Bloomberg Surveillance TV: September 11th, 2026

SPEAKER_1 (0:02)

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Jonathan Ferro (0:11)

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro, along with Lisa Abramowicz and Annmarie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern.

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David Kelly of JPMorgan Asset Management writing, the August CPI report is shaping up to be one of the most important inflation prints in years. We estimate that consumer prices rose 0.3% month over month. David joins us now for more. David, good morning.

David Kelly (0:49)

Good morning.

Jonathan Ferro (0:49)

Is that enough to get it done next week?

David Kelly (0:52)

It's very close. I mean, if we come in a full tenth lower than consensus on headline and core, if that happens, then I think the Fed is on hold. If we come in at consensus, you know, it's a jump ball. And then if we come in high, of course, they will raise rates. I don't think they should.

I mean, I think, first of all, this oil thing, even though we are a net exporter of oil, if you get a lot of oil revenue in, it's helping very rich oil producers in the United States. It is not trickling down to the average American. 70% of Americans paycheck to paycheck.

They didn't get any further fiscal stimulus this year. They're used to living off stimulus checks of various kinds. We've got virtually no payroll job growth. We've got very slow wage growth. So they're getting squeezed anyway, and they will get squeezed more by higher gasoline prices. So it is not an inflationary effect in the economy. The asset test the central bank should look at is, is this growth causing wages to accelerate? It is not. We have seen four consecutive months in which wages have gone up less than CPI inflation, regardless of what happens with real wages. Admittedly, you'll need the CPI to be able to figure that out. But we know the wages aren't accelerating at all here. And in that environment, there may be inflation coming from outside areas, but it's not coming from within the economy. The Federal Reserve can only affect what's going on within the economy, and they shouldn't tighten because of oil and disinflation.

Jonathan Ferro (2:13)

Well, let's say on labor, you said there was virtually no payrolls growth. It's north of 70k, the three month average at the moment. Some people believe the break even rates close to zero because we've had a negative supply shock to labor.

How close are we to generating some kind of wage growth, given those dynamics?

David Kelly (2:27)

Well, you would think we'd be there already, wouldn't you? This is the lowest year-over-year wage number since May of 2021 It is not a secret that you can't actually find good help.

But yet workers, we have a very asymmetric power structure in the labor market. American workers find it very hard to get a pay increase. And if they haven't been able to get a pay increase up until now, I don't see why they're going to be able to get a pay increase going forward. So we're still not seeing that. I mean, 94% of American private sector workers are not members of a union. They really don't have that much bargaining power. We're not seeing that wage growth.

Lisa Abramowicz (3:02)

At this point, there is an argument that regardless of whether the Fed can control what's going on with the price pressures, that by raising rates and signaling that they will combat inflation, they will bring down inflation expectations enough to curtail some of the on-sell-off that we're seeing at the long end of the yield curve. Why do you disagree with that?

David Kelly (3:21)

Because I've seen this movie before many, many times.

Every time there's a start of a rate-hiking cycle, people say, well, maybe they'll just go once, and that will tell people they're really tough, and then long rates will come down. What happens is around tables like this, the next question is, so what are they going to do in the next meeting? When's the next hike coming? And it always builds in this expectation of a series of hikes, or they're maybe still behind the curve, and so you end up with rising long-term rates. I don't think that will work at all. What would help though, actually, is if the Fed telegraphed its punches. I know that it makes it more exciting for all of us, but under Yellen and Bernanke and Powell, we very rarely had a meeting in which we didn't know what was going to happen because it would let us know forward guidance. Right now we're actually building in, I believe, a Fed risk premium into the long end of the market. Part of the reason you've seen this spike up in rates in the last few months, I believe, is because people who are lending money to the US government don't know what the Fed's reaction function is going to be. Well, if you don't know, you have to get a little extra compensation for that. So I think Kevin Warsh is dead wrong on this one. The Federal Reserve, and I hope the task force realizes this, the Federal Reserve should at least provide a framework of forward guidance. They don't have to say where rates are going to go, but sorry, not forward guidance, so much as the reaction function. They've got to say, if the economy goes this way, that's how we're going to move rates. That reduces overall uncertainty.