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Speaker 1: The FMC widely expected to hold read steady, but it
Speaker 1: does plan on updating its economic forecast. Krishna guhov evercore
Speaker 1: Isi joins us. Now, Krishna, are we expecting to hear
Speaker 1: absolutely anything other than we are in a dark room
Speaker 1: with a blindfold, bumping into chairs, just like the rest
Speaker 1: of you.
Speaker 3: So I'm afraid you probably are going to get a
Speaker 3: lot more wait and see, lot more to learn.
Speaker 4: You know.
Speaker 3: That sort of guidance from fed chair how consistent with
Speaker 3: the idea that unless something radical changes, not only is
Speaker 3: nothing happening at this month's meeting, but nothing's going to
Speaker 3: happen in July either and then really in September we
Speaker 3: have that decision point for the FED as it's seen
Speaker 3: enough to want to cut right to that point or not.
Speaker 3: I think what the market will be focused on at
Speaker 3: this meeting it's really the extent of the updates in
Speaker 3: the Fed's forecast, and in particular whether policy makers are
Speaker 3: already shifting towards just a one cut baseline rather than
Speaker 3: two cuts for this year.
Speaker 1: Christina, how much does it really matter? Because right now
Speaker 1: the FED seems highly uncertain, very much on the fence.
Speaker 1: Their a sort of strategic analysis is shape shifting depending
Speaker 1: on the day, and we're seeing data that hints at
Speaker 1: something of a labor market softening that's caused a lot
Speaker 1: of people to be a little bit concerned. I'm talking
Speaker 1: about continuing claims to get retail sales in just about
Speaker 1: just under two hours time. How much is that almost
Speaker 1: more important than the rhetoric that we hear out of
Speaker 1: the FED right now?
Speaker 4: So I think you're certainly right.
Speaker 3: The first of all, you know, the real action here
Speaker 3: is on the Trump economic agenda above all trade, but
Speaker 3: also immigration, fiscal you mentioned, you know, regulatory other policies,
Speaker 3: and the FED to a large extent is responding to
Speaker 3: those shocks and learning from the economic data how they
Speaker 3: are impacting economic activity. So yes, you know the FED
Speaker 3: is going to take its queue from the first the
Speaker 3: path of policies like trade policy. Secondly, how this is
Speaker 3: builting through the macro data, the market data. But it
Speaker 3: does matter what reaction function the FED is sketching out
Speaker 3: that it will apply in these different economic circumstances. You know,
Speaker 3: there's a relatively easy case where the labor market doesn't
Speaker 3: weave it at all. Why are you cutting in a
Speaker 3: period when inflation is going to move up under these tariffs. Conversely,
Speaker 3: if the wheels come off the bus in the labor market,
Speaker 3: for sure, we know they're going to be cutting even
Speaker 3: though there's going to be elevated inflation, provided the expectations
Speaker 3: remain be well behaved. To say, all right, now, the
Speaker 3: question is in this middle zone, in this ray zone,
Speaker 3: how are they thinking about, you know, what would constitute
Speaker 3: a materially enough weakening of the labor market to want
Speaker 3: to cut to lean against that getting any worse. And
Speaker 3: also what do they think they're learning from the most
Speaker 3: recent data, which certainly is imperfect in the way you describe.
Speaker 3: But I'd say for May overall, top tier employment report
Speaker 3: and inflation both a little more benign than might have
Speaker 3: been expected.
Speaker 5: Hey, Chris nuts, Chris, can you talk of just for
Speaker 5: a moment about kind of this divergence between the market
Speaker 5: rate and the policy rate. We've always joked in our
Speaker 5: work that who needs feed speakers when you have the
Speaker 5: two year yields? Is there a level on the two
Speaker 5: year yield down where you'd say, Okay, the Fed is
Speaker 5: now behind the curve and kind of needs to get
Speaker 5: back in the easing cycle, maybe faster than you thought.
Speaker 3: Yeah, So that's a very good important distinction to draw,
Speaker 3: right the Fed obviously it sets the overnight funds rate,
Speaker 3: but it's the two year, five, ten, and so on
Speaker 3: rates that are much more important for the economy as
Speaker 3: a whole. And of course those will also embed information
Speaker 3: as to how market protestants are thinking about the outblook.
