This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot com, the Bloomberg Terminal, and the Bloomberg Business App. And now Alex Steele, I'm.
Joining us now from Washington, DC. Is Julie Sue, Acting US Secretary of Labor Secretary. Pleasure to speak with you. Thank you for joining you too. The market sees this is a good report. Good news is good news for the market. How long can this good news continue? From where you sit?
Right, that's right, that's the right characterization of this.
Right.
This is exactly what you'd want to see if you're looking for a soft landing. This is the if you average the last three months, it's about one hundred and fifty thousand jobs each month being created. This is the transition from the breakneck speed of the fast recovery we saw initially when President Biden first came into office, to the consistent steady, stable growth that you want to see in a strong economy.
The one really big acts here, Secretary, is what's happening with the unions. You have the Hollywood strike still ongoing, the actors strike still ongoing. You have a potential autoworker strike that could hit the Big Three. You have trains, you have doc workers. There's a lot of union action right now is the White House and active conversations with these unions.
Right So, we're continuing to see the effects of a tight labor market. Right We continue to have now unemployment at less than four percent. This is the longest stretch since the nineteen sixties. And in a tight labor market, workers have more power. We've seen workers come back to the labor market and make choices about what it means to have a good job, good family sustaining job, a good job where they can, you know, make demands to
improve their lives and their working conditions. And the unions are part of that.
Now. You mentioned some.
Unions where you know, through those demands they've resolved issues that were long standing, that have raised wages and address certain conditions. You mentioned the ports. That's one area you know, we saw that with the Teamsters in ups last month. We continue to see workers making these demands, and these are not just like a a sort of an accident in an administration that supports working people. This is really part and parcel of workers being able to demand their fair share.
Sure, but when you take a look at the auto workers, for example, how does the administration avoid Sean Faine, as the head of the United Auto Workers, overplaying his hand. The increases in demands that union is asking are tremendous forty five percent wage increase, thirty two hour work week, things that many say are very unrealistic, and if those workers strike, we could be looking at a recession. That's what some are saying. How does the President Biden handle that?
Yeah?
I mean we have definitely seen wage increases in contracts that have been signed. We've seen them wage increases you know, over six year periods, right, multiple year periods. I think for a president who believes as I do in the collective bargaining process, we trust the process.
Right.
We allow the parties to stay at the table. They are staying at the table. That's a good sign. Party sectors stay apart until they're not the secretary.
If they stay at the table and then eventually they strike they don't get what they want, like a one hundred and fifty thousand plus people out of work that is going to have a tremendous drag.
Yeah, I mean that's right, and so that's why we're we remain hopeful that the parties will resolve their issues. We trust their process to do that. Obviously, you know, strike is a part of that too, and everybody you know, would love to see a path forward where the union and the employers do the right thing. You know, these are you know, a moment in which union members are seeing historic profits coming out from you know, a pandemic.
So you know, to that point, the parties have to remain talking.
So to that point, do you think that the Big three are negotiating in good faith? Jean Fain doesn't think so.
Do you think so, I'm at the bargaining table, you know, I'm not there. I do think that some of the you know, what gets said is reflective of what's happening at the bargetin table. Some of it is not right. There's there's lots of things that happen during the process of a negotiation. I think it's important for us to allow the parties to do what they what they need to do, and that's you know, yeah, that's what we're doing here.
I totally get it, and there is a process. But if President Biden is facing something like three big auto strike working so one hundred and fifty thousand people maybe out of jobs, plus or forty five percent increase in wages, both of those are difficult. On the one hand, you have a recession fear. On the other hand, that's going to lead to higher inflation with wages. Which side are you going to come down on?
Well, I think overall right, as we talked about with the jobs numbers, we are seeing really solid job growth and a solid strong economic picture. I think it's important not to make too much of any one one part of that. And I know each time there's been a contract that is about to expire, there's been a whole lot of handing over what's going to happen. I think it's prettymature. I think the contract is not yet expired. It's important to allow the parties to do what they
want to do. But I will say, you know this, President, one of the pillars of Bidenomics is to believe it that workers empowered workforce is a good thing for working people, and that is something that he's been unwavering about.
So that really does feel like support the wage gains, even if it might come at the expense short term of the economy. Is that a fair characterization.
Well, it's really about supporting the parties, negotiating in good faith to grapple with heart issues and arrive at a place where, you know, the President often says, when workers do well, employers profit, and the economy is stronger, that's what we'd like to see.
But before I let you go, and I'm saying this and Jess, but I actually mean it, Taylor Swift has truly driven economy in many ways. Just look at AMC and I'm wondering, do you talk to Taylor Swift like when she stops going on tour, are you actually going to be looking at like a weakening labor market and a weakening economy. I'm joking, but I'm also kind of serious.
Right, So I'll respond with, you know, women are powering this economic recovery. You know, women are at the highest levels of you know, percent of women in jobs for the fifth month straight, record breaking. And remember during the pandemic, women were really devastated by you know, the lack of
pay leave and the lack of care. We've seen women come back in really high numbers and get jobs, and we need to continue with that trend, make sure that women get to participate fully in the economy and the good jobs that are being created.
