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the Bloomberg Terminal, and the Bloomberg Business App. I'm not so much in the camp of a certitude of a September a rate Let's get wisdom on that with Nationwide with a wonderful Ohio perspective. Kathleen bus Johnson joins US now Chief Economists Nationwide because she's on our side. Kathy, I look at where we are right now, and more than anything, I would say there's a certitude about a September rate cut. Why do we feel that way?
God, Good morning, Tom. Well the inflation data have you know, namely, really cooled off significantly. It makes it seem as if that the flare up we saw on the first quarter was anomalous and that really inflation is back on a good trend, you know, and eventually get back to two
percent case. And we've also seen some slowing or moderation in employment and other key economic readings that you know, as a FED was there says they're more balanced right between the risks with inflation and employment, so it kind of gives them the green light and the reasons to start to cut rates.
Where are you on jab as claims when you say that the labor market is breaking? I got a four week moving average of the weekly data of two hundred and thirty five thousand. It's buttressed right up against a peak of twenty twenty three of about two hundred and fifty one thousand. What's the statistic in your head where jobless claim signals?
Let's go, yeah, so that you know, we've seen some upward movement and jobless claims, but that's still quite low. And I'm not suggesting or worry that we're about to see a big roll over in the labor market. It's not as if we're going to start seeing negative payroll prints or the unemployment rate jumping sharply higher. But as we creep higher, that's sick news.
Some slowing.
And you know, one statistic that I would say on payrolls, besides all the other ones that will watch, is in the household servey those who've been unemployed twenty six weeks or longer. Interesting thing to see that pick up.
Gen know, that used to be the first statistic I looked at back when we were eight nine, ten percent unemployment. If that's If that's the case, Kathy, let me frame this out as a dual mandate. The laureate Krugman over at the New York Times has a tweet out yesterday on this disinflation, and he says, now, now, now is what he wants your own pole to do. I've got a market economist plural maybe led by over at Steefel the Lindsay Piagsa saying okay, maybe, but we need jobs
to finally collapse. I don't see jobs collapsing. And I believe you just said edbing is more like what the labor economy will do.
Yeah, that's right. I have sympathy for those who said the face should consider cutting rates, you know tomorrow right, getting the announcement, but they're not. They're not going to. They haven't signaled that, and I do think they want to see more data, particularly to be really convinced that the Q one inflation data ship they're corobinists. But yeah, back to the labor market moderation. Now, what we don't know is this moderation a harbinger of something you know,
more dramatic as we go into twenty twenty five. We just don't know yet as if had been too late to cut rates starting in to cut rates again, we don't know. But right now, I would say, in the New York time, there's no signs of labor markets collapsing.
Hey, Kathy, give me an idea. Just how restrictive are we at this point?
Well, we're restricted when you look at certain pockets of the economy. Right, So, housing we know has been paralyzed for you know, for months, right well over a year. People are locked into low mortgages, aren't even putting their homes up for sale or moving. Housing starts are still really low. And then we know the lower income households are really facing headwinds that they're increasingly maxed out on their credit card. The New York Fed data shows us
a fully fed data shows us that they're delinquent. And even though inflation is cooled, as we all know, price levels are still high relative to pre pandemic, So they're feeling the pressure there. I think that and the pandemic savings are topped out, So we have to remember that the tail was that god ess as resilient economy are really fading and the headwinds are still there and maybe even get a little stronger.
And that other part of the dual mandate with employment. When employment goes, what does it take with it consumer spending? Obviously, right, Yeah.
That's rights. As employment slows, aggregate income declines, and then that starts to restrain consumer spending. And the consumers don't have that, you know, they can't really, they don't have a lot of savings to rely on. If income starts as slow, you've got an unemployment a savings rate that's three point four mark that against pre pandemic savings rate
which was seven point seven. And we also know again that you're starting to see delinquencies when the unemployment rate's only four point one, delinquencies on credit card and loan payments. What will that look like if we do start to see some deeper cracks in the labor market.
Kathy, Thank you so much, Kathleen in Wes johnsick the nationwide. You get us started towards a FED day.
Joining us.
Now he's been a huge value to us. Terry Haynes at PENGEEA Policy here on the next step forward, I get a plan of exhilarance, exuberants, Terry Haynes from Harris. What's the plan from the Trump camp?
The plan from the Trump campaign Tom is basically to try to define Harris before she can define herself effectively. They see a window of about three weeks before the convention where they can present Harris not only kind of the word salad that everybody knows about, but also defining I forget what Trump's exact words are, but you know
it's extreme, most liberal ever, you know. So on and so forth, in an attempt, frankly, to blunt momentum and blunt the potential ceiling that she has, which is, you know, quite substantial.
I look at this and just as a vignette, and I have not seen the video, folks, Neil Cavudo over at Fox last night went after the senator from Louisiana. Mister Kennedy on the verbiage that seems to be used by the Trump campaign and Trump supporters against the Vice president. Is everybody on the same page within conservative America? Or do you see the divides Terry even greater as you've laid out for the last two years? Oh?
I see the divides in terms of the message. The message is all over the place right now, and and there isn't a clear signal from the Trump side about what they you know, what they prefer. So therefore, you know, you're getting very scattershot kind of kind of words. And you know, by comparison, the Harris folks have been have been very disciplined on that.
Terry John Tucker here the question, are you going to ask him about property taxes?
Oh? Yeah, it's saltcoming in the hunt you or Vice President? I'm hearing now the name of the Minnesota Governor Tim Waltz. Who is he and does he counterbalance the idea of the liberal San Francisco Democrat?
Governor Wall seems to be beloved of progressives, and for that reason alone, I think I discount his chances.
You know.
The you know, what Harris needs is is balance on the ticket. She needs it both geographically. She needs it in terms of swing states, and she needs it in terms of you know, the centrism, and I think Walts doesn't really fill much.
Of those buckets.
So I think that he's less likely than somebody like like Shapiro for example, like Whitmer.
Maybe.
Okay, so as the favorite son of Pittsburgh, Terry, you're going for Pennsylvania's governor with his nineteen electoral college votes.
Well, now, favorite sonism doesn't havehing to do with it, really, John, the it's much more that.
You know.
I think last time I saw you all I called this the captain obvious analysis, and that is that he fills the biggest electoral college need, and he also checks all of those other boxes as well. It's interesting to me that there's been a somewhat of a backlash within Democratic circles about his unabashed support for Israel. You know, I think that's plus for him. Frankly, that's ticket back Terry.
John Tucker has a one item candidate voter. Rather, all he cares about is property texts in New Jersey and a repeal of the assault. Are there a lot of John Tucker's out there and issues when you look at the electorate of America. How much of us has one item? This is the way we want to be. Are we that focused? Are we more sophisticated?
Ah, We're more scattershot. I think there's I'd say most voters care about lots of different issues. And you see you see that, you know, in the usual surveys that happen, there aren't that many to think only one thing is important. I will say that I've been hearing uh, you know, hugely from New York New Jersey area folks for a decade now about salt and whether it might come back, and so that seems to be a myopic focus of your particular area.
It seems to be very myopic, particularly to my right here at Bloomberg Studio, Terry. Let's go then to the border, and does a gentleman from Arizona have a strength for Vice President Harris because he's in Tucson, some hundred miles from the border.
I think it's less I think it's less likely that Senator Kelly gets it because of the because of the UH and UH, and also less likely because of Arizona. If you look at the swing States, Arizona seems a little bit more out of hand than uh and and less gettable, I would say than some of the others, although I think it very much in play. But comparatively speaking, the Harris people seem to be emphasizing what they call the blue Wall of Michigan, Wisconsin, and Pennsylvania. That seems
to be where their focus is. And you know, although Senator Kelly I think would be a fine candidate.
When do I get the polls that are really going to tell me about how this new lineup is faring?
I think not until after Labor Day, John, And the reason why is that you know what you see here in something of hammer for a while. But you know, registered voter poles, I think, don't tell you very much. And that's pretty much all you've got right now. I mean, I've seen likely voter polls occasionally, but you know, registered voter poles are like, you know, I'm thinking about maybe
going to see that movie over the weekend. As opposed to the people who are actually going to go see the movie, it is less of less interest to you know, theater owners and movie studios who might see as opposed to who's likely to see. So I think it gets the stilled down starting after Labor Day before then not really running those poles.
Just quickly here, Terry Haines, is as simple as this old style. I'll use Reagan, but I could use any other candidate as well. You entrenched the base through August, get into September, and as a miraculous amendment the second week of October where you move to the middle. Are we that old school?
Well yeah, I mean that that both of these campaigns are a start from the premise that their bases are not secure, which is interesting because they're always talked about as if they are, but they're not. They're constantly doing things to try to to lock down their base. But then they you know, they kind of move to the middle, and you'll see Harris start to move to the middle
with the vice presidential pick. I think Trump, in contrast, I think has given up his chance to bridge by picking Vance and I said so an hour after we got picked. You know, he doubled down on I think more small ball, and it's going to come back to bite him.
Terry Haynes, thank you so much for Pangaea. An update there and really careful advice. I think to maintain the certitude until we get into September. In October, ed Ludlow. In the last two three four months, he's done a national value add But you bought a Tesla, right, Retto didn't. Retto didn't buy it for your keeper.
Coming straight out of my paycheck. Rehtto doesn't pay for it.
You bought a Tesla, and they had a Bloomberg technology and all our San Francisco efforts. His chronicled self driving on a Tesla like, literally, it's a public good. When are we going to have confidence for a Tesla or any other car to be quote unquote self driving.
I don't know when we collectively will have confidence. I don't have confidence. So I leased a Tesla. Little why I think I've discussed it with you on the show.
Right.
I did it because it was the most affordable option at the time when I needed a car.
I was in one yesterday. Actually it's very.
Comfortable, Yeah, very comfortable, And the lease is like, it's very cheap for you know, and we can afford it. But I love technology, so my thinking was get hands on with it. We write about and talk about full self driving supervised software on air all the time. I don't think it's fair for a journist to do that and not use it. So I've been using it a lot, and I have the latest version, twelve point five point
one that was released limited release Friday. It started to roll out widespread today last twenty four hours, and I took it for a ride Saturday, thirty miles from my home to San Francisco. There were no incidents bar one, so Golden gate Bridge iconic.
All it takes is one incident.
By the way, well exactly, So I get onto the Golden gate Bridge, I'm in the correct lane. I actually change the software changes lanes for me, and it spits me out the other side, on the San Francisco side, and I'm heading toward the toll booth. There are six toll booths, only two of them are open. Gets me in one of them that's open with a green arrow. Good start, but it says very clearly, do not stop.
Maintain speed twenty five miles an hour. I get to the bollards and the self driving system slams the brakes and I go down to six miles an hour. What's behind me dozens of cars shooting off the bridge, not at twenty five miles or forty miles an hour. I made the choice in the moment not to intervene.
I should have done.
Were you listening to Jefferson Airplane and Grateful Dead?
I was listening to Kenny Gail. Okay, just classic for the Woodwind movement, John.
Lives and the Garden State Parkway. There's someone doing in Ned Ludlow experience.
Well, no, it's working, that's right. It doesn't take into account the other nuts who are behind you on the roadway.
Yes, yes, and no. It's a purely camera based system, right, and there are cameras around the perimeter of the car, and so it literally does take into account the nuts around you based on what the cameras can detect envision
in the speed they're moving at. I mean, I saw something on the Bloomberg terminal yesterday that I don't think I've seen in my career, which is Bloomberg's trick created Now writing up that truest analyst note, he reflected on his own experience where he almost had an incident, right,
he almost had crash. But what's the most amazing about the story is not just the details of his note and his thesis around Tesla's that that story got almost fourteen thousand terminal reads in a single kill that day. So people care, and I think that's why it's important we talk about it.
Peter Thiel tells a great story about getting in Elon Musk when he got his supercar way back when, and he crashed it with him in the car. Didn't have insurance either, by the way.
So what's the relationship of Tesla, California to Texas. We all know the SOBA right and say, the California Department of Driver's Licenses. Is there a government watching of Ed Ludlow almost coming to death on the Golden gate Bridge? Do they care?
That's a really excellent question.
So I only good one of the days to go with a day.
The answer is that the federal level, it's NITZA, the National Highway in Traffic Safety Administration, who essentially policed this and different to other companies that you may or may not have heard of, for example Zooks which is owned by Amazon, or Waimo, which is owned by Alphabet, the parent of Google. What Tester is doing is developing this technology through the consumer in the real world with a
view long term to operating so called robotaxi fleet. And what others are doing are testing vehicles where there is no driver in the front seat and the consumer sits in the back a genuine robotaxi, and that answers the jurisdiction question that because this is going through the consumer, it's largely NITZA that is adjudicating the development of it in the risk in real time in this country only, I should.
Say, crossing fifty seventh Street this morning at three am, they've milled the roadway preparing it for removing. There are no lines on the roadway and this has been this way for three week typical in New York City. You get prepared to pave a roadway, it takes about three weeks after you jam. Well, no, it's the truth. AI is going to solve that problem for me.
Finance, isn't you go across.
Fifty seven streets lines the road?
So this is another excellent question. In the truest note, the analyst recalls three incidents where he had to intervene because he felt unsafe. What the camera system is supposed to do is detect all elements of the road around you, including a white solid line now on a freeway or a highway environment, the rules of the road in any state are that you must not change lane with a white solid line. In the analyst's note, the car chose to change lane of its own decision making, breaking that
rule of the road. Now, in the incident or the environment you've described, there are no lines, and so that's one of the things the camera based system is supposed to use to help it navigate the world around it. It's another great question. It would use proximity to basically maintain a course, but of course it's not ideal.
Do you assume at some point that Tesla will continue this, reinvigorate it, or will they step aside and say we just can't get it done.
They're all in.
I mean, my sourcing that company is that this is it, and you're either with it or you're not. I'll say something I've said to you many times Tom, which is Elon Musk is often late, always late, but he gets there in the end, and to his credit, you know, it's not a perfect safe experience. It's pretty astonishing the technology. The difficulty for investors many listening to this program is
I don't get the jump. How do I go from sitting in my own car where I partially allow it to dry itself drive itself to a future where Tesla operates a fleet like Uber of robotaxing.
We've been unfair, We've been Thank you seriously ed for just this incredible real life coverage. I read it voraciously on the weekends. Ludlow is all I read anything else kind? Microsoft this afternoon, what's your nuance at Bloomberg Technology? Yeah?
I call it this earning season. Do you understand the money machine? For every dollar you're putting in the machine, how many dollars are coming out? And Microsoft gave us a sense of that last quarter. Basically, they gave us a CAPEX figure and they said we had thirty percent top line growth on Cloud. Seven percent of that came from AI and for the street, that was kind of enough. But the concern is, you're spending all this money, what do you have to show for it in terms of
top line growth. You guys probably have a longer standing relationship with Microsoft than I do. With respect. It's been around since the mid seventies. But what it's always been good at is selling software you could otherwise get for free, and that gives the market some confidence in that name. It's one of the most widely held stocks among institutionals and retailers on the planet.
We're doing it. We have a baseball player of the New York Yankees. It's a baseball team, ED and they have a new player that's wonderful called Jazz Chisholm. So I talk to your people and I said, what does what does Ed Lovelow want in terms of jazz And they said, adds just like all Kenny g is Kenny g js Jan.
Well, if that's open to debate, I would say no, But yeah.
Ed Ludlow wember respect.
Mike Green joins its chief strategies to simplify asset management, always thinking about the market for various and sundry firms, including Canyon. Over the years you have and you know, Mike, how I feel about this. I hate the modern parlor game of the FED. And the parlor game exists because we have data and we could go to our Bloomberg and look at the data, and we're more certain ourselves because we've got the data. And now we're data dependent.
And you liken it to two drunks, the dual mandates at the ex post bar of the FED.
Yeah, we're definitely staggering home trying to solve both unemployment, which we're not entirely sure what it is and how it's caused. And we're trying to solve inflation, which we freely admit we're not entirely sure how to fix it or solve it.
And you mentioned the Blinder op ed here in the Western Journal is the example. So how does that fold into the July seven September guessing game of those in the parlor?
So I think we're now at a point of decision where the FED is likely to go ahead barring some catastrophic rating that comes through. But the important point the Blinder is making is that we've changed the seasonality. Just the methodology with which we produce the data on inflation is influenced by the prior behavior of prices. The last revision basically adjusted for the time period from twenty seventeen to twenty twenty two, which includes the nonsense around COVID.
This has shifted seasonality dramatically. It raises prices or raises inflation numbers that we're getting in the fall and early spring, and it's lowering them in the summer. That's creating conditions where we could come into the fall, even as underlying inflation continues to fall, and suddenly we see a hot CPI print again, derailing the question of is the FED going to cut despite the very obvious need to do so and.
The inflation fight. It comes at the expanse of jobs.
It can right. It becomes a question of what we actually trying to diagnose. And this is one of these really weird situations in which the map becomes the territory. We're not actually looking at what's happening in the economy. Instead, we're turning around and relying on the data, which was the point that Tom was making, that we confidently receive from government agencies that are printing this. Now most people think there's giant conspiracies around this. It's really just mechanical inputs.
Right.
When you have thousands and thousands of employees who are doing this, you have to have rules around how you construct it. Those rules are built for time periods of stability, and the last five years have been anything.
But if we're not data dependent, then we're what anecdotally depended.
Well, anecdotes are data in one form or another, right, but we need to actually have a theoretical model and an understanding of what's really going on. We are looking at components of inflation that are deeply lagging, things like insurance that ensures the value of the car as of last year. Right, that it relates to behaviors of consumers who are increasingly stressed and deciding to, you know, sue people for compensation in a variety of ways. We're seeing
this insurance fraud is rising. Those are not inflationary. Those are market pressures and market powers, And the answer to them, of course, is fewer people drive cars. That's gonna end up playing out even if the FED reacts.
What does it do to assets? I mean, what we're talking here about, folks, is a difference between risk where you can model what you've got, and outright uncertainty where you can't model it. What does that do to asset prices?
So the uncertainty around the Fed's reaction function, or the uncertainty around do we have anything approximating an optimal path of interest rates is ultimately just like sand in the gears of the system. Right, it slows it down, It creates increased risks. You can err on the side of too liberal and too generous, as we may have done ten years ago. Now we're on the flip side of that, and we're watching segments of the economy slowly wither away.
How restrictive are we right now?
I think it really depends on who you ask. Right there's no restriction for a company that is incredibly cash rich like Microsoft. There was a fantastic headline that Apple, you know, made over a billion dollars on its cash balance last quarter. They're not thinking about interest rates at all. They don't care. But there are many companies that are deeply distressed in terms of their access to credit, particularly at the small side.
So who's your study of who the Fed should listen to? The to to borrow a word from pure research, the topology of America, your own Powell has to choose who to adapt policy to. Obviously it's not going to be Tim Cook, I get that, But they who do they adapt for?
Ultimately, what we should be doing is adapting for the maximum ability to change, right so, the ability to accommodate the shifts that are occurring in our economy right right now. What we're doing is we're basically saying the answer is get prices down, where the answer is get inflation or get unemployment up. Neither of those are answers. Those are actually just data.
Again, well, I could go on for this for hours because full disclosure, folks. I agree with everything Mike Green's saying. But to be direct about it, are we victims of green spans measured? To me? The dampening folks, I'm not going to go to the math of this, but there's a browning function and a drift function, and the answer is you dampen out. And that's a good thing. Basically, with a measured approach, we've dampened out our outcomes. That's the hope.
That is the objective is to minimize the disruption that occurs because when people become unemployed, you lose years of human capital. Right, It's just that simple. That's really the issue that we're dealing with. On the flip side of that, as Stan Druckenmiller pointed out many years ago, you can overdampen. Over damping encourages excess leverage. And so it is a very tough job that the FED has And the simple answer is we're asking it to do way too much.
We got a dysfunctional Congress, We've outsourced much of our policy making to monitor.
They are are they affected by Laurence Summer and Olivia Blanchard's great work on hysteresis the long term effect of unemployment, or they just simply slaves to the Dallas trim mean or the PCE deflator.
I think unfortunately this is where it gets confused with political influence, right. It really depends on what people are worried about.
Right.
So in a low unemployment environment, they're very focused on the inflation number. That's what people are angry about. In a high unemployment environment, you're gonna have to flip that. And unfortunately it feels very much like the risks that is flipping in the opposite direction are quite high.
Now, bottle of Mike Green and a little bit out on Bloomberg Digital. Here today Mike Green is to simplify asset management. This is a 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 Eastern from our global
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