Lots More With Skanda Amarnath on This Moment in Macro

Summary

Odd Lots Podcast Summary: "Lots More With Skanda Amarnath on This Moment in Macro"

Release Date: August 15, 2025

Hosts: Joe Weisenthal and Tracy Alloway
Guest: Skanda Amarnath, Executive Director of Employment

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I. Introduction

In this episode of Bloomberg’s "Odd Lots," hosts Joe Weisenthal and Tracy Alloway delve deep into the current macroeconomic landscape, navigating the complexities of inflation, monetary policy, and market dynamics. Joined by guest Skanda Amarnath, the conversation unpacks the conflicting economic indicators and explores the implications for future Federal Reserve actions.

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II. Conflicting Macro Signals: Rate Cuts and Inflation

Joe opens the discussion by expressing confusion over mixed economic signals. On one hand, indicators like slowing job creation and a decelerating housing market suggest a potential need for rate cuts. On the other, persistent inflation and record-high stock markets paint a different picture.

Joe Weisenthal [01:02]: "If someone said the economy is slowing down... we need rate cuts. But then someone else points out the stock market is at record highs and inflation is still elevated. Are you insane to talk about rate cuts?"

Tracy echoes this sentiment, highlighting the unprecedented difficulty in predicting macroeconomic trends.

Tracy Alloway [01:46]: "This is one of the most difficult macro environments to call in probably my professional career."

Skanda adds that the Producer Paula PPI report indicates inflationary pressures remain, complicating the Federal Reserve’s decision-making process.

Skanda Amarnath [04:41]: "PPI today should be seen as at least showing the inflationary side of the story is still there."

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III. Labor Market Dynamics

Despite signs of a weakening labor market, the starting point remains robust. Skanda notes that while job growth momentum is slowing, the overall employment levels are still strong.

Skanda Amarnath [05:07]: "We are higher now than we were last year. It's starting to look like the progress is starting to turn in the other direction."

Tracy emphasizes the importance of the labor market's strength as a starting point for monetary policy decisions.

Tracy Alloway [05:53]: "If you look at the labor market, the labor market has been really, really strong in recent years... Does that mean potentially the Fed can let that one go and look more at the inflation risk?"

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IV. Tariffs, Deficits, and Inflationary Pressures

The discussion shifts to the impact of tariffs and fiscal deficits on inflation. Joe articulates concerns about how tariffs disrupt supply chains while deficits inject additional funds into the economy, potentially creating an inflationary "cocktail."

Joe Weisenthal [07:46]: "If you're throwing sand into gears of industry... that strikes me as a potentially inflationary cocktail."

Skanda acknowledges the dual impact of tariffs and deficits, suggesting a precarious balance that could lead to "stagflation light."

Skanda Amarnath [08:50]: "I think there's both... unemployment rates are still low, but the momentum in the labor market is weaker."

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V. Energy Price Bifurcation: Oil vs. Electricity

Tracy brings up the peculiar situation of low oil prices juxtaposed with rising electricity costs, particularly influenced by data center demand and AI enthusiasm.

Tracy Alloway [09:58]: "Can you walk us through what's going on with energy prices at the moment?"

Skanda explains the regional disparities and the impact of capacity constraints on electricity prices, noting that despite low oil prices, certain areas face soaring electricity costs due to increased demand and limited infrastructure.

Skanda Amarnath [10:16]: "We have capacity short for the longest time... building new capacity is very expensive, very time-intensive."

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VI. The Role of AI Spending in the Economy

AI investment is a double-edged sword in the current economic scenario. While it promises future efficiencies, the immediate effect appears to be a crowding-out of resources, potentially limiting gains elsewhere in the economy.

Joe Weisenthel [12:26]: "There's a lot of spending on gear and buildings and a little bit on labor... is it too soon to tell whether all this expenditure is..."

Skanda concurs, highlighting that while AI investments are significant, their broader economic benefits are not yet fully realized, leading to resource allocation challenges.

Skanda Amarnath [13:07]: "There's some crowding out effect, but the primary one is still that there's more investment."

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VII. Central Bank Independence and Policy Optics

A significant portion of the conversation centers on central bank independence, especially in the context of upcoming Jackson Hole economic symposium. The hosts discuss the potential political pressures on the Federal Reserve to cut rates, which could undermine its independence.

Tracy Alloway [16:21]: "Fed needs to start tweeting in all caps."

Skanda elaborates on the dilemma the Fed faces in maintaining legitimacy while navigating political influences.

Skanda Amarnath [16:37]: "The legitimacy in some ways of whatever the Fed does gets undermined."

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VIII. Long-Term Interest Rates and Fed Credibility

Despite expectations of rate cuts, long-term interest rates have remained relatively stable. Skanda suggests this could indicate a credibility gap within the Fed’s policy framework, where market participants demand higher compensation for perceived risks.

Skanda Amarnath [19:20]: "What's the actual objective here... there's some level of a credibility gap."

Tracy and Skanda discuss how political motivations for rate cuts may not effectively lower long-term rates, reflecting concerns about the Fed’s long-term policy direction.

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IX. Stock Market Resilience Amid Macro Concerns

Contrary to the looming economic uncertainties, the stock market remains buoyant, primarily driven by the tech sector and AI-related investments. Skanda points out that even broader measures of the market display optimism, suggesting that investor confidence remains intact despite mixed economic signals.

Skanda Amarnath [29:13]: "We might have gotten the worst jobs report already... that might not be a world in which you expect both high rate cuts or anything deeply recessionary."

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X. Jackson Hole Conference Insights

Hosts share anecdotal experiences from the Jackson Hole conference, including brief encounters with Fed Chair Jerome Powell. They reflect on the challenges of engaging with policymakers amidst a high-stakes environment.

Joe Weisenthel [31:02]: "...I froze because I couldn't really think."

Skanda discusses the Fed’s framework review and the potential implications of recent policy tweaks on inflation and employment targets.

Skanda Amarnath [26:09]: "The framework review... they are doing the same exercise now, but just much more low profile."

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XI. Conclusion

The episode wraps up with final thoughts on the intricate balance the Federal Reserve must maintain between curbing inflation and supporting a still-robust labor market. Hosts encourage listeners to stay informed about the evolving macroeconomic landscape as decisions made in conferences like Jackson Hole will significantly influence future economic conditions.

Joe Weisenthal [30:48]: "Is it 100%? Yeah, but that's because it's all this like tech money and AI spending."

The hosts thank their production team and remind listeners to subscribe for more insightful discussions.

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Notable Quotes:

• Joe Weisenthal [01:02]: "If someone said the economy is slowing down... we need rate cuts. But then someone else points out the stock market is at record highs and inflation is still elevated. Are you insane to talk about rate cuts?"

• Skanda Amarnath [04:47]: "What matters for inflation for July, CPI and PPI both matter. So we're going to be running at roughly 2.9% on core PCE."

• Tracy Alloway [05:53]: "If you look at the labor market... Does that mean potentially the Fed can let that one go and look more at the inflation risk?"

• Skanda Amarnath [08:50]: "I think there's both... unemployment rates are still low, but the momentum in the labor market is weaker."

• Skanda Amarnath [19:20]: "What's the actual objective here... there's some level of a credibility gap."

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Final Thoughts:

This episode of "Odd Lots" provides a comprehensive look into the current macroeconomic challenges, highlighting the delicate interplay between inflation, labor market strength, and monetary policy. With insightful analysis from Skanda Amarnath, listeners gain a nuanced understanding of the factors influencing the Federal Reserve's decisions and the broader economic implications.

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Subscribe to "Odd Lots" on Apple Podcasts, Spotify, or your preferred podcast platform to stay updated on the latest in finance, markets, and economics.

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 Weisenthal]

Bloomberg Audio Studios Podcasts Radio news so here's why I'm so confused right now. Like, if someone said to me, just one reason. If someone said to me, look, you know, the economy is slowing down, clearly, job creation is in the tank, is decelerating, housing is in the tank, et cetera. There's a bunch of sectors that are soft. We need rate cuts. Okay, that sounds good. Inflation has come down quite a bit from where it was, but it's still elevated. And then if someone said, look, the stock market is at record highs, PPI just came in super hot, inflation is still above levels, et cetera. Are you insane to even be talking about rate cuts? I'd be like, oh, yeah, okay, that makes sense too. Like, I find many kinds of arguments to be very persuasive right here. I don't have strong views.

[Tracy Alloway]

I'm not one for hyperbole. I try not to be right. I try to be a good journalist in that sense. But I would honestly say, like, this is one of the most difficult macro environments to call in probably my professional career, which is longer than I would necessarily like it to be at this point. But as you said, if you look at the stock market, which feeds into financial conditions, right? Look at financial conditions. Like, financial conditions do not look that restrictive at the moment. And yet you do have people who say that actually we are still in restrictive territory. And, and the labor market is weakening, as you said, and so we need a rate cut. So we have this one body of people who are talking about a potential Fed policy error, and then we have another body of people, including people from the Trump administration, who are talking about the need to do a basis Point cut in totally.

[Joe Weisenthal]

You could make the argument that the Fed is either committing a policy or now or contemplating a policy area. Then there is this whole dynamic with the fact that we know that there is this one incredible thing going on, which is all the AI spending and how that actually intersects with macro is very confusing. So we have Jackson Hole next week, which we're going to be at.

[Tracy Alloway]

I'm excited about Jackson Hole. So the scuttlebutt for journalists going to Jackson Hole is that apparently, like, the rooms are in even higher demand than normal. Because behind all the macro debate, which we just laid out, there's also the question of Fed independence, Right? So interest in Jackson Hole is, like, higher than it's ever been.

[Joe Weisenthal]

It's going to be a big Jackson Hole. Whatever the formal theme of the conference is going to be. You know, there's going to be some academic theme coming up. Whatever that is, that's not going to be the theme. The theme is going to be all of the talk about Fed independence. I did a dead list.

[Tracy Alloway]

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

[Joe Weisenthal]

Fed is going viral.

[Tracy Alloway]

Barges.

[Joe Weisenthal]

This is an After School special, except.

[Tracy Alloway]

I've decided I'm going to 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?

[Joe Weisenthal]

No. I think that, like, in a couple years, the AI will do a really good job of making the Odd Lots podcast. One day, that person will have the mandate of heaven.

[Tracy Alloway]

How do I get more popular and successful?

[Joe Weisenthal]

We do have the perfect guest.

[Tracy Alloway]

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

[Joe Weisenthal]

Because even when the Odd Lots is over, there's always lots more.

[Tracy Alloway]

And we really do have the perfect guest.

[Joe Weisenthal]

Skanda, nice to have you here in.

[Tracy Alloway]

Our new When Joe's confused, you're the guy we turn to.

[Joe Weisenthal]

Yeah, that's right. Let's start. Actually, just quick take, we're recording this 9:04, August 14th, about 30 minutes ago, we got that really hot PPI report. But also, I don't know what that means. Like, is it a big deal? What does it say? What's going on there? What does it mean for pce? Is it should mean that margins are going to be crimped. What's going on there?

[Skanda Amarnath]

I mean, I think for PPI today should be seen as at least showing the inflationary side of the story is still there.

[Joe Weisenthal]

Okay.

[Skanda Amarnath]

Not just in terms of, like, some of the aggregates may be distorted for a lot of reasons. But what matters for the Fed's inflation gauges got moved up a bit. So what you're going to be tracking for inflation for July, CPI and PPI both matter. And so that's going to be moved up a bit. So we're going to be running at roughly 2.9% on core PCE.

[Joe Weisenthal]

That is actually substantially.

[Skanda Amarnath]

We are higher now than we were last year. It's starting to look like the progress is starting to turn in the other direction now. There may be some reasons why it is transitory this time, that it is temporary and yet it doesn't really feel great. And I imagine for Chair Powell, there's a feeling of wait. I remember in 2021 and August, I was pretty confident that this was going to be short term. And then we saw some increases and I said, well, we got to focus on getting the labor market back first. And then people kind of have held that against him accordingly. But now we have inflation picking up. And yeah, we also see a job market, maybe employment levels look fine. Yeah, the momentum, the job growth that we're seeing in the latest release is understandably spooky, too.

[Tracy Alloway]

I asked Mary Daly this question before, but do starting points matter here? Because if you look at the labor market, the labor market has been really, really strong in recent years, like, certainly much stronger than people had expected. And so, okay, there are some signs of softening now. It does seem to be losing momentum, but we are still starting from a place of strength. Does that mean potentially the Fed can, you know, maybe let that one go and look more at the inflation risk to your point?

[Skanda Amarnath]

I think it certainly matters. It's not the only thing that matters. I think momentum and starting point both matter, and the starting point is better. The momentum is some of the weakest we've seen outside of a recession in a while now. Some of that might be due to immigration, some of that might be due to tariff uncertainty, some of that might be due to interest rates are higher. And that matters for some sectors more, even if the financial conditions you just talked about are still pretty accommodative if you're talking about capital markets. So these are all kind of confusing in terms of what is the actual labor market trajectory that's permissible. I think the Fed is right now inclined to cut in September, given what we've seen in the labor market data. But I will just warn, just as the data got revised before, it could get revised again, it may be the case that May and June were the weakest months for job growth and that we see some local acceleration just because there's a little bit more certainty on trade policy than there was before. Right. So there's still another jobs report before the September meeting and there's another batch of inflation data that's also going to come out. And I think that will actually probably matter in the sense that typically you see price changes that are more volatile as you get into back to school season, holiday season, the turn of the calendar year. What we've seen thus far is typically the more benign months where you typically don't see prices change that much. So there's still a lot to play for in terms of going into the September meeting.

[Joe Weisenthal]

So here's the thing. I've been thinking about trying to conceptualize what's going on. And as Tracy mentioned, we talked to Mary Daly last week in Alaska and she's kind of of the view right now or she says that she does not think that the tariffs will be particularly inflationary or inflationary on a sustained basis. And you know, there's certainly an argument tariffs are tax increases. And tax increases we don't think of as inflationary. We think of them as disinflationary, if anything. On the other hand, they throw a wrench into supply chains. They have very different effects across, different like they sort of strike me as like a bit of just like throwing sand into gears. And if you combine throwing sand into gears with really big deficits, and now that I'm middle age, I talk about deficits, we got a pretty big July deficit number. It was 10% higher than the year before. This is despite the tariff revenue. If you're throwing sand into gears of industry, making commerce less efficient by creating all these frictions and you're pushing in all this money by expanding deficits, that strikes me as a potentially inflationary cocktail.

[Skanda Amarnath]

I would agree. I think that's possible. You have both. Right. That there is some what I would call stagflation light. Right. That it's obviously unemployment rates are still low. That's pretty distinct from the stagflation of the 70s. But the momentum in the labor market seems weaker because I think there probably is for any sort of trade sensitive sector. Think about construction, manufacturing, retail trade, wholesale trade, warehousing, these are all showing weakness in job growth more recently. And so we're seeing that side of the equation that's, that should be disinflationary at the margin because less labor income should mean less consumer spending. And at the same time you're putting in costs adding to the business cost structure in ways that businesses can't stomach beyond a certain point. Right. So some businesses are probably well positioned to absorb the hit to margin, but there's a limit to that as well. I think the issue with sort of the tariff slash trade shock, the modeling of it, is if you have costs be pushed through to consumers over time, that can still be consistent with just real incomes sort of declining even if nominal income growth is on steadier footing. And so that would be a very tricky backdrop for the Fed to navigate.

[Tracy Alloway]

Just going back to inflation for a second. Can you walk us through what's going on with energy prices at the moment? Because on the one hand oil still pretty low as we talked a lot about in Alaska.

[Joe Weisenthal]

They don't love that.

[Tracy Alloway]

Yeah, people really care about the price of oil in Alaska, not necessarily the way that most car driving Americans do.

[Joe Weisenthal]

It's funny, like in America an oil into quote lower 48, which is a term I never use as much than in the last week. It's like an oil crisis is when it's really high there. It's the exact opposite.

[Skanda Amarnath]

That's right.

[Joe Weisenthal]

Keep going.

[Tracy Alloway]

That's right. Okay. So oil prices are low, but at the same time we're seeing some electricity prices rise, possibly a sort of crowding out effect from a data center demand and AI enthusiasm and things like that.

[Skanda Amarnath]

Yeah. So I think that there's a bifurcation in energy prices. Right. So we have your standard commodity prices specifically for oil have stayed at the lower end of the range. Right. We're still speaking in the maybe low 60s. Right. In WTI. So these are prices that should be not painful for the consumer. And yet we also have electricity price increases. And the electricity price increases that we've seen, some part of that is due to natural gas price volatility, although natural gas prices more recently have come down. But there's also an in there are a lot of things that go into electricity prices that are independent of that. And so in a lot of regions of the country we're seeing capacity looks to be short for the longest time. A lot of these, a lot of what you call thermal sources of electricity generation are typically not very economical. Right. Or economical in a short run sense because we have more capacity than we need. So the ability to be paid for that capacity is not great. So that's why we retire coal plants, we retire nuclear plants. Now you're seeing the other side of that. Right. And it takes a long time to build that stuff. And so the retirements have, are coming to A pause for hey, actually we might be short on capacity if the data center demands are there. And building new capacity is very expensive, very time intensive. And that seems to be an issue in at least a number of major regions. So there's like the Mid Atlantic region. Pjm, you're hearing this also show up though in terms of rates are increasing in Georgia and New England has its own set of problems because it burns a lot of natural gas for electricity, but also doesn't have the requisite pipeline capacity.

[Tracy Alloway]

I love that I'm double hedged to New England energy prices plus Con Ed in New York, although I do have solar panels in Connecticut now as we were discussing. So sometimes, sometimes my bill is actually negative, which is lovely.

[Joe Weisenthal]

The Texas hedge, this is the thing which is that. So I mentioned at the beginning so much investment happening in AI, which doesn't seem to like, I mean, doesn't seem to be paying off economy wide yet. It's not like we've seen some great disinflationary boom or all these companies suddenly getting more efficient though maybe there are. I'm sure you could find pockets. But there is a lot of spending and there's a lot of spending on gear and there's a lot of spending on buildings and a little bit of spending on labor. You know, some people have been talking about this crowding out effect. Jason Furman talked about it in a tweet that maybe this feels like a fiscal crowding out. Is that fair at this point or is it too soon to tell whether all this expenditure.

[Tracy Alloway]

Muskanda's been writing about this quite a bit as well. Yeah.

[Joe Weisenthal]

I'm curious, how do you characterize it right now?

[Skanda Amarnath]

I mean, obviously there's some bid for resources that could otherwise be deployed elsewhere. And also a bit sort of if, let's say you're an investor and you're obviously some level of capital constraint going on. If you're investing everything in AI and basically cutting spending and investment in other areas, there's some sort of crowding out effect. But I would just also caution that's like a secondary effect. Right. The primary one is still that there's more investment.

[Joe Weisenthal]

On the electricity front though. Is that connected or is that still just our menu factors pushing up electricity cross and maybe data centers are one of them.

[Skanda Amarnath]

I think the data center effect is something probably better to describe up until this very moment. Like we're probably hitting something of an inflection point. Right. So you are like low demand for electricity has stopped sort of having sort of its local stagnation okay. Yeah, yeah. But we haven't yet seen the pickup. The pickup is probably coming very soon, maybe right now. And as that happens and it has its pass through into pricing over the coming years, I think there will be some, a sort of super cycle dynamic to this that is likely to weigh on costs and investment.

[Joe Weisenthal]

Sorry, just to be clear, like those like price increases in Georgia that people are talking about or you. It's too early to say, oh, that's data centers.

[Skanda Amarnath]

It's a sort of yes and no question where the economists can give you both answers because it's like if something stops going down and starts flattening out and starts to pick up, there is a, like it may not have started going up in outright terms, but the dynamic is, it's part of the dynamic. So I think that, I think it's, it's both.

[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 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.

[Tracy Alloway]

As we mentioned, Joe and I are going to Jackson Hole next week and the theme doesn't really matter. The theme is central bank independence. And if Powell is going to do what, what President Trump is asking him to do, which is cut rates, I'm thinking how to characterize this question. How does like the central bank dynamic actually feed into the discussion around rate?

[Skanda Amarnath]

I mean, I think there is on one level the federal tell you they're putting the blinders on and they don't listen to what Scott Besant is most actively lobbying for was 50 basis points. And yet you can't deny that there is going to be some issue of how does the Fed do something in a way where it doesn't look politically manipulated. The legitimacy in some ways of whatever the Fed does gets undermined.

[Tracy Alloway]

There's an Optics problem.

[Skanda Amarnath]

If they don't do what the treasury says, then they're clearly trying to push back against the treasury in some way. And so then there'll be one set of stakeholders who are upset and at the same time there are others who will be saying like, if the Fed does cut 50 basis points, it's like, okay, they're just following Treasury. We should just listen to Scott Bessant now. And that is a dilemma for how you really handle the optics that Mary Daly talked about this on your episode, which was just, you got to try to just explain your decisions, try to be transparent, try to be consistent. Those are really important things. It'll matter to a point. And yet I'm sure there'll be plenty of cynics.

[Tracy Alloway]

Fed needs to start tweeting in all caps.

[Joe Weisenthal]

Tracy, did you see the headline yesterday? I think it was attributing CNBC that David Zervos is on Trump's short. No. You guys laugh. I like David. We have never had him on odd lots and which is an oversight. I've always liked talking to David though. But I feel like, you know, we never got unfortunately, Paul McCully, the Fed, the long haired, iconoclastic guy from industry and David Zervos is like our, the next best shot of this sort of iconic, classic guy who comes from Wall Street. I like David. I like David. I feel like, you know, he's like the closest thing to like a contemporary, kind of a Macaulayish character.

[Tracy Alloway]

I will say from a sartorial perspective it would be very interesting.

[Joe Weisenthal]

Yeah, I like, I've always loved Tori.

[Skanda Amarnath]

And the Dave, but I mean he would certainly be a character and so you probably get livelier.

[Joe Weisenthal]

Press conference, Press conference. Do you have any thoughts on the Derby? Every day the list of names gets longer. Do you have any thoughts on this process?

[Skanda Amarnath]

I can't take it seriously. Right. I think as far as the number of names that have been thrown, I don't think Janet Yellen is being considered actively. Okay, so these are, these are things that, that seem very, very.

[Joe Weisenthal]

That one elicited. I saw that headline too and yeah, there are some names out there that.

[Skanda Amarnath]

So I mean, there are some names to take seriously. I'm not saying, but I do think the length of the list being offered, some of them are clearly not serious names being put forth. But it may serve some tactical purpose for the kind of policies they want. If they're trying to broaden the list of people who they're considering, get those people to lobby more actively and publicly for lower rates Then that might be something.

[Joe Weisenthal]

White House Nick Timoros at the Journal pointed this out in an article which is that if you have 100 people who all think that they're in the running to be fed chair, that's 100 people going on TV saying now is a great time to cut rates. And then you sort of like, wait, why isn't Powell cutting rates? Everyone on TV knows now is the time. So there's some deep brilliance going on here.

[Skanda Amarnath]

I do have to ask though, like all of the lobbying for lower rates, we have a substantial number of rate cuts priced in over the next 12 months and yet long term interest rates haven't really budged that much.

[Tracy Alloway]

Yeah.

[Skanda Amarnath]

Which is if you think about where the pain points and the frustration are with higher interest rates right now, or at least to extend, you think 4.3% fed funds rate is high and that's part of the reason why 10 year yields are at 4.2, 4.3%. Roughly speaking, you're not getting much effect from the rate cuts being priced right now. And I do think I raised some questions about what is the actual objective here. Even if you get the rate cuts you so desperately wish, especially if it's.

[Tracy Alloway]

Coming, it doesn't feed into like the 30 year mortgage rate.

[Skanda Amarnath]

Yeah, exactly. Housing was the big pain point and you're not really getting that effect. That to me suggests like there is some level of a credibility gap here. If you're just saying I'm going to cut rates no matter what, no matter what the inflation rate is, because I want to do it for political motivation. I mean, one, investors obviously need to be compensated on some level for risk or also for the risk that maybe some in the future rates might go back up. If the people who are arguing for lower rates today would argue for higher rates under a different political environment. That's not exactly. That doesn't lend itself to keeping getting long term interest rates lower.

[Tracy Alloway]

And what's your take on why long term interest rates haven't gone lower?

[Skanda Amarnath]

I think there's probably two things here that stick out to me. One is, well, inflation still seems like it's there, right? We haven't gotten things back to 2%. And so there's just a risk of the Fed being caught off sides here. If the Fed starts to cut more aggressively at a time when inflation might pick up, you can say, well, this time inflation is transitory, but it's like we're dealing with potentially big macro adjustments. They might be costly. And if nominal incomes, labor income growth is reasonably solid, the Cost might get pushed through right to the consumer because the consumer can pay. And that's a dynamic that markets have to be sensitive to. So there's a level of, well, you're actually adding more inflation risk and so that needs to be compensated for. There's also, I think, a level of political manipulation risk. Right. If you actually did lower rates for reasons that aren't really grounded in data. I mean, Kevin Warsh said, I don't care about data dependence. You're not doing things for relatively neutral reasons and you're doing things for political convenience. One, the political convenience can cut the other way at another point in time. Let's say there are people who are doing things for partisan reasons today, and maybe that's a different person in the White House in the future. And then there's also just the issue of, well, there's just more instability. I want more compensation for that risk. And I do think, like we're seeing, if you look at the slope between 5 year notes and 10 year notes, abnormally high, even considering that rate cuts have been priced in. I know that Joe is a term premium skeptic and I to some extent am too. But I do think that there's more suggestive evidence now that you are seeing more demands for competition, for risk. And that again, kind of speaks to undermining independence. If you think this process of setting interest rates is not really being guided by something relatively neutral politically, something that's more focused on the data, but it's really just about pleasing certain presidential preferences and whims on a short term basis. As a long term investor, I might want more compensation for that. I think there's some merit to that argument. At least.

[Tracy Alloway]

Don't worry. At Jackson Hole, Joe and I are going to sit around a campfire and meditate on the meaning of the term premium.

[Joe Weisenthal]

Yeah, that's right. We're going to get it figured out next week.

[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 what's moving equities and why Search for stock movers on Apple podcasts, Nets, 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 Weisenthal]

Don't these clowns in Washington D.C. need to stop their addiction to borrowing money? I'm entering my AM radio.

[Tracy Alloway]

This is, this is back to your middle aged.

[Joe Weisenthal]

Yeah, I'm entering. I want to be a yakker on AM radio. Don't these clowns in DC need to stop spending? But deficits are very large. Like, you know, setting aside politics, they're very big. Especially given the low level of unemployment rate. 4.2%. Like we're spending a lot of money and that's a lot of money being pushed into the economy, much of it going to low productivity areas because of the growth like health care, etc. Don't we need to have some good old fashioned fiscal consolidation with inflation still at these elevated levels?

[Skanda Amarnath]

There's certainly an argument for if you wanted to try and get demand down, then you could possibly do that. Right? So if you think demand is a problem, right, then you probably wouldn't be so worried about the labor market. Right? So that's one part of it. I also like folks that have been saying the tariffs are a big revenue raiser. Right. One part of it is we're still seeing like either the fact is it just doesn't matter in the context of the deficit, in which case it's not a big revenue raiser. That's one argument you can make if you think it's actually still a lot of money being raised. And yet we're still seeing 10 year yield dynamics as they are. Maybe it's something else. I think the problem always with stories about deficits and how they drive interest rates tend to always be there's a missing link there, or at least there's not a lot of robust correlation here between the scale of the deficit and what interest rates end up looking like. And I do think institutional descriptions of what's going on have a little more merit. We are doing some things at the central bank and in ways that can undermine investor confidence. I think that strikes me as more compelling. But at the margin, if you wanted to address the deficit for whatever reason, yeah, there's probably a lot of room to do that when we've just did a pretty big sort of consolidation of corporate tax cuts. And at the same time, like there's obviously an aging population that does have more demands for major Social insurance programs. Frankie Joe.

[Joe Weisenthal]

Yeah. Become a crick. It's just like we need to. I'm not. I don't give policy advice. By the way, Tracy, we're talking to Skanda Amarnath, executive Director of Employment.

[Tracy Alloway]

Oh, yeah, we should.

[Joe Weisenthal]

20 minutes in. Probably should have said that.

[Tracy Alloway]

Okay, so we're going to Jackson Hole. One of the nice things about Jackson Hole is that you can run into people. You know, just if you're hiking outside of the lodge, the hotel over there. If we were to run into Jerome Powell, what's the one question we should ask?

[Skanda Amarnath]

Well, the one question I selfishly am interested in is what are they going to do with the framework here? Right. So the framework review that was. There was much fanfare about it in 2019 and 2020.

[Tracy Alloway]

This is the whole fate thing.

[Skanda Amarnath]

This was the fate thing. This is when they cited flexible average inflation target. That high employment wasn't inherently a bad thing or inherently an inflationary thing. They made some tweaks to their framework. There are people who blame those tweaks for the reason why the Fed allowed all this inflation to happen. I think they kind of messed around with some counterfactuals, but they are doing the same exercise now, but just much more low profile. And maybe that makes sense because this is sort of a time of leadership flux where there is going to be someone else who's Fed chair in a year and maybe that person will want to have more of a say and doesn't want to be stomped on. But I think. But they have said that they want to do some of these changes to the framework and then do a review of their communications. And especially at a moment when you have these conflicting forces where there are things that are pushing up inflation at the same time there are signs that labor markets are slowing. It just feels like what the Fed's going to communicate is going to be confusing. A good example of this from episode with Mary Daly was basically saying, well, we have goods inflation that might be tariffs, but like services ex housing looks to be not inflationary. And the Fed basically said the same story in 2021. And then it spread and it spread because some people say, well, it's because the labor market's too strong. They kind of miss that. Goods prices matter to service prices. So think about insurance, think about the cost of goods matters there. If you think about leasing, rental airfares matter, are affected by energy prices, food services prices are affected by food prices. And so the Fed could easily be caught off sides again. And I think that's something that I worry about independent of whoever is the leader, whether it's Chris Waller, whether it's Kevin Warsh, whether it's Kevin.

[Joe Weisenthal]

David Zervos.

[Skanda Amarnath]

David Zervos.

[Tracy Alloway]

This is something that I think is really unappreciated. We've seen car insurers saying that they're going to raise rates because the cost of parts is expected to go up under tariffs. And there are all these sort of hidden connections in the economy, as we learned on our trip to Alaska, once again, where you could see tariff inflation start to show up. So one example is, you know, you think you're buying Alaskan salmon made in Alaska, caught in Alaska, but it turns out a bunch of that salmon gets sent to China for processing and so it gets re imported into the US and so even something like Alaskan salmon, you would see a tariff impact.

[Joe Weisenthal]

I know we should do. We didn't do a fish episode but I, that was really, I didn't had not realize how much American fish is processed in China that re imported. So the miracle of shipping. I have one last, one last question. Things are like so chaotic. Stocks are doing fine. He's like, oh, it's doom and all this stuff and political politics and the deficit and interest rate, et cetera. Like stocks are like super forward looking. Is it 100%? Yeah, but that's because it's all this like tech money and AI spending. It doesn't totally satisfy me. There's other parts they finance and doing art, like what's going on there? That does not seem like a market that is worried about all these things that we talk about.

[Skanda Amarnath]

Yeah, it does seem like there's more growth optimism in capital markets. And I think tech is part of the story right now. The S&P 500 kind of adjust for reclassification is about half tech. Right. So it's clearly growing in terms of its relevance. And at the same time, all this tech spending is probably keeping the business cycle afloat on some level, at least more so than it would otherwise be the case. But if you look at stuff like even in equal weighted S and P, or you look at other sort of measures that may be more neutral to the tech dynamic, they've also shown decent amount of optimism.

[Joe Weisenthal]

Right.

[Skanda Amarnath]

So those are also telling you there's a lot of confidence. That confidence might be misplaced, but at least in the short run there's some wisdom in it. And that to me is like a reason to probably shade against taking the bleakest view right now. And I think even if you look at the jobs report that everyone, I think rightfully said has a lot of weakness in it. Look at total hours growth among rank and file employees. If you look at total income growth among those workers, it's pretty much fine. That was actually okay. And so we might have gotten the worst jobs report already. If we don't, then obviously the Fed can probably have more confidence cutting. But if it's actually the case that like there's actually was a we had a liberation day shock, but it didn't break things, especially because things got reversed to a large degree, then you might be left with a situation where it's just slowing growth in real terms and maybe the nominal trajectory of the economy, the total dollar spend, total dollars earned, aren't as adversely affected. And that might not be a world in which you expect both high rate cuts or anything that's sort of deeply recessionary, at least in the short run.

[Joe Weisenthal]

Tracy, you know, I did run into Jerome Powell in Jackson Hole. Just like serendipitously, I forgot about that. Yeah, I know. It was like you hadn't come yet and it was just in the lodge and you were sitting there with a couple of people. I think he was talking.

[Tracy Alloway]

Did you say hi?

[Joe Weisenthal]

Y and I froze like I did. I froze because I couldn't really think. It didn't seem like the right time to actually talk shop. In retrospect, I should have said something about the dead and told because I had seen Dead and Company that year and that would have been a good thing. But I said, ooh, it's really beautiful here in Jacksonville. I've never been. I sounded really stupid.

[Tracy Alloway]

I yelled at one of his Secret Service people without knowing it was one of his Secret Service people. He was like. He was stuffing a bag into the airplane in a really violent way that was crushing my own bag that had something kind of breakable in it. And so I was like, excuse me, stop doing that. And then he got really angry.

[Joe Weisenthal]

Yeah, well, Lots More is produced by Carmen Rodriguez and Dashiell Bennett with help from Moses Andam and Cale Brooks.

[Tracy Alloway]

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

[Joe Weisenthal]

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

[Tracy Alloway]

And remember that Bloomberg subscribers can listen to all our podcasts ad free by connecting through Apple Podcasts. Thanks for listening, Joe. You do a worryingly good impression of a crank.

[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 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.