Surveillance: We Are Not Late Cycle, Clarida Says

Ellen Zenter with us Morgan Stanley. Ellen, We've got a lot of focus on the American labor economy, but I want to get your call because you've been so good about lower g d P. If you take the consumer and x them out, was this is zero percent economy in the last ninety days. No, not a zero percent economy, but I mean it's clear that the consumer has been propping up the economy, which is good because it's of our economy. But you know, economists always like better balanced growth.

We wish the growth wasn't just being sure them by to say the consumer and housing um And I think we will get better balanced growth next year. But that's going to hinge importantly on whether trade policy is less uncertain and global growth is a bit stronger. And I know those are two big ifs, but if you give that, yeah, two big is. But if you get that then it's better balanced growth next year, even though slower growth compared with this year. So I wanted to be clear this

tug of war between consumption and business investment. You expect to see business investment improved before consumption tracks. Yeah, that's what we're expecting. Um. If it doesn't, then you would be talking about recession. We're just not seeing that in in the of the indicators, and certainly not any of the leading indicators. You know, if if businesses crack and start laying off workers, and it doesn't matter how healthy

the consumer is, they'll stop spending. UM. But if you get better tone on trade, then you know, you have to ask yourself what happens following manufacturing slowdowns that don't lead to recession? And you can see the at the I s M starts bottoming and then starts to move up. My guess is probably later this year into Q one, we'll see that it formed a bottom and started turning back up. And so that's a nice thing. But what what happens in environment where doesn't lead to recession, but

you still got this undercurrent of incredible uncertainty? Will eventually investor UH firms have to invest in replacement capital? Just to support even domestic demand. And so you get at least some modicum of business investment UH, and so that's positive rather than declining investment as we've had this year. And then how difficult would it be to get a

clean rate on this payroll support in forty minutes? It'll be near impossible, UH, just because we know how many GM strike UH workers were on strike official report came out forty six thousand. But how many downstream manufacturers furloughed workers UM or in an idled UH their their productions for those weeks of October that the strike UH harried on. UM. You know what we do as forecasters. As you've got

a model, UM, you forecast payrolls for that month. There's nothing that suggests payrolls were very soft over the month. And then on the back end of that, you shave off the number that you think would be associated with the GM strike. And that's how we come up with our number of around ninety thousand for private payrolls. You add the strikes back into that, UH, and you've got

something around a hundred and fifty private payrolls. Nothing really pointed to a deterioration in labor growth consumers still very upbeat about the labor market. In October. Initial jobless claims would suggest that the knock on effects from the GM strike we're not that large. I mean the striker the striking workers cannot file jobless claims, but other workers that are affected can and jobless claims were still extraordinarily low

during the survey week. So that's why there's nothing fundamental there that says is a horrible labor market. You're just gonna have an ugly looking number because of GM. And I'm glad that chair Pal addressed it in his Q and A uh this week. Um, he doesn't see he would not have seen the full employment report, but he would have seen the manufacturing segment of it because they have to have that to put out the Federal Reserve

Industrial Production Report. Ellen, I'm wondering about hourly earnings. The expectation on the survey is three percent uh, and that's up from two point nine percent, and the prior reading average hourly earnings expected to be higher as well. What do you take away from that? What do you need to see to sustain the strength in the consumer? Yeah, highly so, so it is it is um. Uh. You know how many jobs are we creating our way? Is wage growth holding up? Uh? What kind of financial market

income are we getting? The top income quentile represents of all consumer spending and they can at time spend out of that increased wealth. But labor market income is the overall over our waching driver. And you've got slower job growth and wage gains that aren't picking up materially. And so we've had, uh, you know, we've got I wouldn't call it weak, um, but less of a firm backdrop

for consumer spending just from labor market income. And that's one reason why we expect spending to be slower going into compared with with this year. But that's not saying anything terrible, right, We've got about two point six percent growth and consumer spending this year. That's incredible, and mostly from lower interest rates. Next year, you don't drop it interest rates further, but you still maintain that support. But job growth continues to slow, and so that does mean

less support for consumer spending. We're expecting around two percent consumer spending growth and if we get that is very unlikely that we get a recession. Well, let's turn to the FEDOM what it means for the Federal Reserve. There's a debate at the moment, Allen As. I'm sure you know that the benchmark, for further reason is now a material reassess of the outlook at the FED. That's the benchmark for another cod if you've got an idea of

what the material reassessment of the outlook actually is. Yeah, when I think about it, I just think about, well, well, what are the positive things that that chair pal and if I keep pointing to jobs, jobs, jobs, consumer, consumer, consumer and UH and the two are linked, right, So you gotta watch initial jobless claims as that trend. So that's four week moving average, so we're not looking at

natural disaster effects, we're not looking at holiday effects. When that starts trending higher, you could pretty much put a time stamp on how much longer UH the expansion will last. And so that's that's something that they certainly would be watching closely. The number of things. And what's so important here is everybody trots out the jobs claims is a is an optimistic thing. To five percent of my mail doesn't agree with the vector of jobless claims. A huge

