Bloomberg Surveillance TV: August 21st, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg

This is, you know, kind of an interesting month because we've got Jackson Hole and then we've got quite a few weeks of data to kind of pull in. So I'm really I think everybody's quite interested in some of the maybe the prints that happened in the last couple of months and kind of where they go from here.

So I'm like everybody.

I think there was some fascinating conversations at the last FMC. As you know, there were a couple of cents. I think my interpretation of what's happening, especially in the labor market, is that the first couple quarters, a lot of business people were just saying, there's uncertainty enough, and I think they kind of cooled a little bit on the higher side.

Well, we saw that in the minutes that in general the Open Market Committee felt that inflation was a bigger danger at this point.

Would you say that's your view now? It would be my view now.

I think with an understanding that what may have happened in the first couple quarters on the labor side, which I think concerned several people on the committee and me included. But I think this PPI was interesting, that print was interesting. But I really believe that when we talked to a lot of a lot of folks in our district, is that if you had to kind of lean or have a bias toward, it would be on the inflation side.

Maybe you've moved toward the middle in terms of whether you should hold rates or cut rates.

You know, it's really fascinating you think about and you have great experience in this when you get to the policy table, when you're talking about it, everything's connected to to the dual mandate, right, and when inflation is really ramping up, you have a blunt instrument and you act, which is what we did. Now, as you get closer to the optimum dual mandate numbers, it actually becomes more difficult to make decisions on the margin relative to where

So at this point, it probably would be a mistake for Parenbau on Friday to say definitely we're going to cut as he did last year.

Yeah, yeah, I always can't wait for that speech. I think he keeps it close fast. I wouldn't front round him even if I knew. But I think that we've been doing so much work this year around the framework, around around really getting into where how we get this soft landing to two percent without breaking anything. So I think he has a lot of different directions to go, and I think it'll be a very anticipated discussion.

Well, how do you think you should communicate going forward? Because there are some people who are candidates for to be the next chair who say the FED talks too much.

Yeah, wow, Well you hear both sides of that coin all the time, right, One, do we keep too much to our best?

Two?

Why aren't we doing more kind of transmitting future crystal ball or how are we interpreting the numbers to a future event? You know, the SEP and the dot plot is maybe some of that, but I don't hear a lot that we don't talk enough or express ourselves enough. I think it's more important where the American public is concerned. As they understand, we do a better job on helping them understand.

What we're doing and why we're doing it.

And the dual mandate and the christness of those two mandates help us help us.

A lot in the role we have.

I have to ask you about the latest presidential tweets and the attack on Lisa Cook, Governor Cook. I know that FED officials will always say, we don't let politics come into the boardroom. We do just what we think we should do. On the ECCONUOM, we don't even talk about it. But you've got to be getting sick of this.

Well, Look, I'm a little philosophical about the whole conversation of FED independence and where our role is in the American economy. We're almost two hundred and fifty years old as a nation. I think there's something to be said. We were built on words, and we continue to debate those words legislatively and judicially, whatever friction we might have with other branches of the government. I think great steels tested by fire so what we can always be better.

Well, do you think the FED has suffered to hit to credibility by the constant attacks from Washington?

So I think the credibility issue is more in are we fulfilling our responsibility and role around the actions of monetary policy and monetary operations? And I think the work we do on behalf of the American people is very important to their lifestyle and their living and I want to make sure that our reputations stay strong around the things that we're mandated to do by Congress. Other than that, there's a lot of noise outside of that dual mandate.

Then when you talk to people, do they understand why you're not lowering interest rates?

Actually, it's interesting. So we're going to have two sets of folks that we would talk to. One are going to be business people and finance people that really they understand because they have to. I mean, I'm a former banker. You have to risk manage the cycles of rates to run your bank well and profitably. It's the general public that we continue to try to reach to give them some sense of what this do mandate means to them. And I think there's a little bit of perfection in

I was in Kansas City, FED President Jeffrey Smith sitting down with Bloomberg's my McKee. It is five point thirty am at Jackson Homeway. I make sunrise at about forty five minutes or so. My McKee's safely and comfortable in his hotel room. I believe, Mike, good morning. He's a fantastic exchange. As always, this line stood out for us all if you had to lean or have a bus towards it would be on the inflation side. Will Chairman Powell be in the same boat tomorrow.

He's probably in the same boat. The issue is whether he will talk about it at length enough for us to know where he lands. And I think he's going to try to avoid that because at this point they don't know what the next data are going to show.

It was interesting I thought that Schmid, who has.

Been one of the most hawkish members on the FED and has pushed against rate cuts anytime soon, is now saying he's open to it if the data show that they need to do that. So if we get a bad employment report and a reasonably moderate inflation number, then you might see more people on the Fed than Waller and Bowman who are willing to vote for a rate cut in September.

What was interesting there is that we did get about employment report and he hasn't changed his views. So when you look at the Federal Reserve min it's from yesterday, and everyone turns around and says the super stale that dated, ignore them. I just wonder how many people have maintained those views from that Federal Reserve meetings even with the payrolls report, Because two days later.

You probably have most of the board retaining those views because basically it was seventeen, well sixteen against eighteen, since Coogler didn't vote, saying that inflation was the bigger risk, and so there's a bias going into September that they shouldn't move, which is not at all what the markets think. And they're going to want to see the data, and again it's going to come down to a question of how bad the employment report is and how bad the

Mike, just quickly. The increased scrutiny of this institution, an institution that you've covered for a long long time. It's kind of the elephant in the room in Jackson hallw Wyoming. Now, the pressure that's coming from the White House and elsewhere in Washington, d C. They clearly want to change this institution. They're clearly pursuing that objective in different ways. Mike, I just wonder what the reaction's been on the ground in the last few days while you've been there.

Well, basically everybody agrees that something needs to change in the Fed's framework, which Jay Powell is expected to outline on Friday, because they put a lot more weight on employment in the last framework, and obviously inflation is now a bigger issue for most of them. And then the question becomes, what's the new leader going to do? What's he going to pursue in terms of FED policy. Some have said, as we were discussing in the interview with

Stay with us? Multiple implex savanas coming up off to this. The Federal Reserve heading into Jackson hold facing down upside risk to inflation and downside risk to employment. The minutes from the Fed's last meeting indicating quote, a majority of participants judge the upside risk to inflation as the greater of these two risks. The former FED governor Bessie Jude joined us now for more. Bessie, welcome back to the program. It's good to lean on your experience. As always, Let's

I'm not sure it's quite in conflict.

Yet.

When you look at the unemployment numbers and you go back to the last projections that the FED did, the median participant thought that the long term rate of unemployment would be a four point two, which is exactly where we are. So I'm not sure that the number of jobs created because of supply side issues, as you were discussing, is enough to consider that out of whack.

So Betsy, going into the speech from Chairman Powell, wonder how much has actually changed for him since we got that payroll report a few fridays ago.

I don't think a lot has changed.

The payroll numbers are the most unreliable indicator that you get because they're so frequently revised, and the revisions, I think the average revision is one hundred thousand jobs, so that is huge. I'll tell you one story when I was at the FED with Jay and we were discussing launching QE three, and there was a lot of concern amongst Jay, myself and Jeremy.

About launching Q three, and we got a bad payroll number. We launched Q three a.

Year later, when you look at how that number had been adjusted, it would not have justified launching Q three at all.

So, then, Betsy, this time around, if he's having to deal with those inputs, but then also having to deal with Muslim daily ironically cooked who have all turned more Dubvish, does Powell necessarily need to incorporate those views when he speaks. Does he need to also have some of that Dubvish lean incorporated into his outlook because.

Some of the rest of the FMC is going there.

He is always aware of where every member of the FOMC is because the job of the Chairman is to lead. It's not to set policy and force everybody to agree.

The job of the chairman is to lead.

And to know where all of the participants, all the members of the FMC are at any given time.

If his speech, though, also has to do with cementing his legacy, Betsy, considering where we go from here, considering there will be a new fed governor in twenty twenty six. You know the man, Well, what do you expect that to look like?

From Powell?

What does it sound like to have a FED chair who tries to come out and defend independence and have that legacy but without provoking the politics of the moment and the White House.

I think J.

Powell, in terms of his legacy is looking at what happens to his mandate, what happens to inflation, what happens to employment, and how well does he manage that. It's not any single speech, and I would would be shocked if he was viewing.

It that way.

Event See, do you think there is a bias when it comes to handling and targeting inflation over say, the prospects for the labor market? Do you have a bias? Is there an inherent bias on the committee to prioritize one over the other?

You know, so everybody who comes on the committee ultimately gets led as a hawk or a dove. I don't think it's that clear cut. I think for myself, I probably do have a bit of a bias on inflation, because you know, I started my career in the seventies and the vulgar years, when.

When inflation was just out of control.

But I don't think there's a real bias inside the room one way or the other. It's more a matter of which one seems the most difficult to manage at the time.

And what do you think is the most difficult to manus Right now?

I still think inflation is much more difficult.

And do you think it gets harder in the months to come? Do you suspect we will see more passed through from the tariffs?

Well, yeah, it's going to be very hard to determine once you start getting passed through. Is that passed through a one time price change or is it going to be persistent? And you really, really, they're going to be watching what expectations are. Inflation expectations are going to be the key over the next year or two. If inflation expectations get out of line, then the that will be very concerned.

But Betty, isn't there an argument to be made which Neil Dutta Renaissance Macro makes that it's the direction of travel that's troubling. That inflation, for the most part has been traveling in the right way, but the labor market is traveling in the wrong way.

Again, I just don't see that. I think inflation has been fairly steady. It hasn't been coming down as much as I would have expected if the current setting of monetary policy was restrictive as some seem to think.

So, Betsy, just bringing me all back around about what we're going to get from the Fed governor tomorrow. Do you expect there to be any change for how we view where the path of policy is.

After we hear from Jay Powell?

Or will tomorrow be inconsequential as far as that goes.

If where we means where we the media, where we investors think policy is going, I think there may be a change because I don't see any any chance that there's a nod toward a September cut or any promise to September cut. I think he's going to first focus primarily on the decision framework and not give any indication of where he's leaning for sept Chamber.

Stay with us. Mulblanberg, Savannah's coming up off to this. John Stelfhis of w Oppenheimer, the biggest bull on Wall Street writing some profit taking without fomo to be expected with Pounds address on Friday, a catalyst capable of moving the direction of the market. John joins a staff and more junk of mornic. Good morning, John, How are you explaining the last few days to clients?

Well, I would say very simply, it is to be expected that after a tremendous run up from the lows on April eighth that were tested and then all of a sudden, we came back very powerfully over the course of I guess the last three weeks or so. You can't go up every day, and we've got a great catalyst for bears, skeptics and nervous investors to take profits without FOMO right now or fear of missing out myths. What's likely a secular ball market because you have the

Is it going to be a big miss.

In terms of expectations and all that really in the process of some really heavy duty transitions related to technology and innovation related to AI, as well as an administration that really, you know, for all the criticism it gets in some ways is dealing with cans that have been kicked down the proverbial road for decades by both sides of the aisle. And so with that kind of uncertainty, what happens is you get some turbulence in the market, but we say, don't just buy. You don't want to

And so John, some paksibodies. You make two big points, one of the fat the other onnce Tex stocks. Let's deal with them individually. Want to start with the Federal serve. Okay, the minute yesterday showed just how oftside this committee was gone into the payroll report two days after the meet. Think, well, we're all trying to gage. It's just how much that

I don't think a heck of a lot really, because the FED is one thing it's shown since March of twenty twenty two, incredible sensitivity that is related to its

We could even see a pair of or.

A pair of cuts this year, with something in December another twenty five. I don't think they're going to cut a lot, but I think they make another down payment for both Wall Street and Main Street to show that indeed the FED hike cycle is beginning to end, if not at the same pace everybody wants and the independence of the Fed, John I think is an imperative. I think Powell has done an excellent job. He missed it before before March of twenty twenty two, then he got

By the way, apparently there's a Wall Street Journal that story that said Powell swims three times a week and has a personal trainer to try to relieve some of this stress. So I guess it's working to your point. But John, if we get a Powell who doesn't enforce a twenty five basis point cut, if odds of a cut go to something like fifty percent from eighty percent right now, is that for so you'd get a short term you're going to get volatility.

But the trend is fairly is fairly clear of where we're headed. I mean, when you consider that what it was in twenty twenty one, we had nine point seven percent inflation versus one point four percent inflation. Based on what BLS was saying, you know, it's remarkable. We're now around somewhere. But depending what gauge, the FED uses somewhere around two point eight to three percent inflation. Whether you take x CPI core you tell or you take it

This is not this is.

Not a shrinking, violent and a good match for the administration. And the administration is used to high leverage. It's based on, you know, real estate and making the art of the deal. And what we like to say is when we look at a ten or treasury, around four percent from a historical perspective, going all the way back probably to the Venetians, four percent for borrowing for a ten year period makes a lot of sense.

I guess this is part of the thing of what we've been seeing the past couple of days. Though some people have looked at tech selling off and gotten excited that it might mean finally a rotation is happening, that unloved parts of the market. To your point, the babies

Well, I think we've already seen the broadening out, Danny.

If you consider I'm just looking at the spxl one on GRR on a Bloomberg. You know, a communications services that's about eighty percent tech tech because it's got the watcher McCall, it's the search engines, and it's got the social media, and it's got the streamers in it. But then next, the second best performing is communication service up fourteen point six percent year to date. But the second best performer is industrials. That's a broadening fourteen and a half percent year to date.

It's just a nine bits.

Short of where tech is.

Third best performer year to date is utilities, the utes, up thirteen point three percent. You're going to tell me that it hasn't broadened. The fourth best performing is info tech up twelve and a half. Financials are up nine point one seven. That's a value sector. Materials are up eight. Consumer staples that's coke, smokes, and soaps, as we used to say in the old days, up seven.

Point three six.

Real estate, all kinds of real estate up two and a half.

So, I mean that's pretty humble.

Healthcare is negative about a little bit less than a quarter of a percentage point. Consumer discretionary, the consumer remarkably resilient, the sector still being somewhat brutalized down four around zero point three six percent. And energy you think we didn't use gasoline, but we are a wash in oil ten of a percent down, so I think it has broadened.

So what extent is some of that just derivative of the same story you mentioned utilities aps connected to the AI theme. Are we all in one theme or there's several things playing cast simultaneously.

It's both in.

Several themes playing out simultaneously.

Right now.

With a belief within the market for more than just a few corners that the FED is in the process of lightening up on the tightening cycle, utes are less exposed being considered a bond market proxy, a bond proxy, so the yield to look more attractive as rates come down at the FED short end of the curves their competition a lot of the time. Then for industrials, we're just about to build all these factories and all these fabs, vocalists, fabs and stuff with that, you're going to need a

Bulldozers, back hos, all kinds of s.

There's always agriculture, you know, and commercial aerospace defense. I mean, there's a lot of stuff happening, and financials should do better as the year yield curve can it steepens to a more traditional sense.

What's more traditional? What do you expecting?

Well, I mean you'd probably expect you expected right now. I think we're pretty close to it with the thirty year almost at five. It should probably be at five, and the four probably vacillating depending upon the given month, somewhere between three and a half and four point eight. Just to put the scare into people.

What did the METII she's at Florence pay for ten year money? What did the Metichi's at Florence pay for ten year money? I mentioned the Venetians.

Obviously I looked at the Venetians. It depends what we read. I'll have to think about the Vedicians. You're going to send me back. I'll have to talk to Tom Keane about TK. Probably nice, Probably, I'm probably nice.

Stay with us. Multilintex Savana is coming up. After this upside surprise on jobless claims and continuing claims, equity is just about unchanged. The bonyards still start to make a move. We were up a basis port of two across the curve just about unchanged now at the front end on twos. The two year, ten year, and thirty year look like this, so we can switch at the board. Could take a look at bon yards right now, yields unchanged on a

I think the most important thing to the thinking about the labor market is thinking in terms of unemployment rate and vacancy rachis because you're having also a supply shock, which is the tighten of immigration. That makes the reason of payroll a little bit tricky because you can have a supply driven reduction in payrolls that doesn't increase unemployment rate, and therefore DEFEC should not overreact to that revision. It's

Clarly, you though say no cuts.

You make the case for no cuts this year, but there are plenty of people who look at this labor market and say, sure, supply is playing a role, but still you're finding companies who are not hiring people. Just look at the continuing claims that the trend is one of weakening and that in itself necessitates cuts before it's too late.

What do you say to that?

I would say that companies are facing a lot of uncertainty, and when you face uncertainty, you are more careful about hiring, You're more careful about fighting, and you are more careful about increasing prices because you don't want to lose market share. So we're going to see tardis on inflation. We are starting to see that, and we're going to see it more over the time.

The way Tramp negotiated.

With countries like fifty percent, if and you have ninety days to come up with a plan, Gibbs companies a lot of incentives to front run imports, bill cushions, and therefore you're going to have probably not a spiking inflation, but a lot of persistence.

Towards the end of the year.

The runway is longer. Yes, Does that make the job easier for the fat.

No, much more difficult because the problem they might have. I mean, I think power things in terms of Okay, let's suppose I make a mistake, which one is more costly cutting rates and then inflation peaks in December or January a three point two three point three core pc or staying on wold, and then that employment rate gods up, and I think creability wise, the first one is a bigger cost the first mistake.

So would you also say, then, looking at the revisions we had, capture that uncertainty, does that mean that the next payroll report could look stronger? And if it doesn't look stronger, does that mean it's something more than just uncertainty. Now that we have more of the tariffs, more of the rates, more certainty under our belt could be.

We estimate that equilibrium payrolls, which is the number of jobs that you need to create to keep an employment rate constant, when from probably one ten, one hundred and twenty when you had the immigration boonm to something like seventy and we estimate payols towards towards fifty k towards the end of the year. So you're on to have some demand destruction, but the big chain is going to

What you're saying is really important, So let's get through. I want to give you some more time. What you're essentially saying is you can have a massive step down in payrolls growth, but not an increase in slack. Yes, and labor market slack should ultimately be the focus of this Federal Reserve.

Yes.

Can the Chairman articulate that tomorrow and a speech without sending this market nuts.

I think the Chairman will will say two things, will say sort of what he said in the press conference, and you can transpire from THEFORMC minutes yesterday, and he would say, look, there is a tremendous amount of uncertainty. We have two more patron numbers because we have one revision and one payroll, we have one inflation print, and we need to balance the risks. And I think he will talk a lot about risks. And I think probably given that is the last speech as a chairman, assume

So if you put a lot of focus on that, that would be writing off a lot of the other changing views at the FET You've had cook daily Muslim, a lot of the more kind of maybe hawkish leaning ones start to sound more dubbsh and saying that that last Job's report did change their mind.

Does how need to reflect any of that.

Look, I think there is still consensus that inflation is still the biggest risk.

That's why I.

Said before, I think going to be important how Powell conveys the message of the revisions. I mean, is that important or not. We haven't seen yet an increasing unemployment rate. An employment rate today's four point two percent. A year ago employment was four point two percent. And the path for tariffs at the path for inflation as at look great. You're going to be probably at the end of the year one percentage point above the target. So ironically you

So if you do have a feedough that decides to cut, and they're cutting because of labor market weakness, that to what you're saying, is more due to the supply side, that cuts don't actually help what happens at that point? How big of a policy mistake would it be to cut in this environment?

We want to see right away, two months later what happen to inflation and to a labor market. But I asked this, I'm a company.

I have a lot of uncertainty.

I don't know how the rules of the game are going to look like six months from now. I'm not going best because interest rates are seventy five percent basis point lower, probably not.

So you risk.

The dynamics of inflation expectations and you're not going to gain much in terms of employment, setting, politics, aciety.

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