1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,560 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,640 --> 00:00:18,479 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,599 Speaker 1: at Bloomberg dot com slash podcast. Let's step away a 7 00:00:22,680 --> 00:00:26,040 Speaker 1: little bit from fed speak and rates. Let's let's talk about, 8 00:00:26,480 --> 00:00:29,040 Speaker 1: you know, some of the bigger, bigger trends, long term 9 00:00:29,040 --> 00:00:33,560 Speaker 1: trends affecting investing longer term. 'm talking about climate change 10 00:00:33,600 --> 00:00:35,920 Speaker 1: and our good friends at p JIM have some some 11 00:00:36,040 --> 00:00:39,159 Speaker 1: good research out on that. Tim Er Hyatt, he's a 12 00:00:39,200 --> 00:00:42,120 Speaker 1: chief operating officer for p JIM. PEJAM is a global 13 00:00:42,200 --> 00:00:46,520 Speaker 1: investment management business of Prudential Financial one point five trillion 14 00:00:46,800 --> 00:00:51,960 Speaker 1: with a t under management UH based in a researging Newark, 15 00:00:51,960 --> 00:00:54,840 Speaker 1: New Jersey. Tamer. Thank you so much for joining us here. 16 00:00:55,120 --> 00:00:56,920 Speaker 1: Talk to us about I know you guys are out 17 00:00:56,960 --> 00:01:01,560 Speaker 1: with a recent report weathering climate change, opportunities and risk 18 00:01:02,000 --> 00:01:06,319 Speaker 1: in an altered investment landscape. Climate change is such a 19 00:01:06,400 --> 00:01:10,240 Speaker 1: huge issue on a global scale. There have political ramifications. 20 00:01:10,280 --> 00:01:13,679 Speaker 1: How are you guys thinking about how that affects your 21 00:01:13,720 --> 00:01:18,319 Speaker 1: investment paradigm. It's a it's a it's a great question, 22 00:01:18,560 --> 00:01:22,000 Speaker 1: and you know, I really think it's it's long term. 23 00:01:22,040 --> 00:01:24,360 Speaker 1: But with what we saw in Texas not very long 24 00:01:24,400 --> 00:01:27,360 Speaker 1: ago and all the issues there, the sort of Minsky 25 00:01:27,480 --> 00:01:30,679 Speaker 1: moment for climate change is happening around us with beginning 26 00:01:30,680 --> 00:01:34,400 Speaker 1: to be priced in. And that's maybe our biggest pieceis 27 00:01:34,440 --> 00:01:37,840 Speaker 1: that for all investors, whether they have an E. S 28 00:01:37,880 --> 00:01:40,880 Speaker 1: G lens, but even if they don't, the data now 29 00:01:41,080 --> 00:01:44,480 Speaker 1: this distinguished between winners and losers. Those will be on 30 00:01:44,560 --> 00:01:47,000 Speaker 1: the right side of climate change and I'm making the 31 00:01:47,000 --> 00:01:50,600 Speaker 1: evolution and those will be left behind as dinosaurs and 32 00:01:50,680 --> 00:01:55,440 Speaker 1: stranded assets. And that increasingly every asset and every security 33 00:01:56,000 --> 00:01:59,160 Speaker 1: will start having climate change externalities which have been there 34 00:01:59,200 --> 00:02:02,320 Speaker 1: for you know, one group of people, but not reflected 35 00:02:02,320 --> 00:02:05,520 Speaker 1: in market prices, increasingly reflected in market prices for but 36 00:02:05,960 --> 00:02:11,679 Speaker 1: five different, very important reasons. So my question is we're 37 00:02:11,720 --> 00:02:14,480 Speaker 1: all against climate change. Obviously, where can I make the 38 00:02:14,520 --> 00:02:18,360 Speaker 1: most money on this? I mean, where are the opportunities 39 00:02:18,680 --> 00:02:22,360 Speaker 1: that haven't already been uh, that are haven't already been 40 00:02:22,440 --> 00:02:27,120 Speaker 1: crowded into? So I would say that two biggest areas 41 00:02:27,160 --> 00:02:30,680 Speaker 1: are looking for places where climate change will actually impact 42 00:02:30,720 --> 00:02:34,839 Speaker 1: a company's performance, but the markets haven't internalized it because 43 00:02:34,880 --> 00:02:37,960 Speaker 1: they haven't utilized the data or seen the writing on 44 00:02:38,040 --> 00:02:40,360 Speaker 1: the wall. And the two areas that give us examples 45 00:02:40,520 --> 00:02:46,000 Speaker 1: is first, hidden risks in areas like semiconductors and pharmaceuticals. 46 00:02:46,080 --> 00:02:48,320 Speaker 1: They seem like the in pristine areas, right a Swiss 47 00:02:48,320 --> 00:02:52,280 Speaker 1: pharmaceutical company, a Taiwanese semi conductor company. But if you 48 00:02:52,280 --> 00:02:55,640 Speaker 1: attract the supply chain back, you can separate between companies 49 00:02:55,639 --> 00:02:59,840 Speaker 1: who have risk to medical manufacturing in India or semicon 50 00:03:00,040 --> 00:03:02,399 Speaker 1: up to risk in Arizona where the water stress will 51 00:03:02,440 --> 00:03:05,480 Speaker 1: really affect the manufacturing processes. And if you look back, 52 00:03:05,520 --> 00:03:08,480 Speaker 1: you can start seeing which companies are much more immune 53 00:03:08,480 --> 00:03:11,680 Speaker 1: to climate risk and therefore will perform better versus which 54 00:03:11,840 --> 00:03:14,760 Speaker 1: that are not and will perform worse. Uh. And then 55 00:03:14,840 --> 00:03:17,040 Speaker 1: the second area I would say is on the on 56 00:03:17,120 --> 00:03:20,240 Speaker 1: the greener end of the brown fossil fuel industry. You know, 57 00:03:20,320 --> 00:03:21,880 Speaker 1: not a lot of people have said, you know that 58 00:03:22,000 --> 00:03:25,400 Speaker 1: divestment is a responsible investing strategy. I think there are 59 00:03:25,440 --> 00:03:27,840 Speaker 1: some investors who are saying, I can actually now have 60 00:03:27,960 --> 00:03:31,000 Speaker 1: the data to distinguish between companies like BP and Shell 61 00:03:31,360 --> 00:03:34,839 Speaker 1: were maybe doing much more in evolving ensuring that don't 62 00:03:34,880 --> 00:03:38,280 Speaker 1: become stranded acid versus energy companies that haven't made the 63 00:03:38,360 --> 00:03:41,360 Speaker 1: transition that might die out as dinosaurs. The data now 64 00:03:41,360 --> 00:03:44,000 Speaker 1: allows us to distinguish what we call the olive industries 65 00:03:44,240 --> 00:03:46,200 Speaker 1: at the greener end of brand. And that is certainly 66 00:03:46,240 --> 00:03:49,720 Speaker 1: another opportunity across the fossil field sector, which will