Inflation Data Tops Estimates, Markets React (Correct)

across the board, and we're seeing reflected here in the markets. Today. Let's bring in our expert in all things on interest rates, in the curve and all that kind of good stuff. Iro Jersey, chief US interest rate strategist and chief soccer strategist for Bloomberg Intelligence. I are a big print here today. What's your takeaway as as to how we'll see the Federal Reserve react next week? Yea, So, our our focus really has been on the core services numbers UM, and

those continue to accelerate across the board. Like you said, Matt, uh, you know that the the issue is if core inflation really takes hold UM, it tends to trend for a very long period of time. So, um so, given that you have wages continuing to go up, you still have very significant um, you know or very tight labor markets in general that should help, you know, cause wages to continue to climb. Um. You know that those two things wanted to increase costs and therefore um therefore prices for

for goods and services. But but too, and I think this is important. Um, those higher wages allow the consumer to be able to absorb at least a portion of those higher higher prices. So um so that that's how this becomes sustainable and why inflation being you know, going up is a real worry for the Fed, it is, and they've been very clear, iras as you've been explaining to us over the last several weeks and months about

their focus on inflation. Here when we do here from the Fed next week, given this print we just had, will we get any body language, any inkling of what they may want to do going forward, Because you could look at these numbers today and say, hey, maybe they don't pause here in September. What do you think? Yeah, so, so I think you know, seventy five is a given we were actually pricing some uh, you know, modest chance

of even a hundred basis point increased. Although I don't think that they they'll take go that route and increase a hundred. I think they're more likely to do seventy five followed by another seventy five if the September number is uh is you know, as bad as this one was in terms of inflation going up um so so so I don't think that they'll do a hundred. But but but I think importantly, you know, we do get

the top plot. I know that some people don't like the top plot, but I think it is in terms of, you know, what a lot of the members are thinking is how far will they go into three? So we've we've been pretty consistent in our view that there would be a couple of hikes into three, um, you know, after a number like this, which was even higher than what we thought quite frankly, and we were above consensus in terms of of how how what the number would

be UM. But the the idea that that the Fed is, you know, basically firstly going to high ease interest rates anytime in has I think has to be taken off the table. Although the markets still pricing for a cut late in the year. Um, so it's number one and the number two we still have to find what is the terminal rate? Right? Do do they go to Bloomberg Economics five percent? They go higher than that even and with a number like this, if you get another another

number two like this, I think two things happened. I think one, the Fed is going to go higher than to inflation. Expectations in the market are gonna wind up shooting significantly higher, which is what you're seeing today with two year yields up fifteen basis for that's where I wanted to go next, Ira, kind of just looking at the yield curve as people like you and Lisa Bramwins has been schooling me over the years to focus on

this yield curve. I've got a thirty basis point in version between a two year and tenure, not quite the fifty basis points we had recently, but still notably inverted. Here. What's your takeaway what we're seeing the price action today? Yeah, so I do think that we'll continue what we'll retest. I think that negative fifty basis point level on the two's tense curve and driven primarily by two year yields

going up significantly faster than than ten year yields. You know, ten year yields are going to take into account, you know, the coming recession. We will have a recession, right, it's a matter of of how deep and how long it lasts, right, So those are the kind of the two factors in it. And when it starts. Obviously um so so so the ten year yield. I think, well, ultimately what we'll retest the three and a half percent level, but but might actually hover somewhere in that range where you can see

two year yields um. Even though our forecast is for for three ninety as the peak and two year yields, there's the possibility that it could go significantly higher, and particularly with UM, with with data like we had today, if if we continue to get another one or two UM inflation prints that are as strong as today is, and then we definitely have to rethink, uh, you know where we think two year yields can go. I want

to ask you about the timeline here. If we're talking about inflation that we think has peaked and it's in the rare view mirror, the deceleration seems to be taking way longer than expected, what does that mean for break events and for inflation expectations. Uh yeah, so so the uh so firstly, it's it's things are actually playing out the way that we thought because the market we we had always thought, had um expected the inflation to decelerate

too quickly. And and you know again I I point to the core inflation measures that we look at, which are of the of the uh C, p I and the PC and and those data continue to climb right And and even though oil and gasoline prices have come down quite significantly, um, even if they come down further, it'll still be more elevated than than the Fed wants.

