Lots More on the Big Problem With the Monthly Jobs Report

Summary

Odd Lots: "Lots More on the Big Problem With the Monthly Jobs Report"

Date: September 4, 2025
Hosts: Joe Weisenthal & Tracy Alloway (Bloomberg)
Guests: Steve Englander
Summary by Podcast Summarizer

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Overview

In this Odd Lots episode, Joe Weisenthal and Tracy Alloway (with guest Steve Englander and co-hosts Carmen Rodriguez & Dashiell Bennett) dive into growing concerns and controversies surrounding the accuracy and relevance of the US monthly jobs report (NFP – Nonfarm Payrolls). The conversation centers on statistical quirks like the "birth-death adjustment," the persistent downward revisions in job numbers, changing immigration trends, and how these issues are reshaping both economic analysis and policy responses. Steve Englander brings a macro strategist’s perspective to dissect where the numbers go astray and how investors, central bankers, and policymakers should read them.

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Key Topics & Discussion Points

1. Understanding the “Birth-Death Adjustment”

[01:08-02:59]

• Hosts’ Confessions: Both Carmen and Dashiell admit confusion over what the “birth-death adjustment” actually is.
  • Carmen: “I used to think it was something about the population of people and the labor supply, but it’s not. It’s about business formation.” [01:15]
  • Dashiell: “I literally always forget what it is.” [01:22]
• Purpose of the Adjustment: Steve explains that this statistical tool compensates for jobs created by new businesses and lost from closed businesses, which are not fully captured in the main survey sample.
• Major Issue: The model for estimating these effects hasn’t evolved, despite shifting dynamics (post-COVID adjustments, immigration swings).
• Potential Distortion: The adjustment tends to systematically add about 100,000 jobs monthly, regardless of actual labor market strength, which may currently overstate real job growth.
  • Steve: “...what you see is that number has, through thick and thin, stayed about 100,000 jobs… They publish a not seasonally adjusted number, but you can do a rough and ready seasonal adjustment. It’s very stable.” [04:56]

2. Revisions and Data Quality Concerns

[02:19-07:30]

• Frequent Downward Revisions: Dashiell: “The revisions always seem to be... downwards lately.”
• Alternative Sources: Steve champions the QCEW (Quarterly Census of Employment & Wages), which is more accurate because it’s based on administrative data (everyone paying into unemployment insurance).
  • Steve: “QCEW is basically the universe. It’s not a sample… That’s why it’s used for the benchmark.” [07:30]
  • QCEW reports come out with major lag but offer more reliable figures – soon to show significant downward revisions to recent job gains.
  • “We think it’s likely to tell us that somewhere between 750,000 and maybe 1.1 million jobs, that’s the overstatement between Q1 2024 and Q1 2025.” [08:53]

3. The BLS and Calls for Change

[09:01-10:35]

• Leadership Changes: The Trump administration installed a new BLS chief, who floated ideas like reducing report frequency (monthly to quarterly releases).
• Steve’s Solution: Rather than radical moves, Steve supports improved statistical methods, leveraging high-frequency sample data and historical relationships to adjust the birth-death component more intelligently:
  • “If continuing firms are telling us that job creation is 20,000 a month, it’s very unlikely that job creation from new firms is going to be 100.” [09:39]

4. How Should Economists and Policymakers React to the Flawed Data?

[12:12-16:36]

• Skepticism of Political Influence: Concerns expressed by analysts about potential data manipulation with new BLS leadership, though some guests downplay the likelihood.
• Focusing on “Rates” Rather than “Levels”: Inspired by Chicago Fed President Austan Goolsbee, some trackers suggest shifting attention from the absolute number of jobs (subject to revision/bias) to more stable labor market “rates” (unemployment, hiring, firing, and wage growth).
  • Steve: “I like rates, but I like the employment-to-population ratio because we know that participation rate is cyclical… We’ve had a pretty consistent drop.” [14:19]
• Forecasting Dilemma: Steve expects little drama in the headline NFP, with consensus around 75,000 new jobs, but emphasizes the range is tight and numbers can swing without much meaning.
  • “There’s so much randomness in the number, it could be 125,000 and not be meaningful. But it’s just the way it goes.” [15:17]

5. Policy Implications: The Fed, Employment, and Interest Rates

[16:36-18:21]

• Labor Market as Inflation Driver: Steve argues that if the labor market is as soft as better measurements suggest, inflation will cool on its own.
  • “If it’s as weak as we think it is and correctly measured, the slack in the labor market will take care of inflation.” [17:31]
• Fed Dilemma: The issue is whether a weak jobs number should have already prompted the Fed to cut rates sooner; if a significantly low jobs number emerges (e.g., below 50k), it may force accelerated cuts.

6. Bond Market and Macro Backdrop

[18:21-22:31]

• Bond Rally on Weak Jobs Data: Softening job figures have triggered a rebound in bonds due to growing expectations of a Fed cut, despite earlier global bond selloffs.
  • Steve: “...the market pays attention to it...Then you sort of come in this week and every number seems to be soft. You say, oh my God, the Fed’s going to cut.” [19:04]
• Short-Term vs. Long-Term Drivers: Fiscal worries dominate global bond markets, but Steve expects short-term rates and FX to be driven mainly by US economic and Fed policy decisions for now.
  • “We expect dollar weakness in the next couple of weeks, but by the time we get to the end of the year, we could see the dollar strengthening.” [20:50]

7. Europe’s Financial and Political Instability

[22:31-25:23]

• European Yields and Fragility: Recent surges in French and UK bond yields signal deeper political and fiscal dysfunction.
  • Steve: “The structural problems they face are enormous... the French deficit’s about as large as the US deficit, and their interest rates are way lower... the European situation isn’t that good.” [22:50]
• Comparisons to US: While the US faces its own challenges, it retains a potential edge due to technological leadership and possible productivity gains (AI). Europe’s energy costs, weaker capital markets, and lack of innovation threaten growth prospects.
  • “You can tell a story that’s somewhat optimistic [for the US]...Whereas if you look at Europe... they’re kind of lagging on the technology side.” [24:12]

8. Quality of Life and National “Business Models”

[25:23-26:04]

• Memorable Comparison:
  • Carmen: “What’s that line again? The US innovates, China iterates and Europe writes the regulation.” [25:23]
  • Steve, on France: “The quality of life of the median French worker is well above that of the median US worker.” [25:42]
  • Dashiell: “The question is whether it’s sustainable. It’s like living on your credit card.” [25:56]

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Notable Quotes

• On the reliability of the jobs report:
  • Steve Englander [06:50]: “QCEW... is not a sample... And so, if you sort of say, oh, QCEW and the business employment dynamics tell us that in 2024 there was almost no job creation from newly opened, let’s just closed firms, you believe it because you’re not going to get a better source.”
• On the market’s forecasting challenge:
  • Steve Englander [17:31]: “Some people get their pleasure from banging their head against the wall. The wall I bang my head against once or twice a year is taking all these incoming data on labor market indicators and trying to predict nonfarm payrolls. None of them work. A bucket of spit.”
• On European social model sustainability:
  • Steve Englander [25:56]: “The question is whether it’s sustainable. It’s like living on your credit card.”

