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Let's get back to Friday's blow out payrolls report, reshaping FED expectations for the rest of the year. Torston Slock of Apollo saying there's no need for cuts. Quote the feedtest cutting rates, which is boosting growth and inflation. Further, combined with very easy financial fiscal conditions, the bottom line remains that rates will stay higher for longer. Torston Slock joined just now for more. Torston, good Mornic morning. You quick your breath after the victory lamp around a studio tape.
It's good to see, sir. How did you feel on Friday when that number drops?
Well, I think it makes sense what's going on. I mean, as you just talked about, it's not clear that the data has been slowing down. GDP last quarter was around three the land of FED GDPN now for this quarter is around three. And if you take this combined with broadly speaking, strong data on consumer and durable goods, it makes sense that the label market is also still hot. It never made sense to say, oh, the economy is good, but the labor market is bad. You can't have it
both ways either. It's good in the economy and good in the label market. You can't have that economy is good and the label market is bad. That just never made sense. So that's why, given the economic data coming in the totality of the data, as jfl would say, I still think that it's very obvious that things are still chogging along.
Well, let's say on the totality of the data. So these survey data last week, the MS employment components are not fantastic.
Well, the service headline was still good.
Well, we can get into that in a moment. The Jolts as well. Look at the Jolts job openings were wrap, the hiring was down, the quits rate was down. If things were great, you'd expect the quits rate to still be elevated, if you'd expect hiring to be elevated too. Some people have pointed out that maybe this is inconsistent with the broader data. What do you think back to them.
Well, I think that was going on in the job survey is really a normalization because if the job survey, we also have that the layoff rate is still one, the layoff rate has not gone up, meaning it's not the case that companies are firing workers. You know, on the other hand, just seeing a little bit less hiring,
so that's just a normalization and coming combined. Of course, we're still steady immigration and at the same time tail wins from defense spending, from AI, from energy transition, and consumers that are not very sensitive to interest rates going up because of locked in low interest rates. We still have some fairly strong tailwinds to the outlook and less sensitivity to what rates are doing. So therefore it still makes sense to believe that over the next several quarters
the economy will do just fine. Well.
It's that sort of thing that's allowed a lot of critics to look at this decision in light of the jobs ada and say it was a mistake to go fifty. But Torsten is their world where this job support wouldn't have looked as strong if they didn't go fifty. That it helped maintain strength in the labor market and reinvigorate confidence.
Well, the key issue, of course, as usual, is what are the long and variable acts. The FED textbook would say that's twelve to eighteen months before anything starts to show up. But as we know very well, this stock market is now becoming a very important indicator for companies in terms of are we doing well, We're not doing well. She were hired, she were not hire. And given the significant tail into risky assets, credit spreads are very tight, both on it high yielded loans and also when it
comes to the equities going up. All that made actually exactly imply that we have had faster transmission of Marnin Sarry policy because the signaling, the forward guidance has been coming through much quicker than what the textbook would have predicted.
Does that suggest then fifty was a mistake.
Well, Jay Powell said at the press conference ten times that they did this to recalibrate monetary policy, So there was a lot of this time. Of course, the discussion as of course also you guys had a lot of hear about why did they do this? What's recalibration as an excuse, And of course the excuse was inflation has now come down, but given that the economic data is still strong, it really is goldilocks with inflation back close to two percent and the economic data just continues to
power along. So that's why the Fed is now stuck at a situation where they need to say, well, should we look at the economic data as you just said before, Danny, or should we turn to inflation and say maybe inflation is a risk of moving up again. Well, look at the.
Totality of data, and Jonathan pointed out that some of these actually are going in the wrong direction. Besides this one unemployment point that was a blowout. Do you think the Fed will air on the side of cutting too much rather than cutting too little?
