Bloomberg Surveillance TV: September 11th, 2026

0:00If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the Flipside wherever you get your podcasts. for big business ai opened up a world of promise but that world of promise turned into a world of pain cost spiraling data trapped security and governance risks multiplying and roi out of reach that's why enterprises turned to boomi to connect data apps and ai helping them operate securely efficiently and at scale boomi turns a world of ai pain into a world of ai gain as boomi says We got you.

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1:49This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Haudern. 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 6 to 9 a.m. 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. David Kelly of JPMorgan Asset Management writing, the August CPI report is shaping up to be one of the most important inflation prints in years.

2:21We estimate that consumer prices rose 0.3 % month over month. David joins us now for more. David, good morning. Good morning. Is that enough to get it done next week? It's very close. I mean, if we come in a full tenth lower than consensus on headline and core, if that happens, then I think the Fed is on hold. If we come in at consensus, it's a jump ball. And then if we come in high, of course, they will raise rates. I don't think they should. I mean, I think, first of all, this oil thing, even though we are a net exporter of oil, if you get a lot of oil revenue in, it's helping very rich oil producers in the United States.

2:59It is not trickling down to the average American. 70 % of Americans, paycheck to paycheck. They didn't get any further fiscal stimulus this year. They're used to living off stimulus checks of various kinds. We've got virtually no payroll job growth. We've got very slow wage growth. So they're getting squeezed anyway. and they will get squeezed more by higher gasoline prices. So it is not an inflationary effect in the economy. The asset test the central bank should look at is, is this growth causing wages to accelerate? It is not. We have seen four consecutive months in which wages have gone up, less than CPI inflation, regardless of what happens with real wages.

3:35Admittedly, you'll need the CPI to be able to figure that out. But we know the wages aren't accelerating at all here. And in that environment, there may be inflation coming from outside areas, but it's not coming from within the economy. The Federal Reserve can only affect what's going on within the economy, and they shouldn't tighten because of oil and disinflation. Well, let's sit on labor. You said there was virtually no payrolls growth. It's north of 70k, the three-month average at the moment. Some people believe the break-even rate's closer to zero because we've had a negative supply shock to labor.

4:02How close are we to generating some kind of wage growth, given those dynamics? Well, you would think we'd be there already, wouldn't you? And this is the lowest year-over-year wage number we've seen since May of 2021. It is not a secret that you can't actually find good help. But yet workers, we have a very asymmetric power structure in the labor market. American workers find it very hard to get a pay increase. And if they haven't been able to get a pay increase up until now, I don't see why they're going to be able to get a pay increase going forward. So we're still not seeing that. I mean, 94 % of American private sector workers are not members of a union.

4:37They read onto that much bargaining power. We're not seeing that wage growth. At this point, there is an argument that regardless of whether the Fed can control what's going on with the price pressures, that by raising rates and signaling that they will combat inflation, they will bring down inflation expectations enough to curtail some of the bond sell-off that we're seeing at the long end of the yield curve. Why do you disagree with that? I've seen this movie before many, many times. Every time there's a start of a rate hiking cycle, people say, well, maybe they'll just go once and that'll tell people they're really tough.

5:09and then long rates will come down. And what happens is around tables like this, the next question is, so what are they going to do at the next meeting? When's the next hike coming? And it always builds in this expectation of a series of hikes. Oh, they're maybe still behind the curve. And so you end up with rising long-term rates. I don't think that'll work at all. What would help though, actually is if the Fed telegraphed its punches. I know that it makes it more exciting for all of us, but under Yellen and Bernanke and Powell, we very rarely had a meeting in which we didn't know what was going to happen because it would let us know forward guidance.

5:41Right now, we're actually building in, I believe, a Fed risk premium into the long end of the market. Part of the reason you've seen this spike up in rates in the last few months, I believe, is because people who are lending money to the US government don't know what the Fed's reaction curve is going to be, reaction function is going to be. Well, if you don't know, you have to get a little extra compensation for that. So I think Kevin Walsh is dead wrong on this one. The Federal Reserve, and I hope the task force realizes this, the Federal Reserve should at least provide a framework of forward guidance.

