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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 quote an honorative Michael Spence and the laureate and Richard Porters of London Business School talking about John Hicks and long ago there was a thing that was invented called the Hicks
Hansen model, which now we call the ISLM model. And the bottom line is the financial media completely focuses on financial LM dynamics money this you know, the interest rate? What's inflation can do? Oh yeah, there's an is curve which has to have the ab the real economy on it. Rich Clarita, is this fed completely riveted to inflation? Or can they perchance look at the American labor economy.
If you'd ask me that question, which I think you did two years ago, I'd say they're focused on inflation because it was too damn they're saying, and I believe that desk is two sided. I think if we did see a sharp sloane in the labor market, they would respond. Because inflation is now close enough to target, they can afford to be flexible two years ago when inflation was six seven percent.
No, with the fancy PhDs off of Columbia at the Echos building, when you quote unquote focus on labor, by definition your ex post, you have to wait for the labor economy to break. You can't anticipate it at a given central bank.
That's a very fundamental question because ideally central bankers, and based on including on my own research with Gertler and Galley, in a perfect world, you would anticipate if you saw the labor market slowing, you try to get ahead. That's forward looking monetary policy, as I learned in practice. However, the economy is always changing, and what was a good model five years ago it may not be a good model now. So there's a real element of risk management
as well. But I will tell you I got a good example of that, tom when during my time there, the models were saying, you guys got to keep hiking rates because the unemployment rates at four point two percent. Our models say inflation's coming. And Jay Palin and I the Committee didn't see inflation, so we didn't hike rates in twenty nineteen. In fact, we cut a little bit so the economy could keep going. So there's risk on
both sides. And I think good monetary policy needs to be nimble and assess that.
You know, central bank inflation targeting I mean, Richard, I mean this is something that you know. I mean, we felt, at least in emerging markets that central banks had found religion. And here we are, and where's central banks cutting in the face of AVT on hold? And my question for you is how long can that last?
This divergence?
Certainly, I think there was some talk at the beginning of the year other countries would not even begin to cut until the FED dead.
I never believe that.
And I see, we've already seen Sweden, We've seen Switzerlandberg almost certainly going to see Madame Leguard and the ECB tomorrow. So I think certainly central banks can get those rate cuts started, and I think they could proceed much further than the FED if their inflation data supports that decision. I think the challenge right now in Europe and the UK is the inflation data at best is moving sideways
and some measures is moving up. So that may limit the number of cuts they get in this year, not because they're focused on the FED, but because inflation is not cooperating.
I mean, you just hit the nail on the head. I mean, look, inflation is not cooperating right now with the ECB, and Madam Leguard is this is an interesting experiment, Tom, I mean can the ECB, I mean it's twenty five BIPs? What are they going to cut? The deeper way to four seventy five is really going to juice growth in the Eurozone? I mean do you think that's enough? Do you think they're going to have to continue to go more? Or can they cut pause and wait and see what the FED does.
My guest now is that they will pause in the sense I don't see them moving at the meeting after the June meeting, based.
Up on the data now.
In fact, maybe I just a venture there could be a little bit of seller's remorse because they really signals this rate cut beginning in March, and I think they're going to get it in, and I think it makes sense to get it in. But I would not extrapolate from this that it's going to be every meeting.
I really do think.
And I saw a wonderful speech that Madame Leguard gave at the ECB Washers where I also spoke in March. It was one of her best speeches, and the message I got from that is she is very data dependent, and if the data doesn't cooperate, I think that's going to be a factor.
Inter jackson whole speech, which recovered, was the same ideas, Okay, we're data dependent, but let's have a longer vision. Is well, Clarita, I have to have a nerd book of the summer. And it's Adam Posen's fault. We'll blame him out of Peterson Institute, Nori Sobsfeld and Douger when talking about trade, talking about what's out there and all of this, and we're going to get Brad Setzer in here, but Brad idea deglobalization. The Fed's got to worry about the rest of the world as well.
Do they work within regional trading.
Blocks now or do we still have a vibrant trade economy that can be part.
Of our growth.
Well, obviously, globalization, I think it's clear has peaked, and so the real question for the next five, ten, fifteen, twenty years is what does on sharing, friends, sharing, supply chain rethink. How does that translate? But I will say it's very relevant tom to monetary policy because in the thirty years before the pandemic, globalization made the FED job easier because it put dowur rice pressure on goods and
in labor markets. And if it reverses, that means that the margin that does jobs harder.
Right now, and this goes to the meeting next week, you've got a partition of domestic final sales, which are actually pretty good.
But I'm sorry you bolt on a.
Few other statistics, including trade, and it's a sub two percent economy.
Yeah, which is it?
My own sense is that we're heading down to around a two percent economy, with a risk that we could overshoot in the other direction. I think it's too soon to towel. But some of the data, including the Bloomberg surprise, ind it has moved into negative territory. We saw Atlanta FED marked down from four to one to eight in the last couple of weeks, so Bear's watching rich.
We talk about data dependence here in the US, and we have two big data points coming out. We have the ISM services coming up tomorrow and then followed by payrolls. But I think it's those sub components. So I'm asking you, what are you really looking at? Within the data? You're looking at prices, paid, new orders. In the ISM data you looking at you know, liborforce size, average hourly earnings. I mean, what are you most focused on over the next couple of years?
At some level, the flip answer would be all all the above.
You know, certainly when.
You're at the FED, you are looking at everything. But I would say that, if I had to prioritize, I'm focused more on the cost side of the economy right now, in the sense that everyone agrees that the labor market needs to adjust to be consistent with the inflation mandate, and I would say that the numbers there are are encouraging.
We've seen a big deceleration and wage inflation that may create some political problems for the incumbent, But from the Fed's point of view, it's moving wage inflation in the direction of consistent with price to ability, unlike, for example, what we're seeing in the year zone in the UK. So I think labor market and the cost side of the economy is what I be focused on. I think the demand side will take care of itself.
I'm out of time. Can you come back, of course if we can get you in for.
Thank you so much, the former Vice chairman of the FED, I can't say in a just heard Tom Porcelli of PGM mention the QCEW chew on that it's some obscure labor report that only Ana Wong would study, and single handedly doctor Wang of Bloomberg Economics has changed the zeitgeist, turned it as on its head. In the last twenty four hours re report with Anawong on a one million overshoot on the job economy, the numbers are going to be much lower, much more tepid, Anawog, congratulations on forming
the zeitgeist globally in the last seventy two hours. Is your report and the revisions to come of less job creation enough to change the FED now or September?
Well, you know, Tom, it really depends on when that the true numbers as released, and the first hint that the FED will have of the entire revisions covering April twenty twenty three to March of twenty twenty four would be just two days before Powell's August Jacksonvile speech. And in that report are we expect about a million downward revisions.
And I think that that would be enough to question and challenge their beliefs so far that that in fact the labor market's tight and they have time to win until things actually weeken. In fact, things have been weakening, So I think it's a perfect catalyst for September rate cut around.
This is a birthstaff model. I'm going to suggest, doctor wrong, You're not the only fancy smart person who's figured this out. Would you suggest the staff at the Echos building is figured out much the same as you've written about for Bloomberg in the last twenty four hours.
Well, you know, in the FOBC minutes for the last meeting, we saw the feedstaff is currently forecasting unemployment rate to fall this year. And the kind of models that can generate a prediction of unemployment rate falling this year rather as opposed to rising is a top down model using VR traditional forecast, which is far far away from the approach that would show a one million overstatement of non
farm payrolls. So it seems to me that the direction that the feed staff is focusing putting a lot more weight on is taking data at face value and plugging it into a top down model as opposed to really questioning the measurement issues that's plaguing. See see she took.
She's a Steve Levitt of freakonomics at Chicago and doctor Wong took manners one oh one in economics. She's not going to throw the FED under the bus, but she's saying, do some bottom up work.
All the time for our audience. We have to define what the QCW is. It's the quarterly Census of Employment and Wages. It really does kind of crystallize the difference between the establishment and the household surveys. Obviously, non farm payrolls Friday Sprints is based on the establishment survey and a million jobs. Are you telling me that the establishment survey has been overstating the.
It's eighty thousand more?
I mean that is nuts, right. Talk to us a little bit about what that means and certainly what that means for the FED calculus.
Yeah, you know, you know, Tom, especially you you are very close to economic history, and in economic history there's this concept of creative destruction, and you know during cyclical downturns, and that's what we are seeing last year is that the jobs closures has searched significantly, and also new business
formation has slowed also. So however, Bill is still using these lagging predictions of firm closure and opening because typically, in normal times, little firms opening and closing generate a lot of churn in the labor market and accounts for as much, as you know, forty percent of the total
monthly employment. But in a situation, this cyclical turning point like last year, what we're seeing now in the data, in the QCW data is that, in fact, now we know that firms are closing and as a as a result, that's produced this huge overstatement in a farm pay. As long as they.
Damien jump in here.
I can't state enough the importance of doctor Wong's work in the last forty eight hours.
It's turn the industry, Tom, I mean, can you imagine the FOMC making decisions with the FED funds rate based on data that is basically they're disregarding that's wrong, that they basically need to revise based on revisions. I mean, that's what we're talking about. You're an a I'm looking at you are a FED policy rate forecast going out to the third quarter of twenty twenty six. You're looking for a three percent FED funds rate. I mean, forget
about how we get there. But at three percent FED funds rate, I mean, does something have to break in order to get there.
I'm assuming you're looking to twenty twenty five, So for this year, we're still expecting to the basis went cut because I think it takes a long It takes a long time for the FED to realize and take on board the data because the FED said they're data dependent, and the danger of this data dependency is you have to wait for the revisions and it wouldn't be until early twenty twenty five where they would get the real data based on QCW benchmark for twenty twenty three and
early twenty twenty four, And wouldn't it wouldn't it will be until early twenty twenty six, or they get the full year of twenty twenty four revisions. So it could be that they are you know, the sharp much will happen only in twenty twenty five, uh.
Anamon, thank you so much.
Joining us now not wearing Dior in London is Leslie vin Ja Murray. I'm dying to talk to her to bring over we just saw in India over to Biden Trump November of this year. Leslie, I am sobered over and I understand is a cast system in America in India and there isn't a cast system in America, but there really is. But the poor of India. Boy did they speak in this election.
It's a very surprising result.
We still have Modi, you know, bound to run the country for a third term, which is a very significant result. But yes, not what people expected and you know, by all counts, it's really what we see in the US.
Two people voting on the basis.
Of how they comly life economics, prices of food, job op ortunities. India has a very large youth population, high levels of unemployment amongst young people, and problems when it comes to you know those level of jobs, education and health and so that is a signal and we will see in India in which Moody has to govern slightly differently than last several years.
Leslie, you staggered through Wesleyan before you did LSC, and you learned humility about polling. Does Leslie Vnja Murray trust the polling in America? You know?
The polling is fine for what it is, but don't draw a direct line from polling to whether you or I or our children or our neighbors or friends get up and vote. And we all know that this, more than anything else, is an election that is about do voters are the enthusiastic? Are they passionate enough to either vote for or an effect vote against Biden and Trump?
Will they get out of bed? Will they vote?
