WEBVTT - Lots More With Neil Dutta on a Looming Fed Policy Error 0:00:03.120 --> 0:00:12.560 Bloomberg Audio Studios, podcasts, radio news. Should we start Yes. 0:00:12.680 --> 0:00:18.079 I'm not signed in. Okay, thanks Jeff. I need the 0:00:18.120 --> 0:00:21.959 emotional comfort of being signed into my Bloomberg terminal. 0:00:24.800 --> 0:00:32.400 I did a deadlift one. Okay, uh barges. This isn't 0:00:32.440 --> 0:00:34.159 after school Special, except. 0:00:33.760 --> 0:00:36.320 I've decided I'm going to base my entire personality going 0:00:36.320 --> 0:00:39.520 forward on campaigning for a strategic pork reserve in the US. 0:00:39.680 --> 0:00:43.000 Where's the best in pasta? These are the important question? 0:00:43.120 --> 0:00:44.520 Is it robots taking over the world? 0:00:44.600 --> 0:00:47.479 No, I think that like in a couple of years, 0:00:47.640 --> 0:00:49.920 the AI will do a really good job of making 0:00:49.960 --> 0:00:53.239 the out launch podcast. And people say, I don't really 0:00:53.320 --> 0:00:56.280 need to listen to Joe and Tracy anymore. We do have. 0:00:59.760 --> 0:01:02.120 Your listening to lots More, where we catch up with 0:01:02.160 --> 0:01:04.880 friends about what's going on right now, because. 0:01:04.680 --> 0:01:07.679 Even when the odd lots is over, there's always lots more. 0:01:07.959 --> 0:01:10.640 And we really do have the perfect guest. 0:01:13.560 --> 0:01:16.520 I think it's kind of weird to be worried about 0:01:16.560 --> 0:01:19.640 like some sort of recession or policy error on a 0:01:19.760 --> 0:01:22.480 day when like the market is basically at all time highs. 0:01:22.520 --> 0:01:23.800 Don't you think it's all strange? 0:01:24.120 --> 0:01:24.280 No? 0:01:25.200 --> 0:01:28.440 Really, I feel like normally we have these conversations about 0:01:28.480 --> 0:01:30.560 like something's going bad and like the market's down like 0:01:30.600 --> 0:01:31.360 fifteen percent. 0:01:32.080 --> 0:01:37.480 Yeah, but market's not that prescient all the time. And 0:01:37.800 --> 0:01:41.120 I mean, as we know discussing on the podcast, a 0:01:41.160 --> 0:01:43.120 lot of that. You look at what's going on in 0:01:43.120 --> 0:01:45.080 the s and P. Five hundred, like a huge portion 0:01:45.120 --> 0:01:47.760 of that is just driven by a handful of companies. 0:01:48.120 --> 0:01:50.320 Well, this is definitely true. The market is definitely not 0:01:50.440 --> 0:01:54.960 prescient all the time. But normally chatter follows the market. 0:01:55.120 --> 0:01:56.280 Yeah, that's true. 0:01:56.640 --> 0:01:58.680 But more and more people are talking about some sort 0:01:58.680 --> 0:02:02.000 of recession or or policy mistake by the Fed where 0:02:02.040 --> 0:02:03.080 they don't cut soon enough. 0:02:03.360 --> 0:02:06.480 Yes, this is definitely true. So we have seen a 0:02:06.480 --> 0:02:09.480 little bit of softening in the labor market, we've seen 0:02:09.720 --> 0:02:13.240 inflation start to come down, and there's a lot of 0:02:13.280 --> 0:02:17.080 discussion about how durable that trend actually is. And yet 0:02:17.440 --> 0:02:21.840 if you look at especially fedspeak, if you look at fedspeak, 0:02:22.000 --> 0:02:23.119 they seem very hawkish. 0:02:23.919 --> 0:02:27.640 I generally would agree. So here's the weird thing. Here's 0:02:27.639 --> 0:02:30.080 the thing that really freaks me out, which is that 0:02:30.200 --> 0:02:32.640 one of our friends of the pod, Neil Duddo, who 0:02:32.720 --> 0:02:35.239 has been like really you know, sunny and is always 0:02:35.280 --> 0:02:38.600 smiling and it's like always slaying the bears. Is a 0:02:38.600 --> 0:02:41.520 little nervous, Neil, Why are you nervous? That freaks me 0:02:41.560 --> 0:02:42.960 out that you're anxious? 0:02:43.360 --> 0:02:45.840 Well, I just think it's important to look at the 0:02:45.880 --> 0:02:49.160 realized data, right, you know, everyone's looking at you know, 0:02:49.200 --> 0:02:51.960 what's the outlook and whatf they cut once? Is that 0:02:52.080 --> 0:02:55.520 going to reignite the entire economy and inflation? I mean, 0:02:55.600 --> 0:02:58.400 let's just look at the realized data, the information as 0:02:58.440 --> 0:03:02.160 it's been coming in. I don't think forecasting is particularly 0:03:02.280 --> 0:03:04.240 useful when all the Fed does all day long is 0:03:04.280 --> 0:03:07.240 talking about how uncertain everything is. To just focus on 0:03:07.919 --> 0:03:11.720 what's actually happened. And what we know about what's actually 0:03:11.760 --> 0:03:15.440 happened is at the unemployment rate has jumped sixty basis 0:03:15.480 --> 0:03:19.160 points from its low point. It's rising at about thirty 0:03:19.200 --> 0:03:22.639 basis points every five months. If you you know, look 0:03:22.680 --> 0:03:25.280 at what's happened so far this year, which puts it 0:03:25.320 --> 0:03:27.560 on track to go up to four point four percent 0:03:27.639 --> 0:03:30.600 by year's end. That's higher than where the FED believes 0:03:30.639 --> 0:03:35.000 it's going to stay. And core inflation after a bumpy 0:03:35.040 --> 0:03:38.400 first quarter that by the way, is still edging lower. 0:03:39.000 --> 0:03:43.480 It's likely that in May. Over the last year, core 0:03:43.520 --> 0:03:47.040 inflation would have run two and a half percent. So 0:03:47.560 --> 0:03:51.600 when you think about like a rules based framework, you know, 0:03:51.640 --> 0:03:54.920 I think it's important to sort of just acknowledge that 0:03:55.320 --> 0:03:59.760 across a variety of monetary policy rules, it all suggests 0:03:59.840 --> 0:04:03.120 that a less restrictive stance of policies required. And you know, 0:04:03.240 --> 0:04:06.800 I mean obviously back during the post GFC era, right, 0:04:06.840 --> 0:04:08.800 I mean, there was all this talk about, well, we 0:04:08.840 --> 0:04:11.560 don't want to run policy based on like a computer. 0:04:11.800 --> 0:04:13.920 You know, what's the point of having it? Right, Like, 0:04:14.080 --> 0:04:16.480 you know you need to have some judgment. Well, if 0:04:16.520 --> 0:04:19.200 you're always uncertain about everything and you can't actually think, 0:04:19.279 --> 0:04:20.880 and you don't want you don't want to actually apply 0:04:21.000 --> 0:04:23.760 any judgment, maybe you should go to the rules. And 0:04:23.839 --> 0:04:27.719 the rules are basically telling you one thing, which is cut, 0:04:27.960 --> 0:04:29.279 and do it relatively soon. 0:04:30.040 --> 0:04:33.400 Yeah, in my mind, it feels like at this point 0:04:33.440 --> 0:04:37.599 you could essentially do like an insurance cut, right, Like 0:04:37.760 --> 0:04:41.200 the momentum is kind of in your favor. And yet 0:04:41.320 --> 0:04:44.560 it seems like FMC officials, at least looking at some 0:04:44.600 --> 0:04:48.039 of the recent FED speak, they're really worried about this 0:04:48.120 --> 0:04:50.880 idea that like there's going to be a long tail 0:04:51.000 --> 0:04:54.159 in inflation, and if they're not really really going up 0:04:54.200 --> 0:04:56.160 against it, it's going to be the nineteen seventies all 0:04:56.200 --> 0:04:56.719 over again. 0:04:57.400 --> 0:04:59.200 Yeah. I don't I don't really buy it. I mean, 0:04:59.200 --> 0:05:02.520 in the nineteen seven they took real interest rates negative, 0:05:03.080 --> 0:05:07.120 right No one's talking about doing something like that right now. 0:05:07.200 --> 0:05:10.920 I mean, I think what I'm talking about or advocating for, 0:05:11.040 --> 0:05:14.440 is that it's important to start a recalibration of policy. 0:05:14.080 --> 0:05:16.520 If they wait long enough, maybe they will have to 0:05:16.520 --> 0:05:18.360 go more. But the idea is to do a little 0:05:18.360 --> 0:05:20.280 bit now so you don't have to do more later, 0:05:20.839 --> 0:05:24.320 and sort of stabilize economic conditions at the moment. I 0:05:24.320 --> 0:05:26.839 think what's important is that there's really not much of 0:05:26.880 --> 0:05:29.240 a right tail risk to the economy. I mean, I 0:05:29.240 --> 0:05:31.680 would agree with Joe in the sense that I'm not 0:05:31.760 --> 0:05:34.280 going to light my hair on fire over recession risk. 0:05:34.920 --> 0:05:39.240 But it's just important to note the areas of the 0:05:39.240 --> 0:05:42.080 economy that have been kind of responsible for some of 0:05:42.080 --> 0:05:48.440 the slowing that we've seen this year. It's housing and consumption, okay, 0:05:48.480 --> 0:05:51.200 I mean, if you look at nominal retail sales and 0:05:51.240 --> 0:05:56.320 food services spending so far this year, it's actually basically 0:05:56.800 --> 0:05:59.080 where it was in December, so it's been flat for 0:05:59.200 --> 0:06:02.239 five months. And then when you look at new home sales, 0:06:03.000 --> 0:06:06.480 they've generally been slowing. If you look at new homes 0:06:06.520 --> 0:06:09.400 sold that haven't yet been started, it suggests that we're 0:06:09.440 --> 0:06:13.360 going to see continued weakness and residential construction spending over 0:06:13.400 --> 0:06:19.039 the summer. So it's not just about the economy slowing. 0:06:19.240 --> 0:06:21.919 It is, but it's really about the areas from where 0:06:22.000 --> 0:06:25.239 that slowing is coming. And so I think it's important 0:06:25.240 --> 0:06:26.799 to just keep that in the back of your mind. 0:06:27.400 --> 0:06:29.719 And it's just to me, it's balance of risks, like 0:06:29.960 --> 0:06:32.760 what is the risk for the unemployment rate? Tell me 0:06:32.800 --> 0:06:35.240 the downside story for unemployment, Like why does the labor 0:06:35.279 --> 0:06:37.960 market retighten at this point? It's really hard to come 0:06:38.040 --> 0:06:41.160 up with it. And same thing and with respect to inflation, 0:06:41.279 --> 0:06:44.800 like what's the upside scenario for inflation? So I think 0:06:44.880 --> 0:06:46.680 this sort of idea that they're just going to be 0:06:46.720 --> 0:06:49.159 a slave to the high frequency data and oh, just 0:06:49.200 --> 0:06:51.960 another few more months and we'll get there. It's kind 0:06:51.960 --> 0:06:54.400 of ridiculous when you don't have like a fundamental story 0:06:54.400 --> 0:06:58.039 for why that risk is really worth paying attention to. 0:06:58.360 --> 0:07:00.720 I thought it was really revealing. You know, I think 0:07:00.720 --> 0:07:03.919 at the last press conference, Jerome Powell was talking about 0:07:03.920 --> 0:07:06.840 import prices. He's like, well, you know, import prices rose 0:07:06.839 --> 0:07:09.040 and we can't really understand why. And then literally like 0:07:09.600 --> 0:07:13.040 twenty four hours later, the import price number comes out 0:07:13.280 --> 0:07:16.400 and it was a complete dud, Like it fell substantially. 0:07:17.560 --> 0:07:20.120 And why would you worry about import prices if the 0:07:20.200 --> 0:07:22.400 dollar strengthening? I mean, how do you how do import 0:07:22.440 --> 0:07:24.680 prices work? I mean, you know, it's just sometimes it's 0:07:24.680 --> 0:07:27.240 important to kind of stick with first principles, and so 0:07:27.440 --> 0:07:29.160 I don't know, I mean, I just they never really 0:07:29.160 --> 0:07:31.240 had a good explanation for y Q one was so 0:07:31.320 --> 0:07:33.000 firm in the first place, and they're sort of a 0:07:33.040 --> 0:07:36.440 slave to the high frequency data, and you know, I 0:07:36.520 --> 0:07:38.360 just think that you have to have like a fundamental 0:07:38.400 --> 0:07:40.800 framework in place. And the way to sort of frame 0:07:40.880 --> 0:07:43.920 this to the markets is, look, labor markets are an 0:07:43.920 --> 0:07:46.640 important driver of inflation, and the way we think about 0:07:46.680 --> 0:07:49.480 the world and the lay the inflation, our impulse from 0:07:49.520 --> 0:07:54.160 the labor market is basically zero. We've we've trimmed excess 0:07:54.240 --> 0:07:57.080 labor demand, as is evidenced by job openings, which is 0:07:57.120 --> 