6:09They don't have to say where rates are going to go, but sorry, not forward guidance, so much as the reaction function. They've got to say, if the economy goes this way, that's how we're going to move rates. That reduces overall uncertainty. That's the easiest thing they can do. That won't cost anything to bring down long-term rates a bit. If the Fed hikes rates next week, do you sell equities? I will back off on the most expensive equities in the US. Yes, I think it's, you always have to think about it. I'm not trying to do a tactical timing here, but I do think that the most expensive equities are essentially discounted by a long-term interest rate.

6:46And if the Fed hikes next week, my view is that pushes up long-term rates. And if it pushes up long-term rates, it is negative for long-duration equities, which are those which have got the highest PE ratio. So I would redistribute. I think there's plenty of opportunities in value equities, in medium and small cap equities in the United States, in international equities outside of some EM names. So I think there's a redistribution. But yeah, I'd be a little bit more nervous about the frothiest part of the U.S. equity market. David, what do you make of those who say that if the Fed doesn't hike rates, it shows that they're not credible?

7:14I don't think that Ben Bernanke or Janet Yellen or Jay Powell really had a credibility problem. Not one that they should worry about. I know Jay Powell, people gave him a hard time because he said that the inflation in 2022 was transitory. Well, you know what? It actually was. What happened is we had transitory inflation because of the pandemic and the policy response. but that transitory was extended by Ukraine. But again, there's nothing to... And stimulus checks, no? Well, yes, exactly. That's what there's a policy response. And that is why you don't want to do more stimulus checks. I mean, let's be honest about what caused...

7:46Let's be honest about what caused the inflation in 2022. It was all those checks given to people who live paycheck to paycheck. You give them another paycheck, they will go out and buy stuff that isn't on the shelves and that pushes up prices. That's what caused the inflation. You do not want to go back down that road again. Not to just relitigate the pandemic for the sake of it, but Chairman Powell doesn't get an entirely free pass. It wasn't just transitory. He was aggressively buying the bonds that were being issued to fund the stimulus checks, even though nominal GDP was flying and inflation was well above target.

8:11And he carried on doing QE. Well, I think that he did do that. And I don't agree with that because I think that helped fuel a housing bubble, to be honest, a bubble on home prices. But the primary sin was on the federal government putting too much stimulus in after it was obvious that the economy was rebounding. Now, I don't blame them for the first set of stimulus checks. who knew what was going to happen. But after that, there should not have been any subsequent stimulus checks because the economy was clearly rebounding and it was clearly going to fuel inflation. To your point, we have seen a series of negative supply shocks thereafter.

8:42Typically, textbooks says look through them. Kulia Sam was on the program earlier saying, no, it's gone on too long now. And they just layer on top of one another. And then you start to see second round effects potentially off the back of that as well. Why is that the wrong way of thinking about supply side shocks? Because central banking is a little bit like parenting. You've got to have endless patience. I mean, if these are, you know, maybe they are supply shocks one after another, but you're not going to fix it with demand medicine. And there's no point in making the problem worse by squeezing the vast majority of American consumers, putting them into sort of even tougher or tougher economic times to deal with a supply shock that you can't fix.

9:16There are fixes, but they're all in the other parts of Washington. They're not in the Federal Reserve. Right now, very few people are predicting any kind of downturn anywhere in the near future in the United States. And yet, if oil prices remain high, that's going to crimp the consumer. If overall prices and inflation remains high, that's going to crimp appetite significantly. And if the Fed raises rates, you're saying that will take some of the dynamism out and hurt people. It seems like, based on that, maybe people are lowballing the chance of downturn. Is that correct? No, I wouldn't go that far.

9:45I mean, our probability of recession is still very low, absent some genuine shock that we're not anticipating at this stage. We have kind of a bumper lane economic environment right now. No matter how many shocks you hit one side or the other, the ball tends to head down the middle. If you look at the last year, real GDP growth was 2.1%. The year before, it was 2.1%. Next year, I think it's going to be a little 1.5 % to 2%. It's going to be, you know, all this AI capital spending will continue, and it will continue to push growth forward. The four years of equity market gains are fueling a lot of spending at the top end.

