Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: economic policy fed shared Jay Powell and for Size, and
Speaker 2: the Central Bank is in wait and see mode pending
Speaker 2: trade negotiations. Noria Rabini of NYU Stern is saying, no pain,
Speaker 2: no gain. American democracy will survive the show, and after
Speaker 2: an initial period of pain, the US economy will thrive.
Speaker 2: Noria joins us now for more nor how good to
Speaker 2: see you.
Speaker 3: You're often created.
Speaker 2: As Doom and Gloom, the big Bear, But I've spent
Speaker 2: many a time with you, and we've had conversations where
Speaker 2: you're constructive, and it feels like this is that moment.
Speaker 2: What are the factors that lead to that constructive view
Speaker 2: for you.
Speaker 4: Well, and recently said that tech Trump stariffs, and what
Speaker 4: I mean is that US is really number one in
Speaker 4: many of the technologies of the future AI, machine learning,
Speaker 4: robotic automation, semi fusion, quantum defence, tech, green tech, arc tech, fintech,
Speaker 4: you un nem it, and I expect that actually US
Speaker 4: potential growth because of that could increase from the current
Speaker 4: two percent towards four percent by the end of the decade.
Speaker 4: So that's the two undred business points increase potential growth.
Speaker 4: Even tariffs and there'll be some of the escalation and
Speaker 4: re stixtion migration. Best estimates that they could reduce potential
Speaker 4: growth by fifty business points. You have two hundred on
Speaker 4: the plus fifty on the minus. So is the ratio
Speaker 4: between four to one. So I think that that's why
Speaker 4: that over the medium term, the fact that the US
Speaker 4: is very innovative implies that whatever Trump does doesn't matter.
Speaker 4: So tech trumpstariff, Tech trumps Trap two, and the traders
Speaker 4: of course trump Trump and they forced him to back
Speaker 4: down to market discipline. The most powerful people in the
Speaker 4: world that the Bombagilantes. So I think it's Box team.
Speaker 4: There'll be the escalation, We'll still have an inflation rate.
Speaker 4: I expect that the trade imply that for most of
Speaker 4: the world you have tartists between ten to fifteen percent.
Speaker 4: On China sixty. But even with ten and sixty, that
Speaker 4: is what actually Trump was announcing in the campaign trail.
Speaker 4: You get inflation core PC towards four percent by the
Speaker 4: end of the year. Let's say to a disposable income,
Speaker 4: you have a weekending of consumer and business sentiment, you
Speaker 4: get a shortened shallow recession by Q four. It's going
Speaker 4: to be shortened shallow because then the FED is going
Speaker 4: to cut rights since inflation expectations are the young chort
Speaker 4: but well, we'll have a shortened shallow recession. But that's
Speaker 4: poorly highly likely.
Speaker 3: Can I jump on that point?
Speaker 2: What gives you the confidence the FED can respond to that,
Speaker 2: because there are some people who are worried about the
Speaker 2: inflation that might pick up and the fact that might
Speaker 2: constrain the FED stablished bias.
Speaker 5: No, you're right, That's why are people already saying they
Speaker 5: should have cut in May or in June or July.
Speaker 4: I don't think it's going to happen before September, because,
Speaker 4: as Powell said, yesterday, inflation will be higher, unemployment is
Speaker 4: going to be higher. Last time around, they made a mistake.
Speaker 4: They thought that increase in inflation was temporary and was not,
Speaker 4: and then they had to catch up on it and
Speaker 4: so on. So this time around, you can make the
Speaker 4: argument that since inflation expectations are anchored, since the Fed
Speaker 4: is not winding out, and for being forced by the
Speaker 4: White House to cut rates right now, when inflation arises,
Speaker 4: going to be a level effect rather than the.
Speaker 5: Rate of inflation.
Speaker 4: If inflation expectation remains anchored, if you don't have second
Speaker 4: round effects, then once unemployment goes higher that week as
Speaker 4: the labor market, then effects are going to feel comfortable
Speaker 4: to cut rates. But right now they have to stay
Speaker 4: on hold exactly because they need to cut once then
Speaker 4: the economy we can significantly.
Speaker 6: People have been talking about styflationary like scenarios. The growth
Speaker 6: is slowing, and as you acknowledge that would probably happen
Speaker 6: to some degree in the near term, and that inflation
Speaker 6: was going to main higher, some of the trade or
Speaker 6: means get readjusted. Why is that not a significant concern
Speaker 6: for you at a time? Or even the Fed seems
Speaker 6: to not have clarity on whether that's going to be
Speaker 6: the predominant theme.
Speaker 4: It's circulationary growth is going to be lower, neuro sexeal
Speaker 4: inflation is going to be higher. I think the difference
Speaker 4: between now and said in nineteen seventies, when you're the
Speaker 4: old shock of seventy three or seventy nine, was the
Speaker 4: inflation was already high in rising and the FED was
Speaker 4: behind the curve, and then you had the uncording of
Speaker 4: inflation expectation. This time around, I think they have shown
Speaker 4: some credibility in uncoding.
Speaker 5: Inflation inflation expectation.
Speaker 4: You're right, however, that you never know second round effects
Speaker 4: may occur. You have not only the impact of the
Speaker 4: tariff now the dollars weakening. That's another impact on import prices.
Speaker 4: That's why the FED has to wait until the hard
Speaker 4: data show that there is the beginning of or a session.
Speaker 4: If they start cutting great earlier, then you have the
Speaker 4: uncording and inflation expectation, and that's going to be a problem.
Speaker 6: How much of the Fed's hands tied because the long
Speaker 6: end of the yield curve is not necessarily anchored to
Speaker 6: FED policy in the same way, especially given some of
Speaker 6: the deficit concerns. And I know that that congress member
Speaker 6: wanted to talk about what was going to happen with
Speaker 6: the total pool of debt, not the debt GP. But
Speaker 6: I'm actually curious about how they issue that debt and
Speaker 6: just what that does to some of the yield premium
Speaker 6: going forward.
Speaker 5: Well, the long it.
Speaker 4: Depends on the FED in terms of inflation expectation and
Speaker 4: the fences. As you point out this premium or term
Speaker 4: premium on fiscal policy. I think the administration is sensitive
Speaker 4: to the idea that if you'll have a very large deficit,
Speaker 4: eventually bondiles can go higher, they can further crowd out
Speaker 4: economic recovery. And we'll see the results of these fiscal plans.
Speaker 4: Some of the stuff they're doing and increase the deficit.
Speaker 5: Some of it like.
Speaker 4: Tariffs or reduction in highris subsidies, medicaid, those cuts will
Speaker 4: reduce the deficit. I think they'll be quite sensitive not
Speaker 4: to have a headline number for deficit next year higher
Speaker 4: this year, because then bodiles will go much higher and
Speaker 4: that's going to hurt further the economy. But because you're
Speaker 4: going to have a physical drug I think most likely
Speaker 4: next year than the FED as zoom for using a
Speaker 4: little bit more now they want to start all so
Speaker 4: manipulating the long end of the bonding curve. You know,
Speaker 4: I wrote this paper with Steve Miran criticizing what Yaren
Speaker 4: was doing by reducing the supply of long debt and
Speaker 4: issue more of the short one.
Speaker 5: But this time I run is not just the ratio
Speaker 5: between the two.
Speaker 4: They're talking about buybacks literally buying more of the long
Speaker 4: term to get the outBut.
Speaker 5: Marketution more of the short term.
Speaker 4: That is doubling down on these itthei policy just doing
Speaker 4: more of it actually rather less of it.
Speaker 2: No, there's only one person I know with more rare
Speaker 2: moles than you, and it's our friend muhammadal Aian. You
Speaker 2: travel the world a ton, have attitudes towards US assets changed?
Speaker 2: Have the conversation shifted in the past few months.
Speaker 4: They've shifted, But I would say there's going to be
Speaker 4: a difference between fixing come investors. Many of them can
Speaker 4: be solving either central banks or SOMN wealth funds. These
Speaker 4: folks are worried about the deficit, are worried about us
Speaker 4: having damage the creability of the United States.
Speaker 5: That's why you had higher bond deals and weakening dollars.
Speaker 4: So that trend may be continuing because they're going to
Speaker 4: have to be doubt and the rivals of the US,
Speaker 4: like China, they have to get out of dollar assets
Speaker 4: probably got to go into the gold in terms of
Speaker 4: that sort. But my view is that since there will
Speaker 4: be an investment boom driven by this increasing productivity, capex
Speaker 4: in the units is going to be much higher. The
Speaker 4: current account divers is going to become larger even even
Speaker 4: with the tariffs, just because investment is going to be higher.
Speaker 4: As a shut GDP savings are going to remain low
Speaker 4: because private and public say below. So our current account
Speaker 4: dets are going to be wider, but the influence financing
Speaker 4: is going to be both FDI and portfolio investment into
Speaker 4: equity market. So you have actually more even overweight in
Speaker 4: US equity assets over time because of the increasing cycle large.
Speaker 3: Which is say on that this is really important.
Speaker 2: So we've been depending there for a number of months
Speaker 2: apout whether this was a cycle level shock or a
Speaker 2: system level shock. The policy announcement at the last month,
Speaker 2: and we wanted whether that structure long into the US dollar,
Speaker 2: which is a system level story, would be disrupted. Are
Speaker 2: you saying that will stay the same that you just
Speaker 2: see this flood of money keep coming in to the
Speaker 2: United States into US assets.
Speaker 5: As I said in fixing.
Speaker 4: Income, maybe people are going to try to get out,
Speaker 4: especially if the death is are larger, unless bond years
Speaker 4: are much higher. But I see an investment moving in
Speaker 4: the United States, an increasing productivity, secular.
Speaker 5: Boom and therefore being overweight in usycut.
Speaker 4: Is going to become the story over the next two years,
Speaker 4: and that's going to compensate any exit out of fixing
Speaker 4: come assets. So the dollar is going to weakend, that's
Speaker 4: going to weekend gradually, and there's a currency role of
Speaker 4: the dollar is going to be dented, but not damage
Speaker 4: to any signing extent.
Speaker 5: So we can live in a world in which actually
Speaker 5: the US.
Speaker 4: Current account deft is going to be much larger, but
Speaker 4: driven more by booming investment rather than week into sublic savings.
Speaker 4: The dollar remains strong, and we're going to live with
Speaker 4: that because there'll be strong economic growth.
Speaker 2: You mentioned some of the divers I find that you
Speaker 2: could see a wife from the dollar to things like gold,
Speaker 2: any of the thoughts somewhere that money might go beyond
Speaker 2: just gold.
Speaker 4: Well, you know, if your arrival at the US, say China,
Speaker 4: if you dump your treasury first, you have a market
Speaker 4: to market loss on the value of those things. If
Speaker 4: you sell treasury in by RMB, you appreciate the RMB.
Speaker 5: Something you don't want to do.
Speaker 4: If you sell dollar instead of buying r mvu by
Speaker 4: yen and euro, you appreciate the yen and you and
Speaker 4: you upset the Japanese the Europeans. You want to have
Speaker 4: good relations, So what do you do. The best thing
Speaker 4: you can do is to sell treasuries.
Speaker 5: And buy gold. And that's why gold has been going.
Speaker 4: Higher, because the goal is the only reserve asset that
Speaker 4: cannot be seized. Because we've seen the actual Ukraine that
Speaker 4: even yeah and euro Swiss frank palents can be seized.
Speaker 4: So I would see gold being the biggest winner now.
Speaker 4: Over time, of course, the Chinese want to have a
Speaker 4: new rail of payment systems, that is bypassing the US
Speaker 4: dollar and swift, and they are now technology that gradually
Speaker 4: over time they're going to allow them to do so.
Speaker 5: But the thing is going to be a very gradual.
Speaker 4: Process, so the dollars going to remain meaningful global reserve currency.
Speaker 2: Are super thoughtful. As always, it's going to say thanks
Speaker 2: to dropping buy no repny that of n Yu Starnel,
Speaker 2: emphasizing a waiting see approach as a growing chorus on
Speaker 2: Wall Street lifts recession onds citing tariff related stankflation concerns.
Speaker 2: Johning us now to discuss is the former Kansas City
Speaker 2: Fed President Esther George as the welcome back to the program.
Speaker 2: It is the central bankers dilemma, the prospect of higher inflation,
Speaker 2: higher unemployment, and decelerating economic growth.
Speaker 3: It's a challenge.
Speaker 2: What did you make of the chairman's ability to rise
Speaker 2: to that challenge in yesterday's news conference?
Speaker 1: Well, I thought, based on what I heard in the
Speaker 1: market reaction, he stuck to the story that he's been telling,
Speaker 1: which is we're holding these rates until we can get
Speaker 1: more clarity about the policy mix. And I also heard
Speaker 1: in his comments something interesting. He certainly highlighted tariffs that's
Speaker 1: been the topic of the day, but he also mentioned
Speaker 1: we have to think about the impact of immigration policy changes,
Speaker 1: fiscal policy changes, and this emerging prospect of how regulation
Speaker 1: might change around this. So that is a pretty big
Speaker 1: dynamic to try to play out when you're judging the
Speaker 1: appropriate stance of monetary policy.
Speaker 6: Es, do do you have a better sense of what
Speaker 6: the reaction function is when it comes to looking at
Speaker 6: different indicators, whether it's soft data or hard data, and
Speaker 6: understanding how the FED would prioritize certain readings, how they
Speaker 6: would respond to, say, an increase in unemployment if also
Speaker 6: it came in tandem with increasing inflation.
Speaker 1: So I think, Lisa, the soft data is really important
Speaker 1: right now, and you do see the FED looking at that.
Speaker 1: You see that come through in the Reserve banks.
Speaker 7: Beayes, book data.
Speaker 1: You know they are out there really just combing the
Speaker 1: landscape to hear from different parts of the economy what
Speaker 1: they expect. And I think what they're hearing right now
Speaker 1: is we're not sure we are pausing, We're waiting. The
Speaker 1: FED knows that even pausing has a negative impact on
Speaker 1: the economy, and I think for the US, we've come
Speaker 1: into this at a time of strength in that economy,
Speaker 1: and judging how much will come off of growth, how
Speaker 1: much will hit the employment numbers, and certainly watching inflation
Speaker 1: expectations at a time like this are a dynamic that
Speaker 1: just takes time, I think to figure out.
Speaker 6: Yesterday on Bloomberg TV, Abob Michael of JPMorgan Asset Management
Speaker 6: noted that the word transitory was used as recently as
Speaker 6: the March nineteenth meeting, the last time the Federal Reserve met.
Speaker 6: Do you think that it was a mistake for them
Speaker 6: to say that it was notably absent from yesterday in
Speaker 6: reference to any kind of inflationary impact from the tariffs
Speaker 6: that have been put on.
Speaker 1: Well, I think it probably was intentional to drop that word.
Speaker 1: It has taken on some very negative connotations, maybe rightly so.
Speaker 1: But the truth is, we know that these kinds of
Speaker 1: shocks can be a one time price level shock. I
Speaker 1: think what we can't know right now is the fact
Speaker 1: that we already have elevated inflation relative to the Fed's target.
Speaker 1: We know that certain measures of inflation expectations are moving
Speaker 1: in ways that flash caution, and so I think you
Speaker 1: can't know how this dynamic unfolds with inflation without a
Speaker 1: little more sense of when these policies get a better
Speaker 1: able to be quantified and put into the models that
Speaker 1: the Fed's looking at to know. Not if I think
Speaker 1: this is a FED that is clear we are on
Speaker 1: a cutting path, we've taken a pause. It's really a
Speaker 1: question of when.
Speaker 2: How do you know as to the difference between the two,
Speaker 2: Because clearly the committee struggled with what was trying to
Speaker 2: trie and what wasn't coming out of the pandemic. So
Speaker 2: how would they know the difference this time around, the
Speaker 2: difference between inflation being short lived and more persistent.
Speaker 3: Do you just have to wait, wait a long long time.
Speaker 3: How do you know the difference?
Speaker 1: Well, you absolutely cannot know the difference, and that is
Speaker 1: really the crux of uncertainty for a policy maker is
Speaker 1: to read into this whether you will continue a disinflationary
Speaker 1: path that underlying sense of inflation where we were and
Speaker 1: really watching inflation expectations. So for me, I think keeping
Speaker 1: an eye on those inflation expectations will tell the committee
Speaker 1: a lot about what they're dealing with relative to a
Speaker 1: one time versus a more permanent impact to inflation.
Speaker 3: And that's just a double down on that.
Speaker 2: Do you put more weight on survey based expectations or
Speaker 2: market based expectations?
Speaker 1: Well, I think you have to look at both, and
Speaker 1: normally you might say that some of these household survey
Speaker 1: measures and other things are not so definitive around where
Speaker 1: inflation is going. I think what's gotten my attention this
Speaker 1: time is how dramatically they are moving and so that
Speaker 1: in and of itself tells you that the volatility you're
Speaker 1: dealing with has to give you some pause. And I
Speaker 1: think it's right for the FID to pay attention here
Speaker 1: to how these dynamics are unfolding.
Speaker 2: And that's certainly what they're doing. As to appreciate your take.
Speaker 2: As always the former Kansas City FED President Esther George
Speaker 2: on the challenge this feder Reserve faces.
Speaker 3: We are all in wait and see mode, including the
Speaker 3: FED chair J. Powell.
Speaker 2: Claudia Sam of New Century Advice is right in the following.
Speaker 2: I agree with the first decision to hold rates and
Speaker 2: flank the risk of higher unemployment and inflation. However, it
Speaker 2: was a missed opportunity to lay out how it plans
Speaker 2: to decide whether the tariff induced inflation is temporary. Claudia
Speaker 2: joint is now for more. Claudia, welcome to the program.
Speaker 2: Let's build on some of that. What would you have
Speaker 2: liked to hear, specifically from the chairman in that news conference.
Speaker 7: I like to hear their framework, what kind of data
Speaker 7: they're looking at, how they're going to move back into
Speaker 7: some forecasting, right, what is it they're going to use
Speaker 7: to But it's It's clear that the FED, or at
Speaker 7: least Powell, has not They're not embracing this. It's the
Speaker 7: textbook case inflation when it's because of tariffs. It's temperate.
Speaker 7: Now we do do your Governor Waller making that case.
Speaker 7: We got to be brave and it's temper. We need
Speaker 7: more than that, right, Like what are they looking at
Speaker 7: in the data? And this is where I think, I
Speaker 7: you know, looking more broadly, not just the CPI, the
Speaker 7: labor report, but how are they using all these services
Speaker 7: of business or surveys of businesses, the surveys of consumers,
Speaker 7: that soft data that seems somewhat maligned, Like what are
Speaker 7: they going to use to make that decision? And I
Speaker 7: just I mean, I know they must be doing that work.
Speaker 7: It's just I think sharing more of that before we
Speaker 7: actually get to the position where the dual mand data
Speaker 7: is in conflict would really be helpful as a guide.
Speaker 5: Claudia, do you agree with FED Shair J.
Speaker 6: Powell that there isn't that big of a cost to waiting.
Speaker 7: I mean, the FEDCE tools work with a lag, so
Speaker 7: like there are costs to waiting now I agree that
Speaker 7: at this moment too, it's too fluid, right, and this
Speaker 7: is a historic shock that is facing the economy and
Speaker 7: businesses are just starting to work through it, and it
Speaker 7: could go in a lot of different directions. So again
Speaker 7: I understand why this is a moment where you know,
Speaker 7: holding makes sense and yet like there are costs to waiting.
Speaker 7: And I think one of the issues I really took
Speaker 7: in the press commerce was how you know reinforcing Well,
Speaker 7: but the data are fine. You know, the inflation's fine,
Speaker 7: the unemployment's fine. Like the data are not fine. Right
Speaker 7: if we look at say into the first quarter GDP,
Speaker 7: that surge and imports, that is telling us this is
Speaker 7: a really big shock that's coming at the economy. This
Speaker 7: is out of expectations. Businesses are pulling in, rushing imports,
Speaker 7: probably building inventories. That all comes at a cost. And
Speaker 7: remember what we thought in the first quarter was going
Speaker 7: to be the tarif increase, It's actually worse now. So
Speaker 7: like it's already here, people are changing behavior. No it's
Speaker 7: not in CPI, No, it's not in the unemployment rate yet,
Speaker 7: but it's coming. So you know, prepare, You can wait,
Speaker 7: but you really need to be prepared.
Speaker 6: There was another aspect of this press conference that I
Speaker 6: found particularly interesting, and it was when fedcher J. Powell
Speaker 6: said that the twenty twenty four rate cuts were not preemptive.
Speaker 6: If anything, it was a little late, And of course
Speaker 6: this is referring to the unemployment rate that had increased
Speaker 6: by a half a percentage point, as the som rule
Speaker 6: dictates your rule, and they did respond and then some.
Speaker 7: Of that data was revised upward.
Speaker 6: Actually, what did you make of that, that comment that,
Speaker 6: if anything, we were a bit late.
Speaker 7: I don't think they anticipated going straight up with fifty
Speaker 7: basis points. I think the fifty basis points was a
Speaker 7: ketchup that they should have started one meeting earlier. I
Speaker 7: think that's the late and it's because they weren't. They
Speaker 7: weren't reacting to the bottom falling out. It was a
Speaker 7: we don't want to see further weakening. So I think
Speaker 7: the FED probably would have preferred to have had that in,
Speaker 7: you know, more spread out, in like twenty five basis
Speaker 7: point increments. But I think that's where it came from.
Speaker 7: But that's such a fine point on timing, so I
Speaker 7: can understand whether that's a little seems a little modeled.
Speaker 2: I think it's important to go back over it, though
Speaker 2: Lisa I'm place you brought it up. We've had somebody
Speaker 2: guests say this Fed it's willing to be late, and
Speaker 2: we're all struggling to defind what latest to the FED reserve.
Speaker 2: If last year was late, I think the market would
Speaker 2: take that.
Speaker 3: Is that late?
Speaker 2: One hundred basis points in the summer, little drift, tire
Speaker 2: and unemployment.
Speaker 6: Yeah, if that's late, that is the most dubvish message
Speaker 6: you possibly send, because that means that being late means
Speaker 6: being on time for a lot of other people.
Speaker 5: That seems to be my take.
Speaker 2: Claudia, you're one of the best, always clinical. Appreciate your time. Claudia,
Speaker 2: sound there of New Century Advisors. Councy Barrow of JP
Speaker 2: Morgan Asset Management righting this, we expect the FED to
Speaker 2: look through Tarif related inflation so long as it is
Speaker 2: perceived to be a one time price level reset. This
Speaker 2: will take time to determine CAUSI joins is now for
Speaker 2: more Cassie, good monic, good morning. Ask my question, how
Speaker 2: long does it take to understand whether this is short
Speaker 2: lived or persistent? What defines that?
Speaker 5: Yeah, it's a difficult question.
Speaker 8: And tera Powell was asked that exact question, and he
Speaker 8: didn't give a lot of guidance on that. I don't
Speaker 8: think he ruled out a cut in June, or I
Speaker 8: don't think he ruled out really anything. He created max
Speaker 8: optionality for himself, which he's become very good at doing.
Speaker 8: I mean, if anything, I look at the reaction of
Speaker 8: the bond market to the meeting, and I think it's
Speaker 8: thought on exactly what he wanted, which is very little
Speaker 8: movement at all. So kudos to him. Let the policy
Speaker 8: and the shifts and policy drive the bond market, not
Speaker 8: the Fed right now, because just like the market, the
Speaker 8: Fed is waiting for more guidance on what's coming next.
Speaker 2: It's build on that. You went to the bond market.
Speaker 2: What's it signal about that debate about whether it's short
Speaker 2: lived or whether it's more persistent, or are different ways
Speaker 2: to gage inflation expectation, survey methods, market based expectations. What's
Speaker 2: the market signal to us?
Speaker 8: It's pretty clear the market is signaling that this is
Speaker 8: going to be short lived. And the repricing within the
Speaker 8: inflation market tips break evens falls inflation swaps has been
Speaker 8: very efficient efficient, meaning that the inflation per of the
Speaker 8: inflation impact is really concentrated to the next twelve to
Speaker 8: twenty four months, and then beyond that you're seeing very
Speaker 8: little impact. If anything, the market is pricing in a
Speaker 8: probability that beyond the next twelve to twenty four months,
Speaker 8: inflation actually falls below target. Because ultimately, what we're thinking
Speaker 8: about here is what are tariffs. Ultimately their attacks on
Speaker 8: the consumer. They reduce demand, and ultimately that's something that
Speaker 8: weekends economy weekends prices, not the other way around.
Speaker 6: I'm looking at the cuts that other central banks around
Speaker 6: the world have made since the middle of last year,
Speaker 6: the ECB one hundred and seventy five base points, the
Speaker 6: Bank of Canada two hundred and twenty five basis points.
Speaker 6: After this morning, the expectation is the Bank of inngend
Speaker 6: will have done one hundred basis points, like the Federal Reserve.
Speaker 6: Is there a world in which it could be disinflationary
Speaker 6: these tariffs for the entirety of the developed world, but
Speaker 6: not the United States In.
Speaker 8: The short term probably, But in the longer term. I
Speaker 8: do think that you are going to see the negative
Speaker 8: demand impulse overwhelm the short term impact of tariffs. But
Speaker 8: I think it's really interesting what you just said highlighting
Speaker 8: that other central banks around the world are continuing with
Speaker 8: their easing policy. I was just checking before I came
Speaker 8: on today what the return on the global bond Index.
Speaker 5: Is year to date.
Speaker 8: So the USAG is up about two and a half percent,
Speaker 8: pretty respectable given them volatilities to still working as a
Speaker 8: diversifier in your portfolio. The global AAG is up five
Speaker 8: and a half percent year to date, right. I think
Speaker 8: people really underappreciate that that there's quite a lot of
Speaker 8: opportunity outside the US in terms of developed bond market,
Speaker 8: government bond markets, and also other central banks. The tradeoff
Speaker 8: is much much less ambiguous. It's much more clear both
Speaker 8: the growth aspect and the inflation aspect are telling them
Speaker 8: to continue to cut rates, which is.
Speaker 6: What we expect the BOE to do at seven am.
Speaker 6: This is the reason why the wait and see for
Speaker 6: FED Powell FED Chair J.
Speaker 7: Powell is a reason that.
Speaker 6: A number of investors around the world are increasingly looking
Speaker 6: elsewhere other than the United States, because wait and see
Speaker 6: is not a good strategy for investors in a lot
Speaker 6: of ways. Steve major Over at HSBC said this morning,
Speaker 6: we prefer taking duration exposure in the US and stay
Speaker 6: neutral on US treasuries as they wait for some of
Speaker 6: the policy uncertainties to subside.
Speaker 3: Do you agree with that?
Speaker 6: Is that kind of what you're thinking.
Speaker 5: Yeah, so, I would say.
Speaker 8: In general, I think longer dated yields are somewhat range
Speaker 8: found here. We've had a range for the ten year
Speaker 8: treasury of around three seventy five to four fifty, so
Speaker 8: we're on the higher end of that range. And what
Speaker 8: that means is that there is some asymmetry there. For example,
Speaker 8: you know, if we did see an increase in initial
Speaker 8: jobless claims at eight point thirty this morning, we would expect,
Speaker 8: you know, there is significant room for yields to move lower,
Speaker 8: for the market to price in a more aggressive fed
Speaker 8: cutting cycle. But in the near term, you know, I
Speaker 8: think that the market has been fairly US stable. It's
Speaker 8: been consolidating in a narrower and narrower range, and ultimately
Speaker 8: what's going to break us out of that is going
Speaker 8: to be an indication on policy, whether it be fiscal
Speaker 8: policy or trade policy. I think that one of the
Speaker 8: things that is going to become more of a focus.
Speaker 8: So far, trade policy, we had the escalation aspect of it,
Speaker 8: and then when is the escalation going to stop. We
Speaker 8: got peak escalation, then we are on the de escalation train.
Speaker 8: What I think people need to start focusing on is
Speaker 8: where are we going to end up? What is that
Speaker 8: effective terif rate that we're going to settle at. The
Speaker 8: negotiations to with the UK are going to do essentially
Speaker 8: nothing to change that effective terror freiate. It is still
Speaker 8: on track to be extraordinarily high. So while maybe this
Speaker 8: is good news, I'm not necessarily sure it's a roadmap
Speaker 8: for the rest of the world. And really what we'll
Speaker 8: be driving sentiment in the market as we turn to
Speaker 8: the next week will probably be more likely the negotiations
Speaker 8: with China over the weekend.
Speaker 2: Kelsey, I appreciate the update and the reaction. Calsie Barrow
Speaker 2: at JP Morgan Asset Management framing things I think quite well.
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