Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. The nvidio barss gents
Speaker 2: of one saying concerns around AI's impact on the workforce
Speaker 2: are over blown. Towson's lack of Apollo agrees, writing there
Speaker 2: is zero evidence of job losses because of AI. Non
Speaker 2: farm pay rods for May could come in significantly higher
Speaker 2: than the around ninety k expected. Torston joins us for more. Torston,
Speaker 2: good morning, good to see you. What are people getting wrong?
Speaker 3: Well, I think what people are getting wrong is this
Speaker 3: whole new that it's not only about individual companies.
Speaker 4: It's what's happening at the macro level. And at the
Speaker 4: macro level.
Speaker 3: It's become much easier to open a business. You see
Speaker 3: this in the surveys from the Census of how many
Speaker 3: businesses are created every week is exploding higher. You're also
Speaker 3: seeing data from Stripe showing you the number of solo
Speaker 3: founders of new businesses is.
Speaker 4: Also exploding higher. So there's a lot of new businesses
Speaker 4: that are created.
Speaker 3: Yes, some of them will probably only be one employer,
Speaker 3: namely the founder, but a lot of these businesses will
Speaker 3: also with the result in a lot more jobs. So
Speaker 3: it's not only about the displacement that there might come
Speaker 3: on some micro levels. It's much more about the aggregate
Speaker 3: where we have a significant increase in the number of
Speaker 3: new businesses that are formed.
Speaker 2: It doesn't help, as you know that some of the
Speaker 2: individuals at the frontier of this massive persure talking about
Speaker 2: a white collar wash out when it comes to the
Speaker 2: lay before. So what's your message to them.
Speaker 3: Well, this has started actually already in the spring of
Speaker 3: last year, where there was a lot of people beginning
Speaker 3: to talk about well, within one year's time, we will
Speaker 3: already have layoffs and we'll have entry level jobs that
Speaker 3: may no longer exist. But here we are with ADP
Speaker 3: on a weekly basis. The last eight weeks, producing thirty
Speaker 3: forty thousand jobs every week. Jobs claim still being low
Speaker 3: ism today, over the last six.
Speaker 4: Months, ism has gone up.
Speaker 3: We have about fifty Ism is likely going to be
Speaker 3: also high today. And now we have some very strong
Speaker 3: tail when's not only from the AI spending boom, but
Speaker 3: also from the one big build of a bill. This
Speaker 3: economy really is on fire in the sense that we
Speaker 3: both have strong growth, and we also have upward pressures
Speaker 3: on inflation. And now we also have, of course the
Speaker 3: ultimate risk that if AI does result in more job growth,
Speaker 3: it will be really the miracle drug that both creates
Speaker 3: higher productivity and also creates higher job growth.
Speaker 1: That can be true at the same time that John's
Speaker 1: assertion can be true, which is that white collar jobs
Speaker 1: can decline as proportion of overall jobs.
Speaker 2: If you look at the.
Speaker 1: Job growth and where it's come from, it's construction, it's manufacturing,
Speaker 1: it's in healthcare, it's an education, it's not in finance,
Speaker 1: it's not in media and media services. So how do
Speaker 1: you square those two ideas well?
Speaker 3: If you look at also the unmpliner rates, and now
Speaker 3: we'll get more data on Friday, if you look at
Speaker 3: the own ipliner rate for people.
Speaker 4: That are between twenty and twenty four years.
Speaker 3: Old that has exactly gone down in the last six months.
Speaker 3: Also telling you that is not the case that young
Speaker 3: people can't find a job. There's some issues around what
Speaker 3: type of job they can get, and yes, maybe they
Speaker 3: may not be getting an issue to the job that
Speaker 3: they wanted. There may be something else about expectations for
Speaker 3: young people when it goes into that discussion. But the
Speaker 3: bottom line Stel really here is that at the end
Speaker 3: of the day, young people are actually doing really well
Speaker 3: because don't toorner rate for young people is actually lower than.
Speaker 4: Where it was six months ago.
Speaker 1: Okay, to build on that, the conversation yesterday among some
Speaker 1: of the people who might be entering the workforce in
Speaker 1: a not so distant future plumbing a discussion around becoming
Speaker 1: a plumber because you're going to make a lot of
Speaker 1: money and plumbing, but you're not necessarily going to make
Speaker 1: a lot of money going into white collar workforce. So
Speaker 1: at what point is that the type of work that
Speaker 1: is going to be the future of a lot of
Speaker 1: the job creation. Is that what we're seeing right now
Speaker 1: some of the data.
Speaker 3: Yeah, but I'm also critical of this whole idea that
Speaker 3: white collar workers are just going to say, oh I
Speaker 3: got fired. I'm just going home my basement and sitting
Speaker 3: and rolling my thumbs. Of course, those white collar workers
Speaker 3: are going to say, hey, maybe we should open a business.
Speaker 3: Maybe I have some friends, maybe I had some connections
Speaker 3: from my last job. And I think that that's exactly
Speaker 3: what's going to make it a lot easier with us
Speaker 3: language models, with agents to build a new model. And
Speaker 3: that's exactly why based information is going up. That's why
Speaker 3: the number of sol founders, solo founders as social been
Speaker 3: going up, and that business formation will ultimately also result
Speaker 3: in a lot more job growth.
Speaker 5: We touch on something you said about expect that might
Speaker 5: be about expectations of those entering the workforce. Are you
Speaker 5: saying that potentially younger generations, if they don't like some
Speaker 5: of the characterists of a job, they are going to
Speaker 5: not go into the workforce, potentially maybe start their own
Speaker 5: business or do something else.
Speaker 3: Well, there is certainly a lot of course discussion around
Speaker 3: well is it because young people can't find a job.
Speaker 4: They can certainly find.
Speaker 3: A job, but then why are we're having this discussion.
Speaker 3: Maybe exactly to your point, and Marie, maybe we are
Speaker 3: actually hearing more young people just not having met the
Speaker 3: expectations of where they could get a job. In other words,
Speaker 3: maybe they didn't get the job that they thought that
Speaker 3: they could get. So yes, maybe there is something also
Speaker 3: when it comes to the expectations of younger households and
Speaker 3: younger people when they enter the label folks.
Speaker 5: Well, you're describing me. Sounds like entitlement. But we'll leave
Speaker 5: it there. I want to answer you another question. Do
Speaker 5: you think the Federal Reserve has been quote undergoing a
Speaker 5: stress test?
Speaker 4: Well, I saw Jay Powell off God yesterday.
Speaker 3: He did say and the last press company was going
Speaker 3: to keep a low profile. But this obviously is generating
Speaker 3: some attention here today.
Speaker 4: So I do think that it.
Speaker 3: Is clear that, of course we'll have new leadership. That
Speaker 3: leadership is in my view, absolutely going to be completely
Speaker 3: doing all the right things and moving in the right direction.
Speaker 4: But it is a little bit.
Speaker 3: Noteworthy that the outgoing chair here does bring up issues
Speaker 3: just in the not in the eleventh hour, but a
Speaker 3: few minutes after midnight exactly this discussion around well, okay,
Speaker 3: let's now give the new fitchair a chance and he
Speaker 3: can then run with it, at which he will do
Speaker 3: in a very good way.
Speaker 2: And Kevin wash the thing was hopeful that we'd see
Speaker 2: the disinflation re impact of this massive push towards this
Speaker 2: technology and then be able to have easier monetary policy.
Speaker 2: Where do you stand on that tourcet.
Speaker 3: Well, we probably have to wait a little while for that,
Speaker 3: because initially the AI boom will certainly be inflationary.
Speaker 4: It's very clear when you.
Speaker 3: Look at semiconductor prices, when you look at energy prices,
Speaker 3: we'll look at labor, meaning what is the price of
Speaker 3: constructing a data center, And it's also, of course when
Speaker 3: you look at the broader equipment prices, it is also
Speaker 3: very clear that this is going to be inflationary on
Speaker 3: top of the upward pressure on inflation coming from the
Speaker 3: lack effects of tariffs and.
Speaker 4: Of course also higher energy prices.
Speaker 3: So initially, in the initial phase of the buildout, we
Speaker 3: should actually expect the AI data center build out to
Speaker 3: be invasionary rather than this invasion.
Speaker 2: Can we finish on the price of AI. There were
Speaker 2: some CEOs, not all, but some CEOs excited about the
Speaker 2: prospects for a genter KI and replacing the human labor
Speaker 2: force with that. When they start to realize the actual
Speaker 2: cost of this, will they have second thoughts on replacement.
Speaker 3: Well, this is also a huge discussion around token demand
Speaker 3: and token usage, and at the end of the day,
Speaker 3: token users is not necessarily the same thing as creating
Speaker 3: higher productivity. So that's why businesses as we speak are
Speaker 3: exactly trying to figure out how much token demand do
Speaker 3: we have and do we ultimately need and will it
Speaker 3: pay off and with the price of that token demand
Speaker 3: also be worth it relative to the cost of labor.
Speaker 3: So it really is a transition where we will need
Speaker 3: to figure out over time exactly what does the endpoint
Speaker 3: look like. Are we going to get to a point
Speaker 3: where we will be much more productive and will be
Speaker 3: in my view, probably need more labor and not less labor,
Speaker 3: especially in the aggrogod from the macro perspexive.
Speaker 1: You're pointing to a very much inflationary backdrop. And this
Speaker 1: comes ahead of the labor market report that we get
Speaker 1: on Friday that could be hotter than expected if we
Speaker 1: see the same kind of trend continue as we saw
Speaker 1: last month. What do you think the Fed's response will
Speaker 1: ultimately be given the fact that no one has the appetite.
Speaker 4: To raise rates.
Speaker 3: Well, This is, of course the challenge that the expectations
Speaker 3: for a long time in the dot plot has been
Speaker 3: the rates are going down and the fad is going
Speaker 3: to cut, and now markets and fit fund futures up
Speaker 3: slowly beginning to say, well, maybe there could be a
Speaker 3: hike coming. And we all know that if there's a
Speaker 3: hike coming, then it doesn't come alone. Hiking cycles on
Speaker 3: never just one hike and that's it. It will always
Speaker 3: be three or four hikes on more. So that's why
Speaker 3: the market is debating with itself.
Speaker 4: In breaks, well, if.
Speaker 3: There is a rate hike cycle beginning because of these
Speaker 3: factors that we both have a low un employment rate
Speaker 3: and at the same time we also have op pressure
Speaker 3: on inflation, then all those things would certainly argue for
Speaker 3: the risks to the upside. Maybe the rates are going
Speaker 3: to stay higher for longer.
Speaker 1: The picture that you're painting of both an inflationary buildout
Speaker 1: of AI plus a labor market that's poised for expansion
Speaker 1: not contraction due to the extra economic activity, is one
Speaker 1: that could call for a rate hiking cycle. What could
Speaker 1: you potentially see, I mean, what is increasingly your base
Speaker 1: case going into twenty twenty seven.
Speaker 4: Yeah, because this is affects to a mandate.
Speaker 3: They've it has two goals exactly as you're saying, Lisa,
Speaker 3: namely the un enjoyment rate, and that's been going down
Speaker 3: and it's likely to, according to the consensus, continue to
Speaker 3: go down. And inflation by the end of the year
Speaker 3: is still, according to.
Speaker 4: The consensus, three percent. So if you're three percent.
Speaker 3: Inflation and a very strong label market, that indeed opens
Speaker 3: up a much high likelihood that we will see a
Speaker 3: stronger economy. Also because of the tail. And let's not forget
Speaker 3: it's not only the AI boom, but it's also the
Speaker 3: one big ULIFL bill, and both these things are not
Speaker 3: sensitive to interist rates.
Speaker 4: It's really unique those.
Speaker 3: Factors that are sensitives to interistrates in GDP and me
Speaker 3: housing and ordels. They are slowing down, but the factors
Speaker 3: that are driving grows at the moment, the AI boom
Speaker 3: and the one big ULI for bill. It doesn't matter
Speaker 3: what the Fed funds rate is doing, we will have
Speaker 3: an AI boom. It doesn't matter what their FT funds
Speaker 3: rate is doing. The one pig ril for Bill will
Speaker 3: continue to just s fort GDP for the next several quarters.
Speaker 2: It's Astin it's going to say it always is. Thank
Speaker 2: you Toustin Slock then of Apollo stay with us. Multil
Speaker 2: imperg surveillance coming up after this, Peter chab Academy writing
Speaker 2: the higher for longer thing for energy prices, we'll sink
Speaker 2: in and start to price itself into markets even more.
Speaker 2: Pay joins us now for more, pagod Morning Morning price
Speaker 2: itself in in what way into growth expectations or even
Speaker 2: more into inflation expectations, thinking.
Speaker 6: Into inflation expectations, pushing bond yield hire And again, I
Speaker 6: think you've been pointing out right the stock markets are
Speaker 6: our all time highs if you strip away the AI story,
Speaker 6: stocks heaven, so they've already been pricing in some of this.
Speaker 6: So I think that affordability risk is there a little
Speaker 6: bit in stocks. You have to look through to the
Speaker 6: various subcomponents to see it. I think that continues, and unfortunately,
Speaker 6: I think it gets worse because, unlike what they're saying,
Speaker 6: I keep looking at the January futures contract for oil. It's,
Speaker 6: you know, right around eighty it has not dropped much
Speaker 6: at all. So all of a sudden, you know, this
Speaker 6: whole kind of concept that we had two months ago
Speaker 6: where by the end of August things would be normalizing.
Speaker 6: I don't think we're normalizing anytime soon. And this is
Speaker 6: still hasn't fit the economy fully straight shot.
Speaker 2: For three months, we've had a bit of leakage, but
Speaker 2: all but closed. For three months, we've had a move
Speaker 2: of about sixty basis points at a front end of
Speaker 2: the curve, so two year olds have been higher. What
Speaker 2: more do we need to do on the right side.
Speaker 6: I think we are probably going to see five on
Speaker 6: tens before we see four percent on tens. I think
Speaker 6: you're just going to see global bond yields under pressure.
Speaker 6: Everyone has to spend on defense, everyone has to build
Speaker 6: out their industrial base, everyone's got to build that electricity
Speaker 6: and energy prices. People are feeling that pinch. So I
Speaker 6: think global bond yields are going higher. We're going to
Speaker 6: face that, and I think we're at the point if
Speaker 6: we get too much dubbish talk out of the FED,
Speaker 6: they will lose some control over the long end of
Speaker 6: the yield curve. That was not my view back in
Speaker 6: February before we started the invasion, but now everything that's
Speaker 6: going on tells me that if we try and job
Speaker 6: own about rate cuts. We're going to lose a little
Speaker 6: bit of control out.
Speaker 2: The long end.
Speaker 1: You know, I was reading your note and I was
Speaker 1: a little bit pessimistic, and we'll get into horses and
Speaker 1: whether we're the horse.
Speaker 4: In just a second.
Speaker 1: But actually it's making me really optimistic to hear you
Speaker 1: say this, because you still think that growth will surprise
Speaker 1: to the upsose Atahol who say he was on and
Speaker 1: he thought that actually the bigger risk right now was
Speaker 1: growth surprising to the downside and the possibility that bonds
Speaker 1: would actually be a buy here.
Speaker 4: Why do you disagree with that?
Speaker 2: One is?
Speaker 6: I think people underestimate the data center and AI just
Speaker 6: the amount of jobs that are being created to build
Speaker 6: this out right. The chip industry is going like gangbusters,
Speaker 6: the construction business going extremely well, the electricity generation business
Speaker 6: going phenomenally well. So I think ultimately it's somewhat weird.
Speaker 6: Is I think you create a lot more jobs to
Speaker 6: build out the data centers than once the data centers
Speaker 6: area is up and running, those particular places don't have
Speaker 6: that much employment, but to get there, this buildout, I
Speaker 6: think that's been very good. It's been very good for
Speaker 6: logistics it's very good for the cats the deers of
Speaker 6: the world to applied things for them.
Speaker 2: Yeah, and this is the.
Speaker 1: Reason why you are seeing some job growth in places
Speaker 1: like construction and manufacturing, as well as in other related areas.
Speaker 2: Tors the slock of apolloists on earlier.
Speaker 1: Saying that he saw job growth actually expanding across different
Speaker 1: types of sectors as a result of artificial intelligence. Let's
Speaker 1: get to the horses. You think that if you create
Speaker 1: an analogy to the horse, and it's unclear whether horse
Speaker 1: and buggy or audibobile to human is the right analogy
Speaker 1: or whether it's automobile to horse.
Speaker 2: Are we the horses?
Speaker 4: That's my concern. I think.
Speaker 6: You know, you start any business class, they always go
Speaker 6: through the buggy whip and what happened to buggy whip
Speaker 6: manufacturers who all had great jobs until the automobiles. But
Speaker 6: the automobile is great for the country, right, it was
Speaker 6: great for everyone. There was huge efficiencies the automobile industry.
Speaker 6: I look in like, are we the horses though? Are
Speaker 6: they actually trying to replace humans this time? There were
Speaker 6: twenty five million horses before the automobile. There's about seven
Speaker 6: million now when you read about it, the horses today
Speaker 6: have a much better life. They don't do any hard work.
Speaker 6: They sit there and you know, they graize. They people
Speaker 6: ride them here and there. But so you know, maybe
Speaker 6: you all need UBI. But again, I'm not as convinced
Speaker 6: at this point that this is going to be great
Speaker 6: for jobs. I can see that argument, but I also
Speaker 6: see like, this is the first time I've really seen
Speaker 6: the technology. I think that's going after all our jobs
Speaker 6: in a different way.
Speaker 5: But there is also a counter argument to this. Before
Speaker 5: Uber was coming into a lot of cities, there was
Speaker 5: people protesting. People are saying we need more regulation because
Speaker 5: it's going to mean that basically in New York City,
Speaker 5: taxi drivers will be obsolete. But now you have in
Speaker 5: New York City today is warp drivers than ever Uber
Speaker 5: lift plus the taxi drivers.
Speaker 2: Isn't that counterintuitive?
Speaker 4: You know?
Speaker 6: I think one thing, I absolutely knows the price has
Speaker 6: gone way up. Right, there was a price cutting where
Speaker 6: everything went down, and now I pull up my Uber
Speaker 6: App'm like, oh man, I better take the train on.
Speaker 6: I can't afford to take the Uber home. So you know,
Speaker 6: there's been.
Speaker 5: Some time being killed driving or taxis in New York City.
Speaker 4: No, it changed into it. It changed it.
Speaker 6: And again I think all the taxis adapted to and
Speaker 6: uber like sort of things.
Speaker 4: So it's gown. It's good. But again that's one job.
Speaker 6: And again that was it didn't feel like it was
Speaker 6: revolutionizing anything. But still, how you get your taxi instead
Speaker 6: of sticking up your hand, you used an app. There
Speaker 6: were things that allowed people to take advantage of that.
Speaker 6: The other part of this is, you know, I think
Speaker 6: everyone's talking, oh, people are trying to create jobs. I'm
Speaker 6: not sure becoming an uber driver things like that is
Speaker 6: the same sort of job level as when someone starts
Speaker 6: a bakery or something where they're going to employ three
Speaker 6: to five people. So I'm a little bit skeptical. Birth
Speaker 6: death model once again this year is a big part
Speaker 6: of job growth, and for the last three years, birth
Speaker 6: death models quite a role. And then they wipe down
Speaker 6: the job by seven hundred and fifty thousand to a
Speaker 6: million because these aren't the same sort of you know,
Speaker 6: new company formation that we had in the past.
Speaker 2: You bi, how costly is this going to be? Where's
Speaker 2: the money coming from?
Speaker 7: You know?
Speaker 6: It was some of those things I've really tried to
Speaker 6: avoid thinking about universal basic income and cstend it gets
Speaker 6: me wrong, and then all of a sudden two weeks ago, Okay,
Speaker 6: I better start writing about this at least a little bit.
Speaker 6: South Korea seems to be the first ones that are
Speaker 6: kind of pushing that direction, right.
Speaker 4: They are.
Speaker 6: Their economy is so bipolar, right, It's like you've got
Speaker 6: this memory and the chips just crushing and absolutely crushing it.
Speaker 4: The rest of the economy.
Speaker 6: I don't know, you know, they're benefiting, but clearly there's
Speaker 6: some degree of willingness to share these profits. I feel
Speaker 6: like the biggest threat right now in the US to
Speaker 6: AI data center story, it's not the use. It's not
Speaker 6: corporations not wanting it. It's politicians trying to latch onto
Speaker 6: some of this negative sentiment, either about the electricity generation,
Speaker 6: the electricity usage, or the jobs. And I feel this
Speaker 6: is going to be a political risk more than anything.
Speaker 6: Maybe that's why I kind of mentioned UBI who's.
Speaker 2: Got the appetite to rite co protech? Well, could become
Speaker 2: a bipartisan issue.
Speaker 6: You know, who thought we'd have a mayor in New
Speaker 6: York that on many times seems very socialist to say
Speaker 6: the least.
Speaker 4: So yeah, I could.
Speaker 2: See something I'm watching for just if the Republican Party
Speaker 2: starts to get along with the idea that that's the
Speaker 2: next step of populism, that you have to do something
Speaker 2: about corporate taxes.
Speaker 6: Or maybe it's the Democrats. I feel like there's something
Speaker 6: bubbling below this, that is, there's something unfair about what's
Speaker 6: going on with AI and electricity.
Speaker 4: I don't think it is at all.
Speaker 6: It fits our exact theme that we need to be
Speaker 6: good at data centers, we need to be good at
Speaker 6: AI chips, building out electricity. I think we're seeing a reindustrialization.
Speaker 6: I think it's great for the heartland of America where
Speaker 6: you're seeing this growth between the Appalachians and the Rockies.
Speaker 6: But politicians do seem to be trying to latch onto something.
Speaker 6: And just the sentiment two weeks ago, when all we
Speaker 6: were talking about was every commencement speech where someone mentioned
Speaker 6: AI was almost boot off the stage. Maybe that's a
Speaker 6: bit of extreme, but there is something bubbling, and it
Speaker 6: feels like the sort of thing some politicians could latch onto.
Speaker 6: And there's ubi seems popular some people, So that to
Speaker 6: me would be the derailment is this becomes a big
Speaker 6: election issue.
Speaker 5: Well, there's massive backlash and you have the extreme right
Speaker 5: and extreme left want to do things like taxing Bernie
Speaker 5: Sanders and Steve Bennon. So this is going to be
Speaker 5: not just a midterm elections but twenty twenty eight. To
Speaker 5: John's point, what happens if you see policy that's directed
Speaker 5: at these companies.
Speaker 2: Then again, I.
Speaker 6: Think you're going to see a little bit which countries
Speaker 6: across the globe rush to take this in. Again, the
Speaker 6: Saudis and other countries in the Middle East wanted to
Speaker 6: become the data center caps of the world. That's kind
Speaker 6: of been derailed a little bit, certainly, since the fighting
Speaker 6: depends what sort of peace agreement you wind up with.
Speaker 6: If you have a peace agreement where Iran still has
Speaker 6: the ability to have a lot of missiles and can
Speaker 6: threaten the Middle East, it probably doesn't grow there. If not,
Speaker 6: maybe they invite this. So I think there's going to
Speaker 6: be a lot of political wrangling, and some of this
Speaker 6: is even good that, you know, Canadian when they all
Speaker 6: say we're having some interesting conversations and Canada actually gets
Speaker 6: a do over and we kind of screwed up al
Speaker 6: and g in Canada fifteen years ago. It could have
Speaker 6: been US or the US, the US has been phenomenal
Speaker 6: at it right growing out, Canada kind of got mired
Speaker 6: in regulation, but all of a sudden with demand from
Speaker 6: Europe and other places who want to maybe void Middle East.
Speaker 4: So there are these huge opportunities.
Speaker 6: And again I think it's all around this electricity generation,
Speaker 6: the reindustrialization, the data centers in AI and you're going
Speaker 6: to see, I think even in the US, state by state,
Speaker 6: who rolls out the red carpet or who keeps the
Speaker 6: red tape, and that's going to determine the winners of
Speaker 6: losers for the next ten years.
Speaker 2: Do you think Prime minist de mount Connie figured that out?
Speaker 4: Who?
Speaker 5: I doubt it.
Speaker 6: So he has made some improvements. I think he's seeing summit.
Speaker 6: I think you're okay again. I'll go back to you know,
Speaker 6: the Presidence says lots of things. The one thing that
Speaker 6: I kind of remember in the last few months is
Speaker 6: when he chastised the leader of Scotland and said, you
Speaker 6: buy north sea oil from Norway, you buy turbines from China,
Speaker 6: you have your own north sea oil that you don't use.
Speaker 6: That seems idiotic.
Speaker 4: So I keep coming back.
Speaker 6: I think they're going to unleash the petroleum and energy
Speaker 6: companies in Europe for probably still months away, but even there,
Speaker 6: I was just in London. The concept of a changing
Speaker 6: view of ESG to be much more true. Sustainability, resilience,
Speaker 6: it's developing. It's not there, but it's coming.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Bon Traders looking for strength in Friday's payrolls reports to
Speaker 2: confirm bets on future interest rate hikes. Ed Al Husseini
Speaker 2: of Columbia Threat need or writing markets have now repriced
Speaker 2: the fed's terminal rate by a bit under one hundred
Speaker 2: basis points over the past two months, from around two
Speaker 2: point five cuts at the end of February to around
Speaker 2: a hike today. Seems fair to me at joint us
Speaker 2: now for more Edgard Monick, you're sort of endorsing market pricing,
Speaker 2: but as a base case you expect them to hike
Speaker 2: anytime soon. No, I think the bar for that is
Speaker 2: still pretty high.
Speaker 7: But it's important for them to create the permission structure
Speaker 7: for markets to price in these takes.
Speaker 2: What kind of steps do you think they take in
Speaker 2: June to create that permission structure.
Speaker 7: While the obvious one is removing that language around the
Speaker 7: easing bias. I think that's fully digested by markets at
Speaker 7: this point.
Speaker 2: That's been well front run.
Speaker 7: But I think starting the conversation around what do they
Speaker 7: see in the inflation story that's concerning there are elements
Speaker 7: that have to do with.
Speaker 2: The tariff passed through, maybe peaking.
Speaker 7: There are elements that have to do with the AI
Speaker 7: demand that maybe just be starting. And then there are
Speaker 7: elements that are legacy from demand over the course of
Speaker 7: the past several years showing up in services. What are
Speaker 7: these parts of the inflation basket concerns them at this point.
Speaker 2: Is cite the current FED chat inflactions a choice? What
Speaker 2: part of that story, the inflactionary mix right now is
Speaker 2: a choice? What do they have control over.
Speaker 7: I think ultimately, if you take a step back, you
Speaker 7: have to have a theory of change for inflation. What's
Speaker 7: driving it, and I think correctly is put the labor
Speaker 7: market at the center of that story. So to the
Speaker 7: extent that they've tightened policy in the course of the
Speaker 7: past five years, they've cooled the labor market. They've brought
Speaker 7: down wage growth. That's the key transmission mechanism here, and
Speaker 7: so when they look at the inflation story today, One
Speaker 7: of the good elements in the background is that there
Speaker 7: isn't a lot of heat in the labor market. There
Speaker 7: aren't a lot of factors to accelerate the inflation push
Speaker 7: that we're seeing at the moment.
Speaker 1: At the same time, you could argue that there is
Speaker 1: a financial markets input that is pretty strong into the
Speaker 1: inflation rate. It particularly because it's coming from the higher end,
Speaker 1: and because it's coming from the wealth effect. People feel richer.
Speaker 1: They might feel miserable, but it's a good time for
Speaker 1: shopping therapy. So at what point does the Fed want
Speaker 1: to high rates to curtail some of the enthusiasm if
Speaker 1: they're seeing that enthusiasm in market is trickle into inflation.
Speaker 2: That's a really good point.
Speaker 7: I think one of the key debates, and we've had
Speaker 7: folks like you know, googlesbees start to surface, it is
Speaker 7: how much is the anticipation of higher productivity bringing forward demand?
Speaker 7: Because if it's significant and we anticipate this productivity in
Speaker 7: the future, that's a positive demand shock that the fects
Speaker 7: should start to offset. That's equivalent to the late nineties.
Speaker 7: Is kind of the cleanest analog. On the other hand,
Speaker 7: if inflation, I'm sorry, if productivity does not materialize if
Speaker 7: we're still in the early stages of anticipating this productivity
Speaker 7: and then the demand shock is relatively weak.
Speaker 2: That's something we can look.
Speaker 1: Through at this point based on the backdrop of a
Speaker 1: FED that probably is going to be pretty reluctant to
Speaker 1: high grates even if there is a pretty strong labor market.
Speaker 1: You do have inflation that continues to run hotter and
Speaker 1: the fact that globally you're seeing investment pretty substantially coming
Speaker 1: from governments in a whole host of different metrics.
Speaker 4: How much do you hate long end bonds?
Speaker 7: I think long end bonds have repriced. It's really interesting
Speaker 7: if you again zoom out thirty year yields at five percent,
Speaker 7: maybe your shade above. There are two questions to ask,
Speaker 7: to what extent is the FED going to protect the
Speaker 7: inflation risk premium further out of the curve? And I
Speaker 7: think they've started to move in the direction of offering
Speaker 7: investors that protection tightening policy in the front end.
Speaker 4: Again.
Speaker 7: The result here is the yield curve has started to
Speaker 7: flatten quite materially. If you look at those spreads between
Speaker 7: five year yields and thirty year yields, they're now the
Speaker 7: lowest level in about a year, meaningful signal that policy
Speaker 7: is getting tighter. I like that as a long bond holder,
Speaker 7: and so I think that risk award is getting a
Speaker 7: lot more attractive.
Speaker 5: And what's different than the peak productivity boom in nineteen
Speaker 5: ninety nine.
Speaker 2: It's hard.
Speaker 7: So that story, you know, it begins in the mid nineties,
Speaker 7: it ends in the mid two thousands. We still don't
Speaker 7: have a great I think answers to why did it
Speaker 7: run out of steam? And so I think the big
Speaker 7: difference today is we're still in the build up phase.
Speaker 7: We're still front loading demand in the form of AI investment.
Speaker 7: It's not clear that the productivity boom that is to
Speaker 7: come is going to be similar in magnitude or duration.
Speaker 2: It could be a lot smaller, it could be a
Speaker 2: lot longer.
Speaker 7: And again, these are bets that the FED is going
Speaker 7: to have to chew through as they make mounty policy.
Speaker 5: What do you think the first meeting for Kevin Walsh looks.
Speaker 7: Like, boy, it's really hard. He's got a long agenda.
Speaker 7: I think the nice sort of forcing function here at
Speaker 7: the start of his tenure is we have a little
Speaker 7: bit of an inflation problem. So issues around FED communication
Speaker 7: issues around the FED balance sheet in some ways step
Speaker 7: into the background, and so it's an opportunity to focus
Speaker 7: on the issue at hand, which is where do we
Speaker 7: need to set monetary policy for the next six to
Speaker 7: twelve months.
Speaker 2: So you parish growth, just the way you talked about
Speaker 2: market pricing being somewhat tight and being encouraged by where
Speaker 2: we read the long kan I just wanted if you
Speaker 2: parish on growth.
Speaker 7: I think it's one of the strongest sort of consensus
Speaker 7: points at the market is that growth is very solid
Speaker 7: for the foreseeable future and the labor markets are stabilized.
Speaker 7: If there is a lesson from the course to the
Speaker 7: past several years, as we can be surprised in both fronts.
Speaker 7: I think the pricing, whether you look at equity markets
Speaker 7: or through the lens of credit spreads, the pricing.
Speaker 2: From growth is very healthy. There's a lot more room
Speaker 2: to be surprised to the risks the underpriced interest in that.
Speaker 2: Thank you, let's think about that at Osannida. Have Columbia
Speaker 2: threatened to This is the Bloomberg Surveillance podcast, bringing you
Speaker 2: the best in markets, economics, an gient politics. You can
Speaker 2: watch the show live on Bloomberg TV weekday mornings from
Speaker 2: six am to nine am Eastern. Subscribe to the podcast
Speaker 2: on Apple, Spotify, or anywhere else you listen, and as always,
Speaker 2: on the Bloomberg Terminal and the Bloomberg Business app.