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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie Hortern. 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 Terminal and the Bloomberg Business app.
We'll begin this.
Hour with stocks looking to bounce back after a week payrolls report, fueled rate cut expectations and your d any of your Danny research writing. Traders might be starting to take profits before going on their August vacations. They may also be betting that September could be a week month for stocks.
Ed joins us now, and let's start.
With the growth picture and just your reaction to Friday's labor market data, especially those massive downwards revisions. For you right now, is it a cause of concern?
Not?
Really? Not the way the market took a dive, and I'm happy to see that the market may very well rebound today. The reality is we did have a lot of uncertainty during May and June when we had these big downward revisions. Honestly, it seems to me the downward revisions actually make more sense given that if I was an employer during May and June, I wouldn't have fired anybody. But I wouldn't have hired anybody given all the uncertaintly
unleashed by what I call Trump's tariff turmoil. And so yeah, all in all, those numbers didn't surprise me all that much, with the benefit of hindsight obviously. And then of course we did see that the labor supply, the labor force has been kind of flatted down since the beginning of the year. So this is a combination of weakness in May related that may be temporarily related to the turmoil on tariffs that should I think be abait over the
next few months. And at the same time we may actually have a shortage of workers.
Well, the President didn't like the jobs number on Friday, and he fired the head of the Bureau of Labor Statistics. Do you think that undercuts market confidence?
Well, this is a very bad situation. The President in my opinion, shouldn't have done that. I agree with what your collie Danny just said, and that is he should be throwing more money at the Bureau of Labor Statistics that he can do a better job settling workers and
the unemployed to see what's really going on here. Firing the commissioner it does raise some questions of the confidence that people are going to have in the data, especially if he puts in a loyalist as a statistician, which he's likely to do.
So what do you do then, ed, if you get a loyalist put in as a top statistician there, do we still trade on the data? Do you take it more skeptically? Do you use private measures more? How will it change how you interpret labor market data?
Well? Yeah, I think right now there's a lot of skepticism about the labor market data, the employment data, I should say, because of what you mentioned before the fact that response rates have gone down, and look, the economy moves a lot faster these days, and I'm not sure the statistical techniques that the BLS has move is rapidly. So I would throw more money at him rather than become partisan partisan about it. So all I'm saying is
that data was already suspect for other reasons. And we've all, all of us economist types have looked at all the employment data, both private and public. So I think nothing dramatically changes in terms of the way the markets look at data.
Even so ed nothing dramatically changes. But Friday did demonstrate a vulnerability in the market with that huge move in the front end. You could even see what happened with copper prices demonstrated a vulnerability.
Given that we've had.
This slow melt up to the summer, you're still bullish ed, But are you concerned about some of these short term blips that traders aren't properly hedged for.
Well, you quoted me saying that a lot of traders, a lot of investors are going on vacation. They certainly don't want to be exposed to the volatility of the market, at least not from a trading perspective. So I think we're going to see a lot of that kind of activity slow down. I think it already has slowed down. Maybe it started that on Fridays. Some people said, you know what I'm going to take. I'll be taking vacation for the next week, two weeks. Let me just close
my books here. And then, of course there is a seasonality issue. Septembers have a tendency to be a week months, so I would miss prize if this market just kind of chops around here in August and September, and maybe we make some sort of low or bottom in October for a year end rally.
Good luck to anyone who's trying to take a vacation with all these headlines coming out, and also this week we have this new deadline when it comes to the tariff rates on Thursday. Do you think the market is ready to basically put the trade war behind them?
I think the markets would love to put the trade war behind them, and I really thought that by now the President would really be sort of in the same camp, because he's going to start focusing on the midterm elections next year. He does love to talk at these large conventions, these large rallies in sports stadiums, and he's going to need to do that in order to shore up his
Republican Party during the midterm elections. And he's going to really start to focus on just saying what has been accomplished and avoid doing things that might backfire on the midterms. So yeah, I think the other issue, of course, is the courts are probably about to rule it. He doesn't really have the legal authority to do what he's been doing. I don't know if it's going to go all the
way up to the Supreme Court. The Appeals Court has a love in judges, and if all I loved of him rule that way, which is possible, the Supreme Court may not take it up. So we may be entering even a more volatile period with regards to what's going on here on the tariff side.
