00:00Do you observe that there appears to be a disconnect between the labor market and GDP. Walk us through what you mean.
00:06Sure. So if you look at the GDP numbers or even I would say consumer spending you'll say that's fine.
00:11So why is the labor market weak and what should the Fed focus on. I'll say the Fed has its dual mandate with the labor market more important than GDP.
00:20But I would also say let's look at GDP and look under the hood. Really it's an AI trade.
00:24If you take out AI related investments GDP is running about zero. So I think you know we're in a government shutdown.
00:31We're not getting real time government statistics. But if you take a step back and look at the data the economy is slowing.
00:37Now it might be slowing into the soft landing one to two percent GDP but the labor market is slowing.
00:43And it might be a structural reason because of AI or it could be that companies are paying for tariffs through reduced hiring.
00:49We still haven't seen the pickup in layoffs. I mean I do miss initial claims.
00:53But looking at the state data of initial claims we're not seeing the pickup in layoffs.
00:56So I think the disconnect if you were to take out the AI effect there's less of that disconnect.
01:02Things are slowing allowing the Fed to respond to the weaker labor market to cut rates at least to neutral.
01:08And that's what the market's pricing in. The market's not pricing in aggressive rate cuts below neutral.
01:13The end point after all those rate cuts is still around three percent which is most estimates of neutral.
01:17So I think the market every market is priced for perfection priced for that soft landing slowing growth fed allowing the Fed to cut rates and not anything more.
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