Surveillance: Jobs Report Bolsters Stimulus Bets

of Systematic multi Strategy. Jeff, how is the black Rock called nuanced in the last two weeks, the cacophony of noise and what we see within this job's report, how is the yield call morphed for black Rock? Well, it's really as Jonathan was just talking about, you know, the changes that the focus is less on what the FETE is going to do and on monetary policy and much

more on the fiscal policy. And when you look at this report, there's a little bit of good news, there's a little bit of bad news, but I don't think it really changes the overall narrative from fiscal policy and importantly, market expectations for fiscal policy. It appears that we're going

to go to the bigger plan. Uh, and with that you've had this return to a pretty significant bear steeping in in the curve UH, and that's a reflection of the impact the expected impact of these very significant fiscal policies. I'll use the plural here because the focus is on the first one, UH, the one point one point nine trillion the fiscal plan to address COVID, but it will be followed by a second one, which is further economic UH fiscal interventions. And so that's really the focus here,

and that's what's changing the outlook. It's steeping of the curve, increasing inflation expectations, modestly higher interest rates. Let's talk about that a little bit more. Front end of the Yeld curve pin to the floor ten eleven basis points on a two year old that's going nowhere for a long time, and the FED changes course. Jeff, As you say, all the flexibility is the long end through the belly out of tends out to thirties. That's where you get this flexibility,

this ability to shift higher in yields. How self limiting do you think of SALF could be? Well, you know it's about the pace of the of the increase in terms of it being self limiting. Right, what what limits it is? Is there a degree of increase in long term interest rates that starts to have a meaningful impact to expectations in the real economy. Where does that mostly show up. It's through the transmission to the housing market, right, the big story in the real economy, the big beneficiary

of this interest rate structure has been housing. And so if you had a significant disruption there in terms of the steepening of the curve, that's when it becomes self limiting, because then the market starts to worry that it's gone too far that the FED would then ramp up its intervention. That's the first area. The second area, real quickly is

financial conditions. Right, A two aggressive move in terms of the back end of the curve steepening, taper, tantrum kind of concerns that starts to disrupt financial intermediation and the stock market most importantly, probably triggers some kind of first verbal intervention and maybe you know, a larger intervention if the disruption is larger. So that's the way in which itself limiting. This kind of gradual bear steepening that doesn't

disrupt those two elements you know, can be absorbed. The bear stepening that we're talking about, the longer term yield going up Is it because that the supply of treasuries that the US is going to be selling is going to be going up so significantly to pay for all of this fiscal stimulus. Or is it because inflation is expected to tick up with all the money circulating in the economy. Well, it's a little bit of both, you know. The supply demand uh imbalances or or balance I should

call it, because uh, it gets met. The question is at what price? And that's really a reflection of the total of the demand. The key is is that the FED is is uh the major purchaser there, and so the expectations are that they will maintain that. You know this year through this year a lot of question and debate about the pace of tapering and eventually halting those purchases. But what we've seen from FED officials recently is you know, no hurry to talk about and really tamping down any

discussion about that. So that FED support really helps to offset the increase and expected supply, and then the long term inflation expectations are taking up. We've seen that certainly in terms of break even inflation, UH. And that's a modest increase in a return to some term premium in the back end of the curve, but it's a very modest increased relative to historical levels. Jeff Frozenberg, thank you so much, greatly appreciate it. With black Rock this morning,

I'm policy. We went out in our rolodex and said, who was someone who did not sleep last night? That would be Henrietta Treas a Veta partners looking at the festivities of the Senate and the path towards a new kind of stimulus. Henrietta first Principles explained to our audience the distance that the Democrats are from filibuster Um. Well, technically speaking, they are very far from the filibuster, but practically they are right up on it um and getting

closer every day as we go through UM. What I expect will be a very generous interpretation of something called the Bird Rule, which prohibits any policy agenda items from

passing with just votes. So we're very close. At about five o'clock this morning, the Democrats unlocked reconciliation authority, which will allow them to get their stimulus out sometime in the next just four weeks here um, maybe five, to provide as much as one point nine trillion dollars in stimulus to the U S Economy UM with only Democratic votes Henrietta, does the Senator from West Virginia apply the

Bird rule or the marginal Bird rule? And can Republicans the minority adjust the Bird rule to steer reconciliation in their direction. Well, the most important person technique here is going to be the parliamentarian, woman Elizabeth McDonough, and she is going to be the one to who UM tells the Democrats how much they can get away with in

practical purposes. Though Senator Mansion is absolutely someone who is going to be able to say, you know, maybe you can, you know, twist the arm of the parliamentarian, but I'm still not going to vote for it. That would apply to things like UM getting the direct payment to individuals out to people who he thinks are in an upper income threshold, or moving the minimum wage to fifteen dollars

an hour. Last night there was a vote that got rejected or supported rather from the Republican side saying you know, we're not going to increase the minimum wage and potentially hurt small businesses during a pandemic, and there was Democratic support for that, which points the picture of even if UH Budget Community Chairman Bernie Sanders and his chief of staff Bill Downstair, who has extraordinarily experienced in the reconciliation process.