Speaker 3: What I would say is that the Fed doesn't try
Speaker 3: to micromanage, you.
Speaker 4: Know, the two year yield.
Speaker 3: It couldn't even if it wanted to. And so I
Speaker 3: don't think that it's so wildly out of whack right
Speaker 3: now with what Fed officials might be thinking on a
Speaker 3: probability weighted basis, because remember, the market isn't just pricing
Speaker 3: the baseline case, but they're pricing a range of risks,
Speaker 3: including the risk that we do after all, end up
Speaker 3: falling into a recession of bed has to come a lot.
Speaker 3: So right now I think the fairly comfortable. So to
Speaker 3: let the market operates a little bit of an automatic
Speaker 3: stabilizer going down in the market when the news is
Speaker 3: weak at rates moving up when the news is stronger
Speaker 3: or there's a signs of some more inflation pressure. Are
Speaker 3: they're not yet at a point where they would feel
Speaker 3: the need to make a call on rates themselves in
Speaker 3: terms of the FED fund set.
Speaker 5: Christin, do you think kind of in the spirit of
Speaker 5: the Fed might not make the same mistake, they might
Speaker 5: make new mistakes. That two is coloring they're thinking too
Speaker 5: much on this idea of kind of the inflation risk.
Speaker 5: Maybe in a lot of respects, the appropriate word to
Speaker 5: use today, and we talked about this earlier, is actually transitory,
Speaker 5: given that Tarifa a one time price hike or oil.
Speaker 5: Yet they're so reluctant to do that because of the
Speaker 5: recent experience.
Speaker 3: So look, at some level, I think you're right right,
Speaker 3: everyone fights the last war, and the FED can be
Speaker 3: guilty of that too. There's no question that the fact
Speaker 3: that the FED, you know, went out with a transitory
Speaker 3: story and lived a regret at last time is I
Speaker 3: think coloring, and they're thinking some this time too. But
Speaker 3: there are two important objective considerations there that do weigh
Speaker 3: a bit in this direction. The first is that these
Speaker 3: tariffs are not simply on end products. They're also on
Speaker 3: intermediate goods inputs into US production. And it's those tariffs
Speaker 3: on intermediate goods that the economic research tells US can
Speaker 3: have more persistent effects on inflation, not just that a
Speaker 3: one and done, certainly if you like tax increase effects.
Speaker 3: The other thing is that the FED does have reason
Speaker 3: to wonder where the inflation expectations, wage bargaining, price setting
Speaker 3: behaviors are quite as well locked down now after several
Speaker 3: years of elevated inflation as they work previously, And these
Speaker 3: starting conditions economists will use the term initial conditions do
Speaker 3: matter in terms of your risk management judgment.
Speaker 1: Christian, just real quickly here. If I were cynical, I
Speaker 1: would think the FED would just err on the side
Speaker 1: of being more hawkish in order to keep some of
Speaker 1: the INFLA and expectations restrained. Why isn't that the case
Speaker 1: that we can basically expect them to say something that
Speaker 1: is going to be hawkish, whether they think it or not.
Speaker 3: So I think they are mildly hawkish. I mean, after all,
Speaker 3: they're telling us that they judge that the current setting
Speaker 3: of policy is moderately restrictive, modestly restrictive. The individual officials
Speaker 3: use different terms, but restrictive And why is it restrictive? Well,
Speaker 3: it's restrictive precisely because, as you say, they want to
Speaker 3: try to lock down inflation expectations into the initial sticker
Speaker 3: shock from the tariff price increases when that comes, and
Speaker 3: as I said, it hasn't really shown up in May,
Speaker 3: we do expect it to shop more over the next
Speaker 3: few months near term. That's certainly hawkish, But I think
Speaker 3: it's also important to understand that the FED recognizes that
Speaker 3: a precondition for being able to cut rates in response
Speaker 3: to labor market weakness at a time when spot inflation
Speaker 3: will be high because of the task is that you
Speaker 3: have to make sure that you've locked down the inflation
Speaker 3: expectations first.
