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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business App. We got so much to talk about with James Bullard. Of course, original is Saint Louis Fed with all the research heritage of the Saint Louis Fed his PhD from Indiana University, and he's wearing a boiler of Purdue pin today with this wonderful challenge taken on what's the difference between I you in Purdue.
Purdue is number four engineering school in the country. So it's MIT Stanford.
Berkeley out in the Midwest.
Yeah, and so the medical school is down at IU, but engineering is at Produce. So it's a great Technical University and the business school is aiming to combine even better than we have with the engineering school and get great graduate school.
You're enjoying the private life.
Oh I am, and it's going very well. It's great to be back on campus and around the students and hanging out.
I want to go back to I believe it was twenty sixteen and doctor Bullard, you had a profoundly important paper saying, as Leguard is saying at the ECB, we got to get off this idiot media micro analysis of data and look at the regimes that we live in. Is we go to this FED meeting today within disinflation, with the FED, with the ECB leading and of the rate cut for Jim Bullard, Is there a new regime out there right now post pandemic.
I do think we've switched regimes. We're in a higher nominal interest rate, higher inflation environment, and I think that means that comparison should be made more to the second half of the nineteen nineties in the first part of the two thousands than to the twenty nine to twenty nineteen period, which was a low noight, low inflation regime.
Paul wants to get here We're going to tie the bow here if I can. It's critical. Is this the press conference where we get some form of hint or statement to where Bullard and Clarida are, which is away from the slavery of two point zero percent? Do we get a higher an understanding of higher run rate for our start or for inflation.
Inflation. No, the inflation target will stay at two percent. But inflation itself, I think that ideal policy would guide inflation to two percent. But assom tote a word that you love, Tom assum tote to two percent. So you want this gentle reduction inflation right down to two percent. You don't want to be bouncing above them below two percent. I think you want this nice glide path into two percent. So hopefully that's what we'll get here. And this report today is very encouraging.
And so Jim, there are folks out there in academia, in practice, in the marketplace. I think this fit of reserve is already behind the curve that they should have already been cutting. Now, how do you think about that?
So I've argued that earlier this year we did get tremendous reduction and core pc inflation in the second half of twenty twenty three, it was four point eight percent. Last summer, on a twelve month basis, it came all the way down to two point eight percent. So in this world, in this game, two hundred basis points of inflation reduction over six months or so, this is fantastically large. So you should be taking that into account. You should
be reducing the policy rate. But the committee just couldn't find the right moment to do that because all the inflation reports up to now we were mixed or even even negative. So unfortunately didn't find the right moment to do that. But this idea that the policy rate is a little too high for where the economy is today, I think makes a lot of sense. So I've advocated for like a technical adjustment. You know, you want to get this idea across that because inflation isn't near five
percent anymore. Core inflation it's now under three percent, we can afford to reduce the policy rate, still be restrictive and get this glide path into two percent, the two percent target.
Look to get your opinion on another topic that investors are thinking about, which is this is an election year and what does that mean for the FIT Reserve to timing. I mean, a lot of folks are saying, you don't want to be too close to the election, so maybe a September might not be the right time.
I think the first of all, I don't think anybody ever won an election based on whether the FED did something at the September meeting, so I don't think it matters for actual election outcomes. I don't think the median voter is voting on that. They're voting on much broader issues. So I think that the Committee feels in boldened to do whatever it thinks is right at that meeting or any of the other meetings and lead up to the election.
And they have moved in the past during the election cycle, and I think they can do that if they wish this time.
When the FED does begin to cut rates, how should we think about the next three, six nine meetings after that? How will they proceed in what may be a prolonged rate reduction move. How will that procede?
You think?
I think it'd be slow. I think that you know, at least as up today, you would think that the inflation rate would come down slowly towards two percent, But it would depend on the data and what else is going on, as it always does.
I look at the FED and I'm going to be honest, Jim Buller, do you have prodigious economic chops. There's a few other people out there as well, but the fact is on this program we've had more than a few guests take a shot at a central bank that seems to be in love with non economists. Do we need a representation at the governor's level and at the senior levels of the FED that includes prodigious PhD macroeconomics or can we go with a more generalist approach.
