1 00:00:02,480 --> 00:00:07,000 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,080 --> 00:00:10,600 Speaker 2: The Chairman of the Federal Reserve his words, this was 3 00:00:10,640 --> 00:00:12,280 Speaker 2: one of the better meetings that I can recall. 4 00:00:12,360 --> 00:00:13,560 Speaker 3: Maybe you had to be there. 5 00:00:13,760 --> 00:00:17,080 Speaker 2: In the equity market, we look like this equity's shaping up, 6 00:00:17,079 --> 00:00:19,040 Speaker 2: as follows, down by about two tens of one percent 7 00:00:19,079 --> 00:00:21,000 Speaker 2: on the S and P five hundred on the Nasdaq, 8 00:00:21,000 --> 00:00:22,680 Speaker 2: positive by zero point zero four. 9 00:00:22,720 --> 00:00:23,680 Speaker 3: The game's fading. 10 00:00:23,880 --> 00:00:26,040 Speaker 2: If you check out the bond market two year, ten year, 11 00:00:26,079 --> 00:00:28,760 Speaker 2: thirty year, and locking this move right here yields up 12 00:00:28,760 --> 00:00:30,840 Speaker 2: at the front end of the curve by six basis 13 00:00:30,840 --> 00:00:33,600 Speaker 2: points the two year three ninety three, and when you 14 00:00:33,640 --> 00:00:36,879 Speaker 2: push that through foreign exchange, you get some real dollar strength. 15 00:00:37,120 --> 00:00:38,559 Speaker 3: Euro dollar down to. 16 00:00:38,600 --> 00:00:42,199 Speaker 2: One fourteen this afternoon and down by one four percentage point. Now, 17 00:00:42,200 --> 00:00:45,040 Speaker 2: perhaps these market moves to have you more about positioning 18 00:00:45,080 --> 00:00:47,519 Speaker 2: than it does about the Fed meeting itself. But there 19 00:00:47,640 --> 00:00:49,879 Speaker 2: is one point attention that I think is very much 20 00:00:49,920 --> 00:00:52,840 Speaker 2: worth exploring, and it's on the labor market. Governor Wallaer 21 00:00:52,920 --> 00:00:54,960 Speaker 2: is making the point that this labor market is on 22 00:00:55,000 --> 00:00:57,920 Speaker 2: the edge. Chairman Powell has a different view of things. 23 00:00:58,040 --> 00:00:58,680 Speaker 2: Take a listen. 24 00:01:00,040 --> 00:01:02,600 Speaker 4: If you look at the labor market what you see is, 25 00:01:03,240 --> 00:01:05,520 Speaker 4: by many, many statistics, the labor market is kind of 26 00:01:05,520 --> 00:01:10,640 Speaker 4: still in balance. It's things like quit's, you know, job 27 00:01:10,720 --> 00:01:14,760 Speaker 4: openings and let alone the unemployment rate. They're all very 28 00:01:15,000 --> 00:01:17,200 Speaker 4: by many measures, very similar to where they were a 29 00:01:17,280 --> 00:01:19,440 Speaker 4: year ago. So you do not see weakening in the 30 00:01:19,520 --> 00:01:20,240 Speaker 4: labor market. 31 00:01:20,520 --> 00:01:23,039 Speaker 2: Two headlines crossing in the last forty five minutes. I 32 00:01:23,040 --> 00:01:26,720 Speaker 2: think articulating the Federal Reserve chairs bias a clear bias 33 00:01:26,720 --> 00:01:29,520 Speaker 2: to wait. One, the totality of the data show you've 34 00:01:29,560 --> 00:01:33,440 Speaker 2: got a solid labor market, and two, inflation is further 35 00:01:33,480 --> 00:01:35,280 Speaker 2: from our goal than employment. 36 00:01:35,440 --> 00:01:36,920 Speaker 3: That's a chairman. It wants to wait. 37 00:01:36,959 --> 00:01:39,160 Speaker 5: And that's the reason maybe why on the margins you 38 00:01:39,200 --> 00:01:42,320 Speaker 5: saw yields rise as he spoke, and you saw stocks 39 00:01:42,400 --> 00:01:45,559 Speaker 5: roll over. A very confusing statement, I want to say, 40 00:01:45,920 --> 00:01:49,400 Speaker 5: I was trying to purse through exactly what he was saying. 41 00:01:49,600 --> 00:01:52,000 Speaker 5: You don't see weakening in the labor market, but you 42 00:01:52,080 --> 00:01:55,840 Speaker 5: do have downside risks. What are the downside risks? When 43 00:01:55,880 --> 00:01:57,800 Speaker 5: do you start to see the materializing and what is 44 00:01:57,840 --> 00:02:02,720 Speaker 5: the difference between growing downside risk and a market that 45 00:02:02,760 --> 00:02:04,640 Speaker 5: clearly isn't weakening. In his view, Jah and I. 46 00:02:04,680 --> 00:02:07,400 Speaker 6: Agree on the labor front. There's two Americas out there. 47 00:02:07,400 --> 00:02:10,760 Speaker 6: One's Donald Trump's America, and you know, there's Jerome Powell's America. 48 00:02:10,840 --> 00:02:13,800 Speaker 6: While he was warbling gaily, I went into the Bloomberg 49 00:02:13,840 --> 00:02:18,239 Speaker 6: and looked at weeks unemployed back to nineteen sixty seven, 50 00:02:18,800 --> 00:02:22,800 Speaker 6: past COVID passed a great financial crisis. Weeks unemployed in 51 00:02:22,840 --> 00:02:25,600 Speaker 6: this country are back to a level of two thousand 52 00:02:25,639 --> 00:02:29,200 Speaker 6: and nine, and that kind of pre crisis agony. There's 53 00:02:29,240 --> 00:02:32,200 Speaker 6: two Americas out there, and these two people are talking 54 00:02:32,240 --> 00:02:34,359 Speaker 6: to one part here and one part there. 55 00:02:34,440 --> 00:02:35,200 Speaker 3: You mentioned the President. 56 00:02:35,280 --> 00:02:38,000 Speaker 2: I think that's the second part attention, one within the Fed, 57 00:02:38,080 --> 00:02:40,680 Speaker 2: the other outside of the Fed. There was a note 58 00:02:40,760 --> 00:02:43,080 Speaker 2: from the Chairman of the Federal Reserve on government boring 59 00:02:43,120 --> 00:02:45,720 Speaker 2: costs and how the Federal Reserve doesn't take notes of 60 00:02:45,760 --> 00:02:48,040 Speaker 2: what it costs the government given where interest rates aund 61 00:02:48,120 --> 00:02:50,480 Speaker 2: right now, that's one of the core arguments coming out 62 00:02:50,480 --> 00:02:52,240 Speaker 2: of the White House to cut of interest rights. 63 00:02:52,320 --> 00:02:54,600 Speaker 5: Yeah, and it's one that is falling on deaf years 64 00:02:54,720 --> 00:02:57,239 Speaker 5: as it doesn't necessarily want to be seen as monetizing 65 00:02:57,240 --> 00:03:01,080 Speaker 5: the debt, right that would cause some sort of inflation surge. Theoretically, 66 00:03:01,320 --> 00:03:04,520 Speaker 5: in economics, there is this idea, if you have a 67 00:03:04,560 --> 00:03:07,560 Speaker 5: central bank that essentially is printing money by lowering rates 68 00:03:07,600 --> 00:03:10,320 Speaker 5: or artificially suppressing the cost of borrowing in order to 69 00:03:10,360 --> 00:03:13,359 Speaker 5: foster more spending by the government, that that can lead 70 00:03:13,360 --> 00:03:15,799 Speaker 5: to longer term inflation. He's pushing back against that. Does 71 00:03:15,840 --> 00:03:17,480 Speaker 5: that raise the ire of the president? 72 00:03:17,560 --> 00:03:19,200 Speaker 2: My mckaye was in the room. McKay is going to 73 00:03:19,200 --> 00:03:21,360 Speaker 2: be with us in about five minutes time, so stemp 74 00:03:21,400 --> 00:03:22,919 Speaker 2: by for that. I want to bring in the former 75 00:03:22,960 --> 00:03:25,800 Speaker 2: New York Fed President Bill Duntley to join the conversation. 76 00:03:25,960 --> 00:03:28,799 Speaker 2: Bill welcome to the programs. Is this a federal reserve 77 00:03:28,800 --> 00:03:30,560 Speaker 2: that has the luxury of waiting? 