0:07:59.200 a series that they've been paying so much attention to 0:07:59.720 --> 0:08:01.920 and if you look at at labor costs over the 0:08:02.000 --> 0:08:04.920 last year, they're running under one percent. So where is 0:08:04.960 --> 0:08:08.800 the inflation going to come from? That supports a recalibration 0:08:08.880 --> 0:08:11.800 of monetary policy? Hice, And we can take by meaning 0:08:11.840 --> 0:08:14.720 my approach if that's what I would say. But you know, Joe, 0:08:14.720 --> 0:08:17.600 as you know, I don't have a PhD. I'm not 0:08:17.640 --> 0:08:19.160 at the FED, so you know. 0:08:19.320 --> 0:08:21.920 I don't have a PhD. Tracy, do you have a PhD? 0:08:22.840 --> 0:08:25.520 No, of course not. I have a postgraduate diploma. 0:08:26.240 --> 0:08:29.120 I like the way you pose this question, which is 0:08:29.160 --> 0:08:33.040 that it's understandable in the abstract, to say you know, 0:08:33.040 --> 0:08:36.000 it's understandable in the abstract, to say, of you know 0:08:36.000 --> 0:08:38.439 their risk to both sides. But the owners does seem 0:08:38.480 --> 0:08:41.440 to be on the sort of hawks to say, okay, like, 0:08:41.600 --> 0:08:43.840 if we're going to get a re emergence of inflation, 0:08:43.880 --> 0:08:47.199 where's it coming from? Because the story about labor markets 0:08:47.400 --> 0:08:50.800 and so forth was kind of a compelling story for years, 0:08:50.800 --> 0:08:53.880 except now we do have this pretty clear labor market 0:08:53.920 --> 0:08:56.839 slowing really across a range of a range of indicators. 0:08:56.960 --> 0:08:59.319 Here's my question though, like, all right, so they want 0:08:59.360 --> 0:09:00.880 to see a little more data they want to see 0:09:00.920 --> 0:09:05.319 a little more disinflation. How much risk is there if like, Okay, 0:09:05.360 --> 0:09:09.040 they don't do July, they probably won't like September, maybe November, 0:09:09.160 --> 0:09:11.680 Like does it really matter, like if you know whether 0:09:11.720 --> 0:09:12.520 it's September or. 0:09:12.440 --> 0:09:13.839 Noting November might matter. 0:09:13.960 --> 0:09:16.920 Yeah, But like like when we think there, does it 0:09:16.960 --> 0:09:18.600 really get away from them if they like put it 0:09:18.640 --> 0:09:20.000 off a few couple more meetings. 0:09:21.000 --> 0:09:23.680 I mean, the risks certainly build, you know, you know, 0:09:23.760 --> 0:09:25.960 I mean you know, I'm not going to say that 0:09:26.720 --> 0:09:30.040 the difference between July and September means the economy rolls 0:09:30.080 --> 0:09:32.800 over hard or not. But I definitely think the risks 0:09:32.800 --> 0:09:35.960 certainly build. The more they see, the more evidence they 0:09:36.000 --> 0:09:41.439 see inflation is slowing, and the more in transitence they 0:09:41.480 --> 0:09:44.160 sow in responding to it, the more the risk built 0:09:44.160 --> 0:09:48.079 for the economy. Because remember, I mean today's inflation data 0:09:48.240 --> 0:09:52.240 represents yesterday's monetary policy. So what do we know about inflation. 0:09:52.559 --> 0:09:55.600 We know that inflation's already been slowing, and we know 0:09:55.679 --> 0:09:58.959 that monetary policy hasn't been changing, so a good first 0:09:58.960 --> 0:10:02.880 past estimation that inflation will continue to slow. So in 0:10:03.160 --> 0:10:06.480 that respect, they're going to be passively tightening policy by 0:10:06.520 --> 0:10:09.760 doing nothing. So in that, in my mind, that means 0:10:09.760 --> 0:10:13.600 that the risks continue to build. So you're talking about 0:10:13.640 --> 0:10:15.920 an economy that's only growing. You know, it's growing at 0:10:15.960 --> 0:10:19.679 about two percent. Okay, fine, but the pressure will continue 0:10:19.679 --> 0:10:21.679 to build. And you look at the labor market. I mean, 0:10:21.679 --> 0:10:23.440 this is something a point that you brought up before. 