Yeah, don't think Taylor Swift had a problem with that. I don't think her roadies though.
Are women.
But okay, thank you very much, Secretary, appreciate. Julie Shoe, acting us the Secretary of Labor.
Alex Steele with the acting director Julie Sue of Labor Randall Kraser with with perspective here and we've better forget about the economic mambo jumbo and go to the FED. Professor Krasler, can you glean here a FED that will change its attitude towards the November meeting?
So I think, as we're talking about before, this is kind of, you know, roughly what the FED was expecting. You've seen a little bit less wage pressure, which is good from the Fed's perspective. We've seen greater labor force participation, which the FED also also likes. That's likely what is accounting for the increase in the in the unemployment rate. So you're seeing the kind of goldilock scenario that the FED wants that the liber market is gradually softening but
not cratering. It's taking some of the pressure off, and so that'll take the pressure off the FED from raising rates. I think it'd be really unlikely that they're going to move in at the next meeting, And obviously there's going to be a lot more data that they'll come out between now and then, but unless there's some major surprise, they're probably likely going to hold through the rest of the year.
Randy, we've got to run. But one more quick question, if I may. It's a dual mandate. Is it really a dual mandate for this federal reserve system?
Well, this is the big pivot that came last year at Jackson Hole when j Powell said there's one thing that we're going to do, and he said that eight times, that we're going to fight inflation. So he basically said, sure, we have a dual mandate, but the inflation part is the most important. This year was kind of more back to normal that we have to worry about both the
part as well as the employment part. And so that's where the fed's looking so carefully at data to make sure that they don't raise rates so much that they bring the unemployment rate zooming up. It's hard to get that perfect. A lot of people think, oh, the FIT can engine perfectly engineer this soft landing, that they have so much control that they can move the unemployment rate up just one or two percent, a tens of a percent and leave it there. It's not so easy, is that.
There are a lot of other factors that come in.
Governor Krausner, thank you so much for joining us today. Professor Krausner at the Boot School in the Chicago Katie, Why don't you bring in Jeffrey Rosenberg here? It's a bond market shifting, Well, let's do it.
Jeff Rosenberg. He is portfolio manager of the Systematic Multi Strategy Fund over at Blackrock. Jeff, it's great to talk to you. You look at the first blush in the markets. You have short end yields absolutely plunging, you of futures getting a bit of a bid when you go through these numbers. Is that the correct reaction?
I think it is, and I think this was the report that the market was looking for. You might have had a bigger reaction if it was a stronger than expected report. But this is the reaction of pricing out the last hype that the Fed suggested they might have to deliver, you know, And so I think that market reaction makes a lot of sense. The front end of the curve, both in reels and nominals, is where you're seeing the biggest reaction, and that prices in the near term.
Expectations for Fed policy.
So the labor markets are normalizing, and that's the main message from today's payroll report.
Wages are softening a little.
Bit on the margin, not really much movement in the three month averages.
The point two. It just missed rounding up to point three. It's a point two. So you're seeing still the slowness in the last piece of the puzzle here, which is the slowdown in the wages. And so the Fed's going to still talk about that. But when you look at labor force participation, that's a big change.
That's what the FED wants to see, as Randy said, that's the reason for the increase in the unemployment rate. But as we saw earlier in the JOLT data, this is exactly what the FED is looking for in terms of getting the normalization in the labor market, seeing that reduction in the vacancies to unemployment coming through the vacancies less from the pain in the unemployment, and that's a
good outlook for the market. And that's why you see the equity and the risky side also positively responding here.
So pretty much a very nice number for everyone to go into their last holiday weekend.
Yes, and if you.
Talk about the labor market normalizing here, extrapolate this into Fed policy because at a certain point the Fed is going to have to cut interest rates just to bring rates back to more normal neutral levels. Does this report push those rates further into the future or does it bring them forward?
Well, you know, it's a really important point which you just highlighted about the need to be cutting interest rates, not necessarily to bring them to more normal levels. But go back to Powell speech last week. It's about restrictive policy for longer, not higher for longer, and so as inflation falls, and that's really about the wage inflation picture. From today's report, the Fed has to cut rates to
avoid the real interest rate from increasing. And that's really what the bond market has priced in for next year. The gradual decline and inflation leading the FED to have to cut rates, not because it's a hard landing or because they're cutting rates because they're overly tight, but they're cutting rates to avoid becoming overly late tight, to maintain restrictiveness. And I think today's report just feeds into that market consensus and that market expectation.
Jeff, I find this absolutely extraordinary, which is we had a failure of transitory and then dare I say, and granted there's an ambiguity here, folks, if we actually get price up, yield down, but we're almost back to a successful victory lap for the FED. Do you agree that this is a FED on the edge of a victory lap.
Well, I think one thing we have to be a bit careful about, Tom, is that we've certainly seen the victory from these very aggressive, very historically distorted levels of inflation due to the COVID supply side shock. Yeah, that's very different than claiming victory that the damage that had occurred as a result of those policies, as a result of the fiscal and monetary policy over stimulus, has completely
been wrung out. And so that's about the victory from three percent to two percent you remember from last week Powell one of the main takeaways. Two main takeaways where data dependence, yes, but the other big one was we are not abandoning the FED said Powell said, we are not abandoning the two percent inflation target.
