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Speaker 1: Boo, Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. Steve Shefvarroond of Federated

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Speaker 2: hermes looking for the rally in the equity market to continue.

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Speaker 2: Terry Haynes of Pangea Policy on mysterious drone sightings along

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Speaker 2: the East Coast, and three Kunch of Governant of Aberdeen

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Speaker 2: on Germany's political future. We begin this hour kicking off

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Speaker 2: the final full trading week of the year, looking ahead

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Speaker 2: to a Federate decision on Wednesday. Steve Shefvrod of Federated

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Speaker 2: remains optimistic on stocks. The combination of accelerating earnings growth

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Speaker 2: and rake cuts It is rare and generally positive for

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Speaker 2: equity some places side that state joins US now stave Goomona,

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Speaker 2: good morning, It's good to see you. The equity market

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Speaker 2: rip is on the masstack. It's some big tech. It's

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Speaker 2: not on the S and P five hundred iter cerentainly

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Speaker 2: not on the small caps. We've talked a lot about

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Speaker 2: negative breadth. I've been listening to the team over the

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Speaker 2: last week. This was not the back coming out of

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Speaker 2: the election. So what's gone wrong?

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Speaker 3: No, I look, I think growth is surprised to the

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Speaker 3: upside since the election. You know, outside of last week's

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Speaker 3: kind of sell off. The bond market did settle after

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Speaker 3: the election, right, you had that run kind of a

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Speaker 3: four fifty on the ten year and then that kind

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Speaker 3: of settled back in. But what we think, and we

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Speaker 3: made a move last week in our asset allocation to

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Speaker 3: reflect this, is it's just harder and harder to justify

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Speaker 3: owning non US developed markets. And I think you've seen

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Speaker 3: capital leave places like Europe where now you have political instability,

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Speaker 3: not only in France, not only in the UK, but

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Speaker 3: now you also have Germany. They sit kind of at

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Speaker 3: the forefront potentially of tariff risk. Growth has been soft

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Speaker 3: and so I think you're seeing capital flood in the

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Speaker 3: United States and it's helping growth.

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Speaker 4: And I think you really saw that last week.

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Speaker 2: So the risk I gets to next year recording to

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Speaker 2: a Parliament Tolston Slock and we's all lots about this

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Speaker 2: Thory VI hour a Polom and Tolston Slock sets of

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Speaker 2: repeat of twenty twenty two.

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Speaker 5: We all remember twenty twenty two.

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Speaker 2: It's band for buf stalks and banfoot bums, which you

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Speaker 2: push back against that.

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Speaker 3: I do you know, I think I think it's gonna

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Speaker 3: be an interesting week, and I think you know Powell,

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Speaker 3: who always likes to surprise us, he may have another

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Speaker 3: surprise in store for twenty four and that is I

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Speaker 3: think the market's gotten a little bit too concerned and

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Speaker 3: hawkish about inflation.

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Speaker 1: Right.

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Speaker 4: Inflation has been sticky.

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Speaker 3: It has been a little bit re accelerant in the

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Speaker 3: last few months, but if you look, it hasn't really

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Speaker 3: broken out.

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Speaker 4: Of any kind of long term range.

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Speaker 3: It still appears to be grinding down. And I think

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Speaker 3: you may see a pal that's a little bit more

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Speaker 3: dubbish than what the market's expecting this week.

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Speaker 4: Because he does that to us, hold on, he does

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Speaker 4: that to us.

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Speaker 6: He does this to us.

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Speaker 5: You say, he always surprises us.

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Speaker 4: He doesn't surprise us.

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Speaker 7: He outdoves every expectation from the mark.

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Speaker 3: You think that's going to be the repeat, Well, if

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Speaker 3: you look at it, Look, the market has priced in

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Speaker 3: a terminal rate here that's somewhere now between three seventy

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Speaker 3: five and four. We still think it's between three and

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Speaker 3: three fifty just going to take you into twenty six

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Speaker 3: to get there. On the dot plots, right, you generally

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Speaker 3: don't see the fed erase two cuts in one dot plot, right.

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Speaker 3: Maybe they pull one in, maybe they push one out,

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Speaker 3: And so.

