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

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jailey. We bring you

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

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course, on the Bloomberg terminal. Right now, an

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Speaker 1: extensive conversation with Jason Furman of Harvard University and of

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Speaker 1: courses public Service to the Nation with the Council of

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Speaker 1: Economic Advisors. Jackson. Wonderful to have you with us at

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Speaker 1: this moment. You're gonna tell me as a public policy

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Speaker 1: type that we need to see more data that we

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Speaker 1: need to see two or three months data. Does President

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Speaker 1: Biden and others wait for that data or must they

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Speaker 1: adjust to this report? Ok? I think the main people

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Speaker 1: who need to adjust to this report, adjust to the

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Speaker 1: job's report we got last year is the federal Reserve.

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Speaker 1: The other part of it is looking at what we

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Speaker 1: can do in our economy to address the biggest thing

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Speaker 1: we have, which is a constraint on supply. We need

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Speaker 1: more supply. Shots and arms are doing a lot. My

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Speaker 1: guess is there's a lot more people are working in

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Speaker 1: May than in April. But when you take this plus

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Speaker 1: the jobs report on Friday, plus the totality of the data,

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Speaker 1: I think we have a very different picture of the

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Speaker 1: economy right now than a lot of people held a

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Speaker 1: week ago. It's a different picture of the economy. Vice

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Speaker 1: Chairman Clarata will speak here and I believe twenty four minutes.

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Speaker 1: Does he adjust Is there one word or one sentence

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Speaker 1: that will begin a tone of a Federal Reserve shifting

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Speaker 1: their language. I don't know. I mean, they're very big

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Speaker 1: on this being transitory. A lot of this is transitory.

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Speaker 1: We saw a ten percent increase in the youth call

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Speaker 1: is in trucks market in April. Okay, but Jason, Jason,

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Speaker 1: I don't want to interrupt you, but I'm looking at

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Speaker 1: rentals in New York City that are not transitory. Is

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Speaker 1: Michael McKee just mentioned higher rents are real not transitory. Oh?

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Speaker 1: I agree. I was gonna say, you are going to

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Speaker 1: be able to point to things that are transitory. I

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Speaker 1: think your best guest has to be that this isn't

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Speaker 1: entirely transitory. The FED and others have rested a lot

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Speaker 1: on inflation expectations being anchored this is the type of

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Speaker 1: thing that's going to start to move those inflation expectations.

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Speaker 1: So yes, I think the problem is you can point

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Speaker 1: to all sorts of chransitory things, strip all of those out,

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Speaker 1: add in what we know about how much demand we

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Speaker 1: have in our economy, how little supply we still have. Uh,

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Speaker 1: you know, I think this this there's some caution and

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Speaker 1: should change the way people are thinking about the economy. Jason,

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Speaker 1: what do you think that means for the relief package

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Speaker 1: we passed just a couple of months ago, when Larry

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Speaker 1: summer Is another court including Olivia Blanchard, came out and

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Speaker 1: said it was too big for the moment we're in.

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Speaker 1: Do you think this is evidence of that? But it

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Speaker 1: was definitely too big for the moment. I don't know

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Speaker 1: any economist that was recommending something the size that what

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Speaker 1: was done. Um, the question is how big the downside was.

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Speaker 1: I wouldn't leak to a judgment yet on the basis

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Speaker 1: of April. This is one month's data. The data are

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Speaker 1: obviously extremely noisy. We knew as the economy reopened there

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Speaker 1: would be all sorts of patches along the way, rough

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Speaker 1: patches along the way. But you know, I think there's

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Speaker 1: a you know, a certain amount to that logic, and

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Speaker 1: let's try to do what we can to make it

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Speaker 1: not true. How do we make Larry's prediction not true?

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Speaker 1: We increased labor supply and the FED is a little

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Speaker 1: bit more cautious to help keep inflation inflation anchored. Jason,

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Speaker 1: can I get your thoughts then on what happened on

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Speaker 1: Friday when we saw that big miss, and we talked

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Speaker 1: about the supply side story and the mismatch between demand

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Speaker 1: a supply, and the maybe prices would need to adjust.

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Speaker 1: Arguably is view pointed out. We saw that in wages

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Speaker 1: already and we could see that a whole lot more

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Speaker 1: in months to come. Some governors of Republican states have

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Speaker 1: decided that they need to remove the additional UI, the

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Speaker 1: unemployment insurance that was offered by the federal government and

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Speaker 1: the package that was delivered recently. Do you think that's

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Speaker 1: the right decision to fill that gap? Yeah, So the

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Speaker 1: big miss on Friday was wages. The expectation for wages

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Speaker 1: was zero point zero percent. The actual number was zero

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Speaker 1: point seven percent. Even that actual number understated what actually

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Speaker 1: happened because of composition effects that the real number is

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Speaker 1: probably more like zero point nine percent UM. Either way,

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Speaker 1: that's the fastest wage growth we've had since the nineteen eighties.

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Speaker 1: So you're not looking at you know, one isolated data

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Speaker 1: point around used truck. This is everywhere around us. If

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Speaker 1: I were in a state with a three point five

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Speaker 1: percent unemployment rate, I'd be thinking seriously about whether UM

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Speaker 1: paying bulmore to not work than to work was a

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Speaker 1: good thing to continue doing. Jason lost for words that

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Speaker 1: even agreement with Republican governors. Then in places like corkinsil Iowa, Montana,

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Speaker 1: South Carolina, you know, it depends on where you are

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Speaker 1: in the virus. It depends on where you are in

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Speaker 1: your unemployment rate. But by certainly by June July August

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Speaker 1: of this year, I don't think we need the same

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Speaker 1: UI system we had in January. In January it made

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Speaker 1: sense three thousand people were dying a day. We did.

