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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hortern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hortern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.

Distraction's not going away, But one individual that is hyper focus on the actual policies that were discussed this week is of course the NATO Secretary General Jen Stoltenberg, and this was his final NATO summit. You're going to be retiring in the fall. You've been at the Helm for a decade, so you've seen a lot. We're going to get into some of those distractions that were happening at the summit, but I want to get into some of the policies. We just heard President Biden and they're talking about the limits they've placed on Ukraine, about striking deeper into Russia. He basically said they don't want to even capacity to hit the Kremlin. But Celenzi is asking to attack Russian jets on Russian air bases that strike Ukrainian cities. Do you get the sense that the US doesn't trust Zelenski.

Distraction's not going away, But one individual that is hyper focus on the actual policies that were discussed this week is of course the NATO Secretary General Jen Stoltenberg, and this was his final NATO summit. You're going to be retiring in the fall. You've been at the Helm for a decade, so you've seen a lot. We're going to get into some of those distractions that were happening at the summit, but I want to get into some of the policies. We just heard President Biden and they're talking about the limits they've placed on Ukraine, about striking deeper into Russia. He basically said they don't want to even capacity to hit the Kremlin. But Celenzi is asking to attack Russian jets on Russian air bases that strike Ukrainian cities. Do you get the sense that the US doesn't trust Zelenski.

Well, First of all, the US and other allies have loosened the restrictions that have imposed on the use of the weapons that have deniated to Ukraine. So Ukraine is now able to also strike against the military targets inside the Russia. And we need to remember what this is. This is a word of Russian Russia has attacked the Ukraine. That's violation in national law. Ukraine has the right, according to national law, to defend themselves. That includes also striking legitimate military targets inside the territory of Russia and allies. Some allies have given them that permission. All the allies have some restrictions, but they have been loosened up a bit.

Well, First of all, the US and other allies have loosened the restrictions that have imposed on the use of the weapons that have deniated to Ukraine. So Ukraine is now able to also strike against the military targets inside the Russia. And we need to remember what this is. This is a word of Russian Russia has attacked the Ukraine. That's violation in national law. Ukraine has the right, according to national law, to defend themselves. That includes also striking legitimate military targets inside the territory of Russia and allies. Some allies have given them that permission. All the allies have some restrictions, but they have been loosened up a bit.

But of course the most important ally sending them most weaponry is the United States, and they've only said you can go about forty kilometers. But to really the Lensky's point is to really start to push back the Russians and be defensive. They need to get on top of it, meaning going maybe three hundred kilometers. Do you think I mean you were part of these discussions. Do you think there's something the new United States? We've seen them before drag their feet and then make decisions that the lenscape is pushing for. Could you see them coming around to this?

But of course the most important ally sending them most weaponry is the United States, and they've only said you can go about forty kilometers. But to really the Lensky's point is to really start to push back the Russians and be defensive. They need to get on top of it, meaning going maybe three hundred kilometers. Do you think I mean you were part of these discussions. Do you think there's something the new United States? We've seen them before drag their feet and then make decisions that the lenscape is pushing for. Could you see them coming around to this?

This was an issue that was discussed at the NATO summit, and again some allies have no restrictions on the use of their weapons they have delivered. Others have resistions but have loosened them. The US is of course important, but half of the military support to Ukraine comes from a non US allaies comes from Europe and Canada. So when it comes to Ukraine and the Europeans have really stepped up, and with the decision we made at the NATO summit to have a long term pledge and to have a formula for burnishing, we will ensure that also in the future Europe and I will provide half of the military support because they have half of the economic strength of the alliance.

This was an issue that was discussed at the NATO summit, and again some allies have no restrictions on the use of their weapons they have delivered. Others have resistions but have loosened them. The US is of course important, but half of the military support to Ukraine comes from a non US allaies comes from Europe and Canada. So when it comes to Ukraine and the Europeans have really stepped up, and with the decision we made at the NATO summit to have a long term pledge and to have a formula for burnishing, we will ensure that also in the future Europe and I will provide half of the military support because they have half of the economic strength of the alliance.

Ukraine didn't get the formal invitation they were helping for, so they are still at the gates, knocking on the door and they're not let into NATO just yet. While they do this, though, it unnerves putin do you think they're in a sense almost the worst position, this security purgatory because they're still stuck in the middle because they're not yet an alliance, but even asking to be an alliance really underscores the issue that they're having with their neighbor next door.

Ukraine didn't get the formal invitation they were helping for, so they are still at the gates, knocking on the door and they're not let into NATO just yet. While they do this, though, it unnerves putin do you think they're in a sense almost the worst position, this security purgatory because they're still stuck in the middle because they're not yet an alliance, but even asking to be an alliance really underscores the issue that they're having with their neighbor next door.

At the summit, Allies were very clear that Ukraine will become a member. We also stated that this is a reversible path towards membership. But actually as important, or perhaps even more important than the language in the statement we agreed, is that actually we took actions to move Ukraine closer to membership. We established a Native Command with seven hundred personnel to organize the provisional training and military support to Ukraine. We with this long term pledge, and we stepped up the work to do what we call interoperability, to ensure that Ukrainian forces are fully interoperable with NATAL forces. These are concrete actions that actually helps them to prevail, to help Ukraine to prevail as a servant independent nation in Europe, and all of that moves them closer to membership, and then when the time is right, and AWLS agreed they will become members straight away.

At the summit, Allies were very clear that Ukraine will become a member. We also stated that this is a reversible path towards membership. But actually as important, or perhaps even more important than the language in the statement we agreed, is that actually we took actions to move Ukraine closer to membership. We established a Native Command with seven hundred personnel to organize the provisional training and military support to Ukraine. We with this long term pledge, and we stepped up the work to do what we call interoperability, to ensure that Ukrainian forces are fully interoperable with NATAL forces. These are concrete actions that actually helps them to prevail, to help Ukraine to prevail as a servant independent nation in Europe, and all of that moves them closer to membership, and then when the time is right, and AWLS agreed they will become members straight away.

As you know, politics overshadowed this summit. Everyone was talking about, if not officially, unofficially President Biden's age as the native Secretary General who's worked with both of these US presidents who are the candidates for November. Do you see potential change in the future US commitment to the alliance?

As you know, politics overshadowed this summit. Everyone was talking about, if not officially, unofficially President Biden's age as the native Secretary General who's worked with both of these US presidents who are the candidates for November. Do you see potential change in the future US commitment to the alliance?

I expect that the United States will remain a strong NATAL ally also in the future, for at least three reasons. One is that this is in the US security and interest to have a strong NATO in NATO. The United States has something Russia and China doesn't have more than thirty different anallies. Second, it's very strong bipartisan support in the United States for NATO in the public where have seen your opinion polls also confirming that, but also in the US Congress. I met congress men from both parties and they will express some strong support to NATO. And Thirdly, the main criticism from former President Trump and others have actually not been against NATO. It has been against NATO allies not spending enough on NATO and that has changed or just during the last years, we have seen significant increase in number of allies spending at least two percent of GDP on defense, which is a NATO ADI.

I expect that the United States will remain a strong NATAL ally also in the future, for at least three reasons. One is that this is in the US security and interest to have a strong NATO in NATO. The United States has something Russia and China doesn't have more than thirty different anallies. Second, it's very strong bipartisan support in the United States for NATO in the public where have seen your opinion polls also confirming that, but also in the US Congress. I met congress men from both parties and they will express some strong support to NATO. And Thirdly, the main criticism from former President Trump and others have actually not been against NATO. It has been against NATO allies not spending enough on NATO and that has changed or just during the last years, we have seen significant increase in number of allies spending at least two percent of GDP on defense, which is a NATO ADI.

So is your expectation to ignore potentially your expectations that Trump's rhetoric will not match his policies on the ground.

So is your expectation to ignore potentially your expectations that Trump's rhetoric will not match his policies on the ground.

Well, I worked with him when he was from president last and again I expect that the United States will remain a strong NATO ally because this also makes the United States safer and stronger. The United States is big twenty five percent of the world's GDP, but toget with NATO allies, we are fifty percent of the world's GDP, twice as big, fifty percent of the world's military right, and this makes the United States stronger. And the main criticism the fact that European allies didn't spend that has really changed. Twenty three allies spending two percent, and those allies are not yet a two percent have a promise to be there soon. So this has really improved, not least because the criticism from the United States was valid and Europeans have heard the call and have stepped up.

Well, I worked with him when he was from president last and again I expect that the United States will remain a strong NATO ally because this also makes the United States safer and stronger. The United States is big twenty five percent of the world's GDP, but toget with NATO allies, we are fifty percent of the world's GDP, twice as big, fifty percent of the world's military right, and this makes the United States stronger. And the main criticism the fact that European allies didn't spend that has really changed. Twenty three allies spending two percent, and those allies are not yet a two percent have a promise to be there soon. So this has really improved, not least because the criticism from the United States was valid and Europeans have heard the call and have stepped up.

Yen center Berg, thank you so much for your time. That was of course John jen Stilterburg, the outgoing Menogy.

Yen center Berg, thank you so much for your time. That was of course John jen Stilterburg, the outgoing Menogy.

Keith Learner of Truists staying bullish, saying this stocks are in a bull market that deserves the benefit of the doubt. Moreover, strong first half tend to lead to further gains by year end, albeit with normal corrections along the way. Near term, we anticipate the stocks will trade in a choppier fashion, but still the primary up trend appears intact. Keith's with us for more. Keith, I want to build on what Lisa has been talking about. I think it's perfect. It's the way to think about things. Yesterday we had some data the spoke to this goldilocks optimistic, constructive view of things. We also had some earnings that said the opposite, and Keith, I'm wondering how you view things both on the economic data side of things and through the lens of earnings in the last twenty four hours.

Keith Learner of Truists staying bullish, saying this stocks are in a bull market that deserves the benefit of the doubt. Moreover, strong first half tend to lead to further gains by year end, albeit with normal corrections along the way. Near term, we anticipate the stocks will trade in a choppier fashion, but still the primary up trend appears intact. Keith's with us for more. Keith, I want to build on what Lisa has been talking about. I think it's perfect. It's the way to think about things. Yesterday we had some data the spoke to this goldilocks optimistic, constructive view of things. We also had some earnings that said the opposite, and Keith, I'm wondering how you view things both on the economic data side of things and through the lens of earnings in the last twenty four hours.

Surean great to be with you all. Yeah, yesterday, it was an interesting day. We actually downgraded a tech in late June after upgrading it in November, and basically our view was that after a forty percent gain since we upgraded, that things have gone a little bit too stretched. And in July we saw the text have to continue to kind of grind higher. On the other side, what we saw on this kind of mean reversion trade, the road bands just got too stretched. The relative performance of small caps up until yesterday was at the on a six month basis. Was that the greatest underperformance we've seen since two thousand is twenty percent underperformance over six months. It's incredible. The average stock, the Eco weighted index, also had the greatest underperformance on a six month basis since since two thousand. So I think what we're seeing right now what happened yesterday, Jonathan, is the road band got two stretched, and basically a little bit of good news went a long way for the other stocks. We got that broadening that everyone's looking for. But that boarding is happening. Those big cap tech stocks were came in and the market below the surface was strong with the headline index was weak. So it's kind of interesting in the way this kind of played out.

Surean great to be with you all. Yeah, yesterday, it was an interesting day. We actually downgraded a tech in late June after upgrading it in November, and basically our view was that after a forty percent gain since we upgraded, that things have gone a little bit too stretched. And in July we saw the text have to continue to kind of grind higher. On the other side, what we saw on this kind of mean reversion trade, the road bands just got too stretched. The relative performance of small caps up until yesterday was at the on a six month basis. Was that the greatest underperformance we've seen since two thousand is twenty percent underperformance over six months. It's incredible. The average stock, the Eco weighted index, also had the greatest underperformance on a six month basis since since two thousand. So I think what we're seeing right now what happened yesterday, Jonathan, is the road band got two stretched, and basically a little bit of good news went a long way for the other stocks. We got that broadening that everyone's looking for. But that boarding is happening. Those big cap tech stocks were came in and the market below the surface was strong with the headline index was weak. So it's kind of interesting in the way this kind of played out.

I have this image in my head of kids in a rubber band fight, stretching it out and waiting to kind of let go. Then letting go yesterday was the potential for rate cuts on this sort of Goldilocks like kind of environment. At what point do you start to get concerned that maybe it's still well, not threading a needle perfectly.

I have this image in my head of kids in a rubber band fight, stretching it out and waiting to kind of let go. Then letting go yesterday was the potential for rate cuts on this sort of Goldilocks like kind of environment. At what point do you start to get concerned that maybe it's still well, not threading a needle perfectly.

That's some of the guidance that we've.

That's some of the guidance that we've.

Heard from banks, from other companies that have reported earnings so far. It is early days signals something else that might portend a bit more weakness.

Heard from banks, from other companies that have reported earnings so far. It is early days signals something else that might portend a bit more weakness.

Well, I do think we are seeing a cooling of the economy.

Well, I do think we are seeing a cooling of the economy.

We wouldn't call.

We wouldn't call.

It weak, and I expect that, you know, earnings will be fine, probably not the blowout that we've seen in the past, but enough to continue to move the market forward by the end.

It weak, and I expect that, you know, earnings will be fine, probably not the blowout that we've seen in the past, but enough to continue to move the market forward by the end.

Of the year.

Of the year.

Forward earning estimates continue to grind higher, and I will say, I will you know, I think the one lesson during this whole period we've seen the last couple of years is don't estimate underestimate corporate corporation's resiliency around profits. Right, we had this once in a generation pandemic and inflation backdrop, and we've seen corporations handle that, you know, pretty pretty well. So again, I do think we'll be a little bit more of a choppier fashion here near term. But I do think then the line trend for the market is still is still higher and the economy is just moving more towards a trend growth from this really post pandemic stimulus, you know boom that we had that's behind us.

Forward earning estimates continue to grind higher, and I will say, I will you know, I think the one lesson during this whole period we've seen the last couple of years is don't estimate underestimate corporate corporation's resiliency around profits. Right, we had this once in a generation pandemic and inflation backdrop, and we've seen corporations handle that, you know, pretty pretty well. So again, I do think we'll be a little bit more of a choppier fashion here near term. But I do think then the line trend for the market is still is still higher and the economy is just moving more towards a trend growth from this really post pandemic stimulus, you know boom that we had that's behind us.

Now, let's talk about some of the areas where we're seeing a broadening. Smaller banks, for example, which has been one of the most beaten up areas, and we saw some gains yesterday as we get some of the banker nings from some of the behemoths Chimping, Morgan, Wells, Fargo, and City.

Now, let's talk about some of the areas where we're seeing a broadening. Smaller banks, for example, which has been one of the most beaten up areas, and we saw some gains yesterday as we get some of the banker nings from some of the behemoths Chimping, Morgan, Wells, Fargo, and City.

Is there a takeaway that makes.

Is there a takeaway that makes.

You more positive, more constructive just in general on the financial financial sector.

You more positive, more constructive just in general on the financial financial sector.

I think timeframes matter, right, so longer term, we still actually like tech on a longer term basis, and we think there'll be an opportunity to redeploy there on a shorter term basis. I just think that areas like the financials, even the smaller financials, along with some of the industrials, even places like the reads, will likely to perform because expectations are so low. So I think by now I think we should be thinking more about how things are coming in relative to expectations. I think some of these areas that have been being up, where you know, the small cap index, some PCE small cap index was actually negative for the year up until yesterday, that the expectations are low. I think you think about the tech side, I think expectations there are a little bit higher. So I think I think we're going to have maybe more that bifurcation during this earning season.

I think timeframes matter, right, so longer term, we still actually like tech on a longer term basis, and we think there'll be an opportunity to redeploy there on a shorter term basis. I just think that areas like the financials, even the smaller financials, along with some of the industrials, even places like the reads, will likely to perform because expectations are so low. So I think by now I think we should be thinking more about how things are coming in relative to expectations. I think some of these areas that have been being up, where you know, the small cap index, some PCE small cap index was actually negative for the year up until yesterday, that the expectations are low. I think you think about the tech side, I think expectations there are a little bit higher. So I think I think we're going to have maybe more that bifurcation during this earning season.

Keith, give us some clarity on financial it's not exactly left for dead. Bank of America is up twenty four percent yet today, Goldman's up twenty four percent, Cities up twenty seven, close to twenty eight before today's moves. Granted, Keith, are you're talking more specifically about the smaller players, the regionals midscise.

Keith, give us some clarity on financial it's not exactly left for dead. Bank of America is up twenty four percent yet today, Goldman's up twenty four percent, Cities up twenty seven, close to twenty eight before today's moves. Granted, Keith, are you're talking more specifically about the smaller players, the regionals midscise.

Yeah, that's right.

Yeah, that's right.

Yeah, I'm sorry, Yeah, that's right, Johnthan. I mean, it was interesting. It was like yesterday during that big rebound, the big banks were actually down because what we've seen it wasn't just tech. It was this gravitational towards the highest quality companies in the different sectors, so not just tech. So what you saw yesterday is the smaller banks actually outperformed and the other ones came in a bit. I think we'll see more of that just because of that. Diverned is again longer term, as we moved past this kind of snapping back of the Lurber band, which I could I think could last, you know, weeks, if not a few months. I think the rotation will go back towards these larger quality companies. I just think it got overdone as far as just the quality theme on a very short trend basis, and we're going to see more of that unwine because position it has further to go based on our world got it? Keith?

Yeah, I'm sorry, Yeah, that's right, Johnthan. I mean, it was interesting. It was like yesterday during that big rebound, the big banks were actually down because what we've seen it wasn't just tech. It was this gravitational towards the highest quality companies in the different sectors, so not just tech. So what you saw yesterday is the smaller banks actually outperformed and the other ones came in a bit. I think we'll see more of that just because of that. Diverned is again longer term, as we moved past this kind of snapping back of the Lurber band, which I could I think could last, you know, weeks, if not a few months. I think the rotation will go back towards these larger quality companies. I just think it got overdone as far as just the quality theme on a very short trend basis, and we're going to see more of that unwine because position it has further to go based on our world got it? Keith?

Thank you, sir, Keith Learner of Truists on the latest in this market. So response to the data we just got and the data we've had over the last few weeks, and really placed to say that a good friend of ours on this program joins us now Mohammad al Aaron of Bloomberg Opinion and of Queen's College, Cambridge. Mohammed one for the went the week with you, sir. Let's just work through this economic data we got this morning and the data yesterday as well. When you look at the totality of the data, what kind of conclusions are you drawing currently?

Thank you, sir, Keith Learner of Truists on the latest in this market. So response to the data we just got and the data we've had over the last few weeks, and really placed to say that a good friend of ours on this program joins us now Mohammad al Aaron of Bloomberg Opinion and of Queen's College, Cambridge. Mohammed one for the went the week with you, sir. Let's just work through this economic data we got this morning and the data yesterday as well. When you look at the totality of the data, what kind of conclusions are you drawing currently?

So I have two conclusions when you look at the vitality of the data. One is based mostly on the CPI, which is that what we're seeing is demand destruction and a loss of pricing power. When Mike Mickey commented on it yesterday, he said, it's very.

So I have two conclusions when you look at the vitality of the data. One is based mostly on the CPI, which is that what we're seeing is demand destruction and a loss of pricing power. When Mike Mickey commented on it yesterday, he said, it's very.

Broad based.

Broad based.

Benign inflation numbers, and you're really starting to see the demand destruction and the loss of pricing power. And that's consistent with what we've heard from companies, and it will be consistent with what we will hear from companies next week and the week after. And it is also consistent with the macro data that's starting to weaken. So that's conclusion number one. Conclusion number two is on the cost side, we're living in a global economy that, despite China's deflationary impact, is not giving us the sort of deflation that we'd like. On the PPI, the supply site simply isn't there to help what's happening on the demand destruction, which is going to force something that you don't like me talking about, but I will that you know, there'll be a lot more discussion as to what's the right inflation target given the dual mandate. So I expect the FED to focus much more going forward on the two side risks, and within that much more on the employment side of those risks.

Benign inflation numbers, and you're really starting to see the demand destruction and the loss of pricing power. And that's consistent with what we've heard from companies, and it will be consistent with what we will hear from companies next week and the week after. And it is also consistent with the macro data that's starting to weaken. So that's conclusion number one. Conclusion number two is on the cost side, we're living in a global economy that, despite China's deflationary impact, is not giving us the sort of deflation that we'd like. On the PPI, the supply site simply isn't there to help what's happening on the demand destruction, which is going to force something that you don't like me talking about, but I will that you know, there'll be a lot more discussion as to what's the right inflation target given the dual mandate. So I expect the FED to focus much more going forward on the two side risks, and within that much more on the employment side of those risks.

You brought it up, so let's talk about it, and then we can talk about the labor market, Muhammad, the right inflation target. The question that the chairman's been asking for a while, and he talked about it in his testimony twice this week. It's their question, are we on a sustainable path back to two percent? Do we need more confidence? And he said repeatedly, we need more confidence. If some officials start to say that they believe they are confident we're on a sustainable path back to two percent, not two point something, not two point five, not around three, but two percent, why would you caution them? How are you thinking about the world differently? Why do you think that's going to be so difficult.

You brought it up, so let's talk about it, and then we can talk about the labor market, Muhammad, the right inflation target. The question that the chairman's been asking for a while, and he talked about it in his testimony twice this week. It's their question, are we on a sustainable path back to two percent? Do we need more confidence? And he said repeatedly, we need more confidence. If some officials start to say that they believe they are confident we're on a sustainable path back to two percent, not two point something, not two point five, not around three, but two percent, why would you caution them? How are you thinking about the world differently? Why do you think that's going to be so difficult.

So if they just say we're on the path to two percent and leave it wide open as to when we're going to get there, Already the chair has said we won't get in then twenty four. We probably won't get there in twenty five. If they leave it wide open, I'm fine with that. If, however, they feel that they need to deliver the two percent either this year or next year, I would worry as to all the undue losses to output. I would worry about the employment side as well.

So if they just say we're on the path to two percent and leave it wide open as to when we're going to get there, Already the chair has said we won't get in then twenty four. We probably won't get there in twenty five. If they leave it wide open, I'm fine with that. If, however, they feel that they need to deliver the two percent either this year or next year, I would worry as to all the undue losses to output. I would worry about the employment side as well.

John.

John.

The only thing keeping segments of the household sector, the lower income one and the small business going. The only thing keeping those going is labor income. And if we lose labor income, we no longer have the balance sheet strengths that we had before, and it will result in a much much stronger decline in demand.

The only thing keeping segments of the household sector, the lower income one and the small business going. The only thing keeping those going is labor income. And if we lose labor income, we no longer have the balance sheet strengths that we had before, and it will result in a much much stronger decline in demand.

Weh but what you're saying is fascinating at a time where Steve Shudo yesterday came on of Mizujo and said, his fear is, you are seeing companies lose pricing powers. We sell from delta and pepsi at the same time that that supply side inflation is still present. His worry is that leads to margin compression. Now, if the Fed cuts rates, they'll be able to pass along those price increases to consumers. Inflation will go higher from here. Why is that a parferable outcome in your view?

Weh but what you're saying is fascinating at a time where Steve Shudo yesterday came on of Mizujo and said, his fear is, you are seeing companies lose pricing powers. We sell from delta and pepsi at the same time that that supply side inflation is still present. His worry is that leads to margin compression. Now, if the Fed cuts rates, they'll be able to pass along those price increases to consumers. Inflation will go higher from here. Why is that a parferable outcome in your view?

So I listened to him, and the only question I asked myself is what about the lags? What about the lags? It's not going to happen instantaneously. In fact, we still have the lagged effects of one of the most concentrating hiking cycles in history. So the lags right now are working the other way. So it doesn't work instantaneously. That's not how monetary policy works.

So I listened to him, and the only question I asked myself is what about the lags? What about the lags? It's not going to happen instantaneously. In fact, we still have the lagged effects of one of the most concentrating hiking cycles in history. So the lags right now are working the other way. So it doesn't work instantaneously. That's not how monetary policy works.

So when you talk about the labor market, and let's go there, because yesterday we got a good sign in terms of initial jobless claims and how much they actually came down below expectations, why are you looking through that as an anomaly, a blip, rather than a sign of strength underpinning the economy.

So when you talk about the labor market, and let's go there, because yesterday we got a good sign in terms of initial jobless claims and how much they actually came down below expectations, why are you looking through that as an anomaly, a blip, rather than a sign of strength underpinning the economy.

So you said earlier, you know, how much should we conclude from a data that's every month, how about every week? The data, the jobless claims data is inherently noisy. If you were to take a more the average of three months, six months, there is absolutely no doubt that you will see that that indicator is not as strong as it was before. Now from week to week, it will differ enormously because it is noisy data.

So you said earlier, you know, how much should we conclude from a data that's every month, how about every week? The data, the jobless claims data is inherently noisy. If you were to take a more the average of three months, six months, there is absolutely no doubt that you will see that that indicator is not as strong as it was before. Now from week to week, it will differ enormously because it is noisy data.

At this point, when you talk about we should really be thinking about what the right inflation target is. What's the correct balance between inflation target and employment at a time when we're talking about something like four point one percent on unemployment and you're talking about inflation of two percent.

At this point, when you talk about we should really be thinking about what the right inflation target is. What's the correct balance between inflation target and employment at a time when we're talking about something like four point one percent on unemployment and you're talking about inflation of two percent.

Yeah, and it's this notion of undue damage to employment and to the economy. There's also a very important distributional effect here. So it's pretty easy now because the Fed told us that they expect unemployment at four percent. We are above that number in June, and we're lucky to go even higher than four point one percent. So already that part of the mandate is flashing yellow. Meanwhile, the other part of the mandate, the even though the Chair didn't call it as such this week but did call it last week, the disinflation trend is continuing. The big question is this inflationary trend to where and at what time. I think the Fed will keep this wide open. They'll keep on saying two percent is our target. We get there, when we get there, They're not gonna sort of be very precise as when they're going to get there, and they're going to wait and see how the economy economy accommodates. And that's the way of doing slightly high inflation targeting without calling it that.

Yeah, and it's this notion of undue damage to employment and to the economy. There's also a very important distributional effect here. So it's pretty easy now because the Fed told us that they expect unemployment at four percent. We are above that number in June, and we're lucky to go even higher than four point one percent. So already that part of the mandate is flashing yellow. Meanwhile, the other part of the mandate, the even though the Chair didn't call it as such this week but did call it last week, the disinflation trend is continuing. The big question is this inflationary trend to where and at what time. I think the Fed will keep this wide open. They'll keep on saying two percent is our target. We get there, when we get there, They're not gonna sort of be very precise as when they're going to get there, and they're going to wait and see how the economy economy accommodates. And that's the way of doing slightly high inflation targeting without calling it that.

If you are just joining us, welcome to the program. Lucky to have with us. Mohammad al Aerial moments after we got PPI dight, I want to go through some of that data for you, coming in a little bit hotter than expected. Going into that print, the rustle of small caps was up again by something like one percent, faded off the back of it, then started to climb again. We're positive again by three quarters of one percent. If you switch on the board and turn to the bond market going into the number yields will at the front end by a couple of basis points. We've erased some of that move. We're just about unchanged now on the session at about four point fifty eighty two. Not major moves, Mohammad, but they're the moves in the last ten minutes or so. You said something interesting, many things in fact, but I want to pinpoint just one, and you said the labor market was starting to flash yellow. When you hear from the FED chair, he describes the labor market as being strong and a reason to get this right. You've said before that this FED should be thinking about moving in July, not waiting until September. What is a couple of months between friends? Why do you think it is important to start getting going and get a moving earlier and sooner rather than later.

If you are just joining us, welcome to the program. Lucky to have with us. Mohammad al Aerial moments after we got PPI dight, I want to go through some of that data for you, coming in a little bit hotter than expected. Going into that print, the rustle of small caps was up again by something like one percent, faded off the back of it, then started to climb again. We're positive again by three quarters of one percent. If you switch on the board and turn to the bond market going into the number yields will at the front end by a couple of basis points. We've erased some of that move. We're just about unchanged now on the session at about four point fifty eighty two. Not major moves, Mohammad, but they're the moves in the last ten minutes or so. You said something interesting, many things in fact, but I want to pinpoint just one, and you said the labor market was starting to flash yellow. When you hear from the FED chair, he describes the labor market as being strong and a reason to get this right. You've said before that this FED should be thinking about moving in July, not waiting until September. What is a couple of months between friends? Why do you think it is important to start getting going and get a moving earlier and sooner rather than later.

If I was as certain as the market is that he was going to move in September, I will tell you that a couple of months there wasn't much in it. However, you have two factors that may complicate a September cut.

If I was as certain as the market is that he was going to move in September, I will tell you that a couple of months there wasn't much in it. However, you have two factors that may complicate a September cut.

For this FED, and I want to stress for this FED.

For this FED, and I want to stress for this FED.

One is they may get one bad data point and then because they're so overly data dependent and they're not looking forward enough, that could postpone that the first cut to November, and then you're starting to talk about it along the lane. The second issue the politics, John, is what does the politics look like when we get to September and how worried are they that that's going to be an inflationary shock coming after the elections due to policies.

One is they may get one bad data point and then because they're so overly data dependent and they're not looking forward enough, that could postpone that the first cut to November, and then you're starting to talk about it along the lane. The second issue the politics, John, is what does the politics look like when we get to September and how worried are they that that's going to be an inflationary shock coming after the elections due to policies.

So it's not as.

So it's not as.

Simple as saying, well, the market thinks is over eighty percent powability is going to happen because this FED is very impacted by high frequency indicators.

Simple as saying, well, the market thinks is over eighty percent powability is going to happen because this FED is very impacted by high frequency indicators.

Let's flip this on its head, because a number of guests have come on the show and said that the big fear for the FED and most the worst case outcome would be if they had to reverse course and high grates again at some point in response to an inflationary shock. Do you think that that isn't that big of a risk or it wouldn't be that problematic if they had to reverse course, say next year, after starting cutting, either in July or September.

Let's flip this on its head, because a number of guests have come on the show and said that the big fear for the FED and most the worst case outcome would be if they had to reverse course and high grates again at some point in response to an inflationary shock. Do you think that that isn't that big of a risk or it wouldn't be that problematic if they had to reverse course, say next year, after starting cutting, either in July or September.

So I do agree with the biggest fear.

So I do agree with the biggest fear.

They don't want to be in any way resembled to the nineteen seventies, and it is a huge fear. And already made two mistakes in the last three years, first a transitory call that was horribly wrong, and then secondly, at the end of last quarter, they got too excited about what was happening on the inflation numbers and they had to reverse their view, and we saw the amount of pivots. I've never seen so many pivots in forward guidance. The whole point of forward guidance is to provide smooth market adjustments. Instead, we've had this enormous number of pivots in the signals from the fair. So I understand that hesitation, and I agree that this will be in the back of their mind.

They don't want to be in any way resembled to the nineteen seventies, and it is a huge fear. And already made two mistakes in the last three years, first a transitory call that was horribly wrong, and then secondly, at the end of last quarter, they got too excited about what was happening on the inflation numbers and they had to reverse their view, and we saw the amount of pivots. I've never seen so many pivots in forward guidance. The whole point of forward guidance is to provide smooth market adjustments. Instead, we've had this enormous number of pivots in the signals from the fair. So I understand that hesitation, and I agree that this will be in the back of their mind.

If they do have to hike next year, I think it's a low probability.

If they do have to hike next year, I think it's a low probability.

But if they do have to hike, it is because something has happened, either externally we've had a major shock somewhere or the policies elsewhere fiscal trade have fundamentally changed and I think people will understand that and they won't blame the FED. They'll see that there's something else that has happened else where. No one blamed the Bank of England and when it had to respond to the list trust moment. I don't want to say we're going to have the US is going to have a list trust moment. It will not, But people understand the credibility of an institution when the shock to inflation is coming from outside.

But if they do have to hike, it is because something has happened, either externally we've had a major shock somewhere or the policies elsewhere fiscal trade have fundamentally changed and I think people will understand that and they won't blame the FED. They'll see that there's something else that has happened else where. No one blamed the Bank of England and when it had to respond to the list trust moment. I don't want to say we're going to have the US is going to have a list trust moment. It will not, But people understand the credibility of an institution when the shock to inflation is coming from outside.

Muhammed found a question do you have more confidence more faith in Shairman powers for the Reserve or Gareth Southgate's England team.

Muhammed found a question do you have more confidence more faith in Shairman powers for the Reserve or Gareth Southgate's England team.

Wow, that's a really, really tough question, John, And I think you know, at every interview you get very close to the line as Pau mcculor used to say, that setarway his courage from stupidity.

Wow, that's a really, really tough question, John, And I think you know, at every interview you get very close to the line as Pau mcculor used to say, that setarway his courage from stupidity.

I think I'm going to stay on the right side of that line.

I think I'm going to stay on the right side of that line.

Mohammed's going to catch up. It's a lot loaded in that response. Muhammed al Aarian there the brilliant Mhammad al Aarian from Queen's College, Cambridge. This is the Bloom Surveillance podcast bringing you the best in markets, economics and geo politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.

Mohammed's going to catch up. It's a lot loaded in that response. Muhammed al Aarian there the brilliant Mhammad al Aarian from Queen's College, Cambridge. This is the Bloom Surveillance podcast bringing you the best in markets, economics and geo politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.