In fact, we put out a piece yesterday that's available on the on the terminal UM noting that if you just exclude energy prices from inflation of two year inflation brake even you'll see that that UM that x energy. We're still talking about cornflation being at over four percent in a year. And you know that's way higher than than what the Fed really wants. All right, I read great stuff as always, always appreciate getting your perspective. Here.

I our Jersey chief US interest rate strategist for Bloomberg Intelligence. He's based down in Princeton, New Jersey. The rough rough day in the markets, no doubt. Let's check in with Shaun Cruz, Senior Manager, Trade Services and Client Advocacy for td A Merrit Trade. The good folks at td A

Merrit Trade. They have their investor Movement Index and we always like to check in with them to get a sense of kind of what the TD and Merrit Trade customers out there, the individual traders and investors out there, what are they saying about these markets? Sean, thanks so much for joining us here. What's your i MX index

really kind of showing us these days? So you know what, Actually it was interesting was the iMX index, which is sort of gives us the relative sentiment of how investors are are putting their money to work work whenever they make a trading decision, had been trending down pretty much since the last November. This past month in August was the first time we actually saw it tick up and

move higher. So I think that to me shows that, you know, the negative sentiment or just some of that cautious behavior as markets sort of mark lower and lower throughout the year, UM finally started to reverse itself and we saw some some inflows in some pretty interesting areas of the market. Are people worried? Are they taking their cash, stuffing it on their mattress, running towards buying more dollars? Are people worried right now? Where do you think there's

a little bit of a change in sentiment UM. I think there's there's still some some cautiousness, but I think that sentiment is starting to shift. So although it did kick higher, I would say just where the index reading came out was still a little bit at the lower end of where we had seen it compared to previous periods where they were very bullish and very optimistic. So I think they're I don't think they're they're necessarily stuffing

cash in their matches. They're finding opportunities. But I would say the the other interesting data point that's out there, and this is put out by Center for the Industry at Large, is that you're still seeing the use of leverage UM fairly low. So they're not necessarily stuffing cash and their mattresses, but they're also not levering up to get market exposure. Sean, you guys at t D and Merritrade have a great, great vantage point to see what

you know retail investors they're buying, they're selling. What are some of the names that they were buying during this period, Because a lot of folks are aren't sure that boy, if this is kind of the bottom and I want to mix some some stock purchase, I'm not sure whether good to might tried and true tech names or maybe go more cyclical. What did you guys see? So there was you know, if you look, there was consumer discretionary.

Was had a pretty strong um influence into that actor, and I think a lot of that was primarily driven by interest in Amazon, um Shopify. I think some of the electric vehicle makers UM Amazon in particular, I think they're had a little bit of a breakout above you know, what had been a pretty significant residence level, and it

had some pretty strong upward momentum out of that. But that's one thing where Amazon is technically a consumer discretionary company, but people looking to get some sort of a tech allocation because of the Amazon web servers in their portfolio could also be going into Amazon for that reason as well, because we also saw them going out their purchasing names

like Google and uh in meta as well. But on that tech trade, I mean, what's interesting to me is that I think the story of one that I think people still say is seeping into two, although I very aggressively disagree, is that tech is only responding to rates, and I personally feel that tech has more to do with fun flows that you're seeing from around the world Asian investors, European investors saying, you know what, we want to buy defensive tech that are still, by the way,

the fastest growing companies in the SMP five hundred. What do you think, from a cross asset perspective, is driving the trade? Um? I do think it one is there's a little bit of a rotational trade. Into your point, it's not necessarily we're going all in on defensives or

we're piling the cyclicals. I think the view is just looking at companies that maybe have positive earnings, a little bit more of a solid fundamental underpinnion in terms of they can write out anything that's going to play out um here for the remainder of the year and end

the next year. Those are the kind of companies that I think has really been driving the traded and driving the investment dollars um, not not necessarily going into the you know whatever is the the in vogue as a service company that is and expected to be profitable for three to five years, shunning those names, but going into names like Amazon, who you know, may have some bumps along the way, but I don't think anyone is expecting the Amazon to go anywhere anytime soon. All right, John,