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Speaker 1: We wanted to give people an option other than work

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Speaker 1: and support them in that option. UM in an increasingly

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Speaker 1: hot labor market for a lot of states, it may

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Speaker 1: not make sense. It may not make sense in the

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Speaker 1: same way. So I think they should be taking a

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Speaker 1: hard look at it. Dr frem and I just did

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Speaker 1: a study here. Thank you John for extending that out

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Speaker 1: because I was working the Bloomberg terminal, Jason, I did

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Speaker 1: a standard deviation study on a monthly basis. Of course

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Speaker 1: cp I back to the time of Paul Boker, maybe

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Speaker 1: around I can find a jump condition in course cp

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Speaker 1: I like we see now we do interview after interview

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Speaker 1: or experts like you say, it's about the jump that

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Speaker 1: we see an inflation. Right now, we're seeing a jump

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Speaker 1: that I would suggest is near original. How do should

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Speaker 1: we respond to that? Yeah, I mean the economy is

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Speaker 1: gonna do weird things. We saw a collapse that was um,

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Speaker 1: you know, historic last year in prices. We're seeing. Some

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Speaker 1: of what we're seeing now is the unwinding of that.

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Speaker 1: Some of what we're seeing is different sectors come back

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Speaker 1: at different paces. So I wouldn't leap all the way

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Speaker 1: to where, you know, we're not worried about inflation now,

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Speaker 1: we're worried about hyper inflation. It's going to be zero

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Speaker 1: point nine every month from now one. But what I'm

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Speaker 1: saying it's just a recalibration of views. Discount the data

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Speaker 1: a lot because of the weirdness. Don't discount the data

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Speaker 1: all the way. You should update your views. How do

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Speaker 1: you think that meeting in the White House changes later

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Speaker 1: between the Big Four and the President of the United

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Speaker 1: States with this inflation data this morning. Now every single

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Speaker 1: market participant, every economist will come on the show today

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Speaker 1: and talk about it only being one data point. But

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Speaker 1: that's the data point. I imagine that the Republicans will

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Speaker 1: be talking about all day going into that meeting in

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Speaker 1: the White House. Lank, Yeah, the meeting is there, and

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Speaker 1: that's a political discussion. It will be emotional like Gasolene

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Speaker 1: and all that. I'm way more interested in people like

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Speaker 1: Jason Furman, and I would go to the Vice chairman

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Speaker 1: where particularly if he does Q and A, John, that

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Speaker 1: will be fascinating. We get the Q and A in

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Speaker 1: about fifteen minutes today, Jason, just to find a one

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Speaker 1: from me before I have to run your view on that.

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Speaker 1: How the Federal Reserve will talk about this when we

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Speaker 1: hear from the Vice chair in about fifteen minutes. What

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Speaker 1: would you anticipate What do you expect them to say

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Speaker 1: in the coming weeks off the back of this data.

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Speaker 1: I would expect them to make very little in the

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Speaker 1: way of adjustment. I would expect them to emphasize this

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Speaker 1: is transitory. Some of the quirkish parts of this, like

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Speaker 1: um use cars and the like. I'd love to see

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Speaker 1: them Tilton notch towards concern about inflation, but I think

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Speaker 1: they'll mostly I'll be doing more to explain this away

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Speaker 1: than to express any concerns about it. Jason Furman, let's

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Speaker 1: do a little bit of a history lesson of the

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Speaker 1: shock here, and I went back to Neil Dutta talks

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Speaker 1: about the biggest one month game since June of two

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Speaker 1: thousand nine. Dr Furman take us back to the sixties,

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Speaker 1: and Robert Samuelson at the Washington Post has written about

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Speaker 1: this the time of Walter Heller. What did they do

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Speaker 1: in the sixties about the inflation shock and trude should

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Speaker 1: we use that as a template. First of all, they

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Speaker 1: did a lot of emphasizing one time factors and micro stories.

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Speaker 1: You know, there's this segment is doing this, that's a

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Speaker 1: mint is doing that, um and they missed the bigger

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Speaker 1: macro forces what was going on with fiscal and monetary policy.

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Speaker 1: So number one is, look at the macro, don't do

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Speaker 1: each try to explain away each one of them micro

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Speaker 1: um lesson to that which I think is a good

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Speaker 1: one for us. It took years and years and years

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Speaker 1: of a policy change to get us to the place

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Speaker 1: we were at in the late sixties. We've just been

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Speaker 1: through a freakish pandemic. We've just been through a highly

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Speaker 1: unusual period of policy. I don't expect policy uh too.

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Speaker 1: I don't think there's been a huge regime change. I

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Speaker 1: think we'll go back to the old regime and this

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Speaker 1: should hopefully all stay under control as a result. But

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Speaker 1: we do need to get back to a little bit

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Speaker 1: more of the old regime for that to work. We

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Speaker 1: certainly heard that from young Hotzi yes yesterday, folks of

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Speaker 1: Goldman Sex. Then I look at what wages will do,

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Speaker 1: and there's a phrase from ancient history, Jason Furman, a

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Speaker 1: cost push inflation. I don't observe that anywhere. Am I wrong?

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Speaker 1: Are we gonna redux the sixties and seventies, I should say,

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Speaker 1: and cost push inflation? Where we have to whip inflation now?

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Speaker 1: I mean we just seven in April, wages were up

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Speaker 1: by about zero point seven zero point nine, depending on

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Speaker 1: how you look at the number. Prices were up by

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Speaker 1: that same amount. You know. Again, I mean, we obviously

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Speaker 1: don't want to read too much into any one data point.