But you don't expect the terrors to go away, do you, Because there are other tools they can use to enact them.
There are other tools, but they're not as quick or efficient as the Emergency Act that he called upon. That the courts may rule he just doesn't have the power to declare an emergency when there doesn't seem to be an emergency. But again, I think he and the administration may conclude that it's time to downplay the whole thing and move on.
What does that mean for corporate America ed Some of these companies are just starting to wrap their heads around what it needs for them, or you have the legend of Amazon last week, who said, we just don't know what's going to happen moving forward. Is there enough clarity after Friday for corporations to move forward with things like spending and hiring plans.
I think we have to see what the courts rule and how the administration responds to that. The reality is, if we just take it at face value that the President wants to basically achieve a fifteen percent tariff across the board on everybody and raise something like four or five hundred billion dollars, well, the corporate income tax raises about six hundred billion dollars. In effect, the tariffs are attack and there are direct tax on importers businesses, and
so it is a negative for corporate profitability. And again we've heard some bad news out of GM and Ford anticipate this, but other companies said, we just don't know enough to really figure out what this is going to cost us. So that's still a known unknown.
But still a little bit more clarity in terms of the bottom line rate for tariffs. We do have a weakening jobs report on Friday. Do you think the Fed is in position to cut in September?
Well, the market certainly thought so on Friday, maybe today there'll be a change of opinion. I think on Friday we got the probability of a rate cut according to the CME Fedwatch tracking tool, going up to a ninety percent probability. Then over the weekend that you know, that actually simmer down by the end of Friday down to eighty percent. I wouldn't be surprised if there is no rate cut on September because we still have a batch of data up ahead here, particularly on the inflation front.
We are seeing that the tariffs are having an impact on inflation. A lot of people saying, well, it's not there, but the reality is, if you look at durable goods inflation, durable goods prices typically fall. That's what they did before the pandemic. Then they had that inflation spike, but then they came right back and started falling again, and now they're rising again, mostly because of the tariffs.
ED thanks so much for your time this morning, to great point at your Denny of your Denny research. IPOs are making a comeback this summer, with the latest FIGMA share surging more than two hundred and fifty percent in its debut last week.
So excited for this conversation.
Joining us now is Nicey President Lynn Martin lind Good morning, thanks for joining.
Us, Thanks for having me.
So.
You told John.
Leson myself in May that you saw quote unprecedented levels of volume following the April second Liberation Day, but for the IPO landscape, you were optimistic, but the timeline was shifted out. Where are we now in that timeline in that pipeline?
Well, I think as a result of the successful deals we've been able to bring to market, really starting in that end of May timeframe, but most manifestly over the last two weeks when we had seven IPOs, I think it's fair to say that the markets are open for IPOs.
Our markets open for all IPOs, though, d do we still need to be selective among those that are being brought in and they need to be tech companies for example, or can we start to see some of the smaller midcaps come back too.
Yeah, we've seen a variety of sizes and companies across different sectors come to market in the last few months. UH Tech in particular, has, as you point out, had a great reception in the market. You know, in the last two weeks we saw Nils and IQ. We saw McGrath Hill, we saw Figma as you just had the screen up, and then a couple months ago we saw a Circle come to market, also Hinge Health and Mountain, so some really tech led companies, but mostly pretty much all sectors.
The market rate a bit of a split screen though, in because you start to have some IPOs coming back, and at the same time you have these private equity players coming up with liquidity solutions that just allows companies to be private for longer, be it secondary funds, be it perpetual capital. And their argument is companies just don't want to be public and we're giving the option not to be longer term. Does that hinder IPOs?