78 00:03:31,760 --> 00:03:33,600 Speaker 1: I think they have to wait because they're not really 79 00:03:33,639 --> 00:03:37,080 Speaker 1: sure what's going to happen to the economy, both on 80 00:03:37,200 --> 00:03:40,120 Speaker 1: the inflation side and the liver market side. And I 81 00:03:40,160 --> 00:03:42,720 Speaker 1: think they have a reason to wait because, as Paul said, 82 00:03:42,760 --> 00:03:45,760 Speaker 1: the unemployment rate hasn't changed. So essentially what's happened over 83 00:03:45,800 --> 00:03:49,600 Speaker 1: the last six months is labor demand has slowed, but 84 00:03:49,760 --> 00:03:52,760 Speaker 1: labor supply is also slowed because of immigration policy. And 85 00:03:52,920 --> 00:03:55,840 Speaker 1: he was very explicit about that. He really said, focus 86 00:03:55,920 --> 00:03:58,080 Speaker 1: on the unemployment rate. It's basically in the same place 87 00:03:58,120 --> 00:04:01,800 Speaker 1: as less summer. So I think, you know, the message 88 00:04:01,800 --> 00:04:06,240 Speaker 1: from this, you know press conference was very clear, we're 89 00:04:06,240 --> 00:04:10,240 Speaker 1: not in a rush. He also mentioned multiple times it's 90 00:04:10,240 --> 00:04:13,040 Speaker 1: going to take time to figure out what the effects 91 00:04:13,080 --> 00:04:15,280 Speaker 1: of the terrorists are going to be. And he also 92 00:04:15,360 --> 00:04:17,560 Speaker 1: made it very clear that what he's focused on is 93 00:04:17,600 --> 00:04:21,480 Speaker 1: making sure that any rise in inflation doesn't become persistent. 94 00:04:21,680 --> 00:04:24,760 Speaker 1: He really wants to keep inflation expectations in check, and 95 00:04:24,839 --> 00:04:27,000 Speaker 1: one of the ways you do that is by being patient. 96 00:04:27,400 --> 00:04:30,080 Speaker 5: Bill, how did you understand you don't see a weakening 97 00:04:30,120 --> 00:04:33,160 Speaker 5: in the labor market, but you do have downside risks 98 00:04:33,279 --> 00:04:35,719 Speaker 5: and those downside risks are growing. Can you put that 99 00:04:35,839 --> 00:04:38,240 Speaker 5: together and translate it well? 100 00:04:38,279 --> 00:04:40,640 Speaker 1: The way I would think about it is the payroll 101 00:04:40,680 --> 00:04:44,000 Speaker 1: employment growth rate has slowed, okay, and so the keep 102 00:04:44,040 --> 00:04:46,880 Speaker 1: slowing that eventually is going to be a problem. But 103 00:04:46,920 --> 00:04:49,480 Speaker 1: what it hasn't happened is that labor market hasn't actually 104 00:04:49,480 --> 00:04:52,240 Speaker 1: loosened up because the unplaying rates exactly where it was. 105 00:04:52,279 --> 00:04:54,800 Speaker 1: So two things that have been happening together. Labor supply 106 00:04:54,880 --> 00:04:57,600 Speaker 1: growth is coming down, labor demand growth is coming down. 107 00:04:57,880 --> 00:04:59,880 Speaker 1: I think they're worried about the downside risk because they 108 00:04:59,880 --> 00:05:02,839 Speaker 1: do see this decline in labor demand. But it's not 109 00:05:02,920 --> 00:05:06,120 Speaker 1: a problem right now because the unemployment rate hasn't moved 110 00:05:06,320 --> 00:05:06,640 Speaker 1: at all. 111 00:05:07,279 --> 00:05:10,120 Speaker 6: Bill Dudley, Bob Michael go was on with JP Morgan 112 00:05:10,200 --> 00:05:13,240 Speaker 6: and he floored me with an eighteen percent even twenty 113 00:05:13,279 --> 00:05:18,520 Speaker 6: percent modeled tariff rate. The people that aren't that sophisticated, 114 00:05:18,520 --> 00:05:22,560 Speaker 6: they're listening, they're watching, and they're going back the nineteen 115 00:05:23,040 --> 00:05:26,760 Speaker 6: thirties with those kind of rates. Are we leading to 116 00:05:26,839 --> 00:05:29,600 Speaker 6: an economy that has the kind of tensions we knew 117 00:05:29,960 --> 00:05:33,160 Speaker 6: and the nineteen thirties where the have nots struggle even 118 00:05:33,200 --> 00:05:37,159 Speaker 6: more with they're all in nineteen percent terriff. 119 00:05:36,920 --> 00:05:40,440 Speaker 1: Right, Well, there's a big difference. In nineteen thirties. You 120 00:05:40,440 --> 00:05:43,040 Speaker 1: have a depression and then you have the tariff wars. Right, 121 00:05:43,440 --> 00:05:46,960 Speaker 1: this is the tariff wars, and the economy is actually doing okay. 122 00:05:47,360 --> 00:05:49,279 Speaker 1: So I think you have to think of the depression 123 00:05:49,320 --> 00:05:52,520 Speaker 1: as quite different because the exwood Holiac was a reaction 124 00:05:52,880 --> 00:05:55,520 Speaker 1: to what was happening in the economy. I think it's 125 00:05:55,520 --> 00:05:57,600 Speaker 1: actually a little bit worse in terms of the magnitude 126 00:05:57,600 --> 00:05:59,760 Speaker 1: of the terror shock compared to the nineteen thirties because 127 00:05:59,800 --> 00:06:03,160 Speaker 1: the share of imports of GDP was much lower than 128 00:06:03,200 --> 00:06:04,720 Speaker 1: than it is now, so this is actually a more 129 00:06:04,760 --> 00:06:06,120 Speaker 1: sizable shock. 130 00:06:06,480 --> 00:06:09,719 Speaker 6: I'm fascinating to Bill, with your study of history, how 131 00:06:09,920 --> 00:06:15,279 Speaker 6: our central bank should adapt to a blended nineteen percent tariff? 132 00:06:15,640 --> 00:06:18,880 Speaker 6: Is there any template for where we're heading in twenty six? 133 00:06:19,240 --> 00:06:20,400 Speaker 6: In twenty seven. 134 00:06:20,800 --> 00:06:23,920 Speaker 1: You're explaining exactly why the Fed's being quite patient. We 135 00:06:24,160 --> 00:06:26,599 Speaker 1: don't have a template for this kind of shock. We 136 00:06:26,640 --> 00:06:29,000 Speaker 1: don't know how quickly it's going to pass through into inflation. 137 00:06:29,440 --> 00:06:32,000 Speaker 1: We don't know how that's going to affect inflation expectations. 138 00:06:32,200 --> 00:06:35,000 Speaker 1: We don't know how the uncertainty about the trade policy 139 00:06:35,040 --> 00:06:38,159 Speaker 1: is going to affect a business fixed investment. So we're 140 00:06:38,200 --> 00:06:41,520 Speaker 1: in sort of uncharted territories. And when you're in uncharted territories, 141 00:06:41,560 --> 00:06:43,400 Speaker 1: you want to be very cautious, and I think that's 142 00:06:43,400 --> 00:06:44,680 Speaker 1: what the FED is being at this point. 143 00:06:44,880 --> 00:06:47,479 Speaker 2: Governor Waller is making a different point Bill, as you know, 144 00:06:47,680 --> 00:06:49,479 Speaker 2: in a recent speech, he said a large share of 145 00:06:49,520 --> 00:06:52,200 Speaker 2: tariff increases won't be passed through to consumers. He went 146 00:06:52,240 --> 00:06:54,640 Speaker 2: on to say the increase would fade over the next 147 00:06:54,720 --> 00:06:57,039 Speaker 2: year or so. What is it about his argument that 148 00:06:57,080 --> 00:06:58,680 Speaker 2: you don't find that convincing? 149 00:07:00,160 --> 00:07:03,040 Speaker 1: Putting too much weight on what's happened so far as 150 00:07:03,040 --> 00:07:06,520 Speaker 1: opposed to what will ultimately happen. Most of commons believe 151 00:07:06,520 --> 00:07:09,600 Speaker 1: that most terrorists get passed through to the consumer in 152 00:07:09,640 --> 00:07:12,240 Speaker 1: the end. That may not happen instantaneously, but that's what 153 00:07:12,720 --> 00:07:17,680 Speaker 1: has happened historically, So I'm expecting a pass through. Every 154 00:07:17,680 --> 00:07:20,160 Speaker 1: one percent increase in terrorists is a percent of imports 155 00:07:20,280 --> 00:07:22,920 Speaker 1: is worth about a tenthuve a percent on the price level. 156 00:07:23,080 --> 00:07:24,520 Speaker 1: So if we're going from two and a half percent 157 00:07:24,640 --> 00:07:28,040 Speaker 1: tariffts of imports to seventeen eighteen percent, that's about one 158 00:07:28,040 --> 00:07:30,120 Speaker 1: and a half percent on the level of prices. 