Speaker 4: So yes, it's moving in order of priorities.
Speaker 3: Lock down the expectations first, then look at business cycle management.
Speaker 3: If they get the first right, they will have the
Speaker 3: flexibility to do the second if it's needed.
Speaker 1: Christy, who have ever CORESI thank you so much. Another
Speaker 1: leg that could potentially offset some of the deficit concerns
Speaker 1: are the tariffs and the revenue that could be possibly
Speaker 1: brought into the United States. Former senior Trump trade advisor
Speaker 1: Kelly and Shaw joining us now, Kelly an, I'm curious
Speaker 1: what we've learned, in particular from the trade discussions over
Speaker 1: as part of the G seven meetings in Canada, particularly
Speaker 1: when it comes to the UK and the US. How
Speaker 1: much of a template is that?
Speaker 6: Yeah, good morning, and thanks so much for having me so.
Speaker 6: The big announcement regarding trade at this year's G seven
Speaker 6: was of course that UK deal on autoparts, on imports
Speaker 6: and then aerospace, and then the executive order that the
Speaker 6: White House issued last night to accompany the deal also
Speaker 6: teased out that there would be relief on steal and
Speaker 6: aluminum for the UK at some point in the future,
Speaker 6: but the details still forthcoming.
Speaker 4: So what this shows is.
Speaker 6: The UK is still very much front of the queue,
Speaker 6: ahead of any other government. The next closest we got
Speaker 6: was an announcement by a prime minister of Canada that
Speaker 6: the US and Canada would be negotiating a deal within
Speaker 6: the next thirty days, which is a bit longer than
Speaker 6: we were originally expecting, but at least it's an agreement.
Speaker 4: To agree, Kelly.
Speaker 7: And we also saw no deals from the likes of Japan,
Speaker 7: for example, and I'm sure the prime minister there would
Speaker 7: have liked to have seen something. And also the ability
Speaker 7: to reach a deal was cut short with the President
Speaker 7: leaving back to Washington, DC with a new hot war
Speaker 7: for President Trump to deal with and to think about.
Speaker 7: Does it show the limitations of deals being led by
Speaker 7: the president? Will this ultimately slowed down the timeline?
Speaker 4: Yeah?
Speaker 6: And I thought what was interesting about the early departure,
Speaker 6: and obviously there are things flaring up in the Middle
Speaker 6: East that required his attention, was that the two deals
Speaker 6: that I thought could come together this weekend that were
Speaker 6: left on the cutting room floor, in addition to Japan,
Speaker 6: would have been India and Mexico a deal on steel
Speaker 6: and perhaps fentanyl. He was set to meet with both
Speaker 6: Mody and shine Bomb today. Those meetings, of course won't happen,
Speaker 6: but I do think what it shows is some competing priorities.
Speaker 6: But look, he's got an entire team who is dedicated
Speaker 6: to these trade negotiations USTR, Ambassador Greer, Secretary Bessett, Howard Lutnik.
Speaker 6: They're not going to be as involved as some of
Speaker 6: the defense and National security advisors will be on this
Speaker 6: Iran is real conflict, So they are going to be
Speaker 6: focused exclusively.
Speaker 4: On these trade talks.
Speaker 6: Now, of course, that doesn't mean that one doesn't influence
Speaker 6: the other, but there are separate lanes in his administration
Speaker 6: who can handle both.
Speaker 7: Is it your assumption then that we do get those
Speaker 7: deals that you mentioned that we're close to by July eighth.
Speaker 6: Yeah, that is my expectation, and we really don't know
Speaker 6: what's going to happen in July. We had Secretary Bessett
Speaker 6: during a hearing last week teas that for countries negotiating
Speaker 6: and good faith, they could see an extension of that period,
Speaker 6: But the President hasn't said one way or the other.
