Powell Signals Downshift Likely Next Month

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube and now also on Bloomberg Quick Take. All right, we've got our team back in New York. We're in San Francisco. Now we're going to head Tare Bureau in Atlanta because we've got one of the smart voices when it comes to J. Powell and the Federal Reserve. J K. J. Powell's, you know, speaking at Brookings taking questions. So let's bring

in Bloomberg News Economic reporters Steve Matthews. He is in our Atlanta bureau, So Steve, good to have you here. Let's talk about J. Powell. What was the most important thing he said today, whether it was in his speech or in his Q and A, Well, I think the a couple of things. I mean, what the markets took away from this was obviously kind of locked in on December.

You're gonna get a fifty basis point. Like he didn't say that specifically, but if you read between the lines, he all but said that, yes, we're gonna get fifty. It's time to start slowing the pace of of rate hikes. But he also said, you know, he repeated, and these are themes from the past press conference at the November meeting, that you could have rates that are higher than what they had been expecting before. So you could have in the dot plot in December rates moving up a bit

from where they were in September. To me, the thing that jumped out was the way he was framing the fight against inflation. He said, they're basically three types of inflation. You have goods inflation, where there's been a lot of progress. There was COVID disruption, now that is easying. You have housing uh inflation and you know that's going to continue. But if you look at new leases that they've already

started to come down. So there's was a lot of optimism there and then the third area with services inflation, and that was the area where there was, you know, a very uncertain outlook that whether things are going to get better or not, and that often, uh was you know, that was where I was talking about the labor market. There were being too tight labor market and that contributing

to wage pressures and inflation. Well, that's exactly where I want to go, Steve, because something that stuck out to me from Palace comments was what he said about the labor market, the idea that immigration is well below pre pandemic levels, we still got workers on the sidelines due to COVID. And then there was this the what millions of Americans who left the workforce early during the pandemic,

these so called pandemic era retirements. What stuck out to you from the perspective of the supply side here because it seems like he needs to bring down demand rather than increased supply when it comes to labor, because that's

just not happening. Yeah, that was really fascinating because he was saying, if you look at where the Congressional Budget Office was projecting the size of the labor force before the COVID pandemic that where they are right now is several million jobs short of where they were expected to be, and there are lots of reasons for that. Early retirements was one, the amount of COVID deaths, and long COVID

was another area. But that and immigration, as you point out, was has been disappointing, and he was He was kind of called on Congress too and fiscal policymakers to do something. He said, we could affect the demand, we can't affect labor supply. And I'm not going to endorse any specific idea, but it's something that would really help the economy if coal policymakers would address the supply of labor. So, you know, we'll see if that happens. Steve, you and I have

been around the block a few times. Tim as too a little bit, but I do think they But I do think the immigration story is something we've talked about for years in terms of, you know, change it, make it legal, bring them into the economy. There are a lot of jobs that immigrants coming to the United States would love to have that we're not able to fill at this point. So, like it's been an old thing, but it requires legislation and policy, and I don't know

if we're going to get that. Yeah, you know, we we all have been around for quite a long time because this has been a constant theme. I mean I remember Ben Bernanky talking about it, and the Richard Fisher, the former Dallas Fed president, made controversial remarks basically calling for more immigration. And and clearly there are jobs that you know are going unfilled because they're not being filled by American workers. Americans don't want these particular jobs, are

are not skilled for them. And you know why we're not bringing more people in. It's just it's it's it's not a mystery. It's because Congress is you know, decided not to do anything about it, and right now it's it's just they're just continuing debate, alright. So I know it's like, you know, what have you done for me today? Or what have you done for me lately? We got through j Pal very important. We saw the markets react. How important is Friday's jobs report based on what we

heard from J Powell today? I think it is. It is important, and it's not important for the December rate hike. It's really now they're setting expectations for what happens in February. The next big debate you're gonna hear the FED is not about December. That's pretty much a done deal, abs there being some shock, but it's about do you do fifty basis points in February or do you do And you know, if you do, then that kind of sets at least the possibility that you could pause for a

while or or do another twenty five. So you know, the next debate is going to be very much about the early February meeting. Alright, I gotta dig into something you said, pause for a while. It makes me think of what j Powell said, you know, staying at restrictive levels for some time, and the way he ended his speech,

we still have more work to do. What does sometime mean? Yeah, that's a good that's a really good question, because it's like they are setting up the idea that UH rate hikes are going to slow, but they're going to continue, and what's important is how high do they go and for how long? And they're kind of trying to set the narrative that it's going to be higher for longer,