159 00:07:30,840 --> 00:07:33,120 Speaker 5: Right now, the market's expecting that next year you're going 160 00:07:33,120 --> 00:07:35,960 Speaker 5: to see a pretty big rate cutting cycle, regardless of 161 00:07:36,000 --> 00:07:39,160 Speaker 5: the economic data, almost just simply because of there being 162 00:07:39,200 --> 00:07:42,160 Speaker 5: a new FED chair who has a particular mandate. You 163 00:07:42,200 --> 00:07:44,600 Speaker 5: can put aside the idea of whether or not you 164 00:07:44,600 --> 00:07:47,280 Speaker 5: think that that's good or bad. Do you think that 165 00:07:47,280 --> 00:07:51,440 Speaker 5: that will lead to higher inflation? Given the fact that 166 00:07:51,680 --> 00:07:53,640 Speaker 5: right now, even if the FED remains on hold, we're 167 00:07:53,640 --> 00:07:55,880 Speaker 5: talking about fifty basis points and then pushing it into 168 00:07:55,920 --> 00:07:57,640 Speaker 5: next year, I. 169 00:07:57,600 --> 00:08:01,080 Speaker 1: Think we should be careful not to overste date the 170 00:08:01,080 --> 00:08:03,880 Speaker 1: fact that the chairman is going to change because there's 171 00:08:03,880 --> 00:08:06,720 Speaker 1: twelve people on the Federal Open Market Committee, and those 172 00:08:06,760 --> 00:08:08,720 Speaker 1: people aren't going to do what they think is inappropriate, 173 00:08:08,760 --> 00:08:10,720 Speaker 1: so the chairman has to sort of bring along the 174 00:08:10,760 --> 00:08:13,160 Speaker 1: rest of the committee. The second thing I would say is, 175 00:08:13,200 --> 00:08:16,040 Speaker 1: you know, the disagreement among them in the committee isn't 176 00:08:16,120 --> 00:08:17,960 Speaker 1: quite as large as people are making it to be. 177 00:08:18,160 --> 00:08:20,240 Speaker 1: Pretty much everybody expects rates are going to fall over 178 00:08:20,240 --> 00:08:21,960 Speaker 1: the next couple of years. It's just a question of 179 00:08:22,000 --> 00:08:23,320 Speaker 1: timing and magnitude. 180 00:08:23,840 --> 00:08:25,480 Speaker 5: You've been in the committee, You've been in the room 181 00:08:25,680 --> 00:08:28,880 Speaker 5: for some of these FED meetings. We heard that this 182 00:08:29,120 --> 00:08:30,960 Speaker 5: was one of the better meetings. That was what FED 183 00:08:31,000 --> 00:08:33,000 Speaker 5: chair J Powell said, And then he thought that it 184 00:08:33,000 --> 00:08:35,920 Speaker 5: was a really robust discussion. Can you translate what that means? 185 00:08:37,000 --> 00:08:39,600 Speaker 1: I think what he's saying is that we're all still friends, 186 00:08:39,600 --> 00:08:41,559 Speaker 1: and we're all still getting on and we respect each 187 00:08:41,559 --> 00:08:45,319 Speaker 1: other's points of view, you know. So he started he 188 00:08:45,400 --> 00:08:48,360 Speaker 1: started downplaying the importance of what the descents mean, and 189 00:08:48,400 --> 00:08:49,960 Speaker 1: I think that's right. I don't think the des sense 190 00:08:50,920 --> 00:08:53,800 Speaker 1: our big schism in terms of the monetary policy outlook. 191 00:08:54,040 --> 00:08:55,400 Speaker 1: The fact is if you look at the summary of 192 00:08:55,440 --> 00:08:59,120 Speaker 1: economic projections, every single respondent expects interest rates to be 193 00:08:59,200 --> 00:09:01,000 Speaker 1: lower at the end of next year. 194 00:09:01,480 --> 00:09:03,199 Speaker 6: You know, we've gotten through the last hour and a 195 00:09:03,240 --> 00:09:05,480 Speaker 6: half here, Bill, I have to say we haven't mentioned 196 00:09:05,520 --> 00:09:08,640 Speaker 6: the dots. That's a good and beautiful thing. What are 197 00:09:09,080 --> 00:09:13,559 Speaker 6: the dots do forward? Given this exceptional terriff uncertainty? I 198 00:09:13,559 --> 00:09:17,360 Speaker 6: don't know how, John, how do you create a dot. 199 00:09:16,400 --> 00:09:18,360 Speaker 3: Got away into September? Getting around? 200 00:09:18,440 --> 00:09:18,520 Speaker 6: Well? 201 00:09:18,720 --> 00:09:20,400 Speaker 1: I know, but that's that's one of the problems with 202 00:09:20,440 --> 00:09:23,600 Speaker 1: the summer of econmic economic projection. It's a modal forecast, 203 00:09:23,640 --> 00:09:26,439 Speaker 1: but it doesn't really tell you that much about uncertainty 204 00:09:26,440 --> 00:09:29,440 Speaker 1: around that forecus and the round that forecast. It's quite large. 205 00:09:29,480 --> 00:09:32,000 Speaker 6: Right now, I want to interrupt the show. John, you 206 00:09:32,040 --> 00:09:34,360 Speaker 6: mentioned to me megdand Decie has died in London, the 207 00:09:34,440 --> 00:09:38,960 Speaker 6: giant of London School of Economics. Bill Dudley Megnum. Decide's 208 00:09:39,040 --> 00:09:43,920 Speaker 6: strength was humility. What's the humility we need right now? 209 00:09:44,440 --> 00:09:48,120 Speaker 6: In two Americas a boom economy and a lot of 210 00:09:48,160 --> 00:09:52,120 Speaker 6: people really struggling. What's the humility our Central Bank needs? 211 00:09:53,760 --> 00:09:56,600 Speaker 1: Well? I think I think Chairman Paul does have humility. 212 00:09:56,720 --> 00:09:59,200 Speaker 1: I mean that precisely why he's not cutting rates today 213 00:09:59,280 --> 00:10:01,160 Speaker 1: is because he's un sure and about what the economic 214 00:10:01,200 --> 00:10:03,600 Speaker 1: outlook is. So he's not pre judging what's going to 215 00:10:03,600 --> 00:10:05,560 Speaker 1: happen because he doesn't want to make a mistake. So 216 00:10:05,640 --> 00:10:08,079 Speaker 1: I think he's showing appropriate humility as the chair of 217 00:10:08,120 --> 00:10:09,280 Speaker 1: the Fed Reserve at this point. 218 00:10:09,440 --> 00:10:11,520 Speaker 2: Oh, I appreciate your time. Bill Dudley, the former New 219 00:10:11,600 --> 00:10:15,439 Speaker 2: York Fed president. You mentioned DESI remember that word Hubris, Yeah, 220 00:10:15,520 --> 00:10:16,800 Speaker 2: And that was the name of the book, right. 221 00:10:16,720 --> 00:10:20,760 Speaker 6: A fabrious book, a short, thin monograph, and what he 222 00:10:20,840 --> 00:10:23,880 Speaker 6: did with general equilibrium theory does we don't need to 223 00:10:23,880 --> 00:10:26,600 Speaker 6: do it now, we're too tired from the warning shows. 224 00:10:26,640 --> 00:10:31,480 Speaker 6: But the answer here is humilities in order the Alarian's 225 00:10:31,559 --> 00:10:33,920 Speaker 6: unknown unknowns. That's where we are right now. 226 00:10:33,920 --> 00:10:35,800 Speaker 3: We've all been humboard coming out of the pandemic. 227 00:10:35,880 --> 00:10:37,719 Speaker 2: A lot of consensus calls turned out to be very, 228 00:10:37,800 --> 00:10:40,920 Speaker 2: very wrong, including the Federal Reserves when it came to transitory. 229 00:10:41,280 --> 00:10:43,760 Speaker 2: Have they been scarred by the transitory tory? Do you 230 00:10:43,800 --> 00:10:45,720 Speaker 2: think that's why they're waiting that a little bit longer 231 00:10:45,840 --> 00:10:47,040 Speaker 2: this time around to move again. 232 00:10:47,120 --> 00:10:48,800 Speaker 5: If you believe that they should be cutting you could 233 00:10:48,800 --> 00:10:50,640 Speaker 5: make the argument that they're not. They're waiting to see 234 00:10:50,679 --> 00:10:53,880 Speaker 5: more data because they got it wrong, and that is 235 00:10:54,400 --> 00:10:56,679 Speaker 5: very much what we're hearing from people like Neil Data, 236 00:10:56,679 --> 00:10:59,880 Speaker 5: et cetera. At the same time, the argument that inflation 237 00:11:00,120 --> 00:11:03,960 Speaker 5: has remained above two percent for so many years at 238 00:11:03,960 --> 00:11:06,120 Speaker 5: this point and you haven't seen it fall. If anything, 239 00:11:06,120 --> 00:11:09,320 Speaker 5: it's actually firmed up, points out why this is still 240 00:11:09,320 --> 00:11:11,400 Speaker 5: such a risk for the FED chair and why this 241 00:11:11,440 --> 00:11:12,440 Speaker 5: is such a compelling artist. 