumed pipeline, because unless they're coming from Saudi Arabia, 571 00:27:47,160 --> 00:27:50,080 Speaker 11: they've got to go through that Red Sea point to 572 00:27:50,200 --> 00:27:53,760 Speaker 11: even get to the Siumed pipeline. That's basically a workaround 573 00:27:53,760 --> 00:27:56,720 Speaker 11: for the Suez Canal. So it's more than just transit 574 00:27:56,720 --> 00:27:59,240 Speaker 11: through the Suez Canal. I do think Europe is going 575 00:27:59,320 --> 00:28:03,080 Speaker 11: to see the biggest effects of this because they're getting 576 00:28:03,119 --> 00:28:05,960 Speaker 11: a lot more of their oil from the Middle East 577 00:28:06,080 --> 00:28:09,440 Speaker 11: right now, and they're going to be affected by much 578 00:28:09,480 --> 00:28:13,240 Speaker 11: longer shipping times and higher rates as these ships are 579 00:28:13,280 --> 00:28:17,199 Speaker 11: going around around Africa. And I don't think we're going 580 00:28:17,240 --> 00:28:21,359 Speaker 11: to see shortages, but there's definitely potential for higher costs, 581 00:28:21,600 --> 00:28:25,520 Speaker 11: and if we see oil prices getting higher, then that 582 00:28:25,560 --> 00:28:29,600 Speaker 11: will compound these issues. I do think that the United 583 00:28:29,640 --> 00:28:31,720 Speaker 11: States is going to have to make a decision whether 584 00:28:31,920 --> 00:28:35,080 Speaker 11: this is purely a defensive operation or they're going to 585 00:28:35,119 --> 00:28:39,080 Speaker 11: go on the offensive to some extent and actually frighten 586 00:28:39,120 --> 00:28:42,120 Speaker 11: the Hoho thies and show that there are real consequences. 587 00:28:42,280 --> 00:28:44,680 Speaker 6: Ellen, you've been stuttying the Middle East for years and years, 588 00:28:44,760 --> 00:28:46,720 Speaker 6: you're ate the book on Saudi Arabia. A lot of 589 00:28:46,720 --> 00:28:48,880 Speaker 6: people look to you for your insight about the kingdom 590 00:28:48,920 --> 00:28:50,960 Speaker 6: and about the region, and I'm just wondering, based on 591 00:28:51,000 --> 00:28:53,640 Speaker 6: everything that you've seen over the past couple of weeks, 592 00:28:53,880 --> 00:28:56,960 Speaker 6: how much have the chances of an escalation really increased 593 00:28:57,000 --> 00:28:58,200 Speaker 6: for your vantage point. 594 00:28:59,200 --> 00:29:01,760 Speaker 11: I do think that the chances are higher than we're 595 00:29:01,800 --> 00:29:05,040 Speaker 11: seeing priced into the market right now. I think there 596 00:29:05,040 --> 00:29:08,880 Speaker 11: are still very strong deterrences to seeing the conflict spread. 597 00:29:08,920 --> 00:29:11,000 Speaker 11: Saudi Arabia does not want to get involved. It's not 598 00:29:11,120 --> 00:29:13,720 Speaker 11: good for business to, you know, get started in a 599 00:29:13,760 --> 00:29:15,880 Speaker 11: war in the Middle East. It's not good for you know, 600 00:29:15,960 --> 00:29:18,840 Speaker 11: the oil business to start any kind of conflict with Iran. 601 00:29:19,080 --> 00:29:22,840 Speaker 11: But at the same time, we are seeing escalation that 602 00:29:22,960 --> 00:29:26,920 Speaker 11: may not be able to be quell unless some offensive 603 00:29:26,960 --> 00:29:31,280 Speaker 11: action is taken by parties that aren't just Israel. Particularly 604 00:29:31,320 --> 00:29:36,400 Speaker 11: if Israel starts to escalate the conflict into Lebanon, into 605 00:29:36,400 --> 00:29:41,160 Speaker 11: something against Hezbola, then we're likely to see just greater tension, 606 00:29:41,320 --> 00:29:44,720 Speaker 11: greater potential for terrorism across the Middle East. We already 607 00:29:44,760 --> 00:29:48,280 Speaker 11: have seen things happening in Iraq and in Iran, and 608 00:29:48,320 --> 00:29:50,880 Speaker 11: so I do think that we're definitely at a higher 609 00:29:51,440 --> 00:29:55,960 Speaker 11: higher risk of conflict than we were even in October. 610 00:29:56,040 --> 00:29:57,840 Speaker 3: With that in mind, just put a bow on it. Ellen, 611 00:29:58,240 --> 00:30:00,720 Speaker 3: how long would you expect this options in the Red 612 00:30:00,760 --> 00:30:02,000 Speaker 3: Sea to continue for? 613 00:30:03,840 --> 00:30:07,360 Speaker 11: I'd say they can continue for the foreseeable future unless 614 00:30:07,880 --> 00:30:10,840 Speaker 11: unless this coalition decides to go on the offensive. This 615 00:30:10,920 --> 00:30:16,080 Speaker 11: is a very low cost, high return event for the Hoothies, 616 00:30:16,200 --> 00:30:19,320 Speaker 11: and so unless their supply of weapons is cut off 617 00:30:19,920 --> 00:30:22,680 Speaker 11: or someone higher up in Iran tells them to cut 618 00:30:22,680 --> 00:30:26,840 Speaker 11: it out, I don't think that there's any real sign 619 00:30:26,880 --> 00:30:28,040 Speaker 11: that they're going to stop. 620 00:30:28,680 --> 00:30:31,200 Speaker 3: Isaac Allen, thank you. I appreciate the insight and I'm 621 00:30:31,200 --> 00:30:33,920 Speaker 3: well with that the Atlantic Council and the situation in 622 00:30:33,960 --> 00:30:34,760 Speaker 3: the Red Sea. 623 00:30:34,880 --> 00:30:38,800 Speaker 2: Subscribe to the Bloomberg Surveillance Podcast on Apple, Spotify, and 624 00:30:38,840 --> 00:30:43,040 Speaker 2: anywhere else you get your podcasts. 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