but they're not really defining that. But you know, you will get some definition in the December dot plot, which will suggest that they plan to hold rates very high for at least all of three So I think that that is how they are looking at it. A difference to what Gina marn Adams told us yesterday where she thinks that they'll see a cut of fifty basis points due to a recession. Carol, Yeah, that's interesting. So where

do we go with that? Steve? What are you hearing about in terms of he was asked about certainly the economic outlook and recession. He seems to believe that he can still get a soft landing. So how do you think about it? And the reporting that you were doing on the FED. Well, it's interesting they're talking about a soft landing because we're still having three point seven percent

unemployment right which is a very tight labor market. If you look at GDP now, the Atlanta Feds GDP tracker, it's tracking at over four percent for the fourth quarter. It was interesting, he was The Big Book came out today as well. It was pointing towards fairly, you know, dismal growth in in the most recent period, but that's not what the GDP trackers are showing. So, I mean, I think the case for a soft landing is there's so much momentum right now. Uh, the labor market can

take some hits and will still continue to grow. And there's so much excess cash one on household balance sheets, uh, still from from the COVID cutbacks and from stimulus and on state and local governments, that you know that there's reason to believe that there's gonna be a lot of momentum. Uh into heyconds, Steve left with you. What economic data have we gotten recently that is not working in the

feds favor? Because Jolts certainly is uh. And then a slowdown in job gains on Friday will work in its favor. But what hasn't worked in its favor? You know that that's an interesting uh question. I mean, I would say, really the big thing is the headline inflation numbers have

not come down. They continued to be disappointing that you've had a S pointed out one good month, but uh, you know you're still seeing much higher inflation, and and while jobs are showing some improvement in moderation, Uh, it's still running, you know, twice as high as the payrolls are running, twice as high as as the FED would like yeah, and the Fed lucky that at least the labor market is held on to strength that gives them still some room to work on those inflation number. Steve Matthews,

thank you so much. As always, he's economic supporter of Bloomberg News. Joining us from our bureau in Atlanta. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. We do want to get though to the cover of Bloomberg Business Week, which also happens to be this week's Bloomberg Big Take, or I should say Today's Bloomberg Big Take. And to say

it's a troubling story is certainly an understatement. The story Tim about TikTok It's viral challenges that children are actually dying front with more. We're joined by Bloomberg Business Week editor Joel Weber, who joins us on the access line from Brooklyn, New York. So with us is Bloomberg News investigative reporter Olivia Carville. She's with us from the Bloomberg Interactive Broker's studio in Manhattan. Joel, I want to start

with you the blackout challenge. It's something that children are dying from the question Olivia tried to answer here is why isn't the world's most popular app We're talking TikTok here doing more to protect them. Yeah, so blackout challenge um has been this viral um uh sensation really that it's taken off on social media, and you know, TikTok is not the only platform where it's been a thing.

But what makes TikTok and the story really troubling is the algorithm that has really turned TikTok into the world's most popular app is incredibly value, very very powerful, and it's so good at servicing content. Um. But TikTok itself extremely popular, popular with young kids, but had no way of determining whether or not a kid is actually old enough to be using the app, and that's led to some really, really frightening situations. And personally, it's one of

these stories. After I read it, I took away my son's devices and was like, you will never see the internet ever again. And I feel I say that lighthearted, but for real, like this is one of these things that everyone just assumes, um that you you you know, the kids are are not going to find themselves in places that they're not supposed to be and just truly harolding. How scary some of these corners can become. Um, Olivia, bring us into how you went about reporting this story,

because um, it really involves some tragic, tragic elements. Yeah, it does. I started reporting this pace by trying to get a sense of what happens inside TikTok. After a child dies participating in an online challenge, and maybe there's been a headline and some local news reports connecting TikTok to that death, how does the company respond and what happens internally? And the way to answer that question was to try and build sources on their trust and safety team.

This is the team that is built within TikTok to handle the worst case scenarios. These are the fixes of the Internet, the people who come in and clean up the mess, protect the company's reputation, but also try and protect users. And I spoke to more than two dozen current and former trust and safety insiders to get a sense of what happens at TikTok in the aftermath of a really tragic incident like this, and that's how we were able to tell the story is really through the

lens of that trust and safety team. Well, speaking of the tragic side of this, your piece starts out with just the tragic story of Ariannia Royo. Can you share that, share her story and what her family has gone through. Arianni was a nine year old girl. She lived down in Milwaukee, Wisconsin, and she loved TikTok. You know, this is the most popular app in the world, and it is hard to deny the success of um of this company.

