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US CPI Eases, Bank Earnings · Bloomberg Intelligence

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  Speaker 2: Matt Miller here in the Interactive Broker Studio with Nora Melinda,
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  Speaker 2: we are taking you through this trading day where equity
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  Speaker 2: indexes are absolutely ripping as rates come down. Nora, did
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  Speaker 2: you see the tenure yield at one point was down
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  Speaker 2: fifteen bases points and that was the biggest drop that
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  Speaker 2: we've seen since August.
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  Speaker 3: Wow.
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  Speaker 4: I mean we are really on a roll here, Lisa,
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  Speaker 4: in the equity market. I'm seeing a Nazek up more
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  Speaker 4: than two percent, SMP up one point six percent. Let's
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  Speaker 4: to keep an eye on after that CPI data today exactly.
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  Speaker 2: CPI came out well, the headline figure was still up
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  Speaker 2: month over month zero point four percent, but the core
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  Speaker 2: figure was only up zero point two percent. We were
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  Speaker 2: looking for zero point three and that's what is behind
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  Speaker 2: the move. I want to talk about that right now
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  Speaker 2: with William Lee. He's the chief economist at the Milken
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  Speaker 2: Institute and Bill. Great to have you on the program.
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  Speaker 2: We'll just talk a little bit about the US, and
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  Speaker 2: then brought it out to the picture globally, because you
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  Speaker 2: have so much experience internationally. What do you think about
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  Speaker 2: the inflation picture? Because until today the worry was inflation
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  Speaker 2: was back on the rise, the Fed wouldn't be able
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  Speaker 2: to cut as much as we had thought, and maybe
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  Speaker 2: some said maybe even would have to raise rates this year.
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  Speaker 5: It's always dangerous to go against the markets. But I
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  Speaker 5: still think the inflation rate is on the rise. It
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  Speaker 5: really hasn't shown really signs of coming down ever since
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  Speaker 5: the fall. We have corn inflation still covering above three
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  Speaker 5: percent and persistently above three percent. But if you take
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  Speaker 5: away the goods and just look at services, that's where
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  Speaker 5: I'm really concerned, and that's where I think the FED
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  Speaker 5: is concerned. We have services, ex housings, forget about the
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  Speaker 5: housing component over four percent, and that has been rising
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  Speaker 5: since late last year. So what we're seeing then is
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  Speaker 5: a situation where the downward trajectory to two percent, which
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  Speaker 5: the FED really wants, really isn't in sight. When you
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  Speaker 5: take away the goods. This inflation which we have seen
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  Speaker 5: take place because the supply chains have come back online.
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  Speaker 5: The real stubborn parts of inflation, the service sector x
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  Speaker 5: housing is the one that still shows quite a bit
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  Speaker 5: of persistence. And I think the FED is going to
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  Speaker 5: keep things tight until they see that going into a
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  Speaker 5: downward trajectory. And we haven't seen that yet.
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  Speaker 4: So, Bill, when we look at today's print, and as
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  Speaker 4: you were mentioning and talking about some of the details,
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  Speaker 4: do we think that the equity market rallying today is
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  Speaker 4: a bit of an overreaction.
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  Speaker 5: Well, maybe yesterday's a partial reaction to PPI, and now
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  Speaker 5: today's is just a sigh of relief that we are
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  Speaker 5: not accelerating upwards, that the overall index looks like as
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  Speaker 5: relatively contained, because I said, there are some vulnerabilities in
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  Speaker 5: that picture, especially when it comes to services, and and
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  Speaker 5: and and I think if you're a real investor out there,
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  Speaker 5: you're going to be looking to see this rally fate.
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  Speaker 2: And and more.
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  Speaker 5: More uncertainty that is coming because of fiscal uh and
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  Speaker 5: and international events is going to keep investors on edge
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  Speaker 5: and not willing to commit a lot of money. Yes,
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  Speaker 5: just yet.
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  Speaker 2: Well, so what do you think about tariffs? What do
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  Speaker 2: you think about you know, the labor market right now,
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  Speaker 2: we saw a blowout number. Let's not forget last week,
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  Speaker 2: and the incoming administration wants to deport people, maybe buy
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  Speaker 2: the millions. How does that affect inflation at a time
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  Speaker 2: when we're trying to extend tax cuts and also deregulate.
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  Speaker 6: Yeah.
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  Speaker 5: I talked to a lot of investors, especially global investors,
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  Speaker 5: and and I think the consensus view around the world
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  Speaker 5: is that the United States still is the best place
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  Speaker 5: to plet your money. You know, I don't believe much
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  Speaker 5: in academic studies. So despite the fact that I'm a
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  Speaker 5: card carrying PhD.
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  Speaker 2: Did I study under Robert Mondella Columbia.
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  Speaker 5: That's right, And one of the great luminaries of the
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  Speaker 5: field came over with a paradox, you said, you know,
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  Speaker 5: isn't it strange that emerging markets where this capital poor.
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  Speaker 5: You find that a lot of the investors in emerging
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  Speaker 5: markets and the rest of the world are coming to
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  Speaker 5: where capital is really rich, the United States developed economies,
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  Speaker 5: and that's called the Lucas paradox. And I think what
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  Speaker 5: we're seeing today is also the fact that a lot
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  Speaker 5: of people are saying, you know, despite always talking about diversification,
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  Speaker 5: I want to go where the returns of the highest,
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  Speaker 5: where innovation is the highest, where we're getting the most
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  Speaker 5: for our investment dollars, and it's the United States. And
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  Speaker 5: I think global investors really feel that way and continue
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  Speaker 5: to feel that way. They always talk about Trump and
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  Speaker 5: the uncertainties about tariffs and how it might be the
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  Speaker 5: end of the world and we have a repeat of
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  Speaker 5: smooth Holly of the nineteen thirties and throwing the world
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  Speaker 5: into depression. I think that those are analytics that don't
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  Speaker 5: even pass econ one oh one. Those would be f
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  Speaker 5: marks if I were still teaching at Columbia. And the
• 5:10
  Speaker 5: reason why is because I think people should read Trump's book,
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  Speaker 5: The Art of the Deal. Right, you always come out
• 5:16
  Speaker 5: with a hard negotiating line and then you sort of
• 5:19
  Speaker 5: make a deal with people. And remember, make America a
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  Speaker 5: great agenda? What's that all about? Maximizing high pain jobs
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  Speaker 5: for Americans. That's really the agenda. And if foreign investors
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  Speaker 5: can come to this country and offer the opportunity to
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  Speaker 5: create more jobs for Americans, I'm absolutely sure that Trump
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  Speaker 5: administration would be jumping at that. Now if it was
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  Speaker 5: China coming in, there's some high hurdles that they're gonna
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  Speaker 5: have to meet. But in terms of our allies, the Canadians,
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  Speaker 5: the Mexicans, the Europeans, we are continuing to welcome investment
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  Speaker 5: funds to come into United States to create new jobs, but.
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  Speaker 2: Not the labor right. I mean, we want to During
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  Speaker 2: the campaign with Trump was talking about fifteen million illegal immigrants,
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  Speaker 2: mass deportations were the signs being waived at the RNC,
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  Speaker 2: and in a tightening labor market, it just doesn't strike
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  Speaker 2: me as the smartest idea to send that many workers out,
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  Speaker 2: and not to mention the fact that we educate so
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  Speaker 2: many foreign citizens. Do we give them all the tools
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  Speaker 2: that they need to succeed and then send them straight
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  Speaker 2: home when they're done at our Ivy League universities.
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  Speaker 5: And Matt That's the paradox that I think all of
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  Speaker 5: the executives from Silicon Valley are trying to correct.
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  Speaker 6: Right now.
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  Speaker 5: The key word that you just sad about immigration was
• 6:38
  Speaker 5: illegal immigration. We want to sort of I think the
• 6:41
  Speaker 5: administrations want to put a clamp on the amount of
• 6:43
  Speaker 5: illegal immigration, but they certainly want to optimize the amount
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  Speaker 5: of legal immigration, especially when we train a lot of
• 6:51
  Speaker 5: the students. We want to be able to give them
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  Speaker 5: green cards to be able to stay here to make
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  Speaker 5: use of their talents. This country was built on the
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  Speaker 5: talents of immigrants from the world, and the Trump administration
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  Speaker 5: has been saying all along they really want that. So
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  Speaker 5: the key is, how do you emphasize more talented legal
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  Speaker 5: immigration into this country. Although some people on the ALSA
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  Speaker 5: might call it a brain train, but we've been draining
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  Speaker 5: the brains of the rest of the world now for
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  Speaker 5: decades and even centuries, and so that's not new for
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  Speaker 5: the United States. What's new for the Trump administration. The
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  Speaker 5: challenge is going to be to shift from the immigration
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  Speaker 5: being illegal status, less skilled, into the more skilled and
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  Speaker 5: talented immigrants that we've always wanted in this country.
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  Speaker 2: William Lee, so great to get some time with you.
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  Speaker 2: Never enough. Hope I can talk to you again soon.
• 7:39
  Speaker 2: Build Y there from the Milkin Institute, where he is
• 7:42
  Speaker 2: chief Economist.
• 7:44
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program
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  Speaker 2: Obviously the whole market is ripping, not just on the
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  Speaker 2: CPI number and the lower rates, but probably also something
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  Speaker 2: to do with financials. Right, definitely, they all beat up.
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  Speaker 2: I love them, and they're all up pretty big. Even
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  Speaker 2: City is up like five percent, right yeah. Alison Williams
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  Speaker 2: joins US right now from Bloomberg Intelligence. She manages like
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  Speaker 2: everything there, but her main beat is the banks. And Alison,
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  Speaker 2: how I guess it's a twenty billion dollar buyback that's
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  Speaker 2: helped investors feel good about City. But didn't they take
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  Speaker 2: down some of their goals for the year.
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  Speaker 7: Well, I think they they sort of notched down their
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  Speaker 7: return on tangible equity target in the near term, but
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  Speaker 7: I think it's realistic. You know, it's interesting even Goldman Sachs,
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  Speaker 7: who had like a blowout quarter really strong numbers. It's
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  Speaker 7: it's it's tough to see them. You know, they say
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  Speaker 7: they have a path to reach their target. But I
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  Speaker 7: think what all these banks did was after twenty twenty one,
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  Speaker 7: which was a blowout year, you saw a lot of
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  Speaker 7: people raise their targets, but at these very bullish targets.
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  Speaker 7: And JP Morgan has met their targets. But for everybody else.
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  Speaker 7: You know, it's tough and even with the markets as
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  Speaker 7: strong as they are, so.
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  Speaker 2: But targets were pretty high, right, yeah, I mean Shannali
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  Speaker 2: keeps telling me that JP Morgan missed on equities trading,
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  Speaker 2: but equities trading rose two percent.
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  Speaker 7: Right, I think because I think because they restated their
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  Speaker 7: numbers and so if you look at the restatement, what
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  Speaker 7: happened was they shifted a little bit from equities to
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  Speaker 7: thick and so I think that's why it appears that
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  Speaker 7: they missed on the equities.
• 9:47
  Speaker 4: Line, but really beat on fick and explained to her
• 9:52
  Speaker 4: fixed income. Okay, see what's a thank you?
• 9:56
  Speaker 2: Yeah, it's an acronym that also doesn't do well in Germany.
• 10:00
  Speaker 7: Yeah, I'm not sure what it would be, although Deutsche
• 10:02
  Speaker 7: Bank only does fit with oneesay because.
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  Speaker 2: They're not good.
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  Speaker 4: More you know, the more you know, so who's the
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  Speaker 4: front runner here and who are the laggards?
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  Speaker 7: So you know, JP Morgan really continues to post the
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  Speaker 7: leading returns of the group. As I said, there, you know,
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  Speaker 7: exceeding their target in the near term. We expect they'll
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  Speaker 7: meet their target again next year. But I would say
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  Speaker 7: that for I say you that all the banks really
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  Speaker 7: had a good quarter. And it's not just the quarter,
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  Speaker 7: it's the guidance and so interest income coming in better
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  Speaker 7: than expected. You know, Wills Fargo and JP Morgan in
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  Speaker 7: particular raising their guidance for at interest income for next year.
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  Speaker 7: The City Group, as we pointed out, you know they
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  Speaker 7: had the buyback is about fourteen percent of their market cap,
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  Speaker 7: So that's pretty significant. I mean, keep in mind the
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  Speaker 7: valuation at City and so that's why I think investors
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  Speaker 7: are even more excited about that.
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  Speaker 2: Well, you know what that brings up an interesting question.
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  Speaker 2: We have the inauguration in just a few days and
• 11:07
  Speaker 2: will be a different regulatory regime.
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  Speaker 8: Not just.
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  Speaker 2: Throwing out the Basil three endgame, but I wonder if
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  Speaker 2: these banks are gonna be able to do more buybacks,
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  Speaker 2: Are they going to be able to pay more in dividend?
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  Speaker 2: Are they gonna be able to return more cash.
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  Speaker 7: To show that is that is definitely the thesis.
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  Speaker 2: If you will.
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  Speaker 7: And so a lot of the run up that we
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  Speaker 7: saw in the banks was due to this lighter regulatory environment.
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  Speaker 7: A big part of that, to your point, is the
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  Speaker 7: capital rules. So Basil three endgame as we call it,
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  Speaker 7: sounds like a movie, Yes, right, So it will eventually happen.
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  Speaker 7: I mean.
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  Speaker 2: For the banks.
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  Speaker 7: It's probably a good thing actually if it happens under
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  Speaker 7: the current administration, because the current administration, as we know,
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  Speaker 7: is very US focused and a lot of the issues
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  Speaker 7: that the banks had with the capital rules was that
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  Speaker 7: it was very punitive versus some other jurisdictions. So it
• 12:06
  Speaker 7: felt like it put them at a disadvantage, especially in
• 12:08
  Speaker 7: something like prime brokerage, and that's not a business that
• 12:11
  Speaker 7: regulators are necessary. You know, regulators generally they're looking to
• 12:15
  Speaker 7: protect the smaller banks and do things, and you know
• 12:18
  Speaker 7: they're not as concerned with trading and prime brokerage. But
• 12:23
  Speaker 7: to the extent that this at this administration, you know,
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  Speaker 7: we would see the lighter rules come through. It could
• 12:30
  Speaker 7: be good to get them solidified. The other thing, M
• 12:34
  Speaker 7: and A less antitrust should be good for M and A.
• 12:38
  Speaker 7: It's actually a little.
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  Speaker 2: Bit of a how many banks are there in the US,
• 12:40
  Speaker 2: in the United States of America, how many banks do
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  Speaker 2: we have?
• 12:42
  Speaker 7: Well, it's not it's not it's not necessarily even the
• 12:46
  Speaker 7: bank insolidation. It's the fees that they'll make advising other people.
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  Speaker 2: Right, Okay, so you're saying advising M and A for
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  Speaker 2: other industries. I think you're talking about in banks, because
• 12:56
  Speaker 2: you know, in some countries they.
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  Speaker 4: Have like four or five, but just a couple of
• 13:00
  Speaker 4: you can count on your hands.
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  Speaker 2: And this country we have we have a lot, a lot.
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  Speaker 2: I I'm not far off with five thousand, right, Yes.
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  Speaker 4: So you're not far off.
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  Speaker 7: But I mean the size of these g SIPs as
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  Speaker 7: we call them, which globally systemically important banks. I mean,
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  Speaker 7: the big really have gotten bigger. They have consolidated share,
• 13:18
  Speaker 7: and they've gotten bigger globally.
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  Speaker 2: I don't know if Nora remembers, but there was a
• 13:24
  Speaker 2: time when we were concerned about banks being too big
• 13:28
  Speaker 2: to fail. Okay, I mean you were probably in middle
• 13:30
  Speaker 2: school at the time. But now they're even bigger. I
• 13:33
  Speaker 2: don't know that. I shouldn't assume that your age is.
• 13:36
  Speaker 2: But you know, twenty ten now is fifteen years ago,
• 13:39
  Speaker 2: so into two eight, right, seventeen years ago? What grade
• 13:43
  Speaker 2: were you.
• 13:44
  Speaker 4: In seventeen years ago?
• 13:45
  Speaker 2: I don't think I'm allowed to ask. Actually, forget that.
• 13:48
  Speaker 2: In any case, these g sibs are g sippier than ever. Right.
• 13:51
  Speaker 4: I'm also so I keep an eye on real estate stocks,
• 13:53
  Speaker 4: so I'm covering office rates and one thing that I'm
• 13:56
  Speaker 4: always looking at is return to office. So we did
• 13:58
  Speaker 4: have JP Morgan saying that they're pushing people back into
• 14:01
  Speaker 4: the office. What has been the general mandate and what
• 14:04
  Speaker 4: has been the conversation for the banking industry in general?
• 14:07
  Speaker 2: In general?
• 14:08
  Speaker 7: You know those that are front office, if you will,
• 14:11
  Speaker 7: that are out there. You know, we have this banking
• 14:13
  Speaker 7: fee recovery. Banks are competing with each other, so a
• 14:16
  Speaker 7: lot of those senior people happen in office or traveling again, right,
• 14:20
  Speaker 7: so a lot of for investment bankers, a lot of
• 14:22
  Speaker 7: it is not necessarily sitting in your office, but being
• 14:25
  Speaker 7: out there and visiting clients.
• 14:27
  Speaker 2: So we definitely saw that return to travel.
• 14:30
  Speaker 7: And JP Morgan, even though the five days a week
• 14:32
  Speaker 7: is getting a lot of headlines, you know, the senior
• 14:35
  Speaker 7: people at JP Morgan have already been back. You know,
• 14:39
  Speaker 7: people that I talked to at the company were back,
• 14:41
  Speaker 7: you know, May of twenty twenty, they were back in
• 14:43
  Speaker 7: their office five days a week. So yeah, so definitely
• 14:48
  Speaker 7: there is the return to office.
• 14:50
  Speaker 2: Office.
• 14:50
  Speaker 7: Commercial real estate, as you know, was a big concern
• 14:54
  Speaker 7: about a year ago.
• 14:56
  Speaker 4: Or I guess talk to us about where that stands now, but.
• 14:59
  Speaker 7: We're definitely seeing some stabilization there and credit. You know,
• 15:04
  Speaker 7: we talked about the net interest income side of things.
• 15:06
  Speaker 7: When you don't hear about credit, it means it's good, okay.
• 15:10
  Speaker 7: So you know, the office commercial real estate is a
• 15:14
  Speaker 7: significant business for Wells Bargo. We're always looking at the
• 15:17
  Speaker 7: trends for them, and we saw solid quarter overall net
• 15:21
  Speaker 7: charge offs, very stable provisions less than expected at Wells
• 15:26
  Speaker 7: and JP Morgan. And that's a clear signal for Bank America.
• 15:31
  Speaker 7: And it also means that the credit outlook for twenty
• 15:34
  Speaker 7: twenty five feels good and lower rates have really helped
• 15:37
  Speaker 7: on the commercial on the office commercial real estate front.
• 15:40
  Speaker 2: Interesting, yeah, very interesting stuff. Alison, thanks very much. I'm
• 15:44
  Speaker 2: sure is today the busiest day of your year?
• 15:46
  Speaker 7: Today is the busiest day. But Martly, we have three
• 15:50
  Speaker 7: but today we have we have four big banks that
• 15:53
  Speaker 7: that I look at.
• 15:53
  Speaker 2: We had black Rock, we had Bank in New York.
• 15:56
  Speaker 2: So so busy bank day.
• 15:59
  Speaker 7: But it's always easy year when the numbers come in
• 16:03
  Speaker 7: solid right, and the trends are you're tackling it.
• 16:06
  Speaker 2: Alison Williams, thanks very much for that. She covers all
• 16:09
  Speaker 2: the big banks for US. At Bloomberg Intelligence.
• 16:13
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 16:28
  Speaker 6: John Tucker, Nora, Melinda your subs today for Bloomberg Intelligence.
• 16:32
  Speaker 6: As Lisa just told you, risk assets well, bonds too,
• 16:36
  Speaker 6: also surging. And to today's inflation news, Let's get to
• 16:41
  Speaker 6: some more insight. Lauren siddel Baker is accountabis and senior
• 16:45
  Speaker 6: consulting speaker at ITR Economics. So, Lauren, you know, I
• 16:50
  Speaker 6: get it Core is down, but is this an overreaction.
• 16:54
  Speaker 6: I mean, it's not down that much.
• 16:57
  Speaker 8: It's not down that much. If anything, I see this
• 16:59
  Speaker 8: as a continuation of the trend we've been on.
• 17:02
  Speaker 3: We like to see those splitting hair surprises to sake
• 17:05
  Speaker 3: or not, you know, quite so so elevated as we
• 17:08
  Speaker 3: have been. Certainly beata expectations. The market's going to like
• 17:11
  Speaker 3: this for at least a few minutes. But I really
• 17:14
  Speaker 3: think this keeps us on track with the trend that
• 17:16
  Speaker 3: we've been seeing.
• 17:17
  Speaker 4: Lauren Rope really stuck out to you through this report today,
• 17:22
  Speaker 4: So it's good.
• 17:22
  Speaker 3: To see shelter costs those contribute for just such a
• 17:25
  Speaker 3: large percentage of overall CPI.
• 17:27
  Speaker 8: Still rising, still one of the stickier.
• 17:30
  Speaker 3: Aspects, the stickier components of inflation, but starting to cool
• 17:34
  Speaker 3: off a little bit more. Again, housing affordability is going
• 17:37
  Speaker 3: to be a concern going forward. We know that we're
• 17:40
  Speaker 3: seeing more folks looking for rents right demand for apartments
• 17:43
  Speaker 3: is up, Vacancy rates very very low for apartments, so
• 17:46
  Speaker 3: the rental component, I do expect that to be a
• 17:49
  Speaker 3: little bit stickier going forward.
• 17:50
  Speaker 8: Otherwise, though the big.
• 17:52
  Speaker 3: Drivers here things like airfare, medical care. Those are things
• 17:56
  Speaker 3: that we know do cost more.
• 17:58
  Speaker 8: So no big surprises on the core front.
• 18:01
  Speaker 3: I think this is a manageable result, and I think
• 18:03
  Speaker 3: this again keeps the FED on pace for those fifty
• 18:05
  Speaker 3: basis points of.
• 18:05
  Speaker 8: Cuts this year.
• 18:06
  Speaker 6: Okay, so maybe we're headed the trajectory is headed in
• 18:11
  Speaker 6: the right direction. But you know what, maybe teriffs are
• 18:14
  Speaker 6: are headed our way and there are a lot of
• 18:18
  Speaker 6: iffy situations coming up.
• 18:21
  Speaker 8: Yes, tariffs are a big one we have seen.
• 18:24
  Speaker 3: If we break down inflation to the goods components and
• 18:27
  Speaker 3: the service components, goods really have been mundane.
• 18:31
  Speaker 8: Now in this most recent print, energy prices starting to
• 18:34
  Speaker 8: come back.
• 18:34
  Speaker 3: We have been enjoying lower oil prices right lower gas
• 18:37
  Speaker 3: prices at the pump for a while.
• 18:39
  Speaker 8: Starting to see a little bit of pressure building there,
• 18:41
  Speaker 8: just with the macro cycle picking back up. But if
• 18:44
  Speaker 8: we do get in a.
• 18:45
  Speaker 3: Tariffs, excuse me, especially those universal tariffs, that could drive
• 18:49
  Speaker 3: more broad based inflation on the good.
• 18:51
  Speaker 8: Side of things service sector.
• 18:53
  Speaker 3: Again, labor market is tight, it is going to remain
• 18:55
  Speaker 3: tight for the foreseeable future. So our base case is
• 18:58
  Speaker 3: just for wages to cost work, for wage inflation to
• 19:01
  Speaker 3: be higher going forward. It's really the risk to me
• 19:04
  Speaker 3: of tariff's bringing good side back to keep up with
• 19:07
  Speaker 3: the wage side of things, with the service side, that's
• 19:10
  Speaker 3: when we could start to see inflation really reignite.
• 19:12
  Speaker 4: When we think about the idea of tariffs, Lauren, are
• 19:15
  Speaker 4: there any particular sectors or industries that you're keeping an
• 19:18
  Speaker 4: eye on?
• 19:21
  Speaker 8: So much of this remains political at this point.
• 19:23
  Speaker 3: You know, maybe we'll get one company asking for waivers
• 19:26
  Speaker 3: on one thing or another, but really, if we do
• 19:29
  Speaker 3: get tariffs that are universal tariffs that just affect everything
• 19:33
  Speaker 3: coming into this country, not targeting just China or just
• 19:36
  Speaker 3: you know, some other jurisdiction, some product line.
• 19:39
  Speaker 8: That's where I see the real risk.
• 19:41
  Speaker 3: So I'm waiting to see what the incoming administration releases
• 19:45
  Speaker 3: for their policy proposals. Some of this might just be
• 19:48
  Speaker 3: campaign rhetoric that they leave behind on the campaign trail.
• 19:51
  Speaker 3: They do target those kind of high value, you know,
• 19:53
  Speaker 3: really buzzy items like steel or things that are more
• 19:58
  Speaker 3: targeted to China. I just I think at this point
• 20:00
  Speaker 3: it's a political decision. I will be a political analyst.
• 20:03
  Speaker 3: I'll just analyze the economics of it.
• 20:05
  Speaker 4: Lauren, As we think about the trajectory for the Fed's
• 20:08
  Speaker 4: policy this year in twenty twenty five, is the focus
• 20:11
  Speaker 4: really on employment data inflation data? It feels like that
• 20:14
  Speaker 4: has shifted as we've been moving the past couple of years.
• 20:17
  Speaker 4: What are you keeping an eye on, which prints really
• 20:19
  Speaker 4: are most important to you?
• 20:21
  Speaker 8: I am absolutely focused on inflation.
• 20:24
  Speaker 3: So we have seen the focus shift from FED messaging
• 20:27
  Speaker 3: in recent months and quarters.
• 20:29
  Speaker 8: Really that's because when rates started coming down there.
• 20:32
  Speaker 3: They're looking at the excuse me, the employment side of
• 20:35
  Speaker 3: their dual mandate. They're saying, we don't want further loosening
• 20:38
  Speaker 3: in the labor market. As I follow the jobs market,
• 20:41
  Speaker 3: so much of that is just based on demographics, the
• 20:44
  Speaker 3: number of jobs we need to fill versus the number
• 20:47
  Speaker 3: of workers we.
• 20:47
  Speaker 8: Have to fill those jobs. Right now, that is still
• 20:50
  Speaker 8: not a one to one ratio.
• 20:51
  Speaker 3: We have more than one job opening for everyone unemployed worker.
• 20:55
  Speaker 3: So if we're looking at loosening in the labor market,
• 20:58
  Speaker 3: I don't expect a major recession, major economic event this year.
• 21:01
  Speaker 3: What could cause that loosening is more people coming in
• 21:04
  Speaker 3: rite more either students leaving school aging into the workforce,
• 21:09
  Speaker 3: more existing prime age workers looking for jobs who hadn't
• 21:13
  Speaker 3: been participating in the labor market. Neither of those things
• 21:16
  Speaker 3: seem particularly likely right now to really sway the tide.
• 21:20
  Speaker 3: So I see the labor market as yes, directionally loosening,
• 21:23
  Speaker 3: but still very tight by historical standards, and that isn't
• 21:27
  Speaker 3: going anywhere just due to the numbers of people and
• 21:30
  Speaker 3: how they balance up. So with that set, the FED
• 21:33
  Speaker 3: can't really put too much pressure on that side of
• 21:36
  Speaker 3: the scale.
• 21:37
  Speaker 8: And inflation is the side.
• 21:38
  Speaker 3: We have a lot of fundamental drivers that are starting
• 21:41
  Speaker 3: to signal inflation and picking back up, especially by the
• 21:44
  Speaker 3: latter half of this year. So my concern as an
• 21:46
  Speaker 3: economist is you know, we don't want to take the
• 21:49
  Speaker 3: eye off the ball of the inflation side, because if
• 21:51
  Speaker 3: that does pick up, I think there's a very reasonable
• 21:54
  Speaker 3: chance that we could see the FED start to talk
• 21:56
  Speaker 3: again about raising rates by late twenty twenty five. I
• 22:00
  Speaker 3: don't think that's off the table.
• 22:02
  Speaker 6: So as an employer, I can attract employees because I'm
• 22:06
  Speaker 6: going to pay them more.
• 22:09
  Speaker 8: At the end of the day, you can do a
• 22:10
  Speaker 8: lot for culture. You can reach out and have a mission.
• 22:13
  Speaker 6: Well, no, I'm getting to the inflation component culture.
• 22:16
  Speaker 3: Okay, no, But at the end of the day, that's
• 22:20
  Speaker 3: what folks are looking at. How do you attract someone
• 22:22
  Speaker 3: to you and of the group across the street. This
• 22:25
  Speaker 3: generation is a little bit more willing to.
• 22:27
  Speaker 2: Move, you know.
• 22:28
  Speaker 3: They sure, we love the mission, We love to be
• 22:30
  Speaker 3: part of something, But at the end of the day,
• 22:31
  Speaker 3: the dollars are what they get work. So, yes, that's
• 22:34
  Speaker 3: why wage inflation is so elevated, and I would expect.
• 22:37
  Speaker 8: It to continue to be so.
• 22:39
  Speaker 6: Culture. The culture, well, I get to work with Nora,
• 22:42
  Speaker 6: That's why I'm here.
• 22:43
  Speaker 4: I get to work with John.
• 22:46
  Speaker 6: It's a real love fest, isn't it.
• 22:48
  Speaker 4: And it's not even February.
• 22:49
  Speaker 6: Yet, what's your expectation for We'll put you on the spot.
• 22:53
  Speaker 6: When are they going to cut? Yeah, you mentioned raising actually,
• 23:00
  Speaker 6: so as for when.
• 23:00
  Speaker 8: They cut, I don't have a horse in that race.
• 23:03
  Speaker 3: I think two more cuts is a reasonable expectation, but
• 23:07
  Speaker 3: if it's only one, I'm not going to lose sleep
• 23:09
  Speaker 3: over that Directionally, we're seeing rates increase. We've already seen
• 23:13
  Speaker 3: inflation expectations bring kind of market rates back.
• 23:16
  Speaker 8: If you look at even mortgage rates, those are back
• 23:18
  Speaker 8: above seven percent this week.
• 23:20
  Speaker 3: So the impetus is really to the upside, especially by
• 23:23
  Speaker 3: second half of this year. So the ultimate timing of
• 23:26
  Speaker 3: that exact low the exact level within twenty five basis points. Again,
• 23:30
  Speaker 3: that doesn't matter. Big picture, we don't need to split hair,
• 23:33
  Speaker 3: So we need to look.
• 23:33
  Speaker 8: At the general direction. If you need to do borrowing,
• 23:35
  Speaker 8: either as an individual or business, this is probably the
• 23:38
  Speaker 8: time to do it.
• 23:39
  Speaker 4: Lauren, you mentioned that shelter costs are still a bit sticky.
• 23:42
  Speaker 4: Can you just give us a bit more detail about
• 23:44
  Speaker 4: what's going on in the housing space.
• 23:46
  Speaker 8: Sure, housing is tight.
• 23:47
  Speaker 3: We have been under building homes in this country, so
• 23:51
  Speaker 3: household starts have not kept up with new household formations.
• 23:54
  Speaker 8: We just need more inventory.
• 23:56
  Speaker 3: Now that's a hard thing to do today where mortgage rates,
• 23:59
  Speaker 3: as I just said, above seven percent, that is really
• 24:02
  Speaker 3: taking a bite out of affordability, not to mention the.
• 24:05
  Speaker 8: Value of those homes.
• 24:06
  Speaker 3: The list price has also really picked up since twenty twenty,
• 24:09
  Speaker 3: so it's a tough scenario out there for would be
• 24:13
  Speaker 3: first time home buyers just trying to make those dollars stretch.
• 24:17
  Speaker 3: And we're also seeing much less inventory come on the
• 24:20
  Speaker 3: market up for sale, so existing home sale have been.
• 24:23
  Speaker 8: More subdued with as I'll say again that rapid rise
• 24:27
  Speaker 8: in mortgage rates. Why would I sell my house with
• 24:29
  Speaker 8: a three or four percent mortgage rate.
• 24:31
  Speaker 3: If I have to buy another one with a seven
• 24:33
  Speaker 3: percent mortgage rate, that's a lot less house that I
• 24:36
  Speaker 3: can get for the same monthly payment.
• 24:38
  Speaker 8: So we're seeing folks just stay in.
• 24:40
  Speaker 3: Place a little bit longer in the past I'll say
• 24:43
  Speaker 3: six to nine months, a lot of folks have started
• 24:46
  Speaker 3: to just bite the bullet.
• 24:47
  Speaker 8: If I really need to move, I will do so.
• 24:49
  Speaker 8: But again, affordability is the big constraint there.
• 24:52
  Speaker 3: That's what's keeping many individuals in rental situations for longer
• 24:56
  Speaker 3: rather than going out buying that first.
• 24:58
  Speaker 8: Home, and those almost really aren't going away. So affordability
• 25:02
  Speaker 8: is the name of the game.
• 25:03
  Speaker 3: What's going to matter is balancing that aspect with the
• 25:06
  Speaker 3: wage inflation. I was just talking about more people being employed,
• 25:09
  Speaker 3: making more money. They have more money to spend on everything,
• 25:12
  Speaker 3: but housing is one major expense. So where we're seeing
• 25:17
  Speaker 3: some improvement in just our ability to afford housing, but
• 25:20
  Speaker 3: the affordability numbers themselves much worse than we were just
• 25:23
  Speaker 3: a few years ago.
• 25:24
  Speaker 6: Just anecdotally, I should point it at three point two percent.
• 25:28
  Speaker 6: They're going to bury me in the basement. Of course,
• 25:31
  Speaker 6: if the price is right, I can be out in
• 25:33
  Speaker 6: ten minutes, that's true.
• 25:34
  Speaker 4: You all like to brag anyone that has a great
• 25:36
  Speaker 4: mortgage rate in place. You know, we got to hear
• 25:40
  Speaker 4: about it for sure.
• 25:41
  Speaker 6: Oh, Mike McKee, seven percent, What does that do?
• 25:45
  Speaker 9: It keeps people sitting on their hands. Although the interesting
• 25:48
  Speaker 9: thing is it came out of the same day. We
• 25:49
  Speaker 9: saw a thirty three percent increase in mortgage applications next month.
• 25:53
  Speaker 9: Most of that was refi and I'm not sure why
• 25:57
  Speaker 9: people were refining when raches go.
• 26:00
  Speaker 4: I'm curious.
• 26:00
  Speaker 6: But Mike mcke's Lauren, I didn't mean to upstate you.
• 26:05
  Speaker 6: Lauren Citl Baker there the economist, senior consulting speaker from
• 26:09
  Speaker 6: ITR Economics. Thank you very much for stopping by today.
• 26:13
  Speaker 6: Mike McKee, our economics correspondent, among other things, hanging out
• 26:17
  Speaker 6: his shingle, what was your big takeaway from the inflation
• 26:21
  Speaker 6: report this morning?
• 26:22
  Speaker 2: Good enough?
• 26:24
  Speaker 9: It wasn't too hot, it wasn't too cold. We had
• 26:26
  Speaker 9: a little bit of extra strength in the headline, a
• 26:30
  Speaker 9: little bit less in the core. Both went up on
• 26:34
  Speaker 9: a year over a year basis, but less than anticipated.
• 26:36
  Speaker 6: So the markets are taking that. I mean, I wasn't
• 26:39
  Speaker 6: too excited this, but the equity market, even the bomb
• 26:42
  Speaker 6: market is pretty excited, up more than two percent.
• 26:45
  Speaker 9: I think you're not looking at any anyone in the
• 26:47
  Speaker 9: markets who's looking at what the actual impact of this
• 26:51
  Speaker 9: is on the economy, and they don't expect it to
• 26:55
  Speaker 9: affect the Fed meeting on January twenty ninth. Everybody's waiting
• 26:58
  Speaker 9: for next Monday, what does Donald Trump do? So there
• 27:02
  Speaker 9: was all this nervousness in the markets and everybody was
• 27:06
  Speaker 9: pushing yields up, which hit the stock market, and today
• 27:10
  Speaker 9: it gave.
• 27:10
  Speaker 6: Them a reason to exhale.
• 27:13
  Speaker 9: Wait till the end of the week. We'll see as
• 27:15
  Speaker 9: people get more and more nervous about what Trump may do,
• 27:19
  Speaker 9: whether that continues.
• 27:20
  Speaker 4: Yeah, as we think about this in about twenty seconds
• 27:22
  Speaker 4: or less, how are you thinking about the fact that
• 27:25
  Speaker 4: we are still not at at two percent target? What
• 27:27
  Speaker 4: do we need to do to get there?
• 27:29
  Speaker 6: Keep it up?
• 27:29
  Speaker 9: And that's why the Fed may keep rates on hold
• 27:32
  Speaker 9: for longer than possible or longer than thought, because they've
• 27:35
  Speaker 9: got to keep at this point the pressure on to
• 27:38
  Speaker 9: keep it going down towards two percent.
• 27:40
  Speaker 6: Okay, Mike McKay, Bloomberg International Economics and Policy corresponded, reacting
• 27:46
  Speaker 6: to seven percent mortgages and today's CPI.
• 27:51
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 27:55
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• 27:58
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• 28:01
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 28:06
  Speaker 4: Well, we have gotten a great guest here. We have
• 28:09
  Speaker 4: Sema Shaw. She's a vice president of research and Insights
• 28:11
  Speaker 4: at Censor Tower, and she is here joining us to
• 28:14
  Speaker 4: talk TikTok. As we know there could be a ban
• 28:18
  Speaker 4: upcoming and so we're just trying to talk about the
• 28:20
  Speaker 4: mechanic waiting. We're waiting for them to get minute, waiting
• 28:24
  Speaker 4: for them to get back to us exactly Friday, right
• 28:28
  Speaker 4: before Friday, it would be ideal. So tell us what's
• 28:31
  Speaker 4: going on here and what expectations should be. Is there
• 28:34
  Speaker 4: any movement here with the Supreme Court? And is Byteedance
• 28:36
  Speaker 4: intending to budget?
• 28:37
  Speaker 2: All right?
• 28:38
  Speaker 10: So I can't speak for the Supreme Court, Unfortunately, I
• 28:40
  Speaker 10: don't have any insight into their decision making, but I
• 28:43
  Speaker 10: will say that what we're seeing what we expect to
• 28:47
  Speaker 10: see first, if it is ban, what we expect to see,
• 28:49
  Speaker 10: and I think I spoke about this was Paul earlier.
• 28:51
  Speaker 10: Is an ongoing shift to meta platforms, specifically Instagram because
• 28:57
  Speaker 10: of reels, and to YouTube's because of shorts. So if
• 28:59
  Speaker 10: you think about when we look at how much time
• 29:01
  Speaker 10: people are spending on an app, forty two percent of
• 29:04
  Speaker 10: people's time on Instagram is on reels, twenty eight percent
• 29:07
  Speaker 10: is on reels for Facebook, and twenty seven is on
• 29:09
  Speaker 10: shorts for YouTube. So short form video is obviously a
• 29:14
  Speaker 10: key driver of engagement, which is all that TikTok is.
• 29:16
  Speaker 10: So we expect that should it be banned, we would
• 29:19
  Speaker 10: expect more users to go there. But there's more at
• 29:21
  Speaker 10: stake than just users and hours engage. It's also in
• 29:25
  Speaker 10: app revenue. About twenty two percent of byteedance or TikTok's
• 29:29
  Speaker 10: in app revenue comes from the US, so that's a
• 29:31
  Speaker 10: huge chunk. And when we look at the digital advertising space,
• 29:35
  Speaker 10: we see about nine percent of ad spend is on TikTok.
• 29:38
  Speaker 10: So these are all dollars and hours engage that would
• 29:40
  Speaker 10: be up for grabs.
• 29:41
  Speaker 2: Hang on a second, TikTok twenty eight percent, twenty two
• 29:44
  Speaker 2: percent of their revenue comes from the.
• 29:46
  Speaker 10: US from their in app of their global in app.
• 29:49
  Speaker 2: Revenue, what percentage of in app Instagram's in app revenue
• 29:55
  Speaker 2: comes from China?
• 29:57
  Speaker 10: Now that would be an interesting question China data. It's
• 30:00
  Speaker 10: a little trickier for us to for cure, as you
• 30:02
  Speaker 10: can imagine.
• 30:03
  Speaker 2: But I was only posing that question because Instagram is
• 30:07
  Speaker 2: banned in China. Facebook is banned in China, Snapchat is
• 30:10
  Speaker 2: banned in China. Interest is banned in China. No US
• 30:14
  Speaker 2: social media apps are allowed in China, and yet we
• 30:18
  Speaker 2: allow Chinese social media apps to cash in here. If
• 30:23
  Speaker 2: the kids aren't using Instagram, I mean aren't using TikTok.
• 30:28
  Speaker 2: They've started downloading red Note red Note, which is also Chinese,
• 30:32
  Speaker 2: and Lemonade, which is also Chinese, also.
• 30:35
  Speaker 10: Owned by Byedance, so they're both Chinese Chinese apps, and
• 30:39
  Speaker 10: we've seen surges and download growth of those two apps
• 30:42
  Speaker 10: starting at the end of last year, and particularly in
• 30:45
  Speaker 10: the last week, we've seen a big bump in red
• 30:47
  Speaker 10: Notes downloads over one hundred percent ending through Sunday from
• 30:52
  Speaker 10: the prior week. So there's definitely surges of users downloading
• 30:56
  Speaker 10: these alternative apps. Even my teenager mentioned it, which like
• 30:59
  Speaker 10: the you know it's in the media, and teenager knows that,
• 31:02
  Speaker 10: so we're definitely seeing that search. But that doesn't really
• 31:05
  Speaker 10: make sense if that if the app because it's banned
• 31:09
  Speaker 10: because it's Chinese, because these are also Chinese owned, So
• 31:12
  Speaker 10: I'm not sure how that would work in the long
• 31:14
  Speaker 10: run or if people would just move over and eventually
• 31:16
  Speaker 10: those would also get banned if they do. But the
• 31:19
  Speaker 10: other social media apps like Instagram and YouTube don't have
• 31:22
  Speaker 10: the same in app monetization that TikTok does for creators
• 31:27
  Speaker 10: and stuff, so they would have to evolve their own
• 31:29
  Speaker 10: platforms to make it as lucrative for creators as TikTok is.
• 31:32
  Speaker 2: I just want I'll just clarify, for the sake of
• 31:35
  Speaker 2: those of you using a ton of TikTok.
• 31:37
  Speaker 4: Why who you're looking at?
• 31:39
  Speaker 2: Why majorities? If both parties are against it, so he's
• 31:43
  Speaker 2: looking at me. One concern is that the Chinese could
• 31:46
  Speaker 2: use your data to spy on you or to blackmail you.
• 31:50
  Speaker 4: Okay.
• 31:50
  Speaker 2: One concern is that China could shape the algorithm to
• 31:55
  Speaker 2: send out more misinformation or stir up social unrest. And
• 31:59
  Speaker 2: another concern is that China could use software updates for
• 32:03
  Speaker 2: TikTok or red Hat or Red No Red Nook to
• 32:08
  Speaker 2: infiltrate your devices and to implant malware on your stuff.
• 32:12
  Speaker 4: Valid concerns, right, but.
• 32:15
  Speaker 2: No one nobody cares.
• 32:17
  Speaker 10: Apparently it's a useful, moneyful demographic, so I guess they.
• 32:21
  Speaker 2: Donald Trump also doesn't seem to care, so we'll see.
• 32:26
  Speaker 10: Well, I think he did care, and then he pivoted,
• 32:29
  Speaker 10: and now now he doesn't doesn't care.
• 32:31
  Speaker 2: Right because Jeff Yes from Susquehanna, who has a fifteen
• 32:35
  Speaker 2: percent stake in Bite Dance, has given at least eight
• 32:38
  Speaker 2: million dollars to a Republican super.
• 32:40
  Speaker 10: Pac Well, also, Donald Trump has his own social media platform.
• 32:43
  Speaker 4: This is true, which is very small, but it has.
• 32:45
  Speaker 10: Grown significantly since during the time Social Truth Social.
• 32:49
  Speaker 2: Yes, I wonder how that doesn't China.
• 32:53
  Speaker 4: So I mean, as we think about the app, what
• 32:55
  Speaker 4: are the largest user based how much you mentioned twenty
• 32:58
  Speaker 4: two percent of their in app revue you comes from
• 33:00
  Speaker 4: in the United States? What about users are.
• 33:02
  Speaker 10: We users tend to skew younger. About ten percent of
• 33:05
  Speaker 10: their monthly active users come from the US. But we've
• 33:09
  Speaker 10: also seen this is sort of a separate, secular issue.
• 33:11
  Speaker 10: We've seen a little bit of i would say mobile
• 33:14
  Speaker 10: app fatigue, where you're seeing a pullback in usage of
• 33:17
  Speaker 10: cross dating apps streaming across the board, including social So
• 33:22
  Speaker 10: that's sort of a secular thing. And within TikTok, because
• 33:24
  Speaker 10: it grew so fast was sort of the first mover
• 33:26
  Speaker 10: in short form video, it's seen a pullback. Like it's
• 33:30
  Speaker 10: monthly active users were down in the fourth quarter one
• 33:32
  Speaker 10: percent year over year DA user down four percent, So
• 33:35
  Speaker 10: it's not seeing that same growth that the other platforms
• 33:38
  Speaker 10: are seeing because it was already sort of saturated.
• 33:40
  Speaker 4: Interesting, my main question is what does this mean for
• 33:42
  Speaker 4: small businesses because you've seen a lot of businesses that
• 33:45
  Speaker 4: have actually blown up through the use of TikTok, or
• 33:47
  Speaker 4: maybe you're introduced to new brands through the app. So
• 33:50
  Speaker 4: I'm curious how that will actually play out in effect.
• 33:52
  Speaker 10: I mean, I think they would be forced to try
• 33:54
  Speaker 10: to move to Instagram or to YouTube and try to
• 33:56
  Speaker 10: monetize on those platforms, but again, I don't know if
• 33:59
  Speaker 10: those are established are set up as to be as
• 34:02
  Speaker 10: lucrative for the creators. So they probably would have with
• 34:04
  Speaker 10: demand being forced to evolve their own platforms, but I
• 34:08
  Speaker 10: don't I think that would obviously be a huge impact
• 34:11
  Speaker 10: to those businesses.
• 34:12
  Speaker 2: And why are those why are those American owned apps?
• 34:17
  Speaker 2: And by the way, I use the term very loosely,
• 34:19
  Speaker 2: I'm being a little bit tongue in cheek. Right, they're
• 34:21
  Speaker 2: obviously publicly traded companies anyone can invest, not just American citizens.
• 34:27
  Speaker 2: But why aren't they as popular as these sort of
• 34:31
  Speaker 2: byte dance owned apps.
• 34:33
  Speaker 10: Well, I think TikTok in particular was a little of
• 34:35
  Speaker 10: a pioneer and short form video and that is what
• 34:40
  Speaker 10: kid we had, and that's why you were a kid then, right, Well,
• 34:45
  Speaker 10: that's why you saw the surge and investment for reels
• 34:48
  Speaker 10: for Facebook and Instagram for shorts, and I believe Snapchat
• 34:51
  Speaker 10: is building out spotlight. So short form video is where
• 34:54
  Speaker 10: people's attention and engagement is going. So because it's so
• 34:57
  Speaker 10: short attention span literally and in fact, because of that,
• 35:00
  Speaker 10: it's actually competitor or streaming and things like that. Think
• 35:03
  Speaker 10: because time is finite, dollars are finite, right, So it's
• 35:05
  Speaker 10: much easier to watch a less well produced one minute
• 35:09
  Speaker 10: video than a whole show, right. And you're even seeing
• 35:13
  Speaker 10: sort of the rise of short drama apps where there's
• 35:16
  Speaker 10: sort of very poorly acted stories that come out and
• 35:19
  Speaker 10: you watch you a minute of it.
• 35:20
  Speaker 2: Seema, we have unfortunately running up against your clock. We
• 35:23
  Speaker 2: could have had you on for the whole hour because
• 35:25
  Speaker 2: it is fascinating stuff and your data, your data is
• 35:27
  Speaker 2: really fascinating as well, seem As Shaw, vice president insights
• 35:30
  Speaker 2: over at Censor Towers and they collect that data.
• 35:34
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