WEBVTT - All Eyes on the Fed Heading Into Wednesday's Decision 0:00:01.800 --> 0:00:04.440 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:04.440 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanovk. We're here every day bringing 0:00:07.280 --> 0:00:09.799 you the latest news from the world of business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all purtnising the power of Business 0:00:13.640 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.160 --> 0:00:19.640 analyst in more than one and twenty countries. You can 0:00:19.640 --> 0:00:23.239 download Bloomberg Business Week at iTunes, SoundCloud, or Bloomberg dot Com. 0:00:23.400 --> 0:00:25.160 You can also listen to our radio show at two 0:00:25.160 --> 0:00:27.840 pm Eastern Time on Bloomberg Radio, or watch us on 0:00:27.880 --> 0:00:32.360 YouTube search Bloomberg Global News. Tim's been talking about it. 0:00:32.360 --> 0:00:35.240 I've been talking about it. We've got the US Federal 0:00:35.280 --> 0:00:38.520 Reserve kicking off at two day meeting on monetary policy today. 0:00:38.520 --> 0:00:41.200 We're talking about the policy setting arm of the Fed. 0:00:41.240 --> 0:00:44.279 Decision of course comes tomorrow at this time, twenty four 0:00:44.280 --> 0:00:47.440 hours fast forward, we will be hearing from j. Powell 0:00:47.440 --> 0:00:50.800 in that press conference we got with us and Matt Bosler, 0:00:50.880 --> 0:00:53.440 he's Federal Reserve reporter for Bloomberg News. He joins us 0:00:53.479 --> 0:00:55.240 on the phone from our New York City bureau. Matt, 0:00:55.320 --> 0:00:57.920 good to have you with us this afternoon. I know 0:00:58.000 --> 0:00:59.560 you're busy ahead of this well, I don't want to 0:00:59.560 --> 0:01:01.040 say ahead of the meeting because it's happening now, but 0:01:01.080 --> 0:01:04.039 ahead of tomorrow's press conference. You have a great piece 0:01:04.080 --> 0:01:06.880 out today about the dual mandate that the FED has 0:01:07.400 --> 0:01:11.200 stable prices and maximum employment. But one of those things 0:01:11.319 --> 0:01:13.120 is getting a lot more attention right now, and that, 0:01:13.200 --> 0:01:15.759 of course is stable prices. So how is that employment 0:01:15.800 --> 0:01:18.399 mandate taking a back seat thanks to Tim? Yeah? So, 0:01:18.480 --> 0:01:21.760 I mean, obviously the FED has made fighting inflation and 0:01:21.800 --> 0:01:24.280 bringing it down to their two percent target job number 0:01:24.280 --> 0:01:26.959 one this year, and so UM, you know, as of 0:01:27.000 --> 0:01:30.720 the last meeting in September, they actually came out for 0:01:30.760 --> 0:01:36.120 the first time with projection showing that, UM, they need 0:01:36.160 --> 0:01:39.000 to boost the unemployment rate, you know, almost a full 0:01:39.000 --> 0:01:41.840 percentage point through the end of next year to bring 0:01:42.040 --> 0:01:45.560 inflation down to where they wanted to be. And this 0:01:45.600 --> 0:01:49.680 is really the first time since they started UM publishing 0:01:49.720 --> 0:01:53.520 these projections ten years ago that they've put out such 0:01:53.640 --> 0:01:58.760 a UM kind of dark forecast for what their policy 0:01:59.120 --> 0:02:01.800 is going to do to the unemployment rate. And so 0:02:01.840 --> 0:02:05.320 it's a really interesting time right now, UM where they're 0:02:05.360 --> 0:02:09.440 dealing with uh, you know, increasingly calls from Democratic lawmakers, 0:02:09.480 --> 0:02:13.360 including UM Senator Liz Warren today, Um, for them to 0:02:13.440 --> 0:02:16.359 slow down and remember that they actually have two mandates 0:02:16.360 --> 0:02:19.119 and it's not just all about inflation. Yeah, it's rare though, 0:02:19.200 --> 0:02:22.680 right among global central banks. Matt, Yeah, it is, and 0:02:22.760 --> 0:02:25.160 so um, you know, the Fed has an employment mandate. 0:02:25.240 --> 0:02:28.680 Most other central banks only have the one inflation mandate. 