that's good stuff. Appreciate it as always. Sean Cruz, he's the senior manager of Trader Services and Client Advocacy at TD A Merrior Trade. They have their Investor Movement Index, gets a good sense of kind of what the average retail trader out there for TD and merrit Trade, how they're feeling about the markets where they're putting money to work. So it's always good checking in with Shawn to get a good sense of what's going on there. Pretty one of my first jobs in equity research on wallst it

was covering the transportation sector, the railroads, the trucking stocks. UM, good stuff. Um. There's a few of them left actually in the public market's Norfolk, Southern, CSX, Union Pacific for the US, they're all down about nine to sevent year to date. This is an industry that's really really consolidate into just a handful of names, But the big issue for them is a potential strike coming up, and that can't be good for the old supply chain and the

economy in general. Let's get the latest. We can do that with Bloomberg laws. Rebecca Rainey, Rebecca, where are we in this process? Just frame out for me what the issues are between the railroads and and some of these unions and kind of how it might play out. Are we gonna have a strike? Are we are we gonna have a strike? And what's it about? Yeah, so the chances of us seeing a strike on Friday are much

higher than they were last week. UM. You know, when we were coming into Monday, we had you heard that most of the twelve railroad unions who were involved in the dispute, how reached over close to UM, you know what is known as a tenative agreement UM with these brake carriers. UM. So you know, as of last night there was one union that said, you know, that kind of agreement we had, we don't think we can bring it to our members for ratification. I think that's another

piece we need to talk about here too. Even though these agreements are you know, kind of said for UM, it's still requires the membership of the unions to vote to ratify them. So with that change late last night, and then the two uh largest unions involved in this dispute still not at a deal yet. Um, I think it's safe to say the chances are rather you know, concerning that there may be um a strike this So would that mean all the freight railroads in this country

will just stop on Friday? What does that actually mean if they go on strike? Yes? So, while not again as I mentioned earlier, you know, while not all of these twelve unions involved in this dispute have reached an agreement, all of the unions have agreed to honor the strike line. If you know, the remaining unions that haven't reached a

deal don't reach it you all by Friday. So that means, you know, roughly a hundred and twenty five thousand rail works could be on strike as soon as Friday, UM, And that would you know their industry leaders are warning, you know, shut down the entire system. You know, Rebecca, Um, I'm reading about this right now, trying to figure out how we're going to be covering this later in the week.

And some of the issues here are really crucial. It's not just about pay and the wage increases, which, by the way, uh, the agreement on the table, get this call increase by that is a huge alley. It's the biggest wage increase I believe in about forty years according to some analyst notes that I'm reading Rebecca. But that's not the only issue on the table here. It's also

about sick days, medical leaf, health coverage. Talk to us about that aspect, yeah, yeah, And you know, in regards to the wage increases as well, I know the unions would say a lot of these workers haven't seen increases, haven't seen any radis is over the past couple of years, especially through the pandemic. So you know, they say this is a long time coming. Um. But when it comes

to sick leave, um. You know, these two major unions say that whenever, even when it comes to taking time off routine medical appointments, they can receive you know, kind of uh negative points or um get you know, negative demerits towards their their scheduling. UM. So it's really important, they say, for their workers to be able to take time off without you know, fear of getting in trouble at work or with their standing, um, with their employer.

You know, the train companies say that rail employees get you know, five weeks of vacation in addition to fourteen paid holidays. UM. But you know, union members say that's not enough. They want you know, dedicated sick time. UM. As part of this you know emergency board that came up with recommendations to kind of help resolve this UM, they had initially asked for fifteen days of paid sick

leave each year. You know, if I'm just thinking of you know, we're just starting to try to get out from the supply chain issues throughout the U. S economy and the global economy quite quite frankly, and there's still a lot of you know, kind of challenges out there as it relates to the transportation system. I think arguably the last thing, uh, this country, this economy needs is a railroad strike. So given that background, what's the White

House said? What is their position? Because you know, you see in past the White House would maybe uh kind of step in and try to, you know, kind of help get things moving, whether it's the airline industry, the railroad industry, the shipping industry. What's the White House position? Definitely? And you know, um My colleagues are at Bloomberg did report yesterday that Biden and Labor Secretary Marty Walsh have been in contact with the parties UM in this dispute.

And you know, Labor Secretary Marty Walsh was supposed to travel to Ireland this week, UM, and he postponed that trip to help gave full attention to this issue. UM. You know, we've been hearing that the White House is emphasizing that a shutdown of the freight rail system is just not an acceptable option at this time. So it's very interesting because we have a very pro labor administration that is unabashedly pro union and nearly all of the policies it proposes. UM. But it would be very UM.

It would put the White House in a tough position to have to go against these two unions who are saying, hey, we want some more stick time. But for you know, the White House or President Biden to say, hey, you need to accept what we have on the table now. UM. It's going to be very interesting to see if this White House and the Biden administration will have to kind of stand up to unions UM in in this juncture. You Know what's interesting to me is also the regionality

of this. Yere, you mentioned a hundred and fifteen thousand potentially going on strike. Where in the country are we going to see the biggest effects? Um? I think you can definitely. I know there's a lot of concern among agricultural employers about how this will affect their shipments ahead of harvest season. So if you look in those areas, you know, the bread basket areas, I would say they're going to be feeling this more acutely. Um, when you're

thinking too, just about the broader economy. You know, officials and rail executives are warning that this could touch every piece of our economy. Um. You know, if shippers aren't able to get products out, this is also going to lead to even bottlenecks or delays that could last, you know, for weeks. Um. We're especially ahead of you know, the retail holiday season and harvest season. Right, All right, good stuff, Rebecca Rainey, thank you so much for bringing us up

to date. Rebecca Rainy from Bloomberg Law giving us an update on what could become a big economic issue. Again, I guess the drop dead date in terms of getting a negotiation done and setting a strike this coming Friday railroads. Many of the unions have some issues with the big railroads in this country and again threatening to strike Friday. Hopefully, you know, we'll get some type of resolution before them, because that would just be another challenge for this economy

in terms of supply chain challenges. Brent Donley, he's a president of Spectr Markets. He's been doing this currency thing on the street for a long time, so he knows what's going on. Brand I'm just gonna start off with my kind of my stock f X question, which is is there a bear case for the green back. Well, the funny thing is we had a bear case for the last week or two. We had PBOC and the Bank of Japan pushing back on dollar strength. He had

some good news out of Ukraine. You had the ECB kind of stepping up a little bit, and then you had like a big pocket of demand for euros around one double o. And then today just everything onlines in two seconds. Because the problem is so b O J and p BOC can push back all they want, but they're running the loosest monetary policy in the world, so they need help from the data and they're just not getting it. So now again, if b o J is peggy yields at twenty five basis points in the tenure.

You know, Delian is just gonna go up. They can say whatever they want, Delian is just gonna keep on going up. But how long does that last? Because it feels like the bear case for the dollar that you just reference, a lot of that came from interest rate differentials, the idea that if the e C b UH surprises the market in some way, that ends up creating a bowl case for the euro, and therefore you sell the dollar off the back of that. But even that was

a temporary scenario. So how long does the bear case for the dollar really last? Well, that's kind of my point is that it doesn't last very long. We get these quick little moves for maybe a week or two and there's a ray of hope for dollar bears, but then then you know, one other one side, either on the energy side in Europe or on the right side in the US, the hammer just comes down again on

the euro. And that's what we're seeing again today. So to me, it's very reminiscent of two thousand, two thousand one, where it's just an impulsive move and really nothing's going to stand in the way until you get like a fundamental turn in US rates, which obviously we keep waiting for and sometimes pricing but never actually is delivered. So it's you know, Tom Keane and the surveillance, radio and TV team. They're over in London covering the Queen's upcoming funerals,

so they're benefiting from this strong dollar. But dos you think about the euro at parody the pound at once about one five? Do you just trade those things or do you just stay away from European currencies? Well, I mean the trend is still intact, so I think a lot of people have just been playing the trend all year. Really that has been the play is just that's been the right playbook, has been selling rallies in euro and Sterling. Of course, now we're in an in territory where valuation

starts to come into play. You start to see changes of behavior like m and A cross border m and A starts to change, Americans start going to Europe more. But all that stuff just takes forever to bleed through. So um, I mean, for me, I've had a couple of brief forays being barised dollars, but it's just never fun. The fun is always selling rallies and euro and you know the d x y went much higher than this in in two thousand, two thousand one, and there's a

lot of parallels to that period. So you know, any any long earros of a rental and but you can own the short earros for a while. One about the pound here, because it feels like now that we've I want to say, talked about your dollar parody, it's in the rare view mirror some extent, really just hovering. It's actually literally at one point zero zero zero nine at the moment. But the pound here we're looking at one spot one five. I'm curious if pound parody is realistic

by the end of the year. So I'm less pessimistic on then than many people. But there is a scenario where they're issuing so many guilts to finance the the energy subsidies, and um, you know, they're also not doing quantitative easing in the UK anymore, so there is a scenario where there's a buyer strike and guilts creator and and sterling creaters. I'm not a huge believer in that, just because I find in G ten usually eventually higher

rates just attract capital. So at some point, real money, we'll just want to buy guilts because the yields are high enough. But there definitely is a more emerging markets type of scenario where you get the bond sell off and the currency sell off. Like I said, that's not my base case, but I mean there's a lot of strategists are calling for that, and that kind of scenario would take us to one double O and sterling. Brent, what's the your FX market telling you about this Feder reserve?

I mean it's had a you know, kind of a tag around its neck of being behind the curve. But if we get a third semi five basis point rate increase next week, is that still a fair character the characterization of the U S FED Reserve? I mean I would still argue yes, because we're just getting to neutral still and we've been you know, above five percent inflation for more than a year, so you know, the FED should have been I think by most measures in restrictive

territory months and months ago. So I would say yes because the size of the rate hikes is just commensurate with how loose they were. What are you buying today and you're if you're trading today and I'm assume you're going to trade a gazillion times today, What what are you buying? Dollien? Now, I think now that the boj is coming up, and I don't think that they're going to do anything, and that just opens the door for

one yen front very quickly. Is currency intervention a logical thing to be considering right now when it comes to dollar yen? No, because usually the framework is monetary policy and currency intervention have to be aligned. So if you're pegging rates at twenty five basis points, selling dolly and isn't going to do anything. So when they get to the point of actual pain for Coroda, so the Ministry of Finance is already in pain, but Coroda is sort of kind of trying to hold off as long as

possible because he's out in March. So what you need for intervention to work is coordinated monetary policy. So they would have to raise the yield curve, raise the yield target, and then intervene and that would work. But I don't think we're there yet. All right, Brent, good stuff. You're a go to guy on all things currencies and big big moves here Again, I can't think of a bare dollar case, I'll just keep buying the dollars I got but dollars in my pocket literally, so that's appreciated. Paul

has one of those old like cash wad holders. I do money clip. I haven't seen uh really outside of the National History Museum. Yes, thank you very much. Brent Downland, he's a president of Spector Markets, He's our go to person when we talk currencies. Here and again. D x Y index one spot I'm sorry, one zero nine spot five five, that's up one percent today, big, big moves

in these markets? Is it an overreactions? Checking with the Ellis Piffer, Managing director Fixed Income Capital Markets for Raymond James Ellis, when you take a look at the equity markets, when you take a look at the treasury markets, big moves in the short end of the curve here, what do you make of these moves were seeing in the risk assets today on the back of that higher than

expected inflation print. Good morning. Um, Yeah, I think it's it's pretty much a knee jerk reaction that's um, probably a little bit overdone. I mean, the equity markets obviously have a little bit more to contend with because they've got not only the inflation issue, but potentially you know, the FED tightening us into a softening economy, bringing us forward into a recession. So there's a little bit more

issue there on the bond market side. Um. You know, obviously the move up is a bit of reaction to it as well, but you know, the numbers underneath are a little bit more predictable than than what maybe the markets should have thought about. UM. And I think it is a little bit bit overreaction on the bond markets are, for sure. So given kind of the backdrop of again, the data we we've seen over the last few weeks, including most notably today, what do you expect our freder

reserved to do next week? Not so much, I guess the rate increase because the market seems to be fully discounting in a semi five basis point increase, but maybe some shading around the edges in terms of kind of how they make view the next couple of meetings. Yeah, I think they're gonna you know, they're gonna continue to talk tough. I mean, their their biggest concern is the

consumer's behavior. You know, they don't want to file let the inflation expectations get un anchored as they like to call it, so people to behave differently and start acting like there's price increases and start rushing to buy things to sort of become some of somewhat of a spiral with rates higher, so that their job this became a little bit harder today and trying to contain that inflation behavior. And so I think they're going to try, you know,