242 00:11:12,480 --> 00:11:14,520 Speaker 6: Just quickly here, you know, we've got to get to Mike. 243 00:11:14,960 --> 00:11:18,520 Speaker 6: I can't say enough how I disagree with Oh, if 244 00:11:18,520 --> 00:11:21,840 Speaker 6: we cut rates, it's a path to wherever. Just cut 245 00:11:21,840 --> 00:11:24,920 Speaker 6: the rates once and see what happens. They can break 246 00:11:24,960 --> 00:11:25,720 Speaker 6: the green spin. 247 00:11:27,080 --> 00:11:29,319 Speaker 2: This is. 248 00:11:31,400 --> 00:11:34,120 Speaker 6: Just to have a rate cut. Oh my god, I 249 00:11:34,280 --> 00:11:38,440 Speaker 6: just in this uncertain time, just change your rules because 250 00:11:38,480 --> 00:11:40,240 Speaker 6: half of America is flat on her back. 251 00:11:40,280 --> 00:11:42,160 Speaker 2: I'm happy to give the Chamman some credit on one 252 00:11:42,160 --> 00:11:44,880 Speaker 2: particular point. I think he navigates the descend pretty well 253 00:11:45,160 --> 00:11:47,640 Speaker 2: in that news conference over the last sixty minutes. 254 00:11:47,640 --> 00:11:50,280 Speaker 5: So so I love the interpretation. We're still friends and 255 00:11:50,320 --> 00:11:52,720 Speaker 5: so you know, we can discuss and disagree, but everyone 256 00:11:52,840 --> 00:11:56,760 Speaker 5: had well argued points of view. Look, he did navigate 257 00:11:56,800 --> 00:11:59,080 Speaker 5: that well well by saying this is a time of 258 00:11:59,160 --> 00:12:01,840 Speaker 5: uncertainty and certainty calls for robust debate, and that is 259 00:12:01,840 --> 00:12:02,480 Speaker 5: what we had on this. 260 00:12:02,679 --> 00:12:04,839 Speaker 6: Well we see that at Jackson Hole. I think we will. 261 00:12:05,040 --> 00:12:05,640 Speaker 5: I think it will. 262 00:12:05,920 --> 00:12:07,920 Speaker 6: It's going to be maybe one of the most interesting 263 00:12:08,240 --> 00:12:09,640 Speaker 6: Jackson Holes. 264 00:12:09,280 --> 00:12:11,240 Speaker 5: Out there, with a focus on the labor market, how 265 00:12:11,320 --> 00:12:13,040 Speaker 5: much is changing and how you measure it in a 266 00:12:13,120 --> 00:12:16,120 Speaker 5: very new world, not only with the immigration but also. 267 00:12:15,880 --> 00:12:19,240 Speaker 6: With your it's going to be amazing. 268 00:12:18,960 --> 00:12:21,920 Speaker 2: Woman you go around singing around Jackson Hole on a 269 00:12:22,000 --> 00:12:29,760 Speaker 2: late night fish yeah, canoe save those stories for another day. 270 00:12:29,880 --> 00:12:31,360 Speaker 2: It's that what's your canoeing impression? 271 00:12:31,360 --> 00:12:33,160 Speaker 3: What was that? That nice? 272 00:12:33,200 --> 00:12:35,600 Speaker 5: But that's he has never done. 273 00:12:35,640 --> 00:12:38,080 Speaker 3: Oh you did like the water? Impret nice? I like 274 00:12:38,120 --> 00:12:38,520 Speaker 3: that too. 275 00:12:38,679 --> 00:12:41,760 Speaker 2: This comes from wilst Fargo just moments ago. Optionality maintained. 276 00:12:41,840 --> 00:12:43,720 Speaker 2: I think that's the conclusion of a lot of people 277 00:12:43,760 --> 00:12:47,480 Speaker 2: optionality maintaining going into the September meeting. Mike McKee was 278 00:12:47,480 --> 00:12:49,240 Speaker 2: just in the room. It joins us right now for more. Mike, 279 00:12:49,360 --> 00:12:50,920 Speaker 2: Welcome back to the show, sir. What was your big 280 00:12:50,960 --> 00:12:52,520 Speaker 2: takeaway from the news conference? 281 00:12:54,040 --> 00:12:59,079 Speaker 7: Optionality maintained. I mean, it's basically j Powell's goal. He 282 00:12:59,320 --> 00:13:02,079 Speaker 7: maybe has disappointed the markets those who were leaning into 283 00:13:02,160 --> 00:13:05,920 Speaker 7: a September cut just because we had the two descents 284 00:13:06,280 --> 00:13:10,080 Speaker 7: for July and because it's going to provide more data 285 00:13:10,120 --> 00:13:12,200 Speaker 7: between now and then. But Pole tried to make it 286 00:13:12,240 --> 00:13:15,200 Speaker 7: clear that the data could go either way, and that's 287 00:13:15,240 --> 00:13:18,000 Speaker 7: I think something that maybe people in the markets had 288 00:13:18,160 --> 00:13:22,000 Speaker 7: sort of forgotten. The biggest issue for the FED is 289 00:13:22,040 --> 00:13:22,360 Speaker 7: that the. 290 00:13:25,240 --> 00:13:26,040 Speaker 3: Tariffs have not. 291 00:13:26,080 --> 00:13:29,360 Speaker 7: Taken effect yet in large measure. We just got copper 292 00:13:29,400 --> 00:13:33,400 Speaker 7: tariffs during this news conference. More are coming, so it's 293 00:13:33,440 --> 00:13:34,880 Speaker 7: going to be very hard for the FED to know 294 00:13:34,960 --> 00:13:37,600 Speaker 7: by September necessarily whether we're going to have a large 295 00:13:37,679 --> 00:13:41,560 Speaker 7: inflation increase or not. Poll seems to think not, and 296 00:13:41,600 --> 00:13:44,240 Speaker 7: he's still in the camp of those who are looking 297 00:13:44,240 --> 00:13:47,319 Speaker 7: at it as a one time move. But he does 298 00:13:47,400 --> 00:13:50,240 Speaker 7: seem to accept a little bit of the Waller and 299 00:13:50,360 --> 00:13:54,600 Speaker 7: Bowman argument that we could see inflation rise more if 300 00:13:54,800 --> 00:13:58,560 Speaker 7: people lose if they lose control of inflation expectations, and 301 00:13:58,760 --> 00:14:01,240 Speaker 7: certainly the anecdotals or as we get it that companies 302 00:14:01,280 --> 00:14:04,320 Speaker 7: are raising prices and consumers are noticing it and they're 303 00:14:04,320 --> 00:14:05,240 Speaker 7: not happy about it. 304 00:14:05,440 --> 00:14:09,320 Speaker 5: Maybe this was a meeting and operation optionality maintained, and 305 00:14:09,360 --> 00:14:11,959 Speaker 5: it was a successful one. It really through the emphasis 306 00:14:11,960 --> 00:14:14,760 Speaker 5: on Friday's data on the jobs report, not just necessarily 307 00:14:14,760 --> 00:14:18,200 Speaker 5: the headline number, but the unemployment rate. Suddenly that becomes 308 00:14:18,200 --> 00:14:22,040 Speaker 5: the most important number of the week, potentially, Mike, how 309 00:14:22,120 --> 00:14:25,560 Speaker 5: much did you see a spotlight thrown on exactly that composition. 310 00:14:27,120 --> 00:14:27,520 Speaker 3: Well, it's the. 311 00:14:27,560 --> 00:14:29,560 Speaker 7: Unemployment rate the FED has been looking at for some 312 00:14:29,680 --> 00:14:32,160 Speaker 7: time because if companies are letting people go, then you 313 00:14:32,240 --> 00:14:35,680 Speaker 7: have a problem because you lose their salaries their wages, 314 00:14:36,080 --> 00:14:39,680 Speaker 7: and people stop spending, and then people get afraid that 315 00:14:39,760 --> 00:14:42,840 Speaker 7: they might lose their jobs too and pull back. But 316 00:14:43,040 --> 00:14:44,600 Speaker 7: the thing that the FED is looking at is not 317 00:14:44,640 --> 00:14:48,560 Speaker 7: so much the unemployment rate level, it's how fast it moves. 318 00:14:49,520 --> 00:14:51,440 Speaker 7: A number of them have said that if we got 319 00:14:51,480 --> 00:14:54,320 Speaker 7: to four and a half percent fairly quickly, which in 320 00:14:54,400 --> 00:14:57,320 Speaker 7: theory could happen by September or maybe the October meeting, 321 00:14:57,720 --> 00:15:00,000 Speaker 7: then they would be really concerned because that would again 322 00:15:00,120 --> 00:15:02,160 Speaker 7: that a lot of companies are moving at the same time. 323 00:15:02,440 --> 00:15:04,640 Speaker 7: If it inches up to four point two percent on 324 00:15:04,720 --> 00:15:07,520 Speaker 7: Friday as forecast, not going to be a big concern. 325 00:15:07,600 --> 00:15:10,720 Speaker 7: We'll look at the size of the labor market of 326 00:15:10,760 --> 00:15:14,120 Speaker 7: the workforce, and if it inches up to four point 327 00:15:14,120 --> 00:15:16,880 Speaker 7: three percent and then by September, they're not going to 328 00:15:16,880 --> 00:15:21,080 Speaker 7: be overly concerned. So watch the rate of change much 329 00:15:21,080 --> 00:15:22,560 Speaker 7: more than the change itself. 330 00:15:22,720 --> 00:15:25,040 Speaker 2: My great work has always Thanks for dropping back again. 331 00:15:25,080 --> 00:15:27,760 Speaker 2: Michael McKee there of Bloomberg with the Latest. Just got 332 00:15:27,760 --> 00:15:30,600 Speaker 2: this note from a Bloomberg subscriber. I read it to you. 333 00:15:30,840 --> 00:15:32,960 Speaker 2: We want to remain open to different points of views. 334 00:15:33,000 --> 00:15:35,560 Speaker 2: Here the Fed likely has it wrong. High rates of 335 00:15:35,600 --> 00:15:40,160 Speaker 2: feeding inflation expectations, high rates of feeding inflation expectations. People 336 00:15:40,200 --> 00:15:42,680 Speaker 2: look at the cost of housing, rents and mortgages. If 337 00:15:42,760 --> 00:15:45,920 Speaker 2: rates come down, so will inflation expectations, because it will 338 00:15:46,000 --> 00:15:49,960 Speaker 2: unlock housing, and the housing market is most important. 339 00:15:50,080 --> 00:15:52,600 Speaker 5: Well, this seems to be in tantem with what President 340 00:15:52,600 --> 00:15:56,320 Speaker 5: Trump is arguing that if people feel like they could 341 00:15:56,360 --> 00:15:59,240 Speaker 5: borrow more cheaply, could unlock the housing market. I'm not 342 00:15:59,280 --> 00:16:01,480 Speaker 5: sure I'm totally following that aspect of it. I do 343 00:16:01,520 --> 00:16:04,560 Speaker 5: think though, there is this belief that because of where 344 00:16:04,600 --> 00:16:07,920 Speaker 5: bond yields are, people in particular savers, which make up 345 00:16:07,960 --> 00:16:10,800 Speaker 5: an increasing proportion of the population, are getting a lot 346 00:16:10,840 --> 00:16:13,680 Speaker 5: of income, and that income can go directly back into 347 00:16:13,720 --> 00:16:17,800 Speaker 5: the economy. So there could be an argument there unique arguments. 348 00:16:17,880 --> 00:16:20,840 Speaker 2: This is the hope potentially that maybe would unlock some supply, 349 00:16:21,200 --> 00:16:24,000 Speaker 2: some supply for certain people around this table sitting on 350 00:16:24,040 --> 00:16:26,680 Speaker 2: mortgages and paying two to three percent interest rates, and 351 00:16:26,720 --> 00:16:30,560 Speaker 2: that certain person might be choking as week about house. 352 00:16:30,640 --> 00:16:33,880 Speaker 3: I'm something of my wife. I couldn't quite keep it together. 353 00:16:34,000 --> 00:16:36,320 Speaker 2: I want to talk about this equity market. Equities decline 354 00:16:36,320 --> 00:16:38,200 Speaker 2: in by four tens of one percent on the SMP 355 00:16:38,360 --> 00:16:40,840 Speaker 2: following the news conference. Bond yields started to shift higher. 356 00:16:41,080 --> 00:16:43,040 Speaker 2: You push that through foreign exchange, and you started to 357 00:16:43,040 --> 00:16:45,800 Speaker 2: get some dollar strength on the market. Jeff Rosenberg of 358 00:16:45,840 --> 00:16:48,440 Speaker 2: Blackrock joins us now for more. Jeff, Welcome to the show, sir. 359 00:16:48,480 --> 00:16:50,480 Speaker 2: I just want it from your perspective whether these moves 360 00:16:50,480 --> 00:16:53,000 Speaker 2: tell you more about positioning than it does anything that 361 00:16:53,120 --> 00:16:54,480 Speaker 2: was said in the news conference. 362 00:16:56,160 --> 00:16:58,320 Speaker 8: Yeah, Jonathan, you say it often. You know, the first 363 00:16:58,320 --> 00:17:00,720 Speaker 8: move is not necessarily the last move on the data. 364 00:17:00,800 --> 00:17:03,360 Speaker 8: I mean, I think they're pretty consistent with the headline 365 00:17:03,400 --> 00:17:05,639 Speaker 8: you talked about just a minute ago in terms of 366 00:17:05,640 --> 00:17:09,399 Speaker 8: optionality preserved. I think when you look at what Powell 367 00:17:09,480 --> 00:17:12,679 Speaker 8: came back to many many times was this balance of 368 00:17:12,840 --> 00:17:16,280 Speaker 8: risk focus and how unique the challenges are that you 369 00:17:16,280 --> 00:17:19,479 Speaker 8: have an inflation challenge and you have a labor market's 370 00:17:19,560 --> 00:17:21,960 Speaker 8: challenge and the focus and we'll be back on Friday 371 00:17:22,000 --> 00:17:24,960 Speaker 8: to talk about it. The focus on the unemployment rate. Remember, 372 00:17:25,000 --> 00:17:27,640 Speaker 8: he also said that there's a risk inside of that 373 00:17:27,640 --> 00:17:30,000 Speaker 8: that the balance that you're getting is because you're getting 374 00:17:30,040 --> 00:17:33,280 Speaker 8: the offset on the supply side, but that the demand 375 00:17:33,440 --> 00:17:36,720 Speaker 8: side decline was indicative of downside risk, and that to 376 00:17:36,800 --> 00:17:39,720 Speaker 8: me was a little bit of a tell of if 377 00:17:39,800 --> 00:17:43,639 Speaker 8: you see that scenario where the labor market balance of 378 00:17:43,760 --> 00:17:46,679 Speaker 8: risk starts to move more in favor of cutting, that 379 00:17:46,760 --> 00:17:51,439 Speaker 8: they'll be responsive to that. Otherwise it is this overshoot 380 00:17:51,480 --> 00:17:54,200 Speaker 8: in terms of inflation. He said, at many times they're 381 00:17:54,240 --> 00:17:57,600 Speaker 8: at target on the unemployment rate perspective, So the labor 382 00:17:57,600 --> 00:18:00,720 Speaker 8: market's at target and you're off targeted terms of inflation, 383 00:18:00,800 --> 00:18:04,720 Speaker 8: and that's what justifies the slightly modestly restrictive. But if 384 00:18:04,720 --> 00:18:08,680 Speaker 8: the inflation piece moves in their favor, meaning it is transitory, 385 00:18:08,800 --> 00:18:12,480 Speaker 8: the tariff impact moves through, they'll move to cut rates 386 00:18:12,520 --> 00:18:13,760 Speaker 8: off of restrictiveness. 387 00:18:13,760 --> 00:18:15,960 Speaker 2: Well, Jeff Pus, how long are they going to have 388 00:18:16,040 --> 00:18:18,600 Speaker 2: to wait before they can make that cool because what 389 00:18:18,640 --> 00:18:20,359 Speaker 2: you just said doesn't sound like September. 390 00:18:22,040 --> 00:18:24,600 Speaker 8: Yeah, you know, that is the interesting part when we 391 00:18:24,680 --> 00:18:28,399 Speaker 8: talk about this, you know, inflation passed through and transitory. 392 00:18:28,520 --> 00:18:30,560 Speaker 8: You know, we're just starting to see in the chairman, 393 00:18:30,800 --> 00:18:32,960 Speaker 8: you know, address this in the in the press conference 394 00:18:33,000 --> 00:18:35,840 Speaker 8: that we're just starting to see some of the incidents 395 00:18:35,880 --> 00:18:39,720 Speaker 8: in terms of tariff impacts. Now that's not broad based inflation, 396 00:18:39,840 --> 00:18:41,760 Speaker 8: that's in goods inflation, and so they're going to care 397 00:18:41,800 --> 00:18:44,879 Speaker 8: about the impact and the balance between services and goods, 398 00:18:44,880 --> 00:18:46,600 Speaker 8: and he talked about a little bit of that of 399 00:18:46,640 --> 00:18:49,600 Speaker 8: that trade off. But to your question, it is going 400 00:18:49,680 --> 00:18:52,880 Speaker 8: to be a tricky environment. If if the unemployment rate 401 00:18:53,000 --> 00:18:57,040 Speaker 8: stays stable here and the labor markets don't decelerate, which 402 00:18:57,080 --> 00:19:01,040 Speaker 8: is Waller's concern, and inflation starts to accelerate, it's going 403 00:19:01,119 --> 00:19:03,200 Speaker 8: to be hard for them to be cutting rates into 404 00:19:03,200 --> 00:19:05,520 Speaker 8: that environment. Remember what he said was, you know, we 405 00:19:05,560 --> 00:19:09,200 Speaker 8: believe we're modestly restrictive, but we don't know where we're at, 406 00:19:09,240 --> 00:19:12,439 Speaker 8: and the data tells us, and the data is consistent 407 00:19:12,880 --> 00:19:16,440 Speaker 8: with less than modestly restricted because the economy is doing 408 00:19:16,960 --> 00:19:20,320 Speaker 8: well enough despite the setting of a policy rate otherwise 409 00:19:20,320 --> 00:19:25,159 Speaker 8: being somewhat above their idea of where neutral is. 410 00:19:25,359 --> 00:19:28,439 Speaker 5: Jeff, it seems like the feed is talking about how 411 00:19:28,480 --> 00:19:31,320 Speaker 5: they engage with monetary policy in a very traditional way. 412 00:19:31,640 --> 00:19:35,040 Speaker 5: It seems like the market is exploring ideas of whether 413 00:19:35,240 --> 00:19:38,800 Speaker 5: the rate setting policy has served a different purpose recently. 