Jay Powell, Inflation, and the Biden Budget

it's about I wanted to beat him to it. Ira Jersey, chief US interest rate Strategists with Bloomberg Intelligence. He's based down there in that Princeton area. Michael McKee and or Bloomberg Interactive Broker Studio covered all things economics for Bloomberg Editorial, So we appreciate getting these folks on the do a little bit of a roundtable here. Let's start with you here. I don't know inversion, biggest inversion since nineteen eighty one.

I mean that was a good year for me, nineteen eighty one, by the way, But you know, what does that What does that mean to you? Um? It means that maybe Blondie's going to come back, Um, Bell bottoms and uh and plaid UM. But you know, the the inversion is not a huge surprise because at some point, UM, we're going to have a significant slowdown in economic activity and inflation is going to slow. The question is when,

um number one and then number two? UM. And this is where you know yesterday was important, and I think today's reiteration by Chair Powell that there's a possibility that they can go fifty basis points in March and certainly go higher than what we were expecting prior to his testimony yesterday. UM, is it's reasonable to think that we could even invert further because the more that the Fed hikes, and I've been of this opinion for quite some time that the more that the Fed hikes, the the harder

the ultimate landing will be. UM. You know that the timing of when that landing is I think it's more in doubt as opposed to whether or not we'll have a hard landing. It's just a matter of when. And that's why you can get the yield curve inverted by one hundred and ten basis points now and maybe one hundred and twenty five hundred and fifty basis points ultimately in the future. So Mike hop on in here, Michael mckear, International Economics and Policy corresponded, to get your title right.

Fancies fancy that guy? Yeah, that the guy who knows the stuff. Well, did we really hear anything new here? I mean in today's session or did it was yesterday? Really kind of the testimony that took the cake. Almost everything that we've heard today has been essentially a repeat. However, he did throw in an important line or two when he was reading his testimony that they have made no decision about twenty five or fifty. That they're going to

be monitoring the incoming data. The totality of the data includes the Job's report, he said, the CPI report. They'll be looking at those, they'll be looking at jolts. They're going to look at everything that they've got between now and then and then make a decision. So I think it is probably premature to lock in a bet on fifty basis points because the numbers could obviously change that. If we get strong numbers, then the Fed is probably going to do fifty because he's opened the door for that.

So Michael, just in terms of the economy, it seemed like the recession talk. But I think I was asking this question maybe it's recently as two weeks ago. Is the recession talk? Is that off the table now? Boy, that seems like a long time ago, because now it feels like it's right back on their front and center. Yeah, if you're looking at the eeel curve, it's right back

on their front and center. My question was, and I was talking about this earlier on Bloomberg Surveillance, if you look at a chart of the two year, ten year, just to pick one, and you put down the dates that we saw the job the FED meaning the Jobs report, the CPI report, the retail sales report, and then don't forget Laurdemester and Jim Bullard coming out and saying well we could have done fifty. You look at all those things, and what happened with the yield curve. When those things happened,

it just traded sideways. It wasn't until yesterday really, until Jay Powell came out and said, well, we're going to have to do what the yield curve is telling us, and you we should be doing. So. I wonder why all of a sudden people have decided that this is a real thing that we have to react so tremendously too, when the data has been pointing in this direction for a long time. Well, Irah, you do this for a living. Tell us, why why are we looking at a yielding

version here of one oh eight? What is that really telling us? Well, it's all about expectations. So I was just just for fun. I was looking at the one year forward rates and what the market was implying where

one year rates would be on a forward basis. And when you look at something like one year where the one year rate is expected to be three years from now, what you realize is, hey, the market's expecting, um, the one year rate to be at three point six percent, right, so we're talking about, um, you know, one hundred and fifty basis points lower than where it is now. So all that the market is telling you when it's inverted like this, is that the market expects interest rates to