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Speaker 4: You've got a street that you know.

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Speaker 3: You've got to fed with five cuts between now in

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Speaker 3: the middle of twenty eight or I'm sorry, twenty six.

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Speaker 3: In their dot plots, you've got a street that only

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Speaker 3: has three more cuts. Again, I think what you may

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Speaker 3: see him do is deliver the cut in December and

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Speaker 3: then talk about how their rhetoric is really about a

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Speaker 3: reduction in pace, not in a reduction direction. So we're

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Speaker 3: going to go to once a quarter next year, but

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Speaker 3: you shouldn't expect that we're anywhere near the end of

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Speaker 3: a rate cut cycle.

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Speaker 7: The backdrop to this is that you push back completely

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Speaker 7: against Torsten Slock's point of view, as John was out

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Speaker 7: laying out that basically we're going to have a very

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Speaker 7: inflationary and potentially styflationary policy where you get growth flowing

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Speaker 7: on the heels of some of these terrifts, but you

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Speaker 7: don't necessarily have inflation coming in. You actually think it's

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Speaker 7: the opposite, that a lot of Trump's policies are going

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Speaker 7: to be more pro growth and less inflationary than feared.

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Speaker 5: Why.

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Speaker 4: Well, a couple of reasons.

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Speaker 3: One, I think when you're talking about a tariff, for example,

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Speaker 3: it can't be both a tax and inflationary. It's got

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Speaker 3: to be one or the other, right, because if it

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Speaker 3: really is a tax, then there's an offsetting demand piece

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Speaker 3: to it. You also have to take into account that

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Speaker 3: that tariff increase is likely going to come in the context.

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Speaker 4: Of major tax cuts.

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Speaker 3: You have deregulation, you have some shedding of government jobs.

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Speaker 3: Both of those can be either certainly pro growth but

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Speaker 3: also disinflationary because they take some costs out of the system.

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Speaker 4: And so I think when you put that.

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Speaker 3: Package together, what's happening right now in the market is

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Speaker 3: we are underestimating the growth that's going to come from

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Speaker 3: the policies and overestimating the inflation. I think the Fed

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Speaker 3: would be wise to be patient here see what actually

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Speaker 3: gets through the sausage making process of Washington. There's a

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Speaker 3: lot of steps to go between a concept an actual policy,

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Speaker 3: and I think if the FED were to react in

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Speaker 3: anticipation of that, they may end up being more hawkish

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Speaker 3: than they need to be in an environment where the

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Speaker 3: labor markets are softening.

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Speaker 8: So so you don't agree with Bill Dudley, They shouldn't

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Speaker 8: assume and they should say we're going to wait for

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Speaker 8: the policies to take hold.

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Speaker 3: I don't see what policy you're going to respond to now.

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Speaker 3: If you want to respond to inflation readings being a

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Speaker 3: little bit hotter over the last couple of months and

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Speaker 3: then decelerating too, or a slower pace of cuts, I

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Speaker 3: think that's appropriate. But again we've talked about the chess

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Speaker 3: versus the checkers.

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Speaker 4: If you look at each one.

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Speaker 3: Of the policy proposals that are out there, you can

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Speaker 3: look at it and say, well, this is good, or

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Speaker 3: that's bad, or that's inflationary, that's pro growth. When you

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Speaker 3: look at it together, we think what you're going to

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Speaker 3: end up with is something that is more pro growth,

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Speaker 3: somewhat pro productivity, and that's going to dampen some of

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Speaker 3: the inflation impulses.

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Speaker 8: To Torsten Slock's note and this idea of rising inflation

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Speaker 8: twenty twenty five, he says, the risk is a repeat

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Speaker 8: of twenty twenty two with a sixty forty portfolio underpormed,

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Speaker 8: underperformed significantly. Can you not use sixty forty next year?

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Speaker 4: Then, well, you got to remember who you're asking.

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Speaker 3: I run multi asset, which has a lot of those

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Speaker 3: portfolios in it, so I categorically disagree with that sentiment.

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Speaker 4: But no, Look, I think what you're going to see

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Speaker 4: is that the bond.

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Speaker 3: Market and parts of the equity market I think have

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Speaker 3: now represent opportunities. Right A bond market that's sitting at

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Speaker 3: four point thirty four forty on the ten year with

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Speaker 3: expectations of only three cuts next year, I think there's

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Speaker 3: an upside case there. I think you see the same

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Speaker 3: thing in pockets of the equity market. Some of the

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Speaker 3: hysteria around some of the healthcare names, some of the

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Speaker 3: hysteria around some of the staples names. We look at

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Speaker 3: that and say, we're not canceling drug development in the

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Speaker 3: United States. We are not going to make you know

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Speaker 3: snack foods illegal, and so if you have value opportunities

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Speaker 3: there as an investor, those are good contrarian plays and

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Speaker 3: we're willing to take the other side.

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Speaker 5: That snack face should be a leake open.

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Speaker 8: Besides the part I knew you were going to think,

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Speaker 8: give me, forgive me, or just use beat root instead

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Speaker 8: of BHT.

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Speaker 5: Might be you can maybe simple changes. I sure, I'm

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Speaker 5: with you.

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Speaker 2: Should we talk about it about market might be a

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Speaker 2: less about that Over the long end of the curve

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Speaker 2: tens and thirties moves of twenty five basis points. What

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Speaker 2: do you think is driving that? Is that the data,

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Speaker 2: is that the expected policy change, or it is the

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Speaker 2: fence easing bus contributing to this move at the long

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Speaker 2: end as well.

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Speaker 3: I think you're seeing one thing I'd say is I

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Speaker 3: think you're seeing a resurrection of the term premium. Right

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Speaker 3: when you have a thirty six trillion dollar debt, you're

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Speaker 3: running deficits at the level that we're running them.

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Speaker 4: And you're not concerned about growth.

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Speaker 3: Right, the market's not looking out and saying I've got

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Speaker 3: an emerging recession on our hands.

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Speaker 4: What you're seeing is that the short end is.

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Speaker 3: Coming down along with FED cuts, and we think that

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Speaker 3: the term premium is re establishing itself at some level. Now,

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Speaker 3: that doesn't explain last week's move, but it does explain

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Speaker 3: this idea.

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Speaker 4: That or our big view, if.

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Speaker 3: You want to think about it in terms of the market,

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Speaker 3: really comes from the yield curve.

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Speaker 4: Expect short rates to come down.

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Speaker 3: We expect long rates to stay right about where they are,

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Speaker 3: and what that means is that shorter duration fixed income

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Speaker 3: one to three year fixed we think is in the

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Speaker 3: sweet spot of total return. Equities have duration, right, small

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Speaker 3: caps have you know, thirty to fifty percent of their

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Speaker 3: their lending is variable rate bank debt on shorter term rates.

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Speaker 3: You buy value names or dividend payers based on shorter

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Speaker 3: term expectations that are discounted with shorter rates, and that's

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Speaker 3: one of the reasons why you know last week. Notwithstanding,

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Speaker 3: we expect this market's going to broaden out and those

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Speaker 3: shorter duration equities are going to see relief as long

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Speaker 3: rates stay high short rates come down. We think that

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Speaker 3: that ye'll curve steepening is probably the big market story of.

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Speaker 2: Twenty five bull market this morning, bit STIPO yields Allowa

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Speaker 2: by two basis points some of ten year Lisa down

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Speaker 2: about a basis point on a thirty year consensus got

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Speaker 2: into Wednesday. Is pretty clear the market's looking for cut

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Speaker 2: this Wednesday, looking for a skip in January. Moke and

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Speaker 2: Stanley confident about today, conscious about tomorrow. Bank for America

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Speaker 2: LISA cut today post tomorrow.

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Speaker 7: Which is a reason why people are looking at the data,

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Speaker 7: because they're saying they're data dependant just like the FED,

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Speaker 7: and the data has been confusing. The headline figure coming

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Speaker 7: in hotter than expected, but everyone pointing to the fact

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Speaker 7: that rent and owner's equivalent rent has come in quite considerably.

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Speaker 7: This idea of what happened last week, though, to me,

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Speaker 7: was interesting because essentially any upside surprise and you get

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Speaker 7: the biggest increase in yields to the ten you're going

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Speaker 7: back to October twenty twenty.

