BLS firing 'erodes institutional integrity': Mohamed El-Erian

Yahoo

4 days ago

Queens College Cambridge president Mohamed El-Erian joins Morning Brief with Julie Hyman to discuss President Trump's firing of the Bureau of Labor Statistics (BLS) chief.
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President Trump reiterated his criticism of the Bureau of Labor Statistics, said he was close to picking a new Fed chair and teased new tariffs on semiconductors. Joining me now, Mohamed El-Erian, President of Queen's College, Cambridge to talk about that and many other things. Mohamed, good to see you.
Good morning, Julie.
I would like to start with this whole situation over the Bureau of Labor Statistics, the BLS. Um with President Trump's removal of the person who heads up that agency, what does that do to confidence in future statistics? We've got, for example, CPI coming next week from that agency.
So, I think the three takeaways, Julie. The first one is that the way the head was fired, and she was fired just following data releases that the president like, that erodes institutional integrity. And institutional integrity is very important um in the US economy. The second focus is on the problems we having collecting and estimating data. These have been long-standing problems that have been getting worse. Um as you know, the reporting level has come down. As you know, the methodology used for estimating when you don't have the data um is breaking down. So, there are fundamental issues that have to be addressed and that includes not incorporating enough new data new data sources because we saw during the pandemic that there are all sorts of non-conventional data sources that shed a lot of light. But the third issue, the one that's not talked enough about, is when you tend to have such large revisions, they tend to be at point of economic inflection. They tend to be when things are changing in the underlying economy and the data simply cannot keep up with what's changing. And I think that third element is going to be important as we go forward.
Okay. So, let's dig into that third element because that revision those revisions were alarming, right? And on Friday it seemed to sort of fundamentally shake the assumptions that a lot of market participants had had about the labor market, that it was holding up okay. So, A, do we believe those revisions? Do they reflect what's going on? And how concerned are you then about the labor market?
So I think the revisions are consistent with a lot of anecdotal data that comes from talking to households, that comes from looking at companies' earnings. And what you basically get is the following, pricing power for those who sell to low household incomes is very low because low household income income, low income households are suffering. We also have seen other signs of weakness. So I think what the labor revisions have picked up is a weakening economy, not an economy going into recession, but a weakening economy. And ironically, two days later in terms of trading sessions, the bond market has priced in a weaker economy. The pricing of Fed cuts, that probability, as we heard, is up to 90%. So the fixed income side of the markets has understood what the data is telling us. The equity side is being supported in a fundamental way by two things. One is the notion of FOMO. Every time you bought a dip recently in in the recent few years, it has been profitable. So people have been conditioned to buy a dip. And second, this distinction between tech and AI and the rest. And tech and AI is enough of a locomotive to drive the whole market up.