Speaker 6: And I think negotiators are going to seek to put
Speaker 6: pressure on a number of governments where things are close
Speaker 6: in order to try to get the deal. And we've
Speaker 6: heard directly from the administration that India is close, and
Speaker 6: my expectation is that Canada and Mexico are also very
Speaker 6: much top of the queue. If for no other reason,
Speaker 6: then there are two of the US's most important trading partners,
Speaker 6: and we still do have sizable tariffs on both for
Speaker 6: goods that don't currently qualify for those USMCA deals. So
Speaker 6: that's going to be a big ticket item, not just
Speaker 6: for the US, but also for Canada and Mexico.
Speaker 1: Kelly and Shaw, a former senior Trump trade advisor, thank
Speaker 1: you so much for being with us and the insights
Speaker 1: on what's going on with trade.
Speaker 8: US now.
Speaker 1: Is Reza Palavi, the son of the last Shaw of Iran, Raza,
Speaker 1: thank you so much for being with us. I want
Speaker 1: to start with a question, are you in active discussions
Speaker 1: in any way to return to Iran in a leadership
Speaker 1: role if there is some sort of regime change in Iran?
Speaker 9: Good morning to you and to my fellow competters following
Speaker 9: this program and all of your audience. There is a
Speaker 9: campaign for liberation that we've been committed to all these years.
Speaker 9: The moment is approaching very fast. The regime is on
Speaker 9: the verge of collapse. We see elements within the regime
Speaker 9: already talking defections, they get in touch with us. We
Speaker 9: see a leader who is now hiding in a bunker
Speaker 9: like a rat, while many high elements are taking flight
Speaker 9: from Iran. I think all of this is conducive to
Speaker 9: something that may bay soon happen, and finally my fellow
Speaker 9: competits will be able to overcome. And of course there's
Speaker 9: a plan not only for this phase of our struggle,
Speaker 9: which is liberation from this regime, but what happens right
Speaker 9: next the transition to what we hope will culminate in
Speaker 9: a democratic outcome. I have stepped in to leave this
Speaker 9: campaign at the behalse of my compatriots. I have a
Speaker 9: plan of action not only to manage this phase of transition,
Speaker 9: but also to plan for Evan's future recovery and prosperity,
Speaker 9: which has to go hand.
Speaker 4: In love with our democratic GUIDEA just just.
Speaker 1: A question here, who are the compatriots who've approached you
Speaker 1: to try to harmless leadership push.
Speaker 9: Well, I think that you have people who have vested
Speaker 9: interest in preserving this regime, because the whole survival depends
Speaker 9: on this regime all this time, whereas the millions of
Speaker 9: my compatriots who were the first victim of this regime,
Speaker 9: have paid all these four decades a very heavy price.
Speaker 9: We have seen many campaigns that people protested. The latest
Speaker 9: one was two years ago the Woman Live Freedom movement.
Speaker 4: And finally, I think today.
Speaker 9: With this clear weakening of regime, and as I said,
Speaker 9: I'm being on the version of collapse, finally, all these
Speaker 9: people who have reached their lives and honorably put their
Speaker 9: lives on the line and did die for the cause,
Speaker 9: we'll be able to remember that as heroes of this conflict,
Speaker 9: because we'll be liberated sooner than everybody thinks. And my
Speaker 9: entire commitment has been from day one to support my
Speaker 9: competit in the struggle for liberation. And we believe that
Speaker 9: the end is very near for the regime and our
Speaker 9: dreams of liberty will finally be realized very soon.
Speaker 7: Rather on the ground, what we've seen in Iran is
Speaker 7: those in Tehran, for example, trying to evacuate Israel, saying
Speaker 7: more recently that they would look at targeting places there.
Speaker 7: You've seen fear, you've seen strikes, and you've seen death.
Speaker 7: How complicated and how difficult is it to ask a
Speaker 7: populace to rise up and rally behind you when they're
Speaker 7: the very same ones that are under threat right now.
Speaker 9: Look, I think many of my competitors are smart enough
Speaker 9: to understand that if right now, if until now, and
Speaker 9: in fact, many of your colleagues in the media have
Speaker 9: always asked me, how do you find the regime that
Speaker 9: is so repressive, that it's so ruthless, that executes that
Speaker 9: threatened dissidents or activit is at home, to which I said, well,
Speaker 9: obviously the playing.
Speaker 4: Field has to be more equalized. This is a case
Speaker 4: where for the first time in four years, we see
Speaker 4: this d cloud literally d cloud. But it is also.
Speaker 9: Important to have the support of the world community because
Speaker 9: until now, many times my compatriots have been thrown under
Speaker 9: the bus when they had an opportunity to be backed
Speaker 9: because of a policy of appeasement or containment. I think
Speaker 9: now the situation for the first time exists for the
Speaker 9: world to realize that it is not availed to expect
Speaker 9: this regime to change its attitude and behavior. Ali Hamena
Speaker 9: is at work with the world, not the Iranian people.
Speaker 9: He's the main culprit for being here and having Iranians
Speaker 9: also have innocent victims and civilians to whom my heart
Speaker 9: goes up, of course, but I think right now we
Speaker 9: need to be focused on the goal and the aim.
Speaker 9: We have a tremendous opportunity to overcome this regime. I
Speaker 9: think the world would be the sigh of relief with
Speaker 9: this regime no longer be there. We are carrying on our.
Speaker 7: Finances because the goal and the aim is a regime change.
Speaker 7: What we have heard from Israel is that their goal
Speaker 7: is to dismantle the nuclear forces from Iran. Is it
Speaker 7: you're understanding that a regime change is also a goal
Speaker 7: from the Israelis, and have you been in contact with them.
Speaker 9: I'm not asking any foreign governments to state the policy
Speaker 9: of regime change, although I think many of them do
Speaker 9: believe that ultimately that would be the best formula to
Speaker 9: get rid of so many problems at the same time,
Speaker 9: and not just the nuclear threat.
Speaker 4: As a result of this regime track record.
Speaker 9: Of behavior in the region and beyond formatting terrorism, supporting,
Speaker 9: you know, their their proxies like Eyler Hamas in the
Speaker 9: region and so on, so the disappears.
Speaker 4: Of this regime.
Speaker 9: We're eliminating too many problems that this regime has caused
Speaker 9: in one shot. The first beneficiary of regime change are
Speaker 9: the running people themselves.
Speaker 4: But we believe that.
Speaker 9: Our immediate neighborhood and the region, whether it is the
Speaker 9: Israelis or Arab neighbors, and beyond that the rest of
Speaker 9: the free world will understand that the running people, who
Speaker 9: unlike this regime want to be part of the civilized
Speaker 9: world with the same values and principles of liberty and
Speaker 9: freedom and human rights. Unlike this regime, would be certainly
Speaker 9: the element of change, and if you will, the alternatives
Speaker 9: to this regime.
Speaker 4: I think this is where the world needs to be focused.
Speaker 9: Now, beyond the immediate campaign that is a result of
Speaker 9: the stubbornness of how many must dragged our country into it.
Speaker 9: But let's look at the positive aspect of once we
Speaker 9: get rid of this regime, how we can envisage your future.
Speaker 9: We're or back to an element of stability and regional peace,
Speaker 9: which is in everybody's interest.
Speaker 1: Just to build them. What Danny was asking, have you
Speaker 1: been in contact with the Israeli leadership.
Speaker 9: We are reaching out to everyone and everyone, including the
Speaker 9: Israeli side, to understand what it is that we stand.
Speaker 9: What is the expectation of the Iranian people in terms
Speaker 9: of world support. I think it's pretty much the same
Speaker 9: thing that many struggling nations under totally tenor regime.
Speaker 4: We're looking at any country that understand.
Speaker 9: That they have to stand with the people of a
Speaker 9: country that is trying to liberate itself. And again, whether
Speaker 9: it's the Israeli government or the American government or any
Speaker 9: other government for that matter, the question is whose side
Speaker 9: are you going to stand with today the i Ruanian
Speaker 9: people or continue to insist negotiating with the regime that
Speaker 9: is on the verge of collapse.
Speaker 1: There's also a question of what this new leadership looks
Speaker 1: like or as are you talking about re establishing the
Speaker 1: monarchy when that was controversial and it might not have
Speaker 1: full support from all parties, particularly the more religious elements
Speaker 1: of the Iranian society.
Speaker 4: Well, I have never advocated for one for of a
Speaker 4: regime or another.
