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Terminal and the Bloomberg Business app. Has turned to the Federal Reserve policymakers remaining divided ahead of the December meeting. The San Francisco FED President Mary Daily, writing in a blog this morning, we must ask ourselves, are we in the nineteen seventies or the nineteen nineties. We can't ignore the seventies or the post pandemic inflation run up, but we can't ignore the rest of history either. The Fed President Mary Daily joined us now for more. President Daily,
welcome back to the program. Always good to see you. Let's just start with that question that you ask yourself, what's guiding your assessment of where we are?
So I'm looking at both inflation and productivity. And if you look at inflation you're seeing that it's been pretty contained so far in the goods prices which have been directly tariff and then you look at the other parts of inflation, you just don't see much of a run up. So that's good news, and inflation expectations what people expect remain very well anchored. Look at productivity and you see that productivity is rising GDP growth is rising while the
labor market is slowing. So that tells me there's a little bit of that boost coming from firms looking to do more with less, but that's also causing a slow down in the labor market. So the fifty basis point adjustment we've made has helped support the labor market, but still keeps policy restrictive so that we can put downward pressure on inflation.
President Daily, what are you looking at to determine whether it's the nineteen seventies the nineteen nineties.
Well, I'm going to really look at things that improve productivity to think about the nineties, and it's more than just the stock market valuations for AI companies. It really is about the companies out there who might be using AI and then asking them, going directly to them and asking them what's it doing.
For your bottom line? And how are you using it?
And what we're hearing are pretty encouraging, but very early signs. They see how it can help their bottom line, how can improve their productivity, even how they can be supportive of their workers, give them more interesting work, take the less interesting work away. But they all tell us it's early days, so more to come on that. And then on the inflation part, are we in the nineteen seventies really asking employers and firms what are you doing with prices?
Are you thinking about raising your prices? How are you going to think about losing volumes if you do so in a slowing economy, especially for consumers from the fiftieth percentile down. And putting those two things together, I think we'll get a lot of clarity about which direction we're heading. And with policy you know, been slightly adjusted, we are in a good place to continue to evaluate the information
before we make any decisions. We can't know Xante before the day to come out, and before we get that information really what we're facing. We just have to have an open mind about which one it could be.
And maybe other periods of history. I didn't even mention.
President Daily how different would the neutral rate be if it were, say, more like the nineteen seventies or more like the nineteen nineties. Just how different would FED policy be in response to one or the other paradigm.
Well, you know, there's many nuanced ways it could affect the neutral rate. But I can back up from that and just ask what were the policy remedies.
If you think we're about to have.
An inflation run up, then we obviously would have to hold policy tighter for longer because we wouldn't want that to occur. You know, honestly, Americans have endured already too much inflation, and we really need to get that back down to two percent to restore price stability, as we've committed to. On the other side, if it's productivity, you would start seeing the economy run a little bit longer. Maybe if you go back to the debates of the nineties,
you know, we saw the labor market slow. Workers were insecure, but the labor market had unemployment that was fairly low, and many at the time were worried that could spur inflation. But Greenspan Chairman green Span held on with his colleagues. They didn't raise rates, and what you saw was, you know, the nineties, which was a booming time, and we ended
around target inflation and we had a productivity boom. So you're trying to balance those two things together, and it means not looking just at headlined information, but getting below that information, talking to firms, talking to consumers, talking to workers, really on the ground work like we do at the reserve banks and other places. You know, the FED is built to do this on the ground work as well as look at the published data.
President Daily, reading the blog post this morning, it seems like you're leaning more towards the nineteen ninety side of things than in nineteen seventies.
Is that right?
Well, you know right now, you know, I'm in the West in I have the nine states in the Western United States, and it's not just Silicon Valley that seems interested in AI. No matter who we talk to, whether they're you know, small businesses, medium or large businesses, manufacturing, tourism, etc. They're using AI in a way that they say is going to improve their productivity and they're already seeing parts of it. So when I see that, I'm like, Okay,
we need to think about that. What really will spur this is an ongoing thing, is if they start to change their business processes.