part of America, it feels there under employed. Good morning David blanche Flower at Dartmouth or they feel that they're not participating in all this good news at one G d P. I mean today's jobs report, is it really a picture of America? Yeah, I think it's a picture of America because the job's report, if you look into the unemployment uh numbers you've got, you've still got a

high amount of folks that are underemployed. You've got some better unemployment rate numbers uh that are that are partly reflecting simply people leaving the labor market. Um. But I would caution here that when you look at a lot of those metrics under employment metrics, they're no worse today uh than they have been in prior expansions. Uh. In fact,

they're back at at lows before the financial crisis. And so they're always going to be underemployed, they're always going to be part time for economic reasons, they're always going to be discouraged workers. But I don't find that they're particularly higher much higher amounts than we have had in the in the past. But to pick up on Time's point, Alan, we have seen delinquencies and defaults picking up with credit

card receivables auto loans. People talking about a two tier economy with the lower income Americans falling behind UH and increasingly have to access credit. How much does that matter for the overall economy? And it certainly matters on the specific level. But from an economic perspective, so I think, so there's a socio economic UH story to tell here,

and there's an overall economic story to tell here. We always want the consumers to participate across the board, across income groups, and one of the best ways to do that is a very strong labor market. As you know, we can see when we look at delinquencies. And what I would UH say is that if you if you strip out subprime UH from the rest of UM UH credit UH, you can see that that is the area

that's driving up credit card delinquencies at driving up auto delinquencies. Now, that is what we should be seeing at this late stage of an expansion. You always see credit dynamics or credit deterioration turn up in the low income subprime groups first, and then it spreads out to more credit products and then marches up the income chain. So to me, this is something natural that we should be seeing now. Now from a socio economic standpoint now, it's terrible. It's terrible.

If you look at rents and healthcare as a share of overall income, it's an increasing burden series burden for low income groups UM and that just continues to add to income inequality in the US and is much more long term and long lasting issue than just what are they going to do over this cycle. This has been wonderful Allen Saner, thank you so much again. Chief of Coloms Stanley is well this morning. Why don't you bring

in our steam guest series. He helped us a lot on said happy to say Jeff Rosenberg joined us now blank Financial Senior portfolio manager. Money to Jeff, morning, your first tight place. That's a strong report, and you know this is you're talking about thirty one under it on the SMP. This is this is all about, you know what we'll get a little bit later this morning in terms of I s M, but it's about really pushing back hard against this recession risk that had been on

the top line. We'll see what happens at at ten am. Market expectations are for that to also rebound, and you're going to have a story coming out of today which is, you know, good news on the trade. Uh, you know the Fed, yes, there may be done cutting rates, but they did what they needed to do, and the economy is showing signs that it doesn't need as much support, you know, and that's a pretty good story. The president needs to job own a need for a rate cut

or certainly gross accommodation. And let's say politically, Jeff Rosenberg, that goes to one point nine g d P with this better than good report, can black rocket? Can you model a higher GDP statistic forward? Not not hugely? You know, we're we're basically yet trend. And and the issue is, and again it goes back to that I S M figure, is that you know, the consumer side of the economy has not been affected. And what the Job's report today is about is a stronger than expected report really eases

the concern. And the concern has been will this trade uncertainty, will the manufacturing uncertainty, the decline in in the business side spill over in the form of decreased hiring that eventually shows up in consumers that seems to certainly be diminished as as a risk. And and so you know that's a that's a that's strengthening the outlook for the ability to avoid recession. That doesn't necessarily get you back up to the three percent level because the investment side,

the business side, there's been a drag. Jeff, you and I talked about this in FED day and again thank you to you and black Rock for your contribution. While we saw the press conference, and you and I talked about one indicator, which is a three month tenures spread. It's come in a little bit in the gloom of

the last couple of days. Andrew holl And Horset City Group, I think had the same tone you have, which was where whatever series Global Wall Street looks at, we're right now at a tipping point, almost on a knife edge, a constructive knife edge. We really don't know which way this is gonna tip. Do you agree with that idea? Yeah, exactly. And and just to to frame it, you know, what's going on is there is an elevated risk of recession

coming mainly from you heard you heard Powell. You know layout the reasons global growth slowing, trade uncertainty, US manufacturing, and business confidence declining. And and that is in contrast to the strength you know, today's payroll report, the revisions. This is about the strength of the consumer, the strength of the labor markets. And so when you see these increases in recession risk recession risks, which way does it go? Most of the time it goes back to expansion, But

one out of four times it turns into recession. And so that's been the concern. I think today it's going to be about easing some of that concerns UH and risk on fields to the market. Jeff Rozenberg of Black Rock, I'm looking right now, I'm wondering if this strength is enough to make this not just a noisy, dismissable report, but something very significant showing ongoing strength, ongoing bringing of

workers into the labor force. Well, well, you know, particularly with the revisions, which which gets you back up to the faster than the most recent pace. You know, certainly there was a lot of noise around the strike and as Jonathan's leading was saying, there's gonna be a lot of kind of apologies for the week report today. Now it's more a little bit of head scratching of maybe it's not weakening as much as we thought, and a lot of these concerns are are less likely to show up.

