Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's bring in Claudia Slam. She's a New Century Advisor's
Speaker 2: chief economists, former Federal Reserve economist as well, and a
Speaker 2: good friend of a Bloomberg. Claudia. Let's think about twenty
Speaker 2: twenty five. I mean, I've got an economy that I
Speaker 2: think is you know, kind of puts it along pretty
Speaker 2: darn well. I got inflation, then well, I'd like it
Speaker 2: to be a little bit lower. The Fed would like
Speaker 2: it to be a little bit lower. It's reasonable the
Speaker 2: labor market, people who want a job generally have a job.
Speaker 2: They're getting some wage increases. What are you telling your
Speaker 2: clients about twenty twenty five in this economy?
Speaker 3: Don't be complacent.
Speaker 1: I mean these, as you said, if we could keep
Speaker 1: it as it is right now, largely, this would be
Speaker 1: another great year.
Speaker 3: Ahead of us.
Speaker 1: You know, we've been surprised at how well the past
Speaker 1: two years have gone, particularly when you think about growth
Speaker 1: and how the.
Speaker 3: Consumers have held up that. But that doesn't have to
Speaker 3: keep going.
Speaker 1: So what we really want people to focus on are
Speaker 1: what like the blind spots right?
Speaker 3: What could go wrong? Where who who isn't getting enough attention.
Speaker 1: And I think one area, you know, if I had
Speaker 1: to maybe point some FED officials to a blind spot,
Speaker 1: I think they showed a lot of complacency in their
Speaker 1: last summary of economic projections on how well the labor
Speaker 1: market would continue to hold up.
Speaker 3: You know what we saw them.
Speaker 1: Kind of write down the typical official was something that
Speaker 1: basically has the unemployment rate sticking out where it is
Speaker 1: right now for the next three years. That's a pretty
Speaker 1: remarkable and frankly not would be very unusual path to
Speaker 1: the labor market. And that's and yet there was all
Speaker 1: kinds of concerns about inflation and the answer to round inflation.
Speaker 1: But I think I keep I'm still concerned that there
Speaker 1: are things in the labor market well good, don't quite
Speaker 1: look like sustainable, and that's where the problems can come in.
Speaker 3: And that's that's one.
Speaker 4: So if I ask which is a bigger risk, weakening
Speaker 4: labor market or a stubborn inflation, you're going with the
Speaker 4: former rather than the latter.
Speaker 1: Inflation's fine right now, I mean, we are really not
Speaker 1: that far from two percent, and we've seen a lot
Speaker 1: of encouraging signs under the hood that this we are
Speaker 1: getting to this last mile on inflation.
Speaker 4: But right now, before tariffs, that's before we deep work,
Speaker 4: before millions of workers, that's before Donald Trump comes into office.
Speaker 4: So things could change drastically after January twentieth.
Speaker 3: Absolutely, they could change drastically.
Speaker 1: And I think it's appropriate that we have had a
Speaker 1: very deep conversation about the policies that have been put
Speaker 1: on the table. There have been a lot of policies
Speaker 1: put on the table, and it's really important to have
Speaker 1: this conversation and talk about some of their potential pitfalls.
Speaker 3: And maybe we won't see all of them put into place,
Speaker 3: and that probably would be a good thing, uh, for
Speaker 3: the economy.
Speaker 1: And yet, you know, kind of taking for granted the
Speaker 1: good stuff that we've got going in the economy that's
Speaker 1: a little more nuts and bolts, like the labor market functioning,
Speaker 1: and just saying, oh, well, that'll just keep going. That's
Speaker 1: all fine, it's in a good place. I think that's
Speaker 1: a real that could be a real mistake in terms
Speaker 1: of because the labor market in particular is always and
Speaker 1: has been the past year, is such a lynchpin to
Speaker 1: this amazing period of a big disinflation. Growth has stayed strong,
Speaker 1: and unemployment has stayed relatively low, you know, and that's
Speaker 1: something we want to keep going. And I don't think
Speaker 1: that's to just be taken for granted.
Speaker 5: I think I'm very unpopular for asking this question repeatedly.
Speaker 5: I know, you've got to look at all the risks, right,
Speaker 5: and if you have to think about potentially inflationary policies
Speaker 5: and sticky areas of inflation next year, and worries about
Speaker 5: growth as well, especially if you have kind of a
Speaker 5: fiscal appetite to pull back, how big of an issue
Speaker 5: with stagflation or big of a worry is it.
Speaker 1: There are absolutely paths we could go down where we
Speaker 1: end up in a stag inflationary environment. We're good ways
Speaker 1: from that point, because again we're starting from a well
Speaker 1: above trend growth and U and inflation is relatively low.
Speaker 1: It's not to do percent, but it's relatively low. But
Speaker 1: there are absolutely paths we could go on that are
Speaker 1: uh could get us as stagflation. And the thing about
Speaker 1: stagflation is, you know, we talked about, oh, think about
Speaker 1: all the different risks and keep an eye out to
Speaker 1: the risk, and we do need to do that, but
Speaker 1: some risks come with.
Speaker 3: Bigger problems, right.
Speaker 1: Solving a stagflationary economic environment. Like policy solutions for that
Speaker 1: are a lot trickier because, say, for the FED example,
Speaker 1: they're fighting both inflation and trying to keep employment high, right,
Speaker 1: and their tools are going to be at odds with
Speaker 1: each other.
Speaker 3: So there's some like.
Speaker 1: Dark corners of the economic world that we want to
Speaker 1: stay away from, because if we get there, they're a
Speaker 1: big problems.
Speaker 3: So I think it's important to think about stagflation.
Speaker 1: I don't think that's one that's like highest probability, but
Speaker 1: if we get there, is probably one of the highest
Speaker 1: probability of being a big map.
Speaker 4: How does the consumer look to you, Claudia, Because as
Speaker 4: you pointed out at the top, the consumer held up
Speaker 4: much better than we had anticipated in twenty twenty four,
Speaker 4: and yet all the savings, I would guess are spent
Speaker 4: off the pandemic era savings. This is a consumer that
Speaker 4: at least the bottom you know four Quinn tiles, is
Speaker 4: not well prepared for retirement. The housing market is a
Speaker 4: tough one to get into if you aren't already, and
Speaker 4: I guess if you are, that's how you fund your retirement.
Speaker 4: But what does the consumer look like to you right now?
Speaker 2: In the US?
Speaker 1: So as a whole, the consumer is still in a
Speaker 1: good place. We certainly as time has gone on, we
Speaker 1: have seen more strains at lower income household That's why
Speaker 1: I keep coming back to the labor market as so
Speaker 1: essential because for most Americans that's where the money comes from,
Speaker 1: that they're going to be spending.
Speaker 3: So you need a vibrant labor market that has.
Speaker 1: Good strong wage growth as we have seen, and good
Speaker 1: job opportunities. So that is so important for the bulk
Speaker 1: of America's bulk of consumers. You know, we've also seen
Speaker 1: really positive trends with some probably middle class, upper middle class,
Speaker 1: wealthier consumers.
Speaker 3: Bolstered by you know, the stock market has been very good.
Speaker 1: We've had you know, we've had some trends that have
Speaker 1: continued to bolster the consumer and their demand. And you know,
Speaker 1: I mean I always say, don't bet against the American consumer,
Speaker 1: right Like, if they have if they have the music
Speaker 1: and spend, they're gonna they're going to spend.
Speaker 3: And that's what we have. That's what we have seen
Speaker 3: the past few years.
Speaker 2: Should I be concerned about this this weakness in the
Speaker 2: manufacturing sector, I know it's only and I just underline
Speaker 2: only thirty percent of the US economy. But what does
Speaker 2: that tell you? How do you think about that?
Speaker 3: I think we've.
Speaker 1: Seen not just one more data point of weakness from
Speaker 1: the manufacturing sector. I mean, we've seen years of uh,
Speaker 1: what could be seen as contractionary trends in manufacturing and
Speaker 1: and they're you know, we have to have a discussion
Speaker 1: that's more about a structural you know, this this is
Speaker 1: an economy that just hasn't been based on manufacturing the same.
Speaker 3: Way it had been many decades ago.
Speaker 1: And this is a transition that's been happening very slowly
Speaker 1: over time. And it's probably one of the discussions that's
Speaker 1: hardest to have data release date to data release, right
Speaker 1: because it just kind of the trends get glom together.
Speaker 1: So and then you know, and we're having a very
Speaker 1: robust and I think a lot you know, this year,
Speaker 1: a big part of this policy discussion is going to
Speaker 1: be center around do you revive the manufacturing sector in
Speaker 1: the United States?
Speaker 3: And how do you do it best?
Speaker 1: I Mean, we certainly saw under President Biden a lot
Speaker 1: of tax incentives and big large programs. We're trying to
Speaker 1: give money to companies to build up manufacturing in different
Speaker 1: specific sectors, and we may see an approach that's quite
Speaker 1: different in using tariffs to protect domestic industries and manufacturing
Speaker 1: being one in the area. So I think it's going
Speaker 1: to be an ongoing discussion, but it really is more
Speaker 1: about the deep underlying structure of the US economy and
Speaker 1: what we want that deep underlying structure of the US
Speaker 1: economy to look.
Speaker 5: Like Clauie, you know, you look at the long end
Speaker 5: of the curve and just how much tenure thirty year
Speaker 5: rates have decoupled. How much ConTroll does the Federal Reserve
Speaker 5: really have over that longer end when you see investors
Speaker 5: equally concerned about other issues like the fiscal term premium needed.
Speaker 1: So the Fed never hasn't never will have full control
Speaker 1: over a ten year horizon. So that much shorter horizons
Speaker 1: of treasury is like the two year you can really
Speaker 1: have a conversation about the FED is very active in
Speaker 1: what those treasure yields look like out of the tenure
Speaker 1: There always are a host of concerns about or issues
Speaker 1: in the US economy that are going to fit into
Speaker 1: what do those treasury yields look like? And I think
Speaker 1: we may there's just a lot of action right now right,
Speaker 1: there's a lot of information coming out of the FED
Speaker 1: in terms of where they think they're going to end
Speaker 1: up in terms of or potentially end up with the rates.
Speaker 1: And this, this whole discussion about the terminal rate or
Speaker 1: the neutral rate of interest.
Speaker 3: Is actually one where while it comes out.
Speaker 1: Of FED official's mouths, it is tied very much back
Speaker 1: to these structural features of the economy and that and
Speaker 1: those are things like productivity or concerns about debt, sustainability, demographics,
Speaker 1: other big issues.
Speaker 3: And those then can get I mean, those.
Speaker 1: Are also issues that the tenure treasury plays into. So
Speaker 1: while as you said, the FED doesn't control the tenure Treasury,
Speaker 1: and maybe we're seeing that potentially some of those links
Speaker 1: weaken even more just because the room is getting crowded
Speaker 1: in terms of issues that people in the treasure markets
Speaker 1: need to absorb.
Speaker 3: But I don't. It's it's nothing unusual per se.
Speaker 1: It's what's maybe more unusual is we're having there's big
Speaker 1: question marks out there about the structure of the economy,
Speaker 1: like are.
Speaker 3: We are we a stronger economy?
Speaker 1: Are we going to withstand and really thrive with higher
Speaker 1: interest rates than we.
Speaker 3: Did before the pandemic?
Speaker 1: I mean these and they're very much open questions right
Speaker 1: now and very very central to where those longer data
Speaker 1: treasury markets will land.
Speaker 4: I have a curveball question for you, Claudia as Good
Speaker 4: an economist. Were you at the Beta Theta pie house
Speaker 4: in March of nineteen ninety No, I'm kidding, what do
Speaker 4: you think about the effect of GLP one drugs on
Speaker 4: the US economy? We had a listener right in earlier
Speaker 4: asking why you know the government doesn't just subsidize these
Speaker 4: things and save US billions of dollars a year in
Speaker 4: terms of healthcare. What do you think about the effect
Speaker 4: of this drug? Have you given it any thought?
Speaker 1: I think the way an economists like I said, would
Speaker 1: probably tie this back in into this economic discussion would
Speaker 1: be to think about the ability it gives individuals to
Speaker 1: will be more productive as workers. You know, and this
Speaker 1: live is in the broad category of health and all
Speaker 1: all the different kinds of pharmaceuticals and healthcare that we
Speaker 1: provide individuals or they have access to the can you know,
Speaker 1: potentially lengthen lives, make them more rich and fulfilling, make
Speaker 1: them more able to say off, save disability roles and
Speaker 1: be in the workforce. So I think, you know, a healthier,
Speaker 1: more productive workforce is one that is going to you know,
Speaker 1: benefit the economy as a whole, do I think, But
Speaker 1: that's me again being macroeconomist is a very big picture
Speaker 1: thinking about the labor market as I often.
Speaker 3: Do, and not.
Speaker 1: You know, there absolutely will be disruption under the hood
Speaker 1: in terms of winners and losers in the economy from
Speaker 1: you know, particular industries or particular institutions, and there will
Speaker 1: be I mean, there is an answer to that question
Speaker 1: in the beginning. I mean, the massive budgetary impacts if
Speaker 1: say Medicare or large government programs pick up these these
Speaker 1: kind of drugs.
Speaker 3: Right, So there's all kinds of issues here.
Speaker 1: But I think in terms of you know, quality of life,
Speaker 1: a healthier, healthier population, there is a lot of both
Speaker 1: individual benefits and then their social benefits from you know,
Speaker 1: if a healthier population as a whole.
Speaker 5: Claudie, we have to leave it there. Thank you so
Speaker 5: very much for joining us today. Of course, it's a
Speaker 5: wild bond market out there, and expectation expectations changing quickly
Speaker 5: around the course for next year as well, of course,
Speaker 5: and happy New Year to you, of course, Happy holidays