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Speaker 5: Can we agree on this?

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Speaker 2: The food wrapped in plastic shouldn't be edible after twelve months?

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Speaker 2: Should we agree on that that maybe it's not food,

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Speaker 2: that that should be the definition of food, that it

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Speaker 2: should probably have an issue with bread.

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Speaker 7: But you can sit out on your counter for two months.

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Speaker 2: I don't think you should be allowed to call it bread

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Speaker 2: of it still? Do you think you shoultill not got

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Speaker 2: mold on it after a month?

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Speaker 4: That's a cracker.

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Speaker 5: Yes, you should call it all right, come on you bread.

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Speaker 2: If the Europeans are listening, they're thinking, probably that's a

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Speaker 2: good idea. Steve's going to see it, Steve chevroon de federated.

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Speaker 2: They love the regulations and rules over in Europe.

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Speaker 5: Looking head to the federal serve. As always, it's what

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Speaker 5: we do here.

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Speaker 2: Traders are waiting for the final decision of the year

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Speaker 2: that comes on Wednesday. Lydia Basort of Ey writing, given

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Speaker 2: calling labor market conditions, strong productivity growth, and moderating inflation trends,

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Speaker 2: we continue to expect a rake cut of twenty five

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Speaker 2: basis points at the December meeting, Lydia joins US now

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Speaker 2: for more. Lydia, welcome to the program. It's a three

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Speaker 2: part act. As you know, it's not just the decision,

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Speaker 2: it's also the news conference. But we also get the

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Speaker 2: economic projections in the SEP and I wonder when you

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Speaker 2: look across CPI, when you look across growth and unemployment,

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Speaker 2: the changes that you and the team are expecting this Wednesday,

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Speaker 2: what would those changes.

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Speaker 6: Be good morning.

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Speaker 1: So when we look at the summario economic projection, we

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Speaker 1: are expecting to see you know, the dot plot showing

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Speaker 1: three recuts next year instead of four and another two

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Speaker 1: ree cuts in twenty twenty six. We're also expecting to

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Speaker 1: see an upgrade to GDP growth. We had two percent

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Speaker 1: in the under projection. We're likely to see now two

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Speaker 1: point four percent by year end for GDP. For the

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Speaker 1: unemployment rate, we're likely to see it nutched down to

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Speaker 1: four point two percent. And then you know, also inflation

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Speaker 1: moving higher given the latest numbers and the inflation stickiness

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Speaker 1: that we've seen in the recent months, so we're likely

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Speaker 1: to see two point eight percent for core PC from

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Speaker 1: two point six percent. So really a reflection of this

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Speaker 1: environment where inflation has been a little stickier and growth

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Speaker 1: has been holding up fairly well.

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Speaker 2: Literally the last point is the important point. It's reactionary.

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Speaker 2: We're marketing to market. How much of this is going

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Speaker 2: to be anticipatory, anticipating the changes from Washington day s.

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Speaker 1: Yeah, I think we have we have a dot lot

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Speaker 1: that's going to be useful in terms of, you know,

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Speaker 1: providing a path and a view of where the interest

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Speaker 1: rate trajectory is heading. But we also have, as we know,

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Speaker 1: a FED that's extremely data dependent. So part of this

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Speaker 1: is likely to reflect the essentially what we've seen in

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Speaker 1: the data, the data that has been coming in essentially.

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Speaker 7: Meanwhile, we're talking about some of the ways said Wall

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Speaker 7: Street is gearing up for next year regardless of what

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Speaker 7: the policies are. We were talking about M and A,

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Speaker 7: And I'm just wondering, as an economist, given that we

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Speaker 7: are expecting a surge in mergers and acquisitions, do we

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Speaker 7: understand the economic impact of that, whether it comes to

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Speaker 7: either efficiencies of scale, whether it goes to increase productivity,

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Speaker 7: whether it means increase layoffs.

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Speaker 4: Do we have a sense of that?

