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Terminal and the Bloomberg Business app. David Rosenberg, President of Rosenberg Research, writing quote, there is nothing in the CPI report to get the FED in a position to be cutting raids anytime soon. I'm pleased to say that David joined us now for more. David, great to catch up
with you, sir, It's been too long. I just think you're perfectly positioned to run through this for us in detail, the pieces of this that will spill over to PCEE, the bits that matter to the FED, and ultimately the parts that won't right.
Well. Look, I think that the bottom line is that the FED does not target the CPI or the core CPI.
It targets the PC to flavor and the core PC to flavor, and I think that one of the I think more welcoming elements in yesterday's CPI data was the fact that medical care goods and services were flat as a pancake, and that features much larger in the PC to flavor, And I wouldn't be surprised when you rewate the components of the CPI to the PC to flavor that the core ends up coming in closer to point three or point two than the point four we saw
on the core CPI. So my view was that yesterday's consumer Price report is going to be a distant memory within the next three to four weeks, So I'm not as fussed about it as a lot of the other commentators you had on your show.
It seems like, David, that the markets agree with you. Are the markets responding appropriately to report that you think is maybe a bit misleading?
Well, look, the stock market is really operating on a set of momentum and technical factors and not really I don't think paying attention much to what's happening in the economy. I mean, you have a stock market up thirty percent in the past year thereabouts and earnings are up four percent, so it's really been a multiple driven market. The bottom market sold off moderately, as you would have expected on
a higher and expected especially core CPI print. But in the overall scheme of things, I mean, you have people on your show saying that, you know, inflation is taking its time coming down, and inflation usually does that. It's like a race between watching grass grow and pain dry. It's not you know, Inflation isn't bitcoin or the CRB index or Nvidia stock. It usually is glacial.
But the bigger picture is this.
You know, when we strip out the shelter components of the CPI, which we all know are flawed in their treatment that and their legged headline, inflation x shelter is running at one point eight percent year of year. It's already below target. This time last year it was running
at five percent. So I would just suggest let's move away from focusing exclusively on the monthly wiggles on the data and look at the bigger picture, because the broader trends at inflation and core are moving down, and I think moving down in a rather impressive fashion, notwithstanding yesterday's data point.
I guess what strikes me David, it seems like the balance of risks is perhaps a little bit more skewed to higher inflation after this report, especially because it doesn't seem like rates where they are now are particularly restrictive when it comes to capital markets and when it comes
to risk asset valuations. So why should the Fed go ahead with cutting rates at a time where it doesn't seem like their higher rates are really affecting the economy or markets And it seems like there still our questions around inflation.
Well, there's no doubt that financial conditions have eased rather dramatically in the course of the past few months, but I don't think that's why the economy did as well as it did last year and then of the fourth quarter. It was really a lot of fiscal juice. It wasn't really about financial conditions. You got a rapid decline in the equity cost of capital, high yield spreads are super tight. But where's the cap X boom coming out of that?
We're not really seeing it last year's story. I mean, two thirds of the growth in the economy last year came from the direct and indirect impact of fiscal stimulus, which, frankly I wasn't expecting. I don't know if you were expecting it. I wasn't expecting that the deficit was going to expand twenty five percent last year the context of
a sub four percent on employment rate that's never happened before. Sides, so a lot of the growth was really fiscal financial conditions have eased, but I'm not really seeing dramatic impulse
on economic activity from the easy and financial conditions. And the one thing I'm going to point out is, you know, the FED is telling us increasingly that it is, you know, shifting its focus from the month to month gyrations and the data of course that grab the headlines until the next month's data come out, and they're focused on what
business contacts are telling them. And quite frankly, when you look at the swathe of comments coming out of the base book, the latest facebook out of the FED, what did it say? It said that businesses found it harder to pass through higher cost to their consumers, who became increasingly sensitive to price changes. So that's what's happening in
the real world and in the CPI world. We have over forty percent of the items in that index are imputed guesswork by bls statisticians as the proteins to services. So when you look at the real world, what did the Walmart CFO tell us a couple of weeks ago about pricing trends at Walmart, the world's largest retailer, is that their pricing momentum is actually dissipating. So I'm not getting too fussed by one monthly CPI number, that's for sure.
Devi Loo got about forty five seconds left with you when it's to squeeze this in. There's a phrase I see a lot from research at the moment, and it's not nineteen ninety nine. And I just wonder, from your perspective, what is the value of benchmarking to such an extreme time in the equity market?
Is there any value in that at all.
I don't think that it's useful to compare it to today's world, to any other world, anymore than inn seven people comparing it to previous cycles. Every cycle has its unique characteristics, Every cycle has its similar patterns. No, I'm not saying this is like nineteen ninety nine or the dot com bubble, because most of those companies didn't have a business model
and didn't have earnings. However, However, we do have a situation where the forward multiple now in the SMP is twenty one, and it is in the top ten percent to the top death style evaluations in history. So it doesn't detract I mean people like to say it's not nineteen ninety nine. We'll go go knock yourself out on that comparison. But whether you're taking a look at corporate credit, you're taking a look at the equity market, it's a noseblee territory in terms of valuations, and so that's where
I come out of it. That is still a very expensive set of circumstances in across most awnset classes.
It's David, We're going to continue this conversations.
Wasn't ninety nine, but it's.
It's a little time.
David Rosenberg of Rosenberg Research, David appreciate it set. Former New York Fed President Bill Dudley warning the next goal is reducing QT writing this in Bloomberg Opinion, a final plan should be in place by the middle of the year. Whatever happens, the destination matches a lot more than the speed and places say that Bill Dudley joined us. Now for more, Bill, let's talk about this. What kind of considerations go into making a decision like this one.
They want to behave in a way that does not risk causing turbulence and financial markets. So the reason to do the taper is you're not really sure what the desired level or reserves is in the banking system, so you want to approach the runway very very shallowly, steeply, especially when you don't know where that runway exactly is. So I think the taper is proven course of action. It doesn't really matter if you get to the desired level reserves in two years versus one year. It's just
the fact that you get there. So I think that they're going to discuss it at the March meeting. That was made clear by Paul's press conflext press conference, and then the fem C minutes, and then they'll talk about the staffs proposal, and I think we'll see a final plan by midyear.
Bill, you've said the Central Bank needs to strengthen the balance sheet enough to rebuild the stimulus arsenal. I just want to get into that a little bit more. I've said this to you before. I feel like this is some kind of Jedi mind trick at the Federal reserve. They want you to simultaneously believe that QE stimulates and QT does nothing.
What does QT actually do?
QT does withdraw restraint that they've put into the system previously. But economics economist who have looked at QE versus QT find big effects when there's QE announcements, very little effects when there's QT announcements.
And the reason is sort of obvious. You don't ever know when q E u Q program is going to be implemented. Kanye has to really really falling apart.
Interest rates have to be at the.
Zero lore bound, So QE is usually a surprise QT that once you've done QE, you know QT is going to fall at some point that the FED is going to ultimately unwind the Q that they did earlier. So when QT happens, it's really a question of timing and magnitude duration, not whether it's going to happen or not, So it has pretty much more milder effects.
There's also a Jedi mind trick going on Bill when it comes to financial just in general conditions. The fact that we've seen dramatic easing in financial conditions and that doesn't seem to be weighing on the FED in terms of how that affects their ability to get to two percent. But when you saw a sell off that was and some sort of restriction, does that concern you that the easing and financial conditions doesn't seem to be anywhere on the radar of FED officials.
Well, I think it's in the radar in the sense that the reason why financial conditions have eased is because people expect the FED to cut rates this year, but the Fed actually actually has to cut those rates to keep financial conditions where they are today.
I think at this point we know that March is off the table. May is probably off the table too.
We're really talking about what you know, FED cutting rates probably sometimes this summer.