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Speaker 1: But unless people start heading back to work in bigger numbers,

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Speaker 1: we're gonna have concerns now that should happen, should happen

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Speaker 1: no later than September when unemployment insurance expires, but you

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Speaker 1: know it needs to happen. Jason Furman, thank you so much,

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Speaker 1: greatly appreciate it. With Harvard University, UNI, course of Peterson Institute,

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Speaker 1: we're all Marcus, Marcus markets, John, I'm gonna go to

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Speaker 1: the real economy, like Jason Furman, jobs formation and that

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Speaker 1: you wonder if a little bit of rising inflation finally

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Speaker 1: helps people in a booming g DP economy eight percent,

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Speaker 1: whatever the number is. So that's attention, folks, as we

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Speaker 1: go here twenty five minutes from now on the financial

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Speaker 1: aspects and the asset aspects, the real economy aspects. No

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Speaker 1: one better to dovetail those two together than Alicia Levine

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Speaker 1: of b n Y Melon always writing smart. And what's

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Speaker 1: so important about Alicia Levine is really looking almost at

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Speaker 1: a strategic basis of where we are. Given this rising inflation.

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Speaker 1: You talk about a regime change. Alicia in America described

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Speaker 1: that right. So look, we we think that When the

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Speaker 1: new administration came in, it was really focused on Main

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Speaker 1: Street versus Wall Street, and I think the policies that

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Speaker 1: have flowed from the fiscal side and frankly for the

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Speaker 1: monetary side, really are creating that. So, as you've said

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Speaker 1: all morning, you know, a little bit of inflation is

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Speaker 1: actually quite positive for main Street. You get higher wages,

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Speaker 1: you get some pricing power, you know, you get assets

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Speaker 1: moving higher, and in the real economy that's not such

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Speaker 1: a bad thing. It tends to be terrible for equity markets,

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Speaker 1: particularly in the long duration assets, as we've seen in

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Speaker 1: the last couple of days, where the tantrum really was

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Speaker 1: in the equity market and not in the bond market.

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Speaker 1: The equity market is telling you that their inflation fears

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Speaker 1: all over the place for investors. So, look, we think

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Speaker 1: there is a regime change, So higher growth, higher inflation,

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Speaker 1: that doesn't mean, you know, terrible inflation. It does mean, though,

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Speaker 1: that higher than it was in the post global financial crisis,

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Speaker 1: and therefore higher rates eventually. But right now we're seeing

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Speaker 1: we think, we think it's sustainable. We don't think this

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Speaker 1: is a sugar high. Okay, it's very clear it's not

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Speaker 1: a sugar high. It's literally a regime change. You've got

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Speaker 1: fancy degrees, you're expert at the mathematics of the financial system,

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Speaker 1: and you and me what in common. As we started

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Speaker 1: out dishwashing. You had a love affair with the Hobart

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Speaker 1: dishwashing machine at a camp years and years ago. Let's

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Speaker 1: talk about the real world effects of this inflation in

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Speaker 1: the old days that meant rising wages. Do you fold

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Speaker 1: that into your strategy or is this time different from

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Speaker 1: when you were running a Hobart. So so those were

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Speaker 1: great days, and actually I didn't get paid at all.

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Speaker 1: So yes, there's inflation for those jobs. But look, there

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Speaker 1: is clearly supply constraints in the labor market as well,

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Speaker 1: which is what we learned on Friday. Wages are going higher,

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Speaker 1: and they're going higher because we don't have as much

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Speaker 1: slack in the labor force overall, even if you strip

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Speaker 1: out the extra unemployment benefits, which of course are a

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Speaker 1: downward pressure on on labor coming into the market. But

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Speaker 1: if you think about the expedited retirements in the boomers

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Speaker 1: and above, you think about the fact that two million

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Speaker 1: women have simply dropped out of the labor force, probably

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Speaker 1: because schools are not open by the time those schools open.

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Speaker 1: You know, it's been eighteen months that people are disassociated

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Speaker 1: from the labor force, very hard to get back into

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Speaker 1: the same job. So we think participation will be lower,

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Speaker 1: slack is lower, and wages will be higher. You know,

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Speaker 1: as we saw with Jolty yesterday, there are eight point

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Speaker 1: one million jobs available ostensibly, the same number of jobs

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Speaker 1: as those who do not have jobs today that did February.

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Speaker 1: Something's wrong, right, something there's a mismatch. So there's a

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Speaker 1: skills mismatch, and there's a need to pay labor higher.

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Speaker 1: And I do think that the fiscal policy that's been

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Speaker 1: enacted has conditioned people, frankly, to want more and to

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Speaker 1: expect more. We've just spent eight hundred and fifty billion

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Speaker 1: dollars from January one, as the economy is reopening directly

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Speaker 1: into households, directly into bank accounts, more than we and

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Speaker 1: we spent that was six hundred billion last year when

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Speaker 1: the economy was closed, and we're expecting another four hundred

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Speaker 1: billion by early September. All that is going to create

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Speaker 1: upward pressure on wages. Next logical question, then, what does

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Speaker 1: that mean for margentilation? And one of the sectors that

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Speaker 1: you would avoid. Right. Look, I think I think the

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Speaker 1: rotation that came became apparent in the fall last year

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Speaker 1: still plays out, right. So, you know, commodities, materials, industrials, financials,

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Speaker 1: and energy are really the sectors that benefit from higher inflation.

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Speaker 1: And that's where we would be very hard to ignore.

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Speaker 1: Your profitable tech. You know, the future is digital. You

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Speaker 1: have to be there. We just think that those that

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Speaker 1: sector probably underperforms a bit. And we do think that

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Speaker 1: speculative tech, you know, those companies that we know in

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Speaker 1: love and are valued on revenue and not earnings, were

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Speaker 1: really suffer here and we would stay away from those.

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Speaker 1: We just think it's a long term secular change and

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Speaker 1: where rates are going, where yields are going, and where

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Speaker 1: expectations are going. So I think the cyclical trade will

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Speaker 1: have legs and we'll have legs for longer. We saw

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Speaker 1: a ton of companies in the first quarter, right seeing prices,

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Speaker 1: P and G, Kimberly Clark, others as well. Alicia, there's

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Speaker 1: a nice little debate debate plank out on the south

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Speaker 1: side at the moment on staples, bt I G on

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Speaker 1: the one side, BEMO on the other, bt I g

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Speaker 1: likes the pricing path. Bemo is worried about the input costs.

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Speaker 1: Where are you in the team on Staples? I like

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Speaker 1: Staples simply because they've underperformed so woefully. That is just

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Speaker 1: a good It's not a bad place to come in here.

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Speaker 1: They do have pricing power. I think households are are

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Speaker 1: are becoming conditioned to paying it, frankly, because there's so

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Speaker 1: much extra liquidity in the household sector, right, you're not

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Speaker 1: getting pushback, so therefore those price changes will be sticky.

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Speaker 1: If you add to that that the sector has completely underperformed,

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Speaker 1: as the here and now looks better than worrying about

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Speaker 1: the future three years from now. I think it's not

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Speaker 1: a bad place to add two staples here. You know,

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Speaker 1: you want to add when it seems like the wrong

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Speaker 1: thing to do, so it seems like the wrong Yeah,

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Speaker 1: there you go. I mean, we like we we've learned

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Speaker 1: this right. How many times do we have to be

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Speaker 1: hit over the head? And so I actually do like

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Speaker 1: Staples here for the reason I think this pricing power

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Speaker 1: will be very sticky. When you raise wages, you don't

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Speaker 1: lower them. When you raise prices that you don't lower them.

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Speaker 1: Get comfortable feeling uncomfortable. That's a lifeless Alicia, Thank you,

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Speaker 1: Alicia Levy bm Y Melon Investment Management right now. This

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Speaker 1: is a joy for John and I to bring in

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Speaker 1: Terry Weisman with us out of vest Or in Harvard.

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Speaker 1: Terry Weisman iconic on emerging markets at Bear Strings long ago,

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Speaker 1: and most importantly he is the director of Global Currencies

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Speaker 1: and interest rates for the crew at fifty Martin Place

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Speaker 1: in Sydney, Australia with Macquarie, and where thrilled he could

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Speaker 1: join us right now with a real touch of this economics.

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Speaker 1: But also it is linked to the commodity boom. Does

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Speaker 1: inflation cause commodities or is a commodity boom gonna cause

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Speaker 1: the inflation to come Terry, you know it could be

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Speaker 1: two ways. Um. One of the aspects of inflation that

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Speaker 1: I think is driving the commodity boom is just public policy. Right.

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Speaker 1: You have quite a lot of of an imperative around

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Speaker 1: the world to move towards a green economy, and that's

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Speaker 1: clearly causing some commodity prices to go up. So here

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Speaker 1: the causality runs from public policy to commodities. But you

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Speaker 1: also have to take into account that the rising commodities,

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Speaker 1: whether it's speculative or not, is going to put pressure

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Speaker 1: on things that have nothing to do with that green economy.

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Speaker 1: If copper prices go up, home prices can go up

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Speaker 1: as a results, even because of the cost push inflation.

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Speaker 1: So it runs two ways, um and and I suspect

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Speaker 1: that there is a little bit of a specult development

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Speaker 1: in some of the commodity prices that have seen a

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Speaker 1: big increase recently, but more so iron than copper. Let's say, right,

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Speaker 1: that's right where I wanted to go cheery. When you

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Speaker 1: talk to the commodity experts at Macquarie, and truly folks,

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Speaker 1: they are Australian experts. How does iron or dynamics filter

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Speaker 1: into a more developed world inflation Wednesday? Not too much

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Speaker 1: because because iron goes into steal, and steal is really

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Speaker 1: a construct auction material, it's not something that's really prevalent

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Speaker 1: that much in the consumer basket. But I will tell

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Speaker 1: you this McQuary's view on iron is not positive. We

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Speaker 1: see a lot of the run up recently as having

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Speaker 1: been caused by hoarding on the part of Chinese steel mills,

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Speaker 1: who are worried. The Chinese in the second half of

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Speaker 1: this year, Chinese policy makers will come down hard on

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Speaker 1: the steel mills because of environmental issues, and that they

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Speaker 1: will do that by restricting iron imports in the second half,

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Speaker 1: and as a result, steel mills are hoarding iron now

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Speaker 1: ahead of that and obviously hedging against future price increases.

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Speaker 1: But that's not really a demand based story as much

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Speaker 1: as it is a story about fear of import controls

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Speaker 1: and fear of restrictions copper, as I mentioned, a different

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Speaker 1: story that is that is purely structurally demand ern people

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Speaker 1: are excited about the the implications for copper demand coming

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Speaker 1: from green economy imperatives. Harry, what's China's role in all

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Speaker 1: of this? If you shewed me a chance of China's

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Speaker 1: credit impulse, I might have made a different decision on

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Speaker 1: the direction to travel that seeing across some of these markets.