And especially those voters that matter in those states that matter vote? So sure, the poll you know, it's interesting, not a lot more than that at this stage, this many months out, And it doesn't tell us what we need to know, which is how inspired, how passionate are people? You know, so the things I would look at as young voters and swing states. Are they going to be mobilized to an effect vote against Biden because of the war in Gaza? Do they care about climate change therefore
they'll turn up for President Biden? How much are voters in the manufacturing sector still feeling the pressure on a daily basis of inflation that would drive them to, you know, be enthusiastic to vote for Donald Trump, not for any rational reason, but as a vote against Biden. So there's lots of uncertain here. We kind of know what matters, but know the polling doesn't you know, it gives us something to talk about, for it never for many many months.
We have a long way to go.
Well, yeah, Leslie, I mean I'd love to ask you about these elections in India, South Africa and Mexico. But I mean you went to the guy. You went to Israel, So let's just go there. Israel hesbiler rhetoric is heating up any gam and saying Israel return residents to the North by step one, either through a deal or escalation. I mean, we've got wildfires in the north to to Hasbala, drone and rocket attacks. More than sixty thousand Israelis remain displaced.
Talk to us about what comes next in Israel.
Yeah, there is not a clear path forward in this war. We're seeing Netsan Yahu doubling down on the war effort in Rafa to the great backlash from much of the rest of the world. We're seeing more pressure on President Biden and others to really try and get Israel to exercise restraint, but not a lot of that happening right now.
We have this wild card of the International Criminal Court that's likely to confirm and arrest warrant on the Israeli pro minister, which again from all counts, is actually leading many Israelis to gather around their prime Minister has not been very popular, but this isn't This is actually working against that.
So all sorts of wildcards, but it's at the moment there is no clear sense that a deal is going to be delivered, that the war is going to result in what everybody thinks needs to happen, which is a two state solution, and there is that concern about what's going to happen between Israel and the law.
And loving on Leslie. I mean, I may not think this way, You may not think this way, but from where I sit, most of America feels that a vote for the Republican Party for Donald Trump is a vote for Israel, and vice versa. A vote you know, for the Democratic Party is a vote against Israel. I mean, is that something is that real? Do you believe that? I mean, is that the way the US election is headed right now?
I mean, I don't think that young voters see that.
They see a president in President Biden who's been very pro Israel, and a party that's very divided, certainly has a progressive wing that wants to move in a different direction when it comes to America's support of this, but that has not been you know, just in terms of America's military support of Israel. That's that's not at all been the case. So I think that the story is much more complicated in terms of whether the Democratic Party, if you know, President Biden were re elected, will pull.
Back some of that support. Very hard to say.
I think in the medium term and a longer lifespan, America's support of Israel is likely to diminish, but not in the not in the New York term, not.
In the Dutch.
Na Murray, thank you so much, Leslie Vnerbury with us this one. I greatly appreciate it.
Lisa Mateo, what do you all right?
We're starting with the New York Times.
I really need John Tucker for this one, Sources saying Governor Kathy Hulkal pushing to delay congestion pricing. Now it started, it's lated to star June thirtieth. Although things that congestion pricing is good for the environment environment. Here's her concern is that the timing was less than ideal because it's going to hurt the city's economy, which is still recovering from the pandemic. She wants to replace it with another
revenue stream. She's considering proposing this tax on New York City businesses that would need approval.
Though from the New York State legislature.
I was thunderstruck today. Drive it in the Bentley's in the grudge. So I had out, I'm going down lest By Avenue, which.
I never go down.
The number of stores, businesses, whatever you want to call it boarded up.
That's nuts.
Still well, I mean, I have a short ball of the city is a shortfall of one billion dollars a year time. So it's got to come from somewhere. If it's not going to come from drivers, it's got to come from businesses, I guess. But I mean, look, selfishly speaking, I am not a fan of this congestion tax at all.
So what do you think? I mean?
My answer, my answer is just loaded up on the FDR and the West Side Highway.
I don't know.
Yeah, I'm not a fan of the congestion. I mean, granted, I'm coming from Jersey, so I'm one of those. You know, there's a lot of lawsuits and everything's still going that could delay it as well, but I'm not a fan of it.
We'll have team coverage with our surveillance congestion reporter John Tucker.
Look for that through the week. Next.
All right, we told you about Boeing Starliner launch today. Okay, so now SpaceX also getting a launch license, so it would be its fourth major test light.
It's from the FAA.
They granted them the license, so SpaceX plans to launch Starship as early as tomorrow. That's from the company's star Base facility in Texas. Bloomberg will carry that live too when it does happen. But it's kind of this next step in launching space as is you know, future satellites taking humans of the Moon, possibly to Mars two on top of it.
But this will be their fourth flight for the for.
The Boeing is this morning just before eleven am.
Correct, Yes, ten fifty two is for Boeing.
So a lot going on with space travel.
Yeah, it's well, it's it's just an interesting hybrid. We will see Blue Origin a match, correct, correct, Yeah, Next, all right, we go from space travel to airline travel.
Right, you have these Elite fly they're doing crazy.
You know they have an.
Exclusive airline status.
Okay, so it's like this semi secret status.
Spenders Damiens on it, trying to get trying, trying.
I've actually went many an hour on the phone with Delta trying to figure out how to get on Delta this or Delta that. You know, I get a lot of pushback everywhere. I don't know how to do it.
Yes, so it's United's invitation only global services, Delta's three sixty yes.
And Americans concierge key.
Okay. You get a lot of perks. Do you want to hear some of them. You get customer service on speed up, like customer service, flight rebooking before you even know there's a problem, lounge, excess priority for upgrades.
And listen to this one. Chauffeur drives in luxury cars to the gate. If you're running late.
Is Penelope crew is going to be there to hold our hands?
I don't know, I know you'd like that. Though.
My basic take is it's out of control. I did a fancy private trip. The lounge was so packed to stand at the bar going out and coming back to do the exact same things. There were no seats of the lunch. It was the whole things. They got to blow it up and start off.
Well, except it's so secret.
People are people are asking how much it's going to cost.
I fired my present airline. I'm not going to say what it is.
And you know that they are these new airlines that are popping up. I forget the name of it, but but but it flies out of Westchester. They only fly to a few designated locations. Apparently, it's like flying private, and you go in through a part of the airport, not the public part with all the Michigan You going through a little private entrance and it's supposed to be really nice.
You gotta spend a lot.
You gotta spend.
It's just been like fifty thousand dollars plus. You know you're in flights, all right. The last one we're going to talk about is Disney, so they could be set to invest billions of dollars into its Florida theme parks. If this new development agreement is approved for today. We all know about the you know, the back and forth taking place between Disney Governor Ron de Santis's appointees. They've agreed to end that legal fight, right but today five
DeSantis appointed as supervisors. They're going to oversee the Disney World. They who oversee that Disney World district. They're going to vote today, so we'll see the results could happen. And if it does seventeen billion investment into its Florida parks, it could open that the door to another theme park at Walt Disney two more minor parks like water parks, raise the number of hotel rooms on its property.
So confused, is it a new disney World, a bolt on disney World.
It's it's kind of giving it a boost. They want to boost up. Remember Paul's always talking about this. How you know, we talk about the streaming, but he's like.
It's all about the theme parks.
Do you do this, Lisa, Tom loves Disney World.
I went to give a speech.
You said, a Caribbean beach reorder, an animal kingdom lodge. Come on, tell us the truth.
He's always that there's alligators. I'm not going to be down there.
I mean Anaheim, I'll go to Okay, do the little teacups and but.
But essentially they want to they want to make Disney World big.
They want to make it bigger.
And this is just this is specifically for the Florida Theme Park. So they're going to increase even retail space restaurants, increase that by twenty percent. But here's the thing. Disney does have to donate up to one hundred of his is acres for infrastructure projects controlled by that district. So that's kind of what they're.
Going up to. Lisa Moto, thank you so much to the newspapers.
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 Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.