'Die Has Been Cast' For Fed's Next Move: Tirupattur

Watch 'Die Has Been Cast' For Fed's Next Move: Tirupattur - Bloomberg on Dailymotion

Transcript

00:00Clearly it's not helpful that we don't have the gold standard data that we would like to have.

00:06But that said, I think clearly what we have heard from the Fed in the last meeting and the speeches we heard from Jackson Hall

00:14is that the weight on the weakness of the labor market has clearly shifted.

00:21So we think that notwithstanding this data point, we don't know whether we're going to get the data before the next meeting or not.

00:27We think the die has been cast for the next few rate cuts.

00:32So we continue to expect that we'll get an October rate cut, a December rate cut and a January rate cut

00:38and expect a pausing after that and then maybe follow up with an April and July rate cuts.

00:45So that's our thinking.

00:47But from a credit perspective that Jamie brought about, I think while it is true that there are some stories,

00:53my concern, my point is that the starting point of credit fundamentals is actually in a very good place.

00:59A lot of people come back to that.

01:01But I go back to the idea that we are operating with some darkness here because we don't have any data.

01:05Austin Goolsbee, the Chicago Fed president, says we're just not getting our usual supply of information.

01:10He considers the BLS job data to be the absolutely best data source on jobs and statistics in the entire world.

01:15To your point, Vishy, if we aren't going to have those, it's problematic.

01:18Jamie, we know that a government shutdown results in lost productivity and economic activity as well,

01:25not just the lack of data.

01:27If this is something that we're losing, is it just delayed and we'll make it up later on?

01:32Or is this something that we'll kind of just lose forever?

01:35We can't make up some of the lost productivity.

01:39Consensus in the marketplace is that what we lose from Q4, we'll get right back in Q1.

01:44We see some risks to that view, specifically in that this shutdown,

01:48is very different than historical shutdowns.

01:52It's hard to find an analogous one when you look back in history.

01:56Number one, the administration has a lot of flexibility to do whatever they want during the shutdown.

02:01For example, you're hearing the administration agitate for job cuts instead of furloughs.

02:06That's a very different situation where if you have a job cut,

02:10not only does that feed into the unemployment rate and the household survey,

02:15but you're also going to see it in the establishment survey.

02:18In historical shutdowns, the establishment survey was really uninfected.

02:21That's where the employers get asked, how many employees do you have?

02:25The household survey, you would see the unemployment tick up a little bit, 0.1%, 0.2%,

02:30but then it would come right back down as the furloughed workers go back to work.

02:34If the workers are cut instead of furloughed, that's a very different situation as well.

02:40So it's not as obvious to us that the market should just ignore the government shutdown when pricing risks.