1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,640 Speaker 2: Terminal and the Bloomberg Business app. Christian Melting the global 10 00:00:37,720 --> 00:00:40,640 Speaker 2: Chief Investment Officer at Deutsche Bank Private Bank. Writing with 11 00:00:40,680 --> 00:00:44,440 Speaker 2: inflation appearing contained and labor market cracks emerging, the FED 12 00:00:44,560 --> 00:00:46,680 Speaker 2: is bound to pivot from its courtious stants and begin 13 00:00:46,760 --> 00:00:49,199 Speaker 2: easing in September, Christian. 14 00:00:48,920 --> 00:00:50,800 Speaker 3: Joins us now for more. Christian. Welcome back to the 15 00:00:50,840 --> 00:00:52,840 Speaker 3: program Sir. I think we all understand. 16 00:00:52,560 --> 00:00:55,360 Speaker 2: They'll be coming interest rates on Wednesday, all looking for 17 00:00:55,400 --> 00:00:57,000 Speaker 2: that twenty five basis point reduction. 18 00:00:57,240 --> 00:00:57,560 Speaker 3: Christian. 19 00:00:57,600 --> 00:00:59,640 Speaker 2: The question we've all got is what happens after that? 20 00:01:00,000 --> 00:01:02,840 Speaker 2: What are they allowed? What can they ultimately forecast and 21 00:01:02,920 --> 00:01:04,839 Speaker 2: guide to for twenty twenty six? 22 00:01:06,160 --> 00:01:06,440 Speaker 4: Yeah? 23 00:01:06,480 --> 00:01:08,960 Speaker 5: So I think we all agree on this probably cut. 24 00:01:09,120 --> 00:01:11,280 Speaker 5: The question is twenty five or fifty. I would be 25 00:01:11,319 --> 00:01:13,679 Speaker 5: really in the camp of twenty five, because why would 26 00:01:13,680 --> 00:01:16,160 Speaker 5: you surprise the market, to be very honest, and if 27 00:01:16,200 --> 00:01:18,280 Speaker 5: you go for fifty this time, I would say the 28 00:01:18,319 --> 00:01:20,880 Speaker 5: market could also argue, do they know more about the 29 00:01:20,959 --> 00:01:21,520 Speaker 5: labor market? 30 00:01:21,600 --> 00:01:25,080 Speaker 4: Is that weeker than expected? So I think it's twenty five. 31 00:01:25,160 --> 00:01:27,000 Speaker 5: And then, as you rightly say, there's more to come, 32 00:01:27,040 --> 00:01:29,440 Speaker 5: I think there's room for the Fed to cut. We 33 00:01:29,480 --> 00:01:32,559 Speaker 5: would expect over the next twelve months, way into twenty six. 34 00:01:32,600 --> 00:01:35,640 Speaker 5: As you're saying, we expect five cuts, a bit less 35 00:01:35,680 --> 00:01:39,840 Speaker 5: than the market because we think there's still some inflation pressure, 36 00:01:39,920 --> 00:01:43,199 Speaker 5: not massively going higher. But I would say it's five 37 00:01:43,240 --> 00:01:45,360 Speaker 5: cuts over the next twelve months, and the market is, 38 00:01:45,400 --> 00:01:47,440 Speaker 5: if I look at Woomberg, six cuts. 39 00:01:47,600 --> 00:01:49,360 Speaker 2: Christian, forgive me for getting stuck in some of the 40 00:01:49,400 --> 00:01:51,600 Speaker 2: small print, but I think we've got to We'll all 41 00:01:51,640 --> 00:01:54,240 Speaker 2: go to the Summary of Economic Projections on Wednesday, the 42 00:01:54,280 --> 00:01:56,760 Speaker 2: guests delivered alongside the statement, and in that at the 43 00:01:56,800 --> 00:01:59,520 Speaker 2: moment for twenty twenty five, they've got unemployment for year 44 00:01:59,560 --> 00:02:02,080 Speaker 2: rundo four point five percent, and I'm just wondering how 45 00:02:02,120 --> 00:02:03,840 Speaker 2: much has actually changed. For a lot of people on 46 00:02:03,880 --> 00:02:07,320 Speaker 2: the committee looking at the labor market, they don't forecast payrolls, 47 00:02:07,560 --> 00:02:09,279 Speaker 2: they have to forecast unemployment. 48 00:02:09,440 --> 00:02:10,880 Speaker 3: Has that picture changed that much? 49 00:02:11,960 --> 00:02:12,160 Speaker 4: Yeah? 50 00:02:12,440 --> 00:02:14,720 Speaker 5: I agree, right, it still looks very close to being 51 00:02:14,760 --> 00:02:16,880 Speaker 5: at say, full employment in the US. But I think 52 00:02:16,880 --> 00:02:20,000 Speaker 5: if you look at the trend, it's weakening a little bit. 53 00:02:20,160 --> 00:02:23,080 Speaker 5: I'm not saying it's massively going higher, but I think 54 00:02:23,240 --> 00:02:25,280 Speaker 5: what the market is also prising is the fact is 55 00:02:25,320 --> 00:02:28,600 Speaker 5: doing something not a recession, but they want to cut now, 56 00:02:28,960 --> 00:02:32,040 Speaker 5: and from that perspective that should be positive for the economy. 57 00:02:32,280 --> 00:02:34,679 Speaker 5: And from that perspective, yes, we don't talk. And that's 58 00:02:34,720 --> 00:02:38,440 Speaker 5: the big difference Johnson to other cycles. Normally you cut 59 00:02:38,480 --> 00:02:41,239 Speaker 5: into a feared recession. That's not the case. And that's 60 00:02:41,280 --> 00:02:43,560 Speaker 5: one reason why we say it's probably only five cuts, 61 00:02:43,560 --> 00:02:46,080 Speaker 5: still a lot from my point of view, compared to 62 00:02:46,120 --> 00:02:48,720 Speaker 5: the market, who's maybe saying six or even more. 63 00:02:48,800 --> 00:02:51,399 Speaker 6: Christian from an investment standpoint, does this make you more 64 00:02:51,440 --> 00:02:54,120 Speaker 6: willing to go into US assets because of the prospect 65 00:02:54,400 --> 00:02:58,080 Speaker 6: potentially a faster growth or free because of the potential 66 00:02:58,280 --> 00:02:59,320 Speaker 6: for faster inflation. 67 00:03:00,520 --> 00:03:02,720 Speaker 5: I think if you look at this year twenty twenty five, 68 00:03:02,760 --> 00:03:05,960 Speaker 5: it's very interesting. So it started with being here in 69 00:03:06,000 --> 00:03:08,960 Speaker 5: Europe with a nice outperformance of Europe for the first 70 00:03:08,960 --> 00:03:11,800 Speaker 5: time in many years. I would say that has changed 71 00:03:11,840 --> 00:03:14,480 Speaker 5: in the second quarter, where the US came back. It's 72 00:03:14,520 --> 00:03:18,200 Speaker 5: a lot about of course technology AI in the US. 73 00:03:18,440 --> 00:03:20,840 Speaker 5: I think that doesn't change from my point of view. 74 00:03:21,080 --> 00:03:24,280 Speaker 5: I'm not fleeing US equities at all. My question is 75 00:03:24,360 --> 00:03:27,240 Speaker 5: rather do we see a change in Europe, and maybe 76 00:03:27,240 --> 00:03:29,960 Speaker 5: there's more room for upset in Europe as well, because 77 00:03:30,040 --> 00:03:33,280 Speaker 5: if you look at rate cuts which are anticipated, which 78 00:03:33,320 --> 00:03:35,640 Speaker 5: normally is good for the market. If you look at 79 00:03:35,640 --> 00:03:38,320 Speaker 5: earnings in the US quite decent, right up eight percent 80 00:03:38,480 --> 00:03:42,120 Speaker 5: expected for twenty twenty five, and Europe is down one percent. 81 00:03:42,200 --> 00:03:45,200 Speaker 5: And we do still hope for and expect some fiscal 82 00:03:45,240 --> 00:03:48,480 Speaker 5: spending maybe coming from Germany. There's a lot of debate 83 00:03:48,600 --> 00:03:51,320 Speaker 5: in Parliament this week, so maybe you see some results 84 00:03:51,360 --> 00:03:53,880 Speaker 5: and that could be also positive for Europe, not only 85 00:03:53,920 --> 00:03:54,520 Speaker 5: for the US. 86 00:03:54,800 --> 00:03:57,000 Speaker 6: Hope doesn't necessarily they'll get their returns. And I am 87 00:03:57,080 --> 00:03:59,320 Speaker 6: wondering how much you're seeing people double down on this 88 00:03:59,400 --> 00:04:02,720 Speaker 6: Europe at at a time where the US potentially could 89 00:04:02,800 --> 00:04:04,800 Speaker 6: grow a lot faster because of ray cuts, and then 90 00:04:04,800 --> 00:04:07,800 Speaker 6: you've got France getting downgraded over the weekend. You have, yes, 91 00:04:07,840 --> 00:04:10,840 Speaker 6: this potential spend by Germany, but even the ECB is 92 00:04:10,880 --> 00:04:13,320 Speaker 6: talking about a one percent one point three percent growth 93 00:04:13,360 --> 00:04:16,600 Speaker 6: rate over the next number of years. Are you suggesting 94 00:04:16,720 --> 00:04:20,839 Speaker 6: clients double down on that European story or are you saying, 95 00:04:21,240 --> 00:04:24,200 Speaker 6: let's just hold out, watch and keep hoping love. 96 00:04:25,000 --> 00:04:27,280 Speaker 5: I would say we suggest to double down on Europe 97 00:04:27,279 --> 00:04:30,279 Speaker 5: because we do expect fiscal spending. I agree the absolute 98 00:04:30,360 --> 00:04:33,000 Speaker 5: number one point three one point two percent growth doesn't 99 00:04:33,040 --> 00:04:36,680 Speaker 5: sound very compelling, but if you think of the potential 100 00:04:36,760 --> 00:04:39,880 Speaker 5: growth in Europe is roughly zero point four percent, much 101 00:04:39,920 --> 00:04:42,320 Speaker 5: lower than the US, by the way, and maybe you 102 00:04:42,360 --> 00:04:44,560 Speaker 5: can bring this a little bit up with fiscal spending. 103 00:04:44,600 --> 00:04:46,240 Speaker 4: I think there's room for performance. 104 00:04:46,640 --> 00:04:50,040 Speaker 5: And as we see, Europe is clearly underinvested in many 105 00:04:50,080 --> 00:04:52,919 Speaker 5: many client portfolios, from the US, from the rest of 106 00:04:52,960 --> 00:04:56,160 Speaker 5: the world, from Asia, and interestingly, I get a lot 107 00:04:56,200 --> 00:04:59,559 Speaker 5: of requests to explain about euro and normally that comes 108 00:04:59,600 --> 00:05:02,039 Speaker 5: with some money which is then invested later. But it 109 00:05:02,080 --> 00:05:05,560 Speaker 5: needs a trigger, and I would say now debates on 110 00:05:05,600 --> 00:05:09,200 Speaker 5: fiscal spending, especially from Germany, could be a trigger that 111 00:05:09,240 --> 00:05:12,240 Speaker 5: this gets more intention and that probably could lead to 112 00:05:12,279 --> 00:05:13,240 Speaker 5: some money flows as well. 113 00:05:13,400 --> 00:05:16,520 Speaker 2: Christian language is important, you said, especially from Germany. Is 114 00:05:16,560 --> 00:05:18,520 Speaker 2: it exclusively from Germany? 115 00:05:20,000 --> 00:05:22,479 Speaker 5: I think most is coming from Germany because obviously in 116 00:05:22,520 --> 00:05:24,880 Speaker 5: France there's not so much room. Yeah, I would say 117 00:05:24,960 --> 00:05:27,360 Speaker 5: look at Germany first, but it's the large economy in 118 00:05:27,400 --> 00:05:30,520 Speaker 5: the European Union. So from that perspective, I would expect 119 00:05:30,520 --> 00:05:33,279 Speaker 5: some money to go into Germany because that should be 120 00:05:33,279 --> 00:05:36,479 Speaker 5: in the news with the budget discussions this week and 121 00:05:37,240 --> 00:05:40,320 Speaker 5: next week as well. So from that perspective, maybe start 122 00:05:40,360 --> 00:05:42,880 Speaker 5: with Germany. That's what we also tell the clients who. 123 00:05:42,760 --> 00:05:44,880 Speaker 2: And what do you think benefits from that fiscal spending 124 00:05:45,000 --> 00:05:47,520 Speaker 2: in Germany. We've already seen a monster rally in the 125 00:05:47,520 --> 00:05:48,960 Speaker 2: European banks earlier this year. 126 00:05:50,640 --> 00:05:52,720 Speaker 5: Yeah, if you look from that perspective, right, So here 127 00:05:52,800 --> 00:05:55,239 Speaker 5: the picture is a bit different, right. We do expect 128 00:05:55,240 --> 00:05:58,240 Speaker 5: from the ECB, not as many cuts as we do 129 00:05:58,279 --> 00:06:01,440 Speaker 5: expect from the fat max of one where, if at all. 130 00:06:01,560 --> 00:06:03,880 Speaker 5: So it's a lower level of course, ECB being a 131 00:06:03,920 --> 00:06:07,080 Speaker 5: two percent feed for much higher of course, but if 132 00:06:07,080 --> 00:06:10,599 Speaker 5: you look, we still have some inflationary pressures, not too much, 133 00:06:10,839 --> 00:06:13,680 Speaker 5: but there's still a steep curve and that's positive for financials. 134 00:06:13,760 --> 00:06:16,719 Speaker 5: So that call we made quite some time ago is 135 00:06:16,720 --> 00:06:19,320 Speaker 5: still on. From that perspective, we thing it's quite interesting 136 00:06:19,360 --> 00:06:21,200 Speaker 5: to still look into this and many banks are still 137 00:06:21,200 --> 00:06:24,600 Speaker 5: training below book value, so from that perspective it remains 138 00:06:24,680 --> 00:06:27,200 Speaker 5: quite interesting given the interest rate environment we are in 139 00:06:27,240 --> 00:06:27,920 Speaker 5: here in Europe. 140 00:06:28,000 --> 00:06:30,680 Speaker 6: That's the medium term this week. I'm curious about the 141 00:06:30,680 --> 00:06:33,120 Speaker 6: reaction function markets. If we do get a signal from 142 00:06:33,120 --> 00:06:35,000 Speaker 6: the Fed that they're going to cut more steeply, do 143 00:06:35,040 --> 00:06:35,800 Speaker 6: you go out. 144 00:06:35,600 --> 00:06:36,200 Speaker 3: And buy gold? 145 00:06:38,040 --> 00:06:40,480 Speaker 5: We have already a lot of gold in the portfolios. 