Well, I think what it means is that the companies that come to market are better companies. You look at the companies that have come to market, it's not the first time that they've been in the news about an IPO bo Look at Circle for example, they were talking about going public back in twenty twenty one when they came to market. Though they're a better company. They have a more refined strategy, a more refined P and L, a story for the investors that generates a tremendous amount
of excitement. And I think what you're seeing with the reception of the companies that have come to market is that pent up demand in the public markets, that pent up excitement in the public markets for new issues to come to market. It's something that I talk with long only investors, something I talk with retail about how they really want to see these new names, these growth companies come to market to add to their portfolio.
That pent up demand. Was it being held back because of regulation in Washington?
It was really being held back because of volatility and uncertainty in markets. There've been a variety of events that have occurred over the last three three and a half years, wars, geopolitical uncertainty that have fueled that volatility. Now that there is more certainty, more certainty around the geopolitical landscape, more certainty around the market and the trajectory of the market, that's why you're seeing these companies finally come to market.
How has the change in regulatory leadership though the SEC regulates the nicey, how has that potentially changed your business going forward?
We're very optimistic. We had a great relationship with the past administration and the past SEC, but We're very excited.
About blackinso's very different than Garrigance.
He is he is, and we've had a long relationship with Paul Atkins. This isn't Paul Akins' first time in the SEC, and we had a very productive working relationship with him. We've already had a very productive working relationship in the short time that he's been chair, and a lot of the modifications that he's looking to make I think are going to benefit the public markets.
So we have a moment where public market volatility has started to edd But even so, you have the rebirth of memestocks, and you have these weird things happening where you have open Door, for example, on one day, can account for ten percent of all equity trading volume. What do you make of just the health of these markets at this moment as some of that starts to bubble up.
I think the markets are incredibly healthy. I mean, our markets are the envy of the world. The breath, the depth, the liquidity, the trade certainty. Any one day, though there could be excitement about a different name. I think what you're seeing is a lot of the pent up demand looking for the new issues and new things to treat.
It's very different though than twenty twenty one, where those retail investors have had all the money to go.
So when you look at that, you're like, Okay, this is just.
A temporary phenomenon, or do we just need to get used to single names getting this wind sweep of various excitement built up online and that's just the new normal we live in.
No, I really can't speak to what's driving a stock any on any given day. Certainly the social media and the conversation around stocks overall, I think is actually a good thing. It means that people aren't interested in investing, they're interested in adding to their portfolio. They're also interested in diversifying their portfolio.
Speaking of diversification.
On Thursday, at and T says they're going to have this dual listing and the icy in Texas.
What's the business like in Texas.
Yeah, Well, we're very supportive of all of the changes that Governor Abbit has rolled out in the state of Texas to really foster that pro growth environment. Since we announced NYC Texas and launched the exchange, which was the end of March this year, we've added twenty new listings to the exchange. So we're very optimistic and grateful for a governor abbit for really leading the way on pro business atmosphere.
Do you see more money leaving New York though?
You know, I don't really, I don't know. I don't think so. I think New York's always going to be an important at the center for markets. But I think it's interesting the pro business moves and then ultimately what the pro business moves in Texas will lead to.
On the federal level. More than anything, Lynn, thanks so much for time.
Thanks for having great insight, and I see President Lynn Martin. Michelle Meyer of MasterCard Economics Institute writing, consumers are the heartbeat of the economy and they are resilient.
Michelle joins us.
Now, so you say they're resilient, what kind of cracks Michelle, and good morning, thanks for joining us. Do you think the economy is seeing right now when it comes to the consumer?
Well, I think it goes back to.
What we learned over the last few days on Friday with the jobs report that clearly there has been an certainty impact in the economy that has mattered for companies when they think about the labor demand numbers. So the slow down in job creation within the May, and the Junie report looking distinctly different than we thought it was in real time, shows that's something that uncertainty mattered, that there probably was some pausing in terms of the pace
of job creation. But importantly, there's very little evidence of firing happening, whether you look at the jobless claims now or you look at the JOLT survey. And I think for consumers, what that results in is a labor market that is still supportive right, an unemployment rate of four point two percent, wage growth that is still running above underlying inflation, even with some of the tariff inflation impulses starting.
To move in.
So consumers are managing this, I think quite remarkably.
And things like sales and the earnings we've seen look really strong. But Andrew lapthorn Over at Softgen noted that two thirds of the companies in the S and P reported declining profit margins. In other words, for now, the companies are eating the higher costs. If they turn around and start to rise and raise costs, will the consumer still be resilient.
Well, I think it's.
Happening, and it's happening slowly, And this is important to keep in mind, which is that I think relative to the initial expectations and the fear of terrists was that it was going to impact the economy immediately and all of a sudden, consumers won't be able to get items or they won't be able to afford certain goods. And the reality is that it's happening slowly. It's moving into the economy. It's starting more on the supplier side than
the companies and into consumers. And if you look at the last inflation report, it's starting to show in certain categories a lot of the durable goods, discretionary goods, whether you're looking at appliances or auto tires or even into apparel, it's starting to show up. So I would argue that consumers are ready starting to face some of those higher prices.
It's happening gradually, and it's happening uneven, which means that consumers still have some choices in terms of how to navigate this and move around some of these price shocks.
In terms of the unevenness, it's also interesting to look and see what the hottest parts of this economy are, and it's hard to argue it's anything but tech and AI, but these are the very companies that are firing on a headline level and only hiring at the top echelons where you get the most pay. When you look at that trend, do you see what you're talking about, the uneveness. Does it start to get exacerbated by some of these tech moves.
Well, I think the fact that you're seeing all this investment focus on technology is actually really positive secular trend that hopefully can help get us through some of this sick legal adjustment that's happening as a result of tariffs. But yes, to your point, what it also does is it creates a lot of wealth in the economy. So if you look at the equity market, we'll see what
results today. But the trend has clearly been very positive, notwithstanding Friday, and therefore that's positive wealth gains, and those positive wealth gains will filter into consumer spending amongst the cohort that can realize those gains, that can invest and can see that wealth creation.
That's the upper achalance of society.
Do you feel like we're going into a K shape economy or we're just already in one?
You know, that's been a conversation that's been on and
off for the past several years. And I think the reality is that it's there's always an unevenness about any business cycle, and I think when you consider the start of this cycle coming out of the pandemic, it was certainly one that was much more driven by lower income consumers than we have seen in recent history because of the amount of stimulus that pumped in, because of the movement of labor market, red hot labor mark, very strong wage growth, and that has shifted over the last two
years or so where lower income consumers aren't saying that same wave of stimulus clearly, and wage growth has slowed a bit more for that population than for others, and the balance sheet is just frankly not going to be a supportive We have a.
Viewer writing in Loving to get your thoughts on real PC turning negative in the first six months of twenty twenty five. They say it's the first time we've seen that since twenty ten, excluding of course the pandemic.
Well, real PC turning negative I think we can debate, but certainly there's been a slow down in measures of real PC if you look at the GDP reports in Q one and Q two, and that reflects what we were just talking about in terms of higher prices. Right the consumer has already started to see some of those price increases.
And what that does.
It means that real spending starts to slow. We saw it during the pandemic inflationary burst. The nominal economy was running at extraordinarily high levels and the real economy was much much slower because consumers and companies have to absorb those higher prices. So when you have a price shock today is a lot more muted than it was during the post pandemic period, But the real economy has to moderate in order to absorb some of those inflation camps.
Michelle, you look at a lot of alternative data sources, and right now we're in a moment where we're starting to question the official data we're getting, not least of which if we do get an appointment at the BOS, which is blatantly political, if that does happen, would you be prepared to lean in to those alternative data sources. Does it change the inputs that you use to see where we go from here?
Well, I am a big, big advocate of many different data sources. At the massacret Economics Institute, we're sitting on one of the most amazing ones which is understanding the consumer in real time by looking at consumer payments. So yes, I think it's extremely important to rely on many, many
different sources and forms of data. The great thing about as being an economist here in the US is that we have a very long time series of data coming out of the government, which has been an extraordinary support for us in terms of how we think about modeling the economy. But the economy is dynamic, the economy is shifting, and therefore I think you have to be really mindful
of using a variety of different data sources. So trying to see really that pulse of the consumer in particular and how consumers are evolving their spending trends has been a critical impet for US, and I think a real distinguishing factor.
