Wall Street Traders on Hold in Run-Up to Jobs Data

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2:12Radio. News. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek on Bloomberg Radio.

2:39Carol Massar:Well, the big debate in the U.S. Treasury market over the extent of Federal Reserve interest rate cuts ahead is about to heat up, Tim. We've got a string of pivotal economic data releases, and it starts tomorrow with a bunch of reports on the labor market. Yeah, it'll go a long way in filling the void created by the U.S. government shutdown. Delayed announcements of monthly employment and inflation figures. And then early January brings in more key jobs data. We've got with us Michael McKee, Bloomberg TV and radio international economics and policy correspondent. He joins us here in the Bloomberg Businessweek studio.

3:07Also here, Megan Robson, head of U.S. credit strategy for BNP Paribas. She's going to jump in with us in just a minute. Jobs Tuesday. We don't usually say that. We usually say Jobs Friday. Usually say Friday. We haven't said that in a long time. But are we getting a complete picture? No, we're not. We're getting a partial picture, and it is also an old picture, so it isn't clear exactly how much difference it will make. I will defer to the smarter person to my left in terms of what the bond market is going to do about this. But you have to realize we're not going to get half of the October. We're getting October and November, but not half of the October report.

3:43We're not going to get the household survey so we don't get the unemployment rate, which is what matters to the Fed. And we don't know in the October report how many of the actual categories in the establishment survey we're going to get either. Because a lot of that comes in electronically, and some of it they have to call and get it. And whether they were able to call and get it or not, we don't know. Which means for November, we're going to have a number for how many jobs were created. But compared to what? Is that compared to September or is that compared to October and November? I mean, it's going to take a little while to figure all of this out.

4:20We also have one other big complication, and that is the federal workers. They were furloughed in October. So depending on when they were off the job and how many were off the job, they will count as not being employed. And then the doge workers, the people who were fired or who took early resignations and had a severance, that severance ran out on September 30th so that they would fall off as well. So we could have like a big negative number, but you drop the federal workers out and it's slightly positive. And I think that's kind of what people are looking at with this 50 ,000 consensus in the survey.

4:58Carol Massar:All right, wait a minute. So we're not happy when we're not getting data, and then we're not happy when we're getting kind of weird data, right? I mean, Megan, is there anything to it? Come on in on the conversation. Is there any value in this for you? I think that the market does want to see some employment data. So I think it's good that we're starting to, even if it's backfilled and will be noisy, I think it's good to have that data. I think investors are also starting to think about 4Q earnings. And typically you just have GDP in other economic data that gives you a sense of how earnings will come in.

5:30Carol Massar:So I think it will be a little bit of a relief to get past some of this data and see where it comes in. Mike, if you're Fed Chair Jay Powell or a voting member of the FOMC, are you like, why couldn't we have gotten this data last week? But would it have changed any of the way that people on the committee voted? We don't know. If we get a big surprise one way or another, it might have. The reason they couldn't is the Fed meeting was very early and they extended the survey period for November to be able to get as much as they could. because they not only got started late, but they had Thanksgiving in the middle of it.

6:08So they weren't able to change it or get it in time for the Fed meeting. But I think what you'll see is Fed officials, they'll give us a feel for how they think about what it's telling them about the economy. But they're really going to wait for the December numbers, which we'll get on January 9th if we don't have another government shutdown. and that will be more of the basis on which they'll make a decision for the end of January meeting. Although, also with the CPI numbers we're gonna get on Thursday.

6:38Carol Massar:Right, and I wonder if they're more important. We did know that Fed Chair Jay Powell, you guys know this, that he did say there's pressure on both the labor and inflation mandates on the Federal Reserve, and he talked about this being challenging. When it comes to inflation, Stephen Myron, the Fed governor recently appointed by President Trump, He shared his view once again on U.S. inflation. He spoke earlier today at Columbia. Here's what he had to say, guys. There was a large bout of inflation that resulted in an increase in prices after the pandemic. While American families are still rightly distraught with that experience, unhappy with affordability, unhappy with affordability, prices are now once again stable, albeit at higher levels.

7:13Carol Massar:Policy should reflect that. Megan, Mike, you both smile. Is he right, Megan? So we at BNP were actually forecasting inflation to accelerate a bit into 2026. We think there still will be pressure on goods inflation. Because of tariffs or because of? Yeah, based on tariffs and some of the delayed impact of goods. So we have inflation target around 3%. And so we do think there also will be some bumpiness in the labor market, potentially, as Mike highlighted for the January report. So we think we get one more cut next year, but that inflation will prevent the Fed from really extending a cutting cycle beyond that.

7:51It's pretty much a universal view that we're going to see inflation accelerate because of tariffs into 2026. There's some question about when that falls off. Jay Powell said six to nine months it could be that we see this. But the interesting thing about what Stephen Myron said, and remember he's there to give Donald Trump's viewpoint, was that inflation has stabilized, albeit at higher levels. Well, wait a minute. That's what you're supposed to bring down. So then there's inflation. But that brings up a good point, and that's about the Fed's 2 % target and whether or not that's actually a realistic thing right now.

8:24What do you think, Megan?

8:26Carol Massar:I think that— Given the environment that we're in. I think it's going to take—I mean, look at their forecast. I think it's going to take some time for the Fed to get to the actual 2 % target. And it does seem like, although they're looking at both sides of the mandate, Powell does still seem like he's biased towards the unemployment side of things. So if anything, we would likely get more cuts based on that posture. Mike, will CPI help us out here in terms of giving us some more good information on inflation? I don't think it'll give us a specific amount of information, unless it's a surprise, as I say, that will change Fed feelings, because I think they have a pretty good feel for where we are within a certain range.

9:11But the thing that is going to get people is when do we have a feel for what unemployment is going to do versus inflation? And that's what you need to have is the comparison, because right now they're betting on unemployment being worse. They're looking at the SOM rule, basically, and saying when unemployment starts to accelerate, it goes up fast. If it doesn't do that, but inflation doesn't come down, then they're going to flip their mandate and start worrying about inflation more.

9:41Carol Massar:You guys have been watching the Fed for a long time. What does, if both of them are challenged, what are they going to be most? Let's say jobs gets better, but inflation gets, like, which one is more important? I guess was what I'm going to ask. In terms of the mandate, I'm not laying it out well. But I mean, does one of them matter? They don't want to say one matters more than the other. But does one typically matter? What their official strategy is, is you look at the one that is farthest away from the goal that will be the hardest to bring back to where you want them to be. And right now, they think that's going to be unemployment because they had been making progress on inflation until we got the tariffs and things started to turn around there.

10:25But there's another argument that there are some embedded inflation problems in the numbers that are not related to tariffs. And that's what they're going to have to be able to tease out here and figure out. I was thinking when Megan was talking, since 2015, roughly, when they started putting out these summary of economic projections, 2 % has always been their goal. But every year, they move it two years out. Right now, we're not going to see 2 % until 2027. Well, last year, it wasn't going to be until 2026. And the year before that, it wasn't going to be until 2025. So can they hit it? That's an interesting question.

11:03Two years from now, maybe. Two years from now. Two years from next year. The Fed does two years, Donald Trump does two weeks. Well, Megan, on the dual mandate, what Carol was getting at, and this seems to be the core tension between different members of the FOMC, which one is the priority, in your view? What needs to get under control?

11:21Carol Massar:So we think they will protect what they will do, not necessarily what they should do. We do think they will protect the labor market. And so we think they are biased towards more cuts. I think that's partially why you're seeing asset prices so elevated. At the risk of inflation. At the risk of inflation, because you have the Fed at your back. You know, if unemployment, we do see a nonlinear sort of rise in the labor unemployment numbers like we did over the summer. the Fed is there to really cut. For now, we haven't seen inflation rising to any degree like we did outside of the pandemic. So I think that is lower on the priority list for now.

11:59Carol Massar:All right. So I want to ask you, Megan, I want to stay with you for a moment in terms of the credit markets and what we're seeing. It seems like we had a little bit of stress earlier this year, right, in terms of some of the regional, some of the, you know, kind of subprime auto lenders and so on and so forth. What are you seeing right now? So I think the debate right now is really around are we seeing a transition from deleveraging to releveraging and for most of 2025 through third quarter we still really saw corporates very disciplined not much borrowing higher rates really impacted uh debt issuances and then that sort of started to change in third quarter with the hyperscalers and just really chunky m a deals um in the in the expected pipeline so for next year we do think there will be a pickup in supply and ends to the quote unquote bond scarcity story, but we're still forecasting less supply than consensus.

12:50Carol Massar:We think that rates are still elevated and they will dissuade some sectors outside of the known utilities, hyperscalers from really borrowing too much. So I think that's the key story, especially in the investment grade markets. We talk a lot about the K-shaped economy and that's kind of been like the backdrop of our conversations over the last few months. You note the credit market is K-shaped. What do you mean by that? So K-shaped, I think it means a couple of things. You have some sectors where you're really seeing CapEx expectations surge and that they're expecting growth and you're seeing borrowing on the back of that.

13:29Carol Massar:Technology is a great example. I think utilities is another example. CapEx has increased 20%. Related to the tech spend. Related to the tech spend. We're going to talk about like the New York power spend really a little bit later on this hour. But on the other side, you have sectors much more tied to the consumer. They're growing much more slowly, and they're much more cautious about adding leverage. So we do think that there's a dichotomy there. And so overall, credit can perform well. And a part of it is you're not seeing that real animal spirits in a lot of the market. Mike, when you think about the economy and moving into a new year, I mean, it's hard to believe all the kind twists and turns we had this year but what are the major risks to the economy next year?

14:10Well it's interesting because the president is touting and some economists are writing into their forecast the idea that people are going to get bigger tax increases tax refunds this year because of the the president's tax cuts and then they're talking about some sort of bonus checks that's probably not going to happen but the offset to that is the whole thing with the Obamacare premiums. Because if you're going to get$1 ,500 back on your taxes, but you're going to have to pay$2 ,000 or$3 ,000 a month, that's not going to go very far. So we don't really know what's going to happen. And I think the overhang of all this is confidence.

14:50I've said this many times before. Recessions are when confidence falls. And so it depends on how people are going to be feeling, which is kind of the tension you see coming out of Washington is the Republicans are saying to the president, get out there and tell people how wonderful it is. And then people, when they hear him say, no, not so much. And so the Democrats are going to be piling on that side and the Republicans on this side. And we'll just have to see how people feel as the year goes on and all these things come at them. Yeah, Megan, on that, the way that people feel obviously has a way, an impact on the way that they spend, on the way that they think about the economy.

15:27How are you looking at that going into 20 %?

15:29Carol Massar:I think for credit investors, there are some places you can position for some of the weakness and strengths that we're seeing on the consumer side. In the high yield market, we like mortgage servicers and originators. We think as rates continue to fall down and you have exposure to more medium, upper income consumers, that sector can perform well next year. And then on the other side of the coin, sectors that are exposed to not only lower income, but also that middle tier that's starting to show weakness, we think are places you might want to avoid. So leisure, out of home entertainment, places like bowling alleys, movie theaters in the high yield market have really struggled more.

16:08Carol Massar:And that's places we'd be more cautious on. You were going to say you were just at a bowling alley. No, I did. I did buy a bowling alley over the weekend, but I did not go inside. We hear from the cruise operators that everything is awesome. Awesome. Super rosy. Super, super rosy. You sound more cautious. I think the cruise lines are interesting because a lot of their revenue is pre-booked, so they could be booked for all of 2026. And so there is this sort of lagged impact on weakness that we haven't seen on the cruise lines. But to your point, we've seen cruise lines has been an area we've liked.

16:38Carol Massar:We've seen upgrades and they've done a great job deleveraging their balance sheets. Mike, 20 seconds. Fed Williams, John Williams, the president of the New York Fed, said monetary policy now well positioned for 2026. When he talks, it's important, right? Well, when he talks, he kind of gives you an idea of where the chair is because he's the vice chairman of the Open Market Committee, which by tradition never dissents. But we already know that because that's exactly what Powell said. So they're out delivering a unified message now. Team, all aboard. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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20:46Carol Massar:You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. It was a report in the Albany Times Union and they said over the weekend, National Grid and other utilities are spending billions of dollars to prep New York's electric grid for a generational shift. And it includes things like all those AI data centers that are being built in the state and across the country, really. Yeah, the paper went on to note that New York utilities are spending that much money to modernize the grid for those facilities.

21:24Their investments for New Yorkers, many of whom are already struggling with utility costs, are going to have to pay for that in the coming years. But the idea is that we're prepping it for the future.

21:34Carol Massar:Exactly. Exactly. But so how uncomfortable as the build out happens and the stress on the grid continues. Let's see what our next guest has to say. We've been looking forward to this. Sally La Brera is president, National Grid New York. It's a subsidiary of the publicly held electricity, nat gas and clean energy utility, National Grid PLC, serving millions in New York and Massachusetts. National Grid ADRs trade in the U.S. They've got about a$75 billion market cap. They're up more than 27 % year to date. So nice to have you here. How are you? Great to be here. Thanks, Carol and Tim, for having me.

22:04Carol Massar:Well, it's great to have you here. How would you describe power demand today and how that demand is growing, surging, use whatever word makes sense so that we understand what's the current situation? Sure. So at National Grid in New York, we serve more than 4 million customers. And we deliver natural gas and electricity to those customers. And our focus is on doing it safely, reliably, and affordably. But the reality is there is increasing demand for energy across the entire state. And we serve through upstate. We serve in Long Island. And we also serve in New York City. And it's our job to deliver that energy, to meet that energy demand, where, when, and how folks need it.