You know, it's it's a high frequency report. So you know what, we'll move on to the next data release here, but there's certainly a trend here with the pivot at the beginning of the month. On trade is really the critical issue here, that's the source of the recession risk. Now we can debate whether or not that's going to be for the long run a permanent state of trade uncertainty.

You can't really argue that is the case. But you know, the market's focus on what's right in front of their faces, and what's right in front of their faces is some good data, some easing on the trade front, and all of that is supportive of of of a good economic backdrop. Does this mean your interview with Mr Cudlow is an hour long? Now? Unfortunately he be about fifteen minutes because he's gonna want to talk this morning. Jeff, this is why it's so so difficult right now for market participants.

You know that famous line there's two types of forecasters, those that a wrong and those that don't know. They don't know, And Jeff, I just wonder if we all don't know what's going to happen with the trade story, how can we make a market cool when it's so so crucial to developments into next year. Well, yeah, you have to recognize the uniqueness of the of the trade risk in that it is inherently political, which means nobody knows,

there's no distribution, you can't really predict it. So you have to build in the uncertainty into your portfolio allocation, your process. That's what we do. Uh. And then you just have to be able to react to the change in the environment. And that's what's going on in the markets.

That's why October basically is back up across markets, is because they're reacting to the change and and and the market will be highly reactive if there's a change to the negative, much as we've seen in the pattern on the trade negotiations. They're hot, they're cold. You can't really predict it, but it's certainly is the driver right now moving markets. Jeff, before we let you go, just a word on the markets in the bond market right now,

where's the team at black Rock really focused? So we're focused on this, this recession risk notion and and and how do you build portfolio is in that kind of environment, and it's about resilience. You can't deny that there is a late cycle aspect to our markets. There is a heightened sense of recession risk again today. Yes, high frequency that's going to take some of those risks down. But the stance of where we are in the bond markets, as Tom was asking before, you know, it's on a

nice edge. And so when you're in that kind of environment bond investors, you know, we we have to play defense. That's our job in the portfolios. So that's what we're concentrated. Jeff, thanks so much, greatly appreciate your effort with US. Is on FEDS Day, FED Day with Jeffrey Rosenberger Black Rock in here today on a better than good jobs report. We are right now, just moments away Jonathan Faraoll Tom Keene sitting down with Richard Clarada, vice Chairman of the

Federal Reserve. They will be breaking down this strong jobs numbers, getting a look at what that means for the FED going forward. Right now, John Farrell, Tom Keene joining us now from Bloomberg Television and Radio exclusive interview. I'm pleased to welcome to the show. Richard Clarenda Federal is a vice chairman and my surveillance radio co host. Tom Keene making his debut on this set as well. Good morning, Jens.

It's good to see you, and it's a change. This is different than you and I expected two hours ago. It's a solid JOLS report that we thought we might have to make some excuses for maybe sixty minutes ago. It comes out a lot better and I think it would be great here. Maybe i'll take a broader chech with a vice chairman, and I know there's lots coming off of Michael McKee's first question at the FED press conference the other day. Vice chairman, thank you again for

joining us or at Bloomberg. I want to go back to a word identified with the vice chairman of the FED, and that is solid. We just had a more than solid jobs report. The President of the United States tweeting out about it a few days ago, he tweets out, maybe we need lower rates to find for us as a starter. What is the new solid that you see into next year. Well, this was certainly a very solid labor market report. As we sat in our statement, you know,

we have ongoing growth in the economy. We have inflation near our objectives, so the economy is in a very good place. You know, growth is as we've characterized growth as moderate, right Now, the global economy has been slowing and that and that's a factor, but the U. S economy is very resilient. Uh and the and these are good numbers. Both the GDP number and the labor market number surprised a bit on the upside, So that's a good thing. And those numbers, those g d P numbers,

are they politically acceptable to this nation? Is great for economists like you to talk about one point nine as a center tendency, but is that politically well, I'm not going to get into the politics tom our job at the FED. We have a dual mandate maximum employment, price stability. We've made some adjustments in our policy right we think they are and will continue to give significant support to the economy. And we're we're we're a favorable outlook for

the economy. Let's talk about the outlook, the balance of risks around the outlook right now, how would you describe the balance of risk around that outlook? Rich Well, John, I would say for most of the year, the balance of risk had probably been tilted a little bit to the downside, not so much because of the US, but

we're part of the global economy. We've got a global slowdown, there are some pretty powerful global disinflationary pressures, and as we said in July, uh in, in September, and this week, we felt it was appropriate to make some adjustment in our policy to provide some insurance or cushion against really sort of a softening global economy. You know, you saw that at the IMF a week or so ago, downgrading the global outlook. So we think the economy is in

a good place. We think monetary policies and the balance of risk that still tilted to the downside, I would say somewhat Yeah. Looking at the economic assessment of the Federals of Shaman, we're trying to understand what a material reassessment of the outlook would be to reach that benchmark for another move. Can you give us some clamority on that. What is a material reassessment of the outlook? How much data does one need to make that assess? Well, first

of all, let's remember what is the baseline outlook. The baseline outlook is for ongoing continued growth, a very solid labor market, and inflation near our objective. Obviously, if we saw accumulating evidence that we were missing on employment, we were missing on inflation, and we were missing on the growth needed to suspain full employment and price stability, then we would have to factor that in. We will be data dependent, but we're saying our baseline outlook now is

policies in a good place. The next meeting is a live meeting. Every meeting is alive. We're just trying to figure out what the next meeting actually is. Do you need a month of data to take another look at this? Do you need three months of data to take another look at this? How long does one need? Well, well, Jonathan, we meet eight times a year, and as we indicated, as we did back in October, we need to we can. We have had meetings in between. So yeah, we're just

take the data as it comes in. The data comes in. But the fact is there's an arch debate about two. America's David blanche Flower up at Darkness talks about the underemployed. It's fine, day of models, it's fine to speak is a public voice as you are now, Professor Clarata. But the truth of the matter is there's two. America's chairman Powell is addressing this with a more social mandate from the Fed. How do you address in the next year

two America's one employed fully employed and the other really struggling. Well, Tom, let me talk about that, because I think Chair Pale has has very effectively conveyed what we at the FED believe. You know, we have basically one instrument, which is to raise or lower the policy rate. So obviously it's a very complex economy. But what we do know, and we've

had these FED listened to events. We've had fourteen FED listened events this year, and what we've heard from those events is the substantial, robust benefits of having a fully employed economy, the wage gains at the lower end of the income distribution opportunity. Now, Congress has given us a dual mandate max employment and price stability. We have the privilege not to be presiding over time when we're close to full employment, and we think there's a real benefit

to keeping the economy there. So that's the way we're focused on it. But let's talk about that Joe mandate. So what de Great do you think the f X channel at the moment is hampering your ability to hit it? Well? Foreign exchange rates obviously go up and down for a lot of reasons, and I'm not going to say too much more about it than that as as a fed uhanning and let me finesse it just a little bit. Then I don't want the policy for scription. I just

want an assessment. Really, to what degree, to what extent do you think the fex channel is it currently stands, is curtaining your ability to hit your inflation? So I would not I would not say that that's an impediment to our hitting our inflation target. We had a news story out here yesterday, a legitimate reported news story on the Chinese response where they demand tariffs be lowered. Can you afform Professor Clarret of Columbia University teaching econ one

oh one, who pays tariffs? Help us with this? Right now? Let's slow down. Here's this arch issue. My chart of the year is customs collections out three, four or five standard deviations. Inform all of us, including the president watching right now, who pays for these tariffs? Well, Tom, I'm not going to get into trade policy one number two. That's a very complex issue. It involves the incidents of the tariff, it evolves profit margins, it involves exchange rates.

I have not looked into it, and I have nothing for you on that what we have them in the U S economy quite clearly. Playing into all of this is a tug of wall between the resilient consumer and weak business investment. When you look at at the moment, is it your round like that you think business investment picks up before we see a crack in the consumer or is it the other way around? How should I think about that? First of all, John, we don't see

a crack in the consumer. I've said publicly in some recent speeches that in my professional career, which goes back more than thirty years, in the aggregate, the U. S. Consumer has never been in better shape. Saving trade as high. Uh, there's been deleveraging, income gain are strong. So we don't see the consumer cracking. There has been a slowdown in

a weakening and business investment. That's a complex issue and I think it involves a global slow down and some other factors um and that's why one of the reasons why that that we decided in July to provide some modestly more accommodative policy in some sense to try to offset some of those headwines. We have seen a rebound in housing, so the housing sector is now contributing to growth for the first time in about six quarters, and so you have to look at the whole picture. I think, John,

what is a hawkish cut? That was the phrase two days ago. Could you enlighten us? We cut interest rates, but there's a hawkish tone to that. Well, we get a language of hawkish cut, Thomas. You know, I spent decades as a FED watcher, and if I were still a FED watcher, I would be commenting on that. I

can just tell you what we did do. We provided additional accommodation at the meeting, and we indicated then and I'll say again, we think that monetary policy is now in a good place will benefit from that additional accommodation and the timeline that you get from consecutive rate cuts, Well, Milton Friedman taught us that monetary policy operates with the lag. We just put these adjustments in policy in place, and so we would expect to see that begin to impact

the economy. Uh. You know, beginning in the fourth quarter and and into next year. Generally interest sensitive sectors are going to benefit. Durable goods uh. In UH in particular, you'll take Rich and the type of others at the Federals of US being that announced the protection is worth a pound of fuel. That was the argument when we were in and around two and a half percent of the FED funds. Right now we've dropped seventy five basis points.