With the president though firing the head of the BLS, do you still put credibility in the job support going forward?
I think you do.
I mean, look, I think there's a huge staff of economists at the BLS that are doing their.
Josh doesn't really even touch the data until the very end.
And they've been doing their job for decades and I think that's hard to shift overnight. But they're contending with the fact that the response rate has been declining for surveys across all different types of government.
Data, and that's a challenge.
So I think continuing to adapt, continuing to find new methodologies, new innovative ways to gather data, it will be really important.
Michelle Meyer, thank you so much for your time this morning. Of course, Michelle Meyer of the Massacard Economics Institute. Former New York Fed President Bill Dudley, writing this morning, quote, don't be fooled by the drama in terms of how the Fed manages the economy. It's mostly a tempest in a teapot. Bill joins us.
Now, all right, Bill, I won't be distracted by all the drama.
But there's a lot of noise right now coming out of Washington, DC when it comes to who potentially take this role. Do you think this administration wants to put in a shadow FED chair.
I don't know if that's their intention or not.
But obviously the next governor appointment that seemed to be on a faster timeline than we thought will be important because that person could end up being the next FED chair, and so people pay a particular attention to who that person is and what their views are.
So in that case, And I know as you write, Bill that you did see boers desire to succeed Powell and Bowman's thank you to Trump for appointing her as part of the reason behind their descents.
Bill, if I can just push.
You on that, because many people have looked at this economy and said there are reasons for a cut, and Friday vindicated that with weaker labor market data. Is there an issue where we look at all these descents and say they are just political or is there real evidence that perhaps the Fed should be leaning towards a cut.
Well, the FED is leaning towards a cut.
If you go back and look at the June Summary of Economic projections, everybody sees the path of race is going downward.
It's just a question of magnitude and timing.
So the degree of disagreement with in the FED is actually, I think dramatically overstated, because everybody thinks.
The next direction of moves is down.
Just a question of when to do it and how to manage the inflation risk caused by the higher terrorists.
So Bill, the direction of descent or the amount of descent is overstated. So too is the ability for this FMC to be swayed. What happens though, if the data becomes less reliable if a more political figurehead is put in at the BLS bill. You've been in the room evaluating this data with colleagues. How does that change and the FEDS evaluation of said data if changes are made at the Bureau of Labor Statistics.
Well, it depends on whether the change is made at the Bureau Labor Sittays actually result in poor quality data or not. Obviously, if the data is rigged, then the Federal Reserve is going to have to go to other sources of data. There's a lot more data available now than there was in the past. You know, there's a lot of data that you can scrape off the Internet, for example.
So I think that obviously we want.
The BLS data to be excellent quality and trusted, and that's very important, and.
So we have to keep an eye on that.
But the idea that the Fed would be sort of unable to conduct mantrat policy because the BLS data was corrupt, I don't think that's the case.
Well, going to the BLS data on Friday now, the average three month payroll gain went from one hundred and fifty thousand before Friday is released to now just thirty five thousand. Going back to those two dissenters, doesn't governor Waller have a point the crack has already emerged.
Is the FED going to be behind the curve?
Well? I think the FED probably will be behind the curve because the terroriffs creates so much uncertainty about what's going to dominate the risk of inflation or the risk of growth. Everyone said the terrorists are going to push up prices and push down economic activity, and the questions which is going to predominate. So the fact that the FED might be late is because the arraft policies created this tremendous uncertainty about which force is going to be dominant.
J Powell really honed in on the unemployment rate last week, talking about the fact that's the main number is going.
To look at. We did see a tick up to four point two percent.
What do you think the line is for him where the unemployment rate ticking to what would get him really uncomfortable?
I think, you know, a couple more in tents would definitely get him uncomfortable, because then you start to think that the whole labor market was starting to give way, and when that happens, it can be a self fulfilling prophecy because it scares people. They pull back on their own their spending, and that makes the labor market still weaker.
The important part points that Paul.
Made, though, is it's not about the payroll employment changes, it's basically how that actually reflects in the unemploying rate. Because what's basically happening this year is the growth rate of labor demand has fallen, but the growth rate of labor supply has also fallen dramatically because of deportations and the crackdown and immigration. So both sides of the labor market are less robust than there were before.
And the jobs that were added Bill about seventy five of them came from healthcare, the cyclical parts of the economy. Really we're not adding jobs. The lack of breath in Friday's data. Does that concern you at all?
Well?
I think.
I mean, I'm worried that we're going to be in a sort of stagflationary environment where we're going to have at both higher prices and a weaker economy. And the question is which one do you put more weight on. I think the direction of rates is down. I think the question is just, you know, what meeting does the FED finally to see enough evidence to warrant a cut. As I said in the piece that I published in Biolberg Opinion, you know, there's not that much disagreement about the FED.
It's all about timing and magnitudes, not about direction.
Well, what happens if Bill we have Adrinic Googler stepping down, so that's certainly a Trump appointment, and then you get Shairpowell who decides not to stay on as a governor through twenty twenty eight. In total, you add to that both Bowman and Waller. That means for Trump appointees on the FLMC, does that an aggregate just mean at the very margin a more doves shift to this FED?
Oh? Absolutely?
I mean I think you know, when it's a close call in that kind of situation, the ties.
Are going to go to the doves.
But at the end of the day, the economy is going to drive the story. You know, I think, you know, the chairman can't take the FED wherever he or she wants. It depends on how the economy is motivating. What's the right thing to do in terms of monetary policy. The chair has to convince the rest of the FOMC to go along. Now, obviously, if you have four governors all lined up on one side, that that gives the chair quite a bit of momentum to get his or her way.
But you know, I think the feder Reserve presidents are going to continue to vote their conscience in terms of what's right for the for the macro economy.
The markets this morning are rebounding off of the lows on Friday, following the fact that everyone's starting to bake in this idea of a September rate cup. But Bill, what if we get a hot CPI print, what's going to happen?
Then?
Well, I think it's too soon to say that we're going to get a September rateco. I mean, we just saw how the market for September has moved dramatically just in the last week. When Paul made his remarks that the press conference, people said, oh, they're not going to cut in September, and then we got the week in payroll and plumber report on Friday and everyone says, oh, they are going to cut in September. So it's a
long time between now and September. You know, I think the prospects are pretty good that the FED is going to cut rates later this year. Whether it turns out to be September or not really is going to turn out to depend on the data bill.
To what degree, could this just be a post Liberation Day fallout the jobs data we've had over the past three months and something that might rebound in August given more certainty on which tariff levels are being set.
I think you're making a good point that the terriffs have caused people to sort of stand back in terms of business hiring and business investment because they don't really know what the landscape is. And as we get past August first and get more clarity on what the tariff packages are going to be country by country, that presumably will make businesses more willing to move forward in terms
of their investment and hiring plans. So it certainly could go that way, or it could go that the higher terraffts are raising prices, that's crimping real income, and that's affecting consumer spending, and that's leading to weakness and employment that it's going to motivate the FED to cut rates.
We still don't know which way, which direction is going to predominate.
What we do know, though, is we know most of the rates.
As a handful of countries potentially could get better deals and better rates, but for the most part, we do know the rates going forward and they're going to take effect this Thursday. How much time do you think the FED needs to see this work through the economy?
Well, I think the FED would like to see, you know, a lot of time, a lot more than six weeks to the next FOMC meeting.
I think they think it's probably going.
To take six months to get to see the full effects of the teriffs because it takes quite a bit of time between the good landing on US shores and it actually ending up being sold in a department store and other retail establishment. So I think the FED thinks it's going to be a slow process, And Paul basically said that at his press conference last week.
Former New York Fed President Bill Dudley, thank you so much for your time this morning.
This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am. Eastern, Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always, on the Bloomberg terminal and the Bloomberg Business app.