Well, the Fed has definitely had a tendency that the risk to the unemployment rate for the last five years has always been in their view that it would go higher. So that's why very important discussion on that is, of course the world where do they put the emphasis do they put the emphasis now on? That is not really only the Joel's data that's weakened. It's also a number of other indicators that have shown slight weakness when it comes to some specific small areas. But the vast majority
of the data that comes in consumers. In the daily data, you're still seeing restaurant data very good, TSA data for travel still very good. You also have the depit cand data from my Bloomberg screen and spending on the daily data is also very good. So you have across the board a lot of indicators and still continue to be really moving along quite nicely. There is just no slowdown. It's very clear that the Joe's data stands out on its own as a very special story.
So November seven, what do you think the FEDS should do and what do you think they will do?
Well? The problem for them now is that they have pre committed themselves too much to our star and to rates going lower. So that's why I do think that they will cut twenty five basis points. But the key issue here is that all the incoming data being so strong, is telling us that maybe US star. Why it's not three percent, which is where the FED is saying it is at the moment, maybe this is more like four and a half percent, which we do in our own
command fielders are estimating where it should be. So that's why we think that we are not too far away from the monetary policy stands currently being.
Close to neutral.
So if that's the case, we don't need a dramatic amount of fat cuts, which has been even also put into the dot plot by their INFORMC members themselves.
Do you sound vindicated? Do you think Government Bowman is as well? On the FMCRE she got any company.
Well she was the lone descent, of course, saying well, we should not have cut fifty. I do think that we've got a lot of FED speeches today, including Alberto, a Muslim here at the New York speaking of course. But all that ends up, in my view, being very very important for us to see are they backpedaling now? Are they backtracking from this or we need a lot of cuts. Well, maybe we don't need a lot of cuts because the incoming data continues to just be strong.
They say they're not in a rush. Do you believe them?
I do believe them, because think about what creates recessions. In twenty twenty, the recession was caused by COVID. Of course, that generated recession Lehman Brothers. Of course that general recession, recession s and P five hundred went down fifty percent. That generated as shallow recession. And prior to that we had the commercial re state crisis and the savings alone crisis in nineteen nineties. Of course, that generative recession. But where is the shock today? Where is the shock that
should generate a recession? The only shock is we've had the FED raising rates, but that been countered by now Ai spending, defense spending, fiscal spending. So that's why mars Her Pauls has not been as restrictive as our textbook would have been saying. So that's why our textbook we should probably put that more aside, and that's probably still a good recommendation for the FIT. Let's put this textbook aside and look at the incoming data. And incoming data continue to actually be strong.
So if the neutral rate isn't as low, if monetary policy transmission when they're cutting is happening at a quicker speed, what will be the implication of them continuing to cut into strength.
Well, the challenge is that we still have the tail we's from very strong spending from the Chips Act, the Inflation Reduction Act, the Infrastructure Act. We also have very strong tales from AI spending. I mean, no one you meet says, oh, I'm not going to invest in AI because the FIT has just raised interest rates twenty five bases points. Everyone still wants to invest in I and in this transition, we also had that as a strong tailwind.
And finally, also de globalization, the industrial renaissance, the construction of manufacturing plants in the US is also a strong tailwind. Those are things that the FED can't really control because are the stories that we talk about in markets at the moment. So in that sense, Marcarry Paul's is just unusually weak in terms of having a negative impact when rates went up on the economy coertion.
Does the market still also have the tailwind of the fed's first pivot of December twenty twenty.
Three, Absolutely, because in December, as we all remember, they clearly said now rates are going down, and before that there was very little activity in IPO, in IT issuance, high issuance, loan markets, everything was relatively weak and portly speaking, at a state. Still after the December pivot, they really have seen a significant opening of financing markets in all directions. And that's also exactly as you're saying, and Marie provided
a very strong tailwind in easy financial conditions. And therefore, now if you are a company that want to do something in private credit in private equity, a lot of more things aren't just passis of all relative to what we had earlier.
Toston, it's going to see a wonderful to catch up. Congratulations, so far, so good. After Friday, Torston Slock of Apollo