Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is a breaking news update from Bloomberg instant reaction
Speaker 2: and analysis from our three thousand journalists and analysts around
Speaker 2: the world.
Speaker 3: The beginning of a walk into the sunset for the
Speaker 3: Chairman of the Federal Reserve. J. Powell only has two
Speaker 3: more of these meetings on the calendar as the chairman
Speaker 3: of the world's most important central bank. For the equity
Speaker 3: market on the S and P five hundred is still
Speaker 3: close to all time highs on the SMP, on the
Speaker 3: NASDA one hundred up by zero point five. In the
Speaker 3: bond market on twos, tens, and thirties, we look like this.
Speaker 3: It's just about unchanged your ten year four to twenty five,
Speaker 3: your two year three point fifty eight. Journalists did their
Speaker 3: best to make this one interesting. Chairman power was determined
Speaker 3: to make it boring. Take a listen to what the
Speaker 3: chairman had to say.
Speaker 4: Some people didn't want to cut and dissented by committee
Speaker 4: pretty broadly for holding today that we still have some
Speaker 4: tension between employment and inflation, but it's less than it was.
Speaker 4: I think that the upside risks to inflation in the
Speaker 4: downside risk of I have probably both diminished a bit,
Speaker 4: so you know, we'll be looking at the other different
Speaker 4: views on the committee and you know we'll find our
Speaker 4: way forward as the data involve TK.
Speaker 3: Just my takeaway, just my observation towards the end, it
Speaker 3: felt like a man who was looking forward to retiring
Speaker 3: and stepping down.
Speaker 1: You know, there was a gold question. It's great he
Speaker 1: doesn't have Kruger ends in the drawer. He's got the
Speaker 1: Jerry Garciam commemorative gold coins in the drawer, so way looser,
Speaker 1: there's no question about that. But it was really interesting
Speaker 1: to see the nuances of the market away from the
Speaker 1: things we usually quote folks to look at what seriously
Speaker 1: what Sterling was doing, the way euro was vibrating that
Speaker 1: and I would suggest they could go back and say,
Speaker 1: you know, we got through that in one piece.
Speaker 3: He's got some advice for the next fort share stat
Speaker 3: of politics Stephanie Ralph Wolf Research joins us now for more, Stephanie,
Speaker 3: the questions loaded with politics. He was not engaging, he
Speaker 3: was not playing. What was the takeaway for you?
Speaker 5: I think it's a FED that is comfortable with the
Speaker 5: backdrop of data, which I think is the right call.
Speaker 5: The data seem to be improving from here. We actually
Speaker 5: think that it will continue to get better, in which
Speaker 5: case this will certainly be the last cut Underchair Powell.
Speaker 5: There's no more cut under Schair Powell. He's done, and
Speaker 5: he's I think that's right. He's fading into the sunset
Speaker 5: and just wants to avoid all of the questions that
Speaker 5: he didn't really want to answer.
Speaker 1: Unfair question, but I can save it for your morning.
Speaker 1: Note it Wilf research. Maybe it'll help you think Mark
Speaker 1: Kearney at Davos talking about the new geometry of Middle countries.
Speaker 1: You look at the president neo mercantilism, the president week dollar.
Speaker 1: Did the Secretary Treasuries save this press conference by coming
Speaker 1: out hours before and sounding like James Baker from another
Speaker 1: time in place on strong dollar?
Speaker 5: Yeah, I mean last night it was getting to be
Speaker 5: a little bit concerning when Trump made the comments regarding
Speaker 5: his comfort around the sharp drop in the.
Speaker 6: Dollar that we've seen. That could also have.
Speaker 5: Reverberations throughout the rest of the morning. So I think
Speaker 5: that is fair to some extent. Powell clearly don't want
Speaker 5: to comment on the dollar regardless, but there was the
Speaker 5: legitimate risk and there still is that there could become
Speaker 5: reverberations as the carry trade on wines. But it seems
Speaker 5: best and very well aware of the.
Speaker 6: Aftermath of that.
Speaker 1: Can I ask economic question please? Analog has been great
Speaker 1: on this, as you have, as well as Stephanie roth
Speaker 1: Or the idea of the vector and goods we take
Speaker 1: for granted is disinflation that's turned around. Now we've got
Speaker 1: goods moving up. We've got gold, command copper and all
Speaker 1: the other stuff John's talking about. Do you just assume
Speaker 1: out there somewhere after stimulus that goods roll over again
Speaker 1: into some form of disinflation, even if service sector stays
Speaker 1: with an inflationary tone.