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Speaker 1: Yes, So, I mean, when we look at the the

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Speaker 1: economic outlook next year and and you know what we're

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Speaker 1: seeing in terms of business sentiment, we are expecting to

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Speaker 1: see you know, an upside from a more a more

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Speaker 1: business friendly environment and a turning business sentiment. And we

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Speaker 1: do think that that's going to have you know, a

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Speaker 1: positive impulse on growth and modest a positive impulse on growth. Now,

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Speaker 1: when we look at the broader economic outlook, that's going

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Speaker 1: to be offten.

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Speaker 6: Some of the other policies that are going to be

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Speaker 6: put in place.

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Speaker 1: When we think about immigration, when we think about trade

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Speaker 1: policy and the potential for tariffs, we're likely to get

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Speaker 1: a drive from these policies, and that's going to create

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Speaker 1: an offset. So when we think about the outlook in

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Speaker 1: twenty twenty five twenty twenty six, we do think that,

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Speaker 1: you know, when you look at all these moving parts,

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Speaker 1: we're likely to see GDP growth slightly lower. So we

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Speaker 1: have a modest drive from all of these policies, but

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Speaker 1: there are a lot of moving parts, and some of

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Speaker 1: these impacts are going to be offset in each other.

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Speaker 7: What are you looking for, Lydia on Wednesday when we

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Speaker 7: hear from the said, given that they're probably not going

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Speaker 7: to give a whole lot of guidance as to their

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Speaker 7: predictions for twenty twenty five, what guidance can they give us?

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Speaker 2: Yeah?

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Speaker 1: So, I mean when we think about the policy assumptions,

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Speaker 1: I think Powell is going to be sticking to this

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Speaker 1: idea that we don't guess, we don't speculate, and we

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Speaker 1: don't assume. So this ability idea that they're not going

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Speaker 1: to be putting any policy assumptions into their forecast. I

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Speaker 1: think when you think about fat share Powell and how

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Speaker 1: he's going to be setting the stage for a pose,

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Speaker 1: which is, you know, our base case in January. I

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Speaker 1: think he's going to be relying on this idea that

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Speaker 1: the economy is in a good place. Inflation also has

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Speaker 1: been a little bit stickier, and the fact that the

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Speaker 1: Fed is essentially going to be moving in this dark

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Speaker 1: room full of objects, so this idea that they need

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Speaker 1: to be moving a little more slowly. I think that's

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Speaker 1: the message we're going to be getting from Powell. And

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Speaker 1: that's because also he won't be able to, you know,

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Speaker 1: highlight the inflation risk from all these potential policy shifts

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Speaker 1: that we're going to get from the incoming administration.

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Speaker 8: We'll putting these two stories together. How much could secure

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Speaker 8: inflation not just be annoying and annoyance for J. Powell,

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Speaker 8: but also be difficult for M and A and deal

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Speaker 8: making in twenty twenty five and twenty twenty six.

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Speaker 1: Yeah, I mean this is you know, this is a

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Speaker 1: key risk in terms of the inflation aside from you know,

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Speaker 1: higher tariff and from stricter immigration. When we think about

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Speaker 1: the inflationary impulse, and we've done some scenario analysis around

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Speaker 1: some of the proposals and the latest one, which is,

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Speaker 1: you know, the twenty five percent tariff on on Canada

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Speaker 1: and Mexico and the ten person tariff on on China.

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Speaker 1: And we're looking at an inflationary impulse in twenty twenty

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Speaker 1: five of zero point four percentage point on inflation.

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Speaker 6: So that's going to be a key risk.

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Speaker 1: And we've also baked in a trajectory for inflation that's

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Speaker 1: going to be modestly higher. And now, as you know,

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Speaker 1: there is a lot of uncertainty surrounding all these policy shifts,

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Speaker 1: and that's also the reason why the Fed doesn't want

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Speaker 1: to make too many policy assumptions, you know, around tariff

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Speaker 1: but also around immigration as well. Is t really a

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Speaker 1: wild card for the economy in the next two years.

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Speaker 8: You've done a lot of work on the m and

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Speaker 8: a activity we could see and you say it's expected

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Speaker 8: to rise ten percent just next year alone. Who's going

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Speaker 8: to be the biggest winner.

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Speaker 1: Yeah, So we're expecting to see a rebounding activity and

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Speaker 1: it's really on the back of this you know, continued

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Speaker 1: positive economic environment.