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Timestamps for Important Segments

• Birth-Death Adjustment Confusion – [01:08–02:59]
• Systematic Downward Jobs Revisions – [02:59–07:04]
• QCEW’s Superior Accuracy – [07:04–09:31]
• Debate on Changing Jobs Report Frequency – [09:01–10:35]
• Current Market Expectations for Job Creation – [12:12–16:36]
• Labor Market/Inflation Link & Fed Implications – [16:36–18:21]
• Bond Market Volatility Explained – [18:21–22:31]
• European Fiscal Crisis & US-EU Contrasts – [22:31–25:23]
• Quality of Life Tradeoffs – [25:23–26:04]

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Takeaways

The monthly jobs report is increasingly fraught with noise, model risk, and structural bias—especially in a post-pandemic, high-immigration volatility context. Steve Englander urges greater reliance on slower, but more comprehensive data sets like the QCEW, and suggests both investors and policymakers should read headline jobs numbers with skepticism. As the Federal Reserve and bond markets navigate uncertain waters, reliability in statistics has never been more consequential for both policy and market outcomes.

The panel also points out that while the US grapples with job growth illusions, Europe faces its own existential challenges of political dysfunction and slow innovation. Meanwhile, on a lighter note, life in France sounds pretty sweet—if you can afford it.

Transcript

[Lisa Mateo]

Hi, I'm Lisa Mateo introducing you to the new Stock Movers report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for to get informed. Listen a couple times throughout the day to find out what's moving equities and why. Search for Stock Movers on Apple podcasts, Spotify or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.

[Joe]

Bloomberg Audio Studios Podcasts Radio News Joe.

[Carmen Rodriguez]

I have an embarrassing confession.

[Dashiell Bennett]

Go on.

[Carmen Rodriguez]

You know the birth death adjustment?

[Dashiell Bennett]

I have the same confession.

[Carmen Rodriguez]

I used to think it was something about like the population of people and the labor supply, but it's not. It's about business formation.

[Dashiell Bennett]

Yes, that's right. Oh my. My confession is of even more embarrassing, which is that I literally always forget what it is. I did a dead list.

[Carmen Rodriguez]

I am both the most popular trader and most successful trader at Citadel.

[Dashiell Bennett]

Feta's going viral.

[Carmen Rodriguez]

Barges.

[Dashiell Bennett]

This is an after school special.

[Carmen Rodriguez]

Except I've decided I'm gonna base my entire personality going forward on campaigning for a strategic pork reserve in the US Black Gold. These are the important questions. Is it robots taking over the world?

[Dashiell Bennett]

No. I think that like in a couple years the AI will do a really good job of making the odd lots pod. One day that person will have the mandate of heaven.

[Carmen Rodriguez]

How do I get more popular and successful?

[Dashiell Bennett]

We do have the perfect guest.

[Carmen Rodriguez]

You're listening to lots more where we catch up with friends about what's going on right now.

[Dashiell Bennett]

Because even when odd lots is over, there's always lots more and we really.

[Carmen Rodriguez]

Do have the perfect guest.

[Dashiell Bennett]

When people are listening to this, it is jobs day. We're recording this. September 4th jobs day, September 5th. The important thing to know right now is that to some extent that monthly non farm payrolls everyone depends on and relies on has never felt to me like more of a moving target in terms of what I'm supposed to be looking at for many years. It's like, okay, how many jobs were created this month? Yeah, it's going to get revised a little bit, but that tells you Something now between seasonality, post Covid sort of normalization that's still processing, and then of course the sort of changes in immigration policy which have swung dramatically in a year. These numbers. It's not clear that you actually have to put in some work to understand these numbers.

[Carmen Rodriguez]

No, totally. And also, I mean the, the BLS itself seems to have some difficulty with the numbers because the trend that we've seen is they put out a non farm payroll like an initial estimate on a Friday and then a few weeks later you get the revisions. And the revisions always seem to be.

[Dashiell Bennett]

Downwards lately, lately they've been mostly downwards. And then there's annual revisions and those are coming up I believe next week. And you know, we are at a time when setting aside the collection and of course setting aside the fact that the BLS chief has been fired and there's going to be a new one at some point. Setting up aside all of these things, we're also at a time when there are significant questions about just the macro state of the economy and whether the sort of low hiring, low firing mode which is characterized for a while now is at risk of deteriorating further. I don't know. It's a tough, it's a tough read.

[Carmen Rodriguez]

You know who we should ask? Steve Englander.

[Steve Englander]

Okay, but let me start with a broader question maybe.

[Dashiell Bennett]

Excellent.

[Steve Englander]

And the thing is that the question has changed. Like in the past we used to say, okay, last month or last 12 months, NFP growth was 200,000, looks like 100,000. Now things have slowed down. That's all we had to know this time around because supply is so important. Everyone is making an estimate and kind of saying, well, native born workers, maybe 70,000. If you're pessimistic, if you think we have net immigration from foreign born workers, you have a view of 50. And if you think that there's still some legal immigration coming in, maybe you're at 100. And that means that getting the level right is really important. And the problem with the NFP number is that it actually has two components, one of which is the one that we all think about. They survey about 160,000 businesses, maybe 600,000 establishments, and basically say, okay, how many workers did you have last month? How many did you have this month? And through their statistical analysis they say, okay, this is a change. So that's for firms that are in continual operation, that gives them that number. The problem is that they have no handle on firms that have just opened and very little handle on firms that have just closed. So they use something called the birth death adjustment to adjust for employment by those latter two categories of firms. Net job creation from new firms minus closing firms. And the problem is that they have a very simple model. And it was fine in the past when all you cared about was the direction. But now when you're saying it really matters if NFP growth is 50, having a bias in that number really affects things. And what you see is that that number has through thick and sin has stayed about 100,000 jobs when you seasonally adjust it because they publish a not seasonal adjustment, but you can do a rough and ready seasonal adjustment. It's very stable. At about every month, 100,000 jobs or almost 100,000 jobs are coming from that birth death adjustment. In terms of what we see on Bloomberg page Friday morning at 8:30, we have another source of information on that which lags, but which is far more accurate. This is something called the Business Employment Dynamics. It lags by about eight months, but it's based on the quarterly census of employment and wages. And what that shows is that in 2024, like Q4, 2024, say the four quarters, both the employment growth coming from continuing firms and continuing operation and the employment growth from newly opened firms, let's just closed firms, they've tanked. So you're sort of looking at a reliable source because it's not even a sample. This is the entire population. They know what opened and what's closed, saying, hey, there just isn't any significant jobs creation from newly formed firms. And the NFP number keeps telling you that there's 100,000 jobs coming from that.

[Dashiell Bennett]

This is already excellent. Next week we are getting yet another one of these QC Quarterly qcu Q. What do you call it?

[Carmen Rodriguez]

I call it qcew.

[Dashiell Bennett]

Qw what's the right one? What do we call it?

[Steve Englander]

I call it QCEW.

[Dashiell Bennett]

Okay, we get a new QCEW. That's the ninth, September 9th. We get that, right? Tell us what this is. Let's walk through this part again in terms of what is it that's high quality about this data, why we expect it to show further downward revisions and why there continues to be this sort of downward bias in this initial snapshot versus ladder. Better insight.

[Steve Englander]

Okay, first NFP has a big sample, but it's a sample. There's sampling errors and people who don't report. And you don't know if there's a bias in who's reporting, who's not reporting. So there's always some inherent error there. QCEW is basically the universe. It's not a sample, they get administrative data from the Labor Department saying, how many people paid into unemployment insurance? And that's basically everybody, because everybody does. Everybody who's working does pay into unemployment insurance. And so when they come up with a number, there's a bit of revision because sometimes some firms don't report in time, but there's not much and it's very authoritative. And so if you sort of say, oh, QCEW and the business employment dynamics tell us that in 2024 there was almost no job creation from newly opened, let's just close firms, you believe it because you're not going to get a better source. There's no other source to that. And so that's why it's used for the benchmark. It probably should be used to re benchmark employment more frequently in the year because they do publish it quarterly. But when it comes out, it's a big deal. And we think it's likely to tell us that somewhere between 750 and maybe 1.1 million jobs, that's the overstatement between Q1 2024 and Q1 2025. And that would knock off a lot in terms of headline employment growth. The key point is that there's no reason to believe that the bias has really shifted.

[Carmen Rodriguez]

One of the other unusual things that's going on at the moment is we have this new head of the BLS installed by the Trump administration. And that new head suggested initially that the BLS could just stop publishing jobs numbers altogether. Or maybe they could publish them less frequently, like on a quarterly basis or something, you know, is the quarterly idea. Maybe that's reasonable, given the lag with the QCEW data.

[Steve Englander]

I think that they can do things that are far less dramatic to improve the quality of the monthly numbers, because we do have some information that's relevant for jobs creation by newly opened firms. Going back to business employment dynamics. If you look at how job creation from existing firms, continuing firms, and job creation from new firms move, they tend to move together. The amplitude is different, but the direction is very much the same. They can use the sample data that they get from the 160,000 firms, 600,000 plus establishments that they sample and say, look, if continuing firms are telling us that job creation is 20,000amonth, it's very unlikely that job creation from new firms is going to be 100. We can use a variety of statistical methods to serve make a guesstimate. It won't be perfect, but it'll be a lot better.

[Joe]

This message is brought to you by Nuveen. How Would you invest if you knew the future was watching at Nuveen? This isn't a theoretical question. It's a perspective that comes from navigating 125 years of market cycles, using foresight to innovate and adapt to the changing needs of investors around the world, and remaining steadfast in the pursuit of lasting performance for clients, communities, and the global economy. Nuveen Invest like the Future is watching. Visit Nuveen.com future to learn more. Investing involves risk. Principal loss is possible.

[Lisa Mateo]

Hi, I'm Lisa Mateo introducing you to the new Stock Movers report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for you to get informed. Listen a couple times throughout the day to find out when what's moving equities and why. Search for Stock Movers on Apple podcasts, Spotify, or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.

[Carmen Rodriguez]

Speaking of the new BLS person, Joe yeah, I saw the most worrying sentence in an analyst note. So the sentence was. I have it on my screen. The sentence is, because Trump has his own BLS person now. I don't necessarily see a bad number on Friday.

[Dashiell Bennett]

I'm not that pessimistic. I think. I don't know. But I don't know. I don't have a view on. I don't have a view on this. But where was it? Who said this?

[Carmen Rodriguez]

I don't want to say because I'm not sure it's public or not.

[Dashiell Bennett]

But this is a notable person.

[Carmen Rodriguez]

Yes, it's someone you know, actually.

[Dashiell Bennett]

Okay, fine.

[Steve Englander]

And not me.

[Dashiell Bennett]

Okay. And not Steve, not Steven. Let's talk about the conversation has focused on these levels and pace of job creation and so forth. We recently did an episode with Austan Goolsbee, the Chicago Fed president, and he was like, so much is influx. I'm not really looking at levels. And he called what he's like, he used this term very dramatic, the Four Horsemen of Truth. He's interested in rates. He's interested in the unemployment rate, which is still at 4.2%. He's interested at the hiring rate, which we had the Jolts report come out this week. It's at 3.3%. He's interested in the firing rate, which I think has still been fairly low. Maybe he's looking at like the rate of wage growth. I don't remember what the fourth horseman was. In a time of volatility. What do you think about this idea? Like let's just forget about levels and just focus on rates because they don't get revised as much. You go out and you ask thousands of people, are you employed or unemployed right now? And if 4.2% say they're unemployed, that is probably a reasonable proxy for whether people are employed or not.

[Steve Englander]

Right? But Joe, if you turned out to be the next person named to the fomc, to the board and you see payroll number and comes out at 75,000 like tomorrow's consensus, is that a strong number or a weak number?

[Dashiell Bennett]

Well, that's what I'm saying. I just look at the. I don't know. I mean, I don't know. Let's say so right now, just for what it's worth, the unemployment rate is at 4.2%. Economists expect it to tick up to 4.3%. Let's say it comes at 4.2%. Let's say we have a weak NFP number, but the unemployment rate stays at 4.2%. Why don't I say, okay, things are still more or less fine?

[Steve Englander]

Well, let me say this. I like rates, but I like the employment to population ratio because we know that participation rate is cyclical. And if you look to the employment to population ratio, all these comments that unemployment rate is stable, it looks imbalanced, nothing's changed, they don't hold up very well. We've had pretty consistent drop. Not a 2008 type of drop, but you know, was like over 60 a year ago. Now it's 59.6.

[Dashiell Bennett]

Okay.

[Steve Englander]

It's telling us that there's kind of increased softening. I think you can't be choosy about which rates you look at, but I think in cyclical periods probably employment to population is telling you more and this time it's more on Waller's side than it is on Powell's side.

[Carmen Rodriguez]

I know we've been talking about weaknesses in the NFP estimates, but what's your expectation for the official number?

[Steve Englander]

Well, I wrote we're a little bit split brained on this. Left brain, right brain, because we live in a world where we have to get the market reaction. Right, right. So Our forecast is 75,000. It's very close to consensus, nothing dramatic. I'd just say this, that you got to realize there's so much randomness in the number, it could be 125,000 and not be meaningful. But it's just the way it goes. What we've argued, if you look at the range of forecasts, almost Everybody is between 40,001, 105,000. So you get a number like 30. I think that will be a very dramatic number in terms of.

[Carmen Rodriguez]

If it's outside the range of expectations.

[Steve Englander]

Yeah, I mean, because this range is really tight in terms of market expectation. And I think it would put 50 on the table for the Fed, because I think the argument would be that if you get a number that's so low, you probably should have cut in June or July. And so you're not saying, oh my God, the world's coming to an end, everything's falling apart, but you're saying, yeah, well, we kind of missed it. The data weren't there at the time. In retrospect, had we had those data, we probably would have cut in June or July. So we're just doing catch up now. Now, for us, the real issue is how do you interpret like 100,000? Because we would say, okay, 100,000 less. Our bias of 70,000 means real job creation of 30,000. So you should be talking about 50. I don't think we've convinced the market yet that that's the way you should look at it.

[Dashiell Bennett]

By the way, just before going on, so on the eco page, consensus is 75k. Consensus is for the unemployment rate to tick up to 4.3%. Also average our earnings of 0.3% month over month growth. So that's sort of like what we're looking at this week. We've had some sort of soft data. We had initial claims today come in at 237k. That was ahead of the estimate of $230,000. ADP employment, take it or leave it, $54,000 versus estimates of $68,000, down significantly from the $106,000 revised last month. ISM services employment, 46.5. That was a little bit shy of expectations. So soft. And there's this risk of softening. I just think it's really interesting, the range of possibilities for September because we were just in Jackson Hole and you're talking about, oh, maybe there's a case for 50, but there's also still a lot of residual concern about inflation and the Inflation dragon has yet to fully be slayed.

[Steve Englander]

The reason I would focus on the labor market is because if it's as weak as we think it is and correctly measured, the slack in the labor market will take care of inflation. Again, I serve more on Waller's side that you're not going to have any kind of power on the labor side. If I can make one comment. I mean, some people get their pleasure from banging their head against the wall. The wall I bang my head against once or twice a year is taking all of these incoming data on labor market indicators and trying to predict non farm payrolls.

[Carmen Rodriguez]

You got to have a hobby.

[Steve Englander]

You got to have a hobby. And this one might be the definition of insanity. And none of them work. A bucket of spit.

[Dashiell Bennett]

I'm looking at the band aid on your forehead. See, this is when you talk about banging your head against the wall for pleasure, you're actually talking literally would appear.

[Steve Englander]

Well, you should see the wall.

[Dashiell Bennett]

Okay.

[Carmen Rodriguez]

We would be remiss if, when we have you in the studio, if we did not ask about what's going on with bonds. So one of the things that's happening today is because of that softening jobs data that Joe just laid out, we are seeing a little bit of a recovery in bonds because there's more expectation that the Fed might cut. But the big story in recent days has been this huge sell off in bonds, particularly at the long end.

[Dashiell Bennett]

And it does seem, particularly in Europe.

[Carmen Rodriguez]

Particularly in Europe, but also in the US it does seem kind of weird that we're talking about the economy slowing and meanwhile the long end of the curve just keeps going up. What's going on.

[Steve Englander]

Market's attention span is maybe not as long as you give it credit for. And I think the problem is this, that you look at fiscal situations that are deteriorating globally and likely to deteriorate in the US Especially if anything happens with the tariffs to pull them back.

[Dashiell Bennett]

Oh yeah.

[Steve Englander]

And markets are kind of saying, look, in the long term, this doesn't look good. It looks like there's a lot of borrowing out there. But the long term in market terms can be six weeks and it can be six years. You don't know when those forces are going to matter. So absent anything else, the market pays attention to it. Then you sort of come in this week and every number seems to be soft. You say, oh my God, the Fed's going to cut. And all of a sudden this sort of selling of bonds, especially because the market probably got reasonably short worrying itself about the fiscal situation. They say, oh, My God, maybe not so short. And people are buying back the bonds that they've sold and you get the kind of dramatic movement we've seen this week. We've argued in the short term, both FX and bonds are going to be driven by the Fed and the US Economy. And by short term, I mean the next month or six weeks. I think once you get past that, we don't think inflation's going to disappear. And even outside of the tariff induced inflation, the non tariff goods and services seem to be at best stay steady and maybe even edging up a bit. There's a bit of fiscal stimulus in Trump's fiscal package. I think it's possible that the economy is not as bad as it might look based on the employment numbers that we're getting, especially if there is a productivity pickup in the data that's not really recognized. So we see a possibility, or we actually see more than a possibility. We expect dollar weakness in the next couple of weeks, but by the time we get to the end of the year, we could see the dollar strengthening. Positioning is kind of short dollars in our view. And same with the bond market. While the market serves saying oh my God, last week was debating 0 and 25. This week I suspect they'll be debating 25 and 50 while the market's debating that bond yields are going to come down. Once that's kind of settled in terms of market expectations, I think they'll look at the fiscal picture and kind of say low fours, maybe not.

[Dashiell Bennett]

It's interesting, it occurs to me when you say how, when we talk about how bad the economy is, that there's actually two different ways of what bad could mean. So one is bad could just mean a sort of where you are on the cycle, we're in a deceleration cycle, we're not creating as many jobs, therefore we have to have a lower rate of interest to get things going again. But then bad could also mean more sort of qualitatively where what's really bad is slackening growth and also a firm inflation picture such that traditional measures of policy stimulus or de stimulus don't work as well they'd like because there is some sort of deeper rot. And it sounds like what you're saying, if I can put all of this together, is that cyclically there's a slowdown, there may be a case for 50 basis point cut very soon, a case for lower rates, but not so bad in the case of the US economy is broken and therefore policy measures won't work to get it revived again.

[Steve Englander]

Yeah, I think that's right. We actually don't think they'll do much more than 50. They'll say, okay, we've caught up, time to wait and see. And our baseline, because we're not yet sure about what the employment number is, is 25 and stop. But you know, we've been talking about the Choice being between 25 and 50.

[Dashiell Bennett]

Just adding on one more. It really is just on the Europe situation, we mostly talk about the US like France has also their 10 year yield has been shooting higher.

[Carmen Rodriguez]

Yeah, this is the crazy thing. I think if we didn't have everything that was going on in the US at the moment, like the France, France story would be huge in the market.

[Dashiell Bennett]

Yeah. So give us your Talk to us about Europe for a minute.

[Steve Englander]

Yeah, look, there's a France story. I'm actually scheduled to go to France, but it looks like they might be on strike next week. So I'm not sure how that's going to play out. The structural problems that they face are kind of enormous. I mean, the French deficit's about as large as the US deficit and their interest rates are way lower than US interest rates. They have a very fragile government. They're trying to do some sort of fiscal consolidation because it's not just a minority, it's like a tiny government. The opposition parties are kind of saying no way. And so that's setting the US aside, the French and broadly speaking, the European situation isn't that good. And in some cases you're seeing sterling trade like emerging markets economy in that the correlation of interest rates in the currency is not the normal G10 one where higher rates lead to a stronger currency because people look at the return. The higher rates are viewed as risk premium and they're associated with a weaker currency.

[Dashiell Bennett]

I mean, yeah, you can look at levels. Sorry, just to keep going. You can look at levels of debt to GDP or ratios, et cetera. But it sounds like the common thread here, at least to me. And this is the bias or this is my lens, when you talk about what's going on in France, maybe you won't even be able to visit there because of strike. When you talk about. We had Liz Truss on the podcast recently. Politically, these are not well functioning polities right now, are they?

[Steve Englander]

Yes, and I'd say that the ability particularly to get through unpopular measures like fiscal consolidation is very limited. And that's why they all sort of have their backs against the wall and the markets are looking at this and kind of saying you don't really have a source of growth and you have to do austerity, but you're not. So we're looking at these ratios and where they're going to go. I think the one advantage the US has is that here at least you can tell a story where you say, look, some of the productivity numbers look pretty good on the ground. You sense that AI is making inroads. We don't know when it's going to matter in terms of actual realized productivity, but it could. You can tell a story that's somewhat optimistic. Whereas if you look at Europe, they have high energy costs, their capital markets aren't as well developed for financing these kind of innovative firms, and they're kind of lagging on the technology side. So the battle seems to be between the US and China and other countries sort of really lagging, which doesn't mean the US outcome is going to be great. But at least you can tell the story. Whereas it's much harder to tell the story, a European story of, say, private sector induced growth.

[Carmen Rodriguez]

What's that line again, Joe? It's like the US Innovates, China iterates and Europe writes the regulation. Do you remember that?

[Dashiell Bennett]

Yeah. And they also get tons of vacation and they have this amazing life and so on.

[Carmen Rodriguez]

And put out think pieces.

[Dashiell Bennett]

Yeah, which sounds great. So many people would kill for a job writing think pieces.

[Steve Englander]

I lived in France for a number of years and I'd say the quality of life of the median French worker is well above that of the median US worker.

[Dashiell Bennett]

That's what I'm saying. We need to have some. This is an important point. You observed that. Yeah, yeah.

[Steve Englander]

And the question is whether it's sustainable. It's like living on your credit card.

[Dashiell Bennett]

But we need to regulate more. Instead of innovating, let's try regulating.

[Carmen Rodriguez]

No, we should go drink some wine for lunch.

[Dashiell Bennett]

Yeah, sounds great.

[Steve Englander]

Great suggestion.

[Dashiell Bennett]

Lots More is produced by Carmen Rodriguez and Dashiell Bennett with help from Moses Andam and Kel Brooks.

[Carmen Rodriguez]

Our sound engineer is Blake Maples. Sage Bauman is the head of Bloomberg Podcasts.

[Dashiell Bennett]

Please rate, review and subscribe to odd lots and lots more on your favorite podcast platforms.

[Carmen Rodriguez]

And remember that Bloomberg subscribers can listen to all our podcasts ad free by connecting through Apple Podcasts. Thanks for listening.

[Joe]

You can get the news whenever you want it with Bloomberg News now. I'm Amy Morris.

[Lisa Mateo]

And I'm Karen Moscow. Here to tell you about our new on news report delivered right to your podcast feed. Bloomberg News now is a short 5 minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed.

[Joe]

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[Lisa Mateo]

And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments.

[Joe]

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