0:10:24.400 --> 0:10:27.000 The only reason the labor markets look as good as 0:10:27.040 --> 0:10:30.880 they do is because the layoff rate is really really low. 0:10:31.080 --> 0:10:33.200 It's not like the rate of hiring has perked up 0:10:33.240 --> 0:10:35.440 or anything. The rate of hiring remains low. So if 0:10:35.520 --> 0:10:39.199 companies are getting now to a point where they're feeling 0:10:39.240 --> 0:10:41.800 a little bit more cautious on the outlook, a very 0:10:41.840 --> 0:10:45.320 modest increase in the layoff rate will generate much weaker 0:10:45.360 --> 0:10:48.240 growth in employment. And to me, the fact that the 0:10:48.280 --> 0:10:51.080 Fed has been leaning in hard to this sort of 0:10:51.160 --> 0:10:54.480 positive supply story, that just adds to it, right because 0:10:54.520 --> 0:10:56.720 at that point, you know, any any weakness and employment 0:10:56.720 --> 0:10:58.640 growth will imply that much weaker demand. 0:11:11.640 --> 0:11:14.680 Neil, you mentioned the idea of companies getting a little 0:11:14.679 --> 0:11:18.280 bit more cautious just then. I was overjoyed to see 0:11:18.360 --> 0:11:20.599 in one of your most recent notes, not just a 0:11:20.760 --> 0:11:24.800 mention but an entire rendering of the beverage curve, which 0:11:24.840 --> 0:11:27.040 is something that has been kind of like a hot 0:11:27.080 --> 0:11:31.000 topic in recent years. It's basically the relationship between job 0:11:31.040 --> 0:11:34.240 openings and unemployment. And for a while, lots of people 0:11:34.240 --> 0:11:36.600 were looking at the beverage curve as sort of like 0:11:36.640 --> 0:11:39.000 the key to whether or not we would have a 0:11:39.040 --> 0:11:42.360 soft landing. But it was really interesting you were arguing 0:11:42.400 --> 0:11:45.960 that looking at the beverage curve, it seems like you 0:11:46.000 --> 0:11:50.000 could have an even larger increase in unemployment if things 0:11:50.040 --> 0:11:51.559 start to turn for the worst. Can you talk to 0:11:51.640 --> 0:11:52.120 us about that? 0:11:52.600 --> 0:11:55.160 Yeah? Sure, So, as you mentioned, the beverage curve basically 0:11:55.200 --> 0:11:58.600 relates changes in the job vacancy rate to unemployment. And 0:11:58.760 --> 0:12:00.520 you know, for the better part of the last last year, 0:12:00.800 --> 0:12:03.320 we've been, you know, sort of the labor markets have 0:12:03.360 --> 0:12:05.600 been operating on sort of the vertical part of the 0:12:06.280 --> 0:12:09.280 of the beverage curve, right, So you can trim job 0:12:09.320 --> 0:12:11.960 openings or labor demand, I mean, job openings are a 0:12:12.000 --> 0:12:14.880 proxy for excess labor demand. You can trim excess labor 0:12:14.920 --> 0:12:18.800 demand without seeing much of an increase in the unemployment rate. 0:12:18.840 --> 0:12:20.840 And that's more or less what we've seen for the 0:12:20.840 --> 0:12:23.199 better part of the last year. But if you look 0:12:23.200 --> 0:12:25.439 at where the latest points are kind of lining up, 0:12:25.520 --> 0:12:29.000 it looks like they've you know, we're basically we've normalized. 0:12:29.640 --> 0:12:33.480 So in other words, any further deterioration in labor demand 0:12:33.480 --> 0:12:37.800 from this point will imply, you know, higher unemployment. We're 0:12:37.800 --> 0:12:40.080 no longer on that vertical part of the curve. And 0:12:40.200 --> 0:12:43.400 so that's what I'm concerned about. And I think the 0:12:43.520 --> 0:12:48.880 risk is, you know, unemployment never just goes up a 0:12:48.880 --> 0:12:52.920 little bit, right, I mean, it's it's either up, you know, 0:12:53.000 --> 0:12:55.480 a lot, or not at all. So we've kind of 0:12:55.520 --> 0:12:59.160 been what we've seen in the last year has been 0:12:59.160 --> 0:13:01.640 somewhat a history oracle in the sense that we've seen 0:13:01.679 --> 0:13:03.959 a you know, a fairly you know, notable increase in 0:13:04.000 --> 0:13:07.040 the unemployment rate and we haven't seen recession. But I mean, 0:13:07.080 --> 0:13:09.119 how far do you really want to push that experiment, 0:13:09.240 --> 0:13:16.120 particularly when broader measures of labor utilization suggest that, if anything, 0:13:17.000 --> 0:13:20.000 the U three unemployment rate at the margin is probably 0:13:20.080 --> 0:13:22.560 overstating the degree of health in the labor market. I mean, 0:13:22.559 --> 0:13:24.360 if you look at things like the quits rate, they're 0:13:24.400 --> 0:13:26.920 actually lower today than they were right before the pandemic. 