be 67 00:03:49,760 --> 00:03:51,960 Speaker 1: by the way, with us still at least twenty fifty 68 00:03:52,040 --> 00:03:54,880 Speaker 1: we think about forty percent of energy consumption will come 69 00:03:54,920 --> 00:03:59,080 Speaker 1: from possiblitives. Even then, despite meeting the parents agreement alright, 70 00:03:59,120 --> 00:04:02,280 Speaker 1: time more. You know, here Bloomberg, we're all about data. 71 00:04:02,440 --> 00:04:06,080 Speaker 1: If you can't measure it, you can't management and manage it. 72 00:04:06,160 --> 00:04:08,600 Speaker 1: Is what the one of our our folks here at 73 00:04:08,600 --> 00:04:11,520 Speaker 1: Bloomberg is fond of saying, talk to us about the 74 00:04:11,640 --> 00:04:14,840 Speaker 1: data that you think investors and maybe even companies should 75 00:04:14,840 --> 00:04:17,120 Speaker 1: be disclosing and focusing on what's the data that you 76 00:04:17,120 --> 00:04:20,600 Speaker 1: guys really look at. So so there are about a 77 00:04:20,760 --> 00:04:23,880 Speaker 1: range of data providers, of which Bloomberg is one, but 78 00:04:24,040 --> 00:04:26,800 Speaker 1: you know, you use about five or six different providers. 79 00:04:27,160 --> 00:04:30,159 Speaker 1: Obviously the most common one is stubbing emissions, but increasingly, 80 00:04:30,160 --> 00:04:32,080 Speaker 1: and we have a really big real estate business, as 81 00:04:32,640 --> 00:04:36,599 Speaker 1: you all know, Increasingly it's satellite data flood maps that 82 00:04:36,640 --> 00:04:39,880 Speaker 1: are more frequently updated than kind of you know, official 83 00:04:39,920 --> 00:04:44,160 Speaker 1: government map is storm stress. So on the real estate side, 84 00:04:44,160 --> 00:04:46,719 Speaker 1: I would say real assets in general infrastructure, there's a 85 00:04:46,760 --> 00:04:49,240 Speaker 1: lot of good data that allows us to make an 86 00:04:49,320 --> 00:04:52,080 Speaker 1: environmental assessment and often that aligns to actually creating more 87 00:04:52,160 --> 00:04:55,440 Speaker 1: value for our customers by understanding how we build resilience 88 00:04:55,480 --> 00:04:58,520 Speaker 1: to that. On the public market side, stuff and bond 89 00:04:58,800 --> 00:05:01,160 Speaker 1: there's a long journey still to do. The basic ubun 90 00:05:01,200 --> 00:05:03,640 Speaker 1: emission data is there for large caps, but if you 91 00:05:03,720 --> 00:05:06,240 Speaker 1: go into high yield, if you go into emerging markets, 92 00:05:06,240 --> 00:05:09,040 Speaker 1: the big data gaps there. The good news is they're 93 00:05:09,080 --> 00:05:12,280 Speaker 1: filling in quickly, so we'd encourage all investors to just 94 00:05:12,400 --> 00:05:14,839 Speaker 1: keep tracking this, not on an annual basis, but every 95 00:05:14,839 --> 00:05:17,760 Speaker 1: two three months. The data is enriching and demanding more 96 00:05:17,800 --> 00:05:22,000 Speaker 1: transparency and accurate disclosures from the public sector companies will 97 00:05:22,040 --> 00:05:24,039 Speaker 1: allow people to build in What is important not just 98 00:05:24,120 --> 00:05:26,839 Speaker 1: for E s G investors but for every investor, which 99 00:05:26,880 --> 00:05:29,120 Speaker 1: is look at climate as a risk and an opportunity 100 00:05:29,440 --> 00:05:32,240 Speaker 1: as just part of your co integrated investment process and 101 00:05:32,279 --> 00:05:35,520 Speaker 1: that's what we do across PGM. Alright, Timer, thanks very 102 00:05:35,600 --> 00:05:37,600 Speaker 1: much for joining us. Pleasure having you on the program 103 00:05:37,920 --> 00:05:40,960 Speaker 1: time or high at Chief operating officer a PGM talking 104 00:05:41,000 --> 00:05:44,680 Speaker 1: to us about a Really, I mean, now it's almost 105 00:05:44,880 --> 00:05:50,800 Speaker 1: generally accepted umah investment. Uh. It's part of that whole 106 00:05:50,800 --> 00:05:54,080 Speaker 1: E s G movement that is becoming so so prevalent 107 00:05:54,600 --> 00:05:57,600 Speaker 1: among institutional investors. Every factor is the word I was 108 00:05:57,640 --> 00:06:01,080 Speaker 1: looking for. It's really one of the one of the factors. 109 00:06:01,120 --> 00:06:03,679 Speaker 1: And I remember, I think it's just in the last 110 00:06:03,720 --> 00:06:06,880 Speaker 1: couple of years become one because two or three years 111 00:06:06,920 --> 00:06:09,599 Speaker 1: ago there were still question marks about the validity of 112 00:06:09,640 --> 00:06:13,600 Speaker 1: investing UM through the prism of E s G. And 113 00:06:13,720 --> 00:06:16,040 Speaker 1: now all of the big houses I mean, look, PJAM 114 00:06:16,080 --> 00:06:19,040 Speaker 1: has one point eight trillion dollars UM, so they got 115 00:06:19,040 --> 00:06:20,840 Speaker 1: a lot of weight behind it, and they're joined by 116 00:06:20,880 --> 00:06:25,400 Speaker 1: a lot of other big players out there. Well, yes 117 00:06:25,440 --> 00:06:27,600 Speaker 1: they we heard from FED Chairman J. Pal and I 118 00:06:27,600 --> 00:06:31,800 Speaker 1: think the message was generally, uh, status quo lower for 119 00:06:31,960 --> 00:06:35,800 Speaker 1: longer as it relates to rates, Yes, monitoring inflation, but 120 00:06:35,880 --> 00:06:39,799 Speaker 1: not overly concerned yet rates today looking at the tenure 121 00:06:40,000 --> 00:06:44,400 Speaker 1: it is trading it just almost one point seven three percent. 122 00:06:45,080 --> 00:06:47,400 Speaker 1: We see a steeping in the year field curve as well. 123 00:06:47,440 --> 00:06:50,120 Speaker 1: Let's get a update from a good friend of ours, 124 00:06:50,160 --> 00:06:54,160 Speaker 1: Lindsay Pexas she's a chief economist for Steple, joining us 125 00:06:54,160 --> 00:06:56,480 Speaker 1: on the phone from Chicago. Lindsay, thanks so much for 126 00:06:56,600 --> 00:07:00,479 Speaker 1: joining us here. What was your takeaway from the comments 127 00:07:00,560 --> 00:07:04,479 Speaker 1: from a Fed chair poal yesterday. Well, as you mentioned, 128 00:07:04,520 --> 00:07:06,800 Speaker 1: the the policy announcement was very much in line with 129 00:07:06,880 --> 00:07:11,520 Speaker 1: expectation rates unchanged as it purchases on a monthly basis unchanged. 