If Mansion is not going to vote for it, or Senator Cinema or Warner, Tester or Kelly, there is nothing the bird rule or tweaking the Bird ule could do to overcome what they will not do. UM. So the restrictions there on policy are still very much in fit in place by the Moderates and the Democratic Conference. So basically, Biden's hope for a bipartisan Washington seemed to be fading

as time goes on, rapidly fading. And there is a question of whether people's hopes for a second round of stimulus after this one that perhaps they've gotten a little ahead of themselves given the lack of willingness to really work together to push something through. Henrietta, do you think that it's less likely that we're going to get some sort of infrastructure spending if the Democrats push this through unilaterally.

I think it's really difficult. Um. One of the things the Street is factoring in is that Democrats are going to plow through the stimulus bill moved to an infrastructure package and offset it with tax increases on corporations and individuals. There's just no planet where you have the votes for that. UM. So I think the difficulty of getting their budget through holding another all nighter on vote a rama at this time, doing it on infrastructure spending is going to be even

more complicated than this package. So if we have a hundred percent that this bill will eventually go through, whether Republicans vote in favor of another stimulus bill or not, it's going to pass. The infrastructure package is going to

be even harder. UM. And then some Democrats you talked to would say, and then we want to do a third bill after that, propecially your three, And it's really hard to thread the needles for for that component, especially as we get into midterm elections, which are just going to start around March of next year. So I think that each subsequent path forward on a partisan basis does get more difficult. But what we've seen from this president

is that they're extraordinarily um rigorous in their messaging. And so there's no question that we're in you know, COVID relief week, and I would be eager to see what infrastructure Week looks like under this president, just on a technical note, Henriette, you were talking about taxation, and when can you talk about the wreck inciliation process and whether Congress has to pay for some of the measures that they pass if they go through reconciliation rather than a

bipartisan a measure. Great question, a major source of can confusion on the street. What happened last night is that Democrats authorized one point nine trillion dollars in deficit increases. That is over a ten year budget window, and that means that over ten years, Democrats or Republicans, if they want to vote for the bill, can authorize one point nine trillion dollars of deficit increases and they do not have to pay for it. Do not. There are no

taxes in this bill. Indeed, there was a vote offered by a couple of Republicans that said we will not raise taxes on small businesses during a pandemic, and it passed one hundred to zero. So there are no taxes. The bill will not be offset by tax increases, either at the corporate or individual level. The deficit spending will be incurred during that tenure budget window, and no taxes will be increased. As a result of this spill, some

of the detail there. Henrietta Treys a pro Invada partners there on fiscal and many conversations to come forward as well. Christopher low Over at f H and Financial makes the really important point that most of the drop and the good news unemployment rate six point seven and six point three was four hundred thousand fewer people who stopped looking for work. Tiffany Wilding joins at PIMCO with acute analysis

at Tiffany. There's so many moving parts here. Is this unemployment report of almost desolation where people are just giving up looking. Um, well, yeah, so it certainly could be that, but but I also think there could be just some some pandemic related distortions here where you actually had people that the reason why they're they dropped out of the labor force and they're not looking and the reason is is maybe because they think they're going to get the

jobs back soon. So this is sort of a temporary phenomenon,

you know. And I think overall, what what the labor force reports sort of showed us though, was that pandemic related weakness in the economy at the end of the year um was actually you know, quite a bit more acute than than we had initially thought so, but I think that there maybe is some you know, some good news here in the sense that, um, you know, the reason why people might not be looking and dropped out of the labor forces because they think they're going to

get their jobs back. Um, you know. And if that's the case, you know that that would be an I love what Chrysalis says in his report. I want you to come on us. Word it's such a delicate and unused word. He says, the forty nine thousand was scant, and it was just a whisper of an improvement. Did you extend your timeline, Tiffany today two so called employment recovery because of what you observed? Um? Yeah, I mean so the report was a little bit weaker than we thought.

But but you also have to keep in mind again there you know, there's some quirks in the data. UM. I think seasonal factors um were unable to fully adjust for some of the issues. So things like warehousing and and retail temporary jobs, they're related to the holidays, they've become more pronounced. Um you know, so you kind of get these seasonal separations that you know, the seasonal factors don't fully account for UM, you know, so I think

that's actually probably good. You know, I think the bottom line is all that is to say that, you know, forty or fifty thousand's not great, UM, you know, but this doesn't really change our outlook that much, you know. I think the other thing really that's important to keep in mind here is that UM spending did pick up in UM in January as a result of the UM you know, the payments that the Treasury payments to households

that came with the gut COVID COVID relief bill, you know. So, and we expect more legislation, you know, from the Widen administration by March for more stimulus. So I think, you know, overall, this doesn't really change the outlook UM. You know, we know that things were a bit more acute, the weakness was a bit more acute at your end. But but I think that the outlook is still, uh, you know,

towards a pretty decent size acceleration. Tiffany, what's the concern or what's the level of concern about some of this UM. Some of these folks, I've been unemployed for a very long time than perhaps this is more maybe more permanent, maybe than maybe we initially thought. Yeah, I mean, so that's that's the concern, right, is that you basically, the longer that people are unemployed, UM, you have you know, sort of longer term effects happening. So you have skills

that atrophy. UM. You know, you know, have training that people that people get on the job that stops happening because they're unemployed. UM. And effectively what happens is is that, you know, the longer they're unemployed, it's almost like the less likely they are to to get employed because they

don't have those skills. You know. Now you know the this is the one thing or one of the um the conclusions that came out of the Federal Reserves UH FEDS LISTENS and Monetary policy review that happened in the last couple of years is that if you can get back to a hot labor market, then those people that were you know, unemployed for long periods of time they actually benefit. So, you know, the hot labor market with few labor supply that's low really draws those types of

people back in. They start getting the training again, and that's better for the broader economy. So, you know, I think we really want to focus here on on bringing the labor market back to potential, creating kind of a hot situation as soon as possible, you know, so you uh, you know, to the extent that you do have those longer term unemployed, you can really draw them back into the labor market. So, Tiffany, it appears that we're getting

some movement on fiscal stimulus here. We take a look at the jobs data today, the uh, the employment data today. What don't you think this economy really needs from Washington here in terms of fiscal stimulus, including this package however it may come out, and then maybe even something more permanent down the road. Yeah, I mean, I think I think the focus should be here first and foremost on on pandemic relief. I mean, you have to keep in

mind that that we still have labor market slack. You know. Now we can argue about the size that's needed for that pandemic relief, um, you know, and exactly how to do that, but I think overall, first and foremost that should still be the focus. Um. But then after that we need to focus on some of these longer term initiatives and investments in the economy. Um. You know that that creates supply, create longer term growth you know, productivity growth, infrastructure,

um and things like that. And keep in mind, if the focus on these longer term investments is more towards the supply side of the economy, that's actually not inflationary. Um, that's a good thing, Tiffany welding with us with Pimcoe. Tiffany, how do you share holes? Of course, writing it up on the labor economy the Economic Policy Institute, Folks, this is a liberal thing to tank. The conservatives read because it's smart, smart, smart, even if you disagree with the articles.

She has a working number of high of excuse me, Tiffany, of twenty six to seven million workers of team percent of the workhorse workforce is in some way affected by all this. What's the Pimco working number of the number of people struggling in this labor economy? Yeah, I mean clearly, it's it's it's high. Um. I mean I think I think that's the that's the issue here, is that there's a lot of people, um, that that were affected. And even if you if even if you didn't lose your job, um,

you know that. I think that there, um, there are effects in terms of uh, you know, education and things like that being disrupted, So you still have to to do you know, you have to have more flexible working environment,

things like that. So I think there are certainly a lot of people that are impacted by this, you know, And I think that's the point here, is that um for the fiscal policy measures, you know, you still have to focus on pandemic relief as a result of that, We're not out of the out of the woods yet in terms of the pandemic, although the outlook is much better now than it was, you know, six months ago. Timing Wild you needed that update, thank you so much.

With the Pacific Investment man, I love saying that Sack Investment Management Company very place to say that giving us some of that time is how to Bushek of the U S Council of Economic Advisors had the great to

catch shove you thankfully time this morning. Just help me understand, just to begin with, how the incoming dates is informing the decision that you're making around fiscal stimulus in the package is set to deliver down in d C. Well, the numbers that we got this morning really do underscore the cost of inaction. The January numbers are quite disappointing.

They show that the pace of job growth has is slow, and it's certainly over the past three months, it's a lot slower than it was earlier at the end of and it just it underscores that without further aid, our economy is going to continue to struggle. We need to get that aid out to the families and businesses that need it. We need to make sure that we spend the resources we need to contain the virus so that we can all get back to work. And this report

really is make that quite clear. How they you use that word aid, but given the size of the package, some people would just call it stimulus. It's huge. Why is that word a different to the word stimulus and why do you think it's a not stimulus. Well, at this point in this crisis, our first goal is to

contain the pandemic. So a lot of the funds that are in the American Rescue Plan are about making sure that schools can reopen, making sure that we get the vaccine now, making sure that all the things we need to do to keep Americans safe and healthy our first priority. And while we do that, we need to make sure that businesses have the resources they need, and importantly families have the resources they need so they can weather this crisis. So it still is it. We're still really thinking about

this as relief until we can contain the virus. Larry Summers is in the Washington Post today asking some important questions about the size of this package relative to the output gap. How that could you weigh in on that if it's all what the right size of the package should be relative to the output gap that we need to fill. It's certainly you know, this package was built

from the ground up. We looked at the needs all across our economy and calculated how much it was that we were going to need to spend again to contain the virus, to make sure that schools could reopen, open, to make sure that child care centers can reopen, to make sure that workers have paid leave, all of those sorts of things, and then to make sure that workers have those unemployment benefits as long as they need them, those direct checks for all the families that need them.

So so we built that in that way, and um, you know, the goal here is to make sure that you know, families and businesses can weather this crisis and we'll worry. Uh, you know it may be that um that uh, this this report from this from January really does show that the high unemployment, especially for communities of color, the job losses for women, um and then and the lower label first participation really do show that we need to continue to act, and we need to do so quickly.

What happens everything goes right, That's the question that Larry Summers, I think, is asking what's the contingency plan if everything starts to go right and maybe too right? Well, you know, was a really rough year, and we know that we have a hard time predicting the shape of this pandemic. And we know that without aid, families and businesses supper and today's jobs report really is the proof of the now.

The proof is in the pudding here that without continued to support, we're going to see an economy that is performing, um much much more worse than it needs to be. So I am quite frankly, far more worried about the cost of an action than I am doing too much at this point. I think that echoes what many people are talking about down in d C at the moment, on both the monetory policy side on the fiscal side. In this administration, let's get to one of the policies,

the checks. If I owned seventy five dollars and I can get a big check from the US government, why is the aid and not stimulus? Well, that is a that is a great question. So here's the thing. You know, we saw the checks were an incredibly effective tool when they win out last spring. Families used them, They helped them, you know, when they experienced unemployment or added expenses because

of the crisis. And we know that millions of families are struggling right now, and that is the purpose of topping up the checks from December, to get that two thousand dollars out there to um uh to all the families that need them. Talk to me about eligibility and the conversation within the administration at the moment some concern that maybe the pool of people that could receive these

checks it's just a little bit too wide. Well, you know, the President has been very clear that getting those um those checks at total two thousand dollars out to families is his priority, and he's been open to negotiation on the margins. But you know, I think what's really important is that you know, all those kindergarten teachers, those firefighters, those folks who were pulling in you know, sixty thou

dollars or so that they get this aid. We have seen how important it is that those checks get out there and provide those cushions for families. They still have jobs, though, have it. And I'm not saying to advocate either side of this debate. I'm just trying to understand this just a little bit more because the word I keep hearing

down in d C is bipartisan. But this seems to be very ideological, the idea of trying to address some of the social injustices of the last several decades, maybe even longer, and not to relieve people from the effects of the pandemic. There's pandemic relief and then there's relief because of injustice or perceived injustice of the last decades. Several decades in this country had the which one is it? You know? I think that this is uh, this is about relief, but it is also about the fact that

we are in a K shaped recovery. It continues to be the case that folks at the top end of the income distribution have done very well. Those folks that have been able to tell a commune safely. You know, at the very very top end is you started this segment folks, um you know who are in the stock market seeing record highs, But the reality is for millions of families who are not in those top eche lines, this has been an incredibly stressful and economically damaging time.

So we need to make sure to get relief out there. You know, we need to make sure that those essential workers get that relief. We need to make sure that families who are struggling have the support they need. Do you think it should be based on regions and the cost of living in those regions? Do you think one check for everyone, regardless of where they live makes sense. Well, you know, we're a big country, and certainly economic conditions

are different across the country. But we are one country and this is a federal policy to make sure that we're providing that support that we need to people all across these United States. So that seems like the right policy for this moment. Had to come back soon, love to continue the conversation. Appreciate your time this morning, Thank you very much. How do we share that the U. S. Council of Economic Advices on this job to port a stimulus effort down at d S. Thanks for listening to

the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio