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Torson' slock of Apollo got two benefits there. One he got an extra twelve minutes to go over all of this, and two might be key setting them up perfectly because Toaston New just sound there nodding, you agree, don't you?
Hundred resent? I mean, let's look at the numbers. Non fine pay roles in August was better than in July. The unemployment rat in August was better than in July. Average arlie earnings higher than in July. And you look at average weekly hours also better than in July. I mean, this report is better than in July. This economy is not slowing down in the way that markets anticipating we will not get eight cuts over the next twelve months.
Here you should instead look at this report as this is really telling you that there is a soft lending.
So help me with this. In October, when we look back at this report and we get another revision, a downward revision, don't we have to reframe some of this conversation and just say everything gets keeps getting revised lower. This is Leasta's point. Over the last few days, this economy, this labor market is weaker than we initially thought.
It was. GDP in the second quarter was three percent. It was just revised up. Jobless claims continues to be a good. Continuing claims was also good. If you look at the daily data for how many people go to restaurants, how many people fly on airplanes, the weekly data from Redbook on retail sales, if you're going across the boat on bankruptcies, if you're going across the boat on credit card spending. In the aggregate, the growth data is just
not showing signs of a slowdown. It is true that the label marit is weakening, and yes the dual's data has bidding a little bit, maybe more imbalance, as the fit would be saying, But this whole notion that the economy is slowing down rapidly, it is completely misguided.
What I thought was fascinating.
I was speaking to a number of retail executives at this conference this week, and their biggest question was what's going to happen with the consumer.
They didn't know, they had zero visibility. Even though you.
Are seeing some trends and signs of robustness, some signs of weakness. They said, Ultimately, it just depends on whether they have the money to spend. These labor market reports are raising a red flag for a lot of people, saying if they lose their jobs, they won't How fragile is that sort of happiness that you're describing to a scenario like that.
Certainly, if we do have a rise in the un aplant rate, so that's not what happened there on Empliner Way and down, it would become a problem. But if you also exactly as you know too well, look at what they did say the retailers during this earning season, target Set, no sign of a slowdown, Walmart, no sign of a slowdown, and also Costco no sign of a slowdown.
You saw dollar general. Some parts of consumers are under more distress, but broadly speaking, looking at retail sales both the monthly, the weekly, and across the board on credit card data, there is just no sign of a sharp slowdown.
So the bottom line in this discussion is that you only get a recession when you have a really big shock to the economy, and that makes sense of course with COVID human brothers going under of course, the bust of the IT bubble in two thousand, But this is not an exogynous shark with something coming from the outside. This is all engineered by the FED trying to slow
things down. And now the Fed is telling us that they're about to lower rates, So that's about to counter some of those negative things.
We get another headline from the Federal Reserve Mi McKay from the neo FED President John Williams.
Yeah, John Williams is saying it is time now to join the party. He is not commenting in his prepared remarks about today's numbers. Of course he wouldn't have had them ahead of time, but he does say it's time to cut rates.
Excuse me.
With the economy now in equipoise, which he titled his speech that means in balance and inflation on a path to two percent, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the Federal funds rate. So the guy who's vice chairman of the Open Market Committee is saying we're going to cut rates. He's not yet talking about by how much, but there.
Is a Q and A so we'll keep an eye on.
And apparently uns Athosaurus for the New York fat tossin slock, What do you make of that? What are you looking for? From Kamanawalla?
So I do think Waller will also give some more guidance in terms of what's going on, at least with a bigger economic picture. But I don't think that he will tell us much about whether this is twenty five or fifty. It requires probably a very important debate given the spectrum of where if MC members have been recently in their speeches, some are clearly saying some are even suggesting we should have much fewer cuts over the next several quarters, and others, of course are suggesting that we
should go much faster. So I do think that they need to gather in the room and think hard about do we want to go towards twenty five or fifty? I would say, and I would agree with the Mike that twenty five is the right now. But given that literally everything in this report was better than in July, would it be.