continue to talk tough and let the data speak. And you know, this month and next month of the easiest months for the CPI data to actually beat on the upside, you surprise on a negative basis, you know, when it goes higher than expected, UM. And then in starting in October, it's gonna be a little tougher for it to beat. The base effect comes back into play. Uh, and so it maybe a little bit easier for them at that point, UM to maintain that behavior. What does that mean for

the federal reserves credibility? Though? I mean the deceleration here when you're looking at some of the CPI data is not as fast as I think the market was expecting or really hoping for. A hundred basis points of a hike would come with a lot of questions around UM, is the federal reserve panicking. What else can they possibly do here? I think that just it is very difficult again for them to to try to contain this behavior,

and it is tough talk. Um. You know, the policy error to hold off is in hiking to be again with has being compounded now um, and now they they are in somewhat of a I don't want to call it a panic mode, but they obviously haven't to talk a little bit tougher than they expected. I mean, this, this we haven't seen in so long. This this this type of inflation. People just aren't used to it. And and there their biggest concern again is containing those expectations

and trying to keep them anchored, so to speak. Um, And the bond market is is hasn't become un anchored. Um, the consumers what they're really concerned about, and so um, if that begins to become an anchor, then that they will have to panic. I mean, that's that's a full you know, full on vulk or type mode. Um. But

I don't see that happening. I think, you know, I think they're looking ahead of the data and saying this and these numbers are gonna be tougher to beat and I think it's gonna be you know, we're gonna just continue to talk tough and let the data kind of kind of come here. UM. And yeah, the SETI card basis points, like I said, is fully baked in, and I expect that to happen as well. Alas what are you seeing on the RIM and James desk here the

Capital markets desk? What are your clients telling you about kind of their base case? Are they baking in recession scenarios? Are they rushing to show up their balance sheets? What do you what are you hear from your corporate clients. Yeah, there's you know, there's still good demand for loans. UM. There's there's still good activity if it could be had. UM. The problem is there's a lack of liquidity in the

in the depository system. So you know, we're seeing you know, consumers taking out more money to pay for the goods because their wages aren't you know, maintaining UM. And so the banks and depositors also seeing the potential recessions, they are kind of viewing that UM and so we're seeing

some tightening of lending standards. So you have to be more cautious, uh, in the loans that you are making so but you know, with all of that comes this um, you know, drain of liquidity that they're not actually spending much money on the bond market either. So there's there's you know, they've been one of the big guerrillas. You know, when the Fed step back from buying bonds, the banks were there to buy them, and there they are they

have had to pull back as well. So what's what's the sector that you're seeing the most interest in right now as you as you kind of think about your capital markets activity. Yeah, we um, We've been talking to a lot of clients about buying uh, adding some duration to the portfolio. That's that's probably seeing a little bit more reluctance than anything. UM. But you know, adding in a in a form of deeply discounted collables and mortgages

are probably a very good play at these levels. Um. You know that there's a risk reward that has drastically changed in those two sectors in favor of the investor. Alright, good stuff. L. S. Phiffer, Managing director Fixed income Capital Markets for Raymond James, joining us talking to us about kind of what he's seeing out there in these markets. It's chicken with a professional economists, Simona Mokuda, chief economists at State Street. Simona, thanks so much for joining us here,

chief economist at State Street. That means a lot. You've got a big sway on the portfolio manager's at State Street who run a lot of money. What's your takeaway from the print we saw today? Well, I will say it was a bit of a punch to the gut right when the data first came out, and you've seen the acute market reaction. But if you're willing to take a step back from from the initial shock, I think I would describe this as a stumble, but not a fall,

on the path towards disinflation. I think the next story in the US inflation picture, and frankly, not just duus but globally, is a fairly powerful disinflationary episode that's ahead of us. Well, what I'm curious about, though, is the pace of the deceleration. I've been asking every guests, uh, since since since since the show began today, Simona walk us through the timeline that we get inflation back to even four percent? Yeah, I think. Um, Well, let's first

of all, are we talking about headline? Are we talking about corners? About headline. I think headline you're looking, frankly, second quarter of next year, you could be in that range. It's hard to you know, picture that perhaps right now, but we are having some very very powerful base effects

that come into play here. And more importantly, I think a lot of the indicators that a year ago we're signaling that we have an inflation problem on our hands have now turned much more encouraging, whether you're looking at pricing intentions, whether that's in manufacturing, whether that's the small business surveys, or even you know, even today we got the nfib UM survey, and the price plan measure in that survey is now at the lowest level it's been

since January. Um It's going to take time for these things to feed through into the CPI number, but they will eventually make their way there. What's the risk in your mind and your model, Simona, of the FED pushing this economy into a recession? Um I. I you know, frankly, whether it is a recession already or not is not the even the most important question. I think it's undeniable

that we are in a meaningful slowdown episode. Of the way I would rephrase the question is whether the FED is making this slowdown worse than it needs to be. I think the risk of that is fairly high. Actually, um, I do believe that we are seeing substantial improvement on supply chains, but the FED is no longer in a place where it can you know, act on hope and expectations and even perhaps their own forecast, but rather they have to respond to the data in hand, and that's

not providing much really leave so far. So I think, um, you know, we are probably going to end up tightening a little too much and be forced to unwind that. Um that will hurt the economy a little bit more than otherwise would be the case. But I don't think in any of these scenarios we are really talking about a genuine crisis, right, So that's the silver lining in

this cloud. I'm wondering about the liquidity picture here, because we talked about all the time from a market's perspective, how that could actually crunch financial conditions, But from an economic perspective, quantitative tightening is something that the FED hasn't really undertaken in this size and in full, even going

back to the last tightening cycle. Your take on the success rate of this operation well, that's another reason why I think perhaps there is some wisdom in being a little more careful on the right side itself, because you do want to be able to continue this process. In the background, you'd do want to reduce the balance sheet, and you might not. You're probably trying to avoid the situation where you're being forced into ending this process prematurely.

So we are watching that, we are thinking about that as a you know, as a market functioning liquidity risk. I think it just adds to our viewpoint that you know, it's it's some cautional rates is warranted, especially the further you go beyond neutral, and for sure we'll be quite a bit beyond neutral after the September meeting. Alright, Simona, thank you so much. We appreciate getting your thoughts and perspective.

Simona Mokuta, Chief economist for States three. Uh, definitely seeing maybe some disinflation still in the picture, which I would say that doesn't feel like it's again census. Bringing our next guest, Ed Rosenberg, Senior VP and head of e t S for American Century Investments in American Century Folks is a huge money management outfit out there in Kansas City. When your cell side analysts. You had to go out there at least once, usually went out there twice a

year to get their vote. That's how big they are, and they're now big in the e t F business. At Rosenberg joins us here in studio. He has a graduate of Muhlenberg College and an m b a From Penn State University. I am wearing my Penn State little hoodie here today. Um I wrote a lot of tuition checks to Penn State, so I get this little shirt here. Ed talked to us about the e t F business. Ever since I've really kind of followed e t f s, the story has just been funds flowing to ets. Is

that's still the case and what's driving it? Yeah, I mean it's it's actually more so the case than ever before. There was a period in time like through two thousand and fourteen that's it was a lot of individual stock traders shifted over to e t f s first. But for the last eight nine years it's strictly been right

for mutual funds for the most part. And there's a ton of reasons, but the first one is U E t F s. I don't want to hear more tax efficient because mutual funds can be, but e t F s history, they have not paid a lot of capital gains distribution, so it's made them more tax efficient. And in years like we have today where the markets down right, it's the worst thing for an adviser to say, oh, your funds down and it pays a ten percent capital gain. That's just a hard story. And going into e t

F s helps eliminate that conversation. Can you talk to us a little bit about here and now the markets are tanking here, the SPI down three percent, the NASDAC Paul down four oh my gosh um, and the dollar continues to be a session high fields as well. Walk us through the impact that you foresee on the e t F world. So I actually think days like this and months that we've had the last couple of weeks, I'll say, so I'm going to call it a month including today, can be really advantageous d t F flows.

We're kicking off what I like to call it e t F season. So you'll see this is the largest quarter when we hit the fourth quarter for et F flows every year, and a lot of that has to do with the tax lost harvesting from other portfolio. And if you've owned a mutual fund, let's say for ten years, right, you put ten thousand in. Its total value is twenty, but your real gain if you sold it today is only a thousand because of the market pullback and all the games it paid. It's an easy solution to sell

that and go into something more tax efficient. Or if now you're at a loss because quite frankly, it paid so many games over the years. It might have you still might be up on a total return perspective, but it's an easy time to sell that. And so across the board, Muni struggled this year, right, so another fixed income instruments struggled. You're not alone. You can do this in equities. You can do an international anything that's owned em has really struggled this year, especially if you had

exposure to China. And then once you get into fixed income and just regular equities, there's so many places you can start to do this with. And who wants a tax bill at the end of the year, especially in this year. I mean when you normally have a good year, frustrated paying taxes, but in a bad year and you're like, that's my bill, that's a much bigger discussion, and you can avoid a lot of that by law taking losses moving in d t S, what's the what are some

of the hot areas? And E t F because it just seems to me as I read the headlines, there's just an e t F for every shiny object out there. I'm not sure if that's good or bad for the space. But where's the real money going? Well, my joke is not everything, because I was joking there should be a baseball card TF that hasn't happened yet. But I mean, if you look at this year, flows are a little bit pale in comparison to last year. A lot of the money has gone into just large cap us right,

it stayed away. There's some international flow in a sense, but it's it's significantly less than it previous was. You're talking a third. It's only about you to date it's fifty billion. But if you look at just US it's a eighties seven billion and flows through the end of

August that's tremendous. And fixed income right guields rose. Money went into government's early, you've seen money flowing to muni's, You've seen money throwing to like agg products throughout the year, and the other thing investors were kind of smart about how they did it. When you're talking about this all the majority of the fixed income exposure, about a hundred eleven billion went into short term and another went into intermediate, and so the investors knew that rates were going to

go up and it's gonna be a tough year. So let's get short and let's be realistic. We haven't had these types of rates on funds UH in fifteen years fourteen years, right, So there is some type of yield to be had that investors finally get going forward. The other place that a lot of money has gone into is value, but it's a specific portion of value where it's dived end fifty billion dollars in the US and it was again it was that search for yield for so long. So take this US cross acid here you

talked about the stock picture a little bit. Walk us through things like appetite for bond ETFs, appetite for even commodity e t F is. Given this kind of obsession with inflation hedges in the last year or so, currency ETFs are more complicated. So I'll leave spare our radio audience for that, But walk us through the cross ass story. Yeah,

so fixed income has been popular. As I said, it's about a hundred eleven billion, and there's been a lot of investors moving in now tax lost harvesting from funds into e t f to take advantage of one the yield and get that tax loss. But other areas of the t F market, the niche products, some of those have taken off. But you mentioned commodities. Commodities this year have been muted. You're only talking about five six billion

flows last month was negative. And it's interesting because you get the one educational piece you have to remember is when we talk about a t f s, they're really exchange traded products. And there's several different structures out there right. Some are under the forty Act. They they're regular E t f s. They behave and and pay taxes similar to like your mutual funds would. But then you get into things registered on the thirty three at thirty four Act.

When you go into gold, they're collectible as you could be in a partnership. What can you be in you get a K one. So a lot of people have struggled with some of those. And if it's all futures, you have to look how it's set up, and so while money has gone into those, there's been more straight into gold than anything in this type of environment. But it's also the structure. Advisors have to be leary, investors have to be leary of what the consequences of that structure.

It's not bad if you know what it is, but just understanding that about the structure of the entire market, it's based effectively a DWOPPO, a State Street and Vanguard. That's not good. Well, it's a little more than that, but um, you know the top five makeup of all the assets. But those are the basic products and if you look at how the market is starting to shift, right, those products have been around for a long time and

they're in a lot of models. So as you put money into a model, whether it's through a wire house or through an independent broken dealer or even are a may have access to it, they're just in there. But if you look at the active et F landscape, six of all launches this year have been active. Scent last year were active, and in the year before it was about fifty one. It was the first year that active dominated.

The growth inactive has been tremendous you're talking at fifty year over year, three year growth rate, and beyond that, you know, we'll say, three years ago it was a hundred billion dollar marketplace was equity. Now you're talking it's four and fifty billion active and it's you know, almost getting closer to So it's not just all you know, fixed income anymore, it's equity as well. All right, good stuff at Rosenberg, Senior vice president. He's head of E

t S at American Century Investments. Uh, they're based in Kansas City, Edge based in New York, and he joined us here in our Bloomberg Interactive Broker studio, So we appreciate him taking the walk across the street here. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Yet on bal Swhee, I'm on Twitter at

pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio