Lots More With Skanda Amarnath on This Moment in Macro

Right now, you could make a good argument that inflation is still too hot, and that with the stock market booming, and the unemployment rate at 4.2%, that it's crazy to think about cutting rates. You could also argue that much of the economy is stalling, that the pace of job growth has slowed dramatically, and that with housing in the tank, we need lower rates. Then on top of this situation, layer in the fact that we have this weird bifurcated economy, with the AI sector growing like gangbusters. And then add onto that the attacks on the independence of the Federal Reserve coming from the Trump administration. And furthermore, trade policy is still a moving target. To make sense of this complicated time — and to look ahead to next week's Jackson Hole conference — we speak with Skanda Amarnath, the executive director of Employ America. Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 0:58Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:39Speaker 02

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• 2:13Speaker 03

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:19Joe Weisenthal?

  So here's why I'm so confused right now. Like if someone said to me.

• 2:22Tracy Alloway?

  Just one reason.

• 2:24Joe Weisenthal?

  If someone said to me, look, you know, the economy is slowing down. Clearly, job creation is in the tank, is decelerating, housing is in the tank, et cetera. There's a bunch of sectors that are soft. We need rate cuts. Okay, that sounds good. Inflation has come down quite a bit from where it was, but it's still elevated. And then if someone said, look, the stock market is at record highs, PPI just came in super hot, inflation is still above levels, et cetera. Are you insane to even be talking about rate cuts? I'd be like, oh, yeah, okay, that makes sense, too. Like, I find many kinds of arguments to be very persuasive right here. I don't have a strong views.

• 2:58Tracy Alloway?

  I'm not one for hyperbole. I try not to be, right? I try to be a good journalist in that sense. But I would honestly say, like, this is one of the most difficult macro environments to call in probably my professional career, which is longer than I would necessarily like it to be at this point. But as you said, if you look at the stock market, which feeds into financial conditions, right? Look at financial conditions. Like, financial conditions do not look that restrictive at the moment. And yet, you do have people who say that actually, we are still in restrictive territory and the labor market is weakening, as you said. And so we need a rate cut. So we have this one body of people who are talking about a potential Fed policy error. And then we have another body of people, including people

• 3:39Tracy Alloway?

  from the Trump administration, who are talking about the need to do a 50 basis point cut in September.

• 3:44Joe Weisenthal?

  It's totally, you could make the argument that the Fed is either committing a policy error now or contemplating a policy error. Then there's this whole dynamic with the fact that we know that there is this one incredible thing going on, which is all the AI spending and how that actually intersects with macro is very confusing. So we have Jackson Hole next week, which we're going to be at.

• 4:04Tracy Alloway?

  I'm excited about Jackson Hole. So the scuttlebutt for journalists going to Jackson Hole is that apparently, like, the rooms are even higher demand than normal, because behind all the macro debate, which we just laid out, there's also the question of Fed independence, right? So interest in Jackson Hole is like higher than it's ever been.

• 4:24Joe Weisenthal?

  It's going to be a big Jackson Hole. Whatever the formal theme of the conference is going to be, you know, there's going to be some academic theme coming up. Whatever that is, that's not going to be the theme. The theme is going to be all of the talk about Fed independence.

• 4:38Joe Weisenthal?

  I did a dead list.

• 4:39Tracy Alloway?

  I am both the most popular trader and most successful trader at Citadel.

• 4:44Joe Weisenthal?

  Fed is going viral.

• 4:45Tracy Alloway?

  Uh, barges.

• 4:46Joe Weisenthal?

  This is an after school special, except.

• 4:48Tracy Alloway?

  I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork preserve in the US.

• 4:54Joe Weisenthal?

  Black gold.

• 4:55Tracy Alloway?

  These are the important questions. Is it robots taking over the world?

• 4:58Joe Weisenthal?

  No, I think that like in a couple of years, the AI will do a really good job of making the Odd Lots podcast. One day that person will have the mandate of heaven.

• 5:07Tracy Alloway?

  How do I get more popular and successful?