Speaker 9: What I did and have advocated, and in fact it's
Speaker 9: part of my trans plan, is a process that it's
Speaker 9: totally democratic. That means that the running people have to
Speaker 9: have the ability to ponder upon whatever a constitutional assembly
Speaker 9: will propose as a constitutional formula, a future constitution, the
Speaker 9: form that the regime can take, what it will mean
Speaker 9: and Unlike nineteen seventy nine, when people had no cluer
Speaker 9: idea what an Islamic republic means and by the time
Speaker 9: they figured it out it was too late. This time,
Speaker 9: in full transparency, that'll have the option to look at
Speaker 9: what's the best model that fits them and let the
Speaker 9: ballot box decide the majority what the running people will
Speaker 9: look for. Will it be a republic, will it be
Speaker 9: auctional monarchy, or whatever it is. My objective is not
Speaker 9: to stand here as the result of that, and my
Speaker 9: responsibility right now, my only focus is to see this
Speaker 9: process through so we can ensure that ultimately we replace
Speaker 9: this dictatorship with a democratic and let me underline, a
Speaker 9: secular democrat.
Speaker 4: See what's the key separation of religion from state as
Speaker 4: a prerequisite to that point.
Speaker 7: Past attempts to engineer regime shifts in the Middle East
Speaker 7: haven't often ended in liberal, pro Western governments. There are
Speaker 7: examples many out there Libya, Syria, Yemen, Somalia, all ending
Speaker 7: in things that look like fragmentation or current armed forces
Speaker 7: having the most power and being the ones that emerge
Speaker 7: in the chaos of a regime shift. What do you
Speaker 7: suggest that it is different this time?
Speaker 9: I think Iranian society not just for centuries of proving
Speaker 9: that they have as a nation state, a concept of
Speaker 9: a nationhood, national identity, natural pride and objective, a culture,
Speaker 9: a civilization, but also a polity, and a generation today
Speaker 9: very shrewd and very clever by knowing what it is
Speaker 9: that would be in their interest. They see the world
Speaker 9: and how it has evolved that have since successful campaign
Speaker 9: of liberation. They understand the key elements that sustains and
Speaker 9: preserves democratic order, and I believe today's gen z and
Speaker 9: Iran is more than ever equipped to understand not only
Speaker 9: the needs, but how and what it will take to
Speaker 9: implement that.
Speaker 4: No, it's a collective project.
Speaker 9: Everybody have to roll up their sleeves and participate. The
Speaker 9: premise remains the same in the principles of liberty and
Speaker 9: human rights. But if each member of society is committed
Speaker 9: to see through it and actively engage in that process,
Speaker 9: that's where we can guarantee that it's going to be
Speaker 9: actually a result that would be positive. I have absolute
Speaker 9: faith and confidence in my computers and their wisdom and
Speaker 9: their know how and their knowledge. They do need guidance,
Speaker 9: of course, they do need support. Of course they do
Speaker 9: need some level of leadership, of course, but at the end,
Speaker 9: they are the elements and instruments of change, and we
Speaker 9: are working together very closely to see that through.
Speaker 1: Zavalavi, thank you so much for your time. Really appreciate
Speaker 1: you getting on with us. Who just Rouma Berkeley's joins
Speaker 1: us now with her own argument, how do you interpret this?
Speaker 1: Thank you so much for being here, given the fact
Speaker 1: that there's something for everyone, which is kind of the
Speaker 1: theme that we've seen in a lot of the economic
Speaker 1: data recently.
Speaker 8: That's true, well so far. I sort of agree with
Speaker 8: what she said in the sense that right now it
Speaker 8: just looks like everything seems to be good. So far,
Speaker 8: so good is how you know, I would put it,
Speaker 8: But it's hard to say how things are going to
Speaker 8: pan out sort of going forward. Just a quick take
Speaker 8: on the retail sales from my end is that we
Speaker 8: had expected a slightly weaker control group, So the fact
Speaker 8: that it actually did better than we'd expected is again, maybe,
Speaker 8: you know, like she said, maybe a resilient consumer. Income fundamentals,
Speaker 8: wealth fundamentals for consumers have been looking good. It's something
Speaker 8: we've said on and off, but I do expect at
Speaker 8: some point a pullback and a moderation in consumer spending
Speaker 8: to materialize. Did it happen in this print?
Speaker 7: It didn't.
Speaker 1: Maybe there's a correlation though, between the decline that we've
Speaker 1: seen in oil and gas prices and the increase that
Speaker 1: we saw the strength that we saw in the control group,
Speaker 1: because there's a theory that if you're not paying as
Speaker 1: much when you go to fill up the tank in
Speaker 1: your car, you have more to spend on other things.
Speaker 1: How much is that these is threatened if oil prices
Speaker 1: start to spike at a time of conflict in the
Speaker 1: Middle East.
Speaker 8: No, that's a valid point. The one thing that I
Speaker 8: would add is that you know, the spending on gasoline
Speaker 8: as a share of consumer spending isn't as high as
Speaker 8: what most would think. You know, it's about two to
Speaker 8: three percent for the consumption basket. So you would need
Speaker 8: a pretty persistent and a pretty big rise and oil
Speaker 8: prices for consumers to actually start feeling threatened and for
Speaker 8: them to actually start pulling back. It's what we call
Speaker 8: like the discretionary income channel, because you know, you have
Speaker 8: to spend on oil. We think demand is relatively in
Speaker 8: the last for oil, and so when you have to
Speaker 8: spend more on oil you're forced to sort of pull
Speaker 8: back elsewhere. So that is a risk, but we think
Speaker 8: it's developing. I wouldn't say that's a baseline right now.
Speaker 7: When it comes to a consumer that you expect eventually
Speaker 7: to weaken, what is the trigger for it? Because we
Speaker 7: already see some underlying weakness in the labor market a
Speaker 7: little bit in their things like the unemployment some of
Speaker 7: the weekly initial job was claims taking higher. Companies are
Speaker 7: not hiring right now. There seems to be a freeze.
Speaker 7: What needs to change for that actually to trickle down
Speaker 7: into some weakness for the consumer.
Speaker 8: Well, I think two things. We need to see this
Speaker 8: consistent discipline gradual slowing in the labor market for the
Speaker 8: consumer to start feeling a little worried. The other thing,
Speaker 8: which we've been saying that should happen eventually is as
Speaker 8: the prices start increasing because of tariffs, there could be
Speaker 8: some pressure on the consumer purchasing power. When both of
Speaker 8: these things materialize together is a world in which we
Speaker 8: think the consumer would feel cautious about spending. And that's
Speaker 8: when we should hopefully start seeing the personal saving rate
Speaker 8: take up because you're trying to save up.
Speaker 7: Just be clear, does it actually need to happen, because
Speaker 7: you have seen the sentiment measures sour quite a bit
Speaker 7: to start this year, they've been bouncing around since then,
Speaker 7: and there's a whole host of reasons why maybe you
Speaker 7: shouldn't pay attention to them. But is the expectation for
Speaker 7: economic weakness or geopolitical strife do any of those sentiment
Speaker 7: type issues weigh on the consumer or do they keep
Speaker 7: spending through it until the actual prices, the actual data changes.
Speaker 8: Well, it's hard to say, but I would think there
Speaker 8: has to be some amount of precaution that that has
Speaker 8: to set in. The Other thing that we've been saying
Speaker 8: is the price level is already so high across a
Speaker 8: whole host of commodities goods, and this is an aftermath
Speaker 8: as a pandemic that now any additional price increase, we
Speaker 8: think the consumer is likely to be sensitive to that.
Speaker 1: Just to if you're just joining us right now, just
Speaker 1: to reseat, we did get retail sales that came in
Speaker 1: on the headline level, Wakers and Express did down nine
Speaker 1: tens of a percent versus the expected six tens of percent.
Speaker 1: That sounds negative, That sounds like a weakening. Oh no,
Speaker 1: And then you take a look at the control group
Speaker 1: that came in stronger than expected of zero point four
Speaker 1: percent from the zero point three percent that people had
Speaker 1: been expecting. The revisions to the prior month, as Danny
Speaker 1: was talking about, also were revised to be less bad
Speaker 1: than they were initially, and it raises this question of
Speaker 1: what the response in markets is. The response is interesting, actually,
Speaker 1: which you're seeing is less of a bid to the
Speaker 1: two year yield and more of a bid to the
Speaker 1: thirty year yields, which signifies that maybe people see this
Speaker 1: and I'm really taking liberties here as an excuse for
Speaker 1: the FED not to cut rates as quickly because of
Speaker 1: that strength in the control group that could lead to
Speaker 1: longer term weakness. How much are you looking at that
Speaker 1: type of scenario that people say the longer the FED
Speaker 1: is on hold, the more longer term we see potential
Speaker 1: for a decline in inflation expectations and more weakness.
Speaker 8: Well, I think in the it makes sense for them
Speaker 8: to be on hold just because there is you know,
Speaker 8: there's an obvious tension between what we think is going
Speaker 8: to happen to inflation and the fact that we're not
Speaker 8: seeing of very material slowing in the labor market. So
Speaker 8: I think in the near term it makes sense that
Speaker 8: they're on hold. I don't quite buy the argument that
Speaker 8: it would necessarily lead to more weakness going forward. I
Speaker 8: think it eventually it is going to give them a
Speaker 8: window to come in and cut rates.
Speaker 1: Okay, So this is the argument some people have made,
Speaker 1: and this is sort of the question that we've been
Speaker 1: banding around all morning. Why wouldn't the Fed come out
Speaker 1: and aggressively be hawkish to try to tamp down inflation
Speaker 1: expectations and then later this year things to weaken. They
Speaker 1: can say, Okay, just kidding, we actually do want to
Speaker 1: cut rates.
Speaker 7: I mean, why is that not the.
Speaker 1: Playwork for the Federal Reserve.
Speaker 8: Well, we think they might actually come out and look
Speaker 8: pretty hawkish in the June meeting. Right our own forecast
Speaker 8: is for the June SEPs to look relatively hawkish. We
Speaker 8: think the median dot would show only one cut in
Speaker 8: twenty twenty five, and that makes sense. I think the
Speaker 8: signal that they would want to send out at this
Speaker 8: point in time is we are watching inflation expectations. We
Speaker 8: are cognizant that inflation could go higher the labor market
Speaker 8: side of the mandate for the time being, looks okay,
Speaker 8: and so you know, I think the message from them
Speaker 8: is we're in no rush to cut rates, and I
Speaker 8: think that it's the flip side, right, should things actually
Speaker 8: materially start to weaken, they could come in and cut rates.
Speaker 7: It's interesting because Bloomberg Economics has the same outlook Ana
Speaker 7: Wong and her team there, but they said Chair Powell
Speaker 7: isn't as hawkish as the rest of the committee. So
Speaker 7: if you get one dot on the dot plot of cuts,
Speaker 7: expect Chair Power to come up and kind of downplay
Speaker 7: and say, oh, we have a range of outcomes, it
Speaker 7: doesn't matter, not least which because he'll probably get political
Speaker 7: pressure coming from the White House should that be the outcome.
Speaker 7: Do you expect Chair Powell to also lean more hawkish
Speaker 7: in his communicated to the press after the decision.
Speaker 8: I think I think that's going to be a tough one.
Speaker 8: I think he's going to stick to the messages that
Speaker 8: he's always, you know, been saying, you know, we're in
Speaker 8: no rush to cut rates, gonna wait and watch, we
Speaker 8: need to see how the data evolve, so all of that. Yeah,
Speaker 8: I don't know if he's going to particularly be dubbish,
Speaker 8: but I think he's going to stick to the message.
Speaker 8: The other thing I feel is, you know, most people
Speaker 8: would also look at the SEPs quite closely, at least
Speaker 8: analysts like ourselves, and we're literally counting the number of
Speaker 8: dots everywhere, so we get a sense of I guess
Speaker 8: how the committee is leaning as well.
Speaker 1: Counting dots. That's what we have to look forward to
Speaker 1: for tomorrow. Put us for Rama, Parkley, Thank you so
Speaker 1: much for being with us.
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