Seventy percent of teenagers in America are using TikTok and they're using it more than all of the other apps out there, Facebook, Snapchat, YouTube, Twitter. So Ariane, like most kids, fell in love with TikTok and she was using the platform on a daily basis, and she really enjoyed participating in the trending challenges. She would do things like hold water in her mouth until you start giggling, really kind

of harmless, fun joking challenges. But in February of last year, she attempted the Blackout challenge, which is where children try and choke themselves with household objects until they black out and then filmed the adrenaline rush or the high they get regaining consciousness. But at the age of nine, Ariani unfortunately was unable to help herself or to save herself. She had choked herself with a metal dog leash and

she tragically died. So Olivia obviously TikTok is aware that there's a challenge here and that these have happened, there's been lawsuits. What does the company have to say about it? And and what's their what's their official response? And then what what are what are others saying about that response? Yeah, I mean, these these dangerous challenges bounce across platforms. They exist on TikTok, but they exist on all the others as well, and users actually try and sidestep safety restrictions

by doing things like misspelling keywords. So rather than writing blackout challenge, which has been banned on TikTok, they'll right black out with a zero and try and get around the the artificial intelligence or the systems that have been set up to try and protect kids. So TikTok really

doesn't want this content on its platform. It's done what it can to train its moderators to take down any content relating to the blackout challenge, and it also prevents anyone from being able to search for Blackout Challenge related content in the app, and it's set those um those features in place, those safety restrictions in place at the start of last year after the first ten year old

girl died attempting this particular challenge. But unfortunately, kids are smart and they know how to get around these and you know, these safety restrictions, and they're doing that, and that means that the challenges continuing to spread across social media platforms. And the most recent cases that we could find of deaths associated to the blackout challenge was August of this year. So despite all of those safety features

being implemented, the deaths have kept happening. Olivia have to say, I've had a million questions come to mind, the responsibility of the company, you know, making sure kids aren't there, you know, platform and having access to content that they shouldn't have, and where are the martyr readers like watching all of this. We're a regulator, so where do you think we need to go from here to get on top of this. Well, that question of age verification is

like the elephant in the room. This is one of the hardest things for these social media platforms to do. How can you tell the exact age of the person who was on the app, you know, using that device, and don't forget that children's content is allowed on TikTok. You can film your children or your siblings who are under the age of thirteen and post about it. Every social media platform in the US at least has a rule that says you have to be over the age

of thirteen to use the product. This, you know, they call it within the industry the age gate, and it's very hard to enforce that, so these companies are trying to find ways around it. But this is one of the biggest challenges that social media platforms face. An incredible story this is Bloomberg has been this week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.

One thing we wanted to get to is a story that's also in Bloomberg Business Week in the upcoming new issue. And what's interesting is this has to do with um Avatar, which I think is kind of interesting. Tim coming off getting to go into our plane yesterday right at JFK, they're spending money on advertising. There were tons of posters about the Avatar sequel, and and you and I started saying, yeah, go ahead, Well we were saying, wait, is this a Fox movies? This a Disney movie? Well, this gets to

a story. It's a confusing but a lot changed about three years ago. Let's get to it with Felix Gillette, Media Entertainment and Telecom editor for Bloomberg Business Week. He's also the author of It's Not TV, The Spectacular Rise, Revolution, and Future of HBO. He joins us live from the Bloomberg Interactive Broker Studio. First of all, Felix, I had no idea until I read your piece that this was the top grossing movie of all time. Uh. I saw it and I don't even remember what it was about.

That's how much of an impact. Why was this Why was this movie so hot? Uh? You know, I think part of it was the technology at that point. Everyone was so excited to see it in three D and people were making all these grand predictions about there would never be anything except three D movies in the future based on this movie, and that didn't reappen, but people did see it in droves. One thing I do remember, I'm not joking. The thing I remember about it as I saw it in New York City before I even

moved to New York. It was like twenty five dollars to see it in three D and in imax and that was what two thousand nine I think yep, thirteen years ago. So okay, so breakfast forward to today. Yeah. So now this is a big moment, uh, for the Avatar franchise. This is the first if it goes well. James Cameron, the director, has said he's going to make five of these. Um and the Avatar three has already