Speaker 5: Yeah, we're probably going to see a backdrop where we
Speaker 5: were likely to have some firm goods prices in the
Speaker 5: next couple of months, in the sense that one you
Speaker 5: tend to have there's some seasonal issues in some of
Speaker 5: the data.
Speaker 6: You have consumer stimulus that's.
Speaker 5: Going to hit goods prices for the next quarter or so,
Speaker 5: and then beyond that you're going to move to an
Speaker 5: environment where goods are running it roughly zero percent, and
Speaker 5: then it's back to an environment where it's all about
Speaker 5: the service sext.
Speaker 3: Away from the politics of Washington. One of the takeaways
Speaker 3: from that particular news conference that I have is something
Speaker 3: I've heard repeatedly from a lot of Wall Street participants
Speaker 3: market participants, is that the data is going to be better.
Speaker 3: It will improve, the chairman saying overall, it's a stronger
Speaker 3: forecast than in December. The data since the last meetings
Speaker 3: show clear growth improvement, and a lot of people think
Speaker 3: that's going to continue because of the tax refunds. How
Speaker 3: important these tax refunds going to be? Do you think
Speaker 3: people are overly optimistic about the impact this might have.
Speaker 5: I think they will be positive for the consumer, but
Speaker 5: this is a consumer that is already doing fairly well.
Speaker 6: Spending has been fairly solid in.
Speaker 5: The fourth quarter, and everyone's rise up their GDP numbers
Speaker 5: in the fourth quarter Q one should be equally pretty solid.
Speaker 5: I think the main takeaway is that, yeah, maybe even
Speaker 5: you get a bit of a bump in consumer spending,
Speaker 5: people will spend the stimulus checks that come to them,
Speaker 5: and that is the American consumer. Well, then beyond that,
Speaker 5: this is an environment where you have positive momentum in
Speaker 5: the economy.
Speaker 6: I think it will be important.
Speaker 5: That's entirely fair, but it's also an economy that's performing
Speaker 5: a lot better than many expected towards the back part
Speaker 5: of the year last year when everyone was concerned about
Speaker 5: the health of the consumer.
Speaker 3: Which was sin these conference asked the question, why wouldn't
Speaker 3: that lead to higher inflation, given how in some parts
Speaker 3: of this economy we are supply constraints.
Speaker 7: What's the answer to that.
Speaker 5: The answer is that you'll see some sticky inflations of
Speaker 5: the first part of the year, in which case the
Speaker 5: next bet chair is going to be in an environment
Speaker 5: where inflation is running roughly three percent, the economy is
Speaker 5: fairly firm, and they're going to be trying to cut
Speaker 5: interest rates, and they're probably going to have trouble at first.
Speaker 6: It's going to be later in the year.
Speaker 5: When inflation starts to cool again you lose a little
Speaker 5: bit of that momentum where becomes a little bit easier
Speaker 5: of a conversation.
Speaker 1: I haven't answered anyone this question. I think it's fair
Speaker 1: to ask now after this press conference we talked about
Speaker 1: and the President with great negativity would talk about the
Speaker 1: Bidens stimulus, what does the Trump stimulus actually look like
Speaker 1: into the mid term elections.
Speaker 5: Well, you'll certainly you'll see that better or consumer for
Speaker 5: the first part of the year. It will fade into
Speaker 5: the election period of time, in which case then the
Speaker 5: focus is going to continue to be on affordability. So
Speaker 5: that's that's that's the opposite of stimulus from a sentiment perspective.
Speaker 5: And this is going to be the biggest challenge for
Speaker 5: the administration. They're gonna be dealing with all year and
Speaker 5: they're gonna have a lot of trouble. They've been throwing
Speaker 5: a lot of different things at the wall to see
Speaker 5: what will stick, and there is not that much they can.
Speaker 6: Change sticking right now.
Speaker 1: But any given central bank, whether it's it's Chairman Waller,
Speaker 1: Chairman Mirror and whoever, Chairman Pharaoh, whatever, whatever we see
Speaker 1: with the Central Bank, they've got to figure out what
Speaker 1: will stick with half of America flat in their back.
Speaker 1: What's the wolf research plan for that? Besides a check
Speaker 1: in the mail.
Speaker 6: There is not that much can be done.
Speaker 5: The one positive is not about anything the administration can do.
Speaker 5: It is a just a cyclical pickup in the economy
Speaker 5: that will help at the margin for a lot of
Speaker 5: the bottom end of the k who has been left out.
Speaker 6: They've been left out.
Speaker 1: For a wholes and Postner's saying is you know, you
Speaker 1: get a pick up in the economy, you get productivity,
Speaker 1: and it pulls up people. I mean, that's the reigning
Speaker 1: theory here John, into labor Day and into the end
Speaker 1: of the year.
Speaker 3: Just on the next FED share this from the Treasury
Speaker 3: Secretary in the last hour or so speaking to Yahoo,
Speaker 3: saying the pick may come in a week or so.
Speaker 3: It just feels like a rolling week. At the moment,
Speaker 3: we're waiting another week to get that FED chair pick.
Speaker 3: If you're just joining us, we're live on Bloomberg TV
Speaker 3: and on Bloomberg Radio. A FED rate decision behind us,
Speaker 3: a decision to keep rates unchanged after cunning at three
Speaker 3: consecutive meetings. We did get some dissent from two FED governors,
Speaker 3: one being Governor Walla, the other being Governor Myron looking
Speaker 3: for a twenty five basis point reduction. Let's get to
Speaker 3: Michael McKee, who was in that news conference with Chairman Powell. Mike,
Speaker 3: welcome back. I give you an A for Tryank, a
Speaker 3: big A for trying. What would you take away from
Speaker 3: the chairman moments ago?
Speaker 8: Well, I think we got the answer to whether Ja
Speaker 8: Powell would talk politics or policy He focused on policy,
Speaker 8: tried to stay away as much as possible from politics.
Speaker 8: When I asked him, and Nick tim Rose from the
Speaker 8: Wall Street Journal last him, and then he was asked
Speaker 8: about the all three of us got sort of the
Speaker 8: Seinfeld answer, No soup for you, He's not going to
Speaker 8: talk about that issue right now. In terms of policy, however,
Speaker 8: he seemed to be a little stronger on the outlook
Speaker 8: for the economy than his feelings about what rates would
Speaker 8: be doing. He didn't give us any indication that rates
Speaker 8: would be going down, but he didn't give us any
Speaker 8: indication that they think they're at neutral. He suggested we're
Speaker 8: at the high end of it, which would leave you
Speaker 8: open to a rate cut if you were able to,
Speaker 8: in other words, if inflation's going down and unemployment calls
Speaker 8: for it. But as Stephanie was saying, inflation's going to
Speaker 8: stay elevated for a while. So it's going to be
Speaker 8: hard in the remainder of Powell's term to have any
Speaker 8: rate cuts, and it'd be hard for somebody new coming
Speaker 8: in to get rate cuts right in the beginning, even if,
Speaker 8: as Powell says, they think that inflation x tariffs is
Speaker 8: running just about two percent or a little.
Speaker 7: Above on the committee.
Speaker 3: Might there is still a p U for an interest
Speaker 3: right reduction from both Governor Myron and a Governor Waller
Speaker 3: Mike for the paper of the Mischill counverage a little
Speaker 3: bit earlier immediately following the decision. What's the russal for
Speaker 3: that post from those two confidents on this FYMC.
Speaker 8: Well, we know Myron has sort of been ordered to dissent.
Speaker 8: It's interesting that he only dissented for twenty five basis
Speaker 8: points this time instead of for fifty. Either he thinks
Speaker 8: they've gone far enough or he didn't need to do
Speaker 8: fifty to keep the president's favor. For Chris Waller, the
Speaker 8: initial reaction I've seen from just about everybody who has
Speaker 8: written about it is that he's trying to keep his
Speaker 8: place in line for a possible promotion to FED chair
Speaker 8: replacing Powell. But I would imagine also that Waller, knowing
Speaker 8: him and knowing his reputation, will probably come out on
Speaker 8: Friday when the blackoutlifts, and give us some sort of
Speaker 8: statement on the economic reasons why he thinks a cut
Speaker 8: is important at this time. It's a little bit different
Speaker 8: situation now because the unemployment rate has go down. Inflation
Speaker 8: is according to the FEDS calculations which Paul talked about
Speaker 8: going to for the core PCEE hit three percent. So
Speaker 8: it's harder to make the case for a cut at
Speaker 8: the moment. So it'll be interesting to see what Waller
Speaker 8: has to say.
Speaker 3: My McKay, thank you, sir, stay close. Will come back
Speaker 3: to you a little bit later in the program. We
Speaker 3: talked about this. In the immediate aftermath of the decision
Speaker 3: that descend from Governor Waller for a twenty five basis
Speaker 3: point reduction, we heard from Vice Chair former Vice Chair
Speaker 3: Richard Clarder from Torson's Slock of Apollo, essentially calling it
Speaker 3: unfair to characterize this as a man purely voting for
Speaker 3: a reduction to keep his name in the running to
Speaker 3: become the Fed chair.
Speaker 1: Yeah.
Speaker 7: That has been a man who's delivered.
Speaker 3: Effective leadership, thought leadership at the Federal Reserve and call
Speaker 3: every single turn of the economy over the last several years.
Speaker 1: Yeah. I think Tourston summed it up nicely. This is
Speaker 1: a legit academic folks with major crowd out at Washington State.
Speaker 1: He wrote a very important, small, tiny, perfect paper in
Speaker 1: nineteen ninety one I believe it was. It made his
Speaker 1: reputation and it's on game theory, but accessible game theory,
Speaker 1: you know. Besides, he's like you, he's cutting chisels, he's
Speaker 1: lifting weights every day.
Speaker 7: I wish I lifted like he did. Have you seen
Speaker 7: him deadlift?
Speaker 3: Oh yeah, have you seen this? It's ridiculous. It's ridiculous
Speaker 3: how much weight he lifts. But yes, please can take
Speaker 3: a legitimate guy.
Speaker 1: I mean, Ken Rogo is a huge fan of what
Speaker 1: this academic has done. And he's delivered it. And here's
Speaker 1: the key thing, and I think attractive to the president.
Speaker 1: He's done it in a plain spoken way, and that
Speaker 1: may be to the benefit of President.
Speaker 3: I want to avoid the politics of this, Tom, but
Speaker 3: we've complained so much about group think of the Federal Reserve.
Speaker 3: We can't complain when someone sticks their necc count and
Speaker 3: says we need to do something different. And this is
Speaker 3: why I think we need to do this differently. Risk
Speaker 3: cut both ways. And we've seen that coming out in
Speaker 3: the pandemic. How wrong the consensus has been. Oh yeah,
Speaker 3: risk cuts both ways.
Speaker 1: It's the humility is in order, and I frankly I
Speaker 1: heard that from Chairman.
Speaker 3: Poulton Jeffrey Rosenberg of Black Rock joins us now to
Speaker 3: weigh in on all of this. Jeff, Welcome to the show, sir.
Speaker 3: The big takeaway for you, unchanged and a chairman who's
Speaker 3: not looking to change things for the next several months,
Speaker 3: would you agree, Yeah.
Speaker 2: I think the big takeaway on the policy side was
Speaker 2: the removal of the balance of risks from the labor
Speaker 2: market assessment. He got asked that question. I think the
Speaker 2: most interesting interchange was in the very first question, where
Speaker 2: he very clearly laid out he wasn't going to address
Speaker 2: the politics side, and then and got into the substance
Speaker 2: on the change and the balance of risks, and I
Speaker 2: think from the economic perspective, that was the most interesting
Speaker 2: thing in acknowledging that they moved away from both sides
Speaker 2: of the inflation and the labor market tension that was
Speaker 2: there previously, and that's an upgrade to the assessment. I
Speaker 2: think the near term implication is the bond market has
Speaker 2: the pricing right that you know, and then in the
Speaker 2: next six months there's really no real movement towards a
Speaker 2: cut now. Obviously it depends on the data and everything
Speaker 2: in terms of the expectations for the FMC is going
Speaker 2: to be in the back half of the year, Jeff Rozenberg.
Speaker 1: Maybe more important than the press conference is the American
Speaker 1: exceptional is at four oh two, Microsoft four oh three,
Speaker 1: Tesla four oh five, Meta four oh eight. IBM, honey,
Speaker 1: thank you so much for those times. I mean, what's
Speaker 1: keeping this fed going? Is this exceptional America? How do
Speaker 1: they keep that experiment going with their policy given politics.
Speaker 2: Yeah, that's a really important point, Tom, and it came
Speaker 2: up a little bit in the press conference. You just
Speaker 2: had to like listen for it. It's a point I
Speaker 2: made often, you know in these discussions that you know,
Speaker 2: where is the surprise coming from. It's coming from the
Speaker 2: consumption side. It's being supported by the wealth effect, and
Speaker 2: the wealth effect is being supported by all of those
Speaker 2: earnings and that AI story. So you know, we talk
Speaker 2: a lot about the macro economic perspective here, but it's
Speaker 2: really about the micro and the micro is the AI
Speaker 2: and the technology story, the concentration, and it's flowing through
Speaker 2: from the micro to the macro through the wealth effect.
Speaker 2: And that was why most economists are underclubbing GWth in
Speaker 2: twenty twenty five. It may be again the story in
Speaker 2: twenty twenty six. It's a little bit of the CA
Speaker 2: shaped economy story as well, because it's only a small
Speaker 2: portion that are benefiting, but that small portion overwhelmingly is
Speaker 2: influencing that consumption sething wrong.
Speaker 1: I look at that. I love how mister Rosenberg goes
Speaker 1: to the wealth effect as well. I want to frame
Speaker 1: out what we talked to Turston Slock about real GDP,
Speaker 1: which is being buoyant by the wealth effect, maybe with
Speaker 1: a little bit of add out inflation. Where do you
Speaker 1: see nominal GDP for the next chairman, John, We go
Speaker 1: out two meetings, then there's like one or two or
Speaker 1: three meetings. October twenty nine is a dead meeting because
Speaker 1: of the election. Where's nominal labor dayish in America?
Speaker 5: Yeah, you're going to be sitting five percent a little
Speaker 5: bit higher.
Speaker 1: Wealth effect, John, that's what we call this.
Speaker 6: Rosenberg's right, Yeah, I mean.
Speaker 5: And the wealth effect has been really important for the
Speaker 5: past couple years, partially just because it has broadened out
Speaker 5: beyond just the very wealthy. This is a consumer where
Speaker 5: younger people are involved in equities. More people, even though
Speaker 5: they don't have the lion's share of the equities, they
Speaker 5: are still more invested than many years past. So it's
Speaker 5: helping a big part of America, of course, not that
Speaker 5: bottom of the k which just continues.
Speaker 3: And yet by some measures, by some measures, Conference Board
Speaker 3: consumer confidence hasn't been lower in the last decade.
Speaker 5: Explained, Yeah, conference Board was weaker, you mish was stronger.
Speaker 5: I think the net of the two is a consumer
Speaker 5: that feels bad about the price level in the economy,
Speaker 5: which is something that cannot be changed easily by any means.
Speaker 5: But they're largely employed and they don't like the policy uncertainty,
Speaker 5: so they continue to spend because most of them are
Speaker 5: employed and continue to make decent wage gains. They also
Speaker 5: have they benefit from that wealth effect. But when you
Speaker 5: ask them, how do you feel about the economy, it's
Speaker 5: perhaps not great or.
Speaker 3: Maybe four five percent. Nominal GDP is not what it
Speaker 3: used to be, That is not as labor intensive. That
Speaker 3: this growth is coming from tech capex spent, that don't
Speaker 3: change in the lives of everyday Americans, at least not now.
Speaker 3: Isn't that a good explanation as to what's going on?
Speaker 6: Yeah, I think that's part of it.
Speaker 5: And also concerned about the future prospects because we all
Speaker 5: know AI is going to have important impacts on the
Speaker 5: labor market. You continue to see headlines about job cuts.
Speaker 5: The thing is that this part of the year there
Speaker 5: is often headlines about job cuts, and everybody gets scared
Speaker 5: in January about the labor market because they see all
Speaker 5: these headlines, and then it proved to be not such
Speaker 5: a big problem.
Speaker 1: Jeff Rosenberger, I'm sure you're aware of posen and ors
Speaker 1: eggs mapping out of a higher inflation, a more resilient inflation.
Speaker 1: What does your bond world do if we get inflation resilience.
Speaker 2: So a big part of that, Tom is in the
Speaker 2: term premium. Right, the FED, and what we saw in
Speaker 2: twenty twenty five was that the short end of the
Speaker 2: yield curve, shorter maturities, were very responsive to policy rates.
Speaker 2: It came up in the press conference today and the
Speaker 2: question about long term interest rates, and Powell basically admitted
Speaker 2: that longer term interest rates are going to be a function.
Speaker 2: He focused on the fiscal policy uncertainty, but there's more
Speaker 2: than that. There's real interest rates. The whole other picture
Speaker 2: to AI is an incredible shift in investment demand that
Speaker 2: raises real interest rates and the inflation piece to her question,
Speaker 2: Tom is about inflation risk premia, and as you move
Speaker 2: further out in time, there's more time for that uncertainty
Speaker 2: for all those reasons to affect inflation and the bond
Speaker 2: market impact is a steeper yield curve, reflective innominal space
Speaker 2: of greater inflation risk pre I.
Speaker 1: Look at this, Jeff. The question of where we are,
Speaker 1: and this goes back to dollar analysis of the last
Speaker 1: couple of days, is it's very nonlinear at some point.
Speaker 1: If I look, you know, to look at the benchmark
Speaker 1: ten year yield, how close are we to a point
Speaker 1: where you get accelerated tendencies if we unwind, that would
Speaker 1: be lower bond prices, higher yield. Is it ten beeps away?
Speaker 1: Is it thirty beeps away? Is it a fiction? It's
Speaker 1: just out there somewhere. Yeah.
Speaker 2: Again, it kind of came up in the context of
Speaker 2: the recent volatility in jgbs.
Speaker 7: You know, is there a.
Speaker 2: Nonlinear event for the US bond market. You know, it's
Speaker 2: a different market, It's much bigger, it's much deeper. There's
Speaker 2: a lot more impact in terms of price and substitution
Speaker 2: effects that can happen. He talked about it in terms
Speaker 2: of the fiscal side. It you know, the debt level
Speaker 2: is sustainable, but the path is unsustainable at some point.
Speaker 2: You know, no one really knows where that point is.
Speaker 2: We used to talk about it in the context of small,
Speaker 2: open market economies around one hundred percent eighty percent debt
Speaker 2: to GDP. That's a very different setup than for the
Speaker 2: US economy, and.
Speaker 6: We don't really know.
Speaker 2: I would I think it's a much longer term process
Speaker 2: in terms of building a risk premia slowly and less
Speaker 2: of this kind of tipping point argument. But we don't
Speaker 2: really know for the US bond market what that will uh,
Speaker 2: what that will look like.
Speaker 7: Last your direct question.
Speaker 3: I asked this to Toss and Slock for Apollo in the
Speaker 3: last hour, and he said, no, do you have a
Speaker 3: decent understanding now this FEDS reaction function.
Speaker 2: I mean, I don't know if it's as clear as no.
Speaker 2: I mean, I think that they shifted in the summer,
Speaker 2: and Waller was ahead of it with regards to the
Speaker 2: payroll side, the labor market side. They were validated in
Speaker 2: that shift by the slowdown in the labor market, and
Speaker 2: they told us today that slow down market in the
Speaker 2: labor market is kind of stabilized. So if you look
Speaker 2: at the response function, at least for consistency, they paused
Speaker 2: the cutting, and they appears to be justified by the
Speaker 2: reduction in the downside risk to the labor market. So
Speaker 2: to me, that kind of validates a little bit of
Speaker 2: what we understand about their response function of this current
Speaker 2: fed that they are more keyed in on the labor
Speaker 2: market risks then they are on the growth side, and
Speaker 2: the growth side is being upgraded at the same time
Speaker 2: he talked a little bit about that, So I think
Speaker 2: we're still getting, you know, some view into that response.
Speaker 7: Well, let me put it another way.
Speaker 3: Let's say growth picks up in the way that Stephanie
Speaker 3: and Tolson are looking for, and let's say inflation picks
Speaker 3: up alongside that.
Speaker 7: Do you have an understanding of what they will or
Speaker 7: won't do like this year?
Speaker 2: Well he kind of answered that one as well, at
Speaker 2: least from Powell's perspective, is that no one has trying
Speaker 2: to find my notes on this one, no one has
Speaker 2: rate hikes in the expectation the economics of an uptick
Speaker 2: in growth and an uptick in inflation, you know, might
Speaker 2: otherwise say that, but yes, in terms of the response function,
Speaker 2: it's still asymmetric here where they're looking, you know, to
Speaker 2: be stable, or maybe looking for economic reasons to cut,
Speaker 2: but not looking for an economic scenario where they're raising
Speaker 2: interest in firlks.
Speaker 1: I really want to say, if Jeffrey Rosenberg here with
Speaker 1: Stephanie Roth is important because they both carry their day
Speaker 1: to day work with a lot of humility. Where in
Speaker 1: your head is the unemployment rate where everyone involved goes, oops,
Speaker 1: it's not four point sixty four point seven or that
Speaker 1: is there a stuff you were off unemployment rate where
Speaker 1: the dialogue radically changes If.
Speaker 5: We get that, Yeah, if you start to shift towards
Speaker 5: five percent, then.
Speaker 1: The dyna round number five percent.
Speaker 6: Good round number, five percent, five percent.
Speaker 1: Now the same as it was a five percent ten
Speaker 1: or thirty years ago. I don't think it.
Speaker 6: No, I don't think so.
Speaker 1: In what ways described our audiences here worldwide? Why five
Speaker 1: percent all American unemployment right now was you know, seven
Speaker 1: percent unemployment right back when?
Speaker 5: Yeah, it structurally shifted down over time, in which case,
Speaker 5: because the labor market dynamics have have have have changed materially,
Speaker 5: what keeps us in full employment today is not the same.
Speaker 6: As what we were.
Speaker 5: So therefore, if we're sitting at five percent that's a
Speaker 5: that's a much riskier environment than than what it would
Speaker 5: have been done.
Speaker 1: You live this in Coventry with the auto business in
Speaker 1: the United Kingdom. I just watched of the destruction of
Speaker 1: Eastman Kodak yesterday, a great YouTube video. It was like
Speaker 1: walking through my childhood. But that world is gone when
Speaker 1: it was a seven percent unemployment and now we're walking
Speaker 1: around happy with a five percent numbers.
Speaker 3: Well, the thing to build on that, Tim, I think
Speaker 3: we have to confront a new risk. You bring up
Speaker 3: the old manufacturing hubs the basis of say the United
Speaker 3: Kingdom and for that matter of Detroit he in the
Speaker 3: United States. That's what globalization did to manufacturing. And the
Speaker 3: risk now that we have to confront in the West
Speaker 3: at least is whether AI is going to do that
Speaker 3: to services what globalization did to manufacturing. You said it
Speaker 3: was a brief acknowledgement there from the chairman in that
Speaker 3: news conference, just to give a little nod to the
Speaker 3: prospect of a reduction in jobs at least in a
Speaker 3: short term because of this new technology.
Speaker 7: Yeah.
Speaker 5: I think that's fair and I guess that is the
Speaker 5: risk in the future that we end up with a
Speaker 5: structural shift higher because before it was, you know, a
Speaker 5: backdrop where.
Speaker 6: Globalization and manufacturing.
Speaker 5: Helped to sort of bring the economy into today. We're
Speaker 5: a much more developed economy than we were.
Speaker 6: You know. Of course, that's the risk.
Speaker 5: That we see into the future, that we end up
Speaker 5: with a structurally slightly higher unemployment rate. But I'm not
Speaker 5: convinced that it will end up being quite that. I
Speaker 5: think there's an environment where you end up with job
Speaker 5: gains as a result.
Speaker 3: I think that's the problem being a policy maker right now.
Speaker 3: I'm not convinced of anything, and I'm not sure they
Speaker 3: are either. Things have changed. We asked Bob Michael a
Speaker 3: JP Morgan, your former colleague, the question a little bit earlier.
Speaker 3: What's more important for the outlook for the economy now
Speaker 3: the spending numbers from these big names that report in
Speaker 3: about twenty minutes time in the next hour, or the
Speaker 3: payrolls report that we get every first Friday of the month.
Speaker 3: And he's pointing to tech capex from the major tech
Speaker 3: players in the United States. That has completely changed the conversation.
Speaker 3: How do you set policy with traditional macro indicators when
Speaker 3: what's driving the economy right now is something else.
Speaker 5: So I think what's driving market is of course AI,
Speaker 5: and that kind of is required to continue moving ahead
Speaker 5: in order for the US economy to be okay. If
Speaker 5: tech catpacs started to slow down materially as a result
Speaker 5: of AID, there was a whatever reason they decided to
Speaker 5: return on that investment wasn't quite as high. Usse econdy
Speaker 5: would still be okay. We're not at a place where
Speaker 5: AI is so ingrained and important into the economy that
Speaker 5: if it were to if those dynamics were to change,
Speaker 5: the economy would be in big trouble. We estimate that
Speaker 5: the domestic share of capex AI related capex is that
Speaker 5: one a half percent of GDP housing is a little
Speaker 5: over three, so it's not that ingrained yet. In a
Speaker 5: couple of years, if this continues at the pace, then
Speaker 5: the conversation is different.
Speaker 1: Jeff Rosenberg, let me ask you, Stephanie Roth question. I
Speaker 1: think it fits in your fine and that is if
Speaker 1: you look at the labor upset that's out there. John
Speaker 1: and I are overwhelmed every day with emails talking about
Speaker 1: fancy people at black Rock and Wolf Research talking about
Speaker 1: AI AI that when does the Central Bank just have
Speaker 1: to address with these two Americas? When do they address
Speaker 1: to Americas.
Speaker 2: It's a great conversation and came up again in the
Speaker 2: press conference, and I think Powell did a really nice
Speaker 2: job in addressing what we don't really know and we
Speaker 2: don't know what that impact is going to be. But
Speaker 2: he also critically added this comment on this is not
Speaker 2: something that FED policy is well suited to, right, So
Speaker 2: if we want to address labor market frictions and disruptions,
Speaker 2: that's much better suited to other government policies than the
Speaker 2: broad cudgel of monetary policy. I want to just come
Speaker 2: back to your earlier conversation and just make one other
Speaker 2: point that the wealth effect that we were discussing, it's
Speaker 2: a double edged sword. So while the cap X impact
Speaker 2: that Stephanie was talking about point well taken, the wealth effect,
Speaker 2: if you were to have you know, a challenge to
Speaker 2: the valuations or concerns or repricing the benefits that we've
Speaker 2: seen can also you know, turn into headwinds. And so
Speaker 2: we should just be kind of aware of that fact
Speaker 2: of the AI micro impact to the macro economy.
Speaker 3: And Jeff, I just want to avoid the rent. But
Speaker 3: we have got a few more minutes. I get frustraatesed
Speaker 3: when we say things like the FED can't do things
Speaker 3: about certain situations when they've contributed to them themselves. And
Speaker 3: I'm talking specifically about site inequality and the k shaped economy.
Speaker 3: Jeff haven't made contributed to that problem.
Speaker 2: Uh yeah, It's one of my favorite discussions. And you know,
Speaker 2: it goes back, you know, Jonathan, even the comment that
Speaker 2: I just made. You know, how does the FED address
Speaker 2: these things in their policy framework. It's financial conditions, and
Speaker 2: the FED does affect financial conditions, and they are affected
Speaker 2: by financial conditions, and so you know, when the FED
Speaker 2: made a policy choice back in the GFC through the
Speaker 2: portfolio channel to try to address the challenges of the
Speaker 2: collapse in the housing market, they kind of pushed up
Speaker 2: into their transmission mechanism toolkit transmission through financial conditions. And
Speaker 2: so that's really the problem that we've been inheriting for
Speaker 2: the last two decades. And so, yes, it is something
Speaker 2: that they're part of. It's it's part of Besson's you know,
Speaker 2: criticism in the gain of function, and it's part of
Speaker 2: the kind of you know, future potential for FED policy
Speaker 2: review of you know, how do we how do we
Speaker 2: extract or how does the institution extract itself from those things?
Speaker 2: At a at a simple level, it's it's what should
Speaker 2: the portfolio look like, what should the holdings look like?
Speaker 2: Should we still have mortgages? And that's one example of
Speaker 2: how you could, you know, change some of those functions
Speaker 2: in a new policy.
Speaker 3: Is getting rent. That's the challenge for the next guy.
Speaker 3: Jeff is going to see Jeffrey Rosenbuck there of black crook,