Simone Del Rosario: You’re going to be in Jackson Hole for this big speech that Fed Chair Jerome Powell will make. What are we going to hear from him that is different from what we hear in the FOMC press conferences?
Kathleen Hays: That’s a really good question, because in the press conferences, he gets hammered with questions. He will not be taking questions in Jackson Hole, No. 1. No. 2, I wonder if he’ll want to put the inflation that’s been experienced, where the Fed is now and where it’s going, into a bigger framework.
‘It was a tricky time; there were supply shocks; and one of the supply shocks was the labor market, there weren’t as many people there and so wages went up; now all these things have happened and here we are now,’ and somehow give us this broader sense of how they’re looking at things now.
Could he talk about the neutral rate? Are we closer? Do we have to [move] the neutral rate up or down, etc.? What are the metrics they’re looking at?
One person suggested to me that he thought they could look at the upcoming framework review, which is going to start sometime in the fall. Remember, they changed their framework just when the pandemic was starting to say, ‘We have to see maximum inclusive employment before we would hike rates, and we’d have to see inflation at or above, I believe it was 2.5% and rising before we would start hiking rates to bring it down.’
Some people think that was one of the reasons that they move so slowly, too slowly, slower than they should have to start hiking rates when they did. And maybe that’s something he’ll address.
I myself think he’s going to keep it pertinent. He’s going to keep it more in terms of what everybody’s trying to figure out right now. And give us more of a framework, a bigger sense of being willing to move slowly, I’m not sure.
It’s up to him. And I think, after all the emphasis we’ve seen here and the market upheaval recently, it will behoove him to help us all understand better where they are now and what’s going to drive their coming steps. And maybe even cool off some of the idea that there’d be any emergency cuts because because markets go crazy for a day or two.
Simone Del Rosario: It would be interesting to hear him put this journey into perspective. It’s been a tough one for people out there, to live through a peak of 9% inflation, to continue to see inflation, for it to take so long for it to come down. We’re sitting here right now with a headline number of 2.9% and that looks incredibly promising when you look back at what we’ve been through to this point. So it will be interesting to hear if he puts the last several years into perspective, given everything that the economy has gone through since the COVID-19 pandemic.
SIMONE DEL ROSARIO:
There’s just been so much conversation about how much the Fed is going to cut, people are throwing out 75 basis points. This inflation report does not point to that.
KATHLEEN HAYS:
Oh, heavens, I don’t think anything pointed to a 75 basis point emergency rate cut, because [the] stock market had a big decline. And then the yen carry trade blew up after the BOJ made its rate hike. That was not entirely expected, so they all fed together. It was a confluence of forces. And one of the people I spoke to said that these calls for 50 basis point cuts, even 75 basis points, kind of smacked of investor entitlement. ‘Oh, if things are going bad, going against, the Fed has to hop in and do something.’ So I think 75 basis points was more out of that ruckus, that big stock market carnage, if you will.
In terms of the numbers, it seems to me the Fed is moving slowly. Mickey Bowman, from the Board of Governors, in the last few days said she’s not convinced it’s time to cut yet. She thinks the labor market still looks pretty strong. Raphael Bostic, who’s president of the Atlanta Fed in the last couple of days, said he’s sure they cut rates by the end of the year, but he doesn’t think they’re necessarily there yet. Mary Daly, President of the San Francisco Fed saying that she does think they’re going to need to cut in the last part of the year. It’s just a question now of when they start and how much they do. Does that mean they’re going to do 50 basis point cuts, doesn’t the more cautious, gradual. 25 basis point cut get you there? If suddenly the labor market starts looking a lot weaker, then you could say that could mean they would speed things up. But even Austin Goolsbee, President Chicago Fed, who’s one of the more dovish people on the Federal Open Markets Committee, still says, yes they need to cut. Policy is restrictive, and there’s a concern if they wait too long the labor market will really start weakening
SIMONE DEL ROSARIO:
Everybody was really targeting September, until that jobs report came out, and then it was like, ‘Oh my gosh. Why didn’t the Fed cut in July?’
We’re looking at a Fed that has been incredibly cautious, that said, we do have quite a bit of data between now and September. What does that jobs report in less than a month look like for the Fed to have more urgency? Do you think it’s going to be another bad jobs report? Or do you think that’s going to stabilize a little bit?
KATHLEEN HAYS:
Well, jobless claims just came back down to 233,000 and I think what’s very important, I don’t know if everybody, focused on the BLS, Bureau of Labor Statistics, had a very important number that they sort of downplayed in that report. We know that the unemployment rate jumped up to 4.3% from 4.1% And it wasn’t because necessarily people were losing jobs. It was because more people were coming into the labor force again. And when you start looking for a job and you don’t have one yet, you’re counted as unemployed. I think even more important is the fact that the number of people who could not go to work because of weather, and that’s a category in the BLS numbers, was up over something like 460,000 in July that month, usually averages about 40,000. So many people have looked at that and said, ‘Hmm, maybe that’s one of the reasons… That was the week of the hurricane, right? That we got that jump in unemployment. Maybe that affected payrolls. We don’t know for sure.’ But I think that’s one of the things that will be very interesting to see. Does the labor market, via the next jobs report look like? Yeah, it’s not, as some would say, normalizing. As former St Louis Fed President, Jim Bullard, said to me recently he thinks you’re getting more to the natural rate of unemployment, the 3% employment, when it got that low was kind of abnormal, right? And this is now more of a normal rate of unemployment. He’s convinced that the Fed will do 25 basis points in September. And remember, he was calling for that at the beginning of the year. He thinks they need to get less restrictive, and they can do it gradually. So, you know, John Taylor told me, Taylor rule, John Taylor from Hoover, from Stanford University, that he thinks the funds rate needs to get down to about… According to his rule, the Taylor rule, to about four and a half percent, maybe 4% and they could do that with what, 2 25, basis points cuts and a 50 basis point cut. But that July weakness in the labor market is going to have to be verified by the August report. If it isn’t, it seems to me that’s going to be the perfect opportunity for them to say, ‘yes, we know we can start cutting now we can start normalizing. But 25 basis points at a time is enough?’
SIMONE DEL ROSARIO:
Is there any chance that they don’t cut? Let’s say to your point, we get the next jobs report, and it has normalized, and this last month was a fluke, then you get another inflation report like this. Is it convincing?