I think it's great to have a mix of voices and a mix of backgrounds on the committee. I think it really helps. You get too many people like me and you get in too much in the weeds about analysis. But if you don't have enough of that, then you know you can't do a good job either, and so a good mix is the right way to go. I've learned a lot from my colleagues that have markets experience, and now there's a couple of new people coming on that have a lot of markets.
Jim Bullard was this week continue he's a purdue of course at Crannerton White The Mitch Daniels combine out there of their great graduate and undergraduate programs. Here's the history, and you're never going to admit it, but there was a rogue dot there and you don't know which dot is. You don't know which dot Janet Yellen was, but you knew which dot Bullard was because there was a roague dot.
If the dots lost their meaning, as you protested with your rogue dot, you could barely fit on the Bloomberg screen. Tom Secunda is over in Bloomberg LP aging because you ruined the dot screen.
That's yeah, Well, it was a different era. You know, we were talking about regimes earlier. It was definitely a situation where uh interest rates were low around the world. You had negative nominal rates around the world, and I just thought, why don't we just admit that we're in this low nominal intright low inflation regime and project based on that and not project not try to project that we're going to swing if.
The dots loss are sell by date, I mean, is there any efficacy to the dots now?
I think there could be great reforms on the on the dot plot, but the committee has just not wanted to make those reforms. One thing that's very strange about the dots is that the horizon shortens up as you go through the year. So now you've got a dot plot that really isn't comparable to the previous dot plots because now you've only got six months left in the year. Was when you started, you had a whole year out in the future.
So I just saw this stuff. I think it's all just I don't vote, I don't focus on the dots. It's a great fun say well save me.
I'm trying to explain to my offspring Jim, that about this is a more normalized interest rate environment. This is where most of the time, this society, this economy lives, and they're trying to figure out how to borrow for cars and houses and things like that. Is this, in fact where we're going to be for some time? Do you think this kind of No?
I do think we're in this higher interest rate regime, and I do think that it's better on the whole. If you think about the second half of the nineties, which was really the best period for the US economy in the post war era that had interest rates like we have today broadly speaking, and the economy can grow
very rapidly. You know, we had a great run at that time, and I do think you probably get a little bit better allocation of capital because it's more of a decision about it's my project really worth it or not, And you don't get this kind of experimenting around with kind of projects that probably have low payoff.
You're West Lafayette, Indiana, Yes, has a three point zero percent unemployment rate. They're fully employed at Harry's Chocolate Shop. I mean, there's no question about it. What does urban America? I mean, you and I have talked about this in your offices in Saint Louis years ago. What is urban America missing about the vibrancy of the Midwest of this nation?
I think the Midwest is extremely powerful, very populous. It might not all be in one place like it is here in New York City, but really a lot of people, a lot of great manufacturing, a lot of great businesses spread out across the Midwest, and it's a great place to live. And that because you're more spread out, you have better housing markets, a better option.
Is there a labor arbitrage still going on right now where I'm sorry, we're gonna We're gonna take the Biden Investment Program, and that's where we're going to find the jobs because the labor total cost all in it.
There's a lot happening in Indiana. And one thing that's happening is this I sixty five cord or between Lafayette and Indianapolis. If you drive up and down that you'll see lot to launch of businesses locating there. And we just had a deal with South Korean chip maker that's going to move to West Lafayette to Purdue.
In studio where there's a former president of Saint Louis Feller Reserve System, James Bullard, he of Indiana University. He have a profoundly important paper I'm guessing twenty sixteen on the regimes that we face within our monetary policy. Paul I can report to you at his Purdue at Harry's chocolate shop right at the top of the menu domestic cans. They have Budweiser. I know, very important.
Well, Tom, I found another place we're gonna have to go through. This could be a busy time for us there Lynnwood Tavern.
Yeah, and grille. I've heard Rachel's mentioned this.
Z I mean exactly three days Walmash rivers right there.
You study when you do all nighters in mathematics.
That's my kind of place.
Having Jim Billard with us. Jim, I got to go to monetary policy or in the measurement of the inflation adjusted yield. As you mentioned, we had negative rates nominally as completely wacko when you were you know, doing the same Los FED. We're now back to a two percent is ten year real yield. Does that impinge an investment in America?
I think it does, And like we were saying earlier, I think it makes people think more carefully about their projects. You know what is really going to pay off, and you get probably rid of some of the malinvestment or the misinvestment that might otherwise occur with very cheap money available.
Hey, Jim does to what extent is a FED think about the consumer here, because you think about the American consumer, we probably have two at least two sets of consumers out there. The folks that are maybe you know, do have some assets, whether it's stocks, bonds, real estate doing well, maybe even benefiting from a higher instrate environment. Everybody else who may not have those types of assets or economic support, they're really filling the impact of inflation how does it fed think about that?
Yeah, I think inflation is very pernicious and punishes the lower end of the income distribution very heavily. And you're certainly seeing that and hearing that when you talk to people in surveys, they do not like the inflation at all. They do not like the fact that the price level is up some nineteen percent since twenty twenty one, and they're very upset about that.
One final question, blistering question s k heinins they're going to invest in Purdue Research Park. Yes. The number one thing in the zeitgeist is America doesn't have the employees to be labor in those factories. Are you confident we can develop highly motivated, skilled labor as we perceive in Asia. No.
No, I think we'll have no trouble pulling in the right workforce for the South Korean company, and that'll be a major chip manufacturing facility who tried to reshore a lot of our chip making as you know, across the country. So this is part of that effort.
Jim Buller to future governors of the Federal Reserve System, Constant Hunter and Julia cordn Otto are here on your way out, saying Hello, you're hugely go Jim Bullard, thank you so much, greatly appreciated. With the Saint Louis FED, we had a huge response. The last time he was on. Doctor Mark Zandi joins us from Moody's. He was definitive in the Great Financial Crisis for perspective and optimism on the American economy, Doctor Xandy. These results was there the
undershoot A select few talked about. Did they finally show to a FED a disinflationary America.
I hope so, Tom.
I mean, it feels like all the trend lines are moving in the right direction. Inflation's coming in. You know, the only thing that's keeping overall inflation from the Fed's two percent target is the cost of housing, the implicit cost of home ownership. And you know, if I were king for the day, I wouldn't be looking at that. I'd be looking at inflation x oeer owner's equivalent rent.
And we're there. So, you know, hopefully the FED takes solace in this, and they're not going to move today, but hopefully they move relatively move in the next few months.
We need intertrates to come down.
Mark, I'm just looking at Bloomberg Red headline across the terminal fed swaps fully pricing quarter point rate cut in November. Does that make sense to you?
Yeah, it feels like a preponderance investors probably feel like Septembers when they'll start to move.
And by November.
Yeah, I think that very high profit that they'll have cut rates by that point in time. I mean, everything is where they want it to be, right, I mean, the economy is at full employment, four percent unemployment rate, the libor market is cooled off sufficiently, so wage growth has come in, which is consistent with getting inflation back in the bottle. You got inflation coming back in, you know, in a very graceful way. Financial conditions are you know,
I think they're right where they wanted them. The stock market is up, credits presurren with the dollars strong, you know, you add it all up, it feels like they're there.
They VI should declare victory and move on.
So yeah, by November, I would be surprised if they haven't cut rates.
Out on YouTube, the live chat a really smart observation. Thank you so much for this. I am glad I was able to roll over a bunch of CDs. So, Paul, you've talked about this. If you get a Zamdi disinflation in place, when does it finally crack that five point percent money market?
That's why this Sweeny offspring one bee. She was very smart getting in the her CD at five. I'm very proud of her for that mark. Are you in a camp that says, maybe even that this FED is behind the curve that they should be cutting already?
Yeah, I would have argued that they should be cutting rates. I think they have achieved their objectives properly measured, and you know, five and a half percent federal fund rate target where we are today is just not necessary. I mean, there's a lot of reasonable debate. Is to excuse me, what the equilibrium rate is? You know, the rate that neither that's neither restraining or supporting growth. You know, it's higher than it has been historically, but it's not five
and a half percent. So why such high interest rates when you've achieved what.
You set out to do?
So in the economy, I think the economy is going to soft land, that's most likely scenario, but the risks of it going off the rails are not inconsequential. The longer you keep rates, you know, unusually high. So yeah, I would have argued that they should be cutting rates.
Alright, Marks, Andy with us with the Moodies. We will continue with them. We're commercial free this entire hour for you. Thank you so much to Commonwealth, to con Residant, to interactive brokers for their support of our discussion of economics. If you're just joining us worldwide on YouTube across this nation. A stunning report. It is what a few wrote about. Good Morning Goldbin Sachson on Hatzias, who really parsed this? I thought, well, what if it comes in with an
undertone headline? CPI three point four percent came in three point three percent, futures of forty two, the Sweeney yield here, the two year yield in fourteen fourteen basis points four point seven zero percent.
Paul, Hey, Mark, what do you think the Federal Reserve is really keying on here? And what kind of message do you think they want to get across today?
Well, I think with this report they have a strong case to make that the interest rates are coming. I think they will still make the case make the argument that they want to see more inflation, good inflation numbers, things that are very consistent inflation numbers are very consistent
with their two percent target. But with today's numbers like today, what joggers well for the consumer expenditure deflator, which we're going to get here in a couple of weeks, which is what their target is based on.
I think they want to signal.
That another month two or three of good inflation satistics, they'll they'll cut the numbers like this really makes the case very easily for a race cut.
Okay, Mark, I'm looking at inflation back pre pandemic, and we had an immense stability core CPI. We were two percent two point two percent the two standard deviation band. I don't want to get too mathey here was extremely narrow, extremely predictable. We had an upset of disinflation, deflation down to one point x percent with the pandemic, and then boom the stimulus up over six percent. Of course CPI.
I see almost doctor Zandy in inertial force of disinflation now almost with what I'm gonna call convexity or acceleration in the form of disinflation. Explain to our audience why this central bank that you should think should cut this afternoon. That's a joke. I'm putting words in doctor Sandy's book. But Mark Zandy, why are they such a slave to an ex post strategy? What are they afraid of.
Losing credibility? Tom?
I think they've got a target two percent on the consumer expenditure to flavor. They feel like if they don't hit that target, they'll lose credibility, and credibilities really is important. That's key to keeping inflation expectations down.
People have to believe.
Investors have to believe the BED is going to do you know what it says it's going to do.
So I think that's that's the motivation here.
Now.
Having said that, I do think once they hit the two percent target and they do start cutting and you kind of rethink their framework for monetary policy going forward.
That they should they should come up with a better mouse trap.
That the two percent target on consumer expenditi flavor is probably not the target they want or the way they want people.
To think about it.
So once they've gotten there, they've established credibility, then they really need to think about their framework and how they want to do this going forward. Two percent is not the right number and the pcees not the right to flavor.
Zandy Paul, this is so important. You're going to see a tweet someday Zamdi National Bureau of Economic Research nb ER. It's going to be a paper by Mark Zamdy, The FED and the Better mouse Trap.
All right, Yeah, Like, hey, Mark, what do you think about I mean, when you see an inflation print like today, what do you think about the US consumer? Because the US consumer, you go out there and ask the consumer out on the street in South Philadelphia or you know, Peoria, They're gonna say, boy, I'm paying a lot for a lot of the key things I have in my cart every day. How do you think about the consumer these days?
Well, there there, You're right.
They're feeling they're still feeling the financial pain from the surgeon inflation that Tom mentioned back a couple three years ago, particularly for staples, for food, for rent, for gasoline. But I do think the sting of that higher, those higher inflation numbers are starting to fade and to continue to be going forward, because look at food prices today, they barely rose on the month on year over year of
food at home is up one percent. Rents have been flat for a couple of years, you know, market rents have been flat for a couple of years. Gasoline prices are back down to about fifty per gallon regular and leaded mart.
And wages are growing more strongly. So I think they should.
You know, there's no game changing event here in terms to help people think about things, but I think with each passing month they should feel better.
Doctor Zandy got time for one more question. I want to go to University of Pennsylvania and your inbred optimism on the American economy. Are we underestimating American growth given new productivity, new technology? Joe Wisenthal would say, ai ai eio, Mark Sandy, do we underestimate American growth? Very possible, Tom.
I think a prudent planner would say, okay, we're going to grow two percent real GDP. I think that we should count on that. That should be baked into our budget forecasts and planning as business people and as government. But I do think there are risks on both sides of that. But I think there is a good argument to be made that the economy is going to perform better here.
Than people anticipate.
We did that last year in twenty twenty three, much better than folks thought. A lot of folks thought recession we got even not only not a recession, but a very strong economy because of those supply side that you talked about and that could continue.
