WEBVTT - Ukraine and Geopolitical Risks in Markets 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, podcasts, radio news. 0:00:11.920 --> 0:00:16.320 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.360 --> 0:00:19.840 at seven am Eastern on applecar Player, Android Auto with 0:00:19.880 --> 0:00:23.320 the Bloomberg Business App. Listen on demand wherever you get 0:00:23.360 --> 0:00:26.120 your podcasts, or watch us live on YouTube. 0:00:26.239 --> 0:00:28.800 Joining us our economist of the Year, My economist of 0:00:28.840 --> 0:00:32.680 the Year Lindsay Piigs Chief Economists is Stafel. Lindsay, is 0:00:32.720 --> 0:00:34.760 I make this announcement? Do you still believe in a 0:00:34.800 --> 0:00:35.879 higher rate regime? 0:00:37.479 --> 0:00:37.840 I do. 0:00:38.040 --> 0:00:40.159 I think it's going to be very difficult for the 0:00:40.159 --> 0:00:43.760 Fed to continue along this pathway, and I think at 0:00:43.760 --> 0:00:47.120 this point already reducing the size of rate cuts between 0:00:47.159 --> 0:00:51.640 September and November. Any further surprises in the data, particularly 0:00:51.680 --> 0:00:54.880 the inflation data, is likely going to warrant a reduced 0:00:55.040 --> 0:00:58.040 pace of policy action as well. With the Federal Reserve 0:00:58.120 --> 0:01:02.400 Chairman Jerome Poul himself unwilling to rule out the potential 0:01:02.480 --> 0:01:04.720 for a pause or even a rate hike in the 0:01:04.760 --> 0:01:07.080 coming year. So I think we're on the verge of 0:01:07.120 --> 0:01:10.119 a pause now, whether that comes December or January. We're 0:01:10.120 --> 0:01:13.720 seemingly splitting hairs, but the FED is slowing down with 0:01:13.800 --> 0:01:16.600 inflation still sticky, in the economy still strong. 0:01:16.720 --> 0:01:20.319 Is your terminal rate not a John Williams terminal rate. 0:01:20.360 --> 0:01:22.920 We don't get back to two point x percent? Does 0:01:22.959 --> 0:01:27.080 Lindsey Pigs with your higher rate regime have a rate 0:01:27.120 --> 0:01:29.680 we're getting back to that is new for America. 0:01:30.720 --> 0:01:33.039 I think three seventy five by the end of next 0:01:33.120 --> 0:01:35.679 year is a pause point, a comfortable pause point for 0:01:35.720 --> 0:01:37.760 the FED. Now, whether or not they give us an 0:01:37.800 --> 0:01:40.559 additional twenty five to three and a half in twenty six, 0:01:41.040 --> 0:01:43.400 that still remains a little squishy and will depend on 0:01:43.440 --> 0:01:44.479 the incoming data. 0:01:44.880 --> 0:01:47.960 But in either case, this is noticeably. 0:01:47.400 --> 0:01:51.080 Above both a FED and the market's expectation for that 0:01:51.160 --> 0:01:55.000 longer term, longer term neutral rate of policy. 0:01:54.640 --> 0:01:57.680 A pH when you have a PhD from NYU, squishy 0:01:57.760 --> 0:01:58.600 has a certain thing. 0:01:58.680 --> 0:02:02.400 Okay, good for sure, Lindsay, we had some I guess, 0:02:02.400 --> 0:02:05.720 some decent results out of Walmart, out of Lows. I 0:02:05.720 --> 0:02:07.880 guess a little bit better than expected maybe, And that 0:02:07.960 --> 0:02:11.520 kind of ties into some pretty solid retail sales numbers 0:02:11.560 --> 0:02:13.760 we saw last week. You put all that together, what's 0:02:13.760 --> 0:02:15.600 that tell you about the consumer here? 0:02:16.480 --> 0:02:19.680 Well, we continue to see ongoing resilience in terms of 0:02:19.720 --> 0:02:23.880 spending activity. As you mentioned, the gain in retail sales 0:02:24.000 --> 0:02:27.600 was widespread across a number of categories. We saw electronics 0:02:27.720 --> 0:02:31.160 jumping the most since April, up over two percent, vehicle 0:02:31.240 --> 0:02:34.720 sales rising the most in three months, gains in eating, drinking, 0:02:35.080 --> 0:02:38.040 building materials, you name it. So it was a pretty 0:02:38.120 --> 0:02:42.920 solid report, again underlining this story that we have this 0:02:43.080 --> 0:02:48.920 persistently resilient consumer perpetuating solid economic conditions as the backbone 0:02:48.919 --> 0:02:52.200 of the US economy. Now, broadly, we're still feeling the 0:02:52.200 --> 0:02:55.600 weight of higher prices, higher borrowing costs, as well as 0:02:55.600 --> 0:02:59.120 the near term disruptions from hurricanes, but we see these 0:02:59.160 --> 0:03:03.600 improvements in income as well as access to other supplemental 0:03:03.639 --> 0:03:07.720 factors such as credit cards, which continue to provide welcome 0:03:07.760 --> 0:03:11.279 support to consumer spending. Now, I don't want to oversell 0:03:11.320 --> 0:03:13.360 the state of the consumer. We are down from a 0:03:13.360 --> 0:03:17.160 more robust pace of nearer four percent last year, but 0:03:17.240 --> 0:03:19.760 at the current trend of two and a half, this 0:03:19.880 --> 0:03:24.720 remains sufficient to signal ongoing support to broader economic activity. 0:03:24.840 --> 0:03:27.359 Nearer a three percent GDP pace as we look out 0:03:27.400 --> 0:03:30.000 to the end of the year and beyond into twenty five. 0:03:30.360 --> 0:03:34.680 So with that three percent GDP pace, looking forward. Does 0:03:34.760 --> 0:03:36.400 the FECT need to really do anything here? 0:03:38.360 --> 0:03:41.280 You know, the decision to cut I think even in 0:03:41.360 --> 0:03:45.560 November begs the question of why. But I think it 0:03:45.600 --> 0:03:49.520 comes down to given the simple fact that bypassing November 0:03:49.760 --> 0:03:52.840 just one month after that outsized increase, excuse me, that 0:03:52.880 --> 0:03:57.040 outsized rate cut in September would have been interpreted as 0:03:57.080 --> 0:03:58.800 an omission of a policy error. 0:03:59.160 --> 0:04:00.280 I think at this point the. 0:04:00.200 --> 0:04:02.200 FED is simply responding to the fact that they have 0:04:02.320 --> 0:04:06.280 little option for additional policy easing, even though it was 0:04:06.320 --> 0:04:09.920 of lesser twenty five basis points in November, particularly given 0:04:09.960 --> 0:04:12.680 that they had the cover needed by that recent hurricane 0:04:12.720 --> 0:04:15.640 weakness and payrolls. But if they were truly data dependent, 0:04:15.680 --> 0:04:18.000 I don't think they would have moved into November, and 0:04:18.080 --> 0:04:19.719 I don't think they would move in December. 0:04:19.960 --> 0:04:21.840 I mean, Lindsey, this is really critical. 0:04:21.880 --> 0:04:23.960 We're up at the Boston FED the other day greeting 0:04:24.000 --> 0:04:26.960 Susan Collins and Mike McKee, and that one day talking 0:04:27.000 --> 0:04:30.680 to Susan Collins of Boston and Austin Goulsby of Chicago. 0:04:31.080 --> 0:04:34.640 How about pegs at one oh one? Are we accommodative 0:04:34.800 --> 0:04:36.239 or restrictive right now? 0:04:37.320 --> 0:04:39.880 Well, to be fair, we still are restrictive, and so 0:04:40.080 --> 0:04:43.920 changing conditions in the current environment do warrant a less 0:04:44.120 --> 0:04:49.279 firm policy as we slowly move back towards neutral given 0:04:49.320 --> 0:04:51.719 that the data continue to normalize. 0:04:52.120 --> 0:04:53.160 But again, the. 0:04:53.240 --> 0:04:56.960 Sense of urgency that the FED signaled with a fifty 0:04:57.040 --> 0:05:00.320 basis point cut out of the gate in September sent 0:05:00.400 --> 0:05:02.600 the wrong signal to the market that this was a 0:05:02.600 --> 0:05:05.960 FED in a rush to provide support to an ailing 0:05:06.040 --> 0:05:10.320 economy and move policy back to an accommodative stance. So 0:05:10.440 --> 0:05:14.520 the messaging I think was extremely inappropriate, and given the 0:05:14.560 --> 0:05:17.000 strength of the data, I think the FED needs to 0:05:17.040 --> 0:05:20.440 realize that the pace now needs to be severely reduced 0:05:20.760 --> 0:05:22.880 in order to set a more neutral tone. 0:05:22.920 --> 0:05:25.000 Paul squeeze one more in here with my economist to 0:05:25.040 --> 0:05:27.520 the Earth. It's like talking to Simon Johnson. Exactly what 0:05:27.600 --> 0:05:29.640 did they know She's going to Stockholm? 0:05:29.680 --> 0:05:30.200 Exactly? 0:05:30.520 --> 0:05:33.600 So lindsay here, I mean, I think one of the 0:05:33.600 --> 0:05:39.919 concerns about President Trump's economic policies that they may be inflationary. 0:05:40.040 --> 0:05:41.560 How do you is that a big risk for you? 0:05:41.640 --> 0:05:43.840 When you think about tax cuts and tariffs and so on. 0:05:45.040 --> 0:05:47.200 Well, when we look at these in and of themselves, 0:05:47.240 --> 0:05:51.159 there could be inflationary implications. But that provides us with 0:05:51.240 --> 0:05:55.600 somewhat of our superficial analysis, or maybe better set an 0:05:55.600 --> 0:06:00.720 incomplete analysis, as that doesn't account for, particularly on tariff side, 0:06:00.720 --> 0:06:04.360 consumer's ability to adjust what they're purchasing. It also doesn't 0:06:04.360 --> 0:06:06.960 account for the value that we may be instilling by 0:06:07.000 --> 0:06:12.279 protecting American industries, domestic job creation, preserving the quality and 0:06:12.360 --> 0:06:15.320 safety of products and services entering the economy. 0:06:15.680 --> 0:06:17.839 So it's a broader conversation. 0:06:17.400 --> 0:06:20.240 And analysis that needs to be had as opposed to 0:06:20.240 --> 0:06:21.840 just the top line knee jerk reaction. 0:06:22.400 --> 0:06:25.000 Lindsey, thank you so much. Lindsay Piegsa with Stefel. 0:06:30.960 --> 0:06:34.800 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:06:34.920 --> 0:06:38.240 weekday afternoons from seven to ten am. Easter Listen on 0:06:38.279 --> 0:06:41.520 Apple car Play and Androud Auto with a Bloomberg Business app, 0:06:41.640 --> 0:06:43.320 or watch us live on YouTube. 0:06:44.000 --> 0:06:48.240 Mark Champion is definitive on Russia and on mister Putin. 0:06:48.279 --> 0:06:53.239 He joins us this morning of Eastern Front Tension. Mark Champion, 0:06:53.320 --> 0:06:58.120 just a basic question, is Russia behind mister Putin or 0:06:58.240 --> 0:07:01.080 is this Putin alone? 0:07:01.839 --> 0:07:04.320 Ah? Well, that's a that's a good question. I mean, 0:07:04.800 --> 0:07:09.840 to the extent it matters Russia is behind Putin. I 0:07:09.880 --> 0:07:13.400 say that in that way just because you don't have 0:07:13.560 --> 0:07:17.040 to have the whole country, you know, cheering on the war, 0:07:17.160 --> 0:07:20.760 wanting to continue the war in order for them to 0:07:21.120 --> 0:07:26.320 ultimately say, you know, Putin is the Russian state, and 0:07:26.440 --> 0:07:29.160 he decides what you know is best for the Russian state, 0:07:29.320 --> 0:07:35.480 and I will therefore, you know, back then. But it 0:07:35.560 --> 0:07:38.160 is a complicated question. There isn't sort of you know, 0:07:38.280 --> 0:07:41.040 natural support for the war, but he has what he needs. 0:07:41.120 --> 0:07:43.760 The missile distinction to me of the Lackeyed Martin Ling 0:07:43.880 --> 0:07:48.640 Temco vote Atticum, is this going at Masie? Is there 0:07:48.680 --> 0:07:52.960 a nakedness here where Russia feels they simply can't defend 0:07:53.040 --> 0:07:56.360 against this missile one hundred and fifty one hundred and 0:07:56.440 --> 0:08:00.440 ninety miles into Russia. 0:08:00.760 --> 0:08:04.840 You know, it is a it is a very sophisticated missile. 0:08:05.560 --> 0:08:07.560 It's a you know, people often talk about it as 0:08:07.560 --> 0:08:11.240 a long range missile. It's not. It's a tactical missile. 0:08:11.240 --> 0:08:13.200 It has a range, maximum range of about one hundred 0:08:13.200 --> 0:08:16.840 and ninety miles. It will have reached that the you know, 0:08:16.920 --> 0:08:19.640 this first time that it's been used in Russia, it 0:08:19.680 --> 0:08:21.640 will have reached that because it has to sit behind 0:08:21.640 --> 0:08:25.080 the lines obviously, which in turn are behind you know, 0:08:25.120 --> 0:08:29.920 are further into Ukraine. So you know, the Russians will 0:08:29.960 --> 0:08:33.040 be somewhat concerned. But I think for a number of reasons, 0:08:33.960 --> 0:08:40.240 it's a little bit you know, performative. One is that 0:08:40.320 --> 0:08:43.280 the Ukraine is not going to have a lot of them. 0:08:43.320 --> 0:08:44.800 The US doesn't have a lot of them. It won't 0:08:44.800 --> 0:08:48.040 have given very many to Ukraine. The second is that 0:08:48.080 --> 0:08:51.240 the range is quite limited, although we do talk about 0:08:51.240 --> 0:08:52.640 it as lot. It's you know, it's longer than a 0:08:52.720 --> 0:08:55.760 high Mark uses the same launch platform, but it does 0:08:55.800 --> 0:08:59.560 have a longer range. Both the Ukrainians now they make 0:08:59.600 --> 0:09:01.720 their own missiles now, which have a range of fifteen 0:09:01.840 --> 0:09:06.000 hundred kilometers ballistic missiles. What they lack there is money 0:09:06.040 --> 0:09:10.160 to produce them, but they are using them. And the Russians, 0:09:10.160 --> 0:09:13.240 of course, they have a whole range of missiles that 0:09:13.280 --> 0:09:16.520 are much more powerful than the attackers. The real question 0:09:16.679 --> 0:09:19.920 is you know that you know what has put him 0:09:19.960 --> 0:09:24.200 want to do with this politically, and you know that 0:09:24.400 --> 0:09:26.960 he has used it as he always does, to you know, 0:09:27.559 --> 0:09:29.640 make a kind of nuclear threat that we're heading for 0:09:29.679 --> 0:09:32.680 World War three. Nuclear armageddon all that sort of thing. 0:09:33.000 --> 0:09:35.400 Nuclear is extremely difficult to use, and that's why he 0:09:35.480 --> 0:09:40.920 hasn't yet. But you will see him escalate. He is responding. 0:09:41.640 --> 0:09:44.760 He has given you know, anti ship missiles to the Hooties, 0:09:45.800 --> 0:09:48.199 and he has said, you know, I can give stuff 0:09:48.360 --> 0:09:51.720 to your enemies just as you give stuff to ours. Also, 0:09:51.960 --> 0:09:55.719 you know, mysteriously to cables under the Baltic Sea connecting 0:09:56.679 --> 0:10:01.720 you know, Finland and to Lithuania and Sweden to getting 0:10:01.720 --> 0:10:05.760 that backwards, Sweden to Lithuania and Finland to Germany, both 0:10:05.880 --> 0:10:09.400 appear to have been cut. This is another area very 0:10:09.520 --> 0:10:13.079 kind of you know, fruitful potential area for Russia to respond. 0:10:13.679 --> 0:10:16.199 Mark. There seems to have been increased rhetoric here, maybe 0:10:16.240 --> 0:10:19.079 just since the US election of a negotiated piece here 0:10:19.559 --> 0:10:24.800 with this war here. Is that something that Ukraine wants 0:10:24.800 --> 0:10:28.079 at this time or do they feel that maybe Russia 0:10:28.120 --> 0:10:31.000 has much more of the leverage. Even Germany's Chancellor all 0:10:31.000 --> 0:10:33.840 of Schultz made a phone call recently to that end. 0:10:34.480 --> 0:10:36.160 Where do we stand about a negotiated piece? 0:10:37.320 --> 0:10:41.040 Yeah, no, you're absolutely right. The Ukrainians are very worried 0:10:41.280 --> 0:10:46.520 that they will be a precipitous piece. Also rather peace talks, 0:10:47.080 --> 0:10:49.520 and the difficulty there is that at the moment, you know, 0:10:50.640 --> 0:10:53.880 the Lysia is actually very clear about this. At the moment, 0:10:54.440 --> 0:10:58.000 the Putin and the Russians have a very little, if 0:10:58.040 --> 0:11:02.480 any incentive to newgiate, so they have made it clear. 0:11:02.559 --> 0:11:05.600 And and again, you know, Schultz, I think unwisely made 0:11:05.640 --> 0:11:09.200 that call to put In without coordinating with anybody. And 0:11:09.280 --> 0:11:11.440 the response that he got, according to you know, his 0:11:11.480 --> 0:11:15.000 own readout of the call was we stand by our goals, 0:11:15.120 --> 0:11:17.199 and there's you know, I'm not interested in the kind 0:11:17.240 --> 0:11:19.520 of you know, the solutions that are being talked about, 0:11:19.840 --> 0:11:22.600 and our goals aren't amount to the surrender of Ukraine. 0:11:22.960 --> 0:11:24.400 Mark, how do you respond? 0:11:24.760 --> 0:11:28.640 And I'm quoting this loosely, folks, that the president elects 0:11:28.720 --> 0:11:31.760 as he can fix Ukraine in one day, just as 0:11:31.800 --> 0:11:33.480 I don't quote me on that, folks. 0:11:33.160 --> 0:11:36.199 But just the general tone that you hear. 0:11:36.040 --> 0:11:39.560 From the president elect if he fixes Ukraine in one day, 0:11:39.600 --> 0:11:40.600 who's he speaking to? 0:11:42.440 --> 0:11:45.280 Well, he's speaking to his own audience, you know. And 0:11:45.320 --> 0:11:47.800 that was you know, that quote which has been used 0:11:47.840 --> 0:11:50.920 a lot. I've used that. That was during the election 0:11:51.040 --> 0:11:56.920 campaign season, and you know, I'm not too bothered by that. 0:11:57.400 --> 0:11:57.559 You know. 0:11:57.679 --> 0:12:00.160 Question is which day I go. 0:12:00.240 --> 0:12:02.400 I go one minute left, Mark Champion. I've been dying 0:12:02.400 --> 0:12:03.920 to ask you this, because you'd. 0:12:03.760 --> 0:12:06.800 Be the one. Have you seen the new restored Notre 0:12:06.920 --> 0:12:07.960 Dame in Paris? 0:12:09.360 --> 0:12:11.720 I have not. I have not. I've actually been meaning 0:12:11.760 --> 0:12:13.600 to go over and see it, but I haven't. 0:12:13.840 --> 0:12:14.920 We'll get you when you do. 0:12:15.200 --> 0:12:19.240 Email my have your people, Mark, email my people when 0:12:19.240 --> 0:12:20.600 you go see the new Notre Dame. 0:12:20.840 --> 0:12:22.199 I would be honored for you. 0:12:22.160 --> 0:12:26.200 To give us the first report on this great French restoration. 0:12:26.360 --> 0:12:29.560 Mark Champion, of course, writing for Bloomberg Opinion, can't say 0:12:29.640 --> 0:12:33.720 enough about his perspective east of the Eastern Front. 0:12:33.920 --> 0:12:38.200 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:12:38.280 --> 0:12:41.480 starting at seven am Eastern on applecar Play and Android 0:12:41.520 --> 0:12:44.400 Auto with the Bloomberg Business app. You can also listen 0:12:44.480 --> 0:12:47.600 live on Amazon Alexa from our flagship New York station, 0:12:48.000 --> 0:12:51.040 Just Say Alexa playing Bloomberg eleven thirty. 0:12:51.040 --> 0:12:53.679 Joining us our economist of the Year, My Economist of 0:12:53.679 --> 0:12:57.320 the Year, Lindsay pigs a chief economist is Stifel. Lindsay, 0:12:57.440 --> 0:12:59.480 is I make this announcement? Do you still believe in 0:12:59.520 --> 0:13:00.800 a higher rate regime? 0:13:02.320 --> 0:13:04.600 I do I think it's going to be very difficult 0:13:04.720 --> 0:13:08.240 for the FED to continue along this pathway, and I 0:13:08.240 --> 0:13:10.840 think at this point already reducing the size of rate 0:13:10.880 --> 0:13:15.760 cuts between September and November. Any further surprises in the data, 0:13:15.800 --> 0:13:19.280 particularly the inflation data, is likely going to warrant a 0:13:19.280 --> 0:13:22.640 reduced pace of policy action as well. With the Federal 0:13:22.640 --> 0:13:26.720 Reserve Chairman Jerome Poell himself unwilling to rule out the 0:13:26.760 --> 0:13:29.440 potential for a pause or even a rate hike in 0:13:29.480 --> 0:13:31.840 the coming year, So I think we're on the verge 0:13:31.880 --> 0:13:34.479 of a pause now, whether that comes December or January. 0:13:34.800 --> 0:13:38.040 We're seemingly splitting hairs. But the FED is slowing down, 0:13:38.440 --> 0:13:41.440 with inflation still sticky, in the economy still strong. 0:13:41.559 --> 0:13:45.160 Is your terminal rate not a John Williams terminal rate? 0:13:45.200 --> 0:13:47.760 We don't get back to two point x percent? Does 0:13:47.800 --> 0:13:51.920 Lindsey Pigs with your higher rate regime have a rate 0:13:51.960 --> 0:13:54.559 we're getting back to that is new for America. 0:13:55.600 --> 0:13:57.880 I think three seventy five by the end of next 0:13:57.960 --> 0:14:00.560 year is a pause point, a comfortable pause point for 0:14:00.600 --> 0:14:02.600 the Fed now, whether or not they give us an 0:14:02.640 --> 0:14:05.400 additional twenty five to three and a half in twenty six, 0:14:05.880 --> 0:14:08.240 that still remains a little squishy and will depend on 0:14:08.280 --> 0:14:12.199 the incoming data, but in either case, this is noticeably 0:14:12.240 --> 0:14:15.920 above both the FED and the market's expectation for that 0:14:16.000 --> 0:14:19.840 longer term, longer term neutral rate of policy. 0:14:19.480 --> 0:14:22.480 A pH when you have a PhD from NYU, squishy 0:14:22.600 --> 0:14:23.440 has a certain thing. 0:14:23.480 --> 0:14:27.320 Okay, very good, lindsay, we had some I guess, some 0:14:27.360 --> 0:14:30.760 decent results out of Walmart, out of Lows. I guess 0:14:30.760 --> 0:14:32.960 a little bit better than expected maybe, And that kind 0:14:33.000 --> 0:14:36.440 of ties into some pretty solid retail sales numbers we 0:14:36.480 --> 0:14:38.680 saw last week. You put all that together, what's that 0:14:39.200 --> 0:14:40.400 tell you about the consumer here? 0:14:41.320 --> 0:14:44.520 Well, we continue to see ongoing resilience in terms of 0:14:44.560 --> 0:14:48.720 spending activity. As you mentioned, the gain in retail sales 0:14:48.840 --> 0:14:52.440 was widespread across a number of categories. We saw electronics 0:14:52.560 --> 0:14:56.000 jumping the most since April, up over two percent, vehicle 0:14:56.080 --> 0:14:59.560 sales rising the most in three months, gains in eating, drinking, 0:15:00.040 --> 0:15:02.880 building materials, you name it. So it was a pretty 0:15:02.960 --> 0:15:07.760 solid report, again underlining this story that we have this 0:15:07.920 --> 0:15:13.760 persistently resilient consumer perpetuating solid economic conditions as the backbone 0:15:13.760 --> 0:15:17.040 of the US economy. Now broadly, we're still feeling the 0:15:17.040 --> 0:15:20.440 weight of higher prices, higher borrowing costs, as well as 0:15:20.440 --> 0:15:24.000 the near term disruptions from hurricanes. But we see these 0:15:24.000 --> 0:15:28.400 improvements in income as well as access to other supplemental 0:15:28.480 --> 0:15:32.560 factors such as credit cards, which continue to provide welcome 0:15:32.600 --> 0:15:36.120 support to consumer spending. Now, I don't want to oversell 0:15:36.160 --> 0:15:38.200 the state of the consumer. We are down from a 0:15:38.200 --> 0:15:42.000 more robust pace of nearer four percent last year, but 0:15:42.080 --> 0:15:44.600 at the current trend of two and a half, this 0:15:44.720 --> 0:15:49.600 remains sufficient to signal ongoing support to broader economic activity 0:15:49.680 --> 0:15:52.320 nearer three percent GDP pace as we look out to 0:15:52.320 --> 0:15:54.840 the end of the year and beyond into twenty five. 0:15:55.200 --> 0:15:59.560 So with that three percent GDP pace looking forward, does 0:15:59.600 --> 0:16:01.200 effected to really do anything here? 0:16:03.200 --> 0:16:03.400 You know? 0:16:03.760 --> 0:16:07.640 The decision to cut I think, even in November begs 0:16:07.640 --> 0:16:10.960 the question of why. But I think it comes down 0:16:11.080 --> 0:16:15.080 to given the simple fact that bypassing November just one 0:16:15.120 --> 0:16:18.440 month after that outsized increase EXCU be that outsized rate 0:16:18.520 --> 0:16:22.480 cut in September would have been interpreted as an omission 0:16:22.520 --> 0:16:25.000 of a policy error. I think at this point the 0:16:25.040 --> 0:16:27.040 FED is simply responding to the fact that they have 0:16:27.160 --> 0:16:31.120 little option for additional policy easing, even though it was 0:16:31.160 --> 0:16:34.760 of lesser twenty five basis points in November, particularly given 0:16:34.800 --> 0:16:37.520 that they had the cover needed by that recent hurricane 0:16:37.560 --> 0:16:40.480 weakness and payrolls. But if they were truly data dependent, 0:16:40.520 --> 0:16:42.840 I don't think they would have moved into November, and 0:16:42.920 --> 0:16:44.680 I don't think they would move in December. 0:16:44.800 --> 0:16:46.720 I mean, Lindsey, this is really critical. 0:16:46.720 --> 0:16:48.800 We're up at the Boston FED the other day greeting 0:16:48.840 --> 0:16:51.800 Susan Collins and Mike McKee, and that one day talking 0:16:51.840 --> 0:16:55.520 to Susan Collins of Boston and Austin Goulsby of Chicago. 0:16:55.920 --> 0:16:59.440 How about pigs at one oh one? Are we accommodative 0:16:59.600 --> 0:17:01.080 or restrictive right now? 0:17:02.200 --> 0:17:04.720 Well, to be fair, we still are restrictive, and so 0:17:04.920 --> 0:17:08.760 changing conditions in the current environment do warrant a less 0:17:08.960 --> 0:17:14.119 firm policy as we slowly move back towards neutral given 0:17:14.160 --> 0:17:16.720 that the data continue to normalize. 0:17:16.960 --> 0:17:18.000 But again, the. 0:17:18.080 --> 0:17:21.800 Sense of urgency that the FED signaled with a fifty 0:17:21.880 --> 0:17:25.200 basis point cut out of the gate in September sent 0:17:25.240 --> 0:17:27.439 the wrong signal to the market that this was a 0:17:27.440 --> 0:17:30.800 FED in a rush to provide support to an ailing 0:17:30.880 --> 0:17:35.159 economy and move policy back to an accommodative stance. So 0:17:35.280 --> 0:17:39.359 the messaging I think was extremely inappropriate, and given the 0:17:39.400 --> 0:17:41.840 strength of the data, I think the FED needs to 0:17:41.880 --> 0:17:45.280 realize that the pace now needs to be severely reduced 0:17:45.600 --> 0:17:47.720 in order to set a more neutral tone. 0:17:47.760 --> 0:17:49.840 Paul squeeze one more in here with my economist to 0:17:49.880 --> 0:17:52.320 the Earth. It's like talking to Simon Johnson. Exactly what 0:17:52.440 --> 0:17:54.320 did they know She's going to Stockholm? 0:17:54.520 --> 0:17:55.040 Exactly? 0:17:55.359 --> 0:17:58.440 So lindsay here, I mean, I think one of the 0:17:58.440 --> 0:18:02.400 concerns about President at Trump's economic policies that they may 0:18:02.440 --> 0:18:06.160 be inflationary. How do you is that a big risk 0:18:06.200 --> 0:18:08.280 for you when you think about tax cuts and tariffs 0:18:08.320 --> 0:18:08.680 and so on. 0:18:09.880 --> 0:18:12.040 Well, when we look at these in and of themselves, 0:18:12.080 --> 0:18:16.000 there could be inflationary implications. But that provides us with 0:18:16.080 --> 0:18:20.440 somewhat of our superficial analysis, or maybe better set an 0:18:20.440 --> 0:18:24.879 incomplete analysis, as that doesn't account for, particularly on the 0:18:24.960 --> 0:18:28.200 tariff side, consumer's ability to adjust what they're purchasing. 0:18:28.560 --> 0:18:29.880 It also doesn't account for the. 0:18:29.920 --> 0:18:33.359 Value that we may be instilling by protecting American industries, 0:18:33.840 --> 0:18:38.320 domestic job creation, preserving the quality and safety of products 0:18:38.320 --> 0:18:40.159 and services entering the economy. 0:18:40.520 --> 0:18:42.760 So it's a broader conversation. 0:18:42.240 --> 0:18:45.040 And analysis that needs to be had as opposed to 0:18:45.080 --> 0:18:46.679 just the top line knee jerk reaction. 0:18:47.240 --> 0:18:49.880 Lindsey, thank you so much, Lindsay pigs with Stevel. 0:18:56.080 --> 0:19:00.360 This is the Bloomberg Surveillance Podcast. Listen live each day 0:19:00.440 --> 0:19:03.960 starting at seven am Eastern on Ammocarplay and Android Auto 0:19:04.040 --> 0:19:06.840 with the Bloomberg Business app. You can also watch us 0:19:06.920 --> 0:19:10.960 live every weekday on YouTube and always on the Bloomberg terminal. 0:19:11.400 --> 0:19:16.200 Earl Davis has been on a stool screaming for two years. 0:19:16.880 --> 0:19:19.720 It's just not going to get back to a lower 0:19:19.800 --> 0:19:20.440 rate regime. 0:19:20.520 --> 0:19:22.920 Earl Davis joins us this morning had a fixed income 0:19:23.280 --> 0:19:26.359 and money markets at Demo Asset Management. Earl, do you 0:19:26.520 --> 0:19:30.119 reconfirm that it will be higher for longer in the 0:19:30.200 --> 0:19:30.919 yield space? 0:19:32.560 --> 0:19:36.280 One hundred percent? And an interesting thing that backs that up. 0:19:36.720 --> 0:19:41.159 We've overlaid charts of the inflation regime starting in twenty 0:19:41.280 --> 0:19:45.440 twenty to presently with the inflation regime from the sixties 0:19:45.520 --> 0:19:48.840 mid sixties till let's call it nineteen eighty, and we 0:19:48.880 --> 0:19:52.280 are almost on par with the alignment of peak inflation, 0:19:52.440 --> 0:19:56.000 lower inflation. So it's our expectation that we will test 0:19:56.680 --> 0:20:00.919 a much higher inflation again, which says yes, higher yields 0:20:01.080 --> 0:20:01.680 for longer. 0:20:01.760 --> 0:20:03.119 How can we get there? 0:20:03.160 --> 0:20:08.159 Like Paul Voker ten twelve percent, fourteen percent recession is 0:20:08.200 --> 0:20:12.800 seventy three, seventy four, which I lived. I mean, Earl Davis, 0:20:12.840 --> 0:20:16.320 are you talking about that kind of a volatile regime? 0:20:17.520 --> 0:20:17.680 Now? 0:20:17.960 --> 0:20:20.200 Maybe not that high just because remember the first peak 0:20:20.280 --> 0:20:22.920 was roughly called it eight nine percent? Can we test 0:20:22.960 --> 0:20:26.040 that again? It's not a twenty twenty five story, but 0:20:26.080 --> 0:20:29.200 it's possibly a twenty twenty six, twenty twenty seven story. 0:20:29.880 --> 0:20:32.879 The reason why is we have zero I won't call 0:20:32.920 --> 0:20:36.359 it zero, but very low slack in the economy or 0:20:36.440 --> 0:20:40.000 excess supply. So when you start bringing in US centric 0:20:40.080 --> 0:20:43.359 policies that are pro growth and have the potential to 0:20:43.560 --> 0:20:48.600 increase potential GDP with minimal slack in the economy, that's 0:20:48.640 --> 0:20:51.639 exactly the kind of tinder that could light up and 0:20:51.680 --> 0:20:55.080 conse inflation to come again. Remember it's not a twenty 0:20:55.119 --> 0:20:58.199 twenty five story, but all the elements are there for 0:20:58.240 --> 0:20:59.760 the next two to five years. 0:21:00.160 --> 0:21:03.080 So what does that mean, Earle? For the Federal Reserve, 0:21:03.160 --> 0:21:06.320 who has you know, cut rates twice, the expectations they 0:21:06.359 --> 0:21:09.000 will continue cutting several more times. Do you think that 0:21:09.119 --> 0:21:09.920 might be on hold? 0:21:12.480 --> 0:21:15.880 I think it's as Powell said in regards to there's 0:21:15.880 --> 0:21:18.240 no rush to do it, so I wouldn't say it 0:21:18.320 --> 0:21:22.080 might be on hold. But in regards to the euphoria 0:21:22.080 --> 0:21:24.840 and getting back to three percent overnight rates, I think 0:21:24.880 --> 0:21:27.880 that has been tempered a bit, but I do see 0:21:27.920 --> 0:21:31.040 slightly lower rates ahead. And the reason why I see 0:21:31.080 --> 0:21:35.840 that ahead is because the Fed is not implementing policy 0:21:36.080 --> 0:21:38.600 for two years. Hence, even though they do say there's 0:21:38.600 --> 0:21:41.760 an eighteen month flag what they're doing, they're reactive to 0:21:41.800 --> 0:21:45.800 the data, and the data does show some general slowing, 0:21:46.960 --> 0:21:48.879 but we're still doing very well. 0:21:50.480 --> 0:21:53.680 We had an election and we've got a new administration 0:21:53.840 --> 0:21:56.920 and a new Congress to be seated. Did that change 0:21:57.040 --> 0:22:00.119 your economic outlook or just kind of your view of 0:22:00.160 --> 0:22:02.880