Weak Jobs Data Fuel Fed Bets

25:13We want to get into how the data, the White House, the geopolitics continue to shape the investment environment. And we do have a good voice on that. Jason Granite is with us, Chief Investment Officer of BNY here in studio. Great to be with you. How are you? Oh, great to be with you. Since last time I saw you, I hope you enjoyed your summer. I've had a good summer. I can't believe it's September. I'm kind of bracing for what September might bring. Yeah, back to school has kind of hit me over the head as well. Exactly. For the first time, I don't have somebody going back to school in a while. Tell me how you're thinking, because I go back to when we were together in June at BNY Insight 2025.

25:46You and I spoke up on the stage after Kellyanne Conway, senior counselor to the president. And we talked a lot about presidential policies and what it means for the investment environment. What's changed since early June to now in terms of the investment environment and how presidential policies are impacting it? Has it gotten more certain, less uncertain? So, first of all, a lot has changed and nothing has changed all at the same time, right? We still have a very fast-paced, fluid policy environment where it feels like every day or every few hours, there's some other news to digest and process and what that means for markets.

26:26On the flip side, we have a lot more certainty because a lot of tales and a lot of weird outcomes have been taken off the table. And so one thing that's amazing to me is the 20 weeks leading up to right before Labor Day was the single biggest drop in the VIX ever over a 20-week period. So you go back 20 weeks from the early spring through the end of the summer and to think about all the things that happened to have the greatest drop in volatility over that period is kind of amazing. That's amazing. Good. Amazing. Bad. Compleycy always makes me a little nervous. Yes. But we've also seen record highs in assets.

27:01You've seen some other things that one big trend has taken hold on the curve and that's the curve's gotten much steeper. In the month of August alone, Tuesday's 10s went from 40 to 60. You know, that's a that's a pretty that's a that's a proper move over the course of a month. And so you have steeple curves. I heard you just discussing with your economist here, obviously, because we're expecting easing cycle to start here in the US. I think to me, it's more about pace of what's going to happen than if it will happen. But those have been some of the biggest changes in the operating environment from the beginning of the summer.

27:36I was surprised that you didn't say the so-called big, beautiful bill being signed into law, because that was a question in June that a lot of people had, whether or not the president would get that past the finish line. And he did signing into law in the early part of July. Does that remove uncertainty from the investing environment? Well, it definitely removed uncertainty because it took some of the debt ceiling and some of the treasury market kind of tails off the table. But actually, quite frankly, when the one big beautiful bill was signed, there were lots of compromises made. It feels like ages ago now, but some compromises made over the last few weeks.

28:13And actually, there's more. It looked more like the ecosystem before than after. So while the uncertainty of if will it get done, what will happen was cleared, you know, and we took some debt ceiling things off the table. And I think that's definitely one of the things that's contributed to this broader drop in volatility is that these things have just been cleared from the environment. Do you see a slowdown in the economy? Do you see weakness in growth? Do you see weakness in labor? So I don't see a lot of it. So, for example, GDP second quarter is revised up. You know, 3.3 is not something that my economics teachers would tell me to get nervous about.

28:54The labor market clearly, Chair Powell, communicated some uncertainty there. But, you know, as I as I joke with the team, if you were an alien studying economics and landed and looked at the data and what it looked like, you wouldn't necessarily see a lot of weakness. today's jolts figures from this morning, right? Showed a small, but that's a noisy time series. You know, that's not exactly the most linear time series to look at over the course of time. So, you know, while we might be starting to see some of it, you know, to say I see weakness would not be, you know, where I'm at. So what struck me in early June, speaking with Kellyanne Conway first, and then talking with you, but it seemed overwhelming to me that the audience was like, it's time for a rate cut.

29:39And I remember even kind of, I feel like cheering when it was mentioned, but from what you're saying that things are strong enough that maybe we don't need a rate cut. What's what's your, you know, informed view on what the Fed needs to do right now? I appreciate being informed. So, so a few things. One is I have sympathy with the view that policies on more may be tight than not. And so if you want to look at it from a perspective of, all right, We can take some rates out to get closer to a more neutral stance. I like I'm neither here nor there. I'm I'm I have sympathy with that view. Look, we still have inflation that is on the stickier side.

30:21I think the trend has started to trend up, not continue the trend down. Core is still pushing three, not two, which are our friends at the Fed would prefer. You know, the unemployment story and the labor story headline seems to be holding up fine. As I mentioned, 3.3 % growth is not a story. But, you know, so to me, I wouldn't be in the most rush to take rates down so fast. And by the way, sorry, Tim, the market here is telling you that we're not going to get to that different of a place. One year, one year is still around 3%. It's been this 290 to 310. Even with all these gyrations and moves, where we're going to land has not really changed out on the horizon.

31:02And so I think that makes sense. Jason, on the labor market, I want to home in on this and talk a little bit about immigration and immigration policy and the actual effects of immigration policy, the crackdown on illegal immigration. And in your view, what that is or could do to the economy and also the crackdown on necessarily legal immigration, but a decline in interest of people who are not in the United States coming to work in the United States, as we've seen over the last few months. What does that do to the economy? So two things I'm thinking about from that perspective. Number one, because you're changing the denominator here, maybe the amount of monthly job ads is lower than previously expected.

31:42We've heard this a lot. Yeah. And so and so if people were expecting over 100 K, if we get something closer to what's expected here this Friday, a 60 K, that might not be a degradation in the in the labor as much as kind of the history. Your your old time series might tell you should look at. That's number one. The second is that the expectation is this would flow through somewhere on wage pressure. And so would that show up in the inflation story? We're seeing, I don't know if it would show up so much in services, which was a little bit higher this time. But the inflation story is still, like I said, sticky.

32:18But this is more on the core side, not necessarily on the labor side. But that's where I would watch to see if it really shows up. You guys are such an important firm. You see so much in terms of money flows, investment flows. I don't know what is that what is that telling you about kind of where we are because I do think there's still some questions about what happens from here yeah so look there's been there's been two themes that have been very obvious you know one you've seen in the markets you saw you know the dollars down what 10 that's a line from the upper left of your paper to the bottom right of your paper and that's been somewhat consistent and the steeper curve has been somewhat consistent those have been two constant drum beats no matter what the headlines things are over the many, many months, those two things have been in place.

33:00You know, one of the things that we have seen in our data, people got very excited about the flows around the world in April. Outside of the U.S. to other places. But if you go back a year to last summer, over a year, so we have an iFlow product that the team there is wonderful. They do amazing analysis across the data to see what happens. And what we saw was actually there were some, our scored flows showed out from dollar assets going back to last summer and kind of, you know, obviously ups and downs, but the trend. And I'd say it's leveled off more recently. And that now aligns with what we see in the tick data, that you're not seeing the big outflows.

33:37So while we saw that trend - But is the money that went out coming back? Not necessarily, but it's not flowing out. And I think that's what's showing up in markets. I have to squeeze. My producer's going to be mad at me. But are you concerned about the independence of the Fed? It was something that we talked about in early June. we talked about with Kelly and Conway, just got about 25 seconds. Yeah. So look, I look at this about how the market's pricing and the market's seeing that we're getting to 3 % either before or after any of these things. So the market's saying, we're going to get to a fair neutral or our star neutral rate over a period of time.

34:12It might come faster or slower, but that's where we're headed. And I think the market will tell you if there's more concern. Okay. So good to see you again. Great to see you. Yeah. Happy September. Jason Granite, Chief Investment Officer of BNY. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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36:56You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. 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. Well, earlier we got a read on the U.S. economy courtesy of the FedBeige book. In keeping with that, we have a guest who has a very informed view on what's going on in the U.S. economy. His firm has over 2.5 million square feet of property assets, all owned and operated by Caruso.

37:34So all capital coming from within the assets include upscale retail resort office and residential properties across Southern California. He and his firm have been investing in and developing property since 1987. He's a philanthropist. Also, the president of the L.A. Police Commission was part of the board of water and power commissioners out in L.A. and has been involved in politics, notably running as a candidate for L.A. mayor in 2022. That's not all. He leads a nonprofit aimed at accelerating private sector involvement in the L.A. area's massive rebuilding effort after those wildfires earlier this year, as known as Steadfast L.A.

38:09A lot to get to with Rick Caruso. He's founder and executive chairman of Caruso, as we said, the privately held real estate company. He joins us from L.A. How are you? I'm doing great. Thanks for having me on. How are you? We're doing OK. Try to take in all the information that seems to come at us nonstop. up. I'd love to, if we may, Rick, start big and broad with you. The U.S. economy, you have a great vantage point. How would you describe it right now? I think it's still very robust, to be honest. Now, you know, the data that I look at is obviously off of our properties and our properties are growing in terms of attendance on a double digit basis year over year.

38:47So that's very strong. Our sales per square foot are continuing to grow at a very strong pace. And we have a lot of demand for retail space. So retailers, the best in class retailers are growing. You take a look at a broader picture. I think there's a little bit of softness out there in some of the categories. Luxury is not growing as much as it has. There's some luxury retailers that are suffering a bit, but I'm still pretty bullish on the consumer in the United States. We should remind everybody, the properties and the developments that you've done have really served at the higher end of the consumer.

39:24People even outside of the Los Angeles area would be familiar with the Grove, for example, or perhaps Miramar in Montecito, just around Santa Barbara, but the vast majority in the Southern California area. What about Southern California's economy, that economy that you focus on? What have you noticed in terms of changes in the last couple of years as we've heard the steady drumbeat of information about people leaving the region because of the regulatory environment, the cost pressures, what have you? Well, I think you're right. And I think it's a challenge. So when you take a look at LA City, in particular, LA County, you do have a very over-regulated, tough business environment.

40:04And it's very tough, especially on middle or small businesses to operate in the city because of the cost of operation. So you do have businesses leaving. And that's troubling because the backbone of our economy in Southern California are the small businesses. So, you know, one of the things that we push for, I push for as just a business person and a member of this community, is to be more business friendly and to start deregulating so we can grow businesses in the Los Angeles region. And I think as a state, we have a problem with that. We have businesses leaving the state of California, going to regions that are more business friendly, have less red tape, allow businesses to thrive on a much easier basis.

40:48So, you know, hopefully the tide will change on that. But it's certainly an issue in Southern California and I think California in general. Yet you remain, Rick, you have not moved to Arizona. You have not moved businesses to Arizona, to Texas, to Florida, these areas of the country where people from California have been going as a result of regulatory easing, one could say. Will you stay in California? Well, I'm bullish on California. I'm going to stay in California. I believe in it. I think we should be leading the nation in California. I think we should be leading the nation in Los Angeles.

41:23And I also have a practical problem. You can't pick up large projects and move them. I can't pick up the globe and move it. So I have to remain engaged, bullish, and hope we change the trajectory. And I think we will. I really do. I think people are at a point, certainly in the Los Angeles area, that they've realized that the path we're going down is not sustainable. We've got a budget in LA City that's a billion dollars out of budget. We have revenue decreases in LA City because businesses have pulled back and left. And we don't have new capital and investment coming into LA like we should. They're going into other regions, even immediately outside of Los Angeles.

42:03You have cities that are doing incredibly good jobs, the city of Glendale, the city of Culver City, that are more business friendly, are safer, cleaner, more supportive of, you know, great neighborhoods. And they're attracting the business at the cost of L.A. City. So we've got to change that. But I remain optimistic the change is coming soon. How are politics getting in the way of all of this? And I ask it, Rick, you've got California Governor Newsom and President Trump really in kind of high stakes feuds over a bunch of issues, whether it's California's universities, their environment, redistricting, redistricting, excuse me, and other issues.

42:40I mean, talk to me about that. And whose side are you on in all of this? Well, I'm on the honestly, I'm on the side of the people of L.A. and the people of California. Here's the problem that I have with the battle that's going on. We've got some really serious problems that need to be dealt with. Crime, shortage of housing, homelessness, et cetera, the cost of living in California. Having an argument between the governor and the president, between the mayor and the president, a lot of name calling going on, doesn't advance anybody's cause to solving these problems. So what I hope is that we get past the rhetoric, figure out a way to sit down, find some common ground and work together.

43:25Here in Los Angeles, we have 300 ,000 acres in Pacific Palisades, Malibu, and then also at an Altadena that was burned to the ground the size of two Manhattans, to put it in perspective for New Yorkers. We need federal help. We need federal funding. And we're getting none of that. And I don't think as the bickering is going on and the name calling is going on, that serves any purpose in advancing the negotiations of the discussions and getting federal help in Los Angeles. We're speaking with Rick Caruso, founder and executive chairman of Caruso, the privately held real estate company on the federal aid, on the federal funding.

44:06Have you had conversations with President Trump or members of the Trump administration expressing the need, in your view, for federal help for California in the wake of these disasters? I've had those discussions now with the president directly, but I've had those discussions with intermediaries. I've certainly had that discussion with our governor. And we need to find a way to get those discussions at a higher level and more productive. I know there's some talk, Governor Scott or Senator Scott was out here in Los Angeles and talking about it. But it really is critical path because you have hundreds of thousands of people that have been displaced.

44:45You've got jobs that have been lost. You have a massive, massive rebuilding effort that's going to take tens and tens of billions of dollars in infrastructure. So we need the federal help. It just has to happen. Well, you know, it should have. Yeah, no, I hear you. And you've since the fires, I know Tim and I just kind of preparing for this, listen to a lot of conversations you've had with various individuals about this in terms of what needs to be done. And, you know, what's interesting is need more federal help in terms of the rebuilding efforts. So then how do you feel when President Trump illegally used federal troops in L.A.?

45:20I mean, if you were mayor there, how would you respond to President Trump and his threats and use of troops like that's going on when obviously, as you say, there are efforts needed to do the rebuild? Well, I've been very clear. The federal troops coming into L.A. were wrong. And I don't I don't think it should have ever happened. I would have gone to court immediately. They finally did go to court. As you know, the court ruled that it was an illegal use of those troops to come into the city of Los Angeles in this region. So it's not right to be doing that. And we don't need to be doing that. I mean, that's just this this power grab that's going on does not advance the cause for any.

46:03It just doesn't. and the division between the politics is harmful to the residents of Los Angeles. We've got to find some common ground. We've got to act like grownups. We've got to put our differences aside as elected officials and figure out how to work together. And so I would hope that our elected officials find a way to drop the name calling, maybe get on a plane and get over to Washington and see if we can find some common ground to work together. We also have the Olympics coming here. So Los Angeles is going to be the world stage for the United States. And we need to be putting our best foot forward.

46:42And we're going to be need to be making a lot of investments in order to do that. And again, we need to have the help of the federal government to do that. So, Rick, I'm kind of waiting for the flood of my emails to come into my Bloomberg because I think people are listening would say, well, this is the kind of folk, you know, individual you do want in politics. So what's your latest thinking on maybe running again for mayor or possibly governor of the state of California? Well, I'm seriously looking at it. And I've got a team of people that are working on it, and I'll make a decision soon on that.

47:13And I'm looking at both paths, and there's good opportunities in both paths. But now I'm just remaining focused on what we're doing at Steadfast, making sure we're getting people back in their communities as quick as possible. Yesterday, I spent the afternoon in Altadena. We were giving out grants for small businesses to get reopened. In Altadena, we're doing the same in Palisades and in Malibu. So those kind of efforts are incredibly important to me because, again, small businesses are critically important for jobs. And we're giving out about a million dollars in grants over the next couple of weeks.

47:49So that's what I'm going to stay focused on for now. Politics will come down the road fairly soon. All right. We want to talk about some of those efforts you're doing in terms of the rebuild. I got to ask you, though, if you do run or make a decision, would it be for mayor or for governor? I don't know yet. We're fine. We're going to find out. I'll let you know. OK, I'm going to hold you to it. I'm going to hold you. Hey, Rick, I'm curious about just fire resilience in California, especially in the wake of Palisades. I'm from the Central Coast. I was glued to watch duty because of the Gifford fire just a couple of weeks ago.

48:24I mean, I spent, you know, 10 days just refreshing that thing, watching the progress of that fire. What is the right way for Californians to be ready for what has become just a part of daily life for a big portion of the year? Well, we have to have very smart brush management. You know, one of the problems in the Palisades, we had 40 years of brush that were not maintained by the state, the county or the city. That was rocket fuel. We have to have water. I mean, it was an unbelievable circumstance that we had reservoirs that are empty. So the competency level at the government and being prepared is critically important.

49:04L.A. City was not prepared for this fire. This fire, in my opinion, and I think in most people's opinion that have seen the facts is this fire could have been prevented. Certainly significantly mitigated in terms of the damage. And then we have to be encouraging people to build with noncombustible materials. Fortunately, the bridge that we built survived it, but it survived it because we were prepared to fight the fire. But equally important, we built it with non-combustible materials. And so it was able to withstand the fire around us. And we had a lot of smart people doing some things. So we can build better and smarter, but we also have to have better infrastructure.

49:47You know, the fire hydrants need to work. They were not working in Los Angeles. The reservoirs need to be full. And this is an opportunity right now to rebuild Malibu, Pasadena, Altadena and Palisades in a way for the next hundred years and to get the right infrastructure put in. It's an incredible opportunity to create these communities for the future. And that's why we need to work with the federal government, get the right federal funding and get some smart leadership locally that builds it back properly so that we can withstand fires and other natural disasters in the future. It can be done.

50:26Rick, the nonprofit you are leading, as we said, called Steadfast LA. You've got companies such as Netflix, Amazon, JPMorgan Chase, CBRE Group. So many who are working to restore these communities, but you guys are looking at everything. You're using AI. How long do you think it's going to take for the rebuild? And ultimately, are we talking about kind of the cities of the future in terms of the materials used and how it's done? You know, I think it's going to take there's going to be phases. I look at it. What's going to be happening one year from now, three years from now, five years from now, one year from now, for example, the little downtown of the Palisades is going to get reopened.

51:06We're going to rebuild the park. Steadfast is leading the park rebuilding. Schools are getting back reopened, and we're involved in supporting the school systems and getting reopened. Same in Altadena, same in Malibu. I think in three years, you're going to see a lot of the homes back and running. We have some really encouraging programs with an alliance of builders who are coming together to buy in bulk, be able to build less expensively. And so that's really important to do. And I think in five years, we're going to be in pretty good shape getting these communities back on its feet. The biggest challenge we have, honestly, is the lack of diligence, the lack of urgency from the local governments to get permits issued.

51:50And we've got to speed that up and cut the red tape both in the county and in L.A. City so people can rebuild. Hey, Rick, before we let you go, I want to talk a little about your family foundation that's been involved at this point for more than 30 years in Watts. the Caruso Family Foundation, and it serves organizations, a slew of organizations in the area. And I'm just wondering, you know, the focus is on health care. It's on education, at-risk kids. I'm wondering why we need organizations to step in and fill the gap that isn't necessarily provided by other organizations. Why do we need the Caruso Family Foundation to do this?

52:26When will your work be done and you won't have to help bridge that gap? Well, I don't think our work is ever going to be done, but I have to tell you something. It's one of the most rewarding parts of my life and my wife's life and my family's life that we can help kids that are at risk living at or below the poverty line. And you bring opportunities to them and the right education and the right support. We have kids that are living in some of the worst and toughest conditions in L.A. and they're now at Harvard, MIT, Georgetown, USC, UCLA, and they're just excelling and doing it on their own because they have the right ecosystem around them and the right start and the right support.

53:07And a government alone can't do everything. It never has been able to. You have to have philanthropy and people need to give back and lean in and support churches and schools and all these great organizations that we have out there. And what I would argue for is we need more people to be leaning in. We need more foundations to be giving back because the reward and the payoff is so great and so huge. And it really does change these communities because these kids are coming back and helping others. I just find it one of the greatest parts of my life is being involved and being able to see these kids just take off and do great things.

53:48Well, we're going to end it on that optimistic note that makes us, I think, all feel really super good. Rick, thank you so much. Really appreciate your time and efforts. And we're going to mark our calendars to check back with you about maybe that political decision you may make very, very soon. Rick Caruso, thank you so much. Be well. Founder, Executive Chairman of Caruso, joining us from L.A. This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

54:27You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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