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Speaker 1: Let's get to our guest. Sean Jacobson is ce IO

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Speaker 1: and chief economists at sex So Bank, joining us joining

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Speaker 1: me here in the Singapore studio alongside Doug Crysta in

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Speaker 1: our New York studio. So we're very much on tender

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Speaker 1: howoks awaiting the fat even though there's seventy five basis

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Speaker 1: point hike is pretty much baked in. How are you

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Speaker 1: reading the overall picture though, because it is about the

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Speaker 1: forward guidance what we hear from j Pale at a

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Speaker 1: time when you're getting a little bit of mixed earnings

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Speaker 1: momentum coming through. So concerning the move over the last months,

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Speaker 1: I think the market is like in when in twenty

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Speaker 1: one we were talking about transitory at this time they're

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Speaker 1: talking about the inflation peak. Both of them I think

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Speaker 1: will turn out to be wrong. But going into this

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Speaker 1: FET meeting, I think they're looking for Darvis things to

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Speaker 1: take away. However, I think we need to recognize the

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Speaker 1: fact that the prison by which the Federal Reserve sees

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Speaker 1: their monetary policy is financial conditions, and finicial financial conditions

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Speaker 1: has been coming off for the last month but half

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Speaker 1: a half a percent, which indicate the Federal Storff actually

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Speaker 1: need to ramp up. It's both its rhetoric but also

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Speaker 1: it's it's hike. So this concept that we will peak

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Speaker 1: somewhere between December and March looks very unlikely, especially if

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Speaker 1: you combine that with the energy outlook that looks very

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Speaker 1: very sour for for not only Europe, but for the globe.

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Speaker 1: Imagine if China comes online again and starts actually importing

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Speaker 1: natural gas and oil from from from non Russian sources,

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Speaker 1: then of course we off to the races in terms

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Speaker 1: of high inflation. Yeah, it's interesting you make the point

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Speaker 1: about the goal here to tighten financial conditions. Immediately, we

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Speaker 1: we saw rates begin to back up, the dollar strength

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Speaker 1: and meaningfully, and the equity market as we know tumbled.

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Speaker 1: But we've also been getting a lot of economic data

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Speaker 1: points that are stoking fears of recession. I mean even

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Speaker 1: today in the US consumer confidence now at the lowest

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Speaker 1: levels since February, new home sales down for a fifth

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Speaker 1: time this year. So the tightening that has already occurred

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Speaker 1: as having impact. And I hear what you're saying that

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Speaker 1: it's too soon to call peak inflation, but you know,

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Speaker 1: many in the market are now beginning to look out

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Speaker 1: over the horizon and saying the fed's next move after

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Speaker 1: the beginning of the year will be to cut rates

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Speaker 1: or do you think that's a possibility. I doubt it

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Speaker 1: very much, and for two reasons, which is asynchronic to

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Speaker 1: a normal sort of economic analysis. The first one is

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Speaker 1: that I don't think we fully recognize the amount of

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Speaker 1: fiscal and monitory support during COVID, which means that the

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Speaker 1: private balance sheet in the US and globally is the

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Speaker 1: best ever in history. So simplistically put, if you take

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Speaker 1: the housing market, yes, the foot traffic the surveys is

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Speaker 1: showing that prices are coming down, but there is no

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Speaker 1: imminent need to refinance. I mean you should have been

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Speaker 1: you know, pardoned using the word, but you should have

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Speaker 1: been stupid if you read in refinance over the last

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Speaker 1: three to five years. And on top of that, you

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Speaker 1: put a lot of money into the pocket and consumers

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Speaker 1: are like in the US, the choice really for FED

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Speaker 1: is very simple. They can allow inflation to run a

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Speaker 1: mark and impact three million people, or they can allow

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Speaker 1: the economity to slow down gradually, let's call it a

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Speaker 1: rise of two percent and unemployment which will impact six

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Speaker 1: million people. So the political choice here is six million

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Speaker 1: people of three million people being impacted. Both the White

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Speaker 1: House and the Federal Reserve needs to react to this,

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Speaker 1: so they have a single mandate and that singlement it

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Speaker 1: remains enforce and will be enforced until we see a

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Speaker 1: really a five five half percent unemployment in the US,

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Speaker 1: and as you just alluded to, I think that's very unlikely.

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Speaker 1: So I think the trade here is that the slowdown

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Speaker 1: is going to be slower because the balance sheet positivity

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Speaker 1: that we have, and it's going to be more gradual,

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Speaker 1: which means that yes, of course there will ultimately be

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Speaker 1: an inflation peak, but that inflation peak cannot happen between

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Speaker 1: December and January when we have the highest energy prices

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Speaker 1: for the seasonality as perspective. And on top of that

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Speaker 1: second round effects, wages are exploding. I mean, just this

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Speaker 1: morning you saw Visa is now giving not non non

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Speaker 1: project and they're giving giving a higher salaries to the

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Speaker 1: workers to maintain the workforce. You touch on two points

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Speaker 1: their wages rising and as you say, employment refusing to

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Speaker 1: play the recession game here. But also in terms of

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Speaker 1: what we heard from Visa too, it was the strength

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Speaker 1: of the consumer people still spending. You see that with travel,

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Speaker 1: revenge spending two. So as we continue to see the

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Speaker 1: strength of the consumer, how much does that cushion some

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Speaker 1: of those concerns. Yeah, so, so you know, the standard

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Speaker 1: analysis is that the GDP in the US is consumers.

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Speaker 1: But the problem is that as you as you both

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Speaker 1: said that people are looking to survey surveys is not

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Speaker 1: financial fact services. You know, how how do you feel

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Speaker 1: today relative to do yesterday? So you know, as an economy,

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Speaker 1: you have to look at stock and flow. What I'm

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Speaker 1: saying is that the stock, the OVAL balance sheet, the

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Speaker 1: oval sentiment is positive, but the outlook sort of how

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Speaker 1: do you feel perspective to high frequency data is clearly

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Speaker 1: slowing so much that you can even predicted recession, but

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Speaker 1: that recession will be unwinded by the fact that that

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Speaker 1: that you have that strong balance sheet. So it's it's

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Speaker 1: it's extremely complicated to navigate because it would be far

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Speaker 1: easier to say industry is higher and consumers are getting hurt. Okay,

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Speaker 1: there will be a recession. I don't think that's how

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Speaker 1: it's going to work this down, Because we came into

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Speaker 1: this with the highest amount of trencher from the state,

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Speaker 1: not only in the US, but globally on top of

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Speaker 1: at low negative real rates, which means that you know

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Speaker 1: the travel to be tightening, the travel to actually make

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Speaker 1: a real impact on inflation is going to be very slow.

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Speaker 1: So I'm really not saying I'm not disagreeing on the

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Speaker 1: overall consensus that will be peak inflation. I'm just saying

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Speaker 1: it's not going to happen in the winter month, and

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Speaker 1: it's certainly probably not going to happen even in twenty three.

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Speaker 1: So give me your texting then. On your outlook for

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Speaker 1: the dollar. We're talking about persistent FED tightening, I would

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Speaker 1: think that directionally the dollar is going to strengthen. I agree,

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Speaker 1: and I think at least as a as a as

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Speaker 1: a non domicile US person, the US needs capital to

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Speaker 1: come into the US simply because the saving rate is

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Speaker 1: too low for the deficit. That means that the U

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Speaker 1: has two levers to play on, which is attracting capital

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Speaker 1: by high indust rate or a week of dollar. As

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Speaker 1: you indicate, of course, we've seen that the higher interest

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Speaker 1: rate is the game in town right now. There is, however,

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Speaker 1: a maximum to how high the U S industrate can go.

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Speaker 1: I will put that in ten year equivalent to about

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Speaker 1: four four and a quarter, so we are one hundred

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Speaker 1: twenty basis point away from the peak it in in

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Speaker 1: interst rate. And when that peaking interst rate happens, then

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Speaker 1: the dollar will have to take over through the weakening.

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Speaker 1: That is what I you know, in my thirty years

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Speaker 1: plus of trading, have always used as the cardinal rule.

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Speaker 1: And don't forget, you know, sitting out here in Asia

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Speaker 1: today that the emerging market and the fast growing economies

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Speaker 1: are really getting impacted by that strong dollar. So yes,

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Speaker 1: I do acknowledge that that is as we are almost

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Speaker 1: out of time. But does that mean that China outperforms

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Speaker 1: when you've got that policy divergence. It means that yeah,

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Speaker 1: ultimately we will need a Wiger dillarst to to rebalance

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Speaker 1: the world and we will see China come online, I

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Speaker 1: think when presidency is reelected. Alright, Stean, great to have

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Speaker 1: you with us here in our Singapore studio. Stean Jackison

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Speaker 1: is CEO and chief Economist at Saxo Bank. With us

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Speaker 1: here