146 00:06:40,520 --> 00:06:43,160 Speaker 5: To be very honest, I still like it. Our forecast 147 00:06:43,200 --> 00:06:45,839 Speaker 5: also to give you a number three eight hundred, so 148 00:06:46,080 --> 00:06:48,599 Speaker 5: up from here. Again, it has been quite a call 149 00:06:48,680 --> 00:06:51,440 Speaker 5: because there's so much discussions which currency you want to investment. 150 00:06:51,480 --> 00:06:55,279 Speaker 5: Of course dollar, but everything in Europe probably also not everything. 151 00:06:55,800 --> 00:06:56,080 Speaker 4: We know. 152 00:06:56,240 --> 00:06:59,920 Speaker 5: That's why people look into buying gold. We think that's continuing. 153 00:07:00,080 --> 00:07:03,400 Speaker 5: Central banks are buying gold, but also retail investors are 154 00:07:03,440 --> 00:07:06,520 Speaker 5: looking into this. I think the trend will continue. But 155 00:07:06,720 --> 00:07:09,279 Speaker 5: we have already quite a portion of gold and enjoying 156 00:07:09,520 --> 00:07:11,840 Speaker 5: quite a nice ready. But as I said, we think 157 00:07:11,880 --> 00:07:14,680 Speaker 5: that could continue as well, with our forecast being three 158 00:07:14,720 --> 00:07:15,559 Speaker 5: thy eight hundred. 159 00:07:15,840 --> 00:07:19,760 Speaker 6: Underlying that question is this question about government bonds and 160 00:07:19,880 --> 00:07:22,880 Speaker 6: just the develop markets whether they still count as the 161 00:07:22,920 --> 00:07:25,840 Speaker 6: haven asset. Do you view the rally that we've seen 162 00:07:25,880 --> 00:07:27,880 Speaker 6: in long term bonds, particularly in the United States, not 163 00:07:27,920 --> 00:07:33,520 Speaker 6: necessarily in Europe, as reaffirming this quality of the securities 164 00:07:33,560 --> 00:07:35,400 Speaker 6: at a time where they have had a lot of questions. 165 00:07:36,320 --> 00:07:37,880 Speaker 4: Yeah, I think it's quite interesting. 166 00:07:37,920 --> 00:07:40,240 Speaker 5: I've just discussed with a lot of clients that also 167 00:07:40,280 --> 00:07:42,600 Speaker 5: if you look at corporates, that's quite interesting, right, look 168 00:07:42,600 --> 00:07:45,600 Speaker 5: at the size of some corporates and then the discussions 169 00:07:45,600 --> 00:07:48,920 Speaker 5: about higher debt levels. What's quite interesting for me what 170 00:07:48,960 --> 00:07:50,960 Speaker 5: we have seen is the US year is not moving 171 00:07:51,040 --> 00:07:53,640 Speaker 5: higher in Europe. You have seen some years moving higher 172 00:07:53,640 --> 00:07:56,560 Speaker 5: also in Asia. So there seems to be a lot 173 00:07:56,600 --> 00:07:59,560 Speaker 5: of discussion about the US government bonds. But maybe at 174 00:07:59,600 --> 00:08:02,440 Speaker 5: one point in time, I think if years were to 175 00:08:02,480 --> 00:08:05,560 Speaker 5: go to hire, maybe some FED action can also be expected. 176 00:08:06,000 --> 00:08:08,200 Speaker 5: On the other hand, if you look at Europe, France 177 00:08:08,240 --> 00:08:11,360 Speaker 5: of course moving higher better today, but there was also 178 00:08:11,360 --> 00:08:14,200 Speaker 5: a downgrade. So I think, yes, it's still an anchor, 179 00:08:14,280 --> 00:08:17,320 Speaker 5: but I think clients should also take into count the 180 00:08:17,360 --> 00:08:20,400 Speaker 5: power of a lot of corporate bonds, and from that perspective, 181 00:08:20,840 --> 00:08:23,640 Speaker 5: investment great corporate bonds, I think is a very important trait. 182 00:08:23,920 --> 00:08:25,080 Speaker 4: Clients should also debate. 183 00:08:26,280 --> 00:08:29,760 Speaker 2: Stay with us more Bloomberg surveillance coming up after this, 184 00:08:38,840 --> 00:08:41,800 Speaker 2: Trader spelling with there certainty the Federal Reserve or cut 185 00:08:41,800 --> 00:08:44,800 Speaker 2: interest rates by twenty five basis points this week, joining 186 00:08:44,880 --> 00:08:48,240 Speaker 2: us to discuss the former New York Fed President Bill Dudley. 187 00:08:48,440 --> 00:08:50,480 Speaker 2: But welcome back, So let's go straight to it. What 188 00:08:50,520 --> 00:08:54,880 Speaker 2: are you expecting to say this coming Wednesday, right. 189 00:08:54,760 --> 00:08:57,040 Speaker 7: Along with everybody else, I expect a quarter point cut. 190 00:08:57,080 --> 00:08:58,959 Speaker 7: It's baked in the cake. I'd be surprised if that 191 00:08:59,040 --> 00:08:59,840 Speaker 7: they do anything else. 192 00:09:00,080 --> 00:09:01,600 Speaker 3: Do you think they'll guide much beyond that? 193 00:09:03,400 --> 00:09:05,560 Speaker 7: Well, they'll be guide in because they're going to publish 194 00:09:05,559 --> 00:09:08,200 Speaker 7: the Summary of Economic Projections, which shows their interest rate 195 00:09:08,240 --> 00:09:10,280 Speaker 7: outlook for the rest of the year and into twenty 196 00:09:10,320 --> 00:09:13,120 Speaker 7: twenty six and twenty twenty seven. And I think the 197 00:09:13,120 --> 00:09:15,160 Speaker 7: big debate there is do they show one more cut 198 00:09:15,200 --> 00:09:17,880 Speaker 7: after September or do they shoot show two more cuts? 199 00:09:18,080 --> 00:09:19,480 Speaker 7: And I think it's going to be a very close 200 00:09:19,520 --> 00:09:20,920 Speaker 7: call between those two outcomes. 201 00:09:21,000 --> 00:09:22,679 Speaker 2: Yeah, Bill, I think we should build on that that's 202 00:09:22,679 --> 00:09:25,880 Speaker 2: the interesting piece of information for me. At the last meeting, 203 00:09:25,920 --> 00:09:28,280 Speaker 2: the last round of forecasts, if you will, they were 204 00:09:28,280 --> 00:09:31,720 Speaker 2: forecasting two cuts and they had unemployment year end at 205 00:09:31,720 --> 00:09:33,839 Speaker 2: about four point five percent, and Bill, we could have 206 00:09:33,920 --> 00:09:37,360 Speaker 2: this really strange situation where people are basically looking for 207 00:09:37,400 --> 00:09:39,880 Speaker 2: the unemployment rate to stay study in the forecast, but 208 00:09:39,960 --> 00:09:43,560 Speaker 2: all the dots to come down. Just what's happening there? 209 00:09:43,679 --> 00:09:46,080 Speaker 2: What is actually driving the outlook for rate cuts. If 210 00:09:46,080 --> 00:09:47,360 Speaker 2: it's not unemployment, what is it. 211 00:09:48,720 --> 00:09:51,280 Speaker 7: I think you're right that the forecast is evolving pretty 212 00:09:51,280 --> 00:09:54,120 Speaker 7: close to what they had last summer of our economic 213 00:09:54,200 --> 00:09:57,360 Speaker 7: projections in June. So if they're on the same forecast track, 214 00:09:57,400 --> 00:10:00,839 Speaker 7: where would they pencil in more recuts? Thing that's changed 215 00:10:00,920 --> 00:10:03,679 Speaker 7: is the just this weakness of the labor market in 216 00:10:03,720 --> 00:10:06,520 Speaker 7: the sense of perial employment growth. So I've been thirty 217 00:10:06,559 --> 00:10:08,720 Speaker 7: thousand a month over the last three months, and you 218 00:10:08,800 --> 00:10:10,800 Speaker 7: see a lot of indicators that the labor market is 219 00:10:10,800 --> 00:10:13,760 Speaker 7: continuing to soften. So I think it's more the softness 220 00:10:13,760 --> 00:10:16,200 Speaker 7: of a lot of the labor market indicators that are 221 00:10:16,240 --> 00:10:20,080 Speaker 7: getting them concerned that the libor market could continue to deteriorate. 222 00:10:20,120 --> 00:10:22,640 Speaker 7: So I think they think that's the biggest risk right now, 223 00:10:22,920 --> 00:10:25,000 Speaker 7: and so that's what's causing them to have a little 224 00:10:25,000 --> 00:10:26,400 Speaker 7: bit greater urgency bill. 225 00:10:26,520 --> 00:10:27,719 Speaker 8: Doesn't the market agree with them? 226 00:10:27,840 --> 00:10:29,880 Speaker 6: Isn't that the takeaway from the rally that we've seen 227 00:10:29,920 --> 00:10:31,040 Speaker 6: in the long end of the yield curve? 228 00:10:32,280 --> 00:10:32,480 Speaker 4: Yeah? 229 00:10:32,520 --> 00:10:35,600 Speaker 7: Absolutely, I mean market is an agreement that rates are 230 00:10:35,640 --> 00:10:37,760 Speaker 7: coming down not just this year, but in twenty twenty 231 00:10:37,760 --> 00:10:39,640 Speaker 7: six and twenty twenty seven. In fact, the market you 232 00:10:39,640 --> 00:10:42,120 Speaker 7: look at the federal funds futures market, it's has rates 233 00:10:42,160 --> 00:10:43,920 Speaker 7: coming all the way down to about three percent on 234 00:10:43,960 --> 00:10:47,760 Speaker 7: the federal funds rate the end of end of next year. 235 00:10:48,120 --> 00:10:50,600 Speaker 7: So there's a lot of rate cuts priced in. I think, 236 00:10:50,920 --> 00:10:53,160 Speaker 7: you know, personally, I think it's not quite so clear 237 00:10:53,200 --> 00:10:55,280 Speaker 7: that they're going to go that far over the medium 238 00:10:55,280 --> 00:10:58,800 Speaker 7: to longer term, because the financial conditions are already very 239 00:10:58,880 --> 00:11:02,319 Speaker 7: very accommodative and the economy is not falling out of bed. 240 00:11:02,679 --> 00:11:05,000 Speaker 7: I also think we haven't seen the full effects of 241 00:11:05,080 --> 00:11:07,240 Speaker 7: the tarifts in terms of prices yet, so I think 242 00:11:07,600 --> 00:11:09,960 Speaker 7: inflation is going to stay sticky over the next six 243 00:11:10,040 --> 00:11:10,720 Speaker 7: to twelve months. 244 00:11:10,800 --> 00:11:12,320 Speaker 1: So I want to dig a little bit deeper into 245 00:11:12,320 --> 00:11:13,080 Speaker 1: what you just said. 246 00:11:13,120 --> 00:11:15,080 Speaker 6: The idea that the long end of the yield curve 247 00:11:15,160 --> 00:11:18,559 Speaker 6: is pricing in steeper cuts. You could make the argument 248 00:11:18,840 --> 00:11:21,040 Speaker 6: that if the economy isn't falling out of bed, that 249 00:11:21,160 --> 00:11:24,800 Speaker 6: any steeper cuts would cause a reacceleration and inflation and 250 00:11:24,840 --> 00:11:26,320 Speaker 6: potentially some. 251 00:11:26,240 --> 00:11:27,360 Speaker 1: Deterioration and the dollar. 252 00:11:27,440 --> 00:11:29,400 Speaker 3: That could cause kind. 253 00:11:29,200 --> 00:11:31,320 Speaker 6: Of the opposite in a long end in terms of 254 00:11:31,360 --> 00:11:35,040 Speaker 6: a selloff and a yield curve steepening. What's your understanding 255 00:11:35,200 --> 00:11:37,560 Speaker 6: of why the market doesn't seem concerned about that? 256 00:11:39,360 --> 00:11:41,480 Speaker 7: Well, I think they think that the reasons for cutting 257 00:11:41,520 --> 00:11:45,160 Speaker 7: now are actually quite compelling, given that the inflation path 258 00:11:45,240 --> 00:11:48,160 Speaker 7: through from terrace has been smaller than expected and the 259 00:11:48,240 --> 00:11:50,240 Speaker 7: weakness in the labor market has been at least as 260 00:11:50,960 --> 00:11:51,880 Speaker 7: large as expected. 261 00:11:51,920 --> 00:11:54,480 Speaker 4: So I think the market is shares the view of J. 262 00:11:54,640 --> 00:11:57,840 Speaker 7: Powell that the downside risk to the labor market outweigh 263 00:11:57,840 --> 00:12:01,959 Speaker 7: the upside risk to the inflation, so therefore redcuts are warranted. 264 00:12:02,640 --> 00:12:04,679 Speaker 7: But I think the question is how far are they 265 00:12:04,679 --> 00:12:06,400 Speaker 7: going to go over the medium to longer term. That's 266 00:12:06,400 --> 00:12:08,199 Speaker 7: where the markets I think, maybe a little bit ahead 267 00:12:08,200 --> 00:12:11,079 Speaker 7: of themselves now. Some of this it's hard to factor 268 00:12:11,120 --> 00:12:13,520 Speaker 7: in how much is the pressure of the Trump administration 269 00:12:13,600 --> 00:12:16,800 Speaker 7: on the Fed, and some risks that the Trump administration 270 00:12:16,960 --> 00:12:19,480 Speaker 7: could compromise the independence of the FED. Now, obviously, if 271 00:12:19,720 --> 00:12:23,000 Speaker 7: the Trump administration is successful in doing that, that's gonna 272 00:12:23,000 --> 00:12:24,959 Speaker 7: be lower rates, but it's also going to be higher inflation. 273 00:12:25,280 --> 00:12:27,000 Speaker 2: Well, just to talk about what we might get from 274 00:12:27,000 --> 00:12:29,840 Speaker 2: the news conference as well with Sham and Pal, how 275 00:12:29,880 --> 00:12:32,079 Speaker 2: difficult is it going to be for him to establish 276 00:12:32,160 --> 00:12:35,000 Speaker 2: a consensus at this meeting. If you go back to 277 00:12:35,040 --> 00:12:37,480 Speaker 2: the last dot plot, and things may have changed, but 278 00:12:37,559 --> 00:12:39,800 Speaker 2: in the last dot plot, there were a big group 279 00:12:39,840 --> 00:12:43,240 Speaker 2: of individuals that saw no cuts in twenty twenty five, 280 00:12:43,240 --> 00:12:45,160 Speaker 2: And I'm just wondering how much has changed, not just 281 00:12:45,200 --> 00:12:47,320 Speaker 2: for Sham and Pal. He's indicated a lot has changed 282 00:12:47,360 --> 00:12:49,280 Speaker 2: based on the last few times we've heard from him, 283 00:12:49,440 --> 00:12:50,920 Speaker 2: but for other members of the committee. 284 00:12:52,080 --> 00:12:53,600 Speaker 7: I think most people are going to go along with 285 00:12:53,600 --> 00:12:58,160 Speaker 7: what Chirpowell wants because they're not in disagreement about direction 286 00:12:58,280 --> 00:13:00,440 Speaker 7: of rates. They're just to maybe be we have a 287 00:13:00,480 --> 00:13:03,880 Speaker 7: small disagreement about timing. Should we start in September? Shall 288 00:13:03,880 --> 00:13:06,160 Speaker 7: we wait a little bit longer. So the fact that 289 00:13:06,160 --> 00:13:08,360 Speaker 7: they are all in agreement that rates are going to 290 00:13:08,400 --> 00:13:10,000 Speaker 7: be coming down, I think they're going to give the 291 00:13:10,040 --> 00:13:10,920 Speaker 7: chairman what he wants it. 292 00:13:10,960 --> 00:13:11,600 Speaker 4: This means, so I'm. 293 00:13:11,520 --> 00:13:14,960 Speaker 7: Actually expecting very few descents on the side of no 294 00:13:15,120 --> 00:13:18,839 Speaker 7: rate cuts, maybe zero or one the other side of 295 00:13:18,880 --> 00:13:21,640 Speaker 7: the equations that are going to get fifty people supporting 296 00:13:21,679 --> 00:13:24,080 Speaker 7: a fifty bas appoint raycut. I think one person I'm 297 00:13:24,120 --> 00:13:27,560 Speaker 7: expecting there and perhaps is Steve Moran if he gets 298 00:13:27,640 --> 00:13:31,440 Speaker 7: confirmed and is sitting on the FLUC on Wednesday afternoon. 299 00:13:31,640 --> 00:13:33,719 Speaker 6: Bill, do you think that it's healthy to have a 300 00:13:33,840 --> 00:13:38,040 Speaker 6: character like Stephen Marian Meran on the Federal Reserve on 301 00:13:38,080 --> 00:13:40,800 Speaker 6: the Board of Governors to really foster a robust debate 302 00:13:41,320 --> 00:13:44,120 Speaker 6: about not just whether to cut twenty five or fifty 303 00:13:44,160 --> 00:13:47,120 Speaker 6: basis points, but the overarching framework that the FED is 304 00:13:47,200 --> 00:13:47,719 Speaker 6: operating in. 305 00:13:49,080 --> 00:13:50,920 Speaker 7: I think it's good to have a diversity of views 306 00:13:51,000 --> 00:13:54,679 Speaker 7: on the Federal Reserves to debate a lot of the framework. 307 00:13:55,200 --> 00:13:57,079 Speaker 7: I think the FED could do quite a bit more 308 00:13:57,120 --> 00:13:59,599 Speaker 7: in terms of developing a framework for quantitative easing and 309 00:13:59,679 --> 00:14:02,560 Speaker 7: quantity tight and I've written about that over the last 310 00:14:02,800 --> 00:14:05,240 Speaker 7: few months, so I think there are things for the 311 00:14:05,320 --> 00:14:08,079 Speaker 7: FED to do. I think it's a little odd as 312 00:14:08,160 --> 00:14:11,319 Speaker 7: someone that's essentially on loan from the administration for four 313 00:14:11,400 --> 00:14:16,000 Speaker 7: months to vote at two or three meetings. So and 314 00:14:16,120 --> 00:14:17,600 Speaker 7: I don't think that you know, Steve rant is going 315 00:14:17,679 --> 00:14:21,240 Speaker 7: to get a lot of difference at the meeting this 316 00:14:21,600 --> 00:14:22,080 Speaker 7: coming week. 317 00:14:22,520 --> 00:14:24,680 Speaker 2: For people who aren't familiar with the meeting, a meeting 318 00:14:24,720 --> 00:14:27,160 Speaker 2: that you've been a part of many many times, can 319 00:14:27,240 --> 00:14:29,360 Speaker 2: you describe to them what that kind of room will 320 00:14:29,400 --> 00:14:33,240 Speaker 2: look like, that situation, how the meeting actually progresses, who 321 00:14:33,360 --> 00:14:37,280 Speaker 2: runs things, and what kind of opportunity Steven Mann would 322 00:14:37,280 --> 00:14:39,760 Speaker 2: have as he sits around that table to make his points. 323 00:14:41,200 --> 00:14:45,040 Speaker 7: So the meetings typically are obviously chaired by the chairman, 324 00:14:45,200 --> 00:14:49,280 Speaker 7: and there's a typically a discussion about the economy. Everybody 325 00:14:49,320 --> 00:14:51,120 Speaker 7: goes around and gives their views out of the economy, 326 00:14:51,120 --> 00:14:53,800 Speaker 7: and then there's a discussion about monetary policy. Everybody goes 327 00:14:53,840 --> 00:14:56,280 Speaker 7: around the room and talks about their views on monetary policy. 328 00:14:56,720 --> 00:14:58,640 Speaker 7: So Steve Rann will have a chance to speak on 329 00:14:58,760 --> 00:15:00,480 Speaker 7: both of those, but he's going to be only one 330 00:15:00,520 --> 00:15:03,400 Speaker 7: of nineteen people speaking. So you know, the idea that 331 00:15:03,480 --> 00:15:05,240 Speaker 7: he would go there and dominate the media, I don't 332 00:15:05,240 --> 00:15:07,400 Speaker 7: think he's I think his influence is gonna be quite small. 333 00:15:07,560 --> 00:15:08,720 Speaker 3: But will you take it in turns? 334 00:15:08,760 --> 00:15:10,520 Speaker 2: Are there any kind of debates at all or do 335 00:15:10,560 --> 00:15:13,000 Speaker 2: you just go around one by one by one around 336 00:15:13,040 --> 00:15:14,040 Speaker 2: nineteen individuals. 337 00:15:14,920 --> 00:15:17,280 Speaker 7: Now, there's there can be some back and forth. You know, 338 00:15:17,480 --> 00:15:20,280 Speaker 7: people do respond to what other people said say. But 339 00:15:20,400 --> 00:15:23,000 Speaker 7: I mean, remember, everybody's looking at the same set of information, 340 00:15:23,240 --> 00:15:28,080 Speaker 7: So the disagreements tend to be small, you know, more 341 00:15:28,120 --> 00:15:30,240 Speaker 7: at the margin rather than large, because everybody's looking at 342 00:15:30,240 --> 00:15:32,400 Speaker 7: the same set of information and hearing the same staff 343 00:15:32,480 --> 00:15:36,320 Speaker 7: for work ask evaluating the same economic information. 344 00:15:37,560 --> 00:15:40,920 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 345 00:15:50,080 --> 00:15:52,640 Speaker 2: Abaga one if ups rights in the following here's the quote. 346 00:15:52,680 --> 00:15:55,600 Speaker 2: We expect the FMC wants to signal a series of 347 00:15:55,720 --> 00:15:58,400 Speaker 2: rate cuts. We expect a total of one hundred basis 348 00:15:58,440 --> 00:16:01,400 Speaker 2: points of rate cuts this year. Abigail joined us now 349 00:16:01,440 --> 00:16:03,720 Speaker 2: for more Abigail, good morning, this year as in the 350 00:16:03,760 --> 00:16:06,560 Speaker 2: rest of twenty twenty five. Yes, okay, quick math some 351 00:16:06,680 --> 00:16:08,600 Speaker 2: a simple point. The three meets, So it's one hundred 352 00:16:08,600 --> 00:16:10,080 Speaker 2: basis points. You expect a fifty. 353 00:16:10,520 --> 00:16:13,880 Speaker 9: Yeah, So we've been expecting the Fed would deliver one 354 00:16:13,920 --> 00:16:16,360 Speaker 9: hundred basis points of using this year since April. So 355 00:16:16,480 --> 00:16:19,360 Speaker 9: we had after the Liberation Day tariff announcements, we felt 356 00:16:19,480 --> 00:16:22,560 Speaker 9: that you know, we would see it come to the 357 00:16:22,640 --> 00:16:24,240 Speaker 9: four that the Fed would have to make this decision 358 00:16:24,320 --> 00:16:27,440 Speaker 9: essentially between kind of the potential for an uplift and 359 00:16:27,480 --> 00:16:29,920 Speaker 9: inflation versus the weakness in the labor market. We thought 360 00:16:29,920 --> 00:16:33,040 Speaker 9: that would become most acute at this September meeting. And 361 00:16:33,120 --> 00:16:35,880 Speaker 9: you know, we continue to expect that we'll see the 362 00:16:36,120 --> 00:16:40,040 Speaker 9: twenty five basis point cut delivered this week. Our expectations 363 00:16:40,080 --> 00:16:41,880 Speaker 9: for the fifty you know, we do have that penciled 364 00:16:41,920 --> 00:16:44,560 Speaker 9: in for December. I think our senses that we continue 365 00:16:44,560 --> 00:16:47,120 Speaker 9: to see this weakness in the economy persisting, and it's 366 00:16:47,160 --> 00:16:49,600 Speaker 9: something that you know, could actually accelerate as we go 367 00:16:49,720 --> 00:16:51,880 Speaker 9: into the kind of fourth quarter of the year. I 368 00:16:51,920 --> 00:16:53,560 Speaker 9: think one of the key things you know it obviously 369 00:16:53,640 --> 00:16:56,200 Speaker 9: retail sales, right. I think for us, one of the 370 00:16:56,280 --> 00:16:58,240 Speaker 9: things that I would know is, you know, you've seen 371 00:16:58,280 --> 00:17:00,880 Speaker 9: a relatively weak consumer this year, it right, You've seen 372 00:17:00,920 --> 00:17:03,440 Speaker 9: the consumer running below trend so far this year. 373 00:17:03,520 --> 00:17:05,200 Speaker 1: You saw July popping a little bit higher. 374 00:17:05,280 --> 00:17:07,119 Speaker 9: So I do think that August print is going to 375 00:17:07,119 --> 00:17:09,480 Speaker 9: be an important one just in terms of getting a 376 00:17:09,560 --> 00:17:11,080 Speaker 9: sense of how this consumer is vary. 377 00:17:11,400 --> 00:17:13,440 Speaker 6: So is twenty twenty five going to be a mirror 378 00:17:13,520 --> 00:17:16,199 Speaker 6: image of twenty twenty four when it comes to one 379 00:17:16,240 --> 00:17:19,880 Speaker 6: hundred basis points of rate cuts into data that only 380 00:17:19,960 --> 00:17:21,399 Speaker 6: gets better economically. 381 00:17:22,400 --> 00:17:25,040 Speaker 9: Yeah, So I think it's interesting because you know, we 382 00:17:25,160 --> 00:17:27,200 Speaker 9: are expecting to see kind of more weakness in the 383 00:17:27,280 --> 00:17:30,119 Speaker 9: labor market side. Right if we remember the kind of 384 00:17:30,240 --> 00:17:33,159 Speaker 9: layoff program from the federal government side, you've got a 385 00:17:33,240 --> 00:17:36,439 Speaker 9: slug of around seventy seventy five thousand workers that are 386 00:17:36,480 --> 00:17:38,280 Speaker 9: expected to come off the payroll at the end of 387 00:17:38,320 --> 00:17:38,960 Speaker 9: the fiscal year. 388 00:17:39,040 --> 00:17:41,879 Speaker 1: So that's going to dent your average right through the 389 00:17:42,000 --> 00:17:42,480 Speaker 1: end of the year. 390 00:17:42,560 --> 00:17:44,439 Speaker 9: So I do think there are signs that you'll continue 391 00:17:44,440 --> 00:17:47,280 Speaker 9: to see that weakness in the labor market data. I 392 00:17:47,320 --> 00:17:49,120 Speaker 9: think the key thing to note here is you've seen 393 00:17:49,119 --> 00:17:51,119 Speaker 9: that weakness in the consumer but you've not seen the 394 00:17:51,200 --> 00:17:52,280 Speaker 9: impact of tariffs yet. 395 00:17:52,400 --> 00:17:53,000 Speaker 1: Right, We're just. 396 00:17:53,080 --> 00:17:55,360 Speaker 9: Starting to see some of those price increases coming through 397 00:17:55,440 --> 00:17:59,560 Speaker 9: for consumers. We saw reports obviously from Walmart recently around 398 00:17:59,600 --> 00:18:02,200 Speaker 9: potentially passing through some price increases in August. 399 00:18:02,400 --> 00:18:04,840 Speaker 1: So I think that's why we're watching very closely. 400 00:18:04,640 --> 00:18:06,800 Speaker 9: You know, what's happening in this retail sales data this week, 401 00:18:07,200 --> 00:18:10,000 Speaker 9: because you've not seen the kind of impact from the tariff. 402 00:18:10,040 --> 00:18:12,160 Speaker 9: Yet on the consumer, you've already seen a slow consumer. 403 00:18:12,280 --> 00:18:14,520 Speaker 9: So the question is kind of when that kind of 404 00:18:14,560 --> 00:18:15,720 Speaker 9: feeds through, it's kind. 405 00:18:15,640 --> 00:18:17,119 Speaker 1: Of weaker real disposable income. 406 00:18:17,160 --> 00:18:20,119 Speaker 9: As you start to see inflation reaccelerating, how does the 407 00:18:20,160 --> 00:18:21,040 Speaker 9: consumer then respond? 408 00:18:21,200 --> 00:18:22,960 Speaker 1: Could you see a job less reaccelerating? 409 00:18:23,240 --> 00:18:24,800 Speaker 6: And I ask this, given the fact that you've got 410 00:18:24,880 --> 00:18:28,439 Speaker 6: companies that are investing more in automating different things, creating 411 00:18:28,520 --> 00:18:32,040 Speaker 6: greater efficiencies, especially in the face of uncertainty with respect 412 00:18:32,119 --> 00:18:35,520 Speaker 6: to policy, could you see a pretty sluggish labor market 413 00:18:35,640 --> 00:18:39,160 Speaker 6: even as corporate profits expand, even as people continue to spend. 414 00:18:39,920 --> 00:18:40,120 Speaker 4: Yeah. 415 00:18:40,200 --> 00:18:42,320 Speaker 9: Look, I think our senses that we continue to see 416 00:18:42,400 --> 00:18:44,360 Speaker 9: the labor market weaken through the end of the year, 417 00:18:44,400 --> 00:18:45,879 Speaker 9: but then we think you will see a little bit 418 00:18:45,920 --> 00:18:48,120 Speaker 9: of a turning point and into twenty twenty six. 419 00:18:48,160 --> 00:18:49,800 Speaker 1: I think there's a number of things to look to in. 420 00:18:49,880 --> 00:18:53,080 Speaker 9: Terms of the potential for kind of a more positive 421 00:18:53,160 --> 00:18:56,320 Speaker 9: growth outlook through twenty twenty six. I just think that 422 00:18:56,600 --> 00:18:59,879 Speaker 9: the kind of bite of the kind of tariff policies 423 00:19:00,080 --> 00:19:02,480 Speaker 9: with the inflation pass through, will be fouled through the 424 00:19:02,800 --> 00:19:04,520 Speaker 9: kind of fourth quarter and into the end of the year. 425 00:19:04,880 --> 00:19:07,160 Speaker 9: Our expectation then is, you know, potentially start to see 426 00:19:07,240 --> 00:19:09,560 Speaker 9: some of the kind of fiscal impulse from the One 427 00:19:09,600 --> 00:19:11,960 Speaker 9: Big Beautiful Bill Act kind of coming through. We should 428 00:19:12,080 --> 00:19:14,600 Speaker 9: see that, you know in the April tax refund season. 429 00:19:14,640 --> 00:19:16,240 Speaker 9: You know, that's something we're watching out for, just to 430 00:19:16,280 --> 00:19:18,840 Speaker 9: see how that feeds into consumer balance sheets, see how 431 00:19:19,000 --> 00:19:21,720 Speaker 9: that helps consumers potentially whether some of the price increases 432 00:19:21,720 --> 00:19:22,800 Speaker 9: we expect to kind of come through. 433 00:19:22,920 --> 00:19:24,359 Speaker 2: I have to say, I think that final point is 434 00:19:24,400 --> 00:19:27,240 Speaker 2: still really underappreciated because for a lot of people, they 435 00:19:27,359 --> 00:19:29,720 Speaker 2: view the Tanks Bill as an extension of current policy. 436 00:19:30,240 --> 00:19:31,879 Speaker 3: Can you just sort of build that out for us? 437 00:19:32,080 --> 00:19:34,480 Speaker 3: Why is that still so important? What kind of refunds 438 00:19:34,520 --> 00:19:35,520 Speaker 3: out be expecting and why? 439 00:19:36,160 --> 00:19:36,320 Speaker 1: Yeah. 440 00:19:36,400 --> 00:19:38,440 Speaker 9: So, I think there's a number of kind of consumer 441 00:19:38,520 --> 00:19:41,840 Speaker 9: policies around kind of child tax credits, you know, some 442 00:19:41,960 --> 00:19:46,000 Speaker 9: of the focus from the campaign around tip income deduction, 443 00:19:46,280 --> 00:19:50,480 Speaker 9: standard standard deductions for seniors being boosted. I think there's 444 00:19:50,480 --> 00:19:52,440 Speaker 9: a number of different elements where you could see that 445 00:19:52,520 --> 00:19:57,080 Speaker 9: potentially feeding through into a little bit stronger consumption through 446 00:19:57,119 --> 00:19:59,920 Speaker 9: that period. I think the question is how sustainable that is. 447 00:20:00,160 --> 00:20:02,800 Speaker 9: I think it would be kind of an impact through 448 00:20:02,920 --> 00:20:05,200 Speaker 9: the second quarter. Say, we have a little bit of 449 00:20:05,240 --> 00:20:07,040 Speaker 9: a bound higher in terms of the pace of consumption 450 00:20:07,160 --> 00:20:09,560 Speaker 9: in our forecast and the second quarter, but then it 451 00:20:09,640 --> 00:20:12,280 Speaker 9: doesn't necessarily mean that that will be sustained. I think 452 00:20:12,320 --> 00:20:14,200 Speaker 9: the other element that people are watching is obviously what's 453 00:20:14,240 --> 00:20:16,800 Speaker 9: happening in terms of the investment side. When we look 454 00:20:16,840 --> 00:20:19,159 Speaker 9: at the investment dynamics in the US just now, you know, 455 00:20:19,200 --> 00:20:22,320 Speaker 9: we are seeing kind of a very concentrated increase in 456 00:20:22,400 --> 00:20:25,520 Speaker 9: investment in kind of AI related goods, and not necessarily 457 00:20:25,560 --> 00:20:26,440 Speaker 9: a broad based. 458 00:20:26,280 --> 00:20:27,200 Speaker 1: Increase in investment. 459 00:20:27,600 --> 00:20:30,080 Speaker 9: So I think the question is whether some of the extension, 460 00:20:30,200 --> 00:20:32,600 Speaker 9: as you say, of some of the expensing provisions, does 461 00:20:32,640 --> 00:20:36,200 Speaker 9: that then feed into stronger investment next year potentially, You know, 462 00:20:36,280 --> 00:20:38,359 Speaker 9: we're a little bit hesitant just given the extent of 463 00:20:38,359 --> 00:20:41,159 Speaker 9: the response you saw in twenty seventeen, but you know, 464 00:20:41,240 --> 00:20:43,720 Speaker 9: that's another potential kind of boost that you could see. 465 00:20:44,359 --> 00:20:46,760 Speaker 9: But overall, you know, we still expect a relatively muted 466 00:20:47,240 --> 00:20:48,160 Speaker 9: pace of growth next year. 467 00:20:48,160 --> 00:20:49,639 Speaker 1: You know, we're still below trend. We've got a one 468 00:20:49,680 --> 00:20:51,640 Speaker 1: point six percent rate of growth next year. 469 00:20:52,280 --> 00:20:52,840 Speaker 3: Stay with us. 470 00:20:53,240 --> 00:21:05,440 Speaker 2: More Bloomberg surveillance coming up after this. Looking ahead to 471 00:21:05,480 --> 00:21:07,239 Speaker 2: the rest of this week, Great Peters, a PGM has 472 00:21:07,280 --> 00:21:09,919 Speaker 2: this to say, us macro base case is a muddle 473 00:21:10,000 --> 00:21:13,000 Speaker 2: through well downside tails remain, There is a chance of 474 00:21:13,040 --> 00:21:16,760 Speaker 2: a mild recession. We see limited crash risk. Great joins 475 00:21:16,800 --> 00:21:18,800 Speaker 2: us now for more, Greg, welcome back. I'd love an 476 00:21:18,880 --> 00:21:21,120 Speaker 2: update on where you are now because the last time 477 00:21:21,160 --> 00:21:23,080 Speaker 2: we spoke you talked about the risk of a repeat 478 00:21:23,200 --> 00:21:24,760 Speaker 2: of last year the FED was going to come and 479 00:21:24,840 --> 00:21:27,520 Speaker 2: maybe the long end sold off. We to see some 480 00:21:27,600 --> 00:21:30,000 Speaker 2: stability returned to the long end of the curve. Greg, 481 00:21:30,200 --> 00:21:31,280 Speaker 2: Do you take some comfort from that? 482 00:21:32,760 --> 00:21:34,840 Speaker 8: Yeah, there's definitely been a reversal. 483 00:21:35,160 --> 00:21:39,280 Speaker 10: The steady, unrelenting kind of steep nur trade kind of 484 00:21:39,320 --> 00:21:43,440 Speaker 10: reverse itself for the past week or so. But I'm 485 00:21:43,480 --> 00:21:46,000 Speaker 10: not convinced that that is kind of how it's going 486 00:21:46,080 --> 00:21:48,120 Speaker 10: to continue to play out. You know, I still think 487 00:21:48,160 --> 00:21:50,920 Speaker 10: the risk in the system is for steeper curves, not 488 00:21:51,080 --> 00:21:54,160 Speaker 10: flatter curves. You know, you look at kind of where 489 00:21:54,240 --> 00:21:57,840 Speaker 10: we are economically. You have you know, just talked about, 490 00:21:57,960 --> 00:22:00,200 Speaker 10: you know, the fiscal lift that I think you'll see. 491 00:22:00,280 --> 00:22:03,280 Speaker 10: You'll see more monetary stimulus. You're seeing the effects of 492 00:22:03,400 --> 00:22:06,080 Speaker 10: tariffs come through. You see a lot of you know, 493 00:22:06,200 --> 00:22:09,000 Speaker 10: kind of the breaking down at institutional norms. You know, 494 00:22:09,119 --> 00:22:11,920 Speaker 10: all these types of factors I think will lead to 495 00:22:12,119 --> 00:22:14,720 Speaker 10: more pressure on the back end. At the same time, 496 00:22:14,840 --> 00:22:19,160 Speaker 10: though everything will get pulled down. The question is how 497 00:22:19,200 --> 00:22:21,159 Speaker 10: will the back end kind of get pulled down with 498 00:22:21,240 --> 00:22:23,840 Speaker 10: it will be one to one or kind of one 499 00:22:23,920 --> 00:22:25,240 Speaker 10: to a half that sort of ratio. 500 00:22:25,600 --> 00:22:27,560 Speaker 6: I just don't know, you know, this is something that 501 00:22:27,600 --> 00:22:29,720 Speaker 6: we've been talking about here. How much is it just 502 00:22:29,800 --> 00:22:32,160 Speaker 6: crowded positioning getting stopped out in terms of the yield 503 00:22:32,200 --> 00:22:35,000 Speaker 6: curve flattening. I'm just wondering about the reaction function to 504 00:22:35,040 --> 00:22:38,680 Speaker 6: Wednesday's announcement. If there is a real Dubvish bias to 505 00:22:38,840 --> 00:22:41,920 Speaker 6: what the Fed does, do you see that curve steepening 506 00:22:42,000 --> 00:22:44,840 Speaker 6: reinstating itself or do you think that right now the 507 00:22:44,920 --> 00:22:46,680 Speaker 6: market's just in a different frame of thought. 508 00:22:48,600 --> 00:22:51,320 Speaker 10: You know, I think the answer is both, Lisa. So 509 00:22:51,520 --> 00:22:53,760 Speaker 10: I do think there's an expectation that the Fed will 510 00:22:53,880 --> 00:22:56,160 Speaker 10: just do twenty five. But you know, I don't think 511 00:22:56,200 --> 00:22:59,600 Speaker 10: anyone will be completely shocked by, you know, a more 512 00:23:00,119 --> 00:23:03,840 Speaker 10: Aduvish bias here. That's where the markets are leaning, so 513 00:23:03,960 --> 00:23:06,640 Speaker 10: that should largely be in the price. But I think 514 00:23:06,680 --> 00:23:10,800 Speaker 10: It's important to note that the inflationary effects haven't really come. 515 00:23:10,760 --> 00:23:13,960 Speaker 8: Through yet, you know, from a tower standpoint. 516 00:23:14,359 --> 00:23:18,760 Speaker 10: And then if in fact this administration and this FED 517 00:23:18,920 --> 00:23:21,640 Speaker 10: is trying to kind of goose housing, then. 518 00:23:21,640 --> 00:23:25,120 Speaker 8: That's the area that has actually pulled down inflation. 519 00:23:25,440 --> 00:23:25,560 Speaker 4: Right. 520 00:23:25,640 --> 00:23:28,879 Speaker 10: It's been a disinflationary environment on the housing front. So 521 00:23:29,520 --> 00:23:34,960 Speaker 10: if you kind of do programs and policies to reignite housing, 522 00:23:35,119 --> 00:23:37,560 Speaker 10: that that should all seq will put pressure on the 523 00:23:37,600 --> 00:23:38,000 Speaker 10: back end. 524 00:23:37,960 --> 00:23:39,959 Speaker 8: Of the curve. So what do you like right now? 525 00:23:40,040 --> 00:23:41,960 Speaker 6: Are you just going into high old bonds and cash. 526 00:23:43,560 --> 00:23:45,480 Speaker 10: Well, you know, we like what we continued to like 527 00:23:45,560 --> 00:23:48,159 Speaker 10: all along, and that's kind of the safe carry trade. 528 00:23:48,240 --> 00:23:51,800 Speaker 10: So I think economically the environment's in pretty decent shape. 529 00:23:52,119 --> 00:23:54,639 Speaker 10: There is this risk that you can actually overheat and 530 00:23:54,720 --> 00:23:57,040 Speaker 10: hear just given all the policies we've just talked about. 531 00:23:57,520 --> 00:24:00,600 Speaker 8: But for me as a credit investor, I just don't 532 00:24:00,640 --> 00:24:03,200 Speaker 8: see a lot of value right. Credit spreads are pretty tight. 533 00:24:03,320 --> 00:24:05,840 Speaker 10: So the bet that you're making to be really long 534 00:24:05,920 --> 00:24:09,000 Speaker 10: credit in a beta way is that you have to 535 00:24:09,119 --> 00:24:12,040 Speaker 10: go through all time types, which is a heroic bet 536 00:24:12,440 --> 00:24:14,840 Speaker 10: in my mind. So it's about safe carry kind of 537 00:24:14,960 --> 00:24:18,520 Speaker 10: front to you know, intermediate part of the curve, and 538 00:24:19,040 --> 00:24:22,120 Speaker 10: I still think the back end of curves are quite susceptible. 539 00:24:22,160 --> 00:24:22,280 Speaker 4: Here. 540 00:24:22,560 --> 00:24:24,560 Speaker 2: Great, before you go, I'd love your response to this. 541 00:24:24,680 --> 00:24:26,760 Speaker 2: It just came in from No downta of run Mac 542 00:24:26,840 --> 00:24:28,520 Speaker 2: just send me a message and said, the market is 543 00:24:28,560 --> 00:24:31,080 Speaker 2: the Fed going to neutral two years before the Fed 544 00:24:31,160 --> 00:24:34,240 Speaker 2: has it? They can't meet those expectations. Greg, would you 545 00:24:34,280 --> 00:24:36,040 Speaker 2: agree with that? It's not the risk into Wednesday? 546 00:24:37,400 --> 00:24:40,000 Speaker 10: Yeah, but I think that's kind of a persistent risk, right. 547 00:24:40,119 --> 00:24:44,640 Speaker 10: Markets always are ahead where central bankers, you know, tend 548 00:24:44,680 --> 00:24:44,840 Speaker 10: to be. 549 00:24:45,000 --> 00:24:47,040 Speaker 8: So I don't think that's a complete shock. 550 00:24:47,480 --> 00:24:49,400 Speaker 10: You know, you look at one year forward, you kind 551 00:24:49,440 --> 00:24:52,120 Speaker 10: of have a three percent, which is you know, quite 552 00:24:52,200 --> 00:24:54,600 Speaker 10: in the neutral range, if you know, even maybe a 553 00:24:54,640 --> 00:24:56,800 Speaker 10: little lower than neutral. 554 00:24:56,880 --> 00:24:59,960 Speaker 8: So I think gift to neutral. See how the economy responds. 555 00:25:00,680 --> 00:25:03,080 Speaker 10: The markets have a tendency of getting ahead of itself 556 00:25:04,000 --> 00:25:05,360 Speaker 10: our usual well, and I don't. 557 00:25:05,200 --> 00:25:07,680 Speaker 8: Think this is any different this SUMMERUD. 558 00:25:08,400 --> 00:25:11,920 Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best 559 00:25:11,960 --> 00:25:15,280 Speaker 2: in markets, economics, angient politics. You can watch the show 560 00:25:15,359 --> 00:25:18,240 Speaker 2: live on Bloomberg TV weekday mornings from six am to 561 00:25:18,440 --> 00:25:22,160 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 562 00:25:22,320 --> 00:25:24,560 Speaker 2: or anywhere else you listen, and as always, on the 563 00:25:24,560 --> 00:25:26,960 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.