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Speaker 6: We have less uncertainty as well.

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Speaker 1: If you think about where you know, interest rate is heading,

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Speaker 1: where the FED is heading where inflation is heading as well.

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Speaker 1: There is a bit more visibility and you know, in

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Speaker 1: this post election environment as well as we talked about

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Speaker 1: you know this more you know, business friendly environment, there

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Speaker 1: is you know, some potential positive impossible so have interest

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Speaker 1: rates gradually move lower, so you know the outlook. We're

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Speaker 1: you know, positive on the outlook in terms of seeing

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Speaker 1: that that rebounding inactivity in twenty twenty five.

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Speaker 2: Alivia affree shake your time as always live so that

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Speaker 2: e y looking ahead to the federal serve as always

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Speaker 2: it's what we do here. Traders are waiting for the

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Speaker 2: final decision of the year that comes on Wednesday. Lydia

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Speaker 2: bus sort of ey writing. Given calling a labor market conditions,

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Speaker 2: strong productivity growth and moderating inflation trends, we continue to

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Speaker 2: expect a rate cut of twenty five basis points at

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Speaker 2: the December meeting. Lydia joins US now for more. Lydia,

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Speaker 2: welcome to the program. It's a three part act. As

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Speaker 2: you know, it's not just the decision, it's also the

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Speaker 2: news conference, but we also get the economic projections in

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Speaker 2: the SEP and I wonder when you look across CPI,

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Speaker 2: when you look across growth and unemployment. The changes that

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Speaker 2: you and the team are expecting this Wednesday, what would

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Speaker 2: those changes be?

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Speaker 6: Good morning.

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Speaker 1: So when we look at the Summario economic projection, we

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Speaker 1: are expecting to see the dot plot showing three recuts

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Speaker 1: next year instead of four and another two ree cuts

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Speaker 1: in twenty twenty six. Who We are also expecting to

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Speaker 1: see an upgrade to GDP growth. We had two percent

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Speaker 1: in the September projection. We're likely to see now two

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Speaker 1: point four percent by year end for GDP. For the

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Speaker 1: unemployment rate, we're likely to see it nutched down to

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Speaker 1: four point two percent. And then you know, also inflation

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Speaker 1: moving higher given the latest numbers and the inflation stickiness

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Speaker 1: that we've seen in the recent months, so we're likely

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Speaker 1: to see two point eight percent for core PC from

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Speaker 1: two point six percent. So really a reflection of this

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Speaker 1: environment where inflation has been a little stickier and growth

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Speaker 1: has been holding up fairly well likly.

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Speaker 2: The last point is the important point. It's reactionary. We're

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Speaker 2: marketing to market. How much of this is going to

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Speaker 2: be anticipatory, anticipating the changes from Washington day say.

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Speaker 1: Yeah, I think we have we have a dot lot

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Speaker 1: that's going to be useful in terms of, you know,

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Speaker 1: providing a path and a view of where the interest

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Speaker 1: rate trajectory is heading. But we also have, as we know,

401
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Speaker 1: a FED that's extremely data dependent. So part of this

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Speaker 1: is likely to reflect essentially what we've seen in the data,

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Speaker 1: the data that has been coming in.

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Speaker 6: Essentially, while we're.

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Speaker 7: Talking about some of the ways said Wall Street is

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Speaker 7: gearing up for next year regardless of what the policies are,

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Speaker 7: we were talking about M and A, and I'm just wondering,

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Speaker 7: as an economist, given that we are expecting a surge

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Speaker 7: in mergers and acquisitions, do we understand the economic impact

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Speaker 7: of that, whether it comes to either efficiencies of scale,

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Speaker 7: whether it goes to increase productivity, whether it means increased layoffs.

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Speaker 4: Do we have a sense of that?

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Speaker 1: Yes, So, I mean, when we look at the the

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Speaker 1: economic outlook next year, and you know what we're seeing

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Speaker 1: in terms of business sentiment, we are expecting to see

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Speaker 1: you know, an upside from a more more business friendly

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Speaker 1: environment and a turning business sentiment. And we do think

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Speaker 1: that that's going to have you know, a positive impulse

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Speaker 1: on growth and modest a positive impulse on growth. Now,

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Speaker 1: when we look at the broader economic outlook that's going

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Speaker 1: to be offsted by some of the other policies that

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Speaker 1: are going to be put in place. When we think

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Speaker 1: about immigration, we think about trade policy and the potential

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Speaker 1: for tariffs, we're likely to get a drive from these policies,

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Speaker 1: and that's going to create an offset.

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Speaker 6: So when we think about the.

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Speaker 1: Outlook in twenty twenty five twenty twenty six, we do

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Speaker 1: think that you know, when you look at all these

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Speaker 1: moving parts, we're likely to.

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Speaker 6: See GDP growth slightly lower.

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Speaker 1: So we have a modest drive from all of these policies,

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Speaker 1: but there are a lot of moving parts, and some

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Speaker 1: of these impacts are going to be upsetting each other.

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Speaker 7: What are you looking for, Lydia on Wednesday when we

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Speaker 7: hear from the set, Given that they're probably not going

436
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Speaker 7: to give a whole lot of guidance as to their

437
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Speaker 7: predictions for twenty twenty five, what guidance can they give us?

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Speaker 6: Yeah?

439
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Speaker 1: So, I mean when we think about the policy assumptions,

440
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Speaker 1: I think Powell is going to be sticking to this

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Speaker 1: idea that we don't guess, we don't speculate, and we

442
00:20:48,000 --> 00:20:51,280
Speaker 1: don't assume. So this ability idea that they're not going

443
00:20:51,320 --> 00:20:55,439
Speaker 1: to be putting any policy assumptions into their forecast. I

444
00:20:55,440 --> 00:20:57,440
Speaker 1: think when you think about fair share Powell and how

445
00:20:57,440 --> 00:20:59,760
Speaker 1: he's going to be setting the stage for a pose,

446
00:20:59,800 --> 00:21:02,600
Speaker 1: which which is, you know, our base case in January,

447
00:21:02,920 --> 00:21:05,760
Speaker 1: I think he's going to be relying on this idea

448
00:21:05,760 --> 00:21:09,320
Speaker 1: that the economy is in a good place. Inflation also

449
00:21:09,720 --> 00:21:12,800
Speaker 1: has been a little bit stickier, and the fact that

450
00:21:13,359 --> 00:21:16,159
Speaker 1: the fact is essentially going to be moving in this

451
00:21:16,320 --> 00:21:19,639
Speaker 1: dark room full of objects, so this idea that they

452
00:21:19,680 --> 00:21:22,240
Speaker 1: need to be moving a little more slowly. I think

453
00:21:22,280 --> 00:21:25,000
Speaker 1: that's the message we're going to be getting from Powell.

454
00:21:25,040 --> 00:21:28,240
Speaker 1: And that's because also he won't be able to, you know,

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00:21:28,320 --> 00:21:32,320
Speaker 1: highlight the inflation risk from all these potential policy shift

456
00:21:32,359 --> 00:21:34,919
Speaker 1: that we're going to get from the incoming administration.

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00:21:35,359 --> 00:21:37,600
Speaker 8: We'll putting these two stories together. How much could steck

458
00:21:37,640 --> 00:21:41,919
Speaker 8: your inflation not just be annoying and annoyance for J. Powell,

459
00:21:41,960 --> 00:21:44,760
Speaker 8: but also be difficult for M and A and deal

460
00:21:44,800 --> 00:21:46,640
Speaker 8: making and twenty twenty five and twenty twenty six.

461
00:21:48,040 --> 00:21:50,200
Speaker 1: Yeah, I mean this is you know, this is a

462
00:21:50,320 --> 00:21:55,320
Speaker 1: key risk in terms of the inflation abside from you know,

463
00:21:55,400 --> 00:21:59,800
Speaker 1: Hiertariff and from stricter immigration. When we think about the

464
00:21:59,800 --> 00:22:04,879
Speaker 1: inflationary impulse, and we've done some scenario analysis around some

465
00:22:04,920 --> 00:22:08,159
Speaker 1: of the proposals, and the latest one, which is, you know,

466
00:22:08,200 --> 00:22:10,720
Speaker 1: the twenty five percent tariff on on Canada and Mexico

467
00:22:10,760 --> 00:22:13,680
Speaker 1: and the ten person tariff on on China, and we're

468
00:22:13,680 --> 00:22:16,800
Speaker 1: looking at an inflationary impulse in twenty twenty five of

469
00:22:16,880 --> 00:22:19,720
Speaker 1: zero point four percentage point on inflation.

470
00:22:19,960 --> 00:22:22,720
Speaker 6: So that's going to be a key risk.

471
00:22:22,800 --> 00:22:27,280
Speaker 1: And we've also baked in a trajectory for inflation that's

472
00:22:27,320 --> 00:22:29,440
Speaker 1: going to be modestly higher.

473
00:22:29,600 --> 00:22:33,280
Speaker 6: And as you know, there is a lot of uncertainty surrounding.

474
00:22:33,040 --> 00:22:35,920
Speaker 1: All these policy shifts, and that's also the reason why

475
00:22:35,960 --> 00:22:39,600
Speaker 1: the Fed doesn't want to make too many policy assumptions,

476
00:22:40,280 --> 00:22:43,800
Speaker 1: you know, around tariff, but also around immigration as well.

477
00:22:44,200 --> 00:22:47,760
Speaker 1: It is really a wild card for the economy in

478
00:22:48,080 --> 00:22:48,840
Speaker 1: the next two years.

479
00:22:48,960 --> 00:22:50,240
Speaker 8: You've done a lot of work on the m and

480
00:22:50,280 --> 00:22:52,240
Speaker 8: A activity we could see and you say it's expected

481
00:22:52,280 --> 00:22:55,680
Speaker 8: to rise ten percent just next year alone. Who's going

482
00:22:55,720 --> 00:22:56,600
Speaker 8: to be the biggest winner.

483
00:22:58,040 --> 00:23:01,480
Speaker 1: Yeah, So we're expecting to see rebounding activity and it's

484
00:23:01,520 --> 00:23:06,320
Speaker 1: really on the back of this, you know, continued positive

485
00:23:06,400 --> 00:23:10,320
Speaker 1: economic environment we have less uncertainty as well. If you

486
00:23:10,359 --> 00:23:13,440
Speaker 1: think about where you know, interest rate is heading, where

487
00:23:13,440 --> 00:23:17,000
Speaker 1: the FED is heading, where inflation is heading as well,

488
00:23:17,320 --> 00:23:18,760
Speaker 1: there is a bit more visibility.

489
00:23:18,920 --> 00:23:20,360
Speaker 6: And you know, in this post.

490
00:23:20,200 --> 00:23:23,399
Speaker 1: Election environment as well, as we talked about, you know,

491
00:23:23,480 --> 00:23:27,720
Speaker 1: this more business friendly environment, there is you know, some

492
00:23:27,760 --> 00:23:31,920
Speaker 1: potential positive impossible so have interest rates gradually.

493
00:23:31,520 --> 00:23:33,960
Speaker 6: Move lower, so you know the outlook.

494
00:23:34,480 --> 00:23:37,520
Speaker 1: We're you know, positive on the outlook in terms of

495
00:23:38,040 --> 00:23:41,600
Speaker 1: seeing that that rebounding in activity in twenty twenty five.

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00:23:41,880 --> 00:23:44,280
Speaker 2: Hi, Alivia, I appreciate your time. As always, the episode

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Speaker 2: that of ey. This is the Bloomberg Seventans podcast, bringing

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00:23:48,440 --> 00:23:52,040
Speaker 2: you the best in markets, economics, antio politics. You can

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00:23:52,080 --> 00:23:54,880
Speaker 2: watch the show live on Bloomberg TV weekday mornings from

500
00:23:54,880 --> 00:23:58,160
Speaker 2: six am to nine am Eastern. Subscribe to the podcast

501
00:23:58,200 --> 00:24:01,159
Speaker 2: on Apple, Spotify, or any where else you listen, and

502
00:24:01,240 --> 00:24:04,120
Speaker 2: as always on the Bloomberg Terminal and the Bloomberg Business

503
00:24:04,119 --> 00:24:04,280
Speaker 2: out

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Speaker 3: Mm hmm