aaron ill start with you this is a very busy week as the markets were not always clear about what they thought what did you make of what happened over the course of the week in particular jobs numbers i think that the jobs numbers came well above consensus expectations and certainly underpin the fact that the economy is not in a recession right now that job growth still remains quite strong and the labor market is still quite tight and it probably also underscores the fact that the fed has more work to do with respect to keeping rates in restrictive territory the fed has already indicated that their likely hike in at least an additional time one time in march and then after that i think you know certainly theres scope for the fed to potentially hike an additional one time or pause there but in either case the fed will likely not cut rates for an extended period continue to remain restrictive for quite some time and then really observe and see how the data unfolds from there and so while the market has been romancing this idea of the federal reserve starting to cut at the tail end of 2023 the federal reserve at least for now is likely to continue to keep rates on hold for an extended period of time and not meet the markets expectations for rate hikes as soon as the market is expecting bob yeah david i was confused at all actually for the first time i think the federal reserve and the labored data confirmed what the average investor the average consumer is seeing the federal reserve could have walked in and said inflation is nowhere near our target weve got to raise rates indefinitely and push fed rates expectations much higher maybe the terminal rate to five and a half even five and three quarters percent instead they came in and said what i see which is inflation is moderating we can see an end to rate hikes they confirm that you look at the jobs data and yes it was a very big number but how many times have we been here and weve said everywhere we go in the services economy theres a shortage of worker you look at airports you look at restaurants theyre complaining about not being able to hire enough workers and this confirm that this labor force mark this labor report confirm that the economy has shifted consumption from work from home sort of expenditures to things that are more services travel and leisure well i understand that we weve into the restaurants and theres no better way than you and things like that but can we keep up this pace bob i mean this is a torrid pace five hundred thousand jobs a month how long can we keep this up well the data could have been very encouraging for the fed because it shows theyre meeting their dual mandate right a strong economy full labor market and inflation that you saw wages come down a little bit the rate of wages is up four point four versus four point eight but i think the markets right i think the markets telling us you dont have three point four percent unemployment and wages stay stable youre going to create wage pressure which is going to create a lasting inflation problem aaron what about that because thats one thing that struck everybody that you added so many jobs got tighter and tighter and labor market at the same time actually the wages came down a little bit where is the wage pressure and is it coming in when well i think part of it is a mix shift issue and we know that average hourly earnings does have some distortions with respect to the mix shift and so looking at eci atlanta wage data is probably more appropriate indicators that said i do think that there is continued pressure particularly on some of the services side and particularly some of the areas that bob mentioned with respect to leisure travel transportation which saw some of the significant job gains this last month that said you know we are starting to see peak inflation on the wage side we are starting to see measures of inflation start to move lower with respect to wage growth and i think that thats likely to continue as we move through the course of 2023 well still see wage gains but at a slower pace and i think thats what the fed is really keeping on in terms of setting and determining their policy if they continue to see wage growth move lower which were starting to see that will allow the fed to eventually back off and really pause and so i think thats what the key thing to watch is is the pace of wage gains which is slowing from here so a pick up on that very point because i think most people agree certainly jay powell said were starting to see some disinflationary forces were starting to see some inflation come off but theres a question about whether thats going to continue as you suggested or whether youre really gonna be able to get down to anything like 2 percent without a lot more increases on the fed so i dont think the fed is likely to hike rates significantly higher than here i think one additional 25 basis point hike or potentially two is probably the most thats in the cards for the fed at this time and then theyre gonna sit and wait and you know we all know that federal reserve policy moves with variable and lagged effects and so i still think that the fed thinks that the effects of the tightening last year will still continue to make their way through the economy this year and therefore you know there may not be future rate hikes that are necessary but i think theyre willing to to wait and see whether or not future rate hikes are necessary after another one or two hikes and so you know i do think that the fed right now does expect that theyre at least not theres not significantly more hikes that are necessary and as a result of that theyre willing to take a little bit of a wait and see approach you know that said you know we have seen some disinflation well likely see more but to expect that were going to move you know close to 2 percent by year end i dont think many are expecting that and you know i think that at this point the fed will think of anything less than 3 percent in terms of core pc inflation is a win so i think thats the number to be looking for not 2 percent is really sub 3 percent bob last one last word you on this subject and that is what do you expect the fed to do and number two what are the bond market anticipating those could be two different things well we expect there are two different things that go ahead so i agree there and the fed is setting us up to do one or two more rate hikes and as she said they pause they wait for the cumulative and lag effects to hit our analysis shows that from the last rate hike until recession its roughly a year so youre going to have to wait out several quarters to see are you going to have that mythical soft landing or you headed into recession the market is starting to front run that weve all done the work we know at the time of the feds last rate hike thats the peak in yields and things rally like crazy particularly the front end of the yield curve thats what were seeing in bond markets up today we think thats what were going to see going forward erin is that where you are i think thats right i do think that the fed has i think the market rallied rather has front run the fed with respect to its expectations for rate cuts and i think that the fed the market rather is likely to be disappointed with respect to how quickly the fed actually cuts rates i think that just given the fact that inflation is going to be persistently higher and stickier than what the markets anticipating that were not going to see the extent of rate cuts happen as quickly as the market wants and so i think the market setting itself up for disappointment and i do think ultimately the federal reserve will create a minor recession in the us and that the that will take down equity markets and sort of higher risky asset classes but i think in the interim between now and when theres a recession starts you know the markets can do ok and it is a little bit of a rally everything environment but once the recession hits thats you know thats certainly good for fixed income but its not going to be as good for equities so in that instance i rather be a buyer of fixed income which can rally as we sort of romance disinflation and can also rally into a recession whereas equities will only do well in this disinflationary environment but not do as well once the recession hits