414 00:19:38,840 --> 00:19:42,040 Speaker 5: And John was having me explain something that someone sent him, 415 00:19:42,080 --> 00:19:45,000 Speaker 5: and I lost my breath because I was trying so hard. 416 00:19:45,200 --> 00:19:47,800 Speaker 5: But there is this idea that actually keeping rates high 417 00:19:48,400 --> 00:19:51,240 Speaker 5: is inflationary in and of itself, and that because the 418 00:19:51,320 --> 00:19:55,240 Speaker 5: growth and the inflation trajectory seemed to be roughly imbalanced, 419 00:19:55,440 --> 00:19:58,840 Speaker 5: it is appropriate and actually the right course of action 420 00:19:59,000 --> 00:20:01,399 Speaker 5: to lower rates. That's what President has been arguing. Do 421 00:20:01,400 --> 00:20:04,600 Speaker 5: you see anything to suggest that monetary policy is just 422 00:20:04,640 --> 00:20:08,040 Speaker 5: in a profoundly different place in this cycle and serves as 423 00:20:08,040 --> 00:20:10,440 Speaker 5: a completely different function in the economy. 424 00:20:12,040 --> 00:20:14,680 Speaker 8: Well, I think we have to remember that a lot 425 00:20:14,720 --> 00:20:19,159 Speaker 8: of the pass through of monetary policy flows through financial conditions. 426 00:20:19,160 --> 00:20:22,120 Speaker 8: You know, It's interestingly it was hardly mentioned. I think 427 00:20:22,160 --> 00:20:26,119 Speaker 8: Powell mentioned it very briefly about financial conditions remain accommodative, 428 00:20:26,200 --> 00:20:29,840 Speaker 8: but that a lot of the impact of monetary policy 429 00:20:29,960 --> 00:20:33,840 Speaker 8: is not the direct impact into the economy in terms 430 00:20:33,840 --> 00:20:36,240 Speaker 8: of credit credit rates. A lot more of that is 431 00:20:36,280 --> 00:20:39,800 Speaker 8: on credit spreads. That's financial conditions and credit spreads are 432 00:20:39,840 --> 00:20:44,720 Speaker 8: exceptionally tight. They're more indicative of mid expansion level than 433 00:20:44,760 --> 00:20:47,960 Speaker 8: any kind of slow down concern, and that the pass 434 00:20:48,040 --> 00:20:50,320 Speaker 8: through to the housing market, which was I think the 435 00:20:50,440 --> 00:20:53,920 Speaker 8: question you choked on a bit was, is much more 436 00:20:53,960 --> 00:20:56,680 Speaker 8: about what Powell said. It's more about term premium and 437 00:20:57,280 --> 00:21:00,399 Speaker 8: things that the FED doesn't directly control. I think the 438 00:21:00,400 --> 00:21:04,720 Speaker 8: bigger issue in terms of monetary policy is the financial 439 00:21:04,720 --> 00:21:09,399 Speaker 8: conditions impact. And financial conditions are both about monetary policy 440 00:21:09,400 --> 00:21:12,080 Speaker 8: what they directly say, but other aspects. A lot of 441 00:21:12,080 --> 00:21:15,399 Speaker 8: the financial condition easing that we've seen is more about 442 00:21:15,400 --> 00:21:21,240 Speaker 8: the other fiscal policy. The passage of the bill, the passage, 443 00:21:21,320 --> 00:21:24,719 Speaker 8: the extension, the elimination of the risk of a big 444 00:21:25,040 --> 00:21:29,040 Speaker 8: increase in taxes, and the tariff uncertainty is also a 445 00:21:29,080 --> 00:21:31,920 Speaker 8: big part of the financial conditions easing. So it's not 446 00:21:32,080 --> 00:21:35,359 Speaker 8: just about monetary policy directly in terms of its contribution, 447 00:21:35,640 --> 00:21:39,080 Speaker 8: but the overall picture in financial conditions that creates the 448 00:21:39,359 --> 00:21:43,159 Speaker 8: either easing feature that we're having right now or a 449 00:21:43,160 --> 00:21:45,480 Speaker 8: tightening feature when financial conditions tightened. 450 00:21:45,240 --> 00:21:47,679 Speaker 5: So to put that into a market call. Does the 451 00:21:47,680 --> 00:21:49,919 Speaker 5: fact that the FED is remaining on hold give you 452 00:21:49,960 --> 00:21:53,479 Speaker 5: more confidence to invest in long term treasuries with the 453 00:21:53,480 --> 00:21:56,160 Speaker 5: belief that this FED is going to try to get 454 00:21:56,160 --> 00:21:57,280 Speaker 5: inflation under control. 455 00:22:00,040 --> 00:22:03,720 Speaker 8: I think that the longer term treasury impact has more 456 00:22:03,800 --> 00:22:07,840 Speaker 8: factors associated relative to near term FED policy. I think 457 00:22:07,880 --> 00:22:11,159 Speaker 8: the short term FED policy and the inflation piece is 458 00:22:12,359 --> 00:22:15,600 Speaker 8: additive to the long term perspective, but it's challenged by 459 00:22:16,320 --> 00:22:18,359 Speaker 8: a couple of other things. One, as you're coming into 460 00:22:18,400 --> 00:22:22,600 Speaker 8: this environment after a long period of a collapse in 461 00:22:22,680 --> 00:22:26,080 Speaker 8: term premium, you're having a change with respect to inflation 462 00:22:26,160 --> 00:22:28,840 Speaker 8: and inflation uncertainty. That is a reflection of the post 463 00:22:28,920 --> 00:22:32,840 Speaker 8: COVID environment where the pricing of an inflation term premium 464 00:22:33,040 --> 00:22:35,280 Speaker 8: is resetting higher, and you have a change in the 465 00:22:35,320 --> 00:22:38,520 Speaker 8: global environment in terms of the level of trade, the 466 00:22:38,520 --> 00:22:43,080 Speaker 8: amount of recycling, the holding of reserves, and and finally 467 00:22:43,119 --> 00:22:47,080 Speaker 8: the attractiveness of long term treasuries as a portfolio hedge. 468 00:22:47,119 --> 00:22:51,000 Speaker 8: We've had a significant structural change in stockbond correlation. It's 469 00:22:51,040 --> 00:22:54,640 Speaker 8: a reflection of all those factors. In particular the movement 470 00:22:54,720 --> 00:22:57,280 Speaker 8: from an environment of too little inflation. We're going on 471 00:22:57,400 --> 00:23:01,119 Speaker 8: six years of too much inflation relative to target, and 472 00:23:01,160 --> 00:23:05,720 Speaker 8: that challenges the effectiveness of long duration as a portfolio hedge, 473 00:23:05,720 --> 00:23:09,200 Speaker 8: which reduces its tractiveness. That encourages an increase in term 474 00:23:09,240 --> 00:23:11,560 Speaker 8: premium changes. You know how much we want to hold 475 00:23:11,600 --> 00:23:14,280 Speaker 8: long term treasuries in a portfolio as a result of 476 00:23:14,359 --> 00:23:15,760 Speaker 8: all those structural changes. 477 00:23:15,640 --> 00:23:18,880 Speaker 6: Jeff, forget two Americas. We got in America float once back. 478 00:23:18,960 --> 00:23:21,560 Speaker 6: I think Powell talked about that today. The President talks 479 00:23:21,560 --> 00:23:23,960 Speaker 6: about it each and every day. Look at the housing market. 480 00:23:24,520 --> 00:23:27,919 Speaker 6: Just as one example, your Carnegie Mellon is going to 481 00:23:27,960 --> 00:23:32,680 Speaker 6: take in billions and billions of dollars into western Pennsylvania 482 00:23:32,800 --> 00:23:37,840 Speaker 6: to do AI. How does a central bank prosecute monetary 483 00:23:37,920 --> 00:23:41,119 Speaker 6: policy given the polarization of America. 484 00:23:42,680 --> 00:23:46,080 Speaker 8: Yeah, Tom, it's a frequent theme We've talked about on 485 00:23:46,480 --> 00:23:48,840 Speaker 8: the shows We're together, and it's something we look at 486 00:23:48,920 --> 00:23:52,400 Speaker 8: a lot. The distribution of economic outcomes matters as much 487 00:23:52,520 --> 00:23:55,480 Speaker 8: as the central tendency. Unfortunately, what we heard a lot 488 00:23:55,600 --> 00:24:00,080 Speaker 8: from Powell today, and it's the kind of simplification of 489 00:24:00,119 --> 00:24:03,800 Speaker 8: economic statistics, is it looks at that central tendency and 490 00:24:03,840 --> 00:24:07,159 Speaker 8: not the distribution, but the distribution matters. The question was 491 00:24:07,280 --> 00:24:10,080 Speaker 8: raised about you know delinquency rates at the high end, 492 00:24:10,080 --> 00:24:11,680 Speaker 8: which was a bit surprising. He said, I don't know 493 00:24:11,720 --> 00:24:13,320 Speaker 8: what to make of that. I read that too. I 494 00:24:13,400 --> 00:24:16,280 Speaker 8: read that too. I think we all did. And so 495 00:24:16,359 --> 00:24:20,800 Speaker 8: those distributions matter, and I think the problem for the 496 00:24:20,880 --> 00:24:23,919 Speaker 8: FED is setting the interest rate policy in the middle 497 00:24:24,400 --> 00:24:28,520 Speaker 8: isn't necessarily going to solve the problems at the bottom. 498 00:24:29,440 --> 00:24:31,520 Speaker 8: Powell talks a little bit about this in terms of 499 00:24:31,560 --> 00:24:34,959 Speaker 8: what policy, what monetary policy is equipped to deal with, 500 00:24:35,000 --> 00:24:38,240 Speaker 8: and what other policies like fiscal policy, are going to 501 00:24:38,240 --> 00:24:42,800 Speaker 8: be better attuned to address some of the inconsistencies or 502 00:24:42,840 --> 00:24:46,399 Speaker 8: inequities across the distribution. And that's something that FED policy 503 00:24:46,520 --> 00:24:48,440 Speaker 8: is just not designed to address. 504 00:24:48,520 --> 00:24:52,040 Speaker 6: Bottle it, John, That's the clearest explanation of a distributional 505 00:24:52,080 --> 00:24:55,400 Speaker 6: policy I've heard so far. There's two Americas. Maybe it's 506 00:24:55,440 --> 00:24:57,679 Speaker 6: like England, maybe it's like France. I don't know, but 507 00:24:57,760 --> 00:25:00,640 Speaker 6: we're living it and Powell's living it in real t HF. 508 00:25:00,680 --> 00:25:02,400 Speaker 2: Let's sit on the market for a couple of baits. 509 00:25:02,400 --> 00:25:06,080 Speaker 2: You mentioned correlations, messy correlations. Back in April, we had 510 00:25:06,160 --> 00:25:09,320 Speaker 2: risk breakdown alongside the risk free asset. The dollar didn't 511 00:25:09,359 --> 00:25:10,959 Speaker 2: strengthen off the back of it, even though we had 512 00:25:11,040 --> 00:25:12,639 Speaker 2: high up bond you it's how much comfort can you 513 00:25:12,680 --> 00:25:15,159 Speaker 2: take in some of the developments we've seen cross asset 514 00:25:15,560 --> 00:25:17,520 Speaker 2: over the last few weeks, the last month or. 515 00:25:17,440 --> 00:25:21,560 Speaker 8: So, Yeah, I would say the last few weeks or so, 516 00:25:21,600 --> 00:25:23,879 Speaker 8: you've seen a little bit of a return to NORMALITI 517 00:25:23,920 --> 00:25:26,760 Speaker 8: stock bond correlations kind of coming back in line. It 518 00:25:26,840 --> 00:25:29,480 Speaker 8: was during that period that you just referenced, that was 519 00:25:30,280 --> 00:25:33,800 Speaker 8: the Liberation Day, terriff uncertainty. Around April, we saw some 520 00:25:33,960 --> 00:25:38,359 Speaker 8: dramatic breakdowns in historic correlations of what you expect from 521 00:25:38,600 --> 00:25:41,879 Speaker 8: traditional hedging assets, whether it be the dollar or gold 522 00:25:42,400 --> 00:25:45,440 Speaker 8: or fixed income. And I think that lesson of that 523 00:25:45,560 --> 00:25:49,199 Speaker 8: shock period has to be learned that a lot of 524 00:25:49,240 --> 00:25:55,080 Speaker 8: these breakdowns are due to some structural changes. The biggest 525 00:25:55,080 --> 00:25:57,280 Speaker 8: one of which I talked about a minute ago, and 526 00:25:57,320 --> 00:26:01,359 Speaker 8: it affects fixed income dramatically, and that is this shift 527 00:26:01,359 --> 00:26:04,080 Speaker 8: in environment from too little inflation to too much inflation. 528 00:26:04,359 --> 00:26:06,800 Speaker 8: Where did we hear it today? We heard it today 529 00:26:06,880 --> 00:26:09,800 Speaker 8: when Powell talked about the balance of risk, and that today, 530 00:26:09,920 --> 00:26:14,919 Speaker 8: unlike in any prior period, the FED is challenged on 531 00:26:15,080 --> 00:26:18,600 Speaker 8: both sides of its dual mandate. There's an inflation challenge 532 00:26:18,880 --> 00:26:23,080 Speaker 8: and a growth or maximum employment challenge, and that tells 533 00:26:23,119 --> 00:26:26,320 Speaker 8: you that the FED is more constrained. You can see 534 00:26:26,320 --> 00:26:29,200 Speaker 8: the constraint. It's in the debate. You've got two dissenters 535 00:26:29,760 --> 00:26:32,960 Speaker 8: differing in viewpoints of which side of the dual mandate 536 00:26:33,000 --> 00:26:34,960 Speaker 8: should we focus on. But what that means for the 537 00:26:34,960 --> 00:26:37,679 Speaker 8: stockbond correlation in the bond hedge is that the FED 538 00:26:38,080 --> 00:26:42,120 Speaker 8: can't be as aggressively accommodative as they were in an 539 00:26:42,200 --> 00:26:46,119 Speaker 8: environment where there was not this challenge on the inflation. 540 00:26:46,160 --> 00:26:49,119 Speaker 8: When you had too little inflation, you could cut interest rates. 541 00:26:49,160 --> 00:26:51,720 Speaker 8: It was called the divine coincidence of monetary policy. You 542 00:26:51,760 --> 00:26:55,560 Speaker 8: could achieve both goals, raise inflation and support growth at 543 00:26:55,560 --> 00:26:58,040 Speaker 8: the same time by cutting rates. That was the era 544 00:26:58,200 --> 00:27:02,159 Speaker 8: of massive heading efficacy of fixed income. We're out of 545 00:27:02,160 --> 00:27:04,960 Speaker 8: that era. Where is the hedging efficacy. It's going to 546 00:27:04,960 --> 00:27:07,640 Speaker 8: be more in the short end, it's going to challenge investors. 547 00:27:07,640 --> 00:27:10,480 Speaker 8: We've got to think about alternative forms of diversification, think 548 00:27:10,520 --> 00:27:14,840 Speaker 8: differently about portfolio construction. But that's a structural change, and 549 00:27:14,880 --> 00:27:16,840 Speaker 8: we saw it a little bit in April, kind of 550 00:27:16,880 --> 00:27:20,240 Speaker 8: more recently kind of coming back when overlearn the more 551 00:27:20,280 --> 00:27:23,280 Speaker 8: recent data, and it's more about recognizing the structural change 552 00:27:23,320 --> 00:27:24,760 Speaker 8: that I think is going to be persistent. 553 00:27:24,960 --> 00:27:27,040 Speaker 5: To be more specific and build on what John was 554 00:27:27,040 --> 00:27:29,680 Speaker 5: talking about. One correlation that broke down was the idea 555 00:27:29,720 --> 00:27:31,840 Speaker 5: of higher rates in the US, meaning that there would 556 00:27:31,840 --> 00:27:34,560 Speaker 5: be a stronger dollar. It seems like as we do 557 00:27:34,600 --> 00:27:37,240 Speaker 5: see rates go up on the heels of this press conference, 558 00:27:37,240 --> 00:27:40,160 Speaker 5: we are seeing that ongoing dollar strength and as John 559 00:27:40,200 --> 00:27:42,560 Speaker 5: nodded to this, partly could be a positioning thing how 560 00:27:42,640 --> 00:27:45,760 Speaker 5: underweight people had gotten the dollar versus the euro. But 561 00:27:45,800 --> 00:27:47,760 Speaker 5: do you think that this is a marketing point in 562 00:27:47,840 --> 00:27:51,560 Speaker 5: terms of the solid, straight lined downward weaker in the 563 00:27:51,600 --> 00:27:53,119 Speaker 5: dollar that we saw in the first half of the 564 00:27:53,200 --> 00:27:54,280 Speaker 5: year is over. 565 00:27:56,240 --> 00:27:58,560 Speaker 8: I think there is a shift, and you can look 566 00:27:58,560 --> 00:28:02,040 Speaker 8: into the equity markets and into the cross section of 567 00:28:02,080 --> 00:28:04,840 Speaker 8: equity markets to really see how dramatic that shift is. 568 00:28:05,080 --> 00:28:08,000 Speaker 8: Certainly you see it in terms of the index performance 569 00:28:08,040 --> 00:28:11,639 Speaker 8: and the recovery and new highs, but you see it 570 00:28:11,720 --> 00:28:15,960 Speaker 8: underneath that the performance of cyclicals versus defensives, you know, 571 00:28:16,080 --> 00:28:19,040 Speaker 8: fully recovering, but you also see it in the kind 572 00:28:19,080 --> 00:28:22,240 Speaker 8: of recovery and animal spirits. The reach for risk that 573 00:28:22,280 --> 00:28:26,879 Speaker 8: we see in say the outperformance of unprofitable companies in 574 00:28:27,320 --> 00:28:30,359 Speaker 8: the performance that we see in quality versus high quality 575 00:28:30,440 --> 00:28:33,320 Speaker 8: versus low quality companies. And so I think the shift 576 00:28:33,640 --> 00:28:39,200 Speaker 8: in the macro narrative around tariffs is really reinforced around 577 00:28:39,480 --> 00:28:42,960 Speaker 8: We've removed the tariff uncertainty. We're no longer trading off 578 00:28:42,960 --> 00:28:47,440 Speaker 8: of tariff headlines. Yes, we have the tariff implications still 579 00:28:47,480 --> 00:28:50,160 Speaker 8: in front of us, but the kind of bigger tail 580 00:28:50,240 --> 00:28:52,960 Speaker 8: risk has been removed and associated with that. To get 581 00:28:52,960 --> 00:28:55,720 Speaker 8: to your question, you know, you kind of return to 582 00:28:55,840 --> 00:29:00,720 Speaker 8: a bit more of US exceptionalism. A lot alongside the 583 00:29:00,760 --> 00:29:04,080 Speaker 8: AI trade has come back. It's recovered from the deep 584 00:29:04,160 --> 00:29:07,120 Speaker 8: seek kind of draw down back in February. So a 585 00:29:07,160 --> 00:29:09,680 Speaker 8: lot of these under the surface themes have come back, 586 00:29:09,920 --> 00:29:12,080 Speaker 8: and one of those that is associated with it is 587 00:29:12,080 --> 00:29:15,480 Speaker 8: this kind of US exceptionalism, and that's been pretty favorable 588 00:29:15,480 --> 00:29:18,440 Speaker 8: for the dollar. Away from kind of the macro story 589 00:29:18,480 --> 00:29:23,560 Speaker 8: around the FED, it's really some of these underlying macro themes, 590 00:29:24,120 --> 00:29:26,760 Speaker 8: secular themes around AI US exceptionalism. 591 00:29:26,800 --> 00:29:29,000 Speaker 2: Hey, Jeff, well framed as always, We'll see a Friday 592 00:29:29,160 --> 00:29:31,440 Speaker 2: for payrolls. Appreciate your time, sir, Thank you, Thank you 593 00:29:31,560 --> 00:29:34,240 Speaker 2: very much. Jeff Rosenberg there of black Rock. I think 594 00:29:34,320 --> 00:29:37,160 Speaker 2: Jeff articulated things pretty well, just that he sits at 595 00:29:37,160 --> 00:29:39,560 Speaker 2: a flow monster, and a lot of those flows have 596 00:29:39,680 --> 00:29:41,680 Speaker 2: come back home to the United States. That's where a 597 00:29:41,720 --> 00:29:43,880 Speaker 2: lot of the money's been going over the past few months. 598 00:29:43,920 --> 00:29:46,680 Speaker 5: And it's not because of parsing exactly who's going to 599 00:29:46,680 --> 00:29:49,760 Speaker 5: dissent on the FED and exactly what metrics they're looking at. 600 00:29:49,840 --> 00:29:52,000 Speaker 5: It's because of what we're going to get in about 601 00:29:52,040 --> 00:29:56,280 Speaker 5: sixteen minutes time with Amazon well Emmeta and Microsoft today 602 00:29:56,320 --> 00:29:58,960 Speaker 5: and Amazon and Apple tomorrow. That has been the driver, 603 00:29:59,120 --> 00:30:00,800 Speaker 5: and that's what we see. Aren't going base. 604 00:30:00,720 --> 00:30:04,400 Speaker 2: Eleven trillion dollars worth of names, four names, one fifth 605 00:30:04,440 --> 00:30:06,600 Speaker 2: of the market. Company s and P five hundred Big 606 00:30:06,640 --> 00:30:08,600 Speaker 2: tech is a major piece of the puzzle. 607 00:30:09,000 --> 00:30:11,000 Speaker 6: I'm still getting over Google's numbers. I thought they were 608 00:30:11,000 --> 00:30:13,400 Speaker 6: absolutely extraordinary, and just see what you know. We'll see 609 00:30:13,400 --> 00:30:16,240 Speaker 6: what we see here, John. If we stay on another hour, 610 00:30:16,440 --> 00:30:18,840 Speaker 6: I think we should we'll get d x Y two 611 00:30:18,880 --> 00:30:20,240 Speaker 6: one hundred. That'd be a good idea. 612 00:30:20,400 --> 00:30:21,640 Speaker 3: You want to stay for another sixty. 613 00:30:21,480 --> 00:30:23,680 Speaker 6: Minutes, think for another sixty minutes, explain. 614 00:30:23,480 --> 00:30:25,160 Speaker 2: To the audience why like d x Y a little 615 00:30:25,240 --> 00:30:28,000 Speaker 2: higher and you wrote dollar a little lower, whereas you'd 616 00:30:28,000 --> 00:30:28,560 Speaker 2: like to go. 617 00:30:28,840 --> 00:30:31,920 Speaker 6: Well, we're stening. Sweeney's going to Rome. I think that 618 00:30:31,960 --> 00:30:32,400 Speaker 6: works out. 619 00:30:32,600 --> 00:30:36,000 Speaker 2: Let's just say one fourteen is better than pushing one twenty, right, Lisa, help. 620 00:30:35,880 --> 00:30:39,320 Speaker 6: Me here, because the land from England is on holiday. 621 00:30:39,360 --> 00:30:41,800 Speaker 6: You and I go on vacation, which is seventy two 622 00:30:41,800 --> 00:30:42,760 Speaker 6: hours if we're lucky. 623 00:30:43,200 --> 00:30:47,400 Speaker 2: August and Caprias, I gave up my thirty days and 624 00:30:47,440 --> 00:30:47,800 Speaker 2: I did. 625 00:30:48,520 --> 00:30:51,160 Speaker 3: I'm fully American. I've been here ten years and I'm 626 00:30:51,160 --> 00:30:53,720 Speaker 3: going to European. I fully embrace. I fully embrace the 627 00:30:53,720 --> 00:30:58,960 Speaker 3: culture vacations. I'm off an xt y. I'm exactly summarize it. 628 00:30:59,000 --> 00:31:01,840 Speaker 6: They don't have a life. Watch the x y god 629 00:31:02,000 --> 00:31:02,520 Speaker 6: one hundred. 630 00:31:02,600 --> 00:31:03,840 Speaker 3: The dollar is a whole lot stronger. 631 00:31:03,880 --> 00:31:06,080 Speaker 2: Equity's pulling back just a touch, But this is a 632 00:31:06,120 --> 00:31:08,520 Speaker 2: federal reserve that still has a bias to cut interest rates. 633 00:31:08,840 --> 00:31:11,440 Speaker 2: This is a chairman, though with a bias to wait, 634 00:31:11,840 --> 00:31:12,880 Speaker 2: and that's a key difference. 635 00:31:13,000 --> 00:31:15,280 Speaker 5: The idea that there hasn't been a weakening in the 636 00:31:15,360 --> 00:31:18,560 Speaker 5: labor market is really notable and puts him in stark 637 00:31:18,600 --> 00:31:19,920 Speaker 5: contrast to Chris. 638 00:31:19,760 --> 00:31:22,320 Speaker 3: Waller coming up tomorrow. Stick with Bloomberg Surveillance. 639 00:31:22,320 --> 00:31:24,800 Speaker 2: We'll catch up with Chris Farona strateigas they're appan died 640 00:31:24,840 --> 00:31:27,960 Speaker 2: at JP Morgan Asset Management, the former Kansas City Fed 641 00:31:28,000 --> 00:31:31,000 Speaker 2: President Esther George and Ghagi Chowdhry of Black. 642 00:31:30,840 --> 00:31:31,800 Speaker 3: Rock from New York City. 643 00:31:31,840 --> 00:31:34,840 Speaker 2: For our audience worldwide, thank you for choosing Bloomberg TV. 644 00:31:35,120 --> 00:31:37,400 Speaker 2: This was a Bloomberg Surveillance special.