10:18I do realize, and I don't think people focus enough on how much the rest of consumers are getting squeezed here, but it'll net out, I think, to slow demand growth. And if you've only got, you know, if you've got, you know, the working age population actually shrinking by 20 ,000 per month, that is enough to cause the unemployment rate to stay low. And so we do not see a traditional recession. Do you put the bumpers down when you go bowling? You haven't seen me bowling. I haven't been bowling for a long time. Have you ever done that before? My key shot is if I hit both bumpers, it will click, click, click.

10:46Exactly. That's your technique. It's my technique. I've actually seen someone go over the bumpers, which tells me just how bad. Yeah, exactly. You haven't let go. You don't have to. Yeah. Long way. David, thank you. Appreciate it. David Cuddy there of JPMorgan, SM Management. Stay with us. More Bloomberg Surveillance coming up after this.

11:08If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside Podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the flip side wherever you get your podcasts. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast Business keeps you totally in step with secure AI-backed networking built to power the way modern business gets things done today in more than 100 countries around the world.

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13:05Tiffany Wadig of PIMCO joins us now for more. Tiffany, welcome to the program. What's your initial reaction to this report this morning? Yeah, it's very much the same as the commentary that I'm hearing from you guys. And thanks for having me. You know, I think this does, you know, result in a Federal Reserve that is hiking interest rates. I think they were very clear about framework guidance ahead of this report, not forward guidance, basically to say if we're seeing inflation that's not moderating at a pace that we would like it to moderate, then we're going to have to gradually adjust policy.

13:39So I think that's likely what they're going to do. The market, I think, is rightly pricing that right now. The last I looked, the market was pricing maybe 75 basis points of cumulative hikes. That implies that they're taking back what the cuts that they did last year. And I guess just taking a step back from all of that, I think ultimately here, we are still dealing with a series of supply shocks to the U.S. economy, to the global economy. Central banks, not only the Fed in the U.S., but elsewhere, they are worried about the risk that inflation expectations start to drift higher. So I think hikes here to really ensure that credibility makes a lot of sense to us.

14:25But the last point I would just make on this is that we don't think we're in a 2022 type of environment. That is a very different environment than we are now. Labor markets were much tighter then. We aren't seeing labor markets as a source of inflationary pressures. So we really view these hikes as risk management hikes here. Barring any leaks, we are in a blackout period. So we're not going to hear from any Fed speakers anytime soon, Tiffany. The last time we heard from them, there were core members of that committee, New York Fed President Williams, Governor Waller, who pointed to underlying inflation trends as being quite favorable.

15:00And they weren't leaning towards hiking rates. In fact, it looked like, sounded like they were leaning towards holding. Of the doves going into the meeting next week, Tiffany, what kind of argument can they make next week to hold? Well, I mean, I think, like I said, I mean, if the labor markets are not a source of inflationary pressures right now. You look at a broad array of nominal wage inflation measures, they have been decelerating. We think AI, as well as demographic trends, the aging of the population, retirements, is having some fundamental shifts on the labor market, which is resulting in just wage pressures that are pretty modest.

15:41And when we adjust that for productivity, so unit labor costs, what are the marginal costs that companies have? Labor is just not an accelerating one of them. So maybe other non-labor costs for companies are going up, like energy, but certainly we are seeing labor costs inflation that's coming down. So because labor is 75 percent of the input costs of most companies in the United States, I think that's why Federal Reserve officials can still be pretty patient here, although hiking, but at a gradual pace, because we're just not seeing those marginal cost pressures, certainly that we were seeing in 2022.

16:23Tiffany, you said that these could be risk management hikes. What would happen if the Fed didn't execute risk management hikes? Do you think that actually inflation would start to become more embedded in the underlying economy? Well, I mean, I think, again, I think that's the risk that they're worried about. I think the conversation, you know, with not only within the Fed, but within other central banks, you know, has been, are we living, you know, in this new world where you just have greater conflict, more geopolitical risk? And as a result of that, you're just getting a higher frequency of asymmetric shocks.

