00:00I know in September you had written that had it not been for some of the supply issues with labor,
00:05we would have been looking at an unemployment rate that looks something like 5%.
00:08And it does feel like every day there's a new headline like X company is letting go of workers.
00:13Scott Kleiman told Matt and I yesterday that the question being grappled with right now
00:16is to what degree AI is responsible for some of those replacements,
00:20especially when you look at KKR's portfolio companies.
00:23Is there a real trend of that happening?
00:25So let's start with the public data.
00:26Remember, the single biggest driver has been healthcare and education.
00:30It's been about 100% of job growth over the last 12 to 18 months.
00:33So when you get the big headline number, you really have to dissect it.
00:37And what you see is that sector has been the main driver.
00:41You are also, you are, to your point, you are starting to see joblessness in the college grads.
00:48They're having a harder time getting jobs.
00:50And then the government is what I said.
00:52What's happening, though, on the headline level, though, remember, it's not just demand slowing.
00:56The point you're making is an excellent one, which is what we were flagging,
00:59is the supply is slowing.
01:01So it affects the denominator, which makes the unemployment rate, if you adjust for that, actually closer to five.
01:06And so if I'm a Fed governor right now, I've been trying to have the swivel between inflation and employment.
01:12And I, until recently, would have been much more focused on inflation.
01:17What I think we've been signaling, you know, on our cuts and our forecast is that they need to shift to employment.
01:22I think the absolute level of rates in the U.S. is too high for the economy right now.
01:28You see this in the low to middle income spending.
01:30You see this in leveraged structures.
01:32And ultimately, you see those in housing.
01:35Those are all critical variables to the economy.
01:37So I think the Fed needs to cut.
01:39I also think they need to signal that they're going to stop QT.
01:43And we'll probably do that at a level that's a lot higher than what we've seen in the past.
01:48But I do think the inflation story is going to be, you know, this higher resting heart rate for inflation this cycle.
01:54You guys have been reporting on this.
01:56I think you've been spot on, which is this time it's different, right?
02:00We've been talking about this regime change at KKR where you have bigger deficits, more geopolitics, messy energy transition, and stickier services inflation.
02:08That's why I think even though they lower rates, they don't go back to the lower bound that all the reporting you've been doing for years, you can kind of throw that playbook out.
02:17And why is KKR doing more in infrastructure?
02:20Why are we doing more in corporate carve-outs?
02:21Why are we doing more in asset-based finance?
02:23Those are all products that should excel in a world where you have higher nominal GDP and higher inflation.
02:29And I think the Fed is going to be forced to cut into that a bit.
02:33Not as much as the bulls think, but they're going to have to continue to bring the absolute level of rates down.
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