WEBVTT - Surveillance: U.S. Economy Really Coming Back, Kudlow Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.559 Bloomberg dot Com, and of course on the Bloomberg King. 0:00:33.640 --> 0:00:36.800 Jim Glassman now JP Morgan Chase Commercial Banking head economist 0:00:37.000 --> 0:00:39.159 traditions to catch out with each Jim ahead of the 0:00:39.159 --> 0:00:41.880 payrolls reports, So your base case please for the numbers 0:00:41.880 --> 0:00:44.720 that drop in eleven minutes time. I was thinking back 0:00:44.880 --> 0:00:48.920 from the slim pickings in February unemployment study, and you 0:00:48.960 --> 0:00:51.240 know what, Actually, I think we're sort of in the 0:00:51.280 --> 0:00:53.720 middle of a transition. To your most people who want 0:00:53.760 --> 0:00:57.360 a job already working, so we're gonna be seeing hiring 0:00:57.440 --> 0:00:59.320 slowing down. And that's why I think the most useful 0:00:59.360 --> 0:01:01.960 information is going to be from the weekly jobless claims 0:01:01.960 --> 0:01:04.280 that tells you something about layoffs and the trend in 0:01:04.280 --> 0:01:06.960 the unemployment rate. I think we're at cruising altitude and 0:01:07.040 --> 0:01:09.959 I think we're going to see job growth slow down, 0:01:10.120 --> 0:01:12.440 but everything sort of hold up pretty well. I'm really 0:01:12.480 --> 0:01:15.200 intrigued by the trend and jobless claims because we've had 0:01:15.200 --> 0:01:18.000 a lot of noises winter layoffs did pick up a 0:01:18.040 --> 0:01:19.679 little bit earlier this year, and now they're right back 0:01:19.680 --> 0:01:22.679 down to extremely low levels in every single state. So, Jim, 0:01:22.680 --> 0:01:24.959 the story you tell, the story you tell makes a 0:01:24.959 --> 0:01:27.240 lot of sense, made a lot of sense last year 0:01:27.240 --> 0:01:29.080 the year before as well. Why is it different this time? 0:01:29.240 --> 0:01:31.480 Why will payrolls finally start to de sounded right a 0:01:31.520 --> 0:01:33.960 little bit? Well, I'll tell you what. You know? What 0:01:33.959 --> 0:01:36.319 what what we look at the numbers for the last 0:01:36.360 --> 0:01:38.319 couple of years. What you know is that there still 0:01:38.360 --> 0:01:41.360 are these pockets of hidden unemployment. But what was really 0:01:41.400 --> 0:01:43.840 intriguing last month, even though we were all sort of 0:01:43.880 --> 0:01:47.400 taken aback by the payroll numbers, the household surveys telling 0:01:47.440 --> 0:01:49.520 you that the number of people who are having to 0:01:49.560 --> 0:01:53.520 work part time involuntarily has backed down to normal and 0:01:53.680 --> 0:01:56.520 the number of young adults who sort of dropped out, 0:01:57.000 --> 0:02:01.200 the participation of folks is getting is really moving back 0:02:01.200 --> 0:02:03.800 to where we were in two thousand seven. So this idea, 0:02:04.680 --> 0:02:07.960 I think, what we it's it's hard to know how 0:02:07.960 --> 0:02:09.840 long it's going to take to pull out people who 0:02:09.840 --> 0:02:12.280 were in these hidden pockets of unemployment. But I think 0:02:12.320 --> 0:02:14.920 now you could say we're much closer to where we 0:02:14.960 --> 0:02:16.760 need to be than we've been in the last couple 0:02:16.760 --> 0:02:18.400 of years. So I don't know when this is going 0:02:18.440 --> 0:02:21.280 to happen, but I would I would be shocked if 0:02:21.280 --> 0:02:25.760 we don't see payroll is slowing down at least by summer. So, Jim, 0:02:25.800 --> 0:02:28.160 there seems to be a d emphasis this time around 0:02:28.360 --> 0:02:31.119 on the wage growth, with the idea that the FED 0:02:31.160 --> 0:02:35.320 will be more tolerant of wages accelerating without having to 0:02:35.520 --> 0:02:39.200 raise rates. Do you think that that's true? Yeah, I 0:02:39.240 --> 0:02:41.120 think it's bigger stories than that. Actually, I mean, I 0:02:41.160 --> 0:02:43.800 think I think they're learning that just because wages are 0:02:43.840 --> 0:02:48.440 doing better doesn't mean that translates into inflation. Uh, businesses 0:02:48.440 --> 0:02:51.079 are very profitable, so there's no real pressure on businesses 0:02:51.120 --> 0:02:53.960 to be ramping a prices. In effect, the inflation news 0:02:53.960 --> 0:02:56.359 have been very tame. I think what's making the FED 0:02:56.400 --> 0:02:59.960 more patients is they believe that inflation is very cyclical. 