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00:00And of course, hammocks. Comments come on the same day that we also heard from the newest Fed governor, Stephen Myron, who made it clear he would actually like to see a more aggressive rate cutting cycle, in his words, to protect the labor market. Who wins out here? Well, I think in the near term, certainly AMC's view, which is for a continued gradual easing of policy, seems to be really the majority view on the FOMC. So I think Myron's view for more aggressive rate hikes and rate cuts has little prospect unless we really see a really market deterioration in the labor market in the next few months. Other than that, besides that, you saw, you know, a fair amount of consensus on the committee last week for if easing at all to ease out at a pretty gradual and cautious pace. One thing that I thought Myron brought up and other economists have brought this up is about where the neutral rate is. Weather conditions are actually currently restrictive or not. And the idea of what kind of inflation rate can we live out? Yeah. So I think it's interesting the point about the neutral rate, because as you mentioned, with the dollar that has been generally declining, financial conditions are quite easy. Stocks hit a new high today. So the argument that policy is really restrictive seems at odds with a lot of financial conditions we're seeing now. That being said, there is an argument, I think the argument that that Myron Meyer made was that, you know, slower immigration growth should also mean slower GDP growth. He didn't quite say it that way, but I think that was the case he was trying to make. But, you know, I don't think there's really a big buy in on the committee for making an aggressive series of policy moves based on the neutral rate, which is, you know, anyone's guess really where that is with regards to the where we stand in the economy. We're going to get another read on P.S., we're going to get an update on GDP. But recent data seems to suggest that things are okay, if not necessarily great. I think that's that's exactly right. Outside of the labor market, we're seeing GDP growth continue to look fine. Retail sales we saw last week was fine. It's really just that that job growth has slowed quite a bit and a lot of that does come back to immigration and slower trend growth and labor supply. But the draw the distinction, it's one thing to say job growth is slowing, but people aren't necessarily losing their jobs, are they? That's right. No. So overall, gross hiring has slowed. We haven't seen a pickup in layoffs either in the monthly data or the weekly jobless claims data. So it looks like a maturing business cycle, but not one that is cracking or showing signs of distress in the business sector. The good news of all this, of course, is slower labor growth and higher steady GDP growth means arithmetically good productivity growth, and that has looked a little better through the second quarter. And if things continue this way, I think the third quarter will be another good productivity growth quarter. There is there was also been a lot of talk about wage growth and the idea that at least by certain measures, wage growth has kept up, if not outpace inflation. Is that your read? You know, so right now I think wage growth is kind of in a sweet spot. So it's running between three and 4%, which is consistent with productivity growth where it's been and 2% inflation. So I think we probably haven't caught up to all the price gains that had occurred in 22, 21, 22 and 23. But I think at the current trends, this is actually a really nice equilibrium in the labor market. Do you anticipate, though, that that could change next year on the inflation side? Are you anticipating any sort of price shock from tariffs or is this going to kind of be smoothed out? Yeah. So we don't think we're done here with the tariff pass through. Right. Will continue. We saw it in the most recent CPI report, we believe, and we think, as we said, we're not done. A lot of businesses are telling us that this is something that they're going to continue to pass along. I would expect as we get into next year, that we start to fade out of some of these these higher tariff tariff pass through, particularly goods prices, and that inflation moderate next year. But when we talk about the CapEx spend that we've seen and just the idea of business spending, I know this is economy still driven by the consumer. Yeah, but I do wonder, I know that's been a fuel for the stock market business spending. How much of that is responsible for kind of keeping, you know, the normal economic numbers that we look at as well? So certainly the first half of the year, one of the bigger surprises has been the strength in capital spending. And, you know, initially we thought it may have just been pull forward ahead of the tariffs, but that has really continued past that initial shock. It is true that a lot of the CapEx we're seeing is in the tech space. So we're really kind of flying on one engine in that regard. Outside of tech, you don't see really notable CapEx numbers. So I do think the boom like likely a boom when we strip it out of the data is really what's powering CapEx. And CapEx, as I said, has probably been the part of the economy surprisingly well. How do you sort of measure what the potential impact of this, a boom, whatever you want to call it, Because there are a lot of people that say, look, this isn't just about the tech companies. At some point this becomes, if you believe them, a productivity year. Also, it's like you build data centers, that's construction jobs. But there is sort of a read through to other parts of the economy that at some point should have an impact. Right. So the easy part is, you know, the building, the data centers and what that's mean for the economy probably added about a half point to first half GDP growth annualized. I think the bigger question is how much? Another thing I would say that we think we know is that we look at industry productivity. By industry, we don't see a lot of distinction relative to air intensity. So so far the productivity we're seeing we don't think is air driven or primarily AI driven. Okay. I think the biggest question is as we look ahead to the next 1 to 5 years, what kind of productivity we're getting, and I must say the estimates there, which are really just gases, are all over the map. Well, I mean, productivity hasn't really been a story, at least. And I can't remember in my life. I remember when I first started my career, my boss would always tell me to look at productivity. They're actually something to look at then. And then at some point, if those numbers never budged. Right. And so do we. Do we need that in this economy? I mean, we've gotten we've gone to how many decades without any really meaningful uptick. And so probably the last time we had really good productivity growth was late nineties, early 2000. Yeah, the decade after the GFC was very bad productivity and that was probably a decade of bad feelings when it came to the economy. So I do think, you know, on a multi-year horizon people feel good or bad about the economy based on productivity growth. Maybe not, you know, month to month that's going to be the stock market and everything else. But for really strong long stretches, it is going to be productivity that I think drives how people feel about the economy.

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JPM's Feroli Sees 2 Rate Cuts, Solid 3Q Productivity

Mike Feroli, JPMorgan chief U.S. economist, says slower job growth alongside steady GDP growth points to strong productivity gains. He notes signs of improvement in the second quarter and expects solid growth in the third. Feroli speaks with Romaine Bostick and Matt Miller on “The Close.” (Source: Bloomberg)

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