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Speaker 3: The FED decision seconds away unchanged the expectation with.
Speaker 2: The cold is my the cake.
Speaker 4: Well pretty much as expected, no change in rates, and
Speaker 4: the FED leaves open the option of cutting rates in
Speaker 4: the future. Stephen Myron and Chris Waller descent in favor
Speaker 4: of a rake cut. Michelle Bowman does not. Waller's descent,
Speaker 4: of course, could be read as an effort to retain
Speaker 4: his place as a finalist to replace j. Powell later
Speaker 4: this year. The statement keeps the line about considering the
Speaker 4: extent and timing of additional adjustments to the target range,
Speaker 4: suggesting more rake cuts are possible. There's no hint, however,
Speaker 4: of what that would lead them to do that or when.
Speaker 4: The economic assessment is very short and relative to recent stations,
Speaker 4: slightly positive available indicators suggests that economic activity has been
Speaker 4: expanding at a solid pace. It says job gains have
Speaker 4: remained low, and the unemployment rate has shown some signs
Speaker 4: of stabilization. Inflation remains somewhat elevated. The officials say uncertainty
Speaker 4: about the economic outlook remains elevated, but they don't emphasize
Speaker 4: jobs as they have the last three statements or inflation
Speaker 4: as the major concern. The Committee is attentive to the
Speaker 4: risks to both sides of its dual mandate. The statement says,
Speaker 4: the open market desk at the New York Fan is
Speaker 4: again told to maintain an ample level of reserves by
Speaker 4: buying treasury bills or, if necessary, maturities of up to
Speaker 4: three years or less. It's all about as plain vanilla
Speaker 4: as you can get, which shifts the focus, of course
Speaker 4: to Chairman Powell's news conference at the bottom of the hour.
Speaker 4: What does he say about the future of interest rates
Speaker 4: and what does he say about his future as a
Speaker 4: member of the Fed?
Speaker 2: Stay tuned, Mi m.
Speaker 3: Keeeth, we will stay tuned. The news conference about twenty
Speaker 3: eight minutes away. You run into that Mi McKee. Their
Speaker 3: world class. As always a FED decision unchanged the vote
Speaker 3: interesting ten to two to hold Ray steady the two
Speaker 3: Governor Myra and Governor Waller. It' tk is it unfair
Speaker 3: to describe the Governor Waller descent as an audition to
Speaker 3: take the top job at the Federal Reserve.
Speaker 5: Nineteen ninety one is classic paper and game theory. I
Speaker 5: just think we saw a little Waller game theory going
Speaker 5: on to say the least. I don't have a strong
Speaker 5: opinion on it, but definitely that's a setup for the
Speaker 5: President to make a Waller decision.
Speaker 3: This has been an individual, Torsten who has provided thought
Speaker 3: leadership on this committee, effective thought leadership now for a
Speaker 3: number of years. That descent will be described by many
Speaker 3: in this market as an audition for the top job
Speaker 3: at the Federal Reserve.
Speaker 2: Is that unfair?
Speaker 1: I think it is a bit unfair.
Speaker 6: I mean, Chris is very very steady and stable and
Speaker 6: has had his whole career as a PSD economy is
Speaker 6: doing research that's going after the data, being data dependent.
Speaker 6: So I do view this mainly as a sign that
Speaker 6: he actually is worried, and his speeches have also given
Speaker 6: very clear indication of this. He is actually truly worried
Speaker 6: about that the label market might be signaling the things
Speaker 6: about to get worse. So I think it's a little
Speaker 6: bit unfair to put him into that category because I
Speaker 6: do think that it's very important that he is telling
Speaker 6: us that he does believe that rates should have been
Speaker 6: cut today.
Speaker 3: Is that worry about a jobs market justified by the
Speaker 3: data you looking at?
Speaker 1: Well, that's the discussion.
Speaker 6: I happen to have the view that this is all
Speaker 6: because of live supply being much lower. Immigration used to
Speaker 6: be three million a year now it's about four hundred
Speaker 6: thousand from the CBO. So with labor supply is lower,
Speaker 6: you should also expect job.
Speaker 1: Growth to be lower.
Speaker 6: Other people, including Chris put more Roller put more weight
Speaker 6: on labor demand.
Speaker 1: So that's the debate at the moment.
Speaker 6: Yes, there has been very little hiring, little bit very firing,
Speaker 6: suggesting that labor demand is indeed also weak. So this
Speaker 6: is the very important debate, and of course only the
Speaker 6: data over the next seven months would tell whether this
Speaker 6: dissent was actually a good idea or not.
Speaker 5: Jan for the first conference of Vice Chairman Clarita fed
Speaker 5: amidst language on downside risks to employment having risen. Let's
Speaker 5: have a chat with some Amazon people this morning. Let's
Speaker 5: talk to ubs this morning. The mail I get the
Speaker 5: mail you get. People think fancy guys like Torst and
Speaker 5: Slack are nuts when they talk about a fully employed America.
Speaker 2: I don't want to.
Speaker 3: Whyever, do the data that comes from the conference board,
Speaker 3: because consume there's confidence all over the place. Right now
Speaker 3: is skewed by a whole bunch of things, including politics.
Speaker 3: But at a chute to the labor market. When people
Speaker 3: turn around to your tors and they say, right now
Speaker 3: is getting harder to get a job? Jobs are not plentiful,
Speaker 3: you have to take notice.
Speaker 6: Done you absolutely it is absolutely the case that the
Speaker 6: labor market data has become slower in terms of job growth.
Speaker 6: But what is very critical here to remember is that
Speaker 6: if you have much fewer immigrants, going from three million
Speaker 6: to four hundred thousand a year, of course, that's also
Speaker 6: going to create the break even rate for unfound prayrolls
Speaker 6: that's a lot lower. That used to be two hundred
Speaker 6: thousand a year, and now the Fed says there's about
Speaker 6: thirty thousand.
Speaker 1: So the closer you get to Sirum, of course, the mall.
Speaker 6: This will also begin to have more worries among people
Speaker 6: whether can I find a job? Cannot find a job,
Speaker 6: and those worries, of course, your sentiment are exactly showing
Speaker 6: up that in particular, the lower leg of the key
Speaker 6: continues to be on the significant distress.
Speaker 3: The Federal Reserve keeping rates unchanged if you want, just
Speaker 3: tuneing in as expected, equities on the sm P five
Speaker 3: hundred just a little bit lower, just off all time
Speaker 3: highs on the SMP five hundred. Two descents looking for
Speaker 3: a twenty five basis point reduction, one from Governor Myron,
Speaker 3: another from Governor Waller. Joining us now a man who
Speaker 3: knows a little something about how this committee makes decisions,
Speaker 3: the former Fed Vice chair Richard Clarida. Rich Welcome to
Speaker 3: the program, sir. What do you make of this decision
Speaker 3: and what are you looking for from the news conference
Speaker 3: in twenty five minutes time?
Speaker 7: You know, it's as expected, pretty minimal changes to the
Speaker 7: statement if anything. As you mentioned though, changing and the
Speaker 7: wording about the labor market. I thought it was a
Speaker 7: close call going in whether or not we would see
Speaker 7: Governor Waller or vice Chair of Bowman descent, and in
Speaker 7: the end we did get the descent from Chris Waller.
Speaker 7: I agree with Torsten who was on earlier. You know,
Speaker 7: Chris is a good economist. He's been consistent and had
Speaker 7: a good call on the labor market and inflation, and
Speaker 7: he's made the case in many speeches that there is
Speaker 7: a case to get rates down to neutral. So I
Speaker 7: take him at his word on that. In terms of
Speaker 7: the press conference, obviously no SEP projections or the like.
Speaker 7: And I think the reporters will be pressing the chair
Speaker 7: on what message they should take away from this in
Speaker 7: terms of the remainder of the year.
Speaker 5: When you look at the politics here, I hesitant to say, Chairman, Clarita,
Speaker 5: but is this a moment where the president goes outside
Speaker 5: the chosen four candidates?
Speaker 7: You know, there has been a speculation, there is the
Speaker 7: reporting this morning. You know, I know each of the candidates.
Speaker 7: I think any of them would be a good choice.
Speaker 7: They bring strengths to the job. But there are a
Speaker 7: lot of moving parts when you're FED chair, and so
Speaker 7: it'll be interesting to see who they finally select.
Speaker 1: You And I.
Speaker 5: Remember the day where Phil Graham went after Alan Green
Speaker 5: span on foreign exchange, Richard Claret, is it appropriate that
Speaker 5: a FED chairman speak of dollar dynamics, particularly the whip
Speaker 5: saw of President week dollars and Secretary of Treasury strong dollar?
Speaker 7: Great question, as usual, Tom, You know, never say never,
Speaker 7: But both as a policy maker and as a student
Speaker 7: of policy making, the FED tries to stay out of
Speaker 7: any and all discussions about exchange rates, and I would
Speaker 7: expect J. Powell today, if he's asked that question the
Speaker 7: the to do the same.
Speaker 6: So, Rich, when you think about yield curve dynamics, I mean,
Speaker 6: what is your view on what the yel.
Speaker 1: Cub will do?
Speaker 6: The consensus has to view that it will steepen.
Speaker 1: Is that also your you?
Speaker 6: Or do you think front end rates will stay stable
Speaker 6: and long rates.
