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Speaker 1: Better than expected data, boosting optimism for a soft landing.

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Speaker 2: Just last week we saw the biggest jump in thirty years,

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Speaker 2: and how positive consumers are feeling about the economy. Things

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Speaker 2: are finally beginning thinking. We passed a lot of really

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Speaker 2: good legislation. We knew it was going to take time

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Speaker 2: for it to begin to take home, but it's taken

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Speaker 2: hold now and turning the economy around.

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Speaker 1: But Muhammad Aalrian of Queen's College, Cambridge, writing earlier this month,

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Speaker 1: the Biden administration cannot simply rely on lower inflation to

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Speaker 1: alleviate voters' concerns about its economic management. It needs to

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Speaker 1: communicate more effectively the exceptionalism of US economic performance. Mohammedan

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Speaker 1: plased to say, join us now for more. Muhammed, good morning.

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Speaker 1: I think you're right on the money. Now did this

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Speaker 1: is a big, big issue for communication in the White

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Speaker 1: House right now? Can you give us what you think

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Speaker 1: they should do in a weeks and.

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Speaker 3: Months to come? Sure, John, thanks for having me on.

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Speaker 3: They have to translate things that they've achieved and that

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Speaker 3: the public doesn't appreciate. Amazing job growth, very strong economy.

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Speaker 3: Remember even Bloomberg's at one hundred percent probability of recession

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Speaker 3: in twenty twenty three. Instead, we've ended up with a

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Speaker 3: five percent third quarter, a three point three percent fourth quarter, remarkable,

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Speaker 3: stock markets, record high, and it's the only advanced economy

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Speaker 3: that is investing in the drivers of tomorrow's growth. That

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Speaker 3: is a long list of achievements. And yet if you

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Speaker 3: ask the person in the street, and when we talked

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Speaker 3: about the polls, they think that the administration has mishandled

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Speaker 3: the economy. There's two reasons for that. One is inflation.

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Speaker 3: You're absolutely right. People think in terms of price level.

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Speaker 3: So for them, when you say we are winning the

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Speaker 3: war over inflation, they think that that means prices will

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Speaker 3: come down, not that the weight of price increases will

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Speaker 3: come down. And the second thing is that haven't communicated

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Speaker 3: in a manner that translates this to the every day

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Speaker 3: So you need a lot more consistent communication and you

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Speaker 3: need it simplified so that the person in the stry

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Speaker 3: understands why not only are they better off than they

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Speaker 3: have been before, but the prospects is that we have

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Speaker 3: new growth engines coming in.

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Speaker 1: I'd also argue, Mohammed, you need the labor market to

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Speaker 1: hold on for the rest of this year to allow

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Speaker 1: the scars of inflation to actually heal. Do you think

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Speaker 1: the easing of financial conditions over the last few months,

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Speaker 1: let's go from the end of October, Mohammed, do you

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Speaker 1: think that's sufficient to delay any weakness in the labor market.

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Speaker 3: I don't because a lot of this is like pushing

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Speaker 3: on a string. Corporates will be able to refinance at

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Speaker 3: lower rates. Mortgage is slightly better. But the reality is

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Speaker 3: that the structural issues, I mean that is the big

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Speaker 3: risk for the administration, is that the economy slows this

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Speaker 3: year because some of the drivers of last year's growth

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Speaker 3: are no longer there, including high savings, and secondly, inflation

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Speaker 3: stops going down. You know, John, I've said we are

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Speaker 3: in this sweetest spot of the inflation reduction right now.

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Speaker 3: It's going to get tougher going forward, and we've already

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Speaker 3: seen from Europe that is not out of the question,

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Speaker 3: that not only does inflation stabilize, but once in a

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Speaker 3: while you get the weight going up, and that would

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Speaker 3: really impact perceptions.

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Speaker 4: The White House is so excited to lean into this

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Speaker 4: Muhammad soft, very soft landing expectation. The timeline may be

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Speaker 4: on their side, but when you look out to November.

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Speaker 4: Where are the vulnerabilities to that soft landing.

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Speaker 3: So the vulnerability on that swhere of them. One is

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Speaker 3: what the external world is imposing on the US. It

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Speaker 3: is getting harder to grow in this global environment. We

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Speaker 3: have disruptions of supply chains, we have cost pressures in

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Speaker 3: the pipeline, we have delays and shipments. All that has

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Speaker 3: a marginal impact. Two, the consumer is going to be

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Speaker 3: under more pressure. You've talked about debt levels in the

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Speaker 3: previous hour. Savings come down. We no longer have the

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Speaker 3: pandemic savings being utilized to the extent it was before.

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Speaker 3: So there's a real risk that growth slows to the

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Speaker 3: one to one and a half percent level with downside

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Speaker 3: that we may slip into a negative quarter. And then thirdly, inflation.

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Speaker 3: We need inflation to keep on going down the market.

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Speaker 3: The market expects that it will do so in a

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Speaker 3: much more orderly way than I think will materialize. Unfortunately,

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Speaker 3: I'm struck.

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Speaker 5: By something I keep thinking about. As Cameron Dawson said

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Speaker 5: Muhammad Or she was saying, she's checking for pricing power

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Speaker 5: among a lot of companies that they are going to

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Speaker 5: be reporting earnings if they don't have that much pricing power,

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Speaker 5: that's great news for disinflation, that's very bad news for

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Speaker 5: their bottom line in terms of just their margins. How

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Speaker 5: much is this sweet spot for disinflation not necessarily a

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Speaker 5: Goldilock spot for a lot of the stocks that are

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Speaker 5: getting bit up simply because it means margin compression down

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Speaker 5: the line.

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Speaker 3: Oh, I mean seeing it. I mean big theme for

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Speaker 3: this year is dispersion. And just look today with realizing

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Speaker 3: that not all tech is tech and not all luxury

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Speaker 3: is luxury. That is what the results are telling you.

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Speaker 3: Between Intel on the one hand for tech and on

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Speaker 3: the other hand for LVMH. What you're seeing is growing

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Speaker 3: dispersion and some companies will have pricing power, others will not.

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Speaker 3: And we are going to see this dispersion. Out of

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Speaker 3: the market right now is betting on a very aggressive

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Speaker 3: weight cycle allowing for everything to go up, because that

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Speaker 3: is the experience since to global financial crisis. As long

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Speaker 3: as they're fed loosens, everybody benefits. I think this time

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Speaker 3: around we're going to see a lot more dispersion than

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Speaker 3: we've seen before.

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Speaker 1: Deutsche Bank says we'll get a reality check later this year.

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Speaker 1: They're looking for say ten percent downside on the S

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Speaker 1: and P five hundred's not particularly unusual. You're expecting that

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Speaker 1: kind of reality check, Muhammed anytime soon for markets, given

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Speaker 1: where stocks are at all time highs spreads, global credit

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Speaker 1: spreads incredibly time.

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Speaker 3: You know, John, I'm not in a business of predicting

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Speaker 3: when that happens and when it happens, and where people

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Speaker 3: have been wrong in the past, including last year, is

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Speaker 3: ignoring the technicals. And the technicals right now are incredibly favorable.

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Speaker 3: So the big question for me is what breaks favorable technically.

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Speaker 3: By that, I mean there's still money in the sideline

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Speaker 3: that can be put to work, so dips will be

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Speaker 3: viewed as buying opportunities for a while Low, John, The

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Speaker 3: thing I worry about most is the sense that growth

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Speaker 3: is going to disappoint with a downward risk, the balance

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Speaker 3: of risk on the downside. This comes against the universal

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Speaker 3: romance with the softness of all soft landing, and then

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Speaker 3: secondly a recognition that the Fed is not going to

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Speaker 3: validate what's being priced in right now in terms of cuts.

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Speaker 1: Cham and pound next week. What kind of message you

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Speaker 1: expect in the one we heard from Williams a few

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Speaker 1: days after it is FOK in December, or the one

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Speaker 1: we heard from Power at the December Neese conference.

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Speaker 3: Or the one will hear at the beginning of the

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Speaker 3: press conference versus the one will hear at the end

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Speaker 3: of the press conference. I don't know.

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Speaker 1: Sorry, it's been confusing.

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Speaker 3: It has been confusing. Part of that is that this

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Speaker 3: is a confusing time. You know, people that I talked

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Speaker 3: to privately, Expectations John are all over the place. That

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Speaker 3: people who think they won't stop, they won't cut a

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Speaker 3: waste until the summer, and then we get seventy five

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Speaker 3: basis points that people who think they'll start in March

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Speaker 3: and they'll they'll they'll frontload it because of the elections,

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Speaker 3: that people who think like me that they're likely to

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Speaker 3: wait until near it, much nearer to the summer, and

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Speaker 3: then start with twenty five basis points. Expectations are all

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Speaker 3: over And what's really interesting is that forward guidance have

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Speaker 3: lost has lost its power. The FED has been very

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Speaker 3: clear in terms of its forward guidance, and the market

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Speaker 3: is saying, yeah, sure, but I'm not going to listen

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Speaker 3: to you. That's really problematic.

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Speaker 1: You said you're not in the business of predicting the future.

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Speaker 1: Can I just jump in and get you to predict

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Speaker 1: the future. When's that first rate cut come in, Muhammed.

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Speaker 3: My own gut feeling is that it will come in

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Speaker 3: the beginning of the summer, so call it June, maybe July,

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Speaker 3: and it will be twenty five basis points. And not

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Speaker 3: only do I think that that's what's going to happen,

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Speaker 3: I think that that's what should happen.

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Speaker 1: Okay, Muhammed, I appreciate your time today this morning. Thank you,

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Speaker 1: sir as always. Muhammad al Erin of Bloomberg Opinion and

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Speaker 1: Queen's College, Cambridge,