• 5:10Joe Weisenthal?

  We do have. The perfect guest.

• 5:13Tracy Alloway?

  You're listening to Lots More, where we catch up with friends about what's going on right now.

• 5:18Joe Weisenthal?

  Because even when Odd Lots is over, there's always lots more.

• 5:21Tracy Alloway?

  And we really do have the perfect guest.

• 5:28Joe Weisenthal?

  Skanda, nice to have you here in our new studio.

• 5:31Tracy Alloway?

  When Joe's confused, you're the guy we turn to.

• 5:33Joe Weisenthal?

  Yeah, that's right. Let's start, actually, just a quick take. We're recording this 9:04 August 14. It's about 30 minutes ago. We got that really hot PPI report, but also I don't know what that means. Like, is it a big deal? What does it say? What's going on there? Is it, what does it mean for PCE? Is it, should it mean that margins are going to be cramped? What's going on there?

• 5:52Speaker 06

  I mean, I think for PPI today should be seen as at least showing the inflationary side of the story is still there.

• 5:59Joe Weisenthal?

  Okay.

• 5:59Speaker 06

  Not just in terms of like, some of the aggregates may be distorted for a lot of reasons, but what matters for the Fed's inflation gauge is got moved up a bit.

• 6:07Joe Weisenthal?

  Okay.

• 6:07Speaker 06

  So what you're going to be tracking for inflation for July, CPI and PPI both matter. And so that's going to be moved up a bit. So we're going to be running at roughly 2.9% on core PCE.

• 6:18Joe Weisenthal?

  That's way, that is actually substantially above target.

• 6:21Speaker 06

  We are higher now than we were last year. It's like, it's, it's starting to look like the progress is starting to turn in the other direction. Now, there may be some reasons why it is transitory this time, that it is temporary. And yet it doesn't really feel great. And I imagine for Chair Powell, there's a feeling of, wait, I remember in 2021 in August, I was pretty confident that this was going to be short term. And then we saw some increases and I said, well, we got to focus on getting the labor market back first. And then people kind of have held that against him accordingly. But now we have inflation picking up. And yeah, we also see a lot, a job market, maybe employment levels look fine.

• 6:57Joe Weisenthal?

  Yeah.

• 6:58Speaker 06

  The momentum, the job growth that we were seeing in the latest release is understandably spooky, too.

• 7:04Tracy Alloway?

  I asked Mary Daly this question before, but do starting points matter here? Because if you look at the labor market, the labor market has been really, really strong in recent years, like certainly much stronger than people had expected. And so, OK, there are some signs of softening now. It does seem to be losing momentum, but we are still starting from a place of strength. Does that mean potentially the Fed can, you know, maybe let that one go and look more at the inflation risk, to your point?

• 7:32Speaker 06

  I think it certainly matters. It's not the only thing that matters. I think momentum and starting point both matter. And the starting point is better. The momentum is some of the weakest we've seen outside of recession in a while. Now, some of that might be due to immigration, some of that might be due to tariff uncertainty, some of that might be due to interest rates are higher, and that matters for some sectors more, even if the financial conditions you just talked about are still pretty accommodative if you're talking about capital markets. So these are all kind of confusing in terms of what is the actual, like, labor market trajectory that's permissible. I think the Fed is right now inclined to cut in September, given what we've seen in the labor market data.

• 8:16Speaker 06

  But I will just warn, just as the data got revised before, it could get revised again. It may be the case that May and June were the weakest months for job growth and that we see some local acceleration, just because there's a little bit more certainty on trade policy than there was before.

• 8:31Joe Weisenthal?

  Right.

• 8:32Speaker 06

  So there's still another jobs report before the September meeting, and there's another batch of inflation data that's also going to come out. And I think that will actually probably matter in the sense that typically you see price changes that are more volatile as you get into back-to-school season, holiday season, the turn of the calendar year. What we've seen thus far is typically the more benign months, where you typically don't see prices change that much. So there's still a lot to play for in terms of going into the September meeting.

• 8:57Joe Weisenthal?

  So here's the thing I've been thinking about trying to conceptualize what's going on. And you know, as Tracy mentioned, we talked to Mary Daly last week in Alaska. And she's kind of of the view right now, or she says that she does not think that the tariffs will be particularly inflationary or inflationary on a sustained basis. And you know, there's certainly an argument tariffs are tax increases and tax increases. We don't think of as inflationary. We think of them as disinflationary, if anything. On the other hand, they throw a wrench in the supply chains. They have very different effects across different like they sort of strike me as like a bit of just like throwing sand into gears. And if you combine throwing sand into gears with really big deficits.

• 9:40Joe Weisenthal?

  And now that I'm middle aged, I talk about deficits. We got a pretty big July deficit number. It was 10% higher than the year before. This is despite the tariff revenue. If you're throwing sand into gears of industry, making commerce less efficient by creating all these frictions, and you're pushing in all this money by expanding deficits, that strikes me as a potentially inflationary cocktail.

• 10:02Speaker 06

  I would agree. I think it's possible you have both, right? That there is some what I would call stagflation light, right? That it's obviously unemployment rates are still low. That's pretty distinct from the stagflation of the seventies. But the momentum in the labor market seems weaker because I think there probably is for any sort of trade sensitive sector, think about construction, manufacturing, retail trade, wholesale trade, warehousing. These are all showing weakness in job growth more recently. And so we're seeing that side of the equation. That's that should be disinflationary at the margin because less labor income should mean less consumer spending. And at the same time, you're putting in costs, adding to the business cost structure in ways that businesses can't stomach beyond a certain point, right? So some businesses are probably well positioned to absorb the hit to margin.

• 10:46Speaker 06

  But there's a limit to that as well. I think the issue with sort of the tariff slash trade shock, the modeling of it is if you have costs be pushed through to consumers over time, that can still be consistent with just real incomes sort of declining, even if nominal income growth is on steady footing. And so that would be a very tricky backdrop for the fact to navigate.

• 11:09Tracy Alloway?

  Just going back to inflation for a second, can you walk us through what's going on with energy prices at the moment? Because on the one hand, oil still pretty low, as we talked a lot about in Alaska.

• 11:20Joe Weisenthal?

  They don't love that in Alaska.

• 11:21Tracy Alloway?

  Yeah, people really care about the price of oil in Alaska, not necessarily the way that most car-driving Americans do.

• 11:27Joe Weisenthal?

  It's funny, like, in America, an oil crisis, the quote "lower 48," which is a term I never use as much than in the last week, it's like, an oil crisis is when it's really high there, it's the exact opposite.

• 11:38Tracy Alloway?

  That's right.

• 11:39Joe Weisenthal?

  Anyway, keep going.

• 11:40Tracy Alloway?

  That's right. Okay, so oil prices are low, but at the same time, we're seeing some electricity prices rise, possibly a sort of crowding out effect from all the data center demand and AI enthusiasm and things like that.

• 11:52Speaker 06

  Yeah, so I think that there's a bifurcation in energy prices, right? So we have your standard commodity prices, specifically for oil, have stayed at the lower end of the range, right? We're still, frankly, speaking in the maybe low 60s, right, in WTI. So these are prices that should be not painful for the consumer. And yet, we also have electricity price increases. And the electricity price increases that we've seen, some part of that is due to natural gas price volatility, although natural gas prices more recently have come down. But there's also, there are a lot of things that go into electricity prices that are independent of that. And so, in a lot of regions of the country, we're seeing capacity looks to be short. For the longest time, a lot of these, a lot of what you call thermal

• 12:35Speaker 06

  sources of electricity generation are typically not very economical, right? Economical in a short-run sense, because we have more capacity than we need, so the ability to be paid for that capacity is not great. So that's why we retire coal plants, we retire nuclear plants. Now you're seeing the other side of that, right? And it takes a long time to build that stuff. And so, the retirements are coming to a pause for, hey, actually, we might be short on capacity if the data center demands are there. And building new capacity is very expensive, very time-intensive. And that seems to be an issue in at least a number of major regions. So, there's like the Mid-Atlantic region, PJM, you're hearing this also show up, though, in terms of rates are increasing in Georgia. And New England has its own set of problems because it...

• 13:20Speaker 06

  Burns a lot of natural gas for electricity, but also doesn't have like the requisite pipeline capacity.

• 13:25Tracy Alloway?

  I love that I'm double hedged to New England energy prices plus Con Ed in New York. Although, although I do have solar panels in Connecticut now, as we were discussing. So sometimes, sometimes my bill is actually negative, which is lovely.

• 13:38Joe Weisenthal?

  The Texas hedge. This is the thing, which is that, so I mentioned in the beginning, so much investment happening in AI, which doesn't seem to like, I mean, doesn't seem to be paying off economy wide yet. It's not like we've seen some great disinflationary boom where all these companies suddenly getting more efficient. Though maybe there are, I'm sure you can find pockets. But there is a lot of spending and there's a lot of spending on gear and there's a lot of spending on buildings and a little bit of spending on labor. You know, some people have been talking about this crowding out effect. Jason Furman talked about it in a tweet, that maybe this is, feels like a fiscal crowding out. Is that fair at this point? Or is it too soon to tell? Like whether all this expenditure-

• 14:14Tracy Alloway?

  Gond has been writing about this quite a bit as well.

• 14:17Joe Weisenthal?

  Yeah, I'm curious how you characterize it right now.

• 14:18Speaker 06

  I mean, obviously there's some bid for resources that could otherwise be deployed elsewhere. And also a bit sort of if, if let's say you're an investor and you're obviously some level of capital constraint going on. If you're investing everything in AI and basically cutting spending and investment in other areas, there's some sort of crowding out effect. But I would just also caution, that's like a secondary-

• 14:38Joe Weisenthal?

  Yeah, sure.

• 14:38Speaker 06

  Effect, right? The primary one is still that there's more investment-

• 14:41Joe Weisenthal?

  But do you, on the electricity front though, is that connected? Or is that still just our many factors pushing up electricity costs? And maybe data centers are one of them.

• 14:51Speaker 06

  I think the data center effect is something probably better to describe. Up until this very moment, like we're probably hitting something of an inflection point, right? So you are like low demand for electricity has stopped sort of having sort of its local stagnation.

• 15:07Joe Weisenthal?

  Okay, yeah, yeah.

• 15:07Speaker 06

  But we haven't yet seen the pickup. The pickup is probably coming very soon, or maybe right now. And as that happens and it has its pass through into pricing over the coming years, I think there will be some, a sort of super cycle dynamic to this. That is likely to weigh on costs and investment-

• 15:25Joe Weisenthal?

  Just, sorry, just to be clear, like those like price increases in Georgia that people are talking about? Or you, it's too early to say, oh, that's data centers?

• 15:33Speaker 06

  It's a sort of yes and no question where economists can give you both answers because it's like, if something stops going down and starts flattening out and starts to pick up-

• 15:40Joe Weisenthal?

  Yeah.

• 15:40Speaker 06

  There is a, like, it may not have started going up in outright terms, but the dynamic is, it's part of the dynamic. So I think that, I think it's, it's both.

• 16:01Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Shaun McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 16:17Speaker 07

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service institutional clients.

• 16:26Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.

• 16:33Speaker 08

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 16:52Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 17:03Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 17:44Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 18:25Speaker 02

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• 19:19Tracy Alloway?

  As we mentioned, Joe and I are going to Jackson Hole next week, and the theme doesn't really matter. The theme is central bank independence, and if Powell is going to do what President Trump is asking him to do, which is cut rates.

• 19:34Tracy Alloway?

  I'm thinking how to characterize this question. How does the central bank dynamic actually feed into the discussion around rates?

• 19:42Speaker 06

  I mean, I think there is on one level, the Fed will tell you they're putting the blinders on. They don't listen to what Scott Bessin is most actively lobbying for was 50 basis points. And yet, you can't deny that there is going to be some issue of how does the Fed do something in a way where it doesn't look politically manipulated?

• 20:03Tracy Alloway?

  Right.

• 20:03Speaker 06

  Legitimacy in some ways of whatever the Fed does gets undermined.

• 20:05Tracy Alloway?

  There's an optics problem now.

• 20:07Speaker 06

  If they don't do what the Treasury says, then they're clearly trying to push back against the Treasury in some way. And so then there will be one set of stakeholders who are upset. And at the same time, there are others who will be saying, like, if the Fed does cut 50 basis points, it's like, okay, they're just following Treasury. We should just listen to Scott Bessin now. And that is a dilemma for how you really handle the optics. Mary Daly talked about this on your episode, which was just, you got to try to just explain your decisions. Try to be transparent. Try to be consistent. Those are really important things. It will matter to a point. And yet, I'm sure there'll be plenty of cynics.

• 20:39Tracy Alloway?

  Fed needs to start tweeting in all caps.

• 20:41Joe Weisenthal?

  Tracy, did you see the headline yesterday? I think it was attributing CNBC that David Zervos is on Trump's shirt. No, you guys laugh. I like David. We have never had him on Odd Lots, and which is an oversight. I've always liked talking to David, though. But I feel like, you know, we never got, unfortunately, Paul McCulley, the Fed, the long-haired iconic classic guy from industry.

• 21:07Tracy Alloway?

  Oh, yeah.

• 21:07Joe Weisenthal?

  And David Zervos is like our, the next best shot of this sort of iconic classic guy who comes from Wall Street. I like David. I like David. I feel like, you know, he's like the closest thing to like a contemporary, kind of a McCulley-ish character.

• 21:22Tracy Alloway?

  I will say, from a sartorial perspective, it would be very interesting.

• 21:26Joe Weisenthal?

  Yeah, I like, I've always loved talking to David.

• 21:28Speaker 06

  I mean, he would certainly be a character.

• 21:30Joe Weisenthal?

  He would be a great character.

• 21:31Speaker 06

  And so you probably get livelier press conferences.

• 21:34Joe Weisenthal?

  You have great press coverage. Do you have any thoughts on the Derby? Every day, the list of names gets longer. Do you have any thoughts on this process?

• 21:41Speaker 06

  I can't take it seriously, right?

• 21:43Joe Weisenthal?

  Really?

• 21:44Speaker 06

  I think as far as the number of names that have been thrown, I don't think Janet Yellen is being considered. So these are, these are things that seem very, very.

• 21:51Joe Weisenthal?

  That one elicited, I saw that headline too. And yeah, there are some names that there.

• 21:57Speaker 06

  So I mean, there are some names to take seriously. I'm not saying, but I do think the length of the list being offered, some of them are clearly not serious names being put forth, but it may serve some tactical purpose for the kind of policies they want. If they're trying to broaden the list of people who they're considering, get those people to lobby more actively and publicly for lower rates, then that might be something.

• 22:17Joe Weisenthal?

  Right.

• 22:17Speaker 06

  White house.

• 22:18Joe Weisenthal?

  Nick Timros at the Journal pointed this out in an article, which is that if you have 100 people who all think that they're in the running to be Fed chair, that's 100 people going on TV saying now is a great time to cut rates. And then you're sort of like, wait, why isn't Powell cutting rates? Everyone on TV knows now is the time. So there's some deep brilliance going on here.

• 22:38Speaker 06

  I do have asked though, like the, all the lobbying for lower rates, we have a substantial number of rate cuts priced in over the next 12 months. And yet, long-term interest rates haven't really budged that much.

• 22:49Tracy Alloway?

  Yeah.

• 22:50Speaker 06

  Which is, if you think about like where the pain points and the frustration are with like higher interest rates right now, or at least for, if you take anything, 4.3% Fed Funds rate is high. And that's part of the reason why 10-year yields are at 4.2, 4.3% roughly speaking. Like you're not getting much effect from the rate, rate cuts being priced right now. And I do think that kind of raises some questions about what is the actual objective here? Even if you get the rate cuts you so desperately wish, especially if it's coming.

• 23:18Tracy Alloway?

  Right. It doesn't feed into like the 30-year mortgage rate.

• 23:20Speaker 06

  Yeah, exactly. Like housing was the big pain point and you're not really getting that effect. That to me suggests like, there is some level of a credibility gap here. If you're just saying, I'm going to cut rates no matter what, no matter what the inflation rate is, because I want to do it for political motivation. I mean, one, investors obviously need to be compensated on some level for risk or also for the risk that maybe some, in the future, rates might go back up. If the people who are arguing for. Lower rates a day would argue for higher rates under a different political environment. That's not exactly, that doesn't lend itself to keeping, getting long-term interest rates lower.

• 23:53Tracy Alloway?

  And What's your take on why long-term interest rates haven't gone lower?

• 23:56Speaker 06

  I think there's probably two things here that stick out to me. One is, well, inflation still seems like it's there, right? And we haven't gotten things back to 2%. And so there's just a risk of the Fed being caught off sides here if the Fed starts to cut more aggressively at a time when inflation might pick up. You can say, well, this time inflation is transitory. But it's like, we're dealing with potentially big macro adjustments. They might be costly. And if nominal incomes, labor income growth is reasonably solid, the costs might get pushed through, right? To the consumer, because the consumer can pay. And that's a dynamic that markets have to be sensitive to. So there's a level of, well, you're actually adding more inflation risk, and so that needs to be compensated for. There's also, I think, a level of political manipulation risk, right?

• 24:39Speaker 06

  If you actually did lower rates for reasons that aren't really grounded in data. I mean, Kevin Ohr said, I don't care about data dependence. You're not doing things for like relatively neutral reasons, and you're doing things for political convenience. One, the political convenience can cut the other way. At another point in time, let's say there are people who are doing things for partisan reasons today, and maybe it's a different person in the White House in the future. And then there's also just the issue of, well, there's just more instability. I want more compensation for that risk. And I do think, like, we're seeing, if you look at the slope between five-year notes and 10-year notes, normally high, even considering that rate cuts have been priced in. I know that Joe is a term premium skeptic, and I, to some extent, am too. But I do think that there's more suggestive evidence now

• 25:23Speaker 06

  that you are seeing more demands for competition for risk. And that, again, kind of speaks to undermining independence. If you think this process of setting interest rates is not really being guided by something relatively neutral politically, something that's more focused on the data, but is really just about pleasing certain presidential preferences and whims on a short-term basis. As a long-term investor, I might want more compensation for that. There's some merit to that argument, at least.

• 25:50Tracy Alloway?

  Don't worry. At Jackson Hole, Joe and I are going to sit around a campfire and meditate on the meaning of the term premium.

• 25:55Speaker 06

  Yeah, that's right. We're going to get it figured out next week.

• 26:12Speaker 01

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• 26:54Speaker 01

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• 29:25Joe Weisenthal?

  Don't these clowns in Washington DC need to stop their addiction to borrowing money? I'm entering my AM radio. This is back to your middle age. Yeah, I want to be a yacker on AM radio. Don't these clowns in DC need to stop spending? But deficits are very large, like, you know, setting aside politics, they're very big, especially given the low level of unemployment rate, 4.2%. Like, we're spending a lot of money. And that's a lot of money being pushed into the economy, much of it going to low productivity areas because of the growth of like healthcare, et cetera. Don't we need to have some good old fashioned fiscal consolidation with inflation still at these elevated levels?

• 30:07Speaker 06

  There's certainly an argument for if you wanted to try and get demand down, then you could possibly do that, right? So if you think demand is a problem, right? Then you probably wouldn't be so worried about the labor market, right? So that's one part of it. I also, like, folks that have been saying the tariffs are a big revenue raiser, right? One part of it is, we're still seeing like, either the fact is like, it just doesn't matter in the context of the deficit.

• 30:29Joe Weisenthal?

  Yeah.

• 30:29Speaker 06

  In which case it's not a big revenue raiser. That's one argument you can make. If you think it's actually still a lot of money being raised and yet we're still seeing... 10-year yield dynamics as they are, maybe it's something else. I mean, I think the problem always with stories about deficits and how they drive interest rates tend to always be, there's like a missing link there, or at least there's not a lot of robust correlation here between the scale of the deficit and what interest rates end up looking like. And I do think like institutional descriptions of what's going on kind of have a little more merit. Like, we are doing some things at the central bank and in ways that can undermine investor confidence. I think that strikes me as more compelling. But at the margin, if you wanted to address the deficit for whatever reason, yeah, there's probably a lot of room to do that when we've just did a pretty big sort of consolidation

• 31:14Speaker 06

  of corporate tax cuts. And at the same time, like, there's obviously an aging population that does have more demands for major social insurance programs.

• 31:24Speaker 06

  Frankie Joe.

• 31:25Joe Weisenthal?

  Yeah, I've become a cranky. We need to, I'm not gonna, I don't give policy advice. By the way, Tracy, we were telling us Gonda Amarnath, Executive Director of Employment.

• 31:34Tracy Alloway?

  Oh, yeah.

• 31:34Joe Weisenthal?

  20 minutes in.

• 31:35Speaker 06

  Probably should've said that.

• 31:37Tracy Alloway?

  Okay, so we're going to Jackson Hole. One of the nice things about Jackson Hole is that you can run into people, you know, just if you're hiking outside of the lodge, the hotel over there. If we were to run into Jerome Powell, what's the one question we should ask?

• 31:52Speaker 06

  Well, the one question I selfishly am interested in is what are they gonna do with the framework here, right? So the framework review that was, there was much fanfare about it in 2019 and 2020.

• 32:03Tracy Alloway?

  This is the whole fate thing, right?

• 32:04Speaker 06

  This was the fate thing. This was when they decided flexible average inflation targeting, that high employment wasn't inherently a bad thing or inherently an inflationary thing. They made some tweaks to their framework. There are people who blame those tweaks for the reason why the Fed allowed all this inflation to happen. I think they kind of messed around with some counterfactuals, but they are doing the same exercise now, but just much more low profile. And maybe that makes sense because this is sort of a time of leadership flux where there is going to be someone else who's Fed Chair in a year. And maybe that person will want to have more of a say and doesn't want to be thumped on. But they have said that they want to. Do some of these changes to their framework and then do a review of their communications. And especially at a moment when you have these conflicting forces where there are things that are pushing up inflation.

• 32:49Speaker 06

  And same time, there are signs that labor markets are slowing. It just feels like what the Fed is going to communicate is going to be confusing. I want a good example of this from sort of your episode with Mary Daly was basically saying, well, we have goods inflation. That might be tariffs, but like services ex housing looks to be like not inflationary. And the Fed basically said the same story in 2021. And then it spread and it spread because for some people say, well, it's because the labor market is too strong. They kind of miss that goods prices matter to service prices. So think about insurance, think about the cost of goods matters there. If you think about leasing, rental, airfares matter are affected by energy prices. Food services prices are affected by food prices. And so the Fed could easily be caught off sides again. And I think that's something that I worry about.

• 33:35Speaker 06

  Independent of whoever is the leader, whether it's Chris Waller, whether it's Kevin Warsh, whether it's

• 33:39Joe Weisenthal?

  David Zervos.

• 33:40Speaker 06

  David Zervos.

• 33:42Tracy Alloway?

  This is something that I think is really unappreciated. You know, we've seen car insurers saying that they're going to raise rates because the cost of parts is expected to go up under tariffs. And there are all these sort of hidden connections in the economy. As we learned on our trip to Alaska, once again, where you could see tariff inflation start to show up. So one example is, you know, you think you're buying Alaskan salmon made in Alaska, caught in Alaska. But it turns out a bunch of that salmon gets sent to China for processing. And so it gets re-imported into the U.S. And so even something like Alaskan salmon, you would see a tariff impact.

• 34:18Joe Weisenthal?

  I know we should do, we didn't do a fish episode, but I, that was really, I didn't, had not realized how much American fish is processed to China that re-imported. It's really the miracle of shipping. I have one last, um, one last question. Things are like so, stocks are doing fine. He's like, oh, it's doom and all this stuff and political politics and the deficit and interest rate, et cetera. Like stocks are like super forward looking. Is, is it a hundred percent? Yeah, but that's because it's all this like tech money and AI spending. It doesn't totally satisfy me. There's other parts they finance and doing our, like, what's going on there? That does not seem like a market that is worried about all these things that we talk about.

• 34:56Speaker 06

  Yeah, it does seem like there's more growth optimism in cat markets. And I think. Tech is part of the story right now. The S and P 500, kind of adjust for reclassification, is about half tech, right? So it's clearly growing in terms of its relevance. And at the same time, all this tech spending is probably keeping the business cycle afloat on some level, at least more so than it would otherwise be the case. But if you look at stuff like even in equal weighted S and P, or you look at other sort of measures that may be more neutral to the tech dynamic, they've also shown some decent amount of optimism, right? So those are also telling you, there's a lot of confidence. That confidence might be misplaced, but at least in the short run, like there's some wisdom in it. And that, to me, is like a reason to probably shade against taking the bleakest view right

• 35:41Speaker 06

  now. And I think even if you look at the jobs report, that everyone, I think rightfully said, has a lot of weakness in it. Look at total hours growth among rank and file employees. If you look at total income growth among those workers, it's pretty fine, much fine. It was, that was actually okay. And so we might have gotten the worst jobs report already. If we don't, then obviously the Fed can probably have more confidence cutting. But if it's actually the case that like, ah, there's actually was a, we had a liberation day shock, but it didn't break things, especially because things got reversed to a large degree, then you might be left in a situation where it's just slowing growth in real terms and maybe the nominal trajectory of the economy, the total dollar spend, total dollars earned, aren't as adversely affected.

• 36:25Speaker 06

  And that might not be a world in which you expect both high rate cuts or anything that's sort of deeply recessionary, at least in the short run.

• 36:31Joe Weisenthal?

  Tracy, you know, I did run into Jerome Powell, you know, in Jackson Hole, just like serendipitously.

• 36:37Tracy Alloway?

  Oh, I forgot about that.

• 36:38Joe Weisenthal?

  Yeah, I know. It was like, it was, you hadn't come yet, and it was just in the lodge, and you were sitting there with a couple of people. I think he was talking-

• 36:44Tracy Alloway?

  Did you say hi?

• 36:45Joe Weisenthal?

  Yeah, and I froze. Like, I did, I froze because I couldn't write things, it didn't seem like the right time to like actually like talk shop. In retrospect, I should have like said something about the dead and like, you know, told, because I had seen Dead and Co. that year. And I should, that would have been a good thing. But I said, oh, it's really beautiful here in Jackson Hole, I've never been, like, I sounded really stupid.

• 37:02Tracy Alloway?

  I yelled at one of his Secret Service people without knowing it was one of his Secret Service people. He was like, he was stuffing a bag into the airplane in a really violent way that was crushing my own bag that had something kind of breakable in it. And so I was like, excuse me, stop doing that. And then he got really angry.

• 37:20Joe Weisenthal?

  Yeah, well.

• 37:25Joe Weisenthal?

  Lots More is produced by Carmen Rodriguez and Dashil Bennett with help from Moses Andam and Kale Brooks.

• 37:31Tracy Alloway?

  Our sound engineer is Blake Maples. Sage Baumann is the head of Bloomberg Podcasts.

• 37:36Joe Weisenthal?

  Please rate, review, and subscribe to Odd Lots and Lots More on your favorite podcast platforms.

• 37:42Tracy Alloway?

  And remember that Bloomberg subscribers can listen to all our podcasts ad-free by connecting through Apple Podcasts. Thanks for listening.

• 37:53Tracy Alloway?

  Joe, you do a worryingly good impression of a crank.

• 37:58Speaker 10

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• 38:33Speaker 02

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