KATHLEEN HAYS:
I think my bet would be that they’d have to see another inflation report that is not as good as this one. Okay, that yes, this one made some progress on the headline. You can look at the monthly numbers as well. I think it would take something that looks like it’s pushing inflation back up again for them not to cut now. The doors wide open, but thank goodness you’ve got Jay Powell at Jackson Hole next week and giving his all important Friday opens up that whole Kansas City Fed Symposium conference Friday morning. This is his opportunity to send us a clear message on some aspect of what the Fed is thinking about. He doesn’t have to do that. I don’t think it’s going to be just looking at the economy and inflation. He’ll probably put this in a bigger context. At the same time I think people are going to be waiting for him to just give us a little more guidance on where you’re leaning now.
Simone Del Rosario: Let me pose this to you. We’ve seen mortgage rates go down to levels lower than they’ve been in more than a year. This is done in anticipation that the Fed is going to be cutting rates. So when the Fed does cut its rate, how are people going to be affected? Are rates going to come down even more? Has the air already been taken out of the tires because they’re expecting the cut? What’s happening there?
Kathleen Hays: Well, of course, we had the big bond market rally, so that’s pushed deals down a lot. And that was one of the things, of course, that intensified after we got the Fed decision, and then the unemployment rate going up, etc, making people that much more worried about it. And, of course, that’s the direct link between mortgage rates and the bond market, right? The 10 year note yield, when it goes down, you’re going to see mortgage rates come down too. On a human level, doesn’t anybody know somebody who’s trying to find a house, and they can’t, because people still don’t want to move out of their low mortgage rate mortgages. They don’t want to sell their house yet. Doesn’t anybody want to sell their own house, and they figure, well, I don’t know, the mortgage rates are so high, maybe I’ll wait. Part of the issue with the how much home prices will come down is the fact that inventories are low, and when the Fed cut rates so much during the pandemic, there was a huge bout of home buying, and that’s another reason why, even with lower, somewhat lower rates now, mortgage rates, that is, the home sales are not up that much yet. But I think it’s a very important factor right now, right? Now, if someone could get a five and a half percent mortgage, they would snatch it up, right? And when it’s got so low, oh God, if I had to pay 3.75 you know? So it’s a very powerful thing that could happen. And as the Fed starts cutting rates, presumably, yes, bond market will rally, you’ll get yields coming down more, and that’s going to fade through and be a very important factor. So that’s kind of in abeyance right now, but it’s a little bit complicated, and home prices are much higher than they were. Home affordability is so much worse than it was, partly because of what happened back during the pandemic, but it’s something to look forward to. And in terms of the housing industry, lot of calls for ‘we need more homes now.’ That’s the thing. We need more construction. Well, if I’m a contractor, if I’m a developer, if I’m a builder, if I can see mortgage rates coming down, presumably that would encourage me that that’s going to heat up the market, and it’s going to make more sense for me to do that.
Simone Del Rosario: Yeah, and I just want to point people that are listening. We just did a story this week on housing affordability at SAN.com where we go over all of this. And to your point, Kathleen, I do take a chart and zoom out to show people that you know, pre 2000 even the rates we’re at today would have been an absolute steal. So it’s all about perspective when it comes to that. And I agree with you now, I think when mortgage rates were climbing up, people were thinking, 5% there’s no way. Now, if you could score anything in the fives, you’d snatch something up right now.
Simone Del Rosario: I know you have been warning about these underlying symptoms of recession for some time. The Fed chose not to cut in July and then two days later had this jobs report that wrecked the markets for a moment. Where are you? Are they okay to wait until September to cut? Do you want to see something from them in the meantime?
Danielle DiMartino Booth: It would, at this point, would be akin to yelling fire in a crowded theater if they were to come in with an emergency rate cut. Those are usually reserved for end of the world type of moments, financial pandemics, financial crises, credit events. So I think at this point it would do more harm than good. I was strongly of the mind that they should have cut rates at the July meeting. At the podium when he was pressed, Chair Powell did acknowledge that there was a discussion about whether or not to cut rates in July. So you know that even though the decision was unanimous, there were no dissents, that there were some who believed that they should have started in July. There’s a company called Macro Edge and they do a very transparent job of tracking job cut announcements. We’ve had an average of 100,000, more than 100,000 job cuts announced over the last four or five months here in a time of the year that is typically benign. Usually you see your worst month of the year be January. That’s when the CEO and the CFO come in and clean house. But April was worse and it’s been just awful ever since then. For heaven’s sake, we’re seven days into the month of August and we’ve already seen 40,000 job cuts announced. We’re talking about Jay Powell here, he founded the industrials group when he was at the Carlisle. He speaks to lot of CEOs. He knows that they’re in the process of reducing their head count. So just in terms of data on the ground, anec-data, it’s all around him and it’s been all around him. This is nothing new. Companies aggressively laying off. Again, it’s been occurring for most of 2024, and yet he’s been ignoring it. So I really do think that he should have gone on July 31. The reason that I think that we’ve seen in the Wall Street Journal mention 50 basis points is because that’s now become a base case for September 18, or we wouldn’t have read it in the Wall Street Journal.
Simone Del Rosario: Well, we are going to get another month of jobs data before the Fed meets again. You’re talking about this data you’re looking at through macro edge. What sort of labor picture do you think it’s going to paint when we look up the first Friday of September to see what happened in August?
Danielle DiMartino Booth: I mean, anything is possible with this Bureau of Labor Statistics. I’m done guessing what they’re going to do and what they’re going to report. When the data is eventually revised by law, we see where it really, really is.
For me at least, because there is this systematic downward revision of the data, I just feel like it’s a politicized institution at this point. And I don’t say that lightly, and I’m certainly not trying to be insulting to anybody inside the organization, but you typically see the unemployment rate continue to increase after it’s stopped rising by a tenth of a percentage point. It’s what you’ve seen in many, many recessions looking back, initially there’s a very gradual rise in the unemployment rate and then it really starts to take off. And we are seeing companies being much more aggressive and large with their layoff announcements and it is actually manifesting in the jobless claims data as well.
Simone Del Rosario: Is it politicized or are they just not as accurate at this point? Is the survey outdated? Is it that you firmly believe that there are underlying political reasons why the picture is rosier when they first paint it than it turns out to be later?
Danielle DiMartino Booth: Again, we are having this discussion in August 2024, and we’ve been seeing downward revisions since January 2023. If, at this point, there has not been an internal recognition that the model is broken and it’s been addressed, then it’s what we call willful blindness.
