WEBVTT - PCE Data and a Meeting with Zelenskiy 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.280 --> 0:00:31.720 Victoria Fernandez, Jordan Rochester, Michael McKee, Francis Donald, and Lincoln. 0:00:31.760 --> 0:00:35.280 We go into this inflation reports strong with Neil Dutta 0:00:35.640 --> 0:00:39.760 of Renaissance Macro. Neil, you're more cautious now on real GDP, 0:00:39.960 --> 0:00:42.840 on the growth of the nation, all the inflation numbers 0:00:42.880 --> 0:00:45.479 pretty much on the survey, but I really want to 0:00:45.520 --> 0:00:50.680 focus out on real personal spending decline way off survey 0:00:51.120 --> 0:00:54.720 in personal income with a nice lift as well. I've 0:00:54.720 --> 0:00:57.280 got retail inventories which I don't understand. We're going to 0:00:57.320 --> 0:00:59.480 skip that. I got a little bit of an equity lift. 0:00:59.480 --> 0:01:02.120 I went right to the ten year real yield came 0:01:02.160 --> 0:01:05.280 in a little bit, but it comes right back. Neil Dunta, 0:01:05.400 --> 0:01:07.400 am I right that this was a nothing burger? 0:01:09.520 --> 0:01:13.319 I mean, real personal consumption fell quite a bit to 0:01:13.360 --> 0:01:19.200 start the quarter. That's that's probably gonna put downward pressure 0:01:19.240 --> 0:01:24.000 on tracking estimates of first quarter GDP and will probably 0:01:24.080 --> 0:01:29.600 prompt some marketing to market of forecasts among among the consensus. 0:01:29.640 --> 0:01:33.000 So you know, I don't right, is it a nothing burger? 0:01:33.040 --> 0:01:35.480 I mean, I think the inflation numbers came in in 0:01:35.480 --> 0:01:38.880 line with expectations, but real GDP is probably getting worse. 0:01:38.959 --> 0:01:42.319 Not This is critical folks with real spending. I mean, 0:01:42.319 --> 0:01:45.760 what we see on the eco screen of the the Bloomberg, 0:01:45.840 --> 0:01:49.440 real personal spending came in light personal spending itself came 0:01:49.480 --> 0:01:52.200 in like a little bit of a constructive revision. But 0:01:52.400 --> 0:01:55.240 you know, Neil, Neil, it's unfair to ask this, but 0:01:55.400 --> 0:01:58.400 why it's onfair Friday? I mean, do you go, can 0:01:58.440 --> 0:02:03.680 you model out subtwo JDP looking at two quarters of 0:02:03.760 --> 0:02:05.080 data to the fourth of July. 0:02:07.000 --> 0:02:09.760 Yes, I think that's possible. I mean, look, most of 0:02:09.800 --> 0:02:13.200 the upside surprise in GDP growth last year was in 0:02:13.320 --> 0:02:17.160 two areas, consumption and government spending an investment. That's what 0:02:17.280 --> 0:02:19.280 drove most of the growth. So if you think those 0:02:19.280 --> 0:02:21.680 two areas are going to slow, it doesn't really take much. 0:02:22.120 --> 0:02:23.960 At the same time, you lay around the fact that 0:02:24.000 --> 0:02:28.760 residential construction is likely to get worse, not better. And 0:02:30.360 --> 0:02:32.680 you know, I mean export activity was a driver for 0:02:32.720 --> 0:02:35.240 growth last year. I mean, if this trade stuff keeps up, 0:02:35.280 --> 0:02:37.440 I mean there may be some risk to exports as well. 0:02:37.560 --> 0:02:40.560 So I don't think it's that much of a stretch. 0:02:40.600 --> 0:02:43.320 I mean you're talking about a zero point five percent 0:02:43.400 --> 0:02:46.760 monthly contraction and real consumer spending. I mean these tracking 0:02:46.880 --> 0:02:50.160 estimates might be at one percent for the quarter after today. 0:02:50.600 --> 0:02:52.160 Yeah, that's kind of where I wanted to go, Neil, 0:02:52.160 --> 0:02:54.480 because I am to this amateur economist here. That's the 0:02:54.560 --> 0:02:55.880 number that kind of jumps out. I mean, I'll just 0:02:55.919 --> 0:02:59.640 highlight it for the audience, real personal spending. The consensus 0:02:59.680 --> 0:03:02.400 was for decline of zero point one percent, came in 0:03:02.480 --> 0:03:04.919 a decline of zero point five percent, So missed there 0:03:05.160 --> 0:03:08.160 any Compare it to last period where it was revised 0:03:08.200 --> 0:03:11.280 higher to positive zero point five percent, So a big 0:03:11.320 --> 0:03:13.960 delta there. I do know that, you know, you economists 0:03:13.960 --> 0:03:17.320 tell me that the consumers seventy percent of the economy. 0:03:17.919 --> 0:03:20.040 So that really does get your attention? Does that? Is 0:03:20.040 --> 0:03:21.640 that a number that moves around a lot? 0:03:24.360 --> 0:03:28.360 Real? Well, I mean consumer spending tends to be you know, 0:03:28.480 --> 0:03:31.440 more more stable. I mean a lot of acyclical areas 0:03:31.440 --> 0:03:34.680 of consumption, right, I mean, so that you know, people 0:03:34.720 --> 0:03:38.200 have to go out and kind of spend, but ultimately, 0:03:38.320 --> 0:03:45.400 you know, generally speaking, consumption follows u income growth, and 0:03:45.920 --> 0:03:48.000 you know, I mean what what what you can basically 0:03:48.040 --> 0:03:50.880 say is that you know, in January, I mean there 0:03:50.960 --> 0:03:55.680 was a there was an increase in in precautionary saving maybe, 0:03:55.720 --> 0:03:59.120 I mean that that's basically what it's income. But again 0:03:59.280 --> 0:04:01.960 that goes to totally against what people are sort of 0:04:02.000 --> 0:04:05.960 worried about right now, which is inflation expectations. Right I mean, 0:04:06.000 --> 0:04:08.560 that's allegedly the reason why the FED is holding off 0:04:08.760 --> 0:04:11.480 everyone's planning to you mish. Now, guys, think about what 0:04:11.480 --> 0:04:14.640 inflation expectations should mean. It should mean number one, people 0:04:14.720 --> 0:04:17.120 are going to bid up their wages because we know 0:04:17.160 --> 0:04:20.680 that wage growth is set with short run inflation expectations 0:04:20.680 --> 0:04:22.719 in mind. I mean, I don't know, good luck to 0:04:22.720 --> 0:04:24.479 any worker that's going to try that right now. I 0:04:24.480 --> 0:04:28.800 mean you're in for a root awaken. Importantly, it's you 0:04:28.839 --> 0:04:31.640 try to spend more to beat the higher prices later, 0:04:31.880 --> 0:04:35.080 there's no evidence that that's happening. You're seeing precautionary saving, 0:04:35.120 --> 0:04:39.720 not precautionary spending. So this notion that inflation expectations arising, 0:04:39.839 --> 0:04:41.640 and this is why the Fed needs to hold off. 0:04:42.839 --> 0:04:45.400 Is all right, Neil, I want to get one more 0:04:45.480 --> 0:04:47.960 question in here. I think it's so important, Ian Lingoln's 0:04:47.960 --> 0:04:50.919 being patient to wait for Neil Dudda. Is there a 0:04:50.960 --> 0:04:55.000 wealth effect of the fancy people in the personal income, 0:04:55.320 --> 0:04:58.200 personal spending? Do you see the stock market? Do you 0:04:58.240 --> 0:05:01.120 see the way Paul Sweeney made money on Nvidia? Is 0:05:01.160 --> 0:05:02.839 that in those statistics this morning? 0:05:04.760 --> 0:05:07.039 Well, I mean there was a great article from the 0:05:07.040 --> 0:05:09.560 Welfare Journal about a week ago, I believe, about just 0:05:09.640 --> 0:05:12.920 talking about how consumption is being driven increasingly by the 0:05:13.000 --> 0:05:16.320 high end, and so you know, obviously it's affected by 0:05:16.400 --> 0:05:18.440 what's going on with asset prices. But what I know 0:05:18.480 --> 0:05:21.479 about asset prices is that you know, stocks are not 0:05:21.600 --> 0:05:24.520 making new highs. They haven't been number two. You know 0:05:24.600 --> 0:05:27.279 a lot of these sort of alternative assets like crypto 0:05:27.520 --> 0:05:30.400 have come under pressure. And more importantly for everyone else, 0:05:32.000 --> 0:05:36.159 home prices are moderating because inventories are jumping. So you know, 0:05:36.200 --> 0:05:38.760 to the extent that the wealth effect was an important 0:05:38.839 --> 0:05:43.159 driver of consumer spending, that's looking a little bit shaky 0:05:43.200 --> 0:05:44.600 now as well, Neil. 0:05:44.560 --> 0:05:47.239 Thank you so much, Neil. Data Adren Mac just brilliant 0:05:47.240 --> 0:05:49.400 there as we looked at PC and as Paul Sweeney 0:05:49.560 --> 0:05:53.640 you mentioned real consumer spending, real personal spending with a shock, 0:05:53.920 --> 0:05:57.160 a little bit negative maybe new GDP markdowns. So we'll 0:05:57.160 --> 0:05:59.200 get to the bond market in a moment. Here with 0:05:59.320 --> 0:06:02.400 Ian Linga our economic indicators, what we do each and 0:06:02.440 --> 0:06:06.400 every day, but particularly on these important key days. It's 0:06:06.400 --> 0:06:09.040 brought to you by IBKR. Will the year over year 0:06:09.160 --> 0:06:13.880 change in the US business inflation us PPI? Will it 0:06:14.000 --> 0:06:17.760 exceed three percent in February of twenty twenty five At 0:06:17.800 --> 0:06:22.839 IBKR Forecast Trader, the yes was recently at thirty nine percent. 0:06:22.880 --> 0:06:26.640 What's your take? Trade your prediction at ibkr dot com 0:06:26.680 --> 0:06:32.320 slash Forecast. We welcome all of you on YouTube nationwide again, 0:06:32.680 --> 0:06:36.719 go to YouTube Bloomberg Podcasts. Subscribe there, growing each and everyday, 0:06:36.800 --> 0:06:39.599 seven days a week, grows on a week as well. 0:06:39.720 --> 0:06:45.080 Joining us now with BEMO Capital Markets, Ian lingas Ian, 0:06:45.120 --> 0:06:47.479 I'm looking at lower yields. Neil Dudd has given me 0:06:47.560 --> 0:06:52.120 lower GDP. Do we finally have in place the vaunted 0:06:52.279 --> 0:06:57.560 Lincoln vector where we get shockingly lower trends in yield? 0:06:59.360 --> 0:07:03.120 Well, I do think that we're overdue for a continued 0:07:03.200 --> 0:07:06.359 drift lower in rates. I wouldn't be very surprised to 0:07:06.400 --> 0:07:09.840 see the current move get ten year yields a lot 0:07:09.920 --> 0:07:11.040 closer to four percent. 0:07:12.760 --> 0:07:13.960 So that gets your. 0:07:14.280 --> 0:07:16.120 That gets your attention. So how do you think the 0:07:16.160 --> 0:07:17.920 Fed ian is going to look at some of this 0:07:18.200 --> 0:07:20.520 data today as they try to get a gauge on 0:07:20.880 --> 0:07:23.800 their balance between the labor market and prices. 0:07:25.120 --> 0:07:28.440 Well, I think the core PCE was in line with expectations. 0:07:28.560 --> 0:07:31.480 I think that to a large extent, the inflation profile 0:07:31.760 --> 0:07:35.920 is known. What's unknown is what's going on in Washington. 0:07:36.000 --> 0:07:39.160 How does that lead through to sentiment in the employment market? 0:07:39.440 --> 0:07:43.160 And that jobless claims figures from yesterday we're a bit troubling. 0:07:43.200 --> 0:07:46.160 We're at two forty two. It's the highest since early December. 0:07:46.960 --> 0:07:50.360 So again, that kind of suggests that it feels like 0:07:50.360 --> 0:07:52.360 the federal reserves, just like the rest of us, they're 0:07:52.400 --> 0:07:55.360 just kind of looking down to Washington, DC, trying to say, 0:07:55.400 --> 0:07:59.280 on top of all the newsflow coming out here, how 0:07:59.320 --> 0:08:02.160 long can they sit on the sidelines, do you think, Ian? 0:08:03.680 --> 0:08:06.880 Well, I think that the Fed can avoid cutting rates 0:08:06.920 --> 0:08:09.680 again at least through the first two quarters. I think 0:08:09.720 --> 0:08:12.560 it's very reasonable to assume that they skip the next 0:08:12.600 --> 0:08:16.240 few meetings. The first rate cut maybe comes in September, 0:08:16.640 --> 0:08:19.720 but there's a lot of uncertainty between now and then. 0:08:19.800 --> 0:08:22.400 The only way that things are going to shift dramatically 0:08:23.000 --> 0:08:26.240 is if we see a for the correction the equity 0:08:26.280 --> 0:08:29.200 market that titans financial conditions, or an increase in the 0:08:29.240 --> 0:08:31.280 unemployment rate, both of which are possible. 0:08:31.440 --> 0:08:32.800 We have to do an audible here. We're going to 0:08:32.840 --> 0:08:34.720 come back to interest rates of the ling and Ian. 0:08:34.840 --> 0:08:38.760 Canada just reported a whole series of economic datas and 0:08:38.800 --> 0:08:42.360 I'm sorry it's positive including I think I see here 0:08:42.600 --> 0:08:48.400 third quarter GDP revised from a gloomy one percent up 0:08:48.440 --> 0:08:52.240 to two point two percent. Is as well. You've got 0:08:52.240 --> 0:08:56.120 the Bank of Montreal combine working for you. How do 0:08:56.200 --> 0:09:03.959 you filter in the response of Ontario, Quebec, Alberta. How 0:09:04.040 --> 0:09:07.800 do you when you see their response to propose tariffs 0:09:08.160 --> 0:09:12.880 from sixteen hundred Pennsylvania Avenue, What does that do to America? 0:09:12.920 --> 0:09:15.640 What does that do to our GDP? And then on 0:09:15.720 --> 0:09:20.240 to your four percent four point zero percent ten year yield? 0:09:21.320 --> 0:09:23.480 Well, we do know that the Canadian economy is a 0:09:23.480 --> 0:09:26.400 lot more rate sensitive, and the Bank of Canada has 0:09:26.559 --> 0:09:30.360 been quite a bit more aggressive on the ray cutting side. 0:09:30.400 --> 0:09:35.120 So seeing the Canadian economy respond positively, isn't that surprising? 0:09:35.360 --> 0:09:38.439 What I worry about, and I think that most Canadian 0:09:38.440 --> 0:09:41.840 banks do, is what happens with this looming twenty five 0:09:41.880 --> 0:09:46.800 percent on the fourth of March. Does that really derail 0:09:47.000 --> 0:09:51.000 growth in Canada? The short answer would be it probably 0:09:51.240 --> 0:09:54.280 takes a We probably see a material hit which should 0:09:54.320 --> 0:09:58.600 translate through to lower rates, and the US probably gets 0:09:58.679 --> 0:10:01.080 a bit of downdraft as well. So I think that 0:10:01.080 --> 0:10:04.400 there's a lot of cross currents brewing in favor of 0:10:04.520 --> 0:10:05.920 lower yields in the near term. 0:10:06.000 --> 0:10:08.839 So what does Bank of Montreal say about Doug Ford 0:10:08.880 --> 0:10:11.079 of Ontario and what he's going to do in windsor 0:10:11.200 --> 0:10:15.640 Canada to put x tens of thousands of Americans out 0:10:15.640 --> 0:10:19.319 of work? How does Bank of Montreal see that sequence? 0:10:19.520 --> 0:10:20.440 If we get it. 0:10:22.240 --> 0:10:25.439 Well, I think that the short answer is we're all 0:10:25.559 --> 0:10:30.400 in the position where there are a lot of political uncertainties, 0:10:30.640 --> 0:10:34.360 and the back and forth between leaders, whether it's coming 0:10:34.400 --> 0:10:36.560 from Trump, whether it's coming out of China, whether it's 0:10:36.559 --> 0:10:41.479 coming from Canada or Mexico, will continue to fuel this uncertainty. 0:10:42.440 --> 0:10:45.400 So how do you think this, I guess. Coming back 0:10:45.440 --> 0:10:47.240 to the US here we had some the real personal 0:10:47.280 --> 0:10:50.359 spending came in materially weaker than expected. 0:10:50.400 --> 0:10:50.640 There. 0:10:51.200 --> 0:10:53.880 How does the FED look at that kind of data. 0:10:55.640 --> 0:10:57.360 Well, I think the first thing that FED would say 0:10:57.679 --> 0:11:01.480 is the consumer remains on str footing. Take a look 0:11:01.520 --> 0:11:05.280 at the longer term trends and there's no real reason 0:11:05.360 --> 0:11:09.560 to start worrying about the consumer. Yet it's one data point. 0:11:09.880 --> 0:11:12.240 I'm looking at that and I'm saying, Okay, this is 0:11:12.280 --> 0:11:15.520 not going in the right direction. If Q one ends 0:11:15.600 --> 0:11:19.520 up ad with a one percent annualized growth rate, that 0:11:19.679 --> 0:11:22.600 will matter to the FED because that is the type 0:11:22.640 --> 0:11:25.440 of economic slowing in an environment where we might see 0:11:25.480 --> 0:11:28.480 higher inflation in the medium term or near to medium term, 0:11:28.720 --> 0:11:31.839 and that's a recipe for stagflation, and that's got to 0:11:31.880 --> 0:11:32.880 be a concern for the fact. 0:11:32.920 --> 0:11:35.520 And your commute across the nation. Good morning to those 0:11:35.600 --> 0:11:38.200 of you in Canada waking ump as well from the 0:11:38.240 --> 0:11:41.240 Maritimes out to British Columbia, we say, good morning. It's 0:11:41.280 --> 0:11:44.920 Bloomberg surveillance. With all of our digital efforts on radio, 0:11:45.000 --> 0:11:48.840 including Apple CarPlay, Android audio, and the shock is serious. 