130 00:07:11,760 --> 00:07:14,080 Speaker 1: But when we look at what was released along with 131 00:07:14,160 --> 00:07:17,920 Speaker 1: that policy announcement, the set or the summary of economic projections, 132 00:07:18,240 --> 00:07:21,560 Speaker 1: it does appear as if the committee is increasingly optimistic. 133 00:07:21,640 --> 00:07:25,720 Speaker 1: They lower their outlook for unemployments, they increased their outlook 134 00:07:25,760 --> 00:07:28,760 Speaker 1: for growth and inflation. And yet when the chairman was 135 00:07:28,840 --> 00:07:33,560 Speaker 1: pressed on this improved outlook, he continued to downplay the 136 00:07:33,640 --> 00:07:37,560 Speaker 1: improvement and focus instead on some of the lingering risks 137 00:07:37,640 --> 00:07:40,720 Speaker 1: and the lingering pain in some of the hardest hit 138 00:07:40,800 --> 00:07:43,960 Speaker 1: sectors of the economy, so really highlighting some of the 139 00:07:44,040 --> 00:07:47,800 Speaker 1: further need for recommendation when the forecast does seem to 140 00:07:47,800 --> 00:07:52,160 Speaker 1: be painting a much brighter picture, which the market anticipated 141 00:07:52,440 --> 00:07:55,520 Speaker 1: the FED would have started to indicate, uh, maybe taking 142 00:07:55,520 --> 00:07:57,720 Speaker 1: the foot off the gas. So it was a little 143 00:07:57,720 --> 00:07:59,440 Speaker 1: bit of talking out of both sides of the mouth 144 00:07:59,520 --> 00:08:02,560 Speaker 1: from from the FED chairman yesterday. For first of all, lindsay, 145 00:08:02,600 --> 00:08:04,840 Speaker 1: thank you very much for clearing that up for me. 146 00:08:05,200 --> 00:08:09,320 Speaker 1: Cameron Cries talks about the feds SEP forecast and I 147 00:08:09,360 --> 00:08:13,360 Speaker 1: was reading that like, what on earth is a SEP forecast? 148 00:08:13,520 --> 00:08:16,840 Speaker 1: But um, that's why we have the experts like you 149 00:08:16,960 --> 00:08:21,760 Speaker 1: on the program. How high do you think, um Bizarro 150 00:08:21,920 --> 00:08:26,840 Speaker 1: Vulcar is willing to let inflation go before he moves 151 00:08:26,880 --> 00:08:30,360 Speaker 1: away from zerp. I mean, uh, if we see four 152 00:08:30,440 --> 00:08:35,240 Speaker 1: percent inflation, does Powell still say hang on, it's transitory, 153 00:08:35,280 --> 00:08:39,280 Speaker 1: it'll go away, or does he do something with raids? Well, 154 00:08:39,280 --> 00:08:42,040 Speaker 1: it really depends in the near term. The committee seems 155 00:08:42,080 --> 00:08:45,080 Speaker 1: pretty convinced that any sort of bump up in the 156 00:08:45,160 --> 00:08:48,400 Speaker 1: coming month through the summer is really a reflection of 157 00:08:48,440 --> 00:08:52,560 Speaker 1: this reflation trade so as the low loads of fall 158 00:08:52,640 --> 00:08:55,640 Speaker 1: out of the annual calculation. So they're looking at this 159 00:08:55,679 --> 00:08:58,640 Speaker 1: as a temporary bump up, not an indication of longer 160 00:08:58,720 --> 00:09:01,880 Speaker 1: term inflation. But even if we did cease the stained 161 00:09:02,000 --> 00:09:06,800 Speaker 1: upward momentum and prices. The fed new framework allows the 162 00:09:07,600 --> 00:09:11,920 Speaker 1: FED to allow inflation to run hot without forcing their hands. 163 00:09:11,920 --> 00:09:15,360 Speaker 1: So essentially they're now looking at inflation through an average 164 00:09:15,440 --> 00:09:20,240 Speaker 1: flexible target, meaning that we could actually see inflation run 165 00:09:20,280 --> 00:09:24,680 Speaker 1: near three percent for the next several years, but still 166 00:09:24,720 --> 00:09:27,319 Speaker 1: not exceed the FED longer term average of two percent. 167 00:09:27,440 --> 00:09:29,440 Speaker 1: So there's a lot of wiggle room that the FED 168 00:09:29,480 --> 00:09:32,680 Speaker 1: has now when it comes to their inflation mandates. Hey, Linda, 169 00:09:32,800 --> 00:09:34,400 Speaker 1: you know and that we got another piece of economic 170 00:09:34,520 --> 00:09:36,760 Speaker 1: data this morning on the you know, the jobs claims, 171 00:09:36,800 --> 00:09:39,840 Speaker 1: and they came in higher than expected. They came in 172 00:09:40,200 --> 00:09:44,520 Speaker 1: stubbornly high, seventy thousands. It just doesn't seem to see, 173 00:09:45,440 --> 00:09:48,679 Speaker 1: you know, much improvement there. How concerned are you about 174 00:09:48,760 --> 00:09:50,600 Speaker 1: the labor market? You know, I've heard a lot of 175 00:09:50,679 --> 00:09:53,439 Speaker 1: positive sentiments from folks saying this thing is going to 176 00:09:53,480 --> 00:09:56,720 Speaker 1: bounce back really quickly when when we reopened. What are 177 00:09:56,720 --> 00:09:59,640 Speaker 1: your thoughts? Well, I don't think we can expect anything 178 00:09:59,679 --> 00:10:02,079 Speaker 1: to bounced back quickly when we're talking about one of 179 00:10:02,120 --> 00:10:05,679 Speaker 1: the worst recessionary scenarios for the US economy and history. 180 00:10:05,720 --> 00:10:08,840 Speaker 1: But we certainly have taken big steps in the right direction. 181 00:10:09,280 --> 00:10:12,160 Speaker 1: We have put roughly half of the twenty two million 182 00:10:12,200 --> 00:10:14,440 Speaker 1: Americans that lost their job at the onset of the 183 00:10:14,440 --> 00:10:18,640 Speaker 1: crisis back to a position of gainful employment. That being said, 184 00:10:18,640 --> 00:10:21,920 Speaker 1: we're still talking about roughly ten million Americans out of work, 185 00:10:22,240 --> 00:10:25,280 Speaker 1: So there still is a big gap between where we 186 00:10:25,320 --> 00:10:28,000 Speaker 1: are and where we were prior to the pandemic. And 187 00:10:28,040 --> 00:10:29,680 Speaker 1: I do think that's one of the points that share 188 00:10:29,720 --> 00:10:34,360 Speaker 1: Paul was trying to uh really acknowledge yesterday when he 189 00:10:34,400 --> 00:10:37,640 Speaker 1: talked about the six percent civilian unemployment rate, but the 190 00:10:37,679 --> 00:10:39,840 Speaker 1: real rate that he feels in the labor market is 191 00:10:39,880 --> 00:10:42,880 Speaker 1: closer to ten percent. So there still is a lot 192 00:10:42,920 --> 00:10:45,880 Speaker 1: of linkering pain in the labor force, giving the Committee 193 00:10:45,920 --> 00:10:48,800 Speaker 1: no incentive to act with any sense of immediacy to 194 00:10:48,840 --> 00:10:54,400 Speaker 1: remove accommodation. It's interesting, what do you expect um say 195 00:10:54,520 --> 00:10:58,600 Speaker 1: at year end in terms of the reopened economy and 196 00:10:58,800 --> 00:11:02,840 Speaker 1: continued client continue you in claims well, I would expect 197 00:11:02,880 --> 00:11:06,440 Speaker 1: for a further improvement in the labor market as the 198 00:11:06,480 --> 00:11:10,160 Speaker 1: economy is further able to reopen, and we see this 199 00:11:10,240 --> 00:11:12,920 Speaker 1: as businesses are are able to open their doors. Welcome 200 00:11:12,960 --> 00:11:16,200 Speaker 1: back employees, welcome back to sumers. We are starting to 201 00:11:16,240 --> 00:11:18,679 Speaker 1: see the cycle over of organic We see it in 202 00:11:18,720 --> 00:11:21,800 Speaker 1: some states, right, Lindsay, I mean Florida is absolutely Florida 203 00:11:21,880 --> 00:11:24,680 Speaker 1: is open for business. Yeah. Absolutely, And you see a 204 00:11:24,720 --> 00:11:27,800 Speaker 1: big economy between the growth rate in Florida versus the 205 00:11:27,800 --> 00:11:31,600 Speaker 1: growth rate in California. And yet arguably the case rates 206 00:11:32,000 --> 00:11:35,880 Speaker 1: were not that different. Uh, And so there is a 207 00:11:35,960 --> 00:11:39,800 Speaker 1: very different approach rate by faith and certainly those that 208 00:11:39,840 --> 00:11:42,760 Speaker 1: are allowing businesses to return. Now that being said, there 209 00:11:42,800 --> 00:11:46,520 Speaker 1: are some federal impediments that businesses are facing with the 210 00:11:46,640 --> 00:11:50,720 Speaker 1: extension of these very generous unemployment benefits. Some small businesses 211 00:11:50,720 --> 00:11:54,640 Speaker 1: they're saying they're having difficulty now reconnecting with employees even 212 00:11:54,679 --> 00:11:57,679 Speaker 1: as they're trying to reopen. So again, nothing is easy. 213 00:11:57,760 --> 00:12:00,240 Speaker 1: Nothing is a flip of Swich scenario. The U S 214 00:12:00,280 --> 00:12:02,920 Speaker 1: economy is still struggling to get back to pre pandemic 215 00:12:03,000 --> 00:12:07,600 Speaker 1: level real quickly. I just want to get twenty seconds, Lindsay. 216 00:12:07,880 --> 00:12:11,560 Speaker 1: The stifle GDP outlook, well, we are looking for a 217 00:12:11,640 --> 00:12:15,800 Speaker 1: very robust one when you're talking about trillions of dollars 218 00:12:15,800 --> 00:12:18,679 Speaker 1: coming down the pipeline as well as the opportunity for 219 00:12:19,000 --> 00:12:22,840 Speaker 1: trillions more as the Biden administration has expressed UH somewhere 220 00:12:22,880 --> 00:12:26,360 Speaker 1: between two to four trillion a likelihood for additional infrastructure, health, 221 00:12:26,400 --> 00:12:29,440 Speaker 1: and social programs. So we're looking for an annualized rate 222 00:12:29,520 --> 00:12:32,480 Speaker 1: somewhere around five to six percent. Very cool wealth of 223 00:12:32,520 --> 00:12:36,120 Speaker 1: information from you, Lindsay appreciated as always Lindsay PEXA their 224 00:12:36,160 --> 00:12:40,400 Speaker 1: chief economist at stifle Uh. Paul I was just gonna 225 00:12:40,440 --> 00:12:42,600 Speaker 1: point out, there's a really cool chart that Mike McKee 226 00:12:42,880 --> 00:12:48,680 Speaker 1: put together showing initial jobless claims holding continually above the levels, 227 00:12:48,760 --> 00:12:52,080 Speaker 1: the high levels that we hit in the Great Financial Crisis, 228 00:12:52,160 --> 00:12:55,480 Speaker 1: and even back in two and that's seven seventy you quoted, 229 00:12:55,640 --> 00:12:58,440 Speaker 1: is still above that level. So still a lot of 230 00:12:58,440 --> 00:13:05,280 Speaker 1: pain in the labor market. This is Bloomberg Mixed mixed 231 00:13:05,360 --> 00:13:09,200 Speaker 1: markets here today, a day after FETE Chairman Pal says, 232 00:13:09,760 --> 00:13:14,080 Speaker 1: stay the course, lower rates for longer we have inflation. 233 00:13:14,640 --> 00:13:17,679 Speaker 1: Uh in check. Let's get a sense of maybe some 234 00:13:17,800 --> 00:13:21,360 Speaker 1: a longer term perspective on these markets. And we love 235 00:13:21,400 --> 00:13:23,640 Speaker 1: to do that with our good friend Barry rid could 236 00:13:23,640 --> 00:13:27,280 Speaker 1: be well, now, it's always upbeat with Barry Suns. He 237 00:13:27,440 --> 00:13:31,559 Speaker 1: was always a half half full kind of guy. Bloomberg 238 00:13:31,600 --> 00:13:34,600 Speaker 1: Opinion Columns, host of Masters in business on Bloomberg Rady. 239 00:13:34,600 --> 00:13:37,160 Speaker 1: He's also the founder in chief investment officer Rid Holts 240 00:13:37,200 --> 00:13:40,480 Speaker 1: Wealth Management. So Barry, let's step back here take a 241 00:13:40,559 --> 00:13:44,640 Speaker 1: longer view. FETE chairman Pal says, basically, we got this. 242 00:13:45,520 --> 00:13:48,839 Speaker 1: Did that come across to you yesterday? Never or less? 243 00:13:49,000 --> 00:13:52,720 Speaker 1: I mean, I think the big error that everybody has 244 00:13:52,840 --> 00:13:56,600 Speaker 1: come to accept following the Great Financial Crisis is that 245 00:13:56,640 --> 00:13:59,600 Speaker 1: we let all the heavy lifting get done by the 246 00:13:59,640 --> 00:14:03,679 Speaker 1: Federal Reserve without enough fiscal stimulus. It was it was 247 00:14:03,720 --> 00:14:08,040 Speaker 1: too much monetary policy, not enough fiscal Now there's some 248 00:14:08,120 --> 00:14:12,240 Speaker 1: pushback from some quarters that hey, it's too much fiscal uh. 249 00:14:12,280 --> 00:14:16,200 Speaker 1: And Pal sort of said, you know, explicitly said, this 250 00:14:16,320 --> 00:14:19,240 Speaker 1: is the right sort of task for an economy that 251 00:14:19,400 --> 00:14:22,600 Speaker 1: is still limping along in many areas and still hasn't 252 00:14:22,640 --> 00:14:27,000 Speaker 1: fully recovered from the financial crisis. This is about unemployment 253 00:14:27,240 --> 00:14:32,960 Speaker 1: and underemployment, which is really important. You know what. Uh 254 00:14:33,200 --> 00:14:36,600 Speaker 1: depresses me. I'm looking at um looking through your blog, Berry, 255 00:14:36,800 --> 00:14:39,320 Speaker 1: and I always feel like I was born too late. 256 00:14:39,720 --> 00:14:42,120 Speaker 1: You know. I wish I was a trader on the 257 00:14:42,120 --> 00:14:44,640 Speaker 1: floor of the New York Stock Exchange in the eighties, 258 00:14:44,680 --> 00:14:48,120 Speaker 1: Like I want to just front run the crowd and 259 00:14:48,200 --> 00:14:53,800 Speaker 1: make money for nothing. But you're looking at annualized returns 260 00:14:53,840 --> 00:14:58,160 Speaker 1: on equities and bonds across different generations. The baby boomers 261 00:14:58,200 --> 00:15:05,080 Speaker 1: had it good. Gen Z is s o l that 262 00:15:05,240 --> 00:15:08,960 Speaker 1: to say the very least well. First, the bigger picture 263 00:15:09,600 --> 00:15:14,200 Speaker 1: takeaway from this is just how random so much in 264 00:15:14,240 --> 00:15:18,000 Speaker 1: life is. The year you happen to be born has 265 00:15:18,040 --> 00:15:23,400 Speaker 1: a really significant impact on how your portfolio does over time. 266 00:15:24,200 --> 00:15:27,920 Speaker 1: I remember my parents buying a house in the late 267 00:15:27,960 --> 00:15:33,119 Speaker 1: sixties early seventies and then selling it um just about 268 00:15:33,120 --> 00:15:36,320 Speaker 1: twenty five years later for about ten x what they paid. 269 00:15:37,080 --> 00:15:41,040 Speaker 1: You're not gonna get that sort of return today. And similarly, 270 00:15:41,640 --> 00:15:45,640 Speaker 1: if you were a working stiff in the seventies and eighties, 271 00:15:45,680 --> 00:15:47,840 Speaker 1: and you not that there were four oh one case 272 00:15:47,880 --> 00:15:50,960 Speaker 1: in the seventies, but if you were saving and investing 273 00:15:51,000 --> 00:15:55,480 Speaker 1: in the stock market, you got a huge je return 274 00:15:55,800 --> 00:16:00,120 Speaker 1: over seven percent annualized versus what we've seen over the 275 00:16:00,160 --> 00:16:03,520 Speaker 1: past twenty years. You know, the market was essentially flat 276 00:16:04,040 --> 00:16:08,120 Speaker 1: from two thousand to two thousand and call at eleven plus. 277 00:16:08,120 --> 00:16:10,120 Speaker 1: Back then, you got a pension, dude. I mean, my 278 00:16:10,360 --> 00:16:13,800 Speaker 1: grandfather worked for General Motors after he got out of 279 00:16:13,800 --> 00:16:16,480 Speaker 1: the air force, and he retired with you know, pay 280 00:16:16,560 --> 00:16:19,760 Speaker 1: until he was dead, right, and and that you know, 281 00:16:20,200 --> 00:16:23,800 Speaker 1: a big part of the impetus behind four O one 282 00:16:23,920 --> 00:16:26,040 Speaker 1: case and and this is sort of unique to the 283 00:16:26,120 --> 00:16:30,600 Speaker 1: United States, was that we have shifted a lot of 284 00:16:30,640 --> 00:16:36,440 Speaker 1: what is normally governmental responsibilities onto corporations, um things like 285 00:16:36,520 --> 00:16:45,200 Speaker 1: healthcare and retirement. In most Western democracies, industrialized economies, the 286 00:16:45,280 --> 00:16:48,960 Speaker 1: government manages that it's their responsibility. It's not so I 287 00:16:49,400 --> 00:16:51,760 Speaker 1: run a business, I take care of the health care 288 00:16:51,840 --> 00:16:53,920 Speaker 1: for my my employees. We take care of there for 289 00:16:54,040 --> 00:16:56,720 Speaker 1: oh one k. That's so unusual. The rest of the 290 00:16:56,720 --> 00:17:01,040 Speaker 1: world doesn't do that. And trying to shift set away 291 00:17:01,280 --> 00:17:04,480 Speaker 1: from I think that what you're pointing out is when 292 00:17:04,480 --> 00:17:08,840 Speaker 1: we try to shift that away from corporations, it moved 293 00:17:09,359 --> 00:17:13,040 Speaker 1: to individuals instead of moving to the government, which has 294 00:17:13,080 --> 00:17:16,159 Speaker 1: created a giant doughnut for a lot of people. Meaning 295 00:17:16,640 --> 00:17:21,639 Speaker 1: there's a big hole in about sev the retirement expectations 296 00:17:21,640 --> 00:17:24,920 Speaker 1: out there where people are going to retire with vastly 297 00:17:25,040 --> 00:17:28,880 Speaker 1: insufficient money. Although Barry, you know, go to go back 298 00:17:28,880 --> 00:17:31,760 Speaker 1: to your chart. I'm looking at you know, baby boomers 299 00:17:31,800 --> 00:17:35,080 Speaker 1: and Generation golf kids, they all had decent returns on 300 00:17:35,160 --> 00:17:38,520 Speaker 1: stocks and bonds, but none of us have thought to 301 00:17:38,600 --> 00:17:41,840 Speaker 1: buy an n f T of people, you know, none 302 00:17:41,880 --> 00:17:44,600 Speaker 1: of us the gen Z kids, maybe they were all 303 00:17:44,680 --> 00:17:48,639 Speaker 1: in bitcoin ten years ago. So maybe, but I don't think, 304 00:17:48,680 --> 00:17:50,800 Speaker 1: you know what, there was a if you if you 305 00:17:50,920 --> 00:17:53,760 Speaker 1: fast forward a few days in in on the blog 306 00:17:54,600 --> 00:17:57,960 Speaker 1: at Dholtz dot com, you'll see the right up I did. 307 00:17:58,880 --> 00:18:02,040 Speaker 1: Merrill Lynch, Brent America, b Mail Interest did this immense 308 00:18:02,160 --> 00:18:06,680 Speaker 1: study on cryptoconcy in bitcoin, and one of their main 309 00:18:06,800 --> 00:18:11,160 Speaker 1: takeaways was that the vast majority of holdings in bitcoins, 310 00:18:11,200 --> 00:18:15,640 Speaker 1: something like two point four percentity accounts are responsible for 311 00:18:15,640 --> 00:18:19,480 Speaker 1: for a huge chunk of the assets, far more concentrated 312 00:18:19,480 --> 00:18:22,320 Speaker 1: than what we see in either stocks, bonds or real estate. 313 00:18:22,720 --> 00:18:27,160 Speaker 1: So I don't think the millennials or or I don't 314 00:18:27,160 --> 00:18:29,560 Speaker 1: know what they're gonna call the generation after them, I 315 00:18:29,560 --> 00:18:33,320 Speaker 1: don't think they're holding enough bitcoin to fund their retirements 316 00:18:33,359 --> 00:18:38,040 Speaker 1: fifty years from now. Yeah, you know, it's interesting. My 317 00:18:38,119 --> 00:18:41,200 Speaker 1: kids are, you know, entering the workforce, and you know, 318 00:18:41,240 --> 00:18:42,760 Speaker 1: one of the things I told them is, you know, 319 00:18:42,960 --> 00:18:45,159 Speaker 1: just max out on your four one K and it 320 00:18:45,280 --> 00:18:48,120 Speaker 1: really really really makes a difference. But boy, this low 321 00:18:48,200 --> 00:18:51,840 Speaker 1: interest rate environment, this low return environment. I'm not sure 322 00:18:51,880 --> 00:18:55,480 Speaker 1: that's enough anymore. Um Well, first of all, the low 323 00:18:55,520 --> 00:18:58,800 Speaker 1: interest rate environment. Who knows how much longer that's gonna 324 00:18:58,840 --> 00:19:03,360 Speaker 1: be here. Um we're already up to one seven. It's 325 00:19:03,359 --> 00:19:06,320 Speaker 1: going to be a long time. Um Well, the Fed. 326 00:19:06,880 --> 00:19:11,600 Speaker 1: Everybody forgets the Fed doesn't determine what bonds are yielding. 327 00:19:11,680 --> 00:19:15,600 Speaker 1: They only determine the FED funds rate, which drives the 328 00:19:15,720 --> 00:19:19,520 Speaker 1: shorter turn rates. It it's the market that determines what 329 00:19:19,680 --> 00:19:23,560 Speaker 1: the yield um on the ten or thirty or if 330 00:19:23,560 --> 00:19:26,400 Speaker 1: we're lucky, fifty and a hundred year bonds are. So 331 00:19:26,720 --> 00:19:29,520 Speaker 1: I think what we're seeing with these rising rates is 332 00:19:29,680 --> 00:19:33,359 Speaker 1: optimism about uh the economy on the other side of 333 00:19:33,359 --> 00:19:39,560 Speaker 1: the pandemic. That doesn't necessarily translate automatically into higher stock gains. 334 00:19:39,560 --> 00:19:44,600 Speaker 1: The correlation between GDP and and stocks are is surprisingly low. 335 00:19:45,000 --> 00:19:49,680 Speaker 1: All that said, a good economy and expanding tax base, 336 00:19:50,359 --> 00:19:54,399 Speaker 1: um innovation and new technology tends to lead to higher 337 00:19:54,440 --> 00:19:58,360 Speaker 1: living standards and higher stock prices. I will say, also, Paul, 338 00:19:58,400 --> 00:20:00,560 Speaker 1: if you can get your kids a job at Bloom, 339 00:20:00,600 --> 00:20:04,200 Speaker 1: they get an employer match, so that's they're automatically making 340 00:20:04,200 --> 00:20:07,480 Speaker 1: fifty returns. That's pretty sweet. Yeah, it's pretty sweet, and 341 00:20:07,720 --> 00:20:10,520 Speaker 1: you know, be you gotta gotta get that savings mentality 342 00:20:10,560 --> 00:20:13,040 Speaker 1: back out there into certainly one of the messages I'm 343 00:20:13,040 --> 00:20:15,880 Speaker 1: trying to convey to my kids here as they enter 344 00:20:16,040 --> 00:20:18,720 Speaker 1: their workforce, because boy, this low industrate environment, it's can 345 00:20:18,760 --> 00:20:21,520 Speaker 1: be a tough environment to make money. Barry rick Hilt's 346 00:20:21,560 --> 00:20:24,800 Speaker 1: founder of rick Holt's Wealth Management. He's also a Bloomberg 347 00:20:24,840 --> 00:20:28,720 Speaker 1: Opinion columnist and of course, host of Master's in Business 348 00:20:28,840 --> 00:20:32,719 Speaker 1: podcast on Bloomberg Radio. We always appreciate getting Barry's thoughts 349 00:20:33,119 --> 00:20:34,800 Speaker 1: and I get talked to him about cars at all, 350 00:20:35,080 --> 00:20:36,680 Speaker 1: which we kind of will do that next time. We'll 351 00:20:36,680 --> 00:20:38,119 Speaker 1: do that. I want to do a whole show with 352 00:20:38,200 --> 00:20:40,920 Speaker 1: Barry about cars. I feel like I think we could 353 00:20:40,920 --> 00:20:46,080 Speaker 1: probably do that. All right, let's bring in Brian Shipata 354 00:20:46,240 --> 00:20:50,240 Speaker 1: from our Bloomberg Opinion team. He's writing about the FEDS 355 00:20:50,640 --> 00:20:53,280 Speaker 1: move or lack thereof yesterday. I guess a lot of 356 00:20:53,280 --> 00:20:57,960 Speaker 1: people Brian were impressed by j Powell's press conference. I 357 00:20:58,560 --> 00:21:01,119 Speaker 1: believe it was either m or John this morning that 358 00:21:01,160 --> 00:21:03,119 Speaker 1: said it was the best job he's ever done in 359 00:21:03,160 --> 00:21:06,000 Speaker 1: the press conference. Do you agree? I mean, I think 360 00:21:06,000 --> 00:21:09,520 Speaker 1: he was just remarkably consistent, and for a good reason. 361 00:21:09,560 --> 00:21:12,800 Speaker 1: I mean, he's basically just falls back on this framework 362 00:21:12,840 --> 00:21:15,600 Speaker 1: that the FED has. Now every time anyone presses him 363 00:21:15,600 --> 00:21:18,000 Speaker 1: on anything, he says, Look, we have laid out the 364 00:21:18,040 --> 00:21:19,880 Speaker 1: conditions for what it will take for a rate hype. 365 00:21:19,880 --> 00:21:22,520 Speaker 1: People keep asking why won't you high rates in twenty 366 00:21:22,560 --> 00:21:25,640 Speaker 1: three He's like, there are reasons why. Um, you need 367 00:21:25,680 --> 00:21:28,600 Speaker 1: to have a maximum employment, you need to have inflation 368 00:21:28,960 --> 00:21:31,159 Speaker 1: that has reached two percent and is on track to 369 00:21:31,200 --> 00:21:34,360 Speaker 1: moderately exceed two percent for some time. Those are the conditions. 370 00:21:34,480 --> 00:21:37,120 Speaker 1: If we see those conditions, we will raise interest rates. 371 00:21:37,160 --> 00:21:38,960 Speaker 1: If we don't, we're not going to It. Just kept 372 00:21:38,960 --> 00:21:42,199 Speaker 1: repeating that over and over and and I tried to 373 00:21:42,200 --> 00:21:44,359 Speaker 1: get the message across. I don't know if bond Trader 374 00:21:44,400 --> 00:21:47,840 Speaker 1: has got it though. Yeah, Brian, it's it's I'm looking 375 00:21:47,880 --> 00:21:52,400 Speaker 1: at the treasury market right here, the tenure treasury down seconds, 376 00:21:52,480 --> 00:21:55,640 Speaker 1: pushing that yield up to one point seven four percent. Boy, 377 00:21:55,640 --> 00:21:57,840 Speaker 1: it's been more than a year since we've seen that. 378 00:21:57,920 --> 00:21:59,760 Speaker 1: And when I see moves in the bond market like that, 379 00:21:59,840 --> 00:22:03,959 Speaker 1: I want to chat with either Lisa Bramwitz or you. So, Briant, 380 00:22:03,960 --> 00:22:07,760 Speaker 1: is there a risk here that maybe the market will 381 00:22:08,080 --> 00:22:11,960 Speaker 1: lead up. Mr Powell behind here. I mean, I think 382 00:22:12,040 --> 00:22:15,320 Speaker 1: right now, what the market is suggesting is that we 383 00:22:15,359 --> 00:22:17,920 Speaker 1: will get inflation. The markets growing content that there will 384 00:22:17,960 --> 00:22:20,800 Speaker 1: be inflation, and that the SAID will see that inflation 385 00:22:21,119 --> 00:22:24,159 Speaker 1: and the FED will be compelled to act. The Fed's 386 00:22:24,240 --> 00:22:26,199 Speaker 1: not going to do anything that the FED is going 387 00:22:26,240 --> 00:22:28,960 Speaker 1: to be reactive um, whereas the bond market is more 388 00:22:29,040 --> 00:22:31,959 Speaker 1: forward looking right now, and they're suggesting that we are 389 00:22:31,960 --> 00:22:33,560 Speaker 1: going to see inflation down the pipe. We are going 390 00:22:33,560 --> 00:22:37,000 Speaker 1: to see robust growth and that's going to um ultimately 391 00:22:37,200 --> 00:22:39,840 Speaker 1: cause rates to go up. But I think the thing 392 00:22:39,880 --> 00:22:42,800 Speaker 1: that's missing here is that this is exactly what Jerome 393 00:22:42,840 --> 00:22:45,840 Speaker 1: Powell and the FED want to see. They want everybody 394 00:22:45,840 --> 00:22:48,879 Speaker 1: to be talking about inflation. They want Google searches for 395 00:22:48,920 --> 00:22:51,200 Speaker 1: inflation to be the highest since two thousand eight, which 396 00:22:51,200 --> 00:22:54,360 Speaker 1: apparently they are um because it's been so long since 397 00:22:54,359 --> 00:22:57,879 Speaker 1: anybody's been worried about inflation, that the FED was worried 398 00:22:57,880 --> 00:22:59,720 Speaker 1: that no one was worried about it, um and that 399 00:22:59,800 --> 00:23:01,760 Speaker 1: that would that would keep them at the zero lower 400 00:23:01,760 --> 00:23:05,919 Speaker 1: bound and prevent them from having flexibility to conduct monetary policy. 401 00:23:06,040 --> 00:23:08,200 Speaker 1: So I think this is all playing into the hands. 402 00:23:08,400 --> 00:23:10,879 Speaker 1: And I don't know if bond traders necessarily realize that 403 00:23:11,280 --> 00:23:13,800 Speaker 1: now get out and buy that washing machine now right, 404 00:23:13,840 --> 00:23:17,280 Speaker 1: because next month it could be a lot more expensive. Um. 405 00:23:17,600 --> 00:23:20,679 Speaker 1: But the the flip side of this is, you know, Brian, 406 00:23:20,760 --> 00:23:24,640 Speaker 1: we call um what bond traders are investors are doing 407 00:23:24,640 --> 00:23:27,960 Speaker 1: a tantrum. Really they're just making money. I keep thinking 408 00:23:28,000 --> 00:23:30,240 Speaker 1: about Bill grows a short position, and I know he's 409 00:23:30,280 --> 00:23:34,520 Speaker 1: only the airstwhile bond king. But as these rates march higher, 410 00:23:34,600 --> 00:23:38,159 Speaker 1: everybody who's into the inverse treasuries e t S is 411 00:23:38,200 --> 00:23:42,560 Speaker 1: just making more money. How much longer can they do it? Yeah? 412 00:23:42,600 --> 00:23:45,320 Speaker 1: I mean I think right now the positioning is definitely 413 00:23:45,760 --> 00:23:48,800 Speaker 1: UM for higher rates. UM, it doesn't seem like anybody 414 00:23:48,840 --> 00:23:51,240 Speaker 1: really wants to step in on any on any major 415 00:23:51,320 --> 00:23:54,560 Speaker 1: sell off you're seeing today. For example, UM, when you 416 00:23:54,640 --> 00:23:57,040 Speaker 1: reach these kind of milestone numbers, it seems like every 417 00:23:57,040 --> 00:24:00,560 Speaker 1: twenty five basis points, UM, there's there's buyer that come in. 418 00:24:00,600 --> 00:24:02,880 Speaker 1: So one point seven five on the ten year, two 419 00:24:02,920 --> 00:24:05,080 Speaker 1: point five or some of the thirty year you saw 420 00:24:05,160 --> 00:24:07,800 Speaker 1: them pretty quickly retreat from those levels. So there are 421 00:24:07,920 --> 00:24:11,040 Speaker 1: certain points, but you are seeing many of these gaps Um, 422 00:24:11,080 --> 00:24:14,479 Speaker 1: I was just looking at how how much ten year 423 00:24:14,520 --> 00:24:17,119 Speaker 1: yields to move. For example, I think there's been five 424 00:24:17,200 --> 00:24:19,399 Speaker 1: moves of eight basis points or more in the past 425 00:24:19,480 --> 00:24:22,720 Speaker 1: sixteen days, and in the entire second half of there 426 00:24:22,760 --> 00:24:26,320 Speaker 1: were only four. So you're seeing these big moves, uh, 427 00:24:26,359 --> 00:24:29,359 Speaker 1: in pretty quick quick order. So, um, it's hard to 428 00:24:29,359 --> 00:24:32,520 Speaker 1: step in and buy at that point. So, Brian, I'm 429 00:24:32,560 --> 00:24:35,520 Speaker 1: I'm looking at the d O T S GO function 430 00:24:35,600 --> 00:24:40,000 Speaker 1: dots on the Bloomberg terminals. I look at. Yeah, it's 431 00:24:40,160 --> 00:24:42,800 Speaker 1: very cool. It's a cool function. It looks neat, and 432 00:24:42,840 --> 00:24:45,560 Speaker 1: it really shows that we're getting I guess a little 433 00:24:45,560 --> 00:24:48,639 Speaker 1: bit more upward bias for rates higher. I'm looking at 434 00:24:48,760 --> 00:24:53,640 Speaker 1: I guess seven dots above the trend line for three. 435 00:24:54,600 --> 00:24:56,840 Speaker 1: That's a little bit different than we had before. So 436 00:24:56,880 --> 00:24:59,639 Speaker 1: I guess that's suggested even at the Fed there maybe 437 00:25:00,000 --> 00:25:03,440 Speaker 1: recently thinking about higher rates. Yeah. Well, I think what 438 00:25:03,480 --> 00:25:06,119 Speaker 1: was kind of telling in the press conference was Jerome 439 00:25:06,119 --> 00:25:09,119 Speaker 1: Powell's that the strong bulk of the committee still sees 440 00:25:09,240 --> 00:25:12,080 Speaker 1: rates near zero. So that kind of tipped the hand 441 00:25:12,200 --> 00:25:16,320 Speaker 1: that that he and probably Vice Chair Richard Clarida, and 442 00:25:16,400 --> 00:25:19,240 Speaker 1: probably New York Fed President John William Kind of the 443 00:25:19,320 --> 00:25:23,040 Speaker 1: three big ones probably all still see rates near zero UM. 444 00:25:23,320 --> 00:25:26,159 Speaker 1: You probably expect to see some regional FED presidents that 445 00:25:26,200 --> 00:25:29,320 Speaker 1: aren't quite buying into this, this new framework that that 446 00:25:29,480 --> 00:25:33,600 Speaker 1: Richard Clarida and Jerome Powell Leo Brainerd, I mean kind 447 00:25:33,600 --> 00:25:37,359 Speaker 1: of the core of the FED UM has implemented. So 448 00:25:37,640 --> 00:25:39,040 Speaker 1: and I think there was a lot of effort by 449 00:25:39,119 --> 00:25:41,240 Speaker 1: Jerome Powell to say, can we please keep the median 450 00:25:41,320 --> 00:25:46,920 Speaker 1: dot at zero UM for now we haven't seen actual inflation. 451 00:25:47,000 --> 00:25:49,440 Speaker 1: You could raise it maybe in June when you start 452 00:25:49,480 --> 00:25:51,680 Speaker 1: to see some of those big inflation prints due to 453 00:25:51,720 --> 00:25:54,680 Speaker 1: base effects in the next few months, as Bill Gross said, 454 00:25:54,680 --> 00:25:56,840 Speaker 1: for example, a three percent or four percent, you could 455 00:25:56,840 --> 00:25:59,399 Speaker 1: see those on CPI in the next few months. Just 456 00:25:59,440 --> 00:26:02,560 Speaker 1: because of how lo it was a year ago. Francine 457 00:26:02,600 --> 00:26:06,960 Speaker 1: this morning was comparing Um Powell to the provincial commander 458 00:26:07,000 --> 00:26:11,080 Speaker 1: of the UM, you know, regional American Army during the 459 00:26:11,119 --> 00:26:13,680 Speaker 1: Revolutionary War, saying don't shoot until you see the whites 460 00:26:13,720 --> 00:26:17,560 Speaker 1: of their eyes. But but really, Um, what Pal's messages. 461 00:26:17,920 --> 00:26:20,080 Speaker 1: I know, I'm going to see the whites of their 462 00:26:20,119 --> 00:26:23,320 Speaker 1: eyes and they're gonna run right past me. So the 463 00:26:23,359 --> 00:26:26,240 Speaker 1: idea is we are going to see inflation and we're 464 00:26:26,280 --> 00:26:29,760 Speaker 1: not gonna shoot right, Yeah, pretty much. I mean the 465 00:26:29,800 --> 00:26:33,479 Speaker 1: idea of average inflation targeting is inflation below two percent 466 00:26:33,560 --> 00:26:37,440 Speaker 1: for so long that we will tolerate a modest overshoot 467 00:26:37,560 --> 00:26:39,679 Speaker 1: is the way I think they phrase it. Will they 468 00:26:39,720 --> 00:26:45,159 Speaker 1: tolerate four percent? Probably not. I've heard they'll tolerate three percent. 469 00:26:45,200 --> 00:26:47,720 Speaker 1: I think Charles Evans among others, has said, you know, 470 00:26:47,840 --> 00:26:51,040 Speaker 1: three percent would be okay. Uh, there's been talking with 471 00:26:51,040 --> 00:26:53,080 Speaker 1: two point five percent kind of being maybe a lion 472 00:26:53,160 --> 00:26:55,199 Speaker 1: the stand um. But I mean if you look at 473 00:26:55,240 --> 00:26:57,159 Speaker 1: core PC, which is one of the things that they 474 00:26:57,200 --> 00:26:59,880 Speaker 1: put on their Summary of Economic projection, it was basically 475 00:27:00,040 --> 00:27:04,640 Speaker 1: no point um in the entire post global financial crisis period, 476 00:27:05,119 --> 00:27:07,680 Speaker 1: where for the entire course of a year at average 477 00:27:07,680 --> 00:27:11,000 Speaker 1: two I think was the only time where it actually 478 00:27:11,040 --> 00:27:13,879 Speaker 1: met that threshold. So it's a pretty high threshold, and 479 00:27:13,920 --> 00:27:16,720 Speaker 1: I think that markets are getting with the program and 480 00:27:16,800 --> 00:27:20,159 Speaker 1: maybe that that merits tenure yields being above two percent 481 00:27:21,040 --> 00:27:24,880 Speaker 1: eventually once this inflation starts coming around. But until they 482 00:27:24,960 --> 00:27:27,320 Speaker 1: see it, the FED is not going to necessarily fak 483 00:27:27,400 --> 00:27:30,600 Speaker 1: out about it or overreact. Brian, what do you think 484 00:27:31,240 --> 00:27:34,240 Speaker 1: is the key metric that the FED is really focusing 485 00:27:34,280 --> 00:27:37,680 Speaker 1: on as they think about rates. Yeah. I mean, I 486 00:27:37,720 --> 00:27:40,119 Speaker 1: think there's a lot of talk about inflation, but people 487 00:27:40,200 --> 00:27:45,200 Speaker 1: are underestimating just what maximum employment means for the FED. UM. 488 00:27:45,240 --> 00:27:47,120 Speaker 1: You know, the FED is projecting a three point five 489 00:27:47,119 --> 00:27:51,600 Speaker 1: percent unemployment rate that would match the low of late 490 00:27:52,440 --> 00:27:56,240 Speaker 1: early before COVID UM. But that might not even be 491 00:27:56,359 --> 00:27:58,840 Speaker 1: enough to get them to move because they've changed their 492 00:27:58,920 --> 00:28:02,639 Speaker 1: view to be broad based and inclusive um, and so 493 00:28:02,720 --> 00:28:04,880 Speaker 1: they want to see other metrics. They want to see 494 00:28:04,960 --> 00:28:08,439 Speaker 1: later forest participation rate come up. UM. They wanted to 495 00:28:08,440 --> 00:28:12,359 Speaker 1: see minority employment UM be strong as well. So there 496 00:28:12,400 --> 00:28:13,840 Speaker 1: are a lot of a lot of different metrics could 497 00:28:13,840 --> 00:28:18,200 Speaker 1: come in here, UM that I think people are are underestimating, 498 00:28:18,200 --> 00:28:20,399 Speaker 1: and that could keep the FED pin toneer zero for 499 00:28:20,440 --> 00:28:23,800 Speaker 1: a while. Yeah. Interesting. Yeah, Look, the rhetoric was certainly 500 00:28:23,840 --> 00:28:26,320 Speaker 1: a constant from FED chairman Pali. You stay with his 501 00:28:26,840 --> 00:28:29,840 Speaker 1: prior dialogue, Brian Chapatta, Thank you so much for joining 502 00:28:29,920 --> 00:28:33,040 Speaker 1: us Brian's debt markets calmness for Bloomberg Opinion. You can 503 00:28:33,080 --> 00:28:35,400 Speaker 1: read his work and all of the other fine work 504 00:28:35,440 --> 00:28:38,920 Speaker 1: from the Bloomberg Opinion columns at Bloomberg dot Com. Slash 505 00:28:38,920 --> 00:28:42,480 Speaker 1: opinion or by typing O P I N GO on 506 00:28:42,880 --> 00:28:47,560 Speaker 1: the Bloomberg terminal. Thanks for listening to the Bloomberg Markets podcast. 507 00:28:47,960 --> 00:28:51,160 Speaker 1: You can subscribe and listen to interviews with Apple Podcasts 508 00:28:51,280 --> 00:28:55,200 Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm 509 00:28:55,240 --> 00:28:59,440 Speaker 1: on Twitter at Matt Miller three. Put on Falseweeney. I'm 510 00:28:59,440 --> 00:29:01,920 Speaker 1: on Twitter at p T Sweeney before the podcast. You 511 00:29:01,920 --> 00:29:04,960 Speaker 1: can always catch us worldwide at Bloomberg Radio. M