0:03:00.400 --> 0:03:01.919 They know that it tends to go on the high 0:03:01.960 --> 0:03:04.639 side when the economy strong, and then fall off in recession. 0:03:04.919 --> 0:03:07.280 I think they're trying to take a longer view about 0:03:07.320 --> 0:03:09.919 inflation and try to target the average level of inflation 0:03:10.040 --> 0:03:12.760 rather than at any moment in time. So I think 0:03:12.880 --> 0:03:15.160 that's a that's a new idea to me, that's a 0:03:15.200 --> 0:03:18.240 really innovative idea. That we'll hear more about the summer 0:03:18.240 --> 0:03:20.480 in their conference, and I think it just makes them 0:03:20.520 --> 0:03:23.040 more patient. That must be one of the reasons why 0:03:23.080 --> 0:03:25.480 they're willing to sort of sit back and watch how 0:03:25.520 --> 0:03:29.239 things play out. That said, for corporate profits, certainly higher 0:03:29.280 --> 0:03:32.520 wages means lower margins and that could potentially weigh on 0:03:32.560 --> 0:03:35.520 equity valuations. Do you expect us to start to see 0:03:35.560 --> 0:03:38.600 a greater degree of wage inflation in this report and 0:03:38.640 --> 0:03:42.360 going forward? You know, we're already seeing a pickup. I 0:03:42.440 --> 0:03:44.160 think it's just returned to normal three and a half 0:03:44.160 --> 0:03:46.000 percent three or three and a half percent wage growth. 0:03:46.320 --> 0:03:48.720 In my book, there is normal diff inflation is running 0:03:48.720 --> 0:03:52.960 two percent um. I don't think there's no sign yet 0:03:53.000 --> 0:03:55.240 that this is putting pressure on wages, and I think 0:03:55.480 --> 0:03:59.560 we're living in a different era. Frankly, I don't think 0:03:59.600 --> 0:04:02.640 business is are going to be forced to raise wages 0:04:02.720 --> 0:04:05.360 to the point where they become less competitive. I think 0:04:05.400 --> 0:04:09.560 they're constrained also by the competitive markets they're living in. 0:04:09.680 --> 0:04:12.200 So I think it's going to work a little differently 0:04:12.240 --> 0:04:14.320 than what we all grew up with, that that it's 0:04:14.360 --> 0:04:16.640 not wages aren't going to be driving inflation. It's going 0:04:16.680 --> 0:04:19.080 to be more of the strength of global demand and 0:04:19.440 --> 0:04:21.400 technology and things like that that are going on that 0:04:21.480 --> 0:04:24.080 are constraining inflation. We still haven't really got our hands 0:04:24.120 --> 0:04:28.320 around why inflation has become so muted when the economy 0:04:28.400 --> 0:04:31.120 is doing so well. Jim, it's really hot to reconcile, 0:04:31.400 --> 0:04:34.200 really hot to reconcile the conversation we're having right now 0:04:34.600 --> 0:04:37.479 about the strength of the labor market with some of 0:04:37.480 --> 0:04:40.080 the forecasts for a recession, as some of those recession 0:04:40.120 --> 0:04:43.160 calls are quite near term as well, reconcile those two 0:04:43.240 --> 0:04:47.000 things for me if you can, Jim, can you at home? Yeah? No, 0:04:47.080 --> 0:04:49.200 I don't think you can reconcile them. I think I 0:04:49.240 --> 0:04:52.240 think what you're hearing um when you have when you 0:04:52.279 --> 0:04:54.960 listen to people talk about recession, they can't tell you 0:04:55.360 --> 0:04:57.599 what's going on right now that might be a red 0:04:57.960 --> 0:05:00.400 makes them think this. What they really refer two is 0:05:00.400 --> 0:05:02.559 that you should look at our history books. What people 0:05:02.560 --> 0:05:04.800 have noticed is that when we get back to full employment, 0:05:04.839 --> 0:05:07.400 we just never stayed there more than a year or two. Jimmy, 0:05:07.440 --> 0:05:11.000 that's the sole reason why this conversation is coming up. 0:05:11.320 --> 0:05:14.279 And frankly, I mean, you've got