Bloomberg Surveillance TV: August 5th, 2026

Summary

Bloomberg Surveillance TV: August 5th, 2026

Hosts: Jonathan Ferro, Lisa Abramowicz, Annmarie Hordern
Date: August 5, 2026

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Overview

This episode of Bloomberg Surveillance dives into the record-breaking rally in the stock market, the shifting macroeconomic backdrop driving both corporate performance and politics, the state of the US labor market, and the impact of technology-sector developments (particularly hyperscaler build-out and AI) on economics and policy. Key guests include Alicia from VFBNY Wealth, Ariana Salvatore from Morgan Stanley, and Andrew from Citi, each bringing insight on market trends, election dynamics, and the inflation picture.

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1. Stock Market Rally and Tech Leadership

Guest: Alicia, VFBNY Wealth
Segment: [01:57–08:45]

Key Discussion Points

• S&P 500 Rally:
  • The S&P 500 hit new highs, with Alicia’s firm raising its year-end target to 8,000.
  • Tech, especially hyperscalers (large-scale cloud providers), is at the forefront.
• Earnings and Growth Rates:
  • Forward earnings growth for the S&P is now at 30%.
  • Market multiples have come down even as earnings accelerate, reducing fears of an earnings bubble.
• Major Questions Resolved:
  • War and oil prices: Market can rally even with 10-year yields above 4.5%.
    “The answer is yes, it can.” – Alicia [02:37]
  • ROI on hyperscaler spending: Validated by actual business growth and reacceleration.
    “Turns out actually there's a business case for it and their... cycle re-accelerated through the growth rate.” – Alicia [02:49]
• Rotation and Leadership:
  • Tech stocks, particularly chips, surged while software lagged, but recent moves suggest a return to more selective leadership.
  • Chips may face slowing growth, while “unloved” large-cap tech could start to recover.

Notable Quote

“I think for the most part it's likely to be from the hyperscalers and less on the chips, in part because the chips have come so far.”
– Alicia (VFBNY Wealth), [04:16]

Memorable Moment

• Host highlights recent rapid reversals, where investors who were long hardware and short software were “blown up” by the market shift.
  “Much of this year as you saw chips do well but software react poorly…” [03:45]

IPO Pipeline, AI & Open Models

• Potential IPO volatility for AI leaders like OpenAI and Anthropic, citing uncertainty about business models and their competitive “moat.”

• Despite convergence in models, both companies show extraordinary revenue growth.
  “We’re...talking close to $100 billion for each coming off of zero two to three years ago.” – Alicia [06:17]

• On IPO dynamics:

  • Massive inflows of global capital support the upcoming issues; size not a concern.
  • But “break-price” IPOs are a risk.
  • Large lockups (e.g., SpaceX) may slow timing.

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2. US Political Landscape & Economic Implications

Guest: Ariana Salvatore, Morgan Stanley
Segment: [09:55–14:27]

Key Discussion Points

• Midterm Primary Results:
  • Michigan’s Dem primary (Abdul Al Said vs Hailey Stevens) remains too close to call.
  • The Senate map still poses structural challenges for Democrats, but current indicators (polls, approval ratings) signal a modest edge.
• Macroeconomic Conditions:
  • Disinflation expected to continue through the year.
  • Consumer sentiment remains lukewarm, but spending is holding up (forecast revised to 2% growth in consumption).
  • Labor market described as “sideways.”
  • “We call it a benign macro backdrop. That's not the only thing that matters to voters, obviously. Affordability a top concern.” – Ariana [10:23]
• Historical Parallels & Lessons from 2022:
  • Previous midterms showed that unexpected events (e.g., Roe v. Wade) energized key voter groups.
  • The “map”, or structure of Senate races, is critical to outcomes.
• AI Build-Out as Political Issue:
  • Data center expansion presents regional challenges: quality of life, water use, and especially energy/inflation costs.
  • Local concerns over electricity and utility bills drive policy debates.
  • Biden administration supports hyperscaler build-out, but local resistance could cause regional splits in development.
• Democratic Party Dynamics:
  • No clear frontrunner for future leadership; the party undergoing internal debate and experimentation ahead of 2028.

Notable Quote

“The concerns are really threefold. So first is quality of life... Second is around water usage... And then of course, electricity, inflation and what you're paying for your utility bill, that is more a phenomenon at a regional level.”
– Ariana Salvatore [12:12]

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3. Labor Market, Inflation, and Fed Policy

Guest: Andrew, Citi
Segment: [15:45–23:51]

Key Discussion Points

• Labor Market Health:
  • Recent ADP numbers “a little bit weaker,” in line with volatile labor market data [15:59].
  • Labor’s contribution to inflation has been limited over the past 12 months.
• Disinflation Outlook:
  • Most core inflation indicators point to slowing, with core CPI at 2.6% year-on-year, approaching the historical norm (~2.3%).
  • Shelter prices are now also slowing, which should keep inflation subdued.
• Interest Rates & Yield Curve Dynamics:
  • Long-term yields are rising due to higher real yields and deficit concerns, not inflation expectations.
  • Inflation break-evens and swaps suggest markets are pricing ~2% inflation for the next 2–10 years.
• Fed Credibility & Policy Path:
  • Fed’s credibility was damaged by “transitory” inflation messaging, but the data suggest current policy is modestly restrictive and effective.
  • Further hikes (25–50bps) unlikely to make a meaningful difference; only a much larger policy move would matter if inflation accelerated anew.

Notable Quotes

“You don't restore credibility...by hiking just for the point of hiking... You establish credibility by watching the data and affecting the appropriate policy to bring inflation down.”
– Tim Stenovec (summarizing Andrew's stance), [20:36]

“Definitely sufficiently restrictive. If most measures of underlying inflation are basis points away from target and in a couple of months it's going to look even better than that.”
– Andrew, Citi [21:48]

• On Rate Cuts:
  • No reason to cut unless labor market or economic activity deteriorates meaningfully.
  • Expectation is the Fed may remain on hold for some time.

Memorable Moment

• The hosts and Andrew joke about the “bedtime” frequency of deficit discussion among market-watchers’ families.
  “It's what you've been talking about all morning and apparently with your children at bedtime, which is the deficit in this country.” [19:29]

Data Watch

• Friday’s payrolls forecast: +115,000; key will be revisions to prior readings and the unemployment rate, particularly given recent declines in labor force participation [23:22].

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Key Timestamps & Segments

| Timestamp | Segment | |-----------|----------------------------------------------| | 01:57 | Opening discussion; Stock market rally | | 02:18 | Interview: Alicia (VFBNY Wealth) begins | | 03:45 | Market rotation: chips vs. software | | 05:56 | Hyperscaler spending, OpenAI/Anthropic risks | | 07:01 | IPO market health and global flows | | 09:55 | US politics, Michigan primary analysis | | 10:23 | Economic backdrop for voters | | 11:19 | Lessons from 2022 compared to 2026 | | 12:12 | Data center build, regional energy costs | | 13:54 | Democratic Party’s internal debates | | 15:45 | Labor market discussion with Andrew, Citi | | 16:30 | Inflation measures and Fed policy | | 19:29 | Yield curve, deficit, and inflation | | 20:22 | Fed credibility and communication | | 21:48 | Restrictive vs. sufficiently restrictive | | 23:22 | Payrolls forecast, labor force dynamics |

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Memorable Quotes

• “It looks like both are winning. Like it looks like everybody's winning. You know, it doesn't look like one's...[In tech] they're all prize and you get a prize.”
  – Alicia (VFBNY Wealth) [08:33]

• “We think Democrats hold a slight edge, but the Senate map remains a major structural headwind.”
  – Ariana Salvatore, Morgan Stanley [09:55]

• “Core CPI year on year. That's not far off of what would historically normal be.”
  – Andrew, Citi [16:30]

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Conclusion & Takeaways

Markets

• Tech’s rally has been clarified by robust earnings, and while overall leadership broadens, differentiation is expected as chip growth slows and large-cap tech recovers.
• IPO window remains open, fueled by global capital; risk remains in pricing and successful launches.

Politics & Policy

• Economic “benign” backdrop slightly favors Democrats, but affordability—especially tied to energy and AI-driven utility bills—rises as a wedge issue.
• Party realignment and leadership uncertainty are shaping both Democratic and Republican strategies towards 2028.

Macro & The Fed

• Inflation is near target, with shelter-driven disinflation supporting a “sufficiently restrictive” Fed stance.
• Policy changes—in either direction—are unlikely without significant labor market shifts.

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This episode captures a moment where the stock market’s euphoria intersects with hard questions about sustainability, politics, and the real-world consequences of technological progress and policy choices.

Transcript

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[Jonathan Ferro]

This is the Bloomberg Surveillance Podcast. Joe I'm Jonathan Ferro along with Lisa Abramowicz and Annmarie Horden. 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 9am 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.

[Host/Interviewer]

We begin this hour with stocks adding to the record breaking rally. Alicia the VFBNY wealth recently raising her year end target for the s and P to 8K earnings took over from macro and driving markets. The capex cycle continues to support the economy and industrial sectors as hyperscaler spending is powering earnings of 20% at the S and P. Alicia joins us now for more. Alicia, good morning.

[Alicia (VFBNY Wealth)]

Good morning.

[Host/Interviewer]

What a massive run we've seen in just a few days on tech. It's phenomenal. What are you telling clients?

[Alicia (VFBNY Wealth)]

It's phenomenal. Look, we think the market ends higher at the end of the year. We're in print at 8,000. I think it's probably moving higher. The forward earnings growth rate right here of the S And p is actually 30%. So the multiples come down even now it's, you know, the market sort of tread water about around that, you know, 7,500 range since mid May kind of stuck there as the market rotated. And we've, as you talked about, we had these clearing events. There are major questions hanging over this market, the first of which is the war restarted. Oil prices are higher, yields are higher. Can the market rally if the 10 year is over 4.5%, which was really the bogey in this entire cycle? The answer is yes, it can. The second thing was is there ROI on hyperscaler spending? Are they just spending into oblivion funding the balance sheets of every other company but not themselves as they go free free cash flow negative. Turns out actually there's a business case for it and their, their cycle re accelerated through the growth rate. So that, that was answered as well. And so you've got the two major questions out of the way. And then the third is, is this an earnings bubble? And the answer is no, it is not because you've got accelerated growth rates for the spenders. And that once you've answered that question, it's pretty much clear out there if

[Host/Interviewer]

there is a clearing event and you've identified several. It seems to be benefiting everybody at the moment. And we're trying to figure out when do we start to discriminate again? Because much of this year is you saw chips do well but software react poorly. You saw an inverse correlation between the hyperscalers and the chip players at times as well. That's what ultimately blew up the likes of situational awareness, who were very long hardware and very short software and things flipped pretty quickly in the last month or so. Where do you see things going from here? What is the leadership come from? Surely you don't believe that everything can take just keeps on rallying the way it has been.

[Alicia (VFBNY Wealth)]

No, there's definitely going to be, there's going to be more selection here. I mean this was sort of clearing charts like you went through 50 and 200 days in the last two weeks, which you really needed to do to clear the charts of the deteriorating software company. So we cleared it. I think for the most part it's likely to be from the hyperscalers and less on the chips, in part because the chips have come so far. And there is that lingering question, you know, what, what you quoted here, which I said, which is they're funding the balance sheets and the PNLs of 20% of the S and P very clearly. And we know that Markets do trade on the rate of change. At some point there's going to be a question can you grow earnings a thousand percent? Are you growing earnings 20% instead, which is still excellent, but it's not growing 1,000%. And there's a reason some of these chip companies are trading in the single digits because the street just doesn't see this going forever. And I think that's where you're going to start to see the differentiation. You still haven't cleared the parabolas. That's an issue. So I think you're probably getting it to the unloved companies. Since November 1st of last year, that whole panoply of large cap tech has been terrible. Underperformed the S and P. It's underperformed the Russell, it's underperformed international, it's underperformed emerging markets. And I think that gets a little, that gets reverted to here. I think the chips while benefiting and the investment cycle can go for a long time, 18 months more, three years maybe. Who knows? Actually eventually the growth rate is going to slow on that earnings for those companies.

[Guest Analyst]

How much is the success on return on investment in the likes of hyperscalers and software are going to come at the expense of OpenAI and anthropic? And I say this because it could be a volatility inducing event when they try to ipo. If they try to ipo, given some of the noise about exactly what this model looks like and how much of a moat they have over something that's increasingly open model.

[Alicia (VFBNY Wealth)]

Look it's really, it's very unclear. I mean there are many people who think the models are converging. So the latest for one LLM over another, they're starting to look very similar. And I think that is the question for those, those business models. Right? Like you know, if you can't differentiate then you know, what's the value. On the other hand, I know everybody uses all of them and so they, they seem to be terrific. Also if you just look at the revenue growth rate, I mean the revenue is compounding for both those companies at an extraordinary. We're, we're talking close to $100 billion for each coming off of zero to two to three years ago. So the revenues are sounding compounding at an astounding rate. So you know, I think they'll be, I think they'll be successful.

[Guest Analyst]

Do you think that the doors are still as wide open for IPOs for raising money in the equity and debt markets now as they were two months ago at a time when There still is a huge bill coming for all of the build out here.

[Alicia (VFBNY Wealth)]

I think that we're going to have to see some of the lockups on some of the marquee IPOs to kind of clear the deck a little bit. You know, in the end you want the IPOs to be successful and not break price. If you break price within a week or two, that's, that's an issue. And I think that's why you've seen a slowdown in the calendar. Right. And then you have SpaceX because you have to, you have to get through the lockup. You have to get through the lockups here. I don't think there's too much capital coming to the market. The S And P is $60 trillion. I don't think the IPOs are too big. I think there's a massive wall of capital coming to this not just in the U.S. but globally. You know, we're hearing from our IFLOW team. There's a massive, massive buying of U.S. equities globally. Because where else are you going to go with that wall of money? Other markets are simply not big enough. So I'm not worried about the $$ amount, but there is that marketing thing right where you want it to be successful. And I think the markets have to calm down a little bit on the

[Host/Interviewer]

previous Friday to Alphabet for getting ahead of some of this. The additional supply to your point of space X anthropic on the horizon open. I just. The reporting we've seen around OpenAI potentially pushing things out to 27, maybe beyond. I don't know.

[Guest Analyst]

Yeah. And potentially because of some of the concerns around the capital raise with respect to their model, competitive pressure, etc. At time the same same time it seems like a lot of people are pretty ambitious some of their goals.

[Alicia (VFBNY Wealth)]

It looks like both are winning. Like it looks like everybody's winning. You know, it doesn't look like one's. They're all prize and you get a prize.

[Host/Interviewer]

So the last four days has felt like in the stock market.

[Guest Analyst]

I'll take it. You know, it's been a good change at least.

[Host/Interviewer]

It's good to see you. Thanks. One of the best. Appreciate it. At least have been there. FBI Wealth.

[Jonathan Ferro]

Stay with us. More Bloomberg surveillance coming up after this.

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[Host/Interviewer]

It's the latest this morning the president tout in the US Economy as midterm primary results roll in in the crucial swing state of Michigan. The Senate Democratic primary between progressive Abdul Al Said and Representative Hailey Stevens still too close to call. Aaron a saboteur of Morgan Stanley, writing, we think Democrats hold a slight edge, but the Senate map remains a major structural headwind. Ariana joins us now for more. Good morning. It's good to see you. How is the stage set for this economy into November and what does it mean for voters at the moment?

[Ariana Salvatore]

Yeah, a lot of things to unpack there. Obviously the economic picture is one of an aggregate of different indicators, right. So if you look at things like inflation, we're expecting more disinflation throughout the remainder of this year. If we look at things like consumption, the overall sentiment is not great where we're a little bit higher off of the low lows, but we don't think that really translates to spending intentions. We still see relatively robust consumption this year, around 2%. We just revised that up from 1.7%. You know, the labor market's still relatively sideways, so all of that paints sort of a decent picture for the economy. We call it a benign macro backdrop. That's not the only thing that matters to voters, obviously. Affordability a top concern. But aside from that, we see prediction markets, we see polling, we see the presidential approval rating, all signaling a more favorable environment for Democrats come November.

[Host/Interviewer]

I remember thinking that Biden would get battered in the midterms into that November a few years ago and it didn't happen the way people thought it would. What's the lesson from then and how might it apply to this situation?

[Ariana Salvatore]

So 2022 is actually really similar to this midterm election. If you think about it, we had an energy shock in February of that year. Right. And then the structural the map. The Senate was really what was important in that election. There were some anomalies. Remember we had the Roe v. Wade decision leaked, which energized turnout among specifically women and college educated voters. So I think that is what allowed the Democrats to maintain the Edge. But back to the structural sort of dynamics here. The map is really important. And with this progressive win we saw in Michigan last night, that makes it really challenging as a general election seat for Democrats to flip. Right. And that's going to be kind of the key point between Michigan, North Carolina, Georgia, races for, for November.

[Guest Analyst]

What are the main issues? And I'm thinking specifically of the hyperscaler build out and some of the energy plants and this concern about the cost of living that could potentially be tied to artificial intelligence. How much is, is that present in some of the discussions with constituents?

[Ariana Salvatore]

Extremely present. And this is probably the biggest wedge issue heading into the midterm elections. Right. We know is unpopular. We know specifically among younger voters. So 18 to 29, something like 60% are worried about job displacement. But when we look at the data center build out specifically, the concerns are really threefold. So first is quality of life. Right. So no one likes to see large scale construction in their neighborhoods. Second is around water usage, which we find to be a little bit less well founded than some of the other concerns. And then of course, electricity, inflation and what you're paying for your utility bill, that is more a phenomenon at a regional level rather than national. But it's certainly part of the discussion and part of the reason we're seeing this real political constraint in building out these data centers.

[Guest Analyst]

Well, so how much of a political constraint will this be? Because so far the White House has been behind a lot of these efforts and saying we have to maintain a dominant edge. How much will it concern constrain some of those policies that have enabled the build out so far.

[Ariana Salvatore]

So look, we think there are ways to mitigate it. We think there are certain concessions that hyperscalers and other companies can offer these communities, whether that's, you know, bonuses to local community engagement or whether it's some sort of a large load tariff or commitments to grid modernization. We think there's enough they can sort of promise and provide to facilitate the build out. But that's importantly why we think it's conditional. We don't think this is going to be a uniform kind of one size fits all approach across the country. And what that leads to is basically a bifurcation between regions that allow data center development and regions that do not.

[Host/Interviewer]

Is the left tripping up on the national stage? Are you seeing sort of the highly progressive members, and I've noted a few, I've seen a few in the last 24 hours struggle to articulate that view and being sucked into major issues that have nothing to do with local ground issues. Have you noticed the same thing?

[Ariana Salvatore]

I think what you're seeing is an amalgamation of concerns among the voter base. And right now if you look at the Democrat Party, there's no clear frontrunner for leadership, right. So we don't have a clear person that's ahead of the other candidates when it comes to even the 2028 election. So I think Democrats are right now going through a really important phase of sort of self discovery, right. So figuring out which policy paths are the ones that are going to resonate with voters. And remember, this is an election that's the pretext to 2028. So this is the important time to sort of have those debates and those discussions. I think it's experimentation and we'll probably see it on the Republican side as well once Trump steps back.

[Host/Interviewer]

Ariana, it's good to see you. Thanks for being here. Ariana Salvatore there as Morgan Stanley.

[Jonathan Ferro]

Stay with us. More Bloomberg Surveillance coming up after this. Get essential news on the people and companies pushing the tech sector to new frontiers.

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[Host/Interviewer]

Andrea hohnhausen, City writing this this morning, we do not see risks that the labor market is retightening and becoming a source of upward pressure on wages and prices. Andrew joins us now for more. Andrew, good morning.

[Tim Stenovec]

Good morning.

[Host/Interviewer]

Certainly the ADP number would validate that view.

[Tim Stenovec]

Yeah, a little bit weaker on the adp. It's a pretty volatile number. But I would say in the context of labor market data that's just in general been very volatile. So we had much stronger payrolls readings at the beginning of the year, had a weaker report in the month of June. We think we're in store for some weaker reports upcoming.

[Host/Interviewer]

Good services, energy and labor, the sources of inflation. Labor has not really been a source of inflation over the last 12 months. Not a major one anyway. The inflation is coming from other places where you get confidence that that disinflationary path will continue. And what does it come from?

[Tim Stenovec]

You know, I'm a lot more confident now than I was even a few weeks ago after we had the June inflation report. You look at these various underlying measures of inflation and there's always an issue and we say which measure are you looking at? Right. This is part of what came up in the press conference with Chair Warsh last week. But when you look at the various measures that we have of underlying inflation, most of them are telling us that inflation is slowing and it's not that far off of target. I know that's very different than a lot of people's perceptions of what's going on. But if you look at the actual data, you can look at a trend mean, you can look at a median, you can look at core cpi. Core CPI inflation is not an esoteric measure of inflation. This is one of the typical measures that anybody would look at to try to assess what's going on with inflationary pressure. 2.6% core CPI year on year. That's not far off of what would historically normal be. Historically normally be 2.3%. And we think we're going to see that 2.3% number in the next couple of months.

[Guest Analyst]

Why do you think it's going to continue going down? Right. This goes to the question of sufficiently restrictive and the faith of the path of some of the inflation reads. Why isn't it just a one off tied to energy prices and a couple of other just comparative reasons for the disinflation.

[Tim Stenovec]

Yeah. What's happened with headline inflation that is a function of energy prices. They came up that boosted headline, they've come back down, that's going to drag on headline. If you look at the core measure though, we got a very weak reading for core CPI and core PCE in the month of June. That extreme weakness might not repeat. But what we saw in those readings if you looked at the underlying data was broad based lack of inflationary pressure. You see it across all categories of inflation. A significant slowing in the month of June. In particular shelter prices and I think go out and look at house prices, look at rents. These enter official measures of inflation with a lag of about a year, maybe a year and a half and they've been very slow. So those shelter prices should stay slow. That's a key reason that we're going to have slower inflation Going forward, how

[Guest Analyst]

do you then understand the move that we've seen down at the front end in terms of yields or essentially pinned and the rise in long end of the yields? It seems like the market is saying something very different to what you're saying. How do you interpret that?

[Tim Stenovec]

So if you look at the market, and this is another thing that again very maybe very different than how some people are talking about this. The market is not worried about inflation in the States United US If I look at the market that assesses that most carefully, which is the market for inflation linked securities. So if you look at inflation break evens, if you look at inflation swaps, we are pricing inflation to be around 2% for the next two years. We're pricing inflation to be around 2% for the next 10 years. So this idea that higher longer term yields have something to do with a lack of Fed credibility and an expectation that inflation is going to run persistently higher. It's just not the case. When you look at market markets, the movement that we've had higher in long term yields is in real yields. It's not in the inflation component, it's in the real yield component. And why are they higher? It's what you've been talking about all morning and apparently with your children at bedtime, which is the deficit in this country.

[Host/Interviewer]

Are inflation expectations anchored because people still believe this Fed will hike if they believed your story. I wonder whether it be we have.

[Tim Stenovec]

We have a probability of a hike that's priced in, right? The Fed came into July, there was a 30% probability that they were going to hike coming into July. At some point there was a 50% probability that they were going to hike in July. The Fed declined to hike in July. We got a very small movement higher in inflation breakevens but staying really at low levels. So what I saw there was an indication that the market doesn't need the Fed to hike one time or two times, which is essentially was priced in right? One or two hikes from the Fed, that's not going to be determinative for inflation. The trend in inflation is not going to be significantly affected by the Fed being 50 basis points higher or 50 basis points lower. If we have a big inflation problem in this country, if we're accelerating in inflation, you would need rates 100 basis points higher, 150 basis points higher.

[Host/Interviewer]

Any of us are just suggesting we have a big inflation problem with regards to where the index the target is right now. But it's a problem. It's been five years above target and Is that not evidence that they are not sufficiently restrictive?

[Tim Stenovec]

You don't restore two things on that. Number one, you don't restore credibility. And I agree, credibility has been damaged. Right. This is a Fed that said inflation is transitory and five years later we still have above target inflation. So clearly there's been a hit to credibility. You don't reestablish that by hiking just for the point of hiking and showing that you can be top in the face of even many underlying inflation measures that are slowing. You establish credibility by watching the data and affecting the appropriate policy to bring inflation down. Now the question is, do we have the appropriate policy to bring inflation down? If you step back and you don't just look at the last six months, look at the last year of data, look at the last two years of data. Inflation has slowed. The unemployment rate has come up. If you look at the housing sector, we clearly have restrictive rates for the housing sector. So I do think that we still have rates that are modestly restrictive here. And I think a lot of Fed officials actually think that also their voices are not as loud right now. That has not been the market narrative. But hiking 2550 basis points I don't think will do anything to restrict modest

[Host/Interviewer]

is different to sufficient. You'd acknowledge that modestly restrictive is different to being sufficiently restrictive to get inflation back to target. Do you think we're sufficiently restrictive?

[Tim Stenovec]

Definitely sufficiently restrictive. If most measures of underlying inflation are basis points away from target and in a couple of months it's going to look even better than that.

[Guest Analyst]

What's the argument for cutting rates? If you don't think that there's going to be much accomplished by hiking rates, what's going to be accomplished by cutting them?

[Tim Stenovec]

Yeah. So on the inflation side, that would really be the argument for not raising rates. If we're slowing down towards target inflation, then that's a reason not to raise rates. Cutting rates, you have to have some concern about the labor market or about equity activity. And there are no concerns right now. Right. So we're kind of looking at a Fed and a market that's treating this in kind of a single mandate context because we just don't have a concern on the labor market or on activity. We think we're going to see in the data because of a residual seasonal pattern that we have in the labor market data. Softer labor market data over the next several months. We obviously had a softer reading for the month of June. If the unemployment rates starts moving up again, then it will no longer just be a question of what's the right rate to set for inflation, then you'll be concerned about the labor market.

[Guest Analyst]

What would it take in the data for you to just say that the Fed's going to be on hold with no more cuts?

[Tim Stenovec]

Unemployment rate that just stays where it is until it bounces around, you know, 4, 3, 4 4. Then they could be cutting eventually. But this is probably, you know, sometime next year, maybe deep next year. Because then, you know, back to John's point for credit, you might as well just stand pat and say look, I want to be indicating that I'm super credible here. I'm fighting inflation. We have no issue in the labor market. So I'm just going to hold things modestly restrictive until I see that we're at 2% inflation and we're not there yet.

[Host/Interviewer]

What's your guess for Friday?

[Tim Stenovec]

1 15,000 on the payroll. So I think it's a decent reading on the payrolls number. We had a much softer number in the month of June which came through. The thing to watch for here is actually you. There are two things. One is do we get a revision down to the June number? Further revision down. That's what we've seen in previous Julys. And the unemployment rate we have just ticking up to 4.3%. Last month that participation rate fell by 3,10 of a percentage point. If that moves back up, unemployment can pop up much higher.

[Jonathan Ferro]

This is the Bloomberg Surveillance podcast bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV on weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg terminal and the Bloomberg business applied.