So at some point you have to recognize that something is broken and address it, not just ignore it, unless you’re ignoring it willfully. And again, I’m not trying to be insulting of the institution, but we’ve just seen a headline in a $25 trillion economy that funding for the household survey is going to be cut. That’s the most ridiculous thing I’ve ever heard in my life. In a world in which we have big data, artificial intelligence, ways to streamline operations, make certain practices and methodologies more efficient, that we can’t better track the U.S. labor force, it just seems nonsensical to me.
Claudia Sahm: We’re not in a recession. I mean, it’s never time to panic, but it’s also not recession time either. So it’s not a recession. And yet the risks are there.
Simone Del Rosario:
Recession has been on the lips of every economy-focused American for the last week, and the conversation could get even more heated next week as we finally get a look at July’s inflation data.
Economist and creator of the Sahm Rule Claudia Sahm says we aren’t in a recession quite yet, despite her nearly pristine indicator being triggered after last Friday’s jobs report.
But when it comes to economic theory, someone else will always have a differing opinion. Enter our next guest and friend Danielle DiMartino Booth, CEO of QI Research and former Fed advisor. Danielle says the U.S. could be in a “plain vanilla recession.”
Danielle, I am afraid that in my adult life, I don’t even know what that is.
Danielle DiMartino Booth:
Well, okay, I’m gonna have to declare innocence here because I did not write that headline. So, at all. I do think we’re in recession.
Everything that we’ve seen from the Bureau of Labor Statistics with regards to the fourth quarter of 2023 indicates that they’re going to be revising into negative territory the final three months of 2023. So that would stretch job losses from the third quarter of 2023 when there were 192,000 jobs lost in the United States. That would stretch that into the fourth quarter and give us kind of a six month stretch of job losses upon revising the Bureau of Labor Statistics survey data with the hard data that we get from the Census Bureau where companies are legally obligated once a quarter to report their headcount. And that’s kind of the ultimate decision, that’s when the ink dries, if you will, on the payrolls data that we see the Bureau of Labor Statistics release.
Simone Del Rosario:
So we’re looking at a recession that would have started in October of last year?
Danielle DiMartino Booth:
I personally see the recession as having started in October 2023 because that’s the first time that the McKelvey rule, which is less arduous than the Sahm rule, and it doesn’t date back to 1948, it dates back to 1968, but it has not missed a single recession since then. Rather than a half a percentage point increase in the unemployment rate off of its lowest level in the prior 12 months, it is a .3 percentage point increase in the unemployment rate again over the prior 12-month period’s low. Again, it has a spotless track record since 1968. It was triggered in October of 2023. The Bureau of Labor Statistics said that we lost 192,000 jobs in the three months ending September the 30th, 2023. So the National Bureau of Economic Research could theoretically backdate it further, but again, the McKelvey rule is what I’ve relied on. The former chief economist at Goldman Sachs, he was interviewed by the Wall Street Journal in January of 2008, when his rule was triggered and he was asked the same question, well, your McKelvey rule was triggered in December of 2007. Do you think we’re in recession? And he said, well, you know, my rule might be broken, basically. But of course, the NBER did backdate that recession to December of 2007, and the McKelvey rule was not broken. Luckily, Bloomberg Economics team agrees with me that recession, that job losses started in October of 2023.
Simone Del Rosario:
Danielle, you’re so good at looking at these types of economic data points and looking beyond the normal monthly releases that we see. Why isn’t the Fed?
Danielle DiMartino Booth:
think the Fed is choosing to look the other way in this instance. There are some regulations that the Fed has been working on that could really define Chair Powell’s legacy that would begin to regulate the private equities, the hedge funds, the BlackRocks of the world, that are in some cases larger than banks if you consider the trillions of dollars that they have under management. And in order to push through with some of these regulations, he really does need hire for longer on his side. He needs hire for longer policy enough to go with what the Bureau of Labor Statistics first reports, even though we know that since January of 2023, we’ve seen one downward revision after another to the data. It’s become systematic. In fact, the persistence with which we’ve seen downward revisions to what’s first reported. But again, I think Powell’s got his own reasons.
Simone Del Rosario:
How do you square this idea that we could be in a recession right now with the GDP numbers that we’re seeing? The latest reading, the advance estimate, showed an annual growth rate of 2.8%.
Danielle DiMartino Booth:
So we had 2-point-something percent in 2001 when it was first reported. Of course, was another six quarters later that we revised it and found out that it was a negative number. It takes magnitudes of the amount of time to get correct unemployment data, correct payrolls data. You can double the time that it takes to figure out what the actual GDP is that’s associated with that time frame. If you find out that you’re 830,000 jobs shy of what you thought you were, which is what we found out in the third quarter of 2023, looking backwards with hard data in hand, then you have to subsequently go back and back out. Well, 830,000 people were not actually working. 830,000 people were not actually producing economic output that we thought were. So you’ve got to back that out. And it takes a lot of time for the Bureau of Labor Statistics data to work its way into subsequent revisions for the Bureau of Economic Analysis data, for GDP. It’s at inflection points. It’s when contractions become expansions, when expansions become contractions, that these big statistical agencies have trouble seeing the turning point given their modeling. But it wasn’t until 2018 that we saw the final GDP revision from the great recession that ended in June of 2009. Again, the recession ended June of 2009. We didn’t get the final revision for GDP for that recession until 2018.
Simone Del Rosario:
Wow. On one hand, this can seem incredibly frustrating if people feel like we’re in a recession, they feel like the economy’s not good, we continue to get, on the surface, economic releases that show a pretty strong economy, but people know what they feel, they know what they’re experiencing and they feel something different. But that said, if, to your point, we are already in a recession, does that take some of the panic away, that we’ve been going through it, or is it going to get worse? What’s your read on that?
Danielle DiMartino Booth:
Well your average recession is 10 months long in the post-war era. So using that average length of time, we should theoretically be starting to recover and coming out of recession. That being said, the Federal Reserve has waited, now 12 months, now longer than 12 months, and the longer it waits, typically the deeper and longer the recession is as a result. There have been some great studies that empirically demonstrate this. The period leading up to the Great Recession, 2007-2009, the Fed waited 15 months. It’s the longest the Fed’s ever waited. So we’re just at the 12-month mark now. But it certainly looks like we’re going to get to the 14-month mark if it’s September the 18th that we can anticipate that first rate cut. So that’s about as long as the Fed has ever waited to provide relief in the form of the beginning of an easing cycle.
Simone Del Rosario: Pressure is building on Big Tech after a federal court ruled Google is a monopoly. And Google isn’t the only one the government’s going after. Apple, Meta and Amazon are actively fighting lawsuits.
For what the Google ruling means to them, I’m joined by Bill Kovacic, former FTC chair and commissioner.
Does this serve as a bit of a flashing red light for other big tech firms?
Bill Kovacic:
It does indeed. They’ve seen the light flashing yellow to be sure now for several years because not only in the United States but around the world we find competition authorities and individual jurisdictions beginning new investigations, initiating cases. And in the case of the European Union adopting new regulatory frameworks, there’s called the Digital Markets Act. So the big tech sector has seen gathering storm clouds now for a number of years going back to, I’d say, the middle of the previous decade. But we’re now seeing the delivery of policy measures that foreshadowed ever more significant forms of intervention. And this is an indication not only that the government can win, that it can marshal the resources to do this kind of work well, it can bring the cases to a successful conclusion at the trial.
But also it means that there will be more to come and there are other significant matters in the pipeline. Another Department of Justice case involving Google involving ad serving. A case by the FTC challenging meta for its acquisitions of Instagram and Facebook 10 years ago. An FTC case against Amazon, a Department of Justice case against Apple. State government cases attacking a number of these large enterprises.
I think for the business community, especially for the tech community, it’s an indication of things to come and that the successful defense of their position is not going to be something they can take for granted.
Simone Del Rosario:
How does this measure up, given how the government has ruled on it, how the courts have ruled on it, How does this measure up to the Amazon situation where they’re being accused of, you know, having a self preference for their own products?
Bill Kovacic:
This involves, I think in some ways, a harder case for the Federal Trade Commission. That is, the FTC is arguing that you’ve given your own products, your own services a better display compared to others, that you’re favoring them. I think the FTC is going to have a somewhat harder time dealing with the argument we just addressed, which is, I’m a successful firm. Don’t I have the freedom to offer consumers not only the better
But to put my product first, to say, look at my product, why should I have to display the products of my rivals in a better light? Here again, Amazon would not have unlimited freedom to make certain choices that are going to be the subject of the case. But Amazon’s case is arguably more with Amazon’s arguments are arguably more.
within the framework of Supreme Court jurisprudence that has been encouraging of the ability of dominant firms to decide who they’ll deal with and how they’ll deal. And a concern about judges on the part of judges that they shouldn’t be involved in making technical decisions about how companies operate, determining who they can deal with, the terms on which they can deal with other parties. So I think the FTC in some ways faces a somewhat harder challenge in the light of this existing jurisprudence.
But from Amazon’s point of view, watching the outcome in this first important Microsoft case, it’s a warning that the government can prevail. The government can make well -founded arguments. They can present them capably. That they’re probably going to be found to be a dominant enterprise. And the real question will be, is their behavior, is this self -preferencing behavior acceptable? I think
all leading firms learn from the experience we’ve just observed is you can take absolutely nothing for granted in this process. And it’s an environment in which judges might well be persuaded that you made an incorrect judgment about where the line of illegality is and you stepped over it. So that this is a, at a very basic level, this is an important caution that says you can lose these cases if you’re a defendant.
Simone Del Rosario:
We’re talking about this Google case for a lot of reasons, but part of it is that it is rare to have this finding in the court level. This case started in 2020, though. I’m curious what your take is on the types of cases against Big Tech that the current FTC Chair Lina Khan, has been taking. What do you make of her strategy when it comes to going after Big Tech.
Bill Kovacic:
I she has put in motion one significant case on her own watch. That’s the Amazon case we mentioned before. The other case, major case that she has, she inherited from the Trump administration. That’s the challenge to Meta for its acquisitions of Instagram and Facebook. But the Amazon case is a very ambitious case.
It again is trying to define a new conception of what dominant firms can do, especially dominant firms that act as the owners of a platform on which products are sold, but their own products and the products of other parties that operate on the same platform.
to identify what a dominant firm can do by way of featuring its own products and perhaps treating the products of third parties on its platform, its competitors, differently. That would be a significant development in the jurisprudence. I guess to put it in a very general way, it is a riskier case.
than the case that the DOJ is running against Google, the case it’s running against Apple, the other case it’s running against Google. And this is consistent, I think, with the chair’s philosophy that a major role of the FTC should be to take on cases that involve more ambiguity, to take on cases that aren’t squarely within a framework where liability has been routinely found, but to move the frontiers outward.
So there’s a greater risk appetite at work there. The DOJ cases are very ambitious as well, but I’d say a signature element of the Chair’s own program is to be willing to push the frontiers and to accept the risk that there will be judicial resistance and to accept the risk that there’ll be judicial rejection. But for the sake of provoking the conversation with the courts,
and bringing these issues to the courts on a repeated basis. There’s a willingness, not simply in the area of big tech, but in other areas of the commission’s jurisdiction to try to move the frontiers of enforcement outward and to acknowledge and accept the risk that these are hard cases to win. And we do not expect to prevail every time, but the very fact of bringing the cases, continuing the conversation with the courts will have real value.
Simone Del Rosario:
There’s no bigger celebrity in the antitrust world today than FTC Chair Lina Khan. The 35-year-old is both a progressive darling and a thorn in the side of big business.
Appointed by President Biden to push the boundaries on antitrust enforcement, some Democratic donors hope Kamala Harris would ease up if elected and appoint a more moderate chair.
Reid Hoffman:
I do think that Lina Khan is a…person who is not helping America in her job and what she’s doing. And so I would hope that Vice President Harris would replace her.
Simone Del Rosario:
So far little is known about where a Harris administration would stand on business. And antitrust isn’t an area of strong partisan divide. When it comes to Lina Khan, even Trump’s VP pick JD Vance says she’s doing a pretty good job.
For what we could expect with either outcome in November, I spoke with former FTC chair and commissioner Bill Kovacic.
To hear that an FTC chair is being brought up in the conversation of a presidential election and donations to the Democratic candidate for president. I’m talking specifically about this battle between Reid Hoffman, the LinkedIn co -founder, and calling for Lina Khan’s job. What do you make of this environment? What does it tell you about how she’s been received in this world and the direction that she’s decided to take?
Bill Kovacic:
I suppose in the modern world, nothing should surprise us, but Hoffman’s comment is highly provocative and I think unusual to say, ‘bring me the head of the FTC chair, get her out of the chair’s position.’ A new president could not literally fire her. She can’t be removed from the commission, but she can be demoted simply by the president signing a letter saying, ‘you are the former chair now, now you’re a commissioner.’
That kind of outward demand for the replacement of [a] so visible and significant regulator… As a footnote, Lina Khan is the most famous competition policy enforcer in the world today, globally. There’s no part of the world you can go to without people knowing who she is. And if you identify yourself as a US citizen, you will be asked immediately. ‘Do you know about Lina Khan?’ So to step forward and say, ‘I want her out of there. In fact, her departure by suggestion is a condition of our support and our enthusiasm for your campaign’ is quite extraordinary. It does show how Lina Khan has touched a nerve. And I’d say a very sensitive nerve within that community to the degree that no other regulator in my lifetime going back into the 1970s since Michael Pertschuk who was the chair of the FTC and a strong advocate of powerful competition and consumer protection intervention. Nobody has aroused that kind of specific condemnation in that period of time. I suppose the chair can look at that and say, ‘good, it’s working. If they loved me, I’m not doing my job.’ And I think in part, she defines her effectiveness, a rough measure of her effectiveness is the vocal exuberant statement of firms in the sector who are saying these things because here we have an agency that’s doing things that really do hurt in some ways. So I find it an extraordinary comment, but it truly is a testament to how she has changed the debate, changed the focus of attention, and has brought to bear the resources of her agency in a way that has aroused their concern.
A fascinating question is how much will Vice President Harris respond to this if she becomes President Harris? What would happen in a President Harris administration with regard to policy and big tech? Would she in small steps walk away from the approach that the Biden administration has taken? Will she quietly seek appointments to bring a more moderating influence into the Federal Trade Commissioner or the Department of Justice? Or will she say, ‘this is why we are in the White House. This is why we have power. We’re gonna exercise it this way.’
Would elected officials such as [Sen.] Elizabeth Warren, [Sen.] Bernie Sanders, as well as some of their counterparts in the Republican party, the [Sen.] Josh Hawley team, for example, would they rise up and say, ‘you will not touch these programs? We demand that these programs go ahead. This is crucial to the larger progressive agenda and you will not undercut it.’ I suspect if she took visible steps to retreat from the Khan program or the program that Jonathan Kanter has laid out in the Department of Justice, she could very well face the wrath of the progressives left and right in Congress. I don’t think she’d want to provoke that fight openly.
So the means of adjustment might be far more subtle and less visible to the naked eye. The appointment of individuals who have a somewhat more cautious approach to applying the law. One approach would be to say with respect to these big tech cases, ‘we already have a very full plate and part of my job is to bring them home to make sure that they land safely and that the projects work. I’m going to do that. I’m going to worry less about initiating new path -breaking measures. I’m going to make sure that those are brought to a successful conclusion.’ That could be one approach she takes.
Another area where she could back off is merger control. And I think for the big tech companies, for [Marc] Andreessen, for Hoffman, for others, they are less disturbed by the big monopolization cases than they are by the aggression with which the FTC and the Department of Justice have gone after deal making. And that might be an area where the Harris team after January of 2025 backs off a bit and isn’t quite so aggressive as the FTC and DOJ have been. That would be the barometer for me. That’s the real indication of whether we’re seeing an adjustment in attitude towards tech. I would not expect her to tamper with these big cases.
I wouldn’t expect [former President Donald] Trump to do it either. The DOJ search case that we’ve been talking about began in his presidency. The FTC case against Meta began in his presidency. The investigation of Apple that led to a case began in his presidency. And he has no fondness for that sector. His vice president candidate partner, Senator [JD] Vance, has no fondness for that sector. He said, I think Khan’s doing a good job.
I could imagine that both of them would say, ‘what’s the right remedy in this case? It’s to break them up. We have to, we have to de -concentrate these sectors to take their power away because we don’t trust them’ for different reasons. With regard to these big tech monopolization cases, I think those carry on where we could see a change in both a Harris administration and maybe more visibly in a Trump administration is a change in merger control. And maybe that’s what Hoffman and his counterparts have been complaining [about]. That’s their real grievance here is that [they] can’t do deals.
Simone Del Rosario: This week’s antitrust ruling against Google is groundbreaking. By declaring Google is a monopoly, it marked the biggest tech antitrust ruling since Microsoft in the 90s. It’s not that the government never takes up these cases, it’s that the government doesn’t often win.
And to be fair, they haven’t won yet. Google plans to appeal. And the tech world is closely watching how this one shakes out.
For what punishments Google could face to how long this case will drag out, we tapped the expertise of Bill Kovacic, a former FTC chair and commissioner.
What do you make of Google’s assertion that their product is just better?
Bill Kovacic: I mean, this is appealing to a theme that is part of the non -intervention minded jurisprudence that we referred to before. The language and the music of earlier decisions from the Supreme Court has been one that’s very solicitous of the successful firm that achieves prominence through superior performance. So in making that argument, they are appealing directly to a policy position that has appeared in a number of earlier decisions that you can’t take a successful enterprise and punish it for offering a better product. So through the trial and certainly through the appeals, they will say, we may not be the perfect company, but there’s no way to explain our position except for our ability to provide our users a better and better experience and certainly superior to anyone else’s. That’s very important argument, but there are still limits on the steps they can take to reinforce the preeminence. But their overriding theme is going to be, we are successful because we have a good product and not because we use improper business tactics. The very proper tactic we use is offering users a better experience.
Simone Del Rosario: Let’s say that this judgment stands. What’s going to happen to Google? What are the likely punishments that Google will face?
Bill Kovacic: Judge Mehta, who is the trial judge in the Google case, decided to split the proceedings into two parts. The first part was going to be the trial on whether the law had been broken. That part has been concluded with his opinion that finds that yes, indeed, in some respects, the law was broken. The second part was that if there was a finding of liability, we’re going to have a separate proceeding on remedies. He’s going to have a meeting with the parties in early September basically to schedule the hearing or hearings that will take place to address the remedy. We probably will see, I suppose, several days of testimony by experts who lay out their views about what the remedy should be. Should it simply be an injunction that tells Google not to engage in the same behavior? Should it mandate that the company take affirmative steps to correct the effects of the behavior that it’s engaged in so far?
Will the court go further to say a restructuring of the company is important that a divestiture of some kind say for example divesting the Android franchise would be would be an appropriate solution, but the judge is going to have a significant proceeding on the remedy I suspect by the end of this calendar year. He will reach his decision about what that remedy should be We’ll see the final opinion on remedy come out again by the end of 2024 with inevitable appeals to the US Court of Appeals to the District of Columbia, which would be step one. That would take up most of 2025. The Supreme Court is not obliged to review this case. It has complete discretion over its docket with respect to antitrust matters. My intuition is that this will be a compelling case for them to review. This will be a case that they want to review to come in on these basic questions about the application of the antitrust law to big tech, to dominant firms generally. So my own quiet wager is that the Supreme Court would take the case. That takes us through most of 2026. So if all of these appeals come about, we’re a good two years away from a final answer with respect to liability and to remedies. And for a case that began in 2020, In the second half of 2020, I guess all of us can look at that and say, is that a sensible way to make decisions about such fundamental matters of economic policy and operation in a case that lasts the better part of seven years? But that’s what we’re in for going ahead. That’s roughly the timeline that might unfold.
Simone Del Rosario: And just to clarify, the remedies can be prescribed before this appeal process goes through even if they can’t be enforced, is that correct?
Bill Kovacic: Correct. The appeal would take place after the decision on remedies so that the parties would be filing their appeals with respect to decisions about whether the law was broken and with respect to the judge’s decision about what the appropriate remedy will be. it’s proceeding on remedies next, then the parties can appeal any part of what’s taken place before.
Simone Del Rosario: And you mentioned some relatively low-level remedies, an injunction, fines. Would that be enough to stop this behavior that the courts found was monopolistic?
Bill Kovacic: This is a point of enormous and contentious debate. I would say if you go back to the beginning of the US antitrust system, the remedy that generally has been seen to be by many observers, the necessary remedy for illegal monopolization is structural relief, simply put, a breakup. You force the company to make major divestitures.
That is the big visible solution that many observers look for. By contrast, the injunction that you referred to is seen as often being too timid a solution, too difficult to oversee and apply, too easily evaded by companies that will adapt immediately to any control on conduct that you put before them.
Part of what makes up the debate today is a more sympathetic view about these injunctions. And the more sympathetic view basically goes like this. One is that the injunction forces the company to change its decision -making process. It means that more matters are run by the lawyers first. And instead of the business people simply acting immediately and impulsively on ideas they have, it’s got to go through the legal department.
The legal department being somewhat more inherently cautious as a matter of culture applies the brakes a bit to this process so that there’s an internal decision making process that means that the company is less aggressive in the way in which it operates. A second consequence is that
There’s an awareness on the part of other firms they have a bit more room to maneuver. They take advantage of the hesitation and limits on the dominant firm to find crevices in the market in which they can enter to expand their operations over time. Now one theory is that when the government settled its monopolization case against Microsoft, a case brought in the late 90s and settled in the early 2000s, In parallel with a case that was settled by the European Union, also involving claims of illegal conduct against Microsoft, initially the conduct related remedies were heavily criticized as being too weak. A new reinterpretation of that is that those remedies actually gave breathing room for what were then nascent tech competitors named Google, for example and that it opened the path for Google to prosper. So I’d say there’s an important strand of modern commentary that says conduct remedies can be a lot more potent than you might think. They may take longer to unfold. They don’t have the big bang explosion of a giant fireworks display. They’re less visible in that respect but then they can have a powerful impact on the way that the market operates. But I think that even the specialists in the field would say, there’s a lot of uncertainty about what the best solution is. And you make your best judgment. It’s partly an act of faith that you’ve got the right solution in place. But I’d say that there’s a somewhat more sympathetic view of conduct remedies emerging that might incline the judge to say, that would be enough.
Simone Del Rosario: You’ve seen the word splattered across the news, fears of a recession since Friday’s jobs report where the rising unemployment rate triggered a recession indicator known as the Sahm rule.
And I’m joined by the woman behind that rule, Claudia Sahm, chief economist for New Century Advisors, founder of Sahm Consulting.
Claudia, your ears must be burning nonstop since Friday. It’s hard to say. You know, when we think about recessions, we think about you, but here we are. How are you?
Claudia Sahm:
Great, thank you. Appreciate being here.
Simone Del Rosario:
Let’s talk about your rule in more basic terms. It measures the three month moving average of the unemployment rate compared to the year’s low. And when that rises half a percentage point, we’re usually in a recession, the early stages, right?
Claudia:
That’s correct
Simone Del Rosario:
Okay, you don’t make the recession, you just make the rule, but it has such a good track record. So, this happened on Friday, we triggered the Sahm rule. Are we in a recession right now?
Claudia:
No, we are not. So the origin of the rule that was named after me, so this recession indicator, was part of a policy proposal to put fiscal policy in place that would happen automatically in a recession. So in the case, send out stimulus checks. As soon as we’re early in a recession, let’s get some extra help out to people.
And so then really what’s now the Sahm rule was the supporting actress in all of thatsaying, okay, well, when do we know? What’s a very reliable way to say, it’s time, go, you know, let’s do some policy, help people. And so then I look back over history and looked, it is very much the case that we see the unemployment rate will start to rise and then it really gets going into a recession. Now that reflects a very powerful people losing paychecks, they can’t spend as much, more workers lose paychecks.
And it goes beyond that. The unemployment rate tells us just generally, are there lots of job opportunities or people getting wage increases? How are they feeling about the future? Right? So that unemployment rate can capture a lot and it, and we should be concerned that it has been rising over the past year. And this is not just about hitting a particular level or in July, we saw a, you know, a larger jump than we’ve seen the Sahm
looks it averages across months. It looks over a year long period. So it’s trying to get this direction that we’re headed and it’s not a good direction. Now there are some very specific reasons, very special reasons that the Sahm rule right now looks more ominous than it is. And the first thing they say about we’re not in a recession is anytime we make a pronouncement like that, we should look around and in fact,
Broadly speaking, this economy is still growing and a recession means that it’s contracting, right? So we still see consumer spending, we’re adding jobs, industrial production. It’s slowed down, it’s not growing as fast, but we’re still growing. So that is not, that’s not a recession right now. So what’s going on with the unemployment rate? So there’s the bad reason unemployment rate goes up is there’s less demand for workers, it gets harder to find jobs. hiring rates haveH come down a lot. It is a lot harder if you’re on the outside trying to find a job right now. So unemployment has gone up for a bad reason. It does that in recessions. The unemployment right now is also going up for one of the good reasons. So we have had more people join the workforce who weren’t working before. There in particular was a big increase in immigration. And that was so important for solving the labor shortages that we’ve been suffering through. And yet,
when it takes time to adjust. I mean, that should be the theme of this cycle since the pandemic, that big messy changes take time and it’s painful. It can make it really hard to read where the economy is, but right now we have people who’ve come in and some of them it’s just going to take time for them to find jobs. And in that period, the unemployment rate will go up. Once they find the jobs, it can come back down. And frankly, people coming in to
That’s a good sign for keeping the economy growing because there more workers. So that’s an extra piece that hasn’t because it’s been so abrupt with some of the changes in the labor force early on the pandemic when people dropped out and now we have immigration, we have people coming in. It’s just that there’s that extra piece of immigration or that extra piece of unemployment rate increase looks bad, but actually it’s probably not now.
The trick is we can’t really say for sure how much of one or the other. Right? So I can say looking broadly what we know about the economy, we’re not in a recession. I mean, it’s never time to panic, but it’s also not recession time either. So it’s not a recession. And yet the risks are there, right? Because we do have these increases in the unemployment rate that are of the more problematic, we just don’t know.
Simone Del Rosario:
Yeah, so I’ll reiterate, we’re hearing from the woman herself. We are not in a recession right now. You created the rule, the indicator has been triggered, and yet we are going to say, you know, August 2024, this is an outlier, jobs report was from July, but it is a dramatic increase from the unemployment rate that we were seeing. I crunched the numbers from that 3 .4 % historic low unemployment rate, and it’s a 26 % increase in that unemployment rate. So definitely a big jump.
You said that when you created this rule, when you were trying to find these indicators, was so we could act. It was so you could implement policies. So looking at what’s happening right now, there’s obviously a major movement happening with unemployment. What’s the remedy?
Claudia:
There is a very clear policy lever out there to be pulled and that is the Federal Reserve beginning to reduce interest rates. And that’s the most straightforward one at this point. And the Fed has told us they are pointed at doing that. Before we found out about July’s employment report that they were, you know, that’s the path they were on, seeing that there is probably more weakness or at least more slowing in the labor market than we had previously thought, that probably means that they can get going in September, and maybe even cut interest rates more quickly than they had expected. And it’s important that they have that lever to pull. that’s why I am, it’s so important that we’re still in a position of strength. Like we’re not in a recession, we are still growing. There’s a lot of good things in US economy. The direction is not good, right? We don’t need to soften or weaken more than we have and that’s kind of where we’re pointed. And the realization that well the Fed has been putting pressure on the economy to slow it down and for them to say okay we don’t need to slow it down anymore and reduce risk. That is the kind of the the release valve to this that can get us to a good a good a good place right? That we just kind of settle into the jobs catch up, we keep growing, we stay away from the recession. That’s the path. And you can tell the story and the path is there. It’s just anytime you get close to these real risky places in the economy, like a recession, you have to be careful because the people can get scared, markets can react. Things can unfold in unpredictable ways. So I think people should have their guard up more than kind of a typical time and yet…There’s still a path to this all being just.
Simone Del Rosario:
Are you concerned about a near -term recession or are you confident that when the Fed pulls that lever that the risk is over?
Claudia:
I’m a macro economist. I’m always concerned. this is, you know, I devoted much of my career to studying recessions and how to fight them. And so I think, you know, it’s a, it’s a risk that we should always be aware of, or at least policymakers should certainly be aware of. I, it is not my base case. And again, I don’t want to make light of, you know, the, the Sahm rule, the pattern I identified, there are other similar people looking at labor market conditions, not like the only one that’s pointed to weakness right now.
It does have a really strong track record and I don’t want to dismiss it out of hand. Like something is happening and I don’t want to just write off any of the bad signs because now would be the time to act on them. given all that, think the risks are there. They’re not overwhelming. And we are…
Because we’re still in a position of relative strength that gives us a real leg up in terms of like what happens over the next three months, six months, 12 months.
Simone Del Rosario:
Okay, let me ask you this. Did the Fed make a mistake last week by not cutting?
Claudia:
I have made the argument for much of this year that the Federal Reserve should begin to gradually lower interest rates. That inflation was coming down, yes, the beginning of the year was a little rough. We’re also learning that we probably got headfaked by some of that data. We might be getting headfaked by some of the employment data now. It might not be as bad as it looks, right? But there was definitely a case, inflation is coming down, Federal Reserve should get out of the way.
So I had said last week they should start gradually reducing waste because it would be so much better to gradually reduce interest rates. Watch how the effects on the economy, because there are many question marks. We don’t know exactly how this amount of interest rate cuts translates into that amount of spending. All so just to kind of watch and see what the economy does, they are in a position now where if things continue to slow, the Fed may need to decrease interest rates more quickly. And at any time, and we’ve seen in the last few days, it can be pretty disruptive. Like when news comes out, Fed Chair Jay Powell told the world on Wednesday, the labor market is normalizing. We don’t want to see more weakness. It’s all good. And two days later, we get a very disappointing, it doesn’t look so good.
labor market and more weakness than we’d like to see. you know, hindsight’s 20 -20. I think they had, I think they could have looked like, they could have been the winner last week if they had gone ahead with a cut, but that’s not, you don’t get to go back and redo. I firmly believe they will assess the situation and take the steps necessary. just a, you know, it takes time. It takes time for their tools to. So they do need to get going. But it’s not like all is lost. It’s just they’re going to have to probably play some catch up and they won’t get to do the victory lap.
Simone Del Rosario:
Yeah, I keep saying, you know, if they had cut last week on Wednesday, they would have looked like they had a crystal ball when Friday came out. And they’d be like, wow, look, they were right on the ball with that one. They knew exactly what they were doing. And now we’re waiting until September. You know, I’m with you. I’m really against any kind of panic with all of this. And there’s so much room to move on interest rates.
But that said, they’re finding themselves back in a position that they were when they started the hiking campaign, which was that they started hiking too late and then they were doing massive hikes and there’s, you all this talk now about how much they may have to cut in September and beyond. Do you think that’s overblown?
Claudia:
This cycle was always going to be messy. This has been a very hard to read economy. If you think about it, they… 2022 the Fed went really fast. They raised interest rates really quickly. There were a lot of concerns that we were going to be in a recession. That that was going to be part of what we had to have happen to get inflation down because it had gone up. Well, in fact, two years later, there has been no recession and we had
big disinflation. So yeah, it was not pretty in terms of like how you would necessarily want the policy to roll out, but things worked out relatively well. So just because it doesn’t have this elegant of gradual cuts, that doesn’t mean that it’s about getting the job done. Right? So I don’t, I don’t feel like it’s, this is, this is very disruptive. Now I do, it clearly, it creates strain on families and businesses when they see the stock market, big numbers moving and what comes next and there’s a lot. Fear can take on a life of its own and that is something that lives around the edges and in the middle of a recession. So you don’t want to treat those dynamics lightly but that’s, we’ve dealt with a very uncertain, hard to
world for the last four and a half years. So we’re not done with the drama. So it’s just a matter of, well, you know, that was a missed opportunity by the Fed. At least that’s what it looks like today. We’ll get, you know, inflation data next week. Maybe, maybe it doesn’t. But it looks like that was a missed opportunity, but there are so many more opportunities ahead of them to do good policy.
Simone Del Rosario:
Yeah, I feel like everybody was crying, know, victory lap, they’re doing it, soft landing, it reminded me of like the race walking in the Olympics where the woman who was leading and was about to win gold started celebrating before crossing the finish line and got passed. We’re gonna cross the finish line. Hopefully it’s without a recession. Hopefully it’s without more drama than we need, but certainly it has injected a little bit more drama with all of this going on with the jobs report, but we’re so happy that you were able to join us.
Claudia Sahm, chief economist for New Century Advisors, founder of Sahm Consulting, and the woman behind the Sahm Rule who says, despite the fact that it was triggered, we’re not in a recession and stay calm. Thank you so much.
Seth Harris:
We’re beginning to hear from folks on Wall Street the R word, the discussion of recession. Now, I don’t think that this report tells us that we’re headed for recession. Certainly, the GDP numbers don’t give us any indication that we’re headed for recession. The second quarter, GDP numbers were good, solid numbers, not booming, but very good for this deep into a growth cycle in the United States. So we’re doing fine, but as folks on Wall Street begin to start talking about it, that can become a downward spiral, as it becomes a decision making point for businesses, if you think that we’re going to shrink, if the economy is going to slow and shrink. You don’t invest in hiring people, you don’t invest in capital equipment, you don’t invest in expansion, you don’t invest in inventories. And so that is the concern.
Simone Del Rosario:
Part of why people want to talk about recessions right now, especially after this report comes out, is because of something called the Sahm rule. I’ll just explain to it really quickly for our audience who isn’t steeped in this. But it was developed by an economist, Claudia Sahm, and it says that the US economy has entered a recession if the three month average of the national unemployment rate has risen by half a percent or more from the previous year low. So at 4.3% on a technical basis, we have triggered the Sahm rule. However, Claudia herself said that the Sahm rule, on its face, is probably overstating the current labor market’s weakness because of everything that’s been happening with our labor market, from the pandemic to a really rapid increase in immigration right now, what do you make of all of this? Because, you know, across the networks, everybody’s going to be talking about the SOM rule today.
Seth Harris:
I think a literal application of Claudia’s rule to this situation is too pessimistic. But I do want to emphasize this very important point, if you don’t see job growth broadly across the economy, as we had for months and months and months, almost every sector was growing for an extended period of time, even a little bit, even if it’s growing just a little bit, then you have an indication that there are challenges in the economy, that some industries are sending a signal that They’re no longer able to grow. They’re no longer able to increase output. They don’t feel that there are markets available out there for what they’re producing. If healthcare is driving job growth, as it is this month but it is driving a meaningful portion of this top line job number. That is not a good sign for the economy. We do want to see health care growth. We need increases in health care services. We also want to hold down prices in health care and to the extent possible, but we need to see growth in sort of the core industries of our economy, manufacturing, construction, retail, leisure and hospitality, transportation and warehousing, and we’re not seeing that. It’s been a couple of months now that we have not seen that those are meaningful warning signs for the economy.
Simone Del Rosario:
I want to turn to the Federal Reserve right now.
If they use their speaking opportunities between now and September to more strongly send that message that, hey, we are where the data tells us we need to be. We need to cut in September. If they start going out there all these governors and saying, Yep, September. It is September. It is wait for September. Will that help?
Seth Harris:
Let me just say we’ve seen a meaningful sell off in equity markets around the world, not just in the United States, but certainly here in the United States over the course of the last several days, and a part of that is recession concerns, which is, in my view, a gross overreaction to what we’re seeing right now. We certainly are not seeing numbers that suggest that a recession is imminent, or the recession is even intermediate term concern. It can be a longer term concern, but I don’t think we can see it as an intermediate term concern. It’s possible that the Fed can calm some of those fears, but as you know, equity traders run as a herd, and they don’t always hear outside influences, but I think they’re going to be looking for it. And Chairman Powell, I think, to his credit, has been quite sensitive to the fact that when he speaks, people actually listen. And so I expect that we’re going to begin to see some indications from governors that they’re rethinking they’re looking closely, they’ll indicate the kinds of things they’re looking at, the kinds of things that are raising concerns. No one is going to say, hey, here’s how I’m going to vote. That’s not how they do things at the Fed, but they are going to begin to give us a sign.
Simone Del Rosario:
We’ve got about a week and a half before we find out what the latest inflation numbers are, and there will be, you know, several different data points that the Fed will get to look at before and during their September meeting. So we’ve heard your final thoughts. I want to just give you an opportunity. Is there anything else that we haven’t talked about yet that you wanted to address at this point?
Seth Harris:
I would just say to those who are listening, because I have a lot less influence than people at the Fed and people in government and actual economists. I’m not an economist. But this is not a crisis. This is not the beginning of recession. This is not the end of the world. This is a weaker report than we had hoped. It is not a bad report, objectively, it is not a bad report. I’ve lived through a lot of really bad reports during my time in government. This is not that. This is a softer than we would like report. It is a warning sign. It is a signal to decision makers that they need to start. Making some hard decisions, but my hope is that folks aren’t going to run into the streets with their hair on fire and and declare the recession is coming. The recession is coming. That is not what these numbers suggest to us, but there is a need to act.
And the Federal Reserve and I would also say employers have should continue to look at their employees, their workers, as the valuable assets that they are. Employers have been hugging their employees tightly over the course of the last several years because they don’t want to have to go into the labor market to find somebody better. They’re not going to find somebody better. They’ve got great workers working for them. They need to listen to their workers, continue to hug them tightly and because I think that we’re going to see a policy response soon.