be lower in the future than they are today. Um. And and because of that, you know, And the reason is why why does it think that? Well, it thinks that because of what I mentioned earlier, is that at some point we're going to have a recession. We're going to see lower interest rates, We're going to see lower inflation UM, and what the market's saying right now is that that that's not going to probably start till twenty

twenty four at this point. So so we're in a situation where the FED is going to hike more and and the Fed's going to keep rates high. That's what the market's uh indicating right now. That's saying that one year rates a year from now, we're still going to be five percent UM, and that means that you know, we're we're probably just going to have a harder landing

and um and ultimately have a recession. It's just you know, these long lags, like like there's not like a set time when you say, okay, when two stents inverts, when three tens and birds that you're going to get a recession right there. There's all these models that the FED has and all the economists have, but the thing is is that there's a massively wide range as to how long that takes. And obviously this cycle is significantly different from demos others, in particular because of how tight the

labor market is. If the labor market wasn't nearly as sized as it is, we'd probably already be in a recession. We're very darn close to one. But but the fact is is that we have changing paradigm in the labor market since the end of the pandemic. That's I think caused the economy to be more robust than almost anyone had expected it to be six months ago or even three months ago. Hey, Mike, you know Irish just mentioning the Jolts number, and again it's surprised to the upside.

I guess ten point eight two million job openings versus the consensus it's had ten point five five And then Bloomer's got a fascinating story that I was talking about earlier. Restaurant people are going back to the restaurants like crazy despite the inflation, and restaurants are like Gray will up up more stores, but they can't find people to work in them. What has changed fundamentally about the US labor force?

Are people really just leaving their incoming back? There are fewer people in the labor I mean, the good news is you guys are doing a morning show here where so you can go out and get a restaurant job to not out here on the side. Yeah, exactly. We have seen a definite shrinking in the labor force that

has come about for a number of reasons. We've had a long term drop in labor force participation by older workers because the baby boomers are hitting sixty five and they are starting to retire, and a lot of them just up and retired during the pandemic because they couldn't go to work anyway, and they say, oh, might as well, you know, get that social Security check um. And then we saw a lot of people, as they do go back to school during that period, took off some of

the young people. Uh. And then we had and I should throw in, of course, the childcare issues that we had in schools out that we had basically a lot of people who were looking at the jobs in restaurants and saying, well, there's a lot of jobs open that won't require me to walk around on my feet for eight hours a day and struggle for tips. And so people went into other fields of work. So it's been

a while. The jobs that are have been growing the fastest now our restaurant jobs, because they're finally getting around to people who are willing to take the jobs again and they are getting paid a little bit more now. So it's it's been a combination of factors, but it's been an issue and one that's gonna likely remain. We're not going to see a big increase in the labor force, it looks like, and I guess that I just a little bit of follow the immigration that's got to play

a part in it. I mean, immigration became so much tougher over the last several years, and especially for some of these lower end jobs. If you're an immigrant who doesn't speaking, it's gonna be hard to get a restaurant or or at least in front of the house restaurant or bar job. But other lower paid jobs, it's been hard to fill them because they can't find people who who want to work for those wages, and immigrants played

a big role in filling that in the past. Well, Ira Hot back in here because we talked a little bit about the labor market. Of course, the payrolls report, I think, what is it ten ten positive or beat or hot reports or something like that is a statistic I saw that's on Friday. Then you've got CPI on Tuesday, with inflation expected to drop again, um by some margin. What is the trade on Monday sandwich between the two

data points. Um, well, I'm not sure Monday will be because obviously Friday is going to be the big one. And and we actually did some work on, you know, how how big moves tend to be in the bond

market based on the different data points. And even though CPI and inflation is, you know, the hot topic and the reason why the Fed's hiking some ch and the reason why markets moving the way they are, the market still tends to move the most on the payrolls report, on the employment number and it's not necessarily the employment number itself, although obviously that's critically important, but it's really it's also the wage data, right, So the wage numbers

that come out because like Mike was talking about, with a lot of the changes in the job market, Um, you know, services jobs and services inflation tend to be influenced most heavily by them by the wages of services workers. So if restaurant employees are making more money, that's going to be passed on at least to some degree to their consumer. Right that either that or the margins for

those businesses have to contract. So so the the job number is going to be critically important, and I think the CPI report maybe a little bit less so interestingly, and I think this is um kind of with in our analysis of the market moves versus the data released, retail sales actually is the second most important and with

CPI as a third. So so retail sales is still which makes sense, right, So if there's more demand and sales remain strong, then clearly prices will probably be stickier than they would be if if sales started to either decline or didn't grow as quickly as they had men So, so really it's still retail sales and jobs still are the key elements of what the market is looking at in terms of in terms of the future moves. All right, ire, let's fast forward to March twenty second, what is your

federal reserve going to do? Twenty five, fifty or maybe other? Yeah, so you know, it's it's hard to gauge right now because I do think that they are incredibly data dependent. So if the data comes out as strong as the market's expecting, then I would not be surprised to see a fifty basis point move again, I think seventy five like so that other you know, there has been some

talk about that. But I don't see the FED jumping from twenty five basis point moves to seventy five, you know, incrementally that though they could move back to a fifty basis point move, particularly if the data is very hot, it's that stepped down versus step up approach. It feels like if we go fifty, Mike, how scary is that? Did that? Then put on the table perhaps seventy five for the next meeting? No, UM, want to make it that way. Remember where we are, not where we were.

I mean we're at four seven five. Now, if you did fifty, you'd be at twenty five, So seventy five would put you over six at that point? Why why you wouldn't need to go that fat far that fast? And the feed isn't sure that it needs to go to six yet we haven't even seen their SEP So I think that it doesn't put seventy five on the table. But what it does do is raises the question of were they behind the curve? And I think what what to be honest if everybody were honest about it, is

everybody's behind the curve. And if we get this data that comes in strong and they're doing the market's going to be essentially giving them permission to do it, saying, you know, this is uh, this is scaring us too. And so the FED would do probably fifty, as Iris says, to catch up. But I don't think they need to go beyond that, I mean not in one move. Put

it that way, all right. I'm looking at the World interest rate probability function on the Bloomberg turb Terminal WARP wi RP, and it shows me it's kind of got. I don't know. FED fund rates peaking maybe September ish around five point six percent. Is that enough because I've been hearing talk about a six percent number, maybe even six and a quarter. Is the market still not buying it? Well?

I think the markets, you know, when we look at something like w IRP, we're looking at a linear probability. So we're saying, okay, the the average, right, So so the average, the weight at average thinks that we're going to hike to around five point seventy five percent at this point, right, which is gets you too. And that's on the upper bounds. That's a five point six percent, which is it looks like the market is pricing that

for four July. But keep in mind, is that some of that is six percent, and then built into that also is only five and a half. So you know, when you think about the probabilities that are being built in, that's just the kind of the the median probability or the mean probability of that distribution. So, I, you know, it's very unclear right now, and I think that the Federal Reserve is still in calibration mode, and they've been in calibration mode for the last you know, basically since

the December meeting. But you know, is that calibration going to be that we're only hiking to five and a half or is it that we have to hike to six because the data is not not cooperating the way that we had hoped, and it's possible that they could go more. Right like, look, right now, we're all data dependent and almost everyone's forecast from the beginning of the year.

If you go back to December and you look at what everyone was thinking the path of the economy and inflation was going to be in in twenty twenty three, the January data blew those up. And because of that, we're now to say, okay, is the market going to follow what the economy is doing. And if the economy is hot, that means we're going to have higher interest rates in the front and that means we're going to

get a more inverted yield curve. And that's just the way that I think this year is going to shape up is that we just have to look at each data point as it comes in, and the Fed is going to be reactive to all of those. I're at thirty seconds, yere, I'm gonna put you on the spot and looking at a two year yield at five oz two for talking about six percent, do we also see

six percent on the two year yield this year? Now, the two year yield will would probably get up to like five twenty five, five forty, because that really depends on when they start to cut and which the market is still going too price for twenty twenty four cuts at some point, So the question is how fast and

when do they start those cuts. So you'll never have the two year yield up to the Fed funds rate, but it'll be it'll still go in the same direction, just with a lower data All right, good stuff, I Jersey, thank you so much for joining us. Our Jersey chief US interest Rate strategist for Bloomer Intelligence, joining us from

Lovely Princeton, New Jersey. Michael mcke here in the Bloomberg inter Actor Broker Studio, International Economics and Policy reporter for Bloomberg TV and Radio, just kind of breaking down what we have been hearing from this feder Reserve, what we were likely to see from the Federal Reserve, kind of in the context of a lot of data coming out

over the next several days. It seems like there always is data, but this is a really important because, as Mike mckehon and our Jersey were suggesting, this is a federal reserve that is data dependent. So the day we'll be looking at, you know, the job's number on Friday, the CPI number next week, retail sales as well, so we'll be following that as well. Alice Andrea Joyan says

she's US Interest Rates and Foreign Exchange reporter for Bloomberg News. Alice, I'd love to get your perspective on kind of how you've interpreted FED Chairman Pal's test menu over the past

couple of days. Well, you know, he really had an opportunity to walk it back today and take back a little bit of that hawkishness that he brought out yesterday, and he just didn't you know, we settled September fed swaps around five to sixty three yesterday and they're five sixty four today, So you know, he knew where these were, and he knew that the market was pricing in potentially a bigger hike coming up at this March meeting, and he didn't take it as an opportunity to say no,

no, no no, we're going to do twenty five. So you know what's happening in the treasury market is there. They've obviously flattened the curve quite a bit. We did see some historic tights today down to about minus one hundred and ten on two tents, and investors are putting some money behind this for sure. What we're seeing here is that the thematic trades that are going through is we're seeing very very strong real money buying in the back

end of the curve. Now, real money buyer would be something like an end user or something like an asset manager and ensure and a pension fund, and we are seeing those types of accounts buying in the five year sector, ten year sector, and ultra ten years spector, mostly in the future's curve, and traders there are telling me that also there's been some big option plays that are targeting three sixty on tens that's about thirty four basis points

below where we are now. So we're getting some real money investing in the back end of the curve looking for lower rates. So, Alice, you have cut your teeth on Wall Street as a tried and true professional bond trader. What's the trade here? Well, I have to say that people have been in flatners for a very long time. Sure, a flatner is something where you might want to sell the front end of the treasury curve and buy the

back end. So we're seeing the buying in the back end today as I telegraphed earlier, and so you'd want to sell the front end buy the back end, and that the spread between these two instruments would then flatten out. And at the current pace, we're seeing that spread inverted, meaning that it's negative. So two year yields yielding one hundred and ten basis points over a ten year treasury and economists Alice have told me, and I'm an equity person, so I don't know, but they told me. When that

happens to this degree. Again, we haven't seen that inversion since nineteen eighty one. I think, what does that tell you? Well, to me, it tells me that the consumer is very strong, that people think that this will continue, that we will continue to see more inflation. And the problem with the two tenths curve right now is that it's really in no man's lands. Right we hit that triple digit target

that we've been really eyeing since November. We got to that one hundred level and it really splids fast down to one hundred and ten. Problem is, right now it's in a little bit of no man's land. There's no support until two hundred basis points. I think that that's like an outlier. I don't think that we're going to get there. But at this point, what you have to watch for is like the round targets. Now, today we slipped another ten basis points, so minus one hundred and ten.

The next one might be a one hundred and twenty five basis points. So we need to test these levels to see and you know, until we can finally pick a bottom it. I will mention that treasury yields at the back end would be even lower if it had not been for some supply coming in in the mortgage market. We've had about two and a half billion in mortgage origination in the last three days. That's a lot. That's a way lot. And what that's telling me is that

consumers again are being very stabby. They're seeing these yields fall at the back end of the curve and they're saying, this is an opportunity for me to get this mortgage by this house. It's becoming more affordable to me. And you know when you see people buying houses and the housing market elevating, all that means to me is more consumer demand, more inflation. Well, Alice, then walk us through

kind of what could be the game changers here. You talked about flattners that we're seeing in the inversion that we've really been talking about all morning, negative one ten on the twos tens. But that is actually not the preferred kind of pair that I believe the Fellow Reserve looks at. It's like three months, ten year, I think, so, what are you seeing in other parts of the curve. Well, actually, I'm not really seeing this big selling in the very

very front end of the curve. I have heard that in treasury bills there's been a fair amount of short covering, so people taking some profits there. I would say that the you know, obviously the big game changer will be Friday, right, There's this a whole lot of volatility that's going to be sorted out on Friday. The other thing I would mention is that on Friday at midnight, so Saturday morning,

the sect goes into blackouts. So if anybody wants to say anything about jobs, they're going to have to hurry up and say it Friday. But you know, I think that actually Pale has kind of laid the groundwork. He said, you know, we've made no decision, and you know, maybe some of those FED officials that it said we're looking at doing twenty five, you know, maybe they're not going

to be speaking, and maybe them not speaking actually speaks volumes. Alice, you mentioned earlier that you've been seeing some real money come into the back end of the curve. Tells us about just the liquidity in the treasury market these days. If I want to go in there and put a big trade on, yeah, is it out there? Liquidity out there? It's much better, Thank goodness, you know, um I and

I know that because I'm getting flows. You know, before I would say, hey, you know, markets moving around, what's going on? And they're like, there's no flows, and that's when you would see, you know, yield spike or collapse really really fast. But you know, the market seems to be um much more orderly, you know, and I think that we're seeing that too, because you know, you're not seeing yields, you know, with these you know, fifteen twenty basis point rises and decline. You know, we are seeing

big ones, but they're a little more modest. But I definitely think liquidity is back in the market. Players are in their trading, they're providing liquidity, and I would say that overall trading flows are much better. In liquidity is much improved. Alice thirty seconds here? What change? What change? In terms? How did you recover? How does what recover? How did the liquidity recover? Oh? How did it look? Okay? You know what? I think that finally when we have

the yield higher, I mean people wanted them. Yeah, we're going to have a big auction coming up here at a ten year auction coming up at one o'clock. And I have no doubt that that thing's going to go just fine. People want these high yields. Yeah, absolutely, I mean I can sit there at the two year get five zero five point zero five percent, just extraordinary. Alice, thanks so much for joining us. Really appreciate getting your perspective.

And you're reporting, Alice Ander, I'm sorry. Alice Andrey, us interest rates and foreign exchange reporter for Bloomberg News. She's in Chicago. She's a former floor clerk at bear Sterns, so she gives you a good trader's perspectives market and all that kind of stuff. So pretty good stuff. But again, this is a federal reserve that has said it is data dependent, and boy, are they gonna get a lot

of data to digest over the next several days. Let's get down to Washington, DC, because there's a lot of work being done in the halls of Congress. A lot going on down there. President Biden just announced his budget. We've got apparently some talk I got to keep the government funded or something like that. I think that's important. It's nice to have funds the account. I want to start there. You do that with Steve Dennis. He's a

congressional reporter for Bloomberg News. Steve, let's start there with the debt ceiling here, could you lay out, for simple terms, kind of what it is where we are and what kind of has to happen, do you think? Yeah? I mean, right now, both sides are basically still you know, putting

out their sort of talking points. The way I look at a president's budget, it's sort of like the kickoff, and it's like, this is basically in my dream scenario, this is what I would like, and it's a it's a PR document, but Congress is going to drop kick it into the sun and then then the real negotiations presumably can start. I mean they he met once, was

Speaker Kevin McCarthy. They really haven't gotten anywhere on what is ultimately going to be a deal to raise a dead limit, probably this summer and have some kind of spending deal at least for the next two years that's probably gonna cap discretionary spending. The idea that there's gonna be a big, sweeping budget deal that would have long term implications. The expectations for that are very low. But you know, there's still you know, there's still people talking

on both sides about doing stuff like that. It's just you know, the appetite from the White House or anything that would touch entitlements zilch. And they just want to tax people making more than four hundred thousand dollars a year to sort of raise a couple of trillion dollars

over the next ten years. That's going nowhere with the republicands And you've got guys in the middle like Joe Manchin, who has to decide whether to run for reelection next year, has flirted with running for president and has been attacking the White House on a whole host of issues, basically saying, look, why don't we cap just start with capping some discretionary spending to try to reverse this trajectory on debt. Well, Steve talked to us a little bit about the money situation.

For lack of a better term, I really want to talk about the defense budget specifically because it feels like, just from a Marcus perspective of markets, Gal, after all, you saw a lot of these defense stocks really outperform after the war Ukraine. Now we're talking about the Chinese rivalry as well. How much momentum does defense really have under kind of a democratic administration. Yeah, I think that this is something where you know, the stars are kind

of aligning for more defense spending. You've got Mitch McConnell sort of been He's been pounding the table now for two years to ramp up defense spending, not just to deal with Ukraine but also to counter China and the Pacific. And you know, he secured that big deal in December, the Omnibus package with a ten percent defense increase. He wants another big increase is summer. I suspect that whatever Biden's number ultimately comes in at, and we're expecting it

to be pretty robust, McConnell will want more. I think the the open question is what happens in the House where there are a lot of defense spending hawks in leadership. You know, Kevin McCarthy also has to deal with folks who don't support of spending on Ukraine and and aren't

necessarily is enamored with spending in general. So I think there's also a question of dealing with progressive Democrats who don't like spending more on defense and are going to be unhappy if any budget deal Biden signs onto caps the spending that they like the the best discretionary spending, but doesn't cap the defense spending. So you know, I think that's going to be you know, an open you know,

skirmish in the halls of Congress. Is you know, if we end up with a big defense increase, it's going

to be hard to have Biden's left lank happy. How about the tax situation here, I think, you know, President Biden and a fairly characteristic I guess Democratic move is talking down, you know, tax hike on folks over earning over one a thousand dollars, what's the whole tax The appetite in Washington to do anything on the tax code, yeah, I mean every once in a while somebody brings up there some expiring business tax breaks on research and development,

some other things on the side that you could come up with some kind of a smaller tax deal. But you know, I think everybody's kind of looking ahead to the election, and certainly Biden is sort of trying to portray the Republicans as beholden to the rich and the wealthy and sort of playing the populist card, and you know that's just not going to you know, there's just no appetite amoute for that among Republicans on Capitol Hill.

And so I think this is something that ends up getting taken to the election, assuming Biden is the nominee and and runs, you know, which you know he still hasn't a officially announced, and you know, we'll see what goes what comes out of the election. Really, I mean, the next big thing that happens on taxes, as far as like a big thing is when the Trump tax

cuts expire in a few years. That's gonna prompt a big bipartisan discussion on things like the salt tax break, which I don't know a lot of our listeners, Uh, you know that saltcap goes away unless Congress keeps it in place. So you know, there's that's gonna be a huge fight in a couple of years, you know, after the next presidential election. In all likelihoods, Steve, can we fold in the Federal Reserve here? I think yesterday's testimony

was a bit more juicy than perhaps today's is. But I think the fiery exchange between Elizabeth Warren and Jerome Powell really caught a lot of people's attention. Talked to us a little bit about how Congress and all these congressional representatives are really viewing what's going on at the Federal Reserve. Yeah, I mean, it's a very diverse stead of views on the Fed right now, which you can expect when they're making such big moves and so much as at stake. This is not like you know, the

past decade where it was like tiny moves. These are major moves. Millions of people's jobs hang in the balance. That was the point that Warren's been making. You know,

I've talked to her many times. I wrote about a few days ago about how she's pushing Biden to name a vice chair who would counter Powell on these rate hikes, because she, as she laid out yesterday to Pow and challenged him, you know, you're gambling with millions of people's lives, and you know your essential plan is to have the unemployment rate go up to four point six percent, which puts two million people out of work, and presumably people would then be willing to work for less money, and

therefore you'd have less labor inflation. Well, her worry is that every other time the Fed's gone on this kind of raising unemployment rate to bring down labor inflation, we've had a big recession, and we've never had a recession where you end up with only a couple million losing your jobs, you end up with a recession sort of getting out of hand. Yeah, and you could end up with five or six million losing your jobs. And if you think about it heading into next year, that could

be a total disaster for Democrats. So that's something that you know, I think when Biden ultimately makes this vice chair pick, you know, he could be signaling to the Fed does he want a dove? Does he want to hawk? And certainly there are people, yeah, the Republican side who want hawks, and people like Warrant who want doves. Yeah. The politics I think really crucial for the entre policy

and for international audience. It's worth kind of saying that Charon Powell's rebuttal to Elizabeth Warren's argument that Steve just so beautifully laid out was simply that, Okay, well, what's worse here inflation for lower income households. Then that hits five six percent, but is higher for longer, because that's really what they're trying to find it again, So two

certainly different perspectives. But Steve, it sounds like though chairmen Powell, he's no stranger to political pressure at all, and m kind of referencing here the political pressure during the Trump administration. Do you foresee a similar political pressure this time for the Biden administration? So far, a Biden administration sort of kept their distance, you know, and part I think the Biden administration even they wanted to criticize the FED, which

you know, I'm not sure they do. Uh, you know, this is his FED. He renominated Powell over Warren's objections. He named most of the FED board members, so it's kind of hard for him to turn around and then say, ooops, I messed up, right, So yeah, I think I think that's that's part of the issue here. But I would say I've talked to a lot of Democrats on this, and while Warren is out there pounding the table on this, Powell still has many many lies on the Democratic side

who have complimented him. Right before Warren asked her questions, Mark Warner was basically schuring him on and saying, I think so far you've gotten it right basic. Yeah, all right, we did a Democrats, that's right. Steve Dennis, thanks so much for joining us. Steve Dennis, he's a congressional reporter for Bloomberg News down to Washington, DC. Given the latest on some of the I guess budget moves, the debt ceiling, lots of work for our friends in Washington tending get going.

The eco data that got my attention today was that Jolt's job openings thing. Consensus was ten point five million, came to ten point eight two million. I went back and looked at it over the last twenty years or whatever it was. I mean, you know, prior to the pandemic, it was like six four or five six. I mean, you know, now it's up at ten and it's been up there for a long time. So where do all those people go? But let's check him with the Ana Wong,

chief US economists for Bloomberg Economics. So, and I'm just kind of thinking that that Jolts number. We're gonna get the jobs data on farm payrolls Friday. We have a tight labor market, and can you have a recession if you have a labor market that's this strong. Well, I think that all the data that we are getting, the Jolts data we just saw on this Friday's report won't fully reflect the softening that had already taken place in the labor market. So we looked at this very deeply.

So we looked at you know these notices that employers need to give their employeesburg layoffs, which usually is lagged announcements by two months. And so we are expecting that the JOLTS data in March or April will show that the layoff rates would have climbed to slightly just above the you know, the twenty nineteen level, the average of twenty ten to twenty nineteen. So I would say the signs of softening will only really show up in a data by the time that the FED meets in May

or June. So I think right now the picture that we are seeing from the data might be just a little bit lagged, all right, So what do you think is again, we're gonna get a payroll data point on Friday, We're gonna get the CPI print on next Tuesday. What are you looking for? What would surprise you? What would scare you? Maybe nothing scares me? Good, But okay, here here's what I think. So I think the fifty BIPs