The heritage of our guests are important. I can't say enough Paul for how Mark Zandy was a nearly lone optimistic vote think spring of two thousand and eight. He was we will clear the markets. Yep, we will do fine on this, doctor Sandy, thank you so much, always with Moody's as well. This is a joy. This is something Paul's demanded that we get from macro policy perspectives.
Constant Hunter in here with Julia Cornado and Taviam Paul in this day is just you know, I just think that killer Julia does this shift Powell's discussion of the character of our disinflation. This stunning report.
I think it's an important report. I think Chair Powell is likely to express some optimism that progress has resumed after a disappointing first quarter and that the plan to lower rates is on track. We think that will come
out with a two cut baseline. This report sort of solidifies that we think that Shairpowell sort of has that control over the median and the message, and that he can sort of credibly express optimism, say that we saw some broad based progress in today's report after a decent April, So if we get a few more prints like that,
then they can begin a process. The FED is now having to deal with the decision of do we start early so that we can go slow, or do we wait till weakness arrives, which is the track record of central banks right, wait till weakness arrives, and then cut quickly. This is a new approach, or a relatively untested left.
Roach, because she knows I'm going to go mental. Yes, put the surveillance.
There's a lot of folks out there that says this FED is already behind the curve, that they should be cutting already.
Do you, guys, how do you think about that?
I think that that is a valid perspective. Of course, they also have there's people who are saying that there's going to be no landing, that the FED isn't going to cut it all this year. So I think I understand the perspective of the FED of deciding to wait, given the prints that we had in the beginning of the year, and given the fact that we're seeing anomalies in the CPI data that we didn't see prior to the pandemic, and so I think from their perspective, you know,
caution is the better part of valor. On the other hand, as Julia said, historically they are late, and so I think that they do run that risk. Fortunately, the jobs print last week was stronger than expected. But our big concern if they're late is that labor market starts to weaken. And once you see that, it's too late, because it is at best a coincident indicator.
Right, And Julie, I mean Joe Wisenthal from a Bloomberg Onlins podcast just moments ago, said, you know, raising some concerns about the labor market here that we you know, four percent, you get pay attention to that kind of number.
So how do you feel about the labor pook? Yeah, no, I think that the the the May employment report was truly mixed.
Right.
The payroll number is strong, it was broad based, but the household survey is showing rising slack. You have to take that message at face value. The fact that we have gone from a low of three point four to four point zero. It's still a low unemployment rates, still a healthy job market, but you know it is not at is more balanced than it was before. There are risks on both sides now, and as Constance said, if you keep restrictive policy in place for too long, then
you're going to lose that resilience. So even actually Governor Waller said this earlier this year. He said, you know, the low hanging fruit of bringing down job openings, you know, without a rise in unemployment is probably behind us. To really see a decline in labor demand from here, you're going to get that alongside a rise in unemployment.
Yeah, we're going to come back. It's just a joy to have Constance Hunter and Julia Coronatti with us. But I got one fundamental question. Are we more than ever John Edwards in Louisiana as you were studying in Texas? Are we more than ever? Two Americas? And the idea idea of aggregate analysis that the Eccles building is just quaint.
You know, I think there are always lots of Americas.
But is there more now? Is it more polarized now in terms of politically?
Absolutely, we're in a very economize economically. No, I would say Tom, Actually the good news is that we're less polarized economically in a sense that the lower wage workers have the best labor market they've seen in generations this cycle, and it hasn't cracked yet. Really, the weakness we see in the labor market is at the top is the
professional service sector jobs that are experiencing the weakness. So no, I would say, actually, we've seen in a narrowing and wage inequality this cycle that we haven't seen in thirty years.
It's just a bang update here, folks. If Jim Bullard with us, the former president of Saint Louis FED, and here for a half hour, Julia Cornado with us in Constance hunder a micro policy perspectives to get us towards the FED meeting this afternoon, most importantly at ten o'clock, Paul Sweeney will drive forward with Alex Steele. I mean, you got you got something to talk about to this inflation report. They got it.
Get a very interesting inflation report, very something very important for the FED to take into consideration here as we hear from the Fed. And you're gonna have full coverage this afternoon, right tom starting.
Can I go? Can I go? Odd? Sure? Mexican pace of weakness, I'll buy.
I don't know where to go.
There is just stunning. We have Julia Cornado in the room. You think we should go all Mexican, pa, I want to do that.
Yeah, there it is political risk for you, yes, exactly. And the bond market action we saw in France yesterday, you know, on just a rumor, there's a lot of uncertainty.
What a joy to have us here for a half hour, Julia Cornado and Constance Hunter of Macro Policy Perspectives. Constant, You know I love Neil Duddy. He doesn't mince words. May I quote Paul? It does not take a rocket scientist to figure out what needs to be done. Yeah, and he's like, let's go. Fed needs to get on with it. Constance, what are they waiting for? I mean I get at their ex post. You know within that we all know this. Can we really hope for a new regime where they get on with it?
I mean one thing that is holding going to hold them back is that shelter print now that was isolated to New York rents, which went up and played an oversized part.
No, no, no, no, how much did two blocks in New Jersey play? Paul?
Yes, step in here?
Are you telling me? National inflation was Paul Sweeney's housing fault.
I think it was Paul Swen's fault in particular.
Yeah, yeah, he used to blame.
You should get all the hate mail, you know, But seriously, they're gonna need to see that shelter number come down a bit, and you know, but I don't disagree. Look that September has to be firmly on the table. The markets believe it's firmly on the table, and even I FED that's a little bit behind, should be able to move in September.
Jowey, how do you think about the US consumer here? Because we're getting inflation's coming down, but it's still at that high reset level of nineteen percent versus twenty nineteen.
How's the US consumer doing today?
Look, I'll reframe it this way. We should thank the US consumer because one thing we keep hearing in earnings reports and in the fed's Beige book is that consumers are priced sensitive. Again when we look at things like goods prices broad based deflation, consumers want deals and they're getting them on cars, on furniture, and on apparel. This month,
so on airfares. On airfares, airfares plunged, So consumers are back to that norm that they had before the pandemic of to part with my money, you're going to have to offer me value, and that is helping restore healthy inflation dynamics. So they might still be grumpy from what we've all been through. And we also, as Tom had alluded, to see a lot of polarization in those sentiment numbers. But you know the reality is that consumers have taken
control back. That pricing power that companies enjoyed during the pandemic has evaporated, and now they need to deliver values. So some of those margins are going to get pressed.
We had a GDP number first quarter. Where are we one point three one point four percent? Whatever Atlanta GDP balloons out four percent, they bring it back. Now we're running what's the run rate? To both of you? What's do you? I mean, do you guys argue about this? What's the run rate? Unreal? GDP? Are you that far apart the two of you? I don't know.
I think so. I think we're at both at about two point four two point five. I mean, you have to look at GDI when you look at this, and last last quarter was really trade in inventories, right, and so the question is how much are those inventories going to
be rebuilt. That's a very tricky thing to forecast. And then obviously we have this strong dollar which is hurting trade in some respects, but we also see tailwinds from the global economy that we haven't seen for four years that could slightly help our trade numbers.
I mean it comes down to domestic final sales. What's twelve months for me, Julie, you were a BMP PARI bout years ago making headlines on this. What's domestic final sales look like one year out? Don't give me this gloom stuff.
No, it's not gloomy. I think we're both very constructive on a better productivity cycle, not just because of AI. AI hasn't even begun to enter the room yet. This is about a healthier labor market. We'll entered the stock market room, but not necessarily the productivity numbers. It is a bit. We've had a strong investment cycle, we've had a good labor market, good matching of employers and employees, and it's we're not deleveraging. Last cycle was all about
deleveraging and global fragility and find ancial fragilities. And we have strong balance sheets and a healthy, broad based economy. So I think we are pretty constructive. That we've got a better productivity trend. We've got immigration, at least for now. That's going to be a big policy different differentiator in twenty twenty five. But for now, the US economy looks like it can run, you know, above two percent, uh, and not generate inflation.
Apple's up nine since the gloom of the AI presence.
Actually that's true.
Nine.
This is just the AI bump that everybody was looking for, and they got it. I probably did too extensive, But here we go up higher again.
It constant navidia.
So there you go. Very good, very good.
Yeahile, actually good. Now I need to start trimming that position.
Just loading and up by the momentum constance. What do you what would you like to hear from the FED chairman today versus maybe what do you think we will hear from the FED chairman?
Yeah, that's that's a great question. I mean, I'd like to hear him say that they as long as inflation is making progress towards two percent, that it will be appropriate for them to take away some policy tightness. And let's remember where where is our star. Let's say it's higher. Let's say it's three and a half, right in say two and a half, let's say it's there. They can
start cutting and still be restrictive. And so I'd like that message of we can start cutting and policy will still be restrictive.
Okay, So economic historian from the University of Texas, is there any heritage that we do that besides a green spanning and measured after the fact, I don't observe. I mean Richard Timberlake at Georgia or mcteera Dallas Fed years ago.
No, Yeah, there's no history. The history of what you you just noted is green span is the mid nineties, mid and late nineties where they kind of ebbed and flowed the FED funds right, it went up, it went down, it went up, it went down, and without a recession, and it was about fine tuning and keeping the experience.
Does he have to address that today? Is the garden company he addressed it.
It is.
The Bloomberg reporters in the room and asked him that very question, because they need to have a strategy. That's the one they've been rich.
Take a memo. Corn Ota wants to tell me what to say.
Well, and you brought up McTeer and he was the one arguing for the productivity revolution.
He was the one.
Arguing saying, we're going to be getting productivity and we need to we need to make sure that we don't raise race into this stronger GDP, because if you recall in the second half of the nineties, GDP started to gain momentum after those three races while inflation fell.
The nineties late nineties were very good.
To me.
They were good I don't to young so Julia, you know, I'm trying to explain to my kids are in the workforce now that this is a more normalized rate environment. That's your stuff we live through before. Is that kind of where we are now, we're back back to normal?
I guess so. I mean, I think we've got or in a positive real rate environment. It looks like the economy can handle that. So I agree, our star is probably higher. That's where we wanted to end up, right, That's what the whole idea of the last strategy review at the FED was about engineering a somewhat higher run rate on inflation and gaining some policy space. And I think signs are that we're that's exactly where we're heading
that will give them better trade offs. I know I'm going to say this, and people's heads aren't going to explode. We've got a better mix of fiscal and monetary policy. Now, of course, six percent deficits are not sustainable forever. But you know what we have had is better state in local government, better fiscal participation. The FED isn't carrying all the water for the economy.
You guys aren't allowed to travel together for safety. But and you guys talked about how you adjust your FED calls seriously to the end of the year. Did you make a switch this morning when you publish for macro policy perspectives? Know switched this morning.
I think what we've been flagging for our clients is that, you know, the outcome of today's meeting and the tone and the tenor is going to depend on this morning's data. It is an important data point, and if we get what we we were below consensus on inflation. It came in at our actually even a little bit below our forecast, but that that would lean towards a more positive, constructive message that we're going to start in September. So I
think that that's where we're at. The data has ratified that orientation, and now it's up to share Powell to deliver the message.
And I Lingen is a third of a way to a stunning call in the ten year yield YEP four point two eight percent. I'm not saying it's going to drive lower, but that's what BEMO Capital Markets is saying. Yep exactly.
So where's constance.
Where are you guys thinking about GDP this year? Next year? How's this economy going to be growing?
Yeah?
So we had originally been thinking we would have a soft patch this year because high race would begin to take a bite out of growth, and now we're thinking that if the FED can act and then in time, that that may be able to be avoided. And part of the reason that's going to be avoided is this productivity story that Julia was talking about earlier, right, and all of the aspects of that that are playing out
in the economy. So we're looking for a little softer than last year, and then a little bit of a pickup probably in the second half of twenty twenty five as lower rates continue and feed into growth.
Way too optimistic constant condo micro policy perspectives. Can we do this again? Yeah? Thank you. Thank you so much. Right now, we've really been anticipating this. If you get off a plane at Heathrow and you take the road in and the green they have these taxi kepts Paul that drive like a Bentley like electric taxicabs that are spectacular, And if you drive into Jonathan Maxwell's London, it's immediately
evident that it's different than here. And then you take that over to the recent elections in Europe and you've got a green Europe, a green United Kingdom compared to the United States. And this is front and center now with all the politics of France mccroon, Frankly of Germany as well Jonathan Maxwell's CEO, It's Sustainable Development Capital heritage of HSBC Infrastructure. Jonathan thrilled to have you on the show.
The protest against green in the recent elections is that about green or is that about the cost of green to citizens?
It's mostly about economics. I mean there have been some there's a statement by the Italian Prime Minister ushy Back, for example, on one of Italy's greatest industries, the motor industry, and the European proposals to phase out petrol diesel class by twenty thirty five saying that was an ideological mistake or an ideologically lead right. But the yes, I think that the economics is one of the very big factors that's.
Going on here.
What Look, two three years ago in Europe, you'd be accused of greenwash, you know that is, you know, you're trying to put yourself out as green as a government or a company and you're not as green as you could or should be. Then it got into kind of green hush. You know, people got sued of a state. Interesting, now we're in this kind of what the European councilor relationships green lash, green lash, backlash against the economics.
It doesn't that way. You're encyclopedica on this. And I'm fascinated if green in Europe comes towards what I'm going to call the anti climate change of America, or does America come towards the green of Europe? Which is it?
Look, there are three big things going on here. The biggest one is about economics, and I'll come back to that because I think it's just completely misunderstood how the economics of the energy system can and should work and does work.
Today.
There are a couple of other bits that are going on in Europe. We've got a huge problem with energy. Security and resilience in Europe is a very big difference from America in Europe, which is that you make energy. In fact, you're a net exporty of the world's larger soil and gas producer and exporter. Going forward, Europe doesn't. It imports energy, right, It depends by and large on
other countries. In fact, after the Russian Ukraine crisis cut off gas to most of Europe, actually Europe's now dependent on the United States as much as other regions like Kattern and so on. So there's a big difference. You know, you export, we import a gweeb in Europe, right, But resilience and then security is now a massive feature. The second massive feature obviously is environment and carbon And yes, there have been some really quite progressive policies in Europe.
But you've got the Inflation Reduction Act. It's dollar for dollar, it's about the same amount if you look at the amount of money that's been put in, so to speak, the green or climate economy in America versus Yeah, but it's about the same. It's about the same. We had about a seven hundred and fifty billion dollar post COVID stimulus package. Biggest part of it, which is now the controversial bit, is the Green Deal. It's about the same as the as the Inflation Reduction Act. But here's the
big one. And this is why I think it's SAIDs understood. If people are perbasuring back in Europe on the energy or clean energy sector for cost, it just misunderstands the biggest problem of the energy sector. Most of it's wasted.
You know, in.
America, about seventy percent of all the primary energy, that is all the original natural resource is lost. What it gets to the point of views through conversion, generation, and distribution and transmission. It's about the same in Europe. So what actually the European real policy is on energy. It's actually very very interesting and possibly more progressive than America at this stage. And it basically says energy efficiency first, what happens if you use less energy to do the
same job when you become productive more competitive. So actually, yep, being there is some strange and maybe over egged policies where you know, doing things like maybe people got a bit too excited about technologies like hydrogen from time to batteries don't necessarily help them cost more, But there's an awful lot we can do that costs less.
Right, And Jonathan, I you know General Atlantic Fund. I mean these are financial players. They just bought a stake in your company. I mean that tells me that, I don't know, some smart money is still pursuing these types of policies. Talk to us about that transaction.
So, I mean our firm, our company is Sustainable Development Capital fundamentally looks at the world and says, what's the most resorts sufficient way of doing business? Why do we care about being resource sufficient? Because you can use less and do the same or more. That's more competitive, more productive, more.
Part of it. But in the time, I'm going to interrupt you here because I think, Jonathan, this is really really important and the time that we've got left. Is it simple to say that with these set of elections, there's been a massive protest against Green. Is that correct or not?
I think that there's been a protest. There were seventy three seats out of seven hundred and five that were Green. It's now fifty three seats. The biggest story is the fact that the real opportunity for Europe and the real problem is how do you manage cost and reliability and carbon and energy. The real solution to that is be more productive, more efficient, more competitive, and it's efficiency first.
That's the European policy, that's the business plan, and that's what General Atlantic have backed in US because that's everything that we did will when we make in the mabket. We're looking for project companies, opportunities that are more energy efficient because you can deliver the same or better outcome economically using less energy. That's the biggest bang from the back from the carbon emission. But doctor expect Jan that's Atlantic of backing.
I have to go, Jonathan, Thank you so much. Jonathan Maxwell with US is Sustainable Development Capital. This is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am
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