Do you still make the very same argument or do you have a different calculation to make well again, we provided accommodation precisely because we saw some of these headwinds and we thought that account recalibration of policy was appropriate. And as Chair Pal indicated in all restate, I think and we think monetary policy is in a good place. Whether it's the excellence of Stanley Fisher, and I think a lot of people watching Vice Chairman Fisher said, who

is that guy? The same thing with you? They don't know the youre clarative of dynamic stochastic general equilibrium. It's probably just as well a lot of people would say that. The I m F did a meeting in Vienna two weeks ago where they talked about your work in this new phase of fiscal space, dovetailing fiscal policy, and do you agree with the central bankers at its time now on a global basis and even on an American basis, to find a fiscal relief to all the burden put

on monetary officials. You know, Tom, I really don't want to get into fiscal policy other than to say that, um, that's really a decision in our case for the Congress and the President. The way we conduct policy at the FED as we take fiscal policy as an input into our outlook. And I'll just leave it. Leave it at that,

we engineered a self landing the economy right now. First of all, that the growth in the economy and the prosperity of the economy is due to hard working you know, indivisuals and companies, and so that's really the source of the strength of the economy right now. Again, I would characterize the economy is operating, you know, in the range of trend growth. There's a range of estimates of train growth. What we do know is that unemployment rates near fifty

year low. Let me also say that there's we saw a good indication on wages in this report. They're picking up. I don't see we as a FED don't see wage inflation as a source of concern. It's not showing up an excessive price inflation. And let me say one more thing. The share of income going to labor has increased in the last several years plus three years or so by about two percentage points. That's not getting enough attention as

it deserves. And so as this economy expands and prospers, we do see those gains going to labor and I think that you know, that's a positive development right now in the range of train growth that was already of response. What is the range of train growth and what do you think train growth is? Well, you know, we we have a summary of economic projections at the at the FED that we released four times a year. There's a

range of views on that. I think the current median of the group is one point seven at one point eight percent. Suffice to say, I'm more optimistic on trained growth than the media. Why would you put it, Well, there's a customer at least among the governors of not revealing our dots. But let me just say, I'm more optimistic than the media. And do you think they can get back to those levels? Well, productivity is a function of not only innovation, but capital investment and skills in

the labor force. But I have said an I continue to believe. I think that we've seen a bottoming. We had a really slow stretch of productivity growth through about a decade, and I think it bottomed out about three years ago, and I think that is a positive. Does the economy lead productivity or does productivity lead the economy? You know that's the sixty two or two next year. Okay, let me ask you, this mid cycle is all the vogue I mentioned Hawkers cutting. You wouldn't give me an

honest answer on that. Give us a the British short term, medium term, long term? What in God's name is mid cycle? What is that signal to our viewers and listeners worldwide? Well, let me focus on what late saw CCLE is late cycle as you think a recession probability is elevated. All right, so you're not We're not late. We're not late cycle. Let's just say we're not late. It's the mid nineties parallel to what we're experiencing now. A good comparison? Is

that useful? I think no parallel is perfect. Circumstances always differ. But I myself, in several comments, including in interviews on this station and speeches, have made reference to the to the episodes because what they illustrate is that one will one Central Banks under the leadership of Vulkeran Greenspan. Once you achieve price stability, it does give the central bank more ability to be nimble within a business cycle to adjust and recalibate rates. And we saw that under Chair

Greenspan in the nineties. Uh and I think in retrospect that was a decade longer expansion and that was certainly a positive support for that well said, But we are now near the zero bound, worried about Japanification, worried about Jon Moens that uh, JP Morgan talk in about a vector of the ten year you'll down give us some comfort that that dynamics in the nineties can work here

so close to the zero bound. That's a very good point, Tom, and that is a difference from the nineties, and that rates were starting from a higher level then you know, we we made the decision as a committee in July, September and October, understanding where rates are now, where the economy is, that it was appropriate to provide this accommodation.

My my good friend and colleague John Williams at the New York Fed had done some very important work on thinking about how to do monetary policy near the zero bound. And what I've said many times in my professional career going back twenty five years. Is policy has to be forward looking because of the long and variable lags. If you have an opportunity to adjust policy to offset shocks, you should take that advantage of that. And that's what

I think we've done. What's the trade off the rich, Well, the trade off is monetary policy is more art than science. It requires judgment, It requires a humble understanding that our models aren't perfect. Um. I you have to put all of that into the mix. But again, just let me say I'm very happy with where we are now with the stands. Amne, you sound pretty optimistic about the U. S economy. I've got to say that's my psycho end

of FUS fifteen minutes of this interview. I am an opt My mother and father raised me to be an optimist objective that objectively, the economy is in a good place. This is the longest this is the longest economic expansion in US history, going back to the eighteen fifties. Unemployment at a fifty year log, inflation near target, and our focus at the FED is solely to put in place policies that helped to keep us part of it in the clarative charm is you're from Illinois. You've got a

different few hubbards from Florida. Claratas of Illinois many others. Is a wonderful geography to our and were and we're both the sons of public school teachers. Well, okay, we'll go with that as well. Good morning to all the teachers there. But I'm going to say this right now, there's a different view in the Midwest. Right now, it's a Midwest flat on its back because of these tariffs and agriculture. It's a Midwest flat on its back from

manufacturing euro Upe to mystic. As John mentions, you mentioned the words solid, but it's only solid to a part of America. How can authorities and the Fed drag the rest of America somewhat flat on their back into a better America? Thoma's a good point. As I mentioned a moment moment ago, the Federal Reserve essentially has one policy instrument, which is to raise or lower the policy rate. It's a big economy, three million people, fifty states, UH, and