0:13:27.040 --> 0:13:29.480 That's of course true for the hire's rate as well. 0:13:30.120 --> 0:13:32.960 You know, as I mentioned, I talked about unit labor costs. 0:13:33.240 --> 0:13:35.280 But the fact that labor turnover is so low and 0:13:35.320 --> 0:13:37.720 the quits rate's been coming down, that would suggest that 0:13:37.760 --> 0:13:39.880 there's not really much wage pressure out there. I mean, 0:13:39.880 --> 0:13:43.320 if anything, it's more likely at this point that firms 0:13:43.360 --> 0:13:46.760 are holding their workers flat relative to last year, more 0:13:46.800 --> 0:13:50.440 so than than changing their pay you know, for moving 0:13:50.480 --> 0:13:53.439 their payoff rather and so you know that that again, 0:13:53.520 --> 0:13:55.760 I mean, so where where's the inflation coming from? If 0:13:55.760 --> 0:13:58.760 the labor markets are not consistent with an inflation or impulse, 0:13:59.760 --> 0:14:03.439 and FED believes that they're running a very very hawkish policy, 0:14:03.880 --> 0:14:06.920 they should be much more concerned about potential downside risk 0:14:06.960 --> 0:14:10.120 to growth than upside risk to inflation. And what do 0:14:10.160 --> 0:14:12.760 we know about growth? We know that growth is slowing 0:14:12.760 --> 0:14:16.280 relative to where it was last year in two important sectors, 0:14:16.440 --> 0:14:17.320 housing and consumption. 0:14:17.520 --> 0:14:19.600 Tracy, can I say something that bothers me a little bit? 0:14:20.040 --> 0:14:20.160 Uh? 0:14:20.440 --> 0:14:25.280 Sure, you know now I'm nervous. 0:14:25.360 --> 0:14:27.560 No, No, it's not that bad. But so listening to 0:14:27.720 --> 0:14:31.120 like the FED officials, I'm trying to think, I don't 0:14:31.120 --> 0:14:33.080 want to express an opinion here because I don't do that, 0:14:33.240 --> 0:14:35.280 but can I just say people, So there seems to 0:14:35.320 --> 0:14:37.880 be a Neil described the date of the labor market 0:14:38.000 --> 0:14:41.000 as the hiring rate is down. So if you're looking 0:14:41.040 --> 0:14:45.000 for a job, your odds of getting a job have declined, right, 0:14:45.760 --> 0:14:48.000 But we haven't really had a layoff cycle, and so 0:14:48.040 --> 0:14:50.840 there seems to be like some comfort with this dynamic 0:14:50.920 --> 0:14:53.120 that it's like, okay, like this is softening, but like 0:14:53.320 --> 0:14:55.120 people who don't have a job in looking for a 0:14:55.240 --> 0:14:59.520 job just because they're not recent layoffs, like they count too. No, 0:14:59.640 --> 0:15:01.400 for real, you know, it to be like this view 0:15:01.480 --> 0:15:03.640 was like, oh, well, it's okay because it's just that 0:15:03.720 --> 0:15:05.600 the hiring rate is down, but at least we aren't 0:15:05.600 --> 0:15:07.880 seeing like layoffs. It's like, yeah, I'm glad we're not 0:15:07.920 --> 0:15:10.320 seeing me as layoffs. But also the people who are 0:15:10.360 --> 0:15:12.160 looking for a job are finding it harder and harder. 0:15:12.200 --> 0:15:14.000 That's not good either, No, of course not. 0:15:14.120 --> 0:15:16.680 I mean as an inventory thing works, right, guys, I 0:15:16.680 --> 0:15:18.400 mean you don't have right, I mean it's just basically 0:15:18.400 --> 0:15:22.560 it's taking longer for the excess housing and then the 0:15:22.640 --> 0:15:26.720 process that's driving up inventory. It's the same thing with unemployment, right, 0:15:26.800 --> 0:15:29.800 Like if you lose your job. At any given month, 0:15:29.840 --> 0:15:32.200 people are losing the job. It's taking those people longer 0:15:32.240 --> 0:15:35.000 amounts of time to find a job. Right, so over 0:15:35.080 --> 0:15:37.120 time you continue to like, right, it's like a bathtub 0:15:37.160 --> 0:15:38.080 model of unemployment. 