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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 Terminal and the Bloomberg Business app. Job was flaends this
morning two twenty five. The estimate two twenty one the previous week are revised to nineteen into tomorrow. Payrolls the estimate in our survey one fifty the previous month one forty two. Mike be Keith, thank you, sir. With us now as Lindsay Piegs O Stephel. Lindsay, Let's talk about the numbers that just came out. Anything to fear, anything to worry about. Looking at the labor market data through this week.
And really not yet. The job was claim see to be pretty steady. We have seen a little bit of weekly volatility, but nothing to indicate a sizeable directional trend. Right now, we continue to see that the labor market remains tight ish with some indications of cooling momentum. But again that cooling suggests the data is simply moving more towards a neutral state as opposed to an indication of mounting weakness. As we look further to the end of the year and turn that page into twenty twenty five.
Where do you get any degree of confidence that we'd stabilize in this state at this level.
Well, I don't think we're going to get much confidence from jobless claims per se, at least not the weekly data that we've stabilized. Big confidence is going to come from more improvement or more stabilization in the not farm payrolls report. So Friday is going to be a very key driver, not only for confidence for investors, but for the Fed officials looking to make that determination of what's
the appropriate next move for November and December. If we see more indications of cooling momentum, I think that's going to bolster the case for a larger, more aggressive second round fifty basis point cut. But if we see more steady conditions, if we see more stabilization. That's going to make it pretty difficult, coupled with earlier on even inflation data from the PCE to justify anything beyond a twenty
five basis point cut. And should we see the numbers come into the upside, I think the FED may be willing to sit on the sideline and take a pause in November.
Forgive me, because I've been conditioned my experience, lindsay, But every time we're heading into a non farm payrolls everyone says this is going to be decisive. It's going to tell us where we are in current terms of on the brink of some sort of deterioration or some you know, steady as he goes type of state. And then it comes out and people find fifteen different narratives to justify within that same data. Lindsay, why should this be any different?
Well, I think again, it's not the end all, it's not the deciding factor for November, but it is one of the key pieces. We have a handful of key data points between now and November, and the Fed is going to look at them in their entirety. So coupled with the idea that the PCE, yes, it's a key driver but it was mixed. It was uneven, the headline retreated, the core showed further upward momentum. Now we're going to
turn our focus to the labor market. If the labor market comes in very clear to the upside or the downside, that's going to be a very key driving factor to that decision. But again, if it comes in mixed, the FED is likely to say, well, we need more indications. We're going to wait for a next round of inflation, We're going to wait for the next round of the
employment data. So it's not that one data point is going to make the decision, but each of these data points becomes increasingly more important as the picture is not yet clear as to what the FED should be doing and the size and the momentum of these policy adjustments that the market is anticipating.
Lindsay, how much salt though needs to be thrown on the next data point of the non Frompezer report on November first.
Well, there is going to be some adjustments that have to be taken into account. Of course, the port strike, of course the hurricane. All of these events are going to provide additional volatility, but it's likely that we do see most of that volatility not necessarily hit the November report, It may take an additional month to come through.
That.
Being said, if we did see that type of distraction or volatility, the FED can also look through that. So yes, there is some amount of we need to look at the data point with a grain of salt given the underlying factors, these one off effects, But the FED is smart enough to look through that. They're going to see the underlying directional momentum, and again that's going to help decide where the FED policy needs to go from here.
What's your best guess fit tomorrow?
I think we are going to see something similar along what we saw last month. I think one hundred and forty one hundred and fifty thousand is very reasonable, keeping us on par with again the pace of job creation, raising the three month out very closer to around one hundred and thirty thousand, But the unemployment rates still study around four point two percent, well below what the FED is designated as that full employment range or the sustainable
level of joblessness. So I think we get a somewhat favorable report, still indicating tight ish conditions and still indicating the need for a very patient, tempered, controlled reduction of rates as again inflation. Their job of reinstating price stability has not yet been met.
Lindsay Pick of Stayful, Lindsay, thank you, Adam Poison of the Peterson Institute. With this to say, I stand by my col The Fed will stop cunning rates by March of twenty five and will be hiking by June of twenty five, seeing a forty percent chance if Harris is elected eighty five percent plus if Trump is elected. Adam joined us now, Adam, welcome back to the program, sir. We've got lots of work through here. Let's just start
at the top. Why is the outlook for you in twenty twenty five so election dependent?
Thanks for having me back, John. I think it's election dependent in two reasons. The first is whether it's Harris or Trump. I think the commentariat and a lot of the market people are overestimating the likelihood that a divided Congress will prevent fiscal expansion. You will get some fiscal expansion if it's Harris, and you will get outrageous fiscal expansion if it's Trump. And Emery and I have talked about this on our previous appearance. I think Congress is
not going to block it either way. The second reason is specifically to do with Trump. In a recent analysis to Peterson's to put out last week, we go through very carefully what his plans for general across the board tariffs, particularly migration deportation policy and interference with FED independence would mean. And that puts you at an inflation rate of well above four percent easily.
And I mean you've made the argument O said that you think the fence should be preparing for two way risk and should be preparing market participants and the general public for two way risk as well. That reminded me, like it reminded you of the situation that Governor Countie was in back in twenty sixteen. Why do you believe that's the right idea?
I think, John, thanks for having me back to talk about this. And you're right about the parallel with the Bank of England facing the Brexit call something very political where they don't want to come down politically. But it's disingenuous to just sit there and say, well, what will happen?
What will happen?
I mean in the end that is what will happen if it doesn't affect the politics or are the outcomes. But if you're choosing to just every meeting just tack back and forth and update people's expectations, you leave a lot of room for volatility, and arguably you're going to
cause more harm to the economy. Sometimes you have to be honest and just say, look, we are not going to pretend we the FED have a view on Trump versus Harris, but we think there's a high risk of fiscal expansion and a high risk of additional tariffs, and a high risk of disruption the labor markets either way,
and all of that is inflationary or stagflationary. So therefore we should not be encouraging the idea that there's either a further path of rate cuts in twenty twenty five or encouraging the idea that all the risks are to the downside. This is different than the clip you just showed a Beyonco. My concerns are about the policy changes, and also, as I've written about and we've talked about, that the FED is not as tight now as they think they are. It's not about that there's this persistent
inflation no landing. It's that new shocks are coming and policy is not as tight as they think.
There're two things here, Adam. One is they're not as tight as they think they are, a question around neutral, which is something that a lot of people.
In markets debate.
Another thing is how much FED try to get ahead of possible policy changes that could expand the deficit. How much would the FED be exposing it to itself to incredible political risk if it weighed in, I mean, if it didn't pingpong around what the data is actually showing right now and try to make a statement on whose programs would potentially be more inflationary at a time where the arguments on both sides contradict some of what you've been talking about.
Well, the arguments claimed Lisa may contradict, but the facts don't, and the Fed's job is to follow the facts and the basic economics. I think it is a risk either way. And obviously Chair Pale and the leadership of the FED has decided the way they're going to manage the risk is they're only going to talk about the next three months and they're just going to focus on that. And that was very clear from the Chair.
Speech at Jackson Hall.
And so my push has bit at a minimum, admit that that's all you're doing, and don't let people get notions about twenty twenty five and beyond. But the second point is we're seeing major erosion of politics and norms and stability in the US. And if you look around the world where there are countries where you have that, generally the central bank ends up having to be more outspoken,
more principled, and more courageous. This is like in South Africa, this is like in India, This is like it used to be in Italy before the Euro that the central bank has to stand up. And the FED situation isn't quite as delicate, Lisa as I think they think it is. And you just said it could be portrayed because both Harris and Trump are going to lead to expansions of fiscal policy. Both Harris and Trump are not going to roll back to Harris and are going to increase them somewhat.
The FED doesn't have to say what we in a non partisan place can say. They don't have to say Trump is worse than Harris. They can just say the risks to inflationary policy are higher from both.
Adam, what would you say about the fact that even though people keep talking about the jaffas, the bond market hasn't woken up to it, and a lot of people think it's never going to simply because it has it in the past.
It's a fair concern. I mean, I don't have anything great to say about that, because this is the dynamic you get. The US is the global reserve currency. China is a mess, Europe is a partial mess.
The world is.
Unsecured in geoeconomic terms. So in relative terms, people are going to keep investing in the US. You were saying a little bit ago on the program about the increased interest in gold and Costco selling platinum to go with its meal kits. You know this is bitcoin. All these things are signs of people having trying to seek alternatives to the dollar when there's no good state level, no good alternative currency. And I think all these investments will
ultimately end in tiers. But the fact is that temporarily gives the US board room to run its fiscal policy, run its de and that's part of why my forecast is that the deficits are only going to increase. It's not because I think that's good, it's not because I think it does no harm, but it is likely for the next.
Few years, given all that you think about the direction of the FED and what they're doing now. Yesterday, Mark Rowan told Jonathan of Apollo that this was the most expensive insurance cut that we've seen from the FED in history.
Would you agree with him?
I guess so.
I wouldn't put it as negative a spin on it. I guess I'm Marie as that sounds because insurance cuts are been rare in history, and I think insurance is good. You just have to be prepared once you've paid the insurance premium to write it off as a sunk costs.
And that's all I've been saying.
I mean, I bound the record saying the FED should have been cutting maybe not fifty, but should have been cutting this fall because given where the short term inflation outlooked is, which is down, and the risks of a potential recession, it's fine for them to take on a chart. So as I view that as good, but again, insurance is a some costs. My only point is warn people just because you're taking out insurance doesn't mean that you're
going to keep going in that direction. In fact, just because you're hitting own insurance, you may make it less likely that you're going to keep cutting.
Adam ahead of the election.
You also have some thoughts on inflation, how it's central to voters, given the fact that we've had low inflation before this latest bout for forty years. Who's messaging that the best? Are voters basically blaming Kamala Harris because of Bidenomics and they put the blame on Biden Or is she doing a good job and explaining that terroriffs may be inflationary.
I think it's more of the latter than the farmer hen Mary, thank you for engaging with Adam. I'm not a polster, but I can see that basic fact that inflation has become a dominant topic going into this election. All the polling data makes that very clear. People do feel in As we look through the data as best we can, they're noticed price level shifts, right, So eggs went up a lot in prices, it's not that they're continuing to rise.
In fact, some of it is they're falling.
But people still feel the relative price shift they've already seen, and we know that they always feel even if wages are going up, that stuff they deserve, and if prices go up, that's stuff that's unfair. So they don't see the balance very clearly they're allowed to see whatever they want,
but that's how people see it in this context. I think the Harris campaign is doing a good job building on some things that the Biden administration finally said in the last six months or a year, which is that terrorifts are attacks, and there are particularly attacks on working people because the stuff people buy, their food, their choice, they're closed, they're inexpensive, furniture, they're electronics are infinitely cheaper because we allow inputs and we allow competition and we
allow choice. And so I think that message from Harris campaign that they would not put on a general across the board tariff the way the Trump people and the president form. President Trump keeps saying he will is getting home. There's still a legacy that, you know, when you're president, you get the blame, just like the Fed, whatever happens on your watch.
So there's still a legacy.
Of Biden that inflation occurred on his watch. On whether or not it was his all that that doesn't matter. That's still a track.
Adam poson Adam appreciate elsewhere on the Federal Reserve. The former New York Fed President Bill Dudley, in a new Bloomberg opinion column. Writing this, I've been too pessimistic about the risk of a so called hard landing for the US economy over the past few years. Although most of my conclusions that led to that view were correct, such an outcome remains very much in doubt. Bill joins us now for more. Bill, Welcome back to the program, sir.
It's been quite a journey for you, an intellectual journey over the year so far. I want to go through a couple of headlines and you help me understand why you've as you think in somewhat. It was only back earlier this summer where you said I changed my mind the FED needs to cut rights now. Before the Federal Reserve meeting last time around, you said they need to go big. Now I think they will. They did this morning.
My hard landing forecast turned out to be wrong. They'll just walk us through how you're thinking about things currently and what kind of policy this backdrop needs.
Well, my original view was that FED would be late to tighten maitre policy. Check as a consequence, inflation go up and the labor market would get very tight check. Then the Federal Reserve would have to tighten maitre policy a lot check and the unplayer would have to go up at least they have a percentage point trigger the sam rule check, but the sham roll trigger. That doesn't seem like it's leading to recession. If you look at what that the GDP numbers, they've have been very firmly lately.
Second quarter three percent, third quarters tracking two and a half percent. So even though I had the story right, it doesn't look like the conclusion is going to pan out. Yeah, it's just starting to say for sure. That's why the market has so much attention focused on it. And I thought I was interesting the summary of economic projections at
the last FMC meeting. They actually in their summary of economic projections, they actually think that the downside risks to the labor market are actually greater now than the upside risk of the inflation. So they're worried about the exact same thing. And that's why tomorrow's labor market report is so important. If the labor market really starts to deteriorate, then I think the soft landing story will start to
come into question. And that's why thefect cut fifty basis points a couple of weeks ago.
I think a lot of people bill share your journey in terms of changing views and not understanding which models are actually accurate this time around. What in your analysis makes you think that this time is different and that some of the classic indicators that traditionally have foretold recession no longer work.
I think two things are different.
Number one, you had all these fiscal transfers during the pandemic to businesses and households, So business and household boundce sheets are in better shape than they typically are late in the business cycle. You know, for example, look at debt service calls for the household sector is still pretty low because people locked in very low mortgage rates during
the servant during the pandemic. The second thing I think is different is that financial conditions have eased a lot, even before the federies.
A cut rates.
So financial conditions are We're at the most tightest about about a year ago, and since then it beads a lot, stock market up, bodils down, credit spreads tighter, and so even though manentrey policy is tighten, when you look at the level of short term rates, financial conditions have eased a lot, and that's supporting economic activity.
What's to say we're landing at all?
Bill Well that's a good question.
I mean, I think you know the fact would like to economy to grow. You know, two to two and a half percent keeps the unemploying rate right where it is, and the third quarter looks like it's shaping up that way.
But keeping on that very you know, that.
Nice edge growth not strong enough to cause the researchers of inflation, not weak enough to lead to the kind of deterioration and labor market that would lead to recession.
That's gonna be tough to keep on.
That nice edge, Bill, What are you expecting for tomorrow?
I think it'll be a decent payroll employer report. I mean, I think the estimates are around one hundred and forty thousand. That seems like a reagionable estiment.
We have to remember, though, the payroll employment has a big standard era around those estimates, So you could get something like eighty thousand, or you get something like two hundred thousand, and it really wouldn't to tell you for sure that the economy has actually changed momentum, Bill.
How difficult is that in the November seventh meeting going to be considering how messy the data might be, considering we might not have an outcome from the election. Can you think of a time like this one that they're going into in the next month.
Well, the particular awkwardness is that there will be another payroll employer report during the blackout period right before.
The fo C meeting. Look, I think that most.
Of the momentum is for twenty five basis points at this point. Powell basically for shared that in a speech, the fact that you had all these people in the summer that projections that only had one more rate cut in their forecast after the last meeting also tells you that it's probably not going to be fifty. So I think the basic stories still intact, risks to the labor market are greater than the risk of inflation Madre policies tight.
We're still quite ways from neutral, So twenty five basis points is for the most likely scenario in my view at this point.
Bill we had Adam posted on earlier from the Peterson Institute who said that the FED should be vocal about the fact that they're considering the deficit and potential tariffs as a potential inflationary pressure heading into twenty twenty five and a reason to cut less. What do you make of that, not necessarily the FED weighing in on that particular issue, but being more cautious ahead of next year because of it.
In my experience, the FED doesn't make set policy today on things that might or might not happen in the future.
I think they wait to those things either materialized or not.
And so I think that the idea that the FED wouldn't ease because they're worried that an election could result in a certain outcome that would lead to higher terrorists and higher inflation.
I don't think the federal hold off because of that.
Bill Dudley appreciate it, sir. As always. The former New York Fed President Bill Dudley down its latest piece, how my hard landing forecast turned out to be wrong. You can find that on Bloomberg Opinion. 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
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