And start first and foremost with us. Your interpretation of the jobs number
and whether it leaves the Federal Reserve.
I think you know people are looking at the number of very carefully to see what
feds are doing is working to see this. What actions at Pekin are loosening the
labor market doesn't it. There's incremental signs but nothing
for sure. And I think there is also some confusion
in the market thinking that you know only from the unemployment numbers we
will see slow down more market. But in a high inflationary era it is
common that labor market stays tight before the shoe really drops.
So I know this is a number that the Fed is concerned about.
Well we have way more to go before unemployment is threatening where Fed
has to reverse course that we had in the last trading day of the week.
A big turnaround as Caroline points out. Of course a lot of asset managers are
going to take risk off the table as they go into a Labor Day weekend.
You don't want to be sitting on the beach worried about your portfolio.
Sonali Basak. You have a big portfolio to worry about.
Is that what you guys have done it the other way.
Do you see portfolio managers typically doing that.
So you know that I actually take it back to what you started started discussing.
The Fed lacks credibility. Markets don't believe that the Fed is
going to do what the Fed keeps saying it's going to do.
That's a problem for the Fed. And it's also a problem for markets.
So we in our portfolios have actually we started taking risk off sometime before
this long weekend. We don't think that long weekend in and
of itself makes a major difference. I couldn't agree more with Ed and this
is one data point. The bottom line is I'm going to be
looking very carefully at the Fed's new S.E.
please to see if we get some more realistic peace after the March in June
June projections which I didn't think were internally consistent at all.
So I'm taking that from them. It's not because you're saying they lack
credibility. You are a bond money manager.
First and foremost fix it felt as though the bond market some had interpreted the
Federal Reserve along the right tracks prior to Jackson Hole.
They didn't expect a pivot in quite the same way that the equity market did.
Why do you think that for credibility has been so hard to come about.
So I'm not sure I fully agree with you because we were at three forty seven.
The type of volatility we've seen in the bond market on every single data point
to me indicates that the bond market also fully anticipates that the Fed is
going to do what it's done for the better part of a couple of decades now
which is as soon as the market gets wobbly the Fed blinks and it reverses
course. It happened in 2013.
People keep anticipating that the foot the fence first and foremost view the
first target. The only target is unemployment and
growth. And we've got inflation at eight and a
half percent and we have employment significantly lower than current NAIRU.
It seems remarkable because the Fed is beating one of its targets.
It's knocking it out of the ballpark as far as unemployment is concerned.
And it's completely blowing the target. And as you know by and by the way NAIRU
or neighbor A what is it not accelerating inflation rate of
unemployment. Well at least we got Larry.
We've got Larry Summers take on that which we're going to play out later.
He says it's like five five and a half percentage rate totally.
But we're nowhere near that. But I want to get to something that I
think is really interesting. And you know Ellen with your work into
consumers with your previous work in transportation and autos I see this real
divergence or some of my favorite words. Now bifurcation dichotomy in terms of
the market doesn't seem to believe the Fed but consumers seem to for sure.
Right. They're freaked out about getting low
rates locked in on mortgages getting a lower rate before they go and buy a car
as those continue to climb higher and higher.
How do you see the consumer right now Allan.
Well consumer I love that word by application because I feel like it's the
word for 2022. You know after what's happened after
Covid you see consumers you know spending a lot on services sort of a
revenge spending but they are really taking back spending on discretionary.
And you know the goods side or consumer sentiment is really low.
And you also see retailers already coming out saying they have loaded
inventories. So consumers are waiting for deals.
There is going to be negative earnings revisions on consumer discretionary
stocks. And we're just waiting for the shoe to
drop. And again I agree with Sonam.
The equity markets you know do the terror.
It went on in July and August. It clearly indicated that they believed
that Fed was going to blink. And I think this is why Jerome Powell
had to use that strong language in the recent meeting to say you know what 8
percent inflation is not acceptable. And you know what's really fascinating.
DAX speech Ellen that he gave at Jackson Hole.
It's a speech he should have given six months ago right.
I mean a year ago.
HOT Yeah. A year ago.
If we had been crying for this for a couple of years now because I really
think that the delay is going to make this more painful.
And in part it's because the Fed has to follow through.
So I keep seeing everybody obsessed with today's jobs number.
Does that mean 75. Doesn't mean 50 doesn't mean 70.
We're all macro tourists now. It doesn't even matter.
Because the bottom line is I think what I really need to see in DSP is is
internal and internal consistency potentially a higher peak Fed funds
rate. Remind us what the are.
Chanel these are the projections for the Fed.
Those are the prediction projections that economic projections which the Fed
does every quarter which will come out again in September.
And this. These are forecasts median forecasts of
all the FOMC members including GDP unemployment inflation and importantly
also see the median Fed funds rate. Now the ones which we saw from March and
June had a Fed funds peaking at three point eight I think already in June.
But this went together with unemployment which remained at around three point
seventy three point eight. And markets basically said well that
isn't entirely consistent. I think we actually are going to see we
need to see Fed funds above 4. And we need to see the Fed reject a
higher unemployment rate equal a GDP growth.
And that's somewhat sticky inflation to make this whole thing hang together.
This makes sense. Still maybe trying to highlight a soft
landing or the wish that was. So I'll just very briefly.
You've got about a minute left. Let's.
On our first part of this conversation you said perhaps there's more pain to
come. There has been evident pain in the
market. You look at first and foremost.
That's been shining light on it all day. The ag index the global bond mark.
Yeah. Is now back in bear market territory.
We've seen as you mentioned the volatility in the bond market.
The move index has been at such elevated levels versus the VIX.
How much more painful can this get in your part of the market.
So I think that actually are going to continue to see volatility until markets
internalize what different central banks are going to do.
Look the exit from this quantity of QE and market distortion that we have seen
over the last basically since the global financial crisis.
So it's going to be coming up for 15 years.
Anybody who taught at the exit would be simple was dreaming.
Really it's going to. It was always going to be a complicated
thing. And I think it's going to be extremely
complicated. And the fact that we've got these issues
with oil and commodities and supply chain bottlenecks it's it just adds
there's there's a global lag right there.
You can see it on your Bloomberg by typing I and go and it's down 20
percent.