been partly shot. Um, you know, every two years will be another Avatar sequel and uh, it's a huge bed for now Disney. The first one was made by Fox and then since then Disney has acquired Fox. And it's this crazy moment for Disney where you know, the share price has been down this year. They just got rid of their former CEO, brought back his predecessor, bibe Igor. Bob Iger is the one who made the deal to acquire Fox, which brought Avatar into the Disney family. Um,

so this is a big moment. They spend a huge amount of money. I think four hundred million dollars is on the production alone, plus a couple hundred million more to market this, and uh it better be huge. Yeah. I was just gonna say, let's do some simple math. So if it made about three billion back in two thousand nine, Disney paid wet Felix seventy one billion to bring twenty one century Fox into the Magic Kingdom three years ago. So what have we got to do three

into seventy one? So we're talking about twenty movies or so forty years to have one of these every two years. Um, yeah, I mean they think, you know, James Cameron has this incredible track record of movies, Blockbusters, Titanic, True Lies, Terminator, so it's it's a good it's always good to bet with James Cameron. Um. You know, this is an odd one because it's unusual for a really successful movie to go thirteen years before a sequel comes out. Um, it

was delayed several times COVID among other things. And there's not a huge um amount of you know, there's no TV shows, there's nothing, there's not a lot of merchandise out there for Avatar, So in some ways it is unusual. Yeah, well, sorry to jump in. One thing that I'm a little confused about is the relationship between Avatar and Disney pre the assets of twenty century Fox that were sold your

twentieth century Fox that were sold to um Disney. Yeah, Disney actually made based on licensing the Avatar I p in Florida, and which is one of the ways that I think that they, you know, wanted to acquire Fox. I mean it made sense get Avatar under the Disney roof. Fully. That park is you know, still pretty popular, um and it's pretty much the existing you know. You go and see Pandor, which is the moon where Avatar, you know, this world that Avatar brought to life, and they think

that's what James Cameron brings. Don't give it away, Felix Carol hasn't seen it yet. Kind of sound like an Avatar. It's not Smurf, so the small blue people. So that's the you know, we gotta make that first leap. Um. But yeah, it brings this whole exist, this whole world to life. This one is underwater. That's the big new thing that's different from the first one. They've released three trailers that look super cool. They invented all sorts of cameras that cast learned how to do deep diving and

hold their breath for minutes. Um. But it's gonna be crazy special effects, a big universe. Yea, so maybe Nemo can meet Pandora like underwater? Is there like is that where we see the collaboration? Got ten seconds left? Is this a kind of franchise though that they can do parks, they can do merchandizing really quickly. Yes, they want to do it all. They want to expand this thing and expand it, expand it and alright. Felix Gelette, Media Entertainment

and Telecom editor for Bloomberg Business Week. Also check out his new book, It's Not TV. The Spectacular, Rise, Revolution and Future of HBO. We've got a trip. We'll go see the movie together. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. All Right, everybody, just about twelve minutes to go, just under until we get to that closing bell. We'll

talk with our TV colleagues for simulcast coverage. But in the meantime, stocks, as you just heard from Charlie, they're holding on to their best levels. We've got quite a rally under way of stocks have come roaring back following j Powell's comments, and we've seen yields which backed off as a result of potentially maybe an easing in terms of the size of those rate increases, we've seen yields

come down significantly. Let's see what Nicole Webb has to say, Senior vice president and a financial adviser at the Wealth Enhancement Group. But she joins us live from our Bloomberg Interactive Broker studio in New York. Nicole, good to see you, Good to hear you this afternoon. How are you. I'm doing well. How are you? We're doing pretty well. I mean, the equity markets are doing really well today. Off of those comments from Fed Jair J. Powell a little earlier today.

How are you reading into his commentary? Is the market getting a little ahead of itself? You know, it's really interesting. I actually our firm had anticipated that there was perhaps a bit of a validity rally come the December announcement, if we do get the fifty basis points that people

believe have been already embedded into the stock market. UM. I think his sentiment today was perhaps that validation that the tapering, the slow down of the rate increases was to be expected, and so I do think some of that is playing out in today's market. Here the second half of the day. But is it warranted? Gosh, I

am part of the consensus here. You know, from our best estimates, what we're seeing is that when supply chain fully normalizes, we expect inflation to sit around four per cent um, and the amount of demand destruction necessary to get down to that two percent target um suggests that rates will have to either go above five or that higher terminal rate will have to last a bit longer.