to respect history. But frankly, 0:05:14.360 --> 0:05:17.320 I don't think there's anything that any of us economists 0:05:17.480 --> 0:05:21.240 see on the inflation side or on the financial balances 0:05:21.279 --> 0:05:23.920 that should make us be talking about recession. It's really 0:05:23.960 --> 0:05:27.000 just based on this history that somehow, for some reason, 0:05:27.400 --> 0:05:29.880 we just never seem to stay at full employment. I 0:05:29.880 --> 0:05:33.120 think that's a pretty weak argument myself, and I look 0:05:33.160 --> 0:05:35.239 around the economy. I think we're all struggling to understand 0:05:35.480 --> 0:05:39.159 tame inflation, and the financial system seems very balanced, the 0:05:39.160 --> 0:05:42.120 banking system is very strong. Um, I don't think there's 0:05:42.160 --> 0:05:44.840 anything that you can really point to that tells you 0:05:44.880 --> 0:05:47.279 this is really kind of unprecedent. This has the potential 0:05:47.320 --> 0:05:49.599 to cause a recession. So I think we're I think 0:05:49.640 --> 0:05:55.680 people are slowly beginning to ignore this conversation. Jim Glassman, 0:05:55.760 --> 0:06:09.120 JP Morgan Shase, Commercial Banking Head Economists. We can catch 0:06:09.200 --> 0:06:12.280 up with Mike Zanta now mkmpan as chief economist and 0:06:12.480 --> 0:06:14.720 macro strategist. You've had a couple of minutes, Mike to 0:06:14.760 --> 0:06:19.120 have a look at the data. Your first rate place. Yes, absolutely, John, 0:06:19.200 --> 0:06:22.200 So you know it's a decent number, but as Jim said, 0:06:22.320 --> 0:06:26.040 bounce back from the prior month, which was a big disappointment. 0:06:26.120 --> 0:06:27.960 What I like to do here is to take a 0:06:28.120 --> 0:06:31.240 three month moving average because as you know, the standard 0:06:31.240 --> 0:06:34.120 deviation in these monthly figures is too big to dry 0:06:34.720 --> 0:06:38.039 sweeping conclusions from. And if we do that, we still 0:06:38.040 --> 0:06:41.239 see about a hundred and eighty thousands. So that's good. 0:06:41.560 --> 0:06:44.919 You know, that does suggest some cooling, but that's what 0:06:45.080 --> 0:06:47.599 the Fed intended, right. They didn't raise rates and reduce 0:06:47.680 --> 0:06:49.760 the balance sheet for most of the last two years 0:06:50.120 --> 0:06:52.440 to boost the economy. They're trying to restrain it. If 0:06:52.480 --> 0:06:55.760 they have the restraint they want, then you know, no 0:06:55.880 --> 0:06:58.440 more FED rate hikes and and we can debate you know, 0:06:58.480 --> 0:07:01.080 potential easing. But you know, I think this is this 0:07:01.160 --> 0:07:04.960 is right in line with an economy moving to trend. So, Mike, 0:07:05.160 --> 0:07:07.280 every analyst that we spoke to ahead of this number, 0:07:07.320 --> 0:07:09.440 so that it's all about the participation rate, it's all 0:07:09.480 --> 0:07:12.960 about the headline jobless number. I would argue that the 0:07:13.000 --> 0:07:16.520 market reaction shows that's not the case. That actually still 0:07:16.560 --> 0:07:19.520 it's about the wage growth, which was disappointing. The headline 0:07:19.560 --> 0:07:23.360 number beat the actual wage growth disappointed, and you've got 0:07:23.360 --> 0:07:30.320 a bid for bonds. Right, So yeah, that's a good point. Um. 0:07:30.360 --> 0:07:32.960 You know, the wage growth number coming in a little 0:07:33.000 --> 0:07:36.760 cool with a with a pretty strong headline figure tells you, 0:07:36.840 --> 0:07:38.840 I mean, that's about as good as it gets for 0:07:38.840 --> 0:07:41.280 the market, right, because job growth is strong, so we're 0:07:41.280 --> 0:07:44.280 still going to have income generation. Yet you know, you 0:07:44.320 --> 0:07:48.040 don't have this light flashing red on the inflationary pressure. Right. 0:07:48.080 --> 0:07:50.720 If the wages are still modest or you know, still 0:07:50.760 --> 0:07:54.080 in line with the underlying productivity growth rate and the 0:07:54.080 --> 0:07:56.800 FEDS inflation target, then it doesn't look like there's any 0:07:56.880 --> 0:07:59.360 really any evidence of overheating. And so this is what 0:07:59.400 --> 0:08:02.280 the market on solid job growth but you know, no 0:08:02.360 --> 0:08:05.760 evidence of an inflationary problem. So this is a goldilocks report. 