there are a lot of dynamics at play. UH. And we're humble in the ability of our tools to really focus on the overall aggregate um economy. I'm obviously cognizant of those concerns and those challenges, but we're just trying to stick and do what we can to contribute to where the economy is right now, let's explore the optimism just a little bit further. What is it about the current economy that differs from the middle of this year

when the right cutting cycle the adjustment actually started. What you take more confidence in now that you didn't see this year? Well, what I would say, Johnathan, we've done the adjustment. I I would be less oftenistic about the economy if we had not made those seventy five basis point adjustments. And so I think the optimism is a context of where policy is relative to relative to the headwinds,

and I think I think that's been born out. Some folks were talking about the consumer is going to turn over, or you know, the labor market. I mean, going into today, how many UH speculations did we see of a terrible labor market report? So that third quarter data came in as on you know, on the upside surprise, and I and I think you factoring in what the adjustments we've made in policy is a is an important part is this confidence in the economy that will in the policy setting.

The hard data on the economy is the economy is resilient. Our baseline and I think shared by many others as the economy will continue to be resilient, certainly compared to the situation that you see in Europe and another uh other countries. I mean it's a it's a global challenge as well. We kid about Chairman Paulos Central Bank or the world. Let me have you be vice chairman Bankers to the world right now. The United States must lead with a solid banking system, Bernanky, one oh one. The

United States must lead with a productive productivity differential. Is that at risk right now with a political turmoil The headline of the paper of the New York Times today bringing me back to Watergate of the seven piess as well within the stew that we're in, what's the leadership the FED can provide to get us the two thousand twenty and again, we have a time, we have a very clear specific mandate from Congress. We don't get into politics.

We have we have our tools, and we're trying to use the tools to keep the economy um in a very good place and I'll just leave it at that. You find it gets more difficult to adjust monitoring policy and narrowette right sauce lower broad It is a factor that you have to consider. We're part of the US as part of a global capital market. Capital flows in and out of countries. When rates are lows of rates are low abroad, capital flow is into the US. That

has implications for financial conditions. Uh in in the US, and rates are lower abroad for a reason, and they're lower abroad because growth is disappointing, and that also has an impact on the US. I'm gonna I'm gonna go to leadership again. We spoke Boomberg Surveillance spoke to Berry Icon Green of Berkeley the other day is archbook Globalizing Capital. What does the globalizing message our central bank can do to provide leadership to Coronto La guard Carney, but more

importantly emerging market bankers as well. What is the to do list globally for this central bank? Well that that

that's an ambitious question. I think what we're focused on is obviously the dollars a very important part of the global financial system, and I think the most important thing that we can do is to keep keep price stability as an important part of our of our goals and achievements UM And certainly we can go back to the nineteen seventies, the US was not providing leadership with high involved in place, and we gonna important here and this

is really important, folks. As we speak to Richard Claire, to the vice chairman of the Federal Reserve System, there's John as you and I cover every day, this path over decades. Marty Feldstein, the late Martin Feldstein telling me two decades ago about this persistence in Japan, and then it comes over to Europe and now the fear not here as it comes over to us. We talk about current market helps. Why they say some Q eight I get so many paper around this table that either scream

it's que and then they scream it's no qui. Why is this no qwik, Well, it's not que, John, this is really central banking one oh one. Historically, central banks, well before the Qui era, grew their balance sheets with purchases of short dated treasury bills because there's an in as economies grow and prosper, there's an increase in demand for central bank liabilities, and the central banks did not organically grow their balance sheet. That would create a liquidity problem.

So this is not qui QWI was really targeting the long end the yeld curve, tenure treasuries, thirty year mortgages were basically just buying tea bills right now and adding liquidity to the financial system. So it's not cure. You confident you can continue buying tea bills reach your objective without coming down further out the curve. Can you do it all three tea bills? That's what we said we we we believe that we can do it through T bills.

We've indicated in the announcement we made in October eleven that we will be adding T bills to our portfolio at least through the middle of next year, and we're confident that that's the right right course. Well, at the New York Fed, John Williams and the team, they have

to manage this on a daily basis. I know you said you don't want to talk about the fiscal dynamics of that, but do you have a different set of challenges with a nine hundred billion plus deficit and the vector of that deficit as you manage the T bill and further out repo market. Tom, I don't think it's a challenge, is just obviously something that we have to factor UH in, and under John's leadership, you know, we're certainly on top of that. Richard Clamored a special thanks

to the Federal Reserve Vice Chairman. Is good to see you again. It's going to see rich Thank you very much. The conversation continues on this program. I'm pleased to say that from the White House. For the view on the job report from the White House, I'm pleased to say Larry Caudlow joins US National Economic Council Director. Good morning to Larry, Bryan Javan. Thank you. It was a much

better jobs report than people expected. Your assessment, please, well, look, it was much better, and when you do the accounting across the board, you gotta look under the hood. Actually it was a three hundred and three thousand increase in non farm Paerill jobs. If you go through this, you start with your base case unadjusted a hundred thousand. But but but but the prior to months were revised up ninety five a thousand, So that gets you to two

twenty three. Adjust for the GM that's sixty add that back and add the UH. The census takers back your three hundred and three thousand. It's a remarkable number, and I want to say it kind of confirms you and I have spoken about this in recent months. The huge strength in the household survey, which add another big month two hundred forty one thousand, that often is a leading

indicator for the payroll survey. That's what we're seeing. The labor markets in the economy fundamentally are a lot stronger than people think. Here's another one for you that I want to get out two hundred and thirty five. I beg your pardon. Three hundred and twenty five thousand. Increase in the labor force three hundred twenty five thousand. Now that's been in a steady uptrend, and it tells us you've got a lot of people coming out of the woodwork.

They're returning back to the labor force, probably attracted by good wages. You know the nons provisor reproduction wage increase twelve months three and a half percent. That's better than their managers who were running about three. So these numbers are across the board virtually a blowout number, I think, quite unexpected. Don't write off the economy just yet. I'll tell you it's got a lot of fundamental strength. Really really thinks some Lowry and most people would agree with you.

We get the ice manufacturing to run about six minutes, so maybe and I, you and I could talk about that in just a moment. Let's talk about trade reports of a cool happening today between US and Chinese trade negotiates. Lowry, could you tell us a little bit more about what you'll be discussing on that's cool? Uh, Look at our lead negotiators, Treasure Secretary Manution, Trade Ambassador Laiheiser. Are they made at this point? They may be talking as you

and I are talking. In any event, they're talking with Vice Premier Leu China. The trade talks are going very well. If you look carefully at the comments coming out of the official organs, the Financial Ministry, the r In Ministry, the Commerce Ministry in China, they're all very upbeat, very positive, the very productive talks. You know. Um, I can't go into deep details, obviously, but but I can't say this.

The chapter on agriculture is virtually completed. That's not only the forty to fifty uh billion dollar increase in agriculture purchases but also market openings, lower non tariff barriers, very very important. The Financial Services Chapter is virtually completed. That will provide a hundred percent ownership for American banks, security firms, insurance firms operating in China. UH. The Currency Chapter is virtually completed. That will provide for currency stability with obviously

safeguards against manipulation. The Intellectual Property Chapter, we've come a long way on that. I don't think it's been completed. It's still under discussion, but we've made very good progress. The deal is not completed. The deal is not done. There are issues to go on enforcement that's gonna be very very important. There will be issues on forced technology transfer, very very important. Those may slip into Phase two, but

I will tell you we've come a long way. President Trump himself has indicated a desire to complete this phase one deal. President She has indicated likewise. As you know from your own reporting, there's been there's now a new search for a new venue where the two leaders can meet because the Chilean thing, the APEX thing fell through at Santiago, So we'll see. But again, it is not completed. I'd be perfectly honest about that. But enormous progress, very

constructive talks which are continuing today. Let me the mid music is much better over the last two months. No one would deny that. Just want me through the specifics though. What is holding us back in Phase will, what's left to be agreed, what's holding you back? I can't be too specific, as you might imagine. Uh, I'm gonna let our brilliant negotiators do their billity negotiating. But as I said before, I went through the different chapters. Agriculture chapter

looks good, Financial services looks good, currency looks good. Intellectual property theft much improved, Okay, still much more work to do on forced tech transfer uh and UM enforcement is very very important, very very important, and that's where they'll be working on. So I don't want to go any further below that surface. All I'll say is we've come further than we were last May when we thought we

you know, had of the deal. UM. President Trump himself, I believe yesterday suggested that Phase one would be perhaps of what we hope ultimately to get done. But the outlook for Phase one is very positive right now, and you can see it again. I encourage people. I know there's a lot of reporting that goes on, picking up snippets here and there. I myself just like to look at the official statements from the key Chinese ministries. Those

statements are very positive. Jonathan Threa, December tariff hikes still on the table. Larry Well, they're still on the table until this Phase one deal is completed or or worst case, not completed. I don't want to speculate. That's up to President Trump how he's going to handle that. But the President has hinted that depending on the process of Phase one, he may be willing, I say, may be willing to

take a look at those tariffs. As you know, we suspended some other tariffs as a good will gesture and a negotiating gesture. I think that's also the good So I don't want to speculate on how it will work in December fift or later. That's all a part of these negotiations that are ongoing. I don't want to speculate either. I just want to understand what the concessions are that the US administration want from the Chinese for that December

terrifying to go away. What are the specifics? Well, again, I can't repeat the laundry list As I say, the chapters I mentioned before all going very very well. But there must be something specific, Larry, that they haven't followed through on to make the threat of December terrifyings go away. What is it? I can't talk that way. I can't

go that into that kind of depth. Um. After today's discussions between Minutian Liehiser and Device Premier, Um, perhaps the Secretary or the ambassador may wish to reveal that or not. It's not my role to do that. Remember, of course you have these teleconference meetings. They go on for quite

some time. The deputies have been meeting. But of course, Um, all of our trade group, the so called Principles Trade Group, of which I'm a member, we will report to President Trump, and President Trump is going to make those final decisions. The President makes the final call. We expect he always will. We've reported this week that's some of the thornier issues to be down with in safe Phase two, the Chinese just one. But John, Larry, are you confident Nate will?