0:02:28.800 --> 0:02:31.880 And um, there's a really interesting history behind the FEDS 0:02:31.880 --> 0:02:35.000 employment mandate, right. It goes back to the civil rights 0:02:35.040 --> 0:02:37.800 movement in the United States back in the nineteen sixties 0:02:37.800 --> 0:02:39.800 and the nineteen seventies. This was really the work of 0:02:40.480 --> 0:02:43.480 civil rights activists who pushed for this and got it 0:02:43.560 --> 0:02:46.360 codified into law at the end of the nineteen seventies. 0:02:46.360 --> 0:02:48.919 It was really kind of like the last, um dying 0:02:48.960 --> 0:02:51.360 breath of the civil rights movement, if you will, to 0:02:51.440 --> 0:02:54.200 get this on the books. But I mean, isn't the 0:02:54.280 --> 0:02:56.720 data that we continue to get showing us that the 0:02:56.760 --> 0:02:59.040 labor market is so resilient. I mean, take that Jolts 0:02:59.120 --> 0:03:01.440 number this morning, that it kind of can take a 0:03:01.440 --> 0:03:03.639 back seat to fighting inflation because as you right, back 0:03:03.639 --> 0:03:08.040 in inflation was high and unemployment was high too. Yeah. No, 0:03:08.200 --> 0:03:10.680 that's right, And so the labor market has been so 0:03:10.760 --> 0:03:13.200 resilient all year and everybody's just kind of waiting for 0:03:13.280 --> 0:03:15.360 it to slow down, right, And we're not seeing that 0:03:15.400 --> 0:03:17.320 in the data yet, even though we've had these very 0:03:17.360 --> 0:03:20.760 aggressive rate increases. So on one hand, you know, perhaps 0:03:20.760 --> 0:03:22.919 you might not expect it to show up in the 0:03:23.000 --> 0:03:25.680 data just yet because you know, the FED really only 0:03:25.720 --> 0:03:28.880 started um doing these rate increases about seven months ago, 0:03:28.960 --> 0:03:31.360 and as we know, it takes time for monetary policy 0:03:31.400 --> 0:03:33.840 to work through the economy. But you know, as the 0:03:33.919 --> 0:03:37.000 labor market data keep coming in so strong, it's also 0:03:37.560 --> 0:03:41.400 causing forecasters to you know, ratchet up their projections for 0:03:41.440 --> 0:03:44.160 where the FED is going to ultimately raise interest rates to. 0:03:44.280 --> 0:03:46.440 And so it's kind of a double edged sword in 0:03:46.440 --> 0:03:49.000 that regard that this you know, continued strong labor market 0:03:49.080 --> 0:03:51.880 data makes it look like the Fed is going to 0:03:51.920 --> 0:03:55.360 have to be even more hawkish than previously planned to 0:03:55.400 --> 0:03:57.560 bring inflation down. And that's kind of where they are 0:03:57.560 --> 0:03:59.200 at the moment. Matt, I love you kind of give 0:03:59.240 --> 0:04:01.760 us a history less and when it comes to monetary policy, 0:04:01.800 --> 0:04:04.920 taking us back to Humphrey Hawkins, uh and remind you know, 0:04:04.960 --> 0:04:07.120 and reminding us once again of the Vulcar era maybe 0:04:07.120 --> 0:04:09.800 what we've learned. But what's interesting too, though in your 0:04:09.960 --> 0:04:12.840 reporting and writing, is something that we talk a lot 0:04:12.880 --> 0:04:15.880 about in that some of the inflationary pressures are above 0:04:15.920 --> 0:04:20.200 and beyond Fed control. And so you do wonder with 0:04:20.279 --> 0:04:24.560 this dual mandate whether we need to be thinking that, Wait, guys, 0:04:24.600 --> 0:04:26.440 the FED can only do so much when it comes 0:04:26.440 --> 0:04:29.320 to inflation, and if they overdo it, it's at what 0:04:29.600 --> 0:04:32.359 risk and what costs to the labor market. And so 0:04:32.920 --> 0:04:34.960 this is where you wonder whether policymakers have to come 0:04:34.960 --> 0:04:37.280 in and kind of give the FED an assist here, right, 0:04:37.400 --> 0:04:40.880 And you know that's pretty much been um completely acknowledged 0:04:40.880 --> 0:04:42.680 by the Fed, right for the most part. I mean, 0:04:42.720 --> 0:04:44.800 the one thing that they do say is that, look, 0:04:44.800 --> 0:04:46.919 we do have a very strong labor market. Wage growth 0:04:47.000 --> 0:04:49.200 is very high, and even after some of these temporary 0:04:49.240 --> 0:04:52.360 supply side driven factors um you know, kind of resolve 0:04:52.440 --> 0:04:54.600 themselves and fall out of the inflation data, we're still 0:04:54.640 --> 0:04:57.160 going to be left with very high inflation. And so 0:04:57.240 --> 0:04:59.839 there is room for us to um camp down on 0:04:59.880 --> 0:05:02.560 the labor market with the man side policy. Now that's 0:05:02.560 --> 0:05:04.680 a kind of a big hypothetical. You know, we don't 0:05:04.680 --> 0:05:07.200 really know where inflation is going to settle out, but 0:05:07.320 --> 0:05:09.240 that's the story that they're sticking with us at the moment. 0:05:09.320 --> 0:05:11.120 But it's hard to have a FED where the employment 0:05:11.160 --> 0:05:13.600 inflation mandates are in conflict, as you report. I mean, 0:05:13.640 --> 0:05:16.880 this is not an easy thing to navigate. Met Bosler 0:05:17.000 --> 0:05:19.640 a really smart read. And this story, by the way, 0:05:19.920 --> 0:05:21.480 is going to be in the upcoming new issue of 0:05:21.480 --> 0:05:23.880 Bloomberg Business Week, which is out later this week. It's 0:05:23.880 --> 0:05:26.080 already on the Bloomberg terminal at Bloomberg dot com, but 0:05:26.160 --> 0:05:28.680 be sure to pick up that magazine. Matt, by the way, 0:05:28.760 --> 0:05:31.600 is Federal Reserve reporter at Bloomberg News on the phone 0:05:31.920 --> 0:05:33.920 in our New York City bureau. You didn't give Matt 0:05:34.000 --> 0:05:35.880 the question that you wanted to ask her. Howell tomorrow. 0:05:36.480 --> 0:05:39.279 I'm still working on still working on it. I'm still 0:05:39.279 --> 0:05:42.640 thinking about what's a pivot? Is a pivot like not 0:05:42.720 --> 0:05:45.240 so aggressive? Is it cutting rates? Is it? What? What 0:05:45.320 --> 0:05:48.359 pivot are we talking about? You're listening to Bloomberg Business 0:05:48.400 --> 0:05:52.200 Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic 0:05:52.680 --> 0:05:56.120 on Bloomberg Radio. Blake Masters is betting that more money 0:05:56.160 --> 0:05:59.320 from Peter Teel, Donald Trump, and conservative activists plus some 0:05:59.440 --> 0:06:02.760 rallies with Carry Lake can help put the GOP in control. 0:06:03.279 --> 0:06:06.440 We're talking about Arizona with that story, our own Bloomberg 0:06:06.440 --> 0:06:08.680 business Week calumnist Max Chafkins. He's with us right now 0:06:08.760 --> 0:06:12.080 in the Bloomberg Interactive Broker's Studio. Max. The story is 0:06:12.120 --> 0:06:14.120 featured in the upcoming issue of Business Week magazine, but 0:06:14.120 --> 0:06:16.600 it's available now on the Bloomberg terminal at Bloomberg dot 0:06:16.640 --> 0:06:20.080 com slash business Week. Okay, let's link back to the election, 0:06:20.279 --> 0:06:24.040 Max and Arizona pivotal state, but it ended up going 0:06:24.320 --> 0:06:27.360 for President Biden. Josh Green wrote a really prescient story 0:06:27.720 --> 0:06:32.800 um in basically predicting or or speculating in the possibility 0:06:32.839 --> 0:06:34.960 that Arizona would turn purple and that the thing that 0:06:35.000 --> 0:06:38.360 would drive at purple would be the Maricoba County suburbs. 0:06:38.800 --> 0:06:42.039 And um, you know, Arizona is kind of an interesting 0:06:42.040 --> 0:06:44.680 state because it's sort of was the pioneer of this 0:06:44.760 --> 0:06:48.000 kind of right wing populism. Sure if JR. Pio in 0:06:48.040 --> 0:06:50.120 a lot of ways was a proto Trump, and in 0:06:50.920 --> 0:06:53.120 that stuff looked like it was in the rear view mirror. 0:06:53.680 --> 0:06:56.640 Joe Biden won the state. Our pile has lost like 0:06:56.680 --> 0:06:59.640 the last three elections he's he's contested. So so the 0:06:59.640 --> 0:07:03.720 state is trending um blew er and and and away 0:07:03.760 --> 0:07:06.599 from the kind of you know, sort of hardline right. 0:07:06.880 --> 0:07:09.640 But what we're seeing in two with you know, a 0:07:09.680 --> 0:07:13.520 relatively unpopular president, high inflation and so on, that that 0:07:13.640 --> 0:07:16.000 sort of right wing that has been there in Arizona 0:07:16.080 --> 0:07:18.920 is is surging right now. And um it is what 0:07:19.240 --> 0:07:21.880 Blake Masters and Carry Lake and some of these other 0:07:22.000 --> 0:07:24.280 candidates that are running in the state are betting on 0:07:24.400 --> 0:07:26.680 and and and you know, if they're successful, obviously it 0:07:26.720 --> 0:07:29.720 could um have have serious implications both for the Senate 0:07:29.760 --> 0:07:33.800 and for what is interesting kind of understanding like who's 0:07:33.840 --> 0:07:36.160 funding who in that state and what's going on behind 0:07:36.160 --> 0:07:40.160 the scenes. Right. So Masters is interesting because he's a 0:07:40.160 --> 0:07:43.040 political outsider and he was basically a protege to Peter Tiald, 0:07:43.520 --> 0:07:49.680 the Siliconali investor. Yeah exactly, uh famous uh because he 0:07:50.000 --> 0:07:53.240 uh was co founder of PayPal. He was one of 0:07:53.280 --> 0:07:55.440 the early backers of Facebook. Yeah. I wrote a whole 0:07:55.440 --> 0:07:59.080 book about him. Um, And he basically plucked a couple 0:07:59.120 --> 0:08:01.960 of Senate candidates, um out of relative ob Security J. 0:08:02.080 --> 0:08:05.880 D Vance in Ohio and and Masters, who really had 0:08:05.880 --> 0:08:09.840 no profile whatsoever besides basically being known as Peter Teal's 0:08:09.920 --> 0:08:12.960 right hand man, gave him a ten million dollar seed 0:08:13.000 --> 0:08:17.160 investment and basically carried him through the Republican primary. And 0:08:17.200 --> 0:08:19.560 then when we got to the general election, Masters has 0:08:19.640 --> 0:08:23.080 had a much harder time. Teal had not been funding 0:08:23.160 --> 0:08:26.520 him for for a couple of months, and partly because 0:08:26.880 --> 0:08:29.840 Teal has sort of pushed Masters, I think to the right, 0:08:30.160 --> 0:08:33.240 you saw a hesitancy from sort of more mainstream Republicans 0:08:33.800 --> 0:08:36.600 like Mitch McConnell to fund the campaign. So there's been 0:08:36.600 --> 0:08:38.400 this kind of dance right where you have on one 0:08:38.440 --> 0:08:42.400 side the sort of mainstream Republicans, um Mitch McConnell, and 0:08:42.400 --> 0:08:44.320 then on the other side these kind of activists with 0:08:44.360 --> 0:08:47.600 Peter Teal and Donald Trump being kind of unity right, 0:08:47.720 --> 0:08:49.280 like as you point out when it comes to the 0:08:49.280 --> 0:08:53.720 Republicans in this state. Yeah, what's so interesting is, especially Arizona, 0:08:53.880 --> 0:08:58.679 is you have an entire ticket statewide of basically trumpets 0:08:58.720 --> 0:09:03.000 of candidates who say that the election was in some 0:09:03.080 --> 0:09:05.480 sense stolen. Carry Lake at the top of that ticket. 0:09:05.640 --> 0:09:08.800 Blake Masters has made kind of similar comments, and you 0:09:08.800 --> 0:09:11.600 also have candidates for attorney general and Secretary of State 0:09:11.880 --> 0:09:15.040 kind of saying the same thing. So it's a real test, um, 0:09:15.080 --> 0:09:18.280 I think for sort of that message, the stop the 0:09:18.320 --> 0:09:20.880 steel conspiracy is it can connect actually like win you 0:09:20.920 --> 0:09:23.360 an election in a in a swing state. Um. But 0:09:23.400 --> 0:09:25.440 it's also of course a test for the popularity of 0:09:25.480 --> 0:09:29.959 Donald Trump and and you know the popularity of of Democrats. Frankly, Okay, 0:09:29.960 --> 0:09:31.480 so what do the data tell us right now? What 0:09:31.520 --> 0:09:34.280 did the polls tell us? It's it's very close. Uh, 0:09:34.800 --> 0:09:39.040 you bring up polls, just kidding. So lake has is 0:09:39.120 --> 0:09:42.560 running a little bit ahead of Masters. I think she's 0:09:42.600 --> 0:09:46.200 even or slightly ahead of her Democratic opponent, which is interesting. 0:09:46.240 --> 0:09:48.320 That's one of the people in the Republican Party now 0:09:48.320 --> 0:09:50.880 are are talking about her as a rising star. I 0:09:50.880 --> 0:09:53.120 went to this event in Arizona. They kept referring to 0:09:53.120 --> 0:09:56.280 her as r Rhonda Santis, which that was kind of funny. Um. 0:09:56.440 --> 0:09:59.000 But in any case, uh yeah, and there's speculation, Oh, 0:09:59.040 --> 0:10:01.800 she could be a potential you know, vice presidential candidate 0:10:01.800 --> 0:10:06.840 if if if Trump runs in Masters. Um has you know, 0:10:06.920 --> 0:10:10.160 not proven a successful candidate. He also has a um, 0:10:10.200 --> 0:10:13.080 you know, probably a better opponent Mark Kelly, who's incumbent, 0:10:13.080 --> 0:10:15.360 has raised a ton of money UM, and so he's 0:10:15.400 --> 0:10:18.120 running a bit behind Lake, although he is very close 0:10:18.160 --> 0:10:20.360 as well. And you know, at this point it could 0:10:20.400 --> 0:10:23.599 probably go either way. So how do you like you 0:10:23.679 --> 0:10:25.880 do this story? And we're looking at some really kind 0:10:25.920 --> 0:10:28.719 of key pivotal as we always are states in the 0:10:28.800 --> 0:10:31.080 upcoming midterms and certainly it will ultimately in the next 0:10:31.120 --> 0:10:33.640 presidential run. I mean, how do we kind of square 0:10:33.760 --> 0:10:36.280 what's going on in Arizona versus kind of more broadly 0:10:36.280 --> 0:10:37.880 across the country. How do you think about it? I 0:10:37.880 --> 0:10:40.280 think that the same kind of forces are a play. 0:10:40.720 --> 0:10:42.520 You know, you know another stage, which is that you 0:10:42.559 --> 0:10:47.080 have this small but very engaged UM subset of the 0:10:47.080 --> 0:10:50.400 electorate that the sort of Trump portional electorate, which is UM. 0:10:50.440 --> 0:10:52.360 You know, it's it's not a majority, but but they're 0:10:52.400 --> 0:10:56.280 they're extremely enthused. And the question is, you know, are 0:10:56.320 --> 0:10:58.360 they going to turn out, especially in a mid term 0:10:58.480 --> 0:11:01.040 year UM when Donald up is not on the ballot 0:11:01.320 --> 0:11:03.720 UM And and the extent to which you know, these 0:11:03.760 --> 0:11:07.520 these Trump aligne candidates have you know, won their primaries 0:11:07.600 --> 0:11:10.240 and kind of become the main forces in their states 0:11:10.280 --> 0:11:13.199 and and this, this cuts across other states as well. 0:11:13.400 --> 0:11:15.640 You know, it really just shows how Donald Trump is still, 0:11:15.920 --> 0:11:17.760 you know, very much the most important person in the 0:11:17.800 --> 0:11:20.920 Republican Party. UM on the donor side. You know, there's 0:11:20.960 --> 0:11:24.400 a very interesting kind of drama between Teal and and 0:11:24.480 --> 0:11:26.680 as I said, the kind of more moderates, because Teal 0:11:27.000 --> 0:11:31.760 kind of foisted these harder line candidates on the Republican Party, 0:11:32.200 --> 0:11:35.199 carried them through their primary campaigns. And you know, if 0:11:35.200 --> 0:11:37.319 they lose, that's gonna be a huge blow for him. 0:11:37.360 --> 0:11:39.880 It's it's gonna look like he wasted, you know, over 0:11:39.920 --> 0:11:43.640 thirty million dollars, uh, you know, promoting unelectable candidates. If 0:11:43.679 --> 0:11:46.480 they win, though, it's gonna be a huge Uh, it's 0:11:46.480 --> 0:11:48.439 gonna be a huge win for Teal. We'll push the 0:11:48.679 --> 0:11:50.920 Republican Party, they're right, you know. And and I would 0:11:50.920 --> 0:11:53.440 expect he would then play a probably a pretty important 0:11:53.480 --> 0:11:56.599 role in what about economic messaging, Max, because if we 0:11:56.640 --> 0:11:58.760 think about you know, for example, here in New York 0:11:58.800 --> 0:12:01.120 and the reason why he's olden is pulling closer and 0:12:01.160 --> 0:12:06.120 closer to Kathy Hokel, the incumbent is about crime and 0:12:06.320 --> 0:12:09.360 the economy, um, mostly crime. But I'm wondering about the 0:12:09.400 --> 0:12:13.080 economic message, because we see that resonating across the country 0:12:13.080 --> 0:12:15.400 in different states. Is that happening in Arizona? Yeah, I 0:12:15.440 --> 0:12:19.520 mean Masters and Lake are talking about inflation, just like 0:12:19.559 --> 0:12:24.080 everybody else is talking about inflation. Although I think they're 0:12:24.120 --> 0:12:27.720 they're less offering a plan and more sort of offering 0:12:27.720 --> 0:12:30.559 a critique, which is that you know, the Democrats have 0:12:30.559 --> 0:12:32.800 have have led us down and so on, and and 0:12:32.840 --> 0:12:37.840 it's very much, um, a message about sort of culture 0:12:38.040 --> 0:12:42.679 type stuff, as you said, crime in immigration. Um. Sorry, 0:12:42.679 --> 0:12:45.000 in Arizona, of course, immigration is a big thing, right, 0:12:45.040 --> 0:12:47.920 So so they're so Masters is hitting his Democratic opponent 0:12:48.240 --> 0:12:51.719 primarily on inflation and and immigration, saying the border is 0:12:51.720 --> 0:12:53.560 out of control and things like that. It really is 0:12:53.920 --> 0:12:56.600 um uh similar to Trump is um and similar to 0:12:56.640 --> 0:12:59.280 the Trump messaging that we've seen in past elections. Well, 0:12:59.320 --> 0:13:00.679 and key two will be how it plays out for 0:13:00.679 --> 0:13:03.240 the Secretary of State races, right too, because if again 0:13:03.360 --> 0:13:06.880 there's a contested race or ever like election outcome, I mean, 0:13:06.920 --> 0:13:08.760 these are the guys that can decide it. Just got 0:13:08.760 --> 0:13:11.440 about twenty second. Yeah, Arizona is interesting because the Secretary 0:13:11.440 --> 0:13:14.600 of State candidate Mark Fincham, who is allied, allied with 0:13:14.800 --> 0:13:17.640 Lake and Masters is a very hard line you know, 0:13:17.800 --> 0:13:21.680 big borderline conspiracist um. And so if he's able to win, 0:13:21.760 --> 0:13:24.280 you know, that will be a huge vindication for the 0:13:24.280 --> 0:13:28.079 Trump folks and uh and and could have implications. Oh 0:13:28.120 --> 0:13:31.120 my gosh, unbelievable. Well, the midterms what just a week away? Yes, 0:13:31.160 --> 0:13:33.600 one week, Carol, one week from today exactly. I voted 0:13:33.640 --> 0:13:36.880 early here in New York and I did not Mark, Max. 0:13:36.920 --> 0:13:38.959 Thank you so much. Max Chafkin, of course, columnist of 0:13:39.000 --> 0:13:41.600 Bloomberg Business Week. Check out his story in the upcoming 0:13:41.600 --> 0:13:44.120 new issue of Business Week, out on news stands later 0:13:44.120 --> 0:13:46.680 this week. Already on the Bloomberg and at Bloomberg dot com. 0:13:46.960 --> 0:13:49.200 It's a great story. Check it out online and of 0:13:49.240 --> 0:13:50.880 course on the terminal as well. And then later this 0:13:50.920 --> 0:13:53.120 week has Carol mentioned and the magazine. You're listening to 0:13:53.120 --> 0:13:57.560 Bloomberg Business Week, and this is Bloomberg Radio. This is 0:13:57.600 --> 0:14:01.520 Bloomberg Business Week with Carol Master and Bloomberg Quick Takes. 0:14:01.640 --> 0:14:06.400 Tim Stinovic on Bloomberg Radio. You've got a very very 0:14:06.440 --> 0:14:09.320 special guest with us right now. Yeah, Firmer, beloved Bloomberg 0:14:09.360 --> 0:14:14.040 colleague him. Yeah, for Bloomberg. Well, he's still be loved, 0:14:14.040 --> 0:14:16.640 but he's a form of Bloomberg goalie. It's that kind 0:14:16.640 --> 0:14:18.560 of a day. Carver Kodanna is now the chief you 0:14:18.559 --> 0:14:21.120 as economist at BnB party and he's here in our 0:14:21.160 --> 0:14:24.160 Bloomberg Interactor Broker studio. How are you. I'm doing fine. 0:14:24.240 --> 0:14:25.520 It's great to hear you. I heard you on a 0:14:25.920 --> 0:14:29.000 radio TV this morning. Yes, on surveillance earlier this morning. 0:14:28.960 --> 0:14:32.960 It was really good. Um did you well? Thanks? All right, 0:14:32.960 --> 0:14:35.360 now we're talking about the important stuff. So let's talk 0:14:35.400 --> 0:14:39.840 about this meeting tomorrow. Yeah, fed meeting. What's top of 0:14:39.880 --> 0:14:42.360 mind for you? Top of mind is going to be 0:14:42.400 --> 0:14:45.360 the signaling in the press conference. The you know, as 0:14:45.360 --> 0:14:48.280 we kind of look at the meeting statement that from 0:14:48.320 --> 0:14:50.400 the prior meeting and think of what needs to change 0:14:50.400 --> 0:14:52.560 at this meeting. It could be as little as the 0:14:52.640 --> 0:14:55.440 date stamped on the meeting statement. So it's all about 0:14:55.440 --> 0:14:59.160 the press conference and the kind of signaling towards what 0:14:59.200 --> 0:15:02.440 they'll do in December. Uh. And knowing j Powell and 0:15:02.480 --> 0:15:04.920 how he operates, I don't see any reason for him 0:15:04.920 --> 0:15:08.720 to get out in front of this. The pivot. The 0:15:08.800 --> 0:15:13.520 market is close to split between fifty and seventy five 0:15:13.600 --> 0:15:16.800 at the December meeting. And I think he's going to 0:15:17.160 --> 0:15:20.080 let the data do the talking. So he'll say, there's 0:15:20.080 --> 0:15:22.760 two more jobs reports, to more inflation reports, two more 0:15:22.840 --> 0:15:26.720 rounds of inflation expectations data. And so you know, we 0:15:26.800 --> 0:15:28.960 will look at, using his word from the last meeting, 0:15:29.000 --> 0:15:32.920 the totality of the data. Uh and uh, you know, determined. 0:15:32.960 --> 0:15:34.800 He'll say that at some point, right, we can't do 0:15:34.880 --> 0:15:37.320 seventy five forever. There will be a point where it 0:15:37.400 --> 0:15:42.119 is appropriate to downshift. Uh it maybe it maybe December, 0:15:42.200 --> 0:15:44.480 but we're not sure yet. And we'll base our decision 0:15:44.520 --> 0:15:46.440 on the upcoming data. Right. The FETIS made it very 0:15:46.440 --> 0:15:51.000 clear this year they are acting on realized data, not forecasts. 0:15:52.000 --> 0:15:56.000 There's a difference though, between down shifting and pausing red hikes. 0:15:56.320 --> 0:15:59.800 So just help us understand the environment that we're ENTERINGE 0:15:59.800 --> 0:16:01.920 do we go to one where we continue to see 0:16:02.000 --> 0:16:04.400 rate hikes of twenty five basis points or fifty basis 0:16:04.440 --> 0:16:06.160 points at meeting after meeting, or do we just get 0:16:06.200 --> 0:16:08.640 to a point where the FED reaches the terminal rate? 0:16:08.640 --> 0:16:09.800 And I would love to hear what you think the 0:16:09.840 --> 0:16:12.160 terminal rate is going to be? And leaves it there 0:16:12.200 --> 0:16:15.840 for for what how long. Well, the level of rates 0:16:16.040 --> 0:16:18.480 matters relative to the growth rate in the economy. So 0:16:18.520 --> 0:16:20.680 if we look at GDP right now, we're growing at 0:16:20.680 --> 0:16:23.680 about a nine percent pace. The Fed Funds rate is 0:16:23.720 --> 0:16:26.760 far below that, right, so it's it's not as restrictive 0:16:26.800 --> 0:16:30.000 as it might seem. But we see that growth is 0:16:30.040 --> 0:16:33.680 decelerating sharply, the housing sector obviously heading into a pretty 0:16:33.680 --> 0:16:38.080 significant contraction maybe annualized decline in the back half of 0:16:38.080 --> 0:16:42.280 this year. We see the factory sector starting to respond 0:16:42.360 --> 0:16:45.280 to the strength and the dollar, which has crimped export 0:16:45.360 --> 0:16:48.240 demand and whatnot. So we see more parts of the 0:16:48.240 --> 0:16:51.920 economy starting to creak as FED tightening weighs in on 0:16:51.960 --> 0:16:54.920 the economy. Our baseline view is that we will get 0:16:54.960 --> 0:16:57.600 another seventy five basis point hike at the December meeting, 0:16:58.120 --> 0:17:00.880 another fifty basis points in the first quarter of next year, 0:17:00.920 --> 0:17:03.520 probably at the February meeting. That gives us to a 0:17:03.600 --> 0:17:09.120 terminal FED funds rate of five and a quarter meeting December, 0:17:09.520 --> 0:17:11.920 and then fifty and Q one, probably fifty at the 0:17:11.960 --> 0:17:15.520 February meeting. Right, it could be between February March, but 0:17:15.560 --> 0:17:18.000 we don't want we don't want to forecast around two corners, 0:17:18.040 --> 0:17:20.480 So so the downshift is coming, maybe not in time 0:17:20.480 --> 0:17:23.600 four December, but with the FED funds right north of 0:17:23.680 --> 0:17:27.800 five cent unfortunately, I have to use that our word 0:17:27.960 --> 0:17:30.880 on your program, Carol, and uh, we think that this 0:17:30.920 --> 0:17:34.119 means recession in the first half. We're not there already 0:17:34.119 --> 0:17:36.680 because we still have positive income growth in the economy. 0:17:36.720 --> 0:17:40.600 We're creating positive monthly gains and employment, which is a 0:17:40.680 --> 0:17:43.720 very important barometer of recession. So we're not quite there yet, 0:17:43.800 --> 0:17:46.359 but things are slowing, and I think this will become 0:17:46.400 --> 0:17:48.960 more evident when we see payrolls on Friday. Uh and 0:17:49.080 --> 0:17:51.399 over the course of this quarter, and especially as we 0:17:51.400 --> 0:17:53.080 get into Q one of next year. What would be 0:17:53.119 --> 0:17:57.240 recessionary about payrolls on Friday? I mean, we're guessing, right, 0:17:57.280 --> 0:18:00.200 So so if we're close to know what's recessionary out 0:18:00.200 --> 0:18:02.160 that is the direction of travel. So I'm at about 0:18:02.200 --> 0:18:05.919 two D fifteen thousand on that forecast. But we're cooling 0:18:05.960 --> 0:18:09.000 from a pace of four hundred five hundred thousand per 0:18:09.040 --> 0:18:12.120 month earlier this year. So if we extend that trend, 0:18:12.680 --> 0:18:15.840 it doesn't become processionary necessarily in Q four, but by 0:18:15.880 --> 0:18:17.840 the first part of next year, then we're getting into 0:18:17.920 --> 0:18:20.560 the realm of a negative payroll print coming in. Where 0:18:20.560 --> 0:18:23.399 there's one, they're like cockroaches, there will there will be 0:18:23.480 --> 0:18:26.240 multiple uh. And that probably means that that we've we've 0:18:26.240 --> 0:18:29.240 slid into contraction. And just the last point I would 0:18:29.280 --> 0:18:33.399 add to that, um, consumers have been uh surfing on 0:18:33.440 --> 0:18:36.280 a wave of excess savings. Right. This has propped up 0:18:36.320 --> 0:18:40.520 consumers even while inflation is high. Uh two levels of 0:18:40.560 --> 0:18:45.800 performance and consumption that wouldn't otherwise be possible. But those 0:18:45.800 --> 0:18:49.879 savings are you know, poised to run dry, so to speak, 0:18:50.359 --> 0:18:52.359 in the first half of next year. Right, we're burning 0:18:52.359 --> 0:18:55.679 through about a trillion dollars of excess savings per quarter. 0:18:56.560 --> 0:18:59.680 We started at about you know, just north of two trillion, uh. 0:18:59.720 --> 0:19:01.840 And so you know, just use that math and that 0:19:02.320 --> 0:19:04.920 shows you that the tank runs on the fumes in 0:19:04.920 --> 0:19:07.400 in Q one of NEXTEL. One of the discussions we've 0:19:07.400 --> 0:19:09.000 been having, like on the other side of this, as 0:19:09.040 --> 0:19:12.120 we get our way through this fed cycle, should we 0:19:12.280 --> 0:19:15.000 just as a civilization just say, hey, inflation is going 0:19:15.040 --> 0:19:16.760 to run a little bit hotter than it has traditionally 0:19:16.800 --> 0:19:19.360 because of things that are going on were broadly strategically 0:19:19.400 --> 0:19:23.119 and fundamentally, I think we're in a regime shift on 0:19:23.160 --> 0:19:26.160 inflation where a lot of factors, whether it's de globalization 0:19:26.440 --> 0:19:30.000 or moving away from you know, petroleum and and whatnot, 0:19:30.280 --> 0:19:34.360 carbon emitting fuel, energy sources, uh, demographics, all of these 0:19:34.359 --> 0:19:37.359 things could mean higher inflation. But if the FED is 0:19:37.600 --> 0:19:39.640 focused on getting it to two percent, that just means 0:19:39.640 --> 0:19:42.159 there will be a more restrictive FED response. So we 0:19:42.200 --> 0:19:44.960 said recession next year. Typically in recession, the FED is 0:19:44.960 --> 0:19:48.600 the white Night riding to the rescue, cutting quickly and aggressively. 0:19:49.119 --> 0:19:51.040 I don't think we can count on that to happen 0:19:51.080 --> 0:19:53.040 this time around. They're going to keep a foot on 0:19:53.119 --> 0:19:55.680 the brake pedal to make sure they ring the inflation 0:19:55.720 --> 0:19:59.719 pressures out of the system. Inflation is real. Absolutely, they 0:19:59.720 --> 0:20:04.480 are not abandoning that target anytime soon, or they will 0:20:04.560 --> 0:20:07.240 risk the sagrin of the U. S. Congress if they do. 0:20:07.320 --> 0:20:09.639 That would be a pivot. Car Kada's so great to 0:20:09.640 --> 0:20:12.359