Speaker 1: Bloomberg Audio Studios, podcasts, radio.
Speaker 2: News joining us now to continue this conversation, and police
Speaker 2: are scize. Mohammed al Aaron of Queen's College, Cambridge, Mohamed,
Speaker 2: let's talk about the totality of the data. I'm going
Speaker 2: to sound like a FED official. When you look at
Speaker 2: the totality of the data, are you seeing concrete signs
Speaker 2: of an economic slow down, a loss of momentum? And
Speaker 2: do you think a conversation about reducing interest rates as
Speaker 2: soon as next month is warranted?
Speaker 1: Yes? And yes, John, So if you look at the
Speaker 1: data as a whole, the economy is slowing, and it's
Speaker 1: slowing faster than most economists expect, and certainly more faster
Speaker 1: than what the FED expects. So yes, on the whole,
Speaker 1: the economy is slowing. And let's remember this is an
Speaker 1: economy that has very few buffers. Most of the buffers
Speaker 1: that we've had in terms of personal savings, in terms
Speaker 1: of debt capacity, they've been one down. And that leads
Speaker 1: you to the second question, which is a forward looking
Speaker 1: FED would certainly have the possibility of a July cut
Speaker 1: on the table.
Speaker 2: How much daylight do you think there is between what
Speaker 2: you think they should do and what they will do
Speaker 2: too much.
Speaker 1: You know, if I were them, I would seriously look
Speaker 1: at July as being a live meeting. I don't think
Speaker 1: that's the case. I think that's even a question mark
Speaker 1: in the market. And certainly if you look at what
Speaker 1: the narrative of the last few days by FED official
Speaker 1: as to whether even September is alive right now, the
Speaker 1: market gives less than a fifty percent probability of a
Speaker 1: weight cut in September. So their narrative has been pushing
Speaker 1: back the weight increase towards the end of the year,
Speaker 1: had one or two federal officials would like to keep
Speaker 1: open the possibility of a hike, and I think that
Speaker 1: is a long way from where they should be based
Speaker 1: on what's happening to the economy. But unfortunately, John, that've
Speaker 1: been burnt a couple of times or ready, and let's
Speaker 1: not forget there's still excessively data dependence, so it it
Speaker 1: takes quite a bit of historic data to get them
Speaker 1: to change.
Speaker 3: So I'm not going to sound like John here. Let's
Speaker 3: not talk about the totality of the data or a
Speaker 3: FED official.
Speaker 4: Let's cherry pick.
Speaker 3: Let's talk about some very specific numbers. I want to
Speaker 3: cherry pick personal income coming at zero point five percent
Speaker 3: versus the expectation of zero point four percent, that is
Speaker 3: up from zero point three percent in the prior month, Mohammed,
Speaker 3: just looking at personal income and the fact that it's
Speaker 3: increasing even as personal spending declines, does that give you
Speaker 3: a sense if we just wanted to terry pick that number,
Speaker 3: understanding the totality of the data is different, that maybe
Speaker 3: people are actually in a better place and have a
Speaker 3: greater ammunition and set of financial tools to keep spending
Speaker 3: at a pretty robust pace.
Speaker 1: Lisa, I'd love to be where you are, okay, But
Speaker 1: there's a problem even if we cherry pick, and even
Speaker 1: if we say one month, data has a ton of
Speaker 1: information content. So these are big, two big assumptions. I
Speaker 1: wouldn't know if the increased savings that comes from income
Speaker 1: going more than spending is it voluntary or is it
Speaker 1: forced people voluntarily saving more or people do people feel
Speaker 1: forced to save more. So as much as I would
Speaker 1: like to go to where you are in terms of
Speaker 1: that number, I hesitate because you first you have to
Speaker 1: assume away some pretty important things. But secondly, we don't
Speaker 1: know whether it's voluntary or forced that's.
Speaker 3: A fascinating point. I'm sitting here thinking about that at
Speaker 3: a time. What other people might say, the reason why
Speaker 3: they're not spending is because they're not buying homes and
Speaker 3: they're not feeling like they have the capacity and the
Speaker 3: mobility to do so. One argument that some of the
Speaker 3: more inflationistas out there have made is that if the
Speaker 3: FED were to cut rates by twenty twenty five basis
Speaker 3: points next month, that would reignite a surge of interest
Speaker 3: in the housing market, and then you could see actually
Speaker 3: prices climb much more substantially as a result. Do you
Speaker 3: believe that to be the case, and if not, why so.
Speaker 1: I don't think twenty five basis points are going to
Speaker 1: make that much of a difference to the housing market.
Speaker 1: That's the first issue. I think you'd need a lot
Speaker 1: more than twenty five basis points. Don't forget how much
Speaker 1: we've moved the other way. That's the first point. And second,
Speaker 1: on housing, it gets even more complicated because supply has
Speaker 1: been impacted in a way that most people didn't expect.
Speaker 1: So most people thought that the demand for housing would
Speaker 1: come down as rates went up. What they didn't realize
Speaker 1: is that the supply of housing would also come down
Speaker 1: as people hesitated from going from a very low weight
Speaker 1: mortgage to a current mortgage. So you know, again that
Speaker 1: market has been distorted by what happened during this long
Speaker 1: period of rock bottom rates, and we must not forget
Speaker 1: that a lot of distortions occurred, and in slower moving
Speaker 1: asset classes like housing, it takes time to get these
Speaker 1: distortions out of the system.
Speaker 3: I'm just wondering if twenty five basis points wouldn't necessarily
Speaker 3: reignite the housing market, is there still a reverse argument
Speaker 3: that if they don't cut by twenty five basis points
Speaker 3: next month, that they could be accelerating a tipping point
Speaker 3: that the US labor market is already reaching.
Speaker 1: So that's where I am. I think if you look
Speaker 1: at the tails of the distribution, or if you look
Speaker 1: at type one error, type two error right now, the
Speaker 1: one that scares me more is that they are too slow.
Speaker 1: They are too high for too long, and that economy
Speaker 1: slows in such an extent that two things happen. First,
Speaker 1: they can't moderate the slowing, and second they end up
Speaker 1: by having to cut weights much more than they would
Speaker 1: have otherwise, just like they ended up by hiking weights
Speaker 1: much more than they would have had otherwise because they
Speaker 1: were so late. So when I look at the tails
Speaker 1: of the distribution, and remember I put on the table
Speaker 1: the notion that a soft landing is fifty percent thirty
Speaker 1: five percent, is that we end up in recession because
Speaker 1: the FED doesn't react quickly enough, and fifteen percent is
Speaker 1: the bigger but not hotter that you get a supply
Speaker 1: a positive supply shot something like that. When I look
Speaker 1: at that distribution, yeah, I do worry. I do worry
Speaker 1: that the more likely error right now is that the
Speaker 1: FED will not start cutting early enough, and then we'll
Speaker 1: be forced into cutting a aggressively, but it's not going
Speaker 1: to have the impact in terms of slowing or moderating
Speaker 1: the slowdown, and then we'll overshoot on the way down
Speaker 1: yet again, maham.
Speaker 2: And there's a new wrinkle. How independent is all of
Speaker 2: this from policy out of the White House in twenty
Speaker 2: twenty five?
Speaker 1: So, John, I've been fascinated by the discussion you've had
Speaker 1: as to why are markets so calm about US politics?
Speaker 1: Why are so market calm when the yen is at
Speaker 1: one sixty? Why are so markets calm when French Germany
Speaker 1: the spread is at eighty four basis points, and the
Speaker 1: list goes on and on. Why are they so calm
Speaker 1: on the Middle East conflict can intensify? And I think
Speaker 1: the reason is because we here in the US have
Speaker 1: three things going for us. One is it belief in
Speaker 1: economic exceptionalism that we can soft land the economy or
Speaker 1: even no land at all. That's still actually the central
Speaker 1: scenario for a lot of people. That's number one. Two,
Speaker 1: that we ultimately believe the FED will cut and we
Speaker 1: believe that in Nvidia and the AI revolution is such
Speaker 1: a positive supply shock that it's going to keep on
Speaker 1: giving and giving and giving. You know. On the three,
Speaker 1: I worry most about the economic assumption. And that's why
Speaker 1: if that economic assumption is tested in the months ahead,
Speaker 1: then the politics what's happening around the world, suddenly all
Speaker 1: these things will become will capture much more attention in
Speaker 1: the marketplace than they have so far.
Speaker 4: Muhammad, that we're waking up after a moment where the
Speaker 4: sitting president had what everyone is calling a disastrous debate.
Speaker 4: Obama's former campaign manager went on MSNBC and called it
Speaker 4: def Con one. Alarm bells are ringing. What would be
Speaker 4: enough between now and November, or potentially what political movement
Speaker 4: could move the markets between now and November.
Speaker 1: This is your world and very much more than mine.
Speaker 1: I think the market truly believes, despite what they hear
Speaker 1: from some economists, that when push comes to shove, whether
Speaker 1: it's as in Biden re elected or whether as President
Speaker 1: Trump comes back into the White House, the degrees of
Speaker 1: freedom is not going to be as much the degree
Speaker 1: of freedom what there will be maybe on tariffs, but
Speaker 1: we've seen that both of them actually are very similar
Speaker 1: in what they end up doing. So the market i
Speaker 1: think senses that, despite what the economs are telling them
Speaker 1: about fiscal policy, tariffs, everything else, that when push comes
Speaker 1: to shove, these two individuals when in power, will be
Speaker 1: relatively similar in economic policies. Why because we've had four
Speaker 1: years of each and the market has been able to
Speaker 1: observe what they've done. Now bring in the possibility of
Speaker 1: someone new, and that suddenly changes that whole construct. So
Speaker 1: responding to your question, you know, that's the big question
Speaker 1: is that if you bring someone new into the equation,
Speaker 1: how will the market evaluate and what degree of confident
Speaker 1: as will markets have. It really helps the market that
Speaker 1: they saw both individuals in the White House.
Speaker 2: Maham gonna just want to finish on this and get
Speaker 2: you to elaborate on a final detail. In the UK,
Speaker 2: the guilt market has been a constraining regulating force on
Speaker 2: all kinds of policies coming out of either party in
Speaker 2: this election race, and you can see that in the
Speaker 2: nervousness they have talking about the deficit. You're seeing a
Speaker 2: similar thing take place in France right now. Do you
Speaker 2: think this treasury market could become a regulating force over
Speaker 2: the next administration in this country in the United States?
Speaker 2: Or will we retain that unique privilege to do other things?
Speaker 1: We will unique that we will retain that unique privilege, John,
Speaker 1: because the rest of the world is so messy. So
Speaker 1: I think of it very simply. Whether it's France, whether
Speaker 1: it's the UK, they solve in absolute space. If there
Speaker 1: is physical irresponsibility, then they will feel it, regardless of
Speaker 1: what's happening elsewhere. The US solves, the US bond market
Speaker 1: solves any relatives. So as long as other countries are
Speaker 1: more irresponsible than us, then we can continue being irresponsible.
Speaker 2: Muhammed is one of the best Muhammad I'll air in
Speaker 2: there