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Speaker 1: What is China's rolled in this cycle? Well, well, normally

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Speaker 1: China's role is as as a commodity UH importer and

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Speaker 1: demander and and of course the credit cycle is hugely

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Speaker 1: important to determining how much credit is being is being

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Speaker 1: directed towards construction towards infrastructure UH in China, so credit

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Speaker 1: normally plays a strong role. We all I'm saying is

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Speaker 1: that this time around, and maybe the reason you're seeing

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Speaker 1: this divergence between credit growth and commodity prices is because,

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Speaker 1: in the case of some commodities, what's being driven is

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Speaker 1: not structural. What's driving is not structural demand coming out

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Speaker 1: of China, or certainly not the outlook for stronger structural demand. China,

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Speaker 1: after all, maybe moving towards monitoring tightening in the bad

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Speaker 1: latter part of this year, but might be moving these

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Speaker 1: commandis instead is concerned about restrictions on the use of

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Speaker 1: them later or the import of them later, I should say,

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Speaker 1: and as a result, is hoarding today. Very different story,

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Speaker 1: very different dynamic. Let's say that what we normally get

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Speaker 1: out of China where credit drives the commodity price cycle,

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Speaker 1: when you look at market based inflation expectations in the

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Speaker 1: momentary that's time of two stories together. What degree do

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Speaker 1: you think that being influenced by what we're seeing in

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Speaker 1: the commodity male kit not that much. I you know,

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Speaker 1: to some extent. We're talking about consumer prices here, um

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Speaker 1: and the price of a house does not figure into

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Speaker 1: the consumer price in deck, but figures into the persumer

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Speaker 1: price index. Is the service price of renting a house,

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Speaker 1: let's say, or the owner of equivalent rent that's not

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Speaker 1: affect too much by the price of a home. So

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Speaker 1: I don't think commodities themselves, not certainly, not those those

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Speaker 1: those basic metal commodities are having that much of an

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Speaker 1: impact on CP I know. I think what's having, or

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Speaker 1: for that matter, expectations. I think what's driving inflation expectations

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Speaker 1: is somewhat different. It's it's a FED that has been

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Speaker 1: politically inclined to be to sound very dubbish and therefore

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Speaker 1: fuel inflation expectations higher. And of course we have everything

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Speaker 1: pertaining to the demand impulse around the world coming from

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Speaker 1: public policy, more spending in the US, prospectively more in Europe.

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Speaker 1: I think that's fueling a little bit the inflation expectation

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Speaker 1: increase that we've seen recently. Terry Device Chairman, I believe,

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Speaker 1: speaks at nine am, well street time. Can they shock

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Speaker 1: the market or can they actually have a dialogue the

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Speaker 1: next ninety days where we ease our way towards the

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Speaker 1: beginning of a discussion of less accommodation, so they can

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Speaker 1: ease into it. And can they do that? Not today?

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Speaker 1: Not today? Just because I said that they can ease

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Speaker 1: into it, doesn't mean they're going to ease into it today.

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Speaker 1: I think this is too soon. Even if the CPI

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Speaker 1: print comes out high, let's say, on the headline base

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Speaker 1: three point seven or three point eight, it's way too

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Speaker 1: early for the FED to make a determination as to

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Speaker 1: whether or not, uh the increase in inflation is permanent

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Speaker 1: or temporary. And the reasons because we know that a

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Speaker 1: lot of it's driven by supply shocks, and the market

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Speaker 1: has a way of addressing those supply shocks ultimately with

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Speaker 1: more supply. And as a result, I don't think the

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Speaker 1: FED is going to say today. I don't think Richard

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Speaker 1: Cloud is gonna say today that it's time for the

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Speaker 1: FED to talk about tapering. By August. Maybe, I think

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Speaker 1: by August I will have ease their way into it,

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Speaker 1: in part because by August the economy will be better,

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Speaker 1: it will be a synchronized global recovery as well, potentially

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Speaker 1: will be more some more pressure as a result of

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Speaker 1: that on some basic goods, not necessarily copper and iron,

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Speaker 1: but others. And I think at that point they can

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Speaker 1: talk about the need to have a discussion about taping

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Speaker 1: and then and then the countdown begins, but today is

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Speaker 1: too early. Sorry, gonna catch up. As always was that

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Speaker 1: McClary on currencies commodities and writes as well, we're making

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Speaker 1: jokes about it, but the inflation is real and it

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Speaker 1: affects all of us, truly. The right guest at the

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Speaker 1: right time, Stephen Rashida joins us seas with the zooo,

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Speaker 1: and he does acute, I mean scary acute in detail.

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Speaker 1: I'm breaking apart the American economic landscape, he joins us.

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Speaker 1: Right now, Stephen, shooter, Let's go right through the function

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Speaker 1: and let's start with the consumer. How will the consumer

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00:23:53,200 --> 00:23:58,080
Speaker 1: adjust to new inflation? Well, I think the stimulus checks

431
00:23:58,160 --> 00:24:01,240
Speaker 1: that have been provided are real. The adjustment the amount

432
00:24:01,240 --> 00:24:04,520
Speaker 1: of excess savings or increase in savings that the household

433
00:24:04,560 --> 00:24:08,840
Speaker 1: sector has accumulated as well over the last year plus

434
00:24:09,160 --> 00:24:11,760
Speaker 1: of stimulus checks is going to help the consumer get

435
00:24:11,840 --> 00:24:14,640
Speaker 1: beyond these problems. I think you also have to understand

436
00:24:14,720 --> 00:24:17,800
Speaker 1: that for a lot of these components such as airline fares,

437
00:24:18,160 --> 00:24:22,800
Speaker 1: hotel rates, um, you know, used car prices, new car prices.

