00:00Well, I think this report shows some of it. It doesn't show all of it. Right. We still have to
00:04watch. But like, why are these revisions happening? You know, we see it in a lot of data and it's
00:08all moving the correct way. We saw the report yesterday moving the correct way, all moving in the way, basically,
00:16quite frankly, that Warsh probably could have predicted. Right. So he comes out, he comes out hawkish, understanding that that
00:22is going to come in soft. That's going to allow him to green credibility and then kind of push back
00:26on the idea of rate hikes in the near term.
00:28And that buys him time. And that's his job right now is to buy as much time, if his predilection
00:34is towards keeping rates stable, buy as much time by kind of coming out hawkish and letting the data let
00:41him retreat. And I think he's actually being quite masterful at this. And other people who have come out and
00:46been very aggressive on the hawkish front are now beginning to look like maybe they were jumping the gun a
00:50bit.
00:50OK, but you're you have. I mean, I mean, true is like over at the region. So you know, our
00:55breakfast. That's not the same. The market economists in the trenches, there's many of them setting up a disinflationary vector.
01:03OK, fine. How vector is it? How steep will that decline be, that path back to the nirvana of two
01:12percent inflation?
01:13Well, we're not going to hit the nirvana anytime soon. The question really, in my mind, should be for the
01:18Fed, how disruptive is inflation to the economy?
01:21The reason we worry about high levels of inflation is because typically if inflation gets out of control, you end
01:26up with a rise in unemployment.
01:27You end up with reduced economic activity. That being said, that's all dependent on inflation volatility.
01:34It's not the rate of inflation. It's the rate of inflation volatility that really matters.
01:39If you were to tell me that inflation is going to be five percent from now until 2030, 2040, then
01:45I could as a corporate person, I could plan.
01:48OK, I know what my wage increases need to be. I know what the expense is going to be if
01:52I delay a decision.
01:53The problem comes in when you have two percent inflation plus or minus five percent, then that's a that creates
01:59problems in the planning process and actually reduces economic activity.
02:02So you can have higher levels of inflation that are less disruptive than lower levels of inflation if there's less
02:08volatility in it.
02:09You say that Warsh played the odds and won. What do you mean by that?
02:14I mean, you know, we all knew gasoline prices were going to plummet.
02:18All right. We all knew the tariffs had come off. So you could have not.
02:24I mean, a lot of people did predict that inflation was going to slow last month for those reasons.
02:30And so he made the bet. I'm going to come out hawkish. I'm going to let the data then come
02:34in and kind of pull me back from kind of the hawkish side of things.
02:38But it's going to appear like the data is pulling me back because I'm data dependent.
02:42I don't want to make prejudgments about future activity.
02:45And so, you know, he really just allowed the the data expectations to be used to his advantage and allow
02:53him to move in the direction he wanted.
02:55But while also kind of reinforcing his inflation fighting credentials, it was it was actually a masterful political stroke.
03:01But, you know, it's interesting now. I mean, he has no real influence on what happens in the oil trading
03:07pits and the various commodity exchanges.
03:09We've got WTI crude oil back up at eighty dollars a barrel.
03:13And again, there's not much he can do about that, I guess.
03:15But he bought himself July. And now he now the next time he has to make a decision in September.
03:19And we'll see what happens then. And we'll see how he talks about things.
03:22His goal is not like if the Fed's goal can be solidified to one thing.
03:29Right. That kind of combines the inflation component and the unemployment component.
03:32It's the 10 year yield. Right. If the 10 year yield moves outside of a particular range, it's problematic for
03:37the economy.
03:38That's too low and too high. Both of them create problems for the Fed.
03:42Their job is to keep it in a range which is really somewhere probably between 375 and 475.
03:47And with his distress over dots and the rest, maybe we'll hear more of Jackson Hole.
03:54We're putting that together right now, folks.
03:56True Mattis, is forward guidance just done?
04:00And are we just going to get a whole different press conference, a whole different Greenspanian tone?
04:05Forward guidance made the mistake of believing that transparency and clarity were the same thing.
04:13They're two very different things.
04:15So I can tell you, I can be completely transparent, but I could be unclear while doing it.
04:20Right.
04:23So I think, you know, we all joke about how Greenspan talked about things.
04:27But what Greenspan was really saying is, I don't really want you to understand exactly what I'm doing,
04:31but you'll all have a sense for kind of where my breakpoints are.
04:34Right. And he had somewhat of an easier job because he was coming off the Volcker, you know,
04:39the Volcker revolution and the death of inflation.
04:41So all Greenspan had to do was not mess that up.
04:45You know, Warsh actually has a much more complicated job because there was higher levels of inflation that were tolerated.
04:51They were actually a lot of people argued they shouldn't have been tolerated.
04:54And now he's walking in and now people are saying, well, we tolerated it last time, so we can't tolerate
04:59it this time.
04:59This is brilliant, folks.
05:00This is why we love having Drew Mattis in.
05:03OK, so that's fine.
05:04You're at the Metropolitan Life Insurance Company, stayed actuarial assumptions and all that.
05:11How are you advising MetLife on a presumed actuarial assumption on 20, 30, 40 or an Amazon like 50 years?
05:21Do you see a dampening of that long term reach, which is beneficial?
05:25Or do you have to set a regime set to a new higher interest rate assumption?
05:30We're heading into a new neutral, longer term, higher neutral rate environment because productivity is going to accelerate.
05:37You know, we are going to see AI improve labor quality.
05:41Labor quality is where computers showed up.
05:44So you're going to see the labor quality gradually improve over time.
05:47But that's going to be a sustained improvement.
05:49When you look at the computer revolution, we went from a labor quality contribution to productivity of zero to plus
05:5550 basis points.
05:56And it stayed there for four decades, right?
05:59So this is going to be something on the same order of magnitude, I expect, if not larger.
06:05It's going to be a job creator, not a job destroyer.
06:09And we're going to be wondering what we were all so worried about 10 years from now.
06:13So let's just put a bow on the labor market here.
06:17It seems about pretty darn good, full employed.
06:20If you want a job, you got a job.
06:22Tom, what's your view of the labor market?
06:24How do you think the Fed views the labor market?
06:26I think the Fed views the labor market is in pretty good shape, but I think that they maybe see
06:31a little bit more downside risk.
06:32You know, there was a good article today about kind of long term unemployed.
06:35That's a problem.
06:36You want to get people in.
06:38I do think one of the things that AI is doing is encouraging people to try to hold off hiring
06:42in certain places.
06:44That's going to prove to be a mistake, right?
06:46Because when when the economy accelerates or once we go through a downturn, like, you know, people are going to
06:52remember kind of who were out there kind of, you know, trying to save the money on kind of the
06:56junior employees.
06:57And if you don't invest in junior employees, you're not going to have senior employees that are worth anything in
07:02a few years.
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