A lot of.
Discussion around, Hey, just accept three percent, It'll be okay. So I think before you can claim victory and do the victory lab right, we really are going to be talking about what does it take to get.
You from three to two?
What's the cost versus the benefit of just leaving it at a higher lady.
And now pre labor day, pre labor day Carnegie Melon math. We're going to do this is Jeffrey Rosenberg, Come on, Jason Furman's out doing this correctly. Jeff talking about the ecumenical PCE index. And you know, Jeff Rosenberg, it's how you pick your duration of the vector. Are you looking at a one year annualized or a six month annualized or what I do, which is a ninety day annualized, three month annualized vector for inflation. What is the rapidity of the decline and inflation right now?
So on the headline and in even on the core, you're seeing good progress, and to the part of the question, it's much more relevant to look at kind of the near term numbers annualizing what is that pace of decline.
But it's really about this core core measure that Powell talks about in terms of services less housing, that really gets to again the wage inflation picture that feeds into the more durable aspects of inflation outside of the commodity and good sector, which is deflating because of the supply side improvement. What has been very supportive over the last three months is that that three month level of core core inflation has been declining, and so it's feeding into
this soft landing landing on inflation narrative. It's still a slow pace, and I think that's what you see in today's wage number, but it is going in the right direction. You've brought up the equity market. That's positive for the equity market. So everything is looking like it's moving in the right directions. It's still a bit slow, but certainly the labor market normalization story got a boost from today's report.
I want to bring this conversations more firmly to the markets. Ian Lincoln was on surveillance a couple of days ago of VMO calling the ten year treasury a screaming buy. I think that made multiple headlines. When you look at this report and the totality of data that we've gotten in the past couple of months, do you think now is the time to really step force fully into duration.
Well, you know, when we talk about duration, it's not so much how much duration you hold, but where in terms of the maturity spectrum you hold that duration. So I think that the screaming buy is the two year. Thank you for bringing it up, because I think there you have the best combination of yield and the exposure as we're seeing in today's market reaction changes in this kind of normalization, That is the part of the yield curve where I think you're going to have the best
risk reward in terms of owning duration. When you start talking about the long end, now you've got to start considering whether or not the term premium, the long term inflation premium, whether the long term real interest rate is really priced appropriately. And I think there's a lot of questions about whether this post COVID, post normalization yield curve at historic levels of inversion is really where you want to be concentrating your duration in the long end exposure.
I think there's much more vulnerability in the long end given that degree of inversion the lat which basically says you're not getting paid in terms of the yield for those fundamental fouls, which all could be increasing in this post COVID environment.
Jeff, thank you. Jeff Rosenberger's with the black Rock. Sarah Hunt joins as chief market strategist Alpine Saxon Woods. Sarah, It's real simple. I've got an eleven point eight percent standard impoor's five hundred return over the last decade. I got a lineup of people with fear. How do you push away the fear into September into the fourth quarter given this economic data and a successful FED soft landing.
Well, good morning time and thank you for having me. I think this is really an interesting report, especially since we revised last month negative, and I think that this is I mean, I feel like Ira Jersey stole my Goldilocks moment. I was going to say, that's a Goldilocks number because you've got all the components working in the
direction that the FED wanted to go. Remember, we were looking for on some of the Summary of Economic projections four point five percent unemployment by the end of the year, and it's been staying so steady that that number looked unachievable. Three point eight is not four point five, but directionally that's what that's what the FED was looking for. I also think that the softening in wage gains is also
something that the FED was looking for. The interesting thing is about the number of people who have come back into the labor force, and you have to wonder if some combination of the fact that that pandemic surplus is being spent down student loans are coming back may be part of what is shifting the labor force, because the question has been whether or not as structural to have so many viewer workers, or it's possible that so many people didn't have to go look for a job, and
all of a sudden they're staring down what is not as rosy an economic picture without as much of a savings backdrop.
And Sarah, like you said, this is good news for the FED. That seems to be the narrative in markets right now. But how noisy is this data. You look at some of the specifics from the BLS film industry, payrolls fell by seventeen thousand, then you take a look at trucking payrolls fell by thirty seven and how much of a piece of the conversation will some of those nuances be.
Well.
I think this also goes to one of your earlier guests this morning was talking about the fact that the economy is rolling in cycles and nothing is moving at the same time. Historically, in a recession, everything goes down and then everything comes back at once. And we've been through such an odd period of time during this pandemic where you've had rolling recessions in some sectors and not
in others. And I think that those labor numbers just speak to that that you've got different places where you're experiencing either a boom and labor or a slowdown. And I think that the labor hoarding that's going on is probably slowing down as companies are getting a little bit harder. It's harder for them to put price a little bit in this environment. So I think that that's where you're going to start to see movement where you've pretty much have not seen a lot of it here today.
Sarah Hunt in the market. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday, starting at seven am Eastern Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always on the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg