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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. Search for nor data.
We've pulled you a quote, Neil. I want to share the quote with our audience and get your response to it. I'm seeing a lot of wildly optimistic takes out there. Almost feels like people are allowing a political narrative to cloud their analysis of the data. The fact is conditions are getting worse, not better. There will be a time
to be bullish. I'm not sure now is the time the Fed should go fifty when they can not when they must now, Neil, the obvious thing to jump off the page there there's a couple, but the political one's interesting. What is your view on that? Are you suggesting that there's some economists sound there, maybe even FED officials that have got a political narrative. What's that line about?
Well, not feed officials really, but you know, certain economists on the street are sounding like that. I mean, the same folks that told us, you know, are at a sustainably higher run rage for employment with two hundred thousand because of immigration, and now all of a sudden telling us that.
Well, don't worry about it.
One hundred thousand is fine because that's what full employment looks like.
I mean, it's a bit ridiculous, don't you think, Well, hold.
On a second meal, because this is actually something that I've given quite a bit of thought to. Are you accusing the current status quo opinion on Wall Street that recession is not imminent as a political construct designed to help the incumbent Democratic Party.
I don't think, well, I mean, I know, I don't think that that's the accusation. I think that there are certain quarters of people that I don't know, maybe they're joking for jobs in administration, who knows. I mean, but I do think that there's a I mean, look, no one needs to talk to me about being optimistic. I'm one of the most optimistic people historically that's been.
On the street.
Me too.
You can't help yourself. But wonder these wildly optimistic takes seem.
A little bit out of place. I mean, this notion that.
You know, this is soft landing, this is boring. Things are good, hooray, we're at full employment. I mean, at the end of the day, up is up and down is down. Okay, I mean it's really that simple.
Okay, But what is sort of the base case, Neil that you're talking about here in terms of where people are getting it wrong? How bad do you think it actually is? And why do you then think that the Fed should go twenty five basis points rather than fifty basis points, even though everyone on the street doesn't seem to think it's that bad.
Well, I think things are getting worse.
I mean, at the end of the day, since Powell talked about we don't seek or welcome further cooling in the labor market. Literally every single labor market indicator that's come out has been worse than expected. ADP, the non farm payroll number, job vacancies, the regional manufacturing employment indicators, the ISM employment indicators.
I mean, the labor differential from the conference board.
Literally, you can go on and on and on, and you know, we're told to say, oh, well, don't worry, layoffs are low, as if that's a leading indicator of the labor market to begin with, which it's not, by the way, I mean, the hiring rate has collapsed.
You know, I mentioned immigration before.
Look at college unemployment rates. The unemployment rate for people with a bachelor's degree, that's half a percentage point higher than it was the same month in twenty nineteen.
Right, So how does immigration explain that?
So I think it's a little bit you know, off putting, frankly, and to the extent that you know, I think for me, I think the important story is that I think the economy is evolving in a way that the FED may not be anticipating. And to the extent that that's true, I think it creates the risk of an accident later,
which is something we've been arguing obviously since June. And the only reason to expect fifty and yes, I still believe that a fifty basis point rapecut is possible at the September meeting.
That's our call to our clients.
Is because of Jerome Powell we can talk about Waller, New York Fed President Williams. All Jerome Powell needs to do is get out there and before his colleagues around that table and say I think we should go fifty, and they'll all fall into place. And in fact, a lot of the people on the street that have twenty five basis point radcut calls, they'd have no problem with the Fed going fifty either.
But Neil, how political could it be for the Fed to go fifty if Jerome Powell is the one almost dictating it, not a consensus building from the ground up.
I mean, I think that a consensus would come around to the chairman, I mean, Henry, if they didn't go fifty and they only go twenty five, and that potentially fuels bets that the FED will be behind the curb later and then we're talking about in larger moves after the election.
How would that not be political?
It's I mean to me, they have full clearance to go fifty as it is, And I do find this sort of argument, Well, if they go fifty to start, it.
Would be a panic that would be a panic move. Well, by that logic, maybe they shouldn't go at all.
Show so much so so much confidence in the market that it's why not just not do anything?
Then, Neil, we know you think they should go fifty. What do you actually think they will do?
I told you I.
Think they will go fifty because I think Jerome Powell is going to give them a license to go fifty.
I think he thinks that they should go fifty.
So now let's build on that the kind of communication you're expecting September eighteenth, together with the signal we could get from the projections in the SCP as well. Do they characterize that as a mid cycle adjustment, a rush to get to neutral? How do you think they'll frame that move.
I think that they'll go fifty and they'll say that they're willing to do more so long to stabilize the labor market.
That's how thyough. That's how they'll they'll they'll frame it.
They'll say that the inflation story is over, inflation has been quelled, and we'd like to stabilize labor market conditions at our estimates of full employment.
Will you feel better if there's descent on the FMC.
Yeah, I mean, I do think that the consensus building nature of the FED historically is it creates an institutional bias for them to be late. There are lots of central banks all over the world that have more descents. And you know, I mean, who are we really to I mean, if you're Jerome Powell, I mean to me, it's like, okay, someone's dissenting, So what I mean, who cares? I mean some of these people that'll that will dissent have been absolutely wrong about the overall tone of the
data for the last six months. I mean, if Mickey Bauman disint is descents, is that really a big deal? I mean to me, it's like, I mean, it's not. It's not It's like being you know, kicked by a lesser then, so I think it's it's sort of it's sort of not really worth trying to build consensus in that regard, especially when they've been rolled wrong about the overall slope of the data. I mean, some of these people also have been completely headfaked by Q one inflation, right,
I mean so true. Look, so I just what's the point of building consensus with people that have been absolutely wrong about the overall slope of the data for the last you know, three six nine months.
Now you've said it. Whoever, the sins. We're going to say they're auditioning. No, thank you, sir, No datta runmack a free shared it just the clinic has always from Neil. We begin with our top story, Stock's looking to snap a four day losing street following Friday's payrolls report. Jim Bianco of Bianco Research is not buying the gloom. I'm a no leander. I still do not see a broad slow down in the economy. The labor market is showing signs of cooling, but these may be measurement problems. Jim
joined us now for more. So, Jim, let's go to the bond market first, Why is everyone bullish bomb? It's given what you just said, because.
The Fed's going to cut rates and they're going to lower financing costs, and we're having a debate between twenty five and fifty basis points. And I might add too, when you set everyone's bullish bonds. If you look at most of the surveys, whether you're talking about the BFA Global Fund Manager Survey or the Commitment of Traders Report, we've got some record bullishness across the board in the
bond market. So everybody's positioned for a continued fall in interest rates, and usually when they get that extreme, you're very close to the end of the move.
So, Jim, you said these measurement problems, can you walk me through what you meant plant that.
Remember that when we do the survey, when we do payrolls, when we look at employment in the United States, we do surveys, and those surveys are adjusted by population growth. The population growth in the United States has exploded higher in the last three years or so because of migration. We've gone from about one point two percent population growth in twenty twenty to one point one percent population growth,
and that's a gigantic move for that. And so all these surveys are being adjusted by population growth, and we have to ask the question as to whether or not we're actually measuring it correctly. If we had stable population, the answer would probably be yes. But under this flux of population that we've seen, you know, there's a lot of questions, and I think it really comes down to more in the household survey, where the unemployment rate is measured less so on the payroll survey.
You're speaking in tandem with your no landing compatriot over at Apollo, Torsten Slack, who put out research over the weekend pointing to just response rates, declining that the current population survey has gone from about a ninety percent response rate in twenty twelve to about a seventy percent response rate today. I'm just wondering, Jim, what gives you confidence that the lack of clarity that we're getting speaks to bullishness and not bearishness in the labor market.
Because when you look beyond the labor market and let's take a look at consumption or retail sales, retail sales has beaten the Wall Street estimate twenty five the last thirty one months, and the consumption numbers are very strong, especially where they were pre pandemic. And so what that says is that there's a lot of spending going on in this economy. Well, what's the big driver of spending is income and must mean that there's a lot of
jobs out there. People have a lot of income. Yes, the savings rate has been falling, and that can explain some of it, but not all of it. Now, I think what it does do is it masks The payroll report and the household survey are masking the jobs that are created that you actually are seeing in like the retail sales and the consumption numbers because of how high and strong they are.
That said, we are seeing some real weakness. When you talk to executives of retail companies or beyond, they all talk about how they are seeing more choicefulness if you like that word. I think it's a little confusing, but people are being more discerning and how much money they spend. Where do you place that in this trajectory of no landingness that you see.
Well, the economy when it grows, you know, if you look historically at all of the cycles to use this toatistical term, it has a wide standard deviation, So it might grow at two two and a half percent, but you'll have quarters in there where it might grow less than one and quarters that it grows more than three.
And I think what we're seeing with that discrimination among consumers and especially don't forget that it's an election season two and that has a big effect on them, that we're seeing probably more of that normal noise that you would see around an economy that is growing nearer at potential. Yeah, we had some quarters late last year when we were growing at three or four percent. We had a very weak first quarter this year, we're looking at low two's
probably for the third quarter on GDP growth. So that's kind of in the normal range of things you would see with the economy. But add it all up, average it out, and it does look like an economy that is not at risk of recession at this point.
What's the biggest catalyst though that could have you maybe back off as no landing scenario.
Probably if the inflation rate were to continue to move lower. Now I'm on for our arguments. Say care, I'm going to use a year over year CPI.
In June of.
Twenty three, it was three percent, and everybody said we're on the last mile. Well, now it's two point nine. It's taken fourteen months to go from three percent to two point nine, and it did make a move to towards three point seven percent in the middle, there hasn't been much progress in terms of inflation moving lower. If you look at like Cleveland fed mediaan CPI, or you look at the Dallas trimmean PCE numbers, these I think are better core measures of inflation than ex food and energy.
Those numbers have kind of stalled out too at very high levels. If the economy is really slowing. We should see the inflation numbers continue to move lower, and we haven't. We've seen them settle out at a late rate, well above where the Fed wants, and we just assume that they're going to move lower. So if they do start to move lower, then I would start to say, then there is some broad based weakness.
So you have concerned that potentially or do you have concern that a rate cut would mean somewhat potentially reacceleration of inflation.
Yeah, that's my biggest concern. I'm in the camp that the new inflation rate is somewhere between three and four percent, and I might add that's exactly what it's been for as I mentioned before, the last fourteen months or so, between three and four percent. And whether or not we get a Harris or a Trump administration after the election, it looks like we're going to have spending, we might have tariffs, and we're going to see a big fiscal
response out of the federal government. You added to that easy monetary policy, and yeah, I could see where we could be looking at the second half of twenty five and talking about a reassurgent, a reacceleration of inflation, not to nine percent or anything like that, but solidly staying above that three percent level and being very worrisome for a FED that's got a target of two percent and said that they will get to that target of two percent.
So, Jim, this riises some big, big questions about the projections that we get next week in the SAP the summary if they can projections, and I can share with you where CPI is right now in those projections called PSEA two point eight percent for twenty four, two point three for twenty five, two percent for twenty six. Can you share with us why you think that will be come next Wednesday on how high they be provised up by the time it gets to twenty twenty five.
Well, I don't think next Wednesday that those numbers for at least for twenty five and twenty six are going to get revised much. But the story with the FED SEP is always the two year out numbers, always at two percent, and then as that two year number becomes one year and six months, they start to revise it higher. And I think that that's going to be probably more of the same when it comes to where the FED is.
And let's remember in June the FED did acknowledge that there is a base effect in the inflation numbers, meaning that the seasonal data, the seasonal factors are turning positive, meaning they're going to push the numbers up through the second half of the year, which is why back in June they upped their forecast to two point six percent for twenty twenty four. So I don't suspect we're going to see a lot of movement in the twenty four number.
Probably the twenty sixth number will stay at zero excuse me, a two percent or right on their target. So you know that's going to be the key though, is whether or not the inflation rate does move down.
Jim, this was great, Jimpianco at Pianco Research. Jim, thank you, buddy. But here's the latest Republican presidential nominee Donald Trump threatening one hundred percent tariffs on countries who shift away from the US dollar. The comments coming at a rally in the battleground state of Wisconsin. The latest polling showing the race and a dead heat, with momentum beginning to shift in the form of President's favor. Johining us Now round
the table. Congressman Frenchhill of Arkansas Congressman. Good to see you, sir. Good morning, Jonathur grew to be with you. I know you're in town for the Barkley's Global Financial Services Conference, and we can talk about regulation a little bit later. First of all, the big challenge, can you translate that? Was that vibes or policy? Because that's been the criticism of the other side. What was that?
I think is President Trump having a good time at a rally. Because back when William McKinley was president, of course, we financed the whole federal government through tariffs. That was the principal source of federal revenue. I don't think that's a relevant issue. I think the biggest risk to the dollar being the principal reserve currency of the world is really our own fiscal situation. We're not going to be supplanted by a group of countries who want to replace
the dollar. In my view, Instead, the biggest risk is our own sustainable fiscal situation.
Do you see an agenda a campaign that's willing to address that on the Republican side, Well, I.
Don't see an agenda to address that in either political party. It's been concerning to a lot of members of Congress because to get our country in a sustainable fiscal situation. We need to make long term reforms to our mandatory spending programs such as veterans benefits or Social Security or Medicare, and healthcare costs drive a lot of that non sustainable finance.
But that can only be done, you know, on a bipartisan basis, and it's been attempted on and off for forty years, with really only one material change, which was Ronald Reagan's work with then Democratic Speaker Tip O'Neil to perform Social Security back in eighty three and eighty four. But it's that kind of targeted by partson approach I think we need, and all we're doing is trying to lower the growth rate of those programs over a long term.
Because we have the best economy, the best rule of law system, the best litigation and legal court system in the world, and we have the best banking and capital market system in the world. Those are all in dsha of a good reserve currency. But you also want global confidence and domestic confidence in a long term sustainable fiscal situation.
Speaking of confidence, are confident that the government will not shut down? We're facing a government shut down September thirtieth, and you'll be back in DC for about three weeks, right, that's it to really hammer this out.
Well, I Amory, I'm I am confident that we won't have a government shut down because we're just a few weeks away from a national election, and I don't think that benefits anybody running for reelection. So I think we will navigate the need for a continuing resolution to get fiscal twenty five spending moved to beyond the election. And in the House we've gotten seventy percent of funding passed and across the House floor. Over in the Senate, they've not
gotten across the Senate floor spending. So we're going to be confronted with a CR. But I do think we'll get that down before September thirtieth.
I guess my question is, then, is this a CR that's clean? Because Schumer put out a Dear colleague letter last night talking about the fact that there can't be any poison pills in it. Will it be a clean CR that Republicans and Democrats can agree to? You is just basically funding the government until the end of the year.
That may be ultimately what happens, but I think Speaker Johnson proposed that we do a clean r with three editions, some disaster money that's needed, some two Virginia Class submarines be added into it, and then finally the Save Act, which would be a Republican proposal what passed the House with bipartisan support, reminding states that only citizens can vote in federal elections and giving the states some guidance on
how to make sure that's the case. With nearly ten million people in the country, of a huge majority of which are not citizens, audits have found some non citizens attempting to vote in federal elections. It's a big issue. When I was home in Arkansas just the last few weeks, it came up at time and time again at events that I went to, So people are concerned about that. Speaker Johnson proposes that we put that bill, the Save Act, attached to the CR.
Yeah, it doesn't look like the Senate's willing to take that up. Given the fact that after this is going to be all about politics. What are you when your colleagues discus, when you look down ballot, the fact that Democrats are just absolutely trouncing Republicans when it comes to fundraising, especially in the House.
Well, our candidates, both our challengers and our incumbents had excellent hard money fundraising up until the summer, so they were leading their Democratic opponents across the board through the summer fundraising. So I think that first eighteen months of the cycle, I think our incumbents and our challengers did very,
very well. Democrats have had some momentum in the last few weeks to catch up, but now the rubbers hitting the road, and I think we've got adequate funding in the House to hold the House pick up seats, and I feel optimistic about the Senate as well.
You were talking about the deficit and how that's your biggest concern more than say, countries that are looking for alternatives.
To the dollar.
Do you think that this country can afford a fifteen percent corporate tax rate given the fact that already we're kind of struggling to bridge back GOP.
Well, look, when we come into session in the one hundred and nineteenth Congress next year, we've got some real challenges. We've got two big I think fiscal red blinking lights on the dashboard of the Congress. First, tax cuts and jobs at rates and policies ARB are going to expire during the year. And secondly, we're coming into yet in other Congress with a two trillion dollar annualized deficit forecast.
So Congress has hard work. And Jason Smith, who's our Ways and Means Committee chair, has got the point on how do we preserve growth in this environment and how do we set rates that reflect the growth that we need, the faster economic growth and productivity that we want, fairness for small businesses, but recognize that we're confronting this big deficit.
Do you think that it's appropriate for the Federal Reserve to lower rates to make the deficit more affordable in sort of a policy shift, even if that means that inflation runs a little bit hotter.
I don't think that's the Fed's job. I think the Fed's job is price stability. I don't think the Fed's job is to do that. It has in the past since nineteen thirteen. We've had the Fed and the Treasury work in cahoots to lower borrowing costs during World War Two, for example. But I think in a modern context, the Fed's principal mission is price developed.
We know you've got places to be one of those places. This morning is over at Bancleys of the Global Financial Services Conference walks through what should be something the regulatory agenda in the next term for the next four years, maybe headed up by sat Donald Trump in a White House and maybe you at the head of Financial Service Committee.
Yeah, well, I think we want to have access to capital is the number one issue. We want a very successful continuation of our capital market sister, raising capital through the capital markets. But also we want a banking system
that has affordable credit and accessible credit. And part of that is over the last decade or so, since the financial crisis, we just have added on more regulatory costs in both the portfolio commercial banking sector and in the capital market sector that I don't believe improve safety and sellness and are a detriment to more competition in accessing capital. I think that's the principal mission.
We've got a lot to talk about. I know you've got to run, but it's good to see us here in New York City. Thank you very much. Thank you friend Shill there the Congressman from Arkansas. On the regulatory agenda and the push on the deficits. This is the Bloomberg Surveillance podcast, bringing you the best in markets economics, antient Politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern.
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