0:08:05.800 --> 0:08:10.000 Now it's a goldilocks report. Do we have any sense 0:08:10.160 --> 0:08:13.520 of the participation rate and who is coming back into 0:08:13.560 --> 0:08:16.920 the market at this point because we were speaking earlier 0:08:16.960 --> 0:08:18.680 with Jim Glassman and he was saying most of the 0:08:18.680 --> 0:08:21.000 people who wanted a job and who are employable already 0:08:21.000 --> 0:08:24.160 are employed. So this is on the peripectly, this is 0:08:24.200 --> 0:08:27.560 sort of raises some questions about who's left and what 0:08:27.640 --> 0:08:31.239 it's taking to bring them back in what's your sense, right, Well, 0:08:31.640 --> 0:08:35.000 what's interesting to me is that the prime age participation 0:08:35.080 --> 0:08:38.920 rate people twenty five to fifty four has been moving up. 0:08:39.000 --> 0:08:42.120 So if we just look at the overall level of unemployment, 0:08:42.240 --> 0:08:45.240 it's essentially been flat for a year really right around 0:08:45.320 --> 0:08:47.839 you know, we were right at these levels three eight 0:08:47.880 --> 0:08:53.280 percent last May, and so job growth is stronger than 0:08:53.320 --> 0:08:56.040 what you'd get from working age population growth. Then that's 0:08:56.080 --> 0:09:00.320 been fulfilled by a rising prime age participation and rate, 0:09:00.360 --> 0:09:02.680 which is really good news. And these are folks that 0:09:02.720 --> 0:09:05.520 were not counted because they had not been in the 0:09:05.800 --> 0:09:07.640 you know, count it as in the labor force. So 0:09:07.800 --> 0:09:11.120 in the feeling has been that either through disability or 0:09:11.160 --> 0:09:14.400 opioid addiction, um, you know, that they weren't going to 0:09:14.480 --> 0:09:16.520 be able to come back. But they're coming back, and 0:09:16.559 --> 0:09:19.960 that's that's a good story. One big question that I've 0:09:19.960 --> 0:09:22.640 bandied around with a number of people is how does 0:09:22.760 --> 0:09:28.760 this job's number account for people working multiple jobs? Well, 0:09:28.840 --> 0:09:32.080 you know there are some statistics on that. Um, you know, 0:09:32.120 --> 0:09:34.440 I think I did it write up a while ago. 0:09:34.520 --> 0:09:37.199 I can send you guys but you know, there's been 0:09:37.240 --> 0:09:40.160 this focus on the so called gig economy, that's where 0:09:40.160 --> 0:09:42.800 it was going to work. But yeah, it's not. It's 0:09:42.840 --> 0:09:45.920 interesting because it's something that you know, we see every 0:09:46.000 --> 0:09:48.559 day when we use uber and so on and so forth, 0:09:48.600 --> 0:09:50.600 but it's not really in the statistics. You know, at 0:09:50.679 --> 0:09:55.000 least people working part time for economic reasons. That number 0:09:55.040 --> 0:09:59.640 has been essentially plunging ever since the labor market recovery started. 0:09:59.679 --> 0:10:03.320 So could be one of those situations where what seems obvious, 0:10:03.480 --> 0:10:06.240 you know, maybe within the context of a you know, 0:10:06.320 --> 0:10:09.520 the quite large labor market really just isn't as significant 0:10:09.559 --> 0:10:11.760 as it seems. So I want to go back to 0:10:11.840 --> 0:10:14.559 wages for a second and sort of what it says 0:10:14.679 --> 0:10:18.800 that we're not seeing inflation accelerate even to the degree 0:10:18.800 --> 0:10:21.240 that many people were expecting, which still wasn't that much, 0:10:22.080 --> 0:10:25.000 Philip Scarf dead, is that basically the big takeaway again 0:10:25.040 --> 0:10:26.800 and again that we're beating over the head with every 0:10:26.800 --> 0:10:30.600 single job support since the financial crisis. Yeah, it's really 0:10:30.800 --> 0:10:33.360 for the Fed, you know, that's sort of their base 0:10:33.480 --> 0:10:36.520 model of inflation, and it's certainly been a moving target, 0:10:36.600 --> 0:10:39.400 right they seem to just adjust there, you know, their 0:10:39.600 --> 0:10:44.000 estimate for the sustainable unemployment rate down this based on 0:10:44.280 --> 0:10:47.199 what's been happening with you know, very little inflation pressure. 0:10:47.320 --> 0:10:51.600 So it's a it's a problematic model, um, you know. 0:10:51.679 --> 0:10:53.720 And we also have this issue. We just were talking 0:10:53.720 --> 0:10:57.559 about prime age participation moving up, and so you know, 0:10:57.600 --> 0:11:00.400 if you're looking at it just too narrow of measure 0:11:00.400 --> 0:11:02.840 of labor market slack, then you can, you know, you 0:11:02.880 --> 0:11:06.040 can also come to the wrong conclusion about spare capacity, 0:11:06.240 --> 0:11:09.520 even within the context of the Phillips curve model. So 0:11:09.559 --> 0:11:13.640 for example, the prime age employment to population ratio is 0:11:13.960 --> 0:11:17.520 just finally just finally getting back to the you know, 0:11:17.559 --> 0:11:22.000 the two decade pre crisis median level. But we're still 0:11:22.200 --> 0:11:24.439 you know, unless i'm you know, I haven't been able 0:11:24.480 --> 0:11:27.320 to appraise all the numbers so far today. But you know, 0:11:27.360 --> 0:11:29.880 at least recently, we were not back to the high 0:11:30.000 --> 0:11:33.320 scene um during the last cycle, are certainly the cycle 0:11:33.400 --> 0:11:36.160 before it. So if there's a bit more slack out 0:11:36.160 --> 0:11:38.719 there than what most people believe just looking at the 0:11:38.800 --> 0:11:41.040 unemployment rate, then that could be one reason that the 0:11:41.080 --> 0:11:44.600 so called Phillips curve isn't isn't working. Another reason is 0:11:44.840 --> 0:11:47.360 that it just might not be a very good model 0:11:47.400 --> 0:11:51.040 of the inflation process. So so yeah, we don't have 0:11:51.320 --> 0:11:54.480 we don't have much inflationary pressure to to write home about. 0:11:54.520 --> 0:11:56.520 It's one of the reasons the FED paused right the 0:11:56.600 --> 0:11:59.839 last press FED press conference, Paul Powell was talking about 0:11:59.840 --> 0:12:03.480 the idea that you don't want a situation where inflation 0:12:03.520 --> 0:12:07.040 and expectations permanently ratch lower. And so there's just this 0:12:07.120 --> 0:12:11.520 ongoing expectation that the FED you know, continues to undershoot 0:12:11.600 --> 0:12:15.120 or fail on its inflation goal. Yeah, just want'll take 0:12:15.160 --> 0:12:18.920 a look at markets. The TAO in particular, is extending 0:12:19.000 --> 0:12:22.040 gains following this report. Green across the screen on the 0:12:22.080 --> 0:12:25.400 equity side, on the bond side, also a bit of 0:12:25.440 --> 0:12:28.319 a bid. Just real quick up, Mike Darta of mk 0:12:28.640 --> 0:12:32.400 M Partners. Is bad news good news? Or is tupid 0:12:32.559 --> 0:12:36.880 news good news? Again? You know, I think it's a 0:12:36.960 --> 0:12:41.480 situation where, you know, the Goldilock scenario is good news, right. 0:12:41.520 --> 0:12:43.199 I mean, I don't think risk markets are going to 0:12:43.280 --> 0:12:46.680 like the idea of a potential recession and the business cycle. 0:12:46.760 --> 0:12:50.679 We saw that obviously play out late last year. At 0:12:50.679 --> 0:12:53.120 the same time, you know, the data is so strong 0:12:53.200 --> 0:12:56.120 that it's going to be pushing the fed into continual tightening, 0:12:56.160 --> 0:12:57.800 and then we have to worry about the FED over 0:12:57.920 --> 0:13:00.400 doing it. That may not be so good for risk 0:13:00.480 --> 0:13:03.720 markets either. This is about perfect right, and the yield, 0:13:03.880 --> 0:13:06.200 the yield curve is sort of disinverted on its own 0:13:06.520 --> 0:13:10.720 and defends just sitting there watching the data, and you know, 0:13:10.760 --> 0:13:13.600 the data is in line with the modest growth economy 0:13:13.640 --> 0:13:15.800 with not a lot of inflationary pressure. It's about as 0:13:15.840 --> 0:13:18.440 good as it gets for equity markets, about as good 0:13:18.440 --> 0:13:21.240 as it gets. Michael darda chief economist, who market strategist 0:13:21.280 --> 0:13:31.000 and partner at m k M Partners, for the Trump 0:13:31.040 --> 0:13:33.400 Administration's views on the job report now in very place 0:13:33.440 --> 0:13:35.800 to say. We joined on Bloomberg CV and on radio 0:13:35.960 --> 0:13:40.120 by Larry Cudlow, National Economic Council Director. Larry always great 0:13:40.160 --> 0:13:41.720 to catch up with your body. Let's just talk about 0:13:41.720 --> 0:13:44.640 the payrolls report to begin with. It looks solid, it 0:13:44.679 --> 0:13:47.679 looks like a bounce back. You first read, yeah, it's 0:13:47.720 --> 0:13:50.360 a good number. It's a very good number. One plus 0:13:50.400 --> 0:13:52.600 when you put the revisions and you get up to 0:13:52.640 --> 0:13:55.720 two hundred eleven. I like that number a lot. I 0:13:55.760 --> 0:13:59.800 think the wages are still well above three hours worked, 0:13:59.800 --> 0:14:02.560 are rising and you know. Even away from that, I 0:14:02.640 --> 0:14:05.280 just want to note it's been a tough you know, 0:14:05.360 --> 0:14:10.280 between government shutdowns and lousy winter seasonal adjustments. But it 0:14:10.320 --> 0:14:14.079 looks like the economy is really coming back now and 0:14:14.120 --> 0:14:16.320 we'll be better than two P and Q one at 0:14:16.360 --> 0:14:19.240 least that's our hope, and then I think you'll get 0:14:19.280 --> 0:14:21.760 back towards three percent for the rest of the year. 0:14:22.040 --> 0:14:25.600 What's interesting here, last point on these numbers. This is 0:14:25.760 --> 0:14:28.800 very similar to what happened last year. You had a 0:14:28.840 --> 0:14:31.640 week first quarter. We've had week first quarters. I don't know, 0:14:31.720 --> 0:14:35.120 bad seasons three years, but then the economy snap back. 0:14:35.200 --> 0:14:38.640 We've got three percent growth. It's a repeat and I 0:14:38.680 --> 0:14:42.280 like it very much. And I think President's Trump's rebuilding 0:14:42.640 --> 0:14:46.160 of the economy from the supply side with tax cuts 0:14:46.240 --> 0:14:49.840 and deregulation and trade reform. I think we're still very 0:14:49.880 --> 0:14:52.720 much in place. Labor market looks solid, lottery. That's your view, 0:14:52.760 --> 0:14:55.280 you expect to see three percent GDP growth. Some people 0:14:55.320 --> 0:14:57.760 do share that very optimistic view. This is what I 0:14:57.800 --> 0:15:00.480 struggle with. How do you reconcile that very very constructive 0:15:00.480 --> 0:15:02.960 assessment of the US economy with coals for the FETE 0:15:03.000 --> 0:15:05.840 to cut rates Larry, how do those two things work well? 0:15:05.880 --> 0:15:08.840 I think the issue on that is a precautionary issue. 0:15:08.880 --> 0:15:11.680 A couple of points here quickly. Number one, we are 0:15:11.800 --> 0:15:17.240 facing a worldwide slowdown, you know, recession. Arguably, I don't 0:15:17.240 --> 0:15:20.520 want to make that call, but Europe is not doing well. 0:15:20.960 --> 0:15:24.120 Germany itself may be in recession. That troubles us. Okay, 0:15:24.160 --> 0:15:27.360 that's point number one. Point number two, There is no inflation. 0:15:27.880 --> 0:15:30.640 There is no inflation. I mean we're talking about maybe 0:15:30.640 --> 0:15:35.320 one and a half percent max. And productivity rising at 0:15:35.360 --> 0:15:38.560 one point eight percent last year. So wages are rising 0:15:38.600 --> 0:15:41.600 at whatever three point two percent that's being covered by 0:15:41.640 --> 0:15:47.000 productivity without inflation. Why raise interest rates? And look, we 0:15:47.120 --> 0:15:52.160 just don't want any threats to this rebuilding, reviving, growing 0:15:52.240 --> 0:15:56.440 economy and um looking at the yield curve and other 0:15:56.800 --> 0:16:01.480 market based measures. I think on their time, the fet 0:16:01.560 --> 0:16:04.920 is independent. Not emphasize that if that is independent, but 0:16:05.040 --> 0:16:09.480 the President has said and I concur that I think 0:16:09.520 --> 0:16:12.840 that we could do at some point with some reductions 0:16:13.120 --> 0:16:15.480 in the FEDS target rate letry. The Federal Reserve is 0:16:15.520 --> 0:16:19.120 operationally independent. That's a matter of fact. You're allowed, by 0:16:19.160 --> 0:16:20.840 a matter of process to nominate who you like to 0:16:20.880 --> 0:16:23.800 the Federal Reserve. Your administration will do it. Previous administrations 0:16:23.800 --> 0:16:25.920 have done it as well. No issue with that whatsoever. 