0:15:38.200 --> 0:15:40.040 Yeah, no, I get how the I get how it works. 0:15:40.040 --> 0:15:41.560 I'm just saying, like, they count too. 0:15:41.800 --> 0:15:44.520 You should make a T shirt Joe that says they 0:15:44.560 --> 0:15:45.000 count to. 0:15:45.040 --> 0:15:45.680 They count too. 0:15:45.960 --> 0:15:48.760 Actually, this reminds me so. One thing I was thinking 0:15:48.760 --> 0:15:51.080 about is like, so much of the labor market titaness 0:15:51.280 --> 0:15:54.040 was driven by the services sector in recent years, and 0:15:54.080 --> 0:15:57.560 you know, we saw the displacement of workers there and 0:15:57.600 --> 0:16:00.040 then it took a while to get people back, and 0:16:00.040 --> 0:16:02.720 and there was a ton of pent up demand and 0:16:02.800 --> 0:16:05.640 everyone wanted to go out to restaurants again or go 0:16:05.680 --> 0:16:09.280 on vacations or whatever. I do feel like potentially the 0:16:09.320 --> 0:16:11.640 peak of that is over, which kind of begs the 0:16:11.720 --> 0:16:13.960 question of, well, if you're not going to get additional 0:16:13.960 --> 0:16:16.560 tightness in the services market, then where does it come from. 0:16:16.560 --> 0:16:18.520 I don't think it's going to come from like AI 0:16:18.720 --> 0:16:22.080 investment and everyone suddenly becomes a chat GPT prompter or 0:16:22.120 --> 0:16:22.840 something like that. 0:16:23.600 --> 0:16:26.600 To that point, if you look at average hourly earnings 0:16:26.600 --> 0:16:34.080 in retail trade and leisure in hospitality, they've slowed precipitously 0:16:34.160 --> 0:16:37.080 over the last year. I mean, those are the two industries, 0:16:37.160 --> 0:16:39.960 those two sort of service industries that gottled so much 0:16:40.000 --> 0:16:43.440 attention during the COVID pandemic because you know, sort of 0:16:43.440 --> 0:16:46.080 a proxy for kind of low end service work. You know, 0:16:46.120 --> 0:16:49.240 these are the people with hyperpensity to suspend. But their 0:16:49.240 --> 0:16:52.520 wage growth has been slowing over the last year. So again, 0:16:52.600 --> 0:16:55.760 I mean, where's the inflation coming from? I just keep 0:16:55.760 --> 0:16:57.960 coming back to this point, like, where is the inflation 0:16:58.080 --> 0:17:01.320 coming from? You know, people, you know, you can point 0:17:01.320 --> 0:17:03.680 to oil or something. I mean, I just don't really, 0:17:03.960 --> 0:17:07.560 that's not really a broad increase in prices. Ultimately, the 0:17:07.640 --> 0:17:10.600 labor markets are an important driver for how the FED 0:17:10.680 --> 0:17:14.920 thinks about inflation, rightly or wrongly. But right now, unit 0:17:15.000 --> 0:17:19.680 labor costs are basically zero, So you know, I think 0:17:19.680 --> 0:17:21.840 that there's room for prices to keep coming down. 0:17:22.760 --> 0:17:26.240 Obviously in private and in public and in every statement 0:17:26.320 --> 0:17:29.359 that any member of the FED has ever said, with 0:17:29.560 --> 0:17:32.040 kind of one exception, but I'm not going to say. 0:17:31.840 --> 0:17:34.720 With this Wait, okay, I'll ask you afterwards. 0:17:34.920 --> 0:17:38.040 They'll they'll say, politics just does completely not matter, you know, 0:17:38.080 --> 0:17:42.760 it's not our jobs, like time things around the election. Nonetheless, Neil, 0:17:42.800 --> 0:17:45.920 do you think the reality of the calendar right now? 0:17:46.440 --> 0:17:48.960 We have there's a July meeting, there's a September meeting, 0:17:49.240 --> 0:17:51.440 and then there's a meeting that's literally two days after 0:17:51.440 --> 0:17:53.760 the election or something like that. Does the timing of 0:17:53.800 --> 0:17:56.640 the calendar Do you think it's affecting how the FED 0:17:56.720 --> 0:17:57.719 is thinking about the timing? 