438
00:24:23,119 --> 00:24:26,040
Speaker 1: You know, there was a big down draft in inflation

439
00:24:26,160 --> 00:24:29,159
Speaker 1: that occurred last year in many of these components, and

440
00:24:29,320 --> 00:24:31,879
Speaker 1: these are the components that are coming back now as

441
00:24:31,920 --> 00:24:34,960
Speaker 1: the economy is reopening up, as the vaccine has become

442
00:24:35,040 --> 00:24:37,600
Speaker 1: more important than the virus, and so therefore we're getting

443
00:24:37,640 --> 00:24:41,399
Speaker 1: back to more normal life. Okay, this is really important, folks,

444
00:24:41,520 --> 00:24:44,080
Speaker 1: and trust me, I've had hate mail on this before.

445
00:24:44,160 --> 00:24:47,159
Speaker 1: We'll do it when Mr roshutto right now. Steve, you

446
00:24:47,240 --> 00:24:52,080
Speaker 1: know the sinodal function or sinusoidal function a boy physics.

447
00:24:52,640 --> 00:24:56,640
Speaker 1: You've got the squiggly little line in it dampens down

448
00:24:57,240 --> 00:25:00,760
Speaker 1: towards zero, and that's called a damp fun action. Or

449
00:25:00,800 --> 00:25:03,200
Speaker 1: if you were a bow tie, it's called a dampen function.

450
00:25:03,720 --> 00:25:07,400
Speaker 1: Steps Shudo, is inflation gonna dampen out over the next

451
00:25:07,520 --> 00:25:11,280
Speaker 1: number of months to a level that's more appropriate? Or

452
00:25:11,359 --> 00:25:14,080
Speaker 1: do you have a fear of a trend like the sixties.

453
00:25:15,280 --> 00:25:17,800
Speaker 1: I don't have a fear of the trend like the sixties.

454
00:25:17,840 --> 00:25:20,800
Speaker 1: You know, the sixties was a wage price spiral. The

455
00:25:20,840 --> 00:25:24,680
Speaker 1: wage price spiral is largely a function of the cost

456
00:25:24,760 --> 00:25:28,679
Speaker 1: of living adjustments that were rolled into unique contracts um

457
00:25:28,880 --> 00:25:32,720
Speaker 1: and those are what created the wage price spiral. This time,

458
00:25:32,800 --> 00:25:36,160
Speaker 1: we don't have a direct linkage between wages and prices

459
00:25:36,600 --> 00:25:39,000
Speaker 1: like we had before. And to the extent that we

460
00:25:39,080 --> 00:25:42,840
Speaker 1: have global excess supply. Now where we had global excess demand,

461
00:25:42,960 --> 00:25:46,400
Speaker 1: their corporations had pricing power, so they thought they could

462
00:25:46,440 --> 00:25:49,280
Speaker 1: pass the price increases on through to the consumer, and

463
00:25:49,440 --> 00:25:52,240
Speaker 1: that's what created the cycle this time through. Yes, there

464
00:25:52,240 --> 00:25:54,560
Speaker 1: will be an upward movement and inflation, but it will

465
00:25:54,640 --> 00:25:57,840
Speaker 1: not be anywhere near that wage price spiral that you

466
00:25:57,880 --> 00:26:00,360
Speaker 1: know people are still fearful of all these year later.

467
00:26:01,119 --> 00:26:05,840
Speaker 1: Paul John from Lester emails and he says, Tommy, you idiot.

468
00:26:06,960 --> 00:26:11,080
Speaker 1: Damped is when the signs of waves dampens down towards zero.

469
00:26:12,000 --> 00:26:16,200
Speaker 1: Dampened is when your tire gets wet. Okay, but he

470
00:26:16,240 --> 00:26:20,119
Speaker 1: spelled a t y r E. We're throwing that out

471
00:26:20,160 --> 00:26:24,240
Speaker 1: all right. So Steve fed, chairman of Vice vice chairman

472
00:26:24,320 --> 00:26:27,280
Speaker 1: Richard Clarenda this morning said he was surprised by the

473
00:26:27,440 --> 00:26:31,040
Speaker 1: rise in consumer prices, but continues to believe that they

474
00:26:31,080 --> 00:26:35,680
Speaker 1: are transitory. What's your take there, Well, again, this is

475
00:26:35,800 --> 00:26:38,040
Speaker 1: this is the theme that they're running under. It again

476
00:26:38,119 --> 00:26:41,240
Speaker 1: in my world, with excess supply, they are likely to

477
00:26:41,359 --> 00:26:43,400
Speaker 1: prove to be correct. You know, we had a big

478
00:26:43,520 --> 00:26:46,040
Speaker 1: downward draft and inflation due to COVID. Now we're having

479
00:26:46,080 --> 00:26:49,240
Speaker 1: a big response back up due to the vaccine being

480
00:26:49,280 --> 00:26:51,520
Speaker 1: more important than the virus, and that tends to drive

481
00:26:51,640 --> 00:26:54,600
Speaker 1: the price is higher. What the FED is concerned about

482
00:26:54,680 --> 00:26:58,359
Speaker 1: is they want to see real increases in compensation costs

483
00:26:58,640 --> 00:27:02,480
Speaker 1: to drive a sustained move upwards in prices so that

484
00:27:02,600 --> 00:27:04,800
Speaker 1: they could be assured prices are going to be at

485
00:27:04,880 --> 00:27:08,600
Speaker 1: that too slightly higher level on a sustained basis. So

486
00:27:08,800 --> 00:27:11,560
Speaker 1: not until they see that happen are they going to

487
00:27:11,760 --> 00:27:14,600
Speaker 1: change their view. Uh. And they believe they need to

488
00:27:14,640 --> 00:27:17,639
Speaker 1: get to maximum and ploy should say full employment to

489
00:27:17,800 --> 00:27:19,800
Speaker 1: get to that view. And clearly, if you believe the

490
00:27:20,000 --> 00:27:22,359
Speaker 1: SEP where they think the long term trend in the

491
00:27:22,440 --> 00:27:25,280
Speaker 1: unemployment rate is four percent and you're at six point

492
00:27:25,359 --> 00:27:28,080
Speaker 1: one percent after the April data, they feel they've got

493
00:27:28,119 --> 00:27:30,359
Speaker 1: a long way to go before those conditions will be

494
00:27:30,480 --> 00:27:34,440
Speaker 1: in place. Now from my perspective, the stimulus, the monetizing,

495
00:27:34,480 --> 00:27:37,840
Speaker 1: the debt all are important factors pushing up on inflation.

496
00:27:38,119 --> 00:27:40,960
Speaker 1: But by the same token, global access supply is a

497
00:27:41,080 --> 00:27:44,800
Speaker 1: big force pushing down on inflation, and the net net

498
00:27:44,920 --> 00:27:46,560
Speaker 1: is I think we're probably going to get back to

499
00:27:46,640 --> 00:27:49,360
Speaker 1: a sustained two percent rise in inflation, But I don't

500
00:27:49,400 --> 00:27:52,720
Speaker 1: think we'd get substantially higher than that. Well, Steve, you know,

501
00:27:52,840 --> 00:27:56,000
Speaker 1: when you think about obviously wage inflation, that needs to

502
00:27:56,119 --> 00:27:59,480
Speaker 1: be there a big driver. Um, But you could argue

503
00:27:59,560 --> 00:28:02,159
Speaker 1: that the uh, everything is in place to get some

504
00:28:02,240 --> 00:28:06,320
Speaker 1: real wage inflation. Everywhere you go down the street there

505
00:28:06,359 --> 00:28:08,600
Speaker 1: are you know, help wanted signs in there. It looks

506
00:28:08,680 --> 00:28:10,760
Speaker 1: like if you want to get people off their couches

507
00:28:10,760 --> 00:28:13,520
Speaker 1: and back in the workforce, you're going to have to

508
00:28:13,640 --> 00:28:17,880
Speaker 1: raise wages, perhaps significantly. Are you concerned about that? Well, again,

509
00:28:18,000 --> 00:28:22,720
Speaker 1: you're given the unemployment compensation benefits that are being provided.

510
00:28:23,160 --> 00:28:27,400
Speaker 1: It is certainly said a much higher threshold for low

511
00:28:27,520 --> 00:28:31,480
Speaker 1: wage jobs to come into the marketplace. And not only

512
00:28:31,560 --> 00:28:33,480
Speaker 1: do you have to match that wage, but when you

513
00:28:33,520 --> 00:28:35,920
Speaker 1: consider if I could get that wage and not have

514
00:28:36,040 --> 00:28:37,639
Speaker 1: to go to work, you're gonna have to pay me

515
00:28:37,760 --> 00:28:40,000
Speaker 1: some something even more than that to get me to

516
00:28:40,320 --> 00:28:43,600
Speaker 1: actually come into work. So the net result is they

517
00:28:43,640 --> 00:28:46,760
Speaker 1: will look at even this upward movement in wages as

518
00:28:46,760 --> 00:28:50,440
Speaker 1: a result of the compensation costs as a temporary consideration.

519
00:28:50,840 --> 00:28:53,800
Speaker 1: It will be a one time adjustment upwards in the

520
00:28:53,960 --> 00:28:57,160
Speaker 1: cost of living, and that's what they're looking at their

521
00:28:57,240 --> 00:29:00,800
Speaker 1: betting on that one time adjustment. Not a move we've

522
00:29:00,840 --> 00:29:03,680
Speaker 1: been talking that's why they're focusing on maximum employment. Sime. No,

523
00:29:03,760 --> 00:29:05,440
Speaker 1: that's fine. We've been talking about that all morning. I

524
00:29:05,480 --> 00:29:07,800
Speaker 1: think it's really profound. But do we get a one

525
00:29:07,880 --> 00:29:12,200
Speaker 1: time adjustment in boom economy? What is your reframe? I mean,

526
00:29:12,240 --> 00:29:14,920
Speaker 1: I guess you got away for retail sales Friday, but

527
00:29:15,000 --> 00:29:17,040
Speaker 1: I get it. We're in a boom economy and then

528
00:29:17,080 --> 00:29:19,040
Speaker 1: we get another ninety days of a sort of kind

529
00:29:19,080 --> 00:29:22,840
Speaker 1: of like boom economy. What's the SHOOTO taken on Q three,

530
00:29:23,520 --> 00:29:26,720
Speaker 1: Q four, Q one two. I love saying that. I

531
00:29:26,800 --> 00:29:30,400
Speaker 1: sound like it's so fancy. Richardo would throw me off

532
00:29:30,480 --> 00:29:33,880
Speaker 1: the stage. Q one two twenty two, Steve, what's it

533
00:29:33,960 --> 00:29:38,240
Speaker 1: looked like? Yeah, the economy by three on average will

534
00:29:38,280 --> 00:29:40,800
Speaker 1: be back to two to two and a quarter percent growth.

535
00:29:42,280 --> 00:29:45,040
Speaker 1: All right. Everything they're doing is transitory in terms of

536
00:29:45,120 --> 00:29:48,600
Speaker 1: its transfer payments. It's not leading to real productive growth

537
00:29:48,760 --> 00:29:51,640
Speaker 1: in the economy, and therefore we're going to get back

538
00:29:51,720 --> 00:29:54,800
Speaker 1: to a more shallow growth trajectory. You keep on providing

539
00:29:54,800 --> 00:29:56,560
Speaker 1: steamullis out of you, you're gonna keep on being able

540
00:29:56,560 --> 00:29:59,000
Speaker 1: to drive it up temporarily. But once you get to

541
00:29:59,080 --> 00:30:01,280
Speaker 1: the point where they aren't get any more stimulus down

542
00:30:01,320 --> 00:30:03,640
Speaker 1: the pipeline, out of the balance power changes in Washington

543
00:30:03,760 --> 00:30:05,680
Speaker 1: or whatever, we're gonna be right back to an economy

544
00:30:05,720 --> 00:30:07,360
Speaker 1: that grows at two to two and a quarter percent.

545
00:30:07,720 --> 00:30:09,160
Speaker 1: It's just a question of where we are in the

546
00:30:09,240 --> 00:30:12,080
Speaker 1: labor market. By tom we get there, all right. So

547
00:30:12,800 --> 00:30:15,160
Speaker 1: one of the questions I have is when is transitory

548
00:30:15,320 --> 00:30:18,080
Speaker 1: not transitory? Is it one month, two months, three months?

549
00:30:18,120 --> 00:30:21,320
Speaker 1: Can we get back to V shaped exactly? I mean,

550
00:30:21,360 --> 00:30:23,360
Speaker 1: when should we get concerned or when do you think

551
00:30:23,400 --> 00:30:26,120
Speaker 1: more importantly, the Fed will say, oh boy, our transitory

552
00:30:26,200 --> 00:30:29,120
Speaker 1: call may not be the right one. As we approach

553
00:30:29,200 --> 00:30:32,680
Speaker 1: two that's when you begin to see if these things

554
00:30:32,760 --> 00:30:35,760
Speaker 1: haven't worked their way through the system this year. Given

555
00:30:35,800 --> 00:30:37,960
Speaker 1: the growth numbers everybody, I mean, my number at five

556
00:30:38,040 --> 00:30:40,080
Speaker 1: point nine percent for growth for this year is kind

557
00:30:40,120 --> 00:30:42,640
Speaker 1: of on the low end of street expectations. And then

558
00:30:42,720 --> 00:30:45,320
Speaker 1: people are looking at it, you know, another four percent

559
00:30:45,400 --> 00:30:48,720
Speaker 1: type growth next year. So the reality is you have

560
00:30:48,880 --> 00:30:52,760
Speaker 1: to get into two UM and that's when they're going

561
00:30:52,800 --> 00:30:55,880
Speaker 1: to begin looking at this and saying, okay, is this sustainable?

562
00:30:55,960 --> 00:30:58,840
Speaker 1: Is this not sustainable? Have these pressures been one time?

563
00:30:58,880 --> 00:31:01,840
Speaker 1: Have they been transitory? You're not. The presumption is that

564
00:31:01,960 --> 00:31:04,720
Speaker 1: the vaccine will become more important than the virus in

565
00:31:04,800 --> 00:31:07,240
Speaker 1: a lot of our trading partners at that point in time,

566
00:31:07,520 --> 00:31:10,360
Speaker 1: and again that global excess supply thing will come back

567
00:31:10,440 --> 00:31:13,680
Speaker 1: in a vengeance and wind up dampening prices. Keep them

568
00:31:13,680 --> 00:31:15,760
Speaker 1: on a lot of what we're seeing here, or adjustments

569
00:31:15,800 --> 00:31:18,640
Speaker 1: and things like hotel rates and airfairs. You know, how

570
00:31:18,720 --> 00:31:20,320
Speaker 1: long is it going to be prayer lines start bringing

571
00:31:20,360 --> 00:31:22,640
Speaker 1: more planes back onto the market. You know, this is

572
00:31:22,680 --> 00:31:24,680
Speaker 1: the kind of thing. It takes time to ramp these

573
00:31:24,760 --> 00:31:27,120
Speaker 1: things up, and that's what they're betting on. So you

574
00:31:27,200 --> 00:31:29,479
Speaker 1: have to get into two, which is a long way

575
00:31:29,520 --> 00:31:31,920
Speaker 1: away from here. We're only in may See. Thank you

576
00:31:32,000 --> 00:31:33,960
Speaker 1: so much, Stephen. We should have brilliant with the zoo

577
00:31:34,600 --> 00:31:38,360
Speaker 1: there as well. This is the Bloomberg Surveillance Podcast. Thanks

578
00:31:38,400 --> 00:31:41,720
Speaker 1: for listening. Join us live weekdays from seven to ten

579
00:31:41,760 --> 00:31:46,200
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each

580
00:31:46,360 --> 00:31:50,040
Speaker 1: day from six to nine am for insight from the

581
00:31:50,120 --> 00:31:55,280
Speaker 1: best and economics, finance, investment, and international relations. And subscribe

582
00:31:55,360 --> 00:32:00,280
Speaker 1: to the Surveillance Podcast on Apple Podcast SoundCloud, Bloomberg Duck Come,

583
00:32:00,400 --> 00:32:03,600
Speaker 1: and of course on the terminal, I'm Tom keene In.

584
00:32:03,760 --> 00:32:13,160
Speaker 1: This is Bloomer h