WEBVTT - BI Weekend: A Preview of 2025 0:00:02.400 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.039 --> 0:00:12.840 This is Bloomberg Intelligence with Alex Steel and Paul'sweeny. 0:00:12.960 --> 0:00:16.200 The real app performance has been the US corporate high yield. 0:00:16.320 --> 0:00:18.720 Are the companies lean enough? Have they trimmed all the fats? 0:00:18.760 --> 0:00:22.560 The semiconductor business is a really cyclical business. 0:00:22.040 --> 0:00:25.639 Breaking market headlines and corporate news from across the globe. 0:00:25.680 --> 0:00:28.319 Do investors like the M and A that we've seen? 0:00:28.560 --> 0:00:31.600 These are two big time blue chip companies. 0:00:31.760 --> 0:00:35.360 The window between the peak and cut changing super fast. 0:00:35.520 --> 0:00:40.160 Bloomberg Intelligence with Alex Steel and Paul'sweeny on Bloomberg Radio. 0:00:43.000 --> 0:00:45.720 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:45.760 --> 0:00:49.280 business stories impacting Wall Street and the global markets. Each 0:00:49.280 --> 0:00:51.400 and every week we provide in depth research and data 0:00:51.440 --> 0:00:53.320 on some of the two thousand companies in one hundred 0:00:53.360 --> 0:00:56.760 and thirty industries our analysts cover worldwide. Today will take 0:00:56.760 --> 0:00:58.600 a look at the federal reserves rate path for twenty 0:00:58.640 --> 0:01:01.760 twenty five and how the income Trump administration could affect 0:01:01.800 --> 0:01:03.960 the economy. Plus we'll take a look at some of 0:01:04.000 --> 0:01:06.480 the companies our analysts are keeping an eye on in 0:01:06.520 --> 0:01:09.400 the new year. But first we dive into the health 0:01:09.480 --> 0:01:12.560 of the retail industry in a price sensitive climate. I 0:01:12.640 --> 0:01:14.880 guess host Caroline Hyde and I sat down with Bloomberg 0:01:14.880 --> 0:01:18.919 Intelligence senior retail analyst Jennifer Partashis for a look ahead 0:01:19.000 --> 0:01:21.399 at the retail space heading into the new year. Here's 0:01:21.400 --> 0:01:22.679 a portion of our conversation. 0:01:23.280 --> 0:01:25.360 One of the things that we're looking at is really 0:01:25.480 --> 0:01:27.960 the consumer is doing well, but it's about where is 0:01:27.959 --> 0:01:31.040 their focus. And the focus is on value. And so 0:01:31.120 --> 0:01:33.520 what we're seeing is across the entire industry a lot 0:01:33.520 --> 0:01:37.200 of retailers trying to re orient them their operations in 0:01:37.240 --> 0:01:39.800 a way that presents a value. However that might mean 0:01:39.840 --> 0:01:42.280 to their core consumer. So for Nord's dream, you may 0:01:42.280 --> 0:01:45.039 see that pivoting in terms of the way they do 0:01:45.080 --> 0:01:48.280 their assortment. But for retailers like Walmart and Target, it's 0:01:48.320 --> 0:01:49.800 about price and it's about selection. 0:01:50.760 --> 0:01:52.720 And there's a great story on that general in the 0:01:52.720 --> 0:01:55.960 Bloomberg terminal, Leslie Patton and Jay Won Kang have this story. 0:01:56.200 --> 0:02:00.000 The headline is just a great headline Kirkland for Christmas shoppers, 0:02:00.080 --> 0:02:03.840 itch logos for store brands. That kind of goes to 0:02:03.920 --> 0:02:08.080 your value argument. How do you see that with the 0:02:08.120 --> 0:02:08.799 stores you cover? 0:02:09.840 --> 0:02:13.200 Yeah, value is as I said, it's of utmost importance. 0:02:13.240 --> 0:02:16.360 But private label had a great year in twenty twenty four, 0:02:16.760 --> 0:02:19.400 and we actually see that momentum just continuing in twenty 0:02:19.480 --> 0:02:23.120 twenty five. So Kirkland is Costco's own brand. It is 0:02:23.480 --> 0:02:26.280 over thirty percent, almost thirty five percent of their sales, 0:02:27.000 --> 0:02:29.160 and it is just a trusted brand to the point 0:02:29.160 --> 0:02:31.639 where consumers no longer think of it as a private 0:02:31.680 --> 0:02:34.440 label alternative to national brands. They just see it as 0:02:34.440 --> 0:02:39.600 a brand in and of itself. Walmart, Target, Kroger, Albertson's, 0:02:39.639 --> 0:02:42.359 these companies have all invested in private label in the 0:02:42.440 --> 0:02:45.680 last year couple like the last several years, and it's 0:02:45.720 --> 0:02:48.920 really starting to pay dividends because it's value, it's novelty, 0:02:49.200 --> 0:02:51.480 and it's something that consumers are really resonating with. 0:02:53.080 --> 0:02:55.360 To get that data to understand that it's resonating with 0:02:55.400 --> 0:02:58.080 a consumer, they're having to be leaning into all the 0:02:58.160 --> 0:03:01.120 data points, largely through digital invest I'm sure, and through 0:03:01.160 --> 0:03:04.080 aultificial intelligence. How is that something that they're not just 0:03:04.120 --> 0:03:06.720 plowing money in by getting the realwards back. 0:03:07.600 --> 0:03:10.440 Yeah, the rise of retail media is really the answer 0:03:10.440 --> 0:03:13.120 to that question. And when we look at the industry, 0:03:13.280 --> 0:03:16.440 actually last year we made a prediction that retail media 0:03:16.840 --> 0:03:19.680 would be up by over twenty percent the revenue associated 0:03:19.720 --> 0:03:21.640 with it for twenty twenty four, and it looks like 0:03:21.680 --> 0:03:25.000 we're going to exceed that and it's on pace to 0:03:25.160 --> 0:03:28.080 continue that kind of momentum into twenty twenty five. So 0:03:28.240 --> 0:03:32.080 retail media is really advertising, and it's the selling of 0:03:32.560 --> 0:03:35.680 ad space, it's the selling of search results, and it's 0:03:35.720 --> 0:03:38.720 the digital products such as you see online as well 0:03:38.720 --> 0:03:41.920 as digital screens that you see in stores. And so 0:03:42.120 --> 0:03:44.880 retailers have really been unlocking the value of that and 0:03:44.920 --> 0:03:48.600 are finding that it's a way to bring a high margin, 0:03:48.960 --> 0:03:52.400 very low overhead business into their mainstream core. 0:03:52.960 --> 0:03:55.960 You know, Jen, that's a business for better or worse, 0:03:56.000 --> 0:03:58.520 I have experienced with Back in my banking days. We 0:03:58.560 --> 0:04:00.840 tried to finance a bunch of those companies because we 0:04:00.880 --> 0:04:04.360 felt like, you know, just like you said, they're captured customers, 0:04:04.400 --> 0:04:06.560 they're at the point of buying. What a great time 0:04:06.720 --> 0:04:10.480 for video to be introduced there in terms of advertising. 0:04:10.680 --> 0:04:13.320 What does it mean for the big retailers? What are 0:04:13.360 --> 0:04:15.720 the economics to the big retailers for this media. 0:04:16.760 --> 0:04:19.320 So this media carries a margin of eighty percent and 0:04:19.360 --> 0:04:23.320 when you think about when you think about retail staples, 0:04:23.360 --> 0:04:26.120 you're talking about operating margins in the three to five 0:04:26.160 --> 0:04:29.000 percent range, right, You're talking about gross margins in the 0:04:29.440 --> 0:04:32.760 high teens, low twenties. So the ability to have a 0:04:32.839 --> 0:04:35.839 revenue stream with such a high margin is very appealing 0:04:35.839 --> 0:04:39.080 to these companies. And they have the data. They have 0:04:39.120 --> 0:04:42.159 all this first party data that they can monetize, and 0:04:42.240 --> 0:04:45.800 so it really is a very effective partnering. And one 0:04:45.839 --> 0:04:48.200 of the interesting things that we're finding is that there's 0:04:48.240 --> 0:04:52.240 always been historically investment from say, packaged food companies into 0:04:52.480 --> 0:04:56.000 retailers for placement on shelves and things like that, but 0:04:56.040 --> 0:05:00.240 we're finding that retail media is actually incremental spend that's 0:05:00.279 --> 0:05:03.200 actually an even bigger tailwind for these retailers as they 0:05:03.200 --> 0:05:06.000 get deeper into this new revenue stream. 0:05:06.560 --> 0:05:08.880 In many ways, everyone takes a leaf out of Amazon's book. 0:05:08.880 --> 0:05:11.120 In the end, I'm interested in Jan a little bit 0:05:11.200 --> 0:05:14.240 more about the pure data side of it and the 0:05:14.240 --> 0:05:16.800 forecasting side of it. We go to you to help 0:05:16.880 --> 0:05:19.000 us full cost, what the retail looks like. How are 0:05:19.000 --> 0:05:21.920 the companies themselves full casting in twenty twenty five. 0:05:23.080 --> 0:05:26.239 Well, it's been interesting because what we've really seen were 0:05:26.680 --> 0:05:28.880 in twenty twenty three and twenty twenty four, we saw 0:05:28.960 --> 0:05:33.080 some initial pilot cases of the use of AI, for example, 0:05:33.400 --> 0:05:36.920 to help with demand forecasting. And we're seeing that those 0:05:36.960 --> 0:05:40.200 pilot programs have been successful and are being more widely 0:05:40.279 --> 0:05:44.200 rolled out across organizations at places like Kroger and Walmart 0:05:44.200 --> 0:05:44.719 and Target. 0:05:46.000 --> 0:05:47.760 And you know what that really. 0:05:47.480 --> 0:05:50.320 Means is that they're getting more efficient and smarter about 0:05:50.440 --> 0:05:53.359 understanding when they need product and where they need product. 0:05:53.720 --> 0:05:55.720 That then goes all the way back up to supply 0:05:55.839 --> 0:05:59.039 chain and makes them more efficient as an organization. And so, 0:05:59.400 --> 0:06:03.119 you know, the kind of cost cutting initiative is good 0:06:03.279 --> 0:06:06.640 from a operational perspective, but it's also good for customers 0:06:06.680 --> 0:06:09.000 because that means that what they want will be in 0:06:09.040 --> 0:06:12.040 the stores or online available at the time they want it. 0:06:12.200 --> 0:06:15.640 Our thanks to Jennifer bartashis Bloomberg Intelligence Senior retail analyst. 0:06:15.960 --> 0:06:18.960 She spoke with me and Guess host Caroline Hyde. Now 0:06:19.000 --> 0:06:21.840 we pivot to how mortgage rates will impact the health 0:06:21.880 --> 0:06:24.560 of the housing market. Alex Steel and I spoke with 0:06:24.600 --> 0:06:28.440 your reading Bloomberg Intelligence US home building analysts starting with 0:06:28.480 --> 0:06:31.200 his prediction for the housing market in twenty twenty five. 0:06:31.560 --> 0:06:34.520 Yeah, so as you can imagine, the direction of mortgage 0:06:34.600 --> 0:06:37.640 rates obviously is going to be key in determining how 0:06:37.680 --> 0:06:41.120 the spring selling season unfolds and how housing ultimately fares 0:06:41.200 --> 0:06:43.520 in twenty twenty five. I mean, if we go back 0:06:43.560 --> 0:06:46.160 to September, we were looking at a rate at around 0:06:46.360 --> 0:06:48.640 six point one percent. There was a lot of optimism 0:06:48.680 --> 0:06:52.640 heading into next year, you know, but that quickly unwound. 0:06:52.640 --> 0:06:55.400 We're now looking at rates at about seven zero point 0:06:55.440 --> 0:06:58.120 one percent, So monthly payments are that much higher for 0:06:58.120 --> 0:07:00.479 buyers out there. So we think it's going to be 0:07:00.480 --> 0:07:02.720 hard to build a lot of momentum with the affordability 0:07:02.800 --> 0:07:05.120 challenges that are still out there in the market. That 0:07:05.200 --> 0:07:07.840 being said, we think that the broader housing space can 0:07:07.880 --> 0:07:11.720 still grind higher in twenty twenty five, you know, with 0:07:11.800 --> 0:07:14.280 the existing market returning to growth maybe in the low 0:07:14.320 --> 0:07:17.960 to mid single digit range, often extremely depressed base. Remember 0:07:18.000 --> 0:07:20.400 we're coming off back to back years at around a 0:07:20.520 --> 0:07:23.360 four million annualized rate, which is the lowest in more 0:07:23.400 --> 0:07:26.160 than a decade, So off of a low base for sure. 0:07:26.240 --> 0:07:29.160 In the new home market, we think you'll see similar growth, 0:07:29.160 --> 0:07:31.960 but we think the backdrop will continue to favor the large, 0:07:32.480 --> 0:07:36.520 well capitalized, publicly traded builders who have access to financing, 0:07:37.160 --> 0:07:40.520 access to land, access to the trades, compared to their 0:07:40.560 --> 0:07:44.640 smaller private peers who tend to rely on that regional 0:07:45.360 --> 0:07:49.320 and local banking for financing. So they've really struggled struggled 0:07:49.360 --> 0:07:51.960 with the cost and availability of that capital. So we 0:07:51.960 --> 0:07:54.600 think you'll see a bifurcation growth continue to play out. 0:07:55.120 --> 0:07:57.120 Drew, I'm going to ask you a thirty thousand foot 0:07:57.240 --> 0:08:00.440 question about housing market here in the United States. We're 0:08:00.480 --> 0:08:04.360 told that there's a housing shortage. A. Is that true? B? 0:08:04.520 --> 0:08:07.960 How did we get there? And what are your building 0:08:08.040 --> 0:08:09.200 companies going to do about it? 0:08:10.600 --> 0:08:12.760 Yeah? So, I think the issue right now is that 0:08:12.800 --> 0:08:16.440 there's a shortage of homes on the market. A lot 0:08:16.440 --> 0:08:18.040 of that has to do with the fact that people 0:08:18.040 --> 0:08:20.480 are locked into a much lower mortgage rate, so they're 0:08:20.480 --> 0:08:23.240 disincentivized to put their house on the market and trade 0:08:23.320 --> 0:08:25.920 up to a new home and take on a much 0:08:26.000 --> 0:08:28.440 higher rate. At the same time, you have to remember 0:08:28.480 --> 0:08:31.440 back in twenty twenty, twenty twenty one, when money was cheap, 0:08:31.480 --> 0:08:34.040 you had a lot of people going out buying second 0:08:34.040 --> 0:08:36.640 and third homes. You saw the boom in the airbnb market. 0:08:36.640 --> 0:08:39.679 So I think, you know, the housing stock has been 0:08:39.720 --> 0:08:42.760 allocated in a different way than we've seen historically, which 0:08:42.840 --> 0:08:45.840 is contributing to that shortage. Now in terms of what 0:08:45.920 --> 0:08:48.360 the builders are doing, you know, it's going to be 0:08:48.400 --> 0:08:50.320 hard for them to put a lot of new supply 0:08:50.600 --> 0:08:54.079 onto the market, particularly as supplying the resale market starts 0:08:54.080 --> 0:08:57.160 to heat up. So we think you'll see new home 0:08:57.200 --> 0:08:59.520 production maybe increase in the load to mid single digit 0:08:59.640 --> 0:09:02.760 range kind of corresponds to what they're seeing from the 0:09:02.800 --> 0:09:04.920 demand side. But you know, we don't. We don't see 0:09:05.120 --> 0:09:08.400 the issue with housing being solved anytime soon. 0:09:10.000 --> 0:09:12.040 I love how we talked about low rates, thanks a lot, 0:09:12.080 --> 0:09:14.240 this is my moment where this is your moment. 0:09:13.960 --> 0:09:16.760 Two seventy five thirty or fix and then Paul complains 0:09:16.800 --> 0:09:18.800 about not being able to refine, and then all those 0:09:18.840 --> 0:09:21.720 the really cool conversations. So then we can, you know, 0:09:22.240 --> 0:09:25.400 move forward on that convo. The problem is with your builders, 0:09:25.480 --> 0:09:28.440 as Paul calls them, is that they wind up building, 0:09:28.520 --> 0:09:30.760 but it's still too expensive for people to buy it, 0:09:30.880 --> 0:09:33.800 and then they wind up having to give incentives, and 0:09:33.840 --> 0:09:36.719 then that winds up hurting their profitability. How long does 0:09:36.760 --> 0:09:38.520 that's part of the cycle last for. 0:09:39.679 --> 0:09:41.839 That's a great point, Alex. That's actually one of the 0:09:41.880 --> 0:09:44.080 key themes for twenty twenty five. Well, we think that 0:09:44.600 --> 0:09:47.000 volumes will continue to rebound, it's going to come at 0:09:47.000 --> 0:09:50.080 a cost for the builders. The use of sales incentives 0:09:50.120 --> 0:09:52.720 is at a multi year high. You know, a couple 0:09:52.800 --> 0:09:54.600 months ago, when we were looking out to twenty twenty 0:09:54.600 --> 0:09:56.319 five and we had mortgage rates coming down to the 0:09:56.360 --> 0:09:59.119 six percent range, I think there's a lot of optimism 0:09:59.160 --> 0:10:01.600 that builders were going to be able to pool back 0:10:01.640 --> 0:10:04.040 on that use of incentives, which would support margins into 0:10:04.080 --> 0:10:07.840 next year. But it's been exactly the opposite. So you know, 0:10:08.040 --> 0:10:10.280 we think sales incentives are going to remain elevate it 0:10:10.320 --> 0:10:13.520 we think margins will come under pressure next year. And 0:10:13.600 --> 0:10:16.120 it's not just incentives. I mean, you have higher cost 0:10:16.200 --> 0:10:17.960 land running through the P and L, and you have 0:10:18.040 --> 0:10:21.800 the potential for Paris and some immigration policy to add 0:10:21.840 --> 0:10:23.840 to the to the margin pressures that these guys are 0:10:23.840 --> 0:10:24.800 going to face next year. 0:10:25.040 --> 0:10:28.160 All Right, So a home was just constructed right next 0:10:28.200 --> 0:10:30.680 to me down at the Jersey Shore. It's being constructed 0:10:30.679 --> 0:10:35.560 as we speak, and I'm guessing swarming with workers there. 0:10:35.600 --> 0:10:38.160 I'm guessing some percentage of them are illegal immigrants. 0:10:38.200 --> 0:10:39.960 What are the what are. 0:10:39.840 --> 0:10:43.520 The builders telling you guys about a tighter immigration policy 0:10:43.600 --> 0:10:46.760 might mean on the ability to actually get these things built. 0:10:48.000 --> 0:10:51.440 Yeah, there's some estimates out there that immigrants comprise about 0:10:51.440 --> 0:10:55.319 thirty percent of the entire US construction force, and as 0:10:55.360 --> 0:10:58.640 you mentioned, a large portion of those are undocumented. So 0:10:59.040 --> 0:11:00.760 in the event that they that we do get some 0:11:00.880 --> 0:11:04.200 policy coming through next year that puts a strain on 0:11:04.240 --> 0:11:06.160 that labor force. I think what you're going to see 0:11:06.200 --> 0:11:09.560 is a pullback in production. I think builders closings could 0:11:09.559 --> 0:11:11.920 be impacted because you're going to see cycle times, which is, 0:11:12.120 --> 0:11:13.920 you know, the amount of time from start to completion. 0:11:14.520 --> 0:11:17.280 You'll see them start to elongate, and I could pressure closings. 0:11:17.840 --> 0:11:20.400 At the same time, you know, builders are going to 0:11:20.559 --> 0:11:22.720 have to start to fight more to attract that labor. 0:11:22.720 --> 0:11:24.960 So you're going to see cost strives as well. 0:11:24.600 --> 0:11:26.719 Right, So that says a profitability squeeze. It feels like 0:11:26.760 --> 0:11:29.680 on lots of different ends, which companies in your coverage 0:11:29.760 --> 0:11:31.920 universe do you feel like are best equipped to manage that. 0:11:32.240 --> 0:11:34.120 So there's a couple of things that we're looking at. 0:11:34.360 --> 0:11:36.760 One from a geographic perspective, we think that's going to 0:11:36.760 --> 0:11:40.200 become increasingly important in twenty twenty five. Some of the 0:11:40.240 --> 0:11:43.280 markets that are struggling a little bit, think of Texas 0:11:43.320 --> 0:11:46.280 and Florida, where you're seeing a lot more competitive supply. 0:11:47.200 --> 0:11:49.360 We think builders in those markets are maybe going to 0:11:49.400 --> 0:11:53.120 have to adjust prices or continue with the elevated incentives. 0:11:53.120 --> 0:11:55.520 So we think from a geographic perspective, you're likely to 0:11:55.520 --> 0:11:59.079 see relative strength in the Midwest, in the Northeast, and 0:11:59.120 --> 0:12:04.520 maybe park Its pockets of California. From a product perspective, 0:12:05.040 --> 0:12:07.080 you know, with rates rising, you have to think about 0:12:07.080 --> 0:12:09.240 who's most impacted by that, and as you would expect, 0:12:09.280 --> 0:12:11.480 it's the lower end of the entry level home buyer. 0:12:11.760 --> 0:12:13.920 So we think that they could remain under pressure into 0:12:13.920 --> 0:12:17.320 twenty twenty five with relative strength and that move up 0:12:18.040 --> 0:12:20.400 and luxury segment. So some builders that come to mind 0:12:20.400 --> 0:12:23.040 would be a Toll Brothers or a Teller Morrison. 0:12:23.559 --> 0:12:27.400 Our thanks to you're reading Bloomberg Intelligence US home Building Analyst. 0:12:27.720 --> 0:12:30.360 Coming up, we turned to the fed's rate path for 0:12:30.440 --> 0:12:34.079 twenty twenty five. You're listening to Bloomberg Intelligence on Bloomberg Radio, 0:12:34.360 --> 0:12:37.000 providing in depth research and data on two thousand companies 0:12:37.000 --> 0:12:39.679 and one hundred and thirty industries. You can access Bloomberg 0:12:39.720 --> 0:12:42.800 Intelligence via bi Go on the terminal for my colleague 0:12:42.800 --> 0:12:54.360 Alex Steele. I'm Paul Sweeney. This is Bloomberg. 0:12:58.520 --> 0:13:02.840 This is Bloomberg Intelligence with Alex Steele and Paul Sweeney 0:13:03.240 --> 0:13:04.480 on Bloomberg Radio. 0:13:06.000 --> 0:13:08.160 We look next at the macro environment. After the Fed 0:13:08.240 --> 0:13:11.079 lowerd it's benchmark policy rate by a quarter percentage point 0:13:11.160 --> 0:13:14.760 earlier this month and signaled just two reductions for twenty 0:13:14.800 --> 0:13:18.360 twenty five, San Francisco FED President Mary Daly said she 0:13:18.480 --> 0:13:21.000 was very comfortable with two rate cuts in twenty twenty five. 0:13:21.480 --> 0:13:24.160 She spoke about the Fed's rate path on Bloomberg recently 0:13:24.520 --> 0:13:27.920 with hosts Jonathan Farrell, Lisa Bromwitz, and Michael mckeeth. There's 0:13:27.960 --> 0:13:29.319 a little bit of their conversation. 0:13:29.559 --> 0:13:30.880 We have to remain agile. 0:13:30.920 --> 0:13:32.959 I mean, you know, the thing that's got us here 0:13:33.520 --> 0:13:37.280 is being resolute to achieve our dual mandate goals. Price 0:13:37.280 --> 0:13:40.600 stability was our focus when inflation was very high. The 0:13:40.800 --> 0:13:43.560 employment has come into the frame so that we're focused 0:13:43.559 --> 0:13:44.040 on both. 0:13:44.200 --> 0:13:45.600 But then we also have to be agile. 0:13:45.920 --> 0:13:48.400 You know the world is uncertain, so we pencil into 0:13:49.000 --> 0:13:53.040 and you know, as that estimate or that projection gets 0:13:53.080 --> 0:13:55.680 further from when we made it, the accuracy of it 0:13:55.720 --> 0:13:58.240 probably falls. And so we're just going to continually take 0:13:58.320 --> 0:14:03.200 in more information consumer and every meeting your listeners should 0:14:03.240 --> 0:14:06.600 think about this. Every meeting is live from the standpoint 0:14:06.600 --> 0:14:09.400 that you're debating, you're discussing, you're thinking what's the right 0:14:09.480 --> 0:14:13.680 level of policy. But my projection is that it will 0:14:13.679 --> 0:14:16.959 take many fewer rate cuts next year than we thought. 0:14:17.160 --> 0:14:19.520 But I'll watch the economy and see if that works out. 0:14:19.800 --> 0:14:22.560 When we went into the cutting cycle, you were out 0:14:22.600 --> 0:14:25.000 front and saying you were concerned about the labor market 0:14:25.240 --> 0:14:27.400 and that we needed to make sure that we didn't 0:14:27.400 --> 0:14:31.680 lose the gains that we had. Now, at least coming 0:14:31.680 --> 0:14:34.880 out of Chairman Powell's press conference, it sounds like the 0:14:34.920 --> 0:14:39.120 focus has shifted to inflation again. Are you comfortable with 0:14:39.160 --> 0:14:41.880 that as this new phase that he's talking about. 0:14:41.960 --> 0:14:43.760 Well, I think of it as a new phase as well, 0:14:44.000 --> 0:14:46.640 and I characterize it slightly differently. I would say that 0:14:47.160 --> 0:14:51.320 for a long time, a persistent amount of time protracted, 0:14:51.600 --> 0:14:54.640 we were focused almost entirely on inflation. That's because the 0:14:54.720 --> 0:14:58.120 labor market was quite robust and inflation was seven six ' five. 0:14:58.480 --> 0:15:01.200 That was the right way to focus. Then the labor 0:15:01.200 --> 0:15:03.880 market came into the frame. That didn't mean we turned 0:15:03.920 --> 0:15:06.360 our focus totally to it. It just meant that after 0:15:06.400 --> 0:15:09.120 a long period of focusing only on inflation, we were 0:15:09.120 --> 0:15:10.160 now focused on both. 0:15:10.480 --> 0:15:11.960 I think that is still the case. 0:15:12.120 --> 0:15:15.040 That's Mary Daily, president of the San Francisco FED, talking 0:15:15.080 --> 0:15:18.440 with Jonathan Ferrell, Lisa Bromwoos, and Michael McKee for more 0:15:18.480 --> 0:15:20.880 on the Fed's path forward and how the new Trump 0:15:20.880 --> 0:15:24.120 administration might impact the economy. Caroline Hyde and I spoke 0:15:24.160 --> 0:15:27.880 with Macro Perspectives founder and president and Julia Coronado. Here's 0:15:27.880 --> 0:15:31.240 a portion of our conversation, starting on her thoughts on 0:15:31.280 --> 0:15:33.400 the messaging at the December meeting. 0:15:33.560 --> 0:15:36.600 Their messaging that we got at the December meeting was 0:15:36.720 --> 0:15:40.320 a lot sterner than expected, with only two cuts and 0:15:40.480 --> 0:15:44.360 just a general tone of concern about inflation. And I think, 0:15:44.400 --> 0:15:46.800 you know, when we look at the data that's come in, 0:15:46.840 --> 0:15:50.120 it's fair for President Daily to say that, you know, 0:15:50.160 --> 0:15:53.480 it's the data have been disappointing on the inflation front. 0:15:53.840 --> 0:15:56.040 But this wouldn't have really happened if it weren't for 0:15:56.040 --> 0:15:58.480 the risks to inflation in the outlook, and they can't 0:15:58.480 --> 0:16:00.960 really pinpoint them or put two find a point on 0:16:01.080 --> 0:16:05.200 what's likely to happen. But every major policy prong of 0:16:05.240 --> 0:16:09.840 the incoming Trump administration could potentially be inflationary. So you 0:16:09.920 --> 0:16:14.760 can see they released their assessment of risks to inflation 0:16:14.960 --> 0:16:19.400 and unemployment, and the change in upside risks to inflation 0:16:19.680 --> 0:16:23.080 really moved at the December meeting. So we don't know 0:16:23.120 --> 0:16:25.560 the specifics on policy. Yes, we have to wait and 0:16:25.600 --> 0:16:29.280 see what materializes and how that feeds into the data. 0:16:29.320 --> 0:16:32.760 But there's a direction of travel here that's of concern 0:16:32.880 --> 0:16:33.920 to the f MC. 0:16:34.120 --> 0:16:37.320 Broadly speaking, this was a big move across a lot 0:16:37.360 --> 0:16:41.360 of participants and so you know they want us to 0:16:41.400 --> 0:16:42.320 be on watch for that. 0:16:43.440 --> 0:16:45.600 Have you been running the numbers and with the best case, 0:16:45.600 --> 0:16:49.320 worst case scenario. Yes, we don't know the direction exactly 0:16:49.760 --> 0:16:50.920 of where policy will go. 0:16:51.120 --> 0:16:52.640 But we've been on this rodeo. 0:16:52.400 --> 0:16:54.840 Before, and there's been tough talk about taris in the past. 0:16:55.800 --> 0:16:58.280 Yes, and we got tariffs in the past and we 0:16:58.360 --> 0:17:03.480 did see them flow through into goods prices. The difference 0:17:03.640 --> 0:17:06.240 was that we were in an environment in the Trump 0:17:06.320 --> 0:17:09.520 the first Trump administration where inflation was running low and 0:17:09.560 --> 0:17:12.679 in fact below the Fed's target, so they could be 0:17:12.840 --> 0:17:17.400 very sanguine and patient and sort of accommodate the increase 0:17:17.440 --> 0:17:20.359 in goods prices that came with the trade war. This 0:17:20.480 --> 0:17:22.960 time around, we're in a different environment. They've just re 0:17:23.200 --> 0:17:27.240 established credibility, They've just brought inflation back down, not even 0:17:27.280 --> 0:17:31.480 to their target yet, and so you know, the threat 0:17:31.600 --> 0:17:34.560 of a round of tariffs and an impulse into goods 0:17:34.600 --> 0:17:36.960 prices is more meaningful now. 0:17:37.000 --> 0:17:38.280 The thing that they're going to have to. 0:17:38.280 --> 0:17:41.920 Grapple with, and we saw that also in last trade 0:17:41.920 --> 0:17:45.520 war is trade wars also destroyed demand. That spike in 0:17:45.640 --> 0:17:50.679 prices isn't good for consumer purchasing power, and it's unlikely 0:17:50.760 --> 0:17:54.159 to be accommodated like it was during the pandemic with 0:17:54.240 --> 0:17:58.280 a lot of fiscal support to households directly to households, 0:17:58.600 --> 0:18:03.359 which helped the economy whether the inflationary shock during the 0:18:03.400 --> 0:18:07.200 pandemic and sort of stay on track. In the first 0:18:07.200 --> 0:18:10.000 Strump administration, we actually saw the trade war damp and 0:18:10.080 --> 0:18:15.000 economic activity put the global manufacturing sector into a recession, 0:18:15.000 --> 0:18:17.399 and the FED actually ended up cutting rates in twenty 0:18:17.480 --> 0:18:22.440 nineteen to take out some insurance against that manufacturing recession 0:18:22.480 --> 0:18:27.360 broadening into the service sector. So you know, very different circumstances. 0:18:27.480 --> 0:18:31.439 This could weaken the economy, it could cause inflation, It 0:18:31.480 --> 0:18:33.639 could do both, and then the Fed's mandates go in 0:18:33.680 --> 0:18:35.480 different directions and they have to make. 0:18:35.400 --> 0:18:40.000 A judgment, Julia. So you know, tariffs are clearly an issue. 0:18:40.040 --> 0:18:42.440 What I've heard from a lot of folks is restrictive 0:18:42.520 --> 0:18:47.720 immigration policies, perhaps forced deportations that impact on the labor 0:18:47.720 --> 0:18:51.840 market that might even be even more inflationary going forward. 0:18:51.840 --> 0:18:53.040 How do you view that risk? 0:18:53.520 --> 0:18:58.439 Yeah, no, absolutely, and I think that is definitely something 0:18:58.480 --> 0:19:02.560 we are likely to see. That is one of the 0:19:02.800 --> 0:19:07.000 main promises of the campaign, and we can already see 0:19:07.040 --> 0:19:10.960 the appointees and the plans being put in place to 0:19:11.080 --> 0:19:15.399 implement this policy. And let's not forget that immigration, that 0:19:15.600 --> 0:19:19.840 plentiful flow of immigration. While it became a political hot 0:19:19.880 --> 0:19:25.680 potato during the election, it's unambiguously positive from a macroeconomic standpoint. 0:19:25.720 --> 0:19:31.400 We had abundant labor supply, it helped growth, it helped demand. 0:19:32.320 --> 0:19:34.600 So immigration is good for the economy. 0:19:34.840 --> 0:19:38.760 And to even just turn off the spigot, let alone 0:19:39.680 --> 0:19:43.800 turn around and cast a shadow over the labor market 0:19:43.840 --> 0:19:45.919 and deport some workers. 0:19:46.480 --> 0:19:48.600 It's going to change the macro environment. 0:19:48.640 --> 0:19:52.960 And yes, in areas where the most targeted population, the 0:19:53.040 --> 0:19:59.560 undocumented workers are employed, food services, construction. I have conversations 0:19:59.560 --> 0:20:02.879 with people here in Texas, people in the real estate 0:20:03.280 --> 0:20:08.560 industry that are pretty worried about the availability of workers 0:20:08.200 --> 0:20:10.840 as as early as next year, as early as the 0:20:10.880 --> 0:20:15.359 spring building season. So this could be very material. It 0:20:15.400 --> 0:20:18.720 could bring higher prices. It could also just slow down 0:20:18.760 --> 0:20:21.240 building activity because you just don't have the people that 0:20:21.280 --> 0:20:25.680 you need. Similarly, for food, availability of certain crops and 0:20:26.040 --> 0:20:30.080 the prices of those would likely spike. So leisure and 0:20:30.160 --> 0:20:34.959 hospitality another industry that relies heavily on an immigrant workforce. 0:20:35.960 --> 0:20:39.080 So yeah, we could see that ripple across numerous sectors 0:20:39.080 --> 0:20:41.800 in the economy, and it could be you know, by 0:20:41.920 --> 0:20:45.080 mid year, we're seeing some material constraints and some price 0:20:45.200 --> 0:20:46.560 increases on the back of that. 0:20:47.320 --> 0:20:48.919 You know, and Julie, it kind of goes to that 0:20:49.320 --> 0:20:52.159 consumer confidence number we got today came in, you know, 0:20:52.520 --> 0:20:56.320 weaker than expected, and the expectations looking forward were weaker 0:20:56.359 --> 0:20:59.280 than expected. That actually surprised me because I've been talking 0:20:59.280 --> 0:21:02.320 to a lot of our guests since the election about 0:21:02.359 --> 0:21:06.119 a palpable sense of optimism in this country since the election, 0:21:06.800 --> 0:21:11.080 particularly as it relates to economic outlook, reduced taxes and 0:21:11.160 --> 0:21:13.600 so on and so forth. How do you think about 0:21:13.640 --> 0:21:16.439