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Speaker 1: Let's get to our guest, Carl Tannenbaum, executive vice president

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Speaker 1: and chief economist at Northern Trust. Carl, we won't ask

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Speaker 1: you about the stock market, but it's kind of the

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Speaker 1: story of the day. So I want to lay out

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Speaker 1: a couple of quick points here before we get to

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Speaker 1: your thoughts on the economy, because in the end, that's

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Speaker 1: what it's all about. So it was a day in

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Speaker 1: the sun for the bulls, and that's great, but the

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Speaker 1: bears may still control the game. And here's why inflation

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Speaker 1: is still high. The FED is a long way to

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Speaker 1: go to even sniff out its target, and perhaps more importantly,

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Speaker 1: the lag defect of rate hikes means that the full

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Speaker 1: effect hasn't even been close to being felt in the economy.

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Speaker 1: Yet we felt the effects of FED fears and inflation

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Speaker 1: that caused stocks to go down. Now you have to

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Speaker 1: feel the effects of a slowing economy or even recession.

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Speaker 1: We saw that with Vulcar in his historic run. So

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Speaker 1: this is where we bring in Carl. The big question

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Speaker 1: for you, Carl, is is the economy so strong that

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Speaker 1: is it's just really a slowdown and nothing more than that,

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Speaker 1: not a recession coming. Brian Good morning. I think the

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Speaker 1: question of whether we're going to be able to achieve

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Speaker 1: a soft landing is when I hear a number of

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Speaker 1: times a day, and today's readings certainly fed into that narrative.

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Speaker 1: Our current forecast, to be honest with you, shows that,

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Speaker 1: I mean, the economy is decelerating. We obviously had two

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Speaker 1: negative quarters of growth. At the strength of the recent

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Speaker 1: employment numbers really casts a question over whether a formal

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Speaker 1: recession would be declared. The fact that we are still

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Speaker 1: seeing that kind of strength and employment really suggests that

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Speaker 1: the economy still has a lot of legs to it

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Speaker 1: and that we might see important improvements. Remember that the

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Speaker 1: declines that we had in the first two quarters of

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Speaker 1: two were largely due to high inflation. We're starting to

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Speaker 1: see that come off the boil, and if nominal activity

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Speaker 1: holds up as I expect that it will, we should

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Speaker 1: start seeing some better growth numbers. I would also say

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Speaker 1: that one perspective that hasn't been talked about enough is

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Speaker 1: that financial conditions, which is what the FED is trying

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Speaker 1: to tighten in order to have the requisite impact on

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Speaker 1: the economy, are still on the easy side of neutral.

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Speaker 1: Especially after today's price action. Both the stock and the

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Speaker 1: bond market. So I certainly respect the quotes that we

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Speaker 1: got from both Neo Cash, Carrie and and Charlie Evans today,

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Speaker 1: and I would agree that the FETE is probably not

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Speaker 1: going to be overly uh sanguine after today's inflation numbers.

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Speaker 1: So yeah, I mean the thing is, you know they

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Speaker 1: started hiking in much. It takes time before we get

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Speaker 1: the feed through, so this may have little to do

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Speaker 1: with the the small raid hikes we saw, so you know,

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Speaker 1: it's a necessary print, I guess with the FET is

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Speaker 1: pay know that doing, but it's insufficient. Would you agree? Oh? Absolutely?

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Speaker 1: And I hate to be a skunk at the picnic

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Speaker 1: because the markets were certainly happy to see some moderation

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Speaker 1: and inflation. But when you look at the core reading,

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Speaker 1: which was off only slightly, and the main contributors to it,

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Speaker 1: which are shelter costs and some service prices, you can

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Speaker 1: see that that is going to be a lot harder

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Speaker 1: to get to move downward than energy prices will be.

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Speaker 1: Rich the um the ability of the FED to modulate that,

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Speaker 1: I think is going to be predicated on rates that

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Speaker 1: are a lot higher than they are today. Kyle, I mean, overall,

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Speaker 1: you know you've been following market, has been a market

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Speaker 1: participant for years. Have you ever known anything like the

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Speaker 1: I'm gonna use a predicament that the Federal Reserve finds

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Speaker 1: itself in not for more than forty years. And I

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Speaker 1: don't think it's fair, given the texture of our economy

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Speaker 1: today rish to draw too close of a comparison to

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Speaker 1: the situation that we had in the early nineteen eighties,

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Speaker 1: wrote Apiece Recently. Certainly the Vulcar fed gets a lot

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Speaker 1: of credit, but there were also some broader themes that

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Speaker 1: were evolving that helped us with inflation. Back then, we

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Speaker 1: were a younger country, we were highly productive. Globalization and

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Speaker 1: trade was just expanding. Some of those factors, honestly, are

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Speaker 1: moving in the other direction at this juncture, and so

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Speaker 1: the Federal Reserve is it sets monetary policy is maybe

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Speaker 1: swimming upstream against some of those, uh, those trends and

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Speaker 1: trying to get inflation under control. Now, Cal, I'm gonna

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Speaker 1: just kind to jump in just when you know, you

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Speaker 1: mentioned inflation, I mean, is the nature of inflation, the

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Speaker 1: structure of inflation also changing that it would be elevated

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Speaker 1: for longer given green inflation. On top of that, we've

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Speaker 1: got perhaps deglobalization taking place to some extent, and the

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Speaker 1: demographic changes as well. Yeah, those are are long running

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Speaker 1: trends that are again working against us this time around.

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Speaker 1: Certainly the nature of inflation is quite a bit different

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Speaker 1: than it was forty five years ago, given the basket weights,

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Speaker 1: the things that are in there, and where those things

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Speaker 1: are provided. I am a little bit more sanguine than

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Speaker 1: I perhaps I'm letting on Risch. I'm seeing supply chains

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Speaker 1: are healing. I'm certainly anticipating that food and energy prices

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Speaker 1: are going to be well off the boil a year

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Speaker 1: from now. It's the hardened core of shelter, medical services,

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Speaker 1: and other service prices that are sensitive to wages that

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Speaker 1: I'm still a little worried about. I know it might

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Speaker 1: be a little quick to jump to China, but we

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Speaker 1: we saw inflation tick up there. We didn't think it

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Speaker 1: was enough to really deter of the PBOC. But then

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Speaker 1: the PBOC felt compelled to come out and tell us

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Speaker 1: that we were wrong, that they will they will definitely

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Speaker 1: um move now to curb inflation threats. H However, they

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Speaker 1: still want to provide stimulus, and your thoughts about where

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Speaker 1: we're moving with China and its effect on the global economy. Brian,

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Speaker 1: The box that the PBOC finds itself in is a

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Speaker 1: heck of a lot smaller than the one that FED

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Speaker 1: finds itself in. For the longest time, producer prices in

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Speaker 1: China were skyrocketing and consumer prices were relatively modest. I

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Speaker 1: think there may be some measurement issues there, but the

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Speaker 1: two seem to be starting to converge. At the same time,

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Speaker 1: China is dealing with low levels of consumer confidence, rolling

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Speaker 1: lockdowns related to COVID lingering, problems with receipt of raw

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Speaker 1: materials for manufacturing, a property market that is is clearly

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Speaker 1: in deep trouble with with mortgage protests going on around

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Speaker 1: the country. It is a real moment of trial for

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Speaker 1: China as it tries to sustain what has been a

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Speaker 1: thirty year period of uninterrupted growth. Yeah, I mean nothing

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Speaker 1: grows in the straight line. Probably market is in distress,

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Speaker 1: Certainly that's the case, and there's essentially a strike. Probably

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Speaker 1: we know about the Morgage boycot, but it's probably a strike.

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Speaker 1: And buying property there at the moment, given the uncertainty,

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Speaker 1: how does that feed into the banking system. Well, there's

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Speaker 1: a lot of credit struck against a lot of condos.

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Speaker 1: Rish And in addition, this does have Ponzi like characteristics

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Speaker 1: to it, and that developers were taking deposits from prospective

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Speaker 1: homeowners and using those to finance additional developments, many of

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Speaker 1: which may never be completed. Now. So how the Chinese

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Speaker 1: authorities can work out from under that without creating extraordinary

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Speaker 1: financial distress, are going much more deeply into death than

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Speaker 1: they already are, is certainly going to be a significant challenge. Okay,

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Speaker 1: So let me bring it back to the basic story

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Speaker 1: we had the inflation print. People are wondering, you know,

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Speaker 1: what's going on with the economy. I just want to

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Speaker 1: raise this good example is Disney. It lives in this

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Speaker 1: environment and it seems to be doing Okay. Yeah, I

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Speaker 1: haven't followed them specifically, Certainly everywhere that I've traveled, people

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Speaker 1: are out and about enjoying this first summer that is

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Speaker 1: relatively free of of deep pandemic concerns. The question, Brian,

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Speaker 1: is how long that can be sustained? That's certainly the

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Speaker 1: evidence is that low income households are burning through their savings.

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Speaker 1: So where's the demand going to come from going forward? Karl,

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Speaker 1: Thank you, always a pleasure, never at your Karl Tannenbaum,

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Speaker 1: executive vice president, chief economist at Northern Trust. This is

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Speaker 1: Bloomberg