And what gives you that confidence? Um? I didn't, you know. I don't want to speculate on that job than to be honest, because the way I look at it. The fact that we're in this Phase one is itself a big breakthrough, and to some extent that was a concession by President Trump. Rather than go for the entire which you might say a grand slam home run, better to look at it in segments, in phases. That was change

and the president's thinking a couple of weeks ago. It was recommended to him by the Trade Principles Group, and it came from successful negotiations when the Chinese were here a couple of weeks ago. My view on these things is not to try to predict long term. My view is let's stay right here and now and look at what's in front of this on the Phase one agenda, which I have done my best to outline to you, I don't want to speculate on the long run. I

think look negotiations. If you ever been involved with him, good things beget other good things, or vice versa, bad things beget other bad things. The way I see it and my I'm doing my best to report this to you without divulging too much. But the as the mood music is good, the negotiations are going well. You see here here's the thought. Let me give you one additional thought the official statements from China. I know I mentioned

this a second ago. Let me repeat this in the past, in the past, going back, I mean, I've been here on two years doing this NonStop. Many times we had a more optimistic view, but then we would get statements and commentaries from officials in the key Chinese ministries that suggested not so much optimism this time around regarding Phase one. Please note how optimistic the Commerce Ministry, the Foreign Ministry, the Finance Ministry, and their leaders, how optimistic, how positive,

the constructive they have been. I use that as a leading indicator. Jonathan, So, I don't want to get ahead of this story. I don't want to predict. All I'm saying is the Phase one talks which are here right before us, and which represented a change in the entire framework of negotiations. Those talks are not complete, but they

are going well. Let's talk about leading indicators. The I M just down forty eight point three downside surprise sub fifty pretty much every industry to halve out of eight team reporting contraction in October, Larry, can you see how this tension between the United States and SHAW starting to bleed into the manufacturing segment? Of the US economy. Well, look, I think there have been in fact impacts my own views. I think you know that the impact on the US

economy has been minimal. The impact on the Chinese economy has been much much greater for a variety of reasons, um perhaps four times as much. Look on the manufacturing members the market, I s M was a better number than this I s m UH. Today's jobs report, by the way, when you adjust for GM, actually showed a twenty four thousand increase in manufacturing jobs. That's the best number we've had in quite a while. One of our problems, though, Jonathan,

is a European recession. We export a huge volume of manufacturing related sales to Europe, and Europe, as you know, is virtually intercessions completely flat. That has hurt us a lot. So that and of course, as we've discussed the headwinds from severe, severe monetary tightening, particularly last year, I think I've hurt that sector. Now, monetary policy fortunately has finally

turned around. It's moving in the right direction. The target rate has come down to what one and a half three quarters, The YEO curve is normalizing, the balance sheet and the monetary base are expanding. So those are pluses. So we've gone from extreme tightness to a somewhat more accommodated position. That's good. That's gonna help. Manufacturing is gonna help everything. Um, the European story is a dragon manufacturing. But my hope here and again these jobs and numbers.

It's three hundred and three thousand blowout jobs number today. I think our economy is stronger under the surface, and folks think ye. I think business investment is going to be on the way back. I think on trade where there is uncertainty, I grant your point. Um, China looks better. U S m c A still looks good. Reports from Capitol Hill are very good on U. S m c A, UM, Canada and Mexico obviously our gigantic markets for our manufacturing, exports and so forth, so that's going to be very

helpful as well. So let's see, let's play this thing, you know, day to time, month at the time, and so forth, lotry. Most people would say that the European economy is slowing down because of what has happened in China, and what has happened in China is because of the tension between the United States and the Chinese but you and I could go back and forth from that, I'm sure for a long long time. Do you want to deal with a little bit of business with you? Fear

Christman per Show and that's a merger this week. Per Show is owned twelve owned by Don Fang, a Chinese motor corporation. I'm just wondering, is the United States the your administrations taking a look at that deal? Uh? Not yet, I can report not yet. We will obviously look at it very very carefully, but not yet. What's the president set? President has not commented on that deal. You think, Larry, it's worth having a look because of a sensitivity around

Shanee's own companies. This would be one of the big Detroit car companies in the United States, owned essentially by Chinese Mode of Corporation because of its ownership of Puja. We'll take your carefuital look at it. Look, m we want to do business around the world, providing that it's to our benefit, the United States benefit. I mean, I

presume the other country too. But President Trump is here to defend the American economy and the American workforce, so we're not afraid of do in business with their national companies. Lord knows. With respect to the Chinese story, we obviously are alert and on guard. We have to make sure that whatever China business developments occur do not occur to the detriment of our not only our economy, but our

own national security. Hence the idea of having sensitivities. As you know, we have export controls, we have an entity list, and now this automobile deal probably won't be part of that entity list. I don't think that would qualify, but I don't want to speculate that's a Commerce Department decision. Secretary Ross himself will be looking at that, so I don't want to go too far. So I'm just saying

we will welcome a good deal. We hope it gets more production in the United States, more production in the United States, more factories and workers and employment in the US, and with respect to the Chinese angle, we will take a very careful look at it. Larry, it's almost great to catch up. You appreciate your time today and you've got a busy one over the White House with the

tri tulks going with the Chinese. Your National Economic Council Director that Larry Caudlock joining us from the White House. 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