0:11:48.840 --> 0:11:51.959 How well that's doing for us? Good morning on YouTube. 0:11:52.000 --> 0:11:55.520 Subscribe to Bloomberg Podcast. Humbled by the audience today, Thank 0:11:55.559 --> 0:11:59.280 you so much for tuning in, Ian Linn with US 0:11:59.320 --> 0:12:01.439 Now Capital Markets. 0:12:01.640 --> 0:12:04.400 Ian, we're looking at a ten year US treasury written 0:12:04.400 --> 0:12:07.439 around four and a quarter percent right here, and I 0:12:07.520 --> 0:12:09.360 guess you could say it's still kind of within a 0:12:09.440 --> 0:12:11.760 range we've seen for a while here. But where do 0:12:11.760 --> 0:12:13.920 you think we end up the year on the US 0:12:14.000 --> 0:12:16.080 ten year treasury? 0:12:16.200 --> 0:12:19.360 Well, when the FED is on hold, like we expect 0:12:19.440 --> 0:12:21.640 them to be for the next couple of quarters, that 0:12:21.920 --> 0:12:25.400 tends to translate into a range of about one hundred 0:12:25.440 --> 0:12:28.320 and ten basis points for tins, and so I think 0:12:28.360 --> 0:12:30.120 that by the end of this year we'll be back 0:12:30.160 --> 0:12:32.439 towards the bottom of that range, which puts US at 0:12:32.520 --> 0:12:35.199 four percent ten year yields. I think the bigger drama 0:12:35.240 --> 0:12:36.960 is going to play out in a two year sector, 0:12:37.040 --> 0:12:39.440 and we see two year yields at three point fifty 0:12:39.440 --> 0:12:40.280 by the end of the year. 0:12:40.400 --> 0:12:42.520 I mean, this is where Michael Purvis was a tall back. 0:12:42.559 --> 0:12:44.880 And I think he's scheduled next week. Okay, he's fly 0:12:45.040 --> 0:12:47.600 fishing somewhere. Good for him right now. But you know, 0:12:47.720 --> 0:12:50.600 to the point the short term paper, the Sweeney yield, 0:12:50.840 --> 0:12:53.200 I mean, did he just say three fifty? Did? Is 0:12:53.200 --> 0:12:54.200 that what I heard? Lah? 0:12:54.240 --> 0:12:54.400 Four? 0:12:55.280 --> 0:12:59.040 Four points? The two year are yeah? Points are right 0:12:59.080 --> 0:13:03.000 now yep. Equity markets churning here up eighteen right now. 0:13:03.040 --> 0:13:05.080 The VIX comes in a little bit of better tape 0:13:05.480 --> 0:13:07.440 twenty point eight zero on the VIX. 0:13:07.520 --> 0:13:10.040 Palla and a lot of folks out there, both academics 0:13:10.040 --> 0:13:13.880 and practitioners say, this Federal Reserve historically is used kind 0:13:13.880 --> 0:13:18.680 of not bad data, but certainly historically dated data, backward 0:13:18.720 --> 0:13:20.959 looking data, and if you look at the real time stuff, 0:13:21.840 --> 0:13:24.880 you could make the call that inflation's already whipped, and 0:13:25.240 --> 0:13:28.960 you know, maybe they should be maybe even cutting rates here. 0:13:29.440 --> 0:13:30.319 How do you think about that. 0:13:32.400 --> 0:13:35.680 I'm very open to the idea that it's difficult for 0:13:35.800 --> 0:13:39.199 monetary policy makers to use hard data because there is 0:13:39.280 --> 0:13:42.960 the lag in data collection, there's the lag in reporting. However, 0:13:43.440 --> 0:13:46.400 I don't think that the idea that if we look 0:13:46.440 --> 0:13:49.439 at the real time data, for example, oil prices for 0:13:49.760 --> 0:13:53.839 some of the more obvious markets, that the FED should 0:13:53.840 --> 0:13:57.120 be basing their monetary policy decisions. 0:13:56.640 --> 0:13:57.080 Off of that. 0:13:57.280 --> 0:14:01.320 Instead, it is those forward looking indicators, look at break evens, 0:14:01.360 --> 0:14:03.560 look at the survey based measures, and that's what the 0:14:03.600 --> 0:14:05.920 FED is worried about. And I think that that's why 0:14:06.240 --> 0:14:08.679 the Fed's going to be reluctant to start cutting again. 0:14:09.160 --> 0:14:11.520 So on a yield basis, if we get a lined 0:14:11.640 --> 0:14:14.400 four point zero, just you know, you're sitting around and 0:14:14.400 --> 0:14:17.800 having a little bats. I mean, Ian, just cut to 0:14:17.840 --> 0:14:20.360 the chase. What does it mean for the housing market? 0:14:20.720 --> 0:14:25.160 Is it like boom recovery or is the ambiguity that 0:14:25.320 --> 0:14:28.440 wages are slow as Neil Datta talked about, where we 0:14:28.560 --> 0:14:30.280 don't get a housing recovery. 0:14:31.840 --> 0:14:34.280 I think that the housing market is going to struggle. 0:14:34.480 --> 0:14:37.600 Part of the reason is that the mortgage rate to 0:14:38.160 --> 0:14:41.880 treasury spread is still relatively wide for a variety of reasons. 0:14:42.120 --> 0:14:45.640 And as long as mortgages are high, then translating this 0:14:45.800 --> 0:14:49.880 through to a stronger housing market is going to be difficult, 0:14:49.960 --> 0:14:52.920 especially if we see an increase in the unemployment market 0:14:53.080 --> 0:14:55.320 or the unemployment rate. That's where I start to get 0:14:55.360 --> 0:14:56.640 really worried about housing. 0:14:56.880 --> 0:14:59.520 Great summary, Ian Lannon, thank you so much. With female 0:14:59.560 --> 0:15:02.720 capital market's working in fixed income there, we're going to 0:15:02.800 --> 0:15:05.920 come back to economics. Francis Donald with us here really 0:15:05.960 --> 0:15:10.000 off the shock as Paul mentioned of consumption of personal spending. 0:15:10.360 --> 0:15:12.600 My attention there everybody writing. 0:15:12.320 --> 0:15:14.520 This weekend, Paul I wonted do we start to see 0:15:14.560 --> 0:15:18.440 sub two percent statistics? Yeah, there's a lot going on here, folks. 0:15:19.040 --> 0:15:22.200 It's always important to talk to Francis Donald with RBC, 0:15:22.880 --> 0:15:26.240 the Royal Bank of Canada on inflation and growth. But 0:15:26.360 --> 0:15:32.120 based on conversation one, two three of this hour and 0:15:32.240 --> 0:15:36.040 following on to McKeon the Fed, Francis Donald, all of 0:15:36.080 --> 0:15:39.080 a sudden, maybe the conversation of the day. Are you 0:15:39.160 --> 0:15:42.760 going to write for Monday, Francis Donald of sub two 0:15:42.880 --> 0:15:44.760 percent real GDP. 0:15:47.360 --> 0:15:50.040 I don't think we're there yet, Tom, So our forecast 0:15:50.040 --> 0:15:52.800 for twenty twenty five was two percent, and that's a 0:15:52.840 --> 0:15:55.840 bit of an annoying forecast because two percent is sort 0:15:55.840 --> 0:15:58.960 of the break even point for a lot of equity models. 0:15:59.400 --> 0:16:01.000 So a lot of are hoping you're going to go 0:16:01.040 --> 0:16:03.840 sub two percent or above two percent, But one point 0:16:03.920 --> 0:16:06.720 nine isn't going to make or break the US economy. 0:16:07.080 --> 0:16:08.840 And you know what, Tom, I know there's a lot 0:16:08.840 --> 0:16:11.920 of January data that just landed, but the path of 0:16:11.920 --> 0:16:16.000 the US economy, there are so many potential outcomes based 0:16:16.000 --> 0:16:20.200 off of the sequence and size of Washington policy that 0:16:20.320 --> 0:16:23.120 even if you see downgrades from two percent to one 0:16:23.120 --> 0:16:27.400 point eight, that's probably not changing your outlook on what's ahead. 0:16:27.480 --> 0:16:31.160 It's just marginally changing your starting place. So I am 0:16:31.200 --> 0:16:35.680 more focused on headlines related to tariffs today, a little 0:16:35.720 --> 0:16:38.160 bit of the upside surprises we've been seeing in Europe 0:16:38.200 --> 0:16:40.960 and Canada. Maybe changing the starting place for the two. 0:16:41.320 --> 0:16:43.880 Wouldn't get too hung up on a GDP forecast, said 0:16:43.920 --> 0:16:45.160 from an economy. 0:16:44.800 --> 0:16:47.520 Rist, I listened to ed Yard Danny, who's been, of 0:16:47.560 --> 0:16:50.280 course talking of the roaring twenties here, and he was 0:16:50.400 --> 0:16:53.800 heated that yes, there's a lot of noise now and 0:16:53.880 --> 0:16:56.800 a lot of worry in that we're pulled back four 0:16:56.840 --> 0:17:00.680 percent off this grateful market. Francis Donald, what's your vision 0:17:00.760 --> 0:17:03.120 for the end of the year. Do we once again 0:17:03.200 --> 0:17:07.840 get a growth recovery as we have the last two years? 0:17:09.680 --> 0:17:12.959 Well, Tom, were big believer that there's two economies at 0:17:13.040 --> 0:17:16.520 play in the United States. There's the wealthy who are 0:17:16.560 --> 0:17:20.960 benefiting from non income gains that is stock markets, house prices, 0:17:21.000 --> 0:17:23.520 their net savers, or they're doing great with those high 0:17:23.520 --> 0:17:26.760 interest rates. That part of the economy is incredibly resilient 0:17:26.800 --> 0:17:29.760 and that part of the economy is absolutely experiencing the 0:17:29.880 --> 0:17:32.399 roaring twenties and are likely to continue to do so 0:17:32.920 --> 0:17:35.560 absent some sort of wealth shock. And then there's an 0:17:35.720 --> 0:17:38.920 entire segment of America, in fact, the other ninety percent, 0:17:39.280 --> 0:17:41.880 that are struggling under the weight of high interest rates, 0:17:41.920 --> 0:17:44.080 and you're going to see that start to creep into 0:17:44.119 --> 0:17:47.000 some of this data. They're still responsible for fifty percent 0:17:47.240 --> 0:17:50.359 of the economy. This is so critical to twenty twenty 0:17:50.400 --> 0:17:53.520 five because it's muddying our ability to read so much 0:17:53.760 --> 0:17:56.600 of the soft data versus the hard data. High income 0:17:56.600 --> 0:18:00.439 Americans are going to lift aggregate data probably through to 0:18:00.560 --> 0:18:03.320 your end unless they see a wealth shock, of course, 0:18:03.560 --> 0:18:05.600 and other pockets of the economy are going to look 0:18:05.720 --> 0:18:08.320 very much like they're in recession. So we are looking 0:18:08.320 --> 0:18:11.160 at things like consumer credit data. We've actually seeing credit 0:18:11.160 --> 0:18:14.040 card usage as a share of retail sales popping higher. 0:18:14.080 --> 0:18:16.600 That's higher rates coming into play. And if we don't 0:18:16.640 --> 0:18:19.440 get rate relief big segments of the United States, then 0:18:19.520 --> 0:18:22.160 big parts of the United States will see absolutely sub 0:18:22.200 --> 0:18:25.840 two percent growth. So for markets, the aggregate matters. For 0:18:26.040 --> 0:18:29.199 corporations who are thinking about their operating environment. When we 0:18:29.240 --> 0:18:31.679 talk to our clients. We're saying to them, who is 0:18:31.680 --> 0:18:34.080 your client group? Because I can't give you one headline 0:18:34.119 --> 0:18:37.119 number in the United States anymore to explain the entire 0:18:37.160 --> 0:18:39.760 path of the US economy. We just got to get deeper. 0:18:39.920 --> 0:18:42.400 So we got to get Francis Donald on twice. Yep, 0:18:42.400 --> 0:18:45.080 we can have it on now about the booming economy, 0:18:45.320 --> 0:18:47.719 and you and Alice can have around at eleven am 0:18:47.760 --> 0:18:49.920 about the gloom exact. That's the way we roll. 0:18:50.240 --> 0:18:53.280 So Francis, can we still kind of refer to the 0:18:53.359 --> 0:18:56.600 US economy as you know one of exceptionalism. Is that 0:18:57.080 --> 0:18:58.960 still a storyline. 0:19:00.560 --> 0:19:03.560 And you're still going to see US resilience in play, 0:19:03.640 --> 0:19:06.520 probably for several months at least, based on the path 0:19:06.560 --> 0:19:09.520 that we're seeing now. No, is that exceptionalism as high 0:19:09.600 --> 0:19:12.600 as maybe those who had expected it six months ago. No, 0:19:12.720 --> 0:19:15.480 there are some downside the prizes. One of them is 0:19:15.520 --> 0:19:20.200 that the Trump administration, a lot of the enthusiasm economically 0:19:20.359 --> 0:19:23.320 was that we'd see those corporate tax cuts in that deregulation. 0:19:23.720 --> 0:19:25.560 But I remember a few months ago talking to the 0:19:25.560 --> 0:19:27.000 two of you in New York that it's going to 0:19:27.080 --> 0:19:29.960 matter what the sequence of policies are and we're not 0:19:30.000 --> 0:19:32.880 getting a sequence that's really market friendly right now. We're 0:19:32.880 --> 0:19:36.800 hearing about tariffs and maybe fiscal pullback before we get 0:19:36.840 --> 0:19:40.119 some of that juicy reflationary type of content. So this 0:19:40.200 --> 0:19:43.920 is going to be really important heading into twenty twenty five. 0:19:44.119 --> 0:19:48.000 You got an entire combine. I remember the day Royal 0:19:48.040 --> 0:19:51.320 Bank Canada took out Minnesota, Piper Jeffrey. I believe it was. 0:19:52.080 --> 0:19:54.000 And you know you've done such a great job with 0:19:54.080 --> 0:19:58.280 a cross border view at RBC. Francis Donald, what is 0:19:58.280 --> 0:20:04.720 your summation of the power of Canada with a tariff response? 0:20:05.480 --> 0:20:10.520 Dare I say tariff retaliation to a quoted twenty five 0:20:10.560 --> 0:20:16.280 percent statistic? Can Canada get surgical about that to put 0:20:16.400 --> 0:20:20.680 Americans out of a job? To shift the president of 0:20:20.760 --> 0:20:23.960 the United States. 0:20:24.160 --> 0:20:26.440 Well, just a reminder, I'll give you a list, Tom, 0:20:26.640 --> 0:20:31.200 Canada provides sixty percent of oil imports to the United States, 0:20:31.359 --> 0:20:35.479 ninety percent of electricity imports, ninety nine percent of natural gas, 0:20:35.680 --> 0:20:39.040 eighty five percent of potash, ninety eight percent of canola, 0:20:39.119 --> 0:20:41.679 thirty four percent of your meat, and let's not forget 0:20:41.680 --> 0:20:45.800 critical minerals, which is nineteen percent of US imports, twenty 0:20:45.840 --> 0:20:50.080 seven percent of your uranium imports come from Canada. Canada 0:20:50.240 --> 0:20:53.359 helps to heat the United States, it helps to feed 0:20:53.400 --> 0:20:56.600 the United States, and this is not twenty eighteen anymore. 0:20:56.640 --> 0:20:59.879 The US is struggling under an electrical grid and have 0:21:00.200 --> 0:21:03.760 substantial energy needs that Canada can help to rectify. So 0:21:03.880 --> 0:21:06.160 I think the focus should be on how much can 0:21:06.240 --> 0:21:09.560 Canada support US exceptionalism going forward, and what is the 0:21:09.680 --> 0:21:14.160 upside of actual increased collaboration between the two countries. That's 0:21:14.200 --> 0:21:17.200 the story that I think will resonate because President Trump 0:21:17.240 --> 0:21:20.560 has huge ambition for what the US economy can be common. 0:21:20.600 --> 0:21:23.080 There is a lot of upside for the US as well. 0:21:23.400 --> 0:21:25.879 Canada upside equals US upside. 0:21:25.920 --> 0:21:26.680 We spent a lot of. 0:21:26.640 --> 0:21:29.600 Time thinking that Canada benefits from the United States. The 0:21:29.680 --> 0:21:32.119 reverse is also true, and we got to push that narrative, 0:21:32.240 --> 0:21:34.400 not just for Canadians but for Americans as well. 0:21:34.640 --> 0:21:40.200 She running for office, awesomes. That was wonderful, proud Canadian 0:21:40.280 --> 0:21:43.760 right there. So he Francis, I think I first became 0:21:43.880 --> 0:21:47.600 sensitive to this K shaped economy and what it really 0:21:47.640 --> 0:21:49.720 means and how pronounced it is maybe in the twenty 0:21:49.760 --> 0:21:53.760 sixteen election cycle, and now here we are, you know, gosh, 0:21:53.800 --> 0:21:56.000 almost ten years later, it still seems like it's still 0:21:56.040 --> 0:21:58.280 a thing. Is this a permanent part of the US 0:21:58.359 --> 0:21:59.240