So that's what I'm looking at now.
That means, but I guess a different way to say that is we cannot take our eyes off inflation again. Americans have endured high inflation too long. That's our mandate. So while I'm looking for productivity gains and seeing if they're going to continue, I'm also keeping my eye completely focused on inflation to make sure that it doesn't pick up in a way that would suggest we need to do more or we need to hold longer.
President Teddy, how would you respond to the criticism that the Federal Reserve as an institution has taken its side off inflation, that inflation is close to the three than it is the two, and the Fed's been kind of interest rates.
You know, I don't think that if you unpack the inflation data you really see signs of that. It's true that headline inflation is printing at that level, but you have to take a part that inflation and ask how much of it is the effective tarots passing through the goods prices that we expect to be a one time, price level adjustment, and not a consistent run up in inflation.
And if you unpack the data, what you see is you don't see inflation running up in services or housing, and importantly, you don't see it spreading into inflation expectations that would be the thing that would continue to run up inflation coming forward. We also see a labor market that's softening and wage growth that is moderating, so you're really not going to see a lot of pressure coming
on the cost side of labor. So I put those things together, and we don't want to make the mistake of holding on too long for rates only to find out we injure the economy.
Presidents, any can we just pick up on the cost of labor. I think this is really important right now, clearly, and it's hard to dispute this.
It's in the data.
We've had a massive step down and pay rolls growths. That is a little bit more confusing. Is it demand? Is it cyclical? Is it structural? Is it something else? Like immigration? What's your town right now? What can you point to that helps tell you it's one thing over the other.
Yes, you look at prices. In this case, the price of labor as wages. If it was simply a supply and firms were still scrambling to find workers to fill what was jobs that were supported by the previous immigrants, you would find wages going up as they bid for workers to try to fill those jobs.
But that's actually not what you see.
You see wage growth slowing, even in sectors where immigration played a larger role, and so that to me says it's a demand shock, a negative demand shock along with just a coincidental negative supply shock. So you lost workers, but you lost jobs at the same time, or you had job growth slowing. And what we're seeing now does that continue to net out?
Right?
What if the supply of workers doesn't keep going down but the demand for workers does well, then we'd end up with a rise in unemployment. So have to keep squarely focused on those types of things. We're definitely in a low firing, low hiring period and interrogating that labor market, continuing to watch the information, see what firms do next.
That's going to be the important part.
And it's something that a lot of people have said, really is the case shape the idea that, particularly on the lower end, you have not seen wages keep pace with the rest of the income spheres. I just wonder, though, how much we are seeing a massive amount of inflation and acid prices and how that feeds into what you're looking at, especially at a time that may rhyme with the nineteen nineties, and we know what happened after the nineteen nineties.
How much do you weigh that? How much do you have to pay attention? Well, you know one of.
The things that you do.
So financial market conditions are one input into our decision making. That one of the many inputs. You know, we have two goals, price stability, full employment. We're trying to think about what inputs affect those two variables, those two goals. But what I look at is if you look under the valuations, you know, people are really talking about one of two things. This is going to be a transformative technology. AI is going to change the world to be like electricity or the steam engine.
And then the people who are a little more skeptical.
Are saying it's going to be a business as usual technology. Think of computers in the Internet. The thing that's true about both of those is they're both productive. You get productivity from both of those. They both help with growth. They both help the pie and the US expand. And so we're not talking about a bunch of ideas with
no backing. We're talking about, you know, equity investors, not highly leveraged going in and making banking bets really on whether it's going to be transformative or business as usual. But everybody agrees on one thing. It will change productivity.
At the same time, President Daily some people would suggest that yes, you will see stocks continue to go up in the face of another rate cut, But at the same time, the transmission mechanism of the additional cuts are slower to take. It's less efficient in terms of the pass through just based on how much lending there is, whether it's in the private lending sphere or beyond.
How do you measure.
These things at a confusing moment, Well, you.
Know, I guess this argument that we've somehow lost our power monetary policy doesn't transmit. I simply don't see it in the information. If you go out and you look at what happened when inflation was running really, really high, we raised rates pretty aggressively, and mortgage interest rates rose rapidly, car loan rates rose rapidly, and the economy slowed. Inflation came down. Right now, what I'm seeing is we adjust rates. Mortgage interest rates come down, not one for one, that's
not how it works. Usually is less than one for one, but they come down. You see a little more activity in the housing market, you see a little more activity in the borrowing market more generally, and you see that dynamic work. So I guess the most important thing is just to remember that Monterey policy acts with a lag and right now we're making decisions not just for what's going to happen next week, but what's going to happen
in the next six month to a year. So that's how we have to think about it, with our forecasts and then how we adjust policy as those forecasts evolve.
How frustrating has it been not to get government data?
You know, I really want the information, the fullest amount of information we can possibly get. But one of the things that I think maybe underestimated in public about what the FED does is we're regularly relying on government provided data that's the gold standard of data in the world. We're also relying on private sector surveys which have been collected for many, many years, and we can correlate them with the government collected data over time and know exactly
how they relate to one another. And then, of course there's really no replacement, especially at inflection points in the economy, for talking to businesses, workers, communities, and consumers, asking people what they're really doing.
And then you know, I like to do this, Go to.
The parking lots of your favorite retail stores and look at how many cars are in the parking lot and what people are buying.
That tells you a lot.
You know, airports are are full, people are out there. You can go to you know, go to a sporting event or a concert, see how many people are there. What you see as an economy that is slower than it was. Consumers that are not they're more picky about what they spend on, but they're still out there participating in the economy.
And that's how we get the.
Information we need to make the right decisions that are according to our mandates, but mostly for the American people.
Presidentially.
You've been working with the FED or on the FED Committee for a long long time on these in these debates, have you ever seen it more divided than it is right now?
On the FMC.
He knows, of course.
I mean, look at the if you look at the transcripts and the meeting minutes, and you know it's helpful. Go back and look at the nineteen nineties debates, and go back and look at the commentary around the nineteen seventies. You know it is a misnomer to think people always agree the right way to think about it. In my judgment, this has been my experience, is that the debate we
have I wouldn't even call a division. I would call it differences of opinion that are really healthy in about trying to make policy in an uncertain time.
With no truth. We don't have truth.
We have forecasts, we have our best estimates. We have taking the evidence and then taking it again and looking through it with different lenses. I see that as a strength of the committee, a strength of the Federal Reserve, and importantly is it is delivering the best possible decisions
we can make. So I have seen this many times before, and I think it's always at inflection points that you see the broadest amount of disagreement, and it's exactly what I hope people would want from a committee making decisions on inflation and full employment. It really does help us make sure that we're doing the best we possibly can.
So you're happy to confirm on the record you have not seen Governor Maron and President Smith in a fight in the C day meeting. Can we confirm that President Daty today that hasn't happened.
You always try, and yet I'm not a rookie.
Marry Daty, thank you. That's always good to see you. Stay with us.
Multile Imberg surveillance coming up after this, stop scanning some ground. Sarah Hunt Vampindt Saxton words, writing, investors are seeking refuge in companies that demonstrate financial resilience, prioritizing steady dividend growers and firms with a strong free cash flow needed to weather a downturn.
Sarah joins us now for more. Sarah Good Mornick Heaoy morning.
There's some tech companies determined to eat into that cash flow, aren't they.
They are definitely determined to eat into it. And I think that between that and the fact that they're raising some debt is what's given some people.
Some pause on the story right now.
So I think you mentioned earlier today sticker shock that people are getting from some of these investments, So I think that there is an issue there.
So it's AI the consumer slowed down. I mentioned that note from Stuart Kaisher City. There's been a range of reasons for the pullback. What do you think is the dominant one in the last week.
It's interesting. I think it's really the end of all of it.
And I think the government shutdown didn't matter until it started to matter. And when you start to see those pain points, people start thinking about when do we get this resolved, how do we get this resolved? And how bad does it make things going forward? And I think all of a sudden that started to matter again. You start to layer in enough things and it's the totality of them, I think, more than an individual one.
Is it noise or.
Signal the sell off that we saw last week. Is it something that is viable and just a blip that offers opportunities, or is it signaling that there is some weakness under the surface that needs to be paid attention to.
I think the magnitude of some of the declines on the MISSUS gives you a little bit more pause than you would have normally.
I think there's nothing wrong.
With having the market stabilize and or have some sort of a down draft for a while after hitting record high.
After record high after record high.
So this is not like there's some massive change underneath, but I do think that there is some willingness now to look out and say these better grow, these earnings better grow into some of these valuations, and or these valuations are on a high level. Markets don't generally correct because of valuation, but it certainly could give things pause. And I don't think you've seen a major downdraft here,
but you definitely have seen some under the surface. You've seen a lot more percolating and big drawdowns than you normally would in individual names.
One thing that's raised some concerns, at least in conversations that I've had, is that one of the biggest players in this space is open Ai. And open Ai is a private company that's expanding very rapidly and has circular deals with all of the big tech players, and you don't have visibility into what they're doing, who they're hiring, how they're spending, or what their plans to growth grow
in terms of specific new programming. How much does that give you true pause and actually make you lighten up some of your exposure to the AI players.
I think the real question is the functionality and how we are going to use everything. I don't disagree on the open AI, and I think that part of the issue was the serve of discussion around whether or not there needed to be guarantees or needed to be this, or needed.
To be that. In the end, we're going to need a lot more power. Are we going to need as much as we think we are. I'm not sure.
I think that there will be efficiencies in there, but I think that the overall build is going to continue. The emphasis on CHAT GPT of all of the different large language models is one, but there are other ones out there. But I do think that the circular financing started to cause people to question it. And every time the questions come is when you start to see that NASA wobble.
One reason why.
This has been such a difficult economy and market to call is because you have this sort of secular tech trade. John's talked a lot about this overlaid on what could be a cyclical shift in the underlying economy. How much
are you seeing a cyclical shift to the downside. It's some of the recent earnings reports, whether it's fast retailers, fast casual restaurants, or whether it's some of the other margin compression we've seen in other stores versus a sort of bottoming out in some ways, like the Mike Wilson's of the world seem.
To think, well, this is going to come down to and this is where the tricky the data being not available is tricky. It's going to come down a lot to the labor market in the near term because what has happening there is going to i think, inform both the FED and some other areas of what's going to happen next. And I think it's hard to figure out right now if people are if that's an AI problem, if it's an inflation problem, if it's a cost problem.
All those different pieces are swelling together, and without data, it's kind of hard to get a gut check on that. But I don't know that you're having a major major change until we really start to understand how to use the tools. So I'm not sure that it's a secular shift in the labor market as so much as we have some cyclical issues going on in some higher costs.
There are some things going on though. Earnings growths fantastic, so that corporations seemingly are making money.
Employment growth is terrible.
GDP is tracking really well at the moment, could change given the government shut down, but at the moment tracking quite well. And yet employment growth is pretty terrible based on Vario syndicators.
What gives? What explains that?
I think it's a combination of there's still some scar tissue of letting too many people go and people not wanting to let people go if they think there's going to be some growth.
But I think that the movement in jobs is part of the problem.
It's sort of like the movement in houses is part of the problem because unless you can get you know, it's interesting they were talking about making mortgages assumable again, which they weren't for a while. Unless you can get you can keep somebody these old mortgage There's a lot of stuckness in the housing market. There's some stuckness in the labor market because people don't necess early want to
let people go and see what happens next. And I don't know how that resolves itself in the near term. It's harder to get a job now than I think it probably was a few months ago. It's certainly from a younger person standpoint, very difficult to get a job, because when I talk to my younger people, they are quite worried about that.
Fifty mL coas that's the proposal over the weekend? Do you buy it? Does that make sense to you?
I think that your previous guests made a great point about the fact that that or you made a great point about the fact that that's a demand.
A response and not a supply response.
We need to be able to build more houses, so there's either a regulatory push that needs to change.
Something needs to happen where you.
Actually get more affordable housing built. And that is the problem right now. Making mortgages go out to fifty years. Sure, it's like car loans to ten. It makes it cheaper, but does it make sense? And is that what you want to do to yourself from a financial.
Stand makes it cheaper on a monthly basis, but over the term of the loan makes it a whole lot more expensive.
And you're paying all the interest upfront, so at a certain point, you're just paying the interest upfront to pay the actual mortgage back when you're three hundred and four years old.
Congresswoman Mantre Tanda Green, pushing back, heinst this proposal as well, where is she on the political spectrum right now?
It's really pushing back the.
Circle, as we've been saying, right units on the other end, after it gets to a certain place. There is a populace tilt right now, and we have to keep pointing to what it is responding to, and it is the cost of living. It is some structural issues and the real debate needs to be exactly what the best way.
Is to fix those.
So, Sarah, I just want to finish on tech. You can do single names, So I want to bring up a single name. Metsro and Microsoft have had a really lousy thirty days and sitting out all this spending is Apple and Apple has had a really really good thirty days.
Is there a story there?
I think that the difference between Microsoft and Meta on the spending is that Metas had more of a checkered history on money spent versus Microsoft, where I don't think you can make that argument. I think that they're stuck in a problematic we need more capacity than we have, and I think for Apple there's been another story too, because it's whether or not this is going to.
Be a refresh year.
Finally, after all the years of hoping that it was going to be, so I think that there's some differentiation there, but to the extent that it's not putting any strain on Apple's balance sheet. This goes back to the argument about balance sheets and.
Cash flow, right.
You want to make sure in an uncertain environment that those companies are running through the proper amount of cash and everything else. I don't think that's a problem for Microsoft or Meta, but I do think that on the edges that's starting to make people more wary, which is why we like.
To look for lots of cash.
A month ago, though the bus was so different. Everything with AI related was up and up into the right aggressively. And a month later we're talking about Apple as if it's spending discipline. And a month ago we had people coming on the program saying they're missing a moment, they're not spending enough. Is it a feature or a bug the discipline of Apple.
It's both, depending on exactly what the psychology is. And I will say that this year has not been rewarding the people who are more cautious with their dollars as much as it's been rewarding the people who are spending like crazy. But when people start to worry that spending like crazy can't go on. They go right back to the folks where they think that there's some discipline there. So I could be a little bit of a back and forth.
I think it's an and a non in the.
War stay with US Multlomberg surveillance coming up after this.
The shutdown.
Adding to economic uncertainty is the White House estimates losses of fifteen billion dollars per week. Lindsay pix Or of Stifhel writing, investors will be listening closely to any indications of a growing divide among policy opinions, the threshold for additional rate cuts and broader expectations for policy going forward. Lindsay joint us Now for more, Lindsay, welcome back. What is the strongest argument right now for this Fed to sit out the December ratecount decision?
Well, I think right now, when we look at the broader pace of economic activity trending near three percent, coupled with inflation still elevated well above the Fed's two percent target, I think it's going to be difficult to justify any further policy easing and really solidify the need for the FED to take a pause sit on the sideline allow further data to evolve and give the FED a better
sense of where we're headed go going forward. But right now, not only is that justification not there, but the sense of urgency is far from there as well.
Lindsay, when we've been looking at other data points to try to backfill what we haven't been getting from the government, everyone seems to focus on the labor market. What metrics are you watching for inflation? On the other side of things, I think.
One of the key metrics that we're focused on right now is inflation expectations. Despite the fact that the FED continues to vocalize a desire to get back to two percent, as we've seen over the past several years, they failed to take the needed steps to ensure a return to price stability, and the market is seeing that when we look at the latest inflation expectation calculations near terms still up near five percent, but longer term, so we're talking
five years and out, still up near four percent. So there is a lot of concern that despite where the FED is right now, further inflationary pressures may be coming down the pipeline A.
So you're talking about I believe the University of Michigan Sentiment Survey, because when I look at say break even rates, it's still around the two point two percent over the next five to ten years. So when you take a look at the market based inflation expectations, they haven't risen. How do you explain that that sort of discrepancy.
Well, I think right now it goes back to the telltale story that we're feeling more inflation from a consumer standpoint than maybe the market calculations are presenting that two and a half is to three percent range. Consumers are feeling twenty percent increases, thirty percent increases at least over the past five years across a number of key categories, from transportation, household energy, to your morning coffee. This has
been compounding pressure on the consumer. And of course, as we know, inflation expectations feed directly back in to the realized inflation calculation, and this is something that the FED has historically kept a very zion in order to not allow inflation expectations big on further underlying inflationary data is one key data point to suggest the FED needs to take a further more direct focus on teaming price pressures in the marketplace.
Lindsay the last time we had a big moment with inflation was of course coming out of the pandemic, but it was easier for the Federal Reserve that time. Even though they took that time, it was certainly easier because the labor market was so tight. What's interesting about this moment, lindsay, is that they feel not great about inflation, but they also feel pretty lousy about the labor market as well.
And you see that across sentiment surface and lindsay, I'm curious why you believe we're tracking so well with GDP and your attitudes about the labor market are so lousy.
Well, I think when we look at some of the labor market conditions, we have to be careful not to put too much stock in one data set, or one data point for that matter. First off, a top line job creation has slowed markedly over the past couple of years, but this is somewhat expected in an aged recovery, not to mention an ongoing structural shift with businesses increasingly relying on technology the adoption of AI, so we no longer need two hundred three hundred thousand jobs to reach that
full employment level. Second, just because we see that one data point again, top line, job creation is slowing. Other metrics suggest we're on more solid footing. When we look at the unemployment rates still near ish four percent, when we look at wage growth, still up at four percent, when we look at jobless claims, still very range bound as they have been for the past couple of years.
So just as there's some indications of cooling, there's vast other indications that the labor market is far more solid than some of these more dire predictions.
So lindsay, just to follow up, because we've gone over this ground a few times throughout summer chair and Powell appears to have shifted his view on the labor market and the way he anchors his view around the labor market. He took your view of things at the start of summer, he anchored his view with the labor market around the unemployment rate, and then things changed through the summer and he appeared to anchor his view around the deceleration we've
seen in overall pay roads. Where do you think will be by the time we get to December.
Well, I think it was pretty clear.
We saw in this statement.
That the Fed downgraded their assessment of the risks on the employment side, but not necessarily in terms of forward looking thinking, but as justification for the September and October rate cut. But cheer Paul clarified during the press conference, saying that he does not expect any further deterioration in labor market conditions, suggesting that we may have reached this point of stability, further justifying than a position of policy on the sideline.
Stay with us.
More Bloomberg surveillance coming up after this. Magot swipert Bank for American Writing. Our houseview is still that the FED holds off on a cup at the December meeting and indeed doesn't cut again until the middle of twenty twenty six. Maket joined this now for more Meccan Good morning morning. You're essentially saying that Chairman POW's a last cup as FED chair was last month.
He's done.
That's indeed true.
John.
You know, ultimately the FED reaction function that we see right now, and we're hearing this from a number of voters, is this caution around inflation. And you know, I think to help answer this question of is it demand is it supply related? Look at some of the claims data claims is still quite low, which is a pretty decent sign to me that people are not being fired at large,
at least in the private sector right now. And what we see in our B of a card data is still this resilience of the US consumer and the importance of the consumer we see generally speaking in terms of that leading what we look at from a labor market perspective, we usually see consumption lead labor, not the other way around.
So the last time they put out forecasts, which was September, they conceded the outlook hadn't really changed, but the risk around the outlook had let's cut risk management. When they get together in December, the middle of December and they have to put out new forecasts, are they going to say the same thing again, the outlook hasn't really changed.
Well, I think John, it's really about this balance of risk assessment and what changed in September and why they penciled in this additional cut at the December meeting is because they were viewing this risk more to the downside on the labor market, and we're thinking that that would drive more of a downside shift in inflation. But if we look at some of the inflation data right now, we're still seeing a lot of strength in services inflation that tends to be more of the cyclical component of
the inflation basket. And then again we are also in importantly this absence of data from the Fed. Probably one of the first data points that we're going to get out once the government reopens is the September Labor report, and an our view, that's going to be above consensus expectations.
Why aren't wages increasing more than if this is the demand picture that you're talking about.
Well, while we are certainly seeing this cooling in hiring, we are not seeing companies turned to be outright firing folks. And so the reason why we're not seeing this uptick in wages is largely because we're seeing the shift from a supply perspective. AI maybe one fact that's slowing the growth of employment overall, but we're not seeing this turn the other way around in terms of net firing.
Right now, if the Fed does cut race, does that make you less likely to go into duration? I mean, how much does that affect the longer term inflation backdrop?
Yes?
And this is exactly the question that we're asking ourselves right now, Lisa, is how to think about December and the path for the FED in near term versus what some of these risks are for a FED more medium, longer term. We understand Powell's reaction function pretty clearly. We have a nice indicator from a lot of the FED speakers right now in terms of how they're thinking about
this balance. But we worry about a new FED chair that's going to be thinking about the balance of risks differently, namely not considering three percent inflation to be meaningfully above target. We're hearing some of those comments from Myron and Bowman right now at three percent is okay. We're discounting that three percent inflation rate, and a new FED chair may be more concerned about the slow down that we're seeing and hiring, which we think is more is more supplied.
They may be overweighting from a demand person.
Why isn't the current FED also tacitly saying that three percent inflation is fine, because essentially that's where it's been for quite a while, and it's been above that two percent level for more than five years. So at a certain point, maybe they're saying they're still going to get down to the two percent target, But at what point are they going to say it will get down maybe in twenty seventy three.
And this is a big issue for the fixed income market because if you look at what the market's pricing for inflation in the medium longer term, they're giving the FED full credibility on this. You look at where a tenure breaks are priced, considering that thirty forty basis point but differential between CPI and PCE. The market's giving the
FED full credibility on this two percent target. And if you do have a FED that's getting more comfortable with three percent inflation cutting alongside that, we see more of upside to being long inflation. We like that at the tenure part of the curve.
It's kind of strange how well anchored market based inflation and expectations have been, how credible this pursuit of two percent seems to be when it's anything but based on reality. How the DTAs come in, and how Effet's behaved over the last few years.
It's something that I check almost every single day.
Honestly, the five year, five year break even raids and the ten yure break even raids, and I've just been looking at where is the breakout going to come? It just has not come, And I wonder how much people are looking at disinflationary forces, whether it's from AI and accounting for that before accounting for some of the inflationary aspects or other things.
I don't really have an answer.
I've said this week would be super snoozy with a caveat. I did say this in the last hour as well, that we might get some economic data. So let's talk about the data you set above consensus expectations on payrolls once it's released. What's above consensus right now? What's good for them?
Good number is just still steady job creation that's modestly above break even and break even right now the market thinks is probably much much lower than what we had been seeing previously, called around fifty k or so. And a lot of that comes back to what Lisa's point was, related to the supply balance that we have in the labor market right now, this slow.
Down and hiring.
So any number that doesn't indicate an uptick in the unemployment rate, I think is is pretty decent.
So sixty seventies is enough to keep the Fed on the sideline, I think so.
I think so, John, And again it's going to be this decision in the absence of us likely getting any more inflation data through the December meeting. We very likely had the last CPI print that we're going to get until the December the December Fed meeting. CPI was slated to come out the second day of the December Fed Meeting, but inflation is not something that they can actually calculate retroactively.
They do this survey throughout the month, and you know, we're still now part of the way through November going to be okay.
This is really important because I'm not sure how many people are quite aware of this. So you suggest that even if the government reopens like tomorrow, we move along, that they might not have CPI December meeting.
They may not because oftentimes when the government's closed for a while, it takes them a while to actually get back to a normal production schedule in terms of publishing the data. So it's very likely that we won't get any more inflation data through the December meeting.
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