0:17:58.160 --> 0:18:01.359 No, okay, because I think that it's sort of your 0:18:01.440 --> 0:18:03.840 damned if you do, damned if you don't. Right, let's 0:18:03.880 --> 0:18:07.600 say that they they don't want to respond to the calendar, right, Like, 0:18:07.680 --> 0:18:11.400 let's say that they want to hold off on cutting 0:18:11.520 --> 0:18:16.440 because they're worried about doing something that looks political ahead 0:18:16.440 --> 0:18:22.560 of the election. Okay, that in and of itself is political, Yeah, okay, right, 0:18:22.600 --> 0:18:26.159 because what are the chances that, Okay, we should I 0:18:26.160 --> 0:18:28.399 mean this inflation data are slow and we should probably 0:18:28.400 --> 0:18:30.840 get on with it, but we're not going to. In 0:18:30.880 --> 0:18:33.720 the process, the economy is weakening as a result of that. 0:18:34.119 --> 0:18:36.639 Then you have a new president that just gets that 0:18:36.680 --> 0:18:39.200 comes into office or just wins the election, and then 0:18:39.240 --> 0:18:42.159 boom you start the easing cycle with a fifty bases 0:18:42.200 --> 0:18:46.480 point move right, Like, how does that look? Yeah, so 0:18:46.640 --> 0:18:49.520 it's sort of I just think that you just focus 0:18:49.560 --> 0:18:51.439 on the data, do what you think is right. I 0:18:51.440 --> 0:18:54.359 do think that there's precedent for the FED moving in 0:18:54.400 --> 0:18:57.119 events of an election. I mean there's this nonsensical talking 0:18:57.160 --> 0:19:00.199 point around Wall Street about how, you know, never has 0:19:00.240 --> 0:19:03.359 the FED cut interest rates in a September meeting before 0:19:03.400 --> 0:19:07.600 an election? Well, okay, BERNANKI launched open end at QWI 0:19:07.680 --> 0:19:10.159 in September of twenty twelve. I mean like it's like 0:19:10.160 --> 0:19:11.720 one of these things where it's like, yes, I guess 0:19:11.720 --> 0:19:14.680 that's technically true, but also irrelevant because we were never 0:19:14.760 --> 0:19:18.160 taking rates negative. So instead they launched an open ended 0:19:18.160 --> 0:19:21.159 asset purchase program. I mean, is that enough? So? I 0:19:21.200 --> 0:19:23.399 think the FED has shown that it's willing to do 0:19:23.520 --> 0:19:27.920 things at politically sensitive moments, you know. I mean many 0:19:27.960 --> 0:19:30.920 of the people that are talking about how the Fed's 0:19:30.960 --> 0:19:33.320 political have also been the ones talking about long and 0:19:33.400 --> 0:19:36.000 variable legs right for the better part of the last 0:19:36.160 --> 0:19:39.720 you know, eighteen months, And if the FED does something 0:19:39.720 --> 0:19:41.920 in September, like, how does that help bide in any 0:19:41.920 --> 0:19:43.199 meaningful way? In November? 0:19:44.320 --> 0:19:46.720 Neil I'm going to ask you to do our job 0:19:46.760 --> 0:19:48.960 for us. But Joe and I are supposed to go 0:19:48.960 --> 0:19:51.840 to Jackson Hole in August. On the off chance that 0:19:51.880 --> 0:19:55.240 we run into Jerome Pal hiking through the woods or 0:19:55.280 --> 0:19:57.840 something like that. What should we ask him? 0:19:58.520 --> 0:19:59.960 Tell him that he should be cutting through the world, 0:20:01.240 --> 0:20:05.720 Just tell him to cut. I would ask him, if 0:20:05.760 --> 0:20:08.800 the unemployment rate rose two tenths of one percent in 0:20:08.840 --> 0:20:11.679 twenty twenty three, with the real economy growing three percent, 0:20:11.800 --> 0:20:14.920 why would it stay flat for the next two quarters 0:20:14.920 --> 0:20:16.119 with the economy slowing? 0:20:16.240 --> 0:20:18.359 Oh, this is the set right the dots? 0:20:18.560 --> 0:20:22.120 Yeah, how does that work? Explain it to me? Oh? 0:20:22.200 --> 0:20:25.400 Man like that would be one question I would ask him. 0:20:25.440 --> 0:20:27.040 I think Pal is going to be running away from 0:20:27.119 --> 0:20:28.600