that in March is not set in stone yet. Our baseline is still for the FED to to go twenty five basis point. So if the data, if the non farm payroll actually exceed three hundred k, this Friday, and the CPI core print exceeds, you know, as zero point five percent or more next Tuesday, then I think for sure we will be expecting a fifty BIPs high. Okay. But if there's the gray area of what if the payroll is about two hundred k and CPI is like

zero point four percent, that is unclear. But whereas if if non farm payroll comes in below two hundred k and core pis point three, then for sure twenty five days this point. Okay. So that's where we are at all, right, And just to summarize, on that non farm payroll data point that comes in Friday, the consensus is for two hundred and fifteen thousand, down from four or forty three

thousand the prior month. So and I mean, boy, you know, we had a guest in earlier that was painting a really barished picture that this FED really runs the risk of pushing this economy into a more meaningful and perhaps longer recession than investors are discounting. How real is that

risk in your mind? So, you know, I think part of the reason why Powell is, you know, has suddenly did a one eighty yesterday is there's a stream of research says that the lack of monetary policy is actually shorter. In fact, it's only three months long. And if you believe that kind of results, you would have think, oh, all the effect of the tight most of the effects of the tightening had already shown up, and that would make the you know you think, well, we definitely need

to push the peak rates higher. However, that would also tell you that, well, it's not that bad. After If the peak effects of you know, getting rates to five percent is still this really strong economy, it means that the economy can handle it. However, I think the more potent part of monetary policy is the higher for longer

part of monetary policy. Imagine if rates are at six percent until the end of twenty twenty four, and everybody, like the mom and pops on the street are like, well, I can get a risk Cree return on my cash for six percent. I'm not going to put my money in bonds or stocks. That by itself, without the FED doing anything more, would cause a lot of financial tightening as all these money and liquidity were sucked out of

bonds and equities. Well, and you know, a reader pinged me earlier in the day and say you know, you go to a restaurant these days, you pay through the nose if you can even get a waiter. But so some of the inflation out there the FED really can't impact. I mean, it just seems like the FED is trying to fight a battle that really it's it doesn't have the tools to fight. I e. Sixty to seventy percent of our you know, GDP is a consumer. What can

the FED really do there? Do you again, do you think the Fed is maybe going too far too quickly? The Fed, Powell acknowledged themselves that monetary policy as a very blunt tool. However, they have to do something. So I think the most likely you're right that the monetary policy is not really suitable for the type of inflation, for example, the transition to green you know, with higher car prices. However, the FED will have to do something

about it because their men date is inflation. So I think the likely outcome of that is that it increases the chance of this very barish thing, a scenario that you said your previous guests, right, you know. Another question is that I have is this this two percent inflation target that the FED has? Why is it two percent? Why is that so special. Why is it not two

point five or one point what's so great about two percent? Well, I think it's just an approximation, but it definitely is a two percent right now because you cannot the FETE cannot afford to change it. When they were unable to get to that target. They can think about whether two point five or three it's more appropriate after this whole ordeal inflation ordeal is over, but right now, if they do anything to change it, it will bring make it

harder for them to control inflation. What do you say to people who say the FED is still behind the curve and dealing with inflation? Is that still a valid critique? You know, I think it's a FED is totally you know, trying to achieve one objective, which is brain down inflation. They would have rates rates to six or seven percent by now, but they have dual mandates. And it's clear that Powell still hold out hopes that he could achieve a soft landing, and that is what caused what's causing

this feet dragging and bringing up rates. So I think, you know, I think I think that yeah, they're they're running very closely behind the curve. That's my opinion. All right, and thank you so much for joining us, as I always always appreciate getting your perspective again, folks, Anna Wong, like nine twelve months ago she Bloomer Economics team, Man, were they ahead of the curve. They were calling for higher rates for longer. They first ones I read talk

about a five percent rate. Here we are there now people are talking about six percent. So Anna Wong uder team doing great work there at Bloomberg Economics and as the chief of the US Economist 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 nineteen seventy three. And I'm fall Sweeney. I'm on Twitter at

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