Speaker 1: Will also stay stable?
Speaker 8: All?
Speaker 1: How do you think about the curve at the moment?
Speaker 9: Yeah?
Speaker 1: Now, High Torston.
Speaker 7: You know what's been remarkable is really since either going
Speaker 7: back to the last hike which is all the way
Speaker 7: back in twenty three or the first cut in twenty
Speaker 7: twenty four, the ten year treasury has been in a
Speaker 7: range from roughly four and three quarters to three and
Speaker 7: three quarters. A lot's happen in that intervening period. That
Speaker 7: importantly reflects much higher real rates than we had pre pandemic.
Speaker 7: So you have seen a shift up in the curve
Speaker 7: relative to pre pandemic. And yes, would expect the curve
Speaker 7: to continue to steepen over time as ten years stay
Speaker 7: in that range and as front end rates come down
Speaker 7: under the new chair.
Speaker 3: Rich, as you identify a range impressively stable so far
Speaker 3: for you and the team at Pinco Ridge. What's behind
Speaker 3: what's the biggest pillar of that stability that we're seeing
Speaker 3: over the past few months at the long end of
Speaker 3: the curve.
Speaker 7: Well, I think it reflects the new dynamics, both because
Speaker 7: potentially a faster productivity growth and fiscal concerns. It's appropriate
Speaker 7: that longer dated real yields are higher than they were before.
Speaker 7: I think that's an important fact of life. I mean,
Speaker 7: the real debate and the real issue is, you know,
Speaker 7: within the FAED and in the market says, you know,
Speaker 7: where's the neutral rate?
Speaker 1: Where do front end rates end up?
Speaker 7: And we still think that neutral for the fund rate
Speaker 7: is somewhere down around three percent, But obviously that's going
Speaker 7: to depend on where we are in the cycle as well.
Speaker 1: And this may be an unfair question.
Speaker 6: Do you think an incoming FITCHA is going to make
Speaker 6: dramatic changes to the fit staff in terms of who's
Speaker 6: head of which departments? How do you think the incoming
Speaker 6: chair might think about things if he or she doesn't
Speaker 6: think that it's likely that interest rates are going to
Speaker 6: be coming down because of persuading the committee.
Speaker 1: You know, I'm not sure about that.
Speaker 7: It is important just for the public to know that
Speaker 7: the board staff does report to the chair. You know,
Speaker 7: during my time there, Chair Palell asked me to get
Speaker 7: very much involved with the staff, and I learned a
Speaker 7: lot from them. But it's I think there typically have
Speaker 7: been and always will be changes in staff. People get promoted,
Speaker 7: people moved on, and I should stay. During my time
Speaker 7: at the FED, the senior staff I worked with was
Speaker 7: incredibly capable, so I don't think there'll be any issues there.
Speaker 5: Turst and Sucker, I think it's so important that we
Speaker 5: described the academics Richard Claire to all that he did
Speaker 5: with this fancy thing dynamics still cast a general equilibrium
Speaker 5: theory and monetary policy John mentioned earlier, do we know
Speaker 5: the reaction functions? Do you have an operative theory from
Speaker 5: the world of Richard Clara, Now that's operational well.
Speaker 6: Rich is well famous for their credit multiply and they
Speaker 6: work with Binenke. And of course what credit markets have
Speaker 6: been doing and what credit markets are doing is often
Speaker 6: very critical, of course for the economy, because if credit
Speaker 6: conditions begin to tighten, the economy has a problem. If
Speaker 6: credit conditions begin to losen, of course, the economy could
Speaker 6: also have a problem, namely that it just becomes too
Speaker 6: easy money, including in creditib.
Speaker 5: Gen conversation after conversation, the assumption is credit markets are
Speaker 5: going to loosen because we have maybe it's Biden like stimulus.
Speaker 5: I believe the next six months we're full bore ahead.
Speaker 3: The credit spriends are very tight, and now the dollars weakening.
Speaker 3: And when you think about the dollars influence on final
Speaker 3: conditions more broadly tossed and what is the contribution that
Speaker 3: comes for the fects channel, Well, what.
Speaker 6: I think is very important to remember is that foreigners
Speaker 6: come to the US for two reasons. They come to
Speaker 6: cut coupons in fixed income because levels are higher here,
Speaker 6: and they come to get exposure to AI. So for
Speaker 6: any discussion, for talks about well with it, all of
Speaker 6: ag intergo down, you need to come with a view
Speaker 6: that either AI is going to roll lower, all interest
Speaker 6: rates are going to be a lot lower. So as
Speaker 6: long as you can cut coupons and get much higher
Speaker 6: returns in US assets, you will still have foreigners abroad
Speaker 6: in Europe, Japan, Canada, Australia who come to the US
Speaker 6: to buy US financial assets because they simply do offer
Speaker 6: higher returns than what you get in most other countries.
Speaker 3: Foreign holdings of treasuries at the end of last year,
Speaker 3: close to the end of last year record heighs. People
Speaker 3: hardly talk about that today.
Speaker 6: Well, and if you go back and look at the
Speaker 6: TICK data for netfoink purchases of US assets, you saw
Speaker 6: that in April of last year, during Liberation Day, things
Speaker 6: were absolutely chaotic. It was indeed the case that the
Speaker 6: rest of the world was sell America. But since April,
Speaker 6: for the data we now have from May up onto November,
Speaker 6: it was very very strong inflow of data and to
Speaker 6: rates in particular credit and also of course in two equities.
Speaker 3: If you are just chaining again, welcome to the program.
Speaker 3: About ten minutes ago the Federal Reserve leaving it to
Speaker 3: strains unchanged two votes straight twenty five bases point reduction
Speaker 3: from Governor Waller and from Governor Myra, and the news
Speaker 3: come with Chairman Pale.
Speaker 2: In about twenty minutes time.
Speaker 3: We've got the form of FED Vice chair of Richard
Speaker 3: Clouder standing by just one more question, rich I want
Speaker 3: to come to you on this an important topic because
Speaker 3: the Chairman will be asked about this in the news conference.
Speaker 3: I have no doubt that a more confrontational approach, a
Speaker 3: more assertive approach from the chairman a few weekends ago
Speaker 3: towards the White House, Rich, what do you think prompted that?
Speaker 2: How much internal debate was there about it?
Speaker 7: You know, I'm not sure. I guess we'll have to
Speaker 7: wait for J. Powell's memoir to find out. I just
Speaker 7: infer that the Chair made the decision he'd been you know,
Speaker 7: he had been quiet and had really not weighed in
Speaker 7: in the past, and I think he just made a
Speaker 7: decision that he wanted it to be known that he
Speaker 7: felt that the FED needed to focus on independence and
Speaker 7: focus on making the judgments on monetary policy. Any color
Speaker 7: beyond that, we'll have to wait for the memoir.
Speaker 3: Rich, Do you think it's made it harder to focus
Speaker 3: on monetary policy?
Speaker 9: Though?
Speaker 2: I really don't think.
Speaker 7: I don't think so, in light of all the things
Speaker 7: that are that are going on. I think it was
Speaker 7: a very clear, very clear indication that for the remainder
Speaker 7: of his term as chair, you know, that will be
Speaker 7: will be the focus.
Speaker 3: Richid Cloud, Thank you, sir, as always, thanks for FED
Speaker 3: Vice Chair, Rich CLOUDA. We have no doubt the Chaman
Speaker 3: will be asked about that issue in about twenty minutes time.
Speaker 3: Joining us now to extend the conversation, Bob Michael of
Speaker 3: JP Mulgan Asset Management. Bobby, You've always got your own questions, buddy.
Speaker 3: What do you want to hear from the chairman in
Speaker 3: the next hour.
Speaker 8: Well, the question he's not going to answer is does
Speaker 8: he intend to stay on if after his chair expires?
Speaker 8: But I think the one to ask is what does
Speaker 8: he see in the labor market that's particularly wearing to him?
Speaker 8: And is the FED undergoing studies about what the broader
Speaker 8: impact of AI will be across the economy.
Speaker 5: Bob Michael, you look at the key question that you
Speaker 5: mentioned is labor. We mentioned this earlier off Orzag and Posen.
Speaker 5: Does your team at JP Morgan see any form of
Speaker 5: wage dynamic that indicates inflation?
Speaker 8: Not so much right now. I think this low, higher
Speaker 8: low fire has really dampened wage gains quite a bit.
Speaker 8: We'll see what happens in the first half of the year.
Speaker 8: Certainly expectations are pretty good for the economy and corporate spending.
Speaker 8: Maybe that will lead to higher wages, but right now
Speaker 8: you're not seeing evidence of that.
Speaker 5: I really can't emphasize on the folks that Fraser it'll
Speaker 5: see into the middle of the year than Bob Michael
Speaker 5: with that with an interest rate strategy. And given all
Speaker 5: the upset at the FED, how far out is the
Speaker 5: Bob Michael vision at JP Morgan? Can you get out
Speaker 5: to Q three or dare I say, model out of
Speaker 5: fixed income portfolio to twenty twenty seven?
Speaker 8: You can, and you have to. You can't invest a
Speaker 8: lot of assets without having some view on the short term,
Speaker 8: the medium term, and the longer term. Right now, things
Speaker 8: look pretty good. On Monday, I said that the Yell
Speaker 8: curve looked about as perfectly priced as you could have it.
Speaker 8: So does the bond market. It seems to incorporate reasonably
Speaker 8: good economic activity this year. It seems to incorporate what
Speaker 8: we think could be disinflationary forces coming from both the
Speaker 8: headwinds of tariffs on spending and also the impact of AI.
Speaker 8: It's sort of an ideal market for bonds, including credit.
Speaker 6: Well under the issue about AI, given AI is so
Speaker 6: prominent in the equity market, and now AI is also
Speaker 6: becoming a bigger weight in the public IG index. And
Speaker 6: by the way, AI is also hugely in venture capitil
Speaker 6: two thirds of venture capitul is AI. How do you
Speaker 6: think about the construction of portfolios at the moment when
Speaker 6: you certainly have when you look holistically at asset occasion
Speaker 6: one fact on named the AI that is everywhere.
Speaker 8: Well, we've seen a lot of sectors in the past
Speaker 8: access the markets for a lot of funding, and the
Speaker 8: lesson from that is to wait until the supply starts
Speaker 8: to weigh on prices and that's your opportunity to go in.
Speaker 8: I think what we do understand is there's an enormous
Speaker 8: need of capital because there's an enormous productive use for
Speaker 8: it to build the infrastructure that's going to power everything.
Speaker 8: What we do see at JP Morgan Chase is every
Speaker 8: line of business is using AI and how it operates,
Speaker 8: and it is creating a lot of efficiencies. It allows
Speaker 8: us to scale very very efficiently. So it's not going away.
Speaker 8: It only seems to be accelerating.
Speaker 2: Yeah, Papa, I want to build on this. I think
Speaker 2: is really important.
Speaker 3: And I say this a little tongue in cheek, but
Speaker 3: ultimately a big factor behind the GDP growth for the
Speaker 3: last twelve months is the capex spend of a handful
Speaker 3: of companies. Is that becoming the more important macro indicator,
Speaker 3: never mind payrolls. Is what happens after the close today
Speaker 3: from METSA, Microsoft and what we hear from the big
Speaker 3: tech players over the next week.
Speaker 8: I think so, because they're not only telling us how
Speaker 8: their businesses look, they're telling us how every other business looks,
Speaker 8: and how every other business is thinking about AI and
Speaker 8: are they willing to invest more there. I think we're
Speaker 8: going to find the answer is yes, that everyone's over
Speaker 8: the hump. They see this as real. They've lagged a
Speaker 8: little bit. Why shouldn't they. They were unsure about the
Speaker 8: impact of Taris. They were unsure how AI would play out.
Speaker 8: Now that seems to be in the rear view mirror.
Speaker 8: I think you are going to see pretty good earnings
Speaker 8: and pretty good downrage forecasts Alston.
Speaker 3: This is one of the great dilemmas I think for
Speaker 3: manegy policymakers officials worldwide right now the divide between GDP
Speaker 3: and payrolls growth. GDP's fantastic payroll growth super subdued. And
Speaker 3: you can point to supply side factors like immigration. That's
Speaker 3: a factor, sure, but the character of GDP is becoming
Speaker 3: less and less labor intensive based on what we've seen
Speaker 3: over the last twelve months.
Speaker 6: Absolutely, and a very important point when we talk about
Speaker 6: the FIT is that that also is because we simply
Speaker 6: have that the forces that are driving GDP are actually
Speaker 6: not very interest rate sensitive.
Speaker 1: Because most of the false insessive.
Speaker 6: Driving the boom in AI and the energy built out
Speaker 6: had been coming because of equity valuations.
Speaker 1: Being so high.
Speaker 6: Now there's mall in the change in the capitalist structure
Speaker 6: to watch also motet issuance. But for the last several years,
Speaker 6: no matter what their fitfund straight did, we had a
Speaker 6: really strong boom in AI and that was driving the
Speaker 6: economy forward and continues to drive the economy forward because
Speaker 6: this strength is coming from sources that are much less
Speaker 6: interest rate sensitive than traditional components of GDP.
Speaker 5: Let's get a source on this. Turston slock this morning.
Speaker 5: It was good to see up before nine am. Turston.
Speaker 5: This is his daily note, the daily Spark. Bob Michael,
Speaker 5: quantifying the productivity gains from AI, I would say, it's
Speaker 5: JP Morgan with what is it? It's like Walmart two million
Speaker 5: employees in the US. You people have more knowledge, Bob
Speaker 5: Michael about the new use of AI help doctor slock out.
Speaker 5: How are our productivity gains from AI.
Speaker 8: Well, the aspiration is that you're growing and you can
Speaker 8: do a lot more with the same amount of resource.
Speaker 8: So that's the ambition and the aspiration. We're still early
Speaker 8: into it. We'll see what the payback is down the road.
Speaker 5: I mean, look at this tour, so please expand on
Speaker 5: and there's productivity, and I guess it comes down to
Speaker 5: solo and this strange thing total factor productivity, which is
Speaker 5: basically a made up pixie dust of that John you
Speaker 5: mentioned earlier that American spirit. What does our total factor
Speaker 5: American spirit look like right now?
Speaker 1: Absolutely GDP.
Speaker 6: Growth can come from three sources capital, labor, and productivity.
Speaker 6: And the key issue is if productivity is strong, that
Speaker 6: can more than dominate the other forces of growth, especially
Speaker 6: when labor is now contributing less because immigration is being restricted.
Speaker 6: So that means that the requirements coming from total facts
Speaker 6: of productivity or productivity really significant because that needs to
Speaker 6: deliver a lot of growth now that we have less
Speaker 6: growth coming from the labor side.
Speaker 2: This is why it's hard to sell America.
Speaker 3: So many of these reasons are just a long list
Speaker 3: of things as to why it's hard to sell America, Bob,
Speaker 3: the headlines of the last week or so, not just
Speaker 3: the last week, but the last twelve months. Do you
Speaker 3: push back against them as well, Bob.
Speaker 8: Yeah, they're total hogwash. We invest money for loads of
Speaker 8: different plans around the world. This time last year, into
Speaker 8: March April of last year, maybe through the summer. There
Speaker 8: was some concern there were plans that we're looking at diversifying.
Speaker 8: We saw very little of it. We're not seeing any
Speaker 8: of that now. I think there's a realization that the breath,
Speaker 8: the depth, the size of the markets in the US
Speaker 8: make it the best place to exercise your fiduciary duty.
Speaker 8: And that's what they're seeing. Yeah, is there some currency
Speaker 8: hedging going on on the side, a little bit, But
Speaker 8: is there a wholesale sell America assets? Absolutely not. If
Speaker 8: it's happening, we're not seeing it. We pretty much see everything.
Speaker 5: You know, Bob, I'm thinking of University of Pennsylvania, and
Speaker 5: you know you're in Latin class at Pennsylvania where you
Speaker 5: got straight a's, and you know you look at hogwash
Speaker 5: as newgay or fritilla or in epsha and butcher in
Speaker 5: the pronunciation here. But stay with me on this Bob,
Speaker 5: is there a hotwash among the administration. Bob Michael, you're
Speaker 5: a bond guy. I want you to help me with
Speaker 5: foreign exchange. In Bruce Casman's world, I got one day
Speaker 5: it's a week dollar policy. I got the next day
Speaker 5: a strong dollar policy. It sounds like it's time for
Speaker 5: Secretary Diamond.
Speaker 8: I think he's doing a great areas and I hope.
Speaker 1: He stays there.
Speaker 3: By the way to end an interview, Bob, thank you, sir,
Speaker 3: Bob Michael of JP Morgan Asset Management, stand out of trouble.
Speaker 2: Hugwash, hugwash. That's what he thinks that I said.
Speaker 5: That's brilliant, and you hear it in your wonderful Morning
Speaker 5: note as well. People are so frustrated by this spin
Speaker 5: that they're getting, given the cacophony of our American politics
Speaker 5: and all in.
Speaker 2: A long time ago.
Speaker 3: Tell me the president's first term marked out right of
Speaker 3: great pace on divorcing your political boss from your market analysis.
Speaker 3: And I think there are reasons to be worried about
Speaker 3: diversifying away from the dollar. And I'm not going to
Speaker 3: color everyone who has that opinion with the same brush,
Speaker 3: but I will say this, I think some of this
Speaker 3: has been driven by people who just don't like the
Speaker 3: policy out of the White House. Torsten and dare I
Speaker 3: say they have a bit of TDS. I do think
Speaker 3: some of that is coloring some of the analysis that's
Speaker 3: coming from not just Wall Street, but from research desks
Speaker 3: around the world.
Speaker 6: Absolutely, And you go around Europe and you talk to
Speaker 6: a lot of people who are of course saying, oh
Speaker 6: my god, what's going on? This is confusing, this is chaotic?
Speaker 1: Is its?
Speaker 6: All these discussions, and then you ask at the end
Speaker 6: of the beer, well, how are you even investing your money?
Speaker 6: Or we're still buying dollar assets because dollar asses still
Speaker 6: offer great returns again higher levels of vials. Also, in
Speaker 6: AI exposure, you don't get much AI exposure if you
Speaker 6: invest only in European stocks, don't get much AI exposure
Speaker 6: in Japan, Cana, in Australia. So the US offers things
Speaker 6: that are simply not being offered by the rest of
Speaker 6: the world.
Speaker 5: I mean, quickly, John, you spent twelve hours on the
Speaker 5: SAT in London the day of Brexit. Here we're popping
Speaker 5: one thirty eight on sterling. Does your life change with
Speaker 5: the one forty three sterling?
Speaker 3: You're still convinced that I get paid in sterling, but
Speaker 3: I hope so.
Speaker 5: I mean, I'm looking at the chart here and we're
Speaker 5: right up against the Rangers.
Speaker 2: Gives an recent price section.
Speaker 3: I wish I was funded and stealing, but given this
Speaker 3: is my tantier over here, I'm still.
Speaker 2: Funded at Dallas. Your reviews over Okay.
Speaker 3: Thank you sir, Thank you boss. Let's get to dine
Speaker 3: swamk of KPMG, she joins us. Now this news conference
Speaker 3: stance in about seven or eight minutes time time. Welcome
Speaker 3: to the program. What are your questions for Sham and
Speaker 3: pal when this news conference stants.
Speaker 9: I think one of the questions that hasn't been asked
Speaker 9: of the FED is we've heard the FED talk about
Speaker 9: curbs and immigration and its effect on the break evens,
Speaker 9: on unemployment and the labor market. More broadly, we have
Speaker 9: not heard anything about the pockets of labor shortages that
Speaker 9: are beginning to creep up. The quick rate in leisure
Speaker 9: and hospitality absolutely soared in November and over the summer,
Speaker 9: and that is because of curbs and immigration. We know
Speaker 9: that forum born and native born workers in some professions,
Speaker 9: most notably in the service sector, are compliments, not substitutes
Speaker 9: for each other, and that's something that we're watching closely
Speaker 9: as well. And even with the productivity growth we've seen,
Speaker 9: the AI boom that's going on, is currently with that
Speaker 9: productivity growth not derailed inflation, and in fact it is
Speaker 9: adding to inflation on the margin for in salient prices
Speaker 9: for many consumers, notably electricity costs. And then you have
Speaker 9: this cold spell on top of it that added to
Speaker 9: natural gas costs. But all of that is still pushing
Speaker 9: up prices rather than down when we're going to get
Speaker 9: a lot of fiscal stimulus in the beginning of the
Speaker 9: year as well.
Speaker 5: Dan, your work recently has been absolutely brilliant about the
Speaker 5: fabric of employed America. What is the one thing Wall
Speaker 5: Street Consensus, the three zip codes in Manhattan, what's the
Speaker 5: one thing they get wrong about labor America.
Speaker 9: Well, first of all, the overall and employment rate is
Speaker 9: not really a good summary statistic.
Speaker 1: Right now.
Speaker 9: We know at the end of the year those having
Speaker 9: to accept part time instead of full time hidden all
Speaker 9: time high. We're now at the place where in the
Speaker 9: new millennium, for the last twenty five years, we've seen
Speaker 9: instead of multiple job holders falling as an expansion goes longer,
Speaker 9: they're now rising. This is part of that labor share
Speaker 9: of income being eroded. The inequalities we're seeing out there,
Speaker 9: and the frozen state of the labor market where those
Speaker 9: who have a job are cleaning on and those who
Speaker 9: do not have a job are left wanting. I think
Speaker 9: is very important to understand when you think about things
Speaker 9: like the U six measure of unemployment, which gets into
Speaker 9: that sort of under the hood that's running around eight
Speaker 9: point four percent, two point two percent above where it
Speaker 9: was in twenty nineteen, and I think those are important issues.
Speaker 5: Sank quickly here. The model is that the tech bro
Speaker 5: are taking over America. We've talked about American exceptionalism, but
Speaker 5: so many people just want to turn around that ugly
Speaker 5: labor share vector.
Speaker 1: How would you do that? Well, what's a difficult thing
Speaker 1: to do.
Speaker 9: And certainly with the way that the C suite and
Speaker 9: the gap between employees and the C suite c AI
Speaker 9: and how it's affecting productivity growth is another issue. We
Speaker 9: could literally see a payroll recession as the economy booms
Speaker 9: in twenty twenty six, and that is something that I
Speaker 9: never expected to see out there. I think it's really
Speaker 9: important to remember though, that we still have not ameliorated inflation.
Speaker 9: We still have inflation, and it's much like compounding stock
Speaker 9: returns that has driven that wedge of wealth higher. Compounding
Speaker 9: inflation over the last five years has left prices out
Speaker 9: of reach for too many. At the same time, the
Speaker 9: labor market is frozen, and that is why you're seeing
Speaker 9: the consumer attitude surveys.
Speaker 1: We are and what are.
Speaker 6: The consequences of the K shaped situation for the consumer?
Speaker 6: From a broad macro perspective, the weekly, the monthly retail
Speaker 6: sales data is still recentably okay, does this.
Speaker 1: Matter later this year?
Speaker 6: How do you think about the case shaped situation? Is
Speaker 6: it something that the fits are they take into account?
Speaker 6: Why does this matter from a macro perspective.
Speaker 9: It's really important from a macro perspective because I think
Speaker 9: it's providing an underlying floor under inflation, and that's what
Speaker 9: I worry about. Could happen that with fiscal stimulus on
Speaker 9: top of it, to temporarily disperse economic gains at the
Speaker 9: beginning of the year as we see those tax refunds
Speaker 9: come in. That is important because you sort of the
Speaker 9: sugar high could be very short lived if it only
Speaker 9: makes inflation stick and as I said, inflation is already
Speaker 9: compounded to the place where most Americans feel that things
Speaker 9: are out of reach, and that underscores and undercuts the
Speaker 9: Fed's inflation fighting credibility.
Speaker 3: Don I think we have to sign and I'm sure
Speaker 3: you share this sentiment. If any of us gets a
Speaker 3: tax refund, it's pan the energy bill over the last month.
Speaker 3: Thank you, Dan swamk wank in on the federal Reserve
Speaker 3: and a banks for the economy, I think we just
Speaker 3: take a beat with the two and a half minutes
Speaker 3: we have left. Well, Dan Swamp just sat there that
Speaker 3: we could have an economic boom yep, and the payrolls recession.
Speaker 3: Now I know this sounds a little bit philosophical, but
Speaker 3: what on earth is a boom if we have a
Speaker 3: payrolls recession?
Speaker 5: I'm going to go to I think your question, John
Speaker 5: is brilliant. What she said was remarkable. I don't think
Speaker 5: I've ever heard that ever.
Speaker 1: Ever.
Speaker 5: The bottom line is, we have a president who's prosecuting
Speaker 5: a neo MRK until his strategy. You were weaned on
Speaker 5: this ages and ages great Grandpa Slock a million years
Speaker 5: ago as well. How do we extract ourselves from a
Speaker 5: neo MRK until his strategy to get growth back in
Speaker 5: for the rest of the public not benefiting from this
Speaker 5: tech boom.
Speaker 6: Well, the challenge, of course is that the AI boom
Speaker 6: has to main been demain driver for so long. But
Speaker 6: if you implement policies, of course that ultimately says that
Speaker 6: we want fewer goods and fewer peoples to come into
Speaker 6: the country. The risk is that of course does come
Speaker 6: deglobalization with a risk of high inflation, risk of high
Speaker 6: inflation in prices, risk of high.
Speaker 1: Inflation in wages. So that's why if we are and
Speaker 1: this is not only in the US, this is.
Speaker 6: Also Europe, this is also across the wisidy area. You're
Speaker 6: seeing more and more segmentation of the global economy. Of
Speaker 6: course results in now everything needs to be produced domestically, homeshing, unshoring, reshoring.
Speaker 6: All that, of course results for FIC income investors in
Speaker 6: more upside Regstoin.
Speaker 5: Feace, you just described the nineteen thirties in the United Kingdom.
Speaker 3: It's on the biggest rest of the GDP growth we've
Speaker 3: discussed over the last twelve months. The populist remedies the
Speaker 3: White House might introduce to try and correct the key
Speaker 3: One of those issues we've talked.
Speaker 2: About for the last few months.
Speaker 3: The last month or so has been the introduction of
Speaker 3: a cap on interest rates on credit cards that could
Speaker 3: have the complete opposite intended effect of chilling financial conditions,
Speaker 3: of tightening credit availability. And they're the kind of things
Speaker 3: at the moment this administration TK that are the kind
Speaker 3: of things they're thinking about.
Speaker 5: I think the phrase is grasping it straw us. I
Speaker 5: don't hear much policy or science find it. Maybe we'll
Speaker 5: hear that in these comments.
Speaker 3: To this, just in from Peugh van steinas of Oliver Wyman.
Speaker 3: Sure you know him. He wants us to start a podcast.
Speaker 3: I want to know of Mark Rowan. We'll give up
Speaker 3: torst them once a week so we can do a
Speaker 3: little podcast together. He liked the last hour so much.
Speaker 5: First Gust could be human.
Speaker 3: Do you think Mark and Jim will get on board
Speaker 3: with that? Can we have you once a week? Can
Speaker 3: you write the check if we've got a budget in
Speaker 3: this avalance, we'll try and make that happen. Twlston, this
Speaker 3: was a pleasure. Thank you, sir Towson. Slock There of
Speaker 3: Apollo