17:00And I say asymmetric in the sense that, you know, geopolitical risks usually result in negative supply shocks, which raise inflation. So I think the question is, you can have a baseline of 2 % and getting back to 2%, but if you just get these higher frequency of shocks that just push inflation higher, that can over time result in inflation expectations that are drifting up. And of course, no central bank wants that. So you have to sort of pivot the sort of underlying reaction function a little bit here, potentially, towards a somewhat more restrictive one. And we think, again, not only the ECB hiked earlier this week, and we are seeing a gradual pace of hikes from other central banks.

17:45So we think that could be what the Fed is going to embark on as well. Tiffany, there are people who believe the ECB will go again. There were sources that spoke to us here at Bloomberg that indicated October was live. This is not a Fed chair that's in the business of forward guidance. How do you expect him to manage the message next Wednesday? Well, I don't think he will provide forward guidance. He'll probably even say, like at Jackson Hole, this is not forward guidance. But he will explain why the Fed has the policy that they ultimately have next week. We think he will explain that. And part of that explanation will be that inflation, we have seen a lot of progress on inflation.

18:27But even underlying inflation gauges, if you look across a broad range of them, are still above target levels. And as a result of Middle East conflict that is just kind of raging again, and some more disappointing news in this latest CPI report, that is probably the explanation he's going to point to. We will also get an SEP. Certainly, it's not clear that we'll always get an SEP in the future, but as of right now, we do. And so, of course, all the markets will be looking at how various other Federal Reserve officials are moving their forecasts for interest rates, you know, and obviously for inflation, you know, for the end of the year, as well as in 2027.

19:08You know, so that will provide some indication as well of what other FOMC members believe. And that'll give the markets, you know, some idea of, you know, how many potential more hikes we could see. Tiffany, thank you. Tiffany Wildig of PIMCO. Stay with us. More Bloomberg Surveillance coming up after this.

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21:28The president downplaying concerns over his plan to send$5 ,000 checks to U.S. voters if the GOP wins the midterms. Politico reporting some House Republicans called the move, quote, incredibly desperate with zero chance of happening. We've seen the president try to do this before. First, it was the Doge checks. remember the doge dividends maybe an idea he'd be interested in then it was the tariff dividends never came to pass and now it's if the republicans win and maintain control the house of representatives in the senate well everyone's get a five thousand dollar check then you go ask republicans and they're like oh not sure that's going to happen so much that senate majority leader john thune was asked about this well that's a good question he responded to the reporter we'll cross that bridge when we come to it aka the bridge is never going to come with us around the table monica guerra of Morgan Stanley.

22:13Monica, good morning. Good morning. What are you telling clients about this proposal? We're telling them to, you know, essentially don't hold your breath at this point. And because of the legislature and the makeup of it, you have even, you know, in the Senate, a GOP, you know, voice very strongly saying that this is unlikely. So even if you do have the GOP hold Congress, it's still going to be a high hurdle because of deficit and budget hawks. Trump does like to throw things out there, though, get the conversation going. But he also said in another interview that he wouldn't even need congressional approval.

22:48Is there any way the administration could send out, maybe not 5 ,000, but any sort of checks without Congress? No. When you're thinking about tax, budget, you have to have Congress involved in that. That is their constitutional authority, essentially navigating that process of interstate commerce, which includes taxes and spending. So you have to have that. The president can say what he likes. He's great at making headlines. He's great at trying to engender confidence. And that's really what they're doing right now. It's a midterm play. And we just say, you know, just wait and see. Unlikely in both scenarios.

23:22It is working. People have actually come to me and asked, do you think we'd actually receive these checks? Would they be taxed? And I said, these checks are not happening unless Congress signs up for them. And there's no situation where I see Congress signing up for this. But do you think it works to get people out of their house to the polls? Well, right now they're showing that there's been no real bump or uplift in approval ratings for the president. And this has been a big part of his push is pretend that I'm on the ballot. And right now he is still unpopular. So we have to see if over the next couple of days it actually gains traction.

23:52But right now we're not actually seeing that occur. So for us, we just come back to the affordability measure that that's what really voters are focused on, even though markets are doing remarkably well for a second year of a president's term, performing 13 % versus history, you still have this affordability piece that keeps people really concerned on the edge of their seats. Now, you add in a promise like a$5 ,000 check, you would think that would be an offset. But when I'm talking to my wealth clients, debt and deficit is the next question they ask. What is the financial stability of the United States and what does that mean for my portfolio?

24:27I was just going to ask, what's the level of bond yields that actually makes them do something about the deficit in Washington, D.C.? I don't have the answer to that. But what I can tell you is that this will definitely push up on bond term premiums. I know that's been a big part of the discussion already this morning. You know, is it the right level, et cetera? But if we do add over 50 percent to the federal deficit for the projection number for 2027, that will add pressure. And that's important to remember, especially when you're thinking about administration whose whole goal is to get rates down.

25:00So this is sort of a counterintuitive measure, short-term goal with a long-term pain if they actually see it through. We were expecting to hear some sort of plan from Scott Besson, Treasury Secretary Besson, on how he was going to inject fiscal responsibility, try to decrease the deficit. Then we heard from President Trump that potentially they could execute something in the remaining months of the year if Republicans do not take both houses. and, you know, if Democrats are in power, let's just push something through. Is there credibility? I mean, I think that actually people in the bond market might be happy no matter how it comes through.

25:32But I'm just wondering whether that seems feasible to you in any capacity. Well, you know, fiscal responsibility is an ongoing conversation in D.C. And right now they're trying to move debt to GDP down from a 6 percent level to 3 percent. That's the policy goal when you're talking to good government types on both sides of the aisle. If you added this measure in, you'd be looking at 9 percent to GDP. So when we're thinking about getting this under control, you have to essentially divorce campaign messaging with the reality. Can they get through a budget deficit reduction measure by the end of the year?

26:04Probably not, because there's a lot of other priorities on the table from now to December. Do they even want to? And right now, probably not. We're running a 6 % deficit with normal GDP running at 6%. Makes sense of all this. And we're in a fantastic position, by the way, because the biggest companies on the planet are willing to do the deficit spending for the government. They're willing to go out and fund infrastructure, willing to go out and hire people in manufacturing, etc. You see that across the country, and yet we've done nothing, in a big way, nothing to do something about that deficit.

26:32People are worried that if there is some sort of downturn in economic growth, treasuries will not offer the ballast, simply because if the U.S. needs to borrow more, it will be adding to the deficit and create a sort of emerging markets-like spiral. Key question for the political parties, how much we end up with some of the negative sentiment towards AI killing that other stimulus effect that we're seeing right now as an increasing number of politicians come out and really push on some more regulation for data centers and just AI in general. When it comes to deficit spending, as we heard from Libby Cantrell yesterday and others, the debt ceiling fight, I'm sorry to bring this up, but the debt ceiling fight will be taking place in about six months' time.

27:11And if the House goes back to a Democratic control and flips, Everyone is going to have to get something to raise the debt ceiling, which means everyone is going to be asking for more funding and we are going to be spending a lot more. They want more deficit spending? Yes. To raise the debt ceiling? Yes. That's going to be the game, Monica? Or suspend the debt ceiling. I think that's where we land. We're going to end up with a suspension so nobody has to raise it. So to be determined. How do we go about that? How do you go about that? It's just a different vote, right? Essentially, there's multiple outcomes.

27:39You can raise it, you can hold it, or you can suspend it for a short period of time. What do you make of the other side of this, the idea that the United States government is getting bailed out by all of the AI players and the hyperscaler build out and this sort of stimulus program that's coming from the private sector? Do you think any of the negative sentiment that we've seen recently from politicians could curtail that in a meaningful way? I don't think so. So what you're actually seeing right now is moratoriums at the state level on data center build out. But they are using that as an advantage to actually get more.

28:11whether that's for the grid, for energy and infrastructure, like you mentioned, and actually force the hand, right? So while you have private companies willing to do it, it's not without a political trade-off. So we do think that it's a benefit. It doesn't actually slow the long-term trajectory. It's a point-in-time political opportunity. Getting them to do even more. Monica, thank you. Appreciate it. Monica Guerra there of Morgan Stanley Wealth Management. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m.

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