A policy error though to go by fifty?
See that opens up the debate about our sty and how far do we need to go down if our star and where we need to go to and ultimately so real rates plus inflation, if we only need to go to four and a half. We're not far away from that, so there's no rush to lower rates. If we do need to go all the way down to two and a half or three, then there is certainly
more of a rush. But given the incoming data across the board is still good, why is there this rush to cut rates or traumatically other than the our star framework which says that we got to get going.
Jackson Hale speech was all about understanding the effect that FED policy has in the overall economy.
The conclusion was, we still don't know.
We don't have a sense of exactly how quickly it gets sort of transmitted in how much of the lag effects that we're starting to see. There is an argument if you cut rates more aggressively now you can get ahead of some of the lag effects that we haven't yet even seen.
Why don't you give credence to that?
Because there are three very important reasons why we did not get that slow down that we all anticipated for so long throughout twenty twenty three. Remember they started hiking rates in mants of twenty twenty two. First, of all, consumers and firms had locked in low interest rates. AI investment has been very strong and fiscal policy has been a huge tail when all these things combined have been the key reason why the economy has not slowed down,
and those things actually still in place. A lot of people still, of course have low interest rates in mortgages, it investment, greade credit fixed rate also very locked in for a long time, so that means that if you do start cutting rates, it's actually the transmission is also going to be weaker. On the downside, it was weak when you were raising rates, it's also weak when you're
cutting rates. So because of that, AI investments still strong, fiscal policy from Chips Act, Inflation Reduction Act, and infrastructure acts still strong. All this argues that the data will just continue to be steady over the next several quarters. There is no reason to expect this to be a hard landing. There is no exctanness shock similar to what we have seen during previous recessions.
Chirstan kruglebaks the revision for a second. If you take off the twenty five thousand we took off last month, and you do here for August, you'd get one seventeen. Would you still feel this way if it printed one seventeen?
Sure? Of course, the revisions are very important because we have seen some modest slow down, but broadly speaking, the data was still better than what it was in July, so taken as the overall picture of him, particularly with the un aploiner rate, which is especially important when you put that into your tailor rules and try to figure out what should the reaction function be from the fit And that's how all the regional feds prepare the forecast. And if there on a planinar rate goes down, it's
hard to argue why they should be going fifty. To go fifty, you need some very excuse me, academic argument about our star and you've got to get going with low rates very very quickly. And the question is with the incoming data being so strong, it's mon up rypolsia really so restrictive. It doesn't look like it's restrictive. If it was really restrictive, the important report would be a lot weaker.
Pause because this is exactly where I wanted to finish with you. You're saying five point fifty still not that restrictive for this economy.
So if ASDA, if where we're going in the terminal rate is four and a half, it's five and a half far away from four and a half. I know we, excuse me, have been somewhat not quite brainwashed, but very distorted by a lot of fmcemen. Was continuously saying we
got to normalized race, normalized raise, normalized rates. But let me ask you this, John, if we really had restrictive monetary policy, why have we for two and a half years and counting, still been getting very good economic data, including GDP in the second quarter at three percent.
The lassage is so longer, they might say, the lags are just long.
It should be the reason for that. The tailwinds from AI continue to be strong. The tails for fiscal policy is still strong. We have locked in low interest rates for the consumer and for corporates. Where is this very significant transmission of monetary policy.
We sit here and do this again a year from now, We'll do it before then. Don't worry. In twelve months time, where do you think rates are. They've got a four handle, they still got a five.
I think that they will be much higher than what the market is pricing at the moment. Because this is not a shock that is generating a recession. Why haven't we had a recession for now? Thirty six months in counting.
I mean, it is really the case that the economy and the economic data has just been much better than what literally any model had predicted for the reasons that I just mentioned, name be locked in low interest rates, tales from fiscal policy, and AI spending being completely independent of whatever the Fed is doing.
This is box office and we should do it again next week. Tosin sluck and looking forward to it. Tosson' sluck of Apollo, Thank you very much,