0:16:26.240 --> 0:16:28.000 But when you call for rate cuts, can you see 0:16:28.000 --> 0:16:29.920 how that puts the Federal Reserve between a rock and 0:16:30.000 --> 0:16:34.880 hard place. Well, I don't know. You know, it's a 0:16:34.960 --> 0:16:39.040 free country. President has a lot of well informed opinions. 0:16:39.400 --> 0:16:43.160 As a successful businessman and investor, I've been covering this 0:16:43.240 --> 0:16:46.960 bid for a long time. We're not pressuring, We're not 0:16:47.000 --> 0:16:50.040 going after their independence. We have our point of view. 0:16:50.400 --> 0:16:52.440 I think a lot of people, by the way, the 0:16:52.560 --> 0:16:55.120 markets have a point of view. The markets, as you 0:16:55.320 --> 0:16:58.280 probably know better than I do, have actually been starting 0:16:58.280 --> 0:17:03.080 to price in a federal funds rate reduction. So that's 0:17:03.080 --> 0:17:05.800 all it is. We're all entitled to our opinions nowadays. 0:17:05.880 --> 0:17:09.640 It's a great country. The larry where your opinion becomes original, 0:17:09.960 --> 0:17:12.480 and it is original, is because the rate market is 0:17:12.480 --> 0:17:15.359 predicting a forecasting price in a rate cut, because it's 0:17:15.400 --> 0:17:19.199 simultaneously forecasting the rapid deceleration in US growths. Most of 0:17:19.240 --> 0:17:20.600 the people that I find that agree with you that 0:17:20.600 --> 0:17:22.600 the Federal Reserve is gonna cut twice in the next year, 0:17:22.920 --> 0:17:26.240 they're also forecasting much much like a GDP growth in 0:17:26.320 --> 0:17:28.840 your three percent. That's where it becomes original. And I 0:17:28.840 --> 0:17:30.800 think the optics really really matter here. When I ask 0:17:30.840 --> 0:17:34.359 guests from the street whether they think the perception, not 0:17:34.440 --> 0:17:38.040 your intent, the perception the optics of federal reserve independence, 0:17:38.040 --> 0:17:41.119 whether that is being compromised, the answer I keep getting 0:17:41.560 --> 0:17:45.840 is yes, Larry, we're treading to fine line here. Well, look, 0:17:45.920 --> 0:17:48.960 I respect people may disagree with this, but let me 0:17:49.000 --> 0:17:52.760 make this point. Let's go to a broader measure, not 0:17:52.840 --> 0:17:58.440 real GDP, but nominal GDP, which is related to monetary policy. 0:17:58.760 --> 0:18:04.119 So nominal GDP is real output plus inflation. I think 0:18:04.320 --> 0:18:09.520 overall nominal will slow, but the slowing is not gonna 0:18:09.560 --> 0:18:12.560 be in real It's not gonna be output. It's not 0:18:12.640 --> 0:18:16.320 gonna be business investment or jobs. The slowing in that 0:18:16.440 --> 0:18:20.439 measure is from lower inflation. And I think that's a 0:18:20.440 --> 0:18:24.439 big surprise, and I think that's something everybody has to consider. 0:18:25.040 --> 0:18:27.719 So I as I look at the Eel curve and 0:18:27.760 --> 0:18:30.280 I look at other measures of the dollar and Golden 0:18:30.359 --> 0:18:33.919 commodity index, is what I'm seeing, you know, take the 0:18:33.960 --> 0:18:39.200 tip spreads. I'm seeing a reduction in the expected rate 0:18:39.200 --> 0:18:42.840 of inflation, and I'm seeing a reduction in the actual 0:18:42.960 --> 0:18:47.960 rate of inflation. It's disinflation, if you will. And therefore, 0:18:48.440 --> 0:18:52.280 I think in that sense, we have room to lower 0:18:52.359 --> 0:18:56.760 the FED target rate at their you know, on their speed, 0:18:57.000 --> 0:19:00.760 on their dime. I'm not pressuring and going up against 0:19:00.800 --> 0:19:04.320 the independence. I just think, you know, let's go back. 0:19:04.720 --> 0:19:07.359 I'm not exactly going to break news here, but a 0:19:07.400 --> 0:19:12.679 long held Cuddlow view. More people working and prospering is 0:19:12.720 --> 0:19:17.000 not inflationary. And in this particular business cycle which we 0:19:17.080 --> 0:19:21.320 have started as president rebuilds the economy, this is supply 0:19:21.480 --> 0:19:25.560 side expansion. These are lower tax rates and regulations right, 0:19:26.119 --> 0:19:31.480 better after tax returns for investment and hence productivity and 0:19:31.600 --> 0:19:34.399 hence labor force growth. So you see what I'm saying. 0:19:34.840 --> 0:19:39.000 We're pushing the supply curve out that actually lowers inflation, 0:19:39.480 --> 0:19:42.040 and I think the authorities have to keep that in 0:19:42.119 --> 0:19:46.359 mind as they go about their business to set interest 0:19:46.440 --> 0:19:49.879 rates and the balance sheet. I want to raise that point. 0:19:50.359 --> 0:19:53.760 Uh be great. I think to freeze the balance sheet 0:19:53.960 --> 0:19:56.920 and then stop the reduction of the balance sheet. What's 0:19:56.920 --> 0:20:00.119 the appropriate science of the balance sheet, Larry H. I 0:20:00.160 --> 0:20:02.520 don't know, and you know, that's a very difficult question. 0:20:02.600 --> 0:20:06.800 I don't know what I suspect though, is we don't 0:20:06.840 --> 0:20:13.919 want measures that will restrain the economy or financial market conditions. Okay, 0:20:14.000 --> 0:20:17.000 we don't want that, so I would tread very cautiously. 0:20:17.280 --> 0:20:20.679 And I think in this new environment, with the supply 0:20:20.800 --> 0:20:24.760 side growth take off and rebuilding an economy, I think 0:20:24.800 --> 0:20:27.840 some people have to rethink some of their assumptions. And 0:20:27.920 --> 0:20:30.440 by the way, by the way, I'm not sure the 0:20:30.600 --> 0:20:34.240 FED really has much of a disagreement with the sorts 0:20:34.280 --> 0:20:37.080 of things I'm talking about. I think we're reaching common 0:20:37.080 --> 0:20:39.200 ground here, Larry. I agree with you. I mean, I've 0:20:39.200 --> 0:20:40.800 got rid of a blank rock next to me who 0:20:40.840 --> 0:20:44.120 also thinks that wage growth won't lead to consumer price pressures. 0:20:44.119 --> 0:20:46.119 I don't think what you're saying is outlandish, but I 0:20:46.119 --> 0:20:48.080 think your assessment of Federals serve policy is a little 0:20:48.119 --> 0:20:50.639 bit difficult. The FED funds rate on a real basis 0:20:50.760 --> 0:20:53.040 is barely positive. Most people will conclude that this isn't 0:20:53.040 --> 0:20:55.760 time monetary policy at the moment, and people are trying 0:20:55.800 --> 0:20:57.520 to figure out the message that you're trying to send 0:20:57.520 --> 0:20:59.560 to the f O m C. If you nominate people 0:20:59.600 --> 0:21:02.359 like Steve and more and Herman Kaine, what is the 0:21:02.400 --> 0:21:04.119 message you're sending to the FED if you follow through 0:21:04.160 --> 0:21:08.000 on those nominations. Well, look, these are very capable of people, 0:21:08.280 --> 0:21:13.160 and I think what you have here is a philosophy 0:21:13.280 --> 0:21:18.520 that strong growth is not inflationary, especially when it comes 0:21:18.520 --> 0:21:20.800 from the supply side of the economy, which is where 0:21:20.800 --> 0:21:22.679 it's coming from, you know, as you look at the 0:21:22.760 --> 0:21:26.200 jobs and the hours work and the business investment. So 0:21:26.280 --> 0:21:29.919 these are people that would like a steady dollar and 0:21:29.960 --> 0:21:34.560 they don't believe that growth causes inflation, and therefore they 0:21:34.600 --> 0:21:38.439 will reflect those views to balance perhaps some of the 0:21:38.520 --> 0:21:41.800 other views on the Federal Reserved. Again, I want to 0:21:41.800 --> 0:21:46.760 indicate that I don't think the FED right now today 0:21:47.400 --> 0:21:51.320 is very far away from these points of you. Yeah. 0:21:51.359 --> 0:21:54.280 I mean, I've watched the chairman speak, I've watched the 0:21:54.400 --> 0:21:58.000 vice chairman, Richard Claren to speak. Uh, I'm not sure 0:21:58.040 --> 0:22:01.280