The focus at the meeting, as I said, is going to be Paul's.
Gonna get a lot of questions about the QT taper, since that people know that's on the table.
But the other thing that's going to.
Get a lot of attention is the summary of economic rejections and how many rate cuts do FIT officials pencil in in their forecast.
Last time, the medium was three. I would guess the medium will be three again this time, but there's some possibility given the firmness and the inflation data that maybe maybe those are only the meet The meeting is going to shrink to two, but I bet they keep where they were last time.
There's still plenty of time and still plenty.
Of meetings this year to cut rays three times.
But this goes back to the question that we've been asking all morning. Has the balance of risks, arguably on a minor way, shifted just a bit after the CPI print to the fact that maybe it makes sense for them to hold rates higher for a bit longer because it doesn't seem like it's dampening some of the economic activity are materially harming the US economy.
I think it has, but I think that's that's been
their strategy how long. I think the market got way ahead of the Fed earlier this year, when the market is pricing in six to seven rate cuts this year, and the Fed was saying, no, we're going to do quite a bit less than that, for the very reason that you said that the FED wants to be sure that they're actually be successful in getting inflation all the way down to two percent, and you know, the not so good inflation prints that we saw recently just reinforce that.
So I think the world is started going the way the Fed Reserve was expecting rather than the way markets were expecting. And I think that, you know, I think there's plenty of time to see how the balance between growth and inflation plays out. As you know, these are balancing acts. Now the Fed is focused on both sides. That it's still mandate not just inflation, but also what's
happening to the economy. While the Knoye is held up quite well, there are signs that it is slowing, and so the FET is trying to get balance right between these two risks.
Bill.
This is the total opposite of the conversation we had post GFC. I was talking about this a little bit earlier in the program. I want to do it again with you. I think it's important coming out of the Great Financial Crisis I seven and eaight nine, we always had these charts that came out and it was basically Wall Street looking for lift offf at the federal serve and then you had Fed funds just doing nothing for years,
and every single year was lift off liftoffs coming. It was full storm, full storm, full storm, and were looking at a situation that could be the total reverse of that, where we have again and again just to full storm looking for cuts that never come because the suspancsion just looks so much better than people thought it would be.
Well, that really depends on how tape monitor policy is, and that's one thing we don't really know. Every time the economy turns out to be stronger than expected, people start to talk about, well, maybe monitor posse is not as restricted as we thought. This is coming back to the discussion of our star the neutral federal fund rate. Other thing that's going to be interesting in the upcoming meeting is whether FED officials raise their estimate of what
a neutral maitre policy looks like. If you look at the current projections, they think that at two percent inflation, the federal fund rate to be neutral should be two and a half percent. And it's very possible, given the strength of the economy that we've seen over the last year, that they're going to start to push up those estimates.
Well, that's exactly where I wanted to go.
Kati Kamiski earlier was saying, there's a real signal from the fact the financial conditions have eased so much in the face of rates that have remained so high. Do you take that signal? Do you think that the Fed should be lifting there are star rate their neutral rate expectations, Yes, I do.
I think there's lots of reason to think that our star is higher than it was in the path. In the recent past, fiscal policy has been very expansive. The government has put in place a number of new investment programs Chips Act, infrastructure spending, climate finance. So all those things are increasing investment relative to a diminished say, I think it's bull that we should raise our star over
the longer run. I also think that financial conditions are the right way to think about major policy, and so to your point, if financial conditions are easier, then there's less easy for the.
FED to do bill. Just a final question from me.
You've alluded to this, but just to speak a little bit more clearly on the topic, how uncomfortable should they be? Will they be with yesterday CPI print?
I don't think the FED takes a lot of signal from one or two inflation prints after a series of very good inflation prints. But I think you know the fact that it's now too rather than one is getting it's now on their raiders.
Screen Bill Dudley if Bloomberg opinion, Bill appreciate it. Thank you, sir, FCC Commission of Brendon Katjo and just now for more, Commissioner, been looking forward to this conversation. I've got your comments in front of me on TikTok. You've called it before a clear and present danger to national security. I'm sure TikTok would disagree with that characterization as well. Can you give some concrete examples of why you think that's the case.
Yeah, the track record with TikTok's malign conduct is very clear at this point. For years they told us lawmakers, don't worry us. User data isn't even existing inside China, and then a blockbuster report came out in twenty twenty two that showed no, in fact, quote, everything is seen.
Inside of China based on leak materials.
That's key struck patterns, biometrics, search and browsing history location. Then, second of all, what the CCP are doing with that data is very nefarious. They use access that did data personnel in Beijing did to surveil the locations of specific Americans journalists that were writing negative stories about TikTok. Third, TikTok said, Okay, you caught us red handed. We're going
to wall off US user data. But lo and behold, the Wall Street Journal report came out and found that personnel in Beijing are still getting access to that data sensitive US user data after agreeing to walllet off. And the record goes on from there, including TikTok's parent Bike Dance having a CCP sell embedded in its leadership. So this is about the malign conduct that an entity that it is beholden to the CCP has been engaged in.
When you talk about walling off that data, you're talking about Project Texas. Has it not worked at all?
No, not at all.
So one of the leak materials had TikTok Trust and safety officials themselves saying that it remains to be seen whether product and engineering meaning Beijing can still get access to US user data after mitigations like Project Texas are put in place. Second of all, that walling off of data that we just talked about was part of Project Texas,
and again Beijing still got access to it. And even TikTok's CEO has said, Project Texas will keep data from going to Beijing except when we allow it pursued to what they claim are new control. So Project Texas is about as secure as a SIEV at the end of the day.
In a day of interesting and odd political bedfellows that we saw yesterday in Kapa Hill's a lot of individuals come out and talk about free speech on the progressive left and the right, Ron Paul saying he's going to block anything that's contrary to the Constitution.
Do you agree?
Is there a free speech issue at play here?
Yok?
Grandpa's been great on these liberty issues. This particular bill does not trigger a First Amendment concern for one main reason. The Supreme Court has drawing a clear line between regulations based on content of speech on the one hand, and regulation of conduct on the other. And this plainly is a conduct law, meaning we're acting because of the demonstrated malign national security threat of TikTok, not because of the
content of anybody's speech. And the bill is narrowly tailored, which is key for First Amendment analysis, because it simply requires divestment, meaning the millions of Americans that love TikTok, I'm not one of them, but they can continue to use the application, but just in a more secure way. So because of the conduct at issue here, the Constitution does not compel us to require a national security threat to continue to persist.
Well, there's one politician in DCU certainly likes TikTok, and that's President Biden. The sense of his campaign, they feel like they're able to reach the youth by using TikTok. So if TikTok is divested, there's a sale, would that mean that the Biden campaign can.
Continue using it? But do you think it'll be safer?
Yeah, that's right.
You know a lot of people will raise that concern about the Biden administration being on TikTok, but Biden adminstration officials have been very clear that there's a national security threat here. That's why passed this bill actually squares the circle because then the campaign or anybody's campaign could continue or start to be on TikTok, but without that serious national security risk that's present today.
Commissioner, given the fact that we've heard that from President Biden, I'm curious about your comments from the former President Trump, who seems to be, I don't know less clear about what he thinks of this bill, saying you know that.
There's a lot of good there's a lot.
Of bad with TikTok, talking about how it increases the prevalence of meta. What do you make of his comments?
I think, first of all, President Trump, you know, fundamentally reshaped washing DC to understand the serious threat posed by the CCP.
He's also raised concerns.
As I have, with the conduct of big tech companies that are based right here in Silicon Valley, and those are real concerns. He pushed for Section two thirty reform, which I supported and had hope we would have gotten across the.
Finish line at the SEC by now, and we had it.
But TikTok presents obviously sort of a threat that's fundamentally different than US big tech companies. For all of my concerns with their conduct, and I have many, once we deal with the national security threat from TikTok, once you break.
That tie back to the CCP, then.
We should move very quickly, as President Trump has outlined on Section two thirty reform and in my view, a firmative anti discrimination obligation that would apply across the board. But until you break that link to the CCP, a lot of other reforms just aren't going to work out.
But it does feel like he flip flopped on this in a sense that he wanted to band it under Hinds administration. It then got held up in court, and now he's saying he's really not so sure about it. Do you think we could see a different if he was to become president of the United States, a different view on TikTok because of his concerns of how big Meta is.
Well again, I think the reason why this bill is such a smart approach is because it's not a ban bill. It's a divestment and so you would have TikTok go to a different doesn't he need to be a US company, can be any company that's not tied to China, Russia
and North Korea or Iran. So you can continue to have TikTok in the marketplace as a counterweight to Facebook, as a counterweight to others, but it can be there in a way that doesn't present the national security threats what keeps that competition?
High Commissioner, we seem to be ill equipped to deal with these issues. It's been four years, about four years since we've been talking about this and Harby. Anything has happened, just in terms of actually passing proper policy, So do something about these national security concerns. I think back to China. It's easy, it's straightforward. She comes out and says no, and then that's it. It's banned. It's old, banned twits
of Facebook, YouTube access. Why are we so ill equipped in the West to deal with these threats?
And how do we goot change in that?
Yeah, we certainly have a very different system obviously than they do in China. And some people raise concerns about will China engage in some sort of reciprocal action based on that our mind people, Facebook and other US technology.
Comans are already banned in China.
So yes, we move more slowly, we move in a much more considered way. And obviously don't underestimate the fact that you know, Byke Dance has put every single amount
of lobbyist dollar possible to slow roll this. And people look at the one hundred and eighteenth Congress and they say, you know, they have a hard time getting things done as a general matter, but this is one where the one hundred and eighteen and Speaker Johnson can land a significant legislative win, not just on a tough issue, but as you know, on a technology issue where it's sometimes difficult for Congress to act, and that's why the Commerce Committee,
with Chair Rogers holding that blockbuster hearing last March.
I think that really stepped things in motion.
Do people wish it would have gone faster, sure, undoubtedly, But arriving here today where there's a vote in the House is a significant moment.
Significant moment in the House, but what happens next in the Senate?
Commissioner, Yeah, I feel.
Pretty good about the odds in the Senate as well. If you look back, Actually people sort of forgotten this, but Senator Schumer joined in a letter with Senator Cotton back in twenty nineteen raising serious concerns about TikTok's national security threat. So this is an issue that is a long standing issue for Senator Schumer over there in many many Republicans as well, So a lot of the focus that's been in the House obviously up to now they
will now shift to the Senate. I think the odds are very good there as well, and I'm looking forward hopefully to the bill passing today in the House and then things moving over there.
Commis Sir, I want to finish on conduct versus content. You talked about this being a conduct issue, Do you believe there is a content issue in any way, shape or form as well?
No, not at all.
I mean, look, sometimes we focus on the way the algorithm with TikTok performs, and people have focused on that. How it just shows content that is drastically different than any other social media content that happens to align with the CCP.
Again, it's not that content the concern for me.
It's that that content shows there's such a drastically different operation of the algorithm that it goes fundamentally to conduct into CCP controls. When we talk about that again, it's just further evidence of CCP control. It's not about the government acting based on content. Again, I'll give you one last analogy. Someone can take a pen and they can write the most salacious anti American propaganda.
They won there's nothing rightfully the government can do.
But if you take that pen and you use it to pick a lock and break into a building, well that's illegal conduct. We can take the pen, and it's no defense for you to say that you are using it to write.
Previously, Commissioner A.
Fraschiut, you'll here this morning, thank you for joining us. We'll catch up soon, SAC Commissioner.
Friend and Carr.
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