And we do think that that could impose a bit of an earning shock, all right, So that leads me to a question to call that higher rate environment, Right, you get to find out which companies are really resilient and set for the long term and which are not, and that speaks to what we'll see in earnings. So when you think about that, what kind of companies, what kind of sectors would you expect, or what kind of balance sheets should investors be looking at right now to

maybe commit some new money. Yeah, the end of the today's trading day is interesting. And you know, one point that we've seen play out actually this week consistently is that you know, I wouldn't say that some of these names are necessarily a shift in trends. So when we think about duration assets kind of popping here at the end of the day of the technology firms, we're not

ready to go back that way. This seems to be a bit of maybe a rearranging before your end where we're still looking at some of those revenue stability firms coming into the new year. So one specific name that comes to mind is Costco. We love the membership fees. They don't carry many skews UM, so they carry a strong competitive edge there. Uh, and they really have a

long track record of earnings per share growth that we like. Okay, before we get to some other picks, I just want to go back to your commentary about where we are in the market right now. So if you're saying that rates are going to have to go about five or that we'll see a higher terminal rate for longer to try to bring inflation down below what you see is

you know, four percent after supply chains do normalize. UM, what does that mean for where the sp I Guess the question that I'm asking is is are we off of the lows of I don't want to say the year, but of this this cycle. Yeah, with some confidence, we would say that the trading range next year is a bit narrow. So you have this convergence of two themes that generally carry their own kind of predominant thematic trading.

Those two themes being in a stall in a stall out of a higher terminal rate, so one the compression to earnings there. But then secondly, markets tend to do quite well in a disinflation environment. And so as you continue to navigate those two against one another, you know, our best guess is that the market does trade in this tight range with suppressed earnings. But um, we too are a bit in the camp of it doesn't have to be a catastrophe. And Powell, you know, shared those

same sentiments today. I love that you come though with company names and stocks I want to go back, and you mentioned at Costco and that makes sense to me. T j X is another one which we know people love the bargain hunt. Right at t j X. We know their latest earnings. It wasn't so much about the home anymore and their own goods component, but about apparel

and other areas. They showed some strong results. Yeah, we've been a bit dismissive of retailers this year, certainly, um, but we love t J Max And look, we don't believe that a disinflation environment means that inflation is going away across the board. We know that we have some threats to energy costs, We have looming inflation that will be a bit persistent. And so you couple that with

you know t J's bargain hunting. But then also um inventory excess, we know it exists, it's coming to them cheaply. And then also you have freight and transportation costs coming down, all helpful to their bottom line. What else you have your eye on? What else are you? Let's talk Amazon? Like Amazon? I do like Amazon. Um, this isn't one where I would say, you know, if you're managing a p m L day to day, it's probably not helpful.

But looking out into we expect that you know, it's going to start to shine again for a lot of reasons. But their management is highly focused on free cash flow. They seem to be investing in the right areas. UM, they're responding to trends and themes around them. Their excess inventory, you know, they really doubled down on what they were able to fulfill during COVID, and so let's hurt them

a little bit on the backside. Um. But again that they too will be will be helped over the last couple of quarters with shipping in freight costs coming down as well. Do you think we see Jeff Bezos pull a Bob Iger or Howard Schultz a little bit of a boomerang? Um? I love a boomerang CEO story. My favorite is Starbucks and now maybe Disney. Um, yes, yes, I actually do. I think, Um, hindsight is a little bit and sometimes I think when someone steps away, I

think about Bob Iger in this way. Um, he did not invest in DTC or the direct consumer business and probably now has spent a it amount of time focusing on those Kudo would have should us and and comes refreshed and able to perhaps maneuver with more clarity. I think Basils might be able to bring that to the table. I don't know, It's just just a thought, all right. Just got about twenty seconds left here real quick on Apple and why you think it's something to buy right now.

Consistently it proves to be shareholder friendly in terms of the way that it focuses on its stock buy back program. Um. I think that's interesting for retail investors to focus on UM, and it's highly efficient. It's return on invested capital continues to prevail. UM. They're just a great company overall. Alright, we're gonna leave it on that note. Really some great

companies to think about, certainly in this environment. And it's safe to say that I think all of these names because pretty much everything seems to be rallied coming off of the comments from j Pal Nicole Webb, thank you so much. He's senior vice president, financial advisor at the registered investment advisory firm Wealth Enhancement. Joining us back in our Bloomberg in directive broker studio that's of course, in our New York City headquarters. Thanks for listening to Bloomberg

Